Alterra Capital Reports Third Quarter 2012 Results

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HAMILTON, Bermuda--(BUSINESS WIRE)--

Alterra Capital Holdings Limited ALTE ALTE (“Alterra”) today reported net income of $37.7 million, or $0.38 per diluted share, for the third quarter of 2012, compared to net income of $48.4 million, or $0.46 per diluted share, for the same quarter of 2011.

Net operating income for the third quarter of 2012 was $32.1 million, or $0.33 per diluted share, compared to net operating income of $50.1 million, or $0.47 per diluted share, for the same quarter of 2011. Annualized net operating return on average shareholders' equity for the third quarter of 2012 was 4.5%.

For the nine months ended September 30, 2012, Alterra reported net income of $195.6 million, or $1.93 per diluted share, compared to net income of $34.3 million, or $0.32 per diluted share, for the same period of 2011. Net operating income for the nine months ended September 30, 2012 was $168.8 million, or $1.67 per diluted share, compared to net operating income of $64.9 million, or $0.61 per diluted share, for the same period of 2011. Annualized net operating return on average shareholders' equity for the nine months ended September 30, 2012 was 7.9%.

W. Marston (Marty) Becker, President and Chief Executive Officer of Alterra, said: "Alterra's third quarter results reflect a fundamentally sound quarter, notwithstanding negative impacts from crop and storm losses. We've seen continued growth in book value per share contributing to an 11.5% growth in diluted book value per share including dividends, since December 31, 2011.

"Premium rates continue to firm at a measured pace, but with variation across product lines. We believe our diversified underwriting strategy, by both product line and geography, positions us well to capture favorable underwriting opportunities as they arise, even as we continue to limit our exposure in lines that we think are inadequately priced.

"The investment environment remains challenging, given the global market conditions all firms are confronting. We continue to search for higher yielding opportunities without compromising the overall quality of our portfolio, in addition to actively managing our capital positions," Mr. Becker concluded.

Third quarter 2012 results for Alterra include:

  • Property and casualty gross premiums written of $385.5 million, which is unchanged compared to the same quarter of 2011;
  • Net premiums written of $262.1 million, representing a decrease of $32.6 million, or 11.1%, compared to the same quarter of 2011. This decrease reflects increased property reinsurance premiums ceded in order to manage aggregate property exposures across all segments, partially offset by growth in gross premiums written in the global insurance and U.S. insurance segments;
  • A combined ratio on property and casualty business of 99.9%, compared to 87.7% for the same quarter of 2011;
  • Significant property catastrophe event net losses of $15.0 million, net of reinstatement premiums, principally within the U.S. insurance segment, compared to net losses of $42.1 million, net of reinstatement premiums, in the same quarter of 2011. A smaller proportion of 2012's property losses fell within the attritional loss ratio, contributing to a higher combined ratio in 2012;
  • Net underwriting losses of $22.5 million on agriculture reinsurance, net of premiums and acquisition costs earned;
  • Net favorable development on prior years' loss reserves of $22.7 million, or 6.8 combined ratio points, compared to $31.7 million, or 9.2 combined ratio points, in the same quarter of 2011;
  • Net investment income of $53.5 million, compared to $60.3 million in the same quarter of 2011, a decrease of 11.3%; and
  • Income of $6.8 million from New Point Re IV Limited, a sidecar in which Alterra has an indirect 34.8% equity interest, consisting of fees and equity share earnings.

Gross premiums written and net premiums written from property and casualty underwriting for the third quarter of 2012 are shown in the following table, with the increase/decrease compared to the same quarter of 2011:

Segment ($ in millions)

 

GPW

 

% Inc/(Dec)

   

NPW

 

% Inc/(Dec)

   

Combined Ratio

 
Global Insurance $ 81.6 11.4 % $ 37.5 5.0 % 86.3 %
Reinsurance 172.8 (5.3 )% 142.5 (14.5 )% 86.5 %
U.S. Insurance 88.0 3.7 % 47.9 (11.7 )% 129.7 %
Alterra at Lloyd's   43.1   (3.9 )%       34.2   (10.1 )%     131.4 %
Total $ 385.5 % $ 262.1 (11.1 )% 99.9 %

Results for the nine months ended September 30, 2012 include:

  • Property and casualty gross premiums written of $1,612.2 million, representing an increase of $36.3 million, or 2.3%, compared to the same period of 2011;
  • Net premiums written of $1,074.6 million, representing a decrease of $136.6 million, or 11.3%, compared to the same period of 2011. This decrease reflects increased property reinsurance premiums ceded in order to manage aggregate property exposures across all segments, and a decrease in net premiums written on the contract binding business in the U.S. insurance segment resulting from the sale of the renewal rights for this business in 2011;
  • A combined ratio on property and casualty business of 92.9%, compared to 98.4% for the same period of 2011;
  • Significant property catastrophe event net losses of $15.0 million, net of reinstatement premiums, compared to net losses of $197.9 million, net of reinstatement premiums, in the same period of 2011;
  • Net underwriting losses of $22.5 million on agriculture reinsurance, net of premiums and acquisition costs earned;
  • Net favorable development on prior years' loss reserves of $53.8 million, or 5.3 combined ratio points, compared to $110.4 million, or 10.3 combined ratio points, in the same period of 2011;
  • Net investment income of $166.9 million, compared to $177.8 million in the same period of 2011, a decrease of 6.1%; and
  • Income of $23.4 million from New Point Re IV Limited consisting of fees and equity share earnings.

