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The average rate for a 30-year fixed mortgage rose to 6.69 percent this week, its highest level in over a year. For a company like Arch that sells mortgage insurance, which protects lenders if homeowners stop paying their loans, higher rates are a double-edged sword.
While higher rates can lead to higher investment income on the cash the company holds, they also make new mortgages more expensive. This usually slows down the housing market and can lead to more people falling behind on payments, which would increase the claims Arch has to pay out.
Arch reported operating income of $2.56 per share, which was higher than the $2.47 analysts expected. While total revenue of $4.05 billion came in below targets, the company showed it can still squeeze out a strong profit by being careful about which risks it chooses to insure. This is a key part of its strategy to move capital to whichever part of the insurance market is most profitable at the time.
The results included about $201 million in losses from catastrophes like storms or natural disasters. Even with those hits, the company delivered a 15.3 percent return on its equity, a measure of how much profit it generates with the money shareholders have invested. This suggests the business remains highly efficient even when facing a typical amount of insurance claims.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
Marc Grandisson, who previously served as the CEO of Arch Capital, has taken a new role as executive chairman at Vantage Group Holdings. While it is common for industry veterans to move between firms, it is worth noting when a former leader joins a competitor. This move does not change our view of Arch's current operations. The company has a long history of disciplined underwriting, which is the process of deciding which risks to take and how much to charge for them. That culture is generally bigger than any one person.
Source: Business Wire
The company has beaten analyst profit targets for eight straight quarters. Management has a clear habit of under-promising and then delivering better results than expected.
| Expectation | |
|---|---|
| EPS | $1.89 |
| Revenue | $4.08B |
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