##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934.o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934.For the fiscal year ended
    December 31,
    2009   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(Address of principal
    executive offices)

77040-6094(Zip Code)   (713) 690-7300
  (Registrants telephone number, including area code)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class:

Name of Each Exchange on Which Registered:Common Stock, $1.00 par Value

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act: NONE
  þ o
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer þ

Accelerated
    filer o

Non-accelerated
    filer o

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE:
  Form 10-K




---



##### 





HCC
    INSURANCE HOLDINGS, INC.
  TABLE OF
    CONTENTS
  PagePART I.ITEM 1.

Business


5ITEM 1A.

Risk Factors


27ITEM 1B.

Unresolved Staff Comments


35ITEM 2.

Properties


36ITEM 3.

Legal Proceedings


36ITEM 4.

Reserved


36PART II.ITEM 5.

Market for the Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


37ITEM 6.

Selected Financial Data


39ITEM 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


41ITEM 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


79ITEM 8.

Financial Statements and Supplementary Data


80ITEM 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


80ITEM 9A.

Controls and Procedures


81ITEM 9B.

Other Information


82PART III.ITEM 10.

Directors, Executive Officers and Corporate
    Governance


82ITEM 11.

Executive Compensation


82ITEM 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


82ITEM 13.

Certain Relationships and Related Transactions,
    and Director Independence


82ITEM 14.

Principal Accountant Fees and Services


82PART IV.ITEM 15.

Exhibits and Financial Statement Schedules


83SIGNATURES


84EX-10.28EX-10.29EX-10.30EX-10.31EX-12EX-21EX-23EX-24EX-31.1EX-31.2EX-32.1   2




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##### Table of Contents



FORWARD-LOOKING
    STATEMENTS
  This report on
    Form 10-K
    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 impact 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 impact of the credit market downturn and subprime market
    exposures,
    the effects of emerging claim and coverage issues,
    the effects of extensive governmental regulation of the
    insurance industry,
    potential credit risk with brokers,
    the effects of industry consolidation,
    our assessment of underwriting risk,
    our retention of risk, which could expose us to potential
    losses,
    the adequacy of reinsurance protection,
    the ability and 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 or constraints of our information technology
    systems,
    potential changes to the countrys health care delivery
    system, 3




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##### Table of Contents




    the effect, if any, of climate change, on the risks we
    insure,
    change of control, and
    difficulties with outsourcing relationships.  We describe these risks and uncertainties in greater detail
    in Item 1A, Risk Factors.
  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 and 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.
 4




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##### Table of Contents



PART I  Item 1.
    Business  Business
    Overview
  (713) 690-7300. www.hcc.com. Form 10-K Form 10-Q Form 8-K
        and/or
  
    Diversified financial products
    Group life, accident and health
    Aviation
    London market account
    Other specialty lines 5




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##### Table of Contents



Standard

FitchCompanies

& Poors

Ratings

Moodys

A.M. BestDomestic insurance companiesAmerican Contractors Indemnity Company


AA



AA







AAvemco Insurance Company


AA



AA







A
+HCC Life Insurance Company


AA



AA



A1



A
+HCC Specialty Insurance Company


AA



AA







A
+Houston Casualty Company


AA



AA



A1



A
+Perico Life Insurance Company






AA







AU.S. Specialty Insurance Company


AA



AA



A1



A
+United States Surety Company


AA



AA







AInternational insurance companiesHCC International Insurance Company


AA











HCC Europe


AA











HCC Reinsurance Company


AA











         Our
    Strategy
   6




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##### Table of Contents




    emphasize the underwriting of lines of business in which there
    is an anticipation of underwriting profits based on various
    factors, including premium rates, the availability and cost of
    reinsurance, policy terms and conditions, and market conditions,
    maintain a highly non-correlated portfolio of business, 7




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##### Table of Contents




    limit our insurance companies aggregate net loss exposure
    from a catastrophic loss through the control of aggregate limits
    written, the use of reinsurance for those lines of business
    exposed to such losses and diversification into lines of
    business not exposed to such losses, and
    consider the potential acquisition of specialty insurance
    operations and the hiring of underwriting teams.  Industry
    Segment and Geographic Information
    Acquisitions
            Insurance
    Company Operations
  Lines
    of Business
   8




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##### Table of Contents



2009


2008


2007Diversified financial products

$
1,147,913



45
%

$
1,051,722



42
%

$
963,355



39
%Group life, accident and health


846,041



33



829,903



33



798,684



33Aviation


176,073



7



185,786



8



195,809



8London market account


186,603



7



175,561



7



213,716



9Other specialty lines


203,009



8



251,021



10



280,040



11Discontinued lines of business


152







4,770







(425
)


Total gross written premium

$
2,559,791



100
%

$
2,498,763



100
%

$
2,451,179



100
%     2009


2008


2007Diversified financial products

$
915,595



45
%

$
872,007



42
%

$
771,648



39
%Group life, accident and health


796,778



39



789,479



38



759,207



38Aviation


124,336



6



136,019



7



145,761



7London market account


102,407



5



107,234



5



118,241



6Other specialty lines


107,047



5



151,120



8



191,151



10Discontinued lines of business


126







4,759







(399
)


Total net written premium

$
2,046,289



100
%

$
2,060,618



100
%

$
1,985,609



100
%     2009

2008

2007Diversified financial products


80
%


83
%


80
%Group life, accident and health


94



95



95Aviation


71



73



74London market account


55



61



55Other specialty lines


53



60



68Consolidated percentage retained


80
%


82
%


81
%   Diversified
    Financial Products
    
    directors and officers liability
    employment practices liability
    errors and omissions liability
    surety and credit
    fidelity
    various financial products   9




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##### Table of Contents



Group
    Life, Accident and Health
            Aviation
    
    antique and vintage military aircraft
    cargo operators
    commuter airlines
    corporate aircraft
    fixed base operations
    military law enforcement aircraft
    private aircraft owners
    rotor wing aircraft   10




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##### Table of Contents



London
    Market Account
  non-U.S. based
    2009


2008


2007Marine

$
14,373


$
14,413


$
30,685Energy


43,807



44,554



45,962Property


22,941



28,827



19,856Accident and health


21,286



19,440



21,738Total London market account net written premium

$
102,407


$
107,234


$
118,241   Marine
    Energy
    
    drilling rigs
    gas production and gathering platforms
    natural gas facilities
    petrochemical plants
    pipelines
    refineries   11




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##### Table of Contents



Property
     factories

 office buildings hotels

 retail locations industrial plants

 utilities       Accident
    and Health
      Other
    Specialty Lines
    Insurance
    Companies and Lloyds of London Syndicates
  Houston
    Casualty Company
   12




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##### Table of Contents



Houston
    Casualty Company-London
    HCC
    International Insurance Company
  non-United
  Lloyds
    of London Syndicates
    HCC
    Europe
    HCC
    Reinsurance Company
    U.S.
    Specialty Insurance Company
   13




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##### Table of Contents



HCC
    Life Insurance Company
    Perico
    Life Insurance Company
    Avemco
    Insurance Company
    American
    Contractors Indemnity Company
    United
    States Surety Company
    HCC
    Specialty Insurance Company
    Underwriting
    Agency Operations
     14




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##### Table of Contents



Professional
    Indemnity Agency
    HCC
    Specialty Underwriters
    HCC
    Global Financial Products
    HCC
    Indemnity Guaranty Agency
    HCC
    Underwriting Agency
    HCC
    Medical Insurance Services
    Other
    Operations
     15




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##### Table of Contents



Operating
    Ratios
  Premium
    to Surplus Ratio
    2009

2008

2007

2006

2005Gross written premium

$
2,568,609


$
2,510,612


$
2,460,498


$
2,243,843


$
2,049,116Net written premium


2,052,309



2,064,091



1,985,641



1,812,896



1,495,931Policyholders surplus


2,103,892



1,852,684



1,744,889



1,342,054



1,110,268Gross written premium ratio


122.1
%


135.5
%


141.0
%


167.2
%


184.6
%Gross written premium industry average(1)


*



180.5
%


160.7
%


171.0
%


192.7
%Net written premium ratio


97.5
%


111.4
%


113.8
%


135.1
%


134.7
%Net written premium industry average(1)


82.2
%**


93.5
%


84.2
%


90.4
%


99.8
%     (1)
    
    Source: A.M. Best Company, Inc.*
    
    Not available**
    
    Estimated by A.M. Best Company, Inc.    Combined
    Ratio  GAAP
    2009

2008

2007

2006

2005Loss ratio


59.7
%


60.4
%


59.6
%


59.2
%


67.1
%Expense ratio


25.2



25.0



23.8



25.0



26.1Combined ratio  GAAP


84.9
%


85.4
%


83.4
%


84.2
%


93.2
%   Combined
    Ratio  Statutory
   16




---



##### Table of Contents



2009

2008

2007

2006

2005Loss ratio


60.7
%


60.8
%


60.6
%


60.0
%


67.1
%Expense ratio


25.7



24.3



23.9



24.0



25.5Combined ratio  Statutory


86.4
%


85.1
%


84.5
%


84.0
%


92.6
%Industry average


100.6
%*


103.9
%


95.7
%


92.5
%


100.7
%     *
    
    Estimated by A.M. Best Company, Inc.    Reserves
        
    information used to price the applicable policies,
    historical loss information where available,
    any public industry data for that line or similar lines of
    business,
    an assessment of current market conditions, and
    a
    claim-by-claim
    review by management, where actuarially homogenous data is
    unavailable.     17




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##### Table of Contents



18




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##### Table of Contents



2009


2008


2007


2006


2005


2004


2003


2002


2001


2000


1999Balance sheet reserves

$
3,429,309


$
3,415,230


$
3,227,080


$
3,097,051


$
2,813,720


$
2,089,199


$
1,525,313


$
1,158,915


$
1,132,258


$
944,117


$
871,104Reserve adjustments from acquisition and disposition of
    subsidiaries






24,897



57,028



48,119



26,088



6,113







5,587







(66,571
)


(32,437
)Adjusted reserves


3,429,309



3,440,127



3,284,108



3,145,170



2,839,808



2,095,312



1,525,313



1,164,502



1,132,258



877,546



838,667Cumulative paid at:One year later






887,040



902,352



797,217



689,126



511,766



396,077



418,809



390,232



400,279



424,379Two years later










1,305,179



1,260,672



1,077,954



780,130



587,349



548,941



612,129



537,354



561,246Three years later














1,527,443



1,385,011



993,655



772,095



659,568



726,805



667,326



611,239Four years later


















1,578,970



1,144,350



866,025



823,760



803,152



720,656



686,730Five years later






















1,231,166



1,002,058



886,458



921,920



758,126



721,011Six years later


























1,092,558



1,003,780



1,009,049



835,994



725,639Seven years later






























1,078,739



1,101,393



924,803



752,733Eight years later


































1,167,307



964,763



817,615Nine years later






































1,025,900



844,300Ten years later










































841,215Re-estimated liability at:End of year


3,429,309



3,440,127



3,284,108



3,145,170



2,839,808



2,095,312



1,525,313



1,164,502



1,132,258



877,546



838,667One year later






3,349,692



3,244,195



3,054,549



2,836,507



2,124,584



1,641,426



1,287,003



1,109,098



922,080



836,775Two years later










3,070,059



2,966,388



2,725,035



2,118,416



1,666,931



1,393,143



1,241,261



925,922



868,438Three years later














2,784,998



2,657,565



2,031,246



1,690,729



1,464,448



1,384,608



1,099,657



854,987Four years later


















2,518,263



2,008,590



1,619,744



1,506,360



1,455,046



1,102,636



900,604Five years later






















1,943,902



1,639,621



1,453,674



1,480,193



1,135,143



887,272Six years later


























1,617,970



1,467,540



1,433,630



1,137,652



894,307Seven years later






























1,463,702



1,462,481



1,079,353



899,212Eight years later


































1,452,706



1,113,971



879,805Nine years later






































1,115,242



881,947Ten years later










































850,964Cumulative redundancy (deficiency)





$
90,435


$
214,049


$
360,172


$
321,545


$
151,410


$
(92,657
)

$
(299,200
)

$
(320,448
)

$
(237,696
)

$
(12,297
)     
    Excluding certain business described below, during 2009, 2008
    and 2007, we recorded favorable development of
    $175.2 million, $106.2 million and $44.1 million,
    respectively. Most of this was from the 2002  2006
    underwriting years in: 1) our diversified financial
    products line of business, primarily in our directors and
    officers liability, U.K. professional indemnity and
    U.S. surety products, 2) our London market account,
    which includes redundancies on the 2005 hurricanes, and
    3) an assumed quota share program reported in our other
    specialty line of business. These changes primarily affected the
    2003 through 2007 accident years.
    As part of our 2009 reserve review, we re-estimated our exposure
    on our directors and officers liability business for
    the 2007 underwriting year, which resulted in $84.8 million
    of additional reserves in the 2007 and 2008 accident years.
    During 2008, we recorded adverse development of
    $34.1 million on certain run-off assumed accident and
    health reinsurance business reported in our discontinued lines
    of business due to our continuing evaluation of reserves,
    primarily on the 2000 accident year. During 2007, we recorded
    favorable development of $46.5 million on the same run-off
    accident and health business. The combined effect of these
    entries was favorable development of $12.4 million.    
    During 2005, 2004 and 2003, we recorded $49.8 million,
    $127.7 million and $132.9 million, respectively, in
    gross losses on certain run-off assumed accident and health
    reinsurance business 19




---



##### Table of Contents



reported in our discontinued lines of business, due to our
    processing of additional information received and our continuing
    evaluation of reserves on this business. Collectively, these
    transactions primarily affected the 1999, 2000 and 2001 accident
    years.  
    The 2000 and 1999 years were also adversely affected by
    late reporting of loss information received during 2001 for
    certain other discontinued business.      2009


2008


2007Gross reserves for loss and loss adjustment expense payable at
    beginning of year

$
3,415,230


$
3,227,080


$
3,097,051Gross reserve additions from acquired businesses


37,839



32,131



826Foreign currency adjustment


31,844



(102,777
)


34,202Incurred loss and loss adjustment expense:Provision for loss and loss adjustment expense for claims
    occurring in current year


1,579,331



1,707,538



1,443,031Decrease in estimated loss and loss adjustment expense for
    claims occurring in prior years*


(90,435
)


(72,044
)


(90,621
)Incurred loss and loss adjustment expense


1,488,896



1,635,494



1,352,410Loss and loss adjustment expense payments for claims occurring
    during:Current year


594,460



474,346



460,192Prior years


887,040



902,352



797,217Loss and loss adjustment expense payments


1,481,500



1,376,698



1,257,409Gross reserves for loss and loss adjustment expense payable
    at end of year

$
3,492,309


$
3,415,230


$
3,227,080     *
    
    Changes in loss and loss adjustment expense reserves for losses
    occurring in prior years reflect the gross effect of the
    resolution of losses for other than the reserve value and the
    subsequent adjustments of loss reserves.   20




---



##### Table of Contents



2009


2008


2007


2006


2005


2004


2003


2002


2001


2000


1999Reserves, net of reinsurance

$
2,555,840


$
2,416,271


$
2,342,800


$
2,108,961


$
1,533,433


$
1,059,283


$
705,200


$
458,702


$
313,097


$
249,872


$
273,606Reserve adjustments from acquisition (disposition) of
    subsidiaries






23,498



52,551



44,410



24,318



5,777







5,587







(6,048
)


(3,343
)Adjusted reserves, net of reinsurance


2,555,840



2,439,769



2,395,351



2,153,371



1,557,751



1,065,060



705,200



464,289



313,097



243,824



270,263Cumulative paid, net of reinsurance, at:One year later






618,699



687,675



556,096



222,336



172,224



141,677



115,669



126,019



102,244



145,993Two years later










940,636



858,586



420,816



195,663



135,623



152,674



131,244



139,659



174,534Three years later














1,013,122



588,659



337,330



124,522



115,214



163,808



118,894



185,744Four years later


















702,072



424,308



217,827



88,998



93,405



138,773



180,714Five years later






















495,642



313,315



155,708



59,936



158,935



197,416Six years later


























376,903



242,904



125,311



137,561



200,833Seven years later






























301,828



186,224



194,517



188,901Eight years later


































236,299



240,590



244,069Nine years later






































289,353



251,180Ten years later










































248,461Re-estimated liability, net of reinsurance, at:End of year


2,555,840



2,439,769



2,395,351



2,153,371



1,557,751



1,065,060



705,200



464,289



313,097



243,824



270,263One year later






2,386,245



2,342,033



2,126,974



1,551,225



1,090,454



735,678



487,403



306,318



233,111



260,678Two years later










2,223,731



2,042,277



1,524,732



1,089,732



770,497



500,897



338,194



222,330



254,373Three years later














1,917,156



1,450,866



1,083,749



792,099



571,403



366,819



259,160



244,650Four years later


















1,367,143



1,046,110



808,261



585,741



418,781



267,651



258,122Five years later






















1,018,235



794,740



613,406



453,537



296,396



254,579Six years later


























792,896



597,666



462,157



305,841



271,563Seven years later






























602,546



455,279



311,344



277,841Eight years later


































452,221



307,262



279,412Nine years later






































317,933



274,668Ten years later










































252,537Cumulative redundancy (deficiency)





