Arch Capital Group Ltd.

Good day, ladies and gentlemen, and welcome to the second quarter 2025 Arch Capital Earnings Conference Call. At this time, all participants are in a lesson-only mode. Later, we will conduct a question 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 update, management wants to first remind everyone that certain statements in yesterday'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 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 to 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 recommendations 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 call, Mr. Nicholas Papadopoulos and Mr. Francois Morin.

Good morning and welcome to ARCHE's second quarter earnings call. We are pleased to report another solid quarter with average tax operating income of $979 million, resulting in an operating earnings per share of $2.58. On a year-to-date basis, we have grown book value per share by 11.4%, a strong outcome that reflects our focus on execution and long-term value creation for our shareholders. We achieved this result by staying true to our core principle of cycle management, where we actively grow our writings in lines of business that offer attractive returns, while selectively reducing exposure in areas where risk-adjusted returns fall short of our targets. This disciplined underwriting approach, paired with proactive capital management, positions us to consistently generate superior returns across market cycles. P&C market conditions were largely consistent with the first quarter. Some sectors are seeing increased price competitions, while others continue to achieve rate improvements. In the current environment, much of our growth is because of the strengths of our relationship with distribution partners and insurers. This not only reflects ARCHE's increased scale, but also the increased relevance of our platform, one built on a broad and flexible set of capabilities. Our underwriting expertise, supported by our advanced data and analytics capabilities, enables us to deliver valuable insight and innovative solutions that help our customers achieve their ambitions. Ultimately, the strengths of our relationships, our commitment to consistently deliver meaningful customer value, and our ability to respond quickly to changing market conditions are significant differentiators in today's environment. As we've discussed on previous call, there isn't one underwriting cycle, but many. This principle was reinforced last month where Pauling Gray, Archer's former chairman and one of its founders, spoke to a gathering of our top leaders. It was a unique opportunity for our newer team members to hear directly from someone whose vision continued to influence our culture and operations. In addition to sharing stories from Archer's early days, Paul reminded us of the enduring value of a diversified platform, a core part of Archer's original vision. He explained that the insurance market is comprised of a thousand points of light, each representing a potential opportunity. While the intensity and location of some of those lights may have shifted in today's underwriting environment, many continue to shine. Our role, as always, is to find those with the greatest potential. Our message is this. The P&C industry still presents meaningful opportunities for disciplined underwriters to generate attractive risk-adjusted return on capital. Now, I will briefly walk through segment performance, starting with our property and casualty insurance group. Underwriting income for the quarter was $129 million, and net premium returns surpassed $2 billion, up 30.7% from the second quarter of 2024. This growth was largely driven by acquisition of the U.S. middle market and entertainment businesses, which contributed $451 million in net premium return. Organic growth outside the acquisition was modest. We remain focused on integrating the new unit with client retention and portfolio optimization progressing in line with expectation. Growing our presence in the small and mid-sized market is central to our strategy. Elsewhere in North America, rate increases broadly offset loss trends. We saw selective growth in casualty lines, particularly in the alternative market, ENS casualty, and large account casualty, where pricing continued to outpace loss trends. However, competitive pressure persists in ENS property, excess DNO, and cyber. While pricing in excess DNO and cyber appears to be stabilizing, we are maintaining a cautious stance and prioritizing margin over volume in these lines. Internationally, our Lloyds and London market business are experiencing increased but rational competition. Our long-term investment in establishing a leadership position at Lloyds continue to yield strong results reflected in favorable signing and our ability to attract top-tier underwriting talent. The reinsurance segment delivered strong second quarter results, generating $451 million in underwriting income on over $2 billion in net premium return. The underlying business is attractive, with gross return premium increasing 8.7% compared to the second quarter of 2024. We grew our casualty reinsurance premium year-over-year, supported by selective new business and rate improvements. We also expanded our property catastrophe ratings, particularly in Florida, where we identified attractive risk-adjusted returns and responded to increased clients' demand for additional limits. Specialty lines remained a strategic focus, and our teams found several new opportunities this quarter. That said, our property portfolio, other than cat excess of loss, contracted. As students, we then more risk and margin on certain portion of the portfolio fell below our target. We are actively managing our exposure in these areas to maintain underwriting discipline and long-term profitability. We were generally pleased with the state of the mid-year catastrophe excess of loss renewals. Priceling was slightly down, but terms and conditions were stable, with primary insurers maintaining higher returns. Overall, catastrophe excess of loss margin remained attractive. The broader insurance market continued to exhibit discipline. We are growing selectively, focusing on areas where margins are attractive. we are committed to pursuing the brightest opportunities, those offering the strongest risk-adjusted return. Our mortgage segment delivered $238 million of underwriting income in the second quarter. Mortgage originations remain relatively low, reflecting the impact of higher mortgage rates on affordability. Still, the strength of our global in-force portfolio and high persistency allows the mortgage group to provide steady profitability and valuable earnings diversification, even with lower volumes of new insurance returns in recent years. Despite ongoing economic uncertainty and low origination activity, we remain confident in the quality and durability of our Inforce portfolio, which is a core driver of our mortgage earnings. Investable assets grew 4.4% in the second quarter, benefiting from our strong premium growth and cash flow. Net investment income rose 7% from the first quarter to $405 million, with overall yields remaining elevated. Archie's ability to dynamically adapt to multiple underwriting cycles continues to set us apart. This is a function of both our founding principle and a culture that prioritizes and rewards underwriting profit over premium volume. Even in a competitive environment, our global, diversified platform offers many points of light for our underwriting teams to pursue. For a company with a strong underwriting culture like Arch, this remains a market where we can deliver differentiated performance and maximize long-term shareholder return. I will now turn the call over to François, who will provide more details on the financial results before we open the line for your questions.

