ALTE Alterra Capital Holdings Limited (MM)

Alterra Capital Holdings Limited (NASDAQ: ALTE; BSX: ALTE.BH) (“Alterra”) today reported a net loss of $51.8 million, or a loss of $0.54 per diluted share, for the fourth quarter of 2012, compared to net income of $30.9 million, or $0.30 per diluted share, for the same quarter of 2011.

The net operating loss for the fourth quarter of 2012 was $49.7 million, or a loss of $0.52 per diluted share, compared to net operating income of $31.7 million, or $0.30 per diluted share, for the same quarter of 2011.

For the year ended December 31, 2012, Alterra reported net income of $143.8 million, or $1.43 per diluted share, compared to net income of $65.3 million, or $0.61 per diluted share, for the year ended December 31, 2011. Net operating income for the year ended December 31, 2012 was $119.1 million, or $1.18 per diluted share, compared to net operating income of $96.6 million, or $0.91 per diluted share, for the year ended December 31, 2011. Net operating return on average shareholders’ equity for the year ended December 31, 2012 was 4.2%.

W. Marston (Marty) Becker, President and Chief Executive Officer of Alterra, said: "Alterra's fourth quarter operating results were impacted heavily by Hurricane Sandy. However, for the year, we are pleased to report net income of $143.8 million and growth in diluted book value per share of 7.5%, including dividends. Our 2012 results reflect the diversified underwriting strategy and risk management discipline that has served us well, particularly in years with major industry losses such as Sandy.

"On December 19 we ended the year with the announcement of a merger agreement pursuant to which Alterra will be acquired by Markel Corporation. The transaction is subject to shareholder and regulatory approval and is expected to close in the first half of 2013. We believe the combined company will establish itself as a leading specialty insurance and reinsurance company with greater capacity and a broader range of products and services, and will be better positioned for long-term success, including the creation of superior shareholder value," Mr. Becker concluded.

Fourth quarter 2012 results for Alterra include:

• Property and casualty gross premiums written of $356.4 million, representing an increase of $31.6 million or 9.7% compared to the same quarter of 2011;
• Net premiums written of $242.6 million, representing an increase of $24.8 million or 11.4%, compared to the same quarter of 2011;
• A combined ratio on property and casualty business of 119.0%, compared to 97.4% for the same quarter of 2011;
• Significant property catastrophe event net losses of $115.0 million, net of reinstatement premiums, related to Hurricane Sandy, principally within the U.S. insurance segment, compared to net losses of $55.5 million, net of reinstatement premiums, in the same quarter of 2011. A smaller proportion of 2012's property catastrophe losses fell within the attritional loss ratio, contributing to a higher combined ratio in 2012;
• Net favorable development on prior years’ loss reserves of $37.0 million, or 10.8 combined ratio points, compared to $43.0 million, or 12.3 combined ratio points, in the same quarter of 2011;
• Net investment income of $52.0 million, compared to $57.1 million in the same quarter of 2011, a decrease of 8.8%;
• Income of $6.9 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; and
• A deferred tax expense of $21.8 million to record a valuation allowance against net deferred tax assets in the U.S. Uncertainty regarding the future utilization of these deferred tax assets resulted in the valuation allowance.

Gross premiums written and net premiums written from property and casualty underwriting for the fourth 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 $ 98.0 0.3% $ 49.3 3.7% 102.1% Reinsurance 125.6 29.6% 114.7 21.5% 100.2% U.S. Insurance 94.6 (7.5)% 38.7 (31.9)% 286.8% Alterra at Lloyd’s 38.2   36.9%     39.9   109.7%   96.6% Total $ 356.4 9.7% $ 242.6 11.4% 119.0%  

Results for the year ended December 31, 2012 include:

• Property and casualty gross premiums written of $1,968.6 million, representing an increase of $67.9 million, or 3.6%, compared to the year ended December 31, 2011;
• Net premiums written of $1,317.2 million, representing a decrease of $111.8 million, or 7.8%, compared to the year ended December 31, 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 99.5%, compared to 98.2% for the year ended December 31, 2011;
• Significant property catastrophe event net losses of $130.0 million, net of reinstatement premiums, compared to net losses of $253.4 million, net of reinstatement premiums, in 2011;
• Net underwriting losses of $17.5 million on agriculture reinsurance, net of premiums and acquisition costs earned;
• Net favorable development on prior years’ loss reserves of $90.8 million, or 6.7 combined ratio points, compared to $153.3 million, or 10.8 combined ratio points, in 2011;
• Net investment income of $219.0 million, compared to $234.8 million in 2011, a decrease of 6.8%;
• Income of $30.3 million from New Point Re IV Limited consisting of fees and equity share earnings; and
• A deferred tax expense of $24.6 million to record a valuation allowance against net deferred tax assets in the U.S.

Gross premiums written and net premiums written from property and casualty underwriting for the year ended December 31, 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 $ 371.6 1.6% $ 182.3 (1.1)% 75.7% Reinsurance 898.5 (1.0)% 727.2 (11.7)% 91.5% U.S. Insurance 399.1 6.5% 181.1 (22.0)% 142.0% Alterra at Lloyd’s 299.5   18.3%     226.7   19.7%   109.8% Total $ 1,968.6 3.6% $ 1,317.2 (7.8)% 99.5%  

Balance Sheet

Total invested assets, including cash and cash equivalents, were $8,032.6 million as of December 31, 2012, an increase of $217.9 million from December 31, 2011. As of December 31, 2012, 95.9% of the fixed maturities portfolio (by carrying value) was investment-grade, an increase from 94.4% as of December 31, 2011. As of December 31, 2012, the weighted average book yield of Alterra’s cash and fixed maturities portfolio was 3.15%, and the weighted average duration was 4.5 years.

