EX-99.1 2 h54121exv99w1.htm EARNINGS PRESS RELEASE exv99w1
 

Exhibit 99.1
(HCC INSURANCE HOLDINGS LOGO)
HCC INSURANCE HOLDINGS REPORTS RECORD
RESULTS FOR FOURTH QUARTER AND FULL YEAR 2007
HOUSTON (February 19, 2008) . . .
HCC Insurance Holdings, Inc. (NYSE: HCC) today reported record earnings for the fourth quarter and full year ended December 31, 2007.
Net earnings increased 23 percent during the fourth quarter of 2007 to $99.6 million, compared with $80.7 million during the fourth quarter of 2006. Net earnings per diluted share also increased 23 percent to $0.85 per share from $0.69 per share for the fourth quarter of 2006.
For the full year of 2007, net earnings increased 16 percent to $395.4 million from $342.3 million in the previous year. Diluted earnings per share increased 15 percent to $3.38 per share from $2.93 per share in 2006.
“The results achieved during 2007 reflect the true talent of our underwriting focused organization. What should stand out about HCC is that we have good businesses run by great people executing a consistently conservative business plan that generated a return on beginning equity for 2007 of 19.4 percent and an average return on equity of 16.5 percent for the last six years,” HCC Chief Executive Officer Frank J. Bramanti said.
Revenues for the fourth quarter of 2007 totaled $614.4 million, compared to $599.1 million in the fourth quarter of 2006. Total revenue for the full year increased 15 percent to $2.4 billion from $2.1 billion in 2006. This increase was primarily due to an increase in net earned premium and higher investment income.
Other operating income was $7.9 million for the fourth quarter of 2007, compared to $17.9 million for the same period in 2006 where the sale of two strategic investments generated $14.2 million.
Net earned premium of the Company’s insurance company subsidiaries continued to show growth during 2007, rising 16 percent to $2.0 billion, compared with $1.7 billion in 2006. During the 12-month period, gross and net written premium increased 10 percent to $2.5 billion and $2.0 billion, respectively. Both gross and net written premium growth came from an acquisition in the medical stop-loss line of business, and organic growth in surety, credit and the Company’s other specialty lines.
The GAAP combined ratio of the Company’s insurance company subsidiaries was 85.1 percent for the fourth quarter of 2007, compared with 87.7 percent for the fourth quarter

1

 

of 2006. The GAAP combined ratio was 83.4 percent for the 2007 full year, compared with 84.2 percent for 2006.
Fee and commission income rose slightly during 2007 to $140.1 million from $137.1 million in 2006. Fee and commission income for the fourth quarter of 2007 was $34.1 million, compared with $32.7 million in the fourth quarter of the previous year.
Net investment income increased 35 percent during 2007 to $206.5 million, from $152.8 million in 2006. This growth was due primarily to increased investment assets.
There were no impairment losses in HCC’s investment portfolio in the fourth quarter or full year of 2007. As of December 31, 2007, HCC’s fixed income investment portfolio had an average rating of AAA, duration of five years and an average tax equivalent yield of 5.4 percent. HCC owns no CDO or CLO securities.
“Our assets continue to be managed by outside firms that specialize in the insurance industry. These managers, together with our conservative investment policy, kept our exposures to the current credit turmoil to a minimum,” Mr. Bramanti said.
The attached tables include information related to the Company’s subprime exposure with respect to its investments and its underwriting.
As of December 31, 2007, total investments had increased 19 percent to $4.7 billion; total assets had risen 6 percent to $8.1 billion; shareholders’ equity had increased 19 percent to $2.4 billion; and book value per share had increased 16 percent to $21.21; all compared to December 31, 2006. In addition, the Company’s debt to total capital ratio remained very conservative at 11.7 percent. (See attached tables.)
“As we enter 2008, HCC is well positioned with the best capital position in its history. The softening market makes our experienced, disciplined approach the key to avoiding the pitfalls of the deteriorating underwriting environment,” Mr. Bramanti said.
In addition to reporting its fourth quarter and year-end 2007 results today, HCC is also providing earnings guidance for 2008 and announcing quarterly release dates during the year. The Company’s management estimates HCC will achieve net earnings in the range of $2.90 to $3.20 per share for the full year of 2008, versus 2007 guidance of $3.10 to $3.25 per share. These estimated results assume, for the full year, net written premium of $2.0 billion, total revenue of $2.3 billion, a combined ratio of 85 percent, and average fully diluted shares outstanding of 118.5 million.
The Company’s earnings announcements in 2008 will be made after the market closes on: May 6, 2008 for First Quarter 2008; August 5, 2008 for Second Quarter 2008; and November 4, 2008 for Third Quarter 2008. HCC will hold an open conference call at 8:00 a.m. Central Time on the morning following each quarterly earnings announcement to discuss the results. Conference call information will be posted on the Company’s

