Arch CEO Corrects Himself: Casualty Pricing Margin Is 'Zero Or Turning Negative'
Nicolas Papadopoulo said Arch's own casualty book still has "very good margin," and the insurer reported $910 million of operating income.
Arch Capital CEO Nicolas Papadopoulo walked back an earlier comment on the company's third-quarter earnings call Wednesday, telling an Evercore ISI analyst that casualty pricing has slowed to about loss trend or below, so "that margin now is zero or turning negative." The call followed after-tax operating income of $910 million, or $2.67 per share, at Arch, which sells insurance, reinsurance and mortgage insurance worldwide.
A correction on casualty margins
Earlier in the call, Papadopoulo told a TD Cowen analyst that primary casualty rates have been decelerating but are still about loss trend, meaning the pace at which claim costs rise. His prepared remarks said adverse development across the industry reinforces the need for casualty pricing to stay at or above loss cost trend.
The Evercore ISI analyst then asked how narrow the gap had become and whether Arch might pull back. Papadopoulo opened his answer with "first correction," and said pricing had decelerated to about loss trend or below. He added that the business Arch writes "has still very good margin in it," leaving "a decent run rate in front of us."
CFO Francois Morin clarified that Arch still likes the absolute return. "On a relative basis, it's not improving, but it's holding up," he said, adding that returns meet Arch's threshold and the company hopes to get more of the business.
A Mizuho analyst asked why Arch's appetite for reinsurance casualty stands out from other insurers. Papadopoulo credited "a better loss experience than our competitors," and said Arch's loss picks "haven't really moved."
Results and buybacks
Arch's annualized operating return on average common equity was 16% for the quarter. Reinsurance produced $393 million of underwriting income on a combined ratio of 78.3%, aided by light catastrophe activity, while insurance produced $108 million and mortgage $201 million.
Arch bought back 14.8 million shares for $1.4 billion in the quarter. Morin said another roughly $100 million was repurchased in October through Tuesday night, and that with growth harder to find the company will most likely return even more capital. He called buybacks the preferred route over a special dividend at current prices.
Arch's market value was $34.2 billion in Wednesday morning trading.
January 1 renewals loom for reinsurance
Gross premiums written in reinsurance fell about 8% from a year earlier on abundant capacity, particularly in property and short-tail lines. Asked about the January 1 property catastrophe renewals, Papadopoulo said Arch does not give guidance, but expects continued pressure on rates and the top line. Morin said the reinsurance underlying loss ratio could rise by a couple of hundred basis points, or two percentage points, over the next little while.
Papadopoulo's own verdict on the January 1 property renewals: with a light catastrophe year, "you can expect continued pressure" on rates.
Sources
- acgl-20261027 — sec.gov
- Arch Capital (ACGL) Reports Q3 Earnings: What Key Metrics Have to Say — Yahoo Finance
- Arch Capital Non-GAAP EPS of $2.67 beats by $0.37 (NASDAQ:ACGL) | Seeking Alpha — seekingalpha.com
- Arch Capital Group (ACGL) Q3 Earnings and Revenues Beat Estimates — Yahoo Finance
- Are Finance Stocks Lagging Arch Capital Group (ACGL) This Year? — Yahoo Finance
