-----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, FYQL33H4pjsirFSZ/QzZI2J+c3iy4I7B9kvdZmWK8UE7ClkmIBFMB/Q7HZOc2G7a sHqkMULkcBzPTnHCBKevTQ== 0001157523-05-001484.txt : 20050215 0001157523-05-001484.hdr.sgml : 20050215 20050215160019 ACCESSION NUMBER: 0001157523-05-001484 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20050215 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050215 DATE AS OF CHANGE: 20050215 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: 05617183 BUSINESS ADDRESS: STREET 1: 13403 NORTHWEST FRWY CITY: HOUSTON STATE: TX ZIP: 77040-6094 BUSINESS PHONE: 7136907300 8-K 1 a4823451.txt HCC INSURANCE HOLDINGS, INC. 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) February 15, 2005 HCC INSURANCE HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 001-13790 76-0336636 - ------------------------------- ------------------- --------------------------- (State or other jurisdiction (Commission File (IRS Employer of incorporation) Number) Identification No.) 13403 Northwest Freeway Houston, Texas 77040-6094 - ------------------------------------------- ------------------- (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 February 15, 2005, HCC Insurance Holdings, Inc. announced its results for the Fourth Quarter of 2004 and for the full year ended December 31, 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 February 15, 2005 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: February 15, 2005 By: /s/ CHRISTOPHER L. MARTIN ------------------------------------ Christopher L. Martin, Executive Vice President and General Counsel EXHIBIT INDEX No. Exhibit - --------------- ----------------------------------------------- 99.1 Earnings Press Release dated February 15, 2005 EX-99.1 2 a4823451ex991.txt EXHIBIT 99.1 Exhibit 99.1 HCC Announces Record 2004 Results and Provides 2005 Earnings Guidance HOUSTON--(BUSINESS WIRE)--Feb. 15, 2005--HCC Insurance Holdings, Inc. (NYSE:HCC) today reported results for the fourth quarter and for the full year that ended December 31, 2004. Earnings from continuing operations in the fourth quarter 2004 more than doubled to $52.2 million, or $0.78 per diluted share, from $17.8 million, or $0.27 per diluted share, in the same period of 2003. Earnings from continuing operations for the full year 2004 grew 45% to $159.0 million, or $2.41 per diluted share, from $106.9 million, or $1.66 per diluted share, in 2003. Net earnings for the fourth quarter 2004 increased to $56.2 million, or $0.84 per diluted share, compared to $50.5 million, or $0.77 per diluted share, for the same period in 2003. Net earnings for the full year 2004 increased to $163.0 million, or $2.47 per diluted share, compared to $143.6 million, or $2.23 per diluted share, for the full year 2003. Net earnings include earnings and a gain from the sale of the Company's retail benefits broker in December 2003 amounting to $0.57 per diluted share and an earnout adjustment of $0.06 per diluted share in 2004, all recorded as discontinued operations. Stephen L. Way, Chairman and Chief Executive Officer, said, "2004 was the best year in our history and we are confident of improving on this in 2005." Mr. Way added, "We have averaged more than 15% return on shareholders' equity over the past ten years and this continues to be the standard we have as our goal for the future." The Company is providing 2005 net earnings guidance with a range between $3.15 and $3.25 per diluted share. This represents 28% earnings per diluted share growth and a 17% return on shareholders' equity at the bottom end of the range, despite dilution from the equity offering in December 2004 and the expensing of stock options. The Company expects total revenue to increase approximately 20% in 2005, predominantly due to growth of net earned premium by 25% and investment income by 25%. The GAAP combined ratio is expected to be approximately 88% without any consideration for potential catastrophe activity during the coming year. Total revenue for the full year 2004 increased by 36% to $1.3 billion compared to 2003, driven by significant increases in net earned premium, fee and commission income and investment income. The Company anticipates continued revenue growth in 