UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT
(DATE OF EARLIEST EVENT REPORTED)
May 4, 2004
HCC INSURANCE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER)
STATE OR OTHER COMMISSION IRS EMPLOYER
JURISDICTION FILE NUMBER: IDENTIFICATION
OF INCORPORATION: NUMBER:
DELAWARE 001-13790 76-0336636
13403 NORTHWEST FREEWAY
HOUSTON, TEXAS 77040-6094
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE - (713) 690-7300
---------------------------------------------
ITEM 12. Results of Operations and Financial Condition.
On May 4, 2004, HCC Insurance Holdings, Inc. announced its results for the
First Quarter of 2004. A press release setting forth the announcement is set
forth below.
HCC Reports Record First Quarter 2004
Results
HOUSTON--(BUSINESS WIRE)--May 4, 2004--HCC Insurance Holdings,
Inc. (NYSE:HCC) today released earnings for the first quarter of 2004.
Net earnings increased significantly for the first quarter of 2004
to $44.6 million, or $0.68 per diluted share, from $23.8 million, or
$0.38 per diluted share, for the same period of 2003(a).
Stephen L. Way, Chairman and Chief Executive Officer, said, "Our
first quarter results reflect the growth and continuing strong margins
from all reporting segments in line with our 2004 business plan, and
we anticipate achieving results near the top end of the range of the
earnings guidance previously provided."
Total revenue grew 39% during the first quarter of 2004 to $278.0
million compared to the first quarter of 2003. As last year, this
increase was primarily due to the growth in our insurance company
subsidiaries' earned premium, as market conditions in our specialty
lines continue to be very strong. As we predicted last year, fee and
commission revenue also grew substantially, as did investment income.
Overall revenue is expected to continue to increase for the rest of
this year and into 2005.
Gross written premium of our insurance company subsidiaries
increased 21% to $459.6 million during the first quarter of 2004
compared to the corresponding quarter of 2003. During the same period,
net written premium increased by 23% to $236.0 million and net earned
premium increased by 34% percent to $217.1 million. This growth over
last year's record levels was achieved as a result of generally
increased retentions and strong growth in our Diversified Financial
Products line of business. We expect this premium growth to continue.
The GAAP combined ratio for the first three months of 2004 was
83.3% compared to 88.8% in the corresponding period of 2003 and 91.0%
for the full year of 2003.
Mr. Way added, "Our recently affirmed S&P rating of AA (Very
Strong) already gives us a competitive advantage, particularly on
longer tail business, and as we move into the maintenance stage of the
insurance cycle, we believe our superior underwriting skills will
further differentiate our results from those of our peers."
Fee and commission income increased substantially during the first
quarter of 2004 to $43.8 million from $25.7 million during the same
period in 2003(a). This growth was fueled by strong performances at
most of our underwriting agencies and intermediary subsidiaries.
Net investment income continues to increase rapidly, growing 31%
in the first quarter of 2004 to $14.4 million compared to the first
quarter of 2003. Increased investment assets, a result of strong cash
flow from operations and increased loss reserves as we retain more of
our business, have fueled this increase and we anticipate this growth
continuing for the rest of this year and into 2005.
As of March 31, 2004, total investments increased to $1.93
billion, total assets exceeded $5.0 billion for the first time, book
value per share increased to $17.12 and the Company's debt to total
capital ratio was 22.0%. See attached tables.
HCC will hold an open conference call beginning at 4:00 p.m.
Central Time on Tuesday, May 4. To participate, the number for
domestic calls is 888-243-0813 and the number for international calls
is 703-925-2400. In addition, there will be a live webcast available
on a listen-only basis, that can be accessed through the HCC website
at www.hcch.com. A replay of the webcast will be available on the
website until Tuesday, May 11, 2004.
HCC is an international insurance holding company and a leading
specialty insurance group since 1974, based in Houston, Texas with
offices across the USA and in Bermuda, England and Spain. HCC is
traded on the NYSE (symbol:HCC), has assets exceeding $5.0 billion and
is rated AA (Very Strong) by Standard & Poor's and A+ (Superior) by A.
M. Best Company.
(a) For comparative purposes, it should be noted that the 2003 net
income includes $0.02 per diluted share for discontinued operations
following the sale of a subsidiary, but is after $0.06 per diluted
share charge for the cumulative effect of the fourth quarter 2003
restatement to change certain accounting for fee and commission
income. This change also decreased fee and commission income by $6.5
million during the first quarter of 2003.
For more information, visit our website at www.hcch.com.
Forward-looking statements contained in this press release are
made under "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 and involve a number of risks and
uncertainties. The types of risks and uncertainties which may affect
the Company are set forth in its periodic reports filed with the
Securities and Exchange Commission.
