EX-99 3 a4511159_ex991.txt HCC INSURANCE EXHIBIT 99.1 Exhibit 99.1 HCC Continues to Outperform with Record Third Quarter 2003 Results HOUSTON--(BUSINESS WIRE)--Nov. 6, 2003--HCC Insurance Holdings, Inc. (NYSE:HCC) today released earnings for the third quarter and first nine months of 2003. Net earnings for the third quarter of 2003 increased 58% to $38.4 million or $0.59 per diluted share from $24.3 million or $0.39 per diluted share for the third quarter of 2002. For the first nine months of 2003, net earnings increased 39% to $103.3 million or $1.61 per diluted share from $74.3 million or $1.18 per diluted share for the same period of 2002. Stephen L. Way, Chairman and Chief Executive Officer, said, "We had a very strong performance by all of our operating units, indicative of the continuing improved market conditions, and we expect strong earnings growth to continue through 2004." Total revenue showed significant growth, increasing 42% for the third quarter 2003 to $248.6 million from $175.7 million and increasing 45% for the first nine months of 2003 to $700.6 million from $483.3 million, both compared to the corresponding period in 2002. This increase was due to the growth in all of our business segments, acquisitions completed late in 2002 and an increase in investment income. The GAAP net combined ratio of our insurance company subsidiaries for the first nine months of 2003 was relatively flat at 88.8% compared to 87.3% in the corresponding period of 2002, but on substantially higher net earned premium. Premium of our insurance company subsidiaries continued to grow substantially, with gross written premium increasing 53% to $1.3 billion during the first nine months of 2003 compared to $852.1 million during the first nine months of 2002. During the same period, net written premium increased 66% to $666.1 million from $402.2 million and net earned premium increased by 48% to $535.4 million from $362.4 million. These increases are as a result of higher rates, increased retentions and strong growth particularly in our Diversified Financial Products segment. Mr. Way added, "Revenue and margins in our fee and commission business segments are also very strong and we expect this to continue through next year." Management fees increased 38% during the first nine months of 2003 to $79.0 million from $57.1 million in the same period of 2002. As promised, commission income increased 35% to $42.8 million during the first nine months of 2003 from $31.6 million in the same period of 2002. These increases are due to organic growth and acquisitions. Cash flow from operating activities increased substantially during the first nine months of 2003 rising 165% to $325.9 million from $122.8 million during the first nine months of 2002, as a result of increased revenue and higher net earnings. Net investment income increased 26% in the first nine months of 2003 to $34.9 million, from $27.8 million in the same period of 2002. This increase was primarily as a result of greater invested assets, which grew 30% as of September 30, 2003 to $1.52 billion compared to $1.17 billion at December 31, 2002. The Company continues to follow a conservative investment philosophy with a very short duration in our portfolio, little or no high yield bonds, no derivatives and few equity investments. Investment income growth is expected to continue through 2004 and accelerate if rates rise. As of September 30, 2003, total assets grew 25% to $4.6 billion and book value per share increased 11% to $15.77 both compared to December 31, 2002, shareholders' equity exceeded $1.0 billion for the first time in the Company's history and the Company's debt to total capital ratio was 23.6%. See attached tables. HCC will hold an open conference call beginning at 4:00 p.m. Central Time on Thursday, November 6, 2003. To participate, the number for domestic calls is 877-679-9051 and the number for international calls is 952-556-2804. 