Arch’s Q1 combined ratio deteriorates 11.3 points to 90.1% on California wildfires

By Chris Munro

April 29 - (The Insurer) - Arch Capital Group’s combined ratio deteriorated by 11.3 points to 90.1% in Q1 2025 as a significant increase in catastrophe losses driven by the California wildfires more than offset greater favorable prior year reserve releases, as the (re)insurer booked operating earnings that beat analysts’ consensus forecast.

Arch suffered pre-tax current accident year catastrophic losses across its insurance and reinsurance segments, net of reinsurance and reinstatement premiums, of $547 million in 2025’s first quarter, primarily related to the California wildfires.

In the first quarter of 2024, the company had $58 million of catastrophe losses.

Arch benefited from $167 million of favorable development in prior year loss reserves, net of related adjustments, during the first three months of 2025, compared with $126 million in the prior-year period.

Underwriting income of $417 million in 2025’s first quarter was down 43.3% year on year.

Excluding the impact of catastrophes and prior year development, Arch’s first quarter 2025 combined ratio was 81.0%, up 20 basis points year on year.

The company generated after-tax operating income of $587 million for the quarter, compared with $933 million in the prior-year period.

On a diluted per common share basis, Arch posted after-tax operating income of $1.54, a comfortable beat on the $1.31 that was the consensus forecast of 13 analysts as per S&P Capital IQ, but down when compared with the $2.45 generated in Q1 2024.

Arch’s first quarter 2025 net premiums written (NPW) increased 10.5% year on year to $4.52 billion, while its gross premiums written (GPW) grew by 8.9% to $6.46 billion.

Net investment income totaled $378 million in Q1 2025, compared with $327 million in the prior-year period.

Arch’s insurance operations posted a combined ratio of 101.1% in 2025’s first quarter, up 6.0 points year on year.

Current accident year catastrophe events, net of reinsurance and reinstatement premiums, accounted for 9.5 points – compared with 1.9 points in Q1 2024 – of the combined ratio and were primarily related to the California wildfires.

Net favorable development in prior year loss reserves, net of related adjustments, was flat year on year at 50 basis points.

Arch’s insurance ex-cat and prior year development combined ratio was 91.1%, compared with Q1 2024’s 92.7%.

Insurance NPW increased 25.4% year on year to $1.93 billion, and GPW grew by 24.4% to $2.65 billion.

Arch Re’s first quarter 2025 combined ratio deteriorated by 14.4 points year on year to 91.8%, driven by a 16.5 point increase in California wildfire-driven catastrophe losses to 18.3 points.

Net favorable development in prior year loss reserves, net of related adjustments, cut 4.5 points from Arch Re’s combined ratio, compared with 2.5 points in Q1 2024.

On an ex-cat and prior year development basis, Arch Re’s combined ratio improved by 10 basis points to 78.0% in 2025’s first quarter.

Reinsurance NPW increased 2.2% year on year to $2.32 billion, while the segment’s GPW increased 0.8% to $3.49 billion.

Arch’s mortgage business posted a combined ratio of 16.1% for Q1 2025, compared with the prior year period’s 14.5%.

Net favorable development in prior year loss reserves, net of related adjustments, improved the mortgage unit’s combined ratio by 21.8 points in 2025’s first quarter, compared with 25.7 points of favorable development in the prior year period.

First quarter 2025 mortgage NPW was $266 million, down 4.0% year on year, with the division’s GPW falling by 4.4% to $326 million.

“We delivered solid results this quarter despite the losses arising from the California wildfires, resulting in an annualized operating return on equity of 11.5%,” said Arch CEO Nicolas Papadopoulo.

“Although the market has generally become more competitive, we remain optimistic about our prospects to deliver long-term shareholder value,” he added.