10-Q 1 acgl10q93015.htm 10-Q 9.30.15 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the period ended September 30, 2015
 
Or
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number:  001-26456

 
ARCH CAPITAL GROUP LTD.
(Exact name of registrant as specified in its charter)
 
Bermuda
(State or other jurisdiction of incorporation or organization)
 
Not Applicable
(I.R.S. Employer Identification No.)
 
Waterloo House, Ground Floor
100 Pitts Bay Road, Pembroke HM 08
(Address of principal executive offices)
 
(441) 278-9250
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated Filer þ Accelerated Filer o Non-accelerated Filer o Smaller reporting company o
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ
 
As of October 30, 2015, there were 122,450,741 common shares, $0.0033 par value per share, of the registrant outstanding.



ARCH CAPITAL GROUP LTD.
 
INDEX
 
 
 
Page No.
PART I. Financial Information
 
 
 
 
 
Item 1 — Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
September 30, 2015 (unaudited) and December 31, 2014
 
 
 
 
 
 
For the three and nine month periods ended September 30, 2015 and 2014 (unaudited)
 
 
 
 
 
 
For the three and nine month periods ended September 30, 2015 and 2014 (unaudited)
 
 
 
 
 
 
For the nine month periods ended September 30, 2015 and 2014 (unaudited)
 
 
 
 
 
 
For the nine month periods ended September 30, 2015 and 2014 (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1


Report of Independent Registered Public Accounting Firm
 
To the Board of Directors and Shareholders of
Arch Capital Group Ltd.:
 
We have reviewed the accompanying consolidated balance sheet of Arch Capital Group Ltd. and its subsidiaries (the “Company”) as of September 30, 2015, and the related consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2015 and September 30, 2014, and the consolidated statements of changes in shareholders’ equity and cash flows for the nine-month periods ended September 30, 2015 and September 30, 2014. These interim financial statements are the responsibility of the Company’s management.
 
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.
 
Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
 
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein), and in our report dated February 27, 2015, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2014, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
 
/s/ PricewaterhouseCoopers LLP
 
New York, New York
November 9, 2015

2


ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share data)
 
(Unaudited)
 
 
 
September 30,
2015
 
December 31,
2014
Assets
 

 
 

Investments:
 

 
 

Fixed maturities available for sale, at fair value (amortized cost: $10,550,931 and $10,701,557)
$
10,560,635

 
$
10,750,770

Short-term investments available for sale, at fair value (amortized cost: $711,390 and $801,758)
708,428

 
797,226

Collateral received under securities lending, at fair value (amortized cost: $282,783 and $40,473)
286,659

 
44,301

Equity securities available for sale, at fair value (cost: $575,292 and $562,534)
606,259

 
658,182

Other investments available for sale, at fair value (cost: $245,356 and $264,747)
281,014

 
296,224

Investments accounted for using the fair value option
2,783,165

 
2,425,053

Investments accounted for using the equity method
589,277

 
349,014

Total investments
15,815,437

 
15,320,770

 
 
 
 
Cash
649,779

 
485,702

Accrued investment income
76,142

 
74,316

Securities pledged under securities lending, at fair value (amortized cost: $285,979 and $52,076)
285,632

 
50,802

Premiums receivable
1,074,884

 
948,695

Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses
1,832,386

 
1,812,845

Contractholder receivables
1,436,154

 
1,309,192

Prepaid reinsurance premiums
442,346

 
377,078

Deferred acquisition costs, net
448,893

 
414,525

Receivable for securities sold
705,821

 
78,170

Goodwill and intangible assets
103,620

 
109,539

Other assets
899,498

 
1,024,447

Total assets
$
23,770,592

 
$
22,006,081

 
 
 
 
Liabilities
 
 
 
Reserve for losses and loss adjustment expenses
$
9,084,855

 
$
9,036,448

Unearned premiums
2,467,691

 
2,231,578

Reinsurance balances payable
235,562

 
219,312

Contractholder payables
1,436,154

 
1,309,192

Collateral held for insured obligations
242,928

 
184,219

Deposit accounting liabilities
270,876

 
327,384

Senior notes
791,264

 
791,141

Revolving credit agreement borrowings
339,077

 
100,000

Securities lending payable
292,838

 
50,529

Payable for securities purchased
817,371

 
128,413

Other liabilities
649,910

 
509,219

Total liabilities
16,628,526

 
14,887,435

 
 
 
 
Commitments and Contingencies


 


Redeemable noncontrolling interests
205,089

 
219,512

 
 
 
 
Shareholders' Equity
 
 
 
Non-cumulative preferred shares
325,000

 
325,000

Common shares ($0.0033 par, shares issued: 172,903,518 and 171,672,408)
576

 
572

Additional paid-in capital
450,948

 
383,073

Retained earnings
7,317,277

 
6,854,571

Accumulated other comprehensive income, net of deferred income tax
9,809

 
128,856

Common shares held in treasury, at cost (shares: 50,464,964 and 44,304,474)
(1,940,795
)
 
(1,562,019
)
Total shareholders' equity available to Arch
6,162,815

 
6,130,053

Non-redeemable noncontrolling interests
774,162

 
769,081

Total shareholders' equity
6,936,977

 
6,899,134

Total liabilities, noncontrolling interests and shareholders' equity
$
23,770,592

