UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		for the Quarterly Period Ended June 30, 2009.

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		from                     to

Commission file number 001-13790

HCC Insurance Holdings, Inc.

 

(Exact name of registrant as specified in its charter)

Delaware		76-0336636
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
13403 Northwest Freeway, Houston, Texas		77040-6094
(Address of principal executive offices)		(Zip Code)

(713) 690-7300
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

On July 31, 2009, there were approximately 112.3 million shares of common stock outstanding.

 

 

HCC INSURANCE HOLDINGS, INC.

TABLE OF CONTENTS

		Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets — June 30, 2009 and December 31, 2008 (as adjusted) (unaudited)			5
Condensed Consolidated Statements of Earnings — Six months and three months ended June 30, 2009 and 2008 (as adjusted) (unaudited)			6
Condensed Consolidated Statement of Changes in Shareholders’ Equity — Six months ended June 30, 2009 (unaudited)			7
Condensed Consolidated Statements of Cash Flows — Six months ended June 30, 2009 and 2008 (as adjusted) (unaudited)			8
Notes to Condensed Consolidated Financial Statements (unaudited)			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3. Quantitative and Qualitative Disclosures About Market Risk			46
Item 4. Controls and Procedures			46
Part II. OTHER INFORMATION
Item 1. Legal Proceedings			47
Item 1A. Risk Factors			47
Item 4. Submission of Matters to a Vote of Security Holders			47
Item 6. Exhibits			48
Signatures			49
EX-10.7
EX-31.1
EX-31.2
EX-32.1

FORWARD-LOOKING STATEMENTS

This report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts, included or incorporated by reference in this report that address activities, events or developments that we expect or anticipate may occur in the future, including such things as growth of our business and operations, business strategy, competitive strengths, goals, plans, future capital expenditures and references to future successes may be considered forward-looking statements. Also, when we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “probably” or similar expressions, we are making forward-looking statements.

Many risks and uncertainties may have an impact on the matters addressed in these forward-looking statements, which could affect our future financial results and performance, including, among other things:

	•		the effects of catastrophic losses,
	•		the cyclical nature of the insurance business,
	•		inherent uncertainties in the loss estimation process, which can adversely impact the adequacy of loss reserves,
	•		the effects of emerging claim and coverage issues,
	•		the effects of extensive governmental regulation of the insurance industry,
	•		potential credit risk with brokers,
	•		our assessment of underwriting risk,
	•		our retention of risk, which could expose us to potential losses,
	•		the adequacy of reinsurance protection,
	•		the ability or willingness of reinsurers to pay balances due us,
	•		the occurrence of terrorist activities,
	•		our ability to maintain our competitive position,
	•		changes in our assigned financial strength ratings,
	•		our ability to raise capital and funds for liquidity in the future,
	•		attraction and retention of qualified employees,
	•		fluctuations in securities markets, which may reduce the value of our investment assets, reduce investment income or generate realized investment losses,
	•		our ability to successfully expand our business through the acquisition of insurance-related companies,
	•		impairment of goodwill,
	•		the ability of our insurance company subsidiaries to pay dividends in needed amounts,
	•		fluctuations in foreign exchange rates,

	•		failures of our information technology systems,
	•		potential changes in the country’s health care delivery system, and
	•		change of control.

We describe these risks and uncertainties in greater detail in Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2008.

These events or factors could cause our results or performance to differ materially from those we express in our forward-looking statements. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and, therefore, also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements that are included in this Report, our inclusion of this information is not a representation by us or any other person that our objectives or plans will be achieved.

Our forward-looking statements speak only at the date made, and we will not update these forward-looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, any forward-looking events discussed in this Report may not occur.

HCC Insurance Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(unaudited, in thousands except per share data)

		June 30,				December 31,
		2009				2008
						(as adjusted)
ASSETS
Investments:
Fixed income securities – available for sale, at fair value (amortized cost: 2009 – $4,384,009; 2008 – $4,118,539)		$	4,456,674			$	4,133,165
Fixed income securities – held to maturity, at amortized cost (fair value: 2009 – $107,548; 2008 – $125,561)			107,145				123,553
Short-term investments, at cost, which approximates fair value			659,021				497,477
Other investments			4,666				50,088
Total investments			5,227,506				4,804,283
Cash			35,614				27,347
Restricted cash and cash investments			206,065				174,905
Premium, claims and other receivables			789,803				770,823
Reinsurance recoverables			1,082,713				1,054,950
Ceded unearned premium			261,801				234,375
Ceded life and annuity benefits			63,129				64,235
Deferred policy acquisition costs			204,026				188,652
Goodwill			847,792				858,849
Other assets			157,812				153,581
Total assets		$	8,876,261			$	8,332,000
LIABILITIES
Loss and loss adjustment expense payable		$	3,566,263			$	3,415,230
Life and annuity policy benefits			63,129				64,235
Reinsurance balances payable			158,222				122,189
Unearned premium			1,062,456				977,426
Deferred ceding commissions			66,606				63,123
Premium and claims payable			375,291				405,287
Notes payable			434,682				343,649
Accounts payable and accrued liabilities			340,147				300,838
Total liabilities			6,066,796				5,691,977
SHAREHOLDERS’ EQUITY
Common stock, $1.00 par value; 250.0 million shares authorized (shares issued: 2009 – 116,992 and 2008 – 116,457; outstanding: 2009 – 112,319 and 2008 – 113,444)			116,992				116,457
Additional paid-in capital			895,290				881,534
Retained earnings			1,828,795				1,677,831
Accumulated other comprehensive income			67,187				27,536
Treasury stock, at cost (shares: 2009 – 4,673 and 2008 – 3,013)			(98,799	)			(63,335	)
Total shareholders’ equity			2,809,465				2,640,023
Total liabilities and shareholders’ equity		$	8,876,261			$	8,332,000

See Notes to Condensed Consolidated Financial Statements.

