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þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
		For the fiscal year ended December 31, 2005
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Delaware (State or other jurisdiction of incorporation or organization)		76-0336636 (IRS Employer Identification No.)
13403 Northwest Freeway, Houston, Texas (Address of principal executive offices)		77040-6094 (Zip Code)

Title of each class:		Name of each exchange on which registered:
Common Stock, $1.00 par Value		New York Stock Exchange

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				Page
PART I.
Item 1.		Business			3
Item 1A.		Risk Factors			26
Item 1B.		Unresolved Staff Comments			31
Item 2.		Properties			32
Item 3.		Legal Proceedings			32
Item 4.		Submission of Matters to a Vote of Security Holders			32
PART II.
Item 5.		Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			33
Item 6.		Selected Financial Data			34
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			36
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			61
Item 8.		Financial Statements and Supplementary Data			62
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosures			62
Item 9A.		Controls and Procedures			62
Item 9B.		Other Information			62
PART III.
Item 10.		Directors and Executive Officers of the Registrant			62
Item 11.		Executive Compensation			63
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters			63
Item 13.		Certain Relationships and Related Transactions			63
Item 14.		Principal Accountant Fees and Services			63
PART IV.
Item 15.		Exhibits and Financial Statement Schedules			63
SIGNATURES					64
Statement re Computation of Ratios
Form of Code of Ethics Statement
Subsidiaries of the Company
Consent of PricewaterhouseCoopers LLP
Powers of Attorney
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification Pursuant to Section 906

	•	the effects of catastrophic losses;
	•	the cyclical nature of the insurance business;
	•	inherent uncertainties in the loss estimation process, which can adversely impact the adequacy of loss reserves;
	•	the effects of emerging claim and coverage issues;

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	•	the effects of extensive governmental regulation of the insurance industry;
	•	potential credit risk with brokers;
	•	our increased retention of risk, which could expose us to greater potential losses;
	•	the adequacy of reinsurance protection;
	•	the ability or willingness of reinsurers to pay balances due us;
	•	the occurrence of terrorist activities;
	•	our ability to maintain our competitive position;
	•	changes in our assigned financial strength ratings;
	•	our ability to raise capital in the future;
	•	attraction and retention of qualified employees;
	•	fluctuations in the fixed income securities market, which may reduce the value of our investment assets;
	•	our ability to successfully expand our business through the acquisition of insurance-related companies;
	•	our ability to receive dividends from our insurance company subsidiaries in needed amounts;
	•	fluctuations in foreign exchange rates; and
	•	failures of our information technology systems, which could adversely affect our business.

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Item 1.	Business

	•	Diversified financial products
	•	Group life, accident and health
	•	Aviation
	•	London market account
	•	Other specialty lines

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	•	emphasize the underwriting of lines of business where there is an anticipation of underwriting profits based on various factors including premium rates, the availability and cost of reinsurance and market conditions;
	•	limit our insurance companies’ aggregate net loss exposure from a catastrophic loss through the use of reinsurance for those lines of business exposed to such losses and diversification into lines of business not exposed to such losses; and
	•	consider the potential acquisition of specialty insurance operations and other strategic investments.

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	Lines of Business

			2005								2004								2003
Diversified financial products			$	908,526				45	%		$	857,299				43	%		$	553,501				32	%
Group life, accident and health				593,382				29				584,747				30				565,494				33
Aviation				210,530				10				204,963				10				214,718				12
London market account				144,425				7				178,950				9				223,149				13
Other specialty lines				176,139				9				133,964				7				73,475				4
Discontinued lines of business				5,284				—				15,230				1				109,557				6
	Total gross written premium		$	2,038,286				100	%		$	1,975,153				100	%		$	1,739,894				100	%

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			2005								2004								2003
Diversified financial products			$	675,942				45	%		$	404,870				37	%		$	183,560				21	%
Group life, accident and health				502,805				34				343,996				31				299,913				35
Aviation				130,743				9				144,687				13				99,447				12
London market account				78,809				5				107,509				10				155,987				18
Other specialty lines				109,106				7				83,980				7				36,837				4
Discontinued lines of business				3,819				—				20,477				2				89,758				10
	Total net written premium		$	1,501,224				100	%		$	1,105,519				100	%		$	865,502				100	%

			2005				2004				2003
Diversified financial products				74	%			47	%			33	%
Group life, accident and health				85				59				53
Aviation				62				71				46
London market account				55				60				70
Other specialty lines				62				63				50
	Continuing lines of business percentage retained			74	%			55	%			48	%

	Underwriting

	Diversified Financial Products

	•	directors’ and officers’ liability
	•	employment practices liability
	•	mortgage guaranty
	•	professional indemnity
	•	residual value insurance
	•	surety and credit
	•	other financial products

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	Group Life, Accident and Health

	Aviation

	•	antique and vintage military aircraft
	•	cargo operators
	•	commuter airlines
	•	corporate aircraft
	•	fixed base operations
	•	military and law enforcement aircraft
	•	private aircraft owners
	•	rotor wing aircraft

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			2005				2004				2003
Marine			$	23,799			$	19,537			$	14,552
Energy				15,621				26,258				40,065
Property				18,379				19,613				24,857
Accident and health				21,010				42,101				76,513
	Total London market account net written premium		$	78,809			$	107,509			$	155,987

	•	drilling rigs
	•	gas production and gathering platforms
	•	natural gas facilities
	•	petrochemical plants
	•	pipelines
	•	refineries

	•	factories
	•	hotels
	•	industrial plants
	•	office buildings
	•	retail locations
	•	utilities

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	Other Specialty Lines

	Principal Insurance Companies

	Houston Casualty Company

	Houston Casualty Company-London

	U.S. Specialty Insurance Company

	HCC Life Insurance Company

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	Avemco Insurance Company

	American Contractors Indemnity Company

	HCC Europe

	HCC Reinsurance Company

	HCC Specialty Insurance Company

	United States Surety Company

	Perico Life Insurance Company

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	HCC International Insurance Company

	Professional Indemnity Agency

	HCC Specialty Underwriters

	HCC Global Financial Products

	HCC Diversified Financial Products

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	Covenant Underwriters

	HCC Indemnity Guaranty Agency

	Illium Insurance Group

	Rattner Mackenzie

	Continental Underwriters

	HCC Risk Management

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	Premium to Surplus Ratio

		2005				2004				2003				2002				2001
Gross written premium		$	2,049,116			$	1,992,361			$	1,746,413			$	1,163,397			$	1,014,833
Net written premium			1,495,931				1,121,343				867,795				545,475				371,409
Policyholders’ surplus			1,110,268				844,851				591,889				523,807				401,393
Gross written premium ratio			184.6	%			235.8	%			295.1	%			222.1	%			252.8	%
Gross written premium industry average(1)			*				201.6	%			219.3	%			244.4	%			210.8	%
Net written premium ratio			134.7	%			132.7	%			146.6	%			104.1	%			92.5	%
Net written premium industry average(1)			*				108.5	%			117.4	%			130.3	%			112.0	%

(1)	Source: A.M. Best Company, Inc.
*	Not available

	Combined Ratio — GAAP

		2005				2004				2003				2002				2001
Loss ratio			67.2	%			63.8	%			66.2	%			60.6	%			78.0	%
Expense ratio			25.9				26.9				24.8				25.4				25.7
Combined ratio — GAAP			93.1	%			90.7	%			91.0	%			86.0	%			103.7	%

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	Combined Ratio — Statutory

		2005				2004				2003				2002				2001
Loss ratio			67.1	%			64.3	%			66.8	%			62.0	%			78.0	%
Expense ratio			25.5				26.7				23.0				23.9				23.8
Combined ratio — Statutory			92.6	%			91.0	%			89.8	%			85.9	%			101.8	%
Industry average			*				98.3	%			100.1	%			107.5	%			115.9	%

	*	Not available

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						2005				2004				2003				2002				2001				2000				1999				1998				1997				1996				1995
Balance sheet reserves						$	2,813,720			$	2,089,199			$	1,535,288			$	1,155,290			$	1,130,748			$	944,117			$	871,104			$	460,511			$	275,008			$	229,049			$	200,756
Reserve adjustments from acquisition and disposition of subsidiaries							—				—				—				5,587				—				(66,571	)			(32,437	)			(136	)			—				—				—
		Adjusted reserves					2,813,720				2,089,199				1,535,288				1,160,877				1,130,748				877,546				838,667				460,375				275,008				229,049				200,756
Cumulative paid at:
	One year later										511,766				406,052				438,802				388,722				400,279				424,379				229,746				160,324				119,453				118,656
	Two years later														597,324				568,934				610,619				537,354				561,246				367,512				209,724				179,117				167,459
	Three years later																		679,561				725,295				667,326				611,239				419,209				241,523				193,872				207,191
	Four years later																						801,642				720,656				686,730				435,625				259,067				212,097				214,046
	Five years later																										758,126				721,011				453,691				262,838				223,701				226,762
	Six years later																														725,639				462,565				267,038				225,595				233,831
	Seven years later																																		462,126				270,362				227,177				235,236
	Eight years later																																						268,939				228,621				235,950
	Nine years later																																										230,745				236,726
	Ten years later																																														236,996
Re-estimated liability at:
	End of year						2,813,720				2,089,199				1,535,288				1,160,877				1,130,748				877,546				838,667				460,375				275,008				229,049				200,756
	One year later										2,118,471				1,651,401				1,284,030				1,107,588				922,080				836,775				550,409				308,501				252,236				243,259
	Two years later														1,676,906				1,390,170				1,239,751				925,922				868,438				545,955				316,250				249,013				248,372
	Three years later																		1,461,475				1,383,098				1,099,657				854,987				547,179				304,281				250,817				247,053
	Four years later																						1,453,536				1,102,636				900,604				537,968				305,022				247,245				248,687
	Five years later																										1,135,143				887,272				522,183				295,975				249,853				248,559
	Six years later																														894,307				521,399				296,816				243,015				250,176
	Seven years later																																		513,918				292,544				242,655				246,661
	Eight years later																																						291,164				241,904				246,159
	Nine years later																																										244,687				245,408
	Ten years later																																														245,970
Cumulative redundancy (deficiency)										$	(29,272	)		$	(141,618	)		$	(300,598	)		$	(322,788	)		$	(257,597	)		$	(55,640	)		$	(53,543	)		$	(16,156	)		$	(15,638	)		$	(45,214	)

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	•	During 2005 and 2004, we recorded $49.8 million and $127.7 million, respectively, in gross losses related to the 2001 and 2000 accident years on certain assumed accident and health reinsurance contracts reported in discontinued lines of business, due to our processing of additional information received and our continuing evaluation of reserves on this business.
	•	During 2005, we reduced our gross reserves on the 2004 hurricanes by $13.4 million to reflect current estimates of our remaining liabilities, which partially offset the 2005 adverse development discussed above.
	•	During 2003, we recorded $132.9 million in gross losses related to 1999 and 2000 accident years on certain assumed accident and health reinsurance contracts reported in discontinued lines of business, due to our processing of additional information received and our continuing evaluation of reserves on this business.
	•	The 2000 and 1999 years in the table were also negatively affected by late reporting loss information received during 2001 for certain discontinued business.

	•	We had development of large claims on individual policies which were either reported late or for which reserves were increased as subsequent information became available. As these policies were substantially reinsured, there was no material effect on our net earnings.
	•	During 1999, in connection with the insolvency of one of the insurance companies that we reinsured and the commutation of all liabilities with another, we re-evaluated all loss reserves and incurred but not reported loss reserves related to business placed with these reinsurers to determine the ultimate losses we might conservatively expect. These reserves were then used as the basis for the determination of the provision for reinsurance recorded in 1999.

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					2005				2004				2003
Reserves for loss and loss adjustment expense payable at beginning of year					$	2,089,199			$	1,535,288			$	1,155,290
Reserve additions from acquisition of subsidiaries						19,236				15,537				5,587
Incurred loss and loss adjustment expense:
	Provision for loss and loss adjustment expense for claims occurring in current year					1,567,501				1,173,042				922,838
	Increase in estimated loss and loss adjustment expense for claims occurring in prior years*					29,272				116,113				123,153
		Incurred loss and loss adjustment expense				1,596,773				1,289,155				1,045,991
Loss and loss adjustment expense payments for claims occurring during:
	Current year					379,722				344,729				232,778
	Prior years					511,766				406,052				438,802
		Loss and loss adjustment expense payments				891,488				750,781				671,580
			Reserves for loss and loss adjustment expense payable at end of year		$	2,813,720			$	2,089,199			$	1,535,288

	*	Changes in loss and loss adjustment expense reserves for losses occurring in prior years reflect the gross effect of the resolution of losses for other than the reserve value and the subsequent adjustments of loss reserves.

