HOUSTON, Nov. 6, 2007 (PRIME NEWSWIRE) -- HCC Insurance Holdings, Inc. (NYSE:HCC) today released earnings for the third quarter and first nine months of 2007, which ended September 30.
Net earnings increased five percent during the third quarter of 2007 to $97.9 million, compared with $93.3 million during the third quarter of the previous year. Net earnings per diluted share also increased by five percent to $0.84 per share from $0.80 per share for the third quarter of 2006.
Net earnings increased 13 percent during the first nine months of 2007 to $295.8 million from $261.5 million, and diluted earnings per share also increased 13 percent to $2.54 per share from $2.24 per share, both compared to the first nine months of 2006.
"The third quarter was another strong one for HCC. The price declines we are seeing on our specialty business are only minimally affecting our underwriting margins. Our results through September 30, 2007 continue at record levels," HCC Chief Executive Officer Frank J. Bramanti said.
Revenues for the third quarter of 2007 totaled $582.5 million, compared with $516.7 million a year earlier. Total revenue during the first nine months of 2007 increased 20 percent to $1.8 billion from $1.5 billion in the corresponding period of 2006. This increase was primarily due to acquisitions in 2006 and increased investment income on higher investment assets.
Other operating income was a loss of $3.1 million for the third quarter of 2007, compared with income of $20.3 million for the year-earlier period. The loss includes a $9.3 million unrealized loss on two strategic investments which are accounted for as trading securities.
Net earned premium of the Company's insurance company subsidiaries continued to show growth during the first nine months of 2007, rising 23 percent to $1.5 billion during the first nine months of 2007, compared with $1.2 billion for the first nine months of 2006. During the same period, net written premium increased by 15 percent to $1.5 billion, while gross written premium grew 14 percent to $1.9 billion. Both gross and net written premium growth came primarily from 2006 acquisitions and from HCC's Lloyd's operation.
The GAAP combined ratio of the Company's insurance company subsidiaries was 80.8 percent for the third quarter of 2007, compared with 80.6 percent for the third quarter of 2006. The GAAP combined ratio was 82.9 percent for the first nine months of 2007, the same as in the corresponding period of 2006.
There was net positive prior years reserve development of $23.0 million for the third quarter of 2007 and $19.4 million for the first nine months of 2007, versus $6.8 million and $6.0 million for the same periods in 2006.
Fee and commission income rose slightly during the first nine months of 2007 to $106.0 million from $104.4 million for the first nine months of 2006. Fee and commission income for the third quarter of 2007 was $42.7 million, compared with $38.9 million in the third quarter of the previous year.
Net investment income increased 36 percent in the first three quarters of 2007 to $148.1 million, versus $109.0 million for the corresponding period of 2006. This growth was due primarily to an increase in investment assets as well as an increase in interest rates.
As of September 30, 2007, HCC's fixed income investment portfolio had an average rating of AAA, duration of five years and an average tax equivalent yield of 5.4 percent. The Company held $6.5 million of subprime bonds and $13.3 million of Alt-A bonds which had an unrealized loss of $300,000. The average rating on these subprime bonds was AAA, and there have been no rating actions or surveillance issues associated with them. The Company owns no CDOs or CLOs.
"While much has been written about defaults on U.S. subprime mortgages, HCC has not written any domestic mortgage guaranty insurance and we believe the Company has little or no exposure on its small amount of international mortgage-related business," Mr. Bramanti said.
As of September 30, 2007, total investments had increased 15 percent to $4.5 billion; total assets had grown to $8.1 billion; shareholders' equity had increased to $2.3 billion; book value per share had increased 12 percent to $20.39; and the Company's debt to total capital ratio remained very conservative at 11.6 percent; all compared to December 31, 2006. (See attached tables).
HCC will hold an open conference call beginning at 8:00 a.m. Central Time on Wednesday, November 7, 2007 to discuss these results. To participate, the number for domestic calls will be (800) 374-0290 and the number for international calls will be (706) 634-1303. There will also be a live webcast available on a listen-only basis that can be accessed through the HCC website at www.hcc.com. A replay of the webcast will be available on the website until Friday, November 30, 2007.
