AXIS Capital Reports First Quarter Net Income of $63 Million, or $0.75 Per Diluted Common Share; Operating Income of $123 Million, or $1.46 Per Diluted Common Share
For the first quarter of 2018, the Company reports:
- Annualized return on average common equity of 5.5%
- Annualized operating return on average common equity of 10.8%
- Diluted book value per common share of
$52.57
PEMBROKE,
Operating income1 for the first quarter of 2018 was
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1Operating income (loss) and operating income (loss) per diluted common share are non-GAAP financial measures as defined in SEC Regulation G. The reconciliations of non-GAAP measures to the most comparable GAAP financial measures (net income (loss) available to common shareholders and diluted earnings per common share, respectively) are provided in this release, as is a discussion of the rationale for the presentation of these items. |
Commenting on the first quarter 2018 financial results,
"Over the past several years, AXIS has taken action to become a relevant and leading player in a select number of attractive specialty insurance and reinsurance markets, positioned to deliver superior results across a wide range of market conditions. This quarter's results demonstrate the benefits of our portfolio optimization initiatives and overall earnings potential, highlighted by broad-based improvement in underwriting profitability across our operations and an annualized ex-PGAAP operating ROACE of 12.0% in the quarter2.
"Our efforts to realize AXIS' potential are generating traction. Earlier this year we launched a new phase of our transformation efforts, an enterprise-wide program to further modernize all of our functions and position AXIS to lead in a transforming industry.
"We are focused on getting better, smarter, and faster in serving our clients and partners in distribution. We will, on the one hand, be more efficient in the delivery of our differentiated services, and on the other, invest in greater analytics, technology and development for our staff. Through the combined impact of the Novae integration and our transformation efforts, we expect to deliver savings of
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2Ex-PGAAP operating ROACE is defined as annualized operating return on average common equity, adjusted for purchase accounting impacts related to the acquisition of Novae, and is a non-GAAP financial measure as defined in SEC Regulation G. The reconciliation of ex-PGAAP operating ROACE to the most comparable GAAP financial measure (return on average common equity "ROACE") is provided in this release, as is a discussion of the rationale for the presentation of this item. |
First Quarter Highlights3
- Gross premiums written increased by
$751 million , or 39%, to$2.7 billion , with an increase of 62% in the insurance segment, primarily attributable to the acquisition ofNovae Group plc ("Novae") which closed onOctober 2, 2017 , and an increase of 30% in the reinsurance segment; - Adjusting for the impact of the Novae acquisition, gross premiums written increased by
$399 million , or 21%, with an increase of 27% in the reinsurance segment and an increase of 6% in the insurance segment; - Net premiums written increased by 32% to
$2.0 billion ; - Net premiums earned increased by 24% to
$1.2 billion ; - Combined ratio of 90.8%, compared to 102.1%;
- Current accident year loss ratio of 61.3%, compared to 67.3%;
- Estimated pre-tax catastrophe and weather-related losses of
$35 million , or 3.0 points, on the current accident year loss ratio, compared to$35 million , or 3.7 points; - Favorable prior year reserve development of
$54 million (benefiting the combined ratio by 4.6 points), compared to$25 million (benefiting the combined ratio by 2.6 points); - Fee income from strategic capital partners4 of
$13 million , compared to$11 million ; - Net investment income of
$101 million , compared to$99 million ; - On
January 1, 2018 , the Company entered into an agreement for the Reinsurance to Close ("RITC") of the 2015 and prior years of account of Novae's Syndicate 2007, effectively transferring responsibility for discharging all liabilities associated with all business underwritten by Novae in 2015 and prior years. This transaction resulted in a positive financial impact, which was reflected in the fair values of Novae's assets acquired and liabilities assumed on the acquisition date. During the quarter, the Company recognized a reduction in reserves for losses and loss expenses representing the transfer of liabilities to the reinsurer, consideration paid, and a payable representing consideration due to the reinsurer atMarch 31, 2018 ; - Pre-tax total return on cash and investments5 of (0.1%) including foreign exchange movements, or (0.4%) excluding foreign exchange movements6. The prior year period pre-tax total return was 1.1% including foreign exchange movements, and 1.0% excluding foreign exchange movements;
