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Arch profit up on favorable foreign exchange rate

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Arch Capital Group Ltd. reported fourth-quarter net income of $209.7 million, an increase of 34.4% from the same period last year as results benefitted from favorable foreign exchange conditions.

Results were bolstered by a net foreign exchange gain of $34.2 million in the quarter compared with a net loss of $10.5 million in the same period last year, Arch said Tuesday in a statement.

On a call with analysts Wednesday, Arch Chairman and CEO Constantine Iordanou said continued rate increases in the company’s insurance segment and the addition of its U.S. primary mortgage business helped offset weakness in reinsurance. In January 2014, Arch completed its acquisition of CMG Mortgage Insurance Co.

He added that growth came from professional lines and excess and surplus lines and that most organic growth was coming from smaller accounts with lower limits.

Fourth-quarter net premiums written grew 7.4% to $804.8 million, while net investment income rose 8.3% to $72.6 million.

The company’s combined ratio for the fourth quarter deteriorated to 87.5% from 85.4% in the year-ago period.

When asked about consolidation, Mr. Iordanou said it is good for the industry overall in that it creates larger and hopefully more responsible entities when it comes to risk appetite while at the same time leading to “less desperate competition.”

Asked if companies now need to be bigger, he said Arch is big enough with a market capitalization near $8 billion, but conceded that “if you are a tiny company, you might have disadvantages.”

For full year 2014, net income increased 18.1% to $812.4 million, led by a net foreign exchange gain of $83.2 million, compared with a loss of $13.7 million in 2013.

Full-year net premiums written increased 7.9% to $3.62 billion, while net investment income rose 6.4% to $284.3 million.

The company’s full-year combined ratio deteriorated to 86.8% from 85.9% in 2013.

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