Q4 2022 Arch Capital Group Ltd Earnings Call

Speaker 2: Four.

Speaker 3: What day ladies and gentlemen, and welcome to Sacha Capital Group, fourth quarter, 2022 Running School.

Speaker 3: At this time, all participants are in listen only mode. Later, we will conduct a question in answer session and instructions will follow at that time.

Speaker 3: As a reminder, this conference call has been recorded.

Speaker 3: Before the company gets started with this update, management wants to first remind everyone that certain statements and today's press release and discuss what this call may constitute to quote the statements under the Federal Security Law.

Speaker 3: The statements are based upon management's current effectiveness and assumptions and are subject to a number of risk and uncertainty.

Speaker 3: Constantly actually sought to make different material from those expressed or implied.

Speaker 3: For more information on the risk and other factors they may affect future performance and that should review periodic reports that are filed in the companies with the SEC from time to time.

Speaker 3: Additionally, certain statements contain in the call that are not based on all historic facts or for looking statements within the meaning of the private security litigation reform at of 1995.

Speaker 3: The company intends the forward-looking statements in this call to be subject to the safe harbor created thereby.

Speaker 3: The management also will make reference to some non- GAAP measures of financial performance.

Speaker 3: The reconciliation to gap and definition of operating income can be found in the company's current report, or form 8K furnished to the SEC yesterday, which contains the company's firm's press release and is available on the company's website.

Speaker 3: I would now like to introduce your host for today's conference. Mr. Mock, Gredison and Mr. Francois Mourin. Sir, you may begin.

Speaker 4: Thank you to all of you. Good morning and welcome to the fourth quarter earnings call for Hearts Capital Group.

Speaker 4: Happy Valentine's Day to all.

Speaker 4: I'm pleased to share that for the fourth quarter of 2022, each of our three undividing segments produced exceptional results.

Speaker 4: Our quarters results were buoyed by a lower than average catwalk experience, a significant favorable development in mortgage reserves, and a higher level of profitable earn premiums from our recent growth.

Speaker 4: This quarter demonstrates the power of our strategy, namely, our management of the underwriting cycle across the diversified specialty portfolio with the prudent reserving and underwriting stance.

Speaker 4: Our PNC insurance underwriting teams continue to lean into hard market conditions and our mortgage team delivered record underwriting income which is again a direct result of our years as the established market leader there.

Speaker 4: For the four year of 2022, ARCH generated over $1.8 billion of operating income with an operating return equity of 14.8%.

Speaker 4: 2022 was our third consecutive year of sustained premium and revenue growth, supporting stronger and more stable earnings power for the new term.

Speaker 4: The net freedom written growth from our PNC units was exceptional.

Speaker 4: Re-insurance segments, NTW Group 51% for 2022, as the team seized on market dislocations, while our insurance segment grew in a robust 21% on the year.

Speaker 4: We continue to see a broader array of opportunities to allocate capital where rates and terms and conditions allow for growth and attractive returns.

Speaker 4: Taking stock of where we are in the current market cycle.

Speaker 4: It's important to note that we've recorded premium growth significantly above the long-term industry average.

Speaker 4: Over the last four years, we've grown property and canopy net premium-written threefold to nearly $10 billion from less than $3.6 billion in 2018, while overall rates increased cumulatively by over 40%. As we have stated previously,

Speaker 4: Our cycle management strategy dictates that we maximize cream and volume on rate of rising, which is precisely what we've done.

Speaker 4: While we expect to continue to allocate more capital to the B&C segments for the next several years, I wish to remind our shareholders that we've capitalized on the attractive return opportunities in our MI segment to the tune of $5.4 billion of underwriting income since 2017. These profits allowed us to redeploy capital into more...

Speaker 4: It's core to our culture.

Speaker 4: And I want to take a brief detour into how we think about the underwriting cycle here at Arch.

Speaker 4: given simplification of Paul Ingrid's insurance clock

Speaker 4: Split into four stages.

Speaker 4: Stage 1. At the onset of the hard market, we see rates increase dramatically and capacity

Speaker 4: Results on the previous soft market results only begin to show up in plain activity.

Speaker 4: Stage 2.

Speaker 4: This is the beginning of the restoration phase which is indicated by second and sometimes third round of rate increases along with some improvements to the full of interest in the term conditions as the industry adjusts its appetite and underwriting policies.

Speaker 4: Much of the focus during the stage.

Speaker 4: It's also geared to filling gaps in and replenishing reserve shortfalls from the soft years while showing rapid improvements.

Speaker 4: Stage 3.

Speaker 4: That next period is where rates drive really decrease, often as a result of overreactions in stage two.

Speaker 4: I'm running profits from the hard market years gradually show up in the results.

Speaker 4: The series can be lengthy and it usually allows for still profitable growth, especially for the discipline underwriters.

Speaker 4: And finally stage 4.

Speaker 4: Statement Stage 4 is where the industry foretakes underwriting discipline and overly focuses on top-line growth even has great decreases accelerate.

Speaker 4: This is where artists culture of underwriting discipline is most apparent as we've got exposure and prepare for the return of stage one.

Speaker 4: Right now we are at stage 2 in most lines.

Speaker 4: Some, for instance, property are back to stage 1 and support quarter.

Speaker 4: Understanding where you are at each point of the cycle for every product line and the nuances within each stage is Critical to the time you allocate the capital to the areas of greatest opportunity

Speaker 4: One of our system's sustainable advantages is the breadth of its capabilities across many specialty insurance lines enhancing greatly our cycle management capabilities.

Speaker 4: A course to teach at Canada Arch is an underwriting document in discipline through the cycle drives superior risk adjusted returns.

Speaker 4: Now I'd like to share some highlights from our underwriting unit, but take it off with re-insurance.

