By Chris Munro

Feb 11 - (The Insurer) - Arch Capital Group CEO Nicolas Papadopolou has become the latest industry figure to predict that the California wildfires will impact pricing, with the Bermudian continuing to deploy capital to the property catastrophe space even as the executive said the blazes may “dampen the enthusiasm” of some.

In its Q4 and full-year 2024 earnings, published after markets closed on Monday, the (re)insurer revealed it is facing an expected $450mn to $550mn hit from the California wildfires.

In the earnings release, Papadopoulo said that while it remains too early to fully assess the magnitude of the wildfires, the company’s current view of the insured market loss is $35bn to $45bn.

During a call with analysts to discuss Arch's results, Papadopoulo said the wildfires are “a significant loss for the market”.

“We believe that a significant part of the losses will go to the reinsurance market. And I think most reinsurers, including ourselves, will start the year with a loss ratio in the 20s or the 30s depending on your luck, maybe higher than that.”

And the executive suggested that the wildfire losses “should dampen the enthusiasm of many markets trying to be heroes and writing the business”.

“I would say that it will have an effect on the rates for the rest of the year or so,” Papadopoulo declared.

If property cat rates do rise, then Arch is poised to benefit, with Papadopoulo citing the segment as one of the business lines where the (re)insurer is looking to grow.

As the Arch CEO noted, market conditions within the business segments that its insurance and reinsurance operations underwrite broadly remain favourable, with what he described as “a number of select growth opportunities ahead of us”.

“Rate and loss trends vary by line of business and broadly offset each other. All hands do not point to the same hour on the underwriting clock,” Papadopoulo said.

To that end, the executive said Arch is “selectively deploying capital to the areas producing attractive risk-adjusted returns, such as insurance and reinsurance liability lines, specialty business at Lloyd's and property cat reinsurance”.

During the call, Arch CFO François Morin also clarified the limited expected impact the wildfires will have on the firm’s mortgage insurance book.

While Morin caveated that it remains too early to be certain, Arch’s expectation is that given the types of mortgages that exist in the areas impacted by the wildfires, the company’s book is not expected to be significantly impacted by the blazes.

The comments followed Arch reporting a Q4 2024 combined ratio that climbed 6.1 percentage points year on year to 85.0 percent, in part driven by higher catastrophe losses.

The Bermuda-based firm’s fourth quarter 2024 loss ratio stood at 57.5 percent, up from the prior-year period’s 49.0 percent.

Arch’s insurance and reinsurance operations faced pre-tax current accident year catastrophe losses of $393mn in Q4 2024, net of reinsurance and reinstatement premiums, due in part to hurricanes Milton and Helene.

It benefited from favourable development of prior year loss reserves, net of related adjustments, of $146mn.

On an ex-cat and net of prior year loss development basis, Arch’s combined ratio increased 10 basis points year on year to 79.0 percent.

Arch’s after-tax operating income totalled $866mn for the final three months of 2024, down from the prior-year period’s $945mn.