Shares of property & casualty (P&C) insurer Arch (ACGL, Financial) increased 37.9% in the quarter and helped performance by 193 bps and increased 41.2% for the year and helped annual performance by 193 bps. This was as the company increased premiums written and raised prices. This strong pricing is resulting in robust returns on investments, with increased earnings and cash flow that the company is using to repurchase its shares. We believe that Arch will continue to generate mid-teens returns on capital and that Arch’s valuation remains attractive.
Arch Capital Group Ltd. is a specialty insurance company based inBermuda. Shares increased due to favorable pricing trends in the P&C insurance market. During the quarter, the company reported earnings that beat consensus despite significant losses from Hurricane Ian. The stock also benefited from inclusion in the S&P 500 index, which prompted buying from passive funds. We continue to own the stock due to Arch’s strong management team and our expectation of strong growth in earnings and book value.
From Ron Baron (Trades, Portfolio)'s Baron Focused Fund fourth-quarter 2022 letter.
