Good day, ladies and gentlemen, and welcome to the Q4 2024 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 today'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 2023 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 forward-looking statements in the call to be subject to the safe harbor created thereby.

Management also will make a 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 8-K 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.

And now I would like to introduce your host for today's conference, Mr. Nicolas Papadopoulo and Mr. Francois Morin. Please go ahead..

Good morning, and welcome to our fourth quarter earnings call. I'll begin by offering our thoughts and sympathies to all of those affected by the California wildfires. This is a terrible event that will require the effort of many, including insurance companies, to help the affected communities recover and rebuild.

At last, we will, of course, fulfill our role in these efforts. As noted in yesterday's press release, we expect the wildfires to result in a net loss between $450 million and $550 million based on an industry loss estimate of $35 billion to $45 billion.

Turning now to our results, Arch had a solid top quarter writing $3.8 billion of net premium, which is a 17% increase over the same quarter last year. The $625 million of underwriting income in the quarter is down 13% from last year, primarily due to losses related to cat activities in the second half of 2024.

Our full-year results were excellent, with $3.5 billion of after-tax operating income and an operating return on average common equity of 18.9%.

Despite an increased level of natural catastrophes, book value per share, a preferred measure of value creation, ended 2024 at $53.11, representing a 13% increase for the year and nearly 24% increase after adjusting for the impact of the $5 per share special dividend we paid in December.

The decision to pay a special dividend was the result of Arch's strong financial performance and excellent capital position and represented an effective means of returning excess capital to our shareholders. We also repurchased shares worth $24 million in the fourth quarter.

Both the dividend and the share repurchase reflect our ongoing commitment to effective and active capital management. Market conditions within our segments remain favorable with a number of select growth opportunities ahead of us. As you may have heard from our peers this quarter, rate and loss trends vary by line of business.

Broadly offset each other. All hands do not point to the same underwriting clock. For example, we are selectively deploying capital to the areas producing attractive risk-adjusted returns such as insurance and reinsurance liability lines, specialty business at Lloyds, and property charter insurance.

Alternatively, lines of business where competitive pressures have eroded margins to levels below adequate, our underwriting teams are focused on improving our business mix within each of those lines to ensure our minimum profitability targets are met.

Effective cycle management, the key to our strategy, requires empowering underwriters to execute on both sourcing and retaining attractive business without the constraint of production targets.

In classes and subclasses where returns do not meet our minimum threshold, we have the agility and the incentives to reallocate capital to more profitable opportunities across our diversified portfolio. And as we have demonstrated throughout our history, we will not hesitate to return excess capital to our shareholders when appropriate.

Now I will offer a few highlights about the performance of our underwriting segments starting with reinsurance, which finished the year with a strong fourth quarter delivering $328 million of underwriting income. The full-year results for the reinsurance group were excellent.

The segment delivered a record $1.2 billion of underwriting income while writing over $7.7 billion of net premium. At the January first renewal, we grew the reinsurance business by selectively increasing our writings in property liability and specialty lines.

Arch's status as a leading global reinsurer is a result of its focus on addressing broker and clients' needs, combined with its underwriting vigilance and high degree of scrutiny on the performance of its business.

Throughout the whole market, Arch has had the conviction to increase its support and relevance with brokers and clients, making Arch a more valuable collaborative partner when other reinsurers wavered and in some cases, even withdrew capacity. Now moving to insurance, which also sees some strong growth opportunities in 2024.

Overall, Arch and Helene and Milton limited fourth quarter underwriting income to $30 million. For the full year, the insurance group wrote $6.9 billion of net premium, a 17% increase from 2023, and delivered $345 million of underwriting income. Growth was enhanced by the acquisition of the US Midcorp and Entertainment business.

Although it's still early, the performance and integration of the Midcorp and Entertainment business are consistent with our expectations and objectives. Organic growth in North America came from our casualty business unit, which more than offset premium decreases in professional lines.

International insurance remained a bright spot, writing over $2 billion of net premium in 2024, primarily in specialty lines out of our large platform. Overall, rate increases remained slightly above loss trends, keeping return margins relatively flat in the fourth quarter.

The outlook for both North America and international insurance growth is favorable for 2025. Looking ahead, we expect primary market conditions to remain competitive given the attractive underlying margins. However, we have experienced a slowdown in new business volumes as competition for premium volumes has increased.

The mortgage segment contributed $267 million of underwriting income in the fourth quarter, resulting in the first consecutive years of delivering over $1 billion in underwriting income.

Fundamentals remained positive, including strong persistency of our $500 billion-plus insurance in force portfolio, while the overall credit quality of the book remains excellent. The delinquency rate in our US MI business increased modestly to just over 2% at the end of December but remained near historic lows.

Increased delinquency can be attributed to expected defaults in areas hit by natural catastrophes and the seasoning of the insurance in force. Overall, the US mortgage insurance industry remained disciplined despite suppressed mortgage origination due to low housing supply and high mortgage rates.

Finally, to the investment group, which delivered nearly $1.5 billion of annual net investment income from an asset base that increased to over $40 billion after accounting for the special dividend.

Rising investment yields and the growth of our investable assets from strong operating cash flows provide additional tailwinds for our earnings and book value growth. Overall, 2024 was another excellent year for Arch. Looking ahead, our primary goal is to maintain attractive margins despite expected heightened competition.

