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HCC Insurance Holdings Reports Record Net Earnings of $107.1 Million for the Third Quarter of 2012

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Third Quarter 2012 Highlights and Updated 2012 Guidance:

  • Annualized return on equity of 12.5% and annualized operating return on equity(a) of 14.2%
  • Net earnings of $107.1 million, or $1.05 per diluted share
  • Book value per share increased 4.2% to $34.60
  • Net earned premium increased 4% to $563.7 million
  • GAAP combined ratio of 79.1%
  • Updated net earnings guidance of $3.50 to $3.65 per diluted share for 2012

HOUSTON, Oct. 30, 2012 (GLOBE NEWSWIRE) -- HCC Insurance Holdings, Inc. (NYSE: HCC) today released results for its third quarter ended September 30, 2012.

Net earnings were $107.1 million for the third quarter of 2012, compared to $60.4 million for the third quarter of 2011. Net earnings per diluted share were $1.05 for the third quarter of 2012, versus $0.56 for the same quarter of 2011. Net earnings were $283.1 million for the first nine months of 2012, or $2.76 per diluted share, compared to $176.9 million, or $1.57 per diluted share, for the same period of 2011.

The 2012 results include pretax net catastrophe losses of $8.0 million and $20.3 million for the third quarter and first nine months of 2012, respectively, which reduced net earnings per share by $0.05 and $0.13 in the respective periods. The 2011 results include pretax net catastrophe losses of $34.6 million and $107.9 million for the third quarter and first nine months of 2011, respectively, which reduced net earnings per share by $0.21 and $0.63 in the respective periods. Catastrophe losses added 1.4 and 1.3 percentage points to the Company's net loss ratio for the third quarter and first nine months of 2012, respectively.

The Company's combined ratio was 79.1% for the third quarter of 2012, compared to 93.1% for the third quarter of 2011. The combined ratio was 83.3% for the first nine months of 2012, versus 92.6% for the same period of 2011. HCC's paid loss ratio was 56.3% for the first nine months of 2012, compared to 59.4% for the same period of 2011.

Book value per share increased 4.2% for the third quarter of 2012 to $34.60 at September 30, 2012.

"The third quarter was a record quarter and continued our excellent operating performance and strong cash flow across all of our segments," HCC Chief Executive Officer John N. Molbeck, Jr. said.

HCC had net favorable loss development of $34.6 million in the third quarter of 2012, compared to net favorable development of $0.6 million in the same quarter of 2011, and net favorable development of $34.6 million in the first nine months of 2012, versus net adverse development of $21.6 million in the same period of 2011.

Gross written premium increased 6% to $665.8 million for the third quarter of 2012, compared to $628.8 million for the same quarter of 2011. Net written premium increased 4% to $530.3 million for the third quarter of 2012, versus $512.3 million for the same quarter of 2011. Net earned premium increased 4% to $563.7 million for the third quarter of 2012, compared to $544.3 million for the same quarter of 2011.

Gross written premium increased 6% to $2.1 billion for the first nine months of 2012, compared to $2.0 billion for the same period of 2011. Net written premium increased 4% to $1.7 billion for the first nine months of 2012, versus $1.7 billion for the same period of 2011. Net earned premium increased 6% to $1.7 billion for the first nine months of 2012, compared to $1.6 billion for the same period of 2011.

Investment income increased to $56.3 million in the third quarter of 2012, compared to $54.8 million in the same period of 2011. Investment income increased to $166.6 million in the first nine months of 2012, compared to $158.8 million in the same period of 2011. The Company's fixed maturity securities portfolio increased 9% to $6.3 billion at September 30, 2012, from $5.8 billion at September 30, 2011. The Company's total investments increased 11% to $6.7 billion at September 30, 2012, from $6.1 billion at September 30, 2011.

As of September 30, 2012, HCC's fixed maturity securities portfolio had an average rating of AA, with a duration of 4.6 years and an average long-term tax equivalent yield of 4.8%.

In the first nine months of 2012, the Company generated cash flow from operating activities of $496.0 million, compared to $288.0 million in the same period of 2011. The Company's liquidity position remains strong with $224.4 million of cash and short-term investments and $340.1 million of available capacity under its $600.0 million revolving loan facility at September 30, 2012.

As of September 30, 2012, total assets were $10.1 billion, shareholders' equity was $3.5 billion and the Company's debt to total capital ratio was 13.5%.

UPDATED EARNINGS GUIDANCE: Based on the Company's results through the first nine months, HCC's management estimates the Company will achieve net earnings of $3.50 to $3.65 per diluted share for the full year of 2012. These estimated results assume the following: gross written premium of $2.8 billion; net written premium of $2.3 billion; a combined ratio of 84% - 86%; and average fully diluted shares outstanding of 100 million shares. For the fourth quarter of 2012, the Company's guidance includes 2.6 loss ratio points for net catastrophe losses in its property treaty and property direct and facultative businesses and, consistent with its prior guidance, no provision for loss development, foreign currency fluctuation, net realized investment gains (losses) or other-than-temporary impairment credit losses.

For further information about HCC's 2012 third quarter results, see the supplemental financial schedules that are accessible on HCC's website at http://www.hcc.com, as well as directly in the Investor Relations section of HCC's website at http://ir.hcc.com.

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HCC will hold an open conference call beginning at 8:00 a.m. Central Daylight Time on Wednesday, October 31. To participate, the number for domestic calls is (800) 374-0290 and the number for international calls is (706) 634-0161. There will also be a live webcast available on a listen-only basis that can be accessed through the HCC website at http://www.hcc.com. The webcast replay will be archived in the Investor Relations section of the HCC website through Friday, February 1, 2013.

Headquartered in Houston, Texas, HCC Insurance Holdings, Inc. is a leading international specialty insurance group with offices in the United States, the United Kingdom, Spain and Ireland. HCC's major domestic and international insurance companies have financial strength ratings of "AA (Very Strong)" from Standard & Poor's Corporation, "A+ (Superior)" from A.M. Best Company, Inc., "AA (Very Strong)" from Fitch Ratings, and "A1 (Good Security)" from Moody's Investors Service, Inc.

For more information about HCC, please visit http://www.hcc.com.

a) Non-GAAP Financial Measure

Annualized operating return on equity is a non-GAAP financial measure as defined by Regulation G and is calculated as operating earnings (or net earnings excluding after-tax net realized investment gain (loss), other-than-temporary impairment credit losses and foreign currency benefit (expense)) divided by average shareholders' equity excluding accumulated other comprehensive income. To annualize a quarterly rate, the result is multiplied by four. See the supplemental financial schedules for a reconciliation of this non-GAAP financial measure to corresponding GAAP amounts. Management believes annualized operating return on equity is a useful measure for understanding the Company's profitability relative to shareholders' equity before consideration of investment-related gains (losses) and foreign currency benefit (expense) that the Company does not consider in evaluating its operating results internally.

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.

CONTACT: Doug Busker, Director of Investor Relations HCC Insurance Holdings, Inc. Telephone: (713) 996-1192

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