Arch Capital Group Ltd. - Formerly Risk Capital Holdings, Inc. - Reports 2000 First Quarter Results.Business Editors GREENWICH Greenwich, borough, Greater London, England Greenwich (grĭn`īj, grĕn`–), outer borough (1991 pop. 200,800) of Greater London, SE England, on the Thames River. Manufactures include telephone equipment and underwater cable. , Conn.--(BUSINESS WIRE)--May 10, 2000 Arch Capital Group Ltd. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : ACGL ACGL Arch Capital Group Ltd. ACGL Automobile Corporation of Goa Limited ACGL Alternative County Government Law ), formerly known as Risk Capital Holdings, Inc., today reported 2000 first quarter results. For the 2000 first quarter, the Company reported a comprehensive loss of $38.1 million, which was composed of net income of $5.8 million and other comprehensive loss of $43.9 million, consisting of the change in after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. unrealized depreciation of investments. The 2000 first quarter net income included after-tax realized investment gains of $19 million and equity in net income of investees of $30,000. These amounts compare with comprehensive loss for the 1999 first quarter of $35.5 million, which was composed of net loss of $25 million and the change in after-tax unrealized appreciation of investments of $10.5 million. The 1999 first quarter net loss included after-tax realized investment losses of $749,000, equity in net loss of investees of $163,000 and a loss of $383,000 from the cumulative effect of an accounting change. The aforementioned a·fore·men·tioned adj. Mentioned previously. n. The one or ones mentioned previously. aforementioned Adjective mentioned before Adj. 1. amounts exclude any impact of the previously announced sale of the Company's reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. operations to Folksamerica Reinsurance Company ("Folksamerica"), which closed on May 5, 2000. The Company anticipates recording a net gain on the sale of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $7 million, or $0.57 per share based on 12.3 million shares outstanding, subject to possible post closing adjustments based on an independent actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin report of the claim liabilities transferred and an independent audit of the net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. sold. The report and audit and related adjustments could be completed as early as the second quarter of 2000, subject to a dispute resolution mechanism (if necessary). Following is a table of per share data on an after-tax basis After-tax basis The comparison basis used to analyze the net after-tax returns on a corporate taxable bond and a municipal tax-free bond. :
Three Months Ended
March 31,
2000 1999
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Basic and diluted earnings per share:
Operating income (loss) (1) ($0.86) ($1.39)
Net realized investment gains (losses) 1.23 (0.04)
Equity in net income (loss) of investees (0.01)
Cumulative effect of accounting change (0.02)
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Net income (loss) 0.37 (1.46)
Change in unrealized (depreciation)
appreciation of investments (2.83) (0.62)
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Comprehensive income (loss) ($2.46) ($2.08)
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(1) Represents net income (loss), excluding after-tax realized
investment gains (losses), equity in net income (loss) of investees
and the cumulative effect of an accounting change.
At March 31, 2000, consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: stockholders' equity Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. totaled $249.3 million, compared with $346.5 million at December December: see month. 31, 1999. On a basic and diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis, book value per share was $20.22 based on 12,329,398 shares outstanding at March 31, 2000, compared with $20.28 based on 17,087,970 shares outstanding at December 31, 1999. Book value and per share amounts at March 31, 2000 reflect the repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. on March 2, 2000 from XL Capital Ltd of all of the 4,755,000 shares of the Company's common stock it previously held. The repurchase price was $59.2 million, or $12.45 per share, and the repurchased shares were recorded as treasury stock. With respect to the Company's divested reinsurance operations, net premiums written for the first quarter of 2000 were $52.9 million, compared with $64.4 million for the 1999 first quarter. The statutory combined ratio for the 2000 first quarter was 126.4%, compared to the 1999 first quarter statutory combined ratio of 167.0%. For the first quarter of 2000, the statutory operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. ratio was 4.6%, compared with 5.5% in the prior year period. After-tax net investment income for the 2000 first quarter was $3.7 million, or $0.24 per share, compared with $3.2 million, or $0.19 per share, for the 1999 first quarter. Pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta net realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. of $29.3 million for the 2000 first quarter reflects the disposition Act of disposing; transferring to the care or possession of another. The parting with, alienation of, or giving up of property. The final settlement of a matter and, with reference to decisions announced by a court, a judge's ruling is commonly referred to as disposition, regardless of or reductions in the Company's positions in several public portfolio investments, net of a $3.2 million write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. of one private