Key Takeaways Arch Capital's net premiums written grew 15% in Q2 2025 to $4.3 billion.Acquisitions and new ventures expand Arch's U.S. and European insurance platforms.Arch Capital's ROIC of 5.2% trails the industry average of 5.9% showing weaker capital efficiency.Arch Capital Group Ltd. (ACGL) has been trading above its 50-day simple moving average (SMA), signaling a short-term bullish trend. Its share price as of Friday was $90.72, down 22.1% from its 52-week high of $116.47.The 50-day SMA is a key indic ...

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)

Financial Data and Key Metrics Changes - The company reported after-tax operating income of $979 million, resulting in an operating earnings per share of $2.58 [5] - Year-to-date book value per share grew by 11.4%, reflecting strong execution and long-term value creation [5] - The annualized operating return on average common equity was 18.2% [16] - Book value per share increased by 7.3% in the quarter [16] Business Line Data and Key Metrics Changes - The property and casualty insurance group achieved underwriting income of $129 million and net premium returns surpassed $2 billion, up 30.7% from 2024 [8] - The reinsurance segment generated $451 million in underwriting income and over $2 billion in net premium written, with gross written premium increasing by 8.7% compared to 2024 [11] - The mortgage segment delivered $238 million of underwriting income, with mortgage originations remaining low due to higher mortgage rates [13] Market Data and Key Metrics Changes - Competitive pressures were noted in E&S property, excess D&O, and cyber lines, while pricing in these areas appears to be stabilizing [10] - The Lloyd's and London market business experienced increased but rational competition, with strong results from long-term investments [10] - The delinquency rate for the U.S. mortgage insurance business decreased slightly to 1.93% [21] Company Strategy and Development Direction - The company focuses on disciplined underwriting and capital management to generate superior returns across market cycles [5] - Growing presence in the small and midsized market is central to the company's strategy, with a focus on integrating new acquisitions [9] - The company aims to pursue opportunities in the property catastrophe market, particularly in Florida, where attractive risk-adjusted returns have been identified [11][50] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the quality and durability of the in-force portfolio, which is a core driver of mortgage earnings [14] - The company remains committed to pursuing opportunities that offer the strongest risk-adjusted returns, despite ongoing economic uncertainty [13] - Management noted that the P&C industry still presents meaningful opportunities for disciplined underwriters [8] Other Important Information - The company repurchased $161 million of shares in July, in addition to $360 million worth of common shares repurchased through the end of the second quarter [22] - The company recognized favorable development across all three segments, with significant improvements in short-tail lines in the reinsurance segment [17] Q&A Session Summary Question: Insurance segment growth excluding MCE - Management indicated that growth was around 2% in the quarter, with a focus on casualty lines and international business [24][25] Question: Capital return and share repurchase strategy - Management confirmed that capital return remains a focus area, with ongoing evaluations for share buybacks and dividends [27][30] Question: Adverse development from UK-Russia aviation ruling - Management acknowledged some adverse developments but stated that they were absorbed within the IBNR through short-tail lines, with no significant adverse impact overall [31] Question: Growth in the Florida market - Management noted that tort reform has positively impacted the market, leading to a drop in local companies' attrition loss ratios [50] Question: Reinsurance growth and timing impact - Management confirmed that adjusting for timing issues, net written premium growth for the reinsurance segment would have been in double digits [52] Question: Casualty pricing trends - Management indicated that casualty rates are expected to remain attractive, with single-digit trends on the primary side and double-digit on excess layers [102]

