HOUSTON, Feb. 24, 2009 (GLOBE NEWSWIRE) -- HCC Insurance Holdings, Inc. (NYSE:HCC) today released earnings for the fourth quarter and full year ended December 31, 2008.
"HCC produced stellar results despite the financial meltdown and multiple hurricanes during the year. Our 2008 return on average equity of 12.0 percent is within the range of results we would expect over an entire insurance cycle with a target of generating a 15.0 percent average annual return. Our return on average equity for the last five years is on target at 14.9 percent," HCC Chief Executive Officer Frank J. Bramanti said.
Despite 2008's tremendous volatility, book value per share increased 9.7 percent during the year from $21.21 to $23.27 after declared regular dividends totaling $0.47 per share. 2008 was the 12th consecutive year in which HCC raised its dividend. Book value per share rose 5.2 percent to $23.27 for the fourth quarter of 2008, compared to $22.13 a share on September 30, 2008.
The Company's GAAP combined ratio for the fourth quarter of 2008 was 85.6 percent, compared to 85.1 percent for the fourth quarter of 2007. The GAAP combined ratio for the full year of 2008 was 85.4 percent, versus 83.4 percent for 2007. The effect of 2008 hurricanes added 1.2 percentage points to HCC's GAAP combined ratio for the 2008 full year.
Net earnings for the fourth quarter of 2008 were $72.3 million, compared to $99.6 million for the fourth quarter of 2007. Net earnings per diluted share were $0.63 for the fourth quarter of 2008, versus $0.85 for the same quarter of 2007. Net earnings for the full year of 2008 were $304.8 million, compared to $395.4 million for the 2007 full year. Net earnings per diluted share were $2.64 for 2008, versus $3.38 for 2007.
On June 20, 2008, the HCC Board of Directors authorized a $100.0 million share repurchase plan. The Company has repurchased 3.0 million shares for a total of $63.3 million at an average cost of $21.02 per share through December 31, 2008. This represents a 9.7 percent discount to book value per share at December 31, 2008.
"HCC has repurchased its stock only when the share price fell below book value and, consequently, there was a clear benefit to shareholders in doing so. Because of this careful approach, the Company moves into 2009 in a strong capital position with substantial liquidity," Mr. Bramanti said.
Gross written premium of HCC's insurance company subsidiaries increased to $611.2 million for the fourth quarter of 2008, compared to $593.4 million for the same quarter of 2007, a 3.0 percent increase. Net written premium increased to $504.2 million during the 2008 fourth quarter, compared to net written premium of $485.1 million for the 2007 fourth quarter, a 3.9 percent increase. Net earned premium for the fourth quarter of 2008 was $502.6 million, versus net earned premium of $500.2 million for the same quarter of 2007.
Gross written premium of HCC's insurance company subsidiaries of $2.5 billion was a 1.9 percent increase for the full year of 2008, compared to 2007, while net written premium of $2.1 billion was up 3.8 percent, compared to 2007. Net earned premium of $2.0 billion for the 2008 full year was essentially flat.
During the fourth quarter of 2008, HCC had net positive prior year reserve development of $24.0 million, compared to net positive prior year reserve development of $7.0 million for the same period of 2007. For the full year of 2008, the Company recorded $82.4 million of net positive prior year reserve development, versus net positive prior year reserve development of $26.4 million for 2007. In addition, during 2008 the Company increased its 2008 accident year loss picks, primarily on its directors' and officers', surety and credit lines of business, adding $57 million to reserves in excess of its initial loss picks.
"Our prior year reserves continue to develop favorably. We have increased our loss picks during 2008 on certain lines of business most directly impacted by the economic turmoil we are experiencing, and are maintaining our conservative reserving posture in light of these economic difficulties," Mr. Bramanti said.
Investment income decreased during 2008, compared to 2007. This was primarily caused by the performance of HCC's alternative investment portfolio, which had losses of $30.8 million in 2008, versus income of $23.9 million in 2007. Short term interest rates fell dramatically during 2008, further reducing investment income.
HCC's fixed income securities generated $45.2 million in investment income in the 2008 fourth quarter, versus $41.2 million in the 2007 fourth quarter; and $174.7 million for the full year of 2008, compared to $150.6 million for the 2007 full year. The Company's fixed income investments increased 16.1 percent from December 31, 2007, to $4.3 billion at December 31, 2008.
As of December 31, 2008, HCC's fixed income securities portfolio had an average rating of AA+, an average duration of 4.8 years and an average tax equivalent yield of 5.2 percent. The Company realized investment losses of $9.2 million in the fourth quarter of 2008 and $27.9 million in full year 2008, including $5.0 million and $11.1 million respectively for securities that had an other-than-temporary impairment in value. HCC held $9.9 million of subprime-related and Alt-A securities, which had an average rating of AA+, and owned no CDO or CLO securities. HCC has never been a counterparty to any credit default swap.
"Our investment portfolio performed quite well in 2008's volatile marketplace. In keeping with HCC's conservative investment philosophy, however, the decision was made to eliminate volatility from the Company's investments by exiting equity and equity-related investments, including hedge funds and other alternative investments, and reinvesting those funds in fixed income securities. That process is now essentially complete," Mr. Bramanti said.
As of December 31, 2008, total investments were $4.8 billion, total assets were $8.3 billion, shareholders' equity was $2.6 billion and the Company's debt to total capital ratio remained very conservative at 11.6 percent.
EARNINGS GUIDANCE: HCC's management estimates the Company will achieve net earnings of $2.65 to $2.85 per share for the full year of 2009. These estimated results for the 2009 full year assume the following: gross written premium of $2.5 billion; net written premium of $2.1 billion; total revenue of $2.3 billion; a combined ratio of 86.5 percent; average fully diluted shares outstanding of 118.2 million; and do not include any provision for catastrophe losses, capital gains or losses or changes in carrying values of assets.
See attached tables for further information about HCC's quarter and year-to-date financial results.
HCC will hold an open conference call beginning at 8:00 a.m. Central Standard Time on Wednesday, February 25. To participate, the number for domestic calls is (800) 374-0290 and the number for international calls is (706) 634-1061. In addition, there will be a live webcast available on a listen-only basis that can be accessed through the HCC website at www.hcc.com.
Headquartered in Houston, Texas, HCC Insurance Holdings, Inc. (HCC) is a leading international specialty insurance group with offices across the United States and in Bermuda, Ireland, Spain and the United Kingdom. HCC has assets of $8.3 billion, shareholders' equity of $2.6 billion and is rated AA (Very Strong) by Standard & Poor's and AA (Very Strong) by Fitch Ratings. In addition, HCC's major domestic insurance companies are rated A+ (Superior) by A.M. Best Company.
For more information, visit our website at www.hcc.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.
Barney White, Vice President of Investor Relations
Telephone: (713) 744-3719
HCC Insurance Holdings, Inc.