-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WdPPM4d1fbw4sA5k04J93p+XfOlsrPra+T1WIrLoqJ+EGFnKEvM9+2SFYMf2F/qG cJRQiJBC09zmP9zM5g1fBg== 0001047469-98-020649.txt : 19980518 0001047469-98-020649.hdr.sgml : 19980518 ACCESSION NUMBER: 0001047469-98-020649 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HCC INSURANCE HOLDINGS INC/DE/ CENTRAL INDEX KEY: 0000888919 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 760336636 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13790 FILM NUMBER: 98624121 BUSINESS ADDRESS: STREET 1: 13403 NORTHWEST FRWY CITY: HOUSTON STATE: TX ZIP: 77040-6094 BUSINESS PHONE: 7136907300 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended March 31, 1998 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from __________________ to __________________ Commission file number 0-20766 HCC Insurance Holdings, Inc. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 76-0336636 - ------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 13403 Northwest Freeway, Houston, Texas 77040-6094 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (713) 690-7300 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. On May 4, 1998, there were 47,851,759 shares of Common Stock, $1 par value issued and outstanding. HCC INSURANCE HOLDINGS, INC. INDEX PAGE NO. -------- Part I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets March 31, 1998 and December 31, 1997.................................. 3 Condensed Consolidated Statements of Earnings Three Months Ended March 31, 1998 and Three Months Ended March 31, 1997..................................... 4 Condensed Consolidated Statements of Changes in Shareholders' Equity Three Months Ended March 31, 1998 and Year Ended December 31, 1997.......................................... 5 Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 1998 and Three Months Ended March 31, 1997..................................... 7 Notes to Condensed Consolidated Financial Statements................... 8 Item 2. Management's Discussion and Analysis................................... 13 Part II. OTHER INFORMATION.............................................................. 15
2 HCC Insurance Holdings, Inc. and Subsidiaries --------- Condensed Consolidated Balance Sheets (Unaudited) --------- March 31, 1998 December 31, 1997 -------------- ----------------- ASSETS Investments available for sale: Fixed income securities, at market (cost: 1998 $393,218,000; 1997 $ 395,121,000) $ 406,762,000 $ 409,701,000 Marketable equity securities, at market (cost: 1998 $8,012,000; 1997 $10,221,000) 6,474,000 8,339,000 Short-term investments, at cost, which approximates market 129,133,000 105,255,000 Other investments, at cost, which approximates fair value 273,000 -- -------------- -------------- Total investments 542,642,000 523,295,000 Cash 6,213,000 7,728,000 Restricted cash and cash investments 69,346,000 60,063,000 Reinsurance recoverables 214,102,000 203,300,000 Premium, claims and other receivables 282,489,000 252,618,000 Ceded unearned premium 105,894,000 84,610,000 Deferred policy acquisition costs 25,704,000 21,604,000 Property and equipment, net 22,948,000 19,926,000 Deferred income tax 5,450,000 6,817,000 Other assets, net 62,036,000 44,506,000 -------------- -------------- TOTAL ASSETS $1,336,824,000 $1,224,467,000 -------------- -------------- -------------- -------------- LIABILITIES Loss and loss adjustment expense payable $ 277,432,000 $ 275,008,000 Reinsurance balances payable 96,484,000 70,249,000 Unearned premium 165,834,000 152,094,000 Deferred ceding commissions 25,484,000 19,553,000 Premium and claims payable 269,414,000 237,770,000 Notes payable 95,000,000 80,750,000 Accounts payable and accrued liabilities 25,285,000 23,442,000 -------------- -------------- Total liabilities 954,933,000 858,866,000 SHAREHOLDERS' EQUITY Common Stock, $1.00 par value; 100,000,000 shares authorized; (issued and outstanding: 1998 47,851,134 shares; 1997 47,758,929 shares) 47,851,000 47,759,000 Additional paid-in capital 156,013,000 154,633,000 Retained earnings 170,382,000 155,209,000 Accumulated other comprehensive income 7,645,000 8,000,000 -------------- -------------- Total shareholders' equity 381,891,000 365,601,000 -------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,336,824,000 $1,224,467,000 -------------- -------------- -------------- --------------
