<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended March 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 from __________________ to __________________
Commission file number 0-20766
HCC Insurance Holdings, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 76-0336636
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13403 Northwest Freeway, Houston, Texas 77040-6094
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(Address of principal executive offices) (Zip Code)
(713) 690-7300
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(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 / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
On May 4, 1998, there were 47,851,759 shares of Common Stock, $1 par value
issued and outstanding.
<PAGE>
HCC INSURANCE HOLDINGS, INC.
INDEX
<TABLE>
PAGE NO.
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<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997.................................. 3
Condensed Consolidated Statements of Earnings
Three Months Ended March 31, 1998 and
Three Months Ended March 31, 1997..................................... 4
Condensed Consolidated Statements of Changes in Shareholders' Equity
Three Months Ended March 31, 1998 and
Year Ended December 31, 1997.......................................... 5
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and
Three Months Ended March 31, 1997..................................... 7
Notes to Condensed Consolidated Financial Statements................... 8
Item 2. Management's Discussion and Analysis................................... 13
Part II. OTHER INFORMATION.............................................................. 15
</TABLE>
2
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
---------
Condensed Consolidated Balance Sheets
(Unaudited)
---------
<TABLE>
March 31, 1998 December 31, 1997
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<S> <C> <C>
ASSETS
Investments available for sale:
Fixed income securities, at market
(cost: 1998 $393,218,000; 1997 $ 395,121,000) $ 406,762,000 $ 409,701,000
Marketable equity securities, at market
(cost: 1998 $8,012,000; 1997 $10,221,000) 6,474,000 8,339,000
Short-term investments, at cost, which approximates market 129,133,000 105,255,000
Other investments, at cost, which approximates fair value 273,000 --
-------------- --------------
Total investments 542,642,000 523,295,000
Cash 6,213,000 7,728,000
Restricted cash and cash investments 69,346,000 60,063,000
Reinsurance recoverables 214,102,000 203,300,000
Premium, claims and other receivables 282,489,000 252,618,000
Ceded unearned premium 105,894,000 84,610,000
Deferred policy acquisition costs 25,704,000 21,604,000
Property and equipment, net 22,948,000 19,926,000
Deferred income tax 5,450,000 6,817,000
Other assets, net 62,036,000 44,506,000
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TOTAL ASSETS $1,336,824,000 $1,224,467,000
-------------- --------------
-------------- --------------
LIABILITIES
Loss and loss adjustment expense payable $ 277,432,000 $ 275,008,000
Reinsurance balances payable 96,484,000 70,249,000
Unearned premium 165,834,000 152,094,000
Deferred ceding commissions 25,484,000 19,553,000
Premium and claims payable 269,414,000 237,770,000
Notes payable 95,000,000 80,750,000
Accounts payable and accrued liabilities 25,285,000 23,442,000
-------------- --------------
Total liabilities 954,933,000 858,866,000
SHAREHOLDERS' EQUITY
Common Stock, $1.00 par value; 100,000,000 shares authorized;
(issued and outstanding: 1998 47,851,134 shares; 1997
47,758,929 shares) 47,851,000 47,759,000
Additional paid-in capital 156,013,000 154,633,000
Retained earnings 170,382,000 155,209,000
Accumulated other comprehensive income 7,645,000 8,000,000
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Total shareholders' equity 381,891,000 365,601,000
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,336,824,000 $1,224,467,000
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
--------
Condensed Consolidated Statements of Earnings
(Unaudited)
--------
<TABLE>
For the three months ended March 31,
1998 1997
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<S> <C> <C>
REVENUE
Net earned premium $ 33,927,000 $ 44,675,000
Management fee and commission income 25,298,000 17,934,000
Net investment income 6,826,000 6,205,000
Computer products and services 1,638,000 1,646,000
Net realized investment gain (loss) 117,000 (56,000)
------------- -------------
Total revenue 67,806,000 70,404,000
EXPENSE
Loss and loss adjustment expense 17,190,000 26,618,000
Operating expense:
Policy acquisition costs 15,775,000 14,243,000
Compensation expense 13,566,000 11,583,000
Other operating expense 7,700,000 7,011,000
Merger expense 27,000 1,873,000
Ceding commissions (13,540,000) (10,995,000)
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Net operating expense 23,528,000 23,715,000
Interest expense 1,621,000 1,375,000
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Total expense 42,339,000 51,708,000
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Earnings before income tax provision 25,467,000 18,696,000
Income tax provision 8,380,000 5,663,000
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NET EARNINGS $ 17,087,000 $ 13,033,000
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BASIC EARNINGS PER SHARE DATA:
Earnings per share $ 0.36 $ 0.28
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Weighted average shares outstanding 47,794,000 46,115,000
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DILUTED EARNINGS PER SHARE DATA:
Earnings per share $ 0.35 $ 0.27
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Weighted average shares outstanding 48,809,000 47,448,000
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Cash dividends declared, per share $ 0.04 $ 0.03
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
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Condensed Consolidated Statements of Changes in Shareholders' Equity
For the three months ended March 31, 1998 and
for the year ended December 31, 1997
(Unaudited)
--------
<TABLE>
Accumulated
Additional other Total
Common paid-in Retained comprehensive Treasury shareholders'
Stock capital earnings income stock equity
----------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1996 $49,017,000 $138,515,000 $162,131,000 $ 3,532,000 $(56,670,000) $ 296,525,000
726,898 shares of Common Stock issued for
exercise of options, including tax
benefit of $1,725,000 727,000 9,743,000 - - - 10,470,000
382,024 shares of Common Stock issued for
purchased companies 382,000 9,805,000 - - - 10,187,000
950,000 shares of Common Stock issued for
combinations with pooled companies 950,000 - (1,507,000) - - (557,000)
Net earnings - - 49,760,000 - - 49,760,000
Cash dividends declared, $0.12 per share - - (5,219,000) - - (5,219,000)
Repurchase of 14,895 shares of common
stock by pooled company prior to combination - - - - (324,000) (324,000)
Retirement of 3,316,636 shares of
treasury stock (3,317,000) (3,430,000) (50,247,000) - 56,994,000 -
Other comprehensive income - - - 4,468,000 - 4,468,000
Other - - 291,000 - - 291,000
----------- ------------ ------------ ------------- ------------ -------------
BALANCE AS OF DECEMBER 31, 1997 $47,759,000 $154,633,000 $155,209,000 $ 8,000,000 $ - $365,601,000
----------- ------------ ------------ ------------- ------------ -------------
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
--------
Condensed Consolidated Statements of Changes in Shareholders' Equity
For the three months ended March 31, 1998 and
for the year ended December 31, 1997
(Unaudited)
(continued)
--------
<TABLE>
Accumulated
Additional other Total
Common paid-in Retained comprehensive shareholders'
Stock capital earnings income equity
----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1997 $47,759,000 $154,633,000 $155,209,000 $8,000,000 $365,601,000
63,176 shares of Common Stock issued for
exercise of options, including tax benefit
of $75,000 63,000 809,000 -- -- 872,000
29,029 shares of Common Stock issued for
purchased company 29,000 571,000 -- -- 600,000
Net earnings -- -- 17,087,000 -- 17,087,000
Cash dividends declared, $0.04 per share -- -- (1,914,000) -- (1,914,000)
Other comprehensive income (loss) (355,000) (355,000)
----------- ------------ ------------ ---------- ------------
BALANCE AS OF MARCH 31, 1998 $47,851,000 $156,013,000 $170,382,000 $7,645,000 $381,891,000
----------- ------------ ------------ ---------- ------------
----------- ------------ ------------ ---------- ------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
--------
Condensed Consolidated Statements of Cash Flows
(Unaudited)
--------
<TABLE>
For the three months ended March 31,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 17,087,000 $ 13,033,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Change in reinsurance recoverables (10,802,000) (34,617,000)
Change in premium, claims and other receivables (29,871,000) (15,308,000)
Change in ceded unearned premium (21,284,000) (8,266,000)
Change in deferred income tax, net of tax effect of
unrealized gain or loss 1,604,000 1,159,000
Change in loss and loss adjustment expense payable 2,424,000 31,156,000
