Arch Capital Group Ltd. Reports 2024 Third Quarter Results
Arch Capital Group (NASDAQ: ACGL) announced its 2024 third quarter results with a net income of $978 million or $2.56 per share, representing a 19.0% annualized return on average common equity. This is an increase from $713 million or $1.88 per share in the same period last year. However, after-tax operating income decreased to $762 million or $1.99 per share from $876 million or $2.31 per share in Q3 2023.
The company reported pre-tax current accident year catastrophic losses of $450 million due to Hurricane Helene and other global events. Favorable development in prior year loss reserves was $119 million. The combined ratio excluding catastrophic activity and prior year development was 78.3%, up from 77.0% in Q3 2023. Book value per common share rose 8.1% to $57.00 as of September 30, 2024.
Gross premiums written increased by 20.2% to $5.44 billion, and net premiums written rose by 20.6% to $4.05 billion. Despite these gains, underwriting income fell by 25.4% to $538 million. The loss ratio increased to 60.5% from 50.7%.
Arch Capital Group (NASDAQ: ACGL) ha annunciato i risultati del terzo trimestre 2024 con un reddito netto di 978 milioni di dollari, ovvero 2,56 dollari per azione, rappresentando un rendimento annualizzato del 19,0% sul capitale comune medio. Questo segna un aumento rispetto ai 713 milioni di dollari o 1,88 dollari per azione nello stesso periodo dell'anno scorso. Tuttavia, il reddito operativo dopo le tasse è diminuito a 762 milioni di dollari o 1,99 dollari per azione, rispetto agli 876 milioni di dollari o 2,31 dollari per azione del terzo trimestre 2023.
L'azienda ha riportato perdite catastrofiche per l'anno corrente prima delle tasse di 450 milioni di dollari a causa dell'uragano Helene e di altri eventi globali. Lo sviluppo favorevole nei fondi di perdita dell'anno precedente è stato di 119 milioni di dollari. Il rapporto combinato, escludendo l'attività catastrofica e lo sviluppo dell'anno precedente, è stato del 78,3%, in aumento rispetto al 77,0% del terzo trimestre 2023. Il valore contabile per azione comune è aumentato dell'8,1% a 57,00 dollari al 30 settembre 2024.
I premi lordi scritti sono aumentati del 20,2% a 5,44 miliardi di dollari, e i premi netti scritti sono aumentati del 20,6% a 4,05 miliardi di dollari. Nonostante questi guadagni, il reddito da sottoscrizione è diminuito del 25,4% a 538 milioni di dollari. Il rapporto di perdita è aumentato al 60,5% dal 50,7%.
Arch Capital Group (NASDAQ: ACGL) anunció sus resultados del tercer trimestre de 2024 con un ingreso neto de 978 millones de dólares o 2,56 dólares por acción, lo que representa un retorno anualizado del 19,0% sobre el capital común promedio. Esto es un aumento respecto a los 713 millones de dólares o 1,88 dólares por acción en el mismo período del año pasado. Sin embargo, el ingreso operativo después de impuestos disminuyó a 762 millones de dólares o 1,99 dólares por acción desde los 876 millones de dólares o 2,31 dólares por acción en el tercer trimestre de 2023.
La compañía reportó pérdidas catastróficas por el año actual antes de impuestos de 450 millones de dólares debido al huracán Helene y otros eventos globales. El desarrollo favorable en las reservas de pérdidas del año anterior fue de 119 millones de dólares. El ratio combinado excluyendo la actividad catastrófica y el desarrollo del año anterior fue del 78,3%, en comparación con el 77,0% en el tercer trimestre de 2023. El valor libro por acción común aumentó un 8,1% a 57,00 dólares al 30 de septiembre de 2024.
Las primas brutas suscritas aumentaron un 20,2% a 5,44 mil millones de dólares, y las primas netas suscritas subieron un 20,6% a 4,05 mil millones de dólares. A pesar de estas ganancias, el ingreso por suscripción cayó un 25,4% a 538 millones de dólares. La razón de pérdida aumentó al 60,5% desde el 50,7%.
Arch Capital Group (NASDAQ: ACGL)는 2024년 3분기 결과를 발표하며 순이익이 9억 7800만 달러, 주당 2.56달러로, 평균 보통주 자본에 대한 연환산 수익률이 19.0%에 달한다고 밝혔습니다. 이는 지난해 같은 기간의 7억 1300만 달러 또는 주당 1.88달러에서 증가한 수치입니다. 그러나 세후 운영 소득은 2023년 3분기의 8억 7600만 달러 또는 주당 2.31달러에서 7억 6200만 달러 또는 주당 1.99달러로 감소했습니다.
회사는 허리케인 헬렌 및 기타 글로벌 사건들로 인한 올해의 재해 발생 전에 세금 차감 전 대규모 손실이 4억 5000만 달러에 달했다고 보고했습니다. 이전 연도의 손실 준비금에서의 유리한 개발은 1억 1900만 달러였습니다. 재난 활동 및 이전 연도의 개발을 제외한 총 손해비율은 78.3%로, 2023년 3분기의 77.0%에서 상승했습니다. 2024년 9월 30일 기준, 보통주당 장부 가치는 8.1% 상승한 57.00달러로 집계되었습니다.
