UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 19, 2014
MAIDEN HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
Bermuda | 001-34042 | 98-0570192 | ||
(State or other jurisdiction | (Commission File | (IRS Employer | ||
of incorporation) | Number) | Identification No.) | ||
131 Front Street, Hamilton HM12, Bermuda
(Address of principal executive offices and zip code)
(441) 298-4900
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¬ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¬ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¬ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¬ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 7.01 Regulation FD Disclosure.
The slide presentation will be referenced during investor/analyst meetings during the months of May and June 2014. A copy of the slide presentation is furnished as Exhibit 99.1 to this report.
The information under this Item 7.01 and the Investor Presentation attached to this Form 8-K as Exhibit 99.1 shall be deemed to be “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act. The furnishing of the information in this report is not intended to, and does not, constitute a determination or admission by the Company that the information in this report is material or complete, or that investors should consider this information before making an investment decision with respect to any security of the Company.
Cautionary Statement Regarding Forward-Looking Statements
Any forward-looking statements made in the presentation in Exhibit 99.1 reflect our current views with respect to future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties, which may cause actual results to differ materially from those set forth in these statements. For example, our forward-looking statements could be affected by pricing and policy term trends; increased competition; the impact of acts of terrorism and acts of war; greater frequency or severity of unpredictable catastrophic events; negative rating agency actions; the adequacy of our loss reserves; the Company or its subsidiaries becoming subject to significant income taxes in the United States or elsewhere; changes in regulations or tax laws; changes in the availability, cost or quality of reinsurance or retrocessional coverage; adverse general economic conditions; and judicial, legislative, political and other governmental developments, as well as management's response to these factors, and other factors identified in our filings with the U.S. Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We are under no obligation (and expressly disclaim any such obligation) to update or revise any forward-looking statement that may be made from time to time, whether as a result of new information, future developments or otherwise.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit | ||
No. | Description | |
99.1 | Slides from presentation by management. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: May 19, 2014 | MAIDEN HOLDINGS, LTD. | |
By: | /s/ Lawrence F. Metz | |
Lawrence F. Metz | ||
Senior Vice President, General Counsel and Secretary | ||
Investor Presentation May & June 2014 Maiden Holdings, Ltd.
Forward Looking Statements This presentation contains “forward-looking statements” which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on current expectations and beliefs of Maiden Holdings, Ltd. (the “Company”) concerning future developments and their potential effects on the Company. There can be no assurance that actual developments will be those anticipated by the Company. Actual results may differ materially from those projected as a result of significant risks and uncertainties, including non-receipt of expected payments, changes in interest rates, effect of the performance of financial markets on investment income and fair values of investments, developments of claims and the effect on loss reserves, decreases in existing and new client projected premiums, accuracy in projecting loss reserves, the impact of competition and pricing environments, changes in the demand for the Company’s products, the effect of general economic conditions, adverse state and federal legislation, regulations and regulatory investigations into industry practices, developments relating to existing agreements, heightened competition, changes in pricing environments and changes in asset valuations. The Company undertakes no obligation to publicly update any forward-looking statements, except as may be required by law. Additional information about these risks and uncertainties, as well as others that many cause actual results to differ materially from those projected is contained in Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. 2
