Exhibit 99.1
HCC INSURANCE HOLDINGS REPORTS RESULTS
FOR 2008 THIRD QUARTER AND FIRST NINE
MONTHSHOUSTON (November 4, 2008) . . .
HCC Insurance Holdings, Inc. (NYSE: HCC)today released earnings for the third quarter and first nine months of 2008, which ended September 30.
Net earnings for the third quarter of 2008 were $59.1 million, compared with $97.9 million during the third quarter of 2007. Net earnings per diluted share were $0.51 for the third quarter of 2008, compared to $0.84 for the same quarter of 2007. Net earnings for the first nine months of 2008 were $232.5 million, versus $295.8 million for the first nine months of the previous year. Net earnings per diluted share were $2.01 for the first nine months of 2008, versus $2.54 for the same period of 2007.
Gross losses incurred were $89.9 million in total for both Hurricanes Gustav and Ike. Net losses from Hurricane Gustav, primarily from offshore energy exposures, net of reinsurance and including reinsurance reinstatement costs, were $8.9 million, while Hurricane Ike’s net losses, also primarily offshore energy exposures, net of reinsurance and including reinsurance reinstatement costs, were $15.6 million. There may be some further increase in the gross losses for the two hurricanes, but HCC’s net loss is not expected to increase.
The GAAP combined ratio for the third quarter of 2008 was 88.0 percent, compared to 80.8 percent for the third quarter of 2007. The GAAP combined ratio for the first nine months of 2008 was 85.3 percent, versus 82.9 percent for the corresponding period of 2007. The effect of 2008 hurricanes added 4.9 percent to the Company’s GAAP combined ratio for the 2008 third quarter, and 1.7 percent to the Company’s GAAP combined ratio for the first nine months of the year.
“The third quarter was negatively impacted by net losses from Hurricanes Gustav and Ike totaling $24.5 million, as well as realized investment losses of $17.2 million and $14.3 million in losses from alternative investments,” HCC Chief Executive Officer Frank J. Bramanti said.
“Despite two hurricanes, the cost of share repurchases, and the stress of the financial markets and its impact on investment earnings and market values, HCC is reporting an increase of four percent in shareholders’ equity compared with December 31, 2007. Our balance sheet is stronger than ever, our liquidity is excellent and our ratings are solidly in place,” Mr. Bramanti said.
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HCC’s Board of Directors authorized a $100.0 million share repurchase on June 20, 2008. The Company has repurchased 1.6 million shares for a total of $34.1 million at an average cost of $21.21 per share through October 31, 2008.
Book value per share was essentially flat for the third quarter of 2008 at $22.13 a share, compared to $22.19 a share on June 30, 2008. Book value per share increased four percent from December 31, 2007. The Company’s annualized return on average equity for the first nine months of 2008 was 12.4 percent.
Net earned premium of HCC’s insurance company subsidiaries increased to $505.0 million for the third quarter of 2008, compared to $492.9 million for the same quarter of 2007. During the 2008 third quarter, gross written premium increased three percent to $613.0 million, while net written premium increased six percent to $495.6 million, both compared to the third quarter of 2007.
Net earned premium of HCC’s insurance company subsidiaries was $1.5 billion, up one percent for the first nine months of 2008, compared with the first nine months of 2007. During the first nine months of 2008, gross written premium increased two percent to $1.9 billion, while net written premium increased four percent to $1.6 billion, both compared to the first nine months of 2007.
“We believe the many challenges the economic turmoil is presenting will provide ample opportunities for HCC to continue to expand its business. HCC is well-capitalized and positioned to take advantage of these opportunities,” Mr. Bramanti said.
During the third quarter of 2008, HCC had net positive prior year reserve development of $44.0 million compared to net positive prior year reserve development of $23.0 million for the same period in 2007. For the first nine months of 2008, the Company recorded $58.4 million of net positive prior year reserve development, compared to net positive prior year reserve development of $19.4 million for the same period in 2007.
