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 June 30, 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 July 26, 2013, there were approximately 100.1 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 — June 30, 2013 and December 31, 2012		5
Consolidated Statements of Earnings — Six and three months ended June 30, 2013 and 2012		6
Consolidated Statements of Comprehensive Income — Six and three months ended June  30, 2013 and 2012		7
Consolidated Statement of Changes in Shareholders’ Equity — Six months ended June 30, 2013		8
Consolidated Statements of Cash Flows — Six months ended June 30, 2013 and 2012		9
Notes to Consolidated Financial Statements		10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		43
Item 4. Controls and Procedures		43
Part II. OTHER INFORMATION
Item 1. Legal Proceedings		44
Item 1A. Risk Factors		44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 3. Defaults Upon Senior Securities		44
Item 4. Mine Safety Disclosures		44
Item 5. Other Information		44
Item 6. Exhibits		45
Signatures		46

2

FORWARD-LOOKING STATEMENTS

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

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

• the effects of catastrophe losses,

• the cyclical nature of the insurance business,

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

• the impact of past and future potential 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,

3

• attraction and retention of qualified employees,

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

• impairment of goodwill,

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

• fluctuations in foreign exchange rates,

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

• difficulties with outsourcing relationships, and

• change of control.

We 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)

	June 30, 2013		December 31, 2012
ASSETS
Investments
Fixed maturity securities – available for sale, at fair value (amortized cost: 2013 – $5,943,160 and 2012 – $5,856,432)	$	6,094,640	$	6,281,781
Equity securities – available for sale, at fair value (cost: 2013 – $323,249 and 2012 – $275,827)		347,840		284,639
Short-term investments, at cost (approximates fair value)		216,793		363,053
Other investments, at fair value (cost: 2013 – $16 and 2012 – $18,391)		18		20,925
Total investments		6,659,291		6,950,398
Cash		39,353		71,390
Restricted cash and securities		115,031		101,480
Premium, claims and other receivables		648,438		549,725
Reinsurance recoverables		1,086,435		1,071,222
Ceded unearned premium		291,939		256,988
Ceded life and annuity benefits		57,841		58,641
Deferred policy acquisition costs		202,322		191,960
Goodwill		885,999		885,860
Other assets		166,845		130,143
Total assets	$	10,153,494	$	10,267,807
LIABILITIES
Loss and loss adjustment expense payable	$	3,814,684	$	3,767,850
Life and annuity policy benefits		57,841		58,641
Reinsurance, premium and claims payable		337,666		294,621
Unearned premium		1,189,520		1,069,956
Deferred ceding commissions		82,119		74,609
Notes payable		639,021		583,944
Accounts payable and accrued liabilities		527,260		875,574
Total liabilities		6,648,111		6,725,195
SHAREHOLDERS’ EQUITY
Common stock, $1.00 par value; 250,000 shares authorized (shares issued: 2013 – 125,350 and 2012 – 125,114; outstanding: 2013 – 100,140 and 2012 – 100,928)		125,350		125,114
Additional paid-in capital		1,063,949		1,052,253
Retained earnings		2,917,086		2,756,166
Accumulated other comprehensive income		126,119		295,271
Treasury stock, at cost (shares: 2013 – 25,210 and 2012 – 24,186)		(727,121)		(686,192)
Total shareholders’ equity		3,505,383		3,542,612
Total liabilities and shareholders’ equity	$	10,153,494	$	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)

	Six months ended June 30,				Three months ended June 30,
	2013		2012		2013		2012
REVENUE
Net earned premium	$	1,122,542	$	1,112,472	$	561,356	$	565,331
Net investment income		111,433		110,300		55,668		53,290
Other operating income		16,629		12,389		7,784		7,188
Net realized investment gain		13,193		7,047		4,623		6,876
Other-than-temporary impairment credit losses		-		(397)		-		(397)
Total revenue		1,263,797		1,241,811		629,431		632,288
EXPENSE
Loss and loss adjustment expense, net		672,171		665,753		339,474		336,825
Policy acquisition costs, net		137,745		143,934		70,796		74,490
Other operating expense		164,572		167,706		87,719		80,424
Interest expense		13,082		13,139		6,611		6,230
Total expense		987,570		990,532		504,600		497,969
Earnings before income tax expense		276,227		251,279		124,831		134,319
Income tax expense		82,215		75,202		36,669		40,826
Net earnings	$	194,012	$	176,077	$	88,162	$	93,493
Earnings per common share
Basic	$	1.93	$	1.71	$	0.88	$	0.92
Diluted	$	1.92	$	1.71	$	0.87	$	0.92

See Notes to Consolidated Financial Statements.

6

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(unaudited, in thousands)

	Six months ended June 30,				Three months ended June 30,
	2013		2012		2013		2012
Net earnings	$	194,012	$	176,077	$	88,162	$	93,493
Other comprehensive income (loss)
Investment gains (losses):
Investment gains (losses) during the period		(247,429)		61,313		(217,034)		39,673
Income tax charge (benefit)		(87,443)		21,804		(77,116)		14,501
Investment gains (losses), net of tax		(159,986)		39,509		(139,918)		25,172
Less reclassification adjustments for:
Gains included in net earnings		13,193		6,659		4,623		6,488
Income tax charge		4,618		2,331		1,619		2,271
Gains included in net earnings, net of tax		8,575		4,328		3,004		4,217
Net unrealized investment gains (losses)		(168,561)		35,181		(142,922)		20,955
Foreign currency translation adjustment		(1,145)		(3,313)		911		(5,846)
Income tax benefit		(554)		(249)		(30)		(372)
Foreign currency translation adjustment, net of tax		(591)		(3,064)		941		(5,474)
Other comprehensive income (loss)		(169,152)		32,117		(141,981)		15,481
Comprehensive income (loss)	$	24,860	$	208,194	$	(53,819)	$	108,974

See Notes to Consolidated Financial Statements.

7

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity

Six months ended June 30, 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		-		-		194,012		-		-		194,012
Other comprehensive loss		-		-		-		(169,152)		-		(169,152)
Issuance of 250 shares for exercise of options, including tax effect		250		7,158		-		-		-		7,408
Purchase of 1,024 common shares		-		-		-		-		(40,929)		(40,929)
Stock-based compensation		(14)		4,538		-		-		-		4,524
Cash dividends declared, $0.33 per share		-		-		(33,092)		-		-		(33,092)
Balance at June 30, 2013	$	125,350	$	1,063,949	$	2,917,086	$	126,119	$	(727,121)	$	3,505,383

See Notes to Consolidated Financial Statements.

8

HCC Insurance Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited, in thousands)

	Six months ended June 30,
	2013		2012
Operating activities
Net earnings	$	194,012	$	176,077
Adjustments to reconcile net earnings to net cash provided by operating activities:
Change in premium, claims and other receivables		(99,897)		(68,083)
Change in reinsurance recoverables		(17,018)		2,921
Change in ceded unearned premium		(35,032)		(32,951)
Change in loss and loss adjustment expense payable		52,026		84,925
Change in unearned premium		119,759		116,448
Change in reinsurance, premium and claims payable, excluding restricted cash		43,237		3,290
Change in accounts payable and accrued liabilities		(119,103)		(44,867)
Stock-based compensation expense		6,955		6,168
Depreciation and amortization expense		9,093		9,133
Gain on investments		(13,193)		(6,650)
Other, net		(38,849)		(1,860)
Cash provided by operating activities		101,990		244,551
Investing activities
Sales of available for sale fixed maturity securities		171,801		218,572
Sales of equity securities		44,308		1,739
Sales of other investments		23,719		-
Maturity or call of available for sale fixed maturity securities		375,924		325,046
Maturity or call of held to maturity fixed maturity securities		-		28,579
Cost of available for sale fixed maturity securities acquired		(756,782)		(628,278)
Cost of equity securities acquired		(114,685)		(94,706)
Change in short-term investments		145,977		(62,621)
Payments for purchase of businesses, net of cash received		(8,214)		(32,143)
Other, net		(2,191)		(6,982)
Cash used by investing activities		(120,143)		(250,794)
Financing activities
Advances on line of credit		70,000		140,000
Payments on line of credit		(15,000)		(28,000)
Sale of common stock		7,408		13,644
Purchase of common stock		(46,586)		(126,442)
Dividends paid		(33,250)		(32,002)
Other, net		3,544		(2,323)
Cash used by financing activities		(13,884)		(35,123)
Net decrease in cash		(32,037)		(41,366)
Cash at beginning of year		71,390		104,550
Cash at end of period	$	39,353	$	63,184

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.

Goodwill

An indicator of impairment of goodwill exists when the fair value of a reporting unit is less than its carrying value. We conducted our annual goodwill impairment test as of June 30, 2013, which is consistent with the timeframe for our annual assessment in prior years. Based on our determination of the fair value of each of our five reporting units, the fair value of each reporting unit exceeded its carrying amount as of June 30, 2013.

(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
June 30, 2013
U.S. government and government agency securities	$	120,951	$	3,076	$	(363)	$	123,664
Fixed maturity securities of states, municipalities and political subdivisions		974,153		60,281		(4,617)		1,029,817
Special purpose revenue bonds of states, municipalities and political subdivisions		2,218,302		91,093		(37,775)		2,271,620
Corporate securities		1,215,761		34,077		(13,193)		1,236,645
Residential mortgage-backed securities		601,437		17,204		(13,146)		605,495
Commercial mortgage-backed securities		529,714		19,377		(12,892)		536,199
Asset-backed securities		54,478		219		(406)		54,291
Foreign government securities		228,364		9,755		(1,210)		236,909
Total fixed maturity securities	$	5,943,160	$	235,082	$	(83,602)	$	6,094,640
Equity securities	$	323,249	$	31,169	$	(6,578)	$	347,840

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
June 30, 2013
Fixed maturity securities
U.S. government and government agency securities	$	20,667	$	(363)	$	-	$	-	$	20,667	$	(363)
Fixed maturity securities of states, municipalities and political subdivisions		97,408		(4,617)		-		-		97,408		(4,617)
Special purpose revenue bonds of states, municipalities and political subdivisions		648,672		(37,753)		1,197		(22)		649,869		(37,775)
Corporate securities		419,283		(12,406)		12,534		(787)		431,817		(13,193)
Residential mortgage-backed securities		278,062		(13,146)		-		-		278,062		(13,146)
Commercial mortgage-backed securities		224,294		(12,892)		-		-		224,294		(12,892)
Asset-backed securities		18,066		(406)		-		-		18,066		(406)
Foreign government securities		67,832		(1,210)		-		-		67,832		(1,210)
Equity securities		98,086		(6,237)		2,832		(341)		100,918		(6,578)
Total	$	1,872,370	$	(89,030)	$	16,563	$	(1,150)	$	1,888,933	$	(90,180)

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 six months of 2013 and $0.4 million in the first six months and second quarter of 2012.

We do not consider the $90.2 million of gross unrealized losses on fixed maturity and equity securities in our portfolio at June 30, 2013 to be other-than-temporary impairments because: 1) as of June 30, 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 primarily relates to non-credit factors, such as interest rate changes and market conditions that occurred in the second quarter of 2013.

The amortized cost and fair value of our fixed maturity securities at June 30, 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 6.2 years at June 30, 2013.

	Cost or amortized cost		Fair value
Due in 1 year or less	$	217,012	$	219,433
Due after 1 year through 5 years		1,062,230		1,098,261
Due after 5 years through 10 years		1,456,485		1,524,386
Due after 10 years through 15 years		1,020,759		1,045,896
Due after 15 years		1,001,045		1,010,679
Securities with contractual maturities		4,757,531		4,898,655
Mortgage-backed and asset-backed securities		1,185,629		1,195,985
Total fixed maturity securities	$	5,943,160	$	6,094,640

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:

	Six months ended June 30,				Three months ended June 30,
	2013		2012		2013		2012
Fixed maturity securities
Taxable	$	51,022	$	58,218	$	25,062	$	27,103
Exempt from U.S. income taxes		56,075		52,872		28,186		26,260
Total fixed maturity securities		107,097		111,090		53,248		53,363
Equity securities		7,808		993		4,228		993
Short-term investments		80		102		68		40
Other investment income		319		868		366		401
Total investment income		115,304		113,053		57,910		54,797
Investment expense		(3,871)		(2,753)		(2,242)		(1,507)
Net investment income	$	111,433	$	110,300	$	55,668	$	53,290

(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. Through June 30, 2013, this transaction was designated and qualified 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, were recognized in our foreign currency translation adjustment, which is a component of accumulated other comprehensive income. This amount 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 liability of $2.3 million at June 30, 2013, compared to $3.2 million at December 31, 2012. The liability is reported in accounts payable and accrued liabilities in our consolidated balance sheets. At inception of the hedge and quarterly thereafter through June 30, 2013, we assessed whether the hedge transaction was effective. Any ineffectiveness would have been recognized immediately as other operating expense in our consolidated statements of earnings. There was no ineffectiveness on the forward contract during 2013 or 2012.

In July 2013, we entered into a forward contract to buy 45.0 million Euros for U.S. dollars in September 2013, effectively offsetting the contract entered into in 2012. Beginning in July 2013, we have discontinued hedge accounting and any subsequent changes in the fair value of the two forward contracts will be recognized in our consolidated statements of earnings. Because the contracts offset, the net change in fair value and the impact on pretax earnings, if any, should be immaterial in the third quarter of 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 (including collateralized loan obligations), 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 June 30, 2013 or December 31, 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
June 30, 2013
Fixed maturity securities
U.S. government and government agency securities	$	103,294	$	20,370	$	-	$	123,664
Fixed maturity securities of states, municipalities and political subdivisions		-		1,029,817		-		1,029,817
Special purpose revenue bonds of states, municipalities and political subdivisions		-		2,262,343		9,277		2,271,620
Corporate securities		-		1,236,476		169		1,236,645
Residential mortgage-backed securities		-		605,495		-		605,495
Commercial mortgage-backed securities		-		536,199		-		536,199
Asset-backed securities		-		54,291		-		54,291
Foreign government securities		-		236,909		-		236,909
Total fixed maturity securities		103,294		5,981,900		9,446		6,094,640
Equity securities		347,840		-		-		347,840
Short-term investments*		115,965		100,828		-		216,793
Other investments		18		-		-		18
Restricted cash and securities		-		1,848		-		1,848
Premium, claims and other receivables		-		62,118		-		62,118
Other assets		-		-		589		589
Total assets measured at fair value	$	567,117	$	6,146,694	$	10,035	$	6,723,846
Notes payable*	$	-	$	688,240	$	-	$	688,240
Accounts payable and accrued liabilities - forward contract		-		2,283		-		2,283
Accounts payable and accrued liabilities - earnout liability		-		1,848		7,133		8,981
Total liabilities measured at fair value	$	-	$	692,371	$	7,133	$	699,504

* 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
							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		-		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
Gains (losses) reported in:
Net earnings		15		130		145		62		(1)		116		115
Other comprehensive income (loss)		(184)		-		(184)		-		3		-		3
Balance at June 30	$	9,446	$	589	$	10,035	$	7,133	$	159	$	1,847	$	2,006

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 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.

