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Arch Capital (ACGL) Q2 Earnings and Revenues Beat, Up Y/Y

Zacks Equity Research

Arch Capital Group Ltd. ACGL reported second-quarter 2019 operating income per share of 17 cents, which outpaced the Zacks Consensus Estimate by 11.6%. Moreover, the bottom line improved 30.5%.

The quarter benefited from improving premiums and net investment income as well as decline in expenses.    

Behind the Headlines

Gross premiums written increased 14.2% year over year to $1.9 billion, largely fueled by higher premiums written across its Insurance, Reinsurance and Mortgage segments.

Net investment income increased 40.9% year over year to $155 million, driven by growth in invested assets, reinvestment of fixed income securities at higher available yields and shift from municipal bonds to corporates.

Operating revenues of $1.6 billion increased 9.8% year over year and beat the Zacks Consensus Estimate by 4.8%.

Interest expense was $29.3 million, down nearly 52% year over year, reflecting the paydown of revolving credit agreement borrowings in the second half of 2018.

Total expense of $1.2 billion decreased 43.9% year over year on lower losses and loss adjustment expenses, acquisition expenses, other operating expenses, interest expense and corporate expenses.

Arch Capital’s underwriting income came in at $293.1 million, up 24.5% year over year. Combined ratio improved 230 basis points (bps) to 80.4%.

Arch Capital Group Ltd. Price, Consensus and EPS Surprise

Arch Capital Group Ltd. Price, Consensus and EPS Surprise

Arch Capital Group Ltd. price-consensus-eps-surprise-chart | Arch Capital Group Ltd. Quote

Segment Results

Insurance: Gross premiums written increased 19.6% year over year to $919.9 million driven by acquisition of a U.K. commercial lines book of business and, growth and rate increase in most lines of business.

Underwriting profit dropped 52.9% year over year to $2.6 million. Combined ratio deteriorated 60 bps to 99.6%.

Reinsurance: Gross premiums written rose 11.3% year over year to $545.5 million on growth in property business, with a significant amount being retroceded.

Underwriting income surged 50.4% year over year to $36.7 million. Combined ratio improved 250 bps year over year to 90.3%.

Mortgage: Gross premiums written increased 10.1% year over year to $364.5 million. Underwriting income increased 25.6% to $2583.4 million. Combined ratio improved 220 bps year over year to 28%. Arch MI U.S. generated $17.2 billion of new insurance written.

Financial Update

Arch Capital exited the quarter with cash of $605.3 million, up 14.9% year over year. Debt was $1.7 billion, up 0.4% year over year.

As of Jun 30, 2019, book value per share was $24.64, up 6.6% year over year.

Operating return on equity was 13.1% in the second quarter, up 150 basis points.

Net cash provided by operating activities was $431.9 million, an increase from $34.2 million in the year-ago period.

Zacks Rank

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

Performance of Other P&C Insurers

Of the insurance industry players that have reported second-quarter results so far, The Progressive Corporation PGR and RLI Corp. RLI beat the respective Zacks Consensus Estimate for earnings. However, The Travelers Companies, Inc. TRV missed the same.

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