See Notes to Condensed Consolidated Financial Statements. 3 HCC Insurance Holdings, Inc. and Subsidiaries -------- Condensed Consolidated Statements of Earnings (Unaudited) -------- For the three months ended March 31, 1998 1997 ------------- ------------- REVENUE Net earned premium $ 33,927,000 $ 44,675,000 Management fee and commission income 25,298,000 17,934,000 Net investment income 6,826,000 6,205,000 Computer products and services 1,638,000 1,646,000 Net realized investment gain (loss) 117,000 (56,000) ------------- ------------- Total revenue 67,806,000 70,404,000 EXPENSE Loss and loss adjustment expense 17,190,000 26,618,000 Operating expense: Policy acquisition costs 15,775,000 14,243,000 Compensation expense 13,566,000 11,583,000 Other operating expense 7,700,000 7,011,000 Merger expense 27,000 1,873,000 Ceding commissions (13,540,000) (10,995,000) ------------- ------------- Net operating expense 23,528,000 23,715,000 Interest expense 1,621,000 1,375,000 ------------- ------------- Total expense 42,339,000 51,708,000 ------------- ------------- Earnings before income tax provision 25,467,000 18,696,000 Income tax provision 8,380,000 5,663,000 ------------- ------------- NET EARNINGS $ 17,087,000 $ 13,033,000 ------------- ------------- ------------- ------------- BASIC EARNINGS PER SHARE DATA: Earnings per share $ 0.36 $ 0.28 ------------- ------------- ------------- ------------- Weighted average shares outstanding 47,794,000 46,115,000 ------------- ------------- ------------- ------------- DILUTED EARNINGS PER SHARE DATA: Earnings per share $ 0.35 $ 0.27 ------------- ------------- ------------- ------------- Weighted average shares outstanding 48,809,000 47,448,000 ------------- ------------- ------------- ------------- Cash dividends declared, per share $ 0.04 $ 0.03 ------------- ------------- ------------- -------------
See Notes to Condensed Consolidated Financial Statements. 4 HCC Insurance Holdings, Inc. and Subsidiaries --------- Condensed Consolidated Statements of Changes in Shareholders' Equity For the three months ended March 31, 1998 and for the year ended December 31, 1997 (Unaudited) -------- Accumulated Additional other Total Common paid-in Retained comprehensive Treasury shareholders' Stock capital earnings income stock equity ----------- ------------ ------------ ------------- ------------ ------------- BALANCE AS OF DECEMBER 31, 1996 $49,017,000 $138,515,000 $162,131,000 $ 3,532,000 $(56,670,000) $ 296,525,000 726,898 shares of Common Stock issued for exercise of options, including tax benefit of $1,725,000 727,000 9,743,000 - - - 10,470,000 382,024 shares of Common Stock issued for purchased companies 382,000 9,805,000 - - - 10,187,000 950,000 shares of Common Stock issued for combinations with pooled companies 950,000 - (1,507,000) - - (557,000) Net earnings - - 49,760,000 - - 49,760,000 Cash dividends declared, $0.12 per share - - (5,219,000) - - (5,219,000) Repurchase of 14,895 shares of common stock by pooled company prior to combination - - - - (324,000) (324,000) Retirement of 3,316,636 shares of treasury stock (3,317,000) (3,430,000) (50,247,000) - 56,994,000 - Other comprehensive income - - - 4,468,000 - 4,468,000 Other - - 291,000 - - 291,000 ----------- ------------ ------------ ------------- ------------ ------------- BALANCE AS OF DECEMBER 31, 1997 $47,759,000 $154,633,000 $155,209,000 $ 8,000,000 $ - $365,601,000 ----------- ------------ ------------ ------------- ------------ ------------- ----------- ------------ ------------ ------------- ------------ -------------
