PEMBROKE, Bermuda–(BUSINESS WIRE)–Arch Capital Group Ltd. (NASDAQ: ACGL) announces its 2019 second quarter results. The results included:
- Net income available to Arch common shareholders of $458.6 million, or $1.12 per share, a 19.0% annualized return on average common equity, compared to $233.2 million, or $0.56 per share, for the 2018 second quarter;
- After-tax operating income available to Arch common shareholders, a non-GAAP measure, of $317.4 million, or $0.77 per share, a 13.1% annualized return on average common equity, compared to $242.6 million, or $0.59 per share, for the 2018 second quarter;
- Book value per common share of $24.64 at June 30, 2019, a 6.6% increase in the 2019 second quarter and an 19.2% increase for the trailing twelve months;
- Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums(1) of $7.2 million;
- Favorable development in prior year loss reserves, net of related adjustments(1) of $35.5 million;
- Combined ratio excluding catastrophic activity and prior year development(1) of 80.0%.
All earnings per share amounts discussed in this release are on a diluted basis. The following table summarizes the Company’s underwriting results, both (i) on a consolidated basis and (ii) on a consolidated basis excluding the ‘other’ segment (i.e., results of Watford Re, as defined below):
|
(U.S. dollars in thousands) |
Consolidated |
|
Consolidated Excluding ‘Other’ Segment (1) |
||||||||||||||||||
|
|
Three Months Ended June 30, |
|
Three Months Ended June 30, |
||||||||||||||||||
|
|
2019 |
|
2018 |
|
% Change |
|
2019 |
|
2018 |
|
% Change |
||||||||||
|
Gross premiums written |
$ |
1,937,809 |
|
|
$ |
1,696,544 |
|
|
14.2 |
|
|
$ |
1,829,829 |
|
|
$ |
1,591,202 |
|
|
15.0 |
|
|
Net premiums written |
1,444,898 |
|
|
1,298,896 |
|
|
11.2 |
|
|
1,325,528 |
|
|
1,158,310 |
|
|
14.4 |
|
||||
|
Net premiums earned |
1,463,727 |
|
|
1,336,763 |
|
|
9.5 |
|
|
1,312,409 |
|
|
1,177,245 |
|
|
11.5 |
|
||||
|
Underwriting income |
293,134 |
|
|
235,465 |
|
|
24.5 |
|
|
297,727 |
|
|
235,783 |
|
|
26.3 |
|
||||
|
Underwriting Ratios |
|
|
|
|
% Point |
|
|
|
|
|
% Point |
||||||||||
|
Loss ratio |
52.4 |
% |
|
54.3 |
% |
|
(1.9 |
) |
|
50.0 |
% |
|
51.7 |
% |
|
(1.7 |
) |
||||
|
Underwriting expense ratio |
28.0 |
% |
|
28.4 |
% |
|
(0.4 |
) |
|
27.8 |
% |
|
28.5 |
% |
|
(0.7 |
) |
||||
|
Combined ratio |
80.4 |
% |
|
82.7 |
% |
|
(2.3 |
) |
|
77.8 |
% |
|
80.2 |
% |
|
(2.4 |
) |
||||
|
Combined ratio excluding catastrophic activity and prior year development |
|
|
|
|
|
|
80.0 |
% |
|
84.0 |
% |
|
(4.0 |
) |
|||||||
|
(1) |
Excluding the ‘other’ segment. See ‘Comments on Regulation G’ for further details |
Pursuant to GAAP, the Company consolidates the results of Watford Holdings Ltd. in its financial statements, although it only owns approximately 11% of Watford Holdings Ltd.’s outstanding 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”). See ‘Comments on Regulation G’ for further details.
