HSB Group, Inc. Reports Fourth Quarter and 1999 Year-End Results
25 January 2000
HSB Group, Inc. Reports Fourth Quarter and 1999 Year-End Results
HARTFORD, Conn.--Jan. 24, 2000--HSB Group, Inc. today reported that fourth quarter net income per share on a fully diluted basis was $.35 cents compared to $.63 cents in 1998. For the year, net income per share was $2.50 compared to $2.67 for the prior year, excluding gains on the sales of Radian and Industrial Risk Insurers (IRI).In the fourth quarter, the company's insurance earnings were adversely affected by increased claims and adjustment expenses. In addition, earnings from participation in IRI were negatively impacted by a reduction in insurance premiums. HSB also incurred additional costs associated with testing of critical information systems to ensure year 2000 compliance as well as costs associated with the relocation of certain foreign insurance operations.
Net Engineering Services revenues for the fourth quarter increased 30 percent over the fourth quarter of 1998. However, results were adversely affected by a continued investment of operating funds to support accelerated growth of the company's Engineering Services businesses as well as expenditures associated with consolidation of certain domestic engineering operations.
Income from Investment Operations was $25.1 million for the fourth quarter compared to $24.6 million in 1998. Net investment income was $15.3 million compared to $17.6 million in the fourth quarter of 1998.
The reduction in shareholders' equity since December 31, 1998 was caused by the impact of rising interest rate levels on the company's fixed income investments.
"While results for the third and fourth quarters were disappointing, HSB remains one of the most consistently profitable companies in the property/casualty insurance industry," said Richard H. Booth, president and chief executive officer. "The Company has sound reserves, is well capitalized and has the financial strength to maintain its dividend policy as well as take advantage of new business opportunities as they arise. We are focused on improving the trend of operating earnings over the course of 2000," said Booth.
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.
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are management's estimates, assumptions and projections and are not guarantees of future performance. Forward-looking statements involve known and unknown risks and uncertainties. These and other important factors, including those mentioned in various Securities and Exchange Commission filings made periodically by the company, may cause the company's actual results and performance to differ materially. Investors and prospective investors should read this news release in conjunction with the company's most recent Form 10-K, Form 10-Q and other documents filed with the Securities and Exchange Commission.
Summary of Operations
In millions, except per share amounts
Quarter Year-To-Date
Ended Dec. 31 Percent Dec. 31 Percent
1999 1998 Change 1999 1998 Change
Gross earned premiums $207.5 $202.6 2.4% $823.8 $770.5 6.9%
Ceded premiums 108.5 95.8 441.9 374.4
Insurance premiums $ 99.0 $106.8 $381.9 $396.1
Claims and adjustment
expenses 45.1 45.8 165.8 174.9
Policy acquisition
expenses 23.7 21.0 89.2 66.3
Underwriting and
inspection expenses 33.0 30.2 105.6 113.7
Insurance operating
gain $ (2.8) $ 9.8 $ 21.3 $ 41.2
Loss ratio(a) 45.5% 42.9% 43.4% 44.2%
Expense ratio(a) 57.3% 47.9% 51.0% 45.4%
Combined ratio(a) 102.8% 90.7% 94.4% 89.6%
Engineering services
revenues $ 33.6 $ 25.8 30.2% $119.6 $ 93.5 27.9%
Engineering services
expenses 36.3 24.1 116.6 86.2
Engineering services
operating gain (loss) $ (2.7) $ 1.7 $ 3.0 $ 7.3
Engineering services
operating margin(a) -8.2% 6.4% 2.5% 7.8%
Investment income, net
of related interest
expense $ 15.3 $ 17.6 -13.1% $64.1 $ 64.2 -0.2%
Realized investment
gains 9.8 7.0 40.6 25.4
Income from investment
operations $ 25.1 $ 24.6 $104.7 $ 89.6
Interest expense 0.7 0.3 2.3 0.8
Gain (loss) on
sale of IRI -- (2.4) -- 36.6
Income from continuing
operations before
income taxes
and distributions
on capital securities $ 18.9 $ 33.4 $126.7 $173.9
Income taxes 4.1 10.3 35.7 51.4
Distribution on
capital securities
of subsidiary trusts,
net of tax 4.6 4.6 18.2 18.4
Income from
continuing
operations $ 10.2 $ 18.5 $ 72.8 $104.1
Discontinued operations:
After tax gain
on disposal of
Radian International
LLC, net of deferred
loss of $6.6 million -- -- -- 30.3
Net income $ 10.2 $ 18.5 $ 72.8 $134.4
Earnings per common
share-assuming dilution:
Income from continuing
operations $ 0.35 $ 0.63 $ 2.50 $ 3.35(c)
Net income $ 0.35 $ 0.63 $ 2.50 $ 4.21(d)
Dividends declared
per common share $ 0.44 $ 0.42 $ 1.72 $ 1.64
Average common shares
outstanding and common
stock equivalents 29.3(b) 34.8 34.6 35.2
(a) Computation excludes rounding.
(b) The assumed conversion of the Company's convertible capital
securities is not used in the computation of earnings per share since
such inclusion would be anti-dilutitive.
(c) Computes to $2.67 after excluding $0.68 from Gain on sale of
IRI.
(d) Computes to $2.67 after excluding $0.68 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
Dec. 31, Dec. 31,
1999 1998
Assets
Cash and short-term investments $ 126.5 $ 80.6
Fixed maturities, at fair value 489.8 577.1
Equity securities, at fair value 381.8 437.1
Cash and invested assets 998.1 1,094.8
Reinsurance assets 850.3 625.0
Insurance premiums receivable 104.4 146.7
Engineering services receivable 39.1 26.1
Fixed assets 58.2 54.9
Other assets 213.1 191.1
Total assets $ 2,263.2 $ 2,138.6
Liabilities
Unearned insurance premiums and
ceding commissions $ 420.1 $ 464.6
Claims and adjustment expenses 782.3 558.2
Total borrowings 66.6 46.1
Other liabilities 208.7 241.5
Total liabilities 1,477.7 1,310.4
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 376.5 419.3
Total $ 2,263.2 $ 2,138.6
Shareholders' equity per common share(a) $ 12.95 $ 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(a) $ 19.61 $ 20.77
Based on pro forma common shares
outstanding 34.5 34.6
(a) Computation excludes rounding.