- Transaction and reorganization expenses related to a new phase of our transformation efforts and the integration of Novae totaled
$13 million and are not included in the Company's operating income; - Underwriting income included the recognition of premium attributable to Novae's balance sheet at the purchase date without the recognition of the associated acquisition costs, which were written off in the opening balance sheet dated
October 2, 2017 . The absence of approximately$40 million of acquisition expense related to the premiums earned in the quarter benefited our acquisition cost ratio by 3.4 points; - Amortization of intangibles of
$60 million including amortization of VOBA ("value of business acquired") of$57 million and amortization of distribution networks of$3 million was recognized in the quarter. This expense affected the Company's operating income, but was not included in the results of the Company's insurance and reinsurance segments; - Net income available to common shareholders of
$63 million , compared to$5 million ; - Operating income of
$123 million , compared to$51 million ; - Net cash flows used in operations of
$88 million inclusive of payments associated with the RITC transaction described above, compared to$36 million ; - Diluted book value per common share of
$52.57 , a decrease of 2% compared to the prior quarter, and a 11% decrease over the last twelve months; - Dividends declared of
$0.39 per common share, with the total common dividends declared of$1.54 per share over the past twelve months; and - Adjusted for dividends, diluted book value per common share decreased by
$0.92 , or 2%, for the quarter and$4.78 or 8%, over the past twelve months.
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3All comparisons are with the same period of the prior year, unless otherwise stated. |
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4Fee income from strategic capital partners represents service fees and reimbursement of expenses earned by |
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5Pre-tax total return on cash and investments includes net investment income (loss), net investment gains (losses), interest in income (loss) of |
| equity method investments and the change in unrealized gains (losses) generated by our average cash and investment balances. Total cash and invested assets represents the total cash, available for sale investments, mortgage loans, other investments, equity method investments, short- term investments, accrued interest receivable and net receivable (payable) for investments sold (purchased). |
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6Pre-tax total return on cash and investments excluding foreign exchange movements is a non-GAAP financial measure as defined in SEC Regulation G. The reconciliation to pre-tax total return on cash and investments, the most comparable GAAP financial measure, also included foreign exchange gains (losses) of |
Segment Highlights
Insurance Segment
The insurance segment reported gross premiums written of
Net premiums written increased by 54% in the first quarter of 2018, compared to the same period in 2017. Excluding the impact of the increase in net premiums written associated with the acquisition of Novae, net premiums written increased by 2% (unchanged on a constant currency basis) reflecting the increase in gross premiums written, together with a decrease in premiums ceded in property lines, partially offset by an increase in premiums ceded in professional lines.
Net premiums earned increased by 48% in the first quarter of 2018, compared to the same period in 2017. Excluding the impact of the increase in net premiums earned associated with the acquisition of Novae, net premiums earned increased by 3% (2% on a constant currency basis) driven by strong premium growth in accident and health lines in recent periods together with premium growth in aviation lines associated with last year's acquisition of Aviabel.
The insurance segment reported an underwriting income of
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7Amounts presented on a constant currency basis are non-GAAP financial measures as defined in SEC Regulation G. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to prior year amounts. The reconciliations to the most comparable GAAP financial measures are provided in this release, as is a discussion of the rationale for the presentation of these items. |
During the first quarter of 2018, we incurred pre-tax catastrophe and weather-related losses of
Net favorable prior year loss reserve development was
The segment's acquisition cost ratio increased in the quarter to 15.1% from 13.8%, compared to the same period in 2017, primarily as a result of changes in business mix.
The segment's general and administrative expense ratio decreased in the quarter to 17.6% from 21.8%, compared to the same period in 2017 largely attributable to a decrease in personnel costs, partially offset by general and administrative expenses associated with the acquisition of Novae.
