Arch Capital Posts $86.3 Million Q3 Loss from Hurricanes

October 28, 2005

The Bermuda-based Arch Capital Group Ltd. has duly taken its turn at the hurricane whipping post, reporting a third quarter net loss of $86.3 million, or $1.15 per share â??on a pro forma basisâ?? (explained in a note). On a GAAP basis the per share loss was $2.48, which exceeded analysts’ forecasts.

In the third quarter of 2004 Arch reported net income of $18 million, or $0.25 per share. For the nine months ended September 30, 2005, the Company reported net income of $155.6 million, or $2.09 per share, compared to $209.8 million, or $2.91 per share, for the nine months ended September 30, 2004.

The earnings report noted: â??The Company also reported an after-tax operating loss of $81.9 million for the 2005 third quarter, or $1.09 on a pro forma basis (see page 2), compared to after-tax operating income of $9.1 million, or $0.12 per share, for the 2004 third quarter, and $144.4 million, or $1.94 per share, for the nine months ended September 30, 2005, compared to $202.8 million, or $2.81 per share, for the nine months ended September 30, 2004. Operating income or loss, a non-GAAP measure, is defined as net income or loss, excluding net realized gains or losses, net foreign exchange gains or losses, certain non-cash compensation and other income or loss, net of income taxes.â??

The losses are almost entirely the result of weather events. Hurricanes Dennis, Emily, Katrina and Rita and the European floods hit Arch with estimated after-tax net losses of $250.9 million in the third quarter. By comparison the same period last year resulted in after-tax net losses of $144.6 million from Hurricanes Charley, Frances, Ivan and Jeanne and Typhoon Songda.

Arch said: â??With respect to the 2005 events, the estimates were based on currently available information derived from modeling techniques, industry assessments of exposure, preliminary claims information obtained from the Company’s clients and brokers and a review of the Company’s in-force contracts. Due to the size and complexity of Hurricane Katrina, substantial uncertainty remains regarding total covered losses for the insurance industry and the assumptions underlying the Company’s estimates relating to the hurricane.

â??In addition, actual losses from Hurricane Katrina may increase if the Company’s reinsurers fail to meet their obligations to the Company or the reinsurance protections purchased by the Company are exhausted or otherwise unavailable. The Company’s actual losses from all of these events may vary materially from the estimates due to the inherent uncertainties in making such determinations resulting from several factors, including the preliminary nature of the available information, the potential inaccuracies and inadequacies in the data provided by clients and brokers, the modeling techniques and the application of such techniques, the contingent nature of business interruption exposures, the effects of any resultant demand surge on claims activity and, in the case of the hurricanes, attendant coverage issues.â??

The entire earnings report may be obtained on the companyâ??s Website at:

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