The Company has established a range of pre-tax losses across its property casualty insurance and reinsurance segments of $85 million to $95 million for claims incurred due to the pandemic as of March 31, 2020, net of reinsurance recoveries and reinstatement premiums.
The Company has also established a range of pre-tax net losses from $40 million to $50 million for its entire mortgage segment as a result of the financial stress created by the global pandemic. Incurred losses for the mortgage segment are largely a result of our loss reserve selections being set at the higher end of our range of indications. Pursuant to GAAP, our estimates are based only on reported delinquencies as of March 31, 2020 for our U.S. primary mortgage insurance operations. The Company is not aware of any reported delinquencies being directly the result of recent events as of the end of the first quarter.
At this time, there are significant uncertainties surrounding the ultimate number of claims and scope of damage resulting from this pandemic. The Company’s estimates across its insurance, reinsurance, and mortgage segments are based on currently available information derived from modeling techniques, including that of our proprietary economic models related to the housing and mortgage insurance markets, preliminary claims information obtained from the Company’s clients and brokers, a review of relevant in-force contracts with potential exposure to the pandemic and estimates of reinsurance recoverables. These estimates include losses only related to claims incurred as of March 31, 2020. Actual losses from these events may vary materially from the estimates due to several factors, including the inherent uncertainties in making such determinations and the evolving nature of this pandemic. The loss estimates exclude the impact of the pandemic on the operating results of Watford Holdings Ltd. (“Watford”). Pursuant to GAAP, the Company consolidates the results of Watford in its financial statements, although it only owns approximately 13% of Watford’s outstanding common equity.
Global financial markets experienced extreme volatility in interest rates, credit spreads and equity markets during the first quarter of 2020 as the pandemic materialized. The Company expects to report net investment income of $110 million to $115 million for the first quarter of 2020. In addition, total return on its core investment portfolio (excluding Watford) is expected to be in the range of -0.65% to -0.95%. This range is preliminary and is subject to change as analyses of investment returns are finalized. Total return includes net investment income in addition to net realized gains and losses, changes in unrealized gains and losses and equity in the net income or losses of investment funds accounted for using the equity method.
About Arch Capital Group Ltd.
Arch Capital Group Ltd., a Bermuda-based company with approximately $13.23 billion in capital at December 31, 2019, provides insurance, reinsurance and mortgage insurance on a worldwide basis through its wholly owned subsidiaries.