Argo Group Reports 2017 Second Quarter Net Income of $46.0 Million or $1.48 per Diluted Share
2017 Second Quarter Recap
Gross Written
↑ 22.6% from 2Q 2016 |
Net Investment
↑ 22.1% from 2Q 2016 |
Net Income
↑ 48.0% From 2Q 2016 |
Adjusted Operating ↑ 9.2% from 2Q 2016 |
Book Value
↑ 4.9% from |
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“Argo Group’s results for the first six months of 2017 reflect strong investment returns and profitable growth in our
HIGHLIGHTS FOR THE THREE MONTHS ENDED
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HIGHLIGHTS FOR THE SIX MONTHS ENDED
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Notes
- All per share amounts are adjusted for the 10% stock dividend paid on
June 15, 2016 , to stockholders of record onJune 1, 2016 . - All references to catastrophe losses are pre-tax and net of reinsurance and estimated reinstatement premiums. Point impacts on the combined ratio are calculated as the difference between the reported combined ratio and the combined ratio excluding incurred catastrophe losses and associated reinstatement premiums.
(1) |
Refer to Non-GAAP Financial Measures below. | |
(2) |
At assumed tax rate of 20%. | |
FINANCIAL HIGHLIGHTS BY SEGMENT
- Second quarter 2017 gross written premiums growth of 13.4% was driven by executing on strategic growth initiatives across Liability, Professional, and Specialty lines and planned reductions within Property lines due to continued pricing competition. Gross written premiums for the first six months of 2017 were up 14.9% from the 2016 period and reflect growth in all four business lines.
- The loss ratio for the 2017 second quarter was 53.6% compared to 55.6% for the 2016 second quarter. For the six-month period in 2017 the loss ratio was 54.6% compared to 55.8% in the 2016 period.
- The loss ratio excluding catastrophe losses and reserve development for the 2017 second quarter was 57.4%, compared to 57.7% for the 2016 second quarter, and 57.5% compared to 57.0% for the six month comparison to 2016.
For the 2017 second quarter,
For the six months ended
International Operations
International Operations comprise Syndicate 1200, International Specialty, and the Ariel Re businesses including Syndicate 1910. The Ariel Re transaction closed on
- Gross written premiums were up 35.0% in the second quarter and 24.4% for the six-month period of 2017 versus 2016. Growth was driven by reinsurance business at Syndicate 1910, and by business in
Bermuda andBrazil . - The current quarter loss ratio was 62.4% compared to 55.6% in the 2016 quarter. For the six months of 2017 the loss ratio was 61.9% compared to 54.8% for the same period of 2016. The increase in the current year loss ratio relates to Syndicate 1200 due to higher property and aviation losses and an increase to reserves for prior year business in Liability, Specialty, and Property lines.
- The loss ratio for the second quarter of 2017, excluding catastrophe losses and reserve development, was 56.3%, compared to 48.1% for the 2016 second quarter. For the six month 2017 period the loss ratio excluding catastrophe losses and reserve development was 55.5% compared to 51.4%.
For the 2017 second quarter, International Operations reported gross written premiums of
For the six months ended
CONFERENCE CALL
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ABOUT
FORWARD-LOOKING STATEMENTS
This press release may include forward-looking statements, both with respect to
In addition, any estimates relating to loss events involve the exercise of considerable judgment and reflect a combination of ground-up evaluations, information available to date from brokers and cedants, market intelligence, initial tentative loss reports and other sources. The actuarial range of reserves and management’s best estimate is based on our then current state of knowledge including explicit and implicit assumptions relating to the pattern of claim development, the expected ultimate settlement amount, inflation and dependencies between lines of business. Our internal capital model is used to consider the distribution for reserving risk around this best estimate and predict the potential range of outcomes. However, due to the complexity of factors contributing to the losses and the preliminary nature of the information used to prepare these estimates, there can be no assurance that Argo Group’s ultimate losses will remain within the stated amount.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors included in our most recent reports on Form 10-K and Form 10-Q and other documents of
NON-GAAP FINANCIAL MEASURES
In presenting the Company's results, management has included and discussed in this press release certain non-generally accepted accounting principles ("non-GAAP") financial measures within the meaning of Regulation G as promulgated by the
“Underwriting income” is an internal performance measure used in the management of the Company’s operations and represents net amount earned from underwriting activities (net premiums earned less underwriting expenses and claims incurred). Although this measure of profit (loss) does not replace net income (loss) computed in accordance with
“Adjusted operating income" is an internal performance measure used in the management of the Company's operations and represents after-tax (at an assumed effective tax rate of 20%) operational results excluding, as applicable, net realized investment gains or losses, net foreign exchange gain or loss, and other similar non-recurring items. The Company excludes net realized investment gains or losses, net foreign exchange gain or loss, and other similar non-recurring items from the calculation of adjusted operating income because these amounts are influenced by and fluctuate in part, by market conditions that are outside of management’s control. In addition to presenting net income determined in accordance with
"Annualized return on average shareholders’ equity" ("ROAE") is calculated using average shareholders' equity. In calculating ROAE, the net income available to shareholders for the period is multiplied by the number of periods in a calendar year to arrive at annualized net income available to shareholders. The Company presents ROAE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.
