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Arch Capital (ACGL) Q4 Earnings Beat Estimates, Down Y/Y

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Arch Capital Group Ltd. (ACGL - Free Report) reported fourth-quarter 2020 operating income per share of 56 cents, which surpassed the Zacks Consensus Estimate by 12%. However, the bottom line plunged 24.3% year over year.

The company’s results have benefited from improved premiums. However, higher costs and elevated catastrophic losses stemming from several weather-related events and the COVID-19 pandemic partly dampened the results.

Behind the Headlines

Gross premiums written improved 16.2% year over year to $2.3 billion. Net premiums written climbed 20.8% year over year to $1.8 billion on higher premiums written across its Insurance, Reinsurance and Mortgage segments.

Net investment income plunged 25.8% year over year to $114.5 million.

Operating revenues of $1.9 billion rose 16% year over year.

Total expenses of $1.8 billion escalated 24.9% year over year due to higher losses and loss adjustment expenses, acquisition expenses, other operating expenses, interest expense and forex.

Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums were $156.4 million, which increased to more than five-fold from the prior-year quarter. The surge in catastrophic losses has resulted from several weather-related events and includes $0.4 million of COVID-19 related losses.

Arch Capital’s underwriting income fell 12.1% year over year to nearly $221 million. Combined ratio deteriorated 450 basis points (bps) to 88.3%.

Arch Capital Group Ltd. Price, Consensus and EPS Surprise

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 advanced 19.6% year over year to $1.2 billion, while net premiums written climbed 21.6% year over year to $837.7 million. This growth can primarily be attributed to improved premiums across most of its business lines, which was driven by new business, rate increases and growth in existing accounts. However, the upside was partly offset by decline in travel business primarily as a result of the ongoing impact of the COVID-19 pandemic.

Underwriting loss was $12.6 million, which reflects a decline of 8.9% year over year. Combined ratio improved 40 bps to 101.7%.

Reinsurance: Gross premiums written improved 24.4% year over year to $537.9 million, while net premiums written surged 44.9% year over year to $490.9 million. The growth was driven by higher premiums across most of its business lines, which was fueled by new business and rate increases.

Underwriting income was $53.3 million, which more than doubled from the prior-year quarter. Combined ratio improved 250 bps year over year to 91.3%.

Mortgage: Gross premiums written improved 5.1% year over year to $389.7 million, while net premiums written increased 5.1% year over year to $331.7 million. The improvement can be primarily attributed to higher Australian single premium mortgage insurance, partially offset by reduced U.S. primary mortgage insurance in force on monthly premium policies.

Underwriting income slipped 31.7% year over year to $188.9 million. Combined ratio deteriorated 2350 bps year over year to 45.1%. Arch MI U.S. generated $38 billion of new insurance written (NIW) in the fourth quarter, which surged 57.7% year over year.

Financial Update

Arch Capital exited the fourth quarter with cash of $906.4 million, which climbed 24.8% year over year. Debt was $2.9 billion as of Dec 31, 2020, up 52.9% year over year.

As of Dec 31, 2020, book value per share was $30.31, up 14.7% year over year.

Annualized operating return on average common equity was 7.7% in the fourth quarter, down 400 bps year over year.

During 2020, net cash provided by operating activities was $2.9 billion, which increased 40.9% from the 2019-end figure.

Full-Year Update

For 2020, the company reported operating income per share of $1.36, which surpassed the Zacks Consensus Estimate of $1.32. However, the bottom line plunged 51.8% from the 2019-end figure.

Annualized operating return on average common equity was 4.8% in 2020, down 720 bps from the figure at 2019 end.

Zacks Rank

Arch Capital currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Property & Casualty (P&C) Insurers

Of the P&C insurance industry players, which have reported fourth-quarter results so far, the bottom line 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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