Thank you, Nicholas, and good morning to all. Last night we reported our second quarter results with after-tax operating income of $2.58 per share, resulting in an annualized operating return on average common equity of 18.2%. These operating earnings, combined with a high level of realized gains, solid contributions from our equity method investments, and a noticeable appreciation in our fixed maturities investment portfolio resulted in our book value per share growing by 7.3% in the quarter. Similar to last quarter, our three business segments delivered excellent underlying results with an overall ex cap accident year combined ratio of 80.9% down 10 basis points from last quarter. Our underwriting income included $139 million of favorable prior year development on the pre-tax basis in the second quarter, or 3.2 points on the overall combined ratio. We recognized favorable development across all three of our segments and in many of our lines of business. The most significant improvements were, once again, most seen in short tail lines in our reinsurance segment, and in mortgage due to strong cure activity. Current year catastrophe losses at $154 million net of reinsurance and reinstatement premiums were slightly below last year's level for the same quarter and were primarily the result of severe convective storms in the U.S. This is the fourth and last quarter where we are separately reporting the contribution of the mid-corporate entertainment unit to the insurance segment financial results. For the quarter, net premiums written for the acquired businesses were $451 million, contributing 28.9 points to the reported year-over-year premium growth for the segment and generally consistent with last quarter. The strong premium volume this quarter reflects the seasonality of the business, with the second quarter generally having the most significant renewal activity. We are now on track to write slightly more than $1.5 billion of annualized premium for the first year of owning this business, which is slightly higher than the forecast at the time of the acquisition. The inclusion of the acquired business in the segment's results increased the current accident year ex-gap combined ratio by 40 basis points. This can be further broken down to include the other operating expense ratio that was lowered by 40 basis points, the current year acquisition expense ratio that was lowered by 20 basis points due to the write-off of deferred acquisition costs for the acquired business at closing under purchase gap, As expected, this benefit has become less significant as policies written before the acquisition date have rolled off. And the accident year XCAT loss ratio that was 100 basis points higher, reflecting the underlying results of the acquired business. The reinsurance segment produced its best quarter ever in terms of pre-tax underwriting income, reflecting the underlying profitability of the business written over the last few quarters. and the absence of significant catastrophe activity. Of note, the 5.8% growth in net premium written in the quarter was muted due to the timing of certain seeded premium accruals. The effect of this change in timing was to reduce our net premiums written in the property catastrophe line of business by approximately $94 million this quarter. We expect to record an equivalent offsetting benefit in net premiums written next quarter. Overall, this item should not have a significant impact on net premiums earned. Once again, our mortgage segment delivered another very strong quarter with underwriting income of $238 million. We note that these results reflect the completion of tender offers for two Bellamed re-security at a one-time cost of $15 million. We expect that this expense will be recouped through lower levels of seeded premium over time, mostly through the end of 2027, and will ultimately result in a net economic benefit to us. The delinquency rate for our USMI business decreased slightly to a very low 1.93%, as new notices of default were more than offset by strong cure activity. On the investment front, we earned a combined $567 million from net investment income and income from funds accounted using the equity method for $1.50 per share pre-tax. Net investment income in the next few quarters should grow in line with the size of our investment portfolio as our portfolio book yield and new money yield have converged in the last few quarters. income from operating affiliates was comparable to the amount in the same quarter last year with contributions from both cofas and summers reed cash flow from operations remains strong at approximately 1.1 billion for the quarter as of january 1 our peak zone natural camp pml on a single event one in 200 year 50 one in 250 year return level on a net basis increased slightly to $1.9 billion and now stands at 8.6% of tangible shareholders' equity. Our PML remains well below our internal limits. On the capital management front, we repurchased $161 million of our shares in the month of July, in addition to the $360 million worth of common shares repurchased this year through the end of the second quarter. In closing, our strong balance sheet, confirmed by a recent credit ratings upgrade, and our diversified platform positioned us well to deliver superior results in the periods ahead. With these introductory comments, we are now prepared to take your questions. Jenny?

Thank you. If you would like to ask a question, please signal by pressing store 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press door one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal for questions. Our first question comes from Elise Greenspan from Wells Fargo. Your line is now open.

Hi, thanks. Good morning. My first question is just on the insurance segment. If we back out, MCE growth was around 2% in the quarter. It feels like, based on commentary, the market was stable. So maybe that's about where you guys are running in the short term. But I know, obviously, there's a lot of business lines that triangulate into that number. So we're just hoping to get kind of a forward view just on premium growth. within the insurance segment on the XMCE piece?