Financial Data and Key Metrics Changes - The company reported after-tax operating income of $979 million, resulting in an operating earnings per share of $2.58, with a year-to-date book value per share growth of 11.4% [4][16] - The annualized operating return on average common equity was 18.2%, and book value per share grew by 7.3% in the quarter [16][18] - The overall ex-catastrophe accident year combined ratio improved to 80.9%, down 10 basis points from the previous quarter [16][18] Business Line Data and Key Metrics Changes - The property and casualty insurance group achieved underwriting income of $129 million and net premium returns of over $2 billion, up 30.7% from 2024, driven by acquisitions in the US middle market and entertainment businesses [8][9] - The reinsurance segment generated $451 million in underwriting income and over $2 billion in net premiums written, with gross written premium increasing by 8.7% compared to 2024 [11][20] - The mortgage segment delivered $238 million of underwriting income, with mortgage originations remaining low due to higher mortgage rates impacting affordability [13][21] Market Data and Key Metrics Changes - The P&C market conditions remained consistent with the first quarter, with some sectors experiencing increased price competition while others saw rate improvements [5][10] - Competitive pressure persists in E&S property, excess D&O, and cyber lines, although pricing appears to be stabilizing [10][12] - The Lloyd's and London market business experienced increased but rational competition, with a focus on maintaining underwriting discipline [10][12] Company Strategy and Development Direction - The company emphasizes a disciplined underwriting approach and proactive capital management to generate superior returns across market cycles [4][5] - Growing presence in the small and midsized market is central to the company's strategy, with a focus on integrating new acquisitions and optimizing client retention [9][10] - The company aims to pursue opportunities in the P&C industry that offer attractive risk-adjusted returns, particularly in casualty lines and specialty markets [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the quality and durability of the in-force mortgage portfolio, despite ongoing economic uncertainty [13][21] - The company remains focused on capital deployment while also considering share buybacks and dividends as part of capital return strategies [30][31] - Management noted that the insurance market continues to present meaningful opportunities for disciplined underwriters to generate attractive returns [7][10] Other Important Information - The company repurchased $161 million of shares in July, adding to $360 million worth of common shares repurchased through the end of the second quarter [23] - The delinquency rate for the U.S. mortgage insurance business decreased slightly to 1.93%, reflecting strong cure activity [21][22] Q&A Session Summary Question: Insurance segment growth excluding MCE - Management indicated that growth was around 2% in the quarter, with a focus on casualty lines and international business despite competitive pressures [26][28] Question: Capital return and share repurchase strategy - Management confirmed a strong capital position and ongoing evaluation of capital return opportunities, including share buybacks and dividends [29][30] Question: Adverse developments from UK-Russia aviation ruling - Management acknowledged some adverse developments but stated that they were absorbed within the IBNR through short-tail lines, with no significant adverse impact overall [32] Question: Florida market attractiveness - Management noted that tort reform has positively impacted loss ratios, making the Florida market more attractive for excess of loss reinsurance [50][51] Question: Growth outlook in reinsurance - Management confirmed that adjusting for timing issues, net written premium growth for the reinsurance segment would have been in double digits, with Florida being a key area of growth [52][54] Question: Casualty pricing trends - Management indicated that casualty rates are generally stable, with primary rates in single digits and excess rates in double digits, unchanged from previous assessments [100] Question: Mortgage segment outlook - Management remains cautious about the mortgage market, expecting rates to stay elevated in the near term, with potential improvements in 2026 [101]

Company Overview - Arch Capital Group Ltd provides insurance, reinsurance, and mortgage insurance worldwide through its subsidiaries[1] - The company's financial strength ratings include AA- from Standard & Poor's and A+ from A M Best Company[2] Financial Highlights - Total Gross Premiums Written reached $22.9 billion[2] - Total Assets amounted to $78.8 billion[2] - Total Net Reserves were $23.6 billion[2] - Total Capitalization stood at $25.8 billion[2] - Net Premiums Written were divided among Reinsurance (48% or $7.9 billion), Insurance (46% or $7.7 billion), and Mortgage (6% or $1.1 billion)[2] Capitalization Trend - Total Capitalization increased from $15.6 billion in 2021 to $25.8 billion in 2025[4] Operating Income - Operating Income for the trailing 12 months ending June 30, 2025, was $3.194 billion[6] - The Operating Income Return on Average Equity for the trailing 12 months ending June 30, 2025, was 15.2%[6] Investment Portfolio - The investment portfolio includes Corporates (34.3%), U S Gov't and Gov't Agencies (26.7%), and Equity method funds & other (17.9%)[11]