Reinsurance Segment
The reinsurance segment reported gross premiums written of
Net premiums written increased by 25% in the first quarter of 2018, compared to the same period in 2017. Excluding the impact of the increase in net premiums written associated with the acquisition of Novae, net premiums written increased by 23% (16% on a constant currency basis) reflecting the increase in gross premiums written in the quarter, partially offset by an increase in premiums ceded in credit and surety, accident and health, and catastrophe lines.
Net premiums earned increased by 7% in the first quarter of 2018, compared to the same period in 2017. Excluding the impact of the increase in net premiums earned associated with the acquisition of Novae, net premiums earned increased by 5% (4% on a constant currency basis) driven by strong premium growth in catastrophe, motor, and accident and health lines, partially offset by an increase in ceded premiums earned in catastrophe lines.
The reinsurance segment reported underwriting income of
Net favorable prior year reserve development was
The reinsurance segment's underwriting income for the three months ended
The segment's acquisition cost ratio decreased in the quarter to 24.2% from 24.8%, compared to the same period in 2017, primarily as a result of changes in business mix.
The segment's general and administrative expenses decreased in the quarter to 6.3%, from 6.7%, compared to the same period in 2017, largely attributable to a decrease in personnel costs, partially offset by general and administrative expenses associated with the acquisition of Novae.
Investments
Net investment income of
Capitalization / Shareholders' Equity
Total capital8 at
Following the offer to acquire Novae on
Diluted book value per common share, calculated on a treasury stock basis, decreased by
During the first quarter of 2018, the Company declared dividends of
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8Total capital represents the sum of total shareholders' equity and our senior notes. |
Recent Developments
Early this year,
The Company continues work on the detailed planning phase for the aforementioned enterprise-wide transformation initiative. Based on planning to date, the Company currently expects to deliver an additional run-rate cost savings of
Conference Call
We will host a conference call on
In addition, a financial supplement relating to our financial results for the quarter ended
Please be sure to follow
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CONSOLIDATED BALANCE SHEETS |
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2018 |
2017 |
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(in thousands) |
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Assets |
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| Investments: | |||||||||||
| Fixed maturities, available for sale, at fair value | $ | 11,801,396 | $ | 12,622,006 | |||||||
| Equity securities, at fair value | 435,742 | 635,511 | |||||||||
| Mortgage loans, held for investment, at amortized cost and fair value | 364,769 | 325,062 | |||||||||
| Other investments, at fair value | 1,009,587 | 1,009,373 | |||||||||
| Equity method investments | 108,597 | 108,597 | |||||||||
| Short-term investments, at amortized cost and fair value | 56,246 | 83,661 | |||||||||
| Total investments | 13,776,337 | 14,784,210 | |||||||||
| Cash and cash equivalents | 1,227,736 | 948,626 | |||||||||
| Restricted cash and cash equivalents | 416,844 | 415,160 | |||||||||
| Accrued interest receivable | 73,928 | 81,223 | |||||||||
| Insurance and reinsurance premium balances receivable | 3,892,957 | 3,012,419 | |||||||||
| Reinsurance recoverable on unpaid and paid losses | 3,129,303 | 3,338,840 | |||||||||
| Deferred acquisition costs | 721,820 | 474,061 | |||||||||
| Prepaid reinsurance premiums | 1,015,163 | 809,274 | |||||||||
| Receivable for investments sold | 19,433 | 11,621 | |||||||||
| |
102,004 | 102,003 | |||||||||
| Intangible assets | 253,808 | 257,987 | |||||||||
| Value of business acquired | 150,936 | 206,838 | |||||||||
| Other assets | 307,040 | 317,915 | |||||||||
| Total assets | $ | 25,087,309 | $ | 24,760,177 | |||||||
| Liabilities | |||||||||||
| Reserve for losses and loss expenses | $ | 12,034,643 | $ | 12,997,553 | |||||||
| Unearned premiums | 4,659,858 | 3,641,399 | |||||||||
| Insurance and reinsurance balances payable | 1,251,629 | 899,064 | |||||||||
| Notes payable and debt | 1,376,835 | 1,376,529 | |||||||||
| Payable for investments purchased | 144,315 | 100,589 | |||||||||
| Other liabilities | 355,634 | 403,779 | |||||||||
| Total liabilities | 19,822,914 | 19,418,913 | |||||||||
