The magnitude of these reserve increases relative to HGIC's capital base creates concerns about the adequacy of pricing in commercial lines and uncertainty regarding HGIC's future earnings potential.
HGIC is a property/casualty insurer based in Harleysville, PA. The company reported GAAP consolidated assets of $2.7 billion and shareholders' equity of $598.5 million at September 30, 2003. HGIC reported a net loss of $27.8 million for the first nine months of 2003, compared with net income of $28.9 million for the same period in 2002. The company's combined ratio was 137.2% for the first nine months of 2003, compared with 101.7% for the 2002 period.
Harleysville Mutual Insurance Company (Harleysville Mutual), an upstream property & casualty mutual insurance company, owns 55% of HGIC. Together they form the Harleysville Insurance Organization.
HGIC and Harleysville Mutual participate in an underwriting pooling agreement whereby all premiums, losses, and expenses for each individual company's businesses are shared. Harleysville Mutual and its sole subsidiary assume 28% of the pooled business while HGIC and its subsidiaries account for the remaining 72%. All pool members are managed by HGIC and business is approximately split 75% commercial lines and 25% personal lines on a net premium written basis.
Fitch expects to resolve HGIC's Rating Watch status shortly following a review of the company's rating fundamentals and discussions with management.
Entity/Issue/Type Action Rating
Harleysville Group Inc.
-- Senior unsecured debt Placed on Rating Watch Negative 'BBB+';
-- Senior debt Placed on Rating Watch Negative 'BBB+';
-- Long-term issuer Placed on Rating Watch Negative 'BBB+'.
NOTE: The noted ratings were initiated by Fitch as a service to users of Fitch ratings. The ratings are based primarily on public information.
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