HOUSTON, Aug. 7, 2007 (PRIME NEWSWIRE) -- HCC Insurance Holdings, Inc. (NYSE:HCC) today released earnings for the second quarter and first half of 2007.
Net earnings increased 13% during the second quarter of 2007 to a record $101.2 million from $89.1 million and net earnings per diluted share also increased 13% to $0.86 per share from $0.76 per share, both compared to the same period in 2006. This was the first time quarterly net earnings exceeded $100 million.
Net earnings increased significantly during the first six months of 2007, rising 18% to $197.9 million from $168.3 million and diluted earnings per share increased 17% to $1.69 per share from $1.44 per share, both compared to the first six months of 2006.
Total revenue during the first six months of 2007 increased 24% to $1.2 billion from $959.5 million in the corresponding period of 2006. This increase was primarily from growth of earned premium and investment income.
Net earned premium of the Company's insurance company subsidiaries continues to show strong growth rising by 27% to $992.0 million during the first six months of 2007 compared to $783.9 million in the first half of 2006. During the same period, net written premium increased by 18% to $1.0 billion and gross written premium grew 16% to $1.3 billion. Gross written premium growth primarily came from an acquisition in our life, accident and health business and from organic growth in our credit and surety operations. Net written premium growth occurred principally due to the growth in gross written premium.
The GAAP combined ratio of the Company's insurance company subsidiaries was 84.0% for the first six months of 2007 compared to 84.2% in the corresponding period of 2006. There was net negative reserve development of $3.6 million for the first six months of 2007, which includes $1.2 million of amortization of reserve discounts from acquisitions.
Frank J. Bramanti, Chief Executive Officer commented, "HCC has turned in another strong quarter and first half of 2007 in an increasingly competitive environment. Our underwriting discipline and specialty focus should help us avoid the pitfalls of this softening marketplace."
Fee and commission income was down slightly during the first six months of 2007 to $63.3 million from $65.5 million in the first half of 2006. Increasing our fee based business remains a focus of our acquisition efforts.
Net investment income increased by 35% in the first half of 2007 to $98.2 million, compared to $72.8 million in the corresponding period of 2006. This growth was due to increased investment assets and higher interest rates.
As of June 30, 2007, our fixed income investment portfolio had an average rating of AAA, a duration of 4.9 years and an average tax equivalent yield of 5.3%. The Company held $6.8 million of sub-prime bonds and $14.3 million of Alt-A bonds which had an unrealized loss of $263,000. The average rating on these bonds is AAA, and there have been no rating actions or surveillance issues associated with them. At the purchase date, these bonds were modeled using loan-to-value as the primary potential loss determinant. The Company owns no CDOs or CLOs.
While much has been written recently about defaults on U.S. sub-prime mortgages, the Company has written no domestic mortgage guaranty insurance and believes it has little or no exposure on its small amount of International mortgage-related programs.
As of June 30, 2007, total investments increased 11% to $4.3 billion; total assets grew to $7.9 billion; shareholders' equity increased to $2.2 billion; book value per share increased 7% to $19.52; and the Company's debt to total capital ratio remains very conservative at 13.7%, 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, August 8 to discuss these results. To participate, the number for domestic calls is (800) 374-0290 and the number for international calls is (706) 634-1303. In addition, there will 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, September 7, 2007.
Headquartered in Houston, Texas, 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 exceeding $7.9 billion, shareholders' equity of almost $2.2 billion and is rated AA (Very Strong) by Standard & Poor's and A+ (Superior) by A.M. Best Company.
For more information, visit our website at www.hcc.com.