"Annualized adjusted operating return on average shareholders' equity" is calculated using adjusted operating income (as defined above and annualized in the manner described for net income (loss) available to shareholders under ROAE above) and average shareholders' equity. The assumed tax rate is 20%.
Reconciliations of these financial measures to their most directly comparable
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CONSOLIDATED BALANCE SHEETS | ||||||||||
(in millions, except per share amounts) | ||||||||||
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2017 | 2016 | |||||||||
(unaudited) | ||||||||||
Assets | ||||||||||
Total investments | $ | 4,624.1 | $ | 4,324.3 | ||||||
Cash | 214.5 | 86.0 | ||||||||
Accrued investment income | 23.0 | 20.7 | ||||||||
Receivables | 2,192.2 | 1,849.4 | ||||||||
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261.1 | 219.9 | ||||||||
Deferred acquisition costs, net | 162.8 | 139.1 | ||||||||
Ceded unearned premiums | 436.6 | 302.8 | ||||||||
Other assets | 326.4 | 262.8 | ||||||||
Total assets | $ | 8,240.7 | $ | 7,205.0 | ||||||
Liabilities and Shareholders' Equity | ||||||||||
Reserves for losses and loss adjustment expenses | $ | 3,632.8 | $ | 3,350.8 | ||||||
Unearned premiums | 1,176.2 | 970.0 | ||||||||
Ceded reinsurance payable, net | 704.7 | 466.6 | ||||||||
Senior unsecured fixed rate notes | 139.5 | 139.5 | ||||||||
Other indebtedness | 182.5 | 55.4 | ||||||||
Junior subordinated debentures | 256.4 | 172.7 | ||||||||
Other liabilities | 257.3 | 257.3 | ||||||||
Total liabilities | 6,349.4 | 5,412.3 | ||||||||
Total shareholders' equity | 1,891.3 | 1,792.7 | ||||||||
Total liabilities and shareholders' equity | $ | 8,240.7 | $ | 7,205.0 | ||||||
Book value per common share | $ | 62.65 | $ | 59.73 |
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FINANCIAL HIGHLIGHTS | |||||||||||||||
ALL SEGMENTS | |||||||||||||||
(in millions, except per share amounts) | |||||||||||||||
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2017 | 2016 | 2017 | 2016 | ||||||||||||
(unaudited) | (unaudited) | ||||||||||||||
Gross written premiums | $ | 687.2 | $ | 560.6 | $ | 1,285.8 | $ | 1,080.4 | |||||||
Net written premiums | 447.1 | 388.0 | 790.5 | 691.4 | |||||||||||
Earned premiums | 399.1 | 344.9 | 778.5 | 689.8 | |||||||||||
Net investment income | 43.6 | 35.7 | 74.1 | 56.9 | |||||||||||
Fee and other income | 3.8 | 5.8 | 7.4 | 12.6 | |||||||||||
Net realized investment and other gains (losses) | 4.5 | (2.1 | ) | 19.1 | (4.9 | ) | |||||||||
Total revenue | 451.0 | 384.3 | 879.1 | 754.4 | |||||||||||
Losses and loss adjustment expenses | 230.6 | 196.6 | 453.1 | 388.2 | |||||||||||
Underwriting, acquisition and insurance expenses | 154.7 | 133.0 | 308.3 | 265.6 | |||||||||||
Interest expense | 7.0 | 4.9 | 12.9 | 9.7 | |||||||||||
Fee and other expense, net | 3.3 | 5.7 | 7.4 | 12.2 | |||||||||||
Foreign currency exchange losses | 4.6 | 4.5 | 3.9 | 6.0 | |||||||||||
Total expenses | 400.2 | 344.7 | 785.6 | 681.7 | |||||||||||
Income before taxes | 50.8 | 39.6 | 93.5 | 72.7 | |||||||||||
