|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q for the period ended June 30, 2014 (this “Form 10-Q”) and the consolidated financial statements and related notes thereto and Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations”, included in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”). This Form 10-Q contains forward-looking statements that involve risks and uncertainties. Please see Item 1A, “Risk Factors”, in our 2013 Form 10-K and the “Note on Forward-Looking Statements” below. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Overview
Platinum Underwriters Holdings, Ltd. (“Platinum Holdings”) is a holding company domiciled in Bermuda. Through our reinsurance subsidiaries we provide property and marine, casualty and finite risk reinsurance coverages, through reinsurance brokers, to a diverse clientele of insurers and select reinsurers on a worldwide basis.
Platinum Holdings and its consolidated subsidiaries (collectively, the “Company”) include Platinum Holdings, Platinum Underwriters Bermuda, Ltd. (“Platinum Bermuda”), Platinum Underwriters Reinsurance, Inc. (“Platinum US”), Platinum Regency Holdings (“Platinum Regency”), Platinum Underwriters Finance, Inc. (“Platinum Finance”) and Platinum Administrative Services, Inc. The terms “we”, “us”, and “our” refer to the Company, unless the context otherwise indicates.
As of June 30, 2014, our capital resources of $2.0 billion consisted of $1.8 billion of common shareholders’ equity and $250.0 million of debt obligations. Investable assets, consisting of investments, cash and cash equivalents, accrued investment income and net balances due from brokers, were $3.5 billion as of June 30, 2014. Our net income was $36.2 million and $99.9 million for the three and six months ended June 30, 2014, respectively. Our net premiums written were $120.3 million and $256.1 million for the three and six months ended June 30, 2014, respectively. Book value per share was $67.38 as of June 30, 2014, an increase of 3.1% from $65.35 as of March 31, 2014 and an increase of 8.6% from $62.07 as of December 31, 2013.
The mid-year underwriting period reflected deteriorating conditions for all lines of business and proved challenging to find attractively priced reinsurance opportunities. We anticipate that the remainder of 2014 will be characterized by ample capacity for insurance and reinsurance risk making it difficult to find adequately priced business.
We generally expect property catastrophe reinsurance rates for peak zones and perils to remain acceptable for the balance of the year. Due to the significant capital available to support catastrophe exposed risks, we anticipate continued downward pressure on pricing for this segment. We currently expect that the portfolio of business we write in our Property and Marine segment during 2014 will be similar to our current in-force book of business. We also expect that our Property and Marine segment will continue to represent a large proportion of our overall book of business, which could result in significant volatility in our results of operations.
Competition remains strong for casualty business and many treaties do not meet our pricing standards. We currently expect abundant casualty insurance and reinsurance capacity and we anticipate continued downward pressure on risk adjusted profitability for this segment.
Reflecting a continued lack of demand for finite risk covers, we expect to write a relatively small portfolio of business in our Finite Risk segment in 2014.
Absent major events in the insurance or capital markets, we expect continued downward pressure on overall rate adequacy. We will continue emphasizing profitability over market share while seeking to maintain a position in larger markets by participating on the most attractive business available.
Since our inception, our financial performance has been supported by investment returns from fixed income assets of high credit quality and moderate interest rate risk. Over that same time frame, while we have maintained a low risk investment portfolio, the portfolios of other market participants have migrated toward a higher risk and higher expected return model. Companies have made significant allocations to public and private equities and alternative strategies. We continue to explore higher risk/higher return investment strategies and anticipate allocating funds to this purpose by year-end.
Based on our current reserve position, net in-force portfolio, asset portfolio, and underwriting prospects for the near term, we believe that we are well capitalized with a comfortable margin above the rating agency targets for a company with our ratings. If the business performs as expected, we anticipate our capital cushion would grow over time. Under those conditions, we would have the financial flexibility to expand our underwriting, hold riskier assets and repurchase our common shares. Our decision-making will be guided by the risk adjusted pricing prevailing in the reinsurance and financial markets at the time.
Critical Accounting Estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that are inherently subjective in nature that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent liabilities. Actual results may differ materially from these estimates. The critical accounting estimates used in the preparation of our consolidated financial statements include premiums written and earned, unpaid losses and loss adjustment expenses (“LAE”), valuation of investments and income taxes. In addition, estimates are used in our risk transfer analysis for assumed and ceded reinsurance transactions. For a detailed discussion of our critical accounting estimates, please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our 2013 Form 10-K.
Reconciliation of Non-GAAP Financial Measures
In presenting our results, management has included financial measures that are not calculated under standards or rules that comprise U.S. GAAP. Such measures, including underwriting income or loss and related underwriting ratios, book value per common share and fully converted book value per common share, are referred to as non-GAAP measures. These non-GAAP measures may be defined or calculated differently by other companies. Management believes these measures allow for a more complete understanding of the underlying business. These measures are used to monitor our results and should not be viewed as a substitute for those determined in accordance with U.S. GAAP. Reconciliations of such measures to the most comparable GAAP figures are included below or elsewhere within this Form 10-Q in accordance with Regulation G.
Underwriting Income (Loss) and Ratios
We believe that underwriting income or loss and related underwriting ratios allow for a more complete understanding of the profitability of our reinsurance operations and operating segments. Underwriting income or loss consists of net premiums earned less net losses and LAE and net underwriting expenses. Net underwriting expenses include net acquisition expenses and operating costs related to underwriting. Underwriting income or loss excludes revenues and expenses related to net investment income, net realized gains or losses on investments, net impairment losses on investments, corporate expenses not allocated to underwriting operations, net foreign currency exchange gains or losses, interest expense and other income and expense.
Underwriting ratios are calculated for net losses and LAE, net acquisition expense and other underwriting expense. The ratios are calculated by dividing the related expense by net earned premiums. The combined ratio is the sum of the net losses and LAE, net acquisition expense and other underwriting expense ratios.
Segment underwriting income or loss is reconciled to the U.S. GAAP measure of income or loss before income taxes in Note 7 to the “Consolidated Financial Statements” in this Form 10-Q.
Book Value and Fully Converted Book Value per Common Share
The following summary sets forth the calculation of book value and fully converted book value per common share as of June 30, 2014, March 31, 2014 and December 31, 2013 ($ and amounts in thousands, except per share amounts):
|
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2014
|
|
|
2014
|
|
|
2013
|
|
|
Market price per share at period end
|
|
$
|
64.85
|
|
|
$
|
60.10
|
|
|
$
|
61.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
$
|
1,777,869
|
|
|
$
|
1,759,943
|
|
|
$
|
1,746,707
|
|
|
Add: Proceeds from exercise of share options
|
|
|
4,994
|
|
|
|
4,994
|
|
|
|
4,994
|
|
|
Shareholders' equity - diluted
|
|
$
|
1,782,863
|
|
|
$
|
1,764,937
|
|
|
$
|
1,751,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic common shares outstanding
|
|
|
26,385
|
|
|
|
26,933
|
|
|
|
28,143
|
|
|
Add: Common share options
(1)
|
|
|
148
|
|
|
|
148
|
|
|
|
148
|
|
|
Add: Restricted share units
|
|
|
554
|
|
|
|
553
|
|
|
|
598
|
|
|
Diluted common shares outstanding
|
|
|
27,087
|
|
|
|
27,634
|
|
|
|
28,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common share
|
|
$
|
67.38
|
|
|
$
|
65.35
|
|
|
$
|
62.07
|
|
|
Fully converted book value per common share
|
|
$
|
65.82
|
|
|
$
|
63.87
|
|
|
$
|
60.64
|
|
|
(1)
|
Options with an exercise price below the market price per share at period end.
|
Results of Operations
Three Months Ended June 30, 2014 as Compared with the Three Months Ended June 30, 2013
In discussing our Results of Operations, we refer to the financial measures net losses from major catastrophes and net favorable or unfavorable development.
Generally, an event causing more than $1 billion of property losses to the insurance industry or $10 million of property losses to the Company is considered and tracked as a major catastrophe. Net losses from major catastrophes consist of gross losses and LAE, net of any retrocessional recoveries and reinstatement premiums earned.
Net favorable or unfavorable development is the development of prior years’ unpaid losses and LAE and the related impact of premiums and commissions. Net favorable or unfavorable loss development, the unpaid loss and LAE component of net favorable or unfavorable development, excludes the related impact of premiums and commissions.
Net income and diluted earnings per common share for the three months ended June 30, 2014 and 2013 were as follows ($ and amounts in thousands, except diluted earnings per common share):
|
|
|
Three Months Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Underwriting income
|
|
$
|
32,144
|
|
|
$
|
36,542
|
|
|
Net investment income
|
|
|
17,645
|
|
|
|
17,808
|
|
|
Net realized gains (losses) on investments
|
|
|
(596
|
)
|
|
|
11,686
|
|
|
Net impairment losses on investments
|
|
|
(136
|
)
|
|
|
(1,516
|
)
|
|
Other revenues (expenses)
|
|
|
(11,094
|
)
|
|
|
(10,543
|
)
|
|
Income before income taxes
|
|
|
37,963
|
|
|
|
53,977
|
|
|
Income tax expense
|
|
|
(1,783
|
)
|
|
|
(4,123
|
)
|
|
Net income
|
|
$
|
36,180
|
|
|
$
|
49,854
|
|
|
Weighted average shares outstanding - diluted
|
|
|
26,928
|
|
|
|
30,970
|
|
|
Diluted earnings per common share
|
|
$
|
1.34
|
|
|
$
|
1.61
|
|
The decrease in net income for the three months ended June 30, 2014 as compared with the three months ended June 30, 2013 was primarily due to decreases in net realized gains on investments and underwriting income. The decrease in diluted earnings per common share was due to the decrease in net income, partially offset by a decrease in the diluted weighted average shares outstanding. The decrease in the diluted weighted average shares outstanding related to share repurchases during the last twelve months.
Underwriting Results
Net underwriting income was $32.1 million and $36.5 million for the three months ended June 30, 2014 and 2013, respectively. Although there was a reduction in net losses from current year major catastrophe events for the three months ended June 30, 2014 as compared with the three months ended June 30, 2013, net underwriting income decreased as there was a decrease in net favorable development and we experienced an increase in losses from non-major catastrophe events.
There were no net losses from current year major catastrophes for the three months ended June 30, 2014 as compared with net losses from current year major catastrophes of $18.6 million for the three months ended June 30, 2013. Net favorable development was $28.6 million and $44.1 million for the three months ended June 30, 2014 and 2013, respectively.
The following discussion and analysis reviews our underwriting results by operating segment.
Property and Marine
The following table sets forth underwriting results, ratios and the period over period change for the Property and Marine segment for the three months ended June 30, 2014 and 2013 ($ in thousands):
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Increase (decrease)
|
|
|
Gross premiums written
|
|
$
|
59,692
|
|
|
$
|
58,841
|
|
|
$
|
851
|
|
|
Ceded premiums written
|
|
|
1,174
|
|
|
|
1,491
|
|
|
|
(317
|
)
|
|
Net premiums written
|
|
|
58,518
|
|
|
|
57,350
|
|
|
|
1,168
|
|
|
Net premiums earned
|
|
|
55,528
|
|
|
|
58,832
|
|
|
|
(3,304
|
)
|
|
Net losses and LAE
|
|
|
31,400
|
|
|
|
21,292
|
|
|
|
10,108
|
|
|
Net acquisition expenses
|
|
|
10,229
|
|
|
|
9,698
|
|
|
|
531
|
|
|
Other underwriting expenses
|
|
|
8,085
|
|
|
|
7,414
|
|
|
|
671
|
|
|
Property and Marine segment underwriting income
|
|
$
|
5,814
|
|
|
$
|
20,428
|
|
|
$
|
(14,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE
|
|
|
56.5
|
%
|
|
|
36.2
|
%
|
|
20.3 points
|
|
|
Net acquisition expense
|
|
|
18.4
|
%
|
|
|
16.5
|
%
|
|
1.9 points
|
|
|
Other underwriting expense
|
|
|
14.6
|
%
|
|
|
12.6
|
%
|
|
2.0 points
|
|
|
Combined
|
|
|
89.5
|
%
|
|
|
65.3
|
%
|
|
24.2 points
|
|
The Property and Marine segment underwriting income decreased by $14.6 million for the three months ended June 30, 2014 as compared with the three months ended June 30, 2013. The decrease was primarily due to net unfavorable development for the three months ended June 30, 2014 as compared with net favorable development for the three months ended June 30, 2013, partially offset by a decrease in net losses from current year major catastrophes. We also experienced an increase in losses from non-major catastrophe events for the three months ended June 30, 2014 as compared with the three months ended June 30, 2013.