Gross premiums written and net premiums written from property and casualty underwriting for the nine months ended September 30, 2012 are shown in the following table, with the increase/decrease compared to the same period of 2011:

Segment ($ in millions)

 

GPW

 

% Inc/(Dec)

 

NPW

 

% Inc/(Dec)

 

Combined Ratio

 
Global Insurance $ 273.7 2.1 % $ 133.0 (2.8 )% 66.8 %
Reinsurance 772.8 (4.6 )% 612.5 (16.0 )% 88.5 %
U.S. Insurance 304.5 11.8 % 142.4 (18.8 )% 110.0 %
Alterra at Lloyd's   261.2   16.0 %     186.7   9.6 %   115.2 %
Total $ 1,612.2 2.3 % $ 1,074.6 (11.3 )% 92.9 %

With the total impact and ramifications of Hurricane Sandy unclear, it is too early for Alterra to make a reliable estimate of losses for this event. However, the social and economic loss has already shown itself to be meaningful. In accordance with Alterra's normal practice, a loss estimate will be released once more information is available.

Balance Sheet

Total invested assets, including cash and cash equivalents, were $7,970.9 million as of September 30, 2012, an increase of $156.2 million from December 31, 2011. As of September 30, 2012, 96.3% of the fixed maturities portfolio (by carrying value) was investment-grade, an increase from 94.4% as of December 31, 2011. As of September 30, 2012, the weighted average book yield of Alterra's cash and fixed maturities portfolio was 3.21%, and the weighted average duration was 4.4 years.

Under a Board-approved share repurchase authorization, Alterra repurchased 921,707 common shares during the third quarter of 2012 at an average price of $23.11 per share for a total of $21.3 million. Share repurchases under the Board-approved share repurchase authorization for the nine months ended September 30, 2012 were 6,626,684 common shares at an average price of $23.03 per share for a total of $152.6 million. As of September 30, 2012, $201.7 million remained under the Board-approved share repurchase authorization.

Shareholders' equity was $2,923.2 million as of September 30, 2012, an increase of 4.1% from December 31, 2011. Diluted book value per share as of September 30, 2012 was $29.57. Including dividends declared, diluted book value per share growth for the third quarter of 2012 was 3.6%, and was 11.5% for the nine months ended September 30, 2012. Not included in shareholders' equity as of September 30, 2012 were $194.8 million of unrecognized gains on held-to-maturity securities, which represented $1.97 in unrecognized diluted book value per share.

A copy of Alterra's third quarter financial supplement is available on Alterra's website at www.alterracap.com.

Alterra will host a conference call on Wednesday, November 7, 2012 at 11:00 am (EDT) to discuss these results and related matters. The conference call can be accessed via telephone by dialing 1-866-700-7173 (toll-free U.S.) or 1-617-213-8838 (international) and using access code 15493660. A live broadcast of the conference call will also be available through Alterra's website at www.alterracap.com.

Alterra Capital Holdings Limited is a global enterprise dedicated to providing diversified specialty insurance and reinsurance products to corporations, public entities and property and casualty insurers.

Non-GAAP Financial Measures

In presenting Alterra's results, management has included and discussed net operating income, net operating income per diluted share, annualized net operating return on average shareholders' equity and diluted tangible book value per share. These measures are “non-GAAP financial measures” as defined in Regulation G. Management believes that these non-GAAP financial measures, which may be defined differently by other companies, allow for a more complete understanding of Alterra's business. These measures, however, should not be viewed as a substitute for measures determined in accordance with U.S. GAAP. The reconciliation of these measures to their respective most directly comparable U.S. GAAP financial measures is presented in the attached financial information in accordance with Regulation G.

Cautionary Note Regarding Forward-Looking Statements

This release includes forward-looking statements that reflect Alterra's current views with respect to future events and financial performance. In particular, statements regarding future rate movements are forward looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those suggested by such statements. For further information regarding cautionary statements and factors affecting Alterra's future results, please refer to the most recent reports on Form 10-K and Form 10-Q and other documents filed by Alterra with the SEC. Alterra undertakes no obligation to update or revise publicly any forward-looking statement whether as a result of new information, future developments or otherwise.

ALTERRA CAPITAL HOLDINGS LIMITED

 

CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of United States Dollars, except per share and share amounts)

   
September 30,
2012
December 31,
2011
(Unaudited)
ASSETS
Cash and cash equivalents $ 405,809 $ 469,477
Fixed maturities, trading, at fair value 376,498 229,206
Fixed maturities, available for sale, at fair value 5,728,640 5,501,925
Fixed maturities, held to maturity, at amortized cost (fair value $1,032,100) 837,348 874,259
Other investments 376,870 286,515
Restricted cash and cash equivalents 245,747 453,367
Accrued interest income 65,236 71,322
Premiums receivable 872,948 715,154
Losses and benefits recoverable from reinsurers 1,149,684 1,068,119
Deferred acquisition costs 166,128 145,850
Prepaid reinsurance premiums 303,171 212,238
Trades pending settlement 77,802 22,887
Goodwill and intangible assets 55,371 56,111
Other assets 72,758 79,417
   
Total assets $ 10,734,010   $ 10,185,847
 
LIABILITIES
Property and casualty losses $ 4,460,045 $ 4,216,538
Life and annuity benefits 1,148,317 1,190,697
Deposit liabilities 139,518 151,035
Funds withheld from reinsurers 93,190 112,469
Unearned property and casualty premiums 1,192,203 1,020,639
Reinsurance balances payable 214,202 134,354
Accounts payable and accrued expenses 93,810 110,380
Trades pending settlement 29,022
Senior notes 440,527 440,500
   
Total liabilities 7,810,834   7,376,612
 
SHAREHOLDERS' EQUITY
Common shares (par value $1.00 per share);
95,985,461 (2011—102,101,950) shares issued and outstanding
95,985 102,102
Additional paid-in capital 1,715,748 1,847,034
Accumulated other comprehensive income 265,232 166,957
Retained earnings 846,211 693,142
   
Total shareholders' equity 2,923,176   2,809,235
 
Total liabilities and shareholders' equity $ 10,734,010   $ 10,185,847
 
Book value per share $ 30.45   $ 27.51
 
Diluted book value per share $ 29.57   $ 26.91
 
Diluted tangible book value per share [a] $ 29.01   $ 26.37
 
Diluted shares outstanding 98,850,961 104,406,779
 

[a] Non-GAAP financial measure as defined by Regulation G.

