Arch Capital Group Ltd. (NASDAQ: ACGL; “Arch” or “the Company”)
announces its 2021 fourth quarter results. The results
included:
- Net income available to Arch common shareholders of $613.1
million, or $1.58 per share, a 19.4% annualized net income return
on average common equity, compared to $533.1 million, or $1.30 per
share, for the 2020 fourth quarter;
- After-tax operating income available to Arch common
shareholders(1) of $493.3 million, or $1.27 per share, a 15.6%
annualized operating return on average common equity, compared to
$230.4 million, or $0.56 per share, for the 2020 fourth
quarter;
- Pre-tax current accident year catastrophic losses for the
Company’s insurance and reinsurance segments, net of reinsurance
and reinstatement premiums(1) of $72.3 million;
- Favorable development in prior year loss reserves, net of
related adjustments(1) of $125.6 million;
- Combined ratio excluding catastrophic activity and prior year
development(1) of 80.1%, compared to 80.2% for the 2020 fourth
quarter;
- 8.7 million shares repurchased at an aggregate cost of $362.1
million;
- Book value per common share of $33.56 at December 31, 2021, a
3.5% increase from September 30, 2021 and a 10.7% increase from
December 31, 2020.
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 Somers). Effective July 1, 2021, the Company no longer
consolidates the results of Somers in its consolidated financial
statements.
(U.S. dollars in thousands)
Consolidated
Consolidated Excluding ‘Other’
Segment (1)
Three Months Ended December
31,
Three Months Ended December
31,
2021
2020
% Change
2021
2020
% Change
Gross premiums written
$
2,861,575
$
2,256,514
26.8
$
2,861,575
$
2,170,831
31.8
Net premiums written
2,034,427
1,758,015
15.7
2,034,427
1,660,298
22.5
Net premiums earned
2,083,630
1,811,045
15.1
2,083,630
1,668,299
24.9
Underwriting income
471,611
220,987
113.4
471,611
229,542
105.5
Underwriting Ratios
% Point Change
% Point Change
Loss ratio
47.8
%
62.3
%
(14.5
)
47.8
%
61.0
%
(13.2
)
Underwriting expense ratio
29.8
%
26.0
%
3.8
29.8
%
25.6
%
4.2
Combined ratio
77.6
%
88.3
%
(10.7
)
77.6
%
86.6
%
(9.0
)
Combined ratio excluding catastrophic
activity and prior year development (1)
80.1
%
80.2
%
(0.1
)
- Presentation represents a “non-GAAP” financial measure as
defined in Regulation G. Such presentation excludes the results of
Somers Holdings Ltd. (“Somers”), formerly known as Watford Holdings
Ltd., which the Company consolidated in its financial statements
through June 30, 2021 pursuant to GAAP. 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
Year Ended
December 31,
December 31,
2021
2020
2021
2020
Net income available to Arch common
shareholders
$
613,081
$
533,141
$
2,093,405
$
1,363,909
Net realized (gains) losses
(59,517
)
(297,801
)
(307,466
)
(814,808
)
Equity in net (income) loss of investment
funds accounted for using the equity method
(67,132
)
(89,286
)
(366,402
)
(146,693
)
Net foreign exchange (gains) losses
(3,221
)
63,588
(42,743
)
80,591
Transaction costs and other
310
4,718
1,199
9,964
Loss on redemption of preferred shares
—
—
15,101
—
Income tax expense (benefit) (1)
9,736
16,057
41,836
64,145
After-tax operating income available to
Arch common shareholders
$
493,257
$
230,417
$
1,434,930
$
557,108
Diluted per common
share results:
Net income available to Arch common
shareholders
$
1.58
$
1.30
$
5.23
$
3.32
Net realized (gains) losses
(0.16
)
(0.72
)
(0.77
)
(1.98
)
Equity in net (income) loss of investment
funds accounted for using the equity method
(0.17
)
(0.22
)
(0.92
)
(0.36
)
Net foreign exchange (gains) losses
(0.01
)
0.15
(0.11
)
0.20
Transaction costs and other
0.00
0.01
0.00
0.02
Loss on redemption of preferred shares
—
—
0.04
—
Income tax expense (benefit) (1)
0.03
0.04
0.11
0.16
After-tax operating income available to
Arch common shareholders
$
1.27
$
0.56
$
3.58
$
1.36
Weighted average common shares and common
share equivalents outstanding — diluted
388,869,378
410,281,852
400,345,936
410,259,455
Beginning common shareholders’ equity
$
12,557,526
$
11,671,997
$
12,325,886
$
10,717,371
Ending common shareholders’ equity
12,715,896
12,325,886
12,715,896
12,325,886
Average common shareholders’ equity
$
12,636,711
$
11,998,942
$
12,520,891
$
11,521,629
Annualized net income return on average
common equity
19.4
%
17.8
%
16.7
%
11.8
%
Annualized operating return on average
common equity
15.6
%
7.7
%
11.5
%
4.8
%
- Income tax expense (benefit) on 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,
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 ownership of Somers’ outstanding common equity through
June 30, 2021. See ‘Comments on Regulation G’ for a discussion of
non-GAAP financial measures.
