This telephone conference call relates to HCC Insurance Holdings Incorporated. Before we begin, the company has requested that I read the following statements, which will govern the telephone conference today. Statements made in this telephone conference that are not historical facts including statements of our expectations of future events or our future financial performance are forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risk and uncertainties and we caution investors that a number of factors could cause our actual results to differ materially from those contained in any such forward-looking statements. These factors and other risks and uncertainties are described in detail from time to time in our filings with the Securities and Exchange Commission. This conference call and the contents thereof and any recording, broadcast or publication thereof by HCC Insurance Holdings Incorporated are the sole property of HCC Insurance Holdings Incorporated and may not be recorded, rebroadcast or published in whole or in part without the expressed written consent of HCC Insurance Holdings Incorporated. The conference will begin momentarily. Until that time, you’ll again be placed on music hold. Ladies and gentlemen, thank you for standing by and welcome to today’s third quarter 2010 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions) Thank you. I would now like to turn the conference over to Mr. John Molbeck, President and CEO. Sir, you may begin your conference.

Thank you, operator. Welcome everyone to HCC’s third quarter conference call. I suspect many of you have a little post election hangover, so we’ll try and work through this and answer your questions as quickly as possible. Joining me today is Tobin Whamond, our Chief Operating Officer, Mike Schell, our Chief Underwriting Officer; Cory Moulton, our EVP of Property and Casualty, Craig Kelbel, who is our EVP of our Life, Accident, and Health Business, Brad Irick, our CFO, Pam Penny, our Chief Accounting Officer and Randy Rinicella, our General Counsel. Our performance for the third quarter was a direct reflection of our strategy of building a portfolio of non-correlated specialty businesses that largely operate within their own cycles. Our net income excluding reserve development is actually higher for the year-to-date 2010 than the same time last year, a result which we consider to be excellent. Our GAAP combined ratio of 82.1% for the quarter and 85.3% for the first nine months and our accident year combined ratio for the quarter was 82.2% and 85.1% for the first nine months. Catastrophe losses in 2010 represented a 1% increase in our accident year loss ratio. The accident year loss ratio for the quarter was up by a particularly benign loss environment for energy, which was possibly helped, somewhat by the moratorium of drilling in the Gulf of Mexico, as well as our property treaty and our surety and credit businesses. Our premium growth was relatively flat despite the continued competitiveness of the market. Our renewal percentage on business that renews annually and that we contract was 85% for the quarter and in the mid-80's for the year-to-date. Tobin will now review with you the financial highlights for the quarter.

Thank you, John. Gross written premium of HCC's Insurance Companies increased 3% to 1.95 billion in the first nine months of 2010 compared to 1.9 billion for the first nine months of 2009. The net earned premium was up slightly at 1.54 billion. For the third quarter of 2010, gross written premium was up 3% over the third quarter of 2009 to 640.7 million. John will discuss the drivers behind the top line in a moment. Operating cash flow for the third quarter of 2010 was strong at 175.3 million which is inline with our expectations for full year of 2010 of 400 million. In the first nine months of 2010, net investment income increased to 150.6 million compared to 141.7 million for the first nine months of 2009, driven primarily by an increase in the size of our long-term fixed income portfolio partially offset by the effect of lower short-term yields. The fair value of our fixed income portfolio and our total investments at September 30 was 5.4 billion and 5.8 billion respectively. The overall portfolio mix remained relatively consistent between June 30 and September 30. In the municipal bond sector, we continued our focus on high quality issuers and essential service revenue bonds. The duration of our fixed income portfolio decreased in the third quarter to 4.6 years from 4.8 years at the end of the second quarter, driven primarily by increased prepayments fees in our Agency MBS and CMO portfolio with our overall duration unchanged at 4.4 years. The quality of our portfolio remained consistent at AA+. For the third quarter, average long-term book yield was 4.1% and average tax equivalent yield was 4.9%. The net unrealized gain position on our available for sale portfolio increased to 301.3 million at September 30 from 224.9 million at June…

