Arch Capital Group Ltd. Reports 2000 Third 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)--Nov. 13, 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 ) today reported 2000 third quarter results. For the 2000 third quarter, the Company reported comprehensive income of $13.1 million, which was composed of net income of $2.3 million and other comprehensive income of $10.8 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 appreciation of investments. The 2000 third quarter net income included after-tax realized investment gains of $473,000 and equity in net income of investees of $544,000. These amounts compare with comprehensive loss for the 1999 third quarter of $10.5 million, which was composed of net loss of $3.7 million and other comprehensive loss of $6.8 million, consisting of the change in after-tax unrealized appreciation of investments. The 1999 third quarter net loss included after-tax realized investment gains of $3.4 million and equity in net income of investees of $400,000. For the first nine months of 2000, comprehensive loss was $19.7 million, which was composed of net income of $5.5 million and other comprehensive loss of $25.2 million, consisting of the change in after-tax unrealized appreciation of investments. For the first nine months of 2000, net income included after-tax realized investment gains of $19.3 million and equity in net income of investees of $1.2 million. These amounts compare with comprehensive loss for the first nine months of 1999 of $37.3 million, which was composed of a net loss of $12.9 million and other comprehensive loss of $24.4 million, consisting of the change in after-tax unrealized appreciation of investments. Net loss for the first nine months of 1999 included after-tax realized investment gains of $17.9 million and equity in net income of investees of $433,000, and a loss of $383,000 from the cumulative effect of an accounting change. 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------- ------ ------- -------
Basic and diluted earnings per
share:
Operating income (loss) (1) $0.10 ($0.44) ($0.97) ($1.80)
Net realized investment gains
(losses) 0.04 0.20 1.43 1.04
Equity in net income of
investees 0.04 0.02 0.09 0.03
(Loss) on sale of reinsurance
operations (0.14)
Cumulative effect of accounting
change (0.02)
------- ------ ------- -------
Net income (loss) 0.18 (0.22) 0.41 (0.75)
Change in unrealized
appreciation (depreciation) of
investments 0.88 (0.39) (1.88) (1.43)
------- ------ ------- -------
Comprehensive income (loss) $1.06 ($0.61) ($1.47) ($2.18)
======= ====== ======= =======
(1) Represents net income (loss), excluding after-tax realized
investment gains (losses), equity in net income of investees, loss
on sale of reinsurance operations, and the cumulative effect of an
accounting change.
At September September: see month. 30, 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 $268.4 million, compared with $346.5 million at December December: see month. 31, 1999. On a 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 $21.63 based on 12,411,644 shares outstanding at September 30, 2000, which included dilutive options outstanding, compared with $20.28 based on 17,087,970 shares outstanding at December 31, 1999. Book value and per share amounts at September 30, 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 XL Capital previously held for a repurchase price of $59.2 million, or $12.45 per share. On November November: see month. 8, 2000, the Company consummated con·sum·mate tr.v. con·sum·mat·ed, con·sum·mat·ing, con·sum·mates 1. a. To bring to completion or fruition; conclude: consummate a business transaction. b. the previously announced reorganization The process of carrying out, through agreements and legal proceedings, a business plan for winding up the affairs of, or foreclosing a mortgage upon, the property of a corporation that has become insolvent. transaction that resulted in the Company becoming a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of a newly-formed Bermuda Bermuda (bûrmy  `də), British dependency (2005 est. pop. 65,400), 21 sq mi (53 sq km), comprising some 150 coral rocks, islets, and islands (of which some 20 are inhabited), in the holding
company ("Arch Capital Group-Bermuda"). Arch Capital
Group-Bermuda retains the name of "Arch Capital Group Ltd."
and the Company has been renamed "Arch Capital Group (U.S.)
Inc." Arch Capital Group-Bermuda performs the holding company
functions previously conducted by the Company, and the stockholders of
the Company have become the stockholders of Arch Capital Group-Bermuda.