2

 

website (www.hcc.com) approximately two weeks prior to each call. Each conference call will also be available by webcast through the HCC website.
HCC will hold an open conference call beginning at 8:00 a.m. Central Time tomorrow, Wednesday, February 20, 2008 to discuss these results. To participate, the number for domestic calls will be (800) 374-0290 and the number for international calls will be (706) 634-1303. There will also be a live webcast available on a listen-only basis that can be accessed through the HCC website at www.hcc.com. A replay of the webcast will be available on the website until Friday, March 14, 2008.
Headquartered in Houston, Texas, HCC Insurance Holdings, Inc. (HCC) is a leading international specialty insurance group with offices across the United States and in Bermuda, Spain, Ireland and the United Kingdom. HCC has assets of nearly $8.1 billion, shareholders’ equity in excess of $2.4 billion and is rated AA (Very Strong) by Standard & Poor’s, AA (Very Strong) by Fitch Ratings and A+ (Superior) by A.M. Best Company.
For more information, visit our website at www.hcc.com.
Contact:   Barney White, HCC Vice President of Investor Relations
Telephone: (713) 744-3719
Forward-looking statements contained in this press release are made under “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. The types of risks and uncertainties which may affect the Company are set forth in its periodic reports filed with the Securities and Exchange Commission.
* * * * *

3

 

HCC Insurance Holdings, Inc. and Subsidiaries
Financial Highlights
December 31, 2007
(Unaudited, in thousands except per share data)
                 
    Three months ended December 31,  
    2007     2006  
 
                
Gross written premium
   $ 593,415     $ 607,435  
Net written premium
     485,144       513,438  
Net earned premium
     500,178       504,248  
Fee and commission income
     34,097       32,722  
Net investment income
     58,409       43,845  
Other operating income
     7,934       17,941  
Total revenue
     614,407       599,108  
Net earnings
     99,642       80,742  
Earnings per share (diluted)
     0.85       0.69  
Cash flow from operations
     111,577       293,682  
Weighted average shares outstanding (diluted)
     117,085       117,115  
GAAP net loss ratio
     59.7 %     64.0 %
GAAP combined ratio
     85.1 %     87.7 %
Paid loss ratio
     49.5 %     22.3 %
                 
    December 31, 2007     December 31, 2006  
 
                
Total investments
   $ 4,672,277     $ 3,927,995  
Total assets
     8,074,645       7,630,132  
Shareholders’ equity
     2,440,365       2,042,803  
Debt to total capital
     11.7 %     13.1 %
Book value per share
   $ 21.21     $ 18.28  

4

 

HCC Insurance Holdings, Inc. and Subsidiaries
Financial Highlights
December 31, 2007
(Unaudited, in thousands except per share data)
                 
