Arch Capital Q3 Underwriting Loss $38.5 Million; $26.4 Million Net Income

The Bermuda-based Arch Capital Group Ltd. reported that net income available to common shareholders for the 2008 third quarter was $26.4 million, or $0.42 per share, compared to $199.7 million, or $2.76 per share, for the same quarter of 2007.

For the first 9 months of 2008, Arch reported net income of $408.1 million, or $6.23 per share, compared to $597.7 million, or $8.00 per share, for the 2007 period.

Despite an underwriting loss of $38.5 million, Arch reported “after-tax operating income available to common shareholders of $64.1 million, or $1.02 per share, for the 2008 third quarter, compared to $214.6 million, or $2.96 per share, for the 2007 third quarter, and $451.5 million, or $6.89 per share, for the nine months ended September 30, 2008, compared to $624.9 million, or $8.36 per share, for the 2007 period. All earnings per share amounts discussed in this release are on a diluted basis.”

The earnings announcement continued with a rundown of the Company’s book value per common share, including the net effect of share repurchases, which “was $53.04 at September 30, 2008, compared to $57.49 at June 30, 2008 and $55.12 at December 31, 2007.

“The Company’s after-tax operating income available to common shareholders represented a 7.6 percent annualized return on average common equity for the 2008 third quarter, compared to 24.8 percent for the 2007 third quarter, and 17.4 percent for the nine months ended September 30, 2008, compared to 24.5 percent for the 2007 period.”

On the investment front Arch reported the following: “During the 2008 third quarter, pre-tax net realized losses on the Company’s investment portfolio were $105.5 million, which reflected $82.5 million of other-than-temporary impairment charges, including $23 million of write downs on the Company’s holdings in fixed income securities issued by Lehman Brothers Holdings Inc.

“The Company recorded approximately $200 million of unrealized losses on its investment portfolio during the 2008 third quarter, excluding foreign exchange, which was primarily attributable to wider credit spreads and not to issue-specific credit events in the period.

“In addition, the Company recorded approximately $70 million of unrealized losses on investments held in foreign currencies due to strengthening of the U.S. Dollar, which was largely offset by net foreign exchange gains described below. Through October 22, 2008, the Company estimates that the total return on its investment portfolio, excluding foreign exchange, generated approximately $150 million of additional unrealized losses.” However, this figure is also subject to change.

The full report, additional information and details concerning access to today’s earnings conference call may be obtained on the Group’s web site at: http://www.archcapgroup.bm.

Source: Arch Capital Group