10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the Quarterly Period Ended September 30, 2012.

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

from                              to                             

Commission file number 001-13790

HCC Insurance Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware	76-0336636
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
13403 Northwest Freeway, Houston, Texas	77040-6094
(Address of principal executive offices)	(Zip Code)

(713) 690-7300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes þ    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨    No þ

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

On October 26, 2012, there were approximately 101.3 million shares of common stock outstanding.

HCC Insurance Holdings, Inc. and Subsidiaries

Table of Contents

	Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets — September 30, 2012 and December 31, 2011		5
Consolidated Statements of Earnings — Nine and three months ended September 30, 2012 and 2011		6
Consolidated Statements of Comprehensive Income — Nine and three months ended September  30, 2012 and 2011		7
Consolidated Statement of Changes in Shareholders’ Equity — Nine months ended September  30, 2012		8
Consolidated Statements of Cash Flows — Nine months ended September 30, 2012 and 2011		9
Notes to Consolidated Financial Statements		10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3. Quantitative and Qualitative Disclosures About Market Risk		43
Item 4. Controls and Procedures		43
Part II. OTHER INFORMATION
Item 1. Legal Proceedings		44
Item 1A. Risk Factors		44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 3. Defaults Upon Senior Securities		44
Item 4. Mine Safety Disclosures		44
Item 5. Other Information		44
Item 6. Exhibits		45
Signatures		46

2

FORWARD-LOOKING STATEMENTS

This Report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. These forward-looking statements reflect our current expectations and projections about future events and include information about possible or assumed future results of our operations. All statements, other than statements of historical facts, included or incorporated by reference in this Report that address activities, events or developments that we expect or anticipate may occur in the future, including such things as growth of our business and operations, business strategy, competitive strengths, goals, plans, future capital expenditures and references to future successes may be considered forward-looking statements. Generally, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “probably” or similar expressions indicate forward-looking statements.

Many risks and uncertainties may have an impact on the matters addressed in these forward-looking statements, which could affect our future financial results and performance, including, among other things:

• the effects of catastrophe losses,

• the cyclical nature of the insurance business,

• inherent uncertainties in the loss estimation process, which can adversely impact the adequacy of loss reserves,

• the impact of past and future potential credit market downturns, including any potential additional ratings downgrade and/or impairment or perceived impairment of the debt securities of sovereign issuers, including the United States of America,

• the effects of emerging claim and coverage issues,

• the effects of extensive governmental regulation of the insurance industry,

• changes to the country’s health care delivery system,

• the effects, if any, of climate change, on the risks we insure,

• potential credit risk with brokers,

• the effects of industry consolidations,

• our assessment of underwriting risk,

• our retention of risk, which could expose us to potential losses,

• the adequacy of reinsurance protection,

• the ability and willingness of reinsurers to pay balances due us,

• the occurrence of terrorist activities,

• our ability to maintain our competitive position,

• fluctuations in securities markets, including defaults, which may reduce the value of our investment assets, reduce investment income or generate realized investment losses,

• changes in our assigned financial strength ratings,

• our ability to raise capital and funds for liquidity in the future,

• attraction and retention of qualified employees,

3

• our ability to successfully expand our business through the acquisition of insurance-related companies,

• impairment of goodwill,

• the ability of our insurance company subsidiaries to pay dividends in needed amounts,

• fluctuations in foreign exchange rates,

• failure of, or loss of security related to, our information technology systems,

• difficulties with outsourcing relationships, and

• change of control.

We describe these risks and uncertainties in greater detail in Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2011.

These events or factors could cause our results or performance to differ materially from those we express in our forward-looking statements. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and, therefore, the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements that are included in this Report, our inclusion of this information is not a representation by us or any other person that our objectives or plans will be achieved.

Our forward-looking statements speak only at the date made, and we will not update these forward-looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, any forward-looking events discussed in this Report may not occur.

4

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited, in thousands except per share data)

	September 30, 2012			December 31, 2011
				(as adjusted)
ASSETS
Investments
Fixed maturity securities – available for sale, at fair value (amortized cost: 2012 – $5,847,178 and 2011 – $5,385,432)	$	6,315,365		$	5,718,834
Fixed maturity securities – held to maturity, at amortized cost (fair value: $163,136)		-			161,102
Equity securities – available for sale, at fair value (cost: $197,469)		202,864			-
Short-term investments, at cost (approximates fair value)		160,138			133,917
Other investments, at fair value (amortized cost: 2012 – $31,550 and 2011 – $38,230)		34,044			35,897
Total investments		6,712,411			6,049,750
Cash		64,293			104,550
Restricted cash		125,974			229,821
Premium, claims and other receivables		604,881			688,732
Reinsurance recoverables		1,013,957			1,056,068
Ceded unearned premium		262,168			222,300
Ceded life and annuity benefits		58,771			61,061
Deferred policy acquisition costs		199,401			189,633
Goodwill		885,860			872,814
Other assets		152,668			122,549
Total assets	$	10,080,384		$	9,597,278
LIABILITIES
Loss and loss adjustment expense payable	$	3,692,250		$	3,658,317
Life and annuity policy benefits		58,771			61,061
Reinsurance, premium and claims payable		321,064			366,499
Unearned premium		1,118,094			1,031,034
Deferred ceding commissions		74,441			62,364
Notes payable		548,906			478,790
Accounts payable and accrued liabilities		762,038			665,231
Total liabilities		6,575,564			6,323,296
SHAREHOLDERS’ EQUITY
Common stock, $1.00 par value; 250,000 shares authorized (shares issued: 2012 – 124,459 and 2011 – 122,720; outstanding: 2012 – 101,297 and 2011 – 104,101)		124,459			122,720
Additional paid-in capital		1,046,435			1,001,308
Retained earnings		2,664,745			2,429,818
Accumulated other comprehensive income		318,239			227,659
Treasury stock, at cost (shares: 2012 – 23,162 and 2011 – 18,619)		(649,058	)		(507,523	)
Total shareholders’ equity		3,504,820			3,273,982
Total liabilities and shareholders’ equity	$	10,080,384		$	9,597,278

See Notes to Consolidated Financial Statements.

5

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Statements of Earnings

(unaudited, in thousands except per share data)

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
REVENUE
Net earned premium	$	1,676,122		$	1,576,987		$	563,650		$	544,256
Net investment income		166,642			158,782			56,342			54,765
Other operating income		23,229			23,625			10,840			8,829
Net realized investment gain		8,519			3,169			1,472			2,674
Other-than-temporary impairment credit losses		(1,028	)		(3,479	)		(631	)		-
Total revenue		1,873,484			1,759,084			631,673			610,524
EXPENSE
Loss and loss adjustment expense, net		969,767			1,062,240			304,014			380,372
Policy acquisition costs, net		211,554			193,180			67,620			57,496
Other operating expense		268,164			244,491			100,458			84,254
Interest expense		19,101			16,597			5,962			5,610
Total expense		1,468,586			1,516,508			478,054			527,732
Earnings before income tax expense		404,898			242,576			153,619			82,792
Income tax expense		121,759			65,671			46,557			22,355
Net earnings	$	283,139		$	176,905		$	107,062		$	60,437
Earnings per common share
Basic	$	2.77		$	1.58		$	1.06		$	0.56
Diluted	$	2.76		$	1.57		$	1.05		$	0.56

See Notes to Consolidated Financial Statements.

6

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(unaudited, in thousands)

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Net earnings	$	283,139		$	176,905		$	107,062		$	60,437
Other comprehensive income:
Investment gains:
Investment gains during the period		152,498			155,933			91,185			100,555
Income tax charge		54,078			51,356			32,274			36,059
Investment gains, net of tax		98,420			104,577			58,911			64,496
Less reclassification adjustments for:
Gains (losses) included in net earnings		7,491			(306	)		832			2,672
Income tax charge (benefit)		2,622			(107	)		291			935
Gains (losses) included in net earnings, net of tax		4,869			(199	)		541			1,737
Net unrealized investment gains		93,551			104,776			58,370			62,759
Foreign currency translation adjustment		(3,454	)		1,865			(141	)		(6,297	)
Income tax charge (benefit)		(483	)		1,809			(234	)		331
Foreign currency translation adjustment, net of tax		(2,971	)		56			93			(6,628	)
Other comprehensive income		90,580			104,832			58,463			56,131
Comprehensive income	$	373,719		$	281,737		$	165,525		$	116,568

See Notes to Consolidated Financial Statements.

7

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity

Nine months ended September 30, 2012

(unaudited, in thousands except per share data)

	Common stock		Additional paid-in capital		Retained earnings			Accumulated other comprehensive income		Treasury stock			Total shareholders’ equity
Balance at December 31, 2011 (as previously reported)	$	122,720	$	1,001,308	$	2,447,850		$	227,659	$	(507,523	)	$	3,292,014
Cumulative effect of accounting change (deferred policy acquisition costs)		-		-		(18,032	)		-		-			(18,032	)
Balance at December 31, 2011 (as adjusted)		122,720		1,001,308		2,429,818			227,659		(507,523	)		3,273,982
Net earnings		-		-		283,139			-		-			283,139
Other comprehensive income		-		-		-			90,580		-			90,580
Issuance of 1,437 shares for exercise of options, including tax effect		1,437		38,668		-			-		-			40,105
Purchase of 4,543 common shares		-		-		-			-		(141,535	)		(141,535	)
Stock-based compensation		302		6,459		-			-		-			6,761
Cash dividends declared, $0.475 per share		-		-		(48,212	)		-		-			(48,212	)
Balance at September 30, 2012	$	124,459	$	1,046,435	$	2,664,745		$	318,239	$	(649,058	)	$	3,504,820

See Notes to Consolidated Financial Statements.

8

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited, in thousands)

	Nine months ended September 30,
	2012		2011
Operating activities
Net earnings	$	283,139	$	176,905
Adjustments to reconcile net earnings to net cash provided by operating activities:
Change in premium, claims and other receivables		6,623		(76,927)
Change in reinsurance recoverables		47,149		(56,510)
Change in ceded unearned premium		(39,918)		47,477
Change in loss and loss adjustment expense payable		16,052		196,046
Change in unearned premium		87,177		24,655
Change in reinsurance, premium and claims payable, excluding restricted cash		(32,743)		(34,052)
Change in accounts payable and accrued liabilities		79,500		5,082
Stock-based compensation expense		10,361		10,017
Depreciation and amortization expense		13,919		13,214
Other, net		24,776		(17,948)
Cash provided by operating activities		496,035		287,959
Investing activities
Sales of available for sale fixed maturity securities		293,969		494,532
Sales of equity securities		7,145		-
Maturity or call of available for sale fixed maturity securities		504,583		318,558
Maturity or call of held to maturity fixed maturity securities		28,511		24,950
Cost of available for sale fixed maturity securities acquired		(1,056,909)		(1,243,124)
Cost of equity securities acquired		(205,092)		-
Change in short-term investments		(5,401)		288,909
Cost of other investments acquired		-		(33,060)
Payments for purchase of businesses, net of cash received		(32,590)		(1,892)
Other, net		(2,911)		(14,184)
Cash used by investing activities		(468,695)		(165,311)
Financing activities
Advances on line of credit		140,000		210,000
Payments on line of credit		(70,000)		(15,000)
Sale of common stock		40,105		36,245
Purchase of common stock		(135,151)		(303,311)
Dividends paid		(47,617)		(49,301)
Other, net		5,066		(6,001)
Cash used by financing activities		(67,597)		(127,368)
Net decrease in cash		(40,257)		(4,720)
Cash at beginning of year		104,550		97,857
Cash at end of period	$	64,293	$	93,137

See Notes to Consolidated Financial Statements.

9

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

(1) General Information

HCC Insurance Holdings, Inc. (HCC) and its subsidiaries (collectively we, us or our) include domestic and foreign property and casualty and life insurance companies and underwriting agencies with offices in the United States, the United Kingdom, Spain and Ireland. We underwrite a variety of relatively non-correlated specialty insurance products, including property and casualty, accident and health, surety, credit and aviation product lines, in approximately 180 countries. We market our products through a network of independent agents and brokers, producers, managing general agents and directly to customers.

Basis of Presentation

Our unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and include the accounts of HCC and its subsidiaries. We have made all adjustments that, in our opinion, are necessary for a fair statement of results of the interim periods, and all such adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011. The consolidated balance sheet at December 31, 2011 was derived from the audited financial statements but does not include all disclosures required by GAAP.

Management must make estimates and assumptions that affect amounts reported in our consolidated financial statements and in disclosures of contingent assets and liabilities. Ultimate results could differ from those estimates. We have reclassified certain amounts in our 2011 consolidated financial statements to conform to the 2012 presentation. None of our reclassifications had an effect on our consolidated net earnings, shareholders’ equity or cash flows.

Accounting Guidance Adopted in 2012

Deferred Policy Acquisition Costs

A new accounting standard clarifies the definition of acquisition costs incurred by an insurance company and limits capitalization to such costs directly related to renewing or acquiring new insurance contracts. Under the new standard, we expense all costs incurred for unsuccessful marketing or underwriting efforts, along with indirect costs, as incurred. We adopted this guidance on January 1, 2012 through retrospective adjustment of the capitalized deferred policy acquisition costs, deferred income taxes and consolidated shareholders’ equity in our prior years’ consolidated financial statements. We also reclassified expenses in our prior years’ consolidated income statements to reflect the new definition of policy acquisition costs. Application of the new guidance did not impact our reported consolidated net earnings or cash flows in prior years. The following line items in our consolidated financial statements were affected by this change in accounting guidance:

	December 31, 2011
	As originally reported		Change		As adjusted
Deferred policy acquisition costs	$	217,608	$	(27,975)	$	189,633
Accounts payable and accrued liabilities (deferred income taxes)		675,174		(9,943)		665,231
Retained earnings		2,447,850		(18,032)		2,429,818

	Nine months ended September 30, 2011							Three months ended September 30, 2011
	As originally							As originally
	reported		Change			As adjusted		reported		Change			As adjusted
Policy acquisition costs, net	$	239,160	$	(45,980	)	$	193,180	$	71,299	$	(13,803	)	$	57,496
Other operating expense		198,511		45,980			244,491		70,451		13,803			84,254

10

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

(2) Investments

On March 31, 2012, we reclassified our entire portfolio of fixed maturity securities classified as held to maturity, which consisted of corporate, U.S. government and foreign government securities, to fixed maturity securities classified as available for sale. The European debt crisis and the August 2011 downgrade of U.S. government debt by Standard & Poor’s Corporation had recently disrupted the financial markets. Due to these market disruptions and our desire to maintain greater flexibility in managing our entire investment portfolio in an uncertain economy, we changed our prior intent to hold these securities to maturity. On the date of transfer, these securities had a fair value of $139.1 million and an amortized cost of $136.0 million. The securities’ net unrealized appreciation, net of tax, increased our accumulated other comprehensive income and shareholders’ equity by $2.0 million as of March 31, 2012.

The cost or amortized cost, gross unrealized gain or loss, and fair value of our fixed maturity and equity securities were as follows:

	Cost or		Gross		Gross
	amortized		unrealized		unrealized
	cost		gain		loss		Fair value
September 30, 2012
U.S. government and government agency securities	$	224,267	$	7,769	$	-	$	232,036
Fixed maturity securities of states, municipalities and political subdivisions		977,682		101,493		-		1,079,175
Special purpose revenue bonds of states, municipalities and political subdivisions		1,895,991		180,049		(23)		2,076,017
Corporate securities		1,152,593		66,475		(1,761)		1,217,307
Residential mortgage-backed securities		789,172		52,999		(629)		841,542
Commercial mortgage-backed securities		479,517		44,635		(52)		524,100
Asset-backed securities		47,354		370		-		47,724
Foreign government securities		280,602		16,866		(4)		297,464
Total fixed maturity securities – available for sale	$	5,847,178	$	470,656	$	(2,469)	$	6,315,365
Equity securities – available for sale	$	197,469	$	8,741	$	(3,346)	$	202,864
December 31, 2011
U.S. government and government agency securities	$	285,166	$	10,523	$	(10)	$	295,679
Fixed maturity securities of states, municipalities and political subdivisions		999,940		85,528		(127)		1,085,341
Special purpose revenue bonds of states, municipalities and political subdivisions		1,741,297		122,746		(155)		1,863,888
Corporate securities		817,886		35,221		(6,774)		846,333
Residential mortgage-backed securities		1,036,436		65,771		(2,121)		1,100,086
Commercial mortgage-backed securities		244,535		15,162		(3,573)		256,124
Asset-backed securities		34,655		147		(56)		34,746
Foreign government securities		225,517		11,203		(83)		236,637
Total fixed maturity securities – available for sale	$	5,385,432	$	346,301	$	(12,899)	$	5,718,834
U.S. government securities	$	6,998	$	69	$	-	$	7,067
Corporate securities		110,284		1,814		(455)		111,643
Foreign government securities		43,820		746		(140)		44,426
Total fixed maturity securities – held to maturity	$	161,102	$	2,629	$	(595)	$	163,136

11

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

Substantially all of our fixed maturity securities are investment grade and only one security was non-income producing in 2012. The following table displays the gross unrealized losses and fair value of all available for sale securities that were in a continuous unrealized loss position for the periods indicated.

	Less than 12 months				12 months or more				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
September 30, 2012
Fixed maturity securities
Special purpose revenue bonds of states, municipalities and political subdivisions	$	2,813	$	(23)	$	-	$	-	$	2,813	$	(23)
Corporate securities		89,993		(1,727)		2,441		(34)		92,434		(1,761)
Residential mortgage-backed securities		11,540		(97)		6,633		(532)		18,173		(629)
Commercial mortgage-backed securities		7,906		(52)		-		-		7,906		(52)
Foreign government securities		9,259		(4)		-		-		9,259		(4)
Equity securities		74,051		(3,346)		-		-		74,051		(3,346)
Total	$	195,562	$	(5,249)	$	9,074	$	(566)	$	204,636	$	(5,815)
December 31, 2011
Fixed maturity securities
U.S. government and government agency securities	$	13,984	$	(10)	$	-	$	-	$	13,984	$	(10)
Fixed maturity securities of states, municipalities and political subdivisions		10,256		(107)		899		(20)		11,155		(127)
Special purpose revenue bonds of states, municipalities and political subdivisions		21,856		(67)		6,796		(88)		28,652		(155)
Corporate securities		154,856		(6,391)		18,005		(383)		172,861		(6,774)
Residential mortgage-backed securities		32,430		(1,364)		7,582		(757)		40,012		(2,121)
Commercial mortgage-backed securities		39,075		(3,573)		-		-		39,075		(3,573)
Asset-backed securities		19,648		(56)		-		-		19,648		(56)
Foreign government securities		4,198		(83)		-		-		4,198		(83)
Total	$	296,303	$	(11,651)	$	33,282	$	(1,248)	$	329,585	$	(12,899)

Our other-than-temporary impairment losses were as follows:

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Total other-than-temporary impairment loss	$	(2,069)	$	(4,677)	$	(686)	$	-
Portion recognized in other comprehensive income		1,041		1,198		55		-
Net other-than-temporary impairment loss recognized in earnings (credit loss)	$	(1,028)	$	(3,479)	$	(631)	$	-

12

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

Certain of our securities with an other-than-temporary impairment loss have had both a credit loss and an impairment loss recorded in other comprehensive income. The rollforward of credit losses on these securities was as follows:

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Balance at beginning of period	$	5,047	$	4,273	$	5,444	$	3,847
Credit losses recognized in earnings
Securities previously impaired		899		1,597		631		-
Securities not previously impaired		129		1,882		-		-
Securities sold		-		(3,905)		-		-
Balance at September 30	$	6,075	$	3,847	$	6,075	$	3,847

We do not consider the $5.8 million of gross unrealized losses on fixed maturity and equity securities in our portfolio at September 30, 2012 to be other-than-temporary impairments because: 1) as of September 30, 2012, we have received substantially all contractual interest and principal payments on the fixed maturity securities, 2) we do not intend to sell these securities, 3) it is more likely than not that we will not be required to sell the securities before recovery of their amortized cost or cost bases and 4) the unrealized loss relates to non-credit factors, such as interest rate changes and market conditions.

The amortized cost and fair value of our fixed maturity securities at September 30, 2012, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The weighted-average life of our mortgage-backed and asset-backed securities was 5.2 years at September 30, 2012.

	Cost or amortized cost		Fair value
Due in 1 year or less	$	335,455	$	340,330
Due after 1 year through 5 years		1,063,361		1,121,440
Due after 5 years through 10 years		1,331,492		1,462,880
Due after 10 years through 15 years		869,485		961,876
Due after 15 years		931,342		1,015,473
Securities with contractual maturities		4,531,135		4,901,999
Mortgage-backed and asset-backed securities		1,316,043		1,413,366
Total fixed maturity securities	$	5,847,178	$	6,315,365

The sources of net investment income were as follows:

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Fixed maturity securities
Taxable	$	86,548	$	84,228	$	28,330	$	30,009
Exempt from U.S. income taxes		80,163		74,713		27,291		24,887
Total fixed maturity securities		166,711		158,941		55,621		54,896
Equity securities		2,339		-		1,346		-
Short-term investments		397		420		295		99
Other investment income		1,699		2,992		831		962
Total investment income		171,146		162,353		58,093		55,957
Investment expense		(4,504)		(3,571)		(1,751)		(1,192)
Net investment income	$	166,642	$	158,782	$	56,342	$	54,765

13

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

Realized pretax gains (losses) on the sale of investments, which exclude other-than-temporary impairment credit losses, included the following:

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Gains	$	11,596	$	8,538	$	3,469	$	4,219
Losses		(3,077)		(5,369)		(1,997)		(1,545)
Net realized investment gain (loss)	$	8,519	$	3,169	$	1,472	$	2,674

(3) Derivative Financial Instrument

We utilize the British pound sterling and the Euro as the functional currency in certain of our foreign operations. As a result, we have exposure to fluctuations in exchange rates between these currencies and the U.S. dollar. From time to time, we may use derivative instruments to protect our investment in these foreign operations by limiting our exposure to fluctuations in exchange rates.

During the second quarter of 2012, we entered into a forward contract to sell 45.0 million Euros for U.S. dollars in the third quarter of 2013. This transaction has been designated and qualifies as a hedge of a portion of our net investment in a Euro-functional currency subsidiary. Changes in the fair value of the forward contract, net of the related deferred tax effect, are recognized in our foreign currency translation adjustment, which is a component of accumulated other comprehensive income. This amount will offset changes in the value of the net investment being hedged as the cumulative translation adjustment related to the foreign subsidiary, representing the effect of translating the subsidiary’s assets and liabilities from Euros to U.S. dollars, is also reported in our foreign currency translation adjustment.

The fair value of the forward contract was a $1.7 million liability at September 30, 2012. This amount is reported in accounts payable and accrued liabilities on our consolidated balance sheet. At inception of the hedge and quarterly thereafter, we assess whether the hedge transaction is effective. Any ineffectiveness would be recognized in earnings immediately as other operating expense. There was no ineffectiveness on the forward contract during 2012.