Share repurchases under the Board-approved share repurchase authorization for the year ended December 31, 2012 were 6,626,684 common shares at an average price of $23.03 per share for a total of $152.6 million. Alterra did not repurchase any common shares under the share repurchase authorization during the fourth quarter of 2012. As of December 31, 2012, $301.7 million remained under the share repurchase authorization.

Shareholders’ equity was $2,839.7 million as of December 31, 2012, an increase of 1.1% from December 31, 2011. Diluted book value per share as of December 31, 2012 was $28.34. Including dividends declared, diluted book value per share decreased for the fourth quarter of 2012 by 3.6%, and grew by 7.5% for the year ended December 31, 2012. Not included in shareholders’ equity as of December 31, 2012 were $218.0 million of unrecognized gains on held-to-maturity securities, which represented $2.18 in unrecognized diluted book value per share.

A copy of Alterra’s fourth quarter financial supplement is available on 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, 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.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

This release includes statements about future economic performance, finances, expectations, plans and prospects of Alterra and Markel, both individually and on a combined basis, that are forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are risks and uncertainties that could cause actual results to differ materially from those expressed in or suggested by such statements. For further information regarding factors affecting future results of Alterra and Markel, please refer to their respective Annual Report on Form 10-K for the year ended December 31, 2011 and Quarterly Reports on Form 10-Q and other documents filed by Alterra and Markel since March 1, 2012 with the Securities Exchange Commission (“SEC”). These documents are also available free of charge, in the case of Alterra, by directing a request to Alterra through Joe Roberts, Chief Financial Officer, or Susan Spivak Bernstein, Senior Vice President, Investor Relations, at 441-295-8800 and, in the case of Markel, by directing a request to Bruce Kay, Investor Relations, at 804-747-0136. Neither Alterra nor Markel undertakes any obligation to update or revise publicly any forward-looking statement whether as a result of new information, future developments or otherwise.

This release contains certain forward-looking statements within the meaning of the U.S. federal securities laws. Statements that are not historical facts, including statements about Alterra's and Markel's beliefs, plans or expectations, are forward-looking statements. These statements are based on Alterra's or Markel's current plans, estimates and expectations. Some forward-looking statements may be identified by use of terms such as “believe,” “anticipate,” “intend,” “expect,” “project,” “plan,” “may,” “should,” “could,” “will,” “estimate,” “predict,” “potential,” “continue,” and similar words, terms or statements of a future or forward-looking nature. In light of the inherent risks and uncertainties in all forward-looking statements, the inclusion of such statements in this release should not be considered as a representation by Alterra, Markel or any other person that Alterra's or Markel's objectives or plans, both individually and on a combined basis, will be achieved. A non-exclusive list of important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: (a) the occurrence of natural or man-made catastrophic events with a frequency or severity exceeding expectations; (b) the adequacy of loss reserves and the need to adjust such reserves as claims develop over time; (c) the failure of any of the loss limitation methods the parties employ; (d) any adverse change in financial ratings of either company or their subsidiaries; (e) the effect of competition on market trends and pricing; (f) cyclical trends, including with respect to demand and pricing in the insurance and reinsurance markets; (g) changes in general economic conditions, including changes in interest rates and/or equity values in the United States of America and elsewhere; and (h) other factors set forth in Alterra's and Markel's recent reports on Form 10-K, Form 10-Q and other documents filed with the SEC by Alterra and Markel.

* * * * *

Risks and uncertainties relating to the proposed transaction include the risks that: (1) the parties will not obtain the requisite shareholder or regulatory approvals for the transaction; (2) the anticipated benefits of the transaction will not be realized or the parties may experience difficulties in successfully integrating the two companies; (3) the parties may not be able to retain key personnel; (4) the conditions to the closing of the proposed merger may not be satisfied or waived; (5) the outcome of any legal proceedings to the extent initiated against Alterra or Markel or its respective directors and officers following the announcement of the proposed merger is uncertain; (6) the acquisition may involve unexpected costs; and (7) the businesses may suffer as a result of uncertainty surrounding the acquisition. These risks, as well as other risks of the combined company and its subsidiaries may be different from what the companies expect, or have previously experienced, and each party's management may respond differently to any of the aforementioned factors. These risks, as well as other risks associated with the merger, are more fully discussed in the joint proxy statement/prospectus of Markel and Alterra that has been filed with the SEC. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made.

ADDITIONAL INFORMATION ABOUT THE PROPOSED MERGER AND WHERE TO FIND IT:

This release relates to a proposed merger between Alterra and Markel. On December 27, 2012, Markel filed with the SEC a registration statement on Form S-4, and on January 18, 2013, Markel and Alterra each filed the definitive joint proxy statement/prospectus. This release is not a substitute for the definitive joint proxy statement/prospectus or any other document that Markel or Alterra filed or may file with the SEC or send to its shareholders in connection with the proposed merger. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND ALL OTHER RELEVANT DOCUMENTS FILED OR THAT MAY BE FILED WITH THE SEC OR SENT TO SHAREHOLDERS AS THEY BECOME AVAILABLE BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. All documents, when filed, will be available free of charge at the SEC's website (www.sec.gov) or, in the case of Alterra, by directing a request to Joe Roberts, Chief Financial Officer, or Susan Spivak Bernstein, Senior Vice President, Investor Relations, at 441-295-8800 and, in the case of Markel, by directing a request to Bruce Kay, Investor Relations, at 804-747-0136.

