Le Lézard
Classified in: Business, Covid-19 virus
Subjects: EARNINGS, Conference Call, Webcast

Arch Capital Group Ltd. Reports 2022 Third Quarter Results


Arch Capital Group Ltd. (NASDAQ: ACGL; "Arch" or "the Company") announces its 2022 third quarter results. The results included:

All earnings per share amounts discussed in this release are on a diluted basis. The following table summarizes the Company's underwriting results:

(U.S. dollars in thousands)

 

Three Months Ended September 30,

 

 

2022

 

2021

 

% Change

Gross premiums written

 

$

3,860,683

 

 

$

3,207,415

 

 

20.4

 

Net premiums written

 

 

2,723,774

 

 

 

2,075,929

 

 

31.2

 

Net premiums earned

 

 

2,470,750

 

 

 

1,929,337

 

 

28.1

 

Underwriting income

 

 

68,797

 

 

 

173,745

 

 

(60.4

)

Underwriting Ratios

 

 

 

 

 

% Point

Change

Loss ratio

 

 

68.1

%

 

 

63.5

%

 

4.6

 

Underwriting expense ratio

 

 

29.2

%

 

 

27.9

%

 

1.3

 

Combined ratio

 

 

97.3

%

 

 

91.4

%

 

5.9

 

 

 

 

 

 

 

 

Combined ratio excluding catastrophic activity and prior year development (1)

 

 

82.2

%

 

 

80.1

%

 

2.1

 

(1)

Presentation represents a "non-GAAP" financial measure as defined in Regulation G. See ?Comments on Regulation G' for further details.

The following table summarizes the Company's consolidated financial data, including a reconciliation of net income or loss available to Arch common shareholders to after-tax operating income or loss available to Arch common shareholders and related diluted per share results (see ?Comments on Regulation G' for a discussion of non-GAAP financial measures):

(U.S. dollars in thousands, except share data)

Three Months Ended

 

September 30,

 

2022

 

2021

Net income available to Arch common shareholders

$

6,917

 

 

$

388,751

 

Net realized (gains) losses

 

183,674

 

 

 

25,040

 

Equity in net (income) loss of investment funds accounted for using the equity method

 

18,861

 

 

 

(105,398

)

Net foreign exchange (gains) losses

 

(90,537

)

 

 

(36,078

)

Transaction costs and other

 

76

 

 

 

1,036

 

Loss on redemption of preferred shares

 

?

 

 

 

15,101

 

Income tax expense (benefit) (1)

 

(13,019

)

 

 

6,236

 

After-tax operating income available to Arch common shareholders

$

105,972

 

 

$

294,688

 

 

 

 

 

Diluted per common share results:

 

 

 

Net income available to Arch common shareholders

$

0.02

 

 

$

0.98

 

Net realized (gains) losses

 

0.48

 

 

 

0.05

 

Equity in net (income) loss of investment funds accounted for using the equity method

 

0.05

 

 

 

(0.26

)

Net foreign exchange (gains) losses

 

(0.24

)

 

 

(0.09

)

Transaction costs and other

 

0.00

 

 

 

0.00

 

Loss on redemption of preferred shares

 

?

 

 

 

0.04

 

Income tax expense (benefit) (1)

 

(0.03

)

 

 

0.02

 

After-tax operating income available to Arch common shareholders

$

0.28

 

 

$

0.74

 

 

 

 

 

Weighted average common shares and common share equivalents outstanding ? diluted

 

373,727,277

 

 

 

397,903,347

 

 

 

 

 

Beginning common shareholders' equity

$

11,587,566

 

 

$

12,706,072

 

Ending common shareholders' equity

 

10,965,110

 

 

 

12,557,526

 

Average common shareholders' equity

$

11,276,338

 

 

$

12,631,799

 

 

 

 

 

Annualized net income return on average common equity

 

0.2

%

 

 

12.3

%

Annualized operating return on average common equity

 

3.8

%

 

 

9.3

%

(1)

Income tax expense (benefit) on net realized gains or losses, equity in net income (loss) of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and loss on redemption of preferred shares reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.

