Bermuda-headquartered insurer and reinsurer Arch Capital Group Ltd. has reported an 8.9% increase in group-wide gross premiums written (GPW) to $6.5 billion for the first quarter of 2025, compared to $5.9 billion last year, as the firm’s combined ratio deteriorated to 90.1% on higher catastrophe losses driven by the California wildfires.
In terms of growth, the carrier’s net premiums written (NPW) for Q1’25 increased by 10.5% to $4.5 billion, as net premiums earned (NPE) increased by 22.4% to $4.2 billion, compared to $4.1 billion and $3.4 billion in Q1’24, respectively.
While premiums increased in the quarter, the re/insurer’s underwriting income declined by 43.3% year-on-year to $417 million compared to $736 million in Q1’24.
This is due to a higher loss ratio of 61.8% for this quarter, compared with 50.5% in Q1’24, while the underwriting expense ratio remained unchanged at 28.3%.
For Q1’25, pre-tax current accident year catastrophic losses in the insurance and reinsurance segments, net of reinsurance and reinstatement premiums, were $547 million, mostly driven by the California wildfires in January.
Given the elevated cat loss experience in the period, Arch’s combined ratio increased by 11.3 points to 90.1% for Q1’25, compared with 78.8% in Q1’24.
Group-wide, Arch has reported net income of $564 million for the opening three months of 2025, down on the prior year’s $1.1 billion. After-tax operating income available to Arch common shareholders totalled $587 million in Q1’25, down on the prior year’s $933 million.
In the company’s reinsurance segment, GPW grew by just 0.8% year over year to $3.5 billion. NPW came in 2.2% higher than Q1’24 at $2.3 billion, and NPE increased by 21.7% to $2 billion.
“The growth in net premiums written primarily reflected increases in casualty, property catastrophe and property excluding property catastrophe lines, due in part to rate increases, new business opportunities and growth in existing accounts. These increases were mostly offset by reductions in specialty lines due to non-renewals of structured deals and share reductions,” explains the firm.
The reinsurance segment’s underwriting income dropped 55.9% to $167 million in Q1’25 compared to $379 million in Q1’24. The underwriting expense ratio was 24.9%, compared to 24.4% last year, as the loss ratio rose by 13.9 points to 66.9%. This led to a combined ratio of 91.8% for the reinsurance arm in Q1’25, compared with 77.4% a year earlier.
“The 2025 first quarter loss ratio reflected 21.7 points of current year catastrophic activity, primarily related to the California wildfires, compared to 3.0 points related to the Baltimore bridge collapse along with 1.9 points of current year catastrophic activity in the 2024 first quarter,” explains Arch.
At the same time, estimated net favourable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 5.9 points in Q1’25, compared to 2.4 points in Q1’24. The balance of the change in the loss ratio resulted, in part, from changes in the mix of business, says the firm.
In August 2024, Arch’s insurance segment completed the acquisition of the U.S. MidCorp and Entertainment insurance businesses from Allianz, and the Q1’25 results, outlined below, include a full quarter of activity related to the acquired business.
In the insurance segment, GPW for Q1’25 rose 24.4% at $2.7 billion compared to $2.1 billion in Q1’24. Meanwhile, NPW was 25.4% higher at $1.9 billion compared to $1.5 billion in Q1’24. The growth, excluding the impact of the MCE Acquisition, was driven by an increase in commercial automobile and other liability, and by new business opportunities and rate changes. The quarter’s NPE increased by 28.2% to $1.9 billion compared to $1.5 billion in Q1’24.
In terms of profitability, the insurance segment underwriting income declined by 102.3% to a loss of $2 million in Q1’25, compared with an underwriting gain of $86 million in Q1’24, as the loss ratio increased from 58.9% to 66% and the expense ratio fell slightly to 34.1%. This resulted in a Q1’25 combined ratio of 100.1% for Q1’25, up on the prior year’s 94.1%.
It should be noted that the underwriting expense ratio also included an impact of the MCE Acquisition, lowering it by approximately 1.9 points, due to the effects of the fair value estimation of the assets acquired at closing, including the non-recognition of deferred acquisition costs.
The Q1’25 loss ratio reflected 9.5 points of current year catastrophic activity, primarily related to the California wildfires, compared to 2.1 points of activity related to the Baltimore bridge collapse, along with 1.9 points of current year catastrophic activity in Q1’24.
The estimated net favourable development of prior year loss reserves, before adjustments, reduced the loss ratio by 0.9 points in Q1’25, compared to 0.7 points last year.
In the re/insurer’s mortgage arm, the firm reported a 4.4% decrease in GPW to $326 million. NPW also went down by 4% in Q1’25 to $266 million, due to a lower level of mortgage originations, mostly in Arch’s international businesses. NPE for the quarter went down by 1.6% to $300 million from $305 million last year.
Additionally, estimated net favourable development of prior year loss reserves, before adjustments, decreased the loss ratio by 20.4 points, compared to 24.4 points in Q1’24.
On the asset side of the balance sheet, Arch has reported pre-tax net investment income of $378 million in Q1’25, up on the prior year’s $327 million, with a 2.02% total return on investments for this year’s first quarter.
Nicolas Papadopoulo, Chief Executive Officer, Arch, commented, “We delivered solid results this quarter despite the losses arising from the California wildfires, resulting in an annualized operating return on equity of 11.5%. Although the market has generally become more competitive, we remain optimistic about our prospects to deliver long-term shareholder value. For a company with a strong underwriting culture like Arch, this is a market where we can stand out.”
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