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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 11-K

 

FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

(Mark one)

 

x                              ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2013

 

OR

 

o                                 TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from           to           .

 

Commission file number 001-13790.

 

A.            Full title of the plan and address of the plan, if different from that of the issuer named below:

 

HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

 

B.                                    Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

 

HCC INSURANCE HOLDINGS, INC.

13403 Northwest Freeway

Houston, Texas 77040

 

 

 



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HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

 

TABLE OF CONTENTS

 


 

 

Page

 

 

Report of Independent Registered Public Accounting Firm

1

 

 

Financial Statements:

 

 

 

Statements of Net Assets Available for Benefits as of December 31, 2013 and 2012

2

 

 

Statements of Changes in Net Assets Available for Benefits for the years ended December 31, 2013 and 2012

3

 

 

Notes to Financial Statements

4

 

 

Supplemental Schedule*:

 

 

 

Schedule H, Item 4i - Schedule of Assets (Held at End of Year) as of December 31, 2013

16

 

 

Signature

17

 

 

Exhibit 23.1 — Consent of Ham, Langston & Brezina, L.L.P., Independent Registered Public Accounting Firm

 

 


*      Other supplemental schedules required by Section 2520-103.10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974  have been omitted because they are not applicable.

 



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Investment Committee

HCC Insurance Holdings, Inc. 401(k) Plan:

 

We have audited the accompanying Statements of Net Assets Available for Benefits of the HCC Insurance Holdings, Inc. 401(k) Plan (the “Plan”) as of December 31, 2013 and 2012 and the related Statements of Changes in Net Assets Available for Benefits for the years then ended.  These financial statements are the responsibility of the Plan’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  We were not engaged to perform an audit of the Plan’s internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2013 and 2012, and the changes in net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole.  The supplemental Schedule of Assets (Held at End of Year) as of December 31, 2013 is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974.  This supplemental schedule is the responsibility of the Plan’s management.  This supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

 

 

/s/ Ham, Langston & Brezina, L.L.P.

 

 

Houston, Texas

 

June 30, 2014

 

 

1



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HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS

December 31, 2013 and 2012

 


 

 

 

2013

 

2012

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

Notes receivable from participants

 

$

2,601,699

 

$

2,325,926

 

Investments at fair value:

 

 

 

 

 

Registered investment companies (mutual funds)

 

121,113,285

 

91,032,742

 

Guaranteed interest contract

 

36,742,068

 

35,032,191

 

HCC Insurance Holdings, Inc. common stock fund

 

7,787,930

 

6,124,247

 

 

 

 

 

 

 

Total investments

 

165,643,283

 

132,189,180

 

 

 

 

 

 

 

Net assets available for benefits at fair value

 

168,244,982

 

134,515,106

 

 

 

 

 

 

 

Adjustment from fair value to contract value for fully benefit-responsive investment contracts

 

(1,193,771

)

(2,728,311

)

 

 

 

 

 

 

Net assets available for benefits at contract value

 

$

167,051,211

 

$

131,786,795

 

 

The accompanying notes are an integral part of these financial statements.

 

2



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HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS

For the Years Ended December 31, 2013 and 2012

 


 

 

 

2013

 

2012

 

 

 

 

 

 

 

Additions to net assets attributable to:

 

 

 

 

 

Investment income:

 

 

 

 

 

Interest

 

$

1,235,987

 

$

1,273,067

 

Dividends

 

6,213,887

 

3,258,575

 

Net appreciation in fair value of investments

 

19,304,796

 

9,617,876

 

 

 

 

 

 

 

Total investment income

 

26,754,670

 

14,149,518

 

 

 

 

 

 

 

Contributions:

 

 

 

 

 

Employer

 

4,785,392

 

4,395,774

 

Participants

 

8,337,449

 

7,649,515

 

Rollovers from other plans

 

2,599,702

 

1,271,537

 

 

 

 

 

 

 

Total contributions

 

15,722,543

 

13,316,826

 

 

 

 

 

 

 

Interest income on notes receivable from participants

 

101,127

 

100,508

 

 

 

 

 

 

 

Total additions

 

42,578,340

 

27,566,852

 

 

 

 

 

 

 

Deductions from net assets attributable to:

 

 

 

 

 

Benefits to participants

 

7,263,634

 

7,646,611

 

Administrative expenses

 

50,290

 

49,141

 

 

 

 

 

 

 

Total deductions

 

7,313,924

 

7,695,752

 

 

 

 

 

 

 

Net increase in net assets available for benefits

 

35,264,416

 

19,871,100

 

 

 

 

 

 

 

Net assets available for benefits, beginning of year

 

131,786,795

 

111,915,695

 

 

 

 

 

 

 

Net assets available for benefits, end of year

 

$

167,051,211

 

$

131,786,795

 

 

The accompanying notes are an integral part of these financial statements.

