HOUSTON, Feb. 19, 2008 (PRIME NEWSWIRE) -- HCC Insurance Holdings, Inc. (NYSE:HCC) today reported record earnings for the fourth quarter and full year ended December 31, 2007.
Net earnings increased 23 percent during the fourth quarter of 2007 to $99.6 million, compared with $80.7 million during the fourth quarter of 2006. Net earnings per diluted share also increased 23 percent to $0.85 per share from $0.69 per share for the fourth quarter of 2006.
For the full year of 2007, net earnings increased 16 percent to $395.4 million from $342.3 million in the previous year. Diluted earnings per share increased 15 percent to $3.38 per share from $2.93 per share in 2006.
"The results achieved during 2007 reflect the true talent of our underwriting focused organization. What should stand out about HCC is that we have good businesses run by great people executing a consistently conservative business plan that generated a return on beginning equity for 2007 of 19.4 percent and an average return on equity of 16.5 percent for the last six years," HCC Chief Executive Officer Frank J. Bramanti said.
Revenues for the fourth quarter of 2007 totaled $614.4 million, compared to $599.1 million in the fourth quarter of 2006. Total revenue for the full year increased 15 percent to $2.4 billion from $2.1 billion in 2006. This increase was primarily due to an increase in net earned premium and higher investment income.
Other operating income was $7.9 million for the fourth quarter of 2007, compared to $17.9 million for the same period in 2006 where the sale of two strategic investments generated $14.2 million.
Net earned premium of the Company's insurance company subsidiaries continued to show growth during 2007, rising 16 percent to $2.0 billion, compared with $1.7 billion in 2006. During the 12-month period, gross and net written premium increased 10 percent to $2.5 billion and $2.0 billion, respectively. Both gross and net written premium growth came from an acquisition in the medical stop-loss line of business, and organic growth in surety, credit and the Company's other specialty lines.
The GAAP combined ratio of the Company's insurance company subsidiaries was 85.1 percent for the fourth quarter of 2007, compared with 87.7 percent for the fourth quarter of 2006. The GAAP combined ratio was 83.4 percent for the 2007 full year, compared with 84.2 percent for 2006.
Fee and commission income rose slightly during 2007 to $140.1 million from $137.1 million in 2006. Fee and commission income for the fourth quarter of 2007 was $34.1 million, compared with $32.7 million in the fourth quarter of the previous year.
Net investment income increased 35 percent during 2007 to $206.5 million, from $152.8 million in 2006. This growth was due primarily to increased investment assets.
There were no impairment losses in HCC's investment portfolio in the fourth quarter or full year of 2007. As of December 31, 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. HCC owns no CDO or CLO securities.
"Our assets continue to be managed by outside firms that specialize in the insurance industry. These managers, together with our conservative investment policy, kept our exposures to the current credit turmoil to a minimum," Mr. Bramanti said.
The attached tables include information related to the Company's subprime exposure with respect to its investments and its underwriting.
As of December 31, 2007, total investments had increased 19 percent to $4.7 billion; total assets had risen 6 percent to $8.1 billion; shareholders' equity had increased 19 percent to $2.4 billion; and book value per share had increased 16 percent to $21.21; all compared to December 31, 2006. In addition, the Company's debt to total capital ratio remained very conservative at 11.7 percent. (See attached tables.)
"As we enter 2008, HCC is well positioned with the best capital position in its history. The softening market makes our experienced, disciplined approach the key to avoiding the pitfalls of the deteriorating underwriting environment," Mr. Bramanti said.
In addition to reporting its fourth quarter and year-end 2007 results today, HCC is also providing earnings guidance for 2008 and announcing quarterly release dates during the year. The Company's management estimates HCC will achieve net earnings in the range of $2.90 to $3.20 per share for the full year of 2008, versus 2007 guidance of $3.10 to $3.25 per share. These estimated results assume, for the full year, net written premium of $2.0 billion, total revenue of $2.3 billion, a combined ratio of 85 percent, and average fully diluted shares outstanding of 118.5 million.
The Company's earnings announcements in 2008 will be made after the market closes on: May 6, 2008 for First Quarter 2008; August 5, 2008 for Second Quarter 2008; and November 4, 2008 for Third Quarter 2008. HCC will hold an open conference call at 8:00 a.m. Central Time on the morning following each quarterly earnings announcement to discuss the results. Conference call information will be posted on the Company's website (www.hcc.com) approximately two weeks prior to each call. Each conference call will also be available by webcast through the HCC website.
