EX-99.1 2 h65895exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
Press Release
(LOGO)
HCC’S BOOK VALUE PER SHARE UP 10% FOR 2008
WITH ROE OF 12% DESPITE MARKET TURMOIL
HOUSTON (February 24, 2009). . .
HCC Insurance Holdings, Inc. (NYSE: HCC) today released earnings for the fourth quarter and full year ended December 31, 2008.
“HCC produced stellar results despite the financial meltdown and multiple hurricanes during the year. Our 2008 return on average equity of 12.0 percent is within the range of results we would expect over an entire insurance cycle with a target of generating a 15.0 percent average annual return. Our return on average equity for the last five years is on target at 14.9 percent,” HCC Chief Executive Officer Frank J. Bramanti said.
Despite 2008’s tremendous volatility, book value per share increased 9.7 percent during the year from $21.21 to $23.27 after declared regular dividends totaling $0.47 per share. 2008 was the 12th consecutive year in which HCC raised its dividend. Book value per share rose 5.2 percent to $23.27 for the fourth quarter of 2008, compared to $22.13 a share on September 30, 2008.
The Company’s GAAP combined ratio for the fourth quarter of 2008 was 85.6 percent, compared to 85.1 percent for the fourth quarter of 2007. The GAAP combined ratio for the full year of 2008 was 85.4 percent, versus 83.4 percent for 2007. The effect of 2008 hurricanes added 1.2 percentage points to HCC’s GAAP combined ratio for the 2008 full year.
Net earnings for the fourth quarter of 2008 were $72.3 million, compared to $99.6 million for the fourth quarter of 2007. Net earnings per diluted share were $0.63 for the fourth quarter of 2008, versus $0.85 for the same quarter of 2007. Net earnings for the full year of 2008 were $304.8 million, compared to $395.4 million for the 2007 full year. Net earnings per diluted share were $2.64 for 2008, versus $3.38 for 2007.
On June 20, 2008, the HCC Board of Directors authorized a $100.0 million share repurchase plan. The Company has repurchased 3.0 million shares for a total of $63.3 million at an average cost of $21.02 per share through December 31, 2008. This represents a 9.7 percent discount to book value per share at December 31, 2008.
“HCC has repurchased its stock only when the share price fell below book value and, consequently, there was a clear benefit to shareholders in doing so. Because of this careful approach, the Company moves into 2009 in a strong capital position with substantial liquidity,” Mr. Bramanti said.

2

 

Gross written premium of HCC’s insurance company subsidiaries increased to $611.2 million for the fourth quarter of 2008, compared to $593.4 million for the same quarter of 2007, a 3.0 percent increase. Net written premium increased to $504.2 million during the 2008 fourth quarter, compared to net written premium of $485.1 million for the 2007 fourth quarter, a 3.9 percent increase. Net earned premium for the fourth quarter of 2008 was $502.6 million, versus net earned premium of $500.2 million for the same quarter of 2007.
Gross written premium of HCC’s insurance company subsidiaries of $2.5 billion was a 1.9 percent increase for the full year of 2008, compared to 2007, while net written premium of $2.1 billion was up 3.8 percent, compared to 2007. Net earned premium of $2.0 billion for the 2008 full year was essentially flat.
During the fourth quarter of 2008, HCC had net positive prior year reserve development of $24.0 million, compared to net positive prior year reserve development of $7.0 million for the same period of 2007. For the full year of 2008, the Company recorded $82.4 million of net positive prior year reserve development, versus net positive prior year reserve development of $26.4 million for 2007. In addition, during 2008 the Company increased its 2008 accident year loss picks, primarily on its directors’ and officers’, surety and credit lines of business, adding $57 million to reserves in excess of its initial loss picks.
“Our prior year reserves continue to develop favorably. We have increased our loss picks during 2008 on certain lines of business most directly impacted by the economic turmoil we are experiencing, and are maintaining our conservative reserving posture in light of these economic difficulties,” Mr. Bramanti said.
Investment income decreased during 2008, compared to 2007. This was primarily caused by the performance of HCC’s alternative investment portfolio, which had losses of $30.8 million in 2008, versus income of $23.9 million in 2007. Short term interest rates fell dramatically during 2008, further reducing investment income.
HCC’s fixed income securities generated $45.2 million in investment income in the 2008 fourth quarter, versus $41.2 million in the 2007 fourth quarter; and $174.7 million for the full year of 2008, compared to $150.6 million for the 2007 full year. The Company’s fixed income investments increased 16.1 percent from December 31, 2007, to $4.3 billion at December 31, 2008.
As of December 31, 2008, HCC’s fixed income securities portfolio had an average rating of AA+, an average duration of 4.8 years and an average tax equivalent yield of 5.2 percent. The Company realized investment losses of $9.2 million in the fourth quarter of 2008 and $27.9 million in full year 2008, including $5.0 million and $11.1 million respectively for securities that had an other-than-temporary impairment in value. HCC held $9.9 million of subprime-related and Alt-A securities, which had an average rating of AA+, and owned no CDO or CLO securities. HCC has never been a counterparty to any credit default swap.