(4) Fair Value Measurements

Our financial instruments include assets and liabilities carried at fair value, as well as assets and liabilities carried at cost or amortized cost but disclosed at fair value in our financial statements. In determining fair value, we generally apply the market approach, which uses prices and other relevant data based on market transactions involving identical or comparable assets and liabilities. We classify our financial instruments into the following three-level hierarchy:

• Level 1 – Inputs are based on quoted prices in active markets for identical instruments.

• Level 2 – Inputs are based on observable market data (other than quoted prices), or are derived from or corroborated by observable market data.

• Level 3 – Inputs are unobservable and not corroborated by market data.

Our Level 1 investments consist of U.S. Treasuries, money market funds, and equity securities traded in an active exchange market. We use unadjusted quoted prices for identical instruments to measure fair value.

Our Level 2 investments include most of our fixed maturity securities, which consist of U.S. government agency securities, municipal bonds, corporate debt securities, bank loans, and mortgage-backed and asset-backed securities. Level 2 also includes certificates of deposit and other interest-bearing deposits at banks, which we report as short-term investments, and a forward contract, which hedges our net investment in a Euro-functional currency foreign subsidiary. We measure fair value for the majority of our Level 2 investments using quoted prices of securities with similar characteristics. The remaining investments are valued using pricing models or matrix pricing. The fair value measurements consider observable assumptions, including benchmark yields, reported trades,

14

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, default rates, loss severity and other economic measures.

We use independent pricing services to assist us in determining fair value for approximately 99% of our Level 2 investments. The pricing services provide a single price or quote per security. We use data provided by our third party investment managers to value the remaining Level 2 investments. To validate that these quoted and modeled prices are reasonable estimates of fair value, we perform various quantitative and qualitative procedures, including: 1) evaluation of the underlying methodologies, 2) analysis of recent sales activity, 3) analytical review of our fair values against current market prices and 4) comparison of the pricing services’ fair value to other pricing services’ fair value for the same investment. No markets for our investments were judged to be inactive at period end. Based on these procedures, we did not adjust the prices or quotes provided by our independent pricing services or third party investment managers as of September 30, 2012 or December 31, 2011.

Our Level 2 financial instruments also include our notes payable. We determine the fair value of our 6.30% Senior Notes based on quoted prices, but the market is inactive. The fair value of borrowings under our Revolving Loan Facility approximates the carrying amount because interest is based on 30-day LIBOR plus a margin.

Our Level 3 securities include certain fixed maturity securities and an insurance contract that we account for as a derivative and classify in other assets. We determine fair value of our Level 3 securities based on internally developed models that use assumptions or other data that are not readily observable from objective sources.

The following tables present the fair value of our financial instruments that were carried or disclosed at fair value. Unless indicated, these items were carried at fair value on our consolidated balance sheet.

	Level 1		Level 2		Level 3		Total
September 30, 2012
Fixed maturity securities – available for sale
U.S. government and government agency securities	$	193,051	$	38,985	$	-	$	232,036
Fixed maturity securities of states, municipalities and political subdivisions		-		1,079,175		-		1,079,175
Special purpose revenue bonds of states, municipalities and political subdivisions		-		2,076,017		-		2,076,017
Corporate securities		-		1,217,145		162		1,217,307
Residential mortgage-backed securities		-		841,542		-		841,542
Commercial mortgage-backed securities		-		524,100		-		524,100
Asset-backed securities		-		47,724		-		47,724
Foreign government securities		-		297,464		-		297,464
Total fixed maturity securities – available for sale		193,051		6,122,152		162		6,315,365
Equity securities – available for sale		202,864		-		-		202,864
Short-term investments*		81,947		78,191		-		160,138
Other investments		34,044		-		-		34,044
Other assets		-		-		206		206
Total assets measured at fair value	$	511,906	$	6,200,343	$	368	$	6,712,617
Notes payable*	$	-	$	595,804	$	-	$	595,804
Accounts payable and accrued liabilities – forward contract		-		1,705		-		1,705
Total liabilities measured at fair value	$	-	$	597,509	$	-	$	597,509

*Carried at cost or amortized cost on our consolidated balance sheet.

15

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

	Level 1		Level 2		Level 3		Total
December 31, 2011
Fixed maturity securities – available for sale
U.S. government and government agency securities	$	201,582	$	94,097	$	-	$	295,679
Fixed maturity securities of states, municipalities and political subdivisions		-		1,085,341		-		1,085,341
Special purpose revenue bonds of states, municipalities and political subdivisions		-		1,863,888		-		1,863,888
Corporate securities		-		846,178		155		846,333
Residential mortgage-backed securities		-		1,100,086		-		1,100,086
Commercial mortgage-backed securities		-		256,124		-		256,124
Asset-backed securities		-		33,731		1,015		34,746
Foreign government securities		-		236,637		-		236,637
Total fixed maturity securities – available for sale		201,582		5,516,082		1,170		5,718,834
Fixed maturity securities – held to maturity*		-		163,136		-		163,136
Short-term investments*		67,288		66,629		-		133,917
Other investments		35,720		-		-		35,720
Other assets		-		-		1,516		1,516
Total assets measured at fair value	$	304,590	$	5,745,847	$	2,686	$	6,053,123
Notes payable*	$	-	$	505,671	$	-	$	505,671

*Carried at cost or amortized cost on our consolidated balance sheet.

The following tables present the changes in fair value of our Level 3 financial instruments.

	2012									2011
	Fixed									Fixed
	income			Other						income			Other
	securities			assets			Total			securities			assets		Total
Balance at beginning of year	$	1,170		$	1,516		$	2,686		$	1,438		$	857	$	2,295
Net gains (losses)		2			215			217			(13	)		263		250
Sales		-			-			-			(144	)		-		(144	)
Transfers out of Level 3		(1,015	)		-			(1,015	)		-			-		-
Balance at March 31		157			1,731			1,888			1,281			1,120		2,401
Net gains (losses)		2			116			118			18			122		140
Sales		-			-			-			(55	)		-		(55	)
Balance at June 30		159			1,847			2,006			1,244			1,242		2,486
Settlements		-			(1,863	)		(1,863	)		-			-		-
Net gains (losses)		3			222			225			17			131		148
Sales		-			-			-			(43	)		-		(43	)
Balance at September 30	$	162		$	206		$	368		$	1,218		$	1,373	$	2,591

16

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

We transferred an investment from Level 3 to Level 2 in the first quarter of 2012 because we were able to determine its fair value using inputs based on observable market data in the period transferred. There were no transfers between Level 1, Level 2 or Level 3 in the second and third quarters of 2012 or the first nine months of 2011.

(5) Goodwill

The goodwill balances by reportable segment and the changes in goodwill are shown in the table below.

	U.S. Property		Professional		Accident &			U.S. Surety
	& Casualty		Liability		Health			& Credit		International		Total
Balance at beginning of year	$	223,000	$	301,547	$	144,132		$	79,700	$	124,435		$	872,814
Earnout and other		-		12,542		(19	)		-		523			13,046
Balance at September 30, 2012	$	223,000	$	314,089	$	144,113		$	79,700	$	124,958		$	885,860

We acquired HCC Global Financial Products (HCC Global), which underwrites our U.S. and International directors’ and officers’ liability business, in 2002. The purchase agreement, as amended, includes a contingency for future earnout payments. The earnout is based on HCC Global’s pretax earnings on business written from the acquisition date through September 30, 2007, with no maximum amount due to the former owners. When conditions specified under the purchase agreement are met, we record a net amount owed to or due from the former owners based on our estimate, at that point in time, of how claims will ultimately be settled. This net amount will fluctuate in the future, and the ultimate total net earnout payments cannot be finally determined until all claims are settled or paid. In the third quarter of 2012, we increased goodwill by $11.8 million for additional earnout earned and accrued under the purchase agreement.

We conducted our 2012 goodwill impairment test as of June 30, 2012, which is consistent with the timeframe for our annual assessment in prior years. Based on our latest assessment, the fair value of each of our five reporting units exceeded its carrying amount.

17

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

(6) Reinsurance

In the normal course of business, our insurance companies cede a portion of their premium to domestic and foreign reinsurers through treaty and facultative reinsurance agreements. Although reinsurance does not discharge the direct insurer from liability to its policyholder, our insurance companies participate in such agreements in order to limit their loss exposure, protect them against catastrophic losses and diversify their business. The following tables present the effect of such reinsurance transactions on our premium, loss and loss adjustment expense and policy acquisition costs.

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Direct written premium	$	1,826,610	$	1,724,869	$	603,844	$	555,427
Reinsurance assumed		313,395		295,268		61,919		73,420
Reinsurance ceded		(409,206)		(359,046)		(135,456)		(116,513)
Net written premium	$	1,730,799	$	1,661,091	$	530,307	$	512,334
Direct earned premium	$	1,795,109	$	1,728,082	$	601,572	$	574,571
Reinsurance assumed		259,870		255,293		90,988		96,799
Reinsurance ceded		(378,857)		(406,388)		(128,910)		(127,114)
Net earned premium	$	1,676,122	$	1,576,987	$	563,650	$	544,256
Direct loss and loss adjustment expense	$	1,029,227	$	1,197,225	$	301,306	$	410,573
Reinsurance assumed		96,143		186,805		35,108		44,600
Reinsurance ceded		(155,603)		(321,790)		(32,400)		(74,801)
Net loss and loss adjustment expense	$	969,767	$	1,062,240	$	304,014	$	380,372
Policy acquisition costs	$	299,854	$	292,645	$	101,698	$	100,975
Ceding commissions		(88,300)		(99,465)		(34,078)		(43,479)
Net policy acquisition costs	$	211,554	$	193,180	$	67,620	$	57,496

The table below shows the components of our reinsurance recoverables in our consolidated balance sheets.

	September 30,			December 31,
	2012			2011
Reinsurance recoverable on paid losses	$	58,220		$	83,109
Reinsurance recoverable on outstanding losses		479,378			477,760
Reinsurance recoverable on incurred but not reported losses		477,859			497,074
Reserve for uncollectible reinsurance		(1,500	)		(1,875	)
Total reinsurance recoverables	$	1,013,957		$	1,056,068

18

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

Reinsurers not authorized by the respective states of domicile of our U.S. domiciled insurance companies are required to collateralize reinsurance obligations due to us. The table below shows the amounts of letters of credit and cash available to us as collateral, plus other potential offsets at September 30, 2012 and December 31, 2011.

	September 30,		December 31,
	2012		2011
Payables to reinsurers	$	201,598	$	195,806
Letters of credit		97,357		120,589
Cash		112,105		83,731
Total credits	$	411,060	$	400,126

The tables below show the calculation of net reserves, net unearned premium and net deferred policy acquisition costs.

	September 30,			December 31,
	2012			2011
Loss and loss adjustment expense payable	$	3,692,250		$	3,658,317
Reinsurance recoverable on outstanding losses		(479,378	)		(477,760	)
Reinsurance recoverable on incurred but not reported losses		(477,859	)		(497,074	)
Net reserves	$	2,735,013		$	2,683,483
Unearned premium	$	1,118,094		$	1,031,034
Ceded unearned premium		(262,168	)		(222,300	)
Net unearned premium	$	855,926		$	808,734
Deferred policy acquisition costs	$	199,401		$	189,633
Deferred ceding commissions		(74,441	)		(62,364	)
Net deferred policy acquisition costs	$	124,960		$	127,269

(7) Notes Payable

Notes payable were as follows:

	September 30,		December 31,
	2012		2011
6.30% Senior Notes	$	298,906	$	298,790
$600.0 million Revolving Loan Facility		250,000		180,000
Total notes payable	$	548,906	$	478,790

We have a $90.0 million Standby Letter of Credit Facility that is used to guarantee our performance in our Lloyd’s of London Syndicate 4141. There have been no changes to the terms and conditions related to our 6.30% Senior Notes, the $600.0 million Revolving Loan Facility (the Facility) or the Standby Letter of Credit Facility from those described in Note 7, “Notes Payable” to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011.

The weighted-average interest rate on borrowings under the Facility at September 30, 2012 was 1.60%. The borrowings and letters of credit issued under the Facility reduced our available borrowing capacity on the Facility to $340.1 million at September 30, 2012.

We were in compliance with debt covenants related to our 6.30% Senior Notes, the Facility and the Standby Letter of Credit Facility at September 30, 2012.

19

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

(8) Earnings Per Share

The following table details the numerator and denominator used in our earnings per share calculations.

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Net earnings	$	283,139		$	176,905		$	107,062		$	60,437
Less: net earnings attributable to unvested restricted stock		(5,150	)		(2,551	)		(1,912	)		(950	)
Net earnings available to common stock	$	277,989		$	174,354		$	105,150		$	59,487
Weighted-average common shares outstanding		100,340			110,665			99,424			106,919
Dilutive effect of outstanding options (determined using treasury stock method)		261			245			276			129
Weighted-average common shares and potential common shares outstanding		100,601			110,910			99,700			107,048
Anti-dilutive stock options not included in treasury stock method computation		717			2,279			461			2,744

(9) Stock-Based Compensation

In 2012, we granted the following shares of common stock, restricted stock awards, restricted stock units and stock options for the purchase of shares of our common stock. For all grants except stock options, we measure fair value based on the closing stock price of our common stock on the grant date. For stock options, we use the Black-Scholes single option pricing model to determine the fair value of an option on its grant date. The fair value of the common stock was expensed on the grant date. The fair value of the restricted stock awards, restricted stock units and stock options is being expensed over the vesting period.

	Number of shares		Weighted-average grant date fair value		Aggregate fair value		Vesting period
Common stock		29	$	31.49	$	920		None
Restricted stock awards		313		31.20		9,758		2-4 years
Restricted stock units		13		30.60		403		4 years
Stock options		218		8.00		1,741		1-5 years

20

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

(10) Segments

We report HCC’s results in six operating segments, including the following five insurance segments:

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

The Investing segment includes our consolidated 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, foreign currency expense (benefit), and underwriting results of our Exited Lines.

Our Exited Lines include product lines that we no longer write and do not expect to write in the future. In the third quarter of 2012, we exited the HMO and medical excess reinsurance businesses that had previously been included in our Accident & Health segment. We have recast all prior financial data to report these two lines of business in Exited Lines for all periods presented.

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, 2012
Net earned premium	$	265,593	$	298,454	$	624,077	$	154,232	$	302,303	$	-	$	31,463	$	1,676,122
Other revenue		15,300		799		3,589		659		2,766		174,133		116		197,362
Segment revenue		280,893		299,253		627,666		154,891		305,069		174,133		31,579		1,873,484
Loss and LAE		154,156		170,506		447,262		42,444		126,547		-		28,852		969,767
Other expense		89,348		49,621		93,127		83,402		108,018		-		75,303		498,819
Segment expense		243,504		220,127		540,389		125,846		234,565		-		104,155		1,468,586
Segment pretax earnings (loss)	$	37,389	$	79,126	$	87,277	$	29,045	$	70,504	$	174,133	$	(72,576)	$	404,898

21

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

	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		$	568,318	$	153,309	$	267,458		$	-	$	35,541		$	1,576,987
Other revenue		16,556		358			3,468		955		2,791			158,472		(503	)		182,097
Segment revenue		261,677		307,598			571,786		154,264		270,249			158,472		35,038			1,759,084
Loss and LAE		148,783		257,632			411,851		42,351		175,635			-		25,988			1,062,240
Other expense		82,202		40,055			89,228		82,909		99,754			-		60,120			454,268
Segment expense		230,985		297,687			501,079		125,260		275,389			-		86,108			1,516,508
Segment pretax earnings (loss)	$	30,692	$	9,911		$	70,707	$	29,004	$	(5,140	)	$	158,472	$	(51,070	)	$	242,576
Three months ended September 30, 2012
Net earned premium	$	87,741	$	97,549		$	209,049	$	53,388	$	105,831		$	-	$	10,092		$	563,650
Other revenue		8,415		532			1,095		244		631			57,183		(77	)		68,023
Segment revenue		96,156		98,081			210,144		53,632		106,462			57,183		10,015			631,673
Loss and LAE		53,229		36,183			140,344		15,721		46,924			-		11,613			304,014
Other expense		29,581		13,414			32,025		27,879		39,253			-		31,888			174,040
Segment expense		82,810		49,597			172,369		43,600		86,177			-		43,501			478,054
Segment pretax earnings (loss)	$	13,346	$	48,484		$	37,775	$	10,032	$	20,285		$	57,183	$	(33,486	)	$	153,619
Three months ended September 30, 2011
Net earned premium	$	85,946	$	104,066		$	191,715	$	51,906	$	99,294		$	-	$	11,329		$	544,256
Other revenue		6,890		109			1,275		254		889			57,439		(588	)		66,268
Segment revenue		92,836		104,175			192,990		52,160		100,183			57,439		10,741			610,524
Loss and LAE		56,355		119,617			138,566		12,664		45,242			-		7,928			380,372
Other expense		26,627		6,023			29,897		27,657		35,734			-		21,422			147,360
Segment expense		82,982		125,640			168,463		40,321		80,976			-		29,350			527,732
Segment pretax earnings (loss)	$	9,854	$	(21,465	)	$	24,527	$	11,839	$	19,207		$	57,439	$	(18,609	)	$	82,792

Catastrophe losses reduced the International segment’s pretax earnings by $15.9 million and $101.7 million in the first nine months of 2012 and 2011, respectively, and $7.6 million and $29.4 million in the third quarter of 2012 and 2011, respectively. The Professional Liability segment’s pretax earnings were reduced by $75.4 million in the first nine months and $58.5 million in the third quarter of 2011 due to net adverse loss development and an increase in the 2011 accident year loss ratio for the diversified financial products line of business.

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HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

(11) Commitments and Contingencies

Catastrophe and Large Loss Exposure

We have exposure to catastrophic losses caused by natural perils (such as hurricanes, earthquakes, floods, tsunamis and tornados), as well as from man-made events (such as terrorist attacks). The incidence, timing and severity of catastrophe losses are unpredictable. We assess our exposures in areas most vulnerable to natural catastrophes and apply procedures to ascertain our probable maximum loss from a single event. We maintain reinsurance protection that we believe is sufficient to limit our exposure to a foreseeable event. Following a catastrophic loss, we often incur additional costs for reinstatement premium to continue our reinsurance coverage for future loss events. Our pretax catastrophe losses were $22.7 million gross and $20.3 million net (after reinsurance and reinstatement premium) in the first nine months of 2012 and $168.0 million gross and $107.9 million net in the same period of 2011.

Litigation

We are a party to lawsuits, arbitrations and other proceedings that arise in the normal course of our business. Many of such lawsuits, arbitrations and other proceedings involve claims under policies that we underwrite as an insurer or reinsurer, the liabilities for which, we believe, have been adequately included in our loss reserves. Also, from time to time, we are a party to lawsuits, arbitrations and other proceedings that relate to disputes with third parties, or that involve alleged errors and omissions on the part of our subsidiaries. We have provided accruals for these items to the extent we deem the losses probable and reasonably estimable. Although the ultimate outcome of these matters cannot be determined at this time, based on present information, the availability of insurance coverage and advice received from our outside legal counsel, we believe the resolution of any such matters will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Indemnifications

In conjunction with the sales of business assets and subsidiaries, we have provided indemnifications to the buyers. Certain indemnifications cover typical representations and warranties related to our responsibilities to perform under the sales contracts. Under other indemnifications, we agree to reimburse the purchasers for taxes or ERISA-related amounts, if any, assessed after the sale date but related to pre-sale activities. We cannot quantify the maximum potential exposure covered by all of our indemnifications because the indemnifications cover a variety of matters, operations and scenarios. Certain of these indemnifications have no time limit. For those with a time limit, the longest such indemnification expires in 2025. We accrue a loss when a valid claim is made by a purchaser and we believe we have potential exposure. At September 30, 2012, we have an accrued liability of $11.2 million, as well as $6.1 million in escrow and $3.2 million of letters of credit, to cover our obligations or anticipated payments under these indemnifications.

(12) Supplemental Information

Supplemental cash flow information was as follows:

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Income taxes paid	$	83,979	$	88,973	$	44,531	$	31,366
Interest paid		13,321		12,937		1,321		785
Proceeds from sales of available for sale fixed maturity securities		293,969		494,532		75,397		248,201
Proceeds from sales of equity securities		7,145		-		5,406		-
Dividends declared but not paid at end of period		16,728		16,535

(13) Subsequent Event

On October 29, 2012, Hurricane Sandy made landfall in the United States. We have begun assessing our exposures but are unable to reasonably quantify the extent of our losses with respect to this event at this time.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and the related Notes as of September 30, 2012 and December 31, 2011.

Overview

We are a specialty insurance group with offices in the United States, the United Kingdom, Spain and Ireland, transacting business in approximately 180 countries. Our shares trade on the New York Stock Exchange and closed at $35.08 on October 26, 2012, resulting in market capitalization of $3.6 billion.

We underwrite a variety of relatively non–correlated specialty insurance products, including property and casualty, accident and health, surety and credit product lines. We market our insurance products through a network of independent agents and brokers, managing general agents and directly to consumers. In addition, we assume insurance written by other insurance companies. We manage our businesses through five insurance underwriting segments and our Investing segment. Our insurance underwriting segments are U.S. Property & Casualty, Professional Liability, Accident & Health, U.S. Surety & Credit and International.

Our business philosophy is to maximize underwriting profit while managing risk. We concentrate our insurance writings in selected specialty lines of business in which we believe we can achieve meaningful underwriting profit. We also rely on our experienced underwriting personnel and our access to and expertise in the reinsurance marketplace to limit or reduce our risk. Our business plan is shaped by our underlying business philosophy. As a result, our primary objective is to maximize net earnings and grow book value per share, rather than to grow gross written premium or market share.

Our 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.

Key facts about our consolidated group as of and for the nine months and quarter ended September 30, 2012 were as follows:

• We had consolidated shareholders’ equity of $3.5 billion, with a book value per share of $34.60.

• We generated year-to-date net earnings of $283.1 million, or $2.76 per diluted share. Our third quarter earnings were $107.1 million, or $1.05 per diluted share.

• We produced total revenue of $1.9 billion and $631.7 million in the first nine months and third quarter, respectively. In the first nine months, 89% related to net earned premium and 9% related to net investment income.

• In the first nine months, we recognized $20.3 million of pretax net catastrophe losses — $4.4 million in our U.S. Property & Casualty segment from storms in the United States and $15.9 million in our International segment from other small catastrophes. The third quarter included pretax net catastrophe losses of $8.0 million.

• We recorded net favorable loss development of $34.6 million in the first nine months and third quarter of 2012.

• Our year-to-date net loss ratio was 57.9% and our combined ratio was 83.3%.

• Our debt to capital ratio was 13.5%.