Segment Information
The following section provides analysis on the Company’s 2021
fourth quarter performance by operating segment. For additional
details regarding the Company’s operating segments, please refer to
the Company’s Financial Supplement dated December 31, 2021. The
Company’s segment information includes the use of underwriting
income (loss) and a combined ratio excluding catastrophic activity
and prior year development. Such items are non-GAAP financial
measures (see ‘Comments on Regulation G’ for further details).
Insurance Segment
Three Months Ended December
31,
(U.S. dollars in thousands)
2021
2020
% Change
Gross premiums written
$
1,486,362
$
1,244,227
19.5
Net premiums written
1,035,986
837,737
23.7
Net premiums earned
1,002,897
748,438
34.0
Underwriting income (loss)
$
70,545
$
(12,644
)
657.9
Underwriting Ratios
% Point Change
Loss ratio
59.2
%
72.4
%
(13.2
)
Underwriting expense ratio
33.7
%
29.3
%
4.4
Combined ratio
92.9
%
101.7
%
(8.8
)
Catastrophic activity and prior year
development:
Current accident year catastrophic events,
net of reinsurance and reinstatement premiums
2.0
%
8.3
%
(6.3
)
Net (favorable) adverse development in
prior year loss reserves, net of related adjustments
(0.3
) %
(0.2
) %
(0.1
)
Combined ratio excluding catastrophic
activity and prior year development (1)
91.2
%
93.6
%
(2.4
)
- See ‘Comments on Regulation G’ for further discussion.
Gross premiums written by the insurance segment in the 2021
fourth quarter were 19.5% higher than in the 2020 fourth quarter
while net premiums written were 23.7% higher than in the 2020
fourth quarter. The higher level of net premiums written reflected
increases in most lines of business, due in part to rate increases,
new business opportunities and growth in existing accounts along
with a lower level of premiums ceded. Net premiums earned in the
2021 fourth quarter were 34.0% higher than in the 2020 fourth
quarter, and reflect changes in net premiums written over the
previous five quarters.
The 2021 fourth quarter loss ratio reflected 2.0 points of
current year catastrophic activity, compared to 8.3 points in the
2020 fourth quarter. Estimated net favorable development of prior
year loss reserves, before related adjustments, reduced the loss
ratio by 0.3 points in the 2021 fourth quarter, consistent with the
2020 fourth quarter. The improvement in the 2021 fourth quarter
loss ratio also reflected the impact of rate increases and changes
in mix of business.
The underwriting expense ratio was 33.7% in the 2021 fourth
quarter, compared to 29.3% in the 2020 fourth quarter. The increase
in the 2021 fourth quarter primarily reflected growth in lines of
business with higher acquisition costs, partially offset by growth
in net premiums earned.
Reinsurance Segment
Three Months Ended December
31,
(U.S. dollars in thousands)
2021
2020
% Change
Gross premiums written
$
1,013,090
$
537,912
88.3
Net premiums written
709,141
490,894
44.5
Net premiums earned
779,817
584,074
33.5
Other underwriting income
521
2,687
(80.6
)
Underwriting income
$
132,510
$
53,315
148.5
Underwriting Ratios
% Point Change
Loss ratio
55.2
%
67.2
%
(12.0
)
Underwriting expense ratio
27.9
%
24.1
%
3.8
Combined ratio
83.1
%
91.3
%
(8.2
)
Catastrophic activity and prior year
development:
Current accident year catastrophic events,
net of reinsurance and reinstatement premiums
6.7
%
16.1
%
(9.4
)
Net (favorable) adverse development in
prior year loss reserves, net of related adjustments
(6.4
) %
(6.9
) %
0.5
Combined ratio excluding catastrophic
activity and prior year development (1)
82.8
%
82.1
%
0.7
- See ‘Comments on Regulation G’ for further discussion.
