10-QPeriod: Q1 FY2021

ARCH CAPITAL GROUP LTD. Quarterly Report for Q1 Ended Mar 31, 2021

Filed May 6, 2021For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) reported a strong first quarter for 2021, with net income available to common shareholders significantly increasing to $427.75 million, or $1.05 per diluted share, compared to $133.71 million, or $0.32 per diluted share, in the prior year's quarter. This performance was driven by robust underwriting results across its insurance, reinsurance, and mortgage segments, coupled with positive contributions from its investment portfolio. The company experienced a notable increase in net premiums earned, reflecting attractive pricing and expanded writings in its property casualty segments. The mortgage segment showed growth in new insurance written, despite ongoing impacts of refinancing on persistency. Financially, the company maintained a solid capital position, with book value per share increasing to $30.54. Arch Capital also continued its share repurchase program, returning capital to shareholders. While the company acknowledged the ongoing impacts of COVID-19 and market conditions like rising interest rates affecting investment yields, it highlighted its strategic focus on profitable growth in its core insurance and reinsurance businesses and prudent management of its mortgage operations. The company's diversified business model and disciplined underwriting approach appear to be successfully navigating the current market environment.

Financial Highlights

28 data points
Beta

Revenue

$2.27B

Net Income

$438.16M

19.3% Net Margin

EPS (Diluted)

$1.05

Total Assets

$44.20B

Cash & Equivalents

$941.95M

Free Cash Flow

$762.85M

Financial Statements
Beta
Revenue$2.27B
Interest Expense$38.35M
Net Income$438.16M
EPS (Basic)$1.07
EPS (Diluted)$1.05
Shares Outstanding (Basic)400.81M
Shares Outstanding (Diluted)409.22M

Key Highlights

  • 1Net income available to Arch common shareholders surged to $427.75 million in Q1 2021, a substantial increase from $133.71 million in Q1 2020.
  • 2Diluted earnings per share rose to $1.05, up from $0.32 in the prior year's quarter.
  • 3Net premiums earned increased across all segments, with the insurance segment up 14.5%, reinsurance up 18.7%, and mortgage down 2.5%.
  • 4The company repurchased approximately $179.3 million of its common shares during the first quarter of 2021.
  • 5Book value per share increased to $30.54 at March 31, 2021, up from $30.31 at December 31, 2020.
  • 6The company's overall combined ratio improved to 90.7% in Q1 2021, compared to 91.5% in Q1 2020.
  • 7A one-time gain of $74.5 million was realized from the acquisition of a 29.5% stake in Coface.

Frequently Asked Questions

In the first quarter of 2021, Arch Capital reported a net income available to Arch common shareholders of $427.75 million, a significant increase from $133.71 million in the first quarter of 2020. Diluted earnings per share also rose to $1.05 from $0.32 year-over-year.

The insurance segment showed a 14.5% increase in net premiums earned, with an improved combined ratio of 97.7%. The reinsurance segment saw a 18.7% rise in net premiums earned, though its combined ratio was 102.9%. The mortgage segment experienced a 2.5% decrease in net premiums earned, but maintained a strong combined ratio of 42.4%. The company noted attractive pricing across most insurance markets, supporting underwriting margins.

The total return on investments for the first quarter of 2021 was -0.18% (pre-tax, before investment expenses), impacted by rising interest rates. However, the company has a short duration portfolio (2.71 years) and is actively managing its investments. The company also reported a one-time gain of $74.5 million from its investment in Coface, which contributed to the overall financial results.

Arch Capital continued its share repurchase program, buying back approximately $179.3 million of its common shares during the first quarter of 2021. The company also reported an increase in book value per share to $30.54, indicating growth in shareholder value.