Arch Capital Group Ltd. (NASDAQ: ACGL; “Arch” or “the Company”)
announces its 2023 second quarter results. The results
included:
- Net income available to Arch common shareholders of $661
million, or $1.75 per share, a 19.6% annualized net income return
on average common equity, compared to $394 million, or $1.04 per
share, for the 2022 second quarter.
- After-tax operating income available to Arch common
shareholders(1) of $726 million, or $1.92 per share, a 21.5%
annualized operating return on average common equity, compared to
$506 million, or $1.34 per share, for the 2022 second quarter.
- Pre-tax current accident year catastrophic losses for the
Company’s insurance and reinsurance segments, net of reinsurance
and reinstatement premiums (1), of $119 million.
- Favorable development in prior year loss reserves, net of
related adjustments(1) of $116 million.
- Combined ratio excluding catastrophic activity and prior year
development(1) of 79.7%, compared to 80.8% for the 2022 second
quarter.
- Book value per common share of $37.04 at June 30, 2023, a 4.8%
increase from March 31, 2023.
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 millions)
Three Months Ended June
30,
2023
2022
% Change
Gross premiums written
$
4,845
$
3,870
25.2
Net premiums written
3,428
2,685
27.7
Net premiums earned
2,965
2,326
27.5
Underwriting income
606
536
13.1
Underwriting Ratios
% Point Change
Loss ratio
50.3
%
47.4
%
2.9
Underwriting expense ratio
29.5
%
29.7
%
(0.2
)
Combined ratio
79.8
%
77.1
%
2.7
Combined ratio excluding catastrophic
activity and prior year development (1)
79.7
%
80.8
%
(1.1
)
(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 millions, except per
share data)
Three Months Ended
June 30,
2023
2022
Net income available to Arch common
shareholders
$
661
$
394
Net realized (gains) losses
123
267
Equity in net (income) loss of investment
funds accounted for using the equity method
(69
)
(58
)
Net foreign exchange (gains) losses
6
(88
)
Transaction costs and other
2
—
Income tax expense (benefit) (1)
3
(9
)
After-tax operating income available to
Arch common shareholders
$
726
$
506
Diluted per common
share results:
Net income available to Arch common
shareholders
$
1.75
$
1.04
Net realized (gains) losses
0.33
0.70
Equity in net (income) loss of investment
funds accounted for using the equity method
(0.18
)
(0.15
)
Net foreign exchange (gains) losses
0.01
(0.23
)
Transaction costs and other
0.00
0.00
Income tax expense (benefit) (1)
0.01
(0.02
)
After-tax operating income available to
Arch common shareholders
$
1.92
$
1.34
Weighted average common shares and common
share equivalents outstanding — diluted
378.4
377.9
Beginning common shareholders’ equity
$
13,158
$
12,090
Ending common shareholders’ equity
13,811
11,588
Average common shareholders’ equity
$
13,485
$
11,839
Annualized net income return on average
common equity
19.6
%
13.3
%
Annualized operating return on average
common equity
21.5
%
17.1
%
(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 and transaction costs and other 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 2023
second quarter performance by operating segment. For additional
details regarding the Company’s operating segments, please refer to
the Company’s Financial Supplement dated June 30, 2023. 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 June
30,
(U.S. Dollars in millions)
2023
2022
% Change
Gross premiums written
$
1,955
$
1,705
14.7
Net premiums written
1,454
1,228
18.4
Net premiums earned
1,328
1,102
20.5
Underwriting income
$
108
$
97
11.3
Underwriting Ratios
% Point Change
Loss ratio
57.3
%
57.1
%
0.2
Underwriting expense ratio
34.6
%
34.0
%
0.6
Combined ratio
91.9
%
91.1
%
0.8
Catastrophic activity and prior year
development:
Current accident year catastrophic events,
net of reinsurance and reinstatement premiums
2.6
%
1.5
%
1.1
Net (favorable) adverse development in
prior year loss reserves, net of related adjustments
(0.5
)%
(0.4
)%
(0.1
)
Combined ratio excluding catastrophic
activity and prior year development
89.8
%
90.0
%
(0.2
)
Gross premiums written by the insurance segment in the 2023
second quarter were 14.7% higher than in the 2022 second quarter,
while net premiums written were 18.4% higher than in the 2022
second quarter. Growth in net premiums written reflected increases
in most lines of business, due in part to new business
opportunities, increases in existing accounts and rate changes. In
addition, the insurance segment retained more business in the 2023
second quarter than in the 2022 second quarter. Net premiums earned
in the 2023 second quarter were 20.5% higher than in the 2022
second quarter, and reflect changes in net premiums written over
the previous five quarters.
