10-QPeriod: Q2 FY2018

ARCH CAPITAL GROUP LTD. Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 8, 2018For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) reported its second quarter 2018 financial results, indicating a strong performance in its insurance and reinsurance segments, alongside continued growth in its mortgage operations. The company demonstrated resilience in a competitive market, with net premiums earned increasing across all segments. Key drivers for the quarter included positive prior period reserve development and disciplined underwriting, contributing to an improved combined ratio. The company also highlighted its commitment to capital return to shareholders through its share repurchase program. Financially, ACGL maintained a solid balance sheet, with total assets of $31.85 billion. The company's net income available to common shareholders saw a significant increase compared to the prior year's second quarter, driven by improved underwriting income and stable investment results. Management's focus remains on achieving its long-term operating return on equity target while prudently managing risks associated with market conditions and potential catastrophic events.

Financial Highlights

28 data points
Beta

Revenue

$1.41B

Net Income

$243.65M

17.3% Net Margin

EPS (Diluted)

$0.56

Total Assets

$31.85B

Cash & Equivalents

$526.63M

Free Cash Flow

$96.71M

Financial Statements
Beta
Revenue$1.41B
Interest Expense$30.34M
Net Income$243.65M
EPS (Basic)$0.58
EPS (Diluted)$0.56
Shares Outstanding (Basic)404.80M
Shares Outstanding (Diluted)413.11M

Key Highlights

  • 1Net premiums written increased by 3.4% in the Insurance segment, 4.8% in the Reinsurance segment, and 2.3% in the Mortgage segment for the three months ended June 30, 2018, compared to the prior year period.
  • 2The company reported a combined ratio of 99.0% for its Insurance segment, an improvement from 100.8% in the prior year's second quarter.
  • 3Reinsurance segment's combined ratio improved to 92.8% from 94.0% in the prior year's second quarter.
  • 4Mortgage segment's combined ratio improved to 30.2% from 30.5% in the prior year's second quarter.
  • 5Net income available to Arch common shareholders increased to $233.2 million for the three months ended June 30, 2018, compared to $173.8 million for the same period in 2017.
  • 6Book value per share increased to $20.68 at June 30, 2018, from $19.87 at June 30, 2017.
  • 7Arch Capital repurchased 6.86 million shares for $173.6 million during the six months ended June 30, 2018, and had $272.9 million remaining under its share repurchase program.

Frequently Asked Questions

Arch Capital's underwriting segments showed positive performance. The Insurance segment improved its combined ratio to 99.0%, driven by a lower loss ratio. The Reinsurance segment also saw an improved combined ratio of 92.8%. The Mortgage segment maintained a strong performance with a combined ratio of 30.2% and an increase in net premiums earned.

Net investment income increased to $135.7 million for the three months ended June 30, 2018, compared to $111.1 million in the prior year's second quarter. This increase was primarily driven by higher yields on fixed income securities and growth in the investment portfolio, although partially offset by higher investment expenses.

Arch Capital had total capital of $11.02 billion at June 30, 2018. The company continued its share repurchase program, buying back 6.86 million shares for $173.6 million in the first half of 2018, with approximately $272.9 million remaining under its authorization. Management indicated they would continue to consider share repurchases opportunistically based on market conditions and operational results.

Favorable development on prior period loss reserves positively impacted the company's results across segments. The reinsurance segment recorded $33.0 million in favorable development, the insurance segment reported $6.1 million, and the mortgage segment had $23.3 million in favorable development for the second quarter of 2018.