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