	Six months ended June 30,				Three months ended June 30,
	2013		2012		2013		2012
Direct written premium	$	1,294,681	$	1,222,766	$	713,110	$	677,996
Reinsurance assumed		234,967		251,476		96,333		113,557
Reinsurance ceded		(321,430)		(273,750)		(180,409)		(149,465)
Net written premium	$	1,208,218	$	1,200,492	$	629,034	$	642,088
Direct earned premium	$	1,237,629	$	1,193,537	$	621,224	$	602,354
Reinsurance assumed		171,308		168,882		86,036		86,544
Reinsurance ceded		(286,395)		(249,947)		(145,904)		(123,567)
Net earned premium	$	1,122,542	$	1,112,472	$	561,356	$	565,331
Direct loss and loss adjustment expense	$	693,480	$	727,921	$	335,968	$	362,529
Reinsurance assumed		110,708		61,035		71,017		24,326
Reinsurance ceded		(132,017)		(123,203)		(67,511)		(50,030)
Net loss and loss adjustment expense	$	672,171	$	665,753	$	339,474	$	336,825

17

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

	Six months ended June 30,				Three months ended June 30,
	2013		2012		2013		2012
Policy acquisition costs	$	204,031	$	198,156	$	103,745	$	102,421
Ceding commissions		(66,286)		(54,222)		(32,949)		(27,931)
Net policy acquisition costs	$	137,745	$	143,934	$	70,796	$	74,490
The table below shows the components of our reinsurance recoverables in our consolidated balance sheets.
					June 30,		December 31,
					2013		2012
Reinsurance recoverable on paid losses					$	84,272	$	54,675
Reinsurance recoverable on outstanding losses						457,227		479,026
Reinsurance recoverable on incurred but not reported losses						546,436		539,021
Reserve for uncollectible reinsurance						(1,500)		(1,500)
Total reinsurance recoverables					$	1,086,435	$	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 June 30, 2013 and December 31, 2012.
					June 30,		December 31,
					2013		2012
Payables to reinsurers					$	208,483	$	190,228
Letters of credit						87,033		89,832
Cash						89,469		116,597
Total credits					$	384,985	$	396,657
The tables below show the calculation of net reserves, net unearned premium and net deferred policy acquisition costs.
					June 30,		December 31,
					2013		2012
Loss and loss adjustment expense payable					$	3,814,684	$	3,767,850
Reinsurance recoverable on outstanding losses						(457,227)		(479,026)
Reinsurance recoverable on incurred but not reported losses						(546,436)		(539,021)
Net reserves					$	2,811,021	$	2,749,803
Unearned premium					$	1,189,520	$	1,069,956
Ceded unearned premium						(291,939)		(256,988)
Net unearned premium					$	897,581	$	812,968
Deferred policy acquisition costs					$	202,322	$	191,960
Deferred ceding commissions						(82,119)		(74,609)
Net deferred policy acquisition costs					$	120,203	$	117,351

18

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

(6) Liability for Unpaid Loss and Loss Adjustment Expense

In the first six months and second quarter of 2013, we recognized favorable net loss development of $9.5 million in our U.S. Surety & Credit segment and $2.3 million in our International segment, resulting from our quarterly review of reserves. Our second quarter review indicated that continued lower than expected claims activity related to older underwriting years was contributing to a growing redundancy in our U.S. Surety & Credit segment. As a result, we recognized favorable net development of $3.7 million and $5.8 million for our surety and credit lines of business, respectively, related to the 2010 and prior underwriting years. In the International segment, we released prior year catastrophe reserves related to the 2010 New Zealand earthquake, due to settlement of these claims in 2013. We recognized no loss development in the first six months or second quarter of 2012.

A recent ruling against another insurance company by the Spanish supreme court regarding a specific class of Spanish surety bonds, which are similar to those written by our Spanish subsidiary, may result in an increase in our recorded loss reserves for surety claims in our International segment. At the present time, it is not possible for us to determine the impact, if any, on our recorded reserves until we complete our analysis of the applicability of this ruling to our bonds. The court’s ruling is expected to be published in the third quarter of 2013.

(7) Notes Payable

Our notes payable consisted of the following:

	June 30, 2013		December 31, 2012
6.30% Senior Notes	$	299,021	$	298,944
$600.0 million Revolving Loan Facility		340,000		285,000
Total notes payable	$	639,021	$	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. The weighted-average interest rate on borrowings under the Facility at June 30, 2013 was 1.44%. The borrowings and letters of credit issued under the Facility reduced our available borrowing capacity on the Facility to $253.6 million at June 30, 2013.

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.

We were in compliance with debt covenants related to our 6.30% Senior Notes, the Facility and the Standby Facility at June 30, 2013.

19

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

(8) 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				(25,639)		(1,532)		(27,171)
Balance at March 31, 2013				256,864		11,236		268,100
Other comprehensive income (loss)				(142,922)		941		(141,981)
Balance at June 30, 2013			$	113,942	$	12,177	$	126,119
The reductions in net unrealized investment gains (losses) during 2013, shown in the table above, included reclassifications of amounts into net earnings. The reclassifications recorded in our consolidated statements of earnings were as follows:
					Six months ended June 30, 2013		Three  months ended June 30, 2013
Net realized investment gain					$	13,193	$	4,623
Income tax expense						4,618		1,619
Total reclassifications					$	8,575	$	3,004
(9) Earnings Per Share The following table details the numerator and denominator used in our earnings per share calculations.
	Six months ended June 30,				Three months ended June 30,
	2013		2012		2013		2012
Net earnings	$	194,012	$	176,077	$	88,162	$	93,493
Less: net earnings attributable to unvested restricted stock		(3,227)		(3,238)		(1,445)		(1,775)
Net earnings available to common stock	$	190,785	$	172,839	$	86,717	$	91,718
Weighted-average common shares outstanding		98,965		100,802		98,870		99,563
Dilutive effect of outstanding securities (determined using treasury stock method)		245		181		251		288
Weighted-average common shares and potential common shares outstanding		99,210		100,983		99,121		99,851
Anti-dilutive securities not included in treasury stock method computation		89		1,990		109		642

20

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

(10) Stock-Based Compensation

In 2013, we granted the following shares of common stock, shares of restricted stock, 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
Common stock		20	$	42.38	$	840		None
Restricted stock		160		40.83		6,544		1-4 years
Restricted stock units		16		40.66		661		4 years
Stock options		109		7.83		849		1-5 years

For grants of common stock, we measure fair value based on the closing stock price of our common stock on the grant date and expense it on the grant date.

Certain awards of restricted stock and restricted stock 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 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 awards 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. This restricted stock vests 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 shares to vest. No dividends are earned during the vesting period on these shares.

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.

(11) 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.

21

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

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 periods 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
Six months ended June 30, 2013
Net earned premium	$	184,963	$	185,223	$	434,947	$	97,231	$	210,412	$	-	$	9,766	$	1,122,542
Other revenue		11,429		325		2,330		621		1,902		124,626		22		141,255
Segment revenue		196,392		185,548		437,277		97,852		212,314		124,626		9,788		1,263,797
Loss and LAE		107,394		111,821		320,566		18,851		104,916		-		8,623		672,171
Other expense		52,757		35,872		63,709		53,681		71,921		-		37,459		315,399
Segment expense		160,151		147,693		384,275		72,532		176,837		-		46,082		987,570
Segment pretax earnings (loss)	$	36,241	$	37,855	$	53,002	$	25,320	$	35,477	$	124,626	$	(36,294)	$	276,227
Six months ended June 30, 2012
Net earned premium	$	177,852	$	200,905	$	415,028	$	100,844	$	196,472	$	-	$	21,371	$	1,112,472
Other revenue		6,885		267		2,494		415		2,135		116,950		193		129,339
Segment revenue		184,737		201,172		417,522		101,259		198,607		116,950		21,564		1,241,811
Loss and LAE		100,927		134,323		306,918		26,723		79,623		-		17,239		665,753
Other expense		59,767		36,207		61,102		55,523		68,765		-		43,415		324,779
Segment expense		160,694		170,530		368,020		82,246		148,388		-		60,654		990,532
Segment pretax earnings (loss)	$	24,043	$	30,642	$	49,502	$	19,013	$	50,219	$	116,950	$	(39,090)	$	251,279

22

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

	U.S. Property & Casualty		Professional Liability		Accident &  Health		U.S. Surety & Credit		International		Investing		Corporate &  Other		Consolidated
Three months ended June 30, 2013
Net earned premium	$	91,432	$	92,444	$	217,822	$	50,054	$	105,270	$	-	$	4,334	$	561,356
Other revenue		4,245		739		1,140		384		1,124		60,291		152		68,075
Segment revenue		95,677		93,183		218,962		50,438		106,394		60,291		4,486		629,431
Loss and LAE		55,238		55,435		160,139		5,637		58,997		-		4,028		339,474
Other expense		25,452		18,124		32,583		27,402		36,212		-		25,353		165,126
Segment expense		80,690		73,559		192,722		33,039		95,209		-		29,381		504,600
Segment pretax earnings (loss)	$	14,987	$	19,624	$	26,240	$	17,399	$	11,185	$	60,291	$	(24,895)	$	124,831
Three months ended June 30, 2012
Net earned premium	$	88,834	$	99,467	$	208,147	$	53,115	$	105,188	$	-	$	10,580	$	565,331
Other revenue		4,522		134		1,157		200		941		59,769		234		66,957
Segment revenue		93,356		99,601		209,304		53,315		106,129		59,769		10,814		632,288
Loss and LAE		51,666		65,168		154,396		15,690		41,856		-		8,049		336,825
Other expense		30,045		18,676		30,948		27,403		36,612		-		17,460		161,144
Segment expense		81,711		83,844		185,344		43,093		78,468		-		25,509		497,969
Segment pretax earnings (loss)	$	11,645	$	15,757	$	23,960	$	10,222	$	27,661	$	59,769	$	(14,695)	$	134,319

(12) Commitments and Contingencies

Catastrophe 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 $26.6 million, primarily due to European floods during the second quarter and various small catastrophes, compared to $12.3 million in the first six months of 2012, primarily due to United States spring storms and 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.

23

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

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 development on losses that were incurred prior to our sale of a subsidiary. At June 30, 2013, we have an accrued liability of $7.7 million to cover our obligations or anticipated payments under these indemnifications.

(13) Supplemental Information

Supplemental cash flow information was as follows:

	Six months ended June 30,				Three months ended June 30,
	2013		2012		2013		2012
Income taxes paid	$	99,941	$	39,448	$	67,799	$	33,664
Interest paid		13,322		12,000		11,932		10,929
Proceeds from sales of available for sale fixed maturity securities		171,801		218,572		13,666		153,469
Proceeds from sales of equity securities		44,308		1,739		26,500		1,739
Dividends declared but not paid at end of period		16,523		15,618

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

The following Management’s Discussion and Analysis should be read in conjunction with our Consolidated Financial Statements and the related Notes as of June 30, 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 $45.16 on July 26, 2013, resulting in market capitalization of $4.5 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 six months and quarter ended June 30, 2013 are as follows:

• We had consolidated shareholders’ equity of $3.5 billion, with a book value per share of $35.00.

• We generated year-to-date net earnings of $194.0 million, or $1.92 per diluted share. Our second quarter earnings were $88.2 million, or $0.87 per diluted share.

• We produced total revenue of $1.3 billion and $629.4 million in the first six months and second quarter, respectively.

• Our year-to-date net loss ratio was 59.9% and our combined ratio was 84.5%.

• Our debt to capital ratio was 15.4%.

• We purchased $40.9 million of our common stock at an average cost of $39.96 per share in the first six months of 2013. At June 30, 2013, we had $208.9 million remaining under our current $300.0 million share buyback authorization.

• We declared dividends of $0.33 per share and paid $33.3 million of dividends in the first six months of 2013.

Comparisons in the following sections refer to the first six months 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 11, “Segments” to the Consolidated Financial Statements).

25

Results of Operations

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

	Six months ended June 30,						Three months ended June 30,
	2013			2012			2013			2012
Net earnings	$	194,012		$	176,077		$	88,162		$	93,493
Earnings per diluted share	$	1.92		$	1.71		$	0.87		$	0.92
Net loss ratio		59.9	%		59.8	%		60.5	%		59.6	%
Expense ratio*		24.6			25.5			24.8			25.6
Combined ratio*		84.5	%		85.3	%		85.3	%		85.2	%

* 2012 adjusted to reflect change in Exited Lines.

In the second quarter of 2013, we recognized $15.0 million of pretax catastrophe losses related to European floods, including $2.0 million of inward reinstatement premium. In the first quarter of 2012, we recognized $4.0 million of pretax catastrophe losses from United States spring storms. The 2013 losses were in the property treaty line of business within our International segment, and the 2012 losses were primarily in the public risk line of business within our U.S. Property & Casualty segment. Various other catastrophes that were not individually significant events to us or the industry (which we refer to as “small catastrophes”) that impacted our property treaty line of business totaled $11.6 million in the first six months of 2013 ($6.4 million in second quarter) and $8.3 million ($4.7 million) in the comparable periods of 2012. The following table summarizes our catastrophe losses, as well as the impact on our net earnings and key metrics in 2013 and 2012:

	Six months ended June 30,						Three months ended June 30,
	2013			2012			2013			2012
Gross losses	$	29,407		$	14,795		$	19,801		$	7,735
Net losses, after reinsurance	$	29,921		$	12,668		$	22,935		$	5,835
Reinstatement premium, net		(3,291)			(411)			(1,515)			(1,182)
Total net catastrophe losses	$	26,630		$	12,257		$	21,420		$	4,653
Impact of net catastrophe losses on:
Net earnings per diluted share	$	(0.17)		$	(0.08)		$	(0.14)		$	(0.03)
Net loss ratio (percentage points)		2.5	%		1.1	%		4.0	%		0.9	%
Combined ratio (percentage points)		2.4	%		1.1	%		4.0	%		0.9	%

Revenue

Total revenue increased $22.0 million in the first six months of 2013, compared to 2012, primarily due to higher net earned premium and net realized investment gains. Total revenue decreased in the second quarter of 2013, compared to the second quarter of 2012, primarily due to lower net earned premium.

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

	Six months ended June 30,				Three months ended June 30,
	2013		2012		2013		2012
U.S. Property & Casualty	$	358,388	$	318,613	$	183,251	$	165,466
Professional Liability		246,393		245,750		142,374		144,505
Accident & Health		430,470		412,875		214,909		207,548
U.S. Surety & Credit		111,438		110,702		59,189		56,209
International		373,193		364,911		205,386		207,235
Exited Lines		9,766		21,391		4,334		10,590
Total gross written premium	$	1,529,648	$	1,474,242	$	809,443	$	791,553
U.S. Property & Casualty	$	208,869	$	197,894	$	104,987	$	105,566
Professional Liability		163,761		171,137		96,135		100,224
Accident & Health		429,868		412,371		214,600		207,273
U.S. Surety & Credit		98,128		96,096		52,624		51,392
International		297,826		301,623		156,354		167,053
Exited Lines		9,766		21,371		4,334		10,580
Total net written premium	$	1,208,218	$	1,200,492	$	629,034	$	642,088
U.S. Property & Casualty	$	184,963	$	177,852	$	91,432	$	88,834
Professional Liability		185,223		200,905		92,444		99,467
Accident & Health		434,947		415,028		217,822		208,147
U.S. Surety & Credit		97,231		100,844		50,054		53,115
International		210,412		196,472		105,270		105,188
Exited Lines		9,766		21,371		4,334		10,580
Total net earned premium	$	1,122,542	$	1,112,472	$	561,356	$	565,331

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 reinsurance and structured insurance products; 2) the Accident & Health segment, from the growth of our medical stop-loss product and 3) the International segment, from increases in our energy and property treaty lines of business in the first quarter of 2013. This growth was partially offset by lower premium in Exited Lines related to two products exited in the third quarter of 2012. 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, increased 1% year-over-year due to growth in our investment portfolio, partially offset by the effect of reduced reinvestment yields. The cost basis of our fixed maturity and equity securities portfolio increased 8% from $5.8 billion at June 30, 2012 to $6.3 billion at June 30, 2013. The growth resulted primarily from cash flow from operations.

27

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.

	Six months ended June 30,						Three months ended June 30,
	2013			2012			2013			2012
U.S. Property & Casualty	$	107,394		$	100,927		$	55,238		$	51,666
Professional Liability		111,821			134,323			55,435			65,168
Accident & Health		320,566			306,918			160,139			154,396
U.S. Surety & Credit		18,851			26,723			5,637			15,690
International		104,916			79,623			58,997			41,856
Exited Lines		8,623			17,239			4,028			8,049
Net loss and loss adjustment expense	$	672,171		$	665,753		$	339,474		$	336,825
U.S. Property & Casualty		58.1	%		56.7	%		60.4	%		58.2	%
Professional Liability		60.4			66.9			60.0			65.5
Accident & Health		73.7			74.0			73.5			74.2
U.S. Surety & Credit		19.4			26.5			11.3			29.5
International		49.9			40.5			56.0			39.8
Consolidated net loss ratio		59.9	%		59.8	%		60.5	%		59.6	%
Consolidated accident year net loss ratio		60.9	%		59.8	%		62.6	%		59.6	%

Loss and loss adjustment expense increased marginally in the first six months of 2013, compared to the same period in 2012, primarily due to 1) our Accident & Health segment, from growth of our medical stop-loss product writings and 2) our International segment, from higher catastrophe losses and growth of our energy and property treaty lines of business, partially offset by 3) favorable development in 2013, primarily in our U.S. Surety & Credit segment and 4) decreased loss expense in our Professional Liability segment related to lower net earned premium and lower losses in our diversified financial products (DFP) line of business. We recognized $11.8 million of favorable prior year loss development in the first six months and second quarter of 2013 and none in the corresponding periods of 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.

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.

	Six months ended June 30,						Three months ended June 30,
	2013			2012			2013			2012
Net reserves for loss and loss adjustment expense payable at beginning of period	$	2,749,803		$	2,683,483		$	2,761,242		$	2,699,717
Net reserve additions from acquired businesses		-			14,705			-			-
Foreign currency adjustment		(24,627)			(4,456)			(2,898)			(21,579)
Net loss and loss adjustment expense		672,171			665,753			339,474			336,825
Net loss and loss adjustment expense payments		(586,326)			(610,490)			(286,797)			(265,968)
Net reserves for loss and loss adjustment expense payable at end of period	$	2,811,021		$	2,748,995		$	2,811,021		$	2,748,995
Net paid loss ratio		52.2	%		54.9	%		51.1	%		47.0	%

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The amount of claims paid fluctuates year-over-year due to the timing of claims settlement, the occurrence of catastrophic events and commutations, and the mix of our business. In the first quarter of 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 2.5 percentage points in the first six months of 2012. Excluding the commutation, our year-to-date net paid loss ratio was relatively flat year-over-year.

