Arch Capital faces risks from fluctuating interest rates and credit spreads impacting fixed income securities' fair value. Catastrophic events (hurricanes, earthquakes) and severe economic downturns (housing market decline) pose significant loss potential, potentially exceeding 25% of tangible shareholders' equity. Reinsurer defaults and limited reinsurance capacity also present risks. Changes in accounting principles and policies, and regulatory developments (e.g., OECD Pillar I/II, Bermuda tax changes) add further uncertainty. Market volatility and potential inaccuracies in loss reserve estimations are also noted.
Financial Upside
Arch Capital's insurance and reinsurance segments saw increased premiums written and earned in the 2024 third quarter, driven by rate increases and new business opportunities. Strong investment income and favorable prior-year reserve development contributed to positive results. The acquisition of Allianz's U.S. Middle Market Property & Casualty Insurance and U.S. Entertainment Property and Casualty Insurance Business is expected to enhance capabilities and growth opportunities. A special cash dividend of $1.9 billion is also noted.
