Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

 

EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended June 30, 2008

 

 

 

Or

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

 

EXCHANGE ACT OF 1934

 

 

 

For the transition period              to              

 

Commission file number:  0-26456

 

ARCH CAPITAL GROUP LTD.

(Exact name of registrant as specified in its charter)

 

Bermuda

Not Applicable

(State or other jurisdiction of incorporation or

(I.R.S. Employer Identification No.)

organization)

 

 

 

Wessex House, 45 Reid Street

 

Hamilton HM 12, Bermuda

 

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code:  (441) 278-9250

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x     No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

Accelerated filer o

 

 

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting coming)

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common shares as of the latest practicable date.

 

Class

Outstanding at August 1, 2008

Common Shares, $0.01 par value

60,111,444

 

 

 

 



Table of Contents

 

ARCH CAPITAL GROUP LTD.

 

INDEX

 

 

Page No.

PART I. Financial Information

 

 

 

Item 1 — Consolidated Financial Statements

 

 

 

Report of Independent Registered Public Accounting Firm

2

 

 

Consolidated Balance Sheets

3

 June 30, 2008 (unaudited) and December 31, 2007

 

 

 

Consolidated Statements of Income

4

 For the three and six month periods ended June 30, 2008 and 2007 (unaudited)

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity

5

 For the six month periods ended June 30, 2008 and 2007 (unaudited)

 

 

 

Consolidated Statements of Comprehensive Income

6

 For the six month periods ended June 30, 2008 and 2007 (unaudited)

 

 

 

Consolidated Statements of Cash Flows

7

 For the six month periods ended June 30, 2008 and 2007 (unaudited)

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8

 

 

Item 2 — Management’s Discussion and Analysis of Financial Condition

 

and Results of Operations

33

 

 

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

57

 

 

Item 4 — Controls and Procedures

57

 

 

PART II. Other Information

 

 

 

Item 1 — Legal Proceedings

58

 

 

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

58

 

 

Item 4 — Submission of Matters to a Vote of Security Holders

59

 

 

Item 5 — Other Information

60

 

 

Item 6 — Exhibits

60

 

1



Table of Contents

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of

Arch Capital Group Ltd.:

 

We have reviewed the accompanying consolidated balance sheets of Arch Capital Group Ltd. and its subsidiaries (the “Company”) as of June 30, 2008, and the related consolidated statements of income for each of the three-month and six-month periods ended June 30, 2008 and June 30, 2007, and the consolidated statements of changes in shareholders’ equity, comprehensive income and cash flows for the six-month periods ended June 30, 2008 and June 30, 2007. These interim financial statements are the responsibility of the Company’s management.

 

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2007, and the related consolidated statements of income, changes in shareholders’ equity, comprehensive income, and of cash flows for the year then ended (not presented herein), and in our report dated February 28, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2007, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

 

/s/ PricewaterhouseCoopers LLP

New York, New York

August 8, 2008

 

2



Table of Contents

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands, except share data)

 

 

 

(Unaudited)

 

 

 

 

 

June 30,

 

December 31,

 

 

 

2008

 

2007

 

Assets

 

 

 

 

 

Investments:

 

 

 

 

 

Fixed maturities available for sale, at fair value (amortized cost: 2008, $7,787,994; 2007, $7,037,272)

 

$

7,746,296

 

$

7,137,998

 

Short-term investments available for sale, at fair value (amortized cost: 2008, $644,156; 2007, $700,262)

 

645,587

 

699,036

 

Short-term investment of funds received under securities lending agreements, at fair value

 

918,207

 

1,503,723

 

Other investments (cost: 2008, $281,243; 2007, $323,950)

 

295,638

 

353,694

 

Investment funds accounted for using the equity method

 

351,879

 

235,975

 

Investment in joint venture

 

100,000

 

 

Total investments

 

10,057,607

 

9,930,426

 

 

 

 

 

 

 

Cash

 

246,544

 

239,915

 

Accrued investment income

 

76,313

 

73,862

 

Fixed maturities and short-term investments pledged under securities lending agreements, at fair value

 

890,822

 

1,463,045

 

Premiums receivable

 

859,261

 

729,628

 

Unpaid losses and loss adjustment expenses recoverable

 

1,586,201

 

1,609,619

 

Paid losses and loss adjustment expenses recoverable

 

113,439

 

132,289

 

Prepaid reinsurance premiums

 

364,226

 

480,462

 

Deferred income tax assets, net

 

66,944

 

57,051

 

Deferred acquisition costs, net

 

319,732

 

290,059

 

Receivable for securities sold

 

1,053,379

 

17,359

 

Other assets

 

647,034

 

600,552

 

Total Assets

 

$

16,281,502

 

$

15,624,267

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Reserve for losses and loss adjustment expenses

 

$

7,349,083

 

$

7,092,452

 

Unearned premiums

 

1,735,371

 

1,765,881

 

Reinsurance balances payable

 

254,830

 

301,309

 

Senior notes

 

300,000

 

300,000

 

Revolving credit agreement borrowings

 

100,000

 

 

Securities lending payable

 

918,207

 

1,503,723

 

Payable for securities purchased

 

1,064,224

 

23,155

 

Other liabilities

 

673,554

 

601,936

 

Total Liabilities

 

12,395,269

 

11,588,456

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

Non-cumulative preferred shares ($0.01 par value, 50,000,000 shares authorized)

 

 

 

 

 

-Series A (issued: 2008 and 2007, 8,000,000)

 

80

 

80

 

-Series B (issued: 2008 and 2007, 5,000,000)

 

50

 

50

 

Common shares ($0.01 par value, 200,000,000 shares authorized, issued: 2008, 61,943,100; 2007, 67,318,466)

