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 March 31, 2013.

¨ 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 April 26, 2013, there were approximately 100.4 million shares of common stock outstanding.

HCC Insurance Holdings, Inc. and Subsidiaries

Table of Contents

	Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets — March 31, 2013 and December 31, 2012	5
Consolidated Statements of Earnings — Three months ended March 31, 2013 and 2012	6
Consolidated Statements of Comprehensive Income — Three months ended March 31, 2013 and 2012	7
Consolidated Statement of Changes in Shareholders’ Equity — Three months ended March  31, 2013	8
Consolidated Statements of Cash Flows — Three months ended March 31, 2013 and 2012	9
Notes to Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures About Market Risk	40
Item 4. Controls and Procedures	40
Part II. OTHER INFORMATION
Item 1. Legal Proceedings	41
Item 1A. Risk Factors	41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3. Defaults Upon Senior Securities	41
Item 4. Mine Safety Disclosures	41
Item 5. Other Information	41
Item 6. Exhibits	42
Signatures	43

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 economic or 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 of climate change on the risks we insure,

• potential 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,

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

3

• 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 described these risks and uncertainties in greater detail in Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012.

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)

	March 31, 2013			December 31, 2012
ASSETS
Investments
Fixed maturity securities – available for sale, at fair value (amortized cost: 2013 – $5,819,392 and 2012 – $5,856,432)	$	6,185,456		$	6,281,781
Equity securities – available for sale, at fair value (cost: 2013 – $319,499 and 2012 – $275,827)		350,352			284,639
Short-term investments, at cost (approximates fair value)		267,434			363,053
Other investments, at fair value (cost: 2013 – $1,997 and 2012 – $18,391)		2,810			20,925
Total investments		6,806,052			6,950,398
Cash		75,677			71,390
Restricted cash and securities		101,572			101,480
Premium, claims and other receivables		577,946			549,725
Reinsurance recoverables		1,066,351			1,071,222
Ceded unearned premium		257,359			256,988
Ceded life and annuity benefits		58,227			58,641
Deferred policy acquisition costs		192,199			191,960
Goodwill		885,994			885,860
Other assets		176,839			130,143
Total assets	$	10,198,216		$	10,267,807
LIABILITIES
Loss and loss adjustment expense payable	$	3,774,162		$	3,767,850
Life and annuity policy benefits		58,227			58,641
Reinsurance, premium and claims payable		321,394			294,621
Unearned premium		1,085,833			1,069,956
Deferred ceding commissions		72,992			74,609
Notes payable		618,982			583,944
Accounts payable and accrued liabilities		681,377			875,574
Total liabilities		6,612,967			6,725,195
SHAREHOLDERS’ EQUITY
Common stock, $1.00 par value; 250,000 shares authorized (shares issued: 2013 – 125,394     and 2012 – 125,114; outstanding: 2013 – 100,474 and 2012 – 100,928)		125,394			125,114
Additional paid-in capital		1,061,272			1,052,253
Retained earnings		2,845,444			2,756,166
Accumulated other comprehensive income		268,100			295,271
Treasury stock, at cost (shares: 2013 – 24,920 and 2012 – 24,186)		(714,961	)		(686,192	)
Total shareholders’ equity		3,585,249			3,542,612
Total liabilities and shareholders’ equity	$	10,198,216		$	10,267,807

See Notes to Consolidated Financial Statements.

5

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Statements of Earnings

(unaudited, in thousands except per share data)

	Three months ended March 31,
	2013		2012
REVENUE
Net earned premium	$	561,186	$	547,141
Net investment income		55,765		57,010
Other operating income		8,845		5,201
Net realized investment gain		8,570		171
Total revenue		634,366		609,523
EXPENSE
Loss and loss adjustment expense, net		332,697		328,928
Policy acquisition costs, net		66,949		69,444
Other operating expense		76,853		87,282
Interest expense		6,471		6,909
Total expense		482,970		492,563
Earnings before income tax expense		151,396		116,960
Income tax expense		45,546		34,376
Net earnings	$	105,850	$	82,584
Earnings per common share
Basic	$	1.05	$	0.80
Diluted	$	1.05	$	0.79

See Notes to Consolidated Financial Statements.

6

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(unaudited, in thousands)

	Three months ended March 31,
	2013			2012
Net earnings	$	105,850		$	82,584
Other comprehensive income (loss):
Investment gains (losses):
Investment gains (losses) during the period		(30,395	)		21,640
Income tax charge (benefit)		(10,327	)		7,303
Investment gains (losses), net of tax		(20,068	)		14,337
Less reclassification adjustments for:
Gains included in net earnings		8,570			171
Income tax charge		2,999			60
Gains included in net earnings, net of tax		5,571			111
Net unrealized investment gains (losses)		(25,639	)		14,226
Foreign currency translation adjustment		(2,056	)		2,533
Income tax charge (benefit)		(524	)		123
Foreign currency translation adjustment, net of tax		(1,532	)		2,410
Other comprehensive income (loss)		(27,171	)		16,636
Comprehensive income	$	78,679		$	99,220

See Notes to Consolidated Financial Statements.

7

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity

Three months ended March 31, 2013

(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, 2012	$	125,114	$	1,052,253	$	2,756,166		$	295,271		$	(686,192	)	$	3,542,612
Net earnings		-		-		105,850			-			-			105,850
Other comprehensive loss		-		-		-			(27,171	)		-			(27,171	)
Issuance of 222 shares for exercise of options, including tax effect		222		6,697		-			-			-			6,919
Purchase of 734 common shares		-		-		-			-			(28,769	)		(28,769	)
Stock-based compensation		58		2,322		-			-			-			2,380
Cash dividends declared, $0.165 per share		-		-		(16,572	)		-			-			(16,572	)
Balance at March 31, 2013	$	125,394	$	1,061,272	$	2,845,444		$	268,100		$	(714,961	)	$	3,585,249

See Notes to Consolidated Financial Statements.

8

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited, in thousands)

	Three months ended March 31,
	2013			2012
Operating activities
Net earnings	$	105,850		$	82,584
Adjustments to reconcile net earnings to net cash provided by operating activities:
Change in premium, claims and other receivables		(29,047	)		16,089
Change in reinsurance recoverables		1,364			(19,639	)
Change in ceded unearned premium		(528	)		(8,887	)
Change in loss and loss adjustment expense payable		16,429			35,737
Change in unearned premium		16,236			10,545
Change in reinsurance, premium and claims payable, excluding restricted cash		26,113			17,802
Change in accounts payable and accrued liabilities		(101,424	)		(44,098	)
Stock-based compensation expense		2,874			2,373
Depreciation and amortization expense		4,797			4,605
Gain on investments		(8,570	)		(171	)
Other, net		(31,997	)		(21,970	)
Cash provided by operating activities		2,097			74,970
Investing activities
Sales of available for sale fixed maturity securities		158,135			65,103
Sales of equity securities		17,808			-
Sales of other investments		20,921			-
Maturity or call of available for sale fixed maturity securities		190,308			145,713
Maturity or call of held to maturity fixed maturity securities		-			28,636
Cost of available for sale fixed maturity securities acquired		(389,731	)		(230,283	)
Cost of equity securities acquired		(69,255	)		-
Change in short-term investments		95,352			(66,008	)
Payments for purchase of businesses, net of cash received		(8,214	)		(32,143	)
Other, net		(344	)		(3,443	)
Cash provided (used) by investing activities		14,980			(92,425	)
Financing activities
Advances on line of credit		50,000			95,000
Payments on line of credit		(15,000	)		(10,000	)
Sale of common stock		6,919			1,278
Purchase of common stock		(34,426	)		(62,358	)
Dividends paid		(16,674	)		(16,139	)
Other, net		(3,609	)		(3,963	)
Cash (used) provided by financing activities		(12,790	)		3,818
Net increase (decrease) in cash		4,287			(13,637	)
Cash at beginning of year		71,390			104,550
Cash at end of period	$	75,677		$	90,913

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 largely non-correlated specialty insurance products, including property and casualty, accident and health, surety and credit product lines, in approximately 180 countries. We market our products through a network of independent agents and brokers, through managing general agents owned by the company, and directly to customers. In addition, we assume insurance written by other insurance companies.

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, 2012. The consolidated balance sheet at December 31, 2012 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.

(2) Investments

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

	Cost or amortized cost		Gross unrealized gain		Gross unrealized loss			Fair value
March 31, 2013
U.S. government and government agency securities	$	122,242	$	4,007	$	-		$	126,249
Fixed maturity securities of states, municipalities and political subdivisions		955,228		88,266		(493	)		1,043,001
Special purpose revenue bonds of states, municipalities and political subdivisions		2,101,195		155,078		(5,083	)		2,251,190
Corporate securities		1,248,289		58,310		(4,974	)		1,301,625
Residential mortgage-backed securities		630,822		26,807		(2,006	)		655,623
Commercial mortgage-backed securities		488,000		35,107		(1,044	)		522,063
Asset-backed securities		42,015		515		-			42,530
Foreign government securities		231,601		12,034		(460	)		243,175
Total fixed maturity securities	$	5,819,392	$	380,124	$	(14,060	)	$	6,185,456
Equity securities	$	319,499	$	34,632	$	(3,779	)	$	350,352

10

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

	Cost or amortized cost		Gross unrealized gain		Gross unrealized loss			Fair value
December 31, 2012
U.S. government and government agency securities	$	195,049	$	4,560	$	(2	)	$	199,607
Fixed maturity securities of states, municipalities and political subdivisions		969,966		96,027		(182	)		1,065,811
Special purpose revenue bonds of states, municipalities and political subdivisions		2,033,947		168,772		(2,388	)		2,200,331
Corporate securities		1,247,282		69,243		(1,355	)		1,315,170
Residential mortgage-backed securities		632,665		32,560		(338	)		664,887
Commercial mortgage-backed securities		482,808		41,748		(267	)		524,289
Asset-backed securities		32,801		474		-			33,275
Foreign government securities		261,914		16,515		(18	)		278,411
Total fixed maturity securities	$	5,856,432	$	429,899	$	(4,550	)	$	6,281,781
Equity securities	$	275,827	$	13,768	$	(4,956	)	$	284,639

Substantially all of our fixed maturity securities are investment grade. 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
March 31, 2013
Fixed maturity securities
Fixed maturity securities of states, municipalities and political subdivisions	$	35,621	$	(493	)	$	-	$	-		$	35,621	$	(493	)
Special purpose revenue bonds of states, municipalities and political subdivisions		264,246		(5,067	)		1,970		(16	)		266,216		(5,083	)
Corporate securities		211,763		(4,112	)		12,495		(862	)		224,258		(4,974	)
Residential mortgage-backed securities		136,267		(2,006	)		-		-			136,267		(2,006	)
Commercial mortgage-backed securities		83,541		(1,044	)		-		-			83,541		(1,044	)
Foreign government securities		46,250		(460	)		-		-			46,250		(460	)
Equity securities		59,226		(3,779	)		-		-			59,226		(3,779	)
Total	$	836,914	$	(16,961	)	$	14,465		$  (878	)	$	851,379	$	(17,839	)

11

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

	Less than 12 months					12 months or more					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
December 31, 2012
Fixed maturity securities
U.S. government and government agency securities	$	55,034	$	(2	)	$	-	$	-		$	55,034	$	(2	)
Fixed maturity securities of states, municipalities and political subdivisions		14,162		(182	)		-		-			14,162		(182	)
Special purpose revenue bonds of states, municipalities and political subdivisions		155,902		(2,388	)		-		-			155,902		(2,388	)
Corporate securities		85,245		(1,220	)		2,616		(135	)		87,861		(1,355	)
Residential mortgage-backed securities		49,486		(338	)		-		-			49,486		(338	)
Commercial mortgage-backed securities		26,263		(267	)		-		-			26,263		(267	)
Foreign government securities		7,007		(18	)		-		-			7,007		(18	)
Equity securities		103,647		(4,956	)		-		-			103,647		(4,956	)
Total	$	496,746		$  (9,371	)	$	2,616	$	(135	)	$	499,362	$	(9,506	)

A security has an impairment loss when its fair value is less than its cost or amortized cost at the balance sheet date. We evaluate our securities for possible other-than-temporary impairment losses at each quarter end. Our reviews cover all impaired securities where the loss exceeds $0.5 million and the loss either exceeds 10% of cost or the security had been in a loss position for longer than twelve consecutive months. We recognized no other-than-temporary impairment losses in the first quarter of 2013 and 2012.

We do not consider the $17.8 million of gross unrealized losses on fixed maturity and equity securities in our portfolio at March 31, 2013 to be other-than-temporary impairments because: 1) as of March 31, 2013, we have received substantially all contractual interest and principal payments on the fixed maturity securities, 2) we do not intend to sell the 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 March 31, 2013, 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 5.9 years at March 31, 2013.

	Cost or amortized cost		Fair value
Due in 1 year or less	$	251,720	$	254,696
Due after 1 year through 5 years		1,040,973		1,089,163
Due after 5 years through 10 years		1,448,715		1,567,744
Due after 10 years through 15 years		964,983		1,040,171
Due after 15 years		952,164		1,013,466
Securities with contractual maturities		4,658,555		4,965,240
Mortgage-backed and asset-backed securities		1,160,837		1,220,216
Total fixed maturity securities	$	5,819,392	$	6,185,456

12

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

The sources of net investment income were as follows:

	Three months ended March 31,
	2013			2012
Fixed maturity securities
Taxable	$	25,960		$	31,115
Exempt from U.S. income taxes		27,889			26,612
Total fixed maturity securities		53,849			57,727
Equity securities		3,580			-
Short-term investments		12			62
Other investment income		(47	)		467
Total investment income		57,394			58,256
Investment expense		(1,629	)		(1,246	)
Net investment income	$	55,765		$	57,010

(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.

In 2012, we entered into a forward contract to sell 45.0 million Euros for U.S. dollars in September 2013. This transaction has been designated and qualifies as a hedge of a portion of our net investment in a subsidiary that has the Euro as its functional currency. Changes in the fair value of the forward contract, net of the related deferred income 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 $1.4 million liability at March 31, 2013. This amount is reported in accounts payable and accrued liabilities in our consolidated balance sheets. At inception of the hedge and quarterly thereafter, we assess whether the hedge transaction is effective. Any ineffectiveness would be recognized immediately as other operating expense in our consolidated statements of earnings. There was no ineffectiveness on the forward contract during 2013.

13

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

(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 (including those held as restricted securities), corporate debt securities, bank loans, mortgage-backed and asset-backed securities, and deposits supporting our Lloyd’s syndicate business. 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 are responsible for the prices used in our fair value measurements. 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 and Lloyd’s of London 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, third party investment managers or Lloyd’s of London as of March 31, 2013 or 2012.

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. This category also includes a liability for future earnout payments due to former owners of a business we acquired, which is classified within accounts payable and accrued liabilities. Fixed maturity securities classified as Level 3 are primarily special purpose revenue bond auction rate securities. The interest rates on these securities are reset through auctions at periodic intervals. These securities are thinly traded and observable market data is not readily available. We determine the fair value of these securities using prices quoted by a broker. We determine fair value of our other Level 3 assets and liabilities based on internally developed models that use assumptions or other data that are not readily observable from objective sources.