 
$
22,006,081



See Notes to Consolidated Financial Statements

3


ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(U.S. dollars in thousands, except share data)
 
(Unaudited)
 
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues
 

 
 

 
 

 
 

Net premiums written
$
971,972

 
$
959,539

 
$
2,982,547

 
$
2,996,457

Change in unearned premiums
(35,289
)
 
(55,888
)
 
(192,162
)
 
(325,874
)
Net premiums earned
936,683

 
903,651

 
2,790,385

 
2,670,583

Net investment income
86,233

 
80,105

 
252,190

 
220,089

Net realized gains (losses)
(89,698
)
 
18,515

 
(42,075
)
 
92,356

Other-than-temporary impairment losses
(8,901
)
 
(8,593
)
 
(17,274
)
 
(26,313
)
Less investment impairments recognized in other comprehensive income, before taxes
3,033

 

 
4,494

 

Net impairment losses recognized in earnings
(5,868
)
 
(8,593
)
 
(12,780
)
 
(26,313
)
 
 
 
 
 
 
 
 
Other underwriting income
7,623

 
1,702

 
26,876

 
5,317

Equity in net income (loss) of investment funds accounted for using the equity method
(2,118
)
 
4,966

 
19,938

 
17,459

Other income (loss)
(265
)
 
(7,815
)
 
52

 
(5,069
)
Total revenues
932,590

 
992,531

 
3,034,586

 
2,974,422

 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Losses and loss adjustment expenses
531,741

 
501,673

 
1,544,883

 
1,423,431

Acquisition expenses
171,566

 
163,547

 
510,067

 
482,047

Other operating expenses
156,959

 
149,480

 
483,449

 
451,629

Interest expense
13,300

 
4,152

 
30,047

 
32,890

Net foreign exchange gains
(14,680
)
 
(56,031
)
 
(61,598
)
 
(47,174
)
Total expenses
858,886

 
762,821

 
2,506,848

 
2,342,823

 
 
 
 
 
 
 
 
Income before income taxes
73,704

 
229,710

 
527,738

 
631,599

Income tax expense
(9,704
)
 
(6,446
)
 
(29,162
)
 
(17,473
)
Net income
$
64,000

 
$
223,264

 
$
498,576

 
$
614,126

Amounts attributable to noncontrolling interests
16,033

 
5,411

 
(19,417
)
 
5,065

Net income available to Arch
80,033

 
228,675

 
479,159

 
619,191

Preferred dividends
(5,484
)
 
(5,484
)
 
(16,453
)
 
(16,453
)
Net income available to Arch common shareholders
$
74,549

 
$
223,191

 
$
462,706

 
$
602,738

 
 
 
 
 
 
 
 
Net income per common share
 

 
 

 
 

 
 

Basic
$
0.62

 
$
1.69

 
$
3.79

 
$
4.56

Diluted
$
0.60

 
$
1.64

 
$
3.66

 
$
4.42

 
 
 
 
 
 
 
 
Weighted average common shares and common share equivalents outstanding
 
 
 
 
 

 
 

Basic
120,567,410

 
131,945,962

 
122,151,971

 
132,151,824

Diluted
125,011,773

 
135,876,605

 
126,354,759

 
136,354,172





See Notes to Consolidated Financial Statements

4


ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(U.S. dollars in thousands)
 
(Unaudited)
 
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Comprehensive Income
 
 
 
 
 

 
 

Net income
$
64,000

 
$
223,264

 
$
498,576

 
$
614,126

Other comprehensive income (loss), net of deferred income tax
 
 
 
 
 
 
 
Unrealized appreciation (decline) in value of available-for-sale investments:
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during period
(53,891
)
 
(90,619
)
 
(51,522
)
 
89,162

Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax
(3,033
)
 

 
(4,494
)
 

Reclassification of net realized (gains) losses, net of income taxes, included in net income
12,278

 
(17,483
)
 
(39,868
)
 
(47,017
)
Foreign currency translation adjustments
(12,082
)
 
(23,595
)
 
(23,259
)
 
(14,923
)
Comprehensive income
7,272

 
91,567

 
379,433

 
641,348

Amounts attributable to noncontrolling interests
16,129

 
5,411

 
(19,321
)
 
5,065

Comprehensive income available to Arch
$
23,401

 
$
96,978

 
$
360,112

 
$
646,413





See Notes to Consolidated Financial Statements

5


ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(U.S. dollars in thousands)
 
(Unaudited)
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Non-cumulative preferred shares
 

 
 

Balance at beginning and end of period
$
325,000

 
$
325,000

 
 
 
 
Common shares
 
 
 
Balance at beginning of year
572

 
565

Common shares issued, net
4

 
6

Balance at end of period
576

 
571

 
 
 
 
Additional paid-in capital
 

 
 

Balance at beginning of year
383,073

 
299,517

Common shares issued, net
7,440

 
6,401

Exercise of stock options
12,363

 
14,891

Amortization of share-based compensation
46,575

 
45,118

Other
1,497

 
481

Balance at end of period
450,948

 
366,408

 
 
 
 
Retained earnings
 

 
 

Balance at beginning of year
6,854,571

 
6,042,154

Net income
498,576

 
614,126

Amounts attributable to noncontrolling interests
(19,417
)
 
