Exhibit 99.1
HARLEYSVILLE GROUP REPORTS SECOND QUARTER 2006 RESULTS
Second quarter highlights:
-- Operating earnings rise 33 percent to $0.64 per share
-- Statutory combined ratio improves by 3.1 points to 98.8 percent
-- Strong cash flow drives net investment income growth
HARLEYSVILLE, Pa., July 27 /PRNewswire-FirstCall/ -- Harleysville Group
Inc. (Nasdaq: HGIC) today reported diluted operating income of $0.64 per share
for the second quarter of 2006, compared to $0.48 per share in the second
quarter of 2005. For the six-month periods, the company reported diluted
operating income of $1.26 per share in 2006 and $0.87 per share in 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 income tax.
"We're pleased with the progress we've made through the first six months of
the year as we continue to successfully execute our strategic plan," commented
Michael L. Browne, Harleysville Group's president and chief executive officer.
"Our statutory combined ratio for the quarter improved by more than 3 points to
98.8 percent, while our operating ROE was 12.4 percent(1). In addition, our
second quarter operating earnings were $0.64 per share, significantly better
than the $0.48 a share we reported in the second quarter of 2005. We continue to
maintain a solid capital base and strong balance sheet, a modest debt-to-capital
ratio of 15 percent(1), a high-quality investment portfolio, and a
premium-to-surplus ratio of 1.4:1 -- all the ingredients necessary to write our
agents' best business."
The company reported diluted net income of $1.43 per share in the second
quarter of 2006, compared to $0.48 per share in the second quarter of 2005.
There were $0.79 of realized investment gains in the second quarter of 2006,
compared to no realized investment gains in the second quarter of 2005. The
majority of the realized gains in the second quarter of this year are the result
of the company reducing its risk exposure from the possibility of adverse events
in the equity markets by reducing its holding of equity investments by
approximately $120 million as part of its efforts to manage enterprise-wide
risk. For the six-month periods, diluted net income was $2.13 per share in 2006
and $0.87 per share in 2005. For the six months, the company reported $0.84 of
realized investment gains in 2006, compared to none in 2005. The first six
months of 2006 also includes 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(2) was 98.8 percent
in the second quarter of 2006, compared to 101.9 percent in the second quarter
of 2005. For the six months, the statutory combined ratio was 99.0 percent in
2006, versus 103.1 percent in 2005.
Second quarter net written premiums were $218.9 million in 2006, compared
to $223.6 million in the same period in 2005. Net written premiums through six
months were $427.8 million in 2006 and $434.0 million in 2005.
Second quarter pretax investment income increased 10 percent to $24.8
million, while after-tax investment income grew 7 percent in the second quarter
to $18.4 million. For the six months, pretax investment income was up 10 percent
to $48.9 million, while after-tax investment income rose 7 percent to $36.5
million. Operating cash flow through six months was $77.4 million, compared to
$71.5 million in the second quarter of 2005.
Commercial lines -- Net written premiums in commercial lines were $181.2
million in the second quarter of 2006, down 2 percent from the same period in
2005. For the six months, net written premiums decreased 1 percent to $357.9
million. The commercial lines statutory combined ratio was 100.6 percent in the
second quarter of 2006, versus 103.0 percent in the second quarter of 2005. For
the six months, the statutory combined ratio was 100.9 percent in 2006, compared
to 103.7 percent in 2005.
Personal lines -- Harleysville Group's personal lines statutory combined
ratio was 90.5 percent in the second quarter of 2006, versus 97.2 percent during
the second quarter of 2005. For the six months, the statutory combined ratio was
90.0 percent in 2006, compared to 100.4 percent in 2005. Net written premiums
decreased 3 percent to $37.7 million in the second quarter of 2006, and were
down 4 percent to $69.9 million through six months.
Outlook -- "During the second half of the year, our focus will continue to
be on the basics of our business so that we can generate additional improvement
in our operations and remain on a steady course toward achieving our goals for
2006," Browne said. "We will not compromise underwriting quality to chase a
near-term growth target. Instead, we will maintain our discipline -- despite the
current soft market -- as we focus on our goals of achieving a long-term
underwriting profit and an operating ROE of at least 12 percent. And, we will
continue to work closely with our agency force and rely heavily on them for
their assistance in order to reach these important objectives."
Webcast -- The company will host a live Webcast today, July 27, 2006, 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
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 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 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.
(1) Excludes the effects of SFAS No. 115.
