Arch Q4 Profits Up 28 Percent to $107.1 Million; Comments on Investigations

The Bermuda-based Arch Capital Group Ltd. reported net income for the 2004 fourth quarter of $107.1 million, or $1.45 per share, compared to $83.7 million, or $1.22 per share, for the 2003 fourth quarter. The company indicated that “all per share amounts discussed in this release are on a diluted basis.”

Arch’s earnings for the full year ended December 31, 2004 were $316.9 million, or $4.37 per share, compared to $280.6 million, or $4.14 per share, for the year ended December 31, 2003. The Company’s diluted book value per share increased to $31.03 at December 31, 2004, a 5.1 percent increase from $29.53 per share at September 30, 2004 and a 21.6 percent increase from $25.52 per share at December 31, 2003.

Gross premiums written were $914.2 million for the 2004 fourth quarter, compared to $761.7 million for the 2003 fourth quarter, and $3.67 billion for the year ended December 31, 2004, compared to $3.23 billion for the year ended December 31, 2003.

The Company’s combined ratio was 87.8 percent for the 2004 fourth quarter, compared to 89.3 percent for the 2003 fourth quarter, and 92.1 percent for the year ended December 31, 2004, compared to 90 percent for the year ended December 31, 2003. Arch also reported after-tax operating income of $117.4 million, or $1.59 per share, for the 2004 fourth quarter, compared to $87.9 million, or $1.29 per share, for the 2003 fourth quarter, and $320.2 million, or $4.41 per share, for the year ended December 31, 2004, compared to $266.5 million, or $3.93 per share, for the year ended December 31, 2003.

The announcement noted:” The Company’s after-tax operating income represented a 21.5 percent annualized return on average equity for the 2004 fourth quarter, compared to 21 percent for the 2003 fourth quarter, and 16.2 percent for the year ended December 31, 2004, compared to 17.1 percent for the year ended December 31, 2003. Operating income, a non-GAAP measure, is defined as net income or loss before extraordinary items, excluding net realized gains or losses, net foreign exchange gains or losses, other income or loss, reversal of deferred tax asset valuation allowances and non-cash compensation, net of income taxes.”

The full financial report is available on the group’s Web site at: http://www.archinsurance.com.

Arch also commented on the requests it has received for information from “insurance regulatory authorities as to relationships with, and payments to, brokers and other agents.” These include a subpoena from the New York State Attorney General “requesting certain information concerning its underwriting activities with respect to insurance coverages to lawyers and law firms for acts of professional malpractice.” Arch stressed that it is “cooperating with these requests.”

The bulletin also noted that in view of the ongoing industry investigation, “the Company retained Cahill Gordon & Reindel LLP to conduct an internal review relating to certain business practices in the insurance industry currently being investigated by the Attorney General of New York and others. They recently informed the Company that their review is substantially complete and that they have found no evidence that the Company has engaged in illegal bid-rigging or price fixing such as alleged in the New York Attorney General’s October 14, 2004 complaint against Marsh & McClennan Companies, Inc., and have found no evidence that the Company has engaged in any illegal tying of insurance and reinsurance services.”

Arch has scheduled a conference call for investors and analysts at 10:00 a.m. Eastern Time on Tuesday, February 15, 2005. A live webcast of this call will be available via the Media-Earnings Webcasts section of the Company’s website at http://www.archcapgroup.bm and will be archived on the website from 12:00 p.m. Eastern Time on February 15 through midnight Eastern Time on March 15, 2005. A telephone replay of the conference call also will be available beginning on February 15 at 12:00 p.m. Eastern Time until February 22 at midnight Eastern Time. To access the replay, domestic callers should dial 888-286-8010 (passcode 85815246), and international callers should dial 617-801-6888 (passcode 85815246).