10-QPeriod: Q3 FY2021

ARCH CAPITAL GROUP LTD. Quarterly Report for Q3 Ended Sep 30, 2021

Filed November 4, 2021For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) reported solid financial results for the third quarter and the first nine months of 2021, demonstrating resilience and growth across its diverse insurance and reinsurance segments. The company saw significant increases in both gross and net premiums written, particularly in its insurance and reinsurance operations, driven by rate increases and new business opportunities. The mortgage segment also showed positive performance, benefiting from improving market conditions and strategic acquisitions. While the company faced increased catastrophe losses in the current quarter, the overall underwriting results remained strong, supported by favorable prior period reserve development in the reinsurance segment. The company's investment portfolio provided stable, albeit lower, returns compared to the prior year, with a focus on managing duration and credit quality. ACGL also continued its commitment to shareholder returns through a robust share repurchase program and the issuance of preferred shares to strengthen its capital base. The deconsolidation of Watford Holdings Ltd. from July 1, 2021, simplified the company's financial reporting structure.

Financial Highlights

28 data points
Beta

Revenue

$2.10B

Net Income

$419.94M

20.0% Net Margin

EPS (Diluted)

$0.98

Total Assets

$44.78B

Cash & Equivalents

$1.14B

Free Cash Flow

$1.01B

Financial Statements
Beta
Revenue$2.10B
Interest Expense$33.18M
Net Income$419.94M
EPS (Basic)$1.00
EPS (Diluted)$0.98
Shares Outstanding (Basic)389.27M
Shares Outstanding (Diluted)397.90M

Key Highlights

  • 1Net premiums earned increased by 30.5% in the insurance segment and 22.4% in the reinsurance segment for Q3 2021 compared to Q3 2020.
  • 2The mortgage segment reported a significant decrease in its loss ratio, down from 43.6% in Q3 2020 to 3.7% in Q3 2021, primarily due to reduced loss assumptions related to the COVID-19 pandemic.
  • 3Arch Capital repurchased approximately 9.77 million shares for $39.87 per share in Q3 2021, totaling $872.2 million for the nine-month period.
  • 4Book value per share increased to $32.43 at September 30, 2021, up from $30.31 at December 31, 2020.
  • 5The company's operating return on average common equity (Operating ROAE) was 9.3% for Q3 2021, compared to 4.2% for Q3 2020, and 10.1% for the first nine months of 2021.
  • 6Acquisitions in the Australian mortgage market (Westpac LMI) and investments in Coface and Greysbridge contributed to asset growth and diversification.
  • 7Net investment income decreased year-over-year due to lower market yields, with the pre-tax investment income yield at 1.41% for Q3 2021, down from 1.76% in Q3 2020.

Frequently Asked Questions

Arch Capital reported strong financial performance in Q3 2021, with increased premiums earned across its insurance and reinsurance segments, driven by favorable pricing and growth. The mortgage segment showed a significant improvement in its loss ratio, and the company continued to enhance shareholder value through share repurchases and a growing book value per share.

The company's investment portfolio provided stable returns, though net investment income decreased compared to the prior year due to lower market yields. The pre-tax investment income yield was 1.41% in Q3 2021. Arch Capital maintained a focus on managing the duration and credit quality of its investment portfolio.

Key strategic events included the acquisition of Westpac Lenders Mortgage Insurance Limited in Australia, investments in Coface and Greysbridge, and the completion of a $500 million public offering of Series G Preferred Shares. The company also announced an increase in its share repurchase program authorization to $1.5 billion.

The company experienced a net favorable development on prior year loss reserves in the reinsurance segment, contributing positively to underwriting results. The mortgage segment saw a significant reduction in its loss ratio, benefiting from improved loss assumptions post-pandemic. The insurance segment's current year loss ratio reflected catastrophe activity but was partially offset by favorable development in some lines.