Gross premiums written by the reinsurance segment in the 2021
fourth quarter were 88.3% higher than in the 2020 fourth quarter,
while net premiums written were 44.5% higher than in the 2020
fourth quarter. The comparison of gross premiums written was
affected by a non-recurring adjustment in the 2020 fourth quarter.
Absent this item, gross premiums written would have been higher
than in the 2020 fourth quarter by 66.7%. The growth in net
premiums written was observed in most lines of business, primarily
related to new business opportunities and growth in existing
accounts in casualty, property excluding property catastrophe and
other specialty lines and the benefit of rate increases. Net
premiums earned by the reinsurance segment in the 2021 fourth
quarter were 33.5% higher than in the 2020 fourth quarter, and
reflect changes in net premiums written over the previous five
quarters.
The 2021 fourth quarter loss ratio reflected 7.1 points of
current year catastrophic activity, compared to 16.2 points in the
2020 fourth quarter. Estimated net favorable development of prior
year loss reserves, before related adjustments, reduced the loss
ratio by 7.6 points in the 2021 fourth quarter, compared to 6.9
points in the 2020 fourth quarter. The 2021 fourth quarter loss
ratio also reflected the effect of changes in the mix of business
and the impact of rate increases.
The underwriting expense ratio was 27.9% in the 2021 fourth
quarter, compared to 24.1% in the 2020 fourth quarter, with the
increase primarily resulting from changes in mix of business to
lines with higher acquisition costs and expenses related to
favorable development of prior year loss reserves.
Mortgage Segment
Three Months Ended December
31,
(U.S. dollars in thousands)
2021
2020
% Change
Gross premiums written
$
364,134
$
389,662
(6.6
)
Net premiums written
289,300
331,667
(12.8
)
Net premiums earned
300,916
335,787
(10.4
)
Other underwriting income
2,639
4,667
(43.5
)
Underwriting income
$
268,556
$
188,871
42.2
Underwriting Ratios
% Point Change
Loss ratio
(9.4
) %
24.9
%
(34.3
)
Underwriting expense ratio
21.1
%
20.2
%
0.9
Combined ratio
11.7
%
45.1
%
(33.4
)
Prior year development:
Net (favorable) adverse development in
prior year loss reserves, net of related adjustments
(24.2
) %
(2.4
) %
(21.8
)
Combined ratio excluding prior year
development (1)
35.9
%
47.5
%
(11.6
)
- See ‘Comments on Regulation G’ for further discussion.
Gross premiums written by the mortgage segment in the 2021
fourth quarter were 6.6% lower than in the 2020 fourth quarter,
while net premiums written were 12.8% lower. The reduction in gross
premiums written primarily reflected lower U.S. primary mortgage
insurance monthly and single premium volume, partially offset by
growth in Australian single premium mortgage insurance as a result
of the acquisition of Westpac Lenders Mortgage Insurance Limited in
the 2021 third quarter. Net premiums written for the 2021 fourth
quarter reflected a higher level of premiums ceded than in the 2020
fourth quarter, while the reduction in net premiums earned from the
same quarter one year ago also reflected a lower level of earnings
from single premium policy terminations.
The 2021 fourth quarter loss ratio reflected the impact of lower
new delinquencies and favorable cure activity. Estimated net
favorable development in prior year loss reserves, before related
adjustments, reduced the 2021 fourth quarter loss ratio by 23.4
points, compared to 2.4 points in the 2020 fourth quarter. The
percentage of loans in default on U.S. primary mortgage insurance
business was 2.36% at December 31, 2021, compared to 2.67% at
September 30, 2021.
The underwriting expense ratio was 21.1% in the 2021 fourth
quarter, compared to 20.2% in the 2020 fourth quarter, with the
increase primarily due to a lower level of net premiums earned in
the U.S. primary mortgage insurance business.
