Arch Capital Group Ltd. shares rose $1.95 or 3.7 percent to close at $54.91 yesterday after the company's fourth quarter 2005 earnings beat analysts' expectations.

The Bermuda-based reinsurer posted income of $100.9 million or $1.34 per share in the fourth quarter of 2005 compared to $107.1 million, or $1.45 per share, for the 2004 fourth quarter.

For the year ended December 31, 2005, Arch Capital posted income of $256.5 million, or $3.43 per share, compared to $316.9 million, or $4.37 per share, for the year ended December 31, 2004.

Hurricane Wilma, which hit south Florida in October caused fourth quarter after-tax net losses of $56.9 million, or 76 cents per share. The company also recorded additional losses of $16.2 million, or $0.21 per share, related to the 2005 third quarter hurricanes and the European Floods.

Justin Fuller, an analyst with Morningstar Inc. told Reuters said that the earnings beat his estimates by "high single digits". The important thing, he said, was that Arch "managed a pretty decent profit when other reinsurers were getting beaten up".

Arch's book value per share increased by nine percent to $33.82 at Dec. 31, 2005 from $31.03 per share a year earlier.

Gross and net premiums written for the 2005 fourth quarter were $1.05 billion and $827.9 million, respectively, versus $914.2 million and $675.6 million, for the 2004 fourth quarter, Arch reported.

The company's combined ratio - claims and expenses as a percentage of premiums - was 87.2 percent for the 2005 fourth quarter, a slight improvement from 87.8 percent in the 2004 fourth quarter. A figure at or below 100 percent indicates an underwriting profit.

Fuller told Reuters that with its recent offering of convertible shares, Arch Capital has a $2.4 billion capital base it can use to exploit opportunities.

Arch also received praise from financial website the Motley Fool, which praised its management during a difficult years for insurers and reinsurers.

Contributor Stephen D. Simpson said: "Even though the company absorbed close to $57 million in losses from Wilma, the combined ratio was just 87.2 percent for the period, versus 87.8 percent a year ago. Again, if you follow other reinsurers like RenaissanceRe or XL Capital, you'll appreciate that performance.

"It's hard for me to be pessimistic about Arch Capital's future prospects," Mr. Simpson said. "For the past couple of years, management didn't like the pricing environment for catastrophe policies, and they didn't write so much business - a decision that seems exactly correct in retrospect. Now they're seeing more appealing pricing and expecting to write more policies. That's one of the things I like about this story - it's diversified between primary insurance and reinsurance and across the spectrum of insurance lines (like casualty, property, professional liability, etc.), and that enables the company to move capital around and underwrite the lines that their models suggest are the most appealing."

Analysts expect reinsurers of property casualty carriers will see increased business as the 2006 hurricane season approaches, Reuters said.

Arch Capital Group Ltd. 4Q 05 Report Card:

Results for the last three months of the year compared to the same period a year ago

- Net income: $100.9 million, a 6 percent decline from $107.1 million during the fourth quarter last year

- Net income broken down per share: $1.34 per share compared to $1.45 per share a year ago

- Operating income*: $142.3 million, a 21 percent improvement from $117.4 million in the same quarter a year ago

- Gross premiums written: $1.04 billion compared with $914.2 million in the same period a year ago

- Net premiums written: $827.9 million compared with $675.6 million in the same period a year ago

- Net investment income: $70.1 million, a 54 percent improvement from $45.6 million a year ago

- Combined ratio**:87.2 percent compared to 87.8 percent during the same period a year ago

- Shareholders' equity increased to $2.5 billion from $2.2 billion at the end of 2004

*income that excludes net realized gains or losses

** a measure of underwriting profitability with percentages under 100 indicating money was made on core business. For example, a combined ratio of 80 percent indicates a profit of about 20 cents for every dollar of business underwritten.