Exhibit 99.1
Harleysville Group Reports Third Quarter 2004 Results
HARLEYSVILLE, Pa., Oct. 28 /PRNewswire-FirstCall/ -- Harleysville Group
Inc. (Nasdaq: HGIC) today reported diluted net income of $0.29 per share in
the third quarter of 2004, compared to a diluted net loss of $1.16 per share
in the third quarter of 2003. There were no realized investment gains in the
third quarter of 2004, versus a realized loss of $0.01 per share in 2003.
Harleysville Group's 2004 results reflect a charge of $0.13 per share from
third quarter weather-related catastrophes, while Hurricane Isabel reduced
earnings by $0.20 per share in the third quarter of 2003. The company's 2003
third quarter earnings were reduced by $1.19 per share after tax due to loss
reserve adjustments.
Diluted net income per share for the nine months ended September 30, 2004,
was $1.17, compared to a diluted net loss of $0.93 in the first nine months of
2003. For the nine months, the company reported $0.28 per share in realized
gains in 2004, compared to a realized loss of $0.02 per share in 2003. In
2003, the company's nine-month earnings were reduced by $1.62 per share after
tax due to loss reserve adjustments.
The company reported diluted operating income of $0.29 per share for the
third quarter of 2004, compared to a $1.15 diluted operating loss per share in
the third quarter of 2003. For the nine-month periods, the company reported
diluted operating income of $0.89 per share in 2004 and a diluted operating
loss of $0.91 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.
"Our third quarter results show that we continue to improve," commented
Michael L. Browne, Harleysville Group's chief executive officer. "During the
quarter, we again generated growth in our commercial lines business and
continued to maintain solid retention levels - both of which affirm the
strength of our agency base and our solid relationships with our agents. At
the same time, we continue to maintain a solid capital base and a strong
balance sheet, a modest debt-to-capital ratio of 17 percent, a high-quality
investment portfolio and a premium-to-surplus ratio of 1.7:1 - all of which
are key components of our strong financial position.
"While hurricanes did impact us this quarter, the effect was relatively
minimal compared to what has been reported by some of our competitors in the
industry because we've worked hard over the past decade to manage our
windstorm exposures to acceptable levels," Browne continued. "We sympathize
with our policyholders who suffered losses from these storms, and I'm proud
that our claims professionals - working in tandem with our independent agency
partners - have rallied to their assistance and are delivering the prompt and
fair claims service our customers have come to expect from Harleysville."
The company's third quarter results reflect claims costs of $6.1 million
pretax, or $0.13 per share after tax, from all weather-related catastrophes -
including the four hurricanes that hit the southeastern United States during
the third quarter, but driven predominantly by claims associated with
Hurricanes Ivan and Jeanne in several Mid-Atlantic states - compared to $10.5
million pretax, or $0.23 per share after tax, in the third quarter of 2003.
In the first nine months of 2004, Harleysville Group's property catastrophe
losses were $10.0 million pretax, or $0.22 per share after tax. That compares
to property catastrophe losses of $17.7 million pretax, or $0.38 per share
after tax, for the first nine months of 2003.
Harleysville Group's overall statutory combined ratio* was 106.6 percent
in the third quarter of 2004, compared to 137.2 percent in the third quarter
of 2003. For the nine months, the statutory combined ratio was 106.4 percent
in 2004, versus 119.4 percent in 2003. The 2003 combined ratios reflect the
previously mentioned loss reserve adjustments.
Third quarter net written premiums were $209.9 million in 2004, compared
to $208.1 million in 2003. Net written premiums through nine months were
$639.0 million in 2004 and $645.9 million in 2003.
Third quarter pretax investment income declined 1 percent to $21.5
million, while nine-month pretax investment income was essentially unchanged
at $64.6 million. After-tax investment income was down 1 percent in the third
quarter to $16.6 million, but was virtually unchanged at $50.0 million during
the nine-month period. Operating cash flow for the nine months was $70.2
million.
Commercial lines -- Net written premiums in commercial lines increased 5
percent in the third quarter of 2004 to $166.7 million. For the nine months, net
written premiums were up 2 percent to $514.9 million. The commercial lines
statutory combined ratio was 108.6 percent in the third quarter of 2004, versus
140.1 percent in the third quarter of 2003. For the nine months, the statutory
combined ratio was 106.7 percent in 2004, compared to 119.0 percent in 2003. The
combined ratios in both 2003 periods were impacted by the previously mentioned
loss reserve adjustments.