Maiden’s Value Proposition • Focus on low-volatility lines of business and more predictable “working layer” reinsurance – Not focused on the property catastrophe reinsurance market • Long-term relationships with targeted regional and specialty P&C insurers - 31-year operating history • Successful and stable multi-year strategic reinsurance relationship with AmTrust Financial Services, Inc. (“AmTrust”) since 2007 • Diversified portfolio of low-volatility underwriting business • Predictable and stable operating results • Highly efficient and scalable operating platform • Growing balance sheet scale and capital efficiency supported by the low-volatility model • Reduced cost of capital following TRUPs redemption enhances operating returns • Conservative investment portfolio 3 1 2 3 4 5 6 7 8 Maiden is well positioned with unique competitive advantages and a highly differentiated business strategy 9
Maiden’s History 1 Am Trust’s majority shareholders include holdings of Michael Karfunkel, Leah Karfunkel, George Karfunkel, and Barry Zyskind (“Founding Shareholders”). 2 National General Holdings Corporation (“NGHC”), formerly known as American Capital Acquisition Corporation (“ACAC”), acquired GMAC Personal Lines Business in 2010. 3 Last twelve months as of March 31, 2014 4Ownership is pro forma for $260mm TRUPS offering. 5As of most recent filing. 2007 2008 2009 2010 2011 2012 2013 2007 2008 2009 2010 2011 2012 2013 2014 Q1 Net Premiums Written (“NPW”) $247 $727 $1,030 $1,228 $1,724 $1,901 $2,096 $2,1173 Employees 5 129 139 204 213 214 185 190 Founding Shareholders¹ Ownership 18.6% 30.1%4 30.1% 28.3% 28.3% 28.4% 28.4% 28.2%5 • AmTrust’s majority shareholders¹ formed Maiden • Entered into 40% Quota Share with AmTrust • Entered into 25% NGHC² Quota Share • Acquired international insurance business (IIS) from Ally • Sold Property E&S business • ACAC / NGHC Quota Share discontinued • All-time high annual earnings in 2013 • Acquired a reinsurance platform with 25 years of operations, GMAC RE, with renewal rights, client relationships, and infrastructure 4 2014 • Redeemed 14% TRUPS January 15, 2014 • All-time high quarterly earnings 1Q14
Diversified Reinsurance AmTrust Quota Share Reinsurance • Focus on lower volatility “working layer” reinsurance needs of regional and specialty P&C insurers in the U.S. and select international markets • Providing strategically important growth and capital support to AmTrust since 2007 U.S. • Personal & commercial auto • Commercial multi-peril • General liability • Workers’ compensation • Non-cat property Select international markets: • Personal Auto • Credit Life Small Commercial (U.S.) • Workers’ compensation • Commercial package • Commercial lines Specialty Risk and Extended Warranty (U.S., Europe): • Consumer and commercial goods warranty • European Hospital liability • Other Specialty Program: • Commercial package for specialty risks / segments • Multi-functional U.S underwriting teams — Broker treaty — Direct treaty — Specialty / facultative — A&H • International team • 41% direct / 59% brokered distribution • Highly rated in Flaspöhler industry cedent survey • Multi-year quota-share reinsurance relationship since 2007 — Master Agreement in place through 2016, with negotiated contract modifications and term extensions renewed twice previously — Actively managed by Maiden to preserve targeted economics • Strong controls and governance — Independent underwriting and reserving — All related party transactions require independent Audit Committee approvals • Lasting, profitable, long-term relationships with clients - 31-year operating history • Dedicated Financial Trust® offers highly rated security • Deep multi-functional client service support • Purpose built balance sheet and operating platform • Significant driver of growth with improving combined ratios • AmTrust’s leading competitive position in specialty markets1 • Improving rate environment, particularly in workers’ compensation Small Commer cial Business 53% Specialty Program 13% Specialty Risk and Extended Warranty 34% Property 17% Casualty 63% Accident & Health 5% International15% Maiden’s Key Businesses Today 5 LTM* 3/31/2014 NPW = $786mm Products / Businesses Competitive Advantage Underwriting / Distribution Clients (*) “LTM” = Last twelve months 1Per Forbes 7/19/2013 publication. LTM* 3/31/2014 NPW = $1,244mm