Segment Information

The following section provides analysis on the Company's 2022 third quarter performance by operating segment. For additional details regarding the Company's operating segments, please refer to the Company's Financial Supplement dated September 30, 2022. The Company's segment information includes the use of underwriting income (loss) and a combined ratio excluding catastrophic activity and prior year development. Such items are non-GAAP financial measures (see ?Comments on Regulation G' for further details).

Insurance Segment

 

 

Three Months Ended September 30,

(U.S. dollars in thousands)

2022

 

2021

 

% Change

 

 

 

 

 

 

Gross premiums written

$

1,862,026

 

 

$

1,596,619

 

 

16.6

 

Net premiums written

 

1,368,759

 

 

 

1,153,813

 

 

18.6

 

Net premiums earned

 

1,186,908

 

 

 

938,670

 

 

26.4

 

 

 

 

 

 

 

Underwriting income (loss)

$

(33,723

)

 

$

(21,358

)

 

(57.9

)

 

 

 

 

 

 

Underwriting Ratios

 

 

 

 

% Point

Change

Loss ratio

 

69.3

%

 

 

71.2

%

 

(1.9

)

Underwriting expense ratio

 

33.5

%

 

 

31.0

%

 

2.5

 

Combined ratio

 

102.8

%

 

 

102.2

%

 

0.6

 

 

 

 

 

 

 

Catastrophic activity and prior year development:

 

 

 

 

 

Current accident year catastrophic events, net of reinsurance and reinstatement premiums

 

13.4

%

 

 

12.2

%

 

1.2

 

Net (favorable) adverse development in prior year loss reserves, net of related adjustments

 

(0.1

)%

 

 

(0.5

)%

 

0.4

 

Combined ratio excluding catastrophic activity and prior year development

 

89.5

%

 

 

90.5

%

 

(1.0

)

Gross premiums written by the insurance segment in the 2022 third quarter were 16.6% higher than in the 2021 third quarter while net premiums written were 18.6% higher than in the 2021 third quarter. The higher level of net premiums written reflected increases in most lines of business, due in part to rate increases, new business opportunities and growth in existing accounts. Net premiums earned in the 2022 third quarter were 26.4% higher than in the 2021 third quarter, and reflect changes in net premiums written over the previous five quarters.

The 2022 third quarter loss ratio reflected 13.4 points of current year catastrophic activity, primarily related to Hurricane Ian, compared to 12.2 points of catastrophic activity in the 2021 third quarter, primarily related to Hurricane Ida. Estimated net favorable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 0.5 points in the 2022 third quarter consistent with 0.5 in the 2021 third quarter. The improvement in the 2022 third quarter loss ratio also reflected the impact of rate increases and changes in mix of business.

The underwriting expense ratio was 33.5% in the 2022 third quarter, compared to 31.0% in the 2021 third quarter. The increase in the 2022 third quarter was primarily due to growth in lines with higher acquisition costs, such as travel, higher contingent commission accruals on profitable business and a slightly lower ceded premium ratio. Partially offsetting this increase in the acquisition expense ratio was a reduction in the operating expense ratio where the growth in net earned premium outpaced the growth in operating expense.

Reinsurance Segment

 

 

Three Months Ended September 30,

(U.S. dollars in thousands)

2022

 

2021

 

% Change

 

 

 

 

 

 

Gross premiums written

$

1,639,061

 

 

$

1,251,760

 

 

30.9

 

Net premiums written

 

1,078,836

 

 

 

621,389

 

 

73.6

 

Net premiums earned

 

1,001,774

 

 

 

678,702

 

 

47.6

 

Other underwriting income (loss)

 

452

 

 

 

3,293

 

 

(86.3

)

 

 

 

 

 

 

Underwriting income (loss)

$

(196,887

)

 

$

(38,948

)

 

(405.5

)

 

 

 

 

 

 

Underwriting Ratios

 

 

 

 

% Point

Change

Loss ratio

 

