Arch Capital Reports Strong Q2 2024 Results and Plans Allianz Acquisition

Arch Capital Group Ltd. Reports Strong Q2 2024 Performance

Arch Capital Group Ltd. has released its financial results for the second quarter of 2024, showing impressive underwriting income and a robust annualized operating return on equity (ROE). The company’s disciplined approach in a challenging market and its strategic acquisition of Allianz’s U.S. MidCorp and Entertainment businesses were notable highlights of the quarter.

By prioritizing profitability over aggressive growth and maintaining a strong balance sheet, Arch Capital is well-positioned for future growth opportunities.

Key Takeaways

• Arch Capital reported $762 million in underwriting income and a 20.5% annualized operating ROE.
• The Mortgage segment experienced a 12% increase in new insurance written, amounting to $287 million in underwriting income.
• The investment portfolio expanded to $37.8 billion, generating $364 million in net investment income.
• The effective tax rate on pretax operating income for the quarter was 9.5%.
• There was a slight improvement in delinquency rates compared to the previous quarter.
• Strong year-to-date cash flow from operations totaled $3.1 billion.
• The company showcased confidence in navigating strong market conditions, especially in non-casualty lines.
• The acquisition of Allianz’s U.S. MidCorp and Entertainment businesses is scheduled to close on August 1.
• Arch Capital’s balance sheet remains robust with nearly $20 billion in common shareholders’ equity and a net debt plus preferred to capital ratio slightly above 15%.

Company Outlook

• Arch Capital aims to capitalize on market opportunities, expecting favorable conditions to continue.
• The company anticipates the Allianz acquisition will have a minimal effect on its probable maximum losses (PMLs).
• The planned deployment of $1.8 billion for this transaction is underway.
• Arch Capital is open to pursuing further mergers and acquisitions as opportunities arise.

Challenges Noted

• The company reported some pressure on losses from larger accounts to smaller policies, particularly in the commercial auto sector.
• A slight increase in the loss ratio was observed, influenced by various factors and judgment calls.
• The ongoing evaluation of losses related to recent cyber events may affect pricing in the cyber insurance space.

Positive Developments

• Arch Capital’s underwriting units, especially in Property and Casualty, Insurance, and Mortgage, yielded strong results.
• The company has invested in predictive analytics and technology to enhance its business model.
• Home price appreciation has positively impacted the mortgage insurance segment, lowering foreclosure risks.
• Opportunities exist in reinsurance property lines such as quota share, risk excess, and facultative business.

Areas of Concern

• Arch Capital acknowledged the stagnation of property catastrophe growth due to weather forecasts and market equilibrium of supply and demand.

Q&A Highlights

• CEO Mark Grandisson and CFO Francois Morin discussed the focus on integrating the Allianz acquisition while remaining open to new M&A opportunities.
• The company has reshaped its portfolio through retrocession purchases to sustain acceptable PML levels.
• No significant changes in public Directors and Officers (D&O) pricing due to market activities were noted.
• Further updates on Arch Capital’s plans and the Allianz acquisition will be shared in October.

Arch Capital Group’s strong performance in Q2 reflects its commitment to disciplined underwriting and return on equity. With the upcoming acquisition of Allianz’s U.S. businesses, alongside a solid financial foundation, the company is well-placed for growth and continued profitability in the current market environment.