HCC Insurance 8-K HCC Insurance Holdings Reports Strong Second Quarter 2011 Despite Catastrophes

Exhibit 99.1

HCC INSURANCE HOLDINGS REPORTS STRONG
SECOND QUARTER 2011 DESPITE CATASTROPHES

HOUSTON (August 2, 2011) . . .

HCC Insurance Holdings, Inc. (NYSE: HCC) today released results for its second quarter ended June 30, 2011.

Net earnings were $69.5 million for the second quarter of 2011, compared to $83.4 million for the second quarter of 2010.  Net earnings per diluted share were $0.61 for the second quarter of 2011, versus $0.72 for the same quarter of 2010.  Net earnings were $116.5 million for the first six months of 2011, or $1.02 per diluted share, compared to $154.7 million, or $1.34 per diluted share, for the same period of 2010.

The 2011 results include previously announced pretax net catastrophe losses of $21.9 million and $73.3 million for the second quarter and first six months of 2011, respectively, related to the 2011 catastrophes in Japan, New Zealand and the United States, which reduced net earnings by $0.13 and $0.42 per share in the respective periods. These catastrophe losses added 3.9 and 6.6 percentage points to the Company’s GAAP loss ratio for the second quarter and first six months of 2011, respectively, and 4.1 and 6.9 percentage points to its GAAP combined ratio for those same periods in 2011.

Book value per share increased to $29.65 at June 30, 2011, compared to $28.87 at March 31, 2011, representing a 2.7% increase in the second quarter of 2011.  The Company’s annualized return on average equity was 8.4% for the second quarter of 2011.

The Company repurchased 5.0 million shares of its common stock during the second quarter of 2011 for $161.4 million at an average cost of $32.06 per share.  As of June 30, 2011, the Company has repurchased 6.3 million shares for $201.6 million at an average cost of $31.78 per share under the Company’s $300.0 million buyback authorization announced on March 14, 2011.

The Company’s GAAP combined ratio was 89.2% for the second quarter of 2011, compared to 84.3% for the second quarter of 2010.  The GAAP combined ratio was 91.9% for the first half of 2011, versus 87.1% for the same period of 2010.

HCC had net adverse loss development of $13.3 million in the second quarter of 2011, compared to net favorable development of $2.8 million in the same quarter of 2010, and

net adverse development of $22.3 million for the first six months of 2011, versus $2.2 million in the same period of 2010.

The Company’s current accident year net loss ratio was 63.9% and its accident year combined ratio was 89.8% for the first six months of 2011.

“We are pleased with our underwriting results despite another heavy quarter of catastrophes for the entire industry.  HCC delivered another solid quarter with strong overall underwriting profitability, excluding the impact of catastrophe losses, at or ahead of our expectations.  And although worldwide industry catastrophe losses continue to be significant, HCC’s after-tax losses for all such events in 2011 represent 1.4% of our shareholders’ equity at December 31, 2010, which is within both our expectations and our reinsurance programs,” said John N. Molbeck, Jr., HCC’s Chief Executive Officer.

Gross written premium increased 7% to $742.1 million for the second quarter of 2011, compared to $691.6 million for the second quarter of 2010.  Net written premium increased 12% to $609.9 million for the second quarter of 2011, versus $546.8 million for the same quarter of 2010.  Net earned premium increased 4% to $524.3 million for the second quarter of 2011, compared to $506.4 million for the same quarter of 2010.

Gross written premium increased 6% to $1.4 billion for the first six months of 2011, compared to $1.3 billion for the same period of 2010.  Net written premium increased 10% to $1.1 billion for the first half of 2011, versus $1.0 billion for the same period of 2010.  Net earned premium was $1.0 billion for the first six months of 2011, representing a slight increase compared to the same period of 2010.

Investment income increased to $52.4 million in the second quarter of 2011, compared to $50.2 million in the same quarter of 2010.  Investment income increased to $104.0 million in the first six months of 2011, compared to $99.5 million in the same period of 2010.  The Company’s fixed income securities portfolio increased 11% to $5.6 billion at June 30, 2011, from $5.1 billion at June 30, 2010.  The Company’s total investments, including its fixed income securities portfolio and short-term investments, increased 5% to $5.8 billion at June 30, 2011 from $5.6 billion at June 30, 2010.

As of June 30, 2011, HCC’s fixed income securities portfolio had an average rating of AA+, with a duration of 5.3 years and an average long-term tax equivalent yield of 4.8%.  In addition, HCC’s total investments had an average combined duration of 5.1 years.