| Shareholders' equity | |||||||||||
| Preferred shares | 775,000 | 775,000 | |||||||||
| Common shares | 2,206 | 2,206 | |||||||||
| Additional paid-in capital | 2,289,497 | 2,299,166 | |||||||||
| Accumulated other comprehensive income (loss) | (85,216 | ) | 92,382 | ||||||||
| Retained earnings | 6,076,294 | 5,979,666 | |||||||||
| |
(3,793,386 | ) | (3,807,156 | ) | |||||||
| Total shareholders' equity | 5,264,395 | 5,341,264 | |||||||||
| Total liabilities and shareholders' equity | $ | 25,087,309 | $ | 24,760,177 | |||||||
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) |
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FOR THE THREE MONTHS ENDED |
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Three months ended |
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2018 |
2017 |
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(in thousands, except per |
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share amounts) |
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Revenues |
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| Net premiums earned | $ | 1,167,402 | $ | 938,703 | |||||||
| Net investment income | 100,999 | 98,664 | |||||||||
| Net investment losses | (14,830 | ) | (25,050 | ) | |||||||
| Other insurance related income (losses) | 6,606 | (3,783 | ) | ||||||||
| Total revenues | 1,260,177 | 1,008,534 | |||||||||
| Expenses | |||||||||||
| Net losses and loss expenses | 661,345 | 606,942 | |||||||||
| Acquisition costs | 229,260 | 189,792 | |||||||||
| General and administrative expenses | 169,837 | 161,260 | |||||||||
| Foreign exchange losses | 37,860 | 21,465 | |||||||||
| Interest expense and financing costs | 16,763 | 12,791 | |||||||||
| Transaction and reorganization expenses | 13,054 | — | |||||||||
| Amortization of value of business acquired | 57,110 | — | |||||||||
| Amortization of intangibles | 2,782 | — | |||||||||
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Total expenses |
1,188,011 | 992,250 | |||||||||
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| Income before income taxes and interest in income (loss) of equity method investments | 72,166 | 16,284 | |||||||||
| Income tax benefit | 1,036 | 9,337 | |||||||||
| Interest in loss of equity method investments | — | (5,766 | ) | ||||||||
| Net income | 73,202 | 19,855 | |||||||||
| Preferred share dividends | 10,656 | 14,841 | |||||||||
| Net income available to common shareholders | $ | 62,546 | $ | 5,014 | |||||||
| Per share data | |||||||||||
| Net income per common share: | |||||||||||
| Basic net income | $ | 0.75 |
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$ |
0.06 |
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| Diluted net income | $ | 0.75 |
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$ |
0.06 |
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| Weighted average number of common shares outstanding - basic | 83,322 |
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86,022 |
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| Weighted average number of common shares outstanding - diluted | 83,721 |
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86,793 |
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| Cash dividends declared per common share | $ | 0.39 |
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$ |
0.38 |
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CONSOLIDATED SEGMENTAL DATA (UNAUDITED) |
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FOR THE THREE MONTHS ENDED |
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| 2018 | 2017 | ||||||||||||||||||||||||||||||
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Insurance |
Reinsurance | Total | Insurance | Reinsurance | Total | |||||||||||||||||||||||||
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(in thousands) |
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| Gross premiums written | $ | 880,848 | $ | 1,781,947 | $ | 2,662,795 | $ | 545,261 | $ | 1,366,610 | $ | 1,911,871 | |||||||||||||||||||
| Net premiums written | 547,893 | 1,437,978 | 1,985,871 | 356,836 | 1,152,122 | 1,508,959 | |||||||||||||||||||||||||
| Net premiums earned | 580,059 | 587,343 | 1,167,402 | 391,964 | 546,739 | 938,703 | |||||||||||||||||||||||||
| Other insurance related income (losses) | 620 | 5,986 | 6,606 | 42 | (3,825 | ) | (3,783 | ) | |||||||||||||||||||||||
| Net losses and loss expenses | (321,538 | ) | (339,807 | ) | (661,345 | ) | (241,085 | ) | (365,857 | ) | (606,942 | ) | |||||||||||||||||||
| Acquisition costs | (87,329 | ) | (141,931 | ) | (229,260 | ) | (54,004 | ) | (135,788 | ) | (189,792 | ) | |||||||||||||||||||
|