The 2023 second quarter loss ratio reflected 2.7 points of
current year catastrophic activity, spread across a series of
global events, compared to 1.2 points of catastrophic activity in
the 2022 second quarter. Estimated net favorable development of
prior year loss reserves, before related adjustments, reduced the
loss ratio by 0.9 points in the 2023 second quarter, compared to
0.6 points in the 2022 second quarter. The improvement in the 2023
second quarter loss ratio also reflected the impact of rate
increases and changes in mix of business.
The underwriting expense ratio was 34.6% in the 2023 second
quarter, compared to 34.0% in the 2022 second quarter, reflecting
higher acquisition expenses primarily due to lower ceding
commissions received and changes in mix of business.
Reinsurance Segment
Three Months Ended June
30,
(U.S. Dollars in millions)
2023
2022
% Change
Gross premiums written
$
2,544
$
1,793
41.9
Net premiums written
1,709
1,163
46.9
Net premiums earned
1,343
928
44.7
Other underwriting income (loss)
3
5
(40.0
)
Underwriting income
$
245
$
140
75.0
Underwriting Ratios
% Point Change
Loss ratio
55.3
%
57.9
%
(2.6
)
Underwriting expense ratio
26.6
%
27.5
%
(0.9
)
Combined ratio
81.9
%
85.4
%
(3.5
)
Catastrophic activity and prior year
development:
Current accident year catastrophic events,
net of reinsurance and reinstatement premiums
6.3
%
7.1
%
(0.8
)
Net (favorable) adverse development in
prior year loss reserves, net of related adjustments
(1.8
)%
(4.5
)%
2.7
Combined ratio excluding catastrophic
activity and prior year development
77.4
%
82.8
%
(5.4
)
Gross premiums written by the reinsurance segment in the 2023
second quarter were 41.9% higher than in the 2022 second quarter,
while net premiums written were 46.9% higher than in the 2022
second quarter. Growth in net premiums written primarily reflected
increases in property catastrophe, property excluding property
catastrophe and other specialty lines, due in part to rate
increases, new business opportunities and growth in existing
accounts. In addition, the 2023 second quarter net premiums written
reflected a lower level of retrocession activity than in the 2022
second quarter. Net premiums earned in the 2023 second quarter were
44.7% higher than in the 2022 second quarter, and reflect changes
in net premiums written over the previous five quarters.
The 2023 second quarter loss ratio reflected 6.7 points of
current year catastrophic activity, spread across a series of
global events, compared to 7.5 points of catastrophic activity in
the 2022 second quarter. Estimated net favorable development of
prior year loss reserves, before related adjustments, reduced the
loss ratio by 2.2 points in the 2023 second quarter, compared to
5.0 points in the 2022 second quarter. The improvement in the 2023
second quarter loss ratio also reflected the impact of rate
increases and changes in mix of business.
The underwriting expense ratio was 26.6% in the 2023 second
quarter, compared to 27.5% in the 2022 second quarter, with the
decrease primarily due to growth in net premiums earned.
