Arch Capital Q3 2026: EPS fell 15.7% to $3.00 as $234M of catastrophe losses cut underwriting profit 19%

Arch Capital earned $1,025 million for common shareholders in the three months to 30 September 2026, down 23.5% from $1,340 million a year earlier, and diluted earnings per share fell 15.7% to $3.00. Two things did most of the damage: catastrophe claims of $234 million (against $72 million a year ago, and including losses tied to the Iran conflict), and a $309 million swing in investment marks, from $210 million of gains to $99 million of losses as rising interest rates lowered bond prices. The per-share fall was smaller than the profit fall because Arch spent $1.43 billion buying back its own stock, cutting the diluted share count 9.2%.

These figures come from the earnings release and financial supplement furnished with Arch's 8-K on 27 October 2026. The full 10-Q for the quarter has not been filed yet.

Headline numbers

Some terms the rest of this note relies on:

• Combined ratio is the share of each premium dollar spent on claims and expenses. Below 100% means the insurance business itself made a profit. Arch's 82.5% means it kept about 17.5 cents of underwriting profit per premium dollar, 2.7 cents less than a year ago. The loss ratio is the claims part of that figure.
• Written vs. earned premium. Written premium is business signed in the quarter. Earned premium is the part of past and current policies counted as revenue this quarter, spread over the policy term. Earned premium follows written premium with a lag; Arch says the lag is about five quarters.
• Prior-year development is the change in Arch's estimates of claims from earlier years. "Favorable" means old claims cost less than reserved, and the released reserve adds to this quarter's profit.

Where underwriting profit went

Insurance (policies sold directly to businesses). Catastrophes took 5.7 points of the loss ratio, against 2.2 a year earlier, and the release says this "includes losses related to the Iran conflict." Excluding catastrophes and reserve changes, the combined ratio improved to 89.2% from 91.3%. Part of that improvement came from Bermuda qualified refundable tax credits (QRTCs), a government incentive Arch books as a reduction in expenses, which lowered the expense ratio to 33.6% from 34.4%. Net premiums written rose 2.7%. Excluding programs from the 2024 MidCorp and Entertainment (MCE) acquisition that Arch chose not to renew, the release says growth would have been 5.8%, led by international business.

Reinsurance (insurance for other insurers). Net premiums written fell 9.3% and earned premium fell 10.3%, which the release attributes "in part, to non-renewals and share reductions." Catastrophe losses rose to $124 million (6.9 points) from $29 million (1.5 points). Reserve releases on older years were much larger, cutting the loss ratio by 7.4 points against 2.6 a year ago. Without those releases this segment's results would have looked considerably weaker. The underlying combined ratio rose to 78.4% from 76.8%, and the release cites "changes in rate and mix of business."

Mortgage (insurance that pays lenders when homeowners default). Underwriting income fell 22.7% to $201 million. Reserve releases on older loans, mostly from "better than expected cure rates" (borrowers catching up on missed payments), cut the loss ratio by 15.4 points against 18.1 a year ago. Excluding them, the combined ratio rose to 41.6% from 32.7%. The release points to "a modestly higher level of delinquencies" and lower ceding and profit commissions.

