HCC Insurance Ends 2012 on a High Note - Analyst Blog

By Zacks | February 13, 2013 AAA

HCC Insurance Holdings (HCC) fourth quarter adjusted earnings of 94 cents breezed past the Zacks Consensus Estimate by 46.9%. Results were up 23.7% year over year from 76 cents earned in the year ago quarter.

Operating income for the reported quarter included net favorable loss development of $35.4 million.

Including net realized investment gain net of tax worth $14.7 million and foreign currency expense of $0.5 million, HCC reported net income of $1.06 in the fourth quarter, up 43.2% year over year.

Quarterly Operational Update

Total revenues increased 6.1% year over year to $652.3 million in the fourth quarter. This was driven by solid improvement in net realized investment gain (up from $0.5 million in the year-ago quarter), net earned premiums (up 3% year over year) and net investment income (up 4.7% year over year). It surpassed the Zacks Consensus Estimate of $628 million.

Net written premiums in the quarter increased 0.3% year over year to $522.6 million.

Total expenses of $502.8 million in the quarter showed a marginal increase of 0.1% year over year mainly due to increases in interest expense (up 0.8% year over year) and other operating expenses (up 5.6% year over year).

Combined ratio for the company improved 250 basis points year over year to 84.5%.

Behind the Headlines

Net written premiums in the U.S. Property & Casualty division decreased 9% year over year to $86.1 million in the fourth quarter.

In the Professional Liability division, net written premiums declined 9% year over year to $113.7 million.

Accident & Health reported net written premiums of $213 million, up 11% year over year.

Net written premiums in the U.S. Surety &Credit reduced 8% year over year to $49.0 million.

In the International division, net written premium increased 7% year over year to $51 million.

Net written premiums in the Exited Lines declined 1% year over year to $9.8 million.

Full Year Highlights

Adjusted earnings of $3.74 per share improved 59.8% year over year. Results exceeded the Zacks Consensus Estimate of $3.42 per share.

Including net realized investment gain net of tax worth $20.2 million, OTTI credit losses net of tax worth $0.7 million and foreign currency expense of $4.0 million, net income for 2012 was $391.2 million or $3.83 per share as against $255.2 million or $2.30 per share in 2011.

Total revenues for full year 2012 increased 6.4% year over year to $2.5 billion.

Combined ratio improved 750 basis points from the year ago-period to 83.6%. For full year 2012, loss ratio was 56.7% compared to 58.9% in 2011.

Financial Position

HCC exited 2012 with cash and short term investments of $434.4 million and $305.1 million of available capacity under its revolving loan facility of $600 million.

Net cash from operating activities stood at $661.1 million in 2012, up 56.9% year over year.

As of Dec 31, 2012, total assets of the company were $10.3 billion, up 7.3% year over year.

Shareholders' equity increased 6.1% year over year to $3.5 billion at 2012 end. The debt to capital ratio of the company deteriorated 140 basis points to 14.2%.

2013 Guidance

It projects adjusted income to be between $3.20 per share to $3.50 per share.

Net written premium is expected to increase by 1%. Combined ratio is expected to be in the range of 86%-88%.

Zacks Rank

HCC currently carries a Zacks Rank #1 (Strong Buy). AmTrust Financial Services Inc. (AFSI), First American Financial (FAF) and Fidelity National Financial inc. (FNF) sharing the same Zacks Rank are expected to report their fourth quarter and full year 2012 results shortly.

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