Arch Capital Group Ltd.

Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. ¶¶ © transcript Emily Beynon

Good day, ladies and gentlemen, and welcome to Fortu 2024-25 Arch Capital Earnings Conference Call. At this time, all participants are in a listen-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 Ledication Reform Act of 1995. The company intends to forward-looking statements in the call to be subject to safe harbor created thereby. Management also will make reference to certain non-GAAP measures of financial performance. The reconciliations to gap for each non-gap 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 website at www.sec.gov. I would now like to turn the call over. I will now, sorry, introduce your host for today's conference, Mr. Nicholas Papadopoulos and Mr. Francois Moret. Sirs, you may begin.

Good morning and welcome to our fourth quarter earnings call. We concluded another exceptional year by generating $1.1 billion of after-tax operating income in the fourth quarter, up 26% from the same period in 2024. Our quarterly consolidated combined ratio of 80.6% reflects excellent underwriting results across the group. For the full year, we produced $3.7 billion of after-tax operating income, a new high, resulting in after-tax operating earnings per share of $9.84 and a 17.1% annualized operating return on average common equity for 2025. Continued strong operating cash flows and capital generation enabled the repurchase of $1.9 billion of arch common stock in 2025. We strongly believe our stock is a good long-term investment, and share buybacks represent an efficient way to return excess capital to our shareholders over time. Since our inception, ARCH's commitment to maximize long-term shareholder value has been unwavering. In 2025, book value per share, our preferred measure of value creation, increased by 22.6%. Since our start in 2001, book value per share has gone at a compound annual growth rate in excess of 15%, placing us at the top of our peer group. We remain confident in our ability to deliver strong returns throughout the underwriting cycle and to build on the legacy of discipline, execution, and consistent results. We head into 2026 with measured optimism. We are starting from a position of strengths that recognize that competition is increasing in several lines of business. In an evolving market, the ARCH playbook, which has served us well over the years, is a differentiator that remains as valid and effective as ever. Our playbook is anchored by an underwriting culture defined by deep expertise and disciplined risk selection. Combined with a diversified business model, proven record of best-in-class cycle management, and the strengths of the arts brand, we are well positioned to consistently deliver superior results for our shareholders. I will now provide updates on our reporting segments. I'll begin with our insurance group, which delivered $119 million of underwriting income in the fourth quarter. Underwriting performance was solid, with an underlying ex-CAT combined ratio of 90.8% in the quarter, similar to the fourth quarter last year. Gross premium return increased 2% from the fourth quarter of 2024. In North America, we continue to grow in specialty casualty lines, including alternative markets, construction, and ENS casualty. As for our international units, we increased ridings through our Bermuda platform and in continental Europe. I will note that we experienced a year-over-year decline in net premium return, which Francois will explain in his remarks. Across the insurance platform, our underwriters pivoted towards lines of business offering the most attractive margins, and we grew premium volume in more than half of our business units. indicating a healthier underlying market that industry headlines would suggest. In North America, the rate environment is largely keeping pace with lost-cost trends, while pricing in our international business units is tracking slightly below lost trends. Within its geography, consistent with our cycle management approach, we will adjust our business mix in response to changing market conditions and pricing dynamics. Our insurance platform has expanded significantly over the last several years, providing more opportunities to capitalize on attractive margins in many areas. Going forward, our underwriters will continue to pursue growth in those areas where risk-adjusted returns exceed or meet our long-term objectives. Moving to reinsurance, which delivered a record $1.6 billion of underwriting income for the year. The fourth quarter combined ratio XCAT and prior year development was 74.9%, consistent with the prior year quarter and reflective of continued underlying market profitability. Gross premium return were flat versus the fourth quarter of 2024, despite the non-renewal of a large structured transaction. Net premium return declined, primarily due to a change in the timing of certain retrocession purchases. On January 1, proper TCAT and more generally short-tailed excessive loss renewals were highly competitive with rates down 10 to 20%. Sealing commission increased in proportional reinsurance as supply continued to outpace demand. Despite these headwinds, our underwriting teams performed well by leveraging the strengths of our platform to source a handful of new opportunities. These opportunities will reduce the negative top-line impact from the rate pressure. The mortgage segment produced $1 billion of underwriting income for the year, a fourth consecutive year exceeding the $1 billion threshold. In our USMI business, new insurance return remained modest, and insurance in-force was stable. The underlying credit quality of the portfolio is excellent, as illustrated by favorable cure rates on delinquent mortgages, which saw favorable reserve development in the quarter. While lower mortgage rates are beginning to support increased origination activity, the current market is still constrained. The team remains focused on underwriting discipline, expense management, and perfecting its data and analytical platforms to further optimize the business. Finally, investment generated $434 million of net investment income in the quarter, while equity method investments added another $155 million to net income. We continue to look to the investment portfolio, where assets surpassed $47 billion at year-end, to provide a stable recurring earnings stream that enhances the group's overall returns. As we move past 2 p.m. on the P&C underwriting clock, it is increasingly important to focus on business that generates adequate risk-adjusted returns. For almost 25 years, ARCH has perfected its cycle management capabilities by adhering to some foundational principles. One, leveraging a diversified specialty platform to maximize flexibility and reduce volatility. Two, embracing a business owner mindset anchored on delivering a differentiated customer experience. Three, using data and analytics to sharpen insights and enhance risk selection. And last but not least, ensuring alignment with investors by rewarding underwriters for profitability, not volume, and incentivizing our executives to grow book value per share above all else. The stage of the underwriting cycle will test our underwriting discipline and acumen. Hard markets are exciting for many reasons, but successfully managing the cycle is equally, if not more, rewarding, as the decisions made today will shape future returns. With our experience, focus, proven track record, and capital strength, we believe ARCH is ready for the task and well-positioned to outperform the sector. This year marks ARCH's 25th anniversary. Having been here since 2001, I firmly believe that ARCH's culture, driven by our dedicated people, is a foundation of our success. So before I turn the call over to Francois, I want to thank Team ARCH for another outstanding year and for positioning the company for continued success in the years ahead. Francois.

