HCC Insurance Holdings CEO Discusses Q3 2010 Results - Earnings Call Transcript
HCC Insurance Holdings Inc. (
)
Q3 2010 Earnings Conference Call
November 3, 2010 9:00 a.m. ET
Executives
John Molbeck – President and CEO
Tobin Whamond – EVP and COO
Mike Schell – Chief Underwriting Officer
Craig Kelbel – EVP – Life, Accident and Health Operations, President and CEO – HCC Life Insurance Co.
Brad Irick – Executive VP of Finance
Cory Moulton – EVP of U.S. Property and Casualty Operations
Pam Penny – Chief Accounting Officer
Randy Rinicella – General Counsel
Analysts
Matt Carletti – JMP
Amit Kumar Macquarie
Ray Lardella – Oppenheimer & Co.
Doug Mewhirter – RBC Capital Markets
Dean Evans – Keefe, Bruyette & Woods, Inc.
Deepinder Bhatia – Ironbound Capital
Beth Malone – Wunderlich Securities
Presentation
Operator
Compare to:
Previous Statements by HCC
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HCC Insurance Holdings, Inc. Q2 2010 Earnings Call Transcript
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HCC Insurance Holdings, Inc. Q1 2010 Earnings Call Transcript
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HCC Insurance Holdings, Inc. Q4 2008 Earnings Call Transcript
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HCC Insurance Holdings Inc. Q3 2008 Earnings Call Transcript
This telephone conference call relates to HCC Insurance Holdings Incorporated. Before we begin, the company has requested that I read the following statements, which will govern the telephone conference today.
Statements made in this telephone conference that are not historical facts including statements of our expectations of future events or our future financial performance are forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risk and uncertainties and we caution investors that a number of factors could cause our actual results to differ materially from those contained in any such forward-looking statements.
These factors and other risks and uncertainties are described in detail from time to time in our filings with the Securities and Exchange Commission. This conference call and the contents thereof and any recording, broadcast or publication thereof by HCC Insurance Holdings Incorporated are the sole property of HCC Insurance Holdings Incorporated and may not be recorded, rebroadcast or published in whole or in part without the expressed written consent of HCC Insurance Holdings Incorporated. The conference will begin momentarily. Until that time, you’ll again be placed on music hold.
Ladies and gentlemen, thank you for standing by and welcome to today’s third quarter 2010 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions) Thank you. I would now like to turn the conference over to Mr. John Molbeck, President and CEO. Sir, you may begin your conference.
John Molbeck
Thank you, operator. Welcome everyone to HCC’s third quarter conference call. I suspect many of you have a little post election hangover, so we’ll try and work through this and answer your questions as quickly as possible. Joining me today is Tobin Whamond, our Chief Operating Officer, Mike Schell, our Chief Underwriting Officer; Cory Moulton, our EVP of Property and Casualty, Craig Kelbel, who is our EVP of our Life, Accident, and Health Business, Brad Irick, our CFO, Pam Penny, our Chief Accounting Officer and Randy Rinicella, our General Counsel.
Our performance for the third quarter was a direct reflection of our strategy of building a portfolio of non-correlated specialty businesses that largely operate within their own cycles. Our net income excluding reserve development is actually higher for the year-to-date 2010 than the same time last year, a result which we consider to be excellent.
Our GAAP combined ratio of 82.1% for the quarter and 85.3% for the first nine months and our accident year combined ratio for the quarter was 82.2% and 85.1% for the first nine months.
Catastrophe losses in 2010 represented a 1% increase in our accident year loss ratio. The accident year loss ratio for the quarter was up by a particularly benign loss environment for energy, which was possibly helped, somewhat by the moratorium of drilling in the Gulf of Mexico, as well as our property treaty and our surety and credit businesses.
Our premium growth was relatively flat despite the continued competitiveness of the market. Our renewal percentage on business that renews annually and that we contract was 85% for the quarter and in the mid-80's for the year-to-date.
Tobin will now review with you the financial highlights for the quarter.
Tobin Whamond
Thank you, John. Gross written premium of HCC's Insurance Companies increased 3% to 1.95 billion in the first nine months of 2010 compared to 1.9 billion for the first nine months of 2009. The net earned premium was up slightly at 1.54 billion.
For the third quarter of 2010, gross written premium was up 3% over the third quarter of 2009 to 640.7 million. John will discuss the drivers behind the top line in a moment.
Operating cash flow for the third quarter of 2010 was strong at 175.3 million which is inline with our expectations for full year of 2010 of 400 million. In the first nine months of 2010, net investment income increased to 150.6 million compared to 141.7 million for the first nine months of 2009, driven primarily by an increase in the size of our long-term fixed income portfolio partially offset by the effect of lower short-term yields.
The fair value of our fixed income portfolio and our total investments at September 30 was 5.4 billion and 5.8 billion respectively. The overall portfolio mix remained relatively consistent between June 30 and September 30.
In the municipal bond sector, we continued our focus on high quality issuers and essential service revenue bonds. The duration of our fixed income portfolio decreased in the third quarter to 4.6 years from 4.8 years at the end of the second quarter, driven primarily by increased prepayments fees in our Agency MBS and CMO portfolio with our overall duration unchanged at 4.4 years. The quality of our portfolio remained consistent at AA+.
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