Arch Capital profit jumps as reinsurance premiums surge

Arch Capital’s second quarter net income surged almost 68% to $661 million as a 75% increase in reinsurance underwriting income buoyed the company. 

Arch’s earnings per share were $1.75, beating average analysts’ estimates of $1.58. Arch shares rose in after hours trading to$82.95.

Net income rose 67.7% from $394 million in the second quarter of 2022 to $661 million, the company said.

Bermuda-based Arch said gross written premiums for the group rose 25.2% to $4.85 billion while underwriting income rose 13.1% to $606 million. Arch’s combined ratio edged up to 79.8% from 77.1.%.

Loss and loss expenses rose to $1.5 billion from $1.1 billion while net investment income rose to 242 million from $106 million in the year-earlier period.

Aside from improvements in  investment income, the company’s reinsurance segment was the main driver for the rise in earnings.

Gross written premiums for reinsurance rose 41.9% from $1.8 billion to $2.5 billion while underwriting income soared 75% from $140 million to $245 million. The segment’s loss ratio edged down from 57.9% to 55.3% and the combined ratio fell from 85.4% to 81.9%.

“Growth in net premiums written primarily reflected increases in property catastrophe, property excluding property catastrophe and other specialty lines, due in part to rate increases, new business opportunities and growth in existing accounts,” Arch said. “In addition, the 2023 second quarter net premiums written reflected a lower level of retrocession activity than in the 2022 second quarter.”

The improvement in reinsurance performance was helped by an improvement in underwriting income in the insurance segment, as underwriting income rose 11.3% to $108 million after gross written premiums rose 14.7% to $1.95 billion.

The loss ratio edged up to 57.3% from 57.1$% and the combined ratio rose to 91.9% from 91.1%. Arch also ceded less insurance than in previous years.

Arch’s mortgage segment, in which it is a market leader, weakened.

Underwriting income dropped 15.4% to $253 million as gross written premiums fell 6.7% to $347 million.

Arch said: “The reduction in gross premiums written primarily reflected lower originations in the Australian market and a decrease in US primary mortgage insurance business, which was partially offset by a higher volume of credit risk transfer transactions.

“The 2023 second quarter loss ratio also reflected a higher level of new delinquencies than in the 2022 second quarter.”

Nonetheless, Arch showed an impressive combined ratio of 15% for the quarter, boosted by favourable developments in prior year reserve losses.