Philadelphia Consolidated Net Up 26%, Premiums Soar

Philadelphia Consolidated Holding Corp. reported a 26 percent increase in second-quarter net income Friday afternoon, with an investment gain explaining much of the jump.

Net income was $94.4 million, or $1.27 per share, compared with $74.9 million, or $1.34 per share in last year's second quarter.

Included in net income was a $14.4 million after-tax realized investment gain (19 cents per share) resulting from the liquidation of one of the company's equity security portfolios following a decision by the company to change one investment manager.

Overall, net realized gains were $18.2 million in the quarter, compared with a $1.6 million loss last year.

Operating income, excluding realized gains, was relatively flat at $76.2 million in second-quarter 2007, compared with $76.5 million in second-quarter 2006.

Net investment income (from dividends and interest) grew 31.3 percent to $28.5 million.

The Bala Cynwyd, Pa.-based insurer--which writes mainly commercial package products for niche markets and, to a lesser extent, specialty professional liability policies--also reported that second-quarter earnings got a boost from favorable prior-year reserve development of $13.5 million after taxes. The reserve release added 18 cents per share and took 6.1 points off the second-quarter combined ratio, which came in at 74.2 overall.

In 2006, Philadelphia Consolidated reported an even bigger earnings' contribution from prior-year reserve releases, with $23.2 million of favorable after-tax development adding 32 cents to earnings per share and lowering the combined ratio 12 points to 67.2.

While double-digit growth in second-quarter net income has been a common theme for property-casualty insurers, Philadelphia Consolidated is somewhat unique in reporting double-digit growth in premiums as well. Gross written premiums for the company overall soared 16.7 percent to $398.5 million in the second quarter.

Chief Executive Officer James Maguire Jr. attributed much of the top-line growth to an emphasis on small accounts, adding that both existing and new products fueled growth for the quarter and the year to date.

"We're seeing a lot less competition on smaller accounts which have been the mainstay of our company," he said during a conference call on Friday afternoon. He noted that most of Philadelphia's business (roughly 80 percent) is in commercial package accounts with an average premium size of $12,000. Specialty professional accounts are small-sized accounts also, he said, putting their premium size at roughly $3,000, on average.

With new products launched in late 2006, including a classic car program, a fitness and wellness program, and a program for recreational vehicles and campgrounds adding volume as well, he said the company has also "planted the seeds" for future growth.

"Our proactive marketing strategy is a big differentiator," he said, noting that gross premium per employee is $1.2 million for his company, while $500,000 or $750,000 per employee is more typical for peer companies. "We proactively go out and bring the business into the company. We've identified the niches that are profitable," Mr. Maguire said.