Arch Capital Group Ltd. Reports 2018 Second Quarter Results
Jul. 31, 2018
PEMBROKE, Bermuda--(BUSINESS WIRE)--Jul 31, 2018--Arch Capital Group Ltd. (NASDAQ: ACGL) announces its 2018 second quarter results. The results included:Net income available to Arch common shareholders of $233.2 million, or $0.56 per share, an 11.1% annualized return on average common equity, compared to $173.8 million, or $0.42 per share, and 8.7% for the 2017 second quarter; After-tax operating income available to Arch common shareholders, a non-GAAP measure, of $242.6 million, or $0.59 per share, an 11.6% annualized return on average common equity, compared to $168.9 million, or $0.40 per share, and 8.5% for the 2017 second quarter; Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums (1), of $14.9 million; Favorable development in prior year loss reserves, net of related adjustments (1), of $60.3 million; Combined ratio excluding catastrophic activity and prior year development (1) of 84.0%; Book value per common share of $20.68 at June 30, 2018, a 1.3% increase in the 2018 second quarter and a 4.1% increase for the trailing twelve months; Share repurchases of $170.3 million.
All earnings per share amounts discussed in this release are on a diluted basis. All share and per share amounts in this release reflect the three-for-one share split of Arch Capital’s common shares which occurred in the 2018 second quarter.
The following table summarizes the Company’s underwriting results, both (i) on a consolidated basis and (ii) on a consolidated basis excluding the ‘other’ segment ( i.e., results of Watford Re, as defined below):
(1) Excluding the ‘other’ segment. See ‘Comments on Regulation G’ for further details.
Pursuant to GAAP, the Company consolidates the results of Watford Holdings Ltd. in its financial statements, although it only owns approximately 11% of Watford Holdings Ltd.’s common equity. Watford Holdings Ltd. is the parent of Watford Re Ltd., a multi-line Bermuda reinsurance company (together with Watford Holdings Ltd., “Watford Re”). See ‘Comments on Regulation G’ for further details.
The following table summarizes the Company’s consolidated financial data, including a reconciliation of net income or loss available to Arch common shareholders to after-tax operating income or loss available to Arch common shareholders and related diluted per share results:
Each line item in the table above reflects the impact of the Company’s approximate 11% ownership of Watford Re’s common equity. See ‘Comments on Regulation G’ for a discussion of non-GAAP financial measures.
The following section provides analysis on the Company’s 2018 second quarter performance by operating segment. For additional details regarding the Company’s operating segments, please refer to the Company’s Financial Supplement dated June 30, 2018. The Company’s segment information includes the use of underwriting income (loss) and a combined ratio excluding catastrophic activity (if applicable for the segment) and prior year development. Such items are non-GAAP financial measures (see ‘Comments on Regulation G’ for further details).
(1) See ‘Comments on Regulation G’ for further discussion.
Gross premiums written by the insurance segment in the 2018 second quarter were 3.4% higher than in the 2017 second quarter while net premiums written were 5.6% higher than in the 2017 second quarter. Changes in foreign currency exchange rates resulted in an increase in net premiums written in the 2018 second quarter of $2.0 million, or 0.4%, compared to the 2017 second quarter. The increase in net premiums written reflected growth in property, primarily due to new business and rate increases, in travel, due to both new business and growth in existing accounts, and in programs, reflecting rate increases and growth in recently added programs. Net premiums earned by the insurance segment in the 2018 second quarter were 5.6% higher than in the 2017 second quarter, and reflect changes in net premiums written over the previous five quarters.
The 2018 second quarter loss ratio reflected 1.4 points for current year catastrophic activity, compared to 1.6 points in the 2017 second quarter. Estimated net favorable development in prior year loss reserves, before related adjustments, reduced the loss ratio by 1.1 points in the 2018 second quarter, compared to 0.4 points in the 2017 second quarter. The balance of the change in the 2018 second quarter loss ratio resulted, in part, from a lower level of large attritional losses and changes in mix of business.
The underwriting expense ratio was 33.6% in the 2018 second quarter, compared to 33.0% in the 2017 second quarter, reflecting changes in the mix and type of business.
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