Q4 2021 Arch Capital Group Ltd Earnings Call

[music].

Good day, ladies and gentlemen, and welcome to arch capital group's fourth quarter 2021 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, if anyone should require assistance during the conference.

Speaker 1: Good day ladies and gentlemen and welcome to ARCH Capital Group's fourth quarter 2021 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. If anyone should require assistance during the conference please press star then zero on your touchtone telephone.

Please press Star then zero on your Touchtone telephone.

Speaker 1: As a reminder, this conference call is being recorded. Before the company gets started with this update, management wants to first remind everyone that certain statements in today's press release and discussed on this call may constitute forward-looking statements under the federal securities laws. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertain conditions.

As a reminder, this conference call is being recorded.

Before the company gets started with this update management wants to first remind everyone that certain statements in today's press release and discussed on this call may constitute forward looking statements under the federal Securities Law 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.

Speaker 1: Consequently, actual results may differ materially from those expressed or implied.

Speaker 1: For more information on the risk and other factors that may affect future performance, investors should review periodic reports that are filed by the company with the FCC from time to time.

For more information on the risks and other factors that may affect future performance investors should review periodic reports that are filed by the company with the SEC from time to time.

Additionally, certain statements contained in the call that are not based on historical fact are forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95.

Speaker 1: Additionally, certain statements contained in the call that are not based on historical fact are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Speaker 1: The company intends the four looking statements in the call to be subject to the safe harbor created thereby.

The company and tens the forward looking statements in the call to be subject to the safe Harbor created thereby.

Speaker 1: Management also will make reference to some non-GAAP measures of financial performance.

Management also will make reference to some non-GAAP measures of financial performance.

The reconciliation to GAAP and definition of operating income can be found in the company's current report on form 8-K furnished by the FCC yesterday, which contains the company's earnings press release and is available on the company's website.

Speaker 1: The reconciliation to GAAP and definition of operating income can be found in the company's current report on Form 8K, furnished by the FCC yesterday, which contains the company's earnings press release and is available on the company's website.

Speaker 1: I would now like to introduce your hosts for today's conference, Mr. Mark Grandison and Mr. Francois Morin. Sirs, you may begin.

I would now like to introduce your host for today's conference Mr. Mark Grandison and Mr. Francois Morin Sirs you may begin.

Thanks, Latif, good morning, and welcome to our fourth quarter earnings call.

Speaker 2: Thanks, Atif. Good morning and welcome to our fourth quarter Bobby

Speaker 2: We ended a good year with a great quarter. On the year, ARCH generated a return on net income of 16.7%, and importantly, book value per common share grew by 10.7% with net earnings per share of $5.25.

We ended a good year with a great quarter on the year arch generated a return on net income of 16, 7% and importantly book value per common share grew by 10, 7% with net earnings per share of $5 23.

Speaker 2: We accomplished these results despite elevated CAT activity and the short-term effect that substantial share repurchases had on our book value per share.

We accomplished these results despite elevated cat activity in the short term effect that substantial share repurchases had on our book value per share.

Speaker 2: Our ability to effectively allocate capital also contributed to our 2021 results. Whether opportunistically investing more resources into the most profitable pockets of our business or buying back $1.2 billion worth of our common shares, fully 7.7% of the shares outstanding at the start of the year, we remain committed to a capital management strategy that creates value for shareholders.

Our ability to effectively allocate capital also contributed to our 2021 results.

Weather Opportunistically investing more resources into the most profitable pockets of our business or buying back $1 $2 billion worth of our common shares fully seven 7% of the shares outstanding at the start of the year.

We remain committed to our capital management strategy that creates value for shareholders.

Speaker 2: I'd like to begin by sharing some highlights from our operating unit.

I'd like to begin by sharing some highlights from our operating units.

Speaker 2: In our PNC insurance segment, net written premium grew 24% and earned premium grew 34% over the fourth quarter of 2020 as we earned in the rate increases of the past several quarters.

In our P&C insurance segment.

Net written premium grew 24% and earned premium grew 34% over the fourth quarter of 2020.

We earned in the rate increases of the past several quarters.

Speaker 2: Growth occurred across many lines with professional lines and travel exhibiting the strongest of them.

Growth occurred across many lines with professional lines and travel exhibiting the strongest advances.

Speaker 2: Overall submission activity and rate momentum remained healthy and rate increases were above lost.

Overall submission activity and rate momentum remained healthy and rate increases were above loss trend.

Speaker 2: A change in business mix led to a slightly higher acquisition expense in the quarter. However, we believe that this increase belies the underlying return potential of the segment. More accurately, it is a reflection of the insurance group's outstanding job of positioning itself to act on the better opportunities available in today's market.

A change in business mix led to a slightly higher acquisition expense in the quarter. However, we believe that this increase belies the underlying return potential of this segment more accurately it is a reflection of the insurance groups outstanding job of positioning itself to act on the better off.

Opportunities available in today's market.

Turning now to reinsurance.

Speaker 2: Our shareholders continue to benefit from the extraordinary talents of the

Our shareholders continue to benefit from the extraordinary talents of this group, which grew gross written premium by 88% and net written premium by nearly 45% from a year ago.

Speaker 2: which grew gross written premium by 88% and net written premium by nearly 45% from a year ago.

Speaker 2: On hold, the reinsurance group grew in nearly every line, a reflection of our diversified specialty mix of business and our larger participation in quarter share reinsurance, which allows us to participate in the improved premium rates of students more directly

On the whole the reinsurance group grew in nearly every line a reflection of our diversified specialty mix of business and our larger participation and quota share reinsurance, which allows us to participate in the improved premium rates.

Students more directly.

Speaker 2: briefly on renewal on January 1st. While property cut rates were up broadly, the increases were not enough for us to deploy more capital into our peak zone.

Briefly on renewals at January one.

Property cat rates were up broadly the increases were not enough for us to deploy more capital into our peak zones.

Speaker 2: However, we found many opportunities to grow in the other 93% of our re-insurance business that is specialty in nature, including property ex-

However, we found many opportunities to grow in the other 93% of our reinsurance business that is specialty in nature, including property ex cat.

Finally onto the mortgage segment, which again delivered excellent underwriting results, even as written premiums declined in the quarter.

Speaker 2: Finally, on to the mortgage segment, which again delivered excellent underwriting results, even as written premiums declined in the quarter.

Speaker 2: Seasonally, the fourth quarter, as you know, is slower for mortgage originations and rising interest rates further depressed refinance activity, reducing new insurance written. However, our insurance in fourth, the ultimate driver of earnings, still grew modestly in the quarter, mainly due to that lower refinance activity.

Seasonally the fourth quarter as you know is slower for mortgage originations and rising interest rates further depressed refinance activity, reducing new insurance written however, our insurance in force the ultimate driver of earnings still grew modestly in the quarter.

Mainly due to that lower refinance activity.

Credit conditions remain excellent in the U S with a strong housing market and demand for housing continuing to exceed supply.

Speaker 2: Credit conditions remain excellent in the US, with a strong housing market and the mental housing continuing to exceed supply. As most of you already know, home price appreciation remains robust across most of the country.

As most of you already know home price depreciation remains robust across most of the country.

Speaker 2: This is a net positive for mortgage insurers as increasing borrower equity ultimately leads to a lower risk of default.

This is a net positive for mortgage insurers as increasing borrower equity ultimately leads to a lower risk of default.

Speaker 2: Competition in this sector remains robust but stable, and we believe that the better credit quality of our recent originations compensates for marginally lower premium yields. We continue to focus on the more stable returns available in higher credit quality business instead of broadly chasing top line growth, a luxury afforded to us by our diversified model.

Competition in this sector remains robust, but stable and we believe that the better credit quality of our recent originations compensates for marginally lower premium yields we continue to focus on a more stable returns available in higher credit quality business instead of broadly chasing top line growth.

A luxury afforded to us.

Our diversified model.

Turning to the fourth leg of our stool investment income contributions were up materially for the year, primarily due to alternative investments accounted under the equity method.

Speaker 2: Turning to the fourth leg of our stool, investment income contributions were up materially for the year primarily due to alternative investments accounted under the equity method.

Speaker 2: These investments are primarily fixed income in nature, but...

These investments are primarily fixed income in nature, but because of the structure of our investments their contributions are excluded from net investment income and our definition of operating income.

Speaker 2: Because of the structure of our investments, their contributions are excluded from net investment income and our definition of operating income.

Notwithstanding these investments contributed $366 million or <unk> 92 per share for the full year.

Speaker 2: Notwithstanding, these investments contributed $366 million or 92 cents per share for the full year.

Speaker 2: Over the past five years, below the line investment returns have added between 75 to 125 bps to our net ROE.

Over the past five years.

Below the line investment returns have added between 75 to 125 bps to our net Roe.

Taking a step back to get more of a big picture view, we like the way our businesses are currently positioned.

Speaker 2: Taking a step back to get more of a big picture view, we like the way our businesses are currently positioned.

Speaker 2: Within our P&C segments, we believe that P&C pricing and returns have more room to grow in this part of the cycle and in the mortgage segment, insurance enforce is benefiting from both solid credit conditions and good house price appreciation.

Within our P&C segments, we believe that P&C pricing and returns have more room to grow in this part of the cycle and in the mortgage segment insurance in force is benefiting from both solid credit conditions and good house price appreciation.

Speaker 2: Underwriting income for our PNC insurance and reinsurance segments expanded significantly in the fourth quarter. It's worth noting that if we were to include components of investment income that relates to the flow generation from underwriting, PNC and MI's contribution to ARCH's earnings were roughly in balance. We believe that this balance improves the risk adjusted returns for our shareholders.

Underwriting income for our P&C insurance and reinsurance segments expanded significantly in the fourth quarter. It's worth noting that if we were to include components of investment income that relate to the flow generation from underwriting P&C and <unk> contribution to arches earnings were roughly in balance we believe that this.

Balance improves the risk adjusted returns for our shareholders.

Speaker 2: Our corporate culture of being patient in soft markets while maintaining an agile mindset is a key to our success and allows us to seize opportunity when the odds for success are more in our favor.

Our corporate culture of being patient and sub markets, while maintaining an agile mindset is a key to our success and allows us to seize opportunity when the odds for success are more in our favor big.

Speaker 2: Because different sectors have their own cycles, our discipline, defensive underwriting during the softer parts of the cycle is what has enabled us to grow faster than many of our peers in a current environment.

Because different sectors of their own cycles, our disciplined defensive underwriting during the softer parts of the cycle is what has enabled us to grow faster than many of our peers.

The environment.

Speaker 2: We have begun to reap the benefits of a strong defensive posture.

We have begun to reap the benefits of the strong defensive posture.

Speaker 2: were maintained from 2016 through 2019.

We maintained from 2016 through 2019.

The Winter Olympics are underway.

Speaker 2: and I found an analogy to our business in a somewhat unexpected place. The most exquisite and exciting game

And I found an analogy to our business in a somewhat unexpected place.

The most exquisite and exciting game of.

Curling.

Speaker 2: You may or may not be aware that curling has been dubbed chess on ice and, like instruments, is much more strategic than the uninformed may realize.

You may or may not be aware that currently has been dubbed chess on ice and life insurance is much more strategic than the uninformed may realize.

<unk> has played over 10 long ends or round it.

Defensive strategy as most common.

Additionally, waiting for an opening to pivot to offense. Unfortunately.

Speaker 2: Unfortunately, defending is not exciting. It's about minimizing your opponent's scoring opportunities and avoiding mistakes.

The spending is not exciting it's about minimizing your opponent's scoring opportunities and avoiding mistakes.

But life insurance.

Speaker 2: Patience is often handsomely rewarded because when her opponent makes an error, the skip knows that now is the time to pounce and all of a sudden Patience is out the door and action is in. Most games are won in that one crucial reversal of fortune.

Patients as often handsomely rewarded because when her opponent makes an error. The skip knows that now is the time to pounds and all of a sudden patients is out the door in action is in most games are one and that one crucial reversal of fortunes.

Speaker 2: That's how we play the insurance cycle, one year at a time, patiently waiting for the market to give us that opening. And once we see it, we're all in, just like the last 2 and 1 1 2 years and counting. Don't ever let anyone tell you that curling or insurance are not exciting.

That's how we play the insurance cycle, one year at a time patiently waiting for the market to give us that opening and once we see it. We're all in just like the last two and a half years and counting don't ever let anyone tell you that curling or insurance or not exciting.

Speaker 2: For 20 years, we've been committed to taking the long-term view of the insurance cycle, being thoughtful and balanced with our capital management strategy, and differentiating ourselves by being committed to a specialty model, all with the aim of enhancing shareholder value over the long term. Although every year is different and markets aren't always predictable, we've demonstrated that we can succeed in any market. So we're looking forward to what 2022 has in store for us. Francois?

For 20 years, we've been committed to taking the long term view of the insurance cycle being thoughtful and balanced with our capital management strategy and differentiating ourselves by being committed to a specialty model all with the aim of enhancing shareholder value over the long term, although every year is different and markets arent.

Always predictable we've demonstrated that we can succeed in any market. So we're looking forward to what 2022 has in store for us.

Roswell.

Speaker 2: Thank you, Mark, and good morning to all. Thanks for joining us today.

Thank you Mark and good morning to all and thanks for joining us today.

Speaker 2: As Mark shared earlier, our after-tax operating income for the quarter was $493.3 million or $1.27 per share, resulting in an annualized 15.6% operating return on average common equity.

As Mark shared earlier, our after tax operating income for the quarter was $493 3 million or $1 27 per share, resulting in an annualized 15, 6% operating return on average common equity.

Speaker 2: Book value per share increased at $33.56 on December 31st, up 3.5% in the quarter.

Book value per share increased to $33 56 at December 31 up three 5% in the quarter.

For the year, our operating return on equity stood at 11, 5%.

Speaker 2: For the year, our operating return on equity stood at 11.5%.

Speaker 2: while our net return on equity was 16.7%. Excellent results indeed.

While our net return on equity was 16, 7% excellent results indeed.

In the insurance segment net written premium grew 23, 7% over the same quarter, one year ago, and the accident quarter combined ratio. Excluding cats was 91, 2% lower by approximately 240 basis points from the same period one year ago.

Speaker 2: In the insurance segment, net written premium grew 23.7% over the same quarter one year ago and the accident quarter combined ratio excluding cats was 91.2%.

Speaker 2: lower by approximately 240 basis points from the same period one year ago.

Speaker 2: The growth was particularly strong in North America, where a combination of new business opportunities and rate increases supported this profitable growth.

The growth was particularly strong in North America, or a combination of new business opportunities and rate increases supported this profitable growth.

Speaker 2: One item to note this quarter for the insurance segment relates to the acquisition expense ratio, which was higher than in both the prior quarter and the same quarter one year ago.

One item to note this quarter for the insurance segment relates to the acquisition expense ratio, which was higher than both the prior quarter and the same quarter one year ago.

Speaker 2: As we mentioned in the earnings release, some of this increase is related to premium growth in lines of business with higher acquisition costs, such as travel, but it also reflects increased contingent commission accruals on profitable business, as well as lower-seated premiums in lines with higher-seating commission offsets.

As we mentioned in the earnings release. Some of this increase is related to premium growth in lines of business with higher acquisition costs such as travel.

But it also reflects increased contingent commission accruals unprofitable business as well as lower ceded premiums in lines with higher ceding Commission offsets.

As we have said before our focus remains on the returns we are able to generate from all of our businesses and we remain positive on the current pricing environment and the opportunities that should be available to us in 2022.

Speaker 2: As we have said before, our focus remains on the returns we are able to generate from all our businesses, and we remain positive on the current pricing environment and the opportunities that should be available to us in 2022.

For the reinsurance segment growth in net written premium remained strong at 44, 5% on a quarter over quarter basis. The.

Speaker 2: For the reinsurance segment, growth and net written premium remains strong at 44.5% on a quarter over quarter basis.

Speaker 3: The growth was driven by increases in our casualty, property other than property catastrophe, and other specialty lines where new business opportunities.

The growth the growth was driven by increases in our casualty property other than property catastrophe and other specialty lines, where new business opportunities strong rate increases and growth in new accounts helped increase the top line.

