EX-99.1 2 h66689exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
(HCC LOGO)
HCC INSURANCE HOLDINGS REPORTS EARNINGS
FOR THE FIRST QUARTER OF 2009
HOUSTON (May 5, 2009) . . .
HCC Insurance Holdings, Inc. (NYSE: HCC) today released results for the first quarter of 2009, which ended March 31.
“We are extremely pleased to report solid earnings for the first quarter of 2009 and results that show an increase over 2008. Our investment income should resume its steady growth following our exit from alternative investments and as our investment assets continue to increase,” HCC Chief Executive Officer Frank J. Bramanti said.
Net earnings for the first quarter of 2009 were $83.2 million, compared with $80.5 million during the first quarter of 2008, a 3.4 percent increase. Net earnings per diluted share were $0.73 for the first quarter of 2009, compared to $0.69 for the same quarter of 2008, an increase of 5.8 percent.
The GAAP combined ratio for the first quarter of 2009 was 87.3 percent, compared to 83.7 percent for the first quarter of 2008. Book value per share increased to $24.14 at March 31, 2009, compared to $23.27 a share at December 31, 2008, a 3.7 percent increase. The Company’s annualized return on average equity for the first quarter of 2009 was 12.4 percent.
For the first quarter of 2009, the gross written premium of HCC’s insurance company subsidiaries increased 3.3 percent to $602.4 million, compared to $583.0 million for the same quarter of 2008. Net written premium was flat at $491.3 million during the first quarter of 2009, compared with net written premium of $493.6 million for the 2008 first quarter. Net earned premium increased 1.8 percent to $502.4 million for the first quarter of 2009, compared to $493.5 million for the same quarter of 2008.
“While we are optimistic about an eventual turn in the pricing cycle, our observation is that it has not happened yet. Accordingly, we remain disciplined in our approach to risk selection and pricing. Our underwriting results continue to be good but rates are continuing to fall in certain lines of business, albeit at a slowing pace. On the other hand, we continue to see improvement in pricing in our international aviation, medical stop-loss, financial institution professional liability and offshore energy businesses. These increases should lead to improving results into 2010,” Mr. Bramanti added.
During the first quarter of 2009, HCC had net adverse prior year reserve development of

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$4.7 million, compared to net favorable prior year reserve development of $5.1 million for the same period in 2008. The adverse development is principally due to case reserve and IBNR increases in certain Life, Accident and Health lines of business.
Other operating income was $22.9 million for the 2009 first quarter, versus a loss of $4.9 million for the same period in 2008, reflecting the commutation of the MGIC reinsurance contract that the Company had been accounting for using the deposit method. HCC received $25.0 million of cash from the MGIC commutation, of which $5.0 million was recorded as fee and commission income. After reinsurance and other costs, the commutation increased pretax earnings by $15.6 million in the first quarter of 2009. The pretax earnings impact for the full year 2009, however, will be $7.8 million more than originally budgeted.
Investment income decreased during the first quarter of 2009 to $45.2 million, compared to $47.6 million a year earlier, reflecting much lower short-term interest rates in 2009.
HCC’s fixed income securities generated $45.4 million in investment income in the 2009 first quarter, versus $40.9 million in the 2008 first quarter. The Company’s fixed income investments increased 10.0 percent from March 31, 2008 to $4.3 billion at March 31, 2009.
As of March 31, 2009, HCC’s fixed income securities portfolio had an average rating of AA+, an average duration of 4.8 years and an average tax equivalent yield of 5.2 percent. The Company held $8.1 million of subprime-related and Alt-A securities, which had an average rating of A, and owned no CDO or CLO securities. HCC has never been a counterparty to any credit default swap.
“At the end of the first quarter of 2009, HCC completed its exit from the last of its equity and equity-related investments, including hedge funds and other alternative investments. Those funds have been reinvested in fixed income securities. We incurred a $1.0 million loss during the first quarter of 2009. Our fixed income portfolio has continued to perform well and we had a net unrealized gain of $60.0 million on our available for sale fixed income securities at March 31, 2009,” Mr. Bramanti said.
HCC repurchased 1.7 million common shares for a total of $35.5 million during the first quarter of 2009. This brings the total repurchased to 4.7 million shares for a total of $98.8 million at an average cost of $21.14 per share.
The Company’s outstanding convertible debt issue was subject to a put option that expired on April 1, 2009. Investors elected to hold these securities and, therefore, they remain outstanding. Investors’ next put option is April 1, 2014. HCC continues to maintain a $575 million syndicated bank line of credit facility that does not expire until the end of 2011. The Company’s liquidity and cash flow remain strong and its shareholders’ equity is a record $2.7 billion.
As of March 31, 2009, total investments were $5.0 billion, total assets were $8.6 billion,