Thank you, Nicholas, and good morning to all. Last night, we reported our fourth quarter results with after-tax operating income of $2.98 per share and an annualized net income return on average common equity of 21.2%. Book value per share grew by 4.5% in the quarter. Our three business segments once again delivered excellent underlying results. with an overall ex-cap accident year combined ratio of 79.5%, down 100 basis points from last quarter. Our underwriting income included $118 million of favorable prior development on a pre-tax basis in the fourth quarter, or 2.8 points on the overall combined ratio. We recognize favorable development across all three of our segments, and in many of our lines of business. The most significant improvements were, once again, seen in short tail lines in our P&C segments and in mortgage due to strong cure activity. Current year catastrophe losses were $164 million net of reinsurance and reinstatement premiums, lower than our seasonally adjusted expectations, but higher than last quarter. mostly as a result of U.S. severe convective storms, Hurricane Melissa, and a series of global events. The insurance segment's gross premiums written grew 2.3%, while net premiums written declined 4% year over year. The decrease in net premiums written was due, in part, to the timing of seeded written premium accruals related to the MCE acquisition in the prior year quarter, and changes in business mix resulting from different levels of net to gross retention ratios. The ex-cap accident year loss ratio improved by 80 basis points to 57.5% compared to the same quarter one year ago. The acquisition expense ratio for the current accident year increased by 150 basis points as the benefit we observed in the fourth quarter of 2024 from the write-off of deferred acquisition costs for the MC acquired business rolled off. The reinsurance segment had another stellar quarter in terms of pre-tax underwriting income at $458 million. Overall, gross premiums written were flat and net premiums written were down approximately 5.2% from the same quarter one year ago. Our net premium volume was up in casualty and property other than property catastrophe, but was down in specialty due to the impact of the non-renewal of a large transaction, as Nicholas mentioned, and in property catastrophe due to changes in the timing of certain retrocession purchases. We finished 2025 with an 80.8% combined ratio for the year, certainly an excellent result and the lowest since 2016. Once again, our mortgage segment delivered another very strong quarter with underwriting income of $250 million. Net premiums earned were down approximately $11 million from last quarter, mostly across our CRT and Australian businesses. That said, with fourth quarter new insurance written at USMI at its highest level for the year and persistency remaining high at 81.8%, USMI insurance and force was relatively flat. The current accident year combined ratio remained low at 34%, considering the increase in new notices of default due to seasonality. The delinquency rate for our USMI business increased to 2.17%, in line with our expectations. On the investment front, we earned a combined $589 million from net investment income, and income from funds accounted using the equity method are $1.60 per share pre-tax. Strong positive cash flow from operations, $6.2 billion for the year, helped us further increase the size of our investable assets, which now stands at $47.4 billion. Our portfolio remains of very high quality with a short duration and remains in line with our asset allocation targets. Income from operating affiliates was strong at $61 million, due especially to a very good quarter at Summers Reed. As you have heard, the Bermuda government enacted in December the Tax Credits Act 2025, designed to incentivize tangible on-island economic activity. At the heart of the act are qualified refundable tax credits, or QRTCs, which are available to us given our operational presence in Bermuda. This quarter, we recognized a full year effect of the 2025 QRTCs, significantly impacting our financial results, primarily through the expense ratio for our reinsurance segment and the corporate expenses line. Of note, included in these numbers are some one-time benefits which we would not expect to recur in future years. Going forward, our view is that the impact of the QRTC should be most visible in two places. One, for the reinsurance segment, we would expect our operating expense ratio to benefit, resulting in a full year 2026 operating expense ratio between 3.9% and 4.5%. And two, our corporate expenses should also be reduced from their run rate levels and be approximately between $80 and $90 million in 2026. The QRTCs will also benefit other expense line items, including the insurance and mortgage segment expense ratios and net investment income, but to a much lesser extent. As a reminder, our pattern of corporate expenses is typically skewed towards the first quarter of the year, due to the impact of equity compensation grants. For the 2025 year, our effective tax rate on pre-tax operating income was 14.9%, reflecting the mix of income by tax jurisdiction. It was slightly below the 16 to 18% previously guided range, mostly due to a 1.4% benefit from discrete items. As we look ahead to 2026, we would expect our annualized effective tax rate to return to the 16% to 18% range for the full year. As of January 1, our peak zone natural cap probable maximum loss for a single event, one in 250-year return period on a net level basis, remained flat at $1.9 billion and now stands at 8.2% of tangible shareholders' equity. For 2026, Our current estimate of the full year catastrophe losses stands within a range of 7% to 8% of overall net earned premium, similar to the estimate we disclosed last year. On the capital management front, we repurchased $798 million of our shares in the fourth quarter. For the year, we repurchased $1.9 billion, or 21.2 million shares, representing 5.6% of the outstanding common shares at the start of the year. We have repurchased an additional $349 million in shares so far this year through last night. We closed 2025 with a balance sheet in excellent health with strong capitalization and low leverage, giving us plenty of optionality as we continue to put to work the capital our shareholders have entrusted in us. With these introductory comments, we are now prepared to take your questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 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 Reesman at Wells Fargo. Please go ahead.

