Segments

6 Months Ended

Jun. 30, 2015

Segments [Abstract]

Segments

(3) Segments

In the first quarter of 2015, following the acquisition of ProAg, HCC’s executive management changed the structure under which it manages and evaluates the results of our numerous product lines. We now report our results in four operating segments, consisting of three insurance underwriting segments (North AmericaProperty & Casualty, Accident & Health, and International) and the Investingsegment.

Each of our three insurance underwriting segments bears risk for insurance coverage written within its portfolio of insurance products. Each segment generates income from premium written by our underwriting agencies, through third party agents and brokers, or on a direct basis. Fee and commission income earned by our agencies from third party insurance companies is included in segment revenue. Each segment incurs insurance losses, acquisition costs, claims management costs and other administrative expenses related to our insurance companies and underwriting agencies. Internal claims department costs are managed and reported as a component of loss and loss adjustment expense. We monitor and assess each segment’s pretax results based on underwriting profit, gross and net written premium, and its combined ratio, consisting of the segment’s net loss ratio and expense ratio.

Included in the portfolio of products for each insurance underwriting segment are the following key products:

•North AmericaProperty & Casualty – directors' and officers' liability (D&O), primary and excess casualty, small account errors and omissions liability, employment practices liability, agriculture, aviation, sports and entertainment, public risk, surety, and various smaller products.

•Accident & Health – medical stop-loss, short-term domestic and international medical, and travel.

•International – marine and energy, property treaty, property (direct and facultative), accident and health, D&O, professional indemnity, liability, surety, and credit.

The North America Property & Casualty segment includes the former U.S. Property & Casualty segment, the U.S. portion of the former Professional Liability segment, the Surety portion of the former U.S. Surety & Credit segment and ProAg’s agriculture business. The International segment includes the former International segment, the International portion of the former Professional Liability segment, and the Credit portion of the former U.S. Surety & Credit segment. The Accident & Health and Investing segments are unchanged from the prior presentation. All prior period information has been recast to present our segment disclosures and information on a comparable basis with our new segment reporting structure.

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: 1) corporate operating expenses not allocated to the segments, 2) interest expense on notes payable, 3) foreign currency expense (benefit) and 4) 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.

The following tables present information by business segment.

			North America Property		Accident						Corporate
			& Casualty		& Health		International		Investing		& Other		Consolidated
Six months ended June 30, 2015
Net earned premium			$	460,669	$	510,613	$	271,121	$	-	$	-	$	1,242,403
Other revenue				12,664		3,919		1,922		121,979		414		140,898
	Segment revenue			473,333		514,532		273,043		121,979		414		1,383,301
Loss and LAE				266,270		373,940		119,718		-		539		760,467
Other expense				138,467		79,639		99,192		-		40,151		357,449
	Segment expense			404,737		453,579		218,910		-		40,690		1,117,916
		Segment pretax earnings (loss)	$	68,596	$	60,953	$	54,133	$	121,979	$	(40,276)	$	265,385

Six months ended June 30, 2014
Net earned premium			$	397,855	$	472,481	$	263,904	$	-	$	620	$	1,134,860
Other revenue				10,352		5,502		1,831		138,395		1,564		157,644
	Segment revenue			408,207		477,983		265,735		138,395		2,184		1,292,504
Loss and LAE				208,290		344,944		112,832		-		577		666,643
Other expense				115,688		70,605		95,820		-		51,132		333,245
	Segment expense			323,978		415,549		208,652		-		51,709		999,888
		Segment pretax earnings (loss)	$	84,229	$	62,434	$	57,083	$	138,395	$	(49,525)	$	292,616

Three months ended June 30, 2015
Net earned premium			$	251,430	$	255,663	$	134,744	$	-	$	3	$	641,840
Other revenue				6,562		1,906		914		55,311		318		65,011
	Segment revenue			257,992		257,569		135,658		55,311		321		706,851
Loss and LAE				149,834		186,929		58,275		-		267		395,305
Other expense				70,119		40,974		51,881		-		34,015		196,989
	Segment expense			219,953		227,903		110,156		-		34,282		592,294
		Segment pretax earnings (loss)	$	38,039	$	29,666	$	25,502	$	55,311	$	(33,961)	$	114,557

Three months ended June 30, 2014
Net earned premium			$	196,521	$	240,338	$	135,060	$	-	$	329	$	572,248
Other revenue				4,921		3,862		855		61,343		345		71,326
	Segment revenue			201,442		244,200		135,915		61,343		674		643,574
Loss and LAE				104,737		174,139		56,518		-		503		335,897
Other expense				58,150		36,032		49,345		-		26,506		170,033
	Segment expense			162,887		210,171		105,863		-		27,009		505,930
		Segment pretax earnings (loss)	$	38,555	$	34,029	$	30,052	$	61,343	$	(26,335)	$	137,644

In conjunction with the resegmentation, we reassigned the goodwill associated with the lines of business in our former Professional Liability and U.S. Surety & Credit reporting units at December 31, 2014 to the applicable North America Property & Casualty and International reporting units. We allocated goodwill to the lines of business within the former reporting units based on the relative fair value of each line of business to the sum of the former reporting unit’s total fair value at December 31, 2014. We noted no indicators of impairment as of December 31, 2014, after this allocation of goodwill.

The goodwill balances by reportable segment, after allocation of the goodwill in our former reporting units, are presented below.

		North America Property		Accident
		& Casualty		& Health		International		Total
Balance at beginning of year		$	552,006	$	144,113	$	209,517	$	905,636
Acquisition of ProAg			47,145		-		-		47,145
Other, principally foreign exchange			99		-		(750)		(651)
	Balance at June 30, 2015	$	599,250	$	144,113	$	208,767	$	952,130

The table below presents total assets by segment following our resegmentation.

		June 30,		December 31,
		2015		2014
North America Property & Casualty		$	2,465,227	$	1,894,756
Accident & Health			243,105		242,278
International			1,131,605		1,073,889
Investing			7,052,910		7,228,608
Corporate & Other			248,083		274,815
	Total	$	11,140,930	$	10,714,346