• We purchased $141.5 million, or 4.5 million shares, of our common stock at an average cost of $31.15 per share in the first nine months of 2012.

• We increased our regular cash dividend to $0.165 per share, marking the 16^th consecutive year of increases in our dividend. In the first nine months of 2012, we declared dividends of $0.475 per share and paid $47.6 million of dividends.

24

Comparisons in the following sections refer to the first nine months of 2012 compared to the same period of 2011, unless otherwise noted. Amounts in tables are in thousands, except for earnings per share, percentages, ratios and number of employees. We adjusted certain 2011 amounts to reflect our adoption of a new accounting standard in 2012 (see Note 1, “General Information” to the Consolidated Financial Statements). We also recast all prior segment data to reflect our exit from two lines of business previously included in our Accident & Health segment (see Note 10, “Segments”).

Results of Operations

Our results and key metrics for the first nine months and third quarter of 2012 and 2011 were as follows:

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Net earnings	$	283,139		$	176,905		$	107,062		$	60,437
Earnings per diluted share	$	2.76		$	1.57		$	1.05		$	0.56
Net loss ratio		57.9	%		67.4	%		53.9	%		69.9	%
Expense ratio *		25.4			25.2			25.2			23.2
Combined ratio *		83.3	%		92.6	%		79.1	%		93.1	%
* 2011 adjusted to reflect 2012 change in Exited Lines. In 2012, we recognized catastrophe losses from United States storms, primarily in our aviation and public risk lines of business within our U.S. Property and Casualty segment, and from other small catastrophes in our property treaty line of business within our International segment. In 2011, we recognized losses from catastrophic events in Japan, New Zealand, Australia, the United States and Denmark. Our third quarter 2011 catastrophe losses, which primarily related to Hurricane Irene in the United States, impacted our U.S. Property and Casualty and International segments. We reinsure a portion of our exposure to catastrophic events, although we incur some additional cost for reinstatement premium to continue our reinsurance coverage for future loss events. The following table summarizes our catastrophe losses, as well as the impact on our net earnings and key metrics in 2012 and 2011:
	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Net losses, after reinsurance and reinstatement premium	$	20,283		$	107,915		$	8,026		$	34,587
Impact of net catastrophe losses on:
Net earnings per diluted share	$	(0.13	)	$	(0.63	)	$	(0.05	)	$	(0.21	)
Net loss ratio (percentage points)		1.3	%		6.5	%		1.4	%		6.2	%
Combined ratio (percentage points)		1.3	%		6.7	%		1.4	%		6.3	%

We recognized net favorable loss development of $34.6 million in the first nine months of 2012, compared to net adverse loss development of $21.6 million in the same period of 2011. See the “Loss and Loss Adjustment Expense” and “Segment Operations” sections below for discussion of our 2012 and 2011 loss activity.

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Revenue

Total revenue increased $114.4 million in the first nine months of 2012, primarily due to higher net earned premium.

Gross written premium, net written premium and net earned premium are detailed below by segment.

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
U.S. Property & Casualty	$	481,024	$	409,733	$	162,411	$	144,222
Professional Liability		377,876		392,903		132,126		130,631
Accident & Health		622,613		565,235		209,738		191,472
U.S. Surety & Credit		166,678		169,368		55,976		55,415
International		460,111		447,355		95,200		95,774
Exited Lines		31,703		35,543		10,312		11,333
Total gross written premium	$	2,140,005	$	2,020,137	$	665,763	$	628,847
U.S. Property & Casualty	$	297,866	$	273,212	$	99,972	$	92,776
Professional Liability		264,398		287,494		93,261		96,846
Accident & Health		622,018		564,805		209,647		191,359
U.S. Surety & Credit		146,865		155,761		50,769		50,660
International		368,189		344,286		66,566		69,364
Exited Lines		31,463		35,533		10,092		11,329
Total net written premium	$	1,730,799	$	1,661,091	$	530,307	$	512,334
U.S. Property & Casualty	$	265,593	$	245,121	$	87,741	$	85,946
Professional Liability		298,454		307,240		97,549		104,066
Accident & Health		624,077		568,318		209,049		191,715
U.S. Surety & Credit		154,232		153,309		53,388		51,906
International		302,303		267,458		105,831		99,294
Exited Lines		31,463		35,541		10,092		11,329
Total net earned premium	$	1,676,122	$	1,576,987	$	563,650	$	544,256

Growth in premium occurred in the U.S. Property & Casualty segment from our new business lines started in 2011 and increased public risk and residual value premium; in the Accident & Health segment from higher writings of our medical stop-loss product; and in the International segment from new business and pricing increases in our energy and property treaty lines of business. In 2011, we recorded $14.0 million ($15.9 million ceded, net of $1.9 million assumed) of catastrophe-related reinstatement premium, which reduced the International segment’s 2011 net written and net earned premium. See the “Segment Operations” section below for further discussion of the relationship and changes in premium revenue within each segment.

Net investment income, which is included in our Investing segment, increased 5% year-over-year and 3% quarter-over-quarter primarily due to higher income from fixed maturity securities, generated from an increased amount of investments. Our fixed maturity portfolio increased 9% from $5.8 billion at September 30, 2011 to $6.3 billion at September 30, 2012. In addition, at September 30, 2012, we had $202.9 million of publicly traded equity securities, which is an asset class we added to our portfolio during 2012. The growth in investments resulted primarily from cash flow from operations and an increase of $185.2 million in the net unrealized gain on available for sale securities since September 30, 2011.

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The following table details the components of our other operating income. The fee and commission income relates to third party agency and broker commissions.

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Fee and commission income	$	20,682		$	21,708		$	10,140		$	8,487
Financial instruments		552			516			222			131
Other		1,995			1,401			478			211
Other operating income	$	23,229		$	23,625		$	10,840		$	8,829
Loss and Loss Adjustment Expense The tables below detail, by segment, our net loss and loss adjustment expense and our net loss ratios.
	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
U.S. Property & Casualty	$	154,156		$	148,783		$	53,229		$	56,355
Professional Liability		170,506			257,632			36,183			119,617
Accident & Health		447,262			411,851			140,344			138,566
U.S. Surety & Credit		42,444			42,351			15,721			12,664
International		126,547			175,635			46,924			45,242
Exited Lines		28,852			25,988			11,613			7,928
Net loss and loss adjustment expense	$	969,767		$	1,062,240		$	304,014		$	380,372
(Favorable) adverse loss development:
U.S. Property & Casualty	$	2,138		$	(4,613)		$	2,138		$	(7,163)
Professional Liability		(26,186)			48,137			(26,186)			31,153
Accident & Health		(10,695)			1,956			(10,695)			60
U.S. Surety & Credit		-			(2,767)			-			(2,786)
International		-			(20,623)			-			(21,287)
Exited Lines		111			(467)			111			(620)
Total (favorable) adverse loss development		(34,632)			21,623			(34,632)			(643)
Catastrophe losses		21,406			93,907			8,738			32,187
All other net loss and loss adjustment expense		982,993			946,710			329,908			348,828
Net loss and loss adjustment expense	$	969,767		$	1,062,240		$	304,014		$	380,372
U.S. Property & Casualty		58.0	%		60.7	%		60.7	%		65.6	%
Professional Liability		57.1			83.9			37.1			114.9
Accident & Health		71.7			72.5			67.1			72.3
U.S. Surety & Credit		27.5			27.6			29.4			24.4
International		41.9			65.7			44.3			45.6
Exited Lines		91.7			73.1			115.1			70.0
Consolidated net loss ratio		57.9	%		67.4	%		53.9	%		69.9	%
Consolidated accident year net loss ratio		59.9	%		66.0	%		60.1	%		70.0	%

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Loss development represents an increase or decrease in estimates of ultimate losses related to prior accident years. Deficiencies and redundancies in ultimate loss estimates occur as we review our loss exposure with our actuaries, increasing or reducing estimates of our ultimate losses as a result of such reviews and as losses are finally settled or claims exposures change. The excess of total recorded net reserves over the actuarial point estimate approximated 6.1% of our recorded net reserves at September 30, 2012, compared to 4.2% at December 31, 2011. We recognized (favorable) adverse loss development of $(34.6) million and $21.6 million in the first nine months of 2012 and 2011, respectively, and $(34.6) million and $(0.6) million in the third quarter of 2012 and 2011, respectively. Our consolidated accident year net loss ratio was lower in 2012 due to higher catastrophe losses and higher losses on our diversified financial products line of business in 2011. See the “Segment Operations” section below for additional discussion of the changes in our net loss and loss adjustment expense and net loss ratios for each segment.

The table below provides a reconciliation of our consolidated reserves for loss and loss adjustment expense payable, net of reinsurance ceded, the amount of our paid claims, and our net paid loss ratio.

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Net reserves for loss and loss adjustment expense payable at beginning of period	$	2,683,483		$	2,537,772		$	2,748,995		$	2,612,945
Net reserve additions from acquired businesses		14,705			645			-			-
Foreign currency adjustment		11,261			5,364			15,717			(22,622)
Net loss and loss adjustment expense		969,767			1,062,240			304,014			380,372
Net loss and loss adjustment expense payments		(944,203)			(937,171)			(333,713)			(301,845)
Net reserves for loss and loss adjustment expense payable at end of period	$	2,735,013		$	2,668,850		$	2,735,013		$	2,668,850
Net paid loss ratio		56.3	%		59.4	%		59.2	%		55.5	%

The amount of claims paid fluctuates period to period due to our mix of business and the timing of claims settlement and catastrophic events. Our year-to-date net loss and loss adjustment expense payments include $27.5 million and $26.7 million that we paid in 2012 and 2011, respectively, to commute large contracts included in our Exited Lines. These commutations had no material effect on net earnings but increased our year-to-date net paid loss ratios by 1.6 percentage points in 2012 and 1.7 percentage points in 2011.

Policy Acquisition Costs

Our policy acquisition cost percentage was 12.6% and 12.2% for the first nine months of 2012 and 2011, respectively, and 12.0% and 10.6% for the third quarter of 2012 and 2011, respectively. We record profit commissions due from reinsurers as an offset to policy acquisition costs, which impacted our policy acquisition cost percentages as follows:

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Profit commissions	$	10,013		$	16,494		$	7,403		$	15,684
Impact of profit commissions (percentage points)		0.6	%		1.1	%		1.3	%		2.8	%

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Other Operating Expense

For the first nine months of 2012, 61% of our other operating expense related to compensation and benefits for our 1,875 employees. Other operating expense increased 10% year-over-year and 19% quarter-over-quarter, primarily due to increased compensation expense, including higher bonus expense directly related to higher pretax earnings in 2012, and the fluctuation in foreign currency gain and loss. We recognized foreign currency loss of $5.3 million and $6.8 million in the first nine months and third quarter of 2012, respectively, primarily related to the fluctuations in the British pound sterling. Conversely, we recognized foreign currency benefit of $2.5 million and $0.5 million in the first nine months and third quarter of 2011, respectively. Other operating expense included stock-based compensation expense of $10.6 million in 2012 and $10.4 million in 2011. At September 30, 2012, there was approximately $27.2 million of total unrecognized compensation expense related to unvested options and restricted stock awards and units that is expected to be recognized over a weighted-average period of 3.0 years.

Interest Expense

Interest expense on debt and short-term borrowings was $19.1 million and $16.6 million in the first nine months of 2012 and 2011, respectively, and $6.0 million and $5.6 million in the third quarter of 2012 and 2011, respectively. Our interest expense increased in 2012 due to a higher amount of outstanding borrowings on our $600.0 million Revolving Loan Facility, primarily to fund purchases of our common stock. Our year-to-date interest expense for 2012 and 2011 included $14.5 million for our Senior Notes.

Income Tax Expense

Our effective income tax rate was 30.1% for the first nine months of 2012, compared to 27.1% for the same period of 2011. The higher effective rate in 2012 is due to the relationship of pretax income and tax-exempt investment income in the two periods. Our pretax income was substantially higher in 2012 from larger underwriting profit than in 2011, whereas our tax-exempt investment income was essentially flat in 2012 and 2011.

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Segment Operations

Each of our insurance 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. The insurance segments also write facultative or individual account reinsurance, as well as treaty reinsurance business. In some cases, we purchase reinsurance to limit the segments’ net losses from both individual policy losses and multiple policy losses from catastrophe occurrences. Our segments maintain disciplined expense management and a streamlined management structure, which results in favorable expense ratios. The following provides operational information about our five insurance segments and our Investing segment.

U.S. Property & Casualty Segment

The following tables summarize the operations of the U.S. Property & Casualty segment.

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Net earned premium	$	265,593		$	245,121		$	87,741		$	85,946
Other revenue		15,300			16,556			8,415			6,890
Segment revenue		280,893			261,677			96,156			92,836
Loss and loss adjustment expense, net		154,156			148,783			53,229			56,355
Other expense		89,348			82,202			29,581			26,627
Segment expense		243,504			230,985			82,810			82,982
Segment pretax earnings	$	37,389		$	30,692		$	13,346		$	9,854
Net loss ratio		58.0	%		60.7	%		60.7	%		65.6	%
Expense ratio		31.8			31.4			30.8			28.7
Combined ratio		89.8	%		92.1	%		91.5	%		94.3	%
Aviation	$	87,890		$	83,879		$	29,670		$	29,279
E&O		47,177			56,354			15,198			17,997
Public Risk		48,363			36,523			16,571			13,344
Other		82,163			68,365			26,302			25,326
Total net earned premium	$	265,593		$	245,121		$	87,741		$	85,946
Aviation		56.9	%		64.9	%		58.9	%		67.1	%
E&O		74.1			73.7			102.1			108.6
Public Risk		95.9			84.5			130.8			115.1
Other		27.8			32.1			(5.5)			7.1
Total net loss ratio		58.0	%		60.7	%		60.7	%		65.6	%

30

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Aviation	$	117,300	$	116,933	$	34,430	$	37,877
E&O		46,483		52,961		14,990		15,963
Public Risk		67,066		55,724		23,821		21,426
Other		250,175		184,115		89,170		68,956
Total gross written premium	$	481,024	$	409,733	$	162,411	$	144,222
Aviation	$	92,043	$	88,786	$	28,638	$	29,701
E&O		44,335		52,035		14,100		15,449
Public Risk		54,185		43,926		18,618		17,530
Other		107,303		88,465		38,616		30,096
Total net written premium	$	297,866	$	273,212	$	99,972	$	92,776

Our U.S. Property & Casualty segment pretax earnings increased 22% year-over-year and 35% quarter-over-quarter due to higher net earned premium and a lower net loss ratio. Net earned premium was higher in 2012 due to $9.8 million of additional premium from our new technical property, primary casualty and excess casualty underwriting teams, as well as increases in aviation, public risk, contingency and residual value premium. Our new underwriting teams wrote $38.5 million of gross premium in the first nine months of 2012, compared to $6.8 million in the same period of 2011.

The segment’s lower net loss ratio primarily reflects an improved accident year loss ratio in 2012, compared to 2011. The segment experienced lower net catastrophe losses of $4.4 million in 2012, compared to $6.2 million in 2011, primarily in our public risk line of business. The segment had net adverse loss development of $2.1 million in the first nine months and third quarter of 2012, compared to net favorable loss development of $4.6 million and $7.2 million in the first nine months and third quarter of 2011, respectively. In 2012, the segment experienced favorable development in aviation and various lines of business included in Other, which was offset by adverse development in the E&O and public risk lines of business. The 2011 favorable development primarily related to various products grouped in Other.

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Professional Liability Segment

The following tables summarize the operations of the Professional Liability segment.

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Net earned premium	$	298,454		$	307,240		$	97,549		$	104,066
Other revenue		799			358			532			109
Segment revenue		299,253			307,598			98,081			104,175
Loss and loss adjustment expense, net		170,506			257,632			36,183			119,617
Other expense		49,621			40,055			13,414			6,023
Segment expense		220,127			297,687			49,597			125,640
Segment pretax earnings (loss)	$	79,126		$	9,911		$	48,484		$	(21,465	)
Net loss ratio		57.1	%		83.9	%		37.1	%		114.9	%
Expense ratio		16.6			13.0			13.7			5.8
Combined ratio		73.7	%		96.9	%		50.8	%		120.7	%
U.S. D&O	$	252,622		$	270,408		$	81,955		$	90,154
International D&O		45,832			36,832			15,594			13,912
Total net earned premium	$	298,454		$	307,240		$	97,549		$	104,066
U.S. D&O		64.9	%		96.6	%		54.9	%		151.3	%
International D&O		14.5			(10.0	)		(56.3	)		(120.8	)
Total net loss ratio		57.1	%		83.9	%		37.1	%		114.9	%
U.S. D&O	$	297,933		$	312,881		$	111,749		$	112,220
International D&O		79,943			80,022			20,377			18,411
Total gross written premium	$	377,876		$	392,903		$	132,126		$	130,631
U.S. D&O	$	218,794		$	239,894		$	81,968		$	86,202
International D&O		45,604			47,600			11,293			10,644
Total net written premium	$	264,398		$	287,494		$	93,261		$	96,846

Our Professional Liability segment pretax earnings increased $69.2 million year-over-year due to an improved accident year loss ratio and changes in loss development. The segment had favorable loss development of $26.2 million in the first nine months and third quarter of 2012, compared to adverse loss development of $48.1 million and $31.2 million in the first nine months and third quarter of 2011, respectively. The 2012 favorable development consisted of $9.3 million in U.S. D&O and $16.9 million in International D&O. The 2012 favorable development related to lower than expected reported loss development in underwriting years 2003 – 2006, partially offset by higher expected losses in underwriting year 2008.

The 2011 adverse loss development related to our diversified financial products (DFP) line of business, which had $104.2 million and $87.4 million in the first nine months and third quarter of 2011, respectively. This adverse development resulted primarily from revised assumptions with regards to the frequency and severity of claims in the 2008 – 2010 underwriting years. This line of business also recorded $27.3 million of additional losses in the third quarter of 2011 due to an increase in its 2011 accident year loss ratio. We

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continued to use that same higher ultimate loss ratio in 2012 for DFP’s accident year 2011 premium that earned in 2012. Partially offsetting DFP’s adverse development, the U.S. D&O and International D&O lines of business had favorable development of $32.1 million and $24.1 million, respectively, in the third quarter of 2011. The favorable development related to lower than expected reported loss development in underwriting years 2002 – 2005.

The higher 2011 net loss ratios for U.S. D&O include the impact of the adverse development for DFP, partially offset by the favorable development for the U.S. D&O line of business. The negative 2012 and 2011 net loss ratios for International D&O reflect the favorable development on that line of business.

The segment’s expense ratios reflect the impact of profit commissions due from reinsurers, which reduce the segment’s Other Expense. The segment recognized profit commissions of $5.9 million and $13.7 million in the first nine months of 2012 and 2011, respectively, and $6.0 million and $13.6 million in the third quarter of 2012 and 2011, respectively. The profit commissions reduced the expense ratios by 2.0 and 4.5 percentage points for year-to-date 2012 and 2011, respectively, and by 6.1 and 13.0 percentage points for third quarter 2012 and 2011, respectively.

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Accident & Health Segment

The following tables summarize the operations of the Accident & Health segment.

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Net earned premium	$	624,077		$	568,318		$	209,049		$	191,715
Other revenue		3,589			3,468			1,095			1,275
Segment revenue		627,666			571,786			210,144			192,990
Loss and loss adjustment expense, net		447,262			411,851			140,344			138,566
Other expense		93,127			89,228			32,025			29,897
Segment expense		540,389			501,079			172,369			168,463
Segment pretax earnings	$	87,277		$	70,707		$	37,775		$	24,527
Net loss ratio		71.7	%		72.5	%		67.1	%		72.3	%
Expense ratio		14.8			15.6			15.2			15.5
Combined ratio		86.5	%		88.1	%		82.3	%		87.8	%
Medical Stop-loss	$	583,344		$	527,255		$	195,671		$	176,199
Other		40,733			41,063			13,378			15,516
Total net earned premium	$	624,077		$	568,318		$	209,049		$	191,715
Medical Stop-loss		73.1	%		74.2	%		68.5	%		74.5	%
Other		50.5			50.7			46.6			47.1
Total net loss ratio		71.7	%		72.5	%		67.1	%		72.3	%
Medical Stop-loss	$	583,639		$	527,401		$	195,665		$	176,247
Other		38,974			37,834			14,073			15,225
Total gross written premium	$	622,613		$	565,235		$	209,738		$	191,472
Medical Stop-loss	$	583,344		$	527,255		$	195,671		$	176,199
Other		38,674			37,550			13,976			15,160
Total net written premium	$	622,018		$	564,805		$	209,647		$	191,359

The Accident & Health segment pretax earnings increased 23% year-over-year and 54% quarter-over-quarter due to higher net earned premium and the change in loss development. Medical stop-loss premium increased in 2012 due to writing new business and rate increases on renewal business, which were in line with medical loss cost trends. The segment had favorable loss development of $10.7 million in the first nine months and third quarter of 2012, compared to adverse loss development of $2.0 million in the first nine months of 2011. The 2012 development related to favorable claims activity in the medical stop-loss product line for the 2011 underwriting year. The 2011 adverse development related to our short-term medical reinsurance product (included in Other).

The 2011 information shown above has been adjusted to reflect our exit from two lines of business in the third quarter of 2012. See Note 10, “Segments” to the Consolidated Financial Statements.

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U.S. Surety & Credit Segment

The following tables summarize the operations of the U.S. Surety & Credit segment.

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Net earned premium	$	154,232		$	153,309		$	53,388		$	51,906
Other revenue		659			955			244			254
Segment revenue		154,891			154,264			53,632			52,160
Loss and loss adjustment expense, net		42,444			42,351			15,721			12,664
Other expense		83,402			82,909			27,879			27,657
Segment expense		125,846			125,260			43,600			40,321
Segment pretax earnings	$	29,045		$	29,004		$	10,032		$	11,839
Net loss ratio		27.5	%		27.6	%		29.4	%		24.4	%
Expense ratio		53.8			53.7			52.0			53.0
Combined ratio		81.3	%		81.3	%		81.4	%		77.4	%
Surety	$	118,944		$	121,093		$	39,336		$	40,284
Credit		35,288			32,216			14,052			11,622
Total net earned premium	$	154,232		$	153,309		$	53,388		$	51,906
Surety		24.7	%		25.2	%		24.6	%		25.1	%
Credit		37.0			36.6			43.0			21.8
Total net loss ratio		27.5	%		27.6	%		29.4	%		24.4	%
Surety	$	121,087		$	127,219		$	40,325		$	40,257
Credit		45,591			42,149			15,651			15,158
Total gross written premium	$	166,678		$	169,368		$	55,976		$	55,415
Surety	$	110,074		$	119,780		$	36,689		$	37,037
Credit		36,791			35,981			14,080			13,623
Total net written premium	$	146,865		$	155,761		$	50,769		$	50,660

Our U.S. Surety & Credit segment pretax earnings were flat year-over-year and decreased 15% quarter-over-quarter due to favorable loss development in 2011. The segment had favorable development of $2.8 million in the first nine months and third quarter of 2011 related to lower than expected loss development in our credit line of business. The segment had no loss development in 2012.

