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A.M. Best Upgrades ICR of American Contractors Indemnity and United States Surety; Affirms ICR of Houston Casualty Group Members


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Robert Raber
Senior Financial Analyst – P/C
(908) 439-2200, ext. 5696
robert.raber@ambest.com

Henry Witmer
Assistant Vice President – P/C
(908) 439-2200, ext. 5097
henry.witmer@ambest.com

Richard McMillan – L/H
Managing Senior Financial Analyst
(908) 439-2200, ext. 5615
richard.mcmillan@ambest.com

Andrew Edelsberg
Vice President – L/H
(908) 439-2200, ext. 5182
andrew.edelsberg@ambest.com


Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - SEPTEMBER 25, 2014 03:32 PM (EDT)
A.M. Best has upgraded the issuer credit rating (ICR) to "aa" from "aa-" and affirmed the financial strength rating (FSR) of A+ (Superior) of American Contractors Indemnity Company (ACIC) (Los Angeles, CA) and United States Surety Company (USSC) (Timonium, MD). Concurrently, A.M. Best has affirmed the FSR of A+ (Superior) and ICRs of "aa" of the property/casualty members of Houston Casualty Group (HCC). Additionally, A.M. Best has affirmed the ICR of "a" and debt rating of "a" of $300 million 6.3% senior unsecured notes due 2019, as well as all indicative ratings under the shelf registration of the parent, HCC Insurance Holdings, Inc. (HCC Holdings) (Dover, DE) [NYSE: HCC]. The outlook for all of the above ratings is stable.

A.M. Best also affirmed the FSR of A+ (Superior) and ICR of "aa" of HCC Life Insurance Company (HCC Life) (Indianapolis, IN). The outlook for both ratings is stable.

The ratings of the property/casualty members of HCC take into account the continuing strong earnings through the current period, as well as the group's excellent capitalization, extended history within the specialty marketplace, and financial flexibility provided by HCC Holdings. These rating attributes are supported by the group's business strategy, diversified distribution channels and utilization of reinsurance. Subsequently, these factors have supported HCC recording underwriting and operating metrics stronger than peer companies, despite the challenges of market conditions, low interest rates and general economic conditions. The ratings also acknowledge an expectation of favorable near-term earnings, the organization's position as a specialty admitted and non-admitted carrier and its ability to leverage its core competencies when market opportunities arise.

The ratings of HCC Life reflect its leadership position in the medical stop-loss market, continued growth in premiums and operating income, as well as its contribution to HCC Holdings. Ongoing expense management and maintenance of strict underwriting standards, which has led to a reduced loss ratio, have contributed to improved underwriting results. The improved results are not only reflected in the core stop-loss business, but in its short-term domestic and international medical products written in the United States.

As of June 30, 2014, HCC Holdings' debt-to-capital and debt-to-tangible capital ratios (excluding other comprehensive income/loss) were approximately 17% and 21%, respectively. Furthermore, interest coverage

continues to be exceptionally strong. For liquidity purposes, an $825 million revolving line of credit is

maintained, and as of June 30, 2014, approximately $384 million was available under the credit facility.

Potential upward rating movement is unlikely in the near term. Downward movement in the ratings could occur with a decline in capitalization, negative trends in claim frequency or severity, or adverse reserve development from an unforeseen claim occurrence.

The FSR of A+ (Superior) and ICRs of "aa" have been affirmed for the following members of Houston Casualty Group:


  • Houston Casualty Company

  • Avemco Insurance Company

  • U.S. Specialty Insurance Company

  • HCC Specialty Insurance Company


The following indicative ratings have been affirmed under the current shelf registration:

HCC Insurance Holdings, Inc -

-- "a" on senior unsecured

-- "a-" on subordinated

HCC Capital Trust I and II -

-- "a-" on preferred securities

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.


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