Financial Performance - Net premiums earned for Q3 2024 were $3,970 million, an increase from $3,248 million in Q3 2023, representing a growth of 22.2%[10] - Total revenues for the nine months ended September 30, 2024, reached $12,892 million, compared to $9,659 million for the same period in 2023, marking a 33.1% increase[10] - Net income available to Arch common shareholders for Q3 2024 was $978 million, up from $713 million in Q3 2023, reflecting a growth of 37.2%[10] - Net income for the three months ended September 30, 2024, was $988 million, compared to $723 million for the same period in 2023, representing a 37% increase[11] - For the nine months ended September 30, 2024, net income reached $3,377 million, compared to $2,109 million in 2023, reflecting a 60% increase[12] - Total shareholders' equity at the end of the period was $22,274 million, up from $15,239 million in 2023, marking a 46% increase[12] - The company’s diluted net income per common share for Q3 2024 was $2.56, compared to $1.88 in Q3 2023, representing an increase of 36.2%[10] - After-tax operating income available to Arch common shareholders for the nine months ended September 30, 2024, was $2,676 million, up from $2,256 million in the same period of 2023, reflecting an 18.6% growth[123] Assets and Liabilities - The total assets as of September 30, 2024, amounted to $73,656 million, compared to $58,906 million at the end of 2023, indicating a 25.1% increase[9] - Total liabilities increased to $51,382 million as of September 30, 2024, from $40,551 million at the end of 2023, reflecting a growth of 26.7%[9] - The reserve for losses and loss adjustment expenses stood at $28,679 million as of September 30, 2024, up from $22,752 million at the end of 2023, a rise of 26.1%[9] - Goodwill and intangible assets increased to $1,486 million as of September 30, 2024, from $731 million at the end of 2023, a growth of 103.5%[9] - The net reserve for losses and loss adjustment expenses at the end of the period was $21,116 million, compared to $15,340 million in the prior year[30] Investment Performance - The company reported net investment income of $399 million for Q3 2024, compared to $269 million in Q3 2023, an increase of 48.3%[10] - The equity in net income of investment funds accounted for using the equity method was $171 million in Q3 2024, compared to $59 million in Q3 2023, a significant increase of 189.8%[10] - The company reported unrealized holding gains of $585 million during the period, compared to unrealized losses of $94 million in the previous year[12] - The company reported net realized gains of $358 million for the third quarter of 2024, compared to a loss of $354 million in the same quarter of 2023[64] - The gross investment income for the three months ended September 30, 2024, was $422 million, compared to $289 million for the same period in 2023[56] Underwriting and Premiums - Gross premiums written totaled $5.44 billion, with $2.34 billion from insurance, $2.76 billion from reinsurance, and $339 million from mortgage segments[24] - Underwriting income for the total company was $538 million, with $120 million from insurance, $149 million from reinsurance, and $269 million from mortgage[24] - The combined ratio improved to 86.6%, with a loss ratio of 60.5% and an acquisition expense ratio of 17.2%[25] - The insurance segment's third quarter results included two months of activity from the MCE Acquisition, contributing $120 million of underwriting income[111] - The loss ratio for the insurance segment increased to 61.6% in the third quarter of 2024 from 57.5% in the same quarter of 2023, reflecting a 4.1 percentage point change[128] Acquisitions - The Company completed the acquisition of Allianz's U.S. Middle Market Property & Casualty Insurance and U.S. Entertainment Property and Casualty Insurance Business for a total cash consideration of $450 million[17] - The Company completed the acquisition of Watford Insurance Company for a total consideration of $35 million during the third quarter[103] - The acquisition enhances the Company's capabilities in the U.S. middle markets and provides entry into a new niche entertainment insurance market[17] Tax and Dividends - The effective tax rate for the nine months ended September 30, 2024, was 8.1%, a decrease from 8.8% for the same period in 2023[97] - The company declared a special cash dividend of $1.9 billion, representing $5.00 per outstanding common share, payable on December 4, 2024[106] Risk and Reserves - The reserve for