##### 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, 2007   Commission file number 001-13790
      HCC Insurance Holdings,
    Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware(State or other jurisdiction
    of
    incorporation or organization)

76-0336636(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-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated filer
    þ

Accelerated filer
    oNon-accelerated filer
    o
    (Do not check if a smaller reporting company)

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




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##### 





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

Business


4ITEM 1A.

Risk Factors


28ITEM 1B.

Unresolved Staff Comments


35ITEM 2.

Properties


35ITEM 3.

Legal Proceedings


36ITEM 4.

Submission of Matters to a Vote of Security
    Holders


37PART II.ITEM 5.

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


38ITEM 6.

Selected Financial Data


40ITEM 7.

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


42ITEM 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


68ITEM 8.

Financial Statements and Supplementary Data


69ITEM 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosures


69ITEM 9A.

Controls and Procedures


69ITEM 9B.

Other Information


70PART III.ITEM 10.

Directors, Executive Officers and Corporate
    Governance


71ITEM 11.

Executive  Compensation


71ITEM 12.

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


71ITEM 13.

Certain Relationships and Related Transactions
    and Director Independence


71ITEM 14.

Principal Accountant Fees and Services


71PART IV.ITEM 15.

Exhibits and Financial Statement Schedules


72SIGNATURES


73Statement Regarding Computation of RatiosSubsidiariesConsent of PricewaterhouseCoopers LLPPowers of AttorneyCertification by Chief Executive OfficerCertification by Chief Financial OfficerCertification    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.
 2




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##### Table of Contents



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 effects of emerging claim and coverage issues;
    the effects of extensive governmental regulation of the
    insurance industry;
    potential credit risk with brokers;
    our assessment of underwriting risk;
    our increased retention of risk, which could expose us to
    greater potential losses;
    the adequacy of reinsurance protection;
    the ability or willingness of reinsurers to pay balances due
    us;
    the occurrence of terrorist activities;
    our ability to maintain our competitive position;
    changes in our assigned financial strength ratings;
    our ability to raise capital in the future;
    attraction and retention of qualified employees;
    fluctuations in the fixed income securities market, which may
    reduce the value of our investment assets;
    our ability to successfully expand our business through the
    acquisition of insurance-related companies;
    impairment of goodwill;
    the ability of our insurance company subsidiaries to pay
    dividends in needed amounts;
    fluctuations in foreign exchange rates;
    failures of our information technology systems;
    developments in the SECs inquiry related to our stock
    option granting procedures; and
    change of control.  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.
 3




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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   4




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##### Table of Contents



Our
    Strategy
         5




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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;
    limit our insurance companies aggregate net loss exposure
    from a catastrophic loss through 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 other strategic investments.  Industry
    Segment and Geographic Information
    Acquisitions
     6




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##### Table of Contents



7




---



##### Table of Contents



Insurance
    Company Operations
  Lines
    of Business
    2007


2006


2005Diversified financial products

$
963,355



39
%

$
956,057



43
%

$
908,526



45
%Group life, accident and health


798,684



33



621,639



28



593,382



29Aviation


195,809



8



216,208



10



210,530



10London market account


213,716



9



234,868



10



144,425



7Other specialty lines


280,040



11



205,651



9



176,139



9Discontinued lines of business


(425
)






1,225







5,284



Total gross written premium

$
2,451,179



100
%

$
2,235,648



100
%

$
2,038,286



100
%     2007


2006


2005Diversified financial products

$
771,648



39
%

$
794,232



44
%

$
675,942



45
%Group life, accident and health


759,207



38



590,811



33



502,805



34Aviation


145,761



7



166,258



9



130,743



9London market account


118,241



6



127,748



7



78,809



5Other specialty lines


191,151



10



133,481



7



109,106



7Discontinued lines of business


(399
)






22







3,819



Total net written premium

$
1,985,609



100
%

$
1,812,552



100
%

$
1,501,224



100
%     2007


2006


2005Diversified financial products


80
%


83
%


74
%Group life, accident and health


95



95



85Aviation


74



77



62London market account


55



54



55Other specialty lines


68



65



62Consolidated percentage retained


81
%


81
%


74
%   Underwriting
   8




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##### Table of Contents



Diversified
    Financial Products
     directors and officers liability

 surety and credit employment practices liability

 various financial products professional indemnity         Group
    Life, Accident and Health
       9




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##### Table of Contents



Aviation
     antique and vintage military aircraft

 fixed base operations cargo operators

 military and law enforcement aircraft commuter airlines

 private aircraft owners corporate aircraft

 rotor wing aircraft       London
    Market Account
    2007


2006


2005Marine

$
30,685


$
26,664


$
23,799Energy


45,962



57,619



15,621Property


19,856



18,049



18,379Accident and health


21,738



25,416



21,010Total London market account net written premium

$
118,241


$
127,748


$
78,809    10




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##### Table of Contents



 drilling rigs

 petrochemical plants gas production and gathering platforms

 pipelines natural gas facilities

 refineries        factories

 office buildings hotels

 retail locations industrial plants

 utilities         Other
    Specialty Lines
   11




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##### Table of Contents



Insurance
    Companies
  Houston
    Casualty Company
    Houston
    Casualty Company-London
    HCC
    International Insurance Company
    U.S.
    Specialty Insurance Company
    HCC
    Life Insurance Company
    Avemco
    Insurance Company
    American
    Contractors Indemnity Company
   12




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##### Table of Contents



HCC
    Europe
    HCC
    Reinsurance Company
    HCC
    Specialty Insurance Company
    United
    States Surety Company
    Perico
    Life Insurance Company
    HCC
    Insurance Company
    Lloyds
    of London Syndicates
   13




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##### Table of Contents



Underwriting
    Agency Operations
      Professional
    Indemnity Agency
    HCC
    Specialty Underwriters
    HCC
    Global Financial Products
    Covenant
    Underwriters
    HCC
    Indemnity Guaranty Agency
   14




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##### Table of Contents



HCC
    Underwriting Agency, Ltd. (UK)
    MultiNational
    Underwriters, LLC
    Reinsurance
    and Insurance Broker Operations
    Rattner
    Mackenzie
    Continental
    Underwriters
    HCC
    Risk Management
    Other
    Operations
    
    Equity in the earnings of mainly insurance-related companies in
    which we invest;
    Dividends and interest from certain other insurance-related
    strategic investments and gains or losses from the disposition
    of these investments;
    Income related to two mortgage impairment insurance contracts
    which, while written as insurance policies, receive accounting
    treatment as derivative financial instruments; 15




---



##### Table of Contents




    The profit or loss from a portfolio of trading securities; and
    Other miscellaneous income.    Operating
    Ratios
  Premium
    to Surplus Ratio
    2007


2006


2005


2004


2003Gross written premium

$
2,460,498


$
2,243,843


$
2,049,116


$
1,992,361


$
1,746,413Net written premium


1,985,641



1,812,896



1,495,931



1,121,343



867,795Policyholders surplus


1,744,889



1,342,054



1,110,268



844,851



591,889Gross written premium ratio


141.0
%


167.2
%


184.6
%


235.8
%


295.1
%Gross written premium industry average(1)


*



171.0
%


192.7
%


201.6
%


219.3
%Net written premium ratio


113.8
%


135.1
%


134.7
%


132.7
%


146.6
%Net written premium industry average(1)


*



90.4
%


99.8
%


108.5
%


117.4
%     (1)
    
    Source: A.M. Best Company, Inc.*
    
    Not available    Combined
    Ratio  GAAP
    2007


2006


2005


2004


2003Loss ratio


59.6
%


59.2
%


67.1
%


63.8
%


66.1
%Expense ratio


23.8



25.0



26.1



26.7



24.6Combined ratio  GAAP


83.4
%


84.2
%


93.2
%


90.5
%


90.7
%  16




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##### Table of Contents



Combined
    Ratio  Statutory
    2007


2006


2005


2004


2003Loss ratio


60.6
%


60.0
%


67.1
%


64.3
%


66.8
%Expense ratio


23.9



24.0



25.5



26.7



23.0Combined ratio  Statutory


84.5
%


84.0
%


92.6
%


91.0
%


89.8
%Industry average


*



92.5
%


100.7
%


98.3
%


100.1
%     *
    
    Not available    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; and
    An assessment of current market conditions.   17




---



##### Table of Contents



re-estimated
 18




---



##### Table of Contents






2007


2006


2005


2004


2003


2002


2001


2000


1999


1998


1997Balance sheet reserves

$
3,227,080


$
3,097,051


$
2,813,720


$
2,089,199


$
1,525,313


$
1,158,915


$
1,132,258


$
944,117


$
871,104


$
460,511


$
275,008Reserve adjustments from acquisition and disposition of
    subsidiaries






















5,587







(66,571
)


(32,437
)


(136
)


Adjusted reserves


3,227,080



3,097,051



2,813,720



2,089,199



1,525,313



1,164,502



1,132,258



877,546



838,667



460,375



275,008Cumulative paid at:One year later






797,217



689,126



511,766



396,077



418,809



390,232



400,279



424,379



229,746



160,324Two years later










1,077,954



780,130



587,349



548,941



612,129



537,354



561,246



367,512



209,724Three years later














993,655



772,095



659,568



726,805



667,326



611,239



419,209



241,523Four years later


















866,025



823,760



803,152



720,656



686,730



435,625



259,067Five years later






















886,458



921,920



758,126



721,011



453,691



262,838Six years later


























1,009,049



835,994



725,639



462,565



267,038Seven years later






























924,803



752,733



462,126



270,362Eight years later


































817,615



464,748



268,939Nine years later






































474,358



269,751Ten years later










































275,708Re-estimated liability at:End of year


3,227,080



3,097,051



2,813,720



2,089,199



1,525,313



1,164,502



1,132,258



877,546



838,667



460,375



275,008One year later






3,006,430



2,810,419



2,118,471



1,641,426



1,287,003



1,109,098



922,080



836,775



550,409



308,501Two years later










2,698,947



2,112,303



1,666,931



1,393,143



1,241,261



925,922



868,438



545,955



316,250Three years later














2,025,133



1,690,729



1,464,448



1,384,608



1,099,657



854,987



547,179



304,281Four years later


















1,619,744



1,506,360



1,455,046



1,102,636



900,604



537,968



305,022Five years later






















1,453,674



1,480,193



1,135,143



887,272



522,183



295,975Six years later


























1,433,630



1,137,652



894,307



521,399



296,816Seven years later






























1,079,353



899,212



513,918



292,544Eight years later


































879,805



511,323



291,164Nine years later






































497,774



287,021Ten years later










































283,284Cumulative redundancy (deficiency)





$
90,621


$
114,773


$
64,066


$
(94,431
)

$
(289,172
)

$
(301,372
)

$
(201,807
)

$
(41,138
)

$
(37,399
)

$
(8,726
)  19




---



##### Table of Contents






    We recorded favorable development of $46.5 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.
    We recorded favorable development of $44.1 million on our
    other lines of business. Most of this was from the 2003 and 2004
    underwriting years in our diversified financial products line of
    business, which affected 2003 through 2005 accident years.    
    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 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 in the table were also adversely
    affected by late reporting loss information received during 2001
    for certain other discontinued business.   20




---



##### Table of Contents



2007


2006


2005Reserves for loss and loss adjustment expense payable at
    beginning of year

$
3,097,051


$
2,813,720


$
2,089,199Reserve additions from acquired businesses


826



146,811



19,236Incurred loss and loss adjustment expense:Provision for loss and loss adjustment expense for claims
    occurring in current year


1,443,031



1,222,139



1,567,501Increase (decrease) in estimated loss and loss adjustment
    expense for claims occurring in prior years*


(90,621
)


(3,301
)


29,272Incurred loss and loss adjustment expense


1,352,410



1,218,838



1,596,773Loss and loss adjustment expense payments for claims occurring
    during:Current year


425,990



393,192



379,722Prior years


797,217



689,126



511,766Loss and loss adjustment expense payments


1,223,207



1,082,318



891,488Reserves for loss and loss adjustment expense payable at end
    of year

$
3,227,080


$
3,097,051


$
2,813,720     *
    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.   21




---



##### Table of Contents






2007


2006


2005


2004


2003


2002


2001


2000


1999


1998


1997Reserves, net of reinsurance

$
2,342,800


$
2,108,961


$
1,533,433


$
1,059,283


$
705,200


$
458,702


$
313,097


$
249,872


$
273,606


$
118,912


$
119,634Reserve adjustments from acquisition (disposition) of
    subsidiaries






















5,587







(6,048
)