Income tax provision | 4.8 | 8.7 | 10.8 | 14.1 | |||||||||||
Net income | $ | 46.0 | $ | 30.9 | $ | 82.7 | $ | 58.6 | |||||||
Net income per common share (basic) | $ | 1.52 | $ | 1.03 | $ | 2.75 | $ | 1.93 | |||||||
Net income per common share (diluted) | $ | 1.48 | $ | 1.00 | $ | 2.67 | $ | 1.89 | |||||||
Weighted average common shares: | |||||||||||||||
Basic | 30.2 | 30.2 | 30.1 | 30.3 | |||||||||||
Diluted | 31.0 | 30.8 | 31.0 | 31.0 |
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SEGMENT DATA | |||||||||||||||||
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2017 | 2016 | 2017 | 2016 | ||||||||||||||
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Gross written premiums | $ | 365.0 | $ | 321.8 | $ | 700.0 | $ | 609.4 | |||||||||
Net written premiums | 261.5 | 223.5 | 478.5 | 412.9 | |||||||||||||
Earned premiums | 229.1 | 206.8 | 450.3 | 413.4 | |||||||||||||
Underwriting income | 29.3 | 27.2 | 50.1 | 51.4 | |||||||||||||
Net investment income | 27.3 | 21.7 | 47.2 | 35.5 | |||||||||||||
Interest expense | (3.8 | ) | (2.4 | ) | (6.5 | ) | (4.6 | ) | |||||||||
Fee income (expense), net | 0.2 | (1.1 | ) | (0.6 | ) | (2.0 | ) | ||||||||||
Net income before taxes | $ | 53.0 | $ | 45.4 | $ | 90.2 | $ | 80.3 | |||||||||
Loss ratio | 53.6 | % | 55.6 | % | 54.6 | % | 55.8 | % | |||||||||
Expense ratio | 33.6 | % | 31.2 | % | 34.3 | % | 31.8 | % | |||||||||
GAAP combined ratio | 87.2 | % | 86.8 | % | 88.9 | % | 87.6 | % | |||||||||
INTERNATIONAL OPERATIONS |
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Gross written premiums | $ | 322.1 | $ | 238.6 | $ | 585.7 | $ | 470.8 | |||||||||
Net written premiums | 185.5 | 164.3 | 311.9 | 278.3 | |||||||||||||
Earned premiums | 169.9 | 137.9 | 328.1 | 276.2 | |||||||||||||
Underwriting income | 1.0 | 6.3 | 4.6 | 18.1 | |||||||||||||
Net investment income | 10.1 | 9.1 | 16.7 | 15.2 | |||||||||||||
Interest expense | (2.3 | ) | (1.3 | ) | (4.3 | ) | (2.6 | ) | |||||||||
Fee income, net | 0.3 | 1.2 | 0.4 | 2.3 | |||||||||||||
Net income before taxes | $ | 9.1 | $ | 15.3 | $ | 17.4 | $ | 33.0 | |||||||||
Loss ratio | 62.4 | % | 55.6 | % | 61.9 | % | 54.8 | % | |||||||||
Expense ratio | 37.0 | % | 39.8 | % | 36.7 | % | 38.6 | % | |||||||||
GAAP combined ratio | 99.4 | % | 95.4 | % | 98.6 | % | 93.4 | % |
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Net Prior |
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(Favorable)/Unfavorable |
2017 | 2016 | 2017 | 2016 | ||||||||||||||
(unaudited) | ||||||||||||||||||
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$ | (12.8 | ) | $ | (9.0 | ) | $ | (18.0 | ) | $ | (11.9 | ) | ||||||
International Operations | 10.0 | (8.5 | ) | 19.6 | (10.2 | ) | ||||||||||||
Run-off Lines | 1.7 | 4.8 | 4.1 | 6.2 | ||||||||||||||
Total | $ | (1.1 | ) | $ | (12.7 | ) | $ | 5.7 | $ | (15.9 | ) |
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RECONCILIATION OF UNDERWRITING INCOME TO NET INCOME | ||||||||||||||||
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2017 | 2016 | 2017 | 2016 | |||||||||||||