Hi, thanks. Good morning. I wanted to start with the comments that you guys made on PropertyCat. I think you said that there were some opportunities at 1.1 that served to offset the impact of the price declines. Can you just expand, I guess, on the opportunities that you saw in just how you expect, I guess, growth in PropertyCat Re during 2026.

So good morning, Annine. I think the opportunities we refer to in our comments, I mean, are not in PropertyCat. I think they come from other geographies and mostly in specialty lines.

Okay. And then... My second question was just on capital. You guys, it sounds like there was a, you know, the level of and the pace of buyback, Francois, based on your comments, picked up to start the year. I know you guys, right, typically buybacks, right, it's dependent upon capital as well as the stock price. But how should we think about the level trending from here, right, $350 million, right, in a little bit over a month, right, is a pretty big level?

Yeah, I think, I mean, sure, buybacks are, I think, are certainly, as we said, like a good way to return capital. I don't think, I mean, we don't set a target. It's not like we're saying we're going to return X dollars by the end of the year. But, you know, the market, you know, depending on stock price and what we see in our ability to deploy capital in the business, we'll be active for sure. I mean, the pace will vary. It's not necessarily, I'd say, a binary event, whether we buy or we don't buy. It's, you know, there's We buy different levels during different times during the year. But, you know, I think no question that given the market environment we're in, I think you should expect us to be pretty active on the share buybacks throughout the year.

And then one last one. On the MCE side, can you just remind us of the expectations for the re-underwriting in terms of the premium impact? And from a seasonality perspective, is that – more weighted to one quarter of the year versus another? Or should we think about that being an even impact during the four quarters of 26?

Yeah, I mean, part B, no question that the business is pretty well distributed throughout the year. There's not much seasonality in it. You know, the re-underwriting question, we touched on it in prior quarters. There was definitely some business that came with the acquisition primarily in the form of programs that we identified that were to be non-renewed we've done that work that will start to really impact our top line in 2026 um and you know we hopefully you know depending on market conditions can offset some of that reduction by growth in the truly the middle market business that we we have on the books but again very much a function of market conditions but that was the uh that's the current thinking on that thank you you're welcome

Next question will be from Tracy Benjiji at the Wolf Research. Please go ahead.

