Reinsurance hard market drives Arch Capital to $713m profit

Arch Capital Holdings rode the harm market in reinsurance and improvements in investment income to record a massive increase in third quarter net income, the company said yesterday.

Bermuda-based Arch reported net income of $713 million in the three months ending on September 30 compared to $7 million in the same period in 2022.

Gross written premiums rose 17% to $4.53 billion compared to $3.87 billion a year earlier. Much of that increase was due to a 30% increase in reinsurance premiums, which soared to $2.14 billion from $1.64 billion in 2022.

Overall underwriting income was $721 million compared to $68 million.

Investment income also more than doubled to $269 million from $129 million in 2022, this was offset by a rise in net realised gains of $248 million compared to $184 million in the same period a year earlier.

“Excellent underwriting performance from all three of our segments, along with improved investment returns, helped us achieve an impressive 24.8% operating return on equity in the third quarter,” said Marc Grandisson, chief executive officer of Arch.

“Growth in net premiums written across our insurance and reinsurance segments was especially strong as hard market rates and rising inflation drove client demand for many of our property and casualty products, resulting in an overall 26% year-over-year increase across both segments.”

Arch said it recorded catastrophe losses of $180 million and reported favourable development in prior year loss reserves of $152 million.

The company recorded a combined ratio of 77.9%, compared to 97.3% for the 2022 third quarter.

Book value per common share rose 4.3% to $38.62 at September 30, 2023.

By segment, reinsurance reported a $310 million profit compared to a $197 million loss in 2022, while the combined ratio was 80% compared to 119.7% in 2022.

Insurance gross premiums written were up 9.7% to $2.04 billion compared to $1.86 billion, leading to a $129 million profit and a 90.9% combined ratio. Arch also retained more premium in the period.

The company’s mortgage insurance segment produced $347 million in gross written premium, down from $362 million the previous year, and net income fell to $282 million from $299 million. The combined ratio was 4.7% compared to -5.2% in 2022.

Arch said the fall in premium was largely due to lower levels of business origination in the Australian market, offset by rises in credit risk transfer and in the US mortgage market. Favourable development of prior year loss reserves improved the loss ratio by 31.4 points.