Arch Capital Group Ltd. Announces Q4 2024 Financial Results
Arch Capital Group Ltd. (NASDAQ: ACGL; “Arch,” “our” or “the Company”) has officially released its financial results for the fourth quarter of 2024. The report highlights strong performance despite challenges posed by catastrophe events. Below is an in-depth analysis of Arch’s financial and operational results for the period.
Financial Performance Overview
Net Income and Operating Income
Arch reported net income available to common shareholders amounting to $925 million, translating to $2.42 per diluted share. This represents a 17.9% annualized net income return on average common equity. In comparison, the net income for the fourth quarter of 2023 stood at $2.3 billion, or $6.12 per share. The company’s after-tax operating income available to common shareholders was recorded at $866 million, equating to $2.26 per share, yielding a 16.7% annualized operating return on average common equity. The corresponding figures for the same period in 2023 were $945 million, or $2.49 per share.
Catastrophe Losses and Reserves Development
The pre-tax current accident year catastrophe losses for both the insurance and reinsurance segments, net of reinsurance and reinstatement premiums, reached $393 million. These losses were primarily attributed to Hurricanes Milton and Helene. However, Arch also benefitted from favorable development in prior-year loss reserves, amounting to $146 million, net of related adjustments.
Combined Ratio and Shareholder Returns
Arch reported a combined ratio, excluding catastrophe activity and prior-year development, of 79.0%, slightly up from 78.9% in the fourth Announces quarter of 2023. During the quarter, the company repurchased shares worth approximately $24 million. Additionally, Arch had already distributed a special Announces cash dividend of $1.9 billion, or $5.00 per share, to common shareholders on December 4, 2024. Despite this, the book value per common share at year-end was $53.11, marking a 6.8% decrease from September 30, 2024. However, excluding the impact of the special dividend, the book value per share actually saw a 1.9% increase.
CEO Commentary
Arch CEO Nicolas Papadopoulo expressed satisfaction with the company’s performance, emphasizing that the strong results came despite an elevated catastrophe environment and heightened risk levels across various business lines. He also extended his sympathies to those Announces affected by the devastating California wildfires, noting that while the total insured market loss from the event is estimated to be between $35 billion and $45 billion, Arch’s expected share of the loss is projected to be between $450 million and $550 million.
Segment Performance Analysis
Insurance Segment
On August 1, 2024, Arch’s insurance segment completed the acquisition of the U.S. MidCorp and Entertainment insurance businesses from Allianz (the “MCE Acquisition”). This acquisition significantly influenced the segment’s performance in the fourth quarter.
- Gross Premiums Written: Increased by 28.4% year-over-year, or 8.1% excluding the MCE Acquisition.
- Net Premiums Written: Rose by 34.9% compared to the fourth quarter of 2023, or 7.7% excluding the acquisition.
- Net Premiums Earned: Showed a 33.4% increase over the prior-year period, or 7.1% excluding the acquisition.
The surge in net premiums written was fueled by the MCE Acquisition, new business opportunities, and rate changes, particularly in the property and short-tail specialty lines.
Loss and Expense Ratios
- Loss Ratio: The segment’s loss ratio reflected 8.3 percentage points of current-year catastrophe activity, primarily related to Hurricanes Helene and Milton. This was significantly Announces higher than the 3.8 points recorded in the Announces fourth quarter of 2023. Favorable prior-year reserve development reduced the loss ratio by 0.3 points, compared to 0.6 points in the previous year.
- Underwriting Expense Ratio: Improved to 32.2% from 34.7% in Q4 2023. The MCE Acquisition contributed to a 2.9-point reduction in the ratio, mainly due to fair value adjustments on acquired assets and the non-recognition of deferred acquisition costs. Additionally, the acquired business had lower initial operating expenses, further benefiting the underwriting expense ratio.
The fourth quarter of 2024 underscored Arch Capital Group’s resilience and ability to generate strong financial results despite industry headwinds. The company Announces delivered solid profitability, maintained strong underwriting discipline, and successfully integrated the MCE Acquisition, all of which contributed to its robust performance. With continued focus on strategic growth and risk mitigation, Arch is well-positioned to drive shareholder value in the coming years.