See Notes to Condensed Consolidated Financial Statements. 5 HCC Insurance Holdings, Inc. and Subsidiaries -------- Condensed Consolidated Statements of Changes in Shareholders' Equity For the three months ended March 31, 1998 and for the year ended December 31, 1997 (Unaudited) (continued) -------- Accumulated Additional other Total Common paid-in Retained comprehensive shareholders' Stock capital earnings income equity ----------- ------------ ------------ ------------- ------------- BALANCE AS OF DECEMBER 31, 1997 $47,759,000 $154,633,000 $155,209,000 $8,000,000 $365,601,000 63,176 shares of Common Stock issued for exercise of options, including tax benefit of $75,000 63,000 809,000 -- -- 872,000 29,029 shares of Common Stock issued for purchased company 29,000 571,000 -- -- 600,000 Net earnings -- -- 17,087,000 -- 17,087,000 Cash dividends declared, $0.04 per share -- -- (1,914,000) -- (1,914,000) Other comprehensive income (loss) (355,000) (355,000) ----------- ------------ ------------ ---------- ------------ BALANCE AS OF MARCH 31, 1998 $47,851,000 $156,013,000 $170,382,000 $7,645,000 $381,891,000 ----------- ------------ ------------ ---------- ------------ ----------- ------------ ------------ ---------- ------------
See Notes to Condensed Consolidated Financial Statements. 6 HCC Insurance Holdings, Inc. and Subsidiaries -------- Condensed Consolidated Statements of Cash Flows (Unaudited) -------- For the three months ended March 31, 1998 1997 ------------- ------------- Cash flows from operating activities: Net earnings $ 17,087,000 $ 13,033,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Change in reinsurance recoverables (10,802,000) (34,617,000) Change in premium, claims and other receivables (29,871,000) (15,308,000) Change in ceded unearned premium (21,284,000) (8,266,000) Change in deferred income tax, net of tax effect of unrealized gain or loss 1,604,000 1,159,000 Change in loss and loss adjustment expense payable 2,424,000 31,156,000 Change in reinsurance balances payable 26,235,000 6,193,000 Change in unearned premium 13,740,000 6,413,000 Change in premium and claims payable, net of restricted cash 22,361,000 20,696,000 Net realized investment (gain) loss (117,000) 56,000 Depreciation and amortization expense 1,585,000 1,090,000 Other, net 5,192,000 (1,018,000) ------------- ------------- Cash provided by operating activities 28,154,000 20,587,000 Cash flows from investing activities: Sales of fixed income securities -- 8,467,000 Maturity or call of fixed income securities 3,978,000 2,485,000 Sales of equity securities 2,347,000 5,579,000 Change in short-term investments (23,878,000) (11,273,000) Cash paid for companies acquired, net of cash received (19,172,000) (6,550,000) Cost of securities acquired (2,547,000) (22,501,000) Purchases of property and equipment (4,133,000) (597,000) ------------- ------------- Cash used by investing activities (43,405,000) (24,390,000) Cash flows from financing activities: Proceeds from notes payable 21,200,000 4,900,000 Sale of Common Stock 872,000 1,941,000 Payments on notes payable (6,950,000) (2,000,000) Dividends paid (1,386,000) (717,000) Repurchase common stock -- (324,000) ------------- ------------- Cash provided by financing activities 13,736,000 3,800,000 ------------- ------------- Net change in cash (1,515,000) (3,000) Cash at beginning of period 7,728,000 9,171,000 ------------- ------------- CASH AT END OF PERIOD $ 6,213,000 $ 9,168,000 ------------- ------------- ------------- -------------
See Notes to Condensed Consolidated Financial Statement 7 HCC Insurance Holdings, Inc. and Subsidiaries --------- Notes to Condensed Consolidated Financial Statements (Unaudited) (1) GENERAL INFORMATION HCC Insurance Holdings, Inc. ("the Company" or "HCC") and its subsidiaries include domestic and foreign property and casualty insurance companies, managing general underwriters, surplus lines insurance brokers and retail and wholesale insurance and reinsurance brokers. The Company, through its subsidiaries, provides specialized property, casualty, accident and health insurance, underwritten on both a direct and reinsurance basis, and insurance agency services. BASIS OF PRESENTATION The unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles and include all adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim periods. All adjustments made to the interim periods are of a normal recurring nature. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The condensed consolidated financial statements for periods reported should be read in conjunction with the annual consolidated financial statements and related notes thereto. The condensed consolidated balance sheet as of December 31, 1997, and the statement of shareholders' equity for the year then ended were derived from audited financial statements, but do not include all disclosures required by generally accepted accounting principles. The combination with The Kachler Corporation ("Kachler") was accounted for as a pooling-of-interests. The Company's condensed consolidated financial statements have been restated to include the accounts and operations of Kachler for all periods presented (see note 3). INCOME TAX For the three months ended March 31, 1998 and 1997, the income tax provision has been calculated based on an estimated effective tax rate for each of the fiscal years. The difference between the Company's effective tax rate and the Federal statutory rate is primarily the result of nontaxable municipal bond interest included in pretax income. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS In January, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income". SFAS No. 130 requires that all components of comprehensive income be reported in a full set of financial statements and that the amount of total comprehensive income be reported. For interim reporting purposes comprehensive income will be reported with other supplemental information (see note 5). 8 HCC Insurance Holdings, Inc. and Subsidiaries -------- Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) (1) GENERAL INFORMATION, CONTINUED EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED In June, 1997, the Financial Accounting Standards Board issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information". This statement is effective for fiscal years beginning after December 15, 1997, but the required information does not need to be included until year end financial statements in the year of adoption. SFAS No. 131 relates to the presentation of segment information in a complete set of financial statements. It will have no effect on the Company's net earnings, shareholders' equity or cash flows. The Company does not expect to change its definitions of segments when SFAS No. 131 is adopted. RECLASSIFICATIONS Certain amounts in the 1997 condensed consolidated financial statements have been reclassified to conform to the 1998 presentation. Such reclassifications had no effect on the Company's net earnings, shareholders' equity, or cash flows. (2) REINSURANCE In the normal course of business the Company's insurance company subsidiaries cede a substantial portion of their premium to non-affiliated domestic and foreign reinsurers through quota share, surplus, excess of loss and facultative reinsurance agreements. Although the ceding of reinsurance does not discharge the primary insurer from liability to its policyholder, the subsidiaries participate in such agreements for the purpose of limiting their loss exposure and diversifying their business. Substantially all of the reinsurance assumed by the Company's insurance company subsidiaries was underwritten directly by the Company but issued by other non-affiliated companies in order to satisfy licensing or other requirements. The following tables represent the effect of such reinsurance transactions on net premium and loss and loss adjustment expense: Loss and Loss Written Earned Adjustment Premium Premium Expense ------------- ------------- ------------- For the three months ended March 31, 1998: Direct business $ 38,391,000 $ 41,942,000 $ 31,666,000 Reinsurance assumed 64,192,000 46,083,000 37,590,000 Reinsurance ceded (76,766,000) (54,098,000) (52,066,000) ------------- ------------- ------------- NET AMOUNTS $ 25,817,000 $ 33,927,000 $ 17,190,000 ------------- ------------- ------------- ------------- ------------- -------------
9 HCC Insurance Holdings, Inc. and Subsidiaries -------- Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) (2) REINSURANCE, CONTINUED Loss and Loss Written Earned Adjustment Premium Premium Expense ------------ ------------ ------------ For the three months ended March 31, 1997: Direct business $ 36,924,000 $ 43,157,000 $ 27,083,000 Reinsurance assumed 58,217,000 45,127,000 62,689,000 Reinsurance ceded (52,492,000) (43,609,000) (63,154,000) ------------ ------------ ------------ NET AMOUNTS $ 42,649,000 $ 44,675,000 $ 26,618,000 ------------ ------------ ------------ ------------ ------------ ------------
