Arch Capital Group Ltd. (ACGL) Earnings & Analysis

Latest quarter

Arch reported Q2 FY2026 revenue of $4.7 billion, versus $5.2 billion in Q2 FY2025, a −10.5% change. On the consensus measure, the company reported revenue of $4.4 billion for the quarter to June 30, 2026, below the $4.6 billion consensus revenue figure.

Arch reported adjusted EPS, as the consensus counts it, of $2.56, above the $2.49 consensus estimate. The company reported diluted EPS of $3.00 in Q2 FY2026, compared with $3.23 a year earlier. Gross margin was 37.6%, compared with 40.0% in Q2 FY2025, while operating margin was 25.9%, compared with 29.5%.

The company reported free cash flow of $1.3 billion, compared with $1.1 billion a year earlier. Arch’s filing said insurance underwriting income was $27 million, with catastrophe losses and lower premiums associated with selected non-renewals affecting the segment. The filing reported $410 million of reinsurance underwriting income, aided by relatively light catastrophe losses, while reinsurance net premiums written declined amid pricing pressure, higher client retentions and increased retrocessions. The mortgage segment’s net premiums written increased 7.5% from a year earlier, according to the filing.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

President and Chief Executive Officer Nicolas Papadopoulo said competitive conditions were increasing, particularly in property and short-tail business, although the company still saw rate increases in some casualty-oriented insurance lines and selected London-market lines. He said Arch’s insurance results were affected by catastrophe losses related to the Iran conflict, while the segment continued to seek opportunities in excess and surplus casualty, construction, national accounts, war and terrorism.

Papadopoulo said reinsurance net premiums written fell as some clients retained more risk and competition lowered rates, particularly in property. He told analysts that Arch was being careful in property as rates declined, while the company was more optimistic on casualty, where he said the insurance market remained disciplined. He also told analysts that rate reductions in property catastrophe reinsurance were occurring across the book, and that Arch expected its probable maximum loss could decline as property catastrophe rates softened.

Chief Financial Officer Francois Morin said the company’s three segments produced an overall ex-catastrophe accident-year combined ratio of 82.5%, compared with the prior-year quarter’s level after a 160-basis-point increase. Morin said current-year catastrophe losses were $201 million net of reinsurance and reinstatement premiums, arising from the Iran conflict and severe convective storms in the U.S. He said losses associated with damaged Iranian properties were actual claims with case reserves, but the company did not quantify the possible magnitude of business-interruption claims.

Papadopoulo said mortgage insurance delivered $220 million of underwriting income, and described the portfolio as supported by its risk-in-force and credit characteristics. In response to an analyst question, he said a new Australian client and reduced quota-share or insurance purchases supported mortgage premium growth, while Morin said the company expected more Australian business through the rest of the year.

Morin said net investment income was $417 million, or $1.20 per share, supported by a $49.5 billion asset base. He said Arch repurchased 12.4 million shares for $1.2 billion in the quarter and raised $2 billion of senior notes in May, with proceeds designated for a scheduled debt redemption, a tender offer and general corporate purposes. Papadopoulo told analysts that Arch viewed acquisitions as a strategic tool for building capabilities rather than an alternative to organic growth or capital returns, and said the company was approaching acquisitions carefully.

Guidance

Arch’s guidance materials list an FY2026 effective tax rate of 16.0%–18.0%. The company did not provide changed financial guidance in the supplied Q2 FY2026 earnings-call material. Morin said Arch expects interest expense of approximately $60 to $63 million in each of the next two quarters following its debt issuance.