Net Income | $ | 46.0 | $ | 30.9 | $ | 82.7 | $ | 58.6 | ||||||||
Add (deduct): | ||||||||||||||||
Income tax provision | 4.8 | 8.7 | 10.8 | 14.1 | ||||||||||||
Net investment income | (43.6 | ) | (35.7 | ) | (74.1 | ) | (56.9 | ) | ||||||||
Net realized investment and other (gains) losses | (4.5 | ) | 2.1 | (19.1 | ) | 4.9 | ||||||||||
Fee and other income | (3.8 | ) | (5.8 | ) | (7.4 | ) | (12.6 | ) | ||||||||
Interest expense | 7.0 | 4.9 | 12.9 | 9.7 | ||||||||||||
Fee and other expense | 3.3 | 5.7 | 7.4 | 12.2 | ||||||||||||
Foreign currency exchange losses | 4.6 | 4.5 | 3.9 | 6.0 | ||||||||||||
Underwriting income | $ | 13.8 | $ | 15.3 | $ | 17.1 | $ | 36.0 |
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RECONCILIATION OF ADJUSTED OPERATING INCOME TO NET INCOME | ||||||||||||||
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2017 | 2016 | 2017 | 2016 | |||||||||||
Net income, as reported | $ | 46.0 | $ | 30.9 | $ | 82.7 | $ | 58.6 | ||||||
Provision for income taxes | 4.8 | 8.7 | 10.8 | 14.1 | ||||||||||
Net income, before taxes | 50.8 | 39.6 | 93.5 | 72.7 | ||||||||||
Add (deduct): | ||||||||||||||
Net realized investment and other (gains) losses | (4.5 | ) | 2.1 | (19.1 | ) | 4.9 | ||||||||
Foreign currency exchange losses | 4.6 | 4.5 | 3.9 | 6.0 | ||||||||||
Adjusted operating income before taxes | 50.9 | 46.2 | 78.3 | 83.6 | ||||||||||
Provision for income taxes, at assumed rate (a) | 10.2 | 9.2 | 15.7 | 16.7 | ||||||||||
Adjusted operating income | $ | 40.7 | $ | 37.0 | $ | 62.6 | $ | 66.9 | ||||||
Adjusted operating income per common share (diluted) | $ | 1.31 | $ | 1.20 | $ | 2.02 | $ | 2.16 | ||||||
Weighted average common shares, diluted | 31.0 | 30.8 | 31.0 | 31.0 | ||||||||||
(a) At assumed tax rate of 20%. |
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RECONCILIATION OF SEGMENT INCOME TO NET INCOME | ||||||||||||||||
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(unaudited) | ||||||||||||||||
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2017 | 2016 | 2017 | 2016 | |||||||||||||
Segment income (loss) before income taxes | ||||||||||||||||
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53.0 | 45.4 | 90.2 | 80.3 | ||||||||||||
International Operations | 9.1 | 15.3 | 17.4 | 33.0 | ||||||||||||
Run-off Lines | (1.2 | ) | (3.2 | ) | (3.7 | ) | (4.6 | ) | ||||||||
Corporate and Other | (10.0 | ) | (11.3 | ) | (25.6 | ) | (25.1 | ) | ||||||||
Realized investment and other gains (losses) | 4.5 | (2.1 | ) | 19.1 | (4.9 | ) | ||||||||||
Foreign currency exchange losses | (4.6 | ) | (4.5 | ) | (3.9 | ) | (6.0 | ) | ||||||||
Net income before income taxes | 50.8 | 39.6 | 93.5 | 72.7 | ||||||||||||
Provision for taxes | 4.8 | 8.7 | 10.8 | 14.1 | ||||||||||||
Net income | $ | 46.0 | $ | 30.9 | $ | 82.7 | $ | 58.6 |
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RECONCILIATION OF LOSS RATIOS | |||||||||||||
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2017 | 2016 | 2017 | 2016 | ||||||||||
