Dinos Iordanou - Chairman, President and Chief Executive Officer Mark Lyons - Executive Vice President and Chief Financial Officer.

Michael Nannizzi - Goldman Sachs Vinay Misquith - Evercore Partners Ian Gutterman - Balyasny Asset Management Kai Pan - Morgan Stanley Josh Shanker - Deutsche Bank Charles Sebaski - BMO Capital Markets Meyer Shields - KBW Brian Meredith - UBS.

Good day, ladies and gentlemen and welcome to the Quarter Four 2014 Arch Capital Group Earnings Conference Call. My name is Laura and I will be your operator for today. At this time, all participants will be in listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

[Operator Instructions] As a reminder, this call is being recorded for replay purposes. Before the company gets started with its update, management wants to first remind everyone that certain statement 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 assessment and assumptions on a 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.

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 the forward-looking statement in the call to be subject to the Safe Harbor created thereby.

Management also will make reference to some non-GAAP measures of financial performance. The reconciliation to GAAP and definition of operating income 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.

I would now like to turn the call over to Dinos Iordanou and Mr. Mark Lyons. Please proceed..

Thank you, Laura. Good morning everyone and thank you for joining us today. We had an excellent fourth quarter in closing a very, very good year. In our history over the last 12 years, we had three years that we are in over $800 million of net income and this is one of them.

Earnings were driven by excellent reported underwriting results and solid investment results. Net premium revenue grew by 7.5% as growth in our insurance and mortgage businesses more than offset a decline in reinsurance net writings. As a reminder, our U.S.

direct mortgage business was acquired in the first quarter of 2014 and therefore the year-over-year comparison should be viewed in that light. On an operating basis, we’re in $1.15 per share for the quarter which produce an annualize return on equity of 10.4% for the 2014 fourth quarter versus 11.7% return in the fourth quarter of 2013.

On a net income basis, Arch earned $1.60 per share this quarter, which corresponds to an annualize 14.5% return on equity. As we discussed in prior calls, starting shortly after the financial crisis, we have allocated a greater portion of investable assets in alternative categories, which includes all of our equity investments.

Looking back over the past five years from 2010 to 2014, operating return on average equity has averaged 10% annually where our net income ROE has averaged 14%. This is a significant delta of 400 basis points over each year and roughly translates into an additional 190 million of annual income for each of the last five years.

As I indicated earlier, our reported underwriting results in the fourth quarter were excellent as reflected by a combine ratio of 85.5% and were rated by low level catastrophe losses and continue favorable loss reserve development.

Net investment income per share on a sequential basis increased for the quarter to $0.56 per share, up from $0.53 per share in the third quarter of 2014. Our operating cash flow for the quarter was essentially flat at 227 million compared to 224 million in the same period last year.

Despite headwinds from foreign exchange the total return of the investment portfolio was 85 basis points for the quarter and 134 basis points if expressed in local currency. As you know, we maintain a natural hedge with our investments as we match our outstanding liabilities in the currency that exists with investments in the same currency.

A book value per common share at December 31, 2014 was $45.58 per share, an increase of 3.5% sequentially and 14% annualize and 14.5% as it compares to the fourth quarter of 2013.

With respect to capital management, we continue to have capital in excess of our targeted levels and in the fourth quarter 2014, we repurchased 3.6 million shares at an average price of $56.28 for a total cost of 202 million and have purchased an addition 70 million of our shares still for in the first quarter of 2015.

We’ve increased M&A activity in the sector, we continue to evaluated opportunities such as acquisitions, business units, peoples and renewal rights transactions. As you know, we prefer to deploy our excess capital back into our business, but today these opportunities have not met our criteria.

The insurance segment’s gross return grew by 9.8% and net return premium by a similar 9.6%. The growth emanated from our professional lines, excess and surplus casualty business including our contract binding unit and alternative markets and it was partially offset by decrease in construction in national accounts businesses.

Mark will have more details on this later in the call. Most of our organic growth in coming from small accounts with low limit which should have lower volatility. On the other hand, competitive conditions in the property sector had negatively affected primary property rate and accordingly our U.S. premium volume in those lines.

In the primary markets in which our insurance group participates, despite an increase competitive market place, we continue to maintain rate increases in most lines of business at approximately the same level as we have absorbed last quarter.

On the reinsurance side of the business, as you might have heard on other calls from our competitors, we have seen a continuation of softening in pricing and broadening pressures on terms and conditions.

From a premium production point of view, net return premium was down 6.5% in the quarter for the reinsurance group where gross premiums rose by nearly 5% with the growth in the segment primarily from businesses we produce on behalf of Watford Re. Our mortgage segment includes primary mortgage insurance within through Arch MI in the U.S.

and reinsurance treaties covering mortgage risk which is written globally as well as other risk sharing transactions. Net premium - net written premium in this segment decline sequentially in the fourth of 2014 to 53 million from 58 million in the prior quarter.

As we discussed last quarter, some of our growth in the third quarter came from participation on single pay premium policies, these are loans where the mortgage insurance premium is paid up front. In the fourth quarter, we have seen increased competition in the single pay premium policies and as a result, we reduce our writing significantly.

As in all of our units, underwriting discipline is the foundation that Arch was built on and we will continue to exercise that discipline in all of our segments. What is important to note is that our sales forces now fully staff and as a result of their efforts, we continue grain traction in the bad channel.

As of December 31, we have approved more than 481 master policy applications from banks and more than 150 of these banks have already submit loans us for our approval. Of these master policies, 34 represent national accounts and the balance are regional banks.

Of the top 25 mortgage originations for conforming mortgage sold to the GSCs with of course attach mortgage insurance, we now have approval on master policies with 19 of those 25 lenders. We continue see GSC risk-sharing transactions increasing in 2015 with GSC established goals for credit risk-sharing rising from 90 billion.

This is national value of mortgage loans for each Fannie and Freddie in 2014 to 150 billion and a 120 billion for Fannie Freddie respectively in 2015, that’s a significant increase.