PARTICIPANTS IN THE SOLICITATION:

Alterra and Markel and their respective directors and executive officers may be deemed to be participants in any solicitation of proxies from both Alterra's and Markel's shareholders in favor of the proposed transaction. Information about Alterra's directors and executive officers and their ownership in Alterra common stock is available in the proxy statement dated March 26, 2012 for Alterra's 2012 annual general meeting of shareholders. Information about Markel's directors and executive officers and their ownership of Markel common stock is available in the proxy statement dated March 16, 2012 for Markel's 2012 annual meeting of shareholders.

        ALTERRA CAPITAL HOLDINGS LIMITED  

CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of United States Dollars, except per share and share amounts)   December 31, 2012 December 31, 2011 (Unaudited) ASSETS Cash and cash equivalents $ 440,298 $ 469,477 Fixed maturities, trading, at fair value 429,246 229,206 Fixed maturities, available for sale, at fair value 5,647,303 5,501,925 Fixed maturities, held to maturity, at amortized cost (fair value $1,070,308) 852,266 874,259 Equity method investments 92,050 13,670 Other investments, at fair value 316,955 272,845 Restricted cash and cash equivalents 254,458 453,367 Accrued interest income 65,361 71,322 Premiums receivable 729,877 715,154 Losses and benefits recoverable from reinsurers 1,289,577 1,068,119 Deferred acquisition costs 146,328 145,850 Prepaid reinsurance premiums 247,740 212,238 Trades pending settlement 27,768 22,887 Goodwill and intangible assets 54,751 56,111 Other assets 64,272 79,417 Total assets $ 10,658,250   $ 10,185,847   LIABILITIES Property and casualty losses $ 4,690,344 $ 4,216,538 Life and annuity benefits 1,159,545 1,190,697 Deposit liabilities 132,910 151,035 Funds withheld from reinsurers 92,733 112,469 Unearned property and casualty premiums 1,031,633 1,020,639 Reinsurance balances payable 157,199 134,354 Accounts payable and accrued expenses 107,742 110,380 Trades pending settlement 5,890 — Senior notes 440,532 440,500 Total liabilities 7,818,528   7,376,612   SHAREHOLDERS’ EQUITY Common shares (par value $1.00 per share);96,059,645 (2011—102,101,950) shares issued and outstanding 96,060 102,102 Additional paid-in capital 1,721,241 1,847,034 Accumulated other comprehensive income 244,172 166,957 Retained earnings 778,249 693,142 Total shareholders’ equity 2,839,722   2,809,235   Total liabilities and shareholders’ equity $ 10,658,250   $ 10,185,847   Book value per share $ 29.56   $ 27.51   Diluted book value per share $ 28.34   $ 26.91   Diluted tangible book value per share [a] $ 27.79   $ 26.37   Diluted shares outstanding 100,213,325 104,406,779  

[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 December 31,

Year Ended December 31,

2012

2011

2012

2011

REVENUES Gross premiums written $ 357,043 $ 325,983 $ 1,971,458 $ 1,904,066 Reinsurance premiums ceded (113,881 ) (107,203 ) (651,699 ) (472,077 ) Net premiums written $ 243,162   $ 218,780   $ 1,319,759   $ 1,431,989     Earned premiums $ 504,757 $ 460,636 $ 1,962,685 $ 1,845,837 Earned premiums ceded (161,125 ) (111,532 ) (597,462 ) (420,863 ) Net premiums earned 343,632 349,104 1,365,223 1,424,974   Net investment income 52,039 57,080 218,964 234,846 Net realized and unrealized gains (losses) on investments 11,476 (5,775 ) 70,886 (38,339 )   Total other-than-temporary impairment losses (3,143 ) (703 ) (9,552 ) (2,706 ) Portion of loss recognized in other comprehensive income (loss), before taxes 2,766   1   2,644   (239 ) Net impairment losses recognized in earnings (377 ) (702 ) (6,908 ) (2,945 )   Other income 1,425 2,017 10,301 5,396         Total revenues 408,195   401,724   1,658,466   1,623,932     LOSSES AND EXPENSES Net losses and loss expenses 295,123 231,533 926,445 945,593 Claims and policy benefits 17,006 14,564 55,582 59,382 Acquisition costs 66,595 64,380 250,413 261,102 Interest expense 8,355 13,296 35,644 43,688 Net foreign exchange (gains) losses (71 ) (753 ) (160 ) 1,312 Merger and acquisition expenses 3,289 — 3,289 — General and administrative expenses 55,188 54,657 231,562 257,074         Total losses and expenses 445,485   377,677   1,502,775   1,568,151     INCOME (LOSS) BEFORE TAXES (37,290 ) 24,047 155,691 55,781   Income tax expense (benefit) 14,520   (6,901 ) 11,885   (9,501 )   NET INCOME (LOSS) (51,810 ) 30,948 143,806 65,282   Holding (losses) gains on available for sale securities arising in period [a] (2,988 ) (566 ) 114,263 97,044 Net realized gains on available for sale securities included in net income [a] (3,157 ) (3,103 ) (25,966 ) (11,179 ) Portion of other-than-temporary impairment losses recognized in other comprehensive income [a] (2,765 ) (1 ) (2,643 ) 239 Impact of net unrealized investment gains on life & annuity deferred acquisition costs (2,842 ) — (2,842 ) — Foreign currency translation adjustment (9,308 ) (2,398 ) (5,597 ) (18,093 ) Other comprehensive income (loss) (21,060 ) (6,068 ) 77,215 68,011         COMPREHENSIVE INCOME (LOSS) $ (72,870 ) $ 24,880   $ 221,021   $ 133,293     Net income (loss) per share $ (0.54 ) $ 0.30   $ 1.47   $ 0.62   Net income (loss) per diluted share $ (0.54 ) $ 0.30   $ 1.43   $ 0.61   Net operating (loss) income per diluted share [b] $ (0.52 ) $ 0.30   $ 1.18   $ 0.91     Weighted average common shares outstanding—basic 95,691,699   103,323,377   98,012,424   105,249,683   Weighted average common shares outstanding—diluted 95,691,699   104,672,891   100,557,352   106,502,893     [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)   Year Ended December 31,

