Oppenheimer Raises Estimates On HCC Insurance Holdings

Oppenheimer is updating its 2010 and 2011 estimates for HCC Insurance Holdings HCC following third-quarter results. Its 4Q10 estimate is two pennies higher at $0.76 due to a lower expected accident year loss ratio. The 2011 estimate is $0.03 higher at $3.00/share because of two main drivers: First Oppenheimer expects a bit more premium growth in 2011 from property, surety, and some other short-tail lines. Oppenheimer thinks a shift towards these products in HCC's underwriting portfolio will drive YoY accident year loss ratio improvement. HCC's ability to generate attractive underwriting returns, without the benefit of reserve development, should separate HCC from its specialty company peers over time. Oppenheimer reiterates its Outperform rating and $33 price target. HCC continues to grind out double digit returns in a very competitive and challenging market environment. It currently trades at 0.95x book value, compared to its peer group average at 1.1x book value; we suspect the valuation gap will fade over time as HCC delivers solid accident year and calendar year underwriting performance. HCC closed Friday at $27.79