Arch Capital Group Ltd.

and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. Before the company gets started with its updates, management wants to first remind everyone that certain statements in today's press release and discussed on this call may constitute forward-looking statements under the federal securities laws. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. Consequently, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may affect future performance, investors should review periodic reports that are filed by the company with the SEC from time to time, including our annual report on Form 10-K. for the 2023 fiscal year. Additionally, certain statements contained in the call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends the forward-looking statements in the call to be subject to the safe harbor created thereby. Management also will make a reference to certain non-GAAP measures of financial performance. The reconciliations to GAAP for each non-GAAP financial measure can be found in the company's current report on Form 8K, furnished to the SEC yesterday, which contains the company's earnings press release, and is available on the company's website at www.archgroup.com and on the SEC's website at www.sec.gov. And I would like to introduce your host for today's conference, Mr. Nicolas Papadopoulos and Mr. François Morin. Please go ahead.

Good morning and welcome to our fourth quarter earnings call. I begin by offering our thoughts and sympathies to all of those affected by the California wildfires. This is a terrible event that will require the efforts of many, including insurance companies, to help the affected communities recover and rebuild. At ARCH, we will, of course, fulfill our role in these efforts. As noted in yesterday's press release, we expect the wildfires to result in a net loss between $450 and $550 million, based on an industry loss estimate of $35 to $45 billion. Turning now to our results, ARCH had a solid fourth quarter, riding $3.8 billion of net premium, which is a 17% increase over the same quarter last year. The $625 million of underwriting income in the quarter is down 13% from last year, primarily due to losses related to CAD activities in the second half of 2024. Our full year results were excellent, with $3.5 billion of after-tax operating income and an operating return on average common equity of 18.9%, despite an increased level of natural catastrophes. Book value per share, a preferred measure of value creation, ended 2024 at $53.11, representing a 13% increase for the year and nearly 24% increase after adjusting for the impact of the $5 per share special dividend we paid in December. The decision to pay a special dividend was a result of ARCH's strong financial performance excellent capital position and represented an effective means of returning excess capital to our shareholders. We also repurchased shares worth $24 million in the fourth quarter. Both the dividend and the share repurchase reflect our ongoing commitment to effective and active capital management. Market conditions within our segments remain favorable, with a number of select growth opportunities ahead of us. As you may have heard from our peers this quarter, rate and loss trends vary by line of business and broadly offset each other. All hands do not point to the same hour on the underwriting clock. For example, we are selectively deploying capital to the area producing attractive risk-adjusted returns, such as insurance and reinsurance liability lines, specialty business uploads, and property tax reinsurance. Alternatively, In lines of business where competitive pressures have eroded margin to level below adequate, our underwriting teams are focused on improving our business mix within each of those lines to ensure our minimum profitability targets are met. Effective cycle management, the key to our strategy, requires empowering underwriters to execute on both sourcing and retaining attractive business without the constraints of production targets. In classes and subclasses where returns do not meet our minimum threshold, we have the agility and the incentives to reallocate capital to more profitable opportunities across our diversified platform. And as we have demonstrated throughout our history, we will not hesitate to return excess capital to our shareholders when appropriate. Now I will offer a few highlights about the performance of our underwriting segments, starting with reinsurance. which finished the year with a strong fourth quarter, delivering $328 million of underwriting income. The full year results for the reinsurance group were excellent. The segment delivered a record $1.2 billion of underwriting income, while writing over $7.7 billion of net premium. At the January 1st renewal, we grew the reinsurance business by selectively increasing our writings in property, liability, and specialty lines. Archery's status as a leading global reinsurer is a result of its focus on addressing broker and client's needs, combined with its underwriting vigilance and high degree of scrutiny on the performance of its business. Throughout the hard market, our team has had the conviction to increase its support and relevance with brokers and clients, making Arch a more valuable collaborative partner when other reinsurers revert and in some cases, even withdrew capacity. Now moving to insurance, which also seized on strong growth opportunity in 2024. Although, Eric and Helene and Milton limited fourth quarter underwriting income to $30 million. For the full year, the insurance group brought $6.9 billion of net premium, a 17% increase from 2023, and delivered $345 million of underwriting income. Growth was enhanced by our acquisition of the US mid-corp and entertainment business. Although it's still early, the performance and integration of the mid-corp and entertainment business are consistent with our expectations and objectives. Organic growth in North America came from our casualty business units, which more than offset premium decrease in professional lines. International insurance remained a bright spot, rising over $2 billion of net premium in 2024. primarily in specialty lines out of our large platform. Overall, rate increases remain slightly above last trend, keeping return margin relatively flat in the fourth quarter. The outlook for both North America and international insurance growth is favorable for 2025. Looking ahead, we expect primary markets conditions to remain competitive, given the attractive underlying margins, However, we have experienced a slowdown in new business volumes as competition for premium volumes has increased. The mortgage segment contributed $267 million of underwriting income in the fourth quarter, resulting in the first consecutive years of delivering over $1 billion of underwriting income. Fundamentals remain positive, including strong persistency of our $500 billion-plus insurance-enforced portfolio, while the overall credit quality of the book remains excellent. The delinquency rate in our US MI business increased modestly to just over 2% at the end of December, but remained near historic lows. Increased delinquency can be attributed to expected defaults in areas hit by natural catastrophes and the seasoning of the insurance inflows. Overall, the US mortgage insurance industry remains disciplined despite suppressed mortgage origination due to low housing supply and high mortgage rates. Finally, to the investment group, which delivered nearly $1.5 billion of annual net investment income from an asset base that increased to over $40 billion after accounting for the special dividend. Rising investment yields and the growth of our investable assets from strong operating cash flows provide additional tailwinds for our earnings and book value growth. Overall, 2024 was another excellent year for ARCH. Looking ahead, our primary goal is to maintain attractive margin despite expected heightened competition. Our strong underwriting culture, proven track record cycle management, dynamic capital management capabilities, and progress to date in becoming a data-driven enterprise give me confidence in our ability to navigate ever-changing market dynamics with a clear objective of maximizing shareholder return over the long term. As we officially turn the page to 2025, I want to recognize the hard work and dedication of ARCHE's nearly 7,000 employees who share in our entrepreneurial culture that demands and rewards excellence to the benefit of our clients and stakeholders. Now I will turn it to François to provide more detail on the financials before returning to answer your questions.

