Philadelphia Consolidated Holding (PHLY) 8-K Philadelphia Consolidated Holding Corp. Announces Second Quarter 2003 Reserve Actions

PHILADELPHIA CONSOLIDATED HOLDING CORP.
SECOND QUARTER RESULTS
JUNE 30, 2003

JULY 17, 2003 PRESS RELEASE

Bala Cynwyd, PA – Philadelphia Consolidated Holding Corp. (PHLY-NASDAQ) today reported net income for the second quarter ended June 30, 2003 was $3.6 million ($0.16 diluted and $0.17 basic earnings per share), versus $9.0 million ($0.40 diluted and $0.41 basic earnings per share) for the same period in 2002. Net income for the second quarter ended June 30, 2003 included a $33.0 million pretax ($21.5 million after tax, or $0.95 diluted earnings per share) increase to the gross and net liability for loss and loss adjustment expense reserves for its automobile leasing residual value product which was previously discontinued. The increase to the reserves for the automobile residual value product results from a recently completed evaluation by the Company’s actuary and an independent consultant of (i) the worsening deterioration in used car market price trends; and (ii) related loss frequency and severity projections of the Company’s outstanding lease portfolio. The Company also experienced $9.0 million pretax ($5.9 million after tax, or $0.26 diluted earnings per share) favorable prior year development in the second quarter of 2003, principally in the property line of its commercial package product, due to better than expected loss experience.

Effective April 1, 2003, the Company entered into a quota share reinsurance agreement covering all of the Company’s lines of business. The Company determined reinsurance was the most attractive option to continue to capitalize on market opportunities while maintaining acceptable operating leverage with respect to current surplus levels. Under this agreement, the Company ceded $103.6 million of written premium (including unearned premium reserves of $63.6 million at April 1, 2003), $34.8 million of net earned premium and $19.0 million in loss and loss adjustment expenses. The Company also earned $13.3 million in ceding commission during the second quarter 2003. This reinsurance transaction decreased second quarter 2003 diluted earnings per share by $0.07.

For the second quarter gross written premiums increased 31.2% to $210.9 million, versus $160.8 million, while net earned premiums increased 21.1% to $121.4 million, versus $100.3 million for the same period in 2002. The combined ratio for the quarter was 103.1%, versus 91.6% for the same period in 2002. The above noted reserve actions increased the combined ratio by 19.8 points in the second quarter 2003. After tax net realized investment losses were $0.4 million versus $2.1 million for the same period in 2002.

Net income for the six months ended June 30, 2003 was $16.9 million ($0.75 diluted and $0.77 basic earnings per share), versus $19.6 million ($0.88 diluted and $0.91 basic earnings per share) for the same period in 2002.

The year to date gross written premiums increased 36.0% to $404.2 million, versus $297.2 million for the same period in 2002, while net earned premiums increased 42.4% to $269.8 million, versus $189.5 million for the same period in 2002. The combined ratio year to date was 97.1%. After tax net realized investment losses year to date were $1.2 million, versus $2.0 million for the same period in 2002.

President & CEO James J. Maguire, Jr. said: “While I’m disappointed with the continued deterioration of used car prices and its effect on the run off of our residual value product, I am pleased with the healthy growth and profitability of our core business. We continue to see significant new business opportunities at attractive pricing levels across all operating segments. I am bullish on the prospects for continued growth and profits for the balance of 2003.”

The Company will hold its quarterly conference call to discuss second quarter 2003 results today at 3:00 PM EDST. The call is being webcast and may be accessed at the Company’s web site at www.phly.com. The dial-in phone number for the conference call is (800) 915-4836.

This release contains forward-looking statements that are based on management’s estimates, assumptions and projections. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding important factors which, among others, could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operations, performance, development, results of the Company’s business, and the other matters referred to above include, but are not limited to: (i) changes in the business environment in which the Company operates, including inflation and interest rates; (ii) changes in taxes, governmental laws, and regulations; (iii) competitive product and pricing activity; (iv) difficulties of managing growth profitably; (v) claims development and the adequacy of our liability for unpaid loss and loss adjustment expenses; (vi) severity of natural disasters and other catastrophes; (vii) adequacy of reinsurance coverage which may be obtained by the Company; (viii) ability and willingness of our reinsurers to pay; and (ix) future terrorist attacks.

Philadelphia Insurance Companies, rated “A+” (Superior) by A.M. Best Company, is a specialty niche Company which markets and underwrites property and casualty insurance products through 36 proprietary underwriting offices across the U.S. of A. For more information about our Company or to review our 2002 annual report, visit our web site at www.phly.com.