Yes, it is. Good morning. Yeah, I think the story here is that, again, as I described in my opening remark, we're pivoting where the opportunities are and kind of heading out where we think the business is less attractive. So this quarter, I think we... We like the casualty line. So I think we grew in the casualty lines. And I think we grew on international business. And we have a big book of professional lines. So as those market conditions were more competitive and more difficult to trade, that had a negative headwind on the premium for the quarter. But the good news there is that it looks like you know, the rate decreases on both, you know, excess DNO and cyber are leveling off. So I think we, you know, as we look to the future, I think I don't have a crystal ball, but, you know, we think the favorable wind on the casualty should support additional growth. And that's what I can say.

Thanks. And then my second question was just on capital. It sounds like right Francois, you know, capital return like Sherry Purchase picked up in July. Just kind of, you know, looking for current thoughts just around excess capital levels and just, you know, willingness, I guess, to lean in to buy back as we go through, you know, the third quarter and get into, you know, the peak of one season.

Sure. Yeah, I mean, you've seen terrific results in the second quarter, so our capital position remains very strong. I think no question that we're still working hard, trying to deploy that capital in the business. That's always our top priority. We still think there's opportunities to do that, but maybe not to the full extent of which, you know, the capital generation we've been able to achieve. So no question that Capital return is a focus area for us, something we know different now than it's ever been. We look at it on a regular basis with management and the board for sure. And no question that capital return in the second half of the year, I mean, we think will be there. Not knowing, again, what opportunities might be in front of us, but we look at both share buybacks and potentially dividend if we need to. Those will be very much part of that. And, you know, historically, we've kind of slowed down a little bit, you know, during the wind season. I don't think we necessarily, you know, we're a different company, I'd say, right now. So we're going to keep looking at the, you know, the opportunity in front of us. But certainly at current price levels, we find the stock to be attractive and be more than happy to buy back as we move forward.

And then just my last one was there any adverse development in the quarter from the UK Russia aviation ruling and if it was even small on if you could just let us know the number.

Well, we don't I mean no question that we we have you know we have some adverse in the sense that yes, we increased our our ID and are for both on the insurance and the reinsurance side. Uh, the reality is these, again, we're not big players in that space, but you know, the, the, the claims that they've all been, uh, you know, that was basically absorbed within our IDNR through, uh, short tail lines. So, uh, what you're seeing, uh, and we'll, you know, we'll dispose more of it in our 10Q is, you know, no adverse in total. We still have favorable in total, but. Yeah, we reflected some changes, some new developments in the Ukraine-Russia conflict.

Thank you. You're welcome.

Thank you. And your next question is from Mike Zurumski from BMO. Your line is now open.

Hey, morning. Thanks. Um, on the prepare remarks, um, made comments about, uh, expanding the prop cat writings, uh, believe in Florida, uh, particularly just, you know, maybe just macro levels. I feel like you, you all have been excellent underwriters and continue to be in, in, in prop cat, especially, you know, would you say that, um, expected ROEs are, I don't know if you're willing to kind of put a quarter around them in the, in the twenties down from the thirties, or just, I guess, you know, we get asked a lot about, you know, as can PropCat reinsurance pricing continue to decline off excellent levels? I feel like the consensus is yes, but I'm just curious, given the rate of decrease over the past year, how do ROEs kind of look in terms of risk reward?

Yeah, I believe that ROEs are still very attractive. And just to qualify, I think the price decrease you know my view is not always across the board i think for instance uh in florida what what we've seen is most of the competition is really on the higher layer and at this renewal i think uh you know the fhf move up their attachment points so there was a need for a capacity uh below the fhf and uh about the size of the fhf so i think you know we actually were able to write more below and by the side because we are able to write across the board. And below the FHF, I think the price decrease were pretty flat, I think. So I think if you look at where we come from, You know, a year ago, probably the price where we had gone through, you know, increased. I think we've seen some of it decrease, but, you know, the business really attracted as we see it.

Okay, got it. That's helpful. Maybe pivoting to the strategy about growing your presence in the, you know, SME marketplace. know you've been doing that um strategically and organically and organically but i'm just curious maybe you'd be willing to elaborate is there is there kind of a specific pocket that's really high up on the on the wish list like us retail um traditional you know um main market or is it kind of a broad appetite to just go continue going kind of down market um more broadly

I think for us, we really start in the big market that you've seen with the acquisition with the alliance portfolio. I think that's a sweet spot. We come from the larger account, so I think we had strategic aspiration to grow in the upper middle market. I think that's why the acquisition fit strategically well. And I think the strategy

uh tez is behind it i think it's even more comforting today than it was when when we did the deal so yeah and i'd add to that um that you know while i mean i mean truly small business is is not uh an immediate action item i mean i mean down the road i mean who knows where things go but uh it's a different animal i think the the technology the system the distribution so Let us focus on the middle market acquisition. There's a lot we need to do with it, a lot we want to do with it. We're, you know, things are going well, but I mean, it's still early days. So I think there's a lot we can, a lot of value we can generate from that asset, and that'll be the focus for the short term.

