A.M. Best Assigns Ratings for HCC’s Sr. Convertible Notes

March 28, 2003

A.M. Best Co. has assigned an “a” debt rating to Houston-based HCC Insurance Holdings, Inc’s $125 million 1.3 percent senior unsecured convertible notes, due April 2023 and issued under the company’s existing $750 million shelf registration.

The notes contain a put option, which is exercisable by the investor in 2009. Proceeds from the notes will be partially used to repay $66 million of short-term bank debt, while the remainder will be used for general corporate purposes. The financial strength rating of the various subsidiaries of HCC is unchanged, and all of HCC’s ratings carry a stable outlook.

Going forward, A.M. Best will be mindful of HCC’s substantial
reinsurance recoverables as management has reported reinsurers suspending or delaying payments. While not yet a meaningful dollar amount, a continuing trend could become an issue as the group maintains high ceded leverage. Increased retentions have moderated the exposure to reinsurance recoverables by a small amount as the operating subsidiaries are retaining more business than in past years, given the positive pricing environment for primary business and the rising cost of reinsurance.

Additionally, while increased retentions did not impact the excellent underwriting results in 2002, any significant catastrophes could have a moderating effect on future results.

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