Alterra Capital Reports Second Quarter 2012 Results

Alterra Capital Holdings Limited (NASDAQ: ALTE; BSX: ALTE.BH) (“Alterra”) today reported net income of $78.9 million, or $0.77 per diluted share, for the second quarter of 2012, compared to net income of $32.6 million, or $0.30 per diluted share, for the same quarter of 2011.

Net operating income for the second quarter of 2012 was $69.0 million, or $0.68 per diluted share, compared to net operating income of $39.6 million, or $0.37 per diluted share, for the same quarter of 2011. Annualized net operating return on average shareholders’ equity for the second quarter of 2012 was 9.7%.

For the six months ended June 30, 2012, Alterra reported net income of $158.0 million, or $1.54 per diluted share, compared to net loss of $14.1 million, or $0.13 per diluted share, for the same period of 2011. Net operating income for the six months ended June 30, 2012 was $136.7 million, or $1.33 per diluted share, compared to net operating income of $14.8 million, or $0.14 per diluted share, for the same period of 2011. Annualized net operating return on average shareholders’ equity for the six months ended June 30, 2012 was 9.6%.

W. Marston (Marty) Becker, President and Chief Executive Officer of Alterra, said: “We are pleased to report another solid quarter for Alterra. Despite a challenging market environment, we achieved an annualized net operating return on equity close to 10% for the quarter, while continuing to maintain a conservative philosophy on our newer product lines and teams. While we would prefer to see rates increasing at a faster pace, we are pleased that overall firming continues. Over the last twelve months, we have supplemented our 7.7% operating return on equity with significant share repurchases at a discount to diluted book value, contributing to a 12.5% increase in diluted book value per share, including dividends, since June 30, 2011. We expect to continue to use share repurchases as an important capital management tool for maximizing shareholder value until rate increases enable us to more effectively deploy any excess capital in our underwriting operations."

Second quarter 2012 results for Alterra include:

  • Property and casualty gross premiums written of $565.8 million, representing an increase of $2.8 million, or 0.5%, compared to the same quarter of 2011;
  • Net premiums written of $376.1 million, representing a decrease of $50.4 million, or 11.8%, compared to the same quarter of 2011. This decrease reflects increased property reinsurance premiums ceded in order to manage aggregate property exposures across all segments;
  • A combined ratio on property and casualty business of 86.6%, compared to 93.7% for the same quarter of 2011;
  • A nominal level of property catastrophe event net losses, compared to net losses of $49.6 million, net of reinstatement premiums, in the same quarter of 2011;
  • Net favorable development on prior years’ loss reserves of $20.4 million, or 5.8 combined ratio points, compared to $48.5 million, or 13.9 combined ratio points, in the same quarter of 2011;
  • Net investment income of $54.7 million, compared to $59.7 million in the same quarter of 2011, a decrease of 8.3%; and
  • Income of $7.4 million from New Point Re IV Limited, a sidecar in which Alterra has an indirect 34.8% equity interest, consisting of fees and equity share earnings. Gross premiums written by New Point Re IV Limited were $4.1 million for the second quarter of 2012.

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

Segment ($ in millions)
 

GPW

% Inc/(Dec)
 

NPW

% Inc/(Dec)
 

Combined Ratio
 
Global Insurance $ 125.3 (4.3)% $ 72.1 (4.9)% 63.0%
Reinsurance 246.8 0.8% 193.7 (10.9)% 80.9%
 
U.S. Insurance 112.2 2.2% 60.7 (25.6)% 99.8%
Alterra at Lloyd’s 72.0 (0.6)% 44.9 (5.4)% 104.6%
Latin America 9.5   91.9%   4.8   9.1%   116.4%
Total $ 565.8 0.5% $ 376.1 (11.8)% 86.6%
 

Results for the six months ended June 30, 2012 include:
  • Property and casualty gross premiums written of $1,226.7 million, representing an increase of $36.3 million, or 3.0%, compared to the same period of 2011;
  • Net premiums written of $812.5 million, representing a decrease of $104.0 million, or 11.3%, compared to the same period of 2011. This decrease reflects increased property reinsurance premiums ceded in order to manage aggregate property exposures across all segments, and a decrease in net premiums written on the contract binding business in the U.S. insurance segment resulting from the sale of the renewal rights for this business in 2011;
  • A combined ratio on property and casualty business of 89.5%, compared to 103.5% for the same period of 2011;
  • A nominal level of property catastrophe event net losses, compared to net losses of $155.8 million, net of reinstatement premiums, in the same period of 2011;
  • Net favorable development on prior years’ loss reserves of $31.2 million, or 4.5 combined ratio points, compared to $78.7 million, or 10.8 combined ratio points, in the same period of 2011;
  • Net investment income of $113.4 million, compared to $117.4 million in the same period of 2011, a decrease of 3.4%; and
  • Income of $16.6 million from New Point Re IV Limited consisting of fees and equity share earnings. Gross premiums written by New Point Re IV Limited were $84.3 million for the first six months of 2012.

