x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
March 31, 2016 | |
Or | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Page No. | |||
PART I. | |||
Item 1. | |||
Item 2. | |||
Item 3. | |||
Item 4. | |||
PART II. | |||
Item 1. | |||
Item 1A. | |||
Item 2. | |||
Item 5. | |||
Item 6. | |||
1 |
• | our ability to successfully implement our business strategy during “soft” as well as “hard” markets; |
• | acceptance of our business strategy, security and financial condition by rating agencies and regulators, as well as by brokers and our insureds and reinsureds; |
• | our ability to maintain or improve our ratings, which may be affected by our ability to raise additional equity or debt financings, by ratings agencies’ existing or new policies and practices, as well as other factors described herein; |
• | general economic and market conditions (including inflation, interest rates, foreign currency exchange rates, prevailing credit terms and the depth and duration of a recession) and conditions specific to the reinsurance and insurance markets (including the length and magnitude of the current “soft” market) in which we operate; |
• | competition, including increased competition, on the basis of pricing, capacity (including alternative forms of capital), coverage terms or other factors; |
• | developments in the world’s financial and capital markets and our access to such markets; |
• | our ability to successfully enhance, integrate and maintain operating procedures (including information technology) to effectively support our current and new business; |
• | the loss of key personnel; |
• | the integration of businesses we have acquired or may acquire into our existing operations; |
• | accuracy of those estimates and judgments utilized in the preparation of our financial statements, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment valuations, intangible assets, bad debts, income taxes, contingencies and litigation, and any determination to use the deposit method of accounting, which for a relatively new insurance and reinsurance company, like our company, are even more difficult to make than those made in a mature company since relatively limited historical information has been reported to us through March 31, 2016; |
• | greater than expected loss ratios on business written by us and adverse development on claim and/or claim expense liabilities related to business written by our insurance and reinsurance subsidiaries; |
• | severity and/or frequency of losses; |
• | claims for natural or man-made catastrophic events in our insurance or reinsurance business could cause large losses and substantial volatility in our results of operations; |
• | acts of terrorism, political unrest and other hostilities or other unforecasted and unpredictable events; |
• | availability to us of reinsurance to manage our gross and net exposures and the cost of such reinsurance; |
• | the failure of reinsurers, managing general agents, third party administrators or others to meet their obligations to us; |
• | the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by us; |
• | our investment performance, including legislative or regulatory developments that may adversely affect the fair value of our investments; |
2 |
• | changes in general economic conditions, including new or continued sovereign debt concerns in Eurozone countries or downgrades of U.S. securities by credit rating agencies, which could affect our business, financial condition and results of operations; |
• | the volatility of our shareholders’ equity from foreign currency fluctuations, which could increase due to us not matching portions of our projected liabilities in foreign currencies with investments in the same currencies; |
• | losses relating to aviation business and business produced by a certain managing underwriting agency for which we may be liable to the purchaser of our prior reinsurance business or to others in connection with the May 5, 2000 asset sale described in our periodic reports filed with the SEC; |
• | changes in accounting principles or policies or in our application of such accounting principles or policies; |