What the headline numbers hide

• Most of the drop in GAAP profit came from investment marks. Net realized losses of $99 million against gains of $210 million account for $0.85 of the EPS swing ($0.29 lost this year against $0.56 gained last year). The release attributes the negative total return on investments (−0.42% for the quarter) "primarily" to rising interest rates. Arch's own operating measure excludes these marks, which is why operating EPS fell only 3.6%.
• The adjusted measure also leaves out a growing income line. Operating income excludes $224 million of income from equity-method investments (funds Arch accounts for by its share of their profit), up from $134 million. That item added $0.66 to GAAP EPS. So the gap between GAAP EPS ($3.00) and operating EPS ($2.67) this quarter works in GAAP's favour on this item, while realized losses work against it.
• The buyback did much of the per-share work, and it was partly paid for with debt. Operating income fell 12.7%, but operating EPS fell only 3.6% because diluted shares fell 9.2%. Arch bought 14.8 million shares for $1.43 billion at an average $96.62, about 1.42 times book value per share. In June Arch raised $1.98 billion of new borrowings and repaid $398 million. Senior notes rose to 15.7% of total capital from 10.3% a year ago, and interest expense rose to $62 million from $37 million. Only $725 million of buyback authorization remains.
• Buying above book value lowers book value per share. Book value per share fell 0.2% in the quarter, even with an 18.1% annualized return on equity. Two causes: buybacks at roughly 1.4 times book, and a $663 million fall in accumulated other comprehensive income, the unrealized loss on bonds (to −$1,076 million from −$413 million). Comprehensive income, which includes those bond losses, was $372 million, against $1,398 million a year ago.
• Tax credits flattered expenses. Bermuda QRTCs lowered expense ratios in insurance and reinsurance, and cut corporate expenses to $5 million from $28 million. The release does not say how large the total benefit was. They appear to be a continuing incentive rather than a one-off, but they are a policy benefit, not an improvement in how efficiently Arch underwrites.
• Cash conversion was strong. Operating cash flow was $1,759 million against net income of $1,035 million (year to date: $4,269 million). That is down 19.5% from $2,186 million, in line with the smaller premium base.
• Tax rate. The effective rate rose to 15.1% from 13.7%, so tax was a small drag on EPS, not a help.

On balance the quarter is understated: GAAP EPS fell 15.7%, but $0.85 of that swing is bond marks driven by interest rates, and catastrophe losses were more than three times last year's. The underlying business is shrinking at the top line, though, and per-share figures are being held up by debt-funded buybacks.

Did last time's read hold up?

Our Q2 2026 analysis expected underwriting income to keep compressing, warned that the insurance segment at 98.5% was "one bad quarter from an underwriting loss", and expected mortgage reserve releases to shrink.

• Compression: yes compared with last year, but not since Q2. Underwriting income was down 19.4% on the year, but up from $657 million in Q2 to $702 million, and earned premium rose slightly from Q2 ($3,985M to $4,014M).
• Insurance segment: better than feared. The combined ratio improved to 94.4% from 98.5% in Q2, and the underlying ratio to 89.2% from 91.6%, helped partly by tax credits.
• Mortgage releases: still shrinking slowly. They took 15.4 points off the loss ratio, against 15.7 in Q2 and 18.1 a year ago.

Outlook

Arch does not give earnings guidance. The release does not mention any targets. CEO Nicolas Papadopoulo described "a transitioning market where conditions are increasingly uneven," which suggests competition for business is increasing.

Our read on the trajectory:

• Premium is the main pressure. Reinsurance written premium is down 9.3% and earned premium follows it with a lag, so earned revenue should keep shrinking into 2027 unless insurance growth (5.8% excluding MCE non-renewals) makes up the difference.
• Reserve releases are carrying more of the reinsurance result. Releases took 7.4 points off this quarter's reinsurance loss ratio, against 2.6 a year ago. If they fall back, the underlying 78.4% is closer to what the segment can sustain.
• The buyback pace cannot continue at this level without more debt. $3.38 billion has been repurchased this year against $3.11 billion of year-to-date net income, and leverage has risen. Watch whether Q4 repurchases fall back toward earnings, and how much of the $725 million authorization is left at year end.
• Investment income is still growing. It rose to $451 million on larger invested assets and a 4.09% yield, partly offsetting lower underwriting profit.

Takeaway: Arch's underlying insurance results held up better than the 15.7% EPS drop suggests: catastrophes and bond marks explain most of it. But earned premium is shrinking, reinsurance profit relies more on reserve releases, and the stable per-share figures depend on $1.4 billion a quarter of buybacks that June's debt raise helped pay for. Book value per share went nowhere in the quarter.