• Annualized Operating Return on Equity: 14.8%
• Book Value Per Share: $57, an increase of 8.1% for the quarter
• Catastrophe Losses: $450 million for the quarter
• Insurance Segment Net Premium: $1.8 billion
• Insurance Segment Underwriting Income: $120 million
• Reinsurance Segment Net Premium: Over $1.9 billion
• Reinsurance Segment Underwriting Income: $149 million
• Mortgage Segment Underwriting Income: $269 million
• Net Investment Income: $399 million
• After-Tax Operating Income Per Share: $1.99
• Combined Ratio: 86.6%
• Underlying Ex Cat Accident Year Combined Ratio: 78.3%
• Net Written Premium Growth (Reinsurance): 24.5%
• Cash Flow from Operations: Exceeds $5 billion year-to-date
• Effective Tax Rate: 8% for the third quarter
• Common Shareholders' Equity: $21.4 billion

• Warning! GuruFocus has detected 6 Warning Sign with ACGL.

Release Date: October 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Arch Capital Group Ltd (NASDAQ:ACGL) reported strong top and bottom line results with an annualized operating return on equity of 14.8% and an 8.1% increase in book value per share.
• The company experienced a 20% growth in its insurance segment, driven by the acquisition of the MidCorp and entertainment business from Valiance.
• Reinsurance segment saw a net premium return increase of over 24%, benefiting from strong broker and cedent relationships.
• The mortgage segment contributed significantly with $269 million of underwriting income, supported by strong credit conditions and favorable house price appreciation.
• Arch Investment Management generated $399 million of net investment income, with substantial operating cash flows supporting asset growth.

Negative Points

• The company faced $450 million in catastrophe losses, including impacts from Hurricane Evan, which affected the combined ratio.
• The underlying loss ratio in the insurance segment increased due to the integration of the MidCorp acquisition.
• There is increasing competition in many lines of business, making underwriting and risk mitigation more challenging.
• The reinsurance segment's combined ratio was slightly elevated due to an active catastrophe quarter.
• The mortgage origination activity remains light, with high mortgage rates and house prices keeping buyers on the sidelines.

Q & A Highlights

Q: Can you provide details on the impact of the Allianz deal on the insurance segment's underlying loss ratio? A: The normalized ex-cat accident year loss ratio for the insurance segment was 57.6%, and the stand-alone for the MidCorp business was 62% in the quarter. This increased the reported ex-cat loss ratio by about 70 basis points. - Francois Morin, CFO

Q: What are your expectations for capital return to shareholders, considering your excess capital position? A: We are considering options for capital return, including dividends or repurchases, and are waiting until the end of the wind season to make decisions. We will evaluate 2025 growth opportunities before proceeding. - Francois Morin, CFO

Q: How do you view the 1/1 renewal season, especially in light of recent losses from Hurricane Milton? A: We expect the market to stabilize, with potential price increases in regions impacted by losses. The supply-demand dynamics will play a crucial role, and we anticipate a mostly stable pricing environment. - Nicolas Papadopoulo, CEO

Q: Can you discuss your comfort level with your casualty reserves, given industry trends? A: We are comfortable with our reserve levels, having been underweight in casualty lines. We monitor trends closely and have experienced manageable adverse development, which is driving rate increases in the industry. - Francois Morin, CFO

Q: What are the growth drivers in your reinsurance segment, and how much of it is due to pricing versus unit growth? A: Growth in reinsurance was driven by casualty and specialty business, with significant contributions from facultative operations and UK motor business. The growth is a mix of pricing and unit growth, particularly in casualty lines. - Nicolas Papadopoulo, CEO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.