10-KPeriod: FY2006

ARCH CAPITAL GROUP LTD. Annual Report, Year Ended Dec 31, 2006

Filed March 1, 2007For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) reported a strong financial performance for the fiscal year ending December 31, 2006. The company generated $3.02 billion in net premiums written and achieved net income of $692.6 million, resulting in a robust return on average equity of 24.1%. Diluted book value per share increased by 30% to $43.97. The company's strategy focuses on specialty lines of insurance and reinsurance, leveraging its experienced management team and strong capital base. ACGL operates globally, with significant operations in Bermuda, the United States, Europe, and Canada. The report highlights the company's disciplined underwriting philosophy and focus on superior claims management as key drivers of its success. Despite a competitive market, ACGL demonstrated growth across its insurance and reinsurance segments, supported by favorable market conditions following the 2005 catastrophe events.

Key Highlights

  • 1Net income available to common shareholders reached $692.6 million for the year ended December 31, 2006.
  • 2Diluted book value per share increased by 30% to $43.97 at December 31, 2006.
  • 3Net premiums written for the year totaled $3.02 billion, with the insurance segment growing to $1.65 billion and the reinsurance segment at $1.37 billion.
  • 4The company achieved a strong return on average equity of 24.1% for the fiscal year.
  • 5ACGL successfully issued $325 million in non-cumulative preferred shares in 2006 to support its underwriting activities.
  • 6The company's investment portfolio grew to $9.32 billion, with approximately 98% rated investment grade.
  • 7The combined ratio for the insurance segment improved to 89.9% in 2006, and the reinsurance segment's combined ratio improved significantly to 80.7%.

Frequently Asked Questions

In 2006, Arch Capital Group Ltd. reported net income available to common shareholders of $692.6 million on net premiums written of $3.02 billion. The company achieved a return on average equity of 24.1% and saw a 30% increase in diluted book value per share to $43.97.

The insurance segment generated underwriting income of $163.3 million with a combined ratio of 89.9%. The reinsurance segment performed even stronger, with underwriting income of $290.6 million and a combined ratio of 80.7%. Both segments saw growth in net premiums written.

Key risks include intense competition in the insurance and reinsurance markets, the cyclical nature of the industry, potential losses from catastrophic events (including terrorism), regulatory and legislative changes, and the inherent uncertainties in reserving for losses. The company also notes risks related to key employee retention, investment performance, and reliance on brokers.

The company's total cash and invested assets grew to $9.32 billion by year-end 2006. The investment portfolio maintained a high credit quality, with approximately 98% of fixed maturities rated investment grade. The pre-tax total return on the portfolio was 5.24% in 2006, outperforming the benchmark return of 4.88%.