14

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

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
March 31, 2013
Fixed maturity securities
U.S. government and government agency securities	$	105,667	$	20,582	$	-	$	126,249
Fixed maturity securities of states, municipalities and political subdivisions		-		1,043,001		-		1,043,001
Special purpose revenue bonds of states, municipalities and political subdivisions		-		2,241,742		9,448		2,251,190
Corporate securities		-		1,301,458		167		1,301,625
Residential mortgage-backed securities		-		655,623		-		655,623
Commercial mortgage-backed securities		-		522,063		-		522,063
Asset-backed securities		-		42,530		-		42,530
Foreign government securities		-		243,175		-		243,175
Total fixed maturity securities		105,667		6,070,174		9,615		6,185,456
Equity securities		350,352		-		-		350,352
Short-term investments*		193,033		74,401		-		267,434
Other investments		2,810		-		-		2,810
Restricted cash and securities		-		2,041		-		2,041
Premium, claims and other receivables		-		72,398		-		72,398
Other assets		-		-		459		459
Total assets measured at fair value	$	651,862	$	6,219,014	$	10,074	$	6,880,950
Notes payable*	$	-	$	676,400	$	-	$	676,400
Accounts payable and accrued liabilities – forward contract		-		1,411		-		1,411
Accounts payable and accrued liabilities – earnout liability		-		2,041		7,071		9,112
Total liabilities measured at fair value	$	-	$	679,852	$	7,071	$	686,923

*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, 2012
Fixed maturity securities
U.S. government and government agency securities	$	174,520	$	25,087	$	-	$	199,607
Fixed maturity securities of states, municipalities and political subdivisions		-		1,065,811		-		1,065,811
Special purpose revenue bonds of states, municipalities and political subdivisions		-		2,200,331		-		2,200,331
Corporate securities		-		1,315,006		164		1,315,170
Residential mortgage-backed securities		-		664,887		-		664,887
Commercial mortgage-backed securities		-		524,289		-		524,289
Asset-backed securities		-		33,275		-		33,275
Foreign government securities		-		278,411		-		278,411
Total fixed maturity securities		174,520		6,107,097		164		6,281,781
Equity securities		284,639		-		-		284,639
Short-term investments*		251,988		111,065		-		363,053
Other investments		20,925		-		-		20,925
Restricted cash and securities		-		2,043		-		2,043
Premium, claims and other receivables		-		68,207		-		68,207
Other assets		-		-		349		349
Total assets measured at fair value	$	732,072	$	6,288,412	$	513	$	7,020,997
Notes payable*	$	-	$	636,363	$	-	$	636,363
Accounts payable and accrued liabilities – forward contract		-		3,194		-		3,194
Accounts payable and accrued liabilities – earnout liability		-		2,043		7,009		9,052
Total liabilities measured at fair value	$	-	$	641,600	$	7,009	$	648,609

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

16

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

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

	2013								2012
	Fixed maturity securities		Other assets		Total assets		Accounts payable and accrued liabilities		Fixed maturity securities			Other assets		Total assets
Balance at beginning of year	$	164	$	349	$	513	$	7,009	$	1,170		$	1,516	$	2,686
Purchases		9,430		-		9,430		-		-			-		-
Gains reported in:
Net earnings		6		110		116		62		-			215		215
Other comprehensive income		15		-		15		-		2			-		2
Transfers out of Level 3		-		-		-		-		(1,015	)		-		(1,015	)
Balance at March 31	$	9,615	$	459	$	10,074	$	7,071	$	157		$	1,731	$	1,888

There were no transfers between Level 1, Level 2 or Level 3 in 2013. We transferred an investment from Level 3 to Level 2 in 2012 because we were able to determine its fair value using inputs based on observable market data in the period transferred.

(5) 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.

	Three months ended March 31,
	2013			2012
Direct written premium	$	581,571		$	544,770
Reinsurance assumed		138,634			137,919
Reinsurance ceded		(141,021	)		(124,285	)
Net written premium	$	579,184		$	558,404
Direct earned premium	$	616,405		$	591,183
Reinsurance assumed		85,272			82,338
Reinsurance ceded		(140,491	)		(126,380	)
Net earned premium	$	561,186		$	547,141
Direct loss and loss adjustment expense	$	357,512		$	365,392
Reinsurance assumed		39,691			36,709
Reinsurance ceded		(64,506	)		(73,173	)
Net loss and loss adjustment expense	$	332,697		$	328,928

17

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

	Three months ended March 31,
	2013			2012
Policy acquisition costs	$	100,286		$	95,735
Ceding commissions		(33,337	)		(26,291	)
Net policy acquisition costs	$	66,949		$	69,444
The table below shows the components of our reinsurance recoverables in our consolidated balance sheets.
	March 31,			December 31,
	2013			2012
Reinsurance recoverable on paid losses	$	54,931		$	54,675
Reinsurance recoverable on outstanding losses		461,886			479,026
Reinsurance recoverable on incurred but not reported losses		551,034			539,021
Reserve for uncollectible reinsurance		(1,500	)		(1,500	)
Total reinsurance recoverables	$	1,066,351		$	1,071,222
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 March 31, 2013 and December 31, 2012.
	March 31,			December 31,
	2013			2012
Payables to reinsurers	$	161,271		$	190,228
Letters of credit		83,053			89,832
Cash		89,215			116,597
Total credits	$	333,539		$	396,657
The tables below show the calculation of net reserves, net unearned premium and net deferred policy acquisition costs.
	March 31,			December 31,
	2013			2012
Loss and loss adjustment expense payable	$	3,774,162		$	3,767,850
Reinsurance recoverable on outstanding losses		(461,886	)		(479,026	)
Reinsurance recoverable on incurred but not reported losses		(551,034	)		(539,021	)
Net reserves	$	2,761,242		$	2,749,803
Unearned premium	$	1,085,833		$	1,069,956
Ceded unearned premium		(257,359	)		(256,988	)
Net unearned premium	$	828,474		$	812,968
Deferred policy acquisition costs	$	192,199		$	191,960
Deferred ceding commissions		(72,992	)		(74,609	)
Net deferred policy acquisition costs	$	119,207		$	117,351

18

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

(6) Notes Payable

Our notes payable consisted of the following:

	March 31, 2013		December 31, 2012
6.30% Senior Notes	$	298,982	$	298,944
$600.0 million Revolving Loan Facility		320,000		285,000
Total notes payable	$	618,982	$	583,944

On April 26, 2013, we entered into an agreement to modify our $600.0 million Revolving Loan Facility (the Facility). Under the amended agreement, the Facility expires on April 26, 2017. The new borrowing rate is LIBOR plus 125 basis points with a commitment fee of 15 basis points. There have been no changes to the terms and conditions related to our Senior Notes or the Standby Letter of Credit Facility (Standby 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, 2012.

The weighted-average interest rate on borrowings under the Facility at March 31, 2013 was 1.58%. The borrowings and letters of credit issued under the Facility reduced our available borrowing capacity on the Facility to $270.6 million at March 31, 2013.

We were in compliance with debt covenants related to our 6.30% Senior Notes, the Facility and the Standby Facility at March 31, 2013.

(7) Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income in our consolidated balance sheets were as follows:

	Net unrealized investment gains (losses)			Foreign currency translation adjustment			Accumulated other comprehensive income
Balance at December 31, 2012	$	282,503			12,768			295,271
Other comprehensive loss – 2013		(25,639	)*		(1,532	)		(27,171	)
Balance at March 31, 2013	$	256,864		$	11,236		$	268,100
*   Includes the following reclassification adjustments, which were recorded to these accounts in our consolidated statements of earnings:
Net realized investment gain	$	8,570
Income tax expense		2,999
Total reclassifications	$	5,571

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.

	Three months ended March 31,
	2013			2012
Net earnings	$	105,850		$	82,584
Less: net earnings attributable to unvested restricted stock		(1,782	)		(1,463	)
Net earnings available to common stock	$	104,068		$	81,121
Weighted-average common shares outstanding		99,056			102,034
Dilutive effect of outstanding options (determined using treasury stock method)		231			159
Weighted-average common shares and potential common shares outstanding		99,287			102,193
Anti-dilutive stock options not included in treasury stock method computation		47			2,224

(9) Stock-Based Compensation

In 2013, we granted the following shares of restricted stock awards, restricted stock units and stock options for the purchase of shares of our common stock.

	Number of shares		Weighted-average grant date fair value		Aggregate fair value		Vesting period
Restricted stock awards		129	$	40.73	$	5,254		1-4 years
Restricted stock units		16		40.66		661		4 years
Stock options		109		7.83		849		1-5 years

Certain restricted stock awards and units granted in 2013 contain a performance condition based on the ultimate results for the 2012 underwriting year. The number of such shares that vest could differ from the number initially granted. We measure fair value for these awards and units based on the closing price of our common stock on the grant date, and we recognize expense on a straight-line basis over the vesting period for those awards expected to vest. These restricted stock awards and units earn dividends or dividend equivalents during the vesting period.

In 2013, we granted a new form of restricted stock to certain of our executive officers. These awards vest after three years and can vest from 0% to 200% of the initial shares granted. Vesting is determined equally on an operating return on equity performance factor (ROE factor) and a total shareholder return performance factor (TSR factor) calculation. The ROE factor is calculated by comparing our actual results over the three-year period to an internal target, whereas the TSR factor is calculated by comparing our TSR over the three-year period to that of nine peer companies. The ROE factor qualifies as a performance condition and those awards are accounted for in the same manner as the other restricted stock grants described above. The TSR factor qualifies as a market condition and we determine the fair value at grant date using a Monte Carlo simulation model that takes into account the probabilities of numerous outcomes of our TSR as well as that of the peer companies. This fair value is expensed on a straight-line basis over the vesting period and is not adjusted for the ultimate number of awards to vest. No dividends are earned during the vesting period on these restricted stock awards.

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 is expensed over the vesting period.

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 underwriting 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 adjusted all prior financial data to report these two product lines in Exited Lines for the 2012 period presented herein.

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
Three months ended March 31, 2013
Net earned premium	$	93,531	$	92,779		$	217,125	$	47,177	$	105,142	$	-	$	5,432		$	561,186
Other revenue		7,184		(414	)		1,190		237		778		64,335		(130	)		73,180
Segment revenue		100,715		92,365			218,315		47,414		105,920		64,335		5,302			634,366
Loss and LAE		52,156		56,386			160,427		13,214		45,919		-		4,595			332,697
Other expense		27,305		17,748			31,126		26,279		35,709		-		12,106			150,273
Segment expense		79,461		74,134			191,553		39,493		81,628		-		16,701			482,970
Segment pretax earnings (loss)	$	21,254	$	18,231		$	26,762	$	7,921	$	24,292	$	64,335	$	(11,399	)	$	151,396
Three months ended March 31, 2012
Net earned premium	$	89,018	$	101,438		$	206,881	$	47,729	$	91,284	$	-	$	10,791		$	547,141
Other revenue		2,363		133			1,337		215		1,194		57,181		(41	)		62,382
Segment revenue		91,381		101,571			208,218		47,944		92,478		57,181		10,750			609,523
Loss and LAE		49,261		69,155			152,522		11,033		37,767		-		9,190			328,928
Other expense		29,722		17,531			30,154		28,120		32,153		-		25,955			163,635
Segment expense		78,983		86,686			182,676		39,153		69,920		-		35,145			492,563
Segment pretax earnings (loss)	$	12,398	$	14,885		$	25,542	$	8,791	$	22,558	$	57,181	$	(24,395	)	$	116,960

21

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 catastrophic 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. In 2013, we recognized accident year net catastrophe losses, after reinsurance and reinstatement premium, of $5.2 million, compared to $7.6 million in the first quarter of 2012. In both years, these amounts related to various small catastrophes.

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. We currently have claims under one indemnification that covers certain net insurance losses that were incurred and reinsured prior to our sale of a subsidiary. At March 31, 2013, we have an accrued liability of $8.4 million 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:

	Three months ended March 31,
	2013		2012
Income taxes paid	$	32,142	$	5,784
Interest paid		1,390		1,071
Dividends declared but not paid at end of period		16,579		15,863
Treasury stock payable at period end		-		4,607

22

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 our Consolidated Financial Statements and the related Notes as of March 31, 2013 and December 31, 2012.

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 $41.91 on April 26, 2013, resulting in market capitalization of $4.2 billion.

We underwrite and manage a variety of largely non-correlated specialty insurance products 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. We market our insurance products through a network of independent agents and brokers, through managing general agents owned by the company, and directly to consumers. In addition, we assume insurance written by other insurance companies.

Our organization is focused on generating consistent, industry-leading combined ratios. We concentrate our insurance writings in selected specialty lines of business in which we believe we can achieve meaningful underwriting profit. We rely on experienced underwriting personnel and our access to and expertise in the reinsurance marketplace to limit or reduce risk. By focusing on underwriting profitability, we are able to accomplish our primary objectives of maximizing net earnings and growing book value per 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 quarter ended March 31, 2013 are as follows:

• We had consolidated shareholders’ equity of $3.6 billion, with a book value per share of $35.68.

• We generated net earnings of $105.9 million, or $1.05 per diluted share.

• We produced total revenue of $634.4 million, of which 88% related to net earned premium and 9% related to net investment income.

• Our net loss ratio was 59.3% and our combined ratio was 83.8%.

• Our debt to capital ratio was 14.7%.

• We purchased $28.8 million of our common stock at an average cost of $39.18 per share. At quarter end, we had $221.0 million remaining under our current $300.0 million share buyback authorization.

• We declared dividends of $0.165 per share and paid $16.7 million of dividends.

Comparisons in the following sections refer to the first quarter of 2013 compared to the same period of 2012. Amounts in tables are in thousands, except for earnings per share, percentages, ratios and number of employees. We adjusted all prior segment data to reflect our exit from two lines of business previously included in our Accident & Health segment (see Note 10, “Segments” to the Consolidated Financial Statements).

23

Results of Operations

Our results and key metrics for the first quarter of 2013 and 2012 were as follows:

	Three months ended March 31,
	2013			2012
Net earnings	$	105,850		$	82,584
Earnings per diluted share	$	1.05		$	0.79
Net loss ratio		59.3	%		60.1	%
Expense ratio*		24.5			25.4
Combined ratio*		83.8	%		85.5	%
* 2012 adjusted to reflect change in Exited Lines. Revenue Total revenue increased $24.8 million in 2013, compared to 2012, primarily due to higher net earned premium and net realized investment gains. Gross written premium, net written premium and net earned premium are detailed below by segment.
	Three months ended March 31,
	2013			2012
U.S. Property & Casualty	$	175,137		$	153,147
Professional Liability		104,019			101,245
Accident & Health		215,561			205,327
U.S. Surety & Credit		52,249			54,493
International		167,807			157,676
Exited Lines		5,432			10,801
Total gross written premium	$	720,205		$	682,689
U.S. Property & Casualty	$	103,882		$	92,328
Professional Liability		67,626			70,913
Accident & Health		215,268			205,098
U.S. Surety & Credit		45,504			44,704
International		141,472			134,570
Exited Lines		5,432			10,791
Total net written premium	$	579,184		$	558,404
U.S. Property & Casualty	$	93,531		$	89,018
Professional Liability		92,779			101,438
Accident & Health		217,125			206,881
U.S. Surety & Credit		47,177			47,729
International		105,142			91,284
Exited Lines		5,432			10,791
Total net earned premium	$	561,186		$	547,141

Growth in premium from our insurance underwriting segments occurred primarily in: 1) the U.S. Property & Casualty segment, from new business lines started in 2011 and increased disability, residual value, title and mortgage reinsurance, and other structured insurance products; 2) the Accident & Health segment, from the growth of our medical stop-loss product and 3) the International

24

segment, from increases in our energy and property treaty lines of business. See the “Segment Operations” section below for further discussion of the relationship and changes in premium revenue within each insurance segment.

Net investment income, which is included in our Investing segment, decreased 2% year-over-year as the effect from growth in our investment portfolio was more than offset by the effect of reduced reinvestment yields. Our fixed maturity securities portfolio increased 3% from $6.0 billion at March 31, 2012 to $6.2 billion at March 31, 2013. In addition, we added publicly traded equity securities to our portfolio and held $350.4 million at March 31, 2013. The growth in investments resulted primarily from cash flow from operations during 2012 and an increase of $45.2 million in the net unrealized gain on our available for sale securities since March 31, 2012.

Our other operating income primarily consists of third party agency and broker commissions and income from a financial instrument.

Loss and Loss Adjustment Expense

The tables below detail our net loss and loss adjustment expense and our net loss ratios on a consolidated basis and for our segments.

	Three months ended March 31,
	2013			2012
U.S. Property & Casualty	$	52,156		$	49,261
Professional Liability		56,386			69,155
Accident & Health		160,427			152,522
U.S. Surety & Credit		13,214			11,033
International		45,919			37,767
Exited Lines		4,595			9,190
Net loss and loss adjustment expense	$	332,697		$	328,928
U.S. Property & Casualty		55.8	%		55.3	%
Professional Liability		60.8			68.2
Accident & Health		73.9			73.7
U.S. Surety & Credit		28.0			23.1
International		43.7			41.4
Consolidated net loss ratio		59.3	%		60.1	%
Consolidated accident year net loss ratio		59.3	%		60.1	%

Loss and loss adjustment expense increased 1% in 2013, compared to 2012, primarily due 1) to our Accident & Health segment, from growth of our medical stop-loss product writings and 2) our International segment, from growth of our energy and property treaty lines of business, partially offset by 3) decreased loss expense in our Professional Liability segment related to our expectation of lower losses in our diversified financial products (DFP) line of business in 2013 compared to 2012. 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. We recognized no prior year loss development in the first quarter of 2013 and 2012.

