BRK.B vs. ACGL: Which Insurance Powerhouse Deserves the Spotlight?

Industry Overview - The insurance industry is being shaped by better pricing, growing climate-related risks, and rapid digitalization, with profitability supported by improved pricing despite ongoing catastrophe losses [1] - The Federal Reserve's recent interest rate cut of 25 basis points and indications of two more cuts this year may impact the insurance sector [1] Company Analysis: Berkshire Hathaway Inc. (BRK.B) - Berkshire Hathaway is a diversified conglomerate with over 90 subsidiaries, with insurance being the most significant segment, contributing approximately 25% of total revenues [4] - The company has been rebalancing its investment portfolio, selling stakes in certain companies while increasing investments in Japanese firms [6] - Berkshire's insurance float has expanded from about $114 billion in 2017 to $174 billion by Q2 2025, providing low-cost capital for high-quality investments [7] - The company maintains over $100 billion in cash reserves, minimal debt, and a strong credit profile, reflecting exceptional financial strength [8] - Berkshire's return on equity is 7%, slightly below the industry average of 7.7%, but its shares have gained 9.4% year-to-date, outperforming the industry [9] Company Analysis: Arch Capital Group Limited (ACGL) - Arch Capital is a leading global specialty insurer well-positioned in the property and casualty (P&C) insurance market, benefiting from a hard market with rising premiums [10] - The company has demonstrated a six-year compound annual growth rate (CAGR) of 12.9% in net premiums written, driven by rate increases and strategic investments [12] - Arch Capital's investment income is growing, with 67% of its investments in fixed maturities, providing predictable returns for claims payments [14] - The company has maintained a robust capital position, recently approving a special dividend of $5 per share and increasing its buyback authorization by $2 billion [15] - Arch's return on equity stands at 15.4%, outperforming the industry average, although its shares have lost 0.2% year-to-date [15] Financial Estimates - The Zacks Consensus Estimate for BRK.B's 2025 revenues indicates a 4.8% year-over-year increase, while EPS is expected to decrease by 7.6% [16] - For ACGL, the 2025 revenue estimate suggests a 13.5% year-over-year increase, with EPS expected to decrease by 8.4% [18] Valuation Metrics - Berkshire Hathaway is trading at a price-to-book multiple of 1.60, above its five-year median of 1.42, while ACGL's multiple is at 1.55, below its median of 1.65 [19] Conclusion - Berkshire Hathaway offers dynamism to shareholders, led by Warren Buffett, with a focus on long-term value creation [20] - Arch Capital is positioned for growth through premium increases and strategic acquisitions, with a strong capital and liquidity position [21] - Both companies carry a Zacks Rank 3 (Hold), but BRK.B has an edge in price appreciation over ACGL [22]