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Arch Capital (ACGL) Beats on Q2 Earnings, Mortgage Soars

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Arch Capital Group Ltd. (ACGL - Free Report) reported second-quarter 2017 earnings per share of $1.21, beating the Zacks Consensus Estimate of $1.20 by 0.83%. Moreover, earnings improved 7.1% from the year-ago quarter.

The second quarter benefited from sturdy performance at the Mortgage segment. Positive impact of the United Guaranty Corporation (“UGC”) buyout and higher net investment income added to the upside. However, soft performance at Insurance and Reinsurance weighed on the upside.

Including net realized losses of 13 cents, net impairment losses recognized in earnings of 1 cent, equity in net income loss of investment funds accounted for using the equity method of 24 cents, net foreign exchange (gains) losses of 27 cents, UGC transaction costs of 2 cents and income tax benefit of 3 cents, net income came in at $1.25 per share, down 24% year over year.

Arch Capital Group Ltd. Price, Consensus and EPS Surprise

Arch Capital Group Ltd. Price, Consensus and EPS Surprise | Arch Capital Group Ltd. Quote

Behind the Headlines

Gross premiums written surged 21% year over year to $1.6 billion. The improvement was primarily fueled by higher premiums written in the Mortgage segment.

Net investment income jumped 31% to $92.5 million. The upside was supported by income on the acquired United Guaranty portfolio which was partially offset by high investment expenses.

Arch Capital Group’s underwriting income increased 67.6% year over year to $195 million. Combined ratio improved 630 basis points (bps) to 84.6%.

Segment Result

Insurance: Gross premiums written declined 2.4% year over year to $743 million due to unfavorable market conditions and reduction in premiums from construction, casualty and property lines.

Underwriting loss of $4.5 million compared unfavorably with income of $4.3 million in the year-ago quarter.Combined ratio deteriorated 160 bps to 100.8%.

Reinsurance: Gross premiums written in the quarter surged 10% year over year to $453.1 million due to an increase in specialty business pertaining to reinsurance contracts.

Underwriting income decreased 73.9% year over year to $18.9 million. Combined ratio deteriorated 1200 bps year over year to 94%.

Mortgage: Gross premiums written in the quarter skyrocketed 183.9% year over year to $336.2 million, primarily reflecting growth in insurance force, driven by the acquisition of UGC.

Underwriting income increased more than fourfold to $183.6 million. Combined ratio improved 1350 bps year over year to 30.5%.

Financial Update

Arch Capital Group exited the second quarter with total capital of $11.13 billion compared with $10.49 at year-end 2016.

As of Jun 30, 2017, diluted book value per share was $59.60, up 15.2% year over year.

Operating return on equity was 8.5% in the quarter compared with 9.1% in the year ago quarter.

Zacks Rank

Arch Capital Group presently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Among other players from the insurance industry that have reported their second-quarter earnings, the bottom line at Brown & Brown, Inc. (BRO and Fidelity National Financial, Inc.(FNF - Free Report) beat their respective Zacks Consensus Estimate. The Progressive Corporation (PGR - Free Report) missed the same

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