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Arch’s underwriting performance improves across its operations in Q2

29th July 2021 - Author: Luke Gallin

Bermuda domiciled insurer and reinsurer, Arch Capital Group Ltd., has reported a return to underwriting profit for the second-quarter of 2021, driven by improved performances in its insurance, reinsurance, and mortgage segments.

ArchAcross its operations, underwriting income reached $386.5 million for the second quarter of 2021, compared with a loss of $22.5 million for the same period in the prior year.

Gross premiums written (GPW) increased by an impressive 42%, year-on-year, to $3.3 billion. At the same time, net premiums written (NPW) increased by 44% to $2.4 billion and net premiums earned (NPE) by more than 27% to $2.1 billion.

The better underwriting result is supported by a substantially lower loss ratio of 54.7% and a slightly higher expense ratio of 27.3%, leading to a combined ratio for the second quarter of 82%, which marks a 19.8 percentage points improvement from the 101.8% combined ratio achieved in Q2 2020.

Pre-tax current accident year catastrophe losses for Arch’s insurance and reinsurance segments combined, net of reinsurance and reinstatement premiums, amounted to $46.5 million in the period, and includes $0.9 million of losses related to the COVID-19 pandemic.

RMS

All in all, Arch has reported net income of $663.8 million for the second quarter of 2021, compared with $288 million a year earlier.

During Q2, Arch bolstered its underwriting performance across its operations and by quite some margin.

Starting with reinsurance, and the company has recorded a Q2 underwriting gain of $95.9 million, which is up by almost 390% on the same period last year.

GPW in reinsurance jumped by over 68% to $1.4 billion, while NPW improved by more than 63% to $924.7 million, and NPE by almost 54% to $737 million. Other underwriting income for the period totalled just over $1 million, against a loss the previous year.

The reinsurance segment’s combined ratio for Q2 sits at 87.1%, so a 19.7 percentage point improvement from the prior year, comprised of a 62.9% loss ratio and a 24.2% underwriting expense ratio.

In its insurance division, Arch’s underwriting performance improved from a loss of more than $56 million in Q2 2020 to a gain of more than $49 million in Q2 2021. Here, GPW increased by just under 33% to $1.4 billion, while NPW jumped by over 43% to $963.5 million, and NPE increased by roughly 26% to $865 million.

The insurance segment’s combined ratio improved by 14 percentage points, year-on-year, to 94.3%, and is comprised of a 63.1% loss ratio and a 31.2% underwriting expense ratio.

For Arch, the highest underwriting income of the quarter can be seen in its mortgage segment, which improved its result by a massive 227% to a gain of $250 million, against a gain of $76 million a year earlier.

Within its mortgage operation, GPW increased by more than 6% to $391.5 million, as NPW spiked by 3.3% to $335.8 million, and NPE fell by almost 9% to $334 million.

The mortgage segment’s combined ratio for Q2 2021 is 26.5%, which represents a 54.4 percentage point improvement on last year’s Q2, and which consists of a 3% loss ratio and a 23.5% underwriting expense ratio.

On the asset side of the balance sheet, Arch has reported pre-tax net investment income for the second quarter of 2021 of $89.4 million, compared with $101 million for the same period in 2020.

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