Thank you, Nicholas, and good morning to all. As you know by now, we closed 2024 with fourth quarter after-tax operating income of $2.26 per share for an annualized operating return on average common equity of 16.7%. For the year, our net income return on average common equity was an excellent 22.8%. Once again, our three business segments delivered excellent underlying results with an overall ex-cap accident year combined ratio of 79% for the quarter and 78.6% for the year. Current accident year catastrophe losses were $393 million for the group in the quarter, split roughly 60% and 40% between the reinsurance and insurance segments respectively. Most of our catastrophe losses this quarter are due to Hurricane Milton, a fourth quarter event, with an additional contribution from Hurricane Helene where we saw some delayed emergence of claims given the late occurrence date in the third quarter. As of January 1, our peak zone natural cap probable maximum loss for a single event one in 250-year return level on a net basis increased slightly and now stands at 9.2% of tangible shareholders' equity. Our PML remains well below our internal limits. As we look forward to 2025, with the recent addition of the mid-corp and entertainment business and current market conditions in property, We expect our catalog to represent approximately seven to 8% of our full year group wide net earned premium. Our underwriting income in the quarter included 146 million of favorable prior development on a pre-tax basis, or 3.5 points on the combined ratio across our three segments. We recognize favorable development across many lines of business, but primarily in short tail lines in our reinsurance segment and in mortgage due to strong cure activity. As we discussed last quarter, the acquisition of the mid-corp and entertainment insurance businesses has impacted some key performance metrics for our insurance segment. First, the net written premium coming from the acquired businesses was $393 million for the quarter. contributing 27.1 points to the reported quarter-over-quarter premium growth for our insurance segment. Second, the acquired business lowered the insurance segment's accident-year XCAT combined ratio by 1.6 points this quarter. This result was due to the current quarter's acquisition expense ratio that was lowered by 2.1 points due to the write-off of deferred acquisition costs for the acquired business at closing under purchase gap, and an operating expense ratio that was lowered by 0.8 points as our mid-corp operations aren't fully ramped up yet. Partially offsetting these benefits was an increase in the accident-year ex-cat loss ratio of 1.2 points, reflecting the underlying results of the acquired business. On a related note, we expensed $99 million this quarter through intangible amortization, more than 75% of which was for the mid-corporate entertainment acquisition. This expense was in line with our expectations as we communicated last quarter. On the investment front, we earned a combined $548 million pre-tax from net investment income and income from funds accounted using the equity method. or $1.43 per share. Our net investment income this quarter was partially impacted by our $1.9 billion dividend paid in December, which entailed that we liquidate a portion of our investment portfolio. Cash flow from operations remained strong. It was approximately $6.7 billion for the full year, up 16% from 2023. Our effective tax rate on pre-tax operating income was an expense of 6.7% for the quarter and 8.2% for the full year. As we look ahead, we would expect our annualized effective tax rate to be in the 16% to 18% range for the full year 2025, reflecting the introduction of a 15% corporate income tax in Bermuda. On a cash basis, we will start recognizing next quarter some of the benefit we accrued with the establishment of the $1.2 billion deferred tax asset at the end of 2023. As you may have heard on other calls, the recent OECD guidance may partially impact the realizable value of this DTA. We will keep you apprised as additional information becomes available. In closing, our balance sheet remains extremely strong with common shareholders' equity of $20 billion after recognition of the 1.9 billion common dividend that was paid in December. Our debt plus preferred to capital ratio remains low at 15.1%. With these introductory comments, we are now prepared to take your questions. Sylvie.

Thank you, Mr. Morin. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please lift the handset and make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal for questions. And your first question will be from Elise Griesman at Wells Fargo. Please go ahead.

