Arch Capital Estimates Q3 Catastrophe Loss of $190-$210M

Arch Capital Group Ltd. ACGL estimates third-quarter pre-tax net catastrophe losses in the range of $190-$210 million across its property casualty insurance and reinsurance segments, net of reinsurance recoveries and reinstatement premiums. The expected loss could be due to exposure to catastrophic incidents that include hurricanes Isaias, Laura and Sally, the Derecho windstorm, California wildfires and other minor global events in the third quarter.

The estimated range also includes losses in the range of $10-$15 million for the continual exposure to COVID-19 global pandemic claims, which are an addition to the earlier estimated loss of $260 million for the first half of 2020.

These estimated losses are limited to the Arch Capital’s insurance and reinsurance segments and do not include any potential losses for the mortgage insurance segment.

The Zacks Consensus Estimate for third-quarter earnings is currently pegged at 11 cents, which indicates a decline of 82.5% from the year-ago quarter’s reported figure. We expect estimates to move south once analysts start incorporating loss estimates into their numbers.

RMS, the world’s leading catastrophe risk solutions company, projects total insured losses from Hurricane Isaias for the United States in the range of $3-$4.5 billion. The same for Hurricane Laura is expected in the range of $9-$13 billion. RMS also estimated total U.S. insurance and reinsurance industry losses from Hurricane Sally in the range of $2-$3.5 billion.

Being a property and casualty insurer, Arch Capital is exposed to catastrophic events like hurricanes, floods, windstorms, earthquakes, hailstorms, tornadoes, pandemic like COVID-19 and severe economic incidents. In the first half of 2020, Arch Capital incurred cat loss of $259.7 million due to the COVID-19 outbreak across the property casualty segments. Given the present financial market volatility on account of the pandemic, underwriting income declined 74% year over year to $146.6 million in the first half. Also, combined ratio deteriorated 1740 basis points to 95.8%.

Nonetheless, better pricing and reinsurance cover will likely provide some respite from cat loss incurred by the company in the third quarter.

As of Jul 1, 2020, the company’s insurance operations had in effect a reinsurance program that provided coverage for certain property catastrophe related losses. The amount equalled to $243 million in excess of various retentions per occurrence.

Shares of Arch Capital, carrying a Zacks Rank #3 (Hold), have lost 28.1% year to date compared with the industry’s decline of 9.1%. Diverse product and service portfolio that drives growth of premiums, expansion of U.S. Mortgage Insurance business along with a robust capital position will likely help the stock bounce back.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cat Loss Estimates of Other P&C Insurers

Several property and casualty insurers are coming up with their third-quarter catastrophe loss estimates. RLI Corp. RLI and Palomar Holdings PLMR estimate third-quarter 2020 catastrophe loss of about $35 million to $45 million before taxes, net of reinsurance and pretax catastrophe loss of about $34 million to $38 million, net of reinsurance, respectively. The losses can be attributed to Hurricane Hanna, Hurricane Isaias, Hurricane Laura and Hurricane Sally.

AXIS Capital Holdings Limited AXS estimates third-quarter 2020 pretax catastrophe loss in the range of $225 million to $255 million, stemming from Hurricanes Laura and Sally, the Midwest derecho, wildfires across the West Coast of the United States, the Beirut explosion and regional weather events in the United States.

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