총 발행 보험료는 20.2% 증가하여 54억 4000만 달러에 달했으며, 순 발행 보험료는 20.6% 증가하여 40억 5000만 달러에 도달했습니다. 이러한 증가에도 불구하고, 언더라이팅 소득은 25.4% 감소하여 5억 3800만 달러로 떨어졌습니다. 손실 비율은 50.7%에서 60.5%로 증가했습니다.
Arch Capital Group (NASDAQ: ACGL) a annoncé ses résultats pour le troisième trimestre 2024, avec un revenu net de 978 millions de dollars ou 2,56 dollars par action, représentant un rendement annualisé de 19,0 % sur les capitaux propres moyens. Cela représente une augmentation par rapport aux 713 millions de dollars ou 1,88 dollar par action durant la même période l'année dernière. Cependant, le revenu opérationnel après impôts a diminué à 762 millions de dollars ou 1,99 dollar par action, contre 876 millions de dollars ou 2,31 dollars par action au troisième trimestre 2023.
La société a signalé des pertes catastrophiques pour l'année d'assurance en cours avant impôts de 450 millions de dollars en raison de l'ouragan Helene et d'autres événements mondiaux. Le développement favorable des réserves de pertes de l'année précédente était de 119 millions de dollars. Le ratio combiné hors activités catastrophiques et ajustements de l'année précédente était de 78,3 %, en hausse par rapport à 77,0 % au troisième trimestre 2023. La valeur comptable par action ordinaire a augmenté de 8,1 % pour atteindre 57,00 dollars au 30 septembre 2024.
Les primes brutes émises ont augmenté de 20,2 % pour s'établir à 5,44 milliards de dollars, et les primes nettes émises ont progressé de 20,6 % à 4,05 milliards de dollars. Malgré ces gains, le revenu de souscription a chuté de 25,4 % à 538 millions de dollars. Le ratio de perte a augmenté de 50,7 % à 60,5 %.
Arch Capital Group (NASDAQ: ACGL) gab seine Ergebnisse für das dritte Quartal 2024 bekannt, mit einem Nettogewinn von 978 Millionen US-Dollar oder 2,56 US-Dollar pro Aktie, was einer annualisierten Rendite von 19,0 % auf das durchschnittliche Stammkapital entspricht. Dies ist ein Anstieg von 713 Millionen US-Dollar oder 1,88 US-Dollar pro Aktie im gleichen Zeitraum des Vorjahres. Allerdings fiel das Betriebsergebnis nach Steuern auf 762 Millionen US-Dollar oder 1,99 US-Dollar pro Aktie, nach 876 Millionen US-Dollar oder 2,31 US-Dollar im dritten Quartal 2023.
Das Unternehmen berichtete von Katalyseschäden des laufenden Versicherungsjahres von 450 Millionen US-Dollar vor Steuern, bedingt durch den Hurrikan Helene und andere globale Ereignisse. Die positive Entwicklung der Verlustrückstellungen aus dem Vorjahr betrug 119 Millionen US-Dollar. Die kombinierte Quote ohne katastrophale Ereignisse und Rückstellungen aus dem Vorjahr lag bei 78,3 %, im Vergleich zu 77,0 % im dritten Quartal 2023. Der Buchwert pro Stammaktie stieg um 8,1 % auf 57,00 US-Dollar zum 30. September 2024.
Die Brutto-Sammelprämien stiegen um 20,2 % auf 5,44 Milliarden US-Dollar, und die Netto-Sammelprämien stiegen um 20,6 % auf 4,05 Milliarden US-Dollar. Trotz dieser Gewinne fiel das Underwriting-Einkommen um 25,4 % auf 538 Millionen US-Dollar. Die Verlustquote erhöhte sich von 50,7 % auf 60,5 %.
- Net income increased to $978 million from $713 million.
- Book value per common share increased by 8.1% to $57.00.
- Gross premiums written rose by 20.2% to $5.44 billion.
- Net premiums written increased by 20.6% to $4.05 billion.
- After-tax operating income decreased to $762 million from $876 million.
- Pre-tax catastrophic losses amounted to $450 million.
- Underwriting income fell by 25.4% to $538 million.
- Loss ratio increased to 60.5% from 50.7%.