losses and loss adjustment expenses is based on actuarial and statistical projections, reflecting the company's expectations of ultimate settlement costs[196] - The IBNR reserves increased to $13,558 million, up from $10,078 million, marking a 34.7% rise[197] - The additional case reserves in the insurance segment grew to $818 million, compared to $484 million previously, an increase of 69.0%[197] Market Conditions - The company estimates that losses from Hurricane Milton will be in a range of $275 million to $375 million, net of reinsurance and reinstatement premiums, based on industry insured losses of $25 billion to $35 billion[104] - The delinquency rate for the 2024 policy year was 0.16%, indicating a significant improvement compared to previous years[203]

Company Overview - Arch Capital Group Ltd. is an insurance, reinsurance, and mortgage insurance provider established in 1995 and headquartered in Pembroke, Bermuda [9] - The company offers a wide range of products and services, including primary and excess casualty coverages, professional indemnity, workers compensation, and various liability insurance coverages [9] Investment Ratings - Arch Capital Group is currently rated 3 (Hold) on the Zacks Rank, indicating a neutral outlook [10] - The company has a VGM Score of B, suggesting a favorable combination of value, growth, and momentum [10] Financial Metrics - Arch Capital Group has a Value Style Score of B, supported by attractive valuation metrics such as a forward P/E ratio of 10.56, which may appeal to value investors [10] - The Zacks Consensus Estimate for fiscal 2024 earnings has increased by $0.08 to $9.09 per share, with five analysts revising their earnings estimates higher in the last 60 days [10] - The company has demonstrated an average earnings surprise of 17.1%, indicating a history of exceeding earnings expectations [10] Investment Consideration - With a solid Zacks Rank and strong Value and VGM Style Scores, Arch Capital Group is recommended for investors' consideration [11]

Core Viewpoint - Arch Capital Group (NASDAQ: ACGL) has experienced a modest performance over the past year, with a stock gain of only 7%, and a significant decline of over 15% in recent weeks due to concerns regarding losses from Hurricanes Helene and Milton [1] Group 1: Stock Performance - The stock of Arch Capital Group has gained 7% over the past year [1] - Recent weeks have seen a decline of over 15% in the stock price [1] Group 2: External Factors - Concerns about potential losses from Hurricanes Helene and Milton have negatively impacted the stock [1]

Financial Data and Key Metrics Changes - The company reported third quarter after-tax operating income of $1.99 per share, with an annualized operating return on average common equity of 14.8% [16] - Book value per share increased to $57, reflecting an 8.1% increase for the quarter and a 21.4% increase year-to-date [16] - The combined ratio was reported at 86.6%, slightly elevated due to an active catastrophe quarter, with an underlying ex-catastrophe accident year basis ratio of 78.3% [16][18] Business Line Data and Key Metrics Changes - The insurance segment generated $1.8 billion in net premiums and delivered $120 million in underwriting income, with a 20% growth year-over-year driven by the acquisition of MidCorp [11][12] - Excluding MidCorp, insurance growth was in the mid-single digits, with attractive opportunities in casualty programs and the London market specialty business [11] - The reinsurance segment saw net premium growth of over 24% to more than $1.9 billion, with underwriting income of $149 million [12] - The mortgage segment reported $269 million in underwriting income, supported by strong credit conditions and favorable house price appreciation [13] Market Data and Key Metrics Changes - The property and casualty (P&C) environment remains favorable despite increasing competition, with industry catastrophe losses exceeding $100 billion for the third quarter [8][9] - The company noted that rates in the casualty market continue to outpace trends, indicating a hardening market [10] Company Strategy and Development Direction - The core objective remains to be a best-in-class specialty lines insurer, focusing on a diversified mix of businesses and prudent capital management [7] - The company is entering a responsible growth phase in the P&C cycle, emphasizing disciplined underwriting and thoughtful rate collection [14] - The acquisition of MidCorp is expected to enhance capabilities in the