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HCC Insurance Holdings

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Shares of HCC Insurance Holdings (HCC) touched their 52-week high of $36.07 on October 18, after the specialty insurance underwriter got some rating affirmations and paid an increased dividend.

This Zacks #1 Rank (Strong Buy) has reported 4 straight quarters of positive earnings surprises, and has a fair chance of continuing that streak when it reports third-quarter results next week.

Q3 Coming Up

HCC Insurance Holdings is scheduled to report its third quarter results on October 30. The Zacks Consensus Estimate is pegged at 75 cents on expected revenues of $626 million.

On July 31, HCC Insurance Holdings delivered second quarter earnings of 95 cents per share, reflecting an increase of 55.7% from last year and surpassing the Zacks Consensus Estimate by nearly 27%.

Total revenue increased 8.1% year over year to gross $632.3 million, thanks to higher premiums and investment income.

The retention rate increased 200 basis points to 87%. A lower level of catastrophe activities led to a 430 basis points improvement in the combined ratio over the prior-year quarter to 84.9%.

On August 23, the company’s board of directors authorized a 6.4% hike in its quarterly cash dividend to 16.5 cents. On August 27, the board approved a share buyback program. Per the approval, the company is authorized to repurchase shares worth $300 million. HCC Insurance Holdings spent $59.5 million to buyback 1.9 million shares in the second quarter.

On September 26, credit rating agency A.M. Best affirmed the ratings of HCC Insurance Holdings and its subsidiaries. Also, on October 1, Fitch Ratings affirmed the ratings of HCC Insurance Holdings and its subsidiaries.

Earnings Estimates Move North

The Zacks Consensus Estimate for 2012 increased 1.9% to $3.24 as five of 10 estimates rose over the last 30 days. This also represents a year-over-year increase of 24.7%.

For 2013, the Zacks Consensus Estimate rose 0.6% to $3.21 over the same time frame.

Valuation Looks Attractive

HCC Insurance Holdings currently trades at a forward P/E of 10.9x, a 12.1% discount to the peer group average of 12.4x. On a price-to-book basis, shares are trading at 1.08x, compared to the peer group average of 1.02x.

HCC Insurance Holdings has a trailing 12-month return on equity (ROE) of 9.8%, substantially higher than the peer group average of 6.9%.

Market Performance & Technicals

HCC Insurance Holdings has been trading above its 50-day and 200-day moving averages following the announcements of an increased dividend and the share repurchase authorization.

Shares have also gained 16.6% since reporting second quarter results.

Volume is fairly strong, averaging roughly 411,986 daily. The year-to-date return for the stock came in at 28.9%, way ahead of the S&P 500’s return of 13.9%.

Headquartered in Houston, Texas and founded in 1974, HCC Insurance Holdings underwrites non-correlated specialty insurance products, including property and casualty, accident and health, surety and credit product lines. With offices in the United States, the United Kingdom, Spain and Ireland, it has a market capitalization of $3.54 billion and competes with ACE Limited (ACE), The Travelers Companies, Inc. (TRV) and W.R. Berkley Corporation (WRB), among others.

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