SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000 .
----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ --------------
Commission file number 0-14697
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HARLEYSVILLE GROUP INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0241172
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
355 MAPLE AVENUE, HARLEYSVILLE, PENNSYLVANIA 19438-2297
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(215) 256-5000
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
----- -----
At May 5, 2000 28,750,049 shares of common stock of
Harleysville Group Inc. were outstanding.
1
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
INDEX
Page Number
-----------
Part I - Financial Information
Consolidated Balance Sheets - March 31, 2000
and December 31, 1999 3
Consolidated Statements of Income - For the
three months ended March 31, 2000 and 1999 4
Consolidated Statement of Shareholders' Equity -
For the three months ended March 31, 2000 5
Consolidated Statements of Cash Flows -
For the three months ended March 31, 2000
and 1999 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Results
of Operations and Financial Condition 13
Quantitative and Qualitative Disclosure About
Market Risk 16
Part II - Other Information 17
2
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
(Unaudited)
ASSETS
------
Investments:
Fixed maturities:
Held to maturity, at amortized
cost (fair value $591,300
and $597,367) $ 591,046 $ 597,232
Available for sale, at fair value
(amortized cost $779,603 and
$761,830) 770,547 749,370
Equity securities, at fair value
(cost $114,003 and $106,225) 219,255 198,197
Short-term investments, at cost,
which approximates fair value 26,102 59,223
---------- ----------
Total investments 1,606,950 1,604,022
Cash 19,480 20,273
Receivables:
Premiums 90,542 91,931
Reinsurance 86,305 81,884
Accrued investment income 21,021 22,478
---------- ----------
Total receivables 197,868 196,293
Deferred policy acquisition costs 82,731 83,541
Prepaid reinsurance premiums 32,192 28,907
Property and equipment, net 27,918 27,368
Deferred income taxes 16,032 20,478
Other assets 38,645 39,174
---------- ----------
Total assets $2,021,816 $2,020,056
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Unpaid losses and loss
settlement expenses $ 910,631 $ 901,352
Unearned premiums 347,720 351,710
Accounts payable and accrued expenses 94,455 113,369
Debt 96,810 96,810
Due to affiliate 30,181 29,921
---------- ----------
Total liabilities 1,479,797 1,493,162
---------- ----------
Shareholders' equity:
Preferred stock, $1 par value, authorized
1,000,000 shares; none issued
Common stock, $1 par value, authorized
80,000,000 shares; issued 29,660,590
and 29,498,651 shares; outstanding
28,894,050 and 28,812,086 shares 29,661 29,499
Additional paid-in capital 126,597 124,798
Accumulated other comprehensive income 62,527 51,682
Retained earnings 335,110 331,769
Treasury stock, at cost, 766,540 and
686,565 shares (11,876) (10,854)
Total shareholders' equity 542,019 526,894
---------- ----------
Total liabilities and
shareholders' equity $2,021,816 $2,020,056
========== ==========
See accompanying notes to consolidated financial statements.
3
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(dollars in thousands, except per share data)
2000 1999
--------- ---------
Revenues:
Premiums earned $170,241 $169,827
Investment income, net of
investment expense 21,770 21,526
Realized investment gains 1,274 4,810
Other income 4,134 3,513
-------- --------
Total revenues 197,419 199,676
-------- --------
Losses and expenses:
Losses and loss settlement expenses 127,491 119,846
Amortization of deferred policy
acquisition costs 43,987 43,551
Other underwriting expenses 15,840 15,358
Interest expense 1,660 1,561
Other expenses 1,666 1,149
-------- --------
Total expenses 190,644 181,465
-------- --------
Income before income taxes and
cumulative effect of accounting
change 6,775 18,211
Income taxes (benefit) (466) 3,446
-------- --------
Income before cumulative effect
of accounting change 7,241 14,765
Cumulative effect of accounting change,
net of income tax (2,904)
-------- --------
Net income $ 7,241 $ 11,861
======== ========
Per common share:
Basic:
Income before cumulative effect of
accounting change $ .25 $ .51
Cumulative effect of accounting
change, net of income tax (.10)
-------- --------
Net income $ .25 $ .41
======== ========
Diluted:
Income before cumulative effect of
accounting change $ .25 $ .50
Cumulative effect of accounting
change, net of income tax (.10)
-------- --------
Net income $ .25 $ .40
======== ========
Cash dividend $ .135 $ .125
======== ========
See accompanying notes to consolidated financial statements.
