HSB Group, Inc. Reports Second Quarter Results
24 July 2000
HSB Group, Inc. Reports Second Quarter Results
HARTFORD, Conn. - HSB Group, Inc. today reported that second quarter operating income per share, which excludes realized gains, on a fully diluted basis was $.49 compared to $.43 in the first quarter of 2000 and $.57 in the second quarter of 1999. Net income per share, which includes realized gains, was $.67 in the second quarter compared to $.68 in the first quarter of this year and $.76 in the second quarter of 1999.The combined ratio was 91.1 percent which compares to 93.3 percent in the first quarter and 89.1 percent in the second quarter of last year. Aggregate net earned premiums rose 6.2 percent for the quarter, but were even with 1999 on a year-to-date basis, primarily due to the company's decision to reduce its risk-bearing position in Industrial Risk Insurers. HSB continued to experience double-digit growth year-to-date in its domestic commercial breakdown business reflecting both additional business and pricing increases.
Engineering Services revenues for the second quarter increased 44.6 percent over the second quarter of 1999 and on a year-to-date basis were 39.4 percent ahead of last year. The Engineering Services margin was 6.6 percent for the quarter; the year-to-date margin was 7.3 percent compared to 8.3 percent a year ago. The reduced margin reflects continuing investment in Integrated Process Technologies (IPT) which manages facility services for large, geographically dispersed organizations.
Income from investment operations was $25.8 million compared to $26.8 million in the second quarter of 1999. Performance of the investment portfolio during the quarter was excellent.
"Earnings for the second quarter were generally in line with our objectives and showed good improvement over the first quarter results," said Richard Booth, chairman, president and chief executive officer. "We are making solid improvement on a variety of profit improvement initiatives as we work to position our company for long-term earnings growth."
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.
Summary of Operations In millions, except per share amounts Quarter Percent Year-To-Date Percent Ended June 30, Change Ended June 30, Change 2000 1999 2000 1999 Gross earned premiums $176.4 $206.8 -14.7% $358.5 $415.7 -13.8% Ceded premiums 77.0 113.1 167.8 225.5 Insurance premiums $ 99.4 $ 93.7 $190.7 $190.2 Claims and adjustment expenses 38.1 37.9 76.9 76.2 Policy acquisition expenses 21.7 21.3 41.5 43.9 Underwriting and inspection expenses 30.8 24.2 57.4 48.2 Insurance operating gain $ 8.8 $ 10.3 $ 14.9 $ 21.9 Loss ratio(1) 38.3% 40.5% 40.3% 40.1% Expense ratio(1) 52.8% 48.6% 51.9% 48.4% Combined ratio(1) 91.1% 89.1% 92.2% 88.5% Engineering services revenues $ 40.2 $ 27.8 44.6% $ 77.2 $ 55.4 39.4% Engineering services expenses 37.6 25.6 71.6 50.8 Engineering services operating gain $ 2.6 $ 2.2 $ 5.6 $ 4.6 Engineering services operating margin(1) 6.6% 8.2% 7.3% 8.3% Investment income, net of related interest expense $ 15.6 $ 16.6 -6.0% $ 30.5 $ 32.3 -5.6% Realized investment gains 10.2 10.2 23.5 17.3 Income from investment operations $ 25.8 $ 26.8 $ 54.0 $ 49.6 Interest expense 0.5 0.6 1.1 1.0 Income before income taxes and distributions on capital securities of subsidiary trusts $ 36.7 $ 38.7 $ 73.4 $ 75.1 Income taxes 12.3 11.4 24.5 22.3 Distribution on capital securities of subsidiary trusts, net of tax 4.7 4.5 9.4 9.0 Net income $ 19.7 $ 22.8 $ 39.5 $ 43.8 Net Income per common share -assuming dilution $ 0.67 $ 0.76 $ 1.35 $ 1.46 Dividends declared per common share $ 0.44 $ 0.42 $ 0.88 $ 0.84 Average common shares outstanding and common stock equivalents 34.1 34.8 34.3 34.6 (1) Computation excludes rounding Summary of Financial Position In millions, except per share amounts June 30, 2000 December 31, 1999 Assets Cash and short-term investments $ 107.1 $ 126.5 Fixed maturities, at fair value 471.8 489.8 Equity securities, at fair value 384.5 381.8 Cash and invested assets 963.4 998.1 Reinsurance assets 605.2 850.3 Insurance premiums receivable 70.6 104.4 Engineering services receivable 45.8 39.1 Fixed assets 55.5 58.2 Other assets 212.7 213.1 Total assets $ 1,953.2 $ 2,263.2 Liabilities Unearned insurance premiums and ceding commissions $ 272.2 $ 420.1 Claims and adjustment expenses 674.4 782.3 Total borrowings 30.8 66.6 Other liabilities 186.5 208.7 Total liabilities 1,163.9 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 107.0 109.0 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 382.3 376.5 Total $ 1,953.2 $ 2,263.2 Shareholders' equity per common share(1) $ 13.28$ 12.95 Based on common shares outstanding of 28.8 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(1) $ 19.98 $ 19.61 Based on pro forma common shares outstanding of 34.2 34.5 (1) Computation excludes rounding