Underwriting-related general and |
(102,370 |
) |
(37,296 |
) |
(139,666 |
) |
(85,256 |
) |
(36,545 |
) |
(121,801 |
) |
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Underwriting income (10) |
$ | 69,442 | $ | 74,295 | 143,737 | $ | 11,661 | $ | 4,724 | 16,385 | |||||||||||||||||||||
| Corporate expenses(9) | (30,171 | ) | (39,459 | ) | |||||||||||||||||||||||||||
| Net investment income | 100,999 | 98,664 | |||||||||||||||||||||||||||||
| Net investment losses | (14,830 | ) | (25,050 | ) | |||||||||||||||||||||||||||
| Foreign exchange losses | (37,860 | ) | (21,465 | ) | |||||||||||||||||||||||||||
| Interest expense and financing costs | (16,763 | ) | (12,791 | ) | |||||||||||||||||||||||||||
| Transaction and reorganization expenses | (13,054 | ) | — | ||||||||||||||||||||||||||||
| Amortization of value of business acquired |
(57,110 |
) |
— |
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| Amortization of intangibles |
(2,782 |
) |
— | ||||||||||||||||||||||||||||
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Income before income taxes and |
$ |
72,166 |
$ |
16,284 |
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Net loss and loss expense ratio |
55.4 |
% |
57.9 |
% |
56.7 |
% |
61.5 |
% |
66.9 |
% |
64.7 |
% |
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Acquisition cost ratio |
15.1 |
% |
24.2 |
% |
19.6 |
% |
13.8 |
% |
24.8 |
% |
20.2 |
% |
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General and administrative |
17.6 |
% |
6.3 |
% |
14.5 |
% |
21.8 |
% |
6.7 |
% |
17.2 |
% |
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Combined ratio |
88.1 |
% |
88.4 |
% |
90.8 |
% |
97.0 |
% |
98.4 |
% |
102.1 |
% |
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9Underwriting-related general and administrative expenses is a non-GAAP financial measure as defined in |
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10Consolidated underwriting income is a non-GAAP financial measure as defined in SEC Regulation G. The reconciliation to income before tax and interest in income (loss) of equity investments, the most comparable GAAP measure, is presented above. |
| On |
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NON-GAAP FINANCIAL MEASURES RECONCILIATION (UNAUDITED) |
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OPERATING INCOME, OPERATING RETURN ON AVERAGE COMMON EQUITY |
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AND UNDERWRITING-RELATED GENERAL AND ADMINISTRATIVE EXPENSES |
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FOR THE THREE MONTHS ENDED |
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Three months ended |
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2018 |
2017 |
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(in thousands, except per share amounts) |
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| Net income available to common shareholders | $ | 62,546 | $ | 5,014 | |||||||
| Net investment losses, net of tax(11) | 15,973 | 24,227 | |||||||||
| Foreign exchange losses, net of tax(12) | 33,535 | 21,723 | |||||||||
| Transaction and reorganization expenses, net of tax(13) | 10,583 | — | |||||||||
| Operating income | $ | 122,637 | $ | 50,964 | |||||||
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Earnings per common share - diluted |
$ |
0.75 |
$ |
0.06 |
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| Net investment losses, net of tax | 0.18 | 0.28 | |||||||||
| Foreign exchange losses, net of tax | 0.40 | 0.25 | |||||||||
| Transaction and reorganization expenses, net of tax | 0.13 | — | |||||||||
| Operating income per common share - diluted | $ | 1.46 | $ | 0.59 | |||||||
| Weighted average common shares and common share equivalents - diluted | 83,721 | 86,793 | |||||||||
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Average common shareholders' equity |
4,527,830 |
5,125,294 |
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| Annualized return on average common equity | 5.5 | % | 0.4 | % | |||||||
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Operating return on average common equity(14) |
10.8 |
% |
4.0 |
% |
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| nm - not meaningful | |||||||||||
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11Tax cost (benefit) of |
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12Tax cost (benefit) of ( |
| the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the tax status of specific foreign exchange transactions. |
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13Tax cost (benefit) of |
| jurisdictions, after consideration of other relevant factors including the tax status of specific foreign exchange transactions. |
