NASDAQ:ACGL Arch Capital Group Q1 2025 Earnings Report $92.48 +2.81 (+3.13%) Closing price 05/2/2025 04:00 PM EasternExtended Trading$92.46 -0.02 (-0.02%) As of 05/2/2025 05:04 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Arch Capital Group EPS ResultsActual EPS$1.54Consensus EPS $1.59Beat/MissMissed by -$0.05One Year Ago EPS$2.45Arch Capital Group Revenue ResultsActual Revenue$4.52 billionExpected Revenue$4.75 billionBeat/MissMissed by -$235.05 millionYoY Revenue Growth+10.50%Arch Capital Group Announcement DetailsQuarterQ1 2025Date4/29/2025TimeAfter Market ClosesConference Call DateWednesday, April 30, 2025Conference Call Time9:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Earnings HistoryCompany ProfilePowered by Arch Capital Group Q1 2025 Earnings Call TranscriptProvided by QuartrApril 30, 2025 ShareLink copied to clipboard.PresentationSkip to Participants Operator00:00:00Good day, ladies and gentlemen, and welcome to the First Quarter twenty twenty five Arch Capital Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. Before the company gets started with its update, management wants to first remind everyone that certain statements in yesterday's press release and discussed on this call may constitute forward looking statements under the federal securities laws. Operator00:00:30These 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 2024 fiscal year. Additionally, certain statements contained in the call that are not based on historical facts are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends the forward looking statements in the call to be subject to the Safe Harbor created thereby. Operator00:01:15Management also will make reference to certain non GAAP measures of financial performance. The reconciliations to GAAP for each non GAAP financial measure can be found in the company's current report on Form eight ks furnished to the SEC yesterday, which contains the company's earnings press release and is available on the company's website at www.archgroup.com and on the SEC's website at www.sec.gov. I would now like to introduce your host for today's conference, Mr. Nicolas Papadopoulos and Mr. Francois Morin. Operator00:01:49Sirs, you may begin. Nicolas PapadopouloCEO at Arch Capital Group00:01:52Good morning, and welcome to Arch's first quarter earnings call. I'm pleased to report solid results for the quarter with $587,000,000 of after tax operating income, dollars 1.54 in operating earnings per share and an annualized operating return on equity of 11.5%. These results were achieved despite $547,000,000 of catastrophe losses affecting our Property and Casualty segment, primarily from the California wildfire. The P and C market has become increasingly competitive. However, we remain optimistic about our prospects as we continue to achieve broadly attractive rates across the sectors where we compete. Nicolas PapadopouloCEO at Arch Capital Group00:02:36At Arch, we believe that prioritizing expected profitability of our market share by allocating capital to lines of business with attractive risk adjusted returns gives us the best opportunity to outperform for the cycle. This is what we mean by cycle management, and we stand by the historical results of this approach. While the market may be more competitive, ample growth opportunities remain. This is true despite emerging macroeconomic concerns, including the potential impact of tariffs that increased uncertainty for many of our insured across the globe and raised inflationary risk for some of our businesses. During times such as these, risk selection is critical as a growing number of our previously attractive accounts no longer meet our return criteria. Nicolas PapadopouloCEO at Arch Capital Group00:03:25We believe the acumen of our underwriting teams, breadth of our platform, investment in data and analytics and depth of our financial resources have Arch well positioned to navigate the P and C cycle. Now we'll turn to our segment, starting with Reinsurance. Reinsurance results were solid despite substantial catastrophe losses in the quarter. A 91.8 combined ratio, inclusive of 18 points of catastrophe losses, demonstrates the strong underlying profitability of our diversified reinsurance portfolio. Growth in net premium written in the quarter was modest due to an increased level of competition, more risk retention by sealing companies and reducing our participation for treaties where margin no longer meet our hurdles. Nicolas PapadopouloCEO at Arch Capital Group00:04:13In the first quarter, the Reinsurance Group deployed additional capacity into property catastrophe lines where opportunities remain attractive, particularly in loss impacted account. Specialty premium rising declined primarily due to non renewing a large structured transaction. Weaker margin in cyber and part of our international treaty business also led to reduced premium writings. Treaty casualty lines experienced growth in the quarter as Archery capitalized on a handful of select opportunities. We are hopeful these lines will continue to achieve rate and that Treaty Casualty market terms and conditions will continue to improve. Nicolas PapadopouloCEO at Arch Capital Group00:04:52As we look towards midyear renewals, particularly wind coverage in Florida and The Gulf, we expect additional demand from existing and new clients. On the supply side, it is worth noting that for many reinsurers and the ILS funds, these zones represent peak exposure. As a result, significant additional capacity may be harder to come by, even if the market is more competitive on the margin. Moving to our Insurance segment, where the California wildfires led to a small underwriting loss for the quarter due in part to commercial risk from the recently acquired middle market commercial and entertainment businesses. The additional premium generated from those businesses contributed to the Insurance Group one point nine billion dollars of net premium return in the quarter, a 25% increase from the first quarter of twenty twenty four. Nicolas PapadopouloCEO at Arch Capital Group00:05:46The integration of the middle market business is progressing well and we remain excited about the increased capabilities this team brings to the Arch Insurance platform. As we've said before, there isn't one underwriting cycle, but many. In today's market, it's possible to deliver double digit growth in some lines, while experiencing similar declines in others. In the first quarter, we generated meaningful growth in casualty led sectors, including construction, national account and international casualty. At the same time, we experienced premium reduction in other lines of business due to rate decreases and our desire to maintain margin in lines such as E and S Property and Professional lines including Cyber. Nicolas PapadopouloCEO at Arch Capital Group00:06:31We have seen competition increasing in the London Market Specialty lines, which has made profitable growth difficult. Looking ahead, we expect continued growth in casualty lines as well as The U. S. Middle market, where opportunities remain for both freight and premium growth. We are well positioned across the Insurance Group because of our market leading capabilities and relevance with distribution partners that gives us first look at many opportunities. Nicolas PapadopouloCEO at Arch Capital Group00:06:58The mortgage segment continued to provide a steady earnings stream, contributing $252,000,000 of underwriting income in the first quarter. Economic uncertainty, limited housing supply and high relative mortgage rates continued to create headwinds for new mortgage origination, which resulted in modest new insurance return in our U. S. And international mortgage businesses. For USMI, high mortgage interest rates and home price appreciation have kept persistency around 82% and insurance in force relatively stable. Nicolas PapadopouloCEO at Arch Capital Group00:07:33The delinquency rates of our in force portfolio remains low, ending the quarter below 2%. Our near term outlook for the mortgage industry is unlikely to change significantly. While recessionary trends resulting from tariffs and other economic policy could create headwinds, we still expect the mortgage segment to continue generating attractive underwriting income given the high credit quality and embedded equity of our in force portfolio. Turning to our Investment Group, where invested assets increased by 4% from year end to $43,100,000,000 providing a large sustainable contributor to group earnings. Investment market volatility increased broadly, leading us to reposition our portfolio to a more market neutral position. Nicolas PapadopouloCEO at Arch Capital Group00:08:19To manage the cycle, it's important to understand that you cannot control the market, but you can control how your underwriting teams respond to it. At ART, we manage the different cycle across our many lines with the ability of our underwriters to access, analyze and ultimately select risk. Over time, our underwriting teams have built strong relationships with our distribution partners, which gives us an access advantage as they look to place risk with fewer, more relevant carriers, including Arch. Risk analysis combines experience, expertise and deep analytical insight to understand and assess the underlying risk and match it with a technical price that reflect an adequate premium for that risk. Ultimately, risk selection is what separates the winners from the losers. Nicolas PapadopouloCEO at Arch Capital Group00:09:09If the return doesn't adequately account for the risk, you must be willing to let others take the business. The P and C market in transition is one where Arch can and has previously demonstrated its ability to find success. While premium growth may be more challenging than in recent years, plenty of profitable opportunities remain. For a company with a strong underwriting culture like Arch, this is a market where we can stand out and continue to maximize returns for our shareholders. Francois? François MorinCFO and Treasurer at Arch Capital Group00:09:43Thank you, Nicolas, good morning to all. Last night, we reported our first quarter results with after tax operating income of $1.54 per share, resulting in an annualized operating return on average common equity of 11.5% and growth in book value per share of 3.8% for the quarter. At a high level, our three business segments delivered excellent underlying results with an overall ex cap accident year combined ratio of 81 and importantly each of our segments showing an improvement for that metric over the same quarter one year ago. Our underwriting income included $167,000,000 of favorable prior year development on a pretax basis in the quarter or four points on the overall combined ratio. We recognized favorable development across all three of our segments and in many lines of our many of our lines of business, but the effect was most notable in short tail lines in our Reinsurance segment and in mortgage due to strong cure activity. François MorinCFO and Treasurer at Arch Capital Group00:10:50The acquisition of the Midcorp and Entertainment Insurance businesses continues to roll through our financial metrics within the Insurance segment. This quarter, the net premiums written coming from the acquired businesses was $373,000,000 contributing 24.2 points to the reported year over year premium growth for the segment and generally consistent with last quarter. Also, the inclusion of the acquired business in the segment's results lowered the current accident year ex cat combined ratio by 1.1 points. This can be further broken down to include the current quarter acquisition expense ratio that was lowered by 0.9 points due to the write off of deferred acquisition costs for the acquired business at closing under purchase GAAP. The other operating expense ratio that was lowered by 0.9 points and the accident year ex cat loss ratio that ended up being 0.7 points higher reflecting the underlying results of the acquired business. François MorinCFO and Treasurer at Arch Capital Group00:11:54The quarter over quarter comparison of net premiums written for the Reinsurance segment showing growth of 2.2% was also impacted by a few items. Of note, this quarter's net premiums written includes approximately $70,000,000 of reinstatement premiums, mostly related to the California wildfires. Offsetting this benefit was the non renewal of large structured transactions in the specialty line of business, which reduced our top line by $147,000,000 in the quarter. There were also some timing differences in the recognition of certain treaty renewals, which resulted in lower net premiums written in the quarter of approximately $103,000,000 Our mortgage segment delivered yet again another very strong quarter with underwriting income of $252,000,000 Even though the origination environment remains challenged, the underlying fundamentals of the business are excellent as exhibited by most of our key metrics, including a very low delinquency rate for our USMI business, which currently stands at 1.96%. On the investment front, we earned a combined $431,000,000 pretax from net investment income and income from funds accounting using the equity method or $1.13 per share pretax. François MorinCFO and Treasurer at Arch Capital Group00:13:24The reduction in net investment income relative to last quarter is attributable to a few items including the impact of paying a $1,900,000,000 special dividend in December, the timing of incentive compensation expenses, slightly lower interest rates in the quarter and the repositioning of our portfolio to a lower risk posture in light of the current macroeconomic uncertainty. Income from operating affiliates was down this quarter, mostly due to a lower level of affiliate income at Summers Re in part as a result of the California wildfires. Cash flow from operations remained strong. It was approximately $1,500,000,000 for the quarter. Our effective tax rate on pretax operating income was an expense of 11.7% for the quarter and reflects a one time discrete benefit of 4.6% related to differences in the expensing of non cash compensation. François MorinCFO and Treasurer at Arch Capital Group00:14:24Also, it is worth mentioning that we started to amortize this quarter the deferred tax asset we established at the end of twenty twenty three related to the introduction of the Bermuda corporate income tax. This benefit does not impact our operating or our net income effective tax rates in the period, but as we mentioned previously, will flow through our financials as a reduction to pay taxes. As of January 1, our peak zone natural cap probable maximum loss for a single event, one and two fifty year return level on a net basis increased slightly and now stands at 9% of tangible shareholders' equity. Our PML remains well below our internal limits. On the capital management front, we repurchased $196,000,000 worth of our common shares in the first quarter and an additional $100,000,000 in April, demonstrating our ongoing disciplined approach to managing our capital to enhance shareholder returns. François MorinCFO and Treasurer at Arch Capital Group00:15:24In