HOUSTON, Nov. 4, 2008 (GLOBE NEWSWIRE) -- HCC Insurance Holdings, Inc. (NYSE:HCC) today released earnings for the third quarter and first nine months of 2008, which ended September 30.
Net earnings for the third quarter of 2008 were $59.1 million, compared with $97.9 million during the third quarter of 2007. Net earnings per diluted share were $0.51 for the third quarter of 2008, compared to $0.84 for the same quarter of 2007. Net earnings for the first nine months of 2008 were $232.5 million, versus $295.8 million for the first nine months of the previous year. Net earnings per diluted share were $2.01 for the first nine months of 2008, versus $2.54 for the same period of 2007.
Gross losses incurred were $89.9 million in total for both Hurricanes Gustav and Ike. Net losses from Hurricane Gustav, primarily from offshore energy exposures, net of reinsurance and including reinsurance reinstatement costs, were $8.9 million, while Hurricane Ike's net losses, also primarily offshore energy exposures, net of reinsurance and including reinsurance reinstatement costs, were $15.6 million. There may be some further increase in the gross losses for the two hurricanes, but HCC's net loss is not expected to increase.
The GAAP combined ratio for the third quarter of 2008 was 88.0 percent, compared to 80.8 percent for the third quarter of 2007. The GAAP combined ratio for the first nine months of 2008 was 85.3 percent, versus 82.9 percent for the corresponding period of 2007. The effect of 2008 hurricanes added 4.9 percent to the Company's GAAP combined ratio for the 2008 third quarter, and 1.7 percent to the Company's GAAP combined ratio for the first nine months of the year.
"The third quarter was negatively impacted by net losses from Hurricanes Gustav and Ike totaling $24.5 million, as well as realized investment losses of $17.2 million and $14.3 million in losses from alternative investments," HCC Chief Executive Officer Frank J. Bramanti said.
"Despite two hurricanes, the cost of share repurchases, and the stress of the financial markets and its impact on investment earnings and market values, HCC is reporting an increase of four percent in shareholders' equity compared with December 31, 2007. Our balance sheet is stronger than ever, our liquidity is excellent and our ratings are solidly in place," Mr. Bramanti said.
HCC's Board of Directors authorized a $100.0 million share repurchase on June 20, 2008. The Company has repurchased 1.6 million shares for a total of $34.1 million at an average cost of $21.21 per share through October 31, 2008.
Book value per share was essentially flat for the third quarter of 2008 at $22.13 a share, compared to $22.19 a share on June 30, 2008. Book value per share increased four percent from December 31, 2007. The Company's annualized return on average equity for the first nine months of 2008 was 12.4 percent.
Net earned premium of HCC's insurance company subsidiaries increased to $505.0 million for the third quarter of 2008, compared to $492.9 million for the same quarter of 2007. During the 2008 third quarter, gross written premium increased three percent to $613.0 million, while net written premium increased six percent to $495.6 million, both compared to the third quarter of 2007.
Net earned premium of HCC's insurance company subsidiaries was $1.5 billion, up one percent for the first nine months of 2008, compared with the first nine months of 2007. During the first nine months of 2008, gross written premium increased two percent to $1.9 billion, while net written premium increased four percent to $1.6 billion, both compared to the first nine months of 2007.
"We believe the many challenges the economic turmoil is presenting will provide ample opportunities for HCC to continue to expand its business. HCC is well-capitalized and positioned to take advantage of these opportunities," Mr. Bramanti said.
During the third quarter of 2008, HCC had net positive prior year reserve development of $44.0 million compared to net positive prior year reserve development of $23.0 million for the same period in 2007. For the first nine months of 2008, the Company recorded $58.4 million of net positive prior year reserve development, compared to net positive prior year reserve development of $19.4 million for the same period in 2007.
"The positive prior year reserve development in the third quarter of 2008 is primarily related to the 2004 and 2005 underwriting years, with the largest portion of the positive development coming from our D&O business. At the same time, we decided to increase certain loss picks in the 2008 accident year due to the continued uncertainty in the financial markets, which caused us to book $35.0 million of additional reserves. The largest portion of this increase was in our D&O business. Based on what we know today, we maintain our position that our total D&O reserves are sufficient to cover all claims that will arise," Mr. Bramanti said.