1 23 4 5 6 7 8 9 10 11 Balanced Portfolio of Low Volatility Underwriting Business 6 LTM 3/31/2014 NPW Excluding NGHC• Low-hazard, profitable workers’ compensation business ― 36% of Maiden’s LTM March 31, 2014 NPW excluding NGHC ― Focus on small premium, small-employer policies ― Significantly lower workers’ compensation loss ratio vs. industry mainly reflecting AmTrust’s specialization and leading position in low-hazard segment • Primary pricing discipline with price increases varying by line and geography • Benefiting from underwriting performance improvement post termination of NGHC quota- share in 2013 LTM 3/31/2014 NPW Excluding NGHC = $2,030mm 1. Workers' compensation 36% 2. Personal auto 14% 3. Commercial auto 12% 4. Other liability 10% 5. Warranty 10% 6. European hospital liab. 6% 7. Fire, allied lines and inland marine 4% 8. Others 3% 9. Commercial multi-peril 2% 10. Accident & health 2% 11. Homeowners' 1%
Minimal Property Catastrophe Exposure 7 • Minimal exposure to property catastrophe risks — 1-in-250-year PML managed to less than annual net income — Further reduced property-catastrophe exposure through the sale of E&S property business to Brit Insurance in 2013 • Maiden has generated annual underwriting income every year and net operating income every quarter since its formation in 2007 1 Maiden PML and common equity data as of 12/31/2013. (Re)insurer comparative PML as of 1/1/2014 and common equity as of 12/31/2013. 2Aspen, Arch, Axis, AWAC, Endurance, EverestRe, Montpelier, PartnerRe, Platinum, Validus, XL. 1-in-250-Year Occurrence PML / Common Equity 3% 19% $28 Selected (Re)Insurers2 1-in-250 yr. PML1 ($mm) Maiden
Predictable and Stable Operating Performance 8 Data Source: SNL Financial Lowest quintile volatility supported by highly efficient operating platform and balance sheet RNR MRH VR EIG PTP AWH AXS AGII ACGL PRE ENH AHL XL MHLD GLRE5 Y e a r A v e r a g e C o m b i n e d R a t i o Standard Deviation in Combined Ratio 5 Year Average Combined Ratio and Standard Deviation in Combined Ratio 5th Quintile 4th Quintile 3rd Quintile 2nd Quintile 1st Quintile (Lowest) 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile (Highest) 1st Quintile (Lowest)
Unique Operating Platform and Business Model Drive Highly Efficient Expense Relativities 9 1Aspen, Arch, Axis, AWAC, Endurance, EverestRe, Montpelier, PartnerRe, Platinum, RenRe, Validus, XL. Source: SNL and Company Financials LTM 3/31/2014 G&A Expense Ratio Maiden: 2.8% Selected P&C (Re)Insurers1: 15.8% $1,030 $1,228 $1,724 $1,901 $2,096 $2,117 3.5% 3.5% 3.5% 2.9% 2.9% 2.8% 2009 2010 2011 2012 2013 LTM 3/31/2014 Net Premiums Written ($mm) G&A Expense Ratio
Maiden Maintains a Conservative Investment Portfolio Investments Composition1 (1) As of March 31, 2014 Total: $3.2bn Strong Credit Quality of Investments1 Total: $3.2bn • Continued emphasis on investing in GSE and high-grade corporate debt; new money yield on fixed maturities in 1Q14 to date is 3.56%; overall 1Q14 book yield (excluding cash equivalents) is 3.57% • March 31, 2014 average duration of investable assets (including cash equivalents) of 4.5 years compared to 4.3 years as of December 31, 2013 • Profitable growth & positive cash flow has expanded invested assets that will enhance earnings U.S. Treasuries 1% Other 4% Municipal Bonds 2% U.S. Agency 39%Corporate Bonds 54% US Treasuries 1% BB+ or lower 2% AAA 7% AA 5% A 23% BBB 23% U.S. Agency 39% 10
Low-Volatility Business Model Supporting Asset and Investment Income Growth 11 Growing Net Investment Income ($mm) Expanding Invested Assets Base ($mm) $ 62.9 $ 71.6 $ 74.9 $ 81.2 $ 91.4 $ 97.2 2009 2010 2011 2012 2013 LTM 3/31/2014 $ 2,088 $ 2,234 $ 2,494 $ 3,003 $3,552* $3,566 2009 2010 2011 2012 2013 3/31/2014 (*) Invested assets at December 31, 2013 include net proceeds of $147.4 million from November 2013 Senior Note offering. Maiden primarily utilized the proceeds of its Senior Note offering in November 2013, as well as cash on hand, to redeem the $152.5 million face value Junior Subordinated Debt (“TRUPs”).