The Company’s liquidity position remains strong with $281.7 million of cash and short-term investments and $492.1 million of available capacity under its $600.0 million revolving loan facility at June 30, 2011.  The Company generated $121.8 million of cash flow from operating activities in the first half of 2011, compared to $139.3 million in the same period of 2010.  The Company’s 2011 operating cash flow was reduced by payments of $33.6 million for commutations of certain reserves in its Exited Lines.

2

As of June 30, 2011, total assets were $9.5 billion, shareholders’ equity was $3.3 billion and the Company’s debt to total capital ratio was 10.7%.

For further information about HCC’s 2011 second quarter earnings results, see the supplemental financial schedules that are accessible on HCC’s website at http://www.hcc.com, as well as directly in the Investor Relations section of HCC’s website at http://ir.hcc.com.

(Note: If clicking on the above links does not open in a new web page, please cut and paste the above URLs into your browser’s address bar.)

HCC will hold an open conference call beginning at 8:00 a.m. Central Daylight Time on Wednesday, August 3.  To participate, the number for domestic calls is (800) 374-0290 and the number for international calls is (706) 634-0161.  There will also be a live webcast available on a listen-only basis that can be accessed through the HCC website at http://www.hcc.com.  The webcast replay will be archived in the Investor Relations section of the HCC website through Friday, November 4, 2011.

Headquartered in Houston, Texas, HCC Insurance Holdings, Inc. is a leading international specialty insurance group with offices across the United States and in the United Kingdom, Spain and Ireland.  HCC’s major domestic and international insurance companies have financial strength ratings of “AA (Very Strong)” from Standard & Poor’s Corporation, “A+ (Superior)” from A.M. Best Company Inc., “AA (Very Strong)” from Fitch Ratings, and “A1 (Good Security)” from Moody’s Investors Service, Inc.

For more information about HCC, please visit http://www.hcc.com.

Contact:	Doug Busker, Director of Investor Relations
	HCC Insurance Holdings, Inc.
	Telephone: (713) 996-1192

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.

*    *    *    *    *

3

HCC Insurance Holdings, Inc. and Subsidiaries

Financial Highlights

(Unaudited, in thousands except per share data)

	Six months ended						Three months ended
	June 30,						June 30,
	2011			2010			2011			2010
Gross written premium	$	1,391,290		$	1,314,074		$	742,082		$	691,578
Net written premium	1,148,757			1,045,053			609,873			546,802
Net earned premium	1,032,731			1,015,972			524,251			506,385
Net investment income	104,017			99,466			52,422			50,217
Other operating income	14,796			27,147			7,475			9,206
Total revenue	1,148,560			1,149,425			584,852			568,123
Net earnings	116,468			154,734			69,478			83,380
Earnings per share (diluted)	$	1.02		$	1.34		$	0.61		$	0.72
Weighted-average shares outstanding (millions)	112.9			114.1			111.8			114.2
GAAP net loss ratio	66.0		%	61.6		%	63.8		%	59.0		%
GAAP combined ratio	91.9		%	87.1		%	89.2		%	84.3		%
Paid loss ratio	61.5		%	56.4		%	64.5		%	52.5		%
	June 30,			December 31,
	2011			2010
Total investments	$	5,835,203		$	5,687,095
Total assets	9,475,126			9,064,082
Shareholders’ equity	3,269,694			3,296,432
Debt to total capital ratio	10.7		%	8.3		%
Book value per share	$	29.65		$	28.67

S - 1

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited, in thousands)

	June 30,			December 31,
	2011			2010
ASSETS
Investments:
Fixed income securities - available for sale, at fair value	$	5,434,761		$	4,999,440
Fixed income securities - held to maturity, at amortized cost	173,993			193,668
Short-term investments	194,507			488,002
Other investments	31,942			5,985
Total investments	5,835,203			5,687,095
Cash	87,242			97,857
Restricted cash	230,532			148,547
Premium, claims and other receivables	716,463			635,867
Reinsurance recoverables	1,103,855			1,006,855
Ceded unearned premium	242,599			278,663
Ceded life and annuity benefits	57,604			58,409
Deferred policy acquisition costs	229,248			212,786
Goodwill	842,056			821,648
Other assets	130,324			116,355
Total assets	$	9,475,126		$	9,064,082
LIABILITIES
Loss and loss adjustment expense payable	$	3,655,944		$	3,471,858
Life and annuity policy benefits	57,604			58,409
Reinsurance, premium and claims payable	327,180			345,730
Unearned premium	1,110,638			1,045,877
Deferred ceding commissions	67,015			72,565
Notes payable	393,714			298,637
Accounts payable and accrued liabilities	593,337			474,574
Total liabilities	6,205,432			5,767,650
SHAREHOLDERS’ EQUITY
Common stock	122,594			120,942
Additional paid-in capital	995,053			954,332
Retained earnings	2,341,736			2,257,895
Accumulated other comprehensive income	145,887			97,186
Treasury stock	(335,576		)	(133,923		)
Total shareholders’ equity	3,269,694			3,296,432
Total liabilities and shareholders’ equity	$	9,475,126		$	9,064,082

