Arch sees Q4 catastrophes costing up to $130m net of reinsurance

Bermuda headquartered insurance and reinsurance firm Arch Capital Group has estimated that catastrophes during the fourth-quarter of 2018, including hurricane Michael and the California wildfires, will cost it up to $130 million net of reinsurance and retrocessional recoveries.

Hurricane Michael and the California wildfires are the major driver of the Q4 loss impact for Arch Capital, alongside a number of smaller catastrophe losses around the globe.

Arch says it expects pre-tax catastrophe losses for Q4 to be between $110 million and $130 million from these events, net of reinsurance recoveries made and any reinstatement premiums. This range includes and updates the previously announced $40 million to $60 million of cat losses that Arch revealed in its Q3 results report, which was only related to hurricane Michael.

Arch notes the “significant uncertainties surrounding the number of claims and scope of damage for these events,” saying that its estimates are based on a combination of modelled analysis, industry loss estimates, preliminary claims information from clients and brokers, plus a review of its in-force contracts.

The losses largely came from Arch’s non-U.S. underwriting operations, most likely with its Bermuda reinsurance unit taking a significant share of the burden.

Arch will benefit from its third-party capital relationships in minimising the financial impact to the firm from these losses.

The third-party capitalised, total-return strategy reinsurance company Watford Re, which largely casualty and longer-tailed risk focused, may have taken some losses from these recent events and assist Arch in managing its exposure to the wildfires in particular.

Meanwhile Arch’s $600 million or more of third-party reinsurance capital under its management in insurance-linked securities (ILS) related assets, which sees the firm using its Arch Re underwriting platform to provide third-party investors with access to reinsurance-linked returns, will enable the firm to spread its losses and share the burden with these some of these capital sources as well.