Investment income decreased during 2008, compared to 2007. This was caused by the performance of alternative investments, which had losses of $14.3 million for the third quarter of 2008, versus income of $2.0 million for the third quarter of 2007, and a loss of $16.7 million for the first nine months of 2008, compared to income of $14.5 million for the first nine months of 2007.
HCC's fixed income securities generated $44.2 million in investment income in the 2008 third quarter, versus $39.0 million in the 2007 third quarter; and $129.5 million for the first nine months of 2008, compared to $109.4 million for the first nine months of 2007, as the Company's fixed income investments increased ten percent from September 30, 2007 to $3.9 billion at September 30, 2008.
As of September 30, 2008, HCC's fixed income securities portfolio had an average rating of AA+, an average duration of 5.1 years and an average tax equivalent yield of 5.2 percent. The Company held $11.5 million of subprime-related and Alt-A securities, which had an average rating of AAA, and owned no CDO or CLO securities. HCC has never been a counterparty to any credit default swap.
"Our investment performance was quite good in spite of the volatility in the marketplace. Nevertheless, in keeping with our conservative investment philosophy, our Board of Directors' Investment and Finance Committee has decided to exit equity and equity-related investments, including hedge funds and alternative investments, and reinvest those funds in fixed income securities. This should eliminate the volatility we have seen over the past year in our investment income," Mr. Bramanti said.
Other operating income was $4.8 million for the 2008 third quarter, compared to a loss of $3.1 million for the same period in 2007. Other operating income was $10.8 million for the first nine months of 2008, compared to $35.6 million for the same period in 2007.
As of September 30, 2008, total investments were $4.8 billion, total assets were $8.4 billion, shareholders' equity was $2.5 billion and the Company's debt to total capital ratio remained very conservative at 12.8 percent.
As a result of the effect of 2008 hurricanes, realized investment losses and losses from its alternative investments, the Company is revising the range of its previously disclosed net earnings guidance for 2008 to $2.60 per share to $2.90 per share, from $2.90 to $3.20 per share.
See attached tables for further information about HCC's quarter and year-to-date financial results.
HCC will hold an open conference call beginning at 8:00 a.m. Central Standard Time on Wednesday, November 5. To participate, the number for domestic calls is (800) 374-0290 and the number for international calls is (706) 634-1061. 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.
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, Ireland, Spain and the United Kingdom. HCC has assets of $8.4 billion, shareholders' equity of $2.5 billion and is rated AA (Very Strong) by Standard & Poor's and AA (Very Strong) by Fitch Ratings. In addition, HCC's major domestic insurance companies are rated 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, 2008
(Unaudited, in thousands except per share data)
Three months ended
September 30,
2008 2007
---------- ----------
Gross written premium $ 612,964 $ 593,062
Net written premium 495,585 469,680
Net earned premium 504,972 492,922
Fee and commission income 37,795 42,734
Net investment income 35,962 49,889
Other operating income (loss) 4,828 (3,074)
Total revenue 566,319 582,494
Net earnings 59,053 97,925
Earnings per share (diluted) 0.51 0.84
Cash flow from operations 170,736 214,559
Weighted average shares outstanding (diluted) 115,418 116,323
GAAP net loss ratio 64.3% 57.2%