• | changes in the political environment of certain countries in which we operate or underwrite business; |
• | statutory or regulatory developments, including as to tax policy and matters and insurance and other regulatory matters such as the adoption of proposed legislation that would affect Bermuda-headquartered companies and/or Bermuda-based insurers or reinsurers and/or changes in regulations or tax laws applicable to us, our subsidiaries, brokers or customers; and |
• | the other matters set forth under Item 1A “Risk Factors”, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of our Annual Report on Form 10-K, as well as the other factors set forth in our other documents on file with the SEC, and management’s response to any of the aforementioned factors. |
3 |
Page No. | ||
March 31, 2016 (unaudited) and December 31, 2015 | ||
For the three month periods ended March 31, 2016 and 2015 (unaudited) | ||
For the three month periods ended March 31, 2016 and 2015 (unaudited) | ||
For the three month periods ended March 31, 2016 and 2015 (unaudited) | ||
For the three month periods ended March 31, 2016 and 2015 (unaudited) | ||
4 |
5 |
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands, except share data) | |||||||
(Unaudited) | |||||||
March 31, 2016 | December 31, 2015 | ||||||
Assets | |||||||
Investments: | |||||||
Fixed maturities available for sale, at fair value (amortized cost: $10,551,434 and $10,515,440) | $ | 10,645,257 | $ | 10,459,353 | |||
Short-term investments available for sale, at fair value (amortized cost: $625,532 and $591,141) | 623,844 | 587,904 | |||||
Collateral received under securities lending, at fair value (amortized cost: $594,922 and $385,984) | 594,929 | 389,336 | |||||
Equity securities available for sale, at fair value (cost: $451,117 and $543,767) | 506,915 | 618,405 | |||||
Other investments available for sale, at fair value (cost: $178,808 and $261,343) | 195,079 | 300,476 | |||||
Investments accounted for using the fair value option | 3,139,332 | 2,894,494 | |||||
Investments accounted for using the equity method | 628,832 | 592,973 | |||||
Total investments | 16,334,188 | 15,842,941 | |||||
Cash | 557,961 | 553,326 | |||||
Accrued investment income | 81,628 | 87,206 | |||||
Securities pledged under securities lending, at fair value (amortized cost: $574,577 and $386,411) | 580,766 | 384,081 | |||||
Premiums receivable | 1,209,548 | 983,443 | |||||
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses | 1,962,863 | 1,867,373 | |||||
Contractholder receivables | 1,529,105 | 1,486,296 | |||||
Prepaid reinsurance premiums | 500,412 | 427,609 | |||||
Deferred acquisition costs, net | 464,288 | 433,477 | |||||
Receivable for securities sold | 329,262 | 45,505 | |||||
Goodwill and intangible assets | 92,670 | 97,531 | |||||
Other assets | 898,678 | 968,482 | |||||
Total assets | $ | 24,541,369 | $ | 23,177,270 | |||
Liabilities | |||||||
Reserve for losses and loss adjustment expenses | $ | 9,378,987 | $ | 9,125,250 | |||
Unearned premiums | 2,579,148 | 2,333,932 | |||||
Reinsurance balances payable | 276,426 | 224,120 | |||||
Contractholder payables | 1,529,105 | 1,486,296 | |||||
Collateral held for insured obligations | 249,440 | 248,982 | |||||
Deposit accounting liabilities | 266,140 | 260,364 | |||||
Senior notes | 791,349 | 791,306 | |||||
Revolving credit agreement borrowings | 457,431 | 530,434 | |||||
Securities lending payable | 594,922 | 393,844 | |||||
Payable for securities purchased | 494,813 | 64,996 | |||||
Other liabilities | 549,832 | 568,852 | |||||
Total liabilities | 17,167,593 | 16,028,376 | |||||
Commitments and Contingencies | |||||||
Redeemable noncontrolling interests | 205,274 | 205,182 | |||||
Shareholders' Equity | |||||||
Non-cumulative preferred shares | 325,000 | 325,000 | |||||
Common shares ($0.0033 par, shares issued: 173,744,473 and 173,107,849) | 579 | 577 | |||||
Additional paid-in capital | 485,943 | 467,339 | |||||
Retained earnings | 7,519,685 | 7,370,371 | |||||
Accumulated other comprehensive income (loss), net of deferred income tax | 101,629 | (16,502 | ) | ||||
Common shares held in treasury, at cost (shares: 51,650,877 and 50,480,066) | (2,019,249 | ) | (1,941,904 | ) | |||
Total shareholders' equity available to Arch | 6,413,587 | 6,204,881 | |||||