“The positive prior year reserve development in the third quarter of 2008 is primarily related to the 2004 and 2005 underwriting years, with the largest portion of the positive development coming from our D&O business. At the same time, we decided to increase certain loss picks in the 2008 accident year due to the continued uncertainty in the financial markets, which caused us to book $35.0 million of additional reserves. The largest portion of this increase was in our D&O business. Based on what we know today, we maintain our position that our total D&O reserves are sufficient to cover all claims that will arise,” Mr. Bramanti said.
Investment income decreased during 2008, compared to 2007. This was caused by the performance of alternative investments, which had losses of $14.3 million for the third quarter of 2008, versus income of $2.0 million for the third quarter of 2007, and a loss of $16.7 million for the first nine months of 2008, compared to income of $14.5 million for the first nine months of 2007.
2
HCC’s fixed income securities generated $44.2 million in investment income in the 2008 third quarter, versus $39.0 million in the 2007 third quarter; and $129.5 million for the first nine months of 2008, compared to $109.4 million for the first nine months of 2007, as the Company’s fixed income investments increased ten percent from September 30, 2007 to $3.9 billion at September 30, 2008.
As of September 30, 2008, HCC’s fixed income securities portfolio had an average rating of AA+, an average duration of 5.1 years and an average tax equivalent yield of 5.2 percent. The Company held $11.5 million of subprime-related and Alt-A securities, which had an average rating of AAA, and owned no CDO or CLO securities. HCC has never been a counterparty to any credit default swap.
“Our investment performance was quite good in spite of the volatility in the marketplace. Nevertheless, in keeping with our conservative investment philosophy, our Board of Directors’ Investment and Finance Committee has decided to exit equity and equity-related investments, including hedge funds and alternative investments, and reinvest those funds in fixed income securities. This should eliminate the volatility we have seen over the past year in our investment income,” Mr. Bramanti said.
Other operating income was $4.8 million for the 2008 third quarter, compared to a loss of $3.1 million for the same period in 2007. Other operating income was $10.8 million for the first nine months of 2008, compared to $35.6 million for the same period in 2007.
As of September 30, 2008, total investments were $4.8 billion, total assets were $8.4 billion, shareholders’ equity was $2.5 billion and the Company’s debt to total capital ratio remained very conservative at 12.8 percent.
As a result of the effect of 2008 hurricanes, realized investment losses and losses from its alternative investments, the Company is revising the range of its previously disclosed net earnings guidance for 2008 to $2.60 per share to $2.90 per share, from $2.90 to $3.20 per share.
See attached tables for further information about HCC’s quarter and year-to-date financial results.
HCC will hold an open conference call beginning at 8:00 a.m. Central Standard Time on Wednesday, November 5. To participate, the number for domestic calls is (800) 374-0290 and the number for international calls is (706) 634-1061. In addition, there will be a live webcast available on a listen-only basis that can be accessed through the HCC website atwww.hcc.com.
Headquartered in Houston, Texas, HCC Insurance Holdings, Inc. (HCC) is a leading international specialty insurance group with offices across the United States and in Bermuda, Ireland, Spain and the United Kingdom. HCC has assets of $8.4 billion, shareholders’ equity of $2.5 billion and is rated AA (Very Strong) by Standard & Poor’s
3
and AA (Very Strong) by Fitch Ratings. In addition, HCC’s major domestic insurance companies are rated A+ (Superior) by A.M. Best Company.
For more information, visit our website atwww.hcc.com.
| | | |
| Contact: | | Barney White, HCC Vice President of Investor Relations
Telephone: (713) 744-3719 |
Forward-looking statements contained in this press release are made under “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. The types of risks and uncertainties which may affect the Company are set forth in its periodic reports filed with the Securities and Exchange Commission.
