Exhibit 99.1
Harleysville Group Reports Fourth Quarter and Year-End 2003 Results
HARLEYSVILLE, Pa., Feb. 17 /PRNewswire-FirstCall/ -- Harleysville Group
Inc. (Nasdaq: HGIC) today reported a diluted net loss of $0.66 per share in
the fourth quarter of 2003, reflecting the previously announced loss reserve
increases in several business lines for prior accident years. The company had
diluted net income of $0.57 per share in the fourth quarter of 2002. There
were essentially no realized investment gains or losses in the fourth quarter
of 2003, compared to $0.04 per share of realized gains in the fourth quarter
of 2002. For the 12 months, the company reported a diluted net loss per share
of $1.59, compared to diluted net income per share of $1.53 in 2002. For the
full year, 2003 results included realized investment losses of $0.02 per
share, compared to $0.39 per share of realized losses in 2002.
The company reported a diluted operating loss of $0.66 per share for the
fourth quarter ended December 31, 2003, compared to diluted operating income
of $0.53 per share in the same period of 2002. For the 12 months ended
December 31, 2003, the diluted operating loss was $1.57 per share, compared to
diluted operating income of $1.92 per share in the same period of 2002.
Operating income is a non-GAAP financial measure defined by the company as net
income excluding after-tax realized gains and losses on investments.
"Our 2003 results were totally unacceptable," commented Michael L. Browne,
Harleysville Group's chief executive officer. "We will return Harleysville
not only to profitability, but also to superior levels of profitability. To do
this, we have strengthened our management in key areas, including claims, and
conducted thorough claims and actuarial reviews, using internal and external
resources, in order to address the issues that led to our additions to loss
reserves in 2003. With these changes in place, we can now focus on growing
our business and our profits."
The company's fourth quarter and 12-month results were reduced by the
previously announced addition of $42 million pretax, or $0.92 per share after
tax, to the company's loss and loss adjustment reserves for prior accident
years, primarily in its workers compensation ($11.8 million), commercial
automobile ($9.5 million), commercial multi-peril ($19.3 million) and personal
automobile ($3.8 million) lines of business. Harleysville Group's end-of-the-
quarter reserve analysis showed higher-than-expected development in the
casualty lines of business in accident years prior to 2003, which caused the
company to make the reserve adjustment. Of the reserve development, about
two-thirds relates to the 1999 to 2001 accident years. Harleysville Group's
12-month earnings were reduced by $119 million pretax, or $2.58 per share
after tax, due to reserve development. In light of the higher-than-expected
development in prior accident years, the company raised its loss estimates for
the 2003 accident year, which also impacted the company's fourth quarter and
12-month results.
The full-year results also reflect claims costs of $8.8 million pretax, or
$0.19 per share after tax, from Hurricane Isabel in September. In 2003,
Harleysville Group's property catastrophe losses were $19.7 million pretax, or
$0.43 per share after tax. That compares to property catastrophe losses of
$4.4 million pretax, or $0.10 per share after tax, for 2002.
Harleysville Group's overall statutory combined ratio* was 134.6 percent
in the fourth quarter of 2003, compared to 102.1 percent in the fourth quarter
of 2002. For the 12 months, the statutory combined ratio was 123.2 percent in
2003, versus 101.9 percent in 2002. Reserve development added 20.0 points and
14.5 points to the 2003 fourth quarter and 12-month statutory combined ratios,
respectively. In addition, property catastrophe losses added 2.4 points and
0.6 points to the 2003 and 2002 statutory combined ratios, respectively. A
$13 million cash contribution to the pension plan added 6.5 points and 1.6
points to the 2003 fourth quarter and 12-month combined ratios, respectively,
but did not affect GAAP pension expense.
Fourth quarter net written premiums rose 3 percent to $197.6 million in
2003, while net written premiums through 12 months increased by 6 percent to
$843.5 million in 2003.
Pretax investment income increased 2 percent in the fourth quarter to
$21.9 million, but was virtually unchanged for the year at $86.6 million.
After-tax investment income rose 3 percent in the fourth quarter to
$17.0 million and 2 percent for the year to $66.8 million. Operating cash
flow for the 12 months was $134.6 million, or $21.4 million higher than the
prior year's 12 months.