HCC Insurance Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(unaudited, in thousands except per share data)

		Six months ended June 30,								Three months ended June 30,
		2009				2008				2009				2008
						(as adjusted)								(as adjusted)
REVENUE
Net earned premium		$	1,004,366			$	1,000,156			$	501,978			$	506,610
Fee and commission income			56,426				61,763				26,132				30,764
Net investment income			93,629				94,870				48,411				47,249
Other operating income			28,419				6,001				5,523				10,947
Net realized investment gain (loss)			3,988				47				933				(121	)
Other-than-temporary impairment loss:
Total loss			(5,709	)			(1,599	)			(2,596	)			(1,599	)
Portion recognized in other comprehensive income			755				—				755				—
Net loss recognized in earnings			(4,954	)			(1,599	)			(1,841	)			(1,599	)
Total revenue			1,181,874				1,161,238				581,136				593,850
EXPENSE
Loss and loss adjustment expense, net			608,136				595,927				292,570				302,901
Policy acquisition costs, net			178,940				188,113				90,248				95,845
Other operating expense			130,524				116,718				61,526				57,514
Interest expense			8,267				9,779				3,628				4,826
Total expense			925,867				910,537				447,972				461,086
Earnings before income tax expense			256,007				250,701				133,164				132,764
Income tax expense			81,252				78,571				41,579				41,089
Net earnings		$	174,755			$	172,130			$	91,585			$	91,675
Net earnings per common share:
Basic		$	1.55			$	1.49			$	0.81			$	0.79
Diluted		$	1.54			$	1.48			$	0.81			$	0.79

See Notes to Condensed Consolidated Financial Statements.

HCC Insurance Holdings, Inc. and Subsidiaries

Condensed Consolidated Statement of Changes in Shareholders’ Equity

(unaudited, in thousands except per share data)

														Accumulated
						Additional								other								Total
Six months ended June 30, 2009		Common				paid-in				Retained				comprehensive				Treasury				shareholders’
		stock				capital				earnings				income				stock				equity
Balance at December 31, 2008 (as previously reported)		$	116,457			$	861,867			$	1,696,816			$	27,536			$	(63,335	)		$	2,639,341
Cumulative effect of accounting change (adoption of FSP APB 14-1)			—				19,667				(18,985	)			—				—				682
Balance at December 31, 2008 (as adjusted)			116,457				881,534				1,677,831				27,536				(63,335	)			2,640,023
Cumulative effect of accounting change (adoption of FSP FAS 115-2 and 124-2)			—				—				4,301				(4,301	)			—				—
Net earnings			—				—				174,755				—				—				174,755
Other comprehensive income:
Change in unrealized gain (loss) on investments, net of tax			—				—				—				38,056				—				38,056
Other-than-temporary impairment loss, net of tax			—				—				—				(491	)			—				(491	)
Other, net of tax			—				—				—				6,387				—				6,387
Total other comprehensive income																							43,952
Comprehensive income																							218,707
Issuance of 316 shares for exercise of options, including tax effect			316				5,069				—				—				—				5,385
Purchase of 1,660 common shares			—				—				—				—				(35,464	)			(35,464	)
Stock-based compensation			219				8,687				—				—				—				8,906
Cash dividends declared, $0.25 per share			—				—				(28,092	)			—				—				(28,092	)
Balance at June 30, 2009		$	116,992			$	895,290			$	1,828,795			$	67,187			$	(98,799	)		$	2,809,465

See Notes to Condensed Consolidated Financial Statements.

HCC Insurance Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)

		Six months ended June 30,
		2009				2008
						(as adjusted)
Operating activities:
Net earnings		$	174,755			$	172,130
Adjustments to reconcile net earnings to net cash provided by operating activities:
Change in premium, claims and other receivables			(14,383	)			(43,624	)
Change in reinsurance recoverables			(24,117	)			(73,812	)
Change in ceded unearned premium			(25,841	)			9,052
Change in loss and loss adjustment expense payable			97,956				219,858
Change in reinsurance balances payable			35,985				(9,945	)
Change in unearned premium			67,388				55,022
Change in premium and claims payable, net of restricted cash			(59,802	)			(73,868	)
Change in accounts payable and accrued liabilities			7,090				(72,911	)
Change in trading portfolio			—				42,574
Stock-based compensation expense			8,906				6,797
Depreciation and amortization expense			7,652				6,824
Other, net			(13,413	)			(7,658	)
Cash provided by operating activities			262,176				230,439
Investing activities:
Sales of available for sale fixed income securities			199,744				236,878
Maturity or call of available for sale fixed income securities			160,470				182,410
Maturity or call of held to maturity fixed income securities			85,991				—
Cost of available for sale fixed income securities acquired			(570,529	)			(900,693	)
Cost of held to maturity fixed income securities acquired			(59,580	)			—
Cost of other investments acquired			—				(25,000	)
Change in short-term investments			(160,119	)			256,564
Proceeds from sales of strategic and other investments			97,407				53,812
Payments for purchase of businesses, net of cash received			(32,966	)			(72,369	)
Proceeds from sale of assets of business			5,500				—
Other, net			(8,916	)			(4,685	)
Cash used by investing activities			(282,998	)			(273,083	)
Financing activities:
Advances on line of credit			105,000				75,000
Payments on line of credit and notes payable			(15,032	)			(30,000	)
Sale of common stock			5,385				9,868
Purchase of common stock			(35,464	)			—
Dividends paid			(28,204	)			(25,340	)
Other, net			(2,596	)			1,110
Cash provided by financing activities			29,089				30,638
Net increase (decrease) in cash			8,267				(12,006	)
Cash at beginning of period			27,347				39,135
Cash at end of period		$	35,614			$	27,129

See Notes to Condensed Consolidated Financial Statements.

