Good morning, everyone and welcome to the HCC's third quarter earnings call. Joining me today is Bill Burke, our President; Brad Irick, Chief Financial Officer; and Executive Vice Presidents, Mike Schell and Mark Callahan.

HCC's record breaking earnings trend has continued with record quarterly and nine months earnings. We had very strong third quarter of $140 million or $1.41 per share, which compares to $98 million or $0.98 per share for 2013.

Our net realized investment gains contributed $0.26 per share this quarter compared to $0.12 per share in 2013. On a year-to-date basis, our net earnings of $345 million compared very favorably to last year's $292 million.

We've been the beneficiary of continued benign catastrophes this year with only five million of losses for the quarter and $14 million year-to-date, compared to $18 million for the third quarter 2013 and $45 million for the first nine months of 2013. This quarter we performed our detailed annual reserve review with a U.S.

property casualty, professional liability and international segments, which resulted in a net favorable development of $31 million, compared to net favorable development of $28 million in Q3 2013. Importantly, the metrics we use to measure our overall performance, our overall operating at or better than their desired levels, a combined ratio at 80.1% for the quarter and 82.2% year-to-date continue to be a market leader.

We grew our gross premium by 8% in the quarter despite some headwinds in certain lines. We once again exceeded our ROE goal achieving 14.4% for the quarter and 12.2% year-to-date.

We've grown book value per share this year 8.2% to $39.64. Our capital management priority remains growing our business profitably through organic growth including additions of new teams and business acquisitions.

We hold capital in excess of what we believe is needed to support this growth and are committed to returning remaining capital to investors via dividend and stock purchases. This quarter we had activity across all of these areas.

We announced our expansion into the crop business with the acquisition of ProAg from CUNA Mutual, which we expect to close in the first quarter next year. We added new teams to our businesses in the Midwest.

We purchased 3 million shares of our stock at an average price of $46.69 in the first nine months of 2014. After quarter end, we purchased an additional 1.3 million shares, bringing our year-to-date total share buyback to 4.3 million shares at an average price of $47.26 per share through the market close last night.

In addition, we announced a 31% increase in our quarterly dividend to $0.295 a quarter and an increased stock buyback authorization of 500 million after our August Board meeting. We made significant strides in certain Spanish surety issues going back to our purchase of St.

Paul Espana in 2002 with over 80% of the claims now finalized. I want to now turn to ProAg, our recently announced crop insurance acquisition.

This is a specialty line of business that we've been following for some time, given its historical profitability, lack of correlation with our other lines and limits to the downside risk through the USDA backed government reinsurance program. This acquisition provides us with an excellent nationwide platform for growth and profitability for this business and we're pleased to welcome HCC a seasoned, experienced management team to further develop it.

HCC brings significant new tools to the management of this business, including our disciplined approach to expense management, our reinsurance buying expertise and significant actuarial capabilities. We're currently working through how to best structure to commercial reinsurance program, but our expectation is we'll be reducing existing quota share cessions significantly and will continue to purchase high level excess of less coverage.

We're also considering various hedging strategies. We expect the transaction to be accretive beginning in 2016 and given the modest capital requirements, we expect this business to meet or exceed our stated ROE goal for 2017.

We feel this is an excellent addition to our diversified portfolio and enhances our specialty franchise. Brad will now run through some of the financial highlights.

Thanks, Chris. Our investing segment generated earnings of $94 million in the third quarter, compared to $72 million in the prior year.

These earnings included $54 million of net investment income, which is flat compared to the prior year and realized gains of $39 million, compared to $18 million in the prior year. As I reported on our last earnings call, these realized gains were a result of our decision to reduce our equity holdings early in the third quarter.

Relative evaluation and our desire to decrease our risk exposure in the face of expected market volatility drove that decision. The proceeds were invested in high quality, low duration, floating rate instruments and tax rate municipal bonds.

As Chris mentioned, we completed detailed reviews of our U.S. P&C, professional liability and international reserves in the third quarter.