5,065

Preferred share dividends
(16,453
)
 
(16,453
)
Balance at end of period
7,317,277

 
6,644,892

 
 
 
 
Accumulated other comprehensive income
 
 
 
Balance at beginning of year
128,856

 
74,964

Unrealized appreciation in value of available-for-sale investments, net of deferred income tax:
 
 
 
Balance at beginning of year
161,598

 
80,692

Unrealized holding (losses) gains arising during period, net of reclassification adjustment
(91,390
)
 
42,145

Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax
(4,494
)
 

Balance at end of period
65,714

 
122,837

Foreign currency translation adjustments:
 
 
 
Balance at beginning of year
(32,742
)
 
(5,728
)
Foreign currency translation adjustments
(23,163
)
 
(14,923
)
Balance at end of period
(55,905
)
 
(20,651
)
Balance at end of period
9,809

 
102,186

 
 
 
 
Common shares held in treasury, at cost
 
 
 
Balance at beginning of year
(1,562,019
)
 
(1,094,704
)
Shares repurchased for treasury
(378,776
)
 
(263,307
)
Balance at end of period
(1,940,795
)
 
(1,358,011
)
 
 
 
 
Total shareholders’ equity available to Arch
6,162,815

 
6,081,046

Non-redeemable noncontrolling interests
774,162

 
782,020

Total shareholders’ equity
$
6,936,977

 
$
6,863,066




 

See Notes to Consolidated Financial Statements

6


ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
 
(Unaudited)
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Operating Activities
 

 
 

Net income
$
498,576

 
$
614,126

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Net realized losses (gains)
21,980

 
(113,033
)
Net impairment losses recognized in earnings
12,780

 
26,313

Equity in net income or loss of investment funds accounted for using the equity method and other income or loss
3,983

 
3,784

Share-based compensation
46,575

 
45,118

Changes in:
 
 
 
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable
139,577

 
94,255

Unearned premiums, net of prepaid reinsurance premiums
192,162

 
325,874

Premiums receivable
(108,741
)
 
(279,766
)
Deferred acquisition costs, net
(41,722
)
 
(72,120
)
Reinsurance balances payable
4,242

 
49,621

Other liabilities
6,638

 
117,889

Other items
31,529

 
(12,402
)
Net Cash Provided By Operating Activities
807,579

 
799,659

Investing Activities
 

 
 

Purchases of fixed maturity investments
(22,382,104
)
 
(22,030,862
)
Purchases of equity securities
(485,526
)
 
(366,578
)
Purchases of other investments
(1,320,250
)
 
(1,136,285
)
Proceeds from sales of fixed maturity investments
21,411,554

 
20,273,351

Proceeds from sales of equity securities
509,008

 
305,034

Proceeds from sales, redemptions and maturities of other investments
858,368

 
566,518

Proceeds from redemptions and maturities of fixed maturity investments
630,397

 
636,729

Net settlements of derivative instruments
81,114

 
15,495

Proceeds from investment in joint venture
40,000

 

Net sales of short-term investments
181,741

 
678,388

Change in cash collateral related to securities lending
28,685

 
(2,737
)
Purchase of business, net of cash acquired
818

 
(235,578
)
Purchases of fixed assets
(10,901
)
 
(14,575
)
Change in other assets
(43,654
)
 

Net Cash Used For Investing Activities
(500,750
)
 
(1,311,100
)
Financing Activities
 

 
 

Purchases of common shares under share repurchase program
(365,383
)
 
(251,919
)
Proceeds from common shares issued, net
697

 
3,248

Proceeds from borrowings
239,077

 

Change in cash collateral related to securities lending
(28,685
)
 
2,737

Third party investment in non-redeemable noncontrolling interests

 
796,903

Third party investment in redeemable noncontrolling interests

 
219,233

Dividends paid to redeemable noncontrolling interests
(13,810
)
 
(9,632
)
Other
50,463

 
6,559

Preferred dividends paid
(16,453
)
 
(16,453
)
Net Cash Provided By (Used For) Financing Activities
(134,094
)
 
750,676

 
 
 
 
Effects of exchange rate changes on foreign currency cash
(8,658
)
 
(9,566
)
Increase in cash
164,077

 
229,669

Cash beginning of year
485,702

 
434,057

Cash end of period
$
649,779

 
$
663,726

 
 
 
 
Income taxes paid
$
35,460

 
$
13,335

Interest paid
$
25,195

 
$
22,111


See Notes to Consolidated Financial Statements

7

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1.    General

Arch Capital Group Ltd. (“ACGL”) is a Bermuda public limited liability company which provides insurance and reinsurance on a worldwide basis through its subsidiaries (together with ACGL, the “Company”). The Company’s consolidated financial statements include the results of Watford Holdings Ltd., the parent of Watford Re Ltd. (see Note 3).

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

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted; however, management believes that the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (“2014 Form 10-K”), including the Company’s audited consolidated financial statements and related notes.

The Company has reclassified the presentation of certain prior year information to conform to the current presentation. Such reclassifications had no effect on the Company’s net income, comprehensive income, shareholders’ equity or cash flows. Tabular amounts are in U.S. Dollars in thousands, except share amounts, unless otherwise noted.