 

ALTERRA CAPITAL HOLDINGS LIMITED

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)

(Expressed in thousands of United States Dollars, except per share and share amounts)

   

Three Months Ended
September 30,

Nine Months Ended
September 30,

2012

 

2011

2012

 

2011

REVENUES
Gross premiums written $ 386,228 $ 386,328 $ 1,614,415 $ 1,578,083
Reinsurance premiums ceded (123,477 ) (90,891 ) (537,818 ) (364,874 )
Net premiums written $ 262,751   $ 295,437   $ 1,076,597   $ 1,213,209  
 
Earned premiums $ 483,222 $ 452,931 $ 1,457,928 $ 1,385,201
Earned premiums ceded (150,584 ) (105,889 ) (436,337 ) (309,331 )
Net premiums earned 332,638 347,042 1,021,591 1,075,870
 
Net investment income 53,518 60,335 166,925 177,766
Net realized and unrealized gains (losses) on investments 20,436 (7,972 ) 59,410 (32,564 )
 
Total other-than-temporary impairment losses (522 ) (692 ) (6,409 ) (2,003 )
Portion of loss recognized in other comprehensive income (loss), before taxes (70 ) (169 ) (122 ) (240 )
Net impairment losses recognized in earnings (592 ) (861 ) (6,531 ) (2,243 )
 
Other income 1,586 1,473 8,876 3,379
       
Total revenues 407,586   400,017   1,250,271   1,222,208  
 
LOSSES AND EXPENSES
Net losses and loss expenses 228,529 198,521 631,322 714,060
Claims and policy benefits 11,838 14,538 38,576 44,818
Acquisition costs 61,923 61,434 183,818 196,722
Interest expense 9,026 11,303 27,289 30,392
Net foreign exchange (gains) losses (82 ) (147 ) (89 ) 2,065
General and administrative expenses 57,515 61,555 176,374 202,417
       
Total losses and expenses 368,749   347,204   1,057,290   1,190,474  
 
INCOME BEFORE TAXES 38,837 52,813 192,981 31,734
 
Income tax expense (benefit) 1,185   4,427   (2,635 ) (2,600 )
 
NET INCOME 37,652 48,386 195,616 34,334
 
Holding gains on available for sale securities arising in period [a] 57,314 66,329 117,251 97,610
Net realized gains on available for sale securities included in net income [a] (3,083 ) (4,958 ) (22,809 ) (8,076 )
Portion of other-than-temporary impairment losses recognized in other comprehensive income [a] 70 169 122 240
Foreign currency translation adjustment 8,702   (20,733 ) 3,711   (15,695 )
Other comprehensive income 63,003 40,807 98,275 74,079
       
COMPREHENSIVE INCOME $ 100,655   $ 89,193   $ 293,891   $ 108,413  
 
Net income per share $ 0.39   $ 0.46   $ 1.98   $ 0.32  
Net income per diluted share $ 0.38   $ 0.46   $ 1.93   $ 0.32  
Net operating income per diluted share [b] $ 0.33   $ 0.47   $ 1.67   $ 0.61  
 
Weighted average common shares outstanding—basic 95,791,466   104,830,300   98,785,999   105,866,771  
Weighted average common shares outstanding—diluted 98,610,267   105,665,282   101,252,927   107,092,882  
 

[a] Net of tax.

[b] Non-GAAP financial measure as defined by Regulation G.

 

ALTERRA CAPITAL HOLDINGS LIMITED

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)

(Expressed in thousands of United States Dollars)

 
Nine Months Ended September 30,

2012

 

2011

Common shares
Balance, beginning of period $ 102,102 $ 110,963
Issuance of common shares, net 765 1,384
Repurchase of shares (6,882 ) (8,023 )
Balance, end of period 95,985   104,324  
 
Additional paid-in capital
Balance, beginning of period 1,847,034 2,026,045
Issuance of common shares, net 2,483 632
Stock based compensation expense 18,005 28,014
Repurchase of shares (151,774 ) (163,928 )
Balance, end of period 1,715,748   1,890,763  
 
Accumulated other comprehensive income
Unrealized holdings gains on investments:
Balance, beginning of period 204,301 118,197
Holding gains on available for sale fixed maturities arising in period, net of tax 117,251 97,610
Net realized gains on available for sale securities included in net income, net of tax (22,809 ) (8,076 )
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of tax 122   240  
Balance, end of period 298,865   207,971  
Cumulative foreign currency translation adjustment:
Balance, beginning of period (37,344 ) (19,251 )
Foreign currency translation adjustment 3,711   (15,695 )
Balance, end of period (33,633 ) (34,946 )
Total accumulated other comprehensive income, end of period 265,232   173,025  
 
Retained earnings
Balance, beginning of period 693,142 682,316
Net income 195,616 34,334
Dividends (42,547 ) (40,024 )
Balance, end of period 846,211   676,626  
 
Total shareholders' equity $ 2,923,176   $ 2,844,738  
 

ALTERRA CAPITAL HOLDINGS LIMITED

 

