Exhibit 99.1
HARLEYSVILLE GROUP REPORTS SECOND QUARTER 2005 RESULTS
Second quarter highlights:
- Operating earnings increase 50 percent
- Combined ratio improves by 3.5 points
- Year-to-date cash flow from operations triples to nearly $72 million
HARLEYSVILLE, Pa., July 28 /PRNewswire-FirstCall/ -- Harleysville Group
Inc. (Nasdaq: HGIC) today reported diluted operating income of $0.48 per share
for the second quarter of 2005, compared to $0.32 per share in the second
quarter of 2004. For the six-month periods, the company reported diluted
operating income of $0.87 per share in 2005 and $0.60 per share in 2004.
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're pleased with our second quarter results, which reflect the
consistent progress we've made to improve profitability," commented Michael L.
Browne, Harleysville Group's president and chief executive officer. "Our
operating earnings were up 50 percent compared to a year ago, our statutory
combined ratio improved by 3.5 points, our year-to-date cash flow from
operations tripled to $71.5 million and our balance sheet remains strong.
Commercial lines has maintained positive growth, while retention levels are at
historic highs. Our personal lines improvement in the quarter - highlighted by a
combined ratio of 97.2 percent - is encouraging. Our agents continue to
demonstrate their commitment to - and confidence in - Harleysville by
consistently renewing their quality business with us, which is compelling
testimony to the strength of our relationships with our agency partners."
The company reported diluted net income of $0.48 per share in the second
quarter of 2005, compared to $0.32 per share in the second quarter of 2004.
There were no realized investment gains in the second quarter of either year.
For both the six-month periods ended June 30, 2005 and June 30, 2004, diluted
net income was $0.87 per share. For the six months, the company reported no
realized investment gains in 2005, compared to $0.27 per share in 2004.
Harleysville Group's overall statutory combined ratio* was 101.9 percent in
the second quarter of 2005, compared to 105.4 percent in the second quarter of
2004. For the six months, the statutory combined ratio was 103.1 percent in
2005, versus 106.3 percent in 2004.
Second quarter net written premiums were $223.6 million in 2005, compared
to $223.1 million in 2004. Net written premiums through six months were $434.0
million in 2005 and $429.1 million in 2004.
Second quarter pretax investment income increased 5 percent to $22.6
million, while six-month pretax investment income was up 3 percent to $44.3
million. After-tax investment income grew 4 percent in the second quarter to
$17.2 million, and increased 2 percent to $34.0 million during the six-month
period. Operating cash flow for the six months was $71.5 million, compared to
$23.9 million in the first six months of 2004.
Commercial lines -- Net written premiums in commercial lines increased 3
percent in the second quarter of 2005 to $184.6 million. For the six months, net
written premiums were up 4 percent to $361.3 million. The commercial lines
statutory combined ratio was 103.0 percent in the second quarter of 2005, versus
106.7 percent in the second quarter of 2004. For the six months, the statutory
combined ratio was 103.7 percent in 2005, compared to 105.7 percent in 2004.
Personal lines -- Harleysville Group's personal lines statutory combined
ratio was 97.2 percent in the second quarter of 2005, versus 100.6 percent
during the second quarter of 2004. For the six months, the statutory combined
ratio was 100.4 percent in 2005, compared to 108.4 percent in 2004. Net written
premiums decreased 10 percent to $39.0 million in the second quarter of 2005,
and were down 10 percent to $72.7 million through six months.
Outlook -- "We have made considerable progress toward our goal of achieving
underwriting profitability - that is, producing an overall combined ratio under
100 percent - in 2006," Browne said. "We will not compromise underwriting
quality to reach a near-term growth target. Instead, we are maintaining our
underwriting discipline as we focus on the longer-term profitability of our book
of business. We are confident that the steps we are taking to improve our
performance are designed for us to not only stay on pace to achieve our goals
for the coming year, but also position us well for longer-term success."
