Arch Net Income Sees 84% Drop

Arch Capital Group reported net income for the third quarter dropped 84 percent, with a more than 20-point increase in the insurer's combined ratio.

The Hamilton, Bermuda-based company reported net income dropped $173.5 million to $33 million in the quarter compared to the same period last year, translating into 42 cents a share, a loss of $2.34 a share. Revenues were down 14 percent, or $120 million, to $747 million. The combined ratio for the period rose 20.5 points to 105.3.

For the nine months, net income fell 31 percent, or $190 million, to $427.5 million, or $6.23 a share. Revenues for the period were down 6 percent, or $162 million, on a comparative basis, to $2.43 billion. The combined ratio rose 8.8 points, standing at 92.9.

The company reported estimated after-tax losses of $133 million related to Hurricanes Gustav and Ike, after reinsurance recoveries and net of reinstatement premiums.

The company's investment portfolio in the third quarter saw a pre-tax net realized loss of $105.5 million that included $23 million of write-downs in fixed income securities issued by Lehman Brothers Holdings Inc. It also recorded $200 million of unrealized losses on its investment portfolio in the third quarter, primarily attributable to wider credit spreads and not to issue-specific credit events.

The strengthening of the U.S. Dollar recorded $70 million of unrealized losses on investments held in foreign securities.

Through Oct. 22, Arch said it estimates that total return on its investment portfolio, excluding foreign exchange, generated approximately $150 million of additional unrealized losses.

The company said its investment portfolio contains no collateralized debt obligations, collateralized loan obligations, or credit default swaps.