2005. Comparing the full year 2004 to the previous year, the Company's insurance company subsidiaries' net written premium increased 28% to $1.1 billion and net earned premium increased 37% to $1.0 billion. Premium growth is due to a reduction in ceded reinsurance, organic growth and acquisitions made. During the same period, gross written premium reached a record $2.0 billion, growing 14% from the previous year. Although gross premium growth will slow substantially as the Company stays very disciplined in its underwriting standards, the Company expects net premium to continue to rise through at least 2005, due to increased retentions in all non-catastrophe lines of business. For the full year 2004 compared to the same period in 2003, fee and commission income increased 28% to $182.3 million, primarily due to organic growth of existing lines of business. Fee and commission income will reduce in 2005 due to the integration of one of the Company's largest underwriting agencies into an affiliated insurance company and the general reduction in ceded reinsurance. In 2004, cash flow from operations continued very strong rising 27% to a record $668.7 million from $528.1 million in the previous year. During the same period, net investment income grew 37% to $64.9 million, primarily due to substantially increased investment assets resulting from increased net loss reserves due to higher retentions, as well as the significant cash flow from operations. Investment income growth is expected to continue for at least the next few years. During the fourth quarter of 2004, the Company reached an agreement with various reinsurers to commute certain reinsurance recoverables relating to various lines of business. These transactions resulted in the Company receiving cash payments of approximately $79.0 million from the reinsurers in consideration for reassuming any losses, but did not have a material effect on net earnings. It is expected that future investment income together with the final settlement of these claims within the reserves held, will benefit the Company's results in future years. Management has been very proactive about commuting some of its reinsurance recoverables and will continue to do this where it is in the best interest of the Company. Management has a positive view of commutations as they result in increased future investment income and a reduction in the amount of recoverables. Recoverables are expected to stabilize in the second half of 2005, as outstanding losses are settled and the reduction in ceded reinsurance substantially reduces new recoverables. As part of the Company's annual reserve review, at year-end 2004 the Company determined that there was substantial redundancy in the $55.0 million net reserve set up in the third quarter 2004 to cover the multiple hurricanes and has therefore reduced the overall reserve by approximately $21.9 million. This redundancy was a result of the reassessment of the Company's net position after reinsurance once more claim information became available. The Company's gross loss reduced from $110.0 million to $89.9 million. In addition, the Company has strengthened its reserves in its discontinued lines to bring them comfortably above the actuarial point estimates. The net result of the reserve adjustments had no material effect on net earnings. As of December 31, 2004, total assets increased 22% to $5.9 billion; total investments increased 45% to $2.5 billion; shareholders' equity increased 26% to $1.3 billion; and book value per share increased 19% to $19.45, all compared to December 31, 2003 and all at record levels. See attached tables. HCC will hold an open conference call beginning at 4:00 p.m. Central Time on Tuesday, February 15. To participate, the number for domestic calls is 866-261-2650 and the number for international calls is 703-639-1221. 