ARCH CAPITAL GROUP LTD. Quarterly Report Released - Here’s What You Should Know

Arch Capital Group Ltd.
Quarter Ended June 30, 2025 – Investor Summary

Key Financial Metrics

• Net income attributable to common shareholders for Q2 2025 was $1.23 billion ($3.23 diluted EPS), compared to $1.26 billion ($3.30 diluted EPS) in Q2 2024.
• For the first six months, net income to common shareholders was $1.79 billion, down from $2.37 billion in the prior-year period.
• Annualized net income return on average common equity (ROE) for Q2 2025 was 22.9% (Q2 2024: 26.3%); for the six months, 17.0% (2024: 25.4%).
• Book value per share rose to $59.17 (June 30, 2025) from $53.11 at December 31, 2024.
• Total revenues for Q2 2025 were $5.21 billion, up from $4.23 billion in Q2 2024.
• Total assets at June 30, 2025, were $78.8 billion (up from $70.9 billion at year-end 2024); shareholders’ equity increased to $23.04 billion ($20.82 billion at year-end).
• Combined ratio for Q2 2025 was 81.2% (Q2 2024: 78.7%).

Segment Performance
Insurance

• Q2 2025 gross premiums written increased 27.5% to $2.68 billion.
• Net premiums earned were $1.97 billion (up 33%).
• Combined ratio: 93.4% (up 0.8 points YoY); loss ratio increased to 59.8%.
• Underwriting income was $129 million (up 18% YoY).
  Reinsurance
• Q2 2025 gross premiums written grew 8.7% to $3.20 billion.
• Net premiums earned were $2.09 billion (up 17%).
• Combined ratio: improved to 78.5% (down 1 point).
• Underwriting income was $451 million (up 23%).
  Mortgage
• Q2 2025 gross premiums written declined 5% to $323 million; net premiums earned down 8% to $281 million.
• Combined ratio: increased to 15.2%, reflecting higher loss ratio.
• Underwriting income: $238 million (down 17%).

Investments

• Total invested assets were $44.3 billion; net investment income of $405 million for the quarter (up from $364 million Q2 2024).
• Portfolio pre-tax total return (before expenses): 3.09% for Q2; benchmark return was 3.26%.
• Fixed maturities portfolio average duration was 3.48 years, with average rating AA-/Aa3.
• Net realized investment gains of $229 million for Q2 2025, up from $122 million in Q2 2024.

Capital & Liquidity

• Senior notes outstanding: $2.73 billion (debt-to-total capital ratio 10.6%).
• Operating cash flow for six months: $2.58 billion (vs. $3.08 billion prior year).
• Share repurchases: 1.86 million shares in Q2 at $87.96 average price; additional 2.8 million shares repurchased through August 5, 2025.

Management Discussion & Outlook

• Management highlighted continued strong results, especially in reinsurance and insurance, amid broadly stable market conditions.
• Insurance segment saw robust premium growth in North America, particularly in commercial multi-peril and liability lines. The Lloyd's and London market businesses remain competitive, but pricing remains rational.
• Reinsurance underwriting improved on favorable reserve development (notably $81 million favorable in Q2) and growth in certain lines.
• Mortgage segment faced a decline in new insurance written ($12.3 billion in Q2 vs $13.8 billion prior), and a small decline in persistency rate to 81.9%. Loss ratio increased slightly due to lower favorable reserve releases.

Key Risks (specific examples):

1. Reserve Risk: Maintaining adequate reserves for losses and loss adjustment expenses remains critical. For Q2, favorable reserve development was reported ($153 million favorable, particularly in reinsurance, but current-year loss ratios in insurance and reinsurance segments increased). Management described slightly higher current-year loss ratios, especially in insurance (60.2% in Q2 2025 vs 57.6% prior).
2. Catastrophe & Economic Risk: Arch remains exposed to large catastrophic events and severe economic scenarios. Modeled peak zone catastrophe exposure is managed, but the company warns a severe economic event could also significantly impact mortgage segment losses if U.S. home prices drop.
3. Investment Market Risk: A parallel shift of +100 basis points in interest rates could reduce fixed income portfolio by approximately $1.2 billion; a 10% USD appreciation would reduce equity by $102 million.
4. Credit Risk: 37.5% of reinsurance recoverables are with unrated carriers; though over 95% are collateralized, one carrier accounts for 7.9% of equity exposure.
5. Integration Risk: The MCE acquisition closed August 2024; management is actively integrating this business and monitoring related risks.

Other Considerations

• No material changes to previously disclosed risk factors or unresolved legal proceedings.
• No hedging derivatives designated for accounting purposes.
• Liquidity remains strong, with significant available capacity for further share repurchases and capital deployment.

Conclusion
Arch Capital delivered robust earnings with premium growth across core segments, improved book value, and stable investment results. Near-term headwinds include slightly elevated loss ratios and expense ratios in insurance, lower mortgage segment contributions, and the ongoing integration of acquisitions. The balance sheet remains strong, liquidity abundant, and the outlook for disciplined growth continues positive. Investors should remain alert to market, reserving, and catastrophe risks, as well as any unforeseen disruptions during acquisition integration.

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