    Twelve months ended December 31,  
    2007     2006  
 
                
Gross written premium
   $ 2,451,179     $ 2,235,648  
Net written premium
     1,985,609       1,812,552  
Net earned premium
     1,985,086       1,709,189  
Fee and commission income
     140,092       137,131  
Net investment income
     206,462       152,804  
Other operating income
     43,545       77,012  
Total revenue
     2,388,373       2,075,295  
Net earnings
     395,429       342,285  
Earnings per share (diluted)
     3.38       2.93  
Cash flow from operations
     726,436       653,388  
Weighted average shares outstanding (diluted)
     116,997       116,736  
GAAP net loss ratio
     59.6 %     59.2 %
GAAP combined ratio
     83.4 %     84.2 %
Paid loss ratio
     47.9 %     34.1 %
                 
    December 31, 2007     December 31, 2006  
 
                
Total investments
   $ 4,672,277     $ 3,927,995  
Total assets
     8,074,645       7,630,132  
Shareholders’ equity
     2,440,365       2,042,803  
Debt to total capital
     11.7 %     13.1 %
Book value per share
   $ 21.21     $ 18.28  
Return on beginning equity
     19.4 %     20.2 %

5

 

HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
                 
    December 31,     December 31,  
    2007     2006  
ASSETS
                
 
                
Investments:
                
Fixed income securities
   $ 3,666,705     $ 3,007,193  
Short-term investments
     783,650       714,685  
Other investments
     221,922       206,117  
 
            
Total investments
     4,672,277       3,927,995  
Cash
     39,135       48,290  
Restricted cash and cash investments
     193,151       176,424  
Premium, claims and other receivables
     763,401       864,705  
Reinsurance recoverables
     956,665       1,169,934  
Ceded unearned premium
     244,684       226,125  
Ceded life and annuity benefits
     66,199       70,923  
Deferred policy acquisition costs
     192,773       182,410  
Goodwill
     776,046       742,677  
Other assets
     170,314       220,649  
 
            
Total assets
   $ 8,074,645     $ 7,630,132  
 
            
LIABILITIES
                
 
                
Loss and loss adjustment expense payable
   $ 3,227,080     $ 3,097,051  
Life and annuity policy benefits
     66,199       70,923  
Reinsurance balances payable
     129,838       122,805  
Unearned premium
     943,946       920,350  
Deferred ceding commissions
     68,968       64,949  
Premium and claims payable
     497,974       646,224  
Notes payable
     324,714       308,887  
Accounts payable and accrued liabilities
     375,561       356,140  
 
            
Total liabilities
     5,634,280       5,587,329  
 
                
SHAREHOLDERS’ EQUITY
                
 
                
Common stock
     115,069       111,731  
Additional paid-in capital
     831,419       798,213  
Retained earnings
     1,445,995       1,098,887  
Accumulated other comprehensive income
     47,882       33,972  
 
            
Total shareholders’ equity
     2,440,365       2,042,803  
 
            
Total liabilities and shareholders’ equity
   $ 8,074,645     $ 7,630,132  
 
            

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HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited, in thousands except per share data)
                                 
    Twelve months ended     Three months ended  
    December 31,     December 31,  
    2007     2006     2007     2006  
REVENUE
                                
Net earned premium
   $ 1,985,086     $ 1,709,189     $ 500,178     $ 504,248  
Fee and commission income
     140,092       137,131       34,097       32,722  
Net investment income
     206,462       152,804       58,409       43,845  
Net realized investment gain (loss)
     13,188       (841 )     13,789       352  
Other operating income
     43,545       77,012       7,934       17,941  
 
                        
 
                                
Total revenue
     2,388,373       2,075,295       614,407       599,108  
 
                        
 
                                
EXPENSE
                                
Loss and loss adjustment expense, net
     1,183,947       1,011,856       298,400       322,734  
Policy acquisition costs, net
     366,610       319,885       98,832       88,873  
Other operating expense
     241,642       222,324       72,416       66,045  
Interest expense
     10,304       11,396       3,138       3,484  
 
                        
 
                                
Total expense
     1,802,503       1,565,461       472,786       481,136  
 
                        
 
                                
Earnings before income tax expense
     585,870       509,834       141,621       117,972  
Income tax expense
     190,441       167,549       41,979       37,230  
 