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, February 22, 2005. HCC is an international holding company and a leading specialty insurance group since 1974, headquartered in Houston, Texas, with offices in Bermuda, Spain and the UK. HCC has assets of $5.9 billion, shareholders' equity of $1.3 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 December 31, 2004 (amounts in thousands, except per share data) Three Months Ended December 31, 2004 2003 - ---------------------------------------------- ----------- ----------- Gross written premium $504,233 $440,127 Net written premium 305,110 199,375 Net earned premium 293,369 202,918 Fee and commission income 46,513 37,322 Net investment income 19,271 12,476 Other operating income 5,189 4,948 Total revenue 365,669 257,839 Earnings from continuing operations 52,213 17,781 Earnings from continuing operations per share (diluted) 0.78 0.27 Net earnings 56,239 50,460 Earnings per share (diluted) 0.84 0.77 Cash flow from operations 318,124 202,208 Weighted average shares outstanding (diluted) 66,836 65,111 GAAP net loss ratio 57.7% 73.7% GAAP combined ratio 85.5% 96.6% December December 31, 2004 31, 2003 ----------- ----------- Total investments $2,468,491 $1,707,300 Total assets 5,933,437 4,875,206 Shareholders' equity 1,323,665 1,046,920 Debt to total capital 19.0% 22.9% Book value per share $19.45 $16.37 HCC Insurance Holdings, Inc. Financial Highlights December 31, 2004 (amounts in thousands, except per share data) Twelve Months Ended December 31, 2004 2003 - ---------------------------------------------- ----------- ----------- Gross written premium $1,975,153 $1,739,894 Net written premium 1,105,519 865,502 Net earned premium 1,010,692 738,272 Fee and commission income 182,349 142,615 Net investment income 64,885 47,335 Other operating income 19,406 13,215 Total revenue 1,283,154 941,964 Earnings from continuing operations 159,021 106,877 Earnings from continuing operations per share (diluted) 2.41 1.66 Net earnings 163,025 143,561 Earnings per share (diluted) 2.47 2.23 Cash flow from operations 668,703 528,098 Weighted average shares outstanding (diluted) 65,884 64,384 GAAP net loss ratio 63.8% 66.2% GAAP combined ratio 90.7% 91.0% December December 31, 2004 31, 2003 ----------- ----------- Total investments $2,468,491 $1,707,300 Total assets 5,933,437 4,875,206 Shareholders' equity 1,323,665 1,046,920 Debt to total capital 19.0% 22.9% Book value per share $19.45 $16.37 HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited, in thousands) December 31, 2004 December 31, 2003 ------------------- -------------------- ASSETS Investments: Fixed income securities $1,703,171 $1,164,166 Short-term investments 729,985 518,482 Other investments 35,335 24,652 ------------------- -------------------- Total investments 2,468,491 1,707,300 Cash 69,933 96,416 Restricted cash and cash investments 188,510 210,301 Premium, claims and other receivables 923,638 909,941 Reinsurance recoverables 1,098,999 916,190 Ceded unearned premium 317,055 291,591 Ceded life and annuity benefits 74,627 77,548 Deferred policy acquisition costs 139,199 106,943 Goodwill 444,031 386,507 Other assets 208,954 172,469 ------------------- -------------------- Total assets $5,933,437 $4,875,206 =================== ==================== LIABILITIES Loss and loss adjustment expense payable $2,089,199 $1,535,288 Life and annuity policy benefits 74,627 77,548 Reinsurance balances payable 228,998 296,916 Unearned premium 741,706 592,311 Deferred ceding commissions 94,896 88,129 Premium and claims payable 795,576 756,469 Notes payable 311,277 310,404 Accounts payable and accrued liabilities 273,493 171,221 ------------------- -------------------- Total liabilities 4,609,772 3,828,286 SHAREHOLDERS' EQUITY Common stock 68,038 63,964 Additional paid-in capital 566,776 447,671 Retained earnings 651,216 509,159 Accumulated other comprehensive income 37,635 26,126 ------------------- -------------------- Total shareholders' equity 1,323,665 1,046,920 ------------------- -------------------- Total liabilities and shareholders' equity $5,933,437 $4,875,206 =================== ==================== HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Earnings (unaudited, in thousands, except per share data) Three months ended Years ended December 31, December 31, 2004 2003 2004 2003 ----------- ----------- ----------- ----------- REVENUE Net earned premium $1,010,692 $738,272 $293,369 $202,918 Fee and commission income 182,349 142,615 46,513 37,322 Net investment income 64,885 47,335 19,271 12,476 Net realized investment gain 