Key Takeaways Arch Capital is seeing consistent premium growth supported by organic business drivers.Rate increases, new inflows and disciplined underwriting sustain momentum in P&C lines.Geopolitical risks and weaker investment returns pose challenges to ACGL.Shares of Arch Capital Group Ltd. (ACGL) are trading at a discount compared to the Zacks Property and Casualty Insurance industry. Its price-to-book value of 1.47X is lower its 5 year Median of 1.65 and the industry average of 1.54X. The insurer has a ...

PresentationJoshua ShankerBofA Securities, Research Division All right. Well, let's get started, I guess. Everyone find a seat. Okay. We'll see if you're joining us right now, are we live? Okay, we're live. So thank you for joining us at the Bank of America Global Financial Services Conference. If you're listening in here, this is the Arch Capital Group session. We are really -- it's a treat to have Arch Capital Group presenting obviously, a U.S. listed company, which is an exception here at the conference. ...

Core Insights - Arch Capital Group Ltd. (ACGL) has a market capitalization of $33.8 billion and provides a wide range of insurance, reinsurance, and mortgage insurance solutions across various industries [1][2] - The company is classified as a "large-cap" stock, with tailored risk management programs that include protection for catastrophic losses and life reinsurance [2] Stock Performance - ACGL shares have declined 22.1% from their 52-week high of $116.47, while the stock has risen 1.8% over the past three months, underperforming the Nasdaq Composite's nearly 12% increase [3][4] - Year-to-date, ACGL stock is down 1.5%, lagging behind the Nasdaq's 13.8% gain, and has decreased 17.1% over the past 52 weeks compared to the Nasdaq's 26.3% return [4] Financial Performance - In Q2 2025, ACGL reported an operating income of $2.58 per share, but investors expressed caution due to weaker fundamentals, including a combined ratio deterioration of 250 basis points to 81.2 and a 26% year-over-year decline in operating cash flow to $1.1 billion [5] - Mortgage insurance performance lagged, with net premiums written down 8.3% and underwriting income off 17.1%, which offset gains in insurance and reinsurance [5] Analyst Sentiment - Despite the stock's underperformance relative to the Nasdaq, analysts maintain a moderately optimistic outlook on ACGL, with a consensus rating of "Moderate Buy" from 19 analysts and a mean price target of $107.65, representing an 18.3% premium to current levels [7]

PEMBROKE, Bermuda--(BUSINESS WIRE)--Arch Capital Group Ltd. (NASDAQ: ACGL) ("Arch†or the "Company†) today announced that its Board of Directors has increased the authorization for its existing share repurchase program by $2.0 billion, which, as in the past, may be effected from time to time in open market or privately negotiated transactions. After accounting for this increased authorization and recent share repurchases during the third quarter of 2025, approximately $2.3 billion of share repu. ...

Group 1 - Arch Capital Group's shares have declined approximately 18% over the past year, indicating poor performance [1] - Despite the company's strong operational performance, concerns regarding pricing trends in the sector have negatively impacted its stock value [1] Group 2 - The article emphasizes the importance of macro views and stock-specific turnaround stories for achieving outsized returns with a favorable risk/reward profile [1]

Core Insights - Arch Capital Group reported a strong second-quarter 2025 operating income of $2.58 per share, exceeding estimates by 11.7% and showing a year-over-year increase of 0.49% [2] - The company experienced a 15.1% year-over-year growth in gross premiums written, reaching $6.2 billion, and a 15% increase in net premiums written to $4.3 billion [3] - Operating revenues rose by 20.9% year over year to $4.8 billion, driven by higher net premiums earned and net investment income [4] Financial Performance - Pre-tax net investment income increased by 11.3% year over year to $405 million, surpassing the Zacks Consensus Estimate of $401 million [3] - Underwriting income grew by 7.3% year over year to $818 million, while the combined ratio deteriorated by 250 basis points to 81.2 [5] - The company reported pre-tax current accident year catastrophic losses of $154 million, an improvement from the previous year's loss of $196 million [4] Segment Analysis - **Insurance Segment**: Gross premiums written increased by 27.5% year over year to $2.7 billion, with net premiums written climbing 30.7% to $2 billion [6] - **Reinsurance Segment**: Gross premiums written improved by 8.7% year over year to $3.2 billion, with net premiums written rising 5.8% to $2.1 billion [7] - **Mortgage Segment**: Gross premiums written decreased by 5% year over year to $323 million, attributed to a one-time expense and lower mortgage originations [8] Financial Position - As of June 30, 2025, Arch Capital had cash of $983 million, a slight increase from the end of 2024, and debt remained unchanged at $2.7 billion [9] - The book value per share was reported at $59.17, reflecting an 11.4% increase from the end of 2024 [10] - Cash from operations declined by 26% year over year to $1.1 billion, while the company repurchased $163 million worth of shares in the second quarter [10] Market Outlook - Estimates for Arch Capital have been trending upward, indicating a positive outlook for the stock [11][13] - The company holds a Zacks Rank 3 (Hold), suggesting an expectation of in-line returns in the coming months [13] - In comparison, Cincinnati Financial, a peer in the same industry, reported a year-over-year revenue increase of 15.3% and is expected to post earnings growth of 18.3% for the current quarter [14][15]