Corporate Segment
The corporate segment results include net investment income, net
realized gains or losses (which includes changes in the allowance
for credit losses on financial assets and net impairment losses
recognized in earnings), equity in net income or loss of investment
funds accounted for using the equity method, other income (loss),
corporate expenses, transaction costs and other, amortization of
intangible assets, interest expense, net foreign exchange gains or
losses, income taxes items, income or loss from operating
affiliates and items related to the Company’s non-cumulative
preferred shares. Such amounts exclude the results of the ‘other’
segment.
Pre-tax net investment income for the 2021 fourth quarter was
$0.23 per share, or $90.5 million, compared to $0.21 per share, or
$88.0 million, for the 2020 fourth quarter. The annualized pre-tax
investment income yield was 1.46% for the 2021 fourth quarter,
consistent with 1.45% for the 2020 fourth quarter. Total return, a
non-GAAP measure, was 0.39% for the 2021 fourth quarter, compared
to 2.46% for the 2020 fourth quarter, primarily as a result of the
mark-to-market impacts of higher interest rates in the 2021 period.
See ‘Comments on Regulation G’ for a discussion of non-GAAP
financial measures.
Interest expense for the 2021 fourth quarter was $32.2 million,
compared to $33.6 million for the 2020 fourth quarter. Interest
expense primarily reflects amounts related to the Company’s
outstanding senior notes. Preferred dividends for the 2021 fourth
quarter were $10.2 million, consistent with $10.4 million for the
2020 fourth quarter.
On a pre-tax basis, net foreign exchange gains for the 2021
fourth quarter were $3.2 million, compared to net foreign exchange
losses for the 2020 fourth quarter of $62.3 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
was an expense of 5.2% for the 2021 fourth quarter and 5.6% for the
year ended December 31, 2021, compared to an expense of 5.8% for
the 2020 fourth quarter and 7.4% for the year ended December 31,
2020. The Company’s effective tax rate on pre-tax operating income
available to Arch common shareholders was an expense of 4.7% for
the 2021 fourth quarter, compared to 6.8% for the 2020 fourth
quarter. The effective tax rates for the 2021 fourth quarter
included discrete income tax benefits of $10.6 million, which had
the effect of decreasing the 2021 fourth quarter effective tax rate
on operating income available to Arch common shareholders by 2.0%.
The discrete tax items in the 2021 fourth quarter primarily relate
to the release of a valuation allowance on certain international
deferred tax assets. 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.
During the 2021 first quarter, the Company changed its
presentation of ‘income (loss) from operating affiliates’ on its
consolidated statements of income for all periods presented to
reclass such item from ‘other income (loss).’ The Company also
changed its presentation of ‘investment in operating affiliates’ on
its consolidated balance sheet for all periods presented to reclass
such item from ‘other assets.’ Income from operating affiliates for
the 2021 fourth quarter was $40.6 million, or $0.10 per share,
compared to income of $10.5 million, or $0.03 per share, for the
2020 fourth quarter. Results for the 2021 fourth quarter primarily
related to the Company’s investments in Coface SA and Somers.
Conference Call
The Company will hold a conference call for investors and
analysts at 11:00 a.m. Eastern Time on February 10, 2022. A live
webcast of this call will be available via the Investors section of
the Company’s website at http://www.archgroup.com. A telephone
replay of the conference call also will be available beginning on
February 10, 2022 at 2:00 p.m. Eastern Time until February 17, 2022
at midnight Eastern Time. To access the replay, domestic callers
should dial 855-859-2056, and international callers should dial
404-537-3406 (passcode 6593396 for all callers).
Please refer to the Company’s Financial Supplement dated
December 31, 2021, which is available via the Investors section of
the Company’s website at http://www.archgroup.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 publicly listed Bermuda exempted
company with approximately $16.3 billion in capital at December 31,
2021, 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 (which includes changes in
the allowance for credit losses on financial assets and 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 net income
return on average common equity (the most directly comparable GAAP
financial measures) in accordance with Regulation G is included on
page 2 of this release.
The Company believes that net realized gains or losses, 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, 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 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,
changes in the allowance for credit losses and 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. Transaction costs
and other include advisory, financing, legal, severance, incentive
compensation and other costs related to acquisitions. The Company
believes that transaction costs and other, due to their
non-recurring nature, are not indicative of the performance of, or
trends in, the Company’s business performance. The loss on
redemption of preferred shares related to the redemption of the
Company's Series E preferred shares in September 2021 had no impact
on shareholders' equity or cash flows. Due to these reasons, the
Company excludes net realized gains or losses, equity in net income
or loss of investment funds accounted for using the equity method,
net foreign exchange gains or losses and transaction costs and
other from the calculation of after-tax operating income or loss
available to Arch common shareholders.
