Arch Capital Group Q4 2024 Earnings Report

Arch Capital Group EPS Results

• Actual EPS: $2.26
• Consensus EPS: $1.90
• Beat/Miss: Beat by +$0.36
• One Year Ago EPS: $2.45

Arch Capital Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $3.95 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Arch Capital Group Announcement Details

• Quarter: Q4 2024
• Date: 2/10/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, February 11, 2025
• Conference Call Time: 11:00AM ET

Arch Capital Group (NASDAQ:ACGL), together with its subsidiaries, provides insurance, reinsurance, and mortgage insurance products worldwide. The company's Insurance segment offers primary and excess casualty coverages; loss sensitive primary casualty insurance programs; directors' and officers' liability, errors and omissions liability, employment practices and fiduciary liability, crime, professional indemnity, and other financial related coverages; medical professional and general liability insurance coverages; and workers' compensation and umbrella liability, as well as commercial automobile and inland marine products. It also provides property, energy, marine, and aviation insurance; travel insurance; accident, disability, and medical plan insurance coverages; captive insurance programs; employer's liability; contract and commercial surety coverages; and collateral protection, debt cancellation, and service contract reimbursement products. This segment markets its products through a group of licensed independent retail and wholesale brokers. Its Reinsurance segment provides casualty reinsurance for third party liability exposures; marine and aviation; motor reinsurance, whole account multi-line treaties, cyber, trade credit, surety, accident and health, workers' compensation catastrophe, agriculture, trade credit, and political risk products; reinsurance protection for catastrophic losses, and personal lines and commercial property exposures; life reinsurance; casualty clash; and risk management solutions. This segment markets its reinsurance products through brokers. The company's Mortgage segment offers direct mortgage insurance and mortgage reinsurance. The company was founded in 1995 and is based in Pembroke, Bermuda.

Arch Capital Group Q4 2024 Earnings Call Transcript

Key Takeaways

• Arch reported a 17% year-over-year increase in Q4 net premiums to $3.8 billion, generated $3.5 billion of 2024 after-tax operating income (18.9% operating ROE) and grew book value per share by 13% to $53.11 while returning capital via a $5/share special dividend and $24 million of share repurchases.
• The company expects net losses of $450 million–$550 million from the California wildfires—based on an industry loss estimate of $35 billion–$45 billion—and its peak zone catastrophe probable maximum loss rose to 9.2% of tangible shareholders’ equity.
• Arch’s reinsurance segment delivered a record $1.2 billion of underwriting income on $7.7 billion of net premiums for the full year and selectively grew property, liability and specialty lines at the January 1 renewals.
• In its insurance segment, net premiums rose 17% to $6.9 billion in 2024—boosted by the MidCorp and Entertainment acquisition, which is integrating on plan—and organic growth in casualty and Lloyd’s specialty lines more than offset professional lines declines.
• Mortgage insurance achieved Q4 underwriting income of $267 million and exceeded $1 billion of annual underwriting profit for the second consecutive year, supported by strong policy persistency, low delinquency near historic lows and disciplined industry conditions.

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to the Q4 twenty twenty four 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.

[Operator]

Before the company gets started with its updates, 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 ks 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.

[Operator]

The company intends the forward looking statements in the call to be subject to the safe harbor created thereby. Management also will make reference to certain non GAAP measures of financial performance. The reconciliations to GAAP for each non GAAP financial measures can be found in the company's current report on Form eight ks furnished to the SEC yesterday, which contains the company's earnings press release and is available on the company's website at wwwarchgroup.com and on the SEC's website at www.sec.gov. And I would like to introduce your host for today's conference, Mr. Nicola Pacadopolo and Mr.

[Operator]

Francois Morin. Please go ahead.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Good morning, and welcome to our fourth quarter earnings call. I begin by offering our thought and sympathies to all of those affected by the California wildfires. This is a terrible event that will require the efforts 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 $450,000,000 and $550,000,000 based on an industry loss estimate of $35,000,000 to $45,000,000,000 Turning now to our results.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Arch had a solid fourth quarter, riding $3,800,000,000 of net premium, which is a 17% increase over the same quarter last year. The $625,000,000 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 twenty twenty four. Our full year results were excellent with $3,500,000,000 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, our 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 a result of Arch's strong financial performance and excellent capital position and represented an effective means of returning excess capital to our shareholders.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

We also repurchased shares worth $24,000,000 in the fourth quarter. Both the dividend and the share repurchase reflect our ongoing commitment to effective and active capital management. Market condition 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 and broadly offset each other. All hands do not point to the same hour on the underwriting clock.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

For example, we are selectively deploying capital to the area producing attractive risk adjusted return, such as insurance and reinsurance liability lines, specialty business at Lloyd's and property cat reinsurance. Alternatively, in lines of business where competitive pressures have eroded margin to level below adequate, our 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 constraints 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 platform. And as we have demonstrated throughout our history, we will not hesitate to return excess capital to our shareholders when appropriate.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