 

619

 

673

 

Additional paid-in capital

 

1,089,636

 

1,451,667

 

Retained earnings

 

2,809,821

 

2,428,117

 

Accumulated other comprehensive (loss) income, net of deferred income tax

 

(13,973

)

155,224

 

Total Shareholders’ Equity

 

3,886,233

 

4,035,811

 

Total Liabilities and Shareholders’ Equity

 

$

16,281,502

 

$

15,624,267

 

 

See Notes to Consolidated Financial Statements

 

3



Table of Contents

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(U.S. dollars in thousands, except share data)

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2008

 

2007

 

2008

 

2007

 

Revenues

 

 

 

 

 

 

 

 

 

Net premiums written

 

$

686,118

 

$

757,895

 

$

1,497,460

 

$

1,629,640

 

Decrease (increase) in unearned premiums

 

19,557

 

(6,483

)

(83,551

)

(132,735

)

Net premiums earned

 

705,675

 

751,412

 

1,413,909

 

1,496,905

 

Net investment income

 

117,120

 

113,923

 

239,313

 

223,970

 

Net realized (losses) gains

 

(12,669

)

(3,757

)

23,306

 

(4,738

)

Fee income

 

1,238

 

2,091

 

2,306

 

4,060

 

Equity in net income (loss) of investment funds accounted for using the equity method

 

19,583

 

3,376

 

(2,730

)

6,018

 

Other income

 

4,968

 

265

 

9,004

 

869

 

Total revenues

 

835,915

 

867,310

 

1,685,108

 

1,727,084

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

404,625

 

425,663

 

809,042

 

845,724

 

Acquisition expenses

 

119,226

 

117,277

 

233,865

 

237,405

 

Other operating expenses

 

102,578

 

100,505

 

199,765

 

191,318

 

Interest expense

 

5,788

 

5,523

 

11,312

 

11,046

 

Net foreign exchange (gains) losses

 

(298

)

6,450

 

23,289

 

16,192

 

Total expenses

 

631,919

 

655,418

 

1,277,273

 

1,301,685

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

203,996

 

211,892

 

407,835

 

425,399

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

5,253

 

6,037

 

13,209

 

14,532

 

 

 

 

 

 

 

 

 

 

 

Net income

 

198,743

 

205,855

 

394,626

 

410,867

 

 

 

 

 

 

 

 

 

 

 

Preferred dividends

 

6,461

 

6,461

 

12,922

 

12,922

 

 

 

 

 

 

 

 

 

 

 

Net income available to common shareholders

 

$

192,282

 

$

199,394

 

$

381,704

 

$

397,945

 

 

 

 

 

 

 

 

 

 

 

Net income per common share

 

 

 

 

 

 

 

 

 

Basic

 

$

3.05

 

$

2.75

 

$

5.95

 

$

5.44

 

Diluted

 

$

2.92

 

$

2.65

 

$

5.71

 

$

5.24

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares and common share equivalents outstanding

 

 

 

 

 

 

 

 

 

Basic

 

62,995,550

 

72,494,823

 

64,145,533

 

73,209,439

 

Diluted

 

65,748,119

 

75,254,846

 

66,886,972

 

75,947,858

 

 

See Notes to Consolidated Financial Statements

 

4



Table of Contents

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(U.S. dollars in thousands)

 

 

 

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2008

 

2007

 

Non-Cumulative Preferred Shares

 

 

 

 

 

Balance at beginning and end of period

 

$

130

 

$

130

 

 

 

 

 

 

 

Common Shares

 

 

 

 

 

Balance at beginning of year

 

673

 

743

 

Common shares issued, net

 

2

 

6

 

Purchases of common shares under share repurchase program

 

(56

)

(36

)

Balance at end of period

 

619

 

713

 

 

 

 

 

 

 

Additional Paid-in Capital

 

 

 

 

 

Balance at beginning of year

 

1,451,667

 

1,944,304

 

Common shares issued

 

3,511

 

405

 

Exercise of stock options

 

9,073

 

13,373

 

Common shares retired

 

(391,776

)

(257,162

)

Amortization of share-based compensation

 

17,511

 

14,457

 

Other

 

(350

)

918

 

Balance at end of period

 

1,089,636

 

1,716,295

 

 

 

 

 

 

 

Retained Earnings

 

 

 

 

 

Balance at beginning of year

 

2,428,117

 

1,593,907

 

Adjustment to adopt SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140”

 

 

2,111

 

Balance at beginning of year, as adjusted

 

2,428,117

 

1,596,018

 

Dividends declared on preferred shares

 

(12,922

)

(12,922

)

Net income

 

394,626

 

410,867

 

Balance at end of period

 

2,809,821

 

1,993,963

 

 

 

 

 

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

 

 

 

Balance at beginning of year

 

155,224

 

51,535

 

Adjustment to adopt SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140”

 

 

(2,111

)

Balance at beginning of year, as adjusted

 

155,224

 

49,424

 

Change in unrealized appreciation (decline) in value of investments, net of deferred income tax

 

(169,023

)

(67,513

)

Foreign currency translation adjustments, net of deferred income tax

 

(174

)

11,055

 

Balance at end of period

 

(13,973

)

(7,034

)

 

 

 

 

 

 

Total Shareholders’ Equity

 

$

3,886,233

 

$

3,704,067

 

 

See Notes to Consolidated Financial Statements

 

5



Table of Contents

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(U.S. dollars in thousands)

 

 

 

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2008

 

2007

 

Comprehensive Income

 

 

 

 

 

Net income

 

$

394,626

 

$

410,867

 

Other comprehensive income (loss), net of deferred income tax

 

