-----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, MAJXoEWdyCCZXcrb3RbI775SJJHOy+EHJ85ku+2WNjGoZVzlQMGjVkYMoW4fQcOB QAEfdxsy17l1vF4hOErPDg== 0001157523-04-010228.txt : 20041102 0001157523-04-010228.hdr.sgml : 20041102 20041102160133 ACCESSION NUMBER: 0001157523-04-010228 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20041102 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20041102 DATE AS OF CHANGE: 20041102 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13790 FILM NUMBER: 041113447 BUSINESS ADDRESS: STREET 1: 13403 NORTHWEST FRWY CITY: HOUSTON STATE: TX ZIP: 77040-6094 BUSINESS PHONE: 7136907300 8-K 1 a4756788.txt HCC INSURANCE HOLDINGS, INC. 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) November 2, 2004 HCC INSURANCE HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 0-20766 76-0336636 (State or other jurisdiction (Commission File (IRS Employer of incorporation) Number) Identification No.) 13403 Northwest Freeway 77040-6094 Houston, Texas (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 690-7300 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ---------------------------------- Item 2.02. Results of Operations and Financial Condition. On November 2, 2004, HCC Insurance Holdings, Inc. announced its results for the Third Quarter of 2004. A press release setting forth the announcement is furnished as Exhibit 99.1 and is incorporated herein by reference. Item 9.01 Financial Statements and Exhibits No. Exhibit ---- ------- 99.1 Earnings Press Release dated November 2, 2004 The information contained herein shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act. 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 hereunto duly authorized. HCC INSURANCE HOLDINGS, INC. Date: November 2, 2004 By: /s/ CHRISTOPHER L. MARTIN ---------------------------- Christopher L. Martin, Executive Vice President and General Counsel EXHIBIT INDEX ------------- No. Exhibit ---- ------- 99.1 Earnings Press Release dated November 2, 2004 EX-99.1 2 a4756788ex991.txt HCC INSURANCE HOLDINGS, INC. EXHIBIT 99.1 Exhibit 99.1 HCC Reports Strong Results for the First Nine Months 2004 Despite Hurricane Losses HOUSTON--(BUSINESS WIRE)--Nov. 2, 2004--HCC Insurance Holdings, Inc. (NYSE:HCC) today released earnings for the third quarter and first nine months of 2004. Net earnings for the third quarter of 2004 were lower at $15.8 million, or $0.24 per diluted share, compared to $36.4 million, or $0.56 per diluted share, for the third quarter of 2003 due to the impact of the previously reported losses from the four hurricanes during the quarter which affected net earnings by $35.7 million, or $0.54 per diluted share. Third quarter 2004 net earnings include net realized investment gains from the sale of fixed income securities of $2.6 million, or $0.04 per diluted share. For the first nine months of 2004 and despite the effect of the third quarter hurricane activity, net earnings increased 15% to a record $106.8 million, or $1.63 per diluted share, from $93.1 million, or $1.45 per diluted share, in the corresponding period of 2003. Stephen L. Way, Chairman and Chief Executive Officer, said, "Our core operations had a very strong performance during the quarter notwithstanding the effect of the unprecedented hurricane losses and we expect strong earnings growth to continue into 2005." Total revenue showed significant growth, increasing 31% for the third quarter 2004 to $322.2 million from $246.3 million and increasing 34% for the first nine months of 2004 to $917.5 million from $684.1 million, both compared to the corresponding period of 2003. This increase was due to the predominantly organic growth in all reporting segments and an acquisition in January 2004. The GAAP net combined ratio of our insurance company subsidiaries for the first nine months of 2004 was 92.9% compared to 88.8% in the same period of 2003, but on substantially higher net earned premium. Without the effect of the four hurricanes the GAAP net combined ratio would have been 7.6% lower at 85.3%. Premium