Arch Capital (ACGL) Q2 Earnings Call

Arch Capital (ACGL) CEO Constatine Iordanou said they are focusing on execution and discipline in this low rate environment

“In today’s market, we are emphasizing to our troops underwriting discipline, execution, and risk management in order to preserve capital and maintain balance sheet integrity. We continue to believe that our strategies of diversifying revenue streams and actively managing the allocation of capital will allow us to better navigate in this environment, which is challenging for all of us.”

Arch Capital (ACGL) CEO Constatine Iordanou on how to be successful in the insurance industry

“The key to this business in my view and in all of our underwriters is to maintain discipline in accepting risk.”

Arch Capital (ACGL) CEO Constatine Iordanou on how to think about GDP growth affecting insurance company premium growth

“Global GDP will affect the revenue for the insurance sector. But having said that, because we are a highly regulated business, a lot of what we do is global, but it’s local from the regulation point of view. You operate and you need local licenses and you participate in the local market.  At the end of the day though, if GDP growth is very low, it will affect our ability to get revenue. It’s been always like that. You can track the growth on the P&C world of insurance and reinsurance with GDP and there’s a very, very good correlation there.”

Reinsurance terms pricing may have bottomed

“There are some signs that reinsurance terms, especially ceding commissions may have bottomed out. In our insurance segment, we saw a slight deterioration in rates across some sectors, particularly in the excess capacity layers and short tail areas. But grades were generally stable in most of the lines, while the mortgage insurance environment remains very healthy.”

Arch Capital (ACGL) COO Mark Grandisson said they are deploying capital into the mortgage insurance space where they are finding the opportunity to earn a adequate return on their capital

“We are continuing to redeploy aggressively in our mortgage or MI segments, where returns are very attractive and above our long term goals. We remain bullish on this sector and believe that returns will remain above our hurdle rates for the next several years. Within the U.S. mortgage MI sector, we estimate that our market share of the primary new insurance written or NIW in the U.S. was in a 9% to 10% range in the second quarter, up from 6.4% in Q1, as Arch MI continues to gain traction in the bank channel. The acceptance of RateStar, our risk-based pricing module, is a primary driver of this growth, and we believe it will allow us to earn better risk-adjusted returns.”