EX-99.2 3 ex-992supplement.htm EXHIBIT 99.2 EX-99.2 supplement


Exhibit 99.2
 
 
 
Wessex House, 5th Floor
45 Reid Street
Hamilton HM 12 Bermuda
 
441-278-9250
441-278-9255 fax
 
Contact:
Mark D. Lyons
Executive Vice President and Chief Financial Officer
 
Financial Supplement
 
Financial Information
as of March 31, 2013
 
The following financial supplement is provided to assist in your understanding of Arch Capital Group Ltd.
 
This report is for informational purposes only.  It should be read in conjunction with documents filed by Arch Capital Group Ltd. with the U.S. Securities and Exchange Commission, including the most recent Annual Report on Form 10-K and the Quarterly Reports on Form 10-Q.  Please refer to the Company’s website at www.archcapgroup.bm for further information describing Arch Capital Group Ltd. 




Arch Capital Group Ltd. and Subsidiaries
Table of Contents


 
 
Page
 
 
 
I.
Financial Highlights
 
 
 
II.
Consolidated Financial Statements
 
 
a.
Consolidated Statements of Income
 
b.
Consolidated Balance Sheets
 
c.
Consolidated Statements of Comprehensive Income
 
d.
Consolidated Statements of Changes in Shareholders’ Equity
 
e.
Consolidated Statements of Cash Flows
 
 
 
III.
Segment Information
 
 
a.
Overview
 
b.
Consolidated Results
 
c.
Insurance Segment Results
 
d.
Reinsurance Segment Results
 
 
 
IV.
Investment Information
 
 
a.
Investable Asset Summary and Investment Portfolio Metrics
 
b.
Composition of Fixed Maturities
 
c.
Credit Quality Distribution and Maturity Profile
 
d.
Analysis of Corporate Exposures
 
e.
Mortgage Backed and Commercial Mortgage Backed Securities
 
f.
Asset Backed Securities
 
g.
Bank Loan Investments
 
h.
Eurozone Investments
 
 
 
V.
Other
 
 
a.
Comments on Regulation G
 
b.
Operating Income Reconciliation
 
c.
Share Repurchase Activity
 
d.
Annualized Operating Return on Average Common Equity
 
e.
Capital Structure


 
1
Arch Capital Group Ltd. and Subsidiaries
Cautionary Note Regarding Forward-Looking Statements


The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This release or any other written or oral statements made by or on behalf of Arch Capital Group Ltd. and its subsidiaries may include forward-looking statements, which reflect our current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this release are forward-looking statements.
 
Forward-looking statements can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or their negative or variations or similar terminology. Forward-looking statements involve our current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: adverse general economic and market conditions; increased competition; pricing and policy term trends; fluctuations in the actions of rating agencies and our ability to maintain and improve our ratings; investment performance; the loss of key personnel; the adequacy of our loss reserves, severity and/or frequency of losses, greater than expected loss ratios and adverse development on claim and/or claim expense liabilities; greater frequency or severity of unpredictable natural and man-made catastrophic events; the impact of acts of terrorism and acts of war; changes in regulations and/or tax laws in the United States or elsewhere; our ability to successfully integrate, establish and maintain operating procedures as well as integrate the businesses we have acquired or may acquire into the existing operations; changes in accounting principles or policies; material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; availability and cost to us of reinsurance to manage our gross and net exposures; the failure of others to meet their obligations to us; and other factors identified in our filings with the U.S. Securities and Exchange Commission.
 
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.



 
2
Arch Capital Group Ltd. and Subsidiaries
Financial Highlights


(U.S. Dollars in thousands, except share data)
 
Three Months Ended
 
 
March 31,
 
 
2013
 
2012
 
Change
 
 
 
 
 
 
 
Gross premiums written
 
$
1,163,699

 
$
1,066,656

 
9.1
 %
Net premiums written
 
952,776

 
863,611

 
10.3
 %
Net premiums earned
 
752,770

 
680,312

 
10.7
 %
Underwriting income
 
116,398

 
67,193

 
73.2
 %
 
 
 
 
 
 
 
Net investment income
 
$
65,672

 
$
74,297

 
(11.6
)%
Per diluted share
 
0.48

 
0.54

 
(11.1
)%
 
 
 
 
 
 
 
Net income available to common shareholders
 
$
250,992

 
$
157,795

 
59.1
 %
Per diluted share
 
1.85

 
1.14

 
62.3
 %
 
 
 
 
 
 
 
After-tax operating income available to common shareholders (1)
 
$
158,748

 
$
113,660

 
39.7
 %
Per diluted share
 
1.17

 
0.82

 
42.7
 %
 
 
 
 
 
 
 
Comprehensive income
 
$
199,022

 
$
244,801

 
(18.7
)%
 
 
 
 
 
 
 
Cash flow from operations
 
$
205,659

 
$
144,821

 
42.0
 %
 
 
 
 
 
 
 
Diluted weighted average common shares and common share equivalents outstanding
 
135,409,288

 
137,814,906

 
(1.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
% Point Change
Underwriting ratios:
 
 

 
 

 
 

Loss ratio
 
53.1
%
 
58.1
%
 
(5.0
)
Acquisition expense ratio
 
16.9
%
 
17.4
%
 
(0.5
)
Other operating expense ratio
 
14.6
%
 
14.6
%
 
—

Combined ratio
 
84.6
%
 
90.1
%
 
(5.5
)
 
 
 
 
 
 
 
Financial measures:
 
 

 
 

 
 

Change in book value per common share during period
 
4.1
%
 
4.9
%
 
(0.8
)
 
 
 
 
 
 
 
Annualized operating return on average common equity
 
12.9
%
 
10.4
%
 
2.5

 
 
 
 
 
 
 
Total return on investments (2)
 
 

 
 

 
 

Including effects of foreign exchange
 
0.50
%
 
1.87
%
 
-137 bps

Excluding effects of foreign exchange
 
1.01
%
 
1.60
%
 
-59 bps

 
(1)
See Comments on Regulation G.
(2)
Total return on investments includes net investment income, equity in net income (loss) of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains and losses generated by the Company’s investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses.

 
3
Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Income

 
(U.S. Dollars in thousands, except share data)
 
Three Months Ended
 
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
 
$
1,163,699

 
$
813,928

 
$
936,764

 
$
1,051,813

 
$
1,066,656

 
$
699,662

Net premiums written
 
952,776

 
613,142

 
755,249

 
820,233

 
863,611

 
511,124

 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
 
$
752,770

 
$
779,481

 
$
748,691

 
$
726,656

 
$
680,312

 
$
673,192

Fee income
 
538

 
5,664

 
1,077

 
806

 
543

 
982

Losses and loss adjustment expenses
 
(399,403
)
 
(622,506
)
 
(443,871
)
 
(399,693
)
 
(395,207
)
 
(378,067
)
Acquisition expenses, net
 
(127,592
)
 
(133,568
)
 
(128,065
)
 
(128,289
)
 
(118,962
)
 
(123,339
)
Other operating expenses
 
(109,915
)
 
(120,405
)
 
(104,380
)
 
(105,757
)
 
(99,493
)
 
(103,300
)
Underwriting income (loss)
 
116,398

 
(91,334
)
 
73,452

 
93,723

 
67,193

 
69,468

Net investment income
 
65,672

 
73,769

 
73,221

 
73,608

 
74,297

 
80,467

Net realized gains
 
58,340

 
54,849

 
60,391

 
34,867

 
44,121

 
14,542

Net impairment losses recognized in earnings
 
(2,246
)
 
(6,035
)
 
(2,379
)
 
(1,951
)
 
(1,023
)
 
(1,959
)
Equity in net income (loss) of investment funds accounted for using the equity method
 
13,823

 
16,567

 
24,330

 
7,787

 
24,826

 
(14,702
)
Other income (loss)
 
1,244

 
(4,189
)
 
(532
)
 
695

 
(8,068
)
 
(4,848
)
Other expenses
 
(10,268
)
 
(7,346
)
 
(9,049
)
 
(11,944
)
 
(6,979
)
 
(6,777
)
Interest expense
 
(5,898
)
 
(6,187
)
 
(7,378
)
 
(7,439
)
 
(7,521
)
 
(8,087
)
Net foreign exchange gains (losses)
 
24,264

 
(22,997
)
 
(16,959
)
 
31,689

 
(20,688
)
 
12,613

Income before income taxes
 
261,329

 
7,097

 
195,097

 
221,035

 
166,158

 
140,717

Income tax (expense) benefit
 
(4,853
)
 
12,120

 
(5,441
)
 
(767
)
 
(1,902
)
 
4,615

Net income
 
256,476

 
19,217

 
189,656

 
220,268

 
164,256

 
145,332

Preferred dividends
 
(5,484
)
 
(5,485
)
 
(5,484
)
 
(7,649
)
 
(6,461
)
 
(6,461
)
Loss on repurchase of preferred shares
 
—

 
—

 
—

 
(10,612
)
 
—

 
—

Net income available to common shareholders
 
$
250,992

 
$
13,732

 
$
184,172

 
$
202,007

 
$
157,795

 
$
138,871

 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting Ratios
 
 

 
 

 
 

 
 

 
 

 
 

Loss ratio
 
53.1
%
 
79.9
%
 
59.3
%
 
55.0
%
 
58.1
%
 
56.2
%
Acquisition expense ratio
 
16.9
%
 
17.1
%
 
17.0
%
 
17.6
%
 
17.4
%
 
18.2
%
Other operating expense ratio
 
14.6
%
 
15.4
%
 
13.9
%
 
14.6
%
 
14.6
%
 
15.3
%
Combined ratio
 
84.6
%
 
112.4
%
 
90.2
%
 
87.2
%
 
90.1
%
 
89.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written to gross premiums written
 
81.9
%
 
75.3
%
 
80.6
%
 
78.0
%
 
81.0
%
 
73.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per common share
 
 

 
 

 
 

 
 

 
 

 
 

Basic
 
$
1.92

 
$
0.10

 
$
1.36

 
$
1.50

 
$
1.18

 
$
1.05

Diluted
 
$
1.85

 
$
0.10

 
$
1.33

 
$
1.46

 
$
1.14

 
$
1.01

 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares and common share equivalents outstanding
 
 

 
 

 
 

 
 

 
 

 
 

Basic
 
130,907,902

 
134,229,078

 
135,067,360

 
134,529,129

 
133,954,623

 
132,612,528

Diluted
 
135,409,288

 
138,270,853

 
138,696,934

 
138,211,736

 
137,814,906

 
137,473,670



 
4
Arch Capital Group Ltd. and Subsidiaries
Consolidated Balance Sheets



 
(U.S. Dollars in thousands, except share data)
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012
 
2011
Assets
 
 

 
 

 
 

 
 

 
 

 
 

Investments:
 
 

 
 

 
 

 
 

 
 

 
 

