A month has gone by since the last earnings report for Arch Capital Group (ACGL Quick QuoteACGL - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Arch Capital due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Arch Capital Q3 Earnings Top on Solid Underwriting

Arch Capital Group Ltd. reported third-quarter 2023 operating income of $2.31 per share, beating the Zacks Consensus Estimate by 50%. The bottom line increased more than eightfold year over year. Shares gained 3.2% in the aftermarket trading session to reflect the outperformance. The results benefited from improved premiums and higher net investment income.

Behind the Headlines

Gross premiums written improved 17.2% year over year to $4.5 billion. Net premiums written climbed 35.8% year over year to $3.4 billion on higher premiums written across its Insurance and Reinsurance segments as hard market rates and rising inflation drove client demand for many of its property and casualty products. Net premiums beat our estimate of $3 billion.

Net investment income increased 108.5% year over year to $269 million and beat our estimate of $265.3 million. It was driven by higher interest rates and growth in invested assets, which benefited from strong operating cash flows. The Zacks Consensus Estimate was pegged at $261 million.

Operating revenues of $3.5 billion rose 32.6% year over year, driven by higher net premiums earned and net investment income. It beat the Zacks Consensus Estimate by 1.5%.

Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums, were $180 million. Arch Capital’s underwriting income increased more than tenfold year over year to $721 million.

The combined ratio — the percentage of premiums paid out as claims and expenses — improved 1740 basis points (bps) to 77.9. Our estimate was 89.9. The Zacks Consensus Estimate was pegged at 87.

Segment Results

Insurance: Gross premiums written increased 9.7% year over year to $2 billion. Our estimate was $2.1 billion. Net premiums written climbed 11.2% year over year to $1.5 billion, driven by increases in most lines of business, due in part to new business opportunities, increases in existing accounts and rate changes as well as more business in the reported quarter. Our estimate was $1.5 billion.

Underwriting income of $129 million rebounded from the year-ago loss of $34 million. The combined ratio improved 1190 bps to 90.9. The Zacks Consensus Estimate was pegged at 97.

Reinsurance: Gross premiums written improved 30.4% year over year to $2.1 billion. Our estimate was $2.2 billion.

Net premiums written rose 44.8% year over year to $1.6 billion on increases in property excluding property catastrophe and other specialty lines, due in part to rate increases, new business opportunities and growth in existing accounts. Our estimate was $1.2 billion.

Underwriting income was $310 million, rebounding from the year-ago loss of $137 million. The combined ratio improved 3970 bps year over year to 80. The Zacks Consensus Estimate was pegged at 91.

Mortgage: Gross premiums written dropped 4.1% year over year to $347 million. Our estimate was $370.8 million.

Net premiums written decreased 1.8% year over year to $271 million on account of lower levels of mortgage originations in the Australian market, partially offset by growth in the credit risk transfer business and higher levels of retained premiums in the U.S. primary mortgage insurance business. Our estimate was $303.7 million.

Underwriting income declined 5.7% year over year to $282 million. Our estimate was $284.6 million. The combined ratio improved 990 bps to 4.7%. The Zacks Consensus Estimate was pegged at 28.5.

Financial Update

Arch Capital exited the quarter with cash of $859 million, which increased 0.5% from 2022-end. Debt was $2.7 billion as of Sep 30, 2023, up 0.04% from 2022-end.

As of Sep 30, 2023, book value per share was $38.62, up 18.4% from 2022-end. Annualized operating return on average common equity expanded 2100 basis points to 24.8%. Cash from operations of $2 billion improved 29.7% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 5.49% due to these changes.

VGM Scores

Currently, Arch Capital has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Arch Capital has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Arch Capital belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Chubb (CB Quick QuoteCB - Free Report) , has gained 4.8% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.

Chubb reported revenues of $14.09 billion in the last reported quarter, representing a year-over-year change of +11.9%. EPS of $4.95 for the same period compares with $3.17 a year ago.

Chubb is expected to post earnings of $4.92 per share for the current quarter, representing a year-over-year change of +21.5%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.3%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Chubb. Also, the stock has a VGM Score of B.