The common shares of Arch Capital Group-Bermuda continue to trade on the
Nasdaq National Market under the symbol "ACGL."The Company previously announced that it has entered into a definitive agreement to acquire Hales
The church of Hales St Margaret is one of 124 existing round-tower churches in Norfolk. & Company, a privately held merchant banking firm specializing in the insurance industry. Founded in 1973, Hales is a leading merger and acquisition advisor to middle-market The term middle-market may refer to either a type of newspaper or a type of company. A middle-market newspaper is one that attempts to cater to readers who want some entertainment value from their newspaper as well as adequate serious coverage of significant news insurance organizations and the manager of the general partner of Distribution Partner Investment Capital, L.P., a private equity fund with investments in insurance distribution, outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. and technology companies. After-tax net investment income for the 2000 third quarter was $2.3 million, or $0.19 per share, compared with $4.2 million, or $0.25 per share, for the 1999 third quarter. For the first nine months of 2000, after-tax net investment income was $8.9 million, or $0.67 per share, compared with $11.0 million, or $0.64 per share, for the same prior year period. On May 5, 2000, the Company transferred $248.2 million of fixed maturities 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 to Folksamerica in connection with the 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. At September 30, 2000, the Company's cash and investment portfolio totaled $270.5 million, consisting of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 27.5% in fixed maturity securities, 7.6% in securities held in escrow escrow Instrument, such as a deed, money, or property, that constitutes evidence of obligations between two or more parties and is held by a third party. It is delivered by the third party only upon fulfillment of some condition. under the terms of the Folksamerica transaction, 20.1% in publicly traded equity securities, 21.6% in privately held securities, and 23.2% in cash and short-term investments. At September 30, 2000, the Company's investment portfolio included $54.4 million of publicly traded equity securities. At such date, there were 10 investments in privately held securities totaling $58.4 million, with outstanding commitments to provide capital in the amount of $22.4 million. Outstanding commitments include the remaining $18.2 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. At September 30, 2000, the Company has a deferred income tax valuation allowance of $10.2 million that adjusts the deferred income tax asset to its estimated realizable value of $2.5 million. Such deferred income tax asset is net of a deferred income tax liability of $1.1 million, representing a future income tax liability for the cumulative unrealized appreciation of investments of $3.1 million. During the 2000 third quarter, the Company decreased its deferred income tax valuation allowance recorded in comprehensive income by $3.1 million to adjust for the $11.9 million increase in unrealized appreciation of investments. The change in after-tax net unrealized appreciation of investments of $10.8 million for the 2000 third quarter reflects the following (in millions):
September June
30, 30,
2000 2000 Change
------- ------ -------
Pre-tax unrealized appreciation (depreciation) $3.1 ($8.8) $11.9
Deferred income tax (benefit) expense 1.1 (3.1) 4.2
Valuation allowance 3.1 (3.1)
------- ------ -------
After-tax unrealized appreciation
(depreciation) $2.0 ($8.8) $10.8
======= ====== =======
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 acquisition candidates and other 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 changes and conditions; -- claims development and losses, including as to the frequency or severity of claims and losses and the timing of claim reports, on aviation business and business produced by a certain managing underwriting agency for which the Company has retained exposure under certain indemnity obligations to Folksamerica Holding Company, Inc. and Folksamerica Reinsurance Company in connection with the sale of the Company's reinsurance business to Folksamerica; -- our future business operations and strategy; and -- loss of key personnel. In addition to risks and uncertainties related to the Company's business, the proposed acquisition of Hales is subject to various risks and uncertainties including, but not limited to, the risks that the conditions to closing will not be satisfied as well as risks relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the successful integration of Hales' business. 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 third 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Premiums and Other