Acquisition of Gulf Reinsurance Limited

In May 2008, the Company provided $100.0 million of funding to Gulf Reinsurance Limited, a wholly owned subsidiary of Gulf Re Holdings Limited (collectively, “Gulf Re”), pursuant to the joint venture agreement with Gulf Investment Corporation GSC (“GIC”). Under the agreement, Arch Re Bermuda and GIC each owned 50% of Gulf Re. The Company entered into a number of strategic initiatives related to Gulf Re in the 2014 fourth quarter, including an agreement to acquire complete ownership and effective control of Gulf Re. Such agreement was approved by the Dubai Financial Services Authority in April 2015 and the transaction closed on May 14, 2015. Pursuant to the agreement, Gulf Re distributed $130.6 million in total to the Company and GIC, and Gulf Re maintained $50.7 million of equity capital. The Company purchased GIC’s remaining investment in Gulf Re for $25.6 million through a transfer of fixed maturity investments. GIC will continue to participate equally with the Company in the financial results of Gulf Re and have the ability to purchase shares in Gulf Re over the next seven years. The acquisition resulted in no goodwill or other intangible assets as the fair value of Gulf Re was equal to its book value at closing.

2.    Recent Accounting Pronouncements

Recently Issued Accounting Standards Adopted

The Company adopted accounting guidance in the 2015 second quarter which changes the accounting for repurchase and resale-to-maturity agreements by requiring that such agreements be recognized as financing arrangements, and requires that a transfer of a financial asset and a repurchase agreement entered into contemporaneously be accounted for separately. The new accounting guidance also requires additional disclosures about certain transferred financial assets accounted for as sales and certain securities lending transactions. Disclosures are not required to be presented for comparative periods before the effective date. See Note 6, “Investment Information—Securities Lending Agreements.”

The Company adopted accounting guidance in the 2015 second quarter which relates to the presentation of debt issuance costs. Such guidance requires presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. The Company previously included its debt issuance costs within ‘other assets.’ The guidance was applied retrospectively and resulted in reductions in ‘other assets’ and ‘senior notes’ at June 30, 2015

8

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

of $8.8 million, respectively, and $8.9 million at December 31, 2014, respectively. The adoption of this change in accounting principle did not impact the Company’s shareholders’ equity or net income.

The Company adopted accounting guidance pertaining to the categorization within the fair value hierarchy of certain investments measured at fair value using the net asset value per share as a practical expedient. These investments are no longer required to be categorized within the fair value hierarchy but are still required to be reported in the fair value hierarchy table to permit reconciliation back to the consolidated balance sheet. Additionally, certain disclosures are no longer applicable for investments that are eligible to be measured using the practical expedient, but for which the practical expedient was not elected. The guidance was applied retrospectively and only impacted the Company’s disclosures. See Note 7, “Fair Value.”

Recently Issued Accounting Standards Not Yet Adopted

An accounting standard was issued in the 2014 second quarter which will change the manner in which most companies recognize revenue. The standard requires that revenue reflect the transfer of goods or services to customers based on the consideration or payment the company expects to be entitled to in exchange for those goods or services; however, the standard does not change the accounting for insurance contracts or financial instruments. The new standard also requires enhanced disclosures about revenue. This accounting guidance is effective in the 2018 first quarter and may be applied on a full retrospective or modified retrospective approach. The Company is assessing the impact the implementation of this standard will have on its consolidated financial statements.

An accounting standard was issued in the 2015 first quarter providing targeted improvements to consolidation guidance for limited partnerships and other similarly structured entities. The new standard addresses instances where a reporting entity consolidates another entity when the reporting entity is simply acting on the behalf of others, amongst other related issues. While the standard is targeted, the application is relevant for all companies that are required to assess whether or not to consolidate certain entities. The standard is effective in the 2016 first quarter and early adoption is permitted. The Company is assessing the impact the implementation of this standard will have on its consolidated financial statements.

A new accounting standard was issued in the 2015 second quarter requiring new disclosures about the reserve for losses and loss adjustment expenses for short-duration insurance contracts. These disclosures will provide additional insight into an insurance entity’s ability to underwrite and anticipate costs associated with claims. This accounting guidance is effective for the 2016 annual reporting period and interim periods thereafter and should be applied retrospectively. The Company is assessing the impact the implementation of this standard will have on its consolidated financial statements.

3.     Variable Interest Entity and Noncontrolling Interests

Variable interest entity

On March 20, 2014, the Company invested $100.0 million and acquired approximately 11% of Watford Holdings Ltd.’s common equity and a warrant to purchase additional common equity. Watford Holdings Ltd. is the parent of Watford Re Ltd., a multi-line Bermuda reinsurance company (together with Watford Holdings Ltd., “Watford Re”). Watford Re is considered a variable interest entity (“VIE”) and the Company concluded that it is the primary beneficiary of Watford Re. As such, the results of Watford Re are included in the Company’s consolidated financial statements.

The Company concluded that Watford Re represents a separate operating segment and provides the income statement and total investable assets, total assets and total liabilities of Watford Re within Note 5. At September 30, 2015, Watford Re’s liabilities included unearned premiums of $274.7 million and reserves for losses and loss adjustment expenses of $223.9 million, some of which is related to transactions with the Company, along with $239.1 million of revolving credit agreement borrowings (see Note 9). For the nine months ended September 30, 2015, Watford Re generated $204.3 million of cash provided by operating activities and $268.3 million of cash provided by financing activities, partially offset by $354.5 million of cash used for investing activities.

