HCC Notes Sale of Its Retail Brokerage Subsidiary and the Commutation of Some Older Recoverables

Houston-based HCC Insurance Holdings, Inc. announced that the company has sold the business and substantially all of the assets of its retail brokerage subsidiary, HCC Employee Benefits, Inc. (HCCEB) to Capital Risk LLC, a subsidiary of Jardine Lloyd Thompson Group plc.

Stephen Way, chairman and CEO of HCC, said, “HCCEB’s Chief Executive Officer Rob Schanen and his team have built a very successful business for us however, retail brokerage is not a core operation to HCC and we feel that we can put the capital to better use in our expanding insurance company operations.” Way noted that HCC recently announced the acquisition of American Contractors Indemnity Company, a surety insurance company based in Los Angeles.

The disposition of HCCEB will result in an initial after-tax gain of approximately $28.3 million, or $0.44 per share, in the fourth quarter of 2003 with an additional payment provision that may be earned in 2004. According to GAAP, past and future results from this operation will be shown as “discontinued operations” in the company’s income statement.

HCC also announced that the company had reached an agreement with various reinsurers, to commute certain reinsurance recoverables related to outstanding claims from the 1996, 1997 & 1998 underwriting years of the Group’s discontinued accident & health reinsurance business.

Way said, “We continue to be proactive with our reinsurance recoverables and this commutation removes a substantial amount of our older receivables.”

In this regard, the company will receive cash payments from the commuting reinsurers and will take an after-tax charge in the fourth quarter 2003 of approximately $19.5 million, or $0.30 per share. This charge, which will be recorded in the discontinued line of business, is primarily the result of the discount to present day value on the claim reserves assumed, calculated using market interest rates. Future earnings will be enhanced by investment income on the cash received.