10-QPeriod: Q3 FY2020

ARCH CAPITAL GROUP LTD. Quarterly Report for Q3 Ended Sep 30, 2020

Filed November 5, 2020For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. reported a solid third quarter for 2020, demonstrating resilience amidst the ongoing COVID-19 pandemic. The company's net income available to common shareholders increased to $408.6 million, or $1.00 per diluted share, compared to $382.1 million, or $0.92 per diluted share, in the prior year's third quarter. This growth was driven by strong performance across its insurance and reinsurance segments, which benefited from rate increases and disciplined underwriting. The mortgage segment, however, saw an increase in its loss ratio due to elevated delinquency rates, though these were partially offset by other factors. The company's investment portfolio continued to provide a positive contribution, albeit with lower yields compared to the previous year. Financially, Arch Capital ended the quarter with total shareholders' equity of $13.2 billion, an increase from the prior year, reflecting its robust capital position. The company also successfully raised $1.0 billion in senior notes, further strengthening its liquidity. While the pandemic continues to pose challenges, including impacts on the mortgage business and some underwriting lines, Arch Capital's diversified operations and strong capital base position it to navigate the current economic environment and capitalize on opportunities in hardening markets.

Financial Highlights

28 data points
Beta

Revenue

$2.31B

Net Income

$419.04M

18.1% Net Margin

EPS (Diluted)

$1.00

Total Assets

$42.72B

Cash & Equivalents

$976.40M

Free Cash Flow

$1.01B

Financial Statements
Beta
Revenue$2.31B
Interest Expense$41.34M
Net Income$419.04M
EPS (Basic)$1.01
EPS (Diluted)$1.00
Shares Outstanding (Basic)402.85M
Shares Outstanding (Diluted)409.19M

Key Highlights

  • 1Net income available to Arch common shareholders was $408.6 million, or $1.00 per diluted share, for Q3 2020, up from $382.1 million, or $0.92 per diluted share, in Q3 2019.
  • 2Total revenues increased to $2.31 billion in Q3 2020, up from $1.68 billion in Q3 2019, driven by higher net premiums written across insurance and reinsurance segments.
  • 3The insurance and reinsurance segments showed strong underwriting performance with combined ratios of 94.9% and 99.0% respectively for Q3 2020, benefiting from rate increases.
  • 4The mortgage segment's combined ratio rose significantly to 64.2% in Q3 2020, up from 24.6% in Q3 2019, primarily due to an increase in losses and loss adjustment expenses.
  • 5Net investment income decreased to $128.5 million in Q3 2020 from $161.5 million in Q3 2019, reflecting lower yields.
  • 6The company reported $11.9 million in COVID-19 related losses in the property casualty segments for Q3 2020, classifying them as catastrophe losses.
  • 7Total shareholders' equity available to Arch increased to $12.5 billion at September 30, 2020, from $11.5 billion at December 31, 2019.

Frequently Asked Questions

Arch Capital showed improved performance in the third quarter of 2020 compared to the third quarter of 2019. Net income available to common shareholders increased to $408.6 million from $382.1 million, and diluted earnings per share rose to $1.00 from $0.92. This was driven by strong premium growth and underwriting income in the insurance and reinsurance segments, despite a challenging investment income environment and increased losses in the mortgage segment.

Arch Capital reported $11.9 million in COVID-19 related losses in its property casualty segments for the third quarter of 2020, which were classified as catastrophe losses. The pandemic also contributed to higher delinquency rates in the mortgage segment, impacting its loss ratio. The company stated that while it is navigating the pandemic's effects, it has a strong capital base to manage these challenges.

The company's investment portfolio generated a total pre-tax return of 2.30% for the third quarter of 2020, compared to 1.00% in the prior year's quarter. However, net investment income decreased to $128.5 million from $161.5 million, reflecting lower yields in the market. The company's overall investable assets held by Arch increased to $25.7 billion at September 30, 2020.

Arch Capital maintained a strong capital position, with total shareholders' equity available to Arch increasing to $12.5 billion at September 30, 2020. The company also raised $1.0 billion in senior notes in June 2020, further bolstering its liquidity. Management believes the company's liquidity needs for the next twelve months will be met through its generated funds, available cash, investments, and credit facilities.