10-KPeriod: FY2013

ARCH CAPITAL GROUP LTD. Annual Report, Year Ended Dec 31, 2013

Filed March 3, 2014For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) reported a strong financial performance for the fiscal year ended December 31, 2013. The company achieved a net income of $687.8 million for common shareholders, translating to diluted earnings per share of $5.07. The total capital at year-end stood at approximately $6.55 billion, with book value per common share increasing to $39.82. This growth was primarily driven by solid underwriting returns and favorable market conditions in certain specialty insurance and reinsurance lines. The company's operations are diversified across insurance and reinsurance segments, with a strategic focus on specialty lines where underwriting expertise can make a significant difference. ACGL has a global presence, operating in Bermuda, the United States, Europe, and Canada. Key developments in 2013 included the expansion of its U.S. mortgage insurance business through the acquisition of CMG Mortgage Insurance Company and PMI's mortgage insurance platform, aiming to enhance its market reach and competitive positioning.

Financial Highlights

32 data points
Beta

Revenue

$3.53B

Net Income

$709.73M

20.1% Net Margin

EPS (Diluted)

$1.69

Total Assets

$19.56B

Cash & Equivalents

$434.06M

Free Cash Flow

$850.87M

Financial Statements
Beta
Revenue$3.53B
Interest Expense$27.06M
Net Income$709.73M
EPS (Basic)$1.75
EPS (Diluted)$1.69
Shares Outstanding (Basic)394.07M
Shares Outstanding (Diluted)407.33M

Key Highlights

  • 1Arch Capital Group Ltd. reported a net income of $687.8 million for the fiscal year ended December 31, 2013.
  • 2Diluted earnings per common share were $5.07, and book value per common share increased to $39.82 at year-end.
  • 3The company's total investable assets grew to $14.05 billion, demonstrating robust asset management.
  • 4Net premiums written for the insurance segment increased by 6.8% to $1.95 billion, while the reinsurance segment saw a 14.3% increase to $1.40 billion.
  • 5The company successfully completed the acquisition of CMG Mortgage Insurance Company and PMI's mortgage insurance platform, strengthening its U.S. mortgage insurance market presence.
  • 6ACGL maintained strong financial strength ratings from major agencies (A+ from A.M. Best, A1 from Moody's, A+ from S&P, and A+ from Fitch), reflecting its stable outlook.
  • 7The company's investment portfolio showed a pre-tax total return of 1.28% in 2013, outperforming its benchmark return of 0.85%.

Frequently Asked Questions

Arch Capital Group Ltd. demonstrated strong financial performance in 2013, reporting a net income available to common shareholders of $687.8 million, which resulted in diluted earnings per common share of $5.07. The company's book value per common share increased to $39.82 by the end of the year, driven by solid underwriting results and investment returns.

A significant strategic development in 2013 was the expansion of the company's U.S. mortgage insurance business through the acquisition of CMG Mortgage Insurance Company and PMI's mortgage insurance platform. This move is expected to enhance its market position and capabilities in the U.S. mortgage insurance sector. Additionally, the company continued to focus on its specialty insurance and reinsurance lines, emphasizing disciplined underwriting and seeking profitable opportunities.

Both the insurance and reinsurance segments showed growth in net premiums written. The insurance segment's net premiums written increased by 6.8% to $1.95 billion, with growth driven by lines such as Programs, Construction, and National Accounts. The reinsurance segment experienced a 14.3% increase in net premiums written to $1.40 billion, primarily fueled by its Other Specialty and Casualty lines, bolstered by significant quota share reinsurance agreements.

Arch Capital Group Ltd. prioritizes capital preservation, market liquidity, and diversification in its investment strategy. The company's investment portfolio totaled $14.05 billion at the end of 2013. The pre-tax total return on investments was 1.28% for 2013, outperforming the benchmark return of 0.85%. The portfolio is predominantly invested in high-quality fixed maturities, with an average credit quality rating of 'AA-/Aa2' from S&P/Moody's.

Key risk factors for Arch Capital Group Ltd. include intense competition in the insurance and reinsurance markets, potential losses from catastrophic events, regulatory changes impacting the industry, the cyclical nature of the insurance business, the accuracy of loss reserve estimates, and the performance of its investment portfolio. The company also faces risks related to its U.S. mortgage insurance strategy, integration of acquisitions, and reliance on key personnel and brokers.