Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 RELEASE - ARCH CAPITAL GROUP LTD. | ex-991release123116.htm |
| 8-K - 8-K 2.13.17 - ARCH CAPITAL GROUP LTD. | a8-k21317.htm |
EXHIBIT 99.2
 | |
 | |
Waterloo House, Ground Floor | |
100 Pitts Bay Road | |
Pembroke HM 08 Bermuda | |
441-278-9250 | |
441-278-9255 fax | |
Contact: | |
Mark D. Lyons | |
Executive Vice President and Chief Financial Officer | |
Financial Supplement
Financial Information
as of December 31, 2016
The following financial supplement is provided to assist in your understanding of Arch Capital Group Ltd.
This report is for informational purposes only. It should be read in conjunction with documents filed by Arch Capital Group Ltd. with the U.S. Securities and Exchange Commission, including the most recent Annual Report on Form 10-K and the Quarterly Reports on Form 10-Q. Please refer to the Company’s website at www.archcapgroup.com for further information describing Arch Capital Group Ltd.
Arch Capital Group Ltd. and Subsidiaries
Table of Contents
Page | |||
I. | Financial Highlights | ||
II. | Consolidated Financial Statements | ||
a. | Consolidated Statements of Income | ||
b. | Consolidated Balance Sheets | ||
c. | Consolidated Statements of Changes in Shareholders’ Equity | ||
d. | Consolidated Statements of Cash Flows | ||
III. | Segment Information | ||
a. | Overview | ||
b. | Consolidated Results | ||
c. | Insurance Segment Results | ||
d. | Reinsurance Segment Results | ||
e. | Mortgage Segment Results | ||
f. | Selected Information on Losses and Loss Adjustment Expenses | ||
IV. | Investment Information | ||
a. | Investable Asset Summary and Investment Portfolio Metrics | ||
b. | Composition of Net Investment Income, Yield and Total Return | ||
c. | Composition of Fixed Maturities | ||
d. | Credit Quality Distribution and Maturity Profile | ||
e. | Analysis of Corporate Exposures | ||
f. | Structured Securities | ||
g. | Bank Loan Investments | ||
h. | Eurozone Investments | ||
V. | Other | ||
a. | Comments on Regulation G | ||
b. | Operating Income Reconciliation and Annualized Operating Return on Average Common Equity | ||
c. | Operating Income and Effective Tax Rate Calculations | ||
d. | Capital Structure and Share Repurchase Activity | ||
1 | ||
Arch Capital Group Ltd. and Subsidiaries
Basis of Presentation
Basis of Presentation
All financial information contained herein is unaudited, however, certain information relating to the consolidated balance sheet at December 31, 2015 is derived from or agrees to audited financial information. Unless otherwise noted, all data is in thousands, except for share and per share amounts and ratio information.
On December 31, 2016, the Company completed the acquisition of United Guaranty Corporation (“UGC”) pursuant to the Stock Purchase Agreement with American International Group, Inc. (“AIG”) entered into on August 15, 2016. As such, the Company’s balance sheet reflects the acquisition of UGC while its 2016 income statement does not include UGC other than the impact of capital raising activity and transaction costs. For a complete description of the UGC acquisition, please refer to the Company’s Form 8-K filed on August 15, 2016 and other documents on file with the SEC.
In March 2014, the Company invested $100.0 million to acquire approximately 11% of Watford Holdings Ltd.’s common equity and a warrant to purchase additional common equity. Watford Holdings Ltd. is the parent of Watford Re Ltd., a multi-line Bermuda reinsurance company (together with Watford Holdings Ltd., “Watford Re”). In accordance with GAAP, Watford is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford Re. As such, 100% of the results of Watford Re are included in the Company’s consolidated financial statements. The portion of Watford Re’s earnings owned by third parties is recorded in the consolidated statements of income as ‘amounts attributable to noncontrolling interests.’ In addition, the Company reflects Watford Re’s redeemable preference shares in the mezzanine section of the Company’s consolidated balance sheets as ‘redeemable noncontrolling interests’ because they have redemption features that are not solely within the control of Watford Re.
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This release or any other written or oral statements made by or on behalf of Arch Capital Group Ltd. and its subsidiaries 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 or incorporated by reference in this release are forward-looking statements.
Forward-looking statements can generally be identified by the use of forward-looking terminology 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 in these statements. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: adverse general economic and market conditions; increased competition; pricing and policy term trends; fluctuations in the actions of rating agencies and the Company’s ability to maintain and improve the Company’s ratings; investment performance; the loss of key personnel; the adequacy of the Company’s loss reserves, severity and/or frequency of losses, greater than expected loss ratios and adverse development on claim and/or claim expense liabilities; greater frequency or severity of unpredictable natural and man-made catastrophic events; the impact of acts of terrorism and acts of war; changes in regulations and/or tax laws in the United States or elsewhere; the Company’s ability to successfully integrate, establish and maintain operating procedures as well as integrate the businesses we have acquired or may acquire into the existing operations; changes in accounting principles or policies; material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; availability and cost to the Company of reinsurance to manage gross and net exposures; the failure of others to meet their obligations to the Company; and other factors identified in the Company’s filings with the U.S. Securities and Exchange Commission.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on the Company’s behalf are expressly qualified in their entirety by these cautionary statements. 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.
2 | ||
Arch Capital Group Ltd. and Subsidiaries
Financial Highlights
The following table presents financial highlights (1):
(U.S. Dollars in thousands, except share data) | Three Months Ended | Year Ended | ||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||
2016 | 2015 | Change | 2016 | 2015 | Change | |||||||||||||||||
Underwriting results: | ||||||||||||||||||||||
Gross premiums written | $ | 1,121,338 | $ | 1,031,341 | 8.7 | % | $ | 5,019,363 | $ | 4,656,723 | 7.8 | % | ||||||||||
Net premiums written | 764,925 | 738,798 | 3.5 | % | 3,517,603 | 3,351,572 | 5.0 | % | ||||||||||||||
Net premiums earned | 847,405 | 824,283 | 2.8 | % | 3,416,852 | 3,336,053 | 2.4 | % | ||||||||||||||
Underwriting income (2) | 112,512 | 116,700 | (3.6 | )% | 459,272 | 433,216 | 6.0 | % | ||||||||||||||
Loss ratio | 55.4 | % | 51.2 | % | 4.2 | 54.6 | % | 53.2 | % | 1.4 | ||||||||||||
Acquisition expense ratio | 15.8 | % | 16.7 | % | (0.9 | ) | 16.1 | % | 17.0 | % | (0.9 | ) | ||||||||||
Other operating expense ratio | 17.6 | % | 18.9 | % | (1.3 | ) | 17.5 | % | 17.8 | % | (0.3 | ) | ||||||||||
Combined ratio | 88.8 | % | 86.8 | % | 2.0 | 88.2 | % | 88.0 | % | 0.2 | ||||||||||||
Net investment income | $ | 70,105 | $ | 66,970 | 4.7 | % | $ | 277,193 | $ | 271,680 | 2.0 | % | ||||||||||
Per diluted share | $ | 0.56 | $ | 0.53 | 5.7 | % | $ | 2.22 | $ | 2.16 | 2.8 | % | ||||||||||
Net income available to Arch common shareholders | $ | 62,396 | $ | 53,094 | 17.5 | % | $ | 664,668 | $ | 515,800 | 28.9 | % | ||||||||||
Per diluted share | $ | 0.50 | $ | 0.42 | 19.0 | % | $ | 5.33 | $ | 4.09 | 30.3 | % | ||||||||||
After-tax operating income available to Arch common shareholders (2) | $ | 141,528 | $ | 143,599 | (1.4 | )% | $ | 577,444 | $ | 565,199 | 2.2 | % | ||||||||||
Per diluted share | $ | 1.13 | $ | 1.15 | (1.7 | )% | $ | 4.63 | $ | 4.48 | 3.3 | % | ||||||||||
Comprehensive income (loss) available to Arch | $ | (160,280 | ) | $ | 32,268 | (596.7 | )% | $ | 594,699 | $ | 392,379 | 51.6 | % | |||||||||
Cash flow from operations | $ | 278,827 | $ | 98,521 | 183.0 | % | $ | 1,109,913 | $ | 705,128 | 57.4 | % | ||||||||||
Diluted weighted average common shares and common share equivalents outstanding | 125,427,259 | 125,311,942 | 0.1 | % | 124,717,493 | 126,038,743 | (1.0 | )% | ||||||||||||||
Financial measures: | ||||||||||||||||||||||
Change in book value per share during period | 3.5 | % | 0.6 | % | 2.9 | 15.8 | % | 5.2 | % | 10.6 | ||||||||||||
Annualized return on average common equity | 3.9 | % | 3.6 | % | 0.3 | 10.9 | % | 8.9 | % | 2.0 | ||||||||||||
Annualized operating return on average common equity (2) | 8.7 | % | 9.9 | % | (1.2 | ) | 9.4 | % | 9.7 | % | (0.3 | ) | ||||||||||
Total return on investments (3) | ||||||||||||||||||||||
Including effects of foreign exchange | (1.89 | )% | (0.33 | )% | -156 bps | 2.07 | % | 0.41 | % | 166 bps | ||||||||||||
Excluding effects of foreign exchange | (1.66 | )% | (0.10 | )% | -156 bps | 2.35 | % | 1.62 | % | 73 bps | ||||||||||||
(1) | Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. |
(2) | See ‘Comments on Regulation G’ for a further discussion of consolidated underwriting income, after-tax operating income or loss available to Arch common shareholders and annualized operating return on average common equity. |
(3) | Total return on investments includes net investment income, equity in net income (loss) of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains and losses generated by the Company’s investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses. |
3 | ||
Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Income
(U.S. Dollars in thousands, except share data) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||
Net premiums written | $ | 872,315 | $ | 1,014,278 | $ | 1,023,563 | $ | 1,121,235 | $ | 834,984 | $ | 4,031,391 | $ | 3,817,531 | ||||||||||||||
Change in unearned premiums | 96,540 | (55,875 | ) | (17,578 | ) | (169,656 | ) | 108,536 | (146,569 | ) | (83,626 | ) | ||||||||||||||||
Net premiums earned | 968,855 | 958,403 | 1,005,985 | 951,579 | 943,520 | 3,884,822 | 3,733,905 | |||||||||||||||||||||
Net investment income | 91,051 | 93,618 | 88,338 | 93,735 | 95,900 | 366,742 | 348,090 | |||||||||||||||||||||
Net realized gains (losses) | (93,061 | ) | 125,105 | 68,218 | 37,324 | (143,767 | ) | 137,586 | (185,842 | ) | ||||||||||||||||||
Net impairment losses recognized in earnings | (13,593 | ) | (3,867 | ) | (5,343 | ) | (7,639 | ) | (7,336 | ) | (30,442 | ) | (20,116 | ) | ||||||||||||||
Other underwriting income | 18,922 | 7,980 | 25,224 | 5,047 | 8,621 | 57,173 | 35,497 | |||||||||||||||||||||
Equity in net income (loss) of investment funds accounted for using the equity method | 16,421 | 16,662 | 8,737 | 6,655 | 5,517 | 48,475 | 25,455 | |||||||||||||||||||||
Other income (loss) | (368 | ) | (400 | ) | (7 | ) | (25 | ) | (451 | ) | (800 | ) | (399 | ) | ||||||||||||||
Total revenues | 988,227 | 1,197,501 | 1,191,152 | 1,086,676 | 902,004 | 4,463,556 | 3,936,590 | |||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||
Losses and loss adjustment expenses | (553,875 | ) | (524,183 | ) | (584,592 | ) | (522,949 | ) | (506,020 | ) | (2,185,599 | ) | (2,050,903 | ) | ||||||||||||||
Acquisition expenses | (168,426 | ) | (163,861 | ) | (175,281 | ) | (170,465 | ) | (171,409 | ) | (678,033 | ) | (681,476 | ) | ||||||||||||||
Other operating expenses | (165,609 | ) | (155,557 | ) | (159,590 | ) | (152,269 | ) | (161,569 | ) | (633,025 | ) | (607,516 | ) | ||||||||||||||
Corporate expenses | (36,678 | ) | (18,485 | ) | (17,200 | ) | (9,383 | ) | (12,243 | ) | (81,746 | ) | (49,745 | ) | ||||||||||||||
Interest expense | (18,539 | ) | (15,943 | ) | (15,663 | ) | (16,107 | ) | (15,827 | ) | (66,252 | ) | (45,874 | ) | ||||||||||||||
Net foreign exchange gains (losses) | 38,176 | (2,621 | ) | 24,662 | (23,566 | ) | 4,520 | 36,651 | 66,118 | |||||||||||||||||||
Total expenses | (904,951 | ) | (880,650 | ) | (927,664 | ) | (894,739 | ) | (862,548 | ) | (3,608,004 | ) | (3,369,396 | ) | ||||||||||||||
Income before income taxes | 83,276 | 316,851 | 263,488 | 191,937 | 39,456 | 855,552 | 567,194 | |||||||||||||||||||||
Income tax (expense) benefit | 12,298 | (13,231 | ) | (14,131 | ) | (16,310 | ) | (11,450 | ) | (31,374 | ) | (40,612 | ) | |||||||||||||||
Net income | 95,574 | 303,620 | 249,357 | 175,627 | 28,006 | 824,178 | 526,582 | |||||||||||||||||||||
Amounts attributable to noncontrolling interests | (21,561 | ) | (50,748 | ) | (38,302 | ) | (20,829 | ) | 30,573 | (131,440 | ) | 11,156 | ||||||||||||||||
Net income attributable to Arch | 74,013 | 252,872 | 211,055 | 154,798 | 58,579 | 692,738 | 537,738 | |||||||||||||||||||||
Preferred dividends | (11,617 | ) | (5,484 | ) | (5,485 | ) | (5,484 | ) | (5,485 | ) | (28,070 | ) | (21,938 | ) | ||||||||||||||
Net income available to Arch common shareholders | $ | 62,396 | $ | 247,388 | $ | 205,570 | $ | 149,314 | $ | 53,094 | $ | 664,668 | $ | 515,800 | ||||||||||||||
Comprehensive income (loss) available to Arch | $ | (160,280 | ) | $ | 208,790 | $ | 273,260 | $ | 272,929 | $ | 32,268 | $ | 594,699 | $ | 392,379 | |||||||||||||
Net income per common share and common share equivalent | ||||||||||||||||||||||||||||
Basic | $ | 0.51 | $ | 2.05 | $ | 1.70 | $ | 1.24 | $ | 0.44 | $ | 5.50 | $ | 4.24 | ||||||||||||||
Diluted | $ | 0.50 | $ | 1.98 | $ | 1.65 | $ | 1.20 | $ | 0.42 | $ | 5.33 | $ | 4.09 | ||||||||||||||
Weighted average common shares and common share equivalents outstanding | ||||||||||||||||||||||||||||
Basic | 121,196,248 | 120,938,916 | 120,599,060 | 120,428,179 | 120,700,524 | 120,792,114 | 121,786,127 | |||||||||||||||||||||
Diluted | 125,427,259 | 124,931,653 | 124,365,596 | 124,496,496 | 125,311,942 | 124,717,493 | 126,038,743 | |||||||||||||||||||||
4 | ||
Arch Capital Group Ltd. and Subsidiaries
Consolidated Balance Sheets
(U.S. Dollars in thousands, except share data) | December 31, | September 30, | June 30, | March 31, | December 31, | |||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | ||||||||||||||||
Assets | ||||||||||||||||||||
Investments: | ||||||||||||||||||||
Fixed maturities available for sale, at fair value | $ | 13,426,577 | $ | 11,026,929 | $ | 11,050,464 | $ | 10,645,257 | $ | 10,459,353 | ||||||||||
Short-term investments available for sale, at fair value | 612,005 | 1,184,408 | 853,531 | 623,844 | 587,904 | |||||||||||||||
Collateral received under securities lending, at fair value | 762,565 | 466,055 | 338,326 | 594,929 | 389,336 | |||||||||||||||
Equity securities available for sale, at fair value | 518,041 | 521,587 | 490,815 | 506,915 | 618,405 | |||||||||||||||
Other investments available for sale, at fair value | 167,970 | 168,243 | 182,957 | 195,079 | 300,476 | |||||||||||||||
Investments accounted for using the fair value option | 3,421,220 | 3,389,573 | 3,066,029 | 3,139,332 | 2,894,494 | |||||||||||||||
Investments accounted for using the equity method | 811,273 | 797,542 | 685,766 | 628,832 | 592,973 | |||||||||||||||
Total investments | 19,719,651 | 17,554,337 | 16,667,888 | 16,334,188 | 15,842,941 | |||||||||||||||
Cash | 842,942 | 578,816 | 516,591 | 557,961 | 553,326 | |||||||||||||||
Accrued investment income | 124,483 | 81,907 | 85,317 | 81,628 | 87,206 | |||||||||||||||
Securities pledged under securities lending, at fair value | 744,980 | 453,757 | 330,773 | 580,766 | 384,081 | |||||||||||||||
Premiums receivable | 1,072,435 | 1,182,708 | 1,260,607 | 1,209,548 | 983,443 | |||||||||||||||
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses | 2,114,138 | 2,076,248 | 2,034,970 | 1,962,863 | 1,867,373 | |||||||||||||||
Contractholder receivables | 1,717,436 | 1,649,441 | 1,600,426 | 1,529,105 | 1,486,296 | |||||||||||||||
Ceded unearned premiums | 859,567 | 541,238 | 540,954 | 500,412 | 427,609 | |||||||||||||||
Deferred acquisition costs | 447,560 | 418,818 | 412,258 | 413,640 | 382,829 | |||||||||||||||
Receivable for securities sold | 58,284 | 285,112 | 142,315 | 329,262 | 45,505 | |||||||||||||||
Goodwill and intangible assets | 781,553 | 90,941 | 88,327 | 92,670 | 97,531 | |||||||||||||||
Other assets | 889,080 | 691,569 | 693,152 | 910,987 | 980,791 | |||||||||||||||
Total assets | $ | 29,372,109 | $ | 25,604,892 | $ | 24,373,578 | $ | 24,503,030 | $ | 23,138,931 | ||||||||||
Liabilities | ||||||||||||||||||||
Reserve for losses and loss adjustment expenses | $ | 10,200,960 | $ | 9,610,189 | $ | 9,471,647 | $ | 9,378,987 | $ | 9,125,250 | ||||||||||
Unearned premiums | 3,406,870 | 2,671,121 | 2,618,359 | 2,579,148 | 2,333,932 | |||||||||||||||
Reinsurance balances payable | 300,407 | 271,688 | 295,987 | 276,426 | 224,120 | |||||||||||||||
Contractholder payables | 1,717,436 | 1,649,441 | 1,600,426 | 1,529,105 | 1,486,296 | |||||||||||||||
Collateral held for insured obligations | 301,406 | 277,463 | 261,228 | 249,440 | 248,982 | |||||||||||||||
Deposit accounting liabilities | 22,150 | 22,281 | 22,325 | 266,140 | 260,364 | |||||||||||||||
Senior notes | 1,732,258 | 791,437 | 791,392 | 791,349 | 791,306 | |||||||||||||||
Revolving credit agreement borrowings | 756,650 | 398,100 | 397,830 | 457,431 | 530,434 | |||||||||||||||
Securities lending payable | 762,554 | 466,047 | 338,318 | 594,922 | 393,844 | |||||||||||||||
Payable for securities purchased | 76,183 | 474,041 | 382,834 | 494,813 | 64,996 | |||||||||||||||
Other liabilities | 784,110 | 618,834 | 533,694 | 549,832 | 568,852 | |||||||||||||||
Total liabilities | 20,060,984 | 17,250,642 | 16,714,040 | 17,167,593 | 16,028,376 | |||||||||||||||
Redeemable noncontrolling interests | 205,553 | 205,459 | 205,366 | 205,274 | 205,182 | |||||||||||||||
Shareholders’ equity | ||||||||||||||||||||
Non-cumulative preferred shares | 772,555 | 775,000 | 325,000 | 325,000 | 325,000 | |||||||||||||||
Convertible non-voting common equivalent preferred shares | 1,101,304 | — | — | — | — | |||||||||||||||
Common shares | 582 | 582 | 581 | 579 | 577 | |||||||||||||||
Additional paid-in capital | 531,687 | 516,204 | 517,942 | 485,943 | 467,339 | |||||||||||||||
Retained earnings | 7,996,701 | 7,934,304 | 7,686,916 | 7,481,346 | 7,332,032 | |||||||||||||||
Accumulated other comprehensive income (loss), net of deferred income tax | (114,541 | ) | 119,752 | 163,834 | 101,629 | (16,502 | ) | |||||||||||||
Common shares held in treasury, at cost | (2,034,570 | ) | (2,031,859 | ) | (2,028,690 | ) | (2,019,249 | ) | (1,941,904 | ) | ||||||||||
Total shareholders’ equity available to Arch | 8,253,718 | 7,313,983 | 6,665,583 | 6,375,248 | 6,166,542 | |||||||||||||||
Non-redeemable noncontrolling interests | 851,854 | 834,808 | 788,589 | 754,915 | 738,831 | |||||||||||||||
Total shareholders’ equity | 9,105,572 | 8,148,791 | 7,454,172 | 7,130,163 | 6,905,373 | |||||||||||||||
Total liabilities, noncontrolling interests and shareholders’ equity | $ | 29,372,109 | $ | 25,604,892 | $ | 24,373,578 | $ | 24,503,030 | $ | 23,138,931 | ||||||||||
Common shares and common share equivalents outstanding, net of treasury shares (1) | 135,550,337 | 122,675,197 | 122,572,260 | 122,093,596 | 122,627,783 | |||||||||||||||
Book value per share (2) | $ | 55.19 | $ | 53.30 | $ | 51.73 | $ | 49.55 | $ | 47.64 | ||||||||||
(1) Includes the effect of the convertible non-voting common equivalent preferred shares issued as part of the UGC acquisition. (2) Excludes the effects of stock options and restricted stock units outstanding.