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Loss ratio | 53.6 | % | 55.6 | % | 54.6 | % | 55.8 | % | |||||
Prior accident year loss development | 5.6 | % | 4.4 | % | 4.0 | % | 2.9 | % | |||||
Catastrophe losses | -1.8 | % | -2.3 | % | -1.1 | % | -1.7 | % | |||||
Current accident year ex-cats loss ratio | 57.4 | % | 57.7 | % | 57.5 | % | 57.0 | % | |||||
International Operations | |||||||||||||
Loss ratio | 62.4 | % | 55.6 | % | 61.9 | % | 54.8 | % | |||||
Prior accident year loss development | -5.9 | % | 6.2 | % | -6.0 | % | 3.8 | % | |||||
Catastrophe losses | -0.2 | % | -13.7 | % | -0.4 | % | -7.2 | % | |||||
Current accident year ex-cats loss ratio | 56.3 | % | 48.1 | % | 55.5 | % | 51.4 | % | |||||
Consolidated | |||||||||||||
Loss ratio | 57.8 | % | 57.0 | % | 58.2 | % | 56.3 | % | |||||
Prior accident year loss development | 0.2 | % | 3.7 | % | -0.7 | % | 2.3 | % | |||||
Catastrophe losses | -1.1 | % | -6.8 | % | -0.8 | % | -3.9 | % | |||||
Current accident year ex-cats loss ratio | 56.9 | % | 53.9 | % | 56.7 | % | 54.7 | % |
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GROSS WRITTEN PREMIUMS BY SEGMENT AND LINE OF BUSINESS | |||||||||||||||||||
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Gross Written | Net Written | Net Earned | Gross Written | Net Written | Net Earned | ||||||||||||||
Property | $ | 69.4 | $ | 44.4 | $ | 30.0 | $ | 75.7 | $ | 40.5 | $ | 31.6 | |||||||
Liability | 220.2 | 159.7 | 148.8 | 192.6 | 140.9 | 142.0 | |||||||||||||
Professional | 40.6 | 31.0 | 28.5 | 34.1 | 25.8 | 17.9 | |||||||||||||
Specialty | 34.8 | 26.4 | 21.8 | 19.4 | 16.3 | 15.3 | |||||||||||||
Total | $ | 365.0 | $ | 261.5 | $ | 229.1 | $ | 321.8 | $ | 223.5 | $ | 206.8 | |||||||
International Operations | Three months ended | Three months ended | |||||||||||||||||
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Gross Written | Net Written | Net Earned | Gross Written | Net Written | Net Earned | ||||||||||||||
Property | $ | 117.2 | $ | 62.0 | $ | 55.2 | $ | 99.5 | $ | 70.0 | $ | 48.9 | |||||||
Liability | 38.3 | 19.0 | 18.9 | 33.1 | 18.6 | 20.2 | |||||||||||||
Professional | 41.4 | 23.9 | 23.8 | 39.8 | 27.2 | 26.0 | |||||||||||||
Specialty | 125.2 | 80.6 | 72.0 | 66.2 | 48.5 | 42.8 | |||||||||||||
Total | $ | 322.1 | $ | 185.5 | $ | 169.9 | $ | 238.6 | $ | 164.3 | $ | 137.9 | |||||||
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Gross Written | Net Written | Net Earned | Gross Written | Net Written | Net Earned | ||||||||||||||
Property | $ | 186.7 | $ | 106.5 | $ | 85.3 | $ | 175.2 | $ | 110.5 | $ | 80.5 | |||||||
Liability | 258.5 | 178.7 | 167.7 | 225.9 | 159.7 | 162.4 | |||||||||||||
Professional | 82.0 | 54.9 | 52.3 | 73.9 | 53.0 | 43.9 | |||||||||||||
Specialty | 160.0 | 107.0 | 93.8 | 85.6 | 64.8 | 58.1 | |||||||||||||
Total | $ | 687.2 | $ | 447.1 | $ | 399.1 | $ | 560.6 | $ | 388.0 | $ | 344.9 | |||||||
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Gross Written | Net Written | Net Earned | Gross Written | Net Written | Net Earned | ||||||||||||||
Property | $ | 125.3 | $ | 59.4 | $ | 59.0 | $ | 119.4 | $ | 59.6 | $ | 65.1 | |||||||