Our strong underwriting culture, proven track record of cycle management, dynamic capital management capabilities, and progress to date in becoming a data-driven enterprise give me confidence in our ability to navigate ever-changing market dynamics with a clear objective of maximizing shareholder return over the long term.

As we officially turn the page to 2025, I want to recognize the hard work and dedication of Arch's nearly 7,000 employees who share in our entrepreneurial culture that demands and rewards excellence to the benefit of our clients and stakeholders.

Now I will turn it to Francois to provide more detail on the financials before returning to answer your questions.

Francois?.

Thank you, Nicolas, and good morning to all. As you know by now, we closed 2024 with fourth-quarter after-tax operating income of $2.26 per share, for an annualized operating return on average common equity of 16.4%. For the year, our net income return on average common equity was an excellent 22.8%.

Once again, our three business segments delivered a combined ratio of 78.6% for the year. Current accident year catastrophe losses were $393 million for the group in the quarter, split roughly 60% and 40% between the reinsurance and insurance segments respectively.

Most of our catastrophe losses this quarter are due to Hurricane Milton, a fourth-quarter event, with an additional contribution from Hurricane Helene, where we saw some delayed emergence of claims given the late occurrence date in the third quarter.

As of January 1, our peak zone natural catastrophe probable maximum loss for a single event at a one-in-250-year return level on a net basis increased slightly and now stands at 9.2% of tangible shareholders' equity. Our PML remains well below our internal limits.

As we look forward to 2025, with the recent addition of the Midcorp and Entertainment business, and current market conditions in property, we expect our cat load to represent approximately 7% to 8% of our full-year group-wide net earned premium.

Our underwriting income in the quarter included $146 million of favorable prior development on a pre-tax basis, or 3.5 points on the combined ratio across our three segments. We recognized favorable development across many lines of business but primarily in short-tail lines in our reinsurance segment, and in mortgage due to strong cure activity.

As we discussed last quarter, the acquisition of the mid-corporate entertainment insurance businesses has impacted some key performance metrics for our insurance segment.

First, the net written premium coming from the acquired businesses was $393 million for the quarter, contributing 27.1 points to the reported quarter-over-quarter premium growth for our insurance segment. Second, the acquired business lowered the insurance segment's accident year ex-cat combined ratio by 1.6 points this quarter.

This result was due to the current quarter's acquisition expense ratio that was lowered by 2.1 points due to the write-off of deferred acquisition costs for the acquired business at closing under purchase GAAP, and an operating expense ratio that was lowered by 0.8 points as our Midcorp operations aren't fully ramped up yet.

Partially offsetting these benefits was an increase in the accident year cat loss ratio of 1.2 points, reflecting the underlying results of the acquired business. On a related note, we expensed $99 million this quarter through intangible amortization, more than 75% of which was for the mid-corporate entertainment acquisition.

This expense was in line with our expectations as we communicated last quarter. On the investment front, we earned a combined $548 million pre-tax from net investment income and income from funds accounted for using the equity method, or $1.43 per share.

Our net investment income this quarter was partially impacted by a $1.9 billion dividend paid in December, which entailed that we liquidate a portion of our investment portfolio. Cash flow from operations remained strong. It was approximately $6.7 billion for the full year, up 16% from 2023.

Our effective tax rate on pre-tax operating income was an expense of 6.7% for the quarter and 8.2% for the full year. As we look ahead, we would expect our annualized effective tax rate to be in the 16% to 18% range for the full year 2025, reflecting the introduction of a 15% corporate income tax in Bermuda.

On a cash basis, we will start recognizing this with the establishment of the $1.2 billion deferred tax asset at the end of 2023. As you may have heard on other calls, the recent OECD guidance may partially impact the realizable value of the DTA. We will keep you apprised as additional information becomes available.

In closing, our balance sheet remains extremely strong with common shareholders' equity of $20 billion after recognition of the $1.9 billion common dividend that was paid in December. Our debt plus preferred to capital ratio remains low at 15.1%. With these introductory comments, we are now prepared to take your questions.

Sylvie?.

Thank you, Mr. Morin. If you would like to ask a question, please press *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. And your first question will be from Elyse Greenspan at Wells Fargo. Please go ahead..

Hi. Thanks. Good morning. My first question is on the insurance underlying loss ratio. I mean, I recognize, right, Francois, you highlighted, you know, some of the impact right, from the Allianz deal coming in right a little bit over one point calculated kind of Arch standalone, running at just under fifty seven, which is close to the Q3.

Is it right way to think about it that that's about where Arch is and then kind of blend in, write this a little bit over one point from Midcorp so that insurance underlying is somewhere in the range of fifty eight on an ongoing basis, something like that..

Yeah. That's about right. I think the yeah, the the impact of MC is, call it, know, on the loss ratio, about one point. So whatever the assumption you have around the, you know, pre-MC kinda run rate loss ratio, which is pretty stable has been pretty stable.

There's some movements up and down from quarter to quarter, but generally speaking, it's been it's been stable. And introducing the MC maybe adds about a one one point to to that..

And then my second question is on reinsurance. Right? You guys you know, pulled back a little bit at midyear twenty four. Now the PML went back up, right, but it's flat. You know, one one twenty five with one one twenty four. Did you see conditions get incrementally better at January one.