$
53,524


$
171,620


$
236,215


$
190,608


$
46,825


$
(87,696
)

$
(138,257
)

$
(139,124
)

$
(74,109
)

$
17,726     
    During 2009, 2008 and 2007, we recorded favorable development of
    $53.5 million, $82.4 millino and $26.4 million,
    respectively. Most of this was from the 2002  2006
    underwriting years in: 1) our diversified financial
    products line of business, primarily in our directors and
    officers liability, U.K. professional indemnity and
    U.S. surety products, 2) our London market account,
    which includes redundancies on the 2005 hurricanes, and
    3) an assumed quota share program reported in our other
    specialty line of business. These changes primarily affected the
    2003 through 2007 accident years. As part of our 2009 reserve
    review, we re-estimated our exposure on our directors and
    officers liability 2007 underwriting year, which resulted
    in additional reserves for the 2007 and 2008 accident years.
    Reserve reductions in 2006 on prior years hurricanes and
    aviation, affecting primarily the 2004 and 2005 accident years.    
    Commutation charges of $20.2 million, $26.0 million
    and $28.8 million recorded in 2006, 2005 and 2003,
    respectively. 21




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##### Table of Contents




    Reserve strengthening of $27.3 million in 2004 to bring net
    reserves for this discontinued line of business above our
    actuarial point estimate.
    Collectively, these transactions primarily affected the 1999,
    2000 and 2001 accident years.    2009


2008


2007Net reserves for loss and loss adjustment expense payable at
    beginning of year

$
2,416,271


$
2,342,800


$
2,108,961Net reserve additions from acquired businesses


36,522



29,053



742Foreign currency adjustment


25,067



(82,677
)


27,304Incurred loss and loss adjustment expense:Provision for loss and loss adjustment expense for claims
    occurring in current year


1,269,283



1,294,244



1,210,344Decrease in estimated loss and loss adjustment expense for
    claims occurring in prior years*


(53,524
)


(82,371
)


(26,397
)Incurred loss and loss adjustment expense


1,215,759



1,211,873



1,183,947Loss and loss adjustment expense payments for claims occurring
    during:Current year


519,080



397,103



422,058Prior years


618,699



687,675



556,096Loss and loss adjustment expense payments


1,137,779



1,084,778



978,154Net reserves for loss and loss adjustment expense payable at
    end of year

$
2,555,840


$
2,416,271


$
2,342,800     *
    
    Changes in loss and loss adjustment expense reserves for losses
    occurring in prior years reflect the net effect of the
    resolution of losses for other than the reserve value and the
    subsequent adjustments of loss reserves.      not-for-profit
   22




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##### Table of Contents



Enterprise
    Risk Management
        Regulation
      Insurance
    Companies
    
    approval of policy forms and premium rates,
    licensing of insurers and their agents,
    periodic examinations of our operations and finances,
    prescription of the form and content of records of financial
    condition to be filed with the regulatory authority,
    required levels of deposits for the benefit of policyholders,
    requiring certain methods of accounting,
    requiring reserves for unearned premium, losses and other
    purposes, 23




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##### Table of Contents




    restrictions on the ability of our insurance companies to pay
    dividends,
    restrictions on the nature, quality and concentration of
    investments,
    restrictions on transactions between insurance companies and
    their affiliates,
    restrictions on the size of risks insurable under a single
    policy, and
    standards of solvency, including risk-based capital measurement
    (which is a measure developed by the National Association of
    Insurance Commissioners and used by state insurance regulators
    to identify insurance companies that potentially are
    inadequately capitalized).            Underwriting
    Agencies
    
    advertising and business practice rules,
    contractual requirements,
    financial security,
    licensing as agents, brokers, reinsurance brokers, managing
    general agents or third party administrators, 24




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##### Table of Contents




    limitations on authority, and
    recordkeeping requirements.  Statutory
    Accounting Principles
    
    a liability is recorded for certain reinsurance recoverables
    under statutory accounting principles whereas, under generally
    accepted accounting principles, there is no such provision
    unless the recoverables are deemed to be doubtful of collection,
    certain assets that are considered non-admitted
    assets are eliminated from a balance sheet prepared in
    accordance with statutory accounting principles, but are
    included in a balance sheet prepared in accordance with
    generally accepted accounting principles,
    only some of the deferred tax asset is recognized under
    statutory accounting principles,
    fixed income investments classified as available for sale are
    recorded at fair value for generally accepted accounting
    principles and at amortized cost under statutory accounting
    principles,
    outstanding losses and unearned premium are reported on a gross
    basis under generally accepted accounting principles and on a
    net basis under statutory accounting principles, and
    under statutory accounting principles, policy acquisition costs
    are expensed as incurred and, under generally accepted
    accounting principles, such costs are deferred and amortized to
    expense as the related premium is earned.    Insurance
    Holding Company Acts
    Assessments
   25




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##### Table of Contents



Insurance
    Regulations Concerning Change of Control
    Risk-Based
    Capital
    Insurance
    Regulatory Information System
    Terrorism
    Risk Insurance Act
     26




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##### Table of Contents



Legislative
    Initiatives
          Employees
    Item 1A.
    Risk
    Factors  Risks
    Relating to our Industry
  Because
    we are a property and casualty insurer, our business may suffer
    as a result of unforeseen catastrophic losses.
   27




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##### Table of Contents



The
    insurance and reinsurance business is historically cyclical, and
    we expect to experience periods with excess underwriting
    capacity and unfavorable premium rates, which could cause our
    results to fluctuate.
    Our
    loss reserves are based on an estimate of our future liability,
    which may prove to be inadequate.
  and/or
 28




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##### Table of Contents



We may
    be impacted by claims relating to the recent credit market
    downturn and subprime insurance exposures.
    The
    effects of emerging claim and coverage issues on our business
    are uncertain.
    We are
    subject to extensive governmental regulation.
     29




---



##### Table of Contents



Our
    reliance on brokers subjects us to their credit
    risk.
    Consolidation
    in the insurance industry could adversely impact
    us.
    Risks
    Relating to our Business
  Our
    inability to accurately assess underwriting risk could reduce
    our net earnings.
    Retentions
    in various lines of business expose us to potential
    losses.
    If we
    are unable to purchase adequate reinsurance protection for some
    of the risks we have underwritten, we will be exposed to any
    resulting unreinsured losses.
   30




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##### Table of Contents



If the
    companies that provide our reinsurance do not pay all of our
    claims, we could incur severe losses.
    As a
    direct insurer, we may have significant exposure for terrorist
    acts.
      We may
    be unsuccessful in competing against larger or more
    well-established business rivals.
   31




---



##### Table of Contents



If
    rating agencies downgrade our financial strength ratings, our
    business and competitive position in the industry may
    suffer.
    We may
    require additional capital or funds for liquidity in the future,
    which may not be available or may only be available on
    unfavorable terms.
      We may
    be unable to attract and retain qualified
    employees.
    We
    invest a significant amount of our assets in securities that
    have experienced market fluctuations, which may greatly reduce
    the value of our investment portfolio, reduce investment income
    or generate realized investment losses.
   32




---



##### Table of Contents



and/or
    other-than-temporary
  Our
    strategy of acquiring other companies for growth may not
    succeed.
    
    the diversion of our managements attention,
    our ability to assimilate the operations and personnel of the
    acquired companies,
    the contingent and latent risks associated with the past
    operations of, and other unanticipated problems arising in, the
    acquired companies,
    the need to expand management, administration and operational
    systems, and
    increased competition for suitable acquisition opportunities and
    qualified employees.  and/or
 33




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##### Table of Contents



We are
    exposed to goodwill impairment risk as part of our business
    acquisition strategy.
    We are
    an insurance holding company and, therefore, may not be able to
    receive dividends in needed amounts from our
    subsidiaries.
    Because
    we operate internationally, fluctuations in currency exchange
    rates may affect our receivable and payable balances and our
    reserves.
    Our
    information technology systems may fail or suffer a loss of
    security, which could adversely affect our
    business.
     34




---



##### Table of Contents



The
    administration in Washington, D.C. is a proponent of
    potential changes in the countrys health care delivery
    system.
    We may
    not be able to delay or prevent an inadequate or coercive offer
    for change in control and regulatory rules and required
    approvals might delay or deter a favorable change of
    control.
      If we
    experience difficulties with outsourcing relationships, our
    ability to conduct our business might be negatively
    impacted.
  and/or
  Item 1B.
    Unresolved
    Staff Comments   35




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##### Table of Contents



Item 2.
    Properties      Subsidiary

Segment

Location

Sq. Ft.

Termination Date of LeaseHouston Casualty Company

Insurance Company

Houston, Texas


77,000


OwnedHCC and Houston Casualty Company

Insurance Company and Corporate

Houston, Texas


51,000


OwnedHCC Surety Group

Insurance Company

Los Angeles, California


40,000


May 31, 2017Professional Indemnity Agency

Agency

Mount Kisco, New York


38,000


OwnedHCC International Insurance Company

Insurance Company

London, England


30,000


December 24, 2015HCC Life Insurance Company

Insurance Company

Atlanta, Georgia


29,000


December 31, 2011HCC Specialty Underwriters

Agency

Wakefield, Massachusetts


28,000


December 31, 2010U.S. Specialty Insurance Company-Aviation Division

Insurance Company

Dallas, Texas


28,000


August 31, 2013G. B. Kenrick & Associates, Inc.

Agency

Auburn Hills, Michigan


27,000


May 31, 2012HCC Life Insurance Company

Insurance Company

Minneapolis, Minnesota


25,000


September 30, 2012   Form 10-K.
  Item 3.
    Legal
    Proceedings  Litigation
    Item 4.
    Reserved 36




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##### Table of Contents



PART II  Item 5.
    Market
    for the Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities  Price
    Range of Common Stock
    intra-day
  2009

2008High

Low

High

LowFirst quarter

$
26.68


$
20.07


$
29.03


$
21.26Second quarter


27.54



23.02



25.99



20.48Third quarter


28.81



23.42



30.00



19.12Fourth quarter


29.01



25.58



26.95



14.17     Shareholders
    Dividend
    Policy
    2009

2008First quarter

$
.125


$
.110Second quarter


.125



.110Third quarter


.135



.125Fourth quarter


.135



.125    37




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##### Table of Contents



Issuer
    Purchases of Equity Securities
  time-to-time Rule 10b-18
  Performance
    Graph
    COMPARISON
    OF CUMULATIVE FIVE YEAR TOTAL RETURN
  
  Total
    Return to Shareholders
    (includes reinvestment of dividends)
  Company/Index


2004


2005


2006


2007


2008


2009HCC Insurance Holdings, Inc.


$
100.00



$
136.15



$
148.94



$
134.97



$
128.35



$
136.89S&P Composite 1500 Index



100.00




105.66




121.86




128.52




81.33




103.49S&P Midcap 400 Index



100.00




112.56




124.17




134.08




85.50




117.46     38




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Years Ended December 31,2009


2008


2007


2006


2005(in thousands, except per share data)Statement of earnings dataRevenueNet earned premium

$
2,037,235


$
2,007,774


$
1,985,086


$
1,709,189


$
1,369,988Fee and commission income


103,690



125,201



140,092



137,131



132,628Net investment income


191,965



164,751



206,462



152,804



98,851Other operating income


34,391



9,638



43,545



77,012



39,773Net realized investment gain (loss)


12,076



(16,808
)


13,188



(841
)


1,448Other-than-temporary
    impairment loss:Total loss


(6,443
)


(11,133
)










Portion recognized in other comprehensive income


1,014















Net loss recognized in earnings


(5,429
)


(11,133
)










Total revenue


2,373,928



2,279,423



2,388,373



2,075,295



1,642,688ExpenseLoss and loss adjustment expense, net


1,215,759



1,211,873



1,183,947



1,011,856



919,697Policy acquisition costs, net


363,966



381,441



366,610



319,885



261,708Other operating expense


259,488



233,509



241,642



222,324



180,990Interest expense


16,164



20,362



16,270



18,128



14,126Total expense


1,855,377



1,847,185



1,808,469



1,572,193



1,376,521Earnings from continuing operations before income tax expense


518,551



432,238



579,904



503,102



266,167Income tax expense on continuing operations


164,683



130,118



188,351



165,191



81,921Earnings from continuing operations


353,868



302,120



391,553



337,911



184,246Earnings from discontinued operations, net of income taxes(1)


















2,760Net earnings

$
353,868


$
302,120


$
391,553


$
337,911


$
187,006   39




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##### Table of Contents



Years Ended December 31,2009


2008


2007


2006


2005(in thousands, except per share data)Basic earnings per share dataEarnings from continuing operations

$
3.14


$
2.63


$
3.47


$
3.04


$
1.74Earnings from discontinued operations(1)


















0.03Net earnings

$
3.14


$
2.63


$
3.47


$
3.04


$
1.77Weighted average shares outstanding


112,200



114,848



112,873



111,309



105,463Diluted earnings per share dataEarnings from continuing operations

$
3.11


$
2.61


$
3.35


$
2.89


$
1.68Earnings from discontinued operations(1)


















0.03Net earnings

$
3.11


$
2.61


$
3.35


$
2.89


$
1.71Weighted average shares outstanding


113,058



115,463



116,997



116,736



109,437Cash dividends declared, per share

$
0.520


$
0.470


$
0.420


$
0.375


$
0.282   December 31,2009


2008


2007


2006


2005(in thousands, except per share data)Balance sheet dataTotal investments

$
5,456,229


$
4,804,283


$
4,672,277


$
3,927,995


$
3,257,428Premium, claims and other receivables


600,332



770,823



763,401



864,705



884,654Reinsurance recoverables


1,016,411



1,054,950



956,665



1,169,934



1,361,983Ceded unearned premium


270,436



234,375



244,684



226,125



239,416Goodwill


822,006



858,849



776,046



742,677



532,947Total assets


8,834,391



8,332,000



8,074,520



7,626,025



7,022,231Loss and loss adjustment expense payable


3,492,309



3,415,230



3,227,080



3,097,051



2,813,720Unearned premium


1,044,747



977,426



943,946



920,350



807,109Premium and claims payable


154,596



405,287



497,974



646,224



753,859Notes payable


298,483



343,649



319,471



297,574



291,394Shareholders equity


3,031,183



2,640,023



2,443,695



2,050,009



1,702,015Book value per share(2)

$
26.58


$
23.27


$
21.24


$
18.35


$
15.36     (1)
    
    Discontinued operations in 2005 represent gains from a
    contractual earnout related to the 2003 sale of our retail
    brokerage operation, HCC Employee Benefits, Inc.(2)
    
    Book value per share is calculated by dividing outstanding
    shares into total shareholders equity. 40




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
        
    We had consolidated shareholders equity of
    $3.0 billion. Our book value per share increased 14% to
    $26.58.
    We had net earnings of $353.9 million, or $3.11 per diluted
    share.
    We generated $582.8 million of cash flow from operations.
    We produced $2.4 billion of total revenue, which was
    $94.5 million, or 4%, higher than in 2008.
    Our loss ratio was 59.7% and our combined ratio was 84.9%.
    Profitability from our underwriting operations remains at
    acceptable levels.
    We declared dividends of $0.52 per share and paid
    $57.4 million of dividends.
    We have $4.6 billion of fixed income securities with an
    average rating of AA+.
    We repurchased 1.7 million shares of our common stock for
    $35.5 million, or an average cost of $21.36 per share. In
    the past two years, we have repurchased 4.7 million shares
    for $98.8 million, or an average cost of $21.14 per share.
    We issued $300.0 million of 6.3% Senior Notes that
    mature in 2019.
    We redeemed the remaining $124.7 million of our 1.30%
    convertible debt.
    Our $575.0 million Revolving Loan Facility, which expires in
    December 2011, had no borrowings outstanding at
    December 31, 2009. The facility has an interest rate of
    30-day LIBOR
    plus 25 basis points.
    Our major domestic and international insurance companies have a
    financial strength rating of AA (Very Strong) from
    Standard & Poors Corporation. Our major domestic
    insurance companies have a financial strength rating of AA
    (Very Strong) from Fitch Ratings, A1 (Good
    Security) from Moodys Investors Service, Inc., and
    A+ (Superior) by A.M. Best Company, Inc.  year-over-year.
   41




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##### Table of Contents



Results
    of Operations
      2009

2008

2007Pretax earnings (loss) from:Commutation of reinsurance contract, net of related costs

$
15,600


$



$
Prior years reserve development


53,524



82,371



26,3972008 hurricanes (including reinsurance reinstatement premium)






(22,304
)


Alternative investments


(958
)