Webcast -- The company will host a live Webcast today, July 28, 2005, at 8
a.m. (ET) to discuss its second 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, 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
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
FINANCIAL HIGHLIGHTS
Quarter ended Six months ended
June 30 June 30
----------------------- -----------------------
(in thousands, except per share data) 2005 2004 2005 2004
- ------------------------------------- ---------- ---------- ---------- ----------
OPERATING RESULTS
Diluted earnings per common share:
Operating income* $ 0.48 $ 0.32 $ 0.87 $ 0.60
Realized gains, net of tax 0.27
Net income $ 0.48 $ 0.32 $ 0.87 $ 0.87
Cash dividends per common share $ 0.17 $ 0.17 $ 0.34 $ 0.34
FINANCIAL CONDITION
June 30, December 31,
2005 2004
------------ ------------
Assets $ 2,748,958 $ 2,718,063
Shareholders' equity $ 600,787 $ 587,924
Per common share $ 19.80 $ 19.47
CONSOLIDATED STATEMENTS OF INCOME
Quarter ended Six months ended
June 30 June 30
----------------------- -----------------------
(in thousands, except per share data) 2005 2004 2005 2004
- ------------------------------------- ---------- ---------- ---------- ----------
REVENUES:
Premiums earned $ 209,865 $ 207,652 $ 416,545 $ 414,600
Investment income, net of
investment expense 22,578 21,437 44,339 43,079
Realized investment gains 68 59 68 12,547
Other income 4,158 3,671 8,441 8,235
Total revenues 236,669 232,819 469,393 478,461
LOSSES AND EXPENSES:
Losses and loss settlement
expenses 143,997 148,711 291,865 299,821
Amortization of deferred
policy acquisition costs 52,043 50,698 102,961 101,386
Other underwriting
expenses 18,778 19,726 35,133 39,364
Interest expense 1,665 1,566 3,285 3,143
Other expenses 1,763 1,266 3,270 2,685
Total expenses 218,246 221,967 436,514 446,399
Income before income taxes 18,423 10,852 32,879 32,062
Income taxes 3,896 1,124 6,370 5,841
Net income $ 14,527 $ 9,728 $ 26,509 $ 26,221
Weighted average number of
shares outstanding:
Basic 30,304,744 29,959,781 30,279,497 29,960,271
Diluted 30,393,821 30,027,955 30,410,199 30,045,317
Per common share:
Basic earnings $ 0.48 $ 0.32 $ 0.88 $ 0.88
Diluted earnings $ 0.48 $ 0.32 $ 0.87 $ 0.87
RECONCILIATION TO
OPERATING INCOME:
Net income $ 14,527 $ 9,728 $ 26,509 $ 26,221
Less realized investment
gains, net of taxes 44 38 44 8,155
Operating income $ 14,483 $ 9,690 $ 26,465 $ 18,066
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
June 30, December 31,
(in thousands, except share data) 2005* 2004
- --------------------------------------------- ------------ ------------
ASSETS
Investments:
Fixed maturities:
Held to maturity, at
amortized cost (fair
value $502,725 $ 488,221 $ 501,322
and $519,400)
Available for sale, at
fair value (amortized
cost $1,281,404 1,320,752 1,201,524
and $1,156,640)
Equity securities, at fair
value (cost $110,988 and $110,495) 147,275 150,249
Short-term investments, at
cost, which approximates
fair value 53,347 113,822
Total investments 2,009,595 1,966,917
Cash 355 328
Premiums in course of collection 151,642 141,601
Reinsurance receivable 170,356 193,209
Accrued investment income 23,747 23,236
Deferred policy acquisition costs 106,092 100,755
Prepaid reinsurance premiums 32,174 32,675
Property and equipment, net 18,283 20,891
Deferred income taxes 57,067 53,137
Securities lending collateral 130,634 139,486
Due from affiliate 4,351
Other assets 44,662 45,828
Total assets $ 2,748,958 $ 2,718,063
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss
settlement expenses $ 1,355,763 $ 1,317,735
Unearned premiums 458,667 441,697
Accounts payable and accrued
expenses 84,047 99,098
Securities lending
obligation 130,634 139,486
Debt 119,060 119,625
Due to affiliate 12,498
Total liabilities 2,148,171 2,130,139