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International Segment

The following tables summarize the operations of the International segment.

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Net earned premium	$	302,303		$	267,458		$	105,831		$	99,294
Other revenue		2,766			2,791			631			889
Segment revenue		305,069			270,249			106,462			100,183
Loss and loss adjustment expense, net		126,547			175,635			46,924			45,242
Other expense		108,018			99,754			39,253			35,734
Segment expense		234,565			275,389			86,177			80,976
Segment pretax income (loss)	$	70,504		$	(5,140)		$	20,285		$	19,207
Net loss ratio		41.9	%		65.7	%		44.3	%		45.6	%
Expense ratio		35.4			36.9			36.9			35.7
Combined ratio		77.3	%		102.6	%		81.2	%		81.3	%
Energy	$	61,377		$	47,369		$	20,488		$	18,686
Property Treaty		77,422			64,528			28,415			26,563
Liability		57,603			60,181			18,472			20,283
Surety & Credit		53,701			56,009			18,756			19,952
Other		52,200			39,371			19,700			13,810
Total net earned premium	$	302,303		$	267,458		$	105,831		$	99,294
Energy		42.5	%		52.5	%		44.2	%		41.2	%
Property Treaty		22.0			95.9			29.3			85.2
Liability		49.5			18.1			49.6			(47.1)
Surety & Credit		57.7			40.9			56.6			40.2
Other		45.9			140.0			49.5			119.0
Total net loss ratio		41.9	%		65.7	%		44.3	%		45.6	%
Energy	$	125,578		$	113,410		$	14,864		$	17,029
Property Treaty		134,527			124,750			20,672			20,635
Liability		58,293			68,713			18,051			20,642
Surety & Credit		61,759			65,853			18,308			18,664
Other		79,954			74,629			23,305			18,804
Total gross written premium	$	460,111		$	447,355		$	95,200		$	95,774

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	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Energy	$	83,353		$	68,329		$	2,340		$	5,432
Property Treaty		113,302			100,139			13,483			14,013
Liability		53,954			63,248			16,638			18,815
Surety & Credit		55,887			62,155			16,074			18,689
Other		61,693			50,415			18,031			12,415
Total net written premium	$	368,189		$	344,286		$	66,566		$	69,364
The segment’s increase in gross written, net written and net earned premium year-over-year was driven by higher writings in our energy and property treaty lines of business, related to the favorable pricing environment for these products. See the table below the following paragraph for the impact of reinstatement premium on period-over-period comparisons. Our International segment pretax earnings were impacted in both years by net catastrophe losses. The 2012 losses primarily related to our property treaty business. In 2011, we experienced losses from catastrophes in Japan, New Zealand, Australia, the United States and Denmark. The 2011 catastrophic events impacted our energy and property treaty lines of business, as well as our property (direct and facultative) and accident and health lines of business (both included in Other). We reinsured a portion of our exposure to these catastrophic events and incurred net reinstatement premium for continued reinsurance coverage, which reduced 2011 net written and net earned premium. The energy, property treaty and Other net loss ratios reflect the impact of the net catastrophe losses. The 2011 expense ratios were impacted by reinstatement premium, which reduced net earned premium. The following table summarizes the segment’s catastrophe losses, as well as the impact on key metrics:
	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Loss and loss adjustment expense, after reinsurance	$	17,006		$	87,672		$	8,338		$	27,000
Reinstatement premium, net		(1,123	)		14,008			(712	)		2,400
Total net catastrophe losses	$	15,883		$	101,680		$	7,626		$	29,400
Impact of net catastrophe losses (percentage points):
Net loss ratio		5.5	%		34.4	%		7.6	%		27.7	%
Expense ratio		(0.1	)		1.8			(0.2	)		0.9
Combined ratio		5.4	%		36.2	%		7.4	%		28.6	%

The segment had favorable loss development of $20.6 million in the first nine months and $21.3 million in the third quarter of 2011, primarily related to our U.K. professional liability line of business. The segment had no loss development in 2012.

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Investing Segment

We invest the majority of our funds in highly-rated fixed maturity securities, which are designated as available for sale securities. We held $6.3 billion of fixed maturity securities at September 30, 2012. Substantially all of our fixed maturity securities were investment grade and 76% were rated AAA or AA. At September 30, 2012, the portfolio’s average tax equivalent yield was 4.8%, the weighted-average life was 8.0 years, and the weighted-average duration was 4.6 years.

The following tables summarize the investment results of our Investing segment.

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Fixed maturity securities	$	166,711		$	158,941		$	55,621		$	54,896
Equity securities		2,339			-			1,346			-
Short-term investments		397			420			295			99
Other investments and deposits		1,699			2,992			831			962
Net realized investment gain		8,519			3,169			1,472			2,674
Other-than-temporary impairment credit losses		(1,028)			(3,479)			(631)			-
Investment expenses		(4,504)			(3,571)			(1,751)			(1,192)
Segment pretax earnings	$	174,133		$	158,472		$	57,183		$	57,439
Fixed maturity securities:
Average yield *		3.9	%		4.0	%		3.9	%		4.0	%
Average tax equivalent yield *		4.8	%		4.8	%		4.7	%		4.8	%
Weighted-average life		8.0 years			7.7 years
Weighted-average duration		4.6 years			5.2 years
Weighted-average rating		AA			AA

* Excluding realized and unrealized gains and losses.

In 2012, we began investing in bank loans (classified as Corporate securities), which we expect will generate attractive yields and lower our overall duration without altering the weighted-average rating of the portfolio. We also began investing in publicly traded equity securities. As of September 30, 2012, our investments included $103.8 million of bank loans and $202.9 million of equity securities. The weighted-average duration of our fixed maturity securities portfolio dropped between third quarter 2011 and third quarter 2012, primarily due to the impact of lower market interest rates on our municipal securities and our structured securities with prepayment options.

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This table summarizes our investments by type, substantially all of which were reported at fair value, at September 30, 2012 and December 31, 2011.

	September 30, 2012					December 31, 2011
	Amount		%			Amount		%
Fixed maturity securities
U.S. government and government agency securities	$	232,036		3	%	$	302,677		5	%
Fixed maturity securities of states, municipalities and political subdivisions		1,079,175		16			1,085,341		18
Special purpose revenue bonds of states, municipalities and political subdivisions		2,076,017		31			1,863,888		31
Corporate securities		1,217,307		18			956,617		16
Residential mortgage-backed securities		841,542		13			1,100,086		18
Commercial mortgage-backed securities		524,100		8			256,124		4
Asset-backed securities		47,724		1			34,746		1
Foreign government securities		297,464		4			280,457		4
Equity securities		202,864		3			-		-
Short-term investments		160,138		2			133,917		2
Other investments		34,044		1			35,897		1
Total investments	$	6,712,411		100	%	$	6,049,750		100	%

Our total investments increased $662.7 million in 2012, principally from: 1) operating cash flow, 2) consolidation of our Lloyd’s of London Syndicate 4040 upon its merger into Syndicate 4141 as of January 1, 2012 and 3) a $145.0 million increase in the pretax net unrealized gain associated with our available for sale securities in the first nine months of 2012.

The ratings of our individual securities within our fixed maturity securities portfolio at September 30, 2012 were as follows:

	Amount		%
AAA	$	938,360		15	%
AA		3,849,585		61
A		1,131,356		18
BBB		271,733		4
BB and below		124,331		2
Total fixed maturity securities	$	6,315,365		100	%

At September 30, 2012, we held corporate fixed maturity securities issued by foreign corporations with an aggregate fair value of $489.8 million. In addition, we held securities issued by foreign governments, agencies or supranational entities with an aggregate fair value of $297.5 million.

At September 30, 2012, we held $2.1 billion of special purpose revenue bonds, as well as $1.1 billion of general obligation bonds, which are issued by states, municipalities and political subdivisions and collectively referred to, in the investment market, as municipal bonds. The overall rating of our municipal bonds was AA at September 30, 2012. Within our municipal bond portfolio, we held $412.1 million of pre-refunded bonds, which are supported by U.S. government debt obligations. Our special purpose revenue bonds are secured by revenue sources specific to each security. At September 30, 2012, the percentages of our special purpose revenue bond portfolio supported by these major revenue sources were as follows: 1) water and sewer – 24%, 2) education – 23%, 3) transportation – 21%, 4) leasing – 8% and 5) electric – 7%.

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Many of our special purpose revenue bonds are insured by mono-line insurance companies or supported by credit enhancement programs of various states and municipalities. We view bond insurance as credit enhancement and not credit substitution. We base our investment decision on the strength of the issuer. A credit review is performed on each issuer and on the sustainability of the revenue source before we acquire a special purpose revenue bond and periodically, on an ongoing basis, thereafter. The underlying average credit rating of our special purpose revenue bond issuers, excluding any bond insurance, was AA at September 30, 2012. Although recent economic conditions in the United States may reduce the source of revenue to support certain of these securities, the majority are supported by revenue from essential sources, as indicated above, which we believe generate a stable source of revenue.

The methodologies used to determine the fair value of our investments are described in Note 4, “Fair Value Measurements” to the Consolidated Financial Statements. The accounting policies and procedures that we use to determine our other-than-temporary impairment losses are described in “Critical Accounting Policies – Other-than-temporary Impairments in Investments” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2011.

Corporate & Other

The following table summarizes activity in the Corporate & Other category.

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Net earned premium	$	31,463		$	35,541		$	10,092		$	11,329
Other revenue		116			(503	)		(77	)		(588	)
Total revenue		31,579			35,038			10,015			10,741
Loss and loss adjustment expense, net		28,852			25,988			11,613			7,928
Other expense – Exited Lines		6,152			6,940			2,147			2,175
Other expense – Corporate		45,082			39,479			17,076			14,275
Interest expense		18,721			16,181			5,877			5,447
Foreign currency loss (benefit)		5,348			(2,480	)		6,788			(475	)
Total expense		104,155			86,108			43,501			29,350
Pretax loss	$	(72,576	)	$	(51,070	)	$	(33,486	)	$	(18,609	)

The 2011 amounts for net earned premium, loss and loss adjustment expense, and other expense – Exited Lines have been recast to reflect the addition of two product lines previously included in the Accident & Health segment. Net earned premium decreased year-over-year as we wrote less business related to our exited HMO and medical excess reinsurance products in 2012. Premium related to the other products included in Exited Lines was insignificant in 2012 and 2011. The majority of the loss and loss adjustment expense relates to the HMO and medical excess reinsurance products, which had higher losses during 2012.

Our Corporate expenses not allocable to the segments increased $5.6 million year-to-date in 2012, primarily due to higher employee compensation and benefit costs, including increased bonus expense due to higher profitability, and incremental expense related to our new technology systems. Our interest expense increased due to a higher amount of outstanding borrowings on our $600.0 million Revolving Loan Facility in 2012.

The impact of foreign currency fluctuated period-over-period due to our increased level of available for sale securities denominated in foreign currencies and weakening of foreign currencies, primarily the British pound sterling, relative to the U.S. dollar in 2012. We hold available for sale securities denominated in foreign currencies to economically hedge the currency exchange risk on our foreign-denominated loss reserves. The foreign currency gain or loss related to loss reserves is recorded through the income statement, while the foreign currency gain or loss related to available for sale securities is recorded through other comprehensive income within shareholders’ equity. This mismatch may cause fluctuations in our reported foreign currency benefit or expense in future periods.

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Liquidity and Capital Resources

We believe we have sufficient sources of liquidity at a reasonable cost at the present time. Our primary sources of liquidity and capital are as follows:

• We held $224.4 million of cash and liquid short-term investments at September 30, 2012.

• Our available for sale securities portfolio had a fair value of $6.6 billion at September 30, 2012, of which $241.4 million relates to bonds and equity securities that are held directly by the parent company. We generally intend to hold fixed maturity securities until their maturity, but we would be able to sell securities to generate cash if the need arises.

• We have a $600.0 million Revolving Loan Facility that expires on March 8, 2015. We had $340.1 million of borrowing capacity available at September 30, 2012.

• Our long-term debt consists of $300.0 million principal amount of unsecured 6.30% Senior Notes due November 15, 2019. Our debt to total capital ratio was 13.5% at September 30, 2012 and 12.8% at December 31, 2011, with the increase related to our borrowings under the Revolving Loan Facility.

• We have a $90.0 million Standby Letter of Credit Facility that expires on December 31, 2015, which is used to guarantee our performance in our Lloyd’s of London syndicate.

• Our domestic insurance subsidiaries have the ability to pay $255.1 million in dividends in 2012 to the parent company without obtaining special permission from state regulatory authorities. HCC can utilize these dividends for any purpose, including paying down debt, paying dividends to shareholders, funding acquisitions, purchasing our common stock and paying operating expenses.

• We have a “Universal Shelf” registration statement that expires in March 2015. The Universal Shelf provides for the issuance of $1.0 billion of securities, which may be debt securities, equity securities, or a combination thereof. The Universal Shelf provides us the means to access the debt and equity markets relatively quickly, if we are satisfied with the current pricing in the financial markets.

Capital Management

Notes Payable

There have been no changes to the terms and conditions related to our 6.30% Senior Notes, the $600.0 million Revolving Loan Facility (the Facility) or the Standby Letter of Credit Facility from those described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in our Annual Report on Form 10-K for the year ended December 31, 2011.

As of September 30, 2012, we had outstanding borrowings under the Facility of $250.0 million, primarily to fund purchases of our common stock. The weighted-average interest rate on borrowings under the Facility at September 30, 2012 was 1.60%. The borrowings and letters of credit issued under the Facility reduced our available borrowing capacity on the Facility to $340.1 million at September 30, 2012.

We were in compliance with debt covenants related to our 6.30% Senior Notes, the Facility, and the Standby Letter of Credit Facility at September 30, 2012.

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Share Repurchases

On August 23, 2012, the Board authorized a new $300.0 million stock purchase plan (the Plan) and cancelled $98.0 million remaining under a previous authorization. Purchases under the Plan may be made in the open market or in privately negotiated transactions from time-to-time in compliance with applicable laws, rules and regulations, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. Purchases under the Plan will be made subject to market and business conditions, the level of cash generated from our operations, cash required for acquisitions, our debt covenant compliance, and other relevant factors. The Plan does not obligate us to purchase any particular number of shares, has no expiration date, and may be suspended or discontinued at any time at the Board’s discretion.

In the third quarter of 2012, we purchased $15.1 million, or 0.4 million shares, at an average cost of $33.60 per share, of which $13.1 million, or 0.4 million shares, were purchased under the Plan. We purchased $141.5 million, or 4.5 million shares, at an average cost of $31.15 per share in the first nine months of 2012. As of October 26, 2012, $286.4 million of repurchase authority remains under the Plan.

Cash Flow

We receive substantial cash from premiums, reinsurance recoverables, surety collateral, outward commutations, proceeds from sales and redemptions of investments, and investment income. Our principal cash outflows are for the payment of claims and loss adjustment expenses, premium payments to reinsurers, return of surety collateral, inward commutations, purchases of investments, debt service, policy acquisition costs, operating expenses, taxes, dividends, and common stock purchases. Cash provided by operating activities can fluctuate due to timing differences in the collection of premium receivables, reinsurance recoverables and surety collateral; the payment of losses, premium payables, return of surety collateral; and the completion of commutations.

The components of our net operating cash flows are summarized in the following table.

	Nine months ended September 30,
	2012			2011
Net earnings	$	283,139		$	176,905
Change in premium, claims and other receivables, net of reinsurance, premium and claims payables and excluding restricted cash		(26,120	)		(110,979	)
Change in unearned premium, net		47,259			72,132
Change in loss and loss adjustment expense payable, net of reinsurance recoverables		63,201			139,536
Other, net		128,556			10,365
Cash provided by operating activities	$	496,035		$	287,959

We generated $208.1 million more cash flow from operating activities in the first nine months of 2012 than in the same period of 2011. The increase was primarily from additional premium collections. In addition, collateral from our surety businesses provided a net $81.0 million of cash flow from operating activities in 2012, compared to $4.4 million in 2011. Our cash flow from operating activities was reduced $27.5 million in 2012 and $26.7 million in 2011 for payments we made to commute large contracts in our assumed accident and health reinsurance business reported in Exited Lines.

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Accounting Guidance Adopted in 2012

See Note 1, “General Information — Accounting Guidance Adopted in 2012” to the Consolidated Financial Statements for a description of recently adopted accounting guidance related to deferred policy acquisition costs and its retrospective impact on our prior year consolidated financial statements.

Critical Accounting Policies

We provided information about our critical accounting policies in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2011. We have made no changes in the identification or methods of application of these policies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk from the information provided in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2011, except as follows:

In 2012, we entered into a forward contract to sell 45.0 million Euros for U.S. dollars in the third quarter of 2013. The fair value of the forward contract was a $1.7 million liability at September 30, 2012. A 10% increase (decrease) in the value of the Euro relative to the U.S. dollar would result in a $5.7 million decrease (increase) in the fair value of the forward contract.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Act)) that are designed to ensure that required information is recorded, processed, summarized and reported within the required timeframe, as specified in rules set forth by the Securities and Exchange Commission. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding required disclosures.

Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2012. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2012.

(b) Changes in Internal Control over Financial Reporting

During the third quarter of 2012, we identified no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

43

Part II — Other Information

Item 1. Legal Proceedings

We are a party to lawsuits, arbitrations and other proceedings that arise in the normal course of our business. Many of such lawsuits, arbitrations and other proceedings involve claims under policies that we underwrite as an insurer or reinsurer, the liabilities for which, we believe, have been adequately included in our loss reserves. Also, from time to time, we are a party to lawsuits, arbitrations and other proceedings that relate to disputes with third parties, or that involve alleged errors and omissions on the part of our subsidiaries. We have provided accruals for these items to the extent we deem the losses probable and reasonably estimable. Although the ultimate outcome of these matters cannot be determined at this time, based on present information, the availability of insurance coverage and advice received from our outside legal counsel, we believe the resolution of any such matters will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 1A. Risk Factors

There have been no material changes in the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On September 23, 2011, the Board approved the purchase of up to $300.0 million of our common stock (the 2011 Plan). On August 23, 2012, the Board approved a new authorization for $300.0 million (the 2012 Plan) and cancelled $98.0 million remaining under the 2011 Plan. Purchases under the 2012 Plan may be made in the open market or in privately negotiated transactions from time-to-time in compliance with applicable laws, rules and regulations, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. Purchases under the 2012 Plan will be made subject to market and business conditions, the level of cash generated from our operations, cash required for acquisitions, our debt covenant compliance, and other relevant factors. The 2012 Plan does not obligate us to purchase any particular number of shares, has no expiration date, and may be suspended or discontinued at any time at the Board’s discretion. During the third quarter of 2012, we purchased our common stock, as follows:

Period	Total number of     shares purchased		Average price     paid per share		Total number of shares     purchased as part of publicly announced plans or programs		Approximate dollar     value of shares that may yet be purchased under the plans or programs
2011 Plan
July		-		-		-	$	99,979,638
August		62,544	$	32.41		62,544		-
2012 Plan
August		3,202	$	32.42		3,202	$	299,896,206
September		383,853	$	33.81		383,853	$	286,918,558

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

44

Item 6. Exhibits

3.1	Restated Certificate of Incorporation and Amendment of Certificate of Incorporation of HCC Insurance Holdings, Inc., filed with Delaware Secretary of State on July 23, 1996 and May 21, 1998, respectively (incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-8 (Registration No. 333-61687) filed on August 17, 1998).
3.2	Second Amended and Restated Bylaws of HCC Insurance Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on May 25, 2012).
4.1	Indenture, dated August 23, 2001, between HCC Insurance Holdings, Inc. and First Union National Bank related to Debt Securities (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on August 24, 2001).
4.2	Form of Fourth Supplemental Indenture, dated November 16, 2009, between HCC Insurance Holdings, Inc. and U.S. Bank National Association related to the 6.30% Senior Notes due 2019 (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed on November 13, 2009).
†12	Statement of Ratios.
†31.1	Certification by Chief Executive Officer.
†31.2	Certification by Chief Financial Officer.
†32.1	Certification with Respect to Quarterly Report.
†101	The following financial statements from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Earnings, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements.

† Filed herewith.

45

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HCC Insurance Holdings, Inc.
	(Registrant)
November 5, 2012	/s/ John N. Molbeck, Jr.
(Date)	John N. Molbeck, Jr.,
	Chief Executive Officer
November 5, 2012	/s/ Pamela J. Penny
(Date)	Pamela J. Penny, Executive Vice President
	and Chief Accounting Officer

46

EX-12

Exhibit 12

HCC Insurance Holdings, Inc. and Subsidiaries

Statement of Ratios

(unaudited, in thousands except ratios)

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012			2011
Net loss ratio
Loss and loss adjustment expense, net	$	969,767		$	1,062,240		$	304,014		$	380,372
Net earned premium		1,676,122			1,576,987			563,650			544,256
Net loss ratio (1)		57.9	%		67.4	%		53.9	%		69.9	%
(Net loss ratio = incurred loss and loss adjustment expense divided by net earned premium)
Expense ratio (2)
Segment underwriting expense (3)	$	423,516		$	394,148		$	142,152		$	125,938
Segment revenue (4)		1,667,772			1,565,574			564,475			542,344
Expense ratio		25.4	%		25.2	%		25.2	%		23.2	%
(Expense ratio = segment underwriting expense divided by segment revenue)
Combined ratio (2)		83.3	%		92.6	%		79.1	%		93.1	%
(Combined ratio = net loss ratio plus expense ratio)
Accident year net loss ratio
Loss and loss adjustment expense, net	$	969,767		$	1,062,240		$	304,014		$	380,372
Add: Favorable (adverse) development		34,632			(21,623)			34,632			643
Accident year net loss and loss adjustment expense	$	1,004,399		$	1,040,617		$	338,646		$	381,015
Accident year net earned premium	$	1,676,122		$	1,576,987		$	563,650		$	544,256
Accident year net loss ratio		59.9	%		66.0	%		60.1	%		70.0	%
(Accident year net loss ratio = accident year net loss and loss adjustment expense divided by accident year net earned premium)
Net paid loss ratio
Losses paid, net of reinsurance	$	944,203		$	937,171		$	333,713		$	301,845
Net earned premium		1,676,122			1,576,987			563,650			544,256
Net paid loss ratio		56.3	%		59.4	%		59.2	%		55.5	%
(Net paid loss ratio = losses paid, net of reinsurance, divided by net earned premium)

(1) Calculated for our insurance companies using financial data reported in accordance with generally accepted accounting principles.

(2) The 2011 expense ratios and combined ratios have been recast to reflect change in Exited Lines in the third quarter of 2012.

See Note 10, “Segments” to the Consolidated Financial Statements for additional information.