Non-redeemable noncontrolling interests | 754,915 | 738,831 | |||||
Total shareholders' equity | 7,168,502 | 6,943,712 | |||||
Total liabilities, noncontrolling interests and shareholders' equity | $ | 24,541,369 | $ | 23,177,270 |
See Notes to Consolidated Financial Statements | 6 |
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (U.S. dollars in thousands, except share data) | |||||||
(Unaudited) | |||||||
Three Months Ended | |||||||
March 31, | |||||||
2016 | 2015 | ||||||
Revenues | |||||||
Net premiums written | $ | 1,121,235 | $ | 1,066,995 | |||
Change in unearned premiums | (169,656 | ) | (156,731 | ) | |||
Net premiums earned | 951,579 | 910,264 | |||||
Net investment income | 93,735 | 78,994 | |||||
Net realized gains (losses) | 37,324 | 83,348 | |||||
Other-than-temporary impairment losses | (7,737 | ) | (7,247 | ) | |||
Less investment impairments recognized in other comprehensive income, before taxes | 98 | 1,448 | |||||
Net impairment losses recognized in earnings | (7,639 | ) | (5,799 | ) | |||
Other underwriting income | 5,047 | 11,536 | |||||
Equity in net income (loss) of investment funds accounted for using the equity method | 6,655 | 5,889 | |||||
Other income (loss) | (25 | ) | (1,888 | ) | |||
Total revenues | 1,086,676 | 1,082,344 | |||||
Expenses | |||||||
Losses and loss adjustment expenses | 522,949 | 493,716 | |||||
Acquisition expenses | 170,465 | 163,076 | |||||
Other operating expenses | 161,652 | 157,882 | |||||
Interest expense | 16,107 | 12,736 | |||||
Net foreign exchange losses (gains) | 23,566 | (66,501 | ) | ||||
Total expenses | 894,739 | 760,909 | |||||
Income before income taxes | 191,937 | 321,435 | |||||
Income tax expense | (16,310 | ) | (12,678 | ) | |||
Net income | $ | 175,627 | $ | 308,757 | |||
Net (income) loss attributable to noncontrolling interests | (20,829 | ) | (25,421 | ) | |||
Net income available to Arch | 154,798 | 283,336 | |||||
Preferred dividends | (5,484 | ) | (5,484 | ) | |||
Net income available to Arch common shareholders | $ | 149,314 | $ | 277,852 | |||
Net income per common share | |||||||
Basic | $ | 1.24 | $ | 2.24 | |||
Diluted | $ | 1.20 | $ | 2.16 | |||
Weighted average common shares and common share equivalents outstanding | |||||||
Basic | 120,428,179 | 124,209,276 | |||||
Diluted | 124,496,496 | 128,451,054 |
See Notes to Consolidated Financial Statements | 7 |
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (U.S. dollars in thousands) | |||||||
(Unaudited) | |||||||
Three Months Ended | |||||||
March 31, | |||||||
2016 | 2015 | ||||||
Comprehensive Income | |||||||
Net income | $ | 175,627 | $ | 308,757 | |||
Other comprehensive income (loss), net of deferred income tax | |||||||
Unrealized appreciation (decline) in value of available-for-sale investments: | |||||||
Unrealized holding gains (losses) arising during period | 132,981 | 84,304 | |||||
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax | (98 | ) | (1,448 | ) | |||
Reclassification of net realized (gains) losses, net of income taxes, included in net income | (32,223 | ) | (30,932 | ) | |||
Foreign currency translation adjustments | 17,313 | (22,757 | ) | ||||
Comprehensive income | 293,600 | 337,924 | |||||
Net (income) loss attributable to noncontrolling interests | (20,829 | ) | (25,421 | ) | |||
Other comprehensive (income) loss attributable to noncontrolling interests | 158 | — | |||||
Comprehensive income available to Arch | $ | 272,929 | $ | 312,503 |
See Notes to Consolidated Financial Statements | 8 |
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (U.S. dollars in thousands) | |||||||
(Unaudited) | |||||||
Three Months Ended | |||||||
March 31, | |||||||
2016 | 2015 | ||||||
Non-cumulative preferred shares | |||||||
Balance at beginning and end of period | $ | 325,000 | $ | 325,000 | |||
Common shares | |||||||
Balance at beginning of year | 577 | 572 | |||||
Common shares issued, net | 2 | 1 | |||||
Balance at end of period | 579 | 573 | |||||
Additional paid-in capital | |||||||
Balance at beginning of year | 467,339 | 383,073 | |||||
Common shares issued, net | — | — | |||||
Exercise of stock options | 4,222 | 3,368 | |||||
