Arch Capital Group Ltd. Reports 2001 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, 2001 Arch Capital Group Ltd. (Nasdaq:ACGL ACGL Arch Capital Group Ltd. ACGL Automobile Corporation of Goa Limited ACGL Alternative County Government Law ) today reported 2001 third quarter results. The Company reported 2001 third quarter 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. operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , which excludes net realized investment gains and losses and equity in net income of investees, of $465,000, or $0.04 per share, compared to operating income of $1.2 million, or $0.10 per share, in the 2000 third quarter. For the nine months ended September September: see month. 30, 2001, after-tax operating income was $4.6 million, or $0.36 per share, compared to an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. for the comparable 2000 period of $13.0 million, or $0.97 per share. Net income for the 2001 third quarter was $892,000, or $0.07 per share, which included after-tax net realized investment losses of $247,000, or $0.02 per share, and after-tax equity in net income of investees of $674,000, or $0.05 per share. These amounts compare with net income for the 2000 third quarter of $2.3 million, or $0.18 per share, which included after-tax net realized investment gains of $473,000, or $0.04 per share, and after-tax equity in net income of investees of $572,000, or $0.04 per share. Net income for the nine months ended September 30, 2001 was $17.3 million, or $1.35 per share, which included after-tax net realized investment gains of $11.5 million, or $0.90 per share, and after-tax equity in net income of investees of $1.2 million, or $0.09 per share. These amounts compare with net income for the comparable 2000 period of $7.4 million, or $0.55 per share, which included after-tax realized investment gains of $21.3 million, or $1.59 per share, after-tax equity in net income of investees of $982,000, or $0.07 per share, and an after-tax loss on 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 of $1.9 million, or $0.14 per share. As previously reported, due to the Company's acquisition of the remaining ownership interests in Arch Risk Transfer Services Ltd. in June June: see month. 2001, the above net income amounts have been restated for all periods prior to the 2001 second quarter. At September 30, 2001, the Company's 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: shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. was $276.4 million, or $21.48 per share, compared with $272.3 million, or $21.43 per share, at December December: see month. 31, 2000. The change in consolidated shareholders' equity for the nine months ended September 30, 2001 included a $3.3 million, or $0.25 per share, decline in book value resulting from a decrease in the Company's investment portfolio for the nine months ended September 30, 2001. 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 $21.43 at September 30, 2001, compared with $21.42 at December 31, 2000, as restated. On October October: see month. 24, 2001, the Company announced the launch of an underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. initiative to meet current and future demand in the global insurance marketplace. As part of this initiative, Arch Reinsurance Ltd., the Company's Bermuda-based reinsurance subsidiary, appointed ap·point tr.v. ap·point·ed, ap·point·ing, ap·points 1. To select or designate to fill an office or a position: appointed her the chief operating officer of the company. 2. a new management team, consisting of Paul Paul, 1901–64, king of the Hellenes (1947–64), brother and successor of George II. He married (1938) Princess Frederika of Brunswick. During Paul's reign Greece followed a pro-Western policy, and the Cyprus question was temporarily resolved. Ingrey, formerly Chairman of F&G Re; Dwight Evans named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. Property for St. Paul St. Paul as a missionary he fearlessly confronts the “perils of waters, of robbers, in the city, in the wilderness.” [N.T.: II Cor. 11:26] See : Bravery Re and F&G Re; and Marc Grandisson, formerly Vice President and Actuary actuary One who calculates insurance risks and premiums. Actuaries compute the probability of the occurrence of such events as birth, marriage, illness, accidents, and death. of the reinsurance division of Berkshire Hathaway Berkshire Hathaway (NYSE: BRKA, NYSE: BRKB) is a conglomerate holding company headquartered in Omaha, Nebraska, U.S., that oversees and manages a number of subsidiary companies. . Simultaneously si·mul·ta·ne·ous adj. 1. Happening, existing, or done at the same time. See Synonyms at contemporary. 2. Mathematics , the Company also announced that investment funds Noun 1. investment funds - money that is invested with an expectation of profit investment assets - anything of material value or usefulness that is owned by a person or company affiliated af·fil·i·ate v. af·fil·i·at·ed, af·fil·i·at·ing, af·fil·i·ates v.tr. 1. To adopt or accept as a member, subordinate associate, or branch: with Warburg Pincus Warburg Pincus is a private equity firm with offices in the United States, Europe and Asia. It has been a leading private equity investor since 1971. The firm currently has approximately $14 billion under management, and invests in a range of industries including information and LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control ("Warburg Pincus") and Hellman Hell·man , Lillian 1905-1984. American playwright