Property and casualty (P&C) insurer HCC Insurance Holdings
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'
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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.