Ladies and gentlemen, thank you for standing by and welcome to the Q3 2013 Earnings Call. (Operator instructions.) I would now like to turn the conference over to Mr. Chris Williams, Chief Executive Officer. Sir, you may begin your conference. Ladies and gentleman, this telephone conference call relates to HCC Insurance Holdings, Inc. Before we begin, the Company has requested that I read the following statements, which will govern the telephone conference today. Statements made in this telephone conference that are not historical facts, including statements of our expectations, of future events, or our future financial performance, are forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-look statements involve inherent risks and uncertainties, and we caution investors that a number of factors could cause our actual results to differ materially from those contained in any such forward-looking statements. These factors and other risks and uncertainties are described in detail from time-to-time in our filings with the Securities and Exchange Commission. This conference call and the contents thereof, and any recording, broadcast, or publication thereof by HCC Insurance Holdings, Inc, are the sole property of HCC Insurance Holdings, Inc, and may not be recorded, rebroadcast or published in whole or in part without the express written consent HCC Insurance Holdings, Inc.

Good morning, everyone, and welcome to the HCC Q3 Earnings Call. Joining me today are Bill Burke, our President; Brad Irick, our CFO; Craig Kelbel, President of HCC Life; and Mike Schell, our Executive Vice President. HCC had another very solid quarter with earnings of $98 million or $0.98 per share compared to $107 million and $1.05 in Q3 2012. Our year-to-date earnings of $292 million were a strong result, exceeding the $283 million we earned in the first three quarters of 2012. This is another record nine months’ earnings per share. These results include pre-tax catastrophe losses of $18 million for the quarter and $45 million year-to-date, which compares with $8 million and $20 million in the same periods of 2012. Our paid loss ratio was a favorable 53.5% for the quarter and 52.6% year-to-date. Our diversified book of uncorrelated businesses saw gross written premium growth of 2% for the quarter and 3% year-to-date. In 2012 the HMO and Medical [Access] lines of business were discontinued. Net written premium on continuing lines of business was up 1% year-to-date when compared to 2012. Our full-year growth is in line with our projections, but more importantly our combined ratio continues at 83.5% for the quarter and 84.1% year-to-date. As you’re aware we strive for a mid-80s combined ratio over the cycle and once again we achieved this, which is something we are proud of. During Q3 we performed our detailed annual review of the reserves in several of our segments, and Brad will discuss these in detail. Based on these reviews we recognized net favorable loss development of $28 million which compares to $35 million in 2012. Our US property casualty segment, made up of numerous lines of business, had favorable development in most of these lines. While the segment has…

Thanks, Chris. Net investment income in the quarter was $54 million, a decrease of 4% from the prior year. For the full year, net investment income was basically in line with the prior year despite the impact of the low rate environment. Key investment metrics include the long-term tax equivalent yield of 4.5%, a book yield of 3.6%, portfolio duration of 5.5 years and an average rating of AA. We expect recent volatility in the markets to continue due to uncertainty with regard to the timing of tapering and the lack of US Congressional solidarity. In this environment we have maintained our focus on high-quality fixed income investments with a continuous focus on tax exempt munis and more recently additional investments in high-quality floating rate securities for managed duration. We have also modestly expanded our equity portfolio to $433 million. We remain comfortable with the overall liquidity of the portfolio and our ability to benefit from the generally rising interest rates. The stability of our year-over-year net investment income is attributable to our deliberate decision to keep the portfolio invested longer term during this extended period of low interest rates. Our low investment leverage and favorable cash flows driven by our profitable insurance operations allowed this strategy to work without overexposing us to the risk of rising rates. This quarter we completed reviews of our reserves in the US property and casualty, professional liability and international segments and recorded a net decrease to our loss reserves of $28 million including $5 million related to the favorable development from prior year catastrophes. We recognize net development as follows: $41 million favorable in US property and casualty, $26 million favorable in professional liability, and $39 million adverse in international where favorable development in energy, liability, and other lines was offset by a…