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				2005				2004				2003				2002				2001				2000				1999				1998				1997				1996				1995
Reserves, net of reinsurance				$	1,534,933			$	1,059,283			$	705,200			$	457,318			$	313,097			$	249,872			$	273,606			$	118,912			$	119,634			$	117,283			$	99,259
Reserve adjustments from acquisition and disposition of subsidiaries					—				—				—				5,587				—				(6,048	)			(3,343	)			(410	)			—				—				—
Effect on loss reserves of 1999 write off of reinsurance recoverables					—				—				—				—				—				—				—				63,851				15,008				2,636				1,442
		Adjusted reserves, net of reinsurance			1,534,933				1,059,283				705,200				462,905				313,097				243,824				270,263				182,353				134,642				119,919				100,701
Cumulative paid, net of reinsurance, at:
	One year later								172,224				141,677				135,829				126,019				102,244				145,993				56,052				48,775				47,874				41,947
	Two years later												135,623				172,834				131,244				139,659				174,534				103,580				64,213				66,030				56,803
	Three years later																135,374				163,808				118,894				185,744				113,762				80,227				72,863				64,798
	Four years later																				93,405				138,773				180,714				121,293				81,845				81,620				67,355
	Five years later																								158,935				197,416				120,452				84,986				81,968				72,627
	Six years later																												200,833				127,254				87,626				82,681				73,501
	Seven years later																																131,631				89,194				84,108				73,792
	Eight years later																																				88,061				84,847				74,836
	Nine years later																																								84,770				75,216
	Ten years later																																												74,782
Re-estimated liability, net of reinsurance, at:
	End of year				1,534,933				1,059,283				705,200				462,905				313,097				243,824				270,263				182,353				134,642				119,919				100,701
	One year later								1,084,677				735,678				486,671				306,318				233,111				260,678				186,967				120,049				116,145				95,764
	Two years later												770,497				500,165				338,194				222,330				254,373				175,339				116,745				101,595				94,992
	Three years later																570,671				366,819				259,160				244,650				171,165				110,673				97,353				85,484
	Four years later																				418,781				267,651				258,122				163,349				107,138				95,118				80,890
	Five years later																								296,396				254,579				155,931				103,243				93,528				79,626
	Six years later																												271,563				157,316				101,538				91,413				79,968
	Seven years later																																156,376				99,872				90,951				78,614
	Eight years later																																				97,965				90,534				78,810
	Nine years later																																								90,011				78,499
	Ten years later																																												77,732
Cumulative redundancy (deficiency)								$	(25,394	)		$	(65,297	)		$	(107,766	)		$	(105,684	)		$	(52,572	)		$	(1,300	)		$	25,977			$	36,677			$	29,908			$	22,969

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					2005				2004				2003
Net reserves for loss and loss adjustment expense payable at beginning of year					$	1,059,283			$	705,200			$	457,318
Net reserve additions from acquisition of subsidiaries						12,491				11,647				5,587
Incurred loss and loss adjustment expense:
	Provision for loss and loss adjustment expense for claims occurring in current year					895,803				614,752				464,886
	Increase in estimated loss and loss adjustment expense for claims occurring in prior years*					25,394				30,478				23,766
			Incurred loss and loss adjustment expense			921,197				645,230				488,652
Loss and loss adjustment expense payments for claims occurring during:
	Current year					285,814				161,117				110,528
	Prior years					172,224				141,677				135,829
		Loss and loss adjustment expense payments				458,038				302,794				246,357
		Net reserves for loss and loss adjustment expense payable at end of year			$	1,534,933			$	1,059,283			$	705,200

*	Changes in loss and loss adjustment expense reserves for losses occurring in prior years reflect the net effect of the resolution of losses for other than the reserve value and the subsequent adjustments of loss reserves.

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	Insurance Companies

	•	approval of policy forms and premium rates;
	•	licensing of insurers and their agents;
	•	periodic examinations of our operations and finances;
	•	prescribing the form and content of records of financial condition required to be filed;
	•	requiring deposits for the benefit of policyholders;
	•	requiring certain methods of accounting;
	•	requiring reserves for unearned premium, losses and other purposes;
	•	restrictions on the ability of our insurance companies to pay dividends;
	•	restrictions on the nature, quality and concentration of investments;
	•	restrictions on transactions between insurance companies and their affiliates;
	•	restrictions on the size of risks insurable under a single policy; and
	•	standards of solvency, including risk-based capital measurement (which is a measure developed by the National Association of Insurance Commissioners and used by state insurance regulators to identify insurance companies that potentially are inadequately capitalized).

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	Underwriting Agencies and Reinsurance and Insurance Brokers

	•	advertising and business practice rules;
	•	contractual requirements;
	•	financial security;
	•	licensing as agents, brokers, reinsurance brokers, managing general agents or third party administrators;
	•	limitations on authority; and
	•	recordkeeping requirements.

	Statutory Accounting Principles

	•	a liability is recorded for certain reinsurance recoverables under statutory accounting principles whereas, under generally accepted accounting principles, there is no such provision unless the recoverables are deemed to be doubtful of collection;
	•	certain assets which are considered “non-admitted assets” are eliminated from a balance sheet prepared in accordance with statutory accounting principles but are included in a balance sheet prepared in accordance with generally accepted accounting principles;
	•	only some of the deferred tax asset is recognized under statutory accounting principles;
	•	fixed-income investments classified as available for sale are recorded at market value for generally accepted accounting principles and at amortized cost under statutory accounting principles;
	•	outstanding losses and unearned premium are reported on a gross basis under generally accepted accounting principles and on a net basis under statutory accounting principles; and
	•	under statutory accounting principles, policy acquisition costs are expensed as incurred and, under generally accepted accounting principles, such costs are deferred and amortized to expense as the related premium is earned.

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	Insurance Holding Company Acts

	Assessments

	Insurance Regulations Concerning Change of Control

	Risk-Based Capital

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	Insurance Regulatory Information System

	Terrorism Risk Insurance Act

	Legislative Initiatives

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Item 1A.	Risk Factors

	Because we are a property and casualty insurer, our business may suffer as a result of unforeseen catastrophic losses.

	The insurance and reinsurance business is historically cyclical, and we expect to experience periods with excess underwriting capacity and unfavorable premium rates, which could cause our results to fluctuate.

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	Our loss reserves are based on an estimate of our future liability, which may prove to be inadequate.

	The effects of emerging claim and coverage issues on our business are uncertain.

	We are subject to extensive governmental regulation, which could adversely affect our business.

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	Our reliance on brokers subjects us to their credit risk.

	Our increased retentions in various lines of business means that we are exposed to a greater portion of potential losses.

	If we are unable to purchase adequate reinsurance protection for some of the risks we have underwritten, we will be exposed to any resulting losses.

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	If the companies that provide our reinsurance do not pay all of our claims, we could incur severe losses.

	As a primary insurer, we may have significant exposure for terrorist acts.

	We may be unsuccessful in competing against larger or more well established business rivals.

	If the rating agencies downgrade us, our business and competitive position in the industry may suffer.

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	We may require additional capital in the future, which may not be available or may only be available on unfavorable terms.

	We may be unable to attract and retain qualified employees.

	We invest a significant amount of our assets in fixed income securities that have experienced market fluctuations, which may greatly reduce the value of our investment portfolio.

	Our strategy of acquiring other companies for growth may not succeed.

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	We are an insurance holding company and, therefore, may not be able to receive dividends in needed amounts from our subsidiaries.

	Because we operate internationally, fluctuations in currency exchange rates may affect our receivable and payable balances and our reserves.

	Our information technology systems may fail or suffer a loss of security, which could adversely affect our business.

Item 1B.	Unresolved Staff Comments

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Item 2.	Properties

Subsidiary		Location				Sq. Ft.				Termination Date of Lease
Houston Casualty Company			Houston, Texas				77,000			Owned
HCC and Houston Casualty Company			Houston, Texas				51,000			Owned
Professional Indemnity Agency			Mount Kisco, New York				38,000			Owned
U.S. Specialty Insurance Company Aviation Division			Dallas, Texas				28,000			August 31, 2013
HCC Specialty Underwriters			Wakefield, Massachusetts				28,000			December 31, 2010
HCC Life Insurance Company			Atlanta, Georgia				27,000			December 31, 2011

Item 3.	Legal Proceedings

Item 4.	Submission of Matters to a Vote of Security Holders

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Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

		2005								2004								2003
		High				Low				High				Low				High				Low
First quarter		$	26.17			$	21.31			$	23.17			$	20.01			$	17.64			$	14.87
Second quarter			26.96				23.05				22.93				20.30				20.13				17.10
Third quarter			28.89				25.11				22.39				19.23				20.84				19.13
Fourth quarter			32.95				26.91				22.83				18.35				21.39				18.73

		2005				2004				2003
First quarter		$	.057			$	.050			$	.043
Second quarter			.075				.050				.043
Third quarter			.075				.057				.050
Fourth quarter			.075				.057				.050

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Item 6.	Selected Financial Data

				Years Ended December 31,
				2005				2004				2003				2002				2001(4)
				(in thousands, except per share data)(1)(2)
Statement of earnings data:
Revenue
	Net earned premium			$	1,369,988			$	1,010,692			$	738,272			$	505,521			$	342,787
	Fee and commission income				134,282				182,349				142,615				115,919				111,016
	Net investment income				98,851				64,885				47,335				37,755				39,562
	Net realized investment gain				1,448				5,822				527				453				393
	Other operating income				39,773				19,406				13,215				6,985				17,451
		Total revenue			1,644,342				1,283,154				941,964				666,633				511,209
Expense
	Loss and loss adjustment expense, net				921,197				645,230				488,652				306,491				267,390
	Policy acquisition costs, net				257,725				224,323				138,212				99,521				66,313
	Other operating expense				178,989				164,474				140,913				99,924				113,806
	Interest expense				7,684				8,374				7,453				8,301				8,875
		Total expense			1,365,595				1,042,401				775,230				514,237				456,384
Earnings from continuing operations before income tax expense					278,747				240,753				166,734				152,396				54,825
Income tax expense on continuing operations					85,647				81,732				59,857				52,933				27,764
Earnings from continuing operations					193,100				159,021				106,877				99,463				27,061
Earnings from discontinued operations, net of income taxes(3)					2,760				4,004				36,684				6,365				3,136
	Net earnings			$	195,860			$	163,025			$	143,561			$	105,828			$	30,197
Basic earnings per share data:
	Earnings from continuing operations			$	1.83			$	1.64			$	1.12			$	1.06			$	0.31
	Earnings from discontinued operations(3)				0.03				0.04				0.39				0.07				0.04
	Net earnings			$	1.86			$	1.68			$	1.51			$	1.13			$	0.35
	Weighted average shares outstanding				105,463				97,257				94,919				93,338				87,482
Diluted earnings per share data:
	Earnings from continuing operations			$	1.76			$	1.61			$	1.11			$	1.05			$	0.30
	Earnings from discontinued operations(3)				0.03				0.04				0.38				0.07				0.04
	Net earnings			$	1.79			$	1.65			$	1.49			$	1.12			$	0.34
	Weighted average shares outstanding				109,437				98,826				96,576				94,406				89,429
Cash dividends declared, per share				$	0.282			$	0.213			$	0.187			$	0.170			$	0.163

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		December 31,
		2005				2004				2003				2002				2001
		(in thousands, except per share data)(1)(2)
Balance sheet data:
Total investments		$	3,257,428			$	2,468,491			$	1,707,300			$	1,177,775			$	885,659
Premium, claims and other receivables			884,654				889,800				932,417				772,772				665,965
Reinsurance recoverables			1,360,483				1,104,026				916,190				798,934				899,128
Ceded unearned premium			239,416				317,055				291,591				164,224				71,140
Goodwill			532,947				444,031				386,507				335,288				315,318
Total assets			7,026,066				5,904,626				4,897,682				3,723,396				3,219,120
Loss and loss adjustment expense payable			2,813,720				2,089,199				1,535,288				1,155,290				1,130,748
Unearned premium			807,109				741,706				592,311				331,050				179,530
Premium and claims payable			753,859				766,765				768,035				750,046				717,159
Notes payable			309,543				311,277				310,404				230,027				181,928
Shareholders’ equity			1,693,696				1,323,665				1,046,920				882,907				763,453
Book value per share(5)		$	15.29			$	12.97			$	10.91			$	9.43			$	8.27

(1)	In 2005, the Board of Directors declared a three-for-two stock split in the form of a 50% stock dividend on our shares of $1.00 par value common stock. All shares outstanding and per share amounts have been restated to reflect the effect of the stock split for all periods presented.
(2)	Certain amounts in the 2001-2004 selected consolidated financial data have been reclassified to conform to the 2005 presentation. The reclassifications included the elimination of certain intercompany premium receivable and premium payable balances. Such reclassifications had no effect on our consolidated net earnings, shareholders’ equity or cash flows.
(3)	We sold our retail brokerage operation, HCC Employee Benefits, in 2003. The net earnings of HCC Employee Benefits, the 2003 gain on sale and the subsequent gains in 2004 and 2005 from a contractual earnout are classified as discontinued operations. Consistent with this presentation, all pre-sale revenue and expense of HCC Employee Benefits was reclassified to discontinued operations.
(4)	During 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which required that goodwill and indefinite-lived intangible assets no longer be amortized. The adjusted amounts that we would have reported in 2001 had we adopted SFAS 142 on January 1, 2001 are as follows:

Adjusted net earnings		$	41,584
Adjusted basic earnings per share		$	0.48
Adjusted diluted earnings per share		$	0.47

(5)	Book value per share is calculated by dividing the sum of outstanding shares plus contractually issuable shares into total shareholders’ equity.