The table below represents the approximate composition of reinsurance recoverables in the accompanying condensed consolidated balance sheets: March 31, 1998 December 31, 1997 -------------- ----------------- Reinsurance recoverable on paid losses $ 53,225,000 $ 50,461,000 Reinsurance recoverable on outstanding losses 151,093,000 140,516,000 Reinsurance recoverable on IBNR 12,349,000 14,858,000 Reserve for uncollectible reinsurance (2,565,000) (2,535,000) ------------- ------------- TOTAL REINSURANCE RECOVERABLES $ 214,102,000 $ 203,300,000 ------------- ------------- ------------- -------------
The insurance company subsidiaries require reinsurers not authorized by the subsidiaries' respective states of domicile to collateralize their reinsurance obligations to the Company with letters of credit or cash deposits. At March 31, 1998, the Company held letters of credit and cash deposits in the amounts of $94.8 million and $7.8 million, respectively, to collateralize certain reinsurance balances. The Company has established a reserve of $2.6 million as of March 31, 1998, to reduce the effects of any recoverable problems. In order to minimize its exposure to reinsurance credit risk, the Company evaluates the financial condition of its reinsurers and places its reinsurance with a diverse group of financially sound companies. 10 HCC Insurance Holdings, Inc. and Subsidiaries -------- Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) (3) ACQUISITIONS KACHLER On February 27, 1998, the Company acquired all of the outstanding shares of Kachler in exchange for 1,600,000 shares of the Company's Common Stock. This business combination has been accounted for as a pooling-of-interests and, accordingly, the Company's condensed consolidated financial statements have been restated to include the accounts and operations of Kachler for all periods presented. For the three months ended March 31, 1998 and 1997, total revenue included $1.9 million in each period and net earnings included $735,000 and $2,000, respectively, related to Kachler prior to the combination. GIR Effective February 28, 1998, the Company acquired all of the outstanding shares of Insurance Alternatives, Inc. and all of the assets and liabilities of Guarantee Insurance Resources (collectively, "GIR") in exchange for 29,029 shares of the Company's Common Stock and a cash payment of $21.4 million. This acquisition has been accounted for as a purchase and the results of operations have been included in the condensed consolidated statements of earnings beginning in March, 1998. Cost in excess of net assets acquired (goodwill) of approximately $21.8 million was recorded from this acquisition. Goodwill is being amortized over twenty years. The results of operations of GIR for the periods prior to the acquisition are immaterial to the Company's consolidated results of operations. (4) EARNINGS PER SHARE Basic earnings per share is based on the weighted average number of common shares outstanding during the year divided into net earnings. Diluted earnings per share is based on the weighted average number of common shares outstanding plus the potential common shares outstanding during the year divided into net earnings. The shares issued in connection with the combination with Kachler are included in outstanding shares for all periods presented. Outstanding common stock options, when dilutive, are considered to be potential common stock for the purpose of the diluted calculation. The treasury stock method is used to calculate potential common stock due to options. 11 HCC Insurance Holdings, Inc. and Subsidiaries -------- Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) (4) EARNINGS PER SHARE, CONTINUED The following table provides a reconciliation of the denominators used in the earnings per share calculations: For the three months ended March 31, 1998 1997 ---------------- --------------- Net earnings $ 17,087,000 $ 13,033,000 ------------- ------------- ------------- ------------- Reconciliation of number of shares outstanding: Shares of Common Stock outstanding at period end 47,851,000 46,161,000 Changes in Common Stock due to issuance (57,000) (46,000) ------------- ------------- Weighted average Common Stock outstanding 47,794,000 46,115,000 Additional dilutive effect of outstanding options (as determined by the application of the treasury stock method) 1,015,000 1,333,000 ------------- ------------- Weighted average Common Stock and potential common stock outstanding 48,809,000 47,448,000 ------------- ------------- ------------- -------------