Hi, thanks. Good morning. My first question is on the insurance underlying loss ratio. I mean, I recognize, right, Francois, you highlighted, you know, some of the impact, right, from the Allianz deal coming in, right, a little bit over one point. I calculated kind of ARCH standalone running at just under 57, which is close to the Q3. Is it right way to think about it that that's about where ARCH is and then kind of blend in, right, this a little bit over one point from mid-corp so that insurance underlying is somewhere in the range of 58 on an ongoing basis, something like that?

Yeah, that's about right. I think the impact of MC is call it on the loss ratio about one point. So whatever the assumption you have around the pre-MC kind of run rate loss ratio, which is pretty stable, has been pretty stable. There's some movements up and down from quarter to quarter. But generally speaking, it's been stable. And introducing the MC maybe adds about one point to that.

And then my second question is on reinsurance, right? You guys, you know, pulled back a little bit at mid-year 24. Now the PML went back up, right? But it's flat, you know, 1-1-25 with 1-1-24. Did you see conditions get incrementally better at January 1 or just trying to understand the thought process around, you know, bringing the PMLs back up a little bit.

No, I think what's happening is that we like the business. So I think, you know, absent the competitive nature and other people liking the business too, I think we're looking to write more of this business. We think the returns are quite attractive. And I think at 1.1, we had some opportunity to do so based on our positioning. So I think we were pleased by that, I think.

And then I guess the follow-up to that is, right, the California fire is a pretty big loss. Do you see that, you know, being able to impact other cat renewal seasons in 25? Some of it, I guess, might bleed to 1-1-26. How do you see the market impact from the California fires? And is this something, you know, where you guys would expect your PML and cat writings to go up during the year?

So I think, you know, as I mentioned in my remarks, I mean, this is a significant loss for the market. I mean, we pitch it between $35 and $45 billion. We believe that a significant part of that losses will go to the reinsurance market. And I think most reinsurers, including ourselves, we start the year with a loss ratio, you know, in the 20s or the 30s or depending of your luck, maybe higher than that. So I think it would, it should, you know, damper the enthusiasm of, you know, many markets trying to be heroes and writing the business. So I would think that it will have an effect on the rates at, you know, for the rest of the year.

Thank you. Thank you. Next question will be from Mike Zaremski at BMO. Please go ahead.

Hey, thanks. I guess first question, I'll just go back to the catastrophe load guidance 7 to 8. So probably just obvious, but that includes, right, it's higher than the historical 6 to 8, mostly because of the 1Q California losses. Is that correct?

A little bit, but also the MCE acquisition adds, you know, on a relative basis, kind of adds a little bit of, you know, of load to, you know, to increase the cat load. Because it's a heavier property book than people, you know, realize. It didn't really impact our PMLs because it's in different zones. It's more distributed. But when we think about you know, the contribution to the cat load throughout the year, it has a meaningful impact.

Okay. I would have actually, with plugging in the Cali losses, I actually would have thought the low would have been a little bit higher, but okay, good color. Switching gears just to the, I guess, one of the elephants in the rooms for lots of insurers, just going back to the kind of the casualty GL umbrella environment. And some of the prepared remarks was, you know, said that overall rate increases remain slightly above loss trend. I think that was the primary insurance marketplace. Any comments on whether, you know, what you're seeing in your GL book? I know that, you know, you guys are one of the more honest ones in my humble opinion. And at the investor day, you know, you said you'd probably be adding small amounts to your GL reserves, but, you know, nothing that, uh, that's really too out of trend line with what you've been doing for a while now and better than the industry. But any updated commentary on what you're seeing there?

Yeah, I think I'll answer in two parts. One, on the reserve position, we didn't add to our reserves. We're very comfortable with the reserve position, both in insurance and reinsurance. You know, our actual versus expected analyses or year-end analyses all are supporting that that view that our reserves for prior accident years are very adequate, so no concern there. But as we look at second half of 24 and into 25, yes, we are seeing rate changes keeping up with loss trends, and even exceeding in some places, so we're comfortable with the environment there. But we also recognize that there's a lot of uncertainty there, so we are Being cautious, prudent, we are in some specific very targeted areas, increased or initial loss picks, but it's not, I think I want to make it clear here, it's not a reflection of adverse development or signals or data telling us that we missed a mark on the old years. It's very much a function of the current rate environment and how we perceive the risk around our initial loss picks. And for that reason, we're choosing to be a bit more prudent.

Okay, got it. And just lastly, real quick, thanks for the tax rate guidance. Is the DTA that was established, I think some peers have said that there could be tweaks to the DTA due to guidance from Bermuda. Is that something that's in flux or any way you could kind of... a handicap, whether, you know, if a DTA was influx, would it change materially or just a little bit?

Yeah, I mean, the guidance right now, and that's an important thing, it's guidance, it's not the law, which, you know, we do follow, obviously, Bermuda law, which allows us or instruct us, really, to carry the DTA. The recent guidance from the OECD suggests that, you know, we may only be able to realize up to 20% of that amount. That is still, again, that's the latest guidance. I mean, things change pretty quick in this when we start talking about taxes. But if, you know, I'd say, you know, from your perspective, maybe worst case, that's kind of what may happen is that we end up only realizing 20% of this amount and the rest we might have to write off at some point. um you know in 26 or late 26 or 27 but for the time being bermuda law has not changed and that you know that's what we're following appreciate the color thank you next question will be from jimmy buller at jp markin please go ahead hey good morning so just had a question on a different topic on mi reserve releases can you go through the details on

What's driving those and how much of that is from the last one to two years versus maybe a few years back? And just your overall expectations for margins in that business.