Mortgage Segment
Three Months Ended June
30,
(U.S. Dollars in millions)
2023
2022
% Change
Gross premiums written
$
347
$
372
(6.7
)
Net premiums written
265
294
(9.9
)
Net premiums earned
294
296
(0.7
)
Other underwriting income (loss)
3
(2
)
250.0
Underwriting income
$
253
$
299
(15.4
)
Underwriting Ratios
% Point Change
Loss ratio
(4.5
)%
(21.9
)%
17.4
Underwriting expense ratio
19.5
%
20.4
%
(0.9
)
Combined ratio
15.0
%
(1.5
)%
16.5
Prior year development:
Net (favorable) adverse development in
prior year loss reserves, net of related adjustments
(28.7
)%
(40.7
)%
12.0
Combined ratio excluding prior year
development
43.7
%
39.2
%
4.5
Gross premiums written by the mortgage segment in the 2023
second quarter were 6.7% lower than in the 2022 second quarter,
while net premiums written were 9.9% lower than in the 2022 second
quarter. The reduction in gross premiums written primarily
reflected lower originations in the Australian market and a
decrease in U.S. primary mortgage insurance business, which was
partially offset by a higher volume of credit risk transfer
transactions. Net premiums written for the 2023 second quarter
reflected a higher level of ceded premiums through quota share
reinsurance agreements than in the 2022 second quarter. Net
premiums earned in the 2023 second quarter were 0.7% lower than in
the 2022 second quarter, primarily due to higher ceded premiums and
a decrease in U.S. primary mortgage insurance business, which was
partially offset by the growth in credit risk transfer and
international business.
Estimated net favorable development of prior year loss reserves,
before related adjustments, decreased the loss ratio by 27.2
points, primarily related to the U.S. first lien portfolio from the
2021 and 2022 accident years, compared to 39.9 points in the 2022
second quarter. Such amounts were primarily related to better than
expected cure rates in the 2020 through 2022 accident years. The
2023 second quarter loss ratio also reflected a higher level of new
delinquencies than in the 2022 second quarter.
The underwriting expense ratio was 19.5% in the 2023 second
quarter, compared to 20.4% in the 2022 second quarter. The decrease
was primarily due to higher profit commissions on ceded U.S.
primary mortgage insurance business.
Corporate Segment
The corporate segment results include net investment income, net
realized gains or losses (which includes 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), 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 millions, except per
share data)
Three Months Ended
June 30,
March 31,
June 30,
2023
2023
2022
Pre-tax net investment income
$
242
$
199
$
106
Per share
$
0.64
$
0.53
$
0.28
Equity in net income (loss) of investment
funds accounted for using the equity method
$
69
$
48
$
58
Per share
$
0.18
$
0.13
$
0.15
Pre-tax investment income yield, at
amortized cost (1)
3.50
%
3.03
%
1.76
%
Total return on investments (2)
0.56
%
2.54
%
(3.02
)%
(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 2023 second quarter
primarily reflected the effects of higher interest rates available
in the market along with growth in invested assets which benefited
from strong operating cash flows. Net realized losses were $123
million for the 2023 second quarter, compared to losses of $267
million in the 2022 second quarter, and reflected sales of
investments as well as the impact of financial market movements on
the Company’s equity securities and investments accounted for under
the fair value option method.
On a pre-tax basis, net foreign exchange losses for the 2023
second quarter were $5 million, compared to net foreign exchange
gains of $88 million for the 2022 second quarter. 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.
The Company’s effective tax rate on income before income taxes
(based on the Company’s estimated annual effective tax rate) was
9.2% for the 2023 second quarter, compared to 5.2% for the 2022
second quarter. The Company’s effective tax rate on pre-tax
operating income available to Arch common shareholders was 8.0% for
the 2023 second quarter, compared to 5.7% for the 2022 second
quarter. The effective tax rate may fluctuate from period to period
based upon the relative mix of income or loss reported by
jurisdiction, the level of catastrophic loss activity incurred, and
the varying tax rates in each jurisdiction.
Income from operating affiliates for the 2023 second quarter was
$22 million, or $0.06 per share, compared to $5 million, or $0.01
per share, for the 2022 second quarter, and primarily reflects
amounts related to the Company’s investment in Somers Group
Holdings Ltd. and Coface SA.
Conference Call
The Company will hold a conference call for investors and
analysts at 11:00 a.m. Eastern Time on July 27, 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
June 30, 2023, 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 $17.4 billion in capital at
June 30, 2023. 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, 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 and transaction
costs and other, 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 these items 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.