3

 

“Our investment portfolio performed quite well in 2008’s volatile marketplace. In keeping with HCC’s conservative investment philosophy, however, the decision was made to eliminate volatility from the Company’s investments by exiting equity and equity-related investments, including hedge funds and other alternative investments, and reinvesting those funds in fixed income securities. That process is now essentially complete,” Mr. Bramanti said.
As of December 31, 2008, total investments were $4.8 billion, total assets were $8.3 billion, shareholders’ equity was $2.6 billion and the Company’s debt to total capital ratio remained very conservative at 11.6 percent.
EARNINGS GUIDANCE: HCC’s management estimates the Company will achieve net earnings of $2.65 to $2.85 per share for the full year of 2009. These estimated results for the 2009 full year assume the following: gross written premium of $2.5 billion; net written premium of $2.1 billion; total revenue of $2.3 billion; a combined ratio of 86.5 percent; average fully diluted shares outstanding of 118.2 million; and do not include any provision for catastrophe losses, capital gains or losses or changes in carrying values of assets.
See attached tables for further information about HCC’s quarter and year-to-date financial results.
HCC will hold an open conference call beginning at 8:00 a.m. Central Standard Time on Wednesday, February 25. To participate, the number for domestic calls is (800) 374-0290 and the number for international calls is (706) 634-1061. In addition, there will be a live webcast available on a listen-only basis that can be accessed through the HCC website at www.hcc.com.
Headquartered in Houston, Texas, HCC Insurance Holdings, Inc. (HCC) is a leading international specialty insurance group with offices across the United States and in Bermuda, Ireland, Spain and the United Kingdom. HCC has assets of $8.3 billion, shareholders’ equity of $2.6 billion and is rated AA (Very Strong) by Standard & Poor’s and AA (Very Strong) by Fitch Ratings. In addition, HCC’s major domestic insurance companies are rated A+ (Superior) by A.M. Best Company.
For more information, visit our website at www.hcc.com.
Contact:   Barney White, HCC Vice President of Investor Relations
Telephone: (713) 744-3719
Forward-looking statements contained in this press release are made under “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. The types of risks and uncertainties which may affect the Company are set forth in its periodic reports filed with the Securities and Exchange Commission.
*     *     *     *     *

4

 

HCC Insurance Holdings, Inc. and Subsidiaries
Financial Highlights
December 31, 2008
(Unaudited, in thousands except per share data)
                 