Yeah, I mean, the reserve releases come from both, I mean, from all three of our segments, right? There's a meaningful amount from USMI. Again, that's a little bit of the same story that we've been talking about the last few quarters where We, based on conditions at the time, I want to say in 22 and 23, we had set up initial reserves on the delinquencies that were reported at the time. And it turns out that people have been curing and severity has not been to the level that we thought. So that's just a normal, I'd say, kind of... you know, process that the reserving, you know, we go through with our reserves at USMI. I'd say for the other pieces, a little bit of the same, I'd say in the CRT business where, you know, it's a slightly different methodology, but we have initial loss picks on that business. And that has proven out to be a little bit kind of in excess of what we need today. So there's been some releases there. And finally, the international book, a little bit of the same too, where You know, there's different methodologies in place, but the long story or the short of it maybe is that, you know, all three books or all three pieces of our mortgage segments are performing really, really well. So we like the margins. We think the margins are healthy. We don't see any deterioration in how we think about, you know, the business and the returns we're writing today. So we're very, very excited about it.

And then on share buybacks, I'm assuming part of the reason you did a little bit of buybacks this quarter versus none before was just the decline in the stock price. So assuming the stock stays around here, reasonable to assume that you'd be active throughout 25 as well?

For sure. I mean, it's something we look at, you know, regularly. I mean, all the time. I mean, in this particular situation, yes, there's a little kind of, you know, opportunity late in the fourth quarter. But, you know, our capital position remains strong, even with, you know, the California wildfires. I mean, that's part of the volatility we may see from time to time. But, you know, whether, again, we will not sit on a level of excess capital that we don't think we can deploy in the business. So if we don't, you know, we still think we can grow. We are bullish about 2025. The market conditions are still really good. But, you know, can we deploy all the capital we have that we generate? Maybe not. And at that point, we'll return it. And if the price is right, we think share buybacks are a great way to do that.

Yeah, I think the order of play is that we... we want to look at where we can deploy capital attractively in the business. So I think that we do that all the time, I think. And, yeah, after a while, when, you know, periodically we assess our capital position, and if we see that, you know, the opportunities may not be there to deploy all the excess capital, that's when we consider the most effective way, I would say, at the time to return capital to our shareholders.

Thank you. Thank you.

Next question will be from Wes Carmichael at Autonomous. Please go ahead.

Hey, good morning. Thank you. A question on favorable development in the quarter, particularly in reinsurance. Can you just give us a little bit of color on what drove most of that release and maybe if you had any strengthening? I think you mentioned short tail lines and prepared remarks, but any more color would be helpful.

Yeah, the vast, vast majority is on property cap and property other than cap. So that's what we consider to be a short tail. We were flat on casualty. So across the reinsurance segment, so no development on casualty and, you know, a couple of moves, you know, up and down, marine, other small lines, other small items. But that's the bulk of it. It's really property. Some is, you know... I'd say prior caps, meaning kind of large events that we had reserved for that are developing a bit favorably. Some of it is just, you know, the IB&R we hold for, you know, miscellaneous kind of traditional losses that has proven out to be in excess of what we needed. So that's kind of how we recognize it this quarter through those lines of business. Got it. Thanks.

In prepared remarks, I think maybe a broader comment, but you mentioned some competitive pressure where that's eroded margins in certain lines of business. Can you just talk a little bit about where that might be more pronounced?

Yeah, so I think I was thinking this question was going to come up. So I think, you know, it's mainly in two areas. I would say the most visible one is, you know, I would say public, public DNO, where, you know, I think we've seen significant rate decrease in the last two years and double digits. That seems to be tempering, but it's reach a level that you really have to ask yourself, account by account, is the overall line still profitable? And the second area that we're watching is the cyber area, where also on the excess side, we've seen double digit rating decreases and And the supply of capacity in both, you know, public DNO and cyber that don't seem to be wanting to reduce, I think.

Thank you.

Did you have any further questions, Mr. Carmichael?

Yeah, I guess I'll follow up with one more, but just on MI and the delinquency take up. I think you mentioned that can be impacted by cat-exposed areas, and we obviously had a couple sizable storms last year, but just hoping you could unpack a little bit with what you saw on the tick up there.

Yeah, I mean, it's very much part of the natural process. As you'd expect, some people were affected by these events, and, you know, once they, you know, missed two consecutive mortgage payments, they turned delinquent, and, you know, that's what we fully expected would happen in the fourth quarter. About half of the increase in the delinquency rate is directly attributable to these cat affected areas. I mean, that's our best estimate at this point. The historical cure rate on these types of delinquencies driven by natural events is extremely high. So that's why we think the financial impact ultimately will be minimal. But currently, that's how the process works. They show up in the delinquency rate, and we reserve for those. But typically, those get resolved or cured at a high level over time.