Policy Acquisition Costs

The percentage of policy acquisition costs to net earned premium was 12.3% and 12.9% for the first six months of 2013 and 2012, respectively, and 12.6% and 13.2% for the second quarter of 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 2% year-over-year and increased 9% quarter-over-quarter. The changes in other operating expense were primarily due to fluctuations in foreign currency benefit/expense and higher employee compensation and benefit costs in 2013. We recognized a foreign currency benefit of $9.0 million and an expense of $1.9 million in the first six months and second quarter of 2013, respectively. Our foreign currency benefit was $1.4 million and $4.2 million in the first six months and second quarter of 2012, respectively. The foreign currency benefit in the first quarter of 2013 primarily related to changes in the value of the British pound sterling relative to the U.S. dollar, and the expense in the second quarter of 2013 primarily related to changes in the value of the Euro relative to the U.S. dollar.

Excluding the effect of foreign currency benefit/expense, other operating expense increased 3% year-over-year and 1% quarter-over-quarter, mainly due to increased compensation and benefit costs in 2013 for our 1,903 employees. Approximately 64% and 61% of our other operating expense (excluding foreign currency benefit/expense) in 2013 and 2012, respectively, related to compensation and benefits. Other operating expense included stock-based compensation expense of $7.2 million in 2013 and $6.4 million in 2012. At June 30, 2013, there was approximately $25.8 million of total unrecognized compensation expense related to unvested options, shares of restricted stock and restricted stock units that is expected to be recognized over a weighted-average period of 2.8 years.

Interest Expense

Interest expense was $13.1 million in the first six months of 2013 and 2012, and $6.6 million and $6.2 million in the second quarter of 2013 and 2012, respectively. The year-to-date interest expense for 2013 and 2012 included $9.7 million for our Senior Notes.

Income Tax Expense

Our year-to-date effective income tax rate was flat at 29.8% for 2013, compared to 29.9% for 2012.

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Segment Operations

Each of our insurance segments bears risk for insurance coverage written within its portfolio of insurance products. Each segment generates income from premium written by our underwriting agencies, through third party agents and brokers, or on a direct basis. 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 occurrences. Our segments maintain disciplined expense management and a streamlined management structure, which results in favorable expense ratios. The following provides operational information about our five insurance underwriting segments and our Investing segment.

U.S. Property & Casualty Segment

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

	Six months ended June 30,						Three months ended June 30,
	2013			2012			2013			2012
Net earned premium	$	184,963		$	177,852		$	91,432		$	88,834
Other revenue		11,429			6,885			4,245			4,522
Segment revenue		196,392			184,737			95,677			93,356
Loss and loss adjustment expense, net		107,394			100,927			55,238			51,666
Other expense		52,757			59,767			25,452			30,045
Segment expense		160,151			160,694			80,690			81,711
Segment pretax earnings	$	36,241		$	24,043		$	14,987		$	11,645
Net loss ratio		58.1	%		56.7	%		60.4	%		58.2	%
Expense ratio		26.9			32.4			26.6			32.2
Combined ratio		85.0	%		89.1	%		87.0	%		90.4	%
Aviation	$	56,286		$	58,220		$	28,429		$	29,397
E&O		26,433			31,979			13,235			15,602
Public Risk		32,755			31,792			16,395			16,574
Other		69,489			55,861			33,373			27,261
Total net earned premium	$	184,963		$	177,852		$	91,432		$	88,834
Aviation		63.0	%		55.8	%		64.3	%		64.5	%
E&O		61.1			60.8			61.9			60.6
Public Risk		76.7			77.8			75.1			63.9
Other		44.1			43.4			49.3			46.4
Total net loss ratio		58.1	%		56.7	%		60.4	%		58.2	%

30

	Six months ended June 30,				Three months ended June 30,
	2013		2012		2013		2012
Aviation	$	75,182	$	82,870	$	38,184	$	45,780
E&O		28,328		31,493		13,254		14,602
Public Risk		37,105		43,245		15,664		23,461
Other		217,773		161,005		116,149		81,623
Total gross written premium	$	358,388	$	318,613	$	183,251	$	165,466
Aviation	$	60,134	$	63,405	$	31,520	$	35,898
E&O		24,691		30,235		12,153		13,730
Public Risk		29,880		35,567		14,109		19,973
Other		94,164		68,687		47,205		35,965
Total net written premium	$	208,869	$	197,894	$	104,987	$	105,566

Our U.S. Property & Casualty segment pretax earnings increased 51% 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 reinsurance, and structured insurance products (all grouped in Other).

Our aviation line of business experienced higher losses in the first quarter of 2013, compared to the same period in 2012. Our year-to-date public risk loss ratios were relatively consistent, as catastrophe losses in the first quarter of 2012 have been matched by higher non-catastrophe losses in 2013. Other expense and the expense ratio were lower in 2013 primarily due to higher ceding commissions (that offset policy acquisition costs) from increased writings of our highly-ceded disability product. In addition, a $2.5 million recovery of an indemnification liability in the second quarter of 2013 reduced the segment’s year-to-date and quarter-to-date expense ratio by 1.3 and 2.6 percentage points, respectively.

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Professional Liability Segment

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

	Six months ended June 30,						Three months ended June 30,
	2013			2012			2013			2012
Net earned premium	$	185,223		$	200,905		$	92,444		$	99,467
Other revenue		325			267			739			134
Segment revenue		185,548			201,172			93,183			99,601
Loss and loss adjustment expense, net		111,821			134,323			55,435			65,168
Other expense		35,872			36,207			18,124			18,676
Segment expense		147,693			170,530			73,559			83,844
Segment pretax earnings	$	37,855		$	30,642		$	19,624		$	15,757
Net loss ratio		60.4	%		66.9	%		60.0	%		65.5	%
Expense ratio		19.3			18.0			19.4			18.8
Combined ratio		79.7	%		84.9	%		79.4	%		84.3	%
U.S. D&O	$	153,721		$	170,667		$	77,016		$	84,413
International D&O		31,502			30,238			15,428			15,054
Total net earned premium	$	185,223		$	200,905		$	92,444		$	99,467
U.S. D&O		62.8	%		69.7	%		62.8	%		68.3	%
International D&O		48.6			51.0			45.9			50.1
Total net loss ratio		60.4	%		66.9	%		60.0	%		65.5	%
U.S. D&O	$	186,845		$	186,184		$	111,606		$	111,188
International D&O		59,548			59,566			30,768			33,317
Total gross written premium	$	246,393		$	245,750		$	142,374		$	144,505
U.S. D&O	$	129,578		$	136,826		$	77,879		$	81,121
International D&O		34,183			34,311			18,256			19,103
Total net written premium	$	163,761		$	171,137		$	96,135		$	100,224

Our Professional Liability segment pretax earnings increased 24% year-to-date in 2013, compared to 2012, due to an improved net loss ratio, primarily related to reunderwriting of our diversified financial products (DFP) line of business in U.S. D&O beginning in 2012.

Gross written premium was essentially unchanged year-over-year. However, within U.S. D&O, increased writings of our directors’ and officers’ liability product offset a decrease in DFP. Net written premium decreased 4% year-over-year primarily due to reduced retention under our reinsurance program. Net earned premium decreased in 2013 primarily due to our reunderwriting of the DFP book of business in 2012 and the additional reinsurance.

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Accident & Health Segment

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

	Six months ended June 30,						Three months ended June 30,
	2013			2012			2013			2012
Net earned premium	$	434,947		$	415,028		$	217,822		$	208,147
Other revenue		2,330			2,494			1,140			1,157
Segment revenue		437,277			417,522			218,962			209,304
Loss and loss adjustment expense, net		320,566			306,918			160,139			154,396
Other expense		63,709			61,102			32,583			30,948
Segment expense		384,275			368,020			192,722			185,344
Segment pretax earnings	$	53,002		$	49,502		$	26,240		$	23,960
Net loss ratio		73.7	%		74.0	%		73.5	%		74.2	%
Expense ratio		14.6			14.6			14.9			14.8
Combined ratio		88.3	%		88.6	%		88.4	%		89.0	%
Medical Stop-loss	$	404,604		$	387,673		$	202,010		$	194,586
Other		30,343			27,355			15,812			13,561
Total net earned premium	$	434,947		$	415,028		$	217,822		$	208,147
Medical Stop-loss		75.2	%		75.5	%		75.2	%		75.7	%
Other		53.9			52.3			51.8			52.9
Total net loss ratio		73.7	%		74.0	%		73.5	%		74.2	%
Medical Stop-loss	$	405,039		$	387,974		$	202,231		$	194,741
Other		25,431			24,901			12,678			12,807
Total gross written premium	$	430,470		$	412,875		$	214,909		$	207,548
Medical Stop-loss	$	404,604		$	387,673		$	202,010		$	194,586
Other		25,264			24,698			12,590			12,687
Total net written premium	$	429,868		$	412,371		$	214,600		$	207,273

The Accident & Health segment pretax earnings increased 7% in the first six months 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 11, “Segments” to the Consolidated Financial Statements.

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U.S. Surety & Credit Segment

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

	Six months ended June 30						Three months ended June 30,
	2013			2012			2013			2012
Net earned premium	$	97,231		$	100,844		$	50,054		$	53,115
Other revenue		621			415			384			200
Segment revenue		97,852			101,259			50,438			53,315
Loss and loss adjustment expense, net		18,851			26,723			5,637			15,690
Other expense		53,681			55,523			27,402			27,403
Segment expense		72,532			82,246			33,039			43,093
Segment pretax earnings	$	25,320		$	19,013		$	17,399		$	10,222
Net loss ratio		19.4	%		26.5	%		11.3	%		29.5	%
Expense ratio		54.9			54.8			54.3			51.4
Combined ratio		74.3	%		81.3	%		65.6	%		80.9	%
Surety	$	72,725		$	79,608		$	37,118		$	39,688
Credit		24,506			21,236			12,936			13,427
Total net earned premium	$	97,231		$	100,844		$	50,054		$	53,115
Surety		19.8	%		24.8	%		14.9	%		24.8	%
Credit		18.1			33.0			0.8			43.7
Total net loss ratio		19.4	%		26.5	%		11.3	%		29.5	%
Surety	$	80,327		$	80,762		$	42,631		$	40,836
Credit		31,111			29,940			16,558			15,373
Total gross written premium	$	111,438		$	110,702		$	59,189		$	56,209
Surety	$	72,146		$	73,385		$	38,456		$	37,251
Credit		25,982			22,711			14,168			14,141
Total net written premium	$	98,128		$	96,096		$	52,624		$	51,392

Our U.S. Surety & Credit segment pretax earnings increased 33% year-over-year and 70% quarter-over-quarter, primarily due to favorable loss development in the second quarter of 2013. Net earned premium for our surety line of business decreased year-over-year, primarily due to competition and market conditions.

The segment had favorable loss development of $9.5 million in 2013 and none in 2012. We conduct our annual comprehensive review of this segment’s reserves in the fourth quarter, which we will do for 2013. However, in the first half of 2013, we settled a large 2010 claim on favorable terms, which generated $5.8 million of reserve redundancy, and we noted continued lower than expected claims activity related to older underwriting years. As a result, we conducted a limited review of the segment’s reserves during the second quarter. This review indicated that actual loss experience for the 2010 and prior underwriting years was significantly better in 2013 than the actuarial expectations in our 2012 comprehensive review. In view of the growing redundancy in the segment’s reserves, we recognized favorable development of $3.7 million for surety and $5.8 million for credit related to the 2010 and prior underwriting years in the second quarter of 2013.

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International Segment

The following tables summarize the operations of the International segment.

	Six months ended June 30,						Three months ended June 30,
	2013			2012			2013			2012
Net earned premium	$	210,412		$	196,472		$	105,270		$	105,188
Other revenue		1,902			2,135			1,124			941
Segment revenue		212,314			198,607			106,394			106,129
Loss and loss adjustment expense, net		104,916			79,623			58,997			41,856
Other expense		71,921			68,765			36,212			36,612
Segment expense		176,837			148,388			95,209			78,468
Segment pretax income	$	35,477		$	50,219		$	11,185		$	27,661
Net loss ratio		49.9	%		40.5	%		56.0	%		39.8	%
Expense ratio		33.9			34.6			34.0			34.5
Combined ratio		83.8	%		75.1	%		90.0	%		74.3	%
Energy	$	43,457		$	40,889		$	22,418		$	25,795
Property Treaty		58,498			49,007			29,743			26,918
Liability		35,583			39,131			18,408			19,649
Surety & Credit		36,066			34,945			17,853			17,184
Other		36,808			32,500			16,848			15,642
Total net earned premium	$	210,412		$	196,472		$	105,270		$	105,188
Energy		45.4	%		41.6	%		45.5	%		44.2	%
Property Treaty		51.1			17.7			77.1			21.7
Liability		49.4			49.5			48.9			47.9
Surety & Credit		63.0			58.2			62.5			48.2
Other		40.6			43.7			33.9			44.2
Total net loss ratios		49.9	%		40.5	%		56.0	%		39.8	%
Energy	$	111,859		$	110,714		$	85,314		$	90,119
Property Treaty		113,995			113,855			41,650			44,517
Liability		40,210			40,242			22,077			20,982
Surety & Credit		46,196			43,451			25,030			22,493
Other		60,933			56,649			31,315			29,124
Total gross written premium	$	373,193		$	364,911		$	205,386		$	207,235

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	Six months ended June 30,						Three months ended June 30,
	2013			2012			2013			2012
Energy	$	71,120		$	81,013		$	56,451		$	68,189
Property Treaty		101,266			99,819			35,099			37,517
Liability		37,577			37,316			21,007			19,424
Surety & Credit		40,290			39,813			21,641			20,786
Other		47,573			43,662			22,156			21,137
Total net written premium	$	297,826		$	301,623		$	156,354		$	167,053
Our International segment pretax earnings decreased $14.7 million in the first six months and $16.5 million in the second quarter of 2013, compared to the same periods of 2012, primarily due to the impact of higher net catastrophe losses in our property treaty line of business in 2013. In the second quarter of 2013, we recognized $15.0 million of pretax catastrophe losses related to European floods, including $2.0 million of inward reinstatement premium. The remaining net losses in 2013 and 2012 related to small catastrophes. The following table summarizes the segment’s net catastrophe losses, as well as the impact on key metrics:
	Six months ended June 30,						Three months ended June 30,
	2013			2012			2013			2012
Loss and loss adjustment expense, after reinsurance	$	29,921		$	8,668		$	22,935		$	5,835
Reinstatement premium, net		(3,291)			(411)			(1,515)			(1,182)
Total net catastrophe losses	$	26,630		$	8,257		$	21,420		$	4,653
Impact of net catastrophe losses (percentage points):
Net loss ratio		13.7	%		4.3	%		21.2	%		5.2	%
Expense ratio		(0.5	)		(0.1	)		(0.5	)		(0.4	)
Combined ratio		13.2	%		4.2	%		20.7	%		4.8	%

In the second quarter of 2013, we recognized favorable loss development of $2.3 million in the property line of business (included in Other) related to our 2010 New Zealand earthquake catastrophe losses, due to settlement of these claims in 2013.

The segment’s increase in net earned premium in 2013 primarily related to increased writings of our energy and property treaty lines of business during 2012. The decrease in net written premium primarily related to additional reinsurance on our energy line of business in 2013.

A recent ruling against another insurance company by the Spanish supreme court regarding a specific class of Spanish surety bonds, which are similar to those written by our Spanish subsidiary, may result in an increase in the segment’s recorded loss reserves for surety claims in the Surety & Credit line of business. At the present time, it is not possible for us to determine the impact, if any, on our recorded reserves until we complete our analysis of the applicability of this ruling to our bonds. The court’s ruling is expected to be published in the third quarter of 2013.

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Investing Segment

We invest the majority of our funds in highly-rated fixed maturity securities, which are designated as available for sale securities. We held $6.1 billion of fixed maturity securities at June 30, 2013. Substantially all of our fixed maturity securities were investment grade and 73% were rated AAA or AA.