(3,343
)


(410
)


Effect on loss reserves of 1999 write off of reinsurance
    recoverables






































63,851



15,008Adjusted reserves, net of reinsurance


2,342,800



2,108,961



1,533,433



1,059,283



705,200



464,289



313,097



243,824



270,263



182,353



134,642Cumulative paid, net of reinsurance, at:One year later






556,096



222,336



172,224



141,677



115,669



126,019



102,244



145,993



56,052



48,775Two years later










420,816



195,663



135,623



152,674



131,244



139,659



174,534



103,580



64,213Three years later














337,330



124,522



115,214



163,808



118,894



185,744



113,762



80,227Four years later


















217,827



88,998



93,405



138,773



180,714



121,293



81,845Five years later






















155,708



59,936



158,935



197,416



120,452



84,986Six years later


























125,311



137,561



200,833



127,254



87,626Seven years later






























194,517



188,901



131,631



89,194Eight years later


































244,069



132,614



88,061Nine years later






































142,815



88,229Ten years later










































96,321Re-estimated liability, net of reinsurance, at:End of year


2,342,800



2,108,961



1,533,433



1,059,283



705,200



464,289



313,097



243,824



270,263



182,353



134,642One year later






2,082,564



1,526,907



1,084,677



735,678



487,403



306,318



233,111



260,678



186,967



120,049Two years later










1,500,414



1,083,955



770,497



500,897



338,194



222,330



254,373



175,339



116,745Three years later














1,077,972



792,099



571,403



366,819



259,160



244,650



171,165



110,673Four years later


















808,261



585,741



418,781



267,651



258,122



163,349



107,138Five years later






















613,406



453,537



296,396



254,579



155,931



103,243Six years later


























462,157



305,841



271,563



157,316



101,538Seven years later






























311,344



277,841



156,376



99,872Eight years later


































279,412



155,016



97,965Nine years later






































159,514



96,205Ten years later










































98,951Cumulative redundancy (deficiency)





$
26,397


$
33,019


$
(18,689
)

$
(103,061
)

$
(149,117
)

$
(149,060
)

$
(67,520
)

$
(9,149
)

$
22,839


$
35,691  22




---



##### Table of Contents






    Reserve reductions in 2007 from the 2003 and 2004 underwriting
    years in our diversified financial products line of business,
    which primarily affected the 2003 through 2005 accident years.
    Reserve reductions in 2006 on prior year 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.
    Reserve strengthening of $27.3 million in 2004 to bring net
    reserves above our actuarial point estimate.
    Collectively, these transactions primarily affected the 1999,
    2000 and 2001 accident years.    2007


2006


2005Net reserves for loss and loss adjustment expense payable at
    beginning of year

$
2,108,961


$
1,533,433


$
1,059,283Net reserve additions from acquired businesses


742



146,811



12,491Incurred loss and loss adjustment expense:Provision for loss and loss adjustment expense for claims
    occurring in current year


1,210,344



1,018,382



894,303Increase (decrease) in estimated loss and loss adjustment
    expense for claims occurring in prior years*


(26,397
)


(6,526
)


25,394Incurred loss and loss adjustment expense


1,183,947



1,011,856



919,697Loss and loss adjustment expense payments for claims occurring
    during:Current year


394,754



360,803



285,814Prior years


556,096



222,336



172,224Loss and loss adjustment expense payments


950,850



583,139



458,038Net reserves for loss and loss adjustment expense payable at
    end of year

$
2,342,800


$
2,108,961


$
1,533,433     *
    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.     23




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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;
    prescribing the form and content of records of financial
    condition required to be filed;
    requiring deposits for the benefit of policyholders;
    requiring certain methods of accounting;
    requiring reserves for unearned premium, losses and other
    purposes;
    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 24




---



##### Table of Contents




    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 and Reinsurance and Insurance Brokers
    
    advertising and business practice rules;
    contractual requirements;
    financial security;
    licensing as agents, brokers, reinsurance brokers, managing
    general agents or third party administrators;
    limitations on authority; and
    recordkeeping requirements. 25




---



##### Table of Contents



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 market 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
    Insurance
    Regulations Concerning Change of Control
   26




---



##### Table of Contents



Risk-Based
    Capital
    Insurance
    Regulatory Information System
    Terrorism
    Risk Insurance Act
      Legislative
    Initiatives
   27




---



##### Table of Contents



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.
   28




---



##### 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.
    The
    effects of emerging claim and coverage issues on our business
    are uncertain.
   29




---



##### Table of Contents



We are
    subject to extensive governmental regulation, which could
    adversely affect our business.
    Our
    reliance on brokers subjects us to their credit
    risk.
    Risks
    Relating to our Business
  Our
    inability to accurately assess underwriting risk could reduce
    our net earnings.
   30




---



##### Table of Contents



Our
    increased retentions in various lines of business expose us to a
    greater portion of 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 losses.
    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.
     31




---



##### Table of Contents



We may
    be unsuccessful in competing against larger or more
    well-established business rivals.
    If
    rating agencies downgrade our financial strength ratings, our
    business and competitive position in the industry may
    suffer.
    We may
    require additional capital 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.
   32




---



##### Table of Contents



We
    invest a significant amount of our assets in fixed income
    securities that have experienced market fluctuations, which may
    greatly reduce the value of our investment
    portfolio.
        Our
    strategy of acquiring other companies for growth may not
    succeed.
   33




---



##### 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.
      The
    SECs inquiry related to our stock option granting
    procedures is ongoing, and the scope and outcome could have a
    negative impact on the price of our securities and on our
    business.
   34




---



##### Table of Contents



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.
      Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties   35




---



##### Table of Contents



Subsidiary

Segment

Location

Sq. Ft.

Termination Date of LeaseHCC and Houston Casualty Company

Insurance Company
    and Corporate

Houston, Texas

51,000

OwnedHouston Casualty Company

Insurance Company

Houston, Texas

77,000

OwnedProfessional Indemnity Agency

Agency

Mount Kisco,
    New York

38,000

OwnedHCC Life Insurance Company

Insurance Company

Atlanta, Georgia

31,000

December 31, 2011U.S. Specialty Insurance Company Aviation Division

Insurance Company

Dallas, Texas

28,000

August 31, 2013HCC Specialty Underwriters

Agency

Wakefield,
    Massachusetts

28,000

December 31, 2010G. B. Kenrick & Associates, Inc.

Agency

Auburn Hills,
    Michigan

27,000

May 31, 2012HCC Surety Group

Insurance Company

Los Angeles,
    California

26,000

May 31, 2009Health Products Division

Insurance Company

Minneapolis,
    Minnesota

25,000

September 30, 2012HCC International and Rattner MacKenzie

Insurance Company
    and Agency

London, England

17,000

December 24, 2015   Form 10-K.
  Item 3.
    Legal
    Proceedings        Civil Action
    No. 07-456
    (Consolidated); Bacas and Halgren, derivatively on behalf of HCC
    Insurance Holdings, Inc. v. Way et al Bacas Bacas Halgren
 36




---



##### Table of Contents



Civil Action
    No. 07-0801;
    In re HCC Insurance Holdings, Inc. Securities Litigation; Bristol
    County Retirement System, individually and on behalf of all
    others similarly situated v. HCC Insurance Holdings, Inc.
    et al
      Item 4.
    Submission
    of Matters to a Vote of Security Holders   37




---



##### 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
      2007


2006High


Low


High


LowFirst quarter

$
32.89


$
29.39


$
34.89


$
29.25Second quarter


34.45



30.43



34.92



28.51Third quarter


34.21



25.12



33.99



28.82Fourth quarter


31.64



27.99



35.15



28.81     Shareholders
    Dividend
    Policy
    2007


2006First quarter

$
.100


$
.075Second quarter


.100



.100Third quarter


.110



.100Fourth quarter


.110



.100    38




---



##### Table of Contents



Performance
    Graph
    COMPARISON
    OF CUMULATIVE FIVE YEAR TOTAL RETURN
  
  Total
    Return to Shareholders
    (Includes reinvestment of dividends)
  Company/Index

2002


2003


2004


2005


2006


2007HCC Insurance Holdings, Inc.

$
100.00


$
130.52


$
137.30


$
186.94


$
204.49


$
185.32S&P Composite 1500 Index


100.00



129.59



144.85



153.04



176.51



186.17S&P Midcap 400 Index


100.00



135.62



157.97



177.81



196.16



211.81    39




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Years Ended December 31,2007


2006


2005


2004


2003(in thousands, except per share data)Statement of earnings data:RevenueNet earned premium

$
1,985,086


$
1,709,189


$
1,369,988


$
1,010,692


$
738,272Fee and commission income


140,092



137,131



132,628



183,802



142,615Net investment income


206,462



152,804



98,851



64,885



47,335Net realized investment gain (loss)


13,188



(841
)


1,448



5,822



527Other operating income


43,545



77,012



39,773



19,406



13,215Total revenue


2,388,373



2,075,295



1,642,688



1,284,607



941,964ExpenseLoss and loss adjustment expense, net


1,183,947



1,011,856



919,697



645,230



488,000Policy acquisition costs, net


366,610



319,885



261,708



222,323



137,212Other operating expense


241,642



222,324



180,990



168,045



144,574Interest expense


10,304



11,396



7,684



8,374



7,453Total expense


1,802,503



1,565,461



1,370,079



1,043,972



777,239Earnings from continuing operations before income tax expense


585,870



509,834



272,609



240,635



164,725Income tax expense on continuing operations


190,441



167,549



84,177



81,940



59,382Earnings from continuing operations


395,429



342,285



188,432



158,695



105,343Earnings from discontinued operations, net of income taxes(1)










2,760



4,004



36,684Net earnings

$
395,429


$
342,285


$
191,192


$
162,699


$
142,027Basic earnings per share data:Earnings from continuing operations

$
3.50


$
3.08


$
1.78


$
1.63


$
1.11Earnings from discontinued operations(1)










0.03



0.04



0.39Net earnings

$
3.50


$
3.08


$
1.81


$
1.67


$
1.50Weighted average shares outstanding


112,873



111,309



105,463



97,257



94,919Diluted earnings per share data:Earnings from continuing operations

$
3.38


$
2.93


$
1.72


$
1.61


$
1.09Earnings from discontinued operations(1)










0.03



0.04



0.38Net earnings

$
3.38


$
2.93


$
1.75


$
1.65


$
1.47Weighted average shares outstanding


116,997



116,736



109,437



98,826



96,576Cash dividends declared, per share

$
0.420


$
0.375


$
0.282


$
0.213


$
0.187   40




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##### Table of Contents



December 31,2007


2006


2005


2004


2003(in thousands, except per share data)Balance sheet data:Total investments

$
4,672,277


$
3,927,995


$
3,257,428


$
2,468,491


$
1,707,300Premium, claims and other receivables


763,401



864,705



884,654



891,360



934,252Reinsurance recoverables


956,665



1,169,934



1,361,983



1,104,026



900,775Ceded unearned premium


244,684



226,125



239,416



311,973



291,591Goodwill


776,046



742,677



532,947



444,031



388,023Total assets


8,074,645



7,630,132



7,028,800



5,900,568



4,883,345Loss and loss adjustment expense payable


3,227,080



3,097,051



2,813,720



2,089,199



1,525,313Unearned premium


943,946



920,350



807,109



741,706



592,311Premium and claims payable


497,974



646,224



753,859



766,765



784,038Notes payable


324,714



308,887



309,543



311,277



310,404Shareholders equity


2,440,365



2,042,803



1,690,435



1,325,498



1,046,405Book value per share(2)

$
21.21


$
18.28


$
15.26


$
12.99


$
10.91     (1)
    
    We sold our retail brokerage operation, HCC Employee Benefits,
    Inc., in 2003. The net earnings of HCC Employee Benefits, the
    2003 gain on sale and the subsequent gains in 2004 and 2005 from
    a contractual earnout are classified as discontinued operations.
    Consistent with this presentation, all pre-sale revenue and
    expense of HCC Employee Benefits was reclassified to
    discontinued operations.(2)
    
    Book value per share is calculated by dividing outstanding
    shares into total shareholders equity. 41




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
          
    Risk-bearing earned premium produced by our insurance company
    operations;
    Non-risk-bearing fee and commission income received by our
    underwriting agency and broker operations;
    Ceding commissions in excess of policy acquisition costs earned
    by our insurance company operations;
    Investment income earned by all of our operations; and
    Other operating income.     42




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##### Table of Contents



Company

Segment

Effective Date AcquiredUnited States Surety Company

Insurance Company

March 1, 2005HCC International Insurance Company

Insurance Company

July 1, 2005Perico Life Insurance Company

Insurance Company

November 30, 2005Perico Ltd.