Thank you.

And just quickly, I'll add, I mean, just I'll add quickly on the California wildfires issue. Slightly different type of exposures. We expect minimal, again, very early, too early to know. But given the types of mortgages that exist in these areas, we would not expect to be impacted at all or very, I mean, certainly not significantly at all due to the California wildfires. Understood. Thank you. Yep.

Thank you. Next question will be from David Motomaden at Evercore. Please go ahead.

Hey, thanks. Good morning. I had a question, and I saw the solid casualty reinsurance growth in the fourth quarter as well as 2024, and it sounded like that continued at 1-1-25. Yeah, I guess I'm wondering if you could just talk a little bit about the rate adequacy specifically within the casualty reinsurance line. I know that's a broad line. um but um a little surprising to see you guys lean in there it sounds like others have been um more critical on just the rate adequacy there so i wonder if you could elaborate a little bit on that yes i think you know the we started from a position that we were really i think underweight on the on the casualty you know treaty or insurance and i think our

Our view, and it's true, by the way, on the insurance side is that we, you know, we've tried over the years to, you know, to get into programs that are more, I would say, specialty, casualty. Think of it as more with an ENS flavor. So similar to what we would be writing, you know, growing on the insurance side. So I think it's been a while, but I think based on the, you know, the, The additional cloud that's, you know, the value of the brand on the reinsurance side, I think we've been, and our seeding companies, you know, forecasting some wavering from maybe some of the reinsurance or less appetite for the casualty, I think we've been able to finally get onto programs or insurance programs that we think are backing the right people to take advantage of the opportunity. So that has been really the engine behind the growth. uh you know we're not underwriting uh uh the market we uh we're just underwriting selective underwriters that we think have the the know-how and uh and the expertise to to be able to uh to deliver attractive return for for us so great yep understood yep definitely you guys are underweight there so that makes sense um and and

So maybe just switching gears to the insurance segment and just wanted to get a little bit more color on the current accident year loss pick increases that you noted. It sounded like it was minor, but wanted to just get a little bit more detail on what lines it was. And it didn't sound like that had any impact on the prior year reserve, any prior year reserve impact. But just wanted to understand how that happened.

Yeah, I mean, again, roughly if we break it down, call it a third of the increase is due to the mid-corporate entertainment inclusion or addition to the segment. Another third, I'd say it's lines of business where we just are reacting to the right environment. An example of that would be professional lines like both Cyber and D&O where you guys have seen it, we've seen it, you've heard it. I mean, rates have been coming down significantly. over the last couple of years pretty significantly, and that's a big part of our book. So naturally, I think you'd expect us, and we are booking a higher loss ratio this year than we did a year ago, and that's just a function of the rate environment. So that's an example. Another example is some of our auto warranty product, our gap product, where you know, due to, you know, the, you know, different market conditions, different economic realities with the value of used cars and what we insure and what we cover, you know, loss ratio inched up a little bit there. So nothing that was surprising to us, but again, we're reflecting or reacting to the data. And, you know, that's, and, you know, obviously there's always mixed a little bit at the end, but those I'd say are some examples of kind of minor, kind of small adjustments that contributed to the overall increase.

Got it. Okay. Yeah, so it doesn't sound like that was any GL or umbrella-related PIC increases. It was more in other lines. Correct. Great. Thank you. You're welcome.

Next question will be from Andrew Kligerman at TD Securities. Please go ahead.

Hey, thanks a lot. First question, maybe you could drill down a little more into the casualty lines, the ENS areas of casualty where you'd like to grow or where you are growing in both insurance and reinsurance respectively. And then with that, could you give us a sense of the rate changes in those areas in both reinsurance and insurance respectively?

Yes, those are, I would say, for the large part, similar book of business. So it's really ENS, what I would call ENS liability, and it's more middle to high excess layers where we've seen the market reacting to the propensity of larger losses in the last few years. So what's happening in that market is people used to have, on the retail side first, big limits. So once the admitted market decides that they're not going to be able to offer those limits anymore, by definition, If you had a $200 million program with maybe five or seven players, now that the admitted players decide to reduce their limit to 10 million, you're going to need 20 people. And so the way the market works is, and that has been going on for a while, a lot of that business now is getting repriced. into the ENS market, not only on the pricing side, but also on the terms and conditions, you're able to get exclusion that you will not be able to get on the, on the, on the, on the admitted retail side. So we, we lack, you know, that, that business we've been writing, that business has been underway from that business for years, you know, and, uh, we, we have experience. We've been writing the business for over 20 years and we have, uh, you know, really specific line of business. I'm not going to go over it over the call, but that we actually have experience in it. We have, you know, we know the venues where to write it. We know, you know, the type of severity of claims. We know the exposure to, you know, commercial auto that's embedded in those risks. And so we're able to selectively, and good companies do that, selectively pick a subset of the market, and we're still getting, you know, very decent rate increases. I think double digits, you know, and I think it has been, the rate increases have been going on for a while. They were, you know, back in the 20s, they were in the double digit, then they went to the single digit, then we're back in the double digit of late. And so we think we're getting rates of a trend. I think we think the business underwritten properly with the right limits, I think could be very attractive. But you have to pick and choose. You know, it's not, again, a cross the board bet that we make.