Thanks, Tobin. As you can see by our press release, this quarter we announced new segment reporting which is a result of our organization around our key lines of business. The new segments are U.S. Property and Casualty, Professional Liability, Accident & Health, U.S. Surety and Credit and International. The segment results are being measured based on pre-tax underwriting profit without consideration of investment income. This is exactly the way we measure the performance of our Executives and our individual subsidiaries. The consolidated investment portfolio and net investment income are included in the investment segment. Our remaining operations will be reported in a corporate and other category which includes corporate operating expenses not allocable to other segments, interest expense on long-term debt and the underwriting results of our exited lines. Exited lines are lines which we no longer, nor do we intend to write. The premium and loss information included in the press release is broken down by the new segments. The segment underwriting results, as well as the additional segment information will be included in third quarter 10-Q but most importantly we believe this presentation of HCC segments advise more product information and increased clarity to the readers of our financial statements. It is our intention, approximately the same time we file the Q, to file an additional 8-K which will provide 2009 data of the new segments by quarter, as well as the first three quarters of 2010. That should help you have a better feeling and understanding of the numbers. As to pricing for the third quarter, overall pricing was largely flat. We achieved price increases in our International aviation, U.S. Surety, medical stop loss, our miscellaneous and architects and engineers (Inaudible) business, employment practices liability and U.K. liability and energy books. D&O was down about 4…

(Operator Instructions) Your first question comes from Matt Carletti of JMP.

Hey, good morning. Just a couple of questions. First on D&O and E&O. Was there anything on, could you just comment on what you saw in the quarter from the loss perspective, if anything changed or if it's still kind of status quo from what we've seen in more recent quarters?

It was just a regular, as far as we're concerned, if there is such a thing as a routine quarter in those lines of business, it was a routine quarter. Nothing unusual took place.

Okay and then you mentioned the technical property line that in early 2011 you're looking to star writing. Could you just give us a little more color on what sorts of risks are those? It seems like onshore energy and do you have any idea what size that book could become once that run rates?

Well as you know we do things on a measured basis and technical property business would be anything from refineries, petrol chemical plants, steel plants, mines. I'm not saying those are the classes of business we would write but they would all fit into those categories. It's predominantly onshore. Its things that go boom. They're high severity risk but not high frequency risk with not a lot of aggregate exposure for wind and quake. Our target for 2011 would be 1 to 2% of our overall premium income. I could see us over a period of time, five years, that representing a 200 to $250 million book of business but we're going to do it slowly, put the systems in place. We've hired the team. We haven't announced it yet because we'll do that at the appropriate time, who the team is and we're ready to go.

Okay, great and last question, could you just give a little color on your thoughts on the energy market kind of post Deepwater and that's kind of, in your eyes improved as much as some people have been kind of thinking or if it hasn't really developed that way?

I think energy pricing is up somewhere, I've heard really big numbers but I would say the real numbers are 5 to 10%. Having said that it's in a market where all of the things being equal, I think energy pricing could have gone down 20 to 25%. So while the pricing is up in a market where we anticipated it would go down, I think it's produced very attractive results for people who understand the business. As you look out towards the results and what's going to happen in 2011, losses like Deepwater Horizon, et cetera have devastated some excess loss programs and there's people who are going to have to pay up for their reinsurance in 2011 which might mean the direct pricing is going to stay pretty stable or go up. We luckily bought a lot of facultative reinsurance for the Deepwater Horizon and did not have a material loss whatsoever to our Excel program and in fact to the company we had minimal loss.

Okay, great. Thanks a lot John and congrats on a great quarter.

Thanks Matt.

Your next question comes from Amit Kumar of Macquarie.

Thanks and good morning. Just going back to the discussion on D&O. Recently, we've seen a lot of news reports on FDIC going after the community bank and in fact another lawsuit was filed on Monday. I’m just wondering first of all, what are your thoughts and what portion of your, my sense is that you don't write too much of community banks? Maybe just refresh us to the potential exposure to that line and also separately touch upon the discussion on foreclosure documentation and any possible D&O impact going forward?

This is Mike Schell. On the community banks the exposure is just as you stated. I can't add anything to that. We're underrepresented on community banks. We like to write regional banks, a little larger range of banks than the community banks but one of the problems our underwriters have had is the terms and conditions that you have to write regional banks and community banks on and our underwriters and D&O believe that it is important that you have regulatory exclusions on D&O. The markets not generally requiring that so it's not a significant exposure to us because we haven't been able to write as much business as we would normally like to under different conditions on regional banks, well it'd be mostly regional banks for us rather than community banks. You're going down a step there so that's our situation on that. On the foreclosures all I can say is its early days and it looks like the mega financial institutions have another significant issue to deal with, along with title insurers and title agents. I can't comment on anything other than I'm not sure how this is going to play out and we'll monitor it as it goes. The one thing that I will say is that it is a vastly different situation from the Great Recession and credit contraction and all the concern that we had during these calls two to three years ago when the uncertainty in what was going to develop out of subprime related D&O claims but it's certainly bears monitoring.