of our insurance company subsidiaries continued to grow substantially, with net written premium increasing 20% to $800.4 million during the first nine months of 2004 compared to $666.1 million during the first nine months of 2003 and net earned premium increasing by 34% to $717.3 million from $535.4 million during the same period. These increases were considerably greater excluding discontinued lines of business, with net written premium rising 31% and net earned premium rising 41%, and are a result of increased retentions, an acquisition in January 2004 and strong, primarily organic growth, particularly in our Diversified Financial Products line of business. Mr. Way added, "Despite some rate softening, strong profit margins remain stable in our underwriting operations and we continue to be optimistic about 2005." Fee and commission income increased 29% during the first nine months of 2004 to $135.8 million from $105.3 million in the same period of 2003. These increases are primarily due to organic growth and an acquisition in late 2003. Cash flow from operating activities continued to be strong during the first nine months of 2004 increasing to $350.6 million from the previous record of $325.9 million during the first nine months of 2003, as a result of higher net earnings and increased net loss reserves. Net investment income increased 28% in the first nine months of 2004 to $49.5 million from $38.5 million in the same period of 2003. This growth was primarily as a result of increased investment assets, which grew 24% as of September 30, 2004, to $2.1 billion compared to $1.7 billion at December 31, 2003. The Company continues to follow a conservative investment philosophy with a very short duration of our portfolio, little or no high yield bonds and few equity investments. We anticipate that investment assets will continue to grow substantially in 2005 together with investment income, which could accelerate as we extend durations and if rates continue to rise. As of September 30, 2004, total assets grew 14% to $5.6 billion and book value per share increased 10% to $17.97 both compared to December 31, 2003. Shareholders' equity grew to $1.2 billion and the Company's debt to total capital ratio was 21.7%. See attached tables. The Company stated that it had just received a subpoena from the Office of the Attorney General of Minnesota, in connection with an ongoing, industry-wide investigation of insurance sales practices in the health insurance industry. The Company intends to cooperate fully with the Attorney General's investigation. HCC will hold an open conference call beginning at 4:00 p.m. (CST) on Tuesday, November 2, to discuss these results. To participate, the number for domestic calls is 866-244-4629 and the number for international calls is 703-639-1176. 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. A replay of the webcast will be available until Tuesday, November 9, 2004. HCC is an international insurance holding company and a leading specialty insurance group since 1974, based in Houston, Texas with offices across the USA and in Bermuda, England and Spain. HCC has assets of more than $5.5 billion, shareholders' equity of over $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, 2004 (amounts in thousands, except per share data) Three Months Ended September 30, 2004 2003 - ------------------------------------------- ------------- ------------ Gross written premium $490,149 $443,040 Net written premium 255,593 222,535 Net earned premium 248,190 189,440 Fee and commission income 45,891 41,578 Net investment income 18,610 13,408 Other operating income 5,580 1,719 Total revenue 322,197 246,313 Net earnings 15,803 36,366 Earnings per share (diluted) 0.24 0.56 Cash flow from operations 136,945 126,618 Weighted average shares outstanding (diluted) 65,605 64,885 GAAP net loss ratio 81.5% 62.8% GAAP combined ratio 107.8% 88.6% September 30, December 31, 2004 2003 ------------- ------------ Total investments $2,117,629 $1,707,300 Total assets 5,550,674 4,864,296 