And, you know, that's very, very helpful answers. I guess as I think about it, you know, a lot of your competitors are running scared on the high layer excess of loss casualty, just given the inflationary environment. So maybe just a little color on And you kind of gave some of it just in terms of your experience in the market, but maybe a little color why you don't fear that that could get out of hand and we could wake up one day and just see Arch get hit with a lot of these things kind of jumping into the high layers.

So this is what markets do. When you have a lot of severity losses, whether it's property or whether it's liability, The reaction of the market is to cut limits. So I think if you think of it, if you have a $50 million limit, you're writing a $100 million portfolio, two shock loss and your loss ratio is 100%. I think what we've seen is people cutting their limit dramatically to fives and tens. So now, you know, when we get the full tower losses, the contribution to your portfolio is $5 or $10 million. So it makes, you know, the... The beauty of diversification, it makes your loss ratio a lot more stable. And I think when this happens, because what I said earlier, before to do like a $200 million tower for a program, you needed five, seven markets. Because now you need 20. By definition, it costs a lot more. And so the price adequacy is a lot better. So that's what we're seeing.

Got it. Thanks a lot.

Thank you. Next question will be from KV Montessori at Deutsche Bank. Please go ahead.

Thank you. Another question. That's why you see good growth opportunities. We're seeing good rate increases on the primary side, which is also helping quota sharing insurance. The sitting commissions didn't change much at 1-1, despite the adverse development that carriers continue to face. My question is, Was the incremental supply of casualty reinsurance at 1.1 higher than what you would have expected? And I know you're writing both, and yes, we depend on the specific lines, but is it currently more attractive to write new casualty business on the primary side rather than on the reinsurance side?

You know, I suppose I don't answer the first question. I think the supply of, you know, casualty 3G reinsurance, I think we're hearing bubbles of people on the call saying that they don't think it's attractive. So hopefully they withdraw. But right now, I think there's plenty of people willing to ride the business. So I think it's, you know, it's a lot of the supplies and demand. I mean, the Sydney Commission will go down the day where people are putting their foot on the and say, listen, I'm not going to write it unless the sitting commission is down 2% or 3%. So we haven't seen that, even on the business that we place ourselves, we haven't seen that. So for sure, I think the math for the reinsurer, they get the rate increase, they get a lower sitting commission, it helps justifying why you would write those business. So But I think for us, I think we are more bullish on the primary side today, on the E&S side, because I think that we have a true expertise there. We underwrite the business one by one. And I think we have, I would say that's, I put it on the list, I would say that goes number one. Being able to, you know, there's good competitors of ours, people we admire or we hire underwriter from. I mean, being able to to support those people through our insurance team, I think it makes sense to me. So I think, yeah, I think the commission may be a little high, but I think if you pick people that can outperform on the loss ratio, you may still be all right.

Good. And my second question, still on growth on the primary side this time. Early days, but can you give us an update on how the integration of MidCorp is going? and if the growth prospects, how that's evolving versus your expectations prior to the deal?

Yes, I think we're pretty much on plan, to be honest. I think the integration is a big lift, but I think we are pretty comfortable so far that things are pretty much on plan. In terms of the business itself, it's early to tell, but the business is pretty much what we expected, and I think it's I don't think it's better or worse. I think it's pretty much what we had planned for. And I think the good news for us on the mid-corp aspect is that we're seeing some double-digit threat increases on the property side. And also the liability side. So I think on the property side is really driven by the secondary periods, you know, that have, you know, that, you know, not only for us, but for others on the market side have been a problem in the past. So people are, you know, we're underwriting around it, but also getting rate increase. And we're seeing the same, you know, some of the same rate increase on the liability and the GLs.

Thanks.

Thank you. Next question will be from Alex Scott at Barclays. Please go ahead.

Good morning. First, what I have is on the PML. I just want to understand, you know, to what degree you all have exposure to aggregate reinsurance treaties and just, you know, when we think about a pro forma for some of the wildfire losses, would that, you know, cause any upward pressure of node to the PMLs as we, you know, think about heading into wind season?

So we do some, but we have very limited exposure to aggregate treaties. I think it's, as a general underwriting philosophy, it's hard enough to price the severity. You know, the frequency is really, really hard to price. So I think we We do it, but when we really feel that we have, because of the line of business and the exposure, we could have a good grab on the frequency or we get enough away from the frequency that maybe providing an aggregate cover may make sense. So we have very limited exposure to aggregate covers. In terms of the The PML, can you repeat the second question? I just forgot.

Well, it was along the same lines. I was just trying to understand it. If you had exposure to aggregate treaties, then to what extent would it potentially increase your PMLs? Just thinking through, for example, a primary this morning announced a wildfire number that know when you look at their baseline cap budget i think it would you know potentially cause them to pierce the aggregate yeah my guess is immaterial for us got it okay um and then just as a separate follow-up on um on mid-corp i just wanted to probe there now that you have the book it sounds like things are going to plan but Could you talk about what portion of those premiums that you've gotten in are going through the heavier remediation and just how we should think about the trajectory of premiums considering that there's still some remediation work going on in the background?