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

Segment ($ in millions)
 

GPW

% Inc/(Dec)
 

NPW

% Inc/(Dec)
 

Combined Ratio
 
Global Insurance $ 192.0 (1.4)% $ 95.6 (5.5)% 57.7%
Reinsurance 565.2 (6.7)% 452.5 (16.6)% 86.9%
 
U.S. Insurance 216.5 15.4% 94.5 (22.0)% 101.5%
Alterra at Lloyd’s 218.2 21.0% 152.5 15.3% 106.5%
Latin America 34.8   57.7%   17.5   (10.0)%   116.3%
Total $ 1,226.7 3.0% $ 812.5 (11.3)% 89.5%
 

Balance Sheet

Total invested assets, including cash and cash equivalents, were $7,886.0 million as of June 30, 2012, an increase of $71.2 million from December 31, 2011. As of June 30, 2012, 96.4% of the fixed maturities portfolio (by carrying value) was investment-grade, an increase from 94.4% as of December 31, 2011. As of June 30, 2012, the weighted average book yield of Alterra’s cash and fixed maturities portfolio was 3.26%, and the weighted average duration was 4.1 years.

Under a Board-approved share repurchase authorization, Alterra repurchased 3,639,100 common shares during the second quarter of 2012 at an average price of $22.70 per share for a total of $82.6 million. Share repurchases under the Board-approved share repurchase authorization for the six months ended June 30, 2012 were 5,704,977 common shares at an average price of $23.01 per share for a total of $131.3 million. As of June 30, 2012, $123.0 million remained under the Board-approved share repurchase authorization.

Shareholders’ equity was $2,851.7 million as of June 30, 2012, an increase of 1.5% from December 31, 2011. Diluted book value per share as of June 30, 2012 was $28.68. Including dividends declared, diluted book value per share growth for the second quarter of 2012 was 4.2%, and was 12.5% for the twelve months ended June 30, 2012. Not included in shareholders’ equity as of June 30, 2012 were $157.5 million of unrecognized gains on held-to-maturity securities, which represented $1.58 in unrecognized diluted book value per share.

Subsequent Event - Agriculture losses

Based on recent reports on U.S. current and expected crop conditions and crop prices and Alterra's geographical spread of risk, Alterra estimates a net underwriting loss for the third quarter of 2012 on its agriculture reinsurance business in the range of $15 million to $25 million, pretax and net of reinsurance. Actual losses may vary materially from this estimate due to the inherent uncertainties in making such determinations resulting from several factors, including but not limited to, the preliminary nature of available information and the potential inaccuracies and inadequacies in the data provided by clients and brokers.

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

Alterra will host a conference call on Wednesday, August 8, 2012 at 11:00 am (EDT) to discuss these results and related matters. The conference call can be accessed via telephone by dialing 1-888-680-0892 (toll-free U.S.) or 1-617-213-4858 (international) and using access code 27125669. A live broadcast of the conference call will also be available through Alterra’s website at www.alterracap.com.

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

Non-GAAP Financial Measures

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

Cautionary Note Regarding Forward-Looking Statements

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

CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States Dollars, except per share and share amounts)
 
  June 30, 2012   December 31, 2011

(Unaudited)
ASSETS
Cash and cash equivalents $ 763,957 $ 922,844
Fixed maturities, trading, at fair value 211,796 229,206
Fixed maturities, available for sale, at fair value 5,709,850 5,501,925
Fixed maturities, held to maturity, at amortized cost (fair value $991,538) 833,990 874,259
Other investments, at fair value 366,404 286,515
Accrued interest income 65,252 71,322
Premiums receivable 991,927 715,154
Losses and benefits recoverable from reinsurers 1,083,840 1,068,119
Deferred acquisition costs 170,904 145,850
Prepaid reinsurance premiums 326,014 212,238
Trades pending settlement 31,925 22,887
Goodwill and intangible assets 55,431 56,111
Other assets 85,296   79,417
Total assets $ 10,696,586   $ 10,185,847
 
LIABILITIES
Property and casualty losses $ 4,308,316 $ 4,216,538
Life and annuity benefits 1,148,304 1,190,697
Deposit liabilities 158,412 151,035
Funds withheld from reinsurers 93,510 112,469
Unearned property and casualty premiums 1,281,406 1,020,639
Reinsurance balances payable 260,351 134,354
Accounts payable and accrued expenses 116,575 110,380
Trades pending settlement 37,455
Senior notes 440,521   440,500
Total liabilities 7,844,850   7,376,612
 
SHAREHOLDERS’ EQUITY
Common shares (par value $1.00 per share);
96,853,334 (2011—102,101,950) shares issued and outstanding 96,853 102,102
Additional paid-in capital 1,729,311 1,847,034
Accumulated other comprehensive income 202,229 166,957
Retained earnings 823,343   693,142
Total shareholders’ equity 2,851,736   2,809,235
 
Total liabilities and shareholders’ equity $ 10,696,586   $ 10,185,847
 
Book value per share $ 29.44   $ 27.51
 
Diluted book value per share $ 28.68   $ 26.91
 
Diluted tangible book value per share [a] $ 28.12   $ 26.37
 
Diluted shares outstanding 99,429,181 104,406,779
 

[a] Non-GAAP financial measure as defined by Regulation G.
 
