Arch Capital Group Ltd. (NASDAQ: ACGL) reports that net income available to common shareholders for the 2011 fourth quarter was $136.8 million, or $1.00 per share, compared to $227.7 million, or $1.51 per share, for the 2010 fourth quarter, and $410.5 million, or $2.97 per share for 2011, compared to $816.7 million, or $5.18 per share, for 2010. The Company also reported after-tax operating income available to common shareholders of $126.8 million, or $0.92 per share, for the 2011 fourth quarter, compared to $129.5 million, or $0.86 per share, for the 2010 fourth quarter, and $303.6 million, or $2.20 per share, for 2011, compared to $491.1 million, or $3.12 per share, for 2010. All earnings per share amounts discussed in this release are on a diluted basis. All information in this release has been adjusted to reflect the three-for-one share split effected in May 2011.
The Company’s book value per common share was $32.03 at December 31, 2011, a 2.7% increase from $31.20 per share at September 30, 2011 and a 6.8% increase from $29.99 per share at December 31, 2010. The Company’s after-tax operating income available to common shareholders represented a 12.0% annualized return on average common equity for the 2011 fourth quarter, compared to 12.1% for the 2010 fourth quarter, and 7.2% for 2011, compared to 12.0% for 2010. After-tax operating income available to common shareholders, a non-GAAP measure, is defined as net income available to common shareholders, excluding net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses, net of income taxes. See page 7 for a further discussion of after-tax operating income available to common shareholders and Regulation G.
The Company’s 2011 fourth quarter results included losses for current year catastrophic events of $70.8 million, net of reinsurance and reinstatement premiums. Such amount included $60.6 million from the severe flooding in Thailand and $5.4 million from an Australian hailstorm in the 2011 fourth quarter, with the remainder due to net increases in loss estimates from other catastrophic events. The Company’s estimates for these events are based on currently available information derived from modeling techniques, industry assessments of exposure, preliminary claims information obtained from the Company’s clients and brokers to date and a review of in-force contracts. The severe flooding in Thailand spanned several months between July and December 2011 and has had a significant impact on the Thai economy. Due to the size, duration and complexity of the event, substantial uncertainty remains regarding total covered losses for the insurance industry and the assumptions underlying the Company’s estimates. Actual losses will depend to a great extent on claims from contingent business interruption coverage. The Company’s actual losses from catastrophic events may vary materially from the estimates due to the inherent uncertainties in making such determinations resulting from several factors, including the preliminary nature of available information, the potential inaccuracies and inadequacies in the data provided by clients and brokers, the modeling techniques and the application of such techniques, the contingent nature of business interruption exposures, the effects of any resultant demand surge on claims activity and attendant coverage issues. In addition, actual losses may increase if the Company’s reinsurers fail to meet their obligations to the Company or the reinsurance protections purchased by the Company are exhausted or are otherwise unavailable.
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