(3) Sum of Other Expense for each of our insurance segments.

(4) Sum of Segment Revenue for each of our insurance segments.

HCC Insurance Holdings, Inc. and Subsidiaries

Statement of Ratios

(unaudited, in thousands except ratios)

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Ratio of earnings to fixed charges
Interest factor of rent expense (5)	$	3,981	$	4,077	$	1,356	$	1,346
Interest expense		19,101		16,597		5,962		5,610
Capitalized interest		303		345		290		160
Total fixed charges	$	23,385	$	21,019	$	7,608	$	7,116
Earnings before income tax expense	$	404,898	$	242,576	$	153,619	$	82,792
Interest factor of rent expense (6)		3,981		4,077		1,356		1,346
Interest expense		19,101		16,597		5,962		5,610
Earnings per calculation	$	427,980	$	263,250	$	160,937	$	89,748
Ratio of earnings to fixed charges (6)		18.30		12.52		21.15		12.61

(5) Estimated to be 33% of total rent expense.

(6) Earnings per calculation divided by total fixed charges.

EX-31.1

Exhibit 31.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER

I, John N. Molbeck, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of HCC Insurance Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 5, 2012	/s/ John N. Molbeck, Jr.
(Date)	John N. Molbeck, Jr.,
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER

I, Brad T. Irick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of HCC Insurance Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 5, 2012	/s/ Brad T. Irick
(Date)	Brad T. Irick, Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION WITH RESPECT TO

QUARTERLY REPORT OF

HCC INSURANCE HOLDINGS, INC.

The undersigned, being the Chief Executive Officer and Chief Financial Officer of HCC Insurance Holdings, Inc. (the Company), pursuant to 18 U.S.C. §1350 as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, do hereby certify to the best of their knowledge with respect to the Quarterly Report of the Company on Form 10-Q, as filed with the Securities and Exchange Commission for the quarter ended September 30, 2012 (the Report):

1. that the Report fully complies with all requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended; and

2. that the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report.

November 5, 2012	/s/ John N. Molbeck, Jr.
(Date)	John N. Molbeck, Jr.,
	Chief Executive Officer

November 5, 2012	/s/ Brad T. Irick
(Date)	Brad T. Irick, Executive Vice President and Chief Financial Officer

This certification is not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of such section. This certification is not deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates it by reference. A signed original of this certification has been provided to HCC Insurance Holdings, Inc. and will be retained by HCC Insurance Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Reinsurance (Details 5) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Calculation of net reserves, net unearned premium and net deferred policy acquisition costs
Loss and loss adjustment expense payable	$ 3,692,250	$ 3,658,317
Reinsurance recoverable on outstanding losses	(479,378)	(477,760)
Reinsurance recoverable on incurred but not reported losses	(477,859)	(497,074)
Net reserves	2,735,013	2,683,483
Unearned premium	1,118,094	1,031,034
Ceded unearned premium	(262,168)	(222,300)
Net unearned premium	855,926	808,734
Deferred policy acquisition costs	199,401	189,633
Deferred ceding commissions	(74,441)	(62,364)
Net deferred policy acquisition costs	$ 124,960	$ 127,269

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Segments (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Information by business segment
Net earned premium	$ 563,650	$ 544,256	$ 1,676,122	$ 1,576,987
Other revenue	68,023	66,268	197,362	182,097
Total revenue	631,673	610,524	1,873,484	1,759,084
Loss and LAE	304,014	380,372	969,767	1,062,240
Other expense	174,040	147,360	498,819	454,268
Segment Expense	478,054	527,732	1,468,586	1,516,508
Segment Pre Tax Earnings Loss	153,619	82,792	404,898	242,576
United States Property And Casualty [Member]
Information by business segment
Net earned premium	87,741	85,946	265,593	245,121
Other revenue	8,415	6,890	15,300	16,556
Total revenue	96,156	92,836	280,893	261,677
Loss and LAE	53,229	56,355	154,156	148,783
Other expense	29,581	26,627	89,348	82,202
Segment Expense	82,810	82,982	243,504	230,985
Segment Pre Tax Earnings Loss	13,346	9,854	37,389	30,692
Professional Liability [Member]
Information by business segment
Net earned premium	97,549	104,066	298,454	307,240
Other revenue	532	109	799	358
Total revenue	98,081	104,175	299,253	307,598
Loss and LAE	36,183	119,617	170,506	257,632
Other expense	13,414	6,023	49,621	40,055
Segment Expense	49,597	125,640	220,127	297,687
Segment Pre Tax Earnings Loss	48,484	(21,465)	79,126	9,911
Accident And Health [Member]
Information by business segment
Net earned premium	209,049	191,715	624,077	568,318
Other revenue	1,095	1,275	3,589	3,468
Total revenue	210,144	192,990	627,666	571,786
Loss and LAE	140,344	138,566	447,262	411,851
Other expense	32,025	29,897	93,127	89,228
Segment Expense	172,369	168,463	540,389	501,079
Segment Pre Tax Earnings Loss	37,775	24,527	87,277	70,707
United States Surety And Credit [Member]
Information by business segment
Net earned premium	53,388	51,906	154,232	153,309
Other revenue	244	254	659	955
Total revenue	53,632	52,160	154,891	154,264
Loss and LAE	15,721	12,664	42,444	42,351
Other expense	27,879	27,657	83,402	82,909
Segment Expense	43,600	40,321	125,846	125,260
Segment Pre Tax Earnings Loss	10,032	11,839	29,045	29,004
International [Member]
Information by business segment
Net earned premium	105,831	99,294	302,303	267,458
Other revenue	631	889	2,766	2,791
Total revenue	106,462	100,183	305,069	270,249
Loss and LAE	46,924	45,242	126,547	175,635
Other expense	39,253	35,734	108,018	99,754
Segment Expense	86,177	80,976	234,565	275,389
Segment Pre Tax Earnings Loss	20,285	19,207	70,504	(5,140)
Investing [Member]
Information by business segment
Net earned premium	0	0	0	0
Other revenue	57,183	57,439	174,133	158,472
Total revenue	57,183	57,439	174,133	158,472
Loss and LAE	0	0	0	0
Other expense	0	0	0	0
Segment Expense	0	0	0	0
Segment Pre Tax Earnings Loss	57,183	57,439	174,133	158,472
CorporateAndOther
Information by business segment
Net earned premium	10,092	11,329	31,463	35,541
Other revenue	(77)	(588)	116	(503)
Total revenue	10,015	10,741	31,579	35,038
Loss and LAE	11,613	7,928	28,852	25,988
Other expense	31,888	21,422	75,303	60,120
Segment Expense	43,501	29,350	104,155	86,108
Segment Pre Tax Earnings Loss	$ (33,486)	$ (18,609)	$ (72,576)	$ (51,070)

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Stock based Compensation

9 Months Ended

Sep. 30, 2012

Stock based Compensation [Abstract]

Stock based Compensation

(9) Stock-Based Compensation

In 2012, we granted the following shares of common stock, restricted stock awards, restricted stock units and stock options for the purchase of shares of our common stock. For all grants except stock options, we measure fair value based on the closing stock price of our common stock on the grant date. For stock options, we use the Black-Scholes single option pricing model to determine the fair value of an option on its grant date. The fair value of the common stock was expensed on the grant date. The fair value of the restricted stock awards, restricted stock units and stock options is being expensed over the vesting period.

		Weighted-average
	Number	grant date		Aggregate		Vesting
	of shares	fair value		fair value		period
Common stock	29	$	31.49	$	920	None
Restricted stock awards	313		31.20		9,758	2-4 years
Restricted stock units	13		30.60		403	4 years
Stock options	218		8.00		1,741	1-5 years

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Segments (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Segment Reporting Information [Line Items]
Assets	$ 10,080,384	$ 9,597,278

XML

Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Earnings per share

		Nine months ended September 30,				Three months ended September 30,
		2012		2011		2012		2011
Net earnings		$	283,139	$	176,905	$	107,062	$	60,437
Less: net earnings attributable to unvested restricted stock			(5,150)		(2,551)		(1,912)		(950)
	Net earnings available to common stock	$	277,989	$	174,354	$	105,150	$	59,487
Weighted-average common shares outstanding			100,340		110,665		99,424		106,919
Dilutive effect of outstanding options (determined using
	treasury stock method)		261		245		276		129
	Weighted-average common shares and potential
	common shares outstanding		100,601		110,910		99,700		107,048
Anti-dilutive stock options not included in treasury stock
	method computation		717		2,279		461		2,744

XML

Acquisitions, Dispositions and Goodwill (Details Textuals) (USD $)	Sep. 30, 2012
Acquisitions Dispositions And Goodwill [Abstract]
HCC Global earnout and related goodwill recognized from the acquisition date	$ 11,800,000

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Segments (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Segment Reporting Information [Line Items]
Total revenue	$ 631,673	$ 610,524	$ 1,873,484	$ 1,759,084

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

(4) Fair Value Measurements

Our financial instruments include assets and liabilities carried at fair value, as well as assets and liabilities carried at cost or amortized cost but disclosed at fair value in our financial statements. In determining fair value, we generally apply the market approach, which uses prices and other relevant data based on market transactions involving identical or comparable assets and liabilities. We classify our financial instruments into the following three-level hierarchy:

•Level 1 – Inputs are based on quoted prices in active markets for identical instruments.

•Level 2 – Inputs are based on observable market data (other than quoted prices), or are derived from or corroborated by observable market data.

•Level 3 – Inputs are unobservable and not corroborated by market data.

Our Level 1 investments consist ofU.S. Treasuries, money market funds,and equity securities traded in an active exchange market. We use unadjusted quoted prices for identical instruments to measure fair value.

Our Level 2 investments include most of our fixed maturity securities, which consist of U.S. government agency securities, municipal bonds, corporate debt securities, bank loans, and mortgage-backed and asset-backed securities. Level 2 also includes certificates of deposit and other interest-bearing deposits at banks, which we report as short-term investments, and a forward contract, which hedges our net investment in a Euro-functional currency foreign subsidiary. We measure fair value for the majority of our Level 2 investments using quoted prices of securities with similar characteristics. The remaining investments are valued using pricing models or matrix pricing. The fair value measurements consider observable assumptions, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, default rates, loss severity and other economic measures.

We use independent pricing services to assist us in determining fair value for approximately99% of our Level 2 investments. The pricing services provide a single price or quote per security. We use data provided by our third party investment managers to value the remaining Level 2 investments. To validate that these quoted and modeled prices are reasonable estimates of fair value, we perform various quantitative and qualitative procedures, including: 1) evaluation of the underlying methodologies, 2) analysis of recent sales activity, 3) analytical review of our fair values against current market prices and 4) comparison of the pricing services' fair value to other pricing services' fair value for the same investment. No markets for our investments were judged to be inactive at period end. Based on these procedures, we did not adjust the prices or quotes provided by our independent pricing services or third party investment managers as of September 30, 2012 or December 31, 2011.

Our Level 2 financial instruments also include our notes payable. We determine the fair value of our 6.30% Senior Notes based on quoted prices, but the market is inactive. The fair value of borrowings under our Revolving Loan Facility approximates the carrying amount because interest is based on 30-day LIBOR plus a margin.

Our Level 3 securities include certain fixed maturity securities and an insurance contract that we account for as a derivative and classify in other assets. We determine fair value of our Level 3 securities based on internally developed models that use assumptions or other data that are not readily observable from objective sources.

The following tables present the fair value of our financial instruments that were carried or disclosed at fair value. Unless indicated, these items were carried at fair value on our consolidated balance sheet.

		Level 1		Level 2		Level 3		Total
September 30, 2012
Fixed maturity securities – available for sale
	U.S. government and government agency securities	$	193,051	$	38,985	$	0	$	232,036
	Fixed maturity securities of states, municipalities and
	political subdivisions		0		1,079,175		0		1,079,175
	Special purpose revenue bonds of states, municipalities
	and political subdivisions		0		2,076,017		0		2,076,017
	Corporate securities		0		1,217,145		162		1,217,307
	Residential mortgage-backed securities		0		841,542		0		841,542
	Commercial mortgage-backed securities		0		524,100		0		524,100
	Asset-backed securities		0		47,724		0		47,724
	Foreign government securities		0		297,464		0		297,464
	Total fixed maturity securities – available for sale		193,051		6,122,152		162		6,315,365
Equity securities – available for sale			202,864		0		0		202,864
Short-term investments*			81,947		78,191		0		160,138
Other investments			34,044		0		0		34,044
Other assets			0		0		206		206
	Total assets measured at fair value	$	511,906	$	6,200,343	$	368	$	6,712,617
Notes payable*		$	0	$	595,804	$	0	$	595,804
Accounts payable and accrued liabilities – forward contract			0		1,705		0		1,705
	Total liabilities measured at fair value	$	0	$	597,509	$	0	$	597,509

____________________

*Carried at cost or amortized cost on our consolidated balance sheet.

		Level 1		Level 2		Level 3		Total
December 31, 2011
Fixed maturity securities – available for sale
	U.S. government and government agency securities	$	201,582	$	94,097	$	0	$	295,679
	Fixed maturity securities of states, municipalities and
	political subdivisions		0		1,085,341		0		1,085,341
	Special purpose revenue bonds of states, municipalities
	and political subdivisions		0		1,863,888		0		1,863,888
	Corporate securities		0		846,178		155		846,333
	Residential mortgage-backed securities		0		1,100,086		0		1,100,086
	Commercial mortgage-backed securities		0		256,124		0		256,124
	Asset-backed securities		0		33,731		1,015		34,746
	Foreign government securities		0		236,637		0		236,637
	Total fixed maturity securities – available for sale		201,582		5,516,082		1,170		5,718,834
Fixed maturity securities – held to maturity*			0		163,136		0		163,136
Short-term investments*			67,288		66,629		0		133,917
Other investments			35,720		0		0		35,720
Other assets			0		0		1,516		1,516
	Total assets measured at fair value	$	304,590	$	5,745,847	$	2,686	$	6,053,123
Notes payable*		$	-	$	505,671	$	-	$	505,671

____________________

*Carried at cost or amortized cost on our consolidated balance sheet.

The following tables present the changes in fair value of our Level 3 financial instruments.

	2012						2011
	Fixed						Fixed
	income		Other				income		Other
	securities		assets		Total		securities		assets		Total
Balance at beginning of year	$	1,170	$	1,516	$	2,686	$	1,438	$	857	$	2,295
Net gains (losses)		2		215		217		(13)		263		250
Sales		0		0		0		(144)		0		(144)
Transfers out of Level 3		(1,015)		0		(1,015)		0		0		0
Balance at March 31		157		1,731		1,888		1,281		1,120		2,401
Net gains (losses)		2		116		118		18		122		140
Sales		0		0		0		(55)		0		(55)
Balance at June 30		159		1,847		2,006		1,244		1,242		2,486
Settlements		0		(1,863)		(1,863)		0		0		0
Net gains (losses)		3		222		225		17		131		148
Sales		0		0		0		(43)		0		(43)
Balance at September 30	$	162	$	206	$	368	$	1,218	$	1,373	$	2,591

We transferred an investment from Level 3 to Level 2 in the first quarter of 2012 because we were able to determine its fair value using inputs based on observable market data in the period transferred.There were no transfers between Level 1, Level 2 or Level 3 in the second andthird quarters of 2012 or the firstnine months of 2011.

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Stock based Compensation (Details 2) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Restricted stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested [Roll Forward]
Number of shares	313
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Weighted-average grant date fair value, awarded	$ 31.20
Restricted stock units (RSU) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested [Roll Forward]
Number of shares	13
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Weighted-average grant date fair value, awarded	$ 30.60

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Notes Payable (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Notes Payable [Line Items]
Notes payable	$ 548,906	$ 478,790
Senior Notes [Member]
Notes Payable [Line Items]
Notes payable	298,906	298,790
Revolving Credit Facility [Member]
Notes Payable [Line Items]
Notes payable	$ 250,000	$ 180,000

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Reinsurance (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Components of reinsurance recoverables
Reinsurance recoverable on paid losses	$ 58,220	$ 83,109
Reinsurance recoverable on outstanding losses	479,378	477,760
Reinsurance recoverable on incurred but not reported losses	477,859	497,074
Reserve for uncollectible reinsurance	(1,500)	(1,875)
Total reinsurance recoverables	$ 1,013,957	$ 1,056,068

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Segments

9 Months Ended

Sep. 30, 2012

Segments [Abstract]

Segments

(10) Segments

We report HCC's results in six operating segments, including the following five insurance segments:

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

The Investing segment includes our consolidated 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, foreign currency expense (benefit), and underwriting results of our Exited Lines.

Our Exited Lines include product lines that we no longer write and do not expect to write in the future. In the third quarter of 2012, we exited the HMO and medical excess reinsurance businesses that had previously been included in our Accident & Health segment. We have recast all prior financial data to report these two lines of business in Exited Lines for all periods presented.

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, 2012
Net earned premium			$	265,593	$	298,454	$	624,077	$	154,232	$	302,303	$	0	$	31,463	$	1,676,122
Other revenue				15,300		799		3,589		659		2,766		174,133		116		197,362
	Segment revenue			280,893		299,253		627,666		154,891		305,069		174,133		31,579		1,873,484
Loss and LAE				154,156		170,506		447,262		42,444		126,547		0		28,852		969,767
Other expense				89,348		49,621		93,127		83,402		108,018		0		75,303		498,819
	Segment expense			243,504		220,127		540,389		125,846		234,565		-		104,155		1,468,586
		Segment pretax earnings (loss)	$	37,389	$	79,126	$	87,277	$	29,045	$	70,504	$	174,133	$	(72,576)	$	404,898

			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	$	568,318	$	153,309	$	267,458	$	0	$	35,541	$	1,576,987
Other revenue				16,556		358		3,468		955		2,791		158,472		(503)		182,097
	Segment revenue			261,677		307,598		571,786		154,264		270,249		158,472		35,038		1,759,084
Loss and LAE				148,783		257,632		411,851		42,351		175,635		0		25,988		1,062,240
Other expense				82,202		40,055		89,228		82,909		99,754		0		60,120		454,268
	Segment expense			230,985		297,687		501,079		125,260		275,389		-		86,108		1,516,508
		Segment pretax earnings (loss)	$	30,692	$	9,911	$	70,707	$	29,004	$	(5,140)	$	158,472	$	(51,070)	$	242,576

Three months ended September 30, 2012
Net earned premium			$	87,741	$	97,549	$	209,049	$	53,388	$	105,831	$	0	$	10,092	$	563,650
Other revenue				8,415		532		1,095		244		631		57,183		(77)		68,023
	Segment revenue			96,156		98,081		210,144		53,632		106,462		57,183		10,015		631,673
Loss and LAE				53,229		36,183		140,344		15,721		46,924		0		11,613		304,014
Other expense				29,581		13,414		32,025		27,879		39,253		0		31,888		174,040
	Segment expense			82,810		49,597		172,369		43,600		86,177		0		43,501		478,054
		Segment pretax earnings (loss)	$	13,346	$	48,484	$	37,775	$	10,032	$	20,285	$	57,183	$	(33,486)	$	153,619

Three months ended September 30, 2011
Net earned premium			$	85,946	$	104,066	$	191,715	$	51,906	$	99,294	$	0	$	11,329	$	544,256
Other revenue				6,890		109		1,275		254		889		57,439		(588)		66,268
	Segment revenue			92,836		104,175		192,990		52,160		100,183		57,439		10,741		610,524
Loss and LAE				56,355		119,617		138,566		12,664		45,242		0		7,928		380,372
Other expense				26,627		6,023		29,897		27,657		35,734		0		21,422		147,360
	Segment expense			82,982		125,640		168,463		40,321		80,976		-		29,350		527,732
		Segment pretax earnings (loss)	$	9,854	$	(21,465)	$	24,527	$	11,839	$	19,207	$	57,439	$	(18,609)	$	82,792

Catastrophe losses reduced the International segment's pretax earnings by $15.9million and $101.7 million in the first nine monthsof 2012 and 2011, respectively, and $7.6million and $29.4million in the third quarter of 2012 and 2011, respectively. The Professional Liability segment's pretax earnings were reduced by $75.4million in the first nine months and $58.5million in the third quarter of 2011 due to net adverse loss development and an increase in the 2011 accident year loss ratio for the diversified financial products line of business.

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Commitments and Contingencies (Details Textuals) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Commitments And Contingencies Line Items [Abstract]
Recognized Gross losses from catastrophic events	$ 22,700,000	$ 168,000,000
Liability related to indemnifications	11,200,000
Pretax loss after reinsurance	20,300,000	107,900,000
Letters of credit to cover obligations or anticipated payments	3,200,000
Amount in escrow account	$ 6,100,000

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Earnings Per Share (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings Per Share, Basic and Diluted
Net earnings	$ 107,062	$ 60,437	$ 283,139	$ 176,905
Less: net earnings attributable to unvested restricted stock	(1,912)	(950)	(5,150)	(2,551)
Net earnings available to common stock	$ 105,150	$ 59,487	$ 277,989	$ 174,354
Weighted-average common shares outstanding	99,424	106,919	100,340	110,665
Dilutive effect of outstanding options (determined using treasury stock method)	276	129	261	245
Weighted-average common shares and potential common shares outstanding	99,700	107,048	100,601	110,910
Anti-dilutive stock options not included in treasury stock method computation	461	2,744	717	2,279

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General Information

9 Months Ended

Sep. 30, 2012

General Information [Abstract]

General Information

HCC Insurance Holdings, Inc. (HCC) and its subsidiaries (collectively we, us or our) include domestic andforeign property and casualty and life insurance companies and underwriting agencies with offices in theUnited States, the United Kingdom, Spain and Ireland. We underwrite a variety of relatively non-correlated specialtyinsurance products, including property and casualty, accident and health, surety, creditand aviation product lines, in approximately 180countries. We market our products through a network of independent agents and brokers, producers, managing general agents and directly to customers.

Basis of Presentation

Our unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and include the accounts of HCC and its subsidiaries. We have made all adjustments that, in our opinion, are necessary for a fair statement of results of the interim periods, and all such adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011. The consolidated balance sheet at December 31, 2011 was derived from the audited financial statements but does not include all disclosures required by GAAP.

Management must make estimates and assumptions that affect amounts reported in our consolidated financial statements and in disclosures of contingent assets and liabilities. Ultimate results could differ from those estimates. We have reclassified certain amounts in our 2011 consolidated financial statements to conform to the 2012 presentation. None of our reclassifications had an effect on our consolidated net earnings, shareholders' equity or cash flows.