Change in reinsurance balances payable 26,235,000 6,193,000
Change in unearned premium 13,740,000 6,413,000
Change in premium and claims payable, net of restricted cash 22,361,000 20,696,000
Net realized investment (gain) loss (117,000) 56,000
Depreciation and amortization expense 1,585,000 1,090,000
Other, net 5,192,000 (1,018,000)
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Cash provided by operating activities 28,154,000 20,587,000
Cash flows from investing activities:
Sales of fixed income securities -- 8,467,000
Maturity or call of fixed income securities 3,978,000 2,485,000
Sales of equity securities 2,347,000 5,579,000
Change in short-term investments (23,878,000) (11,273,000)
Cash paid for companies acquired, net of cash received (19,172,000) (6,550,000)
Cost of securities acquired (2,547,000) (22,501,000)
Purchases of property and equipment (4,133,000) (597,000)
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Cash used by investing activities (43,405,000) (24,390,000)
Cash flows from financing activities:
Proceeds from notes payable 21,200,000 4,900,000
Sale of Common Stock 872,000 1,941,000
Payments on notes payable (6,950,000) (2,000,000)
Dividends paid (1,386,000) (717,000)
Repurchase common stock -- (324,000)
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Cash provided by financing activities 13,736,000 3,800,000
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Net change in cash (1,515,000) (3,000)
Cash at beginning of period 7,728,000 9,171,000
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CASH AT END OF PERIOD $ 6,213,000 $ 9,168,000
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</TABLE>
See Notes to Condensed Consolidated Financial Statement
7
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
---------
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) GENERAL INFORMATION
HCC Insurance Holdings, Inc. ("the Company" or "HCC") and its subsidiaries
include domestic and foreign property and casualty insurance companies,
managing general underwriters, surplus lines insurance brokers and retail
and wholesale insurance and reinsurance brokers. The Company, through its
subsidiaries, provides specialized property, casualty, accident and health
insurance, underwritten on both a direct and reinsurance basis, and
insurance agency services.
BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements have been prepared
in conformity with generally accepted accounting principles and include all
adjustments which are, in the opinion of management, necessary for fair
presentation of the results of the interim periods. All adjustments made to
the interim periods are of a normal recurring nature. The condensed
consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated. The condensed consolidated financial
statements for periods reported should be read in conjunction with the
annual consolidated financial statements and related notes thereto. The
condensed consolidated balance sheet as of December 31, 1997, and the
statement of shareholders' equity for the year then ended were derived from
audited financial statements, but do not include all disclosures required by
generally accepted accounting principles. The combination with The Kachler
Corporation ("Kachler") was accounted for as a pooling-of-interests. The
Company's condensed consolidated financial statements have been restated to
include the accounts and operations of Kachler for all periods presented
(see note 3).
INCOME TAX
For the three months ended March 31, 1998 and 1997, the income tax provision
has been calculated based on an estimated effective tax rate for each of the
fiscal years. The difference between the Company's effective tax rate and
the Federal statutory rate is primarily the result of nontaxable municipal
bond interest included in pretax income.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In January, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income". SFAS No. 130
requires that all components of comprehensive income be reported in a full
set of financial statements and that the amount of total comprehensive
income be reported. For interim reporting purposes comprehensive income
will be reported with other supplemental information (see note 5).
8
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HCC Insurance Holdings, Inc. and Subsidiaries
--------
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(1) GENERAL INFORMATION, CONTINUED
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED
In June, 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information".
