A r c h C a p i t a l G r o u p L t d . 2 0 1 4 A n n u a A R C H C A P I T A L G R O U P L T D. l Re 2 0 1 4 A N N U A L R E P O R T p o r t Amounts in millions, except percentages and per share amounts 2014 2013 Change Book value per common share at year-end $ 45.58 $ 39.82 14.5% After-tax operating income* $ 617.3 $ 595.7 3.6% Per share $ 4.58 $ 4.39 4.3% Operating return on average common equity 11.1% 11.7% Net income available to common shareholders $ 812.4 $ 687.8 18.1% Per share $ 6.02 $ 5.07 18.7% Net income return on average common equity 14.6% 13.5% Combined ratio 86.8% 85.9% Gross premiums written $4,760.4 $4,196.6 13.4% Net premiums written $3,617.5 $3,351.4 7.9% Net investment income $ 284.3 $ 267.2 6.4% Per share $ 2.11 $ 1.97 7.1% Weighted average common shares and common share equivalents outstanding 134.9 135.8 (0.6)% Table excludes amounts related to the “other” segment. All per share amounts are on a diluted basis. To Our Shareholders: Arch performed well in 2014 in a challenging market environment of declining reinsurance pricing and continued low interest rates. Reinsurance pricing weakened as more capital came into the business. At the same time, modest yields on insurers’ and reinsurers’ fixed income investment portfolios drove home the importance of earning adequate underwriting profits. From inception, the Company was built to operate well in all market environments. Our strategic principles include: disciplined underwriting at all times; a conservative balance sheet with strong liquidity; and the flexibility and responsiveness to allocate capital to the best opportunities that meet our return requirements. When we cannot find enough underwriting opportunities and have excess capital not needed in the business, we return it to shareholders, as we did in the third and fourth quarters of 2014 through share repurchases. During the year, we wrote more insurance as pricing and returns in many insurance lines remained favorable and wrote less reinsurance as pricing weakened. Investing for the future, we successfully launched two initiatives—our newly formed U.S. mortgage insurance business, Arch MI, along with Watford Re, an independent company in which we own a minority interest and for which we serve as underwriting manager. While the Company has written mortgage reinsurance globally for several years, expansion into the U.S. primary mortgage insurance market creates a meaningful new segment that diversifies our earnings base. *A fter-tax operating income, which is a non-GAAP measure of financial performance, is defined as net income available to common shareholders, excluding net realized gains or losses, net impairment losses included 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. The reconciliation to net income available to Arch common shareholders and definition of after-tax operating income can be found in the Company’s Annual Report on Form 10-K, filed with the SEC on February 27, 2015, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” A copy of the Form 10-K is available on the Company’s web site and accompanies this letter. We measure the success of our strategies by two main benchmarks: growth of book value per share, which creates long-term shareholder value; and operating return on average common equity (ROE), which drives book value growth and is a key indicator of the efficient use of capital. We performed well against both benchmarks in 2014. Book value per share advanced 14.5% in 2014 to $45.58 at year-end, the sixth consecutive annual increase. Book value per share has now grown at a compound annual rate of 16% over the past decade. Operating ROE was 11.1% in 2014, down from 11.7% in 2013 primarily due to growth in our capital base, and has averaged 14.6% per year over the decade. We seek to achieve an average ROE of 15% over a market cycle. Operating ROE measures the Company’s performance after excluding non-operating items such as investment gains and losses and foreign exchange gains and losses. Our ROE based on net income, which includes these items, increased to 14.6% in 2014 from 13.5% in 2013 and has averaged 16.1% over the past decade. Net income ROE reflects the impact of our investment philosophy of maximizing total returns in our portfolio. We believe net income ROE provides a meaningful measure of financial performance over time as fluctuations are smoothed out. All financial results in this letter exclude amounts related to the “other” segment, including Watford Re, in which the Company owns an approximately 11% equity interest. In accordance with generally accepted accounting principles (GAAP), the results of Watford are included in the Company’s consolidated financial statements. The results for the “other” segment can be found on page 162 of the Company’s Form 10-K for 2014. 