The development by segment was $40 million favorable in U.S. property casualty, $1 million favorable in professional liability and $16 million adverse in international, where favorable development in marine and energy, property treaty and liability was offset by a $43 million adjustment to strengthen Spanish surety reserves.

We also recognized $5 million in favorable development in exited lines. Based on our review, we remain comfortable with the level of our reserves on a segment and consolidated basis.

At quarter end, the relationship of our reserves to the actuarial point estimate was materially consistent with year end 2013. With respect to Spanish cooperative housing bonds, we were successful in resolving the vast majority of our outstanding claims during the quarter.

While we were pleased with this progress, the outcome of these settlements resulted in an increase to our previously established reserves. We will continue to actively manage the remaining exposure, but believe we have managed through the most significant mattes at this point.

Cash flow from operations of $165 million for the quarter and $360 million through nine months was strong and slightly ahead of our expectations. With respect to liquidity, we have approximately $700 million in short-term funds and available capacity under our credit facility.

Chris mentioned the stock purchases and capital management activities. Through yesterday, we have returning $300 million of our capital to shareholders in 2014 through stock purchases and dividends.

In any given year, we currently target returning 100% of our earnings through dividends and stock purchases. Finally, a few points with respect to ProAg acquisition.

As previously announced, we have agreed to purchase ProAg from CUNA Mutual for $110 million using available funds at the holding company. ProAg is currently the sixth largest crop insurer in the U.S.

with a market share of 5%. Gross and net earned premiums in 2013 were $633 million and $389 million respectively.

Under the agreement, CUNA will retain the reserves related to crop years prior to 2015. We believe the acquisition is an effective utilization of our capital and will have no impact on our previously stated capital management priorities.

Bill?

Thanks Brad. We believe that maintaining disciplined underwriting is critical in today’s low interest rate environment.

We continue to be able to achieve positive operating results with an overall loss ratio of 53% for the third quarter, which was over four points lower than the prior year. From the year-to-date we had an overall loss ratio of 56% down from 59% in 2013.

One of our core strategies is to maintain a low expense ratio versus our peers. Our expense ratio was 27% for the third quarter and 26% year-to-date.

We are pleased with this result, which was slightly higher than the prior year due in part to increased incentive compensation, reduced profit commissions and the impact of FX on our British Account operating expenses. From a premium perspective, we had strong performance in the third quarter with 8% increase in gross written premium and 12% increase in net written premium.

The lines driving the premium growth include medical stop loss, short-term medical, liability and certain lines in international. In a similar manner to the second quarter, we're continuing to see rate increases in a number of lines of business across all of our segments except international.

For our U.S. based businesses overall, our rates were flat for the quarter while our internationally base lines had a mid-single digit rate decrease.

The international line with the largest rate decrease in the quarter is property treaty, which had a double-digit rate decrease. The retention rate across all segments continue to be positive at 83%.

Looking at specific segments in professional liability, we had continued strong results with a combined ratio of 75% for the quarter. Our U.S.

Surety and Credit Segment achieved a 4% increase in gross written premium for the quarter, led by our credit business, which has been seeing increased opportunities. Our combined ratio for this segment was a satisfactory 83% for the quarter.

Our U.S. P&C segment had excellent results achieving a combined ratio of 47% for the quarter and 70% year-to-date.

If we look at the individual components of this segment, aviation continues to perform well as seen by our 54% loss ratio year-to-date despite the competitive market. We had been expecting improved pricing in the aviation market as a result of the string of large aviation losses earlier this year, but the impact has been limited.

Our liability business continues to grow led by our primary general liability and excess causality lines as can be seen with the over 20% increase in gross written premium year-to-date. We started the primary and excess casualty businesses in 2011.

Premium has increased every year since then and we continue to see growth opportunities in these lines. The net written premium for our sports and entertainment lines has declined year-to-date due to the cyclical timing of large events.