The HCC Insurance Holdings, Inc. logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=1977
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
June 30, 2007
(Unaudited, in thousands except per share data)
Three Months Ended
June 30,
2007 2006
---------- ----------
Gross written premium $ 665,601 $ 586,054
Net written premium 533,820 483,482
Net earned premium 494,386 403,320
Fee and commission income 31,136 33,878
Net investment income 48,697 36,173
Other operating income 20,100 20,045
Total revenue 594,250 493,217
Net earnings 101,172 89,144
Earnings per share (diluted) 0.86 0.76
Cash flow from operations 169,989 181,850
Weighted average shares outstanding (diluted) 117,728 116,860
GAAP net loss ratio 61.3% 57.3%
GAAP combined ratio 83.9% 83.0%
June 30, December 31,
2007 2006
---------- ----------
Total investments $4,349,511 $3,927,995
Total assets 7,940,137 7,630,132
Shareholders' equity 2,195,177 2,042,803
Debt to total capital 13.7% 13.1%
Book value per share $ 19.52 $ 18.28
HCC Insurance Holdings, Inc. and Subsidiaries
Financial Highlights
June 30, 2007
(Unaudited, in thousands except per share data)
Six Months Ended
June 30,
2007 2006
---------- ----------
Gross written premium $1,264,702 $1,092,112
Net written premium 1,030,785 876,533
Net earned premium 991,986 783,891
Fee and commission income 63,261 65,547
Net investment income 98,164 72,754
Other operating income 38,685 38,795
Total revenue 1,191,472 959,490
Net earnings 197,862 168,286
Earnings per share (diluted) 1.69 1.44
Cash flow from operations 400,300 259,941
Weighted average shares outstanding (diluted) 117,381 116,885
GAAP net loss ratio 60.9% 57.8%
GAAP combined ratio 84.0% 84.2%
June 30, December 31,
2007 2006
---------- ----------
Total investments $4,349,511 $3,927,995
Total assets 7,940,137 7,630,132
Shareholders' equity 2,195,177 2,042,803
Debt to total capital 13.7% 13.1%
Book value per share $ 19.52 $ 18.28
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
June 30, December 31,
2007 2006
----------- -----------
ASSETS
Investments:
Fixed income securities $ 3,401,787 $ 3,007,193
Short-term investments 732,912 714,685
Other investments 214,812 206,117
----------- -----------
Total investments 4,349,511 3,927,995
Cash 41,931 48,290
Restricted cash and cash investments 171,215 176,424
Premium, claims and other receivables 829,781 864,705
Reinsurance recoverables 1,075,313 1,169,934
Ceded unearned premium 247,374 226,125
Ceded life and annuity benefits 68,038 70,923
Deferred policy acquisition costs 197,375 182,410
Goodwill 743,239 742,677
Other assets 216,360 220,649
----------- -----------
Total assets $ 7,940,137 $ 7,630,132
=========== ===========
LIABILITIES
Loss and loss adjustment expense payable $ 3,202,988 $ 3,097,051
Life and annuity policy benefits 68,038 70,923
Reinsurance balances payable 121,932 122,805
Unearned premium 983,232 920,350
Deferred ceding commissions 71,496 64,949
Premium and claims payable 598,915 646,224
Notes payable 347,590 308,887
Accounts payable and accrued liabilities 350,769 356,140
----------- -----------
Total liabilities 5,744,960 5,587,329
SHAREHOLDERS' EQUITY
Common stock 112,483 111,731
Additional paid-in capital 820,272 798,213
Retained earnings 1,273,614 1,098,887
Accumulated other comprehensive income
(loss) (11,192) 33,972
----------- -----------
Total shareholders' equity 2,195,177 2,042,803
----------- -----------
Total liabilities and shareholders' equity $ 7,940,137 $ 7,630,132
=========== ===========
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited, in thousands except per share data)
Six months ended Three months ended
June 30, June 30,
2007 2006 2007 2006
---------- ---------- ---------- ----------