S - 2

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Statements of Earnings

(Unaudited, in thousands except per share data)

	Six months ended					Three months ended
	June 30,					June 30,
	2011			2010		2011			2010
REVENUE
Net earned premium	$	1,032,731		$	1,015,972	$	524,251		$	506,385
Net investment income	104,017			99,466		52,422			50,217
Other operating income	14,796			27,147		7,475			9,206
Net realized investment gain	495			6,840		1,054			2,315
Other-than-temporary impairment credit losses	(3,479		)	—		(350		)	—
Total revenue	1,148,560			1,149,425		584,852			568,123
EXPENSE
Loss and loss adjustment expense, net	681,868			625,507		334,282			298,986
Policy acquisition costs, net	167,861			161,330		84,483			81,632
Other operating expense	128,060			129,183		63,748			62,515
Interest expense	10,987			10,627		5,434			5,237
Total expense	988,776			926,647		487,947			448,370
Earnings before income tax expense	159,784			222,778		96,905			119,753
Income tax expense	43,316			68,044		27,427			36,373
Net earnings	$	116,468		$	154,734	$	69,478		$	83,380
Basic earnings per share data:
Net earnings per share	$	1.02		$	1.34	$	0.61		$	0.72
Weighted-average shares outstanding (millions)	112.6			113.8		111.4			113.9
Diluted earnings per share data:
Net earnings per share	$	1.02		$	1.34	$	0.61		$	0.72
Weighted-average shares outstanding (millions)	112.9			114.1		111.8			114.2
Cash dividends declared, per share	$	0.290		$	0.270	$	0.145		$	0.135

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HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

	Six months ended
	June 30,
	2011			2010
Operating activities
Net earnings	$	116,468		$	154,734
Adjustments to reconcile net earnings to net cash provided by operating activities:
Change in premium, claims and other receivables	(103,245		)	(79,735		)
Change in reinsurance recoverables	(84,728		)	(60,013		)
Change in ceded unearned premium	36,870			(4,630		)
Change in loss and loss adjustment expense payable	147,870			99,370
Change in unearned premium	63,015			32,541
Change in reinsurance, premium and claims payable, excluding restricted cash	(30,413		)	12,380
Change in accounts payable and accrued liabilities	(19,426		)	(15,389		)
Stock-based compensation expense	7,137			6,937
Depreciation and amortization expense	8,769			8,249
(Gain) loss on investments	2,984			(7,329		)
Other, net	(23,517		)	(7,789		)
Cash provided by operating activities	121,784			139,326
Investing activities
Sales of available for sale fixed income securities	246,331			133,856
Maturity or call of available for sale fixed income securities	285,637			260,053
Maturity or call of held to maturity fixed income securities	24,932			25,253
Cost of available for sale fixed income securities acquired	(835,368		)	(703,341		)
Cost of held to maturity fixed income securities acquired	—			(96,383		)
Cost of other investments acquired	(27,784		)	—
Change in short-term investments	292,365			320,927
Payments for purchase of businesses, net of cash received	(1,892		)	(36,348		)
Proceeds from sale of subsidiaries and other investments	944			19,855
Other, net	(11,886		)	(9,405		)
Cash used by investing activities	(26,721		)	(85,533		)
Financing activities
Advances on line of credit	95,000			—
Payments on convertible notes	—			(64,472		)
Sale of common stock	35,236			10,143
Purchase of common stock	(200,302		)	(472		)
Dividends paid	(33,305		)	(30,983		)
Other, net	(2,307		)	(13,307		)
Cash used by financing activities	(105,678		)	(99,091		)
Net decrease in cash	(10,615		)	(45,298		)
Cash at beginning of year	97,857			129,460
Cash at end of year	$	87,242		$	84,162

S - 4

HCC Insurance Holdings, Inc. and Subsidiaries

Gross Written Premium

(Unaudited, in thousands)