Shareholders' equity 1,163,142 1,046,920 Debt to total capital 21.7% 22.9% Book value per share $17.97 $16.37 HCC Insurance Holdings, Inc. Financial Highlights September 30, 2004 (amounts in thousands, except per share data) Nine Months Ended September 30, 2004 2003 - ------------------------------------------- ------------- ------------ Gross written premium $1,470,920 $1,299,767 Net written premium 800,409 666,127 Net earned premium 717,323 535,354 Fee and commission income 135,836 105,293 Net investment income 49,469 38,503 Other operating income 10,362 4,623 Total revenue 917,485 684,125 Net earnings 106,786 93,101 Earnings per share (diluted) 1.63 1.45 Cash flow from operations 350,579 325,890 Weighted average shares outstanding (diluted) 65,573 64,106 GAAP net loss ratio 66.4% 63.3% GAAP combined ratio 92.9% 88.8% September 30, December 31, 2004 2003 ------------- ------------ Total investments $2,117,629 $1,707,300 Total assets 5,550,674 4,864,296 Shareholders' equity 1,163,142 1,046,920 Debt to total capital 21.7% 22.9% Book value per share $17.97 $16.37 HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited, in thousands) September 30, 2004 December 31, 2003 ------------------- ------------------- ASSETS Investments: Fixed income securities, at market (cost: 2004 - $1,503,220; 2003 - $1,134,128) $1,528,184 $1,164,166 Short-term investments, at cost, which approximates market 556,238 518,482 Other investments, at market (cost: 2004 - $32,816; 2003 - $24,535) 33,207 24,652 ------------------- ------------------- Total investments 2,117,629 1,707,300 Cash 61,600 96,416 Restricted cash and cash investments 196,434 210,301 Premium, claims and other receivables 931,963 899,031 Reinsurance recoverables 1,113,716 916,190 Ceded unearned premium 319,346 291,591 Ceded life and annuity benefits 75,138 77,548 Deferred policy acquisition costs 134,876 106,943 Goodwill 397,052 386,507 Other assets 202,920 172,469 ------------------- ------------------- Total assets $5,550,674 $4,864,296 =================== =================== LIABILITIES Loss and loss adjustment expense payable $1,942,936 $1,535,288 Life and annuity policy benefits 75,138 77,548 Reinsurance balances payable 279,233 296,916 Unearned premium 729,064 592,311 Deferred ceding commissions 92,988 88,129 Premium and claims payable 771,603 745,559 Notes payable 322,229 310,404 Accounts payable and accrued liabilities 174,341 171,221 ------------------- ------------------- Total liabilities 4,387,532 3,817,376 SHAREHOLDERS' EQUITY Common stock, $1.00 par value; 250.0 million shares authorized (shares issued and outstanding: 2004 - 64,717; 2003 - 63,964 ) 64,717 63,964 Additional paid-in capital 465,628 447,671 Retained earnings 600,760 509,159 Accumulated other comprehensive income 32,037 26,126 ------------------- ------------------- Total shareholders' equity 1,163,142 1,046,920 ------------------- ------------------- Total liabilities and shareholders' equity $5,550,674 $4,864,296 =================== =================== HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Earnings (unaudited, in thousands, except per share data) Nine months ended Three months ended September 30, September 30, 2004 2003 2004 2003 --------- --------- --------- --------- REVENUE Net earned premium $717,323 $535,354 $248,190 $189,440 Fee and commission income 135,836 105,293 45,891 41,578 Net investment income 49,469 38,503 18,610 13,408 Net realized investment gain 4,495 352 3,926 168 Other operating income 10,362 4,623 5,580 1,719 --------- --------- --------- --------- Total revenue 917,485 684,125 322,197 246,313 EXPENSE Loss and loss adjustment expense, net 476,079 339,065 202,317 118,953 Operating expense: Policy acquisition costs, net 151,636 103,047 52,995 37,083 Compensation expense 69,881 57,912 23,443 19,301 Other operating expense 51,024 39,505 17,849 13,467 --------- --------- --------- --------- Total operating expense 272,541 200,464 94,287 69,851 Interest expense 6,018 5,497 2,060 1,901 --------- --------- --------- --------- Total