 

3



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HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

NOTES TO FINANCIAL STATEMENTS

 


 

1.                                      Description of Plan

 

The following description of the HCC Insurance Holdings, Inc. 401(k) Plan (the “Plan”) provides only general information.  Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.  As a result of the merger of several other qualified plans of acquired companies since the inception of the Plan, the Plan has been amended to include certain specific provisions applicable only to certain merged participants.

 

General

 

The Plan is a defined-contribution plan, established effective January 1, 1992, designed to comply with Section 401(a) of the Internal Revenue Code (the “Code”) and is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).  The Plan was amended and restated in its entirety on January 11, 2012, effective January 1, 2012, and further amended, with the latest amendment dated on April 19, 2013, which was effective as of May 1, 2012.  The amendments were primarily administrative in nature, bringing clarity to certain administrative practices as well as making plan withdrawals at age 59 ½  available to all participants (an option previously only available to certain participants merged in from acquired plans).  These amendments did not affect net assets available for benefits.

 

Non-union, full-time employees of HCC Insurance Holdings, Inc. and subsidiaries (the “Company”) become eligible to participate in the Plan upon the earlier of (i) completion of thirty consecutive days of active service and attaining the age of 21, or (ii) completion of one year of service and attaining the age of 21.  Participants are eligible to make deferral contributions on the next available payroll (based on administrative practicality) following such eligibility date.  All eligible employees must complete one year of service to become eligible for employer matching contributions.  One year of service is defined in the Plan document as completion of 1,000 hours of service within 12 months.

 

Administration

 

HCC Insurance Holdings, Inc. is the administrator of the Plan (the “Plan administrator”).  Reliance Trust Company is the Plan’s trustee and State Street Bank and Trust Company is the custodian of the Plan’s assets.  Massachusetts Mutual Life Insurance Company (“MassMutual”) serves as recordkeeper of the Plan.

 

Contributions

 

Participants are able to contribute from 1% to 90% of their pre-tax annual compensation not to exceed the limitations set forth in Section 402(g) of the Code ($17,500 and $17,000 for 2013 and 2012, respectively).  Participants may make catch-up contributions (pre-tax contributions that exceed the annual elective deferral limit) during any calendar year ending on or after the participant’s 50th birthday.  A participant’s total catch-up contribution was limited to a maximum of $5,500 during 2013 and 2012.  Participants may also make rollover contributions from other qualified plans.  Participants direct the investment of their contributions into various investment options offered by the Plan.

 

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HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

NOTES TO FINANCIAL STATEMENTS

 


 

1.                                      Description of Plan, continued

 

The Plan also provides for discretionary employer matching contributions for each $1 contributed by a participant, up to a maximum of the lesser of 6% of the participant’s Plan compensation or $10,200.  During 2013 and 2012, the Company made discretionary contributions of $4,785,392 and $4,395,774, respectively, to the Plan.  The Company matching contributions are generally computed each pay period in which participants’ contributions are made and are invested directly in the various investment options as directed by the participant.  The Plan additionally provides for annual discretionary qualified non-elective contributions (as defined in the Plan document).  There were no discretionary qualified non-elective contributions made during 2013 or 2012.

 

Participants’ Accounts

 

Each participant’s account is credited with the participant’s contributions and allocation of the Company’s contributions and Plan net earnings.  Net earnings are allocated by fund based on the ratio of a participant’s account invested in a particular fund to all participants’ investments in that fund.  Upon the occurrence of a distribution event, the benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested interest in his or her account.

 

Vesting

 

Participants are immediately vested in their elective contributions and any qualified non-elective contributions, plus any earnings on such contributions.  Vesting in the Company’s contribution portion of their accounts is based on years of service.  A participant becomes 20% vested after two years of service, 40% after three years, 60% after four years, 80% after five years and 100% after six years.  However, if an active participant dies or terminates due to disability prior to attaining the normal retirement age, the participant’s account becomes 100% vested.

