Reinsurance unit drives growth at Arch while profits drop

Bermuda-based Arch Capital's growth in the first quarter of 2018 was driven by its reinsurance segment and specifically growth in international motor contracts.

The re/insurer's net profit for the period fell but net realised gains boosted the after-tax operating income available to shareholders.

The company made a net profit of $137 million in the first quarter, a big decline on the $242 million it posted in the same period a year earlier; its after tax operating income, however, a non-GAAP measure, was $235 million, an increase on the $198 million it posted a year earlier. The increase was mainly down to $111 million of net realised gains.

Its combined ratio for the period was 81.3 percent, a one percentage point different on the 81.4 percent it posted a year earlier.

The company’s overall gross written premiums increased by 10.9 percent to $1.8 billion. This was driven by a 21.4 percent increase in its reinsurance gross written premiums, which reached $577 million.

Its net premiums written in reinsurance were 23.3 percent higher than in the 2017 first quarter. Changes in foreign currency rates resulted in an increase in net premiums written in the 2018 first quarter of $22.4 million; the growth also reflected growth in international motor contracts.

Gross premiums written by the insurance segment in the 2018 first quarter were 5.3 percent higher than in the 2017 first quarter while net premiums written were 5.1 percent higher than in the 2017 first quarter. Changes in foreign currency rates resulted in an increase in net premiums written in the 2018 first quarter of $10.3 million, or 1.9 percent, compared to the 2017 first quarter.

The increase in net premiums written reflected growth in travel, through both new business and growth in existing accounts, in property, primarily due to improved rates and new business, and in professional lines, reflecting increases in small and medium sized accounts.

Gross premiums written by the mortgage segment in the 2018 first quarter were 7.9 percent lower than in the 2017 first quarter, while net premiums written were 0.1 percent higher than in the 2017 first quarter.

The reduction in gross premiums written primarily reflected a lower level of Australian mortgage reinsurance business and a lower level of US single premium business. Net premiums written for the 2018 first quarter reflected a declining cession to AIG on the 50 percent quota share reinsurance agreement covering 2014 to 2016 policy years of UGC business on a run-off basis, while the 2017 first quarter also reflected higher retrocessions of Australian mortgage reinsurance business.

The increase in net premiums earned for the 2018 first quarter primarily reflected the growth in insurance in force over the last 12 months. Insurance in force increased to $349.9 billion at March 31, 2018, compared to $325.2 billion at March 31, 2017.

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