* * * * *
4
HCC Insurance Holdings, Inc. and Subsidiaries
Financial Highlights
September 30, 2008
(Unaudited, in thousands except per share data)
| | | | | | | | | |
| | | Three months ended September 30, |
| | | 2008 | | 2007 |
| Gross written premium | | $ | 612,964 | | | $ | 593,062 | |
| Net written premium | | | 495,585 | | | | 469,680 | |
| Net earned premium | | | 504,972 | | | | 492,922 | |
| Fee and commission income | | | 37,795 | | | | 42,734 | |
| Net investment income | | | 35,962 | | | | 49,889 | |
| Other operating income (loss) | | | 4,828 | | | | (3,074 | ) |
| Total revenue | | | 566,319 | | | | 582,494 | |
| Net earnings | | | 59,053 | | | | 97,925 | |
| Earnings per share (diluted) | | | 0.51 | | | | 0.84 | |
| Cash flow from operations | | | 170,736 | | | | 214,559 | |
| Weighted average shares outstanding (diluted) | | | 115,418 | | | | 116,323 | |
| GAAP net loss ratio | | | 64.3 | % | | | 57.2 | % |
| GAAP combined ratio | | | 88.0 | % | | | 80.8 | % |
| Paid loss ratio | | | 61.2 | % | | | 44.1 | % |
| | | | | | | | | |
| | | September 30, 2008 | | December 31, 2007 |
| Total investments | | $ | 4,821,809 | | | $ | 4,672,277 | |
| Total assets | | | 8,449,482 | | | | 8,074,645 | |
| Shareholders’ equity | | | 2,547,457 | | | | 2,440,365 | |
| Debt to total capital | | | 12.8 | % | | | 11.7 | % |
| Book value per share | | $ | 22.13 | | | $ | 21.21 | |
5
HCC Insurance Holdings, Inc. and Subsidiaries
Financial Highlights
September 30, 2008
(Unaudited, in thousands except per share data)
| | | | | | | | | |
| | | Nine months ended September 30, |
| | | 2008 | | 2007 |
| Gross written premium | | $ | 1,887,556 | | | $ | 1,857,764 | |
| Net written premium | | | 1,556,382 | | | | 1,500,465 | |
| Net earned premium | | | 1,505,128 | | | | 1,484,908 | |
| Fee and commission income | | | 99,558 | | | | 105,995 | |
| Net investment income | | | 130,832 | | | | 148,053 | |
| Other operating income | | | 10,829 | | | | 35,611 | |
| Total revenue | | | 1,727,557 | | | | 1,773,966 | |
| Net earnings | | | 232,491 | | | | 295,787 | |
| Earnings per share (diluted) | | | 2.01 | | | | 2.54 | |
| Cash flow from operations | | | 401,175 | | | | 614,859 | |
| Weighted average shares outstanding (diluted) | | | 115,944 | | | | 116,577 | |
| GAAP net loss ratio | | | 61.2 | % | | | 59.6 | % |
| GAAP combined ratio | | | 85.3 | % | | | 82.9 | % |
| Paid loss ratio | | | 53.2 | % | | | 47.3 | % |
| | | | | | | | | |
| | | September 30, 2008 | | December 31, 2007 |
| Total investments | | $ | 4,821,809 | | | $ | 4,672,277 | |
| Total assets | | | 8,449,482 | | | | 8,074,645 | |
| Shareholders’ equity | | | 2,547,457 | | | | 2,440,365 | |
| Debt to total capital | | | 12.8 | % | | | 11.7 | % |
| Book value per share | | $ | 22.13 | | | $ | 21.21 | |
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HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
| | | | | | | | | |
| | | September 30, | | | December 31, | |
| | | 2008 | | | 2007 | |
ASSETS | | | | | | | | |
| | | | | | | | | |
| Investments: | | | | | | | | |
| Fixed income securities — available for sale | | $ | 3,835,514 | | | $ | 3,666,705 | |
| Fixed income securities — held to maturity | | | 99,167 | | | | — | |
| Short-term investments | | | 751,611 | | | | 783,650 | |
| Other investments | | | 135,517 | | | | 221,922 | |
| | | | | | | |
| Total investments | | | 4,821,809 | | | | 4,672,277 | |
| Cash | | | 20,244 | | | | 39,135 | |
| Restricted cash and cash investments | | | 198,832 | | | | 193,151 | |
| Premium, claims and other receivables | | | 815,770 | | | | 763,401 | |
| Reinsurance recoverables | | | 1,076,421 | | | | 956,665 | |
| Ceded unearned premium | | | 238,563 | | | | 244,684 | |