Core Viewpoint - Arch Capital Group Ltd. (ACGL) is experiencing a short-term bullish trend despite a significant decline from its 52-week high, with its share price currently at $90.72, down 22.1% from $116.47 [1] Group 1: Price Performance - Year-to-date, Arch Capital shares have decreased by 1.7%, underperforming the industry, sector, and Zacks S&P 500 Composite, which grew by 5.1%, 10.8%, and 9.6% respectively [2] - The company has a market capitalization of $33.9 billion, with an average trading volume of 2.2 million shares over the last three months [2] Group 2: Valuation Metrics - Arch Capital shares are trading at a premium compared to the Zacks Property and Casualty Insurance industry, with a forward price-to-book value of 1.53X, higher than the industry average of 1.45X [4] - The company has a Value Score of B, indicating a relatively strong valuation position [4] Group 3: Financial Performance - In Q2 2025, Arch Capital's net premiums written increased by 15% year-over-year to $4.3 billion, supported by acquisitions and new ventures [6][9] - The Zacks Consensus Estimate for 2025 revenues is projected at $18.8 billion, reflecting a year-over-year growth of 13.6% [7] Group 4: Market Position and Strategy - Arch Capital is well-positioned in the Property and Casualty (P&C) insurance market, benefiting from a hard market environment characterized by rising premiums and increased demand for insurance coverage [10] - The company is enhancing its competitive position through strategic acquisitions and investments, including the addition of MidCorp and the launch of Arch Insurance Company (Europe) Limited [11] Group 5: Operational Challenges - The ongoing Russia-Ukraine conflict is impacting Arch Capital's operations, particularly in its marine and energy business lines due to sanctions [12] - Despite rising capital investments, the company's return on invested capital (ROIC) has declined to 5.2%, below the industry average of 5.9%, indicating inefficiencies in capital management [13] Group 6: Outlook - Arch Capital shows solid fundamentals with consistent premium growth and strategic market expansion, but elevated geopolitical risks and declining returns temper the near-term outlook [14]

Core Viewpoint - Arch Capital Group (ACGL) has been trending on Zacks.com, indicating potential interest in its stock performance in the near term [1][2]. Earnings Estimate Revisions - Arch Capital is expected to report earnings of $1.76 per share for the current quarter, reflecting a year-over-year decline of -11.6% [5]. - The consensus earnings estimate for the current fiscal year is $8.08, indicating a year-over-year change of -12.9% [5]. - For the next fiscal year, the consensus earnings estimate is $9.44, representing a year-over-year increase of +16.9% [6]. - The Zacks Rank for Arch Capital is 3 (Hold), suggesting it may perform in line with the broader market [7]. Revenue Growth Forecast - The consensus sales estimate for the current quarter is $4.81 billion, indicating a year-over-year increase of +9.8% [11]. - Estimated revenues for the current and next fiscal years are $18.87 billion and $19.78 billion, reflecting year-over-year changes of +13.5% and +4.8%, respectively [11]. Last Reported Results and Surprise History - In the last reported quarter, Arch Capital generated revenues of $4.76 billion, a year-over-year increase of +20.9% [12]. - The reported EPS was $2.58, slightly up from $2.57 a year ago, with a revenue surprise of +2.62% and an EPS surprise of +11.69% [12][13]. Valuation - Arch Capital is graded B in the Zacks Value Style Score, indicating it is trading at a discount compared to its peers [17].