Got it and that's helpful and just one other question. In terms of, you always mention that M&A people and buyback are how you view the use of capital and I know you talked about technical property and hiring a new team. We haven't seen any M&A activity from you guys. What do you think is the biggest hindrance right now in terms of closing some of the deals you might have looked at? Is it mostly pricing or as you're getting closer, as you're looking at some of these entities, you're sort of seeing that maybe the reserves are an issue? Maybe just expand on that a bit more, why we haven’t seen any uptake in the deal activity?

Well I think to assume we haven’t been working extremely hard in M&A would be a bad assumption. I think we probably worked harder in 2010 to date on M&A then we probably have in the past five years. I would have to say that when we go through the due diligence process and we come to our conclusions, as a general statement I would say we know more about the companies financials that we looked at in the reserves than they do and therefore when we get into the discussion of pricing, we find that their pricing expectations are unrealistic. And we're not in a hurry to do anything. If there's a deal out there that makes sense for us and our shareholders we certainly want to do it but we're not going to pay over the odds pricing for a business that’s not worth it. So it's not that we're not active, we're very active. It's not that we haven’t got into any great detail on a number of acquisitions, we have but at the end of the day some of these deals are being done I think are, in my opinion, they’re being done to put premium income on the books to offset expense ratios rather than it's a good long-term viable business.

And then is the pipeline still robust in terms of potential deals?

I would say the public pipeline is not as robust. Two companies that are probably no longer on the map now have been announced. I've been following stock prices of other small companies. It looks like those stock prices have gone up in anticipation of potentially people making over the top offers. The smaller accounts, we're looking at several right now in businesses that really are complimentary to what we already do and where we want to grow our overall portfolio so it's kind of in between and we'll just see how that space continues to develop.

Okay. That's all I have. Thanks for those answers and congrats on the results.

Thank you very much.

Your next question comes from Raymond Lardella with Oppenheimer.

Hey, good morning. John, could you maybe remind us on how you guys look at reserves. Whether I guess a complete analysis is done quarterly and then maybe could you talk about any changes in the philosophy or process given the arrival of Mark and Brad?

Well I would say the process continues to be extremely rigorous and just as a general frame of reference we look at CATS every quarter just to make sure there's nothing going with catastrophes. We look at anything that seems to be an aberration from the norm every quarter. In the third quarter we look at our agency driven business as a general rule. In the fourth quarter we look at our insurance company business. In our first quarter we look at our life, accident and health and in the second quarter we look at aviation and the reason we look at second quarter, we look at aviation because aviation is a very seasonal business and it takes, when we look at it in the second quarter the lost picture slows down because it's a slow quarter for aviation. Nothing is really changed in our process over the last several years and the addition of Brad and Mark has certainly been an additional benefit and we get to look at a lot more numbers in different fashions but the end result of the process is the same.

Great, thanks and then I guess continuing on I guess to development track, what was the, did you get the notional amount of what the adverse number was from '06, '09 I think it was?

Well I think it was roughly in the miscellaneous, approximately $12 million pre-tax.

Okay.

And it was a function of a couple of things. It was a function of writing limits on counts, higher limits of 5 million. We would typically write one on an A&E book and it was also a function of writing in jurisdictions where we shouldn’t have written in those jurisdictions. We're an insurance company. We take risk. We don't always get it right. We've analyzed it. We've looked at it. We've made personnel changes and we think we have it right now.

Okay and then what was the favorable development I guess offsetting that in the quarter?

Two things, primarily our public risk business that we write predominantly in the Mid-West but also a little bit in the South and also in our surety book in the U.S.

Great and then lastly did you have any exposure to the New Zealand quake? I'm assuming no?

Yes, we had exposure to the New Zealand quake and off the top of my head I thinks its about $2.5 million pre-tax but that would be kind of right where we would expect it to be for the lines that we have in New Zealand . So, it's already in the numbers.

Okay. Thanks.

You're welcome.

Your next question comes from Doug Mewhirter of RBC Capital Markets.