92.6

%

 

 

80.4

%

 

12.2

 

Underwriting expense ratio

 

27.1

%

 

 

25.8

%

 

1.3

 

Combined ratio

 

119.7

%

 

 

106.2

%

 

13.5

 

 

 

 

 

 

 

Catastrophic activity and prior year development:

 

 

 

 

 

Current accident year catastrophic events, net of reinsurance and reinstatement premiums

 

39.1

%

 

 

32.6

%

 

6.5

 

Net (favorable) adverse development in prior year loss reserves, net of related adjustments

 

(4.9

)%

 

 

(9.6

)%

 

4.7

 

Combined ratio excluding catastrophic activity and prior year development

 

85.5

%

 

 

83.2

%

 

2.3

 

Gross premiums written by the reinsurance segment in the 2022 third quarter were 30.9% higher than in the 2021 third quarter, while net premiums written were 73.6% higher than in the 2021 third quarter. Net premiums written for the reinsurance segment in the 2021 third quarter were affected by a one time $161.2 million adjustment, resulting from retrocessions to Somers Re Ltd. (formerly known as Watford Re Ltd.) following its ownership change on July 1, 2021. Absent this item, net premiums written by the reinsurance segment were 37.9% higher than in the 2021 third quarter. The growth in net premiums written reflected increases in all lines of business, primarily related to rate increases, new business opportunities and growth in existing accounts. Net premiums earned in the 2022 third quarter were 47.6% higher than in the 2021 third quarter, and reflect changes in net premiums written over the previous five quarters.

The 2022 third quarter loss ratio reflected 42.8 points of current year catastrophic activity, related to Hurricane Ian and other global events, compared to 34.6 points of catastrophic activity in the 2021 third quarter, primarily related to Hurricane Ida and European floods. Estimated net favorable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 4.9 points in the 2022 third quarter, compared to 10.7 points in the 2021 third quarter. In addition, the improvement in the 2022 third quarter loss ratio reflected the impact of rate increases and changes in mix of business.

The underwriting expense ratio was 27.1% in the 2022 third quarter, compared to 25.8% in the 2021 third quarter (including 1.1 points related to prior year development). The increase in the 2022 third quarter reflected a higher level of pro rata business, which generally has higher ceding commissions than excess of loss business. Such increase in the acquisition expense ratio was partially offset by a lower operating expense ratio due to a higher level of earned premium.

Mortgage Segment

 

 

Three Months Ended September 30,

(U.S. dollars in thousands)

2022

 

2021

 

% Change

 

 

 

 

 

 

Gross premiums written

$

362,409

 

 

$

360,934

 

 

0.4

 

Net premiums written

 

276,179

 

 

 

300,727

 

 

(8.2

)

Net premiums earned

 

282,068

 

 

 

311,965

 

 

(9.6

)

Other underwriting income

 

2,625

 

 

 

3,981

 

 

(34.1

)

 

 

 

 

 

 

Underwriting income

$

299,407

 

 

$

234,051

 

 

27.9

 

 

 

 

 

 

 

Underwriting Ratios

 

 

 

 

% Point

Change

Loss ratio

 

(24.1

)%

 

 

3.7

%

 

(27.8

)

Underwriting expense ratio

 

18.9

%

 

 

22.5

%

 

(3.6

)

Combined ratio

 

(5.2

)%

 

 

26.2

%

 

(31.4

)

 

 

 

 

 

 

Prior year development:

 

 

 

 

 

Net (favorable) adverse development in prior year loss reserves, net of related adjustments

 

(45.1

)%

 

 

(15.5

)%

 

(29.6

)

Combined ratio excluding prior year development

 

39.9

%

 

 

41.7

%

 

(1.8

)

Gross premiums written by the mortgage segment in the 2022 third quarter were 0.4% higher than in the 2021 third quarter, while net premiums written were 8.2% lower. The increase in gross premiums written primarily reflected higher volume of credit risk transfer contracts and growth in Australian markets, partially offset by lower volumes of U.S. primary mortgage insurance single premium and monthly premium business. Net premiums written for the 2022 third quarter reflected a higher level of premiums ceded than in the 2021 third quarter, while the reduction in net premiums earned also reflected a reduction in earnings from single premium policy terminations and a lower level of monthly premiums.