2014 Operating Results After-tax operating income available to common shareholders was $617.3 million, or $4.58 per share, in 2014, increasing 4.3% from 2013 on a per-share basis. Net income available to common shareholders rose more sharply to $812.4 million, or $6.02 per share, in 2014, an 18.7% per-share advance. The larger increase for net income was primarily due to the inclusion of realized investment gains and foreign exchange gains. Reported underwriting income and net investment income, the two main components of operating income, both grew. We had another good underwriting year, aided by a low level of catastrophe losses and continued favorable loss reserve development. Underwriting income was $474.2 million in 2014, increasing 5% from 2013. Our GAAP combined ratio, a measure of underwriting performance, was 86.8% in 2014 and 85.9% in 2013. A lower ratio indicates higher underwriting margins. The combined ratio consisted of a loss ratio of 53% in 2014 and 53.4% in 2013 and an underwriting expense ratio of 33.8% in 2014 and 32.5% in 2013. The increase in the expense ratio was due mainly to shifts in business mix, including costs associated with building our mortgage insurance business. We expect to recognize the benefits of our mortgage business over the next few years as premium revenue from the book of business grows. Net favorable reserve development was $306.6 million in 2014 and $254.2 million in 2013, as earlier-year reserves proved more than adequate, allowing the release of a portion of these reserves to 2014 and 2013 earnings. We have now had favorable reserve development for 12 consecutive years. We believe this speaks well to our prudent reserving philosophy, although there is no guarantee that favorable reserve development will continue. These results have also benefited from the better-than-expected claims trend experienced by the industry over the past 10 years. On the investment side, our portfolio generated $284.3 million of net investment income, or $2.11 per share, in 2014, up 7.1% from 2013 on a per-share basis. Overall, 2014 was a challenging year for fixed income investors as yields remained meager by historic standards and yields on Treasury securities with maturities of five years or longer declined further, approaching or reaching all-time lows. The portfolio’s pre-tax investment income yield was 2.08% in 2014, down from 2.12% in 2013. Increased assets under management allowed us to produce more investment income despite lower yields. 2 Emphasis on Total Investment Return Total investable assets managed by us were $14.61 billion at the end of 2014, up from $14.05 billion a year earlier. Strong cash flow, investment income and appreciation were the main drivers of this growth. Cash flow from operations was $997.8 million in 2014, advancing 17.3% over 2013. We invest to preserve and grow capital and provide a stable foundation for the risks we assume in our underwriting activities. At year-end, 82% of the portfolio was invested in fixed maturity and short-term investments with an average credit quality of “AA/Aa2.” We have increased our allocation to equities and alternative investments since the 2008 financial crisis, when we began to find fresh opportunities in these areas. Equities and alternative investments accounted for about 11% of total investable assets at the end of 2014 and helped bolster our investment returns for the year. Our goal is to maximize total return (which consists of net investment income, net realized gains and losses, changes in unrealized gains and losses, and equity in the net income or losses of investment funds accounted for using the equity method), since total return contributes to increases in book value per share. Total return was 3.21% in 2014 and 1.28% in 2013. Changes in foreign exchange rates were dramatic in 2014 as the U.S. dollar strengthened against many other currencies. Excluding the effects of foreign exchange, total return was 4.26% in 2014 and 1.13% in 2013. We generally hedge most or all of our currency exposure by matching the liabilities we have in non-U.S. currencies with investments in the same currencies. This can dampen our total investment return in periods when the U.S. dollar is strong, but the reduction in total return is largely offset by gains on the liability side of our balance sheet. In 2014, we intentionally did not fully hedge because of our view of global economics. This “under-hedging” helped our 2014 financial and investment performance by increasing our exposure to the strong U.S. dollar. We divide our portfolio for investment purposes into three main categories: investments generated by insurance and reinsurance operations, investments supported by our senior notes and hybrid securities, and common shareholders’ equity. For our insurance and reinsurance liabilities, senior notes and hybrid securities, we generally match the duration of our investments to the duration of our obligations in an attempt to minimize, on an