Amortization of share-based compensation | 14,265 | 13,238 | |||||
Other | 117 | 78 | |||||
Balance at end of period | 485,943 | 399,757 | |||||
Retained earnings | |||||||
Balance at beginning of year | 7,370,371 | 6,854,571 | |||||
Net income | 175,627 | 308,757 | |||||
Net (income) loss attributable to noncontrolling interests | (20,829 | ) | (25,421 | ) | |||
Preferred share dividends | (5,484 | ) | (5,484 | ) | |||
Balance at end of period | 7,519,685 | 7,132,423 | |||||
Accumulated other comprehensive income | |||||||
Balance at beginning of year | (16,502 | ) | 128,856 | ||||
Unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax: | |||||||
Balance at beginning of year | 50,085 | 161,598 | |||||
Unrealized holding (losses) gains arising during period, net of reclassification adjustment | 100,758 | 53,372 | |||||
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax | (98 | ) | (1,448 | ) | |||
Balance at end of period | 150,745 | 213,522 | |||||
Foreign currency translation adjustments: | |||||||
Balance at beginning of year | (66,587 | ) | (32,742 | ) | |||
Foreign currency translation adjustments | 17,313 | (22,757 | ) | ||||
Foreign currency translation adjustments attributable to noncontrolling interests | 158 | — | |||||
Balance at end of period | (49,116 | ) | (55,499 | ) | |||
Balance at end of period | 101,629 | 158,023 | |||||
Common shares held in treasury, at cost | |||||||
Balance at beginning of year | (1,941,904 | ) | (1,562,019 | ) | |||
Shares repurchased for treasury | (77,345 | ) | (165,055 | ) | |||
Balance at end of period | (2,019,249 | ) | (1,727,074 | ) | |||
Total shareholders’ equity available to Arch | 6,413,587 | 6,288,702 | |||||
Non-redeemable noncontrolling interests | 754,915 | 789,594 | |||||
Total shareholders’ equity | $ | 7,168,502 | $ | 7,078,296 |
See Notes to Consolidated Financial Statements | 9 |
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands) | |||||||
(Unaudited) | |||||||
Three Months Ended | |||||||
March 31, | |||||||
2016 | 2015 | ||||||
Operating Activities | |||||||
Net income | $ | 175,627 | $ | 308,757 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Net realized (gains) losses | (43,034 | ) | (87,907 | ) | |||
Net impairment losses recognized in earnings | 7,639 | 5,799 | |||||
Equity in net income or loss of investment funds accounted for using the equity method and other income or loss | 3,243 | (1,970 | ) | ||||
Share-based compensation | 14,265 | 13,238 | |||||
Changes in: | |||||||
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable | 111,255 | 54,327 | |||||
Unearned premiums, net of prepaid reinsurance premiums | 169,656 | 156,731 | |||||
Premiums receivable | (217,348 | ) | (192,247 | ) | |||
Deferred acquisition costs, net | (30,050 | ) | (36,304 | ) | |||
Reinsurance balances payable | 51,929 | (16,022 | ) | ||||
Other liabilities | 32,697 | (48,856 | ) | ||||
Other items | 46,664 | (70,085 | ) | ||||
Net Cash Provided By Operating Activities | 322,543 | 85,461 | |||||
Investing Activities | |||||||
Purchases of fixed maturity investments | (8,133,537 | ) | (7,030,731 | ) | |||
Purchases of equity securities | (128,263 | ) | (125,863 | ) | |||
Purchases of other investments | (305,198 | ) | (375,402 | ) | |||
Proceeds from sales of fixed maturity investments | 7,827,536 | 6,857,115 | |||||
Proceeds from sales of equity securities | 216,012 | 125,906 | |||||
Proceeds from sales, redemptions and maturities of other investments | 211,125 | 269,449 | |||||
Proceeds from redemptions and maturities of fixed maturity investments | 163,894 | 272,657 | |||||
Net settlements of derivative instruments | 21,091 | 26,063 | |||||
Net (purchases) sales of short-term investments | (65,594 | ) | 66,283 | ||||
Change in cash collateral related to securities lending | (43,118 | ) | (5,529 | ) | |||
Purchase of business, net of cash acquired | — | (2,432 | ) | ||||
Purchases of fixed assets | (3,952 | ) | (3,272 | ) | |||
Change in other assets | 6,737 | (29,625 | ) | ||||
Net Cash Provided By (Used For) Investing Activities | (233,267 | ) | 44,619 | ||||
Financing Activities | |||||||
Purchases of common shares under share repurchase program | (75,256 | ) | (162,898 | ) | |||
