Pennsylvania’s Harleysville Group Inc. (HGIC) announced that it is increasing loss reserves for prior accident years by $42 million pre-tax, or $0.92 per share after tax, in the fourth quarter of 2003, reflecting reserve increases primarily in four business lines.
The company said that as a result it will report a diluted net loss per share in the range of $0.64 to $0.68 in the fourth quarter of 2003 and a diluted net loss per share in the range of $1.57 to $1.61 for the full year 2003. It added that there were “essentially no realized investment gains or losses in the fourth quarter of 2003,” and that it had “diluted net income of $0.57 per share in the fourth quarter of 2002, which included realized investment gains of $0.04 per share, and diluted net income of $1.53 per share in 2002. For the full year, 2003 results included realized investment losses of $0.02 per share, compared to $0.39 per share of realized losses in 2002.”
HGIC said the “fourth quarter 2003 estimate reflects additions to the company’s loss and loss adjustment reserves for prior accident years, primarily in its workers compensation, commercial automobile liability, commercial multi-peril and personal automobile liability lines of business. The company stated that about two-thirds of the reserve development relates to the 1999 through 2001 accident years.”
Standard & Poor’s issued a bulletin indicating that it “is not taking any rating action on HGIC as a result of this announcement.” S&P said the “additional reserve strengthening was not a complete surprise,” as it had “expected the insurance operations to continue to identify weakness in its reserves.” It added that the magnitude of the charge is within its expectations and expressed the opinion that it “will still allow HGIC to maintain capital at a level appropriate for the rating.”
S&P added that it believes “the company maintains an adequate cushion to sustain further reserve increases of up to 5 percent of it is current $1.2 billion loss and loss expense reserve base. Any development on reserves beyond 5 percent of the reserve base would prompt Standard & Poor’s to re-evaluate the ratings.”
S&P currently rates HGIC as “BBB” with a negative outlook. The rating agency explained the negative outlook as based on “expectations that reserve adjustment to prior accident years might continue.” It added, however that it believes that the company does maintain adequate liquidity to service interest on its $100 million, 5.75% senior unsecured notes due July 15, 2013, by way of cash on hand and fees derived from the management of the insurance operations. The company maintains about two years of cash on hand to service debt.”
HGIC will release its fourth quarter and full year 2003 results on Tuesday, February 17, prior to the start of regular trading on the NASDAQ Stock Market. Michael L. Browne, Harleysville’s CEO, will host a live Webcast at 9:00 a.m. (ET) that day to discuss the results. The Webcast will be available from the Investors section of the company’s Web site (www.harleysvillegroup.com). An archive of the presentation will be available until February 17, 2005, on the company’s site.
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