economic basis, the effects of interest rate movements. For our common shareholders’ equity, we vary the duration based on our view of potential returns and the outlook for investments and the economy in general. In 2014, we continued to maintain a relatively short duration, reflecting our caution about the price outlook for longer-maturity fixed income securities. The average effective duration of the overall portfolio was 3.34 years at December 31, 2014, up from 2.62 years at December 31, 2013, as the duration of our liabilities also increased during the year. Three Market Segments We write insurance and reinsurance on a worldwide basis primarily through operations in Bermuda, the United States, Canada, Europe and Australia, with a focus on specialty lines. We operate in three main segments: insurance, reinsurance, and mortgage insurance and reinsurance. Diversity across segments and product lines is fundamental to our corporate strategy and allows us to allot capital to those areas offering the best opportunities at any given time. Net premiums written were $3.62 billion in 2014, a 7.9% increase from 2013. Our business mix in 2014 was 59% insurance, 35% reinsurance, and 6% mortgage insurance and reinsurance, based on net premiums written, compared with 58% insurance, 39% reinsurance, and 3% mortgage insurance and reinsurance in 2013. Although price weakness was a negative factor for our reinsurance business, we benefited on the business that we ceded to reinsurers. Companywide, we ceded 24.0% of our gross premiums written in 2014, compared with 20.1% in 2013. Insurance: We continued to grow our insurance business by increasing net premiums written to $2.15 billion in 2014, up 10.2% from 2013. Pricing continued to improve for most of the insurance lines we write. Although price weakness 3 in reinsurance often ends up finding its way into the insurance market, we have not seen this happen in the current market cycle other than in certain property lines of business. We continued to write business for many smaller corporate and institutional accounts, where volatility is lower and we believe that competition is less aggressive than for larger accounts. Two of these areas, programs and our binding authority business, recorded strong growth. In the second quarter, we acquired the alternative market business of SPARTA Insurance, a property casualty company in Connecticut, under a renewal rights agreement. M&A activity is increasing in the insurance and reinsurance industry. We remain alert to opportunities, in both the insurance and reinsurance sectors, to acquire books of business that might become available because of M&A activity or because an insurer or reinsurer might need to cede business for financial reasons. We believe our “A+” financial strength rating and strong balance sheet could give us an advantage in bidding for books that fit our needs. Reinsurance: Net premiums written by our reinsurance business were $1.27 billion in 2014, down 3.6% from the prior year. We wrote less business as pricing for many reinsurance lines declined. Pricing was especially weak in the property catastrophe sector as more third-party capital—including catastrophe bonds, industry loss warranties and other collateralized reinsurance—came into that segment. As a result, we significantly reduced our writing of property catastrophe reinsurance. During the year we agreed to acquire full ownership of Gulf Re, our reinsurance joint venture, subject to approval by the Dubai Financial Services Authority. We believe the unit will benefit from economies of scale, including the ability to purchase reinsurance on more favorable terms as a wholly owned subsidiary of Arch. Mortgage insurance and reinsurance: We entered the primary U.S. mortgage insurance market in January 2014 when we acquired the mortgage insurance operations of CMG Mortgage Insurance Company and assets of PMI Mortgage Insurance Co. in the United States and combined these operations with our existing global mortgage insurance and reinsurance platform. Net premiums written in this segment were $204.8 million in 2014, meeting expectations, as we continue to build our presence in this market. CMG was the leading provider of mortgage insurance products and services to credit unions in the United States. We renamed it Arch Mortgage Insurance Company and have made excellent progress in broadening its business to commercial banks and other mortgage originators. By December 31, 2014, we had enrolled 19 of the top 25 mortgage lenders in the United States as customers and had reviewed and approved 481 master policy applications from banks. In addition, we recently formed Arch Mortgage Guaranty Company to insure mortgages that originators intend to retain in their portfolios or include in private securitizations. The mortgage cycle operates independently of the property casualty cycle, helping diversify our