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

	Six months ended June 30,						Three months ended June 30,
	2013			2012			2013			2012
Fixed maturity securities	$	107,097		$	111,090		$	53,248		$	53,363
Equity securities		7,808			993			4,228			993
Short-term investments		80			102			68			40
Other investments and deposits		319			868			366			401
Net realized investment gain		13,193			7,047			4,623			6,876
Other-than-temporary impairment credit losses		-			(397)			-			(397)
Investment expenses		(3,871)			(2,753)			(2,242)			(1,507)
Segment pretax earnings	$	124,626		$	116,950		$	60,291		$	59,769
Fixed maturity securities:
Average yield*		3.7	%		3.9	%		3.6	%		3.8	%
Average tax equivalent yield*		4.5	%		4.8	%		4.5	%		4.6	%
Weighted-average life		8.4 years			7.8 years
Weighted-average duration		5.5 years			4.5 years
Weighted-average rating		AA			AA

* Excluding realized and unrealized gains and losses.

In the past several years, the average yield on our fixed maturity securities has continued to decline due to persistently lower interest rates on new investments. We have addressed this issue by investing longer-term, especially in tax-exempt municipal bonds, in anticipation of a prolonged low interest rate environment and, since 2012, by investing in new classes of securities with attractive yields and low/no duration. These new classes of investments include bank loans, which are classified as corporate securities, and global publicly-traded equity securities. At June 30, 2013, our investments included $151.9 million of bank loans and $347.8 million of equity securities, compared to $91.5 million and $93.7 million, respectively, at June 30, 2012.

In the second quarter of 2013, our duration increased significantly from 4.9 years at March 31, 2013 to 5.5 years at June 30, 2013. The higher duration was directly related to increased prevailing interest rates and spreads since March 31, 2013, due to investor concerns that the U.S. Federal government would tighten its fiscal policies. In the second quarter, rates on 10-year U.S. Treasury notes rose 74 basis points to their highest level in two years.

These rising interest rates considerably impacted the fair value of our fixed maturity securities portfolio at June 30, 2013, as described below. Conversely, the higher interest rates will result in more attractive yields as we invest our future cash flows.

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This table summarizes our investments by type, all of which were reported at fair value, at June 30, 2013 and December 31, 2012. The methodologies used to determine the fair value of our investments are described in Note 4, “Fair Value Measurements” to the Consolidated Financial Statements.

	June 30, 2013					December 31, 2012
	Amount		%			Amount		%
Fixed maturity securities
U.S. government and government agency securities	$	123,664		2	%	$	199,607		3	%
Fixed maturity securities of states, municipalities and political subdivisions		1,029,817		15			1,065,811		15
Special purpose revenue bonds of states, municipalities and political subdivisions		2,271,620		34			2,200,331		32
Corporate securities		1,236,645		19			1,315,170		19
Residential mortgage-backed securities		605,495		9			664,887		10
Commercial mortgage-backed securities		536,199		8			524,289		8
Asset-backed securities		54,291		1			33,275		-
Foreign government securities		236,909		4			278,411		4
Equity securities		347,840		5			284,639		4
Short-term investments		216,793		3			363,053		5
Other investments		18		-			20,925		-
Total investments	$	6,659,291		100	%	$	6,950,398		100	%

Our total investments decreased $291.1 million in 2013, principally from: 1) a $260.6 million decrease in the pretax net unrealized gain and 2) return of $74.3 million of collateral held for our surety business in the first six months of 2013. At June 30, 2013, the net unrealized gain on our investment portfolio was $176.1 million, compared to $397.7 million at March 31, 2013 and $436.7 million at December 31, 2012. The significant decline in the net unrealized gain was due to the rise in interest rates in the second quarter of 2013, discussed previously.

The ratings of our individual securities within our fixed maturity securities portfolio at June 30, 2013 were as follows:

	Amount		%
AAA	$	829,116		14	%
AA		3,593,526		59
A		1,243,387		20
BBB		272,653		4
BB and below		155,958		3
Total fixed maturity securities	$	6,094,640		100	%

At June 30, 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 as municipal bonds in the investment market. The overall rating of our municipal bonds was AA at June 30, 2013. Within our municipal bond portfolio, we held $429.7 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 June 30, 2013, the percentages of our special purpose revenue bond portfolio supported by these major revenue sources were as follows: 1) education – 23%, 2) transportation – 23%, 3) water and sewer – 17% and 4) electric – 15%.

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 June 30, 2013. Although recent economic

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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.

At June 30, 2013, we held corporate fixed maturity securities issued by foreign corporations with an aggregate fair value of $507.1 million. In addition, we held securities issued by foreign governments, agencies or supranational entities with an aggregate fair value of $236.9 million.

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. Through December 31, 2014, we expect approximately 11% of our fixed maturity securities portfolio to mature, call or prepay. Assuming prevailing interest rates remain constant for the next eighteen months, reinvestment of these funds will be at book yields and tax-equivalent yields that are approximately 100 basis points lower than the current yields for these securities.

Corporate & Other

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

	Six months ended June 30,				Three months ended June 30,
	2013		2012		2013		2012
Net earned premium	$	9,766	$	21,371	$	4,334	$	10,580
Other revenue		22		193		152		234
Total revenue		9,788		21,564		4,486		10,814
Loss and loss adjustment expense, net		8,623		17,239		4,028		8,049
Other expense - Exited Lines		2,523		4,005		1,184		2,196
Other expense - Corporate		31, 138		28,006		15,773		13,427
Interest expense		12,843		12,844		6,457		6,042
Foreign currency expense (benefit)		(9,045)		(1,440)		1,939		(4,205)
Total expense		46,082		60,654		29,381		25,509
Pretax loss	$	(36,294)	$	(39,090)	$	(24,895)	$	(14,695)

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 all 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 $3.1 million in the first six months of 2013, primarily due to higher employee compensation and benefit costs. The impact of foreign currency benefit/expense fluctuated period-over-period principally due to changes in the value of the British pound sterling and the Euro relative to the U.S. dollar. 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.

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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 $6.7 billion investment portfolio, most of which is held by our insurance companies, 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 the parent company. 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.

	Six months ended June 30,
	2013		2012
Net earnings	$	194,012	$	176,077
Change in premium, claims and other receivables, net of reinsurance, premium and claims payables and excluding restricted cash		(56,660)		(64,793)
Change in unearned premium, net		84,727		83,497
Change in loss and loss adjustment expense payable, net of reinsurance recoverables		35,008		87,846
Change in accounts payable and accrued liabilities		(119,103)		(44,867)
Gain on investments		(13,193)		(6,650)
Other, net		(22,801)		13,441
Cash provided by operating activities	$	101,990	$	244,551

Our cash provided by operating activities was $102.0 million in the first six months of 2013, compared to $244.6 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 $74.3 million in 2013 and $21.2 million in 2012 and also paid $27.5 million in 2012 to commute a large contract in our Exited Lines. The remaining $117.0 million reduction in our cash provided by operating activities primarily resulted from $60.5 million of higher income tax payments in the first six months of 2013, compared to 2012, as well as the timing of the collection and the payment of insurance-related receivables and payables.

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Investments

At June 30, 2013, we held a $6.7 billion investment portfolio, which included $216.8 million of liquid short-term investments. Our fixed maturity and equity securities portfolio is 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 $413.6 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 $253.6 million of available capacity remained at June 30, 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 7, “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 second quarter of 2013, we purchased $12.1 million, or 0.3 million shares, at an average cost of $41.94 per share. We purchased $40.9 million, or 1.0 million shares, at an average cost of $39.96 per share in the first six months of 2013. As of July 26, 2013, $208.9 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 may change.

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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.

42

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. Over time, 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, which may result 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 June 30, 2013 using criteria established in the Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective in providing reasonable assurance of achieving the purposes described in Rule 13a-15(e) under the Act as of June 30, 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 June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

43

Part II — Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes in the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 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 second 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
April	56,226	$41.12	56,226	$218,703,258
May	25,088	$42.03	25,088	$217,648,892
June	208,657	$42.15	208,657	$208,855,025

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

44

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	Second Amendment to Loan Agreement, dated April 26, 2013, among HCC Insurance Holdings, Inc., Wells Fargo Bank, National Association, as Administrative Agent, Barclays Bank PLC and Bank of America, N.A., as Co-Syndication Agents, JPMorgan Chase Bank, N.A. and The Royal Bank of Scotland PLC, as Co-Documentation Agents, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 30, 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 June 30, 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.

45

SIGNATURES

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

HCC Insurance Holdings, Inc.

(Registrant)

August 2, 2013	/s/  Christopher J.B. Williams
(Date)	Christopher J.B. Williams,
	Chief Executive Officer

August 2, 2013	/s/  Pamela J. Penny
(Date)	Pamela J. Penny, Executive Vice President
	and Chief Accounting Officer

46

EX-12

Exhibit 12

HCC Insurance Holdings, Inc. and Subsidiaries

Statement of Ratios

(unaudited, in thousands except ratios)

	Six months ended June 30,						Three months ended June 30,
	2013			2012			2013			2012
Net loss ratio
Loss and loss adjustment expense, net	$	672,171		$	665,753		$	339,474		$	336,825
Net earned premium		1,122,542			1,112,472			561,356			565,331
Net loss ratio (1)		59.9	%		59.8	%		60.5	%		59.6	%
(Net loss ratio = incurred loss and loss adjustment expense divided by net earned premium)
Expense ratio (2)
Segment underwriting expense (3)	$	277,940		$	281,364		$	139,773		$	143,684
Segment revenue (4)		1,129,383			1,103,297			564,654			561,705
Expense ratio		24.6	%		25.5	%		24.8	%		25.6	%
(Expense ratio = segment underwriting expense divided by segment revenue)
Combined ratio (2)		84.5	%		85.3	%		85.3	%		85.2	%
(Combined ratio = net loss ratio plus expense ratio)
Accident year net loss ratio
Loss and loss adjustment expense, net	$	672,171		$	665,753		$	339,474		$	336,825
Add: Favorable (adverse) development		11,792			-			11,792			-
Accident year net loss and loss adjustment expense	$	683,963		$	665,753		$	351,266		$	336,825
Net earned premium	$	1,122,542		$	1,112,472			561,356			565,331
Add: (Increase) decrease related to prior year reinstatement premium		-			-			-			-
Accident year net earned premium	$	1,122,542		$	1,112,472		$	561,356		$	565,331
Accident year net loss ratio		60.9	%		59.8	%		62.6	%		59.6	%
(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 11, “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)

	Six months ended June 30,						Three months ended June 30,
	2013			2012			2013			2012
Net paid loss ratio
Losses paid, net of reinsurance	$	586,326		$	610,490		$	286,797		$	265,968
Net earned premium		1,122,542			1,112,472			561,356			565,331
Net paid loss ratio		52.2	%		54.9	%		51.1	%		47.0	%
(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)	$	2,537		$	2,625		$	1,287		$	1,313
Interest expense		13,082			13,139			6,611			6,230
Capitalized interest		-			13			-			-
Total fixed charges	$	15,619		$	15,777		$	7,898		$	7,543
Earnings before income tax expense	$	276,227		$	251,279		$	124,831		$	134,319
Interest factor of rent expense (5)		2,537			2,625			1,287			1,313
Interest expense		13,082			13,139			6,611			6,230
Earnings per calculation	$	291,846		$	267,043		$	132,729		$	141,862
Ratio of earnings to fixed charges (6)		18.69			16.93			16.81			18.81

(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.

August 2, 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.

August 2, 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 June 30, 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.

August 2, 2013	/s/  Christopher J.B. Williams
(Date)	Christopher J.B. Williams,
	Chief Executive Officer

August 2, 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

Investments (Details 3) (USD $) In Thousands, unless otherwise specified	Jun. 30, 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	$ 217,012
Due after 1 year through 5 years, Available for sale, Cost or amortized cost	1,062,230
Due after 5 years through 10 years, Available for sale, Cost or amortized cost	1,456,485
Due after 10 years through 15 years, Available for sale, Cost or amortized cost	1,020,759
Due after 15 years, Available for sale, Cost or amortized cost	1,001,045
Securities with contractual maturities, Available for sale, Cost or amortized cost	4,757,531
Mortgage-backed and asset-backed securities, Available for sale, Cost or amortized cost	1,185,629
Available-for-sale fixed maturity Securities, Amortized Cost Basis	5,943,160	5,856,432
Due in 1 year or less, Available for sale, Fair value	219,433
Due after 1 year through 5 years, Available for sale, Fair value	1,098,261
Due after 5 years through 10 years, Available for sale, Fair value	1,524,386
Due after 10 years through 15 years, Available for sale, Fair value	1,045,896
Due after 15 years, Available for sale, Fair value	1,010,679
Securities with contractual maturities, Available for sale, Fair value	4,898,655
Mortgage-backed and asset-backed securities, Available for sale, Fair value	1,195,985
Available-for-sale Securities, Debt Securities, Fair value	$ 6,094,640

XML

Stock based Compensation (Details 1) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
ShareBasedCompensationArrangementByShareBasedPaymentAwardOptionsOutstandingRollForward
Stock Issued During Period Shares Stock Options Exercised	250

XML

Consolidated Statement of Earnings (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
REVENUE
Net earned premium	$ 561,356	$ 565,331	$ 1,122,542	$ 1,112,472
Other revenue	68,075	66,957	141,255	129,339
Net investment income	55,668	53,290	111,433	110,300
Other operating income	7,784	7,188	16,629	12,389
Net realized investment gain	4,623	6,876	13,193	7,047
Other-than-temporary impairment credit losses	0	(397)	0	(397)
Total revenue	629,431	632,288	1,263,797	1,241,811
EXPENSE
Loss and loss adjustment expense, net	339,474	336,825	672,171	665,753
Policy acquisition costs, net	70,796	74,490	137,745	143,934
Other expense	165,126	161,144	315,399	324,779
Other operating expense	87,719	80,424	164,572	167,706
Interest expense	6,611	6,230	13,082	13,139
Total expense	504,600	497,969	987,570	990,532
Earnings before income taxes	124,831	134,319	276,227	251,279
Income tax expense	36,669	40,826	82,215	75,202
Net earnings	$ 88,162	$ 93,493	$ 194,012	$ 176,077
Earnings per common share
Basic	$ 0.88	$ 0.92	$ 1.93	$ 1.71
Diluted	$ 0.87	$ 0.92	$ 1.92	$ 1.71

XML

General Information (Details Textuals) (USD $)	6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
General Information [Abstract]
Number of countries in which The Company underwrites non-correlated specialty insurance products	180
The fair value of our obligation related to the forward contract.	$ 2,300,000	$ 3,200,000

XML

Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value Measurements [Abstract]

Assets and liabilities at fair value

			Level 1		Level 2		Level 3		Total
June 30, 2013
Fixed maturity securities
	U.S. government and government agency securities		$	103,294	$	20,370	$	0	$	123,664
	Fixed maturity securities of states, municipalities and
		political subdivisions		0		1,029,817		0		1,029,817
	Special purpose revenue bonds of states, municipalities
		and political subdivisions		0		2,262,343		9,277		2,271,620
	Corporate securities			0		1,236,476		169		1,236,645
	Residential mortgage-backed securities			0		605,495		0		605,495
	Commercial mortgage-backed securities			0		536,199		0		536,199
	Asset-backed securities			0		54,291		0		54,291
	Foreign government securities			0		236,909		0		236,909
		Total fixed maturity securities		103,294		5,981,900		9,446		6,094,640
Equity securities				347,840		0		0		347,840
Short-term investments*				115,965		100,828		0		216,793
Other investments				18		0		0		18
Restricted cash and securities				0		1,848		0		1,848
Premium, claims and other receivables				0		62,118		0		62,118
Other assets				0		0		589		589
	Total assets measured at fair value		$	567,117	$	6,146,694	$	10,035	$	6,723,846
Notes payable*			$	0	$	688,240	$	-	$	688,240
Accounts payable and accrued liabilities - forward contract				0		2,283		-		2,283
Accounts payable and accrued liabilities - earnout liability				0		1,848		7,133		8,981
	Total liabilities measured at fair value		$	0	$	692,371	$	7,133	$	699,504

			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
Gains (losses) reported in:
	Net earnings		15		130		145		62		(1)		116		115
	Other comprehensive income (loss)		(184)		0		(184)		0		3		0		3
	Balance at June 30	$	9,446	$	589	$	10,035	$	7,133	$	159	$	1,847	$	2,006

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Supplemental Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Supplemental Information
Income taxes paid	$ 67,799	$ 33,664	$ 99,941	$ 39,448
Interest paid	11,932	10,929	13,322	12,000
Dividends declared but not paid at year end	16,523	15,618	16,523	15,618
Sales of available for sale fixed maturity securities	13,666	153,469	171,801	218,572
Sales of equity securities	$ 26,500	$ 1,739	$ 44,308	$ 1,739

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Segments

6 Months Ended

Jun. 30, 2013

Segments [Abstract]

