Harleysville Premiums Up 5% in Q4; Combined Ratio 98.5%

February 20, 2009

Pennsylvania-based Harleysville Group Inc. (NASDAQ:HGIC) reported fourth quarter net written premiums increased 5 percent to $214.5 million in 2008, compared to $203.6 million in the same period in 2007.

Net written premiums through 12 months were $904.4 million in 2008, excluding the non-recurring impact of the pooling change, compared to $838.0 million in 2007.

Harleysville Group’s overall statutory combined ratio was 98.5 percent in the fourth quarter of 2008, compared to 96.4 percent in the fourth quarter of 2007. Catastrophe losses added 1.3 points to the fourth quarter result in 2008, compared to 0.7 points in 2007. For the 12 months, the statutory combined ratio was 100.3 percent in 2008, versus 96.7 percent in 2007. Catastrophe losses added 3.8 points to the 12-month result in 2008 and 1.1 points in 2007.

Fourth quarter pretax investment income increased 1 percent to $28.2 million, while after-tax investment income grew 4 percent in the fourth quarter to $20.9 million. For the 12 months, pretax investment income was up 2 percent to $113.6 million, while after-tax investment income rose 5 percent to $83.2 million.

Net written premiums in commercial lines increased 3 percent to $174.4 million in the fourth quarter of 2008. For the 12 months, net written premiums grew 7 percent to $741.6 million. The increases substantially reflect the change in the company’s pooling agreement. previously announced, on January 1, 2008, Harleysville Group and Harleysville Mutual Insurance Company amended their intercompany pooling arrangement to increase the aggregate share of the pool for the insurance subsidiaries of Harleysville Group to 80 percent from 72 percent. Excluding the impact of the change to the pooling percentage, net written premiums declined 7 percent in the quarter and 4 percent in the 12 months of 2008.

The commercial lines statutory combined ratio was 98.4 percent in the fourth quarter of 2008, versus 97.5 percent in the fourth quarter of 2007. For the 12 months, the statutory combined ratio—adjusted for the non-recurring impact of the pooling change—was 100.9 percent in 2008, compared to 97.5 percent in 2007. Catastrophe losses in 2008 added 0.8 points and 2.9 points to the fourth quarter and 12-month combined ratios, respectively.

Net written premiums in personal lines were up 15 percent to $40.1 million in the fourth quarter of 2008, and grew by 12 percent to $162.8 million for the 12 months—again driven substantially by the pooling change. Excluding the impact of the change to the pooling percentage, net written premiums increased 3 percent in the quarter and 1 percent in the 12 months of 2008. Harleysville Group’s personal lines statutory combined ratio was 99.0 percent in the fourth quarter of 2008, versus 91.5 percent during the fourth quarter of 2007. For the 12 months, the statutory combined ratio—adjusted for the non-recurring impact of the pooling change—was 100.1 percent in 2008, compared to 92.7 percent in 2007. Catastrophe losses in 2008 added 3.4 points and 7.7 points to the fourth quarter and 12-month combined ratios, respectively.

“We’re pleased that we ended 2008 with another strong quarter, which continues to differentiate Harleysville from much of our competition,” commented Michael L. Browne, Harleysville Group’s president and chief executive officer. “Despite the challenging economic conditions, we reported operating income of $0.87 per share, our combined ratio for the quarter was a profitable 98.5 percent and our operating return on equity for the trailing 12 months was 11.9 percent.

“Excluding the impact of the catastrophe losses from this year and last year, our underlying operating income per share for the full year improved compared to 2007, and our underlying statutory combined ratio remained below 100 percent—both of which indicate that we continue to perform well in the fundamental areas of our business, which include maintaining our underwriting discipline in an extremely competitive environment,” Browne added.

“Also, despite current market conditions, our policy retention levels have remained strong due to the close relationships we enjoy with our agency partners, and we have a solid capital base and reserve position, as well as a high-quality investment portfolio—all of which provide the sound financial position for us to write our agents’ best business.

“Looking ahead, we will remain focused on the basics of our business as we seek to consistently produce improving earnings, profitable underwriting and an operating return on equity over 12 percent—while always maintaining a healthy balance sheet,” Browne said. “The current economic environment and the ongoing competitive insurance marketplace make it all the more important that we remain disciplined as we focus on our goal of maintaining a long-term underwriting profit and ongoing improvement in our operating performance throughout 2009 and beyond.”

Source: Harleysville,
www.harleysvillegroup.com

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