10-QPeriod: Q1 FY2020

ARCH CAPITAL GROUP LTD. Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 8, 2020For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) reported a net loss of $88.7 million for the first quarter of 2020, a significant shift from the $495.5 million net income reported in the prior year's first quarter. This downturn was primarily driven by increased losses and loss adjustment expenses, particularly from COVID-19 related catastrophe losses and impacts on its mortgage segment. Net premiums written saw a substantial increase across segments, signaling growth in core underwriting activities despite the challenging economic environment. Despite the net loss, the company's book value per share decreased only slightly to $26.10 from $26.42 at the end of 2019, reflecting resilience in its capital base and the impact of share repurchases. The company's investment portfolio experienced a negative total return of -0.86% for the quarter, underperforming its benchmark, largely due to market volatility driven by the COVID-19 pandemic. Management emphasizes a strong capital base entering the period of economic stress and remains committed to underwriting discipline.

Financial Highlights

28 data points
Beta

Revenue

$1.53B

Net Income

$144.12M

9.4% Net Margin

EPS (Diluted)

$0.32

Total Assets

$38.42B

Cash & Equivalents

$882.28M

Free Cash Flow

$610.45M

Financial Statements
Beta
Revenue$1.53B
Interest Expense$32.55M
Net Income$144.12M
EPS (Basic)$0.33
EPS (Diluted)$0.32
Shares Outstanding (Basic)403.89M
Shares Outstanding (Diluted)414.03M

Key Highlights

  • 1Arch Capital reported a net loss of $88.7 million for Q1 2020, compared to a net income of $495.5 million in Q1 2019.
  • 2Net premiums written increased significantly across all segments, with the reinsurance segment showing a 76.6% increase.
  • 3The company recorded approximately $87 million in losses related to COVID-19, classified as catastrophe losses.
  • 4Book value per share slightly decreased to $26.10 as of March 31, 2020, from $26.42 as of December 31, 2019.
  • 5The total investment portfolio experienced a negative return of -0.86% in Q1 2020, underperforming the benchmark return of -4.55%.
  • 6The mortgage segment's combined ratio deteriorated to 44.1% from 25.6% in the prior year, largely due to COVID-19 related losses.
  • 7Share repurchases continued, with $75.5 million spent on repurchasing 2.6 million shares in the quarter.

Frequently Asked Questions

Arch Capital reported a net loss of $88.7 million for the first quarter of 2020, a significant decline from the $495.5 million net income reported in the same period of 2019. This was primarily due to a substantial increase in losses and loss adjustment expenses, including approximately $87 million attributed to COVID-19 related catastrophe losses and impacts on the mortgage segment.

The company's investment portfolio experienced a negative total return of -0.86% for the first quarter of 2020, underperforming its benchmark index of -4.55%. This was mainly attributed to market volatility stemming from the COVID-19 pandemic, which negatively impacted equities and non-investment grade fixed income securities.

COVID-19 significantly impacted Arch Capital's Q1 2020 results, leading to approximately $87 million in catastrophe losses across its insurance and reinsurance segments. The mortgage segment was also affected, with 12.0 points of losses included in its combined ratio for the quarter. The company is assessing the ongoing and future impacts of the pandemic on its operations, financial condition, and liquidity.

Net premiums written showed a strong increase across all segments. The insurance segment's net premiums written grew by 33.4%, the reinsurance segment saw a significant 76.6% increase, and the mortgage segment reported a 5.7% rise. This growth indicates an expansion of the company's core underwriting business.