ALTERRA CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
(Expressed in thousands of United States Dollars, except per share and share amounts)
 
 

Three Months Ended
  Six Months Ended

June 30,
June 30,
2012   2011 2012   2011
REVENUES
Gross premiums written $ 566,857 $ 563,907 $ 1,228,187 $ 1,191,755
Reinsurance premiums ceded (189,879 ) (136,626 ) (414,341 ) (273,983 )
Net premiums written $ 376,978   $ 427,281   $ 813,846   $ 917,772  
 
Earned premiums $ 496,839 $ 443,008 $ 974,706 $ 932,270
Earned premiums ceded (146,061 ) (94,067 ) (285,753 ) (203,442 )
Net premiums earned 350,778 348,941 688,953 728,828
 
Net investment income 54,729 59,665 113,407 117,431
Net realized and unrealized gains (losses) on
investments 13,481 (5,774 ) 38,974 (24,592 )
 
Total other-than-temporary impairment losses (420 ) (187 ) (5,887 ) (1,311 )
Portion of loss recognized in other comprehensive
income (loss), before taxes (150 ) (166 ) (52 ) (71 )
Net impairment losses recognized in earnings (570 ) (353 ) (5,939 ) (1,382 )
 
Other income 1,928 591 7,290 1,906
       
Total revenues 420,346   403,070   842,685   822,191  
 
LOSSES AND EXPENSES
Net losses and loss expenses 196,764 211,133 402,793 515,539
Claims and policy benefits 13,272 15,570 26,738 30,280
Acquisition costs 62,171 64,680 121,895 135,288
Interest expense 9,635 10,630 18,263 19,089
Net foreign exchange losses 25 3,090 (7 ) 2,212
General and administrative expenses 58,777 69,659 118,859 140,862
       
Total losses and expenses 340,644   374,762   688,541   843,270  
 
INCOME (LOSS) BEFORE TAXES 79,702 28,308 154,144 (21,079 )
 
Income tax expense (benefit) 762   (4,327 ) (3,820 ) (7,027 )
 
NET INCOME (LOSS) 78,940 32,635 157,964 (14,052 )
 
Holding gains on available for sale securities
arising in period [a] 35,262 43,274 59,937 31,281
Net realized gains on available for sale
securities included in net income[a] (11,968 ) (620 ) (19,726 ) (3,118 )
Portion of other-than-temporary impairment losses
recognized in other comprehensive income[a] 150 166 52 71
Foreign currency translation adjustment (6,361 ) 165   (4,991 ) 5,038  
Other comprehensive income (loss) 17,083 42,985 35,272 33,272
       
COMPREHENSIVE INCOME $ 96,023   $ 75,620   $ 193,236   $ 19,220  
 
Net income (loss) per share $ 0.79   $ 0.31   $ 1.58   $ (0.13 )
Net income (loss) per diluted share $ 0.77   $ 0.30   $ 1.54   $ (0.13 )
Net operating income per diluted share [b] $ 0.68   $ 0.37   $ 1.33   $ 0.14  
 
Weighted average common shares outstanding—basic 99,563,474   105,604,786   100,283,266   106,385,007  
Weighted average common shares outstanding—diluted 101,957,882   107,111,909   102,556,070   106,385,007  
 
[a] Net of tax.
[b] Non-GAAP financial measure as defined by Regulation G.
 
ALTERRA CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(Expressed in thousands of United States Dollars)
 
  Six Months Ended June 30,
2012   2011
Common shares
Balance, beginning of period $ 102,102 $ 110,963
Issuance of common shares, net 694 1,406
Repurchase of shares (5,943 ) (6,574 )
Balance, end of period 96,853   105,795  
 
Additional paid-in capital
Balance, beginning of period 1,847,034 2,026,045
Issuance of common shares, net 464 610
Stock based compensation expense 12,814 22,587
Repurchase of shares (131,001 ) (137,263 )
Balance, end of period 1,729,311   1,911,979  
 
Accumulated other comprehensive income
Unrealized holdings gains on investments:
Balance, beginning of period 204,301 118,197
Holding gains on available for sale fixed maturities arising in
period, net of tax 59,937 31,281
Net realized gains on available for sale securities included in
net income, net of tax (19,726 ) (3,118 )
Portion of other-than-temporary impairment losses recognized in
other comprehensive income, net of tax 52   71  
Balance, end of period 244,564   146,431  
Cumulative foreign currency translation adjustment:
Balance, beginning of period (37,344 ) (19,251 )
Foreign currency translation adjustment (4,991 ) 5,038  
Balance, end of period (42,335 ) (14,213 )
Total accumulated other comprehensive income, end of period 202,229   132,218  
 
Retained earnings
Balance, beginning of period 693,142 682,316
Net income (loss) 157,964 (14,052 )
Dividends (27,763 ) (25,175 )
Balance, end of period 823,343   643,089  
 
Total shareholders’ equity $ 2,851,736   $ 2,793,081  
 
ALTERRA CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASHFLOWS (Unaudited)
(Expressed in thousands of United States Dollars)
 
  Six Months Ended June 30,
2012   2011
OPERATING ACTIVITIES
Net income (loss) $ 157,964 $ (14,052 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock based compensation 12,814 22,587
Amortization of premium on fixed maturities 13,088 9,801
Accretion of deposit liabilities 2,197 3,176
Net realized and unrealized (gains) losses on investments (38,974 ) 24,592
Net impairment losses recognized in earnings 5,939 1,382
Changes in:
Accrued interest income 6,098 4,724
Premiums receivable (266,262 ) (278,695 )
Losses and benefits recoverable from reinsurers (16,937 ) (99,028 )
Deferred acquisition costs (24,445 ) (58,894 )
Prepaid reinsurance premiums (113,344 ) (65,487 )
Other assets (9,935 ) (8,544 )
Property and casualty losses 90,385 304,109
Life and annuity benefits (23,132 ) (31,203 )
Funds withheld from reinsurers (18,959 ) 1,598
Unearned property and casualty premiums 257,868 293,029
Reinsurance balances payable 125,378 34,849
Accounts payable and accrued expenses 5,634   4,761  
Cash provided by operating activities 165,377     148,705  
 