business. Moreover, we like the dynamics of the mortgage insurance and reinsurance markets going forward, and we believe that because of our diversified business model, we will be positioned to apply our disciplined approach to underwriting to our benefit. The mortgage market is subject to shocks caused by macroeconomic forces and/or undisciplined underwriting. We intend to respond to both influences by always remaining disciplined in our underwriting posture and reducing our writings when we sense that the housing economy is deteriorating. The housing market outlook remains positive at this time and mortgage delinquencies continue to improve. In addition, Fannie Mae and Freddie Mac are “de-risking” their portfolios by shifting more risk to the private sector and encouraging greater private-sector participation in mortgage insurance, creating more opportunities for private insurers. We believe our mortgage insurance and reinsurance businesses will become an important contributor to our results over time. 4 Watford Re Watford Re is an innovative, multi-line Bermuda company launched in March 2014 with $1.13 billion of capital. Watford allows us to leverage our underwriting skills, receive fee income and serve customers with a broader range of reinsurance products. It carries an “A-” (Excellent) financial strength rating from A.M. Best Company. Watford got off to a strong start, writing $288.6 million of gross premiums in its first year. Unlike our three core segments, Watford Re has its own management and board of directors which are independent from Arch, and has a distinct, separate investment portfolio and investment strategy. Arch has an approximately 11% equity interest in, and is the underwriting manager for, Watford, while Highbridge Principal Strategies, LLC, a subsidiary of JPMorgan Chase & Co., is the investment manager. Highbridge invests Watford’s assets primarily in non-investment grade fixed income assets with an aim of generating higher returns than the property and casualty industry in general. We maintain the same underwriting standards we use in writing business for ourselves, but are able to write business for Watford that does not meet our return criteria because of the higher return expectations of Watford’s investment portfolio. Balance Sheet and Capital Management We maintain a conservative balance sheet with low financial leverage and strong liquidity. Doing so gives us the resources to weather difficult economic or market environments and write business quickly when opportunities arise. Total capital was $7.03 billion at the end of 2014, up from $6.55 billion at the end of 2013. Debt and hybrids were 17.4% of total capital at the end of 2014 compared with 18.7% a year earlier, providing us with significant financial flexibility. We seek, first and foremost, to deploy capital productively in our underwriting activities. However, in those periods when we have excess capital not needed in the business, we seek to return it to shareholders, its rightful owners. In determining the amount of excess capital that can be returned, we maintain a safety margin above the capital level required to support our financial strength ratings. Historically, share repurchases have been our primary means of returning capital. To that end, during the second half of 2014 we repurchased 8.2 million Arch common shares at an average price of $55.47, or a total of $454.1 million. At year-end, $887.1 million was available for repurchases under the Board of Directors’ authorization. The Company maintained an “A+” or equivalent financial strength rating from each of the four major rating agencies. Fitch Ratings upgraded its ratings outlook to “positive” from “stable,” citing the Company’s “consistently strong and stable profitability,” among other factors, while the other three agencies retained a rating outlook of “stable.” Arch People The Company’s success depends ultimately on the quality, expertise and dedication of its people, working together in a collaborative environment. We seek to hire, train and motivate excellent people and align their interests with those of shareholders by rewarding them for long-term performance. Our senior team includes Mark Lyons, Executive Vice President, Chief Financial Officer, Chief Risk Officer and Treasurer, Marc Grandisson, Chairman and CEO of Arch Worldwide Reinsurance and Mortgage Groups, and David McElroy, Chairman and CEO of Arch Worldwide Insurance Group. Their dedication to the Company’s success and continuing leadership, as well as the efforts and hard work of the rest of our senior management team and middle managers worldwide, have contributed directly to the excellent results achieved by Arch. We have a well-established history of promotion from within, reflecting the deep bench we have built at Arch and our ability to give our people the opportunity to grow professionally over time. 5 In