Arch Capital Group Ltd. (ACGL) Q2 2026 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the second quarter 2026 Arch Capital Group Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. Before the company gets started with its update, management wants to first remind everyone that certain statements in yesterday's press release and discussed on this call may constitute forward-looking statements under the federal securities laws. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. Consequently, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may affect future performance, investors should review periodic reports that are filed by the company with the SEC from time to time. Including our annual report on Form 10-K for the 2025 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. Management will also 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 8-K furnished to the SEC yesterday, which contains the company's earnings press release and is available on the company's website at www.archgroup.com. And on the SEC's website at www.sec.gov. I would now like to introduce your hosts for today's conference, Mr. Nicolas Papadopoulo and Mr. François Morin. Sirs, you may begin.

Good morning, and welcome to Arch's second quarter earnings call. We reported strong earnings this quarter with solid underwriting performance from each of our three segments. After-tax operating income in the quarter was $893 million, or $2.56 of earnings per share. Slowing top line growth and strong earnings freed up capital for additional share repurchases in the quarter. Bringing the total for the first half of the year to $1.95 billion. Book value per share grew by 2.8% in the quarter, and has increased by 4.5% in the first half of the year. While the underwriting environment increasingly competitive, it is important to note that we are still in the early stages of this softening market. Overall, fundamentals are attractive with some line experiencing increased competition while others continue to see rate increases. Arch's diversified business model ensures that we can find opportunities to deploy capital that generate appropriate risk-adjusted returns. Our position as an industry leader in specialty insurance, reinsurance, and mortgage insurance provides us a meaningful competitive advantage. Clients come to us not only for capacity but also for our underwriting expertise. Claim capabilities and valuable perspectives that help them better manage risk. Our commitment to cycle management is embedded in our culture and guides our underwriting approach. This is reinforced by compensation structure that incentivizes quality underwriting by aligning performance with long-term profitability and shareholder returns. Let us now turn to our segment performance. Starting with insurance, where results were negatively affected by catastrophe losses related to the Iran conflict. Arch is a leading writer of political violence, terrorism, and marine war in the London market. So while losses affected this quarter's results, we are seeing ongoing opportunities to support clients with assets in the region. Underwriting income of $27 million does not reflect the good underlying performance of the segment which delivered a current accident year combined ratio ex-cat of 91.6%. As reported by others, and consistent with our comments last quarter, competition is increasing, particularly in property and short-tail lines. That said, the middle market commercial business and casualty-oriented lines continue to experience rate increases. Additionally, pricing in directors and officers is rebounding slowly while rate declines in cyber insurance have moderated. Our gross and net premiums written were negatively impacted by the nonrenewal of certain program business as discussed in prior calls. And we are also impacted by reduced writing of our excess and surplus lines property business. We continue to see premium growth in casualty-oriented lines in North America including excess and surplus casualty construction, and national accounts. And we also saw positive trends in certain specialty London market lines, including war and terrorism. Looking ahead, our diversified platform provides us with the flexibility to grow in those areas where pricing supports our return objectives. Reinsurance underwriting results were excellent. Aided by relatively light catastrophe losses. Resulting in $410 million of underwriting income in the quarter. The current quarter accident year ex-cat combined ratio was 79.9%, 270 basis point increase from last year due to changes in mix. And lower pricing in property lines. Net premiums written were down 10% from the same quarter last year. As some of our clients opted to retain more risk and increasing competition lowered rates particularly in property. Increased our cession to traditional reinsurance and third-party capital which impacted our net-to-gross ratio. Our ability to leverage these capabilities enables us to provide solutions to our brokers and cedents while maintaining flexibility to manage our net risk portfolio. Similar to insurance, casualty reinsurance is an area where we see attractive business. Opportunities remain, though competition is elevated due to abundant reinsurance capacity. Within our Reinsurance business, our focus is on maintaining our position as a leading reinsurance partner through disciplined underwriting and by consistently delivering business expertise across market cycles. The mortgage segment continued to provide strong, stable results, delivering $220 million of underwriting income in the quarter. Mortgage portfolio performed well. Driven by a resilient economy and high quality risk in force. Our U.S. MI portfolio delinquency rate remained flat at 2.1%. Favorable reserve development continued, although slower than in prior quarters. While affordability and housing supply constraints limit new mortgage origination, mortgage insurance remains a consistent contributor to earnings as the strengths of the in force portfolio and favorable credit characteristics continue to support steady profitability. Investment contributed $417 million, or $1.20 of net investment income per share in the quarter. This is supported by our conservatively managed portfolio which maintains an average credit quality of AA-. We continue to benefit from an asset base that has grown to $49.5 billion supported