In the international segment, we continue to see opportunities to make attractive margins as can be seen by our 35% accident year loss ratio excluding cats. While the London market business continues to be competitive, we achieved an increase in gross written premium in both our marine and energy and property treaty line in the current quarter.

The third quarter is historically the smallest of the year and the results were impacted by a small number of account moves. We also had good growth in a number of international segment lines outside of the London market including surety and credit along with our small account liability business.

Chris?

Thanks Bill. With over 87% of the premium generated from our medical stop-loss business, our accident and health segment continues to grow and perform extremely well.

Gross premium grew 17% or $38 million for the quarter with a year-to-date increase of 14% or $94 million. Our average case size continues to increase to 517 lives, as specific deductible has likewise increase by 12% through the first nine months of 2014.

Of significance, we're seeing increases in employee census for the first time in several years. We're achieving effective rate increases, which is a measurement of deductible and coverage changes of 17.3% year-to-date, which compares to the trend needed to keep pace with medical inflation of 15.6%.

Our premium retention ratio is consistent with prior years. We've established strategic alliances with several companies to serve the private exchange market as well as the self-funded captive market place.

While in their early development, it is clear to us that these self-funded plans still offer the flexibility and plan design and cost savings that employers appreciate. Operator we would now like to open up the lines for questions.

Thank you.

Thanks good morning. Just had a couple questions on ProAg actually.

First one is I was just curious how much capital are you acquiring with the deal? Looking at the press release and some of the ProAg numbers, it looks like there is $62 million of surplus, but there is some language in there that there is also some capital of the hold CO or some of the CUNA companies being acquired, do you have a number can you share with us?

Matt, I think the numbers you have there are pretty accurate as far as the capital that we are acquiring. I guess what I would point out is the focus of the acquisition is really around the platform that we're acquiring as well as the earnings that we expect to generate from the platform.

So yes, we're comfortable with the $110 million that from a return on investment that we will have a nice return as well as the ultimate ROE to meet our pro rate.

Got you. Is it fair to assume from that then that the bulk of the capital is a surplus $62 million and that while there might be some at other entities that's just not significant?

There is actually two entries. I think the number that you are picking up is the ProAg entity and there is a smaller entity in there.

So I think if you -- the number escapes me right now but I think it's closer to $70 million that's in the stock purchase agreement that's probably the best number to work off of.

Okay great. And then one other question on -- sticking on ProAg, I appreciate your comments Chris on expecting to reduce quota share and probably keep some high level XOL.

Is that comment -- is that more of a private market comment or also you are thinking about the federal program with that. Just trying to get a sense of what gross to net ratio we should be targeting when we try to build this into 2015 going forward?

Thanks.

Yes Matt. Good question.

We're actually working our way through that. And as I said the quota shares, our intention is not to continue with those over period of time, they’ll phase down.

There will be a little more of excess ofloss and of course as you know the government by definition, we have to make a session to then, but we will be working through with the Management of ProAg to determine exactly what percentage of that session will be.

Okay. But I would imaging just by the nature of the line that there is still going be a pretty sizable session to the government just the -- that's the advantage of the line right the underwriting up in the sense?

Yes, look I think the short answer is I think to be determined Matt. We like the fact that our ultimate downside has some protection built in by the government, but also we would like to be retaining as much profitable businesses we can.

So we're going to work through that. The senior management of ProAg do a very, very good job.

I think they are a great additions to HCC. So we will work through -- clearly there will be a session, but we will be a little wiser by the time I speak on the next call.

Okay. Fair enough, thanks a lot and congrats on a really nice quarter.

Thank you.

Good morning everyone. Just to start off, as far as the comments on the aviation line.

So I was just curious as far as the rate environment, is that is just a result of say rate increases not really promulgating the market all that much or if it's really the result of actually seeing that type of rate activity that have subsequently pulled down by competition? So just wondering if pricing has really reacted or if it's more of a increase in competition issue?

Sure this is Bill Burke. It’s a different situation in a different market.