	Six months ended June 30,						Three months ended June 30,
	2011		2010		Change		2011		2010		Change
U.S. Property & Casualty
Aviation	$	79,056	$	76,908	3	%	$	37,608	$	39,387	(5	)%
E&O	36,998		44,298		(16	)	17,305		20,707		(16	)
Public Risk	34,298		34,691		(1	)	16,845		17,979		(6	)
Other	115,159		113,232		2		64,203		53,434		20
	265,511		269,129		(1	)	135,961		131,507		3
Professional Liability
U.S. D&O	200,661		220,144		(9	)	123,470		133,272		(7	)
International D&O	61,611		49,372		25		37,682		28,519		32
	262,272		269,516		(3	)	161,152		161,791		—
Accident & Health
Medical Stop-loss	351,154		323,558		9		176,197		161,792		9
Other	46,669		49,850		(6	)	25,326		27,438		(8	)
	397,823		373,408		7		201,523		189,230		6
U.S. Surety & Credit
Surety	86,962		88,700		(2	)	45,257		47,754		(5	)
Credit	26,991		28,470		(5	)	14,925		15,395		(3	)
	113,953		117,170		(3	)	60,182		63,149		(5	)
International
Energy	96,381		80,322		20		80,078		63,740		26
Property Treaty	104,115		55,095		89		32,296		17,465		85
Liability	48,071		49,037		(2	)	23,953		21,090		14
Surety & Credit	47,189		40,245		17		20,516		18,940		8
Other	55,825		58,079		(4	)	26,390		24,201		9
	351,581		282,778		24		183,233		145,436		26
Exited Lines	150		2,073		nm		31		465		nm
Totals	$	1,391,290	$	1,314,074	6	%	$	742,082	$	691,578	7	%

nm - Not meaningful comparison

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HCC Insurance Holdings, Inc. and Subsidiaries

Net Written Premium

(Unaudited, in thousands)

	Six months ended June 30,						Three months ended June 30,
	2011		2010		Change		2011		2010		Change
U.S. Property & Casualty
Aviation	$	59,085	$	53,750	10	%	$	31,691	$	27,729	14	%
E&O	36,586		44,237		(17	)	17,020		20,707		(18	)
Public Risk	26,396		23,650		12		13,144		14,445		(9	)
Other	58,369		41,830		40		31,859		20,340		57
	180,436		163,467		10		93,714		83,221		13
Professional Liability
U.S. D&O	153,692		159,011		(3	)	94,081		96,630		(3	)
International D&O	36,956		19,814		87		22,776		11,321		101
	190,648		178,825		7		116,857		107,951		8
Accident & Health
Medical Stop-loss	351,056		323,558		8		176,147		161,792		9
Other	46,444		49,661		(6	)	25,248		27,344		(8	)
	397,500		373,219		7		201,395		189,136		6
U.S. Surety & Credit
Surety	82,743		85,310		(3	)	42,985		45,925		(6	)
Credit	22,358		22,249		—		12,409		14,215		(13	)
	105,101		107,559		(2	)	55,394		60,140		(8	)
International
Energy	62,897		47,465		33		57,845		37,623		54
Property Treaty	86,126		49,046		76		24,966		13,789		81
Liability	44,433		45,747		(3	)	22,073		19,570		13
Surety & Credit	43,466		36,673		19		18,708		17,037		10
Other	38,000		42,188		(10	)	18,890		18,072		5
	274,922		221,119		24		142,482		106,091		34
Exited Lines	150		864		nm		31		263		nm
Totals	$	1,148,757	$	1,045,053	10	%	$	609,873	$	546,802	12	%

nm -  Not meaningful comparison

S - 6

HCC Insurance Holdings, Inc. and Subsidiaries

Net Earned Premium

(Unaudited, in thousands)

