HSB Group, Inc. Reports First Quarter Results
19 April 2000
HSB Group, Inc. Reports First Quarter Results
HARTFORD, Conn.--April 18, 2000--HSB Group, Inc. (NYSE:HSB) today reported that first quarter net income per share on a fully diluted basis was $.68 cents compared to $.35 cents in the fourth quarter of 1999 and $.71 in the first quarter of 1999. Operating income per share, which excludes realized gains, was $.43 cents and compares to $.13 in the fourth quarter and $.57 in the first quarter of last year.The combined ratio was 93.3 percent reflecting the company's disciplined approach to underwriting. Net earned premiums declined 5.4 percent as a result of the company's decision to reduce its risk-bearing position in Industrial Risk Insurers. HSB continued to experience solid growth in its domestic commercial breakdown business. The change-over to Year 2000 did not result in any substantive increase in claim activity.
Net Engineering Services revenues for the first quarter increased 34 percent over the first quarter of 1999. The engineering services margin was 8 percent compared to a loss in the fourth quarter of 1999. The margin in the first quarter of last year was 8.4 percent.
Income from investment operations was $28.2 million compared to $22.8 million in the first quarter of 1999. Realized gains for the quarter were $.25 cents per share and reflect the strong performance of the equity portfolio and the company's decision to somewhat reduce its exposure to common stocks.
The company bought back approximately 280,000 shares or about 1 percent of its shares outstanding during the first quarter.
"The results for the first quarter were in line with expectations and represent significant improvement over the fourth quarter," said Richard Booth, chairman, president and chief executive officer. "Our Engineering Services and Commercial equipment breakdown insurance businesses had strong performance during the quarter. In addition, our equity portfolio continued to provide solid returns. We will continue to focus on initiatives which will add to our operating earnings performance in the future."
HSB Group, Inc. (NYSE-HSB), 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
Ended March 31, Percent
2000 1999 Change
Gross earned premiums $ 182.1 $ 208.9
Ceded premiums 90.8 112.4
Insurance premiums $ 91.3 $ 96.5 -5.4%
Claims and adjustment expenses 38.8 38.3
Policy acquisition expenses 19.8 22.6
Underwriting and inspection expenses 26.6 24.0
Insurance operating gain $ 6.1 $ 11.6
Loss ratio(a) 42.4% 39.7%
Expense ratio(a) 50.9% 48.0%
Combined ratio(a) 93.3% 87.7%
Engineering services revenues $ 37.0 $ 27.6 34.1%
Engineering services expenses 34.0 25.2
Engineering services operating gain $ 3.0 $ 2.4
Engineering services
operating margin(a) 8.0% 8.4%
Investment income, net
of related interest expense $ 14.9 $ 15.7 -5.1%
Realized investment gains 13.3 7.1
Income from investment operations $ 28.2 $ 22.8
Interest expense 0.6 0.4
Income before income taxes and
distributions on capital securities $ 36.7 $ 36.4
Income taxes 12.2 10.9
Distribution on capital securities
of subsidiary trusts, net of tax 4.7 4.5
Net income $ 19.8 $ 21.0
Net income per common
share-assuming dilution $ 0.68 $ 0.71
Dividends declared per common share $ 0.44 $ 0.42
Average common shares outstanding
and common stock equivalents 34.4 34.5
(a) Computation excludes rounding
Summary of Financial Position
In millions, except per share amounts
March 31, December 31,
2000 1999
Assets
Cash and short-term investments $118.1 $126.5
Fixed maturities, at fair value 488.6 489.8
Equity securities, at fair value 364.5 381.8
Cash and invested assets 971.2 998.1
Reinsurance assets 713.8 850.3
Insurance premiums receivable 58.2 104.4
Engineering services receivable 39.5 39.1
Fixed assets 55.6 58.2
Other assets 208.7 213.1
Total assets $2,047.0 $2,263.2
Liabilities
Unearned insurance premiums and
ceding commissions $324.5 $420.1
Claims and adjustment expenses 735.5 782.3
Total borrowings 49.6 66.6
Other liabilities 155.2 208.7
Total liabilities 1,264.8 1,477.7
Company obligated mandatorily redeemable
capital securities of subsidiary
Trust I holding solely junior
subordinated deferrable interest
debentures of the Company, net of
unamortized discount 109.0 109.0
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 373.2 376.5
Total $2,047.0 $2,263.2
Shareholders' equity per common share(a) $12.92 $12.95
Based on common shares outstanding of 28.9 29.1
Pro forma shareholders' equity per common
share assuming conversion of
Trust II capital securities and net
exercise of in the money HSB
stock options(a) $19.70 $19.61
Based on pro forma common
shares outstanding 34.2 34.5
(a) Computation excludes rounding