Group 1: Market Overview - Major U.S. insurance stocks are poised for a rebound after significant declines, driven by attractive valuations and expected profit recovery [1] - Over the past three months, U.S. insurance stocks have dropped 2.5%, while the S&P 500 index has risen 12% [1] - The property and casualty insurance sector faces challenges due to a series of disaster events, including wildfires and active tornado seasons [1][2] Group 2: Investment Sentiment - Investors have shifted focus from insurance companies to banks, with the KBW Nasdaq Bank Index up 13% year-to-date [2] - The price-to-earnings ratio for insurance stocks in the S&P 500 has fallen from over 16 times to below 14 times during the recent sell-off [2] - Bloomberg Intelligence forecasts a profit growth of over 10% for the insurance industry by 2026, compared to a projected growth rate of 7.4% for this year [2] Group 3: Analyst Perspectives - Daneshvar Rohinton from Industrial Alliance expresses caution, noting the upcoming hurricane season and a predicted increase in named storms [5] - Rohinton would consider re-entering the insurance sector if stock prices drop another 10% [5] - Joshua Shanker is more optimistic, giving "buy" ratings to companies like Arch Capital and RenaissanceRe, despite their stock declines of 2.8% and nearly 3% respectively [5][6] Group 4: Company-Specific Insights - Progressive Insurance is highlighted for its strong rebound potential due to precise risk pricing, despite a 15% stock price drop in the last two months [6] - Skyward Specialty Insurance's CEO expresses frustration over the undervaluation of their stock, which has dropped about 25% since June, despite a growth rate of 18% and annual profit growth of 25% [6] - Analysts generally agree that Skyward is undervalued, with six sell-side analysts rating it as "outperform" [6] Group 5: Reinsurance Sector - The reinsurance industry is viewed as a value opportunity, with U.S. listed reinsurers having lower valuations compared to their European counterparts [7] - Joshua Shanker expresses a bullish outlook on U.S. listed reinsurers due to the significant valuation gap with European competitors [7]