Headquartered in Houston, Texas, HCC Insurance Holdings, Inc. (HCC) is a leading international specialty insurance group with offices across the United States and in Bermuda, Spain, Ireland and the United Kingdom. HCC has assets of more than $8.0 billion, shareholders' equity in excess of $2.3 billion and is rated AA (Very Strong) by Standard & Poor's, AA (Very Strong) by Fitch Ratings and A+ (Superior) by A.M. Best Company.
For more information, visit our website at www.hcc.com.
Forward-looking statements contained in this press release are made under "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. The types of risks and uncertainties which may affect the Company are set forth in its periodic reports filed with the Securities and Exchange Commission.
HCC Insurance Holdings, Inc. and Subsidiaries
Financial Highlights
September 30, 2007
(Unaudited, in thousands except per share data)
Three Months Ended
September 30,
2007 2006
---------- ----------
Gross written premium $ 593,062 $ 536,101
Net written premium 469,680 422,581
Net earned premium 492,922 421,050
Fee and commission income 42,734 38,862
Net investment income 49,889 36,205
Other operating income (3,074) 20,276
Total revenue 582,494 516,697
Net earnings 97,925 93,257
Earnings per share (diluted) 0.84 0.80
Cash flow from operations 214,559 99,765
Weighted average shares outstanding
(diluted) 116,323 117,003
GAAP net loss ratio 57.2% 56.1%
GAAP combined ratio 80.8% 80.6%
September 30, December 31,
2007 2006
------------ ------------
Total investments $4,516,728 $3,927,995
Total assets 8,073,090 7,630,132
Shareholders' equity 2,322,280 2,042,803
Debt to total capital 11.6% 13.1%
Book value per share $ 20.39 $ 18.28
HCC Insurance Holdings, Inc. and Subsidiaries
Financial Highlights
September 30, 2007
(Unaudited, in thousands except per share data)
Nine Months Ended
September 30,
2007 2006
---------- ----------
Gross written premium $1,857,764 $1,628,213
Net written premium 1,500,465 1,299,114
Net earned premium 1,484,908 1,204,941
Fee and commission income 105,995 104,409
Net investment income 148,053 108,959
Other operating income 35,611 59,071
Total revenue 1,773,966 1,476,187
Net earnings 295,787 261,543
Earnings per share (diluted) 2.54 2.24
Cash flow from operations 614,859 359,706
Weighted average shares outstanding
(diluted) 116,577 116,986
GAAP net loss ratio 59.6% 57.2%
GAAP combined ratio 82.9% 82.9%
September 30, December 31,
2007 2006
------------ ------------
Total investments $4,516,728 $3,927,995
Total assets 8,073,090 7,630,132
Shareholders' equity 2,322,280 2,042,803
Debt to total capital 11.6% 13.1%
Book value per share $ 20.39 $ 18.28
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
September 30, December 31,
2007 2006
---------- ----------
ASSETS
Investments:
Fixed income securities $3,593,099 $3,007,193
Short-term investments 717,087 714,685
Other investments 206,542 206,117
---------- ----------
Total investments 4,516,728 3,927,995
Cash 66,531 48,290
Restricted cash and cash investments 168,880 176,424
Premium, claims and other receivables 806,976 864,705
Reinsurance recoverables 1,047,462 1,169,934
Ceded unearned premium 254,050 226,125
Ceded life and annuity benefits 67,192 70,923
Deferred policy acquisition costs 194,081 182,410
Goodwill 771,831 742,677
Other assets 179,359 220,649
---------- ----------
Total assets $8,073,090 $7,630,132
========== ==========
LIABILITIES
Loss and loss adjustment expense
payable $3,266,592 $3,097,051
Life and annuity policy benefits 67,192 70,923
Reinsurance balances payable 112,293 122,805
Unearned premium 967,163 920,350
Deferred ceding commissions 69,204 64,949
Premium and claims payable 565,001 646,224
Notes payable 304,114 308,887
Accounts payable and accrued
liabilities 399,251 356,140
---------- ----------
Total liabilities 5,750,810 5,587,329
SHAREHOLDERS' EQUITY
Common stock 113,889 111,731
Additional paid-in capital 824,583 798,213
Retained earnings 1,359,114 1,098,887
Accumulated other comprehensive income 24,694 33,972
---------- ----------
