Best Affirms HCC’s ‘A+ Ratings; Outlook Returned to ‘Stable’

A.M. Best Co. has affirmed the financial strength ratings (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of HCC Insurance Holdings (HCC) and its members. Best also affirmed the ICR of “a-“, the debt rating of “a-” on $125 million of 1.3 percent convertible notes due 2023 and the various ratings on the shelf registration of the parent holding company, HCC Insurance Holdings, Inc. of Houston, Texas.

In addition best affirmed the FSRs of ‘A’ (Excellent) and ICRs of “a” of HCC Insurance Holdings, Inc.’s subsidiaries: Los Angeles-based American Contractors Indemnity Company (ACIC) and United States Surety Company (USSC) of Timonium, MD), along with the FSR of ‘A-‘ (Excellent) and ICR of “a-” of Pioneer General Insurance Company of Denver. Additionally Best affirmed the FSRs of ‘A+’ (Superior) and ‘A’ (Excellent) and ICRs of “aa-” and “a+” of the other HCC Insurance Holdings, Inc. subsidiaries, HCC Life Insurance Company and Perico Life Insurance Company respectively.

Best has also revised its outlook for all of the foregoing ratings to stable from negative, except for the FSR of Perico and the FSR and ICR of Pioneer General, where the outlook was already stable.

“These rating actions follow the July 22, 2008 announcement of a settlement of the lawsuit that the Securities and Exchange Commission (SEC) had filed against HCC Insurance Holdings, Inc. and two of its former officers alleging violations related to certain historical stock option granting practice,” Best explained. “According to the SEC announcement, ‘the Commission did not allege fraud claims and did not seek a monetary penalty against HCC based in part on the Company’s remedial measures and its extraordinary cooperation with the Commission’s investigation.'”

Best explained that the previous negative outlook had reflected its concern regarding the continuing SEC inquiry of HCC’s stock option granting practices. However, the bulletin also indicated that the rating outlook was partially tempered by Best’s recognition that HCC reported operating profits in 2007 despite limited top line growth.

Best said it “believes sustained execution of the company’s proven operating strategies should continue to produce results that are favorable, despite increasing competitiveness encountered across its multiple markets.”

“Financial leverage at HCC Insurance Holdings, Inc. as of first quarter 2008 remained relatively low, as evidenced by a total debt-to-capital ratio of 12.6 percent. Furthermore, interest coverage continues to be exceptionally strong. For liquidity purposes, a $575 million revolving credit facility is maintained. As of March 31, 2008, the outstanding balance at the credit facility was $240 million.

“HCC Life remains the largest writer of medical stop-loss coverages in the United States, while Perico Life specializes in writing smaller case size stop-loss business. The cyclical medical stop-loss business continues to be in the soft part of the underwriting cycle. However, A.M. Best anticipates both HCC Life and Perico Life to continue reporting favorable operating results due to their disciplined underwriting and economies of scale.”

For a complete listing of HCC Insurance Holdings, Inc.’s FSRs, ICRs and debt ratings, got to: www.ambest.com/press/073002hcc.pdf.

Source A.M. Best – www.ambest.com