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Arch’s underwriting income improves on reinsurance and mortgage business

30th July 2019 - Author: Luke Gallin

Insurer and reinsurer Arch Capital Group Ltd. has reported a 2.3% improvement in its combined ratio to 80.4% for the second-quarter of 2019, underpinned by a 24.5% improvement in underwriting income driven by its reinsurance and mortgage segments.

Arch Capital logoOverall, underwriting income reached $293 million in the second-quarter of 2019, compared with $235 million a year earlier. Gross written premiums (GPW) for the quarter increased by more than 14% to $1.9 billion, while net premiums written and net premiums earned increased to $1.4 billion and $1.5 billion, respectively, when compared with Q2 2018.

Arch Capital’s net income for the second-quarter of 2019 increased to $459 million compared with $233 million a year earlier, while the firm also recorded net realized gains of $125 million in Q2 2019, compared with net realized losses of $61 million in Q2 2018. For H1 2019, Arch’s net income increased to $897 million, compared with $371 million in H1 2018.

For Q2 2019, Arch Capital’s loss ratio improved slightly to 52.4% and its underwriting expense ratio improved from 28.4% to 28%, all of which resulted in a Q2 2019 combined ratio of 80.4%, compared with 82.7% in Q2 2018.

For the first-half of the year it’s a similar story, with GPW, net premiums written and net premiums earned all increasing year-on-year. Underwriting income improved to $297 million for the six-month period, supported by an improved loss ratio of 50% and an underwriting expense ratio of 27.8%, all of which contributed to a combined ratio of 77.8% for the period, compared with 80% a year earlier.

Looking at the insurer and reinsurer’s Q2 performance by segment, and it’s clear that a strong result in both reinsurance and mortgage offset a decline in the insurance segment for Arch in 2019.

The insurance segment recorded almost 20% growth in GPW, although the segment’s underwriting income declined by almost 53% to $2.6 million. A slight increase in the loss ratio and underwriting expense ratio contributed to a segment combined ratio of 99.6%, compared with 99% a year earlier.

Somewhat offsetting the decline in insurance, and Arch’s reinsurance segment recorded underwriting income of $36.7 million, which is up by more than 50% on the same period in 2018. GPW increased by more than 11% to $545 million. The reinsurance segment also recorded other underwriting income of more than $1.2 million, compared with a small loss in the prior year Q2.

“The increase in gross premiums written is primarily a result of growth in property business, with a significant amount being retroceded. The increase in net premiums written in the 2019 second quarter primarily reflected growth from select new business opportunities across most lines of business,” explains Arch.

In the reinsurance segment, the loss ratio improved to 65.6% and the underwriting expense ratio improved to 24.7%, and the unit recorded a combined ratio of 90.3%, compared with 92.8% a year earlier.

Arch’s mortgage segment also performed well in Q2, posting 10% GPW growth to $364 million and a 26% jump in underwriting income to $258 million. The loss ratio remained flat at 7.4% while the underwriting expense ratio improved to 20.6%, and the combined ratio strengthened to 28% from 30.2% in Q2 2018.

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