5 | ||
Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(U.S. Dollars in thousands) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Non-Cumulative Preferred Shares | ||||||||||||||||||||||||||||
Balance at beginning of period | $ | 775,000 | $ | 325,000 | $ | 325,000 | $ | 325,000 | $ | 325,000 | $ | 325,000 | $ | 325,000 | ||||||||||||||
Series E preferred shares issued | — | 450,000 | — | — | — | 450,000 | — | |||||||||||||||||||||
Series C preferred shares repurchased | (2,445 | ) | — | — | — | — | (2,445 | ) | — | |||||||||||||||||||
Balance at end of period | $ | 772,555 | $ | 775,000 | $ | 325,000 | $ | 325,000 | $ | 325,000 | $ | 772,555 | $ | 325,000 | ||||||||||||||
Convertible Non-Voting Common Equivalent Preferred Shares | ||||||||||||||||||||||||||||
Balance at beginning of period | — | — | — | — | — | — | — | |||||||||||||||||||||
Series D preferred shares issued | 1,101,304 | — | — | — | — | 1,101,304 | — | |||||||||||||||||||||
Balance at end of period | 1,101,304 | — | — | — | — | 1,101,304 | — | |||||||||||||||||||||
Common Shares | ||||||||||||||||||||||||||||
Balance at beginning of period | 582 | 581 | 579 | 577 | 576 | 577 | 572 | |||||||||||||||||||||
Common shares issued, net | — | 1 | 2 | 2 | 1 | 5 | 5 | |||||||||||||||||||||
Balance at end of period | 582 | 582 | 581 | 579 | 577 | 582 | 577 | |||||||||||||||||||||
Additional Paid-in Capital | ||||||||||||||||||||||||||||
Balance at beginning of period | 516,204 | 517,942 | 485,943 | 467,339 | 450,948 | 467,339 | 383,073 | |||||||||||||||||||||
Issue costs on Series E preferred shares | — | (15,101 | ) | — | — | — | (15,101 | ) | — | |||||||||||||||||||
All other | 15,483 | 13,363 | 31,999 | 18,604 | 16,391 | 79,449 | 84,266 | |||||||||||||||||||||
Balance at end of period | 531,687 | 516,204 | 517,942 | 485,943 | 467,339 | 531,687 | 467,339 | |||||||||||||||||||||
Retained Earnings | ||||||||||||||||||||||||||||
Balance at beginning of period (1) | 7,934,304 | 7,686,916 | 7,481,346 | 7,332,032 | 7,278,938 | 7,332,032 | 6,816,232 | |||||||||||||||||||||
Net income | 95,574 | 303,620 | 249,357 | 175,627 | 28,006 | 824,178 | 526,582 | |||||||||||||||||||||
Amounts attributable to noncontrolling interests | (21,561 | ) | (50,748 | ) | (38,302 | ) | (20,829 | ) | 30,573 | (131,440 | ) | 11,156 | ||||||||||||||||
Preferred share dividends | (11,617 | ) | (5,484 | ) | (5,485 | ) | (5,484 | ) | (5,485 | ) | (28,070 | ) | (21,938 | ) | ||||||||||||||
Balance at end of period | 7,996,701 | 7,934,304 | 7,686,916 | 7,481,346 | 7,332,032 | 7,996,701 | 7,332,032 | |||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||
Balance at beginning of period | 119,752 | 163,834 | 101,629 | (16,502 | ) | 9,809 | (16,502 | ) | 128,856 | |||||||||||||||||||
Change in unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax | (219,989 | ) | (38,711 | ) | 80,314 | 100,660 | (15,629 | ) | (77,726 | ) | (111,513 | ) | ||||||||||||||||
Change in foreign currency translation adjustments | (14,304 | ) | (5,371 | ) | (18,109 | ) | 17,471 | (10,682 | ) | (20,313 | ) | (33,845 | ) | |||||||||||||||
Balance at end of period | (114,541 | ) | 119,752 | 163,834 | 101,629 | (16,502 | ) | (114,541 | ) | (16,502 | ) | |||||||||||||||||
Common Shares Held in Treasury, at Cost | ||||||||||||||||||||||||||||
Balance at beginning of period | (2,031,859 | ) | (2,028,690 | ) | (2,019,249 | ) | (1,941,904 | ) | (1,940,795 | ) | (1,941,904 | ) | (1,562,019 | ) | ||||||||||||||
Shares repurchased for treasury | (2,711 | ) | (3,169 | ) | (9,441 | ) | (77,345 | ) | (1,109 | ) | (92,666 | ) | (379,885 | ) | ||||||||||||||
Balance at end of period | (2,034,570 | ) | (2,031,859 | ) | (2,028,690 | ) | (2,019,249 | ) | (1,941,904 | ) | (2,034,570 | ) | (1,941,904 | ) | ||||||||||||||
Total Shareholders’ Equity Available to Arch | 8,253,718 | 7,313,983 | 6,665,583 | 6,375,248 | 6,166,542 | 8,253,718 | 6,166,542 | |||||||||||||||||||||
Non-redeemable noncontrolling interests | 851,854 | 834,808 | 788,589 | 754,915 | 738,831 | 851,854 | 738,831 | |||||||||||||||||||||
Total shareholders’ equity | $ | 9,105,572 | $ | 8,148,791 | $ | 7,454,172 | $ | 7,130,163 | $ | 6,905,373 | $ | 9,105,572 | $ | 6,905,373 | ||||||||||||||
(1) Balance at beginning of period for the December 31, 2015 columns reflect a $38.3 million cumulative effect of an accounting change recorded in the 2016 fourth quarter as of January 1, 2014.
6 | ||
Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
(U.S. Dollars in thousands) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Operating Activities | ||||||||||||||||||||||||||||
Net income | $ | 95,574 | $ | 303,620 | $ | 249,357 | $ | 175,627 | $ | 28,006 | $ | 824,178 | $ | 526,582 | ||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||||||||
Net realized (gains) losses | 83,605 | (135,775 | ) | (83,303 | ) | (43,034 | ) | 127,981 | (178,507 | ) | 149,961 | |||||||||||||||||
Net impairment losses included in earnings | 13,593 | 3,867 | 5,343 | 7,639 | 7,336 | 30,442 | 20,116 | |||||||||||||||||||||
Equity in net income or loss of investment funds accounted for using the equity method and other income or loss | (2,513 | ) | (3,004 | ) | 7,918 | 3,243 | (126 | ) | 5,644 | 3,857 | ||||||||||||||||||
Share-based compensation | 10,270 | 10,542 | 21,504 | 14,265 | 9,521 | 56,581 | 56,096 | |||||||||||||||||||||
Changes in: | ||||||||||||||||||||||||||||
Reserve for losses and loss adjustment expenses, net of unpaid losses and LAE recoverable | 94,967 | 91,078 | 74,944 | 111,255 | 42,081 | 372,244 | 181,658 | |||||||||||||||||||||
Unearned premiums, net of ceded unearned premiums | (96,540 | ) | 55,875 | 17,578 | 169,656 | (108,536 | ) | 146,569 | 83,626 | |||||||||||||||||||
Premiums receivable | 127,296 | 79,905 | (61,466 | ) | (217,348 | ) | 81,958 | (71,613 | ) | (26,783 | ) | |||||||||||||||||
Deferred acquisition costs | 2,309 | (7,456 | ) | (3,400 | ) | (30,050 | ) | 12,714 | (38,597 | ) | (29,008 | ) | ||||||||||||||||
Reinsurance balances payable | (17,656 | ) | (24,514 | ) | 21,783 | 51,929 | (10,127 | ) | 31,542 | (5,885 | ) | |||||||||||||||||
Other liabilities | 82,473 | 83,282 | 23,617 | 32,697 | 38,585 | 222,069 | 45,223 | |||||||||||||||||||||
Other items, net | (33,873 | ) | 38,495 | (55,194 | ) | 46,664 | (39,066 | ) | (3,908 | ) | (7,537 | ) | ||||||||||||||||
Net cash provided by operating activities | 359,505 | 495,915 | 218,681 | 322,543 | 190,327 | 1,396,644 | 997,906 | |||||||||||||||||||||
Investing Activities | ||||||||||||||||||||||||||||
Purchases of fixed maturity investments | (7,692,255 | ) | (10,298,824 | ) | (9,408,194 | ) | (8,133,537 | ) | (7,069,769 | ) | (35,532,810 | ) | (29,451,873 | ) | ||||||||||||||
Purchases of equity securities | (287,935 | ) | (165,089 | ) | (84,415 | ) | (128,263 | ) | (29,887 | ) | (665,702 | ) | (515,413 | ) | ||||||||||||||
Purchases of other investments | (380,632 | ) | (358,161 | ) | (345,415 | ) | (305,198 | ) | (429,275 | ) | (1,389,406 | ) | (1,749,525 | ) | ||||||||||||||
Proceeds from sales of fixed maturity investments | 7,828,042 | 9,753,375 | 9,151,013 | 7,827,536 | 6,682,493 | 34,559,966 | 28,094,047 | |||||||||||||||||||||
Proceeds from sales of equity securities | 286,824 | 127,285 | 121,607 | 216,012 | 55,003 | 751,728 | 564,011 | |||||||||||||||||||||
Proceeds from sales, redemptions and maturities of other investments | 269,998 | 242,795 | 425,410 | 211,125 | 392,515 | 1,149,328 | 1,250,883 | |||||||||||||||||||||
Proceeds from redemptions and maturities of fixed maturities | 214,184 | 169,843 | 207,086 | 163,894 | 118,132 | 755,007 | 748,529 | |||||||||||||||||||||
Net settlements of derivative instruments | (40,464 | ) | (21,778 | ) | 24,083 | 21,091 | (86,170 | ) | (17,068 | ) | (5,056 | ) | ||||||||||||||||
Proceeds from investment in joint venture | — | — | — | — | — | — | 40,000 | |||||||||||||||||||||
Net (purchases) sales of short-term investments | 480,752 | (299,702 | ) | (238,866 | ) | (65,594 | ) | (12,646 | ) | (123,410 | ) | 169,095 | ||||||||||||||||
Change in cash collateral related to securities lending | (127,313 | ) | (9,220 | ) | 24,403 | (43,118 | ) | (35,347 | ) | (155,248 | ) | (6,662 | ) | |||||||||||||||
Acquisitions, net of cash | (1,971,809 | ) | (19,451 | ) | (1,460 | ) | — | — | (1,992,720 | ) | 818 | |||||||||||||||||
Purchases of fixed assets | (3,738 | ) | (3,281 | ) | (4,332 | ) | (3,952 | ) | (4,835 | ) | (15,303 | ) | (15,736 | ) | ||||||||||||||
Change in other assets | (42,089 | ) | (17,232 | ) | 6,679 | 6,737 | 6,661 | (45,905 | ) | (36,993 | ) | |||||||||||||||||
Net cash provided by (used for) investing activities | (1,466,435 | ) | (899,440 | ) | (122,401 | ) | (233,267 | ) | (413,125 | ) | (2,721,543 | ) | (913,875 | ) | ||||||||||||||
Financing Activities | ||||||||||||||||||||||||||||
Proceeds from issuance of preferred shares, net | — | 434,899 | — | — | — | 434,899 | — | |||||||||||||||||||||
Purchases of common shares under share repurchase program | — | — | — | (75,256 | ) | — | (75,256 | ) | (365,383 | ) | ||||||||||||||||||
Proceeds from common shares issued, net | 1,367 | (2,298 | ) | (1,689 | ) | 202 | 4,164 | (2,418 | ) | 4,861 | ||||||||||||||||||
Proceeds from borrowings | 1,340,741 | — | 46,000 | — | 192,285 | 1,386,741 | 431,362 | |||||||||||||||||||||
Repayments of borrowings | (40,000 | ) | — | (105,000 | ) | (74,171 | ) | — | (219,171 | ) | — | |||||||||||||||||
Change in cash collateral related to securities lending | 127,313 | 9,220 | (24,403 | ) | 43,118 | 35,347 | 155,248 | 6,662 | ||||||||||||||||||||
Dividends paid to redeemable noncontrolling interests | (4,498 | ) | (4,497 | ) | (4,497 | ) | (4,497 | ) | (4,497 | ) | (17,989 | ) | (18,307 | ) | ||||||||||||||
Other | (31,428 | ) | 35,336 | (31,338 | ) | 29,115 | (92,376 | ) | 1,685 | (41,913 | ) | |||||||||||||||||
Preferred dividends paid | (11,617 | ) | (5,484 | ) | (5,485 | ) | (5,484 | ) | (5,485 | ) | (28,070 | ) | (21,938 | ) | ||||||||||||||
Net cash provided by (used for) financing activities | 1,381,878 | 467,176 | (126,412 | ) | (86,973 | ) | 129,438 | 1,635,669 | (4,656 | ) | ||||||||||||||||||
Effects of exchange rate changes on foreign currency cash | (10,822 | ) | (1,426 | ) | (11,238 | ) | 2,332 | (3,093 | ) | (21,154 | ) | (11,751 | ) | |||||||||||||||
Increase (decrease) in cash | 264,126 | 62,225 | (41,370 | ) | 4,635 | (96,453 | ) | 289,616 | 67,624 | |||||||||||||||||||
Cash beginning of period | 578,816 | 516,591 | 557,961 | 553,326 | 649,779 | 553,326 | 485,702 | |||||||||||||||||||||
Cash end of period | $ | 842,942 | $ | 578,816 | $ | 516,591 | $ | 557,961 | $ | 553,326 | $ | 842,942 | $ | 553,326 | ||||||||||||||
Income taxes paid, net | $ | 9,879 | $ | 14,123 | $ | 24,115 | $ | 2,504 | $ | 4,813 | $ | 50,621 | $ | 40,273 | ||||||||||||||
Interest paid | $ | 28,054 | $ | 3,710 | $ | 27,711 | $ | 3,813 | $ | 27,533 | $ | 63,288 | $ | 52,728 | ||||||||||||||
Non-cash consideration paid in convertible non-voting common equivalent preferred shares | $ | 1,101,304 | $ | — | $ | — | $ | — | $ | — | $ | 1,101,304 | $ | — | ||||||||||||||
Net cash provided by operating activities, excluding the ‘other’ segment | $ | 278,827 | $ | 420,873 | $ | 152,934 | $ | 257,279 | $ | 98,521 | $ | 1,109,913 | $ | 705,128 | ||||||||||||||
7 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Overview
The Company classifies its businesses into three underwriting segments — insurance, reinsurance and mortgage — and two other operating segments — ‘other’ and corporate (non-underwriting). The Company’s Insurance, Reinsurance and Mortgage segments each have 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 Chairman and Chief Executive Officer of ACGL, the President and Chief Operating 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 decisions on a line of business basis. Management measures segment performance for its three core underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment and, accordingly, investment income and other non-underwriting related items are not allocated to each underwriting segment.
The Company determined its reportable operating segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.
Insurance Segment
The insurance segment consists of the Company’s insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:
• | Construction and national accounts: primary and excess casualty coverages to middle and large accounts in the construction industry and a wide range of products for middle and large national accounts, specializing in loss sensitive primary casualty insurance programs (including large deductible, self-insured retention and retrospectively rated programs). |
• | Excess and surplus casualty: primary and excess casualty insurance coverages, including middle market energy business, and contract binding, which primarily provides casualty coverage through a network of appointed agents to small and medium risks. |
• | Lenders products: collateral protection, debt cancellation and service contract reimbursement products to banks, credit unions, automotive dealerships and original equipment manufacturers and other specialty programs that pertain to automotive lending and leasing. |
• | Professional lines: directors’ and officers’ liability, errors and omissions liability, employment practices liability, fiduciary liability, crime, professional indemnity and other financial related coverages for corporate, private equity, venture capital, real estate investment trust, limited partnership, financial institution and not-for-profit clients of all sizes and medical professional and general liability insurance coverages for the healthcare industry. The business is predominately written on a claims-made basis. |
• | Programs: primarily package policies, underwriting workers’ compensation and umbrella liability business in support of desirable package programs, targeting program managers with unique expertise and niche products offering general liability, commercial automobile, inland marine and property business with minimal catastrophe exposure. |
• | Property, energy, marine and aviation: primary and excess general property insurance coverages, including catastrophe-exposed property coverage, for commercial clients. Coverages for marine include hull, war, specie and liability. Aviation and stand alone terrorism are also offered. |
• | Travel, accident and health: specialty travel and accident and related insurance products for individual, group travelers, travel agents and suppliers, as well as accident and health, which provides accident, disability and medical plan insurance coverages for employer groups, medical plan members, students and other participant groups. |
• | Other: includes alternative market risks (including captive insurance programs), excess workers’ compensation and employer’s liability insurance coverages for qualified self-insured groups, associations and trusts, and contract and commercial surety coverages, including contract bonds (payment and performance bonds) primarily for medium and large contractors and commercial surety bonds for Fortune 1,000 companies and smaller transaction business programs. |
8 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Overview
Reinsurance Segment
The reinsurance segment consists of the Company’s reinsurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:
• | Casualty: provides coverage to ceding company clients on third party liability and workers’ compensation exposures from ceding company clients, primarily on a treaty basis. Exposures include, among others, executive assurance, professional liability, workers’ compensation, excess and umbrella liability, excess motor and healthcare business. |
• | Marine and aviation: provides coverage for energy, hull, cargo, specie, liability and transit, and aviation business, including airline and general aviation risks. Business written may also include space business, which includes coverages for satellite assembly, launch and operation for commercial space programs. |
• | Other specialty: provides coverage to ceding company clients for proportional motor and other lines including surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and political risk. |
• | Property catastrophe: provides protection for most catastrophic losses that are covered in the underlying policies written by reinsureds, including hurricane, earthquake, flood, tornado, hail and fire, and coverage for other perils on a case-by-case basis. Property catastrophe reinsurance provides coverage on an excess of loss basis when aggregate losses and loss adjustment expense from a single occurrence of a covered peril exceed the retention specified in the contract. |
• | Property excluding property catastrophe: provides coverage for both personal lines and commercial property exposures and principally covers buildings, structures, equipment and contents. The primary perils in this business include fire, explosion, collapse, riot, vandalism, wind, tornado, flood and earthquake. Business is assumed on both a proportional and excess of loss basis. In addition, facultative business is written which focuses on commercial property risks on an excess of loss basis. |
• | Other. includes life reinsurance business on both a proportional and non-proportional basis, casualty clash business and, in limited instances, non-traditional business which is intended to provide insurers with risk management solutions that complement traditional reinsurance. |
Mortgage Segment
The mortgage segment includes the Company’s U.S. and international mortgage insurance and reinsurance operations as well as government sponsored enterprise (“GSE”) credit-risk sharing transactions. Arch Mortgage Insurance Company (“Arch MI U.S.”) is approved as an eligible mortgage insurer by Fannie Mae and Freddie Mac. On December 31, 2016, the Company completed the acquisition of United Guaranty Corporation (“UGC”). The acquisition of UGC expands the scale of Arch’s existing mortgage insurance businesses by combining UGC’s position as the market leader in the U.S. private mortgage insurance industry with Arch’s financial strength and history of innovation, further diversifying the Company’s business profile and customer base.
Corporate (Non-Underwriting) Segment
The corporate (non-underwriting) segment results include net investment income, other income (loss), corporate expenses, interest expense, net realized gains or losses, net impairment losses included in earnings, equity in net income (loss) of investment funds accounted for using the equity method, net foreign exchange gains or losses, UGC transaction costs and other, income taxes and items related to the Company’s non-cumulative preferred shares. Such amounts exclude the results of the ‘other’ segment.
Other Segment
The ‘other’ segment includes the results of Watford Holdings Ltd. and its subsidiary Watford Re Ltd., a multi-line Bermuda reinsurance company, which was launched in March 2014. The Company acts as Watford Re’s reinsurance manager, and Highbridge Principal Strategies, LLC, a subsidiary of JPMorgan Chase & Co., manages Watford Re’s investment assets, each under a long term services agreement. Pursuant to generally accepted accounting principles, Watford Re is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford Re. As such, the Company consolidates the results of Watford Re in its consolidated financial statements, although it only owns approximately 11% of Watford Re’s common equity. Watford Re has its own management and board of directors that is responsible for its overall profitability. The portion of Watford’s earnings attributable to third party investors is recorded in the consolidated statements of income as ‘amounts attributable to noncontrolling interests.’ Management measures segment performance for the ‘other’ segment based on net income or loss.