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14Operating return on average common equity is a non-GAAP financial measure as defined in SEC Regulation G. The reconciliation to the most comparable GAAP financial measure annualized return on average common equity is provided in this release, as is a discussion of the rationale for the presentation of these items. |
Cautionary Note Regarding Forward-Looking Statements
This release contains forward-looking statements within the meaning of the
Non-GAAP Financial Measures
We present our results of operations in a way we believe will be most meaningful and useful to investors, analysts, rating agencies and others who use our financial information to evaluate our performance. Some of the measurements we use are considered non-GAAP financial measures under
Underwriting-Related General and Administrative Expenses
Underwriting-related general and administrative expenses include those general and administrative expenses that are incremental and/or directly attributable to our individual underwriting operations. While this measure is presented in the Segment Information footnote to our Consolidated Financial Statements, it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.
Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As these costs are not incremental and/or directly attributable to our individual underwriting operations, we exclude them from underwriting-related general and administrative expenses and, therefore, consolidated underwriting income. General and administrative expenses, the most comparable GAAP financial measure to underwriting-related general and administrative expenses, also includes corporate expenses.
The reconciliation of underwriting-related general and administrative expenses to general and administrative expenses, the most comparable GAAP measure, is presented in the Consolidated Segmental Data section of this press release.
Consolidated Underwriting Income
Consolidated underwriting income is a pre-tax measure of underwriting profitability that takes into account net premiums earned and other insurance related income (losses) as revenues and net losses and loss expenses, acquisition costs and underwriting-related general and administrative costs as expenses. While this measure is presented in the Segment Information footnote to our Consolidated Financial Statements, it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.
We evaluate our underwriting results separately from the performance of our investment portfolio. As such, we believe it is appropriate to exclude net investment income and net investment gains (losses) from our underwriting profitability measure.
Foreign exchange losses (gains) in our Consolidated Statement of Operations primarily relate to our net insurance-related liabilities. However, we manage our investment portfolio in such a way that unrealized and realized foreign exchange losses (gains) on our investment portfolio, generally offset a large portion of the foreign exchange losses (gains) arising from our underwriting portfolio. As a result, we believe that foreign exchange losses (gains) are not a meaningful contributor to our underwriting performance, therefore, foreign exchange losses (gains) are excluded from consolidated underwriting income.
Interest expense and financing costs primarily relate to interest payable on our senior notes. As these costs are not incremental and/or directly attributable to our individual underwriting operations, we exclude them from underwriting-related general and administrative expenses, and therefore, consolidated underwriting income.
Transaction and reorganization expenses are driven by business decisions, the nature and timing of which are not related to the underwriting process therefore, these expenses are excluded from consolidated underwriting income.
Amortization of intangibles including value of business acquired arose from business decisions, the nature and timing of which are not related to the underwriting process therefore, these expenses are excluded from consolidated underwriting income.
We believe that presentation of underwriting-related general and administrative expenses and consolidated underwriting income provides investors with an enhanced understanding of our results of operations, by highlighting the underlying pre-tax profitability of our underwriting activities. The reconciliation of consolidated underwriting income to income before income taxes and interest in income (loss) of equity method investments, the most comparable GAAP financial measure, is presented in the Consolidated Segmental Data section of this press release.
