HSB Group, Inc. Reports Gains in Second Quarter
27 July 1999
HSB Group, Inc. Reports Gains in Second Quarter
HARTFORD, Conn.--July 26, 1999--HSB Group, Inc. , today reported that second quarter net income per share on a fully diluted basis, was 76 cents. This represents an increase of 11.8 percent, compared to 68 cents per share in the second quarter of 1998.HSB Group's gross earned insurance premiums grew 17.7 percent. The combined ratio -- the sum of losses and expenses as a percentage of insurance revenue -- was 89.1 percent for the quarter, down from 89.3 percent in the second quarter of 1998. The year-to-date combined ratio is 88.5 percent compared to 89.3 percent last year.
HSB's Engineering Services net revenues increased 22.5 percent over the second quarter of 1998. The margin was 8.2 percent.
"I am pleased with the continued double-digit growth in our insurance and engineering services businesses in a competitive operating environment," said Gordon W. Kreh, chairman, president and chief executive officer. "These results confirm that we have a strong growth strategy in place."
Investment income, net of related interest expense, was $16.6 million compared to $15.9 million in the second quarter of 1998. Realized gains, reflecting, in significant measure, a rebalancing of the equity portfolio in consideration of recent market movements, were $10.2 million compared to $7.3 million in the second quarter of last year.
HSB Group, Inc. is a global provider of specialty insurance products, engineering services, and management consulting services. HSB Group is the parent company of The Hartford Steam Boiler Inspection and Insurance Company, founded in 1866 and the largest provider of equipment breakdown insurance in the world. 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 June 30 Percent June 30 Percent
1999 1998 Change 1999 1998 Change
Gross earned
premiums $206.8 $175.7 17.7% $415.7 $355.4 17.0%
Ceded premiums 113.1 85.3 225.5 165.6
Insurance
premiums 93.7 90.4 190.2 189.8
Claims and
adjustment
expenses 37.9 40.4 76.2 85.0
Policy
acquisition
expenses 21.3 12.8 43.9 27.4
Underwriting
and inspection
expenses 24.2 27.5 48.2 57.2
Insurance
operating
gain $ 10.3 $ 9.7 $ 21.9 $ 20.2
Loss ratio(a) 40.5% 44.7% 40.1% 44.8%
Expense ratio(a) 48.6% 44.6% 48.4% 44.5%
Combined ratio(a) 89.1% 89.3% 88.5% 89.3%
Engineering services
revenues $ 27.8 $ 22.7 22.5% $ 55.4 $ 42.4 30.7%
Engineering services
expenses 25.6 20.7 50.8 38.6
Engineering
services
operating gain $ 2.2 $ 2.0 $ 4.6 $ 3.8
Engineering
services
operating
margin(a) 8.2% 8.9% 8.3% 8.9%
Investment
income, net
of related
interest
expense(a) $ 16.6 $ 15.9 4.4% $ 32.3 $ 31.1 3.9%
Realized
investment
gains 10.2 7.3 17.3 10.5
Income from
investment
operations $ 26.8 $ 23.2 $ 49.6 $ 41.6
Interest expense 0.6 0.1 1.0 0.2
Gain on sale
of IRI -- -- -- 39.0
Income from continuing
operations before
income taxes and
distributions
on capital
securities $ 38.7 $ 34.8 $ 75.1 $104.4
Income taxes 11.4 9.3 22.3 31.8
Distribution on capital
securities of
subsidiary trusts, net
of tax 4.5 4.7 9.0 9.2
Income from continuing
operations $ 22.8 $ 20.8 $ 43.8 $ 63.4
Discontinued operations:
After tax gain on disposal
of Radian
International
LLC, net of
deferred loss -- -- -- 30.3
Net income $ 22.8 $ 20.8 $ 43.8 $ 93.7
Earnings per common
share - assuming dilution:
Income from
continuing
operations $ 0.76 $ 0.68 $ 1.47 $ 1.99 (b)
Net income $ 0.76 $ 0.68 $ 1.47 $ 2.85 (c)
Dividends declared
per common share $ 0.42 $ 0.40 $ 0.84 $ 0.80
Average common
shares outstanding
and common stock
equivalents 34.8 35.4 34.6 35.3
(a) Computation excludes rounding
(b) Includes $0.71 from Gain on sale of IRI
(c) Includes $0.71 from Gain on sale of IRI and $0.86 from Gain on
sale of Radian.
Summary of Financial Position
In millions, except per share amounts
June 30, Dec. 31,
1999 1998
Assets
Cash and short-term investments $ 96.9 $ 80.6
Fixed maturities, at fair value 544.9 577.1
Equity securities, at fair value 441.6 437.1
Cash and invested assets 1,083.4 1,094.8
Reinsurance assets 660.8 630.4
Insurance premiums receivable 121.7 146.7
Engineering services receivable 29.4 26.1
Fixed assets 56.3 54.9
Other assets 211.2 191.1
Total assets $ 2,162.8 $ 2,144.0
Liabilities
Unearned insurance premiums and ceding
commissions $ 426.8 $ 477.9
Claims and adjustment expenses 592.1 550.3
Total borrowings 80.1 46.1
Other liabilities 232.1 241.5
Total liabilities 1,331.1 1,315.8
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 422.8 419.3
Total $ 2,162.8 $ 2,144.0
Shareholders' equity per common share $ 14.52 $ 14.53
Based on common shares outstanding of 29.1 28.9
Pro forma shareholders' equity per
common share assuming conversion of
Trust II capital securities and
net exercise of in the money HSB
stock options $ 20.68 $ 20.77
Based on pro forma common shares outstanding 35.0 34.6