REVENUE
Net earned premium $ 991,986 $ 783,891 $ 494,386 $ 403,320
Fee and commission
income 63,261 65,547 31,136 33,878
Net investment income 98,164 72,754 48,697 36,173
Net realized investment
loss (624) (1,497) (69) (199)
Other operating income 38,685 38,795 20,100 20,045
---------- ---------- ---------- ----------
Total revenue 1,191,472 959,490 594,250 493,217
---------- ---------- ---------- ----------
EXPENSE
Loss and loss adjustment
expense, net 603,763 453,092 303,291 231,025
Policy acquisition
costs, net 174,527 152,809 85,428 76,577
Other operating expense 111,108 97,002 53,467 49,669
Interest expense 4,399 4,437 1,096 2,283
---------- ---------- ---------- ----------
Total expense 893,797 707,340 443,282 359,554
---------- ---------- ---------- ----------
Earnings before income
tax expense 297,675 252,150 150,968 133,663
Income tax expense 99,813 83,864 49,796 44,519
---------- ---------- ---------- ----------
Net earnings $ 197,862 $ 168,286 $ 101,172 $ 89,144
========== ========== ========== ==========
Basic earnings per share
data:
Net earnings per share $ 1.76 $ 1.51 $ 0.90 $ 0.80
========== ========== ========== ==========
Weighted average shares
outstanding 112,117 111,117 112,273 111,218
========== ========== ========== ==========
Diluted earnings per
share data:
Net earnings per share $ 1.69 $ 1.44 $ 0.86 $ 0.76
========== ========== ========== ==========
Weighted average shares
outstanding 117,381 116,885 117,728 116,860
========== ========== ========== ==========
Cash dividends declared,
per share $ 0.20 $ 0.175 $ 0.10 $ 0.10
========== ========== ========== ==========
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Six months ended Three months ended
June 30, June 30,
2007 2006 2007 2006
--------- --------- --------- ---------
Cash flows from operating
activities:
Net earnings $ 197,862 $ 168,286 $ 101,172 $ 89,144
Adjustments to reconcile
net earnings to net
cash provided by
operating activities:
Change in premium,
claims and other
receivables 30,041 (10,298) (57,125) (54,660)
Change in reinsurance
recoverables 94,621 8,695 (16,646) (3,937)
Change in ceded
unearned premium (21,249) 1,135 (23,139) 1,249
Change in loss and loss
adjustment expense
payable 105,937 104,721 89,492 80,946
Change in reinsurance
balances payable (873) (22,706) 7,452 4,351
Change in unearned
premium 62,882 103,079 65,504 84,813
Change in premium and
claims payable, net
of restricted cash (42,100) (17,222) 44,587 13,096
Change in trading
portfolio 4,865 (84,491) (6,093) (36,497)
Depreciation and
amortization expense 7,861 7,644 4,125 3,819
Stock-based
compensation expense 6,389 6,090 4,178 3,387
Other, net (45,936) (4,992) (43,518) (3,861)
--------- --------- --------- ---------
Cash provided by
operating activities 400,300 259,941 169,989 181,850
--------- --------- --------- ---------
Cash flows from investing
activities:
Sales of fixed income
securities 174,718 164,097 146,235 98,443
Maturity or call of fixed
income securities 158,121 117,698 87,973 58,472
Cost of securities
acquired (736,873) (791,385) (369,678) (319,771)
Change in short-term
investments (26,014) 218,856 (50,871) (27,894)
Sale of strategic
investment 39,816 17,363 16,866 --
Payments for purchase of
subsidiaries, net of
cash received (51,681) (37,457) (45,764) (13,457)
Other, net (5,356) (5,097) (3,188) (3,050)
--------- --------- --------- ---------
Cash used by
investing activities (447,269) (315,925) (218,427) (207,257)
--------- --------- --------- ---------
Cash flows from financing
activities:
Advances on line of
credit 62,000 39,000 51,000 28,000
Payments on notes payable
and line of credit (12,887) (11,249) (1,548) (142)
