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Arch Capital (ACGL) Q2 Earnings Beat Estimates, Premiums Rise

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Arch Capital (ACGL) Q2 Earnings Beat Estimates, Premiums Rise

Higher premiums, increased net investment income as well as underwriting income plus a strong performance at the Insurance and Reinsurance segments help Arch Capital (ACGL) beat on Q2 earnings.

Arch Capital Group Ltd. ACGL reported second-quarter 2018 operating income per share of 59 cents, which outperformed the Zacks Consensus Estimate by 13.5%. Moreover, the bottom line surged 47.5% from the prior-year quarter.

Arch Capital Group Ltd. Price, Consensus and EPS Surprise

 

Arch Capital Group Ltd. Price, Consensus and EPS Surprise | Arch Capital Group Ltd. Quote

The quarter benefited from a sturdy performance at the Insurance and Reinsurance segments. Higher net investment income as well as favorable underwriting results added to this upside.

Including net realized loss of 15 cents, equity in net income loss of investment funds accounting for using the equity method of 2 cents, net foreign exchange loss of 11 cents, UGC transaction costs of 2 cents, loss on redemption of preferred shares of 2 cents and an income tax benefit of 1 cent, net income came in at 56 cents per share, up 33.3% year over year.

Behind the Headlines

Gross premiums written increased 5.4% year over year to $1.7 billion, largely fueled by higher premiums written in the Insurance and Reinsurance segments.

Net investment income grew 16.5% to $107.8 million, supported by reinvestment of fixed income securities at higher available yields as well as increase in investable assets.

Arch Capital’s underwriting income was $235.5 million, having improved 20.5% from the year-ago quarter. Combined ratio improved 190 basis points (bps) to 82.7%.

Segment Results

Insurance: Gross premiums written increased 3.4% year over year to $769.4 million.

Underwriting income of $5.6 million compared favorably with the underwriting loss of $4.5 million in the year-ago quarter. Combined ratio improved 180 bps to 99.0%.

Reinsurance: Gross premiums written in the quarter under review rose 8.2% year over year to $490.3 million.

Underwriting income of $24.4 million jumped 28.8% from the prior-year quarter. Combined ratio improved 120 bps year over year to 92.8%.

Mortgage: Gross premiums written in the quarter fell 1.6% year over year to $330.9 million, primarily reflecting a lower level of Australian mortgage reinsurance business as well as that of U.S. single premium business. However, growth in U.S. monthly premium business and government sponsored enterprise (GSE) credit-risk sharing transactions partially offset the downside. Underwriting income climbed 12% to $205.7 million. Combined ratio improved 30 bps year over year to 30.2%.

Financial Update

Arch Capital exited the second quarter with total capital of $11.02 billion compared with $11.13 billion as of Jun 30, 2017.

As of Jun 30, 2018, book value per share was $20.68, up 4.1% year over year.

Operating return on equity was 11.6% in the reported quarter compared with 8.5% in the year-ago period.

Share Repurchase Update

In the second quarter the company bought back 6.4 million shares worth $170.3 million. As of Jun 30, 2018, Arch Capital had shares worth $272.9 million remaining under its authorized program.

Zacks Rank

Arch Capital holds a Zacks Rank #2 (Buy). 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 second-quarter earnings, the bottom line of The Progressive Corporation PGR and RLI Corp. RLI outpaced the respective Zacks Consensus Estimate while The Travelers Companies, Inc.’s TRV earnings missed the same.

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