The following table summarizes the Company’s consolidated financial data, including a reconciliation of net income or loss available to Arch common shareholders to after-tax operating income or loss available to Arch common shareholders and related diluted per share results:
|
(U.S. dollars in thousands, except share data) |
Three Months Ended |
|
Six Months Ended |
||||||||||||
|
|
June 30, |
|
June 30, |
||||||||||||
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||||||
|
Net income available to Arch common shareholders |
$ |
458,551 |
|
|
$ |
233,243 |
|
|
$ |
896,676 |
|
|
$ |
370,519 |
|
|
Net realized (gains) losses |
(124,637 |
) |
|
61,426 |
|
|
(240,281 |
) |
|
173,190 |
|
||||
|
Net impairment losses recognized in earnings |
49 |
|
|
470 |
|
|
1,358 |
|
|
632 |
|
||||
|
Equity in net (income) loss of investment funds accounted for using the equity method |
(32,536 |
) |
|
(8,472 |
) |
|
(79,403 |
) |
|
(36,541 |
) |
||||
|
Net foreign exchange (gains) losses |
6,054 |
|
|
(47,038 |
) |
|
1,060 |
|
|
(31,482 |
) |
||||
|
Transaction costs and other |
2,178 |
|
|
6,908 |
|
|
3,368 |
|
|
7,738 |
|
||||
|
Loss on redemption of preferred shares |
— |
|
|
— |
|
|
— |
|
|
2,710 |
|
||||
|
Income tax expense (benefit) (1) |
7,774 |
|
|
(3,941 |
) |
|
10,552 |
|
|
(9,027 |
) |
||||
|
After-tax operating income available to Arch common shareholders |
$ |
317,433 |
|
|
$ |
242,596 |
|
|
$ |
593,330 |
|
|
$ |
477,739 |
|
|
|
|
|
|
|
|
|
|
||||||||
|
Diluted per common share results: |
|
|
|
|
|
|
|
||||||||
|
Net income available to Arch common shareholders |
$ |
1.12 |
|
|
$ |
0.56 |
|
|
$ |
2.19 |
|
|
$ |
0.89 |
|
|
Net realized (gains) losses |
(0.31 |
) |
|
0.15 |
|
|
(0.59 |
) |
|
0.42 |
|
||||
|
Net impairment losses recognized in earnings |
0.00 |
|
|
0.00 |
|
|
0.00 |
|
|
0.00 |
|
||||
|
Equity in net (income) loss of investment funds accounted for using the equity method |
(0.08 |
) |
|
(0.02 |
) |
|
(0.19 |
) |
|
(0.09 |
) |
||||
|
Net foreign exchange (gains) losses |
0.01 |
|
|
(0.11 |
) |
|
0.00 |
|
|
(0.08 |
) |
||||
|
Transaction costs and other |
0.01 |
|
|
0.02 |
|
|
0.01 |
|
|
0.02 |
|
||||
|
Loss on redemption of preferred shares |
— |
|
|
— |
|
|
— |
|
|
0.01 |
|
||||
|
Income tax expense (benefit) (1) |
0.02 |
|
|
(0.01 |
) |
|
0.03 |
|
|
(0.02 |
) |
||||
|
After-tax operating income available to Arch common shareholders |
$ |
0.77 |
|
|
$ |
0.59 |
|
|
$ |
1.45 |
|
|
$ |
1.15 |
|
|
|
|
|
|
|
|
|
|
||||||||
|
Weighted average common shares and common share equivalents outstanding — diluted |
410,899,483 |
|
|
413,111,205 |
|
|
409,755,250 |
|
|
415,460,756 |
|
||||
|
|
|
|
|
|
|
|
|
||||||||
|
Beginning common shareholders’ equity |
$ |
9,334,596 |
|
|
$ |
8,370,372 |
|
|
$ |
8,659,827 |
|
|
$ |
8,324,047 |
|
|
Ending common shareholders’ equity |
9,977,352 |
|
|
8,383,755 |
|
|
9,977,352 |
|
|
8,383,755 |
|
||||
|
Average common shareholders’ equity |
$ |
9,655,974 |
|
|
$ |
8,377,064 |
|
|
$ |
9,318,590 |
|
|
$ |
8,353,901 |
|
|
|
|
|
|
|
|
|
|
||||||||
|
Annualized return on average common equity |
19.0 |
% |
|
11.1 |
% |
|
19.2 |
% |
|
8.9 |
% |
||||
|
Annualized operating return on average common equity |
13.1 |
% |
|
11.6 |
% |
|
12.7 |
% |
|
11.4 |
% |
||||
|
(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, transaction costs and other and loss on redemption of preferred shares reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction. |
Each line item in the table above reflects the impact of the Company’s approximate 11% ownership of Watford Re’s outstanding common equity. See ‘Comments on Regulation G’ for a discussion of non-GAAP financial measures.