3

 

shareholders’ equity was $2.7 billion and the Company’s debt to total capital ratio remained very conservative at 13.6 percent.
See attached tables for further information about HCC’s first quarter financial results.
HCC will hold an open conference call beginning at 8:00 a.m. Central Daylight Time on Wednesday, May 6. 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 at www.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 $8.6 billion, shareholders’ equity of $2.7 billion and is rated AA (Very Strong) by Standard & Poor’s 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 at www.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.
* * * * *

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HCC Insurance Holdings, Inc. and Subsidiaries
Financial Highlights
March 31, 2009
(Unaudited, in thousands except per share data)
                 
    Three months ended March 31,
    2009   2008
        (as adjusted) (a)
 
Gross written premium
   $ 602,387     $ 582,999  
Net written premium
     491,250       493,647  
Net earned premium
     502,388       493,546  
Fee and commission income
     30,294       30,999  
Net investment income
     45,218       47,621  
Other operating income (loss)
     22,896       (4,946 )
Total revenue
     600,738       567,388  
Net earnings
     83,170       80,455  
Earnings per share (diluted)
     0.73       0.69  
Cash flow from operations
     133,602       135,800  
Weighted-average shares outstanding (diluted)(in millions)
     113.3       116.4  
GAAP net loss ratio
     62.8 %     59.4 %
GAAP combined ratio
     87.3 %     83.7 %
Paid loss ratio
     54.0 %     51.0 %
 
    March 31, 2009   December 31, 2008
        (as adjusted) (a)
 
Total investments
   $ 5,019,675     $ 4,804,283  
Total assets
     8,623,917       8,332,000  
Shareholders’ equity
     2,704,910       2,640,023  
Debt to total capital
     13.6 %     11.5 %
Book value per share
   $ 24.14     $ 23.27  
 
(a)   Certain amounts in 2008 changed due to our 1/1/2009 adoption of new accounting standards.

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HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
                 
    March 31,     December 31,  
    2009     2008  
          (as adjusted) (a)  
ASSETS
                
 
                
Investments:
                
Fixed income securities — available for sale
   $ 4,228,306     $ 4,133,165  
Fixed income securities — held to maturity
     94,744       123,553  
Short-term investments
     671,355       497,477  
Other investments
     25,270       50,088  
 
            
Total investments
     5,019,675       4,804,283  
Cash
     33,013       27,347  
Restricted cash and cash investments
     184,666       174,905  
Premium, claims and other receivables
     807,177       770,823  
Reinsurance recoverables
     1,078,532       1,054,950  
Ceded unearned premium
     232,812       234,375  
Ceded life and annuity benefits
     63,513       64,235  
Deferred policy acquisition costs
     193,016       188,652  
Goodwill
     862,658       858,849  
Other assets
     148,855       153,581  
 
            
 
                
Total assets
   $ 8,623,917     $ 8,332,000  
 
            
 
                
LIABILITIES
                
 
                
Loss and loss adjustment expense payable
   $ 3,490,033     $ 3,415,230  
Life and annuity policy benefits
     63,513       64,235  
Reinsurance balances payable
     132,447       122,189  
Unearned premium
     974,687       977,426  
Deferred ceding commissions
     63,299       63,123  
Premium and claims payable
     423,919       405,287  
Notes payable
     424,714       343,649  
Accounts payable and accrued liabilities
     346,395       300,838  
 
            
 
                
Total liabilities
     5,919,007       5,691,977  
 
                
SHAREHOLDERS’ EQUITY
                
 
                
Common stock
     116,743       116,457  
Additional paid-in capital
     888,121       881,534  
Retained earnings
     1,746,943       1,677,831  
Accumulated other comprehensive income
     51,902       27,536  
Treasury stock
     (98,799 )     (63,335 )
 
            
 
                
Total shareholders’ equity
     2,704,910       2,640,023  
 
            
 
                
Total liabilities and shareholders’ equity
   $ 8,623,917     $ 8,332,000  
 
            
 
(a)   Certain amounts in 2008 changed due to our 1/1/2009 adoption of new accounting standards.