GAAP combined ratio 88.0% 80.8%
Paid loss ratio 61.2% 44.1%
Sept 30, Dec 31,
2008 2007
---------- ----------
Total investments $4,821,809 $4,672,277
Total assets 8,449,482 8,074,645
Shareholders' equity 2,547,457 2,440,365
Debt to total capital 12.8% 11.7%
Book value per share $ 22.13 $ 21.21
HCC Insurance Holdings, Inc. and Subsidiaries
Financial Highlights
September 30, 2008
(Unaudited, in thousands except per share data)
Nine months ended
September 30,
2008 2007
---------- ----------
Gross written premium $1,887,556 $1,857,764
Net written premium 1,556,382 1,500,465
Net earned premium 1,505,128 1,484,908
Fee and commission income 99,558 105,995
Net investment income 130,832 148,053
Other operating income 10,829 35,611
Total revenue 1,727,557 1,773,966
Net earnings 232,491 295,787
Earnings per share (diluted) 2.01 2.54
Cash flow from operations 401,175 614,859
Weighted average shares outstanding (diluted) 115,944 116,577
GAAP net loss ratio 61.2% 59.6%
GAAP combined ratio 85.3% 82.9%
Paid loss ratio 53.2% 47.3%
Sept 30, Dec 31,
2008 2007
---------- ----------
Total investments $4,821,809 $4,672,277
Total assets 8,449,482 8,074,645
Shareholders' equity 2,547,457 2,440,365
Debt to total capital 12.8% 11.7%
Book value per share $ 22.13 $ 21.21
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
Sept 30, Dec 31,
2008 2007
---------- ----------
ASSETS
Investments:
Fixed income securities - available for sale $3,835,514 $3,666,705
Fixed income securities - held to maturity 99,167 --
Short-term investments 751,611 783,650
Other investments 135,517 221,922
---------- ----------
Total investments 4,821,809 4,672,277
Cash 20,244 39,135
Restricted cash and cash investments 198,832 193,151
Premium, claims and other receivables 815,770 763,401
Reinsurance recoverables 1,076,421 956,665
Ceded unearned premium 238,563 244,684
Ceded life and annuity benefits 64,719 66,199
Deferred policy acquisition costs 197,026 192,773
Goodwill 834,740 776,046
Other assets 181,358 170,314
---------- ----------
Total assets $8,449,482 $8,074,645
========== ==========
LIABILITIES
Loss and loss adjustment expense payable $3,505,122 $3,227,080
Life and annuity policy benefits 64,719 66,199
Reinsurance balances payable 125,494 129,838
Unearned premium 985,062 943,946
Deferred ceding commissions 62,854 68,968
Premium and claims payable 399,834 497,974
Notes payable 374,714 324,714
Accounts payable and accrued liabilities 384,226 375,561
---------- ----------
Total liabilities 5,902,025 5,634,280
SHAREHOLDERS' EQUITY
Common stock 116,188 115,069
Additional paid-in capital 854,174 831,419
Retained earnings 1,638,691 1,445,995
Accumulated other comprehensive income (loss) (39,726) 47,882
Treasury stock (21,870) --
---------- ----------
Total shareholders' equity 2,547,457 2,440,365
---------- ----------
Total liabilities and shareholders' equity $8,449,482 $8,074,645
========== ==========
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,
2008 2007 2008 2007
---------- ---------- ---------- ----------
REVENUE
Net earned premium $1,505,128 $1,484,908 $ 504,972 $ 492,922
Fee and commission
income 99,558 105,995 37,795 42,734
Net investment income 130,832 148,053 35,962 49,889
Net realized
investment gain (loss) (18,790) (601) (17,238) 23
Other operating
income (loss) 10,829 35,611 4,828 (3,074)
---------- ---------- ---------- ----------
Total revenue 1,727,557 1,773,966 566,319 582,494
---------- ---------- ---------- ----------
EXPENSE
Loss and loss
adjustment
expense, net 920,433 885,547 324,506 281,784
Policy acquisition
costs, net 284,695 267,778 96,582 93,251
Other operating
expense 174,420 169,226 57,702 58,118
Interest expense 11,517 7,166 3,750 2,767
---------- ---------- ---------- ----------