As of March 31, 1998, there were approximately 1.7 million options that were not included in the computation of diluted earnings per share because to do so would have been antidilutive. (5) SUPPLEMENTAL INFORMATION Supplemental information for the three months ended March 31, 1998 and 1997, is summarized below: 1998 1997 ---------- ------------ Interest paid $ 743,000 $ 1,396,000 Income tax paid 777,000 2,653,000 Comprehensive income 16,707,000 9,239,000
12 MANAGEMENT'S DISCUSSION AND ANALYSIS The Company completed the acquisition of Kachler on February 27, 1998 (pooling- of-interests), and of GIR on February 28, 1998 (purchase). The Company's historical financial statements have been restated to include the accounts and operations of Kachler for all periods presented. THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31, 1997 Gross written premium increased 8% to $102.6 million for the first quarter of 1998 from $95.1 million for the same period in 1997. Aviation and accident and health premium increased during the quarter offset somewhat by a reduction in marine premium. Net written premium for the first quarter of 1998 decreased to $25.8 million from $42.6 million for the same period in 1997 due to an increase in the amount of ceded reinsurance, particularly in the aviation line of business due to the continuing effect of additional reinsurance purchased at Avemco Insurance Company after the June, 1997 acquisition. Net earned premium decreased to $33.9 million for the first quarter of 1998 compared to $44.7 million for the same period in 1997 due to the aggregate effect of reduced net written premium during the preceding twelve month period. Management fee and commission income increased 41% to $25.3 million for the first quarter of 1998, compared to $17.9 million for the same period in 1997 due to internal growth and agency acquisitions and the Company expects solid growth to continue. Net investment income increased 10% to $6.8 million for the first quarter of 1998 compared to $6.2 million for the same period in 1997 reflecting increased cash flow and, therefore, a higher level of investments. The Company's investment policy has remained consistent and conservative. Loss and LAE decreased $9.4 million during the first quarter of 1998, to $17.2 million, reflecting increased ceded reinsurance along with an improvement in the loss ratio. Net earnings increased 31% to $17.1 million for the first quarter of 1998 from $13.0 million for the same period in 1997. This increase was principally a result of higher underwriting profits and increased management fee and commission income. Diluted earnings per share increased 30% to $0.35 for the first quarter of 1998 from $0.27 for the same period of 1997. This reflects the increase in net earnings, offset by a 3% increase in weighted average shares outstanding due to shares issued for acquisitions and the exercise of options. The Company's insurance company subsidiaries' GAAP combined ratio was 75.2% for the first quarter of 1998, as compared to 81.0% for the same period in 1997. The Company's book value per share was $7.98 as of March 31, 1998, up from $7.66 as of December 31, 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's consolidated cash and investment portfolio increased $17.8 million or 3% since December 31, 1997, and totaled $548.9 million as of March 31, 1998, of which $135.3 million was cash and short-term investments. Total assets increased to $1.3 billion as of March 31, 1998, from $1.2 billion as of December 31, 1997. 