Net unfavorable development was $2.6 million for the three months ended June 30, 2014 and net favorable development was $22.2 million for the three months ended June 30, 2013.
There were no net losses from current year major catastrophes for the three months ended June 30, 2014 as compared with net losses from current year major catastrophes of $18.6 million for the three months ended June 30, 2013.
Net Premiums Written and Earned
The Property and Marine segment generated 48.6% and 39.2% of our net premiums written for the three months ended June 30, 2014 and 2013, respectively.
The Property and Marine segment gross premiums written increased by $0.9 million, and by $2.4 million excluding reinstatement premiums written related to major catastrophes, for the three months ended June 30, 2014 as compared with the three months ended June 30, 2013. Gross premiums written were relatively unchanged as an increase in North American property proportional business was partially offset by a decrease in international property catastrophe business.
Net premiums earned decreased by $3.3 million for the three months ended June 30, 2014 as compared with the three months ended June 30, 2013, primarily as a result of decreases in net premiums written in prior periods. Net premiums written and earned were also impacted by changes in the mix of business and the structure of the underlying reinsurance contracts.
Net Losses and LAE
The following table sets forth the components of net losses and LAE for the three months ended June 30, 2014 and 2013 ($ in thousands):
|
|
|
Three Months Ended June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Current year major catastrophes
|
|
$
|
-
|
|
|
$
|
(20,104
|
)
|
|
Prior years’ favorable (unfavorable) loss development
|
|
|
(1,977
|
)
|
|
|
24,491
|
|
|
Calendar year losses, excluding prior years’ loss development
|
|
|
(29,423
|
)
|
|
|
(25,679
|
)
|
|
Net losses and LAE
|
|
$
|
(31,400
|
)
|
|
$
|
(21,292
|
)
|
Current Year Major Catastrophe Losses
There were no net losses from current year major catastrophes for the three months ended June 30, 2014. Net losses from current year major catastrophes, with related premium adjustments, increased the net loss and LAE ratio by 34.1 points for the three months ended June 30, 2013.
The following table sets forth the components of pre-tax net losses from 2013 major catastrophes for the three months ended June 30, 2013 ($ in thousands):
|
Major Catastrophe
|
|
Net Losses and LAE
|
|
|
Reinstatement Premiums Earned
|
|
|
Net Losses from Major Catastrophes
|
|
|
Floods in central and eastern Europe, primarily in Germany
|
|
$
|
(16,182
|
)
|
|
$
|
1,527
|
|
|
$
|
(14,655
|
)
|
|
PCS 14 - tornadoes in the U.S. Midwest, primarily Oklahoma
|
|
|
(3,922
|
)
|
|
|
11
|
|
|
|
(3,911
|
)
|
|
Total
|
|
$
|
(20,104
|
)
|
|
$
|
1,538
|
|
|
$
|
(18,566
|
)
|
Any development of losses related to 2013 major catastrophes subsequent to December 31, 2013 is included in prior years’ loss development in the major catastrophes class of business for the three months ended June 30, 2014.
Prior Years’ Loss Development
The Property and Marine segment net unfavorable loss development was $2.0 million for the three months ended June 30, 2014 and net favorable loss development was $24.5 million for the three months ended June 30, 2013. Net unfavorable loss development and related premium adjustments increased the net loss and LAE ratio by 4.0 points and net favorable loss development and related premium adjustments decreased the net loss and LAE ratio by 38.5 points for the three months ended June 30, 2014 and 2013, respectively. Net favorable loss development for the three months ended June 30, 2013 was primarily attributable to a level of cumulative losses reported by our ceding companies that was lower than expected and that, in our judgment, resulted in sufficient credibility in the loss experience to change our previously selected loss ratios.
The following table sets forth the net favorable (unfavorable) development by class of business for the three months ended June 30, 2014 ($ in thousands):
|
Class of Business
|
|
Net Losses and LAE
|
|
|
Net Acquisition Expenses
|
|
|
Net Premiums
|
|
|
Net Development
|
|
|
Marine, aviation and satellite
|
|
$
|
(6,739
|
)
|
|
$
|
(4
|
)
|
|
$
|
(231
|
)
|
|
$
|
(6,974
|
)
|
|
Crop
|
|
|
1,272
|
|
|
|
(22
|
)
|
|
|
-
|
|
|
|
1,250
|
|
|
Major catastrophes
|
|
|
1,658
|
|
|
|
(1
|
)
|
|
|
(450
|
)
|
|
|
1,207
|
|
|
Other
|
|
|
1,832
|
|
|
|
(149
|
)
|
|
|
189
|
|
|
|
1,872
|
|
|
Total
|
|
$
|
(1,977
|
)
|
|
$
|
(176
|
)
|
|
$
|
(492
|
)
|
|
$
|
(2,645
|
)
|
Net unfavorable development in the marine, aviation and satellite class resulted primarily from an increase of $8.9 million in our estimate of ultimate losses related to the 2012 grounding and ongoing wreck removal of the cruise ship Costa Concordia. Net favorable development in the crop class arose primarily from the 2013 underwriting year. Net favorable development in the major catastrophes class arose primarily from 2011 and 2012 events, partially offset by net unfavorable development from 2010 events.
The following table sets forth the net favorable (unfavorable) development by class of business for the three months ended June 30, 2013 ($ in thousands):
|
Class of Business
|
|
Net Losses and LAE
|
|
|
Net Acquisition Expenses
|
|
|
Net Premiums
|
|
|
Net Development
|
|
|
Major catastrophes
|
|
$
|
22,510
|
|
|
$
|
(8
|
)
|
|
$
|
(2,403
|
)
|
|
$
|
20,099
|
|
|
Property per risk
|
|
|
2,365
|
|
|
|
199
|
|
|
|
(184
|
)
|
|
|
2,380
|
|
|
Catastrophe excess-of-loss (non-major events)
|
|
|
1,920
|
|
|
|
(147
|
)
|
|
|
(99
|
)
|
|
|
1,674
|
|
|
Property proportional
|
|
|
(1,299
|
)
|
|
|
(193
|
)
|
|
|
-
|
|
|
|
(1,492
|
)
|
|
Other
|
|
|
(1,005
|
)
|
|
|
287
|
|
|
|
264
|
|
|
|
(454
|
)
|
|
Total
|
|
$
|
24,491
|
|
|
$
|
138
|
|
|
$
|
(2,422
|
)
|
|
$
|
22,207
|
|
Net favorable development in the major catastrophes class resulted primarily from Hurricane Sandy and the Tohoku earthquake as well as marine losses from Hurricanes Katrina and Ike. Net favorable development in the property per risk class arose primarily from the 2006 and 2012 underwriting years. Net favorable development in the catastrophe excess-of-loss (non-major events) class arose primarily from the 2011 and 2012 underwriting years. Net unfavorable development in the property proportional class arose primarily from one contract in the 2007 underwriting year.
Calendar Year Losses – Excluding Current Year Major Catastrophes and Prior Years’ Loss Development
The Property and Marine segment calendar year losses, excluding current year major catastrophes and prior years’ loss development, were $29.4 million and $25.7 million for the three months ended June 30, 2014 and 2013, respectively. The calendar year loss ratios, excluding current year major catastrophes and prior years’ loss development, were 52.5% and 43.0% for the three months ended June 30, 2014 and 2013, respectively. The increase in calendar year losses and the calendar year loss ratio resulted primarily from an increase in losses of $5.5 million from non-major catastrophe events in 2014 as compared with 2013.
Net Acquisition Expenses
The Property and Marine segment net acquisition expenses were $10.2 million and $9.7 million for the three months ended June 30, 2014 and 2013, respectively. The net acquisition expense ratios were 18.4% and 16.5% for the three months ended June 30, 2014 and 2013, respectively. The increase in the net acquisition expenses and net acquisition expense ratios for the three months ended June 30, 2014 as compared with the same period in 2013 was primarily due to an increase in North American property proportional business which has a higher acquisition expense ratio than the remainder of the segment and a reduction in international property catastrophe business which has a lower acquisition expense ratio than the remainder of the segment.
Other Underwriting Expenses
The Property and Marine segment other underwriting expenses were $8.1 million and $7.4 million for the three months ended June 30, 2014 and 2013, respectively.
Casualty
The following table sets forth underwriting results, ratios and the period over period change for the Casualty segment for the three months ended June 30, 2014 and 2013 ($ in thousands):
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Increase (decrease)
|
|
|
Net premiums written
|
|
$
|
54,806
|
|
|
$
|
79,711
|
|
|
$
|
(24,905
|
)
|
|
Net premiums earned
|
|
|
61,555
|
|
|
|
75,629
|
|
|
|
(14,074
|
)
|
|
Net losses and LAE
|
|
|
15,261
|
|
|
|
35,358
|
|
|
|
(20,097
|
)
|
|
Net acquisition expenses
|
|
|
15,636
|
|
|
|
18,068
|
|
|
|
(2,432
|
)
|
|
Other underwriting expenses
|
|
|
5,537
|
|
|
|
5,670
|
|
|
|
(133
|
)
|
|
Casualty segment underwriting income
|
|
$
|
25,121
|
|
|
$
|
16,533
|
|
|
$
|
8,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE
|
|
|
24.8
|
%
|
|
|
46.8
|
%
|
|
(22.0) points
|
|
|
Net acquisition expense
|
|
|
25.4
|
%
|
|
|
23.9
|
%
|
|
1.5 points
|
|
|
Other underwriting expense
|
|
|
9.0
|
%
|
|
|
7.5
|
%
|
|
1.5 points
|
|
|
Combined
|
|
|
59.2
|
%
|
|
|
78.2
|
%
|
|
(19.0) points
|
|
The Casualty segment underwriting income increased by $8.6 million for the three months ended June 30, 2014 as compared with the three months ended June 30, 2013, primarily due to an increase in net favorable development. Net favorable development was $30.4 million and $22.2 million for the three months ended June 30, 2014 and 2013, respectively.
Net Premiums Written and Earned
The Casualty segment generated 45.5% and 54.5% of our net premiums written for the three months ended June 30, 2014 and 2013, respectively.
The Casualty segment net premiums written decreased by $24.9 million for the three months ended June 30, 2014 as compared with the three months ended June 30, 2013. Net premiums written reflected a decrease to prior years’ premium estimates of $2.8 million for the three months ended June 30, 2014 and an increase to prior years’ premium estimates of $13.2 million for the three months ended June 30, 2013. Excluding the impact of changes to prior years’ premium estimates, net premiums written decreased by $8.9 million, primarily as a result of a decrease in North American excess-of-loss business written.
The Casualty segment net premiums earned decreased by $14.1 million for the three months ended June 30, 2014 as compared with the three months ended June 30, 2013. Net premiums earned reflected a decrease to prior years’ premium estimates of $3.1 million for the three months ended June 30, 2014 and an increase to prior years’ premium estimates of $6.7 million for the three months ended June 30, 2013. Excluding the impact of changes to prior years’ premium estimates, net premiums earned decreased by $4.3 million as a result of decreases in net premiums written in current and prior periods. Net premiums written and earned were also impacted by changes in the mix of business and the structure of the underlying reinsurance contracts.