Estimated net favorable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 44.7 points, primarily related to the U.S. first lien portfolio from the 2020 and 2021 accident years, compared to 14.5 points in the 2021 third quarter. The percentage of loans in default on U.S. primary mortgage insurance business was 1.73% at September 30, 2022, compared to 1.77% at June 30, 2022.

The underwriting expense ratio was 18.9% in the 2022 third quarter, compared to 22.5% in the 2021 third quarter, with the decrease reflecting lower acquisition expenses on Australian mortgage insurance following the acquisition of Westpac LMI in the 2021 third quarter and profit commissions on business ceded related to favorable development of prior year loss reserves in the U.S. These reductions were partially offset by a higher operating expense ratio due to a lower level of net premiums earned in the U.S. primary mortgage insurance business.

Corporate Segment

The corporate segment results include net investment income, net realized gains or losses (which includes changes in the allowance for credit losses on financial assets), equity in net income or loss of investment funds accounted for using the equity method, other income (loss), corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, net foreign exchange gains or losses, income taxes items, income or loss from operating affiliates and items related to the Company's non-cumulative preferred shares.

Investment returns were as follows:

(U.S. dollars in thousands, except per share data)

 

Three Months Ended

 

 

September 30,

 

June 30,

 

September 30,

 

 

2022

 

2022

 

2021

Pre-tax net investment income

 

$

128,640

 

 

$

106,392

 

 

$

88,195

 

Per diluted share

 

$

0.34

 

 

$

0.28

 

 

$

0.22

 

 

 

 

 

 

 

 

Pre-tax investment income yield, at amortized cost (1)

 

 

2.06

%

 

 

1.76

%

 

 

1.41

%

 

 

 

 

 

 

 

Total return on investments (2)

 

 

(3.01

)%

 

 

(3.02

)%

 

 

0.01

%

(1)

Presented on an annualized basis and excluding the impact of investments for which returns are not included within investment income, such as investments accounted for using the equity method and certain equities.

(2)

Presentation represents a "non-GAAP" financial measure as defined in Regulation G. See ?Comments on Regulation G' for further details.

The growth in net investment income in the 2022 third quarter compared to the 2022 second quarter and 2021 third quarter reflected the effects of higher interest rates available in the market. Total return on investments for the 2022 third quarter primarily reflected the impact of rising interest rates on fixed income securities and was consistent with total return for the 2022 second quarter.

Net realized gains or losses reflect sales of investments along with the impact of financial market movements on the Company's investment portfolio, including realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains and losses on derivative instruments and changes in the allowance for credit losses on financial assets. On a pre-tax basis, net realized losses for the 2022 third quarter were $183.7 million, of which approximately 40% represented unrealized changes in the fair value of equity securities and assets accounted for using the fair value option.

On a pre-tax basis, net foreign exchange gains for the 2022 third quarter were $90.5 million, compared to net foreign exchange gains for the 2021 third quarter of $36.1 million. For both periods, such amounts were primarily unrealized and resulted from the effects of revaluing the Company's net insurance liabilities required to be settled in foreign currencies at each balance sheet date. Changes in the value of available-for-sale investments held in foreign currencies due to foreign currency rate movements are reflected as a direct increase or decrease to shareholders' equity and are not included in the consolidated statements of income. Although the Company generally attempts to match the currency of its projected liabilities with investments in the same currencies, the Company may elect to over or underweight one or more currencies from time to time, which could increase the Company's exposure to foreign currency fluctuations and increase the volatility of the Company's shareholders' equity.