middle market, contributing to future growth [11][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the attractiveness of the property market despite increased catastrophe activity, indicating that disciplined underwriters can achieve attractive returns [10][14] - The company is optimistic about market opportunities as it enters a growth phase, with a focus on maintaining underwriting excellence and capital allocation [15][25] Other Important Information - The company incurred $450 million in catastrophe losses during the quarter, primarily from Hurricane Helene and other global events [16][17] - The effective tax rate for the third quarter was 8%, with an annualized effective tax rate expected to remain in the 9% to 11% range for the full year [24] Q&A Session Summary Question: Impact of Allianz deal on underlying loss ratio - The normalized ex-cat accident year loss ratio for the insurance segment was 57.6%, with the MidCorp business contributing a standalone loss ratio of 62% [26] Question: Trends in reinsurance loss ratio - No unusual trends were reported; the trailing 12 months showed consistent performance [27] Question: Capital return timing and strategy - Discussions on capital return are ongoing, with plans to consider options post wind season [28] Question: MidCorp impact on insurance division - The MidCorp acquisition is expected to be breakeven in the first year, with a slight increase in loss ratios anticipated [32] Question: Rate trends in casualty and property lines - Casualty rates are expected to increase, while property rates are stabilizing after recent catastrophes [36][37] Question: Catastrophe loss assumptions for Hurricane Helene - The company estimates industry losses from Hurricane Helene to be between $12 billion and $14 billion [39] Question: CEO change context - The CEO's departure was a personal decision, not performance-related, and the company remains focused on its strategic goals [42] Question: Expectations for January 1 renewal pricing - Pricing is expected to be stable, with potential increases in regions affected by losses [48] Question: Comfort with casualty reserves - The company is comfortable with its casualty reserves, despite some adverse development [49] Question: Growth drivers in primary insurance - Growth in primary insurance was driven by casualty and specialty business, with a focus on profitable opportunities [52] Question: Mortgage insurance growth and delinquency trends - Delinquency rates are trending up due to seasonal factors and the natural lifecycle of refinanced loans [56][57]

Core Insights - Arch Capital Group Ltd. (ACGL) reported third-quarter 2024 operating income of $1.99 per share, exceeding the Zacks Consensus Estimate by 2.6%, although it represented a 13.6% decrease year over year [1] - The results were negatively impacted by lower underwriting income due to higher catastrophic losses from Hurricane Helene, but were partially offset by growth in all lines of business and higher invested assets [1] Financial Performance - Gross premiums written increased by 20.2% year over year to $5.4 billion, while net premiums written rose 20.6% to $4 billion, driven by higher premiums in both Insurance and Reinsurance segments [2] - Pre-tax net investment income surged 48.3% year over year to $399 million, surpassing estimates, attributed to higher interest rates and growth in invested assets [3] - Operating revenues reached $4.4 billion, a 24.6% increase year over year, driven by higher net premiums earned and net investment income, beating the Zacks Consensus Estimate by 8.1% [4] Underwriting Results - Underwriting income decreased by 25.4% year over year to $538 million, with a combined ratio deteriorating by 870 basis points to 86.6 [5] - In the Insurance segment, gross premiums written rose 14.6% to $2.3 billion, while net premiums written increased 19.6% to $1.8 billion [6] - The Reinsurance segment saw gross premiums written improve by 29.2% to $2.8 billion, with net premiums written up 24.5% to $1.9 billion, although underwriting income fell by 51.9% [8] Mortgage Segment - In the Mortgage segment, gross premiums written decreased by 2.3% to $339 million, while net premiums written increased by 4.1% to $282 million [9] - Underwriting income in this segment decreased by 4.6% year over year to $269 million, with a combined ratio deteriorating by 1010 basis points to 14.8 [10] Financial Position - As of September 30, 2024, Arch Capital had cash of $1.03 billion, an 11.8% increase from the end of 2023, while debt remained unchanged at $2.7 billion [11] - The book value per share increased by 21.4% from the end of 2023 to $57, and cash from operations improved by 2.4% year over year to $2 billion [11]

