HCC Insurance Holdings Reports Earnings for the First Quarter of 2009
- Press Release
- Source: HCC Insurance Holdings, Inc.
- On 5:11 pm EDT, Tuesday May 5, 2009
HOUSTON, May 5, 2009 (GLOBE NEWSWIRE) -- HCC Insurance Holdings, Inc. (NYSE:HCC - News) today released results for the first quarter of 2009, which ended March 31.
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| Symbol | Price | Change |
|---|---|---|
| HCC | 26.11 | -0.58 |
"We are extremely pleased to report solid earnings for the first quarter of 2009 and results that show an increase over 2008. Our investment income should resume its steady growth following our exit from alternative investments and as our investment assets continue to increase," HCC Chief Executive Officer Frank J. Bramanti said.
Net earnings for the first quarter of 2009 were $83.2 million, compared with $80.5 million during the first quarter of 2008, a 3.4 percent increase. Net earnings per diluted share were $0.73 for the first quarter of 2009, compared to $0.69 for the same quarter of 2008, an increase of 5.8 percent.
The GAAP combined ratio for the first quarter of 2009 was 87.3 percent, compared to 83.7 percent for the first quarter of 2008. Book value per share increased to $24.14 at March 31, 2009, compared to $23.27 a share at December 31, 2008, a 3.7 percent increase. The Company's annualized return on average equity for the first quarter of 2009 was 12.4 percent.
For the first quarter of 2009, the gross written premium of HCC's insurance company subsidiaries increased 3.3 percent to $602.4 million, compared to $583.0 million for the same quarter of 2008. Net written premium was flat at $491.3 million during the first quarter of 2009, compared with net written premium of $493.6 million for the 2008 first quarter. Net earned premium increased 1.8 percent to $502.4 million for the first quarter of 2009, compared to $493.5 million for the same quarter of 2008.
"While we are optimistic about an eventual turn in the pricing cycle, our observation is that it has not happened yet. Accordingly, we remain disciplined in our approach to risk selection and pricing. Our underwriting results continue to be good but rates are continuing to fall in certain lines of business, albeit at a slowing pace. On the other hand, we continue to see improvement in pricing in our international aviation, medical stop-loss, financial institution professional liability and offshore energy businesses. These increases should lead to improving results into 2010," Mr. Bramanti added.
During the first quarter of 2009, HCC had net adverse prior year reserve development of $4.7 million, compared to net favorable prior year reserve development of $5.1 million for the same period in 2008. The adverse development is principally due to case reserve and IBNR increases in certain Life, Accident and Health lines of business.
Other operating income was $22.9 million for the 2009 first quarter, versus a loss of $4.9 million for the same period in 2008, reflecting the commutation of the MGIC reinsurance contract that the Company had been accounting for using the deposit method. HCC received $25.0 million of cash from the MGIC commutation, of which $5.0 million was recorded as fee and commission income. After reinsurance and other costs, the commutation increased pretax earnings by $15.6 million in the first quarter of 2009. The pretax earnings impact for the full year 2009, however, will be $7.8 million more than originally budgeted.
Investment income decreased during the first quarter of 2009 to $45.2 million, compared to $47.6 million a year earlier, reflecting much lower short-term interest rates in 2009.
HCC's fixed income securities generated $45.4 million in investment income in the 2009 first quarter, versus $40.9 million in the 2008 first quarter. The Company's fixed income investments increased 10.0 percent from March 31, 2008 to $4.3 billion at March 31, 2009.
As of March 31, 2009, HCC's fixed income securities portfolio had an average rating of AA+, an average duration of 4.8 years and an average tax equivalent yield of 5.2 percent. The Company held $8.1 million of subprime-related and Alt-A securities, which had an average rating of A, and owned no CDO or CLO securities. HCC has never been a counterparty to any credit default swap.
"At the end of the first quarter of 2009, HCC completed its exit from the last of its equity and equity-related investments, including hedge funds and other alternative investments. Those funds have been reinvested in fixed income securities. We incurred a $1.0 million loss during the first quarter of 2009. Our fixed income portfolio has continued to perform well and we had a net unrealized gain of $60.0 million on our available for sale fixed income securities at March 31, 2009," Mr. Bramanti said.
HCC repurchased 1.7 million common shares for a total of $35.5 million during the first quarter of 2009. This brings the total repurchased to 4.7 million shares for a total of $98.8 million at an average cost of $21.14 per share.