whose works concern sensitive political and social issues, such as lesbianism in The Children's Hour (1934) and interracial relations in Toys in the Attic (1960). & Friedman Fried·man , Milton Born 1912. American economist. He won a 1976 Nobel Prize for his theories of monetary control and governmental nonintervention in the economy. Noun 1. LLC ("H&F") together would invest $750 million in the Company to support the underwriting initiative. Warburg Pincus agreed to purchase $500 million, and H&F agreed to purchase $250 million, of Series A Convertible Preference Shares and Class A Warrants of the Company. Warburg Pincus 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. its right to purchase $35 million of the Company's securities to Trident II, L.P., an insurance industry investment fund managed by Marsh & McLennan McLennan, MacLennan or Maclennan is a Scottish surname. It may refer to: People
The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. , which was filed with the Securities and Exchange Commission on November November: see month. 9, 2001 (the "Form 8-K"). In connection with Trident II's participation in the financing, all of Marsh's 905,397 Class A Warrants will be cancelled can·cel v. can·celed also can·celled, can·cel·ing also can·cel·ling, can·cels also can·cels v.tr. 1. To cross out with lines or other markings. See Synonyms at erase. 2. in exchange for the issuance by the Company of 140,380 common shares and all of Marsh's 1,770,601 Class B Warrants will be cancelled in exchange for a cash payment by the Company of $7.50 per Class B Warrant (approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $13.3 million in the aggregate). In addition, following the Company's funding of its $6.5 million portion of outstanding capital calls by Trident II through November 2001, the Company was released from its remaining $11.0 million capital commitment to Trident II. For additional information, please refer to the Form 8-K. On September 24, 2001, the Company announced that it has entered into a definitive agreement to acquire Rock River Insurance Company ("Rock River"), an approved excess and surplus lines insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. in 45 states and the District of Columbia District of Columbia, federal district (2000 pop. 572,059, a 5.7% decrease in population since the 1990 census), 69 sq mi (179 sq km), on the east bank of the Potomac River, coextensive with the city of Washington, D.C. (the capital of the United States). and an admitted insurer in two other states. Under the terms of the agreement, the existing policies and other liabilities other liabilities Small and relatively insignificant liabilities. For financial reporting purposes, firms often combine small liabilities into this single category rather than listing each liability separately. of Rock River will be reinsured or otherwise assumed by the seller, Sentry Insurance Sentry Insurance, founded in 1904, is a mutual insurance company located in Stevens Point, Wisconsin. It was founded by members of the Wisconsin Retail Hardware Association to provide insurance for its members and was originally called Hardware Mutual. a Mutual Company, which has an A.M. Best rating of A+. The transaction is contingent on Adj. 1. contingent on - determined by conditions or circumstances that follow; "arms sales contingent on the approval of congress" contingent upon, dependant on, dependant upon, dependent on, dependent upon, depending on, contingent obtaining applicable 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. approvals and other customary closing conditions. 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 the Company's 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 the Company's 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 Company's future business operations and strategy; -- acceptance of the Company's products and services; -- general economic and market conditions and conditions specific to the reinsurance and insurance markets in which the Company operates; -- competition, including increased competition, on the basis of pricing, capacity, coverage terms or other factors; -- competition for acquisition opportunities and in the businesses of the operating companies the Company has acquired or may acquire or form; -- integration of new management personnel into the Company's existing structure; -- the integration of businesses the Company has acquired or may acquire into its existing operations; -- greater than expected loss ratios on insurance written by the Company's insurance subsidiaries and adverse development of claim and/or claim expense liabilities related to business written by its insurance subsidiaries in prior years; -- losses relating to aviation business and business produced by a certain managing underwriting agency for which the Company may be liable to the purchaser of its prior reinsurance business or to others in connection with the May 5, 2000 asset sale; -- the failure of reinsurers or others to meet their obligations to the Company's reinsurance and insurance subsidiaries in connection with losses relating to their insurance businesses; -- changes in interest rates; -- regulatory changes and conditions; -- rating agency policies and practices; and -- loss of key personnel. In addition, the proposed $763.15 million financing is subject to various risks and uncertainties, including, but not limited to, the risk that the conditions to closing will not be satisfied. 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.
