10-QPeriod: Q1 FY2018

ARCH CAPITAL GROUP LTD. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 9, 2018For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) reported its first-quarter 2018 financial results, showcasing a mixed performance across its segments. While the company saw an increase in net premiums earned, particularly in its reinsurance and mortgage segments, net income available to common shareholders decreased year-over-year. This was largely driven by a significant net realized loss on investments in the current quarter, contrasting with a net realized gain in the prior year. The company's underwriting segments demonstrated resilience, with the mortgage segment posting strong underwriting income, up 17.4%, and the reinsurance segment maintaining a solid combined ratio. However, the insurance segment experienced a decline in underwriting income. Management highlighted positive developments in the mortgage market and strategic initiatives, including a pilot credit risk transfer program and an advisory services agreement with Munich Re. The company also announced a three-for-one common share split, effective in June 2018, and continued its share repurchase program.

Financial Highlights

28 data points
Beta

Revenue

$1.28B

Net Income

$150.42M

11.7% Net Margin

EPS (Diluted)

$0.33

Total Assets

$32.13B

Cash & Equivalents

$680.89M

Free Cash Flow

$400.18M

Financial Statements
Beta
Revenue$1.28B
Interest Expense$30.64M
Net Income$150.42M
EPS (Basic)$0.34
EPS (Diluted)$0.33
Shares Outstanding (Basic)407.54M
Shares Outstanding (Diluted)417.89M

Key Highlights

  • 1Net income available to Arch common shareholders decreased to $137.3 million from $241.9 million in Q1 2017, primarily due to a significant net realized loss on investments.
  • 2Net premiums earned increased by 10.5% to $1.23 billion, driven by growth in the reinsurance and mortgage segments.
  • 3The mortgage segment's underwriting income increased by 17.4% to $174.9 million, with a combined ratio of 38.8%, reflecting strong performance.
  • 4The reinsurance segment reported underwriting income of $54.8 million, with a combined ratio of 80.7%, benefiting from favorable prior year reserve development.
  • 5The insurance segment's underwriting income decreased by 21.4% to $7.9 million, with an increased combined ratio of 98.6%, indicating a challenging quarter for this segment.
  • 6The company announced a three-for-one common share split, effective June 18, 2018.
  • 7Book value per share increased to $61.24 as of March 31, 2018, from $60.91 at December 31, 2017.

Frequently Asked Questions

The primary driver for the decrease in net income available to Arch common shareholders was a significant net realized loss of $111.0 million on investments in the first quarter of 2018, compared to a net realized gain of $34.2 million in the first quarter of 2017. This swing in investment results significantly impacted overall profitability.

The mortgage segment showed strong performance with a 17.4% increase in underwriting income and a low combined ratio of 38.8%. The reinsurance segment maintained a solid underwriting income of $54.8 million and a combined ratio of 80.7%, benefiting from favorable prior year reserve development. However, the insurance segment saw a decline in underwriting income by 21.4%, with its combined ratio increasing to 98.6%.

Arch Capital announced a three-for-one common share split, which was approved by shareholders and set to become effective on June 18, 2018. Additionally, the company continued its share repurchase program, repurchasing shares for $3.3 million during the quarter, and also announced strategic initiatives in the mortgage market, including a pilot credit risk transfer program and an advisory services agreement with Munich Re.