closing, our balance sheet remains extremely strong with common shareholders' equity of $20,700,000,000 and a debt plus preferred to capital ratio remains low at 14.7%. With these introductory comments, we are now prepared to take your question. Operator00:15:43Thank The first question comes from Mike Zaremski at BMO. Please go ahead. Michael ZaremskiManaging Director & Senior Equity Research Analyst at BMO Capital Markets00:16:13Hey, good morning. Thanks. I guess, thanks for all the insightful market commentary. On the reinsurance group deploying additional capacity into catastrophe lines, you said that loss impacted accounts remain particularly attractive. Should we be I guess we'll think through kind of the how to change our loss ratio a bit if you kind of feel like you're going to continue leaning in. Michael ZaremskiManaging Director & Senior Equity Research Analyst at BMO Capital Markets00:16:46Any kind of update to your cat load guide? I believe it was seven to eight points when you updated us last. Should we expect the number to move up a bit? François MorinCFO and Treasurer at Arch Capital Group00:17:01I don't think so. I think the number should be relatively stable. I mean full year cat load, obviously there's seasonality to it. As we look at market conditions, we certainly had thought that after the California wildfires, there might be a little bit of a I think François MorinCFO and Treasurer at Arch Capital Group00:17:22a François MorinCFO and Treasurer at Arch Capital Group00:17:22more some stabilization in that market, which we think will happen, although as we touch on, I think Florida is its own different market, right? So a little bit early for us to know exactly how Florida is going to ultimately perform or what opportunities we're going to see there. But big picture, I think what we saw at the start of the year seems to be holding up pretty well. Nicolas PapadopouloCEO at Arch Capital Group00:17:48I agree. I think the Florida outlook as we see it is for the reason I described in my comment is pretty flattish. So I think we like the business. I think there's if our teams again, we don't know, but if our teams find opportunities to grow and we expect more demand in the marketplace for several reasons. I the FHEF is raising the retention by $1,000,000,000 And I think they we're seeing more cedent wanting to increase their limits, things that they haven't been able to do in the last few years because of the lack of capacity. Nicolas PapadopouloCEO at Arch Capital Group00:18:29So we think an opportunity to potentially do more if the rates hold up. Michael ZaremskiManaging Director & Senior Equity Research Analyst at BMO Capital Markets00:18:38Got it. Okay. Switching gears to market competition outside of reinsurance, I think the common theme has been in recent quarters that large account property is well priced and we're seeing some more meaningful downward pressure. You mentioned in your prepared remarks the London specialty market as well. Maybe can you kind of unpack what you mean by the London specialty market? Michael ZaremskiManaging Director & Senior Equity Research Analyst at BMO Capital Markets00:19:11And maybe kind of help frame which lines in particular are the clock isn't where you'd want to grow as much? Nicolas PapadopouloCEO at Arch Capital Group00:19:25Yes. I think in London, what's happening, I mean, it's twofold. First, I think we've after years of good results, more appetite for people to expand in line like Terror, Marine and Energy, the typical species, the typical lines of business that are returned historically out of Lloyd's. And also, I think what we are seeing is London is kind of the excess and surplus market of the rest of the world. And so we're seeing as companies in their local market become more comfortable with their risk, their appetite expand. Nicolas PapadopouloCEO at Arch Capital Group00:20:09And so there is a little bit less business coming from Australia, from the Asia, from jurisdiction that historically relies on Lloyd's as the appetite of their local companies get diminished. So that's what we're seeing. We're the combination of the two. I mean the tailwinds for us and a few other markets is that the market is consolidating around leaders. And so I think we lead in many of our lines of business. Nicolas PapadopouloCEO at Arch Capital Group00:20:44So it's difficult to predict. It's come out, but we feel positive about how we are positioned to continue to take advantage of the market there. Michael ZaremskiManaging Director & Senior Equity Research Analyst at BMO Capital Markets00:20:55Thanks for the color. François MorinCFO and Treasurer at Arch Capital Group00:20:58Welcome. Operator00:21:00Thank you. The next question comes from Kev Montesari at Deutsche Bank. Please go ahead. Cave MontazeriAnalyst at Deutsche Bank00:21:06Thank you. My first question is going to be on net premium growth in reinsurance. I think it's pretty clear that those days of 30% plus growth in NPWR are behind us now as you become more selective. I'm assuming also 2.2% growth it's probably a little bit too low to expect going forward. So can you maybe unpack some of the key drivers of the deceleration you saw in the quarter? Cave MontazeriAnalyst at Deutsche Bank00:21:35Maybe give us a bit more details on the impact of the structured deals, Just to give us help us understand maybe where how we should think about that going forward in terms of premium growth in reinsurance? François MorinCFO and Treasurer at Arch Capital Group00:21:49Yes. I mean, touched on it in my comments, There's a couple of items. If you adjust for what we mentioned, again, we're not trying to do the but fours and adjust for everything. But if adjust for those two things, you still get to a call it like 6%, seven % growth rate, which may be more consistent with what we see in the near future. But beyond that, I'd say there's really a separation like there's we had good growth in property other than property cap and in property cap and in casualty. François MorinCFO and Treasurer at Arch Capital Group00:22:23Where we saw some decreases is on the specialty line beyond the structured and the timing of accruals on written premium. And there, I'd say it's a function of some of the lines or some of the smaller specialty lines that we participate in where there's been more competition. Cyber is a prime example of that. It's a combination of rates coming down a little and also of some of our seeding companies retaining more of the risk. So, you know, that that's how I I'd say, like, you know, midterm, yeah, you're right. François MorinCFO and Treasurer at Arch Capital Group00:22:57The 30% growth is probably behind us, but for the for the near term at least. But, you know, these couple of things help you kind of reconcile a little bit like from the 2.2% to a what you may perceive to be a more kind of realistic expected growth for the rest of the year. Nicolas PapadopouloCEO at Arch Capital Group00:23:18Yes. I think in the specialty book, you have a mix of lines of business. I mean, it goes from credit to cyber to agriculture and a few others. So our team are really scouting the world to find opportunities. So we had a great opportunity in Brazil last year on the agriculture side. Nicolas PapadopouloCEO at Arch Capital Group00:23:39And this year, The Zealand is winning more of the business. So I think you have to be opportunistic in those lines of business to make money. So yes, if we have a big book, the ups and downs offset each other. And in the last few years, it grew together because it was what the hard market does. I think we should be prepared to see more ups and downs quarter by quarter going forward in that particular book. Nicolas PapadopouloCEO at Arch Capital Group00:24:04That's what we want them to do. Cave MontazeriAnalyst at Deutsche Bank00:24:07Well, thanks. That's very good, very helpful color. My second question is on casualty. Last year, a big theme was just the strengthening in casualty reserves at the industry level. We haven't seen much of that so far in 2025. Cave MontazeriAnalyst at Deutsche Bank00:24:24I think some people are thinking maybe we might be past the point of maximum fear with regard to social inflation. Just wondering like what your thoughts are. Do you agree with that? What do you think? We're just in the eye of the storm and there's more pain to come in the second half of twenty twenty five. Nicolas PapadopouloCEO at Arch Capital Group00:24:44My prediction is that I don't know when the pain will come, but it will come. There's more pain. That would be my how people manage the pain, and I can tell, but we think the casualty, social inflation story has not fully played out. I think that's our view. And we're still we were getting definitely right above trend on our casualty line and where we feel comfortable with the exposure, the jurisdiction, the type of terms and conditions that we get, I think we're willing to lean in, but I don't think we are still at the case where it's a market that you can take a share of it and guarantee that you're going to make an adequate return. Nicolas PapadopouloCEO at Arch Capital Group00:25:37So I think there's more to come. That would be our general underwriting view. Cave MontazeriAnalyst at Deutsche Bank00:25:46Very clear. Thank you. Nicolas PapadopouloCEO at Arch Capital Group00:25:50Welcome. Operator00:25:51Thank you. The next question comes from Elyse Greenspan at Wells Fargo. Please go ahead. Elyse GreenspanManaging Director at Wells Fargo Securities00:25:57Hi, thanks. Good morning. My first one, I think is a quick one. Francois, the 7% adjusted growth in reinsurance that you were talking about in the quarter, is that excluding reinstatements and the structure deals? I just want to make sure I understand what you're backing out. François MorinCFO and Treasurer at Arch Capital Group00:26:16No. I'm just putting back in the two two two items I I mentioned. That's all. So the the the the the I'm not backing out the reinstatement. I'm just, you know, adding back the the nonrenew deals and the timing of the accruals on some business. Elyse GreenspanManaging Director at Wells Fargo Securities00:26:36Okay. Got it. And then my second question is on the commentary around the mid years. It sounds like you're expecting perhaps some opportunity on the demand side. What about pricing? Elyse GreenspanManaging Director at Wells Fargo Securities00:26:50I guess, are you guys expecting that price is probably down, but that there could be some growth opportunities just with demand? Can you help me think through those two pieces? Nicolas PapadopouloCEO at Arch Capital Group00:27:01So clearly, it is the data point at fourone where single digit down most places, maybe a bit more than that in Japan due to I think one of the players buying less, which the market scrambled around that. But I think the dynamic in Florida is as I said in my remark, is a little different because it's a big zone for most market. And the dynamic is people like the top players, but not that many top players and people didn't like the bottom of the program. There's not as much. And what we've seen in the past and we're seeing still today is bottom of the programs, which have been impacted by the loss last year, the hurricane last year, Milton, we'd expect those probably to see some price increase. Nicolas PapadopouloCEO at Arch Capital Group00:28:01And would that be compensated by price decrease at the top of the market at the top of the program, I don't know. But I think that's why I think our view is if things plays out the way they should, which they never do, we would expect something more flattish for Florida. And at that point, we feel that based on our positioning and we should be able at least to keep our share of the programs that are buying more and therefore we may have opportunity to deploy more capital. Elyse GreenspanManaging Director at Wells Fargo Securities00:28:36Okay. And then one last one in insurance, if I kind of ex out mid corp, you got I think around like a 56.7 underlying loss ratio think that was slightly below the Q4. Is that about like run rate ish, I guess, on core Arch, right? And then we think about bringing in mid corp on top? Or anything else we need to think about just with pricing and loss trend and dynamics on the margin as we go through the year? François MorinCFO and Treasurer at Arch Capital Group00:29:07Well, I mean, it for the legacy Arch book, I mean, it's at a high level, we'd say that our margins are holding up in terms of rate above trend kind of being kind of keeping us steady. The one thing though that you have to factor in somehow is the mix is changing, right? As we pivot a little bit more into casualty, you might see that underlying loss ratio go up a little bit as we see more competition on the property. And we mentioned it like a lot of our growth was in the casualty led kind of lines of business or profit units for us. So that might be the only thing. François MorinCFO and Treasurer at Arch Capital Group00:29:51But big picture, we still think the loss ratio that we were we had this quarter is seeing there is no reason why it can't hold up at that level. Elyse GreenspanManaging Director at Wells Fargo Securities00:30:02Thank you. François MorinCFO and Treasurer at Arch Capital Group00:30:04You're welcome. Operator00:30:07Thank you. The next question comes from Andrew Kligerman at TD Securities. Please go ahead. Andrew KligermanManaging Director at TD Securities00:30:13Hey, good morning. First question is around the reserving. It looked like you had some nice favorable developments, particularly in reinsurance. But could you call out anything around commercial auto and other liability net plus or minus in both insurance and reinsurance? How did that perform? Andrew KligermanManaging Director at TD Securities00:30:36How do you feel about the reserving in those lines going forward? François MorinCFO and Treasurer at Arch Capital Group00:30:43Great question. We our reserves are something we again, we mentioned before, we look at it every quarter. The actual versus expected that we monitor very carefully is looking good. But for us, it's a little bit early to call it victory. So we're monitoring everything, plus and minuses. François MorinCFO and Treasurer at Arch Capital Group00:31:03Yes, there's always going to be the finer if you slice that down to very fine levels, there are some pockets where we took a little bit of adverse, which were offset by others where we had some good favorable coming through. But big picture, I'd say we're flattish. I mean everything on the casualty kind of long tail side, auto and some of the more difficult lines, as you mentioned, umbrella, etcetera, we're comfortable with what the reserve what the indications are. Andrew KligermanManaging Director at TD Securities00:31:34Okay. And so that's good to hear. And then maybe shifting, this is sort of a two part question. Being clearly the acclaimed cycle manager that you are, could you share a little color on and maybe and I know, Nicholas, you mentioned many different cycles, but maybe very broadly two cycles, casualty and property, maybe we'll even skip