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Arch Capital Beats Both on Earnings and Revs

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Arch Capital Group Ltd. (ACGL - Free Report) reported its third-quarter 2013 operating net income of $1.10 per share, which significantly surpassed the Zacks Consensus Estimate by 27.9% and the year-ago quarter number by 26.4%.

Including the impact of net realized losses of 3 cents per share, net impairment losses recognized in earnings of 1 cent per share, equity in net income of investment funds of 4 cents per share and net foreign exchange losses of 30 cents per share, Arch Capital reported net income of 80 cents per share, down 39.8% year over year.

Operational Update

Arch Capital’s total revenues grossed $861.1 million beating the Zacks Consensus Estimate of $854 million. However, the results declined 4.8% year over year. The decline primarily stemmed from lower net investment income, fee income as well as equity in net income of investment funds. The decline was partially offset by higher net written premiums (up 11.1% year over year).

Net investment income of Arch Capital slipped 9.7% year over year to $66.1 million in the reported quarter.

Total expenses rose 4.1% from the prior-year quarter to $738.9. The increase is primarily attributable to higher acquisition expenses, other operating expenses and net foreign exchange losses.

Arch Capital’s underwriting income surged 51.1% year over year to nearly $111 million.

Combined ratio improved 420 basis points (bps) year over year to 86%.

Segment Update

Insurance Segment: Net premiums written off worth $502 million increased 3.9% year over year. The rise primarily came on the back of increased number of programs, compensation of excess workers, contract binding, accident and health and construction lines. However, decrease in property lines, executive assurance, professional liability and travel premiums limited the upside.

Higher net premiums derived a better underwriting income for the segment, which improved substantially from the prior year quarter results to $15.2 million.

Combined ratio also improved 300 bps year over year to 96.8% in the third quarter.

Reinsurance Segment: Net written premiums rose 24% year over year to approximately $337.2 million. The growth was mainly driven by rise in other specialty and new written businesses in casualty multi-line and property facultative lines. The results were partially offset by decrease in property catastrophe.

Underwriting income also rose 31.8% from the prior-year quarter numbers to $95.8 million.

Combined ratio improved 570 bps year over year to 69.6%.

Financial Update

Arch Capital exited the reported quarter with total assets of $18.9 billion. The amount increased 6.2% from the 2012 year end-level.

As of Sep 30, Arch Capital had a cash balance of $436.1 million, up 17.5% from $371 million at the end of 2012.

Arch Capital’s long term debt of $300 million at the end of the third quarter was in line with the 2012 year end-level.

Total shareholder’s equity of $5.4 billion as of Sep 30 increased 5.3% from the 2012 end-level for Arch Capital.

Arch Capital’s cash flow from operations stood at $238.7 million during the reported quarter, down 28.7% year over year.

Performance by Other Property and Casualty Insurer

The Travelers Companies Inc. (TRV - Free Report) reported operating net earnings of $2.35 per share in the third quarter of 2013, ahead of the Zacks Consensus Estimate of $1.99 per share and also improving 5.9% year over year.

RLI Corporation (RLI - Free Report) reported third-quarter 2013 operating earnings of $1.40 per share, surpassing both the Zacks Consensus Estimate by 47% and the year-ago figure by 37.2%.

W.R. Berkley Corp. (WRB - Free Report) reported third-quarter core operating earnings of 77 cents per share, 5 cents ahead of the Zacks Consensus Estimate. Earnings were also up 26.2% year over year.

Zacks Rank

Arch Capital presently carries a Zacks Rank #2 (Buy).

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