Arch estimates up to $345m Q3 catastrophe losses on $47bn+ industry bill

Arch Capital Group, the Bermuda headquartered specialty insurance and reinsurance company, has pre-announced an estimated up to $345 million of catastrophe losses for the third-quarter, which it has based on an expected industry loss burden of at least $47 billion.

Arch Capital is the first of the Bermudian re/insurer’s to pre-announce its third-quarter catastrophe claims burden and the reasonably high figures give us an idea of what to expect, especially for some of the more property catastrophe focused players.

Arch said it expects to report pre-tax net catastrophe losses of between $330 million and $345 million, with these claims flowing across its property casualty insurance and reinsurance segments from global catastrophe loss events that occurred during the third-quarter of 2021.

The majority of these losses come from hurricane Ida and the European flood events, with the rest from a range of other global loss activity.

The loss estimates, of $330 million to $345 million, are given net of reinsurance recoveries and reinstatement premiums, suggesting some protection will help Arch in paying its claims, either on the reinsurance or retrocession side.

Around two-thirds of the estimated catastrophe losses are said to have come from the reinsurance side of the business, according to Arch, suggesting retro may be the source of at least some recoveries for the company.

Arch Capital has based its estimate on certain levels of industry loss for the major events and it has picked hurricane Ida at $30 billion, which is interesting as this seems on the lower side, given where modelled loss estimates suggest Ida could end up.

With loss creep, which is expected, plus the flood impacts further north and east from Ida’s remnants, the market does seem to be largely forecasting a loss of above $30 billion, with $35 billion seeming a good place to start anticipating Ida to settle, according to our sources.

On the European flooding, Arch has gone with the widely accepted $12 billion industry loss estimate, which could also have some scope for further creep, we understand.

Another more than $5 billion of industry losses are attributed to other, more minor, global catastrophe loss events that occurred during Q3 2021, which takes you to the more than $47 billion quarterly industry toll that Arch has based its estimates on.

Arch has been cautious though, highlighting potentially “significant uncertainties surrounding the ultimate number of claims and scope of damage resulting from these events.”

The company also said that its estimates are only based on claims incurred as of the end of September, which also suggests the figures are more likely to creep.

As a result, “actual losses from these events may vary materially from the estimates,” Arch said.

Arch works with third-party capital in a number of ways, managing some for investors, and also fronting risks for ILS funds and investors as well.

This means its exposure to these catastrophe events on a gross basis was likely far higher, while the third-party capital partners and ILS funds that Arch Capital works with will have reduced the gross loss burden.

Losses aside, Arch remains very well-capitalised and also announced an expansion of its share buyback program to $1.5 billion yesterday.

It’s going to be interesting to see how large other Bermudian re/insurers losses are from these events, as Arch has often proven to be more property catastrophe cautious than some others. Expect further pre-announcements as the Q3 reporting season approaches.