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

(1) General Information

HCC Insurance Holdings, Inc. and its subsidiaries (collectively, we, us or our) include domestic and foreign property and casualty and life insurance companies, underwriting agencies and a reinsurance broker. We provide specialized property and casualty, surety, and group life, accident and health insurance coverages and related agency and reinsurance brokerage services to commercial customers and individuals. We market our products both directly to customers and through a network of independent brokers, producers, agents and third party administrators. Our lines of business include diversified financial products (which includes directors’ and officers’ liability, errors and omissions liability (known as professional indemnity outside the U.S.), employment practices liability, surety, credit, and fidelity coverages); group life, accident and health (which includes medical stop-loss, short-term medical, occupational accident, and other coverages); aviation; our London market account (which includes energy, property, marine, and accident and health coverages); and other specialty lines of insurance (which includes public entity, U.K. liability, event cancellation, contingency, and other coverages). We operate primarily in the United States, the United Kingdom, Spain, Bermuda and Ireland, although some of our operations have a broader international scope.

Basis of Presentation

Our unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of HCC Insurance Holdings, Inc. and its subsidiaries. We have made all adjustments that, in our opinion, are necessary for a fair statement of results of the interim periods, and all such adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements should be read in conjunction with our annual audited consolidated financial statements and related notes. The condensed consolidated balance sheet at December 31, 2008 (as adjusted) was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles.

Management must make estimates and assumptions that affect amounts reported in our condensed consolidated financial statements and in disclosures of contingent assets and liabilities. Ultimate results could differ from those estimates. We have reclassified certain amounts in our 2008 condensed consolidated financial statements to conform to the 2009 presentation. None of our reclassifications had an effect on our consolidated net earnings, shareholders’ equity or cash flows.

We have evaluated subsequent events through August 7, 2009, which is the date these financial statements were issued.

Accounting Pronouncements Adopted in 2009

FSP No. FAS 157-2, Effective Date of FASB Statement No. 157, became effective January 1, 2009. FSP FAS 157-2 requires prospective application of SFAS No. 157, Fair Value Measurements, to nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis, such as goodwill. Our adoption of FSP FAS 157-2 had no impact on our condensed consolidated financial statements.

SFAS No. 141 (revised 2007) (SFAS 141(R)), Business Combinations, and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51, became effective January 1, 2009. SFAS 141(R) changes certain accounting treatment for business combinations and impacts presentation of financial statements on the acquisition date and accounting for acquisitions in subsequent periods. SFAS 160 changes the accounting and reporting for minority interests, which are now recharacterized as noncontrolling interests and classified as a component of shareholders’ equity. Since January 1, 2009, we have recorded all new acquisitions under the guidance of SFAS 141(R). Our adoption of SFAS 160 had no impact on our condensed consolidated financial statements.

SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133, became effective January 1, 2009. SFAS 161 expands the required disclosures about a company’s derivative and hedging activities. Our adoption had no impact on our condensed consolidated financial statements.

FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, became effective January 1, 2009 and required retrospective application to prior periods. FSP EITF 03-6-1 clarifies

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

whether instruments granted in share-based payments, such as restricted stock, are participating securities prior to vesting and, therefore, must be included in the earnings allocation in calculating earnings per share under the two-class method described in SFAS No. 128, Earnings per Share. Under FSP EITF 03-6-1, unvested share-based payments that contain non-forfeitable rights to dividends or dividend-equivalents are treated as participating securities. Our adoption of FSP EITF 03-6-1 had no material impact on our consolidated earnings per share in any period due to immateriality of our restricted stock awards that have such terms.

FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), became effective January 1, 2009, required retrospective application to prior financial statements and did not permit early adoption. FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion are not totally debt and requires issuers to bifurcate and separately account for the liability and equity components. In our condensed consolidated financial statements, we adopted FSP APB 14-1 for our 1.30% Convertible Notes and 2.00% Convertible Notes and retrospectively adjusted our consolidated financial statements for all periods prior to 2009. The effective interest rate on our 1.30% and 2.00% Convertible Notes increased to 4.80% and 3.86%, respectively, which resulted in the recognition of a $22.6 million and $8.3 million discount, respectively, with the offsetting after-tax impact recorded in additional paid-in capital. The following line items in our 2008 condensed consolidated financial statements were affected by this change in accounting principle:

		Six months ended June 30, 2008												Three months ended June 30, 2008
		As originally												As originally
		reported				As adjusted				Change				reported				As adjusted				Change
Interest expense		$	7,767			$	9,779			$	2,012			$	3,808			$	4,826			$	1,018
Earnings before income tax expense			252,713				250,701				(2,012	)			133,782				132,764				(1,018	)
Income tax expense			79,275				78,571				(704	)			41,445				41,089				(356	)
Net earnings			173,438				172,130				(1,308	)			92,337				91,675				(662	)
Diluted earnings per share		$	1.49			$	1.48			$	(0.01	)		$	0.80			$	0.79			$	(0.01	)

		December 31, 2008
		As originally
		reported				As adjusted				Change
Other assets (debt issuance costs and deferred tax asset)		$	153,964			$	153,581			$	(383	)
Notes payable			344,714				343,649				(1,065	)
Additional paid-in capital			861,867				881,534				19,667
Retained earnings			1,696,816				1,677,831				(18,985	)
Total shareholders’ equity			2,639,341				2,640,023				682

