S&P Assigns “AA” Ratings to HCC Subs

Standard & Poor’s Ratings Services assigned its “AA” counterparty credit and financial strength ratings to HCC Life Insurance Co. (HCC Life) and HCC Specialty Insurance Co. (HCC Specialty). Also affirmed its were S&P’s “A” counterparty credit and senior debt ratings on HCC Insurance Holdings Inc. (HCC). At the same time, S&P affirmed its “AA” counterparty credit and financial strength ratings on three HCC subsidiaries: Houston Casualty Co., Avemco Insurance Co., and US Specialty Insurance Co. The outlook on all of these units is stable.

“The ratings actions are based on HCC’s strong business profile, strong operating performance, very strong capitalization, and good financial flexibility,” said Standard & Poor’s credit analyst Laline Carvalho. “Partially offsetting these factors are increased balance sheet risk and greater utilization of capital at the operating level (as the group increases net retention), relatively high reinsurance recoverable risk, and significant appetite for acquisitions.”

The ratings on HCC Life and HCC Specialty are based on Standard & Poor’s view that these subsidiaries are core to HCC. HCC Life is HCC’s major underwriting platform for medical stop loss business, while HCC Specialty is a newly-started Oklahoma-based subsidiary formed to write excess and surplus lines business in Texas, HCC’s home-base state.

HCC’s operating performance is expected to remain strong, with the GAAP consolidated combined ratio in the 90 percent-92 percent range in 2002 and 2003. Capital adequacy is expected to remain at about 150 percent. Debt leverage is expected to remain at or less than 25 percent, with interest coverage at more than 8 times (x) over the medium term.

HCC currently underwrites 20 percent of the domestic medical stop loss market and is one of the leading writers of aviation, property/marine/energy, kidnap and ransom, and event cancellation in the U.S. and internationally. In addition, management is committed to producing an underwriting profit in each of its lines of business, with underwriting discipline closely maintained by the effective use of reinsurance and strict underwriting guidelines.