5,822 527 1,327 175 Other operating income 19,406 13,215 5,189 4,948 ----------- ----------- ----------- ----------- Total revenue 1,283,154 941,964 365,669 257,839 EXPENSE Loss and loss adjustment expense, net 645,230 488,652 169,151 149,587 Operating expense: Policy acquisition costs, net 224,323 138,212 66,508 35,165 Compensation expense 88,570 82,947 23,693 25,035 Other operating expense 75,904 57,966 26,055 18,461 ----------- ----------- ----------- ----------- Total operating expense 388,797 279,125 116,256 78,661 Interest expense 8,374 7,453 2,356 1,956 ----------- ----------- ----------- ----------- Total expense 1,042,401 775,230 287,763 230,204 ----------- ----------- ----------- ----------- Earnings from continuing operations before income tax provision 240,753 166,734 77,906 27,635 Income tax provision from continuing operations 81,732 59,857 25,693 9,854 ----------- ----------- ----------- ----------- Earnings from continuing operations 159,021 106,877 52,213 17,781 Earnings from discontinued operations, net of tax 4,004 36,684 4,026 32,679 ----------- ----------- ----------- ----------- Net earnings $163,025 $143,561 $56,239 $50,460 =========== =========== =========== =========== Basic earnings per share data: Earnings from continuing operations $2.45 $1.69 $0.79 $0.28 Earnings from discontinued operations 0.06 0.58 0.06 0.51 ----------- ----------- ----------- ----------- Net earnings $2.51 $2.27 $0.85 $0.79 =========== =========== =========== =========== Weighted average shares outstanding 64,838 63,279 65,866 63,875 =========== =========== =========== =========== Diluted earnings per share data: Earnings from continuing operations $2.41 $1.66 $0.78 $0.27 Earnings from discontinued operations 0.06 0.57 0.06 0.50 ----------- ----------- ----------- ----------- Net earnings $2.47 $2.23 $0.84 $0.77 =========== =========== =========== =========== Weighted average shares outstanding 65,884 64,384 66,836 65,111 =========== =========== =========== =========== Cash dividends declared, per share $.32 $.28 $.085 $.075 =========== =========== =========== =========== HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited, in thousands) Years ended Three months ended December 31, December 31, 2004 2003 2004 2003 --------- --------- --------- ---------- Cash flows from operating activities: Net earnings $163,025 $143,561 $56,239 $50,460 Adjustments to reconcile net earnings to net cash provided by operating activities: Change in premium, claims and other receivables 7,505 (130,881) 34,772 55,568 Change in reinsurance recoverables (178,094) (117,256) 14,717 (9,548) Change in ceded unearned premium (22,504) (127,367) 2,291 (36,190) Change in loss and loss adjustment payable expense payable 538,374 379,998 146,263 128,445 Change in reinsurance balances payable (69,647) 130,257 (50,235) 44,941 Change in unearned premium 122,317 261,261 12,642 33,610 Change in premium and claims payable, net of restricted cash 58,215 (25,494) 18,304 (95,031) Gains on dispositions of subsidiaries -- (52,681) -- (52,681) Depreciation and amortization expense 16,139 12,828 4,468 4,343 Other, net 33,373 53,872 78,663 78,291 --------- --------- --------- ---------- Cash provided by operating activities 668,703 528,098 318,124 202,208 Cash flows from investing activities: Sales of fixed income securities 253,398 167,357 53,907 35,473 Maturity or call of fixed income securities 154,357 142,652 43,932 30,404 Disposition of subsidiaries and other operating investments -- 82,618 -- 65,772 Change in short-term investments (160,229) (202,904) (165,208) (88,103) Cost of securities acquired (935,053) (694,211) (306,052) (173,720) Payments for purchase of subsidiaries, net of cash received (93,543) (16,680) (15,097) -- Other, net 268 (17,655) (7,021) 1,440 --------- --------- --------- ---------- Cash used by investing activities (780,802) (538,823) (395,539) (128,734) Cash flows from financing activities: Issuance of notes payable, net of costs 29,000 174,845 17,000 40,000 Sale of common stock, net of costs 116,777 20,279 102,138 2,803 Payments on notes payable (40,176) (108,813) (27,889) (40,090) Dividends paid and other, net (19,985) (19,476) (5,501) (4,775) --------- --------- --------- ---------- Cash