HSB Group, Inc. Reports Gains in Third Quarter
27 October 1998
HSB Group, Inc. Reports Gains in Third Quarter
HARTFORD, Conn.--Oct. 26, 1998--HSB Group, Inc. , today reported that the third quarter net income per share on a fully diluted basis, was 72 cents. This represents an increase of 41.2 percent, compared to 51 cents per share over the third quarter of 1997.
HSB Group's gross earned insurance premiums grew 40.2 percent. The expense ratio declined to 43.5 percent from 47.4 percent for the third quarter of 1997. The combined ratio -- the sum of losses and expenses as a percentage of insurance revenue -- was 87.9 percent down from 92 percent last year.
HSB's Engineering Services revenues increased 63 percent over the third quarter of 1997. The operating margin was 7.6 percent.
Income from investment operations was $23.4 million compared to $11.4 million in the third quarter of 1997. Year-to-date realized gains are $18.4 million.
"Our earnings performance confirms that we have successfully positioned HSB for profitable growth in all of our businesses," said Gordon W. Kreh, chairman of the board, president and chief executive officer.
HSB Group, Inc. is a global provider of insurance products and engineering management consulting services. HSB Group is the parent company of The Hartford Steam Boiler Inspection and Insurance Company, founded in 1866 to provide loss prevention service and insurance to businesses, industries and institutions. For more information about HSB, visit its website at www.hsb.com.
Summary of Operations
In millions, except per share amounts
Quarter Year-To-Date
Ended Sept. 30 Percent Sept. 30 Percent
1998 1997 Change 1998 1997 Change
Gross earned premium $212.5 $151.6 40.2% $567.8 $456.6 24.4%
Reinsurance 113.0 30.3 278.5 95.7
Net earned premium 99.5 121.3 289.3 360.9
Claims and adjustment
expenses 44.2 54.1 129.1 157.0
Policy acquisition
expenses 18.0 23.5 45.3 67.5
Underwriting and
inspection expenses 26.4 34.2 83.5 105.5
Insurance operating
gain $10.9 $9.5 $31.4 $30.9
Loss ratio 44.4% 44.6% 44.6% 43.5%
Expense ratio(a) 43.5% 47.4% 44.1% 47.8%
Combined ratio(a) 87.9% 92.0% 88.7% 91.3%
Engineering services
revenues $25.3 $15.5 63.0% $67.7 $45.2 49.6%
Engineering services
expenses 23.4 14.5 62.1 42.3
Engineering services
operating gain $1.9 $1.0 $5.6 $2.9
Engineering services
operating margin 7.6% 6.3% 8.3% 6.5%
Investment income, net of
related interest expense $15.5 $9.1 69.7% $46.6 $25.8 80.9%
Realized investment gains 7.9 2.3 18.4 6.2
Income from investment
operations $23.4 $11.4 $65.0 $32.0
Interest expense 0.2 0.4 0.5 0.9
Gain on sale of IRI -- -- 39.0 --
Income from continuing
operations before income
taxes and distributions on
capital securities $36.0 $21.5 $140.5 $64.9
Income taxes 9.3 5.3 41.1 16.5
Distribution on capital
securities of subsidiary
trusts, net of tax 4.6 1.0 13.8 1.0
Income from continuing
operations $22.1 $15.2 $85.6 $47.4
Discontinued operations:
After tax gain on disposal
of Radian International LLC,
net of deferred loss of
$6.6 million -- -- 30.3 --
Net income $22.1 $15.2 $115.9 $47.4
Earnings per share
-assuming dilution:
Income from continuing
operations $0.72 $0.51 41.2% $2.71 $1.56 73.7%
Net income $0.72 $0.51 41.2% $3.57 $1.56 128.8%
Dividends declared per
common share $0.42 $0.38 $1.22 $1.16
Average common shares
outstanding and common
stock equivalents 35.3 29.9 35.3 30.2
(a) Excludes goodwill amortization related to EIG.
Summary of Financial Position
In millions, except per share amounts
Percent
Sept. 30, Dec. 31, Change
1998 1997
Assets
Cash and short-term investments $104.2 $424.5
Fixed maturities, at fair value 555.9 248.4
Equity securities, at fair value 409.4 323.8
Cash and invested assets 1,069.5 996.7
Reinsurance assets 531.0 124.5
Insurance premiums receivable 155.1 138.0
Engineering services receivable 26.9 12.2
Fixed assets 42.8 36.4
Investment in Radian -- 83.4
Other assets 219.3 149.0
Total assets $2,044.6 $1,540.2 32.7%
Liabilities
Unearned - insurance premiums and
ceding commissions $473.6 $290.3
Claims and adjustment expenses 458.2 276.7
Total borrowings 29.5 67.5
Other liabilities 261.1 151.5
Total liabilities 1,222.4 786.0
Company obligated mandatorily redeemable
capital securities of subsidiary
Trust I holding solely junior
subordinated deferrable
interest debentures
of the Company, net of
unamortized discount 108.9 108.9
Company obligated mandatorily redeemable
convertible capital securities of
subsidiary Trust II holding solely
junior subordinated deferrable interest
debentures of the Company 300.0 300.0
Shareholders' equity 413.3 345.3
Total $2,044.6 $1,540.2
Shareholders' equity per common share $14.08 $11.75 19.8%
Based on common shares outstanding of 29.4 29.4
Pro forma shareholders' equity per
common share assuming conversion of
Trust II capital securities and net
exercise of in the money HSB
stock options $20.33 $18.46
Based on pro forma common shares
outstanding 35.1 35.0
