EX-99.(C)(14) 14 nc10018386x1_exc14.htm EXHIBIT (C)(14)

Exhibit (c)(14)


                           STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION  Board MaterialsGoldman Sachs & Co. LLCAugust 3rd, 2020  Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you (and each of your employees, representatives, and other agents) may disclose to any and all persons the US federal income and state tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind.  Project William 
 

 STRICTLY PRIVATE & CONFIDENTIAL  2  WORKING DRAFT FOR DISCUSSION  Disclaimer  These materials have been prepared and are provided by Goldman Sachs on a confidential basis solely for the information and assistance of the board of directors and senior management of Arch Capital Group Ltd. (the "Company") in connection with its consideration of the matters referred to herein. These materials and Goldman Sachs’ presentation relating to these materials (the “Confidential Information”) may not be disclosed to any third party or circulated or referred to publicly or used for or relied upon for any other purpose without the prior written consent of Goldman Sachs. The Confidential Information was not prepared with a view to public disclosure or to conform to any disclosure standards under any state, federal or international securities laws or other laws, rules or regulations, and Goldman Sachs does not take any responsibility for the use of the Confidential Information by persons other than those set forth above. Notwithstanding anything in this Confidential Information to the contrary, the Company may disclose to any person the US federal income and state income tax treatment and tax structure of any transaction described herein and all materials of any kind (including tax opinions and other tax analyses) that are provided to the Company relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind. The Confidential Information has been prepared by the Investment Banking Division of Goldman Sachs and is not a product of its research department.Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Company, any other party to any transaction and any of their respective affiliates or any currency or commodity that may be involved in any transaction. 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 STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION  Arch has Considered Several Factors in its  Assessment of Watford  Watford’s public market price has been influenced by a range of factorsCurrent macroeconomic environment, including COVID-19 impactActivist investment / actionsThere are only three research analysts that publish on the companySince listing, Watford has traded between 0.3x and 0.7x P/B  Hedge fund reinsurance model is out of favor— The few comparable companies are facing pressures, trade at a significant discount to book value, and investors are not giving credit for the total return model  Source: CapIQ and Bloomberg as of 31-July-2020.        1        2        3 Watford’s shareholders would benefit from the transactionPotential premium to current stock priceElimination of existing rating agency risks and investment portfolio volatility exposure  3 
 

 STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION  Snapshot of Watford Business Model and  Structure  Summary Overview of Watford  Key Historical Financials  GPW Mix (2019)    $mm  2017  2018  2019  1Q20  2Q20  Income Statement            GPW  $ 600  $ 735  $ 755  $ 235  $ 158  NPE  532  579  557  140  132  Underwriting Income  $(67)  $(26)  $(54)  $(6)  $(11)  Net Interest Income  87  108  116  28  27  Investment Gains / Losses  1  (114)  24  (291)  172    Summary Statistics  Inception  2014    CEO  Jonathan Levy    AMB Rating  A- / Under Review    P/E ’21E / P/TBV  4.9x / 0.43x  Financial Metrics  TBV (2Q20)  $769mm    GPW (2019)  $755mm    Pre-Tax Income (2019)  $63mm  (Re)ins. Strategy  (Re)insurance Manager  Arch Underwriters Ltd.    (Re)insurance Strategy  High frequency / Low severity,excess / cat  Investment Manager  Investment Manager  Arch Investment Managers HPS Investment Partners  Total GPW: $755mm  Pre-Tax Profit  $ 11  $(35)  $ 63  $(267)  $ 190  Net Income (Common)  $(9)  $(55)  $ 45  $(268)  $ 189  Balance Sheet            Invested Assets  $ 2,496  $ 2,738  $ 2,709  $ 2,513  $ 2,639  Shareholders' Equity  948  890  872  564  776  KPIs            COR  112.6 %  104.5 %  109.7 %  104.4 %  108.0 %  ROE  (0.9)%  (5.7)%  4.8 %  NM  28.2 %                Casualty Re37%  Source: AM Best, SNL Financial, Watford filings; market data as of 31-Jul-2020.  4  Specialty Re 16%  Property CAT Re  2%  Insurance Programs & Coinsurance 45% 
 

 STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION  Financial Performance Over Time($ in millions, except per share data)  Source: Watford filings  Net Investment Income    (Fav) / Adv  2015  2016  2017  2018  2019  Q1 2020  Q2 2020  PYD (0.2)%  0.7 %  6.9 %  (0.4)%  4.3 %  (0.1)%  (0.2)%    Loss Ratio    Expense Ratio  Combined Ratio    Book Value Per Share    Net Income to Common        P&L Unrealized Gains (Losses)  N/A  $ 105  $ 0 $(109)  $ 32 $(285)  $178        $ 42.21 $ 41.79 $ 39.22 $ 43.49$ 36.61  $ 28.21  $ 38.82  2015 2016 2017 2018 2019 Q1 2020 Q2 2020        $(34)  $ 127  $(9)  $(55)  $ 45  $(268)2019 Q1 2020 Q2 2020  $ 189  2015  2016  2017  2018                                                            69.8 %  68.7 %  82.1 %  76.2 %  81.4 %  79.0 %  79.7 %  32.3 %  33.1 %  30.4 %  28.2 %  28.3 %  25.4 %  28.3 %  102.1 %  101.8 %  112.5 %  104.5 %  109.7 %  104.4 %  108.0 %            $(8)  $ 73  $(6)  $ 128  $(263)  10.3$ 146  %  4.1 %  (0.3)%  6.0 %  (0.7)%(0.8)%  14.2 %  5.8 %  (0.2)%  6.8 %  13.1 %10.0 %$ 199  (13.0)%(17.4)%2019 Q1 2020 Q2 2020      Net Investment Yield¹ - Total    2015 2016 2017 2018Net Investment IncomeNet Investment Yield¹ - Non-IG  1 Net investment yield defined as Net investment income return on average net assets.  5 
 

 STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION                                Healthcare 16%  Financials19%Consumer Services 17%  Technology  16%  Industrials 10%  O&G 5%ConsumerGoods 8%  Other9%  Overview of Non-Investment Grade Portfolio  As of Q2 2020  Product Breakdown  Ratings Breakdown  Historical Investment Returns (As Reported)  Term Loan & Bonds by Industry  Equities by Industry  Source: Watford filings1 Excludes equities and non-rated investments. 2 Excludes equities non-sector specific. 3 Net assets defined as total investments, accrued investment income and receivables for securities sold, less revolving            Total: $1.8bn  Total: $1.6bn1  Total: $1.3bn  Total: $0.1bn2                        Term Loan Investments 47%  Corporate Bonds 20%  STInvestments15%  Equities 7%ABS9%  Other2%                        A+ 17%  BBB 8%  BB 6%  B 43%  CCC 22%  CC & Below 4%                        Healthcare 24%  credit agreement borrowings, payable for securities purchased and payable for securities sold short.  6  Financials 66%  Industrials OtherTechnology 1% 1%8%                                                                                                                                Net Interest Income Yield (Net Assets)3  Non-Investment Grade Portfolio  Investment Grade Portfolio  Net Investment Income Return (Net Assets)3  Non-Investment Grade Portfolio  Investment Grade Portfolio  Net Investment Income Return (Total Assets)  2015 2016 2017 2018 2019 Avg.6.3 % 6.3 % 4.9 % 5.4 % 5.4 % 5.7 %7.2 % 8.5 % 6.3 % 7.0 % 6.8 % 7.2 %NA 0.4 1.1 1.9 2.5 1.5(0.7)% 10.3 % 4.1 % (0.3)% 6.0 % 3.9 %(0.8)% 14.2 % 5.8 % (0.2)% 6.8 % 5.2 %NA (0.4) (0.1) 0.9 3.9 1.1(0.6)% 8.0 % 3.2 % (0.2)% 4.6 % 3.0 %  Q1 2020 Q2 20201.4 % 1.4 %1.7 % 1.8 %0.5 0.4(13.0)% 10.0 %(17.4)% 13.1 %0.8 1.6(10.1)% 7.7 %  Non-Investment Grade Portfolio  (0.7)%  10.2 %  4.5 %  (0.1)%  5.7 %  3.9 %  (14.9)%  10.6 %  Investment Grade Portfolio  NA  (0.4)  (0.1)  0.9  3.9  1.1  0.8  1.6 
 

 STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION  Overview  Credit Rating Agency Perspectives (A. M. Best)  Under Review | Implication: Negative      “Operating performance has beenrelatively volatile, mainly due to  unrealized capital gains (losses) on the investment portfolio. Watford implements  an alternative asset strategy and, as such, its investment performance is inherently more volatile than most peers. However, the company’s focus on fixed-income assets has consistently generated steady interest income, which has partially mitigated volatility.”May 1, 2020    Ratings action taken following Watford Re’s announcement that Q1 2020 earnings will be impacted by material investment losses  Due to investment market volatility following the economic shutdown related to COVID-19Primarily composed of unrealized mark-to-market lossesin non-investment-grade fixed-income portfolioAs a result, Watford Re suffered a material decline in risk-adjusted capitalization (BCAR) from Q4 2019 to Q1 2020  Positive  Negative  Under review with negative implications status expected to be resolved when risk-adjusted capitalization is restored  A significant deterioration in the group's performanceNegative rating actions could also arise if risk-adjusted capitalization were to deteriorate materially due to a decline in the value of the investment portfolio  Select AM Best Commentary         “AM Best will evaluate on an ongoingbasis Watford’s risk-adjusted capitalization and invested asset valuations when information is available.  Drivers   Further rating actions could be taken if AM Best believes Watford’s financial strength continues to decay or does not stabilize in a reasonable amount of time. Further rating action may also be taken if AM Best  Watford’s balance sheetoperating performance,  believes strength, business  profile, or enterprise risk  management is no longer able to support its current rating levels.”May 1, 2020    Source: AM Best announcement (01-May-2020)  7 
 

 STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Historical Stock Price PerformanceSince First Day of Trading  Capital Returns Management sent letter to Board (15-May-2020)  0  500  $ 16.411,000  1,500  2,000  2,500  3,000  $10  $20  $30  Mar-2019  Jun-2019  Aug-2019  Nov-2019Volume  Feb-2020Watford  Apr-2020  Jul-2020  Volume (000)  Closing Price (USD)        Listing Price:$ 27.00  Source: Bloomberg. Market data as of 31-Jul-2020.  8 
 

 STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION  Relative Stock Price PerformanceSince First Day of Trading  Source: Bloomberg and Capital IQ as of 31-July-2020 ¹ Hedge Fund Reinsurers: include TPRE and GLRE.2 Assumes closing prices of 14-May-2020, one day prior to date of activist letter.  52-Week High / Low:High:$28.43Low:$11.54      40%  60%  80%  100%  120%  140%  160%  180%  Mar-2019  Jun-2019  Sep-2019  Nov-2019  Feb-2020  May-2020  Jul-2020  Indexed Price    Watford    Hedge Fund Reinsurers¹    S&P 500 Index  16.6 %  (33.1)%(35.8)%  Performance (%)  Since Activist Letter2  Since Market Sell Off ³  3M  6M  1Y  Since WTRE Listing  WatfordHedge Fund Reinsurers¹ S&P 500 Index  40.3 % 7.6 14.7  (31.7)%(30.5)(2.0)  32.9 % 2.2 12.3  (24.9)%(29.4)1.4  (13.4)%(22.7)9.8  (35.8)%(33.1)16.6    3 Represents 21-Feb-2020.  9 
 

 STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION  Relative Valuation Over Time (1/2)P/BV and P/TBV | Since First Day of Trading  P/BV (in. AOCI)  P/TBV (in. AOCI)        Watford    Hedge Fund Reinsurers¹        0.0x  0.2x  0.4x  0.6x  0.8x  1.0x  1.2x  Mar-2019  Jul-2019  Nov-2019  Mar-2020  Jul-2020  P/B Multiple (incl. AOCI)  0.58 x  0.42 x   Average 3M 6M 1Y Since Listing   Watford 0.53 x 0.50 x 0.55 xHedge Fund Reinsurers 0.57 0.58 0.64  0.57 x 0.66                0.0x  0.2x  0.4x  0.6x  0.8x  1.0x  1.2x  Mar-2019  Jul-2019  Nov-2019  Mar-2020  Jul-2020  P/TBV Multiple (incl.AOCI)  0.58 x  0.43 x   Average 3M 6M 1Y Since Listing   WatfordHedge Fund Reinsurers  0.54 x 0.51 x 0.56 x0.57 x 0.58 x 0.64 x  0.58 x0.66 x          Source: CapIQ, Bloomberg and IBES as of 31-July-2020 ¹ Hedge Fund Reinsurers: include TPRE and GLRE.  10 
 

 STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION  Relative Valuation Over Time (2/2)P/E FY2 | Since First Day of Trading          0x  2x  4x  6x  8x  10x Average 3M 6M 1Y Since Listing   Mar-2019  Jun-2019  Sep-2019  May-2020  Jul-2020  FY2 P/E Multiple    Watford    Nov-2019 Feb-2020Hedge Fund Reinsurers¹  Source: CapIQ, Bloomberg and IBES as of 31-July-2020 ¹ Hedge Fund Reinsurers: include TPRE and GLRE.  11  5.4 x4.9 x  WatfordHedge Fund Reinsurers¹  4.2 x 4.3 x 5.7 x4.6 4.4 4.9  5.9 x 4.9 
 

 STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION  Current Reinsurance Trading Multiples($ in millions, except per share data)  Source: Cap IQ, company filings, IBES estimates. Note: Market data as of 31-Jul-2020.  Watford Re  $ 16.41  $ 328  57.7 %  4.9 x  0.42 x  0.43 x  (30.5)%  9.5 %  A-  Under Review (Negative)  0.0 %  Hedge Fund Reinsurers                        Third Point Re $ 7.79 $ 739      68.3 %  NA  0.60 x  0.60 x  NA  NA  A-  Negative  0.0 %  Greenlight Re 6.46 249      58.9  5.4  0.57  0.57  NA  NA  A-  Negative  0.0  Median - Hedge Fund Reinsurers      63.6 %  5.4 x  0.58 x  0.58 x  NA  NA      0.0 %  Other For Reference: Traditional Reinsurers                        Arch  $ 30.75  $ 12,783  63.8 %  12.3 x  1.14 x  1.21 x  5.6 %  11.4 %  A+  Stable  0.0 %  RenaissanceRe  180.38  9,361  89.2  11.7  1.37  1.43  5.8  11.4  A+  Stable  0.8  Everest Re  218.79  8,887  75.0  9.1  1.04  1.04  6.7  10.5  A+  Stable  2.8  Alleghany  522.32  7,501  63.6  14.7  0.95  1.13  NA  NA  A+  Stable  0.0  Axis  40.12  3,457  59.7  8.5  0.81  0.87  1.4  11.7  A+  Negative  4.1  Sirius  7.18  850  62.4  8.0  0.58  0.95  NA  NA  A-  Negative  0.0      Closing  Equity  Calendarized          LTM    Price  Market  % of 52 P/E   P/B P / TBV  ROE    Credit Ratings1  Dividend  Company  31-Jul-20  Cap  Wk. High 2021E  (in. AOCI) (in. AOCI)  2020E  2021E  FSR Outlook  Yield  Median - Other For Reference: Traditional Reinsurers 63.7 % 10.4 x 1.00 x 1.08 x 5.7 % 11.4 % 0.4 %          1 AM Best for Watford Re and hedge fund reinsurers. S&P for traditional reinsurers.  12 
 

 STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION  Historical Level of M&A Control Premiums  U.S. | All Industries M&A Transactions $0.3-1.0bn 1-Day Average Historical Control Premia¹  All Cash  Source: Refinitiv Eikon SDC as of Jul-2020 Note: Includes completed transactions.    All Considerations          37 %  44 %  32 %  31 %  39 %  47 %  43 %  24 %  33 %  21 %  24 %  2010  2011  2012  2013  2014  2015  2016  2017  2018  2019  2020YTD  Since 2010 Median: 33 % L2Y Median: 22 %        30 %  ¹ Average premia drawn from Thomson Reuters sample of transactions $0.3bn - $1.0bn across all industries. Excludes premia >500%.  13  42 %  34 %  28 %  35 %  34 %  34 %  23 %  18 %  21 %  29 %  2010  2011  2012  2013  2014  2015  2016  2017  2018  2019  2020YTD  Since 2010 Median: 30 %  L2Y Median: 25 % 
 

 STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION  Historical Share Trading PricesWatford Re  Shares Traded at Various Prices  Source: Bloomberg and Cap IQ. Market data as of 31-Jul-20.    WTRE Historical Prices6M YTD        Since Listing  YTD  ($)  3M  1Y  Since Listing  Average $ 15.22  $ 16.76  $ 17.86  $ 21.14  $ 22.38  High 18.45  24.42  25.94  28.43  28.43  Low 11.54  11.54  11.54  11.54  11.54  ADTV ('000s)            Value  $ 827.11  $ 1,324.42  $ 1,465.82  $ 2,793.09  $ 2,908.21  # of Shares  56.1  77.0  79.5  121.8  122.2      800  1,600  2,400  3,200  4,000  11.54to 14.41  14.42  17.3  20.18  23.06to 25.94  Volume (000)  Weighted Average Price: $18.43      5,000  14  10,000  15,000  20,000  25,000  30,000  11.54to 14.91  14.92  18.3  21.67  25.05to 28.43  Volume (000)  Weighted Average Price: $23.79 
 

 STRICTLY PRIVATE & CONFIDENTIAL  WORKING DRAFT FOR DISCUSSION  Equity Research Analyst Perspectives  Research Analyst Histogram  Research Analyst Target Prices  Source: IBES Estimates, CapIQ, and DataStream as of 31-July-2020Note: Brokers with 12 month target prices have been included          “Roughly 68% of WTRE’s $2.5 billion asset portfolio is allocated to non-investment grade assets. Although the portfolio’s high current income component can partially offset some of the credit losses likely to emerge in the current stressed economic environment, we are cautious on WTRE’s credit exposure as most of the portfolio was built up in recent years when terms/conditions offered in the market have generally loosened, especially for term loans”JP Morgan, May 5, 2020      “…Watford’s long-term relationship with Arch Capital provides it access to a broad spectrum of quality business, while its partnership with HPS provides a non-investment grade, credit-focused strategy that has produced above-average investment returns with below-average volatility over the long run. We believe Watford should show strong earnings growth over the next 18-24 months”JMP Securities, May 5, 2020      “Although WTRE is less exposed to direct COVID-19 claims than other re/insurers, we think that some amount of COVID-related casualty losses are likely to emerge over time”JP Morgan, May 5, 2020  Analyst Commentary    Broker  Recommendation  Date  Target Price($)  Upside /Downside (%)  JMP Securities  Buy  5-May-20  $ 25.00  52.3 %  JPM  Hold  6-Jul-20  20.00  21.9  Anonymous  Hold  15-Jul-20  15.00  (8.6)  Median      $ 20.00  21.9 %                                                  50%  50%  40%  50%  33%  33%  33%  50%  50%  60%  50%  67%  67%  67%  0.00  5.00  10.00  25.00  30.00  0%  20%  40%  60%  80%  100%  Sep-19  Jan-20    Jul-19Buy    Nov-19Hold      Mar-20 May-20 CurrentSell Price (USD)  20.00$ 16.4115.00    4          4 5 4 3    3    3  15 
 

 STRICTLY PRIVATE & CONFIDENTIAL  16  WORKING DRAFT FOR DISCUSSION  Key Issues to Consider  Q2 results, and investor reaction to underwriting and investment performanceDue diligence of investment portfolioPotential timetableDetermination of potential offer price