The Company's effective tax rate on income before income taxes (based on the Company's estimated annual effective tax rate) was 3.0% for the nine months ended September 30, 2022, compared to 5.8% for the 2021 period. The Company's effective tax rate on pre-tax operating income available to Arch common shareholders was 5.2% for the nine months ended September 30, 2022, compared to a 5.9% for the 2021 period. The Company's effective tax rate may fluctuate from period to period based upon the relative mix of income or loss reported by jurisdiction and the varying tax rates in each jurisdiction. The effective tax rates for the nine months ended September 30, 2022 and 2021 included discrete income tax benefits of $36.5 million and $28.7 million, respectively. The discrete income tax benefits had the effect of decreasing the nine months ended September 30, 2022 and 2021 effective tax rate on operating income available to Arch common shareholders by 3.3% and 2.8%, respectively. The discrete tax items in the 2022 and 2021 period primarily related to the release of a valuation allowance on U.K. deferred tax assets. The Company's quarterly tax provision is adjusted to reflect changes in its estimated annual effective tax rate, if any.

Income from operating affiliates for the 2022 third quarter was $8.5 million, or $0.02 per share, compared to $124.1 million, or $0.31 per share, for the 2021 third quarter, and primarily reflects amounts related to Company's investment in Somers Group Holdings Ltd. ("Somers") and Coface SA. Results for the 2021 third quarter reflected a one-time gain of $95.7 million recognized from the Company's previously disclosed acquisition of a 40% share of Somers.

Conference Call

The Company will hold a conference call for investors and analysts at 11:00 a.m. Eastern Time on October 27, 2022. A live webcast of this call will be available via the Investors section of the Company's website at http://www.archgroup.com/investors. A recording of the webcast will be available in the Investors section of the Company's website approximately two hours after the event concludes and will be archived on the site for one year.

Please refer to the Company's Financial Supplement dated September 30, 2022, which is available via the Investors section of the Company's website at http://www.archgroup.com/investors. The Financial Supplement provides additional detail regarding the financial performance of the Company. From time to time, the Company posts additional financial information and presentations to its website, including information with respect to its subsidiaries. Investors and other recipients of this information are encouraged to check the Company's website regularly for additional information regarding the Company.

Arch Capital Group Ltd., a publicly listed Bermuda exempted company with approximately $14.5 billion in capital at September 30, 2022, provides insurance, reinsurance and mortgage insurance on a worldwide basis through its wholly owned subsidiaries.

Comments on Regulation G

Throughout this release, the Company presents its operations in the way it believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use the Company's financial information in evaluating the performance of the Company and that investors and such other persons benefit from having a consistent basis for comparison between quarters and for comparison with other companies within the industry. These measures may not, however, be comparable to similarly titled measures used by companies outside of the insurance industry. Investors are cautioned not to place undue reliance on these non-GAAP financial measures in assessing the Company's overall financial performance.

This presentation includes the use of "after-tax operating income or loss available to Arch common shareholders," which is defined as net income available to Arch common shareholders, excluding net realized gains or losses (which includes changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings), equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and loss on redemption of preferred shares, net of income taxes, and the use of annualized operating return on average common equity. The presentation of after-tax operating income available to Arch common shareholders and annualized operating return on average common equity are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to net income available to Arch common shareholders and annualized net income return on average common equity (the most directly comparable GAAP financial measures) in accordance with Regulation G is included on page 2 of this release.

The Company believes that net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and loss on redemption of preferred shares in any particular period are not indicative of the performance of, or trends in, the Company's business performance. Although net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of the Company's operations, the decision to realize investment gains or losses, the recognition of the change in the carrying value of investments accounted for using the fair value option in net realized gains or losses, the recognition of equity in net income or loss of investment funds accounted for using the equity method and the recognition of foreign exchange gains or losses are independent of the insurance underwriting process and result, in large part, from general economic and financial market conditions. Furthermore, certain users of the Company's financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. In addition, changes in the allowance for credit losses and net impairment losses recognized in earnings on the Company's investments represent other-than-temporary declines in expected recovery values on securities without actual realization. The use of the equity method on certain of the Company's investments in certain funds that invest in fixed maturity securities is driven by the ownership structure of such funds (either limited partnerships or limited liability companies). In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on the Company's proportionate share of the net income or loss of the funds (which include changes in the fair value of the underlying securities in the funds). This method of accounting is different from the way the Company accounts for its other fixed maturity securities and the timing of the recognition of equity in net income or loss of investment funds accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments. Transaction costs and other include advisory, financing, legal, severance, incentive compensation and other costs related to acquisitions. The Company believes that transaction costs and other, due to their non-recurring nature, are not indicative of the performance of, or trends in, the Company's business performance. The loss on redemption of preferred shares related to the redemption of the Company's Series E preferred shares in September 2021 had no impact on shareholders' equity or cash flows. Due to these reasons, the Company excludes net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other from the calculation of after-tax operating income or loss available to Arch common shareholders.