HCC will hold an open conference call beginning at 8:00 a.m. Central Time tomorrow, Wednesday, February 20, 2008 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, March 14, 2008.
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 nearly $8.1 billion, shareholders' equity in excess of $2.4 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
December 31, 2007
(Unaudited, in thousands except per share data)
Three months ended December 31,
2007 2006
----------------- -----------------
Gross written premium $ 593,415 $ 607,435
Net written premium 485,144 513,438
Net earned premium 500,178 504,248
Fee and commission income 34,097 32,722
Net investment income 58,409 43,845
Other operating income 7,934 17,941
Total revenue 614,407 599,108
Net earnings 99,642 80,742
Earnings per share (diluted) 0.85 0.69
Cash flow from operations 111,577 293,682
Weighted average shares
outstanding (diluted) 117,085 117,115
GAAP net loss ratio 59.7% 64.0%
GAAP combined ratio 85.1% 87.7%
Paid loss ratio 49.5% 22.3%
December 31, 2007 December 31, 2006
----------------- -----------------
Total investments $ 4,672,277 $ 3,927,995
Total assets 8,074,645 7,630,132
Shareholders' equity 2,440,365 2,042,803
Debt to total capital 11.7% 13.1%
Book value per share $ 21.21 $ 18.28
HCC Insurance Holdings, Inc. and Subsidiaries
Financial Highlights
December 31, 2007
(Unaudited, in thousands except per share data)
Twelve months ended December 31,
2007 2006
----------------- -----------------
Gross written premium $ 2,451,179 $ 2,235,648
Net written premium 1,985,609 1,812,552
Net earned premium 1,985,086 1,709,189
Fee and commission income 140,092 137,131
Net investment income 206,462 152,804
Other operating income 43,545 77,012
Total revenue 2,388,373 2,075,295
Net earnings 395,429 342,285
Earnings per share (diluted) 3.38 2.93
Cash flow from operations 726,436 653,388
Weighted average shares
outstanding (diluted) 116,997 116,736
GAAP net loss ratio 59.6% 59.2%
GAAP combined ratio 83.4% 84.2%
Paid loss ratio 47.9% 34.1%
December 31, 2007 December 31, 2006
----------------- -----------------
Total investments $ 4,672,277 $ 3,927,995
Total assets 8,074,645 7,630,132
Shareholders' equity 2,440,365 2,042,803
Debt to total capital 11.7% 13.1%
Book value per share $ 21.21 $ 18.28
Return on beginning equity 19.4% 20.2%
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
December 31, December 31,
2007 2006
------------ ------------
ASSETS
Investments:
Fixed income securities $ 3,666,705 $ 3,007,193
Short-term investments 783,650 714,685
Other investments 221,922 206,117
------------ ------------
Total investments 4,672,277 3,927,995
Cash 39,135 48,290
Restricted cash and cash investments 193,151 176,424
Premium, claims and other
receivables 763,401 864,705
Reinsurance recoverables 956,665 1,169,934
Ceded unearned premium 244,684 226,125
Ceded life and annuity benefits 66,199 70,923
Deferred policy acquisition costs 192,773 182,410
Goodwill 776,046 742,677
Other assets 170,314 220,649
------------ ------------
Total assets $ 8,074,645 $ 7,630,132
============ ============
LIABILITIES
Loss and loss adjustment expense
payable $ 3,227,080 $ 3,097,051
Life and annuity policy benefits 66,199 70,923
Reinsurance balances payable 129,838 122,805
Unearned premium 943,946 920,350
Deferred ceding commissions 68,968 64,949
Premium and claims payable 497,974 646,224
Notes payable 324,714 308,887
Accounts payable and accrued
liabilities 375,561 356,140
------------ ------------
Total liabilities 5,634,280 5,587,329
SHAREHOLDERS' EQUITY
Common stock 115,069 111,731
Additional paid-in capital 831,419 798,213
Retained earnings 1,445,995 1,098,887
Accumulated other comprehensive
income 47,882 33,972
------------ ------------
Total shareholders' equity 2,440,365 2,042,803
------------ ------------
Total liabilities and shareholders'
equity $ 8,074,645 $ 7,630,132
============ ============
