Arch Capital Group Ltd.

Good day, ladies and gentlemen, and welcome to the 1Q2026 Arch Capital Earnings Conference Call. At this time, all participants are in 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 the 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 2025 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 reconciliations to GAAP for each non-GAAP financial measure can be found in the company's current report on Form 8K furnished to the SEC yesterday, which contains the company's earnings press release and is available on the company's website at www.archgroup.com and on the SEC's website at www.sec.gov. I would now like to introduce your host for today's conference, Mr. Nicholas Papadopoulos. and Mr. Francois Morin. Sirs, you may begin.

Good morning, and welcome to ARCHER's first quarter 2026 earnings call. We deliver the strong quarter reflecting both attractive underwriting margin and the disciplined execution of our underwriting and capital management strategies. After tax operating income for the quarter was $901 million, or $2.50 per share. producing an annualized net income return on average common equity of 17.8%. Today's market is clearly more competitive than in recent years. That said, rates and terms and conditions in aggregate still support strong returns. Capturing those returns requires the ability and willingness to actively manage the portfolio across and within lines of business. This is embedded in Archer's operating principles and among our differentiating traits to dynamically add to areas where returns are attractive while declining those risks that no longer provide an adequate margin of safety. Regardless of where we are in the cycle, ARTS is committed to generating superior returns for our shareholders. I'll now provide updates across our reporting segments, beginning with insurance, which generated $66 million of underwriting income in the first quarter. It compares favorably to the first quarter in 2025 that was impacted by the California wildfires. Overall, market conditions remain favorable. However, top-line growth in the segment was essentially flat in the quarter, reflecting our focus on profitability over volume as competitive pressures increase. Growth opportunities remain across most casualty-focused businesses. including excess and surplus line casualty, construction, alternative markets, as well as a number of our London market businesses. Growth was offset by softening rates in a few areas, including large account and excess and surplus line property, as well as some short tail lines in London. We also chose not to renew certain program business acquired in the middle market commercial transaction that did not align with our risk appetite or meet our profitability requirements. As we have discussed on prior calls, these non-renewals are expected to reduce net premium return by approximately $250 million throughout 2026. I also want to note a significant operational milestone achieved in our middle market commercial business. Earlier this month, Our team successfully completed the data and system migration of the acquired businesses from Allianz to Arch-owned systems. The ability to complete this effort in just 18 months speaks not only to the dedication of our teams, but also represents a scalable, best-in-class experience for clients and distribution partners. Our insurance segment delivered an excellent $441 million of underwriting income in the quarter, a significant increase from the $167 million in the first quarter of 2025, which was heavily impacted by the California wildfires. Rate reductions and increased retentions by our students contributed to a 6% decline in net premiums return versus the same quarter last year. Shorted lines, including other property, property catastrophe, and marine, were the primary driver of these declines. Strong industry results over the past few years have attracted significant new capacity from traditional markets and third-party capital, resulting in a broadly competitive environment. Its additional supply continues to put downward pressure on property catastrophe and short air rates, while also moderating the push for needed rate increases in some casualty lines. However, underwriting performance remains excellent. Our focused and disciplined underwriting led to the reinsurance group's 76% combined ratio, marking the fourth straight quarter of 70% combined ratios. Consistent with our cycle management philosophy, our reinsurance team actively manages the portfolio mix by continuing to write new business that meets our risk-adjusted return targets and by reducing our share of business that falls below our minimum return thresholds. The mortgage segment delivered another strong quarter with $221 million of underwriting income to go along with $266 million of net premiums returned. Mortgage originations picked up modestly in the first quarter, though affordability challenges tied to high mortgage rates and home prices continue to constrain demand. Credit quality across the mortgage insurance portfolio remains excellent, with delinquencies normalizing from seasonally higher levels in the fourth quarter of 2025. Competition remains disciplined, and we continue to pursue growth for innovation and new product introductions across our global footprint. Overall, mortgage performance continues to exceed expectations and provide shareholders with a differentiated and diversifying source of earnings that support long-term value creation. Turning to investments, which contributed $4.8 million, or $1.13 of net investment income per share in the quarter. The decline in net investment income from the fourth quarter of 2025 was driven in part by lower cash yields, lower qualified refundable tax credit benefits, and seasonal compensation payouts. Our nearly $48 billion investment portfolio provides a material contribution to earnings and book value growth, effectively raising our quarterly earnings floor. In the first quarter, we repurchased $7.83 million worth of our common stock, while still increasing book value per share by 1.7%. Our first priority remains to deploy capital into our business. When organic opportunities do not meet our return threshold, we view repurchasing our shares as an attractive use of excess capital, reflecting our conviction in the intrinsic value of the franchise. The board's recent $3 billion increase to our share repurchase authorization underscores this approach to capital allocation. To conclude, ARCH delivered another strong quarter by staying true to our principles of discipline cycle management and by leveraging the strengths of the ARCH brand and our diversified platform. In today's market, underwriting discipline powered by insight from our investment in data and analytics Rewarding our underwriter for profit not volume and prudent capital management continues to differentiate ARCH and drive long-term value for our investors. ARCH's 25-year record of strong return and compounding book value at double-digit rates is a direct result of hard work and discipline. That is ARCH. That is our DNA. And that is why we believe we will continue to deliver best-in-class results across market cycles and into the future. I will now turn the call over to Francois, who will talk through the financials in more detail. Francois.