INVESTING ACTIVITIES
Purchases of available for sale securities (1,216,292 ) (1,165,503 )
Sales of available for sale securities 551,740 709,314
Redemptions/maturities of available for sale securities 538,261 485,128
Purchases of trading securities (77,881 ) (28,065 )
Sales of trading securities 72,756 24,563
Redemptions/maturities of trading securities 24,922 35,969
Purchases of held to maturity securities (2,580 )
Redemptions/maturities of held to maturity securities 21,679 18,251
Net (purchases) sales of other investments (70,397 ) 17,365  
Cash (used in) provided by investing activities (155,212 ) 94,442  
 
FINANCING ACTIVITIES
Net proceeds from issuance of common shares 1,158 2,016
Repurchase of common shares (136,944 ) (143,837 )
Dividends paid (27,406 ) (25,175 )
Additions to deposit liabilities 482 583
Payments of deposit liabilities (2,927 ) (3,643 )
Cash used in financing activities (165,637 ) (170,056 )
 
Effect of exchange rate changes on foreign currency cash and cash equivalents (3,415 ) 8,360
 
Net (decrease) increase in cash and cash equivalents (158,887 ) 81,451
 
Cash and cash equivalents, beginning of period 922,844   905,606  
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 763,957   $ 987,057  
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid totaled $14,532 and $14,382 for the six months ended June 30, 2012 and 2011, respectively.
Income taxes paid totaled $4,868 and $165 for the six months ended June 30, 2012 and 2011, respectively.
   

ALTERRA CAPITAL HOLDINGS LIMITED
SCHEDULE OF SUPPLEMENTAL SEGMENT DATA - THREE MONTHS ENDED JUNE 30, 2012 (Unaudited)
(Expressed in thousands of United States Dollars)      
Property & Casualty Life & Annuity Reinsurance Corporate Consolidated
Global Insurance   U.S. Insurance   Reinsurance   Alterra at Lloyd’s   Latin America   Total      
Gross premiums written $ 125,276   $ 112,186   $ 246,838   $ 72,008   $ 9,495   $ 565,803 $ 1,054 $ $ 566,857
Reinsurance premiums ceded (53,224 ) (51,524 ) (53,185 ) (27,068 ) (4,723 ) (189,724 ) (155 )   (189,879 )
Net premiums written $ 72,052   $ 60,662   $ 193,653   $ 44,940   $ 4,772   $ 376,079   $ 899   $   $ 376,978  
 
Earned premiums $ 92,803 $ 100,300 $ 210,413 $ 69,330 $ 22,939 $ 495,785 $ 1,054 $ $ 496,839
Earned premiums ceded (45,367 ) (44,490 ) (29,097 ) (23,108 ) (3,844 ) (145,906 ) (155 )   (146,061 )
Net premiums earned 47,436 55,810 181,316 46,222 19,095 349,879 899 350,778
 
Net losses and loss expenses (22,745 ) (37,333 ) (89,607 ) (33,030 ) (14,049 ) (196,764 ) (196,764 )
Claims and policy benefits (13,272 ) (13,272 )
Acquisition costs (239 ) (6,169 ) (42,708 ) (7,443 ) (5,456 ) (62,015 ) (156 ) (62,171 )
General and administrative expenses (6,913 ) (12,215 ) (14,339 ) (7,856 ) (2,722 ) (44,045 ) (119 ) (44,164 )
Other income 1     1,895   7     1,903       1,903  
Underwriting income (loss) $ 17,540 $ 93 $ 36,557 $ (2,100 ) $ (3,132 ) $ 48,958 n/a n/a
Net investment income 13,466 41,263 54,729
Net realized and unrealized gains on investments 13,481 13,481
Net impairment losses recognized in earnings (570 ) (570 )
Corporate other income 25 25
Interest expense (9,635 ) (9,635 )
Net foreign exchange losses (25 ) (25 )
Corporate general and administrative expenses   (14,613 ) (14,613 )
Income before taxes $ 818   $ 29,926   $ 79,702  
Loss ratio (a) 47.9 % 66.9 % 49.4 % 71.5 % 73.6 % 56.2 %
Acquisition cost ratio (b) 0.5 % 11.1 % 23.6 % 16.1 % 28.6 % 17.7 %
General and administrative expense ratio (c) 14.6 % 21.9 % 7.9 % 17.0 % 14.3 % 12.6 %
Combined ratio (d) 63.0 % 99.8 % 80.9 % 104.6 % 116.4 % 86.6 %
 
SCHEDULE OF SUPPLEMENTAL SEGMENT DATA - SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)
(Expressed in thousands of United States Dollars)
Property & Casualty Life & Annuity Reinsurance Corporate Consolidated
Global Insurance   U.S. Insurance   Reinsurance   Alterra at Lloyd’s   Latin America   Total      
Gross premiums written $ 192,047 $ 216,468 $ 565,192 $ 218,151 $ 34,835 $ 1,226,693 $ 1,494 $ $ 1,228,187
Reinsurance premiums ceded (96,475 ) (122,018 ) (112,678 ) (65,658 ) (17,339 ) (414,168 ) (173 )   (414,341 )
Net premiums written $ 95,572   $ 94,450   $ 452,514   $ 152,493   $ 17,496   $ 812,525   $ 1,321   $   $ 813,846  
 
Earned premiums $ 186,906 $ 196,541 $ 405,074 $ 142,229 $ 42,462 $ 973,212 $ 1,494 $ $ 974,706
Earned premiums ceded (92,500 ) (84,946 ) (55,850 ) (43,157 ) (9,127 ) (285,580 ) (173 )   (285,753 )
Net premiums earned 94,406 111,595 349,224 99,072 33,335 687,632 1,321 688,953
 
