Harleysville Aims For Improvement

Harleysville Aims For Improvement

By Mark E. Ruquet

NU Online News Service, July 29, 4:28 p.m. EDT?Harleysville Group Inc. reported a slight decrease in second-quarter net income compared to last year, but has more than doubled its earnings for the first half of 2004.[@@]

For the second quarter of this year, Harleysville reported net income shrank by about three percent, or $340,000, to $9.7 million, or 32 cents a share, compared to $10.1 million, or 33 cents a share, in 2003. Revenues increased more than 1 percent, or less than $3.3 million, going from $229.5 million to $232.8 million.

Michael L. Browne, chief executive officer of the Harleysville, Pa., insurer, said the second-quarter performance of 32 cents a share in net income was an improvement over the first quarter's 28 cents a share. Commercial lines premium grew by four percent in the quarter, credited to good retention and growth of new business, compared to a 1 percent decline in the first quarter.

The company was hurt in 2003 by a posting to loss reserves in the fourth quarter of $42 million, which resulted in a reported net loss of $19.8 million for the quarter and downgrades in its ratings.

"The news from last year that adversely impacted our first-quarter growth is fading and we are starting to build momentum," Mr. Browne declared.

During the first six months, the company reported net income increased 284 percent, or $19.4 million, from $6.8 million, or 23 cents a share, to $26.2 million, or 87 cents a share. Revenues rose more than 5 percent, or $24.6 million, from $454 million to $479 million.

After bringing in a consultant to review its business in the wake of last year's performance, Mr. Browne said it found the basic book of business is sound, but its basic underwriting within individual offices was inconsistent. The review found the company could have secured better pricing in some lines and is moving to become more consistent in this area.

Mr. Browne said Harleysville has hired additional field underwriting managers to work directly with independent agents on commercial and personal lines, but is eliminating 140 positions through attrition. Eighty have already retired, he said, resulting in a severance payment of $700,000, and the company aims to eliminate 60 more positions this year. Most of the elimination came in the claims area, which is impacted by a decrease in exposure in some business lines.

Harleysville has dropped its exposure in the workers' compensation line from 22 percent of its book two years ago to 12 percent of its total book or 15 percent of its commercial book, according to the company.

Harleysville statutory combined ratio for commercial and personal lines came in at 105.4 percent in the second quarter, compared to 105.2 percent for the same period in 2003. For the six months, the ratio dropped from 110.2 percent to 106.3 percent in 2004, helped by a combination of mild weather, which reduced losses, and repositioning of its book.

Mr. Browne said the company is going through an extensive strategic review, which it would discuss with analysts in November, but that there would be not surprises.

"We realize we have a long way to go to restore our company to the past high levels of performance," Mr. Browne observed.