Insights
Arch Capital Group's Q3 2024 results demonstrate robust performance with
The acquisition of Allianz's MidCorp and Entertainment businesses is already showing positive integration, contributing to premium growth. The company's investment portfolio performed exceptionally well, with pre-tax investment income reaching
Notable concerns include
The insurance segment shows resilience with
The MCE Acquisition is already yielding operational benefits, lowering the underwriting expense ratio by approximately
Book value per share increased
PEMBROKE,
-
Net income available to Arch common shareholders of
$978 million $2.56 19.0% annualized net income return on average common equity, compared to net income available to Arch common shareholders of$713 million $1.88 -
After-tax operating income available to Arch common shareholders(1) of
$762 million $1.99 14.8% annualized operating return on average common equity(1), compared to$876 million $2.31 -
Pre-tax current accident year catastrophic losses for the Company’s insurance and reinsurance segments, net of reinsurance and reinstatement premiums, of
$450 million -
Favorable development in prior year loss reserves, net of related adjustments, of
$119 million -
Combined ratio excluding catastrophic activity and prior year development(1) of
78.3% , compared to77.0% for the 2023 third quarter. -
Book value per common share of
$57.00 8.1% increase from June 30, 2024.
Nicolas Papadopoulo, Chief Executive Officer of ACGL commented: “Our third quarter results demonstrate the value of our diversified platform with excellent bottom-line contributions from all our units. Arch’s culture of adapting to evolving market conditions while maintaining underwriting discipline remains a key element of our long-term success.”
All earnings per share amounts discussed in this release are on a diluted basis. The following table summarizes the Company’s underwriting results:
( |
|
Three Months Ended September 30, |
||||||
|
|
2024 |
|
2023 |
|
% Change |
||
Gross premiums written |
|
$ |
5,440 |
|
$ |
4,527 |
|
20.2 |
Net premiums written |
|
|
4,047 |
|
|
3,355 |
|
20.6 |
Net premiums earned |
|
|
3,970 |
|
|
3,248 |
|
22.2 |
Underwriting income |
|
|
538 |
|
|
721 |
|
(25.4) |
Underwriting Ratios |
|
|
|
|
|
% Point Change |
||
Loss ratio |
|
|
|
|
|
|
|
9.8 |
Underwriting expense ratio |
|
|
|
|
|
|
|
(1.1) |
Combined ratio |
|
|
|
|
|
|
|
8.7 |
|
|
|
|
|
|
|
||
Combined ratio excluding catastrophic activity and prior year development (1) |
|
|
|
|
|
|
|
1.3 |
(1) See ‘Comments on Non-GAAP Financial Measures’ for further details. |
||||||||
The following table summarizes the Company’s consolidated financial data, including a reconciliation of net income or loss available to Arch common shareholders to after-tax operating income or loss available to Arch common shareholders and related diluted per share results (see ‘Comments on Non-GAAP Financial Measures’ for further details):
( |
Three Months Ended |
||||
|
September 30, |
||||
|
2024 |
|
2023 |
||
Net income available to Arch common shareholders |
$ |
978 |
|
$ |
713 |
Net realized (gains) losses (1) |
|
(169) |
|
|
248 |
Equity in net (income) loss of investment funds accounted for using the equity method |
|
(171) |
|
|
(59) |
Net foreign exchange (gains) losses |
|
63 |
|
|
(22) |
Transaction costs and other |
|
30 |
|
|
1 |
Income tax expense (benefit) (2) |
|
31 |
|
|
(5) |
After-tax operating income available to Arch common shareholders |
$ |
762 |
|
$ |
876 |
|
|
|
|
||
Diluted per common share results: |
|
|
|
||
Net income available to Arch common shareholders |
$ |
2.56 |
|
$ |
1.88 |
Net realized (gains) losses (1) |
|
(0.44) |
|
|
0.65 |
Equity in net (income) loss of investment funds accounted for using the equity method |
|
(0.45) |
|
|
(0.16) |
Net foreign exchange (gains) losses |
|
0.16 |
|
|
(0.05) |
Transaction costs and other |
|
0.08 |
|
|
0.00 |
Income tax expense (benefit) (2) |
|
0.08 |
|
|
(0.01) |
After-tax operating income available to Arch common shareholders |
$ |
1.99 |
|
$ |
2.31 |
|
|
|
|
||
Weighted average common shares and common share equivalents outstanding — diluted |
|
382.3 |
|
|
379.4 |
|
|
|
|
||
Beginning common shareholders’ equity |
$ |
19,835 |
|
$ |
13,811 |
Ending common shareholders’ equity |
|
21,444 |
|
|
14,409 |
Average common shareholders’ equity |
$ |
20,640 |
|
$ |
14,110 |
|
|
|
|
||
Annualized net income return on average common equity |
|
|
|
|
|
Annualized operating return on average common equity |
|
|
|
|
|
(1) |
Net realized gains or losses include realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains and losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains and losses realized from the acquisition or disposition of subsidiaries. |
|
(2) |
Income tax expense (benefit) on net realized gains or losses, equity in net income (loss) of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction. |
Segment Information
The following section provides analysis on the Company’s 2024 third quarter performance by reportable segments. For additional details regarding the Company’s reportable segments, please refer to the Company’s Financial Supplement dated September 30, 2024. The Company’s segment information includes the use of underwriting income (loss) and a combined ratio excluding catastrophic activity and prior year development (see ‘Comments on Non-GAAP Financial Measures’ for further details).