by strong cash flows. Investments accounted for using the equity method which are excluded from operating earnings, performed well, adding an additional $196 million, or $0.56 per share to net income. Reflecting strong returns across the portfolio. Over the last five years, we have enjoyed favorable market conditions in property and short-tail lines and consequently, we now face early stages of a competitive market driven by an influx of capacity. This part of the cycle is to be expected. Importantly, a more competitive environment does not mean a lack of opportunity. It simply requires greater discipline. In where and how capital is deployed. Our playbook is built upon our enduring strengths. A diversified platform best-in-class cycle management, a strong brand that enhances our relationship with clients and distribution partners. As well as disciplined capital management. In sum, we remain well positioned to consistently deliver superior results for our shareholders. As Arch approaches its 25th anniversary, one thing is clear. While the company has evolved, the principle and playbook we rely upon create long-term shareholder value. With that, I will turn the call over to François. François? François Morin: Thank you, Nicolas. And good morning to all. Before I provide some additional color on our results, I wanted to walk you through our capital allocation and management actions this quarter. Capital management is an essential tool to help us manage our business through the insurance cycle. The latest hard market provided Arch the opportunity to generate significant excess capital that as the market transitions cannot be fully deployed into our business. Our preferred option has first been to return excess capital to our shareholders through share repurchases and secondly, through special dividends. After considering the opportunities available to us to deploy capital in the business, both existing and new, we determined that share buybacks remain an accretive use of excess capital in enhancing shareholder returns at current prices. As a result, we repurchased 12.4 million shares at an aggregate cost of $1.2 billion in the quarter. Through the first half of the year, we have repurchased approximately 94% of our net income in our own shares. As you know, we also accessed the debt market in May raising $2 billion in a combination of 10-year and 30-year senior notes. The proceeds from this issuance will be used to 1, redeem the $500 million of 10-year senior notes maturing later this year, 2, purchase $418 million of our 2043 and 2046 senior notes. Through a recently completed tender offer with the remainder for general corporate purposes. The tender offer was designed to replace debt that no longer meets updated regulatory capital requirements with fully compliant capital instruments. As a result of the debt raise, we expect our interest expense to be approximately $60 million to $63 million for each of the next two quarters. As of the end of the second quarter, our debt plus preferred to capital leverage ratio stands at a conservative 18.1%. Turning back to our operating performance for the quarter, our three business segments delivered excellent underlying results, with an overall ex-cat accident year combined ratio of 82.5%, up 160 basis points from the same quarter last year. Our underwriting income included $165 million of favorable prior year development on a pre-tax basis in the quarter or 4.1 points on the overall combined ratio. We recognize favorable development in all 3 of our segments, and in many of our lines of business, but mainly in short-tail lines in our P&C segments and in mortgage due to strong cure activity. Current year catastrophe losses were $201 million net of reinsurance and reinstatement premiums. And were a combination of losses from the Iran conflict and severe convective storms in the U.S. The Insurance segment's net premiums written declined 5.1% year-over-year due in part to the nonrenewal of certain program business. The ex-cat accident year loss ratio net of reinstatement premiums, improved by 90 basis points to 56.4% compared to the same quarter one year ago, due primarily to strong performance in our international operations. The acquisition expense ratio for the current accident year increased by 30 basis points. As the benefit we observed from the write-off of deferred acquisition costs for the MCE-acquired business rolled off. Our operating expense ratio was higher this quarter due to the transition of our middle market business to Arch Systems. As mentioned last quarter, we would expect our operating expense ratio to revert to historical levels during the second half of the year. Turning to the reinsurance segment. Net premiums written were down 10.4% from the same quarter one year ago, reflecting reduced writings from lower rates and a higher level of retrocession purchases primarily in the specialty and property catastrophe lines. Overall, our ex-catastrophe accident year combined ratio of 79.9% is up from last year due to the shift in line of business mix and a more competitive rate environment for certain subsegments. Our mortgage segment produced another very strong quarter with underwriting income of $220 million. Net premiums earned were flat from last quarter with a reduction in our U.S. MI business mostly offset by higher levels of earned premium in Australia. On the investment front, we earned a combined $613 million of net investment income and income from funds accounted for using the equity method, or $1.76 per share pre-tax up from the $1.57 per share we earned last quarter. We note that the returns of equity method funds contributed 340 basis points to our annualized net income return on average common equity in the quarter. Cash flow from operations remained very strong at $1.3 billion for the quarter. Income from operating affiliates was $46 million for the quarter, slightly higher than the $40 million from the same quarter one year ago. Our effective tax rate on pre-tax operating income was 15.1% reflecting the mix of income by tax jurisdiction. As of July 1, our peak zone natural cat probable maximum loss for a single event at a 1-in-250-year return level on a net basis is down slightly to $1.8 billion and now stands at 8% of tangible shareholders' equity. With these introductory comments, we are now prepared to take your questions.

Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. Our first question comes from the line of Elyse Greenspan with Wells Fargo. Elyse, your line is open. Please go ahead.

Hi. Thanks. Good morning. My first question is on the insurance segment. Was hoping to both just get a sense of the sustainability of the underlying loss ratio you saw on the quarter François, I think you pointed out strong international results for the second quarter in a row. So just trying to get a sense of the sustainability there. And then was there any change in your loss pick assumptions within your insurance book in the quarter? François Morin: Yeah. two things on a few points on that, Elyse. First, international, you know, as you know, it is it is more of a short-tail book. So it is it is been running very well, and you know, there is always potential volatility that we have to think about. So, I mean, it is hard for us to know how that is gonna play out, but the business is doing extremely well, so we are happy with that. On the North American side, I mean, what also helped a little bit is the nonrenewal of some of the programs that, you know, started out earlier this year. So those kind of earn in, right, the premium earn earns in or the lack of premium, I think that will that has brought down the loss ratio a little bit. So, I mean, where does it go from here? I think I mean, I at a high level, we think we are comfortable with the levels that where we are at. And, you know, I think there is a good chance or there is a possibility that we, you know, we stay at levels that are around this number. And no movement in loss trends? No movement in specific loss picks. I mean, absent just the normal adjustment of rate over trend that we go through each of our lines of business, but that we have not, like, systematically decided to move down the loss ratio pick from for one line in particular or another. So not nothing new there.

And there is remember, in insurance, you can actually adjust the mix of the book. So we you know, every most of our books today are split in what we call quartile or quintile where some of some of the book is running at the lower expense at low lower ex loss ratio, and the other side is running at a higher loss ratio. So the work of the underwriter is really to get pricing or manage a higher loss ratio out. So we have more propensity to keep you know, the loss ratio where it is.

Thanks. And then my follow-up was just on capital. You know, obviously, buyback, right, picked up in the quarter. I think you guys just mentioned, right, slower growth, obviously. Strong earnings and capital position. How are you guys thinking about the level of buybacks from here, recognizing obviously, in the midst of wind season, would you expect to slow down this quarter and then pick back up? Or just how are you thinking about the level of capital return going forward? François Morin: Yes. We do not certainly do not have targets or plans to buy back a certain number or dollars of shares We certainly thought that in the second quarter, price of the, you know, the stock was very attractive to us. So that is why we were able to certainly buy back more than we had done in the past. Does that stay this level? I do not know. And the current prices, we like the stock still. We think it is very attractive. And, you know, we have, you know, we have capacity to buy back more. So we will see if that plays out. You know, wind season's always something that 's a little bit of the back of our minds that we have to think about. But know, going forward, I think we are in a position where again, the growth is gonna be harder to come by, we think. And, you know, share buybacks will remain part of the arsenal that we have to manage our returns. Thank you. You are welcome.

Your next question comes from the line of Pablo Singzon with J.P. Morgan. Your line is open. Please go ahead.

Hi. Good morning. Retention in the insurance business has ticked on over the past couple of years. Is your approach here to keep retention the same? Or could you potentially increase that and internalize more of the underwriting income? I am just not sure if ceding is economically more attractive like it is in reinsurance today.

Can you repeat the question? Are you asking about retention of the insurance segment, your retention has been going down. Right? So you have been essentially ceding less, just not overgrowing. Right? And I think in the soft market, yep. Yeah. So and, again, it is a function of really the market we are in. So I think in reinsurance, we have seen we have seen a little more because I think we if I remember, we placed a little bit more on the shorter lines you know, because of, you know, as the as the as the rate was going down and, you know, we tried we also increased our capacity. As we increase our limits, we buy more insurance. So there is many factors that influence you know, the net-to-gross. But the market is certainly a factor we look at as well. You know, we I said it in my-- we are here to solve the problem for insured. You know, and for our brokers. So, you know, the reinsurance is a good tool to stay in front of the clients, ultimately, figure out what we want to keep after it. So Understood.

And in insurance, the insurance segment what is your stance on net-to-gross there?

I-- and you know, the question I ask you earlier was more on the you know, it works on both the same way, but answer more on the insurance side. I am sorry, the line is really your line is really bad. So on the on the insurance, I probably gave you the answer. On reinsurance, I think we are much more active, I would say, on the on the on the buying, especially because the property cat business, specifically, we think is quite stressed. So we have to manage, you know, the net portfolio and the tool we have used is, you know, relying on the on capacity out there that have a lower cost of capital to help, again, solve the problem for the clients or distribution partners.

