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ARCH CAPITAL GROUP LTD. (ACGL)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 delivered strong underwriting amid elevated cats: net premiums earned $4.143B, underwriting income $0.625B, diluted EPS $2.42, operating EPS $2.26; combined ratio rose to 85.0% on $393M cat losses and Helene/Milton impacts .
  • Reinsurance remained a bright spot with $328M underwriting income and ex-cat combined ratio improvement; Insurance was pressured by cat load and mix shift; Mortgage posted $267M underwriting income with continued favorable cures .
  • 2025 guidance: cat load ~7–8% of net earned premium; annualized effective tax rate 16–18% reflecting Bermuda CIT; peak-zone PML (1-in-250) at 9.2% of tangible equity Jan 1 .
  • Capital return: $5.00/share ($1.9B) special dividend in December and $24M Q4 buybacks; management reiterated readiness for active repurchases if attractive opportunities don’t absorb excess capital .
  • Consensus estimates were unavailable from S&P Global due to a rate limit; our recap anchors on company-reported figures and call commentary (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

  • Reinsurance performance: $328M underwriting income; ex-cat combined ratio 74.8% with favorable prior-year development in short-tail property lines .
  • Mortgage strength: $267M underwriting income; favorable prior-year development reduced loss ratio by ~20 pts; strong cures and excellent credit quality in >$500B insurance-in-force .
  • Investment income tailwind: pre-tax net investment income $405M in Q4; management sees rising yields and asset growth supporting earnings/book value into 2025 .
  • Quote: “Our strong underwriting culture… and progress to date in becoming a data-driven enterprise give me confidence… maximizing shareholder return over the long-term” — CEO Nicolas Papadopoulo .

What Went Wrong

  • Elevated catastrophe losses: $393M current-year cats, largely Milton with delayed Helene emergence; combined ratio increased to 85.0% (loss ratio 57.5%) .
  • Insurance segment margin pressure: underwriting income down to $30M; combined ratio 98.5% with 8.3 pts cat load and mix effects (MidCorp inclusion, rate declines in D&O and cyber) .
  • Bermuda tax trajectory and DTA uncertainty: 2025 annualized ETR guided to 16–18%; OECD guidance could limit DTA realization to ~20%, implying possible write-off of remainder in 2026/27 (worst-case) .

Financial Results

Consolidated results vs prior quarters

MetricQ2 2024Q3 2024Q4 2024
Net Premiums Earned ($USD Billions)$3.565 $3.970 $4.143
Underwriting Income ($USD Billions)$0.762 $0.538 $0.625
Diluted EPS ($)$3.30 $2.56 $2.42
Operating EPS ($)$2.57 $1.99 $2.26
Loss Ratio (%)51.2% 60.5% 57.5%
Combined Ratio (%)78.7% 86.6% 85.0%
Current-Year Cat Losses ($USD Millions)$196 $450 $393
Favorable PY Development ($USD Millions)$124 $119 $146

Segment breakdown (Q4 2024)

SegmentNet Premiums Earned ($USD Billions)Underwriting Income ($USD Millions)Combined Ratio (%)
Insurance$1.933 $30 98.5%
Reinsurance$1.904 $328 83.0%
Mortgage$0.306 $267 13.4%

KPIs and other metrics (Q4 2024)

KPIValue
Book Value per Share$53.11
Pre-tax Net Investment Income$405M
Peak-zone PML (1-in-250, net)9.2% of tangible equity (as of Jan 1, 2025)
Cat Load (FY 2025 guidance)~7–8% of group net earned premium
Share Repurchases~$24M
Special Dividend Paid (Dec 4, 2024)$1.9B ($5.00 per share)
Operating Cash Flow (FY 2024)~$6.7B
Annualized Operating ROE (Q4)16.7%
Annualized Net Income ROE (Q4)17.9%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Effective Tax Rate (annualized)FY 2025FY 2024 ETR seen 9–11% 16–18% (reflecting Bermuda CIT) Raised materially
Cat Load (as % of NPE)FY 2025N/A explicit prior~7–8% of group net earned premium New disclosure
Peak-zone PML (1-in-250, net)Jan 1, 20258.1% (Oct 1, 2024) 9.2% Slight increase
DTA Realization (OECD)2026–2027 potentialCarrying $1.2B DTA; Bermuda law allows carryforward OECD guidance may cap realization near 20%; remainder could be written off in 2026/27 (worst-case) Increased uncertainty
Capital Return2025Post-wind-season capital return under evaluation Executed $24M Q4 buybacks; management open to being active if price right More active posture

