Arch Capital Estimates Q3 Katrina Impact at $110 to $160M

Bermuda-based Arch Capital Group Ltd. announced that it expects third quarter operating earnings to be negatively impacted by the effects of Hurricane Katrina in the range of $110 to $160 million, after tax.

“These initial estimates are based on industry insured losses (including marine and energy losses) of $25 to $35 billion, respectively, and reflect expected reinstatement premiums,” said the bulletin. “These initial estimates represent approximately 0.4 percent of the industry’s aggregate loss estimates. The losses are currently expected to arise equally in the company’s insurance and reinsurance businesses if the industry loss is at the lower end of the range and move to a 40/60 split, insurance and reinsurance, if the losses are at the upper end of the estimates.”

Arch also noted, as have most of the other insurers and reinsurers hit by Katrina, that “due to the size and complexity of the storm, there is substantial uncertainty regarding total covered losses for the insurance industry and the assumptions underlying the company’s estimates relating to the hurricane. These estimates are based on currently available information derived from modeling techniques, industry assessments of exposure, extremely preliminary claims information obtained from the company’s clients and brokers to date and a review of the company’s in-force contracts.”

Arch indicated that its “actual losses from the hurricane may vary materially from the estimates due to the inherent uncertainties in making such determinations resulting from several factors, including the preliminary nature of the available information, the potential inaccuracies and inadequacies in the data provided by clients and brokers, the modeling techniques and the application of such techniques, the contingent nature of business interruption exposures and the manner in which flood losses will attach, as well as the effects of any resultant demand surge on claims activity.”

It also warned that the “actual losses may increase if the company’s reinsurers fail to meet their obligations to the company or the reinsurance protections purchased by the company are exhausted.”