Proceeds from common shares issued, net | 202 | (412 | ) | ||||
Repayments of borrowings | (74,171 | ) | — | ||||
Change in cash collateral related to securities lending | 43,118 | 5,529 | |||||
Dividends paid to redeemable noncontrolling interests | (4,497 | ) | (4,816 | ) | |||
Other | 29,115 | 29,779 | |||||
Preferred dividends paid | (5,484 | ) | (5,484 | ) | |||
Net Cash Provided By (Used For) Financing Activities | (86,973 | ) | (138,302 | ) | |||
Effects of exchange rate changes on foreign currency cash | 2,332 | (6,468 | ) | ||||
Increase (decrease) in cash | 4,635 | (14,690 | ) | ||||
Cash beginning of year | 553,326 | 485,702 | |||||
Cash end of period | $ | 557,961 | $ | 471,012 | |||
Income taxes paid | $ | 2,504 | $ | 3,569 | |||
Interest paid | $ | 3,813 | $ | 511 |
See Notes to Consolidated Financial Statements | 10 |
11 |
3. | Variable Interest Entities and Noncontrolling Interests |
Three Months Ended | |||||||
March 31, | |||||||
2016 | 2015 | ||||||
Balance, beginning of period | $ | 738,831 | $ | 769,081 | |||
Amounts attributable to noncontrolling interests | 16,242 | 20,513 | |||||
Foreign currency translation adjustments | (158 | ) | — | ||||
Balance, end of period | $ | 754,915 | $ | 789,594 |
Three Months Ended | |||||||
March 31, | |||||||
2016 | 2015 | ||||||
Balance, beginning of period | $ | 205,182 | $ | 219,512 | |||
Accretion of preference share issuance costs | 92 | 92 | |||||
Balance, end of period | $ | 205,274 | $ | 219,604 |
12 |
Three Months Ended | |||||||
March 31, | |||||||
2016 | 2015 | ||||||
Amounts attributable to non-redeemable noncontrolling interests | $ | (16,242 | ) | $ | (20,513 | ) | |
Dividends attributable to redeemable noncontrolling interests | (4,587 | ) | (4,908 | ) | |||
Net (income) loss attributable to noncontrolling interests | $ | (20,829 | ) | $ | (25,421 | ) |
Three Months Ended | |||||||
March 31, | |||||||
2016 | 2015 | ||||||
Numerator: | |||||||
Net income | $ | 175,627 | $ | 308,757 | |||
Net (income) loss attributable to noncontrolling interests | (20,829 | ) | (25,421 | ) | |||
Net income available to Arch | 154,798 | 283,336 | |||||
Preferred dividends | (5,484 | ) | (5,484 | ) | |||
Net income available to Arch common shareholders | $ | 149,314 | $ | 277,852 | |||
Denominator: | |||||||
Weighted average common shares outstanding — basic | 120,428,179 | 124,209,276 | |||||
Effect of dilutive common share equivalents: | |||||||
Nonvested restricted shares | 1,460,654 | 1,416,801 | |||||
Stock options (1) | 2,607,663 | 2,824,977 | |||||
Weighted average common shares and common share equivalents outstanding — diluted | 124,496,496 | 128,451,054 | |||||
Earnings per common share: | |||||||
Basic | $ | 1.24 | $ | 2.24 | |||
Diluted | $ | 1.20 | $ | 2.16 |
(1) | Certain stock options were not included in the computation of diluted earnings per share where the exercise price of the stock options exceeded the average market price and would have been anti-dilutive or where, when applying the treasury stock method to in-the-money options, the sum of the proceeds, including unrecognized compensation, exceeded the average market price and would have been anti-dilutive. For the 2016 first quarter and 2015 first quarter, the number of stock options excluded were 607,208 and 703,853, respectively. |
13 |
Three Months Ended | |||||||||||||||||||||||
March 31, 2016 | |||||||||||||||||||||||
Insurance | Reinsurance | Mortgage | Sub-Total | Other | Total | ||||||||||||||||||
Gross premiums written (1) | $ | 798,553 | $ | 481,390 | $ | 111,280 | $ | 1,391,061 | $ | 148,606 | $ | 1,437,966 | |||||||||||
Premiums ceded | (248,789 | ) | (160,566 | ) | (4,767 | ) | (413,960 | ) | (4,472 | ) | (316,731 | ) | |||||||||||
Net premiums written | 549,764 | 320,824 | 106,513 | 977,101 | 144,134 | 1,121,235 | |||||||||||||||||
Change in unearned premiums | (36,675 | ) | (59,616 | ) | (44,748 | ) | (141,039 | ) | (28,617 | ) | (169,656 | ) | |||||||||||
Net premiums earned | 513,089 | 261,208 | 61,765 | 836,062 | 115,517 | 951,579 | |||||||||||||||||
Other underwriting income | — | 325 | 3,793 | 4,118 | 929 | 5,047 | |||||||||||||||||
Losses and loss adjustment expenses | (323,609 | ) | (111,598 | ) | (8,629 | ) | (443,836 | ) | (79,113 | ) | (522,949 | ) | |||||||||||
