Arch Capital Group Ltd. Reports 2005 First Quarter Results.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 Bermuda (bûrmy  `də), British dependency (2005 est. pop. 65,400), 21 sq mi (53 sq km), comprising some 150 coral rocks, islets, and islands (of which some 20 are inhabited), in the -- Arch Capital Group Ltd. (NASDAQ NASDAQin 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 2005 first quarter was $115.9 million, or $1.57 per share, compared to $87.5 million, or $1.26 per share, for the 2004 first quarter. The Company's 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 to $31.60 at March 31, 2005 from $31.03 per share at December December: see month. 31, 2004 (see "Calculation of Book Value Per Share" in the Supplemental Financial Information section of this release). Gross and net premiums written for the 2005 first quarter were $980.7 million and $799.8 million, respectively, compared to $1.01 billion and $883.6 million, respectively, for the 2004 first quarter. The Company's combined ratio was 88.7% for the 2005 first quarter, compared to 89.2% for the 2004 first quarter. All per share amounts discussed in this release are on a diluted basis. 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. of $112.6 million, or $1.52 per share, for the 2005 first quarter, compared to $86.8 million, or $1.26 per share, for the 2004 first quarter. The Company's after-tax operating income represented a 19.9% 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. return on average equity for the 2005 first quarter, compared to 18.7% for the 2004 first quarter. Operating income, a non-GAAP measure, is defined as net income or loss, excluding 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. or losses, net foreign exchange gains or losses, other income or loss and certain non-cash compensation, net of income taxes. See page 5 for a further discussion of operating income and Regulation G.
The following table summarizes the Company's underwriting results:
(Unaudited)
Three Months Ended
March 31,
(U.S. dollars in thousands) 2005 2004
----------- -----------
Gross premiums written $980,692 $1,009,788
Net premiums written 799,801 883,588
Net premiums earned 697,068 707,826
Underwriting income 83,663 77,059
Combined ratio 88.7% 89.2%
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 and related diluted per share results:
(Unaudited)
Three Months Ended
March 31,
(U.S. dollars in thousands, except per
share data) 2005 2004
----------- -----------
Operating income $112,599 $86,810
Net realized gains 318 7,698
Net foreign exchange gains (losses) 3,639 (5,319)
Non-cash compensation (664) (2,411)
Other income -- 677
----------- -----------
Net income $115,892 $87,455
=========== ===========
Diluted per share results:
Operating income $1.52 $1.26
Net realized gains 0.01 0.11
Net foreign exchange gains (losses) 0.05 (0.08)
Non-cash compensation (0.01) (0.04)
Other income -- 0.01
----------- -----------
Net income $1.57 $1.26
=========== ===========
Diluted average shares outstanding 74,013,546 69,145,060
The combined ratio represents a measure of 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. profitability, excluding investment income, and is the sum of the loss ratio and expense ratio. A combined ratio under 100% represents an underwriting profit Underwriting profit is a term used in the insurance industry. It consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held premiums. and a combined ratio over 100% represents an underwriting loss. The combined ratio of the Company's insurance and 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. subsidiaries consisted of a loss ratio of 61.0% and an underwriting expense ratio of 27.7% for the 2005 first quarter, compared to a loss ratio of 60.7% and an underwriting expense ratio of 28.5% for the 2004 first quarter. The loss ratio of 61.0% for the 2005 first quarter was comprised of 23.2 points of paid losses, 9.1 points related to reserves for reported losses and 28.7 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. Of the 23.2 points of paid losses during the 2005 first quarter, approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 2.3 points related to Hurricanes Charley Charley elderly poodle that accompanied Steinbeck on trip across U.S. [Am. Lit.: John Steinbeck Travels with Charley in Weiss, 471] See : Dogs , Frances, Ivan Ivan - A Diana-like language making up part of VHDL. ["VHDL - The Designer Environment", A. Gilman, IEEE Design & Test 3, (Apr 1986)]. , Jeanne Jeanne is a French female name, equivalent to the English Joan, Jane, Jean and several historical figures in English named Joanna. (Feminine forms of John) Historical people who have been called simply Jeanne: 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 contracts and insurance policies and also has considered available historical industry experience and current industry conditions. The Company primarily uses the expected loss method of reserving, 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 limited historical information has been reported to the Company through March 31, 2005. For a discussion of underwriting activities and a review of the Company's results by operating segment, see "Segment Information" in the Supplemental Financial Information section of this release. Consolidated cash flow provided by operating activities for the 2005 first quarter was $327.1 million, compared to $399.6 million for the 2004 first quarter, with the decrease primarily attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to a higher level of paid losses in the 2005 period. Net investment income for the 2005 first quarter increased to $49.9 million from $24.6 million for the 2004 first quarter. The higher level of net investment income in the 2005 first quarter resulted from a higher level of average invested assets in the 2005 period and an increase in the pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta investment income yield to 3.4% for the 2005 first quarter, compared to 2.5% for the 2004 first quarter. The Company's investment portfolio, which mainly consists of high quality fixed income securities, had an average Standard & Poor's quality rating of "AA+" at March 31, 2005 and December 31, 2004. The average effective duration of the Company's