Hi, good morning. Just had a couple of smaller questions. First, noticed that your experience in and experiences of some of your similar sized competitors in surety continue to be fairly good. In fact, you mentioned that favorable development in U.S. surety and looks like your accident year loss ratio seem to be favorable. Now given the economy do you think it was maybe the effect of the rebound off of the, I guess favorable comparisons was probably a pretty bad environment a year ago and maybe you were a little bit conservative or is just things, claims not rolling in as expected or is it as you expected?

I think it's all of those things. I think we write a very different book. Even I think we're now the six largest surety company in the United States but we write in the United States, we write either highly collateralized books of business. In some instances on our substandard surety, where we write the smaller sized contractors predominantly in the middle Atlantic states. We moved our (inaudible) up in 2009 anticipating more than our normal experience with respect to losses. We really haven’t experienced that yet but we still feel there's a tail to that business and that could, it could happen in 2011. So for us it is really our surety business and credit business in the United States and Internationally as a franchise, that we've really been trying to build. It comes with it a low expense rate, I'm sorry a low loss ratio. If you manage the business well it comes with it also a higher expense ratio because that's what surety's all about. We're very happy with that portion of our overall portfolio.

Okay, thanks for that. I might have said two other, I guess accounting related questions. First, do you have, I see how you've reorganized how you account for seating commissions. Do you have any significant third party commission business and is that, would that be put down into the segments or would that be put into the other income?

This is Brad Irick. The fee commission income for our third party business will remain in other income so you'll see on the face of the statements we did collapse the fee and commission income into one line item with our other income and that's where you'd find the third party fee and commission income. And that is split into the segment so the agencies that attach to the businesses, so for example with U.S. Property and Casualty they will be in the U.S. Property and Casualty segment.

And that predominantly comes from HCC Specialty which as if you've seen our previous book press release this quarter was a combination of the old PIA company and HCC Specialty underwriters so that’s the majority, not exclusively but the majority of our third party business comes from those lines.

Okay thanks for that answer and my last question. Again, an accounting related question is just looking at the comparisons with your new accident health segment and your old accident health segment, did you send one of the lines out to another active segment or was there a discontinued piece of that because it just seemed that the premiums didn't quite match up? I was just wondering was there?

Well the provider excess would have gone into the exited line business.

Okay.

That's the difference.

Okay. That makes sense. That seems, that makes sense. Thanks, that's all my questions.

You're welcome.

Your next question come from Dean Evans of KBW.

Yes thanks. I was wondering if you could touch on what obviously looks like it was somewhere around a $12 million favorable reserve? Where did the offset to the miscellaneous additions come?

The $12 million unfavorable was miscellaneous in (inaudible) architects and engineers and the favorable was in the public official liability book of business and our surety business in the United States.

What accident years was that for?

I don't have that information right in front of me. Sorry.

Okay. I guess my last.

Initially, C&O was 2006 to 2009. I don't have the surety and credit and the public official liabilities.

Okay. My second question I guess kind of somewhat of an accounting but could we sort of of touch on the operating income line and what, I know previously it had been almost a catchall? What all falls in there now and how do we think about that level going forward?

Yes. The largest component of that is going to be the theme commission income from third parties. We also will have in there, we don't have it this quarter but in the first quarter of this year we would have had the (inaudible) computation of about $8 million. In the prior year you may remember the magic computation that was about $25 million I believe in the first quarter of 2009 so those are some of the larger pieces that will be in other income. We will have in the queue when we file that, that'll be a detail of the items in other income.

Okay.

(Operator Instructions) Your next question comes from Deepinder Bhatia of Ironbound Capital.

Hi. Just sort of to understand the savings that you've had in the loss ratio, the improvement in the loss ratio I guess it's about 2, 2.9%, 2% better off that 24.5%? Can you help us understand where that saving came from and how much of it is one off and how much of it we might think is repeatable?

You meant expense ratio right?

Yes.

Okay. About one point of the expense ratio is because of the re-segmentation and the reason for that is the way we used to report the profits of the agencies that. If we have an agency that generates an agency profit. That in the old segment was included in agency as a segment. That’s no longer in the agency segment. It falls out into the insurance so one way to look at it is, previously we overstated our expense ratio because the profit and the agency stayed in the agency. So that's about one point. The other point is just a mix of business from one quarter to the next. We've targeted an expense ratio of 25 to 26% as our long-term target for expense ratio.

Okay. Any other productivity gains during the quarter you might want to highlight or any other efforts that might be leading to any productivity gains in coming quarters that you want to talk about?