(30,766
)


23,930Net realized investment gain (loss) (excluding 2007 foreign
    currency gain)


12,076



(16,808
)


(209
)Other-than-temporary
    impairments (recognized in earnings)


(5,429
)


(11,133
)


Trading securities






(11,698
)


3,881Sales of strategic investments and subsidiary, net


(2,266
)


9,158



21,618   
    In 2009, we commuted, loss-free, all liability under a contract
    to provide reinsurance coverage for certain residential mortgage
    guaranty contracts. We had been recording revenue under this
    contract using the deposit method of accounting because we
    determined the contract did not transfer significant
    underwriting risk. We received a cash termination payment of
    $25.0 million. As a result of the termination, other
    operating income increased $20.5 million, and fee and
    commission income increased $5.0 million. This additional
    revenue was offset by $9.9 million of expenses for
    reinsurance and other direct costs, which were recorded in other
    operating expense.
    In 2009, we had $53.5 million of favorable development of our
    prior years net loss reserves, primarily from our: 1) U.K.
    professional indemnity business, 2) the 2005 hurricanes and 3)
    an assumed quota share contract. We had favorable development of
    $82.4 million in 2008 and $26.4 million in 2007, primarily from
    those same lines, as well as our U.S. surety business. The
    redundancies in the three-year period related to our 2002-2006
    underwriting years.
    In 2008, we incurred gross losses of $98.2 million from
    Hurricanes Gustav and Ike (referred to herein as the 2008
    hurricanes). Our pretax loss after reinsurance was
    $22.3 million, which included 42




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##### Table of Contents



$19.4 million of losses reported in loss and loss
    adjustment expense and $2.9 million of premiums to
    reinstate our excess of loss reinsurance protection, which
    reduced net earned premium.  
    In 2008 and 2007, we held alternative investments that generated
    $30.8 million of market-related losses and
    $23.9 million of income, respectively. We redeemed the
    investments in late 2008 and received $94.1 million of cash
    in 2009, which we reinvested in fixed income securities.
    We had a net realized investment gain of $12.1 million from
    the sale of securities in 2009, compared to a $16.8 million
    loss in 2008 and a $13.2 million gain in 2007. In 2008, to
    manage credit-related risk in our investment portfolio, we sold
    all of our investments in preferred stock and certain bonds of
    entities that were experiencing financial difficulty, and
    recognized a realized investment loss of $23.4 million. The
    2007 gain included $13.4 million of embedded currency
    conversion gains on certain available for sale fixed income
    securities that we sold, which was offset by a
    $13.4 million foreign currency loss recorded in other
    operating expense.
    We recognized, through earnings,
    other-than-temporary
    impairment losses of $5.4 million in 2009 and
    $11.1 million in 2008 on securities in our available for
    sale securities portfolio. There were no
    other-than-temporary
    impairment losses in 2007.
    In 2008 and 2007, our former trading portfolio had losses of
    $11.7 million and gains of $3.9 million, respectively.
    We sold the final two positions in 2008.
    In 2009, we sold a strategic investment and realized a gain of
    $2.4 million, which was offset by a $4.7 million loss
    related to the sale of a subsidiary. In 2008 and 2007, we sold
    strategic investments and realized gains of $9.2 million
    and $21.6 million, respectively.    2009


2008


2007Net earned premium


85.8
%


88.1
%


83.1
%Fee and commission income


4.4



5.5



5.9Net investment income


8.1



7.2



8.6Net realized investment and
    other-than-temporary
    gain (loss)


0.3



(1.2
)


0.6Other operating income


1.4



0.4



1.8Total revenue


100.0



100.0



100.0Loss and loss adjustment expense, net


51.2



53.2



49.6Policy acquisition costs, net


15.3



16.7



15.4Other operating expense


11.0



10.2



10.1Interest expense


0.7



0.9



0.6Earnings before income tax expense


21.8



19.0



24.3Income tax expense


6.9



5.7



7.9Net earnings


14.9
%


13.3
%


16.4
%   Revenue
    
    risk-bearing earned premium produced by our insurance companies
    and syndicates,
    non-risk-bearing fee and commission income received by our
    underwriting agencies,
    investment income earned by all of our operations,
    other operating income and losses, mainly related to strategic
    investments and events that do not occur each year, and 43




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##### Table of Contents




    realized investment gains and losses and
    other-than-temporary
    impairment credit losses related to our fixed income securities
    portfolio.      2009

2008

2007Gross written premium

$
2,559,791


$
2,498,763


$
2,451,179Net written premium


2,046,289



2,060,618



1,985,609Net earned premium


2,037,235



2,007,774



1,985,086     2009


2008


2007Agencies

$
75,527


$
81,521


$
92,230Insurance companies


28,163



43,680



47,862Fee and commission income

$
103,690


$
125,201


$
140,092     2009


2008


2007Fixed income securitiesTaxable

$
106,690


$
98,538


$
88,550Exempt from U.S. income taxes


82,760



76,172



62,044Total fixed income securities


189,450



174,710



150,594Short-term investments


3,230



20,931



37,979Other


3,086



(26,949
)


23,715Total investment income


195,766



168,692



212,288Investment expense


(3,801
)


(3,941
)


(5,826
)Net investment income

$
191,965


$
164,751


$
206,462  44




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##### Table of Contents



fund-of-fund
      2009


2008


2007Contract using deposit accounting

$
20,532


$
2,013


$
Strategic investments


4,538



12,218



27,627Trading securities






(11,698
)


3,881Financial instruments


4,703



(608
)


5,572Sale of subsidiary


(4,678
)






Sale of non-operating assets






2,972



2,051Other


9,296



4,741



4,414Other operating income

$
34,391


$
9,638


$
43,545     other-than-temporary other-than-temporary other-than-temporary
 45




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##### Table of Contents



Other-than-temporary
  Expenses
    
    insurance claims paid or payable to policyholders, as well as
    expenses to adjust and settle the claims, and potential
    liability for incurred but not reported claims (collectively
    referred to as loss and loss adjustment expense),
    direct policy acquisition costs, such as commissions, premium
    taxes and compensation of our underwriters,
    other operating expense, of which approximately 65% relates to
    compensation and benefits of our employees,
    interest expense on debt and short-term borrowings, and
    income taxes due to U.S. Federal, state, local and foreign
    jurisdictions.  year-over-year
       46




---



##### Table of Contents



year-over-year 30-day
      Segments
   47




---



##### Table of Contents



Insurance
    Company Segment
    Premium
        2009


2008


2007Amount


%


Amount


%


Amount


%Direct

$
2,308,667



90
%

$
2,156,613



86
%

$
2,000,552



82
%Reinsurance assumed


251,124



10



342,150



14



450,627



18Gross written premium


2,559,791



100



2,498,763



100



2,451,179



100Reinsurance ceded


(513,502
)


(20
)


(438,145
)


(18
)


(465,570
)


(19
)Net written premium


2,046,289



80



2,060,618



82



1,985,609



81Change in unearned premium


(9,054
)






(52,844
)


(2
)


(523
)


Net earned premium

$
2,037,235



80
%

$
2,007,774



80
%

$
1,985,086



81
%  48




---



##### Table of Contents



Gross





NWPWritten


Net Written


as% of


Net EarnedPremium


Premium


GWP


PremiumYear Ended December 31, 2009Diversified financial productsDirectors and officers

$
529,607


$
376,021



71
%

$
371,650Errors and omissions


257,786



222,664



86



234,768Other professional liability


81,222



58,815



72



39,123U.S. surety and credit


203,522



189,208



93



182,627International surety and credit


75,776



68,887



91



68,1621,147,913



915,595



80



896,330Group life, accident and healthMedical stop-loss


633,573



633,571



100



633,572Other medical


137,187



137,187



100



134,161Other


75,281



26,020



35



29,887846,041



796,778



94



797,620Aviation


176,073



124,336



71



129,626London market accountEnergy


98,934



49,452



50



49,116Other


87,669



52,955



60



54,043186,603



102,407



55



103,159Other specialty linesPublic risk


66,176



48,524



73



39,986HCC Lloyds


42,961



35,721



83



40,273Other


93,872



22,802



24



30,114203,009



107,047



53



110,373Discontinued lines


152



126



nm



127Totals

$
2,559,791


$
2,046,289



80
%

$
2,037,235 49




---



##### Table of Contents



Gross





NWPWritten


Net Written


as% of


Net EarnedPremium


Premium


GWP


PremiumYear Ended December 31, 2008Diversified financial productsDirectors and officers

$
456,285


$
341,698



75
%

$
312,135Errors and omissions


274,293



246,185



90



227,667Other professional liability


62,585



42,686



68



31,753U.S. surety and credit


183,384



175,533



96



167,914International surety and credit


75,175



65,905



88



66,1351,051,722



872,007



83



805,604Group life, accident and healthMedical stop-loss


616,878



616,878



100



616,900Other medical


136,111



136,111



100



121,865Other


76,914



36,490



47



38,503829,903



789,479



95



777,268Aviation


185,786



136,019



73



139,838London market accountEnergy


97,334



57,913



59



57,262Other


78,227



49,321



63



49,595175,561



107,234



61



106,857Other specialty linesPublic risk


42,871



28,553



67



25,600HCC Lloyds


72,349



63,191



87



62,126Other


135,801



59,376



44



85,723251,021



151,120



60



173,449Discontinued lines


4,770



4,759



nm



4,758Totals

$
2,498,763


$
2,060,618



82
%

$
2,007,774 50




---



##### Table of Contents



Gross





NWPWritten


Net Written


as% of


Net EarnedPremium


Premium


GWP


PremiumYear Ended December 31, 2007Diversified financial productsDirectors and officers

$
395,084


$
296,955



75
%

$
326,099Errors and omissions


274,131



216,382



79



223,566Other professional liability


41,665



28,782



69



30,216U.S. surety and credit


174,434



162,607



93



141,957International surety and credit


78,041



66,922



86



55,576963,355



771,648



80



777,414Group life, accident and healthMedical stop-loss


607,984



607,984



100



607,980Other medical


110,593



110,593



100



110,593Other


80,107



40,630



51



39,943798,684



759,207



95



758,516Aviation


195,809



145,761



74



153,121London market accountEnergy


114,649



53,580



47



59,249Other


99,067



64,661



65



65,360213,716



118,241



55



124,609Other specialty linesPublic risk


33,302



22,085



66



17,414HCC Lloyds


73,648



67,874



92



56,032Other


173,090



101,192



58



98,378280,040



191,151



68



171,824Discontinued lines


(425
)


(399
)


nm



(398
)Totals

$
2,451,179


$
1,985,609



81
%

$
1,985,086         
    Diversified financial products  Gross and net
    written premium increased in 2009 because we wrote more domestic
    directors and officers liability and credit business
    at higher prices in 2009. Our U.S. surety premium grew in
    2009 due to an acquisition in early 2009. Premium volume in our
    other major products in this group was stable, although pricing
    for certain of these products is down slightly. Earned premium
    increased in 2009 primarily due to the higher volume of
    directors and officers liability business written in
    both 2009 and the last half of 2008. Our retention was lower in
    2009 because we are reinsuring more directors and
    officers liability business.   51




---



##### Table of Contents



retention rate. Premium volume of our other major products was
    stable in 2008, although pricing for certain products was down.
    During 2008, we also wrote three new products grouped in other
    professional liability.  
    Group life, accident and health Our medical
    stop-loss business grew in 2009 from a medical stop-loss agency
    acquired in late 2008. The 2009 increase in net earned premium
    and the 2008 increase in premium were due to our acquisition of
    an agency in early 2008, which writes short-term medical
    insurance using one of our managed Lloyds syndicates as
    the issuing carrier. We retain most of our medical stop-loss and
    short-term medical business because the business traditionally
    has been non-volatile and has little catastrophic exposure.
    Aviation  We wrote less aviation business in
    2009 and 2008 due to continuing competition on
    U.S. business and lack of growth in the general aviation
    industry. Pricing on this line remains competitive, although we
    saw price increases on the international portion of this
    business in 2009. Our underwriting margins on both U.S. and
    international business continue to be at expected levels.
    London market account  This line of business
    has the most exposure to catastrophic losses from hurricanes and
    earthquakes. Rates can change quickly, leading to higher premium
    volatility than our other lines of business. Gross written
    premium increased in 2009 due to writing more property business.
    Net written and net earned premium were lower in 2009 due to
    increased spending on reinsurance. Written premium decreased in
    2008 due to increased competition and lower rates. Also, in
    2008, we discontinued writing our marine excess of loss book of
    business due to unacceptable pricing. We expect premium volume
    to increase in 2010, as we recently hired an underwriting team
    to write property reinsurance.
    Other specialty lines Premium in our public
    risk businesses increased in 2009 due to acquisitions in late
    2008. Premium decreased in our HCC Lloyds line in 2009 and
    2008 due to discontinuance of our U.K. motor business in
    mid-2008. Premium also decreased in 2009 and 2008 due to
    expiration of an assumed quota share contract in the first half
    of 2008. The decrease in the retention percentages in 2009 and
    2008 was due to the change in mix of business in this line.  Reinsurance
       52




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##### Table of Contents



non-U.S. reinsurers.
        Losses
    and Loss Adjustment Expenses
    2009


2008


2007Amount


Loss Ratio


Amount


Loss Ratio


Amount


Loss Ratio(Redundant) adverse development:Discontinued accident and health adjustments

$
(1,244
)



%

$
34,148



1.4
%

$
(46,531
)


(1.9
)%Discontinued international medical malpractice adjustments


5,561



0.2



(536
)






11,568



0.5Other reserve redundancies


(94,752
)


(3.8
)


(105,656
)


(4.3
)


(55,658
)


(2.3
)Total redundant development


(90,435
)


(3.6
)


(72,044
)


(2.9
)


(90,621
)


(3.7
)2008 hurricanes










98,200



4.0







All other gross incurred loss and loss adjustment expense


1,579,331



62.8



1,609,338



65.5



1,443,031



59.2Gross incurred loss and loss adjustment expense

$
1,488, 896



59.2
%

$
1,635,494



66.6
%

$
1,352,410



55.5
%  53




---



##### Table of Contents



and/or
      year-over-year,
 54




---



##### Table of Contents



2009


2008


2007Amount


Loss Ratio


Amount


Loss Ratio


Amount


Loss Ratio(Redundant) adverse development:Discontinued accident and health commutations

$





%

$





%

$
2,616



0.1
%Discontinued accident and health adjustments


716







3,429



0.2



376



Discontinued international medical malpractice adjustments


5,561



0.3



(526
)






11,568



0.6Other reserve redundancies


(59,801
)


(2.9
)


(85,274
)


(4.2
)


(40,957
)


(2.1
)Total redundant development


(53,524
)


(2.6
)


(82,371
)


(4.0
)


(26,397
)


(1.4
)2008 hurricanes










19,379



1.1







All other net incurred loss and loss adjustment expense


1,269,283



62.3



1,274,865



63.3



1,210,344



61.0Net incurred loss and loss adjustment expense

$
1,215,759



59.7
%

$
1,211,873



60.4
%

$
1,183,947



59.6
%    55




---



##### Table of Contents



2009


2008


2007Net


Net


Net


Net


Net


NetEarned


Loss


Earned


Loss


Earned


LossPremium


Ratio


Premium


Ratio


Premium


RatioDiversified financial productsDirectors and officers

$
371,650



61.2
%

$
312,135



59.0
%

$
326,099



45.4
%Errors and omissions


234,768



49.6



227,667



50.0



223,566



48.4Other professional liability


39,123



43.4



31,753



40.2



30,216



48.2U.S. surety and credit


182,627



29.9



167,914



23.7



141,957



16.3International surety and credit


68,162



50.9



66,135



56.1



55,576



38.5896,330



50.2



805,604



48.1



777,414



40.6Group life, accident and healthMedical stop-loss


633,572



71.7



616,900



73.1



607,980



74.3Other medical


134,161



86.0



121,865



80.9



110,593



95.1Other


29,887



43.6



38,503



47.1



39,943



57.5797,620



73.0



777,268



73.1



758,516



76.4Aviation


129,626



56.6



139,838



62.6



153,121



58.6London market accountEnergy


49,116



24.0



57,262



42.6



59,249



48.6Other


54,043



41.5



49,595



50.8



65,360



61.2103,159



33.1



106,857



46.4



124,609



55.2Other specialty linesPublic risk


39,986



66.3



25,600



72.3



17,414



66.9HCC Lloyds


40,273



69.1



62,126



78.3



56,032



78.0Other


30,114



49.6



85,723



57.6



98,378



61.5110,373



62.8



173,449



67.2



171,824



67.4Discontinued lines


127



nm



4,758



nm



(398
)


nmTotals

$
2,037,235



59.7
%

$
2,007,774



60.4
%

$
1,985,086



59.6
%Expense ratio






25.2







25.0







23.8Combined ratio






84.9
%






85.4
%






83.4
%         
    Diversified financial products  The total net
    loss ratios for this line of business reflect redundant net
    reserve development of $31.0 million in 2009, compared to
    $43.8 million in 2008 and $51.9 million in 2007. The
    2009 and 2008 redundancies primarily related to our
    directors and officers liability and U.K.
    professional indemnity businesses for 2006 and prior
    underwriting years. The 2009 development included
    $70.3 million of additional loss reserves on our
    directors and officers liability business for
    policies written in 2007. Offsetting the redundant reserve
    development in 2008 was an increase of $50.1 million in our
    loss estimates on the 2008 accident year affecting business
    written in the 2007 and 2008 underwriting years, primarily for
    our directors and officers liability and credit
    businesses. Our U.S. surety business had favorable loss
    development in 2008 and 2007, but the 2009 accident year 56