Your next question comes from the line of Andrew Kligerman with TD Cowen. Your line is open. Please go ahead.

Good morning. Nicholas, I was intrigued by your early comments prepared remarks where you talked about an influx of capacity. And that we are in the quote unquote early stages of a soft market. So I am I am hoping you can elaborate a little bit separately on property and casualty. Do you think property rates could come down materially more and to what potential degree? And you mentioned that casualty was decelerating. Do you think we could start to see that turn negative?

Yes. First, I think we you know, I truly believe that the market that we are trading in is a favorable market. So there are businesses that our teams can on the insurance side, and to a large extent on the reinsurance side, there is new business that we can write. So we were made to trade in this type of environment. So specific to property, yeah, it is a big headwind. You know? K. You know, rates have been, you know, coming down, and there, I think we trade quite carefully, and you saw both on the insurance and reinsurance on net premium going down. We are much more optimistic on the on the casualty side. I think the there is more competition there. But the market is remaining disciplined especially on the insurance side. We have not seen any you know, we have seen management of limit, which is a critical aspect of what we track. The our competition stays very disciplined. Yeah. François Morin: And I would say too, I mean, property I mean, does the cat activity will have an impact. Yes. I mean, that is still early in the season. So far, it is been quiet, but things could change depending on you know, as we look into 2027.

Got it. So in terms of casualty and maybe this is just, like, kind of a 2-parter. When you say you are disciplined, are you keeping up with loss costs on your rate? And then the prior year development was 1.4 favorable in insurance, 5.3 favorable in reinsurance, and I know in the prepared remarks, you said it was mainly short-tail stuff. But could you give a little color on the amount and geography by accident year in casualty or maybe it was just insignificant. But I would be curious around how casualty played out in prior year development. François Morin: Casualty at a high level is kind of neutral. I mean, so and there is some by year, by sub line, there is some up, some down. In total, it is about neutral. So, yes, the short answer is, like, most of the favorable is in the short-tail lines in the last 2 to 3 accident slash underwriting years.

Your next question comes from the line of Cave Montazeri with Deutsche Bank. Your line is open. Please go ahead.

Thank you. I just want to follow up on the $1.2 billion of share repurchases you did this quarter. Think it is the first time in a while since you went over 100% of offering income. And I know part of that is dictated by the stock price, but there is still a pretty meaningful gap between where you are trading and kind of, like, the intrinsic value based on 3 or 4 book value. So at current levels, like, how I am trying to get a sense of how long you can sustain share repurchases above 100% of the operating earnings you generate. So you did mention you have built up a decent amount of excess capital during the hard market. Probably a bit more debt you can issue if you wanted to. Just wondering kind of, like, can you give us a sense of like, could you sustain above 100% payout throughout the soft cycle Not knowing how long soft cycle will last, but like, is it, like, a multiyear clear path that you have? François Morin: You are you are asking me if we have the crystal ball, which we do not, but let's just say that we have got, again, we are very confident in our ability to generate strong earnings through all phases of the cycle. We have got 3 kind of pillars to our operations, 3 legs of the stool. They are all performing well. So we believe strongly that we have an ability to generate earnings for the, you know, for the maybe not forever, right, but, you know, for the for the foreseeable future at a minimum. So you are asking me, are we able to return if we are not growing we return all those earnings back and back to the shoulders? The answer is yes, we could. Could we do something else? Again, that is like, do not wanna speculate what we are gonna do in a year or 2 years because there M&A? Is there other things where we need the capital before? What we you know, we deployed differently, but again, the quarter second quarter was, again, hopefully, a good demonstration that we are active and like the stock and think it is you know, it is a it is a natural and attractive way to return to our shareholders, and we will we will keep doing the same as long as, you know, unless things change materially.

And I guess linked to this, to your PML went down a bit this quarter. I guess not as much as your premium on a net basis. Can you maybe give us some color on what kind of business you are sending to the retrocession market? And should we expect your PML to kind of go down over time as the cycle softens. And I guess because I guess that could be an additional source of capital that will be released that you could use for share repurchases or whatever else you wanna do with it? François Morin: So the PMLs that you look at, I think, is Florida Tri County. So it is one of the 50 zones that we monitor. So I mean, Florida business is the is our peak zone, so it is you know, it is a peak zone for most of the reinsurers in the in the field. So that is historically, has had the highest margin. So that is that is why. So I think you know, the rate the rate reduction are pretty much across the board. You know, on the on the on the property cat. So we would expect that you know, the PMA could reduce, but think of Florida as a highest margin business, you know, in our property cat books.