equity investment. Pre-tax net realized gains include a net gain of $17.3 million and net loss of $487,000 recorded on the disposition of the Company's investments in Annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. and Life Re (Holdings), Ltd. and LARC LARC Langley Research Center LARC London Action Resource Centre LARC Lighter, Amphibious Resupply, Cargo LARC Long Acting Reversible Contraception LARC Learning and Academic Resource Center (University of California, Irvine) Holdings, Ltd., respectively, in connection with the common stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. from XL Capital Ltd. During the 2000 first quarter, the Company recorded a deferred tax asset valuation allowance of $12.1 million, of which $6.3 million is included in income tax expense reflected in net income and $5.8 million is included in the change in net unrealized depreciation of investments contained in other comprehensive loss. The change in after-tax net unrealized depreciation of investments of $43.9 million for the 2000 first quarter reflects the following:
Net unrealized losses on investments held
during the period $29.3
Reclassification for net realized
gains recorded in net income 29.3
---------
Pre-tax net unrealized depreciation of
investments 58.6
Less: Deferred tax asset 20.5
Valuation allowance (5.8)
---------
Deferred tax benefit 14.7
---------
Change in net unrealized depreciation of
investments, net of tax $43.9
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At March 31, 2000, the Company's cash and investment portfolio totaled $459.6 million, consisting of approximately 45% in fixed maturity securities, 9% in publicly traded equity securities, 13% in privately held securities, and 33% in cash and short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investments. At March 31, 2000, the Company's investment portfolio included $42.9 million of publicly traded equity securities. At such date, there were 11 investments in privately held securities totaling $58.2 million, with outstanding commitments to provide capital in the amount of $23.1 million. Outstanding commitments include the remaining $18.9 million commitment to Trident II, L.P., an investment fund dedicated to making private equity and equity related investments in the global insurance, reinsurance and related industries. Risk Capital Reinsurance Company (which name is being changed to Arch Reinsurance Company) had statutory surplus of $191.5 million at March 31, 2000. Effective with the sale of the reinsurance business to Folksamerica, A.M. Best has withdrawn the company's A- rating and has assigned as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. the classification of NR-3 (Rating Procedure Inapplicable in·ap·pli·ca·ble adj. Not applicable: rules inapplicable to day students. in·ap ). Cautionary Note Regarding Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. The Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 provides a "safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. " for forward-looking statements. This release or any other written or oral statements made by or on behalf of the Company may include forward-looking statements which reflect our current views with respect to future events and financial performance. All statements other than statements of historical fact included in this release are forward-looking statements. Forward-looking statements can generally be identified by the use of forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. terminology The terminology used in the computer and telecommunications field adds tremendous confusion not only for the lay person, but for the technicians themselves. What many do not realize is that terms are made up by anybody and everybody in a nonchalant, casual manner without any regard or such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or their negative or variations or similar terminology. Forward-looking statements involve our current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. in these statements. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed below and elsewhere in this release and include: - the availability of investments on attractive terms; - competition, including increased competition; - changes in the performance of the insurance sector of the public equity markets or market professionals' views as to such sector; - general economic conditions; - regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. changes and conditions; - claims development, including as to the frequency or severity of claims and the timing of payments; and - loss of key personnel. In addition, the sale of our reinsurance operations to Folksamerica Reinsurance Company referred to in this release is subject to various risks and uncertainties including the risks that the costs of the transaction and purchase price and reserve adjustments will be greater than currently expected with resulting effects on our income statement and book value. All subsequent written and oral forward-looking statements attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to the Company or persons acting on its behalf are expressly qualified in their entirety The whole, in contradistinction to a moiety or part only. When land is conveyed to Husband and Wife, they do not take by moieties, but both are seised of the entirety. by these cautionary statements. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with other cautionary statements that are included herein or elsewhere. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Upon request, an Earnings Release Supplement containing additional financial information for the 2000 first quarter may be obtained without charge from the Company.