CONSOLIDATED STATEMENTS OF CASHFLOWS (Unaudited)

(Expressed in thousands of United States Dollars)

 
Nine Months Ended September 30,

 

2012

 

2011

OPERATING ACTIVITIES
Net income $ 195,616 $ 34,334
Adjustments to reconcile net income to net cash provided by operating activities:
Stock based compensation 18,005 28,014
Amortization of premium on fixed maturities 23,282 15,383
Accretion of deposit liabilities 2,430 4,245
Net realized and unrealized (gains) losses on investments (59,410 ) 32,564
Net impairment losses recognized in earnings 6,531 2,243
Changes in:
Accrued interest income 6,127 4,370
Premiums receivable (154,967 ) (188,751 )
Losses and benefits recoverable from reinsurers (77,861 ) (123,268 )
Deferred acquisition costs (19,764 ) (54,495 )
Prepaid reinsurance premiums (90,053 ) (65,156 )
Other assets (513 ) 5,652
Property and casualty losses 231,665 293,119
Life and annuity benefits (35,517 ) (47,023 )
Funds withheld from reinsurers (19,279 ) 3,524
Unearned property and casualty premiums 168,203 244,206
Reinsurance balances payable 79,739 75,643
Accounts payable and accrued expenses (16,996 )   10,871  
Cash provided by operating activities 257,238     275,475  
 
INVESTING ACTIVITIES
Purchases of available for sale securities (1,701,243 ) (1,929,474 )
Sales of available for sale securities 754,150 1,126,984
Redemptions/maturities of available for sale securities 852,480 660,245
Purchases of trading securities (358,770 ) (50,971 )
Sales of trading securities 194,355 24,563
Redemptions/maturities of trading securities 27,219 44,231
Purchases of held to maturity securities (2,580 )
Redemptions/maturities of held to maturity securities 28,667 18,251
Net (purchases) sales of other investments (121,706 ) 27,353
Dividends from equity method investments 8,694
Change in restricted cash and cash equivalents 207,620   (98,165 )
Cash used in investing activities (108,534 ) (179,563 )
 
FINANCING ACTIVITIES
Net proceeds from issuance of common shares 3,248 2,016
Repurchase of common shares (158,656 ) (171,951 )
Dividends paid (42,317 ) (39,894 )
Additions to deposit liabilities 8,725 334
Payments of deposit liabilities (22,672 ) (5,056 )
Cash used in financing activities (211,672 ) (214,551 )
 
Effect of exchange rate changes on foreign currency cash and cash equivalents (700 ) (15,157 )
 
Net decrease in cash and cash equivalents (63,668 ) (133,796 )
 
Cash and cash equivalents, beginning of period 469,477   561,694  
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 405,809   $ 427,898  
 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Interest paid totaled $25,138 and $25,320 for the nine months ended September 30, 2012 and 2011, respectively.

Income taxes paid totaled $7,013 and $172 for the nine months ended September 30, 2012 and 2011, respectively.

 

ALTERRA CAPITAL HOLDINGS LIMITED

 
SCHEDULE OF SUPPLEMENTAL SEGMENT DATA - THREE MONTHS ENDED SEPTEMBER 30, 2012 (Unaudited)
(Expressed in thousands of United States Dollars)
Property & Casualty   Life & Annuity
Reinsurance
  Corporate   Consolidated
Global
Insurance
  U.S.
Insurance
  Reinsurance   Alterra at
Lloyd's
  Total      
Gross premiums written $ 81,627   $ 88,006   $ 172,796   $ 43,074   $ 385,503 $ 725 $ $ 386,228
Reinsurance premiums ceded (44,157 )   (40,083 )   (30,318 )   (8,835 )   (123,393 )   (84 )       (123,477 )
Net premiums written $ 37,470     $ 47,923     $ 142,478     $ 34,239     $ 262,110     $ 641     $     $ 262,751  
 
Earned premiums $ 92,526 $ 100,187 $ 223,231 $ 66,553 $ 482,497 $ 725 $ $ 483,222
Earned premiums ceded (48,392 )   (52,222 )   (36,446 )   (13,440 )   (150,500 )   (84 )       (150,584 )
Net premiums earned 44,134 47,965 186,785 53,113 331,997 641 332,638
 
Net losses and loss expenses (31,631 ) (46,489 ) (98,067 ) (52,342 ) (228,529 ) (228,529 )
Claims and policy benefits (11,838 ) (11,838 )
Acquisition costs (124 ) (4,404 ) (47,159 ) (10,104 ) (61,791 ) (132 ) (61,923 )
General and administrative expenses (6,328 ) (11,337 ) (16,259 ) (7,342 ) (41,266 ) (74 ) (41,340 )
Other income         1,560     1     1,561             1,561  
Underwriting income (loss) $ 6,051 $ (14,265 ) $ 26,860 $ (16,674 ) $ 1,972 n/a n/a
Net investment income 13,224 40,294 53,518
Net realized and unrealized gains on investments 20,436 20,436
Net impairment losses recognized in earnings (592 ) (592 )
Corporate other income 25 25
Interest expense (9,026 ) (9,026 )
Net foreign exchange gains 82 82
Corporate general and administrative expenses     (16,175 )   (16,175 )
Income before taxes $ 1,821     $ 35,044     $ 38,837  
Loss ratio (a) 71.7 % 96.9 % 52.5 % 98.5 % 68.8 %
Acquisition cost ratio (b) 0.3 % 9.2 % 25.2 % 19.0 % 18.6 %
General and administrative expense ratio (c) 14.3 %   23.6 %   8.7 %   13.8 %   12.4 %
Combined ratio (d) 86.3 %   129.7 %   86.5 %   131.4 %   99.9 %
 