But as a percentage of shareholders' equity, we were at 8% We have been in the soft market, the last soft market. We were at 4%. So you know, we are a different animal. We are much more relevant. We are much more I mean, bigger partner to many of our clients and brokers. So, yes, could our PML come down Absolutely. Does it go down to the same level back that we said we do not know? Yeah.

Your next question comes from the line of Robert Cox with Goldman Sachs. Your line is open. Please go ahead.

Hey, thanks. First question was just on casualty reinsurance. I think you all had taken maybe somewhat differentiated view on casualty reinsurance versus peers in 2025 by leaning in with some of these selective cedents as we think about the deceleration in casualty reinsurance growth year to date, is that reflective of those outperforming cedents choosing to retain more risk? Or has Arch changed its view on casualty reinsurance returns?

No. I do not think we have changed our view. I think as I mentioned in my prepared remark, we stay you know, I think it is an attractive line of business. We like the fundamental of the underlying business in the specialty casualty area. The issue, which is not new, is you know, too much capacity or insurance capacity chasing too little business. And the way we see it, is hit or miss on the terms and conditions. So there are certain terms and conditions that work, And for others, we would think that sometimes it is mostly quota share the contract, the ceding commission is too high. So I think we are still looking if for the right opportunity to add you know, insurance casualty to our books. In the in the right lines of business and with the right ceding companies.

Okay. Thank you. I just wanna follow-up on you know, the Middle East, some losses this quarter from a cap perspective, but it also seems like there is some incremental opportunities to write new business. Could you just give us some sense of what the strategy is to write new business and, you know, how you go about managing that and determining know, what is a good risk.

Yeah. So Obviously, you know, following the losses in the Iran region, as we are all aware. Prices have adjusted, and for us, we you know, prices at some point were multiple of what they were before the before the conflict. And so we decided to deploy a bit of capacity and stay with our insured. You know, some of our insured you know, there is you know, we may do a 1-off business. Now they suddenly figure out that you know, the war, which was excluded from their property policies, they would like to buy some coverage. And so selectively, we have deployed more capacity in the region you know, making sure that we avoid concentrations. So we so we have a careful approach to continuing to service our distribution partner and our clients in the region.

Your next question comes from the line of David Motemaden with Evercore. Your line is open. Please go ahead.

Hey, thanks. Good morning. Wondering if you guys could just quantify the Iran losses this quarter that impacted the insurance segment And then maybe just elaborate on how you are thinking about them and the cat load within insurance going forward I am I am interested also in any sort of IBNR versus actual loss detail you could share. François Morin: Well, the I mean, the majority of the insurance cat losses come from Iran. Yeah. Cat load going forward, I mean, we quoted the 6-8% kind of for the on an annual basis for you know, the group, that has not changed. I think the losses that we you know, the Iran conflict is more is actual refineries. it is actual claims. So case reserves have been set up. it is not a hypothetical IBNR. You know, we will put it up in case something happens, and those are you know, large refineries, etcetera, that, you know, you know, people aware of well aware of. They have been kinda hit, they you know, there is damage associated with them. there is always questions around business interruption and so we do not know the I mean, you know, the full the magnitude of the outcome, but, you know, the claims are real and tangible.

So that is how we think about it. it is again, we Nicholas mentioned it. We operate out of London at Lloyd's. We are leaders in the know, political violence, terrorism kinda market. And that is, you know, the losses when they happen. You know, we expect them and you know, we think the pricing is supports it. that is why we have been in that space in a more meaningful way the last few years. And we are, you know, we are we are still in it.

Got it. Thanks. No. That makes sense. And then maybe just on the reinsurance segment, the accident year loss ratio ex-cat, you know, deteriorated 370 basis points year on year. Sounds like that is well within expectations that you guys have had just given the mix shift away from property and then also just the pricing pressure there on that line. I mean, is that the same sort of deterioration we should expect as we head throughout the rest of this year? Or yeah. Sort of wondering how you guys are thinking about that. François Morin: Yeah. Yeah. As we said before, David, I think we I mean, our view is we look at trailing 12 months as first of all, like to our kind of know, the lens we like to put at our at our results specifically on reinsurance because there is going to be more a little bit more volatility in the ex-cat loss ratio no matter no matter what. So that is the first thing we would say. 2, you are right. I think the mix has changed, a little bit less short-tail, which is reflected in that increase in loss ratio. 3, yeah, the market, you know, a little bit more kinda competition, a little bit the rates are down a little bit more that has not fully earned in, so that may earn in kinda over time. So you put it all together, like, the last kind of quarter, if you focus on the quarter, we would say it is probably a little bit higher than we would, you know, than we would think the run rate is? Or kinda reflecting all these moving parts. But you know, we are we are we are not surprised by it. I think it is-- I get to your point, that is very much within our expectations, but you know, we will see how it plays out going forward.