---



##### Table of Contents



losses were higher than the 2008 accident year losses due to the
    impact of the current economic environment on the construction
    industry.  
    Group life, accident and health  While the net
    loss ratio remained flat in 2009, the 2009 net loss ratios
    reflect lower losses on our medical stop-loss business, offset
    by adverse development and higher losses on short-term medical
    and other medical coverages. Compared to 2007, the 2008 net
    loss ratio reflects lower losses on business acquired through an
    acquisition in late 2006 as the business was re-underwritten.
    The 2007 loss ratio also included some adverse development from
    prior years losses.
    Aviation  Redundant development in 2009 was
    higher than in 2008, but was partially offset by higher accident
    year losses in 2009. The 2008 hurricanes increased the 2008
    losses by $1.4 million and the 2008 loss ratio by
    1.0 percentage point.
    London market account  The 2009 net loss
    ratios included $12.9 million of redundant reserve
    development, of which $12.7 million related to the 2005
    hurricanes. The redundancy reduced the 2009 total net loss ratio
    by 12.5 percentage points. The 2008 hurricanes increased
    the 2008 losses by $12.1 million and the 2008 loss ratio by
    11.3 percentage points. There was also $21.4 million
    of redundant reserve development in 2008, mostly from our
    property and energy businesses, which included a
    $5.4 million reduction of the 2005 hurricane losses. The
    loss ratio in 2007 was slightly higher than expected due to
    adverse development in our London accident and health and energy
    businesses.
    Other specialty lines  The 2009, 2008 and
    2007 net loss ratios included $7.0 million,
    $8.7 million and $4.4 million, respectively, of
    redundant reserve development, primarily from an assumed quota
    share program. The 2008 hurricanes increased losses by
    $5.9 million and the 2008 loss ratio by 3.4 percentage
    points. We incurred larger than expected losses on our film
    completion and film production businesses in 2009 and on our
    U.K. motor business in 2008.
    Discontinued lines  This line of business was
    adversely affected in 2009 and 2007 by the strengthening of the
    net loss reserves on our international medical malpractice
    business.    2009


2008


2007Net reserves for loss and loss adjustment expense payable at
    beginning of year

$
2,416,271


$
2,342,800


$
2,108,961Net reserve additions from acquired businesses


36,522



29,053



742Foreign currency adjustment


25,067



(82,677
)


27,304Incurred loss and loss adjustment expense


1,215,759



1,211,873



1,183,947Loss and loss adjustment expense payments


1,137,779



1,084,778



978,154Net reserves for loss and loss adjustment expense payable at
    end of year

$
2,555,840


$
2,416,271


$
2,342,800Net paid loss ratio


55.8
%


54.0
%


49.3
%    57




---



##### Table of Contents



Policy
    Acquisition Costs
  year-over-year
  Statutory
    Agency
    Segment
       58




---



##### Table of Contents



Other
    Operations Segment
    2009


2008


2007Strategic investments

$
4,538


$
12,218


$
27,627Trading securities






(11,698
)


3,881Sale of subsidiary


(4,678
)






Service fees


3,818



3,985



2,384Other


3,644



2,821



5,012Total segment revenue

$
7,322


$
7,326


$
38,904     Liquidity
    and Capital Resources
    
    We held $940.1 million of cash and liquid short-term
    investments at December 31, 2009, which was
    $415.3 million more than at December 31, 2008. We sold
    approximately $210.0 million of fixed income securities in
    the fourth quarter of 2009 and held the funds as short-term
    investments, pending reinvestment. In addition, we held cash to
    pay, among other items, $64.5 million of convertible notes
    in the process of redemption at year-end and $15.5 million
    for shareholder dividends, which we paid in 2010.
    We have averaged over $580.0 million in cash from our
    operating activities, excluding commutations, during the three
    years ended December 31, 2009.
    Our available for sale bond portfolio had a fair value of
    $4.5 billion at December 31, 2009, compared to
    $4.1 billion at December 31, 2008, and has an average
    rating of AA+. We intend to hold these securities until their
    maturity, but we would be able to sell securities to generate
    cash if the need arises; however, should we sell certain
    securities in the portfolio before their maturity, we cannot be
    assured that we would recoup the full reported fair value of the
    securities sold at the time of sale.
    Our insurance companies have sufficient resources to pay
    potential claims in 2010. As shown in the Contractual
    Obligations section below, we project that our insurance
    companies will pay approximately $1.2 billion of claims in
    2010 based on historical payment patterns and claims history. We
    project that they will collect approximately $314.7 million
    of reinsurance recoveries in 2010. These subsidiaries have a
    total $1.2 billion of cash, short-term investments,
    maturing bonds, and principal payments from asset-backed and
    mortgage-backed securities in 2010 that will be available to pay
    these 59




---



##### Table of Contents



expected claims. We project that there will be approximately
    $300 million of available cash flow to fund any additional
    claims payments, if needed, before consideration of expected
    cash flow from the insurance companies 2010 operations.  
    In November 2009, we used our Universal Shelf
    registration agreement to issue $300.0 million of unsecured
    6.30% Senior Notes that are payable on November 15,
    2019. The Senior Notes were priced at a discount of
    $1.5 million, for an effective interest rate of 6.37%. Our
    future interest expense will increase to approximately
    $19.0 million, compared to $16.1 million in 2009,
    which included $2.4 million for the Senior Notes. However,
    we were able to lock in long-term debt at a very favorable rate
    in a tight credit market.
    We have a committed line of credit, led by Wells Fargo, through
    a syndicate group of banks. Our Revolving Loan Facility provides
    borrowing capacity to $575.0 million through December 2011
    at a rate of
    30-day LIBOR
    (0.23% at December 31, 2009) plus 25 basis
    points. After our long-term debt issuance discussed above, we
    repaid $335.0 million outstanding on the facility. We had
    no outstanding borrowings at December 31, 2009. We can draw
    against the Revolving Loan Facility any time at our request. If
    we do, we believe that the banks will be able and willing to
    perform on their commitments to us. The facility agreement had
    two restrictive financial covenants, with which we were in
    compliance at December 31, 2009.
    We have a $152.0 million Standby Letter of Credit Facility
    that is used to guarantee our performance in two Lloyds of
    London syndicates. We increased this Standby Letter of Credit
    Facility from $82.0 million at December 31, 2008 in
    anticipation of our writing more business through our
    Lloyds syndicate in 2010.
    In the fourth quarter of 2009, all of our 1.3% Convertible
    Notes were surrendered for redemption. We paid
    $60.1 million in December and $64.5 million in January
    2010 to settle the principal amount. We issued 1.0 million
    shares of our common stock at an average conversion price of
    $27.96 per share to settle the premium on the notes.
    Our domestic insurance subsidiaries have the ability to pay
    $217.8 million in dividends in 2010 to our holding company
    without obtaining special permission from state regulatory
    authorities. Our underwriting agencies have no restrictions on
    the amount of dividends that can be paid to our holding company.
    The holding company can utilize these dividends to pay down
    debt, pay dividends to shareholders, fund acquisitions,
    repurchase common stock and pay operating expenses. Cash flow
    available to the holding company in 2010, together with cash
    held at year-end 2009, is expected to be sufficient to cover the
    holding companys required cash disbursements.
    Our debt to total capital ratio was 9.0% at December 31,
    2009 and 11.5% at December 31, 2008, and our fixed charge
    coverage ratio was 25.13 for 2009. We have a Universal
    Shelf registration agreement that provides for the
    issuance of an aggregate of $1.0 billion of securities, of
    which we have $700.0 million of remaining capacity. These
    securities may be debt securities, equity securities, trust
    preferred securities, or a combination thereof. The shelf
    registration provides us the means to access the debt and equity
    markets relatively quickly if we are satisfied with current
    pricing.  Cash
    Flow
     60




---



##### Table of Contents



2009


2008


2007Net earnings

$
353,868


$
302,120


$
391,553Change in premium, claims and other receivables, net of
    reinsurance, other payables and restricted cash


(15,186
)


(41,248
)


(60,671
)Change in unearned premium, net


14,259



43,835



3,062Change in loss and loss adjustment expense payable, net of
    reinsurance recoverables


64,960



89,910



342,556Change in trading securities






49,091



9,362(Gain) loss on investments


(3,518
)


49,549



(58,736
)Other, net


168,414



12,711



99,310Cash provided by operating activities

$
582,797


$
505,968


$
726,436       Investments
     61




---



##### Table of Contents



other-than-temporary Other-than-temporary other-than-temporary other-than-temporary
     62




---



##### Table of Contents



December 31,2009


2008Amount


%


Amount


%Short-term investments

$
810,673



15
%

$
497,477



10
%U.S. government and government agency securities


328,535



6



227,607



5Fixed income securities of states, municipalities and political
    subdivisions


1,059,426



19



1,091,903



23Special purpose revenue bonds of states, municipalities and
    political subdivisions


1,146,334



21



899,632



19Corporate fixed income securities


559,824



10



511,638



11Residential mortgage-backed securities


944,182



17



823,078



17Commercial mortgage-backed securities


146,217



3



151,836



3Asset-backed securities


14,365







65,952



1Foreign government securities


307,891



6



333,365



7Foreign non-government securities


134,091



3



151,707



3Other investments


4,691







50,088



1Total investments

$
5,456,229



100
%

$
4,804,283



100
%     2009


2008


2007Average investments, at cost

$
5,071,688


$
4,627,484


$
4,126,644Net investment income*


191,965



164,751



206,462Average short-term yield*


0.5
%


3.8
%


5.2
%Average long-term yield*


4.2
%


4.4
%


4.5
%Average long-term tax equivalent yield*


5.1
%


5.2
%


5.4
%Average combined tax equivalent yield*


4.5
%


4.2
%


5.6
%Weighted-average maturity of fixed income securities


6.5 years



6.0 years



7.0 yearsWeighted-average duration of fixed income securities


4.9 years



4.8 years



4.9 yearsWeighted-average combined duration


4.2 years



4.3 years



4.2 yearsAverage rating of fixed income securities


AA+



AA+



AAA     *
    
    Excluding realized and unrealized investment gains and losses.    Available for Sale


Held to MaturityFair Value


Amortized CostAmount


%


Amount


%AAA

$
2,176,909



48
%

$
102,792



100
%AA


1,556,500



34







A


662,617



15







BBB


108,318



2







BB and below


33,729



1







Total fixed income securities

$
4,538,073



100
%

$
102,792



100
%  63




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##### Table of Contents



December 31,2009

2008Water and sewer


27
%


26
%Transportation


13



14Education


14



11Pre-refunded


13



17Special tax


11



13Leasing


8



9Other


14



10Total


100
%


100
%         Fair Value

Average Rating

Weighted-Average LifePrime

$
52,495



BBB+



1.7 yearsAlt A


4,091



BBB-



3.2 yearsSubprime


1,547



A+



5.8 years   loan-to-value
 64




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##### Table of Contents



Available


Asset-Backed and


Held to


Totalfor Sale


Mortgage-Backed


Maturity


Fixed IncomeAmortized Cost


Amortized Cost


Amortized Cost


SecuritiesAmount


%


Amount


%


Amount


%


Amount


%One year or less

$
277,943



8
%

$
274,538



25
%

$
27,692



27
%

$
580,173



13
%One year to five years


1,103,086



34



807,140



75



67,789



66



1,978,015



44Five years to ten years


800,382



24











7,311



7



807,693



18Ten years to fifteen years


574,001



17



















574,001



13More than fifteen years


544,672



17



















544,672



12Total fixed income securities

$
3,300,084



100
%

$
1,081,678



100
%

$
102,792



100
%

$
4,484,554



100
%     and/or
    Fair
    Value
    
    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.   65




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##### Table of Contents



66




---



##### Table of Contents



Contractual
    Obligations
    Estimated Payment DatesTotal


2010


2011-2012


2013-2014


ThereafterGross loss and loss adjustment expense payable(1):Diversified financial products

$
1,953,555


$
544,231


$
699,977


$
305,765


$
403,582Group life, accident and health


309,610



256,655



44,484



7,137



1,334Aviation


126,826



55,901



45,265



15,526



10,134London market account


259,271



123,415



108,084



23,279



4,493Other specialty lines


447,646



153,677



179,092



74,782



40,095Discontinued lines


395,401



54,873



81,815



74,931



183,782Total loss and loss adjustment expense payable


3,492,309



1,188,752



1,158,717



501,420



643,420Life and annuity policy benefits


61,313



2,214



4,188



3,888



51,0236.30% Senior Notes(2)


489,000



18,900



37,800



37,800



394,5001.30% Convertible Notes in process of conversion(3)


64,472



64,472











$575.0 million Revolving Loan Facility(4)


1,131



575



556







Interest rate swaps(5)


2,608



2,608











Operating leases


69,172



14,089



22,701



15,689



16,693Earnout liabilities


62,683



38,280



24,403







Indemnifications


12,842



3,273



4,989



3,617



963Total obligations

$
4,255,530


$
1,333,163


$
1,253,354


$
562,414


$
1,106,599     (1)
    
    The estimated loss and loss adjustment expense payments for
    future periods assume that the percentage of ultimate losses
    paid from one period to the next by line of business will be
    relatively consistent over time. Actual payments will be
    influenced by many factors and could vary from the estimated
    amounts.(2)
    
    The 6.30% Senior Notes are due in 2019. We pay interest
    semi-annually on May 15 and November 15, which is included
    in the above table.(3)
    
    We redeemed our 1.30% Convertible Notes in November 2009
    and paid cash to settle the remaining liability in January 2010.(4)
    
    The $575.0 million Revolving Loan Facility expires on
    December 19, 2011. At December 31, 2009, there were no
    outstanding borrowings on the facility, but we pay an annual
    commitment fee of 10.0 basis points, which is included in
    the above table.(5)
    
    Our interest rate swaps have a notional amount of
    $105.0 million and expire in November 2010. Under the terms
    of the swap agreements, we pay 2.94% and receive
    30-day LIBOR
    (0.23% at December 31, 2009), the net of which is included
    in the above table. 67




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##### Table of Contents



Claims
    Payments
    Maturities/Estimated Payment DatesTotal


2010


2011-2012


2013-2014


ThereafterCash and investment maturities of insurance companies

$
5,228,647


$
1,172,835


$
1,263,463


$
785,583


$
2,006,766Estimated loss and loss adjustment expense payments, net of
    reinsurance


2,555,840



874,044



814,180



373,449



494,167Estimated available cash flow

$
2,672,807


$
298,791


$
449,283


$
412,134


$
1,512,599       Senior
    Notes
    Convertible
    Notes
  ten-day
 68




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##### Table of Contents



Revolving
    Loan Facility
  30-day
    30-day
  Standby
    Letter of Credit Facility
    Subsidiary
    Letters of Credit
    Earnouts
   69




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##### Table of Contents



Indemnifications
    Subsidiary
    Dividends
      Other
    time-to-time.
    Impact
    of Inflation
   70




---



##### Table of Contents



Foreign
    Exchange Rate Fluctuations
    Critical
    Accounting Policies
    Loss
    and Loss Adjustment Expense
     71




---



##### Table of Contents



claim-by-claim
      Recorded


Actuarial


Low End of


High End ofNet Reserves


Point Estimate


Actuarial Range


Actuarial RangeTotal net reserves

$
2,555,840


$
2,464,206


$
2,280,181


$
2,727,401Individual lines of business:Diversified financial products

$
1,428,688


$
1,370,034


$
1,177,412


$
1,630,032Group life, accident and health


276,599



270,752



245,773



297,574Aviation


81,248



81,158



74,915



88,749London market account


155,132



160,031



152,030



180,556Other specialty lines


284,689



264,921



251,381



300,766Discontinued lines


329,484



317,310



279,793



381,700Total net reserves

$
2,555,840      72




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##### Table of Contents



ClaimsCharacteristicsSpeed ofClaim

Reserve

Major ActuarialLine of Business

Products

Underwriting

Duration

Reporting

Volatility

AssumptionsDiversified financial products

Directors and officers
    liability

Direct and subscription

Medium to long

Moderate

Medium to high

Historical and industry loss reporting patterns
    Loss trends
    Rate changesErrors and omissions liability