The Company's outstanding convertible debt issue was subject to a put option that expired on April 1, 2009. Investors elected to hold these securities and, therefore, they remain outstanding. Investors' next put option is April 1, 2014. HCC continues to maintain a $575 million syndicated bank line of credit facility that does not expire until the end of 2011. The Company's liquidity and cash flow remain strong and its shareholders' equity is a record $2.7 billion.
As of March 31, 2009, total investments were $5.0 billion, total assets were $8.6 billion, shareholders' equity was $2.7 billion and the Company's debt to total capital ratio remained very conservative at 13.6 percent.
See attached tables for further information about HCC's first quarter financial results.
HCC will hold an open conference call beginning at 8:00 a.m. Central Daylight Time on Wednesday, May 6. To participate, the number for domestic calls is (800) 374-0290 and the number for international calls is (706) 634-1061. In addition, there will be a live webcast available on a listen-only basis that can be accessed through the HCC website at www.hcc.com.
Headquartered in Houston, Texas, HCC Insurance Holdings, Inc. (HCC) is a leading international specialty insurance group with offices across the United States and in Bermuda, Ireland, Spain and the United Kingdom. HCC has assets of $8.6 billion, shareholders' equity of $2.7 billion and is rated AA (Very Strong) by Standard & Poor's and AA (Very Strong) by Fitch Ratings. In addition, HCC's major domestic insurance companies are rated A+ (Superior) by A.M. Best Company.
For more information, visit our website at www.hcc.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. and Subsidiaries
Financial Highlights
March 31, 2009
(Unaudited, in thousands except per share data)
Three months ended
March 31,
2009 2008
---------------- ----------------
(as adjusted)(a)
Gross written premium $ 602,387 $ 582,999
Net written premium 491,250 493,647
Net earned premium 502,388 493,546
Fee and commission income 30,294 30,999
Net investment income 45,218 47,621
Other operating income (loss) 22,896 (4,946)
Total revenue 600,738 567,388
Net earnings 83,170 80,455
Earnings per share (diluted) 0.73 0.69
Cash flow from operations 133,602 135,800
Weighted-average shares outstanding
(diluted)(in millions) 113.3 116.4
GAAP net loss ratio 62.8% 59.4%
GAAP combined ratio 87.3% 83.7%
Paid loss ratio 54.0% 51.0%
March 31, December 31,
2009 2008
---------------- ----------------
(as adjusted)(a)
Total investments $ 5,019,675 $ 4,804,283
Total assets 8,623,917 8,332,000
Shareholders' equity 2,704,910 2,640,023
Debt to total capital 13.6% 11.5%
Book value per share $ 24.14 $ 23.27
(a) Certain amounts in 2008 changed due to our 1/1/2009 adoption of
new accounting standards.
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
March 31, December 31,
2009 2008
---------------- ----------------
ASSETS (as adjusted)(a)
Investments:
Fixed income securities -
available for sale $ 4,228,306 $ 4,133,165
Fixed income securities -
held to maturity 94,744 123,553
Short-term investments 671,355 497,477
Other investments 25,270 50,088
---------------- ----------------
Total investments 5,019,675 4,804,283
Cash 33,013 27,347
Restricted cash and cash
investments 184,666 174,905
Premium, claims and other
receivables 807,177 770,823
Reinsurance recoverables 1,078,532 1,054,950
Ceded unearned premium 232,812 234,375
Ceded life and annuity benefits 63,513 64,235
Deferred policy acquisition costs 193,016 188,652
Goodwill 862,658 858,849
Other assets 148,855 153,581
---------------- ----------------
Total assets $ 8,623,917 $ 8,332,000
================ ================
LIABILITIES
Loss and loss adjustment expense
payable $ 3,490,033 $ 3,415,230
Life and annuity policy benefits 63,513 64,235
Reinsurance balances payable 132,447 122,189
Unearned premium 974,687 977,426
Deferred ceding commissions 63,299 63,123
Premium and claims payable 423,919 405,287
Notes payable 424,714 343,649
Accounts payable and accrued
liabilities 346,395 300,838
---------------- ----------------
Total liabilities 5,919,007 5,691,977
SHAREHOLDERS' EQUITY
Common stock 116,743 116,457
Additional paid-in capital 888,121 881,534
Retained earnings 1,746,943 1,677,831
Accumulated other comprehensive
income 51,902 27,536
Treasury stock (98,799) (63,335)
---------------- ----------------
Total shareholders' equity 2,704,910 2,640,023
---------------- ----------------
Total liabilities and
shareholders' equity $ 8,623,917 $ 8,332,000
================ ================
(a) Certain amounts in 2008 changed due to our 1/1/2009 adoption of
new accounting standards.