Okay. And maybe I'll sneak one last one in. Maybe just, I'm going to stick, I guess, high level. Mortgage insurance continues just to be a gift that keeps giving. You know, there's, you know, we're seeing some data points on, you know, your data too, but maybe less so, but delinquency rates going a bit higher, but we're still seeing some levels of HPA. You know, I guess just more broadly, you know, has anything changed over the last couple quarters in terms of the mortgage outlook other than, you know, I think we clearly know the top line in the U.S. is going to continue to be

negative but any macro data points that that are kind of changing arches kind of viewpoint on a medium-term basis i wouldn't say anything's changed our viewpoint uh certainly uh the housing market data has uh itself evolved a little bit which was is maybe in line with how we thought about uh home prices moving forward uh for example we have shied away or we've been i think James Rattling Leafs, Underweight in certain geographical areas that seem to be you know, currently under pressure in terms of. James Rattling Leafs, Home prices, maybe even coming down and some of those places so that's been part of our i'd say approach is to manage our production or manager new insurance written. James Rattling Leafs, Strategically, with you know, having a focus on where we thought home prices would be more sustainable and and less risky i'd say. So that's maybe one data point. Again, I mean, what's happening, what seems to happen and what data seems to be in line with how we approach the business going in. But, you know, bottom line is, yeah, our portfolio has been constructed to be a little bit kind of, you know, again, staying away from the high risk areas, high risk, not only geographical areas, but types of loans. So ILTV, IDTI. So that's been kind of a little bit, you know, how we constructed portfolio and So far, that seems to be paying off well for us.

Thank you.

You're welcome.

Thank you. Your next question is from KB Montessori from Deutsche Bank. Your line is now open.

Thank you. My first question is on the Florida market. Can you give us a bit more color

is it mainly like the tort reform from two years ago that are feeding through that are that's making the market a bit more attractive now um can you like me break down a bit more um what's making florida a lot more attractive now so so i think the tort reform had an impact i think on the assigned benefits so we've seen the the local companies you know attrition loss ratio dropping from you know, the 50s plus to now in the 20s. So the nice thing for us, I think we mostly write excess of loss in Florida. The nice thing for us is that you can afford them the money to buy, you know, the reinsurance they need to protect the capital the investors are putting in those companies. So that and pay a price that's, you know, if you buy, a limited amount of capacity, you pay one price. But as they're looking to buy closer to the 100 or 200 year return, you know, they have to spend more money. So I think that's what has made, you know, and the storm, the number of storms that have hit Florida have made the market attractive on an excessive basis.

Well, thanks. My follow-up, sticking with reinsurance, The 5.8% growth you said had a bit of negative impact from the timing point of view of some business that you said was 94 million negative impact. So does that mean that your premium growth and reinsurance in the quarter would have been double digit this quarter adjusting for that? And if so, what are the pockets of growth that you were able to just lean on for for reinsurance. I mean, Florida is one of them. Was there anything else that you want to flag?

Yeah, you're right. I mean, again, it's a timing issue, so it's really something that typically would happen in Q3. It happened in Q2 in terms of premium. If you adjust for the $94 million correct, the net written premium growth for the segment would have been double digits, you know, slightly higher than the gross written premium growth of 8% or so. Right? So in mine, we bought a little bit less, you know, reinsurance in some pockets. So, I mean, that's part of the strategy along the way. So I think those two numbers in terms of rent premium are aligned. And if you convert more specifically the growth to property cap, you see property cap premium growth, call it, you know, higher than the segment, right? So 20% range. um and that that was really the story i'd say this quarter i think you know we saw some some attractive opportunities in property cap um and you know the rest as you know there's offsetting and other property and other specialty but you know a good part of the story would have been in prop cap there was in fact there was more demand in the marketplace i think we were able to uh secure

And that's what we thought was attractive pricing. So it's not only getting market share, it's mostly being able to go along with the need or support the needs of our major clients as they buy more limits. So that's really a big reason for the broker.

That's very helpful. Thank you. You're welcome.

Thank you. And your next question is from Andrew Kligerman from TD Cowen. Your line is now open.

Hey, good morning. So in reinsurance, you mentioned that you're growing in casualty. And I'm kind of curious, you know, on a lot of the calls that we've heard so far, casualty rates in general, I'll pinpoint them at around 10%. But I'm hearing reinsurance pricing in the casualty area has come down a bit. So I'm wondering if you could give a little more color on what you're seeing on the primary level in various casualty lines and what's happening in reinsurance, particularly for orange.

So the story of the casualty business, I think it's mostly quarter share. So I think, you know, the story on the primary side and the reinsurance side as far as the underlying business is very similar. And there I think we've seen rates, you know, as you said, exceeding trends. I think it makes it, you know, and we are selectively growing both on the insurance and trying to grow on the reinsurance. I think where you see the difference In market behavior is I think there is a there is a lot of supply on the on the ratio on the regional side, and it's difficult for. For many of the market to to expand their writing because you know there's a lot of a lot of the competition is also looking to to to expand, so that translates in terms and conditions and sitting commissions not. Not changing. Because if you looked at the experience of those portfolios and based on the, you know, the priority of developments, it would work for some of those some of those treaties to have lower ceiling commissions.