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited, in thousands except per share data)
Twelve months ended Three months ended
December 31, December 31,
2007 2006 2007 2006
---------- ---------- ---------- --------
REVENUE
Net earned
premium $1,985,086 $1,709,189 $ 500,178 $504,248
Fee and
commission
income 140,092 137,131 34,097 32,722
Net investment
income 206,462 152,804 58,409 43,845
Net realized
investment gain
(loss) 13,188 (841) 13,789 352
Other operating
income 43,545 77,012 7,934 17,941
--------- --------- --------- -------
Total revenue 2,388,373 2,075,295 614,407 599,108
--------- --------- --------- -------
EXPENSE
Loss and loss
adjustment
expense, net 1,183,947 1,011,856 298,400 322,734
Policy
acquisition
costs, net 366,610 319,885 98,832 88,873
Other operating
expense 241,642 222,324 72,416 66,045
Interest expense 10,304 11,396 3,138 3,484
--------- --------- --------- -------
Total expense 1,802,503 1,565,461 472,786 481,136
--------- --------- --------- -------
Earnings before
income tax
expense 585,870 509,834 141,621 117,972
Income tax
expense 190,441 167,549 41,979 37,230
--------- --------- --------- -------
Net earnings $ 395,429 $ 342,285 $ 99,642 $ 80,742
========= ========= ========= =======
Basic earnings
per share data:
Net earnings
per share $ 3.50 $ 3.08 $ 0.87 $ 0.72
========= ========= ========= =======
Weighted average
shares
outstanding 112,873 111,309 114,641 111,635
========= ========= ========= =======
Diluted earnings
per share data:
Net earnings per
share $ 3.38 $ 2.93 $ 0.85 $ 0.69
========= ========= ========= =======
Weighted average
shares
outstanding 116,997 116,736 117,085 117,115
========= ========= ========= =======
Cash dividends
declared, per
share $ 0.42 $ 0.375 $ 0.11 $ 0.10
========= ========= ========= =======
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Twelve months ended Three months ended
December 31, December 31,
2007 2006 2007 2006
---------- ---------- --------- ---------
Cash flows from
operating activities:
Net earnings $ 395,429 $ 342,285 $ 99,642 $ 80,742
Adjustments to
reconcile net
earnings to net
cash provided
by operating
activities:
Change in
premium,
claims and
other
receivables 97,304 40,955 33,567 4,329
Change in
reinsurance
recoverables 213,353 192,049 90,881 136,018
Change in
ceded
unearned
premium (18,436) 13,291 9,489 17,878
Change in
loss and
loss
adjustment
expense
payable 129,203 136,520 (40,338) 42,614
Change in
reinsurance
balances
payable 7,002 (54,834) 17,514 (17,325)
Change in
unearned
premium 21,498 109,280 (25,315) (4,358)
Change in
premium and
claims
payable, net
of restricted
cash (164,977) (126,027) (91,298) (47,734)
Change in
trading
portfolio 9,362 (19,919) (4,764) 79,274
Depreciation
and
amortization
expense 15,982 14,980 4,357 2,738
Stock-based
compensation
expense 12,011 13,126 2,820 3,663
Other, net 8,705 (8,318) 15,022 (4,157)
---------- ---------- --------- ---------
Cash provided by
operating
activities 726,436 653,388 111,577 293,682
---------- ---------- --------- ---------
Cash flows from
investing
activities:
Sales of fixed
income
securities 438,057 338,927 216,235 154,752
Maturity or
call of
fixed income
securities 302,876 247,072 68,441 72,314
Cost of
securities
acquired (1,377,750) (1,389,984) (366,003) (431,162)
Change in
short-term
investments (72,279) 129,919 (62,090) (41,279)
Sale of
strategic
investments 46,612 63,285 3,615 22,931
Payments for
purchase of
subsidiaries,
net of cash
received (65,112) (45,722) (11,425) 9,568
Other, net (9,741) (11,971) (2,662) (3,359)
---------- ---------- --------- ---------
Cash used by
investing
activities (737,337) (668,474) (153,889) (216,235)
---------- ---------- --------- ---------
Cash flows from
financing activities:
Advances on
line of
credit 232,000 140,000 170,000 --
Payments on
notes
payable and
line of
credit (205,763) (140,616) (149,400) (84,270)
Sale of common
stock 24,533 18,999 5,196 4,026
Dividends paid (46,158) (38,923) (12,528) (11,149)
