Arch Capital Group Ltd.

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 2024 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 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. I would now like to introduce your host for today's conference, Mr. Nicholas Papadopoulos and Mr. François Morin. Sirs, you may begin.

Good morning and welcome to ARCHE's first quarter earnings call. I'm pleased to report solid results for the quarter with $587 million of after-tax operating income, $1.54 in operating earnings per share, and an annualized operating return on equity of 11.5%. These results were achieved despite $547 million of catastrophe losses affecting our property and casualty segment, primarily from the California wildfire. The PNC market has become increasingly competitive. However, we remain optimistic about our prospects as we continue to achieve broadly attractive rates across the sectors where we compete. At Arch, we believe that prioritizing expected profitability of our market share by allocating capital to lines of business with attractive risk-adjusted returns gives us the best opportunity to outperform for the cycle. This is what we mean by cycle management and we stand by the historical results of this approach. While the market may be more competitive, ample growth opportunities remain. This is true despite emerging microeconomic concerns, including the potential impact of tariffs that have increased uncertainty for many of our insured across the globe and raised inflationary risks for some of our businesses. During times such as these, Risk selection is critical as a growing number of our previously attractive accounts no longer meet our return criteria. We believe the acumen of our underwriting teams, breadth of our platform, investment in data and analytics, and depth of our financial resources have Arch well positioned to navigate the P&C cycle. Now we'll turn to our segment, starting with reinsurance. Reinsurance results were solid despite substantial catastrophe losses in the quarter. A 91.8 combined ratio, inclusive of 18 points of catastrophe losses, demonstrates the strong underlying profitability of our diversified reinsurance portfolio. Growth in net premium return in the quarter was modest due to an increased level of competition, more risk retention by seeding companies, and reducing our participation for treaties where margins no longer meet our hurdles. In the first quarter, the reinsurance group deployed additional capacity into property catastrophe lines where opportunities remained attractive, particularly in loss-impacted accounts. Facialty premium risings declined primarily due to non-renewing a large structured transaction. Weaker margins in cyber and part of our international treaty business also led to reduced premium risings. Treaty casualty lines experienced growth in the quarter as R3 capitalized on a handful of select opportunities. We are hopeful these lines will continue to achieve rate and that treaty casualty market terms and conditions will continue to improve. As we look towards major renewals, particularly wind coverage in Florida and the Gulf, we expect additional demand from existing and new clients. On the supply side, it is worth noting that for many reinsurers, and the ALS funds, these zones represent peak exposure. As a result, significant additional capacity may be harder to come by, even if the market is more competitive on the margin. Moving to our insurance segment, where the California wildfires led to a small underwriting loss for the quarter due, in part, to commercial risk from the recently acquired middle-market commercial and entertainment businesses. The additional premium generated from those businesses contributed to the insurance group $1.9 billion of net premium return in the quarter, a 25% increase from the first quarter of 2024. The integration of the middle market business is progressing well, and we remain excited about the increased capabilities this team brings to the ARCH insurance platform. As we've said before, there isn't one underwriting cycle, but many. In today's market, it's possible to deliver double-digit growth in some lines while experiencing similar declines in others. In the first quarter, we generated meaningful growth in casualty-led sectors, including construction, national account, and international casualty. At the same time, we experienced premium reduction in other lines of business due to rate decreases and our desire to maintain margin in lines such as E&S property, and professional lines, including cyber. We have seen competition increasing in the London market specialty lines, which has made profitable growth difficult. Looking ahead, we expect continued growth in casualty lines, as well as the US middle market, where opportunities remain for both freight and premium growth. We are well positioned across the insurance group because of our market-leading capabilities and relevance with distribution partners that gives us first look at many opportunities. The mortgage segment continues to provide a steady earning stream, contributing $252 million of underwriting income in the first quarter. Economic uncertainty, limited housing supply, and high relative mortgage rates continue to create headwinds for new mortgage originations, which resulted in modest new insurance returns in our U.S. and international mortgage businesses. For USMI, high mortgage interest rates own price appreciation have kept persistency around 82% and insurance-in-force relatively stable. The delinquency rate of our in-force portfolio remains low, ending the quarter below 2%. Our near-term outlook for the mortgage industry is unlikely to change significantly. While recessionary trends resulting from tariffs and other economic policy could create headwinds, We still expect the mortgage segment to continue generating attractive underwriting income given the high credit quality and embedded equity of our enforced portfolio. Turning to our investment group, where invested assets increased by 4% from year-end to $43.1 billion, providing a large sustainable contributor to group earnings. Investment market volatility increased broadly, leading us to reposition our portfolio to a more market-neutral position. To manage the cycle, it's important to understand that you cannot control the market, but you can control how your underwriting teams respond to it. At ART, we manage the different cycles across our many lines through the ability of our underwriters to access, analyze, and ultimately select risk. Over time, our underwriting teams have built strong relationships with our distribution partners, which gives us an access advantage as they look to place risk with fewer, more relevant carriers, including ARCH. Risk analysis combines experience, expertise, and deep analytical insight to understand and assess the underlying risk and match it with a technical price that reflects an adequate premium for that risk. Ultimately, risk selection is what separates the winners from the losers. If the return doesn't adequately account for the risk, you must be willing to let others take the business. The P&C market in transition is one where ARCH can and has previously demonstrated its ability to find success. While premium growth may be more challenging than in recent years, plenty of profitable opportunities remain. For a company with a strong underwriting culture like ARCH, this is a market where we can stand out and continue to maximize returns for our shareholders. François?