 

Notes Receivable From Participants

 

Participants may borrow from their fund accounts up to a maximum equal to the lesser of $50,000 or 50% of the participant’s vested account balance.  Notes receivable from participants are calculated on a fully amortized basis.  A note receivable from a participant is collateralized by the vested balance in the participant’s account and bears interest at a rate commensurate with market rates for similar loans, as defined in the Plan agreement.  Interest rates on outstanding notes receivable from participants ranged from 4.25% to 8.50% as of December 31, 2013 and 4.25% to 9.25% as of December 31, 2012.

 

Payment of Benefits

 

Upon termination of employment, a participant (or his or her designated beneficiary in the event of death) may elect to receive either a lump-sum amount equal to the value of the participant’s vested interest in his or her account or to have the account balance distributed in the form of an annuity.  Effective December 3, 2012, a participant who has attained age 59 ½ and who is still employed by the Company is allowed to withdraw all or a portion of his or her vested account balance.  Distributions are subject to the applicable provisions of the Plan agreement.

 

5



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HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

NOTES TO FINANCIAL STATEMENTS

 


 

1.                                      Description of Plan, continued

 

Forfeited Accounts

 

All employer contributions credited to a participant’s account, but not vested, are forfeited by the participant upon distribution of the fully vested value of his or her account.  A participant who returns to employment within five years from his or her previous termination date is entitled to have his or her forfeited account balance restored upon repayment of any employer contributions withdrawn following original termination.  Forfeitures are used to reduce employer contributions or to pay Plan expenses.  During the years ended December 31, 2013 and 2012, forfeited non-vested accounts totaling $196,412 and $252,866, respectively, were used to reduce administrative expenses and employer contributions.  The balance of forfeited accounts available to reduce future employer contributions or pay Plan expenses was $62,380 and $29,229 at December 31, 2013 and 2012, respectively.

 

Administrative Expenses

 

The Plan is responsible for payment of the Trustee expenses and fees; however, the Company may pay the Plan expenses directly.  No expenses were paid by the Company on behalf of the Plan during the years ended December 31, 2013 or 2012.  Transaction charges (for loan and benefit payment transactions) are paid by the Plan by reducing the balances of those participants initiating the transactions.

 

Expense Offset Arrangements

 

Fees incurred by the Plan for investment management services or recordkeeping are included in net appreciation in fair value of investments, as they are paid through revenue sharing, rather than a direct payment.

 

Plan Termination

 

Although the Company has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA.  In the event of Plan termination, participants become 100% vested in their total account balance.

 

2.                                      Summary of Significant Accounting Policies

 

Basis of Presentation

 

The financial statements of the Plan are prepared under the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of net assets available for benefits and changes therein.  Actual results could differ from those estimates.

 

6



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HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

NOTES TO FINANCIAL STATEMENTS

 


 

2.                                      Summary of Significant Accounting Policies, continued

 

Fully Benefit-Responsive Investment Contracts

 

As described in Accounting Standards Codification (“ASC”) Topic 962, Plan AccountingDefined Contribution Pension Plans, investment contracts held by a defined-contribution plan are required to be reported at fair value.  However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan.  As required by GAAP, the statements of net assets available for benefits present the fair value of the investment contracts, as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value.  The statements of changes in net assets available for benefits are prepared on a contract value basis.

 

Investments Valuation

 

The Plan’s investments are stated at fair value, and quoted market prices are used to value investments for those investments having quoted market prices in an active market.  As of December 31, 2013 and 2012, the Plan’s investments consisted primarily of investments in registered investment companies (mutual funds), a common stock fund, and a guaranteed interest contract.

 

Investments in registered investment companies (mutual funds) are valued at quoted market prices, which represent the net asset value of shares held at the end of each reporting period.

 

The Plan’s common stock fund (the “HCC fund”) is invested primarily in HCC Insurance Holdings, Inc. common stock, which is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “HCC” and is valued at its quoted market price at the daily close of the NYSE.  The HCC fund includes investments in short-term money market instruments of $334,119 and $248,240 as of December 31, 2013 and 2012, respectively.  The money market portion of the HCC fund provides liquidity, which enables the Plan participants to transfer money daily among all investment choices.

