Bermuda-based re/insurer Arch Capital Group Ltd. has reported a Q4 2023 combined ratio of 78.9% compared with 73.5% a year earlier as catastrophe losses increased, although underwriting income in both its insurance and reinsurance segments strengthened year-on-year.
Group wide, net income available to common shareholders hit $2.3 billion in Q4 2023, representing a 58.2% annualized net income return on average common equity, compared to net income of $849 million in Q4 2022.
After-tax operating income rose to $945 million from $806 million in the prior year quarter.
The company states that its fourth quarter results were impacted by the establishment of a net deferred tax asset of $1.18 billion, related to the enactment of Bermuda’s new corporate income tax.
Additionally, there was favourable development in prior year loss reserves, net of related adjustments, of $135 million. Pre-tax current accident year catastrophe losses across its insurance and reinsurance segments, net of reinsurance and reinstatement premiums, totalled $137 million.
In terms of growth, Arch has reported gross premiums written (GPW) of $4.3 billion and net premiums written (NPW) of $3.3 billion, respectively, up 12% and 7.4%, respectively, on the prior year quarter.
Underwriting income across the group fell by 2.6% to $715 million, as the combined ratio rose from 73.5% to 78.9%, driven by a higher loss ratio and slightly higher expense ratio in Q4 2023 when compared with the prior year quarter.
Marc Grandisson, Chief Executive Officer of Arch, commented: “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.”
The company’s reinsurance segment reported GPW in Q4 2023 of almost $2 billion, up 9.7% on Q4 2022, as NPW grew 0.9% year-on-year to $1.6 billion.
Arch says that the growth in NPW primarily reflects increases in property excluding property catastrophe and other specialty lines, due in part to rate increases, new business opportunities and growth in existing accounts.
Net premiums earned in Q4 2023 were 32.2% higher at $3.2 billion, reflecting changes in net premiums written over the previous five quarters.
Underwriting income within the reinsurance division rose 25.5% to $330 million in Q4 2023, and this is in spite of an elevated catastrophe experience, which added 5.4 points to the loss ratio, somewhat offset by net favorable development of prior year loss reserves.
The reinsurance segment’s combined ratio hit 80% in Q4 2023 compared with 78.4% in Q4 2022.
In Arch’s insurance segment, GPW in Q4 2023 comes in 17.6% higher than in Q4 2022 at $1.9 billion. NPW grew 19.1% year-on-year to $1.5 billion, as net earned premiums grew 16.5% to $1.5 billion.
According to Arch, the growth in NPW reflected the insurance segment retaining a higher portion of business written in Q4 2023 year over year.
Underwriting profit in the insurance unit increased by 1% year-on-year to $99 million, as the combined ratio rose from 92.1% in Q4 2022 to 93.1% in Q4 2023. Similar to the reinsurance segment, the insurance business experienced more cat losses in Q4 2023 than in the prior year quarter, although this was somewhat offset by net favourable development of prior year loss reserves.
In Arch’s mortgage business, GPW and NPW actually fell year-on-year as underwriting income declined 23.3% to $286 million. Arch explains that the reduction in NPW in Q4 2023 primarily reflected a higher level of premiums ceded.
At the same time, the segment benefiting from net favorable development of prior year loss reserves, before related adjustments, which decreased the loss ratio by 36.6 points, while the underwriting expense ratio came down due to higher level of ceding and profit commissions on ceded U.S. primary business.