Maiden Well Positioned to Achieve a 15% Operating ROAE • Medium-term Operating ROAE > 15% • Combined ratio < 96% — G&A expense ratio < 4% • NPW CAGR of 10%+ • Core regional insurer client retention rate of > 85% • Modeled exposure to a one-in-250 cat event < annual net income Targeted Operating Metrics 15% operating ROAE attainable with improved underwriting results, growth in invested assets and current capital structure 12
Investment Opportunity 13 boxcheckbld Differentiated P&C reinsurance business model with focus on low- volatility, predictable lines of business and strong long-lasting client relationships boxcheckbld Demonstrated predictable, stable and highly efficient operating performance boxcheckbld Shareholder-friendly capital management boxcheckbld Well-positioned for continued profitable growth • Strong, disciplined business growth with favorable pricing trends • Significant opportunities to further enhance profitability
Appendix • Flaspöhler Cedent Survey Results • Predictable and Stable Underwriting Performance • Balanced and Diversified Capital Structure • Summary Balance Sheet • Summary Income Statement • Non-GAAP Financial Measures – Reconciliation • Non-GAAP Financial Measures 14
2013 Flaspöhler Cedent Survey Results • Maiden Re Top Ranked in Three Categories of 10: – Ease of doing business – ranked #1 – Client orientation – ranked #1 – Value added services – ranked #1 • More #1 rankings than any other reinsurer • Favorable rankings reflect efforts to deliver differentiated products and services to clients • Continued orientation around delivering on Maiden’s core value proposition to clients and prospects has helped drive new business opportunities and increase shares from existing customers 15 Appendix
(30)% (20)% (10)% 0% 10% 20% 30% Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1 2009 2010 2011 2012 2013 2014 Annualized Operating ROACEQuarterly Combined Ratio Maiden’s LTM 3/31/2014 Operating ROACE: 10.8% Predictable and Stable Operating Performance 16 1Aspen, Arch, Axis, AWAC, Endurance, EverestRe, Montpelier, PartnerRe, Platinum, RenRe, Validus, XL. 2Property E&S was sold to Brit in 2013. Source SNL Financial. Maiden Selected P&C (Re)Insurers¹ Maiden Q4 2012 Excluding Property E&S² 60% 80% 100% 120% 140% 160% 180% Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1 2009 2010 2011 2012 2013 2014 Appendix
551 554 644 696 705 724 782 772 108 208 360 360 215 215 126 126 126 150 315 315 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2007 2008 2009 2010 2011 2012 2013 1Q 2014 T o t a l C a p i t a l ( e x c l u d i n g A O C I ) Common Equity excluding AOCI Senior Notes Trust Preferred ("TRUPs")* Preference Shares Balanced and Diversified Capital Structure 17 • Access to capital markets has enabled Maiden to fund growth with long-term and perpetual securities — January 2009: 14% Trust Preferred Securities (“TRUPS”) Offering of $260 million to finance the acquisition of GMAC RE with significant support from Founding Shareholders — June 2011: 30-Year, 8.25% Senior Notes Offering of $107.5 million, replacing a portion of 14% TRUPS (NYSE:MHNA) — March 2012: 30-Year, 8% Senior Notes Offering of $100 million (NYSE:MHNB) — August 2012: 8.25% Non-Cumulative Perpetual Preferred Share Offering of $150 million (NYSE:MHPRA) — October 2013: 7.25% Mandatory Convertible Preference Share Offering of $165 million, supporting reinsurance business growth (NASDAQ:MHLDO) — November 2013: 30-Year, 7.75% Senior Notes Offering of $152.5 million, proceeds used to redeem 14% TRUPS (NYSE:MHNC) • 14% TRUPS issued in early 2009 redeemed in January 2014 • Continued exploration of shareholder friendly, diverse and alternative sources of capital Balanced and Diversified Capital Structure (*) TRUPs redeemed on January 15, 2014 The stated value of the TRUPs was $126.4mm which comprises the principal amount of $152.5mm less the unamortized discount of $26.1mm. (In $ in millions) Appendix