Net Losses and LAE
The following table sets forth the components of net losses and LAE for the three months ended June 30, 2014 and 2013 ($ in thousands):
|
|
|
Three Months Ended June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Prior years’ favorable loss development
|
|
$
|
30,206
|
|
|
$
|
21,956
|
|
|
Calendar year losses, excluding prior years’ loss development
|
|
|
(45,467
|
)
|
|
|
(57,314
|
)
|
|
Net losses and LAE
|
|
$
|
(15,261
|
)
|
|
$
|
(35,358
|
)
|
Prior Years’ Loss Development
The Casualty segment net favorable loss development was $30.2 million and $22.0 million for the three months ended June 30, 2014 and 2013, respectively. Net favorable loss development and related premium adjustments decreased the net loss and LAE ratios by 49.1 points and 28.8 points for the three months ended June 30, 2014 and 2013, respectively. Net favorable loss development for the three months ended June 30, 2014 and 2013 was primarily attributable to a level of cumulative losses reported by our ceding companies that was lower than expected and that, in our judgment, resulted in sufficient credibility in the loss experience to change our previously selected loss ratios.
The following table sets forth the net favorable (unfavorable) development by class of business for the three months ended June 30, 2014 ($ in thousands):
|
Class of Business
|
|
Net Losses and LAE
|
|
|
Net Acquisition Expenses
|
|
|
Net Premiums
|
|
|
Net Development
|
|
|
North American umbrella
|
|
$
|
16,405
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,405
|
|
|
North American claims made
|
|
|
11,246
|
|
|
|
(140
|
)
|
|
|
-
|
|
|
|
11,106
|
|
|
International casualty
|
|
|
3,836
|
|
|
|
132
|
|
|
|
(221
|
)
|
|
|
3,747
|
|
|
North American clash
|
|
|
1,720
|
|
|
|
(4
|
)
|
|
|
76
|
|
|
|
1,792
|
|
|
North American occurrence
|
|
|
(4,690
|
)
|
|
|
70
|
|
|
|
16
|
|
|
|
(4,604
|
)
|
|
Other
|
|
|
1,689
|
|
|
|
97
|
|
|
|
134
|
|
|
|
1,920
|
|
|
Total
|
|
$
|
30,206
|
|
|
$
|
155
|
|
|
$
|
5
|
|
|
$
|
30,366
|
|
Net favorable development in the North American umbrella class arose from the 2003 through 2010 underwriting years. A change in loss development patterns contributed $5.9 million to the net favorable development in this class. Net favorable development in the North American claims made class arose primarily from the 2005 through 2011 underwriting years, partially offset by a change in loss development patterns that resulted in $9.4 million of net unfavorable development. Net favorable development in the international casualty and North American clash classes arose from most prior underwriting years. Net unfavorable development in the North American occurrence class resulted primarily from construction related claims from the 2004 through 2006 underwriting years and automobile claims in the 2013 underwriting year. A change in loss development patterns resulted in $0.8 million of favorable development in this class.
The following table sets forth the net favorable (unfavorable) development by class of business for the three months ended June 30, 2013 ($ in thousands):
|
Class of Business
|
|
Net Losses and LAE
|
|
|
Net Acquisition Expenses
|
|
|
Net Premiums
|
|
|
Net Development
|
|
|
North American claims made
|
|
$
|
16,068
|
|
|
$
|
(232
|
)
|
|
$
|
-
|
|
|
$
|
15,836
|
|
|
North American umbrella
|
|
|
6,370
|
|
|
|
467
|
|
|
|
-
|
|
|
|
6,837
|
|
|
International casualty
|
|
|
(848
|
)
|
|
|
15
|
|
|
|
(250
|
)
|
|
|
(1,083
|
)
|
|
Other
|
|
|
366
|
|
|
|
223
|
|
|
|
17
|
|
|
|
606
|
|
|
Total
|
|
$
|
21,956
|
|
|
$
|
473
|
|
|
$
|
(233
|
)
|
|
$
|
22,196
|
|
Net favorable development in the North American claims made class arose primarily from the 2006 through 2011 underwriting years, partially offset by net unfavorable development from a professional liability claim in the 2003 underwriting year. Net favorable development in the North American umbrella class arose primarily from the 2009 and prior underwriting years. Net unfavorable development in the international casualty class arose primarily from a change in the pattern of loss development from the 2002 underwriting year that resulted in $1.6 million of net unfavorable development.
Calendar Year Losses – Excluding Prior Years’ Loss Development
The Casualty segment calendar year losses, excluding prior years’ loss development, were $45.5 million and $57.3 million for the three months ended June 30, 2014 and 2013, respectively. The calendar year loss ratios, excluding prior years’ loss development, were 73.9% and 75.6% for the three months ended June 30, 2014 and 2013, respectively. The decrease in calendar year loss ratios, excluding prior years’ development, was primarily due to lower initial expected loss ratio estimates in the current year for several North American casualty classes, as we lowered our estimates beginning in the second half of 2013 as a result of better than expected historical loss experience. Calendar year losses and related loss ratios, excluding prior years’ loss development, were also impacted by changes in the mix of business.
Net Acquisition Expenses
The Casualty segment net acquisition expenses were $15.6 million and $18.1 million for the three months ended June 30, 2014 and 2013, respectively. The net acquisition expense ratios were 25.4% and 23.9% for the three months ended June 30, 2014 and 2013, respectively. The decrease in net acquisition expenses was due to a decrease in earned premiums and the increase in the net acquisition expense ratio was the result of increases in ceding commissions. Net acquisition expense ratios were also impacted by changes in the mix of business for the three months ended June 30, 2014 as compared with the same period in 2013.
Other Underwriting Expenses
The Casualty segment other underwriting expenses were $5.5 million and $5.7 million for the three months ended June 30, 2014 and 2013, respectively.
Finite Risk
The following table sets forth underwriting results, ratios and the period over period change for the Finite Risk segment for the three months ended June 30, 2014 and 2013 ($ in thousands):
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Increase (decrease)
|
|
|
Net premiums written
|
|
$
|
7,013
|
|
|
$
|
9,309
|
|
|
$
|
(2,296
|
)
|
|
Net premiums earned
|
|
|
7,742
|
|
|
|
8,472
|
|
|
|
(730
|
)
|
|
Net losses and LAE
|
|
|
4,204
|
|
|
|
6,017
|
|
|
|
|
|
|
Net acquisition expenses
|
|
|
1,983
|
|
|
|
2,547
|
|
|
|
|
|
|
Net losses, LAE and acquisition expenses
|
|
|
6,187
|
|
|
|
8,564
|
|
|
|
(2,377
|
)
|
|
Other underwriting expenses
|
|
|
346
|
|
|
|
327
|
|
|
|
19
|
|
|
Finite Risk segment underwriting income (loss)
|
|
$
|
1,209
|
|
|
$
|
(419
|
)
|
|
$
|
1,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE
|
|
|
54.3
|
%
|
|
|
71.0
|
%
|
|
|
|
|
|
Net acquisition expense
|
|
|
25.6
|
%
|
|
|
30.1
|
%
|
|
|
|
|
|
Net loss, LAE and acquisition expense
|
|
|
79.9
|
%
|
|
|
101.1
|
%
|
|
(21.2) points
|
|
|
Other underwriting expense
|
|
|
4.5
|
%
|
|
|
3.9
|
%
|
|
0.6 points
|
|
|
Combined
|
|
|
84.4
|
%
|
|
|
105.0
|
%
|
|
(20.6) points
|
|
During the three months ended June 30, 2014 and 2013, the in-force Finite Risk portfolio consisted of one contract. Due to the inverse relationship between losses and commissions for this segment, we believe it is important to evaluate the overall combined ratio, rather than its component parts of net loss and LAE ratio and net acquisition expense ratio. Due to the small amount of premium volume in recent years, current year ratios may be significantly impacted by relatively small adjustments of prior years’ reserves.
Net Premiums Written and Earned
The Finite Risk segment generated 5.9% and 6.3% of our net premiums written for the three months ended June 30, 2014 and 2013, respectively.
The decreases in net premiums written and net premiums earned for the three months ended June 30, 2014 as compared with the three months ended June 30, 2013 were attributable to decreases in the premium on the single contract currently in-force in 2014 as compared with the same period in 2013.
Net Losses, LAE and Acquisition Expenses
The Finite Risk segment net losses, LAE and acquisition expenses decreased by $2.4 million for the three months ended June 30, 2014 as compared with the three months ended June 30, 2013, primarily due to a decrease in net premiums earned. Net favorable development was $0.9 million for the three months ended June 30, 2014 and net unfavorable development was $0.3 million for the three months ended June 30, 2013.
Non-Underwriting Results
Net Investment Income
Net investment income was $17.6 million and $17.8 million for the three months ended June 30, 2014 and 2013, respectively. Net investment income was relatively unchanged as the reduction in the average book value of our investments and cash and cash equivalents was offset by an increase in average book yield for the three months ended June 30, 2014 as compared with the same period in 2013. The average book yield for the portfolio of total investments and cash and cash equivalents was 2.1% for the three months ended June 30, 2014 as compared with 2.0% for the three months ended June 30, 2013.
Net Realized Gains (Losses) on Investments
Net realized losses on investments were $0.6 million for the three months ended June 30, 2014 and net realized gains on investments were $11.7 million for the three months ended June 30, 2013. Net realized losses for the three months ended June 30, 2014 were primarily due to fair value adjustments on our fixed maturity trading securities.
Sales of investments resulted in net realized gains of $13.0 million for the three months ended June 30, 2013, which included $5.4 million of net realized gains from the sale of corporate bonds, $4.8 million of net realized gains from the sale of municipal bonds and $2.5 million of net realized gains from the sale of commercial mortgage-backed securities (“CMBS”). Net realized gains for the three months ended June 30, 2013 were negatively impacted by fair value adjustments on our fixed maturity trading securities of $1.3 million.
Net Impairment Losses on Investments
Net impairment losses on investments were $0.1 million and $1.5 million for the three months ended June 30, 2014 and 2013, respectively. Net impairment losses reflect other-than-temporary impairments attributable to credit losses on impaired securities that relate exclusively to investments in securitized mortgages not guaranteed by U.S. government agencies.
Other Revenues and Expenses
The following table sets forth other revenues and expenses for the three months ended June 30, 2014 and 2013 ($ in thousands):
|
|
|
Three Months Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Other income (expense)
|
|
$
|
1,194
|
|
|
$
|
(315
|
)
|
|
Operating expenses not allocated to segments
|
|
|
(7,466
|
)
|
|
|
(6,307
|
)
|
|
Net foreign currency exchange (losses) gains
|
|
|
(34
|
)
|
|
|
859
|
|
|
Interest expense
|
|
|
(4,788
|
)
|
|
|
(4,780
|
)
|
|
Other revenues (expenses)
|
|
$
|
(11,094
|
)
|
|
$
|
(10,543
|
)
|
Other income (expense) related primarily to changes in the fair value on our reinsurance deposit assets resulting in income of $1.2 million for the three months ended June 30, 2014 and a loss of $0.1 million for the three months ended June 30, 2013.
Operating expenses not allocated to segments were $7.5 million and $6.3 million for the three months ended June 30, 2014 and 2013, respectively. The increase was attributable to higher professional fees in 2014 as compared with the same period in 2013.
Interest expense was $4.8 million for both the three months ended June 30, 2014 and 2013 and related to our $250.0 million of debt obligations.
Income Taxes
Income tax expense or benefit is primarily driven by the taxable income or loss generated by our U.S.-based subsidiaries. Our effective tax rate is primarily driven by the portion of taxable income or loss generated by our U.S.-based subsidiaries relative to the income or loss generated by our Bermuda-based operations, which are not subject to corporate income tax. Premiums earned by our U.S. and Bermuda-based subsidiaries generally do not bear a proportionate relationship to their respective pre-tax income for a variety of reasons, including the significant impact on pre-tax income of the different mixes of business underwritten by the particular subsidiary, the presence or absence of underwriting income or loss attributable to such business, and the investment results experienced by the particular subsidiary.
Income tax expense was $1.8 million and $4.1 million for the three months ended June 30, 2014 and 2013, respectively. Our effective tax rate was 4.7% and 7.6% for the three months ended June 30, 2014 and 2013, respectively.