Agency

December 1, 2005HCCL Holdings Limited (UK) (formerly Illium Insurance Group,
    Ltd.)

Agency

December 31, 2005G.B. Kenrick & Associates, Inc.

Agency

July 1, 2006Health Products Division (Allianz Life Insurance Company)

Insurance Company

October 2, 2006     Results
    of Operations
       43




---



##### Table of Contents



2007


2006


2005Net earned premium


83.1
%


82.3
%


83.4
%Fee and commission income


5.9



6.6



8.1Net investment income


8.6



7.4



6.0Net realized investment gain


0.6







0.1Other operating income


1.8



3.7



2.4Total revenue


100.0



100.0



100.0Loss and loss adjustment expense, net


49.6



48.8



56.0Policy acquisition costs, net


15.4



15.4



15.9Other operating expense


10.1



10.7



11.0Interest expense


0.4



0.5



0.5Earnings from continuing operations before income tax expense


24.5



24.6



16.6Income tax expense


7.9



8.1



5.1Earnings from continuing operations


16.6
%


16.5
%


11.5
%       2007


2006


2005Gross written premium

$
2,451,179


$
2,235,648


$
2,038,286Net written premium


1,985,609



1,812,552



1,501,224Net earned premium


1,985,086



1,709,189



1,369,988      2007


2006


2005Agencies

$
92,230


$
92,566


$
94,972Insurance companies


47,862



44,565



37,656Fee and commission income

$
140,092


$
137,131


$
132,628      2007


2006


2005Fixed income securities

$
150,594


$
112,878


$
77,842Short-term investments


37,764



30,921



21,208Other investments


23,930



14,178



3,615Total investment income


212,288



157,977



102,665Investment expense


(5,826
)


(5,173
)


(3,814
)Net investment income

$
206,462


$
152,804


$
98,851  44




---



##### Table of Contents



2007


2006


2005Strategic investments

$
27,627


$
43,627


$
10,241Trading securities


3,881



24,100



16,619Financial instruments


5,572



4,772



3,898Sale of non-operating assets


2,051







4,271Other


4,414



4,513



4,744Other operating income

$
43,545


$
77,012


$
39,773      45




---



##### Table of Contents



Share-Based Payment, Accounting for Stock Issued to Employees
     46




---



##### Table of Contents



Segments
    Insurance
    Company Segment
    Premium
      2007


2006


2005Amount


%


Amount


%


Amount


%Direct

$
2,000,552



82
%

$
1,867,908



84
%

$
1,768,284



87
%Reinsurance assumed


450,627



18



367,740



16



270,002



13Gross written premium


2,451,179



100



2,235,648



100



2,038,286



100Reinsurance ceded


(465,570
)


(19
)


(423,096
)


(19
)


(537,062
)


(26
)Net written premium


1,985,609



81



1,812,552



81



1,501,224



74Change in unearned premium


(523
)






(103,363
)


(5
)


(131,236
)


(7
)Net earned premium

$
1,985,086



81
%

$
1,709,189



76
%

$
1,369,988



67
%  47




---



##### Table of Contents



Gross





NWPWritten


Net Written


as% of


Net EarnedPremium


Premium


GWP


PremiumYear ended December 31, 2007Diversified financial products

$
963,355


$
771,648



80
%

$
777,414Group life, accident and health


798,684



759,207



95



758,516Aviation


195,809



145,761



74



153,121London market account


213,716



118,241



55



124,609Other specialty lines


280,040



191,151



68



171,824Discontinued lines


(425
)


(399
)


nm



(398
)Totals

$
2,451,179


$
1,985,609



81
%

$
1,985,086Year ended December 31, 2006Diversified financial products

$
956,057


$
794,232



83
%

$
728,861Group life, accident and health


621,639



590,811



95



591,070Aviation


216,208



166,258



77



152,886London market account


234,868



127,748



54



112,362Other specialty lines


205,651



133,481



65



123,981Discontinued lines


1,225



22



nm



29Totals

$
2,235,648


$
1,812,552



81
%

$
1,709,189Year ended December 31, 2005Diversified financial products

$
908,526


$
675,942



74
%

$
531,136Group life, accident and health


593,382



502,805



85



504,382Aviation


210,530



130,743



62



136,197London market account


144,425



78,809



55



93,017Other specialty lines


176,139



109,106



62



97,721Discontinued lines


5,284



3,819



nm



7,535Totals

$
2,038,286


$
1,501,224



74
%

$
1,369,988     nm
    
      Not meaningful comparison    
    Diversified financial products  The growth in our
    gross written premium in both years resulted primarily from
    organic growth in our surety and credit businesses, where
    pricing is stable and competition is reasonable. This was offset
    by a decline in our directors and officers liability
    business, as competition has resulted in less premium being
    written. Net written premium also declined in 2007 due to
    additional quota share reinsurance purchased for our
    international directors and officers liability
    insurance. Net earned premium for diversified financial products
    increased in both years due to the 2006 increase in net written
    premium.
    Group life, accident and health  Gross written, net
    written and net earned premium of our medical stop-loss and
    medical excess products increased due to the 2006 acquisition of
    the Health Products Division. We retain all of our medical
    stop-loss and medical excess business because the business is
    non-volatile and has very little catastrophe exposure. Profit
    margins remain at acceptable levels despite competition from the
    fully-insured market. 48




---



##### Table of Contents




    Aviation  Our domestic aviation business has been
    stable, while gross written premium of our international
    business has declined. We have exercised underwriting discipline
    and written less international business due to competition and
    the resultant pressure on pricing. However, margins on decreased
    premium volume are still acceptable. Net written premium
    increased $12.5 million in 2006 due to a portfolio transfer
    of in-force premium to a new reinsurance program with a higher
    retention and decreased $2.5 million in 2007 due to a
    portfolio transfer with a lower retention.
    London market account  Net written premium decreased
    slightly in 2007 due to competition increasing in this line of
    business. This followed a large increase in energy writings in
    2006 that resulted from significantly increased rates after the
    2005 hurricanes. We reduced our aggregate property exposure in
    Florida and other hurricane-exposed onshore areas in 2006, and
    we maintained the reduced exposure in 2007. Additionally, due to
    the tightening of policy terms and conditions, our energy
    catastrophe exposure was significantly reduced in 2006, even
    though our business increased, and continued at this reduced
    level in 2007. Net earned premium increased in both years due to
    the amount of energy business written in 2006.
    Other specialty lines  We experienced growth in our
    other specialty lines of business from expansion of our
    Lloyds of London syndicate participation, increased
    writings in several products, and a 2006 acquisition. The
    changing mix of products affected the retention percentages.
    Markets for these products are competitive and rates are down
    slightly.  Reinsurance
         49




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##### Table of Contents



Losses
    and Loss Adjustment Expenses
    2007


2006


2005Amount


Loss Ratio


Amount


Loss Ratio


Amount


Loss Ratio2005 hurricanes

$





%

$
12,670



0.6
%

$
394,625



19.9
%2004 hurricanes










(2,984
)


(0.2
)


(13,423
)


(0.7
)Discontinued accident and health adjustments


(46,531
)


(1.9
)


15,054



0.7



49,775



2.5Discontinued medical malpractice adjustments


11,568



0.5



2,353



0.1



821



Other reserve redundancies


(55,658
)


(2.3
)


(30,394
)


(1.4
)


(7,901
)


(0.4
)All other gross incurred loss and loss adjustment expense


1,443,031



59.2



1,222,139



56.9



1,172,876



59.0Gross incurred loss and loss expense adjustment

$
1,352,410



55.5
%

$
1,218,838



56.7
%

$
1,596,773



80.3
%      50




---



##### Table of Contents



2007


2006


2005Amount


Loss Ratio


Amount


Loss Ratio


Amount


Loss Ratio2005 hurricanes

$





%

$
(15,215
)


(0.9
)%

$
73,185



5.3
%2004 hurricanes










(2,483
)


(0.2
)


(7,167
)


(0.5
)Discontinued accident and health commutations


2,616



0.1



20,199



1.2



26,041



1.9Discontinued accident and health adjustments


376







4,898



0.3



8,929



0.7Discontinued medical malpractice adjustments


11,568



0.6



2,738



0.2



856



Other reserve redundancies


(40,957
)


(2.1
)


(16,663
)


(1.0
)


(3,265
)


(0.2
)All other net incurred loss and loss adjustment expense


1,210,344



61.0



1,018,382



59.6



821,118



59.9Net incurred loss and loss adjustment expense

$
1,183,947



59.6
%

$
1,011,856



59.2
%

$
919,697



67.1
%    51




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##### Table of Contents



2007


2006


2005Net


Net


Net


Net


Net


NetEarned


Loss


Earned


Loss


Earned


LossPremium


Ratio


Premium


Ratio


Premium


RatioDiversified financial products

$
777,414



40.6
%

$
728,861



48.2
%

$
531,136



48.1
%Group life, accident and health


758,516



76.4



591,070



73.1



504,382



71.6Aviation


153,121



58.6



152,886



53.8



136,197



67.3London market account


124,609



55.2



112,362



43.0



93,017



106.0Other specialty lines


171,824



67.4



123,981



56.0



97,721



72.6Discontinued lines


(398
)


nm



29



nm



7,535



nmTotals

$
1,985,086



59.6
%

$
1,709,189



59.2
%

$
1,369,988



67.1
%Expense ratio






23.8







25.0







26.1Combined ratio






83.4
%






84.2
%






93.2
%     nm
    
     Not meaningful comparison    
    Diversified financial products  The decrease in the
    2007 loss ratio was due to better underwriting results for
    certain business written in 2006 and earned in 2007, compared to
    business written in 2005 and earned in 2006, and favorable loss
    development on our directors and officers and
    international professional indemnity businesses, primarily on
    our 2003 and 2004 underwriting years. Additionally, our surety
    and credit businesses, which have lower loss ratios than other
    businesses in this line, are growing and reducing the overall
    loss ratio. Our domestic surety business also had favorable loss
    development during 2007.
    Group life, accident and health  The net loss ratio
    was higher on business acquired with the Health Products
    Division in 2006. Over time, as the acquired business is
    re-underwritten, we expect the loss ratio will decline. The net
    loss ratio was also higher than expected as more of our business
    is being written on a net of commission basis. While the net
    business increased our loss ratio (since the denominator is
    lower), it reduced our expense ratio such that our combined
    ratio and margin for this business remain relatively stable.
    Aviation  The 2005 hurricanes increased the net loss
    ratio by 5.0 percentage points in 2005. The 2005 net
    loss ratio also included a favorable impact from the release of
    redundant reserves related to 2004 hurricanes. Excluding the
    impact of the hurricanes, 2005 had worse than expected
    underwriting experience due to some unusually large
    international losses, while 2006 underwriting results were
    better than expected, due in part to the release of redundant
    reserves on the 2004 and 2005 accident years.
    London market account  The loss ratio in 2007 was
    slightly higher than expected due to adverse development in our
    London accident and health and energy businesses. The 2005
    hurricanes increased the 2005 net loss ratio by
    63.2 percentage points. Subsequent reduction of these
    reserves reduced the 2006 net loss ratio by
    9.1 percentage points. The 2006 net loss ratio was
    also affected by higher than expected attritional losses for
    energy losses and poor underwriting results on marine business.
    The London market account line of business can have relatively
    high year-to-year volatility due to catastrophe exposure.
    Other specialty lines  The 2005 hurricanes increased
    the 2005 net loss ratio by 14.0 percentage points.
    Subsequent reduction of these reserves reduced the 2006 net
    loss ratio by 3.9 percentage points. The increase in the
    2007 net loss ratio related to losses in our marine and
    United Kingdom liability lines of business. 52




---



##### Table of Contents




    Discontinued lines  All years were adversely affected
    by the commutations and net loss reserve adjustments discussed
    previously. In addition, loss reserves on our international
    medical malpractice business, in run-off since we acquired the
    subsidiary that wrote this business in 2002, were strengthened
    in 2007 in response to a deteriorating legal and settlement
    environment.    2007


2006


2005Reserves for loss and loss adjustment expense payable at
    beginning of year

$
2,108,961


$
1,533,433


$
1,059,283Reserve additions from acquired businesses


742



146,811



12,491Incurred loss and loss adjustment expense


1,183,947



1,011,856



919,697Loss and loss adjustment expense payments


(950,850
)