Segment Information
The following section provides analysis on the Company’s 2019 second quarter performance by operating segment. For additional details regarding the Company’s operating segments, please refer to the Company’s Financial Supplement dated June 30, 2019. The Company’s segment information includes the use of underwriting income (loss) and a combined ratio excluding catastrophic activity (if applicable for the segment) and prior year development. Such items are non-GAAP financial measures (see ‘Comments on Regulation G’ for further details).
Insurance Segment
|
|
Three Months Ended June 30, |
|||||||||
|
(U.S. dollars in thousands) |
2019 |
|
2018 |
|
% Change |
|||||
|
|
|
|
|
|
|
|||||
|
Gross premiums written |
$ |
919,925 |
|
|
$ |
769,372 |
|
|
19.6 |
|
|
Net premiums written |
627,830 |
|
|
524,107 |
|
|
19.8 |
|
||
|
Net premiums earned |
592,442 |
|
|
546,449 |
|
|
8.4 |
|
||
|
|
|
|
|
|
|
|||||
|
Underwriting income |
$ |
2,653 |
|
|
$ |
5,634 |
|
|
(52.9 |
) |
|
|
|
|
|
|
|
|||||
|
Underwriting Ratios |
|
|
|
|
% Point |
|||||
|
Loss ratio |
65.7 |
% |
|
65.4 |
% |
|
0.3 |
|
||
|
Underwriting expense ratio |
33.9 |
% |
|
33.6 |
% |
|
0.3 |
|
||
|
Combined ratio |
99.6 |
% |
|
99.0 |
% |
|
0.6 |
|
||
|
|
|
|
|
|
|
|||||
|
Catastrophic activity and prior year development: |
|
|
|
|
|
|||||
|
Current accident year catastrophic events, net of reinsurance and reinstatement premiums |
0.4 |
% |
|
1.4 |
% |
|
(1.0 |
) |
||
|
Net (favorable) adverse development in prior year loss reserves, net of related adjustments |
(0.2 |
)% |
|
(0.9 |
)% |
|
0.7 |
|
||
|
Combined ratio excluding catastrophic activity and prior year development (1) |
99.4 |
% |
|
98.5 |
% |
|
0.9 |
|
||
|
(1) |
See ‘Comments on Regulation G’ for further discussion. |
Gross premiums written by the insurance segment in the 2019 second quarter were 19.6% higher than in the 2018 second quarter while net premiums written were 19.8% higher than in the 2018 second quarter. Approximately one third of the growth in net premiums written resulted from the Company’s recent acquisition of a U.K. commercial lines book of business. The remainder was due to growth in existing accounts and rate increases across most lines of business. Net premiums earned by the insurance segment in the 2019 second quarter were 8.4% higher than in the 2018 second quarter, and reflect changes in net premiums written over the previous five quarters.
The 2019 second quarter loss ratio reflected 0.4 points of current year catastrophic activity, compared to 1.4 points in the 2018 second quarter. Estimated net favorable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 0.4 points in the 2019 second quarter, compared to 1.1 points in the 2018 second quarter. The 2019 second quarter loss ratio also reflected a higher level of attritional losses than in the 2018 second quarter.
