EXHIBIT 99.1
Harleysville Group Reports First
Quarter 2007 Results
First quarter highlights:
-- Operating earnings rise by 13 percent to $0.70 per share
-- Statutory combined ratio(1) improves by 1.3 points to 97.9
percent
-- Pretax investment income grows 14 percent
-- Book value climbs by 13 percent to $23.06 per share from one
year ago
HARLEYSVILLE, Pa.--(BUSINESS WIRE)--April 24, 2007--Harleysville
Group Inc. (NASDAQ: HGIC) today reported diluted operating income of
$0.70 per share for the first quarter of 2007, compared to $0.62 per
share in the first quarter of 2006. Operating income is a non-GAAP
financial measure defined by the company as net income excluding
after-tax realized gains and losses on investments, and the cumulative
effect of an accounting change, net of income tax.
"We're pleased to report that we've begun 2007 with another solid
quarter as we continue to see ongoing, steady improvement in our
operating performance," commented Michael L. Browne, Harleysville
Group's president and chief executive officer. "Our statutory combined
ratio for the first quarter was 97.9 percent, or 1.3 points better
than the first three months of last year. At the same time, we
produced strong operating earnings of $0.70 per share for the first
quarter, a 13 percent increase over the $0.62 a share we reported in
the first quarter of 2006. And, we continue to maintain our solid
capital base and a strong balance sheet, a modest debt-to-capital
ratio of 14 percent(2), a high-quality investment portfolio, and a
premium-to-surplus ratio of 1.2 to 1--which, together, provide the
sound financial position for us to write our agents' best business."
The company reported diluted net income of $0.71 per share in the
first quarter of 2007, compared to $0.70 per share in the first
quarter of 2006. There was $0.01 per share of realized investment
gains in the first quarter of 2007, compared to $0.05 per share in the
first quarter of 2006. The first quarter of 2006 also included an
after-tax benefit of $0.03 per share for the cumulative effect of a
change in accounting principle resulting from the adoption of
Statement of Financial Accounting Standards No. 123R, "Share-Based
Payment." This statement requires that the cost resulting from all
share-based payment transactions be recognized in the financial
statements.
First quarter net written premiums were $207.0 million in 2007,
compared to $208.9 million in the same period in 2006.
Harleysville Group's overall statutory combined ratio was 97.9
percent in the first quarter of 2007, compared to 99.2 percent in the
first quarter of 2006.
First quarter pretax investment income increased 14 percent to
$27.4 million, while after-tax investment income grew 8 percent in the
first quarter to $19.6 million. Operating cash flow for the first
quarter was $59.4 million, compared to $53.1 million in the first
quarter of 2006.
Commercial lines -- Net written premiums in commercial lines were
$174.8 million in the first quarter of 2007, down 1 percent from the
same period in 2006. The commercial lines statutory combined ratio was
97.9 percent in the first quarter of 2007, versus 101.2 percent in the
first quarter of 2006.
Personal lines -- Net written premiums were unchanged at $32.2
million in the first quarter of 2007. Harleysville Group's personal
lines statutory combined ratio was 98.5 percent in the first quarter
of 2007, versus 89.6 percent during the first quarter of 2006.
Outlook -- "As we progress through 2007 and beyond, we will not
compromise underwriting quality to chase a near-term growth target,"
Browne said. "Instead, we will remain focused on the basics of our
business as we seek to consistently produce the kind of quality
results we are reporting today--improving earnings, profitable
underwriting and an operating return on equity of greater than 12
percent--while always maintaining a healthy balance sheet. Based on
our solid first quarter results, coupled with the ongoing support of
our employees and agents, we are confident the foundation we've
established will enable us to generate additional ongoing, steady
improvement in our operating performance."
Webcast -- The company will host a live Webcast tomorrow, April
25, 2007, at 8 a.m. (ET) to discuss its first quarter results. The
Webcast and a replay will be available from the Investors section of
the company's Web site (www.harleysvillegroup.com).
