Arch Capital Group Ltd. (NASDAQ: ACGL; “Arch” or “the Company”)
announces its 2022 fourth quarter results. The results
included:
- Net income available to Arch common shareholders of $849.5
million, or $2.26 per share, a 29.5% annualized net income return
on average common equity, compared to $613.1 million, or $1.58 per
share, for the 2021 fourth quarter;
- After-tax operating income available to Arch common
shareholders(1) of $805.9 million, or $2.14 per share, a 28.0%
annualized operating return on average common equity, compared to
$493.3 million, or $1.27 per share, for the 2021 fourth
quarter;
- Pre-tax current accident year catastrophic losses for the
Company’s insurance and reinsurance segments, net of reinsurance
and reinstatement premiums (1), of $34.6 million;
- Combined ratio excluding catastrophic activity and prior year
development(1) of 82.0%, compared to 80.1% for the 2021 fourth
quarter;
- Favorable development in prior year loss reserves, net of
related adjustments(1) of $270.1 million;
- Book value per common share of $32.62 at December 31, 2022, a
9.9% increase from September 30, 2022.
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 December
31,
2022
2021
% Change
Gross premiums written
$
3,795,262
$
2,861,575
32.6
Net premiums written
3,034,636
2,034,427
49.2
Net premiums earned
2,760,919
2,083,630
32.5
Underwriting income
734,264
471,611
55.7
Underwriting Ratios
% Point Change
Loss ratio
45.0
%
47.8
%
(2.8
)
Underwriting expense ratio
28.5
%
29.8
%
(1.3
)
Combined ratio
73.5
%
77.6
%
(4.1
)
Combined ratio excluding catastrophic
activity and prior year development (1)
82.0
%
80.1
%
1.9
(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
December 31,
2022
2021
Net income available to Arch common
shareholders
$
849,504
$
613,081
Net realized (gains) losses
(79,932
)
(59,517
)
Equity in net (income) loss of investment
funds accounted for using the equity method
(40,351
)
(67,132
)
Net foreign exchange (gains) losses
81,201
(3,221
)
Transaction costs and other
358
310
Income tax expense (benefit) (1)
(4,858
)
9,736
After-tax operating income available to
Arch common shareholders
$
805,922
$
493,257
Diluted per common
share results:
Net income available to Arch common
shareholders
$
2.26
$
1.58
Net realized (gains) losses
(0.22
)
(0.16
)
Equity in net (income) loss of investment
funds accounted for using the equity method
(0.11
)
(0.17
)
Net foreign exchange (gains) losses
0.22
(0.01
)
Transaction costs and other
0.00
0.00
Income tax expense (benefit) (1)
(0.01
)
0.03
After-tax operating income available to
Arch common shareholders
$
2.14
$
1.27
Weighted average common shares and common
share equivalents outstanding — diluted
375,878,279
388,869,378
Beginning common shareholders’ equity
$
10,965,110
$
12,557,526
Ending common shareholders’ equity
12,080,073
12,715,896
Average common shareholders’ equity
$
11,522,592
$
12,636,711
Annualized net income return on average
common equity
29.5
%
19.4
%
Annualized operating return on average
common equity
28.0
%
15.6
%
(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
fourth quarter performance by operating segment. For additional
details regarding the Company’s operating segments, please refer to
the Company’s Financial Supplement dated December 31, 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 December
31,
(U.S. Dollars in thousands)
2022
2021
% Change
Gross premiums written
$
1,644,066
$
1,486,362
10.6
Net premiums written
1,216,730
1,035,986
17.4
Net premiums earned
1,243,587
1,002,897
24.0
Underwriting income
$
97,684
$
70,545
38.5
Underwriting Ratios
% Point
Change
Loss ratio
58.7
%
59.2
%
(0.5
)
Underwriting expense ratio
33.4
%
33.7
%
(0.3
)
Combined ratio
92.1
%
92.9
%
(0.8
)
Catastrophic activity and prior year
development:
Current accident year catastrophic events,
net of reinsurance and reinstatement premiums
2.8
%
2.0
%
0.8
Net (favorable) adverse development in
prior year loss reserves, net of related adjustments
(0.3
) %
(0.3
) %
—
Combined ratio excluding catastrophic
activity and prior year development
89.6
%
91.2
%
(1.6
)
Gross premiums written by the insurance segment in the 2022
fourth quarter were 10.6% higher than in the 2021 fourth quarter
while net premiums written were 17.4% higher than in the 2021
fourth 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. In
addition, the insurance segment is retaining more business due to
ongoing changes in its reinsurance programs, as well as higher
levels of growth in lines with a higher retention rate. Net
premiums earned in the 2022 fourth quarter were 24.0% higher than
in the 2021 fourth quarter, and reflect changes in net premiums
written over the previous five quarters.
