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Arch Capital (ACGL) Up 12.3% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Arch Capital Group (ACGL). Shares have added about 12.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Arch Capital due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Arch Capital Q3 Earnings Top, Fall Y/Y on High Cat Loss

Arch Capital Group Ltd. reported third-quarter 2022 operating income per share of 28 cents per share, which beat the Zacks Consensus Estimate by 16.7%. The bottom line however decreased 62.2% year over year.

The results benefited from improved premiums and higher net investment income, offset by higher catastrophic losses and increase in expenses.

Behind the Headlines

Gross premiums written improved 20.4% year over year to $3.9 billion. Net premiums written climbed 31.2% year over year to $2.7 billion on higher premiums written across its Insurance and Reinsurance segments.

Net investment income increased 45.9% year over year to $128.6 million and beat our estimate of $94.2 million. Operating revenues of $2.6 billion rose 23.1% year over year and beat the Zacks Consensus Estimate by about 1% and our estimate of $2.5 billion.

Total expenses of $2.4 billion increased 32.9% year over year due to higher losses and loss adjustment expenses, acquisition expenses, other operating expenses, as well as higher net foreign exchange gains. Our estimate was $2.2 billion.

Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums were $500.8 million, stemming from Hurricane Ian, as well as from a series of other global events that occurred this year, including U.S. convective storms, Typhoon Nanmadol and the hailstorms France in June.  Arch Capital’s underwriting income decreased 60.4% year over year to $68.8 million. The combined ratio deteriorated 590 basis points (bps) to 97.3.

Segment Results

Insurance: Gross premiums written increased 16.6% year over year to $1.9 billion. Net premiums written climbed 18.6% year over year to $1.4 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 loss of $33.7 million was wider than the year-ago loss of $21.4 million. The combined ratio deteriorated 60 bps to 102.8.

Reinsurance: Gross premiums written improved 30.9% year over year to $1.6 billion. Net premiums written rose 73.6% year over year to $1.1 billion. The growth was driven by increases in other specialty, property catastrophe and property excluding property catastrophe lines, primarily related to rate increases, new business opportunities and growth in existing accounts. Underwriting loss was $196.9 million, wider than $38.9 million loss incurred in the year-ago quarter. The combined ratio deteriorated 1350 bps year over year to 119.7.

Mortgage: Gross premiums written increased 0.4% year over year to $362.4 million. Net premiums written decreased 8.2% year over year to $276.2 million. The decline was attributable to a higher level of premiums ceded than in the 2021 third quarter. The reduction in net premiums earned also reflected a decline in earnings from single premium policy terminations and a lower level of monthly premiums. Underwriting income increased 27.9% year over year to $299.4 million. The combined ratio was (5.2) versus 26.2 in the year-ago quarter.

Financial Update

Arch Capital exited the third quarter of 2022 with cash of $813.6 million, which decreased 5.3% from 2021 end. Debt was $2.7 billion as of Sep 30, 2022, down 0.03% from 2021 end. As of Sep 30, 2022, the book value per share was $29.69, down 11.5% from 2021 end.

Annualized operating return on average common equity was 3.8% in the third quarter, down 630 bps. Cash from operations of $1.4 billion improved 35.9% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

The consensus estimate has shifted 9.2% due to these changes.

VGM Scores

Currently, Arch Capital has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Arch Capital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Arch Capital belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Progressive (PGR), has gained 5.4% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

Progressive reported revenues of $13 billion in the last reported quarter, representing a year-over-year change of +9.9%. EPS of $0.49 for the same period compares with $0.14 a year ago.

For the current quarter, Progressive is expected to post earnings of $1.47 per share, indicating a change of +40% from the year-ago quarter. The Zacks Consensus Estimate has changed -5.5% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Progressive. Also, the stock has a VGM Score of B.

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