Your next question comes from the line of Tracy Benguigui with Wolfe Research. Your line is open. Please go ahead.

You quantified the Prop Cat rate decreases you saw at mid-year renewals in share your view of rate adequacy. Looking at one broker survey, looks like pricing is back to 2021 levels, but a competitor had said it looked more like 2023. Where in the spectrum is your view?

Yeah. So I think, you know, I concur with what other people have said on other calls. Think the rate reductions were in the mid-teens, you know, but that is what we saw. And I think I think in terms of rate index, I think we are not back to, you know, the pre hurricane. I think are we back to 2022? I think we think the market trades above that. So are we in 2023? Maybe. But, you know, I think we depends it really depends on the region. So I think that is what you know, we as I said earlier, we have 50 zones. So some zones are still green, you know, above and provide adequate returns and some zones are now red and some zones are in orange. So I think that is that is why we actively manage a portfolio. But in terms of index, I think our view is that we are still above you know, the in the in prior hurricane rate index.

Great. Can you touch on your appetite to reinsure MGAs. I realize you are the lead reinsurer for at least one of the fronting companies. What structural safeguards do you have in place?

So our involvement on the on the reinsurance regarding MGAs has been mostly on the property side. So short-tail. Think we have been a significant player, you know, And supported by the pricing on the primary side. It was one way our insurance team were able to access business that otherwise they could not access. So we again, the fact that it is shorter, maybe you will limit some of the risk we see with working with MGA, which is, you know, you know, down the road, you know, who is gonna pay the claims and, you know, who is gonna there if the MGA is no longer there. So I think as far as the reinsurer, you do not have as much of an issue The issue is more, I think, with the insurer. You know, the insurance company under the sorry. The insured. I am sorry. The insured, you know, or the broker, you know, if you do it with an MGA, especially as it relates to long tail lines, You know, five years, six years from now, you know, you do not have visibility if the MGA no longer exists. Who is going to pay your claims? And will the reinsurance capacity still be there? I think it is more of an issue on the insured broker you know, E&O than it is for the for the reinsurer in my mind.

Your next question comes from the line of Yaron Kinar with Mizuho. Your line is open. Please go ahead.

Thank you. Good morning. 2 questions on the reinsurance segment and opportunities there. First, sounds like you are still seeing a an attractive environment for casualty there. That does sound a little bit different than what we have heard from other executives this earnings season. So I understand from your earlier comments that it is a lot about partnering with the right underlying risk, but maybe you can offer some additional color as to what really makes this a more attractive opportunity for you when you look at this market.

I mean, what makes the opportunity interesting to us is the underlying insurance casualty, which we think in certain specialty areas, you know, is a pretty profitable is profitable. So I think we are trying to know, through our insurance, access those companies that we think are good underwriter and do business in those specialty casualty areas. Okay.

And then on the property side, maybe following up on Tracy's question. I think we heard from another broker yesterday about how Southern Florida is back to 2017. property cat levels. I think one of your reinsurance competitors talked about lightening up the load lighting up the load a bit in Florida. So curious as to what you are seeing in Florida. I realize there are a lot of zones there, but maybe you can give us a little more color and detail on Southern Florida versus Northern Florida, West versus East.

I mean, what I can tell you, what we saw at June 1 is the reductions of the rates were across the board. Historically, you know, there were higher reduction at the top end of the program and lower reduction in the frequency layer This time around, I think the appetite has been more across the board and board. And you know, the Tri-County area is a big zone, so, you know, I would say, usually, it attract the higher pricing. I think if you are in Galveston area or Orlando area, you know, the pricing would be less because it is probably not the peak zone of everyone. So and the market is efficient. You know? The you know, the pricing, you know, reflect more the abundance of capacity and in the new entrant capacity that is chasing the business, but the differentiation in the pricing between zone, I think, is efficient. Know, people are using models. I think we do not see a huge red flag there.

Your next question comes from the line of Rowland Mayer with RBC Capital Markets. Your line is open. Please go ahead.

Hi. Good morning. Do you expect continued benefits from higher investment yields to add pressures to casualty competition over time? And I guess, do you guys embed some views investment yields in your rate adequacy decision on long tail lines?

We do not. You know, we are very clear on that. You know, we only we ask our casualty underwriters to write for an underwriting profit. And we credit them with a risk-free rate. So we but we require an underwriting profit. So I think we that is very clear for us.

