Earnings announcement—
1999 first quarter results

HARLEYSVILLE, PA—APRIL 28, 1999—Harleysville Group Inc. (NASDAQ:HGIC), a holding company that includes nine regional property and casualty insurance companies, today reported its results for the first quarter of 1999.

"We equaled last year’s record first quarter diluted operating earnings of $0.39 per share, despite a somewhat higher amount of net catastrophe losses in the first quarter of this year," commented Walter R. Bateman, the company’s chairman of the board, president and chief executive officer. "Our results continue to reflect our strong underlying underwriting performance—especially in personal auto—and growth in investment income."

After-tax diluted realized investment gains amounted to $0.11 per share in the first quarter of 1999 and $0.08 per share in the first quarter of 1998. The increase in 1999 realized gains was attributable to sales from the company’s equity portfolio.

First quarter diluted net income per share was $0.40 in 1999, compared with $0.47 in 1998. The decline is a result of a non-cash, after-tax charge of $0.10 per share for the cumulative effect of a change in accounting principle. As described in Harleysville Group’s 1998 annual report, the company adopted AICPA Statement of Position 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments," in the first quarter of 1999. This statement provides guidance for determining liabilities for guaranty-fund and other insurance-related assessments. The adoption of this statement resulted in a one-time, after-tax charge of $2.9 million, or $0.10 per share, in the first quarter. This charge does not impact operating earnings.

Harleysville Group’s statutory combined ratio for the first quarter of 1999 was 104.5 percent, compared with 104.0 percent in the first quarter of 1998. The change in Harleysville Group’s overall first quarter combined ratio reflects the higher amount of retained losses under the company’s internal aggregate catastrophe reinsurance agreement.

"While relentless price competition persists in commercial lines, we continue to practice the underwriting discipline necessary to succeed in this environment—as demonstrated by our 14 percent return on equity for the trailing 12 months," Bateman explained. "In addition, the steady stream of products we’ve introduced to attract new niche market segments has benefited our net written premiums, which were up nearly 6 percent."

Earned premiums increased 4 percent to $169.8 million in the first quarter of 1999, compared with $162.6 million in 1998. First quarter after-tax investment income was up 3 percent to $17.0 million in 1999 from $16.5 million in 1998. Total revenues—which include realized investment gains—rose 5 percent in the first quarter to $199.7 million in 1999, compared with $190.5 million in 1998.

Shareholders’ equity was $539.9 million ($18.45 per share) at March 31, 1999, compared with $529.7 million ($18.17 per share) at December 31, 1998.

Harleysville Group Inc. is a holding company that includes nine regional property and casualty insurance companies whose marketing territory encompasses 31 states in the eastern half of the United States. The companies include: Great Oaks Insurance Company; Harleysville-Atlantic Insurance Company; Harleysville Insurance Company of New Jersey; Huron Insurance Company; Lake States Insurance Company; Mid-America Insurance Company; Minnesota Fire and Casualty Company; New York Casualty Insurance Company; and Worcester Insurance Company. Additionally, the company owns two limited partnerships: Harleysville Asset Management L.P. and Insurance Management Resources L.P.

This is a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Certain statements contained herein are forward-looking statements that involve risks and uncertainties. Future actual results may materially differ from those in these statements because of many factors. For instance, insurance industry price competition has made it more difficult to attract and retain adequately priced business, state regulatory actions can impede the company’s ability to charge adequate rates, and neither the quantity nor severity of natural catastrophes can be anticipated to the degree necessary to assure adequate but competitive pricing of risks. Accordingly, Harleysville Group’s premium growth and underwriting results have been and will continue to be potentially materially affected by these factors.