Fixed maturities available for sale, at fair value
 
$
9,890,425

 
$
9,839,988

 
$
9,944,186

 
$
9,556,326

 
$
9,221,145

 
$
9,375,604

Short-term investments available for sale, at fair value
 
943,414

 
722,121

 
845,158

 
1,087,910

 
1,112,249

 
904,219

Investment of funds received under securities lending, at fair value
 
84,315

 
42,531

 
26,279

 
66,424

 
41,867

 
48,419

Equity securities available for sale, at fair value
 
342,091

 
312,749

 
312,371

 
260,864

 
318,181

 
299,584

Other investments available for sale, at fair value
 
585,277

 
549,280

 
477,857

 
381,576

 
357,992

 
238,111

Investments accounted for using the fair value option
 
902,230

 
917,466

 
698,068

 
496,843

 
500,283

 
366,903

TALF investments, at fair value
 
—

 
—

 
270,206

 
307,453

 
313,187

 
387,702

Investments accounted for using the equity method
 
219,674

 
307,105

 
339,587

 
331,601

 
347,273

 
380,507

Total investments
 
12,967,426

 
12,691,240

 
12,913,712

 
12,488,997

 
12,212,177

 
12,001,049

Cash
 
356,767

 
371,041

 
422,440

 
355,392

 
422,806

 
351,699

Accrued investment income
 
65,023

 
71,748

 
68,069

 
72,095

 
65,643

 
70,739

Investment in joint venture
 
108,038

 
107,284

 
109,363

 
109,240

 
107,866

 
107,576

Fixed maturities and short-term investments pledged under securities lending, at fair value
 
90,801

 
50,848

 
34,769

 
74,032

 
50,813

 
56,393

Premiums receivable
 
870,575

 
688,873

 
773,172

 
834,116

 
700,137

 
501,563

Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses
 
1,846,064

 
1,870,037

 
1,733,830

 
1,849,191

 
1,849,603

 
1,851,584

Contractholder receivables
 
908,034

 
865,728

 
849,352

 
787,389

 
762,031

 
748,231

Prepaid reinsurance premiums
 
301,736

 
298,484

 
302,513

 
313,264

 
261,619

 
265,696

Deferred acquisition costs, net
 
306,505

 
262,822

 
279,171

 
272,736

 
261,467

 
227,884

Receivable for securities sold
 
395,958

 
19,248

 
894,318

 
821,527

 
621,560

 
462,891

Other assets
 
540,134

 
519,409

 
509,048

 
518,744

 
497,061

 
460,052

Total Assets
 
$
18,757,061

 
$
17,816,762

 
$
18,889,757

 
$
18,496,723

 
$
17,812,783

 
$
17,105,357

Liabilities
 
 

 
 

 
 

 
 

 
 

 
 

Reserve for losses and loss adjustment expenses
 
$
8,835,710

 
$
8,933,292

 
$
8,562,328

 
$
8,546,350

 
$
8,511,323

 
$
8,456,210

Unearned premiums
 
1,841,870

 
1,647,978

 
1,815,524

 
1,815,135

 
1,595,712

 
1,411,872

Reinsurance balances payable
 
204,233

 
188,546

 
172,016

 
184,763

 
137,791

 
133,866

Contractholder payables
 
908,034

 
865,728

 
849,352

 
787,389

 
762,031

 
748,231

Senior notes
 
300,000

 
300,000

 
300,000

 
300,000

 
300,000

 
300,000

Revolving credit agreement borrowings
 
100,000

 
100,000

 
100,000

 
100,000

 
100,000

 
100,000

TALF borrowings, at fair value
 
—

 
—

 
185,223

 
235,818

 
239,551

 
310,486

Securities lending payable
 
93,375

 
52,356

 
35,707

 
76,383

 
52,224

 
58,546

Payable for securities purchased
 
594,521

 
37,788

 
1,012,060

 
927,962

 
742,995

 
480,230

Other liabilities
 
543,788

 
522,196

 
508,753

 
502,607

 
531,700

 
513,842

Total Liabilities
 
13,421,531

 
12,647,884

 
13,540,963

 
13,476,407

 
12,973,327

 
12,513,283

Commitments and Contingencies
 
 

 
 

 
 

 
 

 
 

 
 

Shareholders’ Equity
 
 

 
 

 
 

 
 

 
 

 
 

Non-cumulative preferred shares
 
325,000

 
325,000

 
325,000

 
325,000

 
325,000

 
325,000

Common shares
 
561

 
561

 
556

 
556

 
552

 
549

Additional paid-in capital
 
242,492

 
227,778

 
211,219

 
197,625

 
170,694

 
161,419

Retained earnings
 
5,605,353

 
5,354,361

 
5,340,629

 
5,156,457

 
4,954,450

 
4,796,655

Accumulated other comprehensive income, net of deferred income tax
 
229,563

 
287,017

 
324,132

 
193,097

 
234,468

 
153,923

Common shares held in treasury, at cost
 
(1,067,439
)
 
(1,025,839
)
 
(852,742
)
 
(852,419
)
 
(845,708
)
 
(845,472
)
Total Shareholders’ Equity
 
5,335,530

 
5,168,878

 
5,348,794

 
5,020,316

 
4,839,456

 
4,592,074

Total Liabilities and Shareholders’ Equity
 
$
18,757,061

 
$
17,816,762

 
$
18,889,757

 
$
18,496,723

 
$
17,812,783

 
$
17,105,357

 
 
 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding, net of treasury shares
 
133,063,225

 
133,842,613

 
136,540,178

 
136,291,652

 
135,441,687

 
134,358,345

Book value per common share (1)
 
$
37.66

 
$
36.19

 
$
36.79

 
$
34.45

 
$
33.33

 
$
31.76

 
(1)    Excludes the effects of stock options and restricted stock units outstanding.

 
5
Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Comprehensive Income

 
(U.S. Dollars in thousands)
 
Three Months Ended
 
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income
 
 

 
 

 
 

 
 

 
 

 
 

Net income
 
$
256,476

 
$
19,217

 
$
189,656

 
$
220,268

 
$
164,256

 
$
145,332

Other comprehensive income (loss), net of deferred income tax
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during period
 
9,471

 
(2,938
)
 
164,733

 
18,060

 
94,863

 
40,476

Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax
 
(2
)
 
(11
)
 
(265
)
 
(503
)
 
(8
)
 
(1,485
)
Reclassification of net realized gains, net of income taxes, included in net income
 
(38,701
)
 
(39,897
)
 
(47,411
)
 
(43,792
)
 
(27,511
)
 
(29,785
)
Foreign currency translation adjustments
 
(28,222
)
 
5,731

 
13,978

 
(15,136
)
 
13,201

 
(1,859
)
Other comprehensive income (loss)
 
(57,454
)
 
(37,115
)
 
131,035

 
(41,371
)
 
80,545

 
7,347

Comprehensive Income (Loss)
 
$
199,022

 
$
(17,898
)
 
$
320,691

 
$
178,897

 
$
244,801

 
$
152,679



 
6
Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity



(U.S. Dollars in thousands)
 
Three Months Ended
 
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Cumulative Preferred Shares
 
 

 
 

 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
325,000

 
$
325,000

 
$
325,000

 
$
325,000

 
$
325,000

 
$
325,000

Shares issued - Series C
 
—

 
—

 
—

 
325,000

 
—

 
—

Shares repurchased - Series A and B
 
—

 
—

 
—

 
(325,000
)
 
—

 
—

Balance at end of period
 
325,000

 
325,000

 
325,000

 
325,000

 
325,000

 
325,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Common Shares
 
 

 
 

 
 

 
 

 
 

 
 

Balance at beginning of period
 
561

 
556

 
556

 
552

 
549

 
544

Common shares issued, net
 
—

 
5

 
—

 
4

 
3

 
5

Balance at end of period
 
561

 
561

 
556

 
556

 
552

 
549

 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-in Capital
 
 

 
 

 
 

 
 

 
 

 
 

Balance at beginning of period
 
227,778

 
211,219

 
197,625

 
170,694

 
161,419

 
150,882

Common shares issued, net
 
—

 
2,262

 
8

 
4,556

 
(3
)
 
1,857

Issue costs on Series C preferred shares
 
—

 
—

 
—

 
(9,398
)
 
—

 
—

Reversal of issue costs on repurchase of preferred shares
 
—

 
—

 
—

 
10,612

 
—

 
—

Exercise of stock options
 
3,093

 
6,599

 
2,797

 
2,971

 
1,851

 
2,926

Amortization of share-based compensation
 
11,543

 
7,644

 
10,729

 
16,519

 
7,411

 
5,700

Other
 
78

 
54

 
60

 
1,671

 
16

 
54

Balance at end of period
 
242,492

 
227,778

 
211,219

 
197,625

 
170,694

 
161,419

 
 
 
 
 
 
 
 
 
 
 
 
 
Retained Earnings
 
 

 
 

 
 

 
 

 
 

 
 

Balance at beginning of period
 
5,354,361

 
5,340,629

 
5,156,457

 
4,954,450

 
4,796,655

 
4,657,784

Net income
 
256,476

 
19,217

 
189,656

 
220,268

 
164,256

 
145,332

Preferred share dividends
 
(5,484
)
 
(5,485
)
 
(5,484
)
 
(7,649
)
 
(6,461
)
 
(6,461
)
Loss on repurchase of preferred shares
 
—

 
—

 
—

 
(10,612
)
 
—

 
—

Balance at end of period
 
5,605,353

 
5,354,361

 
5,340,629

 
5,156,457

 
4,954,450

 
4,796,655

 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 

 
 

 
 

 
 

 
 

 
 

Balance at beginning of period
 
287,017

 
324,132

 
193,097

 
234,468

 
153,923

 
146,576

Change in unrealized appreciation (decline) in value of investments, net of deferred income tax
 
(29,230
)
 
(42,835
)
 
117,322

 
(25,732
)
 
67,352

 
10,691

Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax
 
(2
)
 
(11
)
 
(265
)
 
(503
)
 
(8
)
 
(1,485
)
Foreign currency translation adjustments, net of deferred income tax
 
(28,222
)
 
5,731

 
13,978

 
(15,136
)
 
13,201

 
(1,859
)
Balance at end of period
 
229,563

 
287,017

 
324,132

 
193,097

 
234,468

 
153,923

 
 
 
 
 
 
 
 
 
 
 
 
 
Common Shares Held in Treasury, at Cost
 
 

 
 

 
 

 
 

 
 

 
 

Balance at beginning of period
 
(1,025,839
)
 
(852,742
)
 
(852,419
)
 
(845,708
)
 
(845,472
)
 
(844,887
)
Shares repurchased for treasury
 
(41,600
)
 
(173,097
)
 
(323
)
 
(6,711
)
 
(236
)
 
(585
)
Balance at end of period
 
(1,067,439
)
 
