HCC Insurance — Q2 2015 Earnings Presentation
31 slides from HCC Insurance's earnings presentation, Aug 14, 2015
Slide 1: Second Quarter 2015 Investor Presentation
Second Quarter 2015 Investor Presentation August 14, 2015 HCC Insurance Holdings, Inc.
Slide 2: Notice About This Presentation
See Notice About This Presentation Notice About This Presentation Additional Important Information About the Proposed Merger and Where to Find It: This communication relates to a proposed merger between HCC and a subsidiary of Tokio Marine Holdings, Inc. that is the subject of the preliminary proxy
Slide 3: Acquisition by Tokio Marine Holdings
See Notice About This Presentation 3 Acquisition by Tokio Marine Holdings
Slide 4: HCC To Be Acquired By Tokio Marine Holdings
See Notice About This Presentation HCC To Be Acquired By Tokio Marine Holdings 4 On June 10, 2015, HCC entered into a definitive agreement with Tokio Marine Holdings to be acquired for $78.00 in cash per share Total transaction value is approximately $7.5 billion Acquisition price represents a 35.8%
Slide 5: HCC Overview
See Notice About This Presentation 5 HCC Overview
Slide 6: Overview
See Notice About This Presentation Overview 6 Leading specialty insurance underwriter Over 100 diverse, largely non-correlated lines of business Industry leading combined ratio Consistent, top-tier financial results and value creation regardless of market cycles Assets of $11.1 billion, shareholders
Slide 7: Strong Balance Sheet
See Notice About This Presentation Strong Balance Sheet AA (Very Strong) from Standard & Poor’s A+ (Superior) from A.M. Best AA (Very Strong) from Fitch Ratings A1 (Good Security) from Moody’s 7
Slide 8: Consistent, Profitable Growth
Consistent, Profitable Growth 8 Premium See Notice About This Presentation ($ in millions) CAGR (2009-2014) GWP: 3.2% NWP: 3.0% Growth YOY GWP: 14.2% NWP: 16.0% $0 $800 $1,600 $2,400 $3,200 $4,000 2010 2011 2012 2013 2014 YTD 2Q14 YTD 2Q15 Gross Written Net Written
Slide 9: Underwriting Focus
Underwriting Focus 9 Underwriting Ratios See Notice About This Presentation 60.8% 67.2% 59.7% 59.1% 57.1% 58.7% 61.2% 24.7% 24.4% 24.4% 24.8% 25.4% 24.9% 25.5% 85.5% 91.6% 84.1% 83.9% 82.5% 83.6% 86.7% 2010 2011 2012 2013 2014 YTD 2Q14 YTD 2Q15 Loss Ratio Expense Ratio
Slide 10: Effective Catastrophe Management
See Notice About This Presentation Effective Catastrophe Management 10 1 1/1/15 PML excludes reinstatement premium and is based on 1 in 250 year estimates from RMS models and internal PML estimates for lines not modeled in RMS. After-tax Net Probable Maximum Loss (PML)1 for a single event managed to
Slide 11: New Lines of Business
New Lines of Business 11 Gross Written Premium See Notice About This Presentation ($ in millions) New lines by year1: 2 2 1 3 3 1 1 2010 includes Property Treaty line, which was entered in December 2009 and began full operation in 2010. Over $1 billion of GWP from new lines since 2010 $75 $145 $195
Slide 12: YTD 2Q15 Results
See Notice About This Presentation 12 YTD 2Q15 Results
Slide 13: Earnings Per Share
See Notice About This Presentation Earnings Per Share 13 YTD 2Q14 actual $2.04 EPS YTD 2Q15 actual $2.01 EPS
Slide 14: Combined Ratio
See Notice About This Presentation Combined Ratio 14 86.7% Target: mid-80s Note: Results are second quarter year-to-date 2015.
Slide 15: Expense Ratio
See Notice About This Presentation Expense Ratio Low expense ratio = competitive advantage 15 25.5% Note: Results are second quarter year-to-date 2015.
Slide 16: Operating Return on Equity
See Notice About This Presentation Operating Return on Equity1 16 9.5% YTD 2Q15 10.3% Trailing Four Quarters2 Target: 10% above 90-day T-bill 1 Operating return on equity is a non-GAAP financial measure. See GAAP reconciliation on slide 30. 2 Calculated from results for twelve months ended 6/30/15.
