Bermuda tax change gives Arch one-time boost
Arch Capital Group’s fourth quarter net income almost tripled as the Bermuda-based re/insurer benefited from a one-time tax benefit and strong underwriting results.
Arch earned $2.3 billion compared to $849 million in the same period in 2022.
The performance was boosted by a $1.18 billion net deferred tax asset related to the enactment of Bermuda’s new corporate income tax.
After-tax operating income, which excluded the deferred tax asset, was $945 million, up 17.2% from $806 million in 2022.
Marc Grandisson (pictured), chief executive officer of Arch, said: “We finished 2023 on an excellent note, closing the books with a stellar 21.6% operating return on equity for the year and growing our book value per share by 43.9%.
“We are bullish about our prospects for 2024 as our underwriters continue to lean into the excellent conditions prevalent in most of the markets where we operate.”
Gross written premiums rose to $4.25 billion, up from $3.8 billion in 2022, while loss and loss expenses rose to $1.64 billion from $1.24 billion. Underwriting income fell to $734 million from $849 million while the company’s combined ratio increased to 78.9% from 73.5%.
Investment income rose to $313 million from $181 million.
The company said pre-tax current accident year catastrophic losses for the Company’s insurance and reinsurance segments, net of reinsurance and reinstatement premiums(1), of $137 million.
The company also reported favourable development in prior year loss reserves, net of related adjustments, of $135 million.
Combined ratio excluding catastrophic activity and prior year development of 78.9%, compared to 82.0% for the 2022 fourth quarter.
The company’s insurance segment saw net income edge up to $99 million from $98 million while gross written premiums rose 17.6% rose to $1.9 billion from $1.6 billion.
The reinsurance segment recorded a 25.5% increase in underwriting income to $330 million while gross written premiums rose 9.7% to $1.97 billion.
In the mortgage segment, underwriting income fell 23.3% to $286 million while gross written premiums dropped 1.7% to $350 million.
Arch said net premiums written were 7.3% lower, adding: “The reduction in net premiums written in the 2023 fourth quarter primarily reflected a higher level of premiums ceded, with $17 million of one-time payments related to the termination of eight Bellemeade agreements.
“Net premiums earned in the 2023 fourth quarter were 5.8% lower than in the 2022 fourth quarter, primarily due to termination of the Bellemeade agreements.
In November, Arch announced it had cancelled a number of its Bellemeade Re mortgage insurance-linked securities arrangements with their notes set to be redeemed later this year, as the re/insurer said that rating changes enacted by S&P havdsubstantially reduced the capital relief the ILS deals supplied.