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HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited, in thousands except per share data)
                 
    Three months ended  
    March 31,  
    2009     2008  
            (as adjusted) (a)  
REVENUE
                
 
                
Net earned premium
   $ 502,388     $ 493,546  
Fee and commission income
     30,294       30,999  
Net investment income
     45,218       47,621  
Net realized investment gain (loss)
     (58 )     168  
Other operating income (loss)
     22,896       (4,946 )
 
            
 
                
Total revenue
     600,738       567,388  
 
            
 
                
EXPENSE
                
 
                
Loss and loss adjustment expense, net
     315,566       293,026  
Policy acquisition costs, net
     88,692       92,268  
Other operating expense
     68,998       59,204  
Interest expense
     4,639       4,953  
 
            
 
                
Total expense
     477,895       449,451  
 
            
 
                
Earnings before income tax expense
     122,843       117,937  
Income tax expense
     39,673       37,482  
 
            
 
                
Net earnings
   $ 83,170     $ 80,455  
 
            
 
                
Basic earnings per share data:
                
Net earnings per share
   $ 0.73     $ 0.70  
 
            
 
                
Weighted-average shares outstanding (millions)
     112.8       115.2  
 
            
 
                
Diluted earnings per share data:
                
Net earnings per share
   $ 0.73     $ 0.69  
 
            
 
                
Weighted-average shares outstanding (millions)
     113.3       116.4  
 
            
 
                
Cash dividends declared, per share
   $ 0.125     $ 0.110  
 
            
 
(a)   Certain amounts in 2008 changed due to our 1/1/2009 adoption of new accounting standards.

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HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
                 
    Three months ended  
    March 31,  
    2009     2008  
            (as adjusted) (a)  
Operating activities:
                
Net earnings
   $ 83,170     $ 80,455  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                
Change in premium, claims and other receivables
     (28,719 )     3,779  
Change in reinsurance recoverables
     (29,973 )     2,671  
Change in ceded unearned premium
     (217 )     19,899  
Change in loss and loss adjustment expense payable
     67,544       91,845  
Change in reinsurance balances payable
     11,481       (5,761 )
Change in unearned premium
     (11,335 )     (16,960 )
Change in premium and claims payable, net of restricted cash
     8,859       (45,449 )
Change in accounts payable and accrued liabilities
     (7,556 )     (7,015 )
Change in trading portfolio
     —       9,062  
Stock-based compensation expense
     4,783       2,866  
Depreciation and amortization expense
     3,579       3,390  
Other, net
     31,986       (2,982 )
 
            
Cash provided by operating activities
     133,602       135,800  
 
            
 
                
Investing activities:
                
Sales of available for sale fixed income securities
     119,092       120,075  
Maturity or call of available for sale fixed income securities
     69,280       75,875  
Maturity or call of held to maturity fixed income securities
     85,821       —  
Cost of available for sale fixed income securities acquired
     (210,093 )     (419,238 )
Cost of held to maturity fixed income securities acquired
     (59,515 )     —  
Cost of other investments acquired
     —       (36,735 )
Change in short-term investments
     (177,715 )     128,052  
Proceeds from sales of other investments
     48,579       19,038  
Payments for purchase of businesses, net of cash received
     (32,966 )     (71,486 )
Other, net
     (3,482 )     (1,670 )
 
            
Cash used by investing activities
     (160,999 )     (186,089 )
 
            
 
                
Financing activities:
                
Advances on line of credit
     80,000       40,000  
Sale of common stock
     2,090       4,592  
Purchase of common stock
     (35,464 )     —  
Dividends paid
     (14,182 )     (12,658 )
Other, net
     619       3,908  
 
            
Cash provided by financing activities
     33,063       35,842  
 
            
 
                
Net increase (decrease) in cash
     5,666       (14,447 )
 
                
Cash at beginning of period
     27,347       39,135  
 
            
 
                
Cash at end of period
   $ 33,013     $ 24,688  
 
            
 
(a)   Certain amounts in 2008 changed due to our 1/1/2009 adoption of new accounting standards.

