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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