Pre-tax income was $30.1 million and $7.9 million in our Bermuda and U.S. companies, respectively, for the three months ended June 30, 2014. Pre-tax income was $41.7 million and $12.3 million in our Bermuda and U.S. companies, respectively, for the three months ended June 30, 2013.
Six Months Ended June 30, 2014 as Compared with the Six Months Ended June 30, 2013
Net income and diluted earnings per common share for the six months ended June 30, 2014 and 2013 were as follows ($ and amounts in thousands, except diluted earnings per common share):
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Underwriting income
|
|
$
|
91,517
|
|
|
$
|
105,790
|
|
|
Net investment income
|
|
|
35,337
|
|
|
|
36,352
|
|
|
Net realized gains (losses) on investments
|
|
|
(1,111
|
)
|
|
|
25,004
|
|
|
Net impairment losses on investments
|
|
|
(224
|
)
|
|
|
(1,937
|
)
|
|
Other revenues (expenses)
|
|
|
(19,569
|
)
|
|
|
(19,627
|
)
|
|
Income before income taxes
|
|
|
105,950
|
|
|
|
145,582
|
|
|
Income tax expense
|
|
|
(6,035
|
)
|
|
|
(9,212
|
)
|
|
Net income
|
|
$
|
99,915
|
|
|
$
|
136,370
|
|
|
Weighted average shares outstanding - diluted
|
|
|
27,516
|
|
|
|
31,904
|
|
|
Diluted earnings per common share
|
|
$
|
3.63
|
|
|
$
|
4.26
|
|
The decrease in net income for the six months ended June 30, 2014 as compared with the six months ended June 30, 2013 was primarily due to decreases in net realized gains on investments and underwriting income. The decrease in diluted earnings per common share was due to the decrease in net income, partially offset by a decrease in the diluted weighted average shares outstanding. The decrease in the diluted weighted average shares outstanding related to share repurchases during the last twelve months.
Underwriting Results
Net underwriting income was $91.5 million and $105.8 million for the six months ended June 30, 2014 and 2013, respectively. The decrease in net underwriting income was primarily due to a decrease in net favorable development, partially offset by a decrease in net losses from current year major catastrophes. In addition, we experienced an increase in losses from non-major catastrophe events for the six months ended June 30, 2014 as compared with the six months ended June 30, 2013.
Net favorable development was $75.6 million and $98.6 million for the six months ended June 30, 2014 and 2013, respectively. There were no net losses from current year major catastrophes for the six months ended June 30, 2014 as compared with net losses from current year major catastrophes of $18.6 million for the six months ended June 30, 2013.
The following discussion and analysis reviews our underwriting results by operating segment.
Property and Marine
The following table sets forth underwriting results, ratios and the period over period change for the Property and Marine segment for the six months ended June 30, 2014 and 2013 ($ in thousands):
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Increase (decrease)
|
|
|
Gross premiums written
|
|
$
|
118,961
|
|
|
$
|
118,318
|
|
|
$
|
643
|
|
|
Ceded premiums written
|
|
|
2,698
|
|
|
|
1,541
|
|
|
|
1,157
|
|
|
Net premiums written
|
|
|
116,263
|
|
|
|
116,777
|
|
|
|
(514
|
)
|
|
Net premiums earned
|
|
|
108,720
|
|
|
|
110,684
|
|
|
|
(1,964
|
)
|
|
Net losses and LAE
|
|
|
37,010
|
|
|
|
7,087
|
|
|
|
29,923
|
|
|
Net acquisition expenses
|
|
|
20,272
|
|
|
|
17,925
|
|
|
|
2,347
|
|
|
Other underwriting expenses
|
|
|
15,455
|
|
|
|
14,746
|
|
|
|
709
|
|
|
Property and Marine segment underwriting income
|
|
$
|
35,983
|
|
|
$
|
70,926
|
|
|
$
|
(34,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE
|
|
|
34.0
|
%
|
|
|
6.4
|
%
|
|
27.6 points
|
|
|
Net acquisition expense
|
|
|
18.6
|
%
|
|
|
16.2
|
%
|
|
2.4 points
|
|
|
Other underwriting expense
|
|
|
14.2
|
%
|
|
|
13.3
|
%
|
|
0.9 points
|
|
|
Combined
|
|
|
66.8
|
%
|
|
|
35.9
|
%
|
|
30.9 points
|
|
The Property and Marine segment underwriting income decreased by $34.9 million for the six months ended June 30, 2014 as compared with the six months ended June 30, 2013, primarily due to a decrease in net favorable development, partially offset by a decrease in net losses from current year major catastrophes. We also experienced an increase in losses from non-major catastrophe events for the six months ended June 30, 2014 as compared with the six months ended June 30, 2013.
Net favorable development was $11.3 million and $52.3 million for the six months ended June 30, 2014 and 2013, respectively.
There were no net losses from current year major catastrophes for the six months ended June 30, 2014 as compared with net losses from current year major catastrophes of $18.6 million for the six months ended June 30, 2013.
Net Premiums Written and Earned
The Property and Marine segment generated 45.4% and 41.5% of our net premiums written for the six months ended June 30, 2014 and 2013, respectively.
The Property and Marine segment gross premiums written increased by $0.6 million, and by $2.2 million excluding reinstatement premiums written related to major catastrophes, for the six months ended June 30, 2014 as compared with the six months ended June 30, 2013. Gross premiums written were relatively unchanged as an increase in North American property proportional business was partially offset by a decrease in international property catastrophe business.
Net premiums earned decreased by $2.0 million for the six months ended June 30, 2014 as compared with the six months ended June 30, 2013. Net premiums written and earned were impacted by changes in the mix of business and the structure of the underlying reinsurance contracts.
Net Losses and LAE
The following table sets forth the components of net losses and LAE for the six months ended June 30, 2014 and 2013 ($ in thousands):
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Current year major catastrophes
|
|
$
|
-
|
|
|
$
|
(20,104
|
)
|
|
Prior years’ favorable loss development
|
|
|
11,887
|
|
|
|
56,084
|
|
|
Calendar year losses, excluding prior years’ loss development
|
|
|
(48,897
|
)
|
|
|
(43,067
|
)
|
|
Net losses and LAE
|
|
$
|
(37,010
|
)
|
|
$
|
(7,087
|
)
|
Current Year Major Catastrophe Losses
There were no net losses from current year major catastrophes for the six months ended June 30, 2014. Net losses from current year major catastrophes, with related premium adjustments, increased the net loss and LAE ratio by 18.3 points for the six months ended June 30, 2013.
The following table sets forth the components of pre-tax net losses from 2013 major catastrophes for the six months ended June 30, 2013 ($ in thousands):
|
Major Catastrophe
|
|
Net Losses and LAE
|
|
|
Reinstatement Premiums Earned
|
|
|
Net Losses from Major Catastrophes
|
|
|
Floods in central and eastern Europe, primarily in Germany
|
|
$
|
(16,182
|
)
|
|
$
|
1,527
|
|
|
$
|
(14,655
|
)
|
|
PCS 14 - tornadoes in the U.S. Midwest, primarily Oklahoma
|
|
|
(3,922
|
)
|
|
|
11
|
|
|
|
(3,911
|
)
|
|
Total
|
|
$
|
(20,104
|
)
|
|
$
|
1,538
|
|
|
$
|
(18,566
|
)
|
Any development of losses related to 2013 major catastrophes subsequent to December 31, 2013 is included in prior years’ loss development in the major catastrophes class of business for the six months ended June 30, 2014.
Prior Years’ Loss Development
The Property and Marine segment net favorable loss development was $11.9 million and $56.1 million for the six months ended June 30, 2014 and 2013, respectively. Net favorable loss development and related premium adjustments decreased the net loss and LAE ratio by 10.8 points and 48.7 points for the six months ended June 30, 2014 and 2013, respectively. Net favorable loss development for the six months ended June 30, 2014 and 2013 was primarily attributable to a level of cumulative losses reported by our ceding companies that was lower than expected and that, in our judgment, resulted in sufficient credibility in the loss experience to change our previously selected loss ratios.
The following table sets forth the net favorable (unfavorable) development by class of business for the six months ended June 30, 2014 ($ in thousands):
|
Class of Business
|
|
Net Losses and LAE
|
|
|
Net Acquisition Expenses
|
|
|
Net Premiums
|
|
|
Net Development
|
|
|
Major catastrophes
|
|
$
|
11,404
|
|
|
$
|
(5
|
)
|
|
$
|
(462
|
)
|
|
$
|
10,937
|
|
|
Crop
|
|
|
2,135
|
|
|
|
(83
|
)
|
|
|
-
|
|
|
|
2,052
|
|
|
Catastrophe excess-of-loss (non-major events)
|
|
|
1,494
|
|
|
|
118
|
|
|
|
30
|
|
|
|
1,642
|
|
|
Property per risk
|
|
|
1,285
|
|
|
|
43
|
|
|
|
248
|
|
|
|
1,576
|
|
|
Marine, aviation and satellite
|
|
|
(5,215
|
)
|
|
|
(32
|
)
|
|
|
(310
|
)
|
|
|
(5,557
|
)
|
|
Other
|
|
|
784
|
|
|
|
(96
|
)
|
|
|
-
|
|
|
|
688
|
|
|
Total
|
|
$
|
11,887
|
|
|
$
|
(55
|
)
|
|
$
|
(494
|
)
|
|
$
|
11,338
|
|
Net favorable development in the major catastrophes class resulted primarily from the Tohoku earthquake and the New Zealand earthquakes in 2011, partially offset by net unfavorable development on the New Zealand earthquake in September 2010. Net favorable development in the crop class arose primarily from 2013 underwriting year. Net favorable development in the catastrophe excess-of-loss (non-major events) class arose primarily from the 2010 through 2012 underwriting years. Net favorable development in the property per risk class arose primarily from the 2013 underwriting year. Net unfavorable development in the marine, aviation and satellite class related primarily from an increase of $8.9 million in our estimate of ultimate losses from the cruise ship Costa Concordia, partially offset by net favorable development on most other prior underwriting years.
The following table sets forth the net favorable (unfavorable) development by class of business for the six months ended June 30, 2013 ($ in thousands):
|
Class of Business
|
|
Net Losses and LAE
|
|
|
Net Acquisition Expenses
|
|
|
Net Premiums
|
|
|
Net Development
|
|
|
Major catastrophes
|
|
$
|
39,599
|
|
|
$
|
(31
|
)
|
|
$
|
(4,083
|
)
|
|
$
|
35,485
|
|
|
Property per risk
|
|
|
8,003
|
|
|
|
97
|
|
|
|
(4
|
)
|
|
|
8,096
|
|
|
Catastrophe excess-of-loss (non-major events)
|
|
|
5,291
|
|
|
|
125
|
|
|
|
(158
|
)
|
|
|
5,258
|
|
|
Crop
|
|
|
1,793
|
|
|
|
38
|
|
|
|
196
|
|
|
|
2,027
|
|
|
Marine, aviation and satellite
|
|
|
1,007
|
|
|
|
240
|
|
|
|
-
|
|
|
|
1,247
|
|
|
Other
|
|
|
391
|
|
|
|
(184
|
)
|
|
|
-
|
|
|
|
207
|
|
|
Total
|
|
$
|
56,084
|
|
|
$
|
285
|
|
|
$
|
(4,049
|
)
|
|
$
|
52,320
|
|
Net favorable development in the major catastrophes class resulted primarily from Hurricane Sandy and the Tohoku earthquake, as well as marine losses from Hurricanes Katrina and Ike. Net favorable development in the property per risk class arose primarily from the 2011 and 2012 underwriting years. Net favorable development in the catastrophe excess-of-loss (non-major events) class arose primarily from the 2010 through 2012 underwriting years. Net favorable development in the crop class arose primarily from the 2012 underwriting year. Net favorable development in the marine, aviation and satellite class arose primarily from the 2006 through 2008 underwriting years.