Direct

Medium

Moderate

Medium

Historical loss reporting patternsSurety

Direct

Medium

Fast

Low

Historical loss payment and reporting patternsGroup life, accident and health

Medical stop-loss

Direct

Short

Fast

Low

Medical cost and utilization trends
    Historical loss payment and reporting patterns
    Rate changesMedical excess

Direct and assumed

Short

Fast

Low to medium

Historical loss payment and reporting patterns
    Loss trends
    Rate changesAviation

Aviation

Direct and subscription

Medium

Fast

Medium

Historical loss payment and reporting patternsLondon market account

Energy*

Subscription

Medium

Moderate

Medium

Historical and industry loss payment and
    reporting patternsHistorical large loss experienceProperty*

Subscription

Medium

Moderate

Medium

Historical loss payment and reporting patternsHistorical large loss experienceMarine

Subscription

Medium

Moderate

Medium

Historical loss payment and reporting patternsHistorical large loss experienceAccident and health

Direct and assumed

Medium to long

Slow

High

Historical loss payment and reporting patternsOther specialty

Liability

Direct and assumed

Medium

Moderate

Medium

Historical loss payment and reporting patternsProperty

Direct and assumed

Short

Fast

Low

Historical loss payment and reporting patternsDiscontinued

Accident and health insurance

Assumed

Long

Slow

High

Historical and industry loss payment and
    reporting patternsMedical malpractice

Direct

Medium to long

Moderate

Medium to high

Historical loss payment and reporting patterns    *
    
    Includes catastrophe losses 73




---



##### Table of Contents



74




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##### Table of Contents



% NetIBNR toNet TotalAt December 31, 2009

Gross


Ceded


Net


ReservesReported loss reserves:Diversified financial products

$
872,623


$
248,398


$
624,225Group life, accident and health


185,656



5,249



180,407Aviation


89,819



33,566



56,253London market account


170,472



93,853



76,619Other specialty lines


194,653



70,669



123,984Subtotal reported reserves


1,513,223



451,735



1,061,488Incurred but not reported reserves:Diversified financial products


1,080,932



276,469



804,463



56
%Group life, accident and health


123,954



27,762



96,192



35Aviation


37,007



12,012



24,995



31London market account


88,799



10,286



78,513



51Other specialty lines


252,993



92,288



160,705



56Subtotal incurred but not reported reserves


1,583,685



418,817



1,164,868



52Discontinued lines reported reserves


277,792



44,229



233,563Discontinued lines incurred but not reported reserves


117,609



21,688



95,921



29Total loss and loss adjustment expense payable

$
3,492,309


$
936,469


$
2,555,840



49
%At December 31, 2008Reported loss reserves:Diversified financial products

$
682,446


$
207,750


$
474,696Group life, accident and health


171,326



8,550



162,776Aviation


101,720



35,894



65,826London market account


272,795



165,468



107,327Other specialty lines


167,703



59,087



108,616Subtotal reported reserves


1,395,990



476,749



919,241Incurred but not reported reserves:Diversified financial products


983,897



253,349



730,548



61
%Group life, accident and health


133,899



17,204



116,695



42Aviation


59,914



25,481



34,433



34London market account


131,753



60,482



71,271



40Other specialty lines


239,988



82,848



157,140



59Subtotal incurred but not reported reserves


1,549,451



439,364



1,110,087



55Discontinued lines reported reserves


326,314



58,814



267,500Discontinued lines incurred but not reported reserves


143,475



24,032



119,443



31Total loss and loss adjustment expense payable

$
3,415,230


$
998,959


$
2,416,271



51
%    75




---



##### Table of Contents




    Diversified financial products  Total net
    reserves increased $223.4 million from 2008 to 2009 as this
    line of business continues to grow. The incurred but not
    reported portion of the total reserves for this line of business
    is higher than in most of our other lines, since these losses
    report slower and have a longer duration. This line includes our
    directors and officers liability, errors and
    omissions liability, and fiduciary liability coverages, which
    have experienced increased notices of claims, primarily from
    financial institutions, due to market and credit-related issues.
    The percentage of incurred but not reported reserves has
    decreased as claims mature.
    Group life, accident and health  Total net
    reserves are flat
    year-over-year.
    The percentage of incurred but not reported reserves decreased
    in 2009 due to growth in our relatively new short-term medical
    products, for which claims are reported and settled faster.
    London market account  Total net reserves
    decreased and the percentage of incurred but not reported
    reserves increased due to payment of claims on prior year
    hurricanes previously reported in case reserves.
    Other specialty lines  Total net reserves
    increased due to our increased participation in our Lloyds
    of London syndicates, as well as growth in new products.
    Discontinued lines  Total net reserves for our
    discontinued lines decreased $57.5 million in 2009,
    primarily due to a $43.9 million commutation of certain
    loss reserves for run-off assumed accident and health
    reinsurance business.    not-for-profit
 76




---



##### Table of Contents



Reinsurance
    Recoverables
      Deferred
    Taxes
    Valuation
    of Goodwill
     77




---



##### Table of Contents



Other-than-temporary
    Impairments in Investments
  other-than-temporary
  other-than-temporary other-than-temporary
  other-than-temporary other-than-temporary other-than-temporary
  other-than-temporary
  other-than-temporary
 78




---



##### Table of Contents




    amount by which the securitys fair value is less than its
    cost,
    length of time the security has been impaired,
    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,
    whether the impairment is due to an issuer-specific event,
    the securitys credit rating and any recent downgrades, and
    stress testing of expected cash flows for mortgage-backed and
    asset-backed securities under various scenarios.  other-than-temporary other-than-temporary other-than-temporary other-than-temporary other-than-temporary
  Accounting
    Guidance Adopted in 2009
    Recent
    Accounting Guidance
  Amendments to FASB Interpretation
    No. 46(R) Consolidation
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest
    Rate Risk
   79




---



##### Table of Contents



Foreign
    Exchange Risk
    December 31,2009


2008Hypothetical





HypotheticalU.S. Dollar


10% Change


U.S. Dollar


10% ChangeEquivalent


in Fair Value


Equivalent


in Fair ValueBritish pound sterling

$
8,385


$
839


$
13,074


$
1,307Euro


2,626



263



649



65     Item 8.
    Financial
    Statements and Supplementary Data    Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure   80




---



##### Table of Contents



Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
    Managements
    Report on Internal Control Over Financial
    Reporting
  Rules 13a-15(f) 15d-15(f)
    Internal Control  Integrated
    Framework
     81




---



##### Table of Contents



Changes
    in Internal Control Over Financial Reporting
    Item 9B.
    Other
    Information  Form 8-K Form 8-K.
 PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Code
    of Business Conduct and Ethics
      Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   82




---



##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statement Schedules
  
  Exhibits
   83




---



##### Table of Contents



SIGNATURES    HCC Insurance Holdings,
    Inc.
   Dated: March 1, 2010

By:

/s/  John
    N. Molbeck,
    Jr.(John
    N. Molbeck, Jr.)
    President and Chief Executive Officer     Name

Title

Date/s/  John
    N. Molbeck, Jr.(John
    N. Molbeck, Jr.)

Director, President and
    Chief Executive Officer
    (Principal Executive Officer)

March 1, 2010/s/  Judy
    C. Bozeman*(Judy
    C. Bozeman)

Director

March 1, 2010/s/  Frank
    J. Bramanti*(Frank
    J. Bramanti)

Director

March 1, 2010/s/  Walter
    M. Duer*(Walter
    M. Duer)

Director

March 1, 2010/s/  James
    C. Flagg, Ph.D.*(James
    C. Flagg, Ph.D.)

Director

March 1, 2010/s/  Thomas
    M. Hamilton*(Thomas
    M. Hamilton)

Director

March 1, 2010/s/  James
    E. Oesterreicher*(James
    E. Oesterreicher)

Director

March 1, 2010/s/  Robert
    A. Rosholt*(Robert
    A. Rosholt)

Director

March 1, 2010/s/  Christopher
    J. B. Williams*(Christopher
    J. B. Williams)

Director and Chairman of the Board

March 1, 2010/s/  Scott
    W. Wise*(Scott
    W. Wise)

Director

March 1, 2010/s/  William.
    T. Whamond(William
    T. Whamond)

Executive Vice President and Chief Financial Officer

March 1, 2010/s/  Pamela
    J. Penny(Pamela
    J. Penny)

Executive Vice President and Chief Accounting Officer

March 1, 2010*By:

/s/  Pamela
    J.
    PennyPamela
    J. Penny
    Attorney-in-fact  84




---



##### Table of Contents



INDEX TO
    EXHIBITS
  Items denoted by a letter are incorporated by reference to
    other documents previously filed with the Securities and
    Exchange Commission as set forth at the end of this index. Items
    not denoted by a letter are being filed herewith.
  ExhibitNumber(A)3
.1



Restated Certificate of Incorporation and Amendment of
    Certificate of Incorporation of HCC Insurance Holdings, Inc.,
    filed with the Delaware Secretary of State on July 23, 1996 and
    May 21, 1998, respectively.(B)3
.2



Amended and Restated Bylaws of HCC Insurance Holdings, Inc.(C)4
.1



Specimen of Common Stock Certificate, $1.00 par value, of
    HCC Insurance Holdings, Inc.(D)4
.2



Indenture dated August 23, 2001 between HCC Insurance Holdings,
    Inc. and First Union National Bank related to Debt Securities
    (Senior Debt).(E)4
.3



Second Supplemental Indenture dated March 28, 2003 between HCC
    Insurance Holdings, Inc. and Wachovia Bank, National Association
    (as successor to First Union National Bank) related to
    1.30% Convertible Notes Due 2023.(F)4
.4



First Amendment to Second Supplemental Indenture dated December
    22, 2004 between HCC Insurance Holdings, Inc. and Wachovia Bank,
    National Association related to 1.30% Convertible Notes Due
    2023.(G)4
.5



Form of Fourth Supplemental Indenture, dated as of November 16,
    2009 between HCC Insurance Holdings, Inc. and U.S. Bank National
    Association related to the 6.300% Senior Notes due 2019.(H)10
.1



Loan Agreement ($300,000,000 Revolving Loan Facility) dated as
    of April 4, 2007 among HCC Insurance Holdings, Inc.; Wells Fargo
    Bank, National Association; Citibank, N.A.; Wachovia Bank,
    National Association; Royal Bank of Scotland; Amegy Bank,
    National Association and The Bank of New York.(I)10
.2



First Amendment to Loan Agreement dated as of October 23, 2007
    by and among HCC Insurance Holdings, Inc. and Wells Fargo Bank,
    National Association; Citibank, N.A.; Wachovia Bank, National
    Association; Royal Bank of Scotland; Amegy Bank, National
    Association; The Bank of New York; Key Bank National
    Association; Bank of America, N.A.; and Deutsche Bank AG New
    York Branch.(J)10
.3



$152,000,000 Standby Letter of Credit Facility dated November
    24, 2009 by and between HCC Insurance Holdings, Inc. and the
    Royal Bank of Scotland plc and Barclays Bank plc.(K)10
.4



HCC Insurance Holdings, Inc. 2008 Flexible Incentive Plan.(L)10
.5



Form of Restricted Stock Award Agreement under the HCC Insurance
    Holdings, Inc. 2008 Flexible Incentive Plan.(L)10
.6



Form of Nonqualified Stock Option Agreement under the HCC
    Insurance Holdings, Inc. 2008 Flexible Incentive Plan.(L)10
.7



Form of Restricted Stock Unit Award Agreement under the HCC
    Insurance Holdings, Inc. 2008 Flexible Incentive Plan.(M)10
.8



HCC Insurance Holdings, Inc. 2007 Incentive Compensation Plan.(N)10
.9



Amended and Restated Employment Agreement effective January 1,
    2007, between HCC Insurance Holdings, Inc. and Frank J. Bramanti.(O)10
.10



Separation Agreement between Frank J. Bramanti and HCC Insurance
    Holdings, Inc., effective May 5, 2009.(P)10
.11



Employment Agreement effective March 1, 2007, between HCC
    Insurance Holdings, Inc. and John N. Molbeck, Jr.(Q)10
.12



Employment Agreement between John N. Molbeck, Jr. and HCC
    Insurance Holdings, Inc., effective May 5, 2009.(P)10
.13



Employment Agreement effective March 1, 2007, between HCC
    Insurance Holdings, Inc. and Craig J. Kelbel.(Q)10
.14



First Amendment to Employment Agreement of Craig J. Kelbel
    effective as of September 1, 2009. 85




---



##### Table of Contents



ExhibitNumber(P)10
.15



Employment Agreement effective June 1, 2007, between HCC
    Insurance Holdings, Inc. and Michael J. Schell.(N)10
.16



First Amendment to Employment Agreement effective December 31,
    2008, between HCC Insurance Holdings, Inc. and Michael J. Schell.(P)10
.17



Employment Agreement effective March 1, 2007, between HCC
    Insurance Holdings, Inc. and Edward H. Ellis, Jr.(R)10
.18



Consulting Agreement effective as of January 1, 2010 by and
    between HCCS Corporation dba HCC Service Company and Edward H.
    Ellis, Jr.(S)10
.19



Amended and Restated Employment Agreement effective September 1,
    2008, between HCC Insurance Holdings, Inc. and Cory L. Moulton.(R)10
.20



Amended and Restated Employment Agreement dated effective as of
    November 30, 2009, by and between HCC Insurance Holdings, Inc.
    and Cory L. Moulton.(T)10
.21



Employment Agreement between William T. Whamond and HCC
    Insurance Holdings, Inc., effective May 1, 2009.(U)10
.22



Service Agreement effective as of January 1, 2006, between HCC
    Service Company Limited (UK) Branch and Barry J. Cook.(V)10
.23



HCC Insurance Holdings, Inc. Nonqualified Deferred Compensation
    Plan for Frank J. Bramanti.(V)10
.24



HCC Insurance Holdings, Inc. Nonqualified Deferred Compensation
    Plan for John N. Molbeck, Jr.(W)10
.25



HCC Insurance Holdings, Inc. Nonqualified Deferred Compensation
    Plan for John N. Molbeck, Jr., effective May 5, 2009.(W)10
.26



Form of Amendment to Non-Employee Director Stock Option
    Agreement dated effective as of May 21, 2009.(W)10
.27



Amendment to Stock Option Agreements dated effective as of May
    20, 2009, by and between HCC Insurance Holdings, Inc. and Frank
    J. Bramanti.10
.28



Form of Restricted Stock Award Agreement under the HCC Insurance
    Holdings, Inc. 2008 Flexible Incentive Plan (service shares).10
.29



Form of Restricted Stock Award Agreement under the HCC Insurance
    Holdings, Inc. 2008 Flexible Incentive Plan (performance shares).10
.30



Form of Restricted Stock Award Agreement (US) under the HCC
    Insurance Holdings, Inc. 2008 Flexible Incentive Plan.10
.31



Form of Restricted Stock Unit Award Agreement under the HCC
    Insurance Holdings, Inc. 2008 Flexible Incentive Plan.12




Statement Regarding Computation of Ratios.21




Subsidiaries of HCC Insurance Holdings, Inc.23




Consent of Independent Registered Public Accounting Firm 
    PricewaterhouseCoopers LLP dated March 1, 2010.24




Powers of Attorney.31
.1



Certification by Chief Executive Officer.31
.2



Certification by Chief Financial Officer.32
.1



Certification with respect to Annual Report of HCC Insurance
    Holdings, Inc.     (A)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s Registration Statement on Form
    S-8
    (Registration
    No. 333-61687)
    filed August 17, 1998.(B)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated March 30, 2008.(C)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s Registration Statement on Form
    S-1
    (Registration
    No. 33-48737)
    filed October 27, 1992. 86




---



##### Table of Contents



(D)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated August 19, 2001.(E)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated March 25, 2003.(F)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated December 22, 2004.(G)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated November 10, 2009.(H)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated April 4, 2007.(I)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated October 24, 2007.(J)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    November 24, 2009.(K)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s Registration Statement on Form
    S-8
    (Registration
    No. 33-152897)
    filed August 8, 2008.(L)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 10-Q
    for the Quarter Ended September 30, 2008.(M)
    
    Incorporated by reference to the Appendix of HCC Insurance
    Holdings, Inc.s Definitive Proxy Statement for the
    May 10, 2007 Annual Meeting of Shareholders filed
    April 13, 2007.(N)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated December 19, 2008.(O)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated May 5, 2009.(P)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated August 10, 2007.(Q)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated August 25, 2009.(R)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated November 18, 2009.(S)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 10-K
    for the Year Ended December 31, 2008.(T)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated April 27, 2009.(U)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 10-Q
    for the Quarter Ended March 31, 2007.(V)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated August 30, 2007.(W)
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated May 20, 2009. 87




---



##### Table of Contents



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
  Report of Independent Registered Public
    Accounting Firm