 

 

 

 

Unrealized decline in value of investments:

 

 

 

 

 

Unrealized holding losses arising during period

 

(127,124

)

(72,486

)

Reclassification of net realized (gains) losses, net of income taxes, included in net income

 

(41,899

)

4,973

 

Foreign currency translation adjustments

 

(174

)

11,055

 

Other comprehensive loss

 

(169,197

)

(56,458

)

Comprehensive Income

 

$

225,429

 

$

354,409

 

 

See Notes to Consolidated Financial Statements

 

6



Table of Contents

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

 

 

 

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2008

 

2007

 

Operating Activities

 

 

 

 

 

Net income

 

$

394,626

 

$

410,867

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Net realized (gains) losses

 

(20,087

)

4,854

 

Equity in net (income) loss of investment funds accounted for using the equity method and other income

 

(6,009

)

(6,887

)

Share-based compensation

 

17,511

 

14,457

 

Changes in:

 

 

 

 

 

Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable

 

278,357

 

324,793

 

Unearned premiums, net of prepaid reinsurance premiums

 

85,364

 

135,525

 

Premiums receivable

 

(126,518

)

(290,437

)

Deferred acquisition costs, net

 

(29,810

)

(18,702

)

Reinsurance balances payable

 

(47,774

)

79,254

 

Other liabilities

 

48,281

 

1,737

 

Other items, net

 

(3,133

)

21,542

 

Net Cash Provided By Operating Activities

 

590,808

 

677,003

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Purchases of fixed maturity investments

 

(7,510,262

)

(8,933,304

)

Proceeds from sales of fixed maturity investments

 

7,044,479

 

8,407,340

 

Proceeds from redemptions and maturities of fixed maturity investments

 

317,369

 

305,847

 

Purchases of other investments

 

(187,652

)

(185,357

)

Proceeds from sales of other investments

 

89,324

 

62,309

 

Investment in joint venture

 

(100,000

)

 

Net sales (purchases) of short-term investments

 

60,739

 

(141,217

)

Change in investment of securities lending collateral

 

585,516

 

(223,583

)

Purchases of furniture, equipment and other

 

(4,984

)

(8,998

)

Net Cash Provided By (Used For) Investing Activities

 

294,529

 

(716,963

)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Purchases of common shares under share repurchase program

 

(389,753

)

(254,973

)

Proceeds from common shares issued, net

 

8,050

 

7,427

 

Revolving credit agreement borrowings

 

100,000

 

 

Change in securities lending collateral

 

(585,516

)

223,583

 

Excess tax benefits from share-based compensation

 

1,276

 

3,965

 

Preferred dividends paid

 

(12,922

)

(12,922

)

Net Cash Used For Financing Activities

 

(878,865

)

(32,920

)

 

 

 

 

 

 

Effects of exchange rate changes on foreign currency cash

 

157

 

1,006

 

 

 

 

 

 

 

Increase (decrease) in cash

 

6,629

 

(71,874

)

Cash beginning of year

 

239,915

 

317,017

 

Cash end of period

 

$

246,544

 

$

245,143

 

 

 

 

 

 

 

Income taxes paid, net

 

$

5,233

 

$

1,881

 

Interest paid

 

$

11,259

 

$

11,025

 

 

See Notes to Consolidated Financial Statements

 

7



Table of Contents

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1.      General

 

Arch Capital Group Ltd. (“ACGL”) is a Bermuda public limited liability company which provides insurance and reinsurance on a worldwide basis through its wholly owned subsidiaries.

 

The interim consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of ACGL and its wholly owned subsidiaries (together with ACGL, the “Company”). All significant intercompany transactions and balances have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) necessary for a fair statement of results on an interim basis. The results of any interim period are not necessarily indicative of the results for a full year or any future periods.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted; however, management believes that the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, including the Company’s audited consolidated financial statements and related notes and the section entitled “Risk Factors.”

 

To facilitate period-to-period comparisons, certain amounts in the 2007 consolidated financial statements have been reclassified to conform to the 2008 presentation. Such reclassifications had no effect on the Company’s consolidated net income. Tabular dollars and share amounts are in thousands, except per share amounts.

 

2.      Share Transactions

 

Share Repurchase Program

 

The board of directors of ACGL has authorized the investment of up to $1.5 billion in ACGL’s common shares through a share repurchase program. Such amount consisted of a $1.0 billion authorization in February 2007 and a $500 million authorization in May 2008. Repurchases under the program may be effected from time to time in open market or privately negotiated transactions through February 2010. Since the inception of the share repurchase program, ACGL has repurchased approximately 13.4 million common shares for an aggregate purchase price of $926.8 million. During the 2008 second quarter and six months ended June 30, 2008, ACGL repurchased approximately 2.9 million and 5.6 million common shares, respectively, for an aggregate purchase price of $199.9 million and $389.8 million, respectively. As a result of share repurchase transactions, book value per common share was reduced by $2.09 per share at June 30, 2008. Weighted average shares outstanding for the 2008 second quarter and six months ended June 30, 2008 were reduced by 11.9 million and 10.6 million shares, respectively. Weighted average shares outstanding for the 2007 second quarter and six months ended June 30, 2007 were reduced by 1.8 million and 1.0 million shares, respectively.

 

The timing and amount of the repurchase transactions under this program will depend on a variety of factors, including market conditions and corporate and regulatory considerations. In connection with the repurchase program, the Warburg Pincus funds waived their rights relating to share repurchases under its shareholders agreement with ACGL for all repurchases of common shares by ACGL under the repurchase program in open market transactions and certain privately negotiated transactions.

