HSB Group, Inc. Reports Third Quarter Results
26 October 1999
HSB Group, Inc. Reports Third Quarter Results
HARTFORD, Conn.--Oct. 25, 1999--HSB Group, Inc. today reported that third quarter net income per share on a fully diluted basis was 64 cents. This compares to 72 cents per share in the third quarter of 1998. The quarter's results were impacted by $10 million in losses from weather-related events domestically and the Taiwan earthquake.HSB Group's gross earned insurance premiums declined 5.6 percent from the third quarter last year reflecting the company's refusal to write large risk business that does not provide sufficient opportunity to earn an underwriting profit. The company's commercial reinsurance business continues to grow at double-digit rates. HSB's insurance operations remained profitable for the quarter, despite the weather and earthquake-related losses. The combined ratio -- the sum of losses and expenses as a percentage of insurance revenue -- was 97.7 percent for the quarter, up from 88.9 percent in the third quarter of 1998. The year-to-date combined ratio is 91.5 percent.
HSB's Engineering Services net revenues increased 20.9 percent over the third quarter of 1998. The margin was 3.6 percent, reflecting investments in the growth of the business. Year-to-date, the Engineering Services margin is 6.6 percent.
Investment income, net of related interest expense, was $16.5 million compared to $15.5 million in the third quarter of 1998. Realized gains were $13.5 million for the third quarter of 1999.
"Overall, we remain positive about the prospects for our business. There are clear indications of selective improvements in the insurance pricing environment. Our engineering services businesses continue to grow and our investment portfolio continues to perform well," said Gordon W. Kreh, chairman, president and chief executive officer.
HSB Group, Inc. , the parent company of The Hartford Steam Boiler Inspection and Insurance Company, is a global provider of specialty insurance products, engineering services, and management consulting. The Hartford Steam Boiler Inspection and Insurance Company was founded in 1866 to provide loss prevention service and insurance to businesses, industries and institutions. For more information about HSB, visit its web site at www.hsb.com.
Summary of Operations
In millions, except per share amounts
Quarter Year-To-Date
Ended September 30 Percent September 30 Percent
1999 1998 Change 1999 1998 Change
Gross earned premiums $200.6 $212.5 -5.6% $616.3 $567.9 8.5%
Ceded premiums 107.9 113.0 333.4 278.6
Insurance premiums $92.7 $99.5 $282.9 $289.3
Claims and adjustment
expenses 44.5 44.2 120.7 129.1
Policy acquisition
expenses 21.6 17.9 65.5 45.3
Underwriting and
inspection expenses 24.4 26.4 72.6 83.5
Insurance operating
gain $2.2 $11.0 $24.1 $31.4
Loss ratio(a) 48.1% 44.4% 42.7% 44.6%
Expense ratio(a) 49.6% 44.5% 48.8% 44.6%
Combined ratio(a) 97.7% 88.9% 91.5% 89.2%
Engineering
services revenues $30.6 $25.3 20.9% $86.0 $67.7 27.0%
Engineering
services expenses 29.5 23.4 80.3 62.1
Engineering services
operating gain $1.1 $1.9 $5.7 $5.6
Engineering services
operating
margin(a) 3.6% 7.4% 6.6% 8.3%
Investment income,
net of related
interest expense $16.5 $15.5 6.5% $48.8 $46.6 4.7%
Realized investment
gains 13.5 7.9 30.8 18.4
Income from
investment
operations $30.0 $23.4 $79.6 $65.0
Interest expense 0.6 0.2 1.6 0.5
Gain on sale of IRI -- -- -- 39.0
Income from continuing
operations before
income taxes
and distributions
on capital
securities $32.7 $36.1 $107.8 $140.5
Income taxes 9.3 9.3 31.6 41.1
Distribution on
capital securities
of subsidiary
trusts, net of tax 4.6 4.6 13.6 13.8
Income from continuing
operations $18.8 $22.2 $62.6 $85.6
Discontinued operations:
After tax gain
on disposal of Radian
International LLC,
net of deferred loss -- -- -- 30.3
Net income $18.8 $22.2 $62.6 $115.9
Earnings per common share-assuming
dilution:
Income from
continuing
operations $0.64 $0.72 $2.10 $2.71(b)
Net income $0.64 $0.72 $2.10 $3.57(c)
Dividends declared
per common share $0.44 $0.42 $1.28 $1.22
Average common shares
outstanding and
common stock
equivalents 34.7 35.3 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
September 30, 1999 December 31, 1998
Assets
Cash and short-term investments $ 91.0 $ 80.6
Fixed maturities, at fair value 525.3 577.1
Equity securities, at fair value 409.8 437.1
Cash and invested assets 1,026.1 1,094.8
Reinsurance assets 826.3 630.4
Insurance premiums receivable 133.6 146.7
Engineering services receivable 35.0 26.1
Fixed assets 56.6 54.9
Other assets 211.4 191.1
Total assets $ 2,289.0 $ 2,144.0
Liabilities
Unearned insurance premiums and
ceding commissions $ 440.9 $ 477.9
Claims and adjustment expenses 760.7 550.3
Total borrowings 69.5 46.1
Other liabilities 212.9 241.5
Total liabilities 1,484.0 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 109.0 108.9
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 396.0 419.3
Total $ 2,289.0 $ 2,144.0
Shareholders' equity per common share $ 13.63 $ 14.53
Based on common shares outstanding of 29.1 28.9
Proforma shareholders' equity per
common share assuming conversion of
Trust II capital securities and
net exercise of in the money HSB
stock options $ 20.15 $ 20.77
Based on pro forma common shares
outstanding 34.5 34.6