Arch Capital Group Ltd. Reports 2003 Second Quarter Results.Business Editors HAMILTON Hamilton, city, Bermuda Hamilton, city (1990 est. pop. 3,100), capital of Bermuda, on Bermuda Island. It is a port at the head of Great Sound, a huge lagoon and deepwater harbor protected by coral reefs. , Bermuda--(BUSINESS WIRE)--Aug. 4, 2003 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 ) reports that net income for the 2003 second quarter was $61.8 million, or $0.91 per share, compared to $19.2 million, or $0.33 per share, for the 2002 second quarter. Net income for the six months ended June June: see month. 30, 2003 was $114.3 million, or $1.70 per share, compared to $23.2 million, or $0.42 per share, for the six months ended June 30, 2002. Net premiums written for the 2003 second quarter increased to $560.0 million from $223.0 million for the 2002 second quarter, and net premiums written for the six months ended June 30, 2003 increased to $1.3 billion from $503.7 million for the six months ended June 30, 2002. During the 2003 second quarter, 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. book value per share increased by $1.26, or 5.7%, to $23.42. The Company also reported 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. for the 2003 second quarter of $59.2 million, or $0.87 per share, compared to $15.5 million, or $0.27 per share, for the 2002 second quarter. After-tax operating income for the six months ended June 30, 2003 was $108.4 million, or $1.61 per share, compared to $23.9 million, or $0.43 per share, for the six months ended June 30, 2002. The Company's after-tax operating income for the six months ended June 30, 2003 represented a 15.4% return on beginning equity, on an annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. basis. Operating income, a non-GAAP measure, is defined as net income or loss excluding net realized investment gains or losses, net foreign exchange gains or losses, other income and non-cash compensation charges, net of tax. The following table summarizes, 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. , 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: financial data, including a reconciliation of operating income to net income. The Company's diluted average shares outstanding were higher in the 2003 periods compared to the 2002 periods due to the issuance during 2002 of preference shares and common shares in a stock offering and upon the exercise of warrants.
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2003 2002 2003 2002
--------- --------- ----------- ---------
Gross premiums written $676,005 $253,655 $1,536,105 $558,450
Net premiums written 560,002 223,025 1,336,865 503,736
Net premiums earned 508,856 113,459 913,307 180,986
Underwriting income - GAAP
basis 49,201 6,964 89,304 10,789
Combined Ratio:
Statutory Basis 91.7% 94.6% 89.4% 91.3%
GAAP Basis 90.7% 93.9% 90.7% 94.0%
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Reconciliation of
Operating Income to
Net Income and Related
Diluted Per Share
Results (after-tax):
Operating income $59,242 $15,514 $108,420 $23,882
Net realized
investment gains
(losses) 3,515 388 8,861 (773)
Net foreign exchange
gains 1,761 3,352 2,811 3,244
Other income 381 644 1,352 1,184
Reversal of deferred
tax asset valuation
allowance -- 7,421 -- 7,421
Non-cash compensation (3,115) (8,093) (7,174) (11,766)
-------- -------- -------- --------
Net income $61,784 $19,226 $114,270 $23,192
======== ======== ======== ========
Operating income $0.87 $0.27 $1.61 $0.43
Net realized
investment gains
(losses) 0.05 0.01 0.13 (0.01)
Net foreign exchange
gains 0.03 0.06 0.04 0.06
Other income 0.01 0.01 0.02 0.02
Reversal of deferred
tax asset valuation
allowance -- 0.12 -- 0.13
Non-cash compensation (0.05) (0.14) (0.10) (0.21)
-------- -------- -------- --------
Net income $0.91 $0.33 $1.70 $0.42
======== ======== ======== ========
Diluted average shares
outstanding 67,728,798 58,877,515 67,381,859 54,981,185
Net realized investment gains or losses, net foreign exchange gains or losses, other income and non-cash compensation charges, net of tax, are excluded from operating income because the Company does not believe that they are relevant indicators of the performance of, or trends in, the Company's core business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets . Management believes that operating income provides useful information because it reflects the underlying fundamentals of the Company's operations, follows industry practice and enables investors to compare the Company's performance with its industry peer group. Operating income should not be viewed as a substitute for net income determined in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). "). The Company's underwriting income Underwriting income For an insurance company, the difference between the premiums earned and the costs of settling claims. , on a GAAP basis, increased to $49.2 million for the 2003 second quarter from $7.0 million for the 2002 second quarter. For the six months ended June 30, 2003, the Company's underwriting income, on a GAAP basis, was $89.3 million, compared to $10.8 million for the six months ended June 30, 2002. The increased underwriting income in the 2003 periods was primarily due to a significantly higher level of net premiums earned. The Company's combined ratio, on a GAAP basis, was 90.7% for the 2003 second quarter, compared to 93.9% for the 2002 second quarter, and 90.7% for the six months ended June 30, 2003, compared to 94.0% for the six months ended June 30, 2002. The Company's loss ratio was 65.1% for the 2003 second quarter, compared to 70.8% for the 2002 second quarter, and 65.1% for the six months ended June 30, 2003, compared to 72.3% for the six months ended June 30, 2002. The loss ratio of 65.1% for the six months ended June 30, 2003 was comprised of 11.1 points of paid losses, 7.3 points related to case reserves and 46.7 points related to incurred but not reported Incurred but not reported (IBNR) is a term in common use in general insurance. When a policy of general insurance is written it will typically cover a 12 month period from inception of the policy. reserves. In establishing the reserves for losses and loss adjustment expenses, the Company has made various assumptions relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the pricing of its 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. contracts and insurance policies and also has considered available historical industry experience and current industry conditions. The Company's reserving method is primarily the expected loss method, which is commonly applied when limited loss experience exists. Any estimates and assumptions made as part of the reserving process could prove to be inaccurate due to several factors, including the fact that very limited historical information has been reported to the Company through June 30, 2003. The Company's total expense ratio, on a GAAP basis, which includes acquisition expenses and other operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. , was 25.6% for the 2003 second quarter, compared to 23.1% for the 2002 second quarter. The Company's total expense ratio for the six months ended June 30, 2003 was 25.6%, compared to 21.7% for the six months ended June 30, 2002. The higher total expense ratio in the 2003 periods compared to the 2002 periods was due to a higher acquisition expense ratio which was partially offset by an improvement in the other 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. The Company's acquisition expense ratio, which is reflected net of certain policy-related fee income, was 18.1% for the 2003 second quarter, compared