Thank you. And then as my follow-up, you mentioned buyback is part of the arsenal. Are we at all close to the point where special dividends make more sense than buybacks? In 2024, I think that was when you were above 1.8x book, but also but also I assume the ROE expectations were higher when you made that decision. François Morin: Yeah. I mean, back in 2024, we are at 2x book, so it was very much a you know, to us was very clear that buybacks did not make sense. And dividend, the special was the was the answer. Right now, we are trading in the kinda 1.5x, 1.6x range, 1.45x, whatever. So I think it is more, still makes sense to do buybacks. But you know. So, you know, our preference, obviously, is it is 1 or the other. And right now, we are in the buyback range and we will see how that again, how things play out, but that is kinda how we would think about it. Like dividends, as long as we again and again, said it earlier, I think we have we are positive and know, or, you know, our visibility in terms forward-looking earnings is very positive. So, to us, that supports, kind of, you know, value creation and kinda strong returns for the next three years. And that is a big part of how we look at the economics of the share buybacks.

Your next question comes from the line of Brian Meredith with UBS. Your line is open. Please go ahead.

Yes. Thanks. Nicholas, first question, I just want to focus a little bit on mid-corp. If we think about that business ex the program business that I know you are intentionally running off, how has the growth been? How has retention been? Has it been more challenging maybe to keep the business you thought given the competitive market? And then how do we think about it going forward?

I think we have been positively surprised. Think the you know, our goal was really to you know, the first goal was to move the business over to Arch. So we did this a year ago, and, you know, the second goal was to move the, you know, the policy administration systems from Allianz to us. So that created some disruptions for underwriters. I mean, you know, it is it made their life much more difficult, but I think we the value of the brand and the relationship strength, you know, worked out for us. I think we are in a we are in a good place. I think the looking ahead, I think we have now, you know, the underwriting team and the policy administration system on Arch using Arch paper. it is ours. And so we actively moving to the phase where we can provide them with better tools, better analytics, triage, improve the claims. You know? So I think there is a lot of things we want to do that will, you know, lead to more growth in the in the future.

And just do you see better, call it, market dynamics in that segment where mid-corp is than some of the other areas?

Yeah. The mid, I think it is muted compared to the to the large property in E&S. I think we still see overall on the package, rate increase that are positive in mid single digits. And I think the property itself is flattish. You know, it used to be 5% up. So but we do not see the double digit decrease that we see elsewhere on the excess and surplus property or large account property.

Your next question comes from the line of Chris Hartwell with Autonomous Research. Your line is open. Please go ahead.

Good morning, gentlemen. Quick question, first of all, just on the mid-year renewal conversations you are having with your ceding clients. Over the last few months. I guess, what I am trying to understand and some extent also looking forward into January. I mean, obviously, there is a lot of focus on price I am trying to sort of understand what the-- what they are really sort of pushing for in terms of rate versus risk transfer. From the from every insurance protection. So I wonder if you could comment on that, please.

Yeah. I think so. The primary message that we got from our brokers and cedents is price. Right now, I think we have a little bit of a slippage in you know, in terms and conditions or, you know, clients you know, because they save a significant amount of money looking to see if they could add the margin by an underlying layer. So we are starting to see this, but it is it is really at the margin. Right now. So it is mostly price.

Okay. Thank you. And I guess if I may, can I ask on just on the mortgage business? I mean, so far it has not had any, any attention today, so I will give it a go. there is a decent bit of growth sort of quarter on quarter in terms of new insurance written. I was wondering if you can help just provide some color on what is driving that. And I guess a Part B to the question also is profitability has obviously been very, very strong for the last the last few years, but growth has not really been apparent. And I guess as we look forward and as that back book matures, what how should I see the trade off between I guess, margin versus growth opportunity? How should that develop as we look forward?

So on the mortgage side, I think this quarter, I think we signed up a new client in Australia, and so that benefited that new premium influx help our growth. And the second factor was I think we reduced some amount of quota share insurance that we bought. So that really helped the net as well. I think those are the two elements, I believe. And in terms of the profitability, I think it is steady as you go. My view is that, you know, the this is an interesting market where know, we talked about rate decrease of 15% you know, in property cat. So you know, in mortgage, it is 1% you know, and the markets react. So I think it is a people react very quickly to maintain their market share. And I think the six actors have, you know, have been you know, maintaining the pricing where it is. So I think it is the valuation there are much smaller.

Your next question comes from the line of Meyer Shields with KBW. Your line is open. Please go ahead.

Great. Thanks much. I wanna talk about casualty loss trends, but from a different perspective. I know obviously, we have you know, we are well into social inflation. As an external issue. But I am wondering whether you can talk about how Arch and maybe the company that you are reinsuring on facultative side, are they getting any better at pushing back to the extent that what I would call net loss trends are not as bad?