(583,139
)


(458,038
)Reserves for loss and loss adjustment expense payable at end
    of year

$
2,342,800


$
2,108,961


$
1,533,433Net paid loss ratio


47.9
%


34.1
%


33.4
%     Policy
    Acquisition Costs
    Statutory
    Agency
    Segment
   53




---



##### Table of Contents



Other
    Operations Segment
    Liquidity
    and Capital Resources
  Cash
    Flow
      
    Our increasing net earnings,
    Growth in net written premium and net loss reserves due to
    organic growth and increased retentions,
    Commutations of selected reinsurance agreements, and
    Expansion of our diversified financial products line of business
    as a result of which we retain premium for a longer duration
    than had been the case prior to entering this business.    2007


2006


2005Net earnings

$
395,429


$
342,285


$
191,192Change in premium, claims and other receivables, net of
    reinsurance, other payables and restricted cash


(60,671
)


(139,906
)


(59,717
)Change in unearned premium, net


3,062



122,571



121,242Change in loss and loss adjustment expense payable, net of
    reinsurance recoverables


342,556



328,569



454,859Change in trading portfolio


9,362



(19,919
)


(66,809
)Other, net


36,698



19,788



(16,777
)Cash provided by operating activities

$
726,436


$
653,388


$
623,990    54




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##### Table of Contents



Investments
            2007


2006


2005Average investments, at cost

$
4,214,798


$
3,529,671


$
2,822,686Net investment income*


206,462



152,804



98,851Average short-term yield*


5.2
%


4.5
%


2.7
%Average long-term yield*


4.5
%


4.4
%


4.0
%Average long-term tax equivalent yield*


5.4
%


5.2
%


4.9
%Weighted average combined tax equivalent yield*


5.6
%


5.0
%


4.1
%Weighted average maturity


7.0 years



6.9 years



7.6 yearsWeighted average duration


4.9 years



4.6 years



4.9 yearsAverage S&P rating


AAA



AAA



AAA     *
    
    Excluding realized and unrealized investment gains and losses. 55




---



##### Table of Contents



Amount


%Short-term investments

$
783,650



17
%U.S. government


163,583



4States, municipalities and political subdivisions


724,305



16Special revenue fixed income securities


1,097,976



23Corporate fixed income securities


297,568



6Asset-backed and mortgage-backed securities


1,009,692



22Foreign securities


373,581



8Other investments


221,922



4Total investments

$
4,672,277



100
%       Amount


%AAA

$
2,971,589



81
%AA


420,842



11A


243,774



7BBB


30,107



1BB and below


393



Total fixed income securities

$
3,666,705



100
%     Amount


%One year or less

$
179,763



5
%One year to five years


759,231



21Five years to ten years


682,303



19Ten years to fifteen years


502,752



14More than fifteen years


532,964



14Securities with fixed maturities


2,657,013



73Asset-backed and mortgage-backed securities


1,009,692



27Total fixed income securities

$
3,666,705



100
%      56




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##### Table of Contents



and/or
      Maturities/Estimated Payment DatesTotal


2008


2009-2010


2011-2012


ThereafterCash and investment maturities of insurance companies

$
4,463,560


$
978,950


$
610,523


$
556,154


$
2,317,933Estimated loss and loss adjustment expense payments, net of
    reinsurance


2,342,800



839,689



769,576



368,712



364,823Estimated available cash flow

$
2,120,760


$
139,261


$
(159,053
)

$
187,442


$
1,953,110    57




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##### Table of Contents



Contractual
    Obligations
    Estimated Payment DatesTotal


2008


2009-2010


2011-2012


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

$
1,486,047


$
384,260


$
607,690


$
322,950


$
171,147Group life, accident and health


351,883



292,305



48,522



8,530



2,526Aviation


169,754



76,890



60,030



19,361



13,473London market account


377,316



164,019



150,484



51,425



11,388Other specialty lines


342,810



115,053



139,199



57,108



31,450Discontinued lines


499,270



101,142



112,364



59,539



226,225Total loss and loss adjustment expense payable


3,227,080



1,133,669



1,118,289



518,913



456,209Life and annuity policy benefits


66,199



2,350



4,451



4,138



55,2601.30% Convertible Notes(2)


127,146



1,621



125,525







$575.0 million Revolving Loan Facility(3)


237,841



9,200



18,941



209,700



Operating leases


73,715



12,499



22,967



15,853



22,396Earnout liabilities


31,713



29,028



2,685







Indemnifications


26,698



6,473



10,852



6,248



3,125Total obligations

$
3,790,392


$
1,194,840


$
1,303,710


$
754,852


$
536,990     (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 will be relatively consistent
    over time. Actual payments will be influenced by many factors
    and could vary from the estimated amounts above.(2)
    
    The 1.30% Convertible Notes mature in 2023, but are shown
    in the 2009 - 2010 column since the holders may require us to
    repurchase the Notes on April 1, 2009. The Notes have
    various put and redemption dates as disclosed in Note 6 to
    the Consolidated Financial Statements. Amounts include interest
    payable in respective periods.(3)
    
    The $575.0 million Revolving Loan Facility expires on
    December 19, 2011. Interest on $200.0 million of the
    facility is included at an effective fixed rate of 4.6% through
    November 2009 due to interest rate swaps. Interest on the
    remaining facility is included at LIBOR plus 25 basis
    points (4.85% at December 31, 2007).       58




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##### Table of Contents



Subsidiary
    Dividends
      Lines
    of Credit
     59




---



##### Table of Contents



Other
        Impact of
    Inflation
       60




---



##### Table of Contents



Foreign
    Exchange Rate Fluctuations
    Critical
    Accounting Policies
    Loss
    and Loss Adjustment Expense
         61




---



##### Table of Contents



Recorded


Actuarial


Low End of


High End ofNet Reserves


Point Estimate


Actuarial Range


Actuarial RangeTotal net reserves

$
2,342,800


$
2,248,305


$
2,094,693


$
2,467,472Individual lines of business:Diversified financial products

$
1,038,444


$
991,359


$
850,959


$
1,175,578Group life, accident and health


330,603



320,360



290,854



352,117Aviation


104,885



101,016



93,322



110,314London market account


209,885



199,111



189,156



224,939Other specialty lines


226,669



213,238



201,718



241,312Discontinued lines


432,314



423,221



371,976



510,904Total net reserves

$
2,342,800          62




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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 patternsProfessional indemnity

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 patternsAviation

Aviation

Direct and
    subscription

Medium

Fast

Medium

Historical loss payment and reporting patternsLondon market account

Accident and health

Direct and
    assumed

Medium to
    long

Slow

High

Historical loss payment and reporting patternsEnergy*

Subscription

Medium

Moderate

Medium

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

Subscription

Medium

Moderate

Medium

Historical loss payment and reporting patterns
Historical large loss experienceMarine

Subscription

Medium

Moderate

Medium

Historical loss payment and reporting patterns
Historical large loss experienceOther 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
    reinsurance

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 63




---



##### Table of Contents



64




---



##### Table of Contents



% NetIBNR toNet TotalGross


Ceded


Net


ReservesAt December 31, 2007Reported loss reserves:Diversified financial products

$
593,378


$
187,256


$
406,122Group life, accident and health


194,670



2,244



192,426Aviation


116,983



44,219



72,764London market account


242,918



134,658



108,260Other specialty lines


131,012



45,672



85,340Subtotal reported reserves


1,278,961



414,049



864,912Incurred but not reported reserves:Diversified financial products


892,669



260,347



632,322



61
%Group life, accident and health


157,213



19,036



138,177



42Aviation


52,771



20,650



32,121



31London market account


134,398



32,773



101,625



48Other specialty lines


211,798



70,469



141,329



62Subtotal incurred but not reported reserves


1,448,849



403,275



1,045,574



55Discontinued lines reported reserves


335,177



44,141



291,036Discontinued lines incurred but not reported reserves


164,093



22,815



141,278



33Total loss and loss adjustment expense payable

$
3,227,080


$
884,280


$
2,342,800



51
%At December 31, 2006Reported loss reserves:Diversified financial products

$
507,739


$
177,274


$
330,465Group life, accident and health


156,058



1,627



154,431Aviation


108,851



39,506



69,345London market account


311,862



206,344



105,518Other specialty lines


83,105



30,231



52,874Subtotal reported reserves


1,167,615



454,982



712,633Incurred but not reported reserves:Diversified financial products


782,571



264,400



518,171



61
%Group life, accident and health


176,955



14,210



162,745



51Aviation


63,460



28,592



34,868



33London market account


142,358



42,192



100,166



49Other specialty lines


150,459



51,405



99,054



65Subtotal incurred but not reported reserves


1,315,803



400,799



915,004



56Discontinued lines reported reserves


398,193



74,580



323,613Discontinued lines incurred but not reported reserves


215,440



57,729



157,711



33Total loss and loss adjustment expense payable

$
3,097,051


$
988,090


$
2,108,961



51
%  65




---



##### Table of Contents




    Diversified financial products  Total net reserves in
    our diversified financial products line of business increased
    $189.8 million from 2006 to 2007 as this relatively new
    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. The percentage will
    decrease as the claims start to mature.
    Group life, accident and health  The percentage of
    incurred but not reported reserves decreased in 2007 as we
    integrated the Health Products Division, acquired in 2006, into
    our normal reserving practices. The acquired reserves did not
    include a case basis factor similar to our other medical
    stop-loss reserves. This refinement caused a reduction in
    incurred but not reported reserves and an increase in reported
    loss reserves.
    Other specialty lines  Total net reserves increased
    $74.7 million due to increased participation and activity
    in our Lloyds of London syndicate and more assumed quota
    share surplus lines business.
    Discontinued lines  Total net reserves for our
    discontinued lines decreased $49.3 million in 2007 as a
    result of claims payments.     66




---



##### Table of Contents



Reinsurance
    Recoverables
      Deferred
    Taxes
    Valuation
    of Goodwill
  Using Cash Flow
    Information and Present Values in Accounting Measurements.
  Other-Than-Temporary
    Impairments on Investments
   67




---



##### Table of Contents



Recent
    Accounting Pronouncements
  Accounting for Uncertainty in Income
    Taxes
  Fair Value
    Measurements The Fair Value Option for Financial Assets and Financial
    Liabilities
  Business Combinations Noncontrolling Interests in
    Consolidated Financial Statements
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk      Interest
    Rate Risk
   68




---



##### Table of Contents



Foreign
    Exchange Risk
    December 31,2007


2006Hypothetical





HypotheticalU.S. Dollar


10% Change


U.S. Dollar


10% ChangeEquivalent


in Fair Value


Equivalent


in Fair ValueBritish pound sterling

$
42,340


$
4,234


$
37,701


$
3,770Euro


1,041



104



1,942



194Canadian dollar


1,355



135



816



82     Item 8.
    Financial
    Statements and Supplementary Data    Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosures   Item 9A.  Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
   69




---



##### Table of Contents



Managements
    Report on Internal Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
    Internal Control  Integrated
    Framework
      Changes
    in Internal Control Over Financial Reporting
   Item 9B.  Other
    Information  Form 8-K Form 8-K.
 70




---



##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Code of
    Business Conduct and Ethics
      Section 303A-12(a) Form 10-K Form 10-K
  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   71




---



##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statement Schedules
    Exhibits
   72




---



##### Table of Contents



SIGNATURES    HCC Insurance Holdings,
    Inc.
   Dated: February 29, 2008

By: /s/  Frank
    J.
    Bramanti(Frank
    J. Bramanti)Chief Executive Officer     Name

Title

Date/s/  Frank
    J.
    Bramanti(Frank
    J. Bramanti)

Director and Chief Executive Officer (Principal Executive
    Officer)

February 29, 2008/s/  Patrick
    B. Collins*(Patrick
    B. Collins)

Director

February 29, 2008/s/  J.
    Robert Dickerson*(J.
    Robert Dickerson)

Director, Chairman of the Board and Lead Independent Director

February 29, 2008/s/  Walter
    M. Duer*(Walter
    M. Duer)

Director

February 29, 2008/s/  Edward
    H. Ellis, Jr.(Edward
    H. Ellis, Jr.)

Director, Executive Vice President and Chief Financial
    Officer
    (Chief Accounting Officer)

February 29, 2008/s/  James
    C. Flagg, Ph.D.*(James
    C. Flagg, Ph.D.)

Director

February 29, 2008/s/  Allan
    W. Fulkerson*(Allan
    W. Fulkerson)

Director

February 29, 2008/s/  John
    N. Molbeck, Jr.*(John
    N. Molbeck, Jr.)

