Arch faces up to $225m Q2 cat losses due to COVID-19 and US civil unrest

Bermuda-based re/insurer Arch Capital Group has estimated pre-tax catastrophe losses of $205 million to $225 million in the 2020 second quarter, attributable to COVID-19 and civil unrest claims across the US.

The estimated losses across its property casualty insurance and reinsurance segments are net of reinsurance recoveries and reinstatement premiums, including exposure to COVID-19 global pandemic claims of $170 million to $180 million, $35 million to $45 million for losses related to civil unrest claims across the US and other 2020 second quarter catastrophic events.

The range of estimates for exposure related to the global pandemic is in addition to the $87 million estimate previously disclosed by the company for the 2020 first quarter.

Arch stated that the COVID-19 pandemic has led to both direct and indirect impacts on the company’s businesses, most notably observed in its mortgage segment in the form of elevated delinquency rates and potentially higher loss experience. For US primary mortgage insurance, loss reserving under GAAP is based on reported delinquency rates.

The loss estimate does not include any potential losses from the mortgage insurance segment. The company will report on the mortgage segment results when it releases its 2020 second quarter results.

Arch said that there are "significant uncertainties surrounding the ultimate number of claims and scope of damage resulting from the pandemic". Hence, the actual losses from these events may vary materially from the estimates due to several factors including the evolving nature of this pandemic.

The company’s estimates across its insurance and reinsurance segments are based on currently available information derived from modeling techniques, including preliminary claims information obtained from the Company’s clients and brokers, a review of relevant in-force contracts with potential exposure to the pandemic and estimates of reinsurance recoverables. These estimates include losses only related to claims incurred as of June 30, 2020.