4
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------- PAID-IN COMPREHENSIVE RETAINED TREASURY
SHARES AMOUNT CAPITAL INCOME EARNINGS STOCK TOTAL
---------- ------- ---------- ------------- -------- --------- --------
Balance,
Dec. 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 29,498,651 $29,499 $124,798 $51,682 $331,769 $(10,854) $526,894
--------
Net income 7,241 7,241
Other compre-
hensive income,
net of tax:
Unrealized
investment
gains, net of
reclassifi-
cation
adjustment 10,845 10,845
--------
Comprehensive
income 18,086
--------
Issuance
of common
stock 161,939 162 1,799 1,961
Cash dividend
paid (3,900) (3,900)
Purchase of
treasury
stock,
79,975
shares (1,022) (1,022)
---------- ------- -------- ------- -------- -------- --------
Balance at
March 31,
2000 29,660,590 $29,661 $126,597 $62,527 $335,110 $(11,876) $542,019
========== ======= ======== ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(in thousands)
2000 1999
--------- ---------
Cash flows from operating activities:
Net income $ 7,241 $ 11,861
Adjustments to reconcile net income
to net cash provided by operating
activities:
Cumulative effect of accounting
change, net of income tax 2,904
Change in receivables, unearned
premiums, prepaid reinsurance
and due to affiliate (8,590) (283)
Increase (decrease) in unpaid losses
and loss settlement expenses 9,279 (4,428)
Deferred income taxes (1,394) 565
(Increase) decrease in deferred
policy acquisition costs 810 (2,587)
Amortization and depreciation 865 683
Gain on sale of investments (1,274) (4,810)
Other, net (18,611) (6,202)
-------- --------
Net cash used by operating
activities (11,674) (2,297)
-------- --------
Cash flows from investing activities:
Fixed maturity investments:
Purchases (35,864) (44,205)
Sales or maturities 24,346 47,542
Equity securities:
Purchases (12,269) (6,781)
Sales 5,807 7,040
Net sales of short-term investments 33,121 1,362
Purchase of property and equipment (1,299) (829)
-------- --------
Net cash provided by investing
activities 13,842 4,129
-------- --------
Cash flows from financing activities:
Issuance of common stock 1,961 2,156
Dividend paid (3,900) (3,658)
Purchase of treasury stock (1,022)
-------- --------
Net cash used by
financing activities (2,961) (1,502)
-------- --------
Increase (decrease) in cash (793) 330
Cash at beginning of period 20,273 3,799
-------- --------
Cash at end of period $ 19,480 $ 4,129
======== ========
See accompanying notes to consolidated financial statements.
6
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - Basis of Presentation
The financial information for the interim periods
included herein is unaudited; however, such information
reflects all adjustments which are, in the opinion of
management, necessary to a fair presentation of the
financial position, results of operations, and cash flows
for the interim periods. The results of operations for
interim periods are not necessarily indicative of results to
be expected for the full year.
These financial statements should be read in
conjunction with the financial statements and notes for the
year ended December 31, 1999 included in the Company's 1999
Annual Report filed with the Securities and Exchange
Commission on Form 10-K.