9 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information
(U.S. Dollars in thousands) | Three Months Ended | |||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||
Insurance | Reinsurance | Mortgage | Sub-total (Core) | Other | Total | |||||||||||||||||||
Gross premiums written (1) | $ | 707,519 | $ | 276,593 | $ | 138,285 | $ | 1,121,338 | $ | 113,467 | $ | 1,155,467 | ||||||||||||
Premiums ceded | (241,658 | ) | (70,473 | ) | (45,341 | ) | (356,413 | ) | (6,077 | ) | (283,152 | ) | ||||||||||||
Net premiums written | 465,861 | 206,120 | 92,944 | 764,925 | 107,390 | 872,315 | ||||||||||||||||||
Change in unearned premiums | 48,226 | 45,721 | (11,467 | ) | 82,480 | 14,060 | 96,540 | |||||||||||||||||
Net premiums earned | 514,087 | 251,841 | 81,477 | 847,405 | 121,450 | 968,855 | ||||||||||||||||||
Other underwriting income | — | 13,744 | 4,354 | 18,098 | 824 | 18,922 | ||||||||||||||||||
Losses and loss adjustment expenses | (348,226 | ) | (112,149 | ) | (8,841 | ) | (469,216 | ) | (84,659 | ) | (553,875 | ) | ||||||||||||
Acquisition expenses | (75,247 | ) | (51,575 | ) | (7,400 | ) | (134,222 | ) | (34,204 | ) | (168,426 | ) | ||||||||||||
Other operating expenses (2) | (88,033 | ) | (34,249 | ) | (27,271 | ) | (149,553 | ) | (6,677 | ) | (156,230 | ) | ||||||||||||
Underwriting income (loss) | $ | 2,581 | $ | 67,612 | $ | 42,319 | 112,512 | (3,266 | ) | 109,246 | ||||||||||||||
Net investment income | 70,105 | 20,946 | 91,051 | |||||||||||||||||||||
Net realized gains (losses) | (99,149 | ) | 6,088 | (93,061 | ) | |||||||||||||||||||
Net impairment losses recognized in earnings | (13,593 | ) | — | (13,593 | ) | |||||||||||||||||||
Equity in net income (loss) of investment funds accounted for using the equity method | 16,421 | — | 16,421 | |||||||||||||||||||||
Other income (loss) | (368 | ) | — | (368 | ) | |||||||||||||||||||
Corporate expenses (2) | (11,470 | ) | — | (11,470 | ) | |||||||||||||||||||
UGC transaction costs and other (2) | (34,587 | ) | — | (34,587 | ) | |||||||||||||||||||
Interest expense | (15,481 | ) | (3,058 | ) | (18,539 | ) | ||||||||||||||||||
Net foreign exchange gains (losses) | 35,221 | 2,955 | 38,176 | |||||||||||||||||||||
Income before income taxes | 59,611 | 23,665 | 83,276 | |||||||||||||||||||||
Income tax benefit | 12,298 | — | 12,298 | |||||||||||||||||||||
Net income | 71,909 | 23,665 | 95,574 | |||||||||||||||||||||
Dividends attributable to redeemable noncontrolling interests | — | (4,588 | ) | (4,588 | ) | |||||||||||||||||||
Amounts attributable to nonredeemable noncontrolling interests | — | (16,973 | ) | (16,973 | ) | |||||||||||||||||||
Net income available to Arch | 71,909 | 2,104 | 74,013 | |||||||||||||||||||||
Preferred dividends | (11,617 | ) | — | (11,617 | ) | |||||||||||||||||||
Net income available to Arch common shareholders | $ | 60,292 | $ | 2,104 | $ | 62,396 | ||||||||||||||||||
Underwriting Ratios | ||||||||||||||||||||||||
Loss ratio | 67.7 | % | 44.5 | % | 10.9 | % | 55.4 | % | 69.7 | % | 57.2 | % | ||||||||||||
Acquisition expense ratio | 14.6 | % | 20.5 | % | 9.1 | % | 15.8 | % | 28.2 | % | 17.4 | % | ||||||||||||
Other operating expense ratio | 17.1 | % | 13.6 | % | 33.5 | % | 17.6 | % | 5.5 | % | 16.1 | % | ||||||||||||
Combined ratio | 99.4 | % | 78.6 | % | 53.5 | % | 88.8 | % | 103.4 | % | 90.7 | % | ||||||||||||
Net premiums written to gross premiums written | 65.8 | % | 74.5 | % | 67.2 | % | 68.2 | % | 94.6 | % | 75.5 | % | ||||||||||||
Total investable assets | $ | 18,636,189 | $ | 1,857,763 | $ | 20,493,952 | ||||||||||||||||||
Total assets | 26,989,359 | 2,382,750 | 29,372,109 | |||||||||||||||||||||
Total liabilities | 18,855,858 | 1,205,126 | 20,060,984 | |||||||||||||||||||||
(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) | Certain expenses have been excluded from ‘corporate expenses’ and ‘other operating expenses’ totaling $25.2 million and $9.4 million, respectively, and reflected in ‘UGC transaction costs and other.’ See ‘Comments on Regulation G’ for a further discussion of the presentation of such items. |
10 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information
(U.S. Dollars in thousands) | Three Months Ended | |||||||||||||||||||||||
December 31, 2015 | ||||||||||||||||||||||||
Insurance | Reinsurance | Mortgage | Sub-total (Core) | Other | Total | |||||||||||||||||||
Gross premiums written (1) | $ | 680,617 | $ | 262,482 | $ | 91,787 | $ | 1,031,341 | $ | 101,147 | $ | 1,066,740 | ||||||||||||
Premiums ceded | (229,011 | ) | (62,417 | ) | (4,660 | ) | (292,543 | ) | (4,961 | ) | (231,756 | ) | ||||||||||||
Net premiums written | 451,606 | 200,065 | 87,127 | 738,798 | 96,186 | 834,984 | ||||||||||||||||||
Change in unearned premiums | 52,919 | 62,957 | (30,391 | ) | 85,485 | 23,051 | 108,536 | |||||||||||||||||
Net premiums earned | 504,525 | 263,022 | 56,736 | 824,283 | 119,237 | 943,520 | ||||||||||||||||||
Other underwriting income | 526 | 3,736 | 3,461 | 7,723 | 898 | 8,621 | ||||||||||||||||||
Losses and loss adjustment expenses | (313,966 | ) | (100,855 | ) | (7,237 | ) | (422,058 | ) | (83,962 | ) | (506,020 | ) | ||||||||||||
Acquisition expenses | (70,440 | ) | (53,252 | ) | (14,030 | ) | (137,722 | ) | (33,687 | ) | (171,409 | ) | ||||||||||||
Other operating expenses | (92,623 | ) | (41,629 | ) | (21,274 | ) | (155,526 | ) | (6,043 | ) | (161,569 | ) | ||||||||||||
Underwriting income (loss) | $ | 28,022 | $ | 71,022 | $ | 17,656 | 116,700 | (3,557 | ) | 113,143 | ||||||||||||||
Net investment income | 66,970 | 28,930 | 95,900 | |||||||||||||||||||||
Net realized gains (losses) | (84,302 | ) | (59,465 | ) | (143,767 | ) | ||||||||||||||||||
Net impairment losses recognized in earnings | (7,336 | ) | — | (7,336 | ) | |||||||||||||||||||
Equity in net income (loss) of investment funds accounted for using the equity method | 5,517 | — | 5,517 | |||||||||||||||||||||
Other income (loss) | (451 | ) | — | (451 | ) | |||||||||||||||||||
Corporate expenses | (12,243 | ) | — | (12,243 | ) | |||||||||||||||||||
Interest expense | (12,757 | ) | (3,070 | ) | (15,827 | ) | ||||||||||||||||||
Net foreign exchange gains (losses) | 2,286 | 2,234 | 4,520 | |||||||||||||||||||||
Income before income taxes | 74,384 | (34,928 | ) | 39,456 | ||||||||||||||||||||
Income tax expense | (11,450 | ) | — | (11,450 | ) | |||||||||||||||||||
Net income | 62,934 | (34,928 | ) | 28,006 | ||||||||||||||||||||
Dividends attributable to redeemable noncontrolling interests | — | (4,589 | ) | (4,589 | ) | |||||||||||||||||||
Amounts attributable to nonredeemable noncontrolling interests | — | 35,162 | 35,162 | |||||||||||||||||||||
Net income available to Arch | 62,934 | (4,355 | ) | 58,579 | ||||||||||||||||||||
Preferred dividends | (5,485 | ) | — | (5,485 | ) | |||||||||||||||||||
Net income available to Arch common shareholders | $ | 57,449 | $ | (4,355 | ) | $ | 53,094 | |||||||||||||||||
Underwriting Ratios | ||||||||||||||||||||||||
Loss ratio | 62.2 | % | 38.3 | % | 12.8 | % | 51.2 | % | 70.4 | % | 53.6 | % | ||||||||||||
Acquisition expense ratio | 14.0 | % | 20.2 | % | 24.7 | % | 16.7 | % | 28.3 | % | 18.2 | % | ||||||||||||
Other operating expense ratio | 18.4 | % | 15.8 | % | 37.5 | % | 18.9 | % | 5.1 | % | 17.1 | % | ||||||||||||
Combined ratio | 94.6 | % | 74.3 | % | 75.0 | % | 86.8 | % | 103.8 | % | 88.9 | % | ||||||||||||
Net premiums written to gross premiums written | 66.4 | % | 76.2 | % | 94.9 | % | 71.6 | % | 95.1 | % | 78.3 | % | ||||||||||||
Total investable assets | $ | 14,644,831 | $ | 1,696,107 | $ | 16,340,938 | ||||||||||||||||||
Total assets | 21,016,599 | 2,122,332 | 23,138,931 | |||||||||||||||||||||
Total liabilities | 14,956,274 | 1,072,102 | 16,028,376 | |||||||||||||||||||||
(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. |
11 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information
(U.S. Dollars in thousands) | Year Ended | |||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||
Insurance | Reinsurance | Mortgage | Sub-total (Core) | Other | Total | |||||||||||||||||||
Gross premiums written (1) | $ | 3,027,049 | $ | 1,494,397 | $ | 499,725 | $ | 5,019,363 | $ | 535,094 | $ | 5,202,134 | ||||||||||||
Premiums ceded | (954,768 | ) | (440,541 | ) | (108,259 | ) | (1,501,760 | ) | (21,306 | ) | (1,170,743 | ) | ||||||||||||
Net premiums written | 2,072,281 | 1,053,856 | 391,466 | 3,517,603 | 513,788 | 4,031,391 | ||||||||||||||||||
Change in unearned premiums | 1,623 | 2,376 | (104,750 | ) | (100,751 | ) | (45,818 | ) | (146,569 | ) | ||||||||||||||
Net premiums earned | 2,073,904 | 1,056,232 | 286,716 | 3,416,852 | 467,970 | 3,884,822 | ||||||||||||||||||
Other underwriting income | — | 36,403 | 17,024 | 53,427 | 3,746 | 57,173 | ||||||||||||||||||
Losses and loss adjustment expenses | (1,359,313 | ) | (475,762 | ) | (28,943 | ) | (1,864,018 | ) | (321,581 | ) | (2,185,599 | ) | ||||||||||||
Acquisition expenses | (304,066 | ) | (212,375 | ) | (32,065 | ) | (548,506 | ) | (129,527 | ) | (678,033 | ) | ||||||||||||
Other operating expenses (2) | (353,782 | ) | (143,408 | ) | (101,293 | ) | (598,483 | ) | (25,163 | ) | (623,646 | ) | ||||||||||||
Underwriting income (loss) | $ | 56,743 | $ | 261,090 | $ | 141,439 | 459,272 | (4,555 | ) | 454,717 | ||||||||||||||
Net investment income | 277,193 | 89,549 | 366,742 | |||||||||||||||||||||
Net realized gains (losses) | 69,586 | 68,000 | 137,586 | |||||||||||||||||||||
Net impairment losses recognized in earnings | (30,442 | ) | — | (30,442 | ) | |||||||||||||||||||
Equity in net income (loss) of investment funds accounted for using the equity method | 48,475 | — | 48,475 | |||||||||||||||||||||
Other income (loss) | (800 | ) | — | (800 | ) | |||||||||||||||||||
Corporate expenses (2) | (49,396 | ) | — | (49,396 | ) | |||||||||||||||||||
UGC transaction costs and other (2) | (41,729 | ) | — | (41,729 | ) | |||||||||||||||||||
Interest expense | (53,464 | ) | (12,788 | ) | (66,252 | ) | ||||||||||||||||||
Net foreign exchange gains (losses) | 31,409 | 5,242 | 36,651 | |||||||||||||||||||||
Income before income taxes | 710,104 | 145,448 | 855,552 | |||||||||||||||||||||
Income tax expense | (31,375 | ) | 1 | (31,374 | ) | |||||||||||||||||||
Net income | 678,729 | 145,449 | 824,178 | |||||||||||||||||||||
Dividends attributable to redeemable noncontrolling interests | — | (18,349 | ) | (18,349 | ) | |||||||||||||||||||
Amounts attributable to nonredeemable noncontrolling interests | — | (113,091 | ) | (113,091 | ) | |||||||||||||||||||
Net income available to Arch | 678,729 | 14,009 | 692,738 | |||||||||||||||||||||
Preferred dividends | (28,070 | ) | — | (28,070 | ) | |||||||||||||||||||
Net income available to Arch common shareholders | $ | 650,659 | $ | 14,009 | $ | 664,668 | ||||||||||||||||||
Underwriting Ratios | ||||||||||||||||||||||||
Loss ratio | 65.5 | % | 45.0 | % | 10.1 | % | 54.6 | % | 68.7 | % | 56.3 | % | ||||||||||||
Acquisition expense ratio | 14.7 | % | 20.1 | % | 11.2 | % | 16.1 | % | 27.7 | % | 17.5 | % | ||||||||||||
Other operating expense ratio | 17.1 | % | 13.6 | % | 35.3 | % | 17.5 | % | 5.4 | % | 16.1 | % | ||||||||||||
Combined ratio | 97.3 | % | 78.7 | % | 56.6 | % | 88.2 | % | 101.8 | % | 89.9 | % | ||||||||||||
Net premiums written to gross premiums written | 68.5 | % | 70.5 | % | 78.3 | % | 70.1 | % | 96.0 | % | 77.5 | % | ||||||||||||
(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) | Certain expenses have been excluded from ‘corporate expenses’ and ‘other operating expenses’ totaling $25.2 million and $9.4 million, respectively, and reflected in ‘UGC transaction costs and other.’ See ‘Comments on Regulation G’ for a further discussion of the presentation of such items. |
12 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information
(U.S. Dollars in thousands) | Year Ended | |||||||||||||||||||||||
December 31, 2015 | ||||||||||||||||||||||||
Insurance | Reinsurance | Mortgage | Sub-total (Core) | Other | Total | |||||||||||||||||||
Gross premiums written (1) | $ | 2,944,018 | $ | 1,419,022 | $ | 295,557 | $ | 4,656,723 | $ | 488,899 | $ | 4,797,163 | ||||||||||||
Premiums ceded | (898,347 | ) | (380,614 | ) | (28,064 | ) | (1,305,151 | ) | (22,940 | ) | (979,632 | ) | ||||||||||||
Net premiums written | 2,045,671 | 1,038,408 | 267,493 | 3,351,572 | 465,959 | 3,817,531 | ||||||||||||||||||
Change in unearned premiums | (863 | ) | 38,727 | (53,383 | ) | (15,519 | ) | (68,107 | ) | (83,626 | ) | |||||||||||||
Net premiums earned | 2,044,808 | 1,077,135 | 214,110 | 3,336,053 | 397,852 | 3,733,905 | ||||||||||||||||||
Other underwriting income | 1,993 | 10,606 | 18,430 | 31,029 | 4,468 | 35,497 | ||||||||||||||||||
Losses and loss adjustment expenses | (1,292,647 | ) | (440,350 | ) | (40,247 | ) | (1,773,244 | ) | (277,659 | ) | (2,050,903 | ) | ||||||||||||
Acquisition expenses | (299,317 | ) | (223,632 | ) | (45,076 | ) | (568,025 | ) | (113,451 | ) | (681,476 | ) | ||||||||||||
Other operating expenses | (354,416 | ) | (155,811 | ) | (82,370 | ) | (592,597 | ) | (14,919 | ) | (607,516 | ) | ||||||||||||
Underwriting income (loss) | $ | 100,421 | $ | 267,948 | $ | 64,847 | 433,216 | (3,709 | ) | 429,507 | ||||||||||||||
Net investment income | 271,680 | 76,410 | 348,090 | |||||||||||||||||||||
Net realized gains (losses) | (99,133 | ) | (86,709 | ) | (185,842 | ) | ||||||||||||||||||
Net impairment losses recognized in earnings | (20,116 | ) | — | (20,116 | ) | |||||||||||||||||||
Equity in net income (loss) of investment funds accounted for using the equity method | 25,455 | — | 25,455 | |||||||||||||||||||||
Other income (loss) | (399 | ) | — | (399 | ) | |||||||||||||||||||
Corporate expenses | (49,745 | ) | — | (49,745 | ) | |||||||||||||||||||
Interest expense | (41,518 | ) | (4,356 | ) | (45,874 | ) | ||||||||||||||||||
Net foreign exchange gains (losses) | 62,624 | 3,494 | 66,118 | |||||||||||||||||||||
Income before income taxes | 582,064 | (14,870 | ) | 567,194 | ||||||||||||||||||||
Income tax expense | (40,612 | ) | — | (40,612 | ) | |||||||||||||||||||
Net income | 541,452 | (14,870 | ) | 526,582 | ||||||||||||||||||||
Dividends attributable to redeemable noncontrolling interests | — | (18,828 | ) | (18,828 | ) | |||||||||||||||||||
Amounts attributable to nonredeemable noncontrolling interests | — | 29,984 | 29,984 | |||||||||||||||||||||
Net income available to Arch | 541,452 | (3,714 | ) | 537,738 | ||||||||||||||||||||
Preferred dividends | (21,938 | ) | — | (21,938 | ) | |||||||||||||||||||
Net income available to Arch common shareholders | $ | 519,514 | $ | (3,714 | ) | $ | 515,800 | |||||||||||||||||
Underwriting Ratios | ||||||||||||||||||||||||
Loss ratio | 63.2 | % | 40.9 | % | 18.8 | % | 53.2 | % | 69.8 | % | 54.9 | % | ||||||||||||
Acquisition expense ratio | 14.6 | % | 20.8 | % | 21.1 | % | 17.0 | % | 28.5 | % | 18.3 | % | ||||||||||||
Other operating expense ratio | 17.3 | % | 14.5 | % | 38.5 | % | 17.8 | % | 3.7 | % | 16.3 | % | ||||||||||||
Combined ratio | 95.1 | % | 76.2 | % | 78.4 | % | 88.0 | % | 102.0 | % | 89.5 | % | ||||||||||||
Net premiums written to gross premiums written | 69.5 | % | 73.2 | % | 90.5 | % | 72.0 | % | 95.3 | % | 79.6 | % | ||||||||||||
(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. |
13 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Insurance Segment
(U.S. Dollars in thousands) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Gross premiums written | $ | 707,519 | $ | 758,934 | $ | 762,043 | $ | 798,553 | $ | 680,617 | $ | 3,027,049 | $ | 2,944,018 | ||||||||||||||
Premiums ceded | (241,658 | ) | (217,446 | ) | (246,875 | ) | (248,789 | ) | (229,011 | ) | (954,768 | ) | (898,347 | ) | ||||||||||||||
Net premiums written | 465,861 | 541,488 | 515,168 | 549,764 | 451,606 | 2,072,281 | 2,045,671 | |||||||||||||||||||||
Change in unearned premiums | 48,226 | (22,410 | ) | 12,482 | (36,675 | ) | 52,919 | 1,623 | (863 | ) | ||||||||||||||||||
Net premiums earned | 514,087 | 519,078 | 527,650 | 513,089 | 504,525 | 2,073,904 | 2,044,808 | |||||||||||||||||||||
Other underwriting income | — | — | — | — | 526 | — | 1,993 | |||||||||||||||||||||
Losses and loss adjustment expenses | (348,226 | ) | (332,845 | ) | (354,633 | ) | (323,609 | ) | (313,966 | ) | (1,359,313 | ) | (1,292,647 | ) | ||||||||||||||
Acquisition expenses | (75,247 | ) | (77,148 | ) | (77,317 | ) | (74,354 | ) | (70,440 | ) | (304,066 | ) | (299,317 | ) | ||||||||||||||
Other operating expenses | (88,033 | ) | (87,517 | ) | (92,371 | ) | (85,861 | ) | (92,623 | ) | (353,782 | ) | (354,416 | ) | ||||||||||||||
Underwriting income | $ | 2,581 | $ | 21,568 | $ | 3,329 | $ | 29,265 | $ | 28,022 | $ | 56,743 | $ | 100,421 | ||||||||||||||
Underwriting Ratios | ||||||||||||||||||||||||||||
Loss ratio | 67.7 | % | 64.1 | % | 67.2 | % | 63.1 | % | 62.2 | % | 65.5 | % | 63.2 | % | ||||||||||||||
Acquisition expense ratio | 14.6 | % | 14.9 | % | 14.7 | % | 14.5 | % | 14.0 | % | 14.7 | % | 14.6 | % | ||||||||||||||