investment portfolio was 3.8 years at March 31, 2005, compared to 3.7 years at December 31, 2004, while the average yield to maturity (book yield) increased to 3.6% at March 31, 2005, from 3.5% at December 31, 2004. For the 2005 and 2004 first quarters, the effective tax rates on income before income taxes were 7.5% and 11.2%, respectively, and the effective tax rates on pre-tax operating income were 8.0% and 10.0%, respectively. The reduction in the effective tax rates in the 2005 first quarter, compared to the 2004 first quarter, resulted from a change in the relative mix of income reported by jurisdiction. The Company's effective tax rates 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 currently expects that its annual effective tax rate on pre-tax operating income for 2005 will be in the range of 7% to 10%. On a pre-tax basis, net foreign exchange gains for the 2005 first quarter of $3.2 million consisted of net unrealized gains 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 $2.7 million and net realized gains of $0.5 million, compared to net foreign exchange losses for the 2004 first quarter of $5.3 million, which consisted of net unrealized losses Unrealized Loss A loss that results from holding onto an asset rather than cashing it in and officially taking the loss. Notes: Let's say you own a stock that is down 50%, but you haven't sold it to realize the loss yet. This is said to be an unrealized loss. of $5.5 million and net realized gains of $0.2 million. At March 31, 2005, the Company's capital of $2.59 billion consisted of senior notes of $300.0 million, representing 11.6% of the total, and 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. of $2.29 billion, representing the balance. The increase in the Company's capital during the 2005 first quarter of $47.0 million was primarily attributable to net income, partially offset by an after-tax decline in the market value of the Company's investment portfolio of $74.8 million due to an increase in the level of interest rates at March 31, 2005. Diluted weighted average shares outstanding, which is used in the calculation of operating income and net income per share, was 4.9 million shares, or 7.0%, higher in the 2005 first quarter than in the 2004 first quarter. The increase in diluted average shares outstanding from the 2004 first quarter to the 2005 first quarter was primarily due to the full weighting of 4,688,750 common shares issued in March 2004. The Company will hold a conference call for investors and analysts at 10:00 a.m. Eastern Time on Friday Friday: see Sabbath; week. Friday young Indian rescued by Crusoe and kept as servant and companion. [Br. Lit.: Robinson Crusoe] See : Servant , April 29, 2005. A live webcast of this call will be available via the Media-Earnings Webcasts section of the Company's website at http://www.archcapgroup.bm and will be archived on the website from 12:00 p.m. Eastern Time on April 29 through midnight Eastern Time on May 29, 2005. A telephone replay of the conference call also will be available beginning on April 29 at 12:00 p.m. Eastern Time until May 6 at midnight Eastern Time. To access the replay, domestic callers should dial 888-286-8010 (passcode 98423311), and international callers should dial 617-801-6888 (passcode 98423311). Arch Capital Group Ltd., a Bermuda-based company with over $2.5 billion in 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 (the "SEC"), and include: --the Company's ability to successfully implement its business strategy during "soft" as well as "hard" markets; --acceptance of the Company's business strategy, security and financial condition by rating agencies and regulators, as well as by brokers and the Company's insureds and reinsureds; --the Company's ability to maintain or improve its ratings, which may be affected by the Company's ability to raise additional equity or debt financings Debt Financing When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay , as well as other factors described herein; --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 establish and maintain operating procedures (including the implementation of improved computerized computerized adapted for analysis, storage and retrieval on a computer. computerized axial tomography see computed tomography. systems and programs to replace and support manual systems) to effectively support its 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, especially in the light of the rapid growth of the Company's business; --the loss of key personnel; --the integration of businesses the Company has acquired or may acquire into its existing operations; --accuracy of those estimates and judgments utilized in the preparation of the Company's financial statements, 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 made in a mature company since limited historical information has been reported to the Company through March 31, 2005; --greater than expected loss ratios on business written by the Company and adverse development on claim 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. claim expense liabilities related to business written by the Company's insurance and reinsurance subsidiaries; --severity and/or 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 the Company's prior reinsurance business or to others in connection with the May 5, 2000 asset sale described in the Company's periodic reports filed with the SEC; --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 regulations or tax laws applicable to the Company, its subsidiaries, brokers or customers, including, without limitation, any such changes resulting from the recent investigations and inquiries by the New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of Attorney General and others relating to the insurance industry and any attendant ATTENDANT. One who owes a duty or service to another, or in some sort depends upon him. Termes de la Ley, h.t. As to attendant terms, see Powell on Morts. Index, tit. Attendant term; Park on Dower, c. 1 7. litigation; 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. Comment on Regulation G Throughout this release, the Company presents its operations in the way it believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use the Company's financial