PART I [Consolidated Financial Statements](index=7&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents Arch Capital Group Ltd.'s unaudited consolidated financial statements for Q2 2025, covering balance sheets, income, equity, and cash flows, with notes on acquisition, segment performance, and investment portfolio Key Financial Highlights (Q2 2025 vs Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Premiums Earned ($M) | 4,337 | 3,565 | | Total Revenues ($M) | 5,213 | 4,229 | | Net Income to Arch Common Shareholders ($M) | 1,227 | 1,259 | | Diluted EPS ($) | 3.23 | 3.30 | Key Balance Sheet Data (as of June 30, 2025) | Metric | June 30, 2025 ($M) | December 31, 2024 ($M) | | :--- | :--- | :--- | | Total Investments | 44,293 | 40,540 | | Total Assets | 78,788 | 70,906 | | Reserve for Losses & LAE | 32,089 | 29,369 | | Total Liabilities | 55,747 | 50,086 | | Total Shareholders' Equity | 23,041 | 20,820 | - On August 1, 2024, the company completed the acquisition of the U.S MidCorp and Entertainment insurance business from Allianz (MCE Acquisition) for an aggregate cash consideration of **$450 million**, resulting in **$276 million** of goodwill[34](index=34&type=chunk)[35](index=35&type=chunk)[40](index=40&type=chunk) - For the six months ended June 30, 2025, the company repurchased **4.1 million** common shares for an aggregate price of **$359.7 million**, with no shares repurchased in the same period of 2024[45](index=45&type=chunk) - From July 1 to August 5, 2025, the company repurchased an additional **2.8 million** common shares for approximately **$244 million**[179](index=179&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=45&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's strong Q2 2025 performance, emphasizing disciplined underwriting and capital management, covering segment results, investment performance, financial condition, liquidity, and risk exposures - The company reported a strong Q2 2025, with an annualized net income return on average common equity of **22.9%** and an operating return on average common equity of **18.2%**, while book value per share grew **7.3%** during the quarter[184](index=184&type=chunk) - Management notes that overall property and casualty market conditions remain largely consistent with Q1 2025, with some sectors seeing increased price competition while others continue to experience rate improvements[186](index=186&type=chunk) [Results of Operations](index=53&type=section&id=Results%20of%20Operations) This section details underwriting and financial results for the Insurance, Reinsurance, and Mortgage segments, alongside corporate-level items like investment income and taxes Consolidated Underwriting Income by Segment (Q2 2025) | Segment | Underwriting Income (Loss) ($M) | | :--- | :--- | | Insurance | 129 | | Reinsurance | 451 | | Mortgage | 238 | | **Total** | **818** | [Insurance Segment](index=53&type=section&id=Insurance%20Segment) The Insurance segment reported **$129 million** underwriting income in Q2 2025, a **18.3%** YoY increase, with net premiums written up **30.7%** due to the MCE Acquisition, and a combined ratio of **93.4%** Insurance Segment Underwriting Results (Q2) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net Premiums Written ($M) | 2,036 | 1,558 | | Net Premiums Earned ($M) | 1,969 | 1,478 | | Underwriting Income ($M) | 129 | 109 | | Loss Ratio | 59.8% | 57.3% | | Combined Ratio | 93.4% | 92.6% | - Growth in net premiums written was primarily driven by the MCE Acquisition, with organic growth of **1.7%** in Q2 2025 compared to Q2 2024[187](index=187&type=chunk)[214](index=214&type=chunk) - The Q2 2025 loss ratio included **2.9 points** of current year catastrophic activity, compared to **2.0 points** in Q2 2024[223](index=223&type=chunk) [Reinsurance Segment](index=57&type=section&id=Reinsurance%20Segment) The Reinsurance segment achieved **$451 million** underwriting income in Q2 2025, up **23.2%** YoY, with net premiums written growing **5.8%**, and an improved combined ratio of **78.5%** due to lower catastrophic activity and favorable reserve development Reinsurance Segment Underwriting Results (Q2) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net Premiums Written ($M) | 2,059 | 1,947 | | Net Premiums Earned ($M) | 2,087 | 1,780 | | Underwriting Income ($M) | 451 | 366 | | Loss Ratio | 54.1% | 56.5% | | Combined Ratio | 78.5% | 79.5% | - The segment expanded its property catastrophe writings, particularly in Florida, due to attractive risk-adjusted returns and increased client demand[189](index=189&type=chunk) - The Q2 2025 loss ratio included **5.5 points** of current year catastrophic activity, compared to **10.0 points** in Q2 2024, while favorable prior period reserve development was **$81 million** (**3.9 points**) in Q2 2025, up from **$34 million** (**1.9 points**) in Q2 2024[237](index=237&type=chunk)[239](index=239&type=chunk) [Mortgage Segment](index=60&type=section&id=Mortgage%20Segment) The Mortgage segment's Q2 2025 underwriting income decreased to **$238 million**, with net premiums written down **8.3%** due to a one-time expense and lower originations, and the combined ratio increased to **15.2%** due to reduced favorable prior period development Mortgage Segment Underwriting Results (Q2) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net Premiums Written ($M) | 253 | 276 | | Net Premiums Earned ($M) | 281 | 307 | | Underwriting Income ($M) | 238 | 287 | | Loss Ratio | (1.2)% | (8.6)% | | Combined Ratio | 15.2% | 7.4% | - The persistency rate for the Arch MI U.S. portfolio remained high at **81.9%** as