The reduction in retained earnings and the increase in additional paid-in capital resulted from amortization of the implied discount as interest expense through the first contractual put date of the 2.00% Convertible Notes at September 1, 2007 and the 1.30% Convertible Notes at April 1, 2009. The 2.00% Convertible Notes were submitted for conversion during September and October 2007. The implied discount on the 1.30% Convertible Notes was fully amortized in the first quarter of 2009. At June 30, 2009, there was no remaining equity component and the liability component was $124.7 million. At December 31, 2008, the 1.30% Convertible Notes had an equity component of $1.1 million and a liability component of $123.6 million, consisting of a principal amount of $124.7 million less a discount of $1.1 million. The effective interest rate on our 1.30% Convertible Notes was 3.05% for the six months ended June 30, 2009 and 4.80% for the six months ended June 30, 2008. The contractual interest expense was $0.8 million in the first six months of 2009 and 2008. Interest expense resulting from amortization of the implied discount was $1.1 million and $2.0 million in the six months ended June 30, 2009 and 2008, respectively. The adoption of FSP APB 14-1 did not impact our past or current consolidated cash flows.

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that Are Not Orderly; FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments; and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, became effective prospectively on April 1, 2009. FSP FAS 157-4 and FSP FAS 107-1 and APB 28-1 modify the accounting guidance for determining fair value of financial instruments under distressed market conditions and expand the related disclosures. FSP FAS 115-2 and FAS 124-2 revises the recognition and measurement requirements for other-than-temporary impairment losses on debt securities and expands the related disclosures. Our adoption of these FSPs did not have a material effect on our 2009 condensed consolidated financial statements. See Footnote 3 for additional discussion of our adoption of FSP FAS 115-2 and FAS 124-2.

The FASB has issued SFAS No. 165, Subsequent Events, which establishes standards to account for and disclose events that occur after the balance sheet date but before financial statements are issued or available to be issued. We adopted SFAS 165 as of June 30, 2009 and included the required disclosures in our condensed consolidated financial statements.

The FASB has issued SFAS No. 168, The FASB Accounting Standards Codification ^TM and the Hierarchy of Generally Accepted Accounting Principles – A Replacement of FASB Statement No. 162. SFAS 168 specifies that, effective July 1, 2009, the FASB Accounting Standards Codification (Codification) became the single authoritative source of U.S. GAAP. SEC rules and interpretive releases are the only other source of U.S. GAAP for SEC registrants. Although Codification renames and renumbers all previous accounting literature, it does not change current U.S. GAAP. We do not expect our future usage of Codification to have a material impact on our consolidated financial statements.

Net Earned Premium, Policy Acquisition Costs and Ceding Commissions

Substantially all of the property and casualty, surety, and accident and health policies written by our insurance companies qualify as short-duration contracts. We recognize in current earned income the portion of the premium that provides insurance protection in the period. For the majority of our insurance policies, we recognize premium, net of reinsurance, on a pro rata basis over the term of the related contract. For certain directors’ and officers’ liability tail policies, surety bonds and energy construction contracts, we recognize premium, net of reinsurance, over the period of risk in proportion to the amount of insurance protection provided. Unearned premium represents the portion of premium written that relates to the unexpired term of coverage. Premium for commercial title insurance and group life policies is recognized in earnings when the premium is due. When the limit under a specific excess of loss reinsurance layer has been exhausted, we effectively expense the remaining premium for that limit and defer and amortize the reinstatement premium over the remaining period of risk.

Income Tax

For the six months ended June 30, 2009 and 2008, the income tax provision was calculated based on an estimated effective tax rate for each fiscal year. Our effective tax rate differs from the United States Federal statutory rate primarily due to tax-exempt municipal bond interest.

Notes Payable

Notes payable at June 30, 2009 and December 31, 2008 are shown in the table below. The estimated fair value of our Convertible Notes ($137.2 million at June 30, 2009 and $149.8 million at December 31, 2008) is based on quoted market prices. The estimated fair value of our Revolving Loan Facility is based on current borrowing rates offered to us and approximates the carrying value at both balance sheet dates.

		June 30,				December 31,
		2009				2008
1.30% Convertible Notes		$	124,682			$	123,649
$575.0 million Revolving Loan Facility			310,000				220,000
Total notes payable		$	434,682			$	343,649

Our 1.30% Convertible Notes are due in 2023. We pay interest semi-annually on April 1 and October 1. Each one thousand dollar principal amount of notes is convertible into 44.1501 shares of our common stock, which represents an initial conversion price of $22.65 per share. The initial conversion price is subject to standard anti-dilution provisions designed to maintain the value of the conversion option in the event we take certain actions with respect to our common stock, such as stock splits, reverse stock splits, stock dividends and extraordinary dividends, that affect all of the holders of our common stock equally and that could have a dilutive effect on the value of the conversion rights of the holders of the notes or that confer a benefit upon our current shareholders not otherwise available to the 1.30% Convertible Notes. Holders may surrender notes for conversion if, as of the last day of the preceding calendar quarter, the closing sale price of our common stock for at least 20 consecutive trading days during the period of 30 consecutive trading days ending on the last trading day of that quarter is more than 130% ($29.45 per share) of the conversion price per share of our common stock. This condition was not met at June 30, 2009. While the notes are not convertible during the third quarter of 2009, the convertible value of the notes, if converted, at June 30, 2009 was $132.2 million, which exceeds the principal amount by $7.5 million. We must settle any conversions by paying cash for the principal amount of the notes and issuing our common stock for the value of the conversion premium. We can redeem the notes for cash at any time. Holders may require us to repurchase the notes on April 1, 2014 or 2019. The repurchase price to settle any such put by the holders will equal the principal amount of the notes plus accrued and unpaid interest and will be paid in cash.