expense 754,638 545,026 298,664 190,705 --------- --------- --------- --------- Earnings from continuing operations before income tax provision 162,847 139,099 23,533 55,608 Income tax provision from continuing operations 56,039 50,003 7,907 19,966 --------- --------- --------- --------- Earnings from continuing operations 106,808 89,096 15,626 35,642 Earnings (loss) from discontinued operations, net of income taxes (benefit) of $(1), $2,367, $109 and $462 (22) 4,005 177 724 --------- --------- --------- --------- Net earnings $106,786 $93,101 $15,803 $36,366 ========= ========= ========= ========= Basic earnings per share data: Earnings from continuing operations $1.66 $1.41 $0.24 $0.56 Earnings from discontinued operations -- 0.07 -- 0.01 --------- --------- --------- --------- Net earnings $1.66 $1.48 $0.24 $0.57 ========= ========= ========= ========= Weighted average shares outstanding 64,493 63,078 64,679 63,717 ========= ========= ========= ========= Diluted earnings per share data: Earnings from continuing operations $1.63 $1.39 $0.24 $0.55 Earnings from discontinued operations -- 0.06 -- 0.01 --------- --------- --------- --------- Net earnings $1.63 $1.45 $0.24 $0.56 ========= ========= ========= ========= Weighted average shares outstanding 65,573 64,106 65,605 64,885 ========= ========= ========= ========= Cash dividends declared, per share $0.235 $0.205 $0.085 $0.075 ========= ========= ========= ========= HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited, in thousands) Nine months ended Three months ended September 30, September 30, 2004 2003 2004 2003 --------- --------- --------- --------- Cash flows from operating activities: Net earnings $106,786 $93,101 $15,803 $36,366 Adjustments to reconcile net earnings to net cash provided by operating activities: Change in premium, claims and other receivables (27,267) (177,880) 37,888 (7,934) Change in reinsurance recoverables (192,811) (107,708) (128,039) (43,624) Change in ceded unearned premium (24,795) (91,177) (18,153) (25,364) Change in loss and loss adjustment expense payable 392,111 251,553 222,886 101,720 Change in reinsurance balances payable (19,412) 85,316 9,391 21,051 Change in unearned premium 109,675 227,651 23,492 60,931 Change in premium and claims payable, net of restricted cash 39,911 60,968 (34,194) 2,123 Depreciation and amortization expense 11,671 8,485 4,303 2,921 Other, net (45,290) (24,419) 3,568 (21,572) --------- --------- --------- --------- Cash provided by operating activities 350,579 325,890 136,945 126,618 Cash flows from investing activities: Sales of fixed income securities 199,491 131,884 65,797 8,703 Maturity or call of fixed income securities 110,425 112,248 38,085 43,162 Other proceeds -- 16,846 -- -- Change in short-term investments 4,979 (114,801) 13,786 (25,238) Cost of securities acquired (629,001) (520,491) (222,738) (112,616) Payments for purchase of subsidiaries, net of cash received (78,446) (16,680) (7,408) (12,601) Other, net 7,289 (19,095) 2,546 (17,125) --------- --------- --------- --------- Cash used by investing activities (385,263) (410,089) (109,932) (115,715) Cash flows from financing activities: Issuance of notes payable, net of costs 2,000 134,845 -- -- Sale of common stock 14,639 17,476 1,569 5,507 Payments on notes payable (2,287) (68,723) (102) (1,101) Dividends paid (14,484) (14,701) (4,848) (6,564) --------- --------- --------- --------- Cash provided (used) by financing activities (132) 68,897 (3,381) (2,158) --------- --------- --------- --------- Net change in cash (34,816) (15,302) 23,632 8,745 Cash at beginning of period 96,416 40,306 37,968 16,259 --------- --------- --------- --------- Cash at end of period $61,600 $25,004 $61,600 $25,004 ========= ========= ========= ========= HCC Insurance Holdings, Inc. Insurance Company Premium September 30, 2004 ($ in thousands) 3rd Qtr 3rd Qtr Change 2004 2003 % ----------- ---------- ---------- GROSS WRITTEN Group life, accident & health $147,235 $142,680 3 % Diversified financial products 215,184 