The 2022 fourth quarter loss ratio reflected 2.8 points of
current year catastrophic activity, spread across a series of
global events that occurred in 2022, compared to 2.0 points of
catastrophic activity in the 2021 fourth quarter. Estimated net
favorable development of prior year loss reserves, before related
adjustments, reduced the loss ratio by 0.5 points in the 2022
fourth quarter, compared to 0.3 in the 2021 fourth quarter. The
improvement in the 2022 fourth quarter loss ratio also reflected
the impact of rate increases and changes in mix of business.
The underwriting expense ratio was 33.4% in the 2022 fourth
quarter, compared to 33.7% in the 2021 fourth quarter, with the
decrease primarily due to growth in net premiums earned.
Reinsurance Segment
Three Months Ended December
31,
(U.S. Dollars in thousands)
2022
2021
% Change
Gross premiums written
$
1,797,037
$
1,013,090
77.4
Net premiums written
1,543,382
709,141
117.6
Net premiums earned
1,225,208
779,817
57.1
Other underwriting income (loss)
(943
)
521
(281.0
)
Underwriting income (loss)
$
263,046
$
132,510
98.5
Underwriting Ratios
% Point Change
Loss ratio
52.9
%
55.2
%
(2.3
)
Underwriting expense ratio
25.5
%
27.9
%
(2.4
)
Combined ratio
78.4
%
83.1
%
(4.7
)
Catastrophic activity and prior year
development:
Current accident year catastrophic events,
net of reinsurance and reinstatement premiums
0.0
%
6.7
%
(6.7
)
Net (favorable) adverse development in
prior year loss reserves, net of related adjustments
(4.5
) %
(6.4
) %
1.9
Combined ratio excluding catastrophic
activity and prior year development
82.9
%
82.8
%
0.1
Gross premiums written by the reinsurance segment in the 2022
fourth quarter were 77.4% higher than in the 2021 fourth quarter,
while net premiums written were 117.6% higher than in the 2021
fourth quarter. The comparison of gross and net premiums written in
the 2022 fourth quarter were affected by a few non-recurring
transactions, primarily impacting the other specialty line of
business. Absent these items, gross and net premiums written would
have been higher than in the 2021 fourth quarter by 47.9% and
61.0%, respectively. The growth in net premiums written reflected
increases in most lines of business, primarily related to rate
increases, new business opportunities and growth in existing
accounts. Excluding the transactions mentioned above, net premiums
earned in the 2022 fourth quarter were 38.1% higher than in the
2021 fourth quarter, and reflect changes in net premiums written
over the previous five quarters.
The 2022 fourth quarter loss ratio reflected minimal current
year catastrophic activity, compared to 7.1 points of catastrophic
activity in the 2021 fourth quarter. Estimated net favorable
development of prior year loss reserves, before related
adjustments, reduced the loss ratio by 5.2 points in the 2022
fourth quarter, compared to 7.6 points in the 2021 fourth quarter.
In addition, the 2022 fourth quarter loss ratio reflected the
impact of rate increases and changes in mix of business. Absent the
non-recurring transactions noted above, the 2022 fourth quarter
loss ratio would have been 5.0 points lower than reported.
The underwriting expense ratio was 25.5% in the 2022 fourth
quarter, compared to 27.9% in the 2021 fourth quarter. Absent the
non-recurring transactions noted above, the 2022 fourth quarter
underwriting expense ratio would have been 2.0 points higher than
reported.
