Arch Capital Group Ltd.ACGL

Morningstar Rating

Stock Research and Analysis

by Bill Bergman

Arch Capital's ability to underwrite profitably across a broad product range endows the company with a narrow economic moat.

The key to Arch's moat is the firm's attention to earning underwriting, not just bottom-line, profits. Management centralizes Read more

Bulls Say

Arch Capital enjoys a relatively clean balance sheet because of the 2001 clean-out of old policies and the injection of additional capital. Legacy problems such as asbestos won't trouble investors.

Underwriting expertise helps the company attract and retain sales in a competitive and complex industry.

Arch Capital employs open brokerage sales, which let it seek deals from any broker rather than be contractually restrained. This increases the potential business the firm can prospect. Read more

Bears Say

As a treaty reinsurer, Arch evaluates contracts assumed from its insurance company clients as a group, exposing it to the risk that individual original underwriting decisions were poor.

The firm has yet to prove itself during tough times. Reported profits could disappear if claims turn out to be larger or more frequent than the firm currently assumes.

Arch Capital's strategy to seek business on the open market may expose it to adverse selection, where it receives business submissions only from substandard risks that can't get insured elsewhere.

Bermuda's tax advantages may be undermined by U.S. policy changes. Read more

Strategy

Arch has developed a broad base of insurance and reinsurance products to preserve its options to direct sales to the most profitable opportunities. Arch has also developed several fee-based businesses Read more

Management

Our Stewardship Grade for Arch is a C. Arch has a talented executive leadership team, but its pay levels leave us blinking our eyes. CEO Constantine Iordanou's salary and bonus exceeded $8 million from 2003 to 2005. In 2006, when Arch produced some Read more

Profile

Founded in 1995, Bermuda-based Arch Capital Group offers specialty insurance and reinsurance on a worldwide basis. On average, premium sales are evenly divided between the Read more

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