Insurance Segment
|
Three Months Ended September 30, |
||||||
( |
2024 |
|
2023 |
|
% Change |
||
|
|
|
|
|
|
||
Gross premiums written |
$ |
2,341 |
|
$ |
2,043 |
|
14.6 |
Net premiums written |
|
1,820 |
|
|
1,522 |
|
19.6 |
Net premiums earned |
|
1,765 |
|
|
1,412 |
|
25.0 |
|
|
|
|
|
|
||
Underwriting income |
$ |
120 |
|
$ |
129 |
|
(7.0) |
|
|
|
|
|
|
||
Underwriting Ratios |
|
|
|
|
% Point Change |
||
Loss ratio |
|
|
|
|
|
|
4.1 |
Underwriting expense ratio |
|
|
|
|
|
|
(1.9) |
Combined ratio |
|
|
|
|
|
|
2.2 |
|
|
|
|
|
|
||
Catastrophic activity and prior year development: |
|
|
|
|
|
||
Current accident year catastrophic events, net of reinsurance and reinstatement premiums |
|
|
|
|
|
|
2.3 |
Net (favorable) adverse development in prior year loss reserves, net of related adjustments |
|
(0.7)% |
|
|
(0.8)% |
|
0.1 |
Combined ratio excluding catastrophic activity and prior year development |
|
|
|
|
|
|
(0.2) |
On August 1, 2024, the insurance segment completed the acquisition of the
Gross premiums written by the insurance segment in the 2024 third quarter were
The 2024 third quarter loss ratio reflected 4.9 points of current year catastrophic activity, primarily related to Hurricane Helene, compared to 2.6 points of catastrophic activity in the 2023 third quarter. Estimated net favorable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 0.9 points in the 2024 third quarter, compared to 0.7 points in the 2023 third quarter.
The underwriting expense ratio was
Reinsurance Segment
|
Three Months Ended September 30, |
||||||
( |
2024 |
|
2023 |
|
% Change |
||
|
|
|
|
|
|
||
Gross premiums written |
$ |
2,763 |
|
$ |
2,138 |
|
29.2 |
Net premiums written |
|
1,945 |
|
|
1,562 |
|
24.5 |
Net premiums earned |
|
1,892 |
|
|
1,543 |
|
22.6 |
Other underwriting income |
|
2 |
|
|
2 |
|
— |
|
|
|
|
|
|
||
Underwriting income |
$ |
149 |
|
$ |
310 |
|
(51.9) |
|
|
|
|
|
|
||
Underwriting Ratios |
|
|
|
|
% Point Change |
||
Loss ratio |
|
|
|
|
|
|
13.2 |
Underwriting expense ratio |
|
|
|
|
|
|
(0.9) |
Combined ratio |
|
|
|
|
|
|
12.3 |
|
|
|
|
|
|
||
Catastrophic activity and prior year development: |
|
|
|
|
|
||
Current accident year catastrophic events, net of reinsurance and reinstatement premiums |
|
|
|
|
|
|
10.0 |
Net (favorable) adverse development in prior year loss reserves, net of related adjustments |
|
(1.9)% |
|
|
(2.8)% |
|
0.9 |
Combined ratio excluding catastrophic activity and prior year development |
|
|
|
|
|
|
1.4 |
Gross premiums written by the reinsurance segment in the 2024 third quarter were
The 2024 third quarter loss ratio reflected 21.3 points of current year catastrophic activity, related to Hurricane Helene and a series of other global events, compared to 9.7 points of catastrophic activity in the 2023 third quarter. Estimated net favorable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 2.2 points in the 2024 third quarter, compared to 2.8 points in the 2023 third quarter. The balance of the change in the loss ratio resulted, in part, from the impact of rate increases, higher level of attritional losses and changes in the mix of business.
The underwriting expense ratio was
Mortgage Segment
|
Three Months Ended September 30, |
||||||
( |
2024 |
|
2023 |
|
% Change |
||
|
|
|
|
|
|
||
Gross premiums written |
$ |
339 |
|
$ |
347 |
|
(2.3) |
Net premiums written |
|
282 |
|
|
271 |
|
4.1 |
Net premiums earned |
|
313 |
|
|
293 |
|
6.8 |
Other underwriting income |
|
3 |
|
|
3 |
|
— |
|
|
|
|
|
|
||
Underwriting income |
$ |
269 |
|
$ |
282 |
|
(4.6) |
|
|
|
|
|
|
||
Underwriting Ratios |
|
|
|
|
% Point Change |
||
Loss ratio |
|
(0.4)% |
|
|
(12.1)% |
|
11.7 |
Underwriting expense ratio |
|
|
|
|
|
|
(1.6) |
Combined ratio |
|
|
|
|
|
|
10.1 |
|
|
|
|
|
|
||
Prior year development: |
|
|
|
|
|
||
Net (favorable) adverse development in prior year loss reserves, net of related adjustments |
|
(22.8)% |
|
|
(33.5)% |
|
10.7 |
Combined ratio excluding prior year development |
|
|
|
|
|
|
(0.6) |
Gross premiums written by the mortgage segment in the 2024 third quarter were
Estimated net favorable development of prior year loss reserves, before related adjustments, decreased the loss ratio by 20.5 points, compared to 31.4 points in the 2023 third quarter. Such amounts were primarily related to better than expected cure rates. The 2024 third quarter loss ratio, excluding net favorable development, was slightly higher than in the 2023 third quarter, primarily due to higher new delinquencies in the period.
