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Arch Capital (ACGL) Provides Q3 Catastrophe Loss Estimates

Zacks Equity Research

Arch Capital Group ACGL estimates third-quarter pre-tax gross catastrophe loss in the range of $65-$75 million, primarily due to Hurricane Dorian and Typhoon Faxai. The estimated losses are net of reinsurance recoveries and reinstatement premiums.

Risk modeling and analytics firm RMS expects insured losses to range between $3.5 billion and $6.5 billion from Hurricane Dorian while catastrophe modeler Karen Clark & Co. estimates insured losses in the United States and Caribbean to be around $5 billion, per media release. RMS estimates insured losses from Typhoon Faxai to be between $5 billion and $9 billion while catastrophe risk modeling firm AIR Worldwide expects loss in the range of $3 billion to $7 billion.

The Zacks Consensus Estimate for the third quarter is currently pegged at 67 cents, indicating increase of 13.6% from the year-ago quarter reported figure on 9.9% higher revenues. However, we expect estimates to move south once analysts start incorporating loss estimates into their numbers.

Being a property and casualty insurer, Arch Capital is vulnerable to natural disasters inducing volatility in underwriting results. Losses from 2019 cat events in the second quarter, net of reinsurance recoverables and reinstatement premiums, were $7.2 million. These losses stemmed from convective storm activity in the United States. Nonetheless, Arch Capital’s underwriting income in the second quarter came in at $293.1 million, up 24.5% year over year while combined ratio improved 230 basis points to 80.4%.

However, given a not-so-active catastrophe environment, underwriting income increased 17% year over year while combined ratio improved 100 basis points in the first half of 2019. Better pricing and reinsurance cover should provide some respite from cat loss incurred by the company in the third quarter. 

Shares of Arch Capital, carrying a Zacks Rank #3 (Hold), rallied 13.2% in the third quarter against the industry’s decline of 0.9%. Diverse product and service portfolio that drives growth of premiums, expansion of U.S. Mortgage Insurance business, along with a robust capital position, should help the stock retain its momentum.

Stocks to Consider

Some better-ranked property and casualty insurers include Alleghany Y, Hallmark Financial Services HALL and First American Financial FAF, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany provides property and casualty reinsurance and insurance products in the United States and internationally. The company delivered 30.80% positive surprise in the last reported quarter.

Hallmark Financial underwrites, markets, distributes, and services property/casualty insurance products to businesses and individuals in the United States. The company delivered 20.00% positive surprise in the last reported quarter.

First American provides financial services. The company delivered 17.4% positive surprise in the last reported quarter.

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