Good morning. On the 10 to 20% rate decreases at 1.1, based on prior conversations I had with Arch, I understand you don't like cat business below a 16% ROE. So in terms of sensitivities, I understood going into renewal, you thought that, let's say, If you got a 10% rate reduction, you could still land a 20% ROE, maybe 15% will get you between 16 to 20%. Now the 10 to 20% is a wide band. So how does this all shake out on an ROE perspective for a prop cat business?

So overall, I think we still like the cat business we wrote at 1.1. I think we, as you said, some areas have been more competitive than others. We've seen Europe, you know, being very competitive. I think in the U.S., you know, probably less so compared to Europe. And I think we just adjust, you know, our writings to the target profitability that is set by regions. So overall, I think we... We were able to retain most of our annuals. We got some very favorable signing from our broker because of the service we provide and the long-standing relationship we have with many of our selling companies. So I think we still like the business. If rates were to continue to go down, you know, in the mid-teens, you know, we would have to, on the case-by-case basis, you know, realize where it makes sense and where it doesn't.

Okay. And any early thoughts on mid-year reinsurance renewal pricing relative to what you're seeing in January?

So our thought is more about the market in general. I think the competition we are seeing is really a reflection of the excellent results we've all benefited from, you know, in the last three years. And, you know, the fact that we had only one major cat, which was the California wildfires, I think we, you know, Absent of any other major cat, I would expect, you know, the supplies to continue to be there. So I think people should pay attention to the risk-adjusted return, you know, going forward, because it's a big element of how we underwrite the business.

Okay, thank you.

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

Good morning. Given yesterday's move in the market, I was going to ask you about the risk of disruption to your business model from AI and whether you're more likely to be a net beneficiary from AI via improved efficiencies and smarter risk selection rather than at risk of disruption, which I suspect is probably more limited to some distribution platforms or maybe to carriers from the right lines or more commoditized. I'd love to hear your thoughts on this topic.

Yes, I think I agree with your premise. I think we think of AI as more of an opportunity for efficiency and rather than a threat, but ultimately the beneficiary of AI will be the consumers, you know, as most of the savings and efficiency will be passed on to the insured. So, but yes, I think the, you know, The advantage of being in the specialty market is it's complex. I think it will, I'm not saying it's impossible, but it will take time for models to learn to replicate the behavior of the underwriters. So I think what we're seeing is, you know, personal lines or SME maybe happening there faster than in the space that we're playing.

Okay, and my follow-up question is a follow-up on capital return. I guess in theory, if there is no growth in 2026, and I hope you guys see growth, but if there is no growth, you could distribute close to 100% of the capital you generate. Is that something you would consider? If not, what's the highest payout ratio you'd consider in the no growth and no M&A scenario?

You're right. I mean, if we're not growing, which, again, we don't know if we will or not, but, you know, it depends on the market. But absolutely, if the market, you know, we're not growing, you know, our capital needs should remain relatively flat, and every dollar of, you know, income that we generate technically could be, you know, creating more excess capital. What's our, you know, do we have a set of targets? No, we don't. But we are, you know, if the market, you know, points us in a certain direction and the opportunity is there to buy back, you know, more than you would, you know, you saw us buy back last year, for example, we're happy to do that. It's very much a function of market conditions and, you know, that's something we evaluate, you know, on a daily basis.

Thanks. You're welcome.

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

Hey, thanks. Good morning. I guess first question on the reinsurance segment specifically. I guess a lot goes into the loss ratio, of course, for the segment. If we're looking at the underlying loss ratio trend, it's nudging a bit higher into the low 50s. I guess thinking about 26 to the extent, you know, the reinsurance market plays out the way you're thinking in terms of just some additional downwards rate pressure. Should we continue to nudge that loss ratio underlying loss ratio trend line higher? Or the cat load?

Yeah, I think so. I think the reinsurance side, I think margins are definitely under pressure. So I think you're right. It comes from the pricing and the excess of loss and Also, you know, on the expense side, you know, we're seeing also a sitting commission, you know, going up. Okay. But we still like the business. I think it's, you know, we have a big diversified platform. We write the business in many geographies. So I think we believe that we can find ways to, to continue to strike an attractive market. But yes, the margin, I mean, they were very high, but the margins are definitely under pressure.