Today on average, approximately 70% of the risk-sharing has been provided by the capital markets, although an increasing percentage of the risk pool has been allocated to the insurance and reinsurance markets in 2015.

While care on accounting treatment requires us to use the derivative accounting for the GSC risk-sharing transactions, we expect these contracts to receive insurance accounting treatment on a perspective basis for all enforce and addition new transactions in the near future.

Group wide on an expected basis, we believe the ROE on the business we underwrote this past year will produce an underwriting year ROE in the range of 10% to 12%. As on a percentage valued basis, improvement in the insurance group and the addition of the mortgage segment approximately offset lower expected returns in the reinsurance segment.

Before in turn it over to Mark, I would like also to give you our PMLs. As usual, I would like to point out that our cat PML aggregates reflect business bound through January 1st, which the premium numbers indicated in our financial statements through December 31 and that the PMLs are reflected net of all reinsurance and retrocession we purchased.

And so January 1st, 2015 our largest 250 year PMLs for a single event decreased significantly in the Northeast to 544 million or 9% of common shareholder’s equity while Gulf PMLs also decreased to $527 million and our Florida Tri-County PML now stands at $419 million.

Last quarter I said that was the lowest numbers as of that time, this quarter now brought us to even lower PML accumulation for the group. I will now turn it over to Mark to comment further in our financials and then we’ll come back and take your questions. Mark..

Thank you, Dinos and good morning everyone. As was true [ph] on last quarter’s call, my comments that follow today are on a pure Arch basis which excludes the other segment that being Watford Re unless otherwise noted.

Furthermore, since the accounting definition of the word consolidated includes the results of Watford, I will not be using that term but instead will be the using the work core to refer to our combined segments of insurance, reinsurance and mortgage. This for me, it’s apples-to-apples comparison of Arch’s current results with prior periods.

So moving on now with has been defined, the combined ratio this year quarter for our core businesses was 87.5% with 2.3 points of current accident year cat related events, net of reinsurance and reinstatement premiums compared to the 2013 fourth combined ratio of 85.4% which reflected 2 point of cat related events.

Losses recorded in the fourth quarter from 2014 catastrophic events, net of reinsurance recoverable and reinstatement premiums totaled 19.9 million primarily emanating from our reinsurance operations representing smaller events around the globe.

The 2014 fourth quarter core combined ratio reflected 8.3 points of prior year net favorably development net of reinsurance related acquisition expenses compared to 7.9 points of prior period favorable on the same basis in the 2013 fourth quarter.

This resulted a 93.5% current core accident quarter combined ratio excluding cats for the fourth quarter 2014 compared to the 91.3% accident quarter combined ratio in the fourth quarter of 2013.

In the insurance segment, the 2014 accident quarter combined ratio excluding cats with 96.4% compared to an accident quarter combined ratio of 96.5% a year ago and also represents a sequential improvement from the 98.0 accident quarter combined ratio last quarter.

The reinsurance segment, 2014 accident quarter combined ratio without cats was 87.3% compared to 84.9% in the 2013 fourth quarter, but this also represents a sequential improvement from the 90.6% combined ratio last quarter.

As noted in prior quarters, the reinsurance segments results reflect changes in the mix of premiums earned including a lower contribution from property catastrophe business. The mortgage segment 2014 accident quarter combined ratio with 98.9% compared to 62.1 for the four quarter of 2013.

This increase is predominantly driven by the substantial change in mix resulting from the January 2014 acquisition of our U.S. primary mortgage operations. The full accident year 2014 core combined ratio without cats was 94% even versus 91.3% for the full 2013 accident year.

By segment, the insurance group’s full 2014 accident year was 96.3% versus 97.5% for the 2013 accident and the reinsurance group combined ratio for the full 2014 year was 90.7% versus 82.9% for the 2013 accident year.

The insurance segment accounts for roughly 16% of the total net favorable development in the 2014 fourth quarter excluding the associated impact of acquisition expenses and this was primarily driven by shorter tailed lines from the 2007 to 2013 accident years.

The reinsurance segment accounts for approximately 84% of the total net favorable development this quarter with approximately half of that due to net favorable development on short-tailed liens concentrated in the more recent underwriting years and about half due to net favorable development on longer-tailed lines primarily from the 2002 through 2006 and 2009 through 2011 underwriting years.

Our core operations across the full 2014 calendar year experienced 307 million of net favorable development, net of reinsurance reinstatement premium as a related acquisition expenses which represents 8.8% combined ratio points versus 254 million of net favorable development last year for the 2013 calendar year which represent 8.1 combined ratio points.

This full 2014 calendar year net favorable development was approximately split 15% reinsurance group and 85% in the reinsurance segment.

Approximately 68% of our core 7.3 billion of total net reserves for loss and loss adjustment expenses are IBNR as additional case reserves, which remains fairly consistent across both the reinsurance and insurance segments.

The core expense ratio for the fourth quarter of 2014 was 34.7% versus the prior year’s comparative quarter expense ratio of 33.7 driven by an increase in the operating expense ratio partially offset by a decrease in the acquisition expense ratio. The increase in the operating expense ratio component continues to reflect the addition of our U.S.

mortgage insurance operations which is operating at a higher expense ratio and so business hit to steady state, as well as the effect of incremental expenses due to certain platform expansions in both our reinsurance and insurance businesses.

The insurance segment improved to a 32.4% expense ratio for the quarter compared to 33.9% a year ago primarily reflecting a lower net acquisition ratio driven mostly by a change in the accounting treatment of New York workers’ compensation surcharges and securing improves treaty seating commissions on quota share contract seated.

The reinsurance segment expense ratio increased from 31.7% in the fourth quarter to - in the four quarter of 2013, the 32.5% this quarter, primarily due to a higher level of operating expenses supporting selected platform expansions. The ratio of net premium to gross premium, our core operations in the quarter was 75.2% versus 78.4% a year ago.

