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Arch Capital (ACGL) Expects Q3 Cat Loss Between $530M & $560M

Arch Capital Group Ltd. ACGL estimates third-quarter catastrophe loss of $530-$560 million pre-tax. The loss is expected to primarily stem from Hurricane Ian as well as other catastrophes, including U.S. convective storms, Typhoon Nanmadol and the hailstorms in France in June.

The Zacks Consensus Estimate for third-quarter earnings is currently pegged at 91 cents per share, which indicates an improvement of 23% from the year-ago quarter’s reported figure. We expect estimates to move south once analysts start incorporating loss estimates into their numbers.

About 30% of this loss, net of reinsurance recoveries and reinstatement premiums, will be absorbed by the property and casualty Insurance segment and the remaining 70% will be absorbed by the Reinsurance segment.

Swiss Re estimates claims stemming from Hurricane Ian in the range of $50 billion to $65 billion. The Progressive Corporation PGR incurred $760 million of catastrophe losses due to Hurricane Ian in the third quarter of 2022 that weighed on its quarterly results.  The Travelers Companies Inc. TRV incurred pre-tax catastrophe losses of $512 million in the third quarter, mainly attributable to Hurricanes Ian and Fiona.

Everest Re Group, Ltd RE estimated total pre-tax net catastrophe losses of $730 million for the third quarter 2022. Hurricane Ian contributed mostly to the loss. Everest Re’s Reinsurance Segment is expected to absorb $500 million while the Insurance segment will absorb $100 million of loss.

Being a P&C insurer, Arch Capital remains exposed to catastrophe loss rendering substantial volatility to the insurer’s underwriting results. In the first half of 2022, net losses incurred from current accident year catastrophic events decreased 28.3% from the prior-year quarter. These losses stemmed from events outside the United States, including floods in Australia and South Africa, a directional storm in Canada, and other miscellaneous natural catastrophe events.

Arch Capital’s underwriting income increased 67.1% year over year to nearly $992.9 million, while the combined ratio improved 650 basis points (bps) to 77.9. Though exposure to cat events will always remain a concern, the company expects to report improved underwriting margins for the remaining quarters of 2021 banking on the rate increase and balanced business mix.

Shares of this Zacks Rank #2 (Buy) property-casualty (P&C) underwriter have gained 96% year to date against the industry’s decrease of 3.8%. New business opportunities, rate increases, growth in existing accounts and solid capital position should help shares retain the momentum.

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Zacks Investment Research

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Shares of Progressive, Travelers and Everest Re have gained 18.1%, 11.3% and 2.1% year to date.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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