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

			As of
			June 30,			December 31,
			2003			2002
			(Unaudited)
ASSETS
INVESTMENTS:
	FIXED MATURITIES AVAILABLE FOR SALE AT MARKET (AMORTIZED COST $976,289 AND $832,701)		$	1,000,641		$	854,513
	EQUITY SECURITIES AT MARKET (COST $64,464 AND $51,257)			71,101			54,346
		TOTAL INVESTMENTS		1,071,742			908,859
	CASH AND CASH EQUIVALENTS			63,986			42,002
	ACCRUED INVESTMENT INCOME			9,703			8,571
	PREMIUMS RECEIVABLE			144,886			130,007
	PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES			233,118			151,352
	DEFERRED INCOME TAXES			13,626			7,541
	DEFERRED ACQUISITION COSTS			45,919			61,272
	PROPERTY AND EQUIPMENT, NET			14,045			12,794
	GOODWILL			25,724			25,724
	OTHER ASSETS			13,678			10,212
		TOTAL ASSETS	$	1,636,427		$	1,358,334
LIABILITIES AND SHAREHOLDERS’ EQUITY
POLICY LIABILITIES AND ACCRUALS:
	UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES		$	546,431		$	445,548
	UNEARNED PREMIUMS			357,101			306,093
		TOTAL POLICY LIABILITIES AND ACCRUALS		903,532			751,641
	FUNDS HELD PAYABLE TO REINSURER			61,851			—
	LOANS PAYABLE			48,111			39,113
	PREMIUMS PAYABLE			41,437			33,553
	PAYABLE FOR SECURITY PURCHASE			22,387			6,100
	OTHER LIABILITIES			59,623			50,104
		TOTAL LIABILITIES		1,136,941			880,511
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
	PREFERRED STOCK, $.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED, NONE ISSUED AND OUTSTANDING			—			—
	COMMON STOCK, NO PAR VALUE, 100,000,000 SHARES AUTHORIZED, 21,866,961 AND 21,868,877 SHARES ISSUED AND OUTSTANDING			276,963			276,945
	NOTES RECEIVABLE FROM SHAREHOLDERS			(5,365	)		(6,407	)
	ACCUMULATED OTHER COMPREHENSIVE INCOME			20,143			16,185
	RETAINED EARNINGS			207,960			191,100
	LESS COST OF COMMON STOCK HELD IN TREASURY, 4,042 SHARES			(215	)		—
		TOTAL SHAREHOLDERS’ EQUITY		499,486			477,823
		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,636,427		$	1,358,334

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)

			For the Three Months						For the Six Months
			Ended June 30,						Ended June 30,
			2003			2002			2003			2002
REVENUE:
	NET EARNED PREMIUMS		$	121,449		$	100,273		$	269,811		$	189,517
	NET INVESTMENT INCOME			9,370			9,375			19,175			18,230
	NET REALIZED INVESTMENT LOSS			(650	)		(3,181	)		(1,783	)		(3,134	)
	OTHER INCOME			1,040			15			1,701			16
		TOTAL REVENUE		131,209			106,482			288,904			204,629
LOSSES AND EXPENSES:
	LOSS AND LOSS ADJUSTMENT EXPENSES			124,293			72,067			227,378			137,678
	NET REINSURANCE RECOVERIES			(31,267	)		(11,235	)		(43,992	)		(23,797	)
	NET LOSS AND LOSS ADJUSTMENT EXPENSES			93,026			60,832			183,386			113,881
	ACQUISITION COSTS AND OTHER UNDERWRITING EXPENSES			32,158			31,057			78,578			58,878
	OTHER OPERATING EXPENSES			1,632			1,454			3,306			2,938
		TOTAL LOSSES AND EXPENSES		126,816			93,343			265,270			175,697
INCOME BEFORE INCOME TAXES				4,393			13,139			23,634			28,932
INCOME TAX EXPENSE (BENEFIT):
	CURRENT			7,225			5,798			14,989			12,369
	DEFERRED			(6,459	)		(1,612	)		(8,215	)		(3,067	)
		TOTAL INCOME TAX EXPENSE		766			4,186			6,774			9,302
		NET INCOME	$	3,627		$	8,953		$	16,860		$	19,630
PER AVERAGE SHARE DATA:
	BASIC EARNINGS PER SHARE		$	0.17		$	0.41		$	0.77		$	0.91
	DILUTED EARNINGS PER SHARE		$	0.16		$	0.40		$	0.75		$	0.88
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING				21,860,396			21,578,045			21,862,819			21,553,206
WEIGHTED-AVERAGE SHARE EQUIVALENTS OUTSTANDING				603,139			753,575			497,694			741,742
WEIGHTED-AVERAGE SHARES AND SHARE EQUIVALENTS OUTSTANDING				22,463,535			22,331,620			22,360,513			22,294,948