                        
 
                                
Net earnings
   $ 395,429     $ 342,285     $ 99,642     $ 80,742  
 
                        
 
                                
Basic earnings per share data:
                                
Net earnings per share
   $ 3.50     $ 3.08     $ 0.87     $ 0.72  
 
                        
 
                                
Weighted average shares outstanding
     112,873       111,309       114,641       111,635  
 
                        
 
                                
Diluted earnings per share data:
                                
Net earnings per share
   $ 3.38     $ 2.93     $ 0.85     $ 0.69  
 
                        
 
                                
Weighted average shares outstanding
     116,997       116,736       117,085       117,115  
 
                        
 
                                
Cash dividends declared, per share
   $ 0.42     $ 0.375     $ 0.11     $ 0.10  
 
                        

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HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
                                 
    Twelve months ended     Three months ended  
    December 31,     December 31,  
    2007     2006     2007     2006  
Cash flows from operating activities:
                                
Net earnings
   $ 395,429     $ 342,285     $ 99,642     $ 80,742  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                                
Change in premium, claims and other receivables
     97,304       40,955       33,567       4,329  
Change in reinsurance recoverables
     213,353       192,049       90,881       136,018  
Change in ceded unearned premium
     (18,436 )     13,291       9,489       17,878  
Change in loss and loss adjustment expense payable
     129,203       136,520       (40,338 )     42,614  
Change in reinsurance balances payable
     7,002       (54,834 )     17,514       (17,325 )
Change in unearned premium
     21,498       109,280       (25,315 )     (4,358 )
Change in premium and claims payable, net of restricted cash
     (164,977 )     (126,027 )     (91,298 )     (47,734 )
Change in trading portfolio
     9,362       (19,919 )     (4,764 )     79,274  
Depreciation and amortization expense
     15,982       14,980       4,357       2,738  
Stock-based compensation expense
     12,011       13,126       2,820       3,663  
Other, net
     8,705       (8,318 )     15,022       (4,157 )
 
                        
Cash provided by operating activities
     726,436       653,388       111,577       293,682  
 
                        
 
                                
Cash flows from investing activities:
                                
Sales of fixed income securities
     438,057       338,927       216,235       154,752  
Maturity or call of fixed income securities
     302,876       247,072       68,441       72,314  
Cost of securities acquired
     (1,377,750 )     (1,389,984 )     (366,003 )     (431,162 )
Change in short-term investments
     (72,279 )     129,919       (62,090 )     (41,279 )
Sale of strategic investments
     46,612       63,285       3,615       22,931  
Payments for purchase of subsidiaries, net of cash received
     (65,112 )     (45,722 )     (11,425 )     9,568  
Other, net
     (9,741 )     (11,971 )     (2,662 )     (3,359 )
 
                        
Cash used by investing activities
     (737,337 )     (668,474 )     (153,889 )     (216,235 )
 
                        
 
                                
Cash flows from financing activities:
                                
Advances on line of credit
     232,000       140,000       170,000       —  
Payments on notes payable and line of credit
     (205,763 )     (140,616 )     (149,400 )     (84,270 )
Sale of common stock
     24,533       18,999       5,196       4,026  
Dividends paid
     (46,158 )     (38,923 )     (12,528 )     (11,149 )
Other, net
     (2,866 )     9,981       1,648       2,598  
 
                        
Cash provided (used) by financing activities
     1,746       (10,559 )     14,916       (88,795 )
 
                        
 
                                
Net decrease in cash
     (9,155 )     (25,645 )     (27,396 )     (11,348 )
 
                                
Cash at beginning of period
     48,290       73,935       66,531       59,638  
 
                        
 
                                
Cash at end of period
   $ 39,135     $ 48,290     $ 39,135     $ 48,290  
 
                        

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HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
December 31, 2007
(Unaudited, in thousands)
                         
    4th Qtr     4th Qtr     Change  
    2007     2006     %  
GROSS WRITTEN
                        
 
                        
