Exhibit 99.1
HARLEYSVILLE GROUP REPORTS FOURTH QUARTER AND YEAR-END 2004 RESULTS
HARLEYSVILLE, Pa., Feb. 17 /PRNewswire-FirstCall/ -- Harleysville Group Inc.
(Nasdaq: HGIC) today reported diluted net income of $0.39 per share in the
fourth quarter of 2004, compared to a diluted net loss of $0.66 per share in the
fourth quarter of 2003. There were essentially no realized investment gains in
the fourth quarter of either year. The company's 2003 fourth quarter earnings
were reduced by $0.92 per share after tax due to loss reserve adjustments.
Diluted net income per share for the 12 months ended December 31, 2004 was
$1.55, compared to a diluted net loss per share of $1.59 in 2003. For the 12
months, the company reported $0.27 per share in realized investment gains in
2004, compared to a realized loss of $0.02 per share in 2003. In 2003, the
company's 12-month earnings were reduced by $2.58 per share after tax due to
loss reserve adjustments.
The company reported diluted operating income of $0.39 per share for the
fourth quarter of 2004, compared to a $0.66 diluted operating loss per share in
the fourth quarter of 2003. For the 12-month periods, the company reported
diluted operating income of $1.28 per share in 2004 and a diluted operating loss
of $1.57 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 fourth quarter results continued to demonstrate the improvement we had
been seeing through the first nine months of 2004," commented Michael L. Browne,
Harleysville Group's president and chief executive officer. "We are still
growing and retaining our commercial lines business - two positive indicators of
the strength of our agency base and the value they see in the Harleysville
franchise. And working in tandem with our agency partners we have been able to
improve the profitability of our personal lines portfolio.
"Looking back at 2004, we accomplished what we set out to do," Browne
continued. "Our reserves stabilized and we had no unusual development. We
completed an extensive outside underwriting review and also conducted a
comprehensive assessment of our strategic course - both of which identified our
strengths and opportunities for increased efficiency and effectiveness. We've
implemented a data-driven Six Sigma methodology to make sure we successfully
execute on our strategies. We continued to build on our already solid
relationships with our agents by expanding our strong field presence, which
includes our commercial lines territory manager model. And, we finished the year
with a solid capital base and a strong balance sheet."
Harleysville Group's overall statutory combined ratio* was 104.4 percent in
the fourth quarter of 2004, compared to 134.6 percent in the fourth quarter of
2003. For the 12 months, the statutory combined ratio was 105.9 percent in 2004,
versus 123.2 percent in 2003. The 2003 combined ratios reflect the previously
mentioned loss reserve adjustments.
Fourth quarter net written premiums were $200.7 million in 2004, compared to
$197.6 million in 2003. Net written premiums through 12 months were $839.7
million in 2004 and $843.5 million in 2003.
Fourth quarter pretax investment income increased 3 percent to $22.6
million, while 12-month pretax investment income was up 1 percent to $87.2
million. After-tax investment income grew 3 percent in the fourth quarter to
$17.4 million, and increased 1 percent to $67.4 million during the 12-month
period. Operating cash flow for the 12 months was $115.7 million.
Commercial lines -- Net written premiums in commercial lines increased 5
percent in the fourth quarter of 2004 to $163.5 million. For the 12 months, net
written premiums were up 3 percent to $678.4 million. The commercial lines
statutory combined ratio was 106.6 percent in the fourth quarter of 2004, versus
137.1 percent in the fourth quarter of 2003. For the 12 months, the statutory
combined ratio was 106.7 percent in 2004, compared to 123.6 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 94.8 percent in the fourth quarter of 2004, versus 125.9 percent
during the fourth quarter of 2003. For the 12 months, the statutory combined
ratio was 102.8 percent in 2004, compared to 121.8 percent in 2003. Net written
premiums decreased 13 percent to $37.1 million in the fourth quarter of 2004,
and were down 13 percent to $161.3 million through 12 months.
Outlook -- "While we're pleased with the progress we have made in 2004, we
still have a way to go to restore our company to its past high levels of
performance. By successfully executing our strategy and focusing on the four
cornerstones of claims, underwriting, productivity and service, we believe we
will be able to generate sustainable growth and meet our stated financial goals
- - a combined ratio under 100 percent in 2006; a commercial lines underwriting
profit in 2006 and a personal lines underwriting profit in 2007; and an expense
ratio under 30 percent in three to five years," Browne concluded.