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 $328,000,000 of underwriting income. The full year results for the reinsurance group were excellent. The segment delivered a record $1,200,000,000 of underwriting income while writing over $7,700,000,000 of net premium. At the January 1 renewal, we grew the reinsurance business by selectively increasing our writings in property, liability and specialty lines. Ashri'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.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Throughout the hard market, our teams has had the conviction to increase its support and relevance with workers and clients, making Arch a more valuable collaborative partner when other insurers revert and in some case, even withdrew capacity. Now moving to insurance, which also seized on strong growth opportunity in 2024. Although, Eric and Hillen and Milton limited fourth quarter underwriting income to $30,000,000 For the full year, the insurance group was $6,900,000,000 of net premium, a 17% increase from 2023 and delivered $345,000,000 of underwriting income. Growth was enhanced by our acquisition of the U. S.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Mid Corp and Entertainment business. Although it's still early, the performance and integration of the Mid Corp and Entertainment business are consistent with our expectation and objectives. Organic growth in North America came from our casualty business units, which more than offset premium decrease in professional lines. International insurance remained a bright spot, writing over $2,000,000,000 of net premium in 2024, primarily in specialty lines out of our Lloyd's platform. Overall, rate increases remained slightly above last trend, keeping written margin relatively flat in the fourth quarter.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

The outlook for both North America and international insurance growth is favorable for 2025. Looking ahead, we expect primary markets 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 $267,000,000 of underwriting income in the fourth quarter, resulting in the first consecutive years of delivering over $1,000,000,000 of underwriting income. Fundamental remained positive, including strong persistency of our $500,000,000,000 plus insurance in force portfolio, while the overall credit quality of the book remains excellent.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

The delinquency rates in our U. S. MI business increased modestly to just over 2% at the December, but remained near historic lows. Increased delinquency can be attributed to expected defaults in area hit by natural catastrophes and the seasoning of the insurance in force. Overall, The U.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

S. 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 $1,500,000,000 of annual net investment income from an asset base that increased to over $40,000,000,000 after accounting for the special dividend. Rising investment yields and the growth of our investable asset from strong operating cash flows provide additional tailwinds for our earnings and good value growth. Overall, 2024 was another excellent year for Arch.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Looking ahead, our primary goal is to maintain attractive margin despite expected heightened competition. Our strong underwriting culture, proven track record 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 Archie'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?

[François Morin, CFO and Treasurer at Arch Capital Group]

Thank you, Nicholas, 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 16.7%. For the year, our net income return on average common equity was an excellent 22.8%. Once again, our three business segments delivered excellent underlying results with an overall ex cap accident year combined ratio of 79% for the quarter and 78.6% for the year. Current accident year catastrophe losses were $393,000,000 for the group in the quarter, split roughly 6040% between the Reinsurance and Insurance segments respectively.

[François Morin, CFO and Treasurer at Arch Capital Group]

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 cap probable maximum loss for a single event, one in two fifty 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 mid corp 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 $146,000,000 of favorable prior year development on a pretax basis or 3.5 points on the combined ratio across our three segments.

[François Morin, CFO and Treasurer at Arch Capital Group]

We recognize 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 and entertainment insurance businesses has impacted some key performance metrics for our insurance segment. First, the net written premium coming from the acquired businesses was $393,000,000 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 mid corp operations aren't fully ramped up yet.

[François Morin, CFO and Treasurer at Arch Capital Group]

Partially offsetting these benefits was an increase in the accident year ex cat loss ratio of 1.2 points, reflecting the underlying results of the acquired business. On a related note, we expensed $99,000,000 this quarter through intangible amortization, more than 75% of which was for the Midcorp and Entertainment acquisition. This expense was in line with our expectations as we communicated last quarter. On the investment front, we earned a combined $548,000,000 pretax from net investment income and income from funds accounted using the equity method or 1.43 per share. Our net investment income this quarter was partially impacted by our $1,900,000,000 dividend paid in December, which entailed that we liquidate a portion of our investment portfolio.

[François Morin, CFO and Treasurer at Arch Capital Group]

Cash flow from operations remained strong. It was approximately $6,700,000,000 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 next quarter some of the benefit we accrued with the establishment of the $1,200,000,000 deferred tax asset at the end of twenty twenty three.

[François Morin, CFO and Treasurer at Arch Capital Group]

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 $20,000,000,000 after recognition of the $1,900,000,000 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.

[François Morin, CFO and Treasurer at Arch Capital Group]

Sylvie?

[Operator]

Thank you,

[Operator]

Ms.

[Operator]

And your first question will be from Elyse Greenspan at Wells Fargo. Please go ahead.

[Elyse Greenspan, Analyst at Wells Fargo]

Hi, thanks. Good morning. My first question is on the insurance underlying loss ratio. I mean, I recognize, right, Francois, you highlighted some of the impact right from the Allianz deal coming in, right a little bit over one point. I calculated kind of Arch standalone running at just under 57, which is close to the Q3.

[Elyse Greenspan, Analyst at Wells Fargo]

Is it right way to think about it that that's about where Arch is and then kind of blend in right this a little bit over one point for mid corp so that insurance underlying is somewhere in the range of 58 on an ongoing basis, something like that?