to 13.2% for the 2002 second quarter, and 18.3% for the six months ended June 30, 2003, compared to 11.7% for the six months ended June 30, 2002. The increase in the 2003 periods compared to the 2002 periods was due to changes in the mix of business and a higher percentage of net premiums earned by the reinsurance segment relating to pro rata [Latin, Proportionately.] A phrase that describes a division made according to a certain rate, percentage, or share. In a Bankruptcy case, when the debtor is insolvent, creditors generally agree to accept a pro rata share of what is owed to them. contracts. Pro rata contracts are typically written at a lower loss ratio and higher expense ratio than excess of loss business. The other operating expense ratio was 7.5% for the 2003 second quarter, compared to 9.9% for the 2002 second quarter, and 7.3% for the six months ended June 30, 2003, compared to 10.0% for the six months ended June 30, 2002. While aggregate other operating expenses were higher for the 2003 periods compared to the 2002 periods, the other operating expense ratio decreased primarily due to the significant growth in net premiums earned during the 2003 periods. Net investment income for the 2003 second quarter was $19.8 million, compared to $11.6 million for the 2002 second quarter. Net investment income for the six months ended June 30, 2003 was $38.2 million, compared to $20.8 million for the six months ended June 30, 2002. The growth in net investment income in each of the 2003 periods was due to a significant increase in the Company's invested assets primarily resulting from cash flow provided by operating activities during 2002 and 2003. In addition, the Company received $451,000 of dividend income in the 2003 second quarter from a privately held equity investment. The Company's investment portfolio primarily consists of high quality fixed income securities, which had an average Standard & Poor's quality rating of "AA-" and an average duration of 2.2 years at June 30, 2003. Consolidated cash flow provided by operating activities for the 2003 second quarter was $367.4 million, compared to $65.4 million for the 2002 second quarter. Operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. for the six months ended June 30, 2003 was $667.9 million, compared to $113.7 million for the six months ended June 30, 2002. The increase in cash flow in the 2003 periods compared to the 2002 periods was primarily due to the growth in premium volume and a relatively low level of claim payments due, in part, to the start-up Start-up The earliest stage of a new business venture. nature of the Company's insurance and reinsurance operations. The Company's effective tax rate may fluctuate from period to period based on the relative mix of income reported by jurisdiction primarily due to the varying tax rates in each jurisdiction. The Company's quarterly tax provision is adjusted to reflect changes in its expected annual effective tax rates, if any. The Company's tax provision for the six months ended June 30, 2003 is based upon the expected annual effective tax rates on net income and operating income of 11.2% and 11.0%, respectively. Non-cash compensation results primarily from restricted shares granted in connection with the Company's capital infusion Capital infusion Often refers to the cross-subsidization of divisions within a firm. When one division is not doing well, it might benefit from an infusion of new funds from the more successful divisions. and 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 announced in October October: see month. 2001. After-tax non-cash compensation expense for the 2003 second quarter was $3.1 million, compared to $8.1 million for the 2002 second quarter. After-tax non-cash compensation expense for the six months ended June 30, 2003 was $7.2 million, compared to $11.8 million for the six months ended June 30, 2002. Absent significant additional restricted share grants, after-tax non-cash compensation expense during the remaining two quarters of 2003 is currently expected to be approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $3.6 million and $2.7 million, respectively. Non-cash compensation expense has no effect on the Company's 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. . The United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. dollar is the functional currency for all of the Company's business. Net foreign exchange gains for the 2003 second quarter of $1,761,000 consisted of a net unrealized gain Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. of $1,052,000 and 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 $709,000. Net foreign exchange gains for the 2002 second quarter of $3,352,000 consisted of a net unrealized gain of $3,263,000 and net realized gains of $89,000. Net foreign exchange gains for the six months ended June 30, 2003 of $2,811,000 consisted of a net unrealized gain of $1,647,000 and net realized gains of $1,164,000. Net foreign exchange gains for the six months ended June 30, 2002 of $3,244,000 consisted of a net unrealized gain of $3,263,000 and net realized losses Realized Loss A loss recognized when assets are sold for a price lower than the original purchase price. Notes: A portion of the realized loss may be applied against a capital gain or realized profit to reduce taxes. of $19,000. The Company's consolidated shareholders' equity increased by 11.0% to approximately $1.6 billion, or $23.42 per diluted share, at June 30, 2003 from approximately $1.4 billion, or $21.20 per diluted share, at December December: see month. 31, 2002. The increase in shareholders' equity and diluted per share book value was primarily attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to the Company's operating income for the six months ended June 30, 2003 and an increase in unrealized appreciation of investments. The calculation of the Company's book value per share amounts is included in the accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. supplemental financial information. The following table summarizes selected underwriting results by segment, including combined ratios on a GAAP and statutory basis (amounts in thousands):
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2003 2002 2003 2002
-------- -------- -------- --------
REINSURANCE SEGMENT
Gross premiums written (1) $337,038 $180,339 $899,699 $445,200
Net premiums written 323,520 176,619 870,956 441,480
Net premiums earned 317,504 96,330 583,451 151,863
Underwriting income - GAAP
basis 34,143 10,389 67,317 14,238
Combined Ratio:
Statutory Basis 92.2% 92.5% 87.7% 89.4%
GAAP Basis 89.8% 89.2% 89.1% 90.6%
INSURANCE SEGMENT
Gross premiums written (1) $379,607 $91,546 $724,913 $150,268
Net premiums written 236,482 46,406 465,909 62,256
Net premiums earned 191,352 17,129 329,856 29,123
Underwriting income (loss) -
GAAP basis 15,058 (3,425) 21,987 (3,449)
Combined Ratio:
Statutory Basis 91.4% 104.5% 92.2% 102.5%
GAAP Basis 92.1% 120.0% 93.3% 111.8%
TOTAL
Gross premiums written (1) $676,005 $253,655 $1,536,105 $558,450
Net premiums written 560,002 223,025 1,336,865 503,736
Net premiums earned 508,856 113,459 913,307 180,986
Underwriting income - GAAP
basis 49,201 6,964 89,304 10,789
Combined Ratio:
Statutory Basis 91.7% 94.6% 89.4% 91.3%
GAAP Basis 90.7% 93.9% 90.7% 94.0%
(1) Gross premiums written by the insurance segment have been ceded
to, and are also included in the reinsurance segment's gross
premiums written. Accordingly, the sum of gross premiums written
for each segment does not agree to the total gross premiums
written, as shown in the table above, due to the elimination of
intercompany transactions in the total.