25

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.

	Three months ended March 31,
	2013			2012
Net reserves for loss and loss adjustment expense payable at beginning of period	$	2,749,803		$	2,683,483
Net reserve additions from acquired businesses		-			14,705
Foreign currency adjustment		(21,729)			17,123
Net loss and loss adjustment expense		332,697			328,928
Net loss and loss adjustment expense payments		(299,529)			(344,522)
Net reserves for loss and loss adjustment expense payable at end of period	$	2,761,242		$	2,699,717
Net paid loss ratio		53.4	%		63.0	%

The amount of claims paid fluctuates year-over-year due to the timing of claims settlement, occurrence of catastrophic events and mix of our business. In 2012, we commuted certain loss reserves on a large contract included in our Exited Lines for $27.5 million. The commutation had no material effect on net earnings but increased our net paid loss ratio by 5.1 percentage points in 2012. Excluding the commutation, our net paid loss ratio decreased 4.5 percentage points in 2013, primarily due to timing of claims payments and the mix of our businesses.

Policy Acquisition Costs

The percentage of policy acquisition costs to net earned premium was 11.9% and 12.7% in 2013 and 2012, respectively. The difference between years primarily relates to higher ceding commissions in 2013 and changes in the mix of business.

Other Operating Expense

Other operating expense decreased 12% in 2013 compared to 2012. The decrease in other operating expense was primarily due to the year-over-year fluctuation in foreign currency benefit/expense, partially offset by higher employee compensation and benefit costs in 2013. We recognized a foreign currency benefit of $11.0 million in the first quarter of 2013, compared to expense of $2.8 million in the first quarter of 2012, principally related to weakening of the British pound sterling relative to the U.S. dollar in 2013. Excluding the effect of foreign currency benefit/expense, 64% of other operating expense related to compensation and benefits for our 1,892 employees in 2013, compared to 61% in 2012. Other operating expense included stock-based compensation expense of $2.9 million in 2013 and $2.4 million in 2012. At March 31, 2013, there was approximately $28.0 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 2.9 years.

Interest Expense

Interest expense was $6.5 million and $6.9 million in the first quarter of 2013 and 2012, respectively, and included $4.8 million in each period for our Senior Notes.

Income Tax Expense

Our effective income tax rate was 30.1% for 2013, compared to 29.4% for 2012. The higher effective rate in 2013 was due to pretax income increasing at a faster rate than tax-exempt investment income.

26

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. Certain 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 catastrophic risks. 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 underwriting segments and our Investing segment.

U.S. Property & Casualty Segment

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

	Three months ended March 31,
	2013			2012
Net earned premium	$	93,531		$	89,018
Other revenue		7,184			2,363
Segment revenue		100,715			91,381
Loss and loss adjustment expense, net		52,156			49,261
Other expense		27,305			29,722
Segment expense		79,461			78,983
Segment pretax earnings	$	21,254		$	12,398
Net loss ratio		55.8	%		55.3	%
Expense ratio		27.1			32.5
Combined ratio		82.9	%		87.8	%
Aviation	$	27,857		$	28,823
E&O		13,198			16,377
Public Risk		16,360			15,218
Other		36,116			28,600
Total net earned premium	$	93,531		$	89,018
Aviation		61.7	%		46.9	%
E&O		60.2			61.0
Public Risk		78.2			93.0
Other		39.4			40.5
Total net loss ratio		55.8	%		55.3	%

27

	Three months ended March 31,
	2013		2012
Aviation	$	36,998	$	37,090
E&O		15,074		16,891
Public Risk		21,441		19,784
Other		101,624		79,382
Total gross written premium	$	175,137	$	153,147
Aviation	$	28,614	$	27,507
E&O		12,538		16,505
Public Risk		15,771		15,594
Other		46,959		32,722
Total net written premium	$	103,882	$	92,328

Our U.S. Property & Casualty segment pretax earnings increased 71% year-over-year primarily due to a combination of the following: 1) no catastrophe losses in 2013, compared to $4.0 million in 2012, 2) higher ceding commissions in 2013 and 3) higher other revenue. Net earned premium increased in 2013, compared to 2012, due to higher writings by our new underwriting teams for the technical property, primary casualty and excess casualty lines of business, as well as for disability, residual value, title and mortgage reinsurance, and other structured insurance products. Higher losses in our aviation line of business during the first quarter of 2013 partially offset reduced losses in our public risk line of business, which included the segment’s 2012 net catastrophe losses. Other expense and the expense ratio were lower in 2013 primarily due to higher ceding commissions, which offset policy acquisition costs.

28

Professional Liability Segment

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

	Three months ended March 31,
	2013			2012
Net earned premium	$	92,779		$	101,438
Other revenue		(414	)		133
Segment revenue		92,365			101,571
Loss and loss adjustment expense, net		56,386			69,155
Other expense		17,748			17,531
Segment expense		74,134			86,686
Segment pretax earnings	$	18,231		$	14,885
Net loss ratio		60.8	%		68.2	%
Expense ratio		19.2			17.3
Combined ratio		80.0	%		85.5	%
U.S. D&O	$	76,705		$	86,254
International D&O		16,074			15,184
Total net earned premium	$	92,779		$	101,438
U.S. D&O		62.8	%		71.0	%
International D&O		51.2			51.9
Total net loss ratio		60.8	%		68.2	%
U.S. D&O	$	75,239		$	74,996
International D&O		28,780			26,249
Total gross written premium	$	104,019		$	101,245
U.S. D&O	$	51,699		$	55,705
International D&O		15,927			15,208
Total net written premium	$	67,626		$	70,913

Our Professional Liability segment pretax earnings increased 22% in 2013, compared to 2012, due to an improved net loss ratio, primarily related to our diversified financial products (DFP) line of business in U.S. D&O. We increased the 2011 ultimate loss ratio for DFP in the third quarter of 2011, based on our annual reserve review that indicated the frequency and severity of claims had increased in the 2011 accident year, and continued to use that same ultimate loss ratio as premium written in 2011 earned during 2012. We decreased DFP’s ultimate loss ratio for premium written in 2012 and 2013, based on fewer expected losses due to our reunderwriting of the DFP business.

Gross written premium increased 3% in 2013, primarily due to increased writings of U.S. and International D&O, partially offset by reduced writings of DFP. Net written premium decreased year-over-year due to changes in our reinsurance program. Net earned premium decreased in 2013 due to our reunderwriting of the DFP business in 2012.

29

Accident & Health Segment

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

	Three months ended March 31,
	2013			2012
Net earned premium	$	217,125		$	206,881
Other revenue		1,190			1,337
Segment revenue		218,315			208,218
Loss and loss adjustment expense, net		160,427			152,522
Other expense		31,126			30,154
Segment expense		191,553			182,676
Segment pretax earnings	$	26,762		$	25,542
Net loss ratio		73.9	%		73.7	%
Expense ratio		14.3			14.5
Combined ratio		88.2	%		88.2	%
Medical Stop-loss	$	202,594		$	193,087
Other		14,531			13,794
Total net earned premium	$	217,125		$	206,881
Medical Stop-loss		75.2	%		75.3	%
Other		56.3			51.8
Total net loss ratio		73.9	%		73.7	%
Medical Stop-loss	$	202,808		$	193,233
Other		12,753			12,094
Total gross written premium	$	215,561		$	205,327
Medical Stop-loss	$	202,594		$	193,087
Other		12,674			12,011
Total net written premium	$	215,268		$	205,098

The Accident & Health segment pretax earnings increased 5% in the first quarter of 2013, compared to the same period of 2012. This increase was directly related to higher net earned premium in our medical stop-loss product line due to writing new business and rate increases on renewal business.

The 2012 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.

30

U.S. Surety & Credit Segment

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

	Three months ended March 31,
	2013			2012
Net earned premium	$	47,177		$	47,729
Other revenue		237			215
Segment revenue		47,414			47,944
Loss and loss adjustment expense, net		13,214			11,033
Other expense		26,279			28,120
Segment expense		39,493			39,153
Segment pretax earnings	$	7,921		$	8,791
Net loss ratio		28.0	%		23.1	%
Expense ratio		55.4			58.7
Combined ratio		83.4	%		81.8	%
Surety	$	35,607		$	39,920
Credit		11,570			7,809
Total net earned premium	$	47,177		$	47,729
Surety		25.0	%		24.8	%
Credit		37.4			14.6
Total net loss ratio		28.0	%		23.1	%
Surety	$	37,696		$	39,926
Credit		14,553			14,567
Total gross written premium	$	52,249		$	54,493
Surety	$	33,690		$	36,134
Credit		11,814			8,570
Total net written premium	$	45,504		$	44,704

Our U.S. Surety & Credit segment pretax earnings decreased 10% year-over-year, primarily due to a higher net loss ratio in our credit line of business in 2013. Premium for our surety line of business decreased year-over-year, primarily due to competition and economic conditions impacting the construction industry. In the first quarter of 2012, we had a large loss in our credit line of business, which, because of its size, had significant reinsurance recoveries. Our losses net of these reinsurance recoveries were limited, resulting in a low loss ratio. The benefit related to this low loss ratio was offset by a reduction of net written premium and net earned premium due to $4.3 million of reinstatement premium related to this large loss.

31

International Segment

The following tables summarize the operations of the International segment.

	Three months ended March 31,
	2013			2012
Net earned premium	$	105,142		$	91,284
Other revenue		778			1,194
Segment revenue		105,920			92,478
Loss and loss adjustment expense, net		45,919			37,767
Other expense		35,709			32,153
Segment expense		81,628			69,920
Segment pretax income	$	24,292		$	22,558
Net loss ratio		43.7	%		41.4	%
Expense ratio		33.7			34.8
Combined ratio		77.4	%		76.2	%
Energy	$	21,039		$	15,094
Property Treaty		28,755			22,089
Liability		17,175			19,482
Surety & Credit		18,213			17,761
Other		19,960			16,858
Total net earned premium	$	105,142		$	91,284
Energy		45.3	%		37.1	%
Property Treaty		24.3			12.8
Liability		49.9			51.2
Surety & Credit		63.5			67.9
Other		46.4			43.3
Total net loss ratios		43.7	%		41.4	%
Energy	$	26,545		$	20,595
Property Treaty		72,345			69,338
Liability		18,133			19,260
Surety & Credit		21,166			20,958
Other		29,618			27,525
Total gross written premium	$	167,807		$	157,676

32

	Three months ended March 31,
	2013		2012
Energy	$	14,669	$	12,824
Property Treaty		66,167		62,302
Liability		16,570		17,892
Surety & Credit		18,649		19,027
Other		25,417		22,525
Total net written premium	$	141,472	$	134,570

Our International segment pretax earnings increased 8% in the first quarter of 2013, compared to the first quarter of 2012. The 2013 and 2012 pretax earnings included $5.2 million and $3.6 million, respectively, of net catastrophe losses related to small catastrophes in our property treaty line of business. The segment’s increase in net earned premium in 2013 primarily related to increased writings of our energy and property treaty lines of business.

33

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 $6.2 billion of fixed maturity securities at March 31, 2013. Substantially all of our fixed maturity securities were investment grade and 72% were rated AAA or AA.

The following tables summarize the results and key metrics of our Investing segment.

	Three months ended March 31,
	2013			2012
Fixed maturity securities	$	53,849		$	57,727
Equity securities		3,580			-
Short-term investments		12			62
Other investments and deposits		(47	)		467
Net realized investment gain		8,570			171
Investment expenses		(1,629	)		(1,246	)
Segment pretax earnings	$	64,335		$	57,181
Fixed maturity securities:
Average yield *		3.7	%		4.1	%
Average tax equivalent yield *		4.6	%		5.0	%
Weighted-average life		8.3 years			7.7 years
Weighted-average duration		4.9 years			4.8 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 global publicly traded equity securities. These investments in equity securities are focused on companies with a track record of above-market dividend yields. At March 31, 2013, our investments included $151.3 million of bank loans and $350.4 million of equity securities. The weighted-average duration of our fixed maturity securities portfolio increased between the first quarter of 2012 and the first quarter of 2013, due to additional investments in municipal bonds that have longer lives and the impact of higher interest rates.

34

This table summarizes our investments by type, all of which were reported at fair value, at March 31, 2013 and December 31, 2012.

	March 31, 2013					December 31, 2012
	Amount		%			Amount		%
Fixed maturity securities
U.S. government and government agency securities	$	126,249		2	%	$	199,607		3	%
Fixed maturity securities of states, municipalities and political subdivisions		1,043,001		15			1,065,811		15
Special purpose revenue bonds of states, municipalities and political subdivisions		2,251,190		33			2,200,331		32
Corporate securities		1,301,625		19			1,315,170		19
Residential mortgage-backed securities		655,623		10			664,887		10
Commercial mortgage-backed securities		522,063		8			524,289		8
Asset-backed securities		42,530		1			33,275		-
Foreign government securities		243,175		3			278,411		4
Equity securities		350,352		5			284,639		4
Short-term investments		267,434		4			363,053		5
Other investments		2,810		-			20,925		-
Total investments	$	6,806,052		100	%	$	6,950,398		100	%

Our total investments decreased $144.3 million in 2013, principally from: 1) return of $67.1 million of collateral held for our surety business in the first quarter of 2013 and 2) a $39.0 million decrease in the pretax net unrealized gain associated with our available for sale securities. At March 31, 2013, the net unrealized gain on our available for sale portfolio was $397.7 million, compared to $436.7 million at December 31, 2012.

The ratings of our individual securities within our fixed maturity securities portfolio at March 31, 2013 were as follows:

	Amount		%
AAA	$	827,900		13	%
AA		3,652,766		59
A		1,263,454		20
BBB		286,206		5
BB and below		155,130		3
Total fixed maturity securities	$	6,185,456		100	%

At March 31, 2013, we held $2.3 billion of special purpose revenue bonds, as well as $1.0 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 March 31, 2013. Within our municipal bond portfolio, we held $431.5 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 March 31, 2013, the percentages of our special purpose revenue bond portfolio supported by these major revenue sources were as follows: 1) education – 23%, 2) transportation – 22%, 3) water and sewer – 18% and 4) electric – 14%.

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 thereafter. The underlying average credit rating of our special purpose revenue bond issuers, excluding any bond insurance, was AA at March 31, 2013. 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.

35

At March 31, 2013, we held corporate fixed maturity securities issued by foreign corporations with an aggregate fair value of $534.8 million. In addition, we held securities issued by foreign governments, agencies or supranational entities with an aggregate fair value of $243.2 million.

The methodologies used to determine the fair value of our investments are described in Note 4, “Fair Value Measurements” to the Consolidated Financial Statements.

Some of our fixed maturity securities have call or prepayment options. In addition, mortgage-backed and certain asset-backed securities have prepayment, extension or other market-related credit risk. Calls and prepayments subject us to reinvestment risk should interest rates fall and issuers call their securities and we reinvest the proceeds at lower interest rates. Prepayment risk exists if cash flows from the repayment of principal occur earlier than anticipated because of declining interest rates. Extension risk exists if cash flows from the repayment of principal occur later than anticipated because of rising interest rates. Credit risk exists if mortgagees default on the underlying mortgages. Net investment income and/or cash flows from investments that have call or prepayment options and prepayment, extension or credit risk may differ from what was anticipated at the time of investment. We mitigate these risks by investing in investment grade securities with varied maturity dates so that only a portion of our portfolio will mature at any point in time. In 2013, we expect approximately 10% of our fixed maturity securities portfolio to mature, call or prepay. Assuming prevailing interest rates remain constant throughout 2013, reinvestment of these funds will be at book yields and tax-equivalent yields that are approximately 130 basis points and 110 basis points, respectively, lower than the year-end 2012 yields for these securities.