[François Morin, CFO and Treasurer at Arch Capital Group]

Yes, that's about right. I think the impact of MC is call it on the loss ratio about one point. So whatever the assumption you have around the pre MCE kind of 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 stable and introducing the MC maybe adds about one point to that.

[Elyse Greenspan, Analyst at Wells Fargo]

And then my second question is on reinsurance, right? You guys pulled back a little bit at mid year twenty twenty four. Now the PML went back up, right, but it's flat oneonetwenty five with oneonetwenty four. Did you see conditions get incrementally better at January 1? Or just trying to understand the thought process around bringing the PMLs back up a little bit?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

No. I think what's happening is that we like the business. So I think absent the competitive nature and other people liking the business too, I think we're looking to write more of this business. We think the returns are quite attractive. And I think at oneone, we had some opportunity to do so based on our positioning.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

So I think we were pleased by that, I think.

[Elyse Greenspan, Analyst at Wells Fargo]

And then, I guess, the follow-up to that is, right, the California Fire is pretty big loss. Do you see that being able to impact other cat renewal seasons in 'twenty five? Some of it I guess might bleed to oneonetwenty six. How do you see the market impact from the California fires? And is this something where you guys would expect your PML and cat writings to go up during the year?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

So I think the as I mentioned in my remarks, I mean, this is a significant loss for the market. I mean, we pitch it between $30,000,000,000 and $45,000,000,000 We believe that a significant part of that losses will go to the reinsurance market. And I think it will I think most reinsurers, including ourselves, we start the year with a loss ratio in the 20s or the 30s or depending of your luck, maybe higher than that. So I think it would it should damper the enthusiasm of many markets trying to be heroes and writing the business. So I would think that it will have an effect on the rates at for the rest of the year or so.

[Operator]

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

[Michael Zaremski, Research Analyst at BMO Capital Markets]

Hey, thanks. I guess first question, I'll just go back to the catastrophe load guidance, seven to eight. So, probably just obvious, but that so that includes, right, it's higher than the historical six to eight mostly because of the 1Q California losses. Is that correct?

[François Morin, CFO and Treasurer at Arch Capital Group]

A little bit, but also the MCE acquisition adds on a relative basis kind of adds a little bit of load to increase the cat load. Because it's a heavier property book than people realize. It didn't really impact our PMLs because it's in different zones. It's more distributed. But when we think about the contribution to the cat load throughout the year, it has a meaningful impact.

[Michael Zaremski, Research Analyst at BMO Capital Markets]

Okay, got it. I would have actually plugged in the Cali losses. I actually would have thought the load would have been a little bit higher, but okay, good color. Switching gears just to the, I guess, one of the elephants in the rooms for lots of insurers, just going back to the kind of the casualty GL umbrella environment. In some of the prepared remarks, it was said that overall rate increases remain slightly above loss trend.

[Michael Zaremski, Research Analyst at BMO Capital Markets]

I think that was the primary insurance marketplace. Any comments on whether what you're seeing in your GL book? I know that you guys are one of the more honest ones in my humble opinion. And at the Investor Day, you said you'd probably be adding small amounts to your GL reserves, but nothing that's really too out of trend line with what you've been doing for a while now and better than the industry. But any updated commentary on what you're seeing there?

[François Morin, CFO and Treasurer at Arch Capital Group]

Yes. I think I'll answer

[François Morin, CFO and Treasurer at Arch Capital Group]

in two parts. One, on the reserve position, we didn't add to our reserves. We're very comfortable with the reserve position both in insurance and reinsurance. Actual versus expected analyses or year end analyses all are supporting that view that our reserves for prior accident years are very adequate. So no concern there.

[François Morin, CFO and Treasurer at Arch Capital Group]

But as we look at second half of twenty twenty four and into 2025, 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 environment there. But we also recognize that there's a lot of uncertainty there. So we are being cautious, prudent.

[François Morin, CFO and Treasurer at Arch Capital Group]

We are in some specific very targeted areas increased our initial loss picks. But it's not I think I want to make it clear here, it's not as a reflect it's not a reflection of adverse development or 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.

[Michael Zaremski, Research Analyst at BMO Capital Markets]

Okay. Got it. And just lastly, real quick, thanks for the tax rate guidance. Is the DTA that was established, I think some peers have said that there could be tweaks to the DTA due to guidance from Bermuda. Is that something that's in flux or any way you could kind of handicap whether if the DTA was in flux, would it change materially or just a little bit?

[François Morin, CFO and Treasurer at Arch Capital Group]

Yes. I mean, the guidance right now and that's an important thing, it's guidance that's not the law, which 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 we may only be able to realize up to 20% of that amount. That is still again, that's the latest guidance. I mean, things change pretty quick in this when we start talking about taxes.

[François Morin, CFO and Treasurer at Arch Capital Group]

But if I'd say from your perspective, maybe worst case, that's kind of what may happen is that we end up only realizing 20% of this amount and the rest we might have to write off at some point in '26 or late twenty six or '27. But for the time being, Bermuda law has not changed and that's what we're following.

[Michael Zaremski, Research Analyst at BMO Capital Markets]

Appreciate the color.