Okay, great. And I'm going to ask another capital management question just because you all, as you point out, are good cycle managers and you're one of the few that's able or maybe willing to shrink in times that you're making a bet that the market isn't as conducive for growth. So on capital management, is there Are there any items that would, you know, other than, you know, we can see the shrinking in top line growth that could free up more capital than we can kind of see at a high level, like the mortgage segment? Is that releasing, you know, a material amount of regulatory capital that we should potentially take into account?

On that question, Mike, I don't think so. I mean, I think we touched, well, we certainly have touched on it in the past. I think the The overall capital position, you know, the fact that, yes, maybe there's some capital that is trapped in the MI companies hasn't really been a factor. I think we've been able to distribute through dividends like meaningful amounts of capital from our MI company to, you know, to buy back stock, to return to shareholders, et cetera. So I don't think that should be any, you know, it shouldn't be materially different going forward. The one thing that is a capital consumer is the investment portfolio. That's one thing that we have some, I think, ability to influence capital requirements depending on how much capital or assets we deploy in riskier assets such as equities and or private investments. But other than that, I think, and we can also play certainly on the reinsurance side, whether we buy more or less reinsurance like that impacts our net retained premium. But, you know, at this point, I wouldn't expect like drastic changes in how we think about excess capital or how we think about returning capital. It's pretty much, you know, I'd say 26 should be, you know, at a high level, a continuation of what we saw in 25.

Great. And just speaking one quick one in, Nicholas, you said the North America rate environment largely keeping pace with trend, but international probably slightly below. I think I thought that was a bit of a provocative statement, since I think that the assumption is that the data we're seeing is that, you know, lawsuit inflation continues to be an issue in the U.S. So any any context you could additional color you want to put on kind of, you know, why you feel better about U.S. versus international things?

Yes, I think that's, you know, the remarks that I made is really based on our own portfolio for the lines of business we write. And remember, the band in North America is more about, you know, long tail. We're more of a casualty rider. And in casualty, we've seen, you know, rates about above trend. So that drives, and certainly in the shorter lines, we've seen, It's coming down. But when you take the entire portfolio, we see one upsetting the other at this stage in the market.

Thank you.

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

Hey, good morning. Could you share a bit about what the conditions are on the casualty reinsurance market there? Are you still seeing rate ahead of loss cost?

So on the casualty side, you know, generally on the primary, before we talk about the insurance market, I think on the primary side, we feel that rates are still, you know, we're still getting more rate than trend. You know, it seems that it's decelerating a little bit of what we saw in the last quarter, but I personally believe that there's still pain. I think we still will see some unfavorable developments in the market for the old years and the prior to 2022. So I'm optimistic that the rates could continue to at least meet the trend for the foreseeable future. So that's the background. When we look specifically at the reinsurance, I think we've seen, you know, there's a lot of supply, a lot of willingness for the reinsurer to ride the business. And I think the thing that has been new is, you know, maybe based on what I said earlier, the ability or the willingness of our seeding companies to retain more of the business, which has added, you know, the supply is constant. and the demand is stable to down. So that is another layer of competition there.

Thanks. And that demand comment on staples to down, was that just on casualty, or perhaps you could update us on how you're thinking about property demand into mid-year?

The one I talked about is with casualty. I think on property, we've seen you know, on the reinsurance side, and especially on the CAD accessible side, we've seen retention being stable. Only a few citizens decided to add, you know, sublayers to their program. So I think that, and on the other property, yeah, we're seeing companies based on the, again, as I said earlier, the excellent results of the last three years, willing now to take on more of the business. So that's a factor there too. Thank you.

next question will be from david mode maiden at evercore please go ahead hey thanks good morning um i just had a question um you know encouraging to see the level of buyback continue uh in the first quarter um but you know we i'm just sort of wondering how you guys would frame uh how we should be thinking about the current excess capital position that you guys have before we start thinking about you know, running through the puts and takes on growth and different sources and uses. Would be great to get an update on that front.