Corporate & Other

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

	Three months ended March 31,
	2013			2012
Net earned premium	$	5,432		$	10,791
Other revenue		(130	)		(41	)
Total revenue		5,302			10,750
Loss and loss adjustment expense, net		4,595			9,190
Other expense – Exited Lines		1,339			1,809
Other expense – Corporate		15,365			14,579
Interest expense		6,386			6,802
Foreign currency expense (benefit)		(10,984	)		2,765
Total expense		16,701			35,145
Pretax loss	$	(11,399	)	$	(24,395	)

The 2012 amounts for net earned premium, loss and loss adjustment expense, and other expense – Exited Lines have been adjusted 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. Premium related to the other products included in Exited Lines was insignificant in both periods. The majority of the loss and loss adjustment expense relates to the HMO and medical excess reinsurance products.

Our Corporate expenses not allocable to the segments increased $0.8 million in 2013, primarily due to higher employee compensation and benefit costs. The impact of foreign currency benefit/expense fluctuated period-over-period principally due to the weakening of the British pound sterling relative to the U.S. dollar in 2013. We hold available for sale securities denominated in non-functional currencies to economically hedge the currency exchange risk on our loss reserves denominated in non-functional currencies. The foreign currency benefit/expense related to loss reserves is recorded through the income statement, while the foreign currency benefit/expense related to available for sale securities is recorded through other comprehensive income within shareholders’ equity. This accounting mismatch may cause fluctuations in our reported foreign currency benefit/expense in future periods.

36

Liquidity and Capital Management

We believe we have sufficient sources of liquidity at both a consolidated and insurance company legal entity level at a reasonable cost to pay claims and meet our other contractual obligations and liabilities as they become due in the short-term and long-term. Our current sources of liquidity include: 1) significant operating cash flow generated by our insurance companies, 2) a $6.8 billion investment portfolio, substantially all of which is held by our insurance companies and is available for sale, 3) our revolving loan and standby letter of credit facilities and 4) a $1.0 billion shelf registration. Our insurance companies have sufficient resources to pay potential claims. Based on historical payment patterns and claims history, at year-end 2012, we projected that our insurance companies will pay approximately $1.4 billion of claims in 2013. We also projected that they will collect approximately $0.4 billion of reinsurance recoveries in 2013. In addition to expected cash flow from their 2013 operations, these companies had $6.4 billion of investments available to fund claims payments, if needed. Our sources of liquidity are discussed below.

Cash Flow

We manage the liquidity of our insurance companies such that each subsidiary’s anticipated claims payments will be met by its own current operating cash flows, cash, short-term investments or investment maturities. Our insurance companies receive substantial cash from premiums, reinsurance recoverables, surety collateral, outward commutations, proceeds from sales and redemptions of investments, and investment income. Their 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, policy acquisition costs, operating expenses, taxes and dividends paid to HCC. We report all of the insurance companies’ investing activity in our Investing segment for segment reporting purposes. Our parent company’s principal cash inflows relate to its investment portfolio and dividends paid by the insurance companies, and its principal cash outflows relate to debt service, operating expenses, dividends paid to shareholders 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 and return of surety collateral; and the completion of commutations.

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

	Three months ended March 31,
	2013			2012
Net earnings	$	105,850		$	82,584
Change in premium, claims and other receivables, net of reinsurance, premium and claims payables and excluding restricted cash		(2,934	)		33,891
Change in unearned premium, net		15,708			1,658
Change in loss and loss adjustment expense payable, net of reinsurance recoverables		17,793			16,098
Change in accounts payable and accrued liabilities		(101,424	)		(44,098	)
Gain on investments		(8,570	)		(171	)
Other, net		(24,326	)		(14,992	)
Cash provided by operating activities	$	2,097		$	74,970

Our cash provided by operating activities was $2.1 million in the first quarter of 2013, compared to $75.0 million in the same period of 2012. Cash provided by operating activities includes collateral funds we receive or refund for our U.S. surety business, as well as funds we pay to commute large contracts. We refunded surety collateral of $67.1 million in 2013 and $22.7 million in 2012 and also paid $27.5 million in 2012 to commute a large contract in our Exited Lines. The remaining $56.0 million reduction in our cash provided by operating activities primarily resulted from $26.4 million of higher income tax payments in 2013, compared to 2012, as well as the timing of the collection and the payment of insurance-related receivables and payables.

37

Investments

At March 31, 2013, we held a $6.8 billion investment portfolio, which included $267.4 million of liquid short-term investments. Our fixed maturity and equity securities are classified as available for sale. We expect to hold our fixed maturity securities until maturity, but we would be able to sell these securities, as well as our equity securities and other investments, to generate cash if needed. See the “Investing Segment” section above for additional information about our investment portfolio. The parent company held $441.5 million of cash and investments, which are available to cover the holding company’s required cash disbursements in 2013.

Revolving Loan and Standby Letter of Credit Facilities

We maintain a $600.0 million Revolving Loan Facility (Facility), of which $270.6 million of available capacity remained at March 31, 2013. During the past several years, we used the Facility to fund purchases of our common stock, which we expect to continue to do as we opportunistically repurchase stock in 2013. On April 26, 2013, we entered into an agreement to modify the Facility. Under the amended agreement, the Facility expires on April 26, 2017. We also have a $90.0 million Standby Letter of Credit Facility (Standby Facility) that is used to guarantee our performance in our Lloyd’s of London syndicate. The Standby Facility expires in 2016. See Note 6, “Notes Payable” to the Consolidated Financial Statements for additional information related to the Facility and Standby Facility and our long-term indebtedness.

Share Purchases

On August 23, 2012, the Board approved the purchase of up to $300.0 million of our common stock (the Plan). 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 first quarter of 2013, we purchased $28.8 million, or 0.7 million shares, at an average cost of $39.18 per share. As of April 26, 2013, $218.7 million of repurchase authority remains under the Plan.

Shelf Registration

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.

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, 2012. We have made no changes in the identification or methods of application of these policies; however, the following information supplements the “Reserves” disclosures on page 55 of our Annual Report on Form 10-K for the year ended December 31, 2012.

Our recorded reserves represent management’s best estimate of unpaid losses and loss adjustment expenses as of each quarter end, based on information, facts and circumstances known at that time. The process of establishing reserves is complex, imprecise and inherently uncertain and, as such, involves a considerable degree of judgment involving our management review and actuarial processes. We must consider many variables that are subject to the outcome of future events. As a result, an integral component of our loss reserving process is the use of informed subjective estimates and judgments about our ultimate exposure to losses. Therefore, it is possible that management’s estimate of the ultimate liability for losses as of December 31, 2012 may change.

38

Management considers many factors in determining the ultimate losses and reserves for the various products in our five insurance underwriting segments. These factors include: 1) actuarial point estimates and the estimated ranges around these estimates, 2) information used to price the applicable policies, 3) historical loss information, where available, 4) public industry data for the product or similar products, 5) an assessment of current market conditions, 6) information on individual claims, 7) an assessment of current or potential litigation involving claims and 8) information from underwriting and claims personnel. The estimate of our reserves is increased or decreased as more information becomes known about the frequency and severity of losses for prior and current years. We believe our review process is effective, such that any required changes in reserves are recognized in the period of change as soon as the need for the change is evident.

Our actuaries monitor the adequacy and reasonableness of our recorded reserves for over 100 specialty insurance products by accident year or underwriting year, as applicable. The table on page 57 of our Annual Report on Form 10-K for the year ended December 31, 2012 details the characteristics for our major products in each segment. Although the duration (the time period between the occurrence of a loss and the settlement of a claim) is either short-term or medium-term for the majority of these products, approximately 50% of our total gross reserves at December 31, 2012 related to long-tail products in our Professional Liability and International segments and our Exited Lines. These long-tail products include directors’ and officers’ liability, large account E&O liability, International accident and health, and assumed accident and health reinsurance business that we no longer write. We write many of these contracts as excess insurance, where losses in lower layers must develop first before our excess coverage attaches. Significant periods of time, ranging up to several years or more, may elapse between occurrence of the loss, reporting of the loss to us, and settlement of the claim. In addition, many of these claims are susceptible to litigation and can be affected by escalating legal defense costs, contract interpretations and the changing economic and legal environment. As a result, our long-tail products are subject to greater levels of reserve volatility, creating favorable or adverse loss development over a longer period of time.

Our actuaries perform a comprehensive review of loss reserves for each major product at least once each year. The reviews take into consideration the variety of trends that impact the ultimate settlement of claims for each product type. These reviews follow a pre-set schedule, which covers the product lines in each segment, as follows: 1) second quarter – Exited Lines, 2) third quarter – U.S. Property & Casualty and Professional Liability and 3) fourth quarter – Accident & Health, U.S. Surety & Credit, and International. In addition to these comprehensive reviews, each quarter the actuaries review the emergence of paid and reported losses relative to expectations (established during the annual reviews) for all product lines and, if considered necessary, perform a more detailed review of the particular reserves.

Our actuaries’ loss review process relies on the basic assumption that past experience, adjusted for the effects of current developments and likely trends, is a reasonable basis for predicting future outcomes. As part of their process, our actuaries use a variety of actuarial methods that analyze experience, trends and other relevant factors. The principal standard actuarial methods used by our actuaries for their comprehensive reviews include:

• Loss ratio method – This method uses loss ratios for prior accident years, adjusted for current trends, to determine an appropriate expected loss ratio for a given accident year.

• Loss development methods – Loss development methods assume that the losses yet to emerge for an accident year are proportional to the paid or reported loss amounts observed to-date. The paid loss development method uses losses paid to-date, while the reported loss development method uses losses reported to-date.

• Bornheutter-Ferguson method – This method is a combination of the loss ratio and loss development methods, where the loss development factor is given more weight as an accident year matures.

• Frequency/severity method – This method projects claim counts and average cost per claim on a paid or reported basis for high frequency, low severity products.

Our actuaries calculate an actuarial point estimate, as well as a high and low end of the actuarial range, for the products that they review. The actuarial point estimates represent our actuaries’ estimate of the most likely amount that will ultimately be paid to settle the net reserves we have recorded at a particular point in time. While standard actuarial techniques are utilized in making these actuarial point estimates, these techniques require a high degree of judgment, and changing conditions can cause fluctuations in the reserve estimates. While, from an actuarial standpoint, a point estimate is considered the most likely amount to be paid, there is inherent uncertainty in the point estimate, and it can be thought of as the expected value in a distribution of possible reserve estimates. The actuarial ranges represent our actuaries’ estimate of a likely lowest amount and highest amount that will ultimately be paid to settle the net reserves. There is still a possibility of ultimately paying an amount below the range or above the range. The range determinations are based on estimates and actuarial judgments and are intended to encompass reasonably likely changes in one or more of the variables that were used to determine the point estimates.

39

Management evaluates the adequacy of our recorded consolidated reserves at each reporting period and approves increases or decreases in reserves, as considered necessary, based on a consideration of all material facts and circumstances known at that time. The Reserve Review Committee (which includes our CEO, President, CFO, executive management, chief actuary, segment management, and key actuarial, claims and accounting personnel) meets each quarter to review our actuaries’ comprehensive review of loss reserves and assessment of the emergence of paid and reported losses relative to expectations. The Reserve Review Committee discusses factors impacting the reserves in that quarter, for each insurance segment, including the most recent actuarial point and range estimates to monitor the adequacy and reasonableness of the recorded reserves. If the recorded reserves vary significantly from the actuarial point estimate, management discusses the reasons for the variances. Based on the discussions during this meeting, and any additional subsequent meetings, the Reserve Review Committee determines whether any recorded reserves should be increased or decreased during the quarter to an amount that, in management’s judgment, is adequate based on all of the facts and circumstances considered, including the actuarial point estimates. Historically, our consolidated net reserves at each quarter-end have been above the total actuarial point estimate and within the actuarial range.

Any increase or decrease in prior years’ reserves approved by the Reserve Review Committee generates favorable or adverse loss development related to our ultimate losses, which is reflected in our incurred but not reported (IBNR) reserves in the period of the reserve change. In addition, we may have loss development due to the normal claims settlement process. For our most recent accident years, recorded loss reserves are generally based on management’s establishment of ultimate loss ratios for each product line, based on historical loss trends and current market considerations. We do not recognize favorable or adverse development for these recent accident years until loss trends emerge. The time required for credible loss trends to emerge differs based on the characteristics of the product, and with long-tail products this can take several years. Our recorded reserves align closer to the actuarial indications as we place additional weight on the credibility of assumptions relating to actual experience and claims outstanding, resulting in favorable or adverse development.

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, 2012.

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 March 31, 2013. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2013.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

40

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, 2012.

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

On August 23, 2012, the Board approved the purchase of up to $300.0 million of our common stock (the Plan). 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. Our purchases in the first quarter of 2013 were 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
January	292,629	$38.27	292,629	$238,585,654
February	324,478	$39.67	324,478	$225,712,412
March	117,264	$40.06	117,264	$221,015,081

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

41

Item 6. Exhibits

Exhibit Number
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	Third 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 March 18, 2013).
4.1	Indenture, dated August 23, 2001, between HCC Insurance Holdings, Inc. and First Union National Bank related to Debt Securities (Senior Debt) (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 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).
10.1	Form of Time-Vesting Restricted Stock Award Agreement (executive officers) (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on March 18, 2013).*
10.2	Form of Performance-Vesting Restricted Stock Award Agreement (executive officers) (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on March 18, 2013).*
12†	Statement of Ratios.
31.1†	Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2†	Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1†	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101†	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 formatted in XBRL: 1) Consolidated Balance Sheets, 2) Consolidated Statements of Earnings, 3) Consolidated Statements of Comprehensive Income, 4) Consolidated Statement of Changes in Shareholders’ Equity, 5) Consolidated Statements of Cash Flows and 6) Notes to Consolidated Financial Statements.

† Filed herewith.

* Management contract or compensatory plan.

42

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)
May 3, 2013	/s/ Christopher J.B. Williams
(Date)	Christopher J.B. Williams,
	Chief Executive Officer
May 3, 2013	/s/ Pamela J. Penny
(Date)	Pamela J. Penny, Executive Vice President
	and Chief Accounting Officer

43

EX-12

Exhibit 12

HCC Insurance Holdings, Inc. and Subsidiaries

Statement of Ratios

(unaudited, in thousands except ratios)

	Three months ended March 31,
	2013			2012
Net loss ratio
Loss and loss adjustment expense, net	$	332,697		$	328,928
Net earned premium		561,186			547,141
Net loss ratio (1)		59.3	%		60.1	%
(Net loss ratio = incurred loss and loss adjustment expense divided by net earned premium)
Expense ratio (2)
Segment underwriting expense (3)	$	138,167		$	137,680
Segment revenue (4)		564,729			541,592
Expense ratio		24.5	%		25.4	%
(Expense ratio = segment underwriting expense divided by segment revenue)
Combined ratio (2)		83.8	%		85.5	%
(Combined ratio = net loss ratio plus expense ratio)
Accident year net loss ratio
Loss and loss adjustment expense, net	$	332,697		$	328,928
Add: Favorable (adverse) development		-			-
Accident year net loss and loss adjustment expense	$	332,697		$	328,928
Net earned premium	$	561,186		$	547,141
Add: (Increase) decrease related to prior year reinstatement premium		-			-
Accident year net earned premium	$	561,186		$	547,141
Accident year net loss ratio		59.3	%		60.1	%
(Accident year net loss ratio = accident year net loss and loss adjustment expense divided by accident year net earned premium)

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

(2) The 2012 expense ratio and combined ratio have been adjusted to reflect change in Exited Lines in 2012. See Note 10, “Segments” to the Consolidated Financial Statements.

(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)

	Three months ended March 31,
	2013			2012
Net paid loss ratio
Losses paid, net of reinsurance	$	299,529		$	344,522
Net earned premium		561,186			547,141
Net paid loss ratio		53.4	%		63.0	%
(Net paid loss ratio = losses paid, net of reinsurance, divided by net earned premium)
Ratio of earnings to fixed charges
Interest factor of rent expense (5)	$	1,250		$	1,312
Interest expense		6,471			6,909
Capitalized interest		-			13
Total fixed charges	$	7,721		$	8,234
Earnings before income tax expense	$	151,396		$	116,960
Interest factor of rent expense (5)		1,250			1,312
Interest expense		6,471			6,909
Earnings per calculation	$	159,117		$	125,181
Ratio of earnings to fixed charges (6)		20.61			15.20

(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, Christopher J.B. Williams, 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.

May 3, 2013	/s/ Christopher J.B. Williams
(Date)	Christopher J.B. Williams,
	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.

May 3, 2013	/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 March 31, 2013 (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.

