Arch Capital Unveils Q2 Numbers

Bermuda-based Arch Capital Group Ltd. reports that net income for the 2004 second quarter was $104.3 million, or $1.42 per share, compared to $61.8 million, or $0.91 per share, for the 2003 second quarter, and $191.7 million, or $2.69 per share, for the six months ended June 30, 2004, compared to $114.3 million, or $1.70 per share, for the six months ended June 30, 2003.

The company’s diluted book value per share increased by 11.0% to $28.33 at June 30, 2004 from $25.52 at Dec. 31, 2003. Gross premiums written increased by 20.8% to $816.3 million for the 2004 second quarter from $676.0 million for the 2003 second quarter, and increased by 18.9% to $1.83 billion for the six months ended June 30, 2004 from $1.54 billion for the six months ended June 30, 2003.

The company’s combined ratio was 87.8% for the 2004 second quarter, compared to 90.7% for the 2003 second quarter, and 88.4% for the six months ended June 30, 2004, compared to 90.7% for the six months ended June 30, 2003. All per share amounts discussed in this release are on a diluted basis. The company also reported after-tax operating income of $106.9 million, or $1.45 per share, for the 2004 second quarter, compared to $59.2 million, or $0.87 per share, for the 2003 second quarter, and $193.7 million, or $2.72 per share, for the six months ended June 30, 2004, compared to $108.4 million, or $1.61 per share, for the six months ended June 30, 2003.

The company’s after-tax operating income represented a 21.1% return on average equity for the 2004 second quarter, compared to 15.6% for the 2003 second quarter, and 20.7% for the six months ended June 30, 2004, compared to 14.6% for the six months ended June 30, 2003. Operating income, a non-GAAP measure, is defined as net income or loss, excluding net realized gains or losses, net foreign exchange gains or losses, other income or loss and non-cash compensation, net of income taxes.

The combined ratio of the company’s insurance and reinsurance subsidiaries consisted of a loss ratio of 60.4% and an underwriting expense ratio of 27.4% for the 2004 second quarter, compared to a loss ratio of 65.1% and an underwriting expense ratio of 25.6% for the 2003 second quarter. The combined ratio of the company’s insurance and reinsurance subsidiaries for the six months ended June 30, 2004 consisted of a loss ratio of 60.5% and an underwriting expense ratio of 27.9%, compared to a loss ratio of 65.1% and an underwriting expense ratio of 25.6% for the six months ended June 30, 2003. The loss ratio of 60.5% for the six months ended June 30, 2004 was comprised of 15.1 points of paid losses, 8.3 points related to reserves for reported losses and 37.1 points related to incurred but not reported reserves.

The company also announced that it has entered into a definitive agreement to sell its non-standard automobile insurance operations. During specified periods following closing, the company will continue to provide substantial reinsurance to the subsidiaries transferred in the sale. The transaction is subject to obtaining applicable regulatory approvals and other customary closing conditions and is not expected to result in a material realized gain or loss for the company.