Arch’s profits fall; cedes $32m to Watford
Arch Capital Group’s profit fell in the first quarter of 2014 while it ceded $32.2 million of premiums to Watford Re as the start-up reinsurer it helped form began underwriting.
The company’s first quarter net income fell to $177 million, a 29.5 percent decrease from the $251 million it made in the first quarter of 2013. Its combined ratio saw a minimal increase from 84.6 percent to 84.7 percent in the quarter.
Its gross premiums written increased by 11.3 percent to $1.3 billion in the quarter, up from $1.16 billion in the same quarter last year. Its net premiums written also increased to $1.06 billion from $952.8 million, an 11.8 percent rise.
Its growth included a 6.1 percent growth in the gross written premiums written by its insurance segment while the net premiums written in this unit were 8.1 percent higher. The growth primarily resulted from increases in: programmes; excess and surplus casualty; travel, accident and health; and construction and national accounts. This was partially offset by a reduction in property, energy, marine and aviation business.
Gross premiums written by its reinsurance segment were 14.8 percent higher while net premiums written were 5.1 percent higher than in the 2013 first quarter. It said the differential in gross versus net premiums written reflected the cession of premiums to the ‘other’ segment (Watford) in the 2014 first quarter and a higher amount of retrocessional usage than in the 2013 first quarter.
The growth in net premiums written reflected increases in casualty and other specialty lines, partially offset by reductions in property catastrophe and marine lines. Growth in casualty premiums (which includes professional liability business) reflected new international excess motor business and quota shares of US professional liability business while the increase in other specialty premiums reflected growth in multi-line, crop hail, workers' compensation catastrophe, personal auto and other business, partially offset by a continued reduction in quota share UK motor business.
It said the reduction in property catastrophe business reflected market conditions, selected non-renewals and a higher usage of retrocessional coverage.
Arch invested $100 million in the newly-formed Watford Re, which started operating in late March 2014, in which it acquired approximately an 11 percent equity stake.
Arch manages underwriting on the capitalised vehicle while Highbridge Principal Strategies, a subsidiary of JPMorgan Chase & Co, manages Watford's investment assets, each under a long term services agreement.