Other, net (2,866) 9,981 1,648 2,598
---------- ---------- --------- ---------
Cash provided
(used) by
financing
activities 1,746 (10,559) 14,916 (88,795)
---------- ---------- --------- ---------
Net decrease in
cash (9,155) (25,645) (27,396) (11,348)
Cash at beginning
of period 48,290 73,935 66,531 59,638
---------- ---------- --------- ---------
Cash at end of
period $ 39,135 $ 48,290 $ 39,135 $ 48,290
========== ========== ========= =========
HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
December 31, 2007
(Unaudited, in thousands)
4th Qtr 4th Qtr Change
2007 2006 %
--------- --------- ------
GROSS WRITTEN
Diversified financial products $ 262,335 $ 265,278 (1)%
Group life, accident & health 196,459 206,424 (5)
Aviation 41,064 50,136 (18)
London market account 23,721 31,904 (26)
Other specialty lines 69,798 52,691 32
Discontinued lines 38 1,002 nm
--------- --------- ------
$ 593,415 $ 607,435 (2)%
========= ========= ======
NET WRITTEN
Diversified financial products $ 206,816 $ 220,134 (6)%
Group life, accident & health 189,460 201,916 (6)
Aviation 31,847 37,448 (15)
London market account 10,289 16,470 (38)
Other specialty lines 46,705 37,425 25
Discontinued lines 27 45 nm
--------- --------- ------
$ 485,144 $ 513,438 (6)%
========= ========= ======
NET EARNED PREMIUM
Diversified financial products $ 196,431 $ 190,798 3%
Group life, accident & health 186,667 205,813 (9)
Aviation 37,630 40,225 (6)
London market account 31,846 31,907 --
Other specialty lines 47,576 35,412 34
Discontinued lines 28 93 nm
--------- --------- ------
$ 500,178 $ 504,248 (1)%
========= ========= ======
nm - Not meaningful comparison
HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
December 31, 2007
(Unaudited, in thousands)
Year to Date Year to Date Change
2007 2006 %
----------- ------------ -----
GROSS WRITTEN
Diversified financial products $ 963,355 $ 956,057 1%
Group life, accident & health 798,684 621,639 28
Aviation 195,809 216,208 (9)
London market account 213,716 234,868 (9)
Other specialty lines 280,040 205,651 36
Discontinued lines (425) 1,225 nm
----------- ----------- -----
$ 2,451,179 $ 2,235,648 10%
=========== =========== =====
NET WRITTEN
Diversified financial products $ 771,648 $ 794,232 (3)%
Group life, accident & health 759,207 590,811 29
Aviation 145,761 166,258 (12)
London market account 118,241 127,748 (7)
Other specialty lines 191,151 133,481 43
Discontinued lines (399) 22 nm
----------- ----------- -----
$ 1,985,609 $ 1,812,552 10%
=========== =========== =====
NET EARNED PREMIUM
Diversified financial products $ 777,414 $ 728,861 7%
Group life, accident & health 758,516 591,070 28
Aviation 153,121 152,886 --
London market account 124,609 112,362 11
Other specialty lines 171,824 123,981 39
Discontinued lines (398) 29 nm
----------- ----------- -----
$ 1,985,086 $ 1,709,189 16%
=========== =========== =====
nm - Not meaningful comparison
HCC Insurance Holdings, Inc. and Subsidiaries
Investments - Selected Disclosures
December 31, 2007
(Unaudited, in thousands)
Amortized Cost Market Value
-------------- -------------
Fixed Income Securities $ 3,641,667 $ 3,666,705
=========== ===========
Residential Mortgage Backed
Securities & Collateralized
Mortgage Obligations
Agency $ 609,785 $ 617,190
Non-Agency
Subprime 5,905 5,365
Alt A 12,490 12,427
Prime 96,092 93,635
----------- -----------
Total Residential MBS/CMO $ 724,272 $ 728,617
=========== ===========
Commercial Mortgage Backed
Securities $ 211,574 $ 211,128
=========== ===========
Municipal Bond Portfolio $ 1,802,417 $ 1,822,281
=========== ===========
Insurance Enhanced $ 1,159,285 $ 1,170,854
=========== ===========
Insured - Underlying Ratings $ 1,159,285 $ 1,170,854
=========== ===========
Non-Insured $ 643,132 $ 651,427
=========== ===========
Short-Term
Bank Sweep Accounts - U.S. $ 96,140 $ 96,140
Bank Sweep Accounts - Non-U.S. 129,278 129,278
Taxable Money Market Funds 399,654 399,654
Short-term Non U.S.