(1,025,839
)
 
(852,742
)
 
(852,419
)
 
(845,708
)
 
(845,472
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Shareholders’ Equity
 
$
5,335,530

 
$
5,168,878

 
$
5,348,794

 
$
5,020,316

 
$
4,839,456

 
$
4,592,074



 
7
Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows


(U.S. Dollars in thousands)
 
Three Months Ended
 
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012
 
2011
Operating Activities
 
 

 
 

 
 

 
 

 
 

 
 

Net income
 
$
256,476

 
$
19,217

 
$
189,656

 
$
220,268

 
$
164,256

 
$
145,332

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Net realized gains
 
(59,504
)
 
(56,844
)
 
(61,950
)
 
(36,681
)
 
(44,072
)
 
(12,940
)
Net impairment losses included in earnings
 
2,246

 
6,035

 
2,379

 
1,951

 
1,023

 
1,959

Equity in net income or loss of investment funds accounted for using the equity method and other income or loss
 
23,052

 
(6,315
)
 
(19,177
)
 
(6,111
)
 
(12,030
)
 
20,776

Share-based compensation
 
11,543

 
7,644

 
10,729

 
16,519

 
7,411

 
5,700

Changes in:
 
 
 
 
 
 
 
 
 
 
 
 
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable
 
(22,182
)
 
215,885

 
72,346

 
68,327

 
39,343

 
(59,998
)
Unearned premiums, net of prepaid reinsurance premiums
 
200,004

 
(166,338
)
 
6,556

 
95,142

 
181,735

 
(162,490
)
Premiums receivable
 
(198,814
)
 
84,474

 
68,881

 
(83,633
)
 
(190,102
)
 
106,818

Deferred acquisition costs, net
 
(45,159
)
 
16,851

 
(5,832
)
 
(13,121
)
 
(32,269
)
 
24,823

Reinsurance balances payable
 
17,365

 
23,569

 
(17,958
)
 
40,310

 
(3,181
)
 
8,896

Other liabilities
 
23,811

 
19,385

 
24,190

 
(12,660
)
 
10,134

 
30,620

Other items, net
 
(3,179
)
 
26,089

 
64,863

 
(37,864
)
 
22,573

 
145

Net Cash Provided By Operating Activities
 
205,659

 
189,652

 
334,683

 
252,447

 
144,821

 
109,641

Investing Activities
 
 

 
 

 
 

 
 

 
 

 
 

Purchases of fixed maturity investments
 
(3,970,320
)
 
(4,898,519
)
 
(5,123,575
)
 
(3,952,868
)
 
(3,593,630
)
 
(3,758,854
)
Purchases of equity securities
 
(63,353
)
 
(53,078
)
 
(105,618
)
 
(76,500
)
 
(33,803
)
 
(69,962
)
Purchases of other investments
 
(250,442
)
 
(299,741
)
 
(314,065
)
 
(147,076
)
 
(239,167
)
 
(220,048
)
Sales of fixed maturity investments
 
3,796,638

 
4,843,768

 
4,635,352

 
3,258,254

 
3,628,932

 
3,542,629

Sales of equity securities
 
81,513

 
49,200

 
65,932

 
122,625

 
75,860

 
58,386

Sales of other investments
 
280,010

 
114,537

 
112,129

 
105,815

 
111,149

 
147,243

Proceeds from redemptions and maturities of fixed maturities
 
181,727

 
248,514

 
268,288

 
337,132

 
261,660

 
296,408

Net (purchases) sales of short-term investments
 
(221,444
)
 
113,780

 
246,746

 
32,837

 
(207,444
)
 
(114,854
)
Change in investment of securities lending collateral
 
(41,019
)
 
(16,650
)
 
40,677

 
(24,159
)
 
6,322

 
16,150

Purchase of business, net of cash acquired
 
—

 
—

 
—

 
28,948

 
—

 
—

Purchases of furniture, equipment and other
 
(3,742
)
 
(4,638
)
 
(3,686
)
 
(3,710
)
 
(6,498
)
 
(3,461
)
Net Cash Provided By (Used For) Investing Activities
 
(210,432
)
 
97,173

 
(177,820
)
 
(318,702
)
 
3,381

 
(106,363
)
Financing Activities
 
 

 
 

 
 

 
 

 
 

 
 

Proceeds from issuance of Series C preferred shares, net
 
—

 
—

 
(26
)
 
315,789

 
—

 
—

Repurchase of Series A and B preferred shares
 
—

 
—

 
—

 
(325,000
)
 
—

 
—

Purchases of common shares under share repurchase program .
 
(40,964
)
 
(172,056
)
 
—

 
—

 
—

 
(3
)
Proceeds from common shares issued, net
 
1,280

 
5,429

 
1,256

 
(432
)
 
780

 
3,245

Repayments of borrowings
 
—

 
(186,291
)
 
(50,804
)
 
(3,910
)
 
(69,863
)
 
(3,513
)
Change in securities lending collateral
 
41,019

 
16,650

 
(40,677
)
 
24,159

 
(6,322
)
 
(16,150
)
Other
 
1,084

 
2,185

 
1,015

 
2,876

 
588

 
766

Preferred dividends paid
 
(5,484
)
 
(5,484
)
 
(5,485
)
 
(10,951
)
 
(6,461
)
 
(6,461
)
Net Cash Provided By (Used For) Financing Activities
 
(3,065
)
 
(339,567
)
 
(94,721
)
 
2,531

 
(81,278
)
 
(22,116
)
Effects of exchange rate changes on foreign currency cash
 
(6,436
)
 
1,343

 
4,906

 
(3,690
)
 
4,183

 
642

Increase (decrease) in cash
 
(14,274
)
 
(51,399
)
 
67,048

 
(67,414
)
 
71,107

 
(18,196
)
Cash beginning of period
 
371,041

 
422,440

 
355,392

 
422,806

 
351,699

 
369,895

Cash end of period
 
$
356,767

 
$
371,041

 
$
422,440

 
$
355,392

 
$
422,806

 
$
351,699

Income taxes paid (received), net
 
$
1,304

 
$
(5,917
)
 
$
(220
)
 
$
1,548

 
$
2,788

 
$
(7,724
)
Interest paid
 
$
414

 
$
11,882

 
$
2,202

 
$
12,843

 
$
2,206

 
$
13,047



 
8
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Overview



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 Chairman, 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 accounting guidance regarding 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. Specialty product lines include: casualty; construction; executive assurance; healthcare; lenders products; national accounts casualty; professional liability; programs; property, energy, marine and aviation; surety; travel and accident; and other (including excess workers’ compensation, employers’ liability, alternative markets and accident and health 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 contracts. Classes of business include: casualty (including professional liability, executive assurance and healthcare business); marine and aviation; other specialty (including U.K. motor, trade credit, surety, workers’ compensation catastrophe, accident and health and other); property catastrophe; property excluding property catastrophe (losses on a single risk, both excess of loss and pro rata); and other (including mortgage, life, casualty clash and other).
 
Corporate and other (non-underwriting) includes net investment income, other income (loss), other expenses incurred by the Company, interest expense, net realized gains or losses, net impairment losses included in earnings, equity in net income (loss) of investment funds accounted for using the equity method, net foreign exchange gains or losses, income taxes and items related to the Company’s non-cumulative preferred shares.



 
9
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Three Months Ended March 31, 2013 and 2012

 
(U.S. Dollars in thousands)
 
Three Months Ended
 
Three Months Ended
 
 
March 31, 2013
 
March 31, 2012
 
 
Insurance
 
Reinsurance
 
Total
 
Insurance
 
Reinsurance
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written (1)
 
$
688,817

 
$
476,205

 
$
1,163,699

 
$
688,113

 
$
379,976

 
$
1,066,656

Net premiums written
 
504,550

 
448,226

 
952,776

 
490,680

 
372,931

 
863,611

 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
 
$
444,965

 
$
307,805

 
$
752,770

 
$
441,740

 
$
238,572

 
$
680,312

Fee income
 
525

 
13

 
538

 
530

 
13

 
543

Losses and loss adjustment expenses
 
(283,467
)
 
(115,936
)
 
(399,403
)
 
(303,164
)
 
(92,043
)
 
(395,207
)
Acquisition expenses, net
 
(70,758
)
 
(56,834
)
 
(127,592
)
 
(73,870
)
 
(45,092
)
 
(118,962
)
Other operating expenses
 
(76,315
)
 
(33,600
)
 
(109,915
)
 
(73,370
)
 
(26,123
)
 
(99,493
)
Underwriting income (loss)
 
$
14,950

 
$
101,448

 
116,398

 
$
(8,134
)
 
$
75,327

 
67,193

 
 
 
 
 
 
 
 
 
 
 
 
 
Net investment income
 
 
 
 
 
65,672

 
 
 
 
 
74,297

Net realized gains
 
 
 
 
 
58,340

 
 
 
 
 
44,121

Net impairment losses recognized in earnings
 
 
 
 
 
(2,246
)
 
 
 
 
 
(1,023
)
Equity in net income of investment funds accounted for using the equity method
 
 
 
 
 
13,823

 
 
 
 
 
24,826

Other income (loss)
 
 
 
 
 
1,244

 
 
 
 
 
(8,068
)
Other expenses
 
 
 
 
 
(10,268
)
 
 
 
 
 
(6,979
)
Interest expense
 
 
 
 
 
(5,898
)
 
 
 
 
 
(7,521
)
Net foreign exchange gains (losses)
 
 
 
 
 
24,264

 
 
 
 
 
(20,688
)
Income before income taxes
 
 
 
 
 
261,329

 
 
 
 
 
166,158

Income tax expense
 
 
 
 
 
(4,853
)
 
 
 
 
 
(1,902
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
256,476

 
 
 
 
 
164,256

Preferred dividends
 
 
 
 
 
(5,484
)
 
 
 
 
 
(6,461
)
Net income available to common shareholders
 
 
 
 
 
$
250,992

 
 
 
 
 
$
157,795

 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting Ratios
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
63.7
%
 
37.7
%
 
53.1
%
 
68.6
%
 
38.6
%
 
58.1
%
Acquisition expense ratio (2)
 
15.8
%
 
18.5
%
 
16.9
%
 
16.6
%
 
18.9
%
 
17.4
%
Other operating expense ratio
 
17.2
%
 
10.9
%
 
14.6
%
 
16.6
%
 
10.9
%
 
14.6
%
Combined ratio
 
96.7
%
 
67.1
%
 
84.6
%
 
101.8
%
 
68.4
%
 
90.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written to gross premiums written
 
73.2
%
 
94.1
%
 
81.9
%
 
71.3
%
 
98.1
%
 
81.0
%
 
(1)
Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.
(2)
The acquisition expense ratio is adjusted to include certain fee income.