(2) "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 Six months ended
June 30 June 30
FINANCIAL HIGHLIGHTS ----------------------- -----------------------
(in thousands, except per share data) 2006 2005 2006 2005
- ---------------------------------------- ---------- ---------- ---------- ----------
OPERATING RESULTS
Diluted earnings per common share:
Operating income* $ 0.64 $ 0.48 $ 1.26 $ 0.87
Realized gains, net
of income taxes 0.79 0.84
Cumulative effect of
accounting change,
net of income taxes 0.03
Net income $ 1.43 $ 0.48 $ 2.13 $ 0.87
Cash dividends per common
share $ 0.175 $ 0.17 $ 0.35 $ 0.34
June 30, December 31,
FINANCIAL CONDITION 2006 2005
- ---------------------------------------- ------------ ------------
Assets $ 2,902,123 $ 2,905,266
Shareholders' equity $ 634,262 $ 614,383
Per common share $ 20.44 $ 20.07
Quarter ended Six months ended
June 30 June 30
CONSOLIDATED STATEMENTS OF INCOME ----------------------------- -----------------------------
(in thousands, except per share data) 2006 2005 2006 2005
- ---------------------------------------- ------------- ------------- ------------- -------------
REVENUES:
Premiums earned $ 209,320 $ 209,865 $ 417,665 $ 416,545
Investment income, net of
investment expense 24,847 22,578 48,942 44,339
Realized investment gains 38,072 68 40,282 68
Other income 4,299 4,158 9,186 8,441
Total revenues 276,538 236,669 516,075 469,393
LOSSES AND EXPENSES:
Losses and loss settlement
expenses 135,049 143,997 271,038 291,865
Amortization of deferred
policy acquisition costs 53,467 52,043 106,071 102,961
Other underwriting
expenses 19,564 18,778 39,555 35,133
Interest expense 1,731 1,665 3,441 3,285
Other expenses 1,340 1,763 2,355 3,270
Total expenses 211,151 218,246 422,460 436,514
Income before income taxes
and cumulative effect of
accounting change 65,387 18,423 93,615 32,879
Income taxes 20,657 3,896 28,177 6,370
Income before cumulative
effect of accounting
change 44,730 14,527 65,438 26,509
Cumulative effect of
accounting change, net of
income taxes 942
Net income $ 44,730 $ 14,527 $ 66,380 $ 26,509
Weighted average number of
shares outstanding:
Basic 30,830,502 30,304,744 30,736,332 30,279,497
Diluted 31,298,063 30,393,821 31,216,098 30,410,199
Per common share:
Basic earnings
before cumulative
effect of accounting
change $ 1.45 $ 0.48 $ 2.13 $ 0.88
Basic cumulative
effect of accounting
change $ 0.03
Basic earnings $ 1.45 $ 0.48 $ 2.16 $ 0.88
Diluted earnings
before cumulative
effect of accounting
change $ 1.43 $ 0.48 $ 2.10 $ 0.87
Diluted cumulative
effect of accounting
change $ 0.03
Diluted earnings $ 1.43 $ 0.48 $ 2.13 $ 0.87
RECONCILIATION TO
OPERATING INCOME:
Net income $ 44,730 $ 14,527 $ 66,380 $ 26,509
Less cumulative effect of
accounting change, net of
income taxes 942
Less realized investment
gains, net of income
taxes 24,747 44 26,184 44
Operating income $ 19,983 $ 14,483 $ 39,254 $ 26,465
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 June 30, December 31,
(in thousands, except share data) 2006* 2005
- --------------------------------------------- ------------ ------------
ASSETS
Investments:
Fixed maturities:
Held to maturity, at amortized
cost (fair value $405,188
and $437,887) $ 410,249 $ 433,649
Available for sale, at fair
value (amortized cost
$1,523,503 and $1,374,559) 1,503,218 1,386,440
Equity securities, at fair value
(cost $62,122 and $139,371) 63,561 179,980
Short-term investments, at cost,
which approximates fair value 143,476 64,319
Total investments 2,120,504 2,064,388
Cash 3,026 466
Premiums in course of collection 150,997 141,882
Reinsurance receivable 173,097 249,020
Accrued investment income 23,912 24,016
Deferred policy acquisition costs 105,546 104,173
Prepaid reinsurance premiums 33,687 34,256
Property and equipment, net 17,349 18,038
Deferred income taxes 80,342 63,357
Securities lending collateral 140,306 150,938
Due from affiliate 6,265 1,022
Other assets 47,092 53,710
Total assets $ 2,902,123 $ 2,905,266
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss settlement
expenses $ 1,458,095 $ 1,480,802
Unearned premiums 450,347 440,755
Accounts payable and accrued expenses 100,613 99,888
Securities lending obligation 140,306 150,938
Debt 118,500 118,500
Total liabilities 2,267,861 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 32,427,087 and 32,008,142
shares; outstanding 31,029,178
and 30,610,233 shares 32,427 32,008
Additional paid-in capital 179,131 169,881
Accumulated other comprehensive
income (loss) (26,080) 20,288
Retained earnings 473,271 417,705
Deferred compensation (1,012)
Treasury stock, at cost, 1,397,909 shares (24,487) (24,487)
Total shareholders' equity 634,262 614,383
Total liabilities and shareholders' equity $ 2,902,123 $ 2,905,266
* These financial figures are unaudited.