F-1Consolidated Balance Sheets at December 31,
    2009 and 2008


F-2Consolidated Statements of Earnings for the three
    years ended December 31, 2009


F-3Consolidated Statements of Comprehensive Income
    for the three years ended December 31, 2009


F-4Consolidated Statements of Changes in
    Shareholders Equity for the three years ended
    December 31, 2009


F-5Consolidated Statements of Cash Flows for the
    three years ended December 31, 2009


F-6Notes to Consolidated Financial Statements


F-7Schedules:Schedule 1  Summary of
    Investments other than Investments in Related Parties


S-1Schedule 2  Condensed Financial
    Information of Registrant


S-2Schedule 3  Supplementary
    Insurance Information


S-6Schedule 4  Reinsurance


S-7Schedule 5  Valuation and
    Qualifying Accounts


S-8    88




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     Internal Control 
    Integrated Framework
  other-than-temporary
      PricewaterhouseCoopers
    LLP
  
 F-1




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED
    BALANCE SHEETS
    (in thousands, except per share data)  December 31,2009


2008ASSETSInvestments:Fixed income securities  available for sale, at fair
    value (amortized cost: 2009  $4,381,762;
    2008  $4,118,539)

$
4,538,073


$
4,133,165Fixed income securities  held to maturity, at
    amortized cost (fair value: 2009  $104,008;
    2008  $125,561)


102,792



123,553Short-term investments, at cost, which approximates fair value


810,673



497,477Other investments


4,691



50,088Total investments


5,456,229



4,804,283Cash


129,460



27,347Restricted cash and cash investments


146,133



174,905Premium, claims and other receivables


600,332



770,823Reinsurance recoverables


1,016,411



1,054,950Ceded unearned premium


270,436



234,375Ceded life and annuity benefits


61,313



64,235Deferred policy acquisition costs


208,463



188,652Goodwill


822,006



858,849Other assets


123,608



153,581Total assets

$
8,834,391


$
8,332,000LIABILITIESLoss and loss adjustment expense payable

$
3,492,309


$
3,415,230Life and annuity policy benefits


61,313



64,235Reinsurance balances payable


182,661



122,189Unearned premium


1,044,747



977,426Deferred ceding commissions


71,595



63,123Premium and claims payable


154,596



405,287Notes payable


298,483



343,649Accounts payable and accrued liabilities


497,504



300,838Total liabilities


5,803,208



5,691,977SHAREHOLDERS EQUITYCommon stock, $1.00 par value; 250,000 shares
    authorized (shares issued: 2009  118,724 and
    2008  116,457; outstanding: 2009  114,051
    and 2008  113,444)


118,724



116,457Additional paid-in capital


914,339



881,534Retained earnings


1,977,254



1,677,831Accumulated other comprehensive income


119,665



27,536Treasury stock, at cost (shares: 2009  4,673 and
    2008  3,013)


(98,799
)


(63,335
)Total shareholders equity


3,031,183



2,640,023Total liabilities and shareholders equity

$
8,834,391


$
8,332,000    F-2




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##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF EARNINGS
    (in thousands, except per share data)  Years Ended December 31,2009


2008


2007REVENUENet earned premium

$
2,037,235


$
2,007,774


$
1,985,086Fee and commission income


103,690



125,201



140,092Net investment income


191,965



164,751



206,462Other operating income


34,391



9,638



43,545Net realized investment gain (loss)


12,076



(16,808
)


13,188Other-than-temporary
    impairment loss:Total loss


(6,443
)


(11,133
)


Portion recognized in other comprehensive income


1,014







Net loss recognized in earnings


(5,429
)


(11,133
)


Total revenue


2,373,928



2,279,423



2,388,373EXPENSELoss and loss adjustment expense, net


1,215,759



1,211,873



1,183,947Policy acquisition costs, net


363,966



381,441



366,610Other operating expense


259,488



233,509



241,642Interest expense


16,164



20,362



16,270Total expense


1,855,377



1,847,185



1,808,469Earnings before income tax expense


518,551



432,238



579,904Income tax expense


164,683



130,118



188,351Net earnings

$
353,868


$
302,120


$
391,553Earnings per common share:Basic

$
3.14


$
2.63


$
3.47Diluted

$
3.11


$
2.61


$
3.35    F-3




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##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)  Years Ended December 31,2009


2008


2007Net earnings

$
353,868


$
302,120


$
391,553Other comprehensive income (loss):Investment gains (losses):Investment gains (losses) during year


147,166



(37,290
)


41,880Income tax charge (benefit)


53,909



(14,985
)


14,416Investment gains (losses), net of tax


93,257



(22,305
)


27,464Less reclassification adjustments for:Gains (losses) included in net earnings


5,483



(19,828
)


37,461Income tax charge (benefit)


1,920



(6,940
)


13,111Gains (losses) included in net earnings, net of tax


3,563



(12,888
)


24,350Net investment gains (losses)


89,694



(9,417
)


3,114Cash flow hedge gain (loss)


8,031



(5,543
)


(2,488
)Income tax charge (benefit)


2,811



(1,940
)


(871
)Cash flow hedge gain (loss), net of tax


5,220



(3,603
)


(1,617
)Foreign currency translation adjustment


5,190



(10,425
)


13,276Income tax charge (benefit)


3,674



(3,099
)


863Foreign currency translation adjustment, net of tax


1,516



(7,326
)


12,413Other comprehensive income (loss)


96,430



(20,346
)


13,910Comprehensive income

$
450,298


$
281,774


$
405,463    F-4




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

Years
    ended December 31, 2009, 2008 and 2007

(in thousands, except per share data)  AccumulatedAdditional





Other





TotalCommon


Paid-in


Retained


Comprehensive


Treasury


ShareholdersStock


Capital


Earnings


Income


Stock


EquityBalance at December 31, 2006

$
111,731


$
817,880


$
1,086,426


$
33,972


$



$
2,050,009Cumulative effect of accounting change (uncertain tax positions)










(678
)










(678
)Net earnings










391,553











391,553Other comprehensive income














13,910







13,910Issuance of 1,101 shares for exercise of options, including
    tax effect


1,101



23,432















24,533Issuance of 2,215 shares for debt conversion


2,215



(2,215
)














Stock-based compensation


22



11,989















12,011Cash dividends declared, $0.42 per share










(47,643
)










(47,643
)Balance at December 31, 2007


115,069



851,086



1,429,658



47,882







2,443,695Net earnings










302,120











302,120Other comprehensive loss














(20,346
)






(20,346
)Issuance of 1,011 shares for exercise of options, including
    tax effect


1,011



17,187















18,198Purchase of 3,013 common shares


















(63,335
)


(63,335
)Stock-based compensation


377



13,261















13,638Cash dividends declared, $0.47 per share










(53,947
)










(53,947
)Balance at December 31, 2008


116,457



881,534



1,677,831



27,536



(63,335
)


2,640,023Cumulative effect of accounting change
    (other-than-temporary
    impairments in investments)










4,301



(4,301
)






Net earnings










353,868











353,868Other comprehensive income














96,430







96,430Issuance of 993 shares for exercise of options, including
    tax effect


993



18,205















19,198Purchase of 1,660 common shares


















(35,464
)


(35,464
)Issuance of 1,040 shares for debt conversion


1,040



(1,040
)














Stock-based compensation


234



15,640















15,874Cash dividends declared, $0.52 per share










(58,746
)










(58,746
)Balance at December 31, 2009

$
118,724


$
914,339


$
1,977,254


$
119,665


$
(98,799
)

$
3,031,183    F-5




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF CASH FLOWS

(in thousands)  Years Ended December 31,2009


2008


2007Operating activities:Net earnings

$
353,868


$
302,120


$
391,553Adjustments to reconcile net earnings to cash provided by
    operating activities:Change in premium, claims and other receivables


23,432



46,985



97,304Change in reinsurance recoverables


42,521



(98,354
)


213,353Change in ceded unearned premium


(34,107
)


10,309



(18,436
)Change in loss and loss adjustment expense payable


22,439



188,264



129,203Change in reinsurance balances payable


60,057



(8,014
)


7,002Change in unearned premium


48,366



33,526



21,498Change in premium and claims payable, net of restricted cash


(98,675
)


(80,219
)


(164,977
)Change in accounts payable and accrued liabilities


96,040



(53,079
)


38,351Change in trading securities






49,091



9,362Stock-based compensation expense


15,628



13,638



12,011Depreciation and amortization expense


16,221



14,308



15,982(Gain) loss on investments


(3,518
)


49,549



(58,736
)Other, net


40,525



37,844



32,966Cash provided by operating activities


582,797



505,968



726,436Investing activities:Sales of available for sale fixed income securities


551,760



583,211



438,057Maturity or call of available for sale fixed income securities


347,794



323,998



302,876Maturity or call of held to maturity fixed income securities


86,364







Cost of available for sale fixed income securities acquired


(1,159,796
)


(1,527,664
)


(1,377,205
)Cost of held to maturity fixed income securities acquired


(59,754
)


(44,592
)


Cost of other investments acquired






(36,751
)


(545
)Change in short-term investments


(297,016
)


294,248



(72,279
)Proceeds from sales of strategic and other investments


114,940



77,097



46,612Payments for purchase of businesses, net of cash received


(38,018
)


(103,153
)


(65,112
)Proceeds from sales of assets of business and subsidiary


50,557







Other, net


(16,581
)


(7,996
)


(9,741
)Cash used by investing activities


(419,750
)


(441,602
)


(737,337
)Financing activities:Issuance of notes payable


296,096







Advances on line of credit


130,000



181,000



232,000Payments on line of credit and convertible notes


(410,242
)


(161,000
)


(205,763
)Sale of common stock


19,198



18,198



24,533Purchase of common stock


(35,464
)


(63,335
)


Dividends paid


(57,437
)


(52,453
)


(46,158
)Other, net


(3,085
)


1,436



(2,866
)Cash provided (used) by financing activities


(60,934
)


(76,154
)


1,746Net increase (decrease) in cash


102,113



(11,788
)


(9,155
)Cash at beginning of year


27,347



39,135



48,290Cash at end of year

$
129,460


$
27,347


$
39,135    F-6




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS

(tables
    in thousands, except per share data)  (1)
    General
    Information and Significant Accounting and Reporting
    Policies        Basis
    of Presentation
     F-7




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  Net
    Earned Premium, Policy Acquisition Costs and Ceding
    Commissions
      Fee
    and Commission Income
      Premium,
    Claims and Other Receivables
    Loss
    and Loss Adjustment Expense Payable
   F-8




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    Reinsurance
      Cash
    and Short-term Investments
      Restricted
    Cash and Cash Investments
    Investments
   F-9




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
              Other-than-temporary
    Impairments
  other-than-temporary other-than-temporary
  
    amount by which the securitys fair value is less than its
    cost,
    length of time the security has been impaired,
    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,
    whether the impairment is due to an issuer-specific event,
    credit issues or change in market interest rates,
    the securitys credit rating and any recent downgrades, and
    stress testing of expected cash flows under various scenarios. F-10




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
   other-than-temporary
  other-than-temporary
  Derivative
    Financial Instruments
        Strategic
    Investments and Other Operating Income
   F-11




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  Goodwill
    and Intangible Assets
          Foreign
    Currency
         F-12




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  Income
    Taxes
      Stock-Based
    Compensation
    Earnings
    Per Share
   F-13




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  Accounting
    Guidance Adopted in 2009
  Codification
    Convertible
    Debt
  14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion (Including Partial Cash
    Settlement), Debt Form 8-K
  Fair
    Value Measurements
  FAS 157-2, Effective Date of FASB Statement No. 157 Fair Value
    Measurement and Disclosure
  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; FAS 107-1 28-1, Interim Disclosures about Fair Value of Financial
    Instruments; FAS 115-2 FAS 124-2, Recognition and Presentation of
    Other-than-temporary
    Impairments, Fair Value Measurements
    and Disclosures Investments Debt and Equity Securities other-than-temporary
 F-14




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  Earnings
    per Share
  EITF 03-6-1, Determining Whether Instruments Granted in Share-Based
    Payment Transactions are Participating Securities Earnings Per Share 260-10-45-59A, Participating Securities and the Two-Class Method
  Business
    Combinations
  Business
    Combinations Business Combinations
  Consolidation
  Noncontrolling Interests in
    Consolidated Financial Statements an amendment of
    Accounting Research Bulletin No. 51 Consolidation
  Derivatives
  Disclosures about Derivative
    Instruments and Hedging Activities  an amendment of
    FASB Statement No. 133, Derivatives and Hedging
  Recent
    Accounting Guidance
  Amendments to FASB Interpretation
    No. 46(R) Consolidation
 F-15




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
   (2)
    Fair
    Value Measurements    
    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.           F-16




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    Level 1


Level 2


Level 3


TotalDecember 31, 2009Fixed income securities

$
178,927


$
4,354,884


$
4,262


$
4,538,073Other investments


14











14Other assets










432



432Total assets measured at fair value

$
178,941


$
4,354,884


$
4,694


$
4,538,519Accounts payable and accrued liabilities

$



$
(2,367
)

$



$
(2,367
)Total liabilities measured at fair value

$



$
(2,367
)

$



$
(2,367
)December 31, 2008Fixed income securities

$
87,678


$
4,038,972


$
6,515


$
4,133,165Other investments


16











16Other assets






1,125



16,100



17,225Total assets measured at fair value

$
87,694


$
4,040,097


$
22,615


$
4,150,406Accounts payable and accrued liabilities

$



$
(8,031
)

$



$
(8,031
)Total liabilities measured at fair value

$



$
(8,031
)

$



$
(8,031
)     FixedIncome


Other


OtherSecurities


Investments


Assets


TotalBalance at December 31, 2007

$
7,623


$
5,492


$
16,804


$
29,919Net redemptions


(242
)


(5,261
)






(5,503
)Losses  realized






(299
)






(299
)Other-than-temporary
    impairment losses  realized


(2,575
)










(2,575
)Gains and (losses)  unrealized


(566
)


68



(704
)


(1,202
)Transfers into Level 3


10,728











10,728Transfers out of Level 3


(8,453
)










(8,453
)Balance at December 31, 2008


6,515







16,100



22,615Net redemptions


(2,039
)






(20,264
)


(22,303
)Gains and (losses)  realized


30











30Gains and (losses)  unrealized


1,502







4,596



6,098Transfers into Level 3


6,263











6,263Transfers out of Level 3


(8,009
)










(8,009
)Balance at December 31, 2009

$
4,262


$



$
432


$
4,694    F-17




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    (3)
    Investments    Cost or


Gross


GrossAmortized


Unrealized


Unrealized


FairCost


Gain


Loss


ValueDecember 31, 2009U.S. government and government agency securities

$
308,618


$
6,255


$
(1,326
)

$
313,547Fixed income securities of states, municipalities and political
    subdivisions


1,012,262



49,491



(2,327
)


1,059,426Special purpose revenue bonds of states, municipalities and
    political subdivisions


1,101,566



46,551



(1,783
)


1,146,334Corporate fixed income securities


537,347



22,594



(117
)


559,824Residential mortgage-backed securities


915,203



35,130



(6,151
)


944,182Commercial mortgage-backed securities


151,357



630



(5,770
)


146,217Asset-backed securities


15,118



445



(1,198
)


14,365Foreign government securities


219,985



7,914



(218
)


227,681Foreign non-government securities


120,306



6,191







126,497Total available for sale fixed income securities

$
4,381,762


$
175,201


$
(18,890
)

$
4,538,073December 31, 2008U.S. government and government agency securities

$
196,856


$
9,447


$
(15
)

$
206,288Fixed income securities of states, municipalities and political
    subdivisions


1,082,855



23,948



(14,900
)


1,091,903Special purpose revenue bonds of states, municipalities and
    political subdivisions


899,466



16,249



(16,083
)


899,632Corporate fixed income securities


517,794



5,308



(11,464
)


511,638Residential mortgage-backed securities


796,522



40,229



(13,673
)


823,078Commercial mortgage-backed securities


179,479



42



(27,685
)


151,836Asset-backed securities


72,646



78



(6,772
)


65,952Foreign government securities


230,829



7,699



(431
)


238,097Foreign non-government securities


142,092



2,877



(228
)


144,741Total available for sale fixed income securities

$
4,118,539


$
105,877


$
(91,251
)

$
4,133,165  F-18




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
   Amortized


FairCost


ValueDecember 31, 2009U.S. government securities

$
14,988


$
15,257Foreign government securities


80,210



81,066Foreign non-government securities


7,594



7,685Total held to maturity fixed income securities

$
102,792


$
104,008December 31, 2008U.S. government securities

$
21,319


$
21,823Foreign government securities


95,268



96,661Foreign non-government securities


6,966



7,077Total held to maturity fixed income securities

$
123,553


$
125,561     Less than 12 Months


12 Months or More


TotalUnrealized





Unrealized





UnrealizedFair Value


Losses


Fair Value


Losses


Fair Value


LossesDecember 31, 2009U.S. government and government agency securities

$
101,542


$
(1,326
)