2 - Earnings Per Share
The computation of basic and diluted earnings per share
is as follows for the three months ended March 31:
2000 1999
---------- ----------
(dollars in thousands,
except per share data)
Numerator for basic
and diluted earnings
per share:
Net income $ 7,241 $ 11,861
======== ========
Denominator for basic
earnings per share --
weighted average
shares outstanding 28,900,561 29,236,828
Effect of stock
incentive plans 110,864 399,468
---------- ----------
Denominator for
diluted earnings
per share 29,011,425 29,636,296
========== ==========
Basic earnings
per share $ .25 $ .41
======== ========
Diluted earnings
per share $ .25 $ .40
======== ========
7
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following options to purchase shares of common stock
were not included in the computation of diluted earnings per
share because the exercise price of the options was greater than
the average market price:
FOR THE THREE MONTHS
ENDED MARCH 31,
2000 1999
-------- --------
(in thousands)
Number of options 1,343 334
===== ===
3 - Reinsurance
Premiums earned are net of amounts ceded of $19,689,000 and
$11,233,000 for the three months ended March 31, 2000 and 1999,
respectively. Losses and loss settlement expenses are net of
amounts ceded of $12,121,000 and $10,589,000 for the three months
ended March 31, 2000 and 1999, respectively. Such amounts do not
include the reinsurance transactions with Mutual under the
pooling arrangement.
Harleysville Group has a reinsurance agreement with
Harleysville Mutual Insurance Company (Mutual) whereby Mutual
reinsures accumulated catastrophe losses in a quarter up to
$14,400,000 in excess of $3,600,000 in return for a reinsurance
premium. The agreement excludes catastrophe losses resulting
from earthquakes or hurricanes, and supplements the existing
external catastrophe reinsurance program. Under the agreement,
Harleysville Group ceded premiums earned of $1,548,000 and
$1,596,000 and losses incurred of $56,000 and $6,092,000 to
Mutual for the three months ended March 31, 2000 and 1999,
respectively.
Harleysville Group cedes business to and assumes business
from Mutual under a reinsurance pooling agreement. Because this
agreement does not relieve Harleysville Group of primary
liability as the originating insurer, there is a concentration of
credit risk arising from business ceded to Mutual. However, the
reinsurance pooling agreement provides for the right of offset
and the net balance with Mutual is a liability at March 31, 2000
and December 31, 1999. Mutual has an A. M. Best rating of "A"
(Excellent) and, in accordance with certain state regulatory
requirements, maintained $382.3 million (fair value) of
investments in a trust account to secure liabilities under the
reinsurance pooling agreement at March 31, 2000.
8
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4 - Cash Flows
There were no cash tax payments in the first quarter of
2000. There were cash tax payments of $1,273,000 in the first
quarter of 1999. Cash interest payments of $306,000 and $239,000
were made in the first quarter of 2000 and 1999, respectively.
5 - Restructuring Charges
On July 29, 1999, Harleysville Group announced a plan to
consolidate its claims operations from 23 general claims offices
into a centralized direct reporting center and four specialized
regional claims centers. As a result of this consolidation, the
Company recorded a restructuring charge in 1999 of $2,512,000 for
employee termination benefits to be paid and occupancy charges.
Employee termination benefits include severance payments and
related benefits and outplacement services for approximately 174
employees. Severance payments totaling $1,052,000 have been made
to 120 employees, and the remaining accrual for employee
termination benefits is $843,000 at March 31, 2000. Included in
occupancy charges are future lease obligations, less anticipated
sublease benefits, for leased premises which will no longer be
used by the claims operation. Through March 31, 2000, operations
in 20 of the 23 general claims offices have been closed.
Payments totaling $15,000 have been made, and the remaining
accrual for occupancy charges is $567,000 at March 31, 2000.
On February 7, 2000, Harleysville Group announced a plan to
consolidate selected support services and office functions
throughout its field operations. As a result of this
consolidation, the Company recorded a restructuring charge of
$1,143,000 in the first quarter of 2000 for employee termination
benefits to be paid, occupancy charges and a write-down of
equipment to fair value. This charge was included in other
underwriting expenses.
Employee termination benefits of $899,000 includes severance
payments and related benefits and outplacement services for
approximately 120 employees. Severance payments totaling $452,000
have been made to 55 employees, and the remaining accrual for
employee termination benefits is $447,000 at March 31, 2000.
