Segments

6 Months Ended

Jun. 30, 2011

Segments [Abstract]

Segments

(9) Segments

We report HCC’s results in six operating segments, each of which reports to an HCC executive who is responsible for the segment results. Each of our five insurance-related 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 and other administrative expenses related to our insurance companies and underwriting agencies. 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 net loss ratio and expense ratio.

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

• U.S. Property & Casualty — aviation, small account errors and omissions liability, public risk, employment practices liability, title, residual value, disability, contingency, kidnap and ransom, difference in conditions, occupational accident and brown water marine written in the United States.

• Professional Liability — directors’ and officers’ (D&O) liability, large account errors and omissions liability, fiduciary liability, fidelity, bankers’ blanket bonds and, for some D&O policyholders, employment practices liability written in the United States and internationally.

• Accident & Health — medical stop-loss, short-term domestic and international medical, HMO reinsurance and medical excess written in the United States.

• U.S. Surety & Credit — contract surety bonds, commercial surety bonds, and bail bonds written in the United States and credit insurance managed in the United States.

• International — energy, property treaty, liability, surety, credit, property (direct and facultative), ocean marine, accident and health and other smaller product lines written outside the United States.

The Investing segment includes our total 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, and underwriting results of our Exited Lines. Our Exited Lines include these six product lines that we no longer write and do not expect to write in the future: 1) accident and health business managed by our underwriting agency, LDG Reinsurance, 2) workers’ compensation, 3) provider excess, 4) Spanish medical malpractice, 5) U.K. motor and 6) film completion bonds.

All prior period information included in this Form 10-Q has been adjusted to present our segment disclosures and information on a consistent basis with our new segment reporting structure, which we adopted in the third quarter of 2010.

The following tables present information by business segment.

	U.S. Property		Professional		Accident		U.S. Surety							Corporate
Six months ended June 30, 2011	& Casualty		Liability		& Health		& Credit		International			Investing		& Other			Consolidated
Net earned premium	$	159,175	$	203,174	$	400,657	$	101,403	$	168,164		$	—	$	158		$	1,032,731
Other revenue		9,666		249		2,194		701		1,902			101,033		84			115,829
Segment revenue		168,841		203,423		402,851		102,104		170,066			101,033		242			1,148,560
Loss and LAE		92,428		138,015		291,605		29,687		130,393			—		(260	)		681,868
Other expense		55,575		34,032		61,995		55,252		64,020			—		36,034			306,908
Segment expense		148,003		172,047		353,600		84,939		194,413			—		35,774			988,776
Segment pretax earnings (loss)	$	20,838	$	31,376	$	49,251	$	17,165	$	(24,347	)	$	101,033	$	(35,532	)	$	159,784
Six months ended June 30, 2010
Net earned premium	$	173,625	$	218,153	$	374,487	$	98,620	$	149,932		$	—	$	1,155		$	1,015,972
Other revenue		19,095		438		1,717		328		4,711			106,306		858			133,453
Segment revenue		192,720		218,591		376,204		98,948		154,643			106,306		2,013			1,149,425
Loss and LAE		102,801		132,942		273,569		27,861		84,374			—		3,960			625,507
Other expense		54,601		38,305		59,059		53,692		59,905			—		35,578			301,140
Segment expense		157,402		171,247		332,628		81,553		144,279			—		39,538			926,647
Segment pretax earnings (loss)	$	35,318	$	47,344	$	43,576	$	17,395	$	10,364		$	106,306	$	(37,525	)	$	222,778

	U.S. Property		Professional		Accident		U.S. Surety						Corporate
Three months ended June 30, 2011	& Casualty		Liability		& Health		& Credit		International		Investing		& Other			Consolidated
Net earned premium	$	78,921	$	102,424	$	202,117	$	50,039	$	90,717	$	—	$	33		$	524,251
Other revenue		4,787		48		1,178		455		894		53,126		113			60,601
Segment revenue		83,708		102,472		203,295		50,494		91,611		53,126		146			584,852
Loss and LAE		44,944		71,752		146,747		14,648		56,221		—		(30	)		334,282
Other expense		27,169		16,928		31,577		26,997		32,355		—		18,639			153,665
Segment expense		72,113		88,680		178,324		41,645		88,576		—		18,609			487,947
Segment pretax earnings (loss)	$	11,595	$	13,792	$	24,971	$	8,849	$	3,035	$	53,126	$	(18,463	)	$	96,905
Three months ended June 30, 2010
Net earned premium	$	84,695	$	108,001	$	187,703	$	51,871	$	73,765	$	—	$	350		$	506,385
Other revenue		6,204		107		867		205		1,666		52,532		157			61,738
Segment revenue		90,899		108,108		188,570		52,076		75,431		52,532		507			568,123
Loss and LAE		50,989		65,342		135,349		15,487		28,769		—		3,050			298,986
Other expense		23,734		18,767		30,323		26,836		30,745		—		18,979			149,384
Segment expense		74,723		84,109		165,672		42,323		59,514		—		22,029			448,370
Segment pretax earnings (loss)	$	16,176	$	23,999	$	22,898	$	9,753	$	15,917	$	52,532	$	(21,522	)	$	119,753

Catastrophe losses reduced the International segment’s pretax earnings by $72.3 million and $22.8 million in the first six months and second quarter of 2011, respectively, and $20.6 million in the first six months of 2010.