Fitch Ratings affirms all ratings for HCC Insurance Holdings, Inc. (NYSE: HCC) as follows:
--Long-term Issuer Default Rating (IDR) at ''A+'';
--$125 million 1.3% convertible notes due April 1, 2023 at ''A''.
Fitch has also affirmed the ''AA'' Insurer Financial Strength ratings (IFS) of HCC''s insurance subsidiaries. A complete list of ratings is at the end of this release. The Rating Outlook is Stable.
Fitch''s ratings on HCC reflect the company''s leading market position in a number of narrowly defined, non-correlated specialty insurance segments, solid capital position at its insurance subsidiaries and low financial leverage at the holding company, conservative investment profile, strong underwriting results and adequate loss reserves.
Despite recent financial market turmoil, HCC''s GAAP equity increased 8% during 2008 and 13% through Sept. 30, 2009, which is primarily due to strong underwriting results and minimal investment losses. The company has a net unrealized gain position of $209.3 million on its fixed income securities as of Sept. 30, 2009.
HCC has demonstrated its underwriting discipline throughout pricing cycles as well as its ability to select and integrate acquisitions as evidenced by an average combined ratio of 89% from 1991-2008. Through Sept. 30, 2009, HCC reported a GAAP combined ratio of 84.6%, which included 2.4 points of favorable loss reserve development.
Fitch considers HCC''s investment portfolio to be conservative with the majority of assets invested in high-quality fixed income securities. The company has no direct exposure to equities and its alternative investment exposure (primarily fund-of-fund hedge fund investments) has been eliminated. HCC''s exposure to subprime and Alt-A securities is negligible at approximately $6 million relative to its $5.5 billion investment portfolio. HCC holds approximately $620 million in cash and short-term investments, which, in addition to its strong cash flow generation, Fitch believes is sufficient to meet its debt and policyholder obligations.
HCC''s debt to total capital ratio is low at 13% and GAAP earnings-based interest coverage is very strong at 34 times (x) as of Sept. 30, 2009. The company has $320 million of debt outstanding under its $575 million bank line of credit facility that expires in December 2011 and $125 million of convertible notes. The notes can be redeemed at anytime by HCC or holders may require the company to repurchase them on April 1, 2014 or 2019.
Fitch notes that while HCC''s asset portfolio has been largely unscathed by the recent credit market crisis, HCC remains exposed from a liability perspective through its directors and officers (D&O), errors and omissions (E&O), fidelity, surety and credit books of business, as well as its residual value business. Fitch believes the company''s exposure is manageable and will not result in a significant uptick in the company''s loss ratio.
Fitch notes that any topics that are covered in its criteria reports not specifically mentioned above are considered neutral to the rating as of the date of this publication.
Fitch affirms the following ratings:
HCC Insurance Holdings, Inc.
--IDR at ''A+'';
--$125 million 1.3% convertible notes due April 1, 2023 at ''A''.
Houston Casualty Company
Avemco Insurance Company
HCC Life Insurance Company
HCC Specialty Insurance Company
U.S. Specialty Insurance Company
Perico Life Insurance Company
HCC Insurance Company
American Contractors Indemnity Company
United States Surety Company
--IFS ratings at ''AA''.
The Rating Outlook is Stable.
Additional information is available at www.fitchratings.com.
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Dafina M. Dunmore, CFA, 312-368-3136
James
B. Auden, CFA, 312-368-3146
or
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Bertsch, 212-908-0549, New York
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