10-QPeriod: Q2 FY2020

ARCH CAPITAL GROUP LTD. Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 6, 2020For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) reported its second quarter 2020 financial results on August 6, 2020. The company demonstrated resilience amidst the COVID-19 pandemic, with net income available to common shareholders of $288.4 million, or $0.71 per diluted share. While this represents a decrease compared to the prior year's $458.6 million, it reflects the challenges posed by the pandemic, including $173.1 million in COVID-19 related losses across property casualty segments. Despite these headwinds, the company's underwriting segments, particularly reinsurance and mortgage insurance, saw premium growth, driven by favorable rate environments and increased market opportunities. Financially, Arch Capital ended the quarter with total shareholders' equity of $12.67 billion and book value per share of $27.62, indicating a healthy capital position. The company also successfully raised $1.0 billion in senior notes to further bolster its capital base. The investment portfolio performed well, with a total return of 3.72% for the quarter, outperforming its benchmark. Management highlighted a strong focus on underwriting discipline and opportunistic growth in hardening markets.

Financial Highlights

28 data points
Beta

Revenue

$2.30B

Net Income

$298.82M

13.0% Net Margin

EPS (Diluted)

$0.71

Total Assets

$41.20B

Cash & Equivalents

$854.26M

Free Cash Flow

$711.13M

Financial Statements
Beta
Revenue$2.30B
Interest Expense$31.14M
Net Income$298.82M
EPS (Basic)$0.72
EPS (Diluted)$0.71
Shares Outstanding (Basic)402.50M
Shares Outstanding (Diluted)408.12M

Key Highlights

  • 1Net income available to Arch common shareholders was $288.4 million for the quarter, or $0.71 per diluted share.
  • 2Total shareholders' equity stood at $12.67 billion, with book value per share at $27.62.
  • 3The company recorded $173.1 million in COVID-19 related losses across its property casualty segments for the quarter.
  • 4Gross premiums written increased by 12.0% in the insurance segment and 47.9% in the reinsurance segment compared to the prior year quarter.
  • 5The investment portfolio generated a pre-tax total return of 3.72% for the quarter, outperforming the benchmark of 6.06%.
  • 6Arch Capital successfully raised $1.0 billion in senior notes to strengthen its capital position.
  • 7Delinquency rates in the U.S. primary mortgage operations were 5.14%, better than expected, but still elevated due to the pandemic.

Frequently Asked Questions

Arch Capital recorded $173.1 million in losses related to COVID-19 across its property casualty segments. These losses, along with broader economic impacts, contributed to a decrease in net income available to common shareholders compared to the prior year period. However, the company's strong capital base and diversified business lines allowed it to navigate these challenges.

The company's investment portfolio delivered a pre-tax total return of 3.72% for the second quarter of 2020, which, while lower than its benchmark of 6.06%, reflects a recovery in capital markets. The equity markets rallied, and credit spreads tightened, benefiting the portfolio.

Yes, Arch Capital successfully raised $1.0 billion in senior notes at the end of the second quarter of 2020. This capital infusion was intended to support growth and strengthen its capital base.

The mortgage segment reported delinquency rates of 5.14% at June 30, 2020, which was better than initially expected but still elevated due to the pandemic and forbearance programs. While the company anticipates lower pre-tax underwriting income for the entire mortgage segment compared to 2019, it sees the situation as an earnings event rather than a capital event, supported by strong loan originations and government intervention.