 
10
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Insurance Segment

 
(U.S. Dollars in thousands)
 
Three Months Ended
 
 
March 31,
 
 
2013
 
2012
 
 
Amount
 
% of Total
 
Amount
 
% of Total
 
 
 
 
 
 
 
 
 
Net premiums written
 
 

 
 

 
 

 
 

Programs
 
$
100,515

 
19.9

 
$
81,616

 
16.6

Property, energy, marine and aviation
 
83,611

 
16.6

 
79,819

 
16.3

Executive assurance
 
60,352

 
12.0

 
68,378

 
13.9

Professional liability
 
55,774

 
11.1

 
70,561

 
14.4

National accounts
 
45,116

 
8.9

 
35,438

 
7.2

Construction
 
42,212

 
8.4

 
33,653

 
6.9

Casualty
 
23,795

 
4.7

 
26,973

 
5.5

Lenders products
 
21,673

 
4.3

 
22,415

 
4.6

Travel and accident
 
16,457

 
3.3

 
22,836

 
4.7

Surety
 
15,256

 
3.0

 
12,134

 
2.5

Healthcare
 
9,646

 
1.9

 
10,635

 
2.2

Other (1)
 
30,143

 
5.9

 
26,222

 
5.2

Total
 
$
504,550

 
100.0

 
$
490,680

 
100.0

Net premiums earned
 
 

 
 

 
 

 
 

Programs
 
$
89,923

 
20.2

 
$
73,998

 
16.8

Property, energy, marine and aviation
 
78,005

 
17.5

 
78,494

 
17.8

Executive assurance
 
58,154

 
13.1

 
58,766

 
13.3

Professional liability
 
58,657

 
13.2

 
63,256

 
14.3

National accounts
 
21,643

 
4.9

 
19,136

 
4.3

Construction
 
35,239

 
7.9

 
31,808

 
7.2

Casualty
 
25,823

 
5.8

 
29,065

 
6.6

Lenders products
 
20,957

 
4.7

 
32,153

 
7.3

Travel and accident
 
12,905

 
2.9

 
16,713

 
3.8

Surety
 
13,183

 
3.0

 
10,560

 
2.4

Healthcare
 
9,007

 
2.0

 
8,898

 
2.0

Other (1)
 
21,469

 
4.8

 
18,893

 
4.2

Total
 
$
444,965

 
100.0

 
$
441,740

 
100.0

Net premiums written by client location
 
 

 
 

 
 

 
 

United States
 
$
370,678

 
73.5

 
$
334,553

 
68.2

Europe
 
91,739

 
18.2

 
107,631

 
21.9

Asia and Pacific
 
21,082

 
4.2

 
29,724

 
6.1

Other
 
21,051

 
4.1

 
18,772

 
3.8

Total
 
$
504,550

 
100.0

 
$
490,680

 
100.0

Net premiums written by underwriting location
 
 
 
 
 
 
 
 
United States
 
$
358,292

 
71.0

 
$
321,559

 
65.5

Europe
 
129,531

 
25.7

 
152,615

 
31.1

Other
 
16,727

 
3.3

 
16,506

 
3.4

Total
 
$
504,550

 
100.0

 
$
490,680

 
100.0

 
(1)     Includes excess workers’ compensation, employer’s liability, alternative markets and accident and health business.

 
11
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Insurance Segment


(U.S. Dollars in thousands)
 
Three Months Ended
 
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
 
$
688,817

 
$
571,157

 
$
658,599

 
$
676,090

 
$
688,113

 
$
540,617

Net premiums written
 
504,550

 
386,714

 
483,356

 
464,584

 
490,680

 
360,739

 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
 
$
444,965

 
$
455,668

 
$
456,341

 
$
446,594

 
$
441,740

 
$
422,667

Fee income
 
525

 
532

 
645

 
628

 
530

 
729

Losses and loss adjustment expenses
 
(283,467
)
 
(383,106
)
 
(307,155
)
 
(290,416
)
 
(303,164
)
 
(282,769
)
Acquisition expenses, net
 
(70,758
)
 
(75,392
)
 
(73,663
)
 
(76,058
)
 
(73,870
)
 
(73,975
)
Other operating expenses
 
(76,315
)
 
(82,123
)
 
(75,379
)
 
(76,617
)
 
(73,370
)
 
(77,593
)
Underwriting income (loss)
 
$
14,950

 
$
(84,421
)
 
$
789

 
$
4,131

 
$
(8,134
)
 
$
(10,941
)
Underwriting Ratios
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
63.7
%
 
84.1
%
 
67.3
%
 
65.0
%
 
68.6
%
 
66.9
%
Acquisition expense ratio (1)
 
15.8
%
 
16.4
%
 
16.0
%
 
16.9
%
 
16.6
%
 
17.3
%
Other operating expense ratio
 
17.2
%
 
18.0
%
 
16.5
%
 
17.2
%
 
16.6
%
 
18.4
%
Combined ratio
 
96.7
%
 
118.5
%
 
99.8
%
 
99.1
%
 
101.8
%
 
102.6
%
Net premiums written
 
 
 
 
 
 
 
 
 
 
 
 
Programs
 
$
100,515

 
$
80,201

 
$
98,052

 
$
92,998

 
$
81,616

 
$
62,874

Property, energy, marine and aviation
 
83,611

 
36,215

 
92,266

 
86,390

 
79,819

 
41,244

Executive assurance
 
60,352

 
59,262

 
63,059

 
60,205

 
68,378

 
59,035

Professional liability
 
55,774

 
56,023

 
68,923

 
65,198

 
70,561

 
54,085

National accounts
 
45,116

 
18,047

 
22,483

 
4,961

 
35,438

 
19,110

Construction
 
42,212

 
23,283

 
23,481

 
49,784

 
33,653

 
22,912

Casualty
 
23,795

 
31,034

 
23,662

 
30,638

 
26,973

 
28,599

Lenders products
 
21,673

 
23,838

 
20,257

 
20,477

 
22,415

 
21,543

Travel and accident
 
16,457

 
15,342

 
22,017

 
20,294

 
22,836

 
13,751

Surety
 
15,256

 
13,456

 
14,958

 
12,723

 
12,134

 
12,734

Healthcare
 
9,646

 
9,498

 
8,722

 
7,959

 
10,635

 
9,303

Other (2)
 
30,143

 
20,515

 
25,476

 
12,957

 
26,222

 
15,549

Total
 
$
504,550

 
$
386,714

 
$
483,356

 
$
464,584

 
$
490,680

 
$
360,739

Net premiums earned
 
 
 
 
 
 
 
 
 
 
 
 
Programs
 
$
89,923

 
$
87,815

 
$
83,978

 
$
80,589

 
$
73,998

 
$
75,085

Property, energy, marine and aviation
 
78,005

 
79,135

 
77,862

 
77,590

 
78,494

 
79,979

Executive assurance
 
58,154

 
60,570

 
61,599

 
60,856

 
58,766

 
56,782

Professional liability
 
58,657

 
60,829

 
66,299

 
68,017

 
63,256

 
62,467

National accounts
 
21,643

 
20,301

 
21,919

 
18,415

 
19,136

 
20,572

Construction
 
35,239

 
33,537

 
32,409

 
31,692

 
31,808

 
28,569

Casualty
 
25,823

 
29,255

 
27,175

 
28,102

 
29,065

 
28,093

Lenders products
 
20,957

 
22,003

 
20,271

 
21,411

 
32,153

 
18,796

Travel and accident
 
12,905

 
18,850

 
21,826

 
20,661

 
16,713

 
15,840

Surety
 
13,183

 
13,301

 
12,643

 
10,798

 
10,560

 
11,847

Healthcare
 
9,007

 
9,239

 
9,565

 
9,077

 
8,898

 
8,825

Other (2)
 
21,469

 
20,833

 
20,795

 
19,386

 
18,893

 
15,812

Total
 
$
444,965

 
$
455,668

 
$
456,341

 
$
446,594

 
$
441,740

 
$
422,667

 
(1)     The acquisition expense ratio is adjusted to include certain fee income.
(2)     Includes excess workers’ compensation, employer’s liability, alternative markets and accident and health business.

 
12
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Reinsurance Segment

 
(U.S. Dollars in thousands)
 
Three Months Ended
 
 
March 31,
 
 
2013
 
2012
 
 
Amount
 
% of Total
 
Amount
 
% of Total
 
 
 
 
 
 
 
 
 
Net premiums written
 
 

 
 

 
 

 
 

Other specialty (1)
 
$
111,314

 
24.8

 
$
95,462

 
25.6

Casualty (2)
 
105,545

 
23.5

 
83,960

 
22.5

Property excluding property catastrophe (3)
 
89,060

 
19.9

 
75,493

 
20.2

Property catastrophe
 
77,142

 
17.2

 
86,574

 
23.2

Marine and aviation
 
23,142

 
5.2

 
25,617

 
6.9

Other (4)
 
42,023

 
9.4

 
5,825

 
1.6

Total
 
$
448,226

 
100.0

 
$
372,931

 
100.0

Net premiums earned
 
 
 
 

 
 
 
 
Other specialty (1)
 
$
83,497

 
27.1

 
$
46,148

 
19.3

Casualty (2)
 
57,958

 
18.8

 
45,943

 
19.3

Property excluding property catastrophe (3)
 
64,902

 
21.1

 
61,632

 
25.8

Property catastrophe
 
64,233

 
20.9

 
61,863

 
25.9

Marine and aviation
 
20,104

 
6.5

 
21,449

 
9.0

Other (4)
 
17,111

 
5.6

 
1,537

 
0.7

Total
 
$
307,805

 
100.0

 
$
238,572

 
100.0

Net premiums written
 
 
 
 

 
 
 
 
Pro rata
 
$
187,851

 
41.9

 
$
124,746

 
33.5

Excess of loss
 
260,375

 
58.1

 
248,185

 
66.5

Total
 
$
448,226

 
100.0

 
$
372,931

 
100.0

Net premiums earned
 
 
 
 

 
 
 
 
Pro rata
 
$
154,181

 
50.1

 
$
99,925

 
41.9

Excess of loss
 
153,624

 
49.9

 
138,647

 
58.1

Total
 
$
307,805

 
100.0

 
$
238,572

 
100.0

Net premiums written by client location
 
 
 
 

 
 
 
 
United States
 
$
226,527

 
50.5

 
$
174,000

 
46.7

Europe
 
168,773

 
37.7

 
140,358

 
37.6

Asia and Pacific
 
20,686

 
4.6

 
13,904

 
3.7

Bermuda
 
5,201

 
1.2

 
29,600

 
7.9

Other
 
27,039

 
6.0

 
15,069

 
4.1

Total
 
$
448,226

 
100.0

 
$
372,931

 
100.0

Net premiums written by underwriting location
 
 
 
 

 
 
 
 
Bermuda
 
$
162,387

 
36.2

 
$
155,956

 
41.8

United States
 
153,593

 
34.3

 
129,459

 
34.7

Ireland
 
121,296

 
27.1

 
78,469

 
21.0

Other
 
10,950

 
2.4

 
9,047

 
2.5

Total
 
$
448,226

 
100.0

 
$
372,931

 
100.0

 
(1)     Includes U.K. motor, trade credit, surety, workers’ compensation catastrophe, accident and health and other.
(2)     Includes professional liability, executive assurance and healthcare business.
(3)     Includes facultative business.
(4)     Includes mortgage, life, casualty clash and other.

