A.M. Best Affirms Ratings of HCC Insurance Holdings, Inc. and Its Subsidiaries

A.M. Best Affirms Ratings of HCC Insurance Holdings, Inc. and Its Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of "aa" of the property/casualty members of Houston Casualty Group (HCC). Concurrently, A.M. Best has affirmed the ICR of "a" and debt rating of "a" of $300 million 6.3% senior unsecured notes due 2019, as well as all indicative ratings under the shelf registration of the parent, HCC Insurance Holdings, Inc. (HCC Holdings) (Dover, DE) (NYS: HCC) .

A.M. Best also affirmed the FSR of A+ (Superior) and ICR of "aa" of HCC Life Insurance Company (HCC Life) (Indianapolis, IN).


In addition, A.M. Best has affirmed the FSR of A+ (Superior) and the ICRs of "aa-" of American Contractors Indemnity Company (ACIC) (Los Angeles, CA) and United States Surety Company (USSC) (Timonium, MD). The outlook for the above ratings is stable. The above companies are subsidiaries of HCC Holdings. (See below for a detailed listing of the companies and ratings.)

The ratings of the property/casualty members of HCC take into consideration the sustained earnings reported through the second quarter of 2013 as well as this group's long-standing presence in the specialty property/casualty marketplace, strong capitalization and the substantial financial flexibility afforded by HCC Holdings. These rating attributes are largely supported by HCC's specialty niche business strategy, effective utilization of affiliated underwriting agencies/insurance intermediaries and the optimal utilization of reinsurance. Over the years, this strategy has culminated in HCC producing better than average underwriting and operating margins despite less than favorable economic conditions, low interest rates and ongoing market challenges. The ratings also acknowledge HCC's lead position in the specialty admitted and non-admitted market segments, its strong near-term earnings prospects, general price firming in select commercial insurance markets and HCC's ability to take advantage of opportunities when they arise.

The ratings of HCC Life reflect its role as a core subsidiary of the HCC Holdings organization, its leadership position in the medical stop-loss insurance marketplace and its consistent growth in both premiums and operating earnings. While most of the premium growth can be attributed to group medical stop-loss, other products lines also have grown, including international and short-term medical insurance services. Additionally, the steady growth in operating earnings is representative of HCC Life's disciplined underwriting approach and ongoing expense management.

The ratings of ACIC and USSC continue to recognize each company's strong stand-alone capitalization and history of favorable operating performance, in addition to the relative importance of each to HCC Holdings' total surety and credit business. The ratings also recognize the explicit and implicit support in place for these companies and the future implied support to be provided by HCC Holdings.

At the same time, A.M. Best has withdrawn the ratings of Perico Life Insurance Company (Perico) (Dover, DE), which is essentially an inactive shell company. The absence of any written premiums or policyholder liabilities as of the company's last financial filing has rendered A.M. Best's rating procedure inapplicable.

As of June 30, 2013, HCC Holdings' debt-to-capital and debt-to-tangible capital ratios (excluding other comprehensive income/loss) were roughly 16% and 20%, respectively. Furthermore, interest coverage continues to be exceptionally strong. For liquidity purposes, a $600 million revolving credit facility is maintained, and as of June 30, 2013, approximately $260 million was available under the credit facility.

Potential upward movement in the ratings is unlikely in the near term. Downward movement in the ratings could result from a material decline in the organization's capitalization, negative trends in claim frequency or severity that could materially impair underwriting results, as well as significant unforeseen adverse loss reserve development due to an underestimation of liabilities.

The FSR of A+ (Superior) and ICRs of "aa" have been affirmed for the following members of Houston Casualty Group:

  • Houston Casualty Company
  • Avemco Insurance Company
  • U.S. Specialty Insurance Company
  • HCC Specialty Insurance Company

The following indicative ratings have been affirmed under the current shelf registration:

HCC Insurance Holdings, Inc.—
-- "a" on senior unsecured
-- "a-" on subordinated

HCC Capital Trust I and II—
-- "a-" on preferred securities

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visitwww.ambest.com.

Copyright © 2013 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.



A.M. Best Co.
Tom Zitelli—L/H,908-439-2200, ext. 5412
Senior Financial Analyst
tom.zitelli@ambest.com
or
Joseph Roethel—P/C,908-439-2200, ext. 5630
Assistant Vice President
joseph.roethel@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

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