The insurance segment had a virtually constant ration with 69.1%. The reinsurance segment net to gross ratio was 85.5% this quarter compared to 96% a year ago, primarily reflecting sessions to Watford Re as a reinsurer. Our U.S. insurance operations achieved a plus 3.3% effective renewal rate increase this quarter net of reinsurance.

As commented on last quarter, the pricing environment is quite different for short-tailed lines versus long-tailed lines. Short-tailed lines of business had an effective 2% renewal rate decrease for the quarter compared to a 4% effective renewal rate increase for the longer-tailed lines both on the net of reinsurance basis.

Rate increases on longer-tailed lines continue to be above our view of weighted loss trends.

Looking more deeply some lines incurred rate reductions such as nearly 6% reduction in property and 3.5% reduction in our high capacity D&L lines while others enjoyed healthy increases such as 9% effective rate increase and our lower capacity D&L line, 10% increase in national account businesses, 6.5% rate increases in our contract binding book, 6% increases in our A&H or accident and health business and 4.5% rates increases in programs.

Also certain lines continued our achievement of strong cumulative rate increases. So for example, our lower capacity D&L lines have now achieved 14 consecutive quarters of rate increase and have in fact secured double digit rate increase in 10 of those 14 consecutive quarters. The mortgage segment posted 100.6% combined ratio for the calendar quarter.

The expense ratio is expected and as mentioned earlier, continues to be high as the operating ratio related to our U.S. primary operation will remain elevated into a proper scale as achieved. The net written premium of 52.7 million in the quarter is driven by the 25.3 million from our U.S.

primary operation and 27.4 million of net written premium from our reinsurance mortgage operations including the 100% quota share PMIs 2009 to 2011 underwriting years as part of the acquisition of the CMG companies in the PMI platform. This reflects a lower sequential level of written premium on competitively bid single premium U.S.

insurance as Dinos has already noted versus the 2014 serial quarter for the third quarter. At December 31st, 2014, our risk enforce for mortgage business equaled 10.1 billion which included 5.6 billion from our U.S.

mortgage insurance operations, 4.4 billion to our world-wide reinsurance operations and 135 million through the risk-sharing transactions. Our primary U.S.

mortgage operation down 1.4 billion of new insurance written during the quarter, which represents the aggregate of original principle balances of old loans receiving new coverage during the quarter. The weighted average cost for the U.S. primary portfolio remains strong at 733 and weighted average loan to value ratio held steady at 93.4%.

No states risk enforce represents more than 10% of the portfolio and our U.S. primary mortgage insurance company is operating at an estimated 9.5 to 1 risk to capital ratio at year end 2014.

The other segment which is effectively Watford Re reported 101.6 combined ratio for the quarter, nearly 91 million of that written premiums and 53.6 million of net earned premiums. As a reminder, these premiums as posted reflect 100% of the business assumed rather than simple Arch’s approximate 11% common share addressed.

Our joint venture Gulf Re produced a 5 million loss for the quarter, due to an unusually high frequency of large technical risk losses coming from the Middle East. This is reflected as an income statement within the other income line.

Effective October 1st, 2014, Arch Re to acquire completed ownership of Gulf Re and is also institute the loss portfolio transfer including an unknown premium reserve transfer and established an ongoing 90% quarter share agreement for new and renewal business. Final approval the acquisition terms is pending with the Dubai Financial Services Authority.

The total return of our investment portfolio was a reported positive 85 bps in the 2014 fourth quarter reflecting positive returns in our equity, alternative investment and investment grade fixed income sectors partially offset by the impact of strengthen U.S. dollar on most of our foreign denominated investments.

Excluding foreign exchange as Dinos mentioned, total return was a positive 134 bps in the 2014 fourth quarter and on a full 2014 calendar year basis, the total return was a positive 321 bps and excluding foreign exchange, return was a positive 426 bps led by our alternative and equity sectors.

Our embedded pre-tax yield before expenses was 2.18% as of year-end compared to 2.21% at September 30th, while the duration of the portfolio lengthened slightly to 3.34 years from last quarter’s 3.28 years. Fixed income duration fluctuate due to technical investment decisions as opposed to long terms strategic shifts.

The current duration continues to reflect our conservative position on interest rates in the current yield environment. Reported net investment income for this was 72.6 million or $0.56 per share versus 72.2 million in the 2014 third quarter of $0.53 per share and versus 67.1 million or $0.49 per share in the 2013 fourth quarter.

As always, we’re evaluating investment performance on a total return basis and not really by the geography of net investment income. Interest expense of 12.7 million has returned to the quarterly run rate after last quarter’s adjustment that we discuss for a certain loss portfolio transfer.

Our effective tax rate and pre-tax operating income available to our shareholders for the fourth quarter of 2014 with an expense of 1.7% compared to an expense of 8.3% in the fourth quarter 2013. The full year of 2014 effective tax rate and pre-tax operating income was 2.4% versus 4.8% for calendar year 2013.

Fluctuations and the effective tax rate can result from variability in the relative mix of income or loss reported by jurisdiction. Our capital was 7.03 billion at the end of this year, up 0.7% relative to September 30th and up 7.4% relative to year-end 2013.

During this quarter, as Dinos mentioned, we purchased nearly 3.6 million shares at an aggregate cost of approximately 202 million brining our full year repurchases to 454 million. These repurchases occurred during the third and fourth quarter since we repurchased no stock in the first half of 2014.

Our repurchases during the year were accomplished had an approximate 1.25 X multiple to average book value. Furthermore, approximately 887 million remains under our existing buyback authorization at year-end 2014. These share repurchases in the quarter have the effective reducing book value per share by $0.29 and $0.59 for the entire year.

Out debt-to-capital remains low at 12.8% and debt plus hybrids represents only 17.4% of our total capital which continues to give us significant financial flexibility. As Dinos already said, we continue to estimate having capital excess of our targeted position.