2009 2010 2011 2012 2013 Q1 2014 ($ in millions) Invested Assets Investments $ 1,667.2 $ 1,880.3 $ 2,022.9 $ 2,621.6 $ 3,167.2 $ 3,174.6 Cash & Cash Equivalents 252.3 185.9 303.0 213.8 217.2 223.3 Loan to Related Party 168.0 168.0 168.0 168.0 168.0 168.0 Total Invested Assets 2,087.5 2,234.2 2,493.9 3,003.4 3,552.4 3,565.9 Net Reinsurance Receivable 211.3 226.3 423.4 522.6 560.1 675.2 Deferred Acquisition Costs 173.0 203.6 248.4 270.7 304.9 348.7 Other Assets 164.3 318.5 229.4 341.5 296.0 278.8 Total Assets $ 2,636.1 $ 2,982.6 $ 3,395.1 $ 4,138.2 $ 4,713.4 $ 4,868.6 Loss and LAE Reserve $ 1,002.7 $ 1,226.8 $ 1,398.4 $ 1,740.3 $ 1,957.8 $ 2,035.8 Unearned Premiums 583.5 657.6 832.0 936.5 1,034.8 1,218.5 Senior Notes - - 107.5 207.5 360.0 360.0 Trust Preferred Securities 215.1 215.2 126.3 126.3 126.4 - Other Liabilities 158.3 132.5 161.9 112.0 110.1 103.7 Total Liabilities 1,959.6 2,232.1 2,626.1 3,122.6 3,589.1 3,718.0 Equity 676.5 750.5 769.0 1,015.6 1,124.3 1,150.6 Total Liabilities & Equity $ 2,636.1 $ 2,982.6 $ 3,395.1 $ 4,138.2 $ 4,713.4 $ 4,868.6 Book Value per Common Share $ 9.62 $ 10.40 $ 10.64 $ 11.96 $ 11.14 $ 11.47 Growth in Total Invested Assets 13.8% 7.0% 11.6% 20.4% 18.3% 0.4% Ratio of Total Invested Assets to Equity 308.6% 297.7% 324.3% 295.7% 316.0% 309.9% Summary Balance Sheet 18 Appendix (*) TRUPS redeemed in full on January 15, 2014
2009 2010 2011 2012 2013 Q1 2014 ($ in millions) Net Premium Written $ 1,030.4 $ 1,227.8 $ 1,723.5 $ 1,901.3 $ 2,096.3 $ 709.9 Net Earned Premium $ 919.9 $ 1,169.8 $ 1,552.4 $ 1,803.8 $ 2,000.9 $ 519.2 Net Investment Income 62.9 71.6 74.9 81.2 91.4 27.8 Interest and Amortization Expense 34.4 36.5 34.1 36.4 39.5 8.1 Net Income $ 61.1 $ 69.9 $ 28.5 $ 46.5 $ 87.9 $ (4.1) Operating Earnings * $ 66.2 $ 72.7 $ 69.6 $ 48.5 $ 87.5 $ 25.6 Operating EPS * $ 0.95 $ 1.02 $ 0.96 $ 0.66 $ 1.18 $ 0.34 Operating ROE * 11.2% 10.2% 9.2% 5.9% 10.5% 12.6% Loss Ratio 66.2% 64.6% 66.6% 69.5% 67.0% 67.0% Expense Ratio 29.7% 32.3% 31.5% 30.0% 30.5% 30.7% Combined Ratio 95.9% 96.9% 98.1% 99.5% 97.5% 97.7% Summary Income Statement • (*) 2011 excludes $35.4 million in charges related to Senior Note Offering which consist of $20.3 million of accelerated amortization of discount on junior subordinated debt and $15.1 million charge related to repurchase of junior subordinated debt. 2011 also Includes $9.5 million or 0.6% in loss ratio and combined ratio impact from U.S thunderstorm and tornado activity in 2Q11. 2012 includes $31.1 million or 1.7% in loss ratio and combined ratio impact from Storm Sandy in 4Q12. Q1 2014 excludes accelerated amortization of junior subordinated debt discount and issuance cost of $28.2 million. • Please see the non-GAAP reconciliation table in the appendix of this presentation for additional important information. 19 Appendix
Non-GAAP Financial Measures Reconciliation Note: Please see the definition of non-GAAP financial measures on next page for additional important information. Appendix 20 2009 2010 2011 2012 2013 Q1 2014 ($ in millions) Net income $ 61.1 $ 69.9 $ 28.5 $ 50.2 $ 102.8 $ 2.1 (Income) loss attributable to non-controlling interest - - - (0.1) (0.1) (0.1) Dividends on preference shares - - - (3.6) (14.8) (6.1) Add (subtract): Net realized (gains) losses on investment (0.3) (6.6) (0.5) (1.9) (3.6) (0.1) Foreign exchange and other losses (gains) (2.5) 0.6 (0.3) (1.6) (2.8) (0.1) Amortization of intangible assets 6.6 5.8 5.0 4.4 3.8 0.8 Junior subordinated debt repurchase expense - - 15.1 - - - Accelerated amortization of subordinated debt discount and issuance cost - - 20.3 - - 28.2 