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On December 31, 2007, we closed the
books on another record year for HCC, our sixth record year in a row.
This accomplishment by HCC’s committed and very qualified employees and
management is truly extraordinary because it occurred in a declining
insurance market with pricing softness across the board.
Most industry observers predict 2008 will be a challenging year. There
has been much talk about maintaining underwriting discipline as the
industry goes through the latest down side of its pricing cycle. At HCC
we remain committed to acting with discipline and prudence, a proven
strategy of success that we believe will enable us to weather this
present storm and be poised to resume our growth when the storm passes.
During 2007, HCC’s net earnings grew to a record $395 million or $3.38 a
diluted share. Our revenue was a record $2.4 billion, while gross
written premium, net written premium and net earned premium all reached
record levels. Cash flow from operations in 2007 was $726 million, while
investment assets increased to $4.7 billion and investment income
increased to $206 million.
For the 12th year in a row, HCC has increased its dividend to
shareholders, to $0.44 a share in 2008. As of this month, HCC has paid a
quarterly dividend for 48 consecutive quarters, a strong performance in
the insurance or any industry.
HCC remains one of the most respected insurance operations in the world,
with some of the highest rated paper in the industry. We were very
pleased to attain a AA (Very Strong) rating from Fitch Ratings to join
our AA (Very Strong) rating by Standard & Poor’s and A+ (Superior)
rating by A.M. Best Company.
Of late, our shares have taken a beating. This is a combination of
investor sentiment toward financial institutions as a whole and the
softening pricing cycle of the insurance industry. Investor concerns
regarding subprime and other mortgage related investment assets continue
to haunt the financial sector. Once the issues surfaced, we fully
disclosed our exposure and have continued to provide the necessary
detail for investors to realize that our exposure is minimal.
We write both Directors’ and Officers’ liability insurance and Errors
and Omissions insurance, domestically and internationally. This has been
a very profitable business for us. We write most economic sectors,
including financial institutions. We have made detailed disclosures of
our book of business and continue to look for ways to present our book
of business in a useful manner for investors to evaluate. We continue to
be comfortable that our current loss reserves will be sufficient to
cover incurred losses on this business.
We have recently settled all of the derivative and class action
litigation stemming from our 2006 stock option issue and expect a final
resolution of the SEC’s investigation shortly. We have fully cooperated
with this investigation and hope there will be no further ramifications
to HCC and we can, therefore, close this chapter in our history.
During 2007, HCC continued its search for attractive specialty
businesses to add to our operational lineup. We closed the acquisition
of Indianapolis based MultiNational Underwriters in early January 2008.
MNU is a recognized leader in short-term health insurance for customers
in more than 130 countries, whose success has been driven by the use of
the Internet to offer 24-hour-a-day insurance services worldwide. MNU is
expected to write more than $40 million in premium in 2008. We welcome
the MNU employees and customers to HCC.
In conjunction with the MultiNational Underwriters acquisition, HCC
received approval to establish a new Lloyd’s Syndicate with 2008
capacity of approximately $24 million. This new syndicate will initially
write MNU’s international accident and health insurance, and other
selected lines of business in the future.
We began 2007 with a seasoned and highly professional management team in
place and have further strengthened our bench with a number of
experienced additions. Among these are Randy Rinicella, Senior Vice
President and General Counsel; Larry Goanos, President of Professional
Indemnity Agency; Bill Lukefahr, Vice President and Chief Information
Officer; Lisa Moore, Vice President of Human Resources; and Barney
White, Vice President of Investor Relations. Also key were the
promotions of Dan Strusz to Executive Vice President of HCC Life; Adam
Pessin to President of American
Contractors; Jim Lauerman to President of Avemco; Annette Goodreau to
Senior Vice President and Chief Actuary; Jackie Kellems to Vice
President of Enterprise Risk Management; Christy Schweikhardt to Vice
President of Litigation; and Jay Simmons to Vice President and
Secretary. We welcome the newcomers and congratulate those whose hard
work has earned them promotions.
We would like to direct your attention to the following section in this
report which spotlights HCC’s Aviation insurance operations. This begins
a new feature in the HCC annual report, in which we will take a closer
look each year at one of our business lines. Since HCC began its
operations with Aviation, this seemed a most appropriate place to begin.
As we move through 2008, we will continue to exercise discipline in our
approach to underwriting, as well as discretion in our acquisition
activities which are meant to complement HCC’s book of diversified,
specialty businesses. Our Company’s mix of non-correlated businesses has
helped to somewhat insulate it from the rate reductions that are rampant
in the insurance industry and we plan to stay with this successful
approach. Above all, we will continue to act prudently so we can
continue to deliver consistent profitability to our shareholders.
In closing, we would like to thank our employees for their efforts to
this end. They are our most valuable assets. We also want to thank you,
our shareholders, for your confidence in our approach and execution. We
will be working hard to maintain your trust. |