Core Insights - Arch Capital Group reported revenue of $4.38 billion for the quarter ended September 2024, reflecting a year-over-year increase of 24.6% and surpassing the Zacks Consensus Estimate by 8.12% [1] - The company's EPS for the quarter was $1.99, down from $2.31 in the same quarter last year, but above the consensus estimate of $1.94 by 2.58% [1] Financial Performance Metrics - Combined Ratio - Total: 86.6%, better than the average estimate of 87.1% [3] - Loss Ratio - Total: 60.5%, higher than the estimated 58.6% [3] - Expense Ratio - Other Operating Expense Ratio: 8.9%, lower than the average estimate of 9.8% [3] - Combined Ratio - Insurance Segment: 93.1%, compared to the average estimate of 96.4% [3] - Net premiums earned: $3.97 billion, exceeding the estimate of $3.66 billion, with a year-over-year increase of 22.2% [3] - Net investment income: $399 million, surpassing the estimate of $372.52 million, with a year-over-year change of 48.3% [3] - Equity in net income (loss) of investment funds: $171 million, significantly higher than the estimate of $56.80 million, representing a year-over-year change of 189.8% [3] - Other underwriting income: $5 million, above the average estimate of $3.73 million [3] - Net premiums earned - Insurance Segment: $1.77 billion, exceeding the estimate of $1.54 billion, with a year-over-year increase of 25% [3] - Net premiums earned - Reinsurance Segment: $1.89 billion, slightly above the estimate of $1.84 billion, with a year-over-year change of 22.6% [3] - Net premiums earned - Mortgage Segment: $313 million, exceeding the estimate of $279.90 million, with a year-over-year increase of 6.8% [3] - Other income: $8 million, above the estimate of $4.67 million, but reflecting a year-over-year change of -300% [3] Stock Performance - Arch Capital's shares have returned -7.7% over the past month, contrasting with the Zacks S&P 500 composite's +1.8% change [4] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [4]

Core Viewpoint - Arch Capital Group (ACGL) reported quarterly earnings of $1.99 per share, exceeding the Zacks Consensus Estimate of $1.94 per share, but down from $2.31 per share a year ago, indicating a 13.9% year-over-year decline [1] - The company achieved revenues of $4.38 billion for the quarter, surpassing the Zacks Consensus Estimate by 8.12% and showing a significant increase from $3.51 billion year-over-year [2] Group 1: Earnings Performance - Arch Capital's earnings surprise for the quarter was 2.58%, following a previous quarter where it exceeded expectations by 18.43% [1][2] - The company has consistently surpassed consensus EPS estimates over the last four quarters [2] Group 2: Revenue Performance - The reported revenue of $4.38 billion represents a 24.6% increase from the same quarter last year [2] - Arch Capital has topped consensus revenue estimates three times in the last four quarters [2] Group 3: Stock Performance and Outlook - Arch Capital shares have increased approximately 41.1% year-to-date, outperforming the S&P 500's gain of 22.3% [3] - The future stock price movement will largely depend on management's commentary during the earnings call [3][4] Group 4: Earnings Estimates and Industry Outlook - Current consensus EPS estimate for the upcoming quarter is $2.30, with expected revenues of $4.23 billion, and for the current fiscal year, the estimates are $9.12 EPS on $16.05 billion revenues [7] - The Zacks Industry Rank for Insurance - Property and Casualty is in the top 38% of over 250 industries, indicating a favorable outlook for the sector [8]

[I. Financial Highlights](index=3&type=section&id=I.%20Financial%20Highlights) [Financial Highlights](index=3&type=section&id=Financial%20Highlights) The company saw strong nine-month growth in premiums and net income, though Q3 underwriting income declined due to a higher combined ratio Q3 2024 vs. Q3 2023 Performance | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $5,440M | $4,527M | 20.2% | | Net Premiums Earned | $3,970M | $3,248M | 22.2% | | Underwriting Income | $538M | $721M | (25.4)% | | Net Income to Common Shareholders | $978M | $713M | 37.2% | | Diluted EPS | $2.56 | $1.88 | 36.2% | | Combined Ratio | 86.6% | 77.9% | +8.7 pts | Nine Months Ended Sep 30, 2024 vs. 2023 Performance | Metric | Nine Months 2024 | Nine Months 2023 | Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $16,755M | $14,152M | 18.4% | | Net Premiums Earned | $10,957M | $9,096M | 20.5% | | Underwriting Income | $2,036M | $1,897M | 7.3% | | Net Income to Common Shareholders | $3,347M | $2,079M | 61.0% | | Diluted EPS | $8.78 | $5.50 | 59.6% | | Combined Ratio | 81.6% | 79.4% | +2.2 pts | - Net cash provided by operating activities increased by **24.9% to $5.1 billion** for the first nine months of 2024, up from $4.1 billion in the prior-year period[5](index=5&type=chunk) [II. Consolidated Financial Statements](index=4&type=section&id=II.