Mortgage Segment
Three Months Ended December
31,
(U.S. Dollars in thousands)
2022
2021
% Change
Gross premiums written
$
355,827
$
364,134
(2.3
)
Net premiums written
274,524
289,300
(5.1
)
Net premiums earned
292,124
300,916
(2.9
)
Other underwriting income
2,226
2,639
(15.6
)
Underwriting income
$
373,534
$
268,556
39.1
Underwriting Ratios
% Point Change
Loss ratio
(46.9
) %
(9.4
) %
(37.5
)
Underwriting expense ratio
19.8
%
21.1
%
(1.3
)
Combined ratio
(27.1
) %
11.7
%
(38.8
)
Prior year development:
Net (favorable) adverse development in
prior year loss reserves, net of related adjustments
(72.1
) %
(24.2
) %
(47.9
)
Combined ratio excluding prior year
development
45.0
%
35.9
%
9.1
Gross premiums written by the mortgage segment in the 2022
fourth quarter were 2.3% lower than in the 2021 fourth quarter,
while net premiums written were 5.1% lower. The decrease in gross
premiums written primarily reflected lower origination volume in
the Australian market and lower U.S. primary mortgage insurance
single premium business, which was partially offset by a higher
volume of credit risk transfer contracts. Net premiums earned in
the 2022 fourth quarter were 2.9% lower than in the 2021 fourth
quarter, primarily due to a reduction in earnings from single
premium policy terminations and an increase in ceded premiums
earned, partially offset by growth in credit risk transfer
business.
Estimated net favorable development of prior year loss reserves,
before related adjustments, reduced the loss ratio by 71.1 points,
primarily related to reserves on loans becoming delinquent after
the onset of the COVID-19 pandemic, compared to 23.4 points in the
2021 fourth quarter. The percentage of loans in default on U.S.
primary mortgage insurance business was 1.77% at December 31, 2022,
compared to 1.73% at September 30, 2022.
The underwriting expense ratio was 19.8% in the 2022 fourth
quarter, compared to 21.1% in the 2021 fourth quarter, with the
decrease reflecting lower operating expenses due in part to profit
commissions on business ceded related to favorable development of
prior year loss reserves in the U.S.
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
December 31,
September 30,
December 31,
2022
2022
2021
Pre-tax net investment income
$
181,079
$
128,640
$
90,454
Per diluted share
$
0.48
$
0.34
$
0.23
Pre-tax investment income yield, at
amortized cost (1)
2.80
%
2.06
%
1.46
%
Total return on investments (2)
2.60
%
(3.01
) %
0.39
%
(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 fourth quarter
compared to the 2022 third quarter and 2021 fourth quarter
primarily reflects the effects of higher interest rates available
in the market. 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 gains for the 2022 fourth quarter were
$79.9 million, a substantial portion of which 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 losses for the 2022
fourth quarter were $81.2 million, compared to net foreign exchange
gains for the 2021 fourth quarter of $3.2 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
was 6.6% for the 2022 fourth quarter and 5.1% for the year ended
December 31, 2022, compared to 5.2% for the 2021 fourth quarter and
5.6% for the year ended December 31, 2021. The Company’s effective
tax rate on pre-tax operating income available to Arch common
shareholders was 7.5% for the 2022 fourth quarter, compared to 4.7%
for the 2021 fourth quarter. 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 2022 fourth quarter included a net
discrete income tax benefit of $4.1 million, which decreased the
effective tax rate on operating income available to Arch common
shareholders by 0.5%, compared to a net discrete income tax benefit
of $10.6 million for the 2021 fourth quarter, which decreased the
effective tax rate on operating income available to Arch common
shareholders by 2.0%. The discrete tax items in both periods
primarily related to valuation allowance adjustments and prior year
true-ups of non-U.S. deferred tax assets.
Income from operating affiliates for the 2022 fourth quarter was
$36.2 million, or $0.10 per share, compared to $40.6 million, or
$0.10 per share, for the 2021 fourth quarter, and primarily
reflects amounts related to the Company’s investment in Somers
Group Holdings Ltd. (“Somers”) and Coface SA.
