Exhibit 99.1
Harleysville Group Reports Second Quarter 2004 Results
HARLEYSVILLE, Pa., July 29 /PRNewswire-FirstCall/ -- Harleysville Group
Inc. (Nasdaq: HGIC) today reported diluted net income of $0.32 per share in
the second quarter of 2004, compared to $0.33 per share in the second quarter
of 2003. For the six months ended June 30, 2004 and 2003, diluted net income
per share was $0.87 and $0.23, respectively. There were no realized investment
gains or losses in the second quarter of either year. For the six months, the
company reported $0.27 per share in realized gains in 2004, compared to a
realized loss of $0.01 per share in 2003. There was no significant net reserve
development in the first six months of 2004. In 2003, the company's six-month
earnings were reduced by $0.43 per share after tax due to a first quarter
workers compensation reserve adjustment.
The company reported diluted operating income of $0.32 per share for the
second quarter of 2004, compared to $0.33 per share in the second quarter of
2003. For the six-month periods, diluted operating income per share was
$0.60 in 2004 and $0.24 in 2003. Operating income is a non-GAAP financial
measure defined by the company as net income excluding after-tax realized
gains and losses on investments.
"We've made progress and again improved our results this quarter over the
prior quarter, and we're confident we're on a course that will lead us to
sustainable long-term growth and profitability," commented Michael L. Browne,
Harleysville Group's chief executive officer. "We continue to focus on
improving our four cornerstone areas-underwriting, claims handling, service to
agents and policyholders, and productivity-as we strive to return our company
to its past high levels of financial performance."
Harleysville Group's overall statutory combined ratio* was 105.4 percent
in the second quarter of 2004, compared to 105.2 percent in the second quarter
of 2003. For the six months, the statutory combined ratio was 106.3 percent in
2004, versus 110.2 percent in 2003. In 2003, the workers compensation reserve
adjustment added 4.9 points to the six-month combined ratio.
Second quarter net written premiums were $223.1 million in 2004, compared
to $222.6 million in 2003. Net written premiums through six months were
$429.1 million in 2004 and $437.8 million in 2003.
Second quarter pretax investment income declined 1 percent to
$21.4 million, while six-month pretax investment income was unchanged at
$43.1 million. After-tax investment income was unchanged in the second quarter
at $16.6 million, but rose 1 percent to $33.4 million during the six-month
period. Operating cash flow for the six months was $23.9 million.
Commercial lines -- Net written premiums in commercial lines increased
4 percent in the second quarter of 2004 to $180.0 million. For the six months,
net written premiums were up 1 percent to $348.2 million. The commercial lines
statutory combined ratio was 106.7 percent in the second quarter of 2004,
versus 101.7 percent in the second quarter of 2003. For the six months, the
statutory combined ratio was 105.7 percent in 2004, compared to 107.8 percent
in 2003. In 2003, the workers compensation reserve adjustment added 6.6 points
to the six-month commercial lines statutory combined ratio.
Personal lines -- Harleysville Group's personal lines statutory combined
ratio was 100.6 percent in the second quarter of 2004, versus 115.8 percent
during the second quarter of 2003. For the six months, the statutory combined
ratio was 108.4 percent in 2004, compared to 117.5 percent in 2003. In 2003,
weather-related losses and abnormally high large loss activity in the
homeowners line also contributed to the higher statutory combined ratio. Net
written premiums decreased 13 percent to $43.1 million in the second quarter
of 2004, and were down 14 percent to $80.9 million through six months.
Outlook -- "Harleysville Group has a good capital base and a strong balance
sheet, a great franchise, employees who are focused on making us succeed, and
strong relationships with a solid and loyal network of independent agents,"
said Browne. "Looking forward, we have turned our attention to fine-tuning our
commercial and personal lines business strategies to deliver the consistent
growth and profitability that we seek."