[Operator]

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

[Jimmy Bhullar, Equity Research Analyst at JP Morgan]

Hey, good morning. So just had a question on a different topic on MI reserve release. 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?

[François Morin, CFO and Treasurer at Arch Capital Group]

Yes. I mean the reserve releases come from both I mean from all three of our segments, right? There's a meaningful amount from USMI. Again, that's a little bit of the same story that we've been talking about the last few quarters where we based on conditions at the time, I want to say in 2022 and 2023, we had set up initial reserves on the delinquencies that were reported at the time and turns out that people have been curing and the severity has not been to the level that we thought. So that's just a normal I'd say kind of process that the reserving we go through with our reserves at USMI.

[François Morin, CFO and Treasurer at Arch Capital Group]

I'd say for the other pieces a little bit of the same I'd say in the CRT business where 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 kind of 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 there's different methodologies in place. But the long story or the short of it maybe is that all three books or all three pieces of our mortgage segments are performing really, really well. So we like the margins.

[François Morin, CFO and Treasurer at Arch Capital Group]

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

[Jimmy Bhullar, Equity Research Analyst at JP Morgan]

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 stays around here, reasonable to assume that you'd be active throughout 2025 as well?

[François Morin, CFO and Treasurer at Arch Capital Group]

For sure. I mean, it's something we look at regularly, I mean, every time all the time. No, I mean, in this particular situation, yes, there's a little kind of opportunity late in the fourth quarter. But our capital position remains strong even with the California wildfires. I mean that's part of the volatility we may see from time to time.

[François Morin, CFO and Treasurer at Arch Capital Group]

But whether again, we will not sit on a level of excess capital that we don't think we can deploy in the business. So if we don't we still think we can grow. We are bullish about 2025. The market conditions are still really good. But can we deploy all the capital we have or that we generate maybe not and at that point we'll return it.

[François Morin, CFO and Treasurer at Arch Capital Group]

And if the price is right, we think share buybacks are a great way to do that.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Yes. I think the order of play is that we want to look at where we can deploy capital attractively in the business. So I think that we do that all the time, I think. And yes, after a while, periodically, we reassess our capital position. And if we see that the opportunities may not be there to deploy all the excess capital, that's when we consider the most effective way, I would say, at the time to return capital to our shareholders.

[Jimmy Bhullar, Equity Research Analyst at JP Morgan]

Thank you.

[François Morin, CFO and Treasurer at Arch Capital Group]

Thank you.

[Operator]

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

[Wes Carmichael, Senior Analyst at Autonomous Research]

Hey, good morning. Thank you. A question on favorable development in the 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?

[Wes Carmichael, Senior Analyst at Autonomous Research]

I think you mentioned short tail lines in prepared remarks, but any more color would be helpful.

[François Morin, CFO and Treasurer at Arch Capital Group]

Yes. The vast, vast majority is on property cat and property other than cat. So that's what we consider to be short tail. We were flat on casualty. So across our insurance segment, so no development on casualty and a couple of moves up and down marine, other small lines other small items, but that's the bulk of it.

[François Morin, CFO and Treasurer at Arch Capital Group]

It's really property. Some is, I'd say prior cats, meaning kind of large events that we had reserved for that are developing a bit favorably. Some of it is just the IBNR we hold for miscellaneous kind of attritional losses that has proven out to be in excess of what we needed. So that's kind of how we recognize that this quarter through those lines of business.

[Wes Carmichael, Senior Analyst at Autonomous Research]

Got it. Thanks. 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?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Yes. So I think I was thinking this question was going to come up. So I think it's mainly in two areas. I would say the most feasible one is, I would say, public DNO, where I think we've seen significant rate decrease in the last two years and double digits. That seems to be temporary, but the at which level that you really have to ask yourself account by account, is the overall line still profitable?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

And second area that we are watching is the cyber area, where also on the excess side, we've seen double digit rating decreases. And the supply of capacity in both public DNO and cyber that don't seem to be wanting to reduce, I think.

[Operator]

Thank you. Did you have any further questions, Mr. Carmichael?

[Wes Carmichael, Senior Analyst at Autonomous Research]

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

[François Morin, CFO and Treasurer at Arch Capital Group]

Yes, I

[François Morin, CFO and Treasurer at Arch Capital Group]

mean, it's very much part of the natural process. As you'd expect, some people were affected by these events. And once they missed two consecutive mortgage payments, they turned delinquent and that's what we fully expected would happen in the fourth quarter. About half of the increase in the delinquency rate is directly attributable to these cap affected areas. I mean, that's our best estimate at this point.

[François Morin, CFO and Treasurer at Arch Capital Group]

The historical cure rate on these types of delinquencies driven by natural events is extremely high. So that's why we think the financial impact ultimately will be minimal. But currently, that's how the process works. They show up in the delinquency rate and we reserve for those, but typically those to get resolved are cured at a high level over time.

[Wes Carmichael, Senior Analyst at Autonomous Research]

Thank you.

[François Morin, CFO and Treasurer at Arch Capital Group]

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

[Wes Carmichael, Senior Analyst at Autonomous Research]

Understood. Thank you.