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Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Company		Segment		Effective date acquired
Covenant Underwriters and Continental Underwriters		Agency			July 1, 2003
American Contractors Indemnity Company		Insurance company			January 31, 2004
RA&MCO Insurance Services		Agency			October 1, 2004
United States Surety Company		Insurance company			March 1, 2005
HCC International Insurance Company (formerly De Montfort Insurance Company)		Insurance company			July 1, 2005
Perico Life Insurance Company (formerly MIC Life Insurance Corporation)		Insurance company			November 30, 2005
Perico Ltd.		Agency			December 1, 2005
Illium Insurance Group		Agency			December 31, 2005

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														Effect of hurricanes and commutations
		2005				2004				2003				2005				2004				2003
Gross incurred loss and loss adjustment expense		$	1,596,773			$	1,289,155			$	1,045,991			$	394,625			$	89,795			$	—
Net incurred loss and loss adjustment expense			921,197				645,230				488,652				99,226				23,335				28,751
Ceded earned premium			617,402				849,610				748,799				16,533				9,806				—
Net earnings (loss)			195,860				163,025				143,561				(75,171	)			(21,464	)			(18,688	)
Diluted earnings (loss) per share			1.79				1.65				1.49				(0.69	)			(0.22	)			(0.19	)

			2005				2004				2003
Ratios:
	Net loss ratio			67.2	%			63.8	%			66.2	%
	Expense ratio			25.9				26.9				24.8
	Combined ratio			93.1	%			90.7	%			91.0	%
Effect of hurricanes and commutations:
	Net loss ratio			7.9	%			2.9	%			3.9	%
	Expense ratio			0.3				0.3				—
	Combined ratio			8.2	%			3.2	%			3.9	%

			2005				2004				2003
Net earned premium				83.3	%			78.8	%			78.4	%
Fee and commission income				8.2				14.2				15.1
Net investment income				6.0				5.1				5.0
Net realized investment gain				0.1				0.4				0.1
Other operating income				2.4				1.5				1.4
	Total revenue			100.0				100.0				100.0
Loss and loss adjustment expense, net				56.0				50.3				51.9
Policy acquisition costs, net				15.7				17.5				14.7
Other operating expense				10.9				12.8				14.9
Interest expense				0.5				0.6				0.8
	Earnings from continuing operations before income tax expense			16.9				18.8				17.7
Income tax expense				5.2				6.4				6.4
	Earnings from continuing operations			11.7	%			12.4	%			11.3	%

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		2005				2004				2003
Gross written premium		$	2,038,286			$	1,975,153			$	1,739,894
Net written premium			1,501,224				1,105,519				865,502
Net earned premium			1,369,988				1,010,692				738,272

			2005				2004				2003
Agencies			$	95,454			$	126,971			$	105,899
Insurance companies				38,828				55,378				43,244
Other				—				—				(6,528	)
	Fee and commission income		$	134,282			$	182,349			$	142,615

			2005				2004				2003
Fixed income securities			$	77,842			$	55,929			$	40,927
Short-term investments				21,208				9,735				7,422
Other investments				3,615				1,366				488
	Total investment income			102,665				67,030				48,837
Investment expense				(3,814	)			(2,145	)			(1,502	)
	Net investment income		$	98,851			$	64,885			$	47,335

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			2005				2004				2003
Trading securities			$	16,619			$	2,604			$	5,583
Strategic investments				10,241				5,103				3,212
Sale of non-operating assets				4,271				1,531				—
Financial instruments				3,898				4,297				—
Other				4,744				5,871				4,420
	Other operating income		$	39,773			$	19,406			$	13,215

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	Insurance Company Segment

	Premium

			2005								2004								2003
			Amount				%				Amount				%				Amount				%
Primary			$	1,768,284				87	%		$	1,674,075				85	%		$	1,377,999				79	%
Reinsurance assumed				270,002				13				301,078				15				361,895				21
	Gross written premium			2,038,286				100				1,975,153				100				1,739,894				100
Reinsurance ceded				(537,062	)			(26	)			(869,634	)			(44	)			(874,392	)			(50	)
	Net written premium			1,501,224				74				1,105,519				56				865,502				50
Change in unearned premium				(131,236	)			(7	)			(94,827	)			(5	)			(127,230	)			(8	)
	Net earned premium		$	1,369,988				67	%		$	1,010,692				51	%		$	738,272				42	%

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			Gross								NWP
			Written				Net Written				as % of				Net Earned
			Premium				Premium				GWP				Premium
Year ended December 31, 2005
Diversified financial products			$	908,526			$	675,942				74	%		$	531,136
Group life, accident and health				593,382				502,805				85				504,382
Aviation				210,530				130,743				62				136,197
London market account				144,425				78,809				55				93,017
Other specialty lines				176,139				109,106				62				97,721
Discontinued lines				5,284				3,819				nm				7,535
	Totals		$	2,038,286			$	1,501,224				74	%		$	1,369,988
Year ended December 31, 2004
Diversified financial products			$	857,299			$	404,870				47	%		$	310,809
Group life, accident and health				584,747				343,996				59				343,913
Aviation				204,963				144,687				71				127,248
London market account				178,950				107,509				60				111,341
Other specialty lines				133,964				83,980				63				69,089
Discontinued lines				15,230				20,477				nm				48,292
	Totals		$	1,975,153			$	1,105,519				56	%		$	1,010,692
Year ended December 31, 2003
Diversified financial products			$	553,501			$	183,560				33	%		$	123,562
Group life, accident and health				565,494				299,913				53				290,009
Aviation				214,718				99,447				46				97,536
London market account				223,149				155,987				70				137,572
Other specialty lines				73,475				36,837				50				12,443
Discontinued lines				109,557				89,758				nm				77,150
	Totals		$	1,739,894			$	865,502				50	%		$	738,272

	•	Diversified financial products — The largest gross and net premium growth in 2005 and 2004 was in our diversified financial products line of business. We experienced significant growth in our directors’ and officers’ liability gross written premium in 2004. In response to some increased competition and a reduction in available reinsurance at an acceptable cost, we scaled back our writing of this business in 2005. Rates for the other products in this line have been relatively stable with the exception of surety for which rates have been increasing. Our professional indemnity and surety business increased in 2005 due to organic growth and acquisitions. The growth in net written and net earned premium in both years was due to increased retentions resulting from a reduction in proportional reinsurance, some of which has been replaced by excess of loss reinsurance.
	•	Group life, accident and health — Profit margins remain at acceptable levels despite increased competition from the fully insured market. We increased our retentions in 2005 and 2004 as this line of business generally is not volatile and has very little catastrophe exposure.

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	•	Aviation — Our aviation premium retention levels were mostly unchanged in 2005 after excluding the effects of a portfolio transfer that occurred in 2004. This 2004 portfolio transfer recaptured ceded unearned premium and increased net written premium, but not gross written premium, as a result of a reduction in ceded reinsurance. There has been increasing competition in the international aviation component of this line, but margins are still acceptable. Our domestic business is very stable.
	•	London market account — We reduced our London market account premium writings in 2004 and again in 2005, due to more selective underwriting in response to reduced premium rates from increased competition. Premium rates have generally increased in 2006 as a result of the hurricane losses. Net written premium was reduced by $18.7 million in 2005 and $15.3 million in 2004 for additional excess of loss premium to reinstate catastrophe reinsurance coverage, which distorts the retention percentages. Because of the catastrophe exposure, we purchase excess of loss reinsurance at a significant cost. Since there generally is a fixed minimum cost, the retention percentage decreases as our written premium decreases.
	•	Other specialty lines — We experienced organic growth in our other specialty lines of business from increased writings in several products. The mix of products will affect the retention percentages. Rates in this line have been relatively stable.

	Reinsurance

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	Losses and Loss Adjustment Expenses

			2005								2004								2003
			Amount				Loss Ratio				Amount				Loss Ratio				Amount				Loss Ratio
2005 hurricanes			$	394,625				19.9	%		$	—				—	%		$	—				—	%
2004 hurricanes				(13,423	)			(0.7	)			89,795				4.8				—				—
Other reserve redundancies				(7,080	)			(0.4	)			(11,594	)			(0.6	)			(9,771	)			(0.7	)
Discontinued line of business adjustments				49,775				2.5				127,707				6.9				132,924				8.9
All other gross incurred loss and loss adjustment expense				1,172,876				59.0				1,083,247				58.2				922,838				62.1
	Gross incurred loss and loss expense adjustment		$	1,596,773				80.3	%		$	1,289,155				69.3	%		$	1,045,991				70.3	%

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			2005								2004								2003
			Amount				Loss Ratio				Amount				Loss Ratio				Amount				Loss Ratio
2005 hurricanes			$	73,185				5.3	%		$	—				—	%		$	—				—	%
2004 hurricanes				(7,167	)			(0.5	)			23,335				2.3				—				—
Commutations				26,041				1.9				—				—				28,751				3.9
Discontinued line of business adjustments				8,929				0.7				27,326				2.7				—				—
Other reserve deficiencies (redundancies)				(2,409	)			(0.2	)			3,152				0.3				(4,985	)			(0.7	)
All other net incurred loss and loss adjustment expense				822,618				60.0				591,417				58.5				464,886				63.0
	Net incurred loss and loss adjustment expense		$	921,197				67.2	%		$	645,230				63.8	%		$	488,652				66.2	%

			2005								2004								2003
			Net				Net				Net				Net				Net				Net
			Earned				Loss				Earned				Loss				Earned				Loss
			Premium				Ratio				Premium				Ratio				Premium				Ratio
Diversified financial products			$	531,136				48.1	%		$	310,809				47.6	%		$	123,562				47.8	%
Group life, accident and health				504,382				71.6				343,913				66.7				290,009				61.6
Aviation				136,197				67.3				127,248				63.2				97,536				61.5
London market account				93,017				106.0				111,341				65.9				137,572				53.2
Other specialty lines				97,721				74.1				69,089				63.5				12,443				62.1
Discontinued lines				7,535				551.3				48,292				145.2				77,150				142.6
	Totals		$	1,369,988				67.2	%		$	1,010,692				63.8	%		$	738,272				66.2	%
Expense ratio								25.9								26.9								24.8
Combined ratio								93.1	%							90.7	%							91.0	%

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	•	Group life, accident and health — Rate pressure from competition as well as medical cost inflation have resulted in increasing loss ratios in this line of business, however our underwriting margins remain satisfactory.
	•	Aviation — The 2005 hurricanes increased the net loss ratio 5.0% and the 2004 hurricanes increased the net loss ratio 6.5%. The 2005 net loss ratio also includes the positive impact from the release of redundant reserves related to the 2004 hurricanes. Excluding the impact of the hurricanes, 2005 had worse than expected underwriting experience due to some unusually large international losses.
	•	London market account — The 2005 hurricanes increased the net loss ratio 63.2% and the 2004 hurricanes increased the net loss ratio 14.1%. The London market account line of business can have relatively high year-to-year volatility due to catastrophe exposure.
	•	Other specialty lines — The 2005 hurricanes increased the net loss ratio 14.0% and the 2004 hurricanes increased the net loss ratio 6.5%.
	•	Discontinued lines — The commutation losses in 2005 and 2003 affected the net loss ratios for those years. In addition, the 2005 and 2004 net loss ratios were impacted by loss reserve strengthening of $8.9 million and $27.3 million, respectively, on certain assumed accident and health reinsurance contracts.

	Policy Acquisition Costs

	Statutory

	Agency Segment

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	Cash Flow

			2005				2004				2003
Net earnings			$	195,860			$	163,025			$	143,561
Change in premium, claims and other receivables, net of reinsurance, other payables and restricted cash				(72,337	)			7,417				(26,118	)
Change in unearned premium, net				126,324				99,813				133,894
Change in loss and loss adjustment expense payable, net of reinsurance recoverables				456,359				355,253				262,742
Gain on sale of subsidiaries				(8,717	)			(6,317	)			(52,681	)
Change in trading portfolio				(66,809	)			25,673				12,741
Other, net				(6,690	)			23,839				53,959
	Cash provided by operating activities		$	623,990			$	668,703			$	528,098

	Investments

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		2005		2004		2003
Average investments, at cost		$2,822,686		$2,054,620		$1,403,690
Net investment income*		98,851		64,885		47,335
Average short-term yield*		2.7%		1.7%		1.8%
Average long-term yield*		4.0%		3.9%		4.2%
Average long-term tax equivalent yield*		4.9%		4.8%		5.0%
Weighted average combined tax equivalent yield*		4.1%		3.8%		3.8%
Weighted average maturity		7.6 years		6.6 years		4.5 years
Weighted average duration		4.9 years		4.6 years		3.7 years
Average S&P rating		AAA		AAA		AA+

*	Excluding realized and unrealized investment gains and losses.