Total expense 1,391,065 1,329,717 482,540 435,920
---------- ---------- ---------- ----------
Earnings before
income tax expense 336,492 444,249 83,779 146,574
Income tax expense 104,001 148,462 24,726 48,649
---------- ---------- ---------- ----------
Net earnings $ 232,491 $ 295,787 $ 59,053 $ 97,925
========== ========== ========== ==========
Basic earnings
per share data:
Net earnings per share $ 2.02 $ 2.63 $ 0.51 $ 0.87
========== ========== ========== ==========
Weighted average
shares outstanding 115,164 112,295 114,812 112,652
========== ========== ========== ==========
Diluted earnings
per share data:
Net earnings per share $ 2.01 $ 2.54 $ 0.51 $ 0.84
========== ========== ========== ==========
Weighted average
shares outstanding 115,944 116,577 115,418 116,323
========== ========== ========== ==========
Cash dividends
declared, per share $ 0.345 $ 0.310 $ 0.125 $ 0.110
========== ========== ========== ==========
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,
2008 2007 2008 2007
---------- ---------- ---------- ----------
Cash flows from
operating activities:
Net earnings $ 232,491 $ 295,787 $ 59,053 $ 97,925
Adjustments to
reconcile net
earnings to net cash
provided by operating
activities:
Change in premium,
claims and
other receivables 22,705 63,737 66,329 33,696
Change in reinsurance
recoverables (119,825) 122,472 (46,013) 27,851
Change in ceded
unearned premium 6,121 (27,925) (2,931) (6,676)
Change in loss and
loss adjustment
expense payable 278,156 169,541 58,298 63,604
Change in reinsurance
balances payable (4,344) (10,512) 5,601 (9,639)
Change in
unearned premium 41,162 46,813 (13,860) (16,069)
Change in premium
and claims payable,
net of restricted
cash (105,135) (73,679) (31,267) (31,579)
Change in current
income taxes payable (10,104) 21,754 (2,794) 36,444
Change in
trading portfolio 49,091 14,126 6,517 9,261
Stock-based
compensation expense 9,990 9,191 3,193 2,802
Depreciation and
amortization expense 10,436 11,625 3,612 3,764
(Gain) loss on
investments 26,367 (35,557) 31,559 (1,994)
Other, net (35,936) 7,486 33,439 5,169
---------- ---------- ---------- ----------
Cash provided by
operating
activities 401,175 614,859 170,736 214,559
---------- ---------- ---------- ----------
Cash flows from
investing activities:
Sales of fixed
income securities 421,677 221,822 184,799 47,104
Maturity or call of
fixed income
securities 255,439 234,435 73,029 76,314
Cost of securities
acquired (1,124,969) (1,011,747) (199,276) (274,874)
Change in short-term
investments 33,665 (10,189) (222,899) 15,825
Proceeds from sales
of other investments 31,537 -- 543 --
Proceeds from sales
of strategic
investments 22,818 42,997 -- 3,181
Payments for purchase
of subsidiaries, net
of cash received (73,996) (53,687) (1,627) (2,006)
Other, net (3,203) (7,079) 1,482 (1,723)
---------- ---------- ---------- ----------
Cash used by
investing
activities (437,032) (583,448) (163,949) (136,179)
---------- ---------- ---------- ----------
Cash flows from
financing activities:
Advances on
line of credit 106,000 62,000 31,000 --
Payments on line
of credit and
notes payable (56,000) (56,363) (26,000) (43,476)
Sale of common stock 13,884 19,337 4,016 2,915
Purchase of
treasury shares (21,870) -- (21,870) --
Dividends paid (38,061) (33,630) (12,721) (11,249)
Other, net 13,013 (4,514) 11,903 (1,970)
---------- ---------- ---------- ----------
Cash provided (used)
by financing
activities 16,966 (13,170) (13,672) (53,780)
---------- ---------- ---------- ----------
Net increase (decrease)
in cash (18,891) 18,241 (6,885) 24,600
Cash at beginning
of period 39,135 48,290 27,129 41,931
---------- ---------- ---------- ----------
Cash at end
of period $ 20,244 $ 66,531 $ 20,244 $ 66,531
========== ========== ========== ==========
HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
September 30, 2008
(Unaudited, in thousands)
3rd Qtr 3rd Qtr Change
2008 2007 %
---------- ---------- ----------
GROSS WRITTEN
Diversified financial products $ 261,614 $ 228,618 14%
Group life, accident & health 210,930 197,051 7
Aviation 50,639 48,652 4
London market account 31,230 40,773 (23)
Other specialty lines 58,425 77,966 (25)
Discontinued lines 126 2 nm
---------- ---------- ----------
$ 612,964 $ 593,062 3%
========== ========== ==========
NET WRITTEN
Diversified financial products $ 215,556 $ 185,117 16%
Group life, accident & health 195,283 185,799 5
Aviation 37,116 36,071 3
London market account 17,046 13,983 22
Other specialty lines 30,506 48,705 (37)
Discontinued lines 78 5 nm
---------- ---------- ----------
$ 495,585 $ 469,680 6%
========== ========== ==========
NET EARNED PREMIUM
Diversified financial products $ 203,295 $ 195,132 4%
Group life, accident & health 194,393 187,209 4
Aviation 35,413 38,400 (8)
London market account 27,429 28,264 (3)
Other specialty lines 44,420 43,913 1
Discontinued lines 22 4 nm
---------- ---------- ----------
$ 504,972 $ 492,922 2%
========== ========== ==========
nm - Not meaningful comparison
HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
September 30, 2008
(Unaudited, in thousands)
Year Year
to Date to Date Change
2008 2007 %
---------- ---------- ----------
GROSS WRITTEN
Diversified financial products $ 744,920 $ 701,020 6%
Group life, accident & health 629,214 602,225 4
Aviation 147,268 154,745 (5)
London market account 154,028 189,995 (19)
Other specialty lines 207,361 210,242 (1)
Discontinued lines 4,765 (463) nm
---------- ---------- ----------
$1,887,556 $1,857,764 2%
========== ========== ==========
NET WRITTEN
Diversified financial products $ 622,702 $ 564,832 10%
Group life, accident & health 595,112 569,747 4
Aviation 106,996 113,914 (6)
London market account 97,142 107,952 (10)
Other specialty lines 129,667 144,446 (10)
Discontinued lines 4,763 (426) nm
---------- ---------- ----------
$1,556,382 $1,500,465 4%
========== ========== ==========
NET EARNED PREMIUM
Diversified financial products $ 593,378 $ 580,983 2%
Group life, accident & health 582,193 571,849 2
Aviation 105,125 115,491 (9)
London market account 80,824 92,763 (13)
Other specialty lines 138,846 124,248 12
Discontinued lines 4,762 (426) nm
---------- ---------- ----------
$1,505,128 $1,484,908 1%
========== ========== ==========
nm - Not meaningful comparison
HCC Insurance Holdings, Inc. and Subsidiaries
Investments - Selected Disclosures
September 30, 2008
(Unaudited, in thousands)
Amortized Fair % of
Cost Value Portfolio
---------- ---------- ----------
Fixed Income Securities $4,032,743 $3,935,643 100.0%
========== ==========
Residential Mortgage Backed
Securities & Collateralized
Mortgage Obligations
Agency $ 706,758 $ 712,263 18.1%
Non-Agency
Prime 100,054 89,585 2.3%
Alt A 10,012 8,900 0.2%
Subprime 2,817 2,586 0.1%
---------- ----------
Total Residential MBS/CMO $ 819,641 $ 813,334 20.7%
========== ==========
Agency Securities
Senior Agency Debt - FNMA/FHLMC $ 14,498 $ 14,848 0.4%
========== ==========
Corporate Bonds $ 562,917 $ 541,588 13.8%
========== ==========
Commercial Mortgaged
Backed Securities $ 179,562 $ 165,672 4.2%
========== ==========
Municipal Bond Portfolio $1,820,675 $1,763,425 44.8%
========== ==========
Insurance Enhanced $1,142,944 $1,103,354 28.0%
========== ==========
Insured - Underlying Ratings $1,142,944 $1,103,354
========== ==========
Non-Insured $ 677,731 $ 660,071 16.8%
========== ==========
Short-Term
Bank Sweep Accounts - U.S. $ 50,438 $ 50,438
Bank Sweep Accounts - Non-U.S. 48,434 48,434
Taxable Money Market Funds 652,739 652,739
