EXHIBIT 99.1
HARLEYSVILLE GROUP REPORTS FIRST QUARTER 2006 RESULTS
First quarter highlights:
-- Operating earnings rise to $0.62 per share
-- Statutory combined ratio improves by 5 points to 99.2 percent
-- Strong cash flow drives net investment income growth
HARLEYSVILLE, Pa., April 26 /PRNewswire-FirstCall/ -- Harleysville Group
Inc. (Nasdaq: HGIC) today reported diluted operating income of $0.62 per share
for the first quarter of 2006, compared to $0.39 per share in the first quarter
of 2005. 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 tax.
"We have had an excellent start in 2006 as our statutory combined ratio
improved by 5 points to 99.2 percent and our operating ROE was 12.0 percent. In
addition, our operating earnings were $0.62 per share, a significant improvement
from the $0.39 a share we reported in the first quarter a year ago," commented
Michael L. Browne, Harleysville Group's president and chief executive officer.
"We continue to maintain our solid capital base and a strong balance sheet, a
modest debt-to-capital ratio of 16 percent, a high- quality investment portfolio
and a premium-to-surplus ratio of 1.4:1 - all of which give us a sound financial
position to write our agents' best business."
The company reported diluted net income of $0.70 per share in the first
quarter of 2006, compared to $0.39 per share in the first quarter of 2005. There
were $0.05 of realized investment gains in the first quarter of 2006, compared
to no realized investment gains in the first quarter of 2005. The first quarter
2006 results also include 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.
Harleysville Group's overall statutory combined ratio* was 99.2 percent in
the first quarter of 2006, compared to 104.2 percent in the first quarter of
2005.
First quarter net written premiums were $208.9 million in 2006, compared to
$210.4 million in the same period in 2005.
First quarter pretax investment income increased 11 percent to $24.1
million, while after-tax investment income grew 8 percent in the first quarter
to $18.1 million. Operating cash flow for the first quarter was $53.1 million,
compared to $29.6 million in the first quarter of 2005.
Commercial lines -- Net written premiums in commercial lines were $176.7
million in the first quarter of 2006, virtually unchanged from the same period
in 2005. The commercial lines statutory combined ratio was 101.2 percent in the
first quarter of 2006, versus 104.3 percent in the first quarter of 2005.
Personal lines -- Harleysville Group's personal lines statutory combined
ratio was 89.6 percent in the first quarter of 2006, versus 103.7 percent during
the first quarter of 2005. Net written premiums decreased 5 percent to $32.2
million in the first quarter of 2006.
Outlook -- "It's clear that the strategic course we set two years ago to
position our company as a leader within the industry is yielding the results we
want, not just because of the numbers we're reporting today, but because of the
continuing positive trends we're seeing in our underlying operations," Browne
said. "We are on track for achieving our 2006 goals of underwriting
profitability - that is, producing an overall combined ratio under 100 percent -
and a return on equity of at least 12 percent, due in large part to the
continued dedication and hard work of our employees and the loyalty and support
of our agency partners."
Webcast -- The company will host a live Webcast today, April 26, 2006, 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
(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
55 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 has paid a
dividend every quarter since the company went public in 1986, and was one of 3
percent of public companies recently 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
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 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
Quarter ended March 31
FINANCIAL HIGHLIGHTS ---------------------------
(in thousands, except per share data) 2006 2005
- ------------------------------------------------------ ------------ ------------
OPERATING RESULTS
Diluted earnings per common share:
Operating income* $ 0.62 $ 0.39
Realized gains, net of income taxes 0.05
Cumulative effect of accounting change,
net of income taxes 0.03
Net income $ 0.70 $ 0.39
Cash dividend per common share $ 0.175 $ 0.17
March 31, December 31,
FINANCIAL CONDITION 2006 2005
- ------------------------------------------------------ ------------ ------------
Assets $ 2,874,375 $ 2,905,266
Shareholders' equity $ 626,721 $ 614,383
Per common share $ 20.36 $ 20.07
Quarter ended March 31
CONSOLIDATED STATEMENTS OF INCOME ---------------------------
(in thousands, except per share data) 2006 2005
- -------------------------------------------------------- ------------ ------------
REVENUES:
Premiums earned $ 208,345 $ 206,680
Investment income, net of investment
expense 24,095 21,761
Realized investment gains 2,210
Other income 4,887 4,283
Total revenues 239,537 232,724
LOSSES AND EXPENSES:
Losses and loss settlement expenses 135,989 147,868
Amortization of deferred policy acquisition costs 52,604 50,918
Other underwriting expenses 19,991 16,355
Interest expense 1,710 1,620
Other expenses 1,015 1,507
Total expenses 211,309 218,268
Income before income taxes and
cumulative effect of accounting change 28,228 14,456
Income taxes 7,520 2,474
Income before cumulative effect of accounting change 20,708 11,982
Cumulative effect of accounting