| Ceded life and annuity benefits | | | 64,719 | | | | 66,199 | |
| Deferred policy acquisition costs | | | 197,026 | | | | 192,773 | |
| Goodwill | | | 834,740 | | | | 776,046 | |
| Other assets | | | 181,358 | | | | 170,314 | |
| | | | | | | |
| | | | | | | | | |
Total assets | | $ | 8,449,482 | | | $ | 8,074,645 | |
| | | | | | | |
| | | | | | | | | |
LIABILITIES | | | | | | | | |
| | | | | | | | | |
| Loss and loss adjustment expense payable | | $ | 3,505,122 | | | $ | 3,227,080 | |
| Life and annuity policy benefits | | | 64,719 | | | | 66,199 | |
| Reinsurance balances payable | | | 125,494 | | | | 129,838 | |
| Unearned premium | | | 985,062 | | | | 943,946 | |
| Deferred ceding commissions | | | 62,854 | | | | 68,968 | |
| Premium and claims payable | | | 399,834 | | | | 497,974 | |
| Notes payable | | | 374,714 | | | | 324,714 | |
| Accounts payable and accrued liabilities | | | 384,226 | | | | 375,561 | |
| | | | | | | |
| | | | | | | | | |
Total liabilities | | | 5,902,025 | | | | 5,634,280 | |
| | | | | | | | | |
SHAREHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | | |
| Common stock | | | 116,188 | | | | 115,069 | |
| Additional paid-in capital | | | 854,174 | | | | 831,419 | |
| Retained earnings | | | 1,638,691 | | | | 1,445,995 | |
| Accumulated other comprehensive income (loss) | | | (39,726 | ) | | | 47,882 | |
| Treasury stock | | | (21,870 | ) | | | — | |
| | | | | | | |
| | | | | | | | | |
Total shareholders’ equity | | | 2,547,457 | | | | 2,440,365 | |
| | | | | | | |
| | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 8,449,482 | | | $ | 8,074,645 | |
| | | | | | | |
7
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited, in thousands except per share data)
| | | | | | | | | | | | | | | | | |
| | | Nine months ended | | | Three months ended | |
| | | September 30, | | | September 30, | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | | | | | | | | | | | | |
REVENUE | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net earned premium | | $ | 1,505,128 | | | $ | 1,484,908 | | | $ | 504,972 | | | $ | 492,922 | |
| Fee and commission income | | | 99,558 | | | | 105,995 | | | | 37,795 | | | | 42,734 | |
| Net investment income | | | 130,832 | | | | 148,053 | | | | 35,962 | | | | 49,889 | |
| Net realized investment gain (loss) | | | (18,790 | ) | | | (601 | ) | | | (17,238 | ) | | | 23 | |
| Other operating income (loss) | | | 10,829 | | | | 35,611 | | | | 4,828 | | | | (3,074 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Total revenue | | | 1,727,557 | | | | 1,773,966 | | | | 566,319 | | | | 582,494 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
EXPENSE | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Loss and loss adjustment expense, net | | | 920,433 | | | | 885,547 | | | | 324,506 | | | | 281,784 | |
| Policy acquisition costs, net | | | 284,695 | | | | 267,778 | | | | 96,582 | | | | 93,251 | |
| Other operating expense | | | 174,420 | | | | 169,226 | | | | 57,702 | | | | 58,118 | |
| Interest expense | | | 11,517 | | | | 7,166 | | | | 3,750 | | | | 2,767 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Total expense | | | 1,391,065 | | | | 1,329,717 | | | | 482,540 | | | | 435,920 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Earnings before income tax expense | | | 336,492 | | | | 444,249 | | | | 83,779 | | | | 146,574 | |
| Income tax expense | | | 104,001 | | | | 148,462 | | | | 24,726 | | | | 48,649 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net earnings | | $ | 232,491 | | | $ | 295,787 | | | $ | 59,053 | | | $ | 97,925 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Basic earnings per share data: | | | | | | | | | | | | | | | | |
