Arch Capital (ACGL) Q4 Earnings Beat Estimates, Improve Y/Y

Arch Capital Group Ltd. (NASDAQ:ACGL) reported fourth-quarter 2017 operating income per share of $1.34, which outperformed the Zacks Consensus Estimate by 18.6%. Moreover, the bottom line improved 18.6% from the prior-year quarter.

The fourth quarter benefited from a sturdy performance at the Insurance and Mortgage segments. Positive impact of the United Guaranty Corporation (“UGC”) buyout and higher net investment income added to the upside.

Including net realized gain of 27 cents, net impairment loss recognized in earnings of 1 cent, equity in net income loss of investment funds accounted for using the equity method of 22 cents, net foreign exchange loss of 20 cents, UGC transaction costs of 1 cent and income tax charge of 15 cents, net income came in at $1.46 per share, up 192% year over year.

Full-Year Highlights

For 2017, Arch Capital reported operating income per share of $3.21, surpassing the consensus mark by 7% but deteriorating 30.7% year over year.

Behind the Headlines

Gross premiums written increased 25.7% year over year to $1.5 billion, largely fueled by higher premiums written in the Mortgage segment. Improved premiums at Insurance as well as Reinsurance further drove the upside.

Net investment income surged 42.1% to $99.6 million, supported by income from the acquired United Guaranty portfolio and a higher level of income on fund investments.

Arch Capital’s underwriting income was $182.1 million, having soared 59.6% from the year-ago quarter. Combined ratio improved 390 basis points (bps) to 86.3%.

Segment Results

Insurance: Gross premiums written increased 8.5% year over year to $767.5 million.

Underwriting income of $9 million skyrocketed 160.9% from the year-ago quarter. Combined ratio improved 100 bps to 98.3%.

Reinsurance: Gross premiums written in the quarter increased 4.6% year over year to $289.3 million.

Underwriting income of $24.6 million plunged 63.7% from the prior-year quarter. Combined ratio deteriorated 1600 bps year over year to 94.5%.

Mortgage: Gross premiums written in the quarter skyrocketed 142.5% year over year to $335.3 million, primarily reflecting growth in insurance force, driven by the acquisition of UGC.

Underwriting income rose 274.1% to $172.3 million. Combined ratio improved 890 bps year over year to 39.9%.

Financial Update

Arch Capital exited the fourth quarter with total capital of $11.30 billion compared with $10.49 at year-end 2016.

As of Dec 31, 2017, book value per share was $60.91, up 10.4% year over year.

Operating return on equity was 9.1% in the reported quarter compared with 8.7% in the year-ago period.

Zacks Rank

Arch Capital carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Among other players from the insurance industry having reported fourth-quarter earnings, the bottom line of Brown & Brown, Inc. (NYSE:BRO) , MGIC Investment Corporation (NYSE:MTG) and The Progressive Corporation (NYSE:PGR) beat the respective Zacks Consensus Estimate.

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