CHICAGO--(BUSINESS WIRE)--(This is a correction to a press release published on June 16, 2016. It corrects HCC Insurance Holdings, Inc.'s (HCC) Long-Term Issuer Default Rating (IDR) listed at the end of this release to 'A' and not 'A-' as originally stated.)
Fitch Ratings has affirmed HCC Insurance Holdings, Inc.'s (HCC) Long-Term Issuer Default Rating (IDR) at 'A'. The Rating Outlook is Stable. Fitch has also affirmed the Insurer Financial Strength (IFS) ratings for HCC's operating subsidiaries at 'AA-'. The Rating Outlooks have been revised to Negative from Stable. A complete list of ratings follows at the end of this release.
KEY RATING DRIVERS
Fitch's rating action follows the announcement that Tokio Marine Holdings, Inc.'s (Tokio Marine; IFS rated 'A+'/Negative Outlook), HCC's parent, Rating Outlook has been revised to Negative following a revision to the local currency sovereign rating of 'A' for Japan with a Negative Outlook.
Fitch's rating action aligns HCC's operating company IDR to that of its new parent's core operating companies, but allows the IFS rating to be one notch above the core operating companies of Tokio Marine. The Tokio Marine operating company 'A+' IFS rating is constrained by the Japanese operations' exposure to country risks in Japan, which Fitch views as only indirectly impacting U.S.-based HCC.
Fitch believes Tokio Marine ownership will not alter HCC's stand alone rating profile and have only modest influence in management of HCC, similar to past U.S. based acquisitions Tokio Marine made of Delphi Financial Group, Inc. (Delphi) which was acquired for $2.7 billion in 2012 and Philadelphia Consolidated Holding Corp. (Philadelphia) which was acquired for $4.5 billion in 2008. Fitch considers HCC to be 'Very Important' in terms of strategic fit to Tokio Marine and may migrate to 'Core' over time.
Fitch recognizes there may be several synergies between the companies; for example, HCC investments may leverage Delphi's investment experience, reinsurance structures can be modified to leverage efficiencies, and the potential for cross selling of products exists.
Fitch's ratings reflect HCC's consistent and disciplined underwriting practices, conservative capitalization, moderate financial leverage, and niche in several specialty insurance markets. The ratings also reflect potentially increased earnings volatility from recent newer ventures particularly the crop insurance and property treaty reinsurance.
HCC reported a GAAP calendar year combined ratio of 86.1% for full year 2015, which represents a modest deterioration over full year 2014's result of 82.1%. The deterioration was primarily attributable to expenses associated with newly acquired crop insurance and foreign currency charges.
HCC's financial leverage ratio remained moderate at approximately 19.6% and fixed charge coverage was about 6.0x at year-end 2015.
RATING SENSITIVITIES
Key rating triggers that could lead to a downgrade include:
--A downgrade of Tokio Marine's operating company operating company IDR.
--A material change in operating profile post acquisition.
--A reduction in operating performance due to crop insurance or new business activities.
Fitch believes it is unlikely that any potential future downgrade of the HCC ratings would be to levels lower than those of the parent.
Fitch views a near-term rating upgrade as unlikely, but an upgrade of parent Tokio Marine's IDR could result in an upgrade to HCC's ratings.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following rating with a Stable Outlook:
HCC Insurance Holdings, Inc.
--IDR at 'A'.
Fitch has affirmed the following ratings and has revised the Outlook to Negative from Stable:
American Contractors Indemnity Company
Avemco Insurance Company
HCC Life Insurance Company
HCC Specialty Insurance Company
Houston Casualty Company
U.S. Specialty Insurance Company
United States Surety Company
--IFS ratings of 'AA-'.
Additional information is available at www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub. 17 May 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881564
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1006191
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1006191
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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