This statement is effective for fiscal years beginning after December 15,
1997, but the required information does not need to be included until year
end financial statements in the year of adoption. SFAS No. 131 relates to
the presentation of segment information in a complete set of financial
statements. It will have no effect on the Company's net earnings,
shareholders' equity or cash flows. The Company does not expect to change
its definitions of segments when SFAS No. 131 is adopted.
RECLASSIFICATIONS
Certain amounts in the 1997 condensed consolidated financial statements
have been reclassified to conform to the 1998 presentation. Such
reclassifications had no effect on the Company's net earnings,
shareholders' equity, or cash flows.
(2) REINSURANCE
In the normal course of business the Company's insurance company
subsidiaries cede a substantial portion of their premium to non-affiliated
domestic and foreign reinsurers through quota share, surplus, excess of
loss and facultative reinsurance agreements. Although the ceding of
reinsurance does not discharge the primary insurer from liability to its
policyholder, the subsidiaries participate in such agreements for the
purpose of limiting their loss exposure and diversifying their business.
Substantially all of the reinsurance assumed by the Company's insurance
company subsidiaries was underwritten directly by the Company but issued
by other non-affiliated companies in order to satisfy licensing or other
requirements. The following tables represent the effect of such
reinsurance transactions on net premium and loss and loss adjustment
expense:
<TABLE>
Loss and Loss
Written Earned Adjustment
Premium Premium Expense
------------- ------------- -------------
<S> <C> <C> <C>
For the three months ended March 31, 1998:
Direct business $ 38,391,000 $ 41,942,000 $ 31,666,000
Reinsurance assumed 64,192,000 46,083,000 37,590,000
Reinsurance ceded (76,766,000) (54,098,000) (52,066,000)
------------- ------------- -------------
NET AMOUNTS $ 25,817,000 $ 33,927,000 $ 17,190,000
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</TABLE>
9
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
--------
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(2) REINSURANCE, CONTINUED
<TABLE>
Loss and Loss
Written Earned Adjustment
Premium Premium Expense
------------ ------------ ------------
<S> <C> <C> <C>
For the three months ended March 31, 1997:
Direct business $ 36,924,000 $ 43,157,000 $ 27,083,000
Reinsurance assumed 58,217,000 45,127,000 62,689,000
Reinsurance ceded (52,492,000) (43,609,000) (63,154,000)
------------ ------------ ------------
NET AMOUNTS $ 42,649,000 $ 44,675,000 $ 26,618,000
------------ ------------ ------------
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</TABLE>
The table below represents the approximate composition of reinsurance
recoverables in the accompanying condensed consolidated balance sheets:
<TABLE>
March 31, 1998 December 31, 1997
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<S> <C> <C>
Reinsurance recoverable on paid losses $ 53,225,000 $ 50,461,000
Reinsurance recoverable on outstanding losses 151,093,000 140,516,000
Reinsurance recoverable on IBNR 12,349,000 14,858,000
Reserve for uncollectible reinsurance (2,565,000) (2,535,000)
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TOTAL REINSURANCE RECOVERABLES $ 214,102,000 $ 203,300,000
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</TABLE>
The insurance company subsidiaries require reinsurers not authorized by the
subsidiaries' respective states of domicile to collateralize their
reinsurance obligations to the Company with letters of credit or cash
deposits. At March 31, 1998, the Company held letters of credit and cash
deposits in the amounts of $94.8 million and $7.8 million, respectively, to
collateralize certain reinsurance balances. The Company has established a
reserve of $2.6 million as of March 31, 1998, to reduce the effects of any
recoverable problems. In order to minimize its exposure to reinsurance
credit risk, the Company evaluates the financial condition of its
reinsurers and places its reinsurance with a diverse group of financially
sound companies.
10
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HCC Insurance Holdings, Inc. and Subsidiaries
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Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(3) ACQUISITIONS
KACHLER
On February 27, 1998, the Company acquired all of the outstanding shares of
Kachler in exchange for 1,600,000 shares of the Company's Common Stock.