 

8



Table of Contents

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Non-Cumulative Preferred Shares

 

During 2006, ACGL completed two public offerings of non-cumulative preferred shares (“Preferred Shares”). On February 1, 2006, $200.0 million principal amount of 8.0% series A non-cumulative preferred shares (“Series A Preferred Shares”) were issued with net proceeds of $193.5 million and, on May 24, 2006, $125.0 million principal amount of 7.875% series B non-cumulative preferred shares (“Series B Preferred Shares”) were issued with net proceeds of $120.9 million. The net proceeds of the offerings were used to support the underwriting activities of ACGL’s insurance and reinsurance subsidiaries. ACGL has the right to redeem all or a portion of each series of Preferred Shares at a redemption price of $25.00 per share on or after (1) February 1, 2011 for the Series A Preferred Shares and (2) May 15, 2011 for the Series B Preferred Shares. Dividends on the Preferred Shares are non-cumulative. Consequently, in the event dividends are not declared on the Preferred Shares for any dividend period, holders of Preferred Shares will not be entitled to receive a dividend for such period, and such undeclared dividend will not accrue and will not be payable. Holders of Preferred Shares will be entitled to receive dividend payments only when, as and if declared by ACGL’s board of directors or a duly authorized committee of the board of directors. Any such dividends will be payable from the date of original issue on a non-cumulative basis, quarterly in arrears. To the extent declared, these dividends will accumulate, with respect to each dividend period, in an amount per share equal to 8.0% of the $25.00 liquidation preference per annum for the Series A Preferred Shares and 7.875% of the $25.00 liquidation preference per annum for the Series B Preferred Shares. At June 30, 2008, the Company had declared an aggregate of $3.3 million of dividends to be paid to holders of the Preferred Shares.

 

Share-Based Compensation

 

As required by the provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”), the Company recorded after-tax share-based compensation expense related to stock options in the 2008 second quarter of $2.8 million, or $0.04 per diluted share, compared to $2.8 million, or $0.04 per diluted share, in the 2007 second quarter, and $3.9 million, or $0.06 per diluted share, for the six months ended June 30, 2008, compared to $4.4 million, or $0.06 per diluted share, for the six months ended June 30, 2007.

 

During the 2008 second quarter, the Company made a stock grant of 333,175 stock appreciation rights and stock options and 328,575 restricted shares and units to certain employees. The stock appreciation rights and stock options were valued at the grant date using the Black-Scholes option pricing model. The weighted average grant-date fair value of the stock appreciation rights and options and restricted shares and units granted were approximately $19.07 and $69.30 per share, respectively. Such value will be amortized over the respective substantive vesting period.

 

9



Table of Contents

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

3.      Debt and Financing Arrangements

 

Senior Notes

 

On May 4, 2004, ACGL completed a public offering of $300 million principal amount of 7.35% senior notes (“Senior Notes”) due May 1, 2034 and received net proceeds of $296.4 million. ACGL used $200 million of the net proceeds to repay all amounts outstanding under a revolving credit agreement. The Senior Notes are ACGL’s senior unsecured obligations and rank equally with all of its existing and future senior unsecured indebtedness. Interest payments on the Senior Notes are due on May 1st and November 1st of each year. ACGL may redeem the Senior Notes at any time and from time to time, in whole or in part, at a “make-whole” redemption price. For the six months ended June 30, 2008 and 2007, interest expense on the Senior Notes was approximately $11.0 million. The fair value of the Senior Notes at June 30, 2008 and December 31, 2007 was $304.1 million and $325.4 million, respectively.

 

Letter of Credit and Revolving Credit Facilities

 

As of June 30, 2008, the Company had a $300 million unsecured revolving loan and letter of credit facility and a $1.0 billion secured letter of credit facility (the “Credit Agreement”). The $300 million unsecured revolving loan is also available for the issuance of unsecured letters of credit up to $100 million for Arch Reinsurance Company (“Arch Re U.S.”). Borrowings of revolving loans may be made by ACGL and Arch Re U.S. at a variable rate based on LIBOR or an alternative base rate at the option of the Company. Secured letters of credit are available for issuance on behalf of the Company’s insurance and reinsurance subsidiaries. Issuance of letters of credit and borrowings under the Credit Agreement are subject to the Company’s compliance with certain covenants and conditions, including absence of a material adverse change. These covenants require, among other things, that the Company maintain a debt to shareholders’ equity ratio of not greater than 0.35 to 1 and shareholders’ equity in excess of $1.95 billion plus 25% of future aggregate net income for each quarterly period (not including any future net losses) beginning after June 30, 2006 and 25% of future aggregate proceeds from the issuance of common or preferred equity and that the Company’s principal insurance and reinsurance subsidiaries maintain at least a “B++” rating from A.M. Best. In addition, certain of the Company’s subsidiaries which are party to the Credit Agreement are required to maintain minimum shareholders’ equity levels. The Company was in compliance with all covenants contained in the Credit Agreement at June 30, 2008. The Credit Agreement expires on August 30, 2011.

 

In May 2008, the Company borrowed $100.0 million under the Credit Agreement at a variable interest rate based on 1 month, 3 month or 6 month LIBOR rates plus 27.5 basis points. The proceeds from such borrowings, which are repayable on August 30, 2011, were contributed to Arch Reinsurance Ltd. (“Arch Re Bermuda”) and used to fund an investment in a joint venture. See Note 6, “Investment Information—Investment in Joint Venture.” The Company incurred interest expense in connection with the borrowing of $0.3 million during the 2008 second quarter.

