Arch Capital Group Limited yesterday posted net income of $185 million or $2.44 a share for the third quarter of 2006 up from a net loss of $86.3 million or $1.15 a share a year earlier.

The Bermuda-based insurer and reinsurer reported after-tax operating income available to common shareholders of $200.1 million, or $2.62 per share, for the 2006 third quarter, compared to a net loss of $82.5 million, or $1.10 per share on a pro forma basis for the 2005 third quarter.

Analysts had forecast net income of $2.16 per share, according to a Thomson Financial survey.

The insurance segment reported underwriting income of $57.9 million for the 2006 third quarter, compared to an underwriting loss of $47.3 million for the 2005 third quarter.

The combined ratio for the insurance segment was 86.5 percent for the 2006 third quarter, compared to 114.3 percent for the 2005 third quarter.

In the 2005 third quarter, the insurance segment incurred $96.5 million of estimated pre-tax net losses, after reinsurance and net of reinstatement premiums, related to the catastrophic events in the period, while the 2006 third quarter did not include any material catastrophic activity.

The reinsurance segment included $159.5 million in estimated pretax losses. The 2006 quarter was quiet by comparison.

Gross premiums written by the insurance segment were $750.6 million for the 2006 third quarter, compared to $617.5 million for the 2005 third quarter, and ceded premiums written were 37.3 percent of gross premiums written for the 2006 third quarter, compared to 38.9 percent for the 2005 third quarter.

Ceded premiums written in the 2005 third quarter included $20.0 million, or 3.2 points, of reinstatements related to the catastrophic events in the period.

Net premiums written by the insurance segment were $470.6 million for the 2006 third quarter, compared to $377.5 million for the 2005 third quarter.

“Over half of the increase was in worldwide property business, primarily as a result of rate increases which were tempered by higher reinsurance costs,” Arch said.

“In addition, gross premiums written were higher in professional liability business, mainly as a result of growth in policies written, and in construction and surety business.

“This growth was partially offset by a reduction in US primary casualty business in response to increasing competition.”

Net foreign exchange losses for the 2006 third quarter of $4.3 million consisted of net unrealised losses of $10.9 million and net realised gains of $6.6 million, compared to net foreign exchange gains for the 2005 third quarter of $7.3 million, which consisted of net unrealised gains of $7.6 million and net realised losses of $0.3 million.

Arch holds investments in foreign currencies which are intended to mitigate the company’s exposure to foreign currency fluctuations in its net insurance liabilities.

In establishing the reserves for losses and loss adjustment expenses, the company made various assumptions relating to the pricing of its reinsurance contracts and insurance policies and also has considered available historical industry experience and current industry conditions.

The company’s book value per common share increased to $40.82 at September 30, 2006 from $33.82 per share at December 31, 2005.