 
13
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Reinsurance Segment


(U.S. Dollars in thousands)
 
Three Months Ended
 
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
 
$
476,205

 
$
245,292

 
$
279,751

 
$
376,981

 
$
379,976

 
$
161,904

Net premiums written
 
448,226

 
226,428

 
271,893

 
355,649

 
372,931

 
150,385

 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
 
$
307,805

 
$
323,813

 
$
292,350

 
$
280,062

 
$
238,572

 
$
250,525

Fee income
 
13

 
5,132

 
432

 
178

 
13

 
253

Losses and loss adjustment expenses
 
(115,936
)
 
(239,400
)
 
(136,716
)
 
(109,277
)
 
(92,043
)
 
(95,298
)
Acquisition expenses, net
 
(56,834
)
 
(58,176
)
 
(54,402
)
 
(52,231
)
 
(45,092
)
 
(49,364
)
Other operating expenses
 
(33,600
)
 
(38,282
)
 
(29,001
)
 
(29,140
)
 
(26,123
)
 
(25,707
)
Underwriting income (loss)
 
$
101,448

 
$
(6,913
)
 
$
72,663

 
$
89,592

 
$
75,327

 
$
80,409

Underwriting Ratios
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
37.7
%
 
73.9
%
 
46.8
%
 
39.0
%
 
38.6
%
 
38.0
%
Acquisition expense ratio
 
18.5
%
 
18.0
%
 
18.6
%
 
18.6
%
 
18.9
%
 
19.7
%
Other operating expense ratio
 
10.9
%
 
11.8
%
 
9.9
%
 
10.4
%
 
10.9
%
 
10.3
%
Combined ratio
 
67.1
%
 
103.7
%
 
75.3
%
 
68.0
%
 
68.4
%
 
68.0
%
Net premiums written
 
 
 
 
 
 
 
 
 
 
 
 
Other specialty (1)
 
$
111,314

 
$
59,827

 
$
70,412

 
$
72,261

 
$
95,462

 
$
48,555

Casualty (2)
 
105,545

 
50,132

 
38,273

 
43,702

 
83,960

 
34,968

Property excluding property catastrophe (3)
 
89,060

 
55,929

 
68,627

 
65,734

 
75,493

 
36,430

Property catastrophe
 
77,142

 
17,683

 
50,196

 
129,224

 
86,574

 
11,636

Marine and aviation
 
23,142

 
21,038

 
19,152

 
18,842

 
25,617

 
16,130

Other (4)
 
42,023

 
21,819

 
25,233

 
25,886

 
5,825

 
2,666

Total
 
$
448,226

 
$
226,428

 
$
271,893

 
$
355,649

 
$
372,931

 
$
150,385

Net premiums earned
 
 
 
 
 
 
 
 
 
 
 
 
Other specialty (1)
 
$
83,497

 
$
92,120

 
$
87,330

 
$
78,207

 
$
46,148

 
$
60,891

Casualty (2)
 
57,958

 
51,082

 
48,669

 
48,565

 
45,943

 
47,317

Property excluding property catastrophe (3)
 
64,902

 
70,414

 
63,572

 
58,720

 
61,632

 
60,607

Property catastrophe
 
64,233

 
80,271

 
69,059

 
68,992

 
61,863

 
62,408

Marine and aviation
 
20,104

 
18,643

 
16,853

 
19,200

 
21,449

 
17,361

Other (4)
 
17,111

 
11,283

 
6,867

 
6,378

 
1,537

 
1,941

Total
 
$
307,805

 
$
323,813

 
$
292,350

 
$
280,062

 
$
238,572

 
$
250,525

 
(1)     Includes U.K. motor, trade credit, surety, workers’ compensation catastrophe, accident and health and other.
(2)     Includes professional liability, executive assurance and healthcare business.
(3)     Includes facultative business.
(4)     Includes mortgage, life, casualty clash and other.



 
14
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Investable Asset Summary and Investment Portfolio Metrics

 
(U.S. Dollars in thousands)
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investable assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities available for sale, at fair value
 
$
9,890,425

 
75.3
 %
 
$
9,839,988

 
75.4
 %
 
$
9,944,186

 
75.2
 %
 
$
9,556,326

 
75.0
 %
 
$
9,221,145

 
73.7
 %
Fixed maturities, at fair value (1)
 
364,385

 
2.8
 %
 
363,541

 
2.8
 %
 
306,424

 
2.3
 %
 
242,735

 
1.9
 %
 
250,805

 
2.0
 %
Fixed maturities pledged under securities lending agreements, at fair value (2)
 
89,941

 
0.7
 %
 
42,600

 
0.3
 %
 
34,769

 
0.3
 %
 
74,032

 
0.6
 %
 
50,813

 
0.4
 %
Total fixed maturities
 
10,344,751

 
78.8
 %
 
10,246,129

 
78.5
 %
 
10,285,379

 
77.8
 %
 
9,873,093

 
77.5
 %
 
9,522,763

 
76.2
 %
Short-term investments available for sale, at fair value
 
943,414

 
7.2
 %
 
722,121

 
5.5
 %
 
845,158

 
6.4
 %
 
1,087,910

 
8.5
 %
 
1,112,249

 
8.9
 %
Short-term investments pledged under securities lending agreements, at fair value (2)
 
860

 
—
 %
 
8,248

 
0.1
 %
 
—

 
—
 %
 
—

 
—
 %
 
—

 
—
 %
Cash
 
356,767

 
2.7
 %
 
371,041

 
2.8
 %
 
422,440

 
3.2
 %
 
355,392

 
2.8
 %
 
422,806

 
3.4
 %
Equity securities available for sale, at fair value
 
342,091

 
2.6
 %
 
312,749

 
2.4
 %
 
312,371

 
2.4
 %
 
260,864

 
2.0
 %
 
318,181

 
2.5
 %
Equity securities, at fair value (1)
 
—

 
—
 %
 
25,954

 
0.2
 %
 
28,405

 
0.2
 %
 
23,118

 
0.2
 %
 
52,766

 
0.4
 %
Other investments available for sale, at fair value
 
585,277

 
4.5
 %
 
549,280

 
4.2
 %
 
477,857

 
3.6
 %
 
381,576

 
3.0
 %
 
357,992

 
2.9
 %
Other investments, at fair value (1)
 
537,845

 
4.1
 %
 
527,971

 
4.0
 %
 
363,239

 
2.7
 %
 
230,990

 
1.8
 %
 
196,712

 
1.6
 %
TALF investments, at fair value (3)
 
—

 
—
 %
 
—

 
—
 %
 
270,206

 
2.0
 %
 
307,453

 
2.4
 %
 
313,187

 
2.5
 %
Investments accounted for using the equity method
 
219,674

 
1.7
 %
 
307,105

 
2.4
 %
 
339,587

 
2.6
 %
 
331,601

 
2.6
 %
 
347,273

 
2.8
 %
Securities sold but not yet purchased (4)
 
—

 
—
 %
 
(6,924
)
 
(0.1
)%
 
(8,017
)
 
(0.1
)%
 
(9,206
)
 
(0.1
)%
 
(18,831
)
 
(0.2
)%
Securities transactions entered into but not settled at the balance sheet date
 
(198,563
)
 
(1.5
)%
 
(18,540
)
 
(0.1
)%
 
(117,742
)
 
(0.9
)%
 
(106,435
)
 
(0.8
)%
 
(121,435
)
 
(1.0
)%
Total investable assets
 
$
13,132,116

 
100.0
 %
 
$
13,045,134

 
100.0
 %
 
$
13,218,883

 
100.0
 %
 
$
12,736,356

 
100.0
 %
 
$
12,503,663

 
100.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment portfolio metrics (2):
 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

Average effective duration (in years)
 
2.94

 
 

 
3.06

 
 

 
2.90

 
 

 
3.01

 
 

 
2.75

 
 

Average S&P/Moody’s credit ratings (5)
 
AA-/Aa2

 
 

 
AA-/Aa2

 
 

 
AA/Aa2

 
 

 
AA/Aa2

 
 

 
AA/Aa2

 
 

Imbedded book yield (6)
 
2.45
%
 
 

 
2.60
%
 
 

 
2.80
%
 
 

 
2.76
%
 
 

 
2.76
%
 
 


(1)     Represents investments which are carried at fair value under the fair value option and reflected as “investments accounted for using the fair value option” on the balance sheet.
(2)     This table excludes the collateral received and reinvested and includes the fixed maturities and short-term investments pledged under in securities lending agreements, at fair value.
(3)    During the 2012 fourth quarter, the Company sold all investments it held under the FRBNY’s TALF program and the related secured financing was extinguished accordingly.
(4)    Represents the Company's obligation to deliver securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company's balance sheet.
(5)    Average credit ratings on the Company’s investment portfolio on securities with ratings assigned by Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”).
(6)    Calculated before investment expenses.


