Harleysville Group Inc. (NASDAQ: HGIC) today reported a diluted operating loss of $0.43 per share for the second quarter of 2011, compared to operating income of $0.61 per share in the second quarter of 2010. Catastrophe losses incurred during the second quarter of 2011 reduced operating income by $0.83 per share after taxes, compared to catastrophe losses of $0.19 per share in the second quarter of 2010. For the six-month periods, the company reported a diluted operating loss of $0.14 per share in 2011 and operating income of $0.89 per share in 2010. Catastrophe losses incurred during the first six months of 2011 reduced operating income by $1.04 per share after taxes, compared to catastrophe losses of $0.68 per share in the first six months of 2010. Operating income is a non-GAAP financial measure defined by the company as net income excluding after-tax realized gains and losses on investments. See below for the company’s reported GAAP net income.

“The weather in the second quarter truly was unprecedented, causing us to experience a record level of catastrophe storm activity and weather-related losses,” commented Michael L. Browne, Harleysville Group’s president and chief executive officer. “Our results are not surprising when you consider the magnitude of the catastrophes that occurred across the country during the quarter, with the industry’s insured loss estimate for the quarter expected to be well in excess of $15 billion.

“The effects of these storms were tragic for many of our policyholders, as they were forced out of their homes and businesses, and their possessions were destroyed,” Browne explained. “At a time when they are counting on us the most, we are well positioned and will deliver on our commitment to our agents and policyholders because of our strong balance sheet, outstanding financial strength and excellent claims service.

“We continue to maintain the strength of our balance sheet, which is clearly evidenced by a high-quality investment portfolio, a strong capital base and reserve position, a debt-to-capital ratio of 15 percent 1, and a premium-to-surplus ratio of 1.1 to 1,” Browne continued. “It’s because of that strong balance sheet that these record losses did not have a material impact on our financial position. In fact, our book value in the quarter increased to $28.81 per share.

“At the same time, our capital management efforts continue to differentiate us from our competitors. As we announced on Friday, we are increasing our quarterly dividend by 6 percent to $0.38 per share, which is a direct reflection of our financial strength,” Browne said. “Bottom line, our solid financial base—coupled with our ongoing focus on the fundamentals of our business—positions us well to continue to be a strong and stable market for our agents’ best business.”

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