Thanks, Brad. As Chris and Brad noted we continue to have strong results in 2013. If we look at the underlying business performance excluding loss development and cat losses, our loss ratio for the quarter remained flat at a favorable 59% versus last year’s quarter. We are continuing to see rate increases in many lines of business across all of our segments and we had an average rate increase in the low single digits for those lines of business where the measurement is meaningful. The overall retention rate in Q3 was 82%. Looking at specific segments, for the professional liabilities segment the pricing environment for US D&O for Q3 continued to be positive. In international D&O the market remains competitive but we were able to achieve positive rate increases in Q3. For the overall segment we had rate increases in the mid-single digits. As always, our focus is on underwriting profit. We are most of the way through our second year of re-underwriting the DFP book of business in this segment and that continues to go well. For the year our gross written premiums are 2% less than the prior year and our net earned premium is 7% less. At the same time the segment’s earnings have increased as our loss ratio year-to-date has improved from 57% in 2012 to 51% in 2013. In the US surety and credit segment our loss ratios continued to be very positive at just over 22% year-to-date. Surety achieved gross written premium growth of 11% for Q3 and 3% year-to-date versus prior year driven by contract surety. Net earned premium growth has not caught up yet due in part to the multiyear nature of certain bonds. For our credit business, net earned premium year-to-date is flat versus 2012. Our US property and casualty segment had net earned premium growth of 4% in both the quarter and first nine months of 2013 versus prior year. This growth was driven by our primary casualty, sports and entertainment disability, title and residual value businesses which are included in the other category. A couple of comments on the primary casualty line of business: we started this business in 2011 and have seen solid growth. We write general liability coverage. As part of this line we just started a web-based program for small artisan contractors in the West. The initial results have been positive and we expect continued growth as we move forward. Overall for this segment, our loss ratio for the quarter was 15% on a reported basis or 59% on an accident year basis. International’s accident year loss ratio for the first nine months of 2013 is very positive at 54%. Our loss ratios continue to be particularly good for our energy, UK professional indemnity, and general property businesses. For the segment, gross written premium increased by 2% year-to-date versus prior year while net earned premium increased by 3% for the year. Craig?

Thanks, Bill. Overall the A&H segment gross written premium for Q3 2013 increased by 6% and $13 million over Q3 2012. Year-to-date for 2013 gross written premium has increased by 5% or $30 million as compared to 2012. Specific to the medical stop loss product which represents approximately 90% of the total of gross written premium for the A&H segment, the following are some key results for Q3 and year-to-date. The effective rate increase in Q3 which is a measurement of deductible and coverage changes was 14.6% as compared to an actual trend needed on that business to keep pace with medical inflation of 16.2%. The Q3 business typically has the lowest loss ratio by quarter so the effective rate increase being modestly behind the trend was expected. On a year-to-date basis the effective rate increase is 16.5% compared to an actual trend needed of 16.6%. The A&H segment’s combined ratio and pre-tax earnings are performing as planned. Through the first nine months of 2013 the average employee lives per group was 474 as compared to 438 last year. In addition, the average specific deductible written in 2013 has increased to $98,000 as compared to $88,000 in 2012 or an 11% increase. The market remains competitive but stable. Most of our competition continues to come from direct writers with no noticeable change in 2013 as compared with 2012. Of the business written in the first nine months approximately 80% of the gross written premium comes from our in force business which had a premium persistency of 82%. The remaining premium comes from new business which is consistent with prior year results. We have seen no impact as a result of the Affordable Care Act in 2013 to date and we continue to believe it may have a positive impact by increasing the number of self-insured lives in 2014. Chris?

Thanks, Craig. We’d now like to open up to any questions, and I’ll finish off with some closing remarks after the Q&A.

(Operator instructions.) Our first question comes from Matt Carletti of JMP Securities.

Hey, good morning. Just had a few questions, I guess a few question around the surety issue in Spain. Can you help us get a feel for the size of the book or the exposure in terms of either one, what the gross charge might have been before the reinsurance you announced and also too maybe the size in premiums of your book over the years, I think you referenced kind of ’02 through ’08; and what percentage of your Spanish surety book kind of relates to these specific type of bonds that are in question?

Hey Matt, this is Brad. I think as I mentioned in the comments we have pending litigation with regard to these matters, and our view is that the information that we provided so far with regard to the exposures and our reserve which is, as I said in my comments includes our best estimates. It includes a reasonable provision. But getting into specific details about the overall exposures and so forth we just think is not something we want to get into at this time.

Okay, alright. Thank you very much and congrats on a nice quarter.

Thanks, Matt.

Thank you. Our next question comes from Ken Billingsley of Compass Point.

Hi, good morning, congratulations. I just had a question on growth ideas through 2015 which is where I imagine you’re looking forward to. Where do you see opportunities for growth and how that fits into management plans?