The underwriting expense ratio was
Corporate
The Company’s results include net investment income, net realized gains or losses (which includes realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains and losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains and losses realized from the acquisition or disposition of subsidiaries), equity in net income or loss of investment funds accounted for using the equity method, other income (loss), corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, net foreign exchange gains or losses, income tax items, income or loss from operating affiliates and items related to the Company’s non-cumulative preferred shares.
Investment returns were as follows:
( |
|
Three Months Ended |
|||||||
|
|
September 30, |
|
June 30, |
|
September 30, |
|||
|
|
2024 |
|
2024 |
|
2023 |
|||
Pre-tax net investment income |
|
$ |
399 |
|
$ |
364 |
|
$ |
269 |
Per share |
|
$ |
1.04 |
|
$ |
0.95 |
|
$ |
0.71 |
|
|
|
|
|
|
|
|||
Equity in net income (loss) of investment funds accounted for using the equity method |
|
$ |
171 |
|
$ |
167 |
|
$ |
59 |
Per share |
|
$ |
0.45 |
|
$ |
0.44 |
|
$ |
0.16 |
|
|
|
|
|
|
|
|||
Pre-tax investment income yield, at amortized cost (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total return on investments (2) |
|
|
|
|
|
|
|
|
(0.40)% |
(1) |
Presented on an annualized basis and excluding the impact of investments for which returns are not included within investment income, such as investments accounted for using the equity method and certain equities. |
|
(2) |
See ‘Comments on Non-GAAP Financial Measures’ for further details. |
The growth in net investment income in the 2024 third quarter primarily reflected the effects of sustained higher interest rates available in the market, along with growth in invested assets due in part to strong operating cash flows and inflows related to the MCE Acquisition. Net realized gains were
Amortization of intangible assets for the 2024 third quarter was
Transaction costs and other were
On a pre-tax basis, net foreign exchange losses for the 2024 third quarter were
The Company’s effective tax rate on income before income taxes (based on the Company’s estimated annual effective tax rate) was
Income from operating affiliates for the 2024 third quarter was
Conference Call
The Company will hold a conference call for investors and analysts at 11:00 a.m. Eastern Time on October 31, 2024. A live webcast of this call will be available via the Investors section of the Company’s website at http://www.archgroup.com/investors. A recording of the webcast will be available in the Investors section of the Company’s website approximately two hours after the event concludes and will be archived on the site for one year.
Please refer to the Company’s Financial Supplement dated September 30, 2024, which is available via the Investors section of the Company’s website at http://www.archgroup.com/investors. The Financial Supplement provides additional detail regarding the financial performance of the Company. From time to time, the Company posts additional financial information and presentations to its website, including information with respect to its subsidiaries. Investors and other recipients of this information are encouraged to check the Company’s website regularly for additional information regarding the Company.
Arch Capital Group Ltd., is a publicly listed
Comments on Non-GAAP Financial Measures
Throughout this release, the Company presents its operations in the way it believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use the Company’s financial information in evaluating the performance of the Company and that investors and such other persons benefit from having a consistent basis for comparison between quarters and for comparison with other companies within the industry. These measures may not, however, be comparable to similarly titled measures used by companies outside of the insurance industry. Investors are cautioned not to place undue reliance on these non-GAAP financial measures in assessing the Company’s overall financial performance.
This presentation includes the use of “after-tax operating income or loss available to Arch common shareholders,” which is defined as net income available to Arch common shareholders, excluding net realized gains or losses (which includes realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains and losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains and losses realized from the acquisition or disposition of subsidiaries), equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other, net of income taxes and the use of annualized operating return on average common equity. The presentation of after-tax operating income available to Arch common shareholders and annualized operating return on average common equity are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to net income available to Arch common shareholders and annualized net income return on average common equity (the most directly comparable GAAP financial measures) in accordance with Regulation G is included on page 2 of this release.
The Company believes that net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other, in any particular period are not indicative of the performance of, or trends in, the Company’s business performance. Although net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of the Company’s operations, the decision to realize these items are independent of the insurance underwriting process and result, in large part, from general economic and financial market conditions. Furthermore, certain users of the Company’s financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. In addition, changes in the allowance for credit losses and net impairment losses recognized in earnings on the Company’s investments represent other-than-temporary declines in expected recovery values on securities without actual realization.