May 3, 2013	/s/ Christopher J.B. Williams
(Date)	Christopher J.B. Williams,
	Chief Executive Officer

May 3, 2013	/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.

XML

Stock based Compensation

3 Months Ended

Mar. 31, 2013

Stock based Compensation [Abstract]

Stock based Compensation

(9) Stock-Based Compensation

In 2013, we granted the following shares of restricted stock awards, restricted stock units and stock options for the purchase of shares of our common stock.

		Weighted-average
	Number	grant date		Aggregate		Vesting
	of shares	fair value		fair value		period
Restricted stock awards	129	$	40.73	$	5,254	1-4 years
Restricted stock units	16		40.66		661	4 years
Stock options	109		7.83		849	1-5 years

Certain restricted stock awards and units granted in 2013 contain a performance condition based on the ultimate results for the 2012 underwriting year. The number of such shares that vest could differ from the number initially granted. We measure fair value for these awards and units based on the closing price of our common stock on the grant date, and we recognize expense on a straight-line basis over the vesting period for those awards expected to vest. These restricted stock awards and units earn dividends or dividend equivalents during the vesting period.

In 2013, we granted a new form of restricted stock to certain of our executive officers. These awards vest after three years and can vest from 0% to 200% of the initial shares granted. Vesting is determined equally on an operating return on equity performance factor (ROE factor) and a total shareholder return performance factor (TSR factor) calculation. The ROE factor is calculated by comparing our actual results over the three-year period to an internal target, whereas the TSR factor is calculated by comparing our TSR over the three-year period to that of nine peer companies. The ROE factor qualifies as a performance condition and those awards are accounted for in the same manner as the other restricted stock grants described above. The TSR factor qualifies as a market condition and we determine the fair value at grant date using a Monte Carlo simulation model that takes into account the probabilities of numerous outcomes of our TSR as well as that of the peer companies. This fair value is expensed on a straight-line basis over the vesting period and is not adjusted for the ultimate number of awards to vest. No dividends are earned during the vesting period on these restricted stock awards.

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 is expensed over the vesting period.

XML

Supplemental Information (Tables)

3 Months Ended

Mar. 31, 2013

Supplemental Information [Abstract]

Supplemental Information

	Three months ended March 31,
	2013		2012
Income taxes paid	$	32,142	$	5,784
Interest paid		1,390		1,071
Dividends declared but not paid at end of period		16,579		15,863
Treasury stock payable at period end		0		4,607

XML

Commitments and Contingencies (Details Textuals) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Commitments And Contingencies Line Items [Abstract]
Liability related to indemnifications	$ 8,400,000
Pretax cat loss after reinsurance	5,200,000	7,600,000
Letters of credit to cover obligations or anticipated payments	$ 3,200,000
Longest Indemnification Expiration Date	2025

XML

Accumulated Other Comprehensive Income

3 Months Ended

Mar. 31, 2013

Accumulated Other Comprehensive Income [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

(7) Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income in our consolidated balance sheets were as follows:

						Foreign		Accumulated
			Net unrealized			currency		other
			investment			translation		comprehensive
			gains (losses)			adjustment		income
Balance at December 31, 2012			$	282,503			12,768		295,271
Other comprehensive loss – 2013				(25,639)	*		(1,532)		(27,171)
	Balance at March 31, 2013		$	256,864		$	11,236	$	268,100
*	Includes the following reclassification adjustments, which were recorded
	to these accounts in our consolidated statements of earnings:
	Net realized investment gain		$	8,570
	Income tax expense			2,999
		Total reclassifications	$	5,571

XML

Reinsurance (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Effect of reinsurance transactions on our premium, loss and loss adjustment expense and policy acquisition costs
Direct written premium	$ 581,571	$ 544,770
Reinsurance assumed	138,634	137,919
Reinsurance ceded	(141,021)	(124,285)
Net written premium	579,184	558,404
Direct earned premium	616,405	591,183
Reinsurance assumed	85,272	82,338
Reinsurance ceded	(140,491)	(126,380)
Net earned premium	561,186	547,141
Direct loss and loss adjustment expense	357,512	365,392
Reinsurance assumed	39,691	36,709
Reinsurance ceded	(64,506)	(73,173)
Net loss and loss adjustment expense	332,697	328,928
Policy acquisition costs	100,286	95,735
Ceding commissions	(33,337)	(26,291)
Net policy acquisition costs	$ 66,949	$ 69,444

XML

Quarterly Information (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Quarterly Financial Data (Unaudited) [Abstract]
Net earned premium	$ 561,186	$ 547,141
Other revenue	73,180	62,382
Total revenue	634,366	609,523
Loss and loss adjustment expense, net	332,697	328,928
Other expense	150,273	163,635
Total expense	482,970	492,563
Earnings before income taxes	151,396	116,960
Income tax expense	45,546	34,376
Net earnings	$ 105,850	$ 82,584
Earnings per share
Basic	$ 1.05	$ 0.80
Diluted	$ 1.05	$ 0.79
Weighted-average shares outstanding
Basic	99,056	102,034
Diluted	99,287	102,193

XML

Segments

3 Months Ended

Mar. 31, 2013

Segments [Abstract]

Segments

(10) Segments

We report HCC's results in six operating segments, including the following five insurance underwriting 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 adjusted all prior financial data to report these two product lines in Exited Lines for the 2012 period presented herein.

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
Three months ended March 31, 2013
Net earned premium			$	93,531	$	92,779	$	217,125	$	47,177	$	105,142	$	0	$	5,432	$	561,186
Other revenue				7,184		(414)		1,190		237		778		64,335		(130)		73,180
	Segment revenue			100,715		92,365		218,315		47,414		105,920		64,335		5,302		634,366
Loss and LAE				52,156		56,386		160,427		13,214		45,919		0		4,595		332,697
Other expense				27,305		17,748		31,126		26,279		35,709		0		12,106		150,273
	Segment expense			79,461		74,134		191,553		39,493		81,628		-		16,701		482,970
		Segment pretax earnings (loss)	$	21,254	$	18,231	$	26,762	$	7,921	$	24,292	$	64,335	$	(11,399)	$	151,396

Three months ended March 31, 2012
Net earned premium			$	89,018	$	101,438	$	206,881	$	47,729	$	91,284	$	0	$	10,791	$	547,141
Other revenue				2,363		133		1,337		215		1,194		57,181		(41)		62,382
	Segment revenue			91,381		101,571		208,218		47,944		92,478		57,181		10,750		609,523
Loss and LAE				49,261		69,155		152,522		11,033		37,767		0		9,190		328,928
Other expense				29,722		17,531		30,154		28,120		32,153		0		25,955		163,635
	Segment expense			78,983		86,686		182,676		39,153		69,920		-		35,145		492,563
		Segment pretax earnings (loss)	$	12,398	$	14,885	$	25,542	$	8,791	$	22,558	$	57,181	$	(24,395)	$	116,960

XML

Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

Earnings per share

		Three months ended March 31,
		2013		2012
Net earnings		$	105,850	$	82,584
Less: net earnings attributable to unvested restricted stock			(1,782)		(1,463)
	Net earnings available to common stock	$	104,068	$	81,121
Weighted-average common shares outstanding			99,056		102,034
Dilutive effect of outstanding options (determined using treasury stock method)			231		159
	Weighted-average common shares and potential common shares outstanding		99,287		102,193
Anti-dilutive stock options not included in treasury stock method computation			47		2,224

XML

Supplemental Information

3 Months Ended

Mar. 31, 2013

Supplemental Information [Abstract]

Supplemental Information

(12) Supplemental Information

Supplemental cash flow information was as follows:

	Three months ended March 31,
	2013		2012
Income taxes paid	$	32,142	$	5,784
Interest paid		1,390		1,071
Dividends declared but not paid at end of period		16,579		15,863
Treasury stock payable at period end		0		4,607

XML

General Information

3 Months Ended

Mar. 31, 2013

General Information [Abstract]

General Information

(1) 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 largely non-correlated specialtyinsurance products, including property and casualty, accident and health, surety andcredit product lines,in approximately 180 countries. We market our products through a network of independent agents and brokers, throughmanaging general agents owned by the company, and directly to customers. In addition, we assume insurance written by other insurance companies.

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, 2012. The consolidated balance sheet at December 31, 2012 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.

XML

Segments (Tables)

3 Months Ended

Mar. 31, 2013

Segments [Abstract]

Information by business segment

			U.S. Property & Casualty		Professional Liability		Accident & Health		U.S. Surety & Credit		International		Investing		Corporate & Other		Consolidated
Three months ended March 31, 2013
Net earned premium			$	93,531	$	92,779	$	217,125	$	47,177	$	105,142	$	0	$	5,432	$	561,186
Other revenue				7,184		(414)		1,190		237		778		64,335		(130)		73,180
	Segment revenue			100,715		92,365		218,315		47,414		105,920		64,335		5,302		634,366
Loss and LAE				52,156		56,386		160,427		13,214		45,919		0		4,595		332,697
Other expense				27,305		17,748		31,126		26,279		35,709		0		12,106		150,273
	Segment expense			79,461		74,134		191,553		39,493		81,628		-		16,701		482,970
		Segment pretax earnings (loss)	$	21,254	$	18,231	$	26,762	$	7,921	$	24,292	$	64,335	$	(11,399)	$	151,396

Three months ended March 31, 2012
Net earned premium			$	89,018	$	101,438	$	206,881	$	47,729	$	91,284	$	0	$	10,791	$	547,141
Other revenue				2,363		133		1,337		215		1,194		57,181		(41)		62,382
	Segment revenue			91,381		101,571		208,218		47,944		92,478		57,181		10,750		609,523
Loss and LAE				49,261		69,155		152,522		11,033		37,767		0		9,190		328,928
Other expense				29,722		17,531		30,154		28,120		32,153		0		25,955		163,635
	Segment expense			78,983		86,686		182,676		39,153		69,920		-		35,145		492,563
		Segment pretax earnings (loss)	$	12,398	$	14,885	$	25,542	$	8,791	$	22,558	$	57,181	$	(24,395)	$	116,960

XML

Notes Payable

3 Months Ended

Mar. 31, 2013

Notes Payable [Abstract]

Notes Payable

(6) Notes Payable

Our notes payable consisted of the following:

		March 31,		December 31,
		2013		2012
6.30% Senior Notes		$	298,982	$	298,944
$600.0 million Revolving Loan Facility			320,000		285,000
	Total notes payable	$	618,982	$	583,944

On April 26, 2013, we entered into an agreement to modify our $600.0 million Revolving Loan Facility (the Facility). Under the amended agreement, the Facility expires on April 26, 2017. The new borrowing rate is LIBOR plus 125 basis points with a commitment fee of 15 basis points. There have been no changes to the terms and conditions related to our Senior Notes or the Standby Letter of Credit Facility (Standby 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, 2012.

The weighted-average interest rate on borrowings under the Facility at March 31, 2013 was 1.58%.The borrowings and letters of credit issued under the Facility reduced our available borrowing capacity on the Facilityto $270.6million at March 31, 2013.

We were in compliance with debt covenants related to our 6.30% Senior Notes, the Facility and the Standby Facility at March 31, 2013.

XML

Reinsurance (Details 5) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Calculation of net reserves, net unearned premium and net deferred policy acquisition costs
Loss and loss adjustment expense payable	$ 3,774,162	$ 3,767,850
Reinsurance recoverable on outstanding losses	(461,886)	(479,026)
Reinsurance recoverable on incurred but not reported losses	(551,034)	(539,021)
Net reserves	2,761,242	2,749,803
Unearned premium	1,085,833	1,069,956
Ceded unearned premium	(257,359)	(256,988)
Net unearned premium	828,474	812,968
Deferred policy acquisition costs	192,199	191,960
Deferred ceding commissions	(72,992)	(74,609)
Net deferred policy acquisition costs	$ 119,207	$ 117,351

XML

Segments (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Information by business segment
Net earned premium	$ 561,186	$ 547,141
Other revenue	73,180	62,382
Total revenue	634,366	609,523
Loss and LAE	332,697	328,928
Other expense	150,273	163,635
Segment Expense	482,970	492,563
Segment Pre Tax Earnings Loss	151,396	116,960
United States Property And Casualty [Member]
Information by business segment
Net earned premium	93,531	89,018
Other revenue	7,184	2,363
Total revenue	100,715	91,381
Loss and LAE	52,156	49,261
Other expense	27,305	29,722
Segment Expense	79,461	78,983
Segment Pre Tax Earnings Loss	21,254	12,398
Professional Liability [Member]
Information by business segment
Net earned premium	92,779	101,438
Other revenue	(414)	133
Total revenue	92,365	101,571
Loss and LAE	56,386	69,155
Other expense	17,748	17,531
Segment Expense	74,134	86,686
Segment Pre Tax Earnings Loss	18,231	14,885
Accident And Health [Member]
Information by business segment
Net earned premium	217,125	206,881
Other revenue	1,190	1,337
Total revenue	218,315	208,218
Loss and LAE	160,427	152,522
Other expense	31,126	30,154
Segment Expense	191,553	182,676
Segment Pre Tax Earnings Loss	26,762	25,542
United States Surety And Credit [Member]
Information by business segment
Net earned premium	47,177	47,729
Other revenue	237	215
Total revenue	47,414	47,944
Loss and LAE	13,214	11,033
Other expense	26,279	28,120
Segment Expense	39,493	39,153
Segment Pre Tax Earnings Loss	7,921	8,791
International [Member]
Information by business segment
Net earned premium	105,142	91,284
Other revenue	778	1,194
Total revenue	105,920	92,478
Loss and LAE	45,919	37,767
Other expense	35,709	32,153
Segment Expense	81,628	69,920
Segment Pre Tax Earnings Loss	24,292	22,558
Investing [Member]
Information by business segment
Net earned premium	0	0
Other revenue	64,335	57,181
Total revenue	64,335	57,181
Loss and LAE	0	0
Other expense	0	0
Segment Expense	0	0
Segment Pre Tax Earnings Loss	64,335	57,181
Corporate And Other [Member]
Information by business segment
Net earned premium	5,432	10,791
Other revenue	(130)	(41)
Total revenue	5,302	10,750
Loss and LAE	4,595	9,190
Other expense	12,106	25,955
Segment Expense	16,701	35,145
Segment Pre Tax Earnings Loss	$ (11,399)	$ (24,395)

XML

Notes Payable (Tables)

3 Months Ended

Mar. 31, 2013

Notes Payable [Abstract]

Notes Payable

		March 31,		December 31,
		2013		2012
6.30% Senior Notes		$	298,982	$	298,944
$600.0 million Revolving Loan Facility			320,000		285,000
	Total notes payable	$	618,982	$	583,944

XML

Notes Payable (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Notes Payable [Line Items]
Notes payable	$ 618,982	$ 583,944
Senior Notes [Member]
Notes Payable [Line Items]
Notes payable	298,982	298,944
Revolving Credit Facility [Member]
Notes Payable [Line Items]
Notes payable	$ 320,000	$ 285,000

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Operating activities
Net earnings	$ 105,850	$ 82,584
Adjustments to reconcile net earnings to net cash provided by operating activities:
Change in premium, claims and other receivables	(29,047)	16,089
Change in reinsurance recoverables	1,364	(19,639)
Change in ceded unearned premium	(528)	(8,887)
Change in loss and loss adjustment expense payable	16,429	35,737
Change in unearned premium	16,236	10,545
Change in reinsurance, premium and claims payable, excluding restricted cash	26,113	17,802
Change in accounts payable and accrued liabilities	(101,424)	(44,098)
Stock-based compensation expense	2,874	2,373
Depreciation and amortization expense	4,797	4,605
Gain on investments	(8,570)	(171)
Other, net	(31,997)	(21,970)
Cash provided by operating activities	2,097	74,970
Investing activities
Sales of available for sale fixed maturity securities	158,135	65,103
Sales of equity securities	17,808	0
Sales of other investments	20,921	0
Maturity or call of available for sale fixed maturity securities	190,308	145,713
Maturity or call of held to maturity fixed maturity securities	0	28,636
Cost of available for sale fixed maturity securities acquired	(389,731)	(230,283)
Cost of equity securities acquired	(69,255)	0
Cost of other investments acquired	0	0
Change in short-term investments	95,352	(66,008)
Payments for purchase of businesses, net of cash received	(8,214)	(32,143)
Proceeds from sale of subsidiaries	0	0
Other, net	(344)	(3,443)
Cash provided (used) by investing activities	14,980	(92,425)
Financing activities
Advances on line of credit	50,000	95,000
Payments on line of credit	(15,000)	(10,000)
Sale of common stock	6,919	1,278
Purchase of common stock	(34,426)	(62,358)
Dividends paid	(16,674)	(16,139)
Other, net	(3,609)	(3,963)
Cash (used) provided by financing activities	(12,790)	3,818
Net increase (decrease) in cash	4,287	(13,637)
Cash at beginning of year	71,390	104,550
Cash at end of period	$ 75,677	$ 90,913

XML

Notes Payable (Textuals) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 08, 2011
Notes Payable [Abstract]
Percentage of senior notes	6.30%
Borrowing capacity under line of credit facility		$ 600,000,000
Borrowing rate under revolving loan facility		125.00%
Contractual interest rate on borrowing under facility	1.58%
Commitment fees basis points for revolving loan facility	15.00%
Remaining borrowing capacity under Revolving Loan Facility as reduced by outstanding letters of credit	$ 270,600,000
Line of credit facility expiration date	Apr. 26, 2017

XML

Stock Based Compensation (Tables)

3 Months Ended

Mar. 31, 2013

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
Restricted stock awards	129	$	40.73	$	5,254	1-4 years
Restricted stock units	16		40.66		661	4 years
Stock options	109		7.83		849	1-5 years

Stock based Compensation

(9) Stock-Based Compensation

In 2013, we granted the following shares of restricted stock awards, restricted stock units and stock options for the purchase of shares of our common stock.