Acquisition expenses, net | (74,354 | ) | (54,787 | ) | (8,385 | ) | (137,526 | ) | (32,939 | ) | (170,465 | ) | |||||||||||
Other operating expenses | (85,861 | ) | (36,455 | ) | (24,615 | ) | (146,931 | ) | (5,338 | ) | (152,269 | ) | |||||||||||
Underwriting income (loss) | $ | 29,265 | $ | 58,693 | $ | 23,929 | 111,887 | (944 | ) | 110,943 | |||||||||||||
Net investment income | 70,409 | 23,326 | 93,735 | ||||||||||||||||||||
Net realized gains (losses) | 31,862 | 5,462 | 37,324 | ||||||||||||||||||||
Net impairment losses recognized in earnings | (7,639 | ) | — | (7,639 | ) | ||||||||||||||||||
Equity in net income (loss) of investment funds accounted for using the equity method | 6,655 | — | 6,655 | ||||||||||||||||||||
Other income (loss) | (25 | ) | — | (25 | ) | ||||||||||||||||||
Other expenses | (9,383 | ) | — | (9,383 | ) | ||||||||||||||||||
Interest expense | (12,627 | ) | (3,480 | ) | (16,107 | ) | |||||||||||||||||
Net foreign exchange gains (losses) | (22,041 | ) | (1,525 | ) | (23,566 | ) | |||||||||||||||||
Income (loss) before income taxes | 169,098 | 22,839 | 191,937 | ||||||||||||||||||||
Income tax expense | (16,310 | ) | — | (16,310 | ) | ||||||||||||||||||
Net income (loss) | 152,788 | 22,839 | 175,627 | ||||||||||||||||||||
Dividends attributable to redeemable noncontrolling interests | — | (4,587 | ) | (4,587 | ) | ||||||||||||||||||
Amounts attributable to noncontrolling interests | — | (16,242 | ) | (16,242 | ) | ||||||||||||||||||
Net income (loss) available to Arch | 152,788 | 2,010 | 154,798 | ||||||||||||||||||||
Preferred dividends | (5,484 | ) | — | (5,484 | ) | ||||||||||||||||||
Net income (loss) available to Arch common shareholders | $ | 147,304 | $ | 2,010 | $ | 149,314 | |||||||||||||||||
Underwriting Ratios | |||||||||||||||||||||||
Loss ratio | 63.1 | % | 42.7 | % | 14.0 | % | 53.1 | % | 68.5 | % | 55.0 | % | |||||||||||
Acquisition expense ratio | 14.5 | % | 21.0 | % | 13.6 | % | 16.4 | % | 28.5 | % | 17.9 | % | |||||||||||
Other operating expense ratio | 16.7 | % | 14.0 | % | 39.9 | % | 17.6 | % | 4.6 | % | 16.0 | % | |||||||||||
Combined ratio | 94.3 | % | 77.7 | % | 67.5 | % | 87.1 | % | 101.6 | % | 88.9 | % | |||||||||||
Goodwill and intangible assets | $ | 27,825 | $ | 1,713 | $ | 63,132 | $ | 92,670 | $ | — | $ | 92,670 | |||||||||||
Total investable assets | $ | 14,954,294 | $ | 1,709,862 | $ | 16,664,156 | |||||||||||||||||
Total assets | 22,217,987 | 2,323,382 | 24,541,369 | ||||||||||||||||||||
Total liabilities | 15,912,609 | 1,254,984 | 17,167,593 |
(1) | Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total. |
14 |
Three Months Ended | |||||||||||||||||||||||
March 31, 2015 | |||||||||||||||||||||||
Insurance | Reinsurance | Mortgage | Sub-Total | Other | Total | ||||||||||||||||||
Gross premiums written (1) | $ | 766,153 | $ | 485,112 | $ | 60,541 | $ | 1,311,678 | $ | 128,633 | $ | 1,342,022 | |||||||||||
Premiums ceded | (224,150 | ) | (136,569 | ) | (8,670 | ) | (369,261 | ) | (4,055 | ) | (275,027 | ) | |||||||||||
Net premiums written | 542,003 | 348,543 | 51,871 | 942,417 | 124,578 | 1,066,995 | |||||||||||||||||
Change in unearned premiums | (34,089 | ) | (68,826 | ) | (1,504 | ) | (104,419 | ) | (52,312 | ) | (156,731 | ) | |||||||||||
Net premiums earned | 507,914 | 279,717 | 50,367 | 837,998 | 72,266 | 910,264 | |||||||||||||||||
Other underwriting income | 427 | 1,429 | 7,718 | 9,574 | 1,962 | 11,536 | |||||||||||||||||
Losses and loss adjustment expenses | (317,896 | ) | (112,532 | ) | (13,809 | ) | (444,237 | ) | (49,479 | ) | (493,716 | ) | |||||||||||
Acquisition expenses, net | (75,078 | ) | (56,604 | ) | (10,418 | ) | (142,100 | ) | (20,976 | ) | (163,076 | ) | |||||||||||
Other operating expenses | (88,119 | ) | (38,044 | ) | (20,369 | ) | (146,532 | ) | (2,005 | ) | (148,537 | ) | |||||||||||
Underwriting income (loss) | $ | 27,248 | $ | 73,966 | $ | 13,489 | 114,703 | 1,768 | 116,471 | ||||||||||||||
Net investment income | 70,288 | 8,706 | 78,994 | ||||||||||||||||||||
Net realized gains (losses) | 65,509 | 17,839 | 83,348 | ||||||||||||||||||||
Net impairment losses recognized in earnings | (5,799 | ) | — | (5,799 | ) | ||||||||||||||||||