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 2023 second quarter and 2022 second 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 millions)
Three Months Ended
June 30, 2023
Insurance
Reinsurance
Mortgage
Total
Gross premiums written (1)
$
1,955
$
2,544
$
347
$
4,845
Premiums ceded
(501
)
(835
)
(82
)
(1,417
)
Net premiums written
1,454
1,709
265
3,428
Change in unearned premiums
(126
)
(366
)
29
(463
)
Net premiums earned
1,328
1,343
294
2,965
Other underwriting income (loss)
—
3
3
6
Losses and loss adjustment expenses
(761
)
(743
)
13
(1,491
)
Acquisition expenses
(264
)
(290
)
(7
)
(561
)
Other operating expenses
(195
)
(68
)
(50
)
(313
)
Underwriting income (loss)
$
108
$
245
$
253
606
Net investment income
242
Net realized gains (losses)
(123
)
Equity in net income (loss) of investment
funds accounted for using the equity method
69
Other income (loss)
3
Corporate expenses (2)
(20
)
Transaction costs and other (2)
(1
)
Amortization of intangible assets
(24
)
Interest expense
(33
)
Net foreign exchange gains (losses)
(5
)
Income (loss) before income taxes and
income (loss) from operating affiliates
714
Income tax expense
(67
)
Income (loss) from operating
affiliates
22
Net income (loss)
669
Dividends attributable to redeemable
noncontrolling interests
2
Net income (loss) available to
Arch
671
Preferred dividends
(10
)
Net income (loss) available to Arch
common shareholders
$
661
Underwriting Ratios
Loss ratio
57.3
%
55.3
%
(4.5
)%
50.3
%
Acquisition expense ratio
19.9
%
21.6
%
2.4
%
18.9
%
Other operating expense ratio
14.7
%
5.0
%
17.1
%
10.6
%
Combined ratio
91.9
%
81.9
%
15.0
%
79.8
%
Net premiums written to gross premiums
written
74.4
%
67.2
%
76.4
%
70.8
%
(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 millions)
Three Months Ended
June 30, 2022
Insurance
Reinsurance
Mortgage
Total
Gross premiums written (1)
$
1,705
$
1,793
$
372
$
3,870
Premiums ceded
(477
)
(630
)
(78
)
(1,185
)
Net premiums written
1,228
1,163
294
2,685
Change in unearned premiums
(126
)
(235
)
2
(359
)
Net premiums earned
1,102
928
296
2,326
Other underwriting income (loss)
—
5
(2
)
3
Losses and loss adjustment expenses
(630
)
(538
)
65
(1,103
)
Acquisition expenses
(214
)
(189
)
(10
)
(413
)
Other operating expenses
(161
)
(66
)
(50
)
(277
)
Underwriting income (loss)
$
97
$
140
$
299
536
Net investment income
106
Net realized gains (losses)
(267
)
Equity in net income (loss) of investment
funds accounted for using the equity method
58
Other income (loss)
(12
)
Corporate expenses (2)
(28
)
Transaction costs and other (2)
0
Amortization of intangible assets
(27
)
Interest expense
(33
)
Net foreign exchange gains (losses)
88
Income (loss) before income taxes and
income (loss) from operating affiliates
421
Income tax expense
(22
)
Income (loss) from operating
affiliates
5
Net income (loss)
404
Dividends attributable to redeemable
noncontrolling interests
—
Net income (loss) available to
Arch
404
Preferred dividends
(10
)
Net income (loss) available to Arch
common shareholders
$
394
Underwriting Ratios
Loss ratio
57.1
%
57.9
%
(21.9
)%
47.4
%
Acquisition expense ratio
19.4
%
20.4
%
3.4
%
17.8
%
Other operating expense ratio
14.6
%
7.1
%
17.0
%
11.9
%
Combined ratio
91.1
%
85.4
%
(1.5
)%
77.1
%
Net premiums written to gross premiums
written
72.0
%
64.9
%
79.0
%
69.4
%
(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;
- 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
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 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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230726374852/en/
Arch Capital Group Ltd. François Morin: (441)
278-9250
Investor Relations Donald Watson: (914) 872-3616;
dwatson@archgroup.com
Arch Capital (NASDAQ:ACGL)
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