Dinos has already commented on book value and changes in book value, so I don’t need to repeat that. So with these introductory comments, we are now pleased to take your questions,.

Thank you. [Operator Instructions] Your first question comes from the line of Sativa [ph], JPMorgan. Please proceed..

Hi good morning..

Good morning, Savita..

I wanted your due on the recent consolidation in the industry and what are your thoughts on the implications of that from the competitive standpoint and do you feel the need of the bigger perhaps it sounds like $10 billion of new minimum?.

Well first the consolidation I think is positive for the business. You eliminate some competitors, you creating larger enterprises and hopefully more responsible enterprises from pricing and risk taking point of view. So in all and all I think you know I view that as positive.

There would be less what I would call desperate competitors doing things that they can be extremely competitive in the market. So on the size question, I don’t - if you retain a company you might have this advantages but I don’t know if 5 billion or 10 billion is the new norm.

As far as we concern is quality that we are looking for not size, quality in underwriting talent and ability in upsize. We have an upsize as a company where our market cap is approaching a billion, we have over 7 billion of net capital.

And for that reason, we are more focus to do things that make for Arch and our shareholders rather than focusing what size our companies..

Okay, great.

And then on mortgage insurance, could you update us on your long-term outlook for that business? Is it still reasonable to think it could be 15% of your earnings in five years particularly given some of your comments around some increased competition in particular lines?.

Your first question, yes I think it can be 15 even maybe 20%. Don’t forget, we a global mortgage business, is not just the U.S. Primary MI, there is sharing transactions that they are coming from the GSCs.

And as I mentioned in my prepared remarks, they are allocation a larger portion of that to the insurance, reinsurance market instead of just a capital market and also they are increasing their purchasing. These are - a lot of these transactions are their protection that Fannie and Freddie buys for their 60 to 80 LTV loans.

We don’t require by law to mortgage insurance. In addition to that our penetration with the bank channel even though has been extremely good. I - we have signed 19 out of the top 25, but it takes time to start receiving and underwriting and binding that insurance with these channels.

And we are more optimistic today that I was a year ago that not only the business is still very good despite some competition in one tiny segment of the business, it’s - the upfront paid single premium is not a huge part.

Well the business is significant part but if there is competition there, we don’t need to - we don’t need to underwrite business that doesn’t fit our return characteristics and we go to other places.

But overall I am very optimistic about what we have told our investors about the prospects of the mortgage business for Arch, it will be a significant part of our business even though it will take a few years to get to steady state..

Great, thanks for the answers..

You are quite welcome..

Thank you. Your next question comes from the line of Michael Nannizzi from Goldman Sachs. Please proceed..

Thank you. Just a couple more quick ones on the MI business, can you us what percentage or what’s the breakdown of the U.S.

MI insurance enforce that’s either that single premium versus the typical monthly business?.

I don’t have that number on top of my head but Mark kindly get the number and then we’ll give it you. Our guys in Watford [ph] will know that in a second and a half. I just don’t have it on top of my head..

Okay..

Yeah, we don’t have it right in front of us, so we can certainly get it..

Okay. Yeah, I mean and I guess when you think about like the base for thinking about your growth in that franchise, I would imagine is more the monthly business.

How should we be thinking about the potential growth of new insurance written from here on, I mean given some of the master policy developments is some of your items just because aside from just a top line impact, that’s obviously going to have an impact on the operating leverage in that segment?.

Well, I’ll give you a macro answer to it. Everything points to what we originally said to you guys. We expect to be north of 10% market share and it will take us at least three years to get there and that has not change in our minds based on what we see.

It took us about three quarters longer than I thought to close the transaction, so in that sense we lost at least six months maybe nine months from our original. I am patient guys, so I thought things closer that faster than they did, but dealing with a lot of different entities and constituencies, it took us longer to close.

But I think we’re touching up on it, because I’ve been more optimistic as we have built the sales force, we are about 60 people nation-wide and also the reception that we have received from the originators in our centering the segment. So 19 out of top 25 is a big accomplishment in almost five quarters since we’ve been in operations.

It will time as those mortgages come, because when you underwrite a mortgage, you do it and then you wait for all our premium to come in, it comes over the next six, seven years.

And that’s why you see there is a little pressure on us now on the expense ratio and you know but at the end all the business we write is good business, we like the written characteristics of it and we patience with it because that’s the nature of the business..

Got it. Great, thanks..

I would just add to that, that outlook is depended on the view and what emerges on the macroeconomic front on construction building and new housing starts and originations and it goes.

But you asked kind of a general question as well on macro, so about recent developments, one of which would be the FHA pricing for example and that may not be negative for the industry.

I mean that’s overwhelmingly focused in a differential sense in lower fright and higher LTV quadrants if you will, which is more traditionally the FHA, we will house anyway..

Got it, fair thank you and then just when thinking about the insurance, the insurance segment and kind of the growth that we saw in 2014 is impacted by - I think it was impacted by the spot of renewal right feel in the second quarter I mean which is not attributable amount.

How should we think about that, should we be peeling that out as we look forward or should we be assuming that continues to be part of the premium base in four years and know how should we be think about premium trends excluding that transaction on a forward basis? Thank you..

I think on spot and those kinds of capital deals, I think you should be viewing that as resident and therefore inclusive on your view. On your relative comparisons you have to control for that could explains a lot of the difference.

But remember there is a lot of big mess on those deals because of the way they are structured, where you write and you see the bottom rather than traditionally sit on the top on actually sitting in the bottom. So the premium stick at the ribs is 22%, 25%, 27% things of that nature.

So the short answer is you should continue to view that I think as resident in the book of business going forward. Your second point, refresh me..

Just so we back that out and we think about the reminder of the book, how should we think about, are we thinking about an 8% to 10% sort of trajectory of the remaining businesses.

Is that sustainable, I mean are you seeing enough business where you can continue to run that?.