			Amount				%
Short-term investments			$	839,581				26	%
U.S. government				89,724				3
States, municipalities and political subdivisions				418,873				13
Special revenue fixed income securities				723,101				22
Corporate fixed income securities				375,582				11
Asset-backed and mortgage-backed securities				355,372				11
Foreign securities				305,972				9
Other investments				149,223				5
	Total investments		$	3,257,428				100	%

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			Amount				%
AAA			$	1,593,663				70	%
AA				273,714				12
A				390,074				17
BBB				10,526				1
BB and below				647				—
	Total fixed income securities		$	2,268,624				100	%

			Amount				%
One year or less			$	146,924				6	%
One year to five years				561,240				25
Five years to ten years				467,542				21
Ten years to fifteen years				301,264				13
More than fifteen years				436,282				19
	Securities with fixed maturities			1,913,252				84
Asset-backed and mortgage-backed securities				355,372				16
	Total fixed income securities		$	2,268,624				100	%

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							Maturities/Estimated Payment Dates
			Total				2006				2007-2008				2009-2010				Thereafter
Cash and investment maturities of insurance companies			$	2,969,277			$	897,421			$	469,980			$	380,460			$	1,221,416
Estimated loss and loss adjustment expense payments, net of reinsurance				1,534,933				538,662				553,304				259,909				183,058
	Estimated available cash flow		$	1,434,344			$	358,759			$	(83,324	)		$	120,551			$	1,038,358

	Contractual Obligations

								Estimated Payment Dates
				Total				2006				2007-2008				2009-2010				Thereafter
Gross loss and loss adjustment expense payable(1)
	Diversified financial products			$	953,131			$	199,984			$	388,204			$	238,847			$	126,096
	Group life, accident and health				204,100				169,698				26,734				6,077				1,591
	Aviation				193,242				95,036				65,946				21,309				10,951
	London market account				578,253				239,558				284,154				48,084				6,457
	Other specialty lines				195,918				93,245				75,064				22,276				5,333
	Discontinued lines				689,076				146,469				222,988				122,863				196,756
		Total loss and loss adjustment expense payable			2,813,720				943,990				1,063,090				459,456				347,184
Life and annuity policy benefits					73,415				1,859				3,577				3,397				64,582
1.30% Convertible Notes(2)(3)					125,812				125,812				—				—				—
2.00% Convertible Exchange Notes(2)(3)					174,120				174,120				—				—				—
Other notes payable(3)					13,899				1,003				11,753				508				635
$200.0 million Revolving Loan Facility					—				—				—				—				—
Operating leases					59,123				10,582				18,936				12,150				17,455
Earnout liabilities					32,318				32,318				—				—				—
Indemnifications					20,748				13,294				1,968				2,172				3,314
		Total obligations		$	3,313,155			$	1,302,978			$	1,099,324			$	477,683			$	433,170

50

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(1)	The estimated loss and loss adjustment expense payments for future periods assume that the percentage of ultimate losses paid from one period to the next will be relatively consistent over time. Actual payments will be influenced by many factors and could vary from the estimated amounts above.
(2)	The 1.30% Convertible Notes mature in 2023 and the 2.00% Convertible Exchange Notes mature in 2021, but are shown in the 2006 column since they may be surrendered for cash at the option of the holders in the first quarter of 2006 because our stock traded at specified price levels in 2005. Both convertible notes have various put and redemption dates as disclosed in Note 6 to the Consolidated Financial Statements.
(3)	Amounts include interest payable in respective periods.

	Subsidiary Dividends

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	Lines of Credit

	Other

52

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	Loss and Loss Adjustment Expense

53

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				Recorded				Actuarial				Low End of				High End of
				Net Reserves				Point Estimate				Actuarial Range				Actuarial Range
Total net reserves				$	1,534,933			$	1,510,649			$	1,419,599			$	1,649,515
Individual lines of business:
	Diversified financial products			$	551,350			$	548,060			$	477,296			$	644,673
	Group life, accident and health				162,076				165,545				151,301				181,882
	Aviation				104,727				97,998				91,060				106,615
	London market account				197,142				192,228				182,571				217,638
	Other specialty lines				106,520				99,612				94,369				110,647
	Discontinued lines				413,118				407,206				358,389				490,719
		Total net reserves		$	1,534,933

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Claims Characteristics

Speed of

Loss

Reserve

Line of Business

Products

Underwriting

Duration

Reporting

Volatility

Major Actuarial Assumptions

Diversified financial products

Directors’ and officers’ liability

Primary

Medium

Moderate

Medium

Historical and industry loss reporting patterns

Professional indemnity

Primary

Medium

Moderate

Low

Historical loss reporting patterns

Surety

Primary

Medium

Fast

Low

Historical loss payment and reporting patterns

Group life, accident and health

Medical stop-loss

Primary

Short

Fast

Low

Medical cost and utilization trends

Historical loss payment and reporting patterns

Rate changes

Aviation

Aviation

Primary and subscription

Medium

Fast

Medium

Historical loss payment and reporting patterns

Rate changes

London market account

Accident and health

Primary and assumed

Medium to Long

Slow

High

Historical loss payment and reporting patterns

Energy*

Subscription

Medium

Moderate

Medium

Historical loss payment and reporting patterns

Historical severity and frequency

Historical large loss experience

Property*

Subscription

Medium

Moderate

Medium

Historical loss payment and reporting patterns

Historical severity and frequency

Historical large loss experience

Other specialty

Surplus lines business

Assumed

Medium

Moderate

Medium

Historical loss payment and reporting patterns

Discontinued

Accident and health reinsurance

Assumed

Long

Slow

High

Historical and industry loss payment and reporting patterns

*	Includes catastrophe losses

55

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56

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																% Net
																IBNR to
																Net Total
				Gross				Ceded				Net				Reserves
At December 31, 2005
Reported loss reserves:
	Diversified financial products			$	319,000			$	126,665			$	192,335
	Group life, accident and health				129,601				6,366				123,235
	Aviation				118,122				55,602				62,520
	London market account				345,605				260,473				85,132
	Other specialty lines				51,634				26,090				25,544
		Subtotal reported reserves			963,962				475,196				488,766
Incurred but not reported reserves:
	Diversified financial products				634,131				275,116				359,015				65	%
	Group life, accident and health				74,499				35,658				38,841				24
	Aviation				75,120				32,913				42,207				40
	London market account				232,648				120,638				112,010				57
	Other specialty lines				144,284				63,308				80,976				76
		Subtotal incurred but not reported reserves			1,160,682				527,633				633,049				56
	Discontinued lines reported reserves				437,681				159,529				278,152
	Discontinued lines incurred but not reported reserves				251,395				116,429				134,966				33
		Total loss and loss adjustment expense payable		$	2,813,720			$	1,278,787			$	1,534,933				50	%
At December 31, 2004
Reported loss reserves:
	Diversified financial products			$	149,448			$	64,852			$	84,596
	Group life, accident and health				128,973				31,235				97,738
	Aviation				108,277				48,301				59,976
	London market account				182,585				106,249				76,336
	Other specialty lines				26,717				14,349				12,368
		Subtotal reported reserves			596,000				264,986				331,014
Incurred but not reported reserves:
	Diversified financial products				462,795				257,853				204,942				71	%
	Group life, accident and health				90,396				30,131				60,265				38
	Aviation				55,169				24,117				31,052				34
	London market account				98,530				31,090				67,440				47
	Other specialty lines				62,206				28,930				33,276				73
		Subtotal incurred but not reported reserves			769,096				372,121				396,975				55
	Discontinued lines reported reserves				453,394				241,481				211,913
	Discontinued lines incurred but not reported reserves				270,709				151,328				119,381				36
		Total loss and loss adjustment expense payable		$	2,089,199			$	1,029,916			$	1,059,283				49	%

57

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	•	Diversified financial products — Total net reserves in our diversified financial products line of business increased $261.8 million from 2004 to 2005 as this relatively new line of business continues to grow. The incurred but not reported portion of the total reserves for this line of business is higher than in most of our other lines, since these losses report slower and have a longer duration.
	•	Group life, accident and health — Incurred but not reported reserves have decreased and reported reserves have increased due to a speed up in the reporting of medical stop-loss claims.
	•	London market account — Total net reserves in our London market account increased $53.4 million and the percentage of incurred but not reported reserves increased in 2005, due to estimated unreported claims for the 2005 hurricanes.
	•	Discontinued lines — Total net reserves for our discontinued lines increased $81.8 million in 2005 primarily as a result of a commutation. The percentage of net incurred but not reported reserves to total reserves for discontinued lines decreased to 33% as claims continued to be reported and reported reserves were reassessed.

58

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	Reinsurance Recoverables

	Deferred Taxes

	Valuation of Goodwill

	Other-Than-Temporary Impairments on Investments

59

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	Share-Based Payment

	Other-Than-Temporary Impairments

	Accounting Changes and Corrections

60

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Item 7A.	Quantitative and Qualitative Disclosures About Market Risk

	Interest Rate Risk

	Foreign Exchange Risk

		December 31,
		2005								2004
						Hypothetical								Hypothetical
		U.S. Dollar				10% Change				U.S. Dollar				10% Change in
		Equivalent				in Fair Value				Equivalent				Fair Value
British pound sterling		$	11,590			$	1,159			$	6,163			$	616
Euro			2,291				229				2,117				212
Canadian dollar			522				52				2,537				254

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Item 8.	Financial Statements and Supplementary Data

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Item 9A.	Controls and Procedures

Item 9B.	Other Information

Item 10.	Directors and Executive Officers of the Registrant

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Item 11.	Executive Compensation

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Item 13.	Certain Relationships and Related Transactions

Item 14.	Principal Accountant Fees and Services

Item 15.	Exhibits and Financial Statement Schedules

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	HCC Insurance Holdings, Inc.
	_______________________________________ (Registrant)

Dated: March 15, 2006		By: /s/ Stephen L. Way (Stephen L. Way) Chairman of the Board, Chief Executive Officer and President

Name				Title		Date
/s/ Stephen L. Way (Stephen L. Way)				Chairman of the Board of Directors, Chief Executive Officer and President (Principal Executive Officer)		March 15, 2006
/s/ Frank J. Bramanti* (Frank J. Bramanti)				Director		March 15, 2006
/s/ Patrick B. Collins* (Patrick B. Collins)				Director		March 15, 2006
/s/ James R. Crane* (James R. Crane)				Director		March 15, 2006
/s/ J. Robert Dickerson* (J. Robert Dickerson)				Director		March 15, 2006
/s/ Walter M. Duer* (Walter M. Duer)				Director		March 15, 2006
/s/ Edward H. Ellis, Jr. (Edward H. Ellis, Jr.)				Director, Executive Vice President and Chief Financial Officer (Chief Accounting Officer)		March 15, 2006
/s/ James C. Flagg, Ph.D.* (James C. Flagg, Ph.D.)				Director		March 15, 2006
/s/ Allan W. Fulkerson* (Allan W. Fulkerson)				Director		March 15, 2006
/s/ Walter J. Lack* (Walter J. Lack)				Director		March 15, 2006
/s/ John N. Molbeck, Jr.* (John N. Molbeck, Jr.)				Director		March 15, 2006

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Name				Title		Date
/s/ Michael A. F. Roberts* (Michael A. F. Roberts)				Director		March 15, 2006
*By:		/s/ Stephen L. Way Stephen L. Way, Attorney-in-fact

65

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Report of Management				F-1
Report of Independent Registered Public Accounting Firm				F-3
Consolidated Balance Sheets at December 31, 2005 and 2004				F-5
Consolidated Statements of Earnings for the three years ended December 31, 2005				F-6
Consolidated Statements of Comprehensive Income for the three years ended December 31, 2005				F-7
Consolidated Statements of Changes in Shareholders’ Equity for the three years ended December 31, 2005				F-8
Consolidated Statements of Cash Flows for the three years ended December 31, 2005				F-9
Notes to Consolidated Financial Statements				F-10
SCHEDULES:
Schedule 1		Summary of Investments other than Investments in Related Parties		S-1
Schedule 2		Condensed Financial Information of Registrant		S-2
Schedule 3		Supplementary Insurance Information		S-7
Schedule 4		Reinsurance		S-8
Schedule 5		Valuation and Qualifying Accounts		S-9

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	•	pertain to the maintenance of our records that in reasonable detail accurately and fairly reflect the Company’s transactions and dispositions of our assets;
	•	provide reasonable assurance that we have recorded transactions as necessary to permit us to prepare financial statements in accordance with generally accepted accounting principles and that the Company’s receipts and expenditures are being made only in accordance with authorizations of our management and the Company’s board of directors; and
	•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our consolidated financial statements.

