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Arch reports higher Q1 underwriting gain despite reinsurance segment loss

28th April 2021 - Author: Luke Gallin

Bermuda-based insurer and reinsurer, Arch Capital Group Ltd., has reported net income of $427.8 million for the first-quarter of 2021, as underwriting gains in both its Insurance and Mortgage segments more than offset a loss in the firm’s Reinsurance operation during the period.

ArchYear-on-year, net income increased by approximately $294 million for Arch in Q1 2021, aided by net realised gains of $105.5 million against net realised losses of $109 million in Q1 2020.

For the Group, gross premiums written (GPW) jumped by almost 20% to roughly $3.4 billion, as net premiums written (NPW) increased by 17.4% to $2.5 billion, and net premiums earned (NPE) by 11.7% to $1.95 billion, when compared with the prior year period.

Underwriting income also improved in Q1 2021 when compared with the prior year quarter, rising from $154 million to $186 million.

Additionally, favourable development of prior year loss reserves, net of related adjustments, amounted to $41.7 million for the quarter.

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The loss ratio improved slightly to 61.7% as the underwriting expense ratio increased to 29%, resulting in a Group combined ratio of 90.7% for Q1 2021, compared with 91.5% for Q1 2020.

Arch’s Insurance and Reinsurance segments have reported pre-tax current accident year catastrophe losses, net of reinsurance and reinstatement premiums, of $188.3 million, which includes $0.6 million of losses related to the COVID-19 pandemic.

For the Insurance business, Arch has announced GPW growth of more than 17% to $1.4 billion, NPW growth of 20% to $994 million, and NPE growth of 14.5% to $819 million.

“The higher level of net premiums written reflected increases across most lines of business, due in part to rate increases, new business opportunities and growth in existing accounts, partially offset by a decrease in travel business, reflecting the ongoing impact of the COVID-19 global pandemic,” explains Arch.

The segment’s underwriting performance improved significantly year-on-year, from a loss of $28 million in Q1 2020 to a gain of $18.4 million in Q1 2021. An improved loss ratio of 65.4% and an expense ratio of 32.3%, resulted in an Insurance segment combined ratio of 97.7% for Q1 2021, compared with 103.9% a year earlier.

While the Insurance segment produced a turnaround in Q1 2021, Arch’s Reinsurance business unit saw its underwriting performance deteriorate year-on-year.

Within Reinsurance, GPW increased by 31% to $1.5 billion, NPW by 25.3% to $999 million, and NPE by 18.7% to $645 million.

“The growth in net premiums written reflected increases in most lines of business, mainly due to rate increases and new business,” says Arch.

However, the segment has reported an underwriting loss of $19.7 million for the first-quarter of 2021 against an underwriting loss of $9.4 million a year earlier. A loss ratio of 75.2% and an expense ratio of 27.7% saw the unit record a combined ratio of 102.9%, compared with 102% a year earlier.

Offsetting the decline in Reinsurance was the company’s Mortgage operation in Q1 2021. Here, GPW spiked by 6% to $391 million, NPW increased by 3.3% to $335 million, while NPE actually fell by 2.5%, year-on-year, to $336 million.

At the same time, the segment’s underwriting result improved by 1.4% to a gain of $200.3 million. The loss ratio improved to 18.9% while the expense ratio came in lower at 23.5%, resulting in a Mortgage combined ratio of 42.4% for Q1 2021, compared with 44.1% a year earlier.

Alongside an improved underwriting performance across the Group, the company’s Q1 2021 result also benefited from a one-off gain of $74.5 million related to the purchase of a 29.5% stake in Coface.

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