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Arch Capital (ACGL) Q3 Earnings Beat, Revenues Improve Y/Y
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Arch Capital Group Ltd. (ACGL - Free Report) reported third-quarter 2020 operating income per share of 29 cents, which surpassed the Zacks Consensus Estimate by 16%. However, the bottom line declined 54% year over year.
The company’s results reflect higher premiums. However, the results were partly offset by elevated catastrophic losses stemming from several weather-related events and the COVID-19 pandemic.
Behind the Headlines
Gross premiums written increased 22.9% year over year to $2.7 billion. Net written premiums improved 16.2% year over year to $1.9 billion, primarily fueled by higher premiums written across its Insurance and Reinsurance segments partly offset by premium decline in its Mortgage segment.
Net investment income decreased 20.4% year over year to $128.5 million.
Operating revenues of $1.9 billion increased 18.7% year over year.
Total expenses of $1.8 billion increased 44.6% year over year on higher losses and loss adjustment expenses, acquisition expenses, other operating expenses, corporate expenses, interest expense and forex.
Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums were $203.3 million, which soared 198.8% year over year. This surge in catastrophic losses is primarily on account of several weather-related events and also includes $11.9 million of COVID-19 related losses.
Arch Capital’s underwriting income fell 58.2% year over year to $96.6 million. Combined ratio deteriorated 1070 basis points (bps) to 94.9%.
Arch Capital Group Ltd. Price, Consensus and EPS Surprise
Insurance: Gross premiums written increased 19.9% year over year to $1.2 billion, while net premiums written improved 17.1% year over year to $824.2 million. This growth can primarily be attributed to higher premiums across most of its business lines, which was further aided by new business, rate increases and growth in existing accounts. Decrease in travel business, primarily due to the ongoing impact of the COVID-19 pandemic, partially offset the upside.
Underwriting loss of $31.2 million was wider than the year-ago quarter’s loss of $24.1 million. Combined ratio deteriorated 20 bps to 104.2%.
Reinsurance: Gross premiums written surged 51.6% year over year to $1 billion, while net premiums written improved 38.4% year over year to $604.2 million. The growth can be attributed to increases in property and other specialty lines. which was further driven by new business and rate increases.
Underwriting income was $5.5 million, against a loss of $2.7 million incurred in the year-ago quarter. Combined ratio improved 130 bps year over year to 99%.
Mortgage: Gross premiums written declined 7.7% year over year to $346.2 million, while net premiums written fell 6% year over year to $298.5 million. The decline was primarily due to mortgage refinance activity resulting in lower U.S. primary mortgage insurance in force and, reduced contribution from single premium policies.
Underwriting income plunged 50.3% year over year to $130.5 million. Combined ratio deteriorated 3960 bps year over year to 64.2%. Arch MI U.S. generated $32.8 billion of new insurance written (NIW) in the third quarter, up 29.6% year over year.
Financial Update
Arch Capital exited the third quarter with cash of $976.4 million, up 10.9% year over year. Debt was $2.9 billion as of Sep 30, 2020, up 52.9% year over year.
As of Sep 30, 2020, book value per share was $28.75, up 12.2% year over year.
Annualized operating return on average common equity was 4.2% in the third quarter, down 610 bps.
For the first nine months of 2020, net cash provided by operating activities was $2.3 billion, up 51.1% year over year.
Of the insurance industry players, which have reported third-quarter results so far, earnings of W. R. Berkley Corporation (WRB - Free Report) , The Travelers Companies, Inc. (TRV - Free Report) and RLI Corp. (RLI - Free Report) beat the respective Zacks Consensus Estimate.
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Arch Capital (ACGL) Q3 Earnings Beat, Revenues Improve Y/Y
Arch Capital Group Ltd. (ACGL - Free Report) reported third-quarter 2020 operating income per share of 29 cents, which surpassed the Zacks Consensus Estimate by 16%. However, the bottom line declined 54% year over year.
The company’s results reflect higher premiums. However, the results were partly offset by elevated catastrophic losses stemming from several weather-related events and the COVID-19 pandemic.