Director, President and
    Chief Operating Officer

February 29, 2008/s/  James
    E. Oesterreicher*(James
    E. Oesterreicher)

Director

February 29, 2008/s/  Michael
    A. F. Roberts*(Michael
    A. F. Roberts)

Director

February 29, 2008/s/  Christopher
    J. B. Williams*(Christopher
    J. B. Williams)

Director

February 29, 2008*By:

/s/  Edward
    H. Ellis, Jr.Edward
    H. Ellis, Jr.,Attorney-in-fact  73




---



##### 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.
  ExhibitNumberA3
.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.B3
.2



Bylaws of HCC Insurance Holdings, Inc., as amended.B4
.1



Specimen of Common Stock Certificate, $1.00 par value, of
    HCC Insurance Holdings, Inc.C4
.2



Indenture dated August 23, 2001 between HCC Insurance Holdings,
    Inc. and First Union National Bank related to Debt Securities
    (Senior Debt).D4
.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.E4
.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.F10
.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.G10
.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.H10
.3



Master Agreement dated August 3, 2006 by and among Allianz Life
    Insurance Company of North America, Allianz Life Insurance
    Company of New York and HCC Life Insurance Company.I10
.4



HCC Insurance Holdings, Inc. 2001 Flexible Incentive Plan, as
    amended and restated.J10
.5



Form of Incentive Stock Option Agreement under the HCC Insurance
    Holdings, Inc. 2001 Flexible Incentive Plan.K10
.6



HCC Insurance Holdings, Inc. 2004 Flexible Incentive Plan.L10
.7



Form of Incentive Stock Option Agreement under the HCC Insurance
    Holdings, Inc. 2004 Incentive Plan.M10
.8



HCC Insurance Holdings, Inc. 2007 Incentive Compensation Plan.N10
.9



Employment Agreement effective January 1, 2007, between HCC
    Insurance Holdings, Inc. and Frank J. Bramanti.O10
.10



Employment Agreement effective March 1, 2007, between HCC
    Insurance Holdings, Inc. and John N. Molbeck, Jr.O10
.11



Employment Agreement effective March 1, 2007, between HCC
    Insurance Holdings, Inc. and Craig J. Kelbel.O10
.12



Employment Agreement effective June 1, 2007, between HCC
    Insurance Holdings, Inc. and Michael J. Schell.O10
.13



Employment Agreement effective March 1, 2007, between HCC
    Insurance Holdings, Inc. and Edward H. Ellis, Jr.P10
.14



Service Agreement effective as of January 1, 2006, between HCC
    Service Company Limited (UK) Branch and Barry J. Cook.Q10
.15



HCC Insurance Holdings, Inc. Nonqualified Deferred Compensation
    Plan for Frank J. Bramanti.Q10
.16



HCC Insurance Holdings, Inc. Nonqualified Deferred Compensation
    Plan for John N. Molbeck. 74




---



##### Table of Contents



ExhibitNumberR10
.17



Consulting Agreement and Resignation effective as of November
    17, 2006 by and between HCC Insurance Holdings, Inc. and Stephen
    L. Way.S10
.18



Amendment No. 1 to Consulting Agreement and Resignation
    effective as of February 21, 2007 by and between HCC Insurance
    Holdings, Inc. and Stephen L. Way.12




Statement Regarding Computation of Ratios.21




Subsidiaries of HCC Insurance Holdings, Inc.23




Consent of Independent Registered Public Accounting
    Firm  PricewaterhouseCoopers LLP dated February 29,
    2008.24




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 Registration Statement on
    Form S-1
    (Registration
    No. 33-48737)
    filed October 27, 1992.C
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated August 19, 2001.D
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated March 25, 2003.E
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated December 22, 2004.F
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated April 4, 2007.G
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated October 24, 2007.H
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 10-Q
    for the quarter ended June 30, 2006.I
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s Definitive Proxy Statement for the
    May 22, 2002 Annual Meeting of Shareholders filed
    April 26, 2002.J
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 10-K
    for the year ended December 31, 2002.K
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s Definitive Proxy Statement for the
    May 13, 2004 Annual Meeting of Shareholders filed
    April 16, 2004.L
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 10-K
    for the year ended December 31, 2004.M
    
    Incorporated by reference to the Exhibits to 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 April 12, 2007.O
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated August 10, 2007.P
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 10-Q
    for the quarter ended March 31, 2007.Q
    
    Incorporated by reference to the Exhibits to HCC Insurance
    Holdings, Inc.s
    Form 8-K
    dated August 30, 2007. 75




---



##### 



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


F-1Consolidated Balance Sheets at December 31,
    2007 and 2006


F-2Consolidated Statements of Earnings for the three
    years ended December 31, 2007


F-3Consolidated Statements of Comprehensive Income
    for the three years ended December 31, 2007


F-4Consolidated Statements of Changes in
    Shareholders Equity for the three years ended
    December 31, 2007


F-5Consolidated Statements of Cash Flows for the
    three years ended December 31, 2007


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-7Schedule 4  Reinsurance


S-8Schedule 5  Valuation and
    Qualifying Accounts


S-9     76




---



##### Table of Contents



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




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
 (in
    thousands, except per share data)
  December 31,2007


2006ASSETSInvestments:Fixed income securities, at fair value (amortized cost:
    2007  $3,641,667; 2006  $3,008,818)

$
3,666,705


$
3,007,193Short-term investments, at cost, which approximates fair value


783,650



714,685Other investments


221,922



206,117Total investments


4,672,277



3,927,995Cash


39,135



48,290Restricted cash and cash investments


193,151



176,424Premium, claims and other receivables


763,401



864,705Reinsurance recoverables


956,665



1,169,934Ceded unearned premium


244,684



226,125Ceded life and annuity benefits


66,199



70,923Deferred policy acquisition costs


192,773



182,410Goodwill


776,046



742,677Other assets


170,314



220,649Total assets

$
8,074,645


$
7,630,132LIABILITIESLoss and loss adjustment expense payable

$
3,227,080


$
3,097,051Life and annuity policy benefits


66,199



70,923Reinsurance balances payable


129,838



122,805Unearned premium


943,946



920,350Deferred ceding commissions


68,968



64,949Premium and claims payable


497,974



646,224Notes payable


324,714



308,887Accounts payable and accrued liabilities


375,561



356,140Total liabilities


5,634,280



5,587,329SHAREHOLDERS EQUITYCommon stock, $1.00 par value; 250.0 million shares
    authorized (shares issued and outstanding: 2007 
    115,069; 2006  111,731)


115,069



111,731Additional paid-in capital


831,419



798,213Retained earnings


1,445,995



1,098,887Accumulated other comprehensive income


47,882



33,972Total shareholders equity


2,440,365



2,042,803Total liabilities and shareholders equity

$
8,074,645


$
7,630,132    F-2




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF EARNINGS
 (in
    thousands, except per share data)
  Years Ended December 31,2007


2006


2005REVENUENet earned premium

$
1,985,086


$
1,709,189


$
1,369,988Fee and commission income


140,092



137,131



132,628Net investment income


206,462



152,804



98,851Net realized investment gain (loss)


13,188



(841
)


1,448Other operating income


43,545



77,012



39,773Total revenue


2,388,373



2,075,295



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


1,183,947



1,011,856



919,697Policy acquisition costs, net


366,610



319,885



261,708Other operating expense


241,642



222,324



180,990Interest expense


10,304



11,396



7,684Total expense


1,802,503



1,565,461



1,370,079Earnings from continuing operations before income tax expense


585,870



509,834



272,609Income tax expense on continuing operations


190,441



167,549



84,177Earnings from continuing operations


395,429



342,285



188,432Earnings from discontinued operations, net of income taxes of
    $1,686










2,760Net earnings

$
395,429


$
342,285


$
191,192Basic earnings per share data:Earnings from continuing operations

$
3.50


$
3.08


$
1.78Earnings from discontinued operations










0.03Net earnings

$
3.50


$
3.08


$
1.81Weighted average shares outstanding


112,873



111,309



105,463Diluted earnings per share data:Earnings from continuing operations

$
3.38


$
2.93


$
1.72Earnings from discontinued operations










0.03Net earnings

$
3.38


$
2.93


$
1.75Weighted average shares outstanding


116,997



116,736



109,437    F-3




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME
 (in
    thousands)
  Years Ended December 31,2007


2006


2005Net earnings

$
395,429


$
342,285


$
191,192Other comprehensive income (loss):Investment gains (losses):Investment gains (losses) during the year, net of income tax
    charge (benefit) of $14,416 in 2007, $14,212 in 2006, and
    $(2,946) in 2005


27,464



26,142



(4,257
)Less reclassification adjustment for gains included in net
    earnings, net of income tax charge of $13,111 in 2007, $13,484
    in 2006, and $2,479 in 2005


(24,350
)


(25,043
)


(4,605
)Net investment gains (losses)


3,114



1,099



(8,862
)Cash flow hedge loss, net of income tax benefit of $871


(1,617
)






Foreign currency translation adjustment, net of income tax
    charge (benefit) of $863 in 2007, $3,249 in 2006, and $(762) in
    2005


12,413



13,799



(9,699
)Other comprehensive income (loss)


13,910



14,898



(18,561
)Comprehensive income

$
409,339


$
357,183


$
172,631    F-4




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN
    SHAREHOLDERS EQUITY
    Years ended December 31, 2007, 2006 and 2005
    (in thousands, except per share data)
  AccumulatedAdditional





Other


TotalCommon


Paid-In


Retained


Comprehensive


ShareholdersStock


Capital


Earnings


Income


EquityBalance at December 31, 2004

$
68,038


$
582,566


$
637,259


$
37,635


$
1,325,498Net earnings










191,192







191,192Other comprehensive income














(18,561
)


(18,561
)Issuance of 4,688 shares in public offering, net of costs


4,688



145,276











149,964Issuance of 2,439 shares for exercise of options, including tax
    benefit of $6,168


1,785



40,522











42,307Issuance of 1,624 shares for purchased companies and
    convertible debt


1,227



26,226











27,453Stock-based compensation






2,645











2,645Three-for-two stock split


35,065



(35,065
)










Cash dividends declared, $0.282 per share










(30,063
)






(30,063
)Balance at December 31, 2005


110,803



762,170



798,388



19,074



1,690,435Net earnings










342,285







342,285Other comprehensive income














14,898



14,898Issuance of 928 shares for exercise of options, including
    tax benefit of $3,396


928



18,071











18,999Stock-based compensation






14,022











14,022Reimbursement, net of income taxes of $2,127






3,950











3,950Cash dividends declared, $0.375 per share










(41,786
)






(41,786
)Balance at December 31, 2006


111,731



798,213



1,098,887



33,972



2,042,803Cumulative effect of accounting change (adoption of FIN 48)










(678
)






(678
)Net earnings










395,429







395,429Other comprehensive income














13,910



13,910Issuance of 1,101 shares for exercise of options, including
    tax benefit of $3,352


1,101



23,432











24,533Issuance of 22 shares to directors


22



695











717Issuance of 2,215 shares for debt conversions


2,215



(2,215
)










Stock-based compensation






11,294











11,294Cash dividends declared, $0.42 per share










(47,643
)






(47,643
)Balance at December 31, 2007

$
115,069


$
831,419


$
1,445,995


$
47,882


$
2,440,365    F-5




---



##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (in
    thousands)
  Years Ended December 31,2007


2006


2005Cash flows from operating activities:Net earnings

$
395,429


$
342,285


$
191,192Adjustments to reconcile net earnings to net cash provided by
    operating activities:Change in premium, claims and other receivables


97,304



40,955



(6,094
)Change in reinsurance recoverables


213,353



192,049



(250,829
)Change in ceded unearned premium


(18,436
)


13,291



82,433Change in loss and loss adjustment expense payable


129,203



136,520



705,688Change in reinsurance balances payable


7,002



(54,834
)


(49,772
)Change in unearned premium


21,498



109,280



38,809Change in premium and claims payable, net of restricted cash


(164,977
)


(126,027
)


(3,851
)Gain on sale of subsidiaries










(8,717
)Change in trading portfolio


9,362



(19,919
)


(66,809
)Depreciation and amortization expense


15,982



14,980



14,647Stock-based compensation expense


12,011



13,126



2,645Other, net


8,705



(8,318
)


