Earnings announcement—
1998 third quarter

Third quarter diluted operating earnings were $0.43 per share in 1998, compared with $0.44 per share in 1997. As reported earlier this month, the losses resulting from Hurricane Bonnie reduced the company’s third quarter operating earnings by $2.0 million, or $0.07 per share, after pooling and taxes; Hurricane Georges had no impact on earnings. For the nine months, Harleysville Group’s diluted operating earnings were $1.30 per share in 1998 and $1.26 per share in 1997.

"Our underlying results through nine months remain very strong," commented Walter R. Bateman, Harleysville Group’s chairman, president and chief executive officer. "Excluding the effects of Hurricane Bonnie, our diluted operating earnings were $0.50 per share and our statutory combined ratio was the lowest it’s been in nearly 10 years at 102.2 percent.

"As we explained previously, our losses from Hurricane Bonnie were mitigated by the carefully considered strategy we’ve followed to reduce property losses from severe weather events along the Atlantic coast," Bateman continued. "Since 1996, we have decreased our vulnerability to coastal property losses by approximately $2 billion, by reducing or eliminating our exposure on more than two-thirds of the homeowners policies we had in force in Atlantic coastal counties when the program began. In fact, less than 10 percent of our losses from Hurricane Bonnie involved homeowners policies."

Third quarter diluted net income per share was $0.48 in 1998, compared with $0.54 in 1997. Through nine months, diluted net income per share was $1.51 in 1998, versus $1.38 in 1997. After-tax diluted realized investment gains amounted to $0.05 per share in the third quarter of 1998 and $0.10 per share in the third quarter of 1997. For the first nine months, diluted realized gains per share were $0.21 in 1998 and $0.12 in 1997. The increase in realized gains was attributable to sales from the company’s equity portfolio.

Harleysville Group’s statutory combined ratio for the third quarter of 1998 was 104.1 percent, compared with 102.7 percent in the third quarter of 1997. For the nine months, the statutory combined ratio was 103.5 percent, versus 103.9 percent in 1997. Hurricane Bonnie added 1.9 points to the third quarter’s combined ratio and 0.6 points to the nine-month combined ratio.

Earned premiums increased 9 percent to $165.7 million in the third quarter of 1998, compared with $152.6 million in 1997. For the first nine months, earned premiums were up 6 percent to $494.2 million from $464.2 million in 1997.

"Net written premiums for the year are up 12 percent as a result of our ongoing product development and target marketing efforts, coupled with the new business generated by Minnesota Fire and Casualty Company—our most recent acquisition," Bateman explained.

After-tax investment income in the third quarter increased 6 percent to $16.9 million in 1998 from $15.9 million in 1997. For the first nine months, after-tax investment income climbed 5 percent to $50.1 million in 1998, compared with $47.5 million in 1997.

Total revenues—which include realized investment gains—rose 7 percent in the third quarter to $192.6 million in 1998, compared with $179.9 million in 1997. For the corresponding nine-month periods, total revenues increased 7 percent to $577.2 million in 1998 from $538.8 million in 1997.

Shareholders’ equity was $502.0 million ($17.24 per share) at September 30, 1998, compared with $446.5 million ($15.49 per share) at December 31, 1997, reflecting the improved operating income and the appreciation in the fixed maturity and equity portfolios.

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.

Quarter Ended September 30

Nine Months Ended September 30

1997

1997

Quarter Ended September 30

Nine Months Ended September 30