 

The Plan invests in a guaranteed interest contract through a group annuity contract with MassMutual.  The fair value of this guaranteed interest contract is calculated based on the liquidation value of the pro-rata share of the underlying investments’ fair value.  The guaranteed interest contract meets the requirements of a fully benefit-responsive investment contract as defined by ASC Topic 962.

 

Purchases and sales of securities are recorded on a trade-date basis.  Interest income is recorded on the accrual basis.  Dividends are recorded on the ex-dividend date.

 

See additional information in Notes 3, 4 and 5.

 

7



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HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

NOTES TO FINANCIAL STATEMENTS

 


 

2.                                      Summary of Significant Accounting Policies, continued

 

Net Appreciation in Fair Value of Investments

 

The net appreciation in the fair value of the Plan’s investments, excluding fully benefit-responsive investment contracts, consists of the realized gains or losses on sale of investments and unrealized appreciation or depreciation on investments.  The Plan presents the net appreciation of investments in the statements of changes in net assets available for benefits.

 

Notes Receivable From Participants

 

Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when earned.  Related fees are recorded as transaction charges and are expensed when incurred.  The notes receivable from participants are fully collateralized by the participants’ vested account balances and thus no allowance for credit losses has been recorded as of December 31, 2013 or 2012.  Delinquent notes receivable from participants are reclassified as distributions, based upon the terms of the Plan agreement.

 

Benefit Payments

 

Benefits are recorded when paid.

 

Risks and Uncertainties

 

The Plan provides for various investment options.  These investment options are exposed to market risk, which generally means there is a risk of loss in the value of certain investment securities due to changes in interest rates, security and commodity prices and general market conditions.  Due to the level of risk associated with certain investments and the level of uncertainty related to changes in the fair value of investments, it is reasonably possible that changes in market conditions in the near term could materially affect participants’ account balances and amounts reported in the financial statements.

 

Reclassifications

 

Certain reclassifications have been made in the prior years’ statement of net assets available for benefits and the statement of changes in net assets available for benefits and related note disclosures to conform to the current year’s presentation.

 

8



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HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

NOTES TO FINANCIAL STATEMENTS

 


 

3.                                      Fair Value Measurements

 

In determining fair value, the Plan generally applies the market approach, which uses prices and other relevant data based on market transactions involving identical or comparable assets and liabilities.  The degree of judgment used to measure fair value generally correlates to the type of pricing and other data used as inputs, or assumptions, in the valuation process.  Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Plan’s own market assumptions using the best information available.  Based on the type of inputs used to measure the fair value of the Plan’s financial instruments, the Plan classifies them into the following three-level hierarchy:

 

·                Level 1 —                      Inputs are based on quoted prices in active markets for identical instruments.

 

·                Level 2 —                      Inputs are based on observable market data (other than quoted prices), or are derived from or corroborated by observable market data.

 

·                Level 3 —                      Inputs are unobservable and not corroborated by market data.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

 

The following is a description of the valuation methodologies used for assets measured at fair value:

 

·                  Registered investment companies (mutual funds):  Valued at the daily closing price as reported by the fund.  Mutual funds held by the Plan are open-end mutual funds that are registered with the Securities and Exchange Commission.  These funds are required to publish their daily net asset value (“NAV”) and to transact at that price.  The mutual funds held by the Plan are deemed to be actively traded.

 

·                  Guaranteed interest contract:  Valued at fair value using the liquidation value based on a pro-rata share of the fair value of the underlying investments.  The liquidation value, as provided by MassMutual, is used as the practical expedient to estimate fair value, and approximates NAV.  This value is based on the fair value of the underlying investments less liabilities.

 

·                  HCC fund:  Valued at fair value using the closing price of HCC common stock reported on the NYSE plus the fair value of the short term investment fund.

 

The methods described above may produce fair value calculations that may not be indicative of net realizable value or reflective of future fair values.  Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date.  There have been no changes in the methodologies used at December 31, 2013 and 2012.