The Company believes that showing net income available to Arch
common shareholders exclusive of the items referred to above
reflects the underlying fundamentals of the Company’s business
since the Company evaluates the performance of and manages its
business to produce an underwriting profit. In addition to
presenting net income available to Arch common shareholders, the
Company believes that this presentation enables investors and other
users of the Company’s financial information to analyze the
Company’s performance in a manner similar to how the Company’s
management analyzes performance. The Company also believes that
this measure follows industry practice and, therefore, allows the
users of the Company’s financial information to compare the
Company’s performance with its industry peer group. The Company
believes that the equity analysts and certain rating agencies which
follow the Company and the insurance industry as a whole generally
exclude these items from their analyses for the same reasons.
The Company’s segment information includes the presentation of
consolidated underwriting income or loss and a subtotal of
underwriting income or loss before the contribution from the
‘other’ segment. Such measures represent the pre-tax profitability
of its underwriting operations and include net premiums earned plus
other underwriting income, less losses and loss adjustment
expenses, acquisition expenses and other operating expenses. Other
operating expenses include those operating expenses that are
incremental and/or directly attributable to the Company’s
individual underwriting operations. Underwriting income or loss
does not incorporate items included in the Company’s corporate
segment. While these measures are presented in the Segment
Information footnote to the Company’s Consolidated Financial
Statements, they are considered non-GAAP financial measures when
presented elsewhere on a consolidated basis. The reconciliations of
underwriting income or loss to income before income taxes (the most
directly comparable GAAP financial measure) on a consolidated basis
and a subtotal before the contribution from the ‘other’ segment, in
accordance with Regulation G, is shown on the following pages.
Management measures segment performance for its three
underwriting segments based on underwriting income or loss. The
Company does not manage its assets by underwriting segment and,
accordingly, investment income, income from operating affiliates
and other corporate segment related items are not allocated to each
underwriting segment. As noted earlier, the ‘other’ segment
includes the results of Somers through June 30, 2021.
Along with consolidated underwriting income, the Company
provides a subtotal of underwriting income or loss before the
contribution from the ‘other’ segment and believes that this
presentation enables investors and other users of the Company’s
financial information to analyze the Company’s underwriting
performance in a manner similar to how the Company’s management
analyzes performance. Pursuant to GAAP, Somers was considered a
variable interest entity and the Company concluded that it was the
primary beneficiary of Somers through June 30, 2021. As such, the
Company consolidated the results of Somers in its consolidated
financial statements. The Company’s presentation of information on
a ‘core’ basis enabled investors and other users of the Company’s
financial information to analyze the Company’s performance in a
manner similar to how the Company’s management analyzed
performance. In the 2020 fourth quarter, Arch, Somers, and
Greysbridge Ltd., a wholly-owned subsidiary of Arch
(“Greysbridge”), entered into an Agreement and Plan of Merger (as
amended, the “Merger Agreement”). The merger and the related
Greysbridge equity financing closed on July 1, 2021. Effective July
1, 2021, Somers is wholly owned by Greysbridge and Greysbridge is
owned 40% by the Company, 30% by certain investment funds managed
by Kelso & Company and 30% by certain investment funds managed
by Warburg Pincus LLC. Based on the governing documents of
Greysbridge, the Company has concluded that, while it retains
significant influence over Greysbridge, Greysbridge does not
constitute a variable interest entity. Accordingly, effective July
1, 2021, Arch no longer consolidates the results of Somers in its
consolidated financial statements and footnotes.
In addition, the Company’s segment information includes the use
of a combined ratio excluding catastrophic activity and prior year
development, for the insurance and reinsurance segments, and a
combined ratio excluding prior year development, for the mortgage
segment. These ratios are non-GAAP financial measures as defined in
Regulation G. The reconciliation of such measures to the combined
ratio (the most directly comparable GAAP financial measure) in
accordance with Regulation G are shown on the individual segment
pages. The Company’s management utilizes the adjusted combined
ratios excluding current accident year catastrophic events and
favorable or adverse development in prior year loss reserves in its
analysis of the underwriting performance of each of its
underwriting segments.