Core Insights - Arch Capital Group (ACGL) reported a revenue of $4.76 billion for the quarter ended June 2025, reflecting a year-over-year increase of 20.9% [1] - The earnings per share (EPS) for the quarter was $2.58, slightly up from $2.57 in the same quarter last year, with an EPS surprise of +11.69% compared to the consensus estimate of $2.31 [1] Financial Performance Metrics - The underwriting expense ratio was reported at 28.1%, slightly above the average estimate of 27.8% [4] - The combined ratio stood at 81.2%, better than the estimated 82.2% [4] - The loss ratio was reported at 53.1%, also better than the estimated 54.3% [4] - Net investment income was $405 million, exceeding the average estimate of $401.06 million, representing a year-over-year increase of +11.3% [4] - Net premiums earned totaled $4.34 billion, surpassing the average estimate of $4.17 billion, with a year-over-year change of +21.7% [4] - Net premiums earned in the insurance segment were $1.97 billion, compared to the average estimate of $1.89 billion, reflecting a +33.2% year-over-year change [4] - Net premiums earned in the reinsurance segment were $2.06 billion, exceeding the average estimate of $2 billion, with a +15.7% year-over-year change [4] - Net premiums earned in the mortgage segment were $281 million, below the average estimate of $295.12 million, indicating an -8.5% year-over-year change [4] - Other underwriting income was reported at $62 million, significantly higher than the average estimate of $20.66 million, representing a +1966.7% year-over-year change [4] - Equity in net income of investment funds was $162 million, compared to the average estimate of $132.36 million, showing a -3% year-over-year change [4] - Other income was reported at $18 million, exceeding the average estimate of $2.33 million, reflecting a +125% year-over-year change [4] Stock Performance - Arch Capital's shares have returned -5% over the past month, while the Zacks S&P 500 composite has increased by +3.6% [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the broader market in the near term [3]

Financial Highlights [Financial Highlights](index=4&type=section&id=Financial%20Highlights) Arch Capital Group saw strong premium growth in Q2 and H1 2025, but net income declined due to a higher combined ratio Q2 2025 Key Financial Metrics (Three Months Ended June 30) | Metric | Q2 2025 ($ Millions) | Q2 2024 ($ Millions) | Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $6,196 | $5,382 | 15.1% | | Net Premiums Earned | $4,337 | $3,565 | 21.7% | | Underwriting Income | $818 | $762 | 7.3% | | Net Income to Common Shareholders | $1,227 | $1,259 | (2.5)% | | Diluted EPS | $3.23 | $3.30 | (2.1)% | | After-tax Operating Income | $979 | $981 | (0.2)% | | Diluted Operating EPS | $2.58 | $2.57 | 0.4% | | Combined Ratio | 81.2% | 78.7% | 2.5 percentage points | H1 2025 Key Financial Metrics (Six Months Ended June 30) | Metric | H1 2025 ($ Millions) | H1 2024 ($ Millions) | Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $12,659 | $11,315 | 11.9% | | Net Premiums Earned | $8,525 | $6,987 | 22.0% | | Underwriting Income | $1,235 | $1,498 | (17.6)% | | Net Income to Common Shareholders | $1,791 | $2,369 | (24.4)% | | Diluted EPS | $4.70 | $6.22 | (24.4)% | | After-tax Operating Income | $1,566 | $1,914 | (18.2)% | | Diluted Operating EPS | $4.11 | $5.02 | (18.1)% | | Combined Ratio | 85.5% | 78.7% | 6.8 percentage points | - The book value per common share increased by **7.3%** during Q2 2025 and **11.4%** during the first six months of 2025[14](index=14&type=chunk) - The pre-tax total return on investments was **3.09%** for Q2 2025, a significant improvement from **1.33%** in Q2 2024[14](index=14&type=chunk)[15](index=15&type=chunk) Consolidated Financial Statements [Consolidated Statements of Income](index=5&type=section&id=a.%20Consolidated%20Statements%20of%20Income) Total revenues increased in Q2 2025, but net income available to common shareholders slightly decreased due to higher losses and expenses Consolidated Income Statement Highlights (Q2 2025 vs Q2 2024) | (In millions) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net premiums earned | $4,337 | $3,565 | | Total revenues | $5,213 | $4,229 | | Losses and loss adjustment expenses | $(2,303) | $(1,827) | | Total expenses | $(3,802) | $(2,908) | | Net income available to Arch common shareholders | $1,227 | $1,259 | | Diluted EPS | $3.23 | $3.30 | [Consolidated Balance Sheets](index=6&type=section&id=b.