Speaker 3: Strong rate increases and growth in new accounts helped increase the top line.

Speaker 3: For the full 2021 year, the XCAT accident year combined ratio was 84.4%, improving by approximately 160 basis points over the 2020 year, a reflection of the underwriting conditions we have seen in most of the lines we write.

For the full 2021 year, the ex cat accident year combined ratio was 84, 4% improving by approximately 160 basis points over the 2020 year.

Reflection of underwriting conditions, we have seen in most of the lines we write.

Losses from 2021 catastrophic events in the quarter.

Speaker 3: Losses from 2021 catastrophic events in the quarter, net of reinsurance recoverables and reinstatement premiums.

Net of reinsurance recoverable and reinstatement premiums stood at $72 3 million or three five combined ratio points compared to nine four combined ratio points in the fourth quarter of 2020.

Speaker 3: stood at 72.3 million, our 3.5 combined ratio point.

Speaker 3: compared to 9.4 combined ratio points in the fourth quarter of 2020.

Speaker 3: The losses came from a combination of fourth quarter events, including the December U.S. tornadoes and other minor global events.

The losses came from a combination of fourth quarter events, including the December U S tornadoes and other minor global events as well as some development on events that occurred earlier in the year.

Speaker 3: as well as some development on events that occurred earlier in the year.

Our estimate of our ultimate exposure to Covid related claims decreased by approximately $3 million during the quarter.

Speaker 3: Our estimate of our ultimate exposure to COVID-related claims decreased by approximately 3 million during the quarter.

Speaker 3: We currently hold approximately 195 million in reserves for this exposure.

We currently hold approximately $195 million in reserves for this exposure.

Speaker 3: two-thirds of which are recorded either as ACRs or IBNRs.

Two thirds of which are recorded either ACR or <unk>.

Our mortgage segment had an excellent quarter with combined ratio of 11, 7% due in part to favorable prior year development of $72 9 million.

Speaker 3: Our mortgage segment had an excellent quarter with combined ratio of 11.7%, due in part to favorable prior development of $72.9 million.

Speaker 3: The decrease in net premiums earned on a sequential basis was attributable to a combination of higher levels of premiums ceded, a lower level of earnings from single premium policy termination.

The decrease in net premiums earned on a sequential basis was attributable to a combination of higher levels of premiums ceded.

A lower level of earnings from single premium policy terminations.

Speaker 3: and lower U.S. primary mortgage insurance monthly premiums due to lower premium yields from recent originations which were of excellent credit quality.

And lower U S primary mortgage insurance monthly premiums due to lower premium yields from <unk> recent originations, which were of excellent credit quality.

Speaker 3: While approximately two-thirds of the favorable claim development came from USMI.

While approximately two thirds of the favorable claim development came from U S. EMI.

Speaker 3: related to better than expected cure activity and recoveries on second lien loans, we also saw favorable prior development across our other mortgage units, including our CRT portfolio and our international MI operations.

<unk> to better than expected cure activity in recoveries on second lien loans. We also saw favorable prior year development across our other mortgage units, including our CRT portfolio and our international operations.

Speaker 3: Consistent with historical practice, we maintain a prudent approach in setting loss reserves, especially in light of the uncertainty we are facing with borrowers exiting forbearance programs and moratoriums on foreclosure.

Consistent with historical practice, we maintain a prudent approach in setting loss reserves, especially in light of the uncertainty we are facing with borrowers exiting forbearance programs and moratoriums on foreclosures.

Speaker 3: The delinquency rate for our USMI book came in at 2.36% at the end of the quarter, more than 50% lower than the peak we observed at the end of the second quarter of 2020.

The delinquency rate for our U S. On my book came in at 236% at the end of the quarter more than 50% lower than the peak we observed at the end of the second quarter of 2020.

Speaker 3: Production levels were down from last quarter, certainly a typical outcome given the seasonality in new purchases and also partially as a result of the lower level of refinance activity due to higher interest.

Production levels were down from last quarter, certainly a typical outcome given the seasonality in new purchases and also partially as a result of the lower level of refinance activity due to higher interest rates.

Speaker 3: Offsetting lower origination activity in the quarter is the improving persistency rate, now at 62.4%

Offsetting lower origination activity in the quarter is the improving persistency rate now at 62, 4%, we expect persistency to keep improving throughout 2022 on the heels of lower refinance activity.

Speaker 3: We expect persistency to keep improving throughout 2022 on the heels of lower refinance activity.

Speaker 3: This bodes well for our insurance enforced portfolio and accordingly, the returns we can generate on our mortgage business.

This bodes well for our insurance in force portfolio and accordingly, the returns we can generate on our mortgage business.

Speaker 3: Income from operating affiliates stood at $40.6 million, again an excellent result, primarily as a result of contributions from COFAS and Summers Re. We are pleased with the returns these investments have generated for us so far.

Income from operating affiliates stood at $40 6 million again, an excellent result, primarily as a result of contributions from <unk> and summers.

We are pleased with the returns these investments have generated for us so far.

Total investment return for our investment portfolio was 39 basis points on a us dollar basis for the quarter.

Speaker 3: Total investment return for our investment portfolio was 39 basis points on a US dollar basis for the quarter.

Speaker 3: And net investment income was $90.5 million this quarter, up slightly, in part due to slightly higher dividends on equity investments.

And net investment income was $90 $5 million this quarter up slightly in part due to slightly higher dividends on equity investments.

Speaker 3: The duration of our portfolio remains low at 2.7 years at the end of the quarter, basically unchanged from last quarter and reflecting our internal view of the risk and return trade-offs in the fixed income mark.

The duration of our portfolio remains low at two seven years at the end of the quarter basically unchanged from last quarter, and reflecting our internal view of the risk and return trade offs in the fixed income markets.

Alternative investments, representing just under 15% of our total portfolio performed well this year returning 12, 6%.

Speaker 3: Alternative investments, representing just under 15% of our total portfolio, performed well this year, returning 12.6%.

Speaker 3: The portfolio we have constructed has a slightly heavier bent towards death strategy.

Our portfolio, we have constructed has a slightly heavier bent towards depth strategies and should produce we believe returns that are relatively less volatile over time, given the level the level of diversification across sectors and geographies.

Speaker 3: and should produce, we believe, returns that are relatively less volatile over time, given the level of diversification across sectors and geographies.

Speaker 3: Amortization of intangibles was $33.1 million, up sequentially as a result of the acquisition of Westback LMI and Sommerset Bridge Group Limited, which were completed in the third quarter.

Amortization of intangibles was $33 1 million up sequentially as a result of the acquisition of Westpac LMI in summers to bridge group limited, which were completed in the third quarter.

Speaker 3: For your modeling purposes, we are currently forecasting an amortization expense of $110 million for the full 2022 year, which is expected to be recognized evenly throughout the year.

For your modeling purposes. We are currently forecasting an amortization expense of $110 million for the full 2022 year, which is expected to be recognized evenly throughout the year.

The effective tax rate on pretax operating income was four 7% in the quarter, reflecting the geography mix of our pretax income and a 2% benefit from discrete tax items in the quarter.

Speaker 3: The effective tax rate on pre-tax operating income was 4.7% in the quarter, reflecting the geographic mix of our pre-tax income, and a 2% benefit from discrete tax items in the quarter.

Speaker 3: The discrete tax items in the quarter primarily relate to a partial release in evaluation allowance on certain international deferred tax assets.

The discrete tax items in the quarter, primarily related to a partial release and evaluation allowance on certain international deferred tax assets.

Speaker 3: For 2022, we would expect our tax rate on pre-tax operating income to be in the 8 to 10 percent range based on current tax.

For 2022, we would expect our tax rate on pretax operating income to be in the 8% to 10% range based on current tax laws.

Turning briefly to risk management, our natural cat <unk> on a net basis stood at $748 million as of January one or five 9% of tangible common equity, which remains well below our internal limits at the single event, one in 250 year return level or.

Speaker 3: Turning briefly to risk management, our natural cap PML on a net basis stood at $748 million as of January 1, or 5.9% of tangible common equity, which remains well below our internal limits at the single event, 1 in 250 year return level. Our peak zone PML is currently currently in the Robbins Avenue model zone, whichDD suggested that end users get over how this 116 inch!"

Our peak zone PMO is currently in the northeast U S.

On the capital front, we repurchased approximately $8 7 million common shares at an aggregate cost of $362 1 million in the fourth quarter.

Speaker 3: On the capital front, we repurchased approximately 8.7 million common shares at an aggregate cost of $362.1 million in the fourth quarter. And as Mark mentioned, we repurchased almost 31.5 million shares at an average price of $39.20 in 2021.

And as Mark mentioned, we repurchased almost 31 5 million shares at an average price of $39 20 in 2021, our remaining share repurchase authorization currently stands at 118 billion.

Speaker 3: Our remaining share repurchase authorization currently stands at $1.18 billion.

Speaker 3: Finally, I wanted to take a quick moment to thank over or over 5,000 colleagues around the globe in what has certainly been a challenging period.

Finally, I wanted to take a quick moment to thank over our over 5000 colleagues around the globe in what has certainly been a challenging period.

Speaker 3: Without their ongoing commitment to Arch and its constituents, we certainly wouldn't have been able to generate and report record earnings today as we close the books on our 20th year. Your efforts and dedication are.

Without their ongoing commitment to arch and its constituent constituents.

We certainly wouldn't have been able to generate and report record earnings today as we close the books on our 20th year your efforts and dedication are truly appreciated.

With these introductory comments, we are now prepared to take your questions.

Speaker 3: With these introductory comments, we are now prepared to take your questions.

Thank you if you have a question at this time. Please press the Star then the one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Speaker 1: Thank you. If you have a question at this time, please press the star then the one key on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

Speaker 1: Our first question comes from the line of Elise Greaspan of Wells Fargo. Your line is open.

Our first question comes from the line.

Lease greater spend.

Wells Fargo. Your line is open.

Speaker 4: Hi, thanks. Good morning. My first question follows up on just some of Francois's, including comments on going to capital management. Recognizing where your stock is today, can we just get some updated thoughts on how you guys think about sharing purchase at these levels? And if at some point, you know, if the valuation continues to expand, would you consider the use of a dividend to return capital to shareholders?

Hi, Thanks, good morning.

<unk> follows up on just summer francoise, concluding comments.

Going to capital management.

Recognizing where you're your stock is today can we just get some updated thoughts and how you guys think about share repurchase at these levels and.

If at some point.

Valuation continues to expand would you consider the use of a dividend to return capital to shareholders.

Speaker 3: Well, as you know, the top of mind and top priority for us is to put the capital to work in the business and we're seeing plenty of opportunities to continue in our growth trajectory. So I'd say that remains the key focus.

Well as you know top of mind and top priority for US is to put the capital to work in the business and we're seeing plenty of opportunities to continue on our growth trajectory. So I would say that that remains the key focus.

Speaker 3: But as you saw last year, yeah, no question that we've accumulated a bit of capital that we didn't have the options to deploy and put to work. So yeah, we did return a fair amount to shareholders last year. What ends up happening in 2022 is a bit of, you know, is an unknown. We'll keep looking at our opportunities.

But as you saw last year, yes, no question that we've accumulated a bit of capital that we didn't have the options to deploy and put to work. So yes. We did return a fair amount to our shareholders last year.

Ends up happening in 2222 is a bit of an unknown, we'll we'll keep looking at our opportunities.

Speaker 3: Certainly, yeah, the 1.3 times book multiple is something that we've kind of looked at. We talk about a three-year payback and how we look at share repurchases.

Certainly yes.

One three times book multiple is something that.

We've kind of looked at.

We talked about a three year payback and how we look at share repurchases.

Speaker 3: But the business is doing very well, so I'd say that the current prices are maybe a little bit above where the three-year payback might come into play. But there's also other things, other factors we consider. And I'd say that to your final question, like would we think about a dividend that's something we discuss with the board regularly?

But the business is doing very well, so I would say that.

The current prices or maybe a little bit above where where the three year payback might come into play but.

There is also other things that all the factors we consider.

And I'd say that to your final question like what do we think about a dividend thats something we discuss with our board regularly and.

Speaker 3: And right now, as you know, we haven't declared a dividend, but things could change down the road.

Right now as you know we havent.

The dividend, but things could change down the road.

Speaker 4: And then Mark, I think you said that the earnings mix, you know, if you allocate investment income between the segments is around was around 50-50. Sorry. If you think about them at hand for 2022, would that sway more in the direction of PNC or mortgage or how do you see that earnings mix playing out over the coming year?

And then Mark I think you said that the earnings mix.

Allocate investment income between the segments is around was around $50 a day sorry, yes.

Yes think about them.

2022.

Would that weigh more of the direction of TNT or mortgage or how do you see that earnings mix playing out over the coming year.

Speaker 2: Yeah, I think we'll slightly go towards PNC, I mean absent caps and everything else obviously, at least as you know. But overall I would expect it to be in the 50s, maybe a bit more towards the PNC as we go forward.

Yes, I think it will slightly go towards P&C.

Cats and everything else, obviously elyse.

But the overall I would expect it to be 10 to 15, maybe a bit more towards the P&C as we go forward.

Speaker 4: Okay, and then one last one. SSC is in the process of rolling out some capital changes. And I know we're in the middle of a comment period, but I wasn't sure if you guys can just share with us just some high-level thoughts just on what they put out there and how it could potentially impact ARCH. Thank you.

Okay, and then one last one.

In the process of rolling out some capital changes.

And.

I'll comment.

Within Turkey, if I can just share with us.

High level thoughts on what they put out there and how it could potentially impact guidance. Thank you.

Sure Yes.

Speaker 3: Yeah, listen, it's it's comprehensive. We obviously are studying it pretty deeply. We've got a you know, a pretty large team internally that's that's focused on because it touches everything right that touches mortgage it touches.

Listen it's comprehensive we obviously are studying it pretty deeply we've got a pretty large team internally that's focused on because it touches everything right that touches mortgage it touches cat losses, such as reserve risk. So all of the risk charges investments. There is a lot of things that are being.

Speaker 3: cat losses, such as reserve risk. So all the risk charges, investments, there's a lot of.

Speaker 3: things that are being suggested by S&P as how they want to move forward.

Suggested by S&P.

How they want to move forward.

Speaker 3: And you know, we'll be ready and we'll certainly most likely respond to their, you know, their RFC.

And we will be ready and we'll certainly most likely respond to their or their RFC in the coming weeks and.

Speaker 3: in the coming weeks and we'll see how that plays out. But big picture, I'd say.

We'll see how that plays out but big picture I would say, it's there's pluses and minuses as you would expect there are things that we think are.

Speaker 3: There's pluses and minuses, as you'd expect. There are things that we think are, you know, we've been working with them over the last two years and trying to address and looks like there's some changes coming through potentially.

We've been.

Working with them over the last few years in trying to address and it looks like there there are some changes coming through potentially.

Speaker 3: and some that we, you know, I'd say didn't expect and maybe a bit more punitive and we'll adjust as time goes on.

And some that we I'd say didn't expect that may be a bit more punitive and we'll adjust as time goes on but.

Speaker 3: Still a bit of a ways to go before we have finality and have the clear picture on what this all will mean for everybody.

Still a bit of a ways to go before we have finality and have the clear picture on what this all will mean for everybody.

Thank you.

You're welcome.

Speaker 1: Thank you. Our next question comes from Josh Shanker, a Bank of America. Please go ahead.

Thank you. Our next question comes from Josh Shanker of Bank of America. Please go ahead.

Yes. Thank you I was hoping you might help us think about other going forward, we have some mers we have co farce.

What sort of thoughts can you give us about <unk>.

Run rate goals for that unusual line item in the P&L and what sort of volatility should we expect from it.

Well.

Speaker 3: Well, certainly I'd say that this quarter is maybe the first quarter where we, let's say there's no, I call it noise, right? It's more recurring, you know, business as usual for both of them and also, you know, Premia and all the other smaller investments that we have in operating affiliates.

Certainly I would say.

This quarters maybe.

The first quarter, where we let's say there is no I'd call it noise right, it's more recurring.