2012

 

2011

Common shares Balance, beginning of year $ 102,102 $ 110,963 Issuance of common shares, net 842 1,529 Repurchase of shares (6,884 ) (10,390 ) Balance, end of year 96,060   102,102     Additional paid-in capital Balance, beginning of year 1,847,034 2,026,045 Issuance of common shares, net 3,577 2,480 Stock based compensation expense 22,434 33,208 Repurchase of shares (151,804 ) (214,699 ) Balance, end of year 1,721,241   1,847,034     Accumulated other comprehensive income Unrealized holdings gains on investments: Balance, beginning of year 204,301 118,197 Holding gains on available for sale fixed maturities arising in period, net of tax 114,263 97,044 Net realized gains on available for sale securities included in net income, net of tax (25,966 ) (11,179 ) Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of tax (2,643 ) 239 Impact of net unrealized investment gains on life & annuity deferred acquisition costs (2,842 ) —   Balance, end of year 287,113   204,301     Cumulative foreign currency translation adjustment: Balance, beginning of year (37,344 ) (19,251 ) Foreign currency translation adjustment (5,597 ) (18,093 ) Balance, end of year (42,941 ) (37,344 )     Total accumulated other comprehensive income, end of year 244,172   166,957     Retained earnings Balance, beginning of year 693,142 682,316 Net income 143,806 65,282 Dividends (58,699 ) (54,456 ) Balance, end of year 778,249   693,142     Total shareholders’ equity $ 2,839,722   $ 2,809,235                       ALTERRA CAPITAL HOLDINGS LIMITED   CONSOLIDATED STATEMENTS OF CASHFLOWS (Unaudited) (Expressed in thousands of United States Dollars)   Year Ended December 31,

2012

 

2011

OPERATING ACTIVITIES Net income $ 143,806 $ 65,282 Adjustments to reconcile net income to net cash provided by operating activities: Stock based compensation 22,434 33,208 Amortization of premium on fixed maturities 33,403 23,562 Accretion of deposit liabilities 1,816 9,298 Net realized and unrealized (gains) losses on investments (70,886 ) 38,339 Net impairment losses recognized in earnings 6,908 2,945 Changes in: Accrued interest income 5,996 4,079 Premiums receivable (10,822 ) (128,754 ) Losses and benefits recoverable from reinsurers (219,516 ) (114,759 ) Deferred acquisition costs 3,348 (34,591 ) Prepaid reinsurance premiums (34,768 ) (63,564 ) Other assets 17,280 (1,476 ) Property and casualty losses 459,066 308,587 Life and annuity benefits (51,231 ) (59,010 ) Funds withheld from reinsurers (19,736 ) (8,680 ) Unearned property and casualty premiums 6,397 118,401 Reinsurance balances payable 22,711 31,931 Accounts payable and accrued expenses (3,093 ) 10,769       Cash provided by operating activities 313,113     235,567     INVESTING ACTIVITIES Purchases of available for sale securities (2,236,243 ) (2,317,677 ) Sales of available for sale securities 923,875 1,311,423 Redemptions/maturities of available for sale securities 1,250,105 965,974 Purchases of trading securities (532,454 ) (76,355 ) Sales of trading securities 305,184 24,563 Redemptions/maturities of trading securities 37,283 68,848 Purchases of held to maturity securities — (2,580 ) Redemptions/maturities of held to maturity securities 32,040 45,713 Net (purchases) sales of other investments (28,175 ) 60,783 Net purchases of equity method investments (66,145 ) (6,766 ) Dividends from equity method investments 8,694 — Change in restricted cash and cash equivalents 198,909 (103,458 )     Cash used in investing activities (106,927 ) (29,532 )   FINANCING ACTIVITIES Net proceeds from issuance of common shares 4,419 4,009 Repurchase of common shares (158,688 ) (225,089 ) Dividends paid (58,322 ) (54,456 ) Additions to deposit liabilities 8,940 1,061 Payments of deposit liabilities (28,881 ) (6,733 )     Cash used in financing activities (232,532 ) (281,208 )   Effect of exchange rate changes on foreign currency cash and cash equivalents (2,833 ) (11,047 )   Net decrease in cash and cash equivalents (29,179 ) (86,220 )   Cash and cash equivalents, beginning of year 469,477 555,697     CASH AND CASH EQUIVALENTS, END OF YEAR $ 440,298   $ 469,477    

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONInterest paid totaled $28,400 and $28,582 for the years ended December 31, 2012 and 2011, respectively.Income taxes paid totaled $7,954 and $2,049 for the years ended December 31, 2012 and 2011, respectively.