July, Nicolas Papadopoulo became CEO of our Reinsurance Group, with direct responsibility for the Company’s global reinsurance operations. He previously was CEO of Arch Reinsurance Ltd. in Bermuda (Arch Re Bermuda). Maamoun Rajeh succeeded Nicolas as Chairman and CEO of Arch Re Bermuda. He previously was President and CEO of Arch Reinsurance Europe Underwriting Limited (Arch Re Europe). Nicolas and Maamoun joined Arch in 2001. In December, John Mentz was appointed President of Arch Insurance Group, with direct management responsibility for all Arch Insurance U.S. underwriting divisions. He previously was Executive Vice President of Arch Insurance U.S., with ultimate responsibility for National Accounts Casualty, Construction, Alternative Markets, High Excess Comp and Lenders Products, and has been with us since 2002. Michael Price was named Executive Vice President and Chief Underwriting Officer of Arch Insurance U.S. He previously was Senior Vice President, Operations of Arch Insurance U.S. and has been with Arch since 2009. Michael Price reports directly to Michael Murphy, who was appointed Vice Chairman of Arch Insurance U.S. and continues as Chief Underwriting Officer of Arch Worldwide Insurance Group. We are pleased to welcome Louis J. Paglia and Eugene S. Sunshine to our Board of Directors. Louis is the founder of Customer Choice LLC, a data analytics company serving the electric utility industry, and formerly served in various senior executive positions, including Chief Financial Officer for TIG Holdings Inc. Eugene was previously Senior Vice President for Business and Finance at Northwestern University and served as the university’s chief financial and administrative officer. We look forward to their insight, contributions and active participation in the governance of the Company for many years to come. We express our deep appreciation to Robert F. Works and James J. Meenaghan. Bob retired from the Board in 2014 after having served as a director since 1999. Jim, a director since 2001, announced his intention to retire from the Board at the end of his current term and not stand for reelection at the Company’s 2015 Annual Meeting. We thank them both for their contributions and wish them well in their future endeavors. Summary Arch has evolved into a global insurance and reinsurance enterprise with a track record of success throughout a variety of market conditions. We write business across a range of product lines, price risk appropriately and serve our clients by providing the financial protection they need. The market outlook for 2015 is clouded by the past year’s price weakness in reinsurance. As always, we do not attempt to predict the market. Instead, we pay close attention to the market and capitalize on whatever opportunities it may offer. We believe the Company will continue to be well served in the year ahead by its robust underwriting culture, product diversity and strong balance sheet. As always, we thank all our employees for their deep commitment to the Company and their contributions to its success. We thank our agents and brokers for their support and our customers for their loyalty. And we thank you, our investors, for the support you have shown Arch Capital through your ownership of our stock. Constantine “Dinos” Iordanou Chairman, President and Chief Executive Officer March 2015 6 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2014 Commission File No. 0-26456 ARCH CAPITAL GROUP LTD. (Exact name of registrant as specified in its charter) Bermuda Not applicable (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) Waterloo House, Ground Floor 100 Pitts Bay Road, Pembroke HM 08, Bermuda (441) 278-9250 (Address of principal executive offices) (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered Common Shares, $0.0033 par value per share NASDAQ Stock Market (Common Shares) 6.75% Non-Cumulative Preferred Shares, Series C, $0.01 par value New York Stock Exchange per share Securities registered pursuant to Section 12(g) of the Exchange Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated Filer Accelerated Filer Non-accelerated Filer Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No The aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the closing price as reported by the NASDAQ Stock Market as of the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $7.05 billion. As of February 20, 2015, there were 126,226,689 of the registrant’s common shares outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of Part III and Part IV incorporate by reference our definitive proxy statement for the 2015 annual meeting of shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A before April 30, 2015. ARCH CAPITAL GROUP LTD. TABLE OF CONTENTS Item Page PART I ITEM 1. BUSINESS 4 ITEM 1A. RISK FACTORS 52 ITEM 1B. UNRESOLVED STAFF COMMENTS 82 ITEM 2. PROPERTIES 82 ITEM 3. LEGAL PROCEEDINGS 82 ITEM 4. MINE