		Weighted-average
	Number	grant date		Aggregate		Vesting
	of shares	fair value		fair value		period
Restricted stock awards	129	$	40.73	$	5,254	1-4 years
Restricted stock units	16		40.66		661	4 years
Stock options	109		7.83		849	1-5 years

Certain restricted stock awards and units granted in 2013 contain a performance condition based on the ultimate results for the 2012 underwriting year. The number of such shares that vest could differ from the number initially granted. We measure fair value for these awards and units based on the closing price of our common stock on the grant date, and we recognize expense on a straight-line basis over the vesting period for those awards expected to vest. These restricted stock awards and units earn dividends or dividend equivalents during the vesting period.

In 2013, we granted a new form of restricted stock to certain of our executive officers. These awards vest after three years and can vest from 0% to 200% of the initial shares granted. Vesting is determined equally on an operating return on equity performance factor (ROE factor) and a total shareholder return performance factor (TSR factor) calculation. The ROE factor is calculated by comparing our actual results over the three-year period to an internal target, whereas the TSR factor is calculated by comparing our TSR over the three-year period to that of nine peer companies. The ROE factor qualifies as a performance condition and those awards are accounted for in the same manner as the other restricted stock grants described above. The TSR factor qualifies as a market condition and we determine the fair value at grant date using a Monte Carlo simulation model that takes into account the probabilities of numerous outcomes of our TSR as well as that of the peer companies. This fair value is expensed on a straight-line basis over the vesting period and is not adjusted for the ultimate number of awards to vest. No dividends are earned during the vesting period on these restricted stock awards.

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 is expensed over the vesting period.

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Investments
Fixed maturity securities - available for sale, at fair value (amortized cost: 2013 - $5,819,392 and 2012 - $5,856,432)	$ 6,185,456	$ 6,281,781
Equity securities - available for sale, at fair value (cost: 2013 - $319,499 and 2012 - $275,827)	350,352	284,639
Short-term investments, at cost (approximates fair value)	267,434	363,053
Other investments, at fair value (cost: 2013 - $1,997 and 2012 - $18,391)	2,810	20,925
Total investments	6,806,052	6,950,398
Cash	75,677	71,390
Restricted cash and securities	101,572	101,480
Premium, claims and other receivables	577,946	549,725
Reinsurance recoverables	1,066,351	1,071,222
Ceded unearned premium	257,359	256,988
Ceded life and annuity benefits	58,227	58,641
Deferred policy acquisition costs	192,199	191,960
Goodwill	885,994	885,860
Other assets	176,839	130,143
Total assets	10,198,216	10,267,807
LIABILITIES
Loss and loss adjustment expense payable	3,774,162	3,767,850
Life and annuity policy benefits	58,227	58,641
Reinsurance, premium and claims payable	321,394	294,621
Unearned premium	1,085,833	1,069,956
Deferred ceding commissions	72,992	74,609
Notes payable	618,982	583,944
Accounts payable and accrued liabilities	681,377	875,574
Total liabilities	6,612,967	6,725,195
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; 250,000 shares authorized (shares issued: 2013 - 125,394 and 2012 - 125,114; outstanding: 2013 - 100,474 and 2012 - 100,928)	125,394	125,114
Additional paid-in capital	1,061,272	1,052,253
Retained earnings	2,845,444	2,756,166
Accumulated other comprehensive income	268,100	295,271
Treasury stock, at cost (shares: 2013 - 24,920 and 2012 - 24,186)	(714,961)	(686,192)
Total shareholders' equity	3,585,249	3,542,612
Total liabilities and shareholders' equity	$ 10,198,216	$ 10,267,807

XML

Commitments and Contingencies

3 Months Ended

Mar. 31, 2013

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 catastrophic 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.In 2013, we recognized accident year net catastrophe losses, after reinsurance and reinstatement premium, of $5.2million, compared to $7.6 million in the first quarter of 2012. In both years, these amounts related to varioussmall catastrophes.

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. We currently have claims under one indemnification that covers certain net insurance losses that were incurred and reinsured prior to our sale of a subsidiary.At March 31, 2013, we have an accrued liability of $8.4millionand $3.2million of letters of credit to cover our obligations or anticipated payments under these indemnifications.

XML

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, 2012	$ 3,542,612	$ 125,114	$ 1,052,253	$ 2,756,166	$ 295,271	$ (686,192)
Net earnings	105,850			105,850
Other Comprehensive Income Loss Net Of Tax	(27,171)				(27,171)
Issuance of 222 shares for exercise of options, including tax effect	6,919	222	6,697
Purchase of 734 common shares	(28,769)					(28,769)
Stock-based compensation	2,380	58	2,322
Cash dividends declared, $0.165 per share	(16,572)			(16,572)
Balance at Mar. 31, 2013	$ 3,585,249	$ 125,394	$ 1,061,272	$ 2,845,444	$ 268,100	$ (714,961)

XML

Accumulated Other Comprehensive Income (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Accumulated Other Comprehensive Income (Loss), Net of Tax, Beginning Balance	$ 295,271
Other Comprehensive Income Loss Net Of Tax	(27,171)	16,636
Accumulated Other Comprehensive Income (Loss), Net of Tax, Ending Balance	268,100
Net realized investment gain	8,570	171
Income tax expense	2,999	60
Total reclassifications	5,571	111
Accumulated Net Unrealized Investment Gain (Loss) [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax, Beginning Balance	282,503
Other Comprehensive Income Loss Net Of Tax	(25,639)
Accumulated Other Comprehensive Income (Loss), Net of Tax, Ending Balance	256,864
Accumulated Translation Adjustment [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax, Beginning Balance	12,768
Other Comprehensive Income Loss Net Of Tax	(1,532)
Accumulated Other Comprehensive Income (Loss), Net of Tax, Ending Balance	11,236
Accumulated other comprehensive income
Other Comprehensive Income Loss Net Of Tax	$ (27,171)

XML

Fair Value Measurements (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Changes in fair value of level 3 assets
Balance at beginning of period	$ 513	$ 2,686
Purchases	9,430
Other comprehensive income	15	2
Net earnings	116	215
Transfers out of Level 3		(1,015)
Balance at end of period	10,074	1,888
Fixed Income Securities [Member]
Changes in fair value of level 3 assets
Balance at beginning of period	164	1,170
Purchases	9,430
Other comprehensive income	15	2
Net earnings	6
Transfers out of Level 3		(1,015)
Balance at end of period	9,615	157
Other Assets [Member]
Changes in fair value of level 3 assets
Balance at beginning of period	349	1,516
Net earnings	110	215
Balance at end of period	459	1,731
Earn Out Liability [Member]
Changes in fair value of level 3 assets
Balance at beginning of period	7,009
Net earnings	62
Balance at end of period	$ 7,071

XML

Earnings Per Share

3 Months Ended

Mar. 31, 2013

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.

		Three months ended March 31,
		2013		2012
Net earnings		$	105,850	$	82,584
Less: net earnings attributable to unvested restricted stock			(1,782)		(1,463)
	Net earnings available to common stock	$	104,068	$	81,121
Weighted-average common shares outstanding			99,056		102,034
Dilutive effect of outstanding options (determined using treasury stock method)			231		159
	Weighted-average common shares and potential common shares outstanding		99,287		102,193
Anti-dilutive stock options not included in treasury stock method computation			47		2,224

XML

Reinsurance (Tables)

3 Months Ended

Mar. 31, 2013

Reinsurance [Abstract]

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

	Three months ended March 31,
	2013		2012
Direct written premium	$	581,571	$	544,770
Reinsurance assumed		138,634		137,919
Reinsurance ceded		(141,021)		(124,285)
Net written premium	$	579,184	$	558,404
Direct earned premium	$	616,405	$	591,183
Reinsurance assumed		85,272		82,338
Reinsurance ceded		(140,491)		(126,380)
Net earned premium	$	561,186	$	547,141
Direct loss and loss adjustment expense	$	357,512	$	365,392
Reinsurance assumed		39,691		36,709
Reinsurance ceded		(64,506)		(73,173)
Net loss and loss adjustment expense	$	332,697	$	328,928

	Three months ended March 31,
	2013		2012
Policy acquisition costs	$	100,286	$	95,735
Ceding commissions		(33,337)		(26,291)
Net policy acquisition costs	$	66,949	$	69,444

Components of our reinsurance recoverables

		March 31,		December 31,
		2013		2012
Reinsurance recoverable on paid losses		$	54,931	$	54,675
Reinsurance recoverable on outstanding losses			461,886		479,026
Reinsurance recoverable on incurred but not reported losses			551,034		539,021
Reserve for uncollectible reinsurance			(1,500)		(1,500)
	Total reinsurance recoverables	$	1,066,351	$	1,071,222

Amounts of letters of credit and cash available to us as collateral, plus other potential offsets

		March 31,		December 31,
		2013		2012
Payables to reinsurers		$	161,271	$	190,228
Letters of credit			83,053		89,832
Cash			89,215		116,597
	Total credits	$	333,539	$	396,657

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

		March 31,		December 31,
		2013		2012
Loss and loss adjustment expense payable		$	3,774,162	$	3,767,850
Reinsurance recoverable on outstanding losses			(461,886)		(479,026)
Reinsurance recoverable on incurred but not reported losses			(551,034)		(539,021)
	Net reserves	$	2,761,242	$	2,749,803
Unearned premium		$	1,085,833	$	1,069,956
Ceded unearned premium			(257,359)		(256,988)
	Net unearned premium	$	828,474	$	812,968
Deferred policy acquisition costs		$	192,199	$	191,960
Deferred ceding commissions			(72,992)		(74,609)
	Net deferred policy acquisition costs	$	119,207	$	117,351

XML

Consolidated Statement of Changes in Shareholders' Equity (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Issuance of 222 shares for exercise of options, including tax effect	222
Purchase of 734 common shares	734
Cash dividends declared, $0.165 per share	$ 0.165

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Investments
Total fixed maturity securities, Available for sale, Cost or amortized cost	$ 5,819,392	$ 5,856,432
Fair value for equity securities-available for sale, at cost	319,499	275,827
Other investments, cost	$ 1,997	$ 18,391
SHAREHOLDERS' EQUITY
Common stock, par value	$ 1.00	$ 1.00
Common stock, shares authorized	250,000	250,000
Common stock, shares issued	125,394	125,114
Common stock, shares outstanding	100,474	100,928
Treasury stock	24,920	24,186

XML

Derivatives

3 Months Ended

Mar. 31, 2013

DerivativeInstrumentsandHedging

Derivative Instrument sand Hedging

(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.

In 2012, we entered into a forward contract to sell 45.0million Euros for U.S. dollars in September 2013. This transaction has been designated and qualifies as a hedge of a portion of our net investment in a subsidiary that has the Euro as its functional currency. Changes in the fair value of the forward contract, net of the related deferred income 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 $1.4million liability at March 31, 2013. This amount is reported in accounts payable and accrued liabilities in our consolidated balance sheets. At inception of the hedge and quarterly thereafter, we assess whether the hedge transaction is effective. Any ineffectiveness would be recognized immediately as other operating expense in our consolidated statements of earnings. There was no ineffectiveness on the forward contract during 2013.

XML

Document and Entity Information (USD $)	3 Months Ended
	Mar. 31, 2013	Jun. 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	Mar. 31, 2013
Amendment Flag	false
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
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 Public Float		$ 3,100,000,000
Entity Common Stock, Shares Outstanding	100,400,000

XML

Derivatives (Detail Textuals)	Mar. 31, 2013 USD ($)	Mar. 31, 2013 EUR (€)
DerivativeInstrumentsandHedging
The amount of Euros to sell for the forward contract.		€ 45,000,000
Derivative Assets (Liabilities), at Fair Value, Net	$ 1,400,000

XML

Consolidated Statement of Earnings (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
REVENUE
Net earned premium	$ 561,186	$ 547,141
Other revenue	73,180	62,382
Net investment income	55,765	57,010
Other operating income	8,845	5,201
Net realized investment gain	8,570	171
Other-than-temporary impairment credit losses	0	0
Total revenue	634,366	609,523
EXPENSE
Loss and loss adjustment expense, net	332,697	328,928
Policy acquisition costs, net	66,949	69,444
Other expense	150,273	163,635
Other operating expense	76,853	87,282
Interest expense	6,471	6,909
Total expense	482,970	492,563
Earnings before income taxes	151,396	116,960
Income tax expense	45,546	34,376
Net earnings	$ 105,850	$ 82,584
Earnings per common share
Basic	$ 1.05	$ 0.80
Diluted	$ 1.05	$ 0.79

XML

Investments (Tables)

3 Months Ended

Mar. 31, 2013

Investment [Abstract]

Fixed Maturity & Equity Securities Available For Sale

		Cost or		Gross		Gross
		amortized		unrealized		unrealized
		cost		gain		loss		Fair value
March 31, 2013
U.S. government and government agency securities		$	122,242	$	4,007	$	0	$	126,249
Fixed maturity securities of states, municipalities and political
	subdivisions		955,228		88,266		(493)		1,043,001
Special purpose revenue bonds of states, municipalities and
	political subdivisions		2,101,195		155,078		(5,083)		2,251,190
Corporate securities			1,248,289		58,310		(4,974)		1,301,625
Residential mortgage-backed securities			630,822		26,807		(2,006)		655,623
Commercial mortgage-backed securities			488,000		35,107		(1,044)		522,063
Asset-backed securities			42,015		515		0		42,530
Foreign government securities			231,601		12,034		(460)		243,175
	Total fixed maturity securities	$	5,819,392	$	380,124	$	(14,060)	$	6,185,456
Equity securities		$	319,499	$	34,632	$	(3,779)	$	350,352

		Cost or		Gross		Gross
		amortized		unrealized		unrealized
		cost		gain		loss		Fair value
December 31, 2012
U.S. government and government agency securities		$	195,049	$	4,560	$	(2)	$	199,607
Fixed maturity securities of states, municipalities and political
	subdivisions		969,966		96,027		(182)		1,065,811
Special purpose revenue bonds of states, municipalities and
	political subdivisions		2,033,947		168,772		(2,388)		2,200,331
Corporate securities			1,247,282		69,243		(1,355)		1,315,170
Residential mortgage-backed securities			632,665		32,560		(338)		664,887
Commercial mortgage-backed securities			482,808		41,748		(267)		524,289
Asset-backed securities			32,801		474		0		33,275
Foreign government securities			261,914		16,515		(18)		278,411
	Total fixed maturity securities	$	5,856,432	$	429,899	$	(4,550)	$	6,281,781
Equity securities		$	275,827	$	13,768	$	(4,956)	$	284,639