Total shareholders' equity 2,322,280 2,042,803
---------- ----------
Total liabilities and shareholders'
equity $8,073,090 $7,630,132
========== ==========
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited, in thousands except per share data)
Nine months ended Three months ended
September 30, September 30,
2007 2006 2007 2006
---------------------- ----------------------
REVENUE
Net earned premium $1,484,908 $1,204,941 $ 492,922 $ 421,050
Fee and commission
income 105,995 104,409 42,734 38,862
Net investment income 148,053 108,959 49,889 36,205
Net realized
investment gain
(loss) (601) (1,193) 23 304
Other operating income
(loss) 35,611 59,071 (3,074) 20,276
---------- ---------- ---------- ----------
Total revenue 1,773,966 1,476,187 582,494 516,697
---------- ---------- ---------- ----------
EXPENSE
Loss and loss
adjustment expense,
net 885,547 689,122 281,784 236,030
Policy acquisition
costs, net 267,778 231,012 93,251 78,203
Other operating
expense 169,226 156,279 58,118 59,277
Interest expense 7,166 7,912 2,767 3,475
---------- ---------- ---------- ----------
Total expense 1,329,717 1,084,325 435,920 376,985
---------- ---------- ---------- ----------
Earnings before income
tax expense 444,249 391,862 146,574 139,712
Income tax expense 148,462 130,319 48,649 46,455
---------- ---------- ---------- ----------
Net earnings $ 295,787 $ 261,543 $ 97,925 $ 93,257
========== ========== ========== ==========
Basic earnings per
share data:
Net earnings per
share $ 2.63 $ 2.35 $ 0.87 $ 0.84
========== ========== ========== ==========
Weighted average
shares outstanding 112,295 111,198 112,652 111,359
========== ========== ========== ==========
Diluted earnings per
share data:
Net earnings per
share $ 2.54 $ 2.24 $ 0.84 $ 0.80
========== ========== ========== ==========
Weighted average
shares outstanding 116,577 116,986 116,323 117,003
========== ========== ========== ==========
Cash dividends
declared, per share $ 0.31 $ 0.275 $ 0.11 $ 0.10
========== ========== ========== ==========
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Nine months ended Three months ended
September 30, September 30,
2007 2006 2007 2006
--------------------- --------------------
Cash flows from
operating activities:
Net earnings $ 295,787 $ 261,543 $ 97,925 $ 93,257
Adjustments to
reconcile net
earnings to net cash
provided by
operating
activities:
Change in premium,
claims and other
receivables 63,737 36,626 33,696 46,924
Change in
reinsurance
recoverables 122,472 56,031 27,851 47,336
Change in ceded
unearned premium (27,925) (4,587) (6,676) (5,722)
Change in loss and
loss adjustment
expense payable 169,541 93,906 63,604 (10,815)
Change in reinsur-
ance balances
payable (10,512) (37,509) (9,639) (14,803)
Change in unearned
premium 46,813 113,638 (16,069) 10,559
Change in premium
and claims payable,
net of restricted
cash (73,679) (78,293) (31,579) (61,071)
Change in trading
portfolio 14,126 (99,193) 9,261 (14,702)
Depreciation and
amortization
expense 11,625 12,242 3,764 4,598
Stock-based compen-
sation expense 9,191 9,463 2,802 3,373
Other, net (6,317) (4,161) 39,619 831
---------- --------- --------- ---------
Cash provided by
operating
activities 614,859 359,706 214,559 99,765
---------- --------- --------- ---------
Cash flows from
investing activities:
Sales of fixed
income securities 221,822 184,175 47,104 20,078
Maturity or call of
fixed income
securities 234,435 174,758 76,314 57,060
Cost of securities
acquired (1,011,747) (958,822) (274,874) (167,437)
Change in short-
term investments (10,189) 171,198 15,825 (47,658)
Sale of strategic
investments 42,997 40,354 3,181 22,991
Payments for
purchase of sub-
sidiaries, net of
cash received (53,687) (55,290) (2,006) (17,833)
Other, net (7,079) (8,612) (1,723) (3,515)
---------- --------- --------- ---------
Cash used by
investing
activities (583,448) (452,239) (136,179) (136,314)
---------- --------- --------- ---------
Cash flows from
financing activities:
Advances on line of
credit 62,000 140,000 -- 101,000
Payments on notes
payable and line
