HCC REPORTS STRONG RESULTS FOR THE FIRST
NINE MONTHS 2004 DESPITE HURRICANE LOSSES
 

HOUSTON (November 2, 2004) . . .
HCC Insurance Holdings, Inc. (NYSE symbol: HCC) today released earnings for the third quarter and first nine months of 2004.

Net earnings for the third quarter of 2004 were lower at $15.8 million, or $0.24 per diluted share, compared to $36.4 million, or $0.56 per diluted share, for the third quarter of 2003 due to the impact of the previously reported losses from the four hurricanes during the quarter which affected net earnings by $35.7 million, or $0.54 per diluted share. Third quarter 2004 net earnings include net realized investment gains from the sale of fixed income securities of $2.6 million, or $0.04 per diluted share.

For the first nine months of 2004 and despite the effect of the third quarter hurricane activity, net earnings increased 15% to a record $106.8 million, or $1.63 per diluted share, from $93.1 million, or $1.45 per diluted share, in the corresponding period of 2003.

Stephen L. Way, Chairman and Chief Executive Officer, said, “Our core operations had a very strong performance during the quarter notwithstanding the effect of the unprecedented hurricane losses and we expect strong earnings growth to continue into 2005.”

Total revenue showed significant growth, increasing 31% for the third quarter 2004 to $322.2 million from $246.3 million and increasing 34% for the first nine months of 2004 to $917.5 million from $684.1 million, both compared to the corresponding period of 2003. This increase was due to the predominantly organic growth in all reporting segments and an acquisition in January 2004.

The GAAP net combined ratio of our insurance company subsidiaries for the first nine months of 2004 was 92.9% compared to 88.8% in the same period of 2003, but on substantially higher net earned premium. Without the effect of the four hurricanes the GAAP net combined ratio would have been 7.6% lower at 85.3%.

Premium of our insurance company subsidiaries continued to grow substantially, with net written premium increasing 20% to $800.4 million during the first nine months of 2004 compared to $666.1 million during the first nine months of 2003 and net earned premium increasing by 34% to $717.3 million from $535.4 million during the same period. These increases were considerably greater excluding discontinued lines of business, with net
written premium rising 31% and net earned premium rising 41%, and are a result of increased retentions, an acquisition in January 2004 and strong, primarily organic growth, particularly in our Diversified Financial Products line of business.

Mr. Way added, “Despite some rate softening, strong profit margins remain stable in our underwriting operations and we continue to be optimistic about 2005.”

Fee and commission income increased 29% during the first nine months of 2004 to $135.8 million from $105.3 million in the same period of 2003. These increases are primarily due to organic growth and an acquisition in late 2003.

Cash flow from operating activities continued to be strong during the first nine months of 2004 increasing to $350.6 million from the previous record of $325.9 million during the first nine months of 2003, as a result of higher net earnings and increased net loss reserves.

Net investment income increased 28% in the first nine months of 2004 to $49.5 million from $38.5 million in the same period of 2003. This growth was primarily as a result of increased investment assets, which grew 24% as of September 30, 2004, to $2.1 billion compared to $1.7 billion at December 31, 2003. The Company continues to follow a conservative investment philosophy with a very short duration of our portfolio, little or no high yield bonds and few equity investments. We anticipate that investment assets will continue to grow substantially in 2005 together with investment income, which could accelerate as we extend durations and if rates continue to rise.

As of September 30, 2004, total assets grew 14% to $5.6 billion and book value per share increased 10% to $17.97 both compared to December 31, 2003. Shareholders’ equity grew to $1.2 billion and the Company’s debt to total capital ratio was 21.7%. See attached tables.

The Company stated that it had just received a subpoena from the Office of the Attorney General of Minnesota, in connection with an ongoing, industry-wide investigation of insurance sales practices in the health insurance industry. The Company intends to cooperate fully with the Attorney General’s investigation.

HCC will hold an open conference call beginning at 4:00 p.m. (CST) on Tuesday, November 2, to discuss these results. To participate, the number for domestic calls is (866) 244-4629 and the number for international calls is (703) 639-1176. In addition, there will be a live webcast available on a listen-only basis that can be accessed through the HCC website at www.hcch.com. A replay of the webcast will be available until Tuesday, November 9, 2004.

HCC is an international insurance holding company and a leading specialty insurance group since 1974, based in Houston, Texas with offices across the USA and in Bermuda, England and Spain. HCC has assets of more than $5.5 billion, shareholders’ equity of over $1 billion and is rated AA (Very Strong) by Standard & Poor’s and A+ (Superior) by A.M. Best Company.

For more information, visit our website at www.hcch.com.