[François Morin, CFO and Treasurer at Arch Capital Group]

Yes.

[Operator]

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

[David Motemaden, Analyst at Evercore]

Hey, thanks. Good morning. I had a question and I saw the solid casualty reinsurance growth in the fourth quarter as well as 2024. And it sounded like that continued at oneonetwenty five. Yes, I guess I'm wondering if you could just talk a little bit about the rate adequacy specifically within the casualty reinsurance line.

[David Motemaden, Analyst at Evercore]

I know that's a broad line, but a 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.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Yes. I think the we started from a position that we were already, I think, underweight 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've tried over the years to get into program that are more, I would say, specialty, casualty. Think of it as more with an E and S flavor. So similar to what we would be riding or growing on the insurance side.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

So I think it's been a while, but I think based on the additional cloud that's or the value of the brand on the reinsurance side, I think we've been and are seeing companies forecasting some wavering from maybe some of the reinsurance or less appetite for the casualty, I think we've been able to finally get onto programs or insurance programs that we think are backing the right people to take advantage of the opportunity. So that has been really the engine behind the growth. It's not we're not underwriting the market. We're just underwriting selective underwriters that we think have the know how and the expertise to be able to deliver attractive return for us.

[David Motemaden, Analyst at Evercore]

Great. Yes, understood. Yes, definitely you guys are underweight there, so that makes sense. 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.

[David Motemaden, Analyst at Evercore]

And it didn't sound like that had any impact on the prior year reserve, any prior year reserve impact. But just wanted to understand how that happened?

[François Morin, CFO and Treasurer at Arch Capital Group]

Yes. I mean, again, roughly if we break it down, call it a third of the increase is due to the mid corporate entertainment inclusion or addition to the segment. There may be another third, I'd say it's lines of business where we just are reacting to the rate environment. An example of that would be professional lines like both cyber and D and O where you guys have seen it, we've seen it, you've heard it. I mean rates have been coming down over the last couple of years pretty significantly and that's a big part of our book.

[François Morin, CFO and Treasurer at Arch Capital Group]

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 GAAP product where due to the different market conditions, different economic realities with the value of used cars and what we insure and what we cover, 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 that's obviously there's always mix a little bit at the end, but those I'd say are some examples of kind of minor or kind of small adjustments that contributed to the overall increase.

[David Motemaden, Analyst at Evercore]

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

[François Morin, CFO and Treasurer at Arch Capital Group]

Correct.

[David Motemaden, Analyst at Evercore]

Great. Thank you.

[François Morin, CFO and Treasurer at Arch Capital Group]

You're welcome.

[Operator]

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

[Andrew Kligerman, Managing Director at TD Securities]

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?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Yes. So those are, I would say, for the large part, similar book of business. So it's really E and S what I would call E and S liability and it's more middle to high excess layers where we've seen the market reacting to the propensity of larger losses in the last few years. So what's happening in that market is people used to have on the retail side first big limits. So once the admitted market decides that they're not going to be able to offer those limits anymore, By definition, if you had a $200,000,000 program with maybe five or seven players, now that the admitted players decide to reduce their limit to 10,000,000, you're going to need 20 people to and so 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 E and S market, not only on the pricing side, but also on the terms and conditions.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

You are able to get exclusions that you will not be able to get on the admitted retail side. So we lack that business. We've been riding that business. We've been underweight in that business for years. And we have experience.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

We've been riding the business for over twenty years and we have really specific line of business. I'm not going to go over it over the call, but that we actually have experience in it. We have we know the venues where to ride it. We know the type of severity of claims. We know the exposure to commercial auto that's embedded in those risk.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

And so we're able to selectively and good companies do that, selectively pick a subset of the market and we're still getting very decent rate increases, I think double digit. And I think it has been the rate increase has been going on for a while. They were back in the 20s, they were in the double digit, then they went to the single digit, then we are back in the double digit of late. And so we think we're getting rates over trends. I think we think the business underwritten properly with the right limits, I think could be very attractive.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

But you have to pick and choose. It's not, again, across the board bed that we make.

[Andrew Kligerman, Managing Director at TD Securities]

And that's very, very helpful answers. I guess as I think about it, a lot of your competitors are running scared on the high layer excess of lost casualty just given the inflationary environment. So maybe just a little color on and you kind of gave some of it just in terms of your experience in the market, but maybe a little color why you don't fear that that could get out of hand and we could wake up one day and just see Arch get hit with a lot of these things kind of jumping into the highlighters.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

So this is not this is what market do. When you have a lot of severity losses, whether it's property or whether it's liability, the reaction of the market is to cut limits. So I think if you think of it, if you have a let's say, dollars 50,000,000 limit, you're riding $100,000,000 portfolio, too short loss and your loss ratio is 100%. I think what we've seen is people cutting their limit dramatically to $5,000,000 and $10,000,000 So now when we get the full tower losses, the contribution to your portfolio is $5,000,000 or $10,000,000 So it makes the beauty of diversification, it makes your loss ratio a lot more stable. And I think when this happens, because what I said earlier, before to do like a $200,000,000 tower for a program, you needed five, seven market because now you need 20.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

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

[Andrew Kligerman, Managing Director at TD Securities]

Got it. Thanks a lot.