Segments

(11) 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 periods 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
Six months ended June 30, 2013
Net earned premium			$	184,963	$	185,223	$	434,947	$	97,231	$	210,412	$	0	$	9,766	$	1,122,542
Other revenue				11,429		325		2,330		621		1,902		124,626		22		141,255
	Segment revenue			196,392		185,548		437,277		97,852		212,314		124,626		9,788		1,263,797
Loss and LAE				107,394		111,821		320,566		18,851		104,916		0		8,623		672,171
Other expense				52,757		35,872		63,709		53,681		71,921		0		37,459		315,399
	Segment expense			160,151		147,693		384,275		72,532		176,837		-		46,082		987,570
		Segment pretax earnings (loss)	$	36,241	$	37,855	$	53,002	$	25,320	$	35,477	$	124,626	$	(36,294)	$	276,227

Six months ended June 30, 2012
Net earned premium			$	177,852	$	200,905	$	415,028	$	100,844	$	196,472	$	0	$	21,371	$	1,112,472
Other revenue				6,885		267		2,494		415		2,135		116,950		193		129,339
	Segment revenue			184,737		201,172		417,522		101,259		198,607		116,950		21,564		1,241,811
Loss and LAE				100,927		134,323		306,918		26,723		79,623		0		17,239		665,753
Other expense				59,767		36,207		61,102		55,523		68,765		0		43,415		324,779
	Segment expense			160,694		170,530		368,020		82,246		148,388		-		60,654		990,532
		Segment pretax earnings (loss)	$	24,043	$	30,642	$	49,502	$	19,013	$	50,219	$	116,950	$	(39,090)	$	251,279

			U.S. Property & Casualty		Professional Liability		Accident & Health		U.S. Surety & Credit		International		Investing		Corporate & Other		Consolidated
Three months ended June 30, 2013
Net earned premium			$	91,432	$	92,444	$	217,822	$	50,054	$	105,270	$	0	$	4,334	$	561,356
Other revenue				4,245		739		1,140		384		1,124		60,291		152		68,075
	Segment revenue			95,677		93,183		218,962		50,438		106,394		60,291		4,486		629,431
Loss and LAE				55,238		55,435		160,139		5,637		58,997		0		4,028		339,474
Other expense				25,452		18,124		32,583		27,402		36,212		0		25,353		165,126
	Segment expense			80,690		73,559		192,722		33,039		95,209		-		29,381		504,600
		Segment pretax earnings (loss)	$	14,987	$	19,624	$	26,240	$	17,399	$	11,185	$	60,291	$	(24,895)	$	124,831

Three months ended June 30, 2012
Net earned premium			$	88,834	$	99,467	$	208,147	$	53,115	$	105,188	$	0	$	10,580	$	565,331
Other revenue				4,522		134		1,157		200		941		59,769		234		66,957
	Segment revenue			93,356		99,601		209,304		53,315		106,129		59,769		10,814		632,288
Loss and LAE				51,666		65,168		154,396		15,690		41,856		0		8,049		336,825
Other expense				30,045		18,676		30,948		27,403		36,612		0		17,460		161,144
	Segment expense			81,711		83,844		185,344		43,093		78,468		-		25,509		497,969
		Segment pretax earnings (loss)	$	11,645	$	15,757	$	23,960	$	10,222	$	27,661	$	59,769	$	(14,695)	$	134,319

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Investments (Details 4) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Fixed Maturity Securities
Taxable	$ 25,062	$ 27,103	$ 51,022	$ 58,218
Exempt from U.S. income taxes	28,186	26,260	56,075	52,872
Total fixed maturity securities	53,248	53,363	107,097	111,090
Equity Securities	4,228	993	7,808	993
Short-term investments	68	40	80	102
Other investment income	366	401	319	868
Total investment income	57,910	54,797	115,304	113,053
Investment expense	(2,242)	(1,507)	(3,871)	(2,753)
Net investment income	$ 55,668	$ 53,290	$ 111,433	$ 110,300

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Earnings Per Share

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Earnings Per Share

(9)Earnings Per Share

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

				Six months ended June 30,				Three months ended June 30,
				2013		2012		2013		2012
Net earnings				$	194,012	$	176,077	$	88,162	$	93,493
Less: net earnings attributable to unvested restricted stock					(3,227)		(3,238)		(1,445)		(1,775)
		Net earnings available to common stock		$	190,785	$	172,839	$	86,717	$	91,718
Weighted-average common shares outstanding					98,965		100,802		98,870		99,563
Dilutive effect of outstanding securities (determined using
	treasury stock method)				245		181		251		288
		Weighted-average common shares and potential
			common shares outstanding		99,210		100,983		99,121		99,851
Anti-dilutive securities not included in treasury stock
	method computation				89		1,990		109		642

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Segments (Tables)

6 Months Ended

Jun. 30, 2013

Segments [Abstract]

Information by business segment

			U.S. Property & Casualty		Professional Liability		Accident & Health		U.S. Surety & Credit		International		Investing		Corporate & Other		Consolidated
Six months ended June 30, 2013
Net earned premium			$	184,963	$	185,223	$	434,947	$	97,231	$	210,412	$	0	$	9,766	$	1,122,542
Other revenue				11,429		325		2,330		621		1,902		124,626		22		141,255
	Segment revenue			196,392		185,548		437,277		97,852		212,314		124,626		9,788		1,263,797
Loss and LAE				107,394		111,821		320,566		18,851		104,916		0		8,623		672,171
Other expense				52,757		35,872		63,709		53,681		71,921		0		37,459		315,399
	Segment expense			160,151		147,693		384,275		72,532		176,837		-		46,082		987,570
		Segment pretax earnings (loss)	$	36,241	$	37,855	$	53,002	$	25,320	$	35,477	$	124,626	$	(36,294)	$	276,227

Six months ended June 30, 2012
Net earned premium			$	177,852	$	200,905	$	415,028	$	100,844	$	196,472	$	0	$	21,371	$	1,112,472
Other revenue				6,885		267		2,494		415		2,135		116,950		193		129,339
	Segment revenue			184,737		201,172		417,522		101,259		198,607		116,950		21,564		1,241,811
Loss and LAE				100,927		134,323		306,918		26,723		79,623		0		17,239		665,753
Other expense				59,767		36,207		61,102		55,523		68,765		0		43,415		324,779
	Segment expense			160,694		170,530		368,020		82,246		148,388		-		60,654		990,532
		Segment pretax earnings (loss)	$	24,043	$	30,642	$	49,502	$	19,013	$	50,219	$	116,950	$	(39,090)	$	251,279

			U.S. Property & Casualty		Professional Liability		Accident & Health		U.S. Surety & Credit		International		Investing		Corporate & Other		Consolidated
Three months ended June 30, 2013
Net earned premium			$	91,432	$	92,444	$	217,822	$	50,054	$	105,270	$	0	$	4,334	$	561,356
Other revenue				4,245		739		1,140		384		1,124		60,291		152		68,075
	Segment revenue			95,677		93,183		218,962		50,438		106,394		60,291		4,486		629,431
Loss and LAE				55,238		55,435		160,139		5,637		58,997		0		4,028		339,474
Other expense				25,452		18,124		32,583		27,402		36,212		0		25,353		165,126
	Segment expense			80,690		73,559		192,722		33,039		95,209		-		29,381		504,600
		Segment pretax earnings (loss)	$	14,987	$	19,624	$	26,240	$	17,399	$	11,185	$	60,291	$	(24,895)	$	124,831

Three months ended June 30, 2012
Net earned premium			$	88,834	$	99,467	$	208,147	$	53,115	$	105,188	$	0	$	10,580	$	565,331
Other revenue				4,522		134		1,157		200		941		59,769		234		66,957
	Segment revenue			93,356		99,601		209,304		53,315		106,129		59,769		10,814		632,288
Loss and LAE				51,666		65,168		154,396		15,690		41,856		0		8,049		336,825
Other expense				30,045		18,676		30,948		27,403		36,612		0		17,460		161,144
	Segment expense			81,711		83,844		185,344		43,093		78,468		-		25,509		497,969
		Segment pretax earnings (loss)	$	11,645	$	15,757	$	23,960	$	10,222	$	27,661	$	59,769	$	(14,695)	$	134,319

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Liability for Unpaid Loss and Loss Adjustmene Expense (Details Textuals) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013
Liability for Unpaid Loss and Loss Adjustment Expense
Net favorable development for international segment	$ 2,300,000	$ 2,300,000
Net favorable development for us surety & credit segment	9,500,000	9,500,000
Net favorable development for surety line	3,700,000	3,700,000
Net favorable development for credit line	$ 5,800,000	$ 5,800,000

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Fair Value Measurements (Details Textuals)	6 Months Ended
	Jun. 30, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Independent pricing services to assist in determining fair value	99.00%

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Fair Value Measurements (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2013	Mar. 31, 2013	Jun. 30, 2012	Mar. 31, 2012
Changes in fair value of level 3 assets
Balance at beginning of period	$ 10,074	$ 513	$ 1,888	$ 2,686
Purchases		9,430
Other comprehensive income	(184)	15	3	2
Net earnings	145	116	115	215
Transfers out of Level 3				(1,015)
Balance at end of period	10,035	10,074	2,006	1,888
Fixed maturity securities [Member]
Changes in fair value of level 3 assets
Balance at beginning of period	9,615	164	157	1,170
Purchases		9,430
Other comprehensive income	(184)	15	3	2
Net earnings	15	6	(1)
Transfers out of Level 3				(1,015)
Balance at end of period	9,446	9,615	159	157
Other Assets [Member]
Changes in fair value of level 3 assets
Balance at beginning of period	459	349	1,731	1,516
Net earnings	130	110	116	215
Balance at end of period	589	459	1,847	1,731
Earn Out Liability [Member]
Changes in fair value of level 3 assets
Balance at beginning of period	7,071	7,009
Net earnings	62	62
Balance at end of period	$ 7,133	$ 7,071

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Accumulated Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 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			(25,639)		(1,532)		(27,171)
	Balance at March 31, 2013		256,864		11,236		268,100
Other comprehensive income (loss)			(142,922)		941		(141,981)
	Balance at June 30, 2013	$	113,942	$	12,177	$	126,119

		Six months		Three months
		ended		ended
		June 30, 2013		June 30, 2013
Net realized investment gain		$	13,193	$	4,623
Income tax expense			4,618		1,619
	Total reclassifications	$	8,575	$	3,004

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Reinsurance (Details 4) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Amounts of letters of credit and cash available to us as collateral, plus other potential offsets
Payables to reinsurers	$ 208,483	$ 190,228
Letters of credit	87,033	89,832
Cash	89,469	116,597
Total credits	$ 384,985	$ 396,657

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Notes Payable (Tables)

6 Months Ended

Jun. 30, 2013

Notes Payable [Abstract]

Notes Payable

		June 30,		December 31,
		2013		2012
6.30% Senior Notes		$	299,021	$	298,944
$600.0 million Revolving Loan Facility			340,000		285,000
	Total notes payable	$	639,021	$	583,944

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Earnings per share

				Six months ended June 30,				Three months ended June 30,
				2013		2012		2013		2012
Net earnings				$	194,012	$	176,077	$	88,162	$	93,493
Less: net earnings attributable to unvested restricted stock					(3,227)		(3,238)		(1,445)		(1,775)
		Net earnings available to common stock		$	190,785	$	172,839	$	86,717	$	91,718
Weighted-average common shares outstanding					98,965		100,802		98,870		99,563
Dilutive effect of outstanding securities (determined using
	treasury stock method)				245		181		251		288
		Weighted-average common shares and potential
			common shares outstanding		99,210		100,983		99,121		99,851
Anti-dilutive securities not included in treasury stock
	method computation				89		1,990		109		642

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Reinsurance (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Effect of reinsurance transactions on our premium, loss and loss adjustment expense and policy acquisition costs
Direct written premium	$ 713,110	$ 677,996	$ 1,294,681	$ 1,222,766
Reinsurance assumed	96,333	113,557	234,967	251,476
Reinsurance ceded	(180,409)	(149,465)	(321,430)	(273,750)
Net written premium	629,034	642,088	1,208,218	1,200,492
Direct earned premium	621,224	602,354	1,237,629	1,193,537
Reinsurance assumed	86,036	86,544	171,308	168,882
Reinsurance ceded	(145,904)	(123,567)	(286,395)	(249,947)
Net earned premium	561,356	565,331	1,122,542	1,112,472
Direct loss and loss adjustment expense	335,968	362,529	693,480	727,921
Reinsurance assumed	71,017	24,326	110,708	61,035
Reinsurance ceded	(67,511)	(50,030)	(132,017)	(123,203)
Net loss and loss adjustment expense	339,474	336,825	672,171	665,753
Policy acquisition costs	103,745	102,421	204,031	198,156
Ceding commissions	(32,949)	(27,931)	(66,286)	(54,222)
Net policy acquisition costs	$ 70,796	$ 74,490	$ 137,745	$ 143,934

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Commitments and Contingencies (Details Textuals) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Commitments And Contingencies Line Items [Abstract]
Liability related to indemnifications	$ 7,700,000
Pretax cat loss after reinsurance	$ 26,600,000	$ 12,300,000
Longest Indemnification Expiration Date	2025

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Schedule 2 HCCIH Financial Statements (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Adjustments to reconcile net earnings to net cash provided by operating activities:
Share-based Compensation			$ 6,955	$ 6,168
Change in accounts payable and accrued liabilities			(119,103)	(44,867)
Gain on investments			(13,193)	(6,650)
Other, net			(38,849)	(1,860)
Cash provided by operating activities			101,990	244,551
Investing activities
Payments for purchase of businesses, net of cash received			(8,214)	(32,143)
Cost of other investments acquired			0	0
Sales of available for sale fixed maturity securities	13,666	153,469	171,801	218,572
Sales of equity securities	26,500	1,739	44,308	1,739
Sales of other investments			23,719	0
Change in short-term investments			145,977	(62,621)
Maturity or call of available for sale fixed maturity securities			375,924	325,046
Cost of available for sale fixed maturity securities acquired			(756,782)	(628,278)
Cost of equity securities acquired			114,685	94,706
Cash used by investing activities			(120,143)	(250,794)
Financing activities
Advances on line of credit			70,000	140,000
Payments on line of credit			(15,000)	(28,000)
Sale of common stock			7,408	13,644
Purchase of common stock			(46,586)	(126,442)
Dividends paid			(33,250)	(32,002)
Other, net			3,544	(2,323)
Cash used by financing activities			(13,884)	(35,123)
Net decrease in cash			(32,037)	(41,366)
Cash at beginning of year			71,390	104,550
Cash at end of period	$ 39,353	$ 63,184	$ 39,353	$ 63,184

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies [Abstract]

Commitments and Contingencies

(12)Commitments and Contingencies

CatastropheExposure

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$26.6million, primarily due to European floods during the second quarter and various small catastrophes, compared to $12.3million in the first six months of 2012, primarily due to United States spring storms and 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 development on losses that were incurred prior to our sale of a subsidiary.At June 30, 2013, we have an accrued liability of $7.7millionto cover our obligations or anticipated payments under these indemnifications.