Slide 17: Segment Results
See Notice About This Presentation 17 Segment Results
Slide 18: Underwriting Segment Overview
Underwriting Segment Overview ($ in millions) 18 See Notice About This Presentation Gross Written Premium Net Earned Premium Combined Ratio YTD 2Q14 Total: $1,579 YTD 2Q15 Total: $1,804 YTD 2Q14 Total: $1,135 YTD 2Q15 Total: $1,242 YTD 2Q14 Total: 83.6% YTD 2Q15 Total: 86.7% Segment Pretax Earnings
Slide 19: North America Property & Casualty
87.9% combined ratio 35% GWP growth driven by ProAg acquisition ProAg business is expected to break even in 2015 and be accretive to earnings in 2016 Continued focus on maintaining or improving margins in a competitive environment See Notice About This Presentation North America Property & Casualty
Slide 20: Accident & Health
See Notice About This Presentation Accident & Health ($ in millions) 20 88.8% combined ratio 8% GWP growth driven by Medical Stop-loss Strong growth, retention and risk selection for Medical Stop-loss Continued strong growth in Short-term Medical Note: Results are second quarter year-to-date 2015. P
Slide 21: International
See Notice About This Presentation International ($ in millions) 21 80.8% combined ratio Premium from Specialty products up year-over-year, but more than offset by decreased writings in our London Market lines London Market remains under pressure due to reduced pricing, expanded competition and lowe
Slide 22: Investments
See Notice About This Presentation 22 Investments
Slide 23: Investments
See Notice About This Presentation Investments 23 High quality portfolio with average rating of “AA” Investment leverage of 2x Buy and hold strategy with ample liquidity to fund liabilities Equity allocation of 6% at quarter-end Year-to-date realized gains of $14 million through 2Q15 Fixed Maturity
Slide 24: Investment Portfolio
See Notice About This Presentation Investment Portfolio 24 Average Rating AA Average Duration 4.9 years Average Life 8.2 years Average Yield 3.3% Average Tax Equivalent Yield 4.1% Fixed Maturity Securities Asset Allocation Dividend Yield 4.0% Beta 0.9 Equity Securities Note: Results as of 6/30/15. 4
Slide 25: Peer Comparison
See Notice About This Presentation 25 Peer Comparison
Slide 26: Total Value Creation
26 Total Value Creation – 10 Years See Notice About This Presentation Source: Dowling & Partners; data through 12/31/14. Note: Total Value Creation is growth in tangible book value per share including dividends. 1.7% 1.8% 4.8% 6.2% 6.8% 9.5% 9.7% 9.8% 10.1% 10.7% 10.8% 11.4% 11.8% 11.9% 11.9% 12.1%
Slide 27: Outperformance with Low Volatility
See Notice About This Presentation Outperformance with Low Volatility – 10 Years 27 Source: Dowling & Partners; data through 12/31/14. PRA RLI HCC CB AWH Y AFG AXS WTM ACGL ACE WRB TRV PRE ENH AHL MKL NAVG HIG RE XL CNA AGII BWINB 10 Year Avg. C. Ratio Standard Deviation in C. Ratio 10 YEAR (2004 -
Slide 28: Combined Ratio – HCC versus Peer Group
10.1 point difference versus peers over last year 11.1 point difference versus peers over last three years 10.6 point difference versus peers over last five years See Notice About This Presentation Combined Ratio – HCC versus Peer Group 28 1 Year 3 Year2 5 Year2 1 Calculated by HCC using 12/31/14 an
Slide 29: HCC's Value Proposition
See Notice About This Presentation HCC’s Value Proposition Specialty Insurance businesses with strong long-term fundamentals and market leadership Diversified underwriting portfolio with historically low correlation Consistent track record of profitable growth and strong underwriting performance Low
Slide 30: Reconciliation of Non-GAAP Financial Measure to GAAP
See Notice About This Presentation Reconciliation of Non-GAAP Financial Measure to GAAP NON-GAAP FINANCIAL MEASURE: Annualized operating return on equity is a non-GAAP financial measure under Regulation G and is calculated as net earnings excluding after-tax net realized investment gain/loss, other-
Slide 31: [LOGO]
[LOGO]
HCC Insurance Holdings — Q2 2015 Earnings Presentation on 6ix