Arch Capital Group has released an estimated $60 to $75 million impact from the California wildfires and other catastrophes to Q4 results and an additional estimated $15 to $20 million charge on net deferred tax assets related to the impact of lower U.S. corporate tax rates beginning in 2018.
The estimated losses from natural catastrophes includes and updates the $30 – $55 million in that Arch had disclosed in its Q3 report.
Arch said the Q3 estimates reflected the first series of California wildfires only, whereas “this current range reflects the Tubbs Fire, the second series of California wildfires (also referred to as the Thomas Fire) and other catastrophic events from around the globe.
“At this time, there are significant uncertainties surrounding the number of claims and scope of damage for both the Tubbs and Thomas Fires, as well as the other global events.”
Arch estimates that as a result of the reduction in U.S. corporate tax rate from 35% to 21% it will write down a portion of its deferred tax asset by approximately $15 million to $20 million in the 2017 fourth quarter.
The charge will be excluded from after-tax operating income available to Arch common shareholders, a non-GAAP financial measure, as it is not reflective of operations.
Additionally, the company estimates that the effective tax rate on pre-tax operating income for the fourth quarter of 2017 will be in a range of 17% to 20%.
As part of its ongoing capital management strategies, Arch said it entered into intercompany loss portfolio transfers (LPTs) effective on December 31, 2017 and transferred about $1.35 billion of net retained reserves for losses and allocated loss adjustment expenses between its subsidiaries.
Since these transactions involve two related parties, in accordance with GAAP, they eliminate in consolidation.
The Company’s estimate for these events is based on currently available information derived from modeling 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.