Accounting Guidance Adopted in 2012

Deferred Policy Acquisition Costs

A new accounting standard clarifies the definition of acquisition costs incurred by an insurance company and limits capitalization to such costs directly related to renewing or acquiring new insurance contracts. Under the new standard, we expense all costs incurred for unsuccessful marketing or underwriting efforts, along with indirect costs, as incurred. We adopted this guidance on January 1, 2012 through retrospective adjustment of the capitalized deferred policy acquisition costs, deferred income taxes and consolidated shareholders' equity in our prior years' consolidated financial statements. We also reclassified expenses in our prior years' consolidated income statements to reflect the new definition of policy acquisition costs. Application of the new guidance did not impact our reported consolidated net earnings or cash flows in prior years. The following line items in our consolidated financial statements were affected by this change in accounting guidance:

	December 31, 2011
	As originally
	reported		Change		As adjusted
Deferred policy acquisition costs	$	217,608	$	(27,975)	$	189,633
Accounts payable and accrued liabilities (deferred income taxes)		675,174		(9,943)		665,231
Retained earnings		2,447,850		(18,032)		2,429,818

	Nine months ended September 30, 2011						Three months ended September 30, 2011
	As originally						As originally
	reported		Change		As adjusted		reported		Change		As adjusted
Policy acquisition costs, net	$	239,160	$	(45,980)	$	193,180	$	71,299	$	(13,803)	$	57,496
Other operating expense		198,511		45,980		244,491		70,451		13,803		84,254

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Supplemental Information

9 Months Ended

Sep. 30, 2012

Supplemental Information [Abstract]

Supplemental Information

(12) Supplemental Information

Supplemental cash flow information was as follows:

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Income taxes paid	$	83,979	$	88,973	$	44,531	$	31,366
Interest paid		13,321		12,937		1,321		785
Proceeds from sales of available for sale fixed maturity securities		293,969		494,532		75,397		248,201
Proceeds from sales of equity securities		7,145		0		5,406		0
Dividends declared but not paid at end of period		16,728		16,535

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Notes Payable (Textuals) (USD $)	Sep. 30, 2012
Notes Payable [Abstract]
Percentage of senior notes	6.30%
Senior note, effective interest rate	6.30%
Borrowing capacity under line of credit facility	$ 600,000,000
Contracutal interest rate on borrowing under facility	1.60%
Remaining borrowing capacity under Revolving Loan Facility as reduced by outstanding letters of credit	340,100,000
Letter of credit facility outstanding amount	$ 90,000,000

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Fair Value Measurements (Details Textuals)	9 Months Ended
	Sep. 30, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Independent pricing services to assist in determining fair value	99.00%
Debt Instrument, Interest Rate, Effective Percentage	6.30%

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Fair Value Measurements (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011
Changes in fair value of level 3 assets
Balance at beginning of period	$ 2,006	$ 1,888	$ 2,686	$ 2,486	$ 2,401	$ 2,295
Settlement	(1,863)
Sales				(43)	(55)	(144)
Gains and (losses)-realized	225	118	217	148	140	250
Transfers out of Level 3			(1,015)
Balance at end of period	368	2,006	1,888	2,591	2,486	2,401
Fixed Income Securities [Member]
Changes in fair value of level 3 assets
Balance at beginning of period	159	157	1,170	1,244	1,281	1,438
Sales				(43)	(55)	(144)
Gains and (losses)-realized	3	2	2	17	18	(13)
Transfers out of Level 3			(1,015)
Balance at end of period	162	159	157	1,218	1,244	1,281
Other Assets [Member]
Changes in fair value of level 3 assets
Balance at beginning of period	1,847	1,731	1,516	1,242	1,120	857
Settlement	(1,863)
Gains and (losses)-realized	222	116	215	131	122	263
Balance at end of period	$ 206	$ 1,847	$ 1,731	$ 1,373	$ 1,242	$ 1,120

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Segments (Textuals) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Segment Reporting Information [Line Items]
Decrease In International Segments Pretax Earnings Due To Catastrophe Losses	$ 7,600,000	$ 29,400,000	$ 15,900,000	$ 101,700,000
Decrease In Professional Liability Segments Pretax Earnings Due To Catastrophe Losses		$ 58,500,000		$ 75,400,000

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Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Differences between our effective tax rate for financial statement purposes and the Federal statutory rate
Income tax expense	$ 46,557	$ 22,355	$ 121,759	$ 65,671

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Acquisitions, Dispositions and Goodwill

9 Months Ended

Sep. 30, 2012

Acquisitions Dispositions And Goodwill [Abstract]

Acqusitions, Dispositions And Goodwill

(5)  Goodwill

The goodwill balances by reportable segment and the changes in goodwill are shown in the table below.

	U.S. Property		Professional		Accident &		U.S. Surety
	& Casualty		Liability		Health		& Credit		International		Total
Balance at beginning of year	$	223,000	$	301,547	$	144,132	$	79,700	$	124,435	$	872,814
Earnout and other		0		12,542		(19)		0		523		13,046
Balance at September 30, 2012	$	223,000	$	314,089	$	144,113	$	79,700	$	124,958	$	885,860

We acquired HCC Global Financial Products (HCC Global), which underwrites our U.S. and International directors' and officers' liability business, in 2002. The purchase agreement, as amended, includes a contingency for future earnout payments. The earnout is based on HCC Global's pretax earnings on business written from theacquisition date through September 30, 2007, with no maximum amount due to the former owners. When conditions specified under the purchase agreement are met, we record a net amount owed to or due from the former owners based on our estimate, at that point in time, of how claims will ultimately be settled.This net amount will fluctuate in the future, and the ultimate total net earnout payments cannot be finally determined until all claims are settled or paid. In the third quarter of 2012, we increased goodwill by $11.8million for additional earnout earned and accrued under the purchase agreement.

We conducted our 2012 goodwill impairment test as of June 30, 2012, which is consistent with the timeframe for our annual assessment in prior years. Based on our latest assessment, the fair value of each of our five reporting units exceeded its carrying amount.

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Acquisitions, Dispositions and Goodwill (Tables)

9 Months Ended

Sep. 30, 2012

Acquisitions Dispositions And Goodwill [Abstract]

Goodwill balances by reportable segments

	U.S. Property		Professional		Accident &		U.S. Surety
	& Casualty		Liability		Health		& Credit		International		Total
Balance at beginning of year	$	223,000	$	301,547	$	144,132	$	79,700	$	124,435	$	872,814
Earnout and other		0		12,542		(19)		0		523		13,046
Balance at September 30, 2012	$	223,000	$	314,089	$	144,113	$	79,700	$	124,958	$	885,860

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Consolidated Statement of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Statement of Income and Comprehensive Income [Abstract]
Net earnings	$ 107,062	$ 60,437	$ 283,139	$ 176,905
Investment gains (losses)
Investment gains (losses) during the year	91,185	100,555	152,498	155,933
Income tax charge (benefit)	32,274	36,059	54,078	51,356
Investments gains (losses), net of tax	58,911	64,496	98,420	104,577
Less reclassification adjustments for
Other Comprehensive Income (Loss), Reclassification Adjustment for Sale of Securities Included in Net Income, before Tax	832	2,672	7,491	(306)
OtherComprehensiveIncomeReclassificationAdjustmentForSaleOfSecuritiesIncludedInNetIncomeTax	291	935	2,622	(107)
Other Comprehensive Income (Loss), Reclassification Adjustment for Sale of Securities Included in Net Income, Net of Tax	541	1,737	4,869	(199)
Net unrealized investment gains (losses)	58,370	62,759	93,551	104,776
Foreign currency translation adjustment	(141)	(6,297)	(3,454)	1,865
Income tax charge (benefit)	(234)	331	(483)	1,809
Foreign currency translation adjustment, net of tax	93	(6,628)	(2,971)	56
Other comprehensive income (loss)	58,463	56,131	90,580	104,832
Comprehensive income	$ 165,525	$ 116,568	$ 373,719	$ 281,737

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Acquisitions, Dispositions and Goodwill (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Goodwill [Line Items]
Balance at beginning of period	$ 872,814
Earnout and other	13,046
Balance at end of period	885,860
United States Property And Casualty [Member]
Goodwill [Line Items]
Balance at beginning of period	223,000
Earnout and other	0
Balance at end of period	223,000
Professional Liability [Member]
Goodwill [Line Items]
Balance at beginning of period	301,547
Earnout and other	12,542
Balance at end of period	314,089
Accident And Health [Member]
Goodwill [Line Items]
Balance at beginning of period	144,132
Earnout and other	(19)
Balance at end of period	144,113
United States Surety And Credit [Member]
Goodwill [Line Items]
Balance at beginning of period	79,700
Earnout and other	0
Balance at end of period	79,700
International [Member]
Goodwill [Line Items]
Balance at beginning of period	124,435
Earnout and other	523
Balance at end of period	$ 124,958

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Notes Payable

9 Months Ended

Sep. 30, 2012

Notes Payable [Abstract]

Notes Payable

(7) Notes Payable

Notes payable were as follows:

		September 30,		December 31,
		2012		2011
6.30% Senior Notes		$	298,906	$	298,790
$600.0 million Revolving Loan Facility			250,000		180,000
	Total notes payable	$	548,906	$	478,790

We have a $90.0 million Standby Letter of Credit Facility that is used to guarantee our performance in our Lloyd's of London Syndicate 4141. There have been no changes to the terms and conditions related to our6.30% Senior Notes, the $600.0 million Revolving Loan Facility (the Facility) orthe Standby Letter of Credit Facility from those described in Note 7, “Notes Payable” to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011.

The weighted-average interest rate on borrowings under the Facility at September 30, 2012 was 1.60%. The borrowings and letters of credit issued under the Facility reduced our available borrowing capacity on the Facility to $340.1 million at September 30, 2012.

We were in compliance with debt covenants related to our 6.30% Senior Notes, the Facility and the Standby Letter of Credit Facility at September 30, 2012.

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Segments (Tables)

9 Months Ended

Sep. 30, 2012

Segments [Abstract]

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, 2012
Net earned premium			$	265,593	$	298,454	$	624,077	$	154,232	$	302,303	$	0	$	31,463	$	1,676,122
Other revenue				15,300		799		3,589		659		2,766		174,133		116		197,362
	Segment revenue			280,893		299,253		627,666		154,891		305,069		174,133		31,579		1,873,484
Loss and LAE				154,156		170,506		447,262		42,444		126,547		0		28,852		969,767
Other expense				89,348		49,621		93,127		83,402		108,018		0		75,303		498,819
	Segment expense			243,504		220,127		540,389		125,846		234,565		-		104,155		1,468,586
		Segment pretax earnings (loss)	$	37,389	$	79,126	$	87,277	$	29,045	$	70,504	$	174,133	$	(72,576)	$	404,898

			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	$	568,318	$	153,309	$	267,458	$	0	$	35,541	$	1,576,987
Other revenue				16,556		358		3,468		955		2,791		158,472		(503)		182,097
	Segment revenue			261,677		307,598		571,786		154,264		270,249		158,472		35,038		1,759,084
Loss and LAE				148,783		257,632		411,851		42,351		175,635		0		25,988		1,062,240
Other expense				82,202		40,055		89,228		82,909		99,754		0		60,120		454,268
	Segment expense			230,985		297,687		501,079		125,260		275,389		-		86,108		1,516,508
		Segment pretax earnings (loss)	$	30,692	$	9,911	$	70,707	$	29,004	$	(5,140)	$	158,472	$	(51,070)	$	242,576

Three months ended September 30, 2012
Net earned premium			$	87,741	$	97,549	$	209,049	$	53,388	$	105,831	$	0	$	10,092	$	563,650
Other revenue				8,415		532		1,095		244		631		57,183		(77)		68,023
	Segment revenue			96,156		98,081		210,144		53,632		106,462		57,183		10,015		631,673
Loss and LAE				53,229		36,183		140,344		15,721		46,924		0		11,613		304,014
Other expense				29,581		13,414		32,025		27,879		39,253		0		31,888		174,040
	Segment expense			82,810		49,597		172,369		43,600		86,177		0		43,501		478,054
		Segment pretax earnings (loss)	$	13,346	$	48,484	$	37,775	$	10,032	$	20,285	$	57,183	$	(33,486)	$	153,619

Three months ended September 30, 2011
Net earned premium			$	85,946	$	104,066	$	191,715	$	51,906	$	99,294	$	0	$	11,329	$	544,256
Other revenue				6,890		109		1,275		254		889		57,439		(588)		66,268
	Segment revenue			92,836		104,175		192,990		52,160		100,183		57,439		10,741		610,524
Loss and LAE				56,355		119,617		138,566		12,664		45,242		0		7,928		380,372
Other expense				26,627		6,023		29,897		27,657		35,734		0		21,422		147,360
	Segment expense			82,982		125,640		168,463		40,321		80,976		-		29,350		527,732
		Segment pretax earnings (loss)	$	9,854	$	(21,465)	$	24,527	$	11,839	$	19,207	$	57,439	$	(18,609)	$	82,792

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Investments
Fixed maturity securities - available for sale, at fair value (amortized cost: 2012-$5,847,178; 2011 - $5,385,432)	$ 6,315,365	$ 5,718,834
Fixed maturity securities - held to maturity, at amortized cost (fair value: $163,136)	0	161,102
Equity securities-available for sale, at fair value (cost: $197,469)	202,864	0
Short-term investments, at cost, which approximates fair value	160,138	133,917
Other investments, at fair value (amortized cost: 2012 -$31,550 and 2011-$38,230)	34,044	35,897
Total investments	6,712,411	6,049,750
Cash	64,293	104,550
Restricted cash	125,974	229,821
Premium, claims and other receivables	604,881	688,732
Reinsurance recoverables	1,013,957	1,056,068
Ceded unearned premium	262,168	222,300
Ceded life and annuity benefits	58,771	61,061
Deferred policy acquisition costs	199,401	189,633
Goodwill	885,860	872,814
Other assets	152,668	122,549
Total assets	10,080,384	9,597,278
LIABILITIES
Loss and loss adjustment expense payable	3,692,250	3,658,317
Life and annuity policy benefits	58,771	61,061
Reinsurance, premium and claims payable	321,064	366,499
Unearned premium	1,118,094	1,031,034
Deferred ceding commissions	74,441	62,364
Notes payable	548,906	478,790
Accounts payable and accrued liabilities	762,038	665,231
Total liabilities	6,575,564	6,323,296
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; 250,000 shares authroized (shares issued: 2012-124,459 and 2011-122,720; outstanding: 2012-101,297 and 2011-104,101)	124,459	122,720
Additional paid-in capital	1,046,435	1,001,308
Retained earnings	2,664,745	2,429,818
Accumulated other comprehensive income	318,239	227,659
Treasury stock, at cost (shares: 2012-23,162 and 2011-18,619)	(649,058)	(507,523)
Total shareholders' equity	3,504,820	3,273,982
Total liabilities and shareholders' equity	$ 10,080,384	$ 9,597,278

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Earnings Per Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share

(8)Earnings Per Share

The following table details the numerator and denominator used in our earnings per share calculations.

		Nine months ended September 30,				Three months ended September 30,
		2012		2011		2012		2011
Net earnings		$	283,139	$	176,905	$	107,062	$	60,437
Less: net earnings attributable to unvested restricted stock			(5,150)		(2,551)		(1,912)		(950)
	Net earnings available to common stock	$	277,989	$	174,354	$	105,150	$	59,487
Weighted-average common shares outstanding			100,340		110,665		99,424		106,919
Dilutive effect of outstanding options (determined using
	treasury stock method)		261		245		276		129
	Weighted-average common shares and potential
	common shares outstanding		100,601		110,910		99,700		107,048
Anti-dilutive stock options not included in treasury stock
	method computation		717		2,279		461		2,744

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Consolidated Statement of Changes in Shareholders' Equity (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Issuance of 1,437 shares for exercise of options, including tax effect	1,437
Purchase of 4,543 common shares	4,543
Cash dividends declared $0.475 per share	$ 0.475

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Segments (Details 4) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Segment Reporting Information [Line Items]
Total assets	$ 10,080,384	$ 9,597,278

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Reinsurance (Tables)

9 Months Ended

Sep. 30, 2012

Reinsurance [Abstract]

Effect of reinsurance transactions on our premium, loss and loss adjustment expense and policy acquisition costs

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Direct written premium	$	1,826,610	$	1,724,869	$	603,844	$	555,427
Reinsurance assumed		313,395		295,268		61,919		73,420
Reinsurance ceded		(409,206)		(359,046)		(135,456)		(116,513)
Net written premium	$	1,730,799	$	1,661,091	$	530,307	$	512,334
Direct earned premium	$	1,795,109	$	1,728,082	$	601,572	$	574,571
Reinsurance assumed		259,870		255,293		90,988		96,799
Reinsurance ceded		(378,857)		(406,388)		(128,910)		(127,114)
Net earned premium	$	1,676,122	$	1,576,987	$	563,650	$	544,256
Direct loss and loss adjustment expense	$	1,029,227	$	1,197,225	$	301,306	$	410,573
Reinsurance assumed		96,143		186,805		35,108		44,600
Reinsurance ceded		(155,603)		(321,790)		(32,400)		(74,801)
Net loss and loss adjustment expense	$	969,767	$	1,062,240	$	304,014	$	380,372

Policy acquisition costs	$	299,854	$	292,645	$	101,698	$	100,975
Ceding commissions		(88,300)		(99,465)		(34,078)		(43,479)
Net policy acquisition costs	$	211,554	$	193,180	$	67,620	$	57,496

Components of our reinsurance recoverables

		September 30,		December 31,
		2012		2011
Reinsurance recoverable on paid losses		$	58,220	$	83,109
Reinsurance recoverable on outstanding losses			479,378		477,760
Reinsurance recoverable on incurred but not reported losses			477,859		497,074
Reserve for uncollectible reinsurance			(1,500)		(1,875)
	Total reinsurance recoverables	$	1,013,957	$	1,056,068

Amounts of letters of credit and cash deposits held by us as collateral, plus other credits available for potential offset

		September 30,		December 31,
		2012		2011
Payables to reinsurers		$	201,598	$	195,806
Letters of credit			97,357		120,589
Cash			112,105		83,731
	Total credits	$	411,060	$	400,126

Calculation of net reserves, net unearned premium and net deferred policy acquisition costs

		September 30,		December 31,
		2012		2011
Loss and loss adjustment expense payable		$	3,692,250	$	3,658,317
Reinsurance recoverable on outstanding losses			(479,378)		(477,760)
Reinsurance recoverable on incurred but not reported losses			(477,859)		(497,074)
	Net reserves	$	2,735,013	$	2,683,483
Unearned premium		$	1,118,094	$	1,031,034
Ceded unearned premium			(262,168)		(222,300)
	Net unearned premium	$	855,926	$	808,734
Deferred policy acquisition costs		$	199,401	$	189,633
Deferred ceding commissions			(74,441)		(62,364)
	Net deferred policy acquisition costs	$	124,960	$	127,269

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Subsequent Events

9 Months Ended

Sep. 30, 2012

subsequent events [Abstract]

Subsequent Events

(13) Subsequent Event

On October 29, 2012, Hurricane Sandy made landfall in the United States.We have begun assessing our exposures but are unable to reasonably quantify the extent of our losses with respect to this event at this time.

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Investments (Details Textuals) (USD $)	9 Months Ended
	Sep. 30, 2012 years
Investment [Abstract]
Fair value of held to maturity securities transferred	$ 139,100,000
Amortized cost of held to maturity securities transferred	136,000,000
Net unrealized appreciation, net of tax, increase in AOCI & SHE from transfer	2,000,000
Gross unrealized losses on fixed income securities	$ 5,800,000
Weighted-average life of mortgage-backed and asset-backed securities, Years	5.2
Senior note, effective interest rate	6.30%

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Reinsurance (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Effect of reinsurance transactions on our premium, loss and loss adjustment expense and policy acquisition costs
Direct written premium	$ 603,844	$ 555,427	$ 1,826,610	$ 1,724,869
Reinsurance assumed	61,919	73,420	313,395	295,268
Reinsurance ceded	(135,456)	(116,513)	(409,206)	(359,046)
Net written premium	530,307	512,334	1,730,799	1,661,091
Direct earned premium	601,572	574,571	1,795,109	1,728,082
Reinsurance assumed	90,988	96,799	259,870	255,293
Reinsurance ceded	(128,910)	(127,114)	(378,857)	(406,388)
Net earned premium	563,650	544,256	1,676,122	1,576,987
Direct loss and loss adjustment expense	301,306	410,573	1,029,227	1,197,225
Reinsurance assumed	35,108	44,600	96,143	186,805
Reinsurance ceded	(32,400)	(74,801)	(155,603)	(321,790)
Net loss and loss adjustment expense	304,014	380,372	969,767	1,062,240
Policy acquisition costs	101,698	100,975	299,854	292,645
Ceding commissions	(34,078)	(43,479)	(88,300)	(99,465)
Net policy acquisition costs	$ 67,620	$ 57,496	$ 211,554	$ 193,180

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Derivative Financial Instruments (Textuals) (USD $)	3 Months Ended
	Jun. 30, 2012	Sep. 30, 2012
Summary of Derivative Instruments [Abstract]
The amount of Euros to sell for the forward contract.	45.0
The fair value of our obligation related to the forward contract.		$ 1,700,000

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Operating activities
Net earnings	$ 283,139	$ 176,905
Adjustments to reconcile net earnings to net cash provided by operating activities
Change in premium, claims and other receivables	6,623	(76,927)
Change in reinsurance recoverables	47,149	(56,510)
Change in ceded unearned premium	(39,918)	47,477
Change in loss and loss adjustments expense payable	16,052	196,046
Change in unearned premium	87,177	24,655
Change in reinsurance, premium and claims payable, excluding restricted cash	(32,743)	(34,052)
Change in accounts payable and accrued liabilities	79,500	5,082
Stock-based compensation expense	10,361	10,017
Depreciation and amortization expense	13,919	13,214
Other, net	24,776	(17,948)
Cash provided by operating activities	496,035	287,959
Investing activities
Proceeds from sales of available for sale fixed maturity securities	293,969	494,532
Proceeds from sale of equity securities	7,145
Maturity or call of available for sale fixed maturity securities	504,583	318,558
Maturity or call of held to maturity fixed maturity securities	28,511	24,950
Cost of available for sale fixed maturity securities acquired	(1,056,909)	(1,243,124)
Cost of equity securities acquired	205,092
Cost of other investments acquired	0	(33,060)
Change in short-term investments	(5,401)	288,909
Payments for purchase of businesses, net of cash received	(32,590)	(1,892)
Other, net	(2,911)	(14,184)
Cash used by investing activities	(468,695)	(165,311)
Financing activities
Advances on line of credit	140,000	210,000
Payments on line of credit	(70,000)	(15,000)
Sale of common stock	40,105	36,245
Purchase of common stock	(135,151)	(303,311)
Dividends paid	(47,617)	(49,301)
Other, net	5,066	(6,001)
Cash used by financing activities	(67,597)	(127,368)
Net decrease in cash	(40,257)	(4,720)
Cash at beginning of year	104,550	97,857
Cash at end of period	$ 64,293	$ 93,137

