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ARCH CAPITAL GROUP LTD. (ACGL)·Q3 2025 Earnings Summary

Executive Summary

  • Record quarter: operating EPS $2.77 and diluted EPS $3.56, driven by strong reinsurance underwriting ($482M), low cat losses ($72M), and solid investment income ($408M). Underlying combined ratio ex-cat/ex-PYD was 80.5% (up vs 78.3% YoY), reflecting higher expense ratios even as headline combined ratio improved to 79.8% on lower cats and favorable prior-year development ($103M) .
  • Significant beats vs S&P Global consensus: EPS $2.77 vs $2.25; revenue $5.11B vs $4.41B, with the magnitude of beat fueled by reinsurance margins and higher investment income. Buybacks accelerated ($732M in Q3; another ~$250M in October) and authorization was increased by $2B in September, reinforcing capital return as a key near-term catalyst . Values retrieved from S&P Global.
  • Segment mix: Reinsurance delivered record underwriting income and a 76.1% combined ratio as current-year cat activity was 1.5 pts vs 19.3 pts a year ago; Insurance grew premiums but saw higher expense ratio; Mortgage remained a steady earnings diversifier with a 13.5% combined ratio and strong cure activity .
  • Outlook/tone: Management remains constructive on casualty pricing (rates > trend) and sees still-attractive cat EOL margins (Florida flattish overall), while cedents retaining more risk is a headwind for some reinsurance lines. Mortgage is “on pace” for ~$1B FY underwriting income; Bermuda tax guidance/credits could lower operating expenses once finalized .

What Went Well and What Went Wrong

  • What Went Well

    • Record profitability: after-tax operating income $1.042B ($2.77/sh); diluted EPS $3.56; consolidated combined ratio improved to 79.8% on lower cat activity and favorable PYD ($103M) .
    • Reinsurance strength: underwriting income $482M; combined ratio 76.1% with just 1.5 pts of current-year cat losses versus 19.3 pts in Q3’24; ex-cat/Ex-PYD combined ratio a robust 76.8% .
    • Capital returns: $732M of buybacks in Q3 plus ~$250M in October; repurchase authorization increased by $2B in early September; book value/share rose 5.3% q/q to $62.32 .

  • What Went Wrong

    • Underlying expense pressure: consolidated “other operating expense ratio” rose YoY to 10.0% (from 8.9%), with reinsurance incentive comp and insurance MCE accounting effects lifting segment expense ratios; ex-cat/Ex-PYD combined ratio rose to 80.5% (from 78.3%) .
    • Insurance segment mixed: combined ratio 93.4% (vs 93.1% YoY) with underwriting expense ratio up 290 bps YoY (34.4% vs 31.5%) as last year benefited from MCE purchase accounting; management is remediating $~200M of acquired program business (lagged impact) .
    • Cedent retention a headwind: lower reinsurance NPW YoY (–10.7%) in part due to 2024 specialty transactions not repeating and cedents retaining more risk; reinsurance expense ratio also up on incentive comp .

Financial Results

MetricQ3 2024Q2 2025Q3 2025Q3 2025 Consensus
Total Revenues ($USD Billions)$4.722 $5.213 $5.109 $4.410*
Diluted EPS ($)$2.56 $3.23 $3.56 —
Operating EPS ($)$1.99 $2.58 $2.77 $2.254*
Combined Ratio (%)86.6% 81.2% 79.8% —
Net Investment Income ($M)$399 $405 $408 —

Values with * retrieved from S&P Global.

Segment performance (Underwriting income and combined ratio):

SegmentQ3 2024 UW Income ($M)Q3 2024 CR (%)Q3 2025 UW Income ($M)Q3 2025 CR (%)
Insurance120 93.1% 129 93.4%
Reinsurance149 92.3% 482 76.1%
Mortgage269 14.8% 260 13.5%

Key KPIs:

KPIQ3 2024Q2 2025Q3 2025
Pre-tax Cat Losses ($M)$450 $154 $72
Favorable PYD ($M)$119 $139 $103
Operating ETR (%)8.0% 15.2% 15.8%
Equity-Method Income ($M)$171 $162 $134
Book Value/Share (period-end)$57.00 (9/30/24) $59.17 (6/30/25) $62.32 (9/30/25)
Share Repurchases ($M)—$163 $732
USMI Delinquency Rate (%)1.96% (9/30/24) 1.93% (6/30/25) 2.04% (9/30/25)
USMI NIW ($M)$13,526 (Q3’24) $12,254 (Q2’25) $12,965 (Q3’25)

Why results moved:

  • EPS and revenue beat estimates on lower cats, record reinsurance underwriting income, and higher investment income; favorable PYD added 2.4 pts to CR .
  • Ex-cat/ex-PYD combined ratio rose YoY to 80.5% (vs 78.3%) on higher expense ratios (insurance purchase accounting comp and reinsurance incentive comp), partially offset by mix and lower current-year cats .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operating ETRFY 2025 (YTD)16–18% (prior range) 14.7% YTD due to 1.7% discrete benefit Below prior range (benefit)
Mortgage underwriting incomeFY 2025n/a“On pace to deliver approximately $1B” New qualitative target
Capital returnOngoingn/aBuybacks preferred near-term; capacity to do more Policy clarity
Bermuda tax credits2025n/aExpected clarity by December; would reduce OpEx if enacted Pending policy

No formal revenue/margin guidance was issued.