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, among other
things, 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 53 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 Group is a member of
the NASDAQ Global Select Market, which represents the top third of all
NASDAQ-listed companies and has the highest initial listing standards
of any exchange in the world based on financial and liquidity
requirements. Harleysville Group has paid a dividend every quarter
since the company went public in 1986, and was one of 3 percent of
public companies recognized with a 2006 Mergent Dividend Achiever
Award for its long-term history of dividend increases. Harleysville
Insurance--which distributes its products exclusively through
independent insurance agencies and reflects that commitment to its
agency force by being a Trusted Choice(R) company partner--currently
operates in 32 eastern and midwestern states. Further information can
be found on the company's Web site at www.harleysvillegroup.com.
(1) "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.
(2) Excludes the effects of SFAS No. 115.
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 operating return on equity, 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
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FINANCIAL HIGHLIGHTS Quarter ended March 31
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(in thousands, except per share data) 2007 2006
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OPERATING RESULTS
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Diluted earnings per common share:
Operating income* $0.70 $0.62
Realized gains, net of income taxes 0.01 $0.05
Cumulative effect of accounting change,
net of income taxes $0.03
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Net income $0.71 $0.70
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Cash dividends per common share $0.19 $0.175
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March 31, December 31,
FINANCIAL CONDITION 2007 2006
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Assets $3,026,920 $2,990,984
Shareholders' equity $736,181 $712,162
Per common share $23.06 $22.49
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CONSOLIDATED STATEMENTS OF INCOME Quarter ended March 31
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(in thousands, except per share data) 2007 2006
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REVENUES:
Premiums earned $205,378 $208,345
Investment income, net of investment expense 27,397 24,095
Realized investment gains 624 2,210
Other income 3,498 4,887
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Total revenues 236,897 239,537
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LOSSES AND EXPENSES:
Losses and loss settlement expenses 131,151 135,989
Amortization of deferred policy acquisition
costs 51,896 52,604
Other underwriting expenses 18,281 19,991
Interest expense 1,765 1,710
Other expenses 1,273 1,015
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Total expenses 204,366 211,309
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Income before income taxes and cumulative
effect of accounting change 32,531 28,228
Income taxes 9,629 7,520
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Income before cumulative effect of accounting
change 22,902 20,708
Cumulative effect of accounting change, net of
income taxes 942
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Net income $22,902 $21,650
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Weighted average number of shares outstanding:
Basic 31,630,213 30,641,110
Diluted 32,116,305 31,065,785
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Per common share:
Basic earnings before cumulative effect of
accounting change $0.72 $0.68
Basic cumulative effect of accounting change $0.03
Basic earnings $0.72 $0.71
Diluted earnings before cumulative effect of
accounting change $0.71 $0.67
Diluted cumulative effect of accounting
change $0.03
Diluted earnings $0.71 $0.70
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RECONCILIATION TO OPERATING INCOME:
Net income $22,902 $21,650
Less cumulative effect of accounting change,
net of income taxes 942
Less realized investment gains, net of income
taxes 406 1,437
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Operating income $22,496 $19,271
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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 and the cumulative effect of accounting change, net of
income taxes.
Harleysville Group Inc. and Subsidiaries
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CONSOLIDATED BALANCE SHEETS
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(in thousands, except share data) March 31, December 31,
2007* 2006
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ASSETS
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair
value $357,015 and $381,835) $356,857 $382,457
Available for sale, at fair value
(amortized cost $1,759,820 and
$1,717,651) 1,770,471 1,722,874
Equity securities, at fair value (cost
$63,928 and $62,932) 72,212 71,446
Short-term investments, at cost, which
approximates fair value 105,593 72,237
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Total investments 2,305,133 2,249,014
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Cash 141 227
Premiums in course of collection 142,971 147,445
Reinsurance receivable 171,017 167,199
Accrued investment income 25,333 25,823
Deferred policy acquisition costs 102,436 102,317
Prepaid reinsurance premiums 35,537 37,242
Property and equipment, net 16,598 16,690
Deferred income taxes 56,348 60,643
Securities lending collateral 123,866 124,755
Due from affiliate 5,716
Other assets 47,540 53,913
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Total assets $3,026,920 $2,990,984
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss settlement expenses $1,515,848 $1,493,645
Unearned premiums 443,684 443,738
Accounts payable and accrued expenses 73,938 98,184
Securities lending obligation 123,866 124,755
Debt 118,500 118,500
Due to affiliate 14,903
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Total liabilities 2,290,739 2,278,822
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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 33,316,280 and
33,060,600 shares; outstanding 31,918,371
and 31,662,691 shares 33,316 33,061
Additional paid-in capital 200,975 197,607
Accumulated other comprehensive income 3,574 14
Retained earnings 522,803 505,967
Treasury stock, at cost, 1,397,909 shares (24,487) (24,487)
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Total shareholders' equity 736,181 712,162
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Total liabilities and shareholders' equity $3,026,920 $2,990,984
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* These financial figures are unaudited.