I'm just trying to understand the thought process around, you know, bringing the PMLs back up a little bit..

No. I think I think what's happening is that we we like the business. So I think, you know, absent the the competitive nature and other people liking the business too, I think we we're looking to write more of this business. We think the the the returns are quite attractive.

And I think at one one, we we had we had some opportunity to do so based on our positioning. So I think we we were pleased by that, I think..

And then I guess the the follow-up to that is, right, the California fire is pretty big loss. Do you see that know, being able to impact other cat renewal seasons in twenty five. Some of it, I guess, might bleed one one twenty six.

How do you see the market impact from the California fires? And is this something, you know, where you guys would expect your PML and and cat ridings to go up during the year?.

So I think, you know, the as I mentioned in my remarks, I mean, this is a significant loss for the market. I mean, we pitch it between thirty thirty five and and forty five billion. We believe that a significant part of that losses will go to the reinsurance market.

I think it will I think most reinsurer, including ourselves, we we start the year with a loss ratio. You know, in the twenties or the thirties or depending of your luck, maybe higher than that. So I think it would it should, you know, dump all the enthusiasm of you know, many market trying to be heroes and and and and and writing the business.

So I would I would think that it it will have a an effect on on on on on the rates at at you know, for the rest of the year. So Thank you. And that's Thank you..

Next question will be from Michael Zaremski at BMO. Please go ahead..

Hey. Thanks. I guess, first question, I'll just go back to the the catastrophe load guidance. Seven to eight it Probably just obvious, but that so that includes right.

It's higher than the historical six day mostly because of the the one q California losses is that correct?.

A little bit, but also the MCU acquisition adds, you know, on a relative basis, kind of adds a little bit of you know, of load to, you know, to the, you know, to to increase the cat load. Because it's it's it's a heavier property book than people in this know, realize it.

It didn't really Impact or PMLs because it's in different zones, it's more distributed. But when we think about you know, the contribution to the to the cat load throughout the year. It it has a meaningful impact..

Okay. I would have actually plugging in the Cali losses. I actually would have thought to lower would have been a little bit higher, but but okay. Good good color. Switching gears just to the I guess one of the elephants in the rooms for for lots of insurers is going back to the kind of the casualty GL umbrella environment.

In some of the prepared remarks, was, you know, said that overall rate increases remain slightly above loss trend. I think that was the primary insurance marketplace. Any comments on whether you know, what you're seeing And you're GL book. I know that, you know, you guys are one of the more honest ones. In my humble opinion.

And at the investor day, you know, you said you'd probably be adding small amounts to your your GL reserves, but, you know, nothing that that's really too out of out of trend line with what you've you've been doing for a while now and better than the industry.

But any updated commentary on what you're seeing there?.

Yeah. And so I think I'll answer in two parts. One on the position, we didn't add to our reserves. We're very comfortable with the reserve position both both in insurance and reinsurance. You know, our actual versus expected analysis or year end analysis all are supporting that that view that our reserves for prior accident years are are very adequate.

So no no concern there. But as we look at, you know, second half of twenty four and into twenty five, you know, yes, we are seeing rate changes keeping up with loss trends, so we're not and even exceeding in some places. So we're comfortable with the the environment there. But we also recognize that there's a lot of uncertainty there.

So we are being cautious, prudent. We are in some specific very targeted areas increased our initial loss picks. But it's not I think I wanna make it clear here.

It's not as a reflect it's not a reflection of adverse development or, you know, signals or data telling us that we missed a mark on the old years, It's very much a function of the current rate environment and how we perceive the risk around our initial loss picks. And for that reason, we're choosing to be a bit more prudent..

Okay. Got it. And just lastly, real quick. Thanks for the tax rate guidance. Is the DTA that was established is I think some of some peers have said that they're could be tweaks to to the DTA due to guidance from from Bermuda.

Is that something that's influx or any way you could kind of a a handicap whether, you know, if it if a DTA was influx, would it change materially or just a little bit?.

Yeah. I mean, the guidance right now and that's an important thing, it's it's guidance that's not the law, which you know, we do follow, obviously, Bermuda law, which allows us or instruct us really to carry the DTA. The recent guidance from the OECD suggests that you know, we may only be able to realize up to twenty percent of that amount.

That is still again, that that's the light of guidance.

I mean, things change pretty quick in this when we start talking about taxes, but if know, I I'd say you know, from your perspective, maybe worst case, that's kinda what may happen is that we end up only realizing twenty percent of this amount and the rest we might have to write off at some point you know, in twenty six or late twenty six or twenty seven, But for the time being, Bermuda law has not changed, and that, you know, that's what we're following..

Appreciate the color..

Thank you. Next question will be from Jimmy Bhullar at JPMorgan. Please go ahead..

Hey. Good morning. So just had a question. A different topic.

On MI reserve releases, can you go through the details on what's driving those and how much of that is from the last one to two years versus maybe a few years back? And just your overall expectations for margins in that business?.

Yeah. I mean, the reserve release has come, you know, from both I mean, from all three of our segments.

Right? There there's a meaning again, that's a little bit of of the same story that we've we've been talking about the last few quarters where you know, we based on conditions at the time, I wanna say twenty two and twenty three, we had set up initial reserves on the delinquencies that were reported at the time and turns out that people have been curing and and severity has not been to the level that we thought.