    Three months ended December 31,
    2008   2007
Gross written premium
   $ 611,207     $ 593,415  
Net written premium
     504,236       485,144  
Net earned premium
     502,646       500,178  
Fee and commission income
     25,643       34,097  
Net investment income
     33,919       58,409  
Other operating income (loss)
     (1,191 )     7,934  
Total revenue
     551,866       614,407  
Net earnings
     72,277       99,642  
Earnings per share (diluted)
     0.63       0.85  
Cash flow from operations
     104,793       111,577  
Weighted average shares outstanding (diluted)
     114,111       117,085  
GAAP net loss ratio
     58.0 %     59.7 %
GAAP combined ratio
     85.6 %     85.1 %
Paid loss ratio
     73.0 %     49.5 %
                 
    December 31, 2008   December 31, 2007
Total investments
   $ 4,804,283     $ 4,672,277  
Total assets
     8,332,383       8,074,645  
Shareholders’ equity
     2,639,341       2,440,365  
Debt to total capital
     11.6 %     11.7 %
Book value per share
   $ 23.27     $ 21.21  

5

 

HCC Insurance Holdings, Inc. and Subsidiaries
Financial Highlights
December 31, 2008
(Unaudited, in thousands except per share data)
                 
    Twelve months ended December 31,
    2008   2007
Gross written premium
   $ 2,498,763     $ 2,451,179  
Net written premium
     2,060,618       1,985,609  
Net earned premium
     2,007,774       1,985,086  
Fee and commission income
     125,201       140,092  
Net investment income
     164,751       206,462  
Other operating income
     9,638       43,545  
Total revenue
     2,279,423       2,388,373  
Net earnings
     304,768       395,429  
Earnings per share (diluted)
     2.64       3.38  
Cash flow from operations
     505,968       726,436  
Weighted average shares outstanding (diluted)
     115,474       116,997  
GAAP net loss ratio
     60.4 %     59.6 %
GAAP combined ratio
     85.4 %     83.4 %
Paid loss ratio
     58.1 %     47.9 %
                 
    December 31, 2008   December 31, 2007
Total investments
   $ 4,804,283     $ 4,672,277  
Total assets
     8,332,383       8,074,645  
Shareholders’ equity
     2,639,341       2,440,365  
Debt to total capital
     11.6 %     11.7 %
Book value per share
   $ 23.27     $ 21.21  

6

 

HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
                 
    December 31,     December 31,  
    2008     2007  
ASSETS
                
 
                
Investments:
                
Fixed income securities — available for sale
   $ 4,133,165     $ 3,666,705  
Fixed income securities — held to maturity
     123,553       —  
Short-term investments
     497,477       783,650  
Other investments
     50,088       221,922  
 
            
Total investments
     4,804,283       4,672,277  
Cash
     27,347       39,135  
Restricted cash and cash investments
     174,905       193,151  
Premium, claims and other receivables
     770,823       763,401  
Reinsurance recoverables
     1,054,950       956,665  
Ceded unearned premium
     234,375       244,684  
Ceded life and annuity benefits
     64,235       66,199  
Deferred policy acquisition costs
     188,652       192,773  
Goodwill
     858,849       776,046  
Other assets
     153,964       170,314  
 
            
Total assets
   $ 8,332,383     $ 8,074,645  
 
            
LIABILITIES
                
Loss and loss adjustment expense payable
   $ 3,415,230     $ 3,227,080  
Life and annuity policy benefits
     64,235       66,199  
Reinsurance balances payable
     122,189       129,838  
Unearned premium
     977,426       943,946  
Deferred ceding commissions
     63,123       68,968  
Premium and claims payable
     405,287       497,974  
Notes payable
     344,714       324,714  
Accounts payable and accrued liabilities
     300,838       375,561  
 
            
Total liabilities
     5,693,042       5,634,280  
 
                
SHAREHOLDERS’ EQUITY
                
 
                
Common stock
     116,457       115,069  
Additional paid-in capital
     861,867       831,419  
Retained earnings
     1,696,816       1,445,995  
Accumulated other comprehensive income
     27,536       47,882  
Treasury stock
     (63,335 )     —  
 
