Fitch Affirms TMHCC's IFS Ratings at 'AA-'; Outlook Stable

(The following statement was released by the rating agency)Fitch Ratings-Chicago-20 August 2020:Fitch Ratings has affirmed HCC Insurance Holdings, Inc.'s (TMHCC) operatingsubsidiaries' Insurer Financial Strength (IFS) Ratings at 'AA-' with a StableOutlook. In addition, Fitch has affirmed TMHCC's Long-Term Issuer DefaultRating (IDR) at 'A' with a Stable Outlook.Key Rating DriversFitch's rationale for the affirmation of TMHCC's ratings reflects thecompany's very strong earnings, capitalization and reserve position, whichFitch views as sufficient. The ratings also take into account parentownership.HCC is owned by Tokio Marine Holdings, Inc. (IFS: AA-/Stable). Fitch believesTokio Marine's ownership does not alter TMHCC's stand-alone rating profile.TMHCC operates as a relatively autonomous part of Tokio Marine's broader U.S.operations that also include Delphi Financial Group, Inc. and PhiladelphiaConsolidated Holding Corp.TMHCC reported a GAAP calendar-year combined ratio of 90% for full-year 2019,flat relative to the prior year. TMHCC's combined ratio has modestly increasedwith the growth of crop insurance, but Fitch anticipates that the GAAPcalendar year combined ratio will approximate the upper 80% range over theintermediate term.TMHCC's financial leverage was 16% as of YE2019, in line with expectations.Fixed-charge coverage was 17.0x. TMHCC's interest expense was based offfloating rates, which aided in fixed-charge coverage but recently the companyhas locked a fixed rate for a portion of its outstanding debt.RATING SENSITIVITIESThe ratings remain sensitive to any material change in Fitch's Rating CaseAssumptions with respect to the coronavirus pandemic. Periodic updates to ourassumptions are possible given the rapid pace of changes in government actionsin response to the pandemic and the pace with which new information isavailable on the medical aspects of the pandemic. A discussion of how ratingswould be expected to be impacted under a set of Stress Case Assumptions isincluded at the end of this section to help frame sensitivities to a severedownside scenario.Factors that could, individually or collectively, lead to negative ratingaction/downgrade:--A material adverse change in Fitch's Rating Case Assumptions with respect tothe coronavirus impact.--A downgrade of Tokio Marine's operating company IDR or a two-notch or moredowngrade in TMHCC's standalone assessment. Fitch believes it is unlikely thatany potential future downgrade of TMHCC's ratings would be to levels lowerthan those of the parent.Factors that could, individually or collectively, lead to positive ratingaction/upgrade:--Although Fitch views a near-term rating upgrade as unlikely, an upgrade tothe parent's (Tokio Marine's) IDR could result in an upgrade to TMHCC'sratings.--A positive rating action is prefaced by Fitch's ability to reliably forecastthe impact of the coronavirus pandemic on the financial profile of both thenon-life industry and the company.Best/Worst Case Rating ScenarioInternational scale credit ratings of Financial Institutions and Covered Bondissuers have a best-case rating upgrade scenario (defined as the 99thpercentile of rating transitions, measured in a positive direction) of threenotches over a three-year rating horizon; and a worst-case rating downgradescenario (defined as the 99th percentile of rating transitions, measured in anegative direction) of four notches over three years. The complete span ofbest- and worst-case scenario credit ratings for all rating categories rangesfrom 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based onhistorical performance. For more information about the methodology used todetermine sector-specific best- and worst-case scenario credit ratings, visit[https://www.fitchratings.com/site/re/10111579]REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING Theprincipal sources of information used in the analysis are described in theApplicable Criteria.ESG Considerations The highest level of ESG credit relevance, if present, is ascore of 3. This means ESG issues are credit-neutral or have only a minimalcredit impact on the entity(ies), either due to their nature or to the way inwhich they are being managed by the entity(ies). For more information onFitch's ESG Relevance Scores, visit www.fitchratings.com/esg.HCC Insurance Holdings, Inc.; Long Term Issuer Default Rating; Affirmed; A;RO:StaHCC Life Insurance Co.; Insurer Financial Strength; Affirmed; AA-; RO:StaAvemco Insurance Company; Insurer Financial