Revenues
Net premiums written $76,749 ($10,604) $232,703
(Increase) decrease
in unearned premiums 3,714 98,134 (2,330)
---------- ---------- ---------- ----------
Net premiums earned 80,463 87,530 230,373
Net investment income $3,359 5,965 12,906 15,265
Gain on sale of
reinsurance
operations 2,191
Net investment gains 728 5,236 29,661 27,470
---------- ---------- ---------- ----------
Total revenues 4,087 91,664 132,288 273,108
Expenses
Claims and claims
expenses 75,058 76,263 221,228
Commissions and
brokerage 20,453 26,756 62,860
Other operating
expenses 1,502 3,364 5,748 10,797
Foreign exchange
(gain) loss (292) 1,159 (354)
---------- ---------- ---------- ----------
Total expenses 1,502 98,583 109,926 294,531
Income (Loss) Before
Income Taxes,
Equity In Net
Income of Investees
and Cumulative
Effect of
Accounting Change 2,585 (6,919) 22,362 (21,423)
Federal income taxes:
Current (786) (2,038)
Deferred 870 (1,996) 18,030 (6,490)
---------- ---------- ---------- ----------
Income tax expense
(benefit) 870 (2,782) 18,030 (8,528)
---------- ---------- ---------- ----------
Income (Loss) Before
Equity in Net
Income of Investees
and Cumulative
Effect of
Accounting Change 1,715 (4,137) 4,332 (12,895)
Equity in net income
of investees 544 400 1,183 433
---------- ---------- ---------- ----------
Income (Loss) Before
Cumulative Effect
of Accounting
Change 2,259 (3,737) 5,515 (12,462)
Cumulative effect of
accounting change (383)
---------- ---------- ---------- ----------
Net Income (Loss) 2,259 (3,737) 5,515 (12,845)
---------- ---------- ---------- ----------
Other Comprehensive
Income (Loss), Net
of Tax
Change in net
unrealized
appreciation
(depreciation)
of investments,
net of tax 10,841 (6,757) (25,205) (24,420)
---------- ---------- ---------- ----------
Comprehensive Income
(Loss) $13,100 ($10,494) ($19,690) ($37,265)
========== ========== ========== ==========
Average shares
outstanding
Basic 12,402,693 17,087,831 13,429,315 17,086,757
Diluted 12,405,101 17,087,834 13,430,612 17,086,787
Per Share Data
Net Income (Loss)
- Basic and diluted $0.18 ($0.22) $0.41 ($0.75)
Comprehensive Income
(Loss) - Basic and
diluted $1.06 ($0.61) ($1.47) ($2.18)
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
(Unaudited)
September 30, December 31,
2000 1999
------------- -----------
Assets
Investments:
Fixed maturities (amortized cost: 2000,
$80,556; 1999, $270,345) $74,241 $261,067
Publicly traded equity securities (cost: 2000,
$43,793; 1999, $105,747) 54,425 158,631
Privately held securities (cost: 2000,
$59,805; 1999, $85,748) 58,435 83,969
Securities held in escrow (amortized cost:
2000, $20,494) 20,597
Short-term investments 47,036 72,785
---------- ----------
Total investments 254,734 576,452
---------- ----------
Cash 15,756 9,457
Accrued investment income 2,202 4,527
Premiums receivable 119,320
Reinsurance recoverable 73,122
Deferred policy acquisition costs 23,585
Investment accounts receivable 68
Federal income tax recoverable 8,758
Deferred income tax asset 2,547 7,834
Other insurance assets 36,975
Other assets 1,704 4,329
---------- ----------
Total Assets $277,011 $864,359
========== ==========
Liabilities
Claims and claims expenses $364,554
Unearned premiums 108,743
Reinsurance balances payable 14,666
Investment accounts payable $256
Other insurance liabilities 24,541
Other liabilities 8,329 5,341
---------- ----------
Total Liabilities 8,585 517,845
---------- ----------
Commitments and Contingencies
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, 17,198,432; 1999, 17,109,736) 172 171
Additional paid-in capital 343,375 342,034
Deferred compensation under stock award plan (642) (317)
Retained earnings (deficit) (16,660) (22,175)
Less treasury stock, at cost (2000,
4,790,415; 1999, 21,766 shares) (59,802) (387)
Accumulated other comprehensive income
consisting of unrealized appreciation of
investments, net of income tax 1,983 27,188
---------- ----------
Total Stockholders' Equity 268,426 346,514
---------- ----------
Total Liabilities & Stockholders' Equity $277,011 $864,359
========== ==========
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