Fitch Affirms Ratings on HCC - Analyst Blog
01 Avril 2013 - 7:35PM
Zacks
Credit ratings agency Fitch has affirmed its long-term Issuer
Default Rating (IDR) and Insurer Financial Strength (IFS) ratings
on HCC Insurance Holdings Inc. (HCC). The rating
agency provided IDR of “A+“ for HCC Insurance Holdings Inc. which
included the debt rating of “A” on the company’s 6.3% senior notes
worth $300 million scheduled to expire in 2019. It also confirmed
the IFS ratings of “AA“ to the insurance company subsidiaries of
HCC. Both the ratings carry a stable outlook.
The insurance company subsidiaries to which the IFS ratings have
been assigned are Houston Casualty Company, Avemco Insurance
Company, U.S. Specialty Insurance Company, HCC Specialty Insurance
Company, HCC Life Insurance Company, Perico Life Insurance Company,
American Contractors Indemnity Company and United States Surety
Company.
The ratings affirmation came on the back of HCC’s steady
performance, competitive position in the specialty insurance
market, sturdy capitalization and low financial leverage. The
company’s insurance subsidiaries scored ‘very strong’ under Prism
capital model. Nevertheless the ratings also take into account
higher earnings instability owing to catastrophe losses, growth in
longer tail product lines, greater exposure to equities and a
relatively modest scale in comparison to its peers.
As per Fitch HCC’s net written premiums to surplus ratio of 0.95
reflects its strong capitalization. Its GAAP equity increased 7%
year over year to $3.5 billion in 2012. Moreover the combined ratio
of HCC improved 750 basis points year over year to 83.6% in 2012
owing to relatively lower catastrophe losses and favorable reserve
development. HCC also had strong operating earnings-based interest
coverage of 21.5x in 2012.
Fitch stated that HCC’s limited scale and resources debars it to
upgrade the company’s ratings. The ratings on HCC is subject to a
downgrade if the company’s operating and net leverage goes above
1.1x and 3.4x respectively or a decline in the score on
Fitch's Prism capital model below 'very strong'.
Other factors that can add to a downgrade in the ratings include
deterioration in underwriting results or higher instability,
adverse reserve development, financial leverage ratio above 20%,
GAAP operating earnings-based interest coverage below 12x for a
continued period, risky assets divided by GAAP equity above 30% or
a fall in the property/casualty or life companies' risk-based
capital ratio.
Rating affirmations or upgrades from credit rating agencies play an
important part in retaining investor confidence in the stock as
well as maintaining the creditworthiness in the market. We believe
that the company’s present score with the credit rating agencies
will help it write more business going forward.
Earlier, in Oct 2012, Fitch affirmed the IFS ratings of “AA” on
HCC’s operating units and the senior debt rating at “A”. Both the
ratings carried a stable outlook.
HCC currently carries a Zacks Rank #2 (Buy).Among others from the
industry Arch Capital Group Ltd. (ACGL),
Axis Capital Holdings Limited (AXS) and
Cincinnati Financial Corp. (CINF) carry a
favorable Zacks Rank #1 (Strong Buy) and are worth
noting.
ARCH CAP GP LTD (ACGL): Free Stock Analysis Report
AXIS CAP HLDGS (AXS): Free Stock Analysis Report
CINCINNATI FINL (CINF): Free Stock Analysis Report
HCC INS HLDGS (HCC): Free Stock Analysis Report
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