%20Consolidated%20Balance%20Sheets) Total assets and shareholders' equity significantly increased as of June 30, 2025, driven by investment growth and improved book value per share Consolidated Balance Sheet Highlights (As of June 30) | (In millions, except per share data) | 2025 | 2024 | | :--- | :--- | :--- | | Total investments | $44,293 | $37,085 | | Total assets | $78,788 | $65,465 | | Reserve for losses and loss adjustment expenses | $32,089 | $24,466 | | Total liabilities | $55,747 | $44,800 | | Total shareholders' equity | $23,041 | $20,665 | | Book value per common share | $59.17 | $52.75 | [Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=c.%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Total shareholders' equity increased in Q2 2025, driven by net income and investment appreciation, partially offset by share repurchases - Retained earnings increased by **$1,230 million** in Q2 2025, reflecting net income of **$1,240 million** less **$10 million** in preferred dividends[23](index=23&type=chunk) - The company repurchased **$163 million** of its common shares for treasury in Q2 2025, and **$392 million** in the first six months of 2025[23](index=23&type=chunk) - Accumulated other comprehensive income improved from a loss of **$408 million** at the start of the quarter to a loss of **$48 million** at the end, mainly due to a **$296 million** change in unrealized appreciation on available-for-sale investments[23](index=23&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=d.%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations decreased in H1 2025, with significant cash used for fixed maturity investments and share repurchases Consolidated Cash Flow Highlights (Six Months Ended June 30) | (In millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,582 | $3,082 | | Net cash provided by (used for) investing activities | $(2,236) | $(2,918) | | Net cash provided by (used for) financing activities | $(369) | $(28) | | Increase (decrease) in cash and restricted cash | $48 | $129 | Segment Information [Overview](index=9&type=section&id=a.%20Overview) The company operates through three underwriting segments: Insurance, Reinsurance, and Mortgage, with performance measured by underwriting income - **Insurance Segment:** Focuses on specialty commercial insurance products in North America, Bermuda, the UK, Europe, and Australia[29](index=29&type=chunk) - **Reinsurance Segment:** Offers a variety of reinsurance products on a worldwide basis, including casualty, property catastrophe, and specialty lines[30](index=30&type=chunk) - **Mortgage Segment:** Consists of U.S. primary mortgage insurance, credit-risk transfer (CRT) business primarily with GSEs, and international mortgage insurance and reinsurance[31](index=31&type=chunk) [Consolidated Segment Results](index=10&type=section&id=b.%20Consolidated%20Results) All three segments contributed positively to Q2 2025 underwriting income, with Reinsurance leading, resulting in an overall combined ratio of 81.2% Segment Underwriting Income (Q2 2025 vs Q2 2024) | (In millions) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Insurance | $129 | $109 | | Reinsurance | $451 | $366 | | Mortgage | $238 | $287 | | **Total** | **$818** | **$762** | Segment Combined Ratios (Q2 2025 vs Q2 2024) | Segment | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Insurance | 93.4% | 92.6% | | Reinsurance | 78.5% | 79.5% | | Mortgage | 15.2% | 7.4% | | **Total** | **81.2%** | **78.7%** | [Insurance Segment Results](index=14&type=section&id=c.%20Insurance%20Segment%20Results) The Insurance segment reported strong gross premium growth and increased underwriting income in Q2 2025, with its combined ratio at 93.4% Insurance Segment Performance (Q2 2025 vs Q2 2024) | (In millions, except ratios) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Gross premiums written | $2,681 | $2,102 | | Net premiums earned | $1,969 | $1,478 | | Underwriting income | $129 | $109 | | Loss ratio | 59.8% | 57.3% | | Combined ratio | 93.4% | 92.6% | - The combined ratio excluding catastrophic activity and prior year development was **90.6%** in Q2 2025, compared to **90.8%** in Q2 2024[47](index=47&type=chunk) - For the first six months of 2025, net premiums written in North America grew to **$2,950 million**, representing **74.2%** of the segment's total, up from **68.4%** in the prior year period[50](index=50&type=chunk) [Reinsurance Segment Results](index=16&type=section&id=d.