Arch Capital Group Ltd. (ACGL): what the price requires

At today's price, Arch Capital Group Ltd. (ACGL) is priced for 11.2% return on equity. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/ACGL

Headline

FieldValue
TickerACGL
CompanyArch Capital Group Ltd.
Current price$103.11/sh
CompositionInsurance 46% / Reinsurance 48% / Mortgage 7%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basisfinancials
Return on equity needed11.2%
Return on equity now18.6%
ROE gap-7.4pp
Price-to-book1.54x

Solve inputs: computed at a 8.6% cost of equity with 4% terminal growth over a 5-year stage, on common book equity (FY2026); each 1pp of cost of equity moves the implied ROE ~1.5pp.

How unusual the bet is: within-range

ReferenceValue
vs own history-0.63σ
cohort percentile (of 80 peers)40
sustained it ~10 years at this level72%
implied end-window share0%

Valuation X-Ray

The price is supported by asset-based and earnings-power and relative-multiple value. A value/asset-supported name, not a pure growth bet.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset0.70x3justifies
Earnings0.49x2justifies
Relative0.23x3justifies
Growth1.27x1expensive

Families that justify the price: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 4.8%); the inversion above states its own rate.

Per-Model Detail (n=9)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth——no—
Bank Fair Value (P/TBV)—$239.590.43xyesTBVPS $67.24 × 3.56x (ROE (TTM) 20.1% / CoE 9.3%, g=5.0% (sustainable: 65% retention × ROE, 5% cap; not the terminal-growth assumption))
Relative ValuationRelative$162.690.63xyesP/E 11x (static sector reference · 2026-04), scenarios: 9.2x / 11.0x / 12.8x (bear / base = reference held flat / bull), EV/EBITDA 10x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$146.430.70xyesBV/sh $67.24, ROE (TTM) 20.1%, ke 9.3%
Two-Stage Excess ReturnAsset$213.920.48xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$81.351.27xyesRev $19.8B, growth 9% (input: historical growth; tapered), Terminal P/S: 1.6x / 1.9x / 2.2x (bear / base = today's held flat / bull, cap 8x)
Peter Lynch Fair ValueRelative$455.000.23xyesEPS $13.00, growth 35% (input: historical EPS growth), PEG=0.22 (Undervalued)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings——no—
Residual IncomeAsset——no—
Graham NumberAsset$140.250.74xyes√(22.5 × EPS $13.00 × BVPS $67.24) — Graham's conservative floor
EV/EBITDA RelativeRelative——no—
FCF YieldEarnings——no—
SBC-Adj FCF YieldEarnings——no—
Ben Graham FormulaEarnings$419.470.25xyesEPS $13.00 × (8.5 + 2×15.0%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset——no—
P/Sales SectorRelative——no—
PEG Fair ValueRelative$487.500.21xyesEPS $13.00 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x
Earnings YieldEarnings$140.540.73xyesEPS $13.00 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Share count CAGR (buyback)-1.6%

Deposit/float-funded balance sheet: debt is funding, not corporate leverage, and GAAP operating cash flow follows loan flows. Net-debt, interest-coverage, and cash-burn lenses do not apply. The solvency frame for a financial is regulatory capital and payout capacity (CET1, stress buffer, dividends plus buybacks against earnings).

Bullet Takeaways

Bull Case

The most surprising thing in Arch Capital's numbers is the disconnect between its demonstrated returns and what the market is willing to pay for them. The company has recently earned a return on equity near 18%, an elite level for a property-and-casualty insurer, yet at about 1.4 times book value the price implies the market expects only about a 10.4% return going forward. That is the market pricing in a near-halving of profitability that the first quarter of 2026 gave no sign of. Net income available to common shareholders rose to $1.04 billion, or $2.88 per diluted share, from $564 million a year earlier, with an annualized return on average common equity of 17.8%. The business is earning at the top of its range, and the price assumes it reverts to the middle.

The underwriting quality behind those returns is genuine, not a lucky quarter. The consolidated combined ratio improved to 81.7% from 90.1%, meaning Arch is keeping about 18 cents of underwriting profit on every premium dollar before investment income, and it did so across a diversified book. Reinsurance posted $441 million of underwriting income at a 75.9% combined ratio, and the mortgage-insurance segment delivered a remarkably low 22.3% combined ratio. Even excluding catastrophes, the reinsurance accident-year combined ratio held near last year's level despite rate declines, which the company highlighted as evidence of underwriting consistency. A company that maintains discipline as rates soften is one whose returns are driven by skill, not just a favorable market.

The valuation methods reinforce the gap. The bank-style price-to-tangible-book model, the right tool for an insurer, values Arch near $240 using tangible book of about $67 per share and the elevated return profile, and the excess-return and relative methods land near $146 to $163, all well above the $91 price (June 27, 2026). Arch is also buying back stock at these levels, shrinking the share count, which is accretive when the stock trades below the value its returns justify. The bull case is a best-in-class specialty insurer earning elite returns, with a diversified insurance, reinsurance, and mortgage book, trading at a discount to book-value-based fair value while management repurchases shares. The market is treating peak returns as already gone when they are still being earned.