information in evaluating the performance of the Company. This presentation includes the use of operating income, which is defined as net income or loss, excluding net realized gains or losses, net foreign exchange gains or losses, other income or loss and non-cash compensation, net of income taxes. The Company believes that net realized gains or losses, net foreign exchange gains or losses, other income or loss and non-cash compensation for any particular period are not indicative indicative: see mood. of the performance of, or trends in, the Company's business performance. This presentation is a "non-GAAP financial measure" as defined in Regulation G. The reconciliation of such measure to net income (the most directly comparable GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). financial measure) 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 Regulation G is included on page 2 of this release. Although net realized gains or losses and net foreign exchange gains or losses are an integral part of the Company's operations, the decision to realize investment gains or losses and the recognition of foreign exchange gains or losses are independent of the insurance underwriting process and result, in large part, from general economic and financial market conditions. Furthermore, certain users of the Company's financial information believe that, for many companies, the timing of the realization (specification) realization - A UML semantic relationship between a classifier that specifies a contract and another classifier that guarantees to carry it out. [Handout by Mr. David Gillibrand]. of investment gains or losses is largely opportunistic opportunistic /op·por·tu·nis·tic/ (op?er-tldbomacn-is´tik) 1. denoting a microorganism which does not ordinarily cause disease but becomes pathogenic under certain circumstances. 2. , and, under applicable GAAP accounting, losses on the Company's investments can be realized as the result of other-than-temporary declines in value without actual realization. Due to these reasons, the Company excludes net realized gains or losses and net foreign exchange gains or losses from the calculation of operating income. Other income or loss includes amounts generated by certain of the Company's privately held securities which were accounted for under the equity method of accounting prior to the sale of such securities in 2004. Under equity method accounting, the Company records a proportionate pro·por·tion·ate adj. Being in due proportion; proportional. tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates To make proportionate. share of the investee company's net income or loss based on its ownership percentage in such investment. As this is a non-cash item which fluctuates based on the underlying results of the investee companies, the Company excluded such amounts from the calculation of operating income. Non-cash compensation includes costs related to the Company's capital raising activities and the commencement of the Company's new underwriting initiative in 2001. Since these charges, in large part, do not relate to the Company's current operations, the Company has excluded such charges from operating income. In addition, other non-cash compensation expenses that primarily relate to incentive compensation have been included in 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. and, accordingly, operating income. Non-cash compensation also does not have any impact on the Company's shareholders' equity. The Company believes that showing net income exclusive of the items referred to above reflects the underlying fundamentals of the Company's business since the Company evaluates the performance of and manages its business to produce an underwriting profit. In addition to presenting net income, the Company believes that this presentation enables investors and other users of the Company's financial information to analyze an·a·lyze v. 1. To examine methodically by separating into parts and studying their interrelations. 2. To separate a chemical substance into its constituent elements to determine their nature or proportions. 3. the Company's performance in a manner similar to how the Company's management analyzes performance. The Company also believes that this measure follows industry practice and, therefore, allows the users of the Company's financial information to compare the Company's performance with its industry peer group. The Company believes that the equity analysts and certain rating agencies which follow the Company and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(U.S. dollars in thousands, except share data)
(Unaudited)
Three Months Ended
March 31,
2005 2004
----------- -----------
Revenues
Net premiums written $799,801 $883,588
Increase in unearned premiums (102,733) (175,762)
----------- -----------
Net premiums earned 697,068 707,826
Net investment income 49,916 24,573
Net realized gains 461 8,901
Fee income 6,112 3,994
Other income -- 1,042
----------- -----------
Total revenues 753,557 746,336
Expenses
Losses and loss adjustment expenses 425,536 429,614
Acquisition expenses 126,133 152,856
Other operating expenses 73,401 56,093
Interest expense 5,636 1,374
Net foreign exchange (gains) losses (3,237) 5,319
Non-cash compensation 774 2,638
----------- -----------
Total expenses 628,243 647,894
Income Before Income Taxes 125,314 98,442
Income tax expense 9,422 10,987
----------- -----------
Net Income $115,892 $87,455
=========== ===========
Net Income Per Share Data
Basic $3.37 $3.21
Diluted $1.57 $1.26
Weighted Average Shares Outstanding
Basic 34,364,818 27,277,998
Diluted 74,013,546 69,145,060
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share data)
(Unaudited)
March 31, December 31,
2005 2004
------------ ------------
Assets
Investments:
Fixed maturities available for sale, at fair
value (amortized cost: 2005,
$5,777,249; 2004, $5,506,193) $5,732,566 $5,545,121
Short-term investments available for sale,
at fair value (amortized cost: 2005,
$205,115; 2004, $155,498) 205,217 155,771
Privately held securities (cost: 2005,
$15,124; 2004, $17,022) 22,692 21,571
------------ ------------
Total investments 5,960,475 5,722,463
------------ ------------
Cash 86,723 113,052
Accrued investment income 56,978 57,163
Premiums receivable 642,877 520,781