professional or you could throw that in if you want. But how do you see those cycles playing out as we sit here today? Andrew KligermanManaging Director at TD Securities00:32:10How much longer will we see property pricing come down? How much longer can casualty pricing hold up? I know it's a really tough question, but be really interested in your response on that. And then the second part is just what are you seeing with MGAs today? Are they still proliferating? Andrew KligermanManaging Director at TD Securities00:32:30Are they still very competitive? And I'll stop there. That was a lot of questions. Sorry for that. Nicolas PapadopouloCEO at Arch Capital Group00:32:36The two are intertwined. Might take a lot to answer, but those are actually questions. Yes. I'll start on the property side and I'll start on the I mean, the reinsurance side, I think my view is that the market is more disciplined. So I think we've seen rate decrease. Nicolas PapadopouloCEO at Arch Capital Group00:33:00But from peak of the market. So I think the market remain attractive. We haven't seen any really actors behaving in a totally irrational way. The new guys are coming, but they're small. And so I think really we've been very optimistic about the property cat and the way the industry behaves in general on that aspect. Nicolas PapadopouloCEO at Arch Capital Group00:33:29If you move to the cat, the property in general and especially the E and S property and the North American E and S properties, I think you have a there you have a tale of two markets. I think you have the middle market more, I would say, admitted retail where the convexity storm and some of the recent cat element, I would say, will include the wildfire to a certain extent, keep putting pressure on the companies and they have to keep on getting rates to make sure that they cover their cat load, which had gone up in the last few years. And then you have the more the E and S, cat, coastal and maybe earthquake driven risk, where that's where the MGAs play a bigger role. So I think the market has responded to my surprise very quickly giving up double digit rate increases. We went through in and everybody was surprised. Nicolas PapadopouloCEO at Arch Capital Group00:34:39Big Limits was really something that people didn't like and took a ton of losses. So I think the market became in 2023 much more disciplined and cut limits, which really pushed when people when the capacity withdraw, that's where you see rates going up. So we got a huge upswing, re underwriting, terms and conditions. And I think a year or one point years later, I think we've seen NGS, which their capacity had been curtailed, coming back with much bigger limits. And if you think of a typical risk, it's a $200,000,000 risk where you needed probably 20 markets or more to complete. Nicolas PapadopouloCEO at Arch Capital Group00:35:29And let's say, was doing the first ten or was doing the 10x 10 and then an MGA come in and they do 40, it creates a complete run for the hill in terms of if you I just say, ours was 10 X 10 and then MGA the MGA had $10,000,000 capacity and then now they have $40,000,000 So what do we do? We run for the hill and we're trying to reposition our $10,000,000 elsewhere in the program and that creates the huge pressure on the rates that we've seen. And I think capacity of MGAs have gone up this year. So I think they play a big role in my view in how quickly the market turned to be much more competitive. That's what I see. Andrew KligermanManaging Director at TD Securities00:36:18And same thing on casualty? Nicolas PapadopouloCEO at Arch Capital Group00:36:21So on casualty, there's less NGOs. I think on casualty, I think what you've seen is to go back into property, think when you see markets like us increasing capacity, maybe we increase capacity for 10 to 15. We don't go from 10 to 40. Think so if you go on the casualty side of the house now, whether it's E and S or you've seen the same thing. You've seen response to typical losses is reduction of limit. Nicolas PapadopouloCEO at Arch Capital Group00:36:48You want prices to be applied to a multiple risk of business to create the diversification and the lower large number works better. So I think that's what we've seen. And the reduction of the capacity and the usual limit from 50s to 25s and to 15s have created this opportunity, especially on the excess side for rates to go up. I think we haven't seen a ton of people in fact, we're seeing people still reducing limit. So this tells me that the runway to a more competitive marketplace is going to be longer. Andrew KligermanManaging Director at TD Securities00:37:26Got it. Thank you. Operator00:37:30Thank you. The next question comes from David Motemaden at Evercore ISI. Please go ahead. David MotemadenManaging Director & Sr. Equity Research Analyst - Insurance & Business Services at Evercore ISI00:37:38Hey, good morning. I had a question on the $147,000,000 of structured deals that were non renewed. Just so I'm thinking about it correctly, were there any other chunkier quarters in 2024 that we should think about where, like, there were chunky structured deals that might not renew as we go through the rest of 2025? François MorinCFO and Treasurer at Arch Capital Group00:38:08I mean, François MorinCFO and Treasurer at Arch Capital Group00:38:12there's always some chunky books or deals that we write throughout the year. I mean, what we don't know is whether they'll reappear or will they'll they may renew at the same thing at the same level, same kind of structure for another year. So hard to know what the impact may or may not be for the rest of the year. Again, we're just trying to give you a bit of additional information on how the premium is why it's going up or Sometimes it works in our favor in the sense that, yes, we write new deals that are significant and improve or increase the growth or the reported growth. But in this case, it was different. François MorinCFO and Treasurer at Arch Capital Group00:38:55So these are I'd say, though, they're on the larger side. I mean, it's unusual that we don't have that many deals that are that have that much premium associated with them. David MotemadenManaging Director & Sr. Equity Research Analyst - Insurance & Business Services at Evercore ISI00:39:09Yep. Got it. Okay. Thanks. And thanks for that color. David MotemadenManaging Director & Sr. Equity Research Analyst - Insurance & Business Services at Evercore ISI00:39:11And then on the insurance underlying loss ratio, I think last quarter you spoke about it running at around the 58 level going forward. It obviously came in nicely below that this quarter. I'm wondering, was there anything that drove that? It sounded like you split it out between the legacy Arch and MCE. Was there more improvement on the MCE side? David MotemadenManaging Director & Sr. Equity Research Analyst - Insurance & Business Services at Evercore ISI00:39:41Is that something we can expect to continue? So maybe some color around that would be helpful. François MorinCFO and Treasurer at Arch Capital Group00:39:48Yes, hard to say. I think I'd say the quarterly numbers matter, but we don't overly put too much weight on them. I'd say we want to make sure we have a longer term view of what underlying profitability of the book is. So I would not factor in or expect any significant movements up or down, let's say, from for either the MC or the legacy business. And as you know, I mean, last year, we had the Baltimore Bridge, which impacted the loss ratio upward. François MorinCFO and Treasurer at Arch Capital Group00:40:25We didn't have that this quarter. So there's always going to be the random element of a couple of large claims here and there that may that have an impact ultimately on the quarterly loss ratio. So big picture, we're going to we call it a fairly stable environment, and we always expect a little bit of volatility from quarter to quarter depending on what happens. David MotemadenManaging Director & Sr. Equity Research Analyst - Insurance & Business Services at Evercore ISI00:40:49Understood. Thank you. François MorinCFO and Treasurer at Arch Capital Group00:40:50Yes. Operator00:40:53Thank you. The next question comes from Alex Scott at Barclays. Please go ahead. Alex ScottEquity Research Analyst at Barclays00:40:58Hi, good morning. I thought I'd see if you could provide a little more commentary on what you're seeing in the property cat reinsurance market. And I guess specifically, what's your view of the impact of ILS? Is the pricing pressure more at the top end of the tower? Any commentary on sort of the way it's affecting these towers and where you play in them? Alex ScottEquity Research Analyst at Barclays00:41:24Thanks. Nicolas PapadopouloCEO at Arch Capital Group00:41:25Yes. So the what we've seen and what seems to continue to happen is what you described, more pressure at the top. We've seen the cat bond market being repriced to lower margin. So I think that put pressure also to the layer below the cat bond market. And obviously, there hasn't been any losses on those layers, where at the bottom of the program between the California wildfire on nationwide account and some of the storms that we've seen, we have had losses. Nicolas PapadopouloCEO at Arch Capital Group00:42:00So I think the more, I would say, the place where price decrease seems to be the focusing is really at the top of the program. I think we Florida is going to be more complicated because I think, again, there's not that much supply in the marketplace. So I would expect it to maybe not be as strong as maybe in the Northeast Region where you haven't had a loss in any of the top players or middle to top players for a long time and people see that. So I think but yes, I think the what you described is we expect it to if something is going to happen, and my view is that's what's going to happen. It's probably more pressure at the top of the program and maybe less moderate pressure at the bottom. Alex ScottEquity Research Analyst at Barclays00:43:01Got it. That's helpful. Next one on capital management. I mean, you guys had very strong capitalization and growth slowing a little bit just given the environment. How do you think about priorities there? Alex ScottEquity Research Analyst at Barclays00:43:16And how quickly can I ramp up capital return if you don't get the opportunity to grow in the mid year? François MorinCFO and Treasurer at Arch Capital Group00:43:27Yes. Mean, it's something we look at constantly. It's part of the same framework. We've always had no question that if the growth moderates, which is it's starting to and we still have solid earnings coming through, we'll probably be in a position where we accumulate a bit more excess capital and we'll probably be looking to return most of it back to our shareholders. So there could be some small M and A. François MorinCFO and Treasurer at Arch Capital Group00:43:55There could be some other things that come our way. But at a high level, you could certainly, I think it's reasonable for us to think that we'd be returning a significant amount of capital as we move forward. We had our special dividend late last year. We obviously like share buybacks a lot. And given the if the pricing and the metrics work for us, we're happy to do that. Alex ScottEquity Research Analyst at Barclays00:44:23Thank you. François MorinCFO and Treasurer at Arch Capital Group00:44:25Yes. Operator00:44:27Thank you. The next question comes from Wes Carmichael at Autonomous Research. Please go ahead. Wes CarmichaelSenior Analyst at Autonomous Research00:44:34Hey, good morning. In reinsurance, think you mentioned a couple of times of primary companies retaining more risk. Just hoping you could provide a little more color on what you're seeing from primaries and maybe where that's most pronounced? Nicolas PapadopouloCEO at Arch Capital Group00:44:47I think it's most pronounced in Alex ScottEquity Research Analyst at Barclays00:44:50the Nicolas PapadopouloCEO at Arch Capital Group00:44:50other property where we see it, some of the other lines of business like maybe energy and where results have been good, seeing commissions are good, but companies feel more comfortable with their results. So that's a normal trend that you see as you go through the hard market and you go through the Ingo and Clark is that people tend to retain more of the risk. They bought their reinsurance because they either wanted the volatility and they were a portion of the business, they were unsure of the performance as they have re underwritten their book. It's not unusual for people to feel more comfortable. I know Arch Insurance, that's what we do. Nicolas PapadopouloCEO at Arch Capital Group00:45:40When we are more comfortable with the risk, definitely buy more insurance. So we move the reinsurance as we would buy to an excess of loss, where we retain more of the premium. So I think we haven't seen a ton of quota share going through excess of loss, but we've definitely seen companies as they feel more comfortable with the risk or feel better about their financial situation, retaining more of the risk. And certainly on the structure, if you're related to the structure on the structure side, structure deals are usually capital related deals. So I think those deals last as long as the company is needs the surplus relief. Nicolas PapadopouloCEO at Arch Capital Group00:46:18If you go in a situation where they don't need the surplus relief anymore, then the deal goes away. Wes CarmichaelSenior Analyst at Autonomous Research00:46:26Thanks. That's helpful. And I think in mortgage, prepared remarks touched on headwinds of origination. Can you maybe just talk about what behavior you're seeing in that business? And are you seeing any potential leading indicators of recessionary activity at this point? François MorinCFO and Treasurer at Arch Capital Group00:46:42Too early. I mean, really too early. I mean, we can speculate. We do the work. We certainly have a view that, yes, I mean, recession, we have a severe recession and that impacts unemployment and home prices go down a little bit, that may have an impact on the performance of the book. François MorinCFO and Treasurer at Arch Capital Group00:47:01But we keep going back to the strong fundamentals, the high credit quality of the borrowers, home prices are there's a lot of equity that's been built up by the homeowners and their homes. So it's a vastly different situation than what we had back in 02/2008. So we're not to say that we don't worry about it because we do, but we're a lot more comfortable with our position. And for a stress scenario to generate or create significant hardship on Arch would take it would have to be very, very severe. So we're at this point, we're in a we think in a very good place. Wes CarmichaelSenior Analyst at Autonomous Research00:47:43Great. Thanks so much. François MorinCFO and Treasurer at Arch Capital Group00:47:44Yes. Operator00:47:47Thank you. The next question comes from Josh Shanker at Bank of America. Please go ahead. Joshua ShankerManaging Director & Equity Analyst at Bank of America Securities00:47:53Thank you for taking my question. Good