Gross premiums written When a non-life insurance company closes a contract to provide insurance against loss, the revenues (premiums) expected to be received over the life of the contract are called gross premiums written. in the reinsurance segment were $337.0 million for the 2003 second quarter, compared to $180.3 million for the 2002 second quarter, and $899.7 million for the six months ended June 30, 2003, compared to $445.2 million for the six months ended June 30, 2002. Net premiums written were $323.5 million for the 2003 second quarter, compared to $176.6 million for the 2002 second quarter, and $871.0 million for the six months ended June 30, 2003, compared to $441.5 million for the six months ended June 30, 2002. The timing of recording premiums written and earned for the reinsurance segment differs based on whether the contracts are recorded on an excess of loss or pro rata basis. For excess of loss contracts, the minimum premium, as defined in the contract, is generally recorded as an estimate of premiums written as of the date of the treaty. Estimates of premiums written under pro rata contracts are recorded in the period in which the underlying risks are expected to incept in·cept tr.v. in·cept·ed, in·cept·ing, in·cepts To take in; ingest. [Latin incipere, incept-, to begin, take up; see inception. and are based on information provided by brokers and ceding cede tr.v. ced·ed, ced·ing, cedes 1. To surrender possession of, especially by treaty. See Synonyms at relinquish. 2. companies. Of reinsurance segment net premiums written in the 2003 second quarter, 75.8% and 24.2% were generated from pro rata contracts and excess of loss treaties, respectively, compared to 64.6% and 35.4% for the 2002 second quarter. For the six months ended June 30, 2003, 64.0% and 36.0% of net premiums written were generated from pro rata contracts and excess of loss treaties, respectively, compared to 43.7% and 56.3% for the six months ended June 30, 2002. Net premiums earned for the reinsurance segment were $317.5 million for the 2003 second quarter, compared to $96.3 million for the 2002 second quarter, and $583.5 million for the six months ended June 30, 2003, compared to $151.9 million for the six months ended June 30, 2002. For the 2003 second quarter, 66.1% and 33.9% of net premiums earned were generated from pro rata contracts and excess of loss treaties, respectively, compared to 44.3% and 55.7% for the 2002 second quarter. For the six months ended June 30, 2003, 65.0% and 35.0% of net premiums earned were generated from pro rata contracts and excess of loss treaties, respectively, compared to 35.7% and 64.3% for the six months ended June 30, 2002. The reinsurance segment's underwriting income, on a GAAP basis, increased to $34.1 million for the 2003 second quarter from $10.4 million for the 2002 second quarter. For the six months ended June 30, 2003, the reinsurance segment's underwriting income increased to $67.3 million from $14.2 million for the six months ended June 30, 2002. The combined ratio for the reinsurance segment, on a GAAP basis, was 89.8% for the 2003 second quarter, compared to 89.2% for the 2002 second quarter, and 89.1% for the six months ended June 30, 2003, compared to 90.6% for the six months ended June 30, 2002. The reinsurance segment's loss ratio for the 2003 second quarter was 64.2%, compared to 69.7% for the 2002 second quarter, and 63.0% for the six months ended June 30, 2003, compared to 71.1% for the six months ended June 30, 2002. The acquisition expense ratio for the 2003 second quarter was 23.2%, compared to 16.8% for the 2002 second quarter, and 23.7% for the six months ended June 30, 2003, compared to 15.5% for the six months ended June 30, 2002. The increase in the acquisition expense ratio in the 2003 periods compared to the 2002 periods was due, in part, to the increased percentage of net premiums earned from pro rata contracts. The other operating expense ratio for the 2003 second quarter was 2.4%, compared to 2.7% for the 2002 second quarter, and 2.4% for the six months ended June 30, 2003, compared to 4.0% for the six months ended June 30, 2002. The other operating expense ratio decreased primarily due to the significant growth in net premiums earned in the 2003 periods. Gross premiums written in the insurance segment were $379.6 million for the 2003 second quarter, compared to $91.5 million for the 2002 second quarter, and $724.9 million for the six months ended June 30, 2003, compared to $150.3 million for the six months ended June 30, 2002. Net premiums written were $236.5 million for the 2003 second quarter, compared to $46.4 million for the 2002 second quarter, and $465.9 million for the six months ended June 30, 2003, compared to $62.3 million for the six months ended June 30, 2002. During 2002, the insurance segment established new profit centers in various specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. lines and began writing business in its new areas of focus in the 2002 second quarter. In addition, the insurance segment added a number of new programs during 2002. Accordingly, premiums written by the insurance segment for the 2003 second quarter and six months ended June 30, 2003 are significantly higher than the comparable 2002 amounts. Net premiums earned in the insurance segment were $191.4 million for the 2003 second quarter, compared to $17.1 million for the 2002 second quarter. For the six months ended June 30, 2003, net premiums earned were $329.9 million, compared to $29.1 million for the six months ended June 30, 2002. The insurance segment's underwriting income, on a GAAP basis, was $15.1 million for the 2003 second quarter, compared to an underwriting loss of $3.4 million for the 2002 second quarter. For the six months ended June 30, 2003, the insurance segment's underwriting income increased to $22.0 million from an underwriting loss of $3.4 million for the six months ended June 30, 2002. The combined ratio for the insurance segment, on a GAAP basis, was 92.1% for the 2003 second quarter, compared to 120.0% for the 2002 second quarter, and 93.3% for the six months ended June 30, 2003, compared to 111.8% for the six months ended June 30, 2002. The insurance segment's loss ratio for the 2003 second quarter was 66.6%, compared to 77.1% for the 2002 first quarter, and 68.7% for the six months ended June 30, 2003, compared to 78.4% for the six months ended June 30, 2002. The insurance segment's acquisition expense ratio for the 2003 second quarter, which is reflected net of policy-related fee income, was 9.6%, compared to (7.2%) for the 2002 second quarter, and 8.7% for the six months ended June 30, 2003, compared to (8.1%) for the six months ended June 30, 2002. The increase in the acquisition expense ratio in the 2003 periods compared to the 2002 periods primarily resulted from the increased contribution of business from its new areas of focus. The other operating expense ratio for the 2003 second quarter was 15.9%, compared to 50.1% for the 2002 second quarter, and 15.9% for the six months ended June 30, 2003, compared to 41.5% for the six months ended June 30, 2002. While aggregate other operating expenses were higher for the 2003 periods compared to the 2002 periods, the other operating expense ratio decreased primarily due to the significant growth in net premiums earned in the 2003 periods. The Company will hold a conference call for investors and analysts at 11:00 a.m. Eastern Time on August 5, 2003. A live webcast of this call will be available at http://www.vcall.com/CEPage.asp?ID=84296 and will be archived on VCall's website from 1:00 p.m. Eastern Time on August 5, 2003 through midnight Eastern Time on September September: see month. 5, 2003. A telephone replay of the conference call also will be available beginning on August 5, 2003 at 12:00 p.m. Eastern Time until August 8, 2003 at midnight Eastern Time. To access the replay, domestic callers should dial 877-660-6853 (account 1628, confirmation number 71996), and international callers should dial 201-612-7415 (account 1628, confirmation number 71996). Arch Capital Group Ltd., a Bermuda-based company with approximately $1.6 billion in equity capital, provides insurance and reinsurance on a worldwide basis through its wholly owned subsidiaries 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. . 