Business as usual for both of them and also <unk>.

And all of the other smaller investments that we have in our operating affiliates.

No.

Speaker 3: As you know, on the balance sheet, we've got over, you know, call it a billion dollars of investments or equity in those vehicles. There's a reason why we made the investments. We think they can generate good returns for us. And that's how I would think about it. On your side, I'd say, you know, what kind of ROE should I expect from those businesses over the last, over the 2022 period, given, you know, there's a billion dollars.

As you know in the balance sheet, we've got over call. It a $1 billion of investments or equity in those in those vehicles.

Yes.

There is a reason why we made the investments we think they can generate good returns for us.

And that's how I would think about it on your side I'd say.

ROE should I expect from those businesses over the last over the 2022 period, given theres a $1 billion.

Speaker 3: I'll let you kind of make your decisions on that or model it out, but that's how we would suggest maybe you think about it.

Invested.

I'll, let you make your decisions on that there are model it out, but that's how we would say.

Maybe you think about it as kind of an ROE basis, given theres, a $1 billion or so.

Speaker 2: on an hourly basis given there's a billion dollars or so. And Josh, you have one that's coming from COFAS, obviously, which is a public company that's helpful to you guys and it's also in the rear so you have a good sense of where we're going the next quarter. And on the summers, which is the old Watford, I think, it's fair to say that it would track sort of a P&C kind of return. I would tend to stand that it's looking like a P&C insurance company. So I would describe those kinds of returns. Just to help you give you a sense of the magnitude and relative magnitude.

And Josh just you have one thats coming from Colfax, Obviously was a public company. That's helpful to you guys and it's also in arrears. So you had a good sense of where we're going the next quarter right and on the summers, which is the old Watford I think it's fair to say that it would track sort of P&C kind of return.

We tend to stand that is looking like a P&C insurance company. So I would describe those country. We tend just to help you give you a sense of the magnitude in a relative magnitude between the two.

And then.

Speaker 5: And then I see a little bit of shrinkage on the mortgage side of things. If you can talk about your rankings, mortgage, reinsurance, insurance, share buyback, they're all attractive. I know. Where are the best returns right now?

Little bit of shrinkage on the mortgage side of things. If you can talk about your rankings mortgage reinsurance insurance share buybacks are all attractive right now.

Where are the best returns right now.

Speaker 2: I think from a stop down I would say that mortgage is still just currently, right, because longer term they might have different, that's also why I've explained a couple of quarters back that you may be positioning yourself in areas where the returns may be not as high comparatively, but there's a longer term reason for this. We're at a high level right now, Josh.

<unk>.

<unk> done I would say that mortgage is still just currency right because longer term they might have different. That's also why I would explain a couple of quarters back that you may be positioning yourself in areas, where there maybe not as high comparatively but theres a read there is a longer term reasons for this but the high level right knowledge.

Yes.

Speaker 2: Mortgage, number one, number two, I would say is reinsurance and three is insurance. And the investment income potentials in the future improving will again bring up insurance and reinsurance. But they're not very much different from one another. I mean there used to be a lot wider difference between them three or four years ago as you know. But now the market, the hardening market on the P&C side has made them all very, very favorable and very attractive.

Mortgage number one number two I would say is.

As reinsurance and three as insurance, but.

And the investment income.

Potentials in the future improving will again bring up insurance and reinsurance, but they're not very much different from one another I mean, they used to be a lot wider difference between them.

Three or four years ago, as you know, but now the market the hardening market on the P&C side has made them all very very favorable and very very attractive on the share repurchase you heard phosphate say, so I guess.

Speaker 2: On the share repurchase, you heard Francois say, so I guess it's where we bought it at, what we think of it, so it's still always a possibility. And I would say on the capital management, as Francois mentioned, it's not only return specific, it's also in terms of returning it if we can't find anything more interesting to work with at a higher return. But I think right now we have a lot of opportunity.

What we bought it at what we think of it so it still always.

A possibility and I would say on the capital management as far as I mentioned is not only return specific.

So in terms of returning it if we don't if we can't find anything interesting to work with.

Higher return, but I think right now we have a lot of opportunity a lot of opportunity.

Thank you very much.

Youre welcome.

Speaker 1: Thank you. Our next question comes from Tracy Benquigley of Barclays. Your line is open.

Thank you our next.

Next question comes from Tracy been grieving Barclays. Your line is open.

Thank you I would like to touch on the expense ratio you mentioned increased contingent commission accruals unprofitable business.

Speaker 6: Thank you. I'd like to touch on the expense ratio. Francois, you mentioned increased contingent commission accruals on profitable business. And I'm assuming you mean with MGUs. Maybe you could just walk us through how that structure works.

I'm, assuming you mean with Engie is maybe you could just walk us through how that structure works I guess I think there is a multiyear look back period going.

Speaker 6: I guess I think there's a multi-year look-back period. And where I'm going with this is essentially if there's a lag in calculating that profit sharing component, should we expect this profit sharing component sticking around for a while to catch up with all the good work you've done on underwriting profitability.

If there is a lag in calculating that profit sharing component should we expect this profit sharing components sticking around for a while to catch up with all the good work you've done on underwriting profitability.

Well I mean as you can imagine there is lots of different types of agreements with all our producers.

Speaker 3: Well, I mean, as you can imagine, there's lots of different types of agreements with all our producers, US International, and so going into the specifics would take a lot of time. But I'd say at a high level, no question that if we book a lower loss ratio in business in real world, technology is not a especially important investment.

U S international and so going into it.

Specifics would take a lot of time, but I'd say at a high level no question that if we book a.

A lower loss ratio business in some.

Speaker 3: situations that does trigger a higher contingent commission. And that has to go hand in hand in how we accrue it, how we book it in the quarter. So as long as the business is performing well, and then, yes, the settlements take place over a period of time,

Situations that does trigger.

Higher contingent commission and that has to go hand in hand, and how we how we accrue it how we book in the quarter right. So.

As long as the business is performing well and then yes.

Gets the settlements take place over a period of time.

Speaker 3: with true ups, et cetera, but at a high level, no question, that as long as the business performs well and the loss ratios remain at the levels they're at right now, we would expect commensurate levels of contingent commission to be there in place over time.

With true ups et cetera, but at a high level no question that as long as the business performs well and the loss ratio has remained at the levels. They are at right now we would expect.

Leinster with levels of contingent commission to be there in place over time.

Speaker 6: Got it. And then on the same topic, I mean, basically, I'm just curious, what are you writing that's costing more besides maybe travel business? So if I look at the changes in your business mix, you know, basically something that pops up maybe is professional lines in insurance and reinsurance that bounces around more quarter to quarter. So if you could just provide more context about the business mix changes that were really driving that, as well as the direction of feeding commission.

Got it and then on the same topic I mean, basically I'm just curious what are you writing a costumer. Besides maybe travel business if I look at that.

Changes in your business.

Basically something that Pops up maybe professional lines and ensuring reinsurance it bounces around mark prior corridor.

If you could just provide more context about the business mix changes that were really driving that as well as the direction of ceding Commission, yes, absolutely. It's a very good question I think that if you look at the structure.

Speaker 2: Yeah, absolutely. It's a very good question. I think that if you look at the structure on each starting with the insurance group, it's a

With the insurance brokerage it rapidly.

Speaker 2: similar phenomenon but different reasons on the re-entrant side.

Similar phenomenon, but different reasons on the on the reinsurance side on the insurance side.

Speaker 2: You know, with programs is all something that we're growing. We're also

Programs is also something that we are growing well so.

Speaker 2: smaller risk in the professional lines. We do a lot of private D&O and not-for-profit D&O, for instance. That comes with a much higher expense ratio than you would have normally with the larger commercial enterprises. So that's one example.

Smaller risk in the professional lines, we do a lot of private D&O and not for profit D&O for instance that comes with a much higher expense ratio than you would have normally with the larger commercial enterprises. So thats. One example, we also are increasing our footprint in the UK, which also carries a higher.

Speaker 2: We also are increasing our footprint in the UK, which also carries a higher acquisition cost. So I would tend to think on the insurance side is the size of risk, the fact that we are in absent travel.

Acquisition costs. So I would tend to think on the insurance side is of a size of risk. The fact that we add.

Absent travel the risk that we write some cyber as well primarily small risks that's also carrying.

Speaker 2: The risk that we ride from cyber as well, primary small risk that's also carrying, because it's primary and small accounts will have a higher acquisition expense.

Because its primary and small accounts, we will have a higher acquisition expense ratio. So the size of the risk is what makes it on the instruments on the insurance side absent travel, which is also a small risk to be fair on the reinsurance side Tracy as you know it's a lot of quota share is a big big difference. So you could have an expense ratio and acquisition ratio on the excess of loss.

Speaker 2: size of the risk is what makes it on the insurance side, absent travel, which is also a small risk to be fair. On the reinsurance side, as you know, quarter share is a big, big difference. You could have an expense ratio, an acquisition ratio on the excess of loss, which is 10 to 15. It could be 30, 33 on a quarter share basis. So that really will skew in. We've been growing both on the insurance side for the small risk and on the reinsurance side on our quarter share participation. So that is just the price of getting access to the business.

Which is 10% to 15 it could be 30 to 33 on a quota share basis. So that really will skew in we've been growing both on the insurance side for the small risk and on the reinsurance side on a quota share participations. So that is just the price of getting access to the business.

We have to pay for.

So on the fee and commission.

Speaker 7: So, fill on the screening commission. Say it again.

Say it again.

And if you could comment on the student connection.

This the ceding commissions have been stable to slightly up on the reinsurance, but not significantly David more stable for the last year and a half and they had been in the other harder markets Thats, one thing Thats really intriguing, but I guess it makes sense in terms of the economic returns and the pricing that's coming through on the primary side, but.

Speaker 2: The city commissions have been stable to slightly up on the arrangements, but not significantly. They're a bit more stable for the last year and a half than they had been in other harder markets. That's one thing that's really intriguing, but I guess it makes sense in terms of the economic returns and the pricing that's coming through on the primary side. The increase itself in city commissions is not what's driving the acquisition expense ratio. It's truly the type of business mix that we're writing.

The increase itself into the commission is not what's driving.

The acquisition expense ratio was truly the type of business and the mix that we're writing.

Thank you thank.

Thank you.

Our next question comes from Mike Zaremski of Wolfe Research. Please go ahead.

Speaker 1: Our next question comes from Mike Zaremski of Wolf Research. Please go ahead. Hey, great.

Okay great.

Thanks.

Speaker 8: a follow up on the, maybe I'm reading too much into this, but on the increase in the expense ratio, specifically, I believe probably the acquisition expense ratio, but maybe also the other portion of the expense ratio and the primary insurance segment. So I believe you said some of it was due to increase.

A follow up on the maybe I'm reading too much into this but on the increase in the expense ratio, specifically I believe probably the.

Acquisition expense ratio, but maybe also the other.

A portion of the expense ratio in the primary insurance segment. So I believe you said some of it was due to increased profitability our contingent commissions.

Speaker 8: profitability or continued commissions. But I guess if I'm looking at the overall combined ratio for that segment for the year, it was 96 and change.

But I guess, if I'm looking at the overall combined ratio for that segment for the year. It was <unk> 96 and change.

Speaker 8: and for the quarter it was 93, I guess I thought we were shooting for like overall possibly being better than that, kind of in outer years, or maybe even this year. So I didn't think profitability was kind of much better than expected. Any thoughts there?

For the quarter was 93.

I guess I thought.

I thought we were shooting for like overall profitability being better than that.

Other years or.

Maybe even this year. So I didn't think profitability was was kind of much better than expected so any thoughts there.

Well I mean the.

Sure.

Speaker 3: Obviously, you got to slice it down by line of business so that the agreements, they're not on the overall profitability. Sometimes we do have some books of business that are doing extremely well and commissions go up with that. The other thing that I mentioned and I think is not insignificant is the fact that we are retaining a bit more in some lines of business.

Obviously, you get it you get a slice it down by the line by line of business. So that the agreements they're not on the overall profitability. So sometimes we have we do have some books of business that are doing extremely well in commissions go up with that.

The other thing that I mentioned and I think is not insignificant is the fact that we are retaining a bit more in some lines of business.

Speaker 3: And that kind of moves the economics, I'd say, right? So you're going to get a bit less seeding commissions that are maybe higher in some places and you retain more net than that at a better loss ratio going forward. So that's something that also impacts the overall acquisition. I'd say at a high level, no question that there's a bit of noise this quarter, but it's not something that has a...

And.

That kind of moves the the economics, I'd say right, so youre going to get a bit less ceding commissions that are.

Maybe higher in some places.

And you retain more net and that at a better loss ratio going forward. So that's something to that also impacts the overall acquisition I would say at a high level.

Yes.

No question that there's a bit of noise this quarter, but it's not something that has us extremely.

Speaker 3: extremely worried at this point. I think it's very much quarterly, kind of a bit of noise. There's a bit of, again, recovery from COVID. Last year, quarter over quarter, we were still very deep into the COVID crisis with no travel, etc.

Extremely worried at this point I think it's very much.

No.

Quarterly kind of a bit of noise. There is a bit of again recovery from COVID-19 like last year quarter over quarter, we were still in the very deep into the Covid crisis with.

No travel et cetera. So.

Speaker 2: There's other reasons that impact all, our expense ratio in total, I'd say, at a high level, we think it's a bit elevated this quarter, but not really a cost or concern. Yeah, and Mike, you're quoting numbers that include CAD events, like actual CAD events. If you do it XCAD, which is probably a better reflection of the underlying margins, it's really going down from 95 to 91 for the year. So we do, we are getting improved margin. One could argue whether it should be more or less, but it's pretty much an improvement.

There is other reasons that impact.

All of our expense ratio in total I would say at a high level, we think it's a bit elevated this quarter, but not really a cause for concern unless youre quoting quoting numbers that include cat events like actual cat event. If you do it ex cat, which is probably a better reflection of the margins is really going down from $95 to 91 for the year. So we do what we are getting.

<unk> improved margin and one could argue whether it should be more or less but it's pretty much an improvement.

Speaker 2: that we saw the last 12 months. So your numbers were skewed somewhat at cat events, I believe.

That we sold the last 12 months, so youre numbers was cute somewhat with the cat events I believe.

Speaker 8: No, you're right. I probably should have quoted maybe xcat too, although the cats matter. But also a good point on your net gross is keeping going. Okay, so that's helpful. And maybe just switching gears to capital and inorganic growth. I guess one of...

Youre right I, probably should've quoted maybe ex cat two about although the cats matter, but also a good plan on the <unk>.

Your net grosses is keeping up there.

Okay, that's helpful and.

Maybe just switching gears.

To capital and inorganic growth I guess.

Speaker 8: one of the MIs hit the tape that they're potentially exploring a sale.

One of the <unk>.

The tape that there potentially exploring.

Dale.

Speaker 8: If another MI buys another mortgage insurer, is one plus one still less than two? Or have dynamics changed over recent years?

If another EMI buys another mortgage insurers as one plus one still less than two.

Or kind of dynamics do you think maybe changed over the recent years.

Speaker 2: It's a good question because our understanding was that the GSEs and it's really, you know, we have to talk to the people in Washington and Virginia to understand what they think about this.

It's a good question because our understanding was that the GSE and it's really we have to talk to the people in Washington, and Virginia to understand whether you think about this was that there was a preference to have.

Speaker 2: more, not lesser amount of MI providers, more diversification. So we'll see what happens. There's not much gain and benefit and scale in combining two MI companies. I mean, you still, all the capital models and whatnot are sort of linear, so there's not really a saving of capital. I think there will probably be some net loss in the market share. I think we saw ourselves some of it.

More.

Not lesser amount of ni providers more diverse diversification, so we'll see what happens.

There is not much gain and benefit and scale and combining two semi companies I mean, you still have all the capital models.

And whatnot are sort of linear so it is not really a savings of capital I think they will probably be some net net loss in our market share I think we saw ourselves some of it from the when we acquired <unk>. So it's not one plus one equal to one five but it was a little bit of a.

Speaker 2: from when we acquired UG. So it's not one plus one, it's not equal to one and a half, but it was a little bit of a loss on the market share. So that's probably not.