Yes, Ken, good morning – it’s Chris Williams. This year you’ve seen us add a couple of teams of people. We’ve put the contractors on risk and an energy team (later corrected by the company to "contractors all risk and an engineering team”) in place in both the US and London. I think you can look for us to continue down that path. We are in the M&A game. We continue to look at opportunities. We haven’t found things that fit for us at the moment but we do have an interest if we found something that fit into the HCC model. So I think the short answer is you can look to see additional teams being added but if we see an M&A opportunity that we like the look of we would pounce.

And by M&A activity, is there any particular lines that maybe, not so much you would say include but that you would exclude or you would not be interested in?

Yeah, it’s very much consistent with what we’ve done in the past. We don’t have an appetite for worker’s compensation; we don’t have an appetite for personal lives business. So it’s very much from our point of view business as usual. Anything that fits into the specialty category where we can use some skill and judgment to underwrite it, that’ll be what we go after.

Great. The other questions are on capital management, just looking at underwriting leverage. So obviously if there are opportunities I understand you would have use for your capital there, but you’ve increased your dividend pretty significantly. Where do you guys favor right now with where your stock’s trading at stock buybacks versus dividends?

This is Brad. I think we’ll continue as Chris said to be opportunistic on the stock buyback side. I think you saw with the dividend, we saw the ability to do more from a dividend perspective. I think we’ll continue to see that. I think our view would be that we’d expect to continue to increase the dividend in the future like we’ve done and the buyback will come as we see opportunities.

Alright, thank you for taking my questions.

Thanks, Ken.

Thank you. Our next question comes from Ryan Byrnes of Langen McAlenney.

I guess just trying to go through your insurance statements about your international surety book. I just wanted to make sure you guys mentioned you had quota share and XOL coverage. Was that for all the accident years? I’m just trying to back into what that means.

Yes, this is Brad again. Yes, there’s a combination of quota share and XOL coverage across the accident years.

Okay, great. And then just moving over to I guess the medical stop loss field. You guys mentioned that the ACA could be a potential opportunity for you guys, but what about we hear a lot of the insurance brokers on our end talking about doing private healthcare exchanges and then offering fully insured. How do you guys view the potential growth in those private healthcare exchanges and how that could impact the medical stop loss field?

This is Craig Kelbel. The private exchanges are just in their early stage of development but there’s the full insured option and there will continue to be a self-funded option under those exchanges. So we’re actively in conversation with brokers who have the private exchanges so I don’t think it really changes how our business will operate just because there’s private exchanges available.

So just to confirm, in the fully insured models there you guys can participate as well or there’s a potential for you guys to participate in that as well? I just want to get the mechanics of it.

Yeah, we’re not a first dollar writer of fully insured. We’re a self-funded medical stop loss writer, an excess writer so we don’t participate in fully insured programs.

Alright, great. Thanks guys.

Thanks, Ryan.

Our next question comes from Mark Dwelle of RBC Capital Markets.

Yeah, good morning. In the US property and casualty segment and specifically the other line, there was a pretty significant increase in the gross premiums but there wasn’t a corresponding increase in net premiums. Is there something different or unusual in what you’re writing there? Normally those track pretty closely.

Hi, this is Bill Burke. We have our new lines of business in that category such as the general liability. We have certain other lines of business that in addition to the new lines of business that we buy quite a bit of reinsurance on as we get the businesses up and running and/or due to the nature of those businesses. So as such you see that spread between the gross and the net written.

Okay, so that’s a byproduct as much of anything of just growth in new lines of business there and kind of prudently using reinsurance to protect yourself as those ramp up.

That’s correct.

Okay, that makes sense. In the professional liability lines both US and international are you seeing any material changes in the sort of terms and conditions that are on offer in those spaces?

This is Mike Schell. The answer is no.

No, okay. Any real changes in the sort of limits that you’re historically writing in either of those segments as well?

No, neither in the US or international for the D&O. On the prior quarters’ we’ve had questions and answered about the diversified financial products portion and on that portion we continue to have about 10% less limit than we had on expiring. And also we reduced the maximum limits that we offer on that business on an account basis by more than half. But US and international D&O, no.

Okay, I appreciate the answers. Thanks.

Thanks, Mark.

(Operator instructions.) Our next question comes from Ron Bobman from Capital Returns.

Hi, thanks a lot. It sure seems like the company’s Spanish operations are being used as a bit of a social welfare net to a degree with this ruling so I’m sure it’s disappointing.

Ron, that’s extremely well said.