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Investments
Total fixed maturity securities, Available for sale, Cost or amortized cost	$ 5,847,178	$ 5,385,432
Fair value for fixed maturity securities - held to maturity, at amortized cost	0	163,136
Fair value for equity securities-available for sale, at cost	197,469	0
Other investments, amortized cost	$ 31,550	$ 38,230
SHAREHOLDERS' EQUITY
Common stock, par value	$ 1	$ 1
Common stock, shares authorized	250,000	250,000
Common stock, shares issued	124,459	122,720
Common stock, shares outstanding	101,297	104,101
Treasury stock	23,162	18,619

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Investments (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fixed Maturity Securities Held To Maturity
Held to maturity, amortized cost basis	$ 0	$ 161,102
Gross unrealized gain		2,629
Gross unrealized loss		(595)
Fair value	0	163,136
US Government Debt Securities [Member]
Fixed Maturity Securities Held To Maturity
Held to maturity, amortized cost basis		6,998
Gross unrealized gain		69
Fair value		7,067
Corporate Debt Securities [Member]
Fixed Maturity Securities Held To Maturity
Held to maturity, amortized cost basis		110,284
Gross unrealized gain		1,814
Gross unrealized loss		(455)
Fair value		111,643
Foreign Government Debt Securities [Member]
Fixed Maturity Securities Held To Maturity
Held to maturity, amortized cost basis		43,820
Gross unrealized gain		746
Gross unrealized loss		(140)
Fair value		$ 44,426

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	HCC INSURANCE HOLDINGS INC/DE/
Entity Central Index Key	0000888919
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding	101,300,000

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Investments (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Other than temporary impairment credit losses
Total other-than-temporary impairment loss	$ (686)	$ 0	$ (2,069)	$ (4,677)
Portion recognized in other comprehensive income	55	0	1,041	1,198
Net other-than-temporary impairment loss recognized in earnings	(631)	0	(1,028)	(3,479)
Credit losses recognized in earnings with component in other comprehensive income
Balance at beginning of period	5,444	3,847	5,047	4,273
Securities previously impaired	631	0	899	1,597
Securities previously not impaired	0	0	129	1,882
Securities sold		0		(3,905)
Balance at end of period	$ 6,075	$ 3,847	$ 6,075	$ 3,847

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Consolidated Statement of Earnings (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
REVENUE
Net earned premium	$ 563,650	$ 544,256	$ 1,676,122	$ 1,576,987
Other revenue	68,023	66,268	197,362	182,097
Net investment income	56,342	54,765	166,642	158,782
Other operating income	10,840	8,829	23,229	23,625
Net realized investment gain	1,472	2,674	8,519	3,169
Other-than-temporary impairment credit losses	(631)	0	(1,028)	(3,479)
Total revenue	631,673	610,524	1,873,484	1,759,084
EXPENSE
Loss and loss adjustment expense, net	304,014	380,372	969,767	1,062,240
Policy acquisition costs, net	67,620	57,496	211,554	193,180
Other expense	174,040	147,360	498,819	454,268
Other operating expense	100,458	84,254	268,164	244,491
Interest expense	5,962	5,610	19,101	16,597
Total expense	478,054	527,732	1,468,586	1,516,508
Earnings before income taxes	153,619	82,792	404,898	242,576
Income tax expense	46,557	22,355	121,759	65,671
Net earnings	$ 107,062	$ 60,437	$ 283,139	$ 176,905
Earnings per common share
Basic	$ 1.06	$ 0.56	$ 2.77	$ 1.58
Diluted	$ 1.05	$ 0.56	$ 2.76	$ 1.57

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General Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
New Accounting Pronouncements And Change In Accounting Principals [Line Items]
Deferred policy acquisition costs	$ 199,401		$ 199,401		$ 189,633
Accounts payable and accrued liabilities	762,038		762,038		665,231
Retained earnings	2,664,745		2,664,745		2,429,818
Policy acquisition costs, net	67,620	57,496	211,554	193,180
Other operating expense	100,458	84,254	268,164	244,491
As originally reported
New Accounting Pronouncements And Change In Accounting Principals [Line Items]
Deferred policy acquisition costs					217,608
Accounts payable and accrued liabilities					675,174
Retained earnings					2,447,850
Policy acquisition costs, net		71,299		239,160
Other operating expense		70,451		198,511
Change
New Accounting Pronouncements And Change In Accounting Principals [Line Items]
Deferred policy acquisition costs					(27,975)
Accounts payable and accrued liabilities					(9,943)
Retained earnings					(18,032)
Policy acquisition costs, net		(13,803)		(45,980)
Other operating expense		$ 13,803		$ 45,980

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General Information (Tables)

9 Months Ended

Sep. 30, 2012

Cumulative-Effect Adjustment [Abstract]

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

	December 31, 2011
	As originally
	reported		Change		As adjusted
Deferred policy acquisition costs	$	217,608	$	(27,975)	$	189,633
Accounts payable and accrued liabilities (deferred income taxes)		675,174		(9,943)		665,231
Retained earnings		2,447,850		(18,032)		2,429,818

	Nine months ended September 30, 2011						Three months ended September 30, 2011
	As originally						As originally
	reported		Change		As adjusted		reported		Change		As adjusted
Policy acquisition costs, net	$	239,160	$	(45,980)	$	193,180	$	71,299	$	(13,803)	$	57,496
Other operating expense		198,511		45,980		244,491		70,451		13,803		84,254

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Derivative Financial Instruments

9 Months Ended

Sep. 30, 2012

Summary of Derivative Instruments [Abstract]

Derivative Instruments TextBlock

(3) Derivative Financial Instrument

We utilize the British pound sterling and the Euro as the functional currency in certain of our foreign operations. As a result, we have exposure to fluctuations in exchange rates between these currencies and the U.S. dollar. From time to time, we may use derivative instruments to protect our investment in these foreign operations by limiting our exposure to fluctuations in exchange rates.

During the second quarter of 2012, we entered into a forward contract to sell 45.0million Euros for U.S. dollars in the third quarter of 2013. This transaction has been designated and qualifies as a hedge of a portion of our net investment in a Euro-functional currency subsidiary. Changes in the fair value of the forward contract, net of the related deferred tax effect, are recognized in our foreign currency translation adjustment, which is a component of accumulated other comprehensive income. This amount will offset changes in the value of the net investment being hedged as the cumulative translation adjustment related to the foreign subsidiary, representing the effect of translating the subsidiary's assets and liabilities from Euros to U.S. dollars, is also reported in our foreign currency translation adjustment.

The fair value of the forward contract was a $1.7million liability at September 30, 2012. This amount is reported in accounts payable and accrued liabilities on our consolidated balance sheet. At inception of the hedge and quarterly thereafter, we assess whether the hedge transaction is effective. Any ineffectiveness would be recognized in earnings immediately as other operating expense. There was no ineffectiveness on the forward contract during 2012.

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Investments (Details 3) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Amortized cost and fair value of fixed maturity securities
Due in 1 year or less, Available for sale, Cost or amortized cost	$ 335,455
Due after 1 year through 5 years, Available for sale, Cost or amortized cost	1,063,361
Due after 5 years through 10 years, Available for sale, Cost or amortized cost	1,331,492
Due after 10 years through 15 years, Available for sale, Cost or amortized cost	869,485
Due after 15 years, Available for sale, Cost or amortized cost	931,342
Securities with contractual maturities, Available for sale, Cost or amortized cost	4,531,135
Mortgage-backed and asset-backed securities, Available for sale, Cost or amortized cost	1,316,043
Available-for-sale Debt Securities, Amortized Cost Basis	5,847,178	5,385,432
Due in 1 year or less, Available for sale, Fair value	340,330
Due after 1 year through 5 years, Available for sale, Fair value	1,121,440
Due after 5 years through 10 years, Available for sale, Fair value	1,462,880
Due after 10 years through 15 years, Available for sale, Fair value	961,876
Due after 15 years, Available for sale, Fair value	1,015,473
Securities with contractual maturities, Available for sale, Fair value	4,901,999
Mortgage-backed and asset-backed securities, Available for sale, Fair value	1,413,366
Available-for-sale Securities, Debt Securities	6,315,365
Total fixed income securities, Held to maturity, Amortized cost	0	161,102
Total fixed income securities, Held to maturity, Fair value	$ 0	$ 163,136

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Investments (Tables)

9 Months Ended

Sep. 30, 2012

Investment [Abstract]

Fixed Maturity & Equity Securities Available For Sale

		Cost or		Gross		Gross
		amortized		unrealized		unrealized
		cost		gain		loss		Fair value
September 30, 2012
U.S. government and government agency securities		$	224,267	$	7,769	$	0	$	232,036
Fixed maturity securities of states, municipalities and political
	subdivisions		977,682		101,493		0		1,079,175
Special purpose revenue bonds of states, municipalities and
	political subdivisions		1,895,991		180,049		(23)		2,076,017
Corporate securities			1,152,593		66,475		(1,761)		1,217,307
Residential mortgage-backed securities			789,172		52,999		(629)		841,542
Commercial mortgage-backed securities			479,517		44,635		(52)		524,100
Asset-backed securities			47,354		370		0		47,724
Foreign government securities			280,602		16,866		(4)		297,464
	Total fixed maturity securities – available for sale	$	5,847,178	$	470,656	$	(2,469)	$	6,315,365
Equity securities – available for sale		$	197,469	$	8,741	$	(3,346)	$	202,864

December 31, 2011
U.S. government and government agency securities		$	285,166	$	10,523	$	(10)	$	295,679
Fixed maturity securities of states, municipalities and political
	subdivisions		999,940		85,528		(127)		1,085,341
Special purpose revenue bonds of states, municipalities and
	political subdivisions		1,741,297		122,746		(155)		1,863,888
Corporate securities			817,886		35,221		(6,774)		846,333
Residential mortgage-backed securities			1,036,436		65,771		(2,121)		1,100,086
Commercial mortgage-backed securities			244,535		15,162		(3,573)		256,124
Asset-backed securities			34,655		147		(56)		34,746
Foreign government securities			225,517		11,203		(83)		236,637
	Total fixed maturity securities – available for sale	$	5,385,432	$	346,301	$	(12,899)	$	5,718,834

Fixed Maturity Securities Held To Maturity

U.S. government securities		$	6,998	$	69	$	-	$	7,067
Corporate securities			110,284		1,814		(455)		111,643
Foreign government securities			43,820		746		(140)		44,426
	Total fixed maturity securities – held to maturity	$	161,102	$	2,629	$	(595)	$	163,136

Gross unrealized losses and fair value of all available for sale fixed income securities loss that were in a continuous loss position

			Less than 12 months				12 months or more				Total
					Unrealized				Unrealized				Unrealized
			Fair value		losses		Fair value		losses		Fair value		losses
September 30, 2012
Fixed maturity securities
	Special purpose revenue bonds of states,
		municipalities and political subdivisions	$	2,813	$	(23)	$	0	$	0	$	2,813	$	(23)
	Corporate securities			89,993		(1,727)		2,441		(34)		92,434		(1,761)
	Residential mortgage-backed securities			11,540		(97)		6,633		(532)		18,173		(629)
	Commercial mortgage-backed securities			7,906		(52)		0		0		7,906		(52)
	Foreign government securities			9,259		(4)		0		0		9,259		(4)
Equity securities				74,051		(3,346)		0		0		74,051		(3,346)
		Total	$	195,562	$	(5,249)	$	9,074	$	(566)	$	204,636	$	(5,815)

December 31, 2011
Fixed maturity securities
	U.S. government and government agency
		securities	$	13,984	$	(10)	$	0	$	0	$	13,984	$	(10)
	Fixed maturity securities of states,
		municipalities and political subdivisions		10,256		(107)		899		(20)		11,155		(127)
	Special purpose revenue bonds of states,
		municipalities and political subdivisions		21,856		(67)		6,796		(88)		28,652		(155)
	Corporate securities			154,856		(6,391)		18,005		(383)		172,861		(6,774)
	Residential mortgage-backed securities			32,430		(1,364)		7,582		(757)		40,012		(2,121)
	Commercial mortgage-backed securities			39,075		(3,573)		0		0		39,075		(3,573)
	Asset-backed securities			19,648		(56)		0		0		19,648		(56)
	Foreign government securities			4,198		(83)		0		0		4,198		(83)
		Total	$	296,303	$	(11,651)	$	33,282	$	(1,248)	$	329,585	$	(12,899)

Other than temporary impairment

		Nine months ended September 30,				Three months ended September 30,
		2012		2011		2012		2011
Total other-than-temporary impairment loss		$	(2,069)	$	(4,677)	$	(686)	$	0
Portion recognized in other comprehensive income			1,041		1,198		55		0
	Net other-than-temporary impairment loss recognized
	in earnings (credit loss)	$	(1,028)	$	(3,479)	$	(631)	$	0

Rollforward of other than temporary impairment credit losses

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Balance at beginning of period	$	5,047	$	4,273	$	5,444	$	3,847
Credit losses recognized in earnings
Securities previously impaired		899		1,597		631		0
Securities not previously impaired		129		1,882		0		0
Securities sold		0		(3,905)		0		0
Balance at September 30	$	6,075	$	3,847	$	6,075	$	3,847

Amortized cost and fair value of fixed maturity securities

		Cost or amortized cost		Fair value
Due in 1 year or less		$	335,455	$	340,330
Due after 1 year through 5 years			1,063,361		1,121,440
Due after 5 years through 10 years			1,331,492		1,462,880
Due after 10 years through 15 years			869,485		961,876
Due after 15 years			931,342		1,015,473
	Securities with contractual maturities		4,531,135		4,901,999
Mortgage-backed and asset-backed securities			1,316,043		1,413,366
	Total fixed maturity securities	$	5,847,178	$	6,315,365

Sources of net investment income

		Nine months ended September 30,				Three months ended September 30,
		2012		2011		2012		2011
Fixed maturity securities
Taxable		$	86,548	$	84,228	$	28,330	$	30,009
Exempt from U.S. income taxes			80,163		74,713		27,291		24,887
	Total fixed maturity securities		166,711		158,941		55,621		54,896
Equity securities			2,339		0		1,346		0
Short-term investments			397		420		295		99
Other investment income			1,699		2,992		831		962
	Total investment income		171,146		162,353		58,093		55,957
Investment expense			(4,504)		(3,571)		(1,751)		(1,192)
	Net investment income	$	166,642	$	158,782	$	56,342	$	54,765

Change in Unrealized Gain (Loss) on Investments

		Nine months ended September 30,				Three months ended September 30,
		2012		2011		2012		2011
Gains		$	11,596	$	8,538	$	3,469	$	4,219
Losses			(3,077)		(5,369)		(1,997)		(1,545)
	Net realized investment gain (loss)	$	8,519	$	3,169	$	1,472	$	2,674

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

(11)Commitments and Contingencies

Catastrophe and Large Loss Exposure

We have exposure to catastrophic losses caused by natural perils (such as hurricanes, earthquakes, floods, tsunamis and tornados), as well as from man-made events (such as terrorist attacks). The incidence, timing and severity of catastrophe losses are unpredictable. We assess our exposures in areas most vulnerable to natural catastrophes and apply procedures to ascertain our probable maximum loss from a single event. We maintain reinsurance protection that we believe is sufficient to limit our exposure to a foreseeable event. Following a catastrophic loss, we often incur additional costs for reinstatement premium to continue our reinsurance coverage for future loss events. Our pretax catastrophe losses were $22.7 million gross and $20.3million net (after reinsurance and reinstatement premium) in the first nine months of 2012 and $168.0 million gross and $107.9million net in the same period of 2011.

Litigation

We are a party to lawsuits, arbitrations and other proceedings that arise in the normal course of our business. Many of such lawsuits, arbitrations and other proceedings involve claims under policies that we underwrite as an insurer or reinsurer, the liabilities for which, we believe, have been adequately included in our loss reserves. Also, from time to time, we are a party to lawsuits, arbitrations and other proceedings that relate to disputes with third parties, or that involve alleged errors and omissions on the part of our subsidiaries. We have provided accruals for these items to the extent we deem the losses probable and reasonably estimable. Although the ultimate outcome of these matters cannot be determined at this time, based on present information, the availability of insurance coverage and advice received from our outside legal counsel, we believe the resolution of any such matters will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Indemnifications

In conjunction with the sales of business assets and subsidiaries, we have provided indemnifications to the buyers. Certain indemnifications cover typical representations and warranties related to our responsibilities to perform under the sales contracts. Under other indemnifications, we agree to reimburse the purchasers for taxes or ERISA-related amounts, if any, assessed after the sale date but related to pre-sale activities. We cannot quantify the maximum potential exposure covered by all of our indemnifications because the indemnifications cover a variety of matters, operations and scenarios. Certain of these indemnifications have no time limit. For those with a time limit, the longest such indemnification expires in 2025. We accrue a loss when a valid claim is made by a purchaser and we believe we have potential exposure. At September 30, 2012, we have an accrued liability of $11.2million,as well as $6.1million in escrow and $3.2million of letters of credit, to cover our obligations or anticipated payments under these indemnifications.

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General Information (Policies)

9 Months Ended

Sep. 30, 2012

General Information [Abstract]

Recently Issued Accounting Guidance

Accounting Guidance Adopted in 2012

Deferred Policy Acquisition Costs

A new accounting standard clarifies the definition of acquisition costs incurred by an insurance company and limits capitalization to such costs directly related to renewing or acquiring new insurance contracts. Under the new standard, we expense all costs incurred for unsuccessful marketing or underwriting efforts, along with indirect costs, as incurred. We adopted this guidance on January 1, 2012 through retrospective adjustment of the capitalized deferred policy acquisition costs, deferred income taxes and consolidated shareholders' equity in our prior years' consolidated financial statements. We also reclassified expenses in our prior years' consolidated income statements to reflect the new definition of policy acquisition costs. Application of the new guidance did not impact our reported consolidated net earnings or cash flows in prior years. The following line items in our consolidated financial statements were affected by this change in accounting guidance:

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Investments

9 Months Ended

Sep. 30, 2012

Investment [Abstract]

Investments

(2)  Investments

On March 31, 2012, we reclassified our entire portfolio of fixed maturity securities classified as held to maturity, which consisted of corporate, U.S. government and foreign government securities, to fixedmaturitysecurities classified as available for sale. The European debt crisis and the August 2011 downgrade of U.S. government debt by Standard & Poor's Corporation had recently disrupted the financial markets. Due to these market disruptions and our desire to maintain greater flexibility in managing our entire investment portfolio in an uncertain economy, we changed our prior intent to hold these securities to maturity. On the date of transfer, these securities had a fair value of $139.1 million and an amortized cost of $136.0 million.The securities' net unrealized appreciation, net of tax, increased our accumulated other comprehensive income and shareholders' equity by $2.0 million as of March 31, 2012.

The cost or amortized cost, gross unrealized gain or loss, and fair value of our fixed maturityand equity securities were as follows:

		Cost or		Gross		Gross
		amortized		unrealized		unrealized
		cost		gain		loss		Fair value
September 30, 2012
U.S. government and government agency securities		$	224,267	$	7,769	$	0	$	232,036
Fixed maturity securities of states, municipalities and political
	subdivisions		977,682		101,493		0		1,079,175
Special purpose revenue bonds of states, municipalities and
	political subdivisions		1,895,991		180,049		(23)		2,076,017
Corporate securities			1,152,593		66,475		(1,761)		1,217,307
Residential mortgage-backed securities			789,172		52,999		(629)		841,542
Commercial mortgage-backed securities			479,517		44,635		(52)		524,100
Asset-backed securities			47,354		370		0		47,724
Foreign government securities			280,602		16,866		(4)		297,464
	Total fixed maturity securities – available for sale	$	5,847,178	$	470,656	$	(2,469)	$	6,315,365
Equity securities – available for sale		$	197,469	$	8,741	$	(3,346)	$	202,864

December 31, 2011
U.S. government and government agency securities		$	285,166	$	10,523	$	(10)	$	295,679
Fixed maturity securities of states, municipalities and political
	subdivisions		999,940		85,528		(127)		1,085,341
Special purpose revenue bonds of states, municipalities and
	political subdivisions		1,741,297		122,746		(155)		1,863,888
Corporate securities			817,886		35,221		(6,774)		846,333
Residential mortgage-backed securities			1,036,436		65,771		(2,121)		1,100,086
Commercial mortgage-backed securities			244,535		15,162		(3,573)		256,124
Asset-backed securities			34,655		147		(56)		34,746
Foreign government securities			225,517		11,203		(83)		236,637
	Total fixed maturity securities – available for sale	$	5,385,432	$	346,301	$	(12,899)	$	5,718,834

U.S. government securities		$	6,998	$	69	$	-	$	7,067
Corporate securities			110,284		1,814		(455)		111,643
Foreign government securities			43,820		746		(140)		44,426
	Total fixed maturity securities – held to maturity	$	161,102	$	2,629	$	(595)	$	163,136

Substantially all of our fixed maturity securities are investment grade and only one security was non-income producing in 2012. The following table displays the gross unrealized losses and fair value of all available for sale securities that were in a continuous unrealized loss position for the periods indicated.

			Less than 12 months				12 months or more				Total
					Unrealized				Unrealized				Unrealized
			Fair value		losses		Fair value		losses		Fair value		losses
September 30, 2012
Fixed maturity securities
	Special purpose revenue bonds of states,
		municipalities and political subdivisions	$	2,813	$	(23)	$	0	$	0	$	2,813	$	(23)
	Corporate securities			89,993		(1,727)		2,441		(34)		92,434		(1,761)
	Residential mortgage-backed securities			11,540		(97)		6,633		(532)		18,173		(629)
	Commercial mortgage-backed securities			7,906		(52)		0		0		7,906		(52)
	Foreign government securities			9,259		(4)		0		0		9,259		(4)
Equity securities				74,051		(3,346)		0		0		74,051		(3,346)
		Total	$	195,562	$	(5,249)	$	9,074	$	(566)	$	204,636	$	(5,815)

December 31, 2011
Fixed maturity securities
	U.S. government and government agency
		securities	$	13,984	$	(10)	$	0	$	0	$	13,984	$	(10)
	Fixed maturity securities of states,
		municipalities and political subdivisions		10,256		(107)		899		(20)		11,155		(127)
	Special purpose revenue bonds of states,
		municipalities and political subdivisions		21,856		(67)		6,796		(88)		28,652		(155)
	Corporate securities			154,856		(6,391)		18,005		(383)		172,861		(6,774)
	Residential mortgage-backed securities			32,430		(1,364)		7,582		(757)		40,012		(2,121)
	Commercial mortgage-backed securities			39,075		(3,573)		0		0		39,075		(3,573)
	Asset-backed securities			19,648		(56)		0		0		19,648		(56)
	Foreign government securities			4,198		(83)		0		0		4,198		(83)
		Total	$	296,303	$	(11,651)	$	33,282	$	(1,248)	$	329,585	$	(12,899)

Our other-than-temporary impairment losses were as follows:

		Nine months ended September 30,				Three months ended September 30,
		2012		2011		2012		2011
Total other-than-temporary impairment loss		$	(2,069)	$	(4,677)	$	(686)	$	0
Portion recognized in other comprehensive income			1,041		1,198		55		0
	Net other-than-temporary impairment loss recognized
	in earnings (credit loss)	$	(1,028)	$	(3,479)	$	(631)	$	0

Certain of our securities with an other-than-temporary impairment losshave had both a credit loss and an impairment loss recorded in other comprehensive income. The rollforward of credit losses on these securities was as follows:

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Balance at beginning of period	$	5,047	$	4,273	$	5,444	$	3,847
Credit losses recognized in earnings
Securities previously impaired		899		1,597		631		0
Securities not previously impaired		129		1,882		0		0
Securities sold		0		(3,905)		0		0
Balance at September 30	$	6,075	$	3,847	$	6,075	$	3,847

We do not consider the $5.8 million of gross unrealized losses on fixed maturityand equity securities in our portfolio atSeptember 30, 2012 to be other-than-temporary impairments because: 1) as of September 30, 2012,we have received substantially all contractual interest and principal payments on the fixed maturity securities,2) we do not intend to sell these securities, 3) it is more likely than not that we will not be required to sell the securities before recovery of their amortized cost or cost bases and 4) the unrealized loss relates to non-credit factors, such as interest rate changes and market conditions.

