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Arch Capital (ACGL) Q2 Earnings Top, Fall Y/Y on Segment Loss

Zacks Equity Research

Arch Capital Group Ltd. ACGL reported second-quarter 2020 operating income per share of 4 cents in contrast to the Zacks Consensus Estimate of a loss of 26 cents. However, the bottom line dropped about 95% year over year.

The quarter results reflect improved premiums. However, catastrophic losses including COVID-19 related losses were a drag on results.

Behind the Headlines

Gross premiums written increased 19.6% year over year to $2.3 billion, largely fueled by higher premiums written across its Insurance, Reinsurance and Mortgage segments.

Net investment income decreased 15.2% year over year to $131.5 million.

Operating revenues of $1.8 billion increased 10.7% year over year.

Total expense of $1.8 billion increased 44.1% year over year on higher losses and loss adjustment expenses, acquisition expenses, other operating expenses, interest expense and forex.

Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums were $207.2 million, including $173.1 million of COVID-19 related losses.

Arch Capital’s underwriting loss was $22.9 million against underwriting profit of $293.1 million in the year-ago quarter. Combined ratio deteriorated 2140 basis points (bps) to 101.8%.

Arch Capital Group Ltd. Price, Consensus and EPS Surprise

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 12% year over year to $1 billion driven by increases in property, energy, marine and aviation and professional lines, due in part to new business opportunities, rate increases and growth in existing accounts. Decrease in travel business, primarily due to the ongoing impact of the COVID-19 pandemic, was a partial offset.

Underwriting loss was $56.7 million against $2.6 million profit in the year-ago quarter. Combined ratio deteriorated 870 bps to 108.3%.

Reinsurance: Gross premiums written rose 47.9% year over year to $807.1 million driven by increases in property lines, due in part to new business and rate increases.

Underwriting loss was $33.1 million against $36.7 million profit in the year-ago quarter. Combined ratio deteriorated 1650 bps year over year to 106.8%.

Mortgage: Gross premiums written increased 1.3% year over year to $369.1 million. Underwriting income dropped 70.4% to $76.4 million. Combined ratio deteriorated 5290 bps year over year to 80.9%. Arch MI U.S. generated $24.6 billion of new insurance written.

Financial Update

Arch Capital exited the quarter with cash of $854.3 million, up 41.1% year over year. Debt was $2.9 billion, up 54.6% year over year.

As of Jun 30, 2020, book value per share was $27.62, up 12.1% year over year.

Operating return on equity was 0.6% in the second quarter, down 1250 basis points.

Net cash provided by operating activities was $711.1 million, up 49% year over year.

Zacks Rank

Arch Capital currently carries 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

Of the insurance industry players that have reported second-quarter results so far, The Progressive Corporation PGR, Cincinnati Financial CINF and RLI Corp. RLI beat the respective Zacks Consensus Estimate for earnings.

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RLI Corp. (RLI) : Free Stock Analysis Report
 
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