Pennsylvania-based Harleysville Group Inc. reported strong fourth quarter and full-year 2002 results, citing continuing improvements in its underwriting profitability and solid growth in its small commercial business.
Diluted net income per share for the fourth quarter of 2002 was $0.57, versus $0.50 in the fourth quarter of 2001, a gain of 14 percent. On a per share basis, the company had $0.04 of realized investment gains in the fourth quarter of 2002, compared to $0.10 in the fourth quarter of 2001. For the 12 months, diluted net income per share was $1.53 in 2002, compared to $1.46 in 2001. Realized investment losses amounted to $0.39 per share and $0.07 per share in 2002 and 2001, respectively.
“Harleysville Group’s outstanding performance for the quarter and the full year clearly reflect the traction of our small commercial business strategy. Our statutory combined ratio of 101.9 percent for the year will outdistance A.M. Best’s 2002 industry estimate by nearly four points,” commented Walter Bateman, Harleysville Group’s chairman and CEO, said. “In commercial lines, premiums rose 16 percent for the year and we generated sub-100 percent combined ratios for both the quarter and the year-excellent results produced by our disciplined underwriting execution and a high-quality, closely aligned agency force.”
Diluted operating earnings per share, which exclude the impact of net realized after-tax investment gains and losses that are included in net income, increased 33 percent in the fourth quarter to a record $0.53 in 2002, compared to $0.40 for the same period in 2001. Fourth quarter 2001 operating earnings were reduced by $0.06 per share because of guaranty fund and other assessments resulting from the liquidation of Reliance Insurance Company. For the year, Harleysville Group’s diluted operating earnings per share rose 25 percent to $1.92 in 2002, compared to $1.53 in 2001. Operating earnings for 2001 were reduced by $0.08 per share for losses resulting from the acts of terrorism on September 11, 2001. Excluding Reliance and the events of September 11, operating earnings would have increased 15 percent in both the quarter and the full year.
Harleysville Group’s overall statutory combined ratio was 102.1 percent in the fourth quarter of 2002, an improvement over the 104.8 percent combined ratio reported in the fourth quarter of 2001. The guaranty fund assessments related to Reliance added 1.4 points in the fourth quarter of 2001. For the year, the statutory combined ratio was 101.9 percent, compared to 104.2 percent in 2001. The impact of Reliance and the events of Sept. 11 added 0.9 points to 2001’s combined ratio.
“Our triangular business discipline-emphasizing underwriting, pricing adequacy and agency management-has delivered steady improvement in our year-end combined ratio from the 107.8 percent we reported in 1999 before we initiated this three-pronged approach to our business,” Bateman explained.
Fourth quarter net written premiums rose 9 percent to $191.1 million in 2002, while net written premiums for the year increased by 7 percent to $797.9 million. Excluding those markets where Harleysville has intentionally reduced personal lines volume, net written premiums grew by 10 percent in both the fourth quarter of 2002 and the full year.
Fourth quarter pretax investment income declined 1 percent to $21.5 million in 2002, while 12-month pretax investment income increased 1 percent to $86.3 million. After-tax investment income essentially was unchanged for both the fourth quarter and the year at $16.4 million and $65.6 million, respectively.
Commercial lines – Net written premiums rose 14 percent in the fourth quarter to $140.8 million and grew 16 percent for the year, finishing at $596.1 million. The increase in written premiums primarily reflects the result of higher pricing. The commercial lines combined ratio was 98.7 percent in the fourth quarter of 2002, a three point improvement compared to the 101.7 percent reported in the fourth quarter of 2001. For the year, the combined ratio was 99.5 percent in 2002, versus 100.0 percent in 2001.
“We have now achieved 11 consecutive quarters of double-digit premium increases and are driving an underwriting profit in commercial lines,” Bateman noted.
Personal lines – The company’s personal lines combined ratio was 112.2 percent in the fourth quarter of 2002, versus 112.0 percent during the fourth quarter of 2001. For the year, the combined ratio improved five points to 108.1 percent in 2002 from 113.1 percent in 2001. For the quarter, net written premiums declined by 4 percent to $50.3 million in 2002 and were down by 13 percent to $201.8 million for the year, the result of the company’s focus on profitable segments.
“Overall, we have a strong balance sheet, a clear strategy and our fundamentals are solid,” Bateman concluded. “Looking ahead, we believe operating earnings per share estimates in the $2.15 to $2.25 range are reasonable for 2003.”
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