I have one question that I’m having trouble sort of reconciling with as it relates to the reinsurance protections. In the Q1 2006 earnings call the company stated that the Spanish surety business was being kept all net. That doesn’t seem to jibe with what you said today about the XOL and quota shares protections across all years. Was there a retrospective purchase or were you referring to internal reinsurance? What am I misunderstanding between those two statements?

Ron, this is Brad. I’d have to go back to the transcript to see the specifics of what we said. I’ll say that it’s not retrospective. These were coverages that were put in place at the time. So I’m not sure that I can reconcile the comments in 2006 right now – we’ll have a look at it, but no, it’s not retrospective.

And Ron, to frame that a little bit for you this business was in place since 2002 and in 2002 reinsurance was in place. So I’m not quite sure, that may have been reference to something else but there’s always been reinsurance on it as Brad said – both on a quota share basis and on an excess of loss basis.

And the reinsurance predates our ownership of the company. So we bought this from St. Paul España in 2002 so some of these go back to as early as 2000, and the reinsurance was put in place at those times.

Gotcha. And one last question does your current reserve position on the line, I assume it does, assume a continued inflow of more claims by virtue of this stressed ruling? I assume there’ll be claimants sort of coming out of the woodwork to some degree so is there sort of a forward-looking element to your position?

We’ve got a very good handle on the aggregate exposures and have evaluated them all, and we’ve considered them all in setting this reserve.

Okay, thanks.

Thank you. Our next question comes from Ryan Byrnes of Langen McAlenney.

Yeah, just one quick follow-up one guys. I just wanted to know for the international accounts, how often do you guys I guess square the reserves? Is it annually a Q3 process or was it done this year in response to the Supreme Court change? I just want to figure out how often you guys look to square those reserves.

Hi, this is Brad. We look at all of our reserves on an annual basis and Q3 is always an important quarter with a number of reserves to review. We look at international either in Q3 or Q4. The schedule would be that we’d do Q4. With international with redundancies indicated in some lines as well as the Spanish surety matter we accelerated the international review into Q3.

Okay, great. Thanks guys.

Thank you. Our next question comes from John Thomas of William Blair.

Hi. I was curious about the trends in E&O. For the past couple of years Q3 has shown adverse development and then this Q3 showed favorable development. What was the change there that you’re seeing with the trends?

This is Bill Burke again. We basically obviously look at our reserves as Brad noted and go back and on a quarterly basis look at those, and as we looked at E&O reserves particularly in the 2011 and prior years we were over-reserved and we reduced them accordingly.

Alright. And then US D&O premiums were flat for the first half and then declined by 12% in Q3. Were you decreasing to certain business segments there?

This is Mike Schell. It was another quarter. The rates increased, the average limits were similar. Our underwriters were selective in the quarter. They wrote less new business in the quarter than we non-renewed.

Okay, so were retentions similar and it was just a new business matter? Or was it both?

It was less new business than we typically write.

Alright, thank you.

Thank you.

Thank you. Our next question comes from Bob Farnam of KBW.

Hi there, good morning. Just a quick question, I just want to verify you can’t tell us the amount of premium that was basically the Spanish surety book back in 2006 and prior.

Yeah, I actually don’t have the numbers on me right now as far as the premium. I’ll tell you that the premium that was collected is much lower than the reserves we’ve established at this point and there’s no premium with regard to that. And I think Matt had asked a question about the size of this relative… I mean this is a discontinued block. It’s been discontinued for a number of years so just view it as a run off block and it’s an issue that we’ve had to address, and (inaudible) with the reserve adjustment we’ve made this quarter.

Right, okay. Thanks.

Thank you. At this time there are no further questions. I will now turn the call back to Mr. Williams for any closing remarks.

Thanks, Bonnie. We operate in an industry that provides coverage for adversity and for the vast majority of times we can underwrite a price for this adversity. From time to time when unanticipated Court interpretations come into play that the importance of having an uncorrelated book of business becomes even more pronounced. Based on virtually every metric we track we are very pleased with our excellent nine months’ results. We have strong earnings, record EPS, industry-leading combined ratios and superb ratings. We’ve expanded our book of business into some other diverse non-correlated lines of business and overall our financial strength is very strong. We believe that we’ve got the discipline and the leadership to continue to deliver exceptional results for many years to come. Thank you for joining us for today’s call. We’ll look forward to reporting our full year’s results to you early next year. Everyone, have a great day. Thank you.