Other operating expense ratio | 17.1 | % | 16.9 | % | 17.5 | % | 16.7 | % | 18.4 | % | 17.1 | % | 17.3 | % | ||||||||||||||
Combined ratio | 99.4 | % | 95.9 | % | 99.4 | % | 94.3 | % | 94.6 | % | 97.3 | % | 95.1 | % | ||||||||||||||
Catastrophic activity and prior year development: | ||||||||||||||||||||||||||||
Current accident year catastrophic events, net of | ||||||||||||||||||||||||||||
reinsurance and reinstatement premiums | 4.6 | % | 0.3 | % | 3.9 | % | 0.1 | % | 0.4 | % | 2.2 | % | 1.0 | % | ||||||||||||||
Net (favorable) adverse development in prior year loss | ||||||||||||||||||||||||||||
reserves, net of related adjustments | (1.5 | )% | (2.3 | )% | (0.8 | )% | (0.8 | )% | (2.1 | )% | (1.3 | )% | (2.0 | )% | ||||||||||||||
Combined ratio excluding catastrophic activity and prior year development (1) | 96.3 | % | 97.9 | % | 96.3 | % | 95.0 | % | 96.3 | % | 96.4 | % | 96.1 | % | ||||||||||||||
Net premiums written to gross premiums written | 65.8 | % | 71.3 | % | 67.6 | % | 68.8 | % | 66.4 | % | 68.5 | % | 69.5 | % | ||||||||||||||
(1) | See ‘Comments on Regulation G’ for further discussion. |
14 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Insurance Segment
(U.S. Dollars in thousands) | Three Months Ended | Year Ended | |||||||||||||||||||||||||||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | December 31, | |||||||||||||||||||||||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||
Net premiums written | |||||||||||||||||||||||||||||||||||||||||||||||||
Professional lines (1) | $ | 103,965 | 22.3 | % | $ | 119,198 | 22.0 | % | $ | 107,519 | 20.9 | % | $ | 109,467 | 19.9 | % | $ | 104,183 | 23.1 | % | $ | 440,149 | 21.2 | % | $ | 434,024 | 21.2 | % | |||||||||||||||||||||
Construction and national accounts | 74,158 | 15.9 | % | 65,105 | 12.0 | % | 85,260 | 16.5 | % | 104,474 | 19.0 | % | 65,544 | 14.5 | % | 328,997 | 15.9 | % | 299,463 | 14.6 | % | ||||||||||||||||||||||||||||
Programs | 73,953 | 15.9 | % | 91,165 | 16.8 | % | 75,420 | 14.6 | % | 89,784 | 16.3 | % | 78,753 | 17.4 | % | 330,322 | 15.9 | % | 423,157 | 20.7 | % | ||||||||||||||||||||||||||||
Travel, accident and health | 49,208 | 10.6 | % | 63,453 | 11.7 | % | 54,456 | 10.6 | % | 57,263 | 10.4 | % | 36,418 | 8.1 | % | 224,380 | 10.8 | % | 160,132 | 7.8 | % | ||||||||||||||||||||||||||||
Excess and surplus casualty (2) | 46,719 | 10.0 | % | 54,075 | 10.0 | % | 60,412 | 11.7 | % | 53,657 | 9.8 | % | 50,345 | 11.1 | % | 214,863 | 10.4 | % | 204,856 | 10.0 | % | ||||||||||||||||||||||||||||
Property, energy, marine and aviation | 33,115 | 7.1 | % | 42,092 | 7.8 | % | 50,194 | 9.7 | % | 49,975 | 9.1 | % | 30,668 | 6.8 | % | 175,376 | 8.5 | % | 203,186 | 9.9 | % | ||||||||||||||||||||||||||||
Lenders products | 26,979 | 5.8 | % | 28,633 | 5.3 | % | 25,254 | 4.9 | % | 24,784 | 4.5 | % | 30,877 | 6.8 | % | 105,650 | 5.1 | % | 106,916 | 5.2 | % | ||||||||||||||||||||||||||||
Other (3) | 57,764 | 12.4 | % | 77,767 | 14.4 | % | 56,653 | 11.0 | % | 60,360 | 11.0 | % | 54,818 | 12.1 | % | 252,544 | 12.2 | % | 213,937 | 10.5 | % | ||||||||||||||||||||||||||||
Total | $ | 465,861 | 100.0 | % | $ | 541,488 | 100.0 | % | $ | 515,168 | 100.0 | % | $ | 549,764 | 100.0 | % | $ | 451,606 | 100.0 | % | $ | 2,072,281 | 100.0 | % | $ | 2,045,671 | 100.0 | % | |||||||||||||||||||||
Client location | |||||||||||||||||||||||||||||||||||||||||||||||||
United States | $ | 385,026 | 82.6 | % | $ | 446,403 | 82.4 | % | $ | 436,958 | 84.8 | % | $ | 450,028 | 81.9 | % | $ | 381,498 | 84.5 | % | $ | 1,718,415 | 82.9 | % | $ | 1,710,918 | 83.6 | % | |||||||||||||||||||||
Europe | 35,588 | 7.6 | % | 38,432 | 7.1 | % | 34,318 | 6.7 | % | 65,085 | 11.8 | % | 41,337 | 9.2 | % | 173,423 | 8.4 | % | 187,020 | 9.1 | % | ||||||||||||||||||||||||||||
Asia and Pacific | 26,053 | 5.6 | % | 28,507 | 5.3 | % | 22,855 | 4.4 | % | 16,337 | 3.0 | % | 14,391 | 3.2 | % | 93,752 | 4.5 | % | 64,638 | 3.2 | % | ||||||||||||||||||||||||||||
Other | 19,194 | 4.1 | % | 28,146 | 5.2 | % | 21,037 | 4.1 | % | 18,314 | 3.3 | % | 14,380 | 3.2 | % | 86,691 | 4.2 | % | 83,095 | 4.1 | % | ||||||||||||||||||||||||||||
Total | $ | 465,861 | 100.0 | % | $ | 541,488 | 100.0 | % | $ | 515,168 | 100.0 | % | $ | 549,764 | 100.0 | % | $ | 451,606 | 100.0 | % | $ | 2,072,281 | 100.0 | % | $ | 2,045,671 | 100.0 | % | |||||||||||||||||||||
Underwriting location | |||||||||||||||||||||||||||||||||||||||||||||||||
United States | $ | 378,121 | 81.2 | % | $ | 442,422 | 81.7 | % | $ | 423,465 | 82.2 | % | $ | 446,200 | 81.2 | % | $ | 369,805 | 81.9 | % | $ | 1,690,208 | 81.6 | % | $ | 1,673,867 | 81.8 | % | |||||||||||||||||||||
Europe | 73,287 | 15.7 | % | 85,279 | 15.7 | % | 74,373 | 14.4 | % | 94,095 | 17.1 | % | 67,636 | 15.0 | % | 327,034 | 15.8 | % | 317,998 | 15.5 | % | ||||||||||||||||||||||||||||
Other | 14,453 | 3.1 | % | 13,787 | 2.5 | % | 17,330 | 3.4 | % | 9,469 | 1.7 | % | 14,165 | 3.1 | % | 55,039 | 2.7 | % | 53,806 | 2.6 | % | ||||||||||||||||||||||||||||
Total | $ | 465,861 | 100.0 | % | $ | 541,488 | 100.0 | % | $ | 515,168 | 100.0 | % | $ | 549,764 | 100.0 | % | $ | 451,606 | 100.0 | % | $ | 2,072,281 | 100.0 | % | $ | 2,045,671 | 100.0 | % | |||||||||||||||||||||
Net premiums earned | |||||||||||||||||||||||||||||||||||||||||||||||||
Professional lines (1) | $ | 107,277 | 20.9 | % | $ | 110,614 | 21.3 | % | $ | 108,556 | 20.6 | % | $ | 104,944 | 20.5 | % | $ | 103,393 | 20.5 | % | $ | 431,391 | 20.8 | % | $ | 424,968 | 20.8 | % | |||||||||||||||||||||
Construction and national accounts | 80,525 | 15.7 | % | 80,090 | 15.4 | % | 84,414 | 16.0 | % | 77,043 | 15.0 | % | 77,762 | 15.4 | % | 322,072 | 15.5 | % | 296,828 | 14.5 | % | ||||||||||||||||||||||||||||
Programs | 83,730 | 16.3 | % | 84,889 | 16.4 | % | 90,595 | 17.2 | % | 98,501 | 19.2 | % | 102,104 | 20.2 | % | 357,715 | 17.2 | % | 446,512 | 21.8 | % | ||||||||||||||||||||||||||||
Travel, accident and health | 54,706 | 10.6 | % | 57,097 | 11.0 | % | 59,821 | 11.3 | % | 47,545 | 9.3 | % | 39,949 | 7.9 | % | 219,169 | 10.6 | % | 153,578 | 7.5 | % | ||||||||||||||||||||||||||||
Excess and surplus casualty (2) | 52,239 | 10.2 | % | 54,687 | 10.5 | % | 57,155 | 10.8 | % | 54,965 | 10.7 | % | 50,669 | 10.0 | % | 219,046 | 10.6 | % | 208,091 | 10.2 | % | ||||||||||||||||||||||||||||
Property, energy, marine and aviation | 47,521 | 9.2 | % | 45,304 | 8.7 | % | 47,076 | 8.9 | % | 49,037 | 9.6 | % | 52,115 | 10.3 | % | 188,938 | 9.1 | % | 216,127 | 10.6 | % | ||||||||||||||||||||||||||||
Lenders products | 26,018 | 5.1 | % | 25,090 | 4.8 | % | 23,007 | 4.4 | % | 24,402 | 4.8 | % | 22,832 | 4.5 | % | 98,517 | 4.8 | % | 90,906 | 4.4 | % | ||||||||||||||||||||||||||||
Other (3) | 62,071 | 12.1 | % | 61,307 | 11.8 | % | 57,026 | 10.8 | % | 56,652 | 11.0 | % | 55,701 | 11.0 | % | 237,056 | 11.4 | % | 207,798 | 10.2 | % | ||||||||||||||||||||||||||||
Total | $ | 514,087 | 100.0 | % | $ | 519,078 | 100.0 | % | $ | 527,650 | 100.0 | % | $ | 513,089 | 100.0 | % | $ | 504,525 | 100.0 | % | $ | 2,073,904 | 100.0 | % | $ | 2,044,808 | 100.0 | % | |||||||||||||||||||||
(1) Includes professional liability, executive assurance and healthcare business.
(2) Includes casualty and contract binding business.
(3) Includes alternative markets, excess workers’ compensation and surety business.
15 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Reinsurance Segment
(U.S. Dollars in thousands) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Gross premiums written | $ | 276,593 | $ | 324,361 | $ | 412,053 | $ | 481,390 | $ | 262,482 | $ | 1,494,397 | $ | 1,419,022 | ||||||||||||||
Premiums ceded | (70,473 | ) | (89,551 | ) | (119,951 | ) | (160,566 | ) | (62,417 | ) | (440,541 | ) | (380,614 | ) | ||||||||||||||
Net premiums written | 206,120 | 234,810 | 292,102 | 320,824 | 200,065 | 1,053,856 | 1,038,408 | |||||||||||||||||||||
Change in unearned premiums | 45,721 | 17,117 | (846 | ) | (59,616 | ) | 62,957 | 2,376 | 38,727 | |||||||||||||||||||
Net premiums earned | 251,841 | 251,927 | 291,256 | 261,208 | 263,022 | 1,056,232 | 1,077,135 | |||||||||||||||||||||
Other underwriting income | 13,744 | 2,216 | 20,118 | 325 | 3,736 | 36,403 | 10,606 | |||||||||||||||||||||
Losses and loss adjustment expenses | (112,149 | ) | (105,924 | ) | (146,091 | ) | (111,598 | ) | (100,855 | ) | (475,762 | ) | (440,350 | ) | ||||||||||||||
Acquisition expenses | (51,575 | ) | (50,217 | ) | (55,796 | ) | (54,787 | ) | (53,252 | ) | (212,375 | ) | (223,632 | ) | ||||||||||||||
Other operating expenses | (34,249 | ) | (35,589 | ) | (37,115 | ) | (36,455 | ) | (41,629 | ) | (143,408 | ) | (155,811 | ) | ||||||||||||||
Underwriting income | $ | 67,612 | $ | 62,413 | $ | 72,372 | $ | 58,693 | $ | 71,022 | $ | 261,090 | $ | 267,948 | ||||||||||||||
Underwriting Ratios | ||||||||||||||||||||||||||||
Loss ratio | 44.5 | % | 42.0 | % | 50.2 | % | 42.7 | % | 38.3 | % | 45.0 | % | 40.9 | % | ||||||||||||||
Acquisition expense ratio | 20.5 | % | 19.9 | % | 19.2 | % | 21.0 | % | 20.2 | % | 20.1 | % | 20.8 | % | ||||||||||||||
Other operating expense ratio | 13.6 | % | 14.1 | % | 12.7 | % | 14.0 | % | 15.8 | % | 13.6 | % | 14.5 | % | ||||||||||||||
Combined ratio | 78.6 | % | 76.0 | % | 82.1 | % | 77.7 | % | 74.3 | % | 78.7 | % | 76.2 | % | ||||||||||||||
Catastrophic activity and prior year development: | ||||||||||||||||||||||||||||
Current accident year catastrophic events, net of | ||||||||||||||||||||||||||||
reinsurance and reinstatement premiums | 4.1 | % | 3.5 | % | 5.4 | % | 1.4 | % | 5.3 | % | 3.7 | % | 3.3 | % | ||||||||||||||
Net (favorable) adverse development in prior year loss | ||||||||||||||||||||||||||||
reserves, net of related adjustments | (16.7 | )% | (24.0 | )% | (21.7 | )% | (18.0 | )% | (21.1 | )% | (20.1 | )% | (20.4 | )% | ||||||||||||||
Combined ratio excluding catastrophic activity and prior year development (1) | 91.2 | % | 96.5 | % | 98.4 | % | 94.3 | % | 90.1 | % | 95.1 | % | 93.3 | % | ||||||||||||||
Net premiums written to gross premiums written | 74.5 | % | 72.4 | % | 70.9 | % | 66.6 | % | 76.2 | % | 70.5 | % | 73.2 | % | ||||||||||||||
(1) | See ‘Comments on Regulation G’ for further discussion. |
16 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Reinsurance Segment
(U.S. Dollars in thousands) | Three Months Ended | Year Ended | |||||||||||||||||||||||||||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | December 31, | |||||||||||||||||||||||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||
Net premiums written | |||||||||||||||||||||||||||||||||||||||||||||||||
Other specialty (1) | $ | 59,920 | 29.1 | % | $ | 74,169 | 31.6 | % | $ | 113,943 | 39.0 | % | $ | 100,820 | 31.4 | % | $ | 62,219 | 31.1 | % | $ | 348,852 | 33.1 | % | $ | 298,794 | 28.8 | % | |||||||||||||||||||||
Casualty (2) | 57,972 | 28.1 | % | 59,242 | 25.2 | % | 61,555 | 21.1 | % | 126,483 | 39.4 | % | 57,062 | 28.5 | % | 305,252 | 29.0 | % | 303,093 | 29.2 | % | ||||||||||||||||||||||||||||
Property excluding property catastrophe (3) | 53,261 | 25.8 | % | 70,733 | 30.1 | % | 69,831 | 23.9 | % | 73,723 | 23.0 | % | 61,126 | 30.6 | % | 267,548 | 25.4 | % | 280,511 | 27.0 | % | ||||||||||||||||||||||||||||
Property catastrophe | 16,520 | 8.0 | % | 19,793 | 8.4 | % | 41,771 | 14.3 | % | (2,295 | ) | (0.7 | )% | 8,765 | 4.4 | % | 75,789 | 7.2 | % | 91,620 | 8.8 | % | |||||||||||||||||||||||||||
Marine and aviation | 13,352 | 6.5 | % | 5,435 | 2.3 | % | 1,463 | 0.5 | % | 17,540 | 5.5 | % | 8,308 | 4.2 | % | 37,790 | 3.6 | % | 50,834 | 4.9 | % | ||||||||||||||||||||||||||||
Other (4) | 5,095 | 2.5 | % | 5,438 | 2.3 | % | 3,539 | 1.2 | % | 4,553 | 1.4 | % | 2,585 | 1.3 | % | 18,625 | 1.8 | % | 13,556 | 1.3 | % | ||||||||||||||||||||||||||||
Total | $ | 206,120 | 100.0 | % | $ | 234,810 | 100.0 | % | $ | 292,102 | 100.0 | % | $ | 320,824 | 100.0 | % | $ | 200,065 | 100.0 | % | $ | 1,053,856 | 100.0 | % | $ | 1,038,408 | 100.0 | % | |||||||||||||||||||||
Pro rata | $ | 152,951 | 74.2 | % | $ | 147,280 | 62.7 | % | $ | 146,231 | 50.1 | % | $ | 112,209 | 35.0 | % | $ | 139,978 | 70.0 | % | $ | 558,671 | 53.0 | % | $ | 537,556 | 51.8 | % | |||||||||||||||||||||
Excess of loss | 53,169 | 25.8 | % | 87,530 | 37.3 | % | 145,871 | 49.9 | % | 208,615 | 65.0 | % | 60,087 | 30.0 | % | 495,185 | 47.0 | % | 500,852 | 48.2 | % | ||||||||||||||||||||||||||||
Total | $ | 206,120 | 100.0 | % | $ | 234,810 | 100.0 | % | $ | 292,102 | 100.0 | % | $ | 320,824 | 100.0 | % | $ | 200,065 | 100.0 | % | $ | 1,053,856 | 100.0 | % | $ | 1,038,408 | 100.0 | % | |||||||||||||||||||||
Client location | |||||||||||||||||||||||||||||||||||||||||||||||||
United States | $ | 75,801 | 36.8 | % | $ | 112,007 | 47.7 | % | $ | 126,449 | 43.3 | % | $ | 134,506 | 41.9 | % | $ | 70,187 | 35.1 | % | $ | 448,763 | 42.6 | % | $ | 470,484 | 45.3 | % | |||||||||||||||||||||
Europe | 57,445 | 27.9 | % | 57,207 | 24.4 | % | 90,688 | 31.0 | % | 131,828 | 41.1 | % | 60,301 | 30.1 | % | 337,168 | 32.0 | % | 307,165 | 29.6 | % | ||||||||||||||||||||||||||||
Bermuda | 24,481 | 11.9 | % | 14,416 | 6.1 | % | 14,685 | 5.0 | % | 20,765 | 6.5 | % | 18,592 | 9.3 | % | 74,347 | 7.1 | % | 80,888 | 7.8 | % | ||||||||||||||||||||||||||||
Asia and Pacific | 26,227 | 12.7 | % | 28,794 | 12.3 | % | 40,090 | 13.7 | % | 16,710 | 5.2 | % | 24,254 | 12.1 | % | 111,821 | 10.6 | % | 94,609 | 9.1 | % | ||||||||||||||||||||||||||||
Other | 22,166 | 10.8 | % | 22,386 | 9.5 | % | 20,190 | 6.9 | % | 17,015 | 5.3 | % | 26,731 | 13.4 | % | 81,757 | 7.8 | % | 85,262 | 8.2 | % | ||||||||||||||||||||||||||||
Total | $ | 206,120 | 100.0 | % | $ | 234,810 | 100.0 | % | $ | 292,102 | 100.0 | % | $ | 320,824 | 100.0 | % | $ | 200,065 | 100.0 | % | $ | 1,053,856 | 100.0 | % | $ | 1,038,408 | 100.0 | % | |||||||||||||||||||||
Underwriting location | |||||||||||||||||||||||||||||||||||||||||||||||||
Bermuda | $ | 59,921 | 29.1 | % | $ | 60,651 | 25.8 | % | $ | 108,638 | 37.2 | % | $ | 48,415 | 15.1 | % | $ | 50,684 | 25.3 | % | $ | 277,625 | 26.3 | % | $ | 281,985 | 27.2 | % | |||||||||||||||||||||
United States | 85,597 | 41.5 | % | 106,400 | 45.3 | % | 100,436 | 34.4 | % | 140,250 | 43.7 | % | 81,450 | 40.7 | % | 432,683 | 41.1 | % | 439,190 | 42.3 | % | ||||||||||||||||||||||||||||
Europe | 54,376 | 26.4 | % | 59,497 | 25.3 | % | 71,804 | 24.6 | % | 122,738 | 38.3 | % | 59,503 | 29.7 | % | 308,415 | 29.3 | % | 298,790 | 28.8 | % | ||||||||||||||||||||||||||||
Other | 6,226 | 3.0 | % | 8,262 | 3.5 | % | 11,224 | 3.8 | % | 9,421 | 2.9 | % | 8,428 | 4.2 | % | 35,133 | 3.3 | % | 18,443 | 1.8 | % | ||||||||||||||||||||||||||||
Total | $ | 206,120 | 100.0 | % | $ | 234,810 | 100.0 | % | $ | 292,102 | 100.0 | % | $ | 320,824 | 100.0 | % | $ | 200,065 | 100.0 | % | $ | 1,053,856 | 100.0 | % | $ | 1,038,408 | 100.0 | % | |||||||||||||||||||||
Net premiums earned | |||||||||||||||||||||||||||||||||||||||||||||||||
Other specialty (1) | $ | 69,566 | 27.6 | % | $ | 76,686 | 30.4 | % | $ | 109,493 | 37.6 | % | $ | 74,249 | 28.4 | % | $ | 74,916 | 28.5 | % | $ | 329,994 | 31.2 | % | $ | 311,307 | 28.9 | % | |||||||||||||||||||||
Casualty (2) | 74,536 | 29.6 | % | 69,414 | 27.6 | % | 80,157 | 27.5 | % | 76,053 | 29.1 | % | 78,621 | 29.9 | % | 300,160 | 28.4 | % | 310,249 | 28.8 | % | ||||||||||||||||||||||||||||
Property excluding property catastrophe (3) | 72,028 | 28.6 | % | 72,550 | 28.8 | % | 65,487 | 22.5 | % | 71,953 | 27.5 | % | 73,856 | 28.1 | % | 282,018 | 26.7 | % | 295,487 | 27.4 | % | ||||||||||||||||||||||||||||
Property catastrophe | 18,445 | 7.3 | % | 17,582 | 7.0 | % | 19,823 | 6.8 | % | 17,953 | 6.9 | % | 21,945 | 8.3 | % | 73,803 | 7.0 | % | 96,865 | 9.0 | % | ||||||||||||||||||||||||||||
Marine and aviation | 11,806 | 4.7 | % | 10,336 | 4.1 | % | 12,559 | 4.3 | % | 17,878 | 6.8 | % | 11,064 | 4.2 | % | 52,579 | 5.0 | % | 50,808 | 4.7 | % | ||||||||||||||||||||||||||||
Other (4) | 5,460 | 2.2 | % | 5,359 | 2.1 | % | 3,737 | 1.3 | % | 3,122 | 1.2 | % | 2,620 | 1.0 | % | 17,678 | 1.7 | % | 12,419 | 1.2 | % | ||||||||||||||||||||||||||||
Total | $ | 251,841 | 100.0 | % | $ | 251,927 | 100.0 | % | $ | 291,256 | 100.0 | % | $ | 261,208 | 100.0 | % | $ | 263,022 | 100.0 | % | $ | 1,056,232 | 100.0 | % | $ | 1,077,135 | 100.0 | % | |||||||||||||||||||||
Pro rata | $ | 135,711 | 53.9 | % | $ | 132,649 | 52.7 | % | $ | 153,933 | 52.9 | % | $ | 139,693 | 53.5 | % | $ | 134,145 | 51.0 | % | $ | 561,986 | 53.2 | % | $ | 563,585 | 52.3 | % | |||||||||||||||||||||
Excess of loss | 116,130 | 46.1 | % | 119,278 | 47.3 | % | 137,323 | 47.1 | % | 121,515 | 46.5 | % | 128,877 | 49.0 | % | 494,246 | 46.8 | % | 513,550 | 47.7 | % | ||||||||||||||||||||||||||||
Total | $ | 251,841 | 100.0 | % | $ | 251,927 | 100.0 | % | $ | 291,256 | 100.0 | % | $ | 261,208 | 100.0 | % | $ | 263,022 | 100.0 | % | $ | 1,056,232 | 100.0 | % | $ | 1,077,135 | 100.0 | % | |||||||||||||||||||||
(1) Includes proportional motor, surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and other. (3) Includes facultative business.