This business combination has been accounted for as a pooling-of-interests
and, accordingly, the Company's condensed consolidated financial statements
have been restated to include the accounts and operations of Kachler for
all periods presented. For the three months ended March 31, 1998 and
1997, total revenue included $1.9 million in each period and net earnings
included $735,000 and $2,000, respectively, related to Kachler prior to
the combination.
GIR
Effective February 28, 1998, the Company acquired all of the outstanding
shares of Insurance Alternatives, Inc. and all of the assets and
liabilities of Guarantee Insurance Resources (collectively, "GIR") in
exchange for 29,029 shares of the Company's Common Stock and a cash payment
of $21.4 million. This acquisition has been accounted for as a purchase
and the results of operations have been included in the condensed
consolidated statements of earnings beginning in March, 1998. Cost in
excess of net assets acquired (goodwill) of approximately $21.8 million
was recorded from this acquisition. Goodwill is being amortized over
twenty years. The results of operations of GIR for the periods prior to
the acquisition are immaterial to the Company's consolidated results of
operations.
(4) EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of common
shares outstanding during the year divided into net earnings. Diluted
earnings per share is based on the weighted average number of common shares
outstanding plus the potential common shares outstanding during the year
divided into net earnings. The shares issued in connection with the
combination with Kachler are included in outstanding shares for all periods
presented. Outstanding common stock options, when dilutive, are considered
to be potential common stock for the purpose of the diluted calculation.
The treasury stock method is used to calculate potential common stock due
to options.
11
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HCC Insurance Holdings, Inc. and Subsidiaries
--------
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(4) EARNINGS PER SHARE, CONTINUED
The following table provides a reconciliation of the denominators used in
the earnings per share calculations:
<TABLE>
For the three months ended March 31,
1998 1997
---------------- ---------------
<S> <C> <C>
Net earnings $ 17,087,000 $ 13,033,000
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Reconciliation of number of shares outstanding:
Shares of Common Stock outstanding at period end 47,851,000 46,161,000
Changes in Common Stock due to issuance (57,000) (46,000)
------------- -------------
Weighted average Common Stock outstanding 47,794,000 46,115,000
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) 1,015,000 1,333,000
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Weighted average Common Stock and potential
common stock outstanding 48,809,000 47,448,000
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</TABLE>
As of March 31, 1998, there were approximately 1.7 million options that
were not included in the computation of diluted earnings per share because
to do so would have been antidilutive.
(5) SUPPLEMENTAL INFORMATION
Supplemental information for the three months ended March 31, 1998 and
1997, is summarized below:
<TABLE>
1998 1997
---------- ------------
<S> <C> <C>
Interest paid $ 743,000 $ 1,396,000
Income tax paid 777,000 2,653,000
Comprehensive income 16,707,000 9,239,000
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company completed the acquisition of Kachler on February 27, 1998 (pooling-
of-interests), and of GIR on February 28, 1998 (purchase). The Company's
historical financial statements have been restated to include the accounts
and operations of Kachler for all periods presented.
THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31, 1997
Gross written premium increased 8% to $102.6 million for the first quarter of
1998 from $95.1 million for the same period in 1997. Aviation and accident
and health premium increased during the quarter offset somewhat by a
reduction in marine premium. Net written premium for the first quarter of
1998 decreased to $25.8 million from $42.6 million for the same period in
1997 due to an increase in the amount of ceded reinsurance, particularly in
the aviation line of business due to the continuing effect of additional
reinsurance purchased at Avemco Insurance Company after the June, 1997
acquisition. Net earned premium decreased to $33.9 million for the first
quarter of 1998 compared to $44.7 million for the same period in 1997 due to
the aggregate effect of reduced net written premium during the preceding
twelve month period.
Management fee and commission income increased 41% to $25.3 million for the
first quarter of 1998, compared to $17.9 million for the same period in 1997
due to internal growth and agency acquisitions and the Company expects solid
growth to continue. Net investment income increased 10% to $6.8 million for
the first quarter of 1998 compared to $6.2 million for the same period in 1997
reflecting increased cash flow and, therefore, a higher level of investments.
