Back to top

Image: Bigstock

Arch Capital (ACGL) Q4 Earnings Beat, Revenues Miss Estimates

Read MoreHide Full Article

Arch Capital Group Ltd. (ACGL - Free Report) reported fourth-quarter 2021 operating income per share of $1.27 per share, which surpassed the Zacks Consensus Estimate by 24.5%. The bottom line increased two-fold year over year.

The company’s results benefited from improved premiums, lower expenses, as well as lower catastrophic losses and improved combined ratio, offset by lower net investment income.

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 improved 26.8% year over year to $2.9 billion. Net premiums written climbed 15.7% year over year to $2 billion on higher premiums written across its Insurance and Reinsurance segments.

Net investment income plunged 21% year over year to $90.4 million. Operating revenues of $2.2 billion rose 12.7% year over year. The top line missed the Zacks Consensus Estimate by 3.3%.

Total expenses of $1.7 billion decreased 3.3% year over year due to lower losses and loss adjustment expenses and interest expense.

Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums were $72.3 million, which decreased 53.8% from the prior-year quarter.

Arch Capital’s underwriting income increased two-fold year over year to nearly $472 million. The combined ratio improved 1070 basis points (bps) to 77.6%.

Segment Results

Insurance: Gross premiums written advanced 19.5% year over year to $1.5 billion, while net premiums written climbed 23.7% year over year to $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 along with a lower level of premiums ceded.

Underwriting income was $70.5 million against the year-ago loss of $12.6 million. The combined ratio improved 880 bps to 92.9%.

Reinsurance: Gross premiums written improved 88.3% year over year to $1 billion, while net premiums written surged 44.5% year over year to $709.1 million. The growth in net premiums written was observed in most lines of business, primarily related to new business opportunities and growth in existing accounts in casualty, property excluding property catastrophe and other specialty lines and the benefit of rate increases.

Underwriting income was $132.5 million, which increased more than two-fold from the prior-year quarter. The combined ratio improved 820 bps year over year to 83.1%.

Mortgage: Gross premiums written decreased 6.6% year over year to $364.1 million, while net premiums written decreased 12.8% year over year to $289.3 million. The reduction in gross premiums written primarily reflected lower U.S. primary mortgage insurance monthly and single premium volume. It was partially offset by growth in Australian single premium mortgage insurance due to the acquisition of Westpac Lenders Mortgage Insurance Limited in the third quarter of 2021.

Underwriting income increased 42.2% year over year to $268.6 million. Combined ratio improved 3340 bps year over year to 11.7%.

Financial Update

Arch Capital exited the fourth quarter with cash of $858.7 million, which decreased 5.3% year over year. Debt was $2.7 billion as of Dec 31, 2021, up 0.03% year over year.

As of Dec 31, 2021, the book value per share was $33.56, up 10.7% year over year.

Annualized operating return on average common equity was 15.6% in the fourth quarter, up 790 bps year over year.

During 2021, net cash provided by operating activities was $3.4 billion, which increased 18.7% from the 2020-end figure.

Full-Year Update

For 2021, the company reported operating income per share of $3.58, which surpassed the Zacks Consensus Estimate of $3.33. The bottom line increased more than a two-fold year over year.

Annualized operating return on average common equity was 11.5% in 2021, up 670 bps from the figure at 2020 end.

Zacks Rank

Arch Capital currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Of the insurance industry players that have reported fourth-quarter results so far, Prudential Financial, Inc. (PRU - Free Report) , W.R. Berkley Corporation (WRB - Free Report) and Aflac Incorporated (AFL - Free Report) beat the Zacks Consensus Estimate for earnings.

Prudential reported fourth-quarter 2021 adjusted operating income of $3.18 per share, which surpassed the Zacks Consensus Estimate by 33.1%. The bottom line improved 13.6% year over year. Total revenues of PRU amounted to $13.7 billion, which declined 5.8% year over year but beat the Zacks Consensus Estimate by 2.3%.

Prudential’s total benefits and expenses amounted to $12.2 billion, which fell 7.4% year over year in the fourth quarter.

W.R. Berkley’s fourth-quarter 2021 operating income of $1.53 per share beat the Zacks Consensus Estimate of $1.21 by 26.5%. The bottom line improved 66.3% year over year.

Operating revenues of WRB were $2.6 billion, up 19.4% year over year. The top line beat the consensus estimate by 9.2%. W.R. Berkley’s net premiums written were $2.3 billion, up 26.6% year over year.

Aflac reported fourth-quarter 2021 adjusted earnings per share of $1.28, which surpassed the Zacks Consensus Estimate by 2.4%. The bottom line improved 19.6% year over year.

AFL’s total revenues of $5.4 billion fell 8.1% year over year but outpaced the consensus mark by 4.2%. Adjusted net investment income of Aflac declined 5.1% year over year to $893 million in the fourth quarter.