(25,352
)Cash provided by operating activities


726,436



653,388



623,990Cash flows from investing activities:Sales of fixed income securities


438,057



338,927



237,480Maturity or call of fixed income securities


302,876



247,072



186,075Cost of securities acquired


(1,377,750
)


(1,389,984
)


(1,054,529
)Change in short-term investments


(72,279
)


129,919



(72,703
)Sale of strategic investments


46,612



63,285



14,146Payments for purchase of subsidiaries, net of cash received


(65,112
)


(45,722
)


(94,056
)Sale of subsidiaries










21,116Other, net


(9,741
)


(11,971
)


(10,509
)Cash used by investing activities


(737,337
)


(668,474
)


(772,980
)Cash flows from financing activities:Advances on line of credit and issuance of notes payable


232,000



140,000



46,528Payments on line of credit and notes payable


(205,763
)


(140,616
)


(48,181
)Sale of common stock, net of costs


24,533



18,999



186,103Dividends paid


(46,158
)


(38,923
)


(27,644
)Other, net


(2,866
)


9,981



(3,814
)Cash provided (used) by financing activities


1,746



(10,559
)


152,992Net increase (decrease) in cash


(9,155
)


(25,645
)


4,002Cash at beginning of year


48,290



73,935



69,933Cash at end of year

$
39,135


$
48,290


$
73,935    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
 (continued, 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
 (continued, 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
 (continued, tables in thousands, except per share data)
         Derivative
    Financial Instruments
      Strategic
    Investments and Other Operating Income
   F-10




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
   Goodwill
    and Intangible Assets
    Using Cash Flow Information and Present
    Value in Accounting Measurements.
    Foreign
    Currency
      Income
    Taxes
   F-11




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
     Stock-Based
    Compensation
  Share-Based Payment, Accounting for Stock Issued
    to Employees.
    Accounting for
    Stock Appreciation Rights and Other Variable Stock Option or
    Award Plans.
  Accounting for Certain Transactions
    involving Stock Compensation. and/or
  Accounting for Stock-Based Compensation,
 F-12




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
   No. 96-18, Accounting for Equity Instruments That Are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services.
  Earnings
    Per Share
    Large
    Loss Events
      Recent
    Accounting Pronouncements
  Accounting for Uncertainty in Income
    Taxes
  Fair Value
    Measurements, The Fair Value Option for Financial Assets and Financial
    Liabilities
 F-13




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
   Business Combinations, Noncontrolling Interests in
    Consolidated Financial Statements
  (2)
    Acquisitions,
    Disposition and Goodwill  Acquisitions
    Effective Date of


Initial


Goodwill


DeductibleAcquisition


Consideration


Recognized


GoodwillUnited States Surety Company


March 1, 2005


$
19.4


$
12.6



NoHCC International Insurance Company


July 1, 2005



24.6



17.3



NoPerico Life Insurance Company


November 30, 2005



20.0







YesPerico Ltd.


December 1, 2005



33.4



31.8



YesHCCL Holdings Limited (UK) (formerly Illium Insurance Group,
    Ltd.)


December 31, 2005



3.0



2.1



NoNovia Underwriters, Inc.


June 30, 2006



5.5



5.2



NoG.B. Kenrick & Associates, Inc.


July 1, 2006



18.0



16.9



NoHealth Products Division


October 2, 2006



140.0



137.2



YesPromoregistration.com


March 2, 2007



4.1







YesPioneer General Insurance Company


November 1, 2007



12.0



4.8



No      F-14




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
     Business Combinations
  Premium, claims and other receivables

$
6,372Goodwill


137,154Other assets


280Total assets acquired


143,806Loss and loss adjustment expense payable


146,811Reinsurance balances payable


746Premium and claims payable


4,375Accounts payable and accrued liabilities


1,961Total liabilities assumed


153,893Net cash received

$
10,087    F-15




---



##### Table of Contents



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





OtherCompany


Agency


Operations


Corporate


TotalBalance at December 31, 2005

$
340,069


$
192,878


$



$



$
532,947Additions:Acquisitions


151,717



7,005







3,323



162,045Earnouts


41,034



6,651











47,685Balance at December 31, 2006


532,820



206,534







3,323



742,677Additions:Acquisitions


3,503















3,503Earnouts


27,984



5,206











33,190Other


(323
)






323



(3,323
)


(3,323
)Balance at December 31, 2007

$
563,984


$
211,740


$
323


$



$
776,047  F-16




---



##### Table of Contents



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


Gross


GrossAmortized


Unrealized


Unrealized


FairCost


Gain


Loss


ValueDecember 31, 2007U.S. government

$
159,147


$
4,445


$
(9
)

$
163,583States, municipalities and political subdivisions


1,802,417



22,494



(2,630
)


1,822,281Corporate fixed income securities


299,288



2,778



(4,498
)


297,568Asset-backed and mortgage-backed securities


1,001,423



12,692



(4,423
)


1,009,692Foreign securities


379,392



956



(6,767
)


373,581Total fixed income securities

$
3,641,667


$
43,365


$
(18,327
)

$
3,666,705December 31, 2006U.S. government

$
121,641


$
689


$
(750
)

$
121,580States, municipalities and political subdivisions


1,350,509



16,008



(4,815
)


1,361,702Corporate fixed income securities


334,750



765



(4,950
)


330,565Asset-backed and mortgage-backed securities


787,838



4,989



(6,785
)


786,042Foreign securities


414,080



214



(6,990
)


407,304Total fixed income securities

$
3,008,818


$
22,665


$
(24,290
)

$
3,007,193  F-17




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
     Less than 12 Months


12 Months or More


TotalUnrealized





Unrealized





UnrealizedFair Value


Losses


Fair Value


Losses


Fair Value


LossesDecember 31, 2007U.S. government

$
671


$
(2
)

$
2,234


$
(7
)

$
2,905


$
(9
)States, municipalities and political subdivisions


236,494



(1,535
)


149,584



(1,095
)


386,078



(2,630
)Corporate fixed income securities


34,577



(2,316
)


107,084



(2,182
)


141,661



(4,498
)Asset-backed and mortgage-backed securities


89,112



(1,205
)


220,651



(3,218
)


309,763



(4,423
)Foreign securities


82,971



(861
)


217,555



(5,906
)


300,526



(6,767
)Total fixed income securities

$
443,825


$
(5,919
)

$
697,108


$
(12,408
)

$
1,140,933


$
(18,327
)December 31, 2006U.S. government

$
6,892


$
(19
)

$
49,922


$
(731
)

$
56,814


$
(750
)States, municipalities and political subdivisions


188,704



(801
)


239,299



(4,014
)


428,003



(4,815
)Corporate fixed income securities


60,037



(236
)


194,020



(4,714
)


254,057



(4,950
)Asset-backed and mortgage-backed securities


207,133



(909
)


263,886



(5,876
)


471,019



(6,785
)Foreign securities


272,668



(4,340
)


92,152



(2,650
)


364,820



(6,990
)Total fixed income securities

$
735,434


$
(6,305
)

$
839,279


$
(17,985
)

$
1,574,713


$
(24,290
)    F-18




---



##### Table of Contents



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


Fair ValueDue in 1 year or less

$
179,988


$
179,763Due after 1 year through 5 years


755,590



759,231Due after 5 years through 10 years


677,588



682,303Due after 10 years through 15 years


497,485



502,752Due after 15 years


529,593



532,964Securities with fixed maturities


2,640,244



2,657,013Asset-backed and mortgage-backed securities


1,001,423



1,009,692Total fixed income securities

$
3,641,667


$
3,666,705       2007


2006


2005Fixed income securities

$
150,594


$
112,878


$
77,842Short-term investments


37,764



30,921



21,208Other investments


23,930



14,178



3,615Total investment income


212,288



157,977



102,665Investment expense


(5,826
)


(5,173
)


(3,814
)Net investment income

$
206,462


$
152,804


$
98,851  F-19




---



##### Table of Contents



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


Losses


NetYear ended December 31, 2007Fixed income securities

$
14,728


$
(1,266
)

$
13,462Other investments


305



(579
)


(274
)Realized gain (loss)

$
15,033


$
(1,845
)

$
13,188Year ended December 31, 2006Fixed income securities

$
886


$
(1,771
)

$
(885
)Other investments


93



(49
)


44Realized gain (loss)

$
979


$
(1,820
)

$
(841
)Year ended December 31, 2005Fixed income securities

$
3,562


$
(1,475
)

$
2,087Other investments


156



(795
)


(639
)Realized gain (loss)

$
3,718


$
(2,270
)

$
1,448       2007


2006


2005Fixed income securities

$
26,663


$
6,890


$
(29,265
)Strategic and other investments


(22,244
)


(5,063
)


14,978Net unrealized investment gains (losses)

$
4,419


$
1,827


$
(14,287
)  F-20




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
   (4)
    Reinsurance    Loss and LossWritten


Earned


AdjustmentPremium


Premium


ExpenseYear 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


$
1,183,947Year ended December 31, 2006Direct business

$
1,867,908


$
1,790,636


$
990,800Reinsurance assumed


367,740



357,799



228,038Reinsurance ceded


(423,096
)


(439,246
)


(206,982
)Net amounts

$
1,812,552


$
1,709,189


$
1,011,856Year ended December 31, 2005Direct business

$
1,768,284


$
1,694,446


$
1,329,931Reinsurance assumed


270,002



292,944



266,842Reinsurance ceded


(537,062
)


(617,402
)


(677,076
)Net amounts

$
1,501,224


$
1,369,988


$
919,697       2007


2006Commutation receivable

$



$
100,000Reinsurance recoverable on paid losses


80,915



96,727Reinsurance recoverable on outstanding losses


458,190



529,562Reinsurance recoverable on incurred but not reported losses


426,090



458,528Reserve for uncollectible reinsurance


(8,530
)


(14,883
)Total reinsurance recoverables

$
956,665


$
1,169,934  F-21




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
     2007


2006Payables to reinsurers

$
246,745


$
268,079Letters of credit


188,400



326,204Cash deposits


114,549



61,002Total credits

$
549,694


$
655,285     2007


2006Loss and loss adjustment expense payable

$
3,227,080


$
3,097,051Reinsurance recoverable on outstanding losses


(458,190
)


(529,562
)Reinsurance recoverable on incurred but not reported losses


(426,090
)


(458,528
)Net reserves

$
2,342,800


$
2,108,961Unearned premium

$
943,946


$
920,350Ceded unearned premium


(244,684
)


(226,125
)Net unearned premium

$
699,262


$
694,225Deferred policy acquisition costs

$
192,773


$
182,410Deferred ceding commissions


(68,968
)


(64,949
)Net deferred policy acquisition costs

$
123,805


$
117,461  F-22




---



##### Table of Contents



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


Total


NetReinsurer

Rating

Location

Recoverables


Credits


RecoverablesDecember 31, 2007Hannover Rueckversicherungs AG

A

Germany

$
97,224


$
26,195


$
71,029Swiss Reinsurance America Corp.

A+

New York


61,147



3,133



58,014Harco National Insurance Company

A-

Illinois


57,679



4,259



53,420Arch Reinsurance Ltd.

A

Bermuda


45,283



2,816



42,467ACE Property & Casualty Insurance Co.

A+

Pennsylvania


45,450



6,385



39,065Transatlantic Reinsurance Company

A+

New York


44,175



9,061



35,114Everest Reinsurance Company

A+

Delaware


27,674



70



27,604Lloyds Syndicate Number 2791

A

United Kingdom


28,518



1,990



26,528December 31, 2006Hannover Rueckversicherungs AG

A

Germany

$
114,715


$
24,833


$
89,882Arch Reinsurance Ltd.

A

Bermuda


55,909



12,771



43,138Harco National Insurance Company

A-

Illinois


47,540



6,461



41,079Swiss Reinsurance America Corp.

A+

New York


46,828



6,580



40,248ACE Property & Casualty Insurance Co.

A+

Pennsylvania


42,289



3,885



38,404Everest Reinsurance Company

A+

Delaware


51,256



14,833



36,423Odyssey America Reinsurance Corp.

A

Connecticut


31,948



869



31,079Platinum Underwriters Reinsurance Co.

