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)
August 3, 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 August 3, 2004, HCC Insurance Holdings, Inc. announced its results for
the Second Quarter of 2004. A press release setting forth the announcement is
set forth below.
HCC Reports Strong Second Quarter and First Six Months 2004 Results
HOUSTON--(BUSINESS WIRE)--Aug. 3, 2004--HCC Insurance Holdings,
Inc. (NYSE:HCC) today released earnings for the second quarter of
2004.
Net earnings increased substantially during the second quarter of
2004, rising 41% to $46.4 million from $33.0 million and diluted
earnings per share grew 37% to $0.71 from $0.52, both compared to the
same period in 2003. Net earnings increased significantly during the
first six months of 2004, rising 60% to $91.0 million compared to
$56.7 million and diluted earnings per share grew 56% to $1.39 from
$0.89, both compared to the first six months of 2003.
Stephen L. Way, Chairman and Chief Executive Officer, commenting
on the results said, "The Company's record second quarter 2004
earnings are as a result of the continuing bottom line improvement
across all of our reporting segments. We continue to outperform our
peers and barring any major catastrophe loss, expect earnings to
continue to grow through 2005."
Total revenue grew substantially during the first six months of
2004, rising 36% to $595.3 million from $437.8 million in the
corresponding period in 2003. Revenue continues to increase strongly
across all of the Company's reporting segments.
Net earned premium of the Company's insurance company subsidiaries
continues to grow substantially, rising by 36% to $469.1 million
during the first six months of 2004 compared to $345.9 million in the
first half of 2003. During the same period net written premium
increased by 23% to $544.8 million from $443.6 million. These record
levels were achieved as a result of strong growth in new business,
increased retentions and higher rates in some lines of business.
The GAAP combined ratio of the Company's insurance company
subsidiaries was 85.0% for the first six months of 2004 compared to
88.9% in the corresponding period of 2003. Mr. Way added, "This
continuing strong underwriting performance was achieved while keeping
our loss reserves at very conservative levels, well above the
mid-point of the actuarial range. We expect earned premium growth with
this level of underwriting success to continue into 2005."
Management fee and commission income increased significantly
during the first six months of 2004 rising 41% to $89.9 million, from
$63.7 million in the first half of 2003. These increased revenues came
from new business and an acquisition made in 2003.
Net investment income increased by 29% in the first half of 2004
to $29.4 million compared to $22.9 million in the corresponding period
in 2003. This growth was due to increased investment assets, which
grew 18% from year-end 2003. The Company maintains a very short
duration investment portfolio of fixed income securities and
therefore, the negative effect of rising interest rates and the
resulting unrealized loss in value of those securities has a much
reduced effect on the Company's shareholders' equity. Conversely, if
rates continue to rise, this will provide the Company with
opportunities to rapidly extend durations and allow investment income
to continue to grow substantially.
As of June 30, 2004, total investments surpassed $2.0 billion for
the first time in the Company's history; total assets were $5.3
billion; book value per share increased 7% to $17.46 despite a $0.22
per share reduction in unrealized investment gains from the Company's
fixed-income investment portfolio; and the Company's debt to total
capital ratio reduced to 22.2%; all compared to December 31, 2003. See
attached tables.
HCC will hold an open conference call beginning at 4:00 p.m. (CDT)
on Tuesday, August 3, to discuss these results. To participate, the
number for domestic calls is 888-806-9459 and the number for
international calls is 703-871-3093. 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, August 10, 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 has
assets of $5.3 billion, shareholders' equity of over $1.1 billion and
is rated AA (Very Strong) by Standard & Poor's and A+ (Superior) by
A.M. Best Company.
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
June 30, 2004
(amounts in thousands, except per share data)
Three Months Ended June 30, 2004 2003
---------------------------------------------- ----------- -----------
Gross written premium $521,190 $477,279
Net written premium 308,861 251,091
Net earned premium 252,070 183,492
Fee and commission income 46,102 38,063
Net investment income 14,967 11,868
Other operating income 4,080 4,240
Total revenue 317,270 237,868
Net earnings 46,415 32,968
Earnings per share (diluted) 0.71 0.52
Cash flow from operations 112,769 97,401
Weighted average shares outstanding (diluted) 65,686 63,990
GAAP net loss ratio 58.7% 65.4%
GAAP combined ratio 86.3% 89.1%
June 30, December
2004 31, 2003
-----------------------
Total investments $2,001,452 $1,703,346
Total assets 5,285,274 4,864,296
Shareholders' equity 1,128,690 1,046,920
Debt to total capital 22.2% 22.9%
Book value per share $17.46 $16.37
HCC Insurance Holdings, Inc.