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

Stock-Based Compensation

In the first six months of 2009, we granted the following shares of common stock, restricted stock, restricted stock units and stock options for the purchase of shares of our common stock. The fair value of the common stock was expensed on the grant date. The fair value of the restricted stock, restricted stock units and stock options will be expensed over the vesting period.

						Weighted-average
		Number of				grant date				Aggregate				Vesting
		shares				fair value				fair value				period
Common stock			75			$	23.84			$	1,778				—
Restricted stock			144				23.84				3,446			3-4 years
Restricted stock units			21				23.90				509			4 years
Stock options			295				5.29				1,561			3-5 years

Acquisition and Disposition

On February 27, 2009, we acquired Surety Company of the Pacific, which writes license and permit bonds for California contractors. We included the results of operations of the acquired company in our condensed consolidated financial statements beginning on March 1, 2009. We valued all identifiable assets and liabilities at fair value and allocated $4.0 million to goodwill in our purchase price allocation through June 30, 2009. We are waiting for completion of an independent audit of the seller’s financial statements to complete the valuation of certain liabilities required for our final purchase price allocation. The goodwill is not deductible for United States Federal income tax purposes.

On June 30, 2009, we sold the assets and licensed the intangibles related to our commercial marine agency business. We entered into a five year managing general underwriter’s agreement that allows the purchaser to write that same business utilizing policies issued by one of our insurance companies. We reduced goodwill by the amount assigned to this reporting unit and recognized an immaterial gain on the transaction.

Goodwill

When we complete a business combination, goodwill is either allocated to the reporting unit in which the acquired business is included or, if there are synergies with our other businesses, allocated to the different reporting units based on their respective share of the estimated future cash flows. In our insurance company segment, we have five reporting units, which are either individual subsidiaries or groups of subsidiaries that share common licensing and other characteristics. In our agency segment, we have six reporting units, which are individual subsidiaries.

An indicator of impairment of goodwill exists when the fair value of a reporting unit is less than its carrying amount. We assess our goodwill for impairment annually, or sooner if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We conducted our 2009 goodwill impairment test as of June 30, 2009, which is consistent with the timeframe for our annual assessment in prior years. Based on our latest impairment test, the fair value of each of our reporting units exceeded its carrying amount. No events have occurred that indicate there is an impairment in our goodwill as of June 30, 2009.

For our 2009 impairment test, we incorporated new accounting guidance, which required us to consider three valuation approaches (market, income and cost) to determine the fair value of each reporting unit. We utilized the market and income approaches, and based our assumptions and inputs on market participant data, rather than our own data. For the income approach, we estimated the present value of expected cash flows to determine the fair value of each reporting unit. We utilized estimated future cash flows, probabilities as to occurrence of these cash flows, a risk-free rate of interest, and a risk premium for uncertainty in the cash flows. We weighted the results of the market and income approaches to determine the calculated fair value of each reporting unit. Prior to 2009, we used the expected cash flow approach with assumptions and inputs based on our own internal data to determine the fair value of each reporting unit. In all years, we utilized our budgets and projection of future operations based on historical and expected industry trends to estimate our future cash flows and their probability of occurring as projected.

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

During 2009, we transferred $21.9 million of goodwill from two reporting units in our agency segment to a reporting unit in our insurance company segment, based on a reorganization that created a permanent change in cash flows. We also reduced goodwill related to the disposition of our commercial marine agency business discussed above. The changes in goodwill were as follows:

		Insurance								Other
		Company				Agency				Operations				Total
Balance at December 31, 2008		$	646,527			$	211,999			$	323			$	858,849
Additions:
Acquisitions			5,669				804				—				6,473
Earnouts			510				90				—				600
Disposition			—				(18,048	)			—				(18,048	)
Transfer and other			21,854				(21,936	)			—				(82	)
Balance at June 30, 2009		$	674,560			$	172,909			$	323			$	847,792

(2) Fair Value

We value financial assets and financial liabilities at fair value. In determining fair value, we generally apply the market approach, which uses prices and other relevant data based on market transactions involving identical or comparable assets and liabilities. We classify our financial instruments into the following three-level hierarchy:

	•		Level 1 – Inputs are based on quoted prices in active markets for identical instruments.
	•		Level 2 – Inputs are based on observable market data (other than quoted prices), or are derived from or corroborated by observable market data.
	•		Level 3 – Inputs are unobservable and not corroborated by market data.

Our Level 1 investments are primarily U.S. Treasuries, for which we use quoted prices for identical instruments to measure fair value.

Our Level 2 investments include most of our fixed income securities, which consist of U.S. government agency securities, municipal bonds, certain corporate debt securities, and certain mortgage-backed and asset-backed securities. Our Level 2 instruments also include our interest rate swap agreements, which were reflected as liabilities in our condensed consolidated balance sheet at June 30, 2009. We measure fair value for the majority of our Level 2 investments using quoted prices of securities with similar characteristics. The remaining investments are valued using pricing models or matrix pricing. The fair value measurements consider observable assumptions, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, default rates, loss severity and other economic measures.

