Arch expects up to $225m of Q2 catastrophe & Covid-19 losses

Arch Capital Group, the Bermuda headquartered specialist insurance and reinsurance carrier, has pre-announced an expectation that its second-quarter 2020 catastrophe losses, including from the pandemic, will reach as much as $225 million.

Arch has pegged its pre-tax catastrophe losses for Q2 in a range from $205 million to $225 million across its property casualty insurance and reinsurance segments, which is predominantly composed of claims related to the Covid-19 global pandemic which is expected to drive from $170 million to $180 million of the burden.

This Covid-19 pandemic loss estimate for Q2 is on top of the $87 million estimate disclosed for the first-quarter of the year.

It does not include any losses from the Arch mortgage underwriting segment.

Arch has not as yet disclosed how it is being impacted by mortgage delinquencies or defaults due to the pandemic and is in-fact the only mortgage insurance-linked securities (ILS) sponsor not to have done so thus far, after others revealed rising delinquency rates.

The up to $225 million of pre-tax property casualty insurance and reinsurance losses are reported net of reinsurance recoveries and reinstatement premiums.

As well as the up to $180 million of pandemic claims, the remainder are made up of $35 million to $45 million of losses caused by rioting and civil unrest in the U.S. as well as other 2020 second quarter catastrophic events and severe weather.

Arch notes the significant uncertainty surrounding its Covid-19 loss estimate for the second-quarter and that they exclude its total-return style third-party capitalised reinsurance joint-venture Watford Re.

Analysts have largely noted this as a much higher than expected loss for the second-quarter from Arch.

Arch has not detailed which lines of business specifically the losses have come from, so as ever there is a chance of some leakage through its quota share arrangements, perhaps impacting some third-party capital reinsurance or retrocession the company has in-force, as we explained in more detail at the end of Q1.