Thank you, Nicholas, and good morning to all. Last night, we reported our first quarter results with after-tax operating income of $1.54 per share, resulting in an annualized operating return on average common equity of 11.5%, and growth in book value per share of 3.8% for the quarter. At a high level, our three business segments delivered excellent underlying results, with an overall ex cap accident year combined ratio of 81%. And importantly, each of our segments showing an improvement for that metric over the same quarter one year ago. Our underwriting income included $167 million of favorable prior development on a pre-tax basis in the quarter, or four points on the overall combined ratio. We recognize favorable development across all three of our segments. and in many of our lines of business, but the effect was most notable in short tail lines in our reinsurance segment and in mortgage due to strong cure activity. The acquisition of the mid-corp and entertainment insurance businesses continues to roll through our financial metrics within the insurance segment. This quarter, the net premiums written coming from the acquired businesses was $373 million. contributing 24.2 points to the reported year-over-year premium growth for the segment and generally consistent with last quarter. Also, the inclusion of the acquired business in the segment's results lowered the current accident year ex-cath combined ratio by 1.1 points. This can be further broken down to include the current quarter acquisition expense ratio that was lowered by 0.9 points, due to the write-off of deferred acquisition costs for the acquired business at closing under purchase gap, the other operating expense ratio that was lowered by 0.9 points, and the accident year XCAT loss ratio that ended up being 0.7 points higher, reflecting the underlying results of the acquired business. The quarter-over-quarter comparison of net premiums written for the reinsurance segment showing growth of 2.2% was also impacted by a few items. Of note, this quarter's net premiums written includes approximately $70 million of reinstatement premiums, mostly related to the California wildfires. Offsetting this benefit was the non-renewal of large structure transactions in the specialty line of business, which reduced our top line by $147 million in the quarter. There were also some timing differences in the recognition of certain treaty renewals, which resulted in lower net premiums written in the quarter of approximately $103 million. Our mortgage segment delivered yet again another very strong quarter with underwriting income of $252 million. Even though the origination environment remains challenged, The underlying fundamentals of the business are excellent, as exhibited by most of our key metrics, including a very low delinquency rate for our USMI business, which currently stands at 1.96%. On the investment front, we earned a combined $431 million pre-tax from net investment income and income from funds accounting using the equity method, or $1.13 per share pre-tax. The reduction in net investment income relative to last quarter is attributable to a few items, including the impact of paying a $1.9 billion special dividend in December, the timing of incentive compensation expenses, slightly lower interest rates in the quarter, and the repositioning of our portfolio to a lower risk posture in light of the current macroeconomic uncertainty. Income from operating affiliates was down this quarter, mostly due to our lower level of affiliate income at Summers Re, in part as a result of the California wildfires. Cash flow from operations remained strong. It was approximately $1.5 billion for the quarter. Our effective tax rate on pre-tax operating income was an expense of 11.7% for the quarter and reflects a one-time discrete benefit of 4.6%, related to differences in the expensing of non-cash compensation. Also, it is worth mentioning that we started to amortize this quarter the deferred tax asset we established at the end of 2023 related to the introduction of the Bermuda corporate income tax. This benefit does not impact our operating or our net income effective tax rates in the period, but as we mentioned previously, will flow through our financials as a reduction to pay taxes. 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% of tangible shareholders' equity. Our PML remains well below our internal limits. On the capital management front, we repurchased $196 million worth of our common shares in the first quarter and an additional $100 million in April. demonstrating our ongoing disciplined approach to managing our capital to enhance shareholder returns. In closing, our balance sheet remains extremely strong with common shareholders' equity of $20.7 billion, and a debt plus preferred to capital ratio remains low at 14.7%. With these introductory comments, we are now prepared to take your questions.