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 14, 2003. HCC is an international insurance holding company and a leading specialty insurance group since 1974, with offices in Bermuda, Spain, the UK and across the USA. HCC is traded on the NYSE (Symbol: HCC), has assets of $4.6 billion, shareholders' equity of more than $1 billion and 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. 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, 2003 (amounts in thousands, except per share data) Three Months Ended September 30, 2003 2002 -------------------------------- ----------------- ------------------- Gross written premium $443,040 $298,464 Net written premium 222,535 144,566 Net earned premium 189,440 136,294 Management fees 29,434 18,057 Commission income 14,445 10,403 Net investment income 11,997 9,797 Other operating income 3,136 1,131 Total revenue 248,620 175,672 Pre-tax earnings 60,043 37,731 Net earnings 38,351 24,269 Earnings per share (diluted) 0.59 0.39 Cash flow from operations 126,618 76,146 Weighted average shares outstanding (diluted) 64,885 62,871 GAAP net loss ratio 62.8% 62.5% GAAP combined ratio 88.6% 89.6% September 30, 2003 December 31, 2002 ------------------ ------------------ Total investments $1,517,243 $1,167,636 Total assets 4,619,885 3,704,151 Shareholders' equity 1,006,482 882,907 Debt to total capital 23.6% 20.7% Book value per share $15.77 $14.15 HCC Insurance Holdings, Inc. Financial Highlights September 30, 2003 (amounts in thousands, except per share data) Nine Months Ended September 30, 2003 2002 ------------------------------- ------------------- ------------------ Gross written premium $1,299,767 $852,084 Net written premium 666,127 402,228 Net earned premium 535,354 362,399 Management fees 78,975 57,052 Commission income 42,797 31,631 Net investment income 34,867 27,781 Other operating income 8,275 3,271 Total revenue 700,620 483,293 Pre-tax earnings 162,197 115,361 Net earnings 103,288 74,333 Earnings per share (diluted) 1.61 1.18 Cash flow from operations 325,890 122,828 Weighted average shares outstanding (diluted) 64,106 62,841 GAAP net loss ratio 63.3% 61.1% GAAP combined ratio 88.8% 87.3% September 30, 2003 December 31, 2002 ------------------- ------------------ Total investments $1,517,243 $1,167,636 Total assets 4,619,885 3,704,151 Shareholders' equity 1,006,482 882,907 Debt to total capital 23.6% 20.7% Book value per share $15.77 $14.15 HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited, in thousands, except per share data) September December 30, 2003 31, 2002 ----------- ----------- ASSETS Investments: Fixed income securities, at market (cost: 2003 - $1,034,445; 2002 - $807,772) $1,069,660 $841,548 Marketable equity securities, at market (cost: 2003 - $15,118; 2002 - $15,815) 15,023 15,609 Short-term investments, at cost, which approximates market 430,379 307,215 Other investments, at estimated fair value (cost: 2003 - $2,181; 2002 - $3,264) 2,181 3,264 ----------- ----------- Total investments 1,517,243 1,167,636 Cash 25,004 40,306 Restricted cash 211,530 189,396 Premium, claims and other receivables 954,599 753,527 Reinsurance recoverables 906,642 798,934 Ceded unearned premium 255,401 164,224 Ceded life and annuity benefits 77,901 78,951 Deferred policy acquisition costs 115,729 68,846 Goodwill 344,497 335,288 Other assets 211,339 107,043 ----------- ----------- Total assets $4,619,885 $3,704,151 =========== =========== LIABILITIES Loss and loss adjustment expense payable $1,406,843 $1,155,290 Life and annuity policy benefits 77,901 78,951 Reinsurance balances payable 251,975 166,659 Unearned premium 558,701 331,050 Deferred ceding commissions 74,424 49,963 Premium and claims payable 867,472 749,523 Notes payable 310,505 230,027 Accounts payable and accrued liabilities 65,582 59,781 ----------- ----------- Total liabilities 3,613,403 2,821,244 SHAREHOLDERS' EQUITY Common stock, $1.00 par value; 250.0 million shares authorized; (shares issued and outstanding: 2003 - 63,805; 2002 - 62,358) 63,805 62,358 Additional paid-in capital 444,012 416,406 Retained earnings 473,678 383,378 Accumulated other comprehensive income 24,987 