Funds held by reinsureds 190,019 209,946
Unpaid losses and loss adjustment expenses
recoverable 740,465 695,582
Paid losses and loss adjustment expenses
recoverable 31,253 26,874
Prepaid reinsurance premiums 318,026 321,422
Goodwill and intangible assets 16,666 16,666
Deferred income tax assets, net 61,121 58,745
Deferred acquisition costs, net 297,613 278,184
Other assets 213,461 197,876
------------ ------------
Total Assets $8,615,677 $8,218,754
============ ============
Liabilities
Reserve for losses and loss adjustment
expenses $3,865,940 $3,570,734
Unearned premiums 1,640,892 1,541,217
Reinsurance balances payable 149,470 169,502
Senior notes 300,000 300,000
Deposit accounting liabilities 48,203 44,023
Payable for securities purchased 24,009 53,642
Other liabilities 298,299 297,730
------------ ------------
Total Liabilities 6,326,813 5,976,848
------------ ------------
Commitments and Contingencies
Shareholders' Equity
Preference shares ($0.01 par value,
50,000,000 shares authorized, issued: 2005,
37,327,502; 2004, 37,348,150) 373 373
Common shares ($0.01 par value, 200,000,000
shares authorized, issued: 2005,
35,098,258; 2004, 34,902,923) 351 349
Additional paid-in capital 1,564,488 1,560,291
Deferred compensation under share award plan (7,894) (9,879)
Retained earnings 760,754 644,862
Accumulated other comprehensive income
(loss), net of deferred income tax (29,208) 45,910
------------ ------------
Total Shareholders' Equity 2,288,864 2,241,906
------------ ------------
Total Liabilities and Shareholders' Equity $8,615,677 $8,218,754
============ ============
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2005 2004
----------- -----------
Preference Shares
Balance at beginning of year $373 $388
Converted to common shares (0) (4)
----------- -----------
Balance at end of period 373 384
----------- -----------
Common Shares
Balance at beginning of year 349 282
Common shares issued 2 50
Converted from preference shares 0 4
----------- -----------
Balance at end of period 351 336
----------- -----------
Additional Paid-in Capital
Balance at beginning of year 1,560,291 1,361,267
Common shares issued 1,127 184,483
Exercise of stock options 3,710 2,080
Common shares retired (838) (551)
Other 198 128
----------- -----------
Balance at end of period 1,564,488 1,547,407
----------- -----------
Deferred Compensation Under Share Award Plan
Balance at beginning of year (9,879) (15,004)
Restricted common shares issued -- (3,950)
Deferred compensation expense recognized 1,985 3,159
----------- -----------
Balance at end of period (7,894) (15,795)
----------- -----------
Retained Earnings
Balance at beginning of year 644,862 327,963
Net income 115,892 87,455
----------- -----------
Balance at end of period 760,754 415,418
----------- -----------
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of year 45,910 35,833
Change in unrealized appreciation (decline) in
value of investments, net of deferred income
tax (74,772) 26,614
Foreign currency translation adjustments, net
of deferred income tax (346) --
----------- -----------
Balance at end of period (29,208) 62,447
----------- -----------
Total Shareholders' Equity $2,288,864 $2,010,197
=========== ===========
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(U.S. dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2005 2004
--------- ---------
Comprehensive Income
Net income $115,892 $87,455
Other comprehensive income (loss), net of deferred
income tax
Unrealized appreciation (decline) in value of
investments:
Unrealized holding gains (losses) arising during
period (75,341) 33,686
Reclassification of net realized (gains) losses,
net of income taxes, included in net income 569 (7,072)
Foreign currency translation adjustments (346) --
--------- ---------
Other comprehensive income (loss) (75,118) 26,614
--------- ---------
Comprehensive Income $40,774 $114,069
========= =========
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2005 2004
----------- -----------
Operating Activities
Net income $115,892 $87,455
Adjustments to reconcile net income to net
cash provided by operating activities:
Net realized (gains) losses 426 (8,275)
Other income -- (1,042)
Non-cash compensation 2,095 2,638
Changes in:
Reserve for losses and loss adjustment
expenses, net of unpaid losses and loss
adjustment expenses recoverable 250,323 349,756
Unearned premiums, net of prepaid
reinsurance premiums 103,071 176,905
Premiums receivable (122,096) (154,592)
Deferred acquisition costs, net (19,429) (28,681)
Funds held by reinsureds 19,927 (18,176)
Reinsurance balances payable (20,032) (6,921)
Accrued investment income 185 (888)
Paid losses and loss adjustment expenses
recoverable (4,379) (6,713)
Deferred income tax assets, net 3,646 551
Deposit accounting liabilities 4,180 4,308
Other liabilities 1,465 8,667
Other items, net (8,207) (5,358)
----------- -----------
Net Cash Provided By Operating Activities 327,067 399,634
----------- -----------
Investing Activities
Purchases of fixed maturity investments (938,227) (1,388,771)
Proceeds from sales of fixed maturity
investments 548,030 865,492
Proceeds from redemptions and maturities of
fixed maturity investments 74,943 50,063
Sales of equity securities 1,786 7,557
Net purchases of short-term investments (39,102) (87,199)
Purchases of furniture, equipment and other (3,020) (6,114)
----------- -----------
Net Cash Used For Investing Activities (355,590) (558,972)
----------- -----------
Financing Activities
Proceeds from common shares issued 2,898 181,548
Repurchase of common shares -- (551)
----------- -----------
Net Cash Provided By Financing Activities 2,898 180,997
----------- -----------
Effects of exchange rate changes on foreign
currency cash (704) --
----------- -----------
Increase (decrease) in cash (26,329) 21,659
Cash beginning of year 113,052 56,899
----------- -----------
Cash end of period $86,723 $78,558
=========== ===========
Income taxes paid, net $15,796 $73
=========== ===========
Interest paid $58 $2,516
=========== ===========
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
The following table provides information on the Company's
investing activities, including investment income yield (net of
investment expenses), average effective duration and average credit
quality.