[Operator]

Thank you. Next question will be from KV Monterzari of Deutsche Bank. Please go ahead.

[Cave Montazeri, Analyst at Deutsche Bank]

Thank you. Another question on cash flow piece and so that's why you see good growth opportunities. We're seeing good rate increases on the primary side, which is also helping quota share reinsurance. But sitting commissions didn't change much at oneone despite the adverse development that carriers continue to face. So my question is, was the incremental supply of casualty reinsurance at oneone higher than what you would have expected?

[Cave Montazeri, Analyst at Deutsche Bank]

And I know you're writing both, and yes, we depend on the specific line, but is it currently more attractive to write new casualty business on the primary side rather than on the reinsurance side?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

So as far as I'll answer the first question, I think the supply of casualty three d reinsurance, I think we're hearing bubbles of people on the call saying that they don't think it's attractive. So hopefully they withdraw. But right now, I think it's there's plenty of people willing to ride the business. So I think it's a lot of supplies and demand. I mean, Sydney Commission will go down the day where people are putting their food on the ground and say, listen, I'm not going to ride it unless the senior commission is down 2% or 3%.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

So we haven't seen that even on the business that we place ourselves that we haven't seen that. So I think that so for sure, I think the math for the reinsurer, they get the rate increase, they get a lower commission, it helped justifying why you would write those business. So but I think for us, I think we yes, I think we are more bullish on the primary side today, on the E and S 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 would say that's and putting on the list, I would say that goes number one.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Being able to there's good competitors of ours, people we admire or we hire underwriter from. I mean, being able to support those people on the through our reinsurance team, I think, makes sense to me. So I think, yes, I think the commission may be a little high, but I think if you pick people that can outperform on the loss ratio, you may still be alright.

[Cave Montazeri, Analyst at Deutsche Bank]

Good. And then my second question, still on growth on the primary side this time, early days, but can you give

[Cave Montazeri, Analyst at Deutsche Bank]

us an update on how

[Cave Montazeri, Analyst at Deutsche Bank]

the integration of MidCorp is going? And if the growth prospects, how that's evolving versus your expectations prior to the deal?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Yes. So I think we're pretty much on plan, to be honest. I think the integration is it's a big lift, but I think we are pretty comfortable so far that things are pretty much on plan. In terms of the business itself, it's early to tell, but the business is pretty much what we expected. I don't think it's better or worse.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

I think it's pretty much what we had planned

[Nicolas Papadopoulo, CEO at Arch Capital Group]

for also.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

And I think on the good news for us on the mid corp aspect is that we're seeing some double digit rate increases on the property side and also the liability side. So I think on the property side, it's really driven by the secondary periods that not only for us but for others on the market side that have been a problem in the past. So people are we are deriving around it, but also getting rate increase. And we're seeing the same some of the same rate increase on the total

[Nicolas Papadopoulo, CEO at Arch Capital Group]

liability and the GL.

[Cave Montazeri, Analyst at Deutsche Bank]

Thanks.

[Operator]

Thank

[Operator]

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

[Alex Scott, Insurance Research Analyst at Barclays]

Hi, good morning. First, what I have to you is on the PMLs. I just wanted to understand to what degree you are of exposure to aggregate reinsurance treaties. And just when we think about a pro form a for some of the wildfire losses, would that cause any upward pressure of note to the P and L as we think about heading into wind season?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

So we do some, but we have very limited exposure to aggregate treaties. I think it's as a general underwriting philosophy, it's hard enough to price the severity. The frequency is really, really hard to price. So I think we do it, but when we really feel that we have a because of the line of business and the exposure, a good we could have a good grab on the frequency or the we get enough away from the frequency that maybe providing an aggregate cover makes sense. So very limited exposure to aggregate covers.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

In terms of the PML, can you repeat the second question? I just forgot.

[Alex Scott, Insurance Research Analyst at Barclays]

Well,

[Alex Scott, Insurance Research Analyst at Barclays]

it was along the same lines.

[Alex Scott, Insurance Research Analyst at Barclays]

I was just trying to understand it. If you had exposure to aggregate treaties, then to what extent would it potentially increase your P and Ls? Just thinking through, for example, a primary this morning announced a wildfire number that when you look at their baseline cap budget, I think it would potentially cause them to pierce the aggregate, yes?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

My guess is immaterial for us.

[Alex Scott, Insurance Research Analyst at Barclays]

Got it. Okay. And then just as a separate follow-up on mid corp, I just wanted to probe there. Now that you have the book, it sounds like things are going to plan. But could you talk about like what portion of those premiums that you've gotten in are going through the heavier remediation?