Operating Income
Operating income represents after-tax operational results without consideration of after-tax net investment gains (losses), foreign exchange losses (gains), and transaction and reorganization expenses.
Although the investment of premiums to generate income and investment gains (losses) is an integral part of our operations, the determination to realize investment gains (losses) is independent of the underwriting process and is heavily influenced by the availability of market opportunities. Furthermore, many users believe that the timing of the realization of investment gains (losses) is somewhat opportunistic for many companies.
Foreign exchange losses (gains) in our Consolidated Statements of Operations are primarily driven by the impact of foreign exchange rate movements on net insurance-related liabilities. However, this movement is only one element of the overall impact of foreign exchange rate fluctuations on our financial position. In addition, we recognize unrealized foreign exchange losses (gains) on our available-for-sale investments in other comprehensive income and foreign exchange losses (gains) realized upon the sale of these investments in net investment gains (losses). These unrealized and realized foreign exchange rate movements generally offset a large portion of the foreign exchange losses (gains) reported separately in net income (loss), thereby minimizing the impact of foreign exchange rate movements on total shareholders’ equity. As such, the foreign exchange losses (gains) in our Statement of Operations in isolation are not a fair representation of the performance of our business.
Transaction and reorganization expenses are primarily driven by business decisions, the nature and timing of which are not related to the underwriting process and are not representative of underlying business performance.
Certain users of our financial statements evaluate performance excluding after-tax net investment gains (losses), foreign exchange losses (gains), and transaction and reorganization expenses to understand the profitability of recurring sources of income.
We believe that showing net income available to common shareholders exclusive of net investment gains (losses), foreign exchange losses (gains), and transaction and reorganization related expenses reflects the underlying fundamentals of our business. In addition, we believe that this presentation enables investors and other users of our financial information to analyze performance in a manner similar to how our management analyzes the underlying business performance. We also believe this measure follows industry practice and, therefore, facilitates comparison of our performance with our peer group. We believe that equity analysts and certain rating agencies that follow us, and the insurance industry as a whole, generally exclude these items from their analyses for the same reasons. The reconciliation of operating income to net income available to shareholders, the most comparable GAAP measure, is presented in the Non- GAAP Financial Measures Reconciliation section in this release.
Constant Currency Basis
We present gross premiums written, net premiums written and net premiums earned on a constant currency basis in this release. The amounts presented on a constant currency basis are calculated by applying the average foreign exchange rate from the current year to the prior year amounts. We believe this presentation enables investors and other users of our financial information to analyze growth in gross premiums written, net premiums written and net premiums earned on a constant basis. The reconciliation to gross premiums written, net premiums written and net premiums earned on a GAAP basis is presented in the Non-GAAP Financial Measures Reconciliation in this release.
Pre-Tax Total Return on Cash and Investments excluding
Pre-tax total return on cash and investments excluding foreign exchange movements measures net investment income (loss), net investments gains (losses), interest in income (loss) of equity method investments, and pre-tax change in unrealized gains (losses) generated by our average cash and investment balances. The reconciliation to pre-tax total return on cash and investments, the most comparable GAAP financial measure is presented in the First Quarter Highlights section in this release. We believe this presentation enables investors and other users of our financial information to analyze the performance of our investments.
Non-GAAP Financial Measures
We also present operating income per diluted common share and annualized operating return on average common equity ("annualized operating ROACE"), which are derived from the operating income measure and are reconciled to the most comparable GAAP financial measure in the Non-GAAP Financial Measures Reconciliation in this release.
Ex-PGAAP operating income, ex PGAAP operating ROACE
Ex-PGAAP operating income represents operating income adjusted for amortization of VOBA, after tax15 and amortization of acquisition costs, after tax15 associated with Novae's balance sheet at
On
|
15VOBA, after-tax is a non-GAAP financial measure as defined in SEC Regulation G. The reconciliation to VOBA, the most comparable GAAP financial measure, included tax of |
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