The Company's investment policy has remained consistent and conservative.
Loss and LAE decreased $9.4 million during the first quarter of 1998, to $17.2
million, reflecting increased ceded reinsurance along with an improvement in
the loss ratio.
Net earnings increased 31% to $17.1 million for the first quarter of 1998
from $13.0 million for the same period in 1997. This increase was principally
a result of higher underwriting profits and increased management fee and
commission income.
Diluted earnings per share increased 30% to $0.35 for the first quarter of 1998
from $0.27 for the same period of 1997. This reflects the increase in net
earnings, offset by a 3% increase in weighted average shares outstanding due to
shares issued for acquisitions and the exercise of options.
The Company's insurance company subsidiaries' GAAP combined ratio was 75.2% for
the first quarter of 1998, as compared to 81.0% for the same period in 1997.
The Company's book value per share was $7.98 as of March 31, 1998, up from
$7.66 as of December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash and investment portfolio increased $17.8
million or 3% since December 31, 1997, and totaled $548.9 million as of March
31, 1998, of which $135.3 million was cash and short-term investments. Total
assets increased to $1.3 billion as of March 31, 1998, from $1.2 billion as of
December 31, 1997.
13
<PAGE>
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 130 "Reporting Comprehensive Income". SFAS No. 130 requires that all
components of comprehensive income be reported in a full set of financial
statements and that the amount of total comprehensive income be reported. For
interim reporting purposes comprehensive income will be reported with other
supplemental information (see note 5).
THIS REPORT ON FORM 10-Q (THE "REPORT") CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
WHICH ARE INTENDED TO BE COVERED BY THE SAFE HARBORS CREATED THEREBY.
INVESTORS ARE CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS NECESSARILY INVOLVE
RISKS AND UNCERTAINTY, INCLUDING, WITHOUT LIMITATION, THE RISK OF A SIGNIFICANT
NATURAL DISASTER, THE INABILITY OF THE COMPANY TO REINSURE CERTAIN RISKS, THE
ADEQUACY OF ITS LOSS RESERVES, THE FINANCIAL VIABILITY OF ITS REINSURERS, THE
EXPANSION OR CONTRACTION IN ITS VARIOUS LINES OF BUSINESS, THE IMPACT OF
INFLATION, CHANGING LICENSING REQUIREMENTS AND REGULATIONS IN THE UNITED STATES
AND IN FOREIGN COUNTRIES, THE ABILITY OF THE COMPANY TO INTEGRATE ITS RECENTLY
ACQUIRED BUSINESSES, THE EFFECT OF PENDING OR FUTURE ACQUISITIONS AS WELL AS
ACQUISITIONS WHICH HAVE RECENTLY BEEN CONSUMMATED, GENERAL MARKET CONDITIONS,
COMPETITION, LICENSING AND PRICING. ALL STATEMENTS, OTHER THAN STATEMENTS OF
HISTORICAL FACTS, INCLUDED OR INCORPORATED BY REFERENCE IN THIS REPORT THAT
ADDRESS ACTIVITIES, EVENTS OR DEVELOPMENTS THAT THE COMPANY EXPECTS OR
ANTICIPATES WILL OR MAY OCCUR IN THE FUTURE, INCLUDING, WITHOUT LIMITATION,
SUCH THINGS AS FUTURE CAPITAL EXPENDITURES (INCLUDING THE AMOUNT AND NATURE
THEREOF), BUSINESS STRATEGY AND MEASURES TO IMPLEMENT SUCH STRATEGY,
COMPETITIVE STRENGTHS, GOALS, EXPANSION AND GROWTH OF THE COMPANY'S BUSINESSES
AND OPERATIONS, PLANS, REFERENCES TO FUTURE SUCCESS, AS WELL AS OTHER
STATEMENTS WHICH INCLUDES WORDS SUCH AS "ANTICIPATE," "BELIEVE," "PLAN,"
"ESTIMATE," "EXPECT," AND "INTEND" AND OTHER SIMILAR EXPRESSIONS, CONSTITUTE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS
UNDERLYING THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY
OF THE ASSUMPTIONS COULD OVER TIME PROVE TO BE INACCURATE AND, THEREFORE, THERE
CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT
WILL THEMSELVES PROVE TO BE ACCURATE. IN LIGHT OF THE SIGNIFICANT
UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE
INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE
COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL
BE ACHIEVED.