provided (used) by financing activities 85,616 66,835 85,748 (2,062) --------- --------- --------- ---------- Net change in cash (26,483) 56,110 8,333 71,412 Cash at beginning of period 96,416 40,306 61,600 25,004 --------- --------- --------- ---------- Cash at end of period $69,933 $96,416 $69,933 $96,416 ========= ========= ========= ========== HCC Insurance Holdings, Inc. Insurance Company Premium December 31, 2004 ($ in thousands) 4th Qtr 4th Qtr Change 2004 2003 % ---------- ---------- --------- GROSS WRITTEN Group life, accident & health $143,657 $139,332 3% Diversified financial products 250,452 153,311 63 London market account 26,957 34,087 (21) Aviation 54,967 49,438 11 Other specialty lines 28,909 43,595 nm ---------- ---------- --------- 504,942 419,763 20% Discontinued lines (709) 20,364 nm ---------- ---------- --------- $504,233 $440,127 15% ========== ========== ========= NET WRITTEN Group life, accident & health $94,824 $66,324 43% Diversified financial products 136,873 49,143 179 London market account 14,922 20,046 (26) Aviation 35,123 23,682 48 Other specialty lines 22,665 19,424 nm ---------- ---------- --------- 304,407 178,619 70% Discontinued lines 703 20,756 nm ---------- ---------- --------- $305,110 $199,375 53% ========== ========== ========= NET EARNED PREMIUM Group life, accident & health $97,968 $69,756 40% Diversified financial products 103,125 43,163 139 London market account 27,769 35,839 (23) Aviation 34,965 24,757 41 Other specialty lines 22,244 9,060 nm ---------- ---------- --------- 286,071 182,575 57% Discontinued lines 7,298 20,343 nm ---------- ---------- --------- $293,369 $202,918 45% ========== ========== ========= HCC Insurance Holdings, Inc. Insurance Company Premium December 31, 2004 ($ in thousands) Full Year Full Year Change 2004 2003 % ----------- ----------- ---------- GROSS WRITTEN Group life, accident & health $584,747 $565,494 3% Diversified financial products 857,299 553,501 55 London market account 178,950 223,149 (20) Aviation 204,963 214,718 (5) Other specialty lines 133,964 73,475 nm ----------- ----------- ---------- 1,959,923 1,630,337 20% Discontinued lines 15,230 109,557 nm ----------- ----------- ---------- $1,975,153 $1,739,894 14% =========== =========== ========== NET WRITTEN Group life, accident & health $343,996 $299,913 15% Diversified financial products 404,870 183,560 121 London market account 107,509 155,987 (31) Aviation 144,687 99,447 45 Other specialty lines 83,980 36,837 nm ----------- ----------- ---------- 1,085,042 775,744 40% Discontinued lines 20,477 89,758 nm ----------- ----------- ---------- $1,105,519 $865,502 28% =========== =========== ========== NET EARNED PREMIUM Group life, accident & health $343,913 $290,009 19% Diversified financial products 310,809 123,562 152 London market account 111,341 137,572 (19) Aviation 127,248 97,536 30 Other specialty lines 69,089 12,443 nm ----------- ----------- ---------- 962,400 661,122 46% Discontinued lines 48,292 77,150 nm ----------- ----------- ---------- $1,010,692 $738,272 37% =========== =========== ========== HCC Insurance Holdings, Inc. Consolidated Insurance Companies Net Loss Ratios December 31, 2004 ($ in thousands) Full Year 2004 Full Year 2003 ---------------------------- -------------------------- Line of Net Earned Actual Loss Net Earned Actual Loss Business Premium Losses Ratio Premium Losses Ratio - ----------- ----------- --------- ------ --------- --------- ------ Group life, accident & health $343,913 $229,389 66.7% $290,009 $178,561 61.6% Diversified financial products 310,809 147,970 47.6 123,562 59,112 47.8 London market account 111,341 73,428 65.9 137,572 73,254 53.2 Aviation 127,248 80,458 63.2 97,536 59,952 61.5 Other specialty lines 69,089 43,866 63.5 12,443 7,728 62.1 ----------- --------- ------ --------- --------- ------ 962,400 575,111 59.8 661,122 378,607 57.3 Discontinued lines 48,292 70,119 145.2 77,150 110,045 142.6 ----------- --------- ------ --------- --------- ------ Total $1,010,692 $645,230 63.8% $738,272 $488,652 66.2% =========== ========= ====== ========= ========= ====== CONTACT: HCC Insurance Holdings, Inc., Houston L. Byron Way, 713-690-7300 -----END PRIVACY-ENHANCED MESSAGE-----