Yeah, I mean, listen, we, the excess capital is a, you know, it's a number that changes, you know, is not static, right? And, you know, but no question that, you know, given the level of results and returns we've generated the last few years, we did end up accumulating some excess capital. You know, our number one mission, we've said it before, is to put the capital to work in the business where we think it makes sense, where we can generate adequate returns. You know, after that, yes, we absolutely are committed to returning the capital to the shareholders, but, you know, we want to do what's right for the shareholders. And sometimes it may just mean that, you know, for a given, you know, some period of time, we do hold on to the capital for a bit longer. The money is, you know, it's been said before on our calls, it's It's in our pockets. It's not burning anything. It's just sitting there. It's maybe not the most optimal way, right? But it's still, it's not really destroying value in a meaningful way. So we're all about what's doing right for the shareholder. And, you know, in an environment, again, if we don't grow materially going forward, or at least for the short term, you know, you could certainly think that, you know, you should think of the level of earnings we're going to generate to be you know, additive to our excess capital position. And that's, you know, gives us more opportunity to return more capital to shareholders.

Great. Thanks. And then maybe just following up on the casualty reinsurance side, you know, you've seen decent growth there. It's offset some of the pressure on the property side as you guys have managed to cycle. I'm interested, Nicholas, you had talked about I guess I hire seeds on proportional reinsurance. You know, I was assuming that as for property, but given, you know, your answer to the, you know, one of the previous questions, it sounds like, you know, is, is, or I guess I'm wondering, are you seeing higher seeds on, on casualty re just given the supply demand changes? And, you know, do you still view casualty re as a, you know, a growth opportunity in 26 that can help offset some of the, pressure on the property side?

So to answer your first question, I think it's marginal on the casualty and it works both ways. Like underperforming account, you see ceiling commission going down a bit, should be more, but, and, you know, extended account that everybody is looking for, you may see marginal increase, but really not, I should have clarified earlier, not the big factor. It's mostly the big swing has been on other property. And And to answer your second questions on appetite in the space, I think backing the right seeding company, people like, you know, a little bit arch, you know, real good understanding of the business and can navigate their way in ultimately pretty favorable, you know, in some pockets, primary casualty market. We think it's something we would like to do more of. So we, it's hard to do based on what I explained earlier, but again, our brand, in the reinsurance side is good. And, you know, we have a huge trading relationship with our seeding companies. So we can, you know, we can find ways to, we certainly first call when, you know, new programs are set up or, you know, some reinsurers, you know, decided to move out of the program or reduce. I think we have a shot at growing going forward, I think.

Awesome. Thank you. You're welcome.

Next question will be from Yaron Kinar at Mizuho. Please go ahead.

Thank you. Good morning. Francois, I want to go back to your comment regarding looking to potentially retain more premiums in 26. Can you elaborate on that? Just given the seeding commission rates that are increasing and the supply-demand imbalance, I think pointing to more of a buyer's market, is it that the margin on new casualty and specialty business and insurance is so much better that it's still more economic to keep it than to seed at lower pricing?

Yeah. I mean, that's part of the equation, right? I mean, just like we have the advantage of having both insurance and reinsurance in our platform, so we seed both ways, but You know, as a buyer of reinsurance, we're no different than some of the seating companies that buy from Archery. And, you know, Nicholas touched on it. It's like, well, yeah, sure. I mean, I can get, you know, maybe a slightly higher seating commission, and that's part of the economics of the transaction. But, you know, given the rate increases we've seen on the primary side the last couple of years that have compounded, and certainly maybe not across the board, but in sub-segments of our book, you know, primary insurers like the business, like the pricing a lot as it is today. So you have to, you know, compare the two. Am I better off retaining a bit more or do I just kind of lock in my profit effectively and just kind of go for the same commission? So I think it's, you know, as you can imagine, we have multiple reinsurance programs that we evaluate throughout the year. It's not, you know, every one of them is looked at individually depending on market conditions and what we see, you know, what the opportunities are. But I wouldn't say that we're necessarily planning to buy more or buy less at this point, but it could happen. And again, that's something that will evolve throughout the year.

Yeah. And I think the other way, the other way you can, you know, retain more is by switching the structure of your insurance, which is to go from a quarter share insurance to an excessive loss. And again, Traditionally, not what the reinsurers like to offer, but based on the, you know, competition in the marketplace, having those structures have been more common. So I think that's something we look at as well. And again, we like the casualty, you know, in most of our markets. So it's true also, you know, outside the U.S., I think, and both on the insurance and reinsurance. We have a decent-sized portfolio outside the U.S., just I wanted to make Make sure we mention that.

