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Arch Capital (ACGL) Q3 Earnings Beat, Revenues Increase Y/Y

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Arch Capital Group Ltd. (ACGL - Free Report) reported third-quarter 2021 operating income per share of 74 cents, which surpassed the Zacks Consensus Estimate by 89.7%. The bottom line more than doubled year over year.

The company’s results benefited from improved premiums across all three segments backed by rate increase and new business growth. However, the results were partly offset by elevated catastrophic losses, stemming from Hurricane Ida, European floods and other global events.

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

Behind the Headlines

Gross premiums written increased 19.6% year over year to $3.2 billion. Net written premiums improved 10.8% year over year to $2.1 billion, primarily fueled by higher premiums written across its Insurance, Reinsurance and Mortgage segments.

Net investment income decreased 31.4% year over year to $88.2 million.

Operating revenues of $2 billion increased 5.9% year over year.

Total expenses of $1.8 billion decreased 0.05% year over year due to lower interest expenses. It was offset by higher losses and loss adjustment expenses, acquisition expenses, other operating expenses, and corporate expenses.

Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums were $335.9 million, which increased 65.2% year over year. This surge in catastrophic losses was primarily on account of Hurricane Ida, European floods and other global events.

Arch Capital’s underwriting income fell 79.9% year over year to $173.4 million. The combined ratio improved 350 basis points (bps) to 91.4%.

Segment Results

Insurance: Gross premiums written increased 32.4% year over year to $1.6 billion, while net premiums written improved 40% year over year to $1.1 billion. This growth can primarily be attributed to increases in most lines of business, due in part to rate increases, new business opportunities and growth in existing accounts.

Underwriting loss of $21.3 million was narrower than the year-ago quarter’s loss of $31.2 million. The combined ratio improved 200 bps to 102.2%.

Reinsurance: Gross premiums written increased 24.6% year over year to $1.2 billion, while net premiums written improved 2.8% year over year to $621.4 million. The growth can be attributed to increases in most lines of business, due in part to new business opportunities and rate increases.

Underwriting loss was $38.9 million against an income of $5.5 million in the year-ago quarter. The combined ratio deteriorated 720 bps year over year to 106.2%.

Mortgage: Gross premiums written increased 4.2% year over year to $360.9 million, while net premiums written inched up 0.8% year over year to $300.7 million. The increase in gross premiums written can be attributed to growth in Australian single premium mortgage insurance as a result of the previously disclosed acquisition of Westpac Lenders Mortgage Insurance Limited.

Underwriting income increased 79.3% year over year to $234 million. The combined ratio improved 3800 bps year over year to 26.2%.

Financial Update

Arch Capital exited the third quarter with cash of $1.13 billion, up 16.5% year over year. Debt was $2.7 billion as of Sep 30, 2021, inched up 0.03% year over year.

As of Sep 30, 2021, book value per share was $32.43, up 12.8% year over year. Annualized operating return on average common equity was 9.3% in the third quarter, up 510 bps.

For the first nine months of 2021, net cash provided by operating activities was $2.6 billion, up 12.7% year over year.

The company bought back 9.7 million shares for $386.9 million in the reported quarter.

Zacks Rank

Arch Capital currently carries a Zacks Rank #3 (Hold). 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) , Chubb Limited (CB - Free Report) and Selective Insurance Group, Inc. (SIGI - Free Report) beat the respective Zacks Consensus Estimate.