149,764 44 London market account 34,649 48,910 (29) Aviation 53,003 56,320 (6) Other specialty lines 41,061 23,035 nm ----------- ---------- ---------- 491,132 420,709 17 % Discontinued lines (983) 22,331 nm ----------- ---------- ---------- $490,149 $443,040 11 % =========== ========== ========== NET WRITTEN Group life, accident & health $87,860 $76,236 15 % Diversified financial products 100,183 52,203 92 London market account 10,701 33,387 (68) Aviation 34,483 24,561 40 Other specialty lines 22,506 15,191 nm ----------- ---------- ---------- 255,733 201,578 27 % Discontinued lines (140) 20,957 nm ----------- ---------- ---------- $255,593 $222,535 15 % =========== ========== ========== NET EARNED PREMIUM Group life, accident & health $86,055 $72,744 18 % Diversified financial products 77,571 35,581 118 London market account 22,050 35,276 (37) Aviation 35,016 24,542 43 Other specialty lines 18,554 3,176 nm ----------- ---------- ---------- 239,246 171,319 40 % Discontinued lines 8,944 18,121 nm ----------- ---------- ---------- $248,190 $189,440 31 % =========== ========== ========== HCC Insurance Holdings, Inc. Insurance Company Premium September 30, 2004 ($ in thousands) Year to Date Year to Date Change 2004 2003 % ------------ ------------ ------- GROSS WRITTEN Group life, accident & health $441,090 $426,162 4 % Diversified financial products 606,847 400,190 52 London market account 151,993 189,062 (20) Aviation 149,996 165,280 (9) Other specialty lines 105,055 29,880 nm ------------ ------------ ------- 1,454,981 1,210,574 20 % Discontinued lines 15,939 89,193 nm ------------ ------------ ------ $1,470,920 $1,299,767 13 % ============ ============ ====== NET WRITTEN Group life, accident & health $249,172 $233,589 7 % Diversified financial products 267,997 134,417 99 London market account 92,587 135,941 (32) Aviation 109,564 75,765 45 Other specialty lines 61,315 17,413 nm ------------ ------------ ------- 780,635 597,125 31 % Discontinued lines 19,774 69,002 nm ------------ ------------ ------ $800,409 $666,127 20 % ============ ============ ====== NET EARNED PREMIUM Group life, accident & health $245,945 $220,253 12 % Diversified financial products 207,684 80,399 158 London market account 83,572 101,733 (18) Aviation 92,283 72,779 27 Other specialty lines 46,845 3,383 nm ------------ ------------ ------- 676,329 478,547 41 % Discontinued lines 40,994 56,807 nm ------------ ------------ ------- $717,323 $535,354 34 % ============ ============ ======= HCC Insurance Holdings, Inc. Consolidated Insurance Companies Net Loss Ratios September 30, 2004 ($ in thousands) Year to Date 2004 ---------------------------------------- Net Earned Actual Loss Excluding Line of Business Premium Losses Ratio Hurricanes(a) - ---------------------------- ---------- --------- ------ ------------ Group life, accident & health $245,945 $158,484 64.4% 64.4% Diversified financial products 207,684 97,730 47.1 47.1 London market account 83,572 75,497 90.3 47.0 Aviation 92,283 64,272 69.6 58.3 Other specialty lines 46,845 32,829 70.1 60.2 ---------- --------- ------ ------------ 676,329 428,812 63.4 55.7 Discontinued lines 40,994 47,267 115.3 115.3 ---------- --------- ------ ------------ Total $717,323 $476,079 66.4% 59.1% ========== ========= ====== ============ Full Year 2003 ----------------------------------- Net Earned Actual Loss Line of Business Premium Losses Ratio - ---------------------------- ------------- ----------- --------- Group life, accident & health $290,009 $178,561 61.6% Diversified financial products 123,562 59,112 47.8 London market account 137,572 73,254 53.2 Aviation 97,536 59,952 61.5 Other specialty lines 12,443 7,728 62.1 ------------ ----------- --------- 661,122 378,607 57.3 Discontinued lines 77,150 110,045 142.6 ------------ ----------- --------- Total $738,272 $488,652 66.2% ============ =========== ========= (a) Presented for informational purposes only. CONTACT: HCC Insurance Holdings, Inc., Houston L. Byron Way, 713-690-7300 -----END PRIVACY-ENHANCED MESSAGE-----