Well Michael, as you know we never give forward guidance on these things. However the part of a premium growth attributable to rate growth. As I commented on third party lines continues to have attraction there.

It’s challenging in property which is why you see really across the enterprise property volume, usually property cash volume dropping really on both sides of the coin. So it could be a function of what we can do on our mix. I think we’ve demonstrated, we do a pretty good job of shifting and managing it.

So but in term of what the markets give that’s what reactive, so I really can’t and I don’t think I am a quit to tell you whether would be 8% or 10% going forward..

You know our principle here is to underwrite business that meet written characteristics. And we don’t spend a lot of time thinking about, oh we got to grow by 5% or 10% or shrink by 5 or 10, it’s - my old boss says, Mr. Market is Mr. Market and he will tell what it is, hopefully we will make more decisions in operating in that market.

So not knowing where our rates are going to go and now knowing what the competition might heat, you got all these transactions, the M&A activity usually in our business one plus one never recalls two. They are going to slices of bread and bread crumbs filling off the table, we’ll be there to pick it up, we’re not that you know that’s how I grew up.

I was eating bread crumb when I grew up. So at the end of the day, it’s a hard question because we really don’t focus on it. But I can tell you, we like the primary insurance business. Yes, the market is more competitive. I don’t think we lost ground as you saw between the third and fourth quarter.

Just a little bit on our first quarter numbers they are in but you know I get monthly reports and our first quarter was not as projected to be disappointing as some people were predicting, it just happen as we thought it was going to happen. So you can cook all that and then come up with your own projecting.

And if you allow me, I have that number for you guys on the split between on the MI business, the single premium volume for the industry is about 13% of the total. So 87% is monthly and about 13% is upfront single premium..

That’s for the industry or for your….

For the industry, yeah we do a little in the single premium sector. As I said we do significantly in the fourth quarter because of the competitive pressures..

Got it. Great, thank you for the answer..

13% of the business in general..

And Michael before we leave that point, I just - one think you can pretty much think about is that and we’ve being hopping on this for a while back to your insurance group question is that continued emphasis on mix towards smaller account limit business where you have more strength of price and strength of terms and conditions is continue.

And if the continued high capacity commodity business continues - in its current pace that will continue to shrink..

Got it. Very helpful, thank you..

Thank you. Your next question comes from Vinay Misquith from Evercore. Please proceed..

Hi good afternoon.

The first question, I don’t recall whether you mentioned about the January 1 renewals is to how you guys did?.

No, I was making a comment a little bit the January 1 renewals. We didn’t see a significant change with the numbers we mention. Long-tailed lines rate increases in the two to four range and property continue to be losing ground in the 5% to 10%. We reduced significantly on the reinsurance property, property cat. You saw PLMs go down significantly.

Volume wise, I think we did okay. Loss some volume here and there, we got some new business. But it’s early, we not because of our insurance group and also our reinsurance group participating in a lot of these small enterprises so to speak looking to underwrite the same kind of business our insurance group underwrites.

Our business is more spread throughout the year and is not heavy January 1. But I was not disappointed with January 1..

So but modestly down or be normal for us to expect, correct?.

Yeah..

Okay, second question is on the reinsurance margins, I mean the accident year combines have been coming and very strong, so is that because of now business mix as a towers transaction and some of the higher loss, should transaction go away and so should we be looking at the last two quarters average as the base for the future?.

Well the improvement as you mentioned in the fourth quarter is clearly a function of mix. It’s - we have a lot of transactions that can come through, that can wait at one direction of the other.

So it’s kind of hard to say whether the average of the last two is representative because that would exclude one-one business because that’s only the second half of last year, but it’s going to fluctuate and it’s going to be a function of mix.

So I can tell you is that the ultimate projections of the same line of business in those two quarters really didn’t change, simple the mixture of the change to wait down the fourth quarter to be lower than the prior quarter..

Okay, that’s helpful.

And the mortgage insurance business, they pick up in the expense ratio, do you expect the dollar worth of expenses to stay at these levels for next year for ’15?.

No, so in fact we expect expenses to coming down as we are building the book. Also we had an unusual expense for this quarter on one transaction.

We had a reinsurance transaction in the mortgage space that we bound, the Sweden had an option to terminate and then we negotiated that option away and it comes in as additional acquisition expense in that negotiating. So is business that we like is that be very profitable for us.

But in the quarter that you do the transaction, you take the hit on the expenses. So you are putting the expenses upfront. And then you are going on the premium although the next six, seven years, so likely not recurrent..

Okay, that’s helpful and just one, so 50,000 food question. Dinos, there’s been transaction was recently sort of take under of a large reinsurer.

Curious is to any of your thoughts as to why not been involved in that transaction at a low evaluation?.

Well, I mean we don’t usually sit there or worry about who is going to show us a transaction or not. That transaction it was negotiated by two parties, we have no knowledge of it. For whatever reason the reason thing we can be an attractive partner, but I think you go to ask them is to why they didn’t approach us.

But all I can tell you that we will not approach..

Okay, alright, thank you very much..

You’re quite welcome..

Thank you. Your next question comes from line of Ian Gutterman from Balyasny Asset Management. Please proceed..

Thank you..

You must have done well, you meet in the middle of the pack, what is the back row stuff..

My newest resolution was to shop earlier, so I only wanted to go there. My first question is, I am surprised to hear the big funds coming, I thought you grew up rich..

Listen, I grew up as a very poor kid, you know six siblings and my father was a cop, so not a big salary. But we made it..

I think this is lot, helpful with the term lumpy..

So my first real question is, Mark I thought I heard you say that you were able to get insurance accounting going forward on this GSE which turn deals, is that correct?.

The feeling is that is sooner than later self-details and finality to be worked out. But all antenna, vibrating antenna tell us that, that is probably going to be a 2015 of that..

But it’s 2015 and not end of 2015, probably this quarter late second quarter. There we work in the contracts to allow us to have insurance accounting on those contracts on a perspective basis..