Calendar Year Losses – Excluding Current Year Major Catastrophes and Prior Years’ Loss Development
The Property and Marine segment calendar year losses, excluding current year major catastrophes and prior years’ loss development, were $48.9 million and $43.1 million for the six months ended June 30, 2014 and 2013, respectively. The calendar year loss ratios, excluding current year major catastrophes and prior years’ loss development, were 44.8% and 38.0% for the six months ended June 30, 2014 and 2013, respectively. The increase in calendar year losses and the calendar year loss ratio resulted primarily from an increase in losses of $5.8 million from non-major catastrophe events in 2014 as compared with 2013.
Net Acquisition Expenses
The Property and Marine segment net acquisition expenses were $20.3 million and $17.9 million for the six months ended June 30, 2014 and 2013, respectively. The net acquisition expense ratios were 18.6% and 16.2% for the six months ended June 30, 2014 and 2013, respectively. The increase in net acquisition expenses and the net acquisition expense ratio for the six months ended June 30, 2014 as compared with the same period in 2013 was primarily due to an increase in North American property proportional business which has a higher acquisition expense ratio than the remainder of the segment and a reduction in international property catastrophe business which has a lower acquisition expense ratio than the remainder of the segment.
Other Underwriting Expenses
The Property and Marine segment other underwriting expenses were $15.5 million and $14.7 million for the six months ended June 30, 2014 and 2013, respectively.
Casualty
The following table sets forth underwriting results, ratios and the period over period change for the Casualty segment for the six months ended June 30, 2014 and 2013 ($ in thousands):
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Increase (decrease)
|
|
|
Net premiums written
|
|
$
|
126,480
|
|
|
$
|
150,555
|
|
|
$
|
(24,075
|
)
|
|
Net premiums earned
|
|
|
127,272
|
|
|
|
146,424
|
|
|
|
(19,152
|
)
|
|
Net losses and LAE
|
|
|
30,221
|
|
|
|
65,001
|
|
|
|
(34,780
|
)
|
|
Net acquisition expenses
|
|
|
31,278
|
|
|
|
34,317
|
|
|
|
(3,039
|
)
|
|
Other underwriting expenses
|
|
|
10,765
|
|
|
|
11,393
|
|
|
|
(628
|
)
|
|
Casualty segment underwriting income
|
|
$
|
55,008
|
|
|
$
|
35,713
|
|
|
$
|
19,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE
|
|
|
23.7
|
%
|
|
|
44.4
|
%
|
|
(20.7) points
|
|
|
Net acquisition expense
|
|
|
24.6
|
%
|
|
|
23.4
|
%
|
|
1.2 points
|
|
|
Other underwriting expense
|
|
|
8.5
|
%
|
|
|
7.8
|
%
|
|
0.7 points
|
|
|
Combined
|
|
|
56.8
|
%
|
|
|
75.6
|
%
|
|
(18.8) points
|
|
The Casualty segment underwriting income increased by $19.3 million for the six months ended June 30, 2014 as compared with the six months ended June 30, 2013, primarily due to an increase in net favorable development. Net favorable development was $64.0 million and $46.6 million for the six months ended June 30, 2014 and 2013, respectively.
Net Premiums Written and Earned
The Casualty segment generated 49.4% and 53.6% of our net premiums written for the six months ended June 30, 2014 and 2013, respectively.
The Casualty segment net premiums written decreased by $24.1 million for the six months ended June 30, 2014 as compared with the six months ended June 30, 2013. Net premiums written reflected a decrease to prior years’ premium estimates of $2.8 million for the six months ended June 30, 2014 and an increase to prior years’ premium estimates of $24.0 million for the six months ended June 30, 2013. Excluding the impact of changes to prior years’ premium estimates, net premiums written increased by $2.8 million.
The Casualty segment net premiums earned decreased by $19.2 million for the six months ended June 30, 2014 as compared with the six months ended June 30, 2013. Net premiums earned reflected a decrease to prior years’ premium estimates of $3.2 million for the six months ended June 30, 2014 and an increase to prior years’ premium estimates of $15.0 million for the six months ended June 30, 2013. Excluding the impact of changes to prior years’ premium estimates, net premiums earned decreased by $1.0 million. Net premiums written and earned were impacted by changes in the mix of business and the structure of the underlying reinsurance contracts.
Net Losses and LAE
The following table sets forth the components of net losses and LAE for the six months ended June 30, 2014 and 2013 ($ in thousands):
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Prior years’ favorable loss development
|
|
$
|
62,809
|
|
|
$
|
45,568
|
|
|
Calendar year losses, excluding prior years’ loss development
|
|
|
(93,030
|
)
|
|
|
(110,569
|
)
|
|
Net losses and LAE
|
|
$
|
(30,221
|
)
|
|
$
|
(65,001
|
)
|
Prior Years’ Loss Development
Net favorable loss development was $62.8 million and $45.6 million for the six months ended June 30, 2014 and 2013, respectively. Net favorable loss development and related premium adjustments decreased the net loss and LAE ratios by 49.9 points and 31.1 points for the six months ended June 30, 2014 and 2013, respectively. Net favorable loss development for the six months ended June 30, 2014 and 2013 was primarily attributable to a level of cumulative losses reported by our ceding companies that was lower than expected and that, in our judgment, resulted in sufficient credibility in the loss experience to change our previously selected loss ratios.
The following table sets forth the net favorable (unfavorable) development by class of business for the six months ended June 30, 2014 ($ in thousands):
|
Class of Business
|
|
Net Losses and LAE
|
|
|
Net Acquisition Expenses
|
|
|
Net Premiums
|
|
|
Net Development
|
|
|
North American umbrella
|
|
$
|
23,631
|
|
|
$
|
(1
|
)
|
|
$
|
-
|
|
|
$
|
23,630
|
|
|
North American claims made
|
|
|
21,572
|
|
|
|
(158
|
)
|
|
|
-
|
|
|
|
21,414
|
|
|
Financial lines
|
|
|
10,407
|
|
|
|
(114
|
)
|
|
|
22
|
|
|
|
10,315
|
|
|
International casualty
|
|
|
6,455
|
|
|
|
283
|
|
|
|
483
|
|
|
|
7,221
|
|
|
North American clash
|
|
|
4,089
|
|
|
|
3
|
|
|
|
180
|
|
|
|
4,272
|
|
|
Accident and health
|
|
|
1,875
|
|
|
|
147
|
|
|
|
134
|
|
|
|
2,156
|
|
|
North American occurrence
|
|
|
(5,219
|
)
|
|
|
114
|
|
|
|
49
|
|
|
|
(5,056
|
)
|
|
Other
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
Total
|
|
$
|
62,809
|
|
|
$
|
274
|
|
|
$
|
868
|
|
|
$
|
63,951
|
|
Net favorable development in the North American umbrella class arose from the 2003 through 2010 underwriting years. A change in loss development patterns contributed $5.9 million to the net favorable development in this class. Net favorable development in the North American claims made class arose primarily from the 2005 through 2011 underwriting years, partially offset by a change in loss development patterns that resulted in $10.0 million of net unfavorable development. Net favorable development in the financial lines class arose primarily from political risk exposure from the 2005 through 2008 underwriting years and trade credit exposure from most prior underwriting years. Net favorable development in the international casualty class arose from most prior underwriting years. Net favorable development in the North American clash class arose primarily from the 2004 through 2010 underwriting years. Net favorable development in the accident and health class arose primarily from the 2011 through 2013 underwriting years. Net unfavorable development in the North American occurrence class arose primarily from construction related claims in the 2004 and 2005 underwriting years.
The following table sets forth the net favorable (unfavorable) development for the six months ended June 30, 2013 by class of business ($ in thousands):
|
Class of Business
|
|
Net Losses and LAE
|
|
|
Net Acquisition Expenses
|
|
|
Net Premiums
|
|
|
Net Development
|
|
|
North American claims made
|
|
$
|
22,047
|
|
|
$
|
(106
|
)
|
|
$
|
61
|
|
|
$
|
22,002
|
|
|
North American umbrella
|
|
|
16,887
|
|
|
|
463
|
|
|
|
-
|
|
|
|
17,350
|
|
|
Accident and health
|
|
|
1,698
|
|
|
|
435
|
|
|
|
-
|
|
|
|
2,133
|
|
|
Financial lines
|
|
|
2,203
|
|
|
|
(232
|
)
|
|
|
(38
|
)
|
|
|
1,933
|
|
|
North American clash
|
|
|
1,149
|
|
|
|
13
|
|
|
|
11
|
|
|
|
1,173
|
|
|
North American occurrence
|
|
|
343
|
|
|
|
581
|
|
|
|
122
|
|
|
|
1,046
|
|
|
Other
|
|
|
1,241
|
|
|
|
(8
|
)
|
|
|
(265
|
)
|
|
|
968
|
|
|
Total
|
|
$
|
45,568
|
|
|
$
|
1,146
|
|
|
$
|
(109
|
)
|
|
$
|
46,605
|
|
Net favorable development in the North American claims made class arose primarily from the 2004 through 2010 underwriting years, partially offset by net unfavorable development from a professional liability claim in the 2003 underwriting year and a product liability claim in the 2011 underwriting year. Net favorable development in the North American umbrella class arose primarily from the 2003 through 2009 underwriting years. Net favorable development in the accident and health class arose from the 2009 through 2011 underwriting years. Net favorable development in the financial lines class arose primarily from the 2011 and 2012 underwriting years. Net favorable development in the North American clash class arose primarily from the 2008 and prior underwriting years. Net favorable development in the North American occurrence class arose primarily from the 2007 through 2011 underwriting years, partially offset by net unfavorable development from construction defect claims in the 2004 and 2005 underwriting years.
Calendar Year Losses – Excluding Prior Years’ Loss Development
The Casualty segment calendar year losses, excluding prior years’ loss development, were $93.0 million and $110.6 million for the six months ended June 30, 2014 and 2013, respectively. The calendar year loss ratios, excluding prior years’ loss development, were 73.6% and 75.5% for the six months ended June 30, 2014 and 2013, respectively. The decrease in calendar year loss ratios, excluding prior years’ development, was primarily due to lower initial expected loss ratio estimates in the current year for several North American casualty classes, as we lowered our estimates beginning in the second half of 2013 as a result of better than expected historical loss experience. Calendar year losses and related loss ratios, excluding prior years’ loss development, were also impacted by changes in the mix of business.
Net Acquisition Expenses
The Casualty segment net acquisition expenses were $31.3 million and $34.3 million for the six months ended June 30, 2014 and 2013, respectively. The net acquisition expense ratios were 24.6% and 23.4% for the six months ended June 30, 2014 and 2013, respectively. The decrease in net acquisition expenses was due to a decrease in earned premiums and the increase in the net acquisition expense ratio was the result of increases in ceding commissions. The net acquisition expense ratio was also impacted by changes in the mix of business for the six months ended June 30, 2014 as compared with the same period in 2013.
Other Underwriting Expenses
The Casualty segment other underwriting expenses were $10.8 million and $11.4 million for the six months ended June 30, 2014 and 2013, respectively.
Finite Risk
The following table sets forth underwriting results, ratios and the period over period change for the Finite Risk segment for the six months ended June 30, 2014 and 2013 ($ in thousands):
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Increase (decrease)
|
|
|
Net premiums written
|
|
$
|
13,371
|
|
|
$
|
13,803
|
|
|
$
|
(432
|
)
|
|
Net premiums earned
|
|
|
15,106
|
|
|
|
12,678
|
|
|
|
2,428
|
|
|
Net losses and LAE
|
|
|
10,143
|
|
|
|
4,577
|
|
|
|
|
|
|
Net acquisition expenses
|
|
|
3,799
|
|
|
|
8,290
|
|
|
|
|
|
|
Net losses, LAE and acquisition expenses
|
|
|
13,942
|
|
|
|
12,867
|
|
|
|
1,075
|
|
|
Other underwriting expenses
|
|
|
638
|
|
|
|
660
|
|
|
|
(22
|
)
|
|
Finite Risk segment underwriting income (loss)
|
|
$
|
526
|
|
|
$
|
(849
|
)
|
|
$
|
1,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE
|
|
|
67.1
|
%
|
|
|
36.1
|
%
|
|
|
|
|
|
Net acquisition expense
|
|
|
25.1
|
%
|
|
|
65.4
|
%
|
|
|
|
|
|
Net loss, LAE and acquisition expense
|
|
|
92.2
|
%
|
|
|
101.5
|
%
|
|
(9.3) points
|
|
|
Other underwriting expense
|
|
|
4.2
|
%
|
|
|
5.2
|
%
|
|
(1.0) points
|
|
|
Combined
|
|
|
96.4
|
%
|
|
|
106.7
|
%
|
|
(10.3) points
|
|
During the six months ended June 30, 2014 and 2013, the in-force Finite Risk portfolio consisted of one contract. Due to the inverse relationship between losses and commissions for this segment, we believe it is important to evaluate the overall combined ratio, rather than its component parts of net loss and LAE ratio and net acquisition expense ratio. Due to the decline in premium volume in recent years, current year ratios may be significantly impacted by relatively small adjustments of prior years’ reserves.