SCHEDULE OF SUPPLEMENTAL SEGMENT DATA - NINE MONTHS ENDED SEPTEMBER 30, 2012 (Unaudited)
(Expressed in thousands of United States Dollars)
Property & Casualty Life & Annuity
Reinsurance
Corporate Consolidated
Global
Insurance
  U.S.
Insurance
  Reinsurance   Alterra at
Lloyd's
  Total      
Gross premiums written $ 273,674 $ 304,474 $ 772,823 $ 261,225 $ 1,612,196 $ 2,219 $ $ 1,614,415
Reinsurance premiums ceded (140,632 )   (162,101 )   (160,335 )   (74,493 )   (537,561 )   (257 )       (537,818 )
Net premiums written $ 133,042     $ 142,373     $ 612,488     $ 186,732     $ 1,074,635     $ 1,962     $     $ 1,076,597  
 
Earned premiums $ 279,432 $ 296,728 $ 670,767 $ 208,782 $ 1,455,709 $ 2,219 $ $ 1,457,928
Earned premiums ceded (140,892 )   (137,168 )   (101,423 )   (56,597 )   (436,080 )   (257 )       (436,337 )
Net premiums earned 138,540 159,560 569,344 152,185 1,019,629 1,962 1,021,591
 
Net losses and loss expenses (72,437 ) (121,386 ) (313,452 ) (124,047 ) (631,322 ) (631,322 )
Claims and policy benefits (38,576 ) (38,576 )
Acquisition costs (422 ) (18,269 ) (137,739 ) (26,981 ) (183,411 ) (407 ) (183,818 )
General and administrative expenses (19,722 ) (35,809 ) (52,631 ) (24,293 ) (132,455 ) (227 ) (132,682 )
Other income 816     81     7,896     8     8,801             8,801  
Underwriting income (loss) $ 46,775 $ (15,823 ) $ 73,418 $ (23,128 ) $ 81,242 n/a n/a
Net investment income 41,466 125,459 166,925
Net realized and unrealized gains on investments 59,410 59,410
Net impairment losses recognized in earnings (6,531 ) (6,531 )
Corporate other income 75 75
Interest expense (27,289 ) (27,289 )
Net foreign exchange gains 89 89
Corporate general and administrative expenses     (43,692 )   (43,692 )
Income before taxes $ 4,218     $ 107,521     $ 192,981  
Loss ratio (a) 52.3 % 76.1 % 55.1 % 81.5 % 61.9 %
Acquisition cost ratio (b) 0.3 % 11.4 % 24.2 % 17.7 % 18.0 %
General and administrative expense ratio (c) 14.2 %   22.4 %   9.2 %   16.0 %   13.0 %
Combined ratio (d) 66.8 %   110.0 %   88.5 %   115.2 %   92.9 %
 

(a) The loss ratio is calculated by dividing net losses and loss expenses by net premiums earned.

(b) The acquisition cost ratio is calculated by dividing acquisition costs by net premiums earned.

(c) The general and administrative expense ratio is calculated by dividing general and administrative expenses by net premiums earned.

(d) The combined ratio is calculated by dividing the sum of net losses and loss expenses, acquisition costs and general and administrative expenses by net premiums earned.

n/a Not applicable

Percentage totals may not add due to rounding.

 

Segment Re-presentation

Effective July 1, 2012, the Company redefined its reporting segments by combining the reinsurance and Latin America segments into a single reinsurance segment. The Latin America segment comprised reinsurance business written for clients in Latin America through the Company's Rio de Janeiro, Bogota and Buenos Aires offices. This business will now be combined with and reported as part of the reinsurance segment. Segment disclosures for comparative periods have been re-presented to reflect this change.

ALTERRA CAPITAL HOLDINGS LIMITED

 
SCHEDULE OF SUPPLEMENTAL SEGMENT DATA - THREE MONTHS ENDED SEPTEMBER 30, 2011 (Unaudited)
(Expressed in thousands of United States Dollars)
Property & Casualty   Life & Annuity
Reinsurance
  Corporate   Consolidated
Global
Insurance
  U.S.
Insurance
  Reinsurance   Alterra at
Lloyd's
  Total      
Gross premiums written $ 73,297   $ 84,858   $ 182,535   $ 44,816   $ 385,506 $ 822 $ $ 386,328
Reinsurance premiums ceded (37,625 )   (30,579 )   (15,874 )   (6,723 )   (90,801 )   (90 )       (90,891 )
Net premiums written $ 35,672     $ 54,279     $ 166,661     $ 38,093     $ 294,705     $ 732     $     $ 295,437  
 
Earned premiums $ 93,467 $ 83,279 $ 224,829 $ 50,534 $ 452,109 $ 822 $ $ 452,931
Earned premiums ceded (48,456 )   (28,004 )   (18,489 )   (10,850 )   (105,799 )   (90 )       (105,889 )
Net premiums earned 45,011 55,275 206,340 39,684 346,310 732 347,042
 
