ACGL - Arch Capital

[Ham Hockers]

Unclear how she keeps landing on her feet. Also, glad I sold ACGL a while back.

 

http://www.bloomberg.com/news/articles/2015-12-08/meredith-whitney-is-back-overseeing-stocks-at-bermuda-s-arch

 

[giofranchi]

Arch Capital has posted another year of great results:

 

http://ir.archcapgroup.com/file.aspx?IID=103577&FID=38013344

 

BVPS $55.19 +15.8% in 2016, ROE 10.9%, CR 89.9%, P/B 1.69.

 

It is pricy, therefore it remains a small position in my portfolio.

 

Cheers,

 

Gio

[racemize]

I've just started digging around on this one.  Anyone know the pedigree/story on them?  Nice numbers and I think they had a good acquisition with the mortgage insurance from AIG, but a little pricey at the moment though.

[HJ]

I've just started digging around on this one.  Anyone know the pedigree/story on them?  Nice numbers and I think they had a good acquisition with the mortgage insurance from AIG, but a little pricey at the moment though.

 

The CEO came out of Berkshire and is a very legit insurance guy.  I forgot which year it was, but someone put up private capital after a big cat year in the early 2000's to take advantage of a hard reinsurance market, and the company grew from there.  Either Class of 2001 or Class of 2005, I forgot which one.

[ValueMaven]

How is Arch about to maintain such strong underwriting standards?!

 

Sincerely,

VM

[walkie518]

Old thread but considering pricing relative to historical multiples, Arch might be cheap here? 

 

Has anyone been considering building a position? 

 

Am I missing something? 

 

Does mortgage insurance have more legs or is Arch's multiple compression the result of the company coming back down to Earth? 

[arcticfox]

Arch looks attractive here. On recent call they still think the returns in mortgage insurance are attractive. Rising interest rates should help the too. The stock is now in their buyback range around 1.3x book value. Said they liked the mortgage insurance a bit better than buybacks.

Noticed the CFO left to go to AIG, which I thought was a bit odd, but who knows.

[walkie518]

Arch looks attractive here. On recent call they still think the returns in mortgage insurance are attractive. Rising interest rates should help the too. The stock is now in their buyback range around 1.3x book value. Said they liked the mortgage insurance a bit better than buybacks.

Noticed the CFO left to go to AIG, which I thought was a bit odd, but who knows.

Well, if you bought, you got a decent return in a pretty short period of time!

 

AIG probably pays more for less work?  Alternatively, the shift to a high concentration of mortgage insurance might make the CFO less useful?

 

My guess here is risk will remain low for a considerable period of time so likely a matter of time before the MI market softens? 

 

There is certainly a ton mortgages out there on sub-prime properties with investment grade guarantors.  This must be the risk they take that other's don't?  MI for investors buying Fortress and Blackrock loans?

 

[arcticfox]

Market was temporarily concerned about profits in mortgage insurance declining due to US based competitors cutting rates due to tax relief. They did buy back a little stock. Think there is plenty of room to run over a few years, though I expect it will be slow and steady. Paid as high as $30 and as low as $26. They are best of best of breed. I think it should trade somewhere around 1.5 to 1.7x book. Expect book to be near $21,$22 by year end. They have great presentation on their investor website, shows returns and volatility. WRB and Chubb,CB are the other standouts.

[walkie518]

Market was temporarily concerned about profits in mortgage insurance declining due to US based competitors cutting rates due to tax relief. They did buy back a little stock. Think there is plenty of room to run over a few years, though I expect it will be slow and steady. Paid as high as $30 and as low as $26. They are best of best of breed. I think it should trade somewhere around 1.5 to 1.7x book. Expect book to be near $21,$22 by year end. They have great presentation on their investor website, shows returns and volatility. WRB and Chubb,CB are the other standouts.

I agree that Arch is the best at what they're doing, but I'm trying to wrap my head around the premium.  Berkshire trades at 1.45x and CB at 1.2x.  I guess CB might be fairly cheap here relative to Arch though ACE was a fairly different business with which to merge.

 

On another note, I don't understand why they did this split and others previously nor have I seen an explanation?  It seems like a silly expense except for purpose of providing stock compensation in smaller denominations?

[arcticfox]

I have struggled with the higher p/b and thus higher valuation. It is the reason I have note owned Markel in the past. My new thoughts on this is that the long term return on the stock will be similar to the ROE of the company and its almost better to assume p/b stays constant (though this doesn't actually happen in the short term).

 

The good insurers often trade at high multiples and occasionally get to more attractive prices and the weaker insurers with lower roe's consistently trade at prices at or near book. Ultimately the roe will determine the stock return not the change in p/b.