Net Premiums Written and Earned
The Finite Risk segment generated 5.2% and 4.9% of our net premiums written for the six months ended June 30, 2014 and 2013, respectively.
The decrease in net premiums written for the six months ended June 30, 2014 as compared with the six months ended June 30, 2013 was attributable to a decrease in the premium on the single contract currently in-force in 2014 as compared with the same period in 2013.
The increase in net premiums earned for the six months ended June 30, 2014 as compared with the six months ended June 30, 2013 was primarily due to an increase in the estimated ultimate premium beginning in the second half of 2013 that related to the 2013 underwriting year of the single contract.
Net Losses, LAE and Acquisition Expenses
The Finite Risk segment net losses, LAE and acquisition expenses increased by $1.1 million for the six months ended June 30, 2014 as compared with the six months ended June 30, 2013, primarily due to an increase in net premiums earned. Net favorable development was $0.3 million for the six months ended June 30, 2014 and net unfavorable development was $0.3 million for the six months ended June 30, 2013.
Non-Underwriting Results
Net Investment Income
Net investment income was $35.3 million and $36.4 million for the six months ended June 30, 2014 and 2013, respectively. Net investment income was relatively unchanged as the reduction in the average book value of our investments and cash and cash equivalents was offset by an increase in average book yield for the six months ended June 30, 2014 as compared with the same period in 2013. The average book yield for the portfolio of total investments and cash and cash equivalents was 2.1% for the six months ended June 30, 2014 as compared with 2.0% for the six months ended June 30, 2013.
Net Realized Gains (Losses) on Investments
Net realized losses on investments were $1.1 million for the six months ended June 30, 2014 and net realized gains on investments were $25.0 million for the six months ended June 30, 2013. Net realized losses for the six months ended June 30, 2014 were primarily due to fair value adjustments on our fixed maturity trading securities.
Sales of investments resulted in net realized gains of $27.2 million for the six months ended June 30, 2013, which included $18.3 million of net realized gains from the sale of municipal bonds, $6.1 million of net realized gains from the sale of corporate bonds and $2.5 million of net realized gains from the sale of CMBS. Net realized gains for the six months ended June 30, 2013 were negatively impacted by fair value adjustments on our fixed maturity trading securities of $2.2 million.
Net Impairment Losses on Investments
Net impairment losses on investments were $0.2 million and $1.9 million for the six months ended June 30, 2014 and 2013, respectively. Net impairment losses reflect other-than-temporary impairments attributable to credit losses on impaired securities that relate exclusively to investments in securitized mortgages not guaranteed by U.S. government agencies.
Other Revenues and Expenses
The following table sets forth other revenues and expenses for the six months ended June 30, 2014 and 2013 ($ in thousands):
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Other income (expense)
|
|
$
|
2,711
|
|
|
$
|
1,077
|
|
|
Operating expenses not allocated to segments
|
|
|
(12,859
|
)
|
|
|
(12,224
|
)
|
|
Net foreign currency exchange (losses) gains
|
|
|
153
|
|
|
|
1,079
|
|
|
Interest expense
|
|
|
(9,574
|
)
|
|
|
(9,559
|
)
|
|
Other revenues (expenses)
|
|
$
|
(19,569
|
)
|
|
$
|
(19,627
|
)
|
Other income includes changes in the fair value of our reinsurance deposit assets of $2.9 million and $1.3 million for the six months ended June 30, 2014 and 2013, respectively.
Operating expenses not allocated to underwriting segments were $12.9 million and $12.2 million for the six months ended June 30, 2014 and 2013, respectively. The increase was attributable to higher professional fees in 2014 as compared with the same period in 2013.
Interest expense was $9.6 million for both the six months ended June 30, 2014 and 2013 and related to our $250.0 million of debt obligations.
Income Taxes
The income tax expense or benefit is primarily driven by the taxable income or loss generated by our U.S.-based subsidiaries. Our effective tax rate is primarily driven by the portion of taxable income or loss generated by our U.S.-based subsidiaries relative to the income or loss generated by our Bermuda-based operations, which are not subject to corporate income tax. Premiums earned by our U.S. and Bermuda-based subsidiaries generally do not bear a proportionate relationship to their respective pre-tax income for a variety of reasons, including the significant impact on pre-tax income of the different mixes of business underwritten by the particular subsidiary, the presence or absence of underwriting income or loss attributable to such business, and the investment results experienced by the particular subsidiary.
Income tax expense was $6.0 million and $9.2 million for the six months ended June 30, 2014 and 2013, respectively. Our effective tax rate was 5.7% and 6.3% for the six months ended June 30, 2014 and 2013, respectively.
Pre-tax income was $83.8 million and $22.3 million in our Bermuda and U.S. companies, respectively, for the six months ended June 30, 2014. Pre-tax income was $108.6 million and $37.0 million in our Bermuda and U.S. companies, respectively, for the six months ended June 30, 2013.
Financial Condition
The following discussion of financial condition, liquidity and capital resources as of June 30, 2014 focuses only on material changes from December 31, 2013. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition”, in our 2013 Form 10-K.
Liquidity
Liquidity Requirements
Platinum Holdings is a holding company, the assets of which consist primarily of shares of its subsidiaries. Platinum Holdings’ liquidity requirements, and those of Platinum Finance, include the payment of operating expenses, debt service obligations and income taxes. Our reinsurance subsidiaries’ principal liquidity requirements are the payment of losses and LAE, commissions, brokerage, operating expenses, income taxes and dividends to Platinum Holdings and Platinum Finance. We consider the impact of dividends and other distributions from our reinsurance subsidiaries on their respective capital levels, which may impact the financial strength ratings assigned to our subsidiaries by A.M. Best Company, Inc. (“A.M. Best”) and Standard & Poor's Ratings Services (“S&P”).
Collateral Requirements of our Reinsurance Subsidiaries
Platinum Bermuda is not licensed, approved or accredited as a reinsurer in the United States and, therefore, under the terms of its contracts with U.S. ceding companies, it is required to provide collateral to its ceding companies for unpaid losses and LAE and unearned premiums in a form acceptable to state insurance regulators. Platinum Bermuda and Platinum US also provide reinsurance coverage in many international jurisdictions, several of which require them to provide collateral directly with regulators or ceding companies.
Platinum Bermuda and Platinum US also have reinsurance and other contracts that require them to provide collateral to ceding companies when certain levels of assumed liabilities are attained. Should certain events occur, such as a decline in our financial strength rating by A.M. Best or S&P below specified levels or a decline in statutory equity below specified amounts, the amount of collateral required may increase. Some reinsurance contracts also have special termination provisions that permit early termination should certain events occur.
Generally, our collateral requirements are satisfied as follows:
|
·
|
Letters of credit issued by financial institutions. See “Sources of Liquidity – Credit Facilities” below for additional information on our credit facilities, letters of credit issued and the collateral required by us under these facilities as of June 30, 2014;
|
|
·
|
Pledged assets or trust accounts. As of June 30, 2014, investments of $5.7 million were pledged to U.S. regulatory authorities and investments of $58.0 million and cash and cash equivalents of $11.8 million were pledged to collateralize obligations under various reinsurance contracts; and
|
|
·
|
Funds held by ceding companies.
|
Other Liquidity Requirements
Platinum Holdings fully and unconditionally guarantees the outstanding $250.0 million of debt obligations of Platinum Finance. Platinum Finance pays interest at a rate of 7.5% per annum on June 1 and December 1 of each year.
Platinum Holdings may also require cash to pay for share repurchases. See “Capital Resources - Share and Debt Repurchases” below for additional discussion of share repurchases.
Sources of Liquidity
Platinum Holdings and Platinum Finance’s sources of liquidity include cash and cash equivalents, liquid investments, potential borrowings from our syndicated credit facility, the potential issuance of securities, and dividends and other distributions from subsidiaries. Our reinsurance subsidiaries’ sources of liquidity consist primarily of cash and cash equivalents, inflows of premiums, investment income, proceeds from the sales, maturities and paydowns of investments, capital contributions from Platinum Holdings and Platinum Finance and potential borrowings from our syndicated credit facility.
As of June 30, 2014, we had consolidated cash and cash equivalents of $1.4 billion, including $69.5 million at Platinum Holdings and $179.3 million at Platinum Finance. We expect that Platinum Holdings’ and Platinum Finance’s liquidity needs for the next twelve months will be met by our cash and cash equivalents and available dividend capacity from our subsidiaries. We expect that our reinsurance subsidiaries’ liquidity needs for the next twelve months will be met by our cash and cash equivalents, inflows of premiums, investment income and proceeds from the sales, maturities and paydowns of investments.
Cash Flows
The following table summarizes the cash provided by or used in our operating, investing and financing activities and the effect of foreign currency exchange rate changes on cash and cash equivalents for the six months ended June 30, 2014 and 2013 ($ in thousands):
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
1,419
|
|
|
$
|
(49,113
|
)
|
|
Net cash provided by investing activities
|
|
|
8,123
|
|
|
|
165,450
|
|
|
Net cash used in financing activities
|
|
|
(114,834
|
)
|
|
|
(215,010
|
)
|
|
Effect of foreign currency exchange rate changes
|
|
|
2,604
|
|
|
|
(12,261
|
)
|
|
Net decrease in cash and cash equivalents
|
|
|
(102,688
|
)
|
|
|
(110,934
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
1,464,418
|
|
|
|
1,720,395
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,361,730
|
|
|
$
|
1,609,461
|
|
Operating Activities
Cash provided by and used in operating activities fluctuates primarily as a result of the payment of losses and LAE and changes in volume and timing of premium receipts. Our reinsurance subsidiaries generally have liquidity from underwriting activities as premiums are received in advance of the time losses are paid. The period of time from the occurrence of a claim through the settlement of the liability may extend many years into the future. However, due to the nature of our reinsurance operations, cash flows are affected by the amount and timing of actual claim payments that can vary based on many factors, including the severity of individual losses, changes in the legal environment, foreign exchange rates and general market conditions. As a result of expected payment of losses and LAE, including the payment of losses from major catastrophe activity in the last several years, our operating cash flows may be negative for the next twelve months.
Investing Activities
Net cash provided by investing activities decreased primarily as a result of no significant sales of fixed maturity available-for-sale securities for the six months ended June 30, 2014 as compared with proceeds from sales of fixed maturity available-for-sale securities of $203.6 million for the six months ended June 30, 2013.
Financing Activities
Net cash used in financing activities primarily related to repurchases of common shares of $110.8 million and $224.2 million for the six months ended June 30, 2014 and 2013, respectively.
Investments
As part of our investment strategy, we seek to establish a level of cash and liquid short-term and intermediate-term securities which, including expected cash outflows from our operating activities and cash flows from our investments, we believe to be adequate to meet our foreseeable payment obligations. The ultimate amount and timing of claim payments could differ materially from our estimates and create significant variations in cash flows from operations between periods, which may require us to make payments from other sources of liquidity, such as sales of investments, borrowings from our syndicated credit facility or proceeds from capital market transactions. If we need to sell investments to meet liquidity requirements, the sale of such investments may be at a material gain or loss. Our investment portfolio consists primarily of diversified, high quality, predominantly investment-grade fixed maturity securities.