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
March 31, 2013
Fixed maturity securities
	Fixed maturity securities of states,
		municipalities and political subdivisions	$	35,621	$	(493)	$	0	$	0	$	35,621	$	(493)
	Special purpose revenue bonds of states,
		municipalities and political subdivisions		264,246		(5,067)		1,970		(16)		266,216		(5,083)
	Corporate securities			211,763		(4,112)		12,495		(862)		224,258		(4,974)
	Residential mortgage-backed securities			136,267		(2,006)		0		0		136,267		(2,006)
	Commercial mortgage-backed securities			83,541		(1,044)		0		0		83,541		(1,044)
	Foreign government securities			46,250		(460)		0		0		46,250		(460)
Equity securities				59,226		(3,779)		0		0		59,226		(3,779)
		Total	$	836,914	$	(16,961)	$	14,465	$	(878)	$	851,379	$	(17,839)

			Less than 12 months				12 months or more				Total
					Unrealized				Unrealized				Unrealized
			Fair value		losses		Fair value		losses		Fair value		losses
December 31, 2012
Fixed maturity securities
	U.S. government and government agency
		securities	$	55,034	$	(2)	$	0	$	0	$	55,034	$	(2)
	Fixed maturity securities of states,
		municipalities and political subdivisions		14,162		(182)		0		0		14,162		(182)
	Special purpose revenue bonds of states,
		municipalities and political subdivisions		155,902		(2,388)		0		0		155,902		(2,388)
	Corporate securities			85,245		(1,220)		2,616		(135)		87,861		(1,355)
	Residential mortgage-backed securities			49,486		(338)		0		0		49,486		(338)
	Commercial mortgage-backed securities			26,263		(267)		0		0		26,263		(267)
	Foreign government securities			7,007		(18)		0		0		7,007		(18)
Equity securities				103,647		(4,956)		0		0		103,647		(4,956)
		Total	$	496,746	$	(9,371)	$	2,616	$	(135)	$	499,362	$	(9,506)

Amortized cost and fair value of fixed maturity securities

		Cost or amortized cost		Fair value
Due in 1 year or less		$	251,720	$	254,696
Due after 1 year through 5 years			1,040,973		1,089,163
Due after 5 years through 10 years			1,448,715		1,567,744
Due after 10 years through 15 years			964,983		1,040,171
Due after 15 years			952,164		1,013,466
	Securities with contractual maturities		4,658,555		4,965,240
Mortgage-backed and asset-backed securities			1,160,837		1,220,216
	Total fixed maturity securities	$	5,819,392	$	6,185,456

Sources of net investment income

		Three months ended March 31,
		2013		2012
Fixed maturity securities
Taxable		$	25,960	$	31,115
Exempt from U.S. income taxes			27,889		26,612
	Total fixed maturity securities		53,849		57,727
Equity securities			3,580		0
Short-term investments			12		62
Other investment income			(47)		467
	Total investment income		57,394		58,256
Investment expense			(1,629)		(1,246)
	Net investment income	$	55,765	$	57,010

XML

Investments

3 Months Ended

Mar. 31, 2013

Investment [Abstract]

Investments

(2)  Investments

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

		Cost or		Gross		Gross
		amortized		unrealized		unrealized
		cost		gain		loss		Fair value
March 31, 2013
U.S. government and government agency securities		$	122,242	$	4,007	$	0	$	126,249
Fixed maturity securities of states, municipalities and political
	subdivisions		955,228		88,266		(493)		1,043,001
Special purpose revenue bonds of states, municipalities and
	political subdivisions		2,101,195		155,078		(5,083)		2,251,190
Corporate securities			1,248,289		58,310		(4,974)		1,301,625
Residential mortgage-backed securities			630,822		26,807		(2,006)		655,623
Commercial mortgage-backed securities			488,000		35,107		(1,044)		522,063
Asset-backed securities			42,015		515		0		42,530
Foreign government securities			231,601		12,034		(460)		243,175
	Total fixed maturity securities	$	5,819,392	$	380,124	$	(14,060)	$	6,185,456
Equity securities		$	319,499	$	34,632	$	(3,779)	$	350,352

		Cost or		Gross		Gross
		amortized		unrealized		unrealized
		cost		gain		loss		Fair value
December 31, 2012
U.S. government and government agency securities		$	195,049	$	4,560	$	(2)	$	199,607
Fixed maturity securities of states, municipalities and political
	subdivisions		969,966		96,027		(182)		1,065,811
Special purpose revenue bonds of states, municipalities and
	political subdivisions		2,033,947		168,772		(2,388)		2,200,331
Corporate securities			1,247,282		69,243		(1,355)		1,315,170
Residential mortgage-backed securities			632,665		32,560		(338)		664,887
Commercial mortgage-backed securities			482,808		41,748		(267)		524,289
Asset-backed securities			32,801		474		0		33,275
Foreign government securities			261,914		16,515		(18)		278,411
	Total fixed maturity securities	$	5,856,432	$	429,899	$	(4,550)	$	6,281,781
Equity securities		$	275,827	$	13,768	$	(4,956)	$	284,639

Substantially all of our fixed maturity securities are investment grade. 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
March 31, 2013
Fixed maturity securities
	Fixed maturity securities of states,
		municipalities and political subdivisions	$	35,621	$	(493)	$	0	$	0	$	35,621	$	(493)
	Special purpose revenue bonds of states,
		municipalities and political subdivisions		264,246		(5,067)		1,970		(16)		266,216		(5,083)
	Corporate securities			211,763		(4,112)		12,495		(862)		224,258		(4,974)
	Residential mortgage-backed securities			136,267		(2,006)		0		0		136,267		(2,006)
	Commercial mortgage-backed securities			83,541		(1,044)		0		0		83,541		(1,044)
	Foreign government securities			46,250		(460)		0		0		46,250		(460)
Equity securities				59,226		(3,779)		0		0		59,226		(3,779)
		Total	$	836,914	$	(16,961)	$	14,465	$	(878)	$	851,379	$	(17,839)

			Less than 12 months				12 months or more				Total
					Unrealized				Unrealized				Unrealized
			Fair value		losses		Fair value		losses		Fair value		losses
December 31, 2012
Fixed maturity securities
	U.S. government and government agency
		securities	$	55,034	$	(2)	$	0	$	0	$	55,034	$	(2)
	Fixed maturity securities of states,
		municipalities and political subdivisions		14,162		(182)		0		0		14,162		(182)
	Special purpose revenue bonds of states,
		municipalities and political subdivisions		155,902		(2,388)		0		0		155,902		(2,388)
	Corporate securities			85,245		(1,220)		2,616		(135)		87,861		(1,355)
	Residential mortgage-backed securities			49,486		(338)		0		0		49,486		(338)
	Commercial mortgage-backed securities			26,263		(267)		0		0		26,263		(267)
	Foreign government securities			7,007		(18)		0		0		7,007		(18)
Equity securities				103,647		(4,956)		0		0		103,647		(4,956)
		Total	$	496,746	$	(9,371)	$	2,616	$	(135)	$	499,362	$	(9,506)

A security has an impairment loss when its fair value is less than its cost or amortized cost at the balance sheet date. We evaluate our securities for possible other-than-temporary impairment losses at each quarter end. Our reviews cover all impaired securities where the loss exceeds $0.5 million and the loss eitherexceeds 10% of cost or the security had been in a loss position for longer than twelve consecutive months. We recognized no other-than-temporaryimpairment losses in the first quarter of 2013 and 2012.

We do not consider the $17.8million of gross unrealized losses on fixed maturity and equity securities in our portfolio atMarch 31, 2013 to be other-than-temporary impairments because: 1) as of March 31, 2013,we have received substantially all contractual interest and principal payments on the fixed maturity securities,2) we do not intend to sell the 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 March 31, 2013, 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 5.9years at March 31, 2013.

		Cost or amortized cost		Fair value
Due in 1 year or less		$	251,720	$	254,696
Due after 1 year through 5 years			1,040,973		1,089,163
Due after 5 years through 10 years			1,448,715		1,567,744
Due after 10 years through 15 years			964,983		1,040,171
Due after 15 years			952,164		1,013,466
	Securities with contractual maturities		4,658,555		4,965,240
Mortgage-backed and asset-backed securities			1,160,837		1,220,216
	Total fixed maturity securities	$	5,819,392	$	6,185,456

The sources of net investment income were as follows:

		Three months ended March 31,
		2013		2012
Fixed maturity securities
Taxable		$	25,960	$	31,115
Exempt from U.S. income taxes			27,889		26,612
	Total fixed maturity securities		53,849		57,727
Equity securities			3,580		0
Short-term investments			12		62
Other investment income			(47)		467
	Total investment income		57,394		58,256
Investment expense			(1,629)		(1,246)
	Net investment income	$	55,765	$	57,010

XML

Reinsurance

3 Months Ended

Mar. 31, 2013

Reinsurance [Abstract]

Reinsurance

(5) 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.

	Three months ended March 31,
	2013		2012
Direct written premium	$	581,571	$	544,770
Reinsurance assumed		138,634		137,919
Reinsurance ceded		(141,021)		(124,285)
Net written premium	$	579,184	$	558,404
Direct earned premium	$	616,405	$	591,183
Reinsurance assumed		85,272		82,338
Reinsurance ceded		(140,491)		(126,380)
Net earned premium	$	561,186	$	547,141
Direct loss and loss adjustment expense	$	357,512	$	365,392
Reinsurance assumed		39,691		36,709
Reinsurance ceded		(64,506)		(73,173)
Net loss and loss adjustment expense	$	332,697	$	328,928

	Three months ended March 31,
	2013		2012
Policy acquisition costs	$	100,286	$	95,735
Ceding commissions		(33,337)		(26,291)
Net policy acquisition costs	$	66,949	$	69,444

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

		March 31,		December 31,
		2013		2012
Reinsurance recoverable on paid losses		$	54,931	$	54,675
Reinsurance recoverable on outstanding losses			461,886		479,026
Reinsurance recoverable on incurred but not reported losses			551,034		539,021
Reserve for uncollectible reinsurance			(1,500)		(1,500)
	Total reinsurance recoverables	$	1,066,351	$	1,071,222

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 March 31, 2013 and December 31, 2012.

		March 31,		December 31,
		2013		2012
Payables to reinsurers		$	161,271	$	190,228
Letters of credit			83,053		89,832
Cash			89,215		116,597
	Total credits	$	333,539	$	396,657

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

		March 31,		December 31,
		2013		2012
Loss and loss adjustment expense payable		$	3,774,162	$	3,767,850
Reinsurance recoverable on outstanding losses			(461,886)		(479,026)
Reinsurance recoverable on incurred but not reported losses			(551,034)		(539,021)
	Net reserves	$	2,761,242	$	2,749,803
Unearned premium		$	1,085,833	$	1,069,956
Ceded unearned premium			(257,359)		(256,988)
	Net unearned premium	$	828,474	$	812,968
Deferred policy acquisition costs		$	192,199	$	191,960
Deferred ceding commissions			(72,992)		(74,609)
	Net deferred policy acquisition costs	$	119,207	$	117,351

XML

Fair Value Measurements

3 Months Ended

Mar. 31, 2013

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 fundsand 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 (including those held as restricted securities), corporate debt securities, bank loans, mortgage-backed and asset-backed securities, and deposits supporting our Lloyd's syndicate business. 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 are responsible for the prices used in our fair value measurements. 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 and Lloyd's of London 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, third party investment managers or Lloyd's of London as of March 31, 2013 or 2012.

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. This category also includes a liability for future earnout payments due to former owners of a business we acquired, which is classified within accounts payable and accrued liabilities. Fixed maturity securities classified as Level 3 are primarily special purpose revenue bondauction rate securities.  The interest rates on these securities are reset through auctions at periodic intervals.  These securities are thinly traded and observable market data is not readily available.  We determine the fair value of these securities using prices quoted by a broker. We determine fair value of our other Level 3 assets and liabilities 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
March 31, 2013
Fixed maturity securities
	U.S. government and government agency securities	$	105,667	$	20,582	$	0	$	126,249
	Fixed maturity securities of states, municipalities and
	political subdivisions		0		1,043,001		0		1,043,001
	Special purpose revenue bonds of states, municipalities
	and political subdivisions		0		2,241,742		9,448		2,251,190
	Corporate securities		0		1,301,458		167		1,301,625
	Residential mortgage-backed securities		0		655,623		0		655,623
	Commercial mortgage-backed securities		0		522,063		0		522,063
	Asset-backed securities		0		42,530		0		42,530
	Foreign government securities		0		243,175		0		243,175
	Total fixed maturity securities		105,667		6,070,174		9,615		6,185,456
Equity securities			350,352		0		0		350,352
Short-term investments*			193,033		74,401		0		267,434
Other investments			2,810		0		0		2,810
Restricted cash and securities			0		2,041		0		2,041
Premium, claims and other receivables			0		72,398		0		72,398
Other assets			0		0		459		459
	Total assets measured at fair value	$	651,862	$	6,219,014	$	10,074	$	6,880,950
Notes payable*		$	0	$	676,400	$	-	$	676,400
Accounts payable and accrued liabilities - forward contract			0		1,411		-		1,411
Accounts payable and accrued liabilities - earnout liability			0		2,041		7,071		9,112
	Total liabilities measured at fair value	$	0	$	679,852	$	7,071	$	686,923

__________

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

		Level 1		Level 2		Level 3		Total
December 31, 2012
Fixed maturity securities
	U.S. government and government agency securities	$	174,520	$	25,087	$	0	$	199,607
	Fixed maturity securities of states, municipalities and
	political subdivisions		0		1,065,811		0		1,065,811
	Special purpose revenue bonds of states, municipalities
	and political subdivisions		0		2,200,331		0		2,200,331
	Corporate securities		0		1,315,006		164		1,315,170
	Residential mortgage-backed securities		0		664,887		0		664,887
	Commercial mortgage-backed securities		0		524,289		0		524,289
	Asset-backed securities		0		33,275		0		33,275
	Foreign government securities		0		278,411		0		278,411
	Total fixed maturity securities		174,520		6,107,097		164		6,281,781
Equity securities			284,639		0		0		284,639
Short-term investments*			251,988		111,065		0		363,053
Other investments			20,925		0		0		20,925
Restricted cash and securities			0		2,043		0		2,043
Premium, claims and other receivables			0		68,207		0		68,207
Other assets			0		0		349		349
	Total assets measured at fair value	$	732,072	$	6,288,412	$	513	$	7,020,997
Notes payable*		$	-	$	636,363	$	-	$	636,363
Accounts payable and accrued liabilities - forward contract			-		3,194		-		3,194
Accounts payable and accrued liabilities - earnout liability			-		2,043		7,009		9,052
	Total liabilities measured at fair value	$	0	$	641,600	$	7,009	$	648,609

__________

*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.

	2013								2012
							Accounts
							payable
	Fixed						and		Fixed
	maturity		Other		Total		accrued		maturity		Other		Total
	securities		assets		assets		liabilities		securities		assets		assets
Balance at beginning of year	$	164	$	349	$	513	$	7,009	$	1,170	$	1,516	$	2,686
Purchases		9,430		0		9,430		0		0		0		0
Gains reported in:
Net earnings		6		110		116		62		0		215		215
Other comprehensive income		15		0		15		0		2		0		2
Transfers out of Level 3		0		0		0		0		(1,015)		0		(1,015)
Balance at March 31	$	9,615	$	459	$	10,074	$	7,071	$	157	$	1,731	$	1,888

There were no transfers between Level 1, Level 2 or Level 3 in 2013.We transferred an investment from Level 3 to Level 2 in 2012 because we were able to determine its fair value using inputs based on observable market data in the period transferred.