Strength; Affirmed; AA-; RO:StaU.S. Specialty Insurance Company; Insurer Financial Strength; Affirmed; AA-;RO:StaAmerican Contractors Indemnity Company; Insurer Financial Strength; Affirmed;AA-; RO:StaUnited States Surety Company; Insurer Financial Strength; Affirmed; AA-;RO:StaHouston Casualty Company; Insurer Financial Strength; Affirmed; AA-; RO:StaContacts:Primary Rating AnalystGerald Glombicki, CPA, ARMDirector+1 312 606 2354Fitch Ratings, Inc.One North Wacker DriveChicago 60606Secondary Rating AnalystJim Auden, CFAManaging Director+1 312 368 3146Committee ChairpersonKeith Buckley, CFAManaging Director+1 312 368 3211Media Relations: Hannah James, New York, Tel: +1 646 582 4947, Email:hannah.james@thefitchgroup.comPeter Hoflich, Singapore, Tel: +65 6796 7229, Email:peter.hoflich@thefitchgroup.comWai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email:wailun.wan@thefitchgroup.comAdditional information is available on www.fitchratings.comApplicable CriteriaInsurance Rating Criteria (pub. 02 Mar 2020) (including rating assumptionsensitivity) (https://www.fitchratings.com/site/re/10112692)Applicable ModelNumbers in parentheses accompanying applicable model(s) contain hyperlinks tocriteria providing description of model(s).Third-party Model(02 March 2020 (https://www.fitchratings.com/site/re/969155))Prism U.S. Non-Life Insurance Capital Model, v1.2.2 (1(https://www.fitchratings.com/site/re/969155))Reserve Adequacy and Volatility Estimator Model, v1.1.0 (1(https://www.fitchratings.com/site/re/969155))Additional DisclosuresDodd-Frank Rating Information Disclosure Form(https://www.fitchratings.com/site/dodd-frank-disclosure/10131166)Solicitation Status(https://www.fitchratings.com/site/pr/10131166#solicitation)Endorsement Status(https://www.fitchratings.com/site/pr/10131166#endorsement_status)Endorsement Policy(https://www.fitchratings.com/site/pr/10131166#endorsement-policy)ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS(HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS). IN ADDITION, THEFOLLOWING HTTPS://WWW.FITCHRATINGS.COM/RATING-DEFINITIONS-DOCUMENT(https://www.fitchratings.com/rating-definitions-document) DETAILS FITCH'SRATING DEFINITIONS FOR EACH RATING SCALE AND RATING CATEGORIES, INCLUDINGDEFINITIONS RELATING TO DEFAULT. PUBLISHED RATINGS, CRITERIA, ANDMETHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OFCONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROMTHE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANTINTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY(https://www.fitchratings.com/site/regulatory). FITCH MAY HAVE PROVIDEDANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES.DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN ANEU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUERON THE FITCH RATINGS WEBSITE.Copyright © 2020 by Fitch Ratings, Inc., Fitch Ratings Ltd. and itssubsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824,(212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in wholeor in part is prohibited except by permission. All rights reserved. In issuingand maintaining its ratings and in making other reports (including forecastinformation), Fitch relies on factual information it receives from issuers andunderwriters and from other sources Fitch believes to be credible. Fitchconducts a reasonable investigation of the factual information relied upon byit in accordance with its ratings methodology, and obtains reasonableverification of that information from independent sources, to the extent suchsources are available for a given security or in a given jurisdiction. Themanner of Fitch's factual investigation and the scope of the third-partyverification it obtains will vary depending on the nature of the ratedsecurity and its issuer, the requirements and practices in the jurisdiction inwhich the rated security is offered and sold and/or the issuer is located, theavailability and nature of relevant public information, access to themanagement of the issuer and its advisers, the availability of pre-existingthird-party verifications such as audit reports, agreed-upon proceduresletters, appraisals, actuarial reports, engineering reports, legal opinionsand other reports provided by third parties, the availability of independentand competent third- party verification sources with respect to the particularsecurity or in the particular jurisdiction of the issuer, and a variety ofother factors. Users of Fitch's ratings and reports should understand thatneither an enhanced factual investigation nor any