QUOTE AND NEWS
Clusterstock  Aug 15  Comment 
(Reuters) - American International Group Inc is nearing a deal to sell its mortgage-guaranty unit to Arch Capital Group Ltd for about $3.4 billion, the Wall Street Journal reported on Monday, citing people familiar with the matter. The...
SeekingAlpha  Apr 27  Comment 
Wall Street Journal  Jan 25  Comment 
Arch Capital Group’s reputation for good management of capital and risks makes for a reliable shareholding.
Insurance Journal  Dec 10  Comment 
Meredith Whitney, the former banking analyst hired by Arch Capital Group Ltd. to help oversee the insurer’s stock portfolio, will also work with the company’s investment team to review possible alternative investments, which can include hedge...




 

Arch Capital Group Ltd. (NASDAQ:ACGL) writes major insurance policies for businesses and sells reinsurance to other insurance companies. The company targets insurance policies that have an anticipated minimum return (ROE) of 15%,[1] which is problematic in economic downturns as companies become more price sensitive. This ROE litmus test means that Arch first evaluates a projected combined ratio for a potential policy, and from that ratio Arch attaches a projected net income to the policy. If this is below what is needed to generate a 15% ROE, then Arch does not write the policy.

Like other insurance companies, Arch invests the premiums it collects to earn income. Its portfolio consists solely of fixed income securities rated in the range of AAA to AA, with virtually no investment in hedge funds or private equity.[2] Importantly, its portfolio of investments holds no collateralized debt obligations (CDOs) or loan obligations (CLOs). This conservative investment strategy stands in stark contrast to the investments of many other insurance companies, most notably AIG, whose well-publicized write-offs were centered on collateralized debt obligations (CDOs). [3]

Corporate Overview

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Competition

Competitors are insurance subsidiaries of global conglomerates or independent companies. As defined by Arch Capital Group, its competitors in insurance are: [4]


In response to price competition from larger insurers and subsidiary companies, Arch is aggressively shifting its strategy toward opening smaller insurance policies with businesses in a diverse set of specialty markets, where it can offer a higher level of expertise than many of its larger competitors. [5]

The company also faces competition from emerging alternatives to insurance, such as catastrophe bonds and alternatives to traditional reinsurance such as finite reinsurance products.

References

  1. ACGL. ACGL Annual Report 2007, To Our Shareholders Letter, Pg 1.
  2. ACGL. Annual Report 2007, Cash Flow, Investable Assets and Investment Income, Pg 2.
  3. WSJ. AIG reports $5.36 billion quarterly net loss.
  4. ACGL. Annual Report 2007, Pg 23.
  5. ACGL. Annual Report 2007, Market Positions and Strategic Principles, Pg 2.
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