%20Consolidated%20Financial%20Statements) [Consolidated Statements of Income](index=4&type=section&id=a.%20Consolidated%20Statements%20of%20Income) Nine-month revenue and net income grew substantially, driven by higher net premiums earned and net investment income Nine Months Ended September 30 - Income Statement Highlights | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Net Premiums Earned | $10,957M | $9,096M | 20.5% | | Net Investment Income | $1,090M | $710M | 53.5% | | Total Revenues | $12,892M | $9,659M | 33.5% | | Total Expenses | ($9,355M) | ($7,462M) | 25.4% | | Net Income to Common Shareholders | $3,347M | $2,079M | 61.0% | | Diluted EPS | $8.78 | $5.50 | 59.6% | [Consolidated Balance Sheets](index=5&type=section&id=b.%20Consolidated%20Balance%20Sheets) Total assets and shareholders' equity grew significantly as of September 30, 2024, boosting book value per common share Balance Sheet Comparison | Metric | Sep 30, 2024 | Sep 30, 2023 | Change | | :--- | :--- | :--- | :--- | | Total Investments | $41,903M | $31,380M | 33.5% | | Total Assets | $73,656M | $55,227M | 33.4% | | Total Liabilities | $51,382M | $39,986M | 28.5% | | Total Shareholders' Equity | $22,274M | $15,239M | 46.2% | | Book Value per Common Share | $57.00 | $38.62 | 47.6% | [Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=c.%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity increased by $3.9 billion in the first nine months of 2024, primarily driven by net income Shareholders' Equity Roll-Forward (Nine Months Ended Sep 30, 2024) | Item | Amount (in millions) | | :--- | :--- | | Beginning Equity (Dec 31, 2023) | $18,353 | | Net Income | $3,377 | | Change in AOCI | $500 | | Share-based Compensation & Other | $138 | | Share Repurchases | ($40) | | Preferred Dividends | ($30) | | **Ending Equity (Sep 30, 2024)** | **$22,274** | [Consolidated Statements of Cash Flows](index=7&type=section&id=d.%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations increased to $5.1 billion for the first nine months of 2024, reflecting strong business performance Cash Flow Summary (Nine Months Ended Sep 30) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $5,100M | $4,084M | | Net Cash used for Investing Activities | ($4,881M) | ($3,936M) | | Net Cash used for Financing Activities | ($35M) | ($52M) | [III. Segment Information](index=8&type=section&id=III.%20Segment%20Information) [Overview](index=8&type=section&id=a.%20Overview) The company operates through Insurance, Reinsurance, and Mortgage segments, with performance evaluated based on underwriting income - The company's three core operating segments are Insurance, Reinsurance, and Mortgage, which offer specialty commercial products, worldwide reinsurance, and mortgage credit solutions, respectively[11](index=11&type=chunk)[12](index=12&type=chunk)[14](index=14&type=chunk) - Management measures segment performance based on underwriting income, while investment income is managed at the corporate level and not allocated to segments[10](index=10&type=chunk) [Consolidated Segment Results](index=9&type=section&id=b.%20Consolidated%20Results) The Reinsurance segment led in premiums written, while the Mortgage segment generated the highest underwriting income in Q3 2024 Q3 2024 Segment Performance | Segment | Net Premiums Written | Underwriting Income | Combined Ratio | | :--- | :--- | :--- | :--- | | Insurance | $1,820M | $120M | 93.1% | | Reinsurance | $1,945M | $149M | 92.3% | | Mortgage | $282M | $269M | 14.8% | Nine Months 2024 Segment Performance | Segment | Net Premiums Written | Underwriting Income | Combined Ratio | | :--- | :--- | :--- | :--- | | Insurance | $4,920M | $315M | 93.3% | | Reinsurance | $6,158M | $894M | 83.4% | | Mortgage | $835M | $827M | 12.2% | [Insurance Segment Results](index=13&type=section&id=c.