A

Maryland


31,313



681



30,632        F-23




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
     (5)
    Liability
    for Unpaid Loss and Loss Adjustment Expense    2007


2006


2005Reserves for loss and loss adjustment expense payable at
    beginning of year

$
3,097,051


$
2,813,720


$
2,089,199Less reinsurance recoverables


988,090



1,280,287



1,029,916Net reserves at beginning of year


2,108,961



1,533,433



1,059,283Net reserve addition from acquired businesses


742



146,811



12,491Incurred loss and loss adjustment expense:Provision for loss and loss adjustment expense for claims
    occurring in current year


1,210,344



1,018,382



894,303Increase (decrease) in estimated loss and loss adjustment
    expense for claims occurring in prior years


(26,397
)


(6,526
)


25,394Incurred loss and loss adjustment expense


1,183,947



1,011,856



919,697Loss and loss adjustment expense payments for claims occurring
    during:Current year


394,754



360,803



285,814Prior years


556,096



222,336



172,224Loss and loss adjustment expense payments


950,850



583,139



458,038Net reserves at end of year


2,342,800



2,108,961



1,533,433Plus reinsurance recoverables


884,280



988,090



1,280,287Reserves for loss and loss adjustment expense at end of
    year

$
3,227,080


$
3,097,051


$
2,813,720      F-24




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
   (6)
    Notes
    Payable    2007


20061.30% Convertible Notes

$
124,714


$
124,9772.00% Convertible Exchange Notes






172,174$575.0 million Revolving Loan Facility


200,000



Other debt






11,736Total notes payable

$
324,714


$
308,887        F-25




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
        F-26




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
   (7)
    Income
    Taxes      2007


2006


2005Statutory tax rate


35
%


35
%


35
%Federal tax on continuing operations at statutory rate

$
205,054


$
178,442


$
95,413Nontaxable municipal bond interest and dividends received
    deduction


(18,215
)


(15,291
)


(12,267
)Non-deductible expenses


1,233



781



1,785State income taxes, net of federal tax benefit


3,855



3,820



3,591Foreign income taxes


37,406



22,548



15,024Foreign tax credit


(37,396
)


(22,405
)


(14,981
)Dividends received deduction on repatriated foreign earnings










(2,784
)Uncertain tax positions (net of federal tax benefit on state
    positions of $232)


(1,561
)






Other, net


65



(346
)


(1,604
)Income tax expense from continuing operations

$
190,441


$
167,549


$
84,177Effective tax rate, continuing operations


32.5
%


32.9
%


30.9
%Federal tax on discontinued operations at statutory rate

$



$



$
1,556State income taxes, net of federal tax benefit










130Income tax expense on discontinued operations

$



$



$
1,686Effective tax rate, discontinued operations



%



%


37.9
%Total income tax expense

$
190,441


$
167,549


$
85,863Total effective tax rate


32.5
%


32.9
%


31.0
%  F-27




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
     2007


2006


2005Federal current

$
113,950


$
128,167


$
69,113Federal deferred


34,948



10,957



(5,485
)Total federal


148,898



139,124



63,628State current


2,795



3,842



4,266State deferred


3,135



2,035



1,259Total state


5,930



5,877



5,525Foreign current


38,043



24,665



15,155Foreign deferred


(637
)


(2,117
)


(131
)Total foreign


37,406



22,548



15,024Uncertain tax positions


(1,793
)






Income tax expense from continuing operations

$
190,441


$
167,549


$
84,177Federal current

$



$



$
3,528Federal deferred










(2,042
)Total federal










1,486State current










475State deferred










(275
)Total state










200Income tax expense from discontinued operations

$



$



$
1,686Total income tax expense

$
190,441


$
167,549


$
85,863  F-28




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
     2007


2006Excess of financial unearned premium over tax

$
24,801


$
34,638Effect of loss reserve discounting and salvage and subrogation
    accrual for tax


58,591



48,758Excess of financial accrued expenses over tax


8,896



9,621Allowance for bad debts, not deductible for tax


12,156



15,047Stock option compensation under SFAS 123(R) in excess of
    deduction for tax


6,716



4,375Federal tax net operating loss carryforwards


650



1,087State tax net operating loss carryforwards


2,996



3,227Foreign branch net operating loss carryforwards






388Federal benefit of state uncertain tax positions


655



Valuation allowance


(6,521
)


(7,822
)Total deferred tax assets


108,940



109,319Unrealized gain on increase in value of securities


22,340



20,129Deferred policy acquisition costs, net of ceding commissions,
    deductible for tax


23,025



11,432Amortizable goodwill for tax


37,281



27,676Book basis in net assets of foreign subsidiaries in excess of tax


15,148



17,527Property and equipment depreciation and other items


10,366



8,421Reimbursement receivable






2,127Total deferred tax liabilities


108,160



87,312Net deferred tax asset

$
780


$
22,007     2007


2006


2005Balance at beginning of year

$
7,822


$
10,293


$
17,358Reduction related to 2002 acquisition










(5,511
)Other


(1,301
)


(2,471
)


(1,554
)Balance at end of year

$
6,521


$
7,822


$
10,293    F-29




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
     Accounting for Uncertainty in Income Taxes
  2007Balance at January 1, 2007

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


953Tax positions of prior years


248Acquisitions


72Gross decreases:Statute expirations


(1,468
)Settlements


(1,327
)Tax positions of prior years


(305
)Acquisitions


(183
)Other


(237
)Balance at December 31, 2007

$
7,622        F-30




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
   (8)
    Shareholders
    Equity        AccumulatedUnrealized


Cash Flow


Foreign


OtherInvestment


Hedge


Currency


ComprehensiveGain (Loss)


Gain (Loss)


Translation


IncomeBalance at December 31, 2004

$
25,781


$



$
11,854


$
37,635Net change for year


(8,862
)






(9,699
)


(18,561
)Balance at December 31, 2005


16,919







2,155



19,074Net change for year


1,099







13,799



14,898Balance at December 31, 2006


18,018







15,954



33,972Net change for year


3,114



(1,617
)


12,413



13,910Balance at December 31, 2007

$
21,132


$
(1,617
)

$
28,367


$
47,882     (9)
    Earnings
    Per Share    2007


2006


2005Net earnings

$
395,429


$
342,285


$
191,192Weighted average common shares outstanding


112,873



111,309



105,463Dilutive effect of outstanding options (determined using the
    treasury stock method)


760



1,177



1,659Dilutive effect of convertible debt (determined using the
    treasury stock method)


3,364



4,250



2,315Weighted average common shares and potential common shares
    outstanding


116,997



116,736



109,437Anti-dilutive stock options not included in treasury stock
    method computation


4,714



1,588



118  F-31




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
   (10)
    Stock-Based
    Compensation        2007


2006


2005Fair value of options granted

$
6.59


$
7.20


$
8.90Risk free interest rate


4.4
%


4.7
%


4.0
%Expected volatility


21.0
%


22.0
%


32.0
%Expected dividend yield


1.3
%


1.1
%


1.1
%Expected option life


4.3 years



3.8 years



4.8 years     Weighted-


Weighted-Average


Average


AggregateNumber


Exercise


Contractual


Intrinsicof Shares


Price


Life


ValueOutstanding, beginning of year


7,181


$
22.23Granted


2,920



30.91Exercised


(1,103
)


19.28Forfeited and expired


(433
)


27.09Outstanding, end of period


8,565



25.79



3.5 years


$
33,720Vested or expected to vest, end of period


7,766



25.56



3.4 years



32,056Exercisable, end of period


3,067



21.70



2.3 years



22,512    F-32




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
              F-33




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
   Accounting for Stock-Based
    Compensation,
  2005Reported net earnings

$
191,192Stock-based compensation included in reported net earnings, net
    of income taxes


2,114Stock-based compensation using fair value method, net of income
    taxes


(8,258
)Pro forma net earnings

$
185,048Reported basic earnings per share

$
1.81Fair value stock-based compensation


(0.06
)Pro forma basic earnings per share

$
1.75Reported diluted earnings per share

$
1.75Fair value stock-based compensation


(0.06
)Pro forma diluted earnings per share

$
1.69   (11)
    Segment
    and Geographic Data     F-34




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, 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


$
(20,168
)

$
309,007Foreign


80,502



4,810











85,312Total segment net earnings (loss)

$
357,833


$
33,853


$
22,801


$
(20,168
)


394,319Inter-segment eliminations


















1,110Consolidated net earnings

















$
395,429Other 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
)


(2,830
)


10,304Capital expenditures


5,462



3,416



412



2,780



12,070Income tax expense (benefit)


162,058



25,853



13,211



(11,531
)


189,591Inter-segment eliminations


















850Consolidated income tax expense on continuing operations

















$
190,441     F-35




---



##### Table of Contents



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





OtherCompany


Agency


Operations


Corporate


TotalYear ended December 31, 2006Revenue:Domestic

$
1,536,675


$
65,866


$
75,077


$
6,198


$
1,683,816Foreign


357,092



34,387











391,479Inter-segment


25



79,795











79,820Total segment revenue

$
1,893,792


$
180,048


$
75,077


$
6,198



2,155,115Inter-segment eliminations


















(79,820
)Consolidated total revenue

















$
2,075,295Net earnings (loss):Domestic

$
205,024


$
32,281


$
48,844


$
(20,900
)

$
265,249Foreign


66,991



10,038











77,029Total segment net earnings (loss)

$
272,015


$
42,319


$
48,844


$
(20,900
)


342,278Inter-segment eliminations


















7Consolidated net earnings

















$
342,285Other items:Net investment income

$
137,896


$
9,484


$
2,610


$
2,814


$
152,804Depreciation and amortization


4,603



7,593



509



2,275



14,980Interest expense (benefit)


1,887



11,552



517



(2,560
)


11,396Capital expenditures


4,199



2,317



757



5,731



13,004Income tax expense (benefit)


129,857



25,483



23,645



(11,262
)


167,723Inter-segment eliminations


















(174
)Consolidated income tax expense on continuing operations

















$
167,549     F-36




---



##### Table of Contents



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





OtherCompany


Agency


Operations


Corporate


TotalYear ended December 31, 2005Revenue:Domestic

$
1,216,894


$
62,111


$
35,324


$
6,784


$
1,321,113Foreign


281,697



39,878











321,575Inter-segment


158



86,877











87,035Total segment revenue

$
1,498,749


$
188,866


$
35,324


$
6,784



1,729,723Inter-segment eliminations


















(87,035
)Consolidated total revenue

















$
1,642,688Net earnings:Domestic

$
119,634


$
31,158


$
22,605


$
352


$
173,749Foreign


6,488



7,294











13,782Total segment net earnings

$
126,122


$
38,452


$
22,605


$
352



187,531Inter-segment eliminations


















901Earnings from discontinued operations, net of income taxes


















2,760Consolidated net earnings

















$
191,192Other items:Net investment income

$
88,397


$
7,437


$
794


$
2,223


$
98,851Depreciation and amortization


4,825



7,381



459



1,982



14,647Interest expense (benefit)


445



9,173



699



(2,633
)


7,684Capital expenditures


2,134



3,046



716



4,937



10,833Income tax expense (benefit)


49,327



26,174



10,282



(2,034
)


83,749Inter-segment eliminations


















428Consolidated income tax expense on continuing operations

















$
84,177    F-37




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
     2007


2006


2005Diversified financial products

$
777,414


$
728,861


$
531,136Group life, accident and health


758,516



591,070



504,382Aviation


153,121



152,886



136,197London market account


124,609



112,362



93,017Other specialty lines


171,824



123,981



97,721Discontinued lines


(398
)


29



7,535Net earned premium

$
1,985,086


$
1,709,189


$
1,369,988Property and casualty

$
121,307


$
114,400


$
113,725Accident and health


18,785



22,731



18,903Fee and commission income

$
140,092


$
137,131


$
132,628     Insurance





OtherCompany


Agency


Operations


Corporate


TotalDecember 31, 2007Domestic

$
5,131,724


$
438,779


$
78,527


$
298,157


$
5,947,187Foreign


1,730,569



396,889











2,127,458Total assets

$
6,862,293


$
835,668


$
78,527


$
298,157


$
8,074,645December 31, 2006Domestic

$
4,598,206


$
499,871


$
135,391


$
220,665


$
5,454,133Foreign


1,624,625



551,374











2,175,999Total assets

$
6,222,831


$
1,051,245


$
135,391


$
220,665


$
7,630,132   (12)
    Commitments
    and Contingencies  Litigation
     F-38




---



##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
       Civil Action
    No. 07-456
    (Consolidated); Bacas and Halgren, derivatively on behalf of HCC
    Insurance Holdings, Inc. v. Way et al In the
    United States District Court for the Southern District of Texas,
    Houston Division. Bacas Bacas Halgren
  Civil Action
    No. 07-0801;
    In re HCC Insurance Holdings, Inc. Securities Litigation; In the
    United States District Court for the Southern District of Texas,
    Houston Division (formerly referred to as Bristol County
    Retirement System, individually and on behalf of all others
    similarly situated v. HCC Insurance Holdings, Inc. et
    al.).
      Catastrophe
    Exposure
   F-39