Behind the Headlines
Gross premiums written increased 22.9% year over year to $2.7 billion. Net written premiums improved 16.2% year over year to $1.9 billion, primarily fueled by higher premiums written across its Insurance and Reinsurance segments partly offset by premium decline in its Mortgage segment.
Net investment income decreased 20.4% year over year to $128.5 million.
Operating revenues of $1.9 billion increased 18.7% year over year.
Total expenses of $1.8 billion increased 44.6% year over year on higher losses and loss adjustment expenses, acquisition expenses, other operating expenses, corporate expenses, interest expense and forex.
Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums were $203.3 million, which soared 198.8% year over year. This surge in catastrophic losses is primarily on account of several weather-related events and also includes $11.9 million of COVID-19 related losses.
Arch Capital’s underwriting income fell 58.2% year over year to $96.6 million. Combined ratio deteriorated 1070 basis points (bps) to 94.9%.
Arch Capital Group Ltd. Price, Consensus and EPS Surprise
Arch Capital Group Ltd. price-consensus-eps-surprise-chart | Arch Capital Group Ltd. Quote
Segment Results
Insurance: Gross premiums written increased 19.9% year over year to $1.2 billion, while net premiums written improved 17.1% year over year to $824.2 million. This growth can primarily be attributed to higher premiums across most of its business lines, which was further aided by new business, rate increases and growth in existing accounts. Decrease in travel business, primarily due to the ongoing impact of the COVID-19 pandemic, partially offset the upside.
Underwriting loss of $31.2 million was wider than the year-ago quarter’s loss of $24.1 million. Combined ratio deteriorated 20 bps to 104.2%.
Reinsurance: Gross premiums written surged 51.6% year over year to $1 billion, while net premiums written improved 38.4% year over year to $604.2 million. The growth can be attributed to increases in property and other specialty lines. which was further driven by new business and rate increases.
Underwriting income was $5.5 million, against a loss of $2.7 million incurred in the year-ago quarter. Combined ratio improved 130 bps year over year to 99%.
Mortgage: Gross premiums written declined 7.7% year over year to $346.2 million, while net premiums written fell 6% year over year to $298.5 million. The decline was primarily due to mortgage refinance activity resulting in lower U.S. primary mortgage insurance in force and, reduced contribution from single premium policies.
Underwriting income plunged 50.3% year over year to $130.5 million. Combined ratio deteriorated 3960 bps year over year to 64.2%. Arch MI U.S. generated $32.8 billion of new insurance written (NIW) in the third quarter, up 29.6% year over year.
Financial Update
Arch Capital exited the third quarter with cash of $976.4 million, up 10.9% year over year. Debt was $2.9 billion as of Sep 30, 2020, up 52.9% year over year.
As of Sep 30, 2020, book value per share was $28.75, up 12.2% year over year.
Annualized operating return on average common equity was 4.2% in the third quarter, down 610 bps.
For the first nine months of 2020, net cash provided by operating activities was $2.3 billion, up 51.1% year over year.
Zacks Rank
Arch Capital currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other P&C Insurers
Of the insurance industry players, which have reported third-quarter results so far, earnings of W. R. Berkley Corporation (WRB - Free Report) , The Travelers Companies, Inc. (TRV - Free Report) and RLI Corp. (RLI - Free Report) beat the respective Zacks Consensus Estimate.
Have You Seen Zacks’ 2020 Election Stock Report?
The upcoming election could be a massive buying opportunity for savvy investors. Trillions of dollars will shift into new market sectors after the election. The question is, which sectors will soar for each candidate? Zacks has put together a new special report to help readers like you target big profits.
The 2020 Election Stock Report reveals specific stocks you’ll want to own immediately after the results are announced – 6 if Trump wins, 6 if Biden wins. Past election reports have led investors to gains of +71%, +83%, even +185% in the following months. This year’s picks could be even more lucrative.
Check out Zacks’ 2020 Election Stock Report >>