The loss on the market share so that's probably not one.

Speaker 2: 1 plus 1 equals 2 or plus. So I don't know what's going to happen. I mean, I don't know what people have in mind. I think to me,

One plus one equals to a plus so I don't I don't know whats going to happen I don't know what people have in mind I think to me our core principle about NII.

Speaker 2: Our core principle about MI and the way we've operated stays, which is it's always better in a multi-line diversified platform. That's not going away. I would say that some of the SMPU modeling is appreciating and recognizing that. So that's my view, at least. I think the more sensible thing would be for these MI to find another home somewhere else outside of the MI arena. But I'm not a predictor of that.

And the way we've operated stays which is always better in a multi line diversified platform, that's not going away I would say that some of the S&P new modeling is appreciating and recognizing that so that's my view at least I think the more sensible thing would be to for these <unk> to find a home somewhere else outside of the EMI.

Rina, but I am not a predictor of this Mike.

Speaker 2: That's helpful. So you mentioned the S&P capital model. Will the diversification get an increased benefit? So the MI? Well in general, there's better diversity in credit the more diversified you are which again speaks to our model which makes sense to us.

That's helpful and so the you mentioned the S&P capital model.

The dive.

Diversification get up increased benefits so.

Well in general lifestyle EMI in general better diversity credits the more diverse diversified you are which again speaks to our model, which makes sense to us.

Thank you.

Thank you. Our next question comes from Mark Dwelle of RBC. Your line is open.

Speaker 1: Thank you. Our next question comes from Mark DeWell of RBC. Your line is open.

Yes, good morning couple of questions.

Speaker 3: Yeah, good morning. A couple of questions related to MI. First, in the quarter, it looked like the average paid claim, average paid cost per claim was around $51,000. It's been running more in the 30s. Is there anything in particular that accounts for the uptick, maybe some large claims or something?

Related to MRI.

First on the.

In the quarter it looked like.

Average.

Paid claim average paid cost per claim.

It was around 51000, it had been running more in the Thirty's is there anything in particular that accounts for the uptick maybe some large claims or something.

Speaker 3: Yeah, we have it. It's a one-off really. It's a settlement with a servicer that took place this quarter that was for pre-crisis claims. So definitely a one-off here.

Yes, we had it's a one off really it's a settlement with a servicer that took place this quarter that was for pre crisis.

Claims so.

Definitely a one off here.

And then a second question related to M&A I was just really a clarification.

Speaker 3: And then a second question related to MI is just really a clarification. The reserve releases that you did in the quarter, are we to understand that those related to the reserves set up when COVID began or were these reserves related to other time periods or other classes of reserve?

The reserve releases that you did in the quarter.

I understand that those related to the reserve set up when Covid began or were these reserves related to other time periods or other classes of reserve.

Speaker 3: I mean, we made the point in the past that we have a hard time to some extent, right, isolating COVID from non-COVID claims, but still more than half is for reserves that we had set up before COVID. So, I mean, the vast majority, or the majority is, if you want to go at just the period of when they were set up is pre-first quarter 2020.

I mean, we made the point in the past that we have a hard time to some extent.

Isolating COVID-19 from non Covid claims, but still more than half.

As for reserves that we had set up before COVID-19 . So the vast majority or the majority is.

If you want to go with just the periods of when they were set up as pre pre first quarter 2020.

Okay. Thank you.

Speaker 3: Okay, thank you. And then the last question I had was really more of a general market kind of question, maybe for Mark. Are you seeing any signs in the insurance or reinsurance businesses of competitors taking more aggressive pricing stances? I mean, basically getting at, you know, is the insurance clock getting towards 12 o'clock or are we still firmly at 11 o'clock?

The last question I had was really more of a general market question.

Maybe for Mark.

Are you seeing any signs in the insurance or reinsurance businesses.

Competitors, taking more aggressive pricing stances basically getting at.

As the insurance clock getting towards 12 o'clock or are we still firmly at 11 o'clock.

Speaker 2: Well, it's probably like the longest 11 o'clock that we'll see in our lifetime. I think that if you look at the risks that are ahead of us...

Well, it's probably like the longest 11 o'clock that we will see in our lifetime I think that if you look at the risks that are ahead of us.

Speaker 2: You still have climate to deal with, you still have inflation concerns.

You have you still have climate to deal with you still have inflation concerns, which I guess leads to reserve potential reserve questioning or analysis cyber risk.

Speaker 2: I guess leads to reserve, you know, potential reserve questioning or analysis, cyber risk.

Speaker 2: and COVID reopening. There's a lot of stuff going on right now that sort of leads the whole market to be a lot more careful and thoughtful. So the market is always competitive, right? There's always competition out there. But right now where we are, it's a very disciplined market. And we're not seeing anything, you know, we haven't seen anything and we're not seeing anything percolating that would indicate that this would change for 2022.

Covid reopening is a lot of stuff going on right now that sort of leads the whole market to be a lot more careful and thoughtful. So the market is is it's always competitive right. There's always competition out there, but right now what we are it's.

It's a very disciplined market and we're not seeing anything we haven't seen anything and we're not seeing anything percolating that would indicate that this would change for 2022.

Thank you that's all my questions.

Alright.

Speaker 1: Thank you. Our next question comes from Meyers Shields of KVW. Your line is open.

Thank you. Our next question comes from Meyer Shields of <unk>. Your line is open.

Speaker 9: Thanks if I go back to the continued commission question, I guess it's clear that underlying possibility is getting better. So we expect a smoother. Recognition of commission approvals in 2022.

Thanks.

If I go back to the contingent Commission question I get to clear that.

Underlying profitability is getting better so we expect a smoother recognition of contingent commission accruals in 2022.

Speaker 2: Not necessarily because no matter the release of profit commissions or contingent commissions is dependent on loss pick.

Not necessarily because no my or the release of profit commission or contingent commissions is dependent on loss picks so.

Speaker 2: We tend to take our beautiful time to make sure we have all the data available to make those contingent commissions. So they can be spotty. We can make a decision to look at two or three underwriting years and have that adjustment made. We accrue for some of it, but we don't always accrue to the full extent of the ultimate. The losses actually drive these contingent commissions. So it's really spotty. It's very hard to predict.

We tend to take our.

Beautiful time to make sure we have all the data available to make those continuing to study can be spotty, but we can make a decision.

You look at two or three underwriting years and have that adjustment and we accrue for some of it but we don't always accrue to the full extent of the ultimate losses actually drive these contingent commissions. So this is so it's really spotty is very hard to predict.

Speaker 9: Okay, no, that's fair. I just wanted to understand the process. Second question, I think, first of all, had talked about maybe reducing the sessions on some quota-share contracts in insurance, so less of an offset. Does that outpace or trail the loss issue improvements that you should anticipate from keeping up?

Okay, No that's fair I, just want to understand the process.

Question I think first of all had talked about.

Maybe reducing the session box on quota share contracts in insurance, so less of an offset.

Does that outpace or trail the loss ratio improvement that you said dissipate from keeping that business.

The mix shift so are you, saying that.

Speaker 2: I'm not sure I got exactly where you're trying to get to, Myer, I apologize. Okay, yeah, let me try again. So after this is going up, because you're seeding less business and have high.

The question differently I'm not sure I got exactly what you're trying to get to my ear apologise. Okay. Let me try again, so yes acquisition expenses going up because youre ceding less business that has high seating commissions, yes.

Speaker 9: I'm just hoping that you can sort of frame that relative to the loss ratio improvement that we should expect because you're keeping more profitable.

Just hoping that you could sort of frame that relative to the loss ratio improvement that we should expect because youre keeping more profitable business. Yes. So if we're keeping more profitable business the loss ratio would everything else being equal go down.

Speaker 2: Yes, so if we're keeping more profitable business, the loss ratio, with everything else being equal, go down.

Speaker 9: Right. By more than the increase in acquisition expense.

Right.

More than the increase in acquisition expense.

Possibly.

Speaker 2: It's hard to say right from the get go. I think we made these economic decisions. It's kind of a hard one to pin down. I mean sometimes what you see is capital. Capital with returns that's different than the pure combined ratio. So there's a lot of things going on. It's not only about the pure combined ratio. The return is improving.

It's hard to say right from the get go I think we made economic decisions, it's kind of a hard one to pin down I mean, sometimes sometimes what you see is capital.

Capital with returns thats different than the pure combined ratio. So theres a lot of things going on it's more it's not only about.

The pure combined ratio.

The return is improving that's what matters to us.

Speaker 3: Directionally, I think we don't disagree with what you're saying. I think the precision or the timing at which everything happens is less precise.

Yes directionally.

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We don't disagree with what you're saying I think the.

The precision or the timing at which everything happens is less I mean, it's less precise I mean thats, but.

Yes.

Speaker 3: I would feel it. directionally, I think it's right. Better. Better return.

I would say I would directionally I think it's better it's a better return.

Speaker 9: Okay, so I completely understand. And then one big picture question if I can. I understand everything that you're saying, Mark, about the cycle lasting longer because of concerns on the loss trend side. So I guess why rates are going up? Why do you think rates are still going up more than loss?

Okay.

And then one big picture question, if I can.

And just everything that you're saying mark about the cycle lasting longer because of concerns on the loss trend side. So again why rates are going up why do you think weights are still going up more than loss trends.

Speaker 2: Well, that's a definitely a question, Meyer. That's one that we should probably have at the bar at the corner. And all kidding aside, I think that's

Well, that's a loaded question Meyer Thats, one that we should probably have the BARDA corn and all kidding aside I think that that's probably a recognition that this uncertainty.

Speaker 2: There's probably a recognition that this uncertainty is what creates the need for more margin safety. I think that when you're faced with

Is what creates the need for more margin of safety I think that when you're faced with.

Speaker 2: uncertain pick up in inflation. I mean we had a 7% roughly inflation print this morning. I mean when you have a high number that comes like this, it comes as a shocker. So I think that people are being preempting.

Uncertain and it will pick up in inflation I mean, we had a 7% roughly inflation print. This morning, I mean, when you have a high number that comes like this has come to the Shockers. So I think that people are being preempting.

Speaker 2: preempting in making sure that they cover as much of the base as they can. I think the insurance industry, for what it's worth, has been very disciplined and is acting in a very, very proper way in, I think, over the last two years. I think it recognizes that the risk is building up and need to price better, price higher, because it's more risk of a, you know, of sliding a bit sideways. So I think it's an appropriate and very welcome change. The business in the market is pretty good from that perspective.

Preempting in and making sure that they cover as much of the base as they can and I think the insurance industry for what it's worth is been very disciplined and is acting in a very very profitable week.

I think over the last two years I think he recognizes that the risk is building up and need to price better right.

Higher because its more risk of a.

Of sliding a bit slight sideways. So I think it's an appropriate and very welcome change that this has been the market is pretty good.

From that perspective, okay. Thanks that helps a lot.

Sure sure.

Speaker 1: Thank you. Our next question comes from Brian Meredith of UBS. Please go ahead.

Thank you. Our next question comes from Brian Meredith of UBS. Please go ahead.

Speaker 10: Yeah, thanks. Got two questions for you guys. First one, I'm just curious, I know there was a block of stock of co-fusted traded, and I know you all didn't buy it. Was there any regulatory reasons you couldn't do it, or is that just kind of a capital allocation decision that you don't want to own the whole thing?

Yes. Thanks, guys two questions for you guys first one I'm just curious I know there was a block of stock of Cove traded.

And I know you all didn't bite was there any regulatory reason that you couldnt do it or is that just kind of a capital allocation decision.

You don't want to own the whole thing.

Speaker 3: No, not at all. I think the existing shareholder wanted to sell and very much easier for them to do it the way they did it.

No not at all I think.

<unk>.

The existing shareholder wanted.

Wanted to sell and <unk>.

Very much very much easier for them to do it the way. They did it then to come to us and at which point, yes. We would have had to go to the regulators and that would take weeks if not months and the whole approval process would a problem maybe dragged on so I think they wanted speed over maybe better execution and that's what they got.

Speaker 3: than to come to us, and at which point, yes, we would have had to go to the regulators and that would take an hour.

Speaker 3: weeks, if not months, and the whole approval process would have probably maybe dragged on. So I think they wanted speed over maybe better execution, and that's what they got doing it the way they did.

Doing it the way they did.

Speaker 10: So is that COFE stake less strategic for you then going?

So as that Coface stake less strategic for you then going forward.

Speaker 3: Not at all. Not at all. I mean, to be candid, I mean, they didn't even come to us offering it up to us. I mean, they just went ahead on their own instead of coming to us and saying, would you be interested in buying the 10% or 12% we want to get rid of, or we don't want anymore. They just went through their own process, because again, they knew that.

Not at all not at all I mean.

To be to be candid I mean, they didn't even come to us offering at up to one I mean, they just went ahead on their own.

Set of coming to us and saying would you be interested in buying the 10 or 12% we have to we want to get rid of or we don't we don't want anymore.

Just went through their own process, because again they knew that.

Speaker 3: We tripped the requirements that we'd have to do a tender and all of that, which would have taken longer. So that was their decision and we respect it. But going forward strategically, we still look at COFAS and it's been very good to us so far and we keep thinking about how we if and when or how we do things differently going forward.

We trip.

The requirements that we would have to do a tender and all of that which.

Would have taken again.

Longer so.

That was their decision and we respect it but going forward strategically I mean, we still look at profiles and it's been very good to us so far and we keep thinking about how we if and when or how we do things differently going forward.

Speaker 10: Great. And then, Francois, let me just clarify one comment you made earlier in talking about kind of repurchasing your stock and understand that you want that three-year payback period. But you said there's other considerations and understand that. But does that mean that with your stock trading just a little over 1.4 book value right now that you would not be buying stock right now? Your return profile doesn't fit that.

Great and then first of all let me just clarify one comment you made earlier talks.

Talking about kind of repurchasing your stock and understand that you want that three year payback period, which is if theres other considerations I understand that but does that mean that with your stock trading just a little over one four book value right now that you would not be buying back stock right now.

The return profile doesn't fit that.

Well its never a black and white, but I'd say that the forward looking returns that we see for how.

Speaker 3: It's never a black and white, but I'd say that the forward-looking returns that we see for how we think about the business and better profitability over three years.

How we think about the business the embedded profitability over three years.

Speaker 3: You know, it's higher than 10%, right? So you could kind of stretch it a bit more than 1.3 times book.

It's higher than 10% right. So you could you could kind of stretch it a bit more than one three times book.

Speaker 3: And so I'll stop here and say we could consider going above 1.3 times book, very much as a function of how we think about the business and what kind of profitability we see coming our way. Yeah, I think Brian I would say, and you know this as well, right? I mean there are a couple of things happening, for instance, on the MI side that might change. That's what we perceive to be the real.

And so it's.

I'll stop here I'd say, we could consider going above one three times book.

Very much as a function of how we think about the business and what kind of profitability, we see coming our way I think Brian I would say you know this as well right.

Couple of things happening for instance, on the semi side that might change that what we perceive to be the real book value of the company. So these are also considerations that could be weighed up way outside of the of the reserve or the return possibility going forward.

Speaker 2: So these are also considerations that could be way outside of the reserve, of the return of possibility going forward.

That's one example.

Got you. Thank you thank you Brian .

Yes.

I would now like to turn the conference over to Mr. Mark <unk> for closing remarks.

Speaker 1: I would now like to turn the conference over to Mr. Mark Grandison for closing remarks.

Well, thank you everyone.

Speaker 2: Well, thank you everyone. I want to thank our employees, as Francois mentioned as well. And Valentine's Day around the corner, so make sure you take care of your loved ones this weekend.

Our employees as Francois mentioned as well and <unk>.

Sometimes they are around the corner so make sure you take care of your loved one this weekend.

On to the next quarter.

Speaker 1: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.

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

Okay.

Okay.

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Yes.

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Speaker 1: Good day ladies and gentlemen and welcome to ARCH Capital Group's fourth quarter 2021 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. If anyone should require assistance during the conference please press star then zero on your touchtone telephone.

Good day, ladies and gentlemen, and welcome to arch capital group's fourth quarter 2021 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, if anyone should require assistance during the conference.

