Why is Arch Capital (ACGL) up 9.3% since its last earnings report?

About a month has passed since Arch Capital Group’s (ACGL) last earnings report. Shares have risen about 9.3% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Arch Capital headed for a decline? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the company’s most recent earnings report in order to better understand the important catalysts.

Arch Capital’s first-quarter earnings beat that of solid insurance

Arch Capital reported first-quarter 2024 operating earnings of $2.45 per share, beating the Zacks Consensus Estimate by 18.9%. The financial result increased by 41.6% year on year. The results included better premiums and higher net investment income.

Behind the headline

Gross written premiums increased 24.1% year-over-year to $5.9 billion. Net premiums written increased 19.3% year-over-year to $4.1 billion as a result of higher premiums written in the insurance and reinsurance segments as hard market rates and rising inflation drive customer demand for many property and casualty products. Our estimate for this metric was $5.2 billion.

Net investment income increased 64.3% year-over-year to $327 million and exceeded our estimate of $302.8 million. This was driven by higher interest rates and growth in invested assets, which benefited from strong operating cash flow. The Zacks Consensus Estimate is pegged at $287 million.

Operating revenues of $3.8 billion increased 21.7% year over year, driven by higher net earned premiums and net investment income. It missed the Zacks Consensus Estimate by 0.2%.

Pre-tax catastrophe losses for the current accident year, net of reinsurance and reinstatement premiums, were $58 million. Arch Capital’s underwriting revenue increased 29.1% year-over-year to $736 million.

The combined ratio – the percentage of premiums paid as claims and expenses – improved by 180 basis points (bps) to 78.8. Our estimate was 82.8. The Zacks Consensus Estimate is set at 82.

Segment results

Insurance: Gross written premiums increased 7.4% year-over-year to $2.1 billion. According to our estimates, it was USD 2.1 billion. Net premiums written increased 19.1% year-over-year to $1.4 billion. This growth was driven by increases across most lines of business, due in part to new business opportunities and an increase in existing accounts and rate changes. According to our estimates, it was USD 1.6 billion.

Insurance revenues of $99 million declined 24.6% year-over-year. The combined index deteriorated by 320 bps to 94.1. The Zacks Consensus Estimate is set at 91.

Reinsurance: Gross written premiums increased 40.9% year-over-year to $3.5 billion. According to our estimates, it was USD 2.7 billion.

Net premiums written increased 31.3% year-over-year to $2.3 billion driven by growth across all lines of business, due in part to rate increases, new business opportunities and growth in existing accounts. According to our estimates, it was USD 1.9 billion.

Insurance revenue was $379 million, up 77.9% year over year. The combined ratio improved 690 bps year over year to 77.4. The Zacks Consensus Estimate is set at 82.

Mortgage: Gross written premiums decreased 0.6% year-over-year to $341 million. Our estimate was $334.9 million.

Net premiums written increased 6.1% year-over-year to $277 million due to the ceding of higher premiums. Our estimate was $250.3 million.

Insurance revenue increased 11.5% year-over-year to $271 million. Our estimate was $181.8 million. The combined ratio improved 550 bps to 14.5%. The Zacks Consensus Estimate is pegged at 29.8.

The story continues

Financial update

Arch Capital ended the first quarter of 2024 with cash of $993 million, an increase of 8.3% from the end of 2023. As of March 31, 2024, debt was $2.7 billion and remained constant level year on year.

As of March 31, 2024, book value per share was $49.36, an increase of 5.2% compared to the end of 2023. Annual operating return on average core capital remained unchanged year-over-year at 20 .7%. Cash from operations of $1.6 billion increased 62.4% year-over-year.

How have estimates changed since then?

Over the last month, investors have seen an upward trend in new estimates.

VGM results

Currently, Arch Capital has a solid Growth Score of B, although it lags slightly behind its Momentum Score of C. Plotting a somewhat similar path, the stock is given a B for Value, placing it in the top 40% for this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for the stock are trending upwards, and the scale of these revisions looks promising. Notably, Arch Capital carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Arch Capital is part of the Zacks Property and Casualty Insurance industry. Over the past month, Cincinnati Financial (CINF), a stock in the same industry, has gained 0%. More than a month ago, the company published its results for the quarter ended March 2024.

Cincinnati Financial reported revenue of $2.32 billion in its most recently reported quarter, representing a year-over-year change of +8.8%. EPS of $1.72 for the same period compared to $0.89 a year ago.

Cincinnati Financial is expected to report earnings per share of $1.10 for the current quarter, which would represent a year-over-year change of -9.1%. Over the past 30 days, the Zacks Consensus Estimate has moved +1.7%.

Cincinnati Financial carries a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM rating of B.

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