 

Including the secured letter of credit portion of the Credit Agreement and another letter of credit facility (together, the “LOC Facilities”), the Company has access to letter of credit facilities for up to a total of $1.45 billion. The principal purpose of the LOC Facilities is to issue, as required, evergreen standby letters of credit in favor of primary insurance or reinsurance counterparties with which the Company has entered into reinsurance arrangements to ensure that such counterparties are permitted to take credit for reinsurance obtained from the Company’s reinsurance subsidiaries in United States jurisdictions where such subsidiaries are not licensed or otherwise admitted as an insurer, as required under insurance regulations in the United States, and to comply with requirements of Lloyd’s of London in connection with qualifying quota share and other arrangements. The amount of letters of credit issued is driven by, among other things, the timing and payment of catastrophe losses, loss development of existing reserves, the payment pattern of such reserves, the further expansion of the Company’s business and the loss experience of such business. When issued, certain letters of credit are secured by a portion of the Company’s investment portfolio. In addition, the LOC Facilities also require the maintenance

 

10



Table of Contents

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

of certain covenants, which the Company was in compliance with at June 30, 2008. At such date, the Company had approximately $565.0 million in outstanding letters of credit under the LOC Facilities, which were secured by investments totaling $582.2 million at fair value. It is anticipated that the LOC Facilities will be renewed (or replaced) on expiry, but such renewal (or replacement) will be subject to the availability of credit from banks which the Company utilizes. In addition to letters of credit, the Company has and may establish insurance trust accounts in the U.S. and Canada to secure its reinsurance amounts payable as required.

 

4.      Segment Information

 

The Company classifies its businesses into two underwriting segments — insurance and reinsurance — and corporate and other (non-underwriting). The Company’s insurance and reinsurance operating segments each have segment managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company’s chief operating decision makers, the President and Chief Executive Officer of ACGL and the Chief Financial Officer of ACGL. The chief operating decision makers do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. The Company determined its reportable operating segments using the management approach described in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

 

Management measures segment performance based on underwriting income or loss. The Company does not manage its assets by segment and, accordingly, investment income is not allocated to each underwriting segment. In addition, other revenue and expense items are not evaluated by segment. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.

 

The insurance segment consists of the Company’s insurance underwriting subsidiaries which primarily write on both an admitted and non-admitted basis. The insurance segment consists of nine product lines: casualty; construction and national accounts; executive assurance; healthcare; professional liability; programs; property, marine and aviation; surety; and other (consisting of collateral protection, excess workers’ compensation and employers’ liability business and travel and accident business).

 

The reinsurance segment consists of the Company’s reinsurance underwriting subsidiaries. The reinsurance segment generally seeks to write significant lines on specialty property and casualty reinsurance treaties. Classes of business include: casualty; marine and aviation; other specialty; property catastrophe; property excluding property catastrophe (losses on a single risk, both excess of loss and pro rata); and other (consisting of non-traditional and casualty clash business).

 

Corporate and other (non-underwriting) includes net investment income, other fee income, net of related expenses, other income (loss), other expenses incurred by the Company, interest expense, net realized gains or losses, equity in net income (loss) of investment funds accounted for using the equity method, net foreign exchange gains or losses and income taxes. In addition, corporate and other results include dividends on the Company’s non-cumulative preferred shares.

 

11



Table of Contents

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

The following tables set forth an analysis of the Company’s underwriting income by segment, together with a reconciliation of underwriting income to net income available to common shareholders:

 

 

 

Three Months Ended

 

 

 

June 30, 2008

 

 

 

Insurance

 

Reinsurance

 

Total

 

 

 

 

 

 

 

 

 

Gross premiums written (1)

 

$

621,663

 

$

273,318

 

$

886,926

 

Net premiums written (1)

 

421,501

 

264,617

 

686,118

 

 

 

 

 

 

 

 

 

Net premiums earned (1)

 

$

416,585

 

$

289,090

 

$

705,675

 

Fee income

 

880

 

358

 

1,238

 

Losses and loss adjustment expenses

 

(262,633

)

(141,992

)

(404,625

)

Acquisition expenses

 

(55,400

)

(63,826

)

(119,226

)

Other operating expenses

 

(71,566

)

(20,091

)

(91,657

)

Underwriting income

 

$

27,866

 

$

63,539

 

91,405

 

Net investment income

 

 

 

 

 

117,120

 

Net realized losses

 

 

 

 

 

(12,669

)

Equity in net income (loss) of investment funds accounted for using the equity method

 

 

 

 

 

19,583

 

Other income

 

 

 

 

 

4,968

 

Other expenses

 

 

 

 

 

(10,921

)

Interest expense

 

 

 

 

 

(5,788

)

Net foreign exchange gains

 

 

 

 

 

298

 

Income before income taxes

 

 

 

 

 

203,996

 

Income tax expense

 

 

 

 

 

(5,253

)

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

198,743

 

Preferred dividends

 

 

 

 

 

(6,461

)

Net income available to common shareholders

 

 

 

 

 

$

192,282

 

 

 

 

 

 

 

 

 

Underwriting Ratios

 

 

 

 

 

 

 

Loss ratio

 

63.0

%

49.1

%

57.3

%

Acquisition expense ratio (2)

 

13.1

%

22.1

%

16.8

%

Other operating expense ratio

 

17.2

%

6.9

%

13.0

%

Combined ratio

 

93.3

%

78.1

%

87.1

%

 


(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. The insurance segment and reinsurance segment results include $0.1 million and $8.0 million, respectively, of gross and net premiums written and $0.1 million and $8.5 million, respectively, of net premiums earned assumed through intersegment transactions.

(2)         The acquisition expense ratio is adjusted to include policy-related fee income.

