Arch Capital Group suffered after-tax net losses of $133 million relating to hurricanes Gustav and Ike in the third quarter of 2008 — but the Bermuda insurer and reinsurer still managed to record a profit of $26.4 million.

The storm losses — equivalent to $2.12 per share — were made on best available estimates and are subject to change, the company said.

Arch said yesterday that net income available to common shareholders for the 2008 third quarter was $26.4 million, or $0.42 per share, compared to $199.7 million, or $2.76 per share, for the same period last year.

Arch's book value per common share, including the net effect of share repurchases, was $53.04 at September 30, 2008.

The company's after-tax operating income available to common shareholders represented a 7.6 percent annualised return on average common equity for the 2008 third quarter, compared to 24.8 percent for the 2007 third quarter.

Net investment income compared well to the third quarter of last year — $117 million in 2008 versus $118.5 million a year ago. "The comparability of net investment income during the 2008 and 2007 periods was influenced by the company's share repurchase programme," Arch said in its release. During the third quarter of 2008, Arch repurchased roughly 1.9 million common shares under the programme for $123.4 million.

The company's investment portfolio was hit with pre-tax net realised losses of $105.5 million in the third quarter, "which reflected $82.5 million of other than temporary impairment charges, including $23 million of write-downs on the company's holdings in fixed income securities issued by Lehman Brothers Holdings", Arch said.

The company also recorded roughly $200 million in unrealised losses on its investment portfolio, excluding foreign exchange, which was attributed to "wider credit spreads and not to issue-specific credit events in the period".

Arch also recorded $70 million in unrealised losses on investments held in foreign currencies "due to the strengthening US dollar" although this was largely offset by net foreign exchange gains of $66.7 million. This compared to net foreign exchange losses in the 2007 third quarter of $23.7 million.

Arch had more than $3.9 billion in capital at September 30, 2008.

The company will be hosting a conference call for investors and analysts this morning to discuss results at noon Bermuda time. A live webcast will be available on www.archcapgroup.bm.

ARCH Q3

REPORT CARD

Net income: $26.4 million compared to $199.7 million in 2007.

Combined ratio: 105.3 percent against 84.8 percent in 2007.

Gross premiums written: $903.5 million compared to $999.1 million in 2007.