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except share data)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---------------------------------------------
(Restated) (Restated)
Revenues
Net premiums written $14,448 $24,005 ($10,604)
(Increase) decrease
in unearned premiums (2,649) (5,008) 98,134
-----------------------------------------------
Net premiums earned 11,799 18,997 87,530
Net investment income 2,509 $3,359 8,747 12,906
Net investment
gains (losses) (190) 728 18,419 32,834
Fee income 3,524 8,950
Net commission income 1,344
Equity in net income
of investees 966 878 1,887 1,511
Gain on sale of
reinsurance operations 2,191
-----------------------------------------------
Total revenues 18,608 4,965 58,344 136,972
Expenses
Claims and claims
expenses 9,196 16,267 76,263
Net commissions
and brokerage 337 26,756
Other operating
expenses 7,674 1,502 16,748 5,748
Foreign exchange loss 1,159
-----------------------------------------------
Total expenses 17,207 1,502 33,015 109,926
Income Before
Income Taxes 1,401 3,463 25,329 27,046
Federal income taxes:
Current 627 878
Deferred (118) 1,177 7,166 19,670
-----------------------------------------------
Income tax expense 509 1,177 8,044 19,670
-----------------------------------------------
Net Income $892 $2,286 $17,285 $7,376
===============================================
Average Shares
Outstanding
Basic 12,864,790 12,402,693 12,828,180 13,429,315
Diluted 12,897,846 12,405,101 12,842,765 13,430,612
Basic and diluted
net income
per share $0.07 $0.18 $1.35 $0.55
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
(Unaudited)
September 30, December 31,
2001 2000
-------------------------------------
(Restated)
Assets
Investments:
Fixed maturities (amortized
cost: 2001, $125,074;
2000, $37,849) $128,700 $38,475
Publicly traded equity
securities (cost: 2001,
$2,656; 2000, $24,987) 3,506 51,322
Privately held securities
(cost: 2001, $35,873;
2000, $57,913) 35,925 56,418
Securities held in escrow
(amortized cost: 2001,
$22,073; 2000, $20,887) 22,093 20,970
Short-term investments 85,928 97,387
--------------------------------------
Total investments 276,152 264,572
--------------------------------------
Cash 14,671 11,481
Accrued investment income 2,228 1,432
Premiums receivable 64,791
Unpaid claims and claims
expenses recoverable 87,695
Paid claims and claims
expenses recoverable 8,927
Prepaid reinsurance premiums 59,895
Reinsurance balances receivable 3,610
Goodwill 26,587 6,111
Deferred income tax asset 7,345 8,192
Deferred policy acquisition cost 5,320
Other assets 8,334 4,119
--------------------------------------
Total Assets $565,555 $295,907
======================================
Liabilities
Claims and claims expenses $112,104
Unearned premiums 89,183
Reinsurance balances payable 50,037
Reserve for contingent loss
of escrowed assets 15,382 $15,000
Other liabilities 22,491 8,608
--------------------------------------
Total Liabilities 289,197 23,608
--------------------------------------
Commitments and Contingencies
Shareholders' Equity
Preferred shares,
$.01 par value:
50,000,000 shares authorized
(none issued)
Common shares, $.01 par value:
200,000,000 shares authorized
(issued: 2001, 12,868,158;
2000, 12,708,818) 129 127
Additional paid-in capital 290,464 288,016
Deferred compensation under
share award plan (1,204) (341)
Retained earnings (deficit) (16,341) (33,626)
Accumulated other comprehensive
income consisting of unrealized
appreciation (depreciation) of
investments, net of income tax 3,310 18,123
---------------------------------------
Total Shareholders' Equity 276,358 272,299
---------------------------------------
Total Liabilities &
Shareholders' Equity $565,555 $295,907
=======================================
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS'
EQUITY AND COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
Nine Months Ended,
September 30,
2001 2000
------------------------------------
(Restated)
Common Shares
Balance at beginning of year $127 $171
Common shares issued 2 1
---------------------------------------
Balance at end of period 129 172
---------------------------------------
Additional Paid-in Capital
Balance at beginning of year 288,016 342,034
Common shares issued 2,496 1,341
Common shares retired (48)
---------------------------------------
Balance at end of period 290,464 343,375
---------------------------------------
Deferred Compensation
Under Share Award Plan
Balance at beginning of year (341) (317)
Restricted common shares issued (1,772) (1,122)
Compensation expense recognized 909 797
---------------------------------------
Balance at end of period (1,204) (642)
---------------------------------------
Retained Earnings (Deficit)
Balance at beginning of year,
as previously reported (30,916) (22,175)
Adjustment to retroactively
adopt the equity method of
accounting for the original
investment in ART Services (2,710) (3,439)
----------------------------------------
Balance at beginning of
year, as adjusted (33,626) (25,614)