 

12



Table of Contents

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

Three Months Ended

 

 

 

June 30, 2007

 

 

 

Insurance

 

Reinsurance

 

Total

 

 

 

 

 

 

 

 

 

Gross premiums written (1)

 

$

684,725

 

$

427,348

 

$

1,102,210

 

Net premiums written (1)

 

451,828

 

306,067

 

757,895

 

 

 

 

 

 

 

 

 

Net premiums earned (1)

 

$

432,560

 

$

318,852

 

$

751,412

 

Fee income

 

1,276

 

815

 

2,091

 

Losses and loss adjustment expenses

 

(272,658

)

(153,005

)

(425,663

)

Acquisition expenses

 

(47,532

)

(69,745

)

(117,277

)

Other operating expenses

 

(70,269

)

(19,999

)

(90,268

)

Underwriting income

 

$

43,377

 

$

76,918

 

120,295

 

 

 

 

 

 

 

 

 

Net investment income

 

 

 

 

 

113,923

 

Net realized losses

 

 

 

 

 

(3,757

)

Equity in net income (loss) of investment funds accounted for using the equity method

 

 

 

 

 

3,376

 

Other income

 

 

 

 

 

265

 

Other expenses

 

 

 

 

 

(10,237

)

Interest expense

 

 

 

 

 

(5,523

)

Net foreign exchange losses

 

 

 

 

 

(6,450

)

Income before income taxes

 

 

 

 

 

211,892

 

Income tax expense

 

 

 

 

 

(6,037

)

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

205,855

 

Preferred dividends

 

 

 

 

 

(6,461

)

Net income available to common shareholders

 

 

 

 

 

$

199,394

 

 

 

 

 

 

 

 

 

Underwriting Ratios

 

 

 

 

 

 

 

Loss ratio

 

63.0

%

48.0

%

56.6

%

Acquisition expense ratio (2)

 

10.8

%

21.9

%

15.5

%

Other operating expense ratio

 

16.2

%

6.3

%

12.0

%

Combined ratio

 

90.0

%

76.2

%

84.1

%

 


(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. The insurance segment and reinsurance segment results include $0.3 million and $9.6 million, respectively, of gross and net premiums written and $0.3 million and $10.8 million, respectively, of net premiums earned assumed through intersegment transactions.

(2)         The acquisition expense ratio is adjusted to include policy-related fee income.

 

13



Table of Contents

 

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

 

Six Months Ended
June 30, 2008

 

 

 

Insurance

 

Reinsurance

 

Total

 

 

 

 

 

 

 

 

 

Gross premiums written (1)

 

$

1,248,011

 

$

707,145

 

$

1,940,078

 

Net premiums written (1)

 

824,265

 

673,195

 

1,497,460

 

 

 

 

 

 

 

 

 

Net premiums earned (1)

 

$

835,685

 

$

578,224

 

$

1,413,909

 

Fee income

 

1,762

 

544

 

2,306

 

Losses and loss adjustment expenses

 

(549,936

)

(259,106

)

(809,042

)

Acquisition expenses

 

(107,289

)

(126,576

)

(233,865

)

Other operating expenses

 

(145,203

)

(38,329

)

(183,532

)

Underwriting income

 

$

35,019

 

$

154,757

 

189,776

 

 

 

 

 

 

 

 

 

Net investment income

 

 

 

 

 

239,313

 

Net realized gains

 

 

 

 

 

23,306

 

Equity in net income (loss) of investment funds accounted for using the equity method

 

 

 

 

 

(2,730

)

Other income

 

 

 

 

 

9,004

 

Other expenses

 

 

 

 

 

(16,233

)

Interest expense

 

 

 

 

 

(11,312

)

Net foreign exchange losses

 

 

 

 

 

(23,289

)

Income before income taxes

 

 

 

 

 

407,835

 

Income tax expense

 

 

 

 

 

(13,209

)

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

394,626

 

Preferred dividends

 

 

 

 

 

(12,922

)

Net income available to common shareholders

 

 

 

 

 

$

381,704

 

 

 

 

 

 

 

 

 

Underwriting Ratios

 

 

 

 

 

 

 

Loss ratio

 

65.8

%

44.8

%

57.2

%

Acquisition expense ratio (2)

 

12.6

%

21.9

%

16.4

%

Other operating expense ratio

 

17.4

%

6.6

%

13.0

%

Combined ratio

 

95.8

%

73.3

%

86.6

%

 

 


(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. The insurance segment and reinsurance segment results include $0.1 million and $15.0 million, respectively, of gross and net premiums written and $0.2 million and $17.2 million, respectively, of net premiums earned assumed through intersegment transactions.

 

 

 

(2)

 

The acquisition expense ratio is adjusted to include policy-related fee income.

 

 

 

 

 

14



Table of Contents

 

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

 

Six Months Ended
June 30, 2007

 

 

 

Insurance

 

Reinsurance

 

Total

 

 

 

 

 

 

 

 

 

Gross premiums written (1)

 

$

1,345,935

 

$

986,002

 

2,312,824

 

Net premiums written (1)

 

880,172

 

749,468

 

1,629,640

 

 

 

 

 

 

 

 

 

Net premiums earned (1)

 

$

846,407

 

$

650,498

 

$

1,496,905

 

Fee income

 

2,701

 

1,359

 

4,060

 

Losses and loss adjustment expenses

 

(531,980

)

(313,744

)

(845,724

)

Acquisition expenses

 

(94,227

)

(143,178

)

(237,405

)

Other operating expenses

 

(139,163

)

(33,780

)

(172,943

)

Underwriting income

 

$

83,738

 

$

161,155

 

244,893

 

 

 

 

 

 

 

 

 

Net investment income

 

 

 

 

 

223,970

 

Net realized losses

 

 

 

 

 

(4,738

)