	Six months ended June 30,						Three months ended June 30,
	2011		2010		Change		2011		2010		Change
U.S. Property & Casualty
Aviation	$	54,600	$	58,298	(6	)%	$	27,318	$	29,355	(7	)%
E&O	38,357		51,066		(25	)	18,800		24,834		(24	)
Public Risk	23,179		22,926		1		11,927		11,436		4
Other	43,039		41,335		4		20,876		19,070		9
	159,175		173,625		(8	)	78,921		84,695		(7	)
Professional Liability
U.S. D&O	180,254		192,379		(6	)	90,279		95,667		(6	)
International D&O	22,920		25,774		(11	)	12,145		12,334		(2	)
	203,174		218,153		(7	)	102,424		108,001		(5	)
Accident & Health
Medical Stop-loss	351,056		323,558		8		176,147		161,792		9
Other	49,601		50,929		(3	)	25,970		25,911		—
	400,657		374,487		7		202,117		187,703		8
U.S. Surety & Credit
Surety	80,809		79,548		2		40,148		39,531		2
Credit	20,594		19,072		8		9,891		12,340		(20	)
	101,403		98,620		3		50,039		51,871		(4	)
International
Energy	28,683		26,789		7		16,634		10,602		57
Property Treaty	37,965		15,609		143		21,961		8,855		148
Liability	39,898		40,549		(2	)	19,966		19,777		1
Surety & Credit	36,057		35,884		—		18,683		17,695		6
Other	25,561		31,101		(18	)	13,473		16,836		(20	)
	168,164		149,932		12		90,717		73,765		23
Exited Lines	158		1,155		nm		33		350		nm
Totals	$	1,032,731	$	1,015,972	2	%	$	524,251	$	506,385	4	%

nm - Not meaningful comparison

S - 7

HCC Insurance Holdings, Inc. and Subsidiaries

Net Investment Income and Unrealized Gain

(Unaudited, in thousands)

	Six months ended						Three months ended
	June 30,						June 30,
	2011			2010			2011			2010
Sources of net investment income:
Fixed income securities
Taxable	$	54,219		$	54,803		$	27,124		$	27,935
Exempt from U.S. income taxes	49,826			44,277			24,915			22,546
Total fixed income securities	104,045			99,080			52,039			50,481
Short-term investments	321			360			165			170
Other	2,030			2,042			1,388			534
Total investment income	106,396			101,482			53,592			51,185
Investment expense	(2,379		)	(2,016		)	(1,170		)	(968		)
Net investment income	$	104,017		$	99,466		$	52,422		$	50,217
Unrealized gain on available for sale fixed income securities:
Increase in unrealized gain for period, before tax	$	59,409		$	68,632		$	77,623		$	61,060
Unrealized gain at:
June 30, 2011	$	194,043
March 31, 2011	$	116,420
December 31, 2010	$	134,634

S - 8

HCC Insurance Holdings, Inc. and Subsidiaries

Net Loss Ratios

(Unaudited, in thousands)

	Six months ended				Six months ended
	June 30, 2011				June 30, 2010
	Net earned		Loss		Net earned		Loss
	premium		ratio		premium		ratio
U.S. Property & Casualty
Aviation	$	54,600	63.7	%	$	58,298	59.3	%
E&O	38,357		57.3		51,066		62.8
Public Risk	23,179		66.9		22,926		69.6
Other	43,039		46.8		41,335		48.9
	159,175		58.1		173,625		59.2
Professional Liability
U.S. D&O	180,254		69.3		192,379		61.0
International D&O	22,920		57.2		25,774		60.5
	203,174		67.9		218,153		60.9
Accident & Health
Medical Stop-loss	351,056		74.0		323,558		73.9
Other	49,601		64.2		50,929		67.4
	400,657		72.8		374,487		73.1
U.S. Surety & Credit
Surety	80,809		25.3		79,548		25.3
Credit	20,594		44.9		19,072		40.7
	101,403		29.3		98,620		28.3
International
Energy	28,683		59.8		26,789		35.9
Property Treaty	37,965		103.4		15,609		103.5
Liability	39,898		51.2		40,549		55.1
Surety & Credit	36,057		41.2		35,884		38.4
Other	25,561		151.3		31,101		72.2
	168,164		77.5		149,932		56.3
Exited Lines	158		nm		1,155		nm
Totals	$	1,032,731	66.0	%	$	1,015,972	61.6	%

nm - Not meaningful comparison

S - 9

HCC Insurance Holdings, Inc. and Subsidiaries

Catastrophe Loss History

(Unaudited, in millions)

Year	Key Catastrophes	Gross (a)		Net (a)
2011	Japan earthquake/tsunami, New Zealand earthquake and United States tornados	$	120	$	73
2010	Chile and New Zealand earthquakes and Deepwater Horizon rig disaster	77		26
2008	Hurricanes Gustav and Ike	85		8
2005	Hurricanes Katrina, Rita and Wilma	385		58
2004	Hurricanes Charley, Francis, Ivan and Jeanne	73		22
2001	9/11 terrorist attack	119		35
1994	Northridge earthquake	5		1
1992	Hurricane Andrew (b)	NA		1

(a)Represents pretax recorded losses from date of event through June 30, 2011. Net losses are  net of reinsurance and include reinstatement premiums.

(b)Gross loss is not available.

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