Net losses and loss expenses (40,806 ) (74,897 ) (190,802 ) (71,705 ) (24,583 ) (402,793 ) (402,793 )
Claims and policy benefits (26,738 ) (26,738 )
Acquisition costs (298 ) (13,865 ) (81,369 ) (16,877 ) (9,211 ) (121,620 ) (275 ) (121,895 )
General and administrative expenses (13,394 ) (24,472 ) (31,391 ) (16,951 ) (4,981 ) (91,189 ) (153 ) (91,342 )
Other income 816   81   6,336   7     7,240       7,240  
Underwriting income (loss) $ 40,724 $ (1,558 ) $ 51,998 $ (6,454 ) $ (5,440 ) $ 79,270 n/a n/a
Net investment income 28,242 85,165 113,407
Net realized and unrealized gains on investments 38,974 38,974
Net impairment losses recognized in earnings (5,939 ) (5,939 )
Corporate other income 50 50
Interest expense (18,263 ) (18,263 )
Net foreign exchange gains 7 7
Corporate general and administrative expenses   (27,517 ) (27,517 )
Income before taxes $ 2,397   $ 72,477   $ 154,144  
Loss ratio (a) 43.2 % 67.1 % 54.6 % 72.4 % 73.7 % 58.6 %
Acquisition cost ratio (b) 0.3 % 12.4 % 23.3 % 17.0 % 27.6 % 17.7 %
General and administrative expense ratio (c) 14.2 % 21.9 % 9.0 % 17.1 % 14.9 % 13.3 %
Combined ratio (d) 57.7 % 101.5 % 86.9 % 106.5 % 116.3 % 89.5 %
(a) The loss ratio is calculated by dividing net losses and loss expenses by net premiums earned.
(b) The acquisition cost ratio is calculated by dividing acquisition costs by net premiums earned.
(c) The general and administrative expense ratio is calculated by dividing general and administrative expenses by net premiums earned.
(d) The combined ratio is calculated by dividing the sum of net losses and loss expenses, acquisition costs and general and administrative expenses by net premiums earned.
n/a Not applicable
Percentage totals may not add due to rounding.

Segment Re-presentation

Effective January 1, 2012, the Company redefined its operating and reporting segments. Reinsurance business written within Latin America, which was previously reported within the reinsurance or Alterra at Lloyd’s segments, has been reclassified to a new Latin America segment. In addition, business written by the Company's recently incorporated Brazilian reinsurance company, Alterra Resseguradora do Brasil S.A. ("Alterra Brazil"), is included in the Latin America segment. Insurance business written by Alterra Insurance USA Inc., which was previously reported within the global insurance segment (formerly the insurance segment), has been reclassified to the U.S. insurance segment (formerly the U.S. specialty segment). Re-presented comparative financial information was filed on a Form 8-K on April 20, 2012.
   

ALTERRA CAPITAL HOLDINGS LIMITED
SCHEDULE OF SUPPLEMENTAL SEGMENT DATA - THREE MONTHS ENDED JUNE 30, 2011 (Unaudited)
(Expressed in thousands of United States Dollars)
Property & Casualty   Life & Annuity Reinsurance   Corporate   Consolidated
Global Insurance   U.S. Insurance   Reinsurance   Alterra at Lloyd’s   Latin America   Total      
Gross premiums written $ 130,909   $ 109,794   $ 244,899   $ 72,428   $ 4,947   $ 562,977 $ 930 $ $ 563,907
Reinsurance premiums ceded (55,133 ) (28,227 ) (27,675 ) (24,918 ) (572 ) (136,525 ) (101 )   (136,626 )
Net premiums written $ 75,776   $ 81,567   $ 217,224   $ 47,510   $ 4,375   $ 426,452   $ 829   $   $ 427,281  
 
Earned premiums $ 88,892 $ 82,244 $ 203,470 $ 58,117 $ 9,355 $ 442,078 $ 930 $ $ 443,008
Earned premiums ceded (43,286 ) (23,835 ) (11,815 ) (14,540 ) (490 ) (93,966 ) (101 )   (94,067 )
Net premiums earned 45,606 58,409 191,655 43,577 8,865 348,112 829 348,941
 
Net losses and loss expenses (23,689 ) (38,012 ) (122,576 ) (21,072 ) (5,784 ) (211,133 ) (211,133 )
Claims and policy benefits (15,570 ) (15,570 )
Acquisition costs 1,117 (10,400 ) (42,947 ) (9,946 ) (2,382 ) (64,558 ) (122 ) (64,680 )
General and administrative expenses (6,774 ) (11,374 ) (21,647 ) (7,773 ) (3,053 ) (50,621 ) (259 ) (50,880 )
Other income 85   54   548   165     852   (23 )   829  
Underwriting income (loss) $ 16,345 $ (1,323 ) $ 5,033 $ 4,951 $ (2,354 ) $ 22,652 n/a n/a
Net investment income 12,545 47,120 59,665
Net realized and unrealized losses on investments (1,299 ) (4,475 ) (5,774 )
Net impairment losses recognized in earnings (353 ) (353 )
Corporate other income (238 ) (238 )
Interest expense (10,630 ) (10,630 )
Net foreign exchange losses (3,090 ) (3,090 )
Corporate general and administrative expenses   (18,779 ) (18,779 )
(Loss) income before taxes $ (3,899 ) $ 9,555   $ 28,308  
Loss ratio (a) 51.9 % 65.1 % 64.0 % 48.4 % 65.2 % 60.7 %
Acquisition cost ratio (b) (2.4 )% 17.8 % 22.4 % 22.8 % 26.9 % 18.5 %
General and administrative expense ratio (c) 14.9 % 19.5 % 11.3 % 17.8 % 34.4 % 14.5 %
Combined ratio (d) 64.3 % 102.4 % 97.7 % 89.0 % 126.6 % 93.7 %
 
