I like MetLife (NYSE:MET), ACE (NYSE:ACE), and W.R. Berkley (NYSE:WRB) quite a bit as insurance companies, but Arch Capital (NASDAQ:ACGL)
has long been at the top of my list as a well-run insurance company
with an uncanny knack for profitable allocating and reallocating of
capital across multiple lines of business. That skill is increasingly
valuable as P&C and reinsurance rates continue to fall and the
industry looks to be heading into a tough multiyear stretch.
I
don't believe that Arch Capital needs to join into the recent upswing in
M&A activity, but the company does have the capital to get involved
if the right opportunity should show up. Failing that, I expect the
company to continue looking to mortgage insurance and selective
alternative markets and excess and surplus lines as a source of growth
and adequate returns.
Arch Capital has been something of a
middle-of-the-road performer over the past year, but it's not yet
particularly cheap even with long-range ROE estimates in the low teens.
Buying into a part of the cycle where rates are falling, reserves are
shrinking, and earnings are likely to come under pressure for many
players is a risk on its own and given that backdrop I'd wait in the
hopes of being able to buy Arch Capital's shares at a better price down
the line.
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Arch Capital Keeps Going While The Going Gets Tougher
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