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Harleysville Group Inc. Q1 2010 Earnings Call Transcript

Harleysville Group Inc. Q1 2010 Earnings Call Transcript

Harleysville Group Inc. (HGIC)

Q1 2010 Earnings Call

April 28, 2010 8:00 am ET


Mark Cummins - Chief Investment Officer

Michael Browne - President and CEO

Art Chandler - Chief Financial Officer

Kevin Toth - Chief Underwriting Officer

Tom Clark - Head of Field Operations

Allan Becker - Chief Actuary


Michael Phillips – Stifel Nicolaus

Beth Malone – Wunderlich

Bob Glasspiegel – Langen McAlenney

Caroline Steers – Macquarie

Scott Heleniak – RBC Capital Markets

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(Operator Instructions) Welcome to the Harleysville Group First Quarter 2010 Earnings Conference Call. I would now like to turn the meeting over to Harleysville Group Mr. Mark Cummins, Chief Investment Officer.

Mark Cummins

Welcome everyone today to our first quarter 2010 conference call. Our complete news release and financial supplement are posted in the investor section of our website at A replay of this morning’s presentation will be available on our website later the morning.

During this call Harleysville Group, Inc. may make remarks about future expectations, plans and prospects. These remarks constitute forward looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual events or results may differ materially from those indicated by these forward looking statements and our first quarter earnings release as a result of various important factors including those discussed in the 2009 Form 10-K which have been filed with the Securities & Exchange Commission.

You will hear us talk about operating results. Operating income is a non-GAAP financial measure defined by the company as net income excluding net after tax realized gains and losses on investments. For further definition we’ve included a chart titled reconciliation to operating income on the financial highlights page of our earnings release.

Leading off the call today will be our President and CEO Michael Browne, Art Chandler our Chief Financial Officer will follow with some highlights of our financial results, Kevin Toth, our Chief Underwriting Officer will follow with some comments on line of business results. I’ll return to provide some remarks on investments and Michael will then offer his closing comments. Tom Clark, Head of Field Operations and Allan Becker our Chief Actuary also are here to help answer and address your questions at the end of our planned remarks.

With that I’ll turn it over to Michael Browne.

Michael Browne

As we communicated earlier this month we experienced a significant number of catastrophe related claims during the first quarter from the severe winter weather which affected much of our operating territory. While the cat losses received the most attention during the quarter I think it’s important to note that the underlying fundamentals of our business remain very strong, which I’ll review in a moment.

Based upon preliminary estimates, the industry is expected to pay out upwards of $2 billion for catastrophe related losses in the first quarter. We expected Harleysville Group’s losses from cats in the quarter to be approximately $21 million. All total we experienced six loss events during the quarter that were classified as catastrophes. The most significant include back to back February storms that produced heavy snow, drifts, and hurricane force winds in the Northeast, and a severe March rain and wind storm in the Mid-Atlantic States. Because of our presence in the mid-Atlantic and Northeast regions it’s really no surprise that these 2010 catastrophes produced unusually high losses for us during the first quarter.

For many of our policy holders this extreme winter weather resulted in substantial destruction and financial loss to their families and businesses. Our claims staff has been working tirelessly to help these folks restore their lives and their livelihoods to the place where they were before these storms occurred.

At a time when they are counting on us the most we are delivering on our service commitment to our agents and policyholders because our outstanding financial strength and our excellent claims department. The reality is that helping people in times like the present is why we are in this business. As I said many times, I think our claims department is one aspect of our operations that differentiates us from our competitors and we certainly saw our claims staff perform admirably in addressing our policyholder’s needs following these winter storms.

I am pleased to report that excluding the impact of the catastrophe losses our underlying operating earnings per share improved over last year and our underlying statutory combined ratio was below 100%, both of which indicate that we continue to perform well in the fundamental areas of our business which include maintaining our underwriting discipline in a still competitive market.

Recognizing the significant actions we’ve taken over the last few years to enhance our overall corporate performance, just yesterday AM Best upgraded the financial strength ratings in our property and casualty operations to A. I think this upgrade validates our strategy and the successful execution of our strategy, to focus on the basics of our business which are underwriting, claims, service, and productivity, in order to write our agents best business and to generate long term profitability.

I think it is an especially meaningful achievement for us to be upgraded when you consider the challenging market conditions and economic uncertainty that face the property and casualty insurance industry today.

The outstanding efforts of our employees and the steadfast support of our agency partners we have successfully transformed our company. By executing a sophisticated underwriting approach, which includes predictive modeling, by implementing innovative technology that supports ease of doing business, by providing high quality claims service, and by practicing conservative investment management in a proactive capital management strategy, Harleysville has become one of the top performing super regional insurance companies in the United States.

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