(2) Includes executive assurance, professional liability, workers’ compensation, excess motor, healthcare and other. (4) Includes life, casualty clash and other.
17 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
(U.S. Dollars in thousands) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Gross premiums written | $ | 138,285 | $ | 131,726 | $ | 118,434 | $ | 111,280 | $ | 91,787 | $ | 499,725 | $ | 295,557 | ||||||||||||||
Premiums ceded | (45,341 | ) | (51,182 | ) | (6,969 | ) | (4,767 | ) | (4,660 | ) | (108,259 | ) | (28,064 | ) | ||||||||||||||
Net premiums written | 92,944 | 80,544 | 111,465 | 106,513 | 87,127 | 391,466 | 267,493 | |||||||||||||||||||||
Change in unearned premiums | (11,467 | ) | (3,582 | ) | (44,953 | ) | (44,748 | ) | (30,391 | ) | (104,750 | ) | (53,383 | ) | ||||||||||||||
Net premiums earned | 81,477 | 76,962 | 66,512 | 61,765 | 56,736 | 286,716 | 214,110 | |||||||||||||||||||||
Other underwriting income (1) | 4,354 | 4,740 | 4,137 | 3,793 | 3,461 | 17,024 | 18,430 | |||||||||||||||||||||
Losses and loss adjustment expenses | (8,841 | ) | (11,107 | ) | (366 | ) | (8,629 | ) | (7,237 | ) | (28,943 | ) | (40,247 | ) | ||||||||||||||
Acquisition expenses | (7,400 | ) | (7,757 | ) | (8,523 | ) | (8,385 | ) | (14,030 | ) | (32,065 | ) | (45,076 | ) | ||||||||||||||
Other operating expenses | (27,271 | ) | (25,416 | ) | (23,991 | ) | (24,615 | ) | (21,274 | ) | (101,293 | ) | (82,370 | ) | ||||||||||||||
Underwriting income | $ | 42,319 | $ | 37,422 | $ | 37,769 | $ | 23,929 | $ | 17,656 | $ | 141,439 | $ | 64,847 | ||||||||||||||
Underwriting Ratios | ||||||||||||||||||||||||||||
Loss ratio | 10.9 | % | 14.4 | % | 0.6 | % | 14.0 | % | 12.8 | % | 10.1 | % | 18.8 | % | ||||||||||||||
Acquisition expense ratio | 9.1 | % | 10.1 | % | 12.8 | % | 13.6 | % | 24.7 | % | 11.2 | % | 21.1 | % | ||||||||||||||
Other operating expense ratio | 33.5 | % | 33.0 | % | 36.1 | % | 39.9 | % | 37.5 | % | 35.3 | % | 38.5 | % | ||||||||||||||
Combined ratio | 53.5 | % | 57.5 | % | 49.5 | % | 67.5 | % | 75.0 | % | 56.6 | % | 78.4 | % | ||||||||||||||
Net (favorable) adverse development in prior year loss | ||||||||||||||||||||||||||||
reserves, net of related adjustments | (6.0 | )% | (3.2 | )% | (16.6 | )% | (4.4 | )% | (8.1 | )% | (7.4 | )% | (5.8 | )% | ||||||||||||||
Combined ratio excluding prior year development (2) | 59.5 | % | 60.7 | % | 66.1 | % | 71.9 | % | 83.1 | % | 64.0 | % | 84.2 | % | ||||||||||||||
Net premiums written to gross premiums written | 67.2 | % | 61.1 | % | 94.1 | % | 95.7 | % | 94.9 | % | 78.3 | % | 90.5 | % | ||||||||||||||
Net premiums written by client location | ||||||||||||||||||||||||||||
United States | $ | 80,957 | $ | 77,488 | $ | 66,261 | $ | 55,803 | $ | 51,724 | $ | 280,509 | $ | 193,617 | ||||||||||||||
Other | 11,987 | 3,056 | 45,204 | 50,710 | 35,403 | 110,957 | 73,876 | |||||||||||||||||||||
Total | $ | 92,944 | $ | 80,544 | $ | 111,465 | $ | 106,513 | $ | 87,127 | $ | 391,466 | $ | 267,493 | ||||||||||||||
United States % | 87.1 | % | 96.2 | % | 59.4 | % | 52.4 | % | 59.4 | % | 71.7 | % | 72.4 | % | ||||||||||||||
Other % | 12.9 | % | 3.8 | % | 40.6 | % | 47.6 | % | 40.6 | % | 28.3 | % | 27.6 | % | ||||||||||||||
Net premiums written by underwriting location | ||||||||||||||||||||||||||||
United States | $ | 58,818 | $ | 50,236 | $ | 42,442 | $ | 35,330 | $ | 33,474 | $ | 186,826 | $ | 125,317 | ||||||||||||||
Other | 34,126 | 30,308 | 69,023 | 71,183 | 53,653 | 204,640 | 142,176 | |||||||||||||||||||||
Total | $ | 92,944 | $ | 80,544 | $ | 111,465 | $ | 106,513 | $ | 87,127 | $ | 391,466 | $ | 267,493 | ||||||||||||||
United States % | 63.3 | % | 62.4 | % | 38.1 | % | 33.2 | % | 38.4 | % | 47.7 | % | 46.8 | % | ||||||||||||||
Other % | 36.7 | % | 37.6 | % | 61.9 | % | 66.8 | % | 61.6 | % | 52.3 | % | 53.2 | % | ||||||||||||||
(1) Represents income earned on various risk-sharing products offered to government sponsored enterprises and mortgage lenders.
(2) See ‘Comments on Regulation G’ for further discussion.
18 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
(U.S. Dollars in millions) | December 31, 2016 (1) | September 30, 2016 | June 30, 2016 | March 31, 2016 | ||||||||||||||||||||||||
Insurance In Force (IIF) (2) | ||||||||||||||||||||||||||||
U.S. mortgage insurance | $ | 234,518 | 74.3 | % | $ | 40,258 | 34.7 | % | $ | 33,367 | 30.7 | % | $ | 28,433 | 30.9 | % | ||||||||||||
Mortgage reinsurance | 24,315 | 7.7 | % | 22,071 | 19.0 | % | 22,242 | 20.5 | % | 22,393 | 24.3 | % | ||||||||||||||||
Other (3) | 56,776 | 18.0 | % | 53,826 | 46.3 | % | 52,926 | 48.8 | % | 41,172 | 44.8 | % | ||||||||||||||||
Total | $ | 315,609 | 100.0 | % | $ | 116,155 | 100.0 | % | $ | 108,535 | 100.0 | % | $ | 91,998 | 100.0 | % | ||||||||||||
Risk In Force (RIF) (4) | ||||||||||||||||||||||||||||
U.S. mortgage insurance | $ | 59,712 | 92.7 | % | $ | 10,168 | 68.6 | % | $ | 8,396 | 64.8 | % | $ | 7,165 | 62.5 | % | ||||||||||||
Mortgage reinsurance | 2,489 | 3.9 | % | 2,557 | 17.2 | % | 2,567 | 19.8 | % | 2,661 | 23.2 | % | ||||||||||||||||
Other (3) | 2,242 | 3.5 | % | 2,104 | 14.2 | % | 1,993 | 15.4 | % | 1,636 | 14.3 | % | ||||||||||||||||
Total | $ | 64,443 | 100.0 | % | $ | 14,829 | 100.0 | % | $ | 12,956 | 100.0 | % | $ | 11,462 | 100.0 | % | ||||||||||||
Supplemental disclosures for U.S. mortgage insurance: | ||||||||||||||||||||||||||||
Total RIF by credit quality (FICO score): | ||||||||||||||||||||||||||||
>=740 | $ | 34,867 | 58.4 | % | $ | 5,817 | 57.2 | % | $ | 4,766 | 56.8 | % | $ | 3,995 | 55.8 | % | ||||||||||||
680-739 | 18,976 | 31.8 | % | 3,425 | 33.7 | % | 2,779 | 33.1 | % | 2,354 | 32.9 | % | ||||||||||||||||
620-679 | 5,050 | 8.5 | % | 834 | 8.2 | % | 753 | 9.0 | % | 712 | 9.9 | % | ||||||||||||||||
<620 | 819 | 1.4 | % | 92 | 0.9 | % | 98 | 1.2 | % | 104 | 1.5 | % | ||||||||||||||||
Total | $ | 59,712 | 100.0 | % | $ | 10,168 | 100.0 | % | $ | 8,396 | 100.0 | % | $ | 7,165 | 100.0 | % | ||||||||||||
Weighted average FICO score | 743 | 742 | 741 | 739 | ||||||||||||||||||||||||
Total RIF by Loan-To-Value (LTV): | ||||||||||||||||||||||||||||
95.01% and above | $ | 5,781 | 9.7 | % | $ | 1,221 | 12.0 | % | $ | 1,135 | 13.5 | % | $ | 1,052 | 14.7 | % | ||||||||||||
90.01% to 95.00% | 32,986 | 55.2 | % | 5,430 | 53.4 | % | 4,379 | 52.2 | % | 3,677 | 51.3 | % | ||||||||||||||||
85.01% to 90.00% | 18,140 | 30.4 | % | 2,982 | 29.3 | % | 2,438 | 29.0 | % | 2,056 | 28.7 | % | ||||||||||||||||
85.00% and below | 2,805 | 4.7 | % | 535 | 5.3 | % | 444 | 5.3 | % | 380 | 5.3 | % | ||||||||||||||||
Total | $ | 59,712 | 100.0 | % | $ | 10,168 | 100.0 | % | $ | 8,396 | 100.0 | % | $ | 7,165 | 100.0 | % | ||||||||||||
Weighted average LTV | 92.9 | % | 92.9 | % | 92.9 | % | 93.0 | % | ||||||||||||||||||||
Total RIF by State: | ||||||||||||||||||||||||||||
Texas | $ | 4,961 | 8.3 | % | $ | 583 | 5.7 | % | $ | 469 | 5.6 | % | $ | 401 | 5.6 | % | ||||||||||||
California | 3,222 | 5.4 | % | 865 | 8.5 | % | 727 | 8.7 | % | 622 | 8.7 | % | ||||||||||||||||
Virginia | 2,586 | 4.3 | % | 377 | 3.7 | % | 300 | 3.6 | % | 237 | 3.3 | % | ||||||||||||||||
Florida | 2,367 | 4.0 | % | 544 | 5.4 | % | 422 | 5.0 | % | 345 | 4.8 | % | ||||||||||||||||
Washington | 2,331 | 3.9 | % | 302 | 3.0 | % | 279 | 3.3 | % | 261 | 3.6 | % | ||||||||||||||||
Georgia | 2,111 | 3.5 | % | 301 | 3.0 | % | 247 | 2.9 | % | 215 | 3.0 | % | ||||||||||||||||
Illinois | 2,090 | 3.5 | % | 348 | 3.4 | % | 279 | 3.3 | % | 218 | 3.0 | % | ||||||||||||||||
Maryland | 2,080 | 3.5 | % | 299 | 2.9 | % | 241 | 2.9 | % | 199 | 2.8 | % | ||||||||||||||||
Minnesota | 1,986 | 3.3 | % | 388 | 3.8 | % | 351 | 4.2 | % | 319 | 4.5 | % | ||||||||||||||||
Ohio | 1,916 | 3.2 | % | 312 | 3.1 | % | 260 | 3.1 | % | 212 | 3.0 | % | ||||||||||||||||
Others | 34,062 | 57.0 | % | 5,849 | 57.5 | % | 4,821 | 57.4 | % | 4,136 | 57.7 | % | ||||||||||||||||
Total | $ | 59,712 | 100.0 | % | $ | 10,168 | 100.0 | % | $ | 8,396 | 100.0 | % | $ | 7,165 | 100.0 | % | ||||||||||||
Weighted average coverage (end of period RIF divided by IIF) | 25.5 | % | 25.3 | % | 25.2 | % | 25.2 | % | ||||||||||||||||||||
Analysts’ persistency (5) | 76.1 | % | 75.4 | % | 75.6 | % | 74.2 | % | ||||||||||||||||||||
Risk-to-capital ratio (6) | 12.0:1 | 15.4:1 | 12.4:1 | 11.1:1 | ||||||||||||||||||||||||
U.S. mortgage insurance total RIF, net of reinsurance (7) | $ | 42,183 | $ | 8,918 | $ | 7,198 | $ | 6,274 | ||||||||||||||||||||
(1) Reflects the acquisition of UGC on December 31, 2016. (5) Represents the % of IIF at the beginning of a 12-month period that remained in force at the end of the period.
(2) The aggregate dollar amount of each insured mortgage loan’s current principal balance. (6) Represents total current (non-delinquent) RIF, net of reinsurance, divided by total statutory capital. Ratio
(3) Includes GSE credit risk-sharing transactions and international insurance business. calculated for combined Arch MI U.S. and key UGC subsidiaries only (estimate for December 31, 2016).
(4) | The aggregate amount of each insured mortgage loan’s current principal balance multiplied (7) Total RIF for the U.S. mortgage insurance operations (see note 4) after external reinsurance. |
by the insurance coverage percentage specified in the policy for insurance policies issued
and after contract limits and/or loss ratio caps for risk-sharing or reinsurance transactions.
19 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
(U.S. Dollars in millions, except policy/loan/claim count) | Three Months Ended | Year Ended | |||||||||||||||||||||||||||||||||
December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2016 | |||||||||||||||||||||||||||||||
Supplemental disclosures for U.S. mortgage insurance: | |||||||||||||||||||||||||||||||||||
Total new insurance written (NIW) (1) | $ | 8,788 | $ | 8,753 | $ | 6,420 | $ | 2,906 | $ | 26,867 | |||||||||||||||||||||||||
Total NIW by credit quality (FICO score): | |||||||||||||||||||||||||||||||||||
>=740 | $ | 5,181 | 59.0 | % | $ | 5,187 | 59.3 | % | $ | 3,950 | 61.5 | % | $ | 1,808 | 62.2 | % | $ | 16,126 | 60.0 | % | |||||||||||||||
680-739 | 3,124 | 35.5 | % | 3,074 | 35.1 | % | 2,162 | 33.7 | % | 959 | 33.0 | % | 9,319 | 34.7 | % | ||||||||||||||||||||
620-679 | 483 | 5.5 | % | 492 | 5.6 | % | 307 | 4.8 | % | 139 | 4.8 | % | 1,421 | 5.3 | % | ||||||||||||||||||||
<620 | — | — | % | — | — | % | 1 | — | % | — | — | % | 1 | — | % | ||||||||||||||||||||
Total | $ | 8,788 | 100.0 | % | $ | 8,753 | 100.0 | % | $ | 6,420 | 100.0 | % | $ | 2,906 | 100.0 | % | $ | 26,867 | 100.0 | % | |||||||||||||||
Total NIW by LTV: | |||||||||||||||||||||||||||||||||||
95.01% and above | $ | 543 | 6.2 | % | $ | 507 | 5.8 | % | $ | 551 | 8.6 | % | $ | 175 | 6.0 | % | $ | 1,776 | 6.6 | % | |||||||||||||||
90.01% to 95.00% | 4,175 | 47.5 | % | 4,261 | 48.7 | % | 2,983 | 46.5 | % | 1,233 | 42.4 | % | 12,652 | 47.1 | % | ||||||||||||||||||||
85.01% to 90.00% | 2,815 | 32.0 | % | 2,883 | 32.9 | % | 2,078 | 32.4 | % | 1,021 | 35.1 | % | 8,797 | 32.7 | % | ||||||||||||||||||||
85.01% and below | 1,255 | 14.3 | % | 1,102 | 12.6 | % | 808 | 12.6 | % | 477 | 16.4 | % | 3,642 | 13.6 | % | ||||||||||||||||||||
Total | $ | 8,788 | 100.0 | % | $ | 8,753 | 100.0 | % | $ | 6,420 | 100.0 | % | $ | 2,906 | 100.0 | % | $ | 26,867 | 100.0 | % | |||||||||||||||
Total NIW purchase vs. refinance: | |||||||||||||||||||||||||||||||||||
Purchase | $ | 6,964 | 79.2 | % | $ | 7,264 | 83.0 | % | $ | 5,309 | 82.7 | % | $ | 2,055 | 70.7 | % | $ | 21,592 | 80.4 | % | |||||||||||||||
Refinance | 1,824 | 20.8 | % | 1,489 | 17.0 | % | 1,111 | 17.3 | % | 851 | 29.3 | % | 5,275 | 19.6 | % | ||||||||||||||||||||
Total | $ | 8,788 | 100.0 | % | $ | 8,753 | 100.0 | % | $ | 6,420 | 100.0 | % | $ | 2,906 | 100.0 | % | $ | 26,867 | 100.0 | % | |||||||||||||||
Ending number of policies in force (PIF) (3) | 1,153,630 | 199,661 | 172,666 | 153,984 | |||||||||||||||||||||||||||||||
Rollforward of insured loans in default: | |||||||||||||||||||||||||||||||||||
Beginning delinquent number of loans | 2,423 | 2,245 | 2,325 | 2,702 | 2,702 | ||||||||||||||||||||||||||||||
Plus: new notices | 1,161 | 1,251 | 1,033 | 1,048 | 4,493 | ||||||||||||||||||||||||||||||
Less: cures | (1,026 | ) | (925 | ) | (919 | ) | (1,206 | ) | (4,076 | ) | |||||||||||||||||||||||||
Less: paid claims | (153 | ) | (151 | ) | (193 | ) | (222 | ) | (719 | ) | |||||||||||||||||||||||||
Less: delinquent rescissions and denials | (2 | ) | 3 | (1 | ) | 3 | 3 | ||||||||||||||||||||||||||||
Plus: acquired delinquent loans (3) | 27,288 | — | — | — | 27,288 | ||||||||||||||||||||||||||||||
Ending delinquent number of loans (3) | 29,691 | 2,423 | 2,245 | 2,325 | 29,691 | ||||||||||||||||||||||||||||||
Ending percentage of loans in default (3) | 2.6 | % | 1.2 | % | 1.3 | % | 1.5 | % | |||||||||||||||||||||||||||
Losses: | |||||||||||||||||||||||||||||||||||
Number of claims paid | 153 | 151 | 193 | 222 | 719 | ||||||||||||||||||||||||||||||
Total paid claims (in thousands) | $ | 6,080 | $ | 5,513 | $ | 7,744 | $ | 9,168 | $ | 28,505 | |||||||||||||||||||||||||
Average per claim (in thousands) | $ | 39.7 | $ | 36.5 | $ | 40.1 | $ | 41.3 | $ | 39.6 | |||||||||||||||||||||||||
Severity (2) | 92.3 | % | 90.4 | % | 94.8 | % | 93.9 | % | 93.1 | % | |||||||||||||||||||||||||
Average reserve per default (in thousands) (3) | $ | 20.5 | $ | 25.2 | $ | 27.8 | $ | 32.1 | |||||||||||||||||||||||||||
(1) The original principal balance of all loans that received coverage during the period.