20,765 ----------- ----------- Total shareholders' equity 1,006,482 882,907 ----------- ----------- Total liabilities and shareholders' equity $4,619,885 $3,704,151 =========== =========== HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Earnings (unaudited, in thousands, except per share data) For the nine months For the three ended months ended September 30, September 30, 2003 2002 2003 2002 --------- --------- --------- --------- REVENUE Net earned premium $535,354 $362,399 $189,440 $136,294 Management fees 78,975 57,052 29,434 18,057 Commission income 42,797 31,631 14,445 10,403 Net investment income 34,867 27,781 11,997 9,797 Net realized investment gain (loss) 352 1,159 168 (10) Other operating income 8,275 3,271 3,136 1,131 --------- --------- --------- --------- Total revenue 700,620 483,293 248,620 175,672 EXPENSE Loss and loss adjustment expense 339,065 221,246 118,953 85,163 Operating expense: Policy acquisition costs, net 64,521 44,467 23,063 18,933 Compensation expense 84,181 58,744 29,113 19,203 Other operating expense 45,159 36,583 15,547 12,591 --------- --------- --------- --------- Net operating expense 193,861 139,794 67,723 50,727 Interest expense 5,497 6,892 1,901 2,051 --------- --------- --------- --------- Total expense 538,423 367,932 188,577 137,941 --------- --------- --------- --------- Earnings before income tax provision 162,197 115,361 60,043 37,731 Income tax provision 58,909 41,028 21,692 13,462 --------- --------- --------- --------- Net earnings $103,288 $74,333 $38,351 $24,269 ========= ========= ========= ========= Basic earnings per share data: Earnings per share $1.64 $1.20 $0.60 $0.39 ========= ========= ========= ========= Weighted average shares outstanding 63,078 62,170 63,717 62,335 ========= ========= ========= ========= Diluted earnings per share data: Earnings per share $1.61 $1.18 $0.59 $0.39 ========= ========= ========= ========= Weighted average shares outstanding 64,106 62,841 64,885 62,871 ========= ========= ========= ========= Cash dividends declared, per share $0.205 $0.19 $0.075 $0.065 ========= ========= ========= ========= HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited, in thousands, except per share data) For the nine For the three months ended months ended September 30, September 30, 2003 2002 2003 2002 --------- --------- --------- --------- Cash flows from operating activities: Net earnings $103,288 $74,333 $38,351 $24,269 Adjustments to reconcile net earnings to net cash provided by operating activities: Change in premium, claims and other receivables (177,880) (52,440) (7,934) (14,989) Change in reinsurance recoverables (107,708) 52,969 (43,624) 22,933 Change in ceded unearned premium (91,177) (63,893) (25,364) (24,583) Change in loss and loss adjustment expense payable 251,553 (46,305) 101,720 (11,141) Change in reinsurance balances payable 85,316 58,412 21,051 19,953 Change in unearned premium 227,651 100,800 60,931 32,421 Change in premium and claims payable, net of restricted cash 67,849 (16,865) 2,496 24,513 Depreciation and amortization expense 8,485 7,933 2,921 2,555 Other, net (41,487) 7,884 (23,930) 215 --------- --------- --------- --------- Cash provided by operating activities 325,890 122,828 126,618 76,146 Cash flows from investing activities: Sales of fixed income securities 131,884 197,466 8,703 43,302 Maturity or call of fixed income securities 112,248 32,951 43,162 13,260 Sales of equity securities 1,165 3,417 -- -- Other proceeds 16,846 -- -- -- Change in short-term investments (114,801) 55,867 (25,238) 14,365 Cost of securities acquired (520,491) (412,521) (112,616) (125,421) Payments for purchased subsidiaries, net of cash received (16,680) -- (12,601) -- Purchases of property and equipment (20,260) (3,948) (17,125) (1,110) --------- --------- --------- --------- Cash used by investing activities (410,089) (126,768) (115,715) (55,604) Cash flows from financing activities: Issuance of notes payable, net of costs 134,845 40,000 -- -- Sale of common stock 17,476 10,038 5,507 777 Payments