What do you mean net loss trend? So sort of call it yeah. The trial attorneys are pushing for and then offset by more successful defense on the part of the insurance industry. Yeah. So we you know, I think I would love to see more we would love to see more of that. Think there are there are a bit more pushback, but in the numbers, we do not see, you know, yet we do not see the impact of tort reform or different behavior by, you know, the defense attorneys and so on I think it is not reflected in our in our loss trend because we just do not see it in the numbers yet.

Okay. No. Understood. And then I apologize if this has been covered before. But I remember a couple of years ago, there was a little bit more caution on mid-year renewals because they were very negative forecasts for hurricane activity. And I am wondering if these forecasts are benign. When there are below average forecasts, does that increase your appetite for property cat, obviously, given the rates that are available?

it is it is a factor. We have, you know, like most companies, we have a meteorologist on staff. Know, that give us the outlook. But we look at the correlation in the past. There are some positive correlation, but it is it is it is one of the factor we take into account, but that is not the main factor.

Your next question comes from the line of Mike Zaremski with BMO. Your line is open. Please go ahead.

Hey. Thanks. Good morning. On the, mortgage segment where the growth popped and you called out nonrenewing some of the Bellemeade and less reinsurance. Can you quantify how we should what that impact was and if we should be run-rating that for the next three quarters as well. François Morin: Yeah. I mean, I think the current quarter is a good starting point. Right? Some of these agreements were, you know, effectively on the Bellemeade side. it is I mean, they are they are canceled, the benefit we got because it is, like, in monthly pay or monthly kind of premium. So benefit we are getting both on the Bellemeade and the quota shares. it is it is again, it will continue on. So I do not I would not I mean, I would expect, like, at this point, kind of relatively flat kinda premium on the U.S. MI side. Australia, to Nicholas's point, you know, it is a new it is a relatively large new client So which just started in Q1. So as we move throughout the rest of the year, we should see more and more of that business coming in. So the when you are doing kind of year-over-year kinda growth, I think I would expect to see a bit more growth out of out of our international book.

Got it. that is helpful. And just switching gears to the war in The Middle East. I am not sure if you did quantify the exact cat loss to David's question. But just, you know, if you do not want it, that is fine. But you know, to the extent the war endures or ebbs and flows should we, you know, any color on a you know, what loss industry estimate you are using, or is this very kind of, idiosyncratic to you all? Because it is, you know, specific to certain you know, areas that were hit, or any color you could add to how we should think about it to the extent the war endures? Thanks. François Morin: Yeah. I think there could be more. I mean, we obviously we saw in Q2 was a direct reflection of certain risks that we insure that were hit if that kind of you know, if we have the same in Q3 or Q4 as the war persists, yes. We will we could have more of that, but it is to your it is a right. it is more case by case. it is more property by property specific and not like a an ongoing thing like COVID might have been where it was kinda more a aggregate view of the exposure. So this is more kinda case by case specific. And yeah, we will we will react to it if the if we hear, like, the news that, again, there is some damage.

And I think the our estimate for the industry loss since the last earnings call has not changed. Because I think the event that happened just before the call. So I think we are still I think the industry in general is still around $3 billion for the for the Middle East war losses.

Your next question comes from the line of Brian Meredith with UBS. Your line is open. Please go ahead.

Hey. Thanks for letting me get one more question. So I was just curious, you talk a lot about share buyback capital. But the one thing that I am curious about is M&A and kind of how you are thinking about M&A in this environment right now. I mean, typically, we have seen as the market rolls into a soft market, M&A actually picks up. Maybe give us your perspective, and are you seeing any of that in the marketplace?

So we do not we do not think of M&A as an alternative to organic growth or you know, buying back shares or returning capital to shareholders. We think M&A has more of a strategic way of you know, build versus buy. You know, if we want to be in a line of business and we do not have the scale, we M&A could be a path to get us there faster and think of the Allianz transaction is, you know, we wanted to be in the middle market, property-led, You know, we tried to get there. Ultimately, this opportunity came, and we paid a decent amount of money to have a franchise to be able to operate in that business So we are looking at M&A for what it adds to what we have. More so than to gain market share. And my honest view on M&A in this market is it is expensive. The price is expensive, and maybe the price comes down, but as the market gets more competitive, maybe the balance sheet gets weaker. So I think you know, you have to think the timing of M&A is tricky, and a successful M&A, it is difficult. You know? Historically, a lot of the M&A has created issues for companies, so we are we are very careful in the way we approach it.

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

Yes. Thank you for the time today, and another good quarter for Arch. And we are looking forward to talking to you next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.