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HCC Insurance Holdings Reports Earnings, Introduces Reporting Segment Changes

Source: MarketWatch


Posted on 03 Nov 2010

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HCC Insurance Holdings, Inc. released results for its third quarter ended September 30, 2010.

Net earnings for the third quarter of 2010 were $93.1 million, compared with $94.3 million during the third quarter of 2009. Net earnings per diluted share were $0.81 for the third quarter of 2010, compared to $0.83 for the same quarter of 2009. Net earnings for the first nine months of 2010 were $247.8 million, or $2.15 per diluted share, versus $269.1 million, or $2.37 per diluted share, for the first nine months of the previous year.

During the third quarter of 2010, the Company repurchased 407,166 shares of common stock at an average price of $25.10 per share. For the first nine months of 2010, the Company repurchased 457,316 shares of common stock at an average price of $25.02 per share. The Company has $289.0 million remaining under its $300 million share buyback authorization.

The GAAP combined ratio for the third quarter of 2010 was 82.1%, compared to 81.3% for the same quarter of 2009, and 85.3% in the first nine months of 2010, compared to 83.4% in the corresponding period of 2009.

The accident year combined ratio was 82.2% for the third quarter of 2010 and 85.1% for the first nine months of 2010, compared to 86.2% and 85.8% for the same periods in 2009, respectively. The accident year combined ratio for the first nine months of 2010 includes 1.0 percentage point for catastrophes. Book value per share increased to $28.95 at September 30, 2010, compared to $26.58 at December 31, 2009. The Company's annualized return on average equity for the third quarter of 2010 was 11.4%.

For the third quarter of 2010, the gross written premium of HCC's insurance company subsidiaries increased 3% to $640.7 million, compared to $620.4 million for the same quarter of 2009. Net written premium increased to $494.4 million in 2010, compared with net written premium of $493.3 million in 2009. Net earned premium decreased to $516.2 million for the third quarter of 2010, compared to $520.1 million for the same quarter of 2009.

During the first nine months of 2010, gross written premium increased 3% to $2.0 billion, and net written premium and net earned premium increased slightly to $1.5 billion, compared to the first nine months of 2009.

"We continue to be pleased with our 2010 performance. The third quarter was another solid quarter in a continuing difficult environment. Our premium volume and loss and expense ratios are a reflection of our strategy of building a diverse portfolio of specialty businesses," said John N. Molbeck, Jr., HCC President and Chief Executive Officer.

During the third quarter of 2010, HCC had net favorable prior year reserve development of $0.9 million, compared to $25.4 million for the same period in 2009. For the first nine months of 2010, the Company recorded $1.3 million of net adverse prior year reserve development, compared to net favorable prior year reserve development of $36.6 million for the same period in 2009.

Investment income increased during the third quarter of 2010 to $51.1 million, compared to $48.1 million a year earlier, reflecting an increased amount of invested assets. On a year-to-date basis, investment income increased to $150.6 million in 2010 from $141.7 million in 2009. The Company's fixed income investments increased 10% from September 30, 2009 to $5.4 billion at September 30, 2010. As of September 30, 2010, HCC's fixed income securities portfolio had an average rating of AA+, an average duration of 4.6 years and an average tax equivalent yield of 4.9%.

The Company's liquidity position remains strong and its shareholders' equity was $3.3 billion at September 30, 2010. The Company held $572.3 million of cash and short-term investments at the end of the quarter. HCC has a $575.0 million revolving loan facility with $556.6 million of available capacity at September 30, 2010. The Company generated $175.3 million and $314.6 million of cash flow from operating activities in the third quarter and first nine months of 2010, respectively, compared to $155.4 million and $417.5 million for the same periods in 2009.

As of September 30, 2010, total investments were $5.8 billion, total assets were $9.3 billion, and the Company's debt to total capital ratio was 8.2%.

The Company also announced its new reporting segment structure, which was completed during the third quarter of 2010. The new segments are the result of the reorganization of the Company's management structure around its key lines of business. Beginning this quarter, the Company will report results in these six segments, each of which reports to an executive responsible for that segment's results:

  --  U.S. Property & Casualty
  --  Professional Liability
  --  Accident & Health
  --  U.S. Surety & Credit
  --  International
  --  Investing

The first five segments report the results of HCC's insurance underwriting businesses, including its underwriting agencies that produce the business. Segment results will be measured based on pretax underwriting profit. The consolidated investment portfolio, its related net investment income and any net realized investment gains and losses will be included in the Investing segment. Previously, HCC reported its results in the Insurance Company, Agency, and Other Operations segments. Prior period information has been adjusted to reflect the new reporting segment structure.

Included in the portfolio of products for each insurance segment are the following key products:

  --  U.S. Property & Casualty -- aviation, small account errors and omissions liability, public risk, employment practices liability, title, residual value, disability, kidnap and ransom, contingency and brown water marine written in the United States.

  --  Professional Liability -- directors' and officers' liability, large account errors and omissions liability, diversified financial products and fidelity written in the United States and internationally.

  --  Accident & Health -- medical stop-loss, short-term domestic and international medical, HMO reinsurance and medical excess written in the United States.

  --  U.S. Surety & Credit -- contract, commercial, court and bail bonds written in the United States and credit insurance managed in the United States.

  --  International -- energy, property treaty, liability, surety, credit, property, ocean marine, accident and health and other smaller product lines written outside the United States.







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