Exhibit 99.1
Harleysville Group Quarterly Results Impacted by Workers Compensation,
Winter Storm and Personal Lines Losses;
Strong Growth in Commercial Business Continues
HARLEYSVILLE, Pa., April 25 /PRNewswire-FirstCall/ --
Harleysville Group Inc. (Nasdaq: HGIC) today reported a diluted operating loss
of $0.10 per share for the first quarter, reflecting the impact of its
previously announced $20 million pretax workers compensation reserve
adjustment and $3.6 million of winter storm property catastrophe losses, as
well as poor personal lines results. At the same time, the company reported
ongoing strong premium growth in its core commercial business segment during
the first quarter of 2003.
The diluted net loss per share for the first quarter of 2003 was $0.11,
versus diluted net income of $0.44 in the first quarter of 2002. On a per
share basis, the company had $0.01 of realized investment losses in the first
quarter of 2003, compared to a $0.01 gain in the first quarter of 2002.
The $0.10 diluted operating loss per share, which excludes the impact of
net realized after-tax investment losses that are included in the net loss,
compared to diluted operating earnings of $0.43 for the same period in 2002.
"We are disappointed in our results this quarter, but we have taken the
quick action necessary to address workers compensation reserve adequacy,"
commented Walter R. Bateman, Harleysville Group's chairman and chief executive
officer. "Our decisive response to the adverse activity we saw late in the
quarter underscores our commitment to maintaining reserve adequacy. Overall,
our disciplined small commercial strategy continues to deliver double-digit
premium growth and our balance sheet remains strong."
The company's first quarter earnings were reduced by $20 million pretax,
or $0.43 per share after tax, due to the workers compensation reserve
adjustment, while the property catastrophe losses resulting from the winter
storms of $3.6 million, or $0.08 per share after tax, were capped by the
quarterly aggregate reinsurance agreement with Harleysville Mutual Insurance
Company. In the first quarter of 2002, Harleysville Group's property
catastrophe losses were $0.8 million, or $0.02 per share after tax.
Harleysville Group's overall statutory combined ratio* was 115.4 percent
in the first quarter of 2003, compared to 103.3 percent in the first quarter
of 2002. The workers compensation reserve adjustment added 10.0 points to the
combined ratio. The property catastrophe losses added 1.8 points, in contrast
to the first quarter of 2002 when property catastrophe losses contributed 0.4
points to the combined ratio.
First quarter net written premiums rose 13 percent to $215.3 million in
2003 from $190.7 million in 2002.
First quarter pretax investment income was unchanged at $21.4 million in
2003, while after-tax investment income rose 1 percent to $16.5 million.
Operating cash flow for the first quarter was $37.5 million, $12.5 million
higher than the prior year's first quarter.
Commercial lines
Triggered by significantly higher-than-expected loss reporting that
emerged near the quarter's end, the company strengthened its workers
compensation reserves and reviewed its workers compensation claims files. That
evaluation identified the need for additional strengthening, and the company
announced on April 23 that it had increased its total reserve adjustments for
the quarter to $20 million.
Reserve adjustments in this line accounted for 70.5 points of the 192.2
percent workers compensation combined ratio, and represented 13.4 points of
the 114.1 percent commercial lines combined ratio. The commercial lines
combined ratio for the first quarter of 2002 was 103.2 percent. The company
reported underwriting profitability in its commercial auto and commercial
multi-peril business, which generated combined ratios of 96.0 percent and 98.8
percent, respectively. Commercial lines net written premiums rose 16 percent
in the first quarter to $170.5 million - the company's 12th consecutive
quarterly double-digit premium increase - primarily reflecting the result of
higher pricing.
Personal lines
Harleysville Group's personal lines combined ratio was 119.3 percent in
the first quarter of 2003, versus 103.1 percent during the first quarter of
2002. In addition to property catastrophe losses, large loss activity in
personal auto and homeowners further impacted the quarter's results. For the
quarter, net written premiums increased by 1 percent to $44.7 million in 2003.
Outlook
"We are not wavering from the execution of our strategy," Bateman stated.
"We have a high-quality small commercial risk portfolio - which accounts for
more than three-quarters of our business - and a solid balance sheet. With
those as our foundation, we believe we can achieve operating earnings per
share in the $1.45 to $1.55 range for the year."
