A.M. Best Revises Outlook to Positive for Issuer Credit Ratings of HCC Insurance Holdings, Inc. and Certain Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has revised the outlook to positive from stable for the issuer credit ratings (ICR) of "aa-" and affirmed the ICRs and financial strength rating (FSR) of A+ (Superior) of Houston Casualty Group (HCC) and its property/casualty members.

A.M. Best also has upgraded the ICRs to "a+" from "a" and affirmed the FSRs of A (Excellent) of American Contractors Indemnity Company (ACIC) (Los Angeles, CA) and United States Surety Company (USSC) (Timonium, MD). In addition, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of "a-" of Pioneer General Insurance Company (Pioneer General) (Denver, CO).

Additionally, A.M. Best has affirmed the FSRs of A+ (Superior) and A (Excellent) and ICRs of "aa-" and "a+" of HCC Life Insurance Company (HCC Life) (Indianapolis, IN) and Perico Life Insurance Company (Perico) (Dover, DE), respectively. The outlook for all the above ratings is stable, except where specified.

Concurrently, A.M. Best has affirmed the ICR of "a-" and the debt rating of "a-" on $125 million of 1.3% convertible notes due 2023 of the holding company, HCC Insurance Holdings, Inc. (HCC Holdings) (Houston, TX) [NYSE: HCC]. The outlook for these ratings has been revised to positive from stable.

At the same time, A.M. Best has assigned indicative ratings of "a-" to senior unsecured debt, "bbb+" to subordinated debt and "bbb+" to shelf trust preferred securities of HCC Capital Trusts I and II, which may be issued under HCC Holdings' recently renewed shelf registration statement. The assigned outlook on the new indicative ratings is positive. (See link below for a complete listing of the companies and ratings.)

This $1 billion shelf registration replaces HCC Holdings' previous $1 billion shelf registration that was set to expire on May 25, 2009, but was replaced shortly beforehand. A.M. Best has withdrawn its indicative ratings on the securities related to the expired shelf.

These ratings reflect HCC's sustained profitability, strong capitalization, as well as the moderate financial leverage and substantial financial flexibility at HCC Holdings. HCC's business strategies have focused on a conservative investment strategy and on underwriting within narrowly defined specialty lines, effective utilization of affiliated underwriting agencies/insurance intermediaries and the optimal utilization of reinsurance protection. These strategies have helped produce increased operating profits in recent years despite challenging market conditions. The ratings also acknowledge HCC's near-term earnings prospects and its strong position in the specialty admitted and non-admitted markets.

Financial leverage at HCC Holdings as of June 30, 2009 remained relatively low, as evidenced by a total debt-to-capital ratio of 13.4%. Furthermore, interest coverage continues to be exceptionally strong. For liquidity purposes, a $575 million revolving credit facility is maintained. As of July 31, 2009, the outstanding balance on the credit facility was $320 million leaving $255 million of capacity available to HCC Holdings.

HCC Life is a market leader in the medical stop-loss insurance industry, while Perico is active in writing smaller case size stop-loss coverage. Although the cyclical medical stop-loss business continues to be in the soft part of the underwriting cycle, A.M. Best expects both HCC Life and Perico to continue generating favorable earnings due to their disciplined underwriting approach.

For a complete listing of HCC Insurance Holdings, Inc. and its subsidiaries' FSRs, ICRs and debt ratings, please visit www.ambest.com/press/082702hcc.pdf.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

A.M. Best Co.

Analysts

David S. Blades, CPCU"”P/C, 908-439-2200, ext. 5422

david.blades@ambest.com

or

Thomas Zitelli"”L/H, 908-439-2200, ext. 5412

thomas.zitelli@ambest.com

or

Public Relations

Jim Peavy, 908-439-2200, ext. 5644

james.peavy@ambest.com

or

Rachelle Morrow, 908-439-2200, ext. 5378

rachelle.morrow@ambest.com



Source: A.M. Best Co.