Arch Reports 2Q Net Income Up 54%

The company's combined ratio rose 2.8 points to 90.

For the first half of the year, net income increased 51 percent, or $156 million, to $460 million, an increase of $3.56 a share to $8.23.

Revenues for the first six months increased 1 percent, or $22 million, to $1.62 billion. Net premium written decreased 8 percent, or $125 million, to $1.39 billion. The combined ratio for the period rose 6.4 points to 93.4.

During a conference call with investment analysts, John Hele, chief financial officer, said the company had $15 million of exposure to the Deepwater Horizon loss in the Gulf of Mexico, but otherwise losses were light for the company.

Constantine P. Iordanou, chairman, president and chief executive officer for Arch, said, "Our performance for the second quarter was reasonable in light of the challenging environment in which we're operating."

He said the company is concentrating on reducing its exposure to long-tail business on the reinsurance side and that its catastrophe losses were better than last year. He said the company's definition of catastrophe does not include man-made events, such as Deepwater Horizon.

Reinsurance property catastrophe rates continue to decline 5-to-15 percent, and terms and conditions are stable on quota share contracts, he said. He said some late property catastrophe deals were written at better rates than January 1 and last year's pricing.

On the insurance side, Mr. Iordanou said the company is seeking to write in less volatile lines and is reducing writings in casualty lines.

Rates in the U.S. market remain under pressure and range from up 2 percent to down 9 percent, depending on line of business and size of account.

Across all lines, rates are down 3 percent, he said.

"If we have to give up volume to maintain margin, we will do so," he said.

When asked a question about the Neal Bill (H.R. 3424, intended to disallow the deduction for excess non-taxed insurance premium) that is winding its way through Congress, Mr. Iordanou said the bill is clearly protectionist and is backed by special interests in the U.S. industry. However, he said passage would not have much effect on Arch because the company already pays a substantial amount of U.S. tax on its business.

As far as insurance rate pricing is concerned, Mr. Iordanou said he does not see any dramatic turnaround in the direction of the soft market, adding he believes 2011 and 2012 will be "tough years."

"The market changes on fear, and there is no fear in the marketplace," he said.