The use of the equity method on certain of the Company’s investments in certain funds that invest in fixed maturity securities is driven by the ownership structure of such funds (either limited partnerships or limited liability companies). In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the fair value of the underlying securities in the funds). This method of accounting is different from the way the Company accounts for its other fixed maturity securities and the timing of the recognition of equity in net income or loss of investment funds accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments.
Transaction costs and other include integration, advisory, financing, legal, severance, incentive compensation and all other costs directly related to acquisitions. The Company believes that transaction costs and other, due to their non-recurring nature, are not indicative of the performance of, or trends in, the Company’s business performance.
In the 2023 fourth quarter, the Company established a net deferred tax benefit of
The Company believes that showing net income available to Arch common shareholders exclusive of the items referred to above reflects the underlying fundamentals of the Company’s business since the Company evaluates the performance of and manages its business to produce an underwriting profit. In addition to presenting net income available to Arch common shareholders, the Company believes that this presentation enables investors and other users of the Company’s financial information to analyze the Company’s performance in a manner similar to how the Company’s management analyzes performance. The Company also believes that this measure follows industry practice and, therefore, allows the users of the Company’s financial information to compare the Company’s performance with its industry peer group. The Company believes that the equity analysts and certain rating agencies that follow the Company and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.
The Company’s segment information includes the presentation of consolidated underwriting income or loss and a subtotal of underwriting income or loss. Such measures represent the pre-tax profitability of its underwriting operations and include net premiums earned plus other underwriting income, less losses and loss adjustment expenses, acquisition expenses and other operating expenses. Other operating expenses include those operating expenses that are incremental and/or directly attributable to the Company’s individual underwriting operations. Underwriting income or loss does not include certain income and expense items which are included in corporate. While these measures are presented in the Segment Information footnote to the Company’s Consolidated Financial Statements, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis. The reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis, in accordance with Regulation G, is shown on the following pages.
Management measures segment performance for its three underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment and, accordingly, investment income, income from operating affiliates and other items are not allocated to each underwriting segment.
In addition, the Company’s segment information includes the use of a combined ratio excluding catastrophic activity and prior year development, for the insurance and reinsurance segments, and a combined ratio excluding prior year development, for the mortgage segment. These ratios are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to the combined ratio (the most directly comparable GAAP financial measure) in accordance with Regulation G are shown on the individual segment pages. The Company’s management utilizes the adjusted combined ratios excluding current accident year catastrophic events and favorable or adverse development in prior year loss reserves in its analysis of the underwriting performance of each of its underwriting segments.
Total return on investments includes investment income, equity in net income or loss of investment funds accounted for using the equity method, net realized gains and losses (excluding changes in the allowance for credit losses on non-investment related financial assets) and the change in unrealized gains and losses generated by Arch’s investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses and reflects the effect of financial market conditions along with foreign currency fluctuations. Management uses total return on investments as a key measure of the return generated to Arch common shareholders, and compares the return generated by the Company’s investment portfolio against benchmark returns during the periods presented.
The following tables summarize the Company’s results by segment for the 2024 third quarter and 2023 third quarter and a reconciliation of underwriting income or loss to income or loss before income taxes and net income or loss available to Arch common shareholders:
( |
|
Three Months Ended |
||||||||||
|
|
September 30, 2024 |
||||||||||
|
|
Insurance |
|
Reinsurance |
|
Mortgage |
|
Total |
||||
Gross premiums written (1) |
|
$ |
2,341 |
|
$ |
2,763 |
|
$ |
339 |
|
$ |
5,440 |
Premiums ceded (1) |
|
|
(521) |
|
|
(818) |
|
|
(57) |
|
|
(1,393) |
Net premiums written |
|
|
1,820 |
|
|
1,945 |
|
|
282 |
|
|
4,047 |
Change in unearned premiums |
|
|
(55) |
|
|
(53) |
|
|
31 |
|
|
(77) |
Net premiums earned |