on notes payable (68,723) (15,409) (1,101) (2,140) Dividends paid and other, net (14,701) (12,831) (6,564) (3,887) --------- --------- --------- --------- Cash provided (used) by financing activities 68,897 21,798 (2,158) (5,250) --------- --------- --------- --------- Net change in cash (15,302) 17,858 8,745 15,292 Cash at beginning of period 40,306 16,891 16,259 19,457 --------- --------- --------- --------- Cash at end of period $25,004 $34,749 $25,004 $34,749 ========= ========= ========= ========= HCC Insurance Holdings, Inc. Insurance Company Premium September 30, 2003 ($ in thousands) 3rd Qtr 3rd Qtr Change 2003 2002 % ---------- ---------- ---------- GROSS WRITTEN Group life, accident & health $142,680 $132,904 7 Diversified financial products 149,764 55,461 170 London market account 48,910 46,346 6 Aviation 56,320 49,804 13 Other specialty lines 41,337 6,570 529 ---------- ---------- ---------- 439,011 291,085 51% - - Discontinued lines 4,029 7,379 ---------- ---------- $443,040 $298,464 ========== ========== NET WRITTEN Group life, accident & health $76,236 $69,491 10 Diversified financial products 52,203 13,597 284 London market account 33,387 30,015 11 Aviation 24,561 23,687 4 Other specialty lines 33,935 4,288 691 ---------- ---------- ---------- 220,322 141,078 56% Discontinued lines 2,213 3,488 ---------- ---------- $222,535 $144,566 ========== ========== NET EARNED PREMIUM Group life, accident & health $72,744 $64,350 13 Diversified financial products 35,581 6,753 427 London market account 35,276 29,784 18 Aviation 24,542 25,845 (5) Other specialty lines 16,752 4,365 284 ---------- ---------- ---------- 184,895 131,097 41% Discontinued lines 4,545 5,197 ---------- ---------- $189,440 $136,294 ========== ========== HCC Insurance Holdings, Inc. Insurance Company Premium September 30, 2003 ($ in thousands) Year to Date Year to Date Change 2003 2002 % ------------- ------------ -------- GROSS WRITTEN Group life, accident & health $426,162 $378,563 13 Diversified financial products 400,190 113,830 252 London market account 189,062 162,399 16 Aviation 165,280 153,908 7 Other specialty lines 87,393 16,454 431 ------------- ------------ -------- 1,268,087 825,154 54% Discontinued lines 31,680 26,930 ------------- ------------ $1,299,767 $852,084 ============= ============ NET WRITTEN Group life, accident & health $233,589 $176,519 32 Diversified financial products 134,417 28,730 368 London market account 135,941 91,954 48 Aviation 75,765 75,741 0 Other specialty lines 72,641 13,253 448 ------------- ------------ -------- 652,353 386,197 69% Discontinued lines 13,774 16,031 ------------- ------------ $666,127 $402,228 ============= ============ NET EARNED PREMIUM Group life, accident & health $220,253 $170,155 29 Diversified financial products 80,399 14,030 473 London market account 101,733 62,305 63 Aviation 72,779 76,599 (5) Other specialty lines 35,833 13,347 168 ------------- ------------ -------- 510,997 336,436 52% Discontinued lines 24,357 25,963 ------------- ------------ $535,354 $362,399 ============= ============ HCC Insurance Holdings, Inc. Consolidated Insurance Companies Net Loss Ratios September 30, 2003 ($ in thousands) Year to Date 2003 Full Year 2002 Net Net Earned Actual Loss Earned Actual Loss Line of Business Premium Losses Ratio Premium Losses Ratio -------------------- ------------------------ ------------------------ Group life, accident & health $220,253 $140,507 63.8% $240,070 $149,251 62.2% Diversified financial products 80,399 38,065 47.3 23,102 10,708 46.4 London market account 101,733 53,805 52.9 89,260 45,937 51.5 Aviation 72,779 46,321 63.6 100,960 46,732 46.3 Other specialty lines 35,833 29,785 83.1 22,337 22,581 101.1 ------------------------ ------------------------ 510,997 308,483 60.4 475,729 275,209 57.8 Discontinued lines 24,357 30,582 125.6 29,792 31,282 105.0 ------------------------ ------------------------ Total $535,354 $339,065 63.3% $505,521 $306,491 60.6% CONTACT: HCC Insurance Holdings, Inc., Houston L. Byron Way, 713-690-7300