Commercial lines Net written premiums climbed 10 percent in both the
fourth quarter and the year to $155.0 million and $657.5 million,
respectively. The increase in written premiums is primarily due to higher
pricing. The commercial lines statutory combined ratio was 137.1 percent in
the fourth quarter of 2003, versus 98.7 percent in the fourth quarter of 2002.
For the 12 months, the statutory combined ratio was 123.6 percent in 2003,
compared to 99.5 percent in 2002. In 2003, the fourth quarter reserve
development added 23.3 points to the quarter's commercial lines statutory
combined ratio, while reserve development added 17.2 points to the 12-month
commercial lines statutory combined ratio.
Personal lines Harleysville Group's personal lines statutory combined
ratio was 125.9 percent in the fourth quarter of 2003, versus 112.2 percent
during the fourth quarter of 2002. For the 12 months, the statutory combined
ratio was 121.8 percent in 2003, compared to 108.1 percent in 2002. In 2003,
reserve development added 8.2 points to the fourth quarter personal lines
statutory combined ratio and 5.5 points to the 12-month personal lines
statutory combined ratio. The higher catastrophe losses also contributed to
the higher statutory combined ratio. Net written premiums declined 15 percent
to $42.6 million in the fourth quarter of 2003 and were down 8 percent to
$186.0 million during the year.
Outlook "We are committed to improved profitability in commercial lines
and personal lines," Browne explained. "In commercial lines, we will continue
with our strategy aimed at the core business controlled by our independent
agency partners. In personal lines, the business plan we've put in place in
the last two quarters is realistic and achievable, and it has been welcomed
enthusiastically by our agents.
"Our financial condition is solid. We have a strong balance sheet,
characterized by significantly strengthened reserves, a modest 17 percent
debt-to-capital ratio, a high-quality investment portfolio and a premium-to-
surplus ratio of 1.8 to 1. Additionally, operating cash flow is at a
historical high," Browne continued. "Our relationships with our agents are
strong. As we move past the issues of 2003, we know we will improve our
results in 2004 and beyond. We are going to focus intensely on four
cornerstones -- underwriting, claims handling, service to agents and
policyholders, and productivity. Bottom line, our future success will be
driven by consistent execution of the fundamentals."
Webcast The company will host a live Webcast today, Tuesday, February 17,
2004, at 9:00 a.m. (ET) to discuss its fourth quarter results. The Webcast
will be available from the Investors section of the company's Web site
(www.harleysvillegroup.com) and will be archived on the Web site until
February 17, 2005.
GAAP and non-GAAP financial measures The company uses a non-GAAP
financial measure called "operating income" that management believes is useful
to investors because it illustrates the performance of normal, ongoing
operations, which is important in understanding and evaluating the company's
financial condition and results of operations. While this measure is utilized
by investors to evaluate performance, it is not a substitute for the U.S. GAAP
financial measure of net income. Therefore, a reconciliation of this non-GAAP
financial measure to the U.S. GAAP financial measure of net income is provided
following the Consolidated Statements of Income contained in this release.
Management also uses operating income for goal setting, determining employee
and senior management compensation, and evaluating performance.
Corporate profile Recognized as "Good people to know" in the markets it
serves, Harleysville Insurance is a premier provider of insurance products and
services for small businesses and individuals, and ranks among the top 60 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. Harleysville
Insurance, which distributes its products exclusively through independent
insurance agencies, currently operates in 32 Eastern and Midwestern states.
Further information can be found on the company's Web site
(www.harleysvillegroup.com).
