The reinsurance segment of Arch Capital saw its underwriting income fall 807% to a $38,948 million loss in the third quarter.
The segment’s combined ratio also rose to 106.2% from 99.0%, reflecting 34.6 points of current year catastrophic activity, primarily related to Hurricane Ida, European floods.
Estimated net favourable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 10.7 points in the quarter, compared to 7.6 points the previous year.
Gross reinsurance premiums written were 24.6% higher than the prior year quarter, while net premiums written rose 2.8%.
This lower level of growth in net premiums written compared to gross premiums written primarily reflects a higher level of premiums ceded due to a one-time $161.2 million adjustment, resulting from retrocessions to Watford following its ownership change.
For the broader Arch group, underwriting income fell 80% and hit a $173,745 million loss. Despite this, the firm managed to drop its combined ratio by 3.5 percentage points to 91.4%.
Elsewhere, Arch Capital announced a third quarter net income available to common shareholders of $388.8 million, down slightly from the $408.6 million hit in the prior year quarter.
This net income figure has been bolstered considerably by the performance of Arch’s mortgage segment, which registered an underwriting income of $234,051 million representing a 79% increase from 2020.
This performance can be partly attributed to a 40% drop in the segment’s loss ratio, reflecting the impact of lower new delinquencies and favourable cure activity.
After-tax operating income available to Arch common shareholders was $294.7 million, up considerably from the $120.3 million hit during 2020’s third quarter.
Meanwhile, pre-tax current accident year catastrophic losses for the company’s insurance and reinsurance segments, net of reinsurance and reinstatement premiums, was $335.9 million and primarily driven by Hurricane Ida, European floods and other global events.
Favourable development in prior year loss reserves, net of related adjustments, stood at $118.3 million.
The company says the closing of the Watford transaction resulted in a one-time net income gain of $62.5 million, as well as an additional $161.2 million in ceded premiums written in the quarter for the reinsurance segment due to retrocessions to Watford, with no corresponding impact to underwriting income.