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ARCH CAPITAL GROUP LTD. (ACGL)·Q1 2025 Earnings Summary

Executive Summary

  • Operating EPS of $1.54 beat Wall Street consensus of $1.31 by ~$0.23 per share; diluted EPS was $1.48 as catastrophe losses from California wildfires weighed on GAAP results . Consensus values marked with an asterisk are from S&P Global and may differ slightly by data vendor; Values retrieved from S&P Global.*
  • Total revenues were $4.67B, below consensus of $4.84B, as higher cat activity drove a 90.1% combined ratio versus 78.8% in Q1 2024; ex-cat and ex-prior-year development combined ratio was 81.0% . Consensus values marked with an asterisk are from S&P Global and may differ slightly by data vendor; Values retrieved from S&P Global.*
  • Catastrophe losses were $547M (primarily California wildfires); favorable prior-year development was $167M; book value per share rose 3.8% QoQ to $55.15 .
  • Management highlighted a more competitive P&C market but sees disciplined opportunities (especially property cat reinsurance) and expects to return significant capital as growth moderates (Q1 buybacks $196M; +$100M in April) .

What Went Well and What Went Wrong

  • What Went Well

    • Underlying profitability remained strong: ex-cat, ex-prior-year development combined ratio 81.0% vs. 80.8% YoY; operating ROE was 11.5% .
    • Mortgage segment delivered $252M underwriting income; delinquency rate ended at ~1.96%, with strong cure activity supporting favorable development .
    • Capital management: repurchased ~$196M in Q1 and an additional ~$100M in April; book value per share increased to $55.15 .
    • CEO tone: “For a company with a strong underwriting culture like Arch, this is a market where we can stand out” .

  • What Went Wrong

    • Elevated cat losses: $547M current accident-year cat losses drove combined ratio to 90.1% and compressed underwriting income to $417M from $736M YoY .
    • Loss ratios increased: total loss ratio rose to 61.8% from 50.5% YoY; Insurance at 66.0% and Reinsurance at 66.9% amid wildfire impacts .
    • Reinsurance specialty top line headwinds: non-renewal of large structured transactions reduced NPW by ~$147M; primary cedents retaining more risk also weighed on growth .
    • Net investment income decreased vs. Q4 due to the December special dividend (reducing investable assets), incentive comp timing, and a lower risk posture in the portfolio .

Financial Results

MetricQ1 2024Q4 2024Q1 2025Q1 2025 Consensus*
Total Revenues ($USD Billions)$3.94 $4.55 $4.67 $4.84*
Diluted EPS ($)$2.92 $2.42 $1.48 $1.31*
Operating EPS ($)$2.45 $2.26 $1.54 —
Combined Ratio (%)78.8% 85.0% 90.1% —
Net Premiums Earned ($USD Billions)$3.42 $4.14 $4.19 —
Underwriting Income ($USD Millions)$736 $625 $417 —
  • EPS: beat by ~$0.23 vs consensus (Operating EPS $1.54 vs $1.31*; diluted EPS $1.48 vs $1.31*) . Values retrieved from S&P Global.*
  • Revenues: missed by ~$0.17B ($4.67B vs $4.84B*) amid elevated cat losses . Values retrieved from S&P Global.*

Segment breakdown

SegmentQ1 2024 NPE ($USD Billions)Q1 2024 UW Income ($USD Millions)Q1 2024 Combined (%)Q1 2025 NPE ($USD Billions)Q1 2025 UW Income ($USD Millions)Q1 2025 Combined (%)
Insurance$1.45 $86 94.1% $1.86 $(2) 100.1%
Reinsurance$1.67 $379 77.4% $2.03 $167 91.8%
Mortgage$0.31 $271 14.5% $0.30 $252 16.1%