Harleysville Group Inc. and Subsidiaries
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SUPPLEMENTARY FINANCIAL ANALYSTS' DATA
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Quarter ended March 31
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(dollars in thousands) 2007 2006
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Net premiums written* $207,030 $208,916
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Statutory surplus* $712,129 $597,449
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Pretax investment income $27,397 $24,095
Related federal income taxes 7,816 6,033
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After-tax investment income $19,581 $18,062
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SEGMENT INFORMATION
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Quarter ended March 31
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(dollars in thousands) 2007 2006
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Revenues:
Premiums earned:
Commercial lines $170,213 $172,087
Personal lines 35,165 36,258
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Total premiums earned 205,378 208,345
Net investment income 27,397 24,095
Realized investment gains 624 2,210
Other 3,498 4,887
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Total revenues $236,897 $239,537
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Income before income taxes and cumulative effect
of accounting change:
Underwriting gain (loss):
Commercial lines $2,092 ($3,600)
Personal lines 1,574 5,119
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SAP underwriting gain 3,666 1,519
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GAAP adjustments 384 (1,758)
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GAAP underwriting gain (loss) 4,050 (239)
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Net investment income 27,397 24,095
Realized investment gains 624 2,210
Other 460 2,162
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Income before income taxes and cumulative
effect of accounting change $32,531 $28,228
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Income taxes on net investment income $7,816 $6,033
Income taxes on remaining gain before cumulative
effect of accounting change 1,813 1,487
Total income taxes on income before cumulative
effect of accounting change $9,629 $7,520
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Effective tax rate on:
Net investment income 28.5% 25.0%
Income before cumulative effect of accounting
change 29.6% 26.6%
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These financial figures are unaudited.
*Statutory data is a non-GAAP measure. Because it is prepared in
accordance with statutory accounting rules as defined by the National
Association of Insurance Commissioners' Accounting Practices and
Procedures Manual, a reconciliation to GAAP is not required.
Harleysville Group Inc. and Subsidiaries
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STATUTORY DATA BY LINE OF BUSINESS*
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Quarter ended March 31
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(dollars in thousands) 2007 2006
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Net premiums written:
Commercial:
Automobile $50,121 $53,977
Workers' compensation 26,647 26,274
Commercial multi-peril 79,900 77,837
Other commercial 18,155 18,656
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Total commercial $174,823 $176,744
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Personal:
Automobile $16,527 $17,748
Homeowners 13,660 12,534
Other personal 2,020 1,890
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Total personal $32,207 $32,172
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Total personal and commercial $207,030 $208,916
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Statutory combined ratios:
Commercial:
Automobile 92.6% 101.1%
Workers' compensation 112.6% 117.3%
Commercial multi-peril 100.2% 99.9%
Other commercial 84.3% 86.5%
Total commercial 97.9% 101.2%
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Personal:
Automobile 104.5% 100.7%
Homeowners 92.6% 78.8%
Other personal 95.7% 68.1%
Total personal 98.5% 89.6%
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Total personal and commercial statutory
combined ratio 97.9% 99.2%
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GAAP combined ratio 98.0% 100.1%
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Losses paid $111,687 $105,850
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Net catastrophe losses incurred $2,068 $2,827
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These financial figures are unaudited.
*Statutory data is a non-GAAP measure. Because it is prepared in
accordance with statutory accounting rules as defined by the National
Association of Insurance Commissioners' Accounting Practices and
Procedures Manual, a reconciliation to GAAP is not required.
CONTACT: Harleysville Group Inc.
Investors:
Mark Cummins, 215-256-5025
mcummins@harleysvillegroup.com
or
Media:
Randy Buckwalter, 215-256-5288
rbuckwalter@harleysvillegroup.com