Diversified financial products
   $ 262,335     $ 265,278       (1 )%
Group life, accident & health
     196,459       206,424       (5 )
Aviation
     41,064       50,136       (18 )
London market account
     23,721       31,904       (26 )
Other specialty lines
     69,798       52,691       32  
Discontinued lines
     38       1,002     nm  
 
                  
 
   $ 593,415     $ 607,435       (2 )%
 
                  
 
                        
NET WRITTEN
                        
 
                        
Diversified financial products
   $ 206,816     $ 220,134       (6 )%
Group life, accident & health
     189,460       201,916       (6 )
Aviation
     31,847       37,448       (15 )
London market account
     10,289       16,470       (38 )
Other specialty lines
     46,705       37,425       25  
Discontinued lines
     27       45     nm  
 
                  
 
   $ 485,144     $ 513,438       (6 )%
 
                  
 
                        
NET EARNED PREMIUM
                        
 
                        
Diversified financial products
   $ 196,431     $ 190,798       3 %
Group life, accident & health
     186,667       205,813       (9 )
Aviation
     37,630       40,225       (6 )
London market account
     31,846       31,907       —  
Other specialty lines
     47,576       35,412       34  
Discontinued lines
     28       93     nm  
 
                  
 
   $ 500,178     $ 504,248       (1 )%
 
                  
 
    nm — Not meaningful comparison

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HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
December 31, 2007
(Unaudited, in thousands)
                         
    Year to Date     Year to Date     Change  
    2007     2006     %  
GROSS WRITTEN
                        
 
                        
Diversified financial products
   $ 963,355     $ 956,057       1 %
Group life, accident & health
     798,684       621,639       28  
Aviation
     195,809       216,208       (9 )
London market account
     213,716       234,868       (9 )
Other specialty lines
     280,040       205,651       36  
Discontinued lines
     (425 )     1,225     nm  
 
                  
 
   $ 2,451,179     $ 2,235,648       10 %
 
                  
 
                        
NET WRITTEN
                        
 
                        
Diversified financial products
   $ 771,648     $ 794,232       (3 )%
Group life, accident & health
     759,207       590,811       29  
Aviation
     145,761       166,258       (12 )
London market account
     118,241       127,748       (7 )
Other specialty lines
     191,151       133,481       43  
Discontinued lines
     (399 )     22     nm  
 
                  
 
   $ 1,985,609     $ 1,812,552       10 %
 
                  
 
                        
NET EARNED PREMIUM
                        
 
                        
Diversified financial products
   $ 777,414     $ 728,861       7 %
Group life, accident & health
     758,516       591,070       28  
Aviation
     153,121       152,886       —  
London market account
     124,609       112,362       11  
Other specialty lines
     171,824       123,981       39  
Discontinued lines
     (398 )     29     nm  
 
                  
 
   $ 1,985,086     $ 1,709,189       16 %
 
                  
 
    nm — Not meaningful comparison

10

 

HCC Insurance Holdings, Inc. and Subsidiaries
Investments — Selected Disclosures
December 31, 2007
(Unaudited, in thousands)
                                                                 
                    Ratings  
    Amortized Cost     Market Value     AAA     AA     A     BBB & below     Other     Average  
Fixed Income Securities
   $ 3,641,667     $ 3,666,705     $ 2,971,589     $ 420,842     $ 243,774     $ 30,500     $       AAA
 
                                                            
 
                                                                
Residential Mortgage Backed Securities & Collateralized Mortgage Obligations
                                                                
 
                                                                
Agency
   $ 609,785     $ 617,190       617,190       —       —       —       —     AAA
 
                                                                
Non-Agency
                                                                
Subprime
     5,905       5,365       4,007       —       —       1,358       —     AAA
Alt A
     12,490       12,427       11,940       34       453       —       —     AAA
Prime
     96,092       93,635       93,635       —       —       —       —     AAA
 
                                                            
 
                                                                
Total Residential MBS/CMO
   $ 724,272     $ 728,617                                                  
 
                                                            
 
