HCC INSURANCE HOLDINGS INC/DE/ - FORM 8-K - EX-99.5 - November 9, 2009

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8-K - FORM 8-K - HCC INSURANCE HOLDINGS INC/DE/h68221e8vk.htm
EX-99.4 - EX-99.4 - HCC INSURANCE HOLDINGS INC/DE/h68221exv99w4.htm
EX-99.6 - EX-99.6 - HCC INSURANCE HOLDINGS INC/DE/h68221exv99w6.htm
EX-99.3 - EX-99.3 - HCC INSURANCE HOLDINGS INC/DE/h68221exv99w3.htm
EX-99.1 - EX-99.1 - HCC INSURANCE HOLDINGS INC/DE/h68221exv99w1.htm
EX-99.2 - EX-99.2 - HCC INSURANCE HOLDINGS INC/DE/h68221exv99w2.htm
EX-23.1 - EX-23.1 - HCC INSURANCE HOLDINGS INC/DE/h68221exv23w1.htm
 
EXHIBIT 99.5
 
SCHEDULE 1
 
HCC INSURANCE HOLDINGS, INC.

SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
(In thousands)
 
                         
December 31, 2008  
Column A   Column B     Column C     Column D  
                Amount at Which
 		 
                Shown in the
 		 
Type of Investment
  Cost     Value     Balance Sheet  
 
Available for sale fixed maturities:
                       
Bonds — United States government and government agencies and authorities
  $ 196,856     $ 206,288     $ 206,288  
Bonds — states, municipalities and political subdivisions
    805,065       808,697       808,697  
Bonds — special revenue
    1,177,256       1,182,838       1,182,838  
Bonds — corporate
    517,794       511,638       511,638  
Asset-backed and mortgage-backed securities
    1,048,647       1,040,866       1,040,866  
Bonds — foreign
    372,921       382,838       382,838  
                         
Total available for sale fixed maturities
    4,118,539       4,133,165       4,133,165  
                         
Held to maturity fixed maturities:
                       
Bonds — United States government and government agencies and authorities
    21,319       21,823       21,319  
Bonds — foreign
    102,234       103,738       102,234  
                         
Total held to maturity fixed maturities
    123,553       125,561       123,553  
                         
Total fixed maturities
    4,242,092     $ 4,258,726       4,256,718  
                         
Equity securities:
                       
Common stocks — industrial and miscellaneous
    16       16       16  
                         
Total equity securities
    16     $ 16       16  
                         
Short-term investments
    497,477               497,477  
Other investments
    50,072               50,072  
                         
Total investments
  $ 4,789,657             $ 4,804,283  
                         


S-1

 

 
 

SCHEDULE 2
 
HCC INSURANCE HOLDINGS, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(In thousands)
 
                 
    December 31,  
    2008     2007  
    (as adjusted)     (as adjusted)  
 
ASSETS
Cash
  $ 101     $ 440  
Short-term investments
    12,164       36,479  
Investment in subsidiaries
    2,734,112       2,596,741  
Intercompany loans to subsidiaries for acquisitions
    297,735       217,041  
Receivable from subsidiaries
    40,520       52,683  
Other assets
    7,244       42,997  
                 
Total assets
  $ 3,091,876     $ 2,946,381  
                 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Payable to subsidiaries
  $ 37,443     $ 88,255  
Notes payable
    343,649       319,471  
Deferred Federal income tax
    17,973       20,847  
Accounts payable and accrued liabilities
    52,788       74,113  
                 
Total liabilities
    451,853       502,686  
Total shareholders’ equity
    2,640,023       2,443,695  
                 
Total liabilities and shareholders’ equity
  $ 3,091,876     $ 2,946,381  
                 
 
See Notes to Condensed Financial Information.


S-2

 

SCHEDULE 2
 
HCC INSURANCE HOLDINGS, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF EARNINGS
(In thousands)
 
                         
    Years Ended December 31,  
    2008     2007     2006  
    (as adjusted)     (as adjusted)     (as adjusted)  
 
Equity in earnings of subsidiaries
  $ 308,227     $ 401,973     $ 351,657  
Interest income from subsidiaries
    13,328       9,345       8,196  
Net investment income
    626       1,794       2,698  
Other operating income (loss)
    10,006       (103 )     1,130  
                         
Total revenue
    332,187       413,009       363,681  
                         
Interest expense
    19,413       14,916       15,931  
Other operating expense
    6,358       12,060       16,172  
                         
Total expense
    25,771       26,976       32,103  
                         
Earnings before income tax expense
    306,416       386,033       331,578  
Income tax expense (benefit)
    4,296       (5,520 )     (6,333 )
                         
Net earnings
  $ 302,120     $ 391,553     $ 337,911  
                         
 
See Notes to Condensed Financial Information.