of June 30, 2025[249](index=249&type=chunk) - Net favorable prior period reserve development was **$64 million** (**22.8 points**) in Q2 2025, compared to **$82 million** (**26.9 points**) in Q2 2024[258](index=258&type=chunk) [Financial Condition](index=66&type=section&id=Financial%20Condition) This section details the company's financial position, highlighting its investment portfolio with a **3.48-year** duration and **AA-/Aa3** credit quality, along with **$23.6 billion** in net loss reserves Fixed Income Portfolio Characteristics | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Average Duration (years) | 3.48 | 3.31 | | Average S&P/Moody's Rating | AA-/Aa3 | AA-/Aa3 | - The company utilizes Bellemeade Re special purpose vehicles for mortgage reinsurance, with total remaining coverage of **$872 million** against a remaining retention of **$801 million** as of June 30, 2025[287](index=287&type=chunk) Net Loss Reserves by Segment (June 30, 2025) | Segment | Net Reserves ($M) | | :--- | :--- | | Insurance | 12,511 | | Reinsurance | 10,603 | | Mortgage | 462 | | **Total** | **23,576** | [Liquidity and Capital Resources](index=72&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity and capital, with **$2.6 billion** net cash from operations, **$25.8 billion** total capital, a **10.6%** debt-to-total capital ratio, and a **168%** PMIERs sufficiency ratio for its U.S. mortgage insurance subsidiary Cash Flow Summary (Six Months Ended June 30) | Activity | 2025 ($M) | 2024 ($M) | | :--- | :--- | :--- | | Operating | 2,582 | 3,082 | | Investing | (2,236) | (2,918) | | Financing | (369) | (28) | Capital Structure (June 30, 2025) | Component | Amount ($M) | Ratio | | :--- | :--- | :--- | | Senior Notes | 2,728 | 10.6% | | Preferred Equity | 830 | 3.2% | | Common Equity | 22,211 | 86.2% | | **Total Capital** | **25,769** | **100.0%** | - Arch MI U.S. satisfied the PMIERs financial requirements with an estimated sufficiency ratio of **168%** at June 30, 2025[308](index=308&type=chunk) [Catastrophic and Severe Economic Events](index=75&type=section&id=Catastrophic%20and%20Severe%20Economic%20Events) Arch manages catastrophic exposure, targeting a 1-in-250 year net probable maximum loss of **25%** of tangible equity, with peak modeled losses of **$1.9 billion** for a Florida windstorm and **$1.2 billion** for a severe mortgage economic downturn - The company's modeled peak zone catastrophe exposure is a windstorm affecting the Florida Tri-County regions, with a net probable maximum pre-tax loss of **$1.9 billion**, representing **8.6%** of tangible shareholders' equity as of July 1, 2025[315](index=315&type=chunk) - The proprietary "Realistic Disaster Scenario" (RDS) model for the U.S. mortgage insurance business projects a maximum loss of approximately **$1.2 billion** from a severe economic downturn, or **5.5%** of tangible shareholders' equity[318](index=318&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=81&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section incorporates MD&A's detailed market risk discussion, covering investment market risk sensitivity to interest rates and credit spreads, and foreign currency exchange risk Interest Rate Sensitivity on Fixed Income Securities (June 30, 2025) | Interest Rate Shift | Change in Fair Value | Change in Unrealized Value ($B) | | :--- | :--- | :--- | | +100 bps | -2.9% | -1.2 | | -100 bps | +2.9% | +1.2 | - As of June 30, 2025, the company's net exposure to foreign currencies was **$1.015 billion**, where a hypothetical **10%** appreciation of the U.S. Dollar would result in a pre-tax reduction to shareholders' equity of **$102 million**[329](index=329&type=chunk) [Controls and Procedures](index=81&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of June 30, 2025, excluding the recently acquired MCE business currently undergoing integration - The company's management concluded that disclosure controls and procedures were effective as of the end of the period[334](index=334&type=chunk) - The evaluation of internal controls excluded the MCE Acquisition, completed on August 1, 2024, which is in the process of integration and represents **1.4%** of total assets and **7.8%** of total revenues as of June 30, 2025[335](index=335&type=chunk) PART II—Other Information [Legal Proceedings](index=81&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to routine litigation and arbitration but is not a party to any proceedings expected to materially adversely affect its financial condition or operations - As of June 30, 2025, Arch Capital was not a party to any litigation or arbitration expected by management to have a material adverse effect on the company[337](index=337&type=chunk) [Risk Factors](index=81&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported from the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes from the risk factors disclosed in the 2024 Form 10-K were reported[338](index=338&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=83&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's Q2 2025 equity repurchase program, with **1.86 million** shares bought at an average of **$87.96** per share, leaving **$637.1 million** available Share Repurchases (Q2 2025) | Period | Total Shares Purchased | Average Price Paid ($) | | :--- | :--- | :--- | | April 2025 | 1,152,118 | 86.80 | | May 2025 | 84,298 | 89.91 | | June 2025 | 619,815 | 89.84 | | **Total** | **1,856,231** | **87.96** | - As of June 30, 2025, approximately **$637.1 million** remained available for future repurchases under the company's authorized plan[339](index=339&type=chunk)