 
15
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Composition of Fixed Maturities

 
The following table summarizes the Company’s fixed maturities and fixed maturities pledged under securities lending agreements:
 
(U.S. Dollars in thousands)
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized
Gains (Losses)
 
Amortized
Cost
 
Fair Value /
Amortized Cost
 
% of Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporates
 
$
2,729,239

 
$
72,430

 
$
(5,967
)
 
$
66,463

 
$
2,662,776

 
102.5
%
 
26.4
%
Non-U.S. government-backed corporates
 
155,427

 
4,974

 
(887
)
 
4,087

 
151,340

 
102.7
%
 
1.5
%
U.S. government and government agencies
 
1,151,429

 
21,512

 
(463
)
 
21,049

 
1,130,380

 
101.9
%
 
11.1
%
Agency mortgage-backed securities
 
1,302,798

 
6,874

 
(6,915
)
 
(41
)
 
1,302,839

 
100.0
%
 
12.6
%
Non-agency mortgage-backed securities
 
402,015

 
16,375

 
(2,480
)
 
13,895

 
388,120

 
103.6
%
 
3.9
%
Agency commercial mortgage-backed securities
 
283,883

 
4,387

 
(2,147
)
 
2,240

 
281,643

 
100.8
%
 
2.7
%
Non-agency commercial mortgage-backed securities
 
583,973

 
23,370

 
(570
)
 
22,800

 
561,173

 
104.1
%
 
5.6
%
Municipal bonds
 
1,442,116

 
54,533

 
(1,732
)
 
52,801

 
1,389,315

 
103.8
%
 
13.9
%
Non-U.S. government securities
 
1,147,260

 
24,745

 
(12,817
)
 
11,928

 
1,135,332

 
101.1
%
 
11.1
%
Asset-backed securities
 
1,146,611

 
24,706

 
(9,760
)
 
14,946

 
1,131,665

 
101.3
%
 
11.1
%
Total
 
$
10,344,751

 
$
253,906

 
$
(43,738
)
 
$
210,168

 
$
10,134,583

 
102.1
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporates
 
$
2,884,687

 
$
98,248

 
$
(6,643
)
 
$
91,605

 
$
2,793,082

 
103.3
%
 
28.2
%
Non-U.S. government-backed corporates
 
247,958

 
7,550

 
(67
)
 
7,483

 
240,475

 
103.1
%
 
2.4
%
U.S. government and government agencies
 
1,131,688

 
20,178

 
(1,095
)
 
19,083

 
1,112,605

 
101.7
%
 
11.0
%
Agency mortgage-backed securities
 
1,195,793

 
10,989

 
(3,719
)
 
7,270

 
1,188,523

 
100.6
%
 
11.7
%
Non-agency mortgage-backed securities
 
336,943

 
13,820

 
(3,765
)
 
10,055

 
326,888

 
103.1
%
 
3.3
%
Agency commercial mortgage-backed securities
 
195,731

 
4,910

 
(2,308
)
 
2,602

 
193,129

 
101.3
%
 
1.9
%
Non-agency commercial mortgage-backed securities
 
628,434

 
32,604

 
(2,160
)
 
30,444

 
597,990

 
105.1
%
 
6.1
%
Municipal bonds
 
1,463,586

 
62,322

 
(1,421
)
 
60,901

 
1,402,685

 
104.3
%
 
14.3
%
Non-U.S. government securities
 
1,087,310

 
33,701

 
(8,860
)
 
24,841

 
1,062,469

 
102.3
%
 
10.6
%
Asset-backed securities
 
1,073,999

 
25,528

 
(5,838
)
 
19,690

 
1,054,309

 
101.9
%
 
10.5
%
Total
 
$
10,246,129

 
$
309,850

 
$
(35,876
)
 
$
273,974

 
$
9,972,155

 
102.7
%
 
100.0
%
 


 
16
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Credit Quality Distribution and Maturity Profile


The following table summarizes the credit quality distribution and maturity profile of the Company’s fixed maturities and fixed maturities pledged under securities lending agreements:
 
(U.S. Dollars in thousands)
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit quality distribution of total fixed maturities (1) (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and government agencies (3)
 
$
2,738,110

 
26.5
%
 
$
2,523,212

 
24.6
%
 
$
2,837,828

 
27.6
%
 
$
3,043,908

 
30.8
%
 
$
2,850,031

 
29.9
%
AAA
 
3,211,404

 
31.0
%
 
3,413,431

 
33.3
%
 
3,388,660

 
32.9
%
 
3,325,996

 
33.7
%
 
3,420,490

 
35.9
%
AA
 
1,747,704

 
16.9
%
 
1,563,846

 
15.3
%
 
1,770,851

 
17.2
%
 
1,505,032

 
15.2
%
 
1,383,663

 
14.5
%
A
 
1,389,885

 
13.4
%
 
1,501,156

 
14.7
%
 
1,158,492

 
11.3
%
 
1,028,772

 
10.4
%
 
917,925

 
9.6
%
BBB
 
432,799

 
4.2
%
 
538,140

 
5.3
%
 
503,890

 
4.9
%
 
428,200

 
4.3
%
 
398,645

 
4.2
%
BB
 
243,319

 
2.4
%
 
174,527

 
1.7
%
 
157,183

 
1.5
%
 
152,982

 
1.5
%
 
157,427

 
1.7
%
B
 
200,515

 
1.9
%
 
220,772

 
2.2
%
 
203,416

 
2.0
%
 
175,613

 
1.8
%
 
172,360

 
1.8
%
Lower than B
 
221,488

 
2.1
%
 
175,866

 
1.7
%
 
143,518

 
1.4
%
 
116,846

 
1.2
%
 
125,134

 
1.3
%
Not rated
 
159,527

 
1.5
%
 
135,179

 
1.3
%
 
121,541

 
1.2
%
 
95,744

 
1.0
%
 
97,088

 
1.0
%
Total fixed maturities, at fair value
 
$
10,344,751

 
100.0
%
 
$
10,246,129

 
100.0
%
 
$
10,285,379

 
100.0
%
 
$
9,873,093

 
100.0
%
 
$
9,522,763

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maturity profile of total fixed maturities (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
443,515

 
4.3
%
 
$
472,107

 
4.6
%
 
$
509,898

 
5.0
%
 
$
500,152

 
5.1
%
 
$
545,379

 
5.7
%
Due after one year through five years
 
3,922,607

 
37.9
%
 
4,102,503

 
40.0
%
 
3,633,607

 
35.3
%
 
3,594,836

 
36.4
%
 
3,217,368

 
33.8
%
Due after five years through ten years
 
1,937,761

 
18.7
%
 
2,042,211

 
19.9
%
 
2,285,714

 
22.2
%
 
2,258,783

 
22.9
%
 
2,261,635

 
23.7
%
Due after 10 years
 
321,588

 
3.1
%
 
198,408

 
1.9
%
 
322,866

 
3.1
%
 
317,717

 
3.2
%
 
254,873

 
2.7
%
 
 
6,625,471

 
64.0
%
 
6,815,229

 
66.5
%
 
6,752,085

 
65.6
%
 
6,671,488

 
67.6
%
 
6,279,255

 
65.9
%
Mortgage-backed securities
 
1,704,813

 
16.5
%
 
1,532,736

 
15.0
%
 
1,873,874

 
18.2
%
 
1,670,108

 
16.9
%
 
1,494,968

 
15.7
%
Commercial mortgage-backed securities
 
867,856

 
8.4
%
 
824,165

 
8.0
%
 
824,162

 
8.0
%
 
961,326

 
9.7
%
 
1,124,667

 
11.8
%
Asset-backed securities
 
1,146,611

 
11.1
%
 
1,073,999

 
10.5
%
 
835,258

 
8.1
%
 
570,171

 
5.8
%
 
623,873

 
6.6
%
Total fixed maturities, at fair value
 
$
10,344,751

 
100.0
%
 
$
10,246,129

 
100.0
%
 
$
10,285,379

 
100.0
%
 
$
9,873,093

 
100.0
%
 
$
9,522,763

 
100.0
%

(1)    This table excludes the collateral received and reinvested and includes the fixed maturities and short-term investments pledged under in securities lending agreements, at fair value.
(2)     For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.
(3)     Includes U.S. government-sponsored agency mortgage backed securities and agency commercial mortgage backed securities.



 
17
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Analysis of Corporate Exposures


The following table summarized the Company's corporate bonds by sector, excluding guaranteed amounts:

(U.S. Dollars in thousands)
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sector:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrials
 
$
1,489,748

 
54.6
%
 
$
1,543,605

 
53.5
%
 
$
1,375,345

 
50.9
%
 
$
1,237,027

 
50.1
%
 
$
1,171,754

 
46.3
%
Financials
 
846,627

 
31.0
%
 
983,276

 
34.1
%
 
988,052

 
36.6
%
 
890,529

 
36.1
%
 
951,924

 
37.6
%
Covered bonds
 
194,359

 
7.1
%
 
168,404

 
5.8
%
 
154,919

 
5.7
%
 
156,668

 
6.3
%
 
157,524

 
6.2
%
Utilities
 
99,939

 
3.7
%
 
104,441

 
3.6
%
 
98,926

 
3.7
%
 
99,050

 
4.0
%
 
96,544

 
3.8
%
All other (1)
 
98,566

 
3.6
%
 
84,961

 
2.9
%
 
82,350

 
3.1
%
 
83,943

 
3.4
%
 
151,813

 
6.0
%
Total fixed maturities, at fair value
 
$
2,729,239

 
100.0
%
 
$
2,884,687

 
100.0
%
 
$
2,699,592

 
100.0
%
 
$
2,467,217

 
100.0
%
 
$
2,529,559

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit quality distribution (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AAA
 
$
506,102

 
18.5
%
 
$
525,917

 
18.2
%
 
$
615,869

 
22.8
%
 
$
602,606

 
24.4
%
 
$
697,660

 
27.6
%
AA
 
427,532

 
15.7
%
 
438,880

 
15.2
%
 
414,503

 
15.4
%
 
361,201

 
14.6
%
 
357,925

 
14.1
%
A
 
920,005

 
33.7
%
 
1,005,942

 
34.9
%
 
802,275

 
29.7
%
 
750,155

 
30.4
%
 
729,460

 
28.8
%
BBB
 
330,641

 
12.1
%
 
427,386

 
14.8
%
 
414,498

 
15.4
%
 
360,736

 
14.6
%
 
351,605

 
13.9
%
BB
 
209,957

 
7.7
%
 
142,309

 
4.9
%
 
131,004

 
4.9
%
 
124,886

 
5.1
%
 
128,103

 
5.1
%
B
 
174,286

 
6.4
%
 
199,823

 
6.9
%
 
181,306

 
6.7
%
 
156,240

 
6.3
%
 
146,256

 
5.8
%
Lower than B
 
28,266

 
1.0
%
 
29,339

 
1.0
%
 
25,044

 
0.9
%
 
19,581

 
0.8
%
 
21,470

 
0.8
%
Not rated
 
132,450

 
4.9
%
 
115,091

 
4.0
%
 
115,093

 
4.3
%
 
91,812

 
3.7
%
 
97,080

 
3.8
%
Total fixed maturities, at fair value
 
$
2,729,239

 
100.0
%
 
$
2,884,687

 
100.0
%
 
$
2,699,592

 
100.0
%
 
$
2,467,217

 
100.0
%
 
$
2,529,559

 
100.0
%

(1)    Includes sovereign securities, supernational securities and other.
(2)    For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.

The following table summarizes the Company’s top ten exposures to fixed income corporate issuers by fair value at March 31, 2013, excluding guaranteed amounts and covered bonds:
 
(U.S. Dollars in thousands)
 
Fair
Value
 
% of Asset Class
 
% of Investable Assets
 
Credit Quality (1)
 
 
 
 
 
 
 
 
 
Issuer:
 
 
 
 
 
 
 
 
General Electric Co.
 
$
77,998

 
2.9
%
 
0.6
%
 
AA+/A1
SBA Communications Corp.
 
47,215

 
1.7
%
 
0.4
%
 
NR/A2
Crown Castle Int'l Corp.
 
38,114

 
1.4
%
 
0.3
%
 
NR/A2
Anheuser-Busch Inbev NV
 
37,182

 
1.4
%
 
0.3
%
 
A/A3
Caterpillar Inc.
 