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Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Differences between our effective tax rate for financial statement purposes and the Federal statutory rate
Income tax expense	$ 36,669	$ 40,826	$ 82,215	$ 75,202

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Schedule 2 HCCIH Financial Statements (Parenthetical) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Condensed Financial Statements, Captions [Line Items]
Available-for-sale Securities, Amortized Cost	$ 5,943,160	$ 5,856,432
Available-for-sale Equity Securities, Amortized Cost Basis	323,249	275,827
Other investments, cost	$ 16	$ 18,391

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Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	$ 6,094,640	$ 6,281,781
Equity securities - available for sale, at fair value	347,840	284,639
Short-term investments*	216,793	363,053
Other Investments	18	20,925
Restricted cash and securities	1,848	2,043
Premium, claims and other receivables	62,118	68,207
Other assets	589	349
Total assets measured at fair value	6,723,846	7,020,997
Notes payable	688,240	636,363
Accounts payable and accrued liabilities - earnout liability	8,981	9,052
Accounts payable and accrued liabilities - forward contract	2,283	3,194
Total liabilities measured at fair value	699,504	648,609
Fair Value, Inputs, Level 1 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	103,294	174,520
Equity securities - available for sale, at fair value	347,840	284,639
Short-term investments*	115,965	251,988
Other Investments Held At Fair Value	18	20,925
Total assets measured at fair value	567,117	732,072
Fair Value, Inputs, Level 2 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	5,981,900	6,107,097
Short-term investments*	100,828	111,065
Restricted cash and securities	1,848	2,043
Premium, claims and other receivables	62,118	68,207
Total assets measured at fair value	6,146,694	6,288,412
Notes payable	688,240	636,363
Accounts payable and accrued liabilities - earnout liability	1,848	2,043
Accounts payable and accrued liabilities - forward contract	2,283	3,194
Total liabilities measured at fair value	692,371	641,600
Fair Value, Inputs, Level 3 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	9,446	164
Other assets	589	349
Total assets measured at fair value	10,035	513
Accounts payable and accrued liabilities - earnout liability	7,133	7,009
Total liabilities measured at fair value	7,133	7,009
US Government and Government Agency Securities [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	123,664	199,607
US Government and Government Agency Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	103,294	174,520
US Government and Government Agency Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	20,370	25,087
Fixed Maturity Securities of States, Municipalities and Political Subdivisions Securities [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	1,029,817	1,065,811
Fixed Maturity Securities of States, Municipalities and Political Subdivisions Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	1,029,817	1,065,811
Special Purpose Revenue Bonds Of States Municipalities And Political Subdivisions [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	2,271,620	2,200,331
Special Purpose Revenue Bonds Of States Municipalities And Political Subdivisions [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	2,262,343	2,200,331
Special Purpose Revenue Bonds Of States Municipalities And Political Subdivisions [Member] | Fair Value, Inputs, Level 3 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	9,277
Corporate Securities [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	1,236,645	1,315,170
Corporate Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	1,236,476	1,315,006
Corporate Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	169	164
Residential Mortgage Backed Securities [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	605,495	664,887
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	605,495	664,887
Commercial Mortgage Backed Securities [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	536,199	524,289
Commercial Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	536,199	524,289
Asset-backed Securities [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	54,291	33,275
Asset-backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	54,291	33,275
Foreign Government Securities [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	236,909	278,411
Foreign Government Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fixed maturity securities-available for sale
Fixed maturity securities - available for sale	$ 236,909	$ 278,411

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Consolidated Statement of Changes in Shareholders' Equity (USD $) In Thousands	Total	Common stock [Member]	Additional paid-in capital	Retained earnings	Accumulated other comprehensive income	Treasury stock
Balance at Dec. 31, 2012	$ 3,542,612	$ 125,114	$ 1,052,253	$ 2,756,166	$ 295,271	$ (686,192)
Net earnings	194,012			194,012
Other Comprehensive Loss Net Of Tax	(169,152)				(169,152)
Issuance of 250 shares for exercise of options, including tax effect	7,408	250	7,158
Purchase of 1,024 common shares	(40,929)					(40,929)
Stock-based compensation	4,524	(14)	4,538
Cash dividends declared, $0.33 per share	(33,092)			(33,092)
Balance at Jun. 30, 2013	$ 3,505,383	$ 125,350	$ 1,063,949	$ 2,917,086	$ 126,119	$ (727,121)

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Operating activities
Net earnings	$ 194,012	$ 176,077
Adjustments to reconcile net earnings to net cash provided by operating activities:
Change in premium, claims and other receivables	(99,897)	(68,083)
Change in reinsurance recoverables	(17,018)	2,921
Change in ceded unearned premium	(35,032)	(32,951)
Change in loss and loss adjustment expense payable	52,026	84,925
Change in unearned premium	119,759	116,448
Change in reinsurance, premium and claims payable, excluding restricted cash	43,237	3,290
Change in accounts payable and accrued liabilities	(119,103)	(44,867)
Stock-based compensation expense	6,955	6,168
Depreciation and amortization expense	9,093	9,133
Gain on investments	(13,193)	(6,650)
Other, net	(38,849)	(1,860)
Cash provided by operating activities	101,990	244,551
Investing activities
Sales of available for sale fixed maturity securities	171,801	218,572
Sales of equity securities	44,308	1,739
Sales of other investments	23,719	0
Maturity or call of available for sale fixed maturity securities	375,924	325,046
Maturity or call of held to maturity fixed maturity securities	0	28,579
Cost of available for sale fixed maturity securities acquired	(756,782)	(628,278)
Cost of equity securities acquired	(114,685)	(94,706)
Cost of other investments acquired	0	0
Change in short-term investments	145,977	(62,621)
Payments for purchase of businesses, net of cash received	(8,214)	(32,143)
Proceeds from sale of subsidiaries	0	0
Other, net	(2,191)	(6,982)
Cash used by investing activities	(120,143)	(250,794)
Financing activities
Advances on line of credit	70,000	140,000
Payments on line of credit	(15,000)	(28,000)
Sale of common stock	7,408	13,644
Purchase of common stock	(46,586)	(126,442)
Dividends paid	(33,250)	(32,002)
Other, net	3,544	(2,323)
Cash used by financing activities	(13,884)	(35,123)
Net decrease in cash	(32,037)	(41,366)
Cash at beginning of year	71,390	104,550
Cash at end of period	$ 39,353	$ 63,184

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General Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
New Accounting Pronouncements And Change In Accounting Principals [Line Items]
Deferred policy acquisition costs	$ 202,322		$ 202,322		$ 191,960
Accounts payable and accrued liabilities	527,260		527,260		875,574
Retained earnings	2,917,086		2,917,086		2,756,166
Policy acquisition costs, net	70,796	74,490	137,745	143,934
Other operating expense	$ 87,719	$ 80,424	$ 164,572	$ 167,706

XML

General Information

6 Months Ended

Jun. 30, 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.

Goodwill

An indicator of impairment of goodwill exists when the fair value of a reporting unit is less than its carrying value. We conducted our annual goodwill impairment test as of June 30, 2013, which is consistent with the timeframe for our annual assessment in prior years. Based on our determination of the fair value of each of our five reporting units, the fair value of each reporting unit exceeded its carrying amount as of June 30, 2013.

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Notes Payable (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Notes Payable [Line Items]
Notes payable	$ 639,021	$ 583,944
Senior Notes [Member]
Notes Payable [Line Items]
Notes payable	299,021	298,944
Revolving Credit Facility [Member]
Notes Payable [Line Items]
Notes payable	$ 340,000	$ 285,000

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Acquisitions, Dispositions and Goodwill (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Goodwill [Line Items]
Balance at beginning of period	$ 885,999	$ 885,860
Balance at end of period	$ 885,999	$ 885,860

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Reinsurance (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Components of reinsurance recoverables
Reinsurance recoverable on paid losses	$ 84,272	$ 54,675
Reinsurance recoverable on outstanding losses	457,227	479,026
Reinsurance recoverable on incurred but not reported losses	546,436	539,021
Reserve for uncollectible reinsurance	(1,500)	(1,500)
Total reinsurance recoverables	$ 1,086,435	$ 1,071,222

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Schedule 2 HCCIH Financial Statements (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
REVENUE
Other operating income	$ 7,784	$ 7,188	$ 16,629	$ 12,389
Net realized investment gain (loss)	4,623	6,876	13,193	7,047
Net investment income	55,668	53,290	111,433	110,300
Total revenue	629,431	632,288	1,263,797	1,241,811
EXPENSE
Interest expense	6,611	6,230	13,082	13,139
Other operating expense	87,719	80,424	164,572	167,706
Total expense	504,600	497,969	987,570	990,532
Earnings before income taxes	124,831	134,319	276,227	251,279
Income tax (benefit) expense	36,669	40,826	82,215	75,202
Net earnings	$ 88,162	$ 93,493	$ 194,012	$ 176,077

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Liability for Unpaid Loss and Loss Adjustment Expense (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
LiabilityForUnpaidClaimsAndClaimsAdjustmentExpenseNetAbstract
Reserves for loss and loss adjustment expense payable at beginning of year			$ 3,767,850
Net Reserves at beginning of year			2,749,803
Net loss and loss adjustment expense:
Net loss and loss adjustment expense	339,474	336,825	672,171	665,753
Net reserves at end of year	2,811,021		2,811,021
Reserves for loss and loss adjustment expense payable at end of year	$ 3,814,684		$ 3,814,684

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Schedule 2 HCCIH Financial Statements (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2012	Dec. 31, 2011
ASSETS
Cash	$ 39,353	$ 71,390	$ 63,184	$ 104,550
Fixed income securities - available for sale, at fair value (amortized cost: 2012 - $311,085; 2011 - $221,188)	6,094,640	6,281,781
Equity securities - available for sale, at fair value (cost: 2013 - $323,249 and 2012 - $275,827)	347,840	284,639
Short-term investments, at cost (approximates fair value)	216,793	363,053
Other investments, at fair value (amortized cost: 2012 -$18,375 and 2011-$38,037)	18	20,925
Other assets	166,845	130,143
Total assets	10,153,494	10,267,807
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable	639,021	583,944
Accounts payable and accrued liabilities	527,260	875,574
Liabilities	6,648,111	6,725,195
Total shareholders' equity	3,505,383	3,542,612
Liabilities and Stockholders' Equity	$ 10,153,494	$ 10,267,807

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Stock based compensation (Details 3) (USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Common stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares	20
Weighted-average grant date fair value, awarded	$ 42.38
Aggregate fair value	$ 840
Restricted stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares	160
Weighted-average grant date fair value, awarded	$ 40.83
Aggregate fair value	6,544
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

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Earnings Per Share (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Earnings Per Share, Basic and Diluted
Net earnings	$ 88,162	$ 93,493	$ 194,012	$ 176,077
Less: net earnings attributable to unvested restricted stock	(1,445)	(1,775)	(3,227)	(3,238)
Net earnings available to common stock	$ 86,717	$ 91,718	$ 190,785	$ 172,839
Weighted-average common shares outstanding	98,870	99,563	98,965	100,802
Dilutive effect of outstanding options (determined using treasury stock method)	251	288	245	181
Weighted-average common shares and potential common shares outstanding	99,121	99,851	99,210	100,983
Anti-dilutive stock options not included in treasury stock method computation	109	642	89	1,990

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Accumulated Other Comprehensive Income

6 Months Ended

Jun. 30, 2013

Accumulated Other Comprehensive Income [Abstract]

Accumulated Other Comprehensive Income [Text Block]

(8) 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			(25,639)		(1,532)		(27,171)
	Balance at March 31, 2013		256,864		11,236		268,100
Other comprehensive income (loss)			(142,922)		941		(141,981)
	Balance at June 30, 2013	$	113,942	$	12,177	$	126,119

The reductions in net unrealized investment gains (losses)during 2013, shown in the table above, included reclassifications of amounts into net earnings. The reclassifications recorded in our consolidated statements of earnings were as follows:

		Six months		Three months
		ended		ended
		June 30, 2013		June 30, 2013
Net realized investment gain		$	13,193	$	4,623
Income tax expense			4,618		1,619
	Total reclassifications	$	8,575	$	3,004

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Investments
Total fixed maturity securities, Available for sale, Cost or amortized cost	$ 5,943,160	$ 5,856,432
Fair value for equity securities-available for sale, at cost	323,249	275,827
Other investments, cost	$ 16	$ 18,391
SHAREHOLDERS' EQUITY
Common stock, par value	$ 1.00	$ 1.00
Common stock, shares authorized	250,000	250,000
Common stock, shares issued	125,350	125,114
Common stock, shares outstanding	100,140	100,928
Treasury stock	25,210	24,186

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Investments (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Fixed Maturity Securities, Amortized Cost Basis	$ 5,943,160	$ 5,856,432
Gross unrealized gain	235,082	429,899
Gross unrealized loss	(83,602)	(4,550)
Fixed maturity securities - available for sale	6,094,640	6,281,781
Gross unrealized losses and fair value of all available for sale fixed maturity securities that were in a continuous loss position
Less than 12 months, Fair value	1,872,370	496,746
Less than 12 months, Unrealized losses	(89,030)	(9,371)
12 months or more, Fair value	16,563	2,616
12 months or more, Unrealized losses	(1,150)	(135)
Total, Fair value	1,888,933	499,362
Total, Unrealized losses	(90,180)	(9,506)
Available for sale equity securities
Available-for-sale Equity Securities, Amortized Cost Basis	323,249	275,827
Gross unrealized gain	31,169	13,768
Gross unrealized loss	(6,578)	(4,956)
Available-for-sale Securities, Equity Securities	347,840	284,639
US Government and Government Agency Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Fixed Maturity Securities, Amortized Cost Basis	120,951	195,049
Gross unrealized gain	3,076	4,560
Gross unrealized loss	(363)	(2)
Fixed maturity securities - available for sale	123,664	199,607
Gross unrealized losses and fair value of all available for sale fixed maturity securities that were in a continuous loss position
Less than 12 months, Fair value	20,667	55,034
Less than 12 months, Unrealized losses	(363)	(2)
12 months or more, Fair value	0	0
12 months or more, Unrealized losses	0	0
Total, Fair value	20,667	55,034
Total, Unrealized losses	(363)	(2)
Fixed Maturity Securities of States, Municipalities and Political Subdivisions Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Fixed Maturity Securities, Amortized Cost Basis	974,153	969,966
Gross unrealized gain	60,281	96,027
Gross unrealized loss	(4,617)	(182)
Fixed maturity securities - available for sale	1,029,817	1,065,811
Gross unrealized losses and fair value of all available for sale fixed maturity securities that were in a continuous loss position
Less than 12 months, Fair value	97,408	14,162
Less than 12 months, Unrealized losses	(4,617)	(182)
12 months or more, Fair value	0	0
12 months or more, Unrealized losses	0	0
Total, Fair value	97,408	14,162
Total, Unrealized losses	(4,617)	(182)
Special Purpose Revenue Bonds Of States Municipalities And Political Subdivisions [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Fixed Maturity Securities, Amortized Cost Basis	2,218,302	2,033,947
Gross unrealized gain	91,093	168,772
Gross unrealized loss	(37,775)	(2,388)
Fixed maturity securities - available for sale	2,271,620	2,200,331
Gross unrealized losses and fair value of all available for sale fixed maturity securities that were in a continuous loss position
Less than 12 months, Fair value	648,672	155,902
Less than 12 months, Unrealized losses	(37,753)	(2,388)
12 months or more, Fair value	1,197	0
12 months or more, Unrealized losses	(22)	0
Total, Fair value	649,869	155,902
Total, Unrealized losses	(37,775)	(2,388)
Corporate Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Fixed Maturity Securities, Amortized Cost Basis	1,215,761	1,247,282
Gross unrealized gain	34,077	69,243
Gross unrealized loss	(13,193)	(1,355)
Fixed maturity securities - available for sale	1,236,645	1,315,170
Gross unrealized losses and fair value of all available for sale fixed maturity securities that were in a continuous loss position
Less than 12 months, Fair value	419,283	85,245
Less than 12 months, Unrealized losses	(12,406)	(1,220)
12 months or more, Fair value	12,534	2,616
12 months or more, Unrealized losses	(787)	(135)
Total, Fair value	431,817	87,861
Total, Unrealized losses	(13,193)	(1,355)
Residential Mortgage Backed Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Fixed Maturity Securities, Amortized Cost Basis	601,437	632,665
Gross unrealized gain	17,204	32,560
Gross unrealized loss	(13,146)	(338)
Fixed maturity securities - available for sale	605,495	664,887
Gross unrealized losses and fair value of all available for sale fixed maturity securities that were in a continuous loss position
Less than 12 months, Fair value	278,062	49,486
Less than 12 months, Unrealized losses	(13,146)	(338)
12 months or more, Fair value	0	0
12 months or more, Unrealized losses	0	0
Total, Fair value	278,062	49,486
Total, Unrealized losses	(13,146)	(338)
Commercial Mortgage Backed Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Fixed Maturity Securities, Amortized Cost Basis	529,714	482,808
Gross unrealized gain	19,377	41,748
Gross unrealized loss	(12,892)	(267)
Fixed maturity securities - available for sale	536,199	524,289
Gross unrealized losses and fair value of all available for sale fixed maturity securities that were in a continuous loss position
Less than 12 months, Fair value	224,294	26,263
Less than 12 months, Unrealized losses	(12,892)	(267)
12 months or more, Fair value	0	0
12 months or more, Unrealized losses	0	0
Total, Fair value	224,294	26,263
Total, Unrealized losses	(12,892)	(267)
Asset-backed Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Fixed Maturity Securities, Amortized Cost Basis	54,478	32,801
Gross unrealized gain	219	474
Gross unrealized loss	(406)	0
Fixed maturity securities - available for sale	54,291	33,275
Gross unrealized losses and fair value of all available for sale fixed maturity securities that were in a continuous loss position
Less than 12 months, Fair value	18,066
Less than 12 months, Unrealized losses	(406)
12 months or more, Fair value	0
12 months or more, Unrealized losses	0
Total, Fair value	18,066
Total, Unrealized losses	(406)
Foreign Government Securities [Member]
Fixed Maturity & Equity securities Available for Sale
Available-for-sale Fixed Maturity Securities, Amortized Cost Basis	228,364	261,914
Gross unrealized gain	9,755	16,515
Gross unrealized loss	(1,210)	(18)
Fixed maturity securities - available for sale	236,909	278,411
Gross unrealized losses and fair value of all available for sale fixed maturity securities that were in a continuous loss position
Less than 12 months, Fair value	67,832	7,007
Less than 12 months, Unrealized losses	(1,210)	(18)
12 months or more, Fair value	0	0
12 months or more, Unrealized losses	0	0
Total, Fair value	67,832	7,007
Total, Unrealized losses	(1,210)	(18)
Equity Securities [Member]
Gross unrealized losses and fair value of all available for sale fixed maturity securities that were in a continuous loss position
Less than 12 months, Fair value	98,086	103,647
Less than 12 months, Unrealized losses	(6,237)	(4,956)
12 months or more, Fair value	2,832	0
12 months or more, Unrealized losses	(341)	0
Total, Fair value	100,918	103,647
Total, Unrealized losses	$ (6,578)	$ (4,956)