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 in the Company's periodic reports filed with the Securities and Exchange Commission, and include: -- the Company's ability to successfully implement its business strategy; -- acceptance of the Company's products and services and security by brokers and insureds; -- acceptance of the Company's business strategy, security and financial condition by rating agencies and regulators; -- general economic and market conditions (including inflation, interest rates and foreign currency exchange rates) 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; -- the Company's ability to successfully integrate new management and operating personnel and to establish and maintain operating procedures to effectively support its new underwriting initiatives and to develop accurate actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin data and develop and implement actuarial models and procedures; -- the loss of key personnel; -- the integration of businesses the Company has acquired or may acquire into its existing operations; -- estimates and judgments, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment valuations, intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. , bad debts, income taxes, contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. and litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , for a relatively new insurance and reinsurance company, like the Company, are even more difficult to make than those for a mature company since very limited historical information has been reported to us through June 30, 2003; -- greater than expected loss ratios on business written by the Company and adverse development on reserves for losses and loss adjustment expenses related to business written by the Company; -- severity and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. frequency of losses; -- claims for natural or man-made man-made or man·made adj. Made by humans rather than occurring in nature; synthetic: man-made fibers; a manmade lake. See Usage Note at man. catastrophic events in the Company's insurance or reinsurance business could cause large losses and substantial volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the in the Company's results of operations; -- acts of terrorism terrorism, the threat or use of violence, often against the civilian population, to achieve political or social ends, to intimidate opponents, or to publicize grievances. , political unrest Unrest is a sociological phenomenon, for instance:
n. pl. hos·til·i·ties 1. The state of being hostile; antagonism or enmity. See Synonyms at enmity. 2. a. A hostile act. b. hostilities Acts of war; overt warfare. or other unforecasted and unpredictable events An Unpredictable Event is an event in which the predictability cannot be measured. An unpredictable event is usually an unfavorable event, because people tend not to plan an unfavorable event. Its result, most likely, affects many lives. ; -- losses relating to aviation business and business produced by a certain managing underwriting agency for which the Company may be liable liable adj. responsible or obligated. Thus, a person or entity may be liable for damages due to negligence, liable to pay a debt, liable to perform an act for which he/she/it contracted to do, or liable to punishment for commission of a crime. to the purchaser of its prior reinsurance business or to others in connection with the May 5, 2000 asset sale; -- availability to the Company of reinsurance to manage its gross and net exposures and the cost of such reinsurance; -- the failure of reinsurers, managing general agents or others to meet their obligations to the Company; -- the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by the Company; -- changes in accounting principles or the application of such principles by accounting firms or regulators; -- statutory or 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. developments, including as to tax policy and matters and insurance and other regulatory matters (such as the adoption of proposed legislation that would affect Bermuda-headquartered companies and/or Bermuda-based insurers or reinsurers); and -- rating agency policies and practices. In addition, other general factors could affect the Company's results, including: (a) developments in the world's financial and capital markets and the Company's access to such markets; (b) changes in regulation or tax laws applicable to the Company, its subsidiaries, brokers or customers; and (c) the effects of business disruption disruption /dis·rup·tion/ (dis-rup´shun) a morphologic defect resulting from the extrinsic breakdown of, or interference with, a developmental process. or economic contraction An economic contraction is a reduction in goods and services for sale in the market place. Typically it relates to a downturn in production caused by external factors such as weather or a decline in exports, or by such internal factors as taxes, regulatory constraints or other due to terrorism or other hostilities. All subsequent written and oral forward-looking statements attributable 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 STATEMENTS OF INCOME
(in thousands, except share data)
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---------- --------- ---------- ----------
Revenues
Net premiums written $560,002 $223,025 $1,336,865 $503,736
Increase in unearned
premiums (51,146) (109,566) (423,558) (322,750)
---------- --------- ---------- ----------
Net premiums earned 508,856 113,459 913,307 180,986
Net investment income 19,772 11,611 38,210 20,778
Net realized investment
gains 3,889 2,476 10,088 1,011
Fee income 4,934 2,733 10,610 5,488
Other income 587 778 1,726 1,576
---------- --------- ---------- ----------
Total revenues 538,038 131,057 973,941 209,839
Expenses
Losses and loss
adjustment expenses 331,333 80,304 594,461 130,844
Acquisition expenses 95,620 17,755 173,772 25,065
Other operating
expenses 40,995 13,456 72,075 25,961
Net foreign exchange
gains (1,761) (3,352) (2,811) (3,244)
Non-cash compensation 3,498 8,636 7,762 12,764
---------- --------- ---------- ----------
Total expenses 469,685 116,799 845,259 191,390
Income Before Income
Taxes 68,353 14,258 128,682 18,449
Income tax expense
(benefit) 6,569 (4,968) 14,412 (4,743)
---------- --------- ---------- ----------
Net Income $61,784 $19,226 $114,270 $23,192
========== ========= ========== ==========
Net Income Per Share
Data
Basic $2.36 $0.95 $4.38 $1.39
Diluted $0.91 $0.33 $1.70 $0.42
Average Shares
Outstanding
Basic 26,185,445 20,323,114 26,101,843 16,691,051
Diluted 67,728,798 58,877,515 67,381,859 54,981,185
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
June 30, December 31,
2003 2002
---------- -----------
Assets
Investments:
Fixed maturities available for sale, at fair
value (amortized cost: 2003, $2,218,222;
2002, $1,334,637) $2,293,223 $1,382,104
Short-term investments available for sale, at
fair value (amortized cost: 2003, $244,950;
2002, $480,541) 244,950 480,541
Privately held securities (cost: 2003,
$26,787; 2002, $31,630) 28,606 31,536
---------- ----------
Total investments 2,566,779 1,894,181
---------- ----------
Cash 62,013 91,717
Accrued investment income 25,570 17,127
Premiums receivable 560,861 343,716
Funds held by reinsureds 116,038 58,351
Unpaid losses and loss adjustment expenses
recoverable 306,436 211,100
Paid losses and loss adjustment expenses
recoverable 18,496 14,462
Prepaid reinsurance premiums 188,840 120,191
Goodwill 35,882 28,867
Deferred income tax asset 13,937 16,514
Deferred acquisition costs, net 240,300 148,960
Other assets 67,854 46,142
---------- ----------
Total Assets $4,203,006 $2,991,328
========== ==========
Liabilities
Reserve for losses and loss adjustment
expenses $1,185,593 $592,432
Unearned premiums 1,253,518 761,310
Reinsurance balances payable 81,591 89,191
Investment accounts payable 5,658 45,960
Other liabilities 110,304 91,191
---------- ----------
Total Liabilities 2,636,664 1,580,084
---------- ----------
Commitments and Contingencies
Shareholders' Equity
Preferred shares ($0.01 par value, 50,000,000
shares authorized, issued: 2003, 38,844,665;
2002, 38,844,665) 388 388
Common shares ($0.01 par value, 200,000,000
shares authorized, issued: 2003, 28,034,809;
2002, 27,725,334) 280 277
Additional paid-in capital 1,356,014 1,347,165
Deferred compensation under share award plan (20,321) (25,290)