SCHEDULE OF SUPPLEMENTAL SEGMENT DATA - SIX MONTHS ENDED JUNE 30, 2011 (Unaudited)
(Expressed in thousands of United States Dollars)
Property & Casualty Life & Annuity Reinsurance Corporate Consolidated
Global Insurance   U.S. Insurance   Reinsurance   Alterra at Lloyd’s   Latin America   Total      
Gross premiums written $ 194,804 $ 187,559 $ 605,626 $ 180,318 $ 22,083 $ 1,190,390 $ 1,365 $ $ 1,191,755
Reinsurance premiums ceded (93,657 ) (66,544 ) (62,927 ) (48,097 ) (2,637 ) (273,862 ) (121 )   (273,983 )
Net premiums written $ 101,147   $ 121,015   $ 542,699   $ 132,221   $ 19,446   $ 916,528   $ 1,244   $   $ 917,772  
 
Earned premiums $ 179,543 $ 163,714 $ 447,810 $ 121,281 $ 18,557 $ 930,905 $ 1,365 $ $ 932,270
Earned premiums ceded (84,065 ) (51,636 ) (31,716 ) (35,120 ) (784 ) (203,321 ) (121 )   (203,442 )
Net premiums earned 95,478 112,078 416,094 86,161 17,773 727,584 1,244 728,828
 
Net losses and loss expenses (55,313 ) (72,427 ) (306,484 ) (69,515 ) (11,800 ) (515,539 ) (515,539 )
Claims and policy benefits (30,280 ) (30,280 )
Acquisition costs 853 (18,386 ) (90,707 ) (22,598 ) (4,169 ) (135,007 ) (281 ) (135,288 )
General and administrative expenses (14,726 ) (22,644 ) (43,919 ) (16,026 ) (5,509 ) (102,824 ) (436 ) (103,260 )
Other income 814   137   548   380     1,879   (23 )   1,856  
Underwriting income (loss) $ 27,106 $ (1,242 ) $ (24,468 ) $ (21,598 ) $ (3,705 ) $ (23,907 ) n/a n/a
Net investment income 24,888 92,543 117,431
Net realized and unrealized gains (losses) on investments 1,508 (26,100 ) (24,592 )
Net impairment losses recognized in earnings (1,382 ) (1,382 )
Corporate other income 50 50
Interest expense (19,089 ) (19,089 )
Net foreign exchange losses (2,212 ) (2,212 )
Corporate general and administrative expenses   (37,602 ) (37,602 )
(Loss) income before taxes $ (3,380 ) $ 6,208   $ (21,079 )
Loss ratio (a) 57.9 % 64.6 % 73.7 % 80.7 % 66.4 % 70.9 %
Acquisition cost ratio (b) (0.9 )% 16.4 % 21.8 % 26.2 % 23.5 % 18.6 %
General and administrative expense ratio (c) 15.4 % 20.2 % 10.6 % 18.6 % 31.0 % 14.1 %
Combined ratio (d) 72.5 % 101.2 % 106.0 % 125.5 % 120.8 % 103.5 %
(a) The loss ratio is calculated by dividing net losses and loss expenses by net premiums earned.
(b) The acquisition cost ratio is calculated by dividing acquisition costs by net premiums earned.
(c) The general and administrative expense ratio is calculated by dividing general and administrative expenses by net premiums earned.
(d) The combined ratio is calculated by dividing the sum of net losses and loss expenses, acquisition costs and general and administrative expenses by net premiums earned.
n/a Not applicable
Percentage totals may not add due to rounding.
 
ALTERRA CAPITAL HOLDINGS LIMITED
SCHEDULE OF SUPPLEMENTAL PREMIUM DATA - SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

(Expressed in thousands of United States Dollars)
                         
Six Months Ended June 30, 2012 Six Months Ended June 30, 2011
 

Percentage of Total

 
 