%20Reinsurance%20Segment%20Results) The Reinsurance segment achieved increased gross premiums and underwriting income in Q2 2025, improving its combined ratio to 78.5% Reinsurance Segment Performance (Q2 2025 vs Q2 2024) | (In millions, except ratios) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Gross premiums written | $3,196 | $2,941 | | Net premiums earned | $2,087 | $1,780 | | Underwriting income | $451 | $366 | | Loss ratio | 54.1% | 56.5% | | Combined ratio | 78.5% | 79.5% | - The combined ratio excluding catastrophic activity and prior year development was **77.2%** in Q2 2025[52](index=52&type=chunk) - For the first six months of 2025, the Specialty line of business was the largest contributor to net premiums written at **$1,320 million** (**30.2%** of total), followed by Property excluding property catastrophe at **$1,010 million** (**23.1%**)[55](index=55&type=chunk) [Mortgage Segment Results](index=18&type=section&id=e.%20Mortgage%20Segment%20Results) The Mortgage segment's underwriting income decreased in Q2 2025, but its combined ratio remained exceptionally low due to favorable prior year loss reserve development Mortgage Segment Performance (Q2 2025 vs Q2 2024) | (In millions, except ratios) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Gross premiums written | $323 | $340 | | Net premiums earned | $281 | $307 | | Underwriting income | $238 | $287 | | Loss ratio | (1.2)% | (8.6)% | | Combined ratio | 15.2% | 7.4% | - The segment benefited from a **24.1%** favorable development in prior year loss reserves. The combined ratio excluding this development was **39.3%**[57](index=57&type=chunk) - U.S. primary mortgage insurance continues to be the largest part of the segment, with **$74,900 million** in Risk in Force (RIF) as of June 30, 2025[61](index=61&type=chunk) - The credit quality of the U.S. primary mortgage insurance portfolio remains high, with a weighted average FICO score of **749** and **63.1%** of RIF having a FICO score of **740** or greater[65](index=65&type=chunk) [Consolidated Underwriting Results](index=23&type=section&id=f.%20Segment%20Consolidated%20Results) Consolidated underwriting income for Q2 2025 reflected a combined ratio of 81.2%, influenced by both catastrophic events and favorable prior year loss reserve development Consolidated Underwriting Ratios (Q2 2025 vs Q2 2024) | Ratio | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Loss ratio | 53.1% | 51.2% | | Acquisition expense ratio | 19.0% | 17.8% | | Other operating expense ratio | 9.1% | 9.7% | | **Combined ratio** | **81.2%** | **78.7%** | - The combined ratio excluding catastrophic activity and prior year development was **80.9%** in Q2 2025, compared to **76.7%** in Q2 2024[78](index=78&type=chunk) [Selected Information on Losses and Loss Adjustment Expenses](index=24&type=section&id=g.%20Selected%20Information%20on%20Losses%20and%20Loss%20Adjustment%20Expenses) In Q2 2025, the company reported net favorable prior year loss reserve development, primarily from Mortgage and Reinsurance, alongside current catastrophic losses Net Favorable Prior Year Development (Q2 2025) | (In millions) | Insurance | Reinsurance | Mortgage | Total | | :--- | :--- | :--- | :--- | :--- | | Net Impact on Underwriting | $(2) | $(69) | $(68) | $(139) | Current Accident Year Catastrophe Losses (Q2 2025) | (In millions) | Insurance | Reinsurance | Total | | :--- | :--- | :--- | :--- | | Estimated Net Losses | $58 | $96 | $154 | Investment Information [Investable Asset Summary and Investment Portfolio Metrics](index=25&type=section&id=a.%20Investable%20Asset%20Summary%20and%20Investment%20Portfolio%20Metrics) Total investable assets grew to $44,938 million as of June 30, 2025, primarily in high-quality fixed maturities with a short duration Investable Asset Composition (June 30, 2025) | Asset Class | Fair Value ($ Millions) | % of Total | | :--- | :--- | :--- | | Total fixed maturities | $31,341 | 69.7% | | Investments accounted for using the equity method | $6,566 | 14.6% | | Total short-term investments | $2,856 | 6.4% | | Total equity securities | $1,720 | 3.8% | | Cash | $983 | 2.2% | | Other | $1,472 | 3.3% | | **Total Investable Assets** | **$44,938** | **100.0%** | [Composition of Net Investment Income, Yield and Total Return](index=26&type=section&id=b.%20Composition%20of%20Net%20Investment%20Income,%20Yield%20and%20Total%20Return) Pre-tax net investment income increased in Q2 2025, primarily from fixed maturities, resulting in a strong total return on investments Net Investment Income and Returns (Q2 2025) | Metric | Value | | :--- | :--- | | Pre-tax net investment income | $405 million | | Pre-tax equity in net income of investments | $162 million | | Annualized pre-tax investment income yield | 4.25% | | Total return on investments | 3.09% | [Composition of Fixed Maturities](index=27&type=section&id=c.