|
|
1,765 |
|
|
1,892 |
|
|
313 |
|
|
3,970 |
Other underwriting income (loss) |
|
|
— |
|
|
2 |
|
|
3 |
|
|
5 |
Losses and loss adjustment expenses |
|
|
(1,087) |
|
|
(1,317) |
|
|
1 |
|
|
(2,403) |
Acquisition expenses |
|
|
(308) |
|
|
(374) |
|
|
1 |
|
|
(681) |
Other operating expenses |
|
|
(250) |
|
|
(54) |
|
|
(49) |
|
|
(353) |
Underwriting income (loss) |
|
$ |
120 |
|
$ |
149 |
|
$ |
269 |
|
|
538 |
|
|
|
|
|
|
|
|
|
||||
Net investment income |
|
|
|
|
|
|
|
|
399 |
|||
Net realized gains (losses) |
|
|
|
|
|
|
|
|
169 |
|||
Equity in net income (loss) of investment funds accounted for using the equity method |
|
|
|
|
|
|
|
|
171 |
|||
Other income (loss) |
|
|
|
|
|
|
|
|
8 |
|||
Corporate expenses (2) |
|
|
|
|
|
|
|
|
(19) |
|||
Transaction costs and other (2) |
|
|
|
|
|
|
|
|
(30) |
|||
Amortization of intangible assets |
|
|
|
|
|
|
|
|
(88) |
|||
Interest expense |
|
|
|
|
|
|
|
|
(35) |
|||
Net foreign exchange gains (losses) |
|
|
|
|
|
|
|
|
(63) |
|||
Income (loss) before income taxes and income (loss) from operating affiliates |
|
|
|
|
|
|
|
|
1,050 |
|||
Income tax benefit (expense) |
|
|
|
|
|
|
|
|
(98) |
|||
Income (loss) from operating affiliates |
|
|
|
|
|
|
|
|
36 |
|||
Net income (loss) available to Arch |
|
|
|
|
|
|
|
|
988 |
|||
Preferred dividends |
|
|
|
|
|
|
|
|
(10) |
|||
Net income (loss) available to Arch common shareholders |
|
|
|
|
|
|
|
$ |
978 |
|||
|
|
|
|
|
|
|
|
|
||||
Underwriting Ratios |
|
|
|
|
|
|
|
|
||||
Loss ratio |
|
|
|
|
|
|
|
|
(0.4)% |
|
|
|
Acquisition expense ratio |
|
|
|
|
|
|
|
|
(0.4)% |
|
|
|
Other operating expense ratio |
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net premiums written to gross premiums written |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Certain assumed and ceded amounts related to intersegment transactions are included in individual segment results. Accordingly, the sum of such transactions for each segment does not agree to the total due to eliminations. |
|
(2) |
Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘Transaction costs and other.’ See ‘Comments on Non-GAAP Financial Measures’ for a further discussion of such items. |
( |
|
Three Months Ended |
||||||||||
|
|
September 30, 2023 |
||||||||||
|
|
Insurance |
|
Reinsurance |
|
Mortgage |
|
Total |
||||
Gross premiums written (1) |
|
$ |
2,043 |
|
$ |
2,138 |
|
$ |
347 |
|
$ |
4,527 |
Premiums ceded (1) |
|
|
(521) |
|
|
(576) |
|
|
(76) |
|
|
(1,172) |
Net premiums written |
|
|
1,522 |
|
|
1,562 |
|
|
271 |
|
|
3,355 |
Change in unearned premiums |
|
|
(110) |
|
|
(19) |
|
|
22 |
|
|
(107) |
Net premiums earned |
|
|
1,412 |
|
|
1,543 |
|
|
293 |
|
|
3,248 |
Other underwriting income (loss) |
|
|
— |
|
|
2 |
|
|
3 |
|
|
5 |
Losses and loss adjustment expenses |
|
|
(812) |
|
|
(870) |
|
|
35 |
|
|
(1,647) |
Acquisition expenses |
|
|
(269) |
|
|
(304) |
|
|
(2) |
|
|
(575) |
Other operating expenses |
|
|
(202) |
|
|
(61) |
|
|
(47) |
|
|
(310) |
Underwriting income (loss) |
|
$ |
129 |
|
$ |
310 |
|
$ |
282 |
|
|
721 |
|
|
|
|
|
|
|
|
|
||||
Net investment income |
|
|
|
|
|
|
|
|
269 |
|||
Net realized gains (losses) |
|
|
|
|
|
|
|
|
(248) |
|||
Equity in net income (loss) of investment funds accounted for using the equity method |
|
|
|
|
|
|
|
|
59 |
|||
Other income (loss) |
|
|
|
|
|
|
|
|
(4) |
|||
Corporate expenses (2) |
|
|
|
|
|
|
|
|
(20) |
|||
Transaction costs and other (2) |
|
|
|
|
|
|
|
|
— |
|||
Amortization of intangible assets |
|
|
|
|
|
|
|
|
(24) |
|||
Interest expense |
|
|
|
|
|
|
|
|
(34) |
|||
Net foreign exchange gains (losses) |
|
|
|
|
|
|
|
|
22 |
|||
Income (loss) before income taxes and income (loss) from operating affiliates |
|
|
|
|
|
|
|
|
741 |
|||
Income tax benefit (expense) |
|
|
|
|
|
|
|
|
(72) |
|||
Income (loss) from operating affiliates |
|
|
|
|
|
|
|
|
54 |
|||
Net income (loss) available to Arch |
|
|
|
|
|
|
|
|
723 |
|||
Preferred dividends |
|
|
|
|
|
|
|
|
(10) |
|||
Net income (loss) available to Arch common shareholders |
|
|
|
|
|
|
|
$ |
713 |
|||
|
|
|
|
|
|
|
|
|
||||
Underwriting Ratios |
|
|
|
|
|
|
|
|
||||
Loss ratio |
|
|
|
|
|
|
|
|
(12.1)% |
|
|
|
Acquisition expense ratio |
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expense ratio |
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net premiums written to gross premiums written |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Certain assumed and ceded amounts related to intersegment transactions are included in individual segment results. Accordingly, the sum of such transactions for each segment does not agree to the total due to eliminations. |
|
(2) |
Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘Transaction costs and other.’ See ‘Comments on Non-GAAP Financial Measures’ for a further discussion of such items. |
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides a “safe harbor” for forward-looking statements. This release or any other written or oral statements made by or on behalf of the Company may include forward-looking statements, which reflect the Company’s current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this release are forward-looking statements. Forward-looking statements, for purposes of the PSLRA or otherwise, can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” and similar statements of a future or forward-looking nature or their negative or variations or similar terminology.