Total return on investments includes investment income, equity
in net income or loss of investment funds accounted for using the
equity method, net realized gains and losses (excluding changes in
the allowance for credit losses on non-investment related financial
assets) and the change in unrealized gains and losses generated by
Arch’s investment portfolio. Total return is calculated on a
pre-tax basis and before investment expenses, excludes amounts
reflected in the ‘other’ segment, and reflects the effect of
financial market conditions along with foreign currency
fluctuations. Management uses total return on investments as a key
measure of the return generated to Arch common shareholders, and
compares the return generated by the Company’s investment portfolio
against benchmark returns during the periods presented.
The following tables summarize the Company’s results by segment
for the 2021 fourth quarter and 2020 fourth quarter and a
reconciliation of underwriting income or loss to income or loss
before income taxes and net income or loss available to Arch common
shareholders:
(U.S. Dollars in thousands)
Three Months Ended
December 31, 2021
Insurance
Reinsurance
Mortgage
Sub-total
Other
Total
Gross premiums written (1)
$
1,486,362
$
1,013,090
$
364,134
$
2,861,575
$
—
$
2,861,575
Premiums ceded
(450,376
)
(303,949
)
(74,834
)
(827,148
)
—
(827,148
)
Net premiums written
1,035,986
709,141
289,300
2,034,427
—
2,034,427
Change in unearned premiums
(33,089
)
70,676
11,616
49,203
—
49,203
Net premiums earned
1,002,897
779,817
300,916
2,083,630
—
2,083,630
Other underwriting income (loss)
—
521
2,639
3,160
—
3,160
Losses and loss adjustment expenses
(594,108
)
(430,180
)
28,435
(995,853
)
—
(995,853
)
Acquisition expenses
(188,724
)
(155,694
)
(13,121
)
(357,539
)
—
(357,539
)
Other operating expenses
(149,520
)
(61,954
)
(50,313
)
(261,787
)
—
(261,787
)
Underwriting income (loss)
$
70,545
$
132,510
$
268,556
471,611
—
471,611
Net investment income
90,454
—
90,454
Net realized gains (losses)
59,517
—
59,517
Equity in net income (loss) of investment
funds accounted for using the equity method
67,132
—
67,132
Other income (loss)
9,093
—
9,093
Corporate expenses
(17,840
)
—
(17,840
)
Transaction costs and other
(310
)
—
(310
)
Amortization of intangible assets
(33,132
)
—
(33,132
)
Interest expense
(32,248
)
—
(32,248
)
Net foreign exchange gains (losses)
3,163
—
3,163
Income (loss) before income taxes and
income (loss) from operating affiliates
617,440
—
617,440
Income tax expense
(34,406
)
—
(34,406
)
Income (loss) from operating
affiliates
40,641
—
40,641
Net income (loss)
623,675
—
623,675
Dividends attributable to redeemable
noncontrolling interests
(410
)
—
(410
)
Amounts attributable to nonredeemable
noncontrolling interests
—
—
—
Net income (loss) available to
Arch
623,265
—
623,265
Preferred dividends
(10,184
)
—
(10,184
)
Net income (loss) available to Arch
common shareholders
$
613,081
$
—
$
613,081
Underwriting Ratios
Loss ratio
59.2
%
55.2
%
(9.4
) %
47.8
%
—
%
47.8
%
Acquisition expense ratio
18.8
%
20.0
%
4.4
%
17.2
%
—
%
17.2
%
Other operating expense ratio
14.9
%
7.9
%
16.7
%
12.6
%
—
%
12.6
%
Combined ratio
92.9
%
83.1
%
11.7
%
77.6
%
—
%
77.6
%
Net premiums written to gross premiums
written
69.7
%
70.0
%
79.4
%
71.1
%
—
%
71.1
%
- Certain amounts included in the gross premiums written of each
segment are related to intersegment transactions and are included
in the gross premiums written of each segment. Accordingly, the sum
of gross premiums written for each segment does not agree to the
total gross premiums written as shown in the table above due to the
elimination of intersegment transactions in the total.