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except share data)
(Unaudited)
Three Months Ended
March 31,
2000 1999
--------- --------
Premiums and Other Revenues
Net premiums written $52,889 $64,437
(Increase) decrease in unearned premiums 5,273 (1,515)
--------- --------
Net premiums earned 58,162 62,922
Net investment income 5,290 4,483
Net investment gains (losses) 29,300 (1,152)
--------- --------
Total revenues 92,752 66,253
Expenses
Claims and claims expenses 53,875 80,732
Commissions and brokerage 16,753 19,538
Other operating expenses 2,568 3,661
Foreign exchange loss 1,159 388
--------- --------
Total expenses 74,355 104,319
Income (Loss) Before Income Taxes, Equity
In Net Income (Loss) of Investees
and Cumulative Effect of Accounting Change 18,397 (38,066)
Federal income taxes:
Current 264 (6,000)
Deferred 12,355 (7,621)
--------- --------
Income tax expense (benefit) 12,619 (13,621)
--------- --------
Income (Loss) Before Equity in Net Income
(Loss) of Investees and Cumulative
Effect of Accounting Change 5,778 (24,445)
Equity in net income (loss) of investees 30 (163)
--------- --------
Income (Loss) Before Cumulative Effect of
Accounting Change 5,808 (24,608)
Cumulative effect of accounting change (383)
--------- ---------
Net Income (Loss) 5,808 (24,991)
--------- ---------
Other Comprehensive Income (Loss),
Net of Tax
Change in net unrealized depreciation
of investments, net of tax (43,930) (10,500)
--------- ---------
Comprehensive Income (Loss) ($38,122) ($35,491)
========= =========
Average shares outstanding
Basic 15,517,163 17,086,601
Diluted 15,518,341 17,102,353
Per Share Data
Net Income (Loss) - Basic $0.37 ($1.46)
- Diluted $0.37 ($1.46)
Comprehensive Income (Loss) - Basic ($2.46) ($2.08)
- Diluted ($2.46) ($2.08)
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
(Unaudited)
March 31, December 31,
2000 1999
----------- ------------
Assets
Investments:
Fixed maturities
(amortized cost: 2000, $214,608;
1999, $270,345) $206,302 $261,067
Publicly traded equity securities
(cost: 2000, $49,971; 1999, $105,747) 42,887 158,631
Privately held securities
(cost: 2000 $59,583; 1999, $85,748) 58,231 83,969
Short-term investments 140,766 72,785
---------- -----------
Total investments 448,186 576,452
---------- -----------
Cash 11,447 9,457
Accrued investment income 3,737 4,527
Premiums receivable 115,371 119,320
Reinsurance recoverable 77,590 73,122
Deferred policy acquisition costs 22,285 23,585
Investment accounts receivable 36,628
Federal income tax recoverable 8,150 8,758
Deferred income tax asset 10,103 7,834
Other insurance assets 36,281 36,975
Other assets 4,472 4,329
---------- ----------
Total Assets $774,250 $864,359
========== ==========
Liabilities
Claims and claims expenses $378,297 $364,554
Unearned premiums 103,469 108,743
Reinsurance balances payable 16,043 14,666
Investment accounts payable 398
Federal income tax payable
Deferred income tax liability
Other insurance liabilities 22,344 24,541
Other liabilities 4,446 5,341
---------- ----------
Total Liabilities 524,997 517,845
---------- ----------
Stockholders' Equity
Preferred stock, $.01 par value:
20,000,000 shares authorized (none issued)
Common stock, $.01 par value:
80,000,000 shares authorized
(issued: 2000, 17,106,936; 1999, 17,109,736) 171 171
Additional paid-in capital 342,012 342,034
Deferred compensation under stock award plan (224) (317)
Retained earnings (deficit) (16,367) (22,175)
Less treasury stock, at cost
(2000, 4,777,538; 1999, 21,766 shares) (59,597) (387)
Accumulated other comprehensive income (loss)
consisting of unrealized (depreciation)
appreciation of investments, net of
income tax (16,742) 27,188
--------- ---------
Total Stockholders' Equity 249,253 346,514
--------- ---------
Total Liabilities & Stockholders' Equity $774,250 $864,359
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