Net losses and loss expenses (21,288 ) (36,002 ) (116,769 ) (24,462 ) (198,521 ) (198,521 )
Claims and policy benefits (14,538 ) (14,538 )
Acquisition costs 748 (9,669 ) (46,138 ) (6,230 ) (61,289 ) (145 ) (61,434 )
General and administrative expenses (6,699 ) (10,228 ) (18,901 ) (8,007 ) (43,835 ) (145 ) (43,980 )
Other income     58     777     (27 )   808     (8 )       800  
Underwriting income (loss) $ 17,772 $ (566 ) $ 25,309 $ 958 $ 43,473 n/a n/a
Net investment income 12,131 48,204 60,335
Net realized and unrealized losses on investments (6,407 ) (1,565 ) (7,972 )
Net impairment losses recognized in earnings (861 ) (861 )
Corporate other income 673 673
Interest expense (11,303 ) (11,303 )
Net foreign exchange gains 147 147
Corporate general and administrative expenses     (17,575 )   (17,575 )
(Loss) income before taxes $ (8,380 )   $ 17,720     $ 52,813  
Loss ratio (a) 47.3 % 65.1 % 56.6 % 61.6 % 57.3 %
Acquisition cost ratio (b) (1.7 )% 17.5 % 22.4 % 15.7 % 17.7 %
General and administrative expense ratio (c) 14.9 %   18.5 %   9.2 %   20.2 %   12.7 %
Combined ratio (d) 60.5 %   101.1 %   88.1 %   97.5 %   87.7 %
 
SCHEDULE OF SUPPLEMENTAL SEGMENT DATA - NINE MONTHS ENDED SEPTEMBER 30, 2011 (Unaudited)
(Expressed in thousands of United States Dollars)
Property & Casualty Life & Annuity
Reinsurance
Corporate Consolidated
Global
Insurance
  U.S.
Insurance
  Reinsurance   Alterra at
Lloyd's
  Total      
Gross premiums written $ 268,101 $ 272,417 $ 810,244 $ 225,134 $ 1,575,896 $ 2,187 $ $ 1,578,083
Reinsurance premiums ceded (131,282 )   (97,123 )   (81,438 )   (54,820 )   (364,663 )   (211 )       (364,874 )
Net premiums written $ 136,819     $ 175,294     $ 728,806     $ 170,314     $ 1,211,233     $ 1,976     $     $ 1,213,209  
 
Earned premiums $ 273,010 $ 246,993 $ 691,196 $ 171,815 $ 1,383,014 $ 2,187 $ $ 1,385,201
Earned premiums ceded (132,521 )   (79,640 )   (50,989 )   (45,970 )   (309,120 )   (211 )       (309,331 )
Net premiums earned 140,489 167,353 640,207 125,845 1,073,894 1,976 1,075,870
 
Net losses and loss expenses (76,601 ) (108,429 ) (435,053 ) (93,977 ) (714,060 ) (714,060 )
Claims and policy benefits (44,818 ) (44,818 )
Acquisition costs 1,601 (28,055 ) (141,014 ) (28,828 ) (196,296 ) (426 ) (196,722 )
General and administrative expenses (21,425 ) (32,872 ) (68,329 ) (24,033 ) (146,659 ) (581 ) (147,240 )
Other income 814     195     1,325     353     2,687     (31 )       2,656  
Underwriting income (loss) $ 44,878 $ (1,808 ) $ (2,864 ) $ (20,640 ) $ 19,566 n/a n/a
Net investment income 37,019 140,747 177,766
Net realized and unrealized losses on investments (4,899 ) (27,665 ) (32,564 )
Net impairment losses recognized in earnings (2,243 ) (2,243 )
Corporate other income 723 723
Interest expense (30,392 ) (30,392 )
Net foreign exchange losses (2,065 ) (2,065 )
Corporate general and administrative expenses     (55,177 )   (55,177 )
(Loss) income before taxes $ (11,760 )   $ 23,928     $ 31,734  
Loss ratio (a) 54.5 % 64.8 % 68.0 % 74.7 % 66.5 %
Acquisition cost ratio (b) (1.1 )% 16.8 % 22.0 % 22.9 % 18.3 %
General and administrative expense ratio (c) 15.3 %   19.6 %   10.7 %   19.1 %   13.7 %
Combined ratio (d) 68.6 %   101.2 %   100.7 %   116.7 %   98.4 %
 

(a) The loss ratio is calculated by dividing net losses and loss expenses by net premiums earned.

(b) The acquisition cost ratio is calculated by dividing acquisition costs by net premiums earned.

(c) The general and administrative expense ratio is calculated by dividing general and administrative expenses by net premiums earned.

(d) The combined ratio is calculated by dividing the sum of net losses and loss expenses, acquisition costs and general and administrative expenses by net premiums earned.

n/a Not applicable

Percentage totals may not add due to rounding.

 

ALTERRA CAPITAL HOLDINGS LIMITED

 

SCHEDULE OF SUPPLEMENTAL PREMIUM DATA - NINE MONTHS ENDED SEPTEMBER 30, 2012 (Unaudited)

(Expressed in thousands of United States Dollars)