Nothing that we haven't already discussed in our comments.

Okay. Just in terms of your net retention this quarter. I'm trying to understand here what might have been the drivers? You had a little bit of a pick up in top line and you gave back some in retention. So if you could just tell us what's going on underneath the surface in terms of managing your risk, managing your book or any particular segments that you’re trying to under emphasize or over emphasize?

Really it falls back into opportunistic reinsurance buying for the 2010 underwriting year where we bought some additional quota share protection that we thought was worth buying to protect our exposure in some of our larger limit business. So the difference between the gross written premium and the net written premium which will eventually be reflected in the earned premium as we bought more reinsurance in 2010. And it's not substantially more, it's probably somewhere around $30 million more than we would have the previous year and so that will eventually work its way through the earned premium. A portion of that's already happened in the first nine months but it was just an opportunistic buy.

Okay. I guess the last question from me and then maybe if you have time I'll come back to some others later is on the international side there was quite a steep pickup? Is this mostly the aviation business?

No, it's mostly the Property Treaty business.

So can you just walk us through what's this, the total quantum of this line item and I notice that it's up a good 53%. Is that the same number you're looking at?

Well the property treaty business on a written basis was roughly $70 million for the first nine months of 2010. We projected $75 million for the year. It's going to come in somewhere close to that and if you look at the loss ratio it's running at a very nice, knock on wood, we still have a quarter to go, loss ratio for 2010.

Okay. Thank you very much.

You're welcome.

Congratulations on the strong results.

Thank you very much.

Your next question comes from Beth Malone of Wunderlich Securities.

Hey, good morning and congratulations on the quarter.

Morning Beth.

I have just a couple of questions. On the E&O that you had the development on, I'm assuming that you address those programs with pricing or didn't rewrite them or how did you address that?

Well we contracted the limits on a lot of those programs. We've frankly fired the underwriting manager and the underwriter. We restricted writing business in States like Florida where we really didn't have a complete grasp of what it is that we were trying to accomplish. We've increased the prices so as a result of all those things you’ll see our volume has dropped in that business which is fine and we think we've fixed it. We won’t know. We won't know for another year, another year and a half but we started that process almost a year and half ago.

Okay. All right. Thank you and then on the credit business I know you address the surety but on credit that too experienced a nice increase in the written premiums. Is that reflective of the credit markets starting to stabilize or are the pricings starting to look better?

Well really what you see in the numbers you’re looking at now is a reflection of what happened to the credit market at the time we wrote those polices. The credit market continues to be a good place for us to be but the pricing isn't as good in, this point in 2010 as it was this point in 2009 but we still think there's attractive underwriting propositions for us to continue to write.

Okay and then I think this last question is on the energy sector. Deepwater Horizon, we saw the loss ratios through the nine months were only 25.4 on International energy. Is that reflective of the moratorium on the drilling and should we anticipate that that rises going forward now that they're allowed to drill again?

Well I just made the assumption that the loss experience was lower than we would anticipate because it was less drilling. That's just me making an assumption. I don't think that necessarily more drilling creates more losses but the attritional loss ratio for that business should be in the 40's and we've been doing better than that. That's attritional not including CATS so I think we should be back in 2010, 2011 in the 40 to 50% loss ratio business excluding CATS.

Okay. All right. Well thank you.

You're welcome.

Your next question is a follow-up from Doug Mewhirter of RBC Capital Markets

Yes just a real quick follow-up. On the International business the other sub segment had a pretty big jump on the gross line, the gross written line. It looked like a lot of it was reinsured? Was there a large contract or is there a new team there or non-organic growth?

No we wrote a very big policy for an insured which was 90% reinsured. I don't want to give the name of the company because we just don't do that but it was a very large policy which we were able to go out and place a lot of facultative reinsurance and protect ourselves and lo and behold they had a loss so it was a good decision.

Was it a short-tailed line or long tailed line?

Short tail.

Short tail. Okay.

We wouldn't do it on a long tail line of business.

Okay. That's all I had. Thanks.

You're welcome.

At this time there are no further questions. I would now like to turn the floor back over to Mr. John Molbeck for any closing remarks.

Thank you, operator and thanks everybody for your attention and for your questions. We will be filing the Q by next Tuesday and we'll be filing the supplemental information which will help you work through the numbers. Look forward to our next call at the end of the year. Thanks again.

Thank you. This concludes today's conference. You may now disconnect.