HARLEYSVILLE, Pa.–(BUSINESS WIRE)–Harleysville Group Inc. (NASDAQ: HGIC) today reported diluted operating income of $0.76 per share for the fourth quarter of 2010, compared to $0.84 per share in the fourth quarter of 2009. Catastrophe losses incurred during the fourth quarter of 2010 reduced operating income by $0.07 per share after taxes, compared to no catastrophe losses per share in the fourth quarter of 2009. For the 12-month periods, the company reported diluted operating income of $2.41 per share in 2010 and $3.02 per share in 2009. Catastrophe losses incurred during the 12 months of 2010 reduced operating income by $0.84 per share after taxes, compared to catastrophe losses of $0.14 per share in the 12 months of 2009. Operating income is a non-GAAP financial measure defined by the company as net income excluding after-tax realized gains and losses on investments. See below for the company’s reported GAAP net income.
“We had a solid performance in the fourth quarter and in 2010 overall as we continued to successfully execute our strategy to focus on the basics of our business—underwriting, claims, service and productivity,” commented Michael L. Browne, Harleysville Group’s president and chief executive officer. “We again were encouraged by the fact that our premium volume increased as a result of the successful execution of our targeted strategy to grow our small commercial and personal lines business, where pricing is stronger than in commercial middle-market business. Much of this growth is due to the new technology we’ve introduced that makes it easier for our agents to do business with us. Overall policy retention remained strong in both commercial and personal lines, a sign of the continued strength of our franchise. Our agents continue to be very loyal to Harleysville, and we are confident that the strength of those relationships will continue to serve as a differentiator for us in the market.
“Our balance sheet remains very strong, while our balanced capital management strategy continues to differentiate us from many of our competitors,” Browne continued. “During the quarter we paid a special cash dividend of $1.44 per share—which represents the amount of our current annualized dividend—in addition to our regular quarterly cash dividend of $0.36 per share. This special dividend is another example of our commitment to managing capital efficiently. Since June 2007, we have returned more than $375 million of our capital to our shareholders via dividends and the six stock repurchase programs that have amounted to 20 percent of our outstanding shares. Our ability to continue increasing our dividend and buying back shares reflects our financial strength, which is evidenced by a high-quality investment portfolio, a strong capital base and reserve position, a debt-to-capital ratio of 15 percent1, and a premium-to-surplus ratio of 1.3 to 1. In addition, our consolidated surplus—including Harleysville Mutual Insurance Company—stands at $1.3 billion, and we generated $170 million in surplus in 2010. This solid foundation positions us to continue to be a strong and stable market for our agents’ best business and to generate long-term profitability.”
The company reported diluted net income of $0.76 per share in the fourth quarter of 2010, compared to $0.86 per share in the fourth quarter of 2009. There were negligible realized investment gains after tax in the fourth quarter of 2010, compared to after-tax investment gains of $0.02 per share in 2009. For the 12-month periods, diluted net income was $2.42 per share in 2010 and $3.07 per share in 2009. For the 12 months, the company reported after-tax investment gains of $0.01 per share in 2010, compared to after-tax investment gains of $0.05 per share in 2009.
The company’s fourth quarter net written premiums increased 4.2 percent to $219.1 million in 2010, compared to $210.2 million in the same period in 2009. Net written premiums through 12 months were up 3.6 percent to $882.1 million in 2010, compared to $851.6 million in 2009.
Harleysville Group’s overall statutory combined ratio was 101.2 percent in the fourth quarter of 2010, compared to 99.1 percent in the fourth quarter of 2009. The company had 1.3 points of catastrophe losses in the fourth quarter of 2010 and negligible catastrophe losses in the fourth quarter of 2009. For the 12 months, the statutory combined ratio was 102.5 percent in 2010, versus 99.8 percent in 2009. Catastrophe losses added 4.1 points to the 12-month result in 2010 and 0.7 points in 2009.
Fourth quarter pretax investment income decreased 4.7 percent to $26.3 million, while after-tax investment income was down 3.1 percent in the fourth quarter to $20.4 million. For the 12 months, pretax investment income declined 3.1 percent to $103.3 million, while after-tax investment income was unchanged at $80.4 million.
Operating cash flow for the 12 months of 2010 was $98.2 million, compared to $105.4 million in the 12 months of 2009.
During the fourth quarter, the company amended its intercompany pooling agreement between Harleysville Group and Harleysville Mutual Insurance Company as it relates to its workers compensation business. The amendment establishes that the financial results associated with workers compensation business for accident years 2011 and following will be retained 100 percent by Harleysville Mutual. At the same time, the financial results of this business for prior accident years will continue to be shared between Harleysville Group and Harleysville Mutual under the existing pool participations.
Commercial lines Net written premiums in commercial lines increased 1.4 percent to $167.4 million in the fourth quarter of 2010. For the 12 months, net written premiums were up 0.7 percent to $679.2 million in 2010. The commercial lines statutory combined ratio was 102.1 percent in the fourth quarter of 2010, versus 99.9 percent in the fourth quarter of 2009. For the 12 months, the statutory combined ratio was 102.3 percent in 2010, compared to 100.7 percent in 2009.
The full earnings release is available here.