Bear Case

The discount exists for a reason, and the reason is the insurance cycle turning over. Property-and-casualty insurance is one of the most cyclical businesses there is: when capital is scarce and losses are fresh, rates harden and returns soar, and when capital floods back in chasing those returns, rates soften and profitability normalizes. Arch's recent 18% returns are a hard-market peak, and the market is correctly skeptical that they persist. The company's own commentary in the first quarter flagged a more competitive market and pronounced softness in property-catastrophe reinsurance, the exact segment that drove the windfall, with the ex-catastrophe accident-year combined ratio already rising 130 basis points to 82.3%. The deterioration the bears expect is not hypothetical; it is showing up in the numbers as rates decline.

The peak-versus-sustainable problem is precisely what the price-to-book multiple is debating. Paying 1.4 times book for an insurer earning 18% looks cheap, but paying 1.4 times book for an insurer about to earn 10% to 12% as the cycle softens is roughly fair. The valuation methods that land far above the price, the price-to-tangible-book model near $240 and the earnings-based methods in the $400s, are extrapolating the current elevated return on equity and the current peak EPS. Capitalize a peak and you get a high number. The bear's point is that those methods are anchoring to a cyclical high, and a property insurer at the top of its cycle should be valued on its through-the-cycle returns, not its best year.

The catastrophe exposure is the tail risk that compounds the cycle. Arch took $174 million of pre-tax catastrophe losses in a relatively benign first quarter; a major hurricane season or a single large event can swing a quarter from strong profit to loss, and the softening reinsurance market means the company is being paid less to take that risk than it was a year ago. The mortgage-insurance segment, which posted a spectacular 22.3% combined ratio, is itself tied to the housing and credit cycle and would deteriorate in a downturn. The bear case is that you are buying a cyclical insurer at peak underwriting margins, into a softening rate environment, with catastrophe and credit tail risks, and the cheap-looking multiple is the market correctly pricing the normalization rather than missing an opportunity.

Valuation

An insurer is worth the return it earns on its capital, so the price is read off price-to-book rather than an operating multiple. At about 1.4 times book the price inverts to an assumption that Arch sustains a return on equity of only about 10.4%, against the roughly 18.6% it has recently earned, solved at an 8.7% cost of equity. Treat the figures as approximate. The comparisons are telling: the assumed return is within reach of what Arch has earned, the price-to-book sits in the lower half of the peer group, and on the historical base rate about 75% of firms earning this return sustained it for a decade. The read comes out within range, which is the model's way of saying the price already discounts a meaningful normalization from the current peak.

The valuation X-ray lands almost uniformly above the price, and the reason matters. The bank-style price-to-tangible-book model, the correct tool for a financial, values Arch near $240 by applying a 3.56 times multiple to tangible book given the 20% trailing return on equity. The excess-return method lands near $146, the relative valuation near $163, and the earnings-based methods, Peter Lynch and the Graham formula, land in the $400s because they extrapolate the peak EPS of about $13. The only method near the price is the discounted-future-market-cap method at $75. So the X-ray says deeply undervalued, but it says so by capitalizing a peak-cycle return on equity, which is exactly the assumption a disciplined buyer should question for a cyclical insurer.

The honest conclusion is that the valuation depends entirely on what return on equity you believe is sustainable. If Arch's underwriting skill lets it earn mid-teens returns through the cycle rather than reverting to 10%, the methods are right and the stock is cheap at 1.4 times book. If the softening rate environment pulls returns back toward the low end, the current multiple is roughly fair and the apparent discount is just the market pricing the cycle. This is a high-quality insurer whose cheapness is real on current returns and conditional on those returns proving durable as the market softens.

Catalysts

The first-quarter 2026 report, released in late April, was strong. Net income available to common shareholders rose to $1.04 billion, or $2.88 per diluted share, from $564 million a year earlier, with after-tax operating income of $901 million, or $2.50 per share, and an annualized return on average common equity of 17.8%. The consolidated combined ratio improved to 81.7% from 90.1% on a lower loss ratio. Reinsurance posted $441 million of underwriting income at a 75.9% combined ratio and mortgage delivered a 22.3% combined ratio, while pre-tax catastrophe losses were a contained $174 million. The company continued repurchasing shares.

The forward catalysts are all about the cycle. The items to watch are the trajectory of property-catastrophe reinsurance rates, which the company flagged as softening, the ex-catastrophe accident-year combined ratio as a gauge of underlying underwriting margin through the rate decline, catastrophe activity through the Atlantic hurricane season that can swing any quarter, the health of the mortgage-insurance book against housing and credit conditions, and the pace of share repurchases. The next quarterly print, due in late July, will show whether the elite returns are holding or beginning to normalize as competition intensifies. Continued mid-teens-plus returns with disciplined underwriting would validate the view that Arch's profitability is durable and the discount unwarranted; a meaningful combined-ratio deterioration would confirm the market's read that the current returns are a cyclical peak.

Sources: Arch Capital Q1 2026 results (stocktitan.net); ACGL Q1 2026 earnings call highlights (gurufocus.com); Arch Capital Q1 2026 earnings transcript (fool.com, 2026-04-29).

Peer Cohorts (Per Segment, With Filing Citations)

Insurance (reported)

Reinsurance (reported)

Mortgage (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

View the full interactive ACGL report on boothcheck