The underwriting expense ratio was 33.9% in the 2019 second quarter, compared to 33.6% in the 2018 second quarter. Operating expenses increased in the 2019 second quarter due to the recent acquisitions by the Company, as well as growth in headcount, primarily in the areas of underwriting and technology. The impact of this increased level of expenses on the expense ratio was partially tempered by the growth in net premiums earned.
Reinsurance Segment
|
|
Three Months Ended June 30, |
|||||||||
|
(U.S. dollars in thousands) |
2019 |
|
2018 |
|
% Change |
|||||
|
|
|
|
|
|
|
|||||
|
Gross premiums written |
$ |
545,547 |
|
|
$ |
490,327 |
|
|
11.3 |
|
|
Net premiums written |
376,090 |
|
|
354,080 |
|
|
6.2 |
|
||
|
Net premiums earned |
367,184 |
|
|
340,318 |
|
|
7.9 |
|
||
|
Other underwriting income (loss) |
1,224 |
|
|
(129 |
) |
|
n/m |
|||
|
|
|
|
|
|
|
|||||
|
Underwriting income |
$ |
36,705 |
|
|
$ |
24,413 |
|
|
50.4 |
|
|
|
|
|
|
|
|
|||||
|
Underwriting Ratios |
|
|
|
|
% Point |
|||||
|
Loss ratio |
65.6 |
% |
|
67.6 |
% |
|
(2.0 |
) |
||
|
Underwriting expense ratio |
24.7 |
% |
|
25.2 |
% |
|
(0.5 |
) |
||
|
Combined ratio |
90.3 |
% |
|
92.8 |
% |
|
(2.5 |
) |
||
|
|
|
|
|
|
|
|||||
|
Catastrophic activity and prior year development: |
|
|
|
|
|
|||||
|
Current accident year catastrophic events, net of reinsurance and reinstatement premiums |
1.2 |
% |
|
2.2 |
% |
|
(1.0 |
) |
||
|
Net (favorable) adverse development in prior year loss reserves, net of related adjustments |
(3.1 |
)% |
|
(9.4 |
)% |
|
6.3 |
|
||
|
Combined ratio excluding catastrophic activity and prior year development (1) |
92.2 |
% |
|
100.0 |
% |
|
(7.8 |
) |
||
|
(1) |
See ‘Comments on Regulation G’ for further discussion. |
Gross premiums written by the reinsurance segment in the 2019 second quarter were 11.3% higher than in the 2018 second quarter, while net premiums written were 6.2% higher than in 2018 second quarter. The increase in gross premiums written is primarily a result of growth in property business, with a significant amount being retroceded. The increase in net premiums written in the 2019 second quarter primarily reflected growth from select new business opportunities across most lines of business. This was partially offset by a decline in other specialty business, primarily reflecting a reduction in U.K motor business with one cedent in the period. Net premiums earned by the reinsurance segment in the 2019 second quarter were 7.9% higher than in the 2018 second quarter, and reflect changes in net premiums written over the previous five quarters.
The 2019 second quarter loss ratio included 1.3 points of current year catastrophic activity, compared to 2.2 points of catastrophic activity in the 2018 second quarter. Estimated net favorable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 3.5 points in the 2019 second quarter, compared to 9.7 points in the 2018 second quarter. In addition, the 2019 second quarter reflected a lower level of large attritional loss activity than in the 2018 second quarter.
The underwriting expense ratio was 24.7% in the 2019 second quarter, compared to 25.2% in the 2018 second quarter, primarily as a result of growth in net premiums earned and changes in mix of business.