Yeah, that makes sense, and I appreciate the thought on the restructuring of reinsurance programs. I hadn't thought about that as much. My second question, one that's been asked on prior calls as well, can you give us an update as we look into 2026, how you rank the appetite and attractiveness of new business between the three segments in terms of capital deployments?

Yeah, I mean, no question that, you know, reinsurance has been, you know, the last couple of years definitely, you know, a very attractive market for us, and we've deployed meaningfully. You saw our growth, and you saw what we, you know, how we performed in that market. As the market comes down, it's, I think, it's less, you know, ahead of the others, I would say. So, If I had to rank them today, I'd say, yeah, reinsurance to me is still ahead, but the gap has narrowed. It's come down. Reinsurance is doing still very well, very attractive, but I think the gap between reinsurance and insurance is not as significant as it was a year ago. And mortgage, we haven't had a question yet on mortgage. I mean, if it's a good thing, we love it, right? I mean, it's a great business. It's steady. It's been a great source of earnings for us. You know, again, we've laughed about it. We've talked about prior calls. Like, which one of you three kids do you like the most or not like as much as the others? We love them all, right? We love all three of our segments. But certainly, you know, I think the fact that the reinsurance market is compressing a little bit, I think, just brings all three segments a bit closer to each other.

Thank you very much.

You're welcome.

Next question will be from Matthew Heimerman at Citi. Please go ahead.

Hey, good morning. A couple of questions. One was just with respect to the MCE re-underwriting, you've been asked about the premium consequences of that. I'd be curious about the margin consequences of that.

Well, I mean, you'd like to think that, you know, the business that we're shedding is the worst performing business. absent any other event, you would think that our margins should improve, but that doesn't factor in. That comment obviously has been true, but the market in front of us may be different than what we had assumed. So on the one hand, no question that the non-renewals will improve our margins, but maybe depending on where the market, what the pricing looks like, It's still a very good market. Middle market business has been, I think, in a good place. I think rates have been holding up and have been, you know, improving. So that's been good. But, you know, what's, you know, margins going forward, hard to comment on that.

Yeah, and I think some of the programs we've shared actually get exposed. So, you know, the... The upfront result may have looked OK, but we think it's a bad allocation of capital, and we can get better return by deploying that capacity elsewhere. So I think especially on the insurance side. So I think those are the decisions we've made. I mean, some of them are running hot, but a few of them that we decided to shed were more cost of capital, opportunity being better elsewhere. And I feel that, again, to answer your question overall, I think we're still, you know, thinking that the business could run in, you know, one day in the low 90s.

I appreciate that. I guess another question I had was, given the QRTCs, any opportunistic investments you think about making in tech or ops or accelerating existing investments?

Not as a direct result. I'd say we will make and have made investments over time based on what we're trying to accomplish and trying to streamline operations, trying to be more efficient, and whether it's improving some systems, et cetera. So I think nothing is different in that respect. you know, the fact that, you know, certainly reinforces, you know, the value for sure for us, and it's been there throughout, the value of having a presence in Bermuda, and I think, you know, we are committed and remain committed to the island, so that, you know, reaffirms that. But in terms of, like, making, I'd say, direct investments as a result of the QRTCs, I don't think it's the case. It's more, you know, based on need and based on what we were trying to accomplish.

And I think it's really enough said to the the high cost of doing business in Bermuda. So I think that's smart from the Bermuda government standpoint to make their jurisdiction more attractive to companies like Arch.

Yeah, that's totally fair. And then I just normally went after third, but your comment on the demand quotient potentially changing for casualty reinsurance, Just made me curious whether or not you are seeing any real changes to subject premium basis in any of your reinsurance treaties at this point that's informing that, or is that unrelated?

So in terms of what can you provide? I'm just curious.

It's maybe a different way to ask it is over the course of this year. It feels like there have been some companies that have had to adjust down their premium assumptions for the reinsurance book based on updated information from seed and fund on the underlying subject premium basis. I'm just curious whether or not you're seeing any noticeable signal or information there that's worth calling out and whether or not your demand comment we should read as risk into subject premium basis next year.

So what you describe, I think it's true on the other property, you know, companies that wanted to go aggressively into the excess and surplus property side or energy, you know, have had to, you know, revise to the downside their projections. I think on On casualty, what I was referencing is more students retaining more, but I think the underlying business is still growing. So that would not be the reason.