13 EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income". SFAS No. 130 requires that all components of comprehensive income be reported in a full set of financial statements and that the amount of total comprehensive income be reported. For interim reporting purposes comprehensive income will be reported with other supplemental information (see note 5). THIS REPORT ON FORM 10-Q (THE "REPORT") CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE INTENDED TO BE COVERED BY THE SAFE HARBORS CREATED THEREBY. INVESTORS ARE CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS NECESSARILY INVOLVE RISKS AND UNCERTAINTY, INCLUDING, WITHOUT LIMITATION, THE RISK OF A SIGNIFICANT NATURAL DISASTER, THE INABILITY OF THE COMPANY TO REINSURE CERTAIN RISKS, THE ADEQUACY OF ITS LOSS RESERVES, THE FINANCIAL VIABILITY OF ITS REINSURERS, THE EXPANSION OR CONTRACTION IN ITS VARIOUS LINES OF BUSINESS, THE IMPACT OF INFLATION, CHANGING LICENSING REQUIREMENTS AND REGULATIONS IN THE UNITED STATES AND IN FOREIGN COUNTRIES, THE ABILITY OF THE COMPANY TO INTEGRATE ITS RECENTLY ACQUIRED BUSINESSES, THE EFFECT OF PENDING OR FUTURE ACQUISITIONS AS WELL AS ACQUISITIONS WHICH HAVE RECENTLY BEEN CONSUMMATED, GENERAL MARKET CONDITIONS, COMPETITION, LICENSING AND PRICING. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACTS, INCLUDED OR INCORPORATED BY REFERENCE IN THIS REPORT THAT ADDRESS ACTIVITIES, EVENTS OR DEVELOPMENTS THAT THE COMPANY EXPECTS OR ANTICIPATES WILL OR MAY OCCUR IN THE FUTURE, INCLUDING, WITHOUT LIMITATION, SUCH THINGS AS FUTURE CAPITAL EXPENDITURES (INCLUDING THE AMOUNT AND NATURE THEREOF), BUSINESS STRATEGY AND MEASURES TO IMPLEMENT SUCH STRATEGY, COMPETITIVE STRENGTHS, GOALS, EXPANSION AND GROWTH OF THE COMPANY'S BUSINESSES AND OPERATIONS, PLANS, REFERENCES TO FUTURE SUCCESS, AS WELL AS OTHER STATEMENTS WHICH INCLUDES WORDS SUCH AS "ANTICIPATE," "BELIEVE," "PLAN," "ESTIMATE," "EXPECT," AND "INTEND" AND OTHER SIMILAR EXPRESSIONS, CONSTITUTE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD OVER TIME PROVE TO BE INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT WILL THEMSELVES PROVE TO BE ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED. 14 PART II - OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits: The exhibits listed on the accompanying Index to Exhibits on the following page are filed as part of this Report. (b) Reports on Form 8-K: On January 8, 1998, the Company filed a report on Form 8-K reporting the execution of a $120.0 million revolving credit facility with a group of banks. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HCC Insurance Holdings, Inc. -------------------------------------- (Registrant) May 12, 1998 /s/ John N. Molbeck, Jr. - -------------------------- -------------------------------------- (Date) John N. Molbeck, Jr., President May 12, 1998 /s/ Edward H. Ellis, Jr. - -------------------------- -------------------------------------- (Date) Edward H. Ellis, Jr., Senior Vice President and Chief Financial Officer 15 INDEX TO EXHIBITS 27 - EDGAR Financial Data Schedule - March 31, 1998. 27.1 - EDGAR Financial Data Schedule - Restated March 31, 1997. 16 EX-27 2 EXHIBIT 27
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 406,762,000 0 0 6,474,000 0 0 542,642,000 6,213,000 214,102,000 220,000 1,336,824,000 277,432,000 165,834,000 0 0 95,000,000 0 0 47,851,000 334,040,000 1,336,824,000 33,927,000 6,826,000 117,000 26,936,000 17,190,000 2,235,000 21,293,000 25,467,000 8,380,000 17,087,000 0 0 0 17,087,000 0.36 0.35 119,634,000 0 0 0 0 113,990,000 0
EX-27.1 3 EXHIBIT 27.1
7 THIS SCHEDULE HAS BEEN RESTATED DUE TO THE COMPANY'S MERGER WITH KACHLER, WHICH WAS ACCOUNTED FOR AS A POOLING-OF-INTERESTS. SEE NOTES 1 AND 3 TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998. THIS SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 379,546,000 0 0 10,509,000 0 0 480,021,000 9,168,000 166,945,000 6,927,000 1,051,298,000 260,205,000 162,681,000 0 0 75,817,000 0 0 47,876,000 265,273,000 1,051,298,000 44,675,000 6,205,000 (56,000) 19,580,000 26,618,000 3,248,000 20,467,000 18,696,000 5,663,000 13,033,000 0 0 0 13,033,000 0.28 0.27 117,283,000 0 0 0 0 118,929,000 0
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