 

9



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HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

NOTES TO FINANCIAL STATEMENTS

 


 

3.                                      Fair Value Measurements, continued

 

The following tables present the Plan’s financial instruments that were measured at fair value on a recurring basis as of December 31, 2013 and 2012:

 

December 31, 2013

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

Registered investment companies (mutual funds):

 

 

 

 

 

 

 

 

 

Growth funds

 

$

28,596,449

 

$

 

$

 

$

28,596,449

 

Value funds

 

27,278,299

 

 

 

27,278,299

 

Retirement age funds

 

20,857,097

 

 

 

20,857,097

 

International funds

 

13,809,353

 

 

 

13,809,353

 

Index funds

 

12,983,048

 

 

 

12,983,048

 

Fixed income funds

 

12,961,029

 

 

 

12,961,029

 

Balanced funds

 

4,617,753

 

 

 

4,617,753

 

Money market funds

 

10,257

 

 

 

10,257

 

 

 

121,113,285

 

 

 

121,113,285

 

 

 

 

 

 

 

 

 

 

 

Guaranteed interest contract

 

 

36,742,068

 

 

36,742,068

 

 

 

 

 

 

 

 

 

 

 

HCC fund:

 

 

 

 

 

 

 

 

 

HCC common stock

 

7,403,901

 

 

 

7,403,901

 

Short term investment fund

 

384,029

 

 

 

384,029

 

 

 

7,787,930

 

 

 

7,787,930

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

128,901,215

 

$

36,742,068

 

$

 

$

165,643,283

 

 

10



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HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

NOTES TO FINANCIAL STATEMENTS

 


 

December 31, 2012

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

Registered investment companies (mutual funds):

 

 

 

 

 

 

 

 

 

Growth funds

 

$

20,028,843

 

$

 

$

 

$

20,028,843

 

Value funds

 

13,907,415

 

 

 

13,907,415

 

Fixed income funds

 

14,159,273

 

 

 

14,159,273

 

Retirement age funds

 

14,038,080

 

 

 

14,038,080

 

International funds

 

10,838,185

 

 

 

10,838,185

 

Index funds

 

9,689,044

 

 

 

9,689,044

 

Balanced funds

 

8,371,900

 

 

 

8,371,900

 

Money market funds

 

2

 

 

 

2

 

 

 

91,032,742

 

 

 

91,032,742

 

 

 

 

 

 

 

 

 

 

 

Guaranteed interest contract

 

 

35,032,191

 

 

35,032,191

 

 

 

 

 

 

 

 

 

 

 

HCC fund:

 

 

 

 

 

 

 

 

 

HCC common stock

 

5,836,984

 

 

 

5,836,984

 

Short term investment fund

 

287,263

 

 

 

287,263

 

 

 

6,124,247

 

 

 

6,124,247

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

97,156,989

 

$

35,032,191

 

$

 

$

132,189,180

 

 

There were no transfers between Levels 1, 2 or 3 during the years ended December 31, 2013 or 2012.  During the year ended December 31, 2013, the Plan determined through additional analysis that the inputs related to the fair value measurements of the HCC fund were directly observable as they were based on the market value of underlying assets of this investment.  As a result of this additional analysis, the HCC fund has been classified as a Level 1 financial instrument as of December 31, 2013 and 2012.

 

11



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HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

NOTES TO FINANCIAL STATEMENTS

 


 

4.                                      Investments

 

The following table presents the fair value of the Plan’s investments.  Investments that represent 5% or more of the Plan’s net assets at December 31, 2013 and 2012 are separately listed.

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Guaranteed Interest Contract - Fixed Income Fund

 

$

36,742,068

 

$

35,032,191

 

Select Growth Opportunities Fund

 

13,928,494

 

8,012,587

 

Vanguard 500 Index Fund

 

12,983,048

 

*

 

Select Focused Value Fund

 

8,700,160

 

*

 

PIMCO Total Return Fund

 

8,623,144

 

9,670,946

 

MM S&P 500 Index Fund

 

*

 

9,689,044

 

Investments less than 5% of the Plan’s net assets

 

84,666,369

 

69,784,412

 

 

 

 

 

 

 

Total investments

 

$

165,643,283

 

$

132,189,180

 

 


*Not applicable in period indicated

 

During the years ended December 31, 2013 and 2012, the Plan’s investments (including realized gains and losses on investments bought and sold, as well as held during the year) appreciated in fair value as follows:

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Registered investment companies (mutual funds)

 

$

17,902,274

 

$

8,007,463

 

HCC fund

 

1,402,522

 

1,610,413

 

 

 

 

 

 

 

Net appreciation in fair value of investments

 

$

19,304,796

 

$

9,617,876

 

 

5.                                      Investment Contract with Insurance Company

 

The Plan invests in a guaranteed interest contract with MassMutual, which is a fully benefit-responsive investment contract.  MassMutual maintains the contributions in a general account. The account is credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses.  The guaranteed interest contract issuer is contractually obligated to repay the principal and a specified interest rate that is guaranteed to the Plan.