We use independent pricing services to assist us in determining fair value for over 99% of our Level 1 and Level 2 investments. The pricing services provide a single price or quote per security. We use data provided by our third party investment managers to value the remaining Level 2 investments. To validate that these quoted and modeled prices are reasonable estimates of fair value, we perform various quantitative and qualitative procedures, including: 1) evaluation of the underlying methodologies, 2) analysis of recent sales activity, 3) analytical review of our fair values against current market prices, and 4) comparison of the pricing services’ fair value to other pricing services’ fair value for the same investment. Based on these procedures, we did not adjust the prices or quotes provided by our independent pricing services or third party investment managers as of June 30, 2009 or December 31, 2008. The FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset when the Market for That Asset Is Not Active, in 2008 and FSP FAS 157-4 (discussed in Footnote 1 above) in 2009. We did not apply the criteria of FSP FAS 157-3 as of June 30, 2009 and December 31, 2008, or the criteria of FSP FAS 157-4 as of June 30, 2009, since no markets for our investments were judged to be inactive as of those balance sheet dates.

Our Level 3 financial instruments include certain fixed income securities and two insurance contracts that we account for as derivatives. We determine fair value based on internally developed models that use assumptions or other data that are not readily observable from objective sources. Because we use the lowest level significant input to determine our hierarchy classifications, a financial instrument may be classified in Level 3 even though there may be significant readily-observable inputs.

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

We excluded from our fair value disclosures certain strategic investments in insurance-related companies, since we account for them using the equity method of accounting and have not elected to measure them at fair value. These assets had a recorded value of $15.0 million at June 30, 2009. We also excluded our $107.1 million held to maturity investment portfolio and an investment valued at $4.1 million at June 30, 2009, which are measured at amortized cost and at cost, respectively. Our held to maturity portfolio had a fair value of $107.5 million at June 30, 2009.

The following table presents our assets and interest rate swap liabilities that were measured at fair value.

		Level 1				Level 2				Level 3				Total
June 30, 2009
Fixed income securities		$	172,436			$	4,278,256			$	5,982			$	4,456,674
Other investments			14				—				—				14
Other assets			—				—				19,757				19,757
Total assets measured at fair value		$	172,450			$	4,278,256			$	25,739			$	4,476,445
Accounts payable and accrued liabilities		$	—			$	(5,256	)		$	—			$	(5,256	)
Total liabilities measured at fair value		$	—			$	(5,256	)		$	—			$	(5,256	)
December 31, 2008
Fixed income securities		$	87,678			$	4,038,972			$	6,515			$	4,133,165
Other investments			16				—				—				16
Other assets			—				1,125				16,100				17,225
Total assets measured at fair value		$	87,694			$	4,040,097			$	22,615			$	4,150,406
Accounts payable and accrued liabilities		$	—			$	(8,031	)		$	—			$	(8,031	)
Total liabilities measured at fair value		$	—			$	(8,031	)		$	—			$	(8,031	)

The following table presents the changes in fair value of our Level 3 category during the first six months and the second quarter of 2009.

		Fixed
		income				Other
		securities				assets				Total
Balance at December 31, 2008		$	6,515			$	16,100			$	22,615
Net redemptions			(1,263	)			—				(1,263	)
Gains and (losses) – unrealized			531				3,657				4,188
Gains and (losses) – realized			30				—				30
Net transfers in (out) of Level 3			169				—				169
Balance at June 30, 2009		$	5,982			$	19,757			$	25,739
Balance at March 31, 2009		$	5,085			$	16,463			$	21,548
Net redemptions			(982	)			—				(982	)
Gains and (losses) – unrealized			(36	)			3,294				3,258
Net transfers in (out) of Level 3			1,915				—				1,915
Balance at June 30, 2009		$	5,982			$	19,757			$	25,739

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

Unrealized gains and losses on our Level 3 fixed income securities are reported in other comprehensive income within shareholders’ equity, and unrealized gains and losses on our Level 3 other assets are reported in other operating income. During the first quarter of 2009, we transferred investments from Level 3 to Level 2 because we were able to determine their fair value using inputs based on observable market data. In the second quarter of 2009, we transferred an investment from Level 2 to Level 3 due to our inability to obtain a fair value using inputs based on observable market data.

(3) Investments

Substantially all of our fixed income securities are investment grade and 97% are rated “A” or better. The cost or amortized cost, gross unrealized gain or loss, and fair value of investments in fixed income securities that are classified as available for sale were as follows:

		Cost or				Gross				Gross
		amortized				unrealized				unrealized				Fair
		cost				gain				loss				value
June 30, 2009
U.S. government and government agency securities		$	306,062			$	6,739			$	(426	)		$	312,375
Fixed income securities of states, municipalities and political subdivisions			1,013,169				31,512				(6,340	)			1,038,341
Special purpose revenue bonds of states, municipalities and political subdivisions			1,027,887				26,728				(5,669	)			1,048,946
Corporate fixed income securities			579,190				14,741				(3,628	)			590,303
Residential mortgage-backed securities			868,420				34,210				(10,231	)			892,399
Commercial mortgage-backed securities			164,357				294				(22,931	)			141,720
Asset-backed securities			63,689				1,064				(4,088	)			60,665
Foreign government securities			243,301				7,044				(730	)			249,615
Foreign non-government securities			117,934				4,769				(393	)			122,310
Total available for sale fixed income securities		$	4,384,009			$	127,101			$	(54,436	)		$	4,456,674
December 31, 2008
U.S. government and government agency securities		$	196,856			$	9,447			$	(15	)		$	206,288
Fixed income securities of states, municipalities and political subdivisions			1,082,855				23,948				(14,900	)			1,091,903
Special purpose revenue bonds of states, municipalities and political subdivisions			899,466				16,249				(16,083	)			899,632
Corporate fixed income securities			517,794				5,308				(11,464	)			511,638
Residential mortgage-backed securities			796,522				40,229				(13,673	)			823,078
Commercial mortgage-backed securities			179,479				42				(27,685	)			151,836
Asset-backed securities			72,646				78				(6,772	)			65,952
Foreign government securities			230,829				7,699				(431	)			238,097
Foreign non-government securities			142,092				2,877				(228	)			144,741
Total available for sale fixed income securities		$	4,118,539			$	105,877			$	(91,251	)		$	4,133,165