So there has been an increase in the war rates, which is not really a market that we were involved with. And then on the international side in the general aviation area, we still see it being fairly competitive and so there has not been really a pickup in that particular area and then we also do not participate in the large flag carrier market and there has been some movement in that area, but less than I think that the market was trying to target.

Okay. Good to know.

And then just a follow-up on ProAg. So, RLI was very complementary of the ProAg team that you guys are bringing over, but they also mentioned learning a lot about the Ag space over the last few years and I guess the implication there is that they may -- I believe they said that they'll be looking at other opportunities within the Ag space.

And so, I’m just curious if you would know if RLI has extracted any ProAg talent or if you would happen to see this is an opportunity to essentially create another splinter competitor now that ProAg has been extracted out of that relationship?

Well, I think first of all the senior people continue on with ProAg, which was part of the transaction. Secondly RLI continuing as a reinsurer for next year albeit on a reduced share.

We likewise have a great regard for RLI. I think they're a great company.

They’ve given great support to RLI. What their plans are, I don’t know.

Certainly what our plan are to continue to work the business, pick up a little bit of expense if we can and I think we're quite good at buying reinsurance and as Brad said, this doesn’t really correlate with what other lines of business that we write. So we think this is a great fit.

I wish RLI all the luck in the world and I wish HCC even more luck.

All right. Good to know and then one last one if I could sneak in there.

So on the annual reserve review so clearly there is going to be a lot of moving parts to the analysis and then just understanding that and striping out Spanish Surety as its own issue side, I was hoping you might be able to discuss how loss cost inflation has been stacking out relative to your assumptions in that review? And then subsequently, following the review if there has been any refinements to how you are thinking about the inflation environment going forward?

A different answer for different lines of businesses. Each line has got its own different characteristics.

If you look at the medical stop loss business, one of our larger lines a great, great business for us. We're clearly getting above loss costs there.

I mentioned the numbers in my prepared remarks. The two areas that Bill touched on are very competitive property cat and energy business.

We like that business very much. The business we're writing, we're comfortable with, but is clearly rating pressure there, but it would be difficult for me to give you a universal response because our lines are so very different.

Okay fair enough and yeah thanks for the answers guys. Nice quarter and look forward to talking to you soon.

Okay. Vincent thanks very much.

Great, thanks, good morning everybody. Sorry to go back to ProAg here, but I guess if you guys are getting acquiring $70 million of capital in the underwriter but are reducing kind of quota share reinsurance going forward, should we expect you guys to put more capital into ProAg and maybe where should we expect you guys to write again a premium to surplus for that line?

Hi this is Brad Irick. I guess what I would say is that we'll use existing capital so that ProAg will reinsure that business to Houston Casualty subsidiary which has more than adequate surplus within it so there's no reason to add capital to the business.

Mark I don’t know if you want to speak to premium to surplus I think it will continue at this similar level to where it is currently.

Great and then one other thing, can you just maybe confirm that I heard this correctly that you've thought that the ProAg piece would be, would reach targets by 2017 did I hear that correctly?

That's correct.

And why, I'm just trying to figure out why would it take such a long lead time to get there?

Well, we've got some of the issues to work through Ryan. The market has been tough as you know the last couple of years of being tough in the marketplace.

I think there are some expense issues we need to have a look at. We're certainly targeting to try to do it before then.

I think that gives a bit of an out there. We're very confident in the business we liked the historical performance, we liked the platform that we're buying, but I think it will, it's not going to turn on the dime overnight but we'll be working very diligently through next year to do that.

And I think we're pretty pleased that, we think it's a pretty short time to get to where we'd like to be.

Certainly it's been some tough years for the business. And then quickly just wanted to touch a little bit on the Spanish Surety stuff, it sounds like 80% of claims are now closed now and I'm just wondering I think earlier this year we thought there can be completely done by this point or when should we expect that kind of nightmare to be over with?

Well stated. Hey this is Brad.

