Arch Capital Group Q3 Earnings Call Highlights

Key Points

• Arch Capital reported strong Q3 results: After-tax operating income reached $910 million, or $2.67 per share, with a 16% annualized operating return on average common equity. Investment income and equity-method earnings helped offset increasingly competitive market conditions.
• Capital returns remained aggressive: Arch repurchased 14.8 million shares for $1.4 billion during the quarter and had returned approximately 109% of net income through the first nine months of 2026. Management indicated further buybacks are possible if attractive internal investment opportunities remain limited.
• Underwriting performance was mixed but disciplined: Reinsurance premiums declined as Arch reduced exposure to less attractive property lines, while insurance growth continued and mortgage insurance maintained strong credit quality. Management expects further pressure in property catastrophe reinsurance ahead of January renewals but continues to see opportunities in targeted casualty and specialty markets.

Arch Capital Group NASDAQ: ACGL reported third-quarter 2026 after-tax operating income of $910 million, or $2.67 per share, as strong underwriting results and investment income helped offset a market environment management described as increasingly competitive.

Chief Executive Officer Nicolas Papadopoulo said the company produced an annualized operating return on average common equity of 16%, while strong returns from its equity-method investment contributed to an annualized net income return on average common equity of 18.1%. Book value per share was essentially flat during the quarter, although tangible book value per share excluding accumulated other comprehensive income rose about 15% from a year earlier.

“We continue to act on what we see, growing where returns remain attractive and exercising restraint where they do not,” Papadopoulo said, describing the company’s approach to deploying capital across insurance, reinsurance and mortgage insurance.

Capital Returns and Investments

Arch repurchased 14.8 million common shares for $1.4 billion during the quarter. Executive Vice President and Chief Financial Officer François Morin said the company had repurchased about 109% of its net income through the first nine months of 2026. Through the night before the earnings call, Arch had completed roughly another $100 million in share repurchases during October.

Morin said the company views share repurchases as an appropriate use of capital when its stock price is attractive and growth opportunities are more limited. He said Arch’s first choice remains investing capital in its businesses, but management expects it may return additional capital if favorable internal deployment opportunities do not emerge.

Management said the company’s June debt issuance included approximately $1.1 billion of incremental capital for general corporate purposes, including buybacks. Arch also expects to repay or redeem $500 million of debt maturing in December, which Morin said would further reduce its already low debt-to-capital ratio.

Investment operations were another significant contributor. Arch generated $451 million of pre-tax net investment income and $224 million of pre-tax income from equity-method investments. Combined, those sources produced $675 million, or $1.98 per share pre-tax, compared with $1.76 per share in the previous quarter. The company had $49.2 billion of investable assets and said higher interest rates should support investment income because of its short-duration fixed-income portfolio and new-money yields that are approximately 65 to 70 basis points above the portfolio’s book yield.

Underwriting Results Across Segments

Arch reported an overall accident-year combined ratio excluding catastrophes of 81.2%, 70 basis points higher than in the comparable quarter last year. Underwriting income included $179 million of favorable prior-year reserve development on a pre-tax basis, equal to 4.5 points on the overall combined ratio. The favorable development occurred across all three operating segments, particularly in short-tail property and casualty lines and mortgage insurance.

Current-year catastrophe losses totaled $234 million, net of reinsurance and reinstatement premiums. The losses arose from multiple global events and included claims related to the Iran conflict. Morin said Iran-related losses were substantially less than half of the total catastrophe loss figure.

In insurance, Arch generated $108 million of underwriting income and a 94.4% combined ratio. Its current accident-year combined ratio excluding catastrophes was 89.2%. Gross premiums written increased 7.8% and net premiums written rose 2.7% year over year, aided by a new alternative-markets captive program and increased marine war-risk coverage tied to the Iran conflict.

Management said the quarter’s insurance premium growth exceeded the broader underlying growth trend. For the first nine months of the year, after adjusting for planned reductions in middle-market commercial program business, gross premiums written increased 4.2% and net premiums written increased 1.6%.

Arch said it continues to find attractive insurance opportunities in North American excess and surplus casualty, construction and national-account casualty, as well as in specialty business written through Lloyd’s. However, Papadopoulo said property and short-tail markets have become more competitive, while rate increases in certain casualty lines have moderated.

Management said primary casualty pricing has deteriorated to around loss-cost trend, or potentially slightly below it on a broad market basis. Still, Arch sees adequate absolute returns in the targeted middle-market and specialty casualty business it writes. The company said it is not targeting large national-account excess towers.

Reinsurance Discipline Amid Market Pressure

Arch’s reinsurance segment generated $393 million of underwriting income and a 78.3% combined ratio, benefiting from relatively light catastrophe activity. Gross premiums written declined about 8%, while net premiums written fell 9.3%, as Arch reduced participation in lines where rates and terms no longer met its return objectives.

Morin said the segment’s accident-year combined ratio excluding catastrophes was 78.4%, 160 basis points higher than a year earlier. The change reflected a shift toward longer-tail business in a more competitive rate environment.

Papadopoulo said the company expects continued pressure on reinsurance property catastrophe, excess-of-loss and other property lines heading into Jan. 1 renewals, particularly after a light catastrophe year. While casualty remains relatively attractive, he said reinsurance terms and conditions are not as favorable as Arch would prefer because smaller market participants and third-party capital continue to supply capacity.

Arch is increasingly using third-party capital and sidecars to manage net exposure and provide capacity to clients. Papadopoulo said third-party capital can be a valuable tool, particularly in property reinsurance, but described casualty reinsurance structures involving third-party capital as newer and less tested with questions remaining around who ultimately bears tail risk.

Mortgage Insurance Portfolio Remains Strong

The mortgage segment generated $201 million of underwriting income. Management said new mortgage originations remain constrained by mortgage interest rates above 7%, limiting near-term growth, but the in-force portfolio continued to exhibit strong credit quality.

U.S. mortgage insurance delinquency was 2.2% at Sept. 30, supported by favorable homeowner credit conditions and cure activity. Persistency remained around 80%, aided by higher mortgage rates that have reduced voluntary refinancing activity. Arch’s businesses outside primary U.S. mortgage insurance wrote $66 million of net premiums during the quarter.

Management also addressed a recently announced pilot intended to streamline mortgage-insurance cancellation under certain circumstances. Papadopoulo said Arch does not expect a near-term impact because the pilot is prospective and will take time to implement. Morin said about 25% of Arch’s risk in force relates to loans originated before 2023, but emphasized that the company is supportive of efforts to improve home affordability.

As of Oct. 1, Arch’s net peak-zone natural catastrophe probable maximum loss for a one-in-250-year single event was $1.9 billion, or 8.6% of tangible shareholders’ equity.

About Arch Capital Group (NASDAQ:ACGL)

Arch Capital Group Ltd. is a Bermuda-based insurance, reinsurance and mortgage insurance company whose shares trade on the Nasdaq under the symbol ACGL. The company was established in 1995 and has developed into a global provider of specialty risk-management products and services.

Through its insurance operations, Arch offers property, casualty, specialty, and accident and health coverage to businesses and other policyholders. Its reinsurance operations provide coverage and risk-transfer solutions to insurance companies across a range of property and casualty lines.

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