                                                                
Commercial Mortgaged Backed Securities
   $ 211,574     $ 211,128       211,128       —       —       —       —     AAA
 
                                                            
 
                                                                
Municipal Bond Portfolio
   $ 1,802,417     $ 1,822,281       1,448,783       352,895       20,603       —       —     AAA
 
                                                            
 
                                                                
Insurance Enhanced
   $ 1,159,285     $ 1,170,854       1,170,854       —       —       —       —     AAA
 
                                                            
 
                                                                
Insured — Underlying Ratings
   $ 1,159,285     $ 1,170,854       184,510       643,038       290,907       1,531       50,868     AA
 
                                                            
 
                                                                
Non-Insured
   $ 643,132     $ 651,427       258,318       370,093       23,016       —       —     AA+
 
                                                            
 
                                                                
Short-Term
                                                                
Bank Sweep Accounts — US
   $ 96,140     $ 96,140                                                  
Bank Sweep Accounts — Non-US
     129,278       129,278                                                  
Taxable Money Market Funds
     399,654       399,654                                                  
Short-term Non US Gov Bonds
     158,578       158,578                                                  
 
                                                            
 
                                                                
Total Short-Term
   $ 783,650     $ 783,650                                                  
 
                                                            
Note:
There are no CDO/CLOs in the portfolio.
There are no Auction Rate Securities in the portfolio.
Other Ratings are bonds with at least one enhanced rating; each issuer has an equivalent investment grade rating.
Received paydown of $1.6 million on subprime and Alt A securities in fourth quarter 2007.

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HCC Insurance Holdings, Inc. and Subsidiaries
Subprime Liability Exposure
December 31, 2007
•   HCC wrote approximately $1.4 billion of Directors and Officers and Errors and Omissions premium in 2006 and 2007 combined.
•   The majority of the D&O business is written excess and usually with high attachment points.
•   The majority of the Errors and Omissions insurance was for limits of $1 million or less.
•   Except for run-off policies, HCC has not written multi-year policies.
•   The insurance provided is claims made with defense costs within the limits.
•   Approximately 30 percent of the Company’s in-force D&O book is Financial Institutions including insurance companies and brokers.
•   Many of the larger financial institutions purchased Side A only coverage.
•   HCC’s average D&O limit is less than $10 million gross and $8 million net.
•   As of December 31, the Company had 18 non-Side A only D&O or E&O claims and seven Side A only claims.
•   Of the claims reported, only one was primary with a policy limit of $5 million gross.
•   The average policy limit for non-Side A only claims is $11 million gross and $7.5 million net with an average excess point of $60 million.
•   The average Side A only limit is $13 million gross and $11 million net with an average attachment point of more than $200 million.
•   Based upon its current knowledge, the Company continues to believe subprime will be contained within its loss picks.

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HCC Insurance Holdings, Inc. and Subsidiaries
Consolidated Insurance Companies
Net Loss Ratios
December 31, 2007
(Unaudited, in thousands)
                                                 
    Full Year 2007     Full Year 2006  
    Net Earned     Incurred     Loss     Net Earned     Incurred     Loss  
Line of Business   Premium     Losses     Ratio     Premium     Losses     Ratio  
Diversified financial products
   $ 777,414     $ 315,409       40.6 %   $ 728,861     $ 351,010       48.2 %
Group life, accident & health
     758,516       579,780       76.4       591,070       432,343       73.1  
Aviation
     153,121       89,683       58.6       152,886       82,328       53.8  
London market account
     124,609       68,798       55.2       112,362       48,316       43.0  
Other specialty lines
     171,824       115,804       67.4       123,981       69,374       56.0  
Discontinued lines
     (398 )     14,473     nm       29       28,485     nm  
 
                                    
Total
   $ 1,985,086     $ 1,183,947       59.6 %   $ 1,709,189     $ 1,011,856       59.2 %
 
                                    
 
    nm — Not meaningful comparison

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