The Company does not guarantee or provide credit support for Watford Re, and the Company’s financial exposure to Watford Re is limited to its investment in Watford Re’s common and preferred shares and counterparty credit risk (mitigated by collateral) arising from the reinsurance transactions.
   


9

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Non-redeemable noncontrolling interests

The Company accounts for the portion of Watford Re’s common equity attributable to third party investors in the shareholders’ equity section of its consolidated balance sheets. The noncontrolling ownership in Watford Re’s common shares was approximately 89% at September 30, 2015. The portion of Watford Re’s income or loss attributable to third party investors is recorded in the consolidated statements of income in ‘amounts attributable to noncontrolling interests.’ The following table sets forth activity in the non-redeemable noncontrolling interests:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Balance, beginning of period
$
794,880

 
$
792,340

 
$
769,081

 
$

Sale of shares to noncontrolling interests

 

 

 
796,903

Amounts attributable to noncontrolling interests
(20,621
)
 
(10,320
)
 
5,178

 
(14,883
)
Foreign currency translation adjustments
(97
)
 

 
(97
)
 

Balance, end of period
$
774,162

 
$
782,020

 
$
774,162

 
$
782,020


Redeemable noncontrolling interests

The Company accounts for redeemable noncontrolling interests in the mezzanine section of its consolidated balance sheets in accordance with applicable accounting guidance. Such redeemable noncontrolling interests relate to the 9,065,200 cumulative redeemable preference shares (“Watford Preference Shares”) issued in late March 2014 with a par value of $0.01 per share and a liquidation preference of $25.00 per share. Preferred dividends, including the accretion of the discount and issuance costs, are included in ‘amounts attributable to noncontrolling interests’ in the Company’s consolidated statements of income. The following table sets forth activity in the redeemable non-controlling interests:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Balance, beginning of period
$
204,996

 
$
219,326

 
$
219,512

 
$

Sale of shares to noncontrolling interests

 

 

 
219,233

Shares acquired by the Company (1)

 

 
(14,700
)
 

Accretion of preference share issuance costs
93

 
93

 
277

 
186

Balance, end of period
$
205,089

 
$
219,419

 
$
205,089

 
$
219,419

_________________________________________________
(1)
During the 2015 second quarter, the Company acquired Gulf Re, which owns 600,000 Watford Preference Shares. Such shares, net of a discount, along with related dividends and accretion of the discount, are eliminated in consolidation.

The portion of Watford Re’s income or loss attributable to third party investors is recorded in the consolidated statements of income in ‘amounts attributable to noncontrolling interests’ as summarized in the table below:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Amounts attributable to non-redeemable noncontrolling interests
$
20,621

 
$
10,320

 
$
(5,178
)
 
$
14,883

Dividends attributable to redeemable noncontrolling interests
(4,588
)
 
(4,909
)
 
(14,239
)
 
(9,818
)
Amounts attributable to noncontrolling interests
$
16,033

 
$
5,411

 
$
(19,417
)
 
$
5,065




10

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.    Earnings Per Common Share
 
The following table sets forth the computation of basic and diluted earnings per common share:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Numerator:
 

 
 

 
 

 
 

Net income
$
64,000

 
$
223,264

 
$
498,576

 
$
614,126

Amounts attributable to noncontrolling interests
16,033

 
5,411

 
(19,417
)
 
5,065

Net income available to Arch
80,033

 
228,675

 
479,159

 
619,191

Preferred dividends
(5,484
)
 
(5,484
)
 
(16,453
)
 
(16,453
)
Net income available to Arch common shareholders
$
74,549

 
$
223,191

 
$
462,706

 
$
602,738

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

Weighted average common shares outstanding — basic
120,567,410

 
131,945,962

 
122,151,971

 
132,151,824

Effect of dilutive common share equivalents:
 
 
 
 
 
 
 
Nonvested restricted shares
1,322,053

 
1,156,790

 
1,260,247

 
1,134,481

Stock options (1)
3,122,310

 
2,773,853

 
2,942,541

 
3,067,867

Weighted average common shares and common share equivalents outstanding — diluted
125,011,773

 
135,876,605

 
126,354,759

 
136,354,172

 
 
 
 
 
 
 
 
Earnings per common share:
 

 
 

 
 

 
 

Basic
$
0.62

 
$
1.69

 
$
3.79

 
$
4.56

Diluted
$
0.60

 
$
1.64

 
$
3.66

 
$
4.42

_________________________________________________
(1)
Certain stock options were not included in the computation of diluted earnings per share where the exercise price of the stock options exceeded the average market price and would have been anti-dilutive or where, when applying the treasury stock method to in-the-money options, the sum of the proceeds, including unrecognized compensation, exceeded the average market price and would have been anti-dilutive. For the 2015 third quarter and 2014 third quarter, the number of stock options excluded were 390,406 and 1,355,087, respectively. For the nine months ended September 30, 2015 and 2014, the number of stock options excluded were 957,838 and 1,378,249, respectively.


