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.