(Unaudited)
Three Months Ended
March 31,
Investment income yield (at amortized cost) 2005 2004
------------ ------------
Pre-tax 3.4% 2.5%
After-tax 3.2% 2.3%
(Unaudited)
March 31, December 31,
Fixed maturities and short-term investments 2005 2004
------------ ------------
Average effective duration (in years) 3.8 3.7
Average credit quality (Standard & Poors) AA+ AA+
Average yield to maturity (book yield) 3.6% 3.5%
(Unaudited)
Three Months Ended
March 31,
2005 2004
------------ ------------
Annualized operating return on average
equity (1) 19.9% 18.7%
(1) Annualized operating return on average equity, a non-GAAP measure,
equals annualized operating income divided by average
shareholders' equity (calculated using the beginning and ending
values during the period). See "Comment on Regulation G" above.
Segment Information The Company classifies its businesses into two underwriting segments - reinsurance and insurance - and a corporate and other segment (non-underwriting). The Company's reinsurance and insurance operating segments each have segment managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company's chief operating decision makers, the President and Chief Executive Officer of ACGL and the Chief Financial Officer of ACGL. The chief operating decision makers do not assess performance, measure return on equity or make resource allocation resource allocation Managed care The constellation of activities and decisions which form the basis for prioritizing health care needs decisions on a line of business basis. The Company determined its reportable operating segments using the management approach described in 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." Management measures segment performance based on underwriting income Underwriting income For an insurance company, the difference between the premiums earned and the costs of settling claims. or loss. 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. The accounting policies of the segments are the same as those used for the preparation of the Company's 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. The reinsurance segment consists of the Company's reinsurance underwriting subsidiaries. The reinsurance segment generally seeks to write significant lines on 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. 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 include: casualty; marine and aviation; other specialty; property catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). ; property excluding property catastrophe (losses on a single risk, both excess of loss and 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. ); and other (consisting of non-traditional and casualty clash business). The insurance segment consists of the Company's insurance underwriting subsidiaries which primarily write on both an admitted and non-admitted basis. The insurance segment 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, marine and aviation; and other (primarily non-standard auto prior to the sale of such operations in December 2004, collateralized protection business and certain programs). The corporate and other segment (non-underwriting) includes net investment income, other fee income, other income or losses, other expenses incurred by the Company, interest expense, net realized 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 prior to the sale of such operations in October October: see month. 2004.
The following tables set forth underwriting income or loss by
segment, together with a reconciliation of underwriting income to net
income:
(Unaudited)
Three Months Ended
March 31, 2005
-----------------------------------
(U.S. dollars in thousands) Reinsurance Insurance Total
----------- ----------- -----------
Gross premiums written (1) $488,795 $506,744 $980,692
Net premiums written 477,693 322,108 799,801
Net premiums earned $376,032 $321,036 $697,068
Policy-related fee income -- 917 917
Other underwriting-related fee
income 4,623 572 5,195
Losses and loss adjustment expenses (218,674) (206,862) (425,536)
Acquisition expenses, net (99,452) (26,681) (126,133)
Other operating expenses (10,893) (56,955) (67,848)
----------- ----------- -----------
Underwriting income $51,636 $32,027 83,663
=========== ===========
Net investment income 49,916
Net realized gains 461
Other expenses (5,553)
Interest expense (5,636)
Net foreign exchange gains 3,237
Non-cash compensation (774)
-----------
Income before income taxes 125,314
Income tax expense (9,422)
-----------
Net income $115,892
===========
Underwriting Ratios
Loss ratio 58.2% 64.4% 61.0%
Acquisition expense ratio (2) 26.4% 8.0% 18.0%
Other operating expense ratio 2.9% 17.7% 9.7%
----------- ----------- -----------
Combined ratio 87.5% 90.1% 88.7%
=========== =========== ===========
(1) Certain amounts included in the gross premiums written of each
segment are related to intersegment transactions and are included
in the gross premiums written of each segment. 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 intersegment transactions in the total.
