HCC Insurance Group Assigned

Fitch Ratings assigned a “AA-” insurer financial strength (IFS) rating to HCC Insurance Group, which is led by Houston Casualty Company. Fitch also affirmed the “A-” long-term issuer and “A-” senior debt rating of HCC Insurance Holdings Inc. (HCC). The rating outlook is stable.

The ratings are based on HCC’s market position in a number of specialty insurance segments, as well as the company’s strong capital position at its insurance subsidiaries and at the parent holding company, conservative investment profile, adequate loss reserves, and favorable historical and recent operating profitability. The company’s underwriting and intermediary businesses provide significant earnings and cash flow diversity, and a unique approach to managing underwriting risk that has proven successful over an extended period.

HCC has traditionally utilized significant amounts of reinsurance to manage underwriting risk. While this strategy allowed the company to effectively manage net loss exposures relative to capital and mitigate undue risk concentrations, it also created significant reinsurance recoverable balances and a requirement to carefully manage credit exposures to reinsurers. In response to more favorable market conditions, changes in business mix, and less attractive reinsurance pricing, the company increased its premium retention level (net written premium divided by gross written premium) to 47 percent in 2002 versus 37 percent in 2001. These changes led to a decline in HCC’s consolidated GAAP reinsurance recoverables in 2002. The ratio of reinsurance recoverables to shareholders’ equity was 109 percent at year-end 2002 compared with 127 percent in 2001.