HCC Insurance Holdings, Inc.
Financial Highlights
March 31, 2004
(amounts in thousands, except per share data)
Three Months Ended March 31, 2004 2003
------------------------------------ -------------- -----------------
Gross written premium $459,581 $379,448
Net written premium 235,955 192,501
Net earned premium 217,063 162,422
Fee and commission income 43,843 25,652
Net investment income 14,435 10,997
Other operating income 2,159 894
Total revenue 278,018 199,944
Net earnings 44,568 23,767
Earnings per share (diluted) 0.68 0.38
Cash flow from operations 100,865 101,871
Weighted average shares outstanding
(diluted) 65,416 63,335
GAAP net loss ratio 58.0% 61.6%
GAAP combined ratio 83.3% 88.8%
March 31, 2004 December 31, 2003
---------------------------------
Total investments $1,929,487 $1,703,346
Total assets 5,190,547 4,864,296
Shareholders' equity 1,103,221 1,046,920
Debt to total capital 22.0% 22.9%
Book value per share $17.12 $16.37
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited, in thousands, except per share data)
March 31, December 31,
2004 2003
----------- ------------
ASSETS
Investments:
Fixed income securities, at market
(cost: 2004 - $1,236,538; 2003 -
$1,134,128) $1,275,619 $1,164,166
Marketable equity securities, at market
(cost: 2004 - $16,369; 2003 - $12,007) 16,382 12,002
Short-term investments, at cost, which
approximates market 620,180 518,482
Other investments, at cost, which
approximates fair value 17,306 8,696
----------- ------------
Total investments 1,929,487 1,703,346
Cash 25,382 96,416
Restricted cash and cash investments 182,009 210,301
Premium, claims and other receivables 1,007,745 899,031
Reinsurance recoverables 967,483 916,190
Ceded unearned premium 302,916 291,591
Ceded life and annuity benefits 76,065 77,548
Deferred policy acquisition costs 122,471 106,943
Goodwill 400,483 386,507
Other assets 176,506 176,423
----------- ------------
Total assets $5,190,547 $4,864,296
=========== ============
LIABILITIES
Loss and loss adjustment expense payable $1,644,644 $1,535,288
Life and annuity policy benefits 76,065 77,548
Reinsurance balances payable 298,786 296,916
Unearned premium 649,060 592,311
Deferred ceding commissions 86,880 88,129
Premium and claims payable 814,663 745,559
Notes payable 310,302 310,404
Accounts payable and accrued liabilities 206,926 171,221
----------- ------------
Total liabilities 4,087,326 3,817,376
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; 250.0 million
shares authorized (shares issued and
outstanding: 2004 - 64,437; 2003 - 63,964 ) 64,437 63,964
Additional paid-in capital 458,753 447,671
Retained earnings 548,892 509,159
Accumulated other comprehensive income 31,139 26,126
----------- ------------
Total shareholders' equity 1,103,221 1,046,920
----------- ------------
Total liabilities and shareholders'
equity $5,190,547 $4,864,296
=========== ============
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(unaudited, in thousands, except per share data)
For the three
months ended
March 31,
2004 2003
--------- ---------
REVENUE
Net earned premium $217,063 $162,422
Fee and commission income 43,843 25,652
Net investment income 14,435 10,997
Net realized investment gain (loss) 518 (21)
Other operating income 2,159 894
--------- ---------
Total revenue 278,018 199,944
EXPENSE
Loss and loss adjustment expense, net 125,864 100,032
Operating expense:
Policy acquisition costs, net 43,219 31,963
Compensation expense 22,813 18,746
Other operating expense 15,379 13,099
--------- ---------
Total operating expense 81,411 63,808
Interest expense 2,212 1,682
--------- ---------
Total expense 209,487 165,522
--------- ---------
Earnings from continuing operations before
income tax provision 68,531 34,422
Income tax provision from continuing operations 23,729 12,082
--------- ---------
Earnings from continuing operations 44,802 22,340
Earnings (loss) from discontinued operations, net
of income taxes (benefit) of $(146) in 2004
and $740 in 2003 (234) 1,427
--------- ---------
Net earnings $44,568 $23,767
========= =========
Basic earnings per share data:
Earnings from continuing operations $0.70 $0.36
Earnings (loss) from discontinued operations (0.01) 0.02
--------- ---------
Net earnings $0.69 $0.38
========= =========
Weighted average shares outstanding 64,249 62,637
========= =========
Diluted earnings per share data:
Earnings from continuing operations $0.68 $0.36
Earnings from discontinued operations -- 0.02
--------- ---------
Net earnings $0.68 $0.38
========= =========
Weighted average shares outstanding 65,416 63,335
========= =========