Harleysville Group Inc. and Subsidiaries
Quarter ended Six months ended
June 30 June 30
SUPPLEMENTARY FINANCIAL ANALYSTS' DATA ------------------------- -------------------------
(dollars in thousands) 2006 2005 2006 2005
- ---------------------------------------- ----------- ----------- ----------- -----------
Net premiums written* $ 218,910 $ 223,602 $ 427,826 $ 434,016
Statutory surplus* $ 602,681 $ 529,621
Pretax investment income $ 24,847 $ 22,578 $ 48,942 $ 44,339
Related federal income taxes 6,429 5,354 12,462 10,387
After-tax investment income $ 18,418 $ 17,224 $ 36,480 $ 33,952
Quarter ended Six months ended
June 30 June 30
SEGMENT INFORMATION ------------------------------- -------------------------------
(dollars in thousands) 2006 2005 2006 2005
- ---------------------------------------- ------------- ------------- ------------- -------------
Revenues:
Premiums earned:
Commercial lines $ 172,725 $ 170,858 $ 344,812 $ 338,171
Personal lines 36,595 39,007 72,853 78,374
Total premiums earned 209,320 209,865 417,665 416,545
Net investment income 24,847 22,578 48,942 44,339
Realized investment gains 38,072 68 40,282 68
Other 4,299 4,158 9,186 8,441
Total revenues $ 276,538 $ 236,669 $ 516,075 $ 469,393
Income before income taxes and
cumulative effect of accounting
change:
Underwriting gain (loss):
Commercial lines $ (3,936) $ (9,760) $ (7,536) $ (19,998)
Personal lines 3,140 1,114 8,259 1,531
SAP underwriting gain
(loss) (796) (8,646) 723 (18,467)
GAAP adjustments 2,036 3,693 278 5,053
GAAP underwriting gain
(loss) 1,240 (4,953) 1,001 (13,414)
Net investment income 24,847 22,578 48,942 44,339
Realized investment gains 38,072 68 40,282 68
Other 1,228 730 3,390 1,886
Income before income taxes
and cumulative effect of
accounting change $ 65,387 $ 18,423 $ 93,615 $ 32,879
Income taxes on net investment
income $ 6,429 $ 5,354 $ 12,462 $ 10,387
Income taxes (benefit) on
remaining gain (loss) before
cumulative effect of accounting
change 14,228 (1,458) 15,715 (4,017)
Total income taxes on income
before cumulative effect of
accounting change $ 20,657 $ 3,896 $ 28,177 $ 6,370
Effective tax rate on:
Net investment income 25.9% 23.7% 25.5% 23.4%
Income before cumulative
effect of accounting change 31.6% 21.1% 30.1% 19.4%
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 Six months ended
June 30 June 30
STATUTORY DATA BY LINE OF BUSINESS* ------------------------------- -------------------------------
(dollars in thousands) 2006 2005 2006 2005
- ---------------------------------------- ------------- ------------- ------------- -------------
Net premiums written:
Commercial:
Automobile $ 55,115 $ 60,475 $ 109,092 $ 117,764
Workers' compensation 22,836 23,393 49,110 49,912
Commercial multi-peril 85,380 82,451 163,217 157,531
Other commercial 17,858 18,315 36,514 36,090
Total commercial $ 181,189 $ 184,634 $ 357,933 $ 361,297
Personal:
Automobile $ 18,407 $ 20,393 $ 36,155 $ 40,126
Homeowners 16,895 16,038 29,429 28,130
Other personal 2,419 2,537 4,309 4,463
Total personal $ 37,721 $ 38,968 $ 69,893 $ 72,719
Total personal and commercial $ 218,910 $ 223,602 $ 427,826 $ 434,016
Combined ratios:
Commercial:
Automobile 97.2% 97.9% 99.2% 99.0%
Workers' compensation 118.8% 124.2% 118.0% 124.8%
Commercial multi-peril 101.2% 100.4% 100.6% 102.7%
Other commercial 82.6% 100.9% 84.6% 92.9%
Total commercial 100.6% 103.0% 100.9% 103.7%
Personal:
Automobile 99.5% 104.1% 100.1% 105.1%
Homeowners 82.1% 92.3% 80.1% 97.4%
Other personal 70.2% 63.7% 69.2% 75.8%
Total personal 90.5% 97.2% 90.0% 100.4%
Total personal and commercial 98.8% 101.9% 99.0% 103.1%
Losses paid $ 112,298 $ 118,931 $ 218,148 $ 230,333
Net catastrophe losses incurred $ 4,228 $ 627 $ 7,055 $ 1,624
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- 07/27/2006
/CONTACT: Mark Cummins (Investors), +1-215-256-5025, or
mcummins@harleysvillegroup.com, or Randy Buckwalter (Media), +1-215-256-5288, or
rbuckwalter@harleysvillegroup.com, both of Harleysville Group Inc./
/First Call Analyst: /
/FCMN Contact: /
/Web site: http://www.harleysvillegroup.com /