 

As described in Note 2, because the guaranteed interest contract is fully benefit-responsive, contract value is the relevant measurement attribute for net assets available for benefits attributable to the guaranteed interest contract.  Contract value, as reported to the Plan by MassMutual, represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses.  Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value.

 

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HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

NOTES TO FINANCIAL STATEMENTS

 


 

5.                                      Investment Contract with Insurance Company, continued

 

The fair value of the investment contract at December 31, 2013 and 2012 was $36,742,068 and $35,032,191, respectively.  The crediting interest rate is based on a formula agreed upon with the issuer, but it may not be less than zero percent.  Such interest rates are reviewed on a quarterly basis for resetting.  The average yields for 2013 and 2012 were 3.44% and 3.84%, respectively.

 

Certain events may limit the ability of the Plan to transact at contract value with the issuer.  Such events include but may not be limited to the following: 1) the complete or partial termination of the Plan, 2) the establishment of, or material change in, any Plan investment fund, or 3) an amendment to the Plan or a change in the administration or operation of the Plan.  The Plan administrator does not believe that the occurrence of any such event, which would limit the Plan’s ability to transact at contract value with participants, is probable.

 

The guaranteed interest contract may be terminated by MassMutual upon the Plan’s establishment, activation, or material change to any Plan investment fund that MassMutual determines will prevent its ability to continue to operate the contract under the current terms.  Termination of the guaranteed interest contract by MassMutual may result in the settlement of the outstanding balance at an amount that differs from contract value.

 

6.                                      Party-In-Interest Transactions

 

Plan assets include notes receivable from participants and investments in funds managed by MassMutual.  In addition, Plan investments include a guaranteed interest contract with MassMutual.  As described in Note 2, the Plan invests in the HCC fund, which is comprised primarily of shares of the Company’s common stock.  Personnel and facilities of the Company have been used to perform administrative functions for the Plan at no charge to the Plan.  These transactions qualify as party-in-interest transactions under ERISA.  Such transactions are permitted under the provisions of the Plan and are exempt from the prohibition of party-in-interest transactions under ERISA.

 

7.                                      Credit and Concentration Risk

 

The Plan’s investment in a guaranteed interest contract with MassMutual, which is valued at contract value, was $35,548,297 and $32,303,880 at December 31, 2013 and 2012, respectively.  These amounts represented 21.3% and 24.5% of the net assets available for benefits as of December 31, 2013 and 2012, respectively.  The Plan’s exposure to credit risk on the guaranteed interest contract is limited to the contract value.  There are no reserves against contract value for credit risk of the contract issuer or otherwise.

 

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Table of Contents

 

HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

NOTES TO FINANCIAL STATEMENTS

 


 

8.                                      Tax Status

 

The Plan obtained its latest determination letter on July 31, 2012, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Code.  The Plan has been amended since receiving the determination letter.  However, the Plan administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the Code.

 

9.                                      Reconciliation to Form 5500

 

There were no differences between the amounts reported in these financial statements and the Form 5500 for net assets available for benefits or changes in net assets available for benefits as of and for the years ended December 31, 2013 or 2012.

 

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SUPPLEMENTAL SCHEDULE

 

15



Table of Contents

 

HCC INSURANCE HOLDINGS, INC. 401(K) PLAN

SCHEDULE H, Item 4i — SCHEDULE OF ASSETS (HELD AT END OF YEAR)

DECEMBER 31, 2013

 


 

 

EIN:                     76-0336636

 

PN:                           002

 

(a)

 

(b) Identity of
Issue, Borrower,
Lessor or Similar
Party

 

(c) Description of Investment, Including
Maturity Date, Rate of Interest, Collateral,
Par or Maturity Value

 

(e) Current
Value*

 

 

 

 

 

 

 

 

 

**

 

HCC Insurance Holdings, Inc.