11

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5.    Segment Information
 
The Company classifies its businesses into three underwriting segments — insurance, reinsurance and mortgage — and two other operating segments — ‘other’ and corporate (non-underwriting). The Company determined its reportable segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. 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 Company’s insurance, reinsurance and mortgage segments each have 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. Management measures segment performance for its three underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment, with the exception of goodwill and intangible assets, and, accordingly, investment income is not allocated to each underwriting segment.

The insurance segment consists of the Company’s insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include: construction and national accounts; excess and surplus casualty; lenders products; professional lines; programs; property, energy, marine and aviation; travel, accident and health; and other (consisting of alternative markets, excess workers' compensation and surety business).

The reinsurance segment consists of the Company’s reinsurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include: casualty; marine and aviation; other specialty; property catastrophe; property excluding property catastrophe (losses on a single risk, both excess of loss and pro rata); and other (consisting of life reinsurance, casualty clash and other).

The mortgage segment includes the results of Arch Mortgage Insurance Company (“Arch MI U.S.”) and Arch Mortgage Insurance Limited, leading providers of mortgage insurance products and services to the U.S. and European markets, respectively. Arch MI U.S. is approved as an eligible mortgage insurer by Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), each a government sponsored enterprise, or “GSE.” The mortgage segment also includes GSE credit risk-sharing transactions and mortgage reinsurance for the U.S. and Australian markets.

The corporate (non-underwriting) segment results include 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 or 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. Such amounts exclude the results of the ‘other’ segment.

The ‘other’ segment includes the results of Watford Re (see Note 3). Watford Re has its own management and board of directors that is responsible for the overall profitability of the ‘other’ segment. For the ‘other’ segment, performance is measured based on net income or loss.


12

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The following tables summarize the Company’s underwriting income or loss by segment, together with a reconciliation of underwriting income or loss to net income available to common shareholders:
 
Three Months Ended
 
September 30, 2015
 
Insurance
 
Reinsurance
 
Mortgage
 
Sub-Total
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written (1)
$
752,438

 
$
329,327

 
$
74,657

 
$
1,158,451

 
$
131,165

 
$
1,189,192

Premiums ceded
(209,443
)
 
(92,182
)
 
(7,832
)
 
(311,486
)
 
(6,158
)
 
(217,220
)
Net premiums written
542,995

 
237,145

 
66,825

 
846,965

 
125,007

 
971,972

Change in unearned premiums
(20,451
)
 
23,286

 
(12,277
)
 
(9,442
)
 
(25,847
)
 
(35,289
)
Net premiums earned
522,544

 
260,431

 
54,548

 
837,523

 
99,160

 
936,683

Other underwriting income
519

 
2,783

 
3,565

 
6,867

 
756

 
7,623

Losses and loss adjustment expenses
(339,859
)
 
(115,780
)
 
(9,562
)
 
(465,201
)
 
(66,540
)
 
(531,741
)
Acquisition expenses, net
(77,076
)
 
(55,416
)
 
(10,428
)
 
(142,920
)
 
(28,646
)
 
(171,566
)
Other operating expenses
(84,620
)
 
(37,131
)
 
(21,048
)
 
(142,799
)
 
(3,421
)
 
(146,220
)
Underwriting income (loss)
$
21,508

 
$
54,887

 
$
17,075

 
93,470

 
1,309

 
94,779

 
 
 
 
 
 
 
 
 
 
 
 
Net investment income
 
 
 
 
 
 
67,251

 
18,982

 
86,233

Net realized gains (losses)
 
 
 
 
 
 
(53,480
)
 
(36,218
)
 
(89,698
)
Net impairment losses recognized in earnings
 
 
 
 
 
 
(5,868
)
 

 
(5,868
)
Equity in net income (loss) of investment funds accounted for using the equity method
 
 
 
 
 
 
(2,118
)
 

 
(2,118
)
Other income (loss)
 
 
 
 
 
 
(265
)
 

 
(265
)
Other expenses
 
 
 
 
 
 
(10,739
)
 

 
(10,739
)
Interest expense
 
 
 
 
 
 
(12,014
)
 
(1,286
)
 
(13,300
)
Net foreign exchange gains (losses)
 
 
 
 
 
 
16,056

 
(1,376
)
 
14,680

Income (loss) before income taxes
 
 
 
 
 
 
92,293

 
(18,589
)
 
73,704

Income tax expense
 
 
 
 
 
 
(9,704
)
 

 
(9,704
)
Net income (loss)
 
 
 
 
 
 
82,589

 
(18,589
)
 
64,000

Dividends attributable to redeemable noncontrolling interests
 
 
 
 
 
 

 
(4,588
)
 
(4,588
)
Amounts attributable to noncontrolling interests
 
 
 
 
 
 

 
20,621

 
20,621

Net income (loss) available to Arch
 
 
 
 
 
 
82,589

 
(2,556
)
 
80,033

Preferred dividends
 
 
 
 
 
 
(5,484
)
 

 
(5,484
)
Net income (loss) available to Arch common shareholders
 
 
 
 
 
 
$
77,105

 
$
(2,556
)
 
$
74,549

 
 
 
 
 
 
 
 
 
 
 
 
Underwriting Ratios
 

 
 

 
 

 
 
 
 

 
 