Our investable assets consist of investments, cash and cash equivalents, accrued investment income and net balances due from brokers. Our investable assets credit quality is primarily measured by Moody’s. If a particular security did not have a Moody’s rating then a rating generally from S&P was converted to a Moody’s equivalent rating. The following table sets forth our investment portfolio information as of June 30, 2014 and December 31, 2013:
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
Investable Assets
|
|
$3.5 billion
|
|
|
$3.5 billion
|
|
|
Credit Quality
|
|
Aa2
|
|
|
Aa2
|
|
|
Book Yield
|
|
|
2.1%
|
|
|
|
2.1%
|
|
|
Duration
|
|
2.6 yrs
|
|
|
2.6 yrs
|
|
The following table summarizes the fair value and unrealized gains or losses of our investments and cash and cash equivalents as of June 30, 2014 and December 31, 2013 ($ in thousands):
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
|
Fair Value
|
|
|
Net Unrealized Gain (Loss)
|
|
|
Fair Value
|
|
|
Net Unrealized Gain (Loss)
|
|
|
Fixed maturity available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government
|
|
$
|
49,604
|
|
|
$
|
172
|
|
|
$
|
4,765
|
|
|
$
|
204
|
|
|
U.S. Government agencies
|
|
|
91,053
|
|
|
|
1,516
|
|
|
|
51,122
|
|
|
|
(725
|
)
|
|
Municipal bonds
|
|
|
1,270,057
|
|
|
|
84,743
|
|
|
|
1,269,247
|
|
|
|
48,378
|
|
|
Non-U.S. governments
|
|
|
40,517
|
|
|
|
540
|
|
|
|
40,514
|
|
|
|
541
|
|
|
Corporate bonds
|
|
|
227,718
|
|
|
|
11,767
|
|
|
|
227,235
|
|
|
|
3,140
|
|
|
Commercial mortgage-backed securities
|
|
|
69,667
|
|
|
|
4,409
|
|
|
|
77,491
|
|
|
|
4,850
|
|
|
Residential mortgage-backed securities
|
|
|
155,072
|
|
|
|
1,279
|
|
|
|
169,965
|
|
|
|
266
|
|
|
Asset-backed securities
|
|
|
18,229
|
|
|
|
2,045
|
|
|
|
17,531
|
|
|
|
1,328
|
|
|
Total fixed maturity available-for-sale securities
|
|
|
1,921,917
|
|
|
|
106,471
|
|
|
|
1,857,870
|
|
|
|
57,982
|
|
|
Fixed maturity trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. governments
|
|
|
103,501
|
|
|
|
n/a
|
|
|
|
103,395
|
|
|
|
n/a
|
|
|
Total fixed maturity trading securities
|
|
|
103,501
|
|
|
|
n/a
|
|
|
|
103,395
|
|
|
|
n/a
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
42,144
|
|
|
|
n/a
|
|
|
|
66,679
|
|
|
|
n/a
|
|
|
Total short-term investments
|
|
|
42,144
|
|
|
|
n/a
|
|
|
|
66,679
|
|
|
|
n/a
|
|
|
Total investments
|
|
|
2,067,562
|
|
|
|
106,471
|
|
|
|
2,027,944
|
|
|
|
57,982
|
|
|
Cash and cash equivalents
|
|
|
1,361,730
|
|
|
|
-
|
|
|
|
1,464,418
|
|
|
|
-
|
|
|
Total investments and cash and cash equivalents
|
|
$
|
3,429,292
|
|
|
$
|
106,471
|
|
|
$
|
3,492,362
|
|
|
$
|
57,982
|
|
See Note 3 to the “Consolidated Financial Statements” in this Form 10-Q for discussion of the fair value measurements of our financial assets and liabilities.
Non-U.S. Governments
Our non-U.S. government bond portfolio consists of securities issued by governments, provinces, agencies and supranationals.
The following table provides additional detail on the fair value and amortized cost of our portfolio of non-U.S. government fixed maturity available-for-sale securities, fixed maturity trading securities and short-term investments converted to U.S. dollars as of June 30, 2014 ($ in thousands):
|
|
|
Fair Value
|
|
|
|
|
|
|
Non-U.S. government portfolio
|
|
Basic Monetary Unit
|
|
|
Other Non-U.S. Dollar
|
|
|
U.S. Dollar
|
|
|
Total
|
|
|
Amortized Cost
|
|
Germany
|
|
$
|
39,920
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
39,920
|
|
|
$
|
38,127
|
|
|
Netherlands
|
|
|
-
|
|
|
|
1,569
|
|
|
|
-
|
|
|
|
1,569
|
|
|
|
1,530
|
|
|
Eurozone governments
|
|
|
39,920
|
|
|
|
1,569
|
|
|
|
-
|
|
|
|
41,489
|
|
|
|
39,657
|
|
|
United Kingdom
|
|
|
55,593
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,593
|
|
|
|
53,399
|
|
|
New Zealand
|
|
|
32,648
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,648
|
|
|
|
32,648
|
|
|
Sweden
|
|
|
-
|
|
|
|
1,218
|
|
|
|
30,317
|
|
|
|
31,535
|
|
|
|
31,186
|
|
|
Australia
|
|
|
12,748
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,748
|
|
|
|
12,590
|
|
|
Japan
|
|
|
-
|
|
|
|
-
|
|
|
|
5,163
|
|
|
|
5,163
|
|
|
|
5,000
|
|
|
Norway
|
|
|
-
|
|
|
|
-
|
|
|
|
5,037
|
|
|
|
5,037
|
|
|
|
4,997
|
|
|
Luxembourg
|
|
|
-
|
|
|
|
1,949
|
|
|
|
-
|
|
|
|
1,949
|
|
|
|
1,863
|
|
|
Other non-U.S. governments
|
|
|
100,989
|
|
|
|
3,167
|
|
|
|
40,517
|
|
|
|
144,673
|
|
|
|
141,683
|
|
|
Total non-U.S. governments
|
|
$
|
140,909
|
|
|
$
|
4,736
|
|
|
$
|
40,517
|
|
|
$
|
186,162
|
|
|
$
|
181,340
|
|
In addition to the investments noted above, we held non-U.S. dollar denominated cash and cash equivalents of $92.7 million as of June 30, 2014. Non-U.S. dollar investments and cash and cash equivalents are generally held for the purpose of hedging our net non-U.S. dollar denominated reinsurance liabilities.
Net Unrealized Gain (Loss)
The following table provides additional information on the fair values, net unrealized gains and losses and credit quality of our fixed maturity available-for-sale securities as of June 30, 2014 ($ in thousands):
|
|
|
Fair Value
|
|
|
Net Unrealized Gain (Loss)
|
|
|
Credit Quality
|
|
|
U.S. Government
|
|
$
|
49,604
|
|
|
$
|
172
|
|
|
Aaa
|
|
|
U.S. Government agencies
|
|
|
91,053
|
|
|
|
1,516
|
|
|
Aaa
|
|
|
Municipal bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
State general obligation bonds
|
|
|
895,124
|
|
|
|
62,284
|
|
|
Aa2
|
|
|
Essential service bonds
|
|
|
184,636
|
|
|
|
10,405
|
|
|
|
A1
|
|
|
State income tax and sales tax bonds
|
|
|
71,048
|
|
|
|
6,537
|
|
|
Aa2
|
|
|
Other municipal bonds
|
|
|
65,068
|
|
|
|
2,920
|
|
|
Aa2
|
|
|
Pre-refunded bonds
|
|
|
54,181
|
|
|
|
2,597
|
|
|
Aa2
|
|
|
Subtotal
|
|
|
1,270,057
|
|
|
|
84,743
|
|
|
Aa2
|
|
|
Non-U.S. governments
|
|
|
40,517
|
|
|
|
540
|
|
|
Aa1
|
|
|
Corporate bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
|
147,210
|
|
|
|
6,868
|
|
|
Baa2
|
|
|
Utilities
|
|
|
58,187
|
|
|
|
2,525
|
|
|
|
A3
|
|
|
Insurance
|
|
|
22,321
|
|
|
|
2,374
|
|
|
Baa2
|
|
|
Subtotal
|
|
|
227,718
|
|
|
|
11,767
|
|
|
Baa1
|
|
|
Commercial mortgage-backed securities
|
|
|
69,667
|
|
|
|
4,409
|
|
|
|
A1
|
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency residential mortgage-backed securities
|
|
|
139,089
|
|
|
|
857
|
|
|
Aaa
|
|
|
Non-agency residential mortgage-backed securities
|
|
|
15,983
|
|
|
|
422
|
|
|
Caa2
|
|
|
Subtotal
|
|
|
155,072
|
|
|
|
1,279
|
|
|
Aa2
|
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
13,429
|
|
|
|
(171
|
)
|
|
Aaa
|
|
|
Sub-prime asset-backed securities
|
|
|
4,800
|
|
|
|
2,216
|
|
|
|
C
|
|
|
Subtotal
|
|
|
18,229
|
|
|
|
2,045
|
|
|
|
A2
|
|
|
Total fixed maturity available-for-sale securities
|
|
$
|
1,921,917
|
|
|
$
|
106,471
|
|
|
Aa3
|
|
As of June 30, 2014, there were approximately $13.1 million and $4.6 million of municipal bonds for which ratings of “Aa” and “A”, respectively, included the benefit of guarantees from third-party insurers that would otherwise be rated as “A” and “Baa”, respectively, without the existence of such guarantees.
The net unrealized gain position of our municipal bond and corporate bond portfolios was $84.7 million and $11.8 million, respectively, as of June 30, 2014 as compared with a net unrealized gain position of our municipal bond and corporate bond portfolios of $48.4 million and $3.1 million, respectively, as of December 31, 2013. The increases in the net unrealized gain position in our municipal bond and corporate bond portfolios were the result of a decrease in interest rates and a tightening of credit spreads. We analyze the creditworthiness of our municipal bond and corporate bond portfolios by reviewing various performance metrics of the issuer, including financial condition, credit ratings and other public information.
The net unrealized gain position of our CMBS portfolio was $4.4 million as of June 30, 2014 as compared with $4.9 million as of December 31, 2013. We analyze our CMBS on a periodic basis using default loss models based on the performance of the underlying loans. Performance metrics include delinquencies, defaults, foreclosures, debt-service-coverage ratios and cumulative losses incurred. The expected losses for a mortgage pool are compared with the current level of credit support, which generally represents the point at which our security would experience losses. We evaluate projected cash flows as well as other factors in order to determine if a credit impairment has occurred. Our portfolio consists primarily of senior tranches of CMBS with high credit ratings and strong credit support.
The net unrealized gain position of our residential mortgage-back securities (“RMBS”) portfolio was $1.3 million, with non-agency RMBS representing net unrealized gains of $0.4 million, as of June 30, 2014 as compared with $0.3 million, with non-agency RMBS representing net unrealized losses of $0.7 million, as of December 31, 2013. Approximately 90% of the RMBS in our investment portfolio were issued or are guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Federal Deposit Insurance Corporation and are referred to as U.S. Government agency RMBS. The remaining 10% of our RMBS were issued by non-agency institutions that relate exclusively to investments in securitized mortgages not guaranteed by U.S. government agencies. Securities with underlying sub-prime mortgages as collateral are included in asset backed securities (“ABS”). We analyze our non-agency RMBS and sub-prime ABS on a periodic basis using default loss models based on the performance of the underlying loans. Performance metrics include, but are not limited to, delinquencies, defaults, foreclosures, prepayment speeds and cumulative losses incurred. The expected losses for a mortgage pool are compared with the current level of credit support, which generally represents the point at which our security would experience losses. We evaluate projected cash flows as well as other factors in order to determine if a credit impairment has occurred.
We believe that the gross unrealized losses in our fixed maturity available-for-sale securities portfolio of $2.8 million represent temporary declines in fair value. We believe that the unrealized losses are not necessarily predictive of ultimate performance and that the provisions we have made for net impairment losses are adequate. However, economic conditions may deteriorate more than expected and may adversely affect the expected cash flows of our securities, which in turn may lead to impairment losses being recorded in future periods. Conversely, economic conditions may improve more than expected and favorably increase the expected cash flows of our impaired securities, which would be earned through net investment income over the remaining life of the security.