change, net of income taxes 942
Net income $ 21,650 $ 11,982
Weighted average number of shares outstanding:
Basic 30,641,110 30,253,967
Diluted 31,065,785 30,399,346
Per common share:
Basic earnings before cumulative effect of
accounting change $ 0.68 $ 0.40
Basic cumulative effect of accounting change $ 0.03
Basic earnings $ 0.71 $ 0.40
Diluted earnings before cumulative effect of
accounting change $ 0.67 $ 0.39
Diluted cumulative effect of accounting change $ 0.03
Diluted earnings $ 0.70 $ 0.39
RECONCILIATION TO OPERATING INCOME:
Net income $ 21,650 $ 11,982
Less cumulative effect of accounting
change, net of income taxes 942
Less realized investment gains, net of income taxes 1,437
Operating income $ 19,271 $ 11,982
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
CONSOLIDATED BALANCE SHEETS March 31, December 31,
(in thousands, except share data) 2006* 2005
- ------------------------------------------------------- ------------ ------------
ASSETS
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair
value $411,685 and $437,887) $ 413,250 $ 433,649
Available for sale, at fair value (amortized
cost $1,448,237 and $1,374,559) 1,441,705 1,386,440
Equity securities, at fair
value (cost $143,372 and $139,371) 188,792 179,980
Short-term investments, at
cost, which approximates fair value 74,247 64,319
Total investments 2,117,994 2,064,388
Cash 324 466
Premiums in course of collection 140,586 141,882
Reinsurance receivable 185,347 249,020
Accrued investment income 23,117 24,016
Deferred policy acquisition costs 103,839 104,173
Prepaid reinsurance premiums 32,848 34,256
Property and equipment, net 17,693 18,038
Deferred income taxes 66,861 63,357
Securities lending collateral 140,536 150,938
Due from affiliate 1,022
Other assets 45,230 53,710
Total assets $ 2,874,375 $ 2,905,266
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss settlement expenses $ 1,449,162 $ 1,480,802
Unearned premiums 439,919 440,755
Accounts payable and accrued expenses 92,270 99,888
Securities lending obligation 140,536 150,938
Debt 118,500 118,500
Due to affiliate 7,267
Total liabilities 2,247,654 2,290,883
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 32,183,057 and 32,008,142 shares;
outstanding 30,785,148 and 30,610,233 shares 32,183 32,008
Additional paid-in capital 173,605 169,881
Accumulated other comprehensive income 11,447 20,288
Retained earnings 433,973 417,705
Deferred compensation (1,012)
Treasury stock, at cost, 1,397,909 shares (24,487) (24,487)
Total shareholders' equity 626,721 614,383
Total liabilities and shareholders' equity $ 2,874,375 $ 2,905,266
* These financial figures are unaudited.
Harleysville Group Inc. and Subsidiaries
Quarter ended March 31
SUPPLEMENTARY FINANCIAL ANALYSTS' DATA ---------------------------
(dollars in thousands) 2006 2005
- ------------------------------------------------------- ------------ ------------
Net premiums written* $ 208,916 $ 210,414
Statutory surplus* $ 597,449 $ 518,097
Pretax investment income $ 24,095 $ 21,761
Related federal income taxes 6,033 5,033
After-tax investment income $ 18,062 $ 16,728
Quarter ended March 31
SEGMENT INFORMATION ---------------------------
(dollars in thousands) 2006 2005
- ------------------------------------------------------- ------------ ------------
Revenues:
Premiums earned:
Commercial lines $ 172,087 $ 167,313
Personal lines 36,258 39,367
Total premiums earned 208,345 206,680
Net investment income 24,095 21,761
Realized investment gains 2,210
Other 4,887 4,283
Total revenues $ 239,537 $ 232,724
Income before income taxes and cumulative effect of
accounting change:
Underwriting gain (loss):
Commercial lines $ (3,600) $ (10,238)
Personal lines 5,119 417
SAP underwriting (gain)
loss 1,519 (9,821)
GAAP adjustments (1,758) 1,360
GAAP underwriting loss (239) (8,461)
Net investment income 24,095 21,761
Realized investment gains 2,210
Other 2,162 1,156
Income before income taxes and
cumulative effect of accounting change $ 28,228 $ 14,456
Income taxes on net investment income $ 6,033 $ 5,033
Income taxes (benefit) on remaining
gain (loss) before cumulative effect
of accounting change 1,487 (2,559)
Total income taxes on income
before cumulative effect of accounting change $ 7,520 $ 2,474
Effective tax rate on:
Net investment income 25.0% 23.1%
Income before cumulative effect of accounting change 26.6% 17.1%
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
Quarter ended March 31
STATUTORY DATA BY LINE OF BUSINESS* ---------------------------
(dollars in thousands) 2006 2005
- ------------------------------------------------------- ------------ ------------
Net premiums written:
Commercial:
Automobile $ 53,977 $ 57,289
Workers' compensation 26,274 26,519
Commercial multi-peril 77,837 75,080
Other commercial 18,656 17,775
Total commercial $ 176,744 $ 176,663
Personal:
Automobile $ 17,748 $ 19,733
Homeowners 12,534 12,092
Other personal 1,890 1,926
Total personal $ 32,172 $ 33,751
Total personal and commercial $ 208,916 $ 210,414
Combined ratios:
Commercial:
Automobile 101.1% 100.1%
Workers' compensation 117.3% 125.7%
Commercial multi-peril 99.9% 105.2%
Other commercial 86.5% 84.9%
Total commercial 101.2% 104.3%
Personal:
Automobile 100.7% 106.1%
Homeowners 78.8% 102.9%
Other personal 68.1% 87.8%
Total personal 89.6% 103.7%
Total personal and commercial 99.2% 104.2%
Losses paid $ 105,850 $ 111,402
Net catastrophe losses incurred $ 2,827 $ 997
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- 04/26/2006
/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/