 

Common stock fund - HCC Insurance Holdings, Inc.

 

$

7,787,930

 

**

 

MassMutual

 

Guaranteed Interest Contract - Fixed Income Fund

 

36,742,068

***

 

 

American Funds

 

Mutual Fund - American Funds EuroPacific Growth Fund

 

6,936,119

 

 

 

Dreyfus Funds

 

Mutual Fund - Dreyfus Research Growth Fund

 

34,258

 

 

 

JPMorgan

 

Mutual Fund - JPMorgan Mid Cap Value Fund

 

2,776,905

 

 

 

MFS

 

Mutual Fund - MFS International New Discovery Fund

 

44,524

 

 

 

Morgan Stanley

 

Mutual Fund - Morgan Stanley Institutional Mid Cap Growth Fund

 

1,294,321

 

 

 

Oakmark

 

Mutual Fund - Oakmark Equity & Income I Fund

 

4,617,753

 

 

 

Oppenheimer

 

Mutual Fund - Oppenheimer Global Fund

 

6,795,391

 

 

 

PIMCO

 

Mutual Fund - PIMCO Total Return Fund

 

8,623,144

***

**

 

MassMutual

 

Mutual Fund - Premier Diversified Bond Fund

 

4,337,885

 

**

 

MassMutual

 

Mutual Fund - Premier Money Market Fund

 

10,257

 

 

 

Prudential

 

Mutual Fund - Prudential Jennison Small Company Fund

 

3,091,232

 

**

 

Mass Mutual

 

Mutual Fund - RetireSMART 2010 Fund

 

1,503,097

 

**

 

Mass Mutual

 

Mutual Fund - RetireSMART 2020 Fund

 

5,188,656

 

**

 

Mass Mutual

 

Mutual Fund - RetireSMART 2030 Fund

 

7,337,158

 

**

 

Mass Mutual

 

Mutual Fund - RetireSMART 2040 Fund

 

4,751,503

 

**

 

Mass Mutual

 

Mutual Fund - RetireSMART 2050 Fund

 

1,407,050

 

**

 

Mass Mutual

 

Mutual Fund - RetireSMART In Retirement Fund

 

669,633

 

**

 

MassMutual

 

Mutual Fund - Select Focused Value Fund

 

8,700,160

***

**

 

MassMutual

 

Mutual Fund - Select Fundamental Value Fund

 

6,482,250

 

**

 

Mass Mutual

 

Mutual Fund - Select Growth Opportunities Fund

 

13,928,494

***

**

 

MassMutual

 

Mutual Fund - Select Mid Cap Growth Equity II Fund

 

4,849,429

 

**

 

MassMutual

 

Mutual Fund - Select Small Company Value Fund

 

6,351,564

 

 

 

T. Rowe Price

 

Mutual Fund - T. Rowe Price Equity Income Fund

 

2,967,420

 

 

 

T. Rowe Price

 

Mutual Fund - T. Rowe Price New Horizons Fund

 

5,398,715

 

 

 

Vanguard

 

Mutual Fund - Vanguard 500 Index Fund

 

12,983,048

***

 

 

Wells Fargo

 

Mutual Fund - Wells Fargo Advantage Emerging Markets Equity Fund

 

33,319

 

**

 

Notes receivable from participants

 

Loans to participants bearing interest at rates ranging from 4.25% to 8.50%

 

2,601,699

 

 

 

 

 

 

 

$

168,244,982

 

 


 

*

Cost information is not presented because all investments are participant directed.

 

 

 

 

**

Represents party-in-interest transactions.

 

 

 

 

***

Represents investments comprising at least 5% of net assets available for benefits.

 

 

 

 

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Table of Contents

 

Signature

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the administrator of the HCC Insurance Holdings, Inc. 401(k) Plan has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Houston, State of Texas, on June 30, 2014.

 

 

HCC INSURANCE HOLDINGS, INC. 401(k) PLAN

 

 

 

 

 

By:

HCC Insurance Holdings, Inc., Administrator

 

 

 

 

 

By:

/s/ Pamela J. Penny

 

 

Pamela J. Penny

 

 

Executive Vice President and Chief Accounting Officer

 

 

HCC Insurance Holdings, Inc.

 

17