14
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
The exhibits listed on the accompanying Index to Exhibits on the
following page are filed as part of this Report.
(b) Reports on Form 8-K:
On January 8, 1998, the Company filed a report on Form 8-K
reporting the execution of a $120.0 million revolving credit
facility with a group of banks.
SIGNATURES
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.
HCC Insurance Holdings, Inc.
--------------------------------------
(Registrant)
May 12, 1998 /s/ John N. Molbeck, Jr.
- -------------------------- --------------------------------------
(Date) John N. Molbeck, Jr., President
May 12, 1998 /s/ Edward H. Ellis, Jr.
- -------------------------- --------------------------------------
(Date) Edward H. Ellis, Jr., Senior Vice
President and Chief Financial Officer
15
<PAGE>
INDEX TO EXHIBITS
27 - EDGAR Financial Data Schedule - March 31, 1998.
27.1 - EDGAR Financial Data Schedule - Restated March 31, 1997.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 406,762,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 6,474,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 542,642,000
<CASH> 6,213,000
<RECOVER-REINSURE> 214,102,000
<DEFERRED-ACQUISITION> 220,000
<TOTAL-ASSETS> 1,336,824,000
<POLICY-LOSSES> 277,432,000
<UNEARNED-PREMIUMS> 165,834,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 95,000,000
0
0
<COMMON> 47,851,000
<OTHER-SE> 334,040,000
<TOTAL-LIABILITY-AND-EQUITY> 1,336,824,000
33,927,000
<INVESTMENT-INCOME> 6,826,000
<INVESTMENT-GAINS> 117,000
<OTHER-INCOME> 26,936,000
<BENEFITS> 17,190,000
<UNDERWRITING-AMORTIZATION> 2,235,000
<UNDERWRITING-OTHER> 21,293,000
<INCOME-PRETAX> 25,467,000
<INCOME-TAX> 8,380,000
<INCOME-CONTINUING> 17,087,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,087,000
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.35
<RESERVE-OPEN> 119,634,000
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 113,990,000
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE HAS BEEN RESTATED DUE TO THE COMPANY'S MERGER WITH KACHLER, WHICH
WAS ACCOUNTED FOR AS A POOLING-OF-INTERESTS. SEE NOTES 1 AND 3 TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998. THIS SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 379,546,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 10,509,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 480,021,000
<CASH> 9,168,000
<RECOVER-REINSURE> 166,945,000
<DEFERRED-ACQUISITION> 6,927,000
<TOTAL-ASSETS> 1,051,298,000
<POLICY-LOSSES> 260,205,000
<UNEARNED-PREMIUMS> 162,681,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 75,817,000
0
0
<COMMON> 47,876,000
<OTHER-SE> 265,273,000
<TOTAL-LIABILITY-AND-EQUITY> 1,051,298,000
44,675,000
<INVESTMENT-INCOME> 6,205,000
<INVESTMENT-GAINS> (56,000)
<OTHER-INCOME> 19,580,000
<BENEFITS> 26,618,000
<UNDERWRITING-AMORTIZATION> 3,248,000
<UNDERWRITING-OTHER> 20,467,000
<INCOME-PRETAX> 18,696,000
<INCOME-TAX> 5,663,000
<INCOME-CONTINUING> 13,033,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,033,000
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.27
<RESERVE-OPEN> 117,283,000
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 118,929,000
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
