Earnings announcement—
1998 second quarter

"Our earnings for the second quarter and first half of this year were the best of any year since we went public in 1986, and our six-month combined ratio was our best result since 1989," commented Walter R. Bateman, Harleysville Group’s president and chief executive officer. "We credit the outstanding earnings to ongoing improvement in our underwriting results, coupled with continued growth in premiums and investment income."

Second quarter diluted operating earnings were an all-time record $0.48 per share in 1998, compared with $0.45 per share in 1997. For the six months, Harleysville Group’s diluted operating earnings were $0.87 per share in 1998 and $0.81 per share in 1997.

Second quarter diluted net income per share was $0.56 in 1998, compared with $0.46 in 1997. Through six months, diluted net income per share was $1.03 in 1998, versus $0.83 in 1997. After-tax diluted realized investment gains amounted to $0.08 per share in the second quarter of 1998 and $0.01 per share in the second quarter of 1997. For the first six months, diluted realized gains per share were $0.16 in 1998 and $0.02 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 second quarter of 1998 improved to 102.3 percent from 102.6 percent in the second quarter of 1997. For the six months, the statutory combined ratio was 103.2 percent, compared with 104.5 percent in 1997.

Earned premiums increased 7 percent to $165.8 million in the second quarter of 1998, compared with $155.3 million in 1997. For the first six months, earned premiums were up 5 percent to $328.5 million from $311.6 million in 1997.

"Net written premiums for the year are up 11 percent," Bateman explained. "We continue to enjoy success in attracting new accounts through our ongoing product development and target marketing efforts, while the business generated by our most recent acquisition—Minnesota Fire and Casualty Company—has contributed significantly to our growth. We are further encouraged by our agents’ positive response to our increased emphasis on personal lines."

After-tax investment income in the second quarter was up 6 percent to $16.7 million in 1998 from $15.7 million in 1997. For the first six months, after-tax investment income climbed 5 percent to $33.2 million in 1998, compared with $31.7 million in 1997.

Total revenues—which include realized investment gains—rose 9 percent in the second quarter to $194.0 million in 1998, compared with $178.8 million in 1997. For the corresponding six-month periods, total revenues increased 7 percent to $384.5 million in 1998 from $358.9 million in 1997.

Shareholders’ equity was $486.8 million ($16.79 per share) at June 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 equity portfolio.

Harleysville Group Inc. is a holding company for 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.

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.

Harleysville Group Inc. and Subsidiaries

Quarter Ended June 30

Six Months Ended June 30

1998

1997

The per share data and the weighted average number of shares outstanding for 1997 have been retroactively adjusted to reflect the two-for-one stock split effective October 6, 1997 and adoption of SFAS # 128.

These financial figures unaudited.