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Arch Capital (ACGL) Down 5.4% Since Last Earnings Report: Can It Rebound?
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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 5.4% 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 its most recent earnings report in order to get a better handle on the important drivers.
Arch Capital Q2 Earnings & Revenues Beat, Rise Y/Y
Arch Capital Group reported second-quarter 2023 operating income of $1.92 per share, beating the Zacks Consensus Estimate by 16.4%. The bottom line increased 43.3% 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 Headlines
Gross premiums written improved 25.2% year over year to $4.8 billion.
Net premiums written climbed 27.7% year over year to $3.4 billion on higher premiums written across its Insurance and Reinsurance segments and beat our estimate of $3.1 billion.
Net investment income increased 128.3% year over year to $242 million and beat our estimate of $115.3 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 $185 million.
Operating revenues of $3.2 billion rose 32.6% year over year, driven by higher net premiums earned and net investment income. It beat the Zacks Consensus Estimate by 2.3%.
Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums, were $119 million.
Arch Capital’s underwriting income increased 13.1% year over year to $606 million. Our estimate was $686.8 million.
The combined ratio — the percentage of premiums paid out as claims and expenses — deteriorated 270 basis points (bps) to 79.8. Our estimate was 74.1. The Zacks Consensus Estimate was pegged at 8.
Segment Results
Insurance: Gross premiums written increased 14.7% year over year to $2 billion. Our estimate was $2.1 billion.
Net premiums written climbed 18.4% 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 $1.3 billion.
Underwriting income of $108 million was 11.3% higher than the year-ago number. Our estimate was $173 million. The combined ratio deteriorated 80 bps to 91.9. Our estimate was 85.2.while the Zacks Consensus Estimate was pegged at 90.
Reinsurance: Gross premiums written improved 41.9% year over year to $2.5 billion. Our estimate was $2.6 billion.
Net premiums written rose 46.9% year over year to $1.7 billion on increases in property catastrophe, property excluding property catastrophe and other specialty lines, due in part to rate increases, new business opportunities and growth in existing accounts as well as lower level of retrocession activity. Our estimate was $1.5 billion.
Underwriting income was $245 million, up 75% year over year. Our estimate was $313.4 million.
The combined ratio improved 350 bps year over year to 81.9. Our estimate was 73.3. The Zacks Consensus Estimate was pegged at 79.
Mortgage: Gross premiums written dropped 6.7% year over year to $347 million. Our estimate was $373.8 million.
Net premiums written decreased 9.9% year over year to $265 million on account of lower originations in the Australian market and a decrease in U.S. primary mortgage insurance business, which was partially offset by a higher volume of credit risk transfer transactions. Our estimate was $315.1 million.
Underwriting income dropped 15.4% year over year to $253 million. Our estimate was $200.5 million.
The combined ratio deteriorated 1650 bps to 15%. Our estimate was 7.5. The Zacks Consensus Estimate was pegged at 18.8.
Financial Update
Arch Capital exited 2022 with cash of $904 million, which increased 5.7% from 2021-end. Debt was $2.7 billion as of Jun 30, 2023, up 0.04% from 2022-end. As of Jun 30, 2023, the book value per share was $37.04, up 13.5% from 2021-end. Annualized operating return on average common equity expanded 440 basis points to 21.5%. Cash from operations of $1.2 billion improved 27.6% year over year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 6.12% due to these changes.
VGM Scores
Currently, Arch Capital has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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. It comes with little surprise Arch Capital has a Zacks Rank #1 (Strong Buy). We expect an above average 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 - Free Report) , has gained 5.3% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.
Progressive reported revenues of $15.23 billion in the last reported quarter, representing a year-over-year change of +19.9%. EPS of $0.50 for the same period compares with $0.95 a year ago.
For the current quarter, Progressive is expected to post earnings of $1.55 per share, indicating a change of +216.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +20.6% over the last 30 days.