The Company believes that showing net income available to Arch common shareholders exclusive of the items referred to above reflects the underlying fundamentals of the Company's business since the Company evaluates the performance of and manages its business to produce an underwriting profit. In addition to presenting net income available to Arch common shareholders, the Company believes that this presentation enables investors and other users of the Company's financial information to analyze the Company's performance in a manner similar to how the Company's management analyzes performance. The Company also believes that this measure follows industry practice and, therefore, allows the users of the Company's financial information to compare the Company's performance with its industry peer group. The Company believes that the equity analysts and certain rating agencies which follow the Company and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.

The Company's segment information includes the presentation of consolidated underwriting income or loss and a subtotal of underwriting income or loss. Such measures represent the pre-tax profitability of its underwriting operations and include net premiums earned plus other underwriting income, less losses and loss adjustment expenses, acquisition expenses and other operating expenses. Other operating expenses include those operating expenses that are incremental and/or directly attributable to the Company's individual underwriting operations. Underwriting income or loss does not incorporate items included in the Company's corporate segment. While these measures are presented in the Segment Information footnote to the Company's Consolidated Financial Statements, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis. The reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis, in accordance with Regulation G, is shown on the following pages.

Management measures segment performance for its three underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment and, accordingly, investment income, income from operating affiliates and other corporate segment related items are not allocated to each underwriting segment.

In addition, the Company's segment information includes the use of a combined ratio excluding catastrophic activity and prior year development, for the insurance and reinsurance segments, and a combined ratio excluding prior year development, for the mortgage segment. These ratios are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to the combined ratio (the most directly comparable GAAP financial measure) in accordance with Regulation G are shown on the individual segment pages. The Company's management utilizes the adjusted combined ratios excluding current accident year catastrophic events and favorable or adverse development in prior year loss reserves in its analysis of the underwriting performance of each of its underwriting segments.

Total return on investments includes investment income, equity in net income or loss of investment funds accounted for using the equity method, net realized gains and losses (excluding changes in the allowance for credit losses on non-investment related financial assets) and the change in unrealized gains and losses generated by Arch's investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses and reflects the effect of financial market conditions along with foreign currency fluctuations. Management uses total return on investments as a key measure of the return generated to Arch common shareholders, and compares the return generated by the Company's investment portfolio against benchmark returns during the periods presented.

The following tables summarize the Company's results by segment for the 2022 third quarter and 2021 third quarter and a reconciliation of underwriting income or loss to income or loss before income taxes and net income or loss available to Arch common shareholders:

(U.S. Dollars in thousands)

 

Three Months Ended

 

 

September 30, 2022

 

 

Insurance

 

Reinsurance

 

Mortgage

 

Total

Gross premiums written (1)

 

$

1,862,026

 

 

$

1,639,061

 

 

$

362,409

 

 

$

3,860,683

 

Premiums ceded

 

 

(493,267

)

 

 

(560,225

)

 

 

(86,230

)

 

 

(1,136,909

)

Net premiums written

 

 

1,368,759

 

 

 

1,078,836

 

 

 

276,179

 

 

 

2,723,774

 

Change in unearned premiums

 

 

(181,851

)

 

 

(77,062

)

 

 

5,889

 

 

 

(253,024

)

Net premiums earned

 

 

1,186,908

 

 

 

1,001,774

 

 

 

282,068

 

 

 

2,470,750

 

Other underwriting income (loss)

 

 

?