* "Statutory combined ratio" is a non-GAAP measure of underwriting
profitability and is based on numbers determined under statutory accounting
practices as filed with state insurance regulators. 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
Quarter Twelve months
ended ended
FINANCIAL HIGHLIGHTS December 31 December 31
(in thousands, except per share
data) 2003 2002 2003 2002
OPERATING RESULTS
Diluted earnings (loss) per common
share:
Operating income (loss)* ($0.66) $0.53 ($1.57) $1.92
Realized gains (losses),
net of tax 0.04 (0.02) (0.39)
Net income (loss) ($0.66) $0.57 ($1.59) $1.53
Cash dividends per common share $0.17 $0.165 $0.67 $0.63
FINANCIAL CONDITION December 31, 2003 December 31, 2002
Assets $2,680,389 $2,311,524
Shareholders' equity $572,747 $632,112
Per common share $19.16 $21.13
Quarter Twelve months
CONSOLIDATED STATEMENTS OF ended ended
INCOME (LOSS) December 31 December 31
(in thousands, except per
share data) 2003 2002 2003 2002
REVENUES:
Premiums earned $211,646 $197,899 $823,407 $764,636
Investment income, net of
investment expense 21,863 21,518 86,597 86,265
Realized investment gains
(losses) (23) 2,000 (920) (18,448)
Other income 3,450 3,673 15,881 15,283
Total revenues 236,936 225,090 924,965 847,736
LOSSES AND EXPENSES:
Losses and loss settlement
expenses 199,234 131,828 727,875 521,617
Amortization of deferred
policy acquisition costs 52,094 47,977 202,147 185,547
Other underwriting
expenses 16,261 19,810 71,153 74,105
Interest expense 2,229 1,420 7,625 5,698
Other expenses 1,632 1,017 5,615 4,287
Total expenses 271,450 202,052 1,014,415 791,254
Income (loss) before
income taxes (34,514) 23,038 (89,450) 56,482
Income taxes
(benefit) (14,711) 5,635 (41,821) 10,227
Net income (loss) ($19,803) $17,403 ($47,629) $46,255
Weighted average number of
shares outstanding:
Basic 29,894,028 29,853,704 29,985,900 29,699,201
Diluted 30,035,755 30,448,821 30,206,518 30,295,949
Per common share:
Basic earnings
(loss) ($0.66) $0.58 ($1.59) $1.56
Diluted earnings
(loss) ($0.66) $0.57 ($1.59) $1.53
RECONCILIATION TO
OPERATING INCOME (LOSS):
Net income (loss) ($19,803) $17,403 ($47,629) $46,255
Less realized investment
gains (losses), net of
taxes (15) 1,300 (598) (12,007)
Operating income (loss) ($19,788) $16,103 ($47,031) $58,262
These financial figures are unaudited.
* Operating income is a non-GAAP financial measure defined by the
company as net income excluding after-tax realized gains and losses on
investments.
Harleysville Group Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) December 31, 2003* December 31, 2002
ASSETS
Investments:
Fixed maturities:
Held to maturity, at
amortized cost (fair
value $467,485 $439,613 $385,162
and $416,942)
Available for sale, at
fair value (amortized
cost $1,183,158 1,246,019 1,124,869
and $1,051,880)
Equity securities, at fair
value (cost $97,189 and
$96,849) 137,590 107,177
Short-term investments, at
cost, which approximates
fair value 31,411 89,692
Total investments 1,854,633 1,706,900
Cash 13,430 2,944
Premiums in course of collection 140,674 138,905
Reinsurance receivable 164,841 75,488
Accrued investment income 23,086 21,552
Deferred policy acquisition costs 99,033 94,896
Prepaid reinsurance premiums 30,899 19,421
Property and equipment, net 23,824 27,556
Deferred income taxes 43,020 25,784
Securities lending collateral 221,454 139,215
Due from affiliate 10,709
Other assets 65,495 48,154
Total assets $2,680,389 $2,311,524
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss
settlement expenses $1,219,977 $928,335
Unearned premiums 437,883 406,277
Accounts payable and accrued
expenses 91,999 109,965
Securities lending
obligation 221,454 139,215
Debt 120,145 95,620
Due to affiliate 16,184
Total liabilities 2,107,642 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 31,298,532 and
30,917,575 shares;
outstanding 29,900,623
and 29,917,575 shares 31,299 30,918
Additional paid-in capital 156,997 149,091
Accumulated other comprehensive
income 60,450 49,086
Retained earnings 350,844 418,582
Deferred compensation (2,356)
Treasury stock, at cost, 1,397,909
and 1,000,000 shares (24,487) (15,565)
Total shareholders'
equity 572,747 632,112
Total liabilities and shareholders'
equity $2,680,389 $2,311,524
* These financial figures are unaudited.
