Property and casualty (P&C) insurer HCC Insurance Holdings (NYSE:HCC) reported its third-quarter earnings and cleared up some overhanging issues.

The company believes it has resolved its options investigation, with only a $3.3 million charge to book value. Because the investigation caused the company to delay its quarterly SEC filings, the company also tripped up some debt covenants on its outstanding convertible bonds; however, the company fixed this by filing the quarterlies.

Financially, the company posted solid numbers. Excluding last year's hurricane losses -- the worst year ever in P&C insurance history -- earnings increased 28% to $93.3 million. The year-to-date combined ratio improved 180 basis points to 82.9%. Also, given that insurance pricing is strong from lower capacity after last year's heavy P&C losses, it's a big positive that HCC increased its year-to-date earned premiums 21% to $1.2 billion.

After back-to-back "worst ever" years of P&C losses, 2007 has been a welcome reprieve from reinsurance losses. Management noted in the earnings call that the benign catastrophe season allowed the company to book a much-welcomed underwriting profit in its Lloyd's account, where it writes marine and accident and health insurance.

Looking at the upcoming year, HCC predicted that prices will soften a bit, probably because of a relatively harmless 2006. However, the company thinks that because it writes mainly specialty insurance lines, its business is more immune to price competition than most. The company estimates that 60% of its business is uncorrelated with the normal P&C cycle. In addition, the company confirmed that it will walk away rather than write premiums with poor risk/reward characteristics.

HCC reported on the integration of its acquisition of Allianz' (NYSE:AZ) accident and health insurance division. HCC has cut the division's employee count to 99 from 160, integrated IT systems, plans to consolidate office space, and is in the process of rolling out three new lines of business. Due to the positive developments, 2007 looks to be a much better year than 2006 for HCC. Since the $3.5-billion-market-cap company seems to toil in the shadow of $186 billion competitor AIG (NYSE:AIG) and $13 billion XL Capital (NYSE:XL), HCC might be a hidden value.

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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates comments, concerns, and complaints. The Motley Fool has a disclosure policy.