Webcast -- The company will host a live Webcast today, Thursday, July 29,
2004, at 9:00 a.m. (ET) to discuss its second quarter results. The Webcast
will be available from the Investors section of the company's Web site
(http://www.harleysvillegroup.com) until July 29, 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 -- 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 Mutual Insurance Company owns 57 percent of
Harleysville Group Inc. (Nasdaq: HGIC), 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 exclusively through independent insurance agencies, currently
operates in 32 eastern and midwestern states. Further information can be found
on the company's Web site at http://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 ended Six months ended
June 30 June 30
FINANCIAL HIGHLIGHTS 2004 2003 2004 2003
(in thousands, except per
share data)
OPERATING RESULTS
Diluted earnings per
common share:
Operating income * $0.32 $0.33 $0.60 $0.24
Realized gains
(losses), net of tax 0.27 (0.01)
Net income $0.32 $0.33 $0.87 $0.23
Cash dividends per common
share $0.17 $0.165 $0.34 $0.33
FINANCIAL CONDITION June 30, 2004 December 31, 2003
Assets $2,627,105 $2,680,389
Shareholders' equity $569,553 $572,747
Per common share $19.00 $19.16
CONSOLIDATED STATEMENTS OF INCOME
Quarter ended Six months ended
June 30 June 30
(in thousands, except per
share data) 2004 2003 2004 2003
REVENUES:
Premiums earned $207,652 $203,755 $414,600 $402,584
Investment income, net of
investment expense 21,437 21,649 43,079 43,096
Realized investment gains
(losses) 59 67 12,547 (366)
Other income 3,671 4,073 8,235 8,593
Total revenues 232,819 229,544 478,461 453,907
LOSSES AND EXPENSES:
Losses and loss settlement
expenses 148,711 147,426 299,821 311,185
Amortization of deferred
policy acquisition costs 50,698 49,898 101,386 98,215
Other underwriting
expenses 19,726 18,121 39,364 36,678
Interest expense 1,566 1,393 3,143 2,787
Other expenses 1,266 1,176 2,685 2,387
Total expenses 221,967 218,014 446,399 451,252
Income before income taxes 10,852 11,530 32,062 2,655
Income taxes
(benefit) 1,124 1,462 5,841 (4,173)
Net income $9,728 $10,068 $26,221 $6,828
Weighted average number of
shares outstanding:
Basic 29,959,781 30,076,989 29,960,271 30,032,397
Diluted 30,027,955 30,348,033 30,045,317 30,306,311
Per common share:
Basic earnings $0.32 $0.33 $0.88 $0.23
Diluted earnings $0.32 $0.33 $0.87 $0.23
RECONCILIATION TO
OPERATING INCOME :
Net income $9,728 $10,068 $26,221 $6,828
Less realized investment
gains (losses), net of
taxes 38 44 8,155 (238)
Operating income $9,690 $10,024 $18,066 $7,066
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) June 30, 2004* December 31, 2003
ASSETS
Investments:
Fixed maturities:
Held to maturity, at amortized cost
(fair value $510,782 $496,844 $439,613
and $467,485)
Available for sale, at fair value
(amortized cost $1,134,152 1,165,219 1,246,019
and $1,183,158)
Equity securities, at fair value
(cost $109,196 and $97,189) 146,418 137,590
Short-term investments, at cost,
which approximates fair value 47,980 31,411
Total investments 1,856,461 1,854,633
Cash 1,050 13,430
Premiums in course of collection 151,012 140,674
Reinsurance receivable 174,880 164,841
Accrued investment income 23,042 23,086
Deferred policy acquisition costs 103,924 99,033
Prepaid reinsurance premiums 29,007 30,899
Property and equipment, net 22,497 23,824
Deferred income taxes 55,292 43,020
Securities lending collateral 145,505 221,454
Other assets 64,435 65,495
Total assets $2,627,105 $2,680,389
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss
settlement expenses $1,253,283 $1,219,977
Unearned premiums 450,511 437,883
Accounts payable and accrued
expenses 83,275 91,999
Securities lending
obligation 145,505 221,454
Debt 119,625 120,145
Due to affiliate 5,353 16,184
Total liabilities 2,057,552 2,107,642
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 31,381,457 and
31,298,532 shares;
outstanding 29,983,548
and 29,900,623 shares 31,381 31,299
Additional paid-in capital 158,271 156,997
Accumulated other comprehensive income 37,718 60,450
Retained earnings 366,870 350,844
Deferred compensation (200) (2,356)
Treasury stock, at cost, 1,397,909 (24,487) (24,487)
Total shareholders' equity 569,553 572,747
Total liabilities and shareholders'
equity $2,627,105 $2,680,389
* These financial figures are unaudited.
