Morgan Stanley’s Best Overweight & Quality Stocks: Top 25 Stocks

9. Arch Capital Group Ltd. (NASDAQ:ACGL)

Number of Hedge Fund Holders In Q2 2024: 37

Average Analyst EPS % Revision: 1.2%

Arch Capital Group Ltd. (NASDAQ:ACGL) is a diversified insurance company that offers property and casualty, health, worker compensation, automobile, and other products. The firm also has a presence in the reinsurance and mortgage insurance markets. A key differentiating factor for Arch Capital Group Ltd. (NASDAQ:ACGL) when compared to most other insurance companies is its underwriting cycle analysis tool called the Insurance Clock. Through this, it links its return on investment with the different stages of the economy, starting from insolvencies when reinsurance demand picks up and prices start to drop and ending at euphoria, where prices peak and businesses start to grow. This model has enabled Arch Capital Group Ltd. (NASDAQ:ACGL) to manage a tough insurance market quite well. Even though insurance providers have struggled to deal with the rising number of climate related catastrophes and a broader slowdown in the auto industry, Arch Capital Group Ltd. (NASDAQ:ACGL)’s Q2 2024 combined ratio was 78.7%. This marked a 1.1 percentage point over the year ago quarter, and a lower ratio indicates greater efficiency. Additionally, lower rates should provide a nice catalyst for the firm’s mortgage insurance business along with an expected uptick in the reinsurance market in 2025.

Artisan Partners mentioned Arch Capital Group Ltd. (NASDAQ:ACGL) in its Q2 2024 investor letter. Here is what the fund said:

“Arch Capital Group Ltd. (NASDAQ:ACGL), a global reinsurer, has experienced strong growth over the past year as reinsurance markets have been in an upswing in terms of pricing and premium growth, while rising interest rates boosted net interest income. Additionally, margins benefited from lower acquisition costs, better expense management and reduced catastrophe losses. In its mortgage insurance business, high interest rates are a headwind to top-line growth but a tailwind for margins. Arch is an industry leader capably managed by a long-tenured team that has achieved an enviable underwriting record while at the same time seeking opportunistic growth. It has shown discipline in pulling back from writing business when pricing is soft, patiently waiting for turns in the cycle to put its strong capital position to work.”