%20Composition%20of%20Fixed%20Maturities) The fixed maturity portfolio totaled $31,341 million as of June 30, 2025, primarily in corporate and U.S. government bonds, with improved unrealized gains Fixed Maturity Composition (June 30, 2025) | Security Type | Fair Value ($ Millions) | % of Total | | :--- | :--- | :--- | | Corporates | $15,417 | 49.2% | | U.S. government and government agencies | $6,591 | 21.0% | | Non-U.S. government securities | $3,164 | 10.1% | | Asset-backed securities | $2,770 | 8.8% | | Residential mortgage-backed securities | $2,386 | 7.6% | | Other | $1,013 | 3.3% | | **Total** | **$31,341** | **100.0%** | [Credit Quality Distribution and Maturity Profile](index=28&type=section&id=d.%20Credit%20Quality%20Distribution%20and%20Maturity%20Profile) The fixed maturity portfolio maintains high credit quality, with most securities rated investment grade or U.S. government, and a short duration - Investment grade securities (BBB and above) plus U.S. government securities comprise **92.2%** of the total fixed income portfolio[95](index=95&type=chunk) - The majority of the portfolio (**56.3%**) has a maturity of one to five years, indicating a focus on shorter-duration assets[95](index=95&type=chunk) [Analysis of Corporate Exposures](index=29&type=section&id=e.%20Analysis%20of%20Corporate%20Exposures) The corporate bond portfolio is primarily invested in Industrials and Financials, predominantly investment grade, with top ten exposures in major financial institutions - The largest sector exposures are Industrials (**$8,000 million**) and Financials (**$5,900 million**)[99](index=99&type=chunk) - The top ten corporate issuers account for **$2,600 million**, or **16.8%** of the corporate bond portfolio, with JPMorgan Chase & Co. being the largest single exposure at **$417 million**[100](index=100&type=chunk) [Structured Securities](index=30&type=section&id=f.%20Structured%20Securities) The structured securities portfolio grew to $5,994 million as of June 30, 2025, primarily in highly-rated ABS, CMBS, and RMBS Structured Securities by Type and Rating (June 30, 2025) | (In millions) | Agencies | AAA | AA | A | BBB | Non-Inv. Grade | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | RMBS | $1,759 | $626 | $1 | $— | $— | $— | $2,386 | | CMBS | $6 | $415 | $172 | $45 | $132 | $68 | $838 | | ABS | $— | $1,426 | $317 | $725 | $125 | $177 | $2,770 | | **Total** | **$1,765** | **$2,467** | **$490** | **$770** | **$257** | **$245** | **$5,994** | Other Information [Comments on Non-GAAP Financial Measures](index=31&type=section&id=a.%20Comments%20on%20Non-GAAP%20Financial%20Measures) The company utilizes non-GAAP measures like after-tax operating income and operating return on equity to reflect core business performance - After-tax operating income is used to reflect the underlying fundamentals of the business by focusing on underwriting profit[105](index=105&type=chunk)[109](index=109&type=chunk) - The company also presents adjusted combined ratios that exclude catastrophic activity and prior year reserve development to help analyze the underwriting performance of its segments[111](index=111&type=chunk) [Operating Income Reconciliation and Annualized Operating Return on Average Common Equity](index=32&type=section&id=b.%20Operating%20Income%20Reconciliation%20and%20Annualized%20Operating%20Return%20on%20Average%20Common%20Equity) Q2 2025 after-tax operating income was $979 million, with an annualized operating return on average common equity of 18.2% Reconciliation of Net Income to Operating Income (Q2 2025) | (In millions) | Amount | Per Share | | :--- | :--- | :--- | | Net income available to Arch common shareholders | $1,227 | $3.23 | | Adjustments (Net realized gains, FX, etc.) | $(248) | $(0.65) | | **After-tax operating income available to Arch common shareholders** | **$979** | **$2.58** | Return on Equity (Q2 2025, Annualized) | Metric | Percentage | | :--- | :--- | | Annualized net income return on average common equity | 22.9% | | Annualized operating return on average common equity | 18.2% | [Operating Income and Effective Tax Rate Calculations](index=33&type=section&id=c.%20Operating%20Income%20and%20Effective%20Tax%20Rate%20Calculations) The company's Q2 2025 pre-tax operating income was $1,166 million, with an effective tax rate of 15.2%, yielding $989 million after-tax Effective Tax Rate on Operating Income (Q2 2025) | (In millions) | Amount | | :--- | :--- | | Pre-tax operating income available to Arch | $1,166 | | Income tax expense on operating income | $(177) | | **Effective tax rate on pre-tax operating income** | **15.2%** | [Capital Structure and Share Repurchase Activity](index=34&type=section&id=d.