Harleysville Group Inc. and Subsidiaries
SUPPLEMENTARY FINANCIAL ANALYSTS' DATA
Quarter ended Twelve months ended
December 31 December 31
(dollars in thousands) 2003 2002 2003 2002
Net premiums written* $197,592 $191,122 $843,535 $797,850
Statutory surplus * $475,665 $509,344
Pretax investment income $21,863 $21,518 $86,597 $86,265
Related federal income taxes 4,906 5,093 19,818 20,699
After-tax investment income $16,957 $16,425 $66,779 $65,566
SEGMENT INFORMATION
Quarter ended Twelve months ended
December 31 December 31
(dollars in thousands) 2003 2002 2003 2002
Revenues:
Premiums earned:
Commercial lines $164,656 $146,780 $628,935 $553,194
Personal lines 46,990 51,119 194,472 211,442
Total premiums earned 211,646 197,899 823,407 764,636
Net investment income 21,863 21,518 86,597 86,265
Realized investment gains
(losses) (23) 2,000 (920) (18,448)
Other 3,450 3,673 15,881 15,283
Total revenues $236,936 $225,090 $924,965 $847,736
Income (loss) before income
taxes:
Underwriting loss:
Commercial lines ($57,566) $4,139 ($158,292) ($11,473)
Personal lines (10,261) (5,962) (39,442) (13,963)
SAP underwriting loss (67,827) (1,823) (197,734) (25,436)
GAAP adjustments 11,884 107 19,966 8,803
GAAP underwriting loss (55,943) (1,716) (177,768) (16,633)
Net investment income 21,863 21,518 86,597 86,265
Realized investment gains
(losses) (23) 2,000 (920) (18,448)
Other (411) 1,236 2,641 5,298
Income (loss) before
income taxes ($34,514) $23,038 ($89,450) $56,482
Income taxes on net investment
income $4,906 $5,093 $19,818 $20,699
Income tax on remaining income
(loss) (19,617) 542 (61,639) (10,472)
Total income taxes
(benefit) ($14,711) $5,635 ($41,821) $10,227
Effective tax rate on:
Net investment income 22.4% 23.7% 22.9% 24.0%
Net income 42.6% 24.5% 46.8% 18.1%
These financial figures are unaudited.
* Statutory data is prepared in accordance with statutory accounting rules
as defined by the National Association of Insurance Commissioners'
Accounting Practices and Procedures Manual and therefore is not
reconciled to GAAP.
Harleysville Group Inc. and Subsidiaries
STATUTORY DATA BY LINE OF BUSINESS*
Quarter ended Twelve months ended
December 31 December 31
(dollars in thousands) 2003 2002 2003 2002
Net premiums written:
Commercial:
Automobile $50,920 $47,719 $221,818 $199,511
Workers' compensation 22,036 23,746 107,415 114,565
Commercial multi-peril 64,812 55,416 258,854 224,709
Other commercial 17,258 13,918 69,450 57,272
Total commercial $155,026 $140,799 $657,537 $596,057
Personal:
Automobile $25,559 $31,787 $112,287 $125,593
Homeowners 15,695 16,634 65,740 67,831
Other personal 1,312 1,902 7,971 8,369
Total personal $42,566 $50,323 $185,998 $201,793
Total personal and commercial $197,592 $191,122 $843,535 $797,850
Combined ratios:
Commercial:
Automobile 124.7% 88.7% 112.1% 91.6%
Workers' compensation 197.3% 132.5% 178.2% 127.4%
Commercial multi-peril 132.1% 91.9% 118.3% 93.7%
Other commercial 102.2% 87.8% 87.9% 86.3%
Total commercial 137.1% 98.7% 123.6% 99.5%
Personal:
Automobile 137.2% 122.0% 124.6% 115.8%
Homeowners 91.8% 98.9% 114.6% 97.6%
Other personal 292.7% 74.3% 137.0% 74.1%
Total personal 125.9% 112.2% 121.8% 108.1%
Total personal and commercial 134.6% 102.1% 123.2% 101.9%
Losses paid $144,349 $114,732 $522,397 $465,296
Net catastrophe losses incurred $1,979 $580 $19,683 $4,447
These financial figures are unaudited.
* Statutory data is prepared in accordance with statutory accounting
rules as defined by the National Association of Insurance
Commissioners' Accounting Practices and Procedures Manual and therefore
is not reconciled to GAAP.
SOURCE Harleysville Group Inc.
-0- 02/17/2004
/CONTACT: Mark Cummins (Investors) +1-215-256-5025,
mcummins@harleysvillegroup.com, or Randy Buckwalter (Media), +1-215-256-5288,
rbuckwalter@harleysvillegroup.com, both of Harleysville Group/
/Web site: http://www.harleysvillegroup.com /
(HGIC)
CO: Harleysville Group Inc.
ST: Pennsylvania
IN: INS
SU: ERN ERP MAV CCA