About as close as I'll probably ever get to gushing over a company is when I talk about Arch Capital (NASDAQ:ACGL). I have followed this insurance company for a long time now (selling the shares a long, long time ago deserves an entry for me in the Great Moments In Idiocy hall of fame), and have always been impressed by the company's keen focus on disciplined, profitable underwriting and unrelenting pursuit of good returns on shareholder capital. That's not always so easy to do in the insurance business, as the ongoing price erosion in property & casualty and reinsurance shows.
Arch Capital has generally avoided M&A, arguing that there are few companies out there with the cultural and quality fit worth buying, and those that are out there tend to be expensive. Arch Capital found a big exception in August, though, when it agreed to acquire United Guaranty from AIG (NYSE:AIG) and vault itself to the top of the list in mortgage insurance. This deal substantially improves the long-term prospects for earnings growth and good returns on equity, and while I don't think Arch Capital is particularly cheap (a familiar problem), it's worth keeping a careful eye on in case a sell-off creates an opportunity.
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Another Potential Masterstroke For Arch Capital