Harleysville Group (HGIC), hardly a household name, is a Pennsylvania-based multi-line insurance company. The company was formed as a group membership in 1915 to insure each member's car, and two years later became a state charter with the new names of The Mutual Auto Theft Insurance Company and the Mutual Auto Fire Insurance Company. Two separate entities were required then because state laws prevented the same company from offering two types of protection. In 1956, the name was changed to the Harleysville Mutual Insurance Company. Harleysville Life Insurance Company was founded in 1960 to offer individual and group life insurance, disability insurance and retirement plans. In 1986, it became a public company, and in 2001 the name became the Harleysville Group.
Today the Harleysville Group employees 1,700 employees and is represented by 1,300 agencies in 32 states, providing a variety of insurance-related products and services, including property, casualty and life insurance. Harleysville has consolidated assets of $4.0 billion and net written premiums over $1.1 billion. It's ranked as one of the top 70 property/casualty insurance companies and groups, according to A.M. Best Company.
The shares of HGIC have declined from a January high of $37 down to the current price of $30.4. Shares have been under pressure this year due to the company's exposure to weather conditions in the Northeast. The first quarter earnings were reported at $0.29 vs. $0.29 in 2010, which was in line with street estimates. Estimates for the full year fall in a range from $2.15 to $2.70 with a consensus of $2.37, so it will be a generally flat year for Harleysville compared to the 2010 results of $2.40 a share. The decline in the stock price has reflected the poor environment for property and casualty business.
In discussing the fourth quarter and 2010 results, company management made the following statement:
Our balance sheet remains very strong, while our balanced capital management strategy continues to differentiate us from many of our competitors. During the quarter we paid a special cash dividend of $1.44 per share—which represents the amount of our current annualized dividend—in addition to our regular quarterly cash dividend of $0.36 per share. This special dividend is another example of our commitment to managing capital efficiently. Since June 2007, we have returned more than $375 million of our capital to our shareholders via dividends and the six stock repurchase programs that have amounted to 20 percent of our outstanding shares. Our ability to continue increasing our dividend and buying back shares reflects our financial strength, which is evidenced by a high-quality investment portfolio, a strong capital base and reserve position, a debt-to-capital ratio of 15 percent1, and a premium-to-surplus ratio of 1.3 to 1.
Risks in investing in HGIC include lower returns from the investment portfolio; interest rate fluctuations and additional losses from severe weather conditions; and industry-wide pricing deterioration.
The shares trade at an estimated 1.1 time book value, but below the range of 1.2x-1.65x range in recent years. Since its public offering in 1986, the shares yield has ranged between a low of 1.67% and a high of 4.71%, which is the current yield. Though the historical earnings per share are cyclical, the payment of the dividend has been very consistent. The only year in which Harleysville did not increase the dividend was in 2004. The current annual dividend of $1.44 is well-covered estimated earnings for 2011 of $2.37.
For the last four years, the shares are range-bound between lows of 27-28 up to the upper boundary of 37-39. An opportunity to purchase the shares in the 28 area might be forthcoming as the shares remain weak.
Harleysville Group has been a consistent dividend payer since going public in 1986. It has increased the dividend every year except 2004. In 2010, the company paid an extra dividend matching the entire year's dividend, which demonstrated a commitment to shareholders. The shares trade at the highest yield level since going public. The shares trade only 10% above the last four-to-five-year lows. Buy down to 27-29 if given the opportunity.