Financial Highlights
June 30, 2004
(amounts in thousands, except per share data)
Six Months Ended June 30, 2004 2003
---------------------------------------------- ----------- -----------
Gross written premium $980,771 $856,727
Net written premium 544,816 443,592
Net earned premium 469,133 345,914
Fee and commission income 89,945 63,715
Net investment income 29,402 22,865
Other operating income 6,239 5,134
Total revenue 595,288 437,812
Net earnings 90,983 56,735
Earnings per share (diluted) 1.39 0.89
Cash flow from operations 213,634 199,272
Weighted average shares outstanding (diluted) 65,557 63,667
GAAP net loss ratio 58.4% 63.6%
GAAP combined ratio 85.0% 88.9%
June 30, December
2004 31, 2003
----------- -----------
Total investments $2,001,452 $1,703,346
Total assets 5,285,274 4,864,296
Shareholders' equity 1,128,690 1,046,920
Debt to total capital 22.2% 22.9%
Book value per share $17.46 $16.37
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited, in thousands, except per share data)
June 30, December
2004 31, 2003
----------- -----------
ASSETS
Investments:
Fixed income securities, at market
(cost: 2004 - $1,395,833; 2003 -
$1,134,128) $1,401,867 $1,164,166
Marketable equity securities, at market
(cost: 2004 - $12,007; 2003 - $12,007) 12,055 12,002
Short-term investments, at cost, which
approximates market 570,024 518,482
Other investments, at cost, which
approximates fair value 17,506 8,696
----------- -----------
Total investments 2,001,452 1,703,346
Cash 37,968 96,416
Restricted cash and cash investments 188,087 210,301
Premium, claims and other receivables 969,851 899,031
Reinsurance recoverables 985,677 916,190
Ceded unearned premium 301,193 291,591
Ceded life and annuity benefits 75,412 77,548
Deferred policy acquisition costs 136,584 106,943
Goodwill 400,795 386,507
Other assets 188,255 176,423
----------- -----------
Total assets $5,285,274 $4,864,296
=========== ===========
LIABILITIES
Loss and loss adjustment expense payable $1,720,050 $1,535,288
Life and annuity policy benefits 75,412 77,548
Reinsurance balances payable 269,842 296,916
Unearned premium 705,572 592,311
Deferred ceding commissions 88,311 88,129
Premium and claims payable 797,450 745,559
Notes payable 322,396 310,404
Accounts payable and accrued liabilities 177,551 171,221
----------- -----------
Total liabilities 4,156,584 3,817,376
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; 250.0 million
shares authorized (shares issued and
outstanding: 2004 - 64,643; 2003 - 63,964) 64,643 63,964
Additional paid-in capital 463,937 447,671
Retained earnings 590,458 509,159
Accumulated other comprehensive income 9,652 26,126
----------- -----------
Total shareholders' equity 1,128,690 1,046,920
----------- -----------
Total liabilities and shareholders'
equity $5,285,274 $4,864,296
=========== ===========
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(unaudited, in thousands, except per share data)
For the six For the three
months ended months ended
June 30, June 30,
2004 2003 2004 2003
--------- --------- --------- ---------
REVENUE
Net earned premium $469,133 $345,914 $252,070 $183,492
Fee and commission income 89,945 63,715 46,102 38,063
Net investment income 29,402 22,865 14,967 11,868
Net realized investment gain 569 184 51 205
Other operating income 6,239 5,134 4,080 4,240
--------- --------- --------- ---------
Total revenue 595,288 437,812 317,270 237,868
EXPENSE
Loss and loss adjustment
expense, net 273,762 220,112 147,898 120,080
Operating expense:
Policy acquisition costs,
net 98,641 65,964 55,422 34,001
Compensation expense 46,438 38,611 23,625 19,865
Other operating expense 33,175 26,038 17,796 12,939
--------- --------- --------- ---------
Total operating expense 178,254 130,613 96,843 66,805
Interest expense 3,958 3,596 1,746 1,914