Press Star then zero on your Touchtone telephone.

Speaker 1: As a reminder, this conference call is being recorded. Before the company gets started with this update, management wants to first remind everyone that certain statements in today's press release and discussed on this call may constitute forward-looking statements under the federal securities laws. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties.

As a reminder, this conference call is being recorded before the company gets started with this update management wants to first remind everyone that certain statements in today's press release and discussed on this call may constitute forward looking statements under the federal Securities Law 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.

Speaker 1: Consequently, actual results may differ materially from those expressed or implied.

Speaker 1: For more information on the risk and other factors that may affect future performance, investors should review periodic reports that are filed by the company with the FCC from time to time.

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 FCC from time to time.

Speaker 1: 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.

Additionally, certain statements contained in the call that are not based on historical fact are forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95.

Speaker 1: The company intends the four looking statements in the call to be subject to the safe harbor created thereby.

The company and tens the forward looking statements in the call to be subject to the safe Harbor created thereby.

Speaker 1: Management also will make reference to some non-GAAP measures of financial performance.

Management also will make reference to some non-GAAP measures of financial performance.

Speaker 1: The reconciliation to GAAP and definition of operating income can be found in the company's current report on Form 8K, furnished by the FCC yesterday, which contains the company's earnings press release and is available on the company's website.

The reconciliation to GAAP and definition of operating income can be found in the company's current report on form 8-K furnished by the FCC yesterday, which contains the company's earnings press release and is available on the company's website.

Speaker 1: I would now like to introduce your hosts for today's conference, Mr. Mark Grandison and Mr. Francois Morin. Sirs, you may begin.

I would now like to introduce your host for today's conference Mr. Mark Grandison and Mr. Francois Morin Sirs you may begin.

Speaker 2: Thanks, the chief. Good morning and welcome to our fourth quarter call.

Thanks, Latif, good morning, and welcome to our fourth quarter earnings call.

We ended a good year with a great quarter on the year arch generated a return on net income of 16, 7% and importantly book value per common share grew by 10, 7% with net earnings per share of $5 23.

We accomplished these results despite elevated cat activity in the short term effect that substantial share repurchases had on our book value per share.

Speaker 2: We accomplished these results despite elevated CAT activity and the short-term effect that substantial share repurchases had on our book value per share.

Speaker 2: Our ability to effectively allocate capital also contributed to our 2021 results. Whether opportunistically investing more resources into the most profitable pockets of our business or buying back $1.2 billion worth of our common shares, fully 7.7% of the shares outstanding at the start of the year, we remain committed to a capital management strategy that creates value for shareholders.

Our ability to effectively allocate capital also contributed to our 2021 results.

Weather Opportunistically investing more resources into the most profitable pockets of our business or buying back $1 $2 billion worth of our common shares fully seven 7% of the shares outstanding at the start of the year, we remain committed to our capital management strategy that creates it.

For shareholders.

Speaker 2: I'd like to begin by sharing some highlights from our operating unit.

I'd like to begin by sharing some highlights from our operating units.

Speaker 2: In our PNC insurance segment, net written premium grew 24% and earned premium grew 34% over the fourth quarter of 2020 as we earned in the rate increases of the past several quarters.

In our P&C insurance segment net written premium grew 24% and earned premium grew 34% over the fourth quarter of 2020 as we earned in the rate increases of the past several quarters.

Speaker 2: Growth occurred across many lines with professional lines and travel exhibiting the strongest advance.

Growth occurred across many lines with professional lines and travel exhibiting the strongest advances.

Speaker 2: Overall submission activity and rate momentum remained healthy and rate increases were above loss.

Overall submission activity and rate momentum remained healthy and rate increases were above loss trend.

Speaker 2: A change in business mix led to a slightly higher acquisition expense in the quarter. However, we believe that this increase belies the underlying return potential of the segment. More accurately, it is a reflection of the insurance group's outstanding job of positioning itself to act on the better opportunities available in today's market.

A change in business mix led to a slightly higher acquisition expense in the quarter. However, we believe that this increase belies the underlying return potential of this segment.

More accurately it is a reflection of the insurance groups outstanding job of positioning itself to act on the better opportunities available in today's market.

Turning now to reinsurance.

Speaker 2: Our shareholders continue to benefit from the extraordinary talents of the

Our shareholders continue to benefit from the extraordinary talents of this group, which grew gross written premium by 88% and net written premium by nearly 45% from a year ago.

Speaker 2: which grew gross written premium by 88% and net written premium by nearly 45% from a year ago.

Speaker 2: On hold, the reinsurance group grew in nearly every line, a reflection of our diversified specialty mix of business and our larger participation in quarter share reinsurance, which allows us to participate in the improved premium rates of sedents more directly.

On the whole the reinsurance group grew in nearly every line a reflection of our diversified specialty mix of business and our larger participation and quota share reinsurance, which allows us to participate in the improved premium rates.

<unk> more directly.

Briefly on renewals at January one.

Speaker 2: briefly on renewals at January 1st. While property cut rates were up broadly, the increases were not enough for us to deploy more capital into our peak zone.

While property cat rates were up broadly the increases were not enough for us to deploy more capital into our peak zones. However, we found many opportunities to grow in the other 93% of our reinsurance business that is specialty in nature, including property ex gas.

Speaker 2: However, we found many opportunities to grow in the other 93% of our re-insurance business that is specialty in nature, including property ex-

Speaker 2: Finally, on to the mortgage segment, which again delivered excellent underwriting results, even as written premiums declined in the quarter.

Finally onto the mortgage segment, which again delivered excellent underwriting results.

Even as written premiums declined in the quarter.

Speaker 2: Seasonally, the fourth quarter, as you know, is slower for mortgage originations and rising interest rates further depressed refinance activity, reducing new insurance written. However, our insurance in fourth, the ultimate driver of earnings, still grew modestly in the quarter, mainly due to that lower refinance activity.

Recently, the fourth quarter as you know, it's slower for mortgage originations and rising interest rates further depressed refinance activity, reducing new insurance written.

Our insurance in force the ultimate driver of earnings still grew modestly in the quarter, mainly due to that lower refinance activity.

Speaker 2: Credit conditions remain excellent in the US, with a strong housing market and the mental housing continuing to exceed supply. As most of you already know, home price appreciation remains robust across most of the country.

Credit conditions remain excellent in the U S with a strong housing market and demand for housing continuing to exceed supply as most of you already know.

On price depreciation remains robust across most of the country.

Speaker 2: This is a net positive for mortgage insurers as increasing borrower equity ultimately leads to a lower risk of default.

This is a net positive for mortgage insurers has increasing borrower equity ultimately leads to a lower risk of default comp.

Speaker 2: Competition in this sector remains robust but stable, and we believe that the better credit quality of our recent originations compensates for marginally lower premium yields. We continue to focus on the more stable returns available in higher credit quality business instead of broadly chasing top line growth, a luxury afforded to us by our diversified model.

Competition in this sector remains robust, but stable and we believe that the better credit quality of our recent originations compensates for marginally lower premium yields we continue to focus on a more stable returns available and higher credit quality business instead of broadly chasing top line growth.

A luxury afforded to us by our diversified model.

Speaker 2: Turning to the fourth leg of our stool, investment income contributions were up materially for the year, primarily due to alternative investments accounted under the equity method.

Turning to the fourth leg of our stool investment income contributions were up materially for the year, primarily due to alternative investments accounted under the equity method.

Speaker 2: These investments are primarily fixed income in nature but...

These investments are primarily fixed income in nature, but because of the structure of our investments their contributions are excluded from net investment income and our definition of operating income not.

Speaker 2: Because of the structure of our investments, their contributions are excluded from net investment income and our definition of operating income.

Speaker 2: Notwithstanding, these investments contributed $366 million or 92 cents per share for the full year.

Notwithstanding these investments contributed $366 million or <unk> 92 per share for the full year.

Speaker 2: Over the past five years, below the line investment returns have added between 75 to 125 bps to our net ROE.

Over the past five years below the line investment returns have added between 75 to 125 bps to our net Roe.

Speaker 2: Taking a step back to get more of a big picture view, we like the way our businesses are currently positioned.

Taking a step back to get more of a big picture view.

We like the way our businesses are currently positioned.

Speaker 2: Within our P&C segments, we believe that P&C pricing and returns have more room to grow in this part of the cycle and in the mortgage segment, insurance in force is benefiting from both solid credit conditions and good house price appreciation.

Within our P&C segments, we believe that P&C pricing and returns have more room to grow in this part of the cycle and in the mortgage segment insurance in force is benefiting from both solid credit conditions and good house price appreciation.

Speaker 2: Underwriting income for our PNC insurance and reinsurance segments expanded significantly in the fourth quarter. It's worth noting that if we were to include components of investment income that relates to the flow generation from underwriting, PNC and MI's contribution to ARCH's earnings were roughly in balance. We believe that this balance improves the risk adjusted returns for our shareholders.

Underwriting income for our P&C insurance and reinsurance segments expanded significantly in the fourth quarter. It's worth noting that if we were to include components of investment income that relates to the flow generation from underwriting P&C and <unk> contribution to arches earnings were roughly in balance we believe that this ban.

<unk> improves the risk adjusted returns for our shareholders.

Speaker 2: Our corporate culture of being patient in soft markets while maintaining an agile mindset is a key to our success and allows us to seize opportunity when the odds for success are more in our favor.

Our corporate culture of being patient and south markets, while maintaining an agile mindset is a key to our success and allows us to seize the opportunity when the odds for success are more in our favor.

Speaker 2: Because different sectors have their own cycles, our discipline, defensive underwriting during the softer parts of the cycles is what has enabled us to grow faster than many of our peers in a current environment.

Because different sectors of their own cycles, our disciplined defensive underwriting during the softer parts of the cycle is what has enabled us to grow faster than many of our peers.

The environment.

Speaker 2: We have begun to reap the benefits of the strong defensive posture.

We have begun to reap the benefits of a strong defensive posture.

Speaker 2: were maintained from 2016 through 2019.

We maintained from 2016 through 2019.

The Winter Olympics are underway.

Speaker 2: and I found an analogy to our business in a somewhat unexpected place. The most exquisite and exciting game

And I found an analogy to our business in a somewhat unexpected place.

The most exquisite and exciting game of.

Curling.

Speaker 2: You may or may not be aware that curling has been dubbed chess on ice and, like instruments, is much more strategic than the uninformed may realize.

You may or may not be aware that currently has been dubbed chest on ice and life insurance is much more strategic than the uninformed may realize.

Speaker 2: Curling is played over 10 long ends or rounds. A defensive strategy is most common. Patiently waiting for an opening to pivot to us.

<unk> has played over 10 long ends or rounds of defensive strategy as most common.

Recently waiting for an opening to pivot to offense. Unfortunately.

Speaker 2: Unfortunately, defending is not exciting. It's about minimizing your opponent's scoring opportunities and avoiding mistakes.

Sending is not exciting it's about minimizing your opponent's scoring opportunities and avoiding mistakes.

But life insurance.

Speaker 2: Patience is often handsomely rewarded because when her opponent makes an error, the skip knows that now is the time to pounce and all of a sudden Patience is out the door and action is in. Most games are won in that one crucial reversal of fortune.

Patients as often handsomely rewarded because when her opponent makes an error. The skip knows that now is the time to pounds and all of a sudden patient is out the door in action is in most games are one and that one crucial reversal of fortunes.

Speaker 2: That's how we play the insurance cycle, one year at a time, patiently waiting for the market to give us that opening. And once we see it, we're all in, just like the last 2 and 1 1 2 years and counting. Don't ever let anyone tell you that curling or insurance are not exciting.

That's how we play the insurance cycle, one year at a time patiently waiting for the market to give us that opening and once we see it. We're all in just like the last two and a half years and counting don't ever let anyone tell you that curling or insurance or not exciting.

Speaker 2: For 20 years, we've been committed to taking the long-term view of the insurance cycle, being thoughtful and balanced with our capital management strategy, and differentiating ourselves by being committed to a specialty model, all with the aim of enhancing shareholder value over the long term. Although every year is different and markets aren't always predictable, we've demonstrated that we can succeed in any market. So we're looking forward to what 2022 has in store for us. Francois?

For 20 years, we've been committed to taking the long term view of the insurance cycle being thoughtful and balanced with our capital management strategy and differentiating ourselves by being committed to a specialty model.

All with the aim of enhancing shareholder value over the long term. Although every year is different and markets aren't always predictable. We've demonstrated that we can succeed in any market. So we're looking forward to what 2022 has in store for us.

Francois.

Thank you Mark and good morning to all and thanks for joining us today.

Speaker 3: Thank you, Mark, and good morning to all. Thanks for joining us today.

Speaker 3: As Mark shared earlier, our after-tax operating income for the quarter was $493.3 million or $1.27 per share, resulting in an annualized 15.6% operating return on average common equity.

As Mark shared earlier, our after tax operating income for the quarter was $493 3 million or $1 27 per share, resulting in an annualized 15, 6% operating return on average common equity.

Speaker 3: Book value per share increased at $33.56 at December 31st, up 3.5% in the quarter.

Book value per share increased to $33 56 at December 31 up three 5% in the quarter.

Speaker 3: For the year, our operating return on equity stood at 11.5%.

For the year, our operating return on equity stood at 11, 5%.

Speaker 3: while our net return on equity was 16.7%. Excellent results indeed.

While our net return on equity was 16, 7% excellent results indeed.

Speaker 3: In the insurance segment, net written premium grew 23.7% over the same quarter one year ago and the accident quarter combined ratio excluding cats was 91.2%.

In the insurance segment net written premium grew 23, 7% over the same quarter, one year ago, and the accident quarter combined ratio. Excluding cats was 91, 2% lower by approximately 240 basis points from the same period one year ago.

Speaker 3: lower by approximately 240 basis points from the same period one year ago.

Speaker 3: The growth was particularly strong in North America, or a combination of new business opportunities and rate increases supported this profitable growth.

The growth was particularly strong in North America, or a combination of new business opportunities and rate increases supported this profitable growth.

Speaker 3: One item to note this quarter for the insurance segment relates to the acquisition expense ratio which was higher than in both the prior quarter and the same quarter one year ago.

One item to note this quarter for the insurance segment relates to the acquisition expense ratio, which was higher than both the prior quarter and the same quarter one year ago.

Speaker 3: As we mentioned in the earnings release, some of this increase is related to premium growth in lines of business with higher acquisition costs, such as travel, but it also reflects increased contingent commission accruals on profitable business, as well as lower seated premiums in lines with higher seating commission offsets.

As we mentioned in the earnings release. Some of this increase is related to premium growth in lines of business with higher acquisition costs such as travel.

But it also reflects increased contingent commission accruals unprofitable business as well as lower ceded premiums in lines with higher ceding Commission offsets.

Speaker 3: As we have said before, our focus remains on the returns we are able to generate from all our businesses, and we remain positive on the current pricing environment and the opportunities that should be available to us in 2022.

As we have said before our focus remains on the returns we are able to generate from all of our businesses and we remain positive on the current pricing environment and the opportunities that should be available to us in 2022.

Speaker 3: For the reinsurance segment, growth and net written premium remains strong at 44.5% on a quarter over quarter basis.

For the reinsurance segment growth in net written premium remained strong at 44, 5% on a quarter over quarter basis. The.

Speaker 3: The growth was driven by increases in our casualty, property other than property catastrophe, and other specialty lines where new business opportunities

The growth the growth was driven by increases in our casualty property other than property catastrophe and other specialty lines, where new business opportunities strong rate increases and growth in new accounts helped increase the topline.

Speaker 3: Strong rate increases and growth in new accounts helped increase the top line.

Speaker 3: For the full 2021 year, the XCAT accident year combined ratio was 84.4%, improving by approximately 160 basis points over the 2020 year, a reflection of the underwriting conditions we have seen in most of the lines we write.

For the full 2021 year, the ex cat accident year combined ratio was 84, 4% improving by approximately 160 basis points over the 2020 year a reflection of the underwriting conditions, we have seen in most of the lines that we write.

