Arch Capital Profit Nearly Doubles as Catastrophe Losses Recede
The insurer's net income surged 84% to $1.0 billion in the first quarter, powered by a sharp drop in catastrophe claims.
Arch Capital Group (ACGL) reported first-quarter net income available to common shareholders of $1.0 billion, or $2.88 a share, an 84% increase from $564 million, or $1.48 a share, a year earlier, as a lighter catastrophe season drove a steep decline in losses. The Bermuda-based insurer and reinsurer posted an annualized net income return on equity of 17.8%, up from 11.1% in the first quarter of 2025.
The results marked a sharp reversal from a year ago, when California wildfire losses weighed on the reinsurance book. Pre-tax current accident year catastrophe losses fell to $174 million in the quarter, while favorable prior-year reserve development of $200 million exceeded the $118 million recorded in the fourth quarter of 2025 by roughly 69%. Those tailwinds pushed the consolidated combined ratio down to 81.7% from 90.1% a year earlier, with the loss ratio improving 9.4 percentage points to 52.4%.
Strip out the catastrophe and reserve benefits, however, and the underlying picture was less robust. The combined ratio excluding catastrophic activity and prior-year development widened to 82.3% from 81.0% in the year-ago quarter, a 1.3-percentage-point deterioration in the core underwriting margin. That metric also reversed a three-quarter improving trend, rising from 79.5% in the fourth quarter of 2025. Consolidated net premiums earned fell 4.8% to $3.99 billion, and net premiums written declined 3.7% to $4.35 billion.
The reinsurance division drove the headline improvement, with its combined ratio narrowing to 75.9% from 91.8% as the loss ratio fell 15.2 percentage points. Yet the segment's underlying margin was essentially flat at 78.1%, and net premiums written dropped 6% on reduced property catastrophe business written at January 1 and lower reinstatement premiums compared with a year ago. In the insurance segment, the combined ratio improved to 96.5% from 100.1%, but the ratio excluding cat and PYD worsened to 92.7% from 91.1%, pressured by a 2.2-percentage-point rise in the underwriting expense ratio tied to higher compensation costs and expenses related to the MCE transition. The mortgage segment's underlying combined ratio also deteriorated, climbing to 42.2% from 37.9% on higher delinquencies and rising expenses.
After-tax operating income, which excludes realized investment gains and losses, rose 53% to $901 million, or $2.50 a share, from $587 million, or $1.54 a share. The operating ROE of 15.4% represented a step-down from the roughly 18% to 19% range recorded over the prior three quarters. Pre-tax net investment income increased 7.9% year over year to $408 million but declined 6% sequentially, with the yield on invested assets at amortized cost compressing to 3.99% from 4.22% in the fourth quarter.
The effective tax rate on income before taxes dropped to 8.6% from 17.4%, reflecting tax law changes in Bermuda and the United Kingdom, while the rate on operating income rose to 14.8% from 11.7%. Net realized losses of $87 million compared with gains of $3 million a year earlier, driven by market movements on derivatives and equity securities.
Arch Capital continued to return capital aggressively, repurchasing $783 million of stock during the quarter, roughly in line with the $798 million bought back in the fourth quarter. Book value per common share rose to $66.19 at March 31, up 1.7% from year-end. The company also announced a $2 billion public offering of senior notes, comprising $600 million of 5.250% notes due 2036 and $1.4 billion of 5.950% notes due 2056, with proceeds earmarked to retire $500 million of maturing 4.011% notes and fund tender offers for longer-dated securities.