The amortized cost and fair value of investments in fixed income securities that are classified as held to maturity were as follows:

		Amortized				Fair
		cost				value
June 30, 2009
U.S. government securities		$	15,003			$	15,227
Foreign government securities			84,227				84,369
Foreign non-government securities			7,915				7,952
Total held to maturity fixed income securities		$	107,145			$	107,548

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

		Amortized				Fair
		cost				value
December 31, 2008
U.S. government securities		$	21,319			$	21,823
Foreign government securities			95,268				96,661
Foreign non-government securities			6,966				7,077
Total held to maturity fixed income securities		$	123,553			$	125,561

All fixed income securities were income producing during 2009 and 2008, except for one security valued at $0.1 million at June 30, 2009 and December 31, 2008. The following table displays the gross unrealized losses and fair value of all available for sale fixed income securities that were in a continuous unrealized loss position for the periods indicated:

		Less than 12 Months								12 Months or More								Total
						Unrealized								Unrealized								Unrealized
		Fair value				losses				Fair value				losses				Fair value				losses
June 30, 2009
U.S. government and government agency securities		$	119,544			$	(426	)		$	—			$	—			$	119,544			$	(426	)
Fixed income securities of states, municipalities and political subdivisions			130,274				(1,473	)			94,355				(4,867	)			224,629				(6,340	)
Special purpose revenue bonds of states, municipalities and political subdivisions			141,644				(1,423	)			148,345				(4,246	)			289,989				(5,669	)
Corporate fixed income securities			28,134				(931	)			48,378				(2,697	)			76,512				(3,628	)
Residential mortgage-backed securities			133,880				(1,404	)			48,339				(8,827	)			182,219				(10,231	)
Commercial mortgage-backed securities			17,038				(494	)			108,149				(22,437	)			125,187				(22,931	)
Asset-backed securities			1,055				(909	)			15,915				(3,179	)			16,970				(4,088	)
Foreign government securities			23,786				(315	)			15,172				(415	)			38,958				(730	)
Foreign non-government securities			7,024				(393	)			—				—				7,024				(393	)
Total		$	602,379			$	(7,768	)		$	478,653			$	(46,668	)		$	1,081,032			$	(54,436	)
December 31, 2008
U.S. government and government agency securities		$	13,240			$	(10	)		$	590			$	(5	)		$	13,830			$	(15	)
Fixed income securities of states, municipalities and political subdivisions			294,887				(7,819	)			98,682				(7,081	)			393,569				(14,900	)
Special purpose revenue bonds of states, municipalities and political subdivisions			289,204				(9,055	)			98,743				(7,028	)			387,947				(16,083	)
Corporate fixed income securities			298,464				(7,217	)			18,753				(4,247	)			317,217				(11,464	)
Residential mortgage-backed securities			63,640				(8,805	)			16,409				(4,868	)			80,049				(13,673	)
Commercial mortgage-backed securities			77,252				(10,028	)			72,642				(17,657	)			149,894				(27,685	)
Asset-backed securities			54,798				(4,062	)			7,401				(2,710	)			62,199				(6,772	)
Foreign government securities			—				—				25,613				(431	)			25,613				(431	)
Foreign non-government securities			20,620				(211	)			6,381				(17	)			27,001				(228	)
Total		$	1,112,105			$	(47,207	)		$	345,214			$	(44,044	)		$	1,457,319			$	(91,251	)

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

A security has an impairment loss when its fair value is less than its cost or amortized cost at the balance sheet date. We evaluate the securities in our fixed income securities portfolio for possible other-than-temporary impairment losses at each quarter end. We adopted FSP FAS 115-2 and FAS 124-2, which specifies new criteria for identification and recognition of other-than-temporary impairment losses, as of April 1, 2009. FSP FAS 115-2 and FAS 124-2 requires us to determine, for each impaired fixed income security, that (a) we do not intend to sell the security and (b) it is more likely than not that we will not be required to sell the security before recovery of its amortized cost basis. If we cannot assert either of these, the impairment is recorded as an other-than-temporary loss through earnings in the current period. For all other impaired securities, the impairment is considered an other-than-temporary loss if the net present value of the cash flows expected to be collected from the security is less than its amortized cost basis. Such a shortfall in cash flows is referred to as a “credit loss.” For any such security, the impairment loss is separated into (a) the credit loss and (b) the amount related to all other factors, such as interest rate changes, market conditions, etc. (the “non-credit” loss). The credit loss is charged to current period earnings and the non-credit loss is charged to other comprehensive income, within shareholders’ equity, on an after-tax basis. A security’s cost basis is permanently reduced by the amount of an other-than-temporary loss recorded through earnings.

To adopt FSP FAS 115-2 and FAS 124-2, we reviewed all securities with a previous other-than-temporary impairment loss that we still held at April 1, 2009. For each, we determined the credit and non-credit component as of the adoption date. We calculated the net present value of each security by discounting our best estimate of projected future cash flows at the effective interest rate implicit in the security prior to impairment. For our mortgage-backed securities, the estimated cash flows included prepayment assumptions and other assumptions regarding the underlying collateral including default rates, recoveries and changes in value. We recorded a cumulative adjustment of $4.3 million after-tax to reclassify the non-credit portion of the loss from retained earnings to accumulated other comprehensive income as of the adoption date.

