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?