Webcast
The company will host a live Webcast today, Friday, April 25, 2003, at
9:00 a.m. (ET) to discuss its first quarter results. The Webcast will be
available from the financial section of the company's Web site
(www.harleysvillegroup.com). An archive of the presentation will be available
until May 9, 2003, on the company's Web site.
Corporate profile
Harleysville Insurance, "Good people to know," is the premier provider of
insurance products and services for small businesses and individuals, and
ranks among the top 50 U.S. property/casualty insurance groups based on net
written premiums. Harleysville Group Inc. (Nasdaq: HGIC) is a publicly traded
holding company for nine regional property/casualty insurance companies
collectively rated A (Excellent) by A.M. Best Company. Harleysville Insurance,
which distributes its products through independent insurance agents, operates
in 32 Eastern and Midwestern states. Further information can be found on the
company's Web site.
* "Statutory combined ratio" is a measure of underwriting profitability
and is based on numbers determined under statutory accounting practices. It is
the sum of the ratio of losses to premiums earned plus the ratio of
underwriting expenses to premiums written. A ratio of less than 100 percent
indicates underwriting profitability.
Certain of the statements contained herein (other than statements of
historical facts) are forward-looking statements. Such forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and include estimates and assumptions
related to economic, competitive and legislative developments. These forward-
looking statements are subject to change and uncertainty that are, in many
instances, beyond the company's control and have been made based upon
management's expectations and beliefs concerning future developments and their
potential effect on Harleysville Group Inc. There can be no assurance that
future developments will be in accordance with management's expectations so
that the effect of future developments on Harleysville Group will be those
anticipated by management. Actual financial results including premium growth
and underwriting results could differ materially from those anticipated by
Harleysville Group depending on the outcome of certain factors, which may
include changes in property and casualty loss trends and reserves; catastrophe
losses; the insurance product pricing environment; changes in applicable law;
government regulation and changes therein that may impede the ability to
charge adequate rates; changes in accounting principles; performance of the
financial markets; fluctuations in interest rates; availability and price of
reinsurance; and the status of the labor markets in which the company
operates.
Harleysville Group Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS Quarter ended March 31
(in thousands, except per share data) 2003 2002
OPERATING RESULTS
Diluted earnings per common share:
Operating income (loss) ($0.10) $0.43
Realized gains (losses), net
of tax (0.01) 0.01
Net income (loss) ($0.11) $0.44
Cash dividend per common share $0.165 $0.15
FINANCIAL CONDITION March 31, 2003 December 31, 2002
Assets $2,367,238 $2,311,524
Shareholders' equity $623,524 $632,112
Per common share $20.69 $21.13
CONSOLIDATED STATEMENTS OF INCOME
(LOSS) Quarter ended March 31
(in thousands, except per share data) 2003 2002
REVENUES:
Premiums earned $198,829 $182,505
Investment income, net of investment
expense 21,447 21,482
Realized investment gains (losses) (433) 478
Other income 4,520 3,745
Total revenues 224,363 208,210
LOSSES AND EXPENSES:
Losses and loss settlement expenses 163,759 127,272
Amortization of deferred policy
acquisition costs 48,317 44,622
Other underwriting expenses 18,557 16,922
Interest expense 1,394 1,421
Other expenses 1,211 1,050
Total expenses 233,238 191,287
Income (loss) before income taxes (8,875) 16,923
Income taxes (benefit) (5,635) 3,583
Net income (loss) ($3,240) $13,340
Weighted average number of shares
outstanding:
Basic 29,987,316 29,510,116
Diluted 29,987,316 30,062,578
Per common share:
Basic earnings (loss) ($0.11) $0.45
Diluted earnings (loss) ($0.11) $0.44
These financial figures are unaudited.
