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HCC Insurance Holdings Inc. (HCC - Snapshot Report) reported fourth-quarter 2013 operating net income of $1.12 per share, surpassing the Zacks Consensus Estimate of 93 cents significantly by 20.4%. With this result, the company marked 10 straight quarters of positive earnings surprise. The fourth-quarter number also increased 21.7% year over year.

A benign cat environment driving solid underwriting results fueled the outperformance.

Including net realized investment gains and foreign currency expense, net income of HCC Insurance came in at $1.14 per share, up 7.5% year over year.

Operational Update

Total revenues of HCC Insurance decreased 2.4% year over year to $636.6 million in the fourth quarter, primarily due to lower earned premiums, net investment income and net realized investment gains. However, revenues exceeded the Zacks Consensus Estimate of $626 million by 1.7%.

HCC Insurance’s Gross premiums written for the quarter increased 4.3% to $671.7 million and net written premiums inched up 0.5% year over year to $525.4 million.

Total expenses of HCC Insurance declined 4.5% year over year to $480.2 million in the quarter mainly due to lower loss and loss adjustment expenses. The improvement was, however, partially offset by higher policy acquisition costs and other operating expenses.

Combined ratio for HCC Insurance improved 330 basis points (bps) year over year to 81.2%.

Behind the Headlines

Net written premiums in the U.S. Property & Casualty division decreased 10% year over year to $77.5 million in the fourth quarter. The decline was mainly attributable to poor performance across the Public Risk, E&O block and Aviation block of business.

In the Professional Liability division, net written premiums declined 1.2% year over year to $112.3 million, due to lower premiums written in the U.S. D&O block.

Accident & Health reported net written premiums of $229.5 million, up 7.8% year over year.

Net written premiums in the U.S. Surety & Credit rose 4.3% year over year to $51.1 million, due to increase in the surety and credit block.

In the International division, net written premiums stood at approximately $53 million, up 3.9% year over year.

Net written premiums in the Exited Lines plunged 80% year over year to approximately $2 million.

Full-Year Highlights

For full-year 2013, operating net earnings of HCC Insurance came in at $3.86 per share, surpassing the Zacks Consensus Estimate of $3.66 per share by 5.5%. Also, the number increased 3.2% year over year.

HCC Insurance’s net income in 2013 attained a record level of $4.04 per share, up 5.5% year over year.

Total revenue of $2.54 billion inched up 0.4% year over year for 2013 primarily due to higher net realized investment gains.

Financial Update

As of 2013 end, total cash balance of the company was $125.8 million, up 23.9% from 2012-end.

HCC Insurance’s cash flows from operating activities was $262.7 million in 2013, plunging from $661.1 million reported in 2012 mainly due to Surety collateral repayments.

As of 2013-end, shareholders’ equity of HCC Insurance stood at $3.67 billion, up 3.7% from the end of 2012. The debt-to-capital ratio of HCC Insurance deteriorated 100 bps from 2012 end to 15.1%.

Performances of Other Property and Casualty Insurers

Allied World Assurance Company Holdings, AG’s (AWH - Snapshot Report) reported fourth-quarter 2013 operating net income of $2.17 per share, missing the Zacks Consensus Estimate of $2.40 by 10.4%. However, the result surged from the year-ago quarter’s operating net loss of $1.58 a share.

Markel Corp. (MKL - Snapshot Report) reported fourth-quarter operating net income of $5.92 per share, missing the Zacks Consensus Estimate of $5.99 per share by 1.2%. However, the result improved 2.4% year over year.

ACE Limited (ACE - Analyst Report) reported operating net earnings of $2.39 per share in the fourth quarter, surpassing the Zacks Consensus Estimate by 19.5%. Moreover, earnings surged nearly 67% on a year-over-year basis.

Zacks Rank

HCC Insurance presently carries a Zacks Rank #3 (Hold).

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