Maturities
The following table sets forth the amortized cost and fair value of our fixed maturity available-for-sale and trading securities by stated maturity as of June 30, 2014 ($ in thousands):
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Due in one year or less
|
|
$
|
58,890
|
|
|
$
|
59,718
|
|
|
Due from one to five years
|
|
|
577,027
|
|
|
|
602,188
|
|
|
Due from five to ten years
|
|
|
635,615
|
|
|
|
670,134
|
|
|
Due in ten or more years
|
|
|
407,899
|
|
|
|
450,410
|
|
|
Mortgage-backed and asset-backed securities
|
|
|
235,235
|
|
|
|
242,968
|
|
|
Total
|
|
$
|
1,914,666
|
|
|
$
|
2,025,418
|
|
The actual maturities of our fixed maturity available-for-sale and trading securities could differ from stated maturities due to call or prepayment provisions.
Credit Facilities
Syndicated Credit Facility
On April 9, 2014, we entered into an amended and restated credit facility with various financial institutions (the “Syndicated Credit Facility”). The Syndicated Credit Facility is a four-year, $300.0 million secured senior credit facility available for letters of credit (“LOC”), with a sublimit of $100.0 million for revolving borrowings. LOC and borrowings under the Syndicated Credit Facility are available for the working capital, liquidity and general corporate requirements of Platinum Holdings, Platinum Finance and our reinsurance subsidiaries. The Syndicated Credit Facility contains customary representations, warranties and covenants. Platinum Holdings and Platinum Finance have unconditionally guaranteed the obligations of each Platinum entity under the Syndicated Credit Facility.
Other Letter of Credit Facilities
We have an LOC facility with a financial institution in the aggregate amount of $100.0 million available for the issuance of LOC to support reinsurance obligations of our reinsurance subsidiaries. We also have the ability to request an uncommitted LOC facility of up to $150.0 million subject to agreement with the lender.
Platinum Bermuda has an uncommitted LOC facility of $125.0 million available for the issuance of LOC to support reinsurance obligations of Platinum Bermuda. There was $17.1 million committed under this facility as of June 30, 2014. Platinum Holdings has unconditionally guaranteed the obligations of Platinum Bermuda under this facility.
We had no borrowings under the Syndicated Credit Facility during the three months ended June 30, 2014 and the year ended December 31, 2013. The following table summarizes the outstanding LOC as of June 30, 2014 ($ in thousands):
|
|
|
Credit
Capacity
|
|
|
Letters
of Credit
Issued
(1)
|
|
|
Credit
Capacity
Remaining
|
|
|
Syndicated Credit Facility
|
|
$
|
300,000
|
|
|
$
|
77,742
|
|
|
$
|
222,258
|
|
|
Other LOC Facilities
|
|
|
375,000
|
|
|
|
39,781
|
|
|
|
335,219
|
|
|
Total
|
|
$
|
675,000
|
|
|
$
|
117,523
|
|
|
$
|
557,477
|
|
|
(1)
|
Cash and cash equivalents of $141.7 million were held to collateralize LOC issued as of June 30, 2014.
|
The credit capacity of $675.0 million consists of $417.1 million of committed capacity and $257.9 million of uncommitted capacity
.
The Company also has the ability to increase the Syndicated Credit Facility and other LOC facilities by up to $175.0 million subject to agreement with the lenders.
As of June 30, 2014, we were in compliance with all of the covenants under our credit facilities.
Dividend Restrictions
Platinum Holdings and its subsidiaries are subject to certain legal and regulatory restrictions in their respective jurisdictions of domicile. The legal restrictions generally include the requirement to maintain positive net assets and to be able to pay liabilities as they become due. For more details on these restrictions, see Item 1, “Business – Regulation”, in our 2013 Form 10-K. Regulatory restrictions on dividends are described below.
Dividend Restrictions on Platinum Holdings
Platinum Holdings receives dividends and other distributions from its subsidiaries as a source of liquidity and to fund the payment of dividends to its shareholders. Distributions to Platinum Holdings from its subsidiaries may be restricted as described below. There are no significant restrictions on retained earnings available for the payment of dividends by Platinum Holdings to its shareholders.
Dividend Restrictions on Subsidiaries
The laws and regulations of Bermuda and the United States include certain restrictions on the amount of statutory capital and surplus that are available for the payment of dividends by Platinum Bermuda and Platinum US to their respective parent companies, Platinum Holdings and Platinum Finance.
The following table summarizes the dividend restrictions of our reinsurance subsidiaries ($ in thousands):
|
|
|
2014
|
|
|
For the Six Months Ended June 30, 2014
|
|
|
June 30,
2014
|
|
|
|
|
Dividend Capacity
|
|
|
Paid
|
|
|
Remaining
|
|
|
Platinum Bermuda
|
|
$
|
264,320
|
|
|
$
|
105,000
|
|
|
$
|
159,320
|
|
|
Platinum US
|
|
|
25,572
|
|
|
|
-
|
|
|
|
25,572
|
|
|
Total
|
|
$
|
289,892
|
|
|
$
|
105,000
|
|
|
$
|
184,892
|
|
Subsequent to June 30, 2014, Platinum Bermuda declared and paid a dividend of $50.0 million to Platinum Holdings.
There are no regulatory restrictions on retained earnings available for the payment of dividends by Platinum Finance to Platinum Regency or by Platinum Regency to Platinum Holdings.
Capital Resources
As of June 30, 2014, our capital resources of $2.0 billion consisted of $1.8 billion of common shareholders’ equity and $250.0 million of debt obligations. As of December 31, 2013, our capital resources of $2.0 billion consisted of $1.7 billion of common shareholders’ equity and $250.0 million of debt obligations. The increase in capital of $31.2 million during the six months ended June 30, 2014 was primarily attributable to net income of $99.9 million and the increase in net unrealized gains, net of tax, of $43.3 million partially offset by repurchases of common shares of $110.8 million.
Share and Debt Repurchases
Our Board of Directors has authorized the repurchase of our common shares through a share repurchase program. Since the program was established, our Board of Directors has approved increases in the repurchase program from time to time, most recently on April 22, 2014, to result in authority as of such date to repurchase up to a total of $250.0 million of our common shares.
During the three months ended June 30, 2014, in accordance with the share repurchase program, we repurchased 556,092 of our common shares in the open market for an aggregate cost of $35.0 million at a weighted average cost including commissions of $62.95 per share. During the six months ended June 30, 2014 we repurchased 1,854,096 of our common shares in the open market for an aggregate cost of $110.8 million at a weighted average cost including commissions of $59.74 per share. The shares we repurchased were canceled.
Our Board of Directors has also authorized the repurchase of up to $250.0 million of our outstanding Series B 7.5% Notes due June 1, 2017, issued by Platinum Finance, in open market purchases, privately negotiated transactions or otherwise. As of June 30, 2014, we had not repurchased any of our Series B 7.5% Notes.
The timing and amount, if any, of repurchase transactions depend on a variety of factors, including prevailing market conditions, our liquidity requirements, contractual restrictions, corporate and regulatory considerations and other factors.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined for purposes of the U.S. Securities and Exchange Commission (“SEC”) rules, which are not accounted for or disclosed in the consolidated financial statements as of June 30, 2014.
Contractual Obligations
There have been no material changes outside of the ordinary course of business to our contractual obligations as disclosed under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition - Contractual Obligations”, in our 2013 Form 10-K.
Recently Issued Accounting Standards
None.
Note
On Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements are based on our current plans or expectations that are inherently subject to significant business, economic and competitive uncertainties and contingencies. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, us. In particular, statements using words such as “may”, “should”, “estimate”, “expect”, “anticipate”, “intend”, “believe”, “predict”, “potential”, or words of similar import generally involve forward-looking statements.
The inclusion of forward-looking statements in this Form 10-Q should not be considered as a representation by us or any other person that our current plans or expectations will be achieved. Numerous factors could cause our actual results to differ materially from those in forward-looking statements, including the following:
|
·
|
the occurrence of severe catastrophic events;
|
|
·
|
the effectiveness of our loss limitation methods and pricing models;
|
|
·
|
the adequacy of our ceding companies’ ability to assess the risks they underwrite;
|
|
·
|
the adequacy of our estimated liability for unpaid losses and loss adjustment expenses;
|
|
·
|
the effects of emerging claim and coverage issues on our business;
|
|
·
|
our ability to maintain our A.M. Best and S&P financial strength ratings;
|
|
·
|
our ability to raise capital on acceptable terms if necessary;
|
|
·
|
our exposure to credit loss from counterparties in the normal course of business;
|
|
·
|
the availability and cost of collateral arrangements in order to provide reinsurance;
|
|
·
|
the effect on our business of the cyclicality of the property and casualty reinsurance business;
|
|
·
|
the effect on our business of the highly competitive nature of the property and casualty reinsurance industry, including the effect of new entrants to the industry;
|
|
·
|
losses that we could face from terrorism, political unrest and war;
|
|
·
|
our dependence on the business provided to us by reinsurance brokers and our exposure to credit risk associated with our brokers during the premium and loss settlement process;
|
|
·
|
the availability of retrocessional reinsurance on acceptable terms;
|
|
·
|
foreign currency exchange rate fluctuations;
|
|
·
|
our ability to maintain and enhance effective operating procedures and internal controls over financial reporting;
|
|
·
|
our need to make many estimates and judgments in the preparation of our financial statements;
|
|
·
|
the limitations placed on our financial and operational flexibility by the representations, warranties and covenants in our debt and credit facilities;
|
|
·
|
our ability to retain key executives and attract and retain additional qualified personnel in the future;
|
|
·
|
the effect of technology breaches or failures on our business;
|
|
·
|
the performance of our investment portfolio;
|
|
·
|
the effects of changes in market interest rates on our investment portfolio;
|
|
·
|
the concentration of our investment portfolio in any particular industry, asset class or geographic region;
|
|
·
|
the effects that the imposition of U.S. corporate income tax would have on Platinum Holdings and its non-U.S. subsidiaries;
|
|
·
|
the risk that U.S. persons who hold our shares will be subject to adverse U.S. federal income tax consequences under certain circumstances;
|
|
·
|
the risk that U.S. persons who dispose of our shares may be subject to U.S. federal income taxation at the rates applicable to dividends on all or a portion of their gains, if any;
|
|
·
|
the risk that holders of 10% or more of our shares may be subject to U.S. income taxation under the “controlled foreign corporation” rules;
|
|
·
|
the effect of changes in U.S. federal income tax law on an investment in our shares;
|
|
·
|
the possibility that we may become subject to taxes in Bermuda;
|
|
·
|
the effect of income, premium or other taxes on Platinum Underwriters Holdings, Ltd. or its subsidiaries by other jurisdictions;
|
|
·
|
the effect on our business of potential changes in the regulatory system under which we operate;
|
|
·
|
the impact of regulatory regimes and changes to accounting rules on our financial results, irrespective of business operations;
|
|
·
|
the uncertain impact on our business of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010;
|
|
·
|
the non-compliance with laws, regulations and taxation on transactions with international counter-parties;
|
|
·
|
the dependence of the cash flows of Platinum Holdings on dividends, interest and other permissible payments from its subsidiaries to meet its obligations;
|
|
·
|
the risk that our shareholders may have greater difficulty in protecting their interests than would shareholders of a U.S. corporation; and
|
|
·
|
limitations on the ownership, transfer and voting rights of our common shares.
|
As a consequence, our future financial condition and results may differ from those expressed in any forward-looking statements made by or on behalf of us. The foregoing factors should not be construed as exhaustive. Additionally, forward-looking statements speak only as of the date they are made, and we undertake no obligation to revise or update forward-looking statements to reflect new information or circumstances after the date hereof or to reflect the occurrence of future events. For a detailed discussion of our risk factors, refer to Item 1A, “Risk Factors”, in our 2013 Form 10-K.