Arch opted against property cat growth at mid-year renewal amid heightened storm risk: CEO Grandisson

Bermuda-based insurer and reinsurer Arch Capital Group decided against further growing its property catastrophe book at the mid-year renewal given the heightened storm risk, as the firm looks for the right balance across its portfolio, according to Chief Executive Officer (CEO), Marc Grandisson.

This week, Arch Capital reported a 26% year-on-year rise in underwriting income for the second quarter of 2024, with gross premiums written growth of more than 11%, driven by 7.5% growth in insurance and 15.6% growth in reinsurance, partially offset by a 2% decrease in mortgage.

In his opening remarks during the re/insurer’s Q2’24 earnings call, CEO Grandisson noted the still excellent P&C environment, in which “opportunities for attractive returns are plentiful, even as competition normalizes.”

“The duration and breadth of the current hard market of the last several years has been exceptional, and while rate increases are broadly above trend, disciplined underwriting requires that we keep our eye on the primary goal, shareholder returns,” said Grandisson.

The CEO went on to warn that while the market landscape is favourable, an overly aggressive appetite for growth could erode underwriting margins.

“The art of underwriting in this part of the cycle rests on one’s ability to know how hard to push and when to pull back,” he continued.

In recent times, Arch has expanded its property catastrophe book, but given the firm’s heightened view of overall storm risk this year, Grandisson confirmed that the company chose not to grow its property cat exposure at the mid-year reinsurance renewal.

“We’ve grown property cat meaningfully over the last few years, but as we learned during the 2002 to 2005 hard market, when there are so many good things happening across the underwriting platform, why chase returns and cat exposure at the risk of being unlucky.

“Property in general is very well priced. We just want to have the right balance across our portfolio,” said the CEO.

Even with Arch’s increased frequencies, Grandisson stressed that the market is still very good, but the key thing for the firm is that balance across the book.

That being said, if the view of risk changes after the wind season, and if property cat pricing is still good, Arch would consider reversing course and re-accelerate its property cat growth, confirmed Grandisson.

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