morning, everybody. François MorinCFO and Treasurer at Arch Capital Group00:47:56Good morning. Joshua ShankerManaging Director & Equity Analyst at Bank of America Securities00:47:59Back in the fourth quarter, paid a big special dividend. You bought back a little stock. You bought back more stock this quarter. I, you know, I tend to find it difficult to parse paying special dividends and buying back stock at the same time. Either the return on the stock is attractive or you need to give money back to shareholders promptly because it's not so attractive. Joshua ShankerManaging Director & Equity Analyst at Bank of America Securities00:48:22A couple of things there. One, can you talk about well, about your philosophy, which is about three year ahead book value? But I've done a little bit of the math. And if if the three year ahead book value rule of thumb applies, the market is very much underestimating your earnings power for the next couple of years. Can you talk about the philosophy of buybacks versus dividends and what that means for this year and what you think about the attractiveness of the stock at this point? François MorinCFO and Treasurer at Arch Capital Group00:48:51Well, we like the stock, that's for sure. But I mean, the biggest obstacle, Josh, is truly the level of speed at which you can execute share buybacks. We have limits on daily trading volume, etcetera. So the main reason, if you put aside even if the price was right and you say, well, it's really attractive to buy at a certain level, The advantage of a dividend is you can execute a much bigger return of capital, I mean, instantly versus over a long period of time. So for us to buy back $1.9 of stock at the rate at which we can actually do it because of the restrictions we have would take a long time, at which point we'd accumulate more excess capital and you never catch up. François MorinCFO and Treasurer at Arch Capital Group00:49:42So that is, I think, important to realize that there's only so much we can do with share buybacks. Buybacks. When you get into what's the three year payback, yes, three year is a good metric for us that we follow. Do we have a different view of what the book value might be out in three years out than you do maybe, you know, and we we take a hard look at what we know about our business. But, you know, we're still within that roughly that three year payback period. François MorinCFO and Treasurer at Arch Capital Group00:50:15And and, we still think there's a lot of good runway for us to keep growing book value at a good clip for the next little while. So that gives us a lot of comfort that buying back stock at this price has been is a good way to return capital to shareholders. Joshua ShankerManaging Director & Equity Analyst at Bank of America Securities00:50:33If you started now, do you think you could execute $2,000,000,000 in buybacks before year end and preclude the need for a special dividend? Alex ScottEquity Research Analyst at Barclays00:50:44It would be hard. It would be hard. Okay. François MorinCFO and Treasurer at Arch Capital Group00:50:49I mean, there's ways you can kind of create some programs, but we like to retain the flexibility. We like to have optionality. So locking yourselves in, and that's true in everything we do. So to lock yourselves in, to making it public that we're buying back a certain amount at a certain price is something we try not to do. We like to be you know, opportunistic. François MorinCFO and Treasurer at Arch Capital Group00:51:14And, you know, it's it's something that we again, it's constantly something we we we, you know, we look at and try to optimize as best we can. Joshua ShankerManaging Director & Equity Analyst at Bank of America Securities00:51:25Well, thanks for being transparent about the behind the curtain, how the sausage is made. Alex ScottEquity Research Analyst at Barclays00:51:30Happy to do it. Thanks. Talk later. Operator00:51:36Thank you. The next question comes from Andrew Anderson at Jefferies. Please go ahead. Andrew AndersenEquity Research Vice President at Jefferies Financial Group00:51:42Hey, good morning. Just on the income from operating affiliates, I think it was $17,000,000 in the quarter. It was down a bit year over year. I think that's Summers and Coface. Can you maybe just talk about the moving pieces there and perhaps how you're thinking about full year? François MorinCFO and Treasurer at Arch Capital Group00:51:57Yes. CoFace has been very, very good. So it's been a great story for us. We're extremely happy with it. There could be some pressure with trade credit going forward, but that's, again, something we're keeping an eye on. François MorinCFO and Treasurer at Arch Capital Group00:52:14We don't have visibility or a ton of clarity on it. So really the drop in operating income from operating affiliates was mostly almost exclusively due to the Summers. And let's remember that Summers is effectively a sidecar to Archery. So you have wildfires this quarter. They impact us, and they impacted Summers as well. François MorinCFO and Treasurer at Arch Capital Group00:52:35There's a little bit of a kind of one off on the Bermuda tax that was reflected in the summer's financials Q1 of twenty twenty four that maybe makes the drop more significant than you would think otherwise. But as you look for the run rate, I'd say this quarter is a bit lower than what we normally think for the operating affiliates in general. And I think we're still looking. When you think about our returns, think plus or minus, like we're earning well into, call it, 10% range on these investments, if not more. And let's just say we have over $1,000,000,000 in assets there. François MorinCFO and Treasurer at Arch Capital Group00:53:24So hopefully, you can do the math from there. Andrew AndersenEquity Research Vice President at Jefferies Financial Group00:53:28That's helpful. And then just insurance expense ratio, I mean, was improvement in OpEx. But is full year 2024 still a good way to think about the rest of the year for the OpEx? Or is there still some headcount costs coming on? François MorinCFO and Treasurer at Arch Capital Group00:53:44I mean, that's it's a good place. We are, no question if I mean as we think about our growth and how we need to manage our expense base, we are being very thoughtful and diligent about do we need to replace people that resigned, do we have retirement, etcetera. So we I think we're going to get some benefits from the MC acquisition, like scale brings a little bit of leverage, a bit of a kind we can scale better. But no question that we're trying to hire still on the MC side. We wanna staff up with data scientists, and we need a bit new or a few more actuaries, etcetera. François MorinCFO and Treasurer at Arch Capital Group00:54:30But big picture, I think we're you know you know, we are watching our expenses, and that's something that will be a focus as we move forward. Andrew AndersenEquity Research Vice President at Jefferies Financial Group00:54:40Thank you. François MorinCFO and Treasurer at Arch Capital Group00:54:43Welcome. Operator00:54:45Thank you. The next question comes from Meyer Shields at KBW. Please go ahead. Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)00:54:51Great. Thanks. I think Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)00:54:52I have Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)00:54:52the same question in two contexts. I think Nicholas started or comments talking about the preference of brokers to work with fewer bigger insurers. And I'm wondering if you could talk about the volume versus profitability implications of that to companies like ARCs? Nicolas PapadopouloCEO at Arch Capital Group00:55:16Yes. I don't think the two are necessarily linked. Think in my view, the best place to talk about this is probably the London market. In the London market, the brokers because the business come to London, the main three brokers, controller have access to the business we arrive. So I think it's more of you know, supporting them where they need you to be supported and playing the role that you have to play that where where where you can align with their with their own strategy. Nicolas PapadopouloCEO at Arch Capital Group00:55:53And I think they, you know, if you think of the way they are organizing the market, having their own facilities, then they need leaders without leaders, nothing works. Then they have some follow facilities and then ultimately they have the open market that remains. I think you need to find a place. You can't service just one. I think if you service just one, you'll be the so you have to be able to figure out your distribution strategy is a key component of future success. Nicolas PapadopouloCEO at Arch Capital Group00:56:26That's what I'm saying. And I think we spent a ton of time thinking out how do we align better and where do we bring value to our distributors. And it varies. For the bigger distributors, it may be one thing. For a smaller distributor, mid market distributor, where they rely better on the expertise of art, it may be something different. Nicolas PapadopouloCEO at Arch Capital Group00:56:52So I think you have to really you have to be successful going forward. You really have to question the value you bring in the transaction. You can't just underwrite business. So the two components is that you have to do the underwriting to cycle thoughtfully. And but you have also to figure out what's your place in the food chain and what value you bring. Nicolas PapadopouloCEO at Arch Capital Group00:57:12So that's really the so we've done a lot of work and we're still thinking of this in a way that's less it's less about us, but it's less about the ultimately the customers. Without customers, we don't exist. So we need to provide value to the ultimate customers. That's how and that dynamic maybe playing out in London, it's playing out in North America. You can't just be sitting at your box in Lloyd's and waiting for the business to come to you and underwrite because you're not even sure that the business you're going to see is the one you want to write. Nicolas PapadopouloCEO at Arch Capital Group00:57:46That's the issue. Think if there is five people in front of you that are picking up the good business, now you're picking up from a part that by definition is not so good. So I think you to work hard and size matters and relationship matters and being able you can see the business you're really targeting. And that's where distribution strategy matter. Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)00:58:09Okay, perfect. That's very helpful. Second, on reinsurance, when you have cedents retaining more business, how do you deal with the risk of adverse selection when the cedent kind of decide a more educated seed because of the experience decides what they're going Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)00:58:26to keep and what they're Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)00:58:27going to be in share? Nicolas PapadopouloCEO at Arch Capital Group00:58:31A lot of the business is about adverse selection. The question is that insight into the business to understand why people are buying and does it make sense? And do you can you they have a need. And you have to we spend a lot of time and creating insight to figure out. There are needs that we are willing to insure or reinsure and there are things that we are unwilling to do because it's this I said before, I think we're looking for risk where we have upside that outweigh the downside. Nicolas PapadopouloCEO at Arch Capital Group00:59:05So that's one way to look at it. When you have only downside, you usually don't want to do those risks. And so I think that there is always that risk. Anti selection, it's a very dynamic market and auto selection is everywhere. So I think you have to factor that in into your selection in my view. Nicolas PapadopouloCEO at Arch Capital Group00:59:24So I think it's yes, you can't if you're on the right risk, a lot of what we you get told as an underwriter is more like a fairy tale. If you like fairy tales, you're not going to end up in a very successful underwriting shop. So I think you have to that's part of the job. The job is to have the insight to be able to ask the right questions and get to the answer and build the relationship with the clients where they come to you to concern that they have and where you can really provide value by either insuring or insuring them. Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)01:00:08Understood. Thank you so much. Nicolas PapadopouloCEO at Arch Capital Group01:00:09But you can't we have both sides of the house. I mean, the insurance side, yes, those people that we try to tell our guys to do the right thing. And if the risk is good, try to retain it. You have conviction about so if you for a while, you're not sure, so you buy reinsurance on a quota share basis. And ultimately, you over time, you build conviction that your underwriting guidelines work, your pricing is okay. Nicolas PapadopouloCEO at Arch Capital Group01:00:39At that point, you don't need the reinsurance. So you retain it net. And that there's nothing wrong about that. My view is that we should that's all the reinsurers play. Operator01:00:51Thank you. I'm not showing any further questions. Would you like to proceed with any further remarks? Nicolas PapadopouloCEO at Arch Capital Group01:00:59No. I think thank you. And I think another I think good quarter for us in a little bit more difficult or more competitive market. But I think we remain bullish about as I said in remarks to stand out. So I think we'll see you guys in next quarter. Operator01:01:21Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.Read moreParticipantsExecutivesNicolas PapadopouloCEOFrançois MorinCFO and TreasurerAnalystsMichael ZaremskiManaging Director & Senior Equity Research Analyst at BMO Capital MarketsCave MontazeriAnalyst at Deutsche BankElyse GreenspanManaging Director at Wells Fargo SecuritiesAndrew KligermanManaging Director at TD SecuritiesDavid MotemadenManaging Director & Sr. Equity Research Analyst - Insurance & Business Services at Evercore ISIAlex ScottEquity Research Analyst at BarclaysWes CarmichaelSenior Analyst at Autonomous ResearchJoshua ShankerManaging Director & Equity Analyst at Bank of America SecuritiesAndrew AndersenEquity Research Vice President at Jefferies Financial GroupMeyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)Powered by Conference Call Audio Live Call not available Earnings Conference CallArch Capital Group Q1 202500:00 / 00:00Speed:1x1.25x1.5x2xTranscript SectionsPresentationParticipants Earnings DocumentsPress Release(8-K) Arch Capital Group Earnings HeadlinesWells Fargo & Company Forecasts Strong Price Appreciation for Arch Capital Group (NASDAQ:ACGL) StockMay 4 at 2:32 AM | americanbankingnews.comQ2 EPS Estimates for Arch Capital Group Cut by Roth CapitalMay 3 at 2:19 AM | americanbankingnews.comThe Man I Turn to In Times Like ThisA storm is brewing in the markets: new tariffs, recession warnings, and panic in the headlines. That’s when publisher Brett Aitken turns to Whitney Tilson—a man CNBC once dubbed “The Prophet.” Tilson just released a new prediction that runs counter to what mainstream finance is telling you.May 5, 2025 | Stansberry Research (Ad)Roth Capital Issues Optimistic Estimate for ACGL EarningsMay 3 at 2:19 AM | americanbankingnews.comJMP Securities Reaffirms "Market Outperform" Rating for Arch Capital Group (NASDAQ:ACGL)May 2 at 2:29 AM | americanbankingnews.comArch Capital Group (NASDAQ:ACGL) Reaches New 12-Month Low on Disappointing EarningsMay 2 at 1:53 AM | americanbankingnews.comSee More Arch Capital Group Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Arch Capital Group? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Arch Capital Group and other key companies, straight to your email. Email Address About Arch Capital GroupArch 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.View Arch Capital Group ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Amazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2Palantir Earnings: 1 Bullish Signal and 1 Area of ConcernVisa Q2 Earnings Top Forecasts, Adds $30B Buyback PlanMicrosoft Crushes Earnings, What’s Next for MSFT Stock?Qualcomm's Earnings: 2 Reasons to Buy, 1 to Stay AwayAMD Stock Signals Strong Buy Ahead of Earnings Upcoming Earnings Palantir Technologies (5/5/2025)Vertex Pharmaceuticals (5/5/2025)Realty Income (5/5/2025)Williams Companies (5/5/2025)CRH (5/5/2025)Advanced Micro Devices (5/6/2025)American Electric Power (5/6/2025)Constellation Energy (5/6/2025)Marriott International (5/6/2025)Energy Transfer (5/6/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