S-3

 

SCHEDULE 2
 
HCC INSURANCE HOLDINGS, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(In thousands)
 
                         
    Years Ended December 31,  
    2008     2007     2006  
    (as adjusted)     (as adjusted)     (as adjusted)  
 
Operating Activities:
                       
Net earnings
  $ 302,120     $ 391,553     $ 337,911  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                       
Undistributed net income of subsidiaries
    (168,834 )     (371,873 )     (272,409 )
Change in accrued interest receivable added to intercompany loan balances
    (13,328 )     (9,345 )     (7,788 )
Change in accounts payable and accrued liabilities
    (28,268 )     18,812       5,788  
Other, net
    21,630       (5,378 )     1,978  
                         
Cash provided by operating activities
    113,320       23,769       65,480  
                         
Investing Activities:
                       
Cash contributions to subsidiaries
    —       (227 )     (64,299 )
Payments for purchase of businesses, net of cash received
    (15,500 )     (12,021 )     (23,455 )
Change in short-term investments
    24,315       (16,587 )     18,290  
Sales and maturities of fixed income securities
    —       —       30,587  
Cost of securities acquired
    —       (912 )     (10,626 )
Proceeds from sale of strategic investment
    22,382       —       —  
Change in receivable/payable from subsidiaries
    (3,102 )     —       —  
Intercompany loans to businesses for acquisitions
    (88,409 )     (52,257 )     (32,708 )
Payments on intercompany loans to subsidiaries
    24,245       52,570       33,461  
                         
Cash used by investing activities
    (36,069 )     (29,434 )     (48,750 )
                         
Financing Activities:
                       
Advances on line of credit
    181,000       232,000       140,000  
Payments on line of credit and notes payable
    (161,000 )     (204,437 )     (140,249 )
Sale of common stock, net of costs
    18,198       24,533       18,999  
Purchase of common stock
    (63,335 )     —       —  
Dividends paid
    (52,453 )     (46,158 )     (38,923 )
                         
Cash provided (used) by financing activities
    (77,590 )     5,938       (20,173 )
                         
Net increase (decrease) in cash
    (339 )     273       (3,443 )
Cash at beginning of year
    440       167       3,610  
                         
Cash at end of year
  $ 101     $ 440     $ 167  
                         
 
See Notes to Condensed Financial Information.


S-4

 

HCC INSURANCE HOLDINGS, INC.
 
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
 
(1)  The accompanying condensed financial information should be read in conjunction with the consolidated financial statements and the related notes thereto of HCC Insurance Holdings, Inc. and Subsidiaries. Investments in subsidiaries are accounted for using the equity method. As discussed in Note 1 to the consolidated financial statements, we adopted FSP APB 14-1 and FSP EITF 03-6-1 on January 1, 2009. All amounts in the accompanying condensed financial information have been adjusted for the retrospective application of these new accounting standards.
 
(2)  Intercompany loans to subsidiaries are demand notes issued primarily to fund the cash portion of acquisitions. They bear interest at a rate set by management, which approximates the interest rate charged for similar debt. At December 31, 2008, the interest rate on intercompany loans was 6.75%.
 
(3)  Other operating expense includes $5.8 million in 2007 and $12.0 million in 2006 related to the company’s stock option investigation.
 
(4)  Dividends received from subsidiaries were $139.4 million, $30.1 million, and $79.2 million in 2008, 2007 and 2006, respectively.


S-5

 

 
SCHEDULE 3
 
HCC INSURANCE HOLDINGS, INC.
 
SUPPLEMENTARY INSURANCE INFORMATION
(In thousands)
 
                                                                         
Column A
  Column B     Column C     Column D     Column F     Column G     Column H     Column I     Column J     Column K  
          (1)     (1)           (2)                 (3)        
    December 31,     Years Ended December 31,  
                                  Benefits,
 		    Amortization
 		             
    Deferred
 		    Future Policy
 		                      Claims,
 		    of Deferred
 		             
    Policy
 		    Benefits, Losses,
 		                Net
 		    Losses and
 		    Policy
 		    Other
 		       
    Acquisition
 		    Claims and Loss
 		    Unearned
 		    Premium
 		    Investment
 		    Settlement
 		    Acquisition
 		    Operating
 		    Premium
 		 
Segments
  Costs     Expenses     Premiums     Revenue     Income     Expenses     Costs     Expenses     Written  
 
2008
                                                                       
Insurance Company
  $ 125,529     $ 3,479,465     $ 977,426     $ 2,007,774     $ 159,452     $ 1,211,873     $ 381,441     $ 115,737     $ 2,060,618  
Agency
                                    4,529                       85,286          
Other Operations
                                    55                       5,161          
Corporate
                                    715                       27,325          
                                                                         