Included in occupancy charges of $188,000 is a future lease
obligation, less anticipated sublease benefits, for a leased
premise which will no longer be used. No payments have been made
against the accrual for occupancy charges. Also, as a direct
result of the consolidation, equipment was written down by
$56,000 to fair value.
9
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Both consolidations are expected to be completed by the end
of the second quarter.
<TABLE>
<CAPTION>
ACTIVITY IN THE RESTRUCTURING ACCRUALS
--------------------------------------
(in thousands)
CLAIMS FIELD
RESTRUCTURING RESTRUCTURING
-------------------------------- -------------------------------
EMPLOYEE EMPLOYEE
TERMINATION TERMINATION
BENEFITS OCCUPANCY TOTAL BENEFITS OCCUPANCY TOTAL
----------- --------- ------- ----------- --------- ------
Balance
<S> <C> <C> <C>
Dec. 31, 1999 $ 1,975 $537 $ 2,512
Restructuring
<S> <C> <C> <C>
charges $ 899 $188 $1,087
Cash payments (1,052) (15) (1,067) (452) (452)
Change in prior
accrual due
to voluntary
terminations
greater than
anticipated
and reduced
sublease
benefits (80) 45 (35)
------- ---- ------- ----- ---- ------
Balance at
March 31,
2000 $ 843 $567 $ 1,410 $ 447 $188 $ 635
======= ==== ======= ===== ==== ======
</TABLE>
10
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6 - Segment Information
The performance of the personal lines and commercial lines
is evaluated based upon underwriting results as determined under
statutory accounting practices (SAP) for the total pooled
business of Harleysville Group and Mutual. The following tables
reflect the total pooled business. The eliminations reflect the
share of the total pooled business not retained by Harleysville
Group and the effect of the catastrophe reinsurance agreement
between Harleysville Group and Mutual.
Financial data by segment is as follows for the three months
ended March 31, 2000 and 1999:
2000 1999
-------- --------
(in thousands)
Revenues:
Premiums earned:
Commercial lines $151,415 $147,477
Personal lines 87,180 90,610
Eliminations (68,354) (68,260)
-------- --------
Total premiums earned 170,241 169,827
Net investment income 21,770 21,526
Realized investment gains 1,274 4,810
Other 4,134 3,513
-------- --------
Total revenues $197,419 $199,676
======== ========
Income before income taxes and
cumulative effect of accounting
change:
Underwriting loss:
Commercial lines $(10,318) $(18,276)
Personal lines (12,372) (3,829)
Eliminations 5,571 10,992
-------- --------
SAP underwriting loss (17,119) (11,113)
GAAP adjustments 42 2,185
-------- --------
GAAP underwriting loss (17,077) (8,928)
Net investment income 21,770 21,526
Realized investment gains 1,274 4,810
Other 808 803
-------- --------
Income before income taxes and
cumulative effect of accounting
change $ 6,775 $ 18,211
======== ========
11
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7 - Comprehensive Income
Comprehensive income for the three months ended March 31,
2000 and 1999 consisted of the following (all amounts are net of
taxes):
2000 1999
-------- --------
(in thousands)
Net income $ 7,241 $11,861
Other comprehensive income:
Unrealized investment holding
gains arising during period 11,671 3,037
Less:
Reclassification adjustment
for gains included in net
income (826) (3,108)
------- -------
Net unrealized investment
gains (losses) 10,845 (71)
------- -------
Comprehensive income $18,086 $11,790
======= =======
12
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Premiums earned increased $0.4 million during the three
months ended March 31, 2000 as compared to the three months ended
March 31, 1999. The increase is primarily due to an increase of
$2.9 million in premiums earned for commercial lines partially
offset by a decline of $2.5 million in personal lines premiums
earned.
Investment income increased $0.2 million for the three
months ended March 31, 2000 resulting from an increase in
invested assets partially offset by a lower yield on the
investment portfolio.