F-1

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Table of Contents

/s/ Stephen L. Way Stephen L. Way Chairman of the Board, Chief Executive Officer and President				/s/ Edward H. Ellis, Jr. Edward H. Ellis, Jr. Executive Vice President and Chief Financial Officer

F-2

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Table of Contents

F-3

---

Table of Contents

F-4

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Table of Contents

				December 31,
				2005				2004
ASSETS
Investments:
	Fixed income securities, at fair value (amortized cost: 2005 — $2,277,139; 2004 — $1,682,421)			$	2,268,624			$	1,703,171
	Short-term investments, at cost, which approximates fair value				839,581				729,985
	Other investments, at fair value (cost: 2005 — $144,897; 2004 — $34,137)				149,223				35,335
		Total investments			3,257,428				2,468,491
Cash					73,935				69,933
Restricted cash and cash investments					170,978				188,510
Premium, claims and other receivables					884,654				889,800
Reinsurance recoverables					1,360,483				1,104,026
Ceded unearned premium					239,416				317,055
Ceded life and annuity benefits					73,415				74,627
Deferred policy acquisition costs					156,253				139,199
Goodwill					532,947				444,031
Other assets					276,557				208,954
		Total assets		$	7,026,066			$	5,904,626
LIABILITIES
Loss and loss adjustment expense payable				$	2,813,720			$	2,089,199
Life and annuity policy benefits					73,415				74,627
Reinsurance balances payable					176,954				228,998
Unearned premium					807,109				741,706
Deferred ceding commissions					65,702				94,896
Premium and claims payable					753,859				766,765
Notes payable					309,543				311,277
Accounts payable and accrued liabilities					332,068				273,493
		Total liabilities			5,332,370				4,580,961
SHAREHOLDERS’ EQUITY
Common stock, $1.00 par value; 250.0 million shares authorized (shares issued and outstanding: 2005 — 110,803; 2004 — 102,057)					110,803				68,038
Additional paid-in capital					747,568				566,776
Retained earnings					817,013				651,216
Accumulated other comprehensive income					18,312				37,635
		Total shareholders’ equity			1,693,696				1,323,665
		Total liabilities and shareholders’ equity		$	7,026,066			$	5,904,626

F-5

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			Years Ended December 31,
			2005				2004				2003
REVENUE
Net earned premium			$	1,369,988			$	1,010,692			$	738,272
Fee and commission income				134,282				182,349				142,615
Net investment income				98,851				64,885				47,335
Net realized investment gain				1,448				5,822				527
Other operating income				39,773				19,406				13,215
	Total revenue			1,644,342				1,283,154				941,964
EXPENSE
Loss and loss adjustment expense, net				921,197				645,230				488,652
Policy acquisition costs, net				257,725				224,323				138,212
Other operating expense				178,989				164,474				140,913
Interest expense				7,684				8,374				7,453
	Total expense			1,365,595				1,042,401				775,230
Earnings from continuing operations before income tax expense				278,747				240,753				166,734
Income tax expense on continuing operations				85,647				81,732				59,857
Earnings from continuing operations				193,100				159,021				106,877
Earnings from discontinued operations, net of income taxes of $1,686 in 2005, $2,313 in 2004 and $26,289 in 2003				2,760				4,004				36,684
	Net earnings		$	195,860			$	163,025			$	143,561
Basic earnings per share data:
Earnings from continuing operations			$	1.83			$	1.64			$	1.12
Earnings from discontinued operations				0.03				0.04				0.39
	Net earnings		$	1.86			$	1.68			$	1.51
Weighted average shares outstanding				105,463				97,257				94,919
Diluted earnings per share data:
Earnings from continuing operations			$	1.76			$	1.61			$	1.11
Earnings from discontinued operations				0.03				0.04				0.38
	Net earnings		$	1.79			$	1.65			$	1.49
Weighted average shares outstanding				109,437				98,826				96,576

F-6

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Table of Contents

					Years Ended December 31,
					2005				2004				2003
Net earnings					$	195,860			$	163,025			$	143,561
Other comprehensive income (loss):
	Investment gains (losses):
		Investment gains (losses) during the year, net of income tax charge (benefit) of $(2,946) in 2005, $6,091 in 2004 and $(1,048) in 2003				(4,257	)			10,955				(1,962	)
		Less reclassification adjustment for gains included in net earnings, net of income tax charge of $2,479 in 2005, $2,433 in 2004 and $184 in 2003				(4,605	)			(4,518	)			(343	)
	Foreign currency translation adjustment					(10,461	)			5,072				7,666
		Other comprehensive income (loss)				(19,323	)			11,509				5,361
			Comprehensive income		$	176,537			$	174,534			$	148,922

F-7

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Table of Contents

															Accumulated
							Additional								Other				Total
			Common				Paid-In				Retained				Comprehensive				Shareholders’
			Stock				Capital				Earnings				Income				Equity
Balance at December 31, 2002			$	62,358			$	416,406			$	383,378			$	20,765			$	882,907
	Net earnings			—				—				143,561				—				143,561
	Other comprehensive income			—				—				—				5,361				5,361
	Issuance of 1,860 shares for exercise of options, including tax benefit of $4,320			1,240				23,359				—				—				24,599
	Issuance of 78 shares of contractually issuable stock			52				(52	)			—				—				—
	Issuance of 472 shares for purchased company			314				7,958				—				—				8,272
	Cash dividends declared, $0.187 per share			—				—				(17,780	)			—				(17,780	)
Balance at December 31, 2003				63,964				447,671				509,159				26,126				1,046,920
	Net earnings			—				—				163,025				—				163,025
	Other comprehensive income			—				—				—				11,509				11,509
	Issuance of 4,500 shares in public offering, net of costs			3,000				93,668				—				—				96,668
	Issuance of 1,485 shares for exercise of options, including tax benefit of $3,743			990				22,861				—				—				23,851
	Issuance of 126 shares for purchased company and strategic investment			84				2,576				—				—				2,660
	Cash dividends declared, $0.213 per share			—				—				(20,968	)			—				(20,968	)
Balance at December 31, 2004				68,038				566,776				651,216				37,635				1,323,665
	Net earnings			—				—				195,860				—				195,860
	Other comprehensive loss			—				—				—				(19,323	)			(19,323	)
	Issuance of 4,688 shares in public offering, net of costs			4,688				145,276				—				—				149,964
	Issuance of 2,439 shares for exercise of options, including tax benefit of $10,001			1,785				44,355				—				—				46,140
	Issuance of 1,624 shares for purchased companies and convertible debt			1,227				26,226				—				—				27,453
	Three-for-two stock split			35,065				(35,065	)			—				—				—
	Cash dividends declared, $0.282 per share			—				—				(30,063	)			—				(30,063	)
Balance at December 31, 2005			$	110,803			$	747,568			$	817,013			$	18,312			$	1,693,696

F-8

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Table of Contents

					Years Ended December 31,
					2005				2004				2003
Cash flows from operating activities:
	Net earnings				$	195,860			$	163,025			$	143,561
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Change in premium, claims and other receivables				(7,654	)			70,136				(134,112	)
		Change in reinsurance recoverables				(249,329	)			(183,121	)			(117,256	)
		Change in ceded unearned premium				87,515				(22,504	)			(127,367	)
		Change in loss and loss adjustment expense payable				705,688				538,374				379,998
		Change in reinsurance balances payable				(60,832	)			(69,647	)			130,257
		Change in unearned premium				38,809				122,317				261,261
		Change in premium and claims payable, net of restricted cash				(3,851	)			6,928				(22,263	)
		Gain on sale of subsidiaries				(8,717	)			(6,317	)			(52,681	)
		Change in trading portfolio				(66,809	)			25,673				12,741
		Depreciation and amortization expense				14,647				16,139				12,828
		Other, net				(21,337	)			7,700				41,131
			Cash provided by operating activities			623,990				668,703				528,098
Cash flows from investing activities:
	Sales of fixed income securities					237,480				253,398				167,357
	Maturity or call of fixed income securities					186,075				154,357				142,652
	Cost of securities acquired					(1,054,529	)			(935,053	)			(694,211	)
	Change in short-term investments					(72,703	)			(160,229	)			(202,904	)
	Payments for purchase of subsidiaries, net of cash received					(94,056	)			(93,543	)			(16,680	)
	Sale of subsidiaries and other operating investments					21,116				—				82,618
	Other, net					3,637				268				(17,655	)
			Cash used by investing activities			(772,980	)			(780,802	)			(538,823	)
Cash flows from financing activities:
	Issuance of notes payable, net of costs					46,528				29,000				174,845
	Payments on notes payable					(48,181	)			(40,176	)			(108,813	)
	Sale of common stock, net of costs					186,103				116,776				20,279
	Dividends paid and other, net					(31,458	)			(19,984	)			(19,476	)
			Cash provided by financing activities			152,992				85,616				66,835
Net increase (decrease) in cash						4,002				(26,483	)			56,110
Cash at beginning of year						69,933				96,416				40,306
			Cash at end of year		$	73,935			$	69,933			$	96,416

F-9

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Table of Contents

(1)	General Information and Significant Accounting and Reporting Policies

	Basis of Presentation

F-10

---

Table of Contents

	Investments

	Derivative Financial Instruments

	Net Earned Premium, Policy Acquisition Costs and Ceding Commissions

F-11

---

Table of Contents

	Fee and Commission Income

	Strategic Investments and Other Operating Income

	Premium, Claims and Other Receivables

F-12

---

Table of Contents

	Loss and Loss Adjustment Expense Payable

	Reinsurance

	Goodwill and Intangible Assets

	Cash and Short-term Investments

F-13

---

Table of Contents

	Restricted Cash and Cash Investments

	Foreign Currency

	Income Taxes

	Earnings Per Share

F-14

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Table of Contents

	Stock Options

		2005				2004				2003
Reported net earnings		$	195,860			$	163,025			$	143,561
Stock-based compensation using fair value method, net of income taxes			(6,916	)			(4,883	)			(7,705	)
Pro forma net earnings		$	188,944			$	158,142			$	135,856
Reported basic earnings per share		$	1.86			$	1.68			$	1.51
Fair value stock-based compensation			(0.07	)			(0.05	)			(0.08	)
Pro forma basic earnings per share		$	1.79			$	1.63			$	1.43
Reported diluted earnings per share		$	1.79			$	1.65			$	1.49
Fair value stock-based compensation			(0.06	)			(0.05	)			(0.08	)
Pro forma diluted earnings per share		$	1.73			$	1.60			$	1.41

		2005				2004				2003
Average fair value of options granted			$7.87				$5.85				$4.45
Risk free interest rate			4.0	%			3.4	%			2.8	%
Expected volatility factor			32	%			32	%			32	%
Dividend yield			1.11	%			1.02	%			1.07	%
Expected option life			4.8 years				4.5 years				4.4 years

F-15

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Table of Contents

	Stock Split

	Large Loss Events

F-16

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Table of Contents

														Effect of Hurricanes and
														Commutations
		2005				2004				2003				2005				2004				2003
Gross incurred loss and loss adjustment expense		$	1,596,773			$	1,289,155			$	1,045,991			$	394,625			$	89,795			$	—
Net incurred loss and loss adjustment expense			921,197				645,230				488,652				99,226				23,335				28,751
Ceded earned premium			617,402				849,610				748,799				16,533				9,806				—
Net earnings (loss)			195,860				163,025				143,561				(75,171	)			(21,464	)			(18,688	)

	Recent Accounting Pronouncements

F-17

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Table of Contents

(2)	Acquisitions, Goodwill and Disposition

	Acquisitions

Initial

Goodwill

Deductible

Effective Date

Consideration

Recognized

Goodwill

Covenant Underwriters and Continental Underwriters

July 1, 2003

$

19.9

$

19.1

Yes

American Contractors Indemnity Company

January 31, 2004

46.8

10.5

No

RA&MCO Insurance Services

October 1, 2004

8.5

7.7

No

United States Surety Company

March 1, 2005

19.4

12.6

No

HCC International Insurance Company (formerly De Montfort Insurance Company)

July 1, 2005

24.6

15.8

No

Perico Life Insurance Company (formerly MIC Life Insurance Corporation)

November 30, 2005

20.0

—

Yes

Perico Ltd.