Percentage of Total

Gross Premiums

Gross Premiums

Movement on

Gross Premiums

Gross Premiums

Written
Written

Prior Year Period

Written [a]
Written [a]
Property & Casualty:
Global Insurance:
Aviation S $ 5,256 0.4 % 0.5 % $ 5,230 0.4 %
Excess Liability L 56,621 4.6 % (0.6 )% 56,936 4.8 %
Professional Liability L 83,873 6.8 % (3.5 )% 86,931 7.3 %
Property S 46,297   3.8 % 1.3 % 45,707   3.8 %
192,047 15.6 % (1.4 )% 194,804 16.3 %
U.S. Insurance:
General/Excess Liability L 58,350 4.8 % 21.3 % 48,111 4.0 %
Marine S 53,835 4.4 % 26.7 % 42,498 3.6 %
Professional Liability L 24,341 2.0 % 60.9 % 15,131 1.3 %
Property S 79,942   6.5 % (2.3 )% 81,819   6.9 %
216,468 17.6 % 15.4 % 187,559 15.7 %
Reinsurance:
Agriculture S 22,803 1.9 % (22.7 )% 29,498 2.5 %
Auto S 40,102 3.3 % (42.8 )% 70,096 5.9 %
Aviation S 11,271 0.9 % n/m 984 0.1 %
Credit/Surety S 33,628 2.7 % 44.5 % 23,278 2.0 %
General Casualty L 36,689 3.0 % (2.1 )% 37,472 3.1 %
Marine & Energy S 17,969 1.5 % 13.2 % 15,871 1.3 %
Medical Malpractice L 19,381 1.6 % (32.7 )% 28,805 2.4 %
Other S 4,986 0.4 % 133.0 % 2,140 0.2 %
Professional Liability L 96,704 7.9 % (2.5 )% 99,146 8.3 %
Property S 253,408 20.6 % 4.6 % 242,256 20.3 %
Whole Account S/L 1,599 0.1 % (95.5 )% 35,338 3.0 %
Workers' Compensation L 26,652   2.2 % 28.5 % 20,742   1.7 %
565,192 46.0 % (6.7 )% 605,626 50.8 %
Alterra at Lloyd's:
Accident & Health S 25,682 2.1 % 17.1 % 21,924 1.8 %
Agriculture S 20,983 1.7 % n/m %
Aviation S 5,706 0.5 % 59.5 % 3,577 0.3 %
Financial Institutions L 12,304 1.0 % (20.5 )% 15,477 1.3 %
International Casualty L 57,691 4.7 % 37.2 % 42,052 3.5 %
Marine S 5,008 0.4 % n/m %
Professional Liability L 11,536 0.9 % (37.3 )% 18,388 1.5 %
Property S 79,241   6.5 % 0.4 % 78,900   6.6 %
218,151 17.8 % 21.0 % 180,318 15.1 %
Latin America:
Aviation S 74 % n/m %
General Casualty L 1,892 0.2 % 60.3 % 1,180 0.1 %
Marine S 2,036 0.2 % 237.6 % 603 0.1 %
Property S 25,345 2.1 % 43.9 % 17,616 1.5 %
Surety S 5,488   0.4 % 104.5 % 2,684   0.2 %
34,835 2.8 % 57.7 % 22,083 1.9 %
         
Aggregate Property & Casualty $ 1,226,693   99.9 % 3.0 % $ 1,190,390   99.9 %
 
Life & Annuity:
Annuity $ % n/m $ 607 0.1 %
Life 1,494   0.1 % 97.1 % 758   0.1 %
 
Aggregate Life & Annuity $ 1,494   0.1 % 9.5 % $ 1,365   0.1 %
         
Aggregate Property & Casualty and Life & Annuity $ 1,228,187   100.0 % 3.1 % $ 1,191,755   100.0 %
 
 
S = Short tail lines $ 739,860 60.3 % $ 702,350 59.0 %
L = Long tail lines 486,833   39.7 % 488,040   41.0 %
Aggregate Property & Casualty $ 1,226,693   $ 1,190,390  
 
Property [b] $ 484,233 39.5 % $ 466,298 39.2 %
Casualty [c] 486,034 39.6 % 470,371 39.5 %
Specialty [d] 256,426   20.9 % 253,721   21.3 %
Aggregate Property & Casualty $ 1,226,693   $ 1,190,390  
[a]   Comparative period has been re-presented to conform with the current period's presentation.
[b] Property includes property lines of business.
[c] Casualty includes excess liability, financial institutions, general liability, international casualty, medical malpractice, professional liability and workers' compensation lines of business.
[d] Specialty includes accident & health, agriculture, auto, aviation, credit, energy, marine, other, surety and whole account lines of business.
 
Percentage totals may not add due to rounding.

n/m Not meaningful.
 

ALTERRA CAPITAL HOLDINGS LIMITED
NON-GAAP FINANCIAL MEASURE RECONCILIATIONS (UNAUDITED)
Net Operating Income and Net Operating Income per Diluted Share

(Expressed in thousands of United States Dollars, except per share and share amounts)
 
    Three Months Ended June 30,   Six Months Ended June 30,
2012   2011 2012   2011
 
Net income (loss) before tax $ 79,702 $ 28,308 $ 154,144 $ (21,079 )
Net realized and unrealized (gains) losses on

investments not included in operating income, before tax [a]
(10,177 ) 4,249 (21,728 ) 27,263
Foreign exchange losses (gains), before tax 25   3,090   (7 ) 2,212  
Net operating income before tax $ 69,550   $ 35,647   $ 132,409   $ 8,396  
 
Net income (loss) $ 78,940 $ 32,635 $ 157,964 $ (14,052 )
Net realized and unrealized (gains) losses on

investments not included in operating income, net of tax [a]
(9,987 ) 4,711 (21,267 ) 27,313
Foreign exchange losses (gains), net of tax 7   2,212   (14 ) 1,572  
Net operating income $ 68,960   $ 39,558   $ 136,683   $ 14,833  
 
Net income (loss) per diluted share $ 0.77 $ 0.30 $ 1.54 $ (0.13 )
Net realized and unrealized (gains) losses on

investments not included in operating income, net of tax [a]
(0.10 ) 0.04 (0.21 ) 0.26
Foreign exchange losses (gains), net of tax   0.02     0.01  
Net operating income per diluted share $ 0.68   $ 0.37   $ 1.33   $ 0.14  
 
Weighted average shares outstanding - basic 99,563,474   105,604,786   100,283,266   106,385,007  
Weighted average shares outstanding - diluted 101,957,882   107,111,909   102,556,070   106,385,007  

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

Per share totals may not add due to rounding.

