Arch Capital Group Ltd.

Good day, ladies and gentlemen, and welcome to the 3Q2026 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 Thank you for listening. Management will also make reference to certain non-GAAP measures of financial performance. I would now like to introduce your hosts for today's conference, Mr. Nicolas Papadopoulo and Mr. Francois Morin. Sirs, you may begin.

Good morning and welcome to ARCH's third quarter earnings call. ARCH delivered a very strong result this quarter, reflecting excellent underwriting performance across each of our businesses and a relatively low level of catastrophe activity. After-tax operating income was $910 million, or $2.67 per share. resulting in an annualized operating return on average common equity of 16%. Strong returns from our equity method investments contributed to an annualized net income return on average common equity of 18.1%. Despite increasingly competitive market conditions, we continue to generate strong returns reflecting our ability to proactively shift capital to optimize long-term returns. This is the essence of cycle management, and given this dynamic, we were able to return approximately $1.4 billion to our common shareholders through buybacks in the quarter. Book value per share was essentially flat in the quarter. However, it's worth noting that tangible book value per share, excluding AOCI, increased approximately 15% from a year ago. Archer's brand underwriting expertise and relationships combined with our diversified platform give us broad access to business across insurance and reinsurance. In addition, continuing investments in data and analytics enhance our risk selection and provide deeper insight into our portfolios. Each of these elements allows us to be highly selective about where and how we deploy capital. Importantly, We are led by returns, therefore premium growth is not the ultimate objective. We continue to act on what we see, growing where returns remain attractive and exercising restraint where they do not. Let me now turn to our segment performance, starting with insurance. Insurance generated $108 million of underwriting income in the quarter with a combined ratio of 94.4% and a current accident year combined ratio excluding catastrophes of 89.2%. Gross premiums return increased 7.8% and net premiums return increased 2.7% compared to the same quarter last year. The premium growth in the quarter benefited from a new captive program in alternative markets and increased ridings of marine warbridge coverage related to the Iran conflict. The premium growth we saw this quarter was stronger than the underlying trend for the year. Year-to-date, adjusting for the planned reduction in middle-market commercial program business, gross premiums return increased 4.2% and net premiums return increased 1.6% compared to the first nine months of last year. This low single-digit underlying growth is consistent with our expectation given current market condition. In North America, we continue to see opportunities across excess and surplus casualty, construction and national account casualty, where rate and market conditions remain attractive. Internationally, we continue to benefit from our position as a lead market across many classes at Lloyds. At the same time, property and short-tail markets remain more competitive, while rate increases have moderated in some of our casualty lines. We continue to believe that adverse development emerging across the industry from more recent accident years reinforces the need for casualty pricing to remain at or above the lost cost trend. Moving to reinsurance, which delivered $393 million of underwriting income in the quarter with a combined ratio of 78.3%, aided by light catastrophe activity. Gross premiums returns declined approximately 8% compared with the same quarter last year, reflecting abundant reinsurance capacity, particularly in property and short-term lines. Consistent with our cycle management approach, we are reducing participation where returns no longer meet our objectives. and increasingly leveraging third-party capital to manage net exposure and optimize returns on our own capital. While casualty generally remains attractive, additional capacity continues to enter the market. We will not chase growth for the sake of growth. We will remain patient and deploy capital where pricing and terms and conditions appropriately reflect the underlying risk. Our objective is not to become an index of the overall market. Our global reach, underwriting expertise and third-party capital platform allow us to take advantage of opportunities as they emerge and to construct a portfolio that delivers our required risk-adjusted returns. Our mortgage segment generated $201 million of underwriting income in the quarter and continues to be a valuable contributor to our results. New origination volume remains constrained, primarily Due to mortgage interest rates currently above 7%, limiting near-term growth opportunities. Importantly, the underlying quality of our enforced portfolio remains strong. In USMI, favorable reserve development has moderated from prior years, while positive homeowner credit conditions continue to support a low delinquency rate of 2.2% at September 30th. Higher mortgage rates also support persistency by reducing voluntary refinancing activity. Our business, outside of primary US mortgage insurance, brought $66 million of net premium in the quarter. And we continue to see opportunities in these businesses, providing diversification from our USMI business. As always, the mortgage team remains focused on disciplined execution, optimizing the platform, and managing expenses in line with the market environment. Finally, investment contributed $451 million of pre-tax net investment income in the quarter. Our equity method investment also performed very well, contributing $224 million to pre-tax net income. With $49.2 billion of investable assets, investment income is expected to remain an important contributor to Arch's overall earnings. Last Friday, Arch celebrated its 25th anniversary. I want to recognize this milestone and thank our employees for what we have built together, a global franchise, a strong brand, and perhaps most importantly, a unique culture anchored in our values. I also want to thank our investors for the confidence they have placed in ARCH over the past 25 years. As I reflect on my 25 years at ARCH, one thing has remained consistent. Our ability to adapt and generate attractive returns across very different market environments. That has been our legacy for our first 25 years and it remains our focus for the next 25. Today, we are operating in a transitioning market where conditions are becoming increasingly uneven. And as this quarter's results demonstrate, we are prepared for that environment and we welcome the challenge. The market will continue to evolve, but our core principles will not. We will remain disciplined underriders and thoughtful stewards of capital, always focused on producing superior risk-adjusted returns over the long term. That gives me confidence in Archer's position today and the opportunities ahead over the next 25 years. With that, I will turn the call over to Francois.