Mortgage Segment
|
|
Three Months Ended June 30, |
|||||||||
|
(U.S. dollars in thousands) |
2019 |
|
2018 |
|
% Change |
|||||
|
|
|
|
|
|
|
|||||
|
Gross premiums written |
$ |
364,465 |
|
|
$ |
330,990 |
|
|
10.1 |
|
|
Net premiums written |
321,608 |
|
|
280,123 |
|
|
14.8 |
|
||
|
Net premiums earned |
352,783 |
|
|
290,478 |
|
|
21.4 |
|
||
|
Other underwriting income |
4,056 |
|
|
3,315 |
|
|
22.4 |
|
||
|
|
|
|
|
|
|
|||||
|
Underwriting income |
$ |
258,369 |
|
|
$ |
205,736 |
|
|
25.6 |
|
|
|
|
|
|
|
|
|||||
|
Underwriting Ratios |
|
|
|
|
% Point |
|||||
|
Loss ratio |
7.4 |
% |
|
7.4 |
% |
|
— |
|
||
|
Underwriting expense ratio |
20.6 |
% |
|
22.8 |
% |
|
(2.2 |
) |
||
|
Combined ratio |
28.0 |
% |
|
30.2 |
% |
|
(2.2 |
) |
||
|
|
|
|
|
|
|
|||||
|
Prior year development: |
|
|
|
|
|
|||||
|
Net (favorable) adverse development in prior year loss reserves, net of related adjustments |
(6.5 |
)% |
|
(8.0 |
)% |
|
1.5 |
|
||
|
Combined ratio excluding prior year development (1) |
34.5 |
% |
|
38.2 |
% |
|
(3.7 |
) |
||
|
(1) |
See ‘Comments on Regulation G’ for further discussion. |
Gross premiums written by the mortgage segment in the 2019 second quarter were 10.1% higher than in the 2018 second quarter, while net premiums written were 14.8% higher. The growth in net premiums written primarily reflected an increase in monthly premium business due to growth in insurance in force, partially offset by higher ceded premiums related to Bellemeade transactions. In addition, net premiums written for the 2019 second quarter included $17.1 million due to the novation of a quota share reinsurance arrangement on international business. Insurance in force increased to $403.9 billion at June 30, 2019, compared to $390.4 at March 31, 2019. The increase in net premiums earned for the 2019 second quarter reflected the growth in insurance in force over the last twelve months and the novation noted above.
Arch MI U.S. generated $17.2 billion of new insurance written (“NIW”) in the 2019 second quarter, compared to $19.9 billion in the 2018 second quarter. Monthly premium policies contributed 92.9% of NIW in the 2019 second quarter, compared to 94.3% in the 2018 second quarter.
The loss ratio for the 2019 second quarter reflected estimated net favorable development in prior year loss reserves, before related adjustments, of 6.5 points in the 2019 second quarter, compared to 8.0 points in the 2018 second quarter. The estimated net favorable development in the 2019 second quarter was primarily driven by lower expected claim rates on first lien business and, to a lesser extent, subrogation activity on second lien business. In addition, the novation mentioned above reduced the 2019 second quarter loss ratio by 0.3 points. The percentage of loans in default on Arch MI U.S first lien business was 1.45% at June 30, 2019, a decrease from 1.54% at March 31, 2019.
The mortgage segment’s underwriting expense ratio was 20.6% in the 2019 second quarter, compared to 22.8% in the 2018 second quarter. The lower ratio in the 2019 second quarter primarily resulted from the higher level of net premiums earned.
At June 30, 2019, the mortgage segment’s risk-in-force (before reinsurance) of $78.2 billion consisted of $71.8 billion from Arch MI U.S. with the remainder from reinsurance, credit-risk sharing and international insurance operations.
Corporate and Non-Underwriting
Corporate and non-underwriting results include net investment income, other income (loss), corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, items related to the Company’s non-cumulative preferred shares, net realized gains or losses, net impairment losses included in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and income taxes. Such amounts exclude the results of the ‘other’ segment.
Pre-tax net investment income for the 2019 second quarter was $0.30 per share, or $123.0 million, compared to $0.26 per share, or $107.8 million, for the 2018 second quarter. The growth in 2019 second quarter net investment income reflected growth in invested assets, the reinvestment of fixed income securities at higher available yields and the shift from municipal bonds to corporates. The annualized pre-tax investment income yield was 2.62% for the 2019 second quarter, compared to 2.32% for the 2018 second quarter. Total return, a non-GAAP measure, was 2.37% for the 2019 second quarter, primarily reflecting the decline in interest rates during the period and attendant appreciation in the Company’s fixed income portfolio. See ‘Comments on Regulation G’ for a discussion of non-GAAP financial measures.
