Arch Capital's $300M Volume Surge Drives 166 Outperformance in Top 500 Stock Strategy

On July 29, 2025, Arch Capital Group (ACGL) closed with a 0.44% decline, trading at a volume of $0.30 billion, a 50.29% surge from the prior day. The insurer reported second-quarter net income of $1.2 billion, or $3.23 per share, down from $1.3 billion in the same period last year. After-tax operating income totaled $979 million, reflecting a 18.2% annualized return on equity. Share repurchases amounted to $163 million, while book value per share rose 7.3% to $59.17. CEO Nicolas Papadopoulo emphasized disciplined underwriting and dynamic capital management as key drivers of performance.

Underwriting results showed mixed segment performance. The insurance segment saw a 30.7% increase in net premiums written, driven by the MCE Acquisition, with underwriting income up 18.3% to $129 million. Reinsurance operations improved, with a 5.8% rise in net premiums written and a 23.2% increase in underwriting income to $451 million. However, the mortgage segment reported a 17.1% drop in underwriting income to $238 million, impacted by lower premiums and higher new delinquencies. Catastrophic losses for the quarter totaled $154 million, net of reinsurance, while favorable prior-year loss reserve development offset $139 million in liabilities.

Investment returns contributed $405 million in pre-tax net investment income, up 11.3% year-over-year. The combined ratio, excluding catastrophic activity and prior-year development, stood at 80.9%, up from 76.7% in 2024. The company’s effective tax rate rose to 14.7% due to Bermuda’s new corporate income tax. Despite higher expenses and catastrophe losses, Arch maintained a disciplined approach to capital allocation, with share repurchases and strategic acquisitions supporting long-term returns.

A backtest of a strategy buying the top 500 stocks by daily trading volume and holding them for one day from 2022 to the present yielded a 166.71% return, outperforming the benchmark’s 29.18%. The strategy achieved a 137.53% excess return, a 31.89% compound annual growth rate (CAGR), and a Sharpe ratio of 1.14, with no maximum drawdown recorded.