Bermuda-based insurer and reinsurer, Arch Capital Group Ltd., has announced estimated pre-tax losses of up to $95 million across its property casualty insurance and reinsurance segments, and losses of up to $50 million in its mortgage segment, as a result of the impacts of the COVID-19 pandemic.
Arch has underlined the unprecedented social disruption, global economic volatility, and reduced liquidity of capital markets that is being driven by the COVID-19 outbreak.
Across its property casualty re/insurance segments, Arch has established a range of pre-tax losses of $85 million to $95 million for claims incurred due to the pandemic as of March 31st, 2020, net of reinsurance recoveries and reinstatement premiums.
At the same time, the re/insurer has established a range of pre-tax net losses from $40 million to $50 million for its entire mortgage segment as a result of the financial stress driven by the coronavirus outbreak.
Arch explains that within its mortgage division, incurred losses are mostly a result of its loss reserve selections being set at the higher end of the range. Pursuant to GAAP, Arch’s estimates are based only on reported delinquencies as of March 31st, 2020 for the company’s U.S. primary mortgage insurance business. Arch adds that it is unaware of any reported delinquencies being directly the result of recent events as at the end of Q1 2020.
“At this time, there are significant uncertainties surrounding the ultimate number of claims and scope of damage resulting from this pandemic,” explains the firm.
The estimates provided across its insurance, reinsurance, and mortgage segments are based on currently available information derived from modelling, preliminary claims information, a review of relevant in-force contracts with potential exposure to the pandemic, and estimates of reinsurance recoverables.
“These estimates include losses only related to claims incurred as of March 31, 2020. Actual losses from these events may vary materially from the estimates due to several factors, including the inherent uncertainties in making such determinations and the evolving nature of this pandemic,” continues Arch.
The company adds that these loss estimates do not include the impact of the pandemic on the operating results of Watford Holdings Ltd.
As well as being exposed through their underwriting, global insurers and reinsurers are also facing challenges on the investment side of the balance sheet, following financial market volatility and stressed equity markets.
Arch highlights these challenges, and says that it expects to record net investment income of $110 million to $115 million for the first-quarter of the year. Additionally, Arch expects the total return on its core investment portfolio, excluding Watford, to be in the range of -0.65% to -0.95%.