The, yes you are correct the 80% I think what we said throughout the year was vast majority we think the 80% was consistent with that and I think the actions you see taken with 80% there yes, you have a pretty good idea of where 20% is going to come and I will say that that's going to play out over the relatively long period of time. I think we took on the most difficult cases early on.

The oldest and the largest, you know the remaining 20% you know we're just going to take some time to work out but we have a good sense of where that is likely to turn out.

And Ryan just to make one update to your comment, bear in mind that a number of these are still in litigation. So we probably prefer not to get into all the specific details of those claims.

Sure, that's understandable. And then just kind of my last one is just, again I realized that the international it's talking about the smaller quarters for it, but again you guys grew that pretty meaningful this quarter and you guys also noted that you know rates were probably down mid single digits in that line.

Just trying to figure out why it's more attractive to grow internationally versus domestically right now? I realized it is a small quarter, but just want any kind of color there will be helpful?

Sure this is Bill Burke. You know as a general statement it's not more attractive to grow international versus domestic.

We did have because of the small quarter percentage wise there is particularly on the energy and our property treaty lines you see some increases there, they are pretty spread out though within the energy, marine and energy we've got $3 million of growth in one and $2 million of growth in the other. The property treaty line is spread between three or four different lines of business as well, including a new line of business, engineering that we added into that space.

So I wouldn’t read into kind of the run rate on that. I'd look more at trend on a nine-month basis as to kind of where that business is running right at the moment.

Outside London market we are seeing some growth in international lines such as our small account liability and professional indemnity and our surety and credit areas.

Okay great. And actually I am just thinking one more if I can, the buyback is really ramped up in the quarter and it kind of followed through so far in October.

Is there anything that happened internally that made you kind of ramp that up a little bit or your thoughts on excess capital or just is there any mindset that changed there to cause that ramp up?

Did you miss the volatility in the market over the last couple of weeks? The short answer Ryan there's been opportunities to step in there when the market is taking it's various twists and turns and you know I think we said at the start of the year that we are opportunistic buyers of our stock and as I said to many people I love our stock every day of the week, just some days I love it more.

Got it, great thanks guys.

Yeah, good morning. A couple of questions on can you give the amount of buyback authorization that you still have remaining post the buy what you've done or I guess either way through the end of the third quarter or with the additional in the fourth?

We've announced new $500 million buyback after the August board meeting and under that one, someone frantically working on a calculator, there is still a fair amount of headroom, just bear with me one second.

At the end of September 438.

Oh 438, I mean at the end of September I would both sounds like, yeah. So north of $350 million.

Right, okay. Second question related to the Spanish Surety, $43 million add seems fairly significant considering your relative confidence in how those reserves are playing out through the end of the second quarter.

And did something change there, a different settlement pattern, higher payouts, more legal costs, anything you could share on understanding that?

Hi this is Brad Irick. Yeah I think you hit on the settlements again.

We had significant number of settlements in the quarter and those settlements I would say generally were higher than we expected initially. But in the interest of trying to put this behind us and moving forward it is I think you know there's interest charges on these things we're getting them settled and out of the way was our priority.

So yeah, I think you see that reflected and basically getting through the settlements and where they ended up led us to where we thought we needed to be from a reserve perspective.

So there's not been any, I going to say, change in the legal perspective that is opening more claims. It's simply ridding yourself of the ones that had already been identified.

I think it's generally accurate, you know the claims level has dropped pretty significantly in recent months. I think the legal environment has played out the way we thought it would post the Supreme Court ruling and that the lower courts were ruling consistent with the Supreme Court and so that's again led us to be aggressive in trying to get these things off the table.

Okay, last question related to the ProAg. Can you just give a little description of the book of business and you mentioned that it's mostly national, but are there any particular states that are represented, I presume it's the normal commodity mix but if there's anything other than the normal bean, wheat and in corn that's a part of the book that would be interesting to know as well?

Yeah, Mark I'll begin and then hand it over to Mark Callahan to give you some color on that just to answer your specific question on the remaining outstanding on the authorization is $373 million still available. So, I'll turn it over to Mark Callahan and he'll give you a quick summary of the ProAg book.

