10-QPeriod: Q3 FY2005

ARCH CAPITAL GROUP LTD. Quarterly Report for Q3 Ended Sep 30, 2005

Filed November 9, 2005For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) reported a net loss of $86.3 million for the third quarter of 2005, a significant decline from a net income of $18.0 million in the same period of 2004. This loss was primarily driven by substantial catastrophic events, including Hurricanes Dennis, Emily, Katrina, and Rita, and European floods, which resulted in estimated after-tax net losses of $250.9 million. For the first nine months of 2005, net income was $155.6 million, down from $209.8 million in the prior year period, also impacted by these catastrophe events. The company's reinsurance segment incurred an underwriting loss of $83.8 million in Q3 2005, with a combined ratio of 120.5%, worsening from a loss of $39.3 million and a combined ratio of 109.8% in Q3 2004. The insurance segment also saw an underwriting loss of $47.1 million and a combined ratio of 114.2% in Q3 2005, compared to an underwriting income of $15.6 million and a combined ratio of 95.5% in Q3 2004. Despite the quarterly loss, the company's total investments grew to $6.73 billion as of September 30, 2005, up from $5.84 billion at the end of 2004.

Key Highlights

  • 1Q3 2005 net loss of $86.3 million due to significant catastrophe events (Hurricanes Dennis, Emily, Katrina, Rita, and European floods).
  • 2Nine-month 2005 net income of $155.6 million, down from $209.8 million in the prior year, primarily due to catastrophe losses.
  • 3Reinsurance segment's combined ratio deteriorated to 120.5% in Q3 2005 from 109.8% in Q3 2004, driven by high catastrophe losses.
  • 4Insurance segment's combined ratio worsened to 114.2% in Q3 2005 from 95.5% in Q3 2004, also due to catastrophe losses.
  • 5Total investments increased to $6.73 billion as of September 30, 2005, from $5.84 billion as of December 31, 2004.
  • 6Company initiated a securities lending program in Q3 2005.
  • 7Net premiums written increased slightly for the nine months ended September 30, 2005, to $2.31 billion from $2.30 billion in the prior year.

Frequently Asked Questions

The primary driver of the net loss of $86.3 million in the third quarter of 2005 was the significant impact of several major catastrophe events, including Hurricanes Dennis, Emily, Katrina, and Rita, and the European floods. These events resulted in substantial estimated net losses for the company.

Both the reinsurance and insurance segments were significantly impacted by the catastrophe events, leading to underwriting losses and a deterioration in their combined ratios. The reinsurance segment's combined ratio increased to 120.5% in Q3 2005, and the insurance segment's combined ratio rose to 114.2%, compared to profitable combined ratios in the prior year's quarter.

Yes, the company's total investments, including fixed maturities, short-term investments, and cash, grew to $6.73 billion as of September 30, 2005, from $5.84 billion at the end of 2004, indicating an increase in the company's asset base.

While the Q3 2005 results were heavily impacted by catastrophes, the company noted in its forward-looking statements that these events may lead to a substantial improvement in market conditions for property and certain marine lines of business. The company continues to monitor its capital adequacy and may seek to increase its underwriting capacity or raise additional capital to take advantage of market opportunities.