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Consolidated Statement of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Statement of Income and Comprehensive Income [Abstract]
Net earnings	$ 88,162	$ 93,493	$ 194,012	$ 176,077
Investment gains (losses):
Investment gains (losses) during the period	(217,034)	39,673	(247,429)	61,313
Income tax charge (benefit)	(77,116)	14,501	(87,443)	21,804
Investments gains (losses), net of tax	(139,918)	25,172	(159,986)	39,509
Less reclassification adjustments for:
Gains included in net earnings	4,623	6,488	13,193	6,659
Income tax charge	1,619	2,271	4,618	2,331
Gains included in net earnings, net of tax	3,004	4,217	8,575	4,328
Net unrealized investment gains (losses)	(142,922)	20,955	(168,561)	35,181
Foreign currency translation adjustment	911	(5,846)	(1,145)	(3,313)
Income tax benefit	(30)	(372)	(554)	(249)
Foreign currency translation adjustment, net of tax	941	(5,474)	(591)	(3,064)
Other comprehensive income (loss)	(141,981)	15,481	(169,152)	32,117
Comprehensive income (loss)	$ (53,819)	$ 108,974	$ 24,860	$ 208,194

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Segments (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Information by business segment
Net earned premium	$ 561,356	$ 565,331	$ 1,122,542	$ 1,112,472
Other revenue	68,075	66,957	141,255	129,339
Total revenue	629,431	632,288	1,263,797	1,241,811
Loss and LAE	339,474	336,825	672,171	665,753
Other expense	165,126	161,144	315,399	324,779
Segment Expense	504,600	497,969	987,570	990,532
Segment Pre Tax Earnings (Loss)	124,831	134,319	276,227	251,279
U.S. Property & Casualty [Member]
Information by business segment
Net earned premium	91,432	88,834	184,963	177,852
Other revenue	4,245	4,522	11,429	6,885
Total revenue	95,677	93,356	196,392	184,737
Loss and LAE	55,238	51,666	107,394	100,927
Other expense	25,452	30,045	52,757	59,767
Segment Expense	80,690	81,711	160,151	160,694
Segment Pre Tax Earnings (Loss)	14,987	11,645	36,241	24,043
Professional Liability [Member]
Information by business segment
Net earned premium	92,444	99,467	185,223	200,905
Other revenue	739	134	325	267
Total revenue	93,183	99,601	185,548	201,172
Loss and LAE	55,435	65,168	111,821	134,323
Other expense	18,124	18,676	35,872	36,207
Segment Expense	73,559	83,844	147,693	170,530
Segment Pre Tax Earnings (Loss)	19,624	15,757	37,855	30,642
Accident & Health [Member]
Information by business segment
Net earned premium	217,822	208,147	434,947	415,028
Other revenue	1,140	1,157	2,330	2,494
Total revenue	218,962	209,304	437,277	417,522
Loss and LAE	160,139	154,396	320,566	306,918
Other expense	32,583	30,948	63,709	61,102
Segment Expense	192,722	185,344	384,275	368,020
Segment Pre Tax Earnings (Loss)	26,240	23,960	53,002	49,502
U.S. Surety & Credit [Member]
Information by business segment
Net earned premium	50,054	53,115	97,231	100,844
Other revenue	384	200	621	415
Total revenue	50,438	53,315	97,852	101,259
Loss and LAE	5,637	15,690	18,851	26,723
Other expense	27,402	27,403	53,681	55,523
Segment Expense	33,039	43,093	72,532	82,246
Segment Pre Tax Earnings (Loss)	17,399	10,222	25,320	19,013
International [Member]
Information by business segment
Net earned premium	105,270	105,188	210,412	196,472
Other revenue	1,124	941	1,902	2,135
Total revenue	106,394	106,129	212,314	198,607
Loss and LAE	58,997	41,856	104,916	79,623
Other expense	36,212	36,612	71,921	68,765
Segment Expense	95,209	78,468	176,837	148,388
Segment Pre Tax Earnings (Loss)	11,185	27,661	35,477	50,219
Investing [Member]
Information by business segment
Net earned premium	0	0	0	0
Other revenue	60,291	59,769	124,626	116,950
Total revenue	60,291	59,769	124,626	116,950
Loss and LAE	0	0	0	0
Other expense	0	0	0	0
Segment Expense	0	0	0	0
Segment Pre Tax Earnings (Loss)	60,291	59,769	124,626	116,950
Corporate & Other [Member]
Information by business segment
Net earned premium	4,334	10,580	9,766	21,371
Other revenue	152	234	22	193
Total revenue	4,486	10,814	9,788	21,564
Loss and LAE	4,028	8,049	8,623	17,239
Other expense	25,353	17,460	37,459	43,415
Segment Expense	29,381	25,509	46,082	60,654
Segment Pre Tax Earnings (Loss)	$ (24,895)	$ (14,695)	$ (36,294)	$ (39,090)

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Investments
Fixed maturity securities - available for sale, at fair value (amortized cost: 2013 - $5,943,160 and 2012 - $5,856,432)	$ 6,094,640	$ 6,281,781
Equity securities - available for sale, at fair value (cost: 2013 - $323,249 and 2012 - $275,827)	347,840	284,639
Short-term investments, at cost (approximates fair value)	216,793	363,053
Other investments, at fair value (cost: 2013 - $16 and 2012 - $18,391)	18	20,925
Total investments	6,659,291	6,950,398
Cash	39,353	71,390
Restricted cash and securities	115,031	101,480
Premium, claims and other receivables	648,438	549,725
Reinsurance recoverables	1,086,435	1,071,222
Ceded unearned premium	291,939	256,988
Ceded life and annuity benefits	57,841	58,641
Deferred policy acquisition costs	202,322	191,960
Goodwill	885,999	885,860
Other assets	166,845	130,143
Total assets	10,153,494	10,267,807
LIABILITIES
Loss and loss adjustment expense payable	3,814,684	3,767,850
Life and annuity policy benefits	57,841	58,641
Reinsurance, premium and claims payable	337,666	294,621
Unearned premium	1,189,520	1,069,956
Deferred ceding commissions	82,119	74,609
Notes payable	639,021	583,944
Accounts payable and accrued liabilities	527,260	875,574
Total liabilities	6,648,111	6,725,195
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; 250,000 shares authorized (shares issued: 2013 - 125,350 and 2012 - 125,114; outstanding: 2013 - 100,140 and 2012 - 100,928)	125,350	125,114
Additional paid-in capital	1,063,949	1,052,253
Retained earnings	2,917,086	2,756,166
Accumulated other comprehensive income	126,119	295,271
Treasury stock, at cost (shares: 2013 - 25,210 and 2012 - 24,186)	(727,121)	(686,192)
Total shareholders' equity	3,505,383	3,542,612
Total liabilities and shareholders' equity	$ 10,153,494	$ 10,267,807

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Stock based Compensation

6 Months Ended

Jun. 30, 2013

Stock based Compensation [Abstract]

Stock based Compensation

(10) Stock-Based Compensation

In 2013, we granted the following shares of common stock, shares of restricted stock, 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
Common stock	20	$	42.38	$	840	None
Restricted stock	160		40.83		6,544	1-4 years
Restricted stock units	16		40.66		661	4 years
Stock options	109		7.83		849	1-5 years

For grants of common stock, we measure fair value based on the closing stock price of our common stock on the grant date and expense it on the grant date.

Certain awards of restricted stock and restricted stock 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 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. Theseawards 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. This restricted stockvestsafter 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 shares to vest. No dividends are earned during the vesting period on these shares.

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.

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Reinsurance

6 Months Ended

Jun. 30, 2013

Reinsurance [Abstract]

Reinsurance

(5) Reinsurance

In the normal course of business, our insurance companies cede a portion of their premium to 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.

		Six months ended June 30,				Three months ended June 30,
		2013		2012		2013		2012
Direct written premium		$	1,294,681	$	1,222,766	$	713,110	$	677,996
Reinsurance assumed			234,967		251,476		96,333		113,557
Reinsurance ceded			(321,430)		(273,750)		(180,409)		(149,465)
	Net written premium	$	1,208,218	$	1,200,492	$	629,034	$	642,088
Direct earned premium		$	1,237,629	$	1,193,537	$	621,224	$	602,354
Reinsurance assumed			171,308		168,882		86,036		86,544
Reinsurance ceded			(286,395)		(249,947)		(145,904)		(123,567)
	Net earned premium	$	1,122,542	$	1,112,472	$	561,356	$	565,331
Direct loss and loss adjustment expense		$	693,480	$	727,921	$	335,968	$	362,529
Reinsurance assumed			110,708		61,035		71,017		24,326
Reinsurance ceded			(132,017)		(123,203)		(67,511)		(50,030)
	Net loss and loss adjustment expense	$	672,171	$	665,753	$	339,474	$	336,825

			Six months ended June 30,			Three months ended June 30,
		2013		2012		2013		2012
Policy acquisition costs		$	204,031	$	198,156	$	103,745	$	102,421
Ceding commissions			(66,286)		(54,222)		(32,949)		(27,931)
	Net policy acquisition costs	$	137,745	$	143,934	$	70,796	$	74,490

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

		June 30,		December 31,
		2013		2012
Reinsurance recoverable on paid losses		$	84,272	$	54,675
Reinsurance recoverable on outstanding losses			457,227		479,026
Reinsurance recoverable on incurred but not reported losses			546,436		539,021
Reserve for uncollectible reinsurance			(1,500)		(1,500)
	Total reinsurance recoverables	$	1,086,435	$	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 June 30, 2013 and December 31, 2012.

		June 30,		December 31,
		2013		2012
Payables to reinsurers		$	208,483	$	190,228
Letters of credit			87,033		89,832
Cash			89,469		116,597
	Total credits	$	384,985	$	396,657

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

		June 30,		December 31,
		2013		2012
Loss and loss adjustment expense payable		$	3,814,684	$	3,767,850
Reinsurance recoverable on outstanding losses			(457,227)		(479,026)
Reinsurance recoverable on incurred but not reported losses			(546,436)		(539,021)
	Net reserves	$	2,811,021	$	2,749,803
Unearned premium		$	1,189,520	$	1,069,956
Ceded unearned premium			(291,939)		(256,988)
	Net unearned premium	$	897,581	$	812,968
Deferred policy acquisition costs		$	202,322	$	191,960
Deferred ceding commissions			(82,119)		(74,609)
	Net deferred policy acquisition costs	$	120,203	$	117,351

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Fair Value Measurements

6 Months Ended

Jun. 30, 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 (including collateralized loan obligations), 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 June 30, 2013 or December 31, 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.

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
June 30, 2013
Fixed maturity securities
	U.S. government and government agency securities		$	103,294	$	20,370	$	0	$	123,664
	Fixed maturity securities of states, municipalities and
		political subdivisions		0		1,029,817		0		1,029,817
	Special purpose revenue bonds of states, municipalities
		and political subdivisions		0		2,262,343		9,277		2,271,620
	Corporate securities			0		1,236,476		169		1,236,645
	Residential mortgage-backed securities			0		605,495		0		605,495
	Commercial mortgage-backed securities			0		536,199		0		536,199
	Asset-backed securities			0		54,291		0		54,291
	Foreign government securities			0		236,909		0		236,909
		Total fixed maturity securities		103,294		5,981,900		9,446		6,094,640
Equity securities				347,840		0		0		347,840
Short-term investments*				115,965		100,828		0		216,793
Other investments				18		0		0		18
Restricted cash and securities				0		1,848		0		1,848
Premium, claims and other receivables				0		62,118		0		62,118
Other assets				0		0		589		589
	Total assets measured at fair value		$	567,117	$	6,146,694	$	10,035	$	6,723,846
Notes payable*			$	0	$	688,240	$	-	$	688,240
Accounts payable and accrued liabilities - forward contract				0		2,283		-		2,283
Accounts payable and accrued liabilities - earnout liability				0		1,848		7,133		8,981
	Total liabilities measured at fair value		$	0	$	692,371	$	7,133	$	699,504

__________

* 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
Gains (losses) reported in:
	Net earnings		15		130		145		62		(1)		116		115
	Other comprehensive income (loss)		(184)		0		(184)		0		3		0		3
	Balance at June 30	$	9,446	$	589	$	10,035	$	7,133	$	159	$	1,847	$	2,006

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.

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Income Taxes (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Components Of Income Tax Expense Benefit Continuing Operations Abstract
Income tax expense	$ 36,669	$ 40,826	$ 82,215	$ 75,202

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Stock based Compensation (Details 2) (USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Restricted stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested [Roll Forward]
Number of shares	160
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Weighted-average grant date fair value, awarded	$ 40.83
Restricted stock units (RSU) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested [Roll Forward]
Number of shares	16
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Weighted-average grant date fair value, awarded	$ 40.66

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Supplemental Information

6 Months Ended

Jun. 30, 2013

Supplemental Information [Abstract]

Supplemental Information

(13) Supplemental Information

Supplemental cash flow information was as follows:

	Six months ended June 30,				Three months ended June 30,
	2013		2012		2013		2012
Income taxes paid	$	99,941	$	39,448	$	67,799	$	33,664
Interest paid		13,322		12,000		11,932		10,929
Proceeds from sales of available for sale fixed maturity securities		171,801		218,572		13,666		153,469
Proceeds from sales of equity securities		44,308		1,739		26,500		1,739
Dividends declared but not paid at end of period		16,523		15,618

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Notes Payable

6 Months Ended

Jun. 30, 2013

Notes Payable [Abstract]

Notes Payable

(7) Notes Payable

Our notes payable consisted of the following:

		June 30,		December 31,
		2013		2012
6.30% Senior Notes		$	299,021	$	298,944
$600.0 million Revolving Loan Facility			340,000		285,000
	Total notes payable	$	639,021	$	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. The weighted-average interest rate on borrowings under the Facility at June 30, 2013 was 1.44%.The borrowings and letters of credit issued under the Facility reduced our available borrowing capacity on the Facilityto $253.6million at June 30, 2013.

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.

We were in compliance with debt covenants related to our 6.30% Senior Notes, the Facility and the Standby Facility at June 30, 2013.

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Reinsurance (Details 5) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Calculation of net reserves, net unearned premium and net deferred policy acquisition costs
Loss and loss adjustment expense payable	$ 3,814,684	$ 3,767,850
Reinsurance recoverable on outstanding losses	(457,227)	(479,026)
Reinsurance recoverable on incurred but not reported losses	(546,436)	(539,021)
Net reserves	2,811,021	2,749,803
Unearned premium	1,189,520	1,069,956
Ceded unearned premium	(291,939)	(256,988)
Net unearned premium	897,581	812,968
Deferred policy acquisition costs	202,322	191,960
Deferred ceding commissions	(82,119)	(74,609)
Net deferred policy acquisition costs	$ 120,203	$ 117,351

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Liability for Unpaid Loss and Loss Adjustment Expense	6 Months Ended
	Jun. 30, 2013
Liability for Unpaid Loss and Loss Adjustment Expense
Liability for Unpaid Claims and Claims Adjustment Expense Schedule, Discussion	(6) Liability for Unpaid Loss and Loss Adjustment Expense In the first six months and second quarter of 2013, we recognized favorable net loss development of $9.5 million in our U.S. Surety & Credit segment and $2.3 million in our International segment, resulting from our quarterly review of reserves. Our second quarter review indicated that continued lower than expected claims activity related to older underwriting years was contributing to a growing redundancy in our U.S. Surety & Credit segment. As a result, we recognized favorable net development of $3.7 million and $5.8 million for our surety and credit lines of business, respectively, related to the 2010 and prior underwriting years. In the International segment, we released prior year catastrophe reserves related to the 2010 New Zealand earthquake, due to settlement of these claims in 2013. We recognized no loss development in the first six months or second quarter of 2012. A recent ruling against another insurance company by the Spanish supreme court regarding a specific class of Spanish surety bonds, which are similar to those written by our Spanish subsidiary, may result in an increase in our recorded loss reserves for surety claims in our International segment. At the present time, it is not possible for us to determine the impact, if any, on our recorded reserves until we complete our analysis of the applicability of this ruling to our bonds. The court’s ruling is expected to be published in the third quarter of 2013.