Hi this is Mark Callahan. As you noted there is a court crops associated with the program ProAg as a diverse mix of business across that, you mentioned key row crops as well as some pasture in forage land that they work on.

But it’s a fairly reflective of the industry and we’d expect that to continue as we move forward.

Any particular states that are represented more or less?

Historically ProAg was based in Texas and so they have a strong concentration in Texas, but not significantly more than what the industry distribution is.

Okay, thanks for that.

Good morning everyone thanks for taking my questions. I wondered if you could start by commenting on short term medical and if you have any updated view on how sticky that premium might be?

I was wondering when someone was going to ask that Brian, it is Chris Williams. Look as you will know from prior calls we had indicated that we weren’t going at a run rate just yet we weren’t sure if it was an aberration because of all the changes in the Affordable Care Act.

I think what we're seeing is some a little more consistency than perhaps we anticipated earlier in the year. I think the true test will be when the next enrollment goes for us to see if that does continue to move along.

But we like that this is very much just short term product, fits very nicely in our portfolio. One just interesting point is that if you do look at the MIS business in the medical stop-loss business a great business there.

You know there is a possibility that that segment could exceed $1 billion this year which would be, which we quite something and is a great addition to our portfolio that does go against somewhat what happens in the property casualty world.

Hey great and your international lines even if we look at the nine months net written premium growth rate of 8%, that starts to be pretty healthy. I am wondering if you are starting to feel conviction in a multiyear ramp opportunity in your international lines?

Multiyear in terms of coverages you mean or…

In terms, sorry in terms of the growth opportunity.

Look we, you know we’re opportunistic, I mean there were some markets as Bill said that they've got a little bit more headwind than some of the others, I mean we as an example our credit and surety business there I do a wonderful job over there. We’ve got a few other niches that are performing very well so, I mean there is obviously a goal to grow all of our businesses, grow them with the underwriting margin that we want and if we can achieve that we'll certainly do it.

But some of the lines it’s going to be a little tougher to do as the market softens.

Is there a natural level of net to gross you can achieve in the U.S. P&C lines over time?

Again I think depends a lot on business mix. As you know, when we enter new lines of business we historically buy quota share and as time moves on we generally gravitate to more excess of loss.

But it would be difficult to come out with a flat percentage because again its business mix and it’s depending on what’s going on in particular businesses at any particular time.

Okay. Can you remind us if the FX benefit has any impact on the combined ratio?

Hi this is Brad, it does not.

Okay, last question.

Let me backup on that I am sorry. The pieces that can have a impact on the combined ratio and is in the expense ratio, so we have Sterling expenses in our international operations that would be Sterling, strengthening or weakening that can have an impact on the expense ratio.

It happens to be that if you look at the expense ratio this year compared to last year there is an impact from the Sterling being stronger this year as compared to last year. So that’s the benefit I think you talking about is the one the one that we pull out of our operating earnings which is the balance sheet measure and has no impact on the combined ratio.

Got it, thank you. So my last question is, again on growth, as you get back to growing at a healthy rate, can you remind us how you’re thinking about how much equity capital you need to retain to support that growth assuming its balanced across the portfolio, does it scale with tangible book value or with GAAP equity or how do you think about capital needs?

Brian, the short answer is I think we feel we're very well capitalized. I think we have some headroom for the businesses that we're in.

As we say, when we talk about our capital publicly, we do have in excess of what Standard & Poor’s indicate we would need to keep a AA rating. So we are very comfortable with where we sit capital wise.

Okay.

Thank you, everyone. This has been a very busy summer for HCC with our current businesses performing very well and obviously we've had some exciting additions of new lines and new teams of business, which add to our diversified portfolio.

We'll look forward to reporting our full year's results early next year and finally I would ask you just to remember that we'll be holding an Investor Day June 11, 2015 in Houston. Everyone have a great day and Happy Halloween.

Thank you.