Earnings Call Themes & Trends

TopicQ1 2025 (Q-2)Q2 2025 (Q-1)Q3 2025 (Current)Trend
Capital returnsBuybacks ongoing; special dividend in Dec-24 discussed Acceleration into H2; buybacks not constrained by wind season vs past $732M Q3 + $250M Oct; $2B authorization increase in Sept; buybacks preferred near-term Increasing
Property-cat marketAttractive, Florida demand up; top-of-tower pricing pressure; cat load stable Still attractive EOL; Q2 prop-cat growth; pricing slightly down but margins solid Florida overall flattish; ROEs still compelling; demand persists Stable/constructive
Casualty pricing & social inflationRates > trend; social inflation risk persists Casualty growth selective; pricing > loss trend Rates > trend; opportunity in E&S casualty; social inflation still a watch item Positive but cautious
Cedent retentionCedents retaining more in “other property”; structured deals run-off Timing and cedent behavior drove NPW noise Cedents retaining more; headwind to reinsurance NPW Headwind
MCE integration & remediationIntegration progressing; some early weather hit Middle market performing; program remediation underway ~$200M programs identified for non-renewal; earned impact lagging Improvement underway
MortgageSteady profitability; low delinquencies; headwinds in originations Strong quarter; tender benefits to ceded premium ahead $260M UW income; delinquency 2.04%; on pace ~$1B FY UW income Strong/steady
Bermuda tax/creditsDTA amortization began ETR 15.2% (Q2); outlook 16–18% range YTD operating ETR 14.7% due to discrete items; substance-based credits pending Potential tailwind

Management Commentary

  • “We delivered a record result… after-tax operating earnings per share of $2.77… an 18.5% annualized operating ROE.”
  • “Reinsurance… delivered another strong quarter with a record of $482 million of underwriting income, a 76.1% combined ratio” .
  • “Current year catastrophe losses were low at $72 million… what is typically our most active quarter for catastrophes.” .
  • “The segment [mortgage] remains on pace to deliver approximately $1 billion of underwriting income for the year” .
  • “Given the stock price… share buybacks will be our preferred method [of capital return] going forward, at least for the short term” .

Q&A Highlights

  • Capital return: Management prefers buybacks near-term; capacity to do more; executed consistently through wind season; authorization increased by $2B in Sept .
  • Insurance outlook: Casualty and middle market growth opportunities; professional lines headwinds moderating; property E&S highly competitive; MCE program remediation ~$200M non-renewals with lagged earned impact .
  • Reinsurance growth/cedent behavior: Cedents retaining more risk drives NPW decline beyond two 2024 transactions; normalized decline would have been ~3–4% absent items; expect opportunities in casualty and EOL structures .
  • Florida/EOL cat returns: ROEs remain attractive; Florida expected broadly flattish with more demand; top-of-tower price pressure, but margins remain solid .
  • Mortgage normalized loss ratio: Long-term ~20% across cycle; current outperformance linked to strong home prices and high credit quality .

Estimates Context

  • Q3 2025 vs consensus: Operating EPS $2.77 vs $2.25; revenue $5.11B vs $4.41B — both beats, driven by low cats, strong reinsurance underwriting, and higher NII . Values retrieved from S&P Global.
  • Q2 2025: Beat EPS ($2.58 vs $2.30) and revenue ($5.21B vs $4.27B) as reinsurance margins and investment income surprised positively . Values retrieved from S&P Global.
  • Q1 2025: Beat EPS ($1.54 vs $1.31) but missed revenue ($4.67B vs $4.84B), as cats from California wildfires weighed on P&C while NII held up . Values retrieved from S&P Global.
  • Revisions: Given the magnitude of Q3 beats and management’s tone on casualty and mortgage stability, estimate upward revisions for FY operating EPS and reinsurance margins appear likely, while attention will remain on underlying expense ratios and cedent retention headwinds .

Key Takeaways for Investors

  • Quality of beat matters: Strong reinsurance underwriting with minimal cats and favorable development produced a high-quality EPS/revenue beat, not a one-off securities mark .
  • Underlying margins vs optics: Headline CR improved, but ex-cat/ex-PYD CR rose YoY to 80.5% on expense pressure; watch expense ratios (insurance purchase accounting normalization; reinsurance incentives) into 2026 as MCE remediation strengthens .
  • Capital return as a catalyst: Accelerating buybacks and larger authorization support per-share growth; book value/Share rose 5.3% q/q; expect continued repurchases near-term .
  • Cycle positioning: Casualty pricing remains > trend; Florida/EOL margins attractive though pricing modestly down at top-of-towers; Arch’s diversified platform enables selective deployment .
  • Mortgage remains a ballast: Low loss environment and strong cures support ~13–15% CR; on pace for ~$1B FY underwriting income provides earnings stability .
  • Watch items: Cedent retention suppressing reinsurance NPW; insurance expense ratio normalization; Bermuda tax credits decision by year-end that could reduce OpEx in 2026 .
  • Net exposure risk: Peak-zone cat PML about $1.9B (one-in-200) equating to ~8.4% of tangible equity, consistent with disciplined risk appetite .

References:

  • Q3 2025 8-K/Press Release/Financial Supplement:
  • Q3 2025 Press Release:
  • Q3 2025 Earnings Call:
  • Q2 2025 Press Release/Call:
  • Q1 2025 Press Release/Call:
  • Buyback Authorization (Sept 8, 2025):

Estimates: Values retrieved from S&P Global.