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Fitch affirms HCC's ratings; outlook stable
October 1, 2012 / 5:56 PM / 5 years ago

Fitch affirms HCC's ratings; outlook stable

Oct 1 (Reuters) - 

  CHICAGO, October 01 (Fitch) Fitch Ratings has affirmed the ratings of HCC
Insurance Holdings, Inc. (NYSE: HCC), including the senior debt rating at 'A',
as well as the Insurer Financial Strength (IFS) ratings of its operating
subsidiaries at 'AA'. The Rating Outlook is Stable. See below for a complete
listing of all ratings. The ratings reflect HCC's favorable niche in the
specialty insurance markets, solid capitalization, disciplined underwriting,
moderate financial leverage, and conservative reserving practices. The ratings
also reflect the company's catastrophe risk, which increases the volatility of
its underwriting results. Fitch views HCC's capitalization as solid, based on
its net written premiums to surplus ratio of 1.0 as of year-end 2011. The
company's GAAP equity increased by 2% to $3.3 billion as of June 30, 2012, as
earnings and unrealized investment gains were offset by share repurchase
activity. HCC continues to report favorable underwriting results with a GAAP
combined ratio of 85% for first half 2012, which includes 1.1 percentage points
of catastrophe related losses. This compares with a 91.9% combined ratio,
including 6.9 points of catastrophe losses and 2.1 points of adverse reserve
development for first half 2011. Underwriting actions taken at the end of 2011
appear to have been sufficient with no reserve development during first half
2012. The company's property treaty book produces increased underwriting
volatility, due to the catastrophe risk associated with this line. Additionally,
continued growth of longer-tail product lines could lead to greater reserve
volatility, both of which could adversely affect ratings. HCC's financial
leverage ratio remains modest at 16%. Continued share repurchase activity and/or
modestly sized acquisitions could lead to periodic increases in financial
leverage; however, Fitch expects run rate leverage to remain below 20%. The
company maintained solid operating earnings-based interest coverage at 19.6
times (x) as of June 30, 2012. Fitch views a rating upgrade as unlikely, given
HCC's size and limited resources in comparison to its rated peer group. Key
rating triggers that could lead to a downgrade include: --Significant and
sustained deterioration in underwriting results or significantly higher
volatility; --Materially adverse reserve development; --Long-term
debt-to-total-capital ratio (ex-unrealized gains and losses) that exceeds 20%;
--GAAP operating earnings-based interest coverage that falls below 12x for a
sustained period; --Meaningful deterioration in capitalization, such as
operating and net leverage that exceeds 1.1x and 3.4x, respectively; or --A
significant decline in the property/casualty or life companies' risk-based
capital ratio. Fitch has affirmed the following ratings with a Stable Outlook:
HCC Insurance Holdings, Inc. --IDR at 'A+'; --$300 million 6.3% senior notes due
Nov. 15, 2019 at 'A'; --Senior shelf registration 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
American Contractors Indemnity Company United States Surety Company --IFS
ratings at 'AA'.

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