     

ALTERRA CAPITAL HOLDINGS LIMITED

  SCHEDULE OF SUPPLEMENTAL SEGMENT DATA - THREE MONTHS ENDED DECEMBER 31, 2012 (Unaudited) (Expressed in thousands of United States Dollars)       Property & Casualty Life & AnnuityReinsurance Corporate Consolidated GlobalInsurance   U.S.Insurance   Reinsurance   Alterra atLloyd’s   Total       Gross premiums written $ 97,964   $ 94,587   $ 125,630   $ 38,233   $ 356,414 $ 629 $ — $ 357,043 Reinsurance premiums ceded (48,698 )   (55,863 )   (10,950 )   1,704     (113,807 )   (74 )   —     (113,881 ) Net premiums written $ 49,266     $ 38,724     $ 114,680     $ 39,937     $ 242,607     $ 555     $ —     $ 243,162     Earned premiums $ 94,486 $ 98,142 $ 240,252 $ 71,248 $ 504,128 $ 629 $

—

$ 504,757 Earned premiums ceded (47,524 )   (62,839 )   (41,447 )   (9,241 )   (161,051 )  

(74

)   —     (161,125 ) Net premiums earned 46,962 35,303 198,805 62,007 343,077 555 — 343,632   Net losses and loss expenses (39,503 ) (85,476 ) (130,869 ) (39,275 ) (295,123 ) — — (295,123 ) Claims and policy benefits — — — —

—

 

 

(17,006 ) — (17,006 ) Acquisition costs (552 ) (4,915 ) (49,339 ) (11,880 ) (66,686 ) 91 — (66,595 ) General and administrative expenses (7,871 ) (10,849 ) (19,002 ) (8,722 ) (46,444 ) (76 ) — (46,520 ) Other income —     —     1,400     —     1,400     —     —     1,400   Underwriting income (loss) $ (964 ) $ (65,937 ) $ 995 $ 2,130 $ (63,776 ) n/a — n/a Net investment income 13,727 38,312 52,039 Net realized and unrealized gains on investments 11,476 11,476 Net impairment losses recognized in earnings (377 ) (377 ) Corporate other income 25 25 Interest expense (8,355 ) (8,355 ) Net foreign exchange gains 71 71 Merger and acquisition expenses (3,289 ) (3,289 ) Corporate general and administrative expenses     (8,668 )   (8,668 ) Income (loss) before taxes $ (2,709 )   $ 29,195     $ (37,290 ) Loss ratio (a) 84.1 % 242.1 % 65.8 % 63.3 % 86.0 % Acquisition cost ratio (b) 1.2 % 13.9 % 24.8 % 19.2 % 19.4 % General and administrative expense ratio (c) 16.8 %   30.7 %   9.6 %   14.1 %   13.5 % Combined ratio (d) 102.1 %   286.8 %   100.2 %   96.6 %   119.0 %   SCHEDULE OF SUPPLEMENTAL SEGMENT DATA - YEAR ENDED DECEMBER 31, 2012 (Unaudited) (Expressed in thousands of United States Dollars)   Property & Casualty Life & AnnuityReinsurance Corporate Consolidated GlobalInsurance   U.S.Insurance   Reinsurance   Alterra atLloyd’s   Total       Gross premiums written $ 371,638 $ 399,061 $ 898,453 $ 299,458 $ 1,968,610 $ 2,848 $ — $ 1,971,458 Reinsurance premiums ceded (189,330 )   (217,964 )   (171,285 )   (72,789 )   (651,368 )   (331 )   —     (651,699 ) Net premiums written $ 182,308     $ 181,097     $ 727,168     $ 226,669     $ 1,317,242     $ 2,517     $ —     $ 1,319,759     Earned premiums $ 373,918 $ 394,870 $ 911,019 $ 280,030 $ 1,959,837 $ 2,848 $ — $ 1,962,685 Earned premiums ceded (188,416 )   (200,007 )   (142,870 )   (65,838 )   (597,131 )   (331 )   —     (597,462 ) Net premiums earned 185,502 194,863 768,149 214,192 1,362,706 2,517 — 1,365,223   Net losses and loss expenses (111,940 ) (206,862 ) (444,321 ) (163,322 ) (926,445 ) — — (926,445 ) Claims and policy benefits — — — — — (55,582 ) — (55,582 ) Acquisition costs (974 ) (23,184 ) (187,078 ) (38,861 ) (250,097 ) (316 ) — (250,413 ) General and administrative expenses (27,593 ) (46,658 ) (71,633 ) (33,015 ) (178,899 ) (303 ) — (179,202 ) Other income 816     81     9,296     8     10,201     —     —     10,201   Underwriting income (loss) $ 45,811 $ (81,760 ) $ 74,413 $ (20,998 ) $ 17,466 n/a — n/a Net investment income 55,193 163,771 218,964 Net realized and unrealized gains on investments 70,886 70,886 Net impairment losses recognized in earnings (6,908 ) (6,908 ) Corporate other income 100 100 Interest expense (35,644 ) (35,644 ) Net foreign exchange gains 160 160 Merger and acquisition expenses (3,289 ) (3,289 ) Corporate general and administrative expenses     (52,360 )   (52,360 ) Income before taxes $ 1,509     $ 136,716     $ 155,691   Loss ratio (a) 60.3 % 106.2 % 57.8 % 76.3 % 68.0 % Acquisition cost ratio (b) 0.5 % 11.9 % 24.4 % 18.1 % 18.4 % General and administrative expense ratio (c) 14.9 %   23.9 %   9.3 %   15.4 %   13.1 % Combined ratio (d) 75.7 %   142.0 %   91.5 %   109.8 %   99.5 %   (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.   SCHEDULE OF SUPPLEMENTAL SEGMENT DATA - THREE MONTHS ENDED DECEMBER 31, 2011 (Unaudited) (Expressed in thousands of United States Dollars)               Property & Casualty Life & AnnuityReinsurance Corporate Consolidated GlobalInsurance   U.S.Insurance   Reinsurance   Alterra atLloyd’s   Total       Gross premiums written $ 97,660   $ 102,279   $ 96,942   $ 27,933   $ 324,814 $ 1,169 $ — $ 325,983 Reinsurance premiums ceded (50,172 )   (45,443 )   (2,546 )   (8,888 )   (107,049 )   (154 )   —     (107,203 ) Net premiums written $ 47,488     $ 56,836     $ 94,396     $ 19,045     $ 217,765     $ 1,015     $ —     $ 218,780     Earned premiums $ 91,077 $ 90,048 $ 225,492 $ 52,850 $ 459,467 $ 1,169 $ — $ 460,636 Earned premiums ceded (42,827 )   (34,078 )   (19,521 )   (14,952 )   (111,378 )   (154 )   —     (111,532 ) Net premiums earned 48,250 55,970 205,971 37,898 348,089 1,015 — 349,104   Net losses and loss expenses (15,152 ) (45,129 ) (106,906 ) (64,346 ) (231,533 ) — — (231,533 ) Claims and policy benefits — — — — — (14,564 ) — (14,564 ) Acquisition costs (1,084 ) (8,349 ) (46,839 ) (7,977 ) (64,249 ) (131 ) — (64,380 ) General and administrative expenses (6,952 ) (12,299 ) (16,690 ) (7,271 ) (43,212 ) (67 ) — (43,279 ) Other income (128 )   84     (100 )   851     707     413     —     1,120   Underwriting income (loss) $ 24,934 $ (9,723 ) $ 35,436 $ (40,845 ) $ 9,802 n/a — n/a Net investment income 11,515 45,565 57,080 Net realized and unrealized losses on investments (5,509 ) (266 ) (5,775 ) Net impairment losses recognized in earnings (702 ) (702 ) Corporate other income 897 897 Interest expense (13,296 ) (13,296 ) Net foreign exchange gains 753 753 Corporate general and administrative expenses     (11,378 )   (11,378 ) Income (loss) before taxes $ (7,328 )   $ 21,573     $ 24,047   Loss ratio (a) 31.4 % 80.6 % 51.9 % 169.8 % 66.5 % Acquisition cost ratio (b) 2.2 % 14.9 % 22.7 % 21.0 % 18.5 % General and administrative expense ratio (c) 14.4 %   22.0 %   8.1 %   19.2 %   12.4 % Combined ratio (d) 48.1 %   117.5 %   82.7 %   210.0 %   97.4 %   SCHEDULE OF SUPPLEMENTAL SEGMENT DATA - YEAR ENDED DECEMBER 31, 2011 (Unaudited) (Expressed in thousands of United States Dollars)   Property & Casualty Life & AnnuityReinsurance Corporate Consolidated GlobalInsurance   U.S.Insurance   Reinsurance   Alterra atLloyd’s   Total       Gross premiums written $ 365,761 $ 374,696 $ 907,186 $ 253,067 $ 1,900,710 $ 3,356 $ — $ 1,904,066 Reinsurance premiums ceded (181,454 )   (142,566 )   (83,984 )   (63,708 )   (471,712 )   (365 )  