[Alex Scott, Insurance Research Analyst at Barclays]

And just how we should think about the trajectory of premiums considering that there's still some remediation work going on in the background?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

I think it's mainly around, I would say, the program book of business. When we bought mid corp, from memory again, I think there was a $500,000,000 book of programs. And this is not why we bought mid corp. And I think we have ourselves a significant, I think, I mean, something like book of business. So I think that's where we try to integrate their teams with our teams.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

And we have a very defined risk appetite for the type of under IT manager that we do business with, the type of back office integration that we require to get the information very quickly. So I think we are going through their book of business to make sure which one qualifies and which one doesn't. So

[François Morin, CFO and Treasurer at Arch Capital Group]

Yes. To add to that, I mean, we have already kind of taken action on a number of programs, but given the period to notice, I mean, 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, the loss ratios will follow as well.

[Alex Scott, Insurance Research Analyst at Barclays]

Got you. Okay. Thank you.

[François Morin, CFO and Treasurer at Arch Capital Group]

You're welcome.

[Operator]

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

[Andrew Andersen, Equity Research Vice President at Jefferies Financial Group]

Hey, good morning. You had 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 still at an adequate level. Could you just maybe talk about the growth environment there?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Yes. I think we I'm personally I think we are bullish in the lender market. I think the thing that yes, there is more competition. I think rates have flattened in certain of our business. But I think the thing that helped us in the London market is that we've grown from being a substandard subscale business to business today that's right close to in the London market, probably $1,050,000,000 or more of premium.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

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

[Andrew Andersen, Equity Research Vice President at Jefferies Financial Group]

And then maybe just within reinsurance, it sounds like still kind of positive on prop cat. 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 decrease year over year?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Yes. So I think the first part is the fourth quarter is really the smaller so smaller of the fourth quarter. So and we the thing I want people to understand on reinsurance and it's true in the insurance as well is that we are extremely dynamic. We don't if something doesn't fit or a selling company decide to if for instance happens, a selling company decide to change from proportional to excess, premium in itself is never our target. We're not trying to replace the premium.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

We're actually looking for profitable premiums. Those are two different concepts. So I think in the fourth quarter, what happened is I think we're starting to have a negative bias on cyber, to be honest. I think we're a big provider of quota share in the cyber side. So a couple of our contracts, we either the ceding company retained more, which I think is or we may have cut back on the number one based on the new terms and condition.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

And that explains most of it.

[Operator]

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

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

Great. Thank you very much. I guess one question for 2025 on the insurance segment. Can you talk about how reinsurance purchase is your reinsurance, outward reinsurance purchase has changed? I don't know whether that's a market question or a missed core question or both.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

So I think, you know, the maybe if I understand this, how did it change? Or what's the outlook? The one change the one chance that we had to do is we had to Alliance was buying reinsurance to cover the midcorp portfolio, a lot of it being property, some of it being casualty. So I think we at One One, I think we on the property side, I think we had to and they bought large limits, limits up to $700,000,000 or $800,000,000 So I think we had to and that was one thing we bought. I mean, so we had to transfer that reinsurance onto an Arch managed framework.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

So outside of the Allianz Silid department, so and within the RCD department. So that happened at 1.1. I think the team did a great job and we kept the capacity, which is a huge part of the value proposition that the Mid corp offer. It's like to be able to compete in the middle market, you need large capacity up to $7,000,000,000 on any one account or location. So I think we by being able to do that, I think we secured a lot of the brand or a lot of the value that we bought.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

So I think that was a very satisfactory outcome for us.

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, great. Thank you. And then Francois, you mentioned that there's a lot of property and therefore cat risk within the MC portfolio. Right now, obviously, the underlying loss ratio is elevated. Once all of that is done, should MC have a lower attritional loss ratio than the legacy art side of things because of that cat exposure?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

So I think the cat exposure of the mid corp business is more around the secondary period than it is around the primary period of hurricane. And so I think we that was something attractive for us because it was very complementary to the footprint that we had. So I think the going forward, I think those secondary perils attritional cat loss ratio, they remain. That's part of the I mean, we underwrite the flood, we underwrite the tornadoes, we underwrite but ultimately the so I don't I really don't expect the attritional loss ratio coming from the mid corp to a really chance going forward.

[François Morin, CFO and Treasurer at Arch Capital Group]

Yes,

[François Morin, CFO and Treasurer at Arch Capital Group]

that's yes, exactly that. I mean, I think pre and post MCE after, call it, we fully integrated the business, I would not expect a significant change to the ex cat loss ratio.

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, perfect. That's what I needed to tell.

[Operator]

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

[Brian Meredith, Analyst at UBS Group]

Yes, thanks. First one, Nicholas and Francois, I'm just curious, how are you thinking about the potential impact of tariffs on your business?

[François Morin, CFO and Treasurer at Arch Capital Group]

Nothing significant for us at this point. As you know, I mean, the businesses are transacted locally between local carriers in each of the jurisdictions in which we operate. And so from that point of view that's I don't think there's an issue there or any concern. Does it slow down trade in the broader sense? Maybe.

[François Morin, CFO and Treasurer at Arch Capital Group]

I think that's I could see a potential impact on our coal fast investment, for example. I mean, you could see some reductions in world trade and that might have an impact. But I think too early to tell would be our answer, but that's something obviously we're watching.

[Brian Meredith, Analyst at UBS Group]

Great. Thanks. And then second question, I think you've kind of 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?