(U.S. Dollars in thousands)
Three Months Ended
December 31, 2020
Insurance
Reinsurance
Mortgage
Sub-total
Other
Total
Gross premiums written (1)
$
1,244,227
$
537,912
$
389,662
$
2,170,831
$
138,237
$
2,256,514
Premiums ceded
(406,490
)
(47,018
)
(57,995
)
(510,533
)
(40,520
)
(498,499
)
Net premiums written
837,737
490,894
331,667
1,660,298
97,717
1,758,015
Change in unearned premiums
(89,299
)
93,180
4,120
8,001
45,029
53,030
Net premiums earned
748,438
584,074
335,787
1,668,299
142,746
1,811,045
Other underwriting income (loss)
—
2,687
4,667
7,354
498
7,852
Losses and loss adjustment expenses
(541,821
)
(392,734
)
(83,623
)
(1,018,178
)
(109,207
)
(1,127,385
)
Acquisition expenses
(101,055
)
(98,532
)
(25,936
)
(225,523
)
(29,305
)
(254,828
)
Other operating expenses
(118,206
)
(42,180
)
(42,024
)
(202,410
)
(13,287
)
(215,697
)
Underwriting income (loss)
$
(12,644
)
$
53,315
$
188,871
229,542
(8,555
)
220,987
Net investment income
87,992
26,466
114,458
Net realized gains (losses)
289,817
63,516
353,333
Equity in net income (loss) of investment
funds accounted for using the equity method
89,286
—
89,286
Other income (loss)
(36
)
—
(36
)
Corporate expenses
(17,085
)
—
(17,085
)
Transaction costs and other
(4,210
)
(4,040
)
(8,250
)
Amortization of intangible assets
(19,196
)
—
(19,196
)
Interest expense
(33,615
)
(4,804
)
(38,419
)
Net foreign exchange gains (losses)
(62,349
)
(9,860
)
(72,209
)
Income (loss) before income taxes and
income (loss) from operating affiliates
560,146
62,723
622,869
Income tax expense
(33,700
)
(359
)
(34,059
)
Income (loss) from operating
affiliates
10,504
—
10,504
Net income (loss)
536,950
62,364
599,314
Dividends attributable to redeemable
noncontrolling interests
(1,124
)
(992
)
(2,116
)
Amounts attributable to nonredeemable
noncontrolling interests
—
(53,654
)
(53,654
)
Net income (loss) available to
Arch
535,826
7,718
543,544
Preferred dividends
(10,403
)
—
(10,403
)
Net income (loss) available to Arch
common shareholders
$
525,423
$
7,718
$
533,141
Underwriting Ratios
Loss ratio
72.4
%
67.2
%
24.9
%
61.0
%
76.5
%
62.3
%
Acquisition expense ratio
13.5
%
16.9
%
7.7
%
13.5
%
20.5
%
14.1
%
Other operating expense ratio
15.8
%
7.2
%
12.5
%
12.1
%
9.3
%
11.9
%
Combined ratio
101.7
%
91.3
%
45.1
%
86.6
%
106.3
%
88.3
%
Net premiums written to gross premiums
written
67.3
%
91.3
%
85.1
%
76.5
%
70.7
%
77.9
%
- Certain amounts included in the gross premiums written of each
segment are related to intersegment transactions and are included
in the gross premiums written of each segment. Accordingly, the sum
of gross premiums written for each segment does not agree to the
total gross premiums written as shown in the table above due to the
elimination of intersegment transactions in the total.
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (“PSLRA”)
provides a “safe harbor” for forward-looking statements. This
release or any other written or oral statements made by or on
behalf of the Company may include forward-looking statements, which
reflect the Company’s current views with respect to future events
and financial performance. All statements other than statements of
historical fact included in or incorporated by reference in this
release are forward-looking statements. Forward-looking statements,
for purposes of the PSLRA or otherwise, can generally be identified
by the use of forward-looking terminology such as “may,” “will,”
“expect,” “intend,” “estimate,” “anticipate,” “believe” or
“continue” and similar statements of a future or forward-looking
nature or their negative or variations or similar terminology.