Realized investment gains were $3.5 million lower for the
three months ended March 31, 2000 compared to the same prior year
quarter primarily resulting from lesser sales of equity
securities and from the recognition of a $1.0 million loss on an
equity investment that was trading below cost on an other-than-
temporary basis.
Income before income taxes and cumulative effect of
accounting change decreased $11.4 million for the three months
ended March 31, 2000, primarily due to a higher underwriting loss
and lower realized gains partially offset by higher investment
income. Harleysville Group's statutory combined ratio increased
to 111.6% for the three months ended March 31, 2000 from 104.5%
for the three months ended March 31, 1999. The three months
ended March 31, 2000 included a pre-tax charge of $1.1 million
($.03 per basic share after taxes) related to the consolidation
of selected non-claims support services and office functions
throughout the field operations. The restructuring is expected
to result in a net staff reduction of about 120 people and be
completed by the end of the second quarter of 2000. The
consolidation is expected to result in annual after-tax savings
of approximately $2.7 million, based on a preliminary analysis of
achievable cost savings. This restructuring charge adversely
affected the statutory combined ratio by 0.7 points for the three
months ended March 31, 2000. Income before income taxes and
cumulative effect of accounting change for the three months ended
March 31, 2000 also was reduced by $1.9 million ($0.04 per basic
share after taxes) to reflect the effect of a settlement of
litigation between the North Carolina Rate Bureau and the
Commissioner of Insurance over personal automobile insurance rate
levels dating back to 1994. The settlement, which mandates a
refund of premium be made to policyholders, adversely affected
the combined ratio by 1.2 points. Excluding the impacts of the
field restructuring and North Carolina Rate Bureau settlement,
the statutory combined ratio increased 5.2 points primarily due
to worse results in personal lines, particularly personal
automobile, and in workers compensation. Losses ceded under the
aggregate catastrophe
13
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(Continued)
reinsurance agreement with Mutual decreased by $6.0 million for
the three months ended March 31, 2000 and net catastrophe losses
decreased $1.5 million due to fewer catastrophes.
The income tax expense for each of the three month periods
ended March 31, 2000 and 1999 includes the tax benefit of tax-
exempt investment income of $2.9 million and $3.0 million,
respectively.
The cumulative effect of accounting change reflects the
effect of adopting a new accounting standard in 1999 related to
the treatment of insurance-related assessments.
Liquidity and Capital Resources
Operating activities used $11.7 million and $2.3 million of
net cash for the three months ended March 31, 2000 and 1999,
respectively. The change primarily is from an increase of $17.2
million in cash held as collateral for security lending
transactions.
Investing activities provided $13.8 million and $4.1 million
of net cash for the three months ended March 31, 2000 and 1999,
respectively. The increase is primarily due to an increase in
the sale of short-term investments, partially offset by increased
net purchases of fixed maturity investments and equity
securities.
Net cash used by financing activities increased $1.5 million
for the three months ended March 31, 2000 primarily due to the
purchase of treasury stock.
Harleysville Group Inc. had $0.3 million of cash and
marketable securities and $19.2 million of dividends receivable
from its subsidiaries at March 31, 2000 which is available for
general corporate purposes including dividends, debt service,
capital contributions to subsidiaries, acquisitions and the
repurchase of stock. In 1999, the Company adopted a stock
repurchase plan under which the Company and Mutual may each
purchase up to 1.0 million shares of Harleysville Group Inc.
common stock up to a total of 2.0 million shares. As of March
31, 2000, the Company has repurchased 0.8 million shares leaving
0.2 million shares authorized to be repurchased. The Company has
no other material commitments for capital expenditures as of
March 31, 2000.
14
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(Continued)
Year 2000
Harleysville Group has not encountered difficulties to date
with respect to the year 2000 millennium change, either
internally or with third parties. Harleysville Group will
continue to monitor exposure to any year 2000-related problems.