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited, in thousands except per share data)
Three months ended
March 31,
2009 2008
---------------- ----------------
REVENUE (as adjusted)(a)
Net earned premium $ 502,388 $ 493,546
Fee and commission income 30,294 30,999
Net investment income 45,218 47,621
Net realized investment gain
(loss) (58) 168
Other operating income (loss) 22,896 (4,946)
---------------- ----------------
Total revenue 600,738 567,388
---------------- ----------------
EXPENSE
Loss and loss adjustment
expense, net 315,566 293,026
Policy acquisition costs, net 88,692 92,268
Other operating expense 68,998 59,204
Interest expense 4,639 4,953
---------------- ----------------
Total expense 477,895 449,451
---------------- ----------------
Earnings before income tax
expense 122,843 117,937
Income tax expense 39,673 37,482
---------------- ----------------
Net earnings $ 83,170 $ 80,455
================ ================
Basic earnings per share data:
Net earnings per share $ 0.73 $ 0.70
================ ================
Weighted-average shares
outstanding (millions) 112.8 115.2
================ ================
Diluted earnings per share data:
Net earnings per share $ 0.73 $ 0.69
================ ================
Weighted-average shares
outstanding (millions) 113.3 116.4
================ ================
Cash dividends declared, per
share $ 0.125 $ 0.110
================ ================
(a) Certain amounts in 2008 changed due to our 1/1/2009 adoption of
new accounting standards.
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Three months ended
March 31,
2009 2008
---------------- ----------------
(as adjusted)(a)
Operating activities:
Net earnings $ 83,170 $ 80,455
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Change in premium, claims and
other receivables (28,719) 3,779
Change in reinsurance
recoverables (29,973) 2,671
Change in ceded unearned premium (217) 19,899
Change in loss and loss
adjustment expense payable 67,544 91,845
Change in reinsurance balances
payable 11,481 (5,761)
Change in unearned premium (11,335) (16,960)
Change in premium and claims
payable, net of restricted cash 8,859 (45,449)
Change in accounts payable and
accrued liabilities (7,556) (7,015)
Change in trading portfolio -- 9,062
Stock-based compensation expense 4,783 2,866
Depreciation and amortization
expense 3,579 3,390
Other, net 31,986 (2,982)
---------------- ----------------
Cash provided by operating
activities 133,602 135,800
---------------- ----------------
Investing activities:
Sales of available for sale fixed
income securities 119,092 120,075
Maturity or call of available for
sale fixed income securities 69,280 75,875
Maturity or call of held to
maturity fixed income securities 85,821 --
Cost of available for sale
securities acquired (210,093) (419,238)
Cost of held to maturity fixed
income securities acquired (59,515) --
Cost of other investments acquired -- (36,735)
Change in short-term investments (177,715) 128,052
Proceeds from sales of other
investments 48,579 19,038
Payments for purchase of
businesses, net of cash received (32,966) (71,486)
Other, net (3,482) (1,670)
---------------- ----------------
Cash used by investing
activities (160,999) (186,089)
---------------- ----------------
Financing activities:
Advances on line of credit 80,000 40,000
Sale of common stock 2,090 4,592
Purchase of common stock (35,464) --
Dividends paid (14,182) (12,658)
Other, net 619 3,908
---------------- ----------------
Cash provided by financing
activities 33,063 35,842
---------------- ----------------
Net increase (decrease) in cash 5,666 (14,447)
Cash at beginning of period 27,347 39,135
---------------- ----------------
Cash at end of period $ 33,013 $ 24,688
================ ================
(a) Certain amounts in 2008 changed due to our 1/1/2009 adoption of
new accounting standards.
HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
March 31, 2009
(Unaudited, in thousands)
1st Qtr 1st Qtr Change
2009 2008 %
---------- ---------- ----------
GROSS WRITTEN
Diversified financial products $ 245,112 $ 211,364 16 %
Group life, accident & health 216,993 210,534 3
Aviation 41,952 44,828 (6)
London market account 44,749 40,936 9
Other specialty lines 53,577 75,343 (29)
Discontinued lines 4 (6) nm
---------- ---------- ----------
$ 602,387 $ 582,999 3 %
========== ========== ==========
NET WRITTEN
Diversified financial products $ 203,363 $ 180,501 13 %
Group life, accident & health 199,056 202,375 (2)
Aviation 30,611 32,346 (5)
London market account 26,394 29,028 (9)
Other specialty lines 31,822 49,403 (36)
Discontinued lines 4 (6) nm
---------- ---------- ----------
$ 491,250 $ 493,647 -- %
========== ========== ==========
NET EARNED PREMIUM
Diversified financial products $ 214,084 $ 192,177 11 %
Group life, accident & health 201,088 192,446 4
Aviation 32,814 34,993 (6)
London market account 23,674 27,090 (13)
Other specialty lines 30,724 46,846 (34)
Discontinued lines 4 (6) nm
---------- ---------- ----------
$ 502,388 $ 493,546 2 %
========== ========== ==========
nm - Not meaningful comparison
HCC Insurance Holdings, Inc. and Subsidiaries
Investments - Selected Disclosures
March 31, 2009
(Unaudited, in thousands)
Amortized % of
Cost Fair Value Portfolio
---------- ---------- ---------
Fixed Income Securities $4,263,073 $4,323,738 100.0%
========== ========== =========
Residential Mortgage Backed
Securities & Collateralized
Mortgage Obligations
Agency $ 722,952 $ 766,643 17.7%
Non-Agency
Prime 79,076 68,346 1.6%
Alt-A 7,048 6,426 0.1%
Subprime 2,151 1,657 0.0%
---------- ----------
Total Residential MBS/CMO $ 811,227 $ 843,072 19.5%
========== ========== =========
Agency Securities
Senior Agency Debt - FNMA / FHLMC $ 23,344 $ 24,373 0.6%
========== ========== =========
Corporate Bonds - Non Financial $ 391,168 $ 398,387 9.2%
========== ========== =========
Corporate Bonds - Financial
Institutions $ 223,852 $ 213,751 4.9%
========== ========== =========
Commercial Mortgaged Backed
Securities $ 170,474 $ 139,680 3.2%
========== ========== =========
Municipal Bond Portfolio $2,005,822 $2,054,822 47.5%
========== ========== =========
Insurance Enhanced $1,227,502 $1,253,548 29.0%
========== ========== =========
Insured - Underlying Ratings $1,227,502 $1,253,548 29.0%
========== ========== =========
Non-Insured $ 778,320 $ 801,274 18.5%
========== ========== =========
Asset Backed Securities
Auto $ 45,577 $ 43,095 1.0%
Credit Card 9,550 9,579 0.2%
Other 5,883 5,279 0.1%
---------- ----------
Total Asset Backed Securities $ 61,010 $ 57,953 1.3%
========== ========== =========
Average Ratings
----------------------------------
AAA AA A
---------- ---------- ----------
Fixed Income Securities $2,123,820 $1,447,155 $ 618,295
Residential Mortgage Backed
Securities & Collateralized
Mortgage Obligations
Agency 766,643 -- --
Non-Agency
Prime 43,602 823 6,739
Alt-A 2,860 662 778
Subprime 1,274 -- --
Total Residential MBS/CMO
Agency Securities
Senior Agency Debt - FNMA / FHLMC 24,373 -- --
Corporate Bonds - Non Financial 47,544 42,697 263,289
Corporate Bonds - Financial
Institutions 41,613 46,838 122,138
Commercial Mortgaged Backed
Securities 139,071 609 --
Municipal Bond Portfolio 489,458 1,314,880 193,153
Insurance Enhanced 189,286 830,601 176,374
Insured - Underlying Ratings 185,276 770,054 273,775
Non-Insured 299,328 484,589 17,357
Asset Backed Securities
Auto 35,068 1,900 1,649
Credit Card 9,579 -- --
Other 1,278 -- 3,320
Average Ratings
------------------- -----------------
BBB Below BBB Other Average
-------- --------- -------- -------
Fixed Income Securities $119,768 $ 12,106 $ 2,594 AA+
Residential Mortgage Backed
Securities & Collateralized
Mortgage Obligations
Agency -- -- -- AAA
Non-Agency
Prime 9,906 7,276 -- AA
Alt-A 183 1,943 -- A
Subprime 209 174 -- A+
Total Residential MBS/CMO
Agency Securities
Senior Agency Debt - FNMA /
FHLMC -- -- -- AAA
Corporate Bonds - Non Financial 42,331 2,526 -- A+
Corporate Bonds - Financial
Institutions 3,162 -- -- AA-
Commercial Mortgaged Backed
Securities -- -- -- AAA
Municipal Bond Portfolio 54,452 -- 2,879 AA
Insurance Enhanced 54,655 -- 2,632 AA
Insured - Underlying Ratings 877 -- 23,566 AA
Non-Insured -- -- -- AA+
Asset Backed Securities
Auto 4,478 -- -- AA+
Credit Card -- -- -- AAA
Other 681 -- -- AA
Notes:
There are no CDOs/CLOs in the portfolio.