(2) Represents total paid claims divided by RIF of loans for which claims were paid.
(3) Reflects the acquisition of UGC on December 31, 2016, including first lien primary and pool policies.
20 | ||
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Selected Information on Losses and Loss Adjustment Expenses
(U.S. Dollars in thousands) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Components of losses and loss adjustment expenses incurred (1) | ||||||||||||||||||||||||||||
Paid losses and loss adjustment expenses | $ | 431,071 | $ | 407,352 | $ | 484,033 | $ | 391,543 | $ | 445,914 | $ | 1,713,999 | $ | 1,811,456 | ||||||||||||||
Change in unpaid losses and loss adjustment expenses | 38,145 | 42,524 | 17,057 | 52,293 | (23,856 | ) | 150,019 | (38,212 | ) | |||||||||||||||||||
Total losses and loss adjustment expenses | $ | 469,216 | $ | 449,876 | $ | 501,090 | $ | 443,836 | $ | 422,058 | $ | 1,864,018 | $ | 1,773,244 | ||||||||||||||
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments (1) | ||||||||||||||||||||||||||||
Net impact on underwriting results: | ||||||||||||||||||||||||||||
Insurance | $ | (7,523 | ) | $ | (12,043 | ) | $ | (4,133 | ) | $ | (4,177 | ) | $ | (10,561 | ) | $ | (27,876 | ) | $ | (40,255 | ) | |||||||
Reinsurance | (41,965 | ) | (60,374 | ) | (63,187 | ) | (46,943 | ) | (55,411 | ) | (212,469 | ) | (219,567 | ) | ||||||||||||||
Mortgage | (4,911 | ) | (2,498 | ) | (11,066 | ) | (2,735 | ) | (4,579 | ) | (21,210 | ) | (12,464 | ) | ||||||||||||||
Total | $ | (54,399 | ) | $ | (74,915 | ) | $ | (78,386 | ) | $ | (53,855 | ) | $ | (70,551 | ) | $ | (261,555 | ) | $ | (272,286 | ) | |||||||
Impact on losses and loss adjustment expenses: | ||||||||||||||||||||||||||||
Insurance | $ | (8,281 | ) | $ | (13,716 | ) | $ | (4,905 | ) | $ | (6,150 | ) | $ | (10,030 | ) | $ | (33,052 | ) | $ | (47,246 | ) | |||||||
Reinsurance | (42,096 | ) | (59,481 | ) | (69,836 | ) | (47,364 | ) | (59,091 | ) | (218,777 | ) | (224,841 | ) | ||||||||||||||
Mortgage | (4,911 | ) | (2,498 | ) | (11,066 | ) | (2,735 | ) | (4,579 | ) | (21,210 | ) | (12,294 | ) | ||||||||||||||
Total | $ | (55,288 | ) | $ | (75,695 | ) | $ | (85,807 | ) | $ | (56,249 | ) | $ | (73,700 | ) | $ | (273,039 | ) | $ | (284,381 | ) | |||||||
Impact on acquisition expenses: | ||||||||||||||||||||||||||||
Insurance | $ | 758 | $ | 1,673 | $ | 772 | $ | 1,973 | $ | (531 | ) | $ | 5,176 | $ | 6,991 | |||||||||||||
Reinsurance | 131 | (893 | ) | 6,649 | 421 | 3,680 | 6,308 | 5,274 | ||||||||||||||||||||
Mortgage | — | — | — | — | — | — | (170 | ) | ||||||||||||||||||||
Total | $ | 889 | $ | 780 | $ | 7,421 | $ | 2,394 | $ | 3,149 | $ | 11,484 | $ | 12,095 | ||||||||||||||
Impact on combined ratio: | ||||||||||||||||||||||||||||
Insurance | (1.5 | )% | (2.3 | )% | (0.8 | )% | (0.8 | )% | (2.1 | )% | (1.3 | )% | (2.0 | )% | ||||||||||||||
Reinsurance | (16.7 | )% | (24.0 | )% | (21.7 | )% | (18.0 | )% | (21.1 | )% | (20.1 | )% | (20.4 | )% | ||||||||||||||
Mortgage | (6.0 | )% | (3.2 | )% | (16.6 | )% | (4.4 | )% | (8.1 | )% | (7.4 | )% | (5.8 | )% | ||||||||||||||
Total | (6.4 | )% | (8.8 | )% | (8.9 | )% | (6.4 | )% | (8.6 | )% | (7.7 | )% | (8.2 | )% | ||||||||||||||
Impact on loss ratio: | ||||||||||||||||||||||||||||
Insurance | (1.6 | )% | (2.6 | )% | (0.9 | )% | (1.2 | )% | (2.0 | )% | (1.6 | )% | (2.3 | )% | ||||||||||||||
Reinsurance | (16.7 | )% | (23.6 | )% | (24.0 | )% | (18.1 | )% | (22.5 | )% | (20.7 | )% | (20.9 | )% | ||||||||||||||
Mortgage | (6.0 | )% | (3.2 | )% | (16.6 | )% | (4.4 | )% | (8.1 | )% | (7.4 | )% | (5.7 | )% | ||||||||||||||
Total | (6.5 | )% | (8.9 | )% | (9.7 | )% | (6.7 | )% | (8.9 | )% | (8.0 | )% | (8.5 | )% | ||||||||||||||
Impact on acquisition expense ratio: | ||||||||||||||||||||||||||||
Insurance | 0.1 | % | 0.3 | % | 0.1 | % | 0.4 | % | (0.1 | )% | 0.3 | % | 0.3 | % | ||||||||||||||
Reinsurance | — | % | (0.4 | )% | 2.3 | % | 0.1 | % | 1.4 | % | 0.6 | % | 0.5 | % | ||||||||||||||
Mortgage | — | % | — | % | — | % | — | % | — | % | — | % | (0.1 | )% | ||||||||||||||
Total | 0.1 | % | 0.1 | % | 0.8 | % | 0.3 | % | 0.3 | % | 0.3 | % | 0.3 | % | ||||||||||||||
Estimated net losses incurred from current accident year catastrophic events (2) | ||||||||||||||||||||||||||||
Insurance | $ | 23,725 | $ | 1,774 | $ | 20,592 | $ | 428 | $ | 1,888 | $ | 46,519 | $ | 19,633 | ||||||||||||||
Reinsurance | 10,349 | 8,931 | 15,705 | 3,774 | 13,972 | 38,759 | 35,546 | |||||||||||||||||||||
Total | $ | 34,074 | $ | 10,705 | $ | 36,297 | $ | 4,202 | $ | 15,860 | $ | 85,278 | $ | 55,179 | ||||||||||||||
Impact on combined ratio: | ||||||||||||||||||||||||||||
Insurance | 4.6 | % | 0.3 | % | 3.9 | % | 0.1 | % | 0.4 | % | 2.2 | % | 1.0 | % | ||||||||||||||
Reinsurance | 4.1 | % | 3.5 | % | 5.4 | % | 1.4 | % | 5.3 | % | 3.7 | % | 3.3 | % | ||||||||||||||
Total | 4.0 | % | 1.3 | % | 4.1 | % | 0.5 | % | 1.9 | % | 2.5 | % | 1.7 | % | ||||||||||||||
(1) | Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. |
(2) | Equals estimated losses from catastrophic events occurring in the current accident year, net of reinsurance and reinstatement premiums. Amounts shown for the insurance segment are for named catastrophic events only. Amounts shown for the reinsurance segment include (i) named events with over $5 million of losses incurred by its Bermuda and Europe operations and (ii) all catastrophe losses incurred by its U.S. operations. Amounts not applicable for the mortgage segment. |
21 | ||
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Investable Asset Summary and Investment Portfolio Metrics
The following table summarizes the Company’s investable assets and portfolio metrics. The December 31, 2016 balances include the impact of the UGC acquisition (1):
(U.S. Dollars in thousands) | December 31, | September 30, | June 30, | March 31, | December 31, | ||||||||||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | |||||||||||||||||||||||||||||||
Investable assets (1) (2): | |||||||||||||||||||||||||||||||||||
Fixed maturities available for sale, at fair value | $ | 13,426,577 | 72.0 | % | $ | 11,026,929 | 68.7 | % | $ | 11,050,464 | 72.8 | % | $ | 10,645,257 | 71.2 | % | $ | 10,459,353 | 71.4 | % | |||||||||||||||
Fixed maturities, at fair value (3) | 364,856 | 2.0 | % | 423,733 | 2.6 | % | 377,482 | 2.5 | % | 371,298 | 2.5 | % | 367,780 | 2.5 | % | ||||||||||||||||||||
Fixed maturities pledged under securities lending agreements, at fair value | 730,341 | 3.9 | % | 442,099 | 2.8 | % | 319,672 | 2.1 | % | 558,603 | 3.7 | % | 373,304 | 2.5 | % | ||||||||||||||||||||
Total fixed maturities | 14,521,774 | 77.9 | % | 11,892,761 | 74.1 | % | 11,747,618 | 77.4 | % | 11,575,158 | 77.4 | % | 11,200,437 | 76.5 | % | ||||||||||||||||||||
Short-term investments available for sale, at fair value | 612,005 | 3.3 | % | 1,184,408 | 7.4 | % | 853,531 | 5.6 | % | 623,844 | 4.2 | % | 587,904 | 4.0 | % | ||||||||||||||||||||
Short-term investments, at fair value (3) | 64,542 | 0.3 | % | — | — | % | — | — | % | — | — | % | — | — | % | ||||||||||||||||||||
Short-term investments pledged under securities lending agreements, at fair value | — | — | % | — | — | % | — | — | % | 6,000 | — | % | — | — | % | ||||||||||||||||||||
Cash | 768,049 | 4.1 | % | 511,784 | 3.2 | % | 442,066 | 2.9 | % | 479,545 | 3.2 | % | 444,776 | 3.0 | % | ||||||||||||||||||||
Equity securities available for sale, at fair value | 518,041 | 2.8 | % | 521,587 | 3.3 | % | 490,815 | 3.2 | % | 506,915 | 3.4 | % | 618,405 | 4.2 | % | ||||||||||||||||||||
Equity securities, at fair value (3) | 25,328 | 0.1 | % | 27,644 | 0.2 | % | 7,090 | — | % | 437 | — | % | 798 | — | % | ||||||||||||||||||||
Equity securities pledged under securities lending agreements, at fair value | 14,639 | 0.1 | % | 11,658 | 0.1 | % | 11,101 | 0.1 | % | 16,163 | 0.1 | % | 10,777 | 0.1 | % | ||||||||||||||||||||
Other investments available for sale, at fair value | 167,970 | 0.9 | % | 168,243 | 1.0 | % | 182,957 | 1.2 | % | 195,079 | 1.3 | % | 300,476 | 2.1 | % | ||||||||||||||||||||
Other investments, at fair value (3) | 1,108,871 | 6.0 | % | 1,065,853 | 6.6 | % | 1,003,621 | 6.6 | % | 1,010,450 | 6.8 | % | 908,809 | 6.2 | % | ||||||||||||||||||||
Investments accounted for using the equity method (4) | 811,273 | 4.4 | % | 797,542 | 5.0 | % | 685,766 | 4.5 | % | 628,832 | 4.2 | % | 592,973 | 4.0 | % | ||||||||||||||||||||
Securities transactions entered into but not settled at the balance sheet date | 23,697 | 0.1 | % | (138,760 | ) | (0.9 | )% | (246,257 | ) | (1.6 | )% | (88,129 | ) | (0.6 | )% | (20,524 | ) | (0.1 | )% | ||||||||||||||||
Total investable assets managed by the Company | $ | 18,636,189 | 100.0 | % | $ | 16,042,720 | 100.0 | % | $ | 15,178,308 | 100.0 | % | $ | 14,954,294 | 100.0 | % | $ | 14,644,831 | 100.0 | % | |||||||||||||||
Average effective duration (in years) | 3.64 | 3.31 | 3.85 | 3.56 | 3.43 | ||||||||||||||||||||||||||||||
Average S&P/Moody’s credit ratings (5) | AA-/Aa3 | AA/Aa2 | AA/Aa2 | AA/Aa2 | AA/Aa2 | ||||||||||||||||||||||||||||||
Embedded book yield (before investment expenses) | 2.03 | % | 1.78 | % | 1.92 | % | 2.07 | % | 2.16 | % | |||||||||||||||||||||||||
(1) | Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. Such amounts are summarized as follows: |
(U.S. Dollars in thousands) | December 31, | September 30, | June 30, | March 31, | December 31, | |||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | ||||||||||||||||
Investable assets in ‘other’ segment: | ||||||||||||||||||||
Cash | $ | 74,893 | $ | 67,032 | $ | 74,525 | $ | 78,416 | $ | 108,550 | ||||||||||
Investments accounted for using the fair value option | 1,857,623 | 1,872,343 | 1,677,836 | 1,757,147 | 1,617,107 | |||||||||||||||
Securities sold but not yet purchased | (33,157 | ) | (52,195 | ) | (54,668 | ) | (48,279 | ) | (30,583 | ) | ||||||||||
Securities transactions entered into but not settled at the balance sheet date | (41,596 | ) | (50,169 | ) | 5,738 | (77,422 | ) | 1,033 | ||||||||||||
Total investable assets included in ‘other’ segment | $ | 1,857,763 | $ | 1,837,011 | $ | 1,703,431 | $ | 1,709,862 | $ | 1,696,107 | ||||||||||
(2) This table excludes the collateral received and reinvested and includes the securities pledged under securities lending agreements, at fair value.
(3) Represents investments which are carried at fair value under the fair value option and reflected as “investments accounted for using the fair value option” on the balance sheet.
(4) | Changes in the carrying value of investment funds accounted for using the equity method are recorded as “equity in net income (loss) of investment funds accounted for using the equity method” rather than as an unrealized gain or loss component of accumulated other comprehensive income. |
(5) Average credit ratings on the Company’s investment portfolio on securities with ratings assigned by Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”).