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HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
March 31, 2009
(Unaudited, in thousands)
                         
    1st Qtr     1st Qtr     Change  
    2009     2008     %  
GROSS WRITTEN
                        
 
                        
Diversified financial products
   $ 245,112     $ 211,364       16 %
Group life, accident & health
     216,993       210,534       3  
Aviation
     41,952       44,828       (6 )
London market account
     44,749       40,936       9  
Other specialty lines
     53,577       75,343       (29 )
Discontinued lines
     4       (6 )   nm
 
                  
 
   $ 602,387     $ 582,999       3 %
 
                  
 
                        
NET WRITTEN
                        
 
                        
Diversified financial products
   $ 203,363     $ 180,501       13 %
Group life, accident & health
     199,056       202,375       (2 )
Aviation
     30,611       32,346       (5 )
London market account
     26,394       29,028       (9 )
Other specialty lines
     31,822       49,403       (36 )
Discontinued lines
     4       (6 )   nm
 
                  
 
   $ 491,250     $ 493,647       — %
 
                  
 
                        
NET EARNED PREMIUM
                        
 
                        
Diversified financial products
   $ 214,084     $ 192,177       11 %
Group life, accident & health
     201,088       192,446       4  
Aviation
     32,814       34,993       (6 )
London market account
     23,674       27,090       (13 )
Other specialty lines
     30,724       46,846       (34 )
Discontinued lines
     4       (6 )   nm
 
                  
 
   $ 502,388     $ 493,546       2 %
 
                  
 
nm — Not meaningful comparison

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HCC Insurance Holdings, Inc. and Subsidiaries
Investments — Selected Disclosures
March 31, 2009
(Unaudited, in thousands)
                                                                                 
                    % of     Average Ratings      
    Amortized Cost     Fair Value     Portfolio     AAA     AA     A     BBB     Below BBB     Other     Average  
 
Fixed Income Securities
   $ 4,263,073     $ 4,323,738       100.0 %   $ 2,123,820     $ 1,447,155     $ 618,295     $ 119,768     $ 12,106     $ 2,594     AA+
 
                                                                          
 
                                                                                
Residential Mortgage Backed Securities & Collateralized Mortgage Obligations
                                                                                
 
                                                                                
Agency
   $ 722,952     $ 766,643       17.7 %     766,643       —       —       —       —       —     AAA
 
                                                                                
Non-Agency
                                                                                
Prime
     79,076       68,346       1.6 %     43,602       823       6,739       9,906       7,276       —     AA
Alt-A
     7,048       6,426       0.1 %     2,860       662       778       183       1,943       —     A  
Subprime
     2,151       1,657       0.0 %     1,274       —       —       209       174       —     A+  
 
                                                                            
Total Residential MBS/CMO
   $ 811,227     $ 843,072       19.5 %                                                        
 
                                                                          
Agency Securities
                                                                                
 
                                                                                
Senior Agency Debt — FNMA / FHLMC
   $ 23,344     $ 24,373       0.6 %     24,373       —       —       —       —       —     AAA
 
                                                                          
 
                                                                                
Corporate Bonds — Non Financial
   $ 391,168     $ 398,387       9.2 %     47,544       42,697       263,289       42,331       2,526       —     A+  
 
                                                                          
Corporate Bonds — Financial Institutions
   $ 223,852     $ 213,751       4.9 %     41,613       46,838       122,138       3,162       —       —     AA-
 
                                                                          
Commercial Mortgaged Backed Securities
   $ 170,474     $ 139,680       3.2 %     139,071       609       —       —       —       —     AAA
 
                                                                          
 