Thank you, Nicolas, and good morning to all. Last night, we reported our first quarter results with after-tax operating income of $2.50 per share, and an annualized operating income return on average common equity of 15.4%. Book value per share grew by 1.7% in the quarter. Our three business segments once again delivered excellent underlying results with an overall XCAT accident year combined ratio of 82.3%, up 130 basis points from the same quarter last year, and consistent with the more competitive environment we are facing. I will provide more color on trends in each of our segments shortly. Our underwriting income included $200 million of favorable prior year development on a pre-tax basis in the first quarter, or five points on the overall combined ratio. We recognize favorable development across all three of our segments and in many of our lines of business, but mainly in short tail lines in our P&C segments and in mortgage due to strong cure activity. Of note this quarter, we commuted a large transaction which increased the level of favorable prior development in our reinsurance segment by approximately 25% in the quarter. Current year catastrophe losses were $174 million net of reinsurance and reinstatement premiums. and were mainly the result of winter storms in the U.S. and the Iran conflict. All in, these losses were slightly lower than our seasonally adjusted expectations for natural catastrophes. The insurance segment's gross premiums written grew 2%, while net premiums written declined 1.4% year over year. As Nicholas explained, the non-renewal of a certain program business acquired as part of the MCE transaction impacted our top line this quarter. In addition, net premiums written were also impacted by a shift in business mix toward lines with lower net-to-gross retention ratios. The XCAT accident year loss ratio improved by 70 basis points to 56.7% compared to the same quarter one year ago. The acquisition expense ratio for the current accident year increased by 160 basis points as the benefit we observed in the first quarter of 2025 from the write-off of deferred acquisition costs from the MCE acquired business rolled off. We would expect the most recent acquisition expense ratio to be more representative of long-term expectations. Our operating expense ratio was higher this quarter as we incurred additional expenses related to the transition of our middle market business to arch systems. You would expect our operating expense ratio to revert back to a level closer to historical levels during the second half of the year. The reinsurance segment had an excellent quarter, $441 million in pre-tax underwriting income. Overall, gross premiums written were down by 2.3%, while net premiums written were down by 6% from the same quarter one year ago. Net premiums written were up in specialty, partly due to timing differences in the recognition of certain treaty renewals that impacted our financials in the first quarter of 2025. Over one-third of the decrease in net premiums written in property catastrophe was attributable to a lower level of reinstatement premiums compared to a year ago, which were impacted by the California wildfires. Overall, our ex-catastrophe accident year combined ratio of 78.1% is comparable to last year's result for the same quarter. Our mortgage segment produced another very strong quarter with underwriting income of $221 million. Net premiums earned were down by approximately $6 million from last quarter, mostly driven by lower levels of cancellation premiums in our CRT business. Of note this quarter, new insurance written at USMI reflects a large non-GSC transaction of $2.2 billion in NIW. Absent this transaction, which increased our NIW by 15%, we would expect our market share of the PMI market to remain relatively unchanged from the prior quarter. The delinquency rate for our USMI business decreased to 2.06%, consistent with our expectations and seasonal trends. On the investment front, we earned a combined $568 million from net investment income and income from funds accounted using the equity method, or $1.57 per share pre-tax, slightly down from the $1.60 per share we earned last quarter. Cash flow from operations remained positive at $1.2 billion for the quarter. Our portfolio remains of very high quality with a short duration and in line with our asset allocation targets. Income from operating affiliates was $36 million for the quarter, up from $17 million from the same quarter one year ago, which was impacted by the California wildfires. As a reminder, this quarter's result reflects our lower ownership stake in Summers Re since the start of the year. Our effective tax rate on pre-tax operating income was 14.8%, reflecting the mix of income by tax jurisdiction. It was slightly below the 16 to 18% previously guided range, mostly due to a 1.7% benefit from discrete items. As of January 1, our peak zone natural catastrophe probable maximum loss from a single event, one in 250-year return level on a net basis, remained flat at $1.9 billion and now stands at 8.2% of tangible shareholders' equity. On the capital management front, we repurchased $783 million of our shares in the first quarter, or 8.3 million shares. We have repurchased an additional $311 million in shares so far this quarter through last night. Our balance sheet remains in excellent health with strong capitalization and low leverage. With these introductory comments, we are now prepared to take your questions.