PresentationSkip to Participants Operator00:00:00Good day, ladies and gentlemen, and welcome to the First Quarter twenty twenty five Arch Capital Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. Before the company gets started with its update, management wants to first remind everyone that certain statements in yesterday's press release and discussed on this call may constitute forward looking statements under the federal securities laws. Operator00:00:30These 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 2024 fiscal year. Additionally, certain statements contained in the call that are not based on historical facts are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends the forward looking statements in the call to be subject to the Safe Harbor created thereby. Operator00:01:15Management also will make reference to certain non GAAP measures of financial performance. The reconciliations to GAAP for each non GAAP financial measure can be found in the company's current report on Form eight ks furnished to the SEC yesterday, which contains the company's earnings press release and is available on the company's website at www.archgroup.com and on the SEC's website at www.sec.gov. I would now like to introduce your host for today's conference, Mr. Nicolas Papadopoulos and Mr. Francois Morin. Operator00:01:49Sirs, you may begin. Nicolas PapadopouloCEO at Arch Capital Group00:01:52Good morning, and welcome to Arch's first quarter earnings call. I'm pleased to report solid results for the quarter with $587,000,000 of after tax operating income, dollars 1.54 in operating earnings per share and an annualized operating return on equity of 11.5%. These results were achieved despite $547,000,000 of catastrophe losses affecting our Property and Casualty segment, primarily from the California wildfire. The P and C market has become increasingly competitive. However, we remain optimistic about our prospects as we continue to achieve broadly attractive rates across the sectors where we compete. Nicolas PapadopouloCEO at Arch Capital Group00:02:36At Arch, we believe that prioritizing expected profitability of our market share by allocating capital to lines of business with attractive risk adjusted returns gives us the best opportunity to outperform for the cycle. This is what we mean by cycle management, and we stand by the historical results of this approach. While the market may be more competitive, ample growth opportunities remain. This is true despite emerging macroeconomic concerns, including the potential impact of tariffs that increased uncertainty for many of our insured across the globe and raised inflationary risk for some of our businesses. During times such as these, risk selection is critical as a growing number of our previously attractive accounts no longer meet our return criteria. Nicolas PapadopouloCEO at Arch Capital Group00:03:25We believe the acumen of our underwriting teams, breadth of our platform, investment in data and analytics and depth of our financial resources have Arch well positioned to navigate the P and C cycle. Now we'll turn to our segment, starting with Reinsurance. Reinsurance results were solid despite substantial catastrophe losses in the quarter. A 91.8 combined ratio, inclusive of 18 points of catastrophe losses, demonstrates the strong underlying profitability of our diversified reinsurance portfolio. Growth in net premium written in the quarter was modest due to an increased level of competition, more risk retention by sealing companies and reducing our participation for treaties where margin no longer meet our hurdles. Nicolas PapadopouloCEO at Arch Capital Group00:04:13In the first quarter, the Reinsurance Group deployed additional capacity into property catastrophe lines where opportunities remain attractive, particularly in loss impacted account. Specialty premium rising declined primarily due to non renewing a large structured transaction. Weaker margin in cyber and part of our international treaty business also led to reduced premium writings. Treaty casualty lines experienced growth in the quarter as Archery capitalized on a handful of select opportunities. We are hopeful these lines will continue to achieve rate and that Treaty Casualty market terms and conditions will continue to improve. Nicolas PapadopouloCEO at Arch Capital Group00:04:52As we look towards midyear renewals, particularly wind coverage in Florida and The Gulf, we expect additional demand from existing and new clients. On the supply side, it is worth noting that for many reinsurers and the ILS funds, these zones represent peak exposure. As a result, significant additional capacity may be harder to come by, even if the market is more competitive on the margin. Moving to our Insurance segment, where the California wildfires led to a small underwriting loss for the quarter due in part to commercial risk from the recently acquired middle market commercial and entertainment businesses. The additional premium generated from those businesses contributed to the Insurance Group one point nine billion dollars of net premium return in the quarter, a 25% increase from the first quarter of twenty twenty four. Nicolas PapadopouloCEO at Arch Capital Group00:05:46The integration of the middle market business is progressing well and we remain excited about the increased capabilities this team brings to the Arch Insurance platform. As we've said before, there isn't one underwriting cycle, but many. In today's market, it's possible to deliver double digit growth in some lines, while experiencing similar declines in others. In the first quarter, we generated meaningful growth in casualty led sectors, including construction, national account and international casualty. At the same time, we experienced premium reduction in other lines of business due to rate decreases and our desire to maintain margin in lines such as E and S Property and Professional lines including Cyber. Nicolas PapadopouloCEO at Arch Capital Group00:06:31We have seen competition increasing in the London Market Specialty lines, which has made profitable growth difficult. Looking ahead, we expect continued growth in casualty lines as well as The U. S. Middle market, where opportunities remain for both freight and premium growth. We are well positioned across the Insurance Group because of our market leading capabilities and relevance with distribution partners that gives us first look at many opportunities. Nicolas PapadopouloCEO at Arch Capital Group00:06:58The mortgage segment continued to provide a steady earnings stream, contributing $252,000,000 of underwriting income in the first quarter. Economic uncertainty, limited housing supply and high relative mortgage rates continued to create headwinds for new mortgage origination, which resulted in modest new insurance return in our U. S. And international mortgage businesses. For USMI, high mortgage interest rates and home price appreciation have kept persistency around 82% and insurance in force relatively stable. Nicolas PapadopouloCEO at Arch Capital Group00:07:33The delinquency rates of our in force portfolio remains low, ending the quarter below 2%. Our near term outlook for the mortgage industry is unlikely to change significantly. While recessionary trends resulting from tariffs and other economic policy could create headwinds, we still expect the mortgage segment to continue generating attractive underwriting income given the high credit quality and embedded equity of our in force portfolio. Turning to our Investment Group, where invested assets increased by 4% from year end to $43,100,000,000 providing a large sustainable contributor to group earnings. Investment market volatility increased broadly, leading us to reposition our portfolio to a more market neutral position. Nicolas PapadopouloCEO at Arch Capital Group00:08:19To manage the cycle, it's important to understand that you cannot control the market, but you can control how your underwriting teams respond to it. At ART, we manage the different cycle across our many lines with the ability of our underwriters to access, analyze and ultimately select risk. Over time, our underwriting teams have built strong relationships with our distribution partners, which gives us an access advantage as they look to place risk with fewer, more relevant carriers, including Arch. Risk analysis combines experience, expertise and deep analytical insight to understand and assess the underlying risk and match it with a technical price that reflect an adequate premium for that risk. Ultimately, risk selection is what separates the winners from the losers. Nicolas PapadopouloCEO at Arch Capital Group00:09:09If the return doesn't adequately account for the risk, you must be willing to let others take the business. The P and C market in transition is one where Arch can and has previously demonstrated its ability to find success. While premium growth may be more challenging than in recent years, plenty of profitable opportunities remain. For a company with a strong underwriting culture like Arch, this is a market where we can stand out and continue to maximize returns for our shareholders. Francois? François MorinCFO and Treasurer at Arch Capital Group00:09:43Thank you, Nicolas, good morning to all. Last night, we reported our first quarter results with after tax operating income of $1.54 per share, resulting in an annualized operating return on average common equity of 11.5% and growth in book value per share of 3.8% for the quarter. At a high level, our three business segments delivered excellent underlying results with an overall ex cap accident year combined ratio of 81 and importantly each of our segments showing an improvement for that metric over the same quarter one year ago. Our underwriting income included $167,000,000 of favorable prior year development on a pretax basis in the quarter or four points on the overall combined ratio. We recognized favorable development across all three of our segments and in many lines of our many of our lines of business, but the effect was most notable in short tail lines in our Reinsurance segment and in mortgage due to strong cure activity. François MorinCFO and Treasurer at Arch Capital Group00:10:50The acquisition of the Midcorp and Entertainment Insurance businesses continues to roll through our financial metrics within the Insurance segment. This quarter, the net premiums written coming from the acquired businesses was $373,000,000 contributing 24.2 points to the reported year over year premium growth for the segment and generally consistent with last quarter. Also, the inclusion of the acquired business in the segment's results lowered the current accident year ex cat combined ratio by 1.1 points. This can be further broken down to include the current quarter acquisition expense ratio that was lowered by 0.9 points due to the write off of deferred acquisition costs for the acquired business at closing under purchase GAAP. The other operating expense ratio that was lowered by 0.9 points and the accident year ex cat loss ratio that ended up being 0.7 points higher reflecting the underlying results of the acquired business. François MorinCFO and Treasurer at Arch Capital Group00:11:54The quarter over quarter comparison of net premiums written for the Reinsurance segment showing growth of 2.2% was also impacted by a few items. Of note, this quarter's net premiums written includes approximately $70,000,000 of reinstatement premiums, mostly related to the California wildfires. Offsetting this benefit was the non renewal of large structured transactions in the specialty line of business, which reduced our top line by $147,000,000 in the quarter. There were also some timing differences in the recognition of certain treaty renewals, which resulted in lower net premiums written in the quarter of approximately $103,000,000 Our mortgage segment delivered yet again another very strong quarter with underwriting income of $252,000,000 Even though the origination environment remains challenged, the underlying fundamentals of the business are excellent as exhibited by most of our key metrics, including a very low delinquency rate for our USMI business, which currently stands at 1.96%. On the investment front, we earned a combined $431,000,000 pretax from net investment income and income from funds accounting using the equity method or $1.13 per share pretax. François MorinCFO and Treasurer at Arch Capital Group00:13:24The reduction in net investment income relative to last quarter is attributable to a few items including the impact of paying a $1,900,000,000 special dividend in December, the timing of incentive compensation expenses, slightly lower interest rates in the quarter and the repositioning of our portfolio to a lower risk posture in light of the current macroeconomic uncertainty. Income from operating affiliates was down this quarter, mostly due to a lower level of affiliate income at Summers Re in part as a result of the California wildfires. Cash flow from operations remained strong. It was approximately $1,500,000,000 for the quarter. Our effective tax rate on pretax operating income was an expense of 11.7% for the quarter and reflects a one time discrete benefit of 4.6% related to differences in the expensing of non cash compensation. François MorinCFO and Treasurer at Arch Capital Group00:14:24Also, it is worth mentioning that we started to amortize this quarter the deferred tax asset we established at the end of twenty twenty three related to the introduction of the Bermuda corporate income tax. This benefit does not impact our operating or our net income