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Arch Capital (ACGL) Guides Q4 Catastrophe Loss of $155-$165M

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Arch Capital Group Ltd. (ACGL - Free Report) estimates fourth-quarter pre-tax net catastrophe losses in the range of $155-$165 million across its property casualty insurance and reinsurance segments, net of reinsurance recoveries and reinstatement premiums. The expected loss could be due to exposure to catastrophic incidents that include hurricanes Delta and Zeta and other minor global events in the fourth quarter. It considers updated loss estimates for catastrophes that occurred during the third quarter of 2020.

The estimated range also includes losses for the continual exposure to COVID-19 claims, which are constant from the estimates of previous quarters.

The Zacks Consensus Estimate for fourth-quarter earnings is currently pegged at 55 cents, which indicates a decline of 25.6% from the year-ago quarter’s reported figure. We expect estimates to move south once analysts start incorporating loss estimates into their numbers.

RMS, the world’s leading catastrophe risk solutions company, estimates total onshore U.S. insured losses from Hurricane Zeta to be between $3 and $5 billion. The estimate includes losses to the National Flood Insurance Program (NFIP) in the range of $200 to $400 million.

RMS estimates total onshore U.S. losses from Hurricane Delta between $2.0 billion and $3.5 billion. The loss estimate includes losses to the National Flood Insurance Program between $200 million and $400 million.

Being a property and casualty insurer, Arch Capital is exposed to catastrophic events like hurricanes, floods, windstorms, earthquakes, hailstorms, tornadoes, pandemic like COVID-19 and severe economic incidents. In the first nine months of 2020, Arch Capital incurred cat loss of $271.6 million due to the COVID-19 outbreak across the property casualty segments. Given the present financial market volatility on account of the pandemic, underwriting income declined 68.5% year over year to $251.5 million in the first nine months. Also, combined ratio deteriorated 1520 basis points to 95.1%.    

Nonetheless, better pricing and reinsurance cover is likely to provide some respite from cat loss incurred by the company in the fourth quarter.

As of Jul 1, 2020, the company’s insurance operations had in effect a reinsurance program that provided coverage for certain property catastrophe related losses. The amount equaled to $243 million in excess of various retentions per occurrence.

Shares of Arch Capital, carrying a Zacks Rank #3 (Hold), have gained 10.1% in the past six months compared with the industry’s increase of 14.7%. A diverse product and service portfolio that drives growth of premiums, expansion of U.S. Mortgage Insurance business along with a robust capital position will likely help the stock bounce back.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Cat Loss Estimates of Other P&C Insurers

United Insurance Holdings Corp. (UIHC - Free Report) estimates fourth-quarter 2020 catastrophe loss between $85 million and $100 million before income taxes or between $67 million and $79 million after tax, net of expected reinsurance recoveries. The estimated loss can be attributed to three named windstorms hurricanes Delta and Zeta, and Tropical Storm Eta as well as other non-named windstorm catastrophe events.

RenaissanceRe Holdings Ltd. (RNR - Free Report) projects a net negative impact of around $170 million on fourth-quarter operational results, which is scheduled to be released on Jan 26, 2021. The adverse impact is likely to have resulted from incidence of numerous catastrophe events in both third and fourth quarters of 2020, and alterations in estimated losses from catastrophe events of the third quarter.

AXIS Capital Holdings Limited (AXS - Free Report) estimates fourth-quarter 2020 catastrophe loss of $195-$205 million before income taxes. The estimated loss of $125 million, pre-tax, can be attributed to COVID-19 pandemic, which is in addition to the estimate of $235 million provided in the first quarter. The other catastrophe and weather-related estimated losses in the range of $70 million to $80 million before income taxes can be attributed to Hurricanes Zeta and Delta and regional weather events in the United States.

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