Loss ratio
65.0
%
 
44.5
%
 
17.5
%
 
55.5
%
 
67.1
%
 
56.8
%
Acquisition expense ratio
14.8
%
 
21.3
%
 
19.1
%
 
17.1
%
 
28.9
%
 
18.3
%
Other operating expense ratio
16.2
%
 
14.3
%
 
38.6
%
 
17.1
%
 
3.4
%
 
15.6
%
Combined ratio
96.0
%
 
80.1
%
 
75.2
%
 
89.7
%
 
99.4
%
 
90.7
%
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and intangible assets
$
29,834

 
$
2,149

 
$
71,637

 
$
103,620

 
$

 
$
103,620

 
 
 
 
 
 
 
 
 
 
 
 
Total investable assets
 
 
 
 
 
 
$
14,733,732

 
$
1,593,523

 
$
16,327,255

Total assets
 
 
 
 
 
 
21,679,795

 
2,090,797

 
23,770,592

Total liabilities
 
 
 
 
 
 
15,627,574

 
1,000,952

 
16,628,526

_________________________________________________
(1)
Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

 

13

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 
Three Months Ended
 
September 30, 2014
 
Insurance
 
Reinsurance
 
Mortgage
 
Sub-Total
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written (1)
$
726,683

 
$
345,747

 
$
66,389

 
$
1,138,392

 
$
103,483

 
$
1,159,907

Premiums ceded
(187,689
)
 
(83,502
)
 
(7,904
)
 
(278,668
)
 
(3,668
)
 
(200,368
)
Net premiums written
538,994

 
262,245

 
58,485

 
859,724

 
99,815

 
959,539

Change in unearned premiums
(19,607
)
 
34,303

 
(5,539
)
 
9,157

 
(65,045
)
 
(55,888
)
Net premiums earned
519,387

 
296,548

 
52,946

 
868,881

 
34,770

 
903,651

Other underwriting income
499

 
215

 
988

 
1,702

 

 
1,702

Losses and loss adjustment expenses
(338,319
)
 
(123,784
)
 
(15,987
)
 
(478,090
)
 
(23,583
)
 
(501,673
)
Acquisition expenses, net
(81,775
)
 
(60,205
)
 
(11,958
)
 
(153,938
)
 
(9,609
)
 
(163,547
)
Other operating expenses
(83,138
)
 
(36,337
)
 
(17,913
)
 
(137,388
)
 
(1,658
)
 
(139,046
)
Underwriting income (loss)
$
16,654

 
$
76,437

 
$
8,076

 
101,167

 
(80
)
 
101,087

 
 
 
 
 
 
 
 
 
 
 
 
Net investment income
 
 
 
 
 
 
72,239

 
7,866

 
80,105

Net realized gains (losses)
 
 
 
 
 
 
31,411

 
(12,896
)
 
18,515

Net impairment losses recognized in earnings
 
 
 
 
 
 
(8,593
)
 

 
(8,593
)
Equity in net income (loss) of investment funds accounted for using the equity method
 
 
 
 
 
 
4,966

 

 
4,966

Other income (loss)
 
 
 
 
 
 
(7,815
)
 

 
(7,815
)
Other expenses
 
 
 
 
 
 
(10,434
)
 

 
(10,434
)
Interest expense
 
 
 
 
 
 
(4,152
)
 

 
(4,152
)
Net foreign exchange gains (losses)
 
 
 
 
 
 
57,611

 
(1,580
)
 
56,031

Income (loss) before income taxes
 
 
 
 
 
 
236,400

 
(6,690
)
 
229,710

Income tax expense
 
 
 
 
 
 
(6,446
)
 

 
(6,446
)
Net income (loss)
 
 
 
 
 
 
229,954

 
(6,690
)
 
223,264

Dividends attributable to redeemable noncontrolling interests
 
 
 
 
 
 

 
(4,909
)
 
(4,909
)
Amounts attributable to noncontrolling interests
 
 
 
 
 
 

 
10,320

 
10,320

Net income (loss) available to Arch
 
 
 
 
 
 
229,954

 
(1,279
)
 
228,675

Preferred dividends
 
 
 
 
 
 
(5,484
)
 

 
(5,484
)
Net income (loss) available to Arch common shareholders
 
 
 
 
 
 
$
224,470

 
$
(1,279
)
 
$
223,191

 
 
 
 
 
 
 
 
 
 
 
 
Underwriting Ratios
 

 
 

 
 

 
 
 
 

 
 

Loss ratio
65.1
%
 
41.7
%
 
30.2
%
 
55.0
%
 
67.8
%
 
55.5
%
Acquisition expense ratio
15.7
%
 
20.3
%
 
22.6
%
 
17.7
%
 
27.6
%
 
18.1
%
Other operating expense ratio
16.0
%
 
12.3
%
 
33.8
%
 
15.8
%
 
4.8
%
 
15.4
%
Combined ratio
96.8
%
 
74.3
%
 
86.6
%
 
88.5
%
 
100.2
%
 
89.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and intangible assets
$
24,024

 
$
3,939

 
$
83,565

 
$
111,528

 
$

 
$
111,528

 
 
 
 
 
 
 
 
 
 
 
 
Total investable assets
 
 
 
 
 
 
$
14,580,425

 
$
1,124,048

 
$
15,704,473

Total assets
 
 
 
 
 
 
21,205,209

 
1,403,018

 
22,608,227

Total liabilities
 
 
 
