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Loss ratio up 3 points for Arch Capital


July 28, 2016   by Canadian Underwriter


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Arch Capital Group Ltd. reported Wednesday a 1.4-point increase in its second-quarter combined ratio and 42% increase in net income, with growth in its travel, construction and national accounts.

Pembroke, Bermuda-based Arch Capital’s operations include commercial insurer Arch Insurance Canada Ltd. and the Canadian branch of Arch Reinsurance Company.

During the three months ending June 30, Arch Capital reported net premiums earned of $1.006 billion, up 6.6% from $943 million during the same period of 2015. All figures are in United States dollars. These include the results of Bermuda reinsurer Watford Re, of whose common equity Arch owns 11%. Arch serves as Watford Re’s reinsurance underwriting manager.

Underwriting income increased 6.3%, from $105 million in Q2 2015 to $111.7 million in the latest quarter.

The loss ratio deteriorated 3 points, from 55.1% in Q2 2015 to 58.1% in the most recent quarter. The Q2 combined ratio increased 1.4 points, from 89.7% in 2015 to 91.4% this year.

The results for the latest quarter “included losses for current year catastrophic events of $36.3 million, net of reinsurance and the effects of reinstatement premiums, with $20.6 million from the insurance segment and $15.7 million from the reinsurance segment,” Arch said in a release issued Wednesday after stock markets closed. “Events in the 2016 second quarter included the Texas hailstorms and floods, Fort McMurray wildfires, earthquake events in Japan and Ecuador and other U.S. weather events.”

Hundreds were killed in April in Ecuador after an earthquake measuring 7.8 on the Richter scale. Also in April, San Antonio, Texas was affected by three major hailstorms while another hail storm hit the Dallas-Fort Worth area. In May, a wildfire prompted officials to evacuate Fort McMurray, Alberta, in a disaster estimated by Catastrophe Indices and Quantification Inc. (CatIQ) to cost insurers Cdn$3.58 billion.

In its reinsurance segment, Arch Capital reported its combined ratio deteriorated 6 points, from 76.1% in Q2 2015 to 82.1% in the same quarter of this year.

“The 2016 second quarter loss ratio included 6.1 points of current year catastrophic activity, compared to 3.7 points of catastrophic activity in the 2015 second quarter, and a higher level of attritional large loss activity than in the 2015 second quarter,” the company reported.

In addition to property catastrophe, Arch also reinsures excess and umbrella liability, excess motor, marine, aviation, surety, agriculture, trade credit and political risk, among others.

The Q2 loss ratio in reinsurance climbed 9.6 points, from 40.6 % in 2015 to 50.2% in 2016.

Underwriting income in reinsurance was $72.4 million in the latest quarter.

Since Jan. 1, 2015 Arch has been writing reinsurance in Canada on the paper of the Canadian Branch of Arch Reinsurance Company, which has offices in Toronto and Montreal.

Arch initially wrote commercial primary insurance in Canada through a branch and then, effective Jan. 1, 2013, it was domesticated into Toronto-based Arch Insurance Canada Ltd., which also has a Vancouver office.

In the Lloyd’s market, Arch Capital operates Syndicate 2012.

Arch’s business is conducted from several offices in the United States as well as from Dublin, Zurich, London, Syndey, Australia and Johanessburg, South Africa, among others.

Company-wide, of Arch Capital’s net premiums written in Q2 2016, $291.3 million was in reinsurance, $527.65 million was in insurance (up 3.5% from $509.8 million in Q2 2015) and $66.5 million was in the mortgage segment, which includes a company approved by the U.S. government sponsored enterprises Fannie Mae and Freddie Mac.

Arch Capital’s primary insurance coverages include surety, primary and excess casualty coverages to middle and large accounts in the construction industry, excess and surplus casualty, professional lines (including directors’ and officers’ liability, errors and omissions liability, employment practices liability, fiduciary liability, crime and professional indemnity), marine, commercial auto, aviation and terrorism, among others.

In insurance, Arch Capital reported a combined ratio of 99.4% in the latest quarter, up 4 points from 95.4% in Q2 2015. The loss ratio deteriorated 4.3 points, from 62.9% in Q2 2015 to 67.2% in the latest quarter.

Net premiums written, in insurance, were up 1.2%, from $509.1 million in Q2 2015 to $515.2 million in Q2 2016.

“The increase in net premiums written reflected growth in travel, construction and national accounts, partially offset by a reduction in programs and property lines,” Arch Capital stated. “The growth in travel reflected both new business and continued expansion in existing accounts. The increase in construction and national accounts primarily reflected new business and audit premiums.”

Company wide, net income was up 42% year-to-year. Arch Capital reported net income of $249.3 million on revenues of $1.191 billion in the latest quarter, compared to net income of $175.6 million on revenues of $1.02 billion in the same period of 2015.

Arch Capital reported net realized gains of $68.2 million in Q2 2016, compared to net realized losses of $35.725 million in the same three months of last year.

Q2 net investment income was up 1.5%, from $86.96 million in 2015 to $88.3 million this year.

For the first half of the year, net premiums earned increased nearly 6%, from $1.85 billion in Q2 2015 to $1.96 billion this year. Arch Capital reported net income of $425 million on revenues of $2.28 billion in the six months ending June 30, 2016, compared to net income of $434.6 million on revenues of $2.1 billion during the first half of 2015.

Since Jan. 1, Arch Capital’s president and chief operating officer has been Marc Grandisson, who joined the firm in 2001. Arch Capital’s chairman and CEO is Dinos Iordanou.