Equity in net income (loss) of investment funds accounted for using the equity method | 5,889 | — | 5,889 | ||||||||||||||||||||
Other income (loss) | (1,888 | ) | — | (1,888 | ) | ||||||||||||||||||
Other expenses | (9,345 | ) | — | (9,345 | ) | ||||||||||||||||||
Interest expense | (12,736 | ) | — | (12,736 | ) | ||||||||||||||||||
Net foreign exchange gains (losses) | 66,853 | (352 | ) | 66,501 | |||||||||||||||||||
Income (loss) before income taxes | 293,474 | 27,961 | 321,435 | ||||||||||||||||||||
Income tax expense | (12,678 | ) | — | (12,678 | ) | ||||||||||||||||||
Net income (loss) | 280,796 | 27,961 | 308,757 | ||||||||||||||||||||
Dividends attributable to redeemable noncontrolling interests | — | (4,908 | ) | (4,908 | ) | ||||||||||||||||||
Amounts attributable to noncontrolling interests | — | (20,513 | ) | (20,513 | ) | ||||||||||||||||||
Net income (loss) available to Arch | 280,796 | 2,540 | 283,336 | ||||||||||||||||||||
Preferred dividends | (5,484 | ) | — | (5,484 | ) | ||||||||||||||||||
Net income (loss) available to Arch common shareholders | $ | 275,312 | $ | 2,540 | $ | 277,852 | |||||||||||||||||
Underwriting Ratios | |||||||||||||||||||||||
Loss ratio | 62.6 | % | 40.2 | % | 27.4 | % | 53.0 | % | 68.5 | % | 54.2 | % | |||||||||||
Acquisition expense ratio | 14.8 | % | 20.2 | % | 20.7 | % | 17.0 | % | 29.0 | % | 17.9 | % | |||||||||||
Other operating expense ratio | 17.3 | % | 13.6 | % | 40.4 | % | 17.5 | % | 2.8 | % | 16.3 | % | |||||||||||
Combined ratio | 94.7 | % | 74.0 | % | 88.5 | % | 87.5 | % | 100.3 | % | 88.4 | % | |||||||||||
Goodwill and intangible assets | $ | 30,526 | $ | 2,687 | $ | 73,532 | $ | 106,745 | $ | — | $ | 106,745 | |||||||||||
Total investable assets | $ | 14,436,148 | $ | 1,267,588 | $ | 15,703,736 | |||||||||||||||||
Total assets | 21,232,554 | 1,622,537 | 22,855,091 | ||||||||||||||||||||
Total liabilities | 15,041,656 | 515,535 | 15,557,191 |
(1) | Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total. |
15 |
Estimated Fair Value | Gross Unrealized Gains | Gross Unrealized Losses | Cost or Amortized Cost | OTTI Unrealized Losses (2) | |||||||||||||||
March 31, 2016 | |||||||||||||||||||
Fixed maturities (1): | |||||||||||||||||||
Corporate bonds | $ | 2,869,676 | $ | 49,618 | $ | (26,280 | ) | $ | 2,846,338 | $ | (3,106 | ) | |||||||
Mortgage backed securities | 697,009 | 10,615 | (2,121 | ) | 688,515 | (3,393 | ) | ||||||||||||
Municipal bonds | 1,605,234 | 33,497 | (1,116 | ) | 1,572,853 | — | |||||||||||||
Commercial mortgage backed securities | 577,853 | 8,158 | (2,605 | ) | 572,300 | — | |||||||||||||
U.S. government and government agencies | 2,975,376 | 27,583 | (3,865 | ) | 2,951,658 | — | |||||||||||||
Non-U.S. government securities | 1,086,128 | 34,833 | (25,743 | ) | 1,077,038 | — | |||||||||||||
Asset backed securities | 1,392,584 | 7,051 | (12,298 | ) | 1,397,831 | (69 | ) | ||||||||||||
Total | 11,203,860 | 171,355 | (74,028 | ) | 11,106,533 | (6,568 | ) | ||||||||||||
Equity securities | 523,078 | 72,407 | (13,925 | ) | 464,596 | — | |||||||||||||
Other investments | 195,079 | 22,181 | (5,910 | ) | 178,808 | — | |||||||||||||
Short-term investments | 629,844 | 479 | (2,166 | ) | 631,531 | — | |||||||||||||
Total | $ | 12,551,861 | $ | 266,422 | $ | (96,029 | ) | $ | 12,381,468 | $ | (6,568 | ) | |||||||
December 31, 2015 | |||||||||||||||||||
Fixed maturities (1): | |||||||||||||||||||
Corporate bonds | $ | 2,725,729 | $ | 15,978 | $ | (60,508 | ) | $ | 2,770,259 | $ | (3,553 | ) | |||||||
Mortgage backed securities | 754,870 | 9,872 | (5,334 | ) | 750,332 | (3,350 | ) | ||||||||||||
Municipal bonds | 1,626,281 | 27,014 | (1,534 | ) | 1,600,801 | — | |||||||||||||
Commercial mortgage backed securities | 764,152 | 3,269 | (6,978 | ) | 767,861 | — | |||||||||||||
U.S. government and government agencies | 2,423,455 | 6,228 | (9,978 | ) | 2,427,205 | — | |||||||||||||
Non-U.S. government securities | 917,664 | 10,414 | (39,122 | ) | 946,372 | — | |||||||||||||
Asset backed securities | 1,620,506 | 3,307 | (12,951 | ) | 1,630,150 | (22 | ) | ||||||||||||
Total | 10,832,657 | 76,082 | (136,405 | ) | 10,892,980 | (6,925 | ) | ||||||||||||
