Arch Capital Group Ltd. Reports 2005 Third Quarter Results.

Extract

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Arch Capital Group Ltd. Reports 2005 Third Quarter Results.

HAMILTON, Bermuda -- Arch Capital Group Ltd. (NASDAQ: ACGL) reports that, as a result of the significant level of catastrophic events in the 2005 third quarter, it incurred a net loss of $86.3 million, or $1.15 per share on a pro forma basis (see page 2), compared to net income of $18.0 million, or $0.25 per share, for the 2004 third quarter. For the nine months ended September 30, 2005, the Company reported net income of $155.6 million, or $2.09 per share, compared to $209.8 million, or $2.91 per share, for the nine months ended September 30, 2004. The Company's diluted book value per share increased by 4.1% to $32.29 at September 30, 2005 from $31.03 per share at December 31, 2004 (see "Calculation of Book Value Per Share" in the Supplemental Financial Information section of this release). All per share amounts discussed in this release are on a diluted basis. Due to the net loss recorded for the 2005 third quarter, reported average shares outstanding for the 2005 third quarter do not include 40.0 million shares of dilutive securities since the inclusion of such securities would have had an anti-dilutive effect on the loss per share under GAAP (see page 2). We have included such shares on a pro-forma basis in order to make comparisons to prior periods meaningful. Under GAAP, the reported net loss per share was $2.48.

The Company also reported an after-tax operating loss of $81.9 million for the 2005 third quarter, or $1.09 on a pro forma basis (see page 2), compared to after-tax operating income of $9.1 million, or $0.12 per share, for the 2004 third quarter, and $144.4 million, or $1.94 per share, for the nine months ended September 30, 2005, compared to $202.8 million, or $2.81 per share, for the nine months ended September 30, 2004. Operating income or loss, a non-GAAP measure, is defined as net income or loss, excluding net realized gains or losses, net foreign exchange gains or losses, certain non-cash compensation and other income or loss, net of income taxes. See page 6 for a further discussion of operating income and Regulation G.

In the 2005 third quarter, the Company recorded estimated after-tax net losses of $250.9 million related to Hurricanes Dennis, Emily, Katrina and Rita and the European Floods, after reinsurance and net of reinstatement premiums, and, in the 2004 third quarter, the Company recorded estimated after-tax net losses of $144.6 million related to Hurricanes Charley, Frances, Ivan and Jeanne and Typhoon Songda, after reinsurance and net of reinstatement premiums. With respect to the 2005 events, the estimates were based on currently available information derived from modeling techniques, industry assessments of exposure, preliminary claims information obtained from the Company's clients and brokers and a review of the Company's in-force contracts. Due to the size and complexity of Hurricane Katrina, substantial uncertainty remains regarding total covered losses for the insurance industry and the assumptions underlying the Company's estimates relating to the hurricane. In addition, actual losses from Hurricane Katrina may increase if the Company's reinsurers fail to meet their obligations to the Company or the reinsurance protections purchased by the Company are exhausted or otherwise unavailable. The Co...

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