December 1, 2005

33.4

31.8

Yes

Illium Insurance Group

December 31, 2005

3.0

1.5

No

F-18

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Table of Contents

			Insurance
			Company				Agency				Total
Balance at December 31, 2003			$	163,718			$	222,789			$	386,507
Additions:
	New acquisitions			17,870				2,823				20,693
	Earnouts			26,697				15,716				42,413
Transfer on reorganization				11,266				(11,266	)			—
Reduction for tax settlement				(4,201	)			(1,381	)			(5,582	)
Balance at December 31, 2004				215,350				228,681				444,031
Additions:
	New acquisitions			59,881				1,628				61,509
	Earnouts			24,162				7,922				32,084
Transfer on reorganization				45,353				(45,353	)			—
Reduction for tax adjustment				(4,677	)			—				(4,677	)
Balance at December 31, 2005			$	340,069			$	192,878			$	532,947

	Disposition

F-19

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(3)	Investments

			Cost or				Gross				Gross				Estimated
			Amortized				Unrealized				Unrealized				Fair
			Cost				Gain				Loss				Value
December 31, 2005
U.S. government			$	90,404			$	167			$	(847	)		$	89,724
States, municipalities and political subdivisions				1,138,499				10,109				(6,634	)			1,141,974
Corporate fixed income securities				381,917				340				(6,675	)			375,582
Asset-backed and mortgage-backed securities				361,456				562				(6,646	)			355,372
Foreign securities				304,863				2,412				(1,303	)			305,972
	Total fixed income securities		$	2,277,139			$	13,590			$	(22,105	)		$	2,268,624
December 31, 2004
U.S. government			$	87,652			$	688			$	(214	)		$	88,126
States, municipalities and political subdivisions				727,437				15,609				(1,696	)			741,350
Corporate fixed income securities				374,130				4,644				(1,438	)			377,336
Asset-backed and mortgage-backed securities				248,449				1,764				(1,510	)			248,703
Foreign securities				244,753				3,176				(273	)			247,656
	Total fixed income securities		$	1,682,421			$	25,881			$	(5,131	)		$	1,703,171

F-20

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			Less than 12 Months								12 Months or More								Total
							Unrealized								Unrealized								Unrealized
			Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
December 31, 2005
U.S. government			$	50,108			$	(449	)		$	28,585			$	(398	)		$	78,693			$	(847	)
States, municipalities and political subdivisions				464,533				(4,614	)			95,327				(2,020	)			559,860				(6,634	)
Corporate fixed income securities				119,762				(2,175	)			194,057				(4,500	)			313,819				(6,675	)
Asset-backed and mortgage-backed securities				162,251				(2,078	)			147,552				(4,568	)			309,803				(6,646	)
Foreign securities				72,365				(832	)			43,465				(471	)			115,830				(1,303	)
	Total securities		$	869,019			$	(10,148	)		$	508,986			$	(11,957	)		$	1,378,005			$	(22,105	)
December 31, 2004
U.S. government			$	52,473			$	(197	)		$	489			$	(17	)		$	52,962			$	(214	)
States, municipalities and political subdivisions				170,352				(1,091	)			27,500				(605	)			197,852				(1,696	)
Corporate fixed income securities				143,057				(1,170	)			14,419				(268	)			157,476				(1,438	)
Asset-backed and mortgage-backed securities				140,536				(1,057	)			12,096				(453	)			152,632				(1,510	)
Foreign securities				47,775				(252	)			10,549				(21	)			58,324				(273	)
	Total securities		$	554,193			$	(3,767	)		$	65,053			$	(1,364	)		$	619,246			$	(5,131	)

F-21

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				Amortized				Estimated
				Cost				Fair Value
Due in 1 year or less				$	147,717			$	146,924
Due after 1 year through 5 years					565,851				561,240
Due after 5 years through 10 years					468,075				467,542
Due after 10 years through 15 years					299,078				301,264
Due after 15 years					434,962				436,282
	Securities with fixed maturities				1,915,683				1,913,252
Asset-backed and mortgage-backed securities					361,456				355,372
		Total fixed income securities		$	2,277,139			$	2,268,624

			2005				2004				2003
Fixed income securities			$	77,842			$	55,929			$	40,927
Short-term investments				21,208				9,735				7,422
Other investments				3,615				1,366				488
	Total investment income			102,665				67,030				48,837
Investment expense				(3,814	)			(2,145	)			(1,502	)
	Net investment income		$	98,851			$	64,885			$	47,335

F-22

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			Gains				Losses				Net
Year ended December 31, 2005
Fixed income securities			$	3,562			$	(1,475	)		$	2,087
Other investments				156				(795	)			(639	)
	Realized gain (loss)		$	3,718			$	(2,270	)		$	1,448
Year ended December 31, 2004
Fixed income securities			$	7,035			$	(1,088	)		$	5,947
Other investments				64				(189	)			(125	)
	Realized gain (loss)		$	7,099			$	(1,277	)		$	5,822
Year ended December 31, 2003
Fixed income securities			$	3,113			$	(1,230	)		$	1,883
Other investments				40				(1,396	)			(1,356	)
	Realized gain (loss)		$	3,153			$	(2,626	)		$	527

			2005				2004				2003
Fixed income securities			$	(29,265	)		$	(9,288	)		$	(3,738	)
Strategic and other investments				14,978				19,383				201
	Net unrealized investment gains (losses)		$	(14,287	)		$	10,095			$	(3,537	)

F-23

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(4)	Reinsurance

											Loss and Loss
			Written				Earned				Adjustment
			Premium				Premium				Expense
Year ended December 31, 2005
Primary business			$	1,768,284			$	1,694,446			$	1,329,931
Reinsurance assumed				270,002				292,944				266,842
Reinsurance ceded				(537,062	)			(617,402	)			(675,576	)
	Net amounts		$	1,501,224			$	1,369,988			$	921,197
Year ended December 31, 2004
Primary business			$	1,674,075			$	1,557,806			$	966,163
Reinsurance assumed				301,078				302,496				322,992
Reinsurance ceded				(869,634	)			(849,610	)			(643,925	)
	Net amounts		$	1,105,519			$	1,010,692			$	645,230
Year ended December 31, 2003
Primary business			$	1,377,999			$	1,189,356			$	694,205
Reinsurance assumed				361,895				297,715				351,786
Reinsurance ceded				(874,392	)			(748,799	)			(557,339	)
	Net amounts		$	865,502			$	738,272			$	488,652

			2005				2004
Reinsurance recoverable on paid losses			$	93,837			$	94,535
Reinsurance recoverable on outstanding losses				634,725				509,512
Reinsurance recoverable on incurred but not reported losses				644,062				520,404
Reserve for uncollectible reinsurance				(12,141	)			(20,425	)
	Total reinsurance recoverables		$	1,360,483			$	1,104,026

F-24

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			2005				2004
Payables to reinsurers			$	291,826			$	350,514
Letters of credit				350,135				265,152
Cash deposits				64,150				68,307
	Total credits		$	706,111			$	683,973

			2005				2004
Loss and loss adjustment expense payable			$	2,813,720			$	2,089,199
Reinsurance recoverable on outstanding losses				(634,725	)			(509,512	)
Reinsurance recoverable on incurred but not reported losses				(644,062	)			(520,404	)
	Net reserves		$	1,534,933			$	1,059,283
Unearned premium			$	807,109			$	741,706
Ceded unearned premium				(239,416	)			(317,055	)
	Net unearned premium		$	567,693			$	424,651
Deferred policy acquisition costs			$	156,253			$	139,199
Deferred ceding commissions				(65,702	)			(94,896	)
	Net deferred policy acquisition costs		$	90,551			$	44,303

F-25

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Table of Contents

						Total				Total				Net
Reinsurer		Rating		Location		Recoverables				Credits				Recoverables
December 31, 2005
Hannover Rueckversicherungs AG		A		Germany		$	147,589			$	28,232			$	119,357
Lloyd’s Syndicate Number 0033		A-		United Kingdom			43,756				681				43,075
Arch Reinsurance Ltd.		A-		Bermuda			52,226				11,544				40,682
Everest Reinsurance Company		A+		Delaware			53,344				13,741				39,603
Odyssey America Reinsurance Corp.		A		Connecticut			39,973				3,474				36,499
Swiss Reinsurance America Corp.		A+		New York			43,470				7,749				35,721
Platinum Underwriters Reinsurance Co.		A		Maryland			38,159				4,422				33,737
ACE Property & Casualty Insurance Co.		A+		Pennsylvania			31,139				2,036				29,103
Harco National Insurance Company		A-		Illinois			29,873				3,657				26,216
Transatlantic Reinsurance Company		A+		New York			26,661				1,331				25,330
Lloyd’s Syndicate Number 0958		B		United Kingdom			26,332				1,091				25,241
December 31, 2004
Hannover Rueckversicherungs AG		A		Germany		$	66,961			$	21,261			$	45,700
Everest Reinsurance Company		A+		Delaware			55,443				12,139				43,304
Harco National Insurance Company		A-		Illinois			51,067				8,879				42,188
Lloyd’s Syndicate Number 2488		A-		United Kingdom			41,460				2,941				38,519
Lloyd’s Syndicate Number 0033		A-		United Kingdom			31,560				574				30,986
Lloyd’s Syndicate Number 1101		B-		United Kingdom			31,663				774				30,889
Lloyd’s Syndicate Number 1206		B-		United Kingdom			31,242				358				30,884
Odyssey America Reinsurance Corp.		A		Connecticut			29,551				2,637				26,914
Platinum Underwriters Reinsurance Co.		A		Maryland			36,658				10,669				25,989

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(5)	Liability for Unpaid Loss and Loss Adjustment Expense

					2005				2004				2003
Reserves for loss and loss adjustment expense payable at beginning of year					$	2,089,199			$	1,535,288			$	1,155,290
Less reinsurance recoverables						1,029,916				830,088				697,972
			Net reserves at beginning of year			1,059,283				705,200				457,318
Net reserve addition from acquisition of subsidiaries						12,491				11,647				5,587
Incurred loss and loss adjustment expense:
	Provision for loss and loss adjustment expense for claims occurring in current year					895,803				614,752				464,886
	Increase in estimated loss and loss adjustment expense for claims occurring in prior years					25,394				30,478				23,766
			Incurred loss and loss adjustment expense			921,197				645,230				488,652
Loss and loss adjustment expense payments for claims occurring during:
		Current year				285,814				161,117				110,528
		Prior years				172,224				141,677				135,829
			Loss and loss adjustment expense payments			458,038				302,794				246,357
Net reserves at end of year						1,534,933				1,059,283				705,200
Plus reinsurance recoverables						1,278,787				1,029,916				830,088
			Reserves for loss and loss adjustment expense at end of year		$	2,813,720			$	2,089,199			$	1,535,288

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(6)	Notes Payable

			2005				2004
1.30% Convertible Notes			$	125,000			$	125,000
2.00% Convertible Exchange Notes				172,400				172,442
$200.0 million Revolving Loan Facility				—				—
Other debt				12,143				13,835
	Total notes payable		$	309,543			$	311,277

F-28

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F-29

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(7)	Income Taxes

			2005				2004				2003
Statutory tax rate				35	%			35	%			35	%
Federal tax on continuing operations at statutory rate			$	97,561			$	84,264			$	58,356
Nontaxable municipal bond interest and dividends received deduction				(12,267	)			(7,076	)			(4,126	)
Other non deductible expenses				1,620				923				1,979
State income taxes, net of federal tax benefit				3,591				2,962				3,164
Foreign income taxes				14,869				11,380				15,272
Foreign tax credit				(14,826	)			(11,197	)			(14,795	)
Dividends received deduction on repatriated foreign earnings				(2,784	)			—				—
Other, net				(2,117	)			476				7
	Income tax expense from continuing operations		$	85,647			$	81,732			$	59,857
	Effective tax rate, continuing operations			30.7	%			33.9	%			35.9	%
Federal tax on discontinued operations at statutory rate			$	1,556			$	2,211			$	22,041
Book over tax basis in stock of subsidiary				—				—				2,896
State income taxes, net of federal tax benefit, and other				130				102				1,352
	Income tax expense on discontinued operations		$	1,686			$	2,313			$	26,289
	Effective tax rate, discontinued operations			37.9	%			36.6	%			41.7	%
	Total income tax expense		$	87,333			$	84,045			$	86,146
	Total effective tax rate			30.8	%			34.0	%			37.5	%

F-30

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				2005				2004				2003
Federal current				$	67,423			$	82,995			$	58,020
Federal deferred					(2,170	)			(17,200	)			(15,747	)
	Total federal				65,253				65,795				42,273
State current					4,266				7,065				7,167
State deferred					1,259				(2,508	)			(1,356	)
	Total state				5,525				4,557				5,811
Foreign current					15,155				11,376				11,285
Foreign deferred					(286	)			4				488
	Total foreign				14,869				11,380				11,773
		Income tax expense from continuing operations		$	85,647			$	81,732			$	59,857
Federal current				$	3,528			$	1,898			$	25,038
Federal deferred					(2,042	)			271				(815	)
	Total federal				1,486				2,169				24,223
State current					475				110				1,792
State deferred					(275	)			34				274
	Total state				200				144				2,066
		Income tax expense from discontinued operations		$	1,686			$	2,313			$	26,289
		Total income tax expense		$	87,333			$	84,045			$	86,146

F-31

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			2005				2004
Excess of financial unearned premium over tax			$	32,932			$	27,238
Effect of loss reserve discounting and salvage and subrogation accrual for tax				34,903				21,341
Excess of financial accrued expenses over tax				22,331				19,228
Allowance for bad debts, not deductible for tax				7,047				7,925
Federal tax net operating loss carryforwards				1,581				2,354
State tax net operating loss carryforwards				4,321				4,278
Foreign branch net operating loss carryforwards				3,244				1,194
Valuation allowance				(10,704	)			(17,533	)
	Total deferred tax assets			95,655				66,025
Unrealized gain on increase in value of securities available for sale (shareholders’ equity)				9,927				14,086
Deferred policy acquisition costs, net of ceding commissions, deductible for tax				11,326				2,762
Amortizable goodwill for tax				18,953				13,012
Book basis in net assets of foreign subsidiaries in excess of tax				8,794				5,354
Property and equipment depreciation and other items				6,519				5,771
	Total deferred tax liabilities			55,519				40,985
	Net deferred tax asset		$	40,136			$	25,040

			2005				2004				2003
Balance at beginning of year			$	17,533			$	17,613			$	11,547
Increase due to acquisitions				—				611				4,900
Reduction related to 2002 acquisition				(5,511	)			—				—
Other				(1,318	)			(691	)			1,166
	Balance at end of year		$	10,704			$	17,533			$	17,613