                                                                                
Municipal Bond Portfolio
   $ 2,005,822     $ 2,054,822       47.5 %     489,458       1,314,880       193,153       54,452       —       2,879     AA
 
                                                                          
Insurance Enhanced
   $ 1,227,502     $ 1,253,548       29.0 %     189,286       830,601       176,374       54,655       —       2,632     AA
 
                                                                          
Insured — Underlying Ratings
   $ 1,227,502     $ 1,253,548       29.0 %     185,276       770,054       273,775       877       —       23,566     AA
 
                                                                          
Non-Insured
   $ 778,320     $ 801,274       18.5 %     299,328       484,589       17,357       —       —       —     AA+
 
                                                                          
 
                                                                                
Asset Backed Securities
                                                                                
Auto
   $ 45,577     $ 43,095       1.0 %     35,068       1,900       1,649       4,478       —       —     AA+
Credit Card
     9,550       9,579       0.2 %     9,579       —       —       —       —       —     AAA
Other
     5,883       5,279       0.1 %     1,278       —       3,320       681       —       —     AA
 
                                                                            
 
                                                                                
Total Asset Backed Securities
   $ 61,010     $ 57,953       1.3 %                                                        
 
                                                                          
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 $0.7 million for the first quarter of 2009 on subprime and Alt-A securities.
Corporate Bonds — Financial Institutions includes $56.0 million of bonds issued by foreign financial institutions.

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HCC Insurance Holdings, Inc. and Subsidiaries
Net Investment Income and Unrealized Gains and Losses
Selected Disclosures
March 31, 2009
(Unaudited, in thousands)
                 
    Three months ended  
    March 31,  
    2009     2008  
 
                
Sources of net investment income:
                
 
                
Fixed income securities
                
Taxable
   $ 25,105     $ 22,452  
Exempt from U.S. income tax
     20,333       18,472  
 
            
Total from fixed income securities
     45,438       40,924  
 
                
Short-term investments
     1,794       8,592  
Alternative investments
     (962 )     (1,205 )
Other investments
     —       267  
 
            
Total investment income
     46,270       48,578  
 
                
Investment expense
     (1,052 )     (957 )
 
            
 
                
Net investment income
   $ 45,218     $ 47,621  
 
            
 
                
Unrealized gains and losses on available for sale fixed income securities:
                
 
                
Change in unrealized gain for period
   $ 45,351     $ 1,114  
 
            
 
                
Unrealized gain at March 31, 2009
   $ 59,977          
 
              
 
                
Unrealized gain at December 31, 2008
   $ 14,626          
 
              

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HCC Insurance Holdings, Inc. and Subsidiaries
Subprime Liability Exposure
March 31, 2009
•   As of March 31, the Company had 62 “non-Side A only” D&O, E&O and Fiduciary Liability claims and 17 “Side A only” D&O claims relating to subprime issues.
 
•   Of the D&O claims reported, three are on primary policies with gross policy limits totaling $12 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 $88 million.
 
•   The average policy limit for “Side A only” claims is $14.2 million gross and $11.3 million net, with an average attachment point of $159 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.

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HCC Insurance Holdings, Inc. and Subsidiaries
Consolidated Insurance Companies
Net Loss Ratios
March 31, 2009
(Unaudited, in thousands)
                                                 
    Year to Date 2009     Full Year 2008  
    Net Earned     Incurred     Loss     Net Earned     Incurred     Loss  
Line of Business   Premium     Losses     Ratio     Premium     Losses     Ratio  
Diversified financial products
   $ 214,084     $ 110,846       51.8 %   $ 805,604     $ 387,718       48.1 %
Group life, accident & health
     201,088       150,033       74.6       777,268       567,947       73.1  
Aviation
     32,814       20,125       61.3       139,838       87,525       62.6  
London market account
     23,674       9,766       41.3       106,857       49,571       46.4  
Other specialty lines
     30,724       24,899       81.0       173,449       116,526       67.2  
Discontinued lines
     4       (103 )   nm     4,758       2,586     nm
 
                                    
Total
   $ 502,388     $ 315,566       62.8 %   $ 2,007,774     $ 1,211,873       60.4 %
 
                                    
 
nm — Not meaningful comparison

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