Right, right on a perspective, so related to that is I guess I am trying piece things together here.

It looks like you started a new subsidiary thoughts more guarantee that seems like design for these transactions, is that correct, that’s like a purposes on that and?.

Well is designed to have flexibility mostly to write more mortgage insurance that they come from originators you know banks and others might not really require by who have more insurance. These might be jumbo loan, there might be other transaction.

But the goal is to use that entity to provide more product and more flexibility toolkit for what we do for all those originators..

And some of the rational that could be, it sounds like it’s packaged and sent on conforming loans to the GSC, this is stuff where the banks are having native capital requirements, so we could provide value..

Got it.

Okay, I was wondering the complements, you are feeling that they need to setup this subsidiary where it was indicator faster growth potentially in that area and maybe the accounting as well, maybe curious that perhaps has been made on and so more this type of deals?.

I mean these buyers are going to more sophisticated. I think credit risk is an issue. That entity has the higher credit rating in the business. And you know one sophisticated buyers of the product when they are buying protection for maybe the jumbo loans that they are not going to sell to the GSC et cetera that will make a difference.

So that’s the avenue that we choose to go down to show the strength of the group in obtaining an entity that it has a higher financial rating that it will make a difference for sophisticated buyers of the product..

Got it, interesting. And then my other question….

One other thing, I think one takeaway you should take - you should have with that whole insurance accounting thing is I think it shows a level of desire and commitment that they have for the GSCs toward the insurance and reinsurance sector that they are willing to invest the time and effort to and the listing for the preferences to the industry to have insurance accounting.

And I mean they wouldn’t go through all this effort and time commitment if they didn’t view us as a longer term partner..

That’s kind of I was getting answer, that’s good to hear. And just my other question is switching gears, reserve releases in reinsurance obviously I think you expressed a lot of comfort with reserves. Just within the last two years have been your highest years of reserve releases at least dollar wise I think in a history of the reinsurance company.

And I guess I find little surprising just because I think the five years been sort of the first five years of the company’s formation and the last five years maybe been still very good and as good.

So is there anymore color you can give us as far as…?.

The only thing I can tell you is we have not changed dollar and we feel as confident about our reserve - our aggregate reserve position today as we felt a year ago two years ago, three years ago. So we let the number speak for themselves.

I got a lot of quant in this company, I think pretty soon I’ll be worried that they are going to farm you, because I am the only guy who doesn’t have an actual royalty in the senior management. You know Grandisson, Papadopoulo, Mark Lyons, Dave and I were the two orphans without the actual royalty, but everybody else has one, so..

Yeah, but they doesn’t have an aeronautical engineering..

I guess what I am wondering is has it been any shifts, maybe if you go back a few years ago is mostly say ’02 to ’08 years, has it shifted to where those have kind of run out of ’08 to ’11 or is that sort of classify markets to leasing a lot and just the more recent years on top of it or reaching your heights, I am just trying to get a sense of sort of mix?.

Ian, I think it’s a reinsurance question. I think we commented that on prior quarter and you asked the full year question. The complexion of the releases on the U.S. based reinsurance operation or Bermuda based reinsurance operation has been towards looking hard at the longer-tailed lines from the earlier years.

Going back to 2010, 2011, 2012 they were dominant by short-tailed lines and medium tailed lines.

It’s longer-tailed enough for an insurance carrier, the reinsurance carrier with the late reporting and access a loss contracts and things of that nature, you got to wait longer and that we waited longer, you are starting to see some of this come down because the evidence is much more clear..

Got it, that makes perfect sense. Alright, thank guys..

Thank you. Your next question comes from line of Kai Pan from Morgan Stanley. Please proceed..

Well, thank you. I just match to come behind Ian. Dinos, before I let you go for lunch I have three questions. Number one is on capital management, so you said there is less deals out there attractive and also your PML at very low level that your stock actually trading at upper end 1.3 time where you typically would like to buy below that.

So how do you sort of what do you saw process here in terms of return to shareholders?.

Well, we’ll look for deals if they make sense for us. We will look - we still believe that share buyback it’s an option and we also have the ability to do an extra on dividend if we choose to release some of the excess capital.

To tell you the truth, right now based on the, I wouldn’t call it term loan but based on the heat of activity, all way see what I can predict what is - what might or might out come on way that makes sense for us. And patience has been a virgule in this company and we continue to have patience.

Believe me we come and that demand is not ours, it’s shareholder’s and we got to find ways to get it back to them if we have access. But also we got very prudent and so we have a conservative balance sheet with plenty of financial flexibility. We have excess capital. If the right deal comes along that is helpful to creating value for our shareholder.

We will look at it, if now we’ll look at share repurchases and we think that’s expensive then we look at extraordinary dividends..

This is great.

And then second question on the general renewal, some argue that if the larger reinsurer actually have favorable pricing in term of conditions, do you see that in the transaction you see?.

No, I think the larger reinsurer is and he is not just larger, he is also the financial strength rating. We will get to look at the business and maybe get better sign lines. Occasionally, there might private transactions that they might get preferential terms but then that they are not preview to anybody.

Like when we do a private transaction, we don’t go out and tell everybody what terms we got. And likewise when others do private transactions they don’t go advertising them. So but I do believe those occasionally happen in the business. If you come with significant capacity and willingness to more quickly and do a large deals you will do that.

That was a case with us with [indiscernible] one big transaction we did. It was just us, nobody else and I thought we got pre-return. So Brookshaw does that Swisse Ammunic [ph] do that and they have their private deals. But I am not preview to so I can’t comment..

Great, my last question, actually getting back to merger acquisition topic, you said strategically you have a size to competing the marketplace, but give where your stocks trading at versus some of your peers, would you be waiting to consider for financial reason to be creative to shareholder basically more on a financial basis?.

