Arch Capital (ACGL) Q3 Earnings Top on Solid Underwriting
Arch Capital Group Ltd. ACGL reported third-quarter 2023 operating income of $2.31 per share, beating the Zacks Consensus Estimate by 50%. The bottom line increased more than eightfold year over year.
Shares gained 3.2% in the aftermarket trading session to reflect the outperformance.
The results benefited from improved premiums and higher net investment income.
Arch Capital Group Ltd. Price, Consensus and EPS Surprise
Arch Capital Group Ltd. price-consensus-eps-surprise-chart | Arch Capital Group Ltd. Quote
Behind the Headlines
Gross premiums written improved 17.2% year over year to $4.5 billion.
Net premiums written climbed 35.8% year over year to $3.4 billion on higher premiums written across its Insurance and Reinsurance segments as hard market rates and rising inflation drove client demand for many of its property and casualty products. Net premiums beat our estimate of $3 billion.
Net investment income increased 108.5% year over year to $269 million and beat our estimate of $265.3 million. It was driven by higher interest rates and growth in invested assets, which benefited from strong operating cash flows. The Zacks Consensus Estimate was pegged at $261 million.
Operating revenues of $3.5 billion rose 32.6% year over year, driven by higher net premiums earned and net investment income. It beat the Zacks Consensus Estimate by 1.5%.
Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums, were $180 million.
Arch Capital’s underwriting income increased more than tenfold year over year to $721 million.
The combined ratio — the percentage of premiums paid out as claims and expenses — improved 1740 basis points (bps) to 77.9. Our estimate was 89.9. The Zacks Consensus Estimate was pegged at 87.
Segment Results
Insurance: Gross premiums written increased 9.7% year over year to $2 billion. Our estimate was $2.1 billion.
Net premiums written climbed 11.2% year over year to $1.5 billion, driven by increases in most lines of business, due in part to new business opportunities, increases in existing accounts and rate changes as well as more business in the reported quarter. Our estimate was $1.5 billion.
Underwriting income of $129 million rebounded from the year-ago loss of $34 million. The combined ratio improved 1190 bps to 90.9. The Zacks Consensus Estimate was pegged at 97.
Reinsurance: Gross premiums written improved 30.4% year over year to $2.1 billion. Our estimate was $2.2 billion.
Net premiums written rose 44.8% year over year to $1.6 billion on increases in property excluding property catastrophe and other specialty lines, due in part to rate increases, new business opportunities and growth in existing accounts. Our estimate was $1.2 billion.
Underwriting income was $310 million, rebounding from the year-ago loss of $137 million.
The combined ratio improved 3970 bps year over year to 80. The Zacks Consensus Estimate was pegged at 91.
Mortgage: Gross premiums written dropped 4.1% year over year to $347 million. Our estimate was $370.8 million.
Net premiums written decreased 1.8% year over year to $271 million on account of lower levels of mortgage originations in the Australian market, partially offset by growth in the credit risk transfer business and higher levels of retained premiums in the U.S. primary mortgage insurance business. Our estimate was $303.7 million.
Underwriting income declined 5.7% year over year to $282 million. Our estimate was $284.6 million.
The combined ratio improved 990 bps to 4.7%. The Zacks Consensus Estimate was pegged at 28.5.
Financial Update
Arch Capital exited the quarter with cash of $859 million, which increased 0.5% from 2022-end.
Debt was $2.7 billion as of Sep 30, 2023, up 0.04% from 2022-end.
As of Sep 30, 2023, book value per share was $38.62, up 18.4% from 2022-end.
Annualized operating return on average common equity expanded 2100 basis points to 24.8%. Cash from operations of $2 billion improved 29.7% year over year.
Zacks Rank
Arch Capital currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Insurers
The Travelers Companies TRV reported third-quarter 2023 core income of $1.95 per share, which missed the Zacks Consensus Estimate by 33.4%. The bottom line decreased 11.4% year over year, primarily attributable to higher catastrophe losses and net unfavorable prior-year reserve development. Travelers’ total revenues increased 14% from the year-ago quarter to $10.6 billion, primarily driven by higher premiums. The top-line figure beat the Zacks Consensus Estimate by 1.3%.
Net written premiums increased 14% year over year to a record $10.4 billion, driven by strong growth across all three segments. The figure was higher than our estimate of $9.4 billion. Travelers witnessed an underwriting gain of $868 million, up 43% year over year, driven by record net earned premiums of $9.7 billion and a consolidated underlying combined ratio, which improved by 90.6%.
The Progressive Corporation’s PGR third-quarter 2023 earnings per share of $2.09 beat the Zacks Consensus Estimate of $1.71. The bottom line improved more than fourfold year over year. Net premiums written were $15.6 billion in the quarter, which grew 20% from $13 billion a year ago and beat our estimate of $14.2 billion.
Net premiums earned grew 20% to $14.9 billion, beating our estimate of $13.6 billion and the Zacks Consensus Estimate of $14.8 billion. Net realized losses on securities were $149 million, narrower than a loss of $216.4 million in the year-ago quarter. The combined ratio — the percentage of premiums paid out as claims and expenses — improved 680 bps from the prior-year quarter’s level to 92.4.
RLI Corp. RLI reported third-quarter 2023 operating earnings of 61 cents per share, beating the Zacks Consensus Estimate by 510%. The bottom line improved 22% from the prior-year quarter. Operating revenues for the reported quarter were $350.4 million, up 12.1% year over year, driven by 9.2% higher net premiums earned and 50.3% higher net investment income. The top line, however, missed the Zacks Consensus Estimate by 7.2%.
Gross premiums written increased 11.3% year over year to $449.3 million. Underwriting income of $4.2 million decreased by 52.3%, primarily due to Hawaiian wildfire losses. The combined ratio deteriorated 170 basis points year over year to 98.7. Our estimate was 90.8.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
RLI Corp. (RLI) : Free Stock Analysis Report
The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report
The Progressive Corporation (PGR) : Free Stock Analysis Report
Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