I see. Thank you for that. And and then just shifting over to mid court, could you give an update on where you are in the process of incorporating data and analytics? Is the performance, the underwriting performance where you've, you know, is it where you expected it? And when do you think mid-corp could kind of pivot to growth?

Yes. So I would say that, you know, it's a process. It's a long process. So the integration is actually pretty much on track. I think that now we've almost almost entirely all over the book over to Arch. And so that's almost done. I think, you know, I want to remind you that we're still a year away from the full separation with Allianz. So that's hanging there. But we feel good about, you know, the roll over of the book. We feel good about the team and the underlying business that we've acquired. And again, as I said earlier, the strategic thesis, I think, is even more compelling in our views.

And I think that's a middle market book. Part of the overall acquisition, I think, has, you know, the pricing environment is good, is attractive. So that's, I'd say, exciting for us. I think that's an opportunity for us as we move forward in a, you know, gives us another uh opportunity set to to get into and kind of pursue aggressively so i'd say we're we're excited about that i mean the platform is there the distribution is there and that team the team and then uh you know the rain environment we think will support it so that's that's uh the deposit sign thank you welcome

Thank you. And your next question is from Josh Shanker from Bank of America. Your line is now open.

Yeah, thank you. So looking at your commentary about Florida and the general attraction to the property cap market, you can't help but look at the underwriting, see how they've declined. There were some one-off transactions in 2Q24. Can you square how much of the business a year ago was just a few unique things that really boosted the numbers? and what a normalized year-over-year growth rate might be for the property cat line and the property other line reinsurance?

Yes, I think your question is other property. I just want to make sure.

I mean, the premium volumes are down fairly dramatically from where they were a year ago, but you're leaning in and you like the lines. There's a disconnect there, so I'm trying to bridge that.

Well, the cat side, I think, unless Francois explained, because I think we talked about it earlier, we can go there. On the other property, I think the comment I would like to make is that it's really, you have to, you guys have to understand, it's really a mixed bag of line of business, you know, a bit of homeowner, a bit of commercial, you know, it's geographically diverse, US, Canada, international, you have FAC and treaties, so So I think the reduction in other property with quarter is really driven by, as I said, some students, you know, deciding not to buy some revision, you know, in certain of the sub segments of the book based on the companies not meeting their, you know, their targets, because, you know, for instance, EMS, we've seen some classic reduction. And also, you know, a couple of decisions that our team made, and one of them is it's a big deal not to renew a contract. So I think, you know, overall, I think the business remains very attractive, but it has to be managed. I think this, and I would contrast the experience of the other property with a similar experience we have in specialty, where they, you know, It's also a mixed bag of lines of business. And there, I think, you know, headwinds have been cyber, but this quarter, on the international side, we were able to land a few large transactions. And so we are up significantly there. So I think you have to, in reinsurance, as we deploy, you know, we do large deals. I think you have to be able to accept the volatility quarter over quarter. T. you know somebody going up you love it when it goes up, but you know it's sometimes it goes the other way, I think that's what happened in other properties quarters.

T. yeah and just to finish up again on property cat I mean josh once you adjust for this timing issue on on the retro prop gap again up call it 20% year over year. T. In the in the quarter so that's I think that's a reflection, you know big picture again we like both prop gap and. property other than property cap, still very attractive business. But to Nicholas's point, specifically, you know, there's a, you know, the reality, there's some transactions that don't always kind of come back or, you know, change in their form or their substance and, you know, the seasons buy less, etc. So that's, that's been that that's, that's truly what happened this quarter. And, you know, unfortunately, I can't help you on how the third and fourth quarters are going to look like, but we think there is, you know, it's still a very attractive market.

And just in terms of the impact on acquisition cost ratios, did that cause a one-time unusual item that we should feature and think about going forward for normalization?

Not in a big way. You know, acquisition for reinsurance, you know, where you see the variability, sometimes it's more on the profit commission. So, mean the underlying performance of the book will will end up having maybe a more a bigger impact so uh the fact that these you know uh a non-renewal and or growth i think uh generally speaking should not have a in and of itself a a significant impact thank you you're welcome thank you and your next question is from david from evercore isi your line is open

Hi, thanks. Good morning. On sticking with the reinsurance segment, the press release had called out some attritional losses, higher attritional losses within the underlying loss ratio there. I'm wondering if you could just elaborate on the nature of those, what lines, or was it just, you know, kind of things swing one way or the other, you know, any given quarter to sort of normal volatility?

