Arch Capital Gives Preliminary Earnings Estimates

January 30, 2009

The Bermuda-based Arch Capital Group Ltd. announced that it expects to report after-tax operating income available for common shareholders in the range of $75 million to $90 million for the 2008 fourth quarter.

“These amounts reflect an increase of approximately $160 million in the Company’s net loss estimate for Hurricane Ike (after reinsurance recoveries and net of reinstatement premiums),” said the bulletin. “The updated loss estimate is based on increased estimates of industry insured losses of $18 billion to $21 billion, as well as from additional information from clients reflecting larger losses than initial estimates. Approximately two thirds of the increase resulted from the Company’s expected claims in the onshore and offshore energy lines of business.”

The Company also announced that it “expects that the aggregate pre-tax net unrealized and realized losses on its investment portfolio and equity in net losses of investment funds accounted for using the equity method will be in the range of $150 million to $160 million (excluding the effects of net foreign exchange losses) for the 2008 fourth quarter, which represent approximately 1.5 percent to 1.6 percent of the Company’s total investable assets.

“Of such aggregate losses, approximately $174 million related to the Company’s investments in U.S. and Euro-denominated bank loan funds accounted for using the equity method. This resulted from the extreme volatility in the capital and credit markets during September, October and November 2008 as the mark-to-market values of the secured loans underlying the holdings in such funds declined significantly. The remainder of the Company’s investments produced a net unrealized gain during the period.”

Arch added that its “investment portfolio, which consists of approximately $10 billion of investable assets at December 31, 2008, continues to be comprised primarily of high quality fixed income securities, with no collateralized debt obligations (CDOs), collateralized loan obligations (CLOs) or credit default swaps (CDSs). The Company’s portfolio does not include ownership of common stock or preferred stock of any publicly-traded issuers and essentially includes no investments in hedge funds or private equity funds.

Source: Arch Capital –

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