--------- --------- --------- ---------
Total expense 455,974 354,321 246,487 188,799
--------- --------- --------- ---------
Earnings from continuing
operations before
income tax
provision 139,314 83,491 70,783 49,069
Income tax provision from
continuing operations 48,132 30,037 24,403 17,955
--------- --------- --------- ---------
Earnings from continuing
operations 91,182 53,454 46,380 31,114
Earnings (loss) from
discontinued operations,
net of income taxes
(benefit) of $(110),
$1,905, $36 and $1,165 (199) 3,281 35 1,854
--------- --------- --------- ---------
Net earnings $90,983 $56,735 $46,415 $32,968
========= ========= ========= =========
Basic earnings per share data:
Earnings from continuing
operations $1.42 $0.85 $0.72 $0.49
Earnings (loss) from
discontinued operations (0.01) 0.05 -- 0.03
--------- --------- --------- ---------
Net earnings $1.41 $0.90 $0.72 $0.52
========= ========= ========= =========
Weighted average shares
outstanding 64,399 62,753 64,538 62,867
========= ========= ========= =========
Diluted earnings per share
data:
Earnings from continuing
operations $1.39 $0.84 $0.71 $0.49
Earnings from discontinued
operations -- 0.05 -- 0.03
--------- --------- --------- ---------
Net earnings $1.39 $0.89 $0.71 $0.52
========= ========= ========= =========
Weighted average shares
outstanding 65,557 63,667 65,686 63,990
========= ========= ========= =========
Cash dividends declared, per
share $0.15 $0.13 $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 six For the three
months ended months ended
June 30, June 30,
2004 2003 2004 2003
--------- --------- --------- ---------
Cash flows from operating
activities:
Net earnings $90,983 $56,735 $46,415 $32,968
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Change in premium, claims
and other receivables (65,155) (169,946) 37,833 (107,729)
Change in reinsurance
recoverables (64,772) (64,084) (21,154) (17,052)
Change in ceded unearned
premium (6,642) (65,813) 1,724 (41,382)
Change in loss and loss
adjustment expense
payable 169,225 149,833 75,602 70,912
Change in reinsurance
balances payable (28,803) 64,265 (28,840) 35,430
Change in unearned
premium 86,183 166,720 58,551 110,496
Change in premium and
claims payable, net of
restricted cash 74,105 58,845 (23,340) 18,965
Depreciation and
amortization expense 7,368 5,564 3,978 2,588
Other, net (48,858) (2,847) (38,000) (7,795)
--------- --------- --------- ---------
Cash provided by
operating activities 213,634 199,272 112,769 97,401
Cash flows from investing
activities:
Sales of fixed income
securities 133,694 123,181 30,602 27,952
Maturity or call of fixed
income securities 72,340 69,086 39,224 41,728
Sales of equity securities 4,671 1,165 4,371 182
Other proceeds -- 16,846 -- 16,846
Change in short-term
investments (8,807) (89,563) 50,238 58,636
Cost of securities acquired (406,263) (407,875) (192,909) (243,638)
Payments for purchase of
subsidiaries, net of
cash received (71,038) (4,079) (27,731) (4,079)
Other, net 72 (3,135) (2,194) (1,612)
--------- --------- --------- ---------
Cash used by investing
activities (275,331) (294,374) (98,399) (103,985)
Cash flows from financing
activities:
Issuance of notes payable,
net of costs 2,000 134,845 2,000 --
Sale of common stock 13,070 11,969 3,146 8,238
Payments on notes payable (2,185) (67,622) (2,094) (95)
Dividends paid (9,636) (8,137) (4,836) (4,076)
--------- --------- --------- ---------
Cash provided (used)
by financing activities 3,249 71,055 (1,784) 4,067
--------- --------- --------- ---------
Net change in cash (58,448) (24,047) 12,586 (2,517)
Cash at beginning of
period 96,416 40,306 25,382 18,776
--------- --------- --------- ---------
Cash at end of period $37,968 $16,259 $37,968 $16,259
========= ========= ========= =========
HCC Insurance Holdings, Inc.