Gov Bonds 158,578 158,578
----------- -----------
Total Short-Term $ 783,650 $ 783,650
=========== ===========
RATINGS
--------------------------------------------------------
BBB & Aver-
AAA AA A below Other age
-------------------------------------------------------
Fixed Income
Securities $2,971,589 $ 420,842 $243,774 $30,500 $ -- AAA
Residential
Mortgage
Backed
Securities &
Collateralized
Mortgage
Obligations
Agency 617,190 -- -- -- -- AAA
Non-Agency
Subprime 4,007 -- -- 1,358 -- AAA
Alt A 11,940 34 453 -- -- AAA
Prime 93,635 -- -- -- -- AAA
Total
Residen-
tial
MBS/CMO
Commercial
Mortgage
Backed
Securities 211,128 -- -- -- -- AAA
Municipal
Bond
Portfolio 1,448,783 352,895 20,603 -- -- AAA
Insurance
Enhanced 1,170,854 -- -- -- -- AAA
Insured -
Underlying
Ratings 184,510 643,038 290,907 1,531 50,868 AA
Non-Insured 258,318 370,093 23,016 -- -- AA+
Note:
There are no CDO/CLOs in the portfolio.
There are no Auction Rate Securities in the portfolio.
Other Ratings are bonds with at least one enhanced rating; each issuer
has an equivalent investment grade rating.
Received paydown of $1.6 million on subprime and Alt A securities in
fourth quarter 2007.
HCC Insurance Holdings, Inc. and Subsidiaries
Subprime Liability Exposure
December 31, 2007
* HCC wrote approximately $1.4 billion of Directors and Officers and
Errors and Omissions premium in 2006 and 2007 combined.
* The majority of the D&O business is written excess and usually with
high attachment points.
* The majority of the Errors and Omissions insurance was for limits
of $1 million or less.
* Except for run-off policies, HCC has not written multi-year
policies.
* The insurance provided is claims made with defense costs within the
limits.
* Approximately 30 percent of the Company's in-force D&O book is
Financial Institutions including insurance companies and brokers.
* Many of the larger financial institutions purchased Side A only
coverage.
* HCC's average D&O limit is less than $10 million gross and $8
million net.
* As of December 31, the Company had 18 non-Side A only D&O or E&O
claims and seven Side A only claims.
* Of the claims reported, only one was primary with a policy limit of
$5 million gross.
* The average policy limit for non-Side A only claims is $11 million
gross and $7.5 million net with an average excess point of $60
million.
* The average Side A only limit is $13 million gross and $11 million
net with an average attachment point of more than $200 million.
* Based upon its current knowledge, the Company continues to believe
subprime will be contained within its loss picks.
HCC Insurance Holdings, Inc. and Subsidiaries
Consolidated Insurance Companies
Net Loss Ratios
December 31, 2007
(Unaudited, in thousands)
Full Year 2007 Full Year 2006
---------------------------- ----------------------------
Line of Net Earned Incurred Loss Net Earned Incurred Loss
Business Premium Losses Ratio Premium Losses Ratio
--------------------------------------- -----------------------------
Diversified
financial
products $ 777,414 $ 315,409 40.6% $ 728,861 $ 351,010 48.2%
Group life,
accident
& health 758,516 579,780 76.4 591,070 432,343 73.1
Aviation 153,121 89,683 58.6 152,886 82,328 53.8
London market
account 124,609 68,798 55.2 112,362 48,316 43.0
Other specialty
lines 171,824 115,804 67.4 123,981 69,374 56.0
Discontinued
lines (398) 14,473 nm 29 28,485 nm
---------------------------- -----------------------------
Total $1,985,086 $1,183,947 59.6% $1,709,189 $1,011,856 59.2%
============================ =============================
nm - Not meaningful comparison