Harleysville Group Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) March 31, 2003* December 31, 2002
ASSETS
Investments:
Fixed maturities:
Held to maturity, at
amortized cost (fair
value $383,827 $352,732 $385,162
and $416,942)
Available for sale, at
fair value (amortized
cost $1,122,764 1,191,933 1,124,869
and $1,051,880)
Equity securities, at fair
value (cost $93,633 and
$96,849) 102,119 107,177
Short-term investments, at
cost, which approximates
fair value 101,441 89,692
Total investments 1,748,225 1,706,900
Cash 2,491 2,944
Premiums in course of collection 140,306 138,905
Reinsurance receivable 88,237 75,488
Accrued investment income 20,505 21,552
Deferred policy acquisition costs 99,255 94,896
Prepaid reinsurance premiums 20,037 19,421
Property and equipment, net 26,363 27,556
Deferred income taxes 31,821 25,784
Securities lending collateral 137,702 139,215
Due from affiliate 10,709
Other assets 52,296 48,154
Total assets $2,367,238 $2,311,524
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss
settlement expenses $977,761 $928,335
Unearned premiums 423,347 406,277
Accounts payable and accrued
expenses 106,867 109,965
Securities lending
obligation 137,702 139,215
Debt 95,620 95,620
Due to affiliate 2,417
Total liabilities 1,743,714 1,679,412
Shareholders' equity:
Preferred stock, $1 par
value; authorized 1,000,000
shares;
none issued
Common stock, $1 par value,
authorized 80,000,000
shares;
issued 31,157,811 and
30,917,575 shares;
outstanding 30,139,312
and 29,917,575 shares 31,158 30,918
Additional paid-in capital 154,938 149,091
Accumulated other comprehensive
income 45,406 49,086
Retained earnings 410,370 418,582
Deferred compensation (2,356)
Treasury stock, at cost, 1,018,499
shares (15,992) (15,565)
Total shareholders'
equity 623,524 632,112
Total liabilities and shareholders'
equity $2,367,238 $2,311,524
* These financial figures are unaudited.
Harleysville Group Inc. and Subsidiaries
SUPPLEMENTARY FINANCIAL ANALYSTS' DATA
Quarter ended March 31
(dollars in thousands) 2003 2002
Net premiums written $215,283 $190,655
Statutory surplus $493,404 $543,014
Pretax investment income $21,447 $21,482
Related federal income taxes 4,973 5,177
After-tax investment income $16,474 $16,305
SEGMENT INFORMATION
Quarter ended March 31
(dollars in thousands) 2003 2002
Revenues:
Premiums earned:
Commercial lines $148,749 $128,305
Personal lines 50,080 54,200
Total premiums earned 198,829 182,505
Net investment income 21,447 21,482
Realized investment gains
(losses) (433) 478
Other 4,520 3,745
Total revenues $224,363 $208,210
Income before income taxes:
Underwriting gain (loss):
Commercial lines ($28,006) ($10,164)
Personal lines (7,894) 1,424
SAP underwriting loss (35,900) (8,740)
GAAP adjustments 4,096 2,428
GAAP underwriting loss (31,804) (6,312)
Net investment income 21,447 21,482
Realized investment gains
(losses) (433) 478
Other 1,915 1,275
Income (loss) before income
taxes ($8,875) $16,923
Income taxes on net investment income $4,973 $5,177
Income tax on remaining loss (10,608) (1,594)
Total income taxes (benefit) ($5,635) $3,583
Effective tax rate on:
Net investment income 23.2% 24.1%
Net income 63.5% 21.2%
These financial figures are unaudited.
Harleysville Group Inc. and Subsidiaries
STATUTORY DATA BY LINE OF BUSINESS
Quarter ended March 31
(dollars in thousands) 2003 2002
Net premiums written:
Commercial:
Automobile $55,243 $47,076
Workers' compensation 32,773 31,943
Commercial multi-peril 64,812 54,310
Other commercial 17,709 13,129
Total commercial $170,537 $146,458
Personal:
Automobile $29,597 $28,970
Homeowners 13,472 13,395
Other personal 1,677 1,832
Total personal $44,746 $44,197
Total personal and commercial $215,283 $190,655
Combined ratios:
Commercial:
Automobile 96.0% 97.5%
Workers' compensation 192.2% 122.0%
Commercial multi-peril 98.8% 100.1%
Other commercial 83.8% 89.8%
Total commercial 114.1% 103.2%
Personal:
Automobile 117.5% 113.5%
Homeowners 124.0% 89.3%
Other personal 114.8% 59.7%
Total personal 119.3% 103.1%
Total personal and commercial 115.4% 103.3%
Losses paid $128,637 $116,447
Net catastrophe losses incurred $3,649 $807
These financial figures are unaudited.
SOURCE Harleysville Group Inc.
-0- 04/25/2003
/CONTACT: Carol Manning (Investors), +1-215-256-5020 or
cmanning@harleysvillegroup.com; or Randy Buckwalter (Media), +1-215-256-5288
or rbuckwalter@harleysvillegroup.com, both of Harleysville Group/
/Web site: http://www.harleysvillegroup.com /
(HGIC)