Cash dividends declared, per share $0.075 $0.065
========= =========
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands, except per share data)
For the three
months ended
March 31,
2004 2003
--------- ---------
Cash flows from operating activities:
Net earnings $44,568 $23,767
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Change in premium, claims and other
receivables (102,988) (62,217)
Change in reinsurance recoverables (43,618) (47,032)
Change in ceded unearned premium (8,366) (24,431)
Change in loss and loss adjustment expense
payable 93,623 78,921
Change in reinsurance balances payable 37 28,835
Change in unearned premium 27,632 56,224
Change in premium and claims payable, net
of restricted cash 97,445 39,880
Depreciation and amortization expense 3,390 2,976
Other, net (10,858) 4,948
--------- ---------
Cash provided by operating activities 100,865 101,871
Cash flows from investing activities:
Sales of fixed income securities 103,092 95,229
Maturity or call of fixed income securities 33,116 27,358
Sales of equity securities 300 983
Change in short-term investments (59,045) (148,199)
Cost of securities acquired (213,354) (164,237)
Payments for purchase of subsidiaries, net of
cash received (43,307) --
Other, net 2,266 (1,523)
--------- ---------
Cash used by investing activities (176,932) (190,389)
Cash flows from financing activities:
Issuance of notes payable, net of costs -- 134,845
Sale of common stock 9,924 3,731
Payments on notes payable (91) (67,527)
Dividends paid (4,800) (4,061)
--------- ---------
Cash provided by financing activities 5,033 66,988
--------- ---------
Net change in cash (71,034) (21,530)
Cash at beginning of period 96,416 40,306
--------- ---------
Cash at end of period $25,382 $18,776
========= =========
HCC Insurance Holdings, Inc.
Insurance Company Premium
March 31, 2004
($ in thousands)
Year to Date Year to Date Change
2004 2003 %
------------ ------------ ---------
GROSS WRITTEN
Group life, accident & health $146,654 $139,320 5%
Diversified financial products 170,866 107,320 59
London market account 56,700 60,718 (7)
Aviation 43,133 44,531 (3)
Other specialty lines 31,020 1,464 n/a
------------ ------------ ---------
448,373 353,353 27%
Discontinued lines 11,208 26,095 (57)
------------ ------------ ---------
$459,581 $379,448 21%
============ ============ =========
NET WRITTEN
Group life, accident & health $77,967 $76,185 2%
Diversified financial products 71,508 33,307 115
London market account 32,717 37,232 (12)
Aviation 20,950 20,679 1
Other specialty lines 18,905 39 n/a
------------ ------------ ---------
222,047 167,442 33%
Discontinued lines 13,908 25,059 (44)
------------ ------------ ---------
$235,955 $192,501 23%
============ ============ =========
NET EARNED PREMIUM
Group life, accident & health $79,389 $71,983 10%
Diversified financial products 56,399 18,306 208
London market account 26,114 29,376 (11)
Aviation 24,269 23,882 2
Other specialty lines 12,571 54 n/a
------------ ------------ ---------
198,742 143,601 38%
Discontinued lines 18,321 18,821 (3)
------------ ------------ ---------
$217,063 $162,422 34%
============ ============ =========
HCC Insurance Holdings, Inc.
Consolidated Insurance Companies
Net Loss Ratios
March 31, 2004
($ in thousands)
Year to Date 2004 Full Year 2003
Net Net
Earned Actual Loss Earned Actual Loss
Line of Business Premium Losses Ratio Premium Losses Ratio
-------------------- ------------------------ ------------------------
Group life, accident
& health $79,389 $49,898 62.9% $290,009 $178,561 61.6%
Diversified
financial products 56,399 26,106 46.3 123,562 59,112 47.8
London market
account 26,114 7,738 29.6 137,572 73,254 53.2
Aviation 24,269 15,159 62.5 97,536 59,952 61.5
Other specialty
lines 12,571 7,696 61.2 12,443 7,728 62.1
------------------------ ------------------------
198,742 106,597 53.6 661,122 378,607 57.3
Discontinued lines 18,321 19,267 105.2 77,150 110,045 142.6
------------------------ ------------------------
Total $217,063 $125,864 58.0% $738,272 $488,652 66.2%
CONTACT: HCC Insurance Holdings, Inc., Houston
L. Byron Way, 713-690-7300
The information contained herein shall not be deemed "filed" for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or otherwise subject to the liabilities of that section, nor shall it be
deemed incorporated by reference in any filing under the Securities Act of 1933,
as amended, or the Exchange Act.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: May 4, 2004 HCC INSURANCE HOLDINGS, INC.
By: /s/ Christopher L. Martin
--------------------------
Christopher L. Martin
Executive Vice President
and General Counsel