Progressive has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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Arch Capital (ACGL) Down 5.4% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Arch Capital Group (ACGL - Free Report) . Shares have lost about 5.4% 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 its most recent earnings report in order to get a better handle on the important drivers.
Arch Capital Q2 Earnings & Revenues Beat, Rise Y/Y
Arch Capital Group reported second-quarter 2023 operating income of $1.92 per share, beating the Zacks Consensus Estimate by 16.4%. The bottom line increased 43.3% 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 Headlines
Gross premiums written improved 25.2% year over year to $4.8 billion.
Net premiums written climbed 27.7% year over year to $3.4 billion on higher premiums written across its Insurance and Reinsurance segments and beat our estimate of $3.1 billion.
Net investment income increased 128.3% year over year to $242 million and beat our estimate of $115.3 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 $185 million.
Operating revenues of $3.2 billion rose 32.6% year over year, driven by higher net premiums earned and net investment income. It beat the Zacks Consensus Estimate by 2.3%.
Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums, were $119 million.
Arch Capital’s underwriting income increased 13.1% year over year to $606 million. Our estimate was $686.8 million.
The combined ratio — the percentage of premiums paid out as claims and expenses — deteriorated 270 basis points (bps) to 79.8. Our estimate was 74.1. The Zacks Consensus Estimate was pegged at 8.
Segment Results
Insurance: Gross premiums written increased 14.7% year over year to $2 billion. Our estimate was $2.1 billion.
Net premiums written climbed 18.4% 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 $1.3 billion.
Underwriting income of $108 million was 11.3% higher than the year-ago number. Our estimate was $173 million. The combined ratio deteriorated 80 bps to 91.9. Our estimate was 85.2.while the Zacks Consensus Estimate was pegged at 90.
Reinsurance: Gross premiums written improved 41.9% year over year to $2.5 billion. Our estimate was $2.6 billion.
Net premiums written rose 46.9% year over year to $1.7 billion on increases in property catastrophe, property excluding property catastrophe and other specialty lines, due in part to rate increases, new business opportunities and growth in existing accounts as well as lower level of retrocession activity. Our estimate was $1.5 billion.
Underwriting income was $245 million, up 75% year over year. Our estimate was $313.4 million.
The combined ratio improved 350 bps year over year to 81.9. Our estimate was 73.3. The Zacks Consensus Estimate was pegged at 79.
Mortgage: Gross premiums written dropped 6.7% year over year to $347 million. Our estimate was $373.8 million.
Net premiums written decreased 9.9% year over year to $265 million on account of lower originations in the Australian market and a decrease in U.S. primary mortgage insurance business, which was partially offset by a higher volume of credit risk transfer transactions. Our estimate was $315.1 million.
Underwriting income dropped 15.4% year over year to $253 million. Our estimate was $200.5 million.
The combined ratio deteriorated 1650 bps to 15%. Our estimate was 7.5. The Zacks Consensus Estimate was pegged at 18.8.
Financial Update
Arch Capital exited 2022 with cash of $904 million, which increased 5.7% from 2021-end. Debt was $2.7 billion as of Jun 30, 2023, up 0.04% from 2022-end.
As of Jun 30, 2023, the book value per share was $37.04, up 13.5% from 2021-end. Annualized operating return on average common equity expanded 440 basis points to 21.5%. Cash from operations of $1.2 billion improved 27.6% year over year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 6.12% due to these changes.
VGM Scores
Currently, Arch Capital has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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. It comes with little surprise Arch Capital has a Zacks Rank #1 (Strong Buy). We expect an above average 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 - Free Report) , has gained 5.3% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.
Progressive reported revenues of $15.23 billion in the last reported quarter, representing a year-over-year change of +19.9%. EPS of $0.50 for the same period compares with $0.95 a year ago.
For the current quarter, Progressive is expected to post earnings of $1.55 per share, indicating a change of +216.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +20.6% over the last 30 days.
Progressive has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.