Forward-looking statements involve the Company’s current
assessment of risks and uncertainties. Actual events and results
may differ materially from those expressed or implied in these
statements. Important factors that could cause actual events or
results to differ materially from those indicated in such
statements are discussed below and elsewhere in this release and in
the Company’s periodic reports filed with the Securities and
Exchange Commission (the “SEC”), and include:
- the Company’s ability to successfully implement its business
strategy during “soft” as well as “hard” markets;
- acceptance of the Company’s business strategy, security and
financial condition by rating agencies and regulators, as well as
by brokers and its insureds and reinsureds;
- the Company’s ability to consummate acquisitions and integrate
any businesses it has acquired or may acquire into its existing
operations;
- the Company’s ability to maintain or improve its ratings, which
may be affected by its 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, unemployment, housing prices, foreign currency
exchange rates, prevailing credit terms and the depth and duration
of a recession, including those resulting from COVID-19) and
conditions specific to the reinsurance and insurance markets in
which the Company operates;
- competition, including increased competition, on the basis of
pricing, capacity (including alternative sources of capital),
coverage terms or other factors;
- developments in the world’s financial and capital markets and
the Company’s access to such markets;
- the Company’s ability to successfully enhance, integrate and
maintain operating procedures (including information technology) to
effectively support its current and new business;
- the loss and addition of key personnel;
- accuracy of those estimates and judgments utilized in the
preparation of the Company’s financial statements, including those
related to revenue recognition, insurance and other reserves,
reinsurance recoverables, investment valuations, intangible assets,
bad debts, income taxes, contingencies and litigation, and any
determination to use the deposit method of accounting;
- greater than expected loss ratios on business written by the
Company and adverse development on claim and/or claim expense
liabilities related to business written by its insurance and
reinsurance subsidiaries;
- the adequacy of the Company’s loss reserves;
- severity and/or frequency of losses;
- greater frequency or severity of unpredictable natural and
man-made catastrophic events;
- claims resulting from natural or man-made catastrophic events
or severe economic events in the Company’s insurance, reinsurance
and mortgage businesses could cause large losses and substantial
volatility in the Company’s results of operations;
- the effect of climate change on the Company’s business;
- the effect of contagious diseases (including COVID-19) on the
Company’s business;
- acts of terrorism, political unrest and other hostilities or
other unforecasted and unpredictable events;
- availability to the Company of reinsurance to manage its gross
and net exposures and the cost of such reinsurance;
- the failure of reinsurers, managing general agents, third party
administrators or others to meet their obligations to the
Company;
- the timing of loss payments being faster or the receipt of
reinsurance recoverables being slower than anticipated by the
Company;
- the Company’s investment performance, including legislative or
regulatory developments that may adversely affect the fair value of
the Company’s investments;
- changes in general economic conditions, including new or
continued sovereign debt concerns or downgrades of U.S. securities
by credit rating agencies, which could affect the Company’s
business, financial condition and results of operations;
- changes in the method for determining the London Inter-bank
Offered Rate (“LIBOR”) and the replacement of LIBOR with
alternative benchmark rates;
- the volatility of the Company’s shareholders’ equity from
foreign currency fluctuations, which could increase due to us not
matching portions of the Company’s projected liabilities in foreign
currencies with investments in the same currencies;
- changes in accounting principles or policies or in the
Company’s application of such accounting principles or
policies;
- changes in the political environment of certain countries in
which the Company operates, underwrites business or invests;
- a disruption caused by cyber-attacks or other technology
breaches or failures on the Company or the Company’s business
partners and service providers, which could negatively impact the
Company’s business and/or expose the Company to litigation;
- statutory or regulatory developments, including as to tax
policy 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
the Company, its subsidiaries, brokers or customers, including the
Tax Cuts and Jobs Act of 2017; 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 the Company’s Annual
Report on Form 10-K, as well as the other factors set forth in the
Company’s other documents on file with the SEC, and management’s
response to any of the aforementioned factors.
All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary
statements. The foregoing review of important factors should not be
construed as exhaustive and should be read in conjunction with
other cautionary statements that are included herein or elsewhere.
The Company undertakes no obligation to publicly update or revise
any forward-looking statement, whether as a result of new
information, future events or otherwise.
Source - Arch Capital Group Ltd. arch-corporate
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220209006005/en/
Arch Capital Group Ltd. François Morin: (441)
278-9250
Investor Relations Donald Watson: (914) 872-3616;
dwatson@archgroup.com
Arch Capital (NASDAQ:ACGL)
Historical Stock Chart
From Mar 2024 to Apr 2024
Arch Capital (NASDAQ:ACGL)
Historical Stock Chart
From Apr 2023 to Apr 2024