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Arch Capital Tops on Q4 Earnings & Revs

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Arch Capital Group Ltd. (ACGL - Free Report) reported its fourth-quarter 2013 operating net income of $1.12 per share, which surpassed the Zacks Consensus Estimate of 99 cents by 13.1% and also surged from an operating loss of 18 cents reported in the prior-year quarter.

A higher top line coupled with lower expense drove the outperformance for Arch Capital.

Including the impact of net realized gains of 6 cents per share, equity in net income of investment funds of 4 cents per share and net foreign exchange losses of 8 cents per share, Arch Capital reported fourth-quarter net income of $1.14 per share, up 3.6% year over year.

Operational Update

Arch Capital’s total revenues grossed $923.1 million, outpacing the Zacks Consensus Estimate of $885 million by 4.3%. The results also came a tad higher than the year-ago quarter’s results. The improvement primarily stemmed from higher premiums across both the insurance and reinsurance segment.

Net investment income of Arch Capital fell 9% year over year to $67.1 million in the reported quarter. The decline was attributable to reduced investment income from fixed income securities and escalating investment expenses.

Total expenses declined 18.3% from the prior-year quarter to $746.1 million. The improvement was primarily attributable to lower losses and loss adjustment expenses and also significantly lower net foreign exchange losses. However, the upside was partially offset by higher acquisition expenses, interest expenses and other operating expenses.

Arch Capital’s underwriting income of $128.3 million during the reported quarter, rebounded from an underwriting loss of $91.3 million incurred in the previous-year quarter.

Combined ratio improved 2710 basis points (bps) year over year to 85.3% during the quarter.  A benign cat environment, favorable loss reserve development and better performance in insurance group operations aided the combined ratio for the quarter.

Segment Update

Insurance Segment: Net premiums written of $40.7 million increased nearly 14% year over year during the quarter. Higher premiums were driven by increased number of programs, contract binding, construction lines and national accounts casualty. However, reduced executive assurance and professional liability lines and lenders products business limited the upside.

Higher net premiums boosted underwriting income for the segment, which rebounded to $18.7 million from underwriting loss of $84.4 million reported in the prior-year quarter.

Combined ratio also improved 2230 bps year over year to 96.2% in the fourth-quarter.

Reinsurance Segment: Net written premiums rose 36.1% year over year to approximately $308.2 million. The increase was mainly driven by growth in casualty and other specialty lines and was partially offset by reduced marine and property catastrophe business.

Underwriting income of $109.7 million compared favorably with underwriting loss in the prior-year quarter.

Combined ratio improved 3390 bps year over year to 69.8%.

Full-Year Highlights

Arch Capital reported full-year 2013 operating net income of $4.39 per share, surging 72.8% from the 2012 number. Growth was boosted by higher revenues coupled with lower expenses.

Net income of Arch Capital came in at $5.07 a share, up 25.8% year over year.

Total revenue of Arch Capital during the year totaled $3.53 billion, up 1.3% year over year.

Financial Update

Arch Capital exited 2013 with total assets of $19.57 billion, increasing 9.8% from the 2012 year-end level.

As of Dec 31, Arch Capital had a cash balance of $434.1 million, up 17% from 2012-end.

Arch Capital’s long-term debt rose from $300 million as of Dec 31, 2012 to $800 million at the end of 2013 as a wholly-owned subsidiary of the company made a public offering of $500 million at the rate of 5.144% and is due on Nov 1, 2043.

Total shareholder’s equity of $5.65 billion as of 2013-end increased 9.3% from the 2012 end-level for.

Arch Capital’s cash flow from operations was $850.9 million in 2013, down 7.7% year over year.

Book Value per share as of the end of 2013 was $39.82, up 10% from 2012 end-level.

Performances by Other Property and Casualty Insurer

Allied World Assurance Company Holdings, AG’s reported fourth-quarter 2013 operating net income of $2.17 per share, missing the Zacks Consensus Estimate of $2.40 by 10.4%. However, the result surged from the year-ago quarter’s operating net loss of $1.58 a share.

Markel Corp. (MKL - Free Report) reported fourth-quarter operating net income of $5.92 per share, missing the Zacks Consensus Estimate of $5.99 per share by 1.2%. However, the number improved 2.4% year over year.

ACE Limited reported operating net earnings of $2.39 per share in the fourth quarter, surpassing the Zacks Consensus Estimate by 19.5%. Moreover, earnings surged nearly 67% on a year-over-year basis.

Zacks Rank

Arch Capital presently carries a Zacks Rank #3 (Hold).

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