Personal lines -- Harleysville Group's personal lines statutory combined
ratio was 99.0 percent in the third quarter of 2004, versus 127.3 percent during
the third quarter of 2003. For the nine months, the statutory combined ratio was
105.3 percent in 2004, compared to 120.7 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 12 percent to $43.2 million in the third quarter of 2004, and
were down 13 percent to $124.2 million through nine months.
Webcast -- The company will host a live Webcast today, Thursday, October 28,
2004, at 9:00 a.m. (ET) to discuss its third quarter results. The Webcast will
be available from the Investors section of the company's Web site
(http://www.harleysvillegroup.com) until October 28, 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 leading regional provider
of insurance products and services for small and mid-sized businesses, as well
as for 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 Nine months ended
FINANCIAL HIGHLIGHTS September 30 September 30
(in thousands, except per share
data) 2004 2003 2004 2003
OPERATING RESULTS
Diluted earnings per common share:
Operating income (loss) * $0.29 ($1.15) $0.89 ($0.91)
Realized gains (losses), net
of tax (0.01) 0.28 (0.02)
Net income (loss) $0.29 ($1.16) $1.17 ($0.93)
Cash dividends per common share $0.17 $0.17 $0.51 $0.50
FINANCIAL CONDITION September 30, 2004 December 31, 2003
Assets $2,638,728 $2,680,389
Shareholders' equity $583,619 $572,747
Per common share $19.38 $19.16
Quarter ended Nine months ended
CONSOLIDATED STATEMENTS OF September 30 September 30
INCOME (LOSS)
(in thousands, except per
share data) 2004 2003 2004 2003
REVENUES:
Premiums earned $212,641 $209,177 $627,241 $611,761
Investment income, net of
investment expense 21,499 21,638 64,578 64,734
Realized investment gains
(losses) 104 (531) 12,651 (897)
Other income 4,024 3,838 12,259 12,431
Total revenues 238,268 234,122 716,729 688,029
LOSSES AND EXPENSES:
Losses and loss settlement
expenses 153,944 217,456 453,765 528,641
Amortization of deferred
policy acquisition costs 52,150 51,838 153,536 150,053
Other underwriting
expenses 18,154 18,214 57,518 54,892
Interest expense 1,587 2,609 4,730 5,396
Other expenses 2,764 1,596 5,449 3,983
Total expenses 228,599 291,713 674,998 742,965
Income (loss) before
income taxes 9,669 (57,591) 41,731 (54,936)
Income taxes
(benefit) 789 (22,937) 6,630 (27,110)
Net income (loss) $8,880 ($34,654) $35,101 ($27,826)
Weighted average number of
shares outstanding:
Basic 30,062,573 29,986,285 29,994,621 30,016,861
Diluted 30,153,074 29,986,285 30,090,932 30,016,861
Per common share:
Basic earnings
(loss) $0.30 ($1.16) $1.17 ($0.93)
Diluted earnings
(loss) $0.29 ($1.16) $1.17 ($0.93)
RECONCILIATION TO
OPERATING INCOME (LOSS):
Net income (loss) $8,880 ($34,654) $35,101 ($27,826)
Less realized investment
gains (losses), net of
taxes 68 (345) 8,223 (583)
Operating income (loss) $8,812 ($34,309) $26,878 ($27,243)
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) September 30, 2004* December 31, 2003
ASSETS
Investments:
Fixed maturities:
Held to maturity, at
amortized cost (fair
value $532,494 $510,841 $439,613
and $467,485)
Available for sale, at
fair value (amortized
cost $1,118,146 1,167,413 1,246,019
and $1,183,158)
Equity securities, at fair
value (cost $110,033 and
$97,189) 141,497 137,590
Short-term investments, at
cost, which approximates
fair value 94,212 31,411
Total investments 1,913,963 1,854,633
Cash 1,037 13,430
Premiums in course of collection 143,166 140,674
Reinsurance receivable 176,052 164,841
Accrued investment income 21,442 23,086
Deferred policy acquisition costs 103,376 99,033
Prepaid reinsurance premiums 32,442 30,899
Property and equipment, net 21,291 23,824
Deferred income taxes 52,424 43,020
Securities lending collateral 120,888 221,454
Due from affiliate 6,833
Other assets 45,814 65,495
Total assets $2,638,728 $2,680,389
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss
settlement expenses $1,280,820 $1,219,977
Unearned premiums 451,219 437,883
Accounts payable and accrued
expenses 82,557 91,999
Securities lending
obligation 120,888 221,454
Debt 119,625 120,145
Due to affiliate 16,184
Total liabilities 2,055,109 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 31,510,885 and
31,298,532 shares;
outstanding 30,112,976
and 29,900,623 shares 31,511 31,299
Additional paid-in capital 160,358 156,997
Accumulated other comprehensive income 45,805 60,450
Retained earnings 370,632 350,844
Deferred compensation (200) (2,356)
Treasury stock, at cost, 1,397,909
shares (24,487) (24,487)
Total shareholders' equity 583,619 572,747
Total liabilities and shareholders'
equity $2,638,728 $2,680,389
* These financial figures are unaudited.