effective tax rates in the period, but as we mentioned previously, will flow through our financials as a reduction to pay taxes. As of January 1, our peak zone natural cap probable maximum loss for a single event, one and two fifty year return level on a net basis increased slightly and now stands at 9% of tangible shareholders' equity. Our PML remains well below our internal limits. On the capital management front, we repurchased $196,000,000 worth of our common shares in the first quarter and an additional $100,000,000 in April, demonstrating our ongoing disciplined approach to managing our capital to enhance shareholder returns. François MorinCFO and Treasurer at Arch Capital Group00:15:24In closing, our balance sheet remains extremely strong with common shareholders' equity of $20,700,000,000 and a debt plus preferred to capital ratio remains low at 14.7%. With these introductory comments, we are now prepared to take your question. Operator00:15:43Thank The first question comes from Mike Zaremski at BMO. Please go ahead. Michael ZaremskiManaging Director & Senior Equity Research Analyst at BMO Capital Markets00:16:13Hey, good morning. Thanks. I guess, thanks for all the insightful market commentary. On the reinsurance group deploying additional capacity into catastrophe lines, you said that loss impacted accounts remain particularly attractive. Should we be I guess we'll think through kind of the how to change our loss ratio a bit if you kind of feel like you're going to continue leaning in. Michael ZaremskiManaging Director & Senior Equity Research Analyst at BMO Capital Markets00:16:46Any kind of update to your cat load guide? I believe it was seven to eight points when you updated us last. Should we expect the number to move up a bit? François MorinCFO and Treasurer at Arch Capital Group00:17:01I don't think so. I think the number should be relatively stable. I mean full year cat load, obviously there's seasonality to it. As we look at market conditions, we certainly had thought that after the California wildfires, there might be a little bit of a I think François MorinCFO and Treasurer at Arch Capital Group00:17:22a François MorinCFO and Treasurer at Arch Capital Group00:17:22more some stabilization in that market, which we think will happen, although as we touch on, I think Florida is its own different market, right? So a little bit early for us to know exactly how Florida is going to ultimately perform or what opportunities we're going to see there. But big picture, I think what we saw at the start of the year seems to be holding up pretty well. Nicolas PapadopouloCEO at Arch Capital Group00:17:48I agree. I think the Florida outlook as we see it is for the reason I described in my comment is pretty flattish. So I think we like the business. I think there's if our teams again, we don't know, but if our teams find opportunities to grow and we expect more demand in the marketplace for several reasons. I the FHEF is raising the retention by $1,000,000,000 And I think they we're seeing more cedent wanting to increase their limits, things that they haven't been able to do in the last few years because of the lack of capacity. Nicolas PapadopouloCEO at Arch Capital Group00:18:29So we think an opportunity to potentially do more if the rates hold up. Michael ZaremskiManaging Director & Senior Equity Research Analyst at BMO Capital Markets00:18:38Got it. Okay. Switching gears to market competition outside of reinsurance, I think the common theme has been in recent quarters that large account property is well priced and we're seeing some more meaningful downward pressure. You mentioned in your prepared remarks the London specialty market as well. Maybe can you kind of unpack what you mean by the London specialty market? Michael ZaremskiManaging Director & Senior Equity Research Analyst at BMO Capital Markets00:19:11And maybe kind of help frame which lines in particular are the clock isn't where you'd want to grow as much? Nicolas PapadopouloCEO at Arch Capital Group00:19:25Yes. I think in London, what's happening, I mean, it's twofold. First, I think we've after years of good results, more appetite for people to expand in line like Terror, Marine and Energy, the typical species, the typical lines of business that are returned historically out of Lloyd's. And also, I think what we are seeing is London is kind of the excess and surplus market of the rest of the world. And so we're seeing as companies in their local market become more comfortable with their risk, their appetite expand. Nicolas PapadopouloCEO at Arch Capital Group00:20:09And so there is a little bit less business coming from Australia, from the Asia, from jurisdiction that historically relies on Lloyd's as the appetite of their local companies get diminished. So that's what we're seeing. We're the combination of the two. I mean the tailwinds for us and a few other markets is that the market is consolidating around leaders. And so I think we lead in many of our lines of business. Nicolas PapadopouloCEO at Arch Capital Group00:20:44So it's difficult to predict. It's come out, but we feel positive about how we are positioned to continue to take advantage of the market there. Michael ZaremskiManaging Director & Senior Equity Research Analyst at BMO Capital Markets00:20:55Thanks for the color. François MorinCFO and Treasurer at Arch Capital Group00:20:58Welcome. Operator00:21:00Thank you. The next question comes from Kev Montesari at Deutsche Bank. Please go ahead. Cave MontazeriAnalyst at Deutsche Bank00:21:06Thank you. My first question is going to be on net premium growth in reinsurance. I think it's pretty clear that those days of 30% plus growth in NPWR are behind us now as you become more selective. I'm assuming also 2.2% growth it's probably a little bit too low to expect going forward. So can you maybe unpack some of the key drivers of the deceleration you saw in the quarter? Cave MontazeriAnalyst at Deutsche Bank00:21:35Maybe give us a bit more details on the impact of the structured deals, Just to give us help us understand maybe where how we should think about that going forward in terms of premium growth in reinsurance? François MorinCFO and Treasurer at Arch Capital Group00:21:49Yes. I mean, touched on it in my comments, There's a couple of items. If you adjust for what we mentioned, again, we're not trying to do the but fours and adjust for everything. But if adjust for those two things, you still get to a call it like 6%, seven % growth rate, which may be more consistent with what we see in the near future. But beyond that, I'd say there's really a separation like there's we had good growth in property other than property cap and in property cap and in casualty. François MorinCFO and Treasurer at Arch Capital Group00:22:23Where we saw some decreases is on the specialty line beyond the structured and the timing of accruals on written premium. And there, I'd say it's a function of some of the lines or some of the smaller specialty lines that we participate in where there's been more competition. Cyber is a prime example of that. It's a combination of rates coming down a little and also of some of our seeding companies retaining more of the risk. So, you know, that that's how I I'd say, like, you know, midterm, yeah, you're right. François MorinCFO and Treasurer at Arch Capital Group00:22:57The 30% growth is probably behind us, but for the for the near term at least. But, you know, these couple of things help you kind of reconcile a little bit like from the 2.2% to a what you may perceive to be a more kind of realistic expected growth for the rest of the year. Nicolas PapadopouloCEO at Arch Capital Group00:23:18Yes. I think in the specialty book, you have a mix of lines of business. I mean, it goes from credit to cyber to agriculture and a few others. So our team are really scouting the world to find opportunities. So we had a great opportunity in Brazil last year on the agriculture side. Nicolas PapadopouloCEO at Arch Capital Group00:23:39And this year, The Zealand is winning more of the business. So I think you have to be opportunistic in those lines of business to make money. So yes, if we have a big book, the ups and downs offset each other. And in the last few years, it grew together because it was what the hard market does. I think we should be prepared to see more ups and downs quarter by quarter going forward in that particular book. Nicolas PapadopouloCEO at Arch Capital Group00:24:04That's what we want them to do. Cave MontazeriAnalyst at Deutsche Bank00:24:07Well, thanks. That's very good, very helpful color. My second question is on casualty. Last year, a big theme was just the strengthening in casualty reserves at the industry level. We haven't seen much of that so far in 2025. Cave MontazeriAnalyst at Deutsche Bank00:24:24I think some people are thinking maybe we might be past the point of maximum fear with regard to social inflation. Just wondering like what your thoughts are. Do you agree with that? What do you think? We're just in the eye of the storm and there's more pain to come in the second half of twenty twenty five. Nicolas PapadopouloCEO at Arch Capital Group00:24:44My prediction is that I don't know when the pain will come, but it will come. There's more pain. That would be my how people manage the pain, and I can tell, but we think the casualty, social inflation story has not fully played out. I think that's our view. And we're still we were getting definitely right above trend on our casualty line and where we feel comfortable with the exposure, the jurisdiction, the type of terms and conditions that we get, I think we're willing to lean in, but I don't think we are still at the case where it's a market that you can take a share of it and guarantee that you're going to make an adequate return. Nicolas PapadopouloCEO at Arch Capital Group00:25:37So I think there's more to come. That would be our general underwriting view. Cave MontazeriAnalyst at Deutsche Bank00:25:46Very clear. Thank you. Nicolas PapadopouloCEO at Arch Capital Group00:25:50Welcome. Operator00:25:51Thank you. The next question comes from Elyse Greenspan at Wells Fargo. Please go ahead. Elyse GreenspanManaging Director at Wells Fargo Securities00:25:57Hi, thanks. Good morning. My first one, I think is a quick one. Francois, the 7% adjusted growth in reinsurance that you were talking about in the quarter, is that excluding reinstatements and the structure deals? I just want to make sure I understand what you're backing out. François MorinCFO and Treasurer at Arch Capital Group00:26:16No. I'm just putting back in the two two two items I I mentioned. That's all. So the the the the the I'm not backing out the reinstatement. I'm just, you know, adding back the the nonrenew deals and the timing of the accruals on some business. Elyse GreenspanManaging Director at Wells Fargo Securities00:26:36Okay. Got it. And then my second question is on the commentary around the mid years. It sounds like you're expecting perhaps some opportunity on the demand side. What about pricing? Elyse GreenspanManaging Director at Wells Fargo Securities00:26:50I guess, are you guys expecting that price is probably down, but that there could be some growth opportunities just with demand? Can you help me think through those two pieces? Nicolas PapadopouloCEO at Arch Capital Group00:27:01So clearly, it is the data point at fourone where single digit down most places, maybe a bit more than that in Japan due to I think one of the players buying less, which the market scrambled around that. But I think the dynamic in Florida is as I said in my remark, is a little different because it's a big zone for most market. And the dynamic is people like the top players, but not that many top players and people didn't like the bottom of the program. There's not as much. And what we've seen in the past and we're seeing still today is bottom of the programs, which have been impacted by the loss last year, the hurricane last year, Milton, we'd expect those probably to see some price increase. Nicolas PapadopouloCEO at Arch Capital Group00:28:01And would that be compensated by price decrease at the top of the market at the top of the program, I don't know. But I think that's why I think our view is if things plays out the way they should, which they never do, we would expect something more flattish for Florida. And at that point, we feel that based on our positioning and we should be able at least to keep our share of the programs that are buying more and therefore we may have opportunity to deploy more capital. Elyse GreenspanManaging Director at Wells Fargo Securities00:28:36Okay. And then one last one in insurance, if I kind of ex out mid corp, you got I think around like a 56.7 underlying loss ratio think that was slightly below the Q4. Is that about like run rate ish, I guess, on core Arch, right? And then we think about bringing in mid corp on top? Or anything else we need to think about just with pricing and loss trend and dynamics on the margin as we go through the year? François MorinCFO and Treasurer at Arch Capital Group00:29:07Well, I mean, it for the legacy Arch book, I mean, it's at a high level, we'd say that our margins are holding up in terms of rate above trend kind of being kind of keeping us steady. The one thing though that you have to factor in somehow is the mix is changing, right? As we pivot a little bit more into casualty, you might see that underlying loss ratio go up a little bit as we see more competition on the property. And we mentioned it like a lot of our growth was in the casualty led kind of lines of business or profit units for us. So that might be the only thing. François MorinCFO and Treasurer at Arch Capital Group00:29:51But big picture, we still think the loss ratio that we were we had this quarter is seeing there is no reason why it can't hold up at that level. Elyse GreenspanManaging Director at Wells Fargo Securities00:30:02Thank you. François MorinCFO and Treasurer at Arch Capital Group00:30:04You're welcome. Operator00:30:07Thank you. The next question comes from Andrew Kligerman at TD Securities. Please go ahead. Andrew KligermanManaging Director at TD Securities00:30:13Hey, good morning. First question is around the reserving. It looked like you had some nice favorable developments, particularly in reinsurance. But could you call out anything around commercial auto and other liability net plus or minus in both insurance and reinsurance? How did that perform? Andrew KligermanManaging Director at TD Securities00:30:36How do you feel about the reserving in those lines going forward? François MorinCFO and Treasurer at Arch Capital Group00:30:43Great question. We our reserves are something we again, we mentioned before, we look at it every quarter. The actual versus expected that we monitor very carefully is looking good. But for us, it's a little bit early to call it victory. So we're monitoring everything, plus and minuses. François MorinCFO and Treasurer at Arch Capital Group00:31:03Yes, there's always going to be the finer if you slice that down to very fine levels, there are some pockets where we took a little bit of adverse, which