So that's just a normal, I'd say, kinda You know, process that the reserving, you know, we go through with our reserves at USMI at say for the other pieces, a little bit of the same, I say, in the CRT business where you know, it's a slightly different methodology, but we have initial loss picks on that business and that has proven out to be a little bit kinda in excess of what we need today.

So there's been some releases there, and finally, the international book, a little bit of the same too where you know, there there's different methodologies in place, but the the the long story or the, you know, the short of it maybe is that you know, all three books or all three pieces of our mortgage segments are performing really, really well.

So we like the margins. We think the margins are are healthy. We don't see any deterioration in how we think about, you know, the business and the returns we're writing today. So if we're very very excited about it..

And then on share buybacks, I'm assuming part of the reason you did a little bit of buybacks this quarter versus none before was just the decline in the stock price.

So assuming the stock's stays around here, Reasonable to assume that you'd be active throughout twenty five as well?.

For sure. I mean, it's something we look at, you know, regularly. I mean, every time all the time. No. I mean, in this particular situation, yes, there's old kinda, you know, opportunity in late in the fourth quarter. But, you know, our capital position remains strong even with, you know, the California California wildfires.

I mean, that's part of the volatility we may see from time to time, but, you know, whether again, we we will not sit on a level of excess capital that we don't think we can deploy in the business. So if the if we don't you know, we stink we still think we can grow. We we are bullish about twenty twenty five.

The market conditions are still really good..

But.

You know, can we deploy all the capital we have or that we generate, maybe not? And at that point, we'll return it then if the price is right, we think share buybacks are a great way to do that..

Yeah. I think the the order of play is that we want to look at where we can deploy capital attractively in the business. I think that we do that all the time, I think. And, yeah, after a while, when, you know, periodically, when we assess our capital position. And if we see that know, the opportunities may not be there to deploy all the excess capital.

That's when we consider the the most effective way, I would say, at the time to to return capital to our shareholders. So.

Thank you..

Thank you..

Next question will be from Wes Carmichael at Autonomous. Please go ahead..

Hey. Good morning. Thank you. A question on favorable development quarter, particularly in reinsurance. Can you just give us a little bit of color on what drove most of that release and maybe if you had any strengthening. I think you mentioned short tail lines in prepared remarks, but any more color will Okay..

Yeah. The vast, vast majority is on property cat and property other than cat. So that's what we consider to be short line a short tail. We were flat on casualty.

So across the reinsurance segment, so no no development on casualty and, you know, a couple of moves up and down marine, other small lines, other small items, but that's the that's the bulk of it. It's really property. Some is, you know, I'd say prior caps, meaning kinda large events that we had reserved for that are developing a bit favorably.

Some of it is just you know, the IBNR we hold for, you know, miscellaneous kinda traditional losses that has proven out to be in excess of what we needed. So that's kinda how we we recognize it this quarter through through those lines of business..

Got it. Thanks. In in prepared remarks, I think maybe a broader comment, but you mentioned some competitive pressure where that's eroded margins in certain lines of business.

Can you just talk a little bit about where that might be more pronounced?.

Yeah. So I think was thinking this question was gonna come up. So so I think, you know, it's it's mainly in in two areas. I would say the most feasible one is you know, I would say public public DNO where, you know, I think we we've seen significant decrease in the last in the last two years. In double digits.

That seems to be tempering, but the the you know, it's richer level that you you really have to ask yourself you know, account by account.

You know? Is is the overall line, you know, still profitable? And second area that we we are watching is in the is the cyber area where, you know, also on the excess side, we've seen, you know, double digit rate decreases and and and the supply of capacity in both know, public DNO and cyber that that don't seem to be wanting to to to to reduce.

I think.

Did you have any further questions, Mr.

McCarmichael?.

Yeah. I guess, I'll I'll follow-up with one more. But just on on MI and the delinquency pickup, I I think you mentioned that can be impacted by cat exposed areas and you obviously had a couple sizable storms last year, but just hoping you could unpack a little bit with what you saw in the tick up there..

Yeah. I mean, it's very much part of the natural process. As you'd expect, some people were affected by these events. And, you know, once they, you know, missed two consecutive mortgage payments, they they turned delinquent and, you know, that's what we fully expected would happen in the fourth quarter.

About half of the increase in the delinquency rate is is directly attributable to these cap affected areas. I mean, it's it's, you know, that that's our best estimate at this point. The historical cure rate on these types of delinquencies driven by natural events is extremely high.

So that's why we think the the financial impact ultimately will be minimal but currently that's, you know, that's how the the process works. They show up in the delinquency rate, and we reserve for those. But Typically, those to get resolved or cured at a high level. Over time..

Thank you..

And and just quickly, I'll add I mean, just I'll add quickly on the California wildfires, slightly different different type of exposures we expect minimal again, very early, too early to know, but get given the the the types of mortgages that exist in these areas, we would not expect to be impacted at all or very mean, certainly not significantly at all in In the due to the California wildfires..

Understood. Thank you. Yep..

Thank you. Next question will be from David Motemaden at Evercore. Please go ahead..

Hey. Thanks. Good morning. I had a question, and I saw the solid casualty reinsurance growth in the fourth quarter as well as twenty twenty four, and it sounded like that continued at one one twenty five. Yeah. I guess I'm wondering if you could just talk a little bit about the rate adequacy specifically within the casualty reinsurance line.

