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Arch Capital (ACGL) Gains From Solid Segmental Performance

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Arch Capital Group Ltd. (ACGL - Free Report) has been gaining momentum on the back of solid performance across lines of business, rate improvements, growth in new accounts and effective capital deployment.

Growth Projections

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $3.27 and $4.33, indicating a year-over-year increase of 140.4% and 32.4%, respectively.

The expected long-term earnings growth rate is 10%, higher than the industry average of 9.7%.

Earnings Surprise History

Arch Capital has a solid earnings surprise history. It beat estimates in each of the last four quarters, with the average being 32.71%.

Estimate Revision

The Zacks Consensus Estimate for 2021 and 2022 earnings has moved 0.6% and 2.6% north, respectively in the past 30 days. This should instill investors' confidence in ACGL stock.

Zacks Rank & Price Performance

Arch Capital currently carries a Zacks Rank #3 (Hold). In the past year, the stock has rallied 26.7% compared with the industry’s increase of 9.7%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Return on Equity (ROE)

The company’s ROE for the trailing 12 months is 9.3%, better than the industry average of 5.6%, reflecting the company’s efficiency in utilizing shareholders’ fund. 

Style Score

The company has a favorable VGM Score of A. VGM Score helps identify stocks with the most attractive value, best growth and the most promising momentum.

Business Tailwinds

Arch Capital’s Reinsurance segment is well poised for growth on the back of solid performance across most lines, especially in casualty, other specialty and property, where strong rate increases and growth in new accounts continue to boost the top line.

By virtue of growth across the lines of business, due in part to rate increases, new business opportunities as well as growth in existing accounts are expected to boost the Insurance segment.

For the past two years, rate improvements have enabled it to continue to expand writings in the property casualty segment. Rate increases remain well above the long-term loss cost trends and spread to more lines year over year.
Consistent with the insurance segment, the property and casualty insurer expects the ongoing rate improvements to be reflected in the underwriting results over the next several quarters.

Improving underwriting results in most of the lines, favorable prior year development and higher premium earned continue to improve the underlying combined ratio.

Riding on growth in Australian single premium mortgage insurance, the benefit of premiums received related to the exercise of early redemption options by GSEs for certain seasoned callable credit risk transfer contracts as well as a higher level of U.S. primary mortgage insurance in force on monthly premium policies, the Mortgage segment is well poised for continued growth.

Arch Capital boasts an impressive solvency level. A higher level of premiums is likely to boost the cash flow from operations.

In October 2011, the board increased its share repurchase program to $1.5 billion, which may be implemented through Dec 31, 2022. This new program will replace the existing share repurchase authorization, which has been fully utilized. Currently, Arch Capital has $1.5 billion remaining under its share repurchase authorization.

Stocks to Consider

Some better-ranked stocks from the property and casualty insurance sector are Kinsale Capital (KNSL - Free Report) , Cincinnati Financial Corporation (CINF - Free Report) and Berkshire Hathaway (BRK.B - Free Report) . While Kinsale Capital sports a Zacks Rank #1 (Strong Buy), Cincinnati Financial and Berkshire carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinsale Capital’s earnings surpassed estimates in each of the last four quarters, the average beat being 37.63%. In the past year, Kinsale Capital has lost 9.5%. The Zacks Consensus Estimate for 2021 and 2022 has moved 13.8% and 11.7% north, respectively, in the past 60 days.

Higher submission activity from brokers across most lines of business, higher rates on bound accounts, favorable market conditions, and high retention rates arising from contract renewals are likely to drive Kinsale Capital’s premium income.

Cincinnati Financial surpassed estimates in each of the last four quarters, the average earnings surprise being 40.05%. In the past year, Cincinnati Financial has rallied 44.7%. The Zacks Consensus Estimate for 2021 and 2022 has moved 2.5% and 5% north, respectively, in the past 60 days.

Cincinnati Financial is well poised to gain from premium growth initiatives, price increases and a higher level of insured exposures.

The bottom line of Berkshire Hathaway surpassed estimates in two of the last four quarters and missed the same in the other two, the average being 5.53%. In the past year, Berkshire Hathaway has rallied 24.8%. The Zacks Consensus Estimate for 2021 and 2022 has moved 0.6% and 1.5% north, respectively, in the past 60 days.

Berkshire Hathaway is expected to benefit from its growing Insurance business, Manufacturing, Service and Retailing, Finance and Financial Products segments, and strategic acquisitions.