Harleysville Group Inc. and Subsidiaries
SUPPLEMENTARY FINANCIAL ANALYSTS' DATA
Quarter ended Six months ended
June 30 June 30
(dollars in thousands) 2004 2003 2004 2003
Net premiums written* $223,095 $222,564 $429,121 $437,847
Statutory surplus * $496,170 $512,070
Pretax investment income $21,437 $21,649 $43,079 $43,096
Related federal income taxes 4,825 5,000 9,689 9,973
After-tax investment income $16,612 $16,649 $33,390 $33,123
SEGMENT INFORMATION
Quarter ended Six months ended
June 30 June 30
(dollars in thousands) 2004 2003 2004 2003
Revenues:
Premiums earned:
Commercial lines $163,791 $154,118 $326,111 $302,867
Personal lines 43,861 49,637 88,489 99,717
Total premiums earned 207,652 203,755 414,600 402,584
Net investment income 21,437 21,649 43,079 43,096
Realized investment gains
(losses) 59 67 12,547 (366)
Other 3,671 4,073 8,235 8,593
Total revenues $232,819 $229,544 $478,461 $453,907
Income before income taxes :
Underwriting gain (loss):
Commercial lines ($16,358) ($8,767) ($26,006) ($36,773)
Personal lines 10 (7,848) (4,850) (15,742)
SAP underwriting loss (16,348) (16,615) (30,856) (52,515)
GAAP adjustments 4,865 4,925 4,885 9,021
GAAP underwriting loss (11,483) (11,690) (25,971) (43,494)
Net investment income 21,437 21,649 43,079 43,096
Realized investment gains
(losses) 59 67 12,547 (366)
Other 839 1,504 2,407 3,419
Income before income taxes $10,852 $11,530 $32,062 $2,655
Income taxes on net investment
income $4,825 $5,000 $9,689 $9,973
Income tax on remaining loss (3,701) (3,538) (3,848) (14,146)
Total income taxes (benefit) $1,124 $1,462 $5,841 ($4,173)
Effective tax rate on:
Net investment income 22.5% 23.1% 22.5% 23.1%
Net income 10.4% 12.7% 18.2% N/M
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 Six months ended
June 30 June 30
(dollars in thousands) 2004 2003 2004 2003
Net premiums written:
Commercial:
Automobile $62,367 $59,041 $119,128 $114,284
Workers' compensation 24,172 27,538 50,912 60,311
Commercial multi-peril 76,805 68,944 145,003 133,756
Other commercial 16,681 17,370 33,162 35,079
Total commercial $180,025 $172,893 $348,205 $343,430
Personal:
Automobile $23,459 $28,998 $46,660 $58,595
Homeowners 16,514 17,995 29,482 31,467
Other personal 3,097 2,678 4,774 4,355
Total personal $43,070 $49,671 $80,916 $94,417
Total personal and commercial $223,095 $222,564 $429,121 $437,847
Combined ratios:
Commercial:
Automobile 104.7% 94.4% 103.9% 95.1%
Workers' compensation 122.2% 120.9% 122.5% 157.1%
Commercial multi-peril 105.5% 105.1% 105.3% 102.0%
Other commercial 95.4% 78.4% 88.5% 81.0%
Total commercial 106.7% 101.7% 105.7% 107.8%
Personal:
Automobile 110.9% 116.1% 114.6% 116.8%
Homeowners 86.0% 113.9% 97.6% 118.7%
Other personal 83.6% 123.8% 112.3% 118.8%
Total personal 100.6% 115.8% 108.4% 117.5%
Total personal and commercial 105.4% 105.2% 106.3% 110.2%
Losses paid $142,655 $125,734 $276,715 $254,371
Net catastrophe losses incurred $1,262 $3,586 $3,887 $7,235
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- 07/29/2004
/CONTACT: Mark Cummins (Investors), +1-215-256-5025,
mcummins@harleysvillegroup.com, or Randy Buckwalter (Media), +1-215-256-5288,
rbuckwalter@harleysvillegroup.com/
/Web site: http://www.harleysvillegroup.com /
(HGIC)
CO: Harleysville Group Inc.
ST: Pennsylvania
IN: INS
SU: ERN CCA