I know it it's a it's a broad line, Right. Little surprising to see you guys lean in there. It sounds like others have been more critical on just the rate adequacy there. So I wonder if you could elaborate a little bit on that..

Yes. I I think, you know, the we started from a position that we were really, I think, underweight on the on the casualty treaty or insurance.

And I think our view and it's true, by the way, on the insurance side is that we You know, we we've tried over the years to You know, to to get to get into program that are more, I would say, specialty, casualty. If you think of it as more with an ENS flavor.

So Similar to what we would be riding, you know, growing on the on the insurance side, I think it's it's been it's been a while, but I think based on the you know, the the additional cloud that's you know, the value of the brand on the reinsurance side, I think we've been and and and our ceiling companies, you know, forecasting some wavering from the from from maybe some of the reinsurance or less appetite for the casualty, I think we've been able finally get onto probe you know, programs or insurance programs that we we think are backing the the the right people to take advantage of the of the opportunity.

So that has been really the the engine behind behind the growth. It's not you know, we're not underwriting the market. We're just underwriting selective underwriters that we think have the the know how and the and the expertise to to be able to to to deliver attractive return for for us. So.

Great. Yep. Understood. I yep. Definitely, you guys are are underway there, so that makes sense. And and so maybe just switching gears to the insurance segment. And just wanted to get a little bit more color on the current accident year loss pick increases that you noted. It sounded like it was minor.

But wanted to just get a little bit more detail on what lines it was And it didn't sound like that had any impact on the prior year reserve. Any prior year reserve impact. I just wanted to understand, how that's how that happened..

Yeah. I mean, again, I you know, roughly, if we we break it down, call it a third of the increase is is due to the mid mid corporate entertainment inclusion or addition to the segment.

There may another third I'd say it's lines of business where we just you know, reacting to the rate environment and example of that would be professional lines like both cyber and d and o where you know, you guys have seen it, we've seen it, you've heard it.

Mean, rates have been coming down over the last couple of years pretty significantly and that's a big part of our book. So naturally, I think you'd expect us and we are booking a higher loss ratio this year than we did a year ago, and that's just a function of the rate environment. So that's an example.

Another example is some of our auto warranty product, our gap product, where you know, due to, you know, the, you know, different market conditions, different economic realities with the the value of used cars and and what we insure and what we cover, know, loss ratio inched up a little bit there.

So nothing that was surprising to us, but, again, we're reflecting or reacting to the data And, you know, that that's and, you know, obviously, there's always mix a little bit at the end, but those I'd say are some examples of kinda minor, kinda small adjustments that contributed to the overall increase..

Got it. Okay. That is yeah. So it doesn't sound like that was any GL or umbrella related pick increases. It was it was more in other lines..

Correct..

Great. You..

You're welcome..

Next question will be from Andrew Kligerman at TD Securities. Please go ahead..

Hey. Thanks a lot. First question, maybe you could drill down a little more into the casualty lines the E and S areas of casualty. Where you'd like to grow or where you are growing in both insurance and reinsurance, respectively.

And then with that, could you give us a sense of the rate changes in those areas in both reinsurance and insurance, respectively..

Yes. So those are, I would say, for the large part, similar book of business. So it's really e E and S what we call ENS liability, and it's it's more middle to, you know, high excess layers where we've seen the market know, reacting to the propensity of larger losses in the last last few years.

So what's happening in that market is people used to have on the retail side, first, you know, big limits. So once once the once the once the admitted market know, decide that You know, they're not gonna be able to offer those limits anymore. You know, by definition, if you had a two hundred million dollar program with Maybe five or or seven players.

You know, now that, you know, the admitted players decide to reduce their limit to ten million, you're gonna need twenty people to And so the the way the market work is and that has been going on for a while, a lot of that business now is getting repriced into the ENS market, not only on the pricing side, but also on the terms and condition.

You're able to get exclusion that you will not be able to get on the on the on the on the admitted retail side. So we We like, you know, that that business. We've been riding that business. We've been underway that business for years.

You know? And we we have experience We've been riding the business for over twenty years, and we have you know, really specific line of business. I'm not gonna go over it over the the the call, but that we actually have experience in it. We have you know, we know the venues where to ride it. We know, you know, the the the type of severity of claims.

We we know we know the exposure to, you know, cover order that's embedded in those in those risk. And so we we're able to selectively And good good companies do that. Effectively pick a subset of the market and we're still getting, you know, very decent rate increases. I think double digits.

You know? And I think it has been the weight increase have been going on for a while. They were know, in the twenties, they were in the double digit, then they went to the single digit, then we're back in the double digits of late. And so we we think we're getting rates of a trend.

I think we think the business underwritten properly with the right limit think, could be very attractive. But You have to pick and choose. You know, it's it's it's not it's not, again, the the cost of the ball that we make..

You know, that's very, very helpful answers. I I I guess as I think about it, you know, a lot of your competitors are running scared. On on on the high layer excess of loss casualty just just given the inflationary environment.

So so maybe just a little color on and and and you kinda gave some of it just in terms of your experience in the market, but but maybe a little color why you don't fear that that that could get out of hand and, you know, we could wake up one day and just see Arch Arch get hit with with a lot of these things.

You know, kind of jumping into the high layers, you know,.

