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Why Is Arch Capital (ACGL) Down 2% Since Last Earnings Report?
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It has been about a month since the last earnings report for Arch Capital Group (ACGL - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Arch Capital due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Arch Capital Q1 Earnings and Revenues Top, Rise Y/Y
Arch Capital reported first-quarter 2023 operating income of $1.73 per share, beating the Zacks Consensus Estimate by 14.6%. Earnings also came ahead of our estimate of $1.42. The bottom line increased 57.3% year over year.
The results benefited from improved premiums and higher net investment income on the back of improved Insurance and Reinsurance segment performance.
Behind the Headlinesi
Gross premiums written improved 28.5% year over year to $4.8 billion. Net premiums written climbed 30% year over year to $3.4 billion on higher premiums written across its Insurance and Reinsurance segments and beat our estimate of $2.6 billion.
Net investment income increased 9.9% year over year to $199 million and beat our estimate of $81 million. Higher net investment income reflects higher interest rates growth in invested assets.
Operating revenues of $3.1 billion rose 41.1% year over year, driven by higher net premiums earned and net investment income. It beat the Zacks Consensus Estimate by 8.7% and came ahead of our estimate of $2.9 billion.
Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums, were $79 million.
Arch Capital’s underwriting income increased 24.5% year over year to $570 million.
The combined ratio — the percentage of premiums paid out as claims and expenses — deteriorated 190 basis points (bps) to 80.6.
Segment Results
Insurance: Gross premiums written increased 15.1% year over year to about $2 billion. Net premiums written climbed 19.1% year over year to $1.4 billion, in line with our estimate, driven by increases in most lines of business, due in part to new business opportunities, increases in existing accounts and rate changes and more business retention. Underwriting income of $114 million was 81% higher than the year-ago number. The combined ratio improved 290 bps to 90.9.
Reinsurance: Gross premiums written improved 43.1% year over year to $2.5 billion. Net premiums written rose 51.5% year over year to $1.7 billion, driven by increases in most lines of business, due in part to rate increases, new business opportunities and growth in existing accounts as well as more business retention. Our estimate was $1.6 billion.
Underwriting income was $213 million, up 95.4% year over year. The combined ratio improved 230 bps year over year to 84.3.
Mortgage: Gross premiums written dropped 6% year over year to $343 million. Net premiums written decreased 9.4% year over year to $261 million due to a higher level of ceded premiums through quota share reinsurance agreements than in the year-ago quarter. Our estimate was $306.1 billion.
Underwriting income dropped 15% year over year to $243 million. The combined ratio deteriorated 1690 bps to 20%.
Financial Update
Arch Capital exited the quarter with cash of $803 million, which decreased 6.1% from 2021-end. Debt was $2.7 billion as of Mar 31, 2023, up 0.04% from 2022-end.
As of Mar 31, 2023, the book value per share was $35.35, up 8.4% from 2021-end. Annualized operating return on average common equity expanded 710 basis points to 20.7%. Cash from operations of $963 million improved 74.5% year over year.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, Arch Capital has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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.
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Why Is Arch Capital (ACGL) Down 2% Since Last Earnings Report?
It has been about a month since the last earnings report for Arch Capital Group (ACGL - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Arch Capital due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Arch Capital Q1 Earnings and Revenues Top, Rise Y/Y
Arch Capital reported first-quarter 2023 operating income of $1.73 per share, beating the Zacks Consensus Estimate by 14.6%. Earnings also came ahead of our estimate of $1.42. The bottom line increased 57.3% year over year.
The results benefited from improved premiums and higher net investment income on the back of improved Insurance and Reinsurance segment performance.
Behind the Headlinesi
Gross premiums written improved 28.5% year over year to $4.8 billion. Net premiums written climbed 30% year over year to $3.4 billion on higher premiums written across its Insurance and Reinsurance segments and beat our estimate of $2.6 billion.
Net investment income increased 9.9% year over year to $199 million and beat our estimate of $81 million. Higher net investment income reflects higher interest rates growth in invested assets.
Operating revenues of $3.1 billion rose 41.1% year over year, driven by higher net premiums earned and net investment income. It beat the Zacks Consensus Estimate by 8.7% and came ahead of our estimate of $2.9 billion.
Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums, were $79 million.
Arch Capital’s underwriting income increased 24.5% year over year to $570 million.
The combined ratio — the percentage of premiums paid out as claims and expenses — deteriorated 190 basis points (bps) to 80.6.
Segment Results
Insurance: Gross premiums written increased 15.1% year over year to about $2 billion. Net premiums written climbed 19.1% year over year to $1.4 billion, in line with our estimate, driven by increases in most lines of business, due in part to new business opportunities, increases in existing accounts and rate changes and more business retention. Underwriting income of $114 million was 81% higher than the year-ago number. The combined ratio improved 290 bps to 90.9.
Reinsurance: Gross premiums written improved 43.1% year over year to $2.5 billion. Net premiums written rose 51.5% year over year to $1.7 billion, driven by increases in most lines of business, due in part to rate increases, new business opportunities and growth in existing accounts as well as more business retention. Our estimate was $1.6 billion.
Underwriting income was $213 million, up 95.4% year over year. The combined ratio improved 230 bps year over year to 84.3.
Mortgage: Gross premiums written dropped 6% year over year to $343 million. Net premiums written decreased 9.4% year over year to $261 million due to a higher level of ceded premiums through quota share reinsurance agreements than in the year-ago quarter. Our estimate was $306.1 billion.
Underwriting income dropped 15% year over year to $243 million. The combined ratio deteriorated 1690 bps to 20%.
Financial Update
Arch Capital exited the quarter with cash of $803 million, which decreased 6.1% from 2021-end. Debt was $2.7 billion as of Mar 31, 2023, up 0.04% from 2022-end.
As of Mar 31, 2023, the book value per share was $35.35, up 8.4% from 2021-end. Annualized operating return on average common equity expanded 710 basis points to 20.7%. Cash from operations of $963 million improved 74.5% year over year.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, Arch Capital has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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.