Arch Capital Q3 Results: $18 Million Net Income; $9.1 Million Operating

October 29, 2004

Bermuda-based Arch Capital Group Ltd. reported third quarter net income of $18.0 million, or 25 cents per share, compared to $82.6 million, or $1.22 per share, for the comparable period in 2003.

For the 9 months ended Sept. 30 2004, Arch reported net income of $209.8 million, or $2.91 per share, compared to $196.9 million, or $2.91 per share, for the nine months ended September 30, 2003. The Company said it’s “diluted book value per share increased by 15.7% to $29.53 at September 30, 2004 from $25.52 at December 31, 2003.

The company also reported: “Gross premiums written were $927.7 million for the 2004 third quarter, compared to $928.2 million for the 2003 third quarter, and $2.75 billion for the nine months ended September 30, 2004, compared to $2.46 billion for the nine months ended September 30, 2003. The Company’s combined ratio was 103.4 percent for the 2004 third quarter, compared to 89.8 percent for the 2003 third quarter, and 93.6 percent for the nine months ended September 30, 2004, compared to 90.2 percent for the nine months ended September 30, 2003. All per share amounts discussed in this release are on a diluted basis.”

Arch reported after-tax operating income of $9.1 million, or 12 cents per share, for the 2004 third quarter, compared to $70.2 million, or $1.04 per share, for the 2003 third quarter, and $202.8 million, or $2.81 per share, for the nine months ended September 30, 2004, compared to $178.6 million, or $2.64 per share, for the nine months ended September 30, 2003. The Company said its “after-tax operating income represented a 14.1 percent annualized return on average equity for the nine months ended September 30, 2004, compared to 15.6 percent for the nine months ended September 30, 2003.

Arch, along with the rest of the world’s reinsurers, was heavily impacted by in the third quarter of 2004 by losses related to Hurricanes Charley, Frances, Ivan and Jeanne and Typhoon Songda. Arch’s losses, after reinsurance recoveries and after-tax, were approximately $144.6 million, or $1.97 per share. “The recorded loss amounts relating to these events were based on available information derived from modeling techniques, industry assessments of exposure and claims information obtained from the Company’s clients and brokers,” said the bulletin.

It also cautioned that “to date, the Company has received relatively few claims advices from clients and brokers. The Company’s actual losses from these events may vary materially from the recorded net losses due to the inherent uncertainties in making such determinations resulting from several factors, including the potential inaccuracies and inadequacies in the data provided by clients and brokers, the modeling techniques and the application of such techniques, as well as the high frequency of recent catastrophic events and the effects of any resultant demand surge on claims activity.”

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