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Arch Capital (ACGL) Estimates Q1 Catastrophe Loss of $180-$190M

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Arch Capital Group Ltd. (ACGL - Free Report) estimates first-quarter pre-tax net catastrophe losses in the range of $180-$190 million across its property casualty insurance and reinsurance segments, net of reinsurance recoveries and reinstatement premiums.

The adverse impact is likely to have stemmed from the effects of North American winter storms Uri and Viola that occurred in February, as well as from other minor global events.

The estimated range also includes minimum amount of losses for the continual exposure to COVID-19 claims.

The Zacks Consensus Estimate for first-quarter earnings is currently pegged at 63 cents, which indicates an increase of 36.9% from the year-ago quarter’s reported figure. We expect estimates to move south once analysts start incorporating loss estimates into their numbers.

The initial estimates for winter storms Uri and Viola are based on a range of industry insured losses of $14 billion to $16 billion. Catastrophe risk modelling specialist Karen Clark & Company updated its estimate for insurance and reinsurance market losses from the ongoing winter storm Uri in the United States, to $18 billion, reflecting the widespread and severe impacts felt. Catastrophe risk modeller AIR Worldwide has warned that winter storm Uri and associated severe winter weather could result in an insurance and reinsurance industry loss of more than $10 billion. AIR warned that there are several factors that could still potentially drive the loss well in excess of $10 billion.

Being a property and casualty insurer, Arch Capital is exposed to catastrophic events like hurricanes, floods, windstorms, earthquakes, hailstorms, tornadoes, COVID-19 and severe economic incidents. In 2020, Arch Capital incurred cat loss of $272 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 56.6% year over year to $449 million in 2020. Also, combined ratio deteriorated 1150 basis points to 94%.

In the first quarter of 2021, Reinsurance and Insurance segments will absorb 80% and 20% of the estimated losses, respectively.

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

As of Jan 1, 2021, the company’s insurance operations had in effect a reinsurance program that provided coverage for certain property catastrophe related losses. The amount equalled $276 million in excess of various retentions per occurrence.

Arch Capital, carrying a Zacks Rank #3 (Hold), has gained 50.1% in the past year compared with the industry’s increase of 34%. 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 continue its momentum.

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

Cat Loss Estimates of Other P&C Insurers

Several property and casualty insurers are also coming up with their first-quarter catastrophe loss estimates.

AXIS Capital Holdings Limited (AXS - Free Report) estimates first-quarter 2021 catastrophe loss of $95-$105 million, after-tax, stemming from Winter Storms Uri and Viola, principally in Texas.

The Allstate Corporation (ALL - Free Report) expects first-quarter 2021 catastrophe losses of $466 million, after-tax.

RenaissanceRe Holdings Ltd. (RNR - Free Report) anticipates a net negative impact of roughly $180 million on first-quarter 2021 operational results. The adverse impact  was due to the  occurrence of the Winter Storm Uri, a highly disastrous wind and ice storm that occured in February 2021.

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