Arch Capital Group Sees Q2 Gain

July 28, 2005

Bermuda-based Arch Capital Group Ltd. reported that net income for the 2005 second quarter was $126.0 million, or $1.69 per share, compared to $104.3 million, or $1.42 per share, for the 2004 second quarter, and $241.9 million, or $3.26 per share for the six months ended June 30, 2005, compared to $191.7 million, or $2.69 per share, for the six months ended June 30, 2004.

Gross and net premiums written for the 2005 second quarter were $940.8 million and $723.7 million, respectively, compared to $816.3 million and $677.6 million, respectively, for the 2004 second quarter, and $1.92 billion and $1.52 billion, respectively, for the six months ended June 30, 2005, compared to $1.83 billion and $1.56 billion, respectively, for the six months ended June 30, 2004. The company’s combined ratio was 89.3% for the 2005 second quarter, compared to 87.8% for the 2004 second quarter, and 89.0% for the six months ended June 30, 2005, compared to 88.4% for the six months ended June 30, 2004. All per share amounts discussed in this release are on a diluted basis.

The company also reported after-tax operating income of $113.7 million, or $1.53 per share, for the 2005 second quarter, compared to $106.9 million, or $1.45 per share, for the 2004 second quarter, and $226.3 million, or $3.05 per share, for the six months ended June 30, 2005, compared to $193.7 million, or $2.72 per share, for the six months ended June 30, 2004. The company’s after-tax operating income represented a 19.0% annualized return on average equity for the 2005 second quarter.

The company also reports that it currently expects to incur net losses of between $15 million and $25 million in the 2005 third quarter resulting from Hurricanes Dennis and Emily. The estimates relating to these events are based on currently available information derived from modeling techniques, industry assessments of exposure and claims information obtained from the company’s clients and brokers.

To date, the company has received relatively few claims advices from clients and brokers. The company’s actual losses from these events may vary materially from the estimated net losses due to the inherent uncertainties in making such determinations resulting from several factors, including the potential inaccuracies and inadequacies in the data provided by clients and brokers, the modeling techniques and the application of such techniques, as well as the frequency of recent catastrophic events and the effects of any resultant demand surge on claims activity.

The combined ratio of the company’s insurance and reinsurance subsidiaries for the 2005 second quarter consisted of a loss ratio of 60.0% and an underwriting expense ratio of 29.3%, compared to a loss ratio of 60.4% and an underwriting expense ratio of 27.4% for the 2004 second quarter. The combined ratio of the company’s insurance and reinsurance subsidiaries for the six months ended June 30, 2005 consisted of a loss ratio of 60.5% and an underwriting expense ratio of 28.5%, compared to a loss ratio of 60.5% and an underwriting expense ratio of 27.9% for the six months ended June 30, 2004.

The loss ratio of 60.0% for the 2005 second quarter was comprised of 23.2 points of paid losses, 10.0 points related to reserves for reported losses and 26.8 points related to incurred but not reported reserves.

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