We don’t like to do just purely financial transactions because in the long run that doesn’t create a lot of value. What creates a lot of value is what are you purchasing, the talent you are going to purchase, the ability to deploy that talent to write more business over the next five to ten year.

In my view it’s not just what investment banks they do is, they come with their little books and they say, oh this is accretive. To me that’s financial engineering and doubt we do.

At the end of the day, what am I buying, am I buying something that is - am I buying something that is going to create value over the long run or I am just going to get book down for two years and trying to get synergies and I try to do this and then my business is and the profitability of that business gone close out.

It’s a lot of characteristics you got to look out, that’s why whom you buy, how you buy beyond the financials, how the two organizations can mess together.

And believe me, I am not a fool, I know any transaction even if we do it or somebody else, you got be prepared to say one plus one is not going to be two, it’s going to be something less than that but potentially can be two and a half and three five years from today.

And if I can see that, that’s a transaction I am going to do because at the end of the day that’s transformative and it allows us to grow the business and create value for shareholder. And you can look at it just from the financial engineering point of view. Maybe I not but that’s the way my brain works and at 65, I am not going to change it, right..

Great, well thank you so much for all the answers..

Thank you. Your next question comes from line of Josh Shanker from Deutsche Bank. Please proceed..

Yeah, thanks for keeping willing and talking my call. You know both in 2005 and 2011 arguably you earned your cost equity capital on those years whereas most companies in your peer group lost money.

Given that in a year like 2014, you run 11% ROE, what do you think Arch’s results look like in a heavy, heavy catastrophe year? And what do you think happens the peer group, are your competitors taking risks right now that will make opportunities for Arch in the future?.

Well, it’s hard to talk about the competitors because I don’t know what they are doing with their portfolios. I mean I can talk about mine, I can tell you on a heavy cut year, losses that going to be much more manageable because our PMLs have come down. I am not so sure all of my competitors there they haven’t done similar things we have.

I think some of them who have been in the business for a long time and they are good underwriter, they have utilized what’s available in the marketplace because there is a new cap - a lot of new capital that came in that particular sector, the property cat sector. And there is - it’s purely an opinion.

If you think that you’ll be positively arbitraging and you are going to improve your book, you are going to buy protection because you think that the economics are favorable to you.

But you got to cognizant, I mean in years you buy protection sometimes you look like a fool too because if there is no cats, any price is a good price for those who sell it. On the other hand as Warren Buffett says you don’t really know who is naked until the tide goes out.

And in our business, the tide goes out when you have a super cat and let’s raise it. Florida has been quite now sees Wilma. Wilma was 2005, I would never have predicted we would have 10 years of not cat activity in Florida. But one thing you could say and it’s not forward-looking but it’s looking backwards and making your judgments from there.

Your ’05, ’08 and 2011 years because of the way cat is underwritten here and managed here, they were partial earning events for us, there was never any capital impairment issues, first thing. Second thing you heard Dinos’ report that in the current environment, we have our all-time lowest PML relative to equity.

So we’re shrinking it, we showed in a tough cat years which is all your question is nothing really happens, we performed I think better than most peer groups because of that but that’s looking backwards not forward, but I think it’s instructive..

Okay, good luck and I’ll take to you again soon..

Thanks Josh.

Hey Josh, you still there?.

Yeah, I am here..

Yeah, just one think I wanted to know is we have a new exhibiter our financial supplement that we are calling the Shanker exhibit that deals with our effective tax rate because you are one of the guys that from that up last quarter given record.

So if you go back and look at page 31 of the supplement it uses all information on the segments of page 11 of the supplement where it starts with that’s up you know which is our just core operations and rather than starting with consolidate with Watford in it.

It starts with Arch’s core operations and layers on top of that the Watford contribution, so you can see how the effective tax rate calculated..

So Josh, we couldn’t name straight up to you, so we did next testing, we gave page up to you..

I always get nervous when people naming me, things definitely choosing not positive..

No, this is positive, this is positive..

Take care. Thanks..

Bye-bye..

Thank you. Your next question comes from line of Charles Sebaski from BMO Capital markets. Please proceed..

Hi thanks for holding up for me. I have a question about one on the insurance business and the E&S line.

I am curious how much of the growth is due to the contract binding business? And what effect that business has on ROE versus combined ratio within the insurance segment?.

Good question. First off within the E&S casualty section, all of that is attributable to the contract binding operation. When you compared 4Q to 4Q that premium virtually doubled just a little shy of doubling. So I think that gives you the magnitude and the contribution in that line.

This is stable book of business, it’s got a high renewal rate of persistency attached to it, it’s a lesser volatility. Some of the growth though was due to some broadening, the limits may go up to 5 million where it may have been a lot of ones and threes, its’ got some broadest that has some non-cat property it, non-cat property.

So it’s more rich filler offering and it’s also reducing at the same time some of the contract exposure that they originally started with. So I think it helps the volatility, it accounts for virtually all the growth in the E&S line and I think it will operate as a vales through dampening on the volatilities of the other lines at the insurance group..

Does that run now at a higher steady state combined ratio because there was lack of volatility? I guess what I am trying to understand is has that grows the effect on the accident year combined ratio is going to forward should increase that at the same kind of ROE contribution?.

But what normally happens in business of that type that usually get little more expensive to acquire it, so it’s higher and the loss ratio is lower on average in similar businesses, because it’s new to us for I think little more conservative, so we’re booking it at a level that time will tell what it is.

So I think over time, it will perform than where it’s booked at this time. But in general rule, it say lower loss ratio to higher acquisition ratio..

Okay and then on the reinsurance side, the growth in Asia Pacific in the quarter, just curious about what’s the business line right in there and is there any kind of change you know most of the PMLs on the U.S.

basis, so just any kind of PML pickup with Asia, Japan?.

It’s just a little bit of cat business but we don’t have big operations in Asia Pacific. It’s minuscule what we do..

Okay, I thought in the quarter on a premium written basis that it’s picked up here somewhat to $70 million relative to 25 last year and just relative to what the quarter is that seem like a big piece of it?.