(2) The acquisition expense ratio is adjusted to include
policy-related fee income.
(Unaudited)
Three Months Ended
March 31, 2004
-----------------------------------
(U.S. dollars in thousands) Reinsurance Insurance Total
----------- ----------- -----------
Gross premiums written (1) $565,739 $481,569 $1,009,788
Net premiums written 550,888 332,700 883,588
Net premiums earned $383,050 $324,776 $707,826
Policy-related fee income -- 3,785 3,785
Other underwriting-related fee
income 320 128 448
Losses and loss adjustment expenses (219,817) (209,797) (429,614)
Acquisition expenses, net (107,128) (45,728) (152,856)
Other operating expenses (9,271) (43,259) (52,530)
----------- ----------- -----------
Underwriting income $47,154 $29,905 77,059
=========== ===========
Net investment income 24,573
Net realized gains 8,901
Other fee income, net of related
expenses (239)
Other income 1,042
Other expenses (3,563)
Interest expense (1,374)
Net foreign exchange losses (5,319)
Non-cash compensation (2,638)
-----------
Income before income taxes 98,442
Income tax expense (10,987)
-----------
Net income $87,455
===========
Underwriting Ratios
Loss ratio 57.4% 64.6% 60.7%
Acquisition expense ratio (2) 28.0% 12.9% 21.1%
Other operating expense ratio 2.4% 13.3% 7.4%
----------- ----------- -----------
Combined ratio 87.8% 90.8% 89.2%
=========== =========== ===========
(1) Certain amounts included in the gross premiums written of each
segment are related to intersegment transactions. 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 intersegment transactions in the total.
(2) The acquisition expense ratio is adjusted to include
policy-related fee income.
The following table sets forth the reinsurance segment's net
premiums written and earned by major line of business and type of
business, together with net premiums written by client location:
(Unaudited)
Three Months Ended
March 31,
2005 2004
---------------- ----------------
REINSURANCE SEGMENT % of % of
(U.S. dollars in thousands) Amount Total Amount Total
--------- ------ --------- ------
Net premiums written
Casualty $210,869 44.1% $228,550 41.5%
Other specialty 91,029 19.1% 106,297 19.3%
Property excluding property
catastrophe 88,195 18.5% 108,590 19.7%
Property catastrophe 44,563 9.3% 58,204 10.6%
Marine and aviation 30,029 6.3% 30,643 5.6%
Other 13,008 2.7% 18,604 3.3%
--------- ------ --------- ------
Total $477,693 100.0% $550,888 100.0%
========= ====== ========= ======
Net premiums earned
Casualty $213,260 56.7% $152,576 39.8%
Other specialty 50,754 13.5% 86,115 22.5%
Property excluding property
catastrophe 57,495 15.3% 84,797 22.2%
Property catastrophe 24,761 6.6% 27,214 7.1%
Marine and aviation 21,991 5.8% 20,782 5.4%
Other 7,771 2.1% 11,566 3.0%
--------- ------ --------- ------
Total $376,032 100.0% $383,050 100.0%
========= ====== ========= ======
Net premiums written
Pro rata $319,647 66.9% $324,106 58.8%
Excess of loss 158,046 33.1% 226,782 41.2%
--------- ------ --------- ------
Total $477,693 100.0% $550,888 100.0%
========= ====== ========= ======
Net premiums earned
Pro rata $277,612 73.8% $284,282 74.2%
Excess of loss 98,420 26.2% 98,768 25.8%
--------- ------ --------- ------
Total $376,032 100.0% $383,050 100.0%
========= ====== ========= ======
Net premiums written by client
location
United States and Canada $280,750 58.8% $340,898 61.9%
Europe 155,495 32.5% 158,602 28.8%
Bermuda 27,064 5.7% 37,125 6.7%
Asia and Pacific 5,570 1.2% 5,452 1.0%
Other 8,814 1.8% 8,811 1.6%
--------- ------ --------- ------
Total $477,693 100.0% $550,888 100.0%
========= ====== ========= ======
The following table sets forth the insurance segment's net
premiums written and earned by major line of business and type of
business, together with net premiums written by client location:
(Unaudited)
Three Months Ended
March 31,
2005 2004
---------------- ----------------
INSURANCE SEGMENT % of % of
(U.S. dollars in thousands) Amount Total Amount Total
--------- ------ --------- ------
Net premiums written
Casualty $63,799 19.8% $63,546 19.1%
Programs 53,267 16.5% 89,780 27.0%
Construction and surety 52,042 16.1% 38,243 11.5%
Professional liability 50,440 15.7% 44,144 13.3%
Property, marine and aviation 42,092 13.1% 29,731 8.9%
Executive assurance 26,029 8.1% 27,483 8.3%
Healthcare 16,436 5.1% 13,426 4.0%
Other 18,003 5.6% 26,347 7.9%
--------- ------ --------- ------
Total $322,108 100.0% $332,700 100.0%
========= ====== ========= ======
Net premiums earned
Casualty $69,267 21.6% $54,780 16.9%
Programs 55,311 17.2% 88,071 27.1%
Construction and surety 42,779 13.3% 49,912 15.4%
Professional liability 48,750 15.2% 40,628 12.5%
Property, marine and aviation 43,549 13.6% 34,712 10.7%
Executive assurance 27,222 8.5% 31,039 9.6%
Healthcare 17,000 5.3% 11,517 3.5%
Other 17,158 5.3% 14,117 4.3%
--------- ------ --------- ------
Total $321,036 100.0% $324,776 100.0%
========= ====== ========= ======
Net premiums written by client
location
United States and Canada $286,542 89.0% $324,835 97.6%
Europe 27,106 8.4% 995 0.3%
Other 8,460 2.6% 6,870 2.1%
--------- ------ --------- ------
Total $322,108 100.0% $332,700 100.0%
========= ====== ========= ======
Discussion of 2005 First Quarter Performance The reinsurance segment's underwriting income was $51.6 million for the 2005 first quarter, compared to $47.2 million for the 2004 first quarter. The combined ratio for the reinsurance segment was 87.5% for the 2005 first quarter, compared to 87.8% for the 2004 first quarter. 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. for the reinsurance segment were $488.8 million for the 2005 first quarter, compared to $565.7 million for the 2004 first quarter, and net premiums written were $477.7 million for the 2005 first quarter, compared to $550.9 million for the 2004 first quarter. The decrease in premium volume was in response to softening softening /sof·ten·ing/ (sof´en-ing) malacia. softening a change of consistency, with loss of firmness or hardness. market conditions. Net premiums earned for the reinsurance segment were $376.0 million for the 2005 first quarter, compared to $383.1 million for the 2004 first quarter, and generally reflect changes in net premiums written over the previous five quarters, including the mix and type of business written. Underwriting income for the reinsurance segment in the 2005 first quarter benefited from estimated net favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. development in prior year loss reserves. A portion of the favorable development resulted from the commutation of two contracts which also generated an increase in profit commissions payable of $3.0 million that is reflected in acquisition expenses. The effect of the total amount of net favorable development, net of the increase in acquisition expenses, was $21.7 million, or a 5.8 point reduction in the combined ratio. Losses related to 2005 catastrophic activity in the first quarter included approximately $10.0 million for Windstorm wind·storm n. A storm with high winds or violent gusts but little or no rain. windstorm A storm with high winds or violent gusts but little or no rain. Erwin, which impacted Northern Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). in January January: see month. 2005. For the 2004 first quarter, underwriting income benefited from
estimated net favorable development on prior year loss reserves, net of
$14.0 million of acquisition expenses related to certain contracts
commuted during the period, of $9.9 million, or a 2.6 point reduction in
the combined ratio. Included in other underwriting-related fee income in
the 2005 first quarter is $4.5 million related to an industry loss
warranty An assurance, promise, or guaranty by one party that a particular statement of fact is true and may be relied upon by the other party.Warranties are used in a variety of commercial situations. In many instances a business may voluntarily make a warranty. contract. Under this contract, we received payment when industry-wide losses from certain natural perils exceeded 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. amount. The underwriting expense ratio for the reinsurance segment was 29.3% in the 2005 first quarter, compared to 30.4% in the 2004 first quarter. The acquisition expense ratio for the 2005 first quarter was 26.4%, compared to 28.0% for the 2004 first quarter. After adjusting for the additional profit commissions recorded on certain contracts discussed above, the increase was due to changes in net premiums earned, including the mix and type of business. 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 increased to 2.9% for the 2005 first quarter, compared to 2.4% for the 2004 first quarter, with the increase in the 2005 first quarter ratio due, in part, to the effect of lower premium volume in the 2005 first quarter. The insurance segment's underwriting income was $32.0 million for the 2005 first quarter, compared to $29.9 million for the 2004 first quarter. The insurance segment's combined ratio was 90.1% for the 2005 first quarter, compared to 90.8% for the 2004 first quarter. Gross premiums written for the insurance segment were $506.7 million for the 2005 first quarter, compared to $481.6 million for the 2004 first quarter. The growth in gross premiums written in the 2005 first quarter resulted from contributions in the property, executive assurance and professional liability lines from the insurance segment's U.K. operations, which became fully operational in the 2004 third quarter. Gross premiums written by the insurance segment's U.S. operations declined as growth in certain specialty lines was more than offset by reductions in program business and from the sale of our non-standard auto insurance operations in late 2004. The reduction in program business primarily resulted from the non-renewal of certain programs in 2004. Ceded premiums written were 36.4% of gross premiums written for the 2005 first quarter, compared to 30.9% for the 2004 first quarter. The growth in the 2005 ceded percentage was due, in part, to the cession The act of relinquishing one's right. A surrender, relinquishment, or assignment of territory by one state or government to another. The territory