So this is this is not this is this is what market do. When when you when you have a lot of severity losses, whether it's property or whether it's it's, you know, liability, reaction of the market is to cut limit. So I think if you think think of it. If you have a let's say, fifty million dollar limit.

You're writing a hundred million dollar portfolio two short loss, and your loss ratio is a hundred percent. I think what we've seen is people cutting their limit dramatically to fives and tens. So now you know, when we get the full tower losses, the contribution to your portfolio is five or ten million.

So it makes you know, the the beauty of diversification, it makes it makes the the your loss ratio a lot more stable. And I think when this happens, because I what what I said earlier, before to do, like, a two hundred million dollar tower, for a program, you needed five seven market because now you need twenty.

You know, by definition, it costs a lot more. And so the the the the price adequacy is is is a lot better. So that's what we're seeing..

Got it. Thanks a lot..

Thank you. Next question will be from Cave Montazeri at Deutsche Bank. Please go ahead..

Thank you. Another question on cash proceeds, that's why you see good growth opportunities. Seeing good rate increases on the primary side. Because she's also helping quota share of reinsurance. But the city and commissions didn't change much at one one. Despite the adverse development.

Carriers continue to face, My question is, what's the incremental supply of casualty reinsurance at one one? Higher than what you would have expected? I know you're writing both, and, yes, we do found the specific line. But it is currently more attractive to write new casualty business on the primary side rather than on the reinsurance side..

Yes. So, you know, as as soon as I'll answer the first question, I think the supply casualty, treasury reinsurance, I think we're hearing bubbles of people on on the call saying that they don't think it's effective. So hopefully hopefully, they withdraw. But right now, I think it's there's plenty of people willing to to ride the business.

So I think it's you know, it's a lot of the supplies and demand. I mean, Sydney commission will go down the day where people are putting their food on the ground and on the and say, listen. I'm not gonna ride it unless the commission is down two or three percent. So we haven't seen that.

Even on the business that we place, we are you know, ourselves, that we we haven't seen that. So I think that so for sure, I think the you know, the math for the reinsurer you know, they get the rate increase. They get a lower commission. It helps you know, justifying why you would write those those those business.

So but I think for us, I think we yeah. We are I think we are more bullish on the primary side today on the ENS side because I think that we have a true expertise there. We underwrite the business one by one. And I think we have we that that would say that's I put it on the list. I would say that goes number one.

Being able to you know, there there is good companies out of ours before we we admire or we hire on the right of from I mean, being able to To to support those people on the through our reinsurance team, I think next sense to me.

So I think, yeah, I think the the commission may be a little high, but I think if you you pick people that can outperform on on the loss ratio, you you you you may still be alright..

Good. And then my second question is still on growth on the primary side this time.

Early days, but can you give us an update on how the integration of Medcorp is going? And if the growth prospects how that's evolving versus your expectations prior to the deal?.

Yes. So I think you know, I think we're pretty much on plan, to be honest. I think the integration is is it's it's it's a it's a big lift, but I think we we are pretty comfortable so far that things are pretty much on plan. In term of the business itself, it's it's already too bad, but, you know, the the business is pretty much what we expected.

I don't think it's Okay. It's better or or worse. I think it's pretty much what what what we had planned for. So Just And I think on the the good news for us on the mid cop aspect is that you know, we're seeing some double digit trade increases on the property side. And And is and it's and also the liability side.

So I think on the property side, it's really driven by the secondary periods that have you know, that that you know, not only for us, but for others on the on the market side that have been a problem in the past. So people are you know, we're underwriting around it, but also getting rate increase.

And we're seeing the same you know, some of the same rate increase on the total liability in the GL..

Thanks..

Thank you. Next question will be from Alex Scott at Barclays. Please go ahead..

Hi. Good morning. First one I have is on the PMLs.

And I just wanted to understand, you know, to what degree you all have exposure to aggregate reinsurance treaties and and just when we think about it pro forma for some of the wildfire losses, would that you know, cause any upward pressure of note to the PMLs as we, you know, think about heading into when season..

So we we we we do some, but we have very little exposure to aggregate aggregate release. I think it's as a as a general Undividing philosophy. It's hard enough to price the severity. You know, the frequency is is is really, really hard to to price.

So I think we we do it but, you know, when we we really feel that we have because of the line of business and the exposure, a good we could have a good grab on the on the frequency or, you know, the the the we get enough away from the from the frequency that, you know, maybe providing and I gotta get cover makes sense..

So we have very limited exposure to aggregate covers..

Terms of the the PML, can you repeat the same question? I'm I'm I'm I just forgot..

Well, I it it was long the same. I was just trying to understand it.

If you had you know, exposure to aggregate treaties, then to what extent would it potentially increase your PMLs? Just thinking through, like, You know, for example, a you know, a primary this morning announced a wildfire number that know, when you look at their baseline cap budget, I think it would know, potentially cause them to to pierce the aggregate..

Yeah. My guess is immaterial for us..

Got it. Okay. And then just as a separate follow-up, on on Midcorp, I just wanted to to probe there.

Now that you have Look, it sounds like things are going to plan, but could you could you talk about, like, what portion of those premiums that you've gotten in are going through the heavier remediation and and just how we should think about the trajectory of premiums considering that, you know, there's still some remediation work going on in the background..