That was the adjustment was buying all three 100%, so it’s a onetime event and we bought the 50%, we did it all and you into the purchase accounting and that’s what is all about. It’s no change in anything that we do and because Gulf Re in the Middle East all that is in the Asia Pacific region..

In rough term, think of that is roughly $52 million of impact in the quarter on a net writing basis. That was - that influx that Dinos talked about..

Okay, perfect. Thank you very much..

Thank you. Your next question comes from the line of Meyer Shields from KBW. Please go ahead..

Thanks.

Two really quick questions; one, in general if the pricing level at Gulf Re comparable with legacy Arch?.

Yes, I think our reissued Gulf Re it was and that’s the reason we put a 100% of it is that it requires higher limits to operate, they write a lot of peg risk accounts for a small company was 50-60 million in revenue. The purchase of reinsurance it was totally disadvantages to us.

In essence, we paid a lot of money to reinsurance with zero recoveries over the years. Finally we convinced to restructure to our other partners which we respect a lot because then now we can use our purchasing within Arch from a much bigger block of business, so that reinsurance of course is going to be down significantly.

Gulf Re, when you look at our net results, they are not anything to write home about, but the gross results they want them back. So and I am not there to be producing for the reinsurance market. So as a standalone it didn’t make sense, it didn’t go over to a size that they can leverage the kind of capacity they need to have and buy cheap.

They were buying excess of loss and believe we had tiny recoveries and over the years, we paid a lot of premium for that and we have the ability to restructure.

Also I think they were trying to do more quarters here contracts where sometimes it make sense to may excess a loss, but in a company that you are trying to build volume, you looking for share and then even though the excess of loss might be a better structure and you can make more money, it doesn’t show a significant premium.

So for that reason, we have make the changes. We send - before we did the purchasing of 100% for the unit, we send our teams and we looked at every single account under road et cetera and now they are coming under our underwriting authority of guidance with the same auditing teams that we have.

So they become a kind of branch of ours in the Middle East. But the business we like, we got structure the reinsurance in a much better for than we used to..

Okay, that’s very helpful.

And then very quickly Mark, you mentioned that there were some investment in platforms in terms of reinsurance, is that spend going to continue in the near term?.

Well, the ones that have been done on the A&H platforms and some expansion in other distribution in A&H and the contract binding and so forth, if we find opportunities and now again what we did contract binding yes, that will happen whether it’s in the U.S. or other parts of the world.

So it’s hard to say, but we are always looking and if we can find the pocked or some individuals who are great market following, we are going to pursue those..

And you see from the numbers, I think our Life Re accident and health reinsurance team now is I think tripling size in number of people and these to me there are long term of investments in personal and capabilities and the premium comes later.

So I am not - when we find the talents that we’re going to hire it and then we look for them to grow the book overtime..

Okay, I must took into the technology expense, that’s very helpful..

No, no, no, there was some technology expense but it was - no, this is maybe when we spoke we can clear our language. This is mostly people..

Okay, perfect, thanks so much for answer..

Yeah,.

Thank you. Your next question comes from the line of Brian Meredith from UBS. Please proceed..

Yeah, just a few quick here, so first Mark, new money yield versus book yield in investment portfolio, can see some pressure here what interest rates are?.

I think we are close to rock bottom..

By the way I will congratulate you for being the caboose on the call today..

I know, I usually ends, I guess I get the replace. So that’s in your rock bottom.

And then the last question, just curious, when you are setting your reserves, you loss right now, what’s kind of loss trend you kind of assuming and is that changed much over the last called year and then three years?.

Yeah, it has changed a little bit. I think we still take a long term view on trend, we don’t just look at the last three or five years, we do a 10 year study or so forth.

And let’s face it, you know trends have been benign now for quite a long time, so that stars coming line by line into our thinking, but it’s not something significant, it might be, I don’t know, I am guessing this because I haven’t set with the actualities to do via comparison what long term trend was by line of business five years ago versus now, but I think it should be down you know at least the point maybe even a little more than that..

Great, great, and then I guess is on that, so near term trend is obviously lower than kind of which you are putting up with respect to your kind of long term trend assumption when you are saying loss picks?.

Yeah, I mean when you look forward you are making some level assumption line by line on what loss cost trend and what effect rate changes you have achieve and what you think you might reasonable achieve..

Got it, perfect..

The conservatism you know Brian that comes in the way we price business et cetera, it comes from two places, it comes with your assumptions on trend, are you truthful to it or not jump and say trend is zero negative some people think in some lines.

And the other thing is what you knew money invested are using the risk free rate and you are willing to price your business with 1%, 1.5%, 2% return on new money invested and then see what the projection tell you. So that’s where that conservatism comes.

Other than that you know like everybody else, we knock door, we fund broker who we kiss them on both chick, we love to see more business and we try to write as much as we can..

And Brian, Dinos’s point about line of business, I mean just an example some products you don’t care where it is like product liability it’s we don’t know where the claims are going to be brought versus where they are manufactured, that’s always good anyway.

So our national view on that may make more sense worker’s compensation as the obvious local one going to take local that trends into account, local hospital cost, physician trends and think of that nature. Plus we’re only talking severity, they are frequency, it’s really the pure premium that matter are the total cost trend.

And comp historically has been showing decreases in frequency, there was a blip in the California I think for a year or two, but it is returned. And generally, our actuaries within the loss rating models and pricing model, I assume the negatives to be flat. So it’s - the Dinos’s point is kind of longer term view but it take in flow..

Thank you. I appreciate it..

Thank you. I’d now like to turn the call over to Dinos Iordanou for closing remarks..

Well, thank you all for bearing with us, we went a little over time, but it’s right. We get overtime paid here. And looking forward to see you next quarter and have a wonderful day..

Thank you. Thank you for joining today’s conference. This concludes the presentation and you may now disconnect. Good day..