Sale of common stock 16,422 9,660 8,382 2,022
Dividends paid (22,381) (16,648) (11,208) (8,338)
Other, net (2,544) 5,628 1,251 (2,904)
--------- --------- --------- ---------
Cash provided by
financing activities 40,610 26,391 47,877 18,638
--------- --------- --------- ---------
Net decrease in cash (6,359) (29,593) (561) (6,769)
Cash at beginning of
period 48,290 73,935 42,492 51,111
--------- --------- --------- ---------
Cash at end of period $ 41,931 $ 44,342 $ 41,931 $ 44,342
========= ========= ========= =========
HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
June 30, 2007
(Unaudited, in thousands)
2nd Qtr 2nd Qtr Change
2007 2006 %
--------- --------- ---------
GROSS WRITTEN
Diversified financial products $ 260,149 $ 253,487 3 %
Group life, accident & health 202,268 138,604 46
Aviation 54,430 58,862 (8)
London market account 81,087 83,658 (3)
Other specialty lines 67,781 51,234 32
Discontinued lines (114) 209 nm
--------- --------- ---------
$ 665,601 $ 586,054 14 %
========= ========= =========
NET WRITTEN
Diversified financial products $ 207,923 $ 212,120 (2)%
Group life, accident & health 191,522 129,445 48
Aviation 38,240 54,939 (30)
London market account 48,837 51,794 (6)
Other specialty lines 47,420 35,193 35
Discontinued lines (122) (9) nm
--------- --------- ---------
$ 533,820 $ 483,482 10 %
========= ========= =========
NET EARNED PREMIUM
Diversified financial products $ 193,337 $ 179,207 8 %
Group life, accident & health 192,224 128,262 50
Aviation 37,747 39,034 (3)
London market account 30,603 26,937 14
Other specialty lines 40,597 29,896 36
Discontinued lines (122) (16) nm
--------- --------- ---------
$ 494,386 $ 403,320 23 %
========= ========= =========
nm - Not meaningful comparison
HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
June 30, 2007
(Unaudited, in thousands)
Year to Year to
Date Date Change
2007 2006 %
---------- ---------- ----------
GROSS WRITTEN
Diversified financial products $ 472,402 $ 450,733 5 %
Group life, accident & health 405,174 272,758 49
Aviation 106,093 115,096 (8)
London market account 149,222 158,165 (6)
Other specialty lines 132,276 95,123 39
Discontinued lines (465) 237 nm
---------- ---------- ----------
$1,264,702 $1,092,112 16 %
========== ========== ==========
NET WRITTEN
Diversified financial products $ 379,715 $ 373,765 2 %
Group life, accident & health 383,948 258,888 48
Aviation 77,843 90,364 (14)
London market account 93,969 90,517 4
Other specialty lines 95,741 63,093 52
Discontinued lines (431) (94) nm
---------- ---------- ----------
$1,030,785 $ 876,533 18 %
========== ========== ==========
NET EARNED PREMIUM
Diversified financial products $ 385,851 $ 348,319 11 %
Group life, accident & health 384,640 256,023 50
Aviation 77,091 72,231 7
London market account 64,499 48,865 32
Other specialty lines 80,335 58,536 37
Discontinued lines (430) (83) nm
---------- ---------- ----------
$ 991,986 $ 783,891 27 %
========== ========== ==========
nm - Not meaningful comparison
HCC Insurance Holdings, Inc. and Subsidiaries
Consolidated Insurance Companies
Net Loss Ratios
June 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 $ 385,851 $ 165,837 43.0% $ 728,861 $ 351,010 48.2%
Group life,
accident &
health 384,640 295,785 76.9 591,070 432,343 73.1
Aviation 77,091 41,991 54.5 152,886 82,328 53.8
London market
account 64,499 41,069 63.7 112,362 48,316 43.0
Other specialty
lines 80,335 55,771 69.4 123,981 69,374 56.0
Discontinued
lines (430) 3,310 nm 29 28,485 nm
---------- ---------- ----- ---------- ---------- -----
Total $ 991,986 $ 603,763 60.9% $1,709,189 $1,011,856 59.2%
========== ========== ===== ========== ========== =====
nm - Not meaningful comparison