—

    (472,077 ) Net premiums written $ 184,307     $ 232,130     $ 823,202     $ 189,359     $ 1,428,998     $ 2,991     $ —     $ 1,431,989     Earned premiums $ 364,087 $ 337,041 $ 916,688 $ 224,665 $ 1,842,481 $ 3,356 $ — $ 1,845,837 Earned premiums ceded (175,348 )   (113,718 )   (70,510 )   (60,922 )   (420,498 )   (365 )   —     (420,863 ) Net premiums earned 188,739 223,323 846,178 163,743 1,421,983 2,991 — 1,424,974   Net losses and loss expenses (91,753 ) (153,558 ) (541,959 ) (158,323 ) (945,593 ) — — (945,593 ) Claims and policy benefits — — — — — (59,382 ) — (59,382 ) Acquisition costs 517 (36,404 ) (187,853 ) (36,805 ) (260,545 ) (557 ) — (261,102 ) General and administrative expenses (28,377 ) (45,171 ) (85,019 ) (31,304 ) (189,871 ) (648 ) — (190,519 ) Other income 686     279     1,225     1,204     3,394     382     —     3,776   Underwriting income (loss) $ 69,812 $ (11,531 ) $ 32,572 $ (61,485 ) $ 29,368 n/a — n/a Net investment income 48,534 186,312 234,846 Net realized and unrealized losses on investments (10,408 ) (27,931 ) (38,339 ) Net impairment losses recognized in earnings (2,945 ) (2,945 ) Corporate other income 1,620 1,620 Interest expense (43,688 ) (43,688 ) Net foreign exchange losses (1,312 ) (1,312 ) Corporate general and administrative expenses     (66,555 )   (66,555 ) Income (loss) before taxes $ (19,088 )   $ 45,501     $ 55,781   Loss ratio (a) 48.6 % 68.8 % 64.0 % 96.7 % 66.5 % Acquisition cost ratio (b) (0.3 )% 16.3 % 22.2 % 22.5 % 18.3 % General and administrative expense ratio (c) 15.0 %   20.2 %   10.0 %   19.1 %   13.4 % Combined ratio (d) 63.4 %   105.3 %   96.3 %   138.3 %   98.2 %   (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 - YEAR ENDED DECEMBER 31, 2012 (Unaudited)