Webcast -- The company will host a live Webcast today, Thursday, February
17, 2005, at 9:00 a.m. (ET) to discuss its fourth quarter results. The Webcast
and a replay will be available from the Investors section of the company's Web
site (http://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 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
56 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 Twelve months ended
December 31 December 31
FINANCIAL HIGHLIGHTS --------------------------- ---------------------------
(in thousands, except per share data) 2004 2003 2004 2003
- ------------------------------------- ------------ ------------ ------------ ------------
OPERATING RESULTS
Diluted earnings per common share:
Operating income (loss)* $ 0.39 $ (0.66) $ 1.28 $ (1.57)
Realized gains (losses), net
of tax 0.27 (0.02)
Net income (loss) $ 0.39 $ (0.66) $ 1.55 $ (1.59)
Cash dividends per common share $ 0.17 $ 0.17 $ 0.68 $ 0.67
December 31, December 31,
FINANCIAL CONDITION 2004 2003
- ------------------------------------ ------------ ------------
Assets $ 2,718,063 $ 2,680,389
Shareholders' equity $ 587,924 $ 572,747
Per common share $ 19.47 $ 19.16
Quarter ended Twelve months ended
December 31 December 31
CONSOLIDATED STATEMENTS OF INCOME(LOSS) --------------------------- ---------------------------
(in thousands, except per share data) 2004 2003 2004 2003
- --------------------------------------- ------------ ------------ ------------ ------------
REVENUES:
Premiums earned $ 210,424 $ 211,646 $ 837,665 $ 823,407
Investment income, net of
investment expense 22,593 21,863 87,171 86,597
Realized investment gains
(losses) 16 (23) 12,667 (920)
Other income 3,630 3,450 15,889 15,881
Total revenues 236,663 236,936 953,392 924,965
LOSSES AND EXPENSES:
Losses and loss settlement
expenses 151,895 199,234 605,660 727,875
Amortization of deferred
policy acquisition costs 52,069 52,094 205,605 202,147
Other underwriting
expenses 15,911 16,261 73,429 71,153
Interest expense 1,614 2,229 6,344 7,625
Other expenses 1,268 1,632 6,717 5,615
Total expenses 222,757 271,450 897,755 1,014,415
Income (loss) before
income taxes 13,906 (34,514) 55,637 (89,450)
Income taxes
(benefit) 2,129 (14,711) 8,759 (41,821)
Net income (loss) $ 11,777 $ (19,803) $ 46,878 $ (47,629)
Weighted average number of
shares outstanding:
Basic 30,130,299 29,894,028 30,028,723 29,985,900
Diluted 30,321,688 30,035,755 30,154,253 30,206,518
Per common share:
Basic earnings
(loss) $ 0.39 $ (0.66) $ 1.56 $ (1.59)
Diluted earnings
(loss) $ 0.39 $ (0.66) $ 1.55 $ (1.59)
RECONCILIATION TO
OPERATING INCOME (LOSS):
Net income (loss) $ 11,777 $ (19,803) $ 46,878 $ (47,629)
Less realized investment
gains (losses), net of
taxes 11 (15) 8,234 (598)
Operating income (loss) $ 11,766 $ (19,788) $ 38,644 $ (47,031)
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 December 31, December 31,
(in thousands, except share data) 2004* 2003
- ------------------------------------------ ------------ ------------
ASSETS
Investments:
Fixed maturities:
Held to maturity, at
amortized cost (fair
value $519,400 $ 501,322 $ 439,613
and $467,485)
Available for sale, at
fair value (amortized
cost $1,156,640 1,201,524 1,246,019
and $1,183,158)
Equity securities, at fair
value (cost $110,495 and $97,189) 150,249 137,590
Short-term investments, at
cost, which approximates
fair value 113,822 31,411
Total investments 1,966,917 1,854,633
Cash 328 13,430
Premiums in course of collection 141,601 140,674
Reinsurance receivable 193,209 164,841
Accrued investment income 23,236 23,086
Deferred policy acquisition costs 100,755 99,033
Prepaid reinsurance premiums 32,675 30,899
Property and equipment, net 20,891 23,824
Deferred income taxes 53,137 43,020
Securities lending collateral 139,486 221,454
Other assets 45,828 65,495
Total assets $ 2,718,063 $ 2,680,389
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss
settlement expenses $ 1,317,735 $ 1,219,977
Unearned premiums 441,697 437,883
Accounts payable and accrued
expenses 99,098 91,999
Securities lending obligation 139,486 221,454
Debt 119,625 120,145
Due to affiliate 12,498 16,184