Speaker 3: Losses from 2021 catastrophic events in the quarter, net of reinsurance recoverables and reinstatement premium.

Losses from 2021 catastrophic events in the quarter.

Net of reinsurance recoverable and reinstatement premiums stood at $72 3 million or three five combined ratio points compared to $9 four combined ratio points in the fourth quarter of 2020.

Speaker 3: stood at 72.3 million, our 3.5 combined ratio point.

Speaker 3: compared to 9.4 combined ratio points in the fourth quarter of 2020.

Speaker 3: The losses came from a combination of fourth quarter events, including the December U.S. tornadoes and other minor global events.

The losses came from a combination of fourth quarter events, including the December U S tornadoes and other minor global events as well as some development on events that occurred earlier in the year.

Speaker 3: as well as some development on events that occurred earlier in the year.

Speaker 3: Our estimate of our ultimate exposure to COVID-related claims decreased by approximately 3 million during the quarter.

Our estimate of our ultimate exposure to Covid related claims decreased by approximately $3 million during the quarter.

Speaker 3: We currently hold approximately 195 million in reserves for this exposure.

We currently hold approximately $195 million in reserves for this exposure.

Speaker 3: two-thirds of which are recorded either as ACRs or IBNRs.

Two thirds of which are recorded either as ACR <unk> or IV NR.

Speaker 3: Our mortgage segment had an excellent quarter with combined ratio of 11.7%, due in part to favorable prior development of $72.9 million.

Our mortgage segment had an excellent quarter with combined ratio of 11, 7% due in part to favorable prior year development of $72 9 million.

Speaker 3: The decrease in net premiums earned on a sequential basis was attributable to a combination of higher levels of premiums ceded, a lower level of earnings from single premium policy termination.

The decrease in net premiums earned on a sequential basis was attributable to a combination of higher levels of premium ceded a lower level of earnings from single premium policy terminations.

Speaker 3: and lower U.S. primary mortgage insurance monthly premiums due to lower premium yields from recent originations which were of excellent credit quality.

And lower U S primary mortgage insurance monthly premiums due to lower premium yields from <unk> recent originations, which were of excellent credit quality.

Speaker 3: While approximately two-thirds of the favorable claim development came from USMI.

While approximately two thirds of the favorable claims development came from U S. EMI.

Speaker 3: related to better than expected cure activity and recoveries on second lien loans, we also saw favorable prior development across our other mortgage units, including our CRT portfolio and our international MI operations.

Related to better than expected cure activity in recoveries on second lien loans. We also saw favorable prior year development across our other mortgage units, including our CRT portfolio and our international operations.

Speaker 3: Consistent with historical practice, we maintain a prudent approach in setting loss reserves, especially in light of the uncertainty we are facing with borrowers exiting forbearance programs and moratoriums on foreclosures.

Consistent with historical practice, we maintain a prudent approach in setting loss reserves, especially in light of the uncertainty we are facing with borrowers exiting forbearance programs and moratoriums on foreclosures.

Speaker 3: The delinquency rate for our USMI book came in at 2.36% at the end of the quarter, more than 50% lower than the peak we observed at the end of the second quarter of 2020.

The delinquency rate for our U S. On my book came in at 236% at the end of the quarter more than 50% lower than the peak we observed at the end of the second quarter of 2020.

Speaker 3: Production levels were down from last quarter, certainly a typical outcome given the seasonality in new purchases and also partially as a result of the lower level of refinance activity due to higher interest.

Production levels were down from last quarter, certainly a typical outcome given the seasonality in new purchases and also partially as a result of the lower level of refinance activity due to higher interest rates.

Speaker 3: Offsetting lower origination activity in the quarter is the improving persistency rate, now at 62.4%

Offsetting lower origination activity in the quarter is the improving persistency rate now at 62, 4%.

Speaker 3: We expect persistency to keep improving throughout 2022 on the heels of lower refinance activity.

We expect persistency to keep improving throughout 2022 on the heels of lower refinance activity.

Speaker 3: This bodes well for our insurance enforced portfolio and accordingly, the returns we can generate on our mortgage business.

This bodes well for our insurance in force portfolio.

And accordingly, the returns we can generate on our mortgage business.

Speaker 3: Income from operating affiliates stood at $40.6 million, again an excellent result, primarily as a result of contributions from COFAS and Summers Re. We are pleased with the returns these investments have generated for us so far.

Income from operating affiliates stood at $40 6 million again, an excellent result, primarily as a result of contributions from <unk> and summers.

We are pleased with the returns these investments have generated for us so far.

Speaker 3: Total investment return for our investment portfolio was 39 basis points on a US dollar basis for the quarter.

Total investment return for our investment portfolio was 39 basis points on a us dollar basis for the quarter and.

Speaker 3: And net investment income was $90.5 million this quarter, up slightly, in part due to slightly higher dividends on equity investments.

And net investment income was $90 $5 million this quarter up slightly in part due to slightly higher dividends on equity investments the.

Speaker 3: The duration of our portfolio remains low at 2.7 years at the end of the quarter, basically unchanged from last quarter and reflecting our internal view of the risk and return trade-offs in the fixed income market.

The duration of our portfolio remains low at two seven years at the end of the quarter basically unchanged from last quarter, and reflecting our internal view of the risk and return tradeoffs in the fixed income markets.

Speaker 3: Alternative investments, representing just under 15% of our total portfolio, performed well this year, returning 12.6%.

Alternative investments, representing just under 15% of our total portfolio performed well this year returning 12, 6%.

Speaker 3: The portfolio we have constructed has a slightly heavier bent towards depth strategy.

The portfolio, we have constructed has a slightly heavier bent towards depth strategies and should produce we believe returns that are relatively less volatile over time, given the level the level of diversification across sectors and geographies.

Speaker 3: and should produce, we believe, returns that are relatively less volatile over time, given the level of diversification across sectors and geographies.

Speaker 3: Amortization of intangibles was $33.1 million, up sequentially as a result of the acquisition of Westback LMI and Somerset Bridge Group Limited, which were completed in the third quarter.

Amortization of intangibles was $33 1 million up sequentially as a result of the acquisition of Westpac LMI and Summer Bridge Group limited, which were completed in the third quarter.

Speaker 3: For your modeling purposes, we are currently forecasting an amortization expense of $110 million for the full 2022 year, which is expected to be recognized evenly throughout

For your modeling purposes. We are currently forecasting an amortization expense of $110 million for the full 2022 year, which is expected to be recognized evenly throughout the year.

Speaker 3: The effective tax rate on pre-tax operating income was 4.7% in the quarter, reflecting the geographic mix of our pre-tax income, and a 2% benefit from discrete tax items in the quarter.

The effective tax rate on pretax operating income was four 7% in the quarter, reflecting the geography mix of our pretax income and a 2% benefit from discrete tax items in the quarter.

Speaker 3: The discrete tax items in the quarter primarily relate to a partial release in evaluation allowance on certain international deferred tax assets.

The discrete tax items in the quarter, primarily relate to a partial release in a valuation allowance on certain international deferred tax assets.

Speaker 3: For 2022, we would expect our tax rate on pre-tax operating income to be in the 8 to 10 percent range based on current tax rates.

For 2022, we would expect our tax rate on pretax operating income to be in the 8% to 10% range based on current tax laws.

Speaker 3: Turning briefly to risk management, our natural cap PML on a net basis stood at $748 million as of January 1, or 5.9% of tangible common equity, which remains well below our internal limits at the single event, one in 250 year return level. Our peak zone PML is currently $5 burgers and relish capital assets this year.

Turning briefly to risk management, our natural cat <unk> on a net basis stood at $748 million as of January one or five 9% of tangible common equity, which remains well below our internal limits at the single event. One in 250 year return level. Our peak zone PMI is currently in.

The northeast U S.

Speaker 3: On the capital front, we repurchased approximately 8.7 million common shares at an aggregate cost of $362.1 million in the fourth quarter. And as Mark mentioned, we repurchased almost 31.5 million shares at an average price of $39.20 in 2021.

On the capital front, we repurchased approximately $8 7 million common shares at an aggregate cost of $362 1 million in the fourth quarter.

And as Mark mentioned, we repurchased almost 31 5 million shares at an average price of $39 20 in 2021.

Speaker 3: Our remaining share repurchase authorization currently stands at $1.18 billion.

Our remaining share repurchase authorization currently stands at 118 billion.

Finally, I wanted to take a quick moment to thank over our over 5000 colleagues around the globe in what has certainly been a challenging period.

Speaker 3: Finally, I wanted to take a quick moment to thank over or over 5,000 colleagues around the globe in what has certainly been a challenging period.

Speaker 3: Without their ongoing commitment to Arch and its constituents, we certainly wouldn't have been able to generate and report record earnings today as we close the books on our 20th year. Your efforts and dedication are.

Without their ongoing commitment to arch and its constituent constituents, we certainly wouldn't have been able to generate and report record earnings today as we close the books on our 20th year.

Your efforts and dedication are truly appreciated.

Speaker 3: With these introductory comments, we are now prepared to take your questions.

With these introductory comments, we are now prepared to take your questions.

Speaker 1: Thank you. If you have a question at this time, please press the star, then the one key on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

Thank you if you have a question at this time. Please press the Star then the one key on your Touchtone telephone.

If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Speaker 1: Our first question comes from the line of Elise Greaspan of Wells Fargo. Your line is open.

Our first question comes from the line of Alere.

Screening span of Wells Fargo. Your line is open.

Hi, Thanks, good morning.

Speaker 4: Hi, thanks. Good morning. My first question follows up on just some of Francois's, including comments on going to capital management. Recognizing where your stock is today, can we just get some updated thoughts on how you guys think about sharing purchase at these levels? And if at some point, you know, if the valuation continues to expand, would you consider the use of a dividend to return capital to shareholders?

Great question Paul.

All is open just summer francoise, concluding comment.

On to capital management.

Igniting where your stock is today can we just get some updated thoughts and how you guys think about share repurchase at these levels and.

If at some point the.

The valuation continues to expand would you consider the use of a dividend to return capital to shareholders.

Well as you know.

Speaker 3: Well, as you know, the top of mind and top priority for us is to put the capital to work in the business and we're seeing plenty of opportunities to continue in our growth trajectory. So I'd say that remains the key focus.

Top of mind and top priority for us is to put the capital to work in the business and we're seeing plenty of opportunities to continue our growth trajectory. So I would say that that remains the key focus.

Speaker 3: But as you saw last year, yeah, no question that we've accumulated a bit of capital that we didn't have the options to deploy and put to work. So yeah, we did return a fair amount to shareholders last year. What ends up happening in 2022 is a bit of, you know, is an unknown. We'll keep looking at our opportunities.

But as you saw last year, yes, no question that we've accumulated a bit of capital that we didn't have the options to deploy and put to work. So yes. We did return a fair amount to our shareholders last year.

What ends up happening in 2010, 22 is a bit of an unknown, we'll we'll keep looking at our opportunities.

Speaker 3: Certainly, yeah, the 1.3 times book multiple is something that we've kind of looked at. We talk about a three-year payback and how we look at share repurchases.

Certainly yes.

One three times book multiple is something that.

We've kind of looked at.

We talked about a three year payback and how we look at share repurchases.

Speaker 3: But the business is doing very well, so I'd say that the current prices are maybe a little bit above where the three-year payback might come into play, but there's also other things, other factors we consider. And I'd say that to your final question, would we think about a dividend that's something we discuss with the board regularly?

But the business is doing very well, so I would say that.

The current prices or maybe a little bit above where were.

The three year payback might come into play but.

There is also other things that all other factors we consider.

And I'd say that to your final question like what do we think about a dividend thats something we discuss with our board regularly and <unk>.

Speaker 3: And right now, as you know, we haven't declared a dividend, but things could change down the road.

Right now as you know we havent.

The dividend, but things could change down the road.

Speaker 4: And then Mark, I think you said that the earnings mix, you know, if you allocate investment income between the segments is around was around 50-50. Sorry. If you think about them at hand for 2022, would that sway more in the direction of PNC or mortgage or how do you see that earnings mix playing out over the coming year?

And then Mark I think you said that the earnings mix.

Allocate investment income between the segment is around was around $50 a day sorry, yes.

I would think about them.

Our 2022.

Would that weigh more in the direction of P&C or mortgage or how do you see that earnings mix playing out over the coming year.

Speaker 2: Yeah, I think we'll slightly go towards PNC, I mean absent caps and everything else obviously at least as you know. But yeah, overall I would expect it to be in the 50s, maybe a bit more towards the PNC as we go forward.

Yes, I think it will slightly go towards P&C.

Cats and everything else, obviously elyse.

But overall I would expect it to be 10 to 15, maybe a bit more towards the P&C as we go forward.

Speaker 4: Okay, and then one last one. SSC is in the process of rolling out some capital changes. And I know we're in the middle of a comment period, but I wasn't sure if you guys can just share with us just some high-level thoughts just on what they put out there and how it could potentially impact Orange. Thank you.

Okay, and then one last one.

In the past that we're rolling out some capital changes.

And on the web.

But all the commentary, but I wasn't sure. If you guys can just share with us.

High level thoughts on muscle put out where and how to potentially impact guidance. Thank you.

Speaker 3: Yeah, listen, it's it's comprehensive. We obviously are studying it pretty deeply. We've got a you know, a pretty large team internally that's that's focused on because it touches everything right that touches mortgage it touches

Sure Yes.

Listen it's comprehensive we obviously are studying it pretty deeply we've got a pretty.

Pretty large team internally, that's focused on because it touches everything right that touches mortgage it touches.

Speaker 3: cat losses, touches reserve risk. So all the risk charges, investments, there's a lot of.

That losses, such as reserve risk. So all the rest charges investments there is a lot of things that are being.

Speaker 3: things that are being suggested by S&P as how they want to move forward.

Suggested by S&P.

They want to move forward.

Speaker 3: And you know, we'll be ready and we'll certainly most likely respond to their, you know, their RFC.

And we'll be ready and we'll certainly most likely respond to their or their RFC in the coming weeks and we'll see how that plays out but big picture I would say it's there's.

Speaker 3: in the coming weeks and we'll see how that plays out. But big picture, I'd say.

Speaker 3: There's pluses and minuses, as you'd expect. There are things that we think are, you know, we've been working with them over the last two years and trying to address and looks like there's some changes coming through potentially.

There is pluses and minuses as you would expect there are things that we think are.

We have been.

Working with them over the last few years in trying to address and it looks like there there are some changes coming through potentially.

Speaker 3: and some that we, you know, I'd say didn't expect and maybe a bit more punitive and we'll adjust as time goes on.

And some that we I'd say didn't expect and maybe a bit more punitive and we'll adjust as time goes on but.

Speaker 3: Still a bit of a ways to go before we have finality and have the clear picture on what this all will mean for everybody.

Still a bit of a ways to go before we have finality and have the clear picture on what this all will mean for everybody.

Thank you.

Okay.

Thank you. Our next question comes from Josh Shanker of Bank of America. Please go ahead.

Speaker 1: Thank you. Our next question comes from Josh Shanker of Bank of America. Please go ahead.

Speaker 5: Yeah, thank you. I was hoping you might help us think about other going forward. We have summers, we have COFOS. What sort of thoughts can you give us about the run rate goals for that unusual line item in the P&L and what sort of volatility should we expect?

Yes. Thank you I was hoping you might help us think about other.

Forward rehab summers, we have co farce.

Bob.

What sort of thoughts can you give us about <unk> <unk>.

Run rate goals for that unusual line item in the P&L and what sort of volatility should we expect from it.

Speaker 3: Well, certainly I'd say that this quarter is maybe the first quarter where we, let's say there's no, I call it noise, right? It's more recurring, you know, business as usual for both of them and also, you know, Premia and all the other smaller investments that we have in operating affiliates.

Well.

Certainly I would say.

This quarters, maybe the it is the first quarter, where we let's say there is no I'd call. It noise right it's more recurring.

Business as usual for both of them and also <unk>.

And all of the other smaller investments that we have in our operating affiliates.

We as you know in the balance sheet, we've got over ill call. It a $1 billion of investments or equity in those in those vehicles.