Forward-looking statements involve the Company’s current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed below and elsewhere in this release and in the Company’s periodic reports filed with the Securities and Exchange Commission (the “SEC”), and include:
- the Company’s ability to successfully implement its business strategy during “soft” as well as “hard” markets;
- acceptance of the Company’s business strategy, security and financial condition by rating agencies and regulators, as well as by brokers and its insureds and reinsureds;
- the Company’s ability to consummate acquisitions and integrate any businesses it has acquired or may acquire into its existing operations;
- the Company’s ability to maintain or improve its ratings, which may be affected by its ability to raise additional equity or debt financings, by ratings agencies’ existing or new policies and practices, as well as other factors described herein;
- general economic and market conditions (including inflation, interest rates, unemployment, housing prices, foreign currency exchange rates, prevailing credit terms and the depth and duration of a recession, including those resulting from COVID-19) and conditions specific to the reinsurance and insurance markets in which the Company operates;
- competition, including increased competition, on the basis of pricing, capacity (including alternative sources of capital), coverage terms or other factors;
- developments in the world’s financial and capital markets and the Company’s access to such markets;
- the Company’s ability to successfully enhance, integrate and maintain operating procedures (including information technology) to effectively support its current and new business;
- the loss and addition of key personnel;
- material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;
- accuracy of those estimates and judgments utilized in the preparation of the Company’s financial statements, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment valuations, intangible assets, bad debts, income taxes, deferred tax assets, contingencies and litigation, and any determination to use the deposit method of accounting;
- greater than expected loss ratios on business written by the Company and adverse development on claim and/or claim expense liabilities related to business written by its insurance and reinsurance subsidiaries;
- the adequacy of the Company’s loss reserves;
- severity and/or frequency of losses;
- greater frequency or severity of unpredictable natural and man-made catastrophic events;
- claims resulting from natural or man-made catastrophic events or severe economic events in the Company’s insurance, reinsurance and mortgage businesses could cause large losses and substantial volatility in the Company’s results of operations;
- the effect of climate change on the Company’s business;
- the effect of contagious diseases (including COVID-19) on the Company’s business;
- acts of terrorism, geopolitical political unrest and other regional and global hostilities or other unforecasted and unpredictable events;
- availability to the Company of reinsurance to manage its gross and net exposures and the cost of such reinsurance;
- the failure of reinsurers, managing general agents, third party administrators or others to meet their obligations to the Company;
- the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by the Company;
- the Company’s investment performance, including legislative or regulatory developments that may adversely affect the fair value of the Company’s investments;
-
changes in general economic conditions, including new or continued sovereign debt concerns or downgrades of
U.S. securities by credit rating agencies, which could affect the Company’s business, financial condition and results of operations; - the volatility of the Company’s shareholders’ equity from foreign currency fluctuations, which could increase due to us not matching portions of the Company’s projected liabilities in foreign currencies with investments in the same currencies;
- changes in accounting principles or policies or in the Company’s application of such accounting principles or policies;
- changes in the political environment of certain countries in which the Company operates, underwrites business or invests;
- an incident, disruption in operations or other cyber event caused by cyber attacks, the use of artificial intelligence technologies or other technology on the Company’s systems or those of the Company’s business partners and service providers, which could negatively impact the Company’s business and/or expose the Company to litigation;
-
statutory or regulatory developments, including as to tax matters and insurance and other regulatory matters such as the adoption of legislation that affects
Bermuda -headquartered companies and/orBermuda -based insurers or reinsurers and/or changes in regulations or tax laws applicable to the Company, its subsidiaries, brokers or customers, including the implementation of the Organization for Economic Cooperation and Development (“OECD”) Pillar I and Pillar II initiative and the enactment of theBermuda corporate income tax; and - the other matters set forth under Item 1A “Risk Factors”, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of the Company’s Annual Report on Form 10-K, as well as the other factors set forth in the Company’s other documents on file with the SEC, and management’s response to any of the aforementioned factors.
All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. The Company's forward-looking statements speak only as of the date of this press release or as of the date they are made, and the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
arch-corporate
View source version on businesswire.com: https://www.businesswire.com/news/home/20241030073497/en/
Arch Capital Group Ltd.
François Morin: (441) 278-9250
Investor Relations
Donald Watson: (914) 872-3616; dwatson@archgroup.com
Source: Arch Capital Group Ltd.
FAQ
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