A.M. Best Co. reiterated issuer credit ratings (“ICR”) of ‘a’ and debt rating of ‘a’ on $300 million 6.3% senior unsecured notes due 2019 of HCC Insurance Holdings, Inc. (HCC - Snapshot Report).
Concurrently, the rating agency reiterated the financial strength rating (“FSR”) of A+ (Superior) and ICR of ‘aa’ of the property/casualty subsidiaries of HCC.
Additionally, A.M. Best raised the ICR to “aa” from “aa-” and reiterated the FSR of A+ (Superior) of HCC Life Insurance Company.
All the ratings carry a stable outlook.
The ratings affirmation came on the back of its strong foothold in the specialty property/casualty market over a larger span of time, continued robust results, solid capitalization coupled with extensive financial support from HCC Holdings.
The ICR of HCC Life was revised upward taking into consideration its sustained position as a primary subsidiary within HCC Holdings, growing medical stop-loss business with a dominant foothold in medical stop-loss insurance market, besides the new individual and group health insurance lines of business. Moreover, it has a history of delivering solid results on the back of strong underwriting practice.
A.M. Best, subsequently reiterated FSRs of A+ (Superior) and the ICRs of “aa-” of American Contractors Indemnity Company and United States Surety Company, the primary underwriting companies of HCC Surety Group. The ratings carry a stable outlook.
The rating affirmations reflect continued sturdy operational results, solid capitalization along with its dominant position in the holding company.
Though the FSR of A+ (Superior) and the ICR of “aa-” of Perico Life Insurance Company, another subsidiary of HCC Insurance, was affirmed, the outlook was downgraded to negative from stable.
The outlook downgrade essentially takes into consideration the merging of Perico Life’s operation with HCC Life.
Though a rating upgrade is less likely in the near term, ratings could be subject to downgrade if capitalization erodes, descending movement claims frequency or severity weighs on underwriting profitability or experiences adverse loss reserve development.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining creditworthiness in the market. On the other hand, rating downgrade adversely affects the business, besides increasing cost of future debt issuances. We believe strong scorings with rating agencies will help it write more business going forward.
HCC Insurance Holdings holds a Zacks Rank #1 (Strong Buy), indicating an upward boost on the shares over the near term.
ACE Limited (ACE - Analyst Report), The Travelers Companies Inc. (TRV - Analyst Report) and W.R. Berkley Corporation (WRB - Analyst Report), which closely compete with HCC Insurance, carry a Zacks Rank #3 (Hold).