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Catastrophe exposure and PMLQ2: $196M cats; Q3: $450M cats; PML 8.1% (Oct 1) $393M cats; PML 9.2% (Jan 1) Elevated cats; modest PML uptick
Casualty market and mixQ3: selective growth in E&S casualty; rate momentum; insurance mix shifted to casualty Continued selective growth; GL loss-trend assumptions double-digit excess; 5–6% primary E&S low limit Rates supportive; cautious initial picks
Capital managementQ3: considering post-wind capital return $24M buybacks; readiness to return excess if not deployable Active return balanced with growth
Mortgage credit quality and delinquenciesQ2/Q3: strong cures; slight seasonal delinquency uptick Delinquencies modestly >2% (seasonal/cat areas); cure rates expected to remain high Healthy fundamentals; minor seasonal noise
Aggregate treaty exposureNot highlighted in Q2/Q3Very limited aggregate exposure; immaterial impact expected Conservative posture
Taxes and OECD DTAQ3: 2024 ETR 9–11% 2025 ETR 16–18%; OECD guidance may limit DTA realization ETR structurally higher; DTA risk

Management Commentary

  • CEO: “Arch had a solid fourth quarter… writing $3.8 billion of net premium (+17% YoY)… underwriting income $625 million (down 13% YoY) primarily due to cat activities… book value per share ended 2024 at $53.11” .
  • CFO: “Fourth quarter after-tax operating income of $2.26 per share… ex-cat accident-year combined ratio of 79%… cat losses $393M split ~60/40 between reinsurance/insurance… 2025 cat load ~7–8% of net earned premium” .
  • Strategic stance: selective growth in property cat reinsurance, E&S casualty, London specialty markets; pruning where margins erode (public D&O, cyber excess) .

Q&A Highlights

  • Insurance underlying loss ratio: MidCorp added ~1 pt; core Arch insurance running “just under 57%” ex-cat; mix shift toward casualty raises reported loss ratio .
  • Cat load guidance: 7–8% reflects both California wildfire impact and heavier property mix from MidCorp; Milton/Helene dynamics discussed .
  • California wildfires: expected net loss $450–$550M; market loss $35–$45B; likely reinsurer-heavy; should firm rates through 2025 .
  • Casualty reserves and trend: comfortable reserves; double-digit loss trend in excess; primary E&S low-limit ~5–6%; cautious initial picks without prior-year adverse signal .
  • MidCorp integration: on plan; remediation of program business underway; expect low-90s combined ratio post-integration; noticeable rate increases in property and liability .

Estimates Context

  • S&P Global consensus EPS and revenue estimates for Q4 2024 and prior quarters were unavailable due to a data access limit at the time of request. As a result, we cannot formally label beats/misses versus Wall Street for this recap. Company-reported operating EPS was $2.26 and diluted EPS $2.42 for Q4 2024 .

Key Takeaways for Investors

  • 2025 setup: structurally higher effective tax rate (16–18%) is a headwind to net EPS, but investment income tailwinds and selective underwriting in reinsurance/E&S casualty can offset .
  • Cat normalization: cat load guided at 7–8% and PML modestly higher; expect pricing support across cat-exposed lines post California wildfires; monitor mid-year renewal tone .
  • Insurance margin rehabilitation: MidCorp inclusion temporarily lifts acquisition benefits but raises loss ratio; focused remediation/program pruning and rate increases should grind combined ratio back toward low-90s over time .
  • Mortgage durability: strong cures keep underwriting income robust despite seasonal delinquency uptick; PMIER sufficiency remains solid even under pro-forma changes (reported 186%; pro-forma 154%) .
  • Capital deployment vs return: after $1.9B special dividend and buybacks, expect opportunistic repurchases if growth can’t absorb capital, supporting TSR in volatile cat/tax environment .
  • Watchlist: public D&O and cyber margins under competitive pressure; management reallocating away from inadequate lines; London specialty capacity and selection are key to maintaining advantage .
  • Trading lens: near-term sentiment hinges on cat loss disclosures and rate trajectory; medium-term thesis anchored in cycle management, investment income, and mortgage cash generation with disciplined capital return .

Other Relevant Q4 2024 Press Releases

  • Special Cash Dividend: $1.9B ($5.00 per share) paid Dec 4, 2024, reflecting strong capital position and performance .
  • Q3 2024 Results: prior quarter context—net premiums earned $3.970B, diluted EPS $2.56, cat losses $450M .
  • Q2 2024 Results: earlier quarter context—net premiums earned $3.565B, diluted EPS $3.30, cat losses $196M .