Arch Capital Group Ltd. (ACGL Quick QuoteACGL - Free Report) reported third-quarter 2022 operating income per share of 28 cents per share, which beat the Zacks Consensus Estimate by 16.7%. The bottom line however decreased 62.2% year over year.

The results benefited from improved premiums and higher net investment income, offset by higher catastrophic losses and increase in expenses.

Arch Capital Group Ltd. Price, Consensus and EPS Surprise

Behind the Headlines

Gross premiums written improved 20.4% year over year to $3.9 billion. Net premiums written climbed 31.2% year over year to $2.7 billion on higher premiums written across its Insurance and Reinsurance segments.

Net investment income increased 45.9% year over year to $128.6 million and beat our estimate of $94.2 million.

Operating revenues of $2.6 billion rose 23.1% year over year and beat the Zacks Consensus Estimate by about 1% and our estimate of $2.5 billion.

Total expenses of $2.4 billion increased 32.9% year over year due to higher losses and loss adjustment expenses, acquisition expenses, other operating expenses, as well as higher net foreign exchange gains. Our estimate was $2.2 billion.

Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums were $500.8 million, stemming from Hurricane Ian, as well as from a series of other global events that occurred this year, including U.S. convective storms, Typhoon Nanmadol and the hailstorms France in June.  

Arch Capital’s underwriting income decreased 60.4% year over year to $68.8 million. The combined ratio deteriorated 590 basis points (bps) to 97.3.

Segment Results

Insurance: Gross premiums written increased 16.6% year over year to $1.9 billion. Net premiums written climbed 18.6% year over year to $1.4 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 $33.7 million was wider than the year-ago loss of $21.4 million. The combined ratio deteriorated 60 bps to 102.8.

Reinsurance: Gross premiums written improved 30.9% year over year to $1.6 billion. Net premiums written rose 73.6% year over year to $1.1 billion. The growth was driven by increases in other specialty, property catastrophe and property excluding property catastrophe lines, primarily related to rate increases, new business opportunities and growth in existing accounts.

Underwriting loss was $196.9 million, wider than $38.9 million loss incurred in the year-ago quarter. The combined ratio deteriorated 1350 bps year over year to 119.7.

Mortgage: Gross premiums written increased 0.4% year over year to $362.4 million. Net premiums written decreased 8.2% year over year to $276.2 million. The decline was attributable to a higher level of premiums ceded than in the 2021 third quarter. The reduction in net premiums earned also reflected a decline in earnings from single premium policy terminations and a lower level of monthly premiums.

Underwriting income increased 27.9% year over year to $299.4 million. The combined ratio was (5.2) versus 26.2 in the year-ago quarter.

Financial Update

Arch Capital exited the third quarter of 2022 with cash of $813.6 million, which decreased 5.3% from 2021 end. Debt was $2.7 billion as of Sep 30, 2022, down 0.03% from 2021 end. As of Sep 30, 2022, the book value per share was $29.69, down 11.5% from 2021 end.

Annualized operating return on average common equity was 3.8% in the third quarter, down 630 bps.

Cash from operations of $1.4 billion improved 35.9% year over year.

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 Some Other P&C Insurers

Of the insurance industry players that have reported third-quarter results so far, The Travelers Companies (TRV Quick QuoteTRV - Free Report) and RLI Corporation (RLI Quick QuoteRLI - Free Report) beat the respective Zacks Consensus Estimate for earnings, while The Progressive Corporation (PGR Quick QuotePGR - Free Report) missed the mark.

Travelers’ third-quarter 2022 core income of $2.20 per share beat the Zacks Consensus Estimate by 24.3% but decreased 15.4% year over year.  Total revenues increased 6.8% from the year-ago quarter to $9.4 billion and beat the Zacks Consensus Estimate by 2.5%.

Net written premiums increased 110% year over year to $9.2 billion. Underwriting gain of $115 million increased 53.3% year over year in the reported quarter.  The combined ratio improved 40 bps year over year to 98.2.

RLI’s third-quarter 2022 operating earnings of 50 cents per share beat the Zacks Consensus Estimate by 51.5% but declined 23.1% from the prior-year quarter. Operating revenues were $312.7 million, up 15.3% year over year but missed the Zacks Consensus Estimate by 1.3%.

Gross premiums written increased 13.3% year over year to $403.8 million. Underwriting income of $8.8 million decreased 35.8% while the combined ratio deteriorated 240 bps year over year to 97.

Progressive’s earnings per share of 49 cents missed the Zacks Consensus Estimate of $1.24 as well as our estimate of $1.38. The bottom line, however, improved more than threefold from 14 cents earned in the year-ago quarter.

Net premiums written were $13 billion in the quarter, up 5% from $11.7 billion a year ago but missed our estimate of $14.2 billion. The combined ratio — the percentage of premiums paid out as claims and expenses — improved 120 bps from the prior-year quarter’s level to 99.2.