of a foreign government gained by the transfer of sovereignty. CESSION, contracts. of 30% of certain program business with effective dates subsequent to March 31, 2004. In addition, the insurance segment ceded a higher percentage of property and executive assurance business in the 2005 first quarter, compared to the 2004 first quarter. Net premiums written for the insurance segment were $322.1 million for the 2005 first quarter, compared to $332.7 million for the 2004 first quarter. The decrease in net premiums written in the 2005 first quarter was primarily due to the reduction in program business noted above, partially offset by contributions from the insurance segment's U.K. operations. In the 2004 first quarter, the non-standard auto insurance operations sold in late 2004 contributed $6.6 million to net premiums written. Net premiums earned for the insurance segment were $321.0 million for the 2005 first quarter, compared to $324.8 million for the 2004 first quarter, and reflect changes in net premiums written over the previous five quarters, including the mix and type of business written. Underwriting income for the insurance segment in the 2005 first quarter benefited from estimated net favorable development in prior year loss reserves of $0.6 million, or a 0.2 point reduction in the combined ratio, compared to $1.7 million in the 2004 first quarter, or a 0.5 point reduction in the combined ratio. The estimated net favorable development in 2005 primarily resulted from favorable development in a number of specialty lines including non-marine property business, partially offset by adverse development on marine business. The underwriting expense ratio for the insurance segment was 25.7% in the 2005 first quarter, compared to 26.2% in the 2004 first quarter. The acquisition expense ratio was 8.0% for the 2005 first quarter, compared to 12.9% for the 2004 first quarter. The acquisition expense ratio is calculated net of certain policy-related fee income and is influenced by, among other things, (1) the amount of ceding cede tr.v. ced·ed, ced·ing, cedes 1. To surrender possession of, especially by treaty. See Synonyms at relinquish. 2. commissions received from unaffiliated reinsurers and (2) the amount of business written on a surplus lines (non-admitted) basis. The acquisition expense ratio for the insurance segment in the 2005 first quarter decreased from the 2004 first quarter as the percentage of ceded business was higher in the 2005 period and the contribution of program business (which operates at a higher acquisition expense ratio) to net premiums earned was lower in the 2005 period. The insurance segment's other operating expense ratio for the 2005 first quarter was 17.7%, compared to 13.3% for the 2004 first quarter, reflecting additional expenses incurred in 2005 as the insurance segment has expanded its operating platform, including the addition of operations in the U.K. and Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of , as well as expenses incurred in connection with the Sarbanes-Oxley Act See SOX. of 2002. Calculation of Book Value Per Share The following book value per share calculations are based on shareholders' equity of $2.29 billion and $2.24 billion at March 31, 2005 and December 31, 2004, respectively. The shares and per share numbers set forth below exclude the effects of 6,039,538 and 6,172,199 stock options and 98,125 and 150,000 Class B warrants outstanding at March 31, 2005 and December 31, 2004, respectively.
(Unaudited)
March 31, 2005 December 31, 2004
---------------------- ----------------------
Cumulative Cumulative
Book Book
Outstanding Value Per Outstanding Value Per
Shares Share Shares Share
----------- ---------- ----------- ----------
Common shares (1) 35,098,258 $42.88 34,902,923 $41.76
Series A convertible
preference shares 37,327,502 37,348,150
----------- -----------
Total 72,425,760 $31.60 72,251,073 $31.03
=========== ===========
(1) Book value per common share Book Value Per Common Share A measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly. Formula: at March 31, 2005 and December 31, 2004 was determined by dividing (i) the difference between total shareholders' equity and the aggregate liquidation The collection of assets belonging to a debtor to be applied to the discharge of his or her outstanding debts. A type of proceeding pursuant to federal Bankruptcy preference of the Series A convertible preference shares of $783.9 million and $784.3 million, respectively, 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 into in connection with the November November: see month. 2001 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. (the "Subscription Agreement"), in November 2005, there will be a calculation of a final adjustment basket basket filled with treats, representative of feast on Easter Sunday. [Folklore: Misc.] See : Easter based on (1) liabilities owed to Folksamerica (if any) under the Asset Purchase Agreement, dated as of January 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. |
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