22 | ||
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Composition of Net Investment Income, Yield and Total Return
The following table summarizes the Company’s net investment income, yield and total return:
(U.S. Dollars in thousands, except share data) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Composition of net investment income (1): | ||||||||||||||||||||||||||||
Fixed maturities | $ | 60,402 | $ | 58,542 | $ | 64,365 | $ | 59,001 | $ | 58,942 | $ | 242,310 | $ | 241,389 | ||||||||||||||
Term loan investments (2) | 9,626 | 6,397 | 5,669 | 4,858 | 5,639 | 26,550 | 19,290 | |||||||||||||||||||||
Equity securities (dividends) | 2,450 | 3,633 | 3,984 | 3,756 | 5,111 | 13,823 | 14,339 | |||||||||||||||||||||
Short-term investments | 1,720 | 823 | 618 | 458 | 121 | 3,619 | 574 | |||||||||||||||||||||
Other (3) | 9,120 | 8,706 | 8,152 | 13,672 | 8,259 | 39,650 | 41,721 | |||||||||||||||||||||
Gross investment income | 83,318 | 78,101 | 82,788 | 81,745 | 78,072 | 325,952 | 317,313 | |||||||||||||||||||||
Investment expenses | (13,313 | ) | (11,819 | ) | (12,391 | ) | (11,336 | ) | (11,102 | ) | (48,859 | ) | (45,633 | ) | ||||||||||||||
Net investment income | $ | 70,005 | $ | 66,282 | $ | 70,397 | $ | 70,409 | $ | 66,970 | $ | 277,093 | $ | 271,680 | ||||||||||||||
Per share | $ | 0.56 | $ | 0.53 | $ | 0.57 | $ | 0.57 | $ | 0.53 | $ | 2.22 | $ | 2.16 | ||||||||||||||
Investment income yield, at amortized cost (1) (4): | ||||||||||||||||||||||||||||
Pre-tax | 1.92 | % | 1.81 | % | 2.08 | % | 2.13 | % | 2.02 | % | 1.92 | % | 2.06 | % | ||||||||||||||
After-tax | 1.80 | % | 1.70 | % | 1.91 | % | 1.91 | % | 1.82 | % | 1.77 | % | 1.88 | % | ||||||||||||||
Total return (1) (5): | ||||||||||||||||||||||||||||
Including effects of foreign exchange | (1.89 | )% | 0.88 | % | 1.27 | % | 1.82 | % | (0.33 | )% | 2.07 | % | 0.41 | % | ||||||||||||||
Excluding effects of foreign exchange | (1.66 | )% | 0.91 | % | 1.63 | % | 1.48 | % | (0.10 | )% | 2.35 | % | 1.62 | % | ||||||||||||||
(1) | Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. |
(2) | Included in “investments accounted for using the fair value option” on the Company’s balance sheet. |
(3) | Includes income on other investments, funds held balances, cash balances and other. |
(4) | Presented on an annualized basis and excluding the impact of investments for which returns are not included within investment income, such as investments accounted for using the equity method and certain equities. |
(5) | Includes net investment income, equity in net income or loss of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains or losses generated by the Company’s investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses. |
23 | ||
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Composition of Fixed Maturities
The following table summarizes the Company’s fixed maturities and fixed maturities pledged under securities lending agreements (1):
(U.S. Dollars in thousands) | Fair Value | Gross Unrealized Gains | Gross Unrealized Losses | Net Unrealized Gains (Losses) | Amortized Cost | Fair Value / Amortized Cost | % of Total | |||||||||||||||||||
At December 31, 2016 | ||||||||||||||||||||||||||
Corporates | $ | 4,696,079 | $ | 32,354 | $ | (69,044 | ) | $ | (36,690 | ) | $ | 4,732,769 | 99.2 | % | 32.3 | % | ||||||||||
U.S. government and government agencies | 2,804,811 | 9,314 | (24,464 | ) | (15,150 | ) | 2,819,961 | 99.5 | % | 19.3 | % | |||||||||||||||
Agency mortgage-backed securities | 393,188 | 1,426 | (6,901 | ) | (5,475 | ) | 398,663 | 98.6 | % | 2.7 | % | |||||||||||||||
Non-agency mortgage-backed securities | 111,489 | 4,129 | (1,728 | ) | 2,401 | 109,088 | 102.2 | % | 0.8 | % | ||||||||||||||||
Agency commercial mortgage-backed securities | 12,900 | 28 | (22 | ) | 6 | 12,894 | 100.0 | % | 0.1 | % | ||||||||||||||||
Non-agency commercial mortgage-backed securities | 523,151 | 2,848 | (6,486 | ) | (3,638 | ) | 526,789 | 99.3 | % | 3.6 | % | |||||||||||||||
Municipal bonds | 3,713,434 | 8,554 | (29,154 | ) | (20,600 | ) | 3,734,034 | 99.4 | % | 25.6 | % | |||||||||||||||
Non-U.S. government securities | 1,142,735 | 20,131 | (58,438 | ) | (38,307 | ) | 1,181,042 | 96.8 | % | 7.9 | % | |||||||||||||||
Asset-backed securities | 1,123,987 | 6,897 | (6,526 | ) | 371 | 1,123,616 | 100.0 | % | 7.7 | % | ||||||||||||||||
Total | $ | 14,521,774 | $ | 85,681 | $ | (202,763 | ) | $ | (117,082 | ) | $ | 14,638,856 | 99.2 | % | 100.0 | % | ||||||||||
At December 31, 2015 | ||||||||||||||||||||||||||
Corporates | $ | 2,960,694 | $ | 15,978 | $ | (60,508 | ) | $ | (44,530 | ) | $ | 3,005,224 | 98.5 | % | 26.4 | % | ||||||||||
U.S. government and government agencies | 2,423,455 | 6,228 | (9,978 | ) | (3,750 | ) | 2,427,205 | 99.8 | % | 21.6 | % | |||||||||||||||
Agency mortgage-backed securities | 562,162 | 1,925 | (3,612 | ) | (1,687 | ) | 563,849 | 99.7 | % | 5.0 | % | |||||||||||||||
Non-agency mortgage-backed securities | 250,395 | 7,947 | (1,722 | ) | 6,225 | 244,170 | 102.5 | % | 2.2 | % | ||||||||||||||||
Agency commercial mortgage-backed securities | 75,252 | 239 | (278 | ) | (39 | ) | 75,291 | 99.9 | % | 0.7 | % | |||||||||||||||
Non-agency commercial mortgage-backed securities | 688,900 | 3,030 | (6,700 | ) | (3,670 | ) | 692,570 | 99.5 | % | 6.2 | % | |||||||||||||||
Municipal bonds | 1,626,281 | 27,014 | (1,534 | ) | 25,480 | 1,600,801 | 101.6 | % | 14.5 | % | ||||||||||||||||
Non-U.S. government securities | 992,792 | 10,414 | (39,122 | ) | (28,708 | ) | 1,021,500 | 97.2 | % | 8.9 | % | |||||||||||||||
Asset-backed securities | 1,620,506 | 3,307 | (12,951 | ) | (9,644 | ) | 1,630,150 | 99.4 | % | 14.5 | % | |||||||||||||||
Total | $ | 11,200,437 | $ | 76,082 | $ | (136,405 | ) | $ | (60,323 | ) | $ | 11,260,760 | 99.5 | % | 100.0 | % | ||||||||||
(1) | Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. |
24 | ||
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Credit Quality Distribution and Maturity Profile
The following table summarizes the credit quality distribution and maturity profile of the Company’s fixed maturities and fixed maturities pledged under securities lending agreements (1):
(U.S. Dollars in thousands) | December 31, | September 30, | June 30, | March 31, | December 31, | ||||||||||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | |||||||||||||||||||||||||||||||
Credit quality distribution of total fixed maturities (2) (3): | |||||||||||||||||||||||||||||||||||
U.S. government and government agencies (4) | $ | 3,210,899 | 22.1 | % | $ | 3,579,338 | 30.1 | % | $ | 3,364,709 | 28.6 | % | $ | 3,611,793 | 31.2 | % | $ | 3,060,869 | 27.3 | % | |||||||||||||||
AAA | 3,898,848 | 26.8 | % | 3,383,665 | 28.5 | % | 3,421,385 | 29.1 | % | 3,797,393 | 32.8 | % | 4,000,750 | 35.7 | % | ||||||||||||||||||||
AA | 3,156,509 | 21.7 | % | 2,137,615 | 18.0 | % | 2,255,666 | 19.2 | % | 1,524,692 | 13.2 | % | 1,651,760 | 14.7 | % | ||||||||||||||||||||
A | 2,339,344 | 16.1 | % | 1,581,646 | 13.3 | % | 1,541,075 | 13.1 | % | 1,512,085 | 13.1 | % | 1,431,138 | 12.8 | % | ||||||||||||||||||||
BBB | 1,206,002 | 8.3 | % | 470,613 | 4.0 | % | 525,084 | 4.5 | % | 484,968 | 4.2 | % | 457,251 | 4.1 | % | ||||||||||||||||||||
BB | 226,892 | 1.6 | % | 277,589 | 2.3 | % | 232,859 | 2.0 | % | 233,348 | 2.0 | % | 203,426 | 1.8 | % | ||||||||||||||||||||
B | 156,592 | 1.1 | % | 163,327 | 1.4 | % | 151,549 | 1.3 | % | 164,744 | 1.4 | % | 138,770 | 1.2 | % | ||||||||||||||||||||
Lower than B | 91,721 | 0.6 | % | 101,602 | 0.9 | % | 96,726 | 0.8 | % | 100,441 | 0.9 | % | 130,545 | 1.2 | % | ||||||||||||||||||||
Not rated | 234,967 | 1.6 | % | 197,366 | 1.7 | % | 158,565 | 1.3 | % | 145,694 | 1.3 | % | 125,928 | 1.1 | % | ||||||||||||||||||||
Total fixed maturities, at fair value | $ | 14,521,774 | 100.0 | % | $ | 11,892,761 | 100.0 | % | $ | 11,747,618 | 100.0 | % | $ | 11,575,158 | 100.0 | % | $ | 11,200,437 | 100.0 | % | |||||||||||||||
Maturity profile of total fixed maturities (2): | |||||||||||||||||||||||||||||||||||
Due in one year or less | $ | 582,729 | 4.0 | % | $ | 308,548 | 2.6 | % | $ | 272,242 | 2.3 | % | $ | 295,627 | 2.6 | % | $ | 357,343 | 3.2 | % | |||||||||||||||
Due after one year through five years | 6,367,486 | 43.8 | % | 5,484,120 | 46.1 | % | 5,225,233 | 44.5 | % | 5,391,177 | 46.6 | % | 4,790,737 | 42.8 | % | ||||||||||||||||||||
Due after five years through ten years | 4,753,999 | 32.7 | % | 2,873,200 | 24.2 | % | 2,907,672 | 24.8 | % | 2,561,411 | 22.1 | % | 2,318,165 | 20.7 | % | ||||||||||||||||||||
Due after 10 years | 652,845 | 4.5 | % | 790,392 | 6.6 | % | 677,863 | 5.8 | % | 642,505 | 5.6 | % | 536,977 | 4.8 | % | ||||||||||||||||||||
12,357,059 | 85.1 | % | 9,456,260 | 79.5 | % | 9,083,010 | 77.3 | % | 8,890,720 | 76.8 | % | 8,003,222 | 71.5 | % | |||||||||||||||||||||
Mortgage-backed securities | 504,677 | 3.5 | % | 577,097 | 4.9 | % | 674,451 | 5.7 | % | 714,001 | 6.2 | % | 812,557 | 7.3 | % | ||||||||||||||||||||
Commercial mortgage-backed securities | 536,051 | 3.7 | % | 618,235 | 5.2 | % | 624,391 | 5.3 | % | 577,853 | 5.0 | % | 764,152 | 6.8 | % | ||||||||||||||||||||
Asset-backed securities | 1,123,987 | 7.7 | % | 1,241,169 | 10.4 | % | 1,365,766 | 11.6 | % | 1,392,584 | 12.0 | % | 1,620,506 | 14.5 | % | ||||||||||||||||||||
Total fixed maturities, at fair value | $ | 14,521,774 | 100.0 | % | $ | 11,892,761 | 100.0 | % | $ | 11,747,618 | 100.0 | % | $ | 11,575,158 | 100.0 | % | $ | 11,200,437 | 100.0 | % | |||||||||||||||
(1) | Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. |
(2) | This table excludes the collateral received and reinvested and includes the fixed maturities pledged under securities lending agreements, at fair value. |
(3) For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.
(4) Includes U.S. government-sponsored agency mortgage backed securities and agency commercial mortgage backed securities.
25 | ||
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Analysis of Corporate Exposures
The following table summarizes the Company’s corporate bonds by sector (1):
(U.S. Dollars in thousands) | December 31, | September 30, | June 30, | March 31, | December 31, | ||||||||||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | |||||||||||||||||||||||||||||||
Sector: | |||||||||||||||||||||||||||||||||||
Industrials | $ | 2,617,467 | 55.7 | % | $ | 1,637,201 | 50.4 | % | $ | 1,638,355 | 51.0 | % | $ | 1,598,431 | 51.1 | % | $ | 1,512,970 | 51.1 | % | |||||||||||||||
Financials | 1,321,493 | 28.1 | % | 1,056,883 | 32.5 | % | 1,025,714 | 31.9 | % | 966,692 | 30.9 | % | 997,189 | 33.7 | % | ||||||||||||||||||||
Utilities | 366,440 | 7.8 | % | 178,199 | 5.5 | % | 225,403 | 7.0 | % | 207,371 | 6.6 | % | 180,405 | 6.1 | % | ||||||||||||||||||||
Covered bonds | 182,132 | 3.9 | % | 168,133 | 5.2 | % | 154,194 | 4.8 | % | 171,101 | 5.5 | % | 163,739 | 5.5 | % | ||||||||||||||||||||
All other (2) | 208,547 | 4.4 | % | 210,005 | 6.5 | % | 166,937 | 5.2 | % | 181,928 | 5.8 | % | 106,391 | 3.6 | % | ||||||||||||||||||||
Total fixed maturities, at fair value | $ | 4,696,079 | 100.0 | % | $ | 3,250,421 | 100.0 | % | $ | 3,210,603 | 100.0 | % | $ | 3,125,523 | 100.0 | % | $ | 2,960,694 | 100.0 | % | |||||||||||||||
Credit quality distribution (3): | |||||||||||||||||||||||||||||||||||
AAA | $ | 470,072 | 10.0 | % | $ | 429,523 | 13.2 | % | $ | 367,194 | 11.4 | % | $ | 461,572 | 14.8 | % | $ | 422,833 | 14.3 | % | |||||||||||||||
AA | 819,071 | 17.4 | % | 788,465 | 24.3 | % | 837,863 | 26.1 | % | 704,982 | 22.6 | % | 737,666 | 24.9 | % | ||||||||||||||||||||
A | 1,842,796 | 39.2 | % | 1,193,288 | 36.7 | % | 1,134,860 | 35.3 | % | 1,138,261 | 36.4 | % | 1,064,964 | 36.0 | % | ||||||||||||||||||||
BBB | 1,054,202 | 22.4 | % | 348,405 | 10.7 | % | 420,279 | 13.1 | % | 377,861 | 12.1 | % | 360,226 | 12.2 | % | ||||||||||||||||||||
BB | 190,913 | 4.1 | % | 195,010 | 6.0 | % | 184,652 | 5.8 | % | 174,657 | 5.6 | % | 154,050 | 5.2 | % | ||||||||||||||||||||
B | 138,910 | 3.0 | % | 140,582 | 4.3 | % | 136,997 | 4.3 | % | 150,354 | 4.8 | % | 126,385 | 4.3 | % | ||||||||||||||||||||
Lower than B | 28,866 | 0.6 | % | 28,228 | 0.9 | % | 20,416 | 0.6 | % | 17,657 | 0.6 | % | 11,844 | 0.4 | % | ||||||||||||||||||||
Not rated | 151,249 | 3.2 | % | 126,920 | 3.9 | % | 108,342 | 3.4 | % | 100,179 | 3.2 | % | 82,726 | 2.8 | % | ||||||||||||||||||||
Total fixed maturities, at fair value | $ | 4,696,079 | 100.0 | % | $ | 3,250,421 | 100.0 | % | $ | 3,210,603 | 100.0 | % | $ | 3,125,523 | 100.0 | % | $ | 2,960,694 | 100.0 | % | |||||||||||||||
(1) | Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. |
(2) Includes sovereign securities, supranational securities and other.
(3) For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.
The following table summarizes the Company’s top ten exposures to fixed income corporate issuers by fair value at December 31, 2016, excluding covered bonds (1):
(U.S. Dollars in thousands) | Fair Value | % of Asset Class | % of Investable Assets | Credit Quality (2) | ||||||||
Issuer: | ||||||||||||
Microsoft Corporation | $ | 89,820 | 1.9 | % | 0.5 | % | AAA/Aaa | |||||
Apple Inc. | 72,861 | 1.6 | % | 0.4 | % | AAA/Aaa | ||||||
Bank of New York Mellon Corp. | 67,360 | 1.4 | % | 0.4 | % | AA+/Aa1 | ||||||
Oracle Corporation | 66,058 | 1.4 | % | 0.4 | % | A/A1 | ||||||
JPMorgan Chase & Co | 64,470 | 1.4 | % | 0.3 | % | AA-/A1 | ||||||
Royal Dutch Shell PLC | 58,019 | 1.2 | % | 0.3 | % | A-/A3 | ||||||
Daimler AG | 53,042 | 1.1 | % | 0.3 | % | A/Aa2 | ||||||
Bank of America Corporation | 51,193 | 1.1 | % | 0.3 | % | A/A3 | ||||||
MetLife, Inc. | 49,576 | 1.1 | % | 0.3 | % | BBB+/Baa1 | ||||||
Massmutual Global Funding II Corp | 47,767 | 1.0 | % | 0.3 | % | AA-/Aa3 | ||||||
Total | $ | 620,166 | 13.2 | % | 3.3 | % | ||||||
(1) | Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. |
(2) Average credit ratings assigned by S&P and Moody’s, respectively.
26 | ||
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Structured Securities
The following table provides information on the Company’s mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS) at December 31, 2016, excluding amounts guaranteed by U.S. government agencies (1):
(U.S. Dollars in thousands) | Average | Estimated Fair Value | ||||||||||||||||||||||||
Issuance | Amortized | Credit | % of Amortized | % of Investable | Non-Agency | Non-Agency | ||||||||||||||||||||
Year | Cost | Quality | Total | Cost | Assets | Additional Statistics: | MBS | CMBS (2) | ||||||||||||||||||
Non-agency MBS: | 2004-2008 | $ | 43,603 | C+ | $ | 47,426 | 108.8 | % | 0.3 | % | Wtd. average loan age (months) | 71 | 29 | |||||||||||||
2011 | 276 | AA+ | 273 | 98.9 | % | — | % | Wtd. average life (months) (3) | 90 | 80 | ||||||||||||||||
2012 | 142 | AAA | 145 | 102.1 | % | — | % | Wtd. average loan-to-value % (4) | 60.6 | % | 56.3 | % | ||||||||||||||
2013 | 85 | AAA | 75 | 88.2 | % | — | % | Total delinquencies (5) | 6.9 | % | 0.3 | % | ||||||||||||||
2014 | 3,367 | B- | 3,368 | 100.0 | % | — | % | Current credit support % (6) | 14.6 | % | 33.5 | % | ||||||||||||||
2015 | 1,959 | BBB- | 1,944 | 99.2 | % | — | % | |||||||||||||||||||
2016 | 59,656 | AA+ | 58,258 | 97.7 | % | 0.3 | % | |||||||||||||||||||
Total non-agency MBS | $ | 109,088 | BB+ | $ | 111,489 | 102.2 | % | 0.6 | % | |||||||||||||||||
Non-agency CMBS: | 2002-2008 | $ | 33,973 | AA | $ | 33,295 | 98.0 | % | 0.2 | % | ||||||||||||||||
2009 | 380 | BBB- | 379 | 99.7 | % | — | % | |||||||||||||||||||
2010 | 374 | B+ | 367 | 98.1 | % | — | % | |||||||||||||||||||
2012 | 25,795 | AAA | 25,831 | 100.1 | % | 0.1 | % | |||||||||||||||||||
2013 | 84,090 | AAA | 85,709 | 101.9 | % | 0.5 | % | |||||||||||||||||||
2014 | 159,369 | AA+ | 160,202 | 100.5 | % | 0.9 | % | |||||||||||||||||||
2015 | 122,142 | AAA | 120,377 | 98.6 | % | 0.6 | % | |||||||||||||||||||
2016 | 100,666 | AA+ | 96,991 | 96.3 | % | 0.5 | % | |||||||||||||||||||
Total non-agency CMBS | $ | 526,789 | AA+ | $ | 523,151 | 99.3 | % | 2.8 | % | |||||||||||||||||
(1) | Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. |
(2) | Loans defeased with government/agency obligations represented were not material to the collateral underlying the Company’s CMBS holdings. |
(3) | The weighted average life for MBS was based on the interest rates in effect at December 31, 2016. The weighted average life for CMBS reflected the average life of the collateral underlying the Company’s CMBS holdings. |
(4) | The range of loan-to-values on MBS was 16% to 93%, while the range of loan-to-values on CMBS was 0% to 412% at December 31, 2016. |
(5) | Total delinquencies included 60 days and over. |
(6) | Current credit support % represents the % for a collateralized mortgage obligation (CMO) or CMBS class/tranche from other subordinate classes in the same CMO or CMBS deal. |
The following table provides information on the Company’s asset-backed securities (ABS) at December 31, 2016 (1):
(U.S. Dollars in thousands) | Average | Weighted | Estimated Fair Value | ||||||||||||||||
Amortized | Credit | Average Credit | % of Amortized | % of Investable | |||||||||||||||
Sector: | Cost | Quality | Support | Total | Cost | Assets | |||||||||||||
Credit cards | $ | 613,355 | AAA | 17 | % | $ | 611,492 | 99.7 | % | 3.3 | % | ||||||||
Autos | 262,514 | AAA | 30 | % | 262,181 | 99.9 | % | 1.4 | % | ||||||||||
Loans | 83,467 | BBB | 22 | % | 83,464 | 100.0 | % | 0.4 | % | ||||||||||
Equipment | 103,985 | AA | 5 | % | 104,520 | 100.5 | % | 0.6 | % | ||||||||||
Other (2) | 60,295 | BB | 16 | % | 62,330 | 103.4 | % | 0.3 | % | ||||||||||
Total ABS (3) | $ | 1,123,616 | AA+ | $ | 1,123,987 | 100.0 | % | 6.0 | % | ||||||||||
(1) | Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. |
(2) | Including rate reduction bonds, commodities, home equity, U.K. securitized and other. |
(3) | The effective duration of the total ABS was 1.5 years at December 31, 2016. The Company’s investment portfolio included sub-prime securities with a par value of $45.5 million and estimated fair value of $35.9 million and an average credit quality of “CCC/Caa3” from S&P/Moody’s at December 31, 2016. Such amounts were primarily in the home equity sector of ABS with the balance in other ABS, MBS and CMBS sectors. |
27 | ||
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Bank Loan Investments
The Company’s investments in bank loans are included in the following categories at December 31, 2016 (1):
(U.S. Dollars in thousands) | Fair Value | % of Asset Class | % of Investable Assets | |||||||
Composition: | ||||||||||
Investment funds accounted for using the equity method | $ | 3,047 | 0.8 | % | — | % | ||||
Term loan investments (2) | 374,806 | 99.2 | % | 2.0 | % | |||||
Total | $ | 377,853 | 100.0 | % | 2.0 | % | ||||
Currency: | ||||||||||
U.S.-denominated | $ | 255,959 | 67.7 | % | 1.4 | % | ||||
Euro-denominated | 121,894 | 32.3 | % | 0.7 | % | |||||
Total | $ | 377,853 | 100.0 | % | 2.0 | % | ||||
Sector: | ||||||||||
Consumer non-cyclical | $ | 103,809 | 27.5 | % | 0.6 | % | ||||
Consumer cyclical | 78,197 | 20.7 | % | 0.4 | % | |||||
Industrials | 65,672 | 17.4 | % | 0.4 | % | |||||
Basic materials | 43,153 | 11.4 | % | 0.2 | % | |||||
Media | 29,087 | 7.7 | % | 0.2 | % | |||||
Utilities | 22,099 | 5.8 | % | 0.1 | % | |||||
All other | 35,836 | 9.5 | % | 0.2 | % | |||||
Total | $ | 377,853 | 100.0 | % | 2.0 | % | ||||
Weighted average rating factor (Moody's) | B2 | |||||||||
(1) | Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. |
(2) Included in “investments accounted for using the fair value option” on the Company’s balance sheet.
28 | ||
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Eurozone Investments
The fair value of the Company’s Eurozone investments are as follows at December 31, 2016 (1):
(U.S. Dollars in thousands) | Financial | Other | Bank | Equities | ||||||||||||||||||||
Sovereign (3) | Corporates | Corporates | Loans (4) | and Other | Total | |||||||||||||||||||
Country (2): | ||||||||||||||||||||||||
Netherlands | $ | 90,951 | $ | 13,050 | $ | 124,364 | $ | 1,723 | $ | 1,989 | $ | 232,077 | ||||||||||||
Germany | 74,772 | — | 41,520 | 199 | 7,259 | 123,750 | ||||||||||||||||||
France | 302 | 346 | 55,626 | 1,275 | 9,861 | 67,410 | ||||||||||||||||||
Luxembourg | — | — | 23,386 | 2,522 | — | 25,908 | ||||||||||||||||||
Belgium | 13,878 | 7,405 | 233 | 1 | — | 21,517 | ||||||||||||||||||
Ireland | — | — | 1,818 | 2,882 | 3,023 | 7,723 | ||||||||||||||||||
Supranational (4) | 7,454 | — | — | — | — | 7,454 | ||||||||||||||||||
Italy | — | — | — | 2 | 4,401 | 4,403 | ||||||||||||||||||
Spain | — | — | — | 2 | 3,718 | 3,720 | ||||||||||||||||||
Finland | — | — | — | — | 3,576 | 3,576 | ||||||||||||||||||
Greece | 81 | — | 711 | — | — | 792 | ||||||||||||||||||
Total | $ | 187,438 | $ | 20,801 | $ | 247,658 | $ | 8,606 | $ | 33,827 | $ | 498,330 | ||||||||||||
(1) | Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. |
(2) | The country allocations set forth in the table are based on various assumptions made by the Company in assessing the country in which the underlying credit risk resides, including a review of the jurisdiction of organization, business operations and other factors. Based on such analysis, the Company does not believe that it has any other Eurozone investments at December 31, 2016. |
(3) | Sovereign includes securities issued and/or guaranteed by Eurozone governments. |
(4) | Included in “term loan investments” in the Bank Loan Investments table. |
(5) | Includes World Bank, European Investment Bank, International Finance Corp. and European Bank for Reconstruction and Development. |
29 | ||
Arch Capital Group Ltd. and Subsidiaries
Comments on Regulation G
Throughout this financial supplement, 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 after-tax operating income available to Arch common shareholders, which is defined as net income available to Arch common shareholders, excluding net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and UGC transaction costs and other, net of income taxes, and the use of annualized operating return on average common equity. The presentation of after-tax operating income available to Arch common shareholders and annualized operating return on average common equity are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to net income available to Arch common shareholders and annualized return on average common equity (the most directly comparable GAAP financial measures) in accordance with Regulation G is included on the following page.
