Arch sees its Q3 catastrophe losses reaching up to $345 million

The third of the Bermudian insurance and reinsurance firms to announce its third-quarter catastrophe losses yesterday was Arch Capital Group Ltd., which said that it expects to suffer up to $345 million of impact from hurricanes Harvey, Irma and Maria, the Mexican earthquakes and other Q3 events around the globe.

Arch’s estimate is for its losses to be in a range from $285 million to $345 million, after-tax, reinsurance recoveries and reinstatement premiums.

The firm has used an industry-wide loss estimate in a range from $80 billion to $100 billion for the combined impacts of these events.

Arch, like all the re/insurers estimating their losses, notes the significant uncertainty in these loss estimates.

Given the aggregation of multiple complex losses, it is going to be some months before these companies fully understand their exposures and losses.

Arch also notes the risk that “actual losses may increase if the Company’s reinsurers fail to meet their obligations to the Company or the reinsurance protections purchased by the Company are exhausted or are otherwise unavailable,” a valid concern given the extent of losses suffered by the industry.

Arch of course has its third-party capitalised, total-return strategy reinsurance company Watford Re, which while it is casualty and longer-tailed risk focused, may also have taken some losses from these recent events, perhaps helping Arch to manage its own PML.

Arch also manages third-party capital in ILS vehicles, and had grown its insurance-linked securities (ILS) related assets to $500 million, recently, as the re/insurer leverages its Arch Re underwriting platform to provide investors with access to reinsurance-linked returns.

The assets are deployed through private reinsurance facilities, often bilateral trades such as quota shares with specific investors and also with certain ILS fund managers, we understand. These trades are largely property and catastrophe reinsurance related, so it is safe to assume that some of these ILS assets will be paying claims from recent loss events as well, as they share in Arch’s underwriting performance.