| Net earnings per share | | $ | 2.02 | | | $ | 2.63 | | | $ | 0.51 | | | $ | 0.87 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding | | | 115,164 | | | | 112,295 | | | | 114,812 | | | | 112,652 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Diluted earnings per share data: | | | | | | | | | | | | | | | | |
| Net earnings per share | | $ | 2.01 | | | $ | 2.54 | | | $ | 0.51 | | | $ | 0.84 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding | | | 115,944 | | | | 116,577 | | | | 115,418 | | | | 116,323 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Cash dividends declared, per share | | $ | 0.345 | | | $ | 0.310 | | | $ | 0.125 | | | $ | 0.110 | |
| | | | | | | | | | | | | |
8
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| | | | | | | | | | | | | | | | | |
| | | Nine months ended | | | Three months ended | |
| | | September 30, | | | September 30, | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | | | | | | | | | | | | |
| Cash flows from operating activities: | | | | | | | | | | | | | | | | |
| Net earnings | | $ | 232,491 | | | $ | 295,787 | | | $ | 59,053 | | | $ | 97,925 | |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | | | | | | | | |
| Change in premium, claims and other receivables | | | 22,705 | | | | 63,737 | | | | 66,329 | | | | 33,696 | |
| Change in reinsurance recoverables | | | (119,825 | ) | | | 122,472 | | | | (46,013 | ) | | | 27,851 | |
| Change in ceded unearned premium | | | 6,121 | | | | (27,925 | ) | | | (2,931 | ) | | | (6,676 | ) |
| Change in loss and loss adjustment expense payable | | | 278,156 | | | | 169,541 | | | | 58,298 | | | | 63,604 | |
| Change in reinsurance balances payable | | | (4,344 | ) | | | (10,512 | ) | | | 5,601 | | | | (9,639 | ) |
| Change in unearned premium | | | 41,162 | | | | 46,813 | | | | (13,860 | ) | | | (16,069 | ) |
| Change in premium and claims payable, net of restricted cash | | | (105,135 | ) | | | (73,679 | ) | | | (31,267 | ) | | | (31,579 | ) |
| Change in current income taxes payable | | | (10,104 | ) | | | 21,754 | | | | (2,794 | ) | | | 36,444 | |
| Change in trading portfolio | | | 49,091 | | | | 14,126 | | | | 6,517 | | | | 9,261 | |
| Stock-based compensation expense | | | 9,990 | | | | 9,191 | | | | 3,193 | | | | 2,802 | |
| Depreciation and amortization expense | | | 10,436 | | | | 11,625 | | | | 3,612 | | | | 3,764 | |
| (Gain) loss on investments | | | 26,367 | | | | (35,557 | ) | | | 31,559 | | | | (1,994 | ) |
| Other, net | | | (35,936 | ) | | | 7,486 | | | | 33,439 | | | | 5,169 | |
| | | | | | | | | | | | | |
Cash provided by operating activities | | | 401,175 | | | | 614,859 | | | | 170,736 | | | | 214,559 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | | | | | | |
| Sales of fixed income securities | | | 421,677 | | | | 221,822 | | | | 184,799 | | | | 47,104 | |
| Maturity or call of fixed income securities | | | 255,439 | | | | 234,435 | | | | 73,029 | | | | 76,314 | |
| Cost of securities acquired | | | (1,124,969 | ) | | | (1,011,747 | ) | | | (199,276 | ) | | | (274,874 | ) |
| Change in short-term investments | | | 33,665 | | | | (10,189 | ) | | | (222,899 | ) | | | 15,825 | |
| Proceeds from sales of other investments | | | 31,537 | | | | — | | | | 543 | | | | — | |
| Proceeds from sales of strategic investments | | | 22,818 | | | | 42,997 | | | | — | | | | 3,181 | |
| Payments for purchase of subsidiaries, net of cash received | | | (73,996 | ) | | | (53,687 | ) | | | (1,627 | ) | | | (2,006 | ) |
| Other, net | | | (3,203 | ) | | | (7,079 | ) | | | 1,482 | | | | (1,723 | ) |
| | | | | | | | | | | | | |
Cash used by investing activities | | | (437,032 | ) | | | (583,448 | ) | | | (163,949 | ) | | | (136,179 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | | | | | |
| Advances on line of credit | | | 106,000 | | | | 62,000 | | | | 31,000 | | | | — | |