third-party verification canensure that all of the information Fitch relies on in connection with a ratingor a report will be accurate and complete. Ultimately, the issuer and itsadvisers are responsible for the accuracy of the information they provide toFitch and to the market in offering documents and other reports. In issuingits ratings and its reports, Fitch must rely on the work of experts, includingindependent auditors with respect to financial statements and attorneys withrespect to legal and tax matters. Further, ratings and forecasts of financialand other information are inherently forward-looking and embody assumptionsand predictions about future events that by their nature cannot be verified asfacts. As a result, despite any verification of current facts, ratings andforecasts can be affected by future events or conditions that were notanticipated at the time a rating or forecast was issued or affirmed.The information in this report is provided "as is" without any representationor warranty of any kind, and Fitch does not represent or warrant that thereport or any of its contents will meet any of the requirements of a recipientof the report. A Fitch rating is an opinion as to the creditworthiness of asecurity. This opinion and reports made by Fitch are based on establishedcriteria and methodologies that Fitch is continuously evaluating and updating.Therefore, ratings and reports are the collective work product of Fitch and noindividual, or group of individuals, is solely responsible for a rating or areport. The rating does not address the risk of loss due to risks other thancredit risk, unless such risk is specifically mentioned. Fitch is not engagedin the offer or sale of any security. All Fitch reports have sharedauthorship. Individuals identified in a Fitch report were involved in, but arenot solely responsible for, the opinions stated therein. The individuals arenamed for contact purposes only. A report providing a Fitch rating is neithera prospectus nor a substitute for the information assembled, verified andpresented to investors by the issuer and its agents in connection with thesale of the securities. Ratings may be changed or withdrawn at any time forany reason in the sole discretion of Fitch. Fitch does not provide investmentadvice of any sort. Ratings are not a recommendation to buy, sell, or hold anysecurity. Ratings do not comment on the adequacy of market price, thesuitability of any security for a particular investor, or the tax-exemptnature or taxability of payments made in respect to any security. Fitchreceives fees from issuers, insurers, guarantors, other obligors, andunderwriters for rating securities. Such fees generally vary from US$1,000 toUS$750,000 (or the applicable currency equivalent) per issue. In certaincases, Fitch will rate all or a number of issues issued by a particularissuer, or insured or guaranteed by a particular insurer or guarantor, for asingle annual fee. Such fees are expected to vary from US$10,000 toUS$1,500,000 (or the applicable currency equivalent). The assignment,publication, or dissemination of a rating by Fitch shall not constitute aconsent by Fitch to use its name as an expert in connection with anyregistration statement filed under the United States securities laws, theFinancial Services and Markets Act of 2000 of the United Kingdom, or thesecurities laws of any particular jurisdiction. Due to the relative efficiencyof electronic publishing and distribution, Fitch research may be available toelectronic subscribers up to three days earlier than to print subscribers.For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia PtyLtd holds an Australian financial services license (AFS license no. 337123)which authorizes it to provide credit ratings to wholesale clients only.Credit ratings information published by Fitch is not intended to be used bypersons who are retail clients within the meaning of the Corporations Act 2001Fitch Ratings, Inc. is registered with the U.S. Securities and ExchangeCommission as a Nationally Recognized Statistical Rating Organization (the"NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listedon Item 3 of Form NRSRO and as such are authorized to issue credit ratings onbehalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), othercredit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") andtherefore credit ratings issued by those subsidiaries are not issued on behalfof the NRSRO. However, non-NRSRO personnel may participate in determiningcredit ratings issued by or on behalf of the NRSRO.