I think it's mainly around I would say, the program book of business. When we when we bought Miccoop, memory, again, I think there was a five hundred million dollar book of programs, and this is not what we bought mid corp, and I think we have ourself a significant, I think, I mean, something like you know, in the book of business.

I think that's where we try to integrate their teams with our teams and have a very defined risk appetite for, you know, the the the type of under IT manager that we do business with, the the the type of back office integration that we require to get the information very quickly.

So I think we we are going through the their book of business to make sure which which one qualify and which one which one doesn't. So.

Yeah. To add to that, I mean, we have already kinda taken action on a number of programs, but, you know, given the the period to to notice, I mean, it it will start to show more in the second half of twenty twenty five. The impact of those actions. On the top line at least.

And certainly we think the bottom line, you know, the loss ratios will follow as well..

Got you. Okay. Thank you..

You're welcome..

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

Hey. Good morning. You'd mentioned deploying capital into London specialty markets. I would have thought that scenario where perhaps a bit more competition has come in and maybe rate is decelerating, but perhaps you'll add a inadequate level.

Could you just maybe talk about the growth environment there?.

No. So I think we, you know, we I'm personally and we I think we are bullish in the in the lender market. I think the thing that yeah. There is more competition.

I think rates have You know, have flattened in in certain of our certain of our business, but I think the the thing that help us in the London market is that we've grown from being a substandard sub scale business to business today that's right close to, you know, in the London market, probably a a billion five or more of of premium.

So we are one of the and the market is consolidating around a fewer number of carriers. So we are we are one of the beneficiary of that consolidation.

We're not the only one, but I think we're beneficiary, and we we build the team has done an amazing job building leading capabilities in a in a in a number of lines of business, and that makes a huge difference. So I think you know, we get to pick first, which, you know, business is is a huge advantage..

Thank you. And then maybe just within reinsurance, it sounds like still kinda positive on PropCat. The the other specialty line, I realize there's probably a number of different businesses in here, but it declined in the quarter.

Can you maybe just touch on the drivers of the the decrease year over year?.

Yeah. So I think I think, you know, the first first is the fourth quarter is really smaller so smaller of the fourth quarter. So and, you know, we the thing I want people to to understand on reinsurance, it's true in the insurance as well.

It's that we are extremely dynamic, you know, We don't you know, if something, you know, doesn't fit or a city company decide to If I sense happened if a senior company decide to change from proportional to to excess, Premium in itself is never our target. We're not trying to replace the premium. We're actually looking for profitable premiums.

Those are two different concepts. So I think, you know, in the fourth quarter, what happened is I think we you know, we're starting to have a negative bias on on cyber be honest. I think we we are a big provider of quota share in the cyber side.

So a couple of our contracts you know, we either the Citi company retain more, I think is more or we may have cut back on on on the number one based on the the new terms and condition. That explained most of it. So Thank you..

Thank you. Next question will be from Meyer Shields at KBW. Please go ahead..

Great. Thank you very much. I guess one question for twenty twenty five on the insurance segment. You talk about how reinsurance purchase is your reinsurance outward reinsurance. Has I don't know whether that's a market question or a mid score question or both..

Sure..

I I think, you know, the may may maybe I understand this, how did it change? Or what what's the outcome? I think the the the one change The one change that we had to do is we had to you know Allianz was buying our insurance to to cover the mid core portfolio, a lot of it being properties, some of it being casualty.

So so I think we at one one, I think we on the property side, I think we had to and and and they buy they bought large limit. You know, limits of up to seven hundred or eight hundred million dollars. So I think we had to that was one thing we bought.

I mean, so we had to transfer that reinsurance onto, you know, onto an arch you know, managed framework. So outside of the the Allianz CID CID department. So and and within the RCD department. So that happened at one one. I think the team did a You did a great job, you know.

And we we kept the capacity, which is a huge part of the the value proposition that the mid corp offer. You know? It's like to be able to compete in the in the middle market, you need large capacity you know, up to seven up to a billion dollars on anyone, you know, account or or or location.

So I think we by by being able to do that, I think we secured, you know, a lot of the a lot of the brand or a lot of the value that we we bought I think that was a very satisfactory outcome for us..

Okay. Great. Thank you. And then, Francois, you mentioned that there's a lot of property and therefore cat risk within the empty portfolio. Right now, obviously, the underlying loss ratio is elevated.

Once all of that is done, should Etsy have a lower attritional loss ratio than the legacy arch side of things because of that cat exposure?.

So I think the yeah. The the the cat exposure of the mid core business is more around the secondary period than it is around the primary period of hurricane and and so I think we that was something attractive for us because he was very complementary to to to the footprint that we that that we that that we had.

So I think you know, The going forward, I think, you know, those secondary barriers you know, attritional catalyst ratio, they they remain. That part of the I mean, we we we we oh, we underwrite, you know, we underwrite the flood.

We underwrite the the tornadoes, we underwrite the but, ultimately, the so I don't I I really don't expect you know, the attritional loss ratio coming from the mid corp to to a really churns going forward..

Yeah. That's yeah. I have yeah. Exactly that. I mean, I think pre and post and see after call it, we we fully integrated the business. You know, I would not expect a significant change to you know, the the ex cat loss ratio..

Okay. Perfect. That's what I needed done..

Thank you. Next question will be from Brian Meredith at UBS. Please go ahead..