Thank you, Nicolas, and good morning to all. As you saw last night, our third quarter results were highlighted by strong underwriting performance and solid investment results. Capital management and capital returns also remain very much at the forefront of our initiatives this quarter, as we took advantage of an attractive share price to repurchase 14.8 million of our common shares at an aggregate cost of $1.4 billion in the quarter. Through nine months of 2026, we have repurchased approximately 109% of our net income in our own shares. While our first choice will always be to invest our capital in the business, a transitioning business environment presents an avenue to return excess capital to our shareholders. Turning to our operating performance for the quarter, our three business segments delivered excellent underlying results. with an overall ex-cap accident year combined ratio of 81.2%, up 70 basis points from the same quarter last year. Our underwriting income included $179 million of favorable prior development on a pre-tax basis in the third quarter or 4.5 points on the overall combined ratio. We recognized favorable development in 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 ongoing strong cure activity. Current year catastrophe losses worth $234 million in the quarter, net of reinsurance and reinstatement premiums. These catastrophe losses originated from a variety of events across the globe and include losses associated with the Iran conflict. The insurance segment's net premiums written increased 2.7% year-over-year as we were able to grow in select areas where expected returns met our underwriting criteria, primarily in our international operations. These opportunities more than offset the headwinds from the non-renewal of certain program business discussed on prior calls. The ex-cat accident-year loss ratio Net of reinstatement premiums improved by 170 basis points to 55.8% compared to the same quarter one year ago. Most of the improvement was due to the benefit of incremental Marine War breach earned premium. Our insurance expense ratio was lower this quarter compared to the same quarter one year ago, reflecting the introduction of the Bermuda QRTCs. Turning to our reinsurance segment, Net premiums written were down 9.3% from the same quarter one year ago, reflecting reduced writings from lower rates and reduced participations across many lines of business, with the notable exception of casualty where we were able to find growth opportunities. Overall, our XCAT accident year law combined ratio of 78.4% increased 160 basis points from last year, Due to the shift in line of business mix towards longer tail lines and a more competitive rate environment. As I mentioned earlier, favorable prior reserve development in the quarter was primarily from short tail lines with nominal movements in casualty and longer tail lines of business. Our mortgage segment produced another very strong quarter with underwriting income of $201 million. The decrease in underwriting income reflects lower net premiums earned from last quarter, with the reduction occurring in our USMI business due to lower monthly premiums and higher seeded premiums, and in our international operations, where last quarter was favorably impacted by single premium terminations. Overall, the credit quality of our in-force portfolio remains very strong, as reflected by a low delinquency rate and favorable cure activity. Persistency of our in-force portfolio remains at around 80% and is an important factor in the sustainability of future premium flows. On the investment front, we earned a combined $675 million from net investment income and income from funds accounted for using the equity method, or $1.98 per share pre-tax, up from the $1.76 per share we earned last quarter. We note that the returns from equity method funds contributed 340 basis points to our annualized net income return on average common equity on a year-to-date basis and represents an important part, though variable, of our book value growth over time. Cash flow from operations remained very strong at $1.8 billion for the quarter, given the strong underwriting results of our operations. The recent increase in interest rates is also expected to provide a tailwind to net investment income given the short duration of our fixed income portfolio and new money yields outpacing our book yield by approximately 65 to 70 basis points. Income from operating affiliates was $33 million for the quarter, down from $62 million from the same quarter one year ago. Our effective tax rate on pre-tax operating income was 15.8%. reflecting the mix of income by tax jurisdiction. As of October 1, our peak zone natural cap PML for a single event, one in 250-year return period on a net basis is up slightly to $1.9 billion and now stands at 8.6% of tangible shareholders' equity. With these introductory comments, we are now prepared to take your questions.