Segments

9 Months Ended

Sep. 30, 2011

Segments [Abstract]

Segments

(9) Segments

We report HCC's results in six operating segments, each of which reports to an HCC executive who is responsible for the segment results.Each of our five insurance-related segments bears risk for insurance coverage written within its portfolio of insurance products. Each segment generates income from premium written by our underwriting agencies, through third party agents and brokers, or on a direct basis. Fee and commission income earned by our agencies from third party insurance companies is included in segment revenue. Each segment incurs insurance losses, acquisition costs and other administrative expenses related to our insurance companies and underwriting agencies. We monitor and assess each segment's pretax results based on underwriting profit, gross and net written premium, and its combined ratio, consisting of the net loss ratio and expense ratio.

Included in the portfolio of products for each underwriting 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, contingency, kidnap and ransom, difference in conditions, occupational accident and brown water marine written in the United States.
• Professional Liability – directors' and officers' (D&O) liability,large account errors and omissions liability, fiduciary liability, fidelity, bankers' blanket bonds and, for some D&O policyholders, employment practices liability 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 surety bonds, commercial surety bonds, and bail bonds written in the United States and credit insurance managed in the United States.
• International – energy, property treaty, liability, surety, credit, property (direct and facultative), ocean marine, accident and health and other smaller product lines written outside the United States.

The Investing segment includes our total investment portfolio, as well as all investment income, investment related expenses, realized investment gains and losses, and other-than-temporary impairment credit losses on investments. All investment activity is reported as revenue, consistent with our consolidated presentation.

In addition to our segments, we include a Corporate & Other category to reconcile segment results to consolidated totals. The Corporate & Other category includes corporate operating expenses not allocable to the segments, interest expense on long-term debt, and underwriting results of our Exited Lines. Our Exited Lines include these six product lines that we no longer write and do not expect to write in the future:1) accident and health business managed by our underwriting agency, LDG Reinsurance, 2) workers' compensation, 3) provider excess, 4) Spanish medical malpractice, 5) U.K. motor and 6) film completion bonds.

The following tables present information by business segment.

			U.S. Property & Casualty		Professional Liability		Accident & Health		U.S. Surety & Credit		International		Investing		Corporate & Other		Consolidated
Nine months ended September 30, 2011
Net earned premium			$	245,121	$	307,240	$	603,656	$	153,309	$	267,458	$	0	$	203	$	1,576,987
Other revenue				16,556		358		3,471		955		2,791		158,472		(506)		182,097
	Segment revenue			261,677		307,598		607,127		154,264		270,249		158,472		(303)		1,759,084
Loss and LAE				148,783		257,632		438,883		42,351		175,635		0		(1,044)		1,062,240
Other expense				82,202		40,055		92,882		82,909		99,754		0		56,466		454,268
	Segment expense			230,985		297,687		531,765		125,260		275,389		-		55,422		1,516,508
		Segment pretax earnings (loss)	$	30,692	$	9,911	$	75,362	$	29,004	$	(5,140)	$	158,472	$	(55,725)	$	242,576

Nine months ended September 30, 2010
Net earned premium			$	258,427	$	321,849	$	567,739	$	148,427	$	234,471	$	0	$	1,225	$	1,532,138
Other revenue				24,128		458		2,830		455		6,177		158,200		987		193,235
	Segment revenue			282,555		322,307		570,569		148,882		240,648		158,200		2,212		1,725,373
Loss and LAE				164,684		196,154		412,438		38,157		107,601		0		3,611		922,645
Other expense				75,890		57,171		89,967		81,699		89,559		0		53,652		447,938
	Segment expense			240,574		253,325		502,405		119,856		197,160		-		57,263		1,370,583
		Segment pretax earnings (loss)	$	41,981	$	68,982	$	68,164	$	29,026	$	43,488	$	158,200	$	(55,051)	$	354,790

			U.S. Property & Casualty		Professional Liability		Accident & Health		U.S. Surety & Credit		International		Investing		Corporate & Other		Consolidated
Three months ended September 30, 2011
Net earned premium			$	85,946	$	104,066	$	202,999	$	51,906	$	99,294	$	0	$	45	$	544,256
Other revenue				6,890		109		1,277		254		889		57,439		(590)		66,268
	Segment revenue			92,836		104,175		204,276		52,160		100,183		57,439		(545)		610,524
Loss and LAE				56,355		119,617		147,278		12,664		45,242		0		(784)		380,372
Other expense				26,627		6,023		30,887		27,657		35,734		0		20,432		147,360
	Segment expense			82,982		125,640		178,165		40,321		80,976		0		19,648		527,732
		Segment pretax earnings (loss)	$	9,854	$	(21,465)	$	26,111	$	11,839	$	19,207	$	57,439	$	(20,193)	$	82,792

Three months ended September 30, 2010
Net earned premium			$	84,802	$	103,696	$	193,252	$	49,807	$	84,539	$	0	$	70	$	516,166
Other revenue				5,033		20		1,113		127		1,466		51,894		129		59,782
	Segment revenue			89,835		103,716		194,365		49,934		86,005		51,894		199		575,948
Loss and LAE				61,883		63,212		138,869		10,296		23,227		0		(349)		297,138
Other expense				21,289		18,866		30,908		28,007		29,654		0		18,074		146,798
	Segment expense			83,172		82,078		169,777		38,303		52,881		-		17,725		443,936
		Segment pretax earnings (loss)	$	6,663	$	21,638	$	24,588	$	11,631	$	33,124	$	51,894	$	(17,526)	$	132,012

The Professional Liability segment's 2011 pretax earnings were impacted by the combined effect of net adverse loss development incurred by the segment and an increase in the 2011 accident year loss ratio for the diversified financial products line of business, which is included in the Professional Liability segment. The combined impact reduced pretax earnings by $75.1 million in the first nine months and $58.1 million in the third quarter of 2011.Catastrophe losses reduced the International segment's pretax earnings by $101.7million and $29.4million inthe first nine months and third quarter of 2011, respectively, and $15.6million in the first nine months of 2010.