| Payments on line of credit and notes payable | | | (56,000 | ) | | | (56,363 | ) | | | (26,000 | ) | | | (43,476 | ) |
| Sale of common stock | | | 13,884 | | | | 19,337 | | | | 4,016 | | | | 2,915 | |
| Purchase of treasury shares | | | (21,870 | ) | | | — | | | | (21,870 | ) | | | — | |
| Dividends paid | | | (38,061 | ) | | | (33,630 | ) | | | (12,721 | ) | | | (11,249 | ) |
| Other, net | | | 13,013 | | | | (4,514 | ) | | | 11,903 | | | | (1,970 | ) |
| | | | | | | | | | | | | |
Cash provided (used) by financing activities | | | 16,966 | | | | (13,170 | ) | | | (13,672 | ) | | | (53,780 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net increase (decrease) in cash | | | (18,891 | ) | | | 18,241 | | | | (6,885 | ) | | | 24,600 | |
| | | | | | | | | | | | | | | | | |
| Cash at beginning of period | | | 39,135 | | | | 48,290 | | | | 27,129 | | | | 41,931 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Cash at end of period | | $ | 20,244 | | | $ | 66,531 | | | $ | 20,244 | | | $ | 66,531 | |
| | | | | | | | | | | | | |
9
HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
September 30, 2008
(Unaudited, in thousands)
| | | | | | | | | | | | | |
| | | 3rd Qtr | | | 3rd Qtr | | | Change | |
| | | 2008 | | | 2007 | | | % | |
GROSS WRITTEN | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Diversified financial products | | $ | 261,614 | | | $ | 228,618 | | | | 14 | % |
| Group life, accident & health | | | 210,930 | | | | 197,051 | | | | 7 | |
| Aviation | | | 50,639 | | | | 48,652 | | | | 4 | |
| London market account | | | 31,230 | | | | 40,773 | | | | (23 | ) |
| Other specialty lines | | | 58,425 | | | | 77,966 | | | | (25 | ) |
| Discontinued lines | | | 126 | | | | 2 | | | | nm | |
| | | | | | | | | | |
| | | $ | 612,964 | | | $ | 593,062 | | | | 3 | % |
| | | | | | | | | | |
| | | | | | | | | | | | | |
NET WRITTEN | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Diversified financial products | | $ | 215,556 | | | $ | 185,117 | | | | 16 | % |
| Group life, accident & health | | | 195,283 | | | | 185,799 | | | | 5 | |
| Aviation | | | 37,116 | | | | 36,071 | | | | 3 | |
| London market account | | | 17,046 | | | | 13,983 | | | | 22 | |
| Other specialty lines | | | 30,506 | | | | 48,705 | | | | (37 | ) |
| Discontinued lines | | | 78 | | | | 5 | | | | nm | |
| | | | | | | | | | |
| | | $ | 495,585 | | | $ | 469,680 | | | | 6 | % |
| | | | | | | | | | |
| | | | | | | | | | | | | |
NET EARNED PREMIUM | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Diversified financial products | | $ | 203,295 | | | $ | 195,132 | | | | 4 | % |
| Group life, accident & health | | | 194,393 | | | | 187,209 | | | | 4 | |
| Aviation | | | 35,413 | | | | 38,400 | | | | (8 | ) |
| London market account | | | 27,429 | | | | 28,264 | | | | (3 | ) |
| Other specialty lines | | | 44,420 | | | | 43,913 | | | | 1 | |
| Discontinued lines | | | 22 | | | | 4 | | | | nm | |
| | | | | | | | | | |
| | | $ | 504,972 | | | $ | 492,922 | | | | 2 | % |
| | | | | | | | | | |
| | |
| nm — Not meaningful comparison |
10
HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
September 30, 2008
(Unaudited, in thousands)
| | | | | | | | | | | | | |
| | | Year to Date | | | Year to Date | | | Change | |
| | | 2008 | | | 2007 | | | % | |
GROSS WRITTEN | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Diversified financial products | | $ | 744,920 | | | $ | 701,020 | | | | 6 | % |
| Group life, accident & health | | | 629,214 | | | | 602,225 | | | | 4 | |
| Aviation | | | 147,268 | | | | 154,745 | | | | (5 | ) |
| London market account | | | 154,028 | | | | 189,995 | | | | (19 | ) |
| Other specialty lines | | | 207,361 | | | | 210,242 | | | | (1 | ) |
| Discontinued lines | | | 4,765 | | | | (463 | ) | | | nm | |