Yeah. Thanks. First, Nicolas DeFranco. I'm just curious.

How are you thinking about the potential impact of tariffs on your business?.

Nothing significant for us at this point. You know, as you know I mean, the businesses are transacted locally, you know, between local carriers and each of the Jurisdictions in which we operate and You know, so so from that point of view, that that's that's don't think there's an issue there or any concern.

Does it you know, does it slow down trade in in the broader sense? Maybe. I think that's you know, I could see a potential impact on a, you know, our coal fast investment, for example. I mean, you could see some some reductions in in world trade and and that how that might have an impact. But I think too early to tell would be our answer.

But, you know, that's something, obviously, we're we're We're watching..

Great. Thanks.

And then second question, think you've kinda answered this around that way, but what are you assuming right now in your reserving and pricing with respect to GL, call it, loss trend?.

I mean, it varies by sell, but, you know, certainly, it's for the excess business, it's double digits. It's like twelve percent to fourteen percent on the primary E and kinda low limit casualties probably around five..

That's.

Five zero six. Yep..

Five zero six Mullen County. And then one other one and then quickly switch within here. Y'all have typically done a reasonable amount of structured in your reinsurance. You're you're good at that surplus fleet, that kind of stuff.

Are you seeing how much opportunity here in twenty five and twenty six on that?.

We don't you know, we we We don't think so. I think there there there has been a few. Again, it's it's really you know, we are in that business. You know, we need the the margin to make sense for us to write it and I think for a while, we were successful because it seems that some of the traditional players were you know, pulling back.

So we got a couple of opportunities to participate at our terms in in a couple of transactions. It looks like the maybe some capacity is coming back, so it's it's it's hard to tell. So it's not Something we we we target, I think, is we we are, you know, we are in that business, and we when when something fits, we do it.

And if it doesn't, we just don't..

Yeah. We're a a not not a typical arch thing, but a little bit more reactive on that type of business. We we don't drive the the demand for it. Sometimes you have a company that may be into may have some capital issues because of cats or any other some other you know, kinda result or could be reserve development.

Who knows? So that's where the you know, it's hard to predict whether the demand will be there these products, but we're we're open for business..

Think we benefit there, Yan, of the the the support we offer to some of our precedents. I think we today, especially in the in the US, we have we are multilingual insurer. So we just don't do the CAT. We do the CAT. We do the risk. We do the quarter share.

So know, right now, the the the opportunity that we got one one one of those silly companies, the other problem, they think of us as one of the partners. So they so that's how, you know, some of those opportunities opportunities came to us.

It's more like because of all the all the things we were doing for them, they're like, listen, we have this problem in March. Could you help us doing this? And then, you know, the the the they looked at it together.

So I think that that that probably puts a bit more tailwind in our ability to do this, but, again, they asked to be the right structure or it has to be the right price..

Great. Appreciate it. Thank you..

You're welcome. Next question will be from Elyse Greenspan at Wells Fargo. Please go ahead..

Hi. Thanks. Just a couple follow ups. First one, Francois, was on the the seven to eight point cat load. I just wanna understand that correctly. That does include the fire. So then would would that also be the cat load for twenty six, or are you assuming in that that the fires kinda take the place of another large loss that you might have seen this year..

Yeah. With that x it it it it does not include the buyers in a a direct way in the January first. This is what we thought the cat losses or cat load was for the year.

Now if it turns out that you know, the wildfires, which so far may end up being higher than what our cat load specifically for wildfires for the year would have been, then yeah, there's a chance that we exceed, you know, the total that that total of load, but by the same token, hurricanes end up could end up being lower.

So that's truly a a start of the year without any kinda additional knowledge, you know, reflected in that number..

Okay. And then the my second question, on Midcorp, right, when you guys announced the transaction, you said post integration, right, it would run at a low nineties combined ratio. It sounds like from everything you were saying, it's running in track with Plan? So that would still be the target.

If you guys said when Like, you know, when when we might see that loan IDs number, like, what year would be considered post integration..

You didn't say when? It's gonna take some time. You know, I think, you know, those things take always longer. I think, you know, the the goal, I think from what we know today, we I think I'm I'm still very comfortable that we get there Again, we have to finish the integration.

There's you know, we we for people, we still operating the the business on Allianz systems. So you can see that there's limit to what we can do you know, in terms of insight. And so we we we're preparing for, you know, a lift over ops that we should happen sometime next year. So I think it's gonna take a bit of time..

And then just one follow-up, Francois. I think someone asked a question. Anyone I bet Midcorp would maybe one at the same loss ratio once integrated with Meaning, run at the same loss ratio as legacy arch.

Is that what you were saying there?.

Yeah.

I mean I mean, I haven't done the math recently, but my my expectation would be that, you know, the, you know, again, the ex cap, accident year loss ratio pre MCE, your legacy arch, and, you know, that same metric once you include MCE after the integration's completed, meaning a little bit of remediation on some of the business we acquired, I don't think would be that different.

So I think those would be pretty much in line..

Okay. It. Thank you..

You're welcome..

Thank you. I'm not showing any further questions. I would like to turn the conference over to Mr. Nicolas Papadopoulo for closing remarks..

So thank you for your time today, and I yes. We'll see you next quarter. Thank you..

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. We once again, thank you for attending. At this time, we do ask that you please disconnect your lines..