Fitch Ratings Upgrades HCC Insurance Holdings IDR to 'A+'; Outlook Stable

Business Wire, Oct 15, 2007

CHICAGO -- Fitch Ratings has upgraded the following ratings of HCC Insurance Holdings, Inc. (HCC) and its subsidiaries:

HCC Insurance Holdings, Inc.

--Issuer Default Rating (IDR) to 'A+' from 'A';

--$172 million 2% convertible notes to 'A' from 'A-';

--$125 million 1.3% convertible notes to 'A' from 'A-'.

Houston Casualty Company

Avemco Insurance Company

HCC Life Insurance Company

HCC Specialty Insurance Company

U.S. Specialty Insurance Company

--Insurer Financial Strength (IFS) to 'AA' from 'AA-'.

Additionally, Fitch has assigned the following ratings:

Perico Life Insurance Company

HCC Insurance Company

American Contractors Indemnity Company

United States Surety Company

--Insurer Financial Strength (IFS) at 'AA'.

The Rating Outlook is Stable.

Fitch's ratings upgrade reflects its belief that HCC's capital position at its insurance subsidiaries and at the parent holding company is solid, its investment profile is conservative and loss reserves are adequate. Additionally, HCC has demonstrated its underwriting discipline throughout pricing cycles as well as its ability to select and integrate acquisitions as evidenced by an average combined ratio of 90% from 1991-2006.

Fitch's rating action also reflects HCC's leading market position in a number of narrowly defined, non-correlated specialty insurance segments. As a result of acquisitions and organic growth, HCC has increased its total revenues to $2.1 billion at year-end 2006 from $667 million at year-end 2002.

HCC's insurance operations now include: medical stop loss, aviation, marine, property, energy, directors' & officers' liability, accident & health, surety and professional liability. HCC has operations in the United States, United Kingdom, Spain, Bermuda and Ireland. Additionally, the company's operations in insurance underwriting and fee based insurance intermediary businesses provide earnings and cash flow diversity as well as a unique approach to managing underwriting risk that has proven successful over an extended period.

Fitch believes that despite management changes over the past year, there will be no material changes in corporate strategy or operating performance going forward. Fitch also believes that any concerns regarding key-man risk have been alleviated and HCC has developed an organizational structure and improved its management bench strength which will allow it to continue its profitable growth.

Finally, HCC has significantly reduced its reinsurance credit risk in recent years as a result of its growth in underwriting capacity as well as its commutation of reinsurance contracts. HCC's premium retention level (net written premium divided by gross written premium) has increased steadily from 47% at year-end 2002 to 81% at year-end 2006. At June 30, 2007 HCC had approximately $1.1 billion of reinsurance recoverables, or 51% of shareholders' equity, down from 91% at year-end 2002. Fitch believes the quality of these recoverables is generally good, with the largest balance due from Lloyd's.

HCC's unadjusted debt to total capital ratio was 13.7% at June 30, 2007 and 2006 GAAP earnings-based interest coverage was very strong at 45.8 times (x).

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.