Interest expense for the 2019 second quarter was $23.4 million, compared to $26.1 million for the 2018 second quarter, reflecting the paydown of revolving credit agreement borrowings in the second half of 2018.
On a pre-tax basis, net foreign exchange losses for the 2019 second quarter were $6.2 million, compared to net foreign exchange gains for the 2018 second quarter of $46.2 million. For both periods, such amounts were primarily unrealized and resulted from the effects of revaluing the Company’s net insurance liabilities required to be settled in foreign currencies at each balance sheet date. Changes in the value of available-for-sale investments held in foreign currencies due to foreign currency rate movements are reflected as a direct increase or decrease to shareholders’ equity and are not included in the consolidated statements of income. Although the Company generally attempts to match the currency of its projected liabilities with investments in the same currencies, the Company may elect to over or underweight one or more currencies from time to time, which could increase the Company’s exposure to foreign currency fluctuations and increase the volatility of the Company’s shareholders’ equity.
The Company’s effective tax rate on income before income taxes (based on the Company’s estimated annual effective tax rate) was 8.7% for the 2019 second quarter, compared to 8.8% for the 2018 second quarter. The Company’s effective tax rate on pre-tax operating income available to Arch common shareholders was 10.1% for the 2019 second quarter, compared to 9.8% for the 2018 second quarter. The effective tax rates for the 2019 second quarter included a discrete income tax benefit of $2.5 million related to share-based compensation. This benefit had the effect of reducing the effective tax rate on operating income available to Arch common shareholders by 0.7%. The Company’s effective tax rate may fluctuate from period to period based upon the relative mix of income or loss reported by jurisdiction, the level of catastrophic loss activity incurred, and the varying tax rates in each jurisdiction.
Conference Call
The Company will hold a conference call for investors and analysts at 9:00 a.m. Eastern Time on July 30, 2019. A live webcast of this call will be available via the Investors section of the Company’s website at http://www.archcapgroup.com. A telephone replay of the conference call also will be available beginning on July 30, 2019 at 2:00 p.m. Eastern Time until August 6, 2019 at midnight Eastern Time. To access the replay, domestic callers should dial 855-859-2056, and international callers should dial 404-537-3406 (passcode 2085083 for all callers).
Please refer to the Company’s Financial Supplement dated June 30, 2019, which is available via the Investors section of the Company’s website at http://www.archcapgroup.com. The Financial Supplement provides additional detail regarding the financial performance of the Company. From time to time, the Company posts additional financial information and presentations to its website, including information with respect to its subsidiaries. Investors and other recipients of this information are encouraged to check the Company’s website regularly for additional information regarding the Company.
Arch Capital Group Ltd., a Bermuda-based company with approximately $12.49 billion in capital at June 30, 2019, provides insurance, reinsurance and mortgage insurance on a worldwide basis through its wholly owned subsidiaries.
Comments on Regulation G
Throughout this release, the Company presents its operations in the way it believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use the Company’s financial information in evaluating the performance of the Company and that investors and such other persons benefit from having a consistent basis for comparison between quarters and for comparison with other companies within the industry. These measures may not, however, be comparable to similarly titled measures used by companies outside of the insurance industry. Investors are cautioned not to place undue reliance on these non-GAAP financial measures in assessing the Company’s overall financial performance.
This presentation includes the use of “after-tax operating income or loss 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, transaction costs and other and loss on redemption of preferred shares, 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 of this release.
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, transaction costs and other and loss on redemption of preferred shares 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.
Contacts
Arch Capital Group Ltd.
François Morin: (441) 278-9250
Investor Relations
Donald Watson: (914) 872-3616; [email protected]