---------- ----------
Total Short-Term $ 751,611 $ 751,611
========== ==========
Average Ratings
-----------------------------------
AAA AA A
---------- ---------- ----------
Fixed Income Securities $2,322,029 $1,011,606 $ 537,478
Residential Mortgage Backed
Securities & Collateralized
Mortgage Obligations
Agency 712,263 -- --
Non-Agency
Prime 89,585 -- --
Alt A 8,584 158 158
Subprime 1,931 -- --
Total Residential MBS/CMO
Agency Securities
Senior Agency Debt - FNMA/FHLMC 14,848 -- --
Corporate Bonds 29,137 127,273 333,997
Commercial Mortgaged
Backed Securities 165,672 -- --
Municipal Bond Portfolio 702,019 865,842 186,923
Insurance Enhanced 451,713 475,325 167,710
Insured - Underlying Ratings 147,849 689,265 243,730
Non-Insured 256,650 385,178 18,243
Average Ratings
----------------------------------
BBB & below Other Average
---------- ---------- ----------
Fixed Income Securities $ 64,530 $ -- AA+
Residential Mortgage Backed
Securities & Collateralized
Mortgage Obligations
Agency -- -- AAA
Non-Agency
Prime -- -- AAA
Alt A -- -- AAA
Subprime 655 -- AA+
Total Residential MBS/CMO
Agency Securities
Senior Agency Debt - FNMA/FHLMC -- -- AAA
Corporate Bonds 51,181 -- A+
Commercial Mortgaged
Backed Securities -- -- AAA
Municipal Bond Portfolio 8,641 -- AA+
Insurance Enhanced 8,606 -- AA+
Insured - Underlying Ratings 994 21,516 AA
Non-Insured -- -- AA+
Notes:
There are no CDOs/CLOs in the portfolio.
Other Ratings are bonds with at least one enhanced rating; each
issuer has an equivalent investment grade rating.
Received paydown of $1.1 million on subprime and Alt A securities in
third quarter 2008.
HCC Insurance Holdings, Inc. and Subsidiaries
Subprime Liability Exposure
September 30, 2008
* As of September 30, the Company had 50 "non-Side A only" D&O, E&O
and Fiduciary Liability claims and 12 "Side A only" D&O claims
relating to subprime issues.
* Of the D&O claims reported, two are on primary policies with gross
policy limits totaling $9 million. The remaining D&O claims are on
excess policies.
* The average policy limit on the "non-Side A only" claims is
$13.0 million gross and $8.6 million net, with an average
attachment point of $87 million.
* The average policy limit for "Side A only" claims is $13.3 million
gross and $10.9 million net, with an average attachment point of
$176 million.
* Based upon the Company's present knowledge, HCC believes the
ultimate subprime related losses will be contained within the
current overall reserves for D&O, E&O and Fiduciary Liability
business.
HCC Insurance Holdings, Inc. and Subsidiaries
Consolidated Insurance Companies
Net Loss Ratios
September 30, 2008
(Unaudited, in thousands)
Year to Date 2008
----------------------------------
Net Earned Incurred Loss
Line of Business Premium Losses Ratio
------------------------------ ---------- ---------- ----------
Diversified financial products $ 593,378 $ 274,321 46.2%
Group life, accident & health 582,193 428,826 73.7
Aviation 105,125 68,036 64.7
London market account 80,824 43,933 54.4
Other specialty lines 138,846 102,363 73.7
Discontinued lines 4,762 2,954 nm
---------- ---------- ----------
Total $1,505,128 $ 920,433 61.2%
========== ========== ==========
Full Year 2007
----------------------------------
Net Earned Incurred Loss
Line of Business Premium Losses Ratio
------------------------------ ---------- ---------- ----------
Diversified financial products $ 777,414 $ 315,409 40.6%
Group life, accident & health 758,516 579,780 76.4
Aviation 153,121 89,683 58.6
London market account 124,609 68,798 55.2
Other specialty lines 171,824 115,804 67.4
Discontinued lines (398) 14,473 nm
---------- ---------- ----------
Total $1,985,086 $1,183,947 59.6%
========== ========== ==========
nm - Not meaningful comparison