Yeah, I mean, there's no question that when we compare year over year, last year was maybe one of our best quarters ever. There's literally not much that went on in the, call it, large attritional space. This quarter, we had a little bit of a hit with the Air India crash. We had a couple of refineries that exploded. I mean, those make the news, and we're not here to And I'm going to get into all the details of each one of them, but that explains a little bit the volatility. I mean, that's the business for it, right? So I think the takeaway is that there's nothing alarming. It's part of the normal volatility in the book. Again, we go back to our preferred way of looking at it on a trailing 12-month basis to, I mean, at least temper some of these kind of shocks or kind of events that may or may not happen in a given quarter, but

uh that's really the story so a couple of large claims that just happened to take place this quarter and we didn't have those a year ago got it no thanks thanks for that uh makes sense and then um just um also just sticking with uh the reinsurance business so um i think you called out specialty lines there remaining a strategic focus um and that there were some some new opportunities that were bound in this quarter I'm wondering if, you know, your outlook has changed at all in terms of the growth outlook there, how the pipeline is looking, and, you know, if you see this sort of growth being sustained.

So, you know, on specialty, I think the headwinds have been really cyber. You know, we have a decent-sized book of cyber, so that has been under, you know, pricing pressure, so I think that probably, you know, we're not allocated as much capital to the line than we did probably a year ago. But I think, you know, again, it's a mixed bag of lines of business. And a lot of those lines of business, you know, we would like to grow. So the question is, you know, our teams, you know, doing the work they need to do to generate those opportunities. So we landed a couple of this quarter. I think we want to do more. I mean, but in a competitive market, you know, it's sometimes hard to find people you know, a new opportunity, new business you have. So I think I'm positive on the outlook, but, you know, whether we find those opportunities here or not, you know, I can't tell.

Great. Thank you.

Welcome. Thank you. And your next question is from Alex Scott from Barclays. Your line is now open.

Hi. I wanted to ask about the insurance segment, and I guess just wanted to see if you could provide an update on sort of how far you are through some of the mid-corp remediation and just maybe high-level comments on how we should think about some of the benefits from that, which would help margins and any potential offsets from just thinking through like pricing versus lost cost trend spread and whether there's deterioration.

I think we're going, as I explained earlier, we're going through the integration. I think we feel good about where we are today. I think the only area I think that I would highlight in terms of performance is probably on the program side. I think we've taken some action on the program side that should lead to some performance improvements right over the next 12 to 18 months. That's the only thing that I think you'll be able to see. We're doing a lot of work, but that work will be, it will take time, but the action of the program should be able to see some of the facts of that.

The loss ratio and the expense ratio, I'd say the The operating expense benefit that we're getting in terms of scale, I think, are sustainable, right? So there's no question that adding, call it, a billion and a half of premium to the insurance segment with not necessarily a corresponding amount of operating expense in terms of IT and management, et cetera. So that's the benefit that we think is here to stay.

Yep, that'll make sense. Follow-up I have, so on insurance, are you seeing any changes in just the dynamics with admitted versus ENS in terms of volume? I mean, if I kind of go back to the, I guess, part of the rationale to buy mid-corp, you guys sort of bought this entity and at some point having more of a presence than admitted may be very helpful if volume and appetite kind of returns. to admit it in a way you could use that growth opportunity. I mean, is that, are we closer to that? Are you seeing any of that kind of opportunities that take, you know, some of what was going into the E&S market?

I think the mid-corp business, I think, is very different from the E&S business we ride today. The E&S business we ride today, I think, is very distressed. I think the mid-corp business, is mostly property-led, low severity. So that business doesn't lend itself to be in the NS market. And I think the attractiveness of the mid-core business is it's difficult to access. It's limited access. I think we have to buy a platform to become a player in the space. So I think, you know, we've been trying to be a bigger player in that space for probably the last five or six years. But, you know, scale matters and the ability to have, you know, decent size property limits in the hundreds of millions to solve the problem of the agency network, I think is key. So I think those are two different business and the attractiveness of the mid-core business is really that it's less subject to cycle and it's more, you have a, a higher, you know, the value proposition, the thing you do for the reason is more with the agent and the insurer because you provide multi-line, you know, and there is one agent. So I think it's a, in my view, it's a different business.

Well, I mean, a little bit related to that, Alex, I think there's, you know, there's still, we still see business falling into the NS market. I mean, slightly different, again, than what would be what would be middle market to us at least. But yeah, ENF markets are growing maybe not as fast as they were the last few years. There's some maybe moderation in how much of the business is shipping over because, again, as you know, like admitted markets, you need to get rates approved, et cetera. So that takes time. And some of that work has taken place. So admitted carriers are maybe in a slightly better position in some areas to retain that business. But you know, E&S market is still, you know, big picture doing well.

Yeah, I think one comment on the E&S side, I think we see, you know, as long as we have this issue with social equations and I think we see more of the casualty business flowing into the E&S market because you can write it at your own price with your, you know, a flexible set of exclusion that is not always available in the E&S market. So I think that trend might be able to continue. Thanks. You're welcome.

Thank you. And your next question is from Andrew Anderson from Jefferies. Your line is now open.

Hey, good morning. You had mentioned some casualty pricing above loss trend. And I think in the past your view of loss trend was maybe two to two and a half points above CPI and for excess layers perhaps even higher. Can you just provide us with your latest view on loss trends?

Yes, it would be unchanged. I think I would say single digits on the primary and the double digits on the excess. I think that's what we used. And I would say unchanged compared to a year ago.