Equity securities | 629,182 | 94,341 | (17,796 | ) | 552,637 | — | |||||||||||||
Other investments | 300,476 | 43,798 | (4,665 | ) | 261,343 | — | |||||||||||||
Short-term investments | 587,904 | 187 | (3,425 | ) | 591,142 | — | |||||||||||||
Total | $ | 12,350,219 | $ | 214,408 | $ | (162,291 | ) | $ | 12,298,102 | $ | (6,925 | ) |
(1) | In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.” |
(2) | Represents the total other-than-temporary impairments (“OTTI”) recognized in accumulated other comprehensive income (“AOCI”). It does not include the change in fair value subsequent to the impairment measurement date. At March 31, 2016, the net unrealized gain related to securities for which a non-credit OTTI was recognized in AOCI was $0.6 million, compared to a net unrealized loss of $1.4 million at December 31, 2015. |
16 |
Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | ||||||||||||||||||
March 31, 2016 | |||||||||||||||||||||||
Fixed maturities (1): | |||||||||||||||||||||||
Corporate bonds | $ | 410,065 | $ | (10,070 | ) | $ | 140,629 | $ | (16,210 | ) | $ | 550,694 | $ | (26,280 | ) | ||||||||
Mortgage backed securities | 87,587 | (915 | ) | 52,249 | (1,206 | ) | 139,836 | (2,121 | ) | ||||||||||||||
Municipal bonds | 171,960 | (881 | ) | 26,269 | (235 | ) | 198,229 | (1,116 | ) | ||||||||||||||
Commercial mortgage backed securities | 123,862 | (2,140 | ) | 20,306 | (465 | ) | 144,168 | (2,605 | ) | ||||||||||||||
U.S. government and government agencies | 268,422 | (3,865 | ) | — | — | 268,422 | (3,865 | ) | |||||||||||||||
Non-U.S. government securities | 258,144 | (7,095 | ) | 131,460 | (18,648 | ) | 389,604 | (25,743 | ) | ||||||||||||||
Asset backed securities | 567,758 | (9,603 | ) | 169,161 | (2,695 | ) | 736,919 | (12,298 | ) | ||||||||||||||
Total | 1,887,798 | (34,569 | ) | 540,074 | (39,459 | ) | 2,427,872 | (74,028 | ) | ||||||||||||||
Equity securities | 192,866 | (13,925 | ) | — | — | 192,866 | (13,925 | ) | |||||||||||||||
Other investments | 39,127 | (5,910 | ) | — | — | 39,127 | (5,910 | ) | |||||||||||||||
Short-term investments | 10,208 | (2,166 | ) | — | — | 10,208 | (2,166 | ) | |||||||||||||||
Total | $ | 2,129,999 | $ | (56,570 | ) | $ | 540,074 | $ | (39,459 | ) | $ | 2,670,073 | $ | (96,029 | ) | ||||||||
December 31, 2015 | |||||||||||||||||||||||
Fixed maturities (1): | |||||||||||||||||||||||
Corporate bonds | $ | 1,810,988 | $ | (37,445 | ) | $ | 129,896 | $ | (23,063 | ) | $ | 1,940,884 | $ | (60,508 | ) | ||||||||
Mortgage backed securities | 487,018 | (4,508 | ) | 48,991 | (826 | ) | 536,009 | (5,334 | ) | ||||||||||||||
Municipal bonds | 269,015 | (1,303 | ) | 9,692 | (231 | ) | 278,707 | (1,534 | ) | ||||||||||||||
Commercial mortgage backed securities | 511,261 | (6,639 | ) | 20,596 | (339 | ) | 531,857 | (6,978 | ) | ||||||||||||||
U.S. government and government agencies | 1,991,163 | (9,978 | ) | — | — | 1,991,163 | (9,978 | ) | |||||||||||||||
Non-U.S. government securities | 458,414 | (13,494 | ) | 138,792 | (25,628 | ) | 597,206 | (39,122 | ) | ||||||||||||||
Asset backed securities | 1,217,163 | (9,328 | ) | 134,841 | (3,623 | ) | 1,352,004 | (12,951 | ) | ||||||||||||||
Total | 6,745,022 | (82,695 | ) | 482,808 | (53,710 | ) | 7,227,830 | (136,405 | ) | ||||||||||||||
Equity securities | 232,275 | (17,796 | ) | — | — | 232,275 | (17,796 | ) | |||||||||||||||
Other investments | 93,614 | (4,665 | ) | — | — | 93,614 | (4,665 | ) | |||||||||||||||
Short-term investments | 30,625 | (3,425 | ) | — | — | 30,625 | (3,425 | ) | |||||||||||||||
Total | $ | 7,101,536 | $ | (108,581 | ) | $ | 482,808 | $ | (53,710 | ) | $ | 7,584,344 | $ | (162,291 | ) |
(1) | In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.” |
17 |
March 31, 2016 | December 31, 2015 | |||||||||||||||
Maturity | Estimated Fair Value | Amortized Cost | Estimated Fair Value | Amortized Cost | ||||||||||||
Due in one year or less | $ | 282,800 | $ | 283,961 | $ | 337,898 | $ | 341,595 | ||||||||
Due after one year through five years | 5,233,801 | 5,199,753 | 4,644,516 | 4,677,230 | ||||||||||||
Due after five years through 10 years | 2,443,031 | 2,400,852 | 2,214,413 | 2,228,638 | ||||||||||||
Due after 10 years | 576,782 | 563,321 | 496,302 | 497,174 | ||||||||||||
8,536,414 |