SAFETY DISCLOSURES 82 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER 82 MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ITEM 6. SELECTED FINANCIAL DATA 85 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 87 RESULTS OF OPERATIONS ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 142 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 143 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING 210 AND FINANCIAL DISCLOSURE ITEM 9A. CONTROLS AND PROCEDURES 210 ITEM 9B. OTHER INFORMATION 210 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 211 ITEM 11. EXECUTIVE COMPENSATION 211 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 211 AND RELATED STOCKHOLDER MATTERS ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR 211 INDEPENDENCE ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 211 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 212 1 CAUTIONARY NOTE REGARDING FORW STATEMENTS The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides a “safe harbor” for forward-looking statements. This report or any other written or oral statements made by or on behalf of us may include forward-looking statements, which reflect our current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this report are forward-looking statements. Forward-looking statements, for purposes of the PSLRA or otherwise, can generally be identified by the use of forward- looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” and similar statements of a future or forward-looking nature or their negative or variations or similar terminology. Forward-looking statements involve our current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed below, elsewhere in this report and in our periodic reports filed with the Securities and Exchange Commission (“SEC”), and include: • our ability to successfully implement our business strategy during “soft” as well as “hard” markets; • acceptance of our business strategy, security and financial condition by rating agencies and regulators, as well as by brokers and our insureds and reinsureds; • our ability to maintain or improve our ratings, which may be affected by our ability to raise additional equity or debt financings, by ratings agencies’ existing or new policies and practices, as well as other factors described herein; • general economic and market conditions (including inflation, interest rates, foreign currency exchange rates, prevailing credit terms and the depth and duration of a recession) and conditions specific to the reinsurance and insurance markets (including the length and magnitude of the current “soft” market) in which we operate; • competition, including increased competition, on the basis of pricing, capacity, coverage terms or other factors; • developments in the world’s financial and capital markets and our access to such markets; • our ability to successfully enhance, integrate and maintain operating procedures (including information technology) to effectively support our current and new business; • the loss of key personnel; • the integration of businesses we have acquired or may acquire into our existing operations; • accuracy of those estimates and judgments utilized in the preparation of our financial statements, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment valuations, intangible assets, bad debts, income taxes, contingencies and litigation, and any determination to use the deposit method of accounting, which for a relatively new insurance and reinsurance company, like our company, are even more difficult to make than those made in a mature company since relatively limited historical information has been reported to us through December 31, 2014; • greater than expected loss ratios on business written by us and adverse development on claim and/or claim expense liabilities related to business written by our insurance and reinsurance subsidiaries; • severity and/or frequency of losses; • claims for natural or man-made catastrophic events in our insurance or reinsurance business could cause large losses and substantial volatility in our results of operations; • acts of terrorism, political unrest and other hostilities or other unforecasted and unpredictable events; • availability to us of reinsurance to manage our gross and net exposures and the cost of such reinsurance; • the failure of reinsurers, managing general agents, third party administrators or others to meet their obligations to us; • the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by us; • our investment performance, including legislative or regulatory developments that may adversely affect the fair value of our investments; • changes in general economic conditions, including new or continued sovereign debt concerns in Eurozone countries or downgrades of U.S. securities by credit rating agencies, which could affect our business, financial condition and results of operations; 2