Thanks. And then just on the mortgage segment, you know, I think some mortgage associations are talking about originations picking up in 26. Are you kind of thinking about that as we turn to next year or are you still envisioning more of a softer market there?

Great question. I think, as you know, economic forecasts are going to get updated. We still see, at least for the next little while, mortgage rates going to stay where they're at. That's certainly not ideal in the sense of creating more housing demands. But, you know, we'll see. I mean, into 26, maybe things will change a little bit. Maybe interest rates come down at that point and mortgage rates follow. But, yeah, I mean, that's something we look at very carefully. But for the, I mean, too early to really have a clear view of that at this time.

Thank you. You're welcome.

Thank you, and your next question is from Brian Meredith from UBS. Your line is now open.

Hey, just two quick ones here. The first one, just following back up on the MCE program business, can you scale it? How much business is that? And did you just start non-renewing? I was surprised you said it's another 12 to 18 months before we're going to see the benefits there, given I thought you started to get notifications when you closed the deal.

So I think of the total, it's probably a third, I would say, a third was program. And that's not why we bought, to be clear. So we bought the portfolio for the other two firms. So that's how we've been able to scrutinize. And as you know, Ryan, it takes time. It takes time to get to the end. So I think we You know, we mostly taken underwriting actions and looked at, you know, the list of programs we could and then review when the time comes and talking to the MGS to give them enough notice. So I think that's where we are. So I think expect most of the effects to start in 2026.

And Brian, on that, just to be clear, on an earned basis, right, so on a written basis, some of these, you know, some of these actions were taken you know, late last year, early this year, so that on a written basis, you will start to see some reductions or some, yeah, some changes in the second half of 25, but the full 12 to 18 months on an earned basis is really why, I mean, that has these, you know, the earnings kind of take a bit longer to come through.

All right, that makes sense. Thanks. And then the second one, Francis, I'm just curious, could you give maybe an update on where we stand with Bermuda tax credits, not the DTA stuff, but the credits that I know the Bermuda Monetary Authority has been talking about providing?

Unfortunately, no official news. I mean, it's certainly being discussed and worked on. We are you know, hopeful. I mean, we were optimistic, really, that, you know, we'll come to a good place with the Bermuda government. You know, it's, we love Bermuda. I think the Bermuda government, I know the Bermuda government likes Arch and others being on the island. So we're a big part of the community here. And it's, I mean, it'll be effectively, it's a negotiation with not only the Bermuda kind of involved parties, but there's the OECD that kind of has a little bit of some oversight there. So we're expecting more development in, call it the third quarter, late, kind of late third quarter, and with hopefully some kind of actionable items in the fourth quarter for us. So we'll give you an update next quarter, but Right now, I mean, there's nothing official that we know of that we can really share with everybody.

That's helpful. Thank you. Just quickly, too, Francois, on that one. If indeed these do happen to come through, are they a credit to your taxes or do they sit somewhere else in the P&L?

Well, what's been talked about in big picture is a jobs credit, effectively, from the Bermuda government, and that would most likely come through as a reduction to our operating expenses. So the tax rate, per se, would not be impacted, but it would impact all places where we have you know, operating expenses in Bermuda. So for us, it'd be in each of our segments because we have Bermuda-based, you know, expenses in each of the three segments. It would also impact a little bit our investment income because we, you know, our expenses flow through that. We've got our investment professionals here based in Bermuda. Also would impact our corporate expenses because Nicholas and I and others are based here in Bermuda. So That's where it would hit a couple of different spots on the income statement, but would come through again as an offset to operating expenses.

Very helpful. Thanks.

You're welcome.

Thank you. And your next question is from Meyer Shields from KBW. Your line is now open.

Thanks so much. Good morning. Two quick modeling questions. First, if we add back the 20 basis points of, I guess, acquisition accounting impact for the insurance segment's acquisition expense ratio, is that a good run rate going forward, or are the changes in the program business going to change that as well?

I mean, I would start there. I mean, again, the benefits or the impact, call it to the loss ratio as our underwriting actions on the program's business kind of materialized, we'd like to think that, you know, we can get more than that exactly when that takes place or when that, you know, again, shows up in our underlying performance. It's a little bit, you know, it's not that clear, right? So, but we'd like to think that we can do better than that. If not later this year, it'll be in 2026.

Okay, great. That's helpful. And then second, just because mid-corp, I think in the past, we've talked about having a significant property exposure. And a couple of carriers this spring season have talked about particularly benign weather and low non-CAT losses. And I was wondering if you saw anything like that in the mid-corp book.

I think that this quarter was a pretty low CAT quarter. I think, you know, when we started, we got a little bit... And luckily, I think with some of the hurricanes and then the wildfire, but I think for the first time this quarter, I think we got a low-cat quarter. So I agree with the sentiment, yeah.

Okay, fantastic. Thank you. You're welcome.

Thank you. And your next question is from Jamie Fuller from J.P. Morgan. Your line is now open.

Hi. So the question, just differentiating between pricing movements versus price adequacy, if you look across your business, where is it that you're seeing attractive growth opportunities across reinsurance and insurance versus maybe highlight some of the lines where you might have been active in the past, but you just feel like the risk-reward's not that compelling?