Conference Call
The Company will hold a conference call for investors and
analysts at 11:00 a.m. Eastern Time on February 14, 2023. 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
December 31, 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., is a publicly listed Bermuda exempted
company with approximately $15.6 billion in capital at December 31,
2022. Arch, which is part of the S&P 500 index, 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 that
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 fourth quarter and 2021 fourth 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
December 31, 2022
Insurance
Reinsurance
Mortgage
Total
Gross premiums written (1)
$
1,644,066
$
1,797,037
$
355,827
$
3,795,262
Premiums ceded
(427,336
)
(253,655
)
(81,303
)
(760,626
)
Net premiums written
1,216,730
1,543,382
274,524
3,034,636
Change in unearned premiums
26,857
(318,174
)
17,600
(273,717
)
Net premiums earned
1,243,587
1,225,208
292,124
2,760,919
Other underwriting income (loss)
—
(943
)
2,226
1,283
Losses and loss adjustment expenses
(729,784
)
(648,654
)
137,108
(1,241,330
)
Acquisition expenses
(244,059
)
(243,640
)
(12,816
)
(500,515
)
Other operating expenses
(172,060
)
(68,925
)
(45,108
)
(286,093
)
Underwriting income (loss)
$
97,684
$
263,046
$
373,534
734,264
Net investment income
181,079
Net realized gains (losses)
79,932
Equity in net income (loss) of investment
funds accounted for using the equity method
40,351
Other income (loss)
8,321
Corporate expenses (2)
(17,462
)
Transaction costs and other (2)
(358
)
Amortization of intangible assets
(25,722
)
Interest expense
(31,700
)
Net foreign exchange gains (losses)
(81,224
)
Income (loss) before income taxes and
income (loss) from operating affiliates
887,481
Income tax expense
(60,919
)
Income (loss) from operating
affiliates
36,226
Net income (loss)
862,788
Dividends attributable to redeemable
noncontrolling interests
(3,100
)
Net income (loss) available to
Arch
859,688
Preferred dividends
(10,184
)
Net income (loss) available to Arch
common shareholders
$
849,504
Underwriting Ratios
Loss ratio
58.7
%
52.9
%
(46.9
) %
45.0
%
Acquisition expense ratio
19.6
%
19.9
%
4.4
%
18.1
%
Other operating expense ratio
13.8
%
5.6
%
15.4
%
10.4
%
Combined ratio
92.1
%
78.4
%
(27.1
) %
73.5
%
Net premiums written to gross premiums
written
74.0
%
85.9
%
77.2
%
80.0
%
(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
December 31, 2021
Insurance
Reinsurance
Mortgage
Total
Gross premiums written (1)
$
1,486,362
$
1,013,090
$
364,134
$
2,861,575
Premiums ceded
(450,376
)
(303,949
)
(74,834
)
(827,148
)
Net premiums written
1,035,986
709,141
289,300
2,034,427
Change in unearned premiums
(33,089
)
70,676
11,616
49,203
Net premiums earned
1,002,897
779,817
300,916
2,083,630
Other underwriting income (loss)
—
521
2,639
3,160
Losses and loss adjustment expenses
(594,108
)
(430,180
)
28,435
(995,853
)
Acquisition expenses
(188,724
)
(155,694
)
(13,121
)
(357,539
)
Other operating expenses
(149,520
)
(61,954
)
(50,313
)
(261,787
)
Underwriting income (loss)
$
70,545
$
132,510
$
268,556
471,611
Net investment income
90,454
Net realized gains (losses)
59,517
Equity in net income (loss) of investment
funds accounted for using the equity method
67,132
Other income (loss)
9,093
Corporate expenses (2)
(17,840
)
Transaction costs and other (2)
(310
)
Amortization of intangible assets
(33,132
)
Interest expense
(32,248
)
Net foreign exchange gains (losses)
3,163
Income (loss) before income taxes and
income (loss) from operating affiliates
617,440
Income tax expense
(34,406
)
Income (loss) from operating
affiliates
40,641
Net income (loss)
623,675
Dividends attributable to redeemable
noncontrolling interests
(410
)
Net income (loss) available to
Arch
623,265
Preferred dividends
(10,184
)
Net income (loss) available to Arch
common shareholders
$
613,081
Underwriting Ratios
Loss ratio
59.2
%
55.2
%
(9.4
) %
47.8
%
Acquisition expense ratio
18.8
%
20.0
%
4.4
%
17.2
%
Other operating expense ratio
14.9
%
7.9
%
16.7
%
12.6
%
Combined ratio
92.9
%
83.1
%
11.7
%
77.6
%
Net premiums written to gross premiums
written
69.7
%
70.0
%
79.4
%
71.1
%
(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:
- the Company’s ability to successfully implement its business
strategy during “soft” as well as “hard” markets;
- acceptance of the Company’s business strategy, security and
financial condition by rating agencies and regulators, as well as
by brokers and its insureds and reinsureds;
- the Company’s ability to consummate acquisitions and integrate
any businesses it has acquired or may acquire into its existing
operations;
- the Company’s ability to maintain or improve its ratings, which
may be affected by its ability to raise additional equity or debt
financings, by ratings agencies’ existing or new policies and
practices, as well as other factors described herein;
- general economic and market conditions (including inflation,
interest rates, unemployment, housing prices, foreign currency