%20Insurance%20Segment%20Results) The Insurance segment's net premiums written grew, but its combined ratio increased due to higher catastrophe losses Insurance Segment Key Metrics (Q3 2024 vs. Q3 2023) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Premiums Written | $1,820M | $1,522M | 19.6% | | Underwriting Income | $120M | $129M | (7.0)% | | Combined Ratio | 93.1% | 90.9% | +2.2 pts | - The combined ratio excluding catastrophic activity and prior year development was **88.9% in Q3 2024**, compared to 89.1% in Q3 2023[21](index=21&type=chunk) - North America operations represented **71.5% of the segment's net premiums written** in Q3 2024, with International operations accounting for the remaining 28.5%[23](index=23&type=chunk) [Reinsurance Segment Results](index=15&type=section&id=d.%20Reinsurance%20Segment%20Results) The Reinsurance segment's net premiums written grew strongly, but its combined ratio deteriorated significantly due to catastrophe events Reinsurance Segment Key Metrics (Q3 2024 vs. Q3 2023) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Premiums Written | $1,945M | $1,562M | 24.5% | | Underwriting Income | $149M | $310M | (51.9)% | | Combined Ratio | 92.3% | 80.0% | +12.3 pts | - The Q3 2024 combined ratio was heavily impacted by **19.3 points from current accident year catastrophic events**, compared to a 9.3 point impact in Q3 2023[25](index=25&type=chunk) - By line of business, **'Other specialty' (39.5%)** and **'Property excluding property catastrophe' (34.5%)** were the largest contributors to net premiums written in Q3 2024[26](index=26&type=chunk) [Mortgage Segment Results](index=17&type=section&id=e.%20Mortgage%20Segment%20Results) The Mortgage segment delivered strong underwriting income and a very low combined ratio, benefiting from favorable prior year development Mortgage Segment Key Metrics (Q3 2024 vs. Q3 2023) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Premiums Written | $282M | $271M | 4.1% | | Underwriting Income | $269M | $282M | (4.6)% | | Combined Ratio | 14.8% | 4.7% | +10.1 pts | - The combined ratio excluding prior year development was **37.6% in Q3 2024**, compared to 38.2% in Q3 2023[27](index=27&type=chunk) - U.S. primary mortgage insurance Risk In Force (RIF) was **$76.4 billion** as of September 30, 2024, with a weighted average FICO score of 748 and a weighted average LTV of 93.1%[29](index=29&type=chunk)[31](index=31&type=chunk) - The delinquency rate for insured loans in the U.S. primary mortgage business was **1.96%** at the end of Q3 2024, up from 1.65% at the end of Q3 2023[32](index=32&type=chunk) [Consolidated Underwriting Results](index=22&type=section&id=f.%20Segment%20Consolidated%20Results) The consolidated combined ratio increased significantly in Q3 2024, driven primarily by higher catastrophic event losses Consolidated Underwriting Ratios (Q3 2024 vs. Q3 2023) | Ratio | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Loss Ratio | 60.5% | 50.7% | | Acquisition Expense Ratio | 17.2% | 17.7% | | Other Operating Expense Ratio | 8.9% | 9.5% | | **Combined Ratio** | **86.6%** | **77.9%** | - The combined ratio excluding catastrophic activity and prior year development was **78.3% in Q3 2024**, compared to 77.0% in Q3 2023[36](index=36&type=chunk) [Selected Information on Losses and Loss Adjustment Expenses](index=23&type=section&id=g.%20Selected%20Information%20on%20Losses%20and%20Loss%20Adjustment%20Expenses) Q3 2024 results included $450 million in catastrophe losses, primarily in the Reinsurance segment, partially offset by favorable prior year development Q3 2024 Loss Development & Catastrophes (in millions) | Segment | Net Favorable Prior Year Development | Current Year Catastrophe Losses | | :--- | :--- | :--- | | Insurance | ($12) | $86 | | Reinsurance | ($36) | $364 | | Mortgage | ($71) | N/A | | **Total** | **($119)** | **$450** | - Catastrophic events added **11.3 points** to the consolidated combined ratio in Q3 2024, while favorable prior year development reduced it by **3.0 points**[38](index=38&type=chunk) [IV. Investment Information](index=24&type=section&id=IV.%20Investment%20Information) [Investable Asset Summary and Investment Portfolio Metrics](index=24&type=section&id=a.