Equity in net income (loss) of investment funds accounted for using the equity method

 

 

 

 

 

6,018

 

Other income

 

 

 

 

 

869

 

Other expenses

 

 

 

 

 

(18,375

)

Interest expense

 

 

 

 

 

(11,046

)

Net foreign exchange losses

 

 

 

 

 

(16,192

)

Income before income taxes

 

 

 

 

 

425,399

 

Income tax expense

 

 

 

 

 

(14,532

)

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

410,867

 

Preferred dividends

 

 

 

 

 

(12,922

)

Net income available to common shareholders

 

 

 

 

 

$

397,945

 

 

 

 

 

 

 

 

 

Underwriting Ratios

 

 

 

 

 

 

 

Loss ratio

 

62.9

%

48.2

%

56.5

%

Acquisition expense ratio (2)

 

10.9

%

22.0

%

15.8

%

Other operating expense ratio

 

16.4

%

5.2

%

11.6

%

Combined ratio

 

90.2

%

75.4

%

83.9

%

 

 


(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. The insurance segment and reinsurance segment results include $0.8 million and $18.3 million, respectively, of gross and net premiums written and $0.8 million and $21.4 million, respectively, of net premiums earned assumed through intersegment transactions.

 

 

 

(2)

 

The acquisition expense ratio is adjusted to include policy-related fee income.

 

 

 

 

15



Table of Contents

 

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

The following table sets forth the insurance segment’s net premiums written and earned by major line of business and type of business, together with net premiums written by client location and underwriting location:

 

 

 

 

Three Months Ended
June 30,

 

 

 

2008

 

2007

 

 

 

Amount

 

% of
Total

 

Amount

 

% of
Total

 

INSURANCE SEGMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums written (1)

 

 

 

 

 

 

 

 

 

Property, marine and aviation

 

$

90,569

 

21.5

 

$

104,705

 

23.2

 

Programs

 

73,202

 

17.3

 

59,154

 

13.1

 

Construction and national accounts

 

65,752

 

15.6

 

55,514

 

12.3

 

Professional liability

 

63,583

 

15.1

 

64,584

 

14.3

 

Executive assurance

 

43,740

 

10.4

 

47,904

 

10.6

 

Casualty

 

30,266

 

7.2

 

57,240

 

12.6

 

Healthcare

 

11,027

 

2.6

 

12,383

 

2.7

 

Surety

 

10,206

 

2.4

 

12,968

 

2.9

 

Other (2)

 

33,156

 

7.9

 

37,376

 

8.3

 

Total

 

$

421,501

 

100.0

 

$

451,828

 

100.0

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned (1)

 

 

 

 

 

 

 

 

 

Property, marine and aviation

 

$

84,472

 

20.3

 

$

92,387

 

21.4

 

Programs

 

62,085

 

14.9

 

57,036

 

13.2

 

Construction and national accounts

 

58,166

 

14.0

 

50,965

 

11.8

 

Professional liability

 

66,200

 

15.9

 

65,804

 

15.2

 

Executive assurance

 

44,496

 

10.7

 

47,408

 

11.0

 

Casualty

 

37,650

 

9.0

 

52,570

 

12.1

 

Healthcare

 

13,137

 

3.1

 

17,107

 

3.9

 

Surety

 

12,057

 

2.9

 

16,597

 

3.8

 

Other (2)

 

38,322

 

9.2

 

32,686

 

7.6

 

Total

 

$

416,585

 

100.0

 

$

432,560

 

100.0

 

 

 

 

 

 

 

 

 

 

 

Net premiums written by client location (1)

 

 

 

 

 

 

 

 

 

United States

 

$

330,154

 

78.3

 

$

361,733

 

80.1

 

Europe

 

56,657

 

13.5

 

60,968

 

13.5

 

Other

 

34,690

 

8.2

 

29,127

 

6.4

 

Total

 

$

421,501

 

100.0

 

$

451,828

 

100.0

 

 

 

 

 

 

 

 

 

 

 

Net premiums written by underwriting location (1)

 

 

 

 

 

 

 

 

 

United States

 

$

318,227

 

75.5

 

$

341,456

 

75.6

 

Europe

 

79,854

 

18.9

 

83,730

 

18.5

 

Other

 

23,420

 

5.6

 

26,642

 

5.9

 

Total

 

$

421,501

 

100.0

 

$

451,828

 

100.0

 

 

 


(1)

 

Insurance segment results include premiums written and earned assumed through intersegment transactions of $0.1 million for the 2008 second quarter and $0.3 million for the 2007 second quarter. Insurance segment results exclude premiums written and earned ceded through intersegment transactions of $8.0 million and $8.5 million, respectively, for the 2008 second quarter and $9.6 million and $10.8 million, respectively, for the 2007 second quarter.

 

 

 

(2)

 

Includes excess workers’ compensation and employers’ liability business and travel and accident business.