            
Total shareholders’ equity
     2,639,341       2,440,365  
 
            
Total liabilities and shareholders’ equity
   $ 8,332,383     $ 8,074,645  
 
            

7

 

HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited, in thousands except per share data)
                                 
    Twelve months ended     Three months ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
REVENUE
                                
Net earned premium
   $ 2,007,774     $ 1,985,086     $ 502,646     $ 500,178  
Fee and commission income
     125,201       140,092       25,643       34,097  
Net investment income
     164,751       206,462       33,919       58,409  
Net realized investment gain (loss)
     (27,941 )     13,188       (9,151 )     13,789  
Other operating income (loss)
     9,638       43,545       (1,191 )     7,934  
 
                        
 
                                
Total revenue
     2,279,423       2,388,373       551,866       614,407  
 
                        
 
EXPENSE
                                
 
                                
Loss and loss adjustment expense, net
     1,211,873       1,183,947       291,440       298,400  
Policy acquisition costs, net
     381,441       366,610       96,746       98,832  
Other operating expense
     233,509       241,642       59,089       72,416  
Interest expense
     16,288       10,304       4,771       3,138  
 
                        
 
                                
Total expense
     1,843,111       1,802,503       452,046       472,786  
 
                        
 
                                
Earnings before income tax expense
     436,312       585,870       99,820       141,621  
Income tax expense
     131,544       190,441       27,543       41,979  
 
                        
 
                                
Net earnings
   $ 304,768     $ 395,429     $ 72,277     $ 99,642  
 
                        
 
                                
Basic earnings per share data:
                                
Net earnings per share
   $ 2.65     $ 3.50     $ 0.63     $ 0.87  
 
                        
 
                                
Weighted average shares outstanding
     114,848       112,873       113,895       114,641  
 
                        
 
                                
Diluted earnings per share data:
                                
Net earnings per share
   $ 2.64     $ 3.38     $ 0.63     $ 0.85  
 
                        
 
                                
Weighted average shares outstanding
     115,474       116,997       114,111       117,085  
 
                        
 
                                
Cash dividends declared, per share
   $ 0.470     $ 0.420     $ 0.125     $ 0.110  
 
                        

8

 

HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
                                 
    Twelve months ended     Three months ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Operating activities:
                                
Net earnings
   $ 304,768     $ 395,429     $ 72,277     $ 99,642  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                                
Change in premium, claims and other receivables
     46,985       97,304       24,280       33,567  
Change in reinsurance recoverables
     (98,354 )     213,353       21,471       90,881  
Change in ceded unearned premium
     10,309       (18,436 )     4,188       9,489  
Change in loss and loss adjustment expense payable
     188,264       129,203       (89,892 )     (40,338 )
Change in reinsurance balances payable
     (8,014 )     7,002       (3,670 )     17,514  
Change in unearned premium
     33,526       21,498       (7,636 )     (25,315 )
Change in premium and claims payable, net of restricted cash
     (80,219 )     (164,977 )     24,916       (91,298 )
Change in trading portfolio
     49,091       9,362       —       (4,764 )
Stock-based compensation expense
     13,638       12,011       3,648       2,820  
Depreciation and amortization expense
     14,308       15,982       3,872       4,357  
(Gain) loss on investments
     49,549       (58,736 )     23,182       (23,179 )
Other, net
     (17,883 )     67,441       28,157       38,201  
 
                        
Cash provided by operating activities
     505,968       726,436       104,793       111,577  
 
                        
 
                                
Investing activities:
                                
Sales of fixed income securities
     583,211       438,057       161,534       216,235  
Maturity or call of fixed income securities
     323,998       302,876       68,559       68,441  
Cost of securities acquired
     (1,609,007 )     (1,377,750 )     (484,038 )     (366,003 )
Change in short-term investments
     294,248       (72,279 )     260,583       (62,090 )
Proceeds from sales of strategic and other investments
     77,097       46,612       22,742       3,615  
Payments for purchase of businesses, net of cash received
     (103,153 )     (65,112 )     (29,157 )     (11,425 )
Other, net
     (7,996 )     (9,741 )     (4,793 )     (2,662 )
 