       
Nine Months Ended September 30, 2012 Nine Months Ended September 30, 2011
Gross Premiums Written   Percentage of Total Gross Premiums Written Movement on Prior Year Period Gross Premiums Written [a]   Percentage of Total Gross Premiums Written [a]
Property & Casualty:
Global Insurance:
Aviation S $ 11,252 0.7 % (6.0 )% $ 11,966 0.8 %
Excess Liability L 80,367 5.0 % 4.0 % 77,301 4.9 %
Professional Liability L 120,431 7.5 % 2.5 % 117,521 7.4 %
Property S 61,624   3.8 % 0.5 % 61,313   3.9 %
273,674 17.0 % 2.1 % 268,101 17.0 %
U.S. Insurance:
General/Excess Liability L 76,590 4.7 % 4.9 % 73,036 4.6 %
Marine S 79,168 4.9 % 22.4 % 64,687 4.1 %
Professional Liability L 41,526 2.6 % 46.0 % 28,449 1.8 %
Property S 107,190   6.6 % 0.9 % 106,245   6.7 %
304,474 18.9 % 11.8 % 272,417 17.3 %
Reinsurance:
Agriculture S 23,379 1.4 % (23.3 )% 30,496 1.9 %
Auto S 42,593 2.6 % (45.3 )% 77,812 4.9 %
Aviation S 27,801 1.7 % 77.6 % 15,654 1.0 %
Credit/Surety S 58,134 3.6 % 68.8 % 34,446 2.2 %
General Casualty L 49,763 3.1 % (19.1 )% 61,522 3.9 %
Marine & Energy S 23,264 1.4 % 12.9 % 20,605 1.3 %
Medical Malpractice L 24,946 1.5 % (30.1 )% 35,672 2.3 %
Other S 4,104 0.3 % 26.2 % 3,252 0.2 %
Professional Liability L 131,289 8.1 % (5.6 )% 139,023 8.8 %
Property S 347,019 21.5 % 5.1 % 330,146 20.9 %
Whole Account S/L 4,478 0.3 % (86.6 )% 33,392 2.1 %
Workers' Compensation L 36,053   2.2 % 27.7 % 28,224   1.8 %
772,823 47.9 % (4.6 )% 810,244 51.3 %
Alterra at Lloyd's:
Accident & Health S 35,256 2.2 % 12.1 % 31,447 2.0 %
Agriculture S 18,355 1.1 % n/m
Aviation S 8,620 0.5 % 11.8 % 7,707 0.5 %
Financial Institutions L 18,870 1.2 % (1.0 )% 19,068 1.2 %
International Casualty L 63,784 4.0 % 27.7 % 49,955 3.2 %
Marine S 7,022 0.4 % n/m
Professional Liability L 17,539 1.1 % (6.8 )% 18,828 1.2 %
Property S 91,779   5.7 % (6.5 )% 98,129   6.2 %
261,225 16.2 % 16.0 % 225,134 14.3 %
         
Aggregate Property & Casualty $ 1,612,196   99.9 % 2.3 % $ 1,575,896   99.9 %
 
Life & Annuity:
Annuity $ n/m $ 1,131 0.1 %
Life 2,219   0.1 % 110.1 % 1,056   0.1 %
 
Aggregate Life & Annuity $ 2,219   0.1 % 1.5 % $ 2,187   0.1 %
         
Aggregate Property & Casualty and Life & Annuity $ 1,614,415   100.0 % 2.3 % $ 1,578,083   100.0 %
 
 
S = Short tail lines $ 948,799 58.9 % $ 910,601 57.8 %
L = Long tail lines 663,397   41.1 % 665,295   42.2 %
Aggregate Property & Casualty $ 1,612,196   $ 1,575,896  
 
Property [b] $ 607,612 37.7 % $ 595,833 37.8 %
Casualty [c] 661,158 41.0 % 648,599 41.2 %
Specialty [d] 343,426   21.3 % 331,464   21.0 %
Aggregate Property & Casualty $ 1,612,196   $ 1,575,896  
 

[a] Comparative period has been re-presented to conform with the current period's presentation.

[b] Property includes property lines of business.

[c] Casualty includes excess liability, financial institutions, general liability, international casualty, medical malpractice, professional liability and workers' compensation lines of business.

[d] Specialty includes accident & health, agriculture, auto, aviation, credit, energy, marine, other, surety and whole account lines of business.

 
Percentage totals may not add due to rounding.
n/m Not meaningful.
 

ALTERRA CAPITAL HOLDINGS LIMITED

 

NON-GAAP FINANCIAL MEASURE RECONCILIATIONS (UNAUDITED)

Net Operating Income and Net Operating Income per Diluted Share

(Expressed in thousands of United States Dollars, except per share and share amounts)

   
Three Months Ended September 30, Nine Months Ended September 30,

2012

 

2011

2012

 

2011

 
Net income before tax $ 38,837 $ 52,813 $ 192,981 $ 31,734
Net realized and unrealized (gains) losses on investments not included in operating income, before tax [a] (6,348 ) 1,164 (28,076 ) 28,427
Foreign exchange (gains) losses, before tax (82 ) (147 ) (89 ) 2,065
Net operating income before tax $ 32,407   $ 53,830   $ 164,816   $ 62,226
 
Net income $ 37,652 $ 48,386 $ 195,616 $ 34,334
Net realized and unrealized (gains) losses on investments not included in operating income, net of tax [a] (5,465 ) 1,807 (26,732 ) 29,120
Foreign exchange (gains) losses, net of tax (54 ) (111 ) (68 ) 1,461
Net operating income $ 32,133   $ 50,082   $ 168,816   $ 64,915
 
Net income per diluted share $ 0.38 $ 0.46 $ 1.93 $ 0.32
Net realized and unrealized (gains) losses on investments not included in operating income, net of tax [a] (0.06 ) 0.02 (0.26 ) 0.27
Foreign exchange losses, net of tax       0.01
Net operating income per diluted share $ 0.33   $ 0.47   $ 1.67   $ 0.61
 
Weighted average shares outstanding - basic 95,791,466   104,830,300   98,785,999   105,866,771
Weighted average shares outstanding - diluted 98,610,267   105,665,282   101,252,927   107,092,882
 

[a] Net realized and unrealized (gains) losses on investments not included in operating income includes realized and unrealized (gains) losses on trading securities, realized (gains) losses on available for sale securities, net impairment losses recognized in earnings, earnings from equity method investments in run-off and changes in fair value of derivatives, catastrophe bonds and structured deposits.

Per share totals may not add due to rounding.