$



$



$
101,542


$
(1,326
)Fixed income securities of states, municipalities and political
    subdivisions


48,836



(985
)


19,816



(1,342
)


68,652



(2,327
)Special purpose revenue bonds of states, municipalities and
    political subdivisions


76,305



(1,305
)


25,261



(478
)


101,566



(1,783
)Corporate fixed income securities


13,773



(117
)










13,773



(117
)Residential mortgage-backed securities


147,621



(2,018
)


40,568



(4,133
)


188,189



(6,151
)Commercial mortgage-backed securities


30,209



(418
)


73,451



(5,352
)


103,660



(5,770
)Asset-backed securities


2,476



(246
)


7,532



(952
)


10,008



(1,198
)Foreign government securities


4,153



(130
)


8,593



(88
)


12,746



(218
)Total

$
424,915


$
(6,545
)

$
175,221


$
(12,345
)

$
600,136


$
(18,890
)December 31, 2008U.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
)  F-19




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  other-than-temporary Other-than-temporary
  other-than-temporary other-than-temporary other-than-temporary
  other-than-temporary
  other-than-temporary
  other-than-temporary other-than-temporary other-than-temporary other-than-temporary
  2009


2008


2007Total
    other-than-temporary
    impairment loss

$
(6,443
)

$
(11,133
)

$
Portion recognized in other comprehensive income


1,014







Net
    other-than-temporary
    impairment loss recognized in earnings

$
(5,429
)

$
(11,133
)

$
   other-than-temporary
 F-20




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  other-than-temporary other-than-temporary
  Balance at March 31, 2009

$
Credit losses included in retained earnings related to adoption
    of new accounting standard


2,723Credit losses recognized in earnings:Securities previously impaired


350Securities not previously impaired


775Balance at December 31, 2009

$
3,848   other-than-temporary other-than-temporary
    2009


2008


2007Available for sale fixed income securities

$
141,685


$
(10,412
)

$
26,663Strategic and other investments


(2
)


(7,050
)


(22,244
)Net unrealized investment gains (losses)

$
141,683


$
(17,462
)

$
4,419  F-21




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    Available for SaleCost or





Held to MaturityAmortized





AmortizedCost


Fair Value


Cost


Fair ValueDue in 1 year or less

$
277,943


$
281,641


$
27,692


$
27,750Due after 1 year through 5 years


1,103,086



1,155,971



67,789



68,117Due after 5 years through 10 years


800,382



836,177



7,311



8,141Due after 10 years through 15 years


574,001



595,711







Due after 15 years


544,672



563,809







Securities with fixed maturities


3,300,084



3,433,309



102,792



104,008Asset-backed and mortgage-backed securities


1,081,678



1,104,764







Total fixed income securities

$
4,381,762


$
4,538,073


$
102,792


$
104,008       2009


2008


2007Fixed income securities

$
189,450


$
174,710


$
150,594Short-term investments


3,230



20,931



37,979Other


3,086



(26,949
)


23,715Total investment income


195,766



168,692



212,288Investment expense


(3,801
)


(3,941
)


(5,826
)Net investment income

$
191,965


$
164,751


$
206,462  F-22




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  other-than-temporary
  Gains


Losses


NetYear ended December 31, 2009Fixed income securities

$
13,969


$
(2,451
)

$
11,518Other investments


719



(161
)


558Realized gain (loss)

$
14,688


$
(2,612
)

$
12,076Year ended December 31, 2008Fixed income securities

$
12,088


$
(20,127
)

$
(8,039
)Other investments


663



(9,433
)


(8,769
)Realized gain (loss)

$
12,751


$
(29,560
)

$
(16,808
)Year ended December 31, 2007Fixed income securities

$
14,728


$
(1,266
)

$
13,462Other investments


305



(579
)


(274
)Realized gain (loss)

$
15,033


$
(1,845
)

$
13,188    F-23




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
   (4)
    Acquisitions,
    Dispositions and Goodwill  Acquisitions
    Total CashConsideration

GoodwillNumber of

through

Recognized through

Tax DeductibleAcquisitions

December 31, 2009

December 31, 2009

Goodwill2009


One


$
11.4


$
5.6


$
2008


Five



73.3



60.9



52.22007


Two



16.3



4.8



         Dispositions
   F-24




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    Goodwill
      Insurance





OtherCompany


Agency


Operations


TotalBalance at December 31, 2007

$
563,984


$
211,739


$
323


$
776,046Additions:Acquisitions


36,207



22,243







58,450Earnouts


20,225



5,336







25,561Transfer and other


26,111



(27,319
)






(1,208
)Balance at December 31, 2008


646,527



211,999



323



858,849Additions:Acquisitions


7,481



891







8,372Earnouts


14,972



2,483







17,455Dispositions






(59,974
)






(59,974
)Transfer and other


19,244



(21,940
)






(2,696
)Balance at December 31, 2009

$
688,224


$
133,459


$
323


$
822,006  F-25




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
   (5)
    Reinsurance      Loss and LossWritten


Earned


AdjustmentPremium


Premium


ExpenseYear ended December 31, 2009Direct business

$
2,308,667


$
2,265,500


$
1,335,571Reinsurance assumed


251,124



250,133



153,325Reinsurance ceded


(513,502
)


(478,398
)


(273,137
)Net amounts

$
2,046,289


$
2,037,235


$
1,215,759Year ended December 31, 2008Direct business

$
2,156,613


$
2,091,212


$
1,327,932Reinsurance assumed


342,150



363,389



307,562Reinsurance ceded


(438,145
)


(446,827
)


(423,621
)Net amounts

$
2,060,618


$
2,007,774


$
1,211,873Year ended December 31, 2007Direct business

$
2,000,552


$
2,001,329


$
1,119,384Reinsurance assumed


450,627



433,951



233,026Reinsurance ceded


(465,570
)


(450,194
)


(168,463
)Net amounts

$
1,985,609


$
1,985,086


$
1,183,947       2009


2008Reinsurance recoverable on paid losses

$
82,887


$
64,419Reinsurance recoverable on outstanding losses


495,964



535,563Reinsurance recoverable on incurred but not reported losses


440,505



463,396Reserve for uncollectible reinsurance


(2,945
)


(8,428
)Total reinsurance recoverables

$
1,016,411


$
1,054,950  F-26




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    Total

Total

NetReinsurer

Rating

Location

Recoverables

Credits

RecoverablesDecember 31, 2009Transatlantic Reinsurance Company


A


New York


$129,240



$21,749



$107,491Hannover Rueckversicherungs AG


A


Germany


106,028



25,281



80,207ACE Property & Casualty Insurance Co.


A+


Pennsylvania


67,620



9,948



57,672Swiss Reinsurance America Corporation


A


New York


57,705



8,951



48,754Arch Reinsurance Company


A


Bermuda


48,461



9,170



39,291Axis Reinsurance Company


A


New York


50,698



13,305



37,393Harco National Insurance Company


A-


Illinois


33,756



865



32,891December 31, 2008Hannover Rueckversicherungs AG


A


Germany


$98,037



$20,090



$77,947Transatlantic Reinsurance Company


A


New York


88,549



21,122



67,427Swiss Reinsurance America Corporation


A+


New York


56,377



6,827



49,550Harco National Insurance Company


A-


Illinois


48,201



354



47,847ACE Property & Casualty Insurance Co.


A+


Pennsylvania


50,927



3,521



47,406Arch Reinsurance Company


A


Bermuda


42,354



4,919



37,435    F-27




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    2009


2008Payables to reinsurers

$
246,415


$
252,198Letters of credit


183,040



184,314Cash deposits


98,101



110,153Total credits

$
527,556


$
546,665     2009


2008Loss and loss adjustment expense payable

$
3,492,309


$
3,415,230Reinsurance recoverable on outstanding losses


(495,964
)


(535,563
)Reinsurance recoverable on incurred but not reported losses


(440,505
)


(463,396
)Net reserves

$
2,555,840


$
2,416,271Unearned premium

$
1,044,747


$
977,426Ceded unearned premium


(270,436
)


(234,375
)Net unearned premium

$
774,311


$
743,051Deferred policy acquisition costs

$
208,463


$
188,652Deferred ceding commissions


(71,595
)


(63,123
)Net deferred policy acquisition costs

$
136,868


$
125,529    F-28




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
   (6)
    Liability
    for Unpaid Loss and Loss Adjustment Expense    2009


2008


2007Reserves for loss and loss adjustment expense payable at
    beginning of year

$
3,415,230


$
3,227,080


$
3,097,051Less reinsurance recoverables on reserves


998,959



884,280



988,090Net reserves at beginning of year


2,416,271



2,342,800



2,108,961Net reserve addition from acquired businesses


36,522



29,053



742Foreign currency adjustment


25,067



(82,677
)


27,304Incurred loss and loss adjustment expense:Provision for loss and loss adjustment expense for claims
    occurring in current year


1,269,283



1,294,244



1,210,344Decrease in estimated loss and loss adjustment expense for
    claims occurring in prior years


(53,524
)


(82,371
)


(26,397
)Incurred loss and loss adjustment expense


1,215,759



1,211,873



1,183,947Loss and loss adjustment expense payments for claims occurring
    during:Current year


519,080



397,103



422,058Prior years


618,699



687,675



556,096Loss and loss adjustment expense payments


1,137,779



1,084,778



978,154Net reserves at end of year


2,555,840



2,416,271



2,342,800Plus reinsurance recoverables on reserves


936,469



998,959



884,280Reserves for loss and loss adjustment expense at end of
    year

$
3,492,309


$
3,415,230


$
3,227,080    F-29




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  not-for-profit
    (7)
    Notes
    Payable    2009


20086.30% Senior Notes

$
298,483


$
1.30% Convertible Notes






123,649$575.0 million Revolving Loan Facility






220,000Total notes payable

$
298,483


$
343,649     Senior
    Notes
    Convertible
    Notes
   F-30




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  ten-day
    Revolving
    Loan Facility
  30-day 30-day
  30-day
  Standby
    Letter of Credit Facility
    Subsidiary
    Letters of Credit
   F-31




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
   (8)
    Income
    Taxes      2009


2008


2007Statutory tax rate


35.0
%


35.0
%


35.0
%Federal tax at statutory rate

$
181,493


$
151,283


$
202,966Nontaxable municipal bond interest and dividends received
    deduction


(24,109
)


(22,614
)


(18,215
)Non-deductible expenses


447



456



1,233State income taxes, net of federal tax benefit


4,107



1,553



3,855Foreign income taxes


32,319



31,036



37,406Foreign tax credit


(32,310
)


(30,868
)


(37,396
)Uncertain tax positions (net of federal tax benefit on state
    positions: $88 in 2009, $303 in 2008 and $232 in 2007)


(1,704
)


(1,647
)


(1,561
)Other, net


4,440



919



63Income tax expense

$
164,683


$
130,118


$
188,351Effective tax rate


31.8
%


30.1
%


32.5
%     2009


2008


2007Federal current

$
125,126


$
107,193


$
113,950Federal deferred


5,704



(8,550
)


32,858Total federal


130,830



98,643



146,808State current


3,001



2,948



2,795State deferred


2,511



(559
)


3,135Total state


5,512



2,389



5,930Foreign current


27,996



30,556



38,043Foreign deferred


2,137



480



(637
)Total foreign


30,133



31,036



37,406Uncertain tax positions


(1,792
)


(1,950
)


(1,793
)Income tax expense

$
164,683


$
130,118


$
188,351  F-32




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    2009


2008Excess of financial statement unearned premium over tax

$
22,482


$
18,705Discounting of loss reserves, net of salvage and subrogation


63,092



60,758Excess of financial statement accrued expenses over tax


10,626



15,187Allowance for bad debts, not deductible for tax


7,060



10,172Stock-based compensation expense in excess of deduction for tax


11,336



9,457Federal tax net operating loss carryforwards


3,978



214State tax net operating loss carryforwards


2,292



3,053Federal benefit of state uncertain tax positions


264



352Valuation allowance


(6,119
)


(4,698
)Total deferred tax assets


115,011



113,200Unrealized gain on increase in value of securities


55,712



13,811Deferred policy acquisition costs, net of ceding commissions,
    deductible for tax


21,658



21,073Amortizable goodwill for tax


64,221



50,184Book basis in net assets of foreign subsidiaries in excess of tax


11,867



10,499Property and equipment depreciation and other items


9,430



2,999Total deferred tax liabilities


162,888



98,566Net deferred tax asset (liability)

$
(47,877
)

$
14,634     2009


2008


2007Balance at beginning of year

$
4,698


$
6,521


$
7,822Net operating loss carryforwards


1,472



892



(1,240
)State tax rates






(1,603
)


Acquisitions






(1,108
)


Other


(51
)


(4
)


(61
)Balance at end of year

$
6,119


$
4,698


$
6,521    F-33




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    2009


2008


2007Balance at beginning of year

$
5,002


$
7,622


$
9,869Gross increases:Tax positions of current year


670



597



953Tax positions of prior years


664



188



248Acquisitions










72Gross decreases:Statute expirations


(1,630
)


(352
)


(1,468
)Settlements


(766
)


(2,383
)


(1,327
)Tax positions of prior years


(119
)


(670
)


(305
)Acquisitions










(183
)Other










(237
)Balance at end of year

$
3,821


$
5,002


$
7,622       (9)
    Shareholders
    Equity  Treasury
    Stock
   F-34




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  Other
    Comprehensive Income
    AccumulatedUnrealized


Cash Flow


Foreign


OtherInvestment


Hedge


Currency


ComprehensiveGains


Loss


Translation


IncomeBalance at December 31, 2006

$
18,018


$



$
15,954


$
33,972Other comprehensive income  2007


3,114



(1,617
)


12,413



13,910Balance at December 31, 2007


21,132



(1,617
)


28,367



47,882Other comprehensive income  2008


(9,417
)


(3,603
)


(7,326
)


(20,346
)Balance at December 31, 2008


11,715



(5,220
)


21,041



27,536Other comprehensive income  2009


89,694



5,220



1,516



96,430Cumulative effect of accounting change
    (other-than-temporary
    impairments in investments)


(4,301
)










(4,301
)Balance at December 31, 2009

$
97,108


$



$
22,557


$
119,665   Dividends
    (10)
    Earnings
    Per Share    2009


2008


2007Net earnings

$
353,868


$
302,120


$
391,553Less net earnings attributable to unvested restricted stock and
    restricted stock units


(1,928
)


(449
)


Net earnings available to common stock

$
351,940


$
301,671


$
391,553Weighted-average common shares outstanding


112,200



114,848



112,873Dilutive effect of outstanding options (determined using
    treasury stock method)


312



333



760Dilutive effect of convertible debt (determined using treasury
    stock method)


546



282



3,364Weighted-average common shares and potential common shares
    outstanding


113,058



115,463



116,997Anti-dilutive stock options not included in treasury stock
    method computation


5,376



6,080



4,714  F-35




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
   (11)
    Stock-Based
    Compensation      Common
    Stock Grants
      Stock
    Options
  weighted-average
  2009

2008

2007Fair value of options granted

$
5.89


$
4.15


$
6.59Risk free interest rate


2.0
%


2.6
%


4.4
%Expected volatility


34.9
%


24.9
%


21.0
%Expected dividend yield


2.0
%


1.9
%


1.3
%Expected option life


3.5 years



3.8 years



4.3 years  F-36




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    Weighted-

Weighted-Average

Average

AggregateNumber

Exercise

Contractual

Intrinsicof Shares

Price

Life

ValueOutstanding, beginning of year


8,249


$
26.41Granted


550



25.10Exercised


(993
)


20.18Forfeited and expired


(978
)


28.63Outstanding, end of year


6,828



26.89



2.5 years


$
16,572Vested or expected to vest, end of year


6,529



26.90



2.5 years



15,836Exercisable, end of year


4,095



26.82



1.8 years



10,652       Restricted
    Stock
    Weighted-

Weighted-Average

Average

AggregateNumber

Grant Date

Contractual

Intrinsicof Shares

Fair Value

Life

ValueRestricted Stock AwardsOutstanding, beginning of year


344


$
23.48Awarded


164



23.97Forfeited


(4
)


23.43Outstanding, end of year


504



23.66



2.7 years


$
14,097Vested or expected to vest, end of year


423



23.66



2.7 years



11,837Restricted Stock UnitsOutstanding, beginning of year


133


$
23.74Awarded


43



25.42Outstanding, end of year


176



24.15



2.7 years


$
4,928Expected to vest, end of year


139



24.15



2.7 years



3,882  F-37




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    (12)
    Segment
    and Geographic Data       F-38




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    Insurance





OtherCompany


Agency


Operations


Corporate


TotalYear ended December 31, 2009Revenue:Domestic

$
1,859,124


$
51,934


$
6,216


$
4,169


$
1,921,443Foreign


430,830



21,655











452,485Inter-segment






108,507



1,106







109,613Total segment revenue

$
2,289,954


$
182,096


$
7,322


$
4,169



2,483,541Inter-segment eliminations


















(109,613
)Consolidated total revenue

















$
2,373,928Net earnings (loss):Domestic

$
287,676


$
16,694


$
2,372


$
(30,747
)

