Bermudian-based Arch Capital Group Ltd has become the latest insurer to take advantage of a net deferred tax asset related to the island’s new corporate income tax.

Arch reported net income available to common shareholders of $2.3 billion, or $6.12 per share, representing a 58.2 per cent annualised net income return on average common equity, in the fourth quarter of 2023.

That compares with net income available to common shareholders of $849 million, or $2.26 per share, for the 2022 fourth quarter.

The company said: “Fourth-quarter results were impacted by the establishment of a net deferred tax asset of $1.18 billion, or $3.10 per share, related to the enactment of Bermuda’s new corporate income tax.”

Marc Grandisson, the chief executive, said: “We finished 2023 on an excellent note, closing the books with a stellar 21.6 per cent operating return on equity for the year and growing our book value per share by 43.9 per cent.

“We are bullish about our prospects for 2024 as our underwriters continue to lean into the excellent conditions prevalent in most of the markets where we operate.”

After-tax operating income available to Arch common shareholders was $945 million, representing a 23.7 per cent annualised operating return on average common equity, compared with $806 million for the 2022 fourth quarter.

Fourth-quarter gross written premiums were $4.25 billion, up 12 per cent over the prior-year quarter.

Pre-tax net investment income was $313 million, which compares with $181 million in the prior-year quarter.

Pre-tax current accident year catastrophic losses for the company’s insurance and reinsurance segments, net of reinsurance and reinstatement premiums, were $137 million.

Favourable development in prior-year loss reserves, net of related adjustments, totalled $135 million.

Arch’s combined ratio excluding catastrophic activity and prior-year development, was 78.9 per cent, compared with 82 per cent for the 2022 fourth quarter.

Book value per common share was $46.94 at December 31, a 21.5 per cent increase from September 30.

In relation to the corporate income tax, the company said: “On December 27, 2023, the Government of Bermuda enacted the Corporate Income Tax Act 2023, which will apply a 15 per cent corporate income tax to certain Bermuda businesses in fiscal years beginning on or after January 1, 2025.

“The Act includes a provision referred to as the economic transition adjustment, which is intended to provide a fair and equitable transition into the tax regime.

“Pursuant to this legislation, the company recorded a $1.18 billion net deferred tax asset in the fourth quarter of 2023, expected to be utilised predominantly over a ten-year period.

“The company expects to incur and pay increased taxes in Bermuda beginning in 2025.”

Arch added: “The company’s effective tax rate on income before income taxes was a benefit of 85.6 per cent for the 2023 fourth quarter and a benefit of 24.5 per cent for the year ended December 31, 2023, compared to an expense of 6.6 per cent for the 2022 fourth quarter and an expense of 5.1 per cent for the year ended December 31, 2022.

“The company’s effective tax rate on income before income taxes included the one-time deferred tax benefit mentioned above.

“The company’s effective tax rate on pre-tax operating income available to Arch common shareholders was 7.3 per cent for the 2023 fourth quarter and 8 per cent for the year ended December 31, 2023, compared to 7.5 per cent for the 2022 fourth quarter and 6.2 per cent for the year ended December 31, 2022.

“The effective tax rate may fluctuate from period to period based upon the relative mix of income or loss reported by jurisdiction, the level of catastrophic loss activity incurred, and the varying tax rates in each jurisdiction.”