F-32

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(8)	Shareholders’ Equity

										Accumulated
		Unrealized				Foreign				Other
		Investment				Currency				Comprehensive
		Gain (Loss)				Translation				Income
Balance at December 31, 2002		$	21,649			$	(884	)		$	20,765
Net change for year			(2,305	)			7,666				5,361
Balance at December 31, 2003			19,344				6,782				26,126
Net change for year			6,437				5,072				11,509
Balance at December 31, 2004			25,781				11,854				37,635
Net change for year			(8,862	)			(10,461	)			(19,323	)
Balance at December 31, 2005		$	16,919			$	1,393			$	18,312

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(9)	Earnings Per Share

			2005				2004				2003
Net earnings			$	195,860			$	163,025			$	143,561
Weighted average common shares outstanding				105,463				97,257				94,919
Dilutive effect of outstanding options (determined using the treasury stock method)				1,659				1,569				1,657
Dilutive effect of convertible debt (determined using the treasury stock method)				2,315				—				—
	Weighted average common shares and potential common shares outstanding			109,437				98,826				96,576
Anti-dilutive stock options not included in treasury stock method computation				118				6				306

(10)	Stock Options

		2005								2004								2003
						Average								Average								Average
		Number				Exercise				Number				Exercise				Number				Exercise
		of Shares				Price				of Shares				Price				of Shares				Price
Outstanding, beginning of year			7,178			$	15.99				8,291			$	14.99				9,557			$	13.99
Granted at market value			3,814				25.63				1,044				20.27				713				16.28
Exercised			(2,459	)			14.91				(1,494	)			13.77				(1,889	)			10.46
Forfeited and expired			(314	)			17.97				(663	)			15.92				(90	)			14.35
Outstanding, end of year			8,219				20.71				7,178				15.99				8,291				14.99
Exercisable, end of year			1,766				16.90				2,919				15.26				2,807				14.41

			Options Outstanding												Options Exercisable
							Average				Average								Average
			Number of				Remaining				Exercise				Number of				Exercise
Range of Exercise Prices			Shares				Contractual Life				Price				Shares				Price
Under $16.36				1,963				3.5 years			$	14.50				562			$	14.54
$16.36 - $20.05				2,115				3.4 years				17.64				1,000				17.34
$20.06 - $25.50				1,156				4.8 years				22.80				204				21.22
Over $25.50				2,985				5.6 years				26.17				—				—
	Total options			8,219				4.4 years				20.71				1,766				16.90

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(11)	Segment and Geographic Data

F-35

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					Insurance								Other
					Company				Agency				Operations				Corporate				Total
Year ended December 31, 2005
Revenue:
	Domestic				$	1,218,066			$	62,111			$	35,324			$	6,784			$	1,322,285
	Foreign					281,697				40,360				—				—				322,057
	Inter-segment					158				86,877				—				—				87,035
			Total segment revenue		$	1,499,921			$	189,348			$	35,324			$	6,784				1,731,377
	Inter-segment eliminations																					(87,035	)
			Consolidated total revenue																		$	1,644,342
Net earnings:
	Domestic				$	122,010			$	31,158			$	22,605			$	2,981			$	178,754
	Foreign					6,488				6,957				—				—				13,445
			Total segment net earnings		$	128,498			$	38,115			$	22,605			$	2,981				192,199
	Inter-segment eliminations																					901
	Earnings from discontinued operations, net of income taxes																					2,760
			Consolidated net earnings																		$	195,860
Other items:
	Net investment income				$	88,397			$	7,437			$	794			$	2,223			$	98,851
	Depreciation and amortization					4,825				7,381				459				1,982				14,647
	Interest expense (benefit)					445				9,173				699				(2,633	)			7,684
	Capital expenditures					2,134				3,046				716				4,937				10,833
	Income tax expense (benefit)					50,606				25,993				10,282				(1,662	)			85,219
	Inter-segment eliminations																					428
		Consolidated income tax expense on continuing operations																			$	85,647

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					Insurance								Other
					Company				Agency				Operations				Corporate				Total
Year ended December 31, 2004
Revenue:
	Domestic				$	883,886			$	86,806			$	13,020			$	4,721			$	988,433
	Foreign					250,718				44,003				—				—				294,721
	Inter-segment					553				95,475				—				—				96,028
			Total segment revenue		$	1,135,157			$	226,284			$	13,020			$	4,721				1,379,182
	Inter-segment eliminations																					(96,028	)
			Consolidated total revenue																		$	1,283,154
Net earnings (loss):
	Domestic				$	82,591			$	37,438			$	7,871			$	(2,323	)		$	125,577
	Foreign					24,764				16,545				—				—				41,309
			Total segment net earnings (loss)		$	107,355			$	53,983			$	7,871			$	(2,323	)			166,886
	Inter-segment eliminations																					(7,865	)
	Earnings from discontinued operations, net of income taxes																					4,004
			Consolidated net earnings																		$	163,025
Other items:
	Net investment income				$	59,073			$	3,559			$	1,236			$	1,017			$	64,885
	Depreciation and amortization					4,568				9,729				531				1,311				16,139
	Interest expense (benefit)					856				8,491				768				(1,741	)			8,374
	Capital expenditures					3,451				1,984				16				2,885				8,336
	Income tax expense					50,364				31,621				2,964				2,276				87,225
	Inter-segment eliminations																					(5,493	)
		Consolidated income tax expense on continuing operations																			$	81,732

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					Insurance								Other
					Company				Agency				Operations				Corporate				Total
Year ended December 31, 2003
Revenue:
	Domestic				$	606,469			$	65,484			$	11,725			$	790			$	684,468
	Foreign					219,578				37,918				—				—				257,496
	Inter-segment					—				96,869				—				—				96,869
			Total segment revenue		$	826,047			$	200,271			$	11,725			$	790				1,038,833
	Inter-segment eliminations																					(96,869	)
			Consolidated total revenue																		$	941,964
Net earnings (loss):
	Domestic				$	56,534			$	37,663			$	6,014			$	(5,428	)		$	94,783
	Foreign					17,911				12,065				—				—				29,976
			Total segment net earnings (loss)		$	74,445			$	49,728			$	6,014			$	(5,428	)			124,759
	Inter-segment eliminations																					(17,882	)
	Earnings from discontinued operations, net of income taxes																					36,684
			Consolidated net earnings																		$	143,561
Other items:
	Net investment income *				$	42,345			$	3,796			$	224			$	970			$	47,335
	Depreciation and amortization *					3,271				6,283				664				2,435				12,653
	Interest expense (benefit)					62				7,877				770				(1,256	)			7,453
	Capital expenditures *					2,618				2,997				—				16,047				21,662
	Income tax expense					35,033				33,075				2,699				(73	)			70,734
	Inter-segment eliminations																					(10,877	)
		Consolidated income tax expense on continuing operations																			$	59,857

*	Excludes immaterial amounts related to discontinued operations.

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			2005				2004				2003
Diversified financial products			$	531,136			$	310,809			$	123,562
Group life, accident and health				504,382				343,913				290,009
Aviation				136,197				127,248				97,536
London market account				93,017				111,341				137,572
Other specialty lines				97,721				69,089				12,443
Discontinued lines				7,535				48,292				77,150
	Net earned premium		$	1,369,988			$	1,010,692			$	738,272
Property and casualty			$	115,379			$	126,049			$	85,244
Accident and health				18,903				56,300				57,371
	Fee and commission income		$	134,282			$	182,349			$	142,615

			Insurance								Other
			Company				Agency				Operations				Corporate				Total
December 31, 2005
Domestic			$	3,980,535			$	634,263			$	170,620			$	150,957			$	4,936,375
Foreign				1,464,306				625,385				—				—				2,089,691
	Total assets		$	5,444,841			$	1,259,648			$	170,620			$	150,957			$	7,026,066
December 31, 2004
Domestic			$	3,275,186			$	710,386			$	109,642			$	116,293			$	4,211,507
Foreign				1,030,787				662,332				—				—				1,693,119
	Total assets		$	4,305,973			$	1,372,718			$	109,642			$	116,293			$	5,904,626

(12)	Commitments and Contingencies

	Litigation

F-39

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	Catastrophe Exposure

	Indemnifications

	Terrorist Exposure

	Leases

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Years Ended December 31,
	2006			$	10,582
	2007				10,139
	2008				8,797
	2009				6,461
	2010				5,689
	Thereafter				17,455
		Total future minimum rental payments		$	59,123

(13)	Related Party Transactions

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(14)	Statutory Information

		2005				2004				2003
Statutory policyholders’ surplus		$	1,110,268			$	844,851			$	591,889
Statutory net income			112,231				85,843				54,784

(15)	Supplemental Information

		2005				2004				2003
Cash received from commutations		$	180,789			$	79,462			$	48,983
Income taxes paid			78,309				112,392				70,573
Interest paid			6,168				7,219				6,174
Dividends declared but not paid at year end			8,310				5,783				4,800

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(16)	Quarterly Financial Data (Unaudited)

		Fourth Quarter								Third Quarter								Second Quarter								First Quarter
		2005				2004				2005				2004				2005				2004				2005				2004
Total revenue		$	447,796			$	365,669			$	412,031			$	322,197			$	404,837			$	317,270			$	379,678			$	278,018
Net earnings		$	66,534			$	56,239			$	7,950			$	15,803			$	64,058			$	46,415			$	57,318			$	44,568
Basic earnings per share data:
Earnings per share		$	0.62			$	0.57			$	0.08			$	0.16			$	0.61			$	0.48			$	0.56			$	0.46
Weighted average shares outstanding			107,970				98,799				105,623				97,019				104,962				96,807				103,241				96,374
Diluted earnings per share data:
Earnings per share		$	0.59			$	0.56			$	0.07			$	0.16			$	0.59			$	0.47			$	0.54			$	0.45
Weighted average shares outstanding			113,566				100,254				109,818				98,409				108,269				98,690				105,734				98,126

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December 31, 2005
Column A				Column B				Column C				Column D
												Amount at
												Which Shown in
												the Balance
Type of Investment				Cost				Value				Sheet
Fixed maturities:
	Bonds — United States government and government agencies and authorities			$	90,404			$	89,724			$	89,724
	Bonds — states, municipalities and political subdivisions				418,179				418,873				418,873
	Bonds — special revenue				720,320				723,101				723,101
	Bonds — corporate				381,917				375,582				375,582
	Asset-backed and mortgage-backed securities				361,456				355,372				355,372
	Bonds — foreign				304,863				305,972				305,972
		Total fixed maturities			2,277,139				2,268,624				2,268,624
Equity securities:
	Common stocks — banks, trusts and insurance companies				28,766			$	36,926				36,926
	Common stocks — industrial, miscellaneous and all other				40,764				36,095				36,095
	Non-redeemable preferred stocks				1,033				1,013				1,013
		Total equity securities			70,563			$	74,034				74,034
Short-term investments					839,581								839,581
Other investments					74,334								75,189
		Total investments		$	3,261,617							$	3,257,428

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			December 31,
			2005				2004
ASSETS
Fixed income securities, at fair value (amortized cost: 2005 — $31,023; 2004 — $33,749)			$	30,622			$	33,716
Cash				3,610				2,242
Short-term investments				38,182				31,006
Investment in subsidiaries				1,794,797				1,389,582
Intercompany loans to subsidiaries for acquisitions				184,706				194,919
Receivable from subsidiaries				37,364				39,997
Other assets				14,056				11,867
	Total assets		$	2,103,337			$	1,703,329
LIABILITIES AND SHAREHOLDERS’ EQUITY
Payable to subsidiaries			$	85,821			$	55,151
Notes payable				297,400				297,442
Deferred Federal income tax				14,310				6,468
Accounts payable and accrued liabilities				12,110				20,603
	Total liabilities			409,641				379,664
	Total shareholders’ equity			1,693,696				1,323,665
	Total liabilities and shareholders’ equity		$	2,103,337			$	1,703,329

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			Years Ended December 31,
			2005				2004				2003
Equity in earnings of subsidiaries			$	192,870			$	166,038			$	142,853
Interest income from subsidiaries				6,799				6,531				6,827
Net investment income				2,082				994				953
Other operating income				525				—				2,481
	Total revenue			202,276				173,563				153,114
Interest expense				6,552				6,733				6,296
Other operating expense				3,404				2,858				1,781
	Total expense			9,956				9,591				8,077
Earnings before income tax expense				192,320				163,972				145,037
Income tax expense (benefit)				(3,540	)			947				1,476
	Net earnings		$	195,860			$	163,025			$	143,561

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				Years Ended December 31,
				2005				2004				2003
Net earnings				$	195,860			$	163,025			$	143,561
Other comprehensive income (loss):
Investment gains (losses):
	Gains (losses) during the year, net of income tax charge (benefit) of $(129) in 2005 and $12 in 2004				(239	)			21				—
	Consolidated subsidiaries’ investment gains (losses) during the year, net of income tax charge (benefit) of $(2,817) in 2005, $6,079 in 2004 and $(1,048) in 2003				(4,018	)			10,934				(1,962	)
	Less consolidated subsidiaries’ reclassification adjustment for gains included in net earnings, net of income tax charge of $2,479 in 2005, $2,433 in 2004 and $184 in 2003				(4,605	)			(4,518	)			(343	)
Foreign currency translation adjustment					(10,461	)			5,072				7,666
	Other comprehensive income (loss)				(19,323	)			11,509				5,361
		Comprehensive income		$	176,537			$	174,534			$	148,922

