10-QPeriod: Q1 FY2015

ARCH CAPITAL GROUP LTD. Quarterly Report for Q1 Ended Mar 31, 2015

Filed May 8, 2015For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) reported solid financial performance in the first quarter of 2015, with a notable increase in book value per common share to $47.80, up from $45.58 at the end of 2014. This growth was driven by strong underwriting and investment returns. The company continues to navigate a competitive reinsurance market by focusing on disciplined underwriting and selective account sizes. While primary insurance lines saw continued rate increases, property rates were impacted negatively. The mortgage insurance segment, through Arch MI U.S., showed significant expansion, engaging with a substantial number of top mortgage originators. ACGL's financial position remains robust with approximately $7.19 billion in capital at March 31, 2015. The company is focused on achieving an operating return on average equity of 15% or greater over the insurance cycle. Investors should note the company's strategic focus on disciplined growth and risk management, particularly concerning natural catastrophe risks where it sets limits on probable maximum losses relative to shareholder equity.

Financial Highlights

28 data points
Beta

Revenue

$1.08B

Net Income

$283.34M

26.2% Net Margin

EPS (Diluted)

$0.72

Total Assets

$22.86B

Cash & Equivalents

$471.01M

Free Cash Flow

$85.46M

Financial Statements
Beta
Revenue$1.08B
Interest Expense$12.74M
Net Income$283.34M
EPS (Basic)$0.75
EPS (Diluted)$0.72
Shares Outstanding (Basic)372.63M
Shares Outstanding (Diluted)385.35M

Key Highlights

  • 1Book value per common share increased by 4.9% in Q1 2015 to $47.80, driven by strong investment and underwriting returns.
  • 2The company is strategically focusing on smaller and medium-sized accounts in its reinsurance business due to competitive market conditions and softening pricing.
  • 3Arch MI U.S. continues to expand its footprint in the U.S. mortgage insurance market, securing master policy applications from a significant portion of top mortgage originators.
  • 4Gross premiums written in the insurance segment increased by 4.9% year-over-year, though net premiums written saw a slight decrease of 0.7%.
  • 5The reinsurance segment experienced a notable decrease in net premiums written (down 21.5%) due to strategic reductions in writings and increased cessions to Watford Re.
  • 6The mortgage segment demonstrated strong growth, with net premiums written up 19.9% year-over-year, largely due to the performance of Arch MI U.S.
  • 7Total capital available to Arch stood at $7.19 billion as of March 31, 2015, a slight increase from $7.03 billion at December 31, 2014.

Frequently Asked Questions

Arch Capital is employing a disciplined underwriting strategy, emphasizing small and medium-sized accounts over large ones. This approach is a response to softening pricing and broadening terms and conditions in the reinsurance market, aiming to maintain underwriting discipline and achieve its return objectives.

The mortgage insurance segment, particularly Arch MI U.S., is experiencing significant growth. Arch MI U.S. has reviewed and approved a substantial number of master policy applications from banks and has secured approvals from many of the top mortgage originators. This growth is reflected in the segment's increased net premiums written.

The increase in book value per common share to $47.80 in the first quarter of 2015 was primarily driven by strong underwriting results and positive investment returns during the period. Share repurchase activity also influences this metric.

Arch Capital actively monitors its natural catastrophe risk globally and aims to limit its 1-in-250 year return period net probable maximum pre-tax loss to approximately 25% of total shareholders' equity. The most significant modeled exposures at April 1, 2015, were windstorms affecting the Northeastern U.S., Gulf of Mexico, and Florida Tri-County.