 

(Expressed in thousands of United States Dollars)

  Year Ended December 31, 2012 Year Ended December 31, 2011

Gross Premiums Written

 

Percentage of Total Gross Premiums Written

Movement on Prior Year Period

Gross Premiums Written [a]

 

Percentage of Total Gross Premiums Written [a]

Property & Casualty: Global Insurance: Aviation S $ 27,514 1.4 % (15.0 )% $ 32,376 1.7 % Excess Liability L 102,754 5.2 % 4.2 % 98,582 5.2 % Professional Liability L 166,457 8.4 % 5.4 % 157,881 8.3 % Property S 74,913   3.8 % (2.6 )% 76,922   4.0 % 371,638 18.9 % 1.6 % 365,761 19.2 % U.S. Insurance: General/Excess Liability L 100,265 5.1 % (4.2 )% 104,654 5.5 % Marine S 100,887 5.1 % 14.0 % 88,493 4.6 % Professional Liability L 61,238 3.1 % 38.6 % 44,169 2.3 % Property S 136,671   6.9 % (0.5 )% 137,380   7.2 % 399,061 20.2 % 6.5 % 374,696 19.7 % Reinsurance: Agriculture S 23,074 1.2 % (24.8 )% 30,682 1.6 % Auto S 53,443 2.7 % (45.7 )% 98,360 5.2 % Aviation S 28,332 1.4 % 77.2 % 15,991 0.8 % Credit/Surety S 64,978 3.3 % 57.7 % 41,210 2.2 % General Casualty L 83,212 4.2 % 11.5 % 74,652 3.9 % Marine & Energy S 25,851 1.3 % 7.7 % 24,012 1.3 % Medical Malpractice L 22,708 1.2 % (39.2 )% 37,345 2.0 % Other S 4,081 0.2 % 32.9 % 3,071 0.2 % Professional Liability L 164,719 8.4 % 3.4 % 159,293 8.4 % Property S 382,566 19.4 % 8.7 % 351,791 18.5 % Whole Account S/L 6,302 0.3 % (82.4 )% 35,800 1.9 % Workers' Compensation L 39,187   2.0 % 12.0 % 34,979   1.8 % 898,453 45.6 % (1.0 )% 907,186 47.6 % Alterra at Lloyd's: Accident & Health S 43,045 2.2 % 16.0 % 37,093 1.9 % Agriculture S 18,321 0.9 % n/m — — Aviation S 16,287 0.8 % 22.7 % 13,269 0.7 % Financial Institutions L 26,238 1.3 % (3.6 )% 27,205 1.4 % International Casualty L 65,919 3.3 % 27.0 % 51,902 2.7 % Marine S 9,262 0.5 % n/m 1,493 0.1 % Professional Liability L 20,053 1.0 % (3.1 )% 20,696 1.1 % Property S 100,333   5.1 % (1.1 )% 101,409   5.3 % 299,458 15.2 % 18.3 % 253,067 13.3 %           Aggregate Property & Casualty $ 1,968,610   99.9 % 3.6 % $ 1,900,710   99.8 %   Life & Annuity: Life $ 2,848 0.1 % 86.1 % $ 1,530 0.1 % Annuity —   —   (100.0 )% 1,826   0.1 %   Aggregate Life & Annuity $ 2,848   0.1 % (15.1 )% $ 3,356   0.2 %           Aggregate Property & Casualty and Life & Annuity $ 1,971,458   100.0 % 3.5 % $ 1,904,066   100.0 %     S = Short tail lines $ 1,112,708 56.5 % $ 1,071,452 56.4 % L = Long tail lines 855,902   43.5 % 829,258   43.6 % Aggregate Property & Casualty $ 1,968,610   $ 1,900,710     Property [b] $ 694,483 35.3 % $ 667,502 35.1 % Casualty [c] 852,750 43.3 % 811,358 42.7 % Specialty [d] 421,377   21.4 % 421,850   22.2 % Aggregate Property & Casualty $ 1,968,610   $ 1,900,710     [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 December 31, Year Ended December 31,

2012

 

2011

2012

 

2011

  Net income (loss) before tax $ (37,290 ) $ 24,047 $ 155,691 $ 55,781 Net realized and unrealized (gains) losses on investments not included in operating income, before tax [a] (888 ) 1,059 (28,964 ) 29,486 Foreign exchange (gains) losses, before tax (71 ) (753 ) (160 ) 1,312 Merger and acquisition expenses, before tax 3,239   —   3,239   — Net operating income (loss) before tax $ (35,010 ) $ 24,353   $ 129,806   $ 86,579   Net income (loss) $ (51,810 ) $ 30,948 $ 143,806 $ 65,282 Net realized and unrealized (gains) losses on investments not included in operating income, net of tax [a] (1,094 ) 1,271 (27,826 ) 30,391 Foreign exchange (gains) losses, net of tax (48 ) (534 ) (116 ) 927 Merger and acquisition expenses, net tax 3,239   —   3,239   — Net operating income (loss) $ (49,713 ) $ 31,685   $ 119,103   $ 96,600   Net income (loss) per diluted share $ (0.54 ) $ 0.30 $ 1.43 $ 0.61 Net realized and unrealized (gains) losses on investments not included in operating income, net of tax [a] (0.01 ) 0.01 (0.28 ) 0.29 Foreign exchange losses, net of tax — (0.01 ) — 0.01 Merger and acquisition expenses, net of tax 0.03   —   0.03   — Net operating income (loss) per diluted share $ (0.52 ) $ 0.30   $ 1.18   $ 0.91   Weighted average shares outstanding - basic 95,691,699   103,323,377   98,012,424   105,249,683 Weighted average shares outstanding - diluted 95,691,699   104,672,891   100,557,352   106,502,893  