Annualized Net Operating Return on Average Shareholders' Equity

(Expressed in thousands of United States Dollars)
 
  Three Months Ended June 30,   Six Months Ended June 30,
2012   2011 2012   2011
 
Net income (loss) $ 78,940 $ 32,635 $ 157,964 $ (14,052 )
Annualized net income (loss) 315,760 130,540 315,928 (28,104 )
 
Net operating income $ 68,960 $ 39,558 $ 136,683 $ 14,833
Annualized net operating income 275,840 158,232 273,366 29,666
 
Average shareholders' equity [b] $ 2,851,499 $ 2,758,200 $ 2,840,874 $ 2,789,435
 
Annualized return on average shareholders' equity 11.1 % 4.7 % 11.1 % (1.0 )%
Annualized net operating return on average shareholders' equity 9.7 % 5.7 % 9.6 % 1.1 %

[b] Average shareholders equity is computed as the average of the quarterly average shareholders' equity balances.
Diluted Tangible Book Value Per Share

(Expressed in thousands of United States Dollars, except per share and share amounts)
 
  June 30, 2012   December 31, 2011
Shareholders' equity $ 2,851,736 $ 2,809,235
Goodwill and intangible assets 55,431   56,111
Tangible book value $ 2,796,305   $ 2,753,124
 
Diluted shares outstanding 99,429,181 104,406,779
 
Diluted tangible book value per share $ 28.12 $ 26.37
 

ALTERRA CAPITAL HOLDINGS LIMITED
SCHEDULE OF SUPPLEMENTAL INVESTMENT DATA - JUNE 30, 2012 (UNAUDITED)

(Expressed in thousands of United States Dollars)
 
        As of  

As of June 30,
Investment December Investment
Type of Investment  

2012
  Distribution   31, 2011   Distribution
 
Cash and cash equivalents $ 763,957     9.7 % $ 922,844     11.8 %
 
U.S. government and agencies $ 779,270 9.9 % $ 751,806 9.6 %
Non-U.S. governments 217,341 2.8 % 164,621 2.1 %
Corporate securities 2,571,697 32.6 % 2,646,358 33.9 %
Municipal securities 281,884 3.6 % 263,007 3.4 %
Asset-backed securities 349,715 4.4 % 247,965 3.2 %
Residential mortgage-backed securities 1,322,785 16.8 % 1,296,277 16.6 %
Commercial mortgage-backed securities   398,954     5.1 %   361,097     4.6 %
 
Fixed maturities at fair value $ 5,921,646     75.1 % $ 5,731,131     73.3 %
 
U.S. government and agencies $ 27,616 0.4 % $ 29,201 0.4 %
Non-U.S. governments 509,819 6.5 % 524,449 6.7 %
Corporate securities 295,639 3.7 % 319,609 4.1 %
Asset-backed securities   916     %   1,000     %
 
Fixed maturities at amortized cost $ 833,990     10.6 % $ 874,259     11.2 %
 
Other investments $ 366,404     4.6 % $ 286,515     3.7 %
 
Total invested assets $ 7,885,997     100.0 % $ 7,814,749     100.0 %
 
As of

As of June 30,
Ratings

December 31,
Ratings
Credit Rating  

2012
  Distribution  

2011
  Distribution
 
U.S. government and agencies [a] $ 2,020,993 29.9 % $ 1,869,405 28.3 %
AAA 1,179,378 17.5 % 948,861 14.4 %
AA 741,038 11.0 % 883,783 13.4 %
A 1,388,280 20.5 % 1,378,361 20.9 %
BBB 349,968 5.2 % 281,983 4.3 %
BB 57,532 0.9 % 84,803 1.3 %
B 139,370 2.1 % 131,159 2.0 %
CCC or lower 35,026 0.5 % 53,157 0.8 %
Not rated   10,061     0.1 %   99,619     1.5 %
Fixed maturities at fair value $ 5,921,646 87.7 % $ 5,731,131 86.8 %
 
U.S. government and agencies $ 27,616 0.4 % $ 29,201 0.4 %
AAA 575,679 8.5 % 619,832 9.4 %
AA 92,778 1.4 % 82,511 1.2 %
A 108,610 1.6 % 117,600 1.8 %
BBB 26,962 0.4 % 24,117 0.4 %
Not rated   2,345     %

 
  998     %
Fixed maturities at amortized cost $ 833,990 12.3 % $ 874,259 13.2 %
       
Total fixed maturities $ 6,755,636     100.0 % $ 6,605,390     100.0 %
 
[a] Included within U.S. government and agencies are agency-issued residential mortgage-backed securities
with a fair value of $1,241,723 (December 31, 2011: $1,117,599)

Percentage totals may not add due to rounding.
 
Three Months Ended June 30, Six Months Ended June 30,

2012

2011

2012

2011
 
Net investment income $ 54,729   $ 59,665   $ 113,407   $ 117,431  
 
Realized and unrealized gains (losses) on trading fixed maturities 587 1,432 1,653 (395 )
Net realized gains on available for sale fixed maturities 11,990 54 19,749 3,423
(Decrease) increase in fair value of hedge funds (2,894 ) (1,879 ) 785 1,288
Decrease in fair value of catastrophe bonds (251 ) (25,641 )
(Decrease) increase in fair value of structured deposit (655 ) (1,284 ) (290 ) 50
Income (loss) from equity method investments 5,583 (12 ) 10,510 (157 )
(Decrease) increase in fair value of derivatives   (1,130 )   (3,834 )   6,567     (3,160 )
Net realized and unrealized gains (losses) on investments $ 13,481   $ (5,774 ) $ 38,974   $ (24,592 )
 
Net impairment losses recognized in earnings $ (570 ) $ (353 ) $ (5,939 ) $ (1,382 )

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