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Investments (Tables)

6 Months Ended

Jun. 30, 2013

Investment [Abstract]

Fixed Maturity & Equity Securities Available For Sale

		Cost or		Gross		Gross
		amortized		unrealized		unrealized
		cost		gain		loss		Fair value
June 30, 2013
U.S. government and government agency securities		$	120,951	$	3,076	$	(363)	$	123,664
Fixed maturity securities of states, municipalities and
	political subdivisions		974,153		60,281		(4,617)		1,029,817
Special purpose revenue bonds of states, municipalities and
	political subdivisions		2,218,302		91,093		(37,775)		2,271,620
Corporate securities			1,215,761		34,077		(13,193)		1,236,645
Residential mortgage-backed securities			601,437		17,204		(13,146)		605,495
Commercial mortgage-backed securities			529,714		19,377		(12,892)		536,199
Asset-backed securities			54,478		219		(406)		54,291
Foreign government securities			228,364		9,755		(1,210)		236,909
	Total fixed maturity securities	$	5,943,160	$	235,082	$	(83,602)	$	6,094,640
Equity securities		$	323,249	$	31,169	$	(6,578)	$	347,840

		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
June 30, 2013
Fixed maturity securities
	U.S. government and government agency
			securities	$	20,667	$	(363)	$	0	$	0	$	20,667	$	(363)
	Fixed maturity securities of states,
		municipalities and political subdivisions			97,408		(4,617)		0		0		97,408		(4,617)
	Special purpose revenue bonds of states,
		municipalities and political subdivisions			648,672		(37,753)		1,197		(22)		649,869		(37,775)
	Corporate securities				419,283		(12,406)		12,534		(787)		431,817		(13,193)
	Residential mortgage-backed securities				278,062		(13,146)		0		0		278,062		(13,146)
	Commercial mortgage-backed securities				224,294		(12,892)		0		0		224,294		(12,892)
	Asset-backed securities				18,066		(406)		0		0		18,066		(406)
	Foreign government securities				67,832		(1,210)		0		0		67,832		(1,210)
Equity securities					98,086		(6,237)		2,832		(341)		100,918		(6,578)
			Total	$	1,872,370	$	(89,030)	$	16,563	$	(1,150)	$	1,888,933	$	(90,180)

				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		$	217,012	$	219,433
Due after 1 year through 5 years			1,062,230		1,098,261
Due after 5 years through 10 years			1,456,485		1,524,386
Due after 10 years through 15 years			1,020,759		1,045,896
Due after 15 years			1,001,045		1,010,679
	Securities with contractual maturities		4,757,531		4,898,655
Mortgage-backed and asset-backed securities			1,185,629		1,195,985
	Total fixed maturity securities	$	5,943,160	$	6,094,640

Sources of net investment income

			Six months ended June 30,				Three months ended June 30,
			2013		2012		2013		2012
Fixed maturity securities
	Taxable		$	51,022	$	58,218	$	25,062	$	27,103
	Exempt from U.S. income taxes			56,075		52,872		28,186		26,260
		Total fixed maturity securities		107,097		111,090		53,248		53,363
Equity securities				7,808		993		4,228		993
Short-term investments				80		102		68		40
Other investment income				319		868		366		401
	Total investment income			115,304		113,053		57,910		54,797
Investment expense				(3,871)		(2,753)		(2,242)		(1,507)
	Net investment income		$	111,433	$	110,300	$	55,668	$	53,290

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Segments (Details 4) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Segment Reporting Information [Line Items]
Total assets	$ 10,153,494	$ 10,267,807

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Reinsurance (Tables)

6 Months Ended

Jun. 30, 2013

Reinsurance [Abstract]

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

		Six months ended June 30,				Three months ended June 30,
		2013		2012		2013		2012
Direct written premium		$	1,294,681	$	1,222,766	$	713,110	$	677,996
Reinsurance assumed			234,967		251,476		96,333		113,557
Reinsurance ceded			(321,430)		(273,750)		(180,409)		(149,465)
	Net written premium	$	1,208,218	$	1,200,492	$	629,034	$	642,088
Direct earned premium		$	1,237,629	$	1,193,537	$	621,224	$	602,354
Reinsurance assumed			171,308		168,882		86,036		86,544
Reinsurance ceded			(286,395)		(249,947)		(145,904)		(123,567)
	Net earned premium	$	1,122,542	$	1,112,472	$	561,356	$	565,331
Direct loss and loss adjustment expense		$	693,480	$	727,921	$	335,968	$	362,529
Reinsurance assumed			110,708		61,035		71,017		24,326
Reinsurance ceded			(132,017)		(123,203)		(67,511)		(50,030)
	Net loss and loss adjustment expense	$	672,171	$	665,753	$	339,474	$	336,825

			Six months ended June 30,			Three months ended June 30,
		2013		2012		2013		2012
Policy acquisition costs		$	204,031	$	198,156	$	103,745	$	102,421
Ceding commissions			(66,286)		(54,222)		(32,949)		(27,931)
	Net policy acquisition costs	$	137,745	$	143,934	$	70,796	$	74,490

Components of our reinsurance recoverables

		June 30,		December 31,
		2013		2012
Reinsurance recoverable on paid losses		$	84,272	$	54,675
Reinsurance recoverable on outstanding losses			457,227		479,026
Reinsurance recoverable on incurred but not reported losses			546,436		539,021
Reserve for uncollectible reinsurance			(1,500)		(1,500)
	Total reinsurance recoverables	$	1,086,435	$	1,071,222

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

		June 30,		December 31,
		2013		2012
Payables to reinsurers		$	208,483	$	190,228
Letters of credit			87,033		89,832
Cash			89,469		116,597
	Total credits	$	384,985	$	396,657

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

		June 30,		December 31,
		2013		2012
Loss and loss adjustment expense payable		$	3,814,684	$	3,767,850
Reinsurance recoverable on outstanding losses			(457,227)		(479,026)
Reinsurance recoverable on incurred but not reported losses			(546,436)		(539,021)
	Net reserves	$	2,811,021	$	2,749,803
Unearned premium		$	1,189,520	$	1,069,956
Ceded unearned premium			(291,939)		(256,988)
	Net unearned premium	$	897,581	$	812,968
Deferred policy acquisition costs		$	202,322	$	191,960
Deferred ceding commissions			(82,119)		(74,609)
	Net deferred policy acquisition costs	$	120,203	$	117,351

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Notes Payable (Detail Textuals) (USD $)	6 Months Ended
	Jun. 30, 2013
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	1.25%
Contractual interest rate on borrowing under facility	1.44%
Commitment fees basis points for revolving loan facility	0.15%
Remaining borrowing capacity under Revolving Loan Facility as reduced by outstanding letters of credit	$ 253,600,000
Line of credit facility expiration date	Apr. 26, 2017

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Investments (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Other than temporary impairment credit losses
Net other-than-temporary impairment loss recognized in earnings	$ 0	$ (397)	$ 0	$ (397)

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Investments

6 Months Ended

Jun. 30, 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
June 30, 2013
U.S. government and government agency securities		$	120,951	$	3,076	$	(363)	$	123,664
Fixed maturity securities of states, municipalities and
	political subdivisions		974,153		60,281		(4,617)		1,029,817
Special purpose revenue bonds of states, municipalities and
	political subdivisions		2,218,302		91,093		(37,775)		2,271,620
Corporate securities			1,215,761		34,077		(13,193)		1,236,645
Residential mortgage-backed securities			601,437		17,204		(13,146)		605,495
Commercial mortgage-backed securities			529,714		19,377		(12,892)		536,199
Asset-backed securities			54,478		219		(406)		54,291
Foreign government securities			228,364		9,755		(1,210)		236,909
	Total fixed maturity securities	$	5,943,160	$	235,082	$	(83,602)	$	6,094,640
Equity securities		$	323,249	$	31,169	$	(6,578)	$	347,840

		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
June 30, 2013
Fixed maturity securities
	U.S. government and government agency
			securities	$	20,667	$	(363)	$	0	$	0	$	20,667	$	(363)
	Fixed maturity securities of states,
		municipalities and political subdivisions			97,408		(4,617)		0		0		97,408		(4,617)
	Special purpose revenue bonds of states,
		municipalities and political subdivisions			648,672		(37,753)		1,197		(22)		649,869		(37,775)
	Corporate securities				419,283		(12,406)		12,534		(787)		431,817		(13,193)
	Residential mortgage-backed securities				278,062		(13,146)		0		0		278,062		(13,146)
	Commercial mortgage-backed securities				224,294		(12,892)		0		0		224,294		(12,892)
	Asset-backed securities				18,066		(406)		0		0		18,066		(406)
	Foreign government securities				67,832		(1,210)		0		0		67,832		(1,210)
Equity securities					98,086		(6,237)		2,832		(341)		100,918		(6,578)
			Total	$	1,872,370	$	(89,030)	$	16,563	$	(1,150)	$	1,888,933	$	(90,180)

				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 six months of 2013 and $0.4 million in the first six months and second quarterof 2012.

We do not consider the $90.2million of gross unrealized losses on fixed maturity and equity securities in our portfolio atJune 30, 2013 to be other-than-temporary impairments because: 1) as of June 30, 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 primarily relates to non-credit factors, such as interest rate changes and market conditions that occurred in the second quarter of 2013.

The amortized cost and fair value of our fixed maturity securities at June 30, 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 6.2years at June 30, 2013.

		Cost or amortized cost		Fair value
Due in 1 year or less		$	217,012	$	219,433
Due after 1 year through 5 years			1,062,230		1,098,261
Due after 5 years through 10 years			1,456,485		1,524,386
Due after 10 years through 15 years			1,020,759		1,045,896
Due after 15 years			1,001,045		1,010,679
	Securities with contractual maturities		4,757,531		4,898,655
Mortgage-backed and asset-backed securities			1,185,629		1,195,985
	Total fixed maturity securities	$	5,943,160	$	6,094,640

The sources of net investment income were as follows:

			Six months ended June 30,				Three months ended June 30,
			2013		2012		2013		2012
Fixed maturity securities
	Taxable		$	51,022	$	58,218	$	25,062	$	27,103
	Exempt from U.S. income taxes			56,075		52,872		28,186		26,260
		Total fixed maturity securities		107,097		111,090		53,248		53,363
Equity securities				7,808		993		4,228		993
Short-term investments				80		102		68		40
Other investment income				319		868		366		401
	Total investment income			115,304		113,053		57,910		54,797
Investment expense				(3,871)		(2,753)		(2,242)		(1,507)
	Net investment income		$	111,433	$	110,300	$	55,668	$	53,290

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Consolidated Statement of Changes in Shareholders' Equity (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Issuance of 250 shares for exercise of options, including tax effect	250
Purchase of 1,024 common shares	1,024
Cash dividends declared, $0.33 per share	$ 0.33

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Stock Based Compensation (Tables)

6 Months Ended

Jun. 30, 2013

Share-based Compensation [Abstract]

Schedule Of Share Based Payment Awards Assumptions [Table Text Block]

		Weighted-average
	Number	grant date		Aggregate		Vesting
	of shares	fair value		fair value		period
Common stock	20	$	42.38	$	840	None
Restricted stock	160		40.83		6,544	1-4 years
Restricted stock units	16		40.66		661	4 years
Stock options	109		7.83		849	1-5 years

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Accumulated Other Comprehensive Income (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended		3 Months Ended				6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Accumulated Net Unrealized Investment Gain (Loss) [Member]	Mar. 31, 2013 Accumulated Net Unrealized Investment Gain (Loss) [Member]	Jun. 30, 2013 Accumulated Translation Adjustment [Member]	Mar. 31, 2013 Accumulated Translation Adjustment [Member]	Jun. 30, 2013 Accumulated other comprehensive income
Accumulated Other Comprehensive Income (Loss), Net of Tax, Beginning Balance	$ 268,100		$ 295,271		$ 256,864	$ 282,503	$ 11,236	$ 12,768
Other Comprehensive Loss Net Of Tax	(141,981)	15,481	(169,152)	32,117	(142,922)	(25,639)	941	(1,532)	(169,152)
Accumulated Other Comprehensive Income (Loss), Net of Tax, Ending Balance	126,119		126,119		113,942	256,864	12,177	11,236
Net realized investment gain	4,623	6,488	13,193	6,659
Income tax expense	1,619	2,271	4,618	2,331
Total reclassifications	$ 3,004	$ 4,217	$ 8,575	$ 4,328

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Reinsurance (Details 3) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Reserve for potentially uncollectible amounts
Balance at beginning of year	$ 1,500	$ 1,500
Balance at end of year	$ 1,500	$ 1,500

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Supplemental Information (Tables)

6 Months Ended

Jun. 30, 2013

Supplemental Information [Abstract]

Supplemental Information

	Six months ended June 30,				Three months ended June 30,
	2013		2012		2013		2012
Income taxes paid	$	99,941	$	39,448	$	67,799	$	33,664
Interest paid		13,322		12,000		11,932		10,929
Proceeds from sales of available for sale fixed maturity securities		171,801		218,572		13,666		153,469
Proceeds from sales of equity securities		44,308		1,739		26,500		1,739
Dividends declared but not paid at end of period		16,523		15,618

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Segments (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Segment Reporting Information [Line Items]
Assets	$ 10,153,494	$ 10,267,807

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Investments (Details 5) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Realized pretax gains-losses-on the sale of investments excluding temporary impairment losses
Net realized investment gain (loss)	$ 4,623	$ 6,876	$ 13,193	$ 7,047

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Investments (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fixed Maturity Securities Held To Maturity
Held to maturity, amortized cost basis	$ 0	$ 0
Fair value	$ 0	$ 0

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Quarterly Information (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Quarterly Financial Data (Unaudited) [Abstract]
Net earned premium	$ 561,356	$ 565,331	$ 1,122,542	$ 1,112,472
Other revenue	68,075	66,957	141,255	129,339
Total revenue	629,431	632,288	1,263,797	1,241,811
Loss and loss adjustment expense, net	339,474	336,825	672,171	665,753
Other expense	165,126	161,144	315,399	324,779
Total expense	504,600	497,969	987,570	990,532
Earnings before income taxes	124,831	134,319	276,227	251,279
Income tax expense	36,669	40,826	82,215	75,202
Net earnings	$ 88,162	$ 93,493	$ 194,012	$ 176,077
Earnings per share
Basic	$ 0.88	$ 0.92	$ 1.93	$ 1.71
Diluted	$ 0.87	$ 0.92	$ 1.92	$ 1.71
Weighted-average shares outstanding
Basic	98,870	99,563	98,965	100,802
Diluted	99,121	99,851	99,210	100,983

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Derivatives (Detail Textuals)	Jun. 30, 2013 USD ($)	Jun. 30, 2013 EUR (€)	Dec. 31, 2012 USD ($)	Jun. 30, 2012 EUR (€)
DerivativeInstrumentsandHedging
The amount of Euros to sell for the forward contract.		€ 45,000,000		€ 45,000,000
Derivative Assets (Liabilities), at Fair Value, Net	$ 2,300,000		$ 3,200,000

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Investments (Details Textuals) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Investment [Abstract]
Condition for categorizing the impaired securities			$ 500,000
Condition for categorizing the impaired securities, percentage			10.00%
Other-than-temporary impairment credit losses	0	397,000	0	397,000
Gross unrealized losses on fixed income securities	$ 90,200,000		$ 90,200,000
Weighted-average life of mortgage-backed and asset-backed securities, Years	6.2		6.2

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Document and Entity Information (USD $)	6 Months Ended
	Jun. 30, 2013
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	Jun. 30, 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	100,100,000

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Derivatives

6 Months Ended

Jun. 30, 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. Through June 30, 2013, this transaction was designated and qualified 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, were recognized in our foreign currency translation adjustment, which is a component of accumulated other comprehensive income. This amount 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 liabilityof $2.3 million at June 30, 2013, compared to $3.2 million at December 31, 2012. The liability is reported in accounts payable and accrued liabilities in our consolidated balance sheets. At inception of the hedge and quarterly thereafter through June 30, 2013, we assessed whether the hedge transaction was effective. Any ineffectiveness would have been recognized immediately as other operating expense in our consolidated statements of earnings. There was no ineffectiveness on the forward contract during 2013 or 2012.

In July 2013, we entered into a forward contract to buy 45.0 million Euros for U.S. dollars in September 2013, effectively offsetting the contract entered into in 2012. Beginning in July 2013, we have discontinued hedge accounting and any subsequent changes in the fair value of the two forward contracts will be recognized in our consolidated statements of earnings. Because the contracts offset, the net change in fair value and the impact on pretax earnings, if any, should be immaterial in the third quarter of 2013.

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Segments (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Segment Reporting Information [Line Items]
Total pretax earnings	$ 124,831	$ 134,319	$ 276,227	$ 251,279

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Segments (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Segment Reporting Information [Line Items]
Total revenue	$ 629,431	$ 632,288	$ 1,263,797	$ 1,241,811