Doubts About Arch Capital's MI Business Have Created A Meaningful Valuation Gap

It has been a pretty mixed year so far for insurance companies, with particular business mixes/exposures explaining a lot of individual performances. Reinsurers like Everest Re (RE) and specialty insurers like W.R. Berkley (WRB) have been doing alright, while broader P&C players like Chubb (CB) and Hartford (HIG) have been a little weak. And then you have the mortgage insurers like Radian (RDN) and MGIC (MTG) that have been having a tougher time of it.

Combing the traits of specialty P&C and reinsurance as well as mortgage insurance, it is perhaps not so surprising that Arch Capital's (ACGL) performance has reflected that blend - Arch has underperformed its non-MI peers but outperformed its MI peers. While I understand some of the Street's anxiety about the mortgage insurance space, particularly now that it's such a large part of Arch's underwriting income, I continue to believe that the shares look attractive on a long-term basis.

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Doubts About Arch Capital's MI Business Have Created A Meaningful Valuation Gap

Seeking Alpha: Arch Capital Seldom Looks Cheap, But Mortgage Insurance Should Spur Growth

I've never made any secrets of the respect I have for Arch Capital (ACGL) management. Many company executives talk about the importance of creating shareholder value and making decisions to maximize value, but it is my opinion that Arch Capital lives up to that to a much higher degree than most other companies. When the management sees attractive return-generating opportunities, they deploy capital. When management does not see those opportunities, they conserve and/or return capital.

Investors had a rare opportunity to acquire Arch Capital shares at attractive valuations, but only when it seemed like the U.S. financial system was melting down. Since then, the shares have regained their luster and their high-end multiples. I do believe that Arch Capital's foray into mortgage insurance will prove a good move, and quality companies have a knack for exceeding long-term expectations (and price targets), but the short-term opportunity is not to compelling.

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Arch Capital Seldom Looks Cheap, But Mortgage Insurance Should Spur Growth

Investopedia: Genworth Looking At A Lot Of Heavy Lifting

A year ago, I thought that Genworth (NYSE:GNW) was a high-risk insurance story that was trading at a substantial discount to its long-term value. With the stock up almost 130% since then, I feel pretty good about that call. Looking at the company again today, though, I'm not nearly as optimistic about the stock. While the stock is still undervalued on a long-range ROE model, the growing challenges in mortgage insurance and long-term care insurance bode poorly for nearer-term value creation.

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http://www.investopedia.com/stock-analysis/070813/genworth-looking-lot-heavy-lifting-gnw-met-acgl-cno.aspx