31,311

 
1.1
%
 
0.2
%
 
A/A2
Verizon Communications Inc.
 
28,610

 
1.0
%
 
0.2
%
 
A-/A2
American Tower Trust I
 
28,128

 
1.0
%
 
0.2
%
 
NR/Aaa
Total SA
 
28,080

 
1.0
%
 
0.2
%
 
AA-/Aa1
ConocoPhillips
 
26,979

 
1.0
%
 
0.2
%
 
A/A1
AT&T Inc.
 
26,620

 
1.0
%
 
0.2
%
 
A-/A2
Total
 
$
370,237

 
13.6
%
 
2.8
%
 
 
 
(1)    Average credit ratings assigned by S&P and Moody’s, respectively.


 
18
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Mortgage Backed and Commercial Mortgage Backed Securities


The following table provides information on the Company’s mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS) at March 31, 2013, excluding amounts guaranteed by the U.S. government:
 
(U.S. Dollars in thousands)
 
 
 
 
 
Average
 
Estimated Fair Value
 
 
Issuance
 
Amortized
 
Credit
 
 
 
% of Amortized
 
% of Investable
 
 
Year
 
Cost
 
Quality
 
Total
 
Cost
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-agency MBS:
 
2003
 
$
2,017

 
AA-

 
$
2,151

 
106.6
%
 
—
%
 
 
2004
 
9,436

 
BB-

 
9,442

 
100.1
%
 
0.1
%
 
 
2005
 
49,991

 
CCC+

 
53,219

 
106.5
%
 
0.4
%
 
 
2006
 
76,070

 
CCC+

 
79,820

 
104.9
%
 
0.6
%
 
 
2007
 
63,460

 
C

 
68,712

 
108.3
%
 
0.5
%
 
 
2008
 
5,899

 
CC+

 
6,373

 
108.0
%
 
—
%
 
 
2009 (6)
 
11,767

 
AAA

 
12,564

 
106.8
%
 
0.1
%
 
 
2010 (6)
 
22,811

 
AA+

 
23,491

 
103.0
%
 
0.2
%
 
 
2012 (6)
 
75,019

 
AAA

 
75,231

 
100.3
%
 
0.6
%
 
 
2013 (6)
 
71,650

 
AA+

 
71,012

 
99.1
%
 
0.5
%
Total non-agency MBS
 
 
 
$
388,120

 
BB+

 
$
402,015

 
103.6
%
 
3.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-agency CMBS:
 
2004
 
$
923

 
AAA

 
$
871

 
94.4
%
 
—
%
 
 
2005
 
30,052

 
AAA

 
30,028

 
99.9
%
 
0.2
%
 
 
2006
 
19,840

 
AA+

 
19,893

 
100.3
%
 
0.2
%
 
 
2007
 
28,682

 
A

 
30,956

 
107.9
%
 
0.2
%
 
 
2008
 
300

 
AA+

 
311

 
103.7
%
 
—
%
 
 
2009
 
227

 
AAA

 
227

 
100.0
%
 
—
%
 
 
2010
 
115,892

 
AAA

 
124,960

 
107.8
%
 
1.0
%
 
 
2011
 
138,263

 
AAA

 
147,100

 
106.4
%
 
1.1
%
 
 
2012
 
179,595

 
AA+

 
182,104

 
101.4
%
 
1.4
%
 
 
2013
 
47,399

 
AAA

 
47,523

 
100.3
%
 
0.4
%
Total non-agency CMBS
 
 
 
$
561,173

 
AA+

 
$
583,973

 
104.1
%
 
4.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Agency MBS
 
Non-Agency
 
 
 
 
 
 
Additional Statistics
 
Re-REMICs
 
All Other
 
CMBS (1)
 
 
 
 
 
 
Wtd. average loan age (months)
 
83

 
69

 
30

 
 
 
 
 
 
Wtd. average life (months) (2)
 
16

 
50

 
48

 
 
 
 
 
 
Wtd. average loan-to-value % (3)
 
70.1
%
 
68.2
%
 
62.0
%
 
 
 
 
 
 
Total delinquencies (4)
 
20.5
%
 
19.9
%
 
1.5
%
 
 
 
 
 
 
Current credit support % (5)
 
54.0
%
 
9.8
%
 
30.6
%
 
 
 
 
 
 
 
(1)
Loans defeased with government/agency obligations represented were not material to the collateral underlying the Company’s CMBS holdings.
(2)
The weighted average life for MBS is based on the interest rates in effect at March 31, 2013. The weighted average life for CMBS reflects the average life of the collateral underlying the Company’s CMBS holdings.
(3)
The range of loan-to-values on MBS is 27% to 91%, while the range of loan-to-values on CMBS is 7% to 110%.
(4)
Total delinquencies includes 60 days and over.
(5)
Current credit support % represents the % for a collateralized mortgage obligation (“CMO”) or CMBS class/tranche from other subordinate classes in the same CMO or CMBS deal.
(6)
Primarily represents Re-REMICs with an average credit quality of “AAA” from Fitch Ratings.


 
19
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Asset Backed Securities


The following table provides information on the Company’s asset-backed securities (ABS) at March 31, 2013:
 
(U.S. Dollars in thousands)
 
 
 
Average
 
Estimated Fair Value
 
 
Amortized
 
Credit
 
 
 
% of Amortized
 
% of Investable
 
 
Cost
 
Quality
 
Total
 
Cost
 
Assets
 
 
 

 
 
 
 

 
 

 
 

Sector:
 
 
 
 
 
 
 
 
 
 
Credit cards (1)
 
$
244,033

 
AAA
 
$
245,805

 
100.7
%
 
1.9
%
Equipment (2)
 
250,212

 
A
 
251,656

 
100.6
%
 
1.9
%
Loans (3)
 
214,180

 
AA+
 
215,990

 
100.8
%
 
1.6
%
Autos (4)
 
176,827

 
AAA
 
176,372

 
99.7
%
 
1.3
%
Rate reduction bonds (5)
 
76,567

 
AAA
 
79,641

 
104.0
%
 
0.6
%
U.K. securitized (6)
 
32,344

 
AAA
 
32,967

 
101.9
%
 
0.3
%
Commodities (7)
 
23,000

 
AA+
 
23,737

 
103.2
%
 
0.2
%
Home equity (8)
 
17,180

 
B-
 
21,951

 
127.8
%
 
0.2
%
Other
 
97,342

 
AA+
 
98,492

 
101.2
%
 
0.8
%
Total ABS
 
$
1,131,685

 
AA
 
$
1,146,611

 
101.3
%
 
8.7
%
 
The effective duration of the total ABS was 1.8 years at March 31, 2013.
 
(1)      The weighted average credit support % on credit cards is 14%.
(2)      The weighted average credit support % on equipment is 6%.
(3)      The weighted average credit support % on loans is 37%.
(4)      The weighted average credit support % on autos is 30%.
(5)      The weighted average credit support % on rate reduction bonds is 5%.
(6)      The weighted average credit support % on U.K. securitized is 21%.
(7)      The weighted average credit support % on commodities is 6%.
(8)      The weighted average credit support % on home equity is 18%.
 
The Company’s investment portfolio included $67.7 million par in sub-prime securities at March 31, 2013, with an estimated fair value of $42.9 million and an average credit quality of “B2/BBB+.” Such amounts were primarily in the home equity and CMO sectors with the balance in SBA Loan and other ABS sectors. In addition, the portfolio of collateral backing the Company’s securities lending program contains approximately $5.4 million estimated fair value of sub-prime securities with an average credit quality of “Caa3/CCC-.”


 
20
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Bank Loan Investments

 
The Company’s investments in bank loans are included in the following categories at March 31, 2013:
 
(U.S. Dollars in thousands)
 
Fair
Value
 
% of Asset
Class
 
% of Investable
Assets
 
 
 
 
 
 
 
Composition:
 
 

 
 

 
 

Investment funds accounted for using the equity method
 
$
35,825

 
8.2
%
 
0.3
%
Corporate bonds
 
94,868

 
21.7
%
 
0.7
%
Term loan investments (1)
 
306,671

 
70.1
%
 
2.3
%
Total
 
$
437,364

 
100.0
%
 
3.3
%
 
 
 
 
 
 
 
Currency:
 
 

 
 

 
 

U.S.-denominated
 
$
341,801

 
78.2
%
 
2.6
%
Euro-denominated
 
95,563

 
21.8
%
 
0.7
%
Total
 
$
437,364

 
100.0
%
 
3.3
%
 
 
 
 
 
 
 
Sector:
 
 

 
 

 
 

Consumer cyclical
 
$
110,489

 
25.3
%
 
0.8
%
Consumer non-cyclical
 
96,669

 
22.1
%
 
0.7
%
Industrials
 
84,869

 
19.4
%
 
0.6
%
Media
 
51,886

 
11.9
%
 
0.4
%
Basic materials
 
29,957

 
6.8
%
 
0.2
%
Utilities
 
21,909

 
5.0
%
 
0.2
%
All other
 
41,585

 
9.5
%
 
0.3
%
Total
 
$
437,364

 
100.0
%
 
3.3
%
 
 
 
 
 
 
 
Weighted average rating factor (Moody's)
 
B2

 
 

 
 

 
(1)    Included in “investments accounted for using the fair value option” on the Company’s balance sheet.




 
21
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Eurozone Investments

 
The fair value of the Company’s Eurozone investments are as follows at March 31, 2013:
 
(U.S. Dollars in thousands)
 
 
 
Financial
 
Other
 
Covered
 
Bank
 
Equities
 
 
 
 
Sovereign (2)
 
Corporates
 
Corporates
 
Bonds (3)
 
Loans (4)
 
and Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Country (1):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Germany
 
$
128,311

 
$
—

 
$
9,498

 
$
10,079

 
$
8,652

 
$
9,459

 
$
165,999

Finland
 
87,541

 
—

 
244

 
—

 
—

 
—

 
87,785

Netherlands
 
3,464

 
7,907

 
46,889

 
—

 
8,760

 
19,660

 
86,680

France
 
—

 
1,014

 
29,693

 
16,164

 
5,106

 
16,195

 
68,172

Supranational (5)
 
63,105

 
—

 
—

 
—

 
—

 
—

 
63,105

Luxembourg
 
—

 
—

 
10,197

 
—

 
6,947

 
433

 
17,577

Ireland
 
1,622

 
—

 
3,804

 
—

 
—

 
1,480

 
6,906

Belgium
 
—

 
—

 
6,814

 
—

 
—

 
—

 
6,814

Spain
 
—

 
—

 
1,332

 
—

 
3,345

 
—

 
4,677

Austria
 
—

 
3,433

 
—

 
—

 
—

 
—

 
3,433

Italy
 
823

 
—

 
—

 
—

 
863

 
374

 
2,060

Total
 
$
284,866

 
$
12,354

 
$
108,471

 
$
26,243

 
$
33,673

 
$
47,601

 
$
513,208

 
(1)
The country allocations set forth in the table are based on various assumptions made by the Company in assessing the country in which the underlying credit risk resides, including a review of the jurisdiction of organization, business operations and other factors. Based on such analysis, the Company does not believe that it has any Eurozone investments from Cyprus, Estonia, Greece, Malta, Portugal, Slovakia or Slovenia at March 31, 2013.
(2)
Sovereign includes securities issued and/or guaranteed by Eurozone governments.
(3)
Securities issued by Eurozone banks where the security is backed by a separate group of loans.
(4)
Included in “corporate bonds” in the Bank Loan Investments table.
(5)
Includes World Bank, European Investment Bank, International Finance Corp. and European Bank for Reconstruction and Development.