were offset by others where we had some good favorable coming through. But big picture, I'd say we're flattish. I mean everything on the casualty kind of long tail side, auto and some of the more difficult lines, as you mentioned, umbrella, etcetera, we're comfortable with what the reserve what the indications are. Andrew KligermanManaging Director at TD Securities00:31:34Okay. And so that's good to hear. And then maybe shifting, this is sort of a two part question. Being clearly the acclaimed cycle manager that you are, could you share a little color on and maybe and I know, Nicholas, you mentioned many different cycles, but maybe very broadly two cycles, casualty and property, maybe we'll even skip professional or you could throw that in if you want. But how do you see those cycles playing out as we sit here today? Andrew KligermanManaging Director at TD Securities00:32:10How much longer will we see property pricing come down? How much longer can casualty pricing hold up? I know it's a really tough question, but be really interested in your response on that. And then the second part is just what are you seeing with MGAs today? Are they still proliferating? Andrew KligermanManaging Director at TD Securities00:32:30Are they still very competitive? And I'll stop there. That was a lot of questions. Sorry for that. Nicolas PapadopouloCEO at Arch Capital Group00:32:36The two are intertwined. Might take a lot to answer, but those are actually questions. Yes. I'll start on the property side and I'll start on the I mean, the reinsurance side, I think my view is that the market is more disciplined. So I think we've seen rate decrease. Nicolas PapadopouloCEO at Arch Capital Group00:33:00But from peak of the market. So I think the market remain attractive. We haven't seen any really actors behaving in a totally irrational way. The new guys are coming, but they're small. And so I think really we've been very optimistic about the property cat and the way the industry behaves in general on that aspect. Nicolas PapadopouloCEO at Arch Capital Group00:33:29If you move to the cat, the property in general and especially the E and S property and the North American E and S properties, I think you have a there you have a tale of two markets. I think you have the middle market more, I would say, admitted retail where the convexity storm and some of the recent cat element, I would say, will include the wildfire to a certain extent, keep putting pressure on the companies and they have to keep on getting rates to make sure that they cover their cat load, which had gone up in the last few years. And then you have the more the E and S, cat, coastal and maybe earthquake driven risk, where that's where the MGAs play a bigger role. So I think the market has responded to my surprise very quickly giving up double digit rate increases. We went through in and everybody was surprised. Nicolas PapadopouloCEO at Arch Capital Group00:34:39Big Limits was really something that people didn't like and took a ton of losses. So I think the market became in 2023 much more disciplined and cut limits, which really pushed when people when the capacity withdraw, that's where you see rates going up. So we got a huge upswing, re underwriting, terms and conditions. And I think a year or one point years later, I think we've seen NGS, which their capacity had been curtailed, coming back with much bigger limits. And if you think of a typical risk, it's a $200,000,000 risk where you needed probably 20 markets or more to complete. Nicolas PapadopouloCEO at Arch Capital Group00:35:29And let's say, was doing the first ten or was doing the 10x 10 and then an MGA come in and they do 40, it creates a complete run for the hill in terms of if you I just say, ours was 10 X 10 and then MGA the MGA had $10,000,000 capacity and then now they have $40,000,000 So what do we do? We run for the hill and we're trying to reposition our $10,000,000 elsewhere in the program and that creates the huge pressure on the rates that we've seen. And I think capacity of MGAs have gone up this year. So I think they play a big role in my view in how quickly the market turned to be much more competitive. That's what I see. Andrew KligermanManaging Director at TD Securities00:36:18And same thing on casualty? Nicolas PapadopouloCEO at Arch Capital Group00:36:21So on casualty, there's less NGOs. I think on casualty, I think what you've seen is to go back into property, think when you see markets like us increasing capacity, maybe we increase capacity for 10 to 15. We don't go from 10 to 40. Think so if you go on the casualty side of the house now, whether it's E and S or you've seen the same thing. You've seen response to typical losses is reduction of limit. Nicolas PapadopouloCEO at Arch Capital Group00:36:48You want prices to be applied to a multiple risk of business to create the diversification and the lower large number works better. So I think that's what we've seen. And the reduction of the capacity and the usual limit from 50s to 25s and to 15s have created this opportunity, especially on the excess side for rates to go up. I think we haven't seen a ton of people in fact, we're seeing people still reducing limit. So this tells me that the runway to a more competitive marketplace is going to be longer. Andrew KligermanManaging Director at TD Securities00:37:26Got it. Thank you. Operator00:37:30Thank you. The next question comes from David Motemaden at Evercore ISI. Please go ahead. David MotemadenManaging Director & Sr. Equity Research Analyst - Insurance & Business Services at Evercore ISI00:37:38Hey, good morning. I had a question on the $147,000,000 of structured deals that were non renewed. Just so I'm thinking about it correctly, were there any other chunkier quarters in 2024 that we should think about where, like, there were chunky structured deals that might not renew as we go through the rest of 2025? François MorinCFO and Treasurer at Arch Capital Group00:38:08I mean, François MorinCFO and Treasurer at Arch Capital Group00:38:12there's always some chunky books or deals that we write throughout the year. I mean, what we don't know is whether they'll reappear or will they'll they may renew at the same thing at the same level, same kind of structure for another year. So hard to know what the impact may or may not be for the rest of the year. Again, we're just trying to give you a bit of additional information on how the premium is why it's going up or Sometimes it works in our favor in the sense that, yes, we write new deals that are significant and improve or increase the growth or the reported growth. But in this case, it was different. François MorinCFO and Treasurer at Arch Capital Group00:38:55So these are I'd say, though, they're on the larger side. I mean, it's unusual that we don't have that many deals that are that have that much premium associated with them. David MotemadenManaging Director & Sr. Equity Research Analyst - Insurance & Business Services at Evercore ISI00:39:09Yep. Got it. Okay. Thanks. And thanks for that color. David MotemadenManaging Director & Sr. Equity Research Analyst - Insurance & Business Services at Evercore ISI00:39:11And then on the insurance underlying loss ratio, I think last quarter you spoke about it running at around the 58 level going forward. It obviously came in nicely below that this quarter. I'm wondering, was there anything that drove that? It sounded like you split it out between the legacy Arch and MCE. Was there more improvement on the MCE side? David MotemadenManaging Director & Sr. Equity Research Analyst - Insurance & Business Services at Evercore ISI00:39:41Is that something we can expect to continue? So maybe some color around that would be helpful. François MorinCFO and Treasurer at Arch Capital Group00:39:48Yes, hard to say. I think I'd say the quarterly numbers matter, but we don't overly put too much weight on them. I'd say we want to make sure we have a longer term view of what underlying profitability of the book is. So I would not factor in or expect any significant movements up or down, let's say, from for either the MC or the legacy business. And as you know, I mean, last year, we had the Baltimore Bridge, which impacted the loss ratio upward. François MorinCFO and Treasurer at Arch Capital Group00:40:25We didn't have that this quarter. So there's always going to be the random element of a couple of large claims here and there that may that have an impact ultimately on the quarterly loss ratio. So big picture, we're going to we call it a fairly stable environment, and we always expect a little bit of volatility from quarter to quarter depending on what happens. David MotemadenManaging Director & Sr. Equity Research Analyst - Insurance & Business Services at Evercore ISI00:40:49Understood. Thank you. François MorinCFO and Treasurer at Arch Capital Group00:40:50Yes. Operator00:40:53Thank you. The next question comes from Alex Scott at Barclays. Please go ahead. Alex ScottEquity Research Analyst at Barclays00:40:58Hi, good morning. I thought I'd see if you could provide a little more commentary on what you're seeing in the property cat reinsurance market. And I guess specifically, what's your view of the impact of ILS? Is the pricing pressure more at the top end of the tower? Any commentary on sort of the way it's affecting these towers and where you play in them? Alex ScottEquity Research Analyst at Barclays00:41:24Thanks. Nicolas PapadopouloCEO at Arch Capital Group00:41:25Yes. So the what we've seen and what seems to continue to happen is what you described, more pressure at the top. We've seen the cat bond market being repriced to lower margin. So I think that put pressure also to the layer below the cat bond market. And obviously, there hasn't been any losses on those layers, where at the bottom of the program between the California wildfire on nationwide account and some of the storms that we've seen, we have had losses. Nicolas PapadopouloCEO at Arch Capital Group00:42:00So I think the more, I would say, the place where price decrease seems to be the focusing is really at the top of the program. I think we Florida is going to be more complicated because I think, again, there's not that much supply in the marketplace. So I would expect it to maybe not be as strong as maybe in the Northeast Region where you haven't had a loss in any of the top players or middle to top players for a long time and people see that. So I think but yes, I think the what you described is we expect it to if something is going to happen, and my view is that's what's going to happen. It's probably more pressure at the top of the program and maybe less moderate pressure at the bottom. Alex ScottEquity Research Analyst at Barclays00:43:01Got it. That's helpful. Next one on capital management. I mean, you guys had very strong capitalization and growth slowing a little bit just given the environment. How do you think about priorities there? Alex ScottEquity Research Analyst at Barclays00:43:16And how quickly can I ramp up capital return if you don't get the opportunity to grow in the mid year? François MorinCFO and Treasurer at Arch Capital Group00:43:27Yes. Mean, it's something we look at constantly. It's part of the same framework. We've always had no question that if the growth moderates, which is it's starting to and we still have solid earnings coming through, we'll probably be in a position where we accumulate a bit more excess capital and we'll probably be looking to return most of it back to our shareholders. So there could be some small M and A. François MorinCFO and Treasurer at Arch Capital Group00:43:55There could be some other things that come our way. But at a high level, you could certainly, I think it's reasonable for us to think that we'd be returning a significant amount of capital as we move forward. We had our special dividend late last year. We obviously like share buybacks a lot. And given the if the pricing and the metrics work for us, we're happy to do that. Alex ScottEquity Research Analyst at Barclays00:44:23Thank you. François MorinCFO and Treasurer at Arch Capital Group00:44:25Yes. Operator00:44:27Thank you. The next question comes from Wes Carmichael at Autonomous Research. Please go ahead. Wes CarmichaelSenior Analyst at Autonomous Research00:44:34Hey, good morning. In reinsurance, think you mentioned a couple of times of primary companies retaining more risk. Just hoping you could provide a little more color on what you're seeing from primaries and maybe where that's most pronounced? Nicolas PapadopouloCEO at Arch Capital Group00:44:47I think it's most pronounced in Alex ScottEquity Research Analyst at Barclays00:44:50the Nicolas PapadopouloCEO at Arch Capital Group00:44:50other property where we see it, some of the other lines of business like maybe energy and where results have been good, seeing commissions are good, but companies feel more comfortable with their results. So that's a normal trend that you see as you go through the hard market and you go through the Ingo and Clark is that people tend to retain more of the risk. They bought their reinsurance because they either wanted the volatility and they were a portion of the business, they were unsure of the performance as they have re underwritten their book. It's not unusual for people to feel more comfortable. I know Arch Insurance, that's what we do. Nicolas PapadopouloCEO at Arch Capital Group00:45:40When we are more comfortable with the risk, definitely buy more insurance. So we move the reinsurance as we would buy to an excess of loss, where we retain more of the premium. So I think we haven't seen a ton of quota share going through excess of loss, but we've definitely seen companies as they feel more comfortable with the risk or feel better about their financial situation, retaining more of the risk. And certainly on the structure, if you're related to the structure on the structure side, structure deals are usually capital related deals. So I think those deals last as long as the company is needs the surplus relief. Nicolas PapadopouloCEO at Arch Capital Group00:46:18If you go in a situation where they don't need the surplus relief anymore, then the deal goes away. Wes CarmichaelSenior Analyst at Autonomous Research00:46:26Thanks. That's helpful. And I think in mortgage, prepared remarks touched on headwinds of origination. Can you maybe just talk about what behavior you're seeing in that business? And are you seeing any potential leading indicators of recessionary activity at this point? François MorinCFO and Treasurer at Arch Capital Group00:46:42Too early. I mean, really too early. I mean, we can speculate. We do the work. We certainly have a view that, yes, I mean, recession, we have a severe recession and that impacts unemployment and home prices go down a little bit, that may have an impact on the performance of the book. François MorinCFO and Treasurer at Arch Capital Group00:47:01But we keep going back to the strong fundamentals, the high credit quality of the borrowers, home prices are there's a lot of equity that's been built up by the homeowners and their homes. So it's a vastly different situation than what we had back in 