Interest expense incurred related to 7.75% senior notes prior to actual redemption of the junior subordinated debt - - - - 1.2 0.6 Non-recurring general and administrative expenses relating to IIS Acquisition (2010) and GMAC Acquisition (2008) - 1.8 0.2 - - - Non-cash deferred tax expense 1.3 1.2 1.3 1.1 1.0 0.3 Operating earnings $ 66.2 $ 72.7 $ 69.6 $ 48.5 $ 87.5 $ 25.6 Operating earnings per common share: Basic operating earnings per share $ 0.95 $ 1.03 $ 0.97 $ 0.67 $ 1.21 $ 0.35 Diluted operating earnings per share $ 0.95 $ 1.02 $ 0.96 $ 0.66 $ 1.18 $ 0.34
Non-GAAP Financial Measures • In presenting the Company’s results, management has included and discussed in this presentation certain non generally accepted accounting principles (“non-GAAP”) financial measures within the meaning of Regulation G as promulgated by the U.S. Securities and Exchange Commission. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the company’s results of operations in a manner that allows for a more complete understanding of the underlying trends in the Company’s business. However, these measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles (“U.S. GAAP”). • Operating Earnings and Operating Earnings per Share: In addition to presenting net income determined in accordance with GAAP, we believe that showing operating earnings enables investors, analysts, rating agencies and other users of our financial information to more easily analyze our results of operations in a manner similar to how management analyzes our underlying business performance. Operating earnings should not be viewed as a substitute for U.S. GAAP net income. Operating earnings are an internal performance measure used in the management of our operations and represents operating results excluding, as applicable, realized investment gains or losses, foreign exchange gain or loss, the amortization of intangible assets and non-cash deferred tax expenses and interest expense incurred related to 7.75% senior notes prior to actual redemption of the junior subordinated debt and non-cash deferred tax charge. We also exclude certain non-recurring expenditures that are material to understanding our results of operations. For 2011 and 2010, we exclude transaction expenses related to the IIS Acquisition as these are non- recurring. In 2011 and Q1 2014 we exclude the junior subordinated debt repurchase expense and the accelerated amortization of junior subordinated debt discount and issuance costs, as both are non-recurring. We exclude net realized investment gains or losses and foreign exchange gain or loss as we believe that both are heavily influenced in part by market opportunities and other factors. We do not believe amortization of intangible assets are representative of our ongoing business. We believe all of these amounts are largely independent of our business and underwriting process and including them distorts the analysis of trends in our operations. • Operating Return on Common Equity ("Operating ROCE"): Management uses operating return on average common shareholders' equity as a measure of profitability that focuses on the return to common shareholders. It is calculated using operating earnings available to common shareholders (realized gains or losses on investments, foreign exchange gains and losses, the amortization of intangible assets, and non-cash deferred tax expenses) divided by average common shareholders' equity. Management has set as a target a long-term average of 15% Operating ROE, which management believes provides an attractive return to shareholders for the risk assumed. • See the previous page of this presentation for a reconciliation of non-GAAP measures used in this presentation to their most directly comparable GAAP measures. Appendix 21