Other Ratings are bonds with at least one enhanced rating; each issuer
has an equivalent investment grade rating.
Received paydown of $0.7 million for the first quarter of 2009 on
subprime and Alt-A securities.
Corporate Bonds - Financial Institutions includes $56.0 million of
bonds issued by foreign financial institutions.
HCC Insurance Holdings, Inc. and Subsidiaries
Net Investment Income and Unrealized Gains and Losses
Selected Disclosures
March 31, 2009
(Unaudited, in thousands)
Twelve months ended
March 31,
2009 2008
------- -------
Sources of net investment income:
Fixed income securities
Taxable $25,105 $22,452
Exempt from U.S. income taxes 20,333 18,472
------- -------
Total fixed income securities 45,438 40,924
Short-term investments 1,794 8,592
Alternative investments (962) (1,205)
Other investments -- 267
------- -------
Total investment income 46,270 48,578
Investment expense (1,052) (957)
------- -------
Net investment income $45,218 $47,621
======= =======
Unrealized gains and losses on
available for sale fixed
income securities:
Change in unrealized gain for period $45,351 $1,114
======= =======
Unrealized gain at March 31, 2009 $59,977
=======
Unrealized gain at December 31, 2008 $14,626
=======
HCC Insurance Holdings, Inc. and Subsidiaries
Subprime Liability Exposure
March 31, 2009
* As of March 31, the Company had 62 "non-Side A only" D&O, E&O and
Fiduciary Liability claims and 17 "Side A only" D&O claims relating
to subprime issues.
* Of the D&O claims reported, three are on primary policies with
gross policy limits totaling $12 million. The remaining D&O claims
are on excess policies.
* The average policy limit on the "non-Side A only" claims is $13.0
million gross and $8.6 million net, with an average attachment
point of $88 million.
* The average policy limit for "Side A only" claims is $14.2 million
gross and $11.3 million net, with an average attachment point of
$159 million.
* Based upon the Company's present knowledge, HCC believes the
ultimate subprime related losses will be contained within the
current overall reserves for D&O, E&O and Fiduciary Liability
business.
HCC Insurance Holdings, Inc. and Subsidiaries
Consolidated Insurance Companies
Net Loss Ratios
March 31, 2009
(Unaudited, in thousands)
Year to Date 2009 Full Year 2008
------------------------- -------------------------
Net Net
Line of Earned Incurred Loss Earned Incurred Loss
Business Premium Losses Ratio Premium Losses Ratio
-------- -------- -------- ----- ---------- ---------- -----
Diversified
financial
products $214,084 $110,846 51.8% $ 805,604 $ 387,718 48.1%
Group life,
accident &
health 201,088 150,033 74.6 777,268 567,947 73.1
Aviation 32,814 20,125 61.3 139,838 87,525 62.6
London market
account 23,674 9,766 41.3 106,857 49,571 46.4
Other
specialty
lines 30,724 24,899 81.0 173,449 116,526 67.2
Discontinued
lines 4 (103) nm 4,758 2,586 nm
-------- -------- ----- ---------- ---------- -----
Total $502,388 $315,566 62.8% $2,007,774 $1,211,873 60.4%
======== ======== ===== ========== ========== =====
nm - Not meaningful comparison
Contact:
HCC Insurance Holdings, Inc.
Barney White, HCC Vice President of Investor Relations
(713) 744-3719
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