Total liabilities 2,130,139 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 31,589,474 and
31,298,532 shares; outstanding
30,191,565 and 29,900,623 shares 31,589 31,299
Additional paid-in capital 161,689 156,997
Accumulated other comprehensive income 42,051 60,450
Retained earnings 377,282 350,844
Deferred compensation (200) (2,356)
Treasury stock, at cost, 1,397,909 shares (24,487) (24,487)
Total shareholders' equity 587,924 572,747
Total liabilities and shareholders'
equity $ 2,718,063 $ 2,680,389
*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) 2004 2003 2004 2003
- ---------------------------- ------------- ------------- ------------- -------------
Net premiums written* $ 200,668 $ 197,592 $ 839,703 $ 843,535
Statutory surplus* $ 509,301 $ 475,665
Pretax investment income $ 22,593 $ 21,863 $ 87,171 $ 86,597
Related federal income taxes 5,150 4,906 19,765 19,818
After-tax investment income $ 17,443 $ 16,957 $ 67,406 $ 66,779
SEGMENT INFORMATION
Quarter ended Twelve months ended
December 31 December 31
------------------------------- -------------------------------
(dollars in thousands) 2004 2003 2004 2003
- ---------------------------------- ------------- ------------- ------------- -------------
Revenues:
Premiums earned:
Commercial lines $ 168,614 $ 164,656 $ 664,405 $ 628,935
Personal lines 41,810 46,990 173,260 194,472
Total premiums earned 210,424 211,646 837,665 823,407
Net investment income 22,593 21,863 87,171 86,597
Realized investment gains
(losses) 16 (23) 12,667 (920)
Other 3,630 3,450 15,889 15,881
Total revenues $ 236,663 $ 236,936 $ 953,392 $ 924,965
Income (loss) before income taxes:
Underwriting gain (loss):
Commercial lines $ (9,539) $ (57,566) $ (49,062) $ (158,292)
Personal lines 3,529 (10,261) (977) (39,442)
SAP underwriting loss (6,010) (67,827) (50,039) (197,734)
GAAP adjustments (3,441) 11,884 3,010 19,966
GAAP underwriting loss (9,451) (55,943) (47,029) (177,768)
Net investment income 22,593 21,863 87,171 86,597
Realized investment gains
(losses) 16 (23) 12,667 (920)
Other 748 (411) 2,828 2,641
Income (loss) before
income taxes $ 13,906 $ (34,514) $ 55,637 $ (89,450)
Income taxes on net investment
income $ 5,150 $ 4,906 $ 19,765 $ 19,818
Income tax on remaining loss (3,021) (19,617) (11,006) (61,639)
Total income taxes
(benefit) $ 2,129 $ (14,711) $ 8,759 $ (41,821)
Effective tax rate on:
Net investment income 22.8% 22.4% 22.7% 22.9%
Net income 15.3% 42.6% 15.7% 46.8%
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
STATUTORY DATA BY LINE OF BUSINESS*
Quarter ended Twelve months ended
December 31 December 31
------------------------------- -------------------------------
(dollars in thousands) 2004 2003 2004 2003
- ---------------------------------- ------------- ------------- ------------- -------------
Net premiums written:
Commercial:
Automobile $ 52,858 $ 50,920 $ 227,105 $ 221,818
Workers' compensation 21,814 22,036 96,543 107,415
Commercial multi-peril 72,264 64,812 287,824 258,854
Other commercial 16,603 17,258 66,946 69,450
Total commercial $ 163,539 $ 155,026 $ 678,418 $ 657,537
Personal:
Automobile $ 20,294 $ 25,559 $ 90,947 $ 112,287
Homeowners 14,716 15,695 61,108 65,740
Other personal 2,119 1,312 9,230 7,971
Total personal $ 37,129 $ 42,566 $ 161,285 $ 185,998
Total personal and commercial $ 200,668 $ 197,592 $ 839,703 $ 843,535
Combined ratios:
Commercial:
Automobile 105.9% 124.7% 104.4% 112.1%
Workers' compensation 113.9% 197.3% 122.6% 178.2%
Commercial multi-peril 105.5% 132.1% 105.5% 118.3%
Other commercial 102.0% 102.2% 95.5% 87.9%
Total commercial 106.6% 137.1% 106.7% 123.6%
Personal:
Automobile 113.3% 137.2% 113.9% 124.6%
Homeowners 76.0% 91.8% 87.5% 114.6%
Other personal 44.2% 292.7% 87.7% 137.0%
Total personal 94.8% 125.9% 102.8% 121.8%
Total personal and commercial 104.4% 134.6% 105.9% 123.2%
Losses paid $ 131,919 $ 144,349 $ 536,711 $ 522,397
Net catastrophe losses incurred $ (725) $ 1,979 $ 9,252 $ 19,683
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.
SOURCE Harleysville Group Inc.
-0- 02/17/2005
/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 /