We review our impaired securities and assess whether any impairments are other-than-temporary at each quarter end, based on all relevant facts and circumstances for each impaired security. During 2009 and 2008, our reviews covered all impaired securities where the loss exceeded $0.5 million and the loss either exceeded 10% of cost or the security had been in a loss position for longer than twelve consecutive months. Our review in the second quarter of 2009 covered 77% of the total unrealized losses in the portfolio.

The determination that a security has incurred an other-than-temporary decline in value and the amount of any current loss recognition requires management judgment and a continual review of market conditions and our investment portfolio. In the second quarter of 2009, we changed our criteria for determining if an impaired security has an other-than-temporary impairment to comply with FSP FAS 115-2 and FAS 124-2. Our evaluation now considers various factors including:

	•		amount by which the security’s fair value is less than its cost,
	•		length of time the security has been impaired,
	•		the security’s credit rating and any recent downgrades,
	•		whether the impairment is due to an issuer-specific event,
	•		whether we intend to sell the security,
	•		if it is more likely than not that we will have to sell the security before recovery of its amortized cost basis, and
	•		stress testing of expected cash flows for mortgage-backed and asset-backed securities under various scenarios.

To assist us in our evaluation, our outside investment advisors also perform detailed credit evaluations of all of our fixed income securities on an ongoing basis.

FSP FAS 115-2 and FAS 124-2 also changed the earnings recognition criteria for other-than-temporary impairment losses. Prior to our adoption of FSP FAS 115-2 and FAS 124-2, when we concluded that a decline in a security’s fair value was other-than-temporary, we recognized the impairment as a realized investment loss in our consolidated statements of earnings. Beginning in the second quarter of 2009, we recognize an other-than-temporary impairment loss in earnings in the period that we determine: 1) we intend to sell the security, 2) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, or 3) the security has a credit loss.

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

We identified and recognized pretax other-than-temporary impairment losses as follows:

		Six months ended June 30,								Three months ended June 30,
		2009				2008				2009				2008
Total other-than-temporary impairment loss		$	(5,709	)		$	(1,599	)		$	(2,596	)		$	(1,599	)
Portion recognized in other comprehensive income			755				—				755				—
Net other-than-temporary impairment loss recognized in earnings		$	(4,954	)		$	(1,599	)		$	(1,841	)		$	(1,599	)

At June 30, 2009, we had $4.8 million after-tax of other-than-temporary impairments, primarily related to mortgage-backed and asset-backed securities, included in accumulated other comprehensive income.

The rollforward of the credit-related portion of our pretax other-than-temporary impairment loss recognized in earnings during the second quarter of 2009, for which a portion of the other-than-temporary loss was recognized in other comprehensive income, was as follows:

Balance at March 31, 2009		$	—
Credit losses in retained earnings related to adoption of FSP FAS 115-2 and FAS 124-2			2,723
Credit losses recognized in earnings:
Securities previously impaired			350
Securities not previously impaired			300
Balance at June 30, 2009		$	3,373

Significant price deterioration in our fixed income securities occurred in the second half of 2008, principally due to the effects of the recent credit crisis, changes in market interest rates and widening of credit spreads. We did not consider the $91.3 million of gross unrealized losses in our available for sale fixed income securities to be other-than-temporary impairments at December 31, 2008 because: 1) we received all contractual interest and principal payments on these securities as of year-end 2008, 2) based on our fourth quarter 2008 review, we believed it was probable that we would continue to collect all such cash payments due in the future, and 3) as of December 31, 2008, we had the intent and ability to hold these securities until maturity or for a period of time sufficient to allow recovery of the impaired security’s fair value. Based on the new guidance of FSP FAS 115-2 and FAS 124-2, we do not consider the $54.4 million of gross unrealized losses in our portfolio to be other-than-temporary impairments at June 30, 2009 because: 1) we received all contractual interest and principal payments on these securities as of June 30, 2009, 2) we do not intend to sell the securities, 3) it is more likely than not that we will not be required to sell the securities before recovery of their amortized cost bases, and 4) for those securities with a credit loss at June 30, 2009, the unrealized loss relates to non-credit factors.

The change in our unrealized pretax net gains (losses) on investments during each period was as follows:

		Six months ended June 30,								Three months ended June 30,
		2009				2008				2009				2008
Available for sale fixed income securities		$	58,039			$	(59,115	)		$	12,688			$	(60,229	)
Strategic and other investments			(2	)			(1,237	)			—				(410	)
Net unrealized investment gains (losses)		$	58,037			$	(60,352	)		$	12,688			$	(60,639	)

HCC Insurance Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited, tables in thousands except per share data)

The amortized cost and fair value of our fixed income securities at June 30, 2009, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The weighted-average life of our mortgage-backed and asset-backed securities at June 30, 2009 was 4.7 years.

		Available for sale								Held to maturity
		Cost or
		amortized								Amortized
		cost				Fair value				cost				Fair value
Due in 1 year or less		$	198,090			$	200,086			$	29,128			$	29,207
Due after 1 year through 5 years			1,193,126				1,232,370				70,391				70,811
Due after 5 years through 10 years			748,694				771,929				7,626				7,530
Due after 10 years through 15 years			573,876				583,170				—				—
Due after 15 years			573,757				574,335				—				—
Securities with fixed maturities			3,287,543				3,361,890				107,145				107,548
Residential mortgage-backed securities			868,420				892,399				—				—
Commercial mortgage-backed securities			164,357				141,720				—				—
Asset-backed securities			63,689				60,665				—				—
Total fixed income securities		$	4,384,009			$	4,456,674			$	107,145			$	107,548