Best Affirms HCC and Most Subs ‘A+’ Ratings; ACIC, USSC Upgraded

October 19, 2010

A.M. Best Co. has affirmed the financial strength ratings (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-“of Houston Casualty Group (HCC), its property/casualty members and HCC Life Insurance Company.

Best also upgraded the FSRs to ‘A+’ (Superior) from ‘A’ (Excellent) and the ICRs to “aa-” from “a+” of Los Angeles-based American Contractors Indemnity Company (ACIC), Maryland-based United States Surety Company (USSC) and Delaware-based Perico Life Insurance Company. In addition Best affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-” of Pioneer General Insurance Company, which is based in Denver.

The outlook for all these ratings is stable, except HCC’s ICRs, which are positive.

Best also affirmed the ICR of “a-“, debt rating of “a-” on $300 million 6.3 percent senior unsecured 10-year notes due 2019 of the holding company, HCC Insurance Holdings, Inc. and all indicative ratings of HCC Capital Trusts I and II, which may be issued under HCC Holdings’ shelf registration statement. The outlook for all debt ratings, including HCC Holdings’ ICR, is positive.

These ratings reflect “HCC’s sustained profitability, strong capitalization, as well as the low financial leverage and substantial financial flexibility at HCC Holdings,” Best explained. “HCC’s business strategies have focused on a conservative investment strategy and on underwriting within defined specialty lines, effective utilization of affiliated underwriting agencies/insurance intermediaries and the optimal utilization of reinsurance protection.

“These strategies have helped produce consistently increasing operating profits in recent years despite challenging market conditions. The ratings also acknowledge HCC’s near-term earnings prospects and its strong position in the specialty admitted and non-admitted markets.”

Best also explained that it had upgraded the ratings of ACIC and USSC in recognition of each company’s “strong stand-alone capitalization and history of favorable operating performance, in addition to the relative importance of each to HCC’s total surety and credit business. The upgrades also recognize the explicit and implicit support in place for these companies and the implied support to be provided by HCC Holdings in the future.”

Best also noted that HCC Life is the “leader in the medical stop-loss insurance market, primarily medium and larger groups. The company has continued to generate favorable earnings, despite the cyclical medical stop-loss business continuing to be in the soft part of its underwriting cycle, due to HCC Life’s disciplined underwriting approach.

“Perico is active in writing smaller case size medical stop-loss coverage for HCC Life. The upgrading of Perico’s ratings acknowledges its growing premium contributions and operating income. The revised rating actions also reflect Perico’s role as a core subsidiary and integration in HCC Life’s overall business strategy and profile.”

In conclusion best observed that the “financial leverage at HCC Holdings as of June 30, 2010 remained relatively low, as evidenced by a total debt-to-capital ratio of 8.5 percent. Furthermore, interest coverage continues to be exceptionally strong. For liquidity purposes, a $575 million revolving credit facility is maintained, and as of June 30, 2010, there was no outstanding funded balance on the credit facility.”

There is a complete list of HCC Insurance Holdings, Inc. and its subsidiaries’ FSRs, ICRs and debt ratings.

Source: A.M. Best

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