                        
Cash used by investing activities
     (441,602 )     (737,337 )     (4,570 )     (153,889 )
 
                        
 
                                
Financing activities:
                                
Advances on line of credit
     181,000       232,000       75,000       170,000  
Payments on line of credit and notes payable
     (161,000 )     (205,763 )     (105,000 )     (149,400 )
Sale of common stock
     18,198       24,533       4,314       5,196  
Purchase of common stock
     (63,335 )     —       (41,465 )     —  
Dividends paid
     (52,453 )     (46,158 )     (14,392 )     (12,528 )
Other, net
     1,436       (2,866 )     (11,577 )     1,648  
 
                        
Cash provided (used) by financing activities
     (76,154 )     1,746       (93,120 )     14,916  
 
                        
 
                                
Net increase (decrease) in cash
     (11,788 )     (9,155 )     7,103       (27,396 )
 
                                
Cash at beginning of period
     39,135       48,290       20,244       66,531  
 
                        
 
                                
Cash at end of period
   $ 27,347     $ 39,135     $ 27,347     $ 39,135  
 
                        

9

 

HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
December 31, 2008
(Unaudited, in thousands)
                         
    Three months ended        
    December 31,     Change  
    2008     2007     %  
GROSS WRITTEN
                        
 
                        
Diversified financial products
   $ 306,802     $ 262,335       17 %
Group life, accident & health
     200,689       196,459       2  
Aviation
     38,518       41,064       (6 )
London market account
     21,533       23,721       (9 )
Other specialty lines
     43,660       69,798       (37 )
Discontinued lines
     5       38     nm  
 
                  
 
   $ 611,207     $ 593,415       3 %
 
                  
 
                        
NET WRITTEN
                        
 
                        
Diversified financial products
   $ 249,305     $ 206,816       21 %
Group life, accident & health
     194,367       189,460       3  
Aviation
     29,023       31,847       (9 )
London market account
     10,092       10,289       (2 )
Other specialty lines
     21,453       46,705       (54 )
Discontinued lines
     (4 )     27     nm  
 
                  
 
   $ 504,236     $ 485,144       4 %
 
                  
 
                        
NET EARNED PREMIUM
                        
 
                        
Diversified financial products
   $ 212,226     $ 196,431       8 %
Group life, accident & health
     195,075       186,667       5  
Aviation
     34,713       37,630       (8 )
London market account
     26,033       31,846       (18 )
Other specialty lines
     34,603       47,576       (27 )
Discontinued lines
     (4 )     28     nm  
 
                  
 
   $ 502,646     $ 500,178       0 %
 
                  
 
nm — Not meaningful comparison

10

 

HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
December 31, 2008
(Unaudited, in thousands)
                         
    Twelve months ended        
    December 31,     Change  
    2008     2007     %  
GROSS WRITTEN
                        
 
                        
Diversified financial products
   $ 1,051,722     $ 963,355       9 %
Group life, accident & health
     829,903       798,684       4  
Aviation
     185,786       195,809       (5 )
London market account
     175,561       213,716       (18 )
Other specialty lines
     251,021       280,040       (10 )
Discontinued lines
     4,770       (425 )   nm  
 
                  
 
   $ 2,498,763     $ 2,451,179       2 %
 
                  
 
                        
NET WRITTEN
                        
 
                        
Diversified financial products
   $ 872,007     $ 771,648       13 %
Group life, accident & health
     789,479       759,207       4  
Aviation
     136,019       145,761       (7 )
London market account
     107,234       118,241       (9 )
Other specialty lines
     151,120       191,151       (21 )
Discontinued lines
     4,759       (399 )   nm  
 
                  
 
   $ 2,060,618     $ 1,985,609       4 %
 
                  
 