$
275,995Foreign


74,827



4,319











79,146Total segment net earnings (loss)

$
362,503


$
21,013


$
2,372


$
(30,747
)


355,141Inter-segment eliminations


















(1,273
)Consolidated net earnings

















$
353,868Other items:Net investment income

$
187,921


$
572


$
15


$
3,457


$
191,965Depreciation and amortization


5,277



7,892



88



2,964



16,221Interest expense (benefit)


1,050



14,131



(13
)


996



16,164Capital expenditures


3,812



7,056



24



5,689



16,581Income tax expense (benefit)

$
158,837


$
13,594


$
1,304


$
(8,355
)

$
165,380Inter-segment eliminations


















(697
)Consolidated income tax expense

















$
164,683     F-39




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  Insurance





OtherCompany


Agency


Operations


Corporate


TotalYear ended December 31, 2008Revenue:Domestic

$
1,805,989


$
51,020


$
6,017


$
808


$
1,863,834Foreign


383,476



32,113











415,589Inter-segment






105,311



1,309







106,620Total segment revenue

$
2,189,465


$
188,444


$
7,326


$
808



2,386,043Inter-segment eliminations


















(106,620
)Consolidated total revenue

















$
2,279,423Net earnings (loss):Domestic

$
236,939


$
24,307


$
2,178


$
(24,500
)

$
238,924Foreign


64,782



4,062











68,844Total segment net earnings (loss)

$
301,721


$
28,369


$
2,178


$
(24,500
)


307,768Inter-segment eliminations


















(5,648
)Consolidated net earnings

















$
302,120Other items:Net investment income

$
159,452


$
4,529


$
55


$
715


$
164,751Depreciation and amortization


4,711



6,719



119



2,759



14,308Interest expense (benefit)


1,174



15,590



(103
)


3,701



20,362Capital expenditures


2,652



6,978



127



2,903



12,660Income tax expense (benefit)

$
123,000


$
17,664


$
(310
)

$
(6,572
)

$
133,782Inter-segment eliminations


















(3,664
)Consolidated income tax expense

















$
130,118     F-40




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  Insurance





OtherCompany


Agency


Operations


Corporate


TotalYear ended December 31, 2007Revenue:Domestic

$
1,849,620


$
62,246


$
38,904


$
4,553


$
1,955,323Foreign


395,495



37,555











433,050Inter-segment






78,836











78,836Total segment revenue

$
2,245,115


$
178,637


$
38,904


$
4,553



2,467,209Inter-segment eliminations


















(78,836
)Consolidated total revenue

















$
2,388,373Net earnings (loss):Domestic

$
277,331


$
29,043


$
22,801


$
(24,044
)

$
305,131Foreign


80,502



4,810











85,312Total segment net earnings (loss)

$
357,833


$
33,853


$
22,801


$
(24,044
)


390,443Inter-segment eliminations


















1,110Consolidated net earnings

















$
391,553Other items:Net investment income

$
192,486


$
9,520


$
2,498


$
1,958


$
206,462Depreciation and amortization


4,921



8,030



219



2,812



15,982Interest expense (benefit)


1,579



11,606



(51
)


3,136



16,270Capital expenditures


5,462



3,416



412



2,780



12,070Income tax expense (benefit)

$
162,058


$
25,853


$
13,211


$
(13,621
)

$
187,501Inter-segment eliminations


















850Consolidated income tax expense

















$
188,351    F-41




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    2009


2008


2007Diversified financial productsDirectors and officers

$
371,650


$
312,135


$
326,099Errors and omissions


234,768



227,667



223,580Other professional liability


39,123



31,753



30,202U.S. surety and credit


182,627



167,914



141,957International surety and credit


68,162



66,135



55,576896,330



805,604



777,414Group life, accident and healthMedical stop-loss


633,572



616,900



607,980Other medical


134,161



121,865



110,593Other


29,887



38,503



39,943797,620



777,268



758,516Aviation


129,626



139,838



153,121London market accountEnergy


49,116



57,262



59,249Other


54,043



49,595



65,360103,159



106,857



124,609Other specialty linesPublic risk


39,986



25,600



17,414HCC Lloyds


40,273



62,126



56,032Other


30,114



85,723



98,378110,373



173,449



171,824Discontinued lines


127



4,758



(398
)Net earned premium

$
2,037,235


$
2,007,774


$
1,985,086Property and casualty

$
84,458


$
105,137


$
121,307Accident and health


19,232



20,064



18,785Fee and commission income

$
103,690


$
125,201


$
140,092  F-42




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
    Insurance





OtherCompany


Agency


Operations


Corporate


TotalDecember 31, 2009Domestic

$
5,969,694


$
564,331


$
5,525


$
228,925


$
6,768,475Foreign


2,013,348



52,568











2,065,916Total assets

$
7,983,042


$
616,899


$
5,525


$
228,925


$
8,834,391December 31, 2008Domestic

$
5,486,898


$
402,093


$
24,715


$
278,366


$
6,192,072Foreign


1,803,872



336,056











2,139,928Total assets

$
7,290,770


$
738,149


$
24,715


$
278,366


$
8,332,000   (13)
    Commitments
    and Contingencies  Litigation
    Catastrophe
    Exposure
    Indemnifications
   F-43




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
  Terrorist
    Exposure
    Leases
      2010

$
14,0892011


12,5782012


10,1232013


8,2322014


7,457Thereafter


16,693Total future minimum rental payments

$
69,172   (14)
    Related
    Party Transactions     F-44




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (tables
    in thousands, except per share data)
   (15)
    Statutory
    Information      2009

2008

2007Statutory policyholders surplus

$
2,103,892


$
1,852,684


$
1,744,889Statutory net income


389,037



308,717



365,308   risk-based
  (16)
    Supplemental
    Information    2009

2008

2007Cash received from (paid for) commutations

$
(43,925
)

$
7,500


$
101,040Income taxes paid


157,203



154,415



146,829Interest paid


12,108



14,611



8,618Dividends declared but not paid at year end


15,461



14,152



12,658     (17)
    Quarterly
    Financial Data (Unaudited)  Fourth Quarter

Third Quarter

Second Quarter

First Quarter2009

2008

2009

2008

2009

2008

2009

2008Total revenue

$
590,253


$
551,866


$
601,801


$
566,319


$
581,136


$
593,850


$
600,738


$
567,388Net earnings

$
84,792


$
71,599


$
94,321


$
58,391


$
91,585


$
91,675


$
83,170


$
80,455Earnings per shareBasic

$
0.75


$
0.63


$
0.84


$
0.51


$
0.81


$
0.79


$
0.73


$
0.70Diluted


0.74



0.63



0.83



0.50



0.81



0.79



0.73



0.69Weighted-average shares outstandingBasic


112,335



113,895



111,892



114,812



111,776



115,457



112,799



115,232Diluted


113,401



114,093



112,946



115,411



112,520



116,040



113,289



116,369    F-45




---



##### Table of Contents



SCHEDULE 1
 HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
    SUMMARY OF INVESTMENTS
    OTHER THAN INVESTMENTS IN RELATED PARTIES
    (in thousands)  December 31, 2009Column DAmountColumn A

Column B


Column C


Shown inType of Investment

Cost


Value


Balance SheetAvailable for sale fixed maturitiesBonds  United States government and government
    agencies and authorities

$
308,618


$
313,547


$
313,547Bonds  states, municipalities and political
    subdivisions


1,012,262



1,059,426



1,059,426Bonds  special revenue


1,101,566



1,146,334



1,146,334Bonds  corporate


537,347



559,824



559,824Asset-backed and mortgage-backed securities


1,081,678



1,104,764



1,104,764Bonds  foreign


340,291



354,178



354,178Total available for sale fixed maturities


4,381,762



4,538,073



4,538,073Held to maturity fixed maturitiesBonds  United States government and government
    agencies and authorities


14,988



15,257



14,988Bonds  foreign


87,804



88,751



87,804Total held to maturity fixed maturities


102,792



104,008



102,792Total fixed maturities


4,484,554


$
4,642,081



4,640,865Equity securitiesCommon stocks  industrial and miscellaneous


16



14



14Total equity securities


16


$
14



14Short-term investments


810,673







810,673Other investments


4,677







4,677Total investments

$
5,299,920






$
5,456,229  S-1




---



##### Table of Contents



SCHEDULE 2
 HCC
    INSURANCE HOLDINGS, INC.
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
    BALANCE SHEETS
    (in thousands)  December 31,2009


2008ASSETSCash

$
72,813


$
101Short-term investments


17,031



12,164Investment in subsidiaries


3,087,571



2,734,112Intercompany loans to subsidiaries for acquisitions


251,789



297,735Receivable from subsidiaries


87,816



40,520Other assets


6,368



7,244Total assets

$
3,523,388


$
3,091,876LIABILITIES AND SHAREHOLDERS EQUITYPayable to subsidiaries

$
39,993


$
37,443Notes payable


298,483



343,649Deferred Federal income tax


40,915



17,973Accounts payable and accrued liabilities


112,814



52,788Total liabilities


492,205



451,853Total shareholders equity


3,031,183



2,640,023Total liabilities and shareholders equity

$
3,523,388


$
3,091,876    S-2




---



##### Table of Contents



SCHEDULE 2
  HCC
    INSURANCE HOLDINGS, INC.
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
    STATEMENTS OF EARNINGS
    (in thousands)
  Years Ended December 31,2009


2008


2007REVENUEEquity in earnings of subsidiaries

$
380,870


$
308,227


$
401,973Interest income from subsidiaries


13,281



13,328



9,345Net investment income


56



626



1,794Other operating income (loss)


253



10,006



(103
)Total revenue


394,460



332,187



413,009EXPENSEInterest expense


15,186



19,413



14,916Other operating expense


10,908



6,358



12,060Total expense


26,094



25,771



26,976Earnings before income tax expense


368,366



306,416



386,033Income tax expense (benefit)


14,498



4,296



(5,520
)Net earnings

$
353,868


$
302,120


$
391,553    S-3




---



##### Table of Contents



SCHEDULE 2
  HCC
    INSURANCE HOLDINGS, INC.
  CONDENSED
    FINANCIAL INFORMATION OF REGISTRANT
 STATEMENTS
    OF CASH FLOWS
 (in thousands)
  Years Ended December 31,2009


2008


2007Operating Activities:Net earnings

$
353,868


$
302,120


$
391,553Adjustments to reconcile net earnings to net cash provided by
    operating activities:Undistributed net income of subsidiaries


(245,104
)


(168,834
)


(371,873
)Change in accrued interest receivable added to intercompany loan
    balances


(13,306
)


(13,328
)


(9,345
)Change in accounts payable and accrued liabilities


1,303



(28,268
)


18,812Other, net


13,560



21,630



(5,378
)Cash provided by operating activities


110,321



113,320



23,769Investing Activities:Cash contributions to subsidiaries


(7,000
)






(227
)Payments for purchase of businesses, net of cash received






(15,500
)


(12,021
)Change in short-term investments


(4,867
)


24,315



(16,587
)Cost of securities acquired










(912
)Proceeds from sale of strategic investment






22,382



Change in receivable/payable from subsidiaries


859



(3,102
)


Intercompany loans to subsidiaries for acquisitions


(23,098
)


(88,409
)


(52,257
)Payments on intercompany loans to subsidiaries


54,346



24,245



52,570Cash provided (used) by investing activities


20,240



(36,069
)


(29,434
)Financing Activities:Issuance of notes payable


296,096







Advances on line of credit


130,000



181,000



232,000Payments on line of credit and convertible notes


(410,242
)


(161,000
)


(204,437
)Sale of common stock


19,198



18,198



24,533Purchase of common stock


(35,464
)


(63,335
)


Dividends paid


(57,437
)


(52,453
)


(46,158
)Cash provided (used) by financing activities


(57,849
)


(77,590
)


5,938Net increase (decrease) in cash


72,712



(339
)


273Cash at beginning of year


101



440



167Cash at end of year

$
72,813


$
101


$
440    S-4




---



##### Table of Contents



SCHEDULE 2
  HCC
    INSURANCE HOLDINGS, INC.
  CONDENSED
    FINANCIAL INFORMATION OF REGISTRANT
 NOTES TO
    CONDENSED FINANCIAL INFORMATION
       S-5




---



##### Table of Contents



SCHEDULE 3
 HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES



SUPPLEMENTARY
    INSURANCE INFORMATION

(in
    thousands)   Column A

Column B


Column C


Column D


Column F


Column G


Column H


Column I


Column J


Column K(1)


(1)





(2)








(3)December 31,


Years Ended December 31,FuturePolicy











Benefits,Benefits,











Claims,


AmortizationDeferred


Losses,











Losses


of DeferredPolicy


Claims








Net


and


Policy


OtherAcquisition


and Loss


Unearned


Premium


Investment


Settlement


Acquisition


Operating


PremiumSegments

Costs


Expenses


Premiums


Revenue


Income


Expenses


Costs


Expenses


Written2009Insurance Company

$
136,868


$
3,553,622


$
1,044,747


$
2,037,235


$
187,921


$
1,215,759


$
363,966


$
126,620


$
2,046,289Agency


















572











84,651Other Operations


















15











3,719Corporate


















3,457











44,498Total

$
136,868


$
3,553,662


$
1,044,747


$
2,037,235


$
191,965


$
1,215,759


$
363,966


$
259,488


$
2,046,2892008Insurance Company

$
125,529


$
3,479,465


$
977,426


$
2,007,774


$
159,452


$
1,211,873


$
381,441


$
115,737


$
2,060,618Agency


















4,529











85,286Other Operations


















55











5,161Corporate


















715











27,325Total

$
125,529


$
3,479,465


$
977,426


$
2,007,774


$
164,751


$
1,211,873


$
381,441


$
233,509


$
2,060,6182007Insurance Company

$
123,805


$
3,293,279


$
943,946


$
1,985,086


$
192,487


$
1,183,947


$
366,610


$
127,942


$
1,985,609Agency


















9,520











73,518Other Operations


















2,497











3,032Corporate


















1,958











37,150Total

$
123,805


$
3,293,279


$
943,946


$
1,985,086


$
206,462


$
1,183,947


$
366,610


$
241,642


$
1,985,609     (1)
    
    Columns C and D are shown ignoring the effects of reinsurance.(2)
    
    Net investment income was allocated to the subsidiary, and
    therefore the segment, on which the related investment asset was
    recorded.(3)
    
    Other operating expenses is after all corporate expense
    allocations have been charged or credited to the individual
    segments.   S-6




---



##### Table of Contents



SCHEDULE 4
 HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDAIRIES



REINSURANCE

(in
    thousands)   Column A

Column B


Column C


Column D


Column E


Column FAssumed from





Percent ofCeded to Other


Other





AmountDirect Amount


Companies


Companies


Net Amount


Assumed to NetYear ended December 31, 2009Life insurance in force

$
1,270,969


$
346,985


$



$
923,984




%Earned premiumProperty and liability insurance

$
1,490,910


$
428,968


$
153,846


$
1,215,788



13
%Accident and health insurance


774,590



49,430



96,287



821,447



12
%Total

$
2,265,500


$
478,398


$
250,133


$
2,037,235



12
%Year ended December 31, 2008Life insurance in force

$
1,348,357


$
370,205


$



$
978,152




%Earned premiumProperty and liability insurance

$
1,344,569


$
405,049


$
271,433


$
1,210,953



22
%Accident and health insurance


746,643



41,778



91,956



796,821



12
%Total

$
2,091,212


$
446,827


$
363,389


$
2,007,774



18
%Year ended December 31, 2007Life insurance in force

$
1,267,547


$
417,479


$



$
850,068




%Earned premiumProperty and liability insurance

$
1,329,889


$
415,699


$
291,592


$
1,205,782



24
%Accident and health insurance


671,440



34,495



142,359



779,304



18
%Total

$
2,001,329


$
450,194


$
433,951


$
1,985,086



22
%  S-7




---



##### Table of Contents



SCHEDULE 5
 HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES  VALUATION
    AND QUALIFYING ACCOUNTS
    (in thousands)
  2009


2008


2007Reserve for uncollectible reinsuranceBalance at beginning of year

$
8,427


$
8,530


$
14,883Provision charged (credited) to expense


(4,552
)






2,231Amounts written off


(930
)


(103
)


(8,584
)Balance at end of year

$
2,945


$
8,427


$
8,530Allowance for doubtful accountsBalance at beginning of year

$
5,380


$
6,387


$
6,514Provision charged to expense


902



770



1,124Sale of subsidiary


(806
)






Amounts written off and other


(1,196
)


(1,777
)


(1,251
)Balance at end of year

$
4,280


$
5,380


$
6,387  S-8