Retained earnings 161,642 47,372
Accumulated other comprehensive income
consisting of unrealized
appreciation in value of investments, net of
deferred income tax 68,339 41,332
---------- ----------
Total Shareholders' Equity 1,566,342 1,411,244
---------- ----------
Total Liabilities and Shareholders' Equity $4,203,006 $2,991,328
========== ==========
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
(Unaudited)
Six Months Ended
June 30,
2003 2002
---------- ----------
Preference Shares
Balance at beginning of year $388 $357
Preference shares issued -- 9
---------- ----------
Balance at end of period 388 366
---------- ----------
Common Shares
Balance at beginning of year 277 135
Common shares issued 3 103
---------- ----------
Balance at end of period 280 238
---------- ----------
Additional Paid-in Capital
Balance at beginning of year 1,347,165 1,039,887
Common shares issued 8,337 242,354
Common shares retired (646) --
Stock options 1,158 160
---------- ----------
Balance at end of period 1,356,014 1,282,401
---------- ----------
Deferred Compensation Under Share Award Plan
Balance at beginning of year (25,290) (8,230)
Restricted common shares issued (2,686) (63,615)
Deferred compensation expense recognized 7,655 12,604
---------- ----------
Balance at end of period (20,321) (59,241)
---------- ----------
Retained Earnings (Deficit)
Balance at beginning of year 47,372 (11,610)
Net income 114,270 23,192
---------- ----------
Balance at end of period 161,642 11,582
---------- ----------
Accumulated Other Comprehensive Income
Unrealized Appreciation (Decline) in Value of
Investments,
Net of Deferred Income Tax
Balance at beginning of year 41,332 (170)
Change in unrealized appreciation (decline) 27,007 10,871
---------- ----------
Balance at end of period 68,339 10,701
---------- ----------
Total Shareholders' Equity $1,566,342 $1,246,047
========== ==========
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
Six Months Ended
June 30,
2003 2002
---------- ----------
Comprehensive Income
Net income $114,270 $23,192
Other comprehensive income, net of deferred
income tax
Unrealized appreciation in value of investments:
Unrealized holding gains arising during period 35,868 10,098
Reclassification of net realized (gains) losses
included in net income (8,861) 773
---------- ----------
Other comprehensive income 27,007 10,871
---------- ----------
Comprehensive Income $141,277 $34,063
========== ==========
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
June 30,
2003 2002
----------- ---------
Operating Activities
Net income $114,270 $23,192
Adjustments to reconcile net income to net cash
provided by
operating activities:
Net realized investment gains (10,088) (1,011)
Provision for non-cash compensation 7,762 12,764
Net unrealized foreign exchange gains (1,647) (3,263)
Changes in:
Reserve for losses and loss adjustment
expenses, net of unpaid losses and loss
adjustment expenses recoverable 494,838 106,430
Unearned premiums, net of prepaid reinsurance
premiums 423,559 322,458
Premiums receivable (214,277) (240,069)
Deferred acquisition costs (91,340) (56,391)
Funds held by reinsureds (57,626) (27,247)
Reinsurance balances payable (7,600) (9,490)
Accrued investment income (8,411) (5,894)
Paid losses and loss adjustment expenses
recoverable (4,039) (2,436)
Deferred income tax asset 27 (4,626)
Other liabilities 20,790 16,801
Loan to Chairman -- (13,530)
Other items, net 1,635 (3,983)
---------- ---------
Net Cash Provided By Operating Activities 667,853 113,705
---------- ---------
Investing Activities
Purchases of fixed maturity investments (1,602,839) (885,654)
Release of escrowed assets -- (18,833)
Sales of fixed maturity investments 683,660 300,277
Sales of equity securities 7,019 13,802
Net sales of short-term investments 235,943 329,843
Acquisitions, net of cash (11,774) (2,513)
Purchases of furniture, equipment and other (12,802) (2,073)
---------- ---------
Net Cash Used For Investing Activities (700,793) (265,151)
---------- ---------
Financing Activities
Proceeds from common shares issued 3,882 179,154
Repurchase of common shares (646) --
Debt retirement and other -- (37)
---------- ---------
Net Cash Provided By Financing Activities 3,236 179,117
---------- ---------
(Decrease) increase in cash (29,704) 27,671
Cash beginning of year 91,717 9,970
---------- ---------
Cash end of period $62,013 $37,641
========== =========
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(in thousands except share data)
(Unaudited) (Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
Investment income yield (at amortized
cost) 2003 2002 2003 2002
------ ------ ------ ------
Pre-tax 3.3% 4.1% 3.4% 3.6%
After-tax 2.9% 3.6% 3.0% 3.1%
(Unaudited)
Fixed Maturities and Short-term June 30, December 31,
Investments 2003 2002
---------- -----------
Average duration (in years) 2.2 2.1
Average credit quality (Standard &
Poors) AA- AA-
(Unaudited)
Six Months Ended
June 30,
2003 2002
------ ------
Annualized operating return on beginning equity (1) 15.4% 4.7%
(1) Annualized operating return on beginning equity, a non-GAAP
measure, equals annualized operating income divided by
shareholders' equity as of the beginning of the year.
Segment Information The determination of the Company's business segments is based on the manner in which the Company monitors the performance of its underwriting operations. The Company classifies its businesses into two underwriting segments - reinsurance and insurance - and a corporate and other segment (non-underwriting). The Company does not manage its assets by segment and, accordingly, investment income is not allocated to each underwriting segment. In addition, other revenue and expense items are not evaluated by segment. Management measures segment performance based on underwriting income or loss. The accounting policies of the segments are the same as those used for the preparation of our consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge . Inter-segment insurance business is allocated to the segment accountable for the underwriting results in accordance with SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System No. 131, "Disclosures about Segments of an Enterprise and Related Information." The reinsurance segment consists of the Company's reinsurance underwriting subsidiaries. The reinsurance segment generally seeks to write significant lines on specialty property and casualty reinsurance treaties Reinsurance Treaty (June 18, 1887) Secret agreement between Germany and Russia. Arranged by Otto von Bismarck after the collapse of the Three Emperors' League, it provided that each party would remain neutral if either became involved in a war with a third nation, and that . Classes of business focused on include casualty, casualty clash, marine, aviation and space, non-traditional, other specialty, property catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). and property excluding property catastrophe (losses on a single risk, both excess of loss and pro rata). The insurance segment consists of the Company's insurance underwriting subsidiaries which primarily write on a direct basis. The insurance segment currently consists of eight product lines, including casualty, construction and surety An individual who undertakes an obligation to pay a sum of money or to perform some duty or promise for another in the event that person fails to act. surety n. , executive assurance, healthcare, professional liability, programs, property, and other (primarily non-standard auto, collateralized protection business and accident and health and corporate risk programs). The corporate and other segment (non-underwriting) includes net investment income, other fee income and other expenses incurred by the Company, net realized investment gains or losses, net foreign exchange gains or losses and non-cash compensation. The corporate and other segment also includes the results of the Company's merchant banking operations. The following tables set forth (i) underwriting income or loss by segment, together with a reconciliation of underwriting income or loss to net income, and (ii) net premiums written and earned for each major line of business and net premiums written by client location by segment. Certain prior period information has been reclassified to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" the current presentation.