Net income 17,285 7,376
----------------------------------------
Balance at end of period (16,341) (18,238)
----------------------------------------
Treasury Shares, At Cost
Balance at beginning of year (387)
Purchase of treasury shares (48) (59,415)
Retirement of treasury shares 48
----------------------------------------
Balance at end of period (59,802)
----------------------------------------
Accumulated Other
Comprehensive Income
Unrealized Appreciation
(Depreciation) of
Investments, Net of Income Tax
Balance at beginning of year 18,432 27,188
Adjustment to retroactively
adopt the equity method
of accounting for the original
investment in ART Services (309) (745)
---------------------------------------
Balance at beginning of
year, as adjusted 18,123 26,443
Change in unrealized
appreciation (depreciation) (14,813) (25,205)
----------------------------------------
Balance at end of period 3,310 1,238
----------------------------------------
Total Shareholders' Equity $276,358 $266,103
========================================
Comprehensive Income (Loss)
Net income $17,285 $7,376
Other comprehensive income
(loss), net of tax
Unrealized appreciation
(depreciation)
of investments:
Unrealized holding gains
(losses) arising
during period (3,275) (3,862)
Less: reclassification
adjustment for net
realized gains included
in net income (11,538) (21,343)
----------------------------------------
Other comprehensive
income (loss) (14,813) (25,205)
----------------------------------------
Comprehensive Income (Loss) $2,472 ($17,829)
========================================
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended,
September 30,
2001 2000
--------------------------------------
(Restated)
Operating Activities
Net income $17,285 $7,376
Adjustments to
reconcile net income
to net cash provided by
operating activities:
Liability for claims
and claims expenses 6,905 7,069
Unearned premiums 9,202 (5,226)
Premiums receivable (14,027) 10,733
Accrued investment income 162 664
Reinsurance recoverables (9,875) (11,093)
Reinsurance balances
payable 3,569 (5,121)
Deferred policy
acquisition costs (984) 344
Net investment gains (18,419) (24,331)
Deferred income
tax asset 7,337 5,386
Other liabilities (3,160) 7,718
Other items, net 5,709 8,541
--------------------------------------
Net Cash Provided By
(Used For) Operating
Activities 3,704 2,060
--------------------------------------
Investing Activities
Purchases of fixed
maturity investments (90,334) (96,915)
Sales of fixed maturity
investments 85,084 221,323
Purchases of
equity securities (18,233)
Sales of equity securities 43,504 77,853
Net purchases of short-term
investments (3,039) (120,997)
Sales or disposal (purchases)
of furniture and equipment (912) 6
Proceeds from sale of reinsurance
operations 517
Acquisition of American
Independent Insurance Holding
Company, net of cash (225)
Acquisition of ART Services,
net of cash (34,211)
-------------------------------------
Net Cash Provided By (Used
For) Investing Activities (133) 63,554
-------------------------------------
Financing Activities
Common shares issued 90 100
Purchase of treasury shares (48) (59,415)
Debt retirement (423)
-------------------------------------
Net Cash Provided By
(Used For) Financing Activities (381) (59,315)
-------------------------------------
Increase in cash 3,190 6,299
Cash beginning of year 11,481 9,457
-------------------------------------
Cash end of period $14,671 $15,756
=====================================
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(dollars in thousands, except per share data)
(Unaudited)
September 30, December 31,
2001 2000
-------------------------------------
(Restated)
Privately held securities:
Arch Risk Transfer
Services Ltd. (formerly
known as Altus
Holdings, Ltd.) $12,981
American Independent
Insurance Holding Company 7,350
The ARC Group, LLC $8,042 8,468
Arx Holding Corp. 3,712 3,514
Distribution Investors, LLC 293 100
GuideStar Health Systems, Inc. 0 250
Island Heritage Insurance
Company, Ltd. 4,853 4,534
New Europe Insurance
Ventures 647 642
Sunshine State Holding
Corporation 1,889 1,766
Stockton Holdings Limited 10,000 10,000
Trident II, L.P. 6,489 6,813
-------------------------------------
Total $35,925 $56,418
=====================================
Investment commitments $21,887 $22,633
=====================================
Book Value Per Share - basic $21.48 $21.43
Book Value Per Share - diluted $21.43 $21.42
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-----------------------------------------
(Restated) (Restated)
Per Share Amounts,
Net of Tax
Basic and Diluted:
Operating income (loss) $0.04 $0.10 $0.36 ($0.97)
Net realized investment
gains (losses) (0.02) 0.04 0.90 1.59
Equity in net income
of investees 0.05 0.04 0.09 0.07
Loss on sale of
reinsurance operations (0.14)
--------------------------------------------
Net income (loss) $0.07 $0.18 $1.35 $0.55
============================================
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