 
 
 
15,221,030

 
304,712

 
15,525,742

_________________________________________________
(1)
Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.



14

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 
Nine Months Ended
 
September 30, 2015
 
Insurance
 
Reinsurance
 
Mortgage
 
Sub-Total
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written (1)
$
2,263,401

 
$
1,156,540

 
$
203,770

 
$
3,625,382

 
$
387,752

 
$
3,730,423

Premiums ceded
(669,336
)
 
(318,197
)
 
(23,404
)
 
(1,012,608
)
 
(17,979
)
 
(747,876
)
Net premiums written
1,594,065

 
838,343

 
180,366

 
2,612,774

 
369,773

 
2,982,547

Change in unearned premiums
(53,782
)
 
(24,230
)
 
(22,992
)
 
(101,004
)
 
(91,158
)
 
(192,162
)
Net premiums earned
1,540,283

 
814,113

 
157,374

 
2,511,770

 
278,615

 
2,790,385

Other underwriting income
1,467

 
6,870

 
14,969

 
23,306

 
3,570

 
26,876

Losses and loss adjustment expenses
(978,681
)
 
(339,495
)
 
(33,010
)
 
(1,351,186
)
 
(193,697
)
 
(1,544,883
)
Acquisition expenses, net
(228,877
)
 
(170,380
)
 
(31,046
)
 
(430,303
)
 
(79,764
)
 
(510,067
)
Other operating expenses
(261,793
)
 
(114,182
)
 
(61,096
)
 
(437,071
)
 
(8,876
)
 
(445,947
)
Underwriting income (loss)
$
72,399

 
$
196,926

 
$
47,191

 
316,516

 
(152
)
 
316,364

 
 
 
 
 
 
 
 
 
 
 
 
Net investment income
 
 
 
 
 
 
204,710

 
47,480

 
252,190

Net realized gains (losses)
 
 
 
 
 
 
(14,831
)
 
(27,244
)
 
(42,075
)
Net impairment losses recognized in earnings
 
 
 
 
 
 
(12,780
)
 

 
(12,780
)
Equity in net income (loss) of investment funds accounted for using the equity method
 
 
 
 
 
 
19,938

 

 
19,938

Other income (loss)
 
 
 
 
 
 
52

 

 
52

Other expenses
 
 
 
 
 
 
(37,502
)
 

 
(37,502
)
Interest expense
 
 
 
 
 
 
(28,761
)
 
(1,286
)
 
(30,047
)
Net foreign exchange gains (losses)
 
 
 
 
 
 
60,338

 
1,260

 
61,598

Income (loss) before income taxes
 
 
 
 
 
 
507,680

 
20,058

 
527,738

Income tax expense
 
 
 
 
 
 
(29,162
)
 

 
(29,162
)
Net income (loss)
 
 
 
 
 
 
478,518

 
20,058

 
498,576

Dividends attributable to redeemable noncontrolling interests
 
 
 
 
 
 

 
(14,239
)
 
(14,239
)
Amounts attributable to noncontrolling interests
 
 
 
 
 
 

 
(5,178
)
 
(5,178
)
Net income (loss) available to Arch
 
 
 
 
 
 
478,518

 
641

 
479,159

Preferred dividends
 
 
 
 
 
 
(16,453
)
 

 
(16,453
)
Net income (loss) available to Arch common shareholders
 
 
 
 
 
 
$
462,065

 
$
641

 
$
462,706

 
 
 
 
 
 
 
 
 
 
 
 
Underwriting Ratios
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
63.5
%
 
41.7
%
 
21.0
%
 
53.8
%
 
69.5
%
 
55.4
%
Acquisition expense ratio
14.9
%
 
20.9
%
 
19.7
%
 
17.1
%
 
28.6
%
 
18.3
%
Other operating expense ratio
17.0
%
 
14.0
%
 
38.8
%
 
17.4
%
 
3.2
%
 
16.0
%
Combined ratio
95.4
%
 
76.6
%
 
79.5
%
 
88.3
%
 
101.3
%
 
89.7
%
_________________________________________________
(1)
Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

 

15

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 
Nine Months Ended
 
September 30, 2014
 
Insurance
 
Reinsurance
 
Mortgage
 
Sub-Total
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written (1)
$
2,309,560

 
$
1,212,641

 
$
169,772

 
$
3,690,462

 
$
190,239

 
$
3,726,804

Premiums ceded
(646,082
)
 
(215,623
)
 
(17,622
)
 
(877,816
)
 
(6,428
)
 
(730,347
)
Net premiums written
1,663,478

 
997,018

 
152,150

 
2,812,646

 
183,811

 
2,996,457

Change in unearned premiums
(158,878
)
 
(23,495
)
 
(9,606
)
 
(191,979
)
 
(133,895
)
 
(325,874
)
Net premiums earned
1,504,600

 
973,523

 
142,544

 
2,620,667

 
49,916

 
2,670,583

Other underwriting income
1,513

 
834

 
2,970

 
5,317

 

 
5,317

Losses and loss adjustment expenses
(936,615
)
 
(413,745
)
 
(39,938
)
 
(1,390,298
)
 
(33,133
)
 
(1,423,431
)
Acquisition expenses, net
(235,156
)
 
(199,673
)
 
(32,593
)