Insurance Company Premium
June 30, 2004
($ in thousands)
2nd Qtr 2nd Qtr Change
2004 2003 %
----------- ----------- -----------
GROSS WRITTEN
Group life, accident & health $147,201 $144,162 2%
Diversified financial products 220,797 143,106 54
London market account 60,644 79,434 (24)
Aviation 53,860 64,429 (16)
Other specialty lines 32,974 5,381 nm
----------- ----------- -----------
515,476 436,512 18%
Discontinued lines 5,714 40,767 nm
----------- ----------- -----------
$521,190 $477,279 9%
=========== =========== ===========
NET WRITTEN
Group life, accident & health $83,345 $81,168 3%
Diversified financial products 96,306 48,907 97
London market account 49,169 65,322 (25)
Aviation 54,131 30,525 77
Other specialty lines 19,904 2,183 nm
----------- ----------- -----------
302,855 228,105 33%
Discontinued lines 6,006 22,986 nm
----------- ----------- -----------
$308,861 $251,091 23%
=========== =========== ===========
NET EARNED PREMIUM
Group life, accident & health $80,501 $75,526 7%
Diversified financial products 73,714 26,512 178
London market account 35,408 37,081 (5)
Aviation 32,998 24,355 35
Other specialty lines 15,720 153 nm
----------- ----------- -----------
238,341 163,627 46%
Discontinued lines 13,729 19,865 nm
----------- ----------- -----------
$252,070 $183,492 37%
=========== =========== ===========
HCC Insurance Holdings, Inc.
Insurance Company Premium
June 30, 2004
($ in thousands)
Year to Date Year to Date Change
2004 2003 %
------------ ------------ --------
GROSS WRITTEN
Group life, accident & health $293,855 $283,482 4%
Diversified financial products 391,663 250,426 56
London market account 117,344 140,152 (16)
Aviation 96,993 108,960 (11)
Other specialty lines 63,994 6,845 nm
------------ ------------ --------
963,849 789,865 22%
Discontinued lines 16,922 66,862 nm
------------ ------------ --------
$980,771 $856,727 14%
============ ============ ========
NET WRITTEN
Group life, accident & health $161,312 $157,353 3%
Diversified financial products 167,814 82,214 104
London market account 81,886 102,554 (20)
Aviation 75,081 51,204 47
Other specialty lines 38,809 2,222 nm
------------ ------------ --------
524,902 395,547 33%
Discontinued lines 19,914 48,045 nm
------------ ------------ --------
$544,816 $443,592 23%
============ ============ ========
NET EARNED PREMIUM
Group life, accident & health $159,890 $147,509 8%
Diversified financial products 130,113 44,818 190
London market account 61,522 66,457 (7)
Aviation 57,267 48,237 19
Other specialty lines 28,291 207 nm
------------ ------------ --------
437,083 307,228 42%
Discontinued lines 32,050 38,686 nm
------------ ------------ --------
$469,133 $345,914 36%
============ ============ ========
HCC Insurance Holdings, Inc.
Consolidated Insurance Companies
Net Loss Ratios
June 30, 2004
($ in thousands)
Year to Date 2004 Full Year 2003
Net Net
Line of Earned Actual Loss Earned Actual Loss
Business Premium Losses Ratio Premium Losses Ratio
--------------- -------------------------- --------------------------
Group life,
accident &
health $159,890 $100,248 62.7% $290,009 $178,561 61.6%
Diversified
financial
products 130,113 59,461 45.7 123,562 59,112 47.8
London market
account 61,522 27,976 45.5 137,572 73,254 53.2
Aviation 57,267 33,826 59.1 97,536 59,952 61.5
Other specialty
lines 28,291 17,091 60.4 12,443 7,728 62.1
-------------------------- --------------------------
437,083 238,602 54.6 661,122 378,607 57.3
Discontinued
lines 32,050 35,160 109.7 77,150 110,045 142.6
-------------------------- --------------------------
Total $469,133 $273,762 58.4% $738,272 $488,652 66.2%
========================== ==========================
CONTACT: HCC Insurance Holdings, Inc., Houston
L. Byron Way, 713-690-7300
www.hcch.com
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: August 3, 2004 HCC INSURANCE HOLDINGS, INC.
By: /s/ Christopher L. Martin
----------------------------------------
Christopher L. Martin
Executive Vice President
and General Counsel