I think most of the casualty line, as I said earlier, we see price being greater than the lost rents. So I think that's... And I don't think the entire... I said this in prior calls. I don't think the entire casualty market is attractive to us, but there is selected pockets of that market, especially in the excess and surplus side of the market, the more specialty that both... both on the insurance and reinsurance we uh we have a strong appetite to to grow and i think our insurance is our team is very specialized so so i think we have a high confidence that they they'll be able to find the right opportunity and i think on the reinsurance is really backing the right uh underwriting teams people that have you know expertise in uh in writing the liability portion of those risks that are difficult to price i think we also have i think some uh some uh The ability to to to grow into of our retail casualty where we are primarily because I think we are value proposition. I mean it's a competitive marketplace, but I think our value proposition reason as well with the the the big retailers and the in the mid market retailers. So I think we we we like that. I think we. You know, as I said in my preferred remark, we have, you know, built in London. I think a decent franchise and leading capabilities that. kind of should or should you know help us you know continue to to grow despite you know more competitive marketplace and i think uh this you know midcorp certainly is an area where we think you know we're still getting uh double digit rate increases and i think as we as we continue to integrate the platform i think we you know i think we have a decent based on the value proposition that we have we have a ability to grow i think in terms of the areas that are more challenged You know, I mentioned them earlier, I think, because, you know, cyber, that's not new. ENS, ENS property, I think, still are very attractive, right, levels, but I think your competition is fierce, I think. So I think it's areas that we are watching carefully.

And then on MI, like, Obviously, if rates decline, there would be a pickup in growth. But do you think a decline in rates overall would be a positive for the business or negative, given that there's a high likelihood that if rates decline a decent amount, then persistency suffers and the enforced book, which is producing very high margins, might begin to run off a lot faster? So what's sort of an ideal scenario for the MI business from a profitability standpoint, and how do you view it?

declines in interest rates affecting that yeah i i think uh i mean we do all this work right i mean a function of how much rate uh what it would take in terms of rate declines for for or imports book to have more propensity to refinance um so if it if rates drop you know bips it's not a big deal for us i think i think we see more benefit in terms of homes being more affordable. So I think the new production would overtake that kind of negative in terms of refinancing. But if there's a big refinancing boom, then we pick up that share. And obviously, we like the Inforce book a lot. I think it's high quality. It's got a lot of home equity built into those mortgages. You know, we wouldn't mind giving up a little bit of that and change for, you know, new business. But, you know, absent a, you know, I'd say absent a significant drop in interest, I think the enforced book will stay with us for quite some time.

Yeah, we have some room in that respect. Thank you. You're welcome.

Thank you. And your next question is from Wes Carmichael from Autonomous Research. Your line is set open.

Good morning. And I know we're over time, so I'll just keep it to one. But I had a question on reinsurance. From some of our conversations with some industry participants, it sounds like there was a bit of a return of aggregate treaties with mid-years. So I was just curious how you think about your exposure to aggregates and if your appetite at all has changed to write that business.

I don't think so in anything that's material. By the way, for the record, we always write aggregate treaties, but it's a very small portion of what we do. And I think, yeah, a few years back with aggregate drop-downs and all the good stuff that you see in the software market, we haven't seen a huge comeback, and our team haven't supported the few that have come to the market today.

Got it. Thank you. You're welcome.

Thank you. And your next question is from Elise Greenspan from Wells Fargo. Your line is now open.

Hi, thanks. I just had a follow-up, I guess, coming back to some of the mid-core discussion. I guess, you know, we were talking about, right, just the programs piece of it, which I know is going to have an impact on the margin, but I know when you guys announced the deal, right, the goal was to get this business right in line with Legacy Arch, right? So obviously the 100 basis points rag on the underlying loss ratio in the quarter. Can you just, and it sounds like, right, the program piece will impact next year. Can you take us through, like, should we start to see some improvement relative to mid-corp, you know, and serving as like a tailwind to that insurance segment underlying loss ratio next year? and then it picks up more steam in 27. I just want to understand the cadence of kind of the improvement in the mid-court margin and the trajectory to get in line with legacy ARCH.

It's a long-term thesis for making the acquisition. And I think the targeted profitability, I think, is unchanged. The timing, it's hard to, you know, it's hard to predict. We're doing a ton of work around it, preparing, you know, again. But, you know, I don't have a crystal ball as far as what the market will do, but, you know, around us. But I think the thing we feel good is that the assumption that we use, I think we'll be able to realize over time.

Okay. Thank you.

You're welcome.

Thank you. I am not showing any further questions. I would now like to turn a conference call over to Mr. Nicholas Papadopoulos for closing remarks.

Yeah, so I want to thank you all for participating in the call and wish everyone a great summer. Definitely, François and I, we need to take a bit of time off. And I want to reiterate one more time that we think the market we trade in is is very attractive and the challenge, our challenge, and you know, a lot of challenge around this market is really generating a new business. I think that's really it. Again, thank you and enjoy the summer.

Thank you, ladies and gentlemen, for participating in today's conference. This concludes the program. You may all disconnect your lines.