HSB Group, Inc. Reports Gains in Fourth Quarter
26 January 1999
HSB Group, Inc. Reports Gains in Fourth Quarter
HARTFORD, Conn.--Jan. 25, 1999--HSB Group, Inc. today reported that the fourth quarter income per share on a diluted basis from continuing operations, exclusive of post-closing adjustments related to the Industrial Risk Insurers (IRI) sale, was 67 cents, compared to 64 cents in the fourth quarter of 1997.
HSB Group's gross earned insurance premiums grew 33 percent for the quarter and 26 percent for the year. The combined ratio -- the sum of losses and expenses as a percentage of insurance revenue -- was 90.5 percent down from 93.0 percent in the fourth quarter of last year. The year-to-date combined ratio was 89.4 percent, down from 91.7 percent last year. The year-to-date expense ratio was 45.2 percent, down from 47.3 percent in 1997.
Net engineering services revenues increased 61 percent over the fourth quarter of 1997, reflecting revenue from new businesses and acquisitions as well as organic growth. The operating gain for the fourth quarter increased 21 percent.
Income from investment operations was $24.6 million compared to $18.9 million in the fourth quarter of 1997. Net investment income was $17.6 million compared to $11 million in the fourth quarter of 1997. Realized gains were $25.4 million for the year.
"We enter 1999 with significant financial strength and well positioned to continue building increased value for shareholders," said Gordon W. Kreh, chairman, 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 December 31 Percent December 31 Percent
1998 1997 Change 1998 1997 Change
Gross earned premium $202.6 $152.7 32.6% $ 770.5 $609.3 26.4%
Reinsurance 95.8 22.3 374.4 118.1
Net earned premium 106.8 130.4 396.1 491.2
Claims and
adjustment expenses 45.8 60.9 174.9 217.9
Policy acquisition
expenses 21.0 23.3 66.3 90.7
Underwriting and
inspection expenses 30.2 37.3 113.7 142.8
Insurance operating
gain $ 9.8 $ 8.9 $ 41.2 $ 39.8
Loss ratio 42.9% 46.8% 44.2% 44.4%
Expense ratio(1) 47.6% 46.2% 45.2% 47.3%
Combined ratio(1) 90.5% 93.0% 89.4% 91.7%
Engineering services
revenues $ 25.8 $ 16.0 61.1% $ 93.5 $ 61.3 52.6%
Engineering services
expenses 24.1 14.6 86.2 57.0
Engineering services
operating gain $ 1.7 $ 1.4 $ 7.3 $ 4.3
Engineering services
operating margin 7.7% 8.7% 7.8% 7.1%
Investment income,
net of related
interest expense $ 17.6 $ 11.0 60.2% $ 64.2 $ 36.8 73.9%
Realized investment
gains 7.0 7.9 25.4 14.1
Income from
investment
operations $ 24.6 $ 18.9 $ 89.6 $ 50.9
Interest expense 0.3 0.4 0.8 1.3
Gain (loss) on sale
of IRI (2.4) - 36.6 -
Income from continuing
operations before
income taxes and
distributions on
capital securities $ 33.4 $ 28.8 $ 173.9 $ 93.7
Income taxes 10.3 8.6 51.4 25.1
Distribution on
capital securities of
subsidiary trusts,
net of tax 4.6 1.3 18.4 2.3
Income from continuing
operations $ 18.5 $ 18.9 $ 104.1 $ 66.3
Discontinued
operations:
After tax gain on
disposal of Radian
International LLC,
net of deferred loss
of $6.6 million -- -- 30.3 --
Net income $ 18.5 $ 18.9 $ 134.4 $ 66.3
Earnings per
share-assuming
dilution:
Income from
continuing
operations $ 0.63 $ 0.64 (1.6%) $ 3.35 $ 2.20 52.3%
Net income $ 0.63 $ 0.64 (1.6%) $ 4.21 $ 2.20 91.4%
Dividends declared
per common share $ 0.42 $ 0.40 $ 1.64 $ 1.56
Average common shares
outstanding and
common stock
equivalents 34.8 29.6 35.2 30.2
(1)Excludes goodwill amortization related to EIG.
Summary of Financial Position
In millions, except per share amounts
Percent
Dec. 31, Dec. 31, Change
1998 1997
Assets
Cash and short-term investments $ 80.6 $ 424.5
Fixed maturities, at fair value 577.1 248.4
Equity securities, at fair value 437.1 323.8
Cash and invested assets 1,094.8 996.7
Reinsurance assets 630.4 124.5
Insurance premiums receivable 146.7 138.0
Engineering services receivable 26.1 12.2
Fixed assets 54.9 36.4
Investment in Radian -- 83.4
Other assets 191.1
Total assets $ 2,144.0 $ 1,537.2 39.5%
Liabilities
Unearned insurance premiums
and ceding commissions $ 477.9 $ 287.3
Claims and adjustment expenses 550.3 276.7
Total borrowings 46.1 67.5
Other liabilities 241.5 151.5
Total liabilities 1,315.8 783.0
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 419.3 345.3
Total $ 2,144.0 $ 1,537.2
Shareholders' equity per common share $ 14.53 $ 11.75 23.7%
Based on common shares outstanding of 28.9 29.4
Proforma shareholders' equity per common
share assuming conversion of Trust II
capital securities and net exercise of
in the money HSB stock options $ 20.77 $ 18.46
Based on pro forma common shares outstanding 34.6 35.0