Harleysville Group Inc. and Subsidiaries
SUPPLEMENTARY FINANCIAL ANALYSTS' DATA
Quarter ended Nine months ended
September 30 September 30
(dollars in thousands) 2004 2003 2004 2003
Net premiums written* $209,914 $208,096 $639,035 $645,943
Statutory surplus * $498,093 $501,331
Pretax investment income $21,499 $21,638 $64,578 $64,734
Related federal income taxes 4,926 4,939 14,615 14,912
After-tax investment income $16,573 $16,699 $49,963 $49,822
SEGMENT INFORMATION
Quarter ended Nine months ended
September 30 September 30
(dollars in thousands) 2004 2003 2004 2003
Revenues:
Premiums earned:
Commercial lines $169,680 $161,412 $495,791 $464,279
Personal lines 42,961 47,765 131,450 147,482
Total premiums earned 212,641 209,177 627,241 611,761
Net investment income 21,499 21,638 64,578 64,734
Realized investment gains
(losses) 104 (531) 12,651 (897)
Other 4,024 3,838 12,259 12,431
Total revenues $238,268 $234,122 $716,729 $688,029
Income (loss) before income taxes:
Underwriting gain (loss):
Commercial lines ($13,517) ($63,953) ($39,523) ($100,726)
Personal lines 344 (13,439) (4,506) (29,181)
SAP underwriting loss (13,173) (77,392) (44,029) (129,907)
GAAP adjustments 1,566 (939) 6,451 8,082
GAAP underwriting loss (11,607) (78,331) (37,578) (121,825)
Net investment income 21,499 21,638 64,578 64,734
Realized investment gains
(losses) 104 (531) 12,651 (897)
Other (327) (367) 2,080 3,052
Income (loss) before
income taxes $9,669 ($57,591) $41,731 ($54,936)
Income taxes on net investment
income $4,926 $4,939 $14,615 $14,912
Income tax on remaining loss (4,137) (27,876) (7,985) (42,022)
Total income taxes
(benefit) $789 ($22,937) $6,630 ($27,110)
Effective tax rate on:
Net investment income 22.9% 22.8% 22.6% 23.0%
Net income 8.2% 39.8% 15.9% 49.3%
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 Nine months ended
September 30 September 30
(dollars in thousands) 2004 2003 2004 2003
Net premiums written:
Commercial:
Automobile $55,119 $56,614 $174,247 $170,898
Workers' compensation 23,817 25,068 74,729 85,379
Commercial multi-peril 70,557 60,286 215,560 194,042
Other commercial 17,181 17,113 50,343 52,192
Total commercial $166,674 $159,081 $514,879 $502,511
Personal:
Automobile $23,993 $28,133 $70,653 $86,728
Homeowners 16,910 18,578 46,392 50,045
Other personal 2,337 2,304 7,111 6,659
Total personal $43,240 $49,015 $124,156 $143,432
Total personal and commercial $209,914 $208,096 $639,035 $645,943
Combined ratios:
Commercial:
Automobile 103.8% 131.2% 103.8% 107.8%
Workers' compensation 131.2% 203.1% 125.4% 172.4%
Commercial multi-peril 105.8% 134.6% 105.4% 113.3%
Other commercial 103.4% 84.7% 93.5% 82.4%
Total commercial 108.6% 140.1% 106.7% 119.0%
Personal:
Automobile 113.0% 129.2% 114.0% 120.7%
Homeowners 78.3% 129.8% 91.2% 122.2%
Other personal 88.0% 85.5% 103.8% 107.2%
Total personal 99.0% 127.3% 105.3% 120.7%
Total personal and commercial 106.6% 137.2% 106.4% 119.4%
Losses paid $128,077 $123,677 $404,792 $378,048
Net catastrophe losses incurred $6,091 $10,469 $9,977 $17,704
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- 10/28/2004
/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 FIN
SU: ERN MAV CCA