Loss ratio up 1.4 points for Arch Capital

Arch Capital Group Ltd. reported Monday a combined ratio of 99.4% in insurance during the last three months of 2016 due in part to Hurricane Matthew, while net favorable development, due in part to better than expected claims emergence in short-tail business, reduced its loss ratio in reinsurance during the last three months of 2016.

For the full year, Hamilton, Bermuda-based Arch Capital reported a combined ratio of 89.9% in 2016, up 0.4 points from 89.5% in 2015. The loss ratio deteriorated 1.4 points, from 54.9% in 2015 to 56.3% in 2016.

Arch writes insurance and reinsurance worldwide, as well as mortgage insurance in the U.S. Those are its three underwriting segments. Its “other” segment includes Watford Holdings Ltd. and its subsidiary Watford Re Ltd., a multi-line Bermuda reinsurance company launched in March 2014. Arch acts as Watford Re’s reinsurance manager.

Arch Insurance opened a branch office in Canada in 2005 and then in January 2013, Arch Insurance Canada Ltd. commenced operations and replaced the branch office in Toronto.

On Dec. 31, Arch completed the acquisition of United Guaranty Corporation.

For the fourth quarter, Arch Capital reported net premiums written of  $872.3 million in 2016, up 4.5% from $835 million in Q4 2015. All figures are in United States dollars. During the most recent quarter, Arch Capital reported net premiums written of $465.8 million in insurance, $206.1 million in reinsurance and $92.9 million in mortgage, for a total of $764.9 million in net premiums written in “core” operations. Net premiums written in “other” were $107.4 million for Q4 2016.

The loss ratio was 57.2% in the latest quarter, up 3.6 points from 53.6% in Q4 2015. The combined ratio increased 1.8 points, from 88.9% in Q4 2015 to 90.7% in the three months ending Dec. 31, 2016.

In its insurance segment, Arch Capital reported a loss ratio of 67.7% in the most recent quarter, up 5.5 points from 62.2% in Q4 2015.

“The 2016 fourth quarter loss ratio reflected 4.6 points of current year catastrophic activity, primarily related to Hurricane Matthew, compared to 0.4 points in the 2015 fourth quarter,” Arch said in a filing with the U.S. Securities and Exchange Commission. “Estimated net favorable development in prior year loss reserves, before related adjustments, reduced the loss ratio by 1.6 points in the 2016 fourth quarter, compared to 2.0 points in the 2015 fourth quarter. The estimated net favorable development in the 2016 fourth quarter primarily resulted from better than expected claims emergence in medium-tail lines across most accident years. The balance of the change in the 2016 fourth quarter loss ratio resulted, in part, from changes in the mix of business.”

Arch’s insurance coverages include professional liability, construction, excess and surplus casualty, marine, aviation and energy, among others.

The combined ratio in insurance was 99.4% in Q4 2016, up 4.8 points from 94.6% in Q4 2015.

In reinsurance, Arch capital reported a combined ratio of 78.6% in the latest quarter, up 2.4 points from 76.2% in Q4 2015. The loss ratio in reinsurance deteriorated 6.2 points, from 38.2% in Q4 2015 to 44.5% in the three months ending Dec. 31, 2016.

“The 2016 fourth quarter loss ratio included 4.5 points of current year catastrophic activity (before the impact of reinstatement premiums), primarily related to Hurricane Matthew, compared to 5.8 points of catastrophic activity in the 2015 fourth quarter,” Arch Capital said of its Q4 reinsurance results. “Estimated net favorable development in prior year loss reserves, before related adjustments, reduced the loss ratio by 16.7 points in the 2016 fourth quarter, compared to 22.5 points in the 2015 fourth quarter. The estimated net favorable development in the 2016 fourth quarter primarily resulted from better than expected claims emergence in short-tail business from most underwriting years and in longer-tail business from 2013 and prior underwriting years.”

Arch Capital reported net income available to common shareholders of $665 million on total revenue of $4.46 billion in 2016, compared to net income available to common shareholders of $516 million on total revenue of $3.94 billion in 2015.

During the latest quarter, Arch Capital reported net income available to common shareholders of $62.4 million on total revenue of $988.2 million, compared to net income of $53.1 million on total revenue of $902 million during the three months ending Dec. 31, 2015.

Underwriting income dropped 3.4%, from $113.1 million in Q4 2016 to $109.2 million in the latest quarter.

For the full year, underwriting income rose 5.9%, from 429.5 million in 2015 to $455 million last year.