exchange rates, prevailing credit terms and the depth and duration
of a recession, including those resulting from COVID-19) and
conditions specific to the reinsurance and insurance markets in
which the Company operates;
- competition, including increased competition, on the basis of
pricing, capacity (including alternative sources of capital),
coverage terms or other factors;
- developments in the world’s financial and capital markets and
the Company’s access to such markets;
- the Company’s ability to successfully enhance, integrate and
maintain operating procedures (including information technology) to
effectively support its current and new business;
- the loss and addition of key personnel;
- material differences between actual and expected assessments
for guaranty funds and mandatory pooling arrangements;
- accuracy of those estimates and judgments utilized in the
preparation of the Company’s financial statements, including those
related to revenue recognition, insurance and other reserves,
reinsurance recoverables, investment valuations, intangible assets,
bad debts, income taxes, contingencies and litigation, and any
determination to use the deposit method of accounting;
- greater than expected loss ratios on business written by the
Company and adverse development on claim and/or claim expense
liabilities related to business written by its insurance and
reinsurance subsidiaries;
- the adequacy of the Company’s loss reserves;
- severity and/or frequency of losses;
- greater frequency or severity of unpredictable natural and
man-made catastrophic events;
- claims resulting from natural or man-made catastrophic events
or severe economic events in the Company’s insurance, reinsurance
and mortgage businesses could cause large losses and substantial
volatility in the Company’s results of operations;
- the effect of climate change on the Company’s business;
- the effect of contagious diseases (including COVID-19) on the
Company’s business;
- acts of terrorism, political unrest and other hostilities or
other unforecasted and unpredictable events;
- availability to the Company of reinsurance to manage its gross
and net exposures and the cost of such reinsurance;
- the failure of reinsurers, managing general agents, third party
administrators or others to meet their obligations to the
Company;
- the timing of loss payments being faster or the receipt of
reinsurance recoverables being slower than anticipated by the
Company;
- the Company’s investment performance, including legislative or
regulatory developments that may adversely affect the fair value of
the Company’s investments;
- changes in general economic conditions, including new or
continued sovereign debt concerns or downgrades of U.S. securities
by credit rating agencies, which could affect the Company’s
business, financial condition and results of operations;
- uncertainty relating to determination of the London Inter-bank
Offered Rate (“LIBOR”) and the phasing out and replacement of LIBOR
with alternative benchmark rates;
- the volatility of the Company’s shareholders’ equity from
foreign currency fluctuations, which could increase due to us not
matching portions of the Company’s projected liabilities in foreign
currencies with investments in the same currencies;
- changes in accounting principles or policies or in the
Company’s application of such accounting principles or
policies;
- changes in the political environment of certain countries in
which the Company operates, underwrites business or invests;
- a disruption caused by cyber-attacks or other technology
breaches or failures on the Company or the Company’s business
partners and service providers, which could negatively impact the
Company’s business and/or expose the Company to litigation;
- statutory or regulatory developments, including as to tax
policy matters and insurance and other regulatory matters such as
the adoption of proposed legislation that would affect
Bermuda-headquartered companies and/or Bermuda-based insurers or
reinsurers and/or changes in regulations or tax laws applicable to
the Company, its subsidiaries, brokers or customers, including new
guidance implementing the Tax Cuts and Jobs Act of 2017 and the
possible implementation of the Organization for Economic
Cooperation and Development (“OECD”) Pillar I and Pillar II
initiative; and
- the other matters set forth under Item 1A “Risk Factors”, Item
7 “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and other sections of the Company’s Annual
Report on Form 10-K, as well as the other factors set forth in the
Company’s other documents on file with the SEC, and management’s
response to any of the aforementioned factors.
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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version on businesswire.com: https://www.businesswire.com/news/home/20230213005559/en/
Arch Capital Group Ltd. François Morin: (441)
278-9250
Investor Relations Donald Watson: (914) 872-3616;
dwatson@archgroup.com
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