(Unaudited)
Three Months Ended
June 30, 2003
-------------------------------
(in thousands) Reinsurance Insurance Total
----------- --------- ---------
Gross premiums written (1) $337,038 $379,607 $676,005
Net premiums written 323,520 236,482 560,002
Net premiums earned $317,504 $191,352 $508,856
Policy-related fee income -- 3,562 3,562
Other underwriting-related fee income 1,801 -- 1,801
Losses and loss adjustment expenses (203,797) (127,536) (331,333)
Acquisition expenses, net (73,702) (21,918) (95,620)
Other operating expenses (7,663) (30,402) (38,065)
---------- --------- ---------
Underwriting income (loss) - GAAP basis $34,143 $15,058 49,201
========== =========
Net investment income 19,772
Other fee income, net of related
expenses (429)
Other expenses (2,930)
---------
Pre-tax operating income 65,614
Income tax expense (6,373)
---------
After-tax operating income 59,241
Net realized investment gains, net of
$374 tax expense 3,515
Net foreign exchange gains, net of $0
tax expense 1,761
Other income, net of $205 tax expense 382
Non-cash compensation, net of $383 tax
benefit (3,115)
---------
Net income $61,784
=========
Diluted Per Share Results
Operating income $0.87
Net realized investment gains 0.05
Net foreign exchange gains 0.03
Other income 0.01
Non-cash compensation (0.05)
---------
Net income per share $0.91
=========
Statutory Basis (2)
Loss ratio 64.2% 66.6% 65.1%
Acquisition expense ratio (3) 24.8% 10.7% 18.8%
Other operating expense ratio 3.2% 14.1% 7.8%
---------- --------- ---------
Combined ratio 92.2% 91.4% 91.7%
---------- --------- ---------
GAAP Basis (2)
Loss ratio 64.2% 66.6% 65.1%
Acquisition expense ratio (3) 23.2% 9.6% 18.1%
Other operating expense ratio 2.4% 15.9% 7.5%
---------- --------- ---------
Combined ratio 89.8% 92.1% 90.7%
---------- --------- ---------
(1) Gross premiums written by the insurance segment have been ceded
to, and are also included in, the reinsurance segment's gross
premiums written. Accordingly, the sum of gross premiums written
for each segment does not agree to the total gross premiums
written as shown in the table above, due to the elimination of
intercompany transactions in the total.
(2) The loss ratios for statutory and GAAP are based on earned
premiums. The statutory expense ratios are based on net premiums
written, while the GAAP expense ratios are based on net premiums
earned.
(3) The acquisition expense ratio is adjusted to include
policy-related fee income.
(Unaudited)
Three Months Ended
June 30, 2002
-------------------------------
(in thousands) Reinsurance Insurance Total
----------- --------- ---------
Gross premiums written (1) $180,339 $91,546 $253,655
Net premiums written 176,619 46,406 223,025
Net premiums earned $96,330 $17,129 113,459
Policy-related fee income -- 2,767 2,767
Losses and loss adjustment expenses (67,100) (13,204) (80,304)
Acquisition expenses, net (16,226) (1,529) (17,755)
Other operating expenses (2,615) (8,588) (11,203)
---------- --------- ---------
Underwriting income (loss) - GAAP basis $10,389 ($3,425) 6,964
========== =========
Net investment income 11,611
Other fee income, net of related
expenses (34)
Other expenses (2,253)
---------
Pre-tax operating income 16,288
Income tax expense (774)
---------
After-tax operating income 15,514
Net realized investment gains, net of
$2,088 tax expense 388
Net foreign exchange gains, net of $0
tax expense 3,352
Other income, net of $134 tax expense 644
Reversal of deferred tax asset
valuation allowance 7,421
Non-cash compensation, net of $543 tax
benefit (8,093)
---------
Net income $19,226
=========
Diluted Per Share Results
Operating income $0.27
Net realized investment gains 0.01
Net foreign exchange gains 0.06
Other income 0.01
Reversal of deferred tax asset
valuation allowance 0.12
Non-cash compensation (0.14)
---------
Net income per share $0.33
=========
Statutory Basis (2)
Loss ratio 69.7% 77.1% 70.8%
Acquisition expense ratio (3) 19.0% 0.6% 15.3%
Other operating expense ratio 3.8% 26.8% 8.5%
---------- --------- ---------
Combined ratio 92.5% 104.5% 94.6%
---------- --------- ---------
GAAP Basis (2)
Loss ratio 69.7% 77.1% 70.8%
Acquisition expense ratio (3) 16.8% (7.2%) 13.2%
Other operating expense ratio 2.7% 50.1% 9.9%
---------- --------- ---------
Combined ratio 89.2% 120.0% 93.9%
---------- --------- ---------
(1) Gross premiums written by the insurance segment have been ceded
to, and are also included in, the reinsurance segment's gross
premiums written. Accordingly, the sum of gross premiums written
for each segment does not agree to the total gross premiums
written as shown in the table above, due to the elimination of
intercompany transactions in the total.
(2) The loss ratios for statutory and GAAP are based on earned
premiums. The statutory expense ratios are based on net premiums
written, while the GAAP expense ratios are based on net premiums
earned.
(3) The acquisition expense ratio is adjusted to include
policy-related fee income.
(Unaudited)
Six Months Ended
June 30, 2003
---------------------------------
(in thousands) Reinsurance Insurance Total
----------- --------- -----------
Gross premiums written (1) $899,699 $724,913 $1,536,105
Net premiums written 870,956 465,909 1,336,865
Net premiums earned $583,451 $329,856 $913,307
Policy-related fee income -- 6,775 6,775
Other underwriting-related fee income 3,728 -- 3,728
Losses and loss adjustment expenses (367,712) (226,749) (594,461)
Acquisition expenses, net (138,368) (35,404) (173,772)
Other operating expenses (13,782) (52,491) (66,273)
--------- --------- ----------
Underwriting income (loss) - GAAP
basis $67,317 $21,987 89,304
========= =========
Net investment income 38,210
Other fee income, net of related
expenses 107
Other expenses (5,802)
----------
Pre-tax operating income 121,819
Income tax expense (13,400)
----------
After-tax operating income 108,419
Net realized investment gains, net of
$1,227 tax expense 8,861
Net foreign exchange gains, net of $0
tax expense 2,811
Other income, net of $373 tax expense 1,353
Non-cash compensation, net of $588
tax benefit (7,174)
----------
Net income $114,270
==========
Diluted Per Share Results
Operating income $1.61
Net realized investment gains 0.13
Net foreign exchange gains 0.04
Other income 0.02
Non-cash compensation (0.10)
----------
Net income per share $1.70
==========
Statutory Basis (2)
Loss ratio 63.0% 68.7% 65.1%
Acquisition expense ratio (3) 22.5% 10.6% 18.4%
Other operating expense ratio 2.2% 12.9% 5.9%
--------- --------- ----------
Combined ratio 87.7% 92.2% 89.4%
--------- --------- ----------
GAAP Basis (2)
Loss ratio 63.0% 68.7% 65.1%
Acquisition expense ratio (3) 23.7% 8.7% 18.3%
Other operating expense ratio 2.4% 15.9% 7.3%
--------- --------- ----------
Combined ratio 89.1% 93.3% 90.7%
--------- --------- ----------
(1) Gross premiums written by the insurance segment have been ceded
to, and are also included in, the reinsurance segment's gross
premiums written. Accordingly, the sum of gross premiums written
for each segment does not agree to the total gross premiums
written as shown in the table above, due to the elimination of
intercompany transactions in the total.