[François Morin, CFO and Treasurer at Arch Capital Group]

I

[François Morin, CFO and Treasurer at Arch Capital Group]

mean, it varies by sell, but certainly it's for the excess business, it's double digits. It's like 12% to 14% on the primary E and S kind of low limit casualties probably around five percent?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Yes, five percent or six percent, yes.

[Brian Meredith, Analyst at UBS Group]

Five percent or six percent in the low casualty. And then one other one, can I quickly slip in here? You all have typically done a reasonable amount of structured transactions in your reinsurance. You're good at that surplus fleet, that kind of stuff. Are you seeing much opportunity here in 2025 and 2026 on that?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

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

[Nicolas Papadopoulo, CEO at Arch Capital Group]

So we got a couple of opportunities to participate at our terms in a couple of transactions. It looks like maybe some capacity is coming back, so it's hard to tell. So it's not something we target, I think, as we are in that business and when something fits, we do it. And if it doesn't, we just don't.

[François Morin, CFO and Treasurer at Arch Capital Group]

Yes. We're not a typical arch thing, but a little bit more reactive on that type of business. We don't drive the demand for it. Sometimes you have a company that may be in the may have some capital issues because of cats or any other some other kind of result or could be reserve development, who knows. So that's where the it's hard to predict whether the demand will be there for these products, but we're open for business.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

I think we benefit there again of the support we offer to some of our CEDant. I think we today, especially in The U. S, we have a multiline reinsurer. So we just don't do the cat. We do the cat.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

We do the risk. We do the quota share. So I know the opportunity that we got is one of those selling company has a problem. They think of us as one of the partners. So they so that's how some of those opportunities came to us.

[Nicolas Papadopoulo, CEO at Arch Capital Group]

It's more like because of all the things we were doing for them, they're like, listen, we have this problem Arch, could you help us doing this? And then we looked at it together. So I think that probably puts a bit more tailwind in our ability to do this. But again, it has to be the right structure, it has to be the right price.

[Brian Meredith, Analyst at UBS Group]

Great. Appreciate it. Thank you.

[François Morin, CFO and Treasurer at Arch Capital Group]

You're welcome.

[Operator]

Next question will be from Elyse Greenspan at Wells Fargo. Please go ahead.

[Elyse Greenspan, Analyst at Wells Fargo]

Hi. Thanks. Just a couple of follow ups. The first one Francois was on the seven to eight point cat load. I just want to understand that correctly.

[Elyse Greenspan, Analyst at Wells Fargo]

That does include the fire. So then would that also be the cat load for '26 or are you assuming in that that the fires kind of take the place of another large loss that you might have seen this year?

[François Morin, CFO and Treasurer at Arch Capital Group]

Yes. It does not include the fires in a direct way in the sense that this is our going in on January 1. This is what we thought the cat losses or cat load was for the year. Now if it turns out that 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 yes, there's a chance that we exceed the total that total load. But by the same token hurricanes end up could end up being lower.

[François Morin, CFO and Treasurer at Arch Capital Group]

So that's truly a start of the year without any kind of additional knowledge reflected in that number.

[Elyse Greenspan, Analyst at Wells Fargo]

Okay. And then my second question, on MidCorp, right, when you guys announced the transaction, you said post integration, right, it would run at a low 90s combined ratio. It sounds like from everything you're 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 low nineties number, like, what year would be considered post integration?

[Nicolas Papadopoulo, CEO at Arch Capital Group]

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

[Nicolas Papadopoulo, CEO at Arch Capital Group]

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

[Elyse Greenspan, Analyst at Wells Fargo]

And then just one follow-up, Francois. I think someone asked a question and you implied that mid corp would maybe run at the same loss ratio once integrated was the point meaning run at the same loss ratio as legacy Arch. Is that what you were saying there?

[François Morin, CFO and Treasurer at Arch Capital Group]

Yes. I mean, I haven't done the math recently, but my expectation would be that again the ex cat accident year loss ratio pre MCE, your legacy Arch and that same metric once you include MCE after the integration is 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.

[Elyse Greenspan, Analyst at Wells Fargo]

Okay, got it. Thank you.

[François Morin, CFO and Treasurer at Arch Capital Group]

You're welcome.

[Operator]

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

[Nicolas Papadopoulo, CEO at Arch Capital Group]

Thank you for your time today. And yes, we'll see you next quarter. Thank you.

[Operator]

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

Participants

Executives

• Nicolas Papadopoulo, CEO
• François Morin, CFO and Treasurer

Analysts

• Elyse Greenspan, Analyst at Wells Fargo
• Michael Zaremski, Research Analyst at BMO Capital Markets
• Jimmy Bhullar, Equity Research Analyst at JP Morgan
• Wes Carmichael, Senior Analyst at Autonomous Research
• David Motemaden, Analyst at Evercore
• Andrew Kligerman, Managing Director at TD Securities
• Cave Montazeri, Analyst at Deutsche Bank
• Alex Scott, Insurance Research Analyst at Barclays
• Andrew Andersen, Equity Research Vice President at Jefferies Financial Group
• Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)
• Brian Meredith, Analyst at UBS Group