| | | | | | | | | | |
| | | $ | 1,887,556 | | | $ | 1,857,764 | | | | 2 | % |
| | | | | | | | | | |
| | | | | | | | | | | | | |
NET WRITTEN | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Diversified financial products | | $ | 622,702 | | | $ | 564,832 | | | | 10 | % |
| Group life, accident & health | | | 595,112 | | | | 569,747 | | | | 4 | |
| Aviation | | | 106,996 | | | | 113,914 | | | | (6 | ) |
| London market account | | | 97,142 | | | | 107,952 | | | | (10 | ) |
| Other specialty lines | | | 129,667 | | | | 144,446 | | | | (10 | ) |
| Discontinued lines | | | 4,763 | | | | (426 | ) | | | nm | |
| | | | | | | | | | |
| | | $ | 1,556,382 | | | $ | 1,500,465 | | | | 4 | % |
| | | | | | | | | | |
| | | | | | | | | | | | | |
NET EARNED PREMIUM | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Diversified financial products | | $ | 593,378 | | | $ | 580,983 | | | | 2 | % |
| Group life, accident & health | | | 582,193 | | | | 571,849 | | | | 2 | |
| Aviation | | | 105,125 | | | | 115,491 | | | | (9 | ) |
| London market account | | | 80,824 | | | | 92,763 | | | | (13 | ) |
| Other specialty lines | | | 138,846 | | | | 124,248 | | | | 12 | |
| Discontinued lines | | | 4,762 | | | | (426 | ) | | | nm | |
| | | | | | | | | | |
| | | $ | 1,505,128 | | | $ | 1,484,908 | | | | 1 | % |
| | | | | | | | | | |
| | |
| nm — Not meaningful comparison |
11
HCC Insurance Holdings, Inc. and Subsidiaries
Investments — Selected Disclosures
September 30, 2008
(Unaudited, in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Average Ratings | |
| | | Amortized | | | Fair | | | % of | | | | | | | | | | | | | | | BBB & | | | | | | | |
| | | Cost | | | Value | | | Portfolio | | | AAA | | | AA | | | A | | | below | | | Other | | | Average | |
| | | | |
| Fixed Income Securities | | $ | 4,032,743 | | | $ | 3,935,643 | | | | 100.0 | % | | $ | 2,322,029 | | | $ | 1,011,606 | | | $ | 537,478 | | | $ | 64,530 | | | $ | — | | | | AA | + |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential Mortgage Backed Securities & Collateralized Mortgage Obligations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Agency | | $ | 706,758 | | | $ | 712,263 | | | | 18.1 | % | | | 712,263 | | | | — | | | | — | | | | — | | | | — | | | | AAA | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-Agency | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Prime | | | 100,054 | | | | 89,585 | | | | 2.3 | % | | | 89,585 | | | | — | | | | — | | | | — | | | | — | | | | AAA | |
| Alt A | | | 10,012 | | | | 8,900 | | | | 0.2 | % | | | 8,584 | | | | 158 | | | | 158 | | | | — | | | | — | | | | AAA | |
| Subprime | | | 2,817 | | | | 2,586 | | | | 0.1 | % | | | 1,931 | | | | — | | | | — | | | | 655 | | | | — | | | | AA | + |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Residential MBS/CMO | | $ | 819,641 | | | $ | 813,334 | | | | 20.7 | % | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Agency Securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Senior Agency Debt — FNMA/FHLMC | | $ | 14,498 | | | $ | 14,848 | | | | 0.4 | % | | | 14,848 | | | | — | | | | — | | | | — | | | | — | | | | AAA | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate Bonds | | $ | 562,917 | | | $ | 541,588 | | | | 13.8 | % | | | 29,137 | | | | 127,273 | | | | 333,997 | | | | 51,181 | | | | — | | | | A+ | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Mortgaged Backed Securities | | $ | 179,562 | | | $ | 165,672 | | | | 4.2 | % | | | 165,672 | | | | — | | | | — | | | | — | | | | — | | | | AAA | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Municipal Bond Portfolio | | $ | 1,820,675 | | | $ | 1,763,425 | | | | 44.8 | % | | | 702,019 | | | | 865,842 | | | | 186,923 | | | | 8,641 | | | | — | | | | AA | + |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Insurance Enhanced | | $ | 1,142,944 | | | $ | 1,103,354 | | | | 28.0 | % | | | 451,713 | | | | 475,325 | | | | 167,710 | | | | 8,606 | | | | — | | | | AA | + |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Insured — Underlying Ratings | | $ | 1,142,944 | | | $ | 1,103,354 | | | | | | | | 147,849 | | | | 689,265 | | | | 243,730 | | | | 994 | | | | 21,516 | | | | AA | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-Insured | | $ | 677,731 | | | $ | 660,071 | | | | 16.8 | % | | | 256,650 | | | | 385,178 | | | | 18,243 | | | | — | | | | — | | | | AA | + |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Short-Term | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bank Sweep Accounts — US | | $ | 50,438 | | | $ | 50,438 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bank Sweep Accounts — Non-US | | | 48,434 | | | | 48,434 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable Money Market Funds | | | 652,739 | | | | 652,739 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Short-Term | | $ | 751,611 | | | $ | 751,611 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| Notes: |
| |
| There are no CDOs/CLOs in the portfolio. |
| |
| Other Ratings are bonds with at least one enhanced rating; each issuer has an equivalent investment grade rating. Received paydown of $1.1 million on subprime and Alt A securities in third quarter 2008. |
12
HCC Insurance Holdings, Inc. and Subsidiaries
Subprime Liability Exposure
September 30, 2008
| • | | As of September 30, the Company had 50 “non-Side A only” D&O, E&O and Fiduciary Liability claims and 12 “Side A only” D&O claims relating to subprime issues. |
| |
| • | | Of the D&O claims reported, two are on primary policies with gross policy limits totaling $9 million. The remaining D&O claims are on excess policies. |
| |
| • | | The average policy limit on the “non-Side A only” claims is $13.0 million gross and $8.6 million net, with an average attachment point of $87 million. |
| |
| • | | The average policy limit for “Side A only” claims is $13.3 million gross and $10.9 million net, with an average attachment point of $176 million. |
| |
| • | | Based upon the Company’s present knowledge, HCC believes the ultimate subprime related losses will be contained within the current overall reserves for D&O, E&O and Fiduciary Liability business. |
13
HCC Insurance Holdings, Inc. and Subsidiaries
Consolidated Insurance Companies
Net Loss Ratios
September 30, 2008
(Unaudited, in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year to Date 2008 | | | Full Year 2007 | |
| | | Net Earned | | | Incurred | | | Loss | | | Net Earned | | | Incurred | | | Loss | |
| Line of Business | | Premium | | | Losses | | | Ratio | | | Premium | | | Losses | | | Ratio | |
| Diversified financial products | | $ | 593,378 | | | $ | 274,321 | | | | 46.2 | % | | $ | 777,414 | | | $ | 315,409 | | | | 40.6 | % |
| Group life, accident & health | | | 582,193 | | | | 428,826 | | | | 73.7 | | | | 758,516 | | | | 579,780 | | | | 76.4 | |
| Aviation | | | 105,125 | | | | 68,036 | | | | 64.7 | | | | 153,121 | | | | 89,683 | | | | 58.6 | |
| London market account | | | 80,824 | | | | 43,933 | | | | 54.4 | | | | 124,609 | | | | 68,798 | | | | 55.2 | |
| Other specialty lines | | | 138,846 | | | | 102,363 | | | | 73.7 | | | | 171,824 | | | | 115,804 | | | | 67.4 | |
| Discontinued lines | | | 4,762 | | | | 2,954 | | | | nm | | | | (398 | ) | | | 14,473 | | | | nm | |
| | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,505,128 | | | $ | 920,433 | | | | 61.2 | % | | $ | 1,985,086 | | | $ | 1,183,947 | | | | 59.6 | % |
| | | | | | | | | | | | | | | | | | | |
| | |
| nm — Not meaningful comparison |
14
