Hamilton, Bermuda-based insurer Arch Capital Group Ltd. said losses from Hurricanes Gustav and Ike could cost it close to $200 million.
The company said it expects pretax earnings for the third quarter of 2008 from the two hurricanes to impact earnings in the range of $105 million to $180 million, net of reinsurance and reinstatement premiums.
Arch said its losses from Hurricane Gustav are estimated to range from $15 million to $30 million based on industry insured losses of $2.5 billion to $4.5 billion. The preliminary net loss estimate for Hurricane Ike ranges from $90 million to $150 million based on industry losses of $8 billion to $12 billion.
The losses will affect 30 percent of its insurance operations and 70 percent of its reinsurance operations. The company noted that it previously reported that a significant portion of the company's catastrophe-exposed business is written by a Bermuda-based subsidiary. Arch said that as a result, "generally, the company's effective tax rate is likely to be adversely impacted in periods with significant catastrophic claims activity."
Arch said the estimates are based on currently available information derived from modeling techniques, industry assessments of exposure, preliminary claims information obtained from the company's clients and brokers to date, and a review of the company's in-force contracts.
In response to the ongoing economic crisis, Arch said of its investment holdings that it has publicly-traded equity securities including investments in equity index funds amounting to $106.2 million as of June 30. It holds fixed-income securities of subsidiaries of American International Group Inc. valued at $16.9 million and $26.3 million in fixed income securities issued by Lehman Brothers Holdings Inc. The value was fixed on June 30.
Lehman filed for bankruptcy earlier this month and AIG secured an $85 billion bridge loan from the federal government in return for close to 80 percent stock ownership in the company by the government.
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