 

 

 

452

 

 

 

2,625

 

 

 

3,077

 

Losses and loss adjustment expenses

 

 

(822,663

)

 

 

(927,911

)

 

 

67,878

 

 

 

(1,682,696

)

Acquisition expenses

 

 

(232,469

)

 

 

(208,425

)

 

 

(6,693

)

 

 

(447,587

)

Other operating expenses

 

 

(165,499

)

 

 

(62,777

)

 

 

(46,471

)

 

 

(274,747

)

Underwriting income (loss)

 

$

(33,723

)

 

$

(196,887

)

 

$

299,407

 

 

 

68,797

 

 

 

 

 

 

 

 

 

 

Net investment income

 

 

 

 

 

 

 

 

128,640

 

Net realized gains (losses)

 

 

 

 

 

 

 

 

(183,673

)

Equity in net income (loss) of investment funds accounted for using the equity method

 

 

 

 

 

 

 

 

(18,861

)

Other income (loss)

 

 

 

 

 

 

 

 

(13,684

)

Corporate expenses (2)

 

 

 

 

 

 

 

 

(17,634

)

Transaction costs and other (2)

 

 

 

 

 

 

 

 

(76

)

Amortization of intangible assets

 

 

 

 

 

 

 

 

(26,104

)

Interest expense

 

 

 

 

 

 

 

 

(33,063

)

Net foreign exchange gains (losses)

 

 

 

 

 

 

 

 

90,509

 

Income (loss) before income taxes and income (loss) from operating affiliates

 

 

 

 

 

 

 

 

(5,149

)

Income tax expense

 

 

 

 

 

 

 

 

14,900

 

Income (loss) from operating affiliates

 

 

 

 

 

 

 

 

8,507

 

Net income (loss)

 

 

 

 

 

 

 

 

18,258

 

Dividends attributable to redeemable noncontrolling interests

 

 

 

 

 

 

 

 

(1,157

)

Net income (loss) available to Arch

 

 

 

 

 

 

 

 

17,101

 

Preferred dividends

 

 

 

 

 

 

 

 

(10,184

)

Net income (loss) available to Arch common shareholders

 

 

 

 

 

 

 

$

6,917

 

 

 

 

 

 

 

 

 

 

Underwriting Ratios

 

 

 

 

 

 

 

 

Loss ratio

 

 

69.3

%

 

 

92.6

%

 

 

(24.1

)%

 

 

68.1

%

Acquisition expense ratio

 

 

19.6

%

 

 

20.8

%

 

 

2.4

%

 

 

18.1

%

Other operating expense ratio

 

 

13.9

%

 

 

6.3

%

 

 

16.5

%

 

 

11.1

%

Combined ratio

 

 

102.8

%

 

 

119.7

%

 

 

(5.2

)%

 

 

97.3

%

 

 

 

 

 

 

 

 

 

Net premiums written to gross premiums written

 

 

73.5

%

 

 

65.8

%

 

 

76.2

%

 

 

70.6

%

(1)

Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

(2)

Certain expenses have been excluded from ?corporate expenses' and reflected in ?Transaction costs and other.' See ?Comments on Regulation G' for a further discussion of such items.

(U.S. Dollars in thousands)

 

Three Months Ended

 

 

September 30, 2021

 

 

Insurance

 

Reinsurance

 

Mortgage

 

Total

Gross premiums written (1)

 

$

1,596,619

 

 

$

1,251,760

 

 

$

360,934

 

 

$

3,207,415

 

Premiums ceded

 

 

(442,806

)

 

 

(630,371

)

 

 

(60,207

)

 

 

(1,131,486

)

Net premiums written

 

 

1,153,813

 

 

 

621,389

 

 

 

300,727

 

 

 

2,075,929

 

Change in unearned premiums

 

 

(215,143

)

 

 

57,313

 

 

 

11,238

 

 

 

(146,592

)

Net premiums earned

 

 

938,670

 

 

 

678,702

 

 

 

311,965

 

 

 

1,929,337

 

Other underwriting income (loss)

 

 

?