(2) The loss ratios for statutory and GAAP are based on earned
premiums. The statutory expense ratios are based on net premiums
written, while the GAAP expense ratios are based on net premiums
earned.
(3) The acquisition expense ratio is adjusted to include
policy-related fee income.
(Unaudited)
Six Months Ended
June 30, 2002
-------------------------------
(in thousands) Reinsurance Insurance Total
----------- --------- ---------
Gross premiums written (1) $445,200 $150,268 $558,450
Net premiums written 441,480 62,256 503,736
Net premiums earned $151,863 $29,123 $180,986
Policy-related fee income -- 3,935 3,935
Losses and loss adjustment expenses (108,005) (22,839) (130,844)
Acquisition expenses, net (23,487) (1,578) (25,065)
Other operating expenses (6,133) (12,090) (18,223)
---------- --------- ---------
Underwriting income (loss) - GAAP basis $14,238 ($3,449) 10,789
========== =========
Net investment income 20,778
Other fee income, net of related
expenses (646)
Other expenses (5,539)
---------
Pre-tax operating income 25,382
Income tax expense (1,500)
---------
After-tax operating income 23,882
Net realized investment losses, net of
$1,784 tax expense (773)
Net foreign exchange gains, net of $0
tax expense 3,244
Other income, net of $392 tax expense 1,184
Reversal of deferred tax asset
valuation allowance 7,421
Non-cash compensation, net of $998 tax
benefit (11,766)
---------
Net income $23,192
=========
Diluted Per Share Results
Operating income $0.43
Net realized investment losses (0.01)
Net foreign exchange gains 0.06
Other income 0.02
Reversal of deferred tax asset
valuation allowance 0.13
Non-cash compensation (0.21)
---------
Net income per share $0.42
=========
Statutory Basis (2)
Loss ratio 71.1% 78.4% 72.3%
Acquisition expense ratio (3) 15.5% (2.9%) 13.2%
Other operating expense ratio 2.8% 27.0% 5.8%
---------- --------- ---------
Combined ratio 89.4% 102.5% 91.3%
---------- --------- ---------
GAAP Basis (2)
Loss ratio 71.1% 78.4% 72.3%
Acquisition expense ratio (3) 15.5% (8.1%) 11.7%
Other operating expense ratio 4.0% 41.5% 10.0%
---------- --------- ---------
Combined ratio 90.6% 111.8% 94.0%
---------- --------- ---------
(1) Gross premiums written by the insurance segment have been ceded
to, and are also included in, the reinsurance segment's gross
premiums written. Accordingly, the sum of gross premiums written
for each segment does not agree to the total gross premiums
written as shown in the table above, due to the elimination of
intercompany transactions in the total.
(2) The loss ratios for statutory and GAAP are based on earned
premiums. The statutory expense ratios are based on net premiums
written, while the GAAP expense ratios are based on net premiums
earned.
(3) The acquisition expense ratio is adjusted to include
policy-related fee income.
(Unaudited)
Three Months Ended
June 30,
2003 2002
---------------- ----------------
REINSURANCE SEGMENT % of % of
(in thousands) Amount Total Amount Total
--------- ------ --------- ------
Major line of business:
Net premiums written
Casualty $141,864 43.9% $16,128 9.1%
Property excluding property
catastrophe 69,248 21.4% 41,203 23.3%
Other specialty 67,926 21.0% 71,194 40.3%
Property catastrophe 23,337 7.2% 28,315 16.0%
Marine, aviation and space 14,349 4.4% 9,639 5.5%
Non-traditional 3,948 1.2% 8,361 4.8%
Casualty clash 2,848 0.9% 1,779 1.0%
-------- ----- -------- -----
Total $323,520 100.0% $176,619 100.0%
======== ===== ======== =====
Net premiums earned
Casualty $112,101 35.3% $12,628 13.1%
Property excluding property
catastrophe 70,684 22.3% 16,509 17.1%
Other specialty 62,916 19.8% 25,492 26.5%
Property catastrophe 29,634 9.3% 19,922 20.7%
Marine, aviation and space 21,689 6.8% 5,992 6.2%
Non-traditional 16,423 5.2% 12,513 13.0%
Casualty clash 4,057 1.3% 3,274 3.4%
-------- ----- -------- -----
Total $317,504 100.0% $96,330 100.0%
======== ===== ======== =====
Client location:
Net premiums written
United States $195,170 60.3% $97,103 55.0%
United Kingdom 57,286 17.7% 28,689 16.2%
Bermuda 13,973 4.3% 6,448 3.7%
Japan 13,870 4.3% 12,005 6.8%
Canada 11,194 3.5% 9,978 5.6%
Germany 8,097 2.5% 3,021 1.7%
France 6,456 2.0% 4,778 2.7%
Switzerland 3,179 1.0% 372 0.2%
Other 14,295 4.4% 14,225 8.1%
-------- ----- -------- -----
Total $323,520 100.0% $176,619 100.0%
======== ===== ======== =====
(Unaudited)
Six Months Ended
June 30,
2003 2002
---------------- ----------------
REINSURANCE SEGMENT % of % of
(in thousands) Amount Total Amount Total
--------- ------ --------- ------
Major line of business:
Net premiums written
Casualty $305,824 35.1% $56,868 12.9%
Other specialty 203,941 23.4% 101,449 23.0%
Property excluding property
catastrophe 181,848 20.9% 83,875 19.0%
Property catastrophe 72,110 8.3% 79,030 17.9%
Non-traditional 51,583 5.9% 78,731 17.8%
Marine, aviation and space 45,770 5.3% 28,598 6.5%
Casualty clash 9,880 1.1% 12,929 2.9%
-------- ----- -------- -----
Total $870,956 100.0% $441,480 100.0%
======== ===== ======== =====
Net premiums earned
Casualty $190,608 32.7% $19,144 12.6%
Other specialty 120,588 20.6% 32,974 21.7%
Property excluding property
catastrophe 131,751 22.6% 24,339 16.0%
Property catastrophe 57,245 9.8% 31,854 21.0%
Non-traditional 38,451 6.6% 27,463 18.1%
Marine, aviation and space 37,271 6.4% 10,012 6.6%
Casualty clash 7,537 1.3% 6,077 4.0%
-------- ----- -------- -----
Total $583,451 100.0% $151,863 100.0%
======== ===== ======== =====
Client location:
Net premiums written
United States $524,058 60.2% $208,850 47.3%
United Kingdom 166,784 19.2% 107,072 24.3%
Bermuda 48,297 5.5% 18,772 4.2%
Canada 27,370 3.1% 17,909 4.0%
France 25,887 3.0% 20,119 4.6%
Germany 21,824 2.5% 26,724 6.1%
Japan 14,336 1.6% 12,056 2.7%
Switzerland 7,460 0.9% 899 0.2%
Other 34,940 4.0% 29,079 6.6%
-------- ----- -------- -----
Total $870,956 100.0% $441,480 100.0%
======== ===== ======== =====
(Unaudited)
Three Months Ended
June 30,
2003 2002
---------------- ---------------
INSURANCE SEGMENT % of % of
(in thousands) Amount Total Amount Total
--------- ------ -------- ------
Major line of business:
Net premiums written
Programs $76,949 32.5% $6,429 13.8%
Casualty 50,992 21.5% 7,936 17.1%
Professional liability 28,845 12.2% 2,138 4.6%
Construction and surety 22,504 9.5% 2,643 5.7%
Property 20,503 8.7% 5,130 11.1%
Executive assurance 20,502 8.7% 10,871 23.4%
Healthcare (1) (1,463) (0.6%) -- --
Other 17,650 7.5% 11,259 24.3%
-------- ----- -------- -----
Total $236,482 100.0% $46,406 100.0%
======== ===== ======== =====
Net premiums earned
Programs $61,328 32.1% $3,251 19.0%
Casualty 36,756 19.2% 318 1.8%
Professional liability 14,752 7.7% 317 1.8%
Construction and surety 15,901 8.3% 319 1.9%
Property 17,124 8.9% 387 2.3%
Executive assurance 18,855 9.9% 1,671 9.8%
Healthcare 7,084 3.7% -- --
Other 19,552 10.2% 10,866 63.4%
-------- ----- -------- -----
Total $191,352 100.0% $17,129 100.0%
======== ===== ======== =====
Client location:
Net premiums written
United States $232,743 98.4% $45,300 97.6%
United Kingdom 936 0.4% 880 1.9%
Indonesia 691 0.3% -- --
Taiwan 527 0.2% -- --
U.S. Virgin Islands 415 0.2% -- --
Venezuela 44 0.0% -- --
Other 1,126 0.5% 226 0.5%
-------- ----- -------- -----
Total $236,482 100.0% $46,406 100.0%
======== ===== ======== =====
(1) Amount reflects approximately $16.0 million of ceded premiums
related to reinsurance arrangements covering the six months ended
June 30, 2003 which were recorded in the 2003 second quarter.
