EX-99.1 3 h01014exv99w1.txt PRESS RELEASE Exhibit 99.1 HCC REPORTS RECORD RESULTS AS UNDERWRITING PROFITABILITY RETURNS TO ALL LINES OF BUSINESS HOUSTON (November 7, 2002) ... HCC INSURANCE HOLDINGS, INC. (NYSE SYMBOL: HCC) today released earnings for the third quarter and first nine months of 2002. Net earnings for the third quarter of 2002 increased to $24.3 million or $0.39 per share from a loss of ($29.1) million or ($0.49) per share for the third quarter of 2001. For the first nine months of 2002, net earnings increased to $74.3 million or $1.18 per share from $6.4 million or $0.11 per share for the same period of 2001. Net earnings reflect an increase to loss reserves related to a discontinued line of business in the amount of $5.0 million or $0.08 per share. This discontinued line of business was written by a former subsidiary prior to the Company's ownership and further deterioration is not expected. Stephen L. Way, Chairman and Chief Executive Officer said, "Our business is improving rapidly, particularly in our underwriting operations. With our strong balance sheet and lack of chronic industry issues from the past, such as A&E development or pension under-funding, we are well positioned to continue to capitalize on the dramatically improving market conditions." Total revenue continued to grow substantially, increasing 30 percent for the first nine months of 2002 to $483.3 million from $373.3 million for the first nine months of 2001. This increase was primarily due to the growth of earned premium in our insurance company subsidiaries, which is expected to continue through 2003. Gross written premium of our insurance company subsidiaries, excluding discontinued lines, increased 23 percent to $844.1 million during the first nine months of 2002 compared to the first nine months of 2001. During the same period and also excluding discontinued lines, net written premium increased by 65 percent to $395.8 million and net earned premium increased by 51 percent to $346.4 million. These increases are as a result of higher rates, increased retentions and strong growth in all of our lines of business. This growth is expected to continue through next year. The GAAP combined ratio for our insurance company subsidiaries, improved considerably for the first nine months of 2002 to 87.3 percent from 113.0 percent (98.9 percent excluding the effects of 9/11) in the corresponding period of 2001. Mr. Way added, "Our underwriting results continue to improve even as earned premium rises substantially. For only the second time in our history, at September 30, 2002, all of the current lines of business written by our insurance companies are now showing an underwriting profit." Management fees increased 31 percent during the first nine months of 2002 to $57.1 million from $43.7 million in the same period of 2001. This increase is due to acquisitions, higher rates and new business generated in our underwriting agency operations, which are expected to continue to grow through 2003. During the same period, commission income was slightly lower at $31.6 million compared to $34.3 million, due in part to the substantial reduction in ceded reinsurance from our insurance company subsidiaries. However, commission income is expected to return to growth next year. Cash flow from operating activities increased substantially during the first nine months of 2002 to $122.8 million from $82.0 million during the first nine months of 2001, as a result of increased business, higher retained premiums and net earnings. Despite investment assets exceeding $1 billion for the first time in the Company's history, net investment income decreased in the first nine months of 2002 to $28.1 million, from $30.6 million in the same period of 2001. This reduction was a result of lower interest rates. The Company continues to follow a conservative investment philosophy with little or no derivatives, no high yield bonds and few equity investments. Although continuing increases in cash flow should improve this result going forward, investment income is unlikely to show any comparative growth until interest rates rise. As of September 30, 2002, total investments were $1.0 billion, total assets were $3.5 billion, book value per share increased to $13.72 and the Company's debt to total capital ratio was 19.5 percent. See attached tables. HCC will hold an open conference call beginning at 8:00 a.m. CST on Friday, November 8, 2002. To participate, the number for domestic calls is (800) 606-8940 and the number for international calls is (952) 556-2833. A replay will be available until Friday, November 15, 2002 at (800) 615-3210, access code 6280638. In addition, there will be a live webcast available on a listen-only basis, that can be accessed through the HCC website at www.hcch.com. The webcast replay will be available until Friday, November 15, 2002. HCC is an international insurance holding company and one of the largest specialty insurance groups in the USA. HCC has assets of $3.5 billion and its shares trade on the NYSE (symbol: HCC) with a market capitalization of over $1.5 billion. HCC is rated AA (Very Strong) by Standard & Poor's and A+ (Superior) by A.M. Best Company. For more information, visit our website at www.hcch.com. Contact: L. Byron Way, Vice President HCC Insurance Holdings, Inc. Telephone (713) 690-7300 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. * * * * HCC INSURANCE HOLDINGS, INC. FINANCIAL HIGHLIGHTS SEPTEMBER 30, 2002 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SEPTEMBER 30, 2002 2001 ----------------------------------------------------------- ------------------ ----------------- Gross written premium $ 298,464 $ 242,899 Net written premium 144,566 93,175 Net earned premium 136,294 93,471 Management fees 18,057 14,033 Commission income 10,403 9,507 Net investment income 9,945 10,105 Other operating income 983 10,382 Total revenue 175,672 137,621 Pre-tax earnings 37,731 (35,754) Net earnings 24,269 (29,076) Earnings per share (diluted) $ 0.39 $ (0.49) Cash flow from operations 76,146 65,440 Weighted average shares outstanding 62,871 59,399 GAAP gross loss ratio 64.1% 167.5% GAAP net loss ratio 62.5% 127.5% GAAP combined ratio 89.6% 152.2% SEPTEMBER 30, 2002 DECEMBER 31, 2001 ------------------ ----------------- Total investments $ 1,037,049 $ 888,466 Total assets 3,471,897 3,219,120 Shareholders' equity 855,581 763,453 Debt to total capital 19.5% 19.2% Book value per share $ 13.72 $ 12.40
HCC INSURANCE HOLDINGS, INC. FINANCIAL HIGHLIGHTS SEPTEMBER 30, 2002 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30, 2002 2001 ----------------------------------------------------------- ------------------ ----------------- Gross written premium $ 852,084 $ 766,607 Net written premium 402,228 271,264 Net earned premium 362,399 249,080 Management fees 57,052 43,668 Commission income 31,631 34,299 Net investment income 28,123 30,613 Other operating income 2,929 15,846 Total revenue 483,293 373,269 Pre-tax earnings 115,361 22,505 Net earnings 74,333 6,360 Earnings per share (diluted) $ 1.18 $ 0.11 Cash flow from operations 122,828 81,976 Weighted average shares outstanding 62,841 58,755 GAAP gross loss ratio 61.5% 112.7% GAAP net loss ratio 61.1% 86.8% GAAP combined ratio 87.3% 113.0% SEPTEMBER 30, 2002 DECEMBER 31, 2001 ------------------ ----------------- Total investments $ 1,037,049 $ 888,466 Total assets 3,471,897 3,219,120 Shareholders' equity 855,581 763,453 Debt to total capital 19.5% 19.2% Book value per share $ 13.72 $ 12.40
HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (unaudited, in thousands, except per share data)
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 --------- --------- --------- --------- REVENUE Net earned premium $ 362,399 $ 249,080 $ 136,294 $ 93,471 Management fees 57,052 43,668 18,057 14,033 Commission income 31,631 34,299 10,403 9,507 Net investment income 28,123 30,613 9,945 10,105 Net realized investment gain (loss) 1,159 (237) (10) 123 Other operating income 2,929 15,846 983 10,382 --------- --------- --------- --------- Total revenue 483,293 373,269 175,672 137,621 EXPENSE Loss and loss adjustment expense 221,246 216,143 85,163 119,174 Operating expense: Policy acquisition costs, net 44,467 21,515 18,933 9,262 Compensation expense 58,744 51,135 19,203 15,669 Other operating expense 36,583 55,340 12,591 27,800 --------- --------- --------- --------- Net operating expense 139,794 127,990 50,727 52,731 Interest expense 6,892 6,631 2,051 1,470 --------- --------- --------- --------- Total expense 367,932 350,764 137,941 173,375 --------- --------- --------- --------- Earnings (loss) before income tax provision 115,361 22,505 37,731 (35,754) Income tax provision (benefit) 41,028 16,145 13,462 (6,678) --------- --------- --------- --------- NET EARNINGS (LOSS) $ 74,333 $ 6,360 $ 24,269 $ (29,076) ========= ========= ========= ========= BASIC EARNINGS (LOSS) PER SHARE DATA: Earnings (loss) per share $ 1.20 $ 0.11 $ 0.39 $ (0.49) ========= ========= ========= ========= Weighted average shares outstanding 62,170 57,411 62,335 59,399 ========= ========= ========= ========= DILUTED EARNINGS (LOSS) PER SHARE DATA: Earnings (loss) per share $ 1.18 $ 0.11 $ 0.39 $ (0.49) ========= ========= ========= ========= Weighted average shares outstanding 62,841 58,755 62,871 59,399 ========= ========= ========= ========= Cash dividends declared, per share $ 0.19 $ 0.1825 $ 0.065 $ 0.0625 ========= ========= ========= =========
HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED, IN THOUSANDS)
SEPTEMBER 30, 2002 DECEMBER 31, 2001 ------------------ ----------------- ASSETS Investments: Fixed income securities, at market (cost: 2002 - $682,732; 2001 - $513,674) $ 720,410 $ 525,428 Marketable equity securities, at market (cost: 2002 - $16,971; 2001 - $16,431) 16,851 16,569 Short-term investments, at cost, which approximates market 283,037 338,904 Other investments, at estimated fair value (cost: 2002 - $17,401; 2001 - $8,007) 16,751 7,565 ----------- ----------- Total investments 1,037,049 888,466 Cash 34,749 16,891 Restricted cash 159,365 138,545 Premium, claims and other receivables 718,405 665,965 Reinsurance recoverables 846,159 899,128 Ceded unearned premium 135,033 71,140 Ceded life and annuity benefits 80,022 83,013 Deferred policy acquisition costs 61,916 32,071 Property and equipment, net 51,023 52,486 Goodwill 315,610 315,318 Other assets 32,566 56,097 ----------- ----------- TOTAL ASSETS $ 3,471,897 $ 3,219,120 =========== =========== LIABILITIES Loss and loss adjustment expense payable $ 1,084,443 $ 1,130,748 Life and annuity policy benefits 80,022 83,013 Reinsurance balances payable 147,049 88,637 Unearned premium 280,330 179,530 Deferred ceding commissions 41,762 16,681 Premium and claims payable 721,114 717,159 Notes payable 207,029 181,928 Accounts payable and accrued liabilities 54,567 57,971 ----------- ----------- Total liabilities 2,616,316 2,455,667 SHAREHOLDERS' EQUITY Common stock, $1.00 par value; 250.0 million shares authorized; (shares issued and outstanding: 2002 - 62,294; 2001 - 61,438) 62,294 61,438 Additional paid-in capital 414,253 402,089 Retained earnings 355,946 293,426 Accumulated other comprehensive income 23,088 6,500 ----------- ----------- Total shareholders' equity 855,581 763,453 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,471,897 $ 3,219,120 =========== ===========
HCC INSURANCE HOLDINGS, INC. INSURANCE COMPANY PREMIUM SEPTEMBER 30, 2002 ($ IN THOUSANDS)
3RD QTR 3RD QTR CHANGE 2002 2001 % -------- -------- ------ GROSS WRITTEN Group life, accident & health $162,953 $154,346 6 Aviation 49,804 43,862 14 Property, marine & energy 22,120 14,684 51 Other specialty lines 61,894 3,505 1,666 -------- -------- ----- 296,771 216,397 37% Discontinued lines 1,693 26,502 -------- -------- $298,464 $242,899 ======== ======== NET WRITTEN Group life, accident & health $ 90,642 $ 50,511 79 Aviation 23,687 19,232 23 Property, marine & energy 10,868 6,442 69 Other specialty lines 17,748 3,251 446 -------- -------- ----- 142,945 79,436 80% Discontinued lines 1,621 13,739 -------- -------- $144,566 $ 93,175 ======== ======== NET EARNED PREMIUM Group life, accident & health $ 85,484 $ 50,716 69 Aviation 25,845 23,397 10 Property, marine & energy 10,636 6,503 64 Other specialty lines 11,105 4,007 177 -------- -------- ----- 133,070 84,623 57% Discontinued lines 3,224 8,848 -------- -------- $136,294 $ 93,471 ======== ========
HCC INSURANCE HOLDINGS, INC. INSURANCE COMPANY PREMIUM SEPTEMBER 30, 2002 ($ IN THOUSANDS)
YEAR TO DATE YEAR TO DATE CHANGE 2002 2001 % ------------ ------------ ------ GROSS WRITTEN Group life, accident & health $461,699 $474,695 (3) Aviation 153,908 137,123 12 Property, marine & energy 98,379 65,825 49 Other specialty lines 130,147 11,285 1,053 -------- -------- ----- 844,133 688,928 23% Discontinued lines 7,951 77,679 -------- -------- $852,084 $766,607 ======== ======== NET WRITTEN Group life, accident & health $220,803 $139,379 58 Aviation 75,741 67,460 12 Property, marine & energy 57,443 22,906 151 Other specialty lines 41,847 10,075 315 -------- -------- ----- 395,834 239,820 65% Discontinued lines 6,394 31,444 -------- -------- $402,228 $271,264 ======== ======== NET EARNED PREMIUM Group life, accident & health $214,595 $137,369 56 Aviation 76,599 65,675 17 Property, marine & energy 27,795 15,640 78 Other specialty lines 27,364 10,831 153 -------- -------- ----- 346,353 229,515 51% Discontinued lines 16,046 19,565 -------- -------- $362,399 $249,080 ======== ========
HCC INSURANCE HOLDINGS, INC. CONSOLIDATED INSURANCE COMPANIES NET LOSS RATIOS SEPTEMBER 30, 2002 ($ IN THOUSANDS)
Year to Date Full Year 2001 Net Earned Losses Loss Net Earned Losses Loss Line of Business Premium (incl. IBNR) Ratio Premium (incl. IBNR) Ratio ------------------------------- -------------------------------------------- --------------------------------------------- Group life, accident & health $ 214,595 $ 134,834 62.8% $ 186,188 $ 146,809 78.8% Aviation 76,599 39,449 51.5 91,377 57,152 62.5 Property, marine & energy 27,795 6,645 23.9 23,748 12,688 53.4 Other specialty lines 27,364 20,921 76.5 15,124 11,108 73.4 -------------------------------------------- --------------------------------------------- 346,353 201,849 58.3 316,437 227,757 72.0 Discontinued lines 16,046 19,397 120.9 26,350 39,633 150.4 -------------------------------------------- --------------------------------------------- Total $ 362,399 $ 221,246 61.1% $ 342,787 $ 267,390 78.0% ============================================ =============================================
HCC INSURANCE HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 --------- --------- --------- --------- Cash flows from operating activities: Net earnings (loss) $ 74,333 $ 6,360 $ 24,269 $ (29,076) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Change in premium, claims and other receivables (52,440) (100,469) (14,989) (48,720) Change in reinsurance recoverables 52,969 (190,056) 22,933 (136,645) Change in ceded unearned premium (63,893) 16,284 (24,583) 11,659 Change in other assets 13,445 (16,375) 4,380 (21,825) Change in loss and loss adjustment expense payable (46,305) 266,322 (11,141) 209,055 Change in reinsurance balances payable 58,412 (18,258) 19,953 4,763 Change in unearned premium 100,800 2,626 32,421 (12,653) Change in premium and claims payable, net of restricted cash (16,865) 82,763 24,513 60,607 Gains on dispositions -- (8,171) -- (8,171) Depreciation, amortization and impairments 7,933 29,782 2,555 20,483 Other, net (5,561) 11,168 (4,165) 15,963 --------- --------- --------- --------- Cash provided by operating activities 122,828 81,976 76,146 65,440 Cash flows from investing activities: Sales of fixed income securities 197,466 88,621 43,302 17,493 Maturity or call of fixed income securities 32,951 25,843 13,260 5,189 Sales of equity securities 3,417 11,960 -- 9,489 Other proceeds -- 1,042 -- 1,042 Change in short-term investments 55,867 (148,364) 14,365 (170,125) Cost of securities acquired (412,521) (187,383) (125,421) (51,871) Purchases of property and equipment (3,948) (4,637) (1,110) (1,646) --------- --------- --------- --------- Cash used by investing activities (126,768) (212,918) (55,604) (190,429) Cash flows from financing activities: Issuance of notes payable 40,000 168,058 -- 168,058 Sale of common stock, net of costs 10,038 172,538 777 10,701 Payments on notes payable (15,409) (209,523) (2,140) (51,023) Dividends paid and other, net (12,831) (10,619) (3,887) (3,542) --------- --------- --------- --------- Cash provided (used) by financing activities 21,798 120,454 (5,250) 124,194 Net change in cash 17,858 (10,488) 15,292 (795) Cash at beginning of period 16,891 13,991 19,457 4,298 --------- --------- --------- --------- CASH AT END OF PERIOD $ 34,749 $ 3,503 $ 34,749 $ 3,503 ========= ========= ========= =========
HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES SFAS NO. 142 RECONCILIATION (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA) The tables below reconcile net earnings and earnings per share we reported to adjusted amounts that we would have reported had we adopted SFAS No. 142 on January 1, 2001 instead of January 1, 2002:
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 --------- --------- --------- --------- Net earnings (loss): Reported net earnings (loss) $ 74,333 $ 6,360 $ 24,269 $ (29,076) Add back goodwill amortization -- 9,162 -- 3,241 Add back license amortization -- 409 -- 96 Less tax benefit from goodwill amortization -- (819) -- (286) --------- --------- --------- --------- ADJUSTED NET INCOME (LOSS) $ 74,333 $ 15,112 $ 24,269 $ (26,025) ========= ========= ========= ========= Basic earnings (loss) per share: Reported basic earnings (loss) per share $ 1.20 $ 0.11 $ 0.39 $ (0.49) Add back amortization, net of tax effect -- 0.15 -- 0.05 --------- --------- --------- --------- ADJUSTED BASIC EARNINGS (LOSS) PER SHARE $ 1.20 $ 0.26 $ 0.39 $ (0.44) ========= ========= ========= ========= Diluted earnings (loss) per share: Reported diluted earnings (loss) per share $ 1.18 $ 0.11 $ 0.39 $ (0.49) Add back amortization, net of tax effect -- 0.15 -- 0.05 --------- --------- --------- --------- ADJUSTED DILUTED EARNINGS (LOSS) PER SHARE $ 1.18 $ 0.26 $ 0.39 $ (0.44) ========= ========= ========= =========