I think it's mainly around, I would say, the program book of business. When we bought MidCorp, I remember again, I think there was a $500 million book of programs and This is not why we bought MidCorp, and I think we have ourselves a significant, I think, something like a book of business. I think that's where we're trying to integrate their teams with our teams, and we have a very defined risk appetite for the type of... underwriting manager that we do business with, the type of back office integration that we require to get the information very quickly. So I think we are going through their book of business to make sure which one qualifies and which one doesn't.

Yeah, to add to that, I mean, we have already kind of taken action on a number of programs, but given the The period to notice, I mean, it will start to show more in the second half of 2025, the impact of those actions, on the top line at least, and certainly we think the bottom line, the loss ratios will follow as well.

Okay, thank you. You're welcome.

Next question will be from Andrew Anderson at Jefferies. Please go ahead.

Hey, good morning. You'd mentioned deploying capital into London specialty markets. I would have thought that's an area where perhaps a bit more competition has come in and maybe rate is decelerating, but perhaps still at an adequate level. Could you just maybe talk about the growth environment there?

Yes, I think we, you know, I'm personally and I think we are bullish in the London market. I think the thing that, yeah, there's more competition. I think rates have, you know, have flattened in certain of our business. But I think the thing that helped us in the London market is that we've grown from being a sub-scale business to a business today that's right close to, you know, in the London market, probably a billion five or more of premium. So we are one of the... And the market is consolidating around a fewer number of carriers. So we are... we are one of the beneficiary of that consolidation. We're not the only one, but I think we're beneficiary, and we build, the team has done an amazing job building leading capabilities in a number of lines of business, and that makes a huge difference. So I think we get to pick first, which in our business is a huge advantage.

Thank you. And then maybe just within reinsurance, it sounds like still kind of positive on PropCat. The other specialty line, I realize there's probably a number of different businesses in here, but it declined in the quarter. Can you maybe just touch on the drivers of the decrease year over year?

Yeah, so I think, you know, the first quarter is really – smaller so smaller of the four quarters so and you know, we Think I want people to understand on your insurance. It's true in the insurance as well Is that we are extremely dynamic, you know, we don't you know, if something, you know doesn't fit or a seeding company decide to in for instance happen the seeding company decide to change from proportional to to excess and Premium in itself is never a target. We're not trying to replace the premium. We're actually looking for profitable premiums. Those are two different concepts. So I think, you know, in the fourth quarter, what happened is I think we, you know, we're starting to have a negative bias on cyber, to be honest. I think we are a big provider of quota share on the cyber side. So a couple of our contracts, you know, either the seeding company retain more, which I think is one, or we may have cut back on another one based on the new terms and conditions. And that explains most of it.

Thank you.

Thank you. Next question will be from Mayor Shields at KBW. Please go ahead.

Great. Thank you very much. I guess one question for 2025 on the insurance segment. Can you talk about how reinsurance purchase is your reinsurance, outward reinsurance purchase has changed? I don't know whether that's a market question or mid-core question or both.

So I think, you know, maybe if I understand this, how did it change? Or what's the outlook? I think the one change... The one change that we had to do is we had to, you know, Allianz was buying reinsurance to cover the mid-core portfolio, a lot of it being property, some of it being casualty. So I think we have won one. I think we're on the property side. I think we had to, and they bought large limits, you know, limits of up to $700 or $800 million. So I think we had to, and that was one thing we bought. I mean, so we had to transfer that reinsurance onto, you know, onto an ARCH, you know, managed framework. So outside of the Allianz seeded department, and within the ARCH seeded department. So that happened at 1.1. I think the team did a great job, you know, and we kept the capacity, which is a huge part of the value proposition that the mid-corp offer, you know, is like... To be able to compete in the middle market, you need large capacity, up to a billion dollars on any one account or location. So I think by being able to do that, I think we secured a lot of the brand or a lot of the value that we bought. So I think that was a very satisfactory outcome for us.

Okay, great. Thank you. And then Francois, you mentioned that there's a lot of property and therefore cat risk within the MC portfolio. Right now, obviously the underlying loss ratio is elevated. Once all of that is done, should MC have a lower attritional loss ratio than the legacy arch side of things because of that cat exposure?

So I think the cat exposure of the mid-corp business is more around the secondary period than it is around the primary period of a hurricane. And so I think that was something attractive for us because it was very complementary to the footprint that we had. So I think, you know, going forward, I think, you know, those secondary periods, you know, attritional catalyst ratio, they remain. That's part of it. I mean, we... we underwrite, you know, we underwrite the flood, we underwrite the tornadoes, we underwrite the, but ultimately the, so I don't, I really don't expect, you know, the attritional loss ratio coming from the mid-corp to a really chance going forward.

