Harleysville Cites Improved Second Quarter

July 29, 2004

Harleysville Group Inc. (Nasdaq: HGIC ) in Harleysville, Pa., reported net income of $0.32 per share in the second quarter of 2004, compared to $0.33 per share in the second quarter of 2003. For the six months ended June 30, 2004 and 2003, net income per share was $0.87 and $0.23, respectively. There were no realized investment gains or losses in the second quarter of either year.

Second quarter net written premiums were $223.1 million in 2004, compared to $222.6 million in 2003. Net written premiums through six months were $429.1 million in 2004 and $437.8 million in 2003.

Second quarter pretax investment income declined one percent to $21.4 million, while six-month pretax investment income was unchanged at $43.1 million.

Harleysville Group’s overall statutory combined ratio was 105.4 percent in the second quarter of 2004, compared to 105.2 percent in the second quarter of 2003. For the six months, the statutory combined ratio was 106.3 percent in 2004, versus 110.2 percent in 2003. In 2003, the workers compensation reserve adjustment added 4.9 points to the six-month combined ratio.

There was no significant net reserve development in the first six months of 2004. In 2003, the company’s six-month earnings were reduced by $0.43 per share after tax due to a first quarter workers compensation reserve adjustment.

“We’ve made progress and again improved our results this quarter over the prior quarter, and we’re confident we’re on a course that will lead us to sustainable long-term growth and profitability,” commented Michael L. Browne, Harleysville Group’s chief executive officer. “We continue to focus on improving our four cornerstone areas-underwriting, claims handling, service to agents and policyholders, and productivity-as we strive to return our company to its past high levels of financial performance.”

Commercial lines net written premiums in commercial lines increased four percent in the second quarter of 2004 to $180.0 million. For the six months, net written premiums were up one percent to $348.2 million. The commercial lines statutory combined ratio was 106.7 percent in the second quarter of 2004, versus 101.7 percent in the second quarter of 2003. For the six months, the statutory combined ratio was 105.7 percent in 2004, compared to 107.8 percent in 2003. In 2003, the workers compensation reserve adjustment added 6.6 points to the six-month commercial lines statutory combined ratio.

Harleysville Group’s personal lines statutory combined ratio was 100.6 percent in the second quarter of 2004, versus 115.8 percent during the second quarter of 2003. For the six months, the statutory combined ratio was 108.4 percent in 2004, compared to 117.5 percent in 2003. In 2003, weather-related losses and abnormally high large loss activity in the homeowners line also contributed to the higher statutory combined ratio. Net written premiums decreased 13 percent to $43.1 million in the second quarter of 2004, and were down 14 percent to $80.9 million through six months.

“Harleysville Group has a good capital base and a strong balance sheet, a great franchise, employees who are focused on making us succeed, and strong relationships with a solid and loyal network of independent agents,” said Browne. “Looking forward, we have turned our attention to fine-tuning our commercial and personal lines business strategies to deliver the consistent growth and profitability that we seek.”

Harleysville distributes its products through independent insurance agencies, currently operates in 32 eastern and midwestern states.

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