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##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
   Indemnifications
        Terrorist
    Exposure
    Leases
   F-40




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##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
     Years ended December 31,2008

$
12,4992009


11,8432010


11,1242011


8,9242012


6,929Thereafter


22,396Total future minimum rental payments

$
73,715   (13)
    Related
    Party Transactions      (14)
    Statutory
    Information      2007


2006


2005Statutory policyholders surplus

$
1,744,889


$
1,342,054


$
1,110,268Statutory net income


365,308



303,758



112,231    F-41




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##### Table of Contents



HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued, tables in thousands, except per share data)
   (15)
    Supplemental
    Information    2007


2006


2005Cash received from commutations

$
101,040


$
12,750


$
180,789Income taxes paid


146,829



167,086



78,309Interest paid


8,618



9,387



6,168Dividends declared but not paid at year end


12,658



11,173



8,310     (16)
    Quarterly
    Financial Data (Unaudited)  Fourth Quarter


Third Quarter


Second Quarter


First Quarter2007


2006


2007


2006


2007


2006


2007


2006Total revenue

$
614,407


$
599,108


$
582,494


$
516,697


$
594,250


$
493,217


$
597,222


$
466,273Net earnings

$
99,642


$
80,742


$
97,925


$
93,257


$
101,172


$
89,144


$
96,690


$
79,142Basic earnings per share data:Earnings per share

$
0.87


$
0.72


$
0.87


$
0.84


$
0.90


$
0.80


$
0.86


$
0.71Weighted average shares outstanding


114,641



111,635



112,652



111,359



112,273



111,218



111,959



111,014Diluted earnings per share data:Earnings per share

$
0.85


$
0.69


$
0.84


$
0.80


$
0.86


$
0.76


$
0.83


$
0.68Weighted average shares outstanding


117,085



117,115



116,323



117,003



117,728



116,860



117,009



116,896      F-42




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##### Table of Contents



SCHEDULE 1  HCC
    INSURANCE HOLDINGS, INC.
  SUMMARY
    OF INVESTMENTS
    OTHER THAN INVESTMENTS IN RELATED PARTIES
    (In thousands)
  December 31, 2007Column DAmount at WhichColumn A

Column B


Column C


Shown in theType of Investment

Cost


Value


Balance SheetFixed maturities:Bonds  United States government and government
    agencies and authorities

$
159,147


$
163,583


$
163,583Bonds  states, municipalities and political
    subdivisions


716,491



724,305



724,305Bonds  special revenue


1,085,926



1,097,976



1,097,976Bonds  corporate


299,288



297,568



297,568Asset-backed and mortgage-backed securities


1,001,423



1,009,692



1,009,692Bonds  foreign


379,392



373,581



373,581Total fixed maturities


3,641,667


$
3,666,705



3,666,705Equity securities:Common stocks  banks, trusts and insurance companies


54,078



61,985



61,985Total equity securities


54,078


$
61,985



61,985Short-term investments


783,650







783,650Other investments


159,937







159,937Total investments

$
4,639,332






$
4,672,277  S-1




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##### Table of Contents



SCHEDULE 2  HCC
    INSURANCE HOLDINGS, INC.
  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 BALANCE SHEETS
 (in thousands)
  December 31,2007


2006ASSETSCash

$
440


$
167Short-term investments


36,479



19,892Investment in subsidiaries


2,596,741



2,187,461Intercompany loans to subsidiaries for acquisitions


217,041



208,008Receivable from subsidiaries


52,683



38,384Other assets


43,122



31,088Total assets

$
2,946,506


$
2,485,000LIABILITIES AND SHAREHOLDERS EQUITYPayable to subsidiaries

$
88,255


$
89,428Notes payable


324,714



297,151Deferred Federal income tax


19,059



21,205Accounts payable and accrued liabilities


74,113



34,413Total liabilities


506,141



442,197Total shareholders equity


2,440,365



2,042,803Total liabilities and shareholders equity

$
2,946,506


$
2,485,000    S-2




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##### Table of Contents



SCHEDULE 2  HCC
    INSURANCE HOLDINGS, INC.
  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 STATEMENTS OF EARNINGS
 (in thousands)
  Years Ended December 31,2007


2006


2005Equity in earnings of subsidiaries

$
401,973


$
351,657


$
188,202Interest income from subsidiaries


9,345



8,196



6,799Net investment income


1,794



2,698



2,082Other operating income (loss)


(103
)


1,130



525Total revenue


413,009



363,681



197,608Interest expense


8,950



9,199



6,552Other operating expense


12,060



16,172



3,404Total expense


21,010



25,371



9,956Earnings before income tax expense


391,999



338,310



187,652Income tax benefit


(3,430
)


(3,975
)


(3,540
)Net earnings

$
395,429


$
342,285


$
191,192    S-3




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##### Table of Contents



SCHEDULE 2  HCC
    INSURANCE HOLDINGS, INC.
  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 STATEMENTS OF COMPREHENSIVE INCOME
 (in thousands)
  Years Ended December 31,2007


2006


2005Net earnings

$
395,429


$
342,285


$
191,192Other comprehensive income (loss):Investment gains (losses):Gains (losses) during the year, net of income tax charge
    (benefit) of $1,336 in 2007, $1,373 in 2006 and $(129) in 2005


1,771



2,623



(239
)Less reclassification adjustment for losses included in net
    earnings, net of income tax benefit of $163 in 2006






303



Consolidated subsidiaries investment gains (losses) during
    the year, net of income tax charge (benefit) of $13,080 in 2007,
    $12,839 in 2006 and $(2,817) in 2005


25,693



23,519



(4,018
)Less consolidated subsidiaries reclassification adjustment
    for gains included in net earnings, net of income tax charge of
    $13,111 in 2007, $13,647 in 2006 and $2,479 in 2005


(24,350
)


(25,346
)


(4,605
)Net investment gains (losses)


3,114



1,099



(8,862
)Cash flow hedge loss, net of income tax benefit of $871


(1,617
)






Foreign currency translation adjustment, net of income tax
    charge (benefit) of $863 in 2007, $3,249 in 2006 and $(762) in
    2005


12,413



13,799



(9,699
)Other comprehensive income (loss)


13,910



14,898



(18,561
)Comprehensive income

$
409,339


$
357,183


$
172,631    S-4




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##### Table of Contents



SCHEDULE 2  HCC
    INSURANCE HOLDINGS, INC.
  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 STATEMENTS OF CASH FLOWS
 (in thousands)
  Years Ended December 31,2007


2006


2005Cash flows from operating activities:Net earnings

$
395,429


$
342,285


$
191,192Adjustments to reconcile net earnings to net cash provided by
    operating activities:Undistributed net income of subsidiaries


(371,873
)


(272,409
)


(116,122
)Change in accrued interest receivable added to intercompany loan
    balances


(9,345
)


(7,788
)


(6,712
)Change in accounts payable and accrued liabilities


18,812



5,788



(10,999
)Other, net


(9,254
)


(2,396
)


1,414Cash provided by operating activities


23,769



65,480



58,773Cash flows from investing activities:Cash contributions to subsidiaries


(227
)


(64,299
)


(162,872
)Payments for purchase of subsidiaries, net of cash received


(12,021
)


(23,455
)


(98,829
)Change in short-term investments


(16,587
)


18,290



(7,176
)Sales and maturities of fixed income securities






30,587



6,200Cost of securities acquired


(912
)


(10,626
)


(3,400
)Change in receivable/payable from subsidiaries










33,303Intercompany loans to subsidiaries for acquisitions


(52,257
)


(32,708
)


(39,685
)Payments on intercompany loans to subsidiaries


52,570



33,461



56,610Cash used by investing activities


(29,434
)


(48,750
)


(215,849
)Cash flows from financing activities:Advances on line of credit and issuance of notes payable


232,000



140,000



36,000Payments on line of credit and notes payable


(204,437
)


(140,249
)


(36,015
)Sale of common stock, net of costs


24,533



18,999



186,103Dividends paid


(46,158
)


(38,923
)


(27,644
)Cash provided (used) by financing activities


5,938



(20,173
)


158,444Net increase (decrease) in cash


273



(3,443
)


1,368Cash at beginning of year


167



3,610



2,242Cash at end of year

$
440


$
167


$
3,610    S-5




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##### Table of Contents



HCC
    INSURANCE HOLDINGS, INC.
  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 NOTES TO CONDENSED FINANCIAL INFORMATION
  (1)
    The accompanying condensed financial information should be read
    in conjunction with the consolidated financial statements and
    the related notes thereto of HCC Insurance Holdings, Inc. and
    Subsidiaries. Investments in subsidiaries are accounted for
    using the equity method.(2)
    Intercompany loans to subsidiaries are demand notes issued
    primarily to fund the cash portion of acquisitions. They bear
    interest at a rate set by management, which approximates the
    interest rate charged for similar debt. At December 31,
    2007, the interest rate on intercompany loans was 6.75%.(3)
    Other operating expense includes $5.8 million in 2007 and
    $12.0 million in 2006 related to the companys stock
    option investigation.(4)
    Dividends received from subsidiaries were $30.1 million,
    $79.2 million and $72.1 million in 2007, 2006 and
    2005, respectively. S-6




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##### Table of Contents



SCHEDULE 3  HCC
    INSURANCE HOLDINGS, INC.
  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)Years Ended December 31,December 31,








Benefits,


AmortizationDeferred


Future Policy











Claims,


of DeferredPolicy


Benefits, Losses,








Net


Losses and


Policy


OtherAcquisition


Claims and Loss


Unearned


Premium


Investment


Settlement


Acquisition


Operating


PremiumSegments

Costs


Expenses


Premiums


Revenue


Income


Expenses


Costs


Expenses


Written2007Insurance 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


$
1,985,6092006Insurance Company

$
117,461


$
3,167,974


$
920,350


$
1,709,189


$
137,896


$
1,011,856


$
319,885


$
110,438


$
1,812,552Agency


















9,484











70,151Other Operations


















2,610











1,839Corporate


















2,814











39,896Total

$
117,461


$
3,167,974


$
920,350


$
1,709,189


$
152,804


$
1,011,856


$
319,885


$
222,324


$
1,812,5522005Insurance Company

$
88,367


$
2,887,135


$
807,109


$
1,369,988


$
88,397


$
919,697


$
261,708


$
84,838


$
1,501,224Agency


















7,437











84,107Other Operations


















794











1,732Corporate


















2,223











10,313Total

$
88,367


$
2,887,135


$
807,109


$
1,369,988


$
98,851


$
919,697


$
261,708


$
180,990


$
1,501,224     (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.  Note:
 S-7




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##### Table of Contents



SCHEDULE 4  HCC
    INSURANCE HOLDINGS, INC.
  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, 2007Life insurance in force

$
1,267,547


$
417,479


$



$
850,068




%Earned premium:Property 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
%Year ended December 31, 2006Life insurance in force

$
1,371,637


$
374,753


$



$
996,884




%Earned premium:Property and liability insurance

$
1,246,650


$
408,632


$
255,303


$
1,093,321



23
%Accident and health insurance


543,986



30,614



102,496



615,868



17
%Total

$
1,790,636


$
439,246


$
357,799


$
1,709,189



21
%Year ended December 31, 2005Life insurance in force

$
1,359,529


$
404,228


$



$
955,301




%Earned premium:Property and liability insurance

$
1,116,713


$
546,275


$
266,651


$
837,089



32
%Accident and health insurance


577,733



71,127



26,293



532,899



5
%Total

$
1,694,446


$
617,402


$
292,944


$
1,369,988



21
%  S-8




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##### Table of Contents



SCHEDULE 5  HCC
    INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
  VALUATION AND QUALIFYING ACCOUNTS
 (in thousands)
  2007


2006


2005Reserve for uncollectible reinsurance:Balance at beginning of year

$
14,883


$
12,141


$
20,425Provision charged to expense


2,231



5,649



5,750Reclassification to indemnification liability










(9,000
)Amounts written off


(8,584
)


(2,907
)


(5,034
)Balance at end of year

$
8,530


$
14,883


$
12,141Allowance for doubtful accounts:Balance at beginning of year

$
6,514


$
7,394


$
4,911Provision charged to expense


1,124



576



1,917Amounts (written off) recovered and other


(1,251
)


(1,456
)


566Balance at end of year

$
6,387


$
6,514


$
7,394  S-9