KPIs and Drivers

KPIQ1 2024Q4 2024Q1 2025
Pre-tax Net Investment Income ($USD Millions)$327 $405 $378
Catastrophe Losses (Current AY, $USD Millions)$58 $393 $547
Favorable Prior-Year Development ($USD Millions)$126 $146 $167
Net Cash from Operations ($USD Billions)$1.56 $1.57 $1.46
Book Value per Share ($)$49.36 $53.11 $55.15
Effective Tax Rate on Pre-tax Operating Income (%)8.5% 6.7% 11.7%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Full-year catastrophe load (cat load)FY 2025~7–8 pts (company prior indication) Guidance unchanged; expect stability around ~7–8 pts Maintained
Florida midyear reinsurance pricingMid-2025 renewalsn/aExpect flattish overall in Florida; single-digit down in most places; potential increases at bottoms of programs; more demand from cedents Qualitative update
Capital return2025$1.9B special dividend paid Dec 2024 Ongoing buybacks ($196M in Q1; +$100M in April); “significant” capital return likely if growth moderates Maintaining active returns
Tax rate context2025n/aQ1 ETR on pre-tax operating income 11.7%; includes a 4.6% one-time discrete benefit; DTA amortization from Bermuda tax reduces paid taxes over time Informational (not formal guidance)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Property cat reinsurance pricing & ILSStrong cat activity; pricing robust (Q3/Q4) Pressure at top of towers; cat bond margins lower; deploying selective capacity; combined ratio 91.8% incl. 18 pts cat Competitive but disciplined
Casualty social inflation/reservingn/a“More pain” likely; still getting rate above trend; reserves comfortable but monitored Cautious
London specialty competitionn/aProfitable growth difficult; local markets retaining more risk; Arch focuses on cycle management More competitive
Cedent risk retentionn/aPrimaries retaining more, especially property/energy; reduces quota share; structured deals can disappear when surplus relief not needed Headwind to NPW growth
Mortgage credit qualityFavorable cures; low loss ratios (Q3/Q4) Underwriting income $252M; delinquency ~1.96%; persistency ~82% Stable strong
Capital managementSpecial dividend in Q4; buybacks ongoing Buybacks accelerating; flexibility and opportunism prioritized; potential significant returns ahead Supportive

Management Commentary

  • CEO: “We delivered solid results… despite the losses arising from the California wildfires… Although the market has generally become more competitive, we remain optimistic… this is a market where we can stand out” .
  • CEO on cycle management: “Prioritizing expected profitability… allocating capital to lines with attractive risk-adjusted returns… risk selection is what separates the winners from the losers” .
  • CFO on segment drivers: “After-tax operating income of $1.54 per share… overall ex-cat accident year combined ratio of 81%… $167 million favorable prior year development” .
  • CFO on reinsurance NPW: “Includes ~$70M reinstatement premiums… non-renewal of large structured transactions reduced top line by $147M… timing differences lowered NPW by ~$103M” .
  • CFO on capital returns: “Repurchased $196M in Q1 and an additional $100M in April… likely to return significant capital as we move forward” .

Q&A Highlights

  • Cat load guidance: CFO expects full-year cat load guide (~7–8 pts) to remain “relatively stable” despite wildfire impacts .
  • Reinsurance growth: Adjusting for structured non-renewals/timing, NPW growth would be ~6–7%, indicative of near-term trajectory .
  • ILS and tower dynamics: Pricing pressure most notable at the tops; Florida may be flatter due to limited supply and more demand at the bottom of programs .
  • Specialty/London market: Increased competition and local retention reduce flow; Arch emphasizes leadership roles and distribution strategy to access target risks .
  • Mortgage resilience: Delinquency remains low; strong borrower credit and embedded equity differentiate current cycle from 2008; stress scenario would need to be “very, very severe” to materially impact Arch .

Estimates Context

  • Q1 2025 actual vs consensus:
    • Diluted EPS: $1.48 vs $1.31* → beat . Values retrieved from S&P Global.*
    • Operating EPS: $1.54 vs $1.31* → beat . Values retrieved from S&P Global.*
    • Total Revenues: $4.67B vs $4.84B* → miss . Values retrieved from S&P Global.*

  • of Estimates: EPS (12), Revenue (2) for Q1 2025*.

  • Implications: The EPS beat despite elevated cat losses suggests stronger underlying underwriting/investment performance than modeled; revenue miss reflects cat-driven loss activity and lower realized gains vs prior periods . Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Underlying underwriting remains attractive (ex-cat, ex-PYD combined ratio 81.0%); watch rate adequacy and risk selection as competition intensifies .
  • Elevated cat sensitivity: California wildfires drove $547M cat losses; expect cat load guidance to stay ~7–8 pts; monitor midyear property cat renewals (Florida flattish, pressure at top) .
  • Mortgage is a ballast: $252M underwriting income, ~1.96% delinquency; persistency near ~82% supports steady earnings, even if origination headwinds persist .
  • Reinsurance growth normalizing: Adjusted NPW growth ~6–7% with more cedent retention and structured non-renewals; focus remains on margins over share .
  • Capital return remains a catalyst: Q1 buybacks ($196M) + April ($100M); management indicates potential for significant returns if growth moderates (watch for buyback authorizations or special dividends) .
  • Investment income stable but off Q4 peak: lower investable assets post special dividend and portfolio de-risking; duration/credit quality remain conservative (AA-/Aa3 avg ratings) .
  • Risk areas: London specialty competition, social inflation in casualty; management remains cautious, emphasizing rate above trend and disciplined limit management .
Notes: 
- Consensus figures (*) are from S&P Global; Values retrieved from S&P Global.
- All document-based figures are cited to Arch’s Q1 2025 8-K, press release, and financial supplement, plus prior quarter releases and the Q1 2025 earnings call transcript.