XML

Investments (Details 4) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Fixed Maturity Securities
Taxable	$ 25,960	$ 31,115
Exempt from U.S. income taxes	27,889	26,612
Total fixed maturity securities	53,849	57,727
Equity Securities	3,580	0
Short-term investments	12	62
Other	(47)	467
Total investment income	57,394	58,256
Investment expense	(1,629)	(1,246)
Net investment income	$ 55,765	$ 57,010

XML

Investments (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	$ 5,819,392	$ 5,856,432
Gross unrealized gain	380,124	429,899
Gross unrealized loss	(14,060)	(4,550)
Fixed maturity securities - available for sale	6,185,456	6,281,781
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	836,914	496,746
Less than 12 months, Unrealized losses	(16,961)	(9,371)
12 months or more, Fair value	14,465	2,616
12 months or more, Unrealized losses	(878)	(135)
Total, Fair value	851,379	499,362
Total, Unrealized losses	(17,839)	(9,506)
Available for sale equity securities
Available-for-sale Equity Securities, Amortized Cost Basis	319,499	275,827
Gross unrealized gain	34,632	13,768
Gross unrealized loss	(3,779)	(4,956)
Available-for-sale Securities, Equity Securities	350,352	284,639
US Government Agencies Debt Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	122,242	195,049
Gross unrealized gain	4,007	4,560
Gross unrealized loss	0	(2)
Fixed maturity securities - available for sale	126,249	199,607
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		55,034
Less than 12 months, Unrealized losses		(2)
12 months or more, Fair value		0
12 months or more, Unrealized losses		0
Total, Fair value		55,034
Total, Unrealized losses		(2)
US States and Political Subdivisions Debt Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	955,228	969,966
Gross unrealized gain	88,266	96,027
Gross unrealized loss	(493)	(182)
Fixed maturity securities - available for sale	1,043,001	1,065,811
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	35,621	14,162
Less than 12 months, Unrealized losses	(493)	(182)
12 months or more, Fair value	0	0
12 months or more, Unrealized losses	0	0
Total, Fair value	35,621	14,162
Total, Unrealized losses	(493)	(182)
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	2,101,195	2,033,947
Gross unrealized gain	155,078	168,772
Gross unrealized loss	(5,083)	(2,388)
Fixed maturity securities - available for sale	2,251,190	2,200,331
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	264,246	155,902
Less than 12 months, Unrealized losses	(5,067)	(2,388)
12 months or more, Fair value	1,970	0
12 months or more, Unrealized losses	(16)	0
Total, Fair value	266,216	155,902
Total, Unrealized losses	(5,083)	(2,388)
Corporate Debt Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	1,248,289	1,247,282
Gross unrealized gain	58,310	69,243
Gross unrealized loss	(4,974)	(1,355)
Fixed maturity securities - available for sale	1,301,625	1,315,170
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	211,763	85,245
Less than 12 months, Unrealized losses	(4,112)	(1,220)
12 months or more, Fair value	12,495	2,616
12 months or more, Unrealized losses	(862)	(135)
Total, Fair value	224,258	87,861
Total, Unrealized losses	(4,974)	(1,355)
Residential Mortgage Backed Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	630,822	632,665
Gross unrealized gain	26,807	32,560
Gross unrealized loss	(2,006)	(338)
Fixed maturity securities - available for sale	655,623	664,887
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	136,267	49,486
Less than 12 months, Unrealized losses	(2,006)	(338)
12 months or more, Fair value	0	0
12 months or more, Unrealized losses	0	0
Total, Fair value	136,267	49,486
Total, Unrealized losses	(2,006)	(338)
Commercial Mortgage Backed Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	488,000	482,808
Gross unrealized gain	35,107	41,748
Gross unrealized loss	(1,044)	(267)
Fixed maturity securities - available for sale	522,063	524,289
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	83,541	26,263
Less than 12 months, Unrealized losses	(1,044)	(267)
12 months or more, Fair value	0	0
12 months or more, Unrealized losses	0	0
Total, Fair value	83,541	26,263
Total, Unrealized losses	(1,044)	(267)
Asset-backed Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	42,015	32,801
Gross unrealized gain	515	474
Gross unrealized loss	0	0
Fixed maturity securities - available for sale	42,530	33,275
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
Less than 12 months, Unrealized losses	0
12 months or more, Fair value	0
12 months or more, Unrealized losses	0
Total, Fair value	0
Total, Unrealized losses	0
Foreign Government Debt Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Debt Securities, Amortized Cost Basis	231,601	261,914
Gross unrealized gain	12,034	16,515
Gross unrealized loss	(460)	(18)
Fixed maturity securities - available for sale	243,175	278,411
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	46,250	7,007
Less than 12 months, Unrealized losses	(460)	(18)
12 months or more, Fair value	0	0
12 months or more, Unrealized losses	0	0
Total, Fair value	46,250	7,007
Total, Unrealized losses	(460)	(18)
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	59,226	103,647
Less than 12 months, Unrealized losses	(3,779)	(4,956)
12 months or more, Fair value	0	0
12 months or more, Unrealized losses	0	0
Total, Fair value	59,226	103,647
Total, Unrealized losses	$ (3,779)	$ (4,956)

XML

Investments (Details 3) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Amortized cost and fair value of fixed maturity securities
Due in 1 year or less, Available for sale, Cost or amortized cost	$ 251,720
Due after 1 year through 5 years, Available for sale, Cost or amortized cost	1,040,973
Due after 5 years through 10 years, Available for sale, Cost or amortized cost	1,448,715
Due after 10 years through 15 years, Available for sale, Cost or amortized cost	964,983
Due after 15 years, Available for sale, Cost or amortized cost	952,164
Securities with contractual maturities, Available for sale, Cost or amortized cost	4,658,555
Mortgage-backed and asset-backed securities, Available for sale, Cost or amortized cost	1,160,837
Available-for-sale Debt Securities, Amortized Cost Basis	5,819,392	5,856,432
Due in 1 year or less, Available for sale, Fair value	254,696
Due after 1 year through 5 years, Available for sale, Fair value	1,089,163
Due after 5 years through 10 years, Available for sale, Fair value	1,567,744
Due after 10 years through 15 years, Available for sale, Fair value	1,040,171
Due after 15 years, Available for sale, Fair value	1,013,466
Securities with contractual maturities, Available for sale, Fair value	4,965,240
Mortgage-backed and asset-backed securities, Available for sale, Fair value	1,220,216
Available-for-sale Securities, Debt Securities, Fair value	6,185,456
Total fixed income securities, Held to maturity, Amortized cost	0	0
Total fixed income securities, Held to maturity, Fair value	$ 0	$ 0

XML

Investments (Details Textuals) (USD $)	3 Months Ended
	Mar. 31, 2013
Investment [Abstract]
Condition for categorizing the impaired securities	$ 500,000
Condition for categorizing the impaired securities, percentage	10.00%
Gross unrealized losses on fixed income securities	$ 17,800,000
Weighted-average life of mortgage-backed and asset-backed securities, Years	5.9

XML

Accumulated Other Comprehensive Income (Tables)

3 Months Ended

Mar. 31, 2013

Accumulated Other Comprehensive Income [Abstract]

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

						Foreign		Accumulated
			Net unrealized			currency		other
			investment			translation		comprehensive
			gains (losses)			adjustment		income
Balance at December 31, 2012			$	282,503			12,768		295,271
Other comprehensive loss – 2013				(25,639)	*		(1,532)		(27,171)
	Balance at March 31, 2013		$	256,864		$	11,236	$	268,100
*	Includes the following reclassification adjustments, which were recorded
	to these accounts in our consolidated statements of earnings:
	Net realized investment gain		$	8,570
	Income tax expense			2,999
		Total reclassifications	$	5,571

XML

Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Fixed income securities-available for sale
Fixed maturity securities - available for sale	$ 6,185,456	$ 6,281,781
Equity securities - available for sale, at fair value (cost: 2013 - $319,499 and 2012 - $275,827)	350,352	284,639
Held-to-maturity Securities, Fair Value	0	0
Short-term investments*	267,434	363,053
Other Investments	2,810	20,925
Restricted cash and securities	2,041	2,043
Premium, claims and other receivables	72,398	68,207
Other assets	459	349
Total assets measured at fair value	6,880,950	7,020,997
Notes payable	676,400	636,363
Accounts payable and accrued liabilities - earnout liability	9,112	9,052
Accounts payable and accrued liabilities - forward contract	1,411	3,194
Total liabilities measured at fair value	686,923	648,609
Fair Value, Inputs, Level 1 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	105,667	174,520
Equity securities - available for sale, at fair value (cost: 2013 - $319,499 and 2012 - $275,827)	350,352	284,639
Short-term investments*	193,033	251,988
Other Investments Held At Fair Value	2,810	20,925
Total assets measured at fair value	651,862	732,072
Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	6,070,174	6,107,097
Short-term investments*	74,401	111,065
Restricted cash and securities	2,041	2,043
Premium, claims and other receivables	72,398	68,207
Total assets measured at fair value	6,219,014	6,288,412
Notes payable	676,400	636,363
Accounts payable and accrued liabilities - earnout liability	2,041	2,043
Accounts payable and accrued liabilities - forward contract	1,411	3,194
Total liabilities measured at fair value	679,852	641,600
Fair Value, Inputs, Level 3 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	9,615	164
Other assets	459	349
Total assets measured at fair value	10,074	513
Accounts payable and accrued liabilities - earnout liability	7,071	7,009
Total liabilities measured at fair value	7,071	7,009
US Government Agencies Debt Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	126,249	199,607
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	105,667	174,520
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	20,582	25,087
US States and Political Subdivisions Debt Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	1,043,001	1,065,811
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	1,043,001	1,065,811
Special Purpose Revenue Bonds Of States Municipalities And Political Subdivisions [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	2,251,190	2,200,331
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	2,241,742	2,200,331
Special Purpose Revenue Bonds Of States Municipalities And Political Subdivisions [Member] | Fair Value, Inputs, Level 3 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	9,448
Corporate Debt Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	1,301,625	1,315,170
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	1,301,458	1,315,006
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	167	164
Residential Mortgage Backed Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	655,623	664,887
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	655,623	664,887
Commercial Mortgage Backed Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	522,063	524,289
Commercial Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	522,063	524,289
Asset-backed Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	42,530	33,275
Asset-backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	42,530	33,275
Foreign Government Debt Securities [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	243,175	278,411
Foreign Government Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed income securities-available for sale
Fixed maturity securities - available for sale	$ 243,175	$ 278,411

XML

Reinsurance (Details 1) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Components of reinsurance recoverables
Reinsurance recoverable on paid losses	$ 54,931	$ 54,675
Reinsurance recoverable on outstanding losses	461,886	479,026
Reinsurance recoverable on incurred but not reported losses	551,034	539,021
Reserve for uncollectible reinsurance	(1,500)	(1,500)
Total reinsurance recoverables	$ 1,066,351	$ 1,071,222

XML

Supplemental Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Supplemental Information
Income taxes paid	$ 32,142	$ 5,784
Interest paid	1,390	1,071
Dividends declared but not paid at year end	16,579	15,863
Treasury stock payable		$ 4,607

XML

Stock based compensation (Details 3) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Restricted stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares	129
Weighted-average grant date fair value, awarded	$ 40.73
Aggregate fair value	$ 5,254
Restricted stock [Member] | MinimumMember
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year
Restricted stock [Member] | MaximumMember
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	16
Weighted-average grant date fair value, awarded	$ 40.66
Aggregate fair value	661
Restricted stock units (RSU) [Member] | MinimumMember
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Restricted stock units (RSU) [Member] | MaximumMember
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
StockOptionsMember
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares	109
Weighted-average grant date fair value, awarded	$ 7.83
Aggregate fair value	$ 849
StockOptionsMember | MinimumMember
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year
StockOptionsMember | MaximumMember
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	5 years

XML

Consolidated Statement of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Statement of Income and Comprehensive Income [Abstract]
Net earnings	$ 105,850	$ 82,584
Investment gains (losses):
Investment gains (losses) during the period	(30,395)	21,640
Income tax charge (benefit)	(10,327)	7,303
Investments gains (losses), net of tax	(20,068)	14,337
Less reclassification adjustments for:
Gains included in net earnings	8,570	171
Income tax charge	2,999	60
Total reclassifications	5,571	111
Net unrealized investment gains (losses)	(25,639)	14,226
Foreign currency translation adjustment	(2,056)	2,533
Income tax charge (benefit)	(524)	123
Foreign currency translation adjustment, net of tax	(1,532)	2,410
Other comprehensive income (loss)	(27,171)	16,636
Comprehensive income	$ 78,679	$ 99,220

XML

General Information (Details Textuals)	3 Months Ended
	Mar. 31, 2013
General Information [Abstract]
Number of countries in which The Company underwrites non-correlated specialty insurance products	180

XML

Reinsurance (Details 4) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Amounts of letters of credit and cashavailable to us as collateral, plus other potential offsets
Payables to reinsurers	$ 161,271	$ 190,228
Letters of credit	83,053	89,832
Cash	89,215	116,597
Total credits	$ 333,539	$ 396,657

XML

Earnings Per Share (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Earnings Per Share, Basic and Diluted
Net earnings	$ 105,850	$ 82,584
Less: net earnings attributable to unvested restricted stock	(1,782)	(1,463)
Net earnings available to common stock	$ 104,068	$ 81,121
Weighted-average common shares outstanding	99,056	102,034
Dilutive effect of outstanding options (determined using treasury stock method)	231	159
Weighted-average common shares and potential common shares outstanding	99,287	102,193
Anti-dilutive stock options not included in treasury stock method computation	47	2,224

XML

Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value Measurements [Abstract]

Assets and liabilities at fair value

		Level 1		Level 2		Level 3		Total
March 31, 2013
Fixed maturity securities
	U.S. government and government agency securities	$	105,667	$	20,582	$	0	$	126,249
	Fixed maturity securities of states, municipalities and
	political subdivisions		0		1,043,001		0		1,043,001
	Special purpose revenue bonds of states, municipalities
	and political subdivisions		0		2,241,742		9,448		2,251,190
	Corporate securities		0		1,301,458		167		1,301,625
	Residential mortgage-backed securities		0		655,623		0		655,623
	Commercial mortgage-backed securities		0		522,063		0		522,063
	Asset-backed securities		0		42,530		0		42,530
	Foreign government securities		0		243,175		0		243,175
	Total fixed maturity securities		105,667		6,070,174		9,615		6,185,456
Equity securities			350,352		0		0		350,352
Short-term investments*			193,033		74,401		0		267,434
Other investments			2,810		0		0		2,810
Restricted cash and securities			0		2,041		0		2,041
Premium, claims and other receivables			0		72,398		0		72,398
Other assets			0		0		459		459
	Total assets measured at fair value	$	651,862	$	6,219,014	$	10,074	$	6,880,950
Notes payable*		$	0	$	676,400	$	-	$	676,400
Accounts payable and accrued liabilities - forward contract			0		1,411		-		1,411
Accounts payable and accrued liabilities - earnout liability			0		2,041		7,071		9,112
	Total liabilities measured at fair value	$	0	$	679,852	$	7,071	$	686,923

		Level 1		Level 2		Level 3		Total
December 31, 2012
Fixed maturity securities
	U.S. government and government agency securities	$	174,520	$	25,087	$	0	$	199,607
	Fixed maturity securities of states, municipalities and
	political subdivisions		0		1,065,811		0		1,065,811
	Special purpose revenue bonds of states, municipalities
	and political subdivisions		0		2,200,331		0		2,200,331
	Corporate securities		0		1,315,006		164		1,315,170
	Residential mortgage-backed securities		0		664,887		0		664,887
	Commercial mortgage-backed securities		0		524,289		0		524,289
	Asset-backed securities		0		33,275		0		33,275
	Foreign government securities		0		278,411		0		278,411
	Total fixed maturity securities		174,520		6,107,097		164		6,281,781
Equity securities			284,639		0		0		284,639
Short-term investments*			251,988		111,065		0		363,053
Other investments			20,925		0		0		20,925
Restricted cash and securities			0		2,043		0		2,043
Premium, claims and other receivables			0		68,207		0		68,207
Other assets			0		0		349		349
	Total assets measured at fair value	$	732,072	$	6,288,412	$	513	$	7,020,997
Notes payable*		$	-	$	636,363	$	-	$	636,363
Accounts payable and accrued liabilities - forward contract			-		3,194		-		3,194
Accounts payable and accrued liabilities - earnout liability			-		2,043		7,009		9,052
	Total liabilities measured at fair value	$	0	$	641,600	$	7,009	$	648,609

Changes in fair value of level 3 assets

	2013								2012
							Accounts
							payable
	Fixed						and		Fixed
	maturity		Other		Total		accrued		maturity		Other		Total
	securities		assets		assets		liabilities		securities		assets		assets
Balance at beginning of year	$	164	$	349	$	513	$	7,009	$	1,170	$	1,516	$	2,686
Purchases		9,430		0		9,430		0		0		0		0
Gains reported in:
Net earnings		6		110		116		62		0		215		215
Other comprehensive income		15		0		15		0		2		0		2
Transfers out of Level 3		0		0		0		0		(1,015)		0		(1,015)
Balance at March 31	$	9,615	$	459	$	10,074	$	7,071	$	157	$	1,731	$	1,888