 

 

 

 

16



Table of Contents

 

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

 

Six Months Ended
June 30,

 

 

 

2008

 

2007

 

 

 

Amount

 

% of
Total

 

Amount

 

% of
Total

 

INSURANCE SEGMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums written (1)

 

 

 

 

 

 

 

 

 

Property, marine and aviation

 

$

188,731

 

22.9

 

$

189,568

 

21.5

 

Programs

 

127,785

 

15.5

 

117,477

 

13.3

 

Construction and national accounts

 

126,963

 

15.4

 

115,997

 

13.2

 

Professional liability

 

117,664

 

14.3

 

122,939

 

14.0

 

Executive assurance

 

85,909

 

10.4

 

91,995

 

10.4

 

Casualty

 

57,884

 

7.0

 

100,331

 

11.4

 

Healthcare

 

22,024

 

2.7

 

33,913

 

3.9

 

Surety

 

21,073

 

2.6

 

31,715

 

3.6

 

Other (2)

 

76,232

 

9.2

 

76,237

 

8.7

 

Total

 

$

824,265

 

100.0

 

$

880,172

 

100.0

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned (1)

 

 

 

 

 

 

 

 

 

Property, marine and aviation

 

$

169,464

 

20.3

 

$

174,191

 

20.6

 

Programs

 

119,072

 

14.2

 

113,245

 

13.4

 

Construction and national accounts

 

115,281

 

13.8

 

98,940

 

11.7

 

Professional liability

 

135,010

 

16.2

 

133,688

 

15.8

 

Executive assurance

 

88,904

 

10.6

 

92,786

 

10.9

 

Casualty

 

79,422

 

9.5

 

104,112

 

12.3

 

Healthcare

 

26,582

 

3.2

 

36,951

 

4.4

 

Surety

 

25,556

 

3.1

 

35,726

 

4.2

 

Other (2)

 

76,394

 

9.1

 

56,768

 

6.7

 

Total

 

$

835,685

 

100.0

 

$

846,407

 

100.0

 

 

 

 

 

 

 

 

 

 

 

Net premiums written by client location (1)

 

 

 

 

 

 

 

 

 

United States

 

$

609,409

 

73.9

 

$

681,738

 

77.5

 

Europe

 

142,957

 

17.4

 

135,903

 

15.4

 

Other

 

71,899

 

8.7

 

62,531

 

7.1

 

Total

 

$

824,265

 

100.0

 

$

880,172

 

100.0

 

 

 

 

 

 

 

 

 

 

 

Net premiums written by underwriting location (1)

 

 

 

 

 

 

 

 

 

United States

 

$

605,436

 

73.4

 

$

673,014

 

76.5

 

Europe

 

181,865

 

22.1

 

165,746

 

18.8

 

Other

 

36,964

 

4.5

 

41,412

 

4.7

 

Total

 

$

824,265

 

100.0

 

$

880,172

 

100.0

 

 

 


(1)

 

Insurance segment results include premiums written and earned assumed through intersegment transactions of $0.1 million and $0.2 million, respectively, for the 2008 period and $0.8 million for the 2007 period. Insurance segment results exclude premiums written and earned ceded through intersegment transactions of $15.0 million and $17.2 million, respectively, for the 2008 period and $18.3 million and $21.4 million, respectively, for the 2007 period.

 

 

 

(2)

 

Includes excess workers’ compensation and employers’ liability business and travel and accident business.

 

 

 

 

 

17



Table of Contents

 

 

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

The following table sets forth the reinsurance segment’s net premiums written and earned by major line of business and type of business, together with net premiums written by client location and underwriting location:

 

 

 

 

Three Months Ended
June 30,

 

 

 

2008

 

2007

 

 

 

Amount

 

% of Total

 

Amount

 

% of Total

 

REINSURANCE SEGMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums written (1)

 

 

 

 

 

 

 

 

 

Casualty (2)

 

$

86,974

 

32.9

 

$

110,108

 

36.0

 

Property excluding property catastrophe (3)

 

85,748

 

32.4

 

69,351

 

22.7

 

Property catastrophe

 

52,797

 

19.9

 

77,514

 

25.3

 

Other specialty

 

20,693

 

7.8

 

27,971

 

9.1

 

Marine and aviation

 

17,975

 

6.8

 

19,812

 

6.5

 

Other

 

430

 

0.2

 

1,311

 

0.4

 

Total

 

$

264,617

 

100.0

 

$

306,067

 

100.0

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned (1)

 

 

 

 

 

 

 

 

 

Casualty (2)

 

$

106,199

 

36.8

 

$

131,114

 

41.1

 

Property excluding property catastrophe (3)

 

67,445

 

23.3

 

64,734

 

20.3

 

Property catastrophe

 

51,496

 

17.8

 

38,152

 

12.0

 

Other specialty

 

36,058

 

12.5

 

52,582

 

16.5

 

Marine and aviation

 

26,946

 

9.3

 

30,021

 

9.4

 

Other

 

946

 

0.3

 

2,249

 

0.7

 

Total

 

$

289,090

 

100.0

 

$

318,852

 

100.0

 

 

 

 

 

 

 

 

 

 

 

Net premiums written (1)

 

 

 

 

 

 

 

 

 

Pro rata

 

$

168,025

 

63.5

 

$

184,972

 

60.4

 

Excess of loss

 

96,592

 

36.5

 

121,095

 

39.6

 

Total

 

$

264,617

 

100.0

 

$

306,067

 

100.0

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned (1)

 

 

 

 

 

 

 

 

 

Pro rata

 

$

195,070

 

67.5

 

$

228,815

 

71.8

 

Excess of loss

 

94,020

 

32.5

 

90,037

 

28.2

 

Total

 

$

289,090

 

100.0

 

$

318,852

 

100.0

 

 

 

 

 

 

 

 

 

 

 

Net premiums written by client location (1)

 

 

 

 

 

 

 

 

 

United States

 

$

153,106

 

57.9

 

$

206,456

 

67.5

 

Europe

 

58,372

 

22.1

 

37,710

 

12.3

 

Bermuda

 

40,784

 

15.4

 

47,851

 

15.6

 

Other

 

12,355

 

4.6

 

14,050

 

4.6

 

Total

 

$

264,617

 

100.0

 

$

306,067

 

100.0

 

 

 

 

 

 

 

 

 

 

 

Net premiums written by underwriting location (1)

 

 

 

 

 

 

 

 

 

Bermuda

 

$

160,228

 

60.6