Annualized Net Operating Return on Average Shareholders' Equity

(Expressed in thousands of United States Dollars)

   
Three Months Ended September 30, Nine Months Ended September 30,

2012

 

2011

2012

 

2011

 
Net income $ 37,652 $ 48,386 $ 195,616 $ 34,334
Annualized net income 150,608 193,544 260,821 45,779
 
Net operating income $ 32,133 $ 50,082 $ 168,816 $ 64,915
Annualized net operating income 128,532 200,328 225,088 86,553
 
Average shareholders' equity [b] $ 2,887,456 $ 2,818,210 $ 2,856,401 $ 2,799,260
 
Annualized return on average shareholders' equity 5.2 % 6.9 % 9.1 % 1.6 %
Annualized net operating return on average shareholders' equity 4.5 % 7.1 % 7.9 % 3.1 %

[b] Average shareholders equity is computed as the average of the quarterly average shareholders' equity balances.

Diluted Tangible Book Value Per Share

(Expressed in thousands of United States Dollars, except per share and share amounts)

   

September 30, 2012

December 31, 2011

Shareholders' equity $ 2,923,176 $ 2,809,235
Goodwill and intangible assets 55,371   56,111
Tangible book value $ 2,867,805   $ 2,753,124
 
Diluted shares outstanding 98,850,961 104,406,779
 
Diluted tangible book value per share $ 29.01 $ 26.37
 

ALTERRA CAPITAL HOLDINGS LIMITED

 

SCHEDULE OF SUPPLEMENTAL INVESTMENT DATA - SEPTEMBER 30, 2012 (UNAUDITED)

(Expressed in thousands of United States Dollars)

       
Type of Investment As of September 30, 2012 Investment Distribution As of December 31, 2011 Investment Distribution
 
Cash and cash equivalents (restricted and unrestricted) $ 651,556   8.2 % $ 922,844   11.8 %
 
U.S. government and agencies $ 811,788 10.2 % $ 751,806 9.6 %
Non-U.S. governments 240,463 3.0 % 164,621 2.1 %
Corporate securities 2,673,789 33.5 % 2,646,358 33.9 %
Municipal securities 270,501 3.4 % 263,007 3.4 %
Asset-backed securities 354,739 4.5 % 247,965 3.2 %
Residential mortgage-backed securities 1,310,149 16.4 % 1,296,277 16.6 %
Commercial mortgage-backed securities 443,709   5.6 % 361,097   4.6 %
 
Fixed maturities at fair value $ 6,105,138   76.6 % $ 5,731,131   73.3 %
 
U.S. government and agencies $ 27,627 0.3 % $ 29,201 0.4 %
Non-U.S. governments 516,673 6.5 % 524,449 6.7 %
Corporate securities 292,392 3.7 % 319,609 4.1 %
Asset-backed securities 656     1,000    
 
Fixed maturities at amortized cost $ 837,348   10.5 % $ 874,259   11.2 %
 
Other investments $ 376,870   4.7 % $ 286,515   3.7 %
 
Total invested assets $ 7,970,912   100.0 % $ 7,814,749   100.0 %
Credit Rating As of September 30, 2012 Ratings Distribution As of December 31, 2011 Ratings Distribution
 
U.S. government and agencies [a] $ 2,084,315 30.0 % $ 1,869,405 28.3 %
AAA 1,203,508 17.3 % 948,861 14.4 %
AA 757,361 10.9 % 883,783 13.4 %
A 1,480,920 21.3 % 1,378,361 20.9 %
BBB 321,374 4.6 % 281,983 4.3 %
BB 67,285 1.0 % 84,803 1.3 %
B 140,223 2.0 % 131,159 2.0 %
CCC or lower 33,576 0.5 % 53,157 0.8 %
Not rated 16,576   0.2 % 99,619   1.5 %
Fixed maturities at fair value $ 6,105,138   87.9 % $ 5,731,131   86.8 %
 
U.S. government and agencies $ 27,627 0.4 % $ 29,201 0.4 %
AAA 583,187 8.4 % 619,832 9.4 %
AA 92,473 1.3 % 82,511 1.2 %
A 101,119 1.5 % 117,600 1.8 %
BBB 30,567 0.4 % 24,117 0.4 %
BB 2,375     998    
Fixed maturities at amortized cost $ 837,348 12.1 % $ 874,259 13.2 %
       
Total fixed maturities $ 6,942,486   100.0 % $ 6,605,390   100.0 %

[a] Included within U.S. government and agencies are agency-issued residential mortgage-backed securities with a fair value of $1,272,527 (December 31, 2011: $1,117,599)

Percentage totals may not add due to rounding.

  Three Months Ended September 30,   Nine Months Ended September 30,

2012

 

2011

2012

 

2011

 
Net investment income $ 53,518   $ 60,335   $ 166,925   $ 177,766  
 
Realized and unrealized gains on trading fixed maturities 3,621 1,663 5,274 1,268
Net realized gains on available for sale fixed maturities 3,087 6,097 22,836 9,520
Increase (decrease) in fair value of hedge funds 8,245 (7,668 ) 9,030 (6,380 )
Decrease in fair value of catastrophe bonds (25,641 )
Increase (decrease) in fair value of structured deposit 1,003 (2,007 ) 713 (1,957 )
Income from equity method investments 5,167 579 15,677 422
(Decrease) increase in fair value of derivatives (687 ) (6,636 ) 5,880   (9,796 )
Net realized and unrealized gains (losses) on investments $ 20,436   $ (7,972 ) $ 59,410   $ (32,564 )
 
Net impairment losses recognized in earnings $ (592 ) $ (861 ) $ (6,531 ) $ (2,243 )

Alterra Capital Holdings Limited
Investors:
Susan Spivak Bernstein, 1-212-898-6640
Senior Vice President
susan.spivak@alterra-bm.com
or
Press:
Kekst and Company
Peter Hill, 1-212-521-4800
peter-hill@kekst.com

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