Arch Capital estimates Q3 net catastrophe losses with Ian of up to $560m

Bermuda headquartered insurance and reinsurance firm Arch Capital Group has pre-announced its expected losses from the third-quarter of 2022, including recent major hurricane Ian, saying it anticipates pre-tax net catastrophe losses of $530 million to $560 million.

These losses are from across the Arch Capital property casualty insurance and reinsurance segments and largely include global catastrophe activity that occurred in Q3.

Listing the major impacts, Arch said these were hurricane Ian, U.S. convective storms, Typhoon Nanmadol and the June French hailstorms.

The French hail event could be considered a Q2 catastrophe loss, but the industry has been hit by significant loss creep on the total from those storms, which are expected to be booked at Q3 by most exposed insurance and reinsurance firms.

The estimate for a range of pre-tax catastrophe losses from $530 million to $560 million is also net of reinsurance recoveries and reinstatement premiums, Arch said.

Arch also noted that, with hurricane Ian, its estimate is commensurate with an industry insured loss estimate range of $50 billion to $60 billion and based on an approximate market share of industry losses for Arch comparable to prior natural events of a large magnitude.

In addition, hurricane Ian losses are expected to be split roughly 70%/30% between Arch’s reinsurance and insurance businesses, respectively.

Analysts at KBW had previously estimated Arch could have faced a $732 million net loss from hurricane Ian.

Arch noted significant uncertainty in its estimates and highlighted that with hurricane Ian occurring so late in the quarter, that uncertainty is even higher.

Of course, Arch Capital operates a significant fronting business, where it works with insurance-linked securities (ILS) funds and investors to front contracts using its balance-sheet, to help them access risk more easily and benefit from coverage features they can offer their counterparties that are only available with a rated and leveraged balance-sheet approach.

Given Arch’s estimate of catastrophe losses is given net, losses that will be passed on through ILS fronting relationships won’t be accounted for here, meaning the gross loss figure could be far higher and in fact look outsized, as third-party capital partners will be bearing that part of the claims burden that flows through the company.