[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 December 31, Year Ended December 31,

2012

 

2011

2012

 

2011

  Net income (loss) $ (51,810 ) $ 30,948 $ 143,806 $ 65,282 Annualized net income (loss) (207,240 ) 123,792 143,806 65,282   Net operating income (loss) $ (49,713 ) $ 31,685 $ 119,103 $ 96,600 Annualized net operating income (loss) (198,852 ) 126,740 119,103 96,600   Average shareholders' equity [b] $ 2,881,449 $ 2,826,987 $ 2,862,663 $ 2,806,191   Annualized return on average shareholders' equity (7.2 )% 4.4 % 5.0 % 2.3 % Annualized net operating return on average shareholders' equity (6.9 )% 4.5 % 4.2 % 3.4 %  

[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)

 

  December 31, 2012 December 31, 2011 Shareholders' equity $ 2,839,722 $ 2,809,235 Goodwill and intangible assets 54,751   56,111 Tangible book value $ 2,784,971   $ 2,753,124   Diluted shares outstanding 100,213,325 104,406,779   Diluted tangible book value per share $ 27.79 $ 26.37              

ALTERRA CAPITAL HOLDINGS LIMITED

 

SCHEDULE OF SUPPLEMENTAL INVESTMENT DATA - DECEMBER 31, 2012 (UNAUDITED)

(Expressed in thousands of United States Dollars)   Type of Investment

As of December 31, 2012

Investment Distribution

As of December 31, 2011

Investment Distribution

  Cash and cash equivalents (restricted and unrestricted) $ 694,756   8.6 % $ 922,844   11.8 %   U.S. government and agencies $ 885,370 11.0 % $ 751,806 9.6 % Non-U.S. governments 246,712 3.1 % 164,621 2.1 % Corporate securities 2,610,605 32.5 % 2,646,358 33.9 % Municipal securities 273,336 3.4 % 263,007 3.4 % Asset-backed securities 371,597 4.6 % 247,965 3.2 % Residential mortgage-backed securities 1,234,670 15.4 % 1,296,277 16.6 % Commercial mortgage-backed securities 454,259   5.7 % 361,097   4.6 %   Fixed maturities at fair value $ 6,076,549   75.6 % $ 5,731,131   73.3 %   U.S. government and agencies $ 27,639 0.3 % $ 29,201 0.4 % Non-U.S. governments 527,843 6.6 % 524,449 6.7 % Corporate securities 296,360 3.7 % 319,609 4.1 % Asset-backed securities 424   —   1,000   —     Fixed maturities at amortized cost $ 852,266   10.6 % $ 874,259   11.2 %         Equity method investments $ 92,050   1.1 % $ 13,670   0.2 %         Other investments $ 316,955   3.9 % $ 272,845   3.5 %   Total invested assets $ 8,032,576   100.0 % $ 7,814,749   100.0 %   Credit Rating

As of December 31, 2012

Ratings Distribution

 

As of December 31, 2011

 

Ratings Distribution

  U.S. government and agencies [a] $ 2,092,893 30.2 % $ 1,869,405 28.3 % AAA 1,170,299 16.9 % 948,861 14.4 % AA 693,411 10.0 % 883,783 13.4 % A 1,520,959 22.0 % 1,378,361 20.9 % BBB 320,215 4.6 % 281,983 4.3 % BB 67,041 1.0 % 84,803 1.3 % B 158,934 2.3 % 131,159 2.0 % CCC or lower 38,420 0.6 % 53,157 0.8 % Not rated 14,377   0.2 %   99,619     1.5 % Fixed maturities at fair value $ 6,076,549   87.7 %   $ 5,731,131     86.8 %   U.S. government and agencies $ 27,639 0.4 % $ 29,201 0.4 % AAA 406,659 5.9 % 619,832 9.4 % AA 284,282 4.1 % 82,511 1.2 % A 99,235 1.4 % 117,600 1.8 % BBB 32,031 0.5 % 24,117 0.4 % BB 2,420   —     998     —   Fixed maturities at amortized cost $ 852,266 12.3 % $ 874,259 13.2 %             Total fixed maturities $ 6,928,815   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 $1,207,523 (December 31, 2011: $1,117,599).

Percentage totals may not add due to rounding.

        Three Months Ended December 31,   Year Ended December 31,

2012

 

2011

2012

 

2011

  Net investment income $ 52,039   $ 57,080   $ 218,964   $ 234,846     Realized and unrealized (losses) gains on trading fixed maturities (1,322 ) 763 3,952 2,031 Net realized gains on available for sale fixed maturities 3,312 1,990 26,148 11,509 Increase (decrease) in fair value of hedge funds 4,871 (5,415 ) 13,901 (11,795 ) Decrease in fair value of catastrophe bonds — — — (25,641 ) Decrease in fair value of structured deposit (1,004 ) (312 ) (291 ) (2,269 ) Income from equity method investments 5,253 1,023 20,930 1,445 Increase (decrease) in fair value of derivatives 366   (3,824 ) 6,246   (13,619 ) Net realized and unrealized gains (losses) on investments $ 11,476   $ (5,775 ) $ 70,886   $ (38,339 )   Net impairment losses recognized in earnings $ (377 ) $ (702 ) $ (6,908 ) $ (2,945 )