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
31,739,809 and 31,589,474 shares;
outstanding 30,341,900
and 30,191,565 shares 31,740 31,589
Additional paid-in capital 164,395 161,689
Accumulated other comprehensive income 36,200 42,051
Retained earnings 393,480 377,282
Deferred compensation (541) (200)
Treasury stock, at cost, 1,397,909
shares (24,487) (24,487)
Total shareholders'
equity 600,787 587,924
Total liabilities and shareholders'
equity $ 2,748,958 $ 2,718,063
* 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) 2005 2004 2005 2004
- ------------------------------------- ---------- ---------- ---------- ----------
Net premiums written* $ 223,602 $ 223,095 $ 434,016 $ 429,121
Statutory surplus* $ 529,621 $ 496,170
Pretax investment income $ 22,578 $ 21,437 $ 44,339 $ 43,079
Related federal income taxes 5,354 4,825 10,387 9,689
After-tax investment income $ 17,224 $ 16,612 $ 33,952 $ 33,390
SEGMENT INFORMATION
Quarter ended Six months ended
June 30 June 30
----------------------- -----------------------
(dollars in thousands) 2005 2004 2005 2004
- ------------------------------------- ---------- ---------- ---------- ----------
Revenues:
Premiums earned:
Commercial lines $ 170,858 $ 163,791 $ 338,171 $ 326,111
Personal lines 39,007 43,861 78,374 88,489
Total premiums earned 209,865 207,652 416,545 414,600
Net investment income 22,578 21,437 44,339 43,079
Realized investment gains 68 59 68 12,547
Other 4,158 3,671 8,441 8,235
Total revenues $ 236,669 $ 232,819 $ 469,393 $ 478,461
Income before income taxes:
Underwriting gain (loss):
Commercial lines $ (9,760) $ (16,358) $ (19,998) $ (26,006)
Personal lines 1,114 10 1,531 (4,850)
SAP underwriting loss (8,646) (16,348) (18,467) (30,856)
GAAP adjustments 3,693 4,865 5,053 4,885
GAAP underwriting loss (4,953) (11,483) (13,414) (25,971)
Net investment income 22,578 21,437 44,339 43,079
Realized investment gains 68 59 68 12,547
Other 730 839 1,886 2,407
Income before income taxes $ 18,423 $ 10,852 $ 32,879 $ 32,062
Income taxes on net investment
income $ 5,354 $ 4,825 $ 10,387 $ 9,689
Income tax benefit on remaining
loss (1,458) (3,701) (4,017) (3,848)
Total income taxes $ 3,896 $ 1,124 $ 6,370 $ 5,841
Effective tax rate on:
Net investment income 23.7% 22.5% 23.4% 22.5%
Net income 21.1% 10.4% 19.4% 18.2%
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 Six months ended
June 30 June 30
----------------------- -----------------------
(dollars in thousands) 2005 2004 2005 2004
- ------------------------------------- ---------- ---------- ---------- ----------
Net premiums written:
Commercial:
Automobile $ 60,475 $ 62,367 $ 117,764 $ 119,128
Workers' compensation 23,393 24,172 49,912 50,912
Commercial multi-peril 82,451 76,805 157,531 145,003
Other commercial 18,315 16,681 36,090 33,162
Total commercial $ 184,634 $ 180,025 $ 361,297 $ 348,205
Personal:
Automobile $ 20,393 $ 23,459 $ 40,126 $ 46,660
Homeowners 16,038 16,514 28,130 29,482
Other personal 2,537 3,097 4,463 4,774
Total personal $ 38,968 $ 43,070 $ 72,719 $ 80,916
Total personal and commercial $ 223,602 $ 223,095 $ 434,016 $ 429,121
Combined ratios:
Commercial:
Automobile 97.9% 104.7% 99.0% 103.9%
Workers' compensation 124.2% 122.2% 124.8% 122.5%
Commercial multi-peril 100.4% 105.5% 102.7% 105.3%
Other commercial 100.9% 95.4% 92.9% 88.5%
Total commercial 103.0% 106.7% 103.7% 105.7%
Personal:
Automobile 104.1% 110.9% 105.1% 114.6%
Homeowners 92.3% 86.0% 97.4% 97.6%
Other personal 63.7% 83.6% 75.8% 112.3%
Total personal 97.2% 100.6% 100.4% 108.4%
Total personal and commercial 101.9% 105.4% 103.1% 106.3%
Losses paid $ 118,931 $ 142,655 $ 230,333 $ 276,715
Net catastrophe losses incurred $ 627 $ 1,262 $ 1,624 $ 3,887
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- 07/28/2005
/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 /