%20Investable%20Asset%20Summary%20and%20Investment%20Portfolio%20Metrics) Total investable assets reached $42.8 billion, consisting primarily of high-quality fixed maturities with a short effective duration Composition of Investable Assets (Sep 30, 2024) | Asset Class | Amount (in millions) | % of Total | | :--- | :--- | :--- | | Total Fixed Maturities | $29,531 | 69.1% | | Investments using Equity Method | $5,244 | 12.3% | | Total Short-term Investments | $3,402 | 8.0% | | Total Equity Securities | $1,630 | 3.8% | | Other | $3,121 | 7.3% | | **Total Investable Assets** | **$42,751** | **100.0%** | - Key portfolio metrics as of September 30, 2024 include an average effective duration of **2.68 years** and an average S&P/Moody's credit rating of **AA-/Aa3**[40](index=40&type=chunk) [Composition of Net Investment Income, Yield and Total Return](index=25&type=section&id=b.%20Composition%20of%20Net%20Investment%20Income,%20Yield%20and%20Total%20Return) Net investment income increased significantly in Q3 2024, driven by higher income from fixed maturities and a strong total return Net Investment Income (Q3 2024 vs. Q3 2023) | Source | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Fixed Maturities | $340M | $243M | | Short-term Investments | $38M | $19M | | Other | $44M | $27M | | Investment Expenses | ($23M) | ($20M) | | **Net Investment Income** | **$399M** | **$269M** | - The pre-tax investment income yield was **4.40% for Q3 2024**, up from 3.68% in Q3 2023[42](index=42&type=chunk) [Composition of Fixed Maturities](index=26&type=section&id=c.%20Composition%20of%20Fixed%20Maturities) The $29.5 billion fixed maturity portfolio is primarily allocated to corporate bonds and U.S. government securities Fixed Maturity Portfolio by Type (Sep 30, 2024) | Security Type | Fair Value (in millions) | % of Total | | :--- | :--- | :--- | | Corporates | $15,081 | 51.1% | | U.S. Government & Agencies | $5,867 | 19.9% | | Asset-backed Securities | $2,989 | 10.1% | | Non-U.S. Government | $2,861 | 9.7% | | Other | $2,733 | 9.2% | | **Total** | **$29,531** | **100.0%** | [Credit Quality Distribution and Maturity Profile](index=27&type=section&id=d.%20Credit%20Quality%20Distribution%20and%20Maturity%20Profile) The fixed maturity portfolio maintains high credit quality, with a concentration in short-to-medium term maturities - The credit quality of the fixed maturity portfolio is strong, with **77.1% rated 'A' or higher** (including U.S. government/agencies)[45](index=45&type=chunk) - The majority of the portfolio (**55.0%**) has a maturity of one to five years, indicating a relatively low duration risk[45](index=45&type=chunk) [Analysis of Corporate Exposures](index=28&type=section&id=e.%20Analysis%20of%20Corporate%20Exposures) The corporate bond portfolio is concentrated in the Industrials and Financials sectors, with diversified issuer exposure - The corporate bond portfolio is concentrated in two main sectors: **Industrials (54.0%)** and **Financials (34.5%)**[47](index=47&type=chunk) Top 5 Corporate Issuers by Fair Value (Sep 30, 2024) | Issuer | Fair Value (in millions) | % of Investable Assets | | :--- | :--- | :--- | | JPMorgan Chase & Co. | $412 | 1.0% | | Morgan Stanley | $359 | 0.8% | | Bank of America Corporation | $332 | 0.8% | | The Goldman Sachs Group, Inc. | $263 | 0.6% | | Citigroup Inc. | $257 | 0.6% | [Structured Securities](index=29&type=section&id=f.%20Structured%20Securities) The structured securities portfolio grew to $5.4 billion and is primarily composed of highly-rated asset-backed and mortgage-backed securities Structured Securities Composition (Sep 30, 2024) | Security Type | Total Fair Value (in millions) | | :--- | :--- | | Asset-backed securities | $2,989 | | Residential mortgage-backed securities | $1,313 | | Commercial mortgage-backed securities | $1,146 | | **Total** | **$5,448** | [V. Other Information](index=30&type=section&id=V.%20Other) [Comments on Non-GAAP Financial Measures](index=30&type=section&id=a.%20Comments%20on%20Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures like after-tax operating income to provide insight into core business performance - Management uses **after-tax operating income** to evaluate performance, as it excludes items not indicative of the insurance underwriting process[52](index=52&type=chunk) - Other non-GAAP measures include underwriting income and adjusted combined ratios to analyze the performance of the underwriting segments[52](index=52&type=chunk) [Operating Income Reconciliation and Annualized Operating Return on Average Common Equity](index=31&type=section&id=b.