• Net Premium Written: $3.8 billion in Q4, a 17% increase year-over-year.
• Underwriting Income: $625 million in Q4, down 14% from last year.
• After-Tax Operating Income: $3.5 billion for the full year.
• Operating Return on Average Common Equity: 18.9% for the full year.
• Book Value Per Share: $3.11 at year-end, a 13% increase for the year.
• Special Dividend: $5 per share paid in December.
• Share Repurchase: $24 million worth of shares repurchased in Q4.
• Reinsurance Underwriting Income: $328 million in Q4; $1.2 billion for the full year.
• Insurance Underwriting Income: $30 million in Q4; $345 million for the full year.
• Mortgage Underwriting Income: $267 million in Q4.
• Net Investment Income: Nearly $1.5 billion for the full year.
• Cash Flow from Operations: Approximately $6.7 billion for the full year, up 16% from 2023.
• Effective Tax Rate: 6.7% for Q4; 8.2% for the full year.
• Common Shareholders' Equity: $20 billion after the $1.9 billion dividend paid in December.
• Debt Plus Preferred to Capital Ratio: 15.1%.

• Warning! GuruFocus has detected 3 Warning Sign with ACGL.

Release Date: February 11, 2025

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 a 17% increase in net premium for the fourth quarter, reaching $3.8 billion.
• The company achieved a full-year after-tax operating income of $3.5 billion, with an operating return on average common equity of 18.9%.
• Book value per share increased by 13% for the year, and nearly 24% after adjusting for a special dividend.
• The reinsurance segment delivered a record $1.2 billion of underwriting income for the year.
• The investment group generated nearly $1.5 billion of annual net investment income, benefiting from rising investment yields and strong operating cash flows.

Negative Points

• Arch Capital Group Ltd (NASDAQ:ACGL) expects a net loss between $450 million and $550 million due to the California wildfires.
• Underwriting income for the fourth quarter decreased by 14% compared to the previous year, primarily due to catastrophe losses.
• The insurance segment's fourth-quarter underwriting income was limited to $30 million due to Hurricane Helene and Milton.
• The delinquency rates in the US mortgage insurance business increased modestly to just over 2% by the end of December.
• The company faces competitive pressures in certain lines of business, such as public D&O and cyber, which have seen significant rate decreases.

Q & A Highlights

Q: Can you provide clarity on the insurance underlying loss ratio, particularly with the impact of the Allianz deal? A: Francois Morin, CFO, explained that the impact of the mid-corp acquisition adds about 1 point to the loss ratio. The pre-acquisition run rate loss ratio has been stable, and the addition of the mid-corp business slightly increases it to around 58%.

Q: What are your thoughts on the reinsurance market conditions, especially after the California wildfires? A: Nicolas Papadopoulo, CEO, noted that the California wildfires are a significant loss for the market, which should dampen enthusiasm for aggressive underwriting. This event is expected to influence rates positively for the rest of the year.

Q: Could you elaborate on the casualty reinsurance growth and rate adequacy? A: Nicolas Papadopoulo mentioned that Arch Capital was underweight in casualty treaty reinsurance and has selectively increased its participation in programs with specialty casualty characteristics, which offer attractive returns. The focus is on partnering with underwriters who have the expertise to deliver good results.

Q: How is the integration of the mid-corp business progressing, and what are the growth prospects? A: Nicolas Papadopoulo stated that the integration is on track and the business is performing as expected. They are seeing double-digit rate increases in property and liability lines, which aligns with their initial expectations.

Q: What is your approach to capital management, particularly regarding share buybacks? A: Francois Morin highlighted that Arch Capital remains committed to returning excess capital to shareholders through share buybacks when the price is right. They continuously assess capital deployment opportunities and will consider buybacks if they cannot deploy all excess capital in the business.

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