Arch Capital steering into more P&C, getting picky line by line

Re/insurer  Arch Capital is increasingly turning its appetite to property and casualty (P&C) lines where profit pickings are best as the group continues to steer towards less earnings volatility and lower combined ratios, officials have indicated.

“Clearly P&C has moved up,”  Arch’s chief financial officer François Morin said of his preference list for capital deployment, “the growth in premium really speaks for itself – an indication of where we think the value proposition is.”  Mortgage insurance still looks good, but has slipped into second place.

Rates on the whole have been supportive and “our data indicates that we are still experiencing average rate increases in excess of expected loss cost,” CEO Marc Grandisson (pictured) added.

But P&C market opportunities are not uniform:  the market is considerably more varied than several years back and  Arch will retain high maneuverability to pick and choose emerging value.

“It’s a really dynamic market,” Morin said. “I don’t think we’ve [previously] seen the type of market where we can shuffle around and really pivot.”

“There was more of a broad market opportunity probably two years ago,” an official told the call. “Now it is refining itself to a few lines of business.”

The approach will thus become more opportunistic and arguably less committal, “but we still have ability and willingness to lean in hard if we see opportunities, and we are seeing opportunities, just not as broadly based as two years ago.”

Jumping around between P&C lines could mean volatility in acquisition costs, officials warned. The resurgence of travel brings higher acquisition costs as do other unspecified “new programs” currently being chased.

Likewise in reinsurance,  Arch’s continuing move from XoL towards quote share brings upwards pressure to the acquisition expense ratio “over time,” an official said.

Arch is willing to take volatility in the acquisition cost ratio while it focuses on value, leveraged chiefly on the side of anticipated loss costs, officials said.  “The combined ratio which leads to ROE is what we focus on.”

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