of credit (56,363) (56,346) (43,476) (45,097)
Sale of common
stock 19,337 14,973 2,915 5,313
Dividends paid (33,630) (27,774) (11,249) (11,126)
Other, net (4,514) 7,383 (1,970) 1,755
---------- --------- --------- ---------
Cash provided
(used) by financing
activities (13,170) 78,236 (53,780) 51,845
---------- --------- --------- ---------
Net increase (decrease)
in cash 18,241 (14,297) 24,600 15,296
Cash at beginning of
period 48,290 73,935 41,931 44,342
---------- --------- --------- ---------
Cash at end of period $ 66,531 $ 59,638 $ 66,531 $ 59,638
========== ========= ========= =========
HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
September 30, 2007
(Unaudited, in thousands)
3rd Qtr 3rd Qtr Change
2007 2006 %
--------- --------- ---------
GROSS WRITTEN
Diversified financial products $ 228,618 $ 240,046 (5)%
Group life, accident & health 197,051 142,457 38
Aviation 48,652 50,976 (5)
London market account 40,773 44,799 (9)
Other specialty lines 77,966 57,837 35
Discontinued lines 2 (14) nm
--------- --------- ---------
$ 593,062 $ 536,101 11%
========= ========= =========
NET WRITTEN
Diversified financial products $ 185,117 $ 200,333 (8)%
Group life, accident & health 185,799 130,007 43
Aviation 36,071 38,446 (6)
London market account 13,983 20,761 (33)
Other specialty lines 48,705 32,963 48
Discontinued lines 5 71 nm
--------- --------- ---------
$ 469,680 $ 422,581 11%
========= ========= =========
NET EARNED PREMIUM
Diversified financial products $ 195,132 $ 189,744 3%
Group life, accident & health 187,209 129,234 45
Aviation 38,400 40,430 (5)
London market account 28,264 31,590 (11)
Other specialty lines 43,913 30,033 46
Discontinued lines 4 19 nm
--------- --------- ---------
$ 492,922 $ 421,050 17%
========= ========= =========
nm - Not meaningful comparison
HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
September 30, 2007
(Unaudited, in thousands)
Year to Date Year to Date Change
2007 2006 %
----------- ----------- --------
GROSS WRITTEN
Diversified financial products $ 701,020 $ 690,779 1%
Group life, accident & health 602,225 415,215 45
Aviation 154,745 166,072 (7)
London market account 189,995 202,964 (6)
Other specialty lines 210,242 152,960 37
Discontinued lines (463) 223 nm
----------- ----------- --------
$ 1,857,764 $ 1,628,213 14%
=========== =========== ========
NET WRITTEN
Diversified financial products $ 564,832 $ 574,098 (2)%
Group life, accident & health 569,747 388,895 47
Aviation 113,914 128,810 (12)
London market account 107,952 111,278 (3)
Other specialty lines 144,446 96,056 50
Discontinued lines (426) (23) nm
----------- ----------- --------
$ 1,500,465 $ 1,299,114 15%
=========== =========== ========
NET EARNED PREMIUM
Diversified financial products $ 580,983 $ 538,063 8%
Group life, accident & health 571,849 385,257 48
Aviation 115,491 112,661 3
London market account 92,763 80,455 15
Other specialty lines 124,248 88,569 40
Discontinued lines (426) (64) nm
----------- ----------- --------
$ 1,484,908 $ 1,204,941 23%
=========== =========== ========
nm - Not meaningful comparison
HCC Insurance Holdings, Inc. and Subsidiaries
Consolidated Insurance Companies
Net Loss Ratios
September 30, 2007
(Unaudited, in thousands)
Year to Date 2007 Full Year 2006
----------------------------- -----------------------------
Line of Net Earned Incurred Loss Net Earned Incurred Loss
Business Premium Losses Ratio Premium Losses Ratio
-------- ----------- -------- ----- ---------- ---------- -----
Diversified
financial
products $580,983 $236,456 40.7% $728,861 $351,010 48.2%
Group life,
accident &
health 571,849 438,559 76.7 591,070 432,343 73.1
Aviation 115,491 68,174 59.0 152,886 82,328 53.8
London
market
account 92,763 53,957 58.2 112,362 48,316 43.0
Other
specialty
lines 124,248 85,560 68.9 123,981 69,374 56.0
Discontinued
lines (426) 2,841 nm 29 28,485 nm
----------- -------- ----- ---------- ---------- -----
Total $1,484,908 $885,547 59.6% $1,709,189 $1,011,856 59.2%
=========== ======== ===== ========== ========== =====
nm - Not meaningful comparison