                        
NET EARNED PREMIUM
                        
 
                        
Diversified financial products
   $ 805,604     $ 777,414       4 %
Group life, accident & health
     777,268       758,516       2  
Aviation
     139,838       153,121       (9 )
London market account
     106,857       124,609       (14 )
Other specialty lines
     173,449       171,824       1  
Discontinued lines
     4,758       (398 )   nm  
 
                  
 
   $ 2,007,774     $ 1,985,086       1 %
 
                  
 
nm — Not meaningful comparison

11

 

HCC Insurance Holdings, Inc. and Subsidiaries
Investments — Selected Disclosures
December 31, 2008
(Unaudited, in thousands)
                                                                                 
                    % of     Average Ratings  
    Amortized Cost     Fair Value     Portfolio     AAA     AA     A     BBB     Below BBB     Other     Average  
Fixed Income Securities
   $ 4,242,092     $ 4,258,726       100.0 %   $ 2,227,314     $ 1,327,871     $ 582,594     $ 112,856     $ 4,259     $ 3,832     AA+
 
                                                                          
 
                                                                                
Residential Mortgage Backed Securities & Collateralized Mortgage Obligations
                                                                                
 
                                                                                
Agency
   $ 685,486     $ 723,468       17.0 %     723,468       —       —       —       —       —     AAA
 
                                                                                
Non-Agency
                                                                                
Prime
     92,546       79,616       1.9 %     55,778       800       10,389       11,149       1,500       —     AA
Alt A
     9,409       7,559       0.2 %     4,491       275       222       —       2,571       —     AA+
Subprime
     2,478       2,313       0.1 %     1,614       —       —       421       278       —     AA+
 
                                                                            
 
                                                                                
Total Residential MBS/CMO
   $ 789,919     $ 812,956       19.1 %                                                        
 
                                                                            
 
                                                                                
Agency Securities
                                                                                
 
                                                                                
Senior Agency Debt - FNMA / FHLMC
   $ 23,369     $ 24,548       0.6 %     24,548       —       —       —       —       —     AAA
 
                                                                          
 
                                                                                
Corporate Bonds - Non Financial
   $ 274,437     $ 273,269       6.4 %     39,221       24,650       169,752       39,646       —       —       A+  
 
                                                                          
 
                                                                                
Corporate Bonds - Financial
   $ 243,357     $ 238,369       5.6 %     72,521       33,114       130,477       2,257       —       —       A+  
 
                                                                          
 
                                                                                
Commercial Mortgaged Backed Securities
   $ 173,245     $ 145,760       3.4 %     145,760       —       —       —       —       —     AAA
 
                                                                          
 
                                                                                
Municipal Bond Portfolio
   $ 1,982,321     $ 1,991,535       46.8 %     523,774       1,214,238       196,764       56,759       —       —     AA
 
                                                                          
 
                                                                                
Insurance Enhanced
   $ 1,230,644     $ 1,233,307       29.0 %     207,319       790,796       179,939       55,253       —       —     AA
 
                                                                          
 
                                                                                
Insured - Underlying Ratings
   $ 1,230,644     $ 1,233,307       29.0 %     205,962       740,600       263,804       863       —       22,078     AA
 
                                                                          
 
                                                                                
Non-Insured
   $ 751,677     $ 758,228       17.8 %     315,706       425,346       17,176       —       —       —     AA+
 
                                                                          
 
                                                                                
Asset Backed Securities
                                                                                
Auto
   $ 47,783     $ 44,732       1.1 %     39,317       2,051       1,891       1,473       —       —     AAA
Credit Card
     9,558       9,158       0.2 %     9,158       —       —       —       —       —     AAA
Home Equity
     2,386       2,133       0.1 %     2,133       —       —       —       —       —     AAA
Other
     3,934       2,722       0.1 %     1,342       —       1,380       —       —       —     AA
 
                                                                            
 
                                                                                
Total Asset Backed Securities*
   $ 63,661     $ 58,745       1.4 %                                                        
 
                                                                            
     
Notes:
There are no CDOs/CLOs in the portfolio.
 