Liability | 438.2 | 314.4 | 294.6 | 386.5 | 276.6 | 282.8 | |||||||||||||
Professional | 73.7 | 57.2 | 54.7 | 63.6 | 43.1 | 35.5 | |||||||||||||
Specialty | 62.8 | 47.5 | 42.0 | 39.9 | 33.6 | 30.0 | |||||||||||||
Total | $ | 700.0 | $ | 478.5 | $ | 450.3 | $ | 609.4 | $ | 412.9 | $ | 413.4 | |||||||
International Operations | Six months ended | Six months ended | |||||||||||||||||
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Gross Written | Net Written | Net Earned | Gross Written | Net Written | Net Earned | ||||||||||||||
Property | $ | 210.0 | $ | 96.0 | $ | 115.8 | $ | 196.5 | $ | 112.1 | $ | 100.6 | |||||||
Liability | 70.3 | 36.2 | 37.5 | 69.4 | 39.1 | 41.5 | |||||||||||||
Professional | 77.6 | 44.4 | 47.7 | 71.5 | 44.8 | 49.5 | |||||||||||||
Specialty | 227.8 | 135.3 | 127.1 | 133.4 | 82.3 | 84.6 | |||||||||||||
Total | $ | 585.7 | $ | 311.9 | $ | 328.1 | $ | 470.8 | $ | 278.3 | $ | 276.2 | |||||||
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Gross Written | Net Written | Net Earned | Gross Written | Net Written | Net Earned | ||||||||||||||
Property | $ | 335.4 | $ | 155.5 | $ | 174.9 | $ | 315.9 | $ | 171.7 | $ | 165.7 | |||||||
Liability | 508.5 | 350.6 | 332.1 | 456.1 | 315.9 | 324.5 | |||||||||||||
Professional | 151.3 | 101.6 | 102.4 | 135.1 | 87.9 | 85.0 | |||||||||||||
Specialty | 290.6 | 182.8 | 169.1 | 173.3 | 115.9 | 114.6 | |||||||||||||
Total | $ | 1,285.8 | $ | 790.5 | $ | 778.5 | $ | 1,080.4 | $ | 691.4 | $ | 689.8 |
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COMPONENTS OF NET INVESTMENT INCOME | |||||||||||||||
ALL SEGMENTS | |||||||||||||||
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2017 | 2017 | 2016 | 2016 | 2016 | |||||||||||
Net investment income, excluding alternatives | $ | 23.0 | $ | 22.2 | $ | 22.4 | $ | 22.9 | $ | 23.2 | |||||
Alternative investments | 20.6 | 8.3 | 3.1 | 9.8 | 12.5 | ||||||||||
Total net investment income | $ | 43.6 | $ | 30.5 | $ | 25.5 | $ | 32.7 | $ | 35.7 |
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SHAREHOLDER RETURN ANALYSIS | |||||||||||||||
(in millions) | |||||||||||||||
(unaudited) | |||||||||||||||
For the six months ended |
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2017 | 2016 | % Change | |||||||||||||
Net income | $ | 82.7 | $ | 58.6 | 41.1 | % | |||||||||
Adjusted operating income (a) | 62.6 | 66.9 | (6.4 | %) | |||||||||||
Shareholders' Equity - Beginning of the period | $ | 1,792.7 | $ | 1,668.1 | 7.5 | % | |||||||||
Shareholders' Equity - End of current period | 1,891.3 | 1,740.3 | 8.7 | % | |||||||||||
Average Shareholders' Equity | $ | 1,842.0 | $ | 1,704.2 | 8.1 | % | |||||||||
Annualized return on average shareholders' equity | 9.0 | % | 6.9 | % | |||||||||||
Annualized adjusted operating return on average shareholders' equity | 6.8 | % | 7.9 | % | |||||||||||
(a) At assumed 20% tax rate |
View source version on businesswire.com: http://www.businesswire.com/news/home/20170807005926/en/
Senior Vice President, Investor Relations
Source:
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