A.M. Best Affirms Ratings of HCC Insurance Holdings, Inc. and Its Subsidiaries; Revises Outlook to Stable.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength ratings (FSR) of A+ (Superior) and issuer credit ratings (ICR) of "aa-" of HCC Insurance Holdings (HCC) and its members. Concurrently, A.M. Best has affirmed the ICR of "a-", the debt rating of "a-" on $125 million of 1.3% convertible notes due 2023 and the various ratings on the shelf registration of the parent holding company, HCC Insurance Holdings, Inc. (Houston, TX).

A.M. Best also has affirmed the FSRs of A (Excellent) and ICRs of "a" of HCC Insurance Holdings, Inc.'s subsidiaries, American Contractors Indemnity Company (ACIC) (Los Angeles, CA) and United States Surety Company (USSC) (Timonium, MD), along with the FSR of A- (Excellent) and ICR of "a-" of Pioneer General Insurance Company (Pioneer General) (Denver, CO). Additionally, A.M. Best has affirmed the FSRs of A+ (Superior) and A (Excellent) and ICRs of "aa-" and "a+" of the other HCC Insurance Holdings, Inc. subsidiaries, HCC Life Insurance Company (HCC Life) (Indianapolis, IN) and Perico Life Insurance Company (Perico) (Dover, DE), respectively.

The outlook for all the above ratings has been revised to stable from negative, except for the FSR of Perico and the FSR and ICR of Pioneer General, which are stable. (See link below for a detailed listing of the companies and ratings.)

These rating actions follow the July 22, 2008 announcement of a settlement of the lawsuit that the Securities and Exchange Commission (SEC) had filed against HCC Insurance Holdings, Inc. and two of its former officers alleging violations related to certain historical stock option granting practice. According to the SEC announcement, "the Commission did not allege fraud claims and did not seek a monetary penalty against HCC based in part on the Company's remedial measures and its extraordinary cooperation with the Commission's investigation." The previous negative outlook reflected A.M. Best's concern regarding the continuing SEC inquiry of HCC's stock option granting practices. That rating outlook was partially tempered by A.M. Best's recognition that HCC reported operating profits in 2007 despite limited top line growth. A.M. Best believes sustained execution of the company's proven operating strategies should continue to produce results that are favorable, despite increasing competitiveness encountered across its multiple markets.

Financial leverage at HCC Insurance Holdings, Inc. as of first quarter 2008 remained relatively low, as evidenced by a total debt-to-capital ratio of 12.6%. Furthermore, interest coverage continues to be exceptionally strong. For liquidity purposes, a $575 million revolving credit facility is maintained. As of March 31, 2008, the outstanding balance at the credit facility was $240 million.

HCC Life remains the largest writer of medical stop-loss coverages in the United States, while Perico Life specializes in writing smaller case size stop-loss business. The cyclical medical stop-loss business continues to be in the soft part of the underwriting cycle. However, A.M. Best anticipates both HCC Life and Perico Life to continue reporting favorable operating results due to their disciplined underwriting and economies of scale.

For a complete listing of HCC Insurance Holdings, Inc.'s FSRs, ICRs and debt ratings, please visit www.ambest.com/press/073002hcc.pdf.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.