Other Ratings are bonds with at least one enhanced rating; each issuer has an equivalent investment grade rating.
 
Received paydown of $0.9 million for fourth quarter 2008 and $5.0 million for full year 2008 on subprime and Alt A securities.
 
*   Weighted average life of Asset Backed Securities is 1.6 years.

12

 

HCC Insurance Holdings, Inc. and Subsidiaries
Net Investment Income and Unrealized Gains and Losses
Selected Disclosures
December 31, 2008
(Unaudited, in thousands)
                                 
    Twelve months ended     Three months ended  
    December 31,     December 31,  
    2008     2007     2008     2007  
Sources of net investment income:
                                
 
Fixed income securities
                                
Taxable
   $ 98,538     $ 88,550     $ 25,822     $ 23,889  
Exempt from U.S income taxes
     76,172       62,044       19,377       17,297  
 
                        
Total fixed income securities
     174,710       150,594       45,199       41,186  
Short-term investments
     24,173       37,764       3,765       9,534  
Alternative investments
     (30,766 )     23,930       (14,031 )     9,390  
Other investments
     575       —       —       —  
 
                        
Total investment income
     168,692       212,288       34,933       60,110  
Investment expense
     (3,941 )     (5,826 )     (1,014 )     (1,701 )
 
                        
 
                                
Net investment income
   $ 164,751     $ 206,462     $ 33,919     $ 58,409  
 
                        
 
                                
Unrealized gains and losses:
                                
 
                                
Change in unrealized gain/loss for period
   $ (10,412 )   $ 26,663     $ 112,688     $ 31,651  
 
                        
Unrealized gain/loss at December 31, 2008
   $ 14,626     $ 25,038                  
 
                            

 

 

HCC Insurance Holdings, Inc. and Subsidiaries
Subprime Liability Exposure
December 31, 2008
•   As of December 31, the Company had 57 “non-Side A only” D&O, E&O and Fiduciary Liability claims and 15 “Side A only” D&O claims relating to subprime issues.
 
•   Of the D&O claims reported, two are on primary policies with gross policy limits totaling $9 million. The remaining D&O claims are on excess policies.
 
•   The average policy limit on the “non-Side A only” claims is $13.4 million gross and $9.0 million net, with an average attachment point of $89 million.
 
•   The average policy limit for “Side A only” claims is $14.5 million gross and $11.5 million net, with an average attachment point of $176 million.
 
•   Based upon the Company’s present knowledge, HCC believes the ultimate subprime related losses will be contained within the current overall reserves for D&O, E&O and Fiduciary Liability business.

2

 

HCC Insurance Holdings, Inc. and Subsidiaries
Consolidated Insurance Companies
Net Loss Ratios
December 31, 2008
(Unaudited, in thousands)
                                                 
    Full Year 2008     Full Year 2007  
    Net Earned     Incurred     Loss     Net Earned     Incurred     Loss  
Line of Business   Premium     Losses     Ratio     Premium     Losses     Ratio  
Diversified financial products
   $ 805,604     $ 387,718       48.1 %   $ 777,414     $ 315,409       40.6 %
Group life, accident & health
     777,268       567,947       73.1       758,516       579,780       76.4  
Aviation
     139,838       87,525       62.6       153,121       89,683       58.6  
London market account
     106,857       49,571       46.4       124,609       68,798       55.2  
Other specialty lines
     173,449       116,526       67.2       171,824       115,804       67.4  
Discontinued lines
     4,758       2,586     nm       (398 )     14,473     nm  
 
                                                
 
                                    
Total
   $ 2,007,774     $ 1,211,873       60.4 %   $ 1,985,086     $ 1,183,947       59.6 %
 
                                    
 
nm — Not meaningful comparison

3