Combined ratio improves 2.7 points at Arch

Arch Capital Group Ltd. of Hamilton, Bermuda, reporting a 7.5% overall increase in net premiums written, a 2.1-point improvement in loss ratio and a drop in reinsurance premiums partly due to a decline in casualty, marine and aviation lines premiums.

Net premiums written were $1.014 billion during the three months ending Sept. 30, up 7.5% from $972 million for the same period in 2015.

During the latest quarter, Arch Capital reported net premiums written of $541.5 million in insurance, $234.8 million in reinsurance and $80.54 million in the mortgage sector.

Company-wide, the loss ratio for the third quarter improved 2.1 points, from 56.8% in 2015 to 54.7% in 2016. The combined ratio was down 2.7 points, from 90.7 in Q3 2015 to 88% in the latest quarter.

For the nine months ending Sept. 30, the loss ratio deteriorated 0.6 points, from 55.4% in 2015 to 56% this year. The combined ratio improved 0.2 points, from 89.7% in the first three quarters of 2015 to 89.5% for the same period this year.

Arch writes primary insurance through its operations in the U.S., Canada, Bermuda, Europe, Australia and the United Arab Emirates.

In Canada, Arch writes specialty insurance through Toronto-based Arch Insurance Canada. It also writes in the Lloyd’s market through Arch Syndicate 2012.

Its coverages include primary and excess casualty coverages in construction, excess and surplus casualty, professional lines, commercial auto and marine, among others.

Net premiums written, in insurance, were down 0.3% in the latest quarter from $543 million in Q3 2015. This decrease “reflected reductions in programs and property lines, partially offset by growth in travel and in ‘other’ lines including alternative markets and high excess comp business,” Arch Capital stated. “The reduction in program business primarily reflected the continued impact of the non-renewal of a large program in the latter part of 2015 while the lower level in property lines reflected continued weak market conditions.”

In reinsurance, net premiums written were down 1%, in the latest quarter, from $237.1 million in Q3 2015. That decrease “reflected reductions in casualty and marine and aviation lines, due in part to reductions in premium estimates reflecting current market conditions,” Arch stated. “Such amounts were partially offset by growth in other specialty business, reflecting additional agriculture business and strong renewals on pro rata U.K. motor business.”

The loss ratio in insurance improved 0.9 points, from 65% in Q3 2015 to 64.1% in the latest quarter. The combined ratio in insurance improved 0.1 points, from 96% in Q3 2015 to 95.9% in the latest quarter.

“The 2016 third quarter loss ratio reflected 0.3 points of current year catastrophic activity, compared to 1.6 points in the 2015 third quarter,” Arch reported. “Estimated net favorable development in prior year loss reserves, before related adjustments, reduced the loss ratio by 2.6 points in the 2016 third quarter, compared to 1.9 points in the 2015 third quarter. The estimated net favorable development in the 2016 third quarter primarily resulted from better than expected claims emergence in longer-tail and medium-tail lines from earlier accident years. The balance of the change in the 2016 third quarter loss ratio resulted, in part, from changes in the mix of business.”

In reinsurance, the loss ratio improved 2.5 points, from 44.5% in Q3 2015 to 42% in the latest quarter. The reinsurance combined ratio was down 4.1 points, from 80.1% in Q3 2015 to 76% in the most recent quarter.

“The 2016 third quarter loss ratio included 4.1 points of current year catastrophic activity, compared to 4.2 points of catastrophic activity in the 2015 third quarter, and a higher level of current year facultative attritional losses than in the 2015 third quarter,” Arch said of its reinsurance results. “Estimated net favorable development in prior year loss reserves, before related adjustments, reduced the loss ratio by 23.6 points in the 2016 third quarter, compared to 19.2 points in the 2015 third quarter. The estimated net favorable development in the 2016 third quarter primarily resulted from better than expected claims emergence in short-tail business from most underwriting years and in longer-tail business across earlier underwriting years.”

Net income available to Arch common shareholders was $247.4 million in Q3 2016, up from $74.5 million during the same period in 2015.