02/2008. So we're not to say that we don't worry about it because we do, but we're a lot more comfortable with our position. And for a stress scenario to generate or create significant hardship on Arch would take it would have to be very, very severe. So we're at this point, we're in a we think in a very good place. Wes CarmichaelSenior Analyst at Autonomous Research00:47:43Great. Thanks so much. François MorinCFO and Treasurer at Arch Capital Group00:47:44Yes. Operator00:47:47Thank you. The next question comes from Josh Shanker at Bank of America. Please go ahead. Joshua ShankerManaging Director & Equity Analyst at Bank of America Securities00:47:53Thank you for taking my question. Good morning, everybody. François MorinCFO and Treasurer at Arch Capital Group00:47:56Good morning. Joshua ShankerManaging Director & Equity Analyst at Bank of America Securities00:47:59Back in the fourth quarter, paid a big special dividend. You bought back a little stock. You bought back more stock this quarter. I, you know, I tend to find it difficult to parse paying special dividends and buying back stock at the same time. Either the return on the stock is attractive or you need to give money back to shareholders promptly because it's not so attractive. Joshua ShankerManaging Director & Equity Analyst at Bank of America Securities00:48:22A couple of things there. One, can you talk about well, about your philosophy, which is about three year ahead book value? But I've done a little bit of the math. And if if the three year ahead book value rule of thumb applies, the market is very much underestimating your earnings power for the next couple of years. Can you talk about the philosophy of buybacks versus dividends and what that means for this year and what you think about the attractiveness of the stock at this point? François MorinCFO and Treasurer at Arch Capital Group00:48:51Well, we like the stock, that's for sure. But I mean, the biggest obstacle, Josh, is truly the level of speed at which you can execute share buybacks. We have limits on daily trading volume, etcetera. So the main reason, if you put aside even if the price was right and you say, well, it's really attractive to buy at a certain level, The advantage of a dividend is you can execute a much bigger return of capital, I mean, instantly versus over a long period of time. So for us to buy back $1.9 of stock at the rate at which we can actually do it because of the restrictions we have would take a long time, at which point we'd accumulate more excess capital and you never catch up. François MorinCFO and Treasurer at Arch Capital Group00:49:42So that is, I think, important to realize that there's only so much we can do with share buybacks. Buybacks. When you get into what's the three year payback, yes, three year is a good metric for us that we follow. Do we have a different view of what the book value might be out in three years out than you do maybe, you know, and we we take a hard look at what we know about our business. But, you know, we're still within that roughly that three year payback period. François MorinCFO and Treasurer at Arch Capital Group00:50:15And and, we still think there's a lot of good runway for us to keep growing book value at a good clip for the next little while. So that gives us a lot of comfort that buying back stock at this price has been is a good way to return capital to shareholders. Joshua ShankerManaging Director & Equity Analyst at Bank of America Securities00:50:33If you started now, do you think you could execute $2,000,000,000 in buybacks before year end and preclude the need for a special dividend? Alex ScottEquity Research Analyst at Barclays00:50:44It would be hard. It would be hard. Okay. François MorinCFO and Treasurer at Arch Capital Group00:50:49I mean, there's ways you can kind of create some programs, but we like to retain the flexibility. We like to have optionality. So locking yourselves in, and that's true in everything we do. So to lock yourselves in, to making it public that we're buying back a certain amount at a certain price is something we try not to do. We like to be you know, opportunistic. François MorinCFO and Treasurer at Arch Capital Group00:51:14And, you know, it's it's something that we again, it's constantly something we we we, you know, we look at and try to optimize as best we can. Joshua ShankerManaging Director & Equity Analyst at Bank of America Securities00:51:25Well, thanks for being transparent about the behind the curtain, how the sausage is made. Alex ScottEquity Research Analyst at Barclays00:51:30Happy to do it. Thanks. Talk later. Operator00:51:36Thank you. The next question comes from Andrew Anderson at Jefferies. Please go ahead. Andrew AndersenEquity Research Vice President at Jefferies Financial Group00:51:42Hey, good morning. Just on the income from operating affiliates, I think it was $17,000,000 in the quarter. It was down a bit year over year. I think that's Summers and Coface. Can you maybe just talk about the moving pieces there and perhaps how you're thinking about full year? François MorinCFO and Treasurer at Arch Capital Group00:51:57Yes. CoFace has been very, very good. So it's been a great story for us. We're extremely happy with it. There could be some pressure with trade credit going forward, but that's, again, something we're keeping an eye on. François MorinCFO and Treasurer at Arch Capital Group00:52:14We don't have visibility or a ton of clarity on it. So really the drop in operating income from operating affiliates was mostly almost exclusively due to the Summers. And let's remember that Summers is effectively a sidecar to Archery. So you have wildfires this quarter. They impact us, and they impacted Summers as well. François MorinCFO and Treasurer at Arch Capital Group00:52:35There's a little bit of a kind of one off on the Bermuda tax that was reflected in the summer's financials Q1 of twenty twenty four that maybe makes the drop more significant than you would think otherwise. But as you look for the run rate, I'd say this quarter is a bit lower than what we normally think for the operating affiliates in general. And I think we're still looking. When you think about our returns, think plus or minus, like we're earning well into, call it, 10% range on these investments, if not more. And let's just say we have over $1,000,000,000 in assets there. François MorinCFO and Treasurer at Arch Capital Group00:53:24So hopefully, you can do the math from there. Andrew AndersenEquity Research Vice President at Jefferies Financial Group00:53:28That's helpful. And then just insurance expense ratio, I mean, was improvement in OpEx. But is full year 2024 still a good way to think about the rest of the year for the OpEx? Or is there still some headcount costs coming on? François MorinCFO and Treasurer at Arch Capital Group00:53:44I mean, that's it's a good place. We are, no question if I mean as we think about our growth and how we need to manage our expense base, we are being very thoughtful and diligent about do we need to replace people that resigned, do we have retirement, etcetera. So we I think we're going to get some benefits from the MC acquisition, like scale brings a little bit of leverage, a bit of a kind we can scale better. But no question that we're trying to hire still on the MC side. We wanna staff up with data scientists, and we need a bit new or a few more actuaries, etcetera. François MorinCFO and Treasurer at Arch Capital Group00:54:30But big picture, I think we're you know you know, we are watching our expenses, and that's something that will be a focus as we move forward. Andrew AndersenEquity Research Vice President at Jefferies Financial Group00:54:40Thank you. François MorinCFO and Treasurer at Arch Capital Group00:54:43Welcome. Operator00:54:45Thank you. The next question comes from Meyer Shields at KBW. Please go ahead. Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)00:54:51Great. Thanks. I think Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)00:54:52I have Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)00:54:52the same question in two contexts. I think Nicholas started or comments talking about the preference of brokers to work with fewer bigger insurers. And I'm wondering if you could talk about the volume versus profitability implications of that to companies like ARCs? Nicolas PapadopouloCEO at Arch Capital Group00:55:16Yes. I don't think the two are necessarily linked. Think in my view, the best place to talk about this is probably the London market. In the London market, the brokers because the business come to London, the main three brokers, controller have access to the business we arrive. So I think it's more of you know, supporting them where they need you to be supported and playing the role that you have to play that where where where you can align with their with their own strategy. Nicolas PapadopouloCEO at Arch Capital Group00:55:53And I think they, you know, if you think of the way they are organizing the market, having their own facilities, then they need leaders without leaders, nothing works. Then they have some follow facilities and then ultimately they have the open market that remains. I think you need to find a place. You can't service just one. I think if you service just one, you'll be the so you have to be able to figure out your distribution strategy is a key component of future success. Nicolas PapadopouloCEO at Arch Capital Group00:56:26That's what I'm saying. And I think we spent a ton of time thinking out how do we align better and where do we bring value to our distributors. And it varies. For the bigger distributors, it may be one thing. For a smaller distributor, mid market distributor, where they rely better on the expertise of art, it may be something different. Nicolas PapadopouloCEO at Arch Capital Group00:56:52So I think you have to really you have to be successful going forward. You really have to question the value you bring in the transaction. You can't just underwrite business. So the two components is that you have to do the underwriting to cycle thoughtfully. And but you have also to figure out what's your place in the food chain and what value you bring. Nicolas PapadopouloCEO at Arch Capital Group00:57:12So that's really the so we've done a lot of work and we're still thinking of this in a way that's less it's less about us, but it's less about the ultimately the customers. Without customers, we don't exist. So we need to provide value to the ultimate customers. That's how and that dynamic maybe playing out in London, it's playing out in North America. You can't just be sitting at your box in Lloyd's and waiting for the business to come to you and underwrite because you're not even sure that the business you're going to see is the one you want to write. Nicolas PapadopouloCEO at Arch Capital Group00:57:46That's the issue. Think if there is five people in front of you that are picking up the good business, now you're picking up from a part that by definition is not so good. So I think you to work hard and size matters and relationship matters and being able you can see the business you're really targeting. And that's where distribution strategy matter. Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)00:58:09Okay, perfect. That's very helpful. Second, on reinsurance, when you have cedents retaining more business, how do you deal with the risk of adverse selection when the cedent kind of decide a more educated seed because of the experience decides what they're going Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)00:58:26to keep and what they're Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)00:58:27going to be in share? Nicolas PapadopouloCEO at Arch Capital Group00:58:31A lot of the business is about adverse selection. The question is that insight into the business to understand why people are buying and does it make sense? And do you can you they have a need. And you have to we spend a lot of time and creating insight to figure out. There are needs that we are willing to insure or reinsure and there are things that we are unwilling to do because it's this I said before, I think we're looking for risk where we have upside that outweigh the downside. Nicolas PapadopouloCEO at Arch Capital Group00:59:05So that's one way to look at it. When you have only downside, you usually don't want to do those risks. And so I think that there is always that risk. Anti selection, it's a very dynamic market and auto selection is everywhere. So I think you have to factor that in into your selection in my view. Nicolas PapadopouloCEO at Arch Capital Group00:59:24So I think it's yes, you can't if you're on the right risk, a lot of what we you get told as an underwriter is more like a fairy tale. If you like fairy tales, you're not going to end up in a very successful underwriting shop. So I think you have to that's part of the job. The job is to have the insight to be able to ask the right questions and get to the answer and build the relationship with the clients where they come to you to concern that they have and where you can really provide value by either insuring or insuring them. Meyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)01:00:08Understood. Thank you so much. Nicolas PapadopouloCEO at Arch Capital Group01:00:09But you can't we have both sides of the house. I mean, the insurance side, yes, those people that we try to tell our guys to do the right thing. And if the risk is good, try to retain it. You have conviction about so if you for a while, you're not sure, so you buy reinsurance on a quota share basis. And ultimately, you over time, you build conviction that your underwriting guidelines work, your pricing is okay. Nicolas PapadopouloCEO at Arch Capital Group01:00:39At that point, you don't need the reinsurance. So you retain it net. And that there's nothing wrong about that. My view is that we should that's all the reinsurers play. Operator01:00:51Thank you. I'm not showing any further questions. Would you like to proceed with any further remarks? Nicolas PapadopouloCEO at Arch Capital Group01:00:59No. I think thank you. And I think another I think good quarter for us in a little bit more difficult or more competitive market. But I think we remain bullish about as I said in remarks to stand out. So I think we'll see you guys in next quarter. Operator01:01:21Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.Read moreParticipantsExecutivesNicolas PapadopouloCEOFrançois MorinCFO and TreasurerAnalystsMichael ZaremskiManaging Director & Senior Equity Research Analyst at BMO Capital MarketsCave MontazeriAnalyst at Deutsche BankElyse GreenspanManaging Director at Wells Fargo SecuritiesAndrew KligermanManaging Director at TD SecuritiesDavid MotemadenManaging Director & Sr. Equity Research Analyst - Insurance & Business Services at Evercore ISIAlex ScottEquity Research Analyst at BarclaysWes CarmichaelSenior Analyst at Autonomous ResearchJoshua ShankerManaging Director & Equity Analyst at Bank of America SecuritiesAndrew AndersenEquity Research Vice President at Jefferies Financial GroupMeyer ShieldsManaging Director at Keefe, Bruyette & Woods (KBW)Powered by