Via Facsimile and U.S. Mail
Mail Stop 6010
December 20, 2005
Mr. Michael L. Browne
President and Chief Executive Officer
Harleysville Group Inc
355 Maple Avenue
Harleysville, PA 19438-2297
Re: Harleysville Group Inc
Form 10-K for the Fiscal Year Ended December 31, 2004
File No. 0-14697
We have limited our review of your filings to those issues we
have addressed in our comments. Where indicated, we think you
should
revise your document in response to these comments. If you
disagree,
we will consider your explanation as to why our comment is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we ask
you
to provide us with supplemental information so we may better
understand your disclosure.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the fiscal year ended December 31, 2004
Item 1, Business, page 1
Ten year development table, page 11
1. Please explain to us why you limited your reconciliation to
gross
in this table to the reserves only and did not include your
deficiencies/redundancies on a gross basis. Please revise your
presentation as appropriate and tell us how you will revise this
disclosure.
Item 7. Management`s Discussion and Analysis of Financial
Condition
and ..., page 21
Critical Accounting Policies, page 22
2. You indicate that you have had unrealized losses on airline
enhanced equipment trust certificates (EETC) for more than twelve
months but you believe the collateral is sufficient to recover
your
cost. Explain to us how you determine fair value of the EETCs and
the collateral. Explain if and how fair value takes into account
available collateral. Tell us when you invested in these
securities
and how long they have been in an unrealized loss position. Tell
us
if you have or had any other investments in EETCs and how you
accounted for them, whether you impaired them or sold them and
why.
Tell us how long the company intends to hold these investments.
Liabilities and Loss Settlement Expenses, page 22
3. We believe your disclosure in Management`s Discussion and
Analysis
regarding the reserve for loss and loss adjustment expenses could
be
improved to better explain the judgments and uncertainties
surrounding this estimate and the potential impact on your
financial
statements. We believe that disclosures explaining the likelihood
that materially different amounts would be reported under
different
conditions or using different assumptions is consistent with the
objective of Management`s Discussion and Analysis. Accordingly,
please revise MD&A to include the following information for each
of
your lines of business:
* Please disclose the reserves accrued as of the latest balance
sheet
date presented. The total of theses amounts should agree to the
amount presented on the balance sheet.
* Because IBNR reserve estimates are more imprecise, please
disclose
the amount of IBNR separately from case reserves.
* Please disclose the actuarially determined ranges of loss
reserve
estimates by line of business in addition to the aggregate range
disclosed on page 29.
* Discuss the key assumptions used to arrive at management`s best
estimate of loss reserves within that range and what specific
factors
led management to believe this amount rather than any other amount
within the range represented the best estimate of incurred losses.
Provide us revised disclosure.
Results of Operations pages 23 - 31
4. Please revise your analysis of the effect of a 1% change in
estimated loss reserves on pre-tax income and provide the
sensitivity
analysis on a line of business basis instead of the current
aggregate
presentation. The analysis should focus on the effect of changes
in
significant factors considered key in establishing the reserves
such
as claim severity or others factors considered, on a line of
business
basis. Please consider disclosing this information under the
critical accounting policies and estimates instead of the current
presentation under results of operations. Provide us revised
disclosure.
5. Based on the information disclosed included in the Business
section on page 9 and on page 56 in Note 6 to the financial
statements it appears that management significantly revised its
estimate of loss reserves recorded in prior years. Please provide
us
revised Management`s Discussion and Analysis to explain the reason
for this change in estimate. For each line of business, include
the
following disclosures:
* Identify the years to which the change in estimate relates and
disclose the amount of the related loss reserve as of the
beginning
of the year that was re-estimated. Discuss and quantify
offsetting
changes in estimates that increase and decrease the loss reserve.
* Identify the changes in the key assumptions you made to estimate
the reserve since the last reporting date.
* Identify the nature and timing of the change in estimate,
explicitly identifying and describing in reasonable specificity
the
new events that occurred or additional information acquired since
the
last reporting date that led to the change in estimate.
* Ensure your disclosure clearly explains why recognition occurred
in
the periods that it did and why recognition was not required in
earlier periods.
* Disclose any trends such as, the number of claims incurred,
average
settlement amounts, number of claims outstanding at period ends
along
with average per claim outstanding, and any other trends,
necessary
to understand the change in estimate. Please explain the rationale
for a change in estimate that does not correlate with trends.
Liquidity and Capital Resources, page 32
Contractual Obligations table, page 33
6. Please provide us a revised table that presents the liability
for
unpaid loss and loss settlement expense amounts gross and not net
of
the effect of estimated amounts for reinsurance recoverable.
Furthermore, please include the company`s capital obligations,
operating lease obligations, purchase obligations and interest on
long term debt in the table, as it would appear that these
liabilities represent future legal obligations of the Company and
are
material in the aggregate. The purpose of Financial Reporting
Release 67 is to obtain enhanced disclosure concerning a
registrant`s
contractual payment obligations and the exclusion of ordinary
course
items would be inconsistent with the objective of the Item
303(a)(5)
of Regulation S-K.
Consolidated Financial Statements
Notes to Consolidated Financial Statements, page 47
Exhibits 31.1 and 31.2 - Certifications pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
7. Please amend your certificates to acknowledge in paragraph 4
the
registrant`s responsibility for establishing and maintaining
internal
control over financial reporting as defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Please refer to Release No. 33-8238, at
http://www.sec.gov/rules/final/33-8238.htm.
* * * *
As appropriate, please amend your Form 10-K for the year
ended
December 31, 2004 and respond to these comments within 10 business
days or tell us when you will respond. You may wish to provide us
with marked copies of the amendment to expedite our review.
Please
furnish a cover letter with your amendment that keys your
responses
to our comments and provides any requested information. Detailed
cover letters greatly facilitate our review. You should file the
letter on EDGAR under the form type label CORRESP. Please
understand
that we may have additional comments after reviewing your
amendment
and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that they
have
provided all information required under the Securities Exchange
Act
of 1934 and that they have provided all information investors
require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
In connection with responding to our comments, please
provide,
in your letter, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement has access to all information you provide to the staff
of
the Division of Corporation Finance in our review of your filing
or
in response to our comments on your filing.
You may contact Ibolya Ignat, Staff Accountant at (202) 551-
3656, or Lisa Vanjoske, Assistant Chief Accountant, at (202) 551-
3614
if you have questions regarding these comments. In this regard, do
not hesitate to contact me, at (202) 551-3679
Sincerely,
Jim B. Rosenberg
Senior Assistant Chief
Accountant
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Mr. Michael L. Browne
Harleysville Group Inc
December 20, 2005
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