Q3 reinsurance loss ratio up 56.5 points for Arch Capital

After estimating it could lose nearly $320 million due to natural catastrophes including major North Atlantic hurricanes in the three months ending September 30, Arch Capital Group Ltd. has reported its combined ratio in reinsurance deteriorated 51.5 points, from 75.9% in Q3 2016 to 127.4% in the latest quarter, while reinstatement premiums from three hurricanes contributed $15.8 in net premiums written. All figures are in United States dollars.

Pembroke, Bermuda-based Arch Capital, which has a Toronto office, writes commercial primary and reinsurance worldwide. Arch writes reinsurance in Canada through Arch Re Canada, the Canadian branch of Morristown, N.J.-based Arch Re U.S. An Arch Capital subsidiary also writes commercial primary insurance in Canada.

Company-wide, Arch Capital reported Oct. 25 its loss ratio was 82.9% in Q3 2017, up 28.2 points from 54.7% in Q3 2016. The combined ratio in the latest quarter was 111.8%, up 24.3 points from 87.5% in Q3 2016. The Q3 2017 loss ratio was 98.5% in reinsurance, up 56.5 points from 42% in the same period last year.

The financial results for Q3 “reflect estimated after-tax net losses from current accident year catastrophic events of $319.8 million (pre-tax net losses of $347.8 million), net of reinsurance and reinstatement premiums and excluding the ‘other’ segment,” Arch said Oct. 25 in a press release. “Such amounts were primarily related to Hurricanes Harvey, Irma and Maria, along with the Mexican earthquakes and other more minor global events.”

Those hurricanes made landfall Aug. 25 in Texas, Sept. 10 at two separate points in Florida and Sept. 20 in Puerto Rico. On Sept. 19, an earthquake measuring 7.1 on the Richter scale hit Mexico, causing at least 300 deaths and the collapse of at least 44 buildings in Mexico City, the U.S. Geological Survey reported earlier.

Quoting AIR Worldwide, Fitch Ratings Inc. reported Sept. 26 that “upper-end loss estimates” for Hurricane Maria alone were $85 billion while there were $50 billion in “upper-end expected losses from Hurricane Irma,” and $25 billion from Hurricane Harvey.

Arch’s “other” segment includes Watford Holdings Ltd. and Watford Re Ltd., a multi- Bermuda reinsurance company which launched in 2014.  Arch owns about 11% of Watford Re’s common equity.

Arch Capital suggested Oct. 25 its estimated losses from Q3 catastrophes “may vary materially” from actual losses because its estimates were based on “currently available information derived from modeling techniques, industry assessments of exposure, preliminary claims information obtained from the Company’s clients and brokers to date and a review of in-force contracts.”

For the third quarter of this year, Arch reported net premiums written of $564.9 million in insurance, up 4.3% from $541.5 million in Q3 2016. Net premiums written in reinsurance were $316.7 in the latest quarter, up 35% from $234.8 million in Q3 2016.

Total net premiums written were $1.32 billion in the most recent quarter, and this included $290 million in mortgage and $153.7 in other.

Arch Capital reported it lost $52.76 million in the third quarter of this year, while net income available to common shareholders was $247.4 million in Q3 2016. For the first nine months of the year, Arch Capital reported net income available to common shareholders of $363 million, down 39.7% from $602 million during the first nine months of 2016.

In commercial primary insurance, Arch’s offerings include primary and excess casualty for construction firms, directors’ and officers’ liability, errors and omissions liability, employment practices liability, fiduciary liability, crime, professional indemnity, marine and aviation, among others.

Company-wide, Arch reported Oct. 25 its gross premiums written were $1.56 billion in the latest quarter, up 28.2% from $1.21 billion in Q3 2016. Premium growth in insurance “reflected growth in program business, due to the continued effects of two newer programs, and in travel business,” Arch stated.

An increase in reinsurance premiums “reflected an increase of $45.4 million in casualty business related to a retroactive reinsurance contract which was substantially earned in the period and resulted in a corresponding increase to losses and loss adjustment expenses,” Arch said, adding “reinstatement premiums related to Hurricanes Harvey, Irma and Maria contributed $25.0 million to gross premiums written and $15.8 million to net premiums written in the 2017 third quarter.”

For the first nine months of the year, gross premiums written were $4.7 billion this year, up 20.5% from $3.9 billion in 2016.