Yeah, that's, yeah, exactly that. I mean, I think pre and post MCE after all that we fully integrated the business, you know, I would not expect a significant change to you know, the ex-cat loss ratio. Okay, perfect.

That's what I need to know.

Thank you. Next question will be from Brian Meredith at UBS. Please go ahead.

Yeah, thanks. First, Nicholas and Francois, I'm just curious, how are you thinking about the potential impact of tariffs on your business?

Nothing significant for us at this point. You know, as you know, I mean, The businesses are transacted locally, you know, between local carriers in each of the jurisdictions in which we operate. And, you know, so from that point of view, I don't think there's an issue there or any concern. Does it, you know, does it slow down trade in the broader sense? Maybe. I think that's, you know, I could see a potential impact on, you know, our coal fast investment, for example. I mean, you can see some reductions in world trade and that might have an impact. But I think too early to tell would be our answer. But, you know, that's something obviously we're watching.

Great. Thanks. And then second question, I think you've kind of answered this roundabout way, but what are you assuming right now in your reserving and pricing with respect to GL, call it lost trends?

I mean, it varies by cell, but certainly for the excess business, it's double digits. It's like 12% to 14% on the primary ENS kind of low-limit casualties, probably around five.

Five or six, yeah.

Five or six in the low-limit casualties. And then one other one, can I quickly slip in here? You all have typically done a reasonable amount of structured transactions in your reinsurance. You're good at that surplus fleet, that kind of stuff. Are you seeing much opportunity here in 25 and 26 on that?

We don't, you know, we don't think so. I think there has been a few. Again, it's really, you know, we are in that business. You know, we need the margin to make sense for us to write it. And I think for a while we were successful because it seems that some of the traditional players were, you know, pulling back. So we got a couple of opportunities to participate at our terms in a couple of transactions. It looks like maybe some capacity is coming back. So it's hard to tell. So it's not something we target. I think we are in that business and when something fits, we do it. And if it doesn't, we just don't.

Yeah, we're a not a typical Arch thing, but a little bit more reactive on that type of business. We don't drive the demand for it. Sometimes you have a company that may have some capital issues because of cats or any other, some other kind of result, or it could be reserve development, who knows. So that's where the, you know, it's hard to predict whether the demand will be there for these products, but we're open for business.

I think we benefit there, again, of the, The support we offer to some of our students, I think today, especially in the U.S., we are a multiline insurer. So we just don't do the cash. We do the cash, we do the risk, we do the quota share. So, you know, the opportunity that we got is when one of the sitting companies has a problem, they think of us as one of the partners. So that's how, you know, some of those opportunities came to us is more like because of all the things we were doing for them, they're like, listen, we have this problem arch. Could you help us doing this? And then, you know, we looked at it together. So I think that probably puts a bit more tailwind in our ability to do this. But again, it has to be the right structure. It has to be the right price.

Great. Appreciate it. Thank you.

You're welcome.

Next question will be from Elise Greenspan at Wells Fargo.

Please go ahead. Hi, thanks. Just a couple of follow-ups. The first one, Francois, was on the seven- to eight-point catload. I just want to understand that correctly. That does include the fires, so then would that also be the catload for 26, or are you assuming in that that the fires kind of take the place of another large loss that you might have seen this year?

Yeah, it does not include the fires in a direct way in the sense that this is our going in on January 1st. This is what we thought the cat losses or cat load was for the year. Now, if it turns out that, you know, the wildfires, which so far may end up being higher than what our cat load specifically for wildfires for the year would have been, then yeah, there's a chance that we exceed, you know, that total of load, but by the same token, hurricanes could end up being lower. So that's truly a start of the year without any kind of additional knowledge, you know, reflected in that number.

Okay. And then my second question, on mid-corp, right, when you guys announced the transaction, you said post-integration, right, it would run, at a low 90s combined ratio. It sounds like from everything you were saying, it's running in track with plan. So that would still be the target. If you guys said when, like, you know, when we might see that low 90s number, like what year would be considered post-integration?

You didn't say when. It's going to take some time. You know, I think, you know, those things take always longer. I think, you know, the The goal, I think, from what we know today, I think I'm still very comfortable that we get there. Again, we have to finish the integration. For people, we're still operating the business on Allianz systems. So you can see that there's a limit to what we can do in terms of insights. And so we're preparing for the lift over ARCH that should happen sometime next year. So I think it's going to take a bit of time.

And then just one follow-up, Francois. I think someone asked a question, and you implied that mid-corp would maybe run at the same loss ratio once integrated. Was the point meaning run at the same loss ratio as Legacy Arch? Is that what you were saying there?

Yeah. I mean, I haven't done the math recently, but my expectation would be that, you know, again, the X-cap, X-year loss ratio pre-MCE or Legacy Arch and, you know, that same – metric once you include MCE after the integration is completed, meaning a little bit of remediation on some of the business we acquired, I don't think would be that different. So I think those would be pretty much in line.

Okay. Got it.

Thank you.

You're welcome.

Thank you. I'm not showing any further questions. I would like to turn the conference over to Mr. Nicolas Papadopoulos for closing remarks.

Thank you for your time today. We'll see you next quarter. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.