 

 

 

3,293

 

 

 

3,981

 

 

 

7,274

 

Losses and loss adjustment expenses

 

 

(668,630

)

 

 

(545,846

)

 

 

(11,543

)

 

 

(1,226,019

)

Acquisition expenses

 

 

(152,467

)

 

 

(129,450

)

 

 

(24,098

)

 

 

(306,015

)

Other operating expenses

 

 

(138,931

)

 

 

(45,647

)

 

 

(46,254

)

 

 

(230,832

)

Underwriting income (loss)

 

$

(21,358

)

 

$

(38,948

)

 

$

234,051

 

 

 

173,745

 

 

 

 

 

 

 

 

 

 

Net investment income

 

 

 

 

 

 

 

 

88,195

 

Net realized gains (losses)

 

 

 

 

 

 

 

 

(25,040

)

Equity in net income (loss) of investment funds accounted for using the equity method

 

 

 

 

 

 

 

 

105,398

 

Other income (loss)

 

 

 

 

 

 

 

 

(3,960

)

Corporate expenses (2)

 

 

 

 

 

 

 

 

(18,636

)

Transaction costs and other (2)

 

 

 

 

 

 

 

 

(1,036

)

Amortization of intangible assets

 

 

 

 

 

 

 

 

(20,135

)

Interest expense

 

 

 

 

 

 

 

 

(33,176

)

Net foreign exchange gains (losses)

 

 

 

 

 

 

 

 

36,078

 

Income (loss) before income taxes and income (loss) from operating affiliates

 

 

 

 

 

 

 

 

301,433

 

Income tax expense

 

 

 

 

 

 

 

 

(4,137

)

Income (loss) from operating affiliates

 

 

 

 

 

 

 

 

124,119

 

Net income (loss)

 

 

 

 

 

 

 

 

421,415

 

Dividends attributable to redeemable noncontrolling interests

 

 

 

 

 

 

 

 

(1,473

)

Net income (loss) available to Arch

 

 

 

 

 

 

 

 

419,942

 

Preferred dividends

 

 

 

 

 

 

 

 

(16,090

)

Loss on redemption of preferred shares

 

 

 

 

 

 

 

 

(15,101

)

Net income (loss) available to Arch common shareholders

 

 

 

 

 

 

 

$

388,751

 

 

 

 

 

 

 

 

 

 

Underwriting Ratios

 

 

 

 

 

 

 

 

Loss ratio

 

 

71.2

%

 

 

80.4

%

 

 

3.7

%

 

 

63.5

%

Acquisition expense ratio

 

 

16.2

%

 

 

19.1

%

 

 

7.7

%

 

 

15.9

%

Other operating expense ratio

 

 

14.8

%

 

 

6.7

%

 

 

14.8

%

 

 

12.0

%

Combined ratio

 

 

102.2

%

 

 

106.2

%

 

 

26.2

%

 

 

91.4

%

 

 

 

 

 

 

 

 

 

Net premiums written to gross premiums written

 

 

72.3

%

 

 

49.6

%

 

 

83.3

%

 

 

64.7

%

(1)

Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

(2)

Certain expenses have been excluded from ?corporate expenses' and reflected in ?Transaction costs and other.' See ?Comments on Regulation G' for a further discussion of such items.

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 ("PSLRA") provides a "safe harbor" for forward-looking statements. This release or any other written or oral statements made by or on behalf of the Company may include forward-looking statements, which reflect the Company's current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this release are forward-looking statements. Forward-looking statements, for purposes of the PSLRA or otherwise, can generally be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" and similar statements of a future or forward-looking nature or their negative or variations or similar terminology.

Forward-looking statements involve the Company's current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed below and elsewhere in this release and in the Company's periodic reports filed with the Securities and Exchange Commission (the "SEC"), and include:

All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

arch-corporate


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