 
22
Arch Capital Group Ltd. and Subsidiaries
Comments on Regulation G


Throughout this financial supplement, the Company presents its operations in the way it believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use the Company’s financial information in evaluating the performance of the Company. This presentation includes the use of after-tax operating income available to common shareholders, which is defined as net income available to common shareholders, excluding net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and loss on repurchase of preferred shares, net of income taxes. The presentation of after-tax operating income available to common shareholders is a “non-GAAP financial measure” as defined in Regulation G. The reconciliation of such measure to net income available to common shareholders (the most directly comparable GAAP financial measure) in accordance with Regulation G is included on the following page.
 
The Company believes that net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and loss on repurchase of preferred shares in any particular period are not indicative of the performance of, or trends in, the Company’s business performance. Although net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of the Company’s operations, the decision to realize investment gains or losses, the recognition of the change in the carrying value of investments accounted for using the fair value option in net realized gains or losses, the recognition of net impairment losses recognized in earnings, the recognition of equity in net income or loss of investment funds accounted for using the equity method and the recognition of foreign exchange gains or losses are independent of the insurance underwriting process and result, in large part, from general economic and financial market conditions. Furthermore, certain users of the Company’s financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. In addition, net impairment losses recognized in earnings 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 market 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. The loss on repurchase of preferred shares related to the redemption of the Company's Series A and B preferred shares in April 2012 and had no impact on shareholders' equity or cash flows. Due to these reasons, the Company excludes net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and loss on repurchase of preferred shares from the calculation of after-tax operating income available to common shareholders.
 
The Company believes that showing net income available to 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 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.



 
23
Arch Capital Group Ltd. and Subsidiaries
Operating Income Reconciliation

 
The following table provides a reconciliation of after-tax operating income (loss) available to common shareholders to net income available to common shareholders along with related per common share results:
 
(U.S. Dollars in thousands, except share data)
 
Three Months Ended
 
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
 
After-tax operating income (loss) available to common shareholders
 
$
158,748

 
$
(24,667
)
 
$
120,247

 
$
141,400

 
$
113,660

 
$
128,891

Net realized gains, net of tax
 
54,923

 
51,031

 
58,904

 
33,275

 
40,873

 
13,464

Net impairment losses recognized in earnings, net of tax
 
(2,246
)
 
(6,035
)
 
(2,379
)
 
(1,951
)
 
(1,023
)
 
(1,959
)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax
 
13,823

 
16,567

 
24,330

 
7,787

 
24,826

 
(14,702
)
Net foreign exchange gains (losses), net of tax
 
25,744

 
(23,164
)
 
(16,930
)
 
32,108

 
(20,541
)
 
13,177

Loss on repurchase of preferred shares, net of tax
 
—

 
—

 
—

 
(10,612
)
 
—

 
—

Net income available to common shareholders
 
$
250,992

 
$
13,732

 
$
184,172

 
$
202,007

 
$
157,795

 
$
138,871

 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted per common share results:
 
 
 
 
 
 
 
 
 
 
 
 
After-tax operating income (loss) available to common shareholders
 
$
1.17

 
$
(0.18
)
 
$
0.87

 
$
1.02

 
$
0.82

 
$
0.94

Net realized gains, net of tax
 
$
0.41

 
$
0.37

 
$
0.42

 
$
0.24

 
$
0.30

 
$
0.10

Net impairment losses recognized in earnings, net of tax
 
$
(0.02
)
 
$
(0.04
)
 
$
(0.02
)
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.01
)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax
 
$
0.10

 
$
0.12

 
$
0.18

 
$
0.06

 
$
0.18

 
$
(0.11
)
Net foreign exchange gains (losses), net of tax
 
$
0.19

 
$
(0.17
)
 
$
(0.12
)
 
$
0.23

 
$
(0.15
)
 
$
0.09

Loss on repurchase of preferred shares, net of tax
 
$
—

 
$
—

 
$
—

 
$
(0.08
)
 
$
—

 
$
—

Net income available to common shareholders
 
$
1.85

 
$
0.10

 
$
1.33

 
$
1.46

 
$
1.14

 
$
1.01

 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares and common share equivalents outstanding — diluted
 
135,409,288

 
138,270,853

 
138,696,934

 
138,211,736

 
137,814,906

 
137,473,670




 
24
Arch Capital Group Ltd. and Subsidiaries
Share Repurchase Activity


The following table provides an analysis of the Company’s share repurchase program:
 
(U.S. Dollars in thousands except share data)
 
Three Months Ended
 
Cumulative
 
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
March 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012
 
2011
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of share repurchases:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Aggregate cost of shares repurchased
 
$
40,964

 
$
172,056

 
$
—

 
$
—

 
$
—

 
$
3

 
$
2,771,053

Shares repurchased
 
930,759

 
3,924,306

 
—

 
—

 
—

 
100

 
109,613,283

Average price per share repurchased
 
$
44.01

 
$
43.84

 
$
—

 
$
—

 
$
—

 
$
31.51

 
$
25.28

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average book value per common share (1)
 
$
36.93

 
$
36.49

 
$
35.62

 
$
33.89

 
$
32.55

 
$
31.34

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average repurchase price-to-book multiple
 
1.19
x
 
1.20
x
 
—

 
—

 
—

 
1.01
x
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Remaining share repurchase authorization (2)
 
$
728,947

 
 

 
 

 
 

 
 

 
 

 
 

 
(1)    Equals average of beginning and ending book value per common share for each period presented.
(2)
Repurchases under the share repurchase authorization may be effected from time to time in open market or privately negotiated transactions through December 2014. 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.



 
25
Arch Capital Group Ltd. and Subsidiaries
Annualized Operating Return on Average Common Equity


The following table provides the calculation of annualized operating return on average common equity:
 
 (U.S. Dollars in thousands)
 
Three Months Ended
 
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
 
After-tax operating income (loss) available to common shareholders
 
$
158,748

 
$
(24,667
)
 
$
120,247

 
$
141,400

 
$
113,660

 
$
128,891

Annualized after-tax operating income (loss) available to common shareholders (a)
 
$
634,992

 
$
(98,668
)
 
$
480,988

 
$
565,600

 
$
454,640

 
$
515,564

 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning common shareholders’ equity
 
$
4,843,878

 
$
5,023,794

 
$
4,695,316

 
$
4,514,456

 
$
4,267,074

 
$
4,110,899

Ending common shareholders’ equity
 
5,010,530

 
4,843,878

 
5,023,794

 
4,695,316

 
4,514,456

 
4,267,074

Average common shareholders’ equity (b)
 
$
4,927,204

 
$
4,933,836

 
$
4,859,555

 
$
4,604,886

 
$
4,390,765

 
$
4,188,987

 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized operating return on average common equity (a)/(b)
 
12.9
%
 
(2.0
)%
 
9.9
%
 
12.3
%
 
10.4
%
 
12.3
%



 
26
Arch Capital Group Ltd. and Subsidiaries
Capital Structure

 
The following table provides an analysis of the Company’s capital structure:
 
(U.S. Dollars in thousands, except share data)
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2013
 
2012
 
2012
 
2012
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt:
 
 

 
 

 
 

 
 

 
 

 
 

Senior notes, due May 1, 2034 (7.35%)
 
$
300,000

 
$
300,000

 
$
300,000

 
$
300,000

 
$
300,000

 
$
300,000

Revolving credit agreement borrowings, due August 18, 2014 (variable)
 
100,000

 
100,000

 
100,000

 
100,000

 
100,000

 
100,000

Total debt
 
$
400,000

 
$
400,000

 
$
400,000

 
$
400,000

 
$
400,000

 
$
400,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders’ Equity
 
 

 
 

 
 

 
 

 
 

 
 

Series A non-cumulative preferred shares (8.0%)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
200,000

 
$
200,000

Series B non-cumulative preferred shares (7.875%)
 
—

 
—

 
—

 
—

 
125,000

 
125,000

Series C non-cumulative preferred shares (6.75%)
 
325,000

 
325,000

 
325,000

 
325,000

 
—

 
—

Preferred shareholders’ equity
 
325,000

 
325,000

 
325,000

 
325,000

 
325,000

 
325,000

Common shareholders’ equity (a)
 
5,010,530

 
4,843,878

 
5,023,794

 
4,695,316

 
4,514,456

 
4,267,074

Total shareholders’ equity
 
$
5,335,530

 
$
5,168,878

 
$
5,348,794

 
$
5,020,316

 
$
4,839,456

 
$
4,592,074

 
 
 
 
 
 
 
 
 
 
 
 
 
Total capital
 
$
5,735,530

 
$
5,568,878

 
$
5,748,794

 
$
5,420,316

 
$
5,239,456

 
$
4,992,074

 
 
 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding, net of treasury shares (b)
 
133,063,225

 
133,842,613

 
136,540,178

 
136,291,652

 
135,441,687

 
134,358,345

 
 
 
 
 
 
 
 
 
 
 
 
 
Book value per common share (1) (a)/(b)
 
$
37.66

 
$
36.19

 
$
36.79

 
$
34.45

 
$
33.33

 
$
31.76

 
 
 
 
 
 
 
 
 
 
 
 
 
Leverage ratios:
 
 

 
 

 
 

 
 

 
 

 
 

Senior notes/total capital
 
5.2
%
 
5.4
%
 
5.2
%
 
5.5
%
 
5.7
%
 
6.0
%
Revolving credit agreement borrowings/total capital
 
1.7
%
 
1.8
%
 
1.7
%
 
1.8
%
 
1.9
%
 
2.0
%
Debt/total capital
 
7.0
%
 
7.2
%
 
7.0
%
 
7.4
%
 
7.6
%
 
8.0
%
Preferred/total capital
 
5.7
%
 
5.8
%
 
5.7
%
 
6.0
%
 
6.2
%
 
6.5
%
Debt and preferred/total capital
 
12.6
%
 
13.0
%
 
12.6
%
 
13.4
%
 
13.8
%
 
14.5
%
 
(1)
Excludes the effects of stock options and restricted stock units outstanding.



 
27