Harleysville Group has risk that claims related to year 2000
issues will be made under insurance policies that it underwrites.
Harleysville Group has concluded that its policies do not
generally provide coverage for losses relating to year 2000
issues and has issued endorsements further clarifying this
exclusion. However, due in part to the potential for judicial
decisions which expand policies to cover risks that were not
contemplated by the policy, which in turn may produce
unanticipated claims, and because there is no prior history of
such claims at this point in time, the amount of any potential
year 2000 coverage liabilities is not determinable. Harleysville
Group has not had any material claims related to year 2000
issues.
Certain of the statements contained herein (other than
statements of historical facts) are forward looking statements.
Such forward looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act
of 1995 and include estimates and assumptions related to
economic, competitive and legislative developments. These
forward looking statements are subject to change and uncertainty
which are, in many instances, beyond the Company's control and
have been made based upon management's expectations and beliefs
concerning future developments and their potential effect on
Harleysville Group. There can be no assurance that future
developments will be in accordance with management's expectations
so that the effect of future developments on Harleysville Group
will be those anticipated by management. Actual financial
results including premium growth and underwriting results could
differ materially from those anticipated by Harleysville Group
depending on the outcome of certain factors, which may include
changes in property and casualty loss trends and reserves;
natural catastrophe losses; competition in insurance product
pricing; government regulation and changes therein which may
impede the ability to charge adequate rates; performance of the
financial markets; fluctuations in interest rates; availability
and price of reinsurance; and the status of the labor markets in
which the Company operates.
15
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
Harleysville Group's market risk generally represents the
risk of gain or loss that may result from the potential change in
the fair value of Harleysville Group's investment portfolio as a
result of fluctuations in prices and interest rates.
Harleysville Group attempts to manage its interest rate risk by
maintaining an appropriate relationship between the average
duration of the investment portfolio and the approximate duration
of its liabilities.
Harleysville Group has maintained approximately the same
duration of its investment portfolio to its liabilities from
December 31, 1999 to March 31, 2000. In addition, the Company
has maintained approximately the same investment mix during this
period.
16
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings - None
ITEM 2. Changes in Securities - None
ITEM 3. Defaults Upon Senior Securities - None
ITEM 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of Harleysville Group
Inc. was held on April 26, 2000 (the "Annual Meeting" or
"Meeting"), with the following result:
The total number of shares represented at the Annual
Meeting in person or by proxy was 26,416,631 of the
28,890,846 shares of common stock outstanding and
entitled to vote at the Meeting.
On the resolution to elect Michael L. Browne, Frank E.
Reed and Jerry S. Rosenbloom as class "B" Directors to
serve until the expiration of their respective terms and
until their successors are duly elected, the nominees
for Director received the number of votes set forth
opposite their respective names:
Number of Votes
------------------------
For Withheld
---------- --------
Michael L. Browne 26,306,221 110,410
Frank E. Reed 26,293,901 122,730
Jerry S. Rosenbloom 26,307,202 109,429
There were no abstentions or broker non-votes recorded.
On the basis of the above vote, Michael L. Browne, Frank
E. Reed and Jerry S. Rosenbloom were elected as class
"B" Directors to serve until the expiration of their
respective terms and until their successors are duly
elected.
On the resolution to approve the Long Term Incentive
Plan, there were 25,821,527 votes for the resolution,
568,080 votes against the resolution and 27,024 votes
abstaining.
On the resolution to approve the Excess Stock Purchase
Plan, there were 25,926,524 votes for the resolution,
427,245 votes against the resolution and 62,862 votes
abstaining.
17
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
(Continued)
ITEM 5. Other Information - None
ITEM 6. a. Exhibits - None
b. Reports on Form 8-K - None
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
HARLEYSVILLE GROUP INC.
Date: May 11, 2000 /s/BRUCE J. MAGEE
---------------- --------------------------------
Bruce J. Magee
Senior Vice President and
Chief Financial Officer
(principal financial officer and
principal accounting officer)
18
<PAGE>
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