Speaker 3: As you know, on the balance sheet, we've got over, call it a billion dollars of investments or equity in those vehicles. There's a reason why we made the investments. We think they can generate good returns for us. And that's how I would think about it. On your side, I'd say, what kind of ROE should I expect from those businesses over the 2022 period given there's a billion dollars?

Yes.

There is a reason why we made the investments we think.

Can generate good returns for us.

And that's how I would think about it on your side I would say you know what.

Kind of.

ROE should I expect from those businesses over the last over the 2022 period, given theres a $1 billion.

Speaker 3: I'll let you kind of make your decisions on that or model it out, but that's how we would suggest maybe you think about it.

Invested I'll, let you make your decisions on that there are model it out but that's how we would suggest maybe you think about it is Canada on an ROE basis, given neel there is a $1 billion or so.

Speaker 2: on an hourly basis given there's a billion dollars or so. Josh, you have one that's coming from COFAS, obviously, which is a public company that's helpful to you guys and it's also in the rear so you have a good sense for where we're going the next quarter. And on the summers, which is the old Watford, I think it's fair to say that it would track sort of a P&C kind of return, right? I would tend to stand that it's looking like a P&C insurance company. So I would describe those kinds of returns. Just to help you give you a sense of the magnitude and relative magnitude.

And Josh just you have one thats coming from Coface, obviously was a public company. That's helpful to you guys and it's also in a rear. So you have a good sense of where we're going in next quarter right now in the summer, which is the old Woodford I think it's fair to say that it would track sort of P&C kind of return.

I would tend to stand that is looking like a P&C insurance company. So I would describe those kinds of retention help you give you a sense of the magnitude in a relative magnitude between the two.

Speaker 5: And then I see a little bit of shrinkage on the mortgage side of things. If you can talk about your rankings, mortgage, reinsurance, insurance, share buyback, they're all attractive. I know where are the best returns right now.

And then.

There's a little bit of shrinkage on the mortgage side of things. If you can talk about your rankings mortgage reinsurance insurance share buybacks, they're all attractive right now.

Where are the best returns right now.

Speaker 2: I think from a stop down I would say that mortgage is still just currently, right, because longer term they might have different, that's also why I've explained a couple of quarters back that you may be positioning yourself in areas where the returns may be not as high comparatively, but there's a longer term reason for this. We're at a high level right now Josh.

I think from a from a top down I would say that mortgage is still just currently right because longer term they might have different thats also why I've explained a couple of quarters back that you may be positioning yourself in areas, where there maybe not as high comparatively but as it relates to the longer term reasons for this but the <unk>.

High level right now Josh.

Speaker 2: Mortgage, number one, number two, I would say is reinsurance and three is insurance. And the investment income potentials in the future improving will again bring up insurance and reinsurance. But they're not very much different from one another. I mean, there used to be a lot wider difference between them three or four years ago, as you know, but now the market, the hardening market on the P&C side has made them all very, very favorable and very attractive.

Mortgage is number one number two I would say is as.

<unk> and three as insurance, but.

And the investment income.

Potentials in the future improving will again bring up insurance and reinsurance, but theyre not very much different from one another I mean, they used to be a lot wider difference between them.

Four years ago, as you know, but now the market the hardening market on the P&C side has made them all very very favorable and very very attractive on the share repurchase you heard phosphate say, so I guess.

Speaker 2: On the share repurchase, you heard Francois say, so I guess it's where we bought it at, what we think of it, so it's still always a possibility. And I would say on the capital management, as Francois mentioned, it's not only return specific. It's also in terms of returning it if we can't find anything more interesting to work with at a higher return, but I think right now we have a lot of opportunity.

What we bought it at what we think of it so it's still always.

A possibility and I would say on the capital management as far as I mentioned is not only returned specific.

It's also in terms of returning it if we don't if we can't find anything interesting to work with high.

A higher return, but I think right now we have a lot of opportunity a lot of opportunity.

Thank you very much.

Youre welcome.

Speaker 1: Thank you. Our next question comes from Tracy Benquigli of Barclays. Your line is open.

Thank you. Our next question comes from Tracy been gravely of Barclays. Your line is open.

Speaker 6: Thank you. We'd like to touch on the expense ratio. Francois, you mentioned increased contingent commission accruals on probable business.

Thank you I'd like to touch on the expense ratio on Slide you mentioned increased contingent commission accruals unprofitable business.

Speaker 6: And I'm assuming you mean with NGOs, maybe you could just walk us through how that structure works.

And I'm, assuming you mean with MGE is maybe you could just walk us through how that structure works I guess I think there is a multiyear look back period.

Speaker 6: I guess I think there's a multi-year look-back period. And where I'm going with this is essentially if there's a lag in calculating that profit sharing component, should we expect this profit sharing component sticking around for a while to catch up with all the good work you've done on underwriting profitability?

Essentially if there's a lag in calculating that profit sharing component should we expect this profit sharing components sticking around for a while to catch up with all the good work you've done on underwriting profitability.

Speaker 3: Well, I mean, as you can imagine, there's lots of different types of agreements with all our producers, US International, and so going into the specifics would take a lot of time. But I'd say at a high level, no question that if we book a lower loss ratio in business for example, this might raise customer issues probably up to one in my opinion.

Well I mean as you can imagine there is lots of different types of agreements with all our producers.

U S international and so going into the specifics would take a lot of time, but I'd say at a high level no question that if we book a.

A lower loss ratio in business in <unk>.

Some situations.

Speaker 3: situations that does trigger a higher contingent commission. And that has to go hand in hand in how we accrue it, how we book it in the quarter. So as long as the business is performing well, and then, yes, it gets the settlements take place over a period of time.

Situations it does trigger.

Higher contingent commission and that has to go hand in hand, and how we how we accrue it how we book in the quarter right. So.

As long as the business is performing well and then yes.

Guests at the settlement to take place over a period of time.

Speaker 3: with true ups, et cetera, but at a high level, no question, that as long as the business performs well and the loss ratios remain at the levels they're at right now, we would expect commensurate levels of contingent commission to be there in place over time.

With true ups et cetera, but at a high level no question that as long as the business performs well and the loss ratio has remained at the levels. They are at right now we would expect.

Commensurate levels of contingent commission to be there in place over time.

Got it and then on the same topic I mean, basically I'm just curious what are you writing a costumer besides maybe travel business.

Speaker 6: Got it. And then on the same topic, I mean, basically, I'm just curious, what are you writing as costing more besides maybe travel business? So if I look at the changes in your business mix, you know, basically something that pops up maybe is professional lines in insurance and reinsurance that bounces around more quarter to quarter. So if you could just provide more context about the business mix changes that were really driving that, as well as the direction of feeding commission.

The changes in your mix.

Basically something that Pops up maybe professional lines and ensuring reinsurance it bounces around <unk>.

Yes.

Just to provide more complex about that David.

Mix changes that were really driving that as well as the direction of ceding Commission, yes, absolutely. It's a very good question I think that if you look at the structure on each starting with reinsurance brokers are relatively similar.

Speaker 2: Yeah, absolutely. It's a very good question. I think that if you look at the structure on each starting with the insurance group, it's a

Speaker 2: similar phenomenon but different reasons on the re-entrance side.

Similar phenomenon, but different reasons on the on the reinsurance side on the insurance side.

Speaker 2: with programs is also something that we're growing. We're also

Programs is also something that we are growing well so.

Speaker 2: smaller risk in the professional lines. We do a lot of private D&O and not-for-profit D&O, for instance. That comes with a much higher expense ratio than you would have normally with the larger commercial enterprises. So that's one example. We also are increasing our footprint in the UK, which also carries a higher acquisition cost. So I would tend to think on the insurance side is the size of risk, the fact that we are in absent travel.

Smaller risk in the professional lines, we do a lot of private D&O and not for profit D&O for instance that comes with a much higher expense ratio than you would have normally with the larger commercial enterprises. So thats. One example, we also are increasing our footprint in the U K, which also carries a higher.

Acquisition costs. So I would tend to think on the insurance side is of a size of risk. The fact that we are trapped absent.

Absent travel the risk that we write some cyber as well primarily small risks that's also carrying.

Speaker 2: The risk that we write from cyber as well, primary small risk that's also carrying because it's primary and small accounts will have a higher acquisition expense ratio.

Because its primary and small accounts, we will have a higher acquisition expense ratio. So the size of the risk is what makes it on the instruments on the insurance side absent travel, which is also a small risk to be fair on the reinsurance side Tracy as you know it's a lot of quota share is a big big difference, where you can have an expense ratio and acquisition ratio on the excess of loss.

Speaker 2: size of the risk is what makes it on the insurance side, absent travel, which is also a small risk to be fair. On the reinsurance side, Tracy, as you know, it's a lot, quarter share is a big, big difference. You could have an expense ratio, an acquisition ratio on the excess of loss, which is 10 to 15. It could be 30, 33 on a quarter share basis. So that really will skew in. We've been growing both on the insurance side for the small risk and on the reinsurance side on our quarter share participation. So that is just the price of getting access to the business.

Which is 10% to 15 it could be 30 33 on a quota share basis, so that really <unk> Q and we've been growing both on the insurance side for the small risks on the reinsurance side on a quota share participation. So that is just the price of getting access to the business.

That we have to pay for.

Speaker 7: So long this meeting commission. Say it again.

Hi, Ron.

Fee and commission.

Say it again.

And if you could comment on the pseudo progression.

Speaker 2: The city commissions have been stable to slightly up on the arrangements, but not significantly. They're a bit more stable for the last year and a half than they had been in other harder markets. That's one thing that's really intriguing, but I guess it makes sense in terms of the economic returns and the pricing that's coming through on the primary side. But the increase itself in city commission is not what's driving the acquisition expense ratio. It's really the type of business in the mix that we're writing.

The ceding commissions have been stable to slightly up on the reinsurance, but not significantly David more stable for the last year and a half than they had been in the other harder markets Thats, one thing thats really intriguing, but I guess it makes sense in terms of the economic returns and the pricing that's coming through on the primary side, but.

The increase itself into the commission is not what's driving that.

The acquisition expense ratio was truly the type of business and the mix that we're writing.

Thank you.

Thank you.

Speaker 1: Our next question comes from Mike Zaremski of Wolf Research. Please go ahead. Hey, great.

Our next question comes from Mike Zaremski of Wolfe Research. Please go ahead.

Okay great.

Thanks.

A follow up on the maybe I'm reading too much into this but on the increase in the expense ratio, specifically I believe probably the.

Speaker 8: a follow up on the, maybe I'm reading too much into this, but on the increase in the expense ratio, specifically I believe probably the acquisition expense ratio, but maybe also the other portion of the expense ratio and the primary insurance segment. So I believe you said some of it was due to increased...

Acquisition expense ratio, but maybe also the other portion of the expense ratio in the primary insurance segment. So I believe you said some of it was due to increased profitability our contingent commissions.

Speaker 8: profitability or continued commissions. But I guess if I'm looking at the overall combined ratio for that segment for the year, it was 96 and change.

But I guess, if im looking at the overall combined ratio for that segment for the year. It was 96 and change.

Speaker 8: and for the quarter it was 93, I guess I thought we were shooting for like overall profitably being better than that, kind of in outer years, or maybe even this year. So I didn't think profitability was kind of much better than expected. Any thoughts there?

And for the quarter was 93.

I guess I thought I thought we were shooting for like overall profitability being better than that kind of.

In other years or maybe even this year. So I didn't think profitability was was kind of much better than expected so any thoughts there.

Well I mean.

Speaker 3: Obviously, you got to slice it down by line of business so that the agreements, they're not on the overall profitability. So sometimes we do have some books of business that are doing extremely well and commissions go up with that. The other thing that I mentioned and I think is not insignificant is the fact that we are retaining a bit more in some lines of business.

Obviously, you get you get a slice it down by the line by line of business. So that the agreements they're not on the overall profitability. So sometimes we have we do have some books of business that are doing extremely well in yellow commissions go up with that.

The other thing that I.

Mentioned in I think it is not insignificant is the fact that we are retaining a bit more in some lines of business.

Speaker 3: And that kind of moves the economics, I'd say, right? So you're going to get a bit less seeding commissions that are maybe higher in some places and you retain more net than that at a better loss ratio going forward. So that's something that also impacts the overall acquisition. I'd say at a high level, no question that there's a bit of noise this quarter, but it's not something that has us.

And that kind of moves the economics, I would say right, so youre going to get a bit less ceding commissions that are.

Maybe higher in some places and you retain more net than that at a better loss ratio going forward. So that's something to that also impacts the overall acquisition I would say at a high level.

Yes.

No question that there is a bit of noise this quarter, but it's not something that has us.

Speaker 3: extremely worried at this point. I think it's very much quarterly, kind of a bit of noise. There's a bit of, again, recovery from COVID. Like last year, quarter over quarter, we were still in the, very deep into the COVID crisis with no travel, etc.

Extremely worried at this point I think it's very much.

Quarterly kind of a bit of noise. There is a bit of again recovery from COVID-19 like last year quarter over quarter, we were still in the very deep into the Covid crisis with no.

No travel et cetera. So.

Speaker 2: There's other reasons that impact all, our expense ratio in total, I'd say, at a high level, we think it's a bit elevated this quarter, but not really a cost or concern. Yeah, and Mike, you're quoting numbers that include CAD events, like actual CAD events. If you do it XCAD, which is probably a better reflection of the underlying margins, it's really going down from 95 to 91 for the year. So we do, we are getting improved margin. One could argue whether it should be more or less, but it's pretty much an improvement.

There is other reasons that impact it.

All of our expense ratio in total I would say at a high level, we think it's a bit elevated this quarter, but not really a cause for concern, yes, Mike you're quoting quoting numbers that include cat events.

Cat event, if you do it ex cat, which is probably a better reflection of the margins, it's really going down from $95 to 91 for the year. So we do we are getting improved margin and one could argue whether it should be more or less but it's pretty much an improvement.

Speaker 2: that we saw the last 12 months. So your numbers were skewed somewhat at cat events, I believe.

That we saw in the last 12 months. So it's your numbers were skewed somewhat with the cat events I believe.

Speaker 8: No, you're right. I probably should have quoted maybe ex-cat too, but although the cats matter, but also a good point on your net to growth is keeping. Yep, yep, yep. Okay, so that's helpful. And maybe just switching gears to capital and inorganic growth. I guess, you know, one of

Youre right I, probably should've quoted maybe ex cat two about although the cats matter, but also a good plan.

Your net to gross as is.

Now keeping them.

Okay, that's helpful and.

Maybe just switching gears.

To capital and inorganic growth I guess.

Speaker 8: one of the MIs hit the tape that they're potentially exploring a sale.

One of the <unk>.

Hit the tape that there potentially exploring a sale.

If another EMI buys another mortgage insurers as one plus one still less than two or kind of dynamics do you think maybe changed over the recent years.

Speaker 8: If another MI buys another mortgage insurer, is one plus one still less than two? Or have dynamics changed over recent years?

Speaker 2: It's a good question because our understanding was that the GSEs and it's really, you know, we have to talk to the people in Washington and Virginia to understand what they think about this.

It's a good question because our understanding was that the GSE and it's really talking.

Talking to people in Washington, and Virginia to understand whether you think about this.

There was a preference to have.

Speaker 2: more, not lesser amount of MI providers, more diversification. So we'll see what happens. There's not much gain in benefit and scale in combining two MI companies. All the capital models and whatnot are sort of linear, so there's not really a saving of capital. I think there will probably be some net loss in the market share. I think we saw ourselves some of it.

More.

Lesser amount of ni providers more diverse diversification, so we'll see what happens.

Theres not much gain and benefit and scale and combining two companies I mean, you still have all the capital models.

And whatnot are sort of linear so it is not really a savings of capital I think they will probably be some net net loss in our market share I think we saw ourselves some of it from the when we acquired <unk>. So it's not one plus one is not equal to one five but it was a little bit of a.

Speaker 2: from when we acquired UG. So it's not one plus one, it's not equal to one and a half, but it was a little bit of a loss on the market share. So that's probably not.

<unk>.

The loss on the market share so that's probably not one.

Speaker 2: 1 plus 1 equals 2 or plus. So I don't know what's going to happen. I mean, I don't know what people have in mind. I think to me...

