Arch Capital (ACGL) Q1 Earnings & Revenues Miss Estimates

Arch Capital Group Ltd. ACGL reported first-quarter 2022 operating income per share of $1.10 per share, which missed the Zacks Consensus Estimate by 2.7%. The bottom line however increased 86.4% year over year.

The year-over-year increase was driven by improved premiums, lower expenses, as well as lower catastrophic losses and improved combined ratio, offset by lower 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 11.9% year over year to $3.8 billion. Net premiums written climbed 5% year over year to $2.6 billion on higher premiums written across its Insurance and Reinsurance segments.

Net investment income plunged 18.6% year over year to $80.4 million.

Operating revenues of $2.2 billion rose 6.8% year over year but missed the Zacks Consensus Estimate by 6.2%.

Total expenses of $1.8 billion decreased 3.8% year over year due to lower losses and loss adjustment expenses, net foreign exchange gains and interest expense.

Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums were $85.8 million, which decreased 54.4% from the prior-year quarter. Arch Capital’s underwriting income more than doubled year over year to nearly $457.6 million. The combined ratio improved 1050 basis points (bps) to 78.7.

Segment Results

Insurance: Gross premiums written advanced 21.5% year over year to $1.7 billion, while net premiums written climbed 21.3% year over year to $1.2 billion. This growth can primarily be attributed to increases in most lines of business, due in part to rate increases, new business opportunities and growth in existing accounts.

Underwriting income increased more than threefold to $63.5 million. The combined ratio improved 390 bps to 93.8.

Reinsurance: Gross premiums written improved 16.9% year over year to $1.7 billion, while net premiums written surged 14% year over year to $1.1 billion. The growth in net premiums written was observed in other specialty, casualty and property excluding property catastrophe lines, primarily related to rate increases, new business opportunities and growth in existing accounts. Underwriting income was $108.7 million, marking a rebound from the year-ago quarter’s loss of $19.7 million. The combined ratio improved 1630 bps year over year to 86.6.

Mortgage: Gross premiums written decreased 6.7% year over year to $364.8 million. Net premiums written decreased 14% year over year to $288.1 million. The reduction in gross premiums written primarily reflected lower U.S. primary mortgage insurance monthly and single premium volume, partially offset by growth in Australian single premium mortgage insurance. Underwriting income increased 42.5% year over year to $285.3 million. The combined ratio improved 3930 bps year over year to 3.1.

Financial Update

Arch Capital exited the first quarter of 2022 with cash of $812.9 million, which decreased 13.7% year over year. Debt was $2.7 billion as of Mar 31, 2022, down 4.8% year over year. As of Dec 31, 2021, the book value per share was $32.18, up 5.4% year over year.

Annualized operating return on average common equity was 13.6% in the first quarter, up 580 bps.

ACGL bought back shares worth $255 million in the first quarter of 2022.

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 Some Other P&C Insurers

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

Travelers reported first-quarter 2022 core income of $4.22 per share, which beat the Zacks Consensus Estimate by 14% and increased 54.6% year over year. Total revenues increased 6.8% from the year-ago quarter to $8.8 billion, primarily due to higher premiums and fee income but missed the consensus estimate. Travelers’ combined ratio deteriorated 530 bps year over year to 91.3.

RLI’s first-quarter 2022 operating earnings of $1.43 per share beat the Zacks Consensus Estimate by 40.2% and improved 64.4% from the prior-year quarter. Operating revenues were $287 million, up 17.1% year over year and beat the Zacks Consensus Estimate by 0.8%. RLI’s gross premiums written increased 22% year over year to $359.2 million. The combined ratio improved 900 bps year over year to 77.9.

Progressive’s first-quarter 2022 earnings per share of $1.12 missed the Zacks Consensus Estimate of $1.24 and declined 34.9% from the year-ago quarter. Net premiums written were $13.2 billion in the quarter, up 12% from $11.7 billion a year ago. Progressive’s combined ratio deteriorated 520 bps from the prior-year quarter to 94.7.

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