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					Years Ended December 31,
					2005				2004				2003
Cash flows from operating activities:
	Net earnings				$	195,860			$	163,025			$	143,561
		Adjustments to reconcile net earnings to net cash provided by operating activities:
		Undistributed net income of subsidiaries				(120,790	)			(134,242	)			(120,953	)
		Change in accrued interest receivable added to intercompany loan balances				(6,712	)			(6,544	)			(6,317	)
		Change in accounts payable and accrued liabilities				(10,999	)			(660	)			10,022
		Tax benefit from exercise of stock options				10,001				3,743				4,320
		Other, net				(8,587	)			3,906				822
			Cash provided by operating activities			58,773				29,228				31,455
Cash flows from investing activities:
	Cash contributions to subsidiaries					(162,872	)			(107,000	)			(51,364	)
	Payments for purchase of subsidiaries, net of cash received					(98,829	)			(48,975	)			(11,624	)
	Change in short-term investments					(7,176	)			29,817				(55,986	)
	Sales and maturities of fixed income securities					6,200				—				—
	Cost of securities acquired					(3,400	)			(33,679	)			—
	Change in receivable/payable from subsidiaries					33,303				43,295				(14,008	)
	Intercompany loans to subsidiaries for acquisitions					(39,685	)			(62,523	)			(26,838	)
	Payments on intercompany loans to subsidiaries					56,610				54,694				54,674
			Cash used by investing activities			(215,849	)			(124,371	)			(105,146	)
Cash flows from financing activities:
	Proceeds from note payable, net of costs					36,000				29,000				178,000
	Payments on notes payable					(36,015	)			(29,009	)			(107,003	)
	Sale of common stock, net of costs					186,103				116,776				20,279
	Dividends paid					(27,644	)			(19,984	)			(17,039	)
			Cash provided by financing activities			158,444				96,783				74,237
Net increase in cash						1,368				1,640				546
Cash at beginning of year						2,242				602				56
			Cash at end of year		$	3,610			$	2,242			$	602

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(1)	The accompanying condensed financial information should be read in conjunction with the consolidated financial statements and the related notes thereto of HCC Insurance Holdings, Inc. and Subsidiaries. Investments in subsidiaries are accounted for using the equity method. Certain amounts in the 2004 and 2003 condensed financial information have been reclassified to conform with the 2005 presentation. Such reclassifications had no effect on shareholders’ equity, net earnings or cash flows.
(2)	Intercompany loans to subsidiaries are demand notes issued primarily to fund the cash portion of acquisitions. They bear interest at a rate set by management, which approximates the interest rate charged for similar debt. At December 31, 2005, the interest rate on intercompany loans was 6.0%.
(3)	Other income for 2003 includes a one-time foreign currency transaction gain of $1.3 million in settlement of an advance to an unaffiliated entity and income from a strategic investment.

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Column A			Column B				Column C				Column D				Column F				Column G				Column H				Column I				Column J				Column K
							(1)				(1)								(2)												(3)
			December 31,												Years Ended December 31,
			Deferred				Future Policy																Benefits, Claims,
			Policy				Benefits, Losses,												Net				Losses and				Amortization of				Other
			Acquisition				Claims and				Unearned				Premium				Investment				Settlement				Deferred Policy				Operating				Premium
Segments			Costs				Loss Expenses				Premiums				Revenue				Income				Expenses				Acquisition Costs				Expenses				Written
2005
Insurance Company			$	90,551			$	2,887,135			$	807,109			$	1,369,988			$	88,397			$	921,197			$	257,725			$	84,838			$	1,501,224
Agency																				7,437												85,107
Other Operations																				794												1,732
Corporate																				2,223												7,312
	Total		$	90,551			$	2,887,135			$	807,109			$	1,369,988			$	98,851			$	921,197			$	257,725			$	178,989			$	1,501,224
2004
Insurance Company			$	44,303			$	2,163,826			$	741,706			$	1,010,692			$	59,073			$	645,230			$	224,323			$	67,138			$	1,105,519
Agency																				3,559												90,617
Other Operations																				1,236												1,416
Corporate																				1,017												5,303
	Total		$	44,303			$	2,163,826			$	741,706			$	1,010,692			$	64,885			$	645,230			$	224,323			$	164,474			$	1,105,519
2003
Insurance Company			$	18,814			$	1,612,836			$	592,311			$	738,272			$	42,345			$	488,652			$	138,212			$	55,432			$	865,502
Agency																				3,796												75,691
Other Operations																				224												2,242
Corporate																				970												7,548
	Total		$	18,814			$	1,612,836			$	592,311			$	738,272			$	47,335			$	488,652			$	138,212			$	140,913			$	865,502

(1)	Columns C and D are shown ignoring the effects of reinsurance.
(2)	Net investment income was allocated to the subsidiary, and therefore the segment, on which the related investment asset was recorded.
(3)	Other operating expenses is after all corporate expense allocations have been charged or credited to the individual segments.

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Column A			Column B				Column C				Column D				Column E				Column F
											Assumed from								Percent of
			Primary				Ceded to Other				Other								Amount
			Amount				Companies				Companies				Net Amount				Assumed to Net
Year Ended December 31, 2005
Life insurance in force			$	1,359,529			$	404,228			$	—			$	955,301				—	%
Earned premium:
Property and liability insurance			$	1,116,713			$	546,275			$	266,651			$	837,089				32	%
Accident and health insurance				577,733				71,127				26,293				532,899				5	%
	Total		$	1,694,446			$	617,402			$	292,944			$	1,369,988				21	%
Year ended December 31, 2004
Life insurance in force			$	1,498,559			$	435,808			$	—			$	1,062,751				—	%
Earned premium:
Property and liability insurance			$	968,444			$	615,780			$	274,124			$	626,788				44	%
Accident and health insurance				589,362				233,830				28,372				383,904				7	%
	Total		$	1,557,806			$	849,610			$	302,496			$	1,010,692				30	%
Year ended December 31, 2003
Life insurance in force			$	1,443,611			$	481,870			$	—			$	961,741				—	%
Earned premium:
Property and liability insurance			$	651,893			$	454,294			$	205,165			$	402,764				51	%
Accident and health insurance				537,463				294,505				92,550				335,508				28	%
	Total		$	1,189,356			$	748,799			$	297,715			$	738,272				40	%

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				2005				2004				2003
Reserve for uncollectible reinsurance:
	Balance at beginning of year			$	20,425			$	14,991			$	7,142
	Provision charged to expense				5,750				6,616				7,671
	Reclassification to indemnification liability				(9,000	)			—				—
	Amounts (written off) recovered				(5,034	)			(1,182	)			178
		Balance at end of year		$	12,141			$	20,425			$	14,991
Allowance for doubtful accounts:
	Balance at beginning of year			$	4,911			$	2,549			$	2,279
	Acquisition of subsidiaries				—				1,931				13
	Provision charged to expense				1,917				546				167
	Amounts (written off) recovered and other				566				(115	)			90
		Balance at end of year		$	7,394			$	4,911			$	2,549

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Exhibit
Number
	A 3	.1		—		Restated Certificate of Incorporation and Amendment of Certificate of Incorporation of HCC Insurance Holdings, Inc., filed with the Delaware Secretary of State on July 23, 1996 and May 21, 1998, respectively.
	B 3	.2		—		Bylaws of HCC Insurance Holdings, Inc., as amended.
	B 4	.1		—		Specimen of Common Stock Certificate, $1.00 par value, of HCC Insurance Holdings, Inc.
	C 4	.2		—		Indenture dated August 23, 2001 between HCC Insurance Holdings, Inc. and First Union National Bank related to Debt Securities (Senior Debt).
	C 4	.3		—		First Supplemental Indenture dated August 23, 2001 between HCC Insurance Holdings, Inc. and First Union National Bank related to 2.00% Convertible Notes Due 2021.
	D 4	.4		—		Second Supplemental Indenture dated March 28, 2003 between HCC Insurance Holdings, Inc. and Wachovia Bank, National Association (as successor to First Union National Bank) related to 1.30% Convertible Notes Due 2023.
	E 4	.5		—		First Amendment to Second Supplemental Indenture dated December 22, 2004 between HCC Insurance Holdings, Inc. and Wachovia Bank, National Association related to 1.30% Convertible Notes Due 2023.
	F 4	.6		—		Third Supplemental Indenture dated November 23, 2004 between HCC Insurance Holdings, Inc. and Wachovia Bank, National Association related to 2.00% Convertible Notes Due 2021.
	G 10	.1		—		Loan Agreement ($200,000,000 Revolving Loan Facility) dated at November 24, 2004 among HCC Insurance Holdings, Inc.; Wells Fargo Bank, National Association; Southwest Bank of Texas, N.A.; Citibank, N.A.; Royal Bank of Scotland and Bank of New York.
	H 10	.2		—		HCC Insurance Holdings, Inc. 1995 Flexible Incentive Plan, as amended and restated.
	H 10	.3		—		HCC Insurance Holdings, Inc. 1997 Flexible Incentive Plan, as amended and restated.
	H 10	.4		—		HCC Insurance Holdings, Inc. 1996 Nonemployee Director Stock Option Plan, as amended and restated.
	I 10	.5		—		HCC Insurance Holdings, Inc. 2001 Flexible Incentive Plan, as amended and restated.
	J 10	.6		—		Form of Incentive Stock Option Agreement under the HCC Insurance Holdings, Inc. 2001 Flexible Incentive Plan.
	K 10	.7		—		HCC Insurance Holdings, Inc. 2004 Flexible Incentive Plan.
	F 10	.8		—		Form of Incentive Stock Option Agreement under the HCC Insurance Holdings, Inc. 2004 Incentive Plan.
	F 10	.9		—		Amended and Restated Employment Agreement effective at November 10, 2004, between HCC Insurance Holdings, Inc. and Stephen L. Way.
	L 10	.10		—		HCC Insurance Holdings, Inc. nonqualified deferred compensation plan for Stephen L. Way effective January 1, 2003.
	M 10	.11		—		Employment Agreement effective at March 1, 2005, between HCC Insurance Holdings, Inc. and Craig J. Kelbel.
	J 10	.12		—		Employment Agreement effective at June 3, 2002, between HCC Insurance Holdings, Inc. and Michael J. Schell.
	N 10	.13		—		Employment Agreement effective at January 1, 2002, between HCC Insurance Holdings, Inc. and Edward H. Ellis, Jr.
	12			—		Statement Regarding Computation of Ratios.
	14			—		Form of HCC Insurance Holdings, Inc. Code of Ethics Statement by Chief Executive Officer and Senior Financial Officers.
	21			—		Subsidiaries of HCC Insurance Holdings, Inc.

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Exhibit
Number
	23			—		Consent of Independent Registered Public Accounting Firm — PricewaterhouseCoopers LLP dated March 15, 2006.
	24			—		Powers of Attorney.
	31	.1		—		Certification by Chief Executive Officer.
	31	.2		—		Certification by Chief Financial Officer.
	32	.1		—		Certification with respect to Annual Report of HCC Insurance Holdings, Inc.

A		Incorporated by reference to the Exhibits to HCC Insurance Holdings, Inc.’s Registration Statement on Form S-8 (Registration No. 333-61687) filed August 17, 1998.
B		Incorporated by reference to the Exhibits to HCC Insurance Holdings, Inc.’s Registration Statement on Form S-1 (Registration No. 33-48737) filed October 27, 1992.
C		Incorporated by reference to the Exhibits to HCC Insurance Holdings, Inc.’s Form 8-K dated August 19, 2001.
D		Incorporated by reference to the Exhibits to HCC Insurance Holdings, Inc.’s Form 8-K dated March 25, 2003.
E		Incorporated by reference to the Exhibits to HCC Insurance Holdings, Inc.’s Form 8-K dated December 22, 2004.
F		Incorporated by reference to the Exhibits to HCC Insurance Holdings, Inc.’s Form 10-K for the year ended December 31, 2004.
G		Incorporated by reference to the Exhibits to HCC Insurance Holdings, Inc.’s Form 8-K filed December 1, 2004.
H		Incorporated by reference to Exhibits to HCC Insurance Holdings, Inc.’s Form 10-K for the year ended December 31, 1999.
I		Incorporated by reference to the Exhibits to HCC Insurance Holdings, Inc.’s Definitive Proxy Statement for the May 22, 2002 Annual Meeting of Shareholders filed April 26, 2002.
J		Incorporated by reference to the Exhibits to HCC Insurance Holdings, Inc.’s Form 10-K for the year ended December 31, 2002.
K		Incorporated by reference to the Exhibits to HCC Insurance Holdings, Inc.’s Definitive Proxy Statement for the May 13, 2004 Annual Meeting of Shareholders filed April 16, 2004.
L		Incorporated by reference to the Exhibits to HCC Insurance Holdings, Inc.’s Form 10-K for the year ended December 31, 2003.
M		Incorporated by reference to the Exhibits to HCC Insurance Holdings, Inc.’s Form 10-Q for the quarter ended March 31, 2005.
N		Incorporated by reference to the Exhibits to HCC Insurance Holdings, Inc.’s Form 10-K for the year ended December 31, 2001.