%20Operating%20Income%20Reconciliation%20and%20Annualized%20Operating%20Return%20on%20Average%20Common%20Equity) After-tax operating income was $762 million in Q3 2024, resulting in an annualized operating return on average common equity of 14.8% Reconciliation of Net Income to After-tax Operating Income (Q3 2024) | Item | Amount (in millions) | | :--- | :--- | | Net Income to Common Shareholders | $978 | | Less: Net Realized Gains | ($169) | | Less: Equity Method Investment Income | ($171) | | Add: Net Foreign Exchange Losses | $63 | | Add: Transaction Costs | $30 | | Add: Income Tax Impact | $31 | | **After-tax Operating Income** | **$762** | - The annualized operating return on average common equity was **14.8% for Q3 2024**, compared to the annualized net income return of 19.0%[53](index=53&type=chunk) [Operating Income and Effective Tax Rate Calculations](index=32&type=section&id=c.%20Operating%20Income%20and%20Effective%20Tax%20Rate%20Calculations) Pre-tax operating income for Q3 2024 was $839 million after adjusting for non-operating items like realized gains and foreign exchange effects Calculation of Pre-tax Operating Income (Q3 2024) | Item | Amount (in millions) | | :--- | :--- | | Income before income taxes | $1,050 | | Adjustments (Gains, FX, etc.) | ($241) | | Income from operating affiliates | $36 | | **Pre-tax operating income** | **$839** | [Capital Structure and Share Repurchases](index=33&type=section&id=Capital%20Structure%20and%20Share%20Repurchases) The company maintained a strong capital position with a debt-to-total capital ratio of 10.9% and did not repurchase shares in Q3 2024 Capital Structure Summary (Sep 30, 2024) | Component | Amount (in millions) | | :--- | :--- | | Total Debt | $2,727 | | Total Shareholders' Equity | $22,274 | | **Total Capital** | **$25,001** | - Key leverage and value metrics as of September 30, 2024 include a **Debt/Total Capital ratio of 10.9%** and a **Book Value per Common Share of $57.00**[57](index=57&type=chunk) - The company had a **$1.0 billion share repurchase authorization** remaining, effective through December 31, 2024, with no shares repurchased in Q3 2024[58](index=58&type=chunk)

Core Viewpoint - Analysts project Arch Capital Group (ACGL) will report quarterly earnings of $1.98 per share, a decline of 14.3% year over year, with revenues expected to reach $4.04 billion, an increase of 14.9% from the same quarter last year [1] Earnings Estimates - The consensus EPS estimate for the quarter has been adjusted downward by 1% over the past 30 days, indicating a reassessment by covering analysts [2] - Changes in earnings estimates are crucial for predicting investor reactions to the stock [3] Revenue Projections - Consensus estimate for 'Revenues- Net investment income' is $372.52 million, reflecting a change of +38.5% from the prior-year quarter [5] - 'Revenues- Net premiums earned' are forecasted to reach $3.65 billion, indicating a change of +12.3% from the year-ago quarter [5] - 'Revenues- Net premiums earned- Insurance Segment' is expected to be $1.52 billion, a change of +7.6% from the year-ago quarter [5] - 'Revenues- Net premiums earned- Reinsurance Segment' is projected at $1.84 billion, showing a change of +19.5% from the prior-year quarter [6] Loss and Expense Ratios - The 'Loss Ratio - Total' is expected to reach 58.6%, compared to 50.7% from the previous year [6] - The estimated 'Combined Ratio - Total' is 87.0%, up from 77.9% year-over-year [6] - 'Expense Ratio - Other Operating Expense Ratio' is projected at 9.8%, compared to 9.5% last year [7] - 'Expense Ratio - Total Acquisition Expense Ratio' is expected to be 18.8%, up from 17.7% year-over-year [7] - 'Combined Ratio - Mortgage Segment' is projected to reach 25.4%, significantly higher than 4.7% from the previous year [7] Underwriting Ratios - 'Underwriting Expense Ratio - Other Operating Expense Ratio - Mortgage Segment' is likely to be 16.1%, slightly down from 16.2% last year [8] - 'Underwriting Expense Ratio - Total' is expected to be 28.3%, compared to 27.2% from the same quarter last year [8] Market Performance - Shares of Arch Capital have decreased by 7.2% in the past month, contrasting with a +2% move of the Zacks S&P 500 composite [9] - With a Zacks Rank 3 (Hold), ACGL is anticipated to mirror the overall market performance in the near future [9]

Arch Capital Group Ltd. (ACGL) is slated to report third-quarter 2024 earnings on Oct. 30, after market close. The insurer delivered an earnings surprise in each of the last four quarters, the average beat being 28.93%.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.Factors to ConsiderIncreases in most lines of business due in part to new business opportunities and rate changes and growth in existing accounts in the Insurance and Reinsurance segments are likely to have favored net p ...