(Unaudited)
Six Months Ended
June 30,
2003 2002
---------------- ---------------
INSURANCE SEGMENT % of % of
(in thousands) Amount Total Amount Total
--------- ------ -------- ------
Major line of business:
Net premiums written
Programs $147,576 31.7% $8,696 14.0%
Casualty 100,327 21.5% 7,936 12.8%
Professional liability 48,688 10.4% 2,138 3.4%
Executive assurance 45,766 9.8% 12,783 20.5%
Construction and surety 42,214 9.1% 2,643 4.2%
Property 34,741 7.5% 5,130 8.3%
Healthcare 14,801 3.2% -- --
Other 31,796 6.8% 22,930 36.8%
-------- ----- -------- -----
Total $465,909 100.0% $62,256 100.0%
======== ===== ======== =====
Net premiums earned
Programs $101,160 30.7% $4,983 17.1%
Casualty 62,011 18.8% 318 1.1%
Professional liability 23,127 7.0% 317 1.1%
Executive assurance 35,129 10.6% 1,767 6.1%
Construction and surety 25,730 7.8% 319 1.1%
Property 29,619 9.0% 387 1.3%
Healthcare 15,897 4.8% -- --
Other 37,183 11.3% 21,032 72.2%
-------- ----- -------- -----
Total $329,856 100.0% $29,123 100.0%
======== ===== ======== =====
Client location:
Net premiums written
United States $461,071 99.0% $61,150 98.2%
United Kingdom 971 0.2% 880 1.4%
Indonesia 691 0.1% -- --
U.S. Virgin Islands 547 0.1% -- --
Taiwan 527 0.1% -- --
Venezuela 385 0.1% -- --
Other 1,717 0.4% 226 0.4%
-------- ----- -------- -----
Total $465,909 100.0% $62,256 100.0%
======== ===== ======== =====
Calculation of Book Value Per Share The following actual book value per share calculations are based on shareholders' equity of approximately $1.6 billion and $1.4 billion at June 30, 2003 and December 31, 2002, respectively. Book value per share excludes the effects of stock options and Class B warrants.
(Unaudited)
June 30, 2003 December 31, 2002
---------------------- ----------------------
Common Common
Shares and Cumulative Shares and Cumulative
Potential Book Potential Book
Common Value Per Common Value Per
Shares Share Shares Share
----------- ---------- ----------- ----------
Common shares (1) 28,034,809 $26.77 27,725,334 $21.48
Series A convertible
preference shares 38,844,665 $23.42 38,844,665 $21.20
---------- ----------
Common shares and
potential common shares 66,879,474 66,569,999
========== ==========
(1) Book value per common share at June 30, 2003 and December 31, 2002
was determined by dividing (i) the difference between total
shareholders' equity and the aggregate liquidation preference of
the Series A convertible preference shares of $815.7 million, by
(ii) the number of common shares outstanding. Restricted common
shares are included in the number of common shares outstanding as
if such shares were issued on the date of grant.
Pursuant to the subscription agreement entered in connection with the November November: see month. 2001 capital infusion (the "Subscription Agreement"), a post-closing purchase price adjustment will be calculated in November 2003 (or such earlier date as agreed upon Adj. 1. agreed upon - constituted or contracted by stipulation or agreement; "stipulatory obligations" stipulatory noncontroversial, uncontroversial - not likely to arouse controversy by the Company and the investors thereunder) based on an adjustment basket basket filled with treats, representative of feast on Easter Sunday. [Folklore: Misc.] See : Easter . The adjustment basket will be equal to (1) the difference between value realized upon sale and the GAAP book value at the closing of the capital infusion (November 2001) (as adjusted based on a pre-determined growth rate) of agreed upon non-core businesses; plus (2) the difference between GAAP net book value of the Company's insurance balances attributable to the Company's core insurance operations with respect to any policy or contract written or having a specified spec·i·fy tr.v. spec·i·fied, spec·i·fy·ing, spec·i·fies 1. To state explicitly or in detail: specified the amount needed. 2. To include in a specification. 3. effective date at the time of the final adjustment and those balances at the closing; minus (3) reductions in book value arising from costs and expenses relating to the transaction provided under the Subscription Agreement, actual losses arising out of breach of representations under the Subscription Agreement and certain other costs and expenses. If the adjustment basket is less than zero, the Company will issue additional preference shares to the investors based on the decrease in value of the components of the adjustment basket. If the adjustment basket is greater than zero, the Company is allowed to use cash in an amount based on the increase in value of the components of the adjustment basket to 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. common shares (other than any common shares issued upon conversion of the preference shares or exercise of the Class A warrants). In addition, on the fourth anniversary of the closing, there will be a calculation of a further adjustment basket based on (1) liabilities owed to Folksamerica (if any) under the Asset Purchase Agreement, dated as of January January: see month. 10, 2000, between the Company and Folksamerica, and (2) specified tax and ERISA See Employee Retirement Income Security Act. ERISA See Employee Retirement Income Security Act (ERISA). matters under the Subscription Agreement. |
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion