Is Arch Capital Group Still a Compelling Long-Term Buy Despite Its Recent Share Price Correction?

Arch Capital Group (ACGL) has experienced a notable share price correction in recent months, prompting investors to reassess its long-term investment potential. To evaluate whether ACGL remains a compelling buy, we must analyze its valutive attractiveness and earnings resilience in the context of industry trends and financial performance.

Valutive Attractiveness: A Deep-Value Opportunity

ACGL's valuation metrics paint a picture of significant undervaluation. As of the latest data, the company trades at a price-to-earnings (P/E) ratio of 8.6x, far below its peer average of 13x and the US insurance industry average of 13.4x. This discount is even more striking when considering ACGL's strong fundamentals. The company's current share price of $96.2 is well below its estimated fair value of $224.4, suggesting a potential upside of over 120% if the market revalues the stock appropriately according to analysis.

Equally compelling is ACGL's return on equity (ROE) of 17%, which exceeds the industry average of 13% and has driven a 27% compound annual growth rate in net income over the past five years. While the exact price-to-book (P/B) ratio for ACGL is not explicitly stated, the broader insurance sector's P/B ratio of 2.33 (for property and casualty insurers) provides context. ACGL's disciplined reinvestment of profits and robust balance sheet further reinforce its valuation appeal according to industry data.

Earnings Resilience: A Fortress of Underwriting Discipline

ACGL's third-quarter 2025 results underscore its earnings resilience. The company reported net income of $1.3 billion, or $3.56 per share, translating to a 23.8% annualized return on average common equity. This performance was driven by a 61.9% year-over-year increase in underwriting income, fueled by improved results in its Insurance segment and a relatively quiet hurricane season that minimized catastrophe-related losses according to company reports.

The company's combined ratio-excluding catastrophic activity and prior year development-stood at 80.5%, reflecting disciplined underwriting and favorable loss reserve developments according to financial statements. AM Best has recognized ACGL's operational excellence, upgrading its ratings to reflect superior balance sheet strength and enterprise risk management. Analysts have also raised price targets, citing ACGL's resilient underwriting margins and growing net investment income as key tailwinds according to market analysis.

Industry Trends and Risks: Navigating a Shifting Landscape

While ACGL's fundamentals are robust, investors must remain mindful of industry headwinds. The property and casualty (P&C) insurance sector is entering a soft pricing cycle, which could pressure margins in the medium term according to industry forecasts. Additionally, macroeconomic uncertainties-such as interest rate volatility and inflation-pose risks to investment income and loss reserve estimates.

However, ACGL's diversified business model, global reach, and proactive risk management practices position it to outperform in challenging environments. As noted by AM Best, the company has historically outperformed peers during market softness, a trait that could prove critical in the coming years according to credit rating analysis.

Conclusion: A Compelling Case for Long-Term Investors

Despite its recent share price correction, Arch Capital Group remains a compelling long-term buy. Its undervalued metrics, coupled with strong earnings resilience and disciplined underwriting, create a margin of safety for investors. While industry risks persist, ACGL's operational excellence and strategic advantages-such as its high ROE and upgraded credit ratings-justify a premium valuation over time. For those with a multi-year horizon, ACGL offers an attractive opportunity to capitalize on its intrinsic value and industry-leading performance.