The Company believes that net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and UGC transaction costs and other in any particular period are not indicative of the performance of, or trends in, the Company’s business performance. Although net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of the Company’s operations, the decision to realize investment gains or losses, the recognition of the change in the carrying value of investments accounted for using the fair value option in net realized gains or losses, the recognition of net impairment losses, the recognition of equity in net income or loss of investment funds accounted for using the equity method 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 of investment gains or losses is largely opportunistic. In addition, net impairment losses recognized in earnings on the Company’s investments represent other-than-temporary declines in expected recovery values on securities without actual realization. The use of the equity method on certain of the Company’s investments in certain funds that invest in fixed maturity securities is driven by the ownership structure of such funds (either limited partnerships or limited liability companies). In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the fair value of the underlying securities in the funds). This method of accounting is different from the way the Company accounts for its other fixed maturity securities and the timing of the recognition of equity in net income or loss of investment funds accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments. UGC transaction costs and other include non-recurring advisory, financing, legal and other UGC transaction costs related to the UGC acquisition and non-recurring expenses related to a change in the Company’s approach on the deferral of certain internal underwriting costs which are no longer being deferred. The Company believes that UGC transaction costs and other, due to their non-recurring nature, are not indicative of the performance of, or trends in, the Company’s business performance. Due to these reasons, the Company excludes net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and UGC transaction costs and other from the calculation of after-tax operating income or loss available to Arch common shareholders.
The Company believes that showing net income available to Arch common shareholders 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 available to Arch common shareholders, the Company believes that this presentation enables investors and other users of the Company’s financial information to analyze 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.
In addition, the Company’s presentation includes the use of information prepared on a ‘core’ basis, which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). Information provided on a ‘core’ basis are non-GAAP financial measures as defined in Regulation G. Pursuant to generally accepted accounting principles, Watford Re is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford Re. As such, the Company consolidates the results of Watford Re in its consolidated financial statements, although it only owns approximately 11% of Watford Re’s common equity. Watford Re has its own management and board of directors that is responsible for its overall profitability. In addition, the Company does not guarantee or provide credit support for Watford Re. Because Watford Re is an independent company, the assets of Watford Re can be used only to settle obligations of Watford Re and Watford Re is solely responsible for its own liabilities and commitments. The Company’s financial exposure to Watford Re is limited to its investment in Watford Re’s common and preferred shares and counterparty credit risk (mitigated by collateral) arising from the reinsurance transactions. The Company believes that presenting information on a ‘core’ basis enables investors and other users of the Company’s financial information to analyze the Company’s performance in a manner similar to how the Company’s management analyzes performance. See ‘Segment Information’ for a further discussion of segment results and a reconciliation of core and consolidated results.
The Company’s segment information includes the presentation of consolidated underwriting income or loss and a subtotal of underwriting income or loss on a ‘core’ basis. Such measures represent the pre-tax profitability of the Company’s underwriting operations and include net premiums earned plus other underwriting income, less losses and loss adjustment expenses, acquisition expenses and other operating expenses. Other operating expenses include those operating expenses that are incremental and/or directly attributable to the Company’s individual underwriting operations. Underwriting income or loss does not incorporate items included in the Company’s corporate (non-underwriting) segment. While these measures are presented in the Segment Information footnote to the Company’s Consolidated Financial Statements, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis. The reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis and a ‘core’ basis, in accordance with Regulation G, is shown on pages 10 to 13.
The Company’s segment information includes the use of a combined ratio excluding catastrophic activity and prior year development for the insurance segment and reinsurance segment and a combined ratio excluding prior year development for the mortgage segment. These ratios are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to the combined ratio (the most directly comparable GAAP financial measure) in accordance with Regulation G are shown on the individual segment pages. The Company’s management utilizes the adjusted combined ratio excluding current accident year catastrophic events and favorable or adverse development in prior year loss reserves in its analysis of the core underwriting performance of each of its underwriting segments.
Total return on investments includes investment income, equity in net income or loss of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains and losses generated by Arch’s investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses, excludes amounts reflected in the ‘other’ segment, and reflects the effect of financial market conditions along with foreign currency fluctuations. Management uses total return on investments as a key measure of the return generated to Arch common shareholders on the capital held in its business, and compares the return generated by the Company’s investment portfolio against benchmark returns which it measures portfolio returns against during the periods presented.
30 | ||
Arch Capital Group Ltd. and Subsidiaries
Operating Income Reconciliation and Annualized Operating Return on Average Common Equity
The following table summarizes the Company’s consolidated financial data, including a reconciliation of net income available to Arch common shareholders to after-tax operating income available to Arch common shareholders and related diluted per share results. Each line item reflects the impact of the Company’s approximate 11% ownership of Watford Re’s common equity:
(U.S. Dollars in thousands, except share data) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Net income available to Arch common shareholders | $ | 62,396 | $ | 247,388 | $ | 205,570 | $ | 149,314 | $ | 53,094 | $ | 664,668 | $ | 515,800 | ||||||||||||||
Net realized (gains) losses | 98,477 | (99,159 | ) | (43,935 | ) | (32,464 | ) | 90,856 | (77,081 | ) | 108,690 | |||||||||||||||||
Net impairment losses recognized in earnings | 13,593 | 3,867 | 5,343 | 7,639 | 7,336 | 30,442 | 20,116 | |||||||||||||||||||||
Equity in net (income) loss of investment funds accounted for using the equity method | (16,421 | ) | (16,662 | ) | (8,737 | ) | (6,655 | ) | (5,517 | ) | (48,475 | ) | (25,456 | ) | ||||||||||||||
Net foreign exchange (gains) losses | (35,547 | ) | 4,054 | (22,703 | ) | 22,209 | (2,533 | ) | (31,987 | ) | (63,011 | ) | ||||||||||||||||
UGC transaction costs and other | 34,587 | 7,142 | — | — | — | 41,729 | — | |||||||||||||||||||||
Income tax expense (1) | (15,557 | ) | 2,970 | 5,036 | 5,699 | 363 | (1,852 | ) | 9,060 | |||||||||||||||||||
After-tax operating income available to Arch common shareholders | $ | 141,528 | $ | 149,600 | $ | 140,574 | $ | 145,742 | $ | 143,599 | $ | 577,444 | $ | 565,199 | ||||||||||||||
Diluted per common share results: | ||||||||||||||||||||||||||||
Net income available to Arch common shareholders | $ | 0.50 | $ | 1.98 | $ | 1.65 | $ | 1.20 | $ | 0.42 | $ | 5.33 | $ | 4.09 | ||||||||||||||
Net realized (gains) losses | 0.78 | (0.79 | ) | (0.35 | ) | (0.26 | ) | 0.73 | (0.62 | ) | 0.86 | |||||||||||||||||
Net impairment losses recognized in earnings | 0.11 | 0.03 | 0.04 | 0.06 | 0.06 | 0.24 | 0.16 | |||||||||||||||||||||
Equity in net (income) loss of investment funds accounted for using the equity method | (0.13 | ) | (0.13 | ) | (0.07 | ) | (0.05 | ) | (0.04 | ) | (0.38 | ) | (0.20 | ) | ||||||||||||||
Net foreign exchange (gains) losses | (0.28 | ) | 0.03 | (0.18 | ) | 0.18 | (0.02 | ) | (0.26 | ) | (0.50 | ) | ||||||||||||||||
UGC transaction costs and other | 0.27 | 0.06 | — | — | — | 0.33 | — | |||||||||||||||||||||
Income tax expense (1) | (0.12 | ) | 0.02 | 0.04 | 0.04 | — | (0.01 | ) | 0.07 | |||||||||||||||||||
After-tax operating available to Arch common shareholders | $ | 1.13 | $ | 1.20 | $ | 1.13 | $ | 1.17 | $ | 1.15 | $ | 4.63 | $ | 4.48 | ||||||||||||||
Weighted average common shares and common share equivalents outstanding — diluted | 125,427,259 | 124,931,653 | 124,365,596 | 124,496,496 | 125,311,942 | 124,717,493 | 126,038,743 | |||||||||||||||||||||
Beginning common shareholders’ equity | $ | 6,538,983 | $ | 6,340,583 | $ | 6,050,248 | $ | 5,841,542 | $ | 5,799,476 | $ | 5,841,542 | $ | 5,766,714 | ||||||||||||||
Ending common shareholders’ equity | 7,481,163 | 6,538,983 | 6,340,583 | 6,050,248 | 5,841,542 | 7,481,163 | 5,841,542 | |||||||||||||||||||||
Average common shareholders’ equity (2) | $ | 6,471,392 | $ | 6,439,783 | $ | 6,195,416 | $ | 5,945,895 | $ | 5,820,509 | $ | 6,113,718 | $ | 5,804,128 | ||||||||||||||
Annualized return on average common equity (2) | 3.9 | % | 15.4 | % | 13.3 | % | 10.0 | % | 3.6 | % | 10.9 | % | 8.9 | % | ||||||||||||||
Annualized operating return on average common equity (2) | 8.7 | % | 9.3 | % | 9.1 | % | 9.8 | % | 9.9 | % | 9.4 | % | 9.7 | % | ||||||||||||||
(1) | Income tax expense on net realized gains or losses, net impairment losses recognized in earnings, equity in net income (loss) of investment funds accounted for using the equity method, net foreign exchange gains or losses and UGC transaction costs and other reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction. |
(2) | Average common shareholders’ equity and the related returns on average common equity reflect the weighted impact of the $1.10 billion of convertible non-voting common equivalent preferred shares, which were issued on December 31, 2016 as part of the UGC acquisition. |
31 | ||
Arch Capital Group Ltd. and Subsidiaries
Operating Income and Effective Tax Rate Calculations
The following table provides a reconciliation of income before income taxes to after-tax operating income available to Arch common shareholders and an analysis of the effective tax rate on pre-tax operating income available to Arch common shareholders:
(U.S. Dollars in thousands) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Arch Operating Income Components (1): | ||||||||||||||||||||||||||||
Income before income taxes | $ | 59,611 | $ | 260,385 | $ | 221,010 | $ | 169,098 | $ | 74,384 | $ | 710,104 | $ | 582,064 | ||||||||||||||
Net realized (gains) losses | 99,149 | (95,946 | ) | (40,927 | ) | (31,862 | ) | 84,302 | (69,586 | ) | 99,133 | |||||||||||||||||
Net impairment losses recognized in earnings | 13,593 | 3,867 | 5,343 | 7,639 | 7,336 | 30,442 | 20,116 | |||||||||||||||||||||
Equity in net (income) loss of investment funds accounted for using the equity method | (16,421 | ) | (16,662 | ) | (8,737 | ) | (6,655 | ) | (5,517 | ) | (48,475 | ) | (25,455 | ) | ||||||||||||||
Net foreign exchange (gains) losses | (35,221 | ) | 4,232 | (22,461 | ) | 22,041 | (2,286 | ) | (31,409 | ) | (62,624 | ) | ||||||||||||||||
UGC transaction costs and other | 34,587 | 7,142 | — | — | — | 41,729 | — | |||||||||||||||||||||
Pre-tax operating income | 155,298 | 163,018 | 154,228 | 160,261 | 158,219 | 632,805 | 613,234 | |||||||||||||||||||||
Arch share of ‘other’ segment operating income (2) | 1,109 | 2,324 | 927 | 1,576 | 1,953 | 5,936 | 5,458 | |||||||||||||||||||||
Pre-tax operating income available to Arch (b) | 156,407 | 165,342 | 155,155 | 161,837 | 160,172 | 638,741 | 618,692 | |||||||||||||||||||||
Income tax expense (a) | (3,262 | ) | (10,258 | ) | (9,096 | ) | (10,611 | ) | (11,088 | ) | (33,227 | ) | (31,555 | ) | ||||||||||||||
After-tax operating income available to Arch | 153,145 | 155,084 | 146,059 | 151,226 | 149,084 | 605,514 | 587,137 | |||||||||||||||||||||
Preferred dividends | (11,617 | ) | (5,484 | ) | (5,485 | ) | (5,484 | ) | (5,485 | ) | (28,070 | ) | (21,938 | ) | ||||||||||||||
After-tax operating income available to Arch common shareholders | $ | 141,528 | $ | 149,600 | $ | 140,574 | $ | 145,742 | $ | 143,599 | $ | 577,444 | $ | 565,199 | ||||||||||||||
Effective tax rate on pre-tax operating income available to Arch -(a)/(b) | 2.1 | % | 6.2 | % | 5.9 | % | 6.6 | % | 6.9 | % | 5.2 | % | 5.1 | % | ||||||||||||||
(1) | Line items are presented on a ‘core’ basis, excluding amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. |
(2) | Balances in the ‘other’ segment and a calculation of Arch’s share of the ‘other’ segment operating income is as follows: |
(U.S. Dollars in thousands) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Balances in ‘other’ segment: | ||||||||||||||||||||||||||||
Underwriting income (loss) | $ | (3,266 | ) | $ | 1,379 | $ | (1,724 | ) | $ | (944 | ) | $ | (3,557 | ) | $ | (4,555 | ) | $ | (3,709 | ) | ||||||||
Net investment income | 20,946 | 27,336 | 17,941 | 23,326 | 28,930 | 89,549 | 76,410 | |||||||||||||||||||||
Interest expense | (3,058 | ) | (3,019 | ) | (3,231 | ) | (3,480 | ) | (3,070 | ) | (12,788 | ) | (4,356 | ) | ||||||||||||||
Preferred dividends | (4,588 | ) | (4,588 | ) | (4,586 | ) | (4,587 | ) | (4,589 | ) | (18,349 | ) | (18,828 | ) | ||||||||||||||
Pre-tax operating income (loss) available to common shareholders | 10,034 | 21,108 | 8,400 | 14,315 | 17,714 | 53,857 | 49,517 | |||||||||||||||||||||
Arch ownership | 11 | % | 11 | % | 11 | % | 11 | % | 11 | % | 11 | % | 11 | % | ||||||||||||||
Arch share of ‘Other’ segment operating income (loss) (3) | $ | 1,109 | $ | 2,324 | $ | 927 | $ | 1,576 | $ | 1,953 | $ | 5,936 | $ | 5,458 | ||||||||||||||
(3) Excludes amounts attributable to net realized gains or losses and net foreign exchange gains or losses in the ‘other’ segment (see ‘Segment Information’).
32 | ||
Arch Capital Group Ltd. and Subsidiaries
Capital Structure and Share Repurchase Activity
The following table provides an analysis of the Company’s capital structure (1):
(U.S. Dollars in thousands, except share data) | December 31, | September 30, | June 30, | March 31, | December 31, | |||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | ||||||||||||||||
Debt: | ||||||||||||||||||||
ACGL Senior notes, due May 1, 2034 ($300,000 principal, 7.35%) | $ | 296,957 | $ | 296,936 | $ | 296,915 | $ | 296,895 | $ | 296,874 | ||||||||||
Arch-U.S. Senior notes, due Nov. 1, 2043 ($500,000 principal, 5.144%) (2) | 494,525 | 494,501 | 494,477 | 494,454 | 494,432 | |||||||||||||||
Arch Finance Senior notes, due December 15, 2026 ($500,000 principal, 4.011%) (3) | 495,689 | — | — | — | — | |||||||||||||||
Arch Finance Senior notes, due December 15, 2046 ($450,000 principal, 5.031%) (3) | 445,087 | — | — | — | — | |||||||||||||||
Revolving credit agreement borrowings, due June 30, 2019 (variable) | 500,000 | 100,000 | 100,000 | 100,000 | 100,000 | |||||||||||||||
Total debt | $ | 2,232,258 | $ | 891,437 | $ | 891,392 | $ | 891,349 | $ | 891,306 | ||||||||||
Shareholders’ equity available to Arch: | ||||||||||||||||||||
Series C non-cumulative preferred shares (6.75%) | $ | 322,555 | $ | 325,000 | $ | 325,000 | $ | 325,000 | $ | 325,000 | ||||||||||
Series E non-cumulative preferred shares (5.25%) | 450,000 | 450,000 | — | — | — | |||||||||||||||
Common shareholders’ equity (4) (a) | 7,481,163 | 6,538,983 | 6,340,583 | 6,050,248 | 5,841,542 | |||||||||||||||
Total shareholders’ equity available to Arch | $ | 8,253,718 | $ | 7,313,983 | $ | 6,665,583 | $ | 6,375,248 | $ | 6,166,542 | ||||||||||
Total capital available to Arch | $ | 10,485,976 | $ | 8,205,420 | $ | 7,556,975 | $ | 7,266,597 | $ | 7,057,848 | ||||||||||
Common shares and common share equivalents outstanding, net of treasury shares (4) (b) | 135,550,337 | 122,675,197 | 122,572,260 | 122,093,596 | 122,627,783 | |||||||||||||||
Book value per share (5) (a)/(b) | $ | 55.19 | $ | 53.30 | $ | 51.73 | $ | 49.55 | $ | 47.64 | ||||||||||
Leverage ratios: | ||||||||||||||||||||
Senior notes/total capital available to Arch | 16.5 | % | 9.6 | % | 10.5 | % | 10.9 | % | 11.2 | % | ||||||||||
Revolving credit agreement borrowings/total capital available to Arch | 4.8 | % | 1.2 | % | 1.3 | % | 1.4 | % | 1.4 | % | ||||||||||
Debt/total capital available to Arch | 21.3 | % | 10.9 | % | 11.8 | % | 12.3 | % | 12.6 | % | ||||||||||
Preferred/total capital available to Arch | 7.4 | % | 9.4 | % | 4.3 | % | 4.5 | % | 4.6 | % | ||||||||||
Debt and preferred/total capital available to Arch | 28.7 | % | 20.3 | % | 16.1 | % | 16.7 | % | 17.2 | % | ||||||||||
(1) | Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. |
(2) | Issued by Arch Capital Group (U.S.) Inc. (“Arch-U.S.), a wholly owned subsidiary of Arch Capital Group Ltd. (“ACGL”), and fully and unconditionally guaranteed by ACGL. |
(3) | Issued by Arch Capital Finance LLC (“Arch Finance”), a wholly owned subsidiary of Arch U.S. MI Holdings Inc., and fully and unconditionally guaranteed by ACGL. |
(4) | Includes the issuance of $1.10 billion of convertible non-voting common equivalent preferred shares on December 31, 2016 in connection with the UGC acquisition. |
(5) | Excludes the effects of stock options and restricted stock units outstanding. Book value per share for prior periods reflects the per share impact of a $38.3 million cumulative effect of an accounting change |
recorded in the 2016 fourth quarter as of January 1, 2014.
The following table provides an analysis of the Company’s share repurchase program:
(U.S. Dollars in thousands except share data) | Three Months Ended | Cumulative | ||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | |||||||||||||||||||
2016 | 2016 | 2016 | 2016 | 2015 | 2016 | |||||||||||||||||||
Effect of share repurchases: | ||||||||||||||||||||||||
Aggregate cost of shares repurchased | $ | — | $ | — | $ | — | $ | 75,256 | $ | — | $ | 3,682,661 | ||||||||||||
Shares repurchased | — | — | — | 1,140,137 | — | 125,223,844 | ||||||||||||||||||
Average price per share repurchased | $ | — | $ | — | $ | — | $ | 66.01 | $ | — | $ | 29.41 | ||||||||||||
Average book value per common share (1) | $ | 54.25 | $ | 52.52 | $ | 50.64 | $ | 48.60 | $ | 47.51 | ||||||||||||||
Average repurchase price-to-book multiple | — | — | — | 1.36 | x | — | ||||||||||||||||||
Remaining share repurchase authorization (2) | $ | 446,501 | ||||||||||||||||||||||
(1) Equals average of beginning and ending book value per common share for each period presented.
(2) | Repurchases under the share repurchase authorization may be effected from time to time in open market or privately negotiated transactions through December 2019. |
33 | ||