The amortized cost and fair value of our fixed maturity securities at September 30, 2012, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The weighted-average life of our mortgage-backed and asset-backed securities was 5.2years at September 30, 2012.

		Cost or amortized cost		Fair value
Due in 1 year or less		$	335,455	$	340,330
Due after 1 year through 5 years			1,063,361		1,121,440
Due after 5 years through 10 years			1,331,492		1,462,880
Due after 10 years through 15 years			869,485		961,876
Due after 15 years			931,342		1,015,473
	Securities with contractual maturities		4,531,135		4,901,999
Mortgage-backed and asset-backed securities			1,316,043		1,413,366
	Total fixed maturity securities	$	5,847,178	$	6,315,365

The sources of net investment income were as follows:

		Nine months ended September 30,				Three months ended September 30,
		2012		2011		2012		2011
Fixed maturity securities
Taxable		$	86,548	$	84,228	$	28,330	$	30,009
Exempt from U.S. income taxes			80,163		74,713		27,291		24,887
	Total fixed maturity securities		166,711		158,941		55,621		54,896
Equity securities			2,339		0		1,346		0
Short-term investments			397		420		295		99
Other investment income			1,699		2,992		831		962
	Total investment income		171,146		162,353		58,093		55,957
Investment expense			(4,504)		(3,571)		(1,751)		(1,192)
	Net investment income	$	166,642	$	158,782	$	56,342	$	54,765

Realized pretax gains (losses) on the sale of investments, which exclude other-than-temporary impairment credit losses, included the following:

		Nine months ended September 30,				Three months ended September 30,
		2012		2011		2012		2011
Gains		$	11,596	$	8,538	$	3,469	$	4,219
Losses			(3,077)		(5,369)		(1,997)		(1,545)
	Net realized investment gain (loss)	$	8,519	$	3,169	$	1,472	$	2,674

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Investments (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	$ 5,847,178	$ 5,385,432
Gross unrealized gain	470,656	346,301
Gross unrealized loss	(2,469)	(12,899)
Fixed maturity securities - available for sale	6,315,365	5,718,834
Gross unrealized losses and fair value of all available for sale fixed income securities that were in a continuous loss position
Less than 12 months, Fair value	195,562	296,303
Less than 12 months, Unrealized losses	(5,249)	(11,651)
12 months or more, Fair value	9,074	33,282
12 months or more, Unrealized losses	(566)	(1,248)
Total, Fair value	204,636	329,585
Available for sale equity securities
Available-for-sale Equity Securities, Amortized Cost Basis	197,469	0
Gross unrealized gain	8,741
Gross unrealized loss	(3,346)
Available-for-sale Securities, Equity Securities	202,864	0
US Government Agencies Debt Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	224,267	285,166
Gross unrealized gain	7,769	10,523
Gross unrealized loss	0	(10)
Fixed maturity securities - available for sale	232,036	295,679
Gross unrealized losses and fair value of all available for sale fixed income securities that were in a continuous loss position
Less than 12 months, Fair value	0	13,984
Less than 12 months, Unrealized losses	0	(10)
12 months or more, Fair value	0
12 months or more, Unrealized losses	0
Total, Fair value	0	13,984
US States and Political Subdivisions Debt Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	977,682	999,940
Gross unrealized gain	101,493	85,528
Gross unrealized loss	0	(127)
Fixed maturity securities - available for sale	1,079,175	1,085,341
Gross unrealized losses and fair value of all available for sale fixed income securities that were in a continuous loss position
Less than 12 months, Fair value	0	10,256
Less than 12 months, Unrealized losses	0	(107)
12 months or more, Fair value	0	899
12 months or more, Unrealized losses	0	(20)
Total, Fair value	0	11,155
Special Purpose Revenue Bonds Of States Municipalities And Political Subdivisions [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	1,895,991	1,741,297
Gross unrealized gain	180,049	122,746
Gross unrealized loss	(23)	(155)
Fixed maturity securities - available for sale	2,076,017	1,863,888
Gross unrealized losses and fair value of all available for sale fixed income securities that were in a continuous loss position
Less than 12 months, Fair value	2,813	21,856
Less than 12 months, Unrealized losses	(23)	(67)
12 months or more, Fair value	0	6,796
12 months or more, Unrealized losses	0	(88)
Total, Fair value	2,813	28,652
Corporate Debt Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	1,152,593	817,886
Gross unrealized gain	66,475	35,221
Gross unrealized loss	(1,761)	(6,774)
Fixed maturity securities - available for sale	1,217,307	846,333
Gross unrealized losses and fair value of all available for sale fixed income securities that were in a continuous loss position
Less than 12 months, Fair value	89,993	154,856
Less than 12 months, Unrealized losses	(1,727)	(6,391)
12 months or more, Fair value	2,441	18,005
12 months or more, Unrealized losses	(34)	(383)
Total, Fair value	92,434	172,861
Residential Mortgage Backed Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	789,172	1,036,436
Gross unrealized gain	52,999	65,771
Gross unrealized loss	(629)	(2,121)
Fixed maturity securities - available for sale	841,542	1,100,086
Gross unrealized losses and fair value of all available for sale fixed income securities that were in a continuous loss position
Less than 12 months, Fair value	11,540	32,430
Less than 12 months, Unrealized losses	(97)	(1,364)
12 months or more, Fair value	6,633	7,582
12 months or more, Unrealized losses	(532)	(757)
Total, Fair value	18,173	40,012
Commercial Mortgage Backed Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	479,517	244,535
Gross unrealized gain	44,635	15,162
Gross unrealized loss	(52)	(3,573)
Fixed maturity securities - available for sale	524,100	256,124
Gross unrealized losses and fair value of all available for sale fixed income securities that were in a continuous loss position
Less than 12 months, Fair value	7,906	39,075
Less than 12 months, Unrealized losses	(52)	(3,573)
12 months or more, Fair value	0
12 months or more, Unrealized losses	0
Total, Fair value	7,906	39,075
Asset-backed Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	47,354	34,655
Gross unrealized gain	370	147
Gross unrealized loss	0	(56)
Fixed maturity securities - available for sale	47,724	34,746
Gross unrealized losses and fair value of all available for sale fixed income securities that were in a continuous loss position
Less than 12 months, Fair value	0	19,648
Less than 12 months, Unrealized losses	0	(56)
12 months or more, Fair value	0
12 months or more, Unrealized losses	0
Total, Fair value	0	19,648
Foreign Government Debt Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	280,602	225,517
Gross unrealized gain	16,866	11,203
Gross unrealized loss	(4)	(83)
Fixed maturity securities - available for sale	297,464	236,637
Gross unrealized losses and fair value of all available for sale fixed income securities that were in a continuous loss position
Less than 12 months, Fair value	9,259	4,198
Less than 12 months, Unrealized losses	(4)	(83)
12 months or more, Fair value	0
12 months or more, Unrealized losses	0
Total, Fair value	9,259	4,198
Equity Securities [Member]
Gross unrealized losses and fair value of all available for sale fixed income securities that were in a continuous loss position
Less than 12 months, Fair value	74,051
Less than 12 months, Unrealized losses	(3,346)
12 months or more, Fair value	0
12 months or more, Unrealized losses	0
Total, Fair value	$ 74,051

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Supplemental Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Supplemental Information
Income taxes paid	$ 44,531	$ 31,366	$ 83,979	$ 88,973
Interest paid	1,321	785	13,321	12,937
Dividends declared but not paid at year end	16,728	16,535	16,728	16,535
Proceeds from Sale of Available-for-sale Securities, Debt	75,397	248,201	293,969	494,532
Proceeds from Sale of Available-for-sale Securities, Equity	$ 5,406		$ 7,145

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Supplemental Information (Tables)

9 Months Ended

Sep. 30, 2012

Supplemental Information [Abstract]

Supplemental Information

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Income taxes paid	$	83,979	$	88,973	$	44,531	$	31,366
Interest paid		13,321		12,937		1,321		785
Proceeds from sales of available for sale fixed maturity securities		293,969		494,532		75,397		248,201
Proceeds from sales of equity securities		7,145		0		5,406		0
Dividends declared but not paid at end of period		16,728		16,535

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Reinsurance

9 Months Ended

Sep. 30, 2012

Reinsurance [Abstract]

Reinsurance

(6) Reinsurance

In the normal course of business, our insurance companies cede a portion of their premium to domestic and foreign reinsurers through treaty and facultative reinsurance agreements. Although reinsurance does not discharge the direct insurer from liability to its policyholder, our insurance companies participate in such agreements in order to limit their loss exposure, protect them against catastrophic losses and diversify their business. The following tables present the effect of such reinsurance transactions on our premium, loss and loss adjustment expense and policy acquisition costs.

	Nine months ended September 30,				Three months ended September 30,
	2012		2011		2012		2011
Direct written premium	$	1,826,610	$	1,724,869	$	603,844	$	555,427
Reinsurance assumed		313,395		295,268		61,919		73,420
Reinsurance ceded		(409,206)		(359,046)		(135,456)		(116,513)
Net written premium	$	1,730,799	$	1,661,091	$	530,307	$	512,334
Direct earned premium	$	1,795,109	$	1,728,082	$	601,572	$	574,571
Reinsurance assumed		259,870		255,293		90,988		96,799
Reinsurance ceded		(378,857)		(406,388)		(128,910)		(127,114)
Net earned premium	$	1,676,122	$	1,576,987	$	563,650	$	544,256
Direct loss and loss adjustment expense	$	1,029,227	$	1,197,225	$	301,306	$	410,573
Reinsurance assumed		96,143		186,805		35,108		44,600
Reinsurance ceded		(155,603)		(321,790)		(32,400)		(74,801)
Net loss and loss adjustment expense	$	969,767	$	1,062,240	$	304,014	$	380,372

Policy acquisition costs	$	299,854	$	292,645	$	101,698	$	100,975
Ceding commissions		(88,300)		(99,465)		(34,078)		(43,479)
Net policy acquisition costs	$	211,554	$	193,180	$	67,620	$	57,496

The table below shows the components of our reinsurance recoverables in our consolidated balance sheets.

		September 30,		December 31,
		2012		2011
Reinsurance recoverable on paid losses		$	58,220	$	83,109
Reinsurance recoverable on outstanding losses			479,378		477,760
Reinsurance recoverable on incurred but not reported losses			477,859		497,074
Reserve for uncollectible reinsurance			(1,500)		(1,875)
	Total reinsurance recoverables	$	1,013,957	$	1,056,068

Reinsurers not authorized by the respective states of domicile of our U.S. domiciled insurance companies are required to collateralize reinsurance obligations due to us. The table below shows the amounts of letters of credit and cash available to us as collateral, plus other potential offsetsat September 30,2012 and December 31, 2011.

		September 30,		December 31,
		2012		2011
Payables to reinsurers		$	201,598	$	195,806
Letters of credit			97,357		120,589
Cash			112,105		83,731
	Total credits	$	411,060	$	400,126

The tables below show the calculation of net reserves, net unearned premium and net deferred policy acquisition costs.

		September 30,		December 31,
		2012		2011
Loss and loss adjustment expense payable		$	3,692,250	$	3,658,317
Reinsurance recoverable on outstanding losses			(479,378)		(477,760)
Reinsurance recoverable on incurred but not reported losses			(477,859)		(497,074)
	Net reserves	$	2,735,013	$	2,683,483
Unearned premium		$	1,118,094	$	1,031,034
Ceded unearned premium			(262,168)		(222,300)
	Net unearned premium	$	855,926	$	808,734
Deferred policy acquisition costs		$	199,401	$	189,633
Deferred ceding commissions			(74,441)		(62,364)
	Net deferred policy acquisition costs	$	124,960	$	127,269

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Stock Based Compensation (Details 3) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Common stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares	29
Weighted-average grant date fair value, awarded	$ 31.49
Aggregate fair value	$ 920
Restricted stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares	313
Weighted-average grant date fair value, awarded	$ 31.20
Aggregate fair value	9,758
Restricted stock [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	2 years
Restricted stock [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Restricted stock units (RSU) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares	13
Weighted-average grant date fair value, awarded	$ 30.60
Aggregate fair value	403
Restricted stock units (RSU) [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Restricted stock units (RSU) [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares	218
Weighted-average grant date fair value, awarded	$ 8.00
Aggregate fair value	$ 1,741
Stock Options [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year
Stock Options [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	5 years

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Investments (Details 5) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Realized pretax gains-losses-on the sale of investments excluding temporary impairment losses
Gains	$ 3,469	$ 4,219	$ 11,596	$ 8,538
Losses	(1,997)	(1,545)	(3,077)	(5,369)
Net realized investment gain (loss)	$ 1,472	$ 2,674	$ 8,519	$ 3,169

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Assets at fair value

		Level 1		Level 2		Level 3		Total
September 30, 2012
Fixed maturity securities – available for sale
	U.S. government and government agency securities	$	193,051	$	38,985	$	0	$	232,036
	Fixed maturity securities of states, municipalities and
	political subdivisions		0		1,079,175		0		1,079,175
	Special purpose revenue bonds of states, municipalities
	and political subdivisions		0		2,076,017		0		2,076,017
	Corporate securities		0		1,217,145		162		1,217,307
	Residential mortgage-backed securities		0		841,542		0		841,542
	Commercial mortgage-backed securities		0		524,100		0		524,100
	Asset-backed securities		0		47,724		0		47,724
	Foreign government securities		0		297,464		0		297,464
	Total fixed maturity securities – available for sale		193,051		6,122,152		162		6,315,365
Equity securities – available for sale			202,864		0		0		202,864
Short-term investments*			81,947		78,191		0		160,138
Other investments			34,044		0		0		34,044
Other assets			0		0		206		206
	Total assets measured at fair value	$	511,906	$	6,200,343	$	368	$	6,712,617
Notes payable*		$	0	$	595,804	$	0	$	595,804
Accounts payable and accrued liabilities – forward contract			0		1,705		0		1,705
	Total liabilities measured at fair value	$	0	$	597,509	$	0	$	597,509

		Level 1		Level 2		Level 3		Total
December 31, 2011
Fixed maturity securities – available for sale
	U.S. government and government agency securities	$	201,582	$	94,097	$	0	$	295,679
	Fixed maturity securities of states, municipalities and
	political subdivisions		0		1,085,341		0		1,085,341
	Special purpose revenue bonds of states, municipalities
	and political subdivisions		0		1,863,888		0		1,863,888
	Corporate securities		0		846,178		155		846,333
	Residential mortgage-backed securities		0		1,100,086		0		1,100,086
	Commercial mortgage-backed securities		0		256,124		0		256,124
	Asset-backed securities		0		33,731		1,015		34,746
	Foreign government securities		0		236,637		0		236,637
	Total fixed maturity securities – available for sale		201,582		5,516,082		1,170		5,718,834
Fixed maturity securities – held to maturity*			0		163,136		0		163,136
Short-term investments*			67,288		66,629		0		133,917
Other investments			35,720		0		0		35,720
Other assets			0		0		1,516		1,516
	Total assets measured at fair value	$	304,590	$	5,745,847	$	2,686	$	6,053,123
Notes payable*		$	-	$	505,671	$	-	$	505,671

Changes in fair value of level 3 assets

	2012						2011
	Fixed						Fixed
	income		Other				income		Other
	securities		assets		Total		securities		assets		Total
Balance at beginning of year	$	1,170	$	1,516	$	2,686	$	1,438	$	857	$	2,295
Net gains (losses)		2		215		217		(13)		263		250
Sales		0		0		0		(144)		0		(144)
Transfers out of Level 3		(1,015)		0		(1,015)		0		0		0
Balance at March 31		157		1,731		1,888		1,281		1,120		2,401
Net gains (losses)		2		116		118		18		122		140
Sales		0		0		0		(55)		0		(55)
Balance at June 30		159		1,847		2,006		1,244		1,242		2,486
Settlements		0		(1,863)		(1,863)		0		0		0
Net gains (losses)		3		222		225		17		131		148
Sales		0		0		0		(43)		0		(43)
Balance at September 30	$	162	$	206	$	368	$	1,218	$	1,373	$	2,591

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Stock Based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Share-based Compensation [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

		Weighted-average
	Number	grant date		Aggregate		Vesting
	of shares	fair value		fair value		period
Common stock	29	$	31.49	$	920	None
Restricted stock awards	313		31.20		9,758	2-4 years
Restricted stock units	13		30.60		403	4 years
Stock options	218		8.00		1,741	1-5 years

Stock based Compensation

(9) Stock-Based Compensation

In 2012, we granted the following shares of common stock, restricted stock awards, restricted stock units and stock options for the purchase of shares of our common stock. For all grants except stock options, we measure fair value based on the closing stock price of our common stock on the grant date. For stock options, we use the Black-Scholes single option pricing model to determine the fair value of an option on its grant date. The fair value of the common stock was expensed on the grant date. The fair value of the restricted stock awards, restricted stock units and stock options is being expensed over the vesting period.

		Weighted-average
	Number	grant date		Aggregate		Vesting
	of shares	fair value		fair value		period
Common stock	29	$	31.49	$	920	None
Restricted stock awards	313		31.20		9,758	2-4 years
Restricted stock units	13		30.60		403	4 years
Stock options	218		8.00		1,741	1-5 years

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Notes Payable (Tables)

9 Months Ended

Sep. 30, 2012

Notes Payable [Abstract]

Notes Payable

		September 30,		December 31,
		2012		2011
6.30% Senior Notes		$	298,906	$	298,790
$600.0 million Revolving Loan Facility			250,000		180,000
	Total notes payable	$	548,906	$	478,790

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Consolidated Statement of Changes in Shareholders' Equity (USD $) In Thousands	Total	Common stock [Member]	Additional paid-in capital	Retained earnings	Accumulated other comprehensive income	Treasury stock
Balance at Dec. 31, 2011	$ 3,273,982	$ 122,720	$ 1,001,308	$ 2,429,818	$ 227,659	$ (507,523)
Net earnings	283,139			283,139
Other comprehensive income (loss)	90,580				90,580
Issuance of 1,437 shares for exercise of options, including tax effect	40,105	1,437	38,668
Purchase of 4,543 common shares	(141,535)					(141,535)
Stock-based compensation	6,761	302	6,459
Cash dividends declared $0.475 per share	(48,212)			(48,212)
Balance at Sep. 30, 2012	$ 3,504,820	$ 124,459	$ 1,046,435	$ 2,664,745	$ 318,239	$ (649,058)

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General Information (Details Textuals)	9 Months Ended
	Sep. 30, 2012 countries
General Information [Abstract]
Number of countries in which The Company underwrites non-correlated specialty insurance products	180

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Segments (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Segment Reporting Information [Line Items]
Total pretax earnings	$ 153,619	$ 82,792	$ 404,898	$ 242,576

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Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fixed income securities-available for sale
Fixed maturity securities - available for sale	$ 6,315,365	$ 5,718,834
Equity securities-available for sale, at fair value (cost: $197,469)	202,864	0
Held-to-maturity Securities, Fair Value	0	163,136
Short-term investments*	160,138	133,917
Other Investments	34,044	35,897
Other assets	206	1,516
Total assets measured at fair value	6,712,617	6,053,123
Notes payable	595,804	505,671
Accounts payable and accrued liabilities - forward contract	1,705
Total liabilities measured at fair value	597,509
Fair Value, Inputs, Level 1 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	193,051	201,582
Equity securities-available for sale, at fair value (cost: $197,469)	202,864
Short-term investments*	81,947	67,288
Other Investments	34,044	35,720
Total assets measured at fair value	511,906	304,590
Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	6,122,152	5,516,082
Held-to-maturity Securities, Fair Value		163,136
Short-term investments*	78,191	66,629
Total assets measured at fair value	6,200,343	5,745,847
Notes payable	595,804	505,671
Accounts payable and accrued liabilities - forward contract	1,705
Total liabilities measured at fair value	597,509
Fair Value, Inputs, Level 3 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	162	1,170
Other assets	206	1,516
Total assets measured at fair value	368	2,686
US Government Agencies Debt Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	232,036	295,679
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	193,051	201,582
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	38,985	94,097
US States and Political Subdivisions Debt Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	1,079,175	1,085,341
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	1,079,175	1,085,341
Special Purpose Revenue Bonds Of States Municipalities And Political Subdivisions [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	2,076,017	1,863,888
Special Purpose Revenue Bonds Of States Municipalities And Political Subdivisions [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	2,076,017	1,863,888
Corporate Debt Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	1,217,307	846,333
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	1,217,145	846,178
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	162	155
Residential Mortgage Backed Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	841,542	1,100,086
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	841,542	1,100,086
Commercial Mortgage Backed Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	524,100	256,124
Commercial Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	524,100	256,124
Asset-backed Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	47,724	34,746
Asset-backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	47,724	33,731
Asset-backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale		1,015
Foreign Government Debt Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	297,464	236,637
Foreign Government Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	$ 297,464	$ 236,637

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Reinsurance (Details 4) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Amounts of letters of credit and cash deposits held by us as collateral, plus other credits available for potential offset
Payables to reinsurers	$ 201,598	$ 195,806
Letters of credit	97,357	120,589
Cash	112,105	83,731
Total credits	$ 411,060	$ 400,126

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Investments (Details 4) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Fixed Maturity Securities
Taxable	$ 28,330	$ 30,009	$ 86,548	$ 84,228
Exempt from U.S. income taxes	27,291	24,887	80,163	74,713
Total fixed maturity securities	55,621	54,896	166,711	158,941
Equity Securities	1,346		2,339
Short-term investments	295	99	397	420
Other	831	962	1,699	2,992
Total investment income	58,093	55,957	171,146	162,353
Investment expense	1,751	1,192	4,504	3,571
Net investment income	$ 56,342	$ 54,765	$ 166,642	$ 158,782