One plus one equals to a plus so I don't know whats going to happen I don't know what people have in mind I think to me our core principle about NII.

Speaker 2: Our core principle about MI and the way we've operated stays, which is it's always better in a multi-line diversified platform. That's not going away. I would say that some of the SMPU modeling is appreciating and recognizing that. So that's my view, at least. I think the more sensible thing would be for these MI to find another home somewhere else outside of the MI arena. But I'm not a predictor of that.

And the way we've operated stays which is always better in a multi line diversified platform, that's not going away I would say that some of the S&P new modeling is appreciating and recognizing that so that's my view at least I think the more sensible thing would be to put these amount to find another home somewhere else outside of the EMI.

Rina, but im not a predictor of this Mike.

Speaker 2: That's helpful. So you mentioned the S&P capital model. Will the diversification get an increased benefit? So the MI? Well in general, there's better diversity in credit the more diversified you are which again speaks to our model which makes sense to us.

That's helpful and so the you mentioned the S&P capital model.

The dive.

Diversification get out increased benefits so.

But in general <unk> in general better diversity credits the more diverse diversified you are which again speaks to our model, which makes sense to us.

Thank you.

Okay.

Speaker 1: Thank you. Our next question comes from Mark DeWell of RBC. Your line is open.

Thank you. Our next question comes from Mark Dwelle of RBC. Your line is open.

Speaker 3: Yeah, good morning. A couple of questions related to MI. First on the, in the quarter, it looked like the average paid claim, average paid cost per claim was around $51,000. It's been running more in the 30s. Is there anything in particular that accounts for the uptick, maybe some large claims or something?

Yes, good morning couple of questions related to my.

First on the.

In the quarter it looked like the.

Average.

Paid claims average paid cost per claim.

It was around 51000, it had been running more in the thirties.

In particular that accounts for the uptick maybe some large claims or something.

Speaker 3: Yeah, we have it. It's a one-off really. It's a settlement with a servicer that took place this quarter that was for pre-crisis claims. So definitely a one-off here.

Yes, we had it's a one off really it's a settlement with a servicer that took place this quarter that was pre crisis.

Claims so.

Definitely a one off here.

Speaker 3: And then a second question related to MI is just really a clarification. The reserve releases that you did in the quarter, are we to understand that those related to the reserves set up when COVID began or were these reserves related to other time periods or other classes of reserve?

And then a second question related.

Really a clarification.

The reserve releases that you did in the quarter.

I understand that those related to the reserve set up when Covid began or were these reserves related to other time periods or other classes of reserves.

Speaker 3: I mean, we made the point in the past that we have a hard time to some extent, right, isolating COVID from non-COVID claims, but still more than half is for reserves that we had set up before COVID. So, I mean, the vast majority, or the majority is, if you want to go at just the period of when they were set up is pre-first quarter 2020.

I mean, we made the point in the past that we have a hard time to some extent.

Isolating COVID-19 from non Covid claims, but still more than half.

As for reserves that we had set up before COVID-19 . So I mean, the vast majority or the majority is.

If you want to go with just the periods of when they were set up as pre pre first quarter 2020.

Speaker 3: Okay, thank you. And then the last question I had was really more of a general market kind of question, maybe for Mark. You know, are you seeing any signs in the insurance or reinsurance businesses of competitors taking more aggressive pricing stances, I mean, basically getting at, you know, is the insurance clock getting towards 12 o'clock or are we still firmly at 11 o'clock?

Okay. Thank you.

The last question I have is really more of a general market question.

Maybe for Mark.

Are you seeing any signs in the insurance or reinsurance businesses.

Competitors, taking more aggressive pricing stances basically getting at.

As the insurance clock getting towards 12 o'clock or are we still firmly at 11 o'clock.

Speaker 2: Well, it's probably like the longest 11 o'clock that we'll see in our lifetime. I think that if you look at the risks that are ahead of us...

Well, it's probably like the longest 11 o'clock that we'll see in our lifetime I think that if you look at the risks that are ahead of us.

Speaker 2: You still have climate to deal with, you still have inflation concerns.

You have you still have climate to deal with you still have inflation concerns, which I guess leads to reserve potential reserve questioning or analysis cyber risk.

Speaker 2: I guess leads to reserve, you know, potential reserve questioning or analysis, cyber risk.

Speaker 2: and COVID reopening, there's a lot of stuff going on right now that sort of leads the whole market to be a lot more careful and thoughtful. So the market is always competitive, right? There's always competition out there, but right now where we are, it's a very disciplined market and we're not seeing anything, you know, we haven't seen anything and we're not seeing anything percolating that would indicate that this would change for 2022. As I said before, there's a significant question around the gap of thinking about ultimately how do we take this question, right, because I think that the industry should get more comfortable with what we're saying and the questions around the gap of thinking and thinking, okay, we will see an increase in stagewaif ONL and start managing to make sure that the companies are doctors or pulse specialists and working more Therapeutics and it's that knowledge also that brings every regard to things that usually aren't respected high quality and you can't

Covid reopening because a lot of stuff going on right now that sort of leads the whole market to be a lot more careful and thoughtful so the market is as it always competitive right. There's always competition out there, but right now what we are.

It's a very disciplined market and we're not seeing anything we haven't seen anything and we're not seeing anything percolating that would indicate that this would change for 2022.

Thank you that's all my questions.

Mark.

Speaker 1: Thank you. Our next question comes from Meyers Shields of KVW. Your line is open.

Thank you. Our next question comes from Meyer Shields of <unk>. Your line is open.

Speaker 9: Thanks if I go back to the commission question, I guess clear that. Underlying possibility is getting better. So we expect a smoother. Recognition of commission accruals in 2022.

Thanks.

If I go back to the contingent Commission question I get clear that.

Underlying profitability is getting better so we expect a smoother recognition of contingent commission accruals in 2020.

Speaker 2: Not necessarily because no matter the release of profit commission or contingent commissions is dependent on loss pick.

Not necessarily because no my or the release of profit commission or contingent commissions is dependent on loss picks so.

Speaker 2: We tend to take our beautiful time to make sure we have all the data available to make those contingent commissions. So they can be spotty. We can make a decision to look at two or three underwriting years and have that adjustment made. We accrue for some of it, but we don't always accrue to the full extent of the ultimate. The losses actually drive these contingent commissions. So it's really spotty. It's very hard to predict.

We tend to take our.

Beautiful time to make sure we have all the data available to make those continuing to study can be spotty, but we can make a decision.

You look at two or three underwriting years and have that adjustment and we accrue for some of it but we don't always accrue to the full extent of the ultimate losses actually drive these contingent commissions. So this is so it's really spotty is very hard to predict.

Speaker 9: Okay, so that's fair. I just want to understand the process. Second question, I think Francois had talked about maybe reducing the sessions on some quarterly contracts in insurance, so less of an offset. Does that outpace or trail the loss ratio improvements that you should anticipate from keeping that?

Okay, No that's fair I, just want to understand the process.

Second question I think first of all had talked about.

Maybe reducing the sessions on quota share contracts in insurance, so less of an offset.

Does that outpace or trail the loss ratio improvement that you said dissipate from keeping that business.

Speaker 2: I'm not sure I got exactly where you're trying to get to, Myer, I apologize. Okay, yeah, let me try again. So after this is expensive going up because you're seeding less business and have high.

A mix shift so are you, saying that it could repeat the question differently I'm not sure I got exactly what are you trying to get to a minor apologise. Okay. Yes, let me try again, so yes acquisition expenses going up because youre ceding less business that has high ceding Commission yes.

Speaker 9: I'm just hoping that you can sort of frame that relative to the loss ratio improvement that we should expect because you're keeping more profitable.

Just hoping that you could sort of frame that relative to the loss ratio improvement that we should expect because you are keeping more profitable business. Yes. So if we're keeping more profitable business the loss ratio would everything else being equal go down.

Speaker 2: Yes, so if we're keeping more profitable business, the loss ratio, with everything else being equal, go down.

Speaker 9: Right. By more than the increase in acquisition expense.

Alright bye.

More than the increase in acquisition expense.

Possibly.

Speaker 2: It's hard to say right from the get go. I think we made these economic decisions. It's kind of a hard one to pin down. I mean sometimes what you see is capital. Capital with returns that's different than the pure combined ratio. So there's a lot of things going on. It's not only about the pure combined ratio. The return is improving.

It's hard to say right from the get go I think we made economic decisions, it's kind of a hard one to pin down I mean, sometimes sometimes what you see is capital.

Capital, we returned that's different than the pure combined ratio. So theres a lot of things going on it's more it's not only about.

The pure combined ratio.

The return is improving that's what matters to us.

Speaker 3: Yeah, directionally, I think we're, you know, we don't disagree with what you're saying. I think the precision or the timing at which everything happens is less, I mean, it's less precise. I mean, it's

Yes directionally.

We don't disagree with what you're saying I think the.

The precision or the timing at which everything happens is less I mean, it's less precise I mean, thats, but yes.

Yes.

I would say I would directionally I think it's better it's a better return.

Speaker 3: I would feel, actually I think it's right, yeah. Better return.

Speaker 9: Okay, I completely understand. One big picture question if I can. I understand everything that you're saying, Mark, about the cycle lasting longer because of concerns on the lost trend side. So I guess why rates are going up. Why do you think rates are still going up more than lost?

Okay, no completely understand and then one big picture question, if I can.

Anything everything that you're saying mark about the cycle lasting longer because of concerns on the loss trend side. So I guess why rates are going up why do you think rates are still going up more than loss trend.

Well, that's a loaded question Meyer that's one that we should probably have the BARDA corn and all kidding aside I think that that's probably a recognition that this uncertainty.

Speaker 2: Well, that's a definitely a question, Meyer. That's one that we should probably have at the bar at the corner. And all kidding aside, I think that's

Speaker 2: There's probably a recognition that this uncertainty is what creates the need for more margin safety. I think that when you're faced with

Is what creates the need for more margin of safety I think that when you are faced with.

Speaker 2: uncertain pick up in inflation. I mean we had a 7% roughly inflation print this morning. I mean when you have a high number that comes like this, it comes as a shocker. So I think that people are being preempting.

Uncertain and it will pick up in inflation I mean, we had a 7% roughly inflation print. This morning, I mean, when you have a high number that comes like this has come at a shocker. So I think that people are being preempting.

Speaker 2: preempting in making sure that they cover as much of the base as they can. I think the insurance industry, for what it's worth, has been very disciplined and is acting in a very, very proper way in, I think, over the last two years. I think it recognizes that the risk is building up and need to price better, price higher, because there's more risk of a, you know, of sliding a bit sideways. So I think it's an appropriate and very welcome change. The business in the market is pretty good from that perspective.

Preempting in and making sure that they cover as much of the data. They can I think the insurance industry for what it's worth is been very disciplined and is acting in a very very properly and I think over the last two years I think it recognizes that the risk is building up and need to price better.

Price higher because there's more risk of a.

Sliding a bit slides sideways. So I think it's an appropriate and very welcome change that this has been the market is pretty good.

From that perspective, okay. Thanks, I'll hop off.

Sure sure.

Thank you. Our next question comes from Brian Meredith of UBS. Please go ahead.

Speaker 1: Thank you. Our next question comes from Brian Meredith of UBS. Please go ahead.

Speaker 10: Yeah, thanks. Got two questions for you guys. First one, I'm just curious. I know there was a block of stock of Kofus that traded. And I know you all didn't buy it. Was there any regulatory reasons you couldn't do it? Or is that just kind of a capital allocation decision that, you know, you don't want to own the whole thing?

Yes. Thanks got two questions for you guys first one I'm just curious I know there was a block of stock <unk> trade at.

And I know you all didn't bite was there any regulatory reasons you couldnt do it or is that just kind of a capital allocation decision.

You don't want to own the whole thing.

Speaker 3: No, not at all. I think the existing shareholder wanted to sell and very much easier for them to do it the way they did it.

No not at all I think.

Sure.

The existing shareholder wanted.

Wanted to sell and <unk>.

Very much very much easier for them to do it the way. They did it then to come to us and at which point, yes, we would've had to go to the regulators and that were taken weeks, if not months and the whole approval process would have brought maybe dragged on so I think they wanted speed over maybe better execution and that's what they got.

Speaker 3: than to come to us, and at which point, yes, we would have had to go to the regulators and that would take an hour.

Speaker 3: weeks, if not months, and the whole approval process would have probably maybe dragged on. So I think they wanted speed over maybe better execution, and that's what they got doing it the way they did.

Doing it the way they did.

Speaker 10: So is that co-phase stake less strategic for you then going?

So as that Coface stake less strategic for you then going forward.

Speaker 3: Not at all. Not at all. I mean, to be candid, I mean, they didn't even come to us offering it up to us. I mean, they just went ahead on their own. Instead of coming to us and saying, would you be interested in buying the 10% or 12% we want to get rid of, or we don't want anymore, they just went through their own process. Because again, they knew that..-

Not at all not at all I mean.

To be to be candid I mean, they didn't even come to us offering at up to one I mean.

Just went ahead on their own.

Instead of coming to us and saying would you be interested in buying the 10 or 12% we have to we want to get rid of or we don't.

Don't want anymore.

They just went through their own process because again they knew that.

Speaker 3: We tripped the requirements that we'd have to do a tender and all of that, which would have taken longer. So that was their decision and we respect it. But going forward strategically, we still look at COFAS and it's been very good to us so far and we keep thinking about how we if and when or how we do things differently going forward.

We tripped the requirements that we would have to do a tender and all of that which.

Would have taken again.

Longer so.

That was their decision and we respect it but going forward strategically we still look at <unk> and it's been very good to us so far and we keep thinking about how we if and when or how we do things differently going forward.

Speaker 10: Great. And then, first of all, let me just clarify one comment you made earlier in talking about kind of repurchasing your stock and understand that you want that three-year payback period, but you said there's other considerations and understand that, but does that mean that with your stock trading just a little over 1.4 book value right now that you would not be buying SPAC stock right now? Your return profile doesn't fit that.

Great and then first of all let me just clarify one comment you made earlier.

Talking about kind of repurchasing your stock and understand that you want that three year payback period, which is if theres other considerations I understand that but does that mean that with your stock trading just a little over one four book value right now that you would not be buying back stock right now.

Your return profile doesn't fit that.

Well its never a black and white, but I'd say that the forward looking returns that we see for how we think about the business the embedded profitability over three years.

Speaker 3: It's never a black and white, but I'd say that the forward-looking returns that we see for, you know, how we think about the business, you know, embedded profitability over three years.

Speaker 3: You know, it's higher than 10%, right? So you could kind of stretch it a bit more than 1.3 times book.

It's higher than 10% right. So you could you could kind of stretch it a bit more than one three times book.

Speaker 3: And so I'll stop here and say we could consider going above 1.3 times book, very much as a function of how we think about the business and what kind of profitability we see coming our way. Yeah, I think Brian I would say, you know this as well, right? I mean there are a couple of things happening, for instance, on the MI side that might change. That's what we perceive to be the real.

And so it's.

I'll stop here I'd say, we could consider going above one three times book.

Very much as a function of how we think about the business and what kind of profitability, we see coming our way.

Brian I would say.

This as well right I mean, there are a couple of things happening for instance on the semi side that might change that what we perceive to be the real book value of the company. So these are also considerations that could be weighed out way outside of the.

Speaker 2: So these are also considerations that could be way outside of the reserve, of the return of possibility going forward.

The reserve or the return possibility going forward.

So that's one example, you got.

Got you. Thank you okay. Thank you Brian .

Yes.

Speaker 1: I would now like to turn the conference over to Mr. Mark Grandison for closing remarks.

I would now like to turn the conference over to Mr. Mark <unk> for closing remarks.

Speaker 2: Well, thank you everyone. I want to thank our employees, as Francois mentioned as well. And Valentine's Day is around the corner, so make sure you take care of your loved ones this weekend.

Well, thank you everyone.

Our employees as Francis mentioned as well and.

Valentine's day around the corner so make sure you take care of your loved one this weekend.

On to the next quarter.

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

Speaker 1: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.