Total
  $ 125,529     $ 3,479,465     $ 977,426     $ 2,007,774     $ 164,751     $ 1,211,873     $ 381,441     $ 233,509     $ 2,060,618  
                                                                         
2007
                                                                       
Insurance Company
  $ 123,805     $ 3,293,279     $ 943,946     $ 1,985,086     $ 192,487     $ 1,183,947     $ 366,610     $ 127,942     $ 1,985,609  
Agency
                                    9,520                       73,518          
Other Operations
                                    2,497                       3,032          
Corporate
                                    1,958                       37,150          
                                                                         
Total
  $ 123,805     $ 3,293,279     $ 943,946     $ 1,985,086     $ 206,462     $ 1,183,947     $ 366,610     $ 241,642     $ 1,985,609  
                                                                         
2006
                                                                       
Insurance Company
  $ 117,461     $ 3,167,974     $ 920,350     $ 1,709,189     $ 137,896     $ 1,011,856     $ 319,885     $ 110,438     $ 1,812,552  
Agency
                                    9,484                       70,151          
Other Operations
                                    2,610                       1,839          
Corporate
                                    2,814                       39,896          
                                                                         
Total
  $ 117,461     $ 3,167,974     $ 920,350     $ 1,709,189     $ 152,804     $ 1,011,856     $ 319,885     $ 222,324     $ 1,812,552  
                                                                         
 
 
(1) Columns C and D are shown ignoring the effects of reinsurance.
 
(2) Net investment income was allocated to the subsidiary, and therefore the segment, on which the related investment asset was recorded.
 
(3) Other operating expenses is after all corporate expense allocations have been charged or credited to the individual segments.
 
Note: Column E is omitted because we have no other policy claims and benefits payable.


S-6

 

 
SCHEDULE 4
 
HCC INSURANCE HOLDINGS, INC.
 
REINSURANCE
(In thousands)
 
                                         
Column A
  Column B     Column C     Column D     Column E     Column F  
                Assumed from
 		          Percent of
 		 
          Ceded to Other
 		    Other
 		          Amount
 		 
 
  Direct Amount     Companies     Companies     Net Amount     Assumed to Net  
 
Year ended December 31, 2008
                                       
Life insurance in force
  $ 1,348,357     $ 370,205     $ —     $ 978,152       — %
                                         
Earned premium:
                                       
Property and liability insurance
  $ 1,344,569     $ 405,049     $ 271,433     $ 1,210,953       22 %
Accident and health insurance
    746,643       41,778       91,956       796,821       12 %
                                         
Total
  $ 2,091,212     $ 446,827     $ 363,389     $ 2,007,774       18 %
                                         
Year ended December 31, 2007
                                       
Life insurance in force
  $ 1,267,547     $ 417,479     $ —     $ 850,068       — %
                                         
Earned premium:
                                       
Property and liability insurance
  $ 1,329,889     $ 415,699     $ 291,592     $ 1,205,782       24 %
Accident and health insurance
    671,440       34,495       142,359       779,304       18 %
                                         
Total
  $ 2,001,329     $ 450,194     $ 433,951     $ 1,985,086       22 %
                                         
Year ended December 31, 2006
                                       
Life insurance in force
  $ 1,371,637     $ 374,753     $ —     $ 996,884       — %
                                         
Earned premium:
                                       
Property and liability insurance
  $ 1,246,650     $ 408,632     $ 255,303     $ 1,093,321       23 %
Accident and health insurance
    543,986       30,614       102,496       615,868       17 %
                                         
Total
  $ 1,790,636     $ 439,246     $ 357,799     $ 1,709,189       21 %
                                         


S-7

 

 
SCHEDULE 5
 
HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
 
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
 
                         
    2008     2007     2006  
 
Reserve for uncollectible reinsurance:
                       
Balance at beginning of year
  $ 8,530     $ 14,883     $ 12,141  
Provision charged to expense
    —       2,231       5,649  
Amounts written off
    (103 )     (8,584 )     (2,907 )
                         
Balance at end of year
  $ 8,427     $ 8,530     $ 14,883  
                         
Allowance for doubtful accounts:
                       
Balance at beginning of year
  $ 6,387     $ 6,514     $ 7,394  
Provision charged to expense
    770       1,124       576  
Amounts written off and other
    (1,777 )     (1,251 )     (1,456 )
                         
Balance at end of year
  $ 5,380     $ 6,387     $ 6,514  
                         


S-8

HCC INSURANCE HOLDINGS INC/DE/ Reports