Yeah, but after that, I think, Matt, just to be clear, we do, I mean, that's something we look at every quarter. So we are very, we've been very active internally, certainly in 2025, and that will remain, making sure that yes, we get premium projections from the underwriters, from the scenes, and we obviously superimpose some of our own views based on where we think the business may end up. We certainly don't want to be in a position where we have to make a massive downward adjustment because we overshot the mark. I think we've been very careful in making sure that we remain on top of it throughout the year as we readjust our or premium projections based on market conditions.

Thank you for that, Collin. I appreciate it. Have a great day.

Thank you.

Next question will be from Myershield at KBW. Please go ahead.

Great. Thank you so much. Two quick questions. You mentioned there were a couple of expense items in the quarter besides the tax. Can you tell us where

Yeah, I mean, the line broke down, so I apologize. I don't know if it's our side or it's my or it's the caller's side.

No, it's probably me. You mentioned that there were a couple of favorable expense items beyond the Bermuda tax credits, and I was hoping you could tell us where those showed up in terms of modeling for next year.

Well, I think I touched on, I mean, the Bermuda tax credits, I think the intent of the comment was that Bermuda tax credits, you know, at the core is very much a function of, like, how much presence we have in Bermuda and the direct, you know, payroll-related kind of expenses. So, yes, we have expenses in Bermuda in all three of our segments and also in, you know, our investment team, so that is reflected as an investment expense, and the corporate line. So, again, where it's noticeable, as I said, is in the reinsurance segment and in corporate. In the other places, there are, I mean, we're talking like single millions of dollars. I mean, it's not going to be noticeable to the outside world. So in terms of modeling, I would say, yes, there's some benefits, but it's so, I mean, it could be, you know, it could be buried, it will be buried as part of the overall expense base of either the insurance or the mortgage segment, for example. So that's why it's just hard for us to kind of

No, no, I appreciate that. You were very clear, actually. What I'm trying to get a handle on is the favorable expense items besides the tax credits, because you said that there were a couple and just didn't know where they were.

I mean, there's nothing else really to point out. Those are, I mean, sorry for the confusion, but the idea was just that. So there's nothing else to point out that was favorable in terms of expenses that were Again, we should highlight or identify.

Okay, fair enough. And then final question. Does the fact that we're finally seeing the non-renewed program business actually hit the income statement, is that going to have an observable impact on the acquisition expense ratio in insurance?

I would say no. I would say no. I mean, again, we're talking, again, $200 million, $300 million of written premium that we're shedding on a written premium base of $8 billion, and you do the math from there. I would not factor in any meaningful improvement in the acquisition ratio for the insurance segment. Okay.

Very helpful. Thank you.

You're welcome.

Next question will be from Roland Mayer at RBC Capital Markets. Please go ahead.

Good morning. Can you give an update on the carrying value of the deferred tax asset when we expect to hear some clarification on the ability to recognize it?

Yeah, I mean, that's been right. So we wrapped up the first year, and we set up an asset in the 23 that we started amortizing in 25. So the billion two is now, you know, roughly came down by about $100 million in 25. And, you know, we are going to keep, you know, amortizing that in 26. And depending on where the law goes in Bermuda, maybe that asset goes away. We just don't know. I mean, it's not our decision. It's obviously we follow the Bermuda law. But, you know, there's been talk that, you know, this you know, depending on, you know, negotiations or kind of what the Bermuda government ends up doing, that this asset could be, you know, could no longer be an asset to us at the either, you know, late, you know, fourth quarter 26 or maybe early part of 27.

Okay, perfect. And then I just wanted to ask on your view of M&A in this environment. I know there's been a couple of deals announced in the past month or so, and with how your sort of debt to cap is stacking up, you're kind of naturally deleveraging over time and just anything on leverage or M&A?

Yes, on M&A, I think our position hasn't changed. We like strategic assets, so anything that can really improve our platform or add lines of business or help us, you know, move forward into something we were planning to do and buy versus build. I think we look at everything else, but at this stage, especially in terms of where the market is, I think efficiencies, it would have to be an amazing deal for us to really pursue it. I'm not saying it's impossible, but I think it's unlikely.

Great, thank you for the answers. You're welcome.

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

Yes, thank you everyone for spending an hour with us. Again, another pretty damn good performance in 2025. Again, thanking all the employees for the hard work they did to get us there, and I think we're pretty much ready to go for 2026, and we'll talk to you next quarter. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Thank you for participating. You may now disconnect your lines.