Arch Capital Posts Strong 1Q Earnings - Analyst Blog


Shutterstock photo

Arch Capital Group Limited ( ACGL ) reported first quarter 2013 net operating earnings of $1.17 per share, surpassing the Zacks Consensus Estimate of 97 cents per share. Results also outpaced the year-ago earnings of 82 cents per share.

Including net realized gains of 41 cents, net impairment losses recognized in earnings of 2 cents, equity in net income of investment funds accounted for using the equity method of 10 cents and net foreign exchange gains of 19 cents, Arch Capital reported net income of $1.85 per share in the first quarter, up 62.3% year over year.

Quarterly Operational Update

Total revenues of Arch Capital for the reported quarter increased 9.2% year over year to $890.1 million primarily due to higher premiums earned (up 10.7% year over year) and net realized gains (up 32.2% year over year). Results also surpassed the Zacks Consensus Estimate of $852 million.

Net premiums written were $952.8 million, up 10.3% year over year.

Net investment income declined 11.6% year over year to $65.7 million mainly due to lower income from fixed maturities (down 15.6% year over year) and higher investment expenses (up 29.7% year over year)

Total expenses of Arch Capital during the quarter were $628.8 million, down 3.1% year over year. Lower interest expense (down 21.6% year over year) and foreign exchange gains of $24.3 million that rebounded from a year-ago loss of $20.7 million led to the improvement.

Underwriting income increased 73.2% year over year to $116.4 million during the reported quarter.

Combined ratio was 84.6% showing an improvement of 550 basis points from 90.1% in the year-ago quarter.

Quarterly Segment Update

Insurance: Net premiums earned increased 0.7% year over year to $445 million.

Underwriting income during the quarter was $14.95 million, rebounding from a loss of $8.1 million in the year-ago quarter.

Combined ratio improved 510 basis points year over year to 96.7%.

Reinsurance: Net premiums earned increased 29% year over year to $307.8 million.

Underwriting income increased 34.7% year over year to $101.4 million during the reported quarter.

Combined ratio improved 130 basis points year over year to 67.1%.

Share Repurchase Update

During the quarter Arch Capital repurchased 0.9 million shares for approximately $41 million at an average share price of $44.01 per share. The company is currently left with $728.9 million under its authorization.

Financial Position

Total investments of Arch Capital increased 2.2% from 2012 end level to $12.97 billion. As of Mar 31, 2013, total assets of the company were $18.8 billion, up 5.3% from $17.8 billion from year end 2012.

Cash flow from operations increased 42.1% year over year to $205.7 million in the first quarter.

As of Mar 31, 2013, shareholders' equity increased 3.2% from $5.2 billion at year end 2012 to $5.3 billion. The debt-to-capital ratio of Arch Capital as of Mar 31, 2013 was 5.3% compared to 5.5% as of Dec 31, 2012.

Book value per share was $37.66 at Mar 31, 2013 representing a 4.1% increase over $36.19 at Dec 31, 2012.

Return on equity (ROE) for the first quarter of 2013 was 12.9%, up 250 basis points from 10.4% in the year-ago quarter.

Investment Update

Arch Capital's investment portfolio consists of high quality fixed income securities with an average credit quality of "AA-/Aa2".

The average effective duration of Arch Capital's investment portfolio as of Mar 31, 2013 was 2.94 years as compared to 3.06 years at year-end 2012.

During the reported quarter, total return on Arch Capital's investment portfolio, excluding the effects of foreign exchange was 1.01%, down 59 basis points from 1.60% at year end 2012.

Performance of Other Insurers

Progressive Corp. 's ( PGR ) earnings per share for the first quarter of 2013 were 51 cents, surging nearly 21% from 42 cents in the year-ago quarter. Results outpaced the Zacks Consensus Estimate of 44 cents. Net income shot up 20% from the first quarter of 2012 to $308.6 million in the quarter.

AXIS Capital Holdings Limited ( AXS ) reported first-quarter 2013 net operating income of $1.92 per share, which breezed past the Zacks Consensus Estimate of $1.19. Earnings surged 79% year over year. Net operating income of $227 million improved nearly 70% year over year.

Montpelier Re Holdings Ltd. ( MRH ) reported first-quarter 2013 operating income of $1.18 per share, better than the Zacks Consensus Estimate of 89 cents. However, earnings were 4.1% lower than $1.23 per share in the year-ago quarter.

Zacks Rank

Arch Capital currently carries Zacks Rank #2 (Buy).

ARCH CAP GP LTD (ACGL): Free Stock Analysis Report

AXIS CAP HLDGS (AXS): Free Stock Analysis Report

MONTPELIER RE (MRH): Free Stock Analysis Report

PROGRESSIVE COR (PGR): Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
More Headlines for: ACGL , AXS , MRH , PGR

More from


Equity Research
Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by