%20Capital%20Structure%20and%20Share%20Repurchase%20Activity) As of June 30, 2025, total capital was $25,769 million, with a 10.6% debt-to-total capital ratio, and $163.2 million in shares repurchased Capital Structure (June 30, 2025) | (In millions) | Amount | | :--- | :--- | | Total debt | $2,728 | | Total shareholders' equity | $23,041 | | **Total capital available to Arch** | **$25,769** | | Debt/total capital ratio | 10.6% | | Debt and preferred/total capital ratio | 13.8% | - In Q2 2025, the company repurchased **1.9 million** shares at an aggregate cost of **$163.2 million**, with an average price of **$87.94** per share[122](index=122&type=chunk) - There is **$637.1 million** remaining under the current share repurchase authorization[122](index=122&type=chunk)

Core Insights - Arch Capital Group Ltd. (ACGL) has launched a new Individual Supplemental Health product suite aimed at providing financial protection from medical costs not covered by primary insurance, targeting employees, gig workers, and independent contractors [1][3][9] Product Details - The supplemental health products include Accident Medical Expense, Hospital Indemnity, Critical Illness, and Accidental Death, designed to ensure financial support amid sudden medical expenses [1][3] - These products are portable and do not require medical underwriting, making them suitable for individuals experiencing job or life changes [2] Business Impact - The launch of the supplemental health product suite is expected to diversify revenue streams and expand ACGL's presence in the individual insurance market, increasing premium income and enhancing underwriting profitability [3] - The initiative strengthens Arch's brand and market position as a modern provider in the supplemental health space [3] Competitive Landscape - Aflac has introduced an individual Accident Insurance plan across 32 U.S. states, providing cash benefits for various incidents, thereby expanding post-accident care and preventive benefits [4] - MetLife has enhanced access to its Upwise platform via Workday Marketplace, simplifying benefits selection and boosting engagement in supplemental health products [5] Financial Performance - Over the past year, ACGL's shares have decreased by 10.6%, underperforming both the industry and the Zacks S&P 500 Composite [6] - ACGL currently trades at a price-to-book ratio of 1.61, slightly above the industry average of 1.54, and holds a Value Score of B [10] Earnings Estimates - The Zacks Consensus Estimate for ACGL's 2025 earnings indicates a 15.30% decline year over year, followed by a projected increase of 19.77% in the subsequent year [12] - Current earnings estimates for ACGL show a decline in the current year, with a forecasted recovery in the following year [13]

Company Overview - Arch Capital Group (ACGL) is expected to report earnings for the quarter ended June 2025, with a consensus estimate of $2.31 per share, reflecting a year-over-year decline of 10.1% [3] - The anticipated revenue for Arch Capital is $4.65 billion, which represents an 18% increase from the same quarter last year [3] Earnings Expectations - The earnings report is scheduled for release on July 29, and the stock price may increase if the actual results exceed expectations, while a miss could lead to a decline [2] - The consensus EPS estimate has been revised down by 1.05% over the last 30 days, indicating a bearish sentiment among analysts [4] Earnings Surprise Prediction - Arch Capital has an Earnings ESP of -1.22%, suggesting that the Most Accurate Estimate is lower than the Zacks Consensus Estimate, which complicates the prediction of an earnings beat [12] - The company currently holds a Zacks Rank of 3 (Hold), which further indicates uncertainty regarding the likelihood of beating the consensus EPS estimate [12] Historical Performance - In the last reported quarter, Arch Capital had an earnings surprise of +12.41%, with actual earnings of $1.54 per share compared to an expected $1.37 [13] - Over the past four quarters, Arch Capital has successfully beaten consensus EPS estimates each time [14] Industry Context - In the broader insurance industry, Kinsale Capital Group, Inc. is expected to report earnings of $4.41 per share for the same quarter, reflecting a year-over-year increase of 17.6% [18] - Kinsale Capital's revenue is projected to be $434.01 million, up 12.9% from the previous year, and it has an Earnings ESP of +1.07%, indicating a higher likelihood of beating the consensus EPS estimate [19][20]