Arch issues Q4 2018 loss estimate

Arch Capital Group has estimated pre-tax losses of $110 million to $130 million related to 2018 fourth quarter catastrophic events.

The primary causes of these losses were Hurricane Michael and the California wildfires.

Arch’s estimates also incorporates and updates the $40 million to $60 million range previously disclosed by the company in its quarterly report for the 2018 third quarter. The previous range reflected only Hurricane Michael, whereas this current range also reflects the California wildfires and other catastrophic events from around the globe, the company said.

The company noted that the actual losses may vary materially from the estimates as there are significant uncertainties surrounding the number of claims and scope of damage for these events.

It added that the estimate for these events is based on currently available information derived from modelling techniques, industry assessment of exposure, preliminary claims information obtained from the company’s clients and brokers to date and a review of in-force contracts.

Additionally, the company estimates that the effective tax rate on pre-tax operating income for the fourth quarter of 2018 will be in a range of 12 to 15 percent.

This estimate is based on both statutory income tax rates applied to underwriting income, expenses and investment returns by jurisdiction, as well as an amalgam of discrete items. The effective tax rate for the 2018 fourth quarter reflects a higher proportion of US-based operating income.

Arch added that the losses related to the 2018 fourth quarter catastrophic occurrences emanated mostly from its non-US underwriting operations. This tax rate range is subject to change as analyses of group-wide loss reserves and investment returns, among other areas, are finalised.