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Arch Capital (ACGL) Q1 Earnings Beat, Premiums Rise Y/Y

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Arch Capital Group Ltd. (ACGL - Free Report) reported first-quarter 2019 operating income per share of 67 cents, which outperformed the Zacks Consensus Estimate by 8.1%. Moreover, the bottom line improved 19.6%.

The quarter benefited from improving premiums and net investment income.    

Behind the Headlines

Gross premiums written increased 13% year over year to $2.1 billion, largely fueled by higher premiums written across its Insurance, Reinsurance and Mortgage segments.

Net investment income increased more than threefold to $121.3 million, supported by reinvestment of fixed income securities at higher available yields and the shift from municipal bonds to corporates.

Operating revenues of $1.5 billion improved 12.1% year over year and beat the Zacks Consensus Estimate by nearly 15%.

Interest expense was $23.5 million, down 9.3% year over year, reflecting the paydown of revolving credit agreement borrowings in the second half of 2018.

Total expense of $1.2 billion increased 7.8% year over year on higher losses and loss adjustment expenses, acquisition expenses, other operating expenses and corporate expenses.

Arch Capital’s underwriting income came in at $260.1 million, up 9.8% year over year. Combined ratio improved 180 basis points (bps) to 81.4%.

Arch Capital Group Ltd. Price, Consensus and EPS Surprise

Segment Results

Insurance: Gross premiums written increased 14.4% year over year to $942 million driven by acquisition of a U.K. commercial lines book of business and growth in most lines of business.

Underwriting profit dropped 92.9% year over year to $0.6 million. Combined ratio deteriorated 130 bps to 99.9%.

Reinsurance: Gross premiums written rose 18.2% year over year to $682.9 million on growth from selected new business opportunities in casualty and property excluding property catastrophe.

Underwriting income dropped 61.9% year over year to $4.3 million. Combined ratio deteriorated 1450 bps year over year to 95.2%.

Mortgage: Gross premiums written increased 10.9% year over year to $356.1 million. Underwriting income increased 39.6% to $244.1 million. Combined ratio improved 1320 bps year over year to 25.6%. Arch MI U.S. generated $11.2 billion of new insurance written.

Financial Update

Arch Capital exited the quarter with cash of $633.1 million, down 7% year over year. Debt was $1.7 billion, up 0.4% year over year.

As of Mar 31, 2019, book value per share was $23.12, up 7.4% year over year.

Operating return on equity was 12.3% in the first quarter, up 100 basis points.

Net cash provided by operating activities was $165.4 million, down 55.3% year over year.

Zacks Rank

Arch Capital currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other P&C Insurers

Among other players from the insurance industry, which have already reported first-quarter results, The Travelers Companies, Inc. (TRV - Free Report) and RLI Corp. (RLI - Free Report) and The Progressive Corp. (PGR - Free Report) outpaced the respective Zacks Consensus Estimate for earnings.

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