Speaker 4: For the fourth quarter, net premium written in the range from segments was $1.5 billion. That's more than double the same quarter one year ago.

Speaker 4: Frontier will cover the details, but much of this growth is because we were well positioned to capitalize on broad market opportunities as well as several one-off opportunities resulting for market dislocations.

Speaker 4: emerging in the fourth quarter.

Speaker 4: It is worth noting that a fourth-quarter growth does not include the Jeremy I property and property catman walls which will be affected in our next quarter's results.

Speaker 4: As you have heard, pricing for the January 1 renewals was strong.

Speaker 4: Cap pricing and terms both improved leading to effective rate changes in the plus 30 to plus 50 percent range.

Speaker 4: We anticipate these strands will continue at the mid-year property capronol and should translate to strong property cap treatment growth in 2023 for March.

Speaker 4: Moving now to our insurance segment, where we continue to read the benefits of the investments we've made in enhancing our specialty businesses in the UK and in the US. On the year we wrote over $5 billion of N-T-W, netcring and written.

Speaker 4: compared to 4.1 billion dollars in 21, with growth coming from a diverse mix of business.

Speaker 4: Underwriting performance continued to be excellent with an X-CAT action year for about a ratio of 89.6%.

Speaker 4: Great increases with a few exceptions remain above last-cost trends and we expect the strong momentum.

Speaker 4: to continue for 2023.

Speaker 4: The insurance market remains rational and disciplined.

Speaker 4: We expect also continued opportunities due to the ongoing global uncertainty and remain optimistic that this discipline behavior that we saw in the P&C industry for the last three years will persist as we move through stage 2 of the title.

Speaker 4: Next, our mortgage team again had an acceptable quarter, capping up an extra year.

Speaker 4: As we benefited from earnings, from our embedded book as well, as from favorable reserve development, as cures on the link with these exceeded our expectation.

Speaker 4: The mortgage segment delivered $374 million of underwriting income in the quarter and $1.3 billion for the year. An action and contribution in the year where a higher mortgage interest rate slowed new to your origination. The mortgage guarantee will be bandwidth només and sometimes longer in the market. The mortgage guarantee will be bandwidth només and sometimes longer in the market.

Speaker 4: Our insurance enforce the earnings foundation of the mortgage segment grew to 513 billion dollars at year-end 22, as the system seems increased due to higher mortgage rates.

Speaker 4: As expected, higher mortgage rates led to reduced NW as mortgage rates touched 7% of the highest rates in 20 years.

Speaker 4: Looking broadly at the MI industry of health.

Speaker 4: We have borrower credit quality, which is outstanding and Access housing demand above supply the US unemployment rate is made at historic lows and the borrowers equity in their homes remain at very healthy levels

Speaker 4: One thing worthy of mention is that the MI industry is acting in a disciplined and responsible manner.

Speaker 4: In the face of these economic uncertainties, premium rates are increasing.

Speaker 4: while under any quality remains strong.

Speaker 4: Finding the interest rate increases which seen in the last 12 plus months should help fuel our net investment income through 2023.

Speaker 4: We are forced to benefit from a higher reinvestant rate coupled with a growth in invested assets.

Speaker 4: How about auto racing on my mind lately? And when I look at our industry, I can't help but think that Arch is one of the best cars on the track.

Speaker 4: We know that winning a race comes down to more than having a great driver or the fastest car. There is much preparation, analysis and looking at the conditions on the track as well as monitoring the other drivers.

Speaker 4: By recognizing the soft market conditions in 17 and 18, we avoided the mistakes others made early in the race, but they might have burned tires or overheated their engine.

Speaker 4: The thricing began to improve in 2019 where you're able to take advantage of some of our competition's back fit stuff and engine problems and we took the opportunity to take more of a lead on the track by increasing substantially our riding. And then once we saw some clear track ahead of us, we were able to accelerate even faster.

Speaker 4: Today we're firing on all cylinders and I know we've got the right crew to bring in

Speaker 4: Let's hand the wheel over to Francois before coming back to answer your questions.

Speaker 4: Thank you, Bart, and good morning to all. Thanks for joining us today.

Speaker 5: I'm very pleased to share that once again, Arch had an excellent quarter of commercial

Speaker 5: The year concluded with four quarter after tax operating income of $2.14 per share for an annualized operating return on average common equity of 28%.

Speaker 5: Book value for share was up 9.9% in the quarter to $32.62, and down only 2.8% on the year. A great result considering the right VVAC rising interest rate tag on our fixed income portfolio.

Speaker 5: The difficult year in equity markets and the elevated catastrophe activity we experienced this year.

Speaker 5: Turning to the operating segments.

Speaker 5: Netcreen written by a re-insured segment, blue by an exceptional 118% COVID-10 quarter last year.

Speaker 5: Although this quarter we had a few large one-off transactions that impacted our results and contributed $407 million to our net written premium. As just being for these transactions, our net premium rate e-road was still elevated at 61% for the quarter.

Speaker 5: These transactions are yet another example of the difficult data state of the insurance market.

Speaker 5: where our strong balance sheet provided significant advantage as we looked at the more meaningful capital to support seeding companies

Speaker 5: and turn the knee all over your expectations.

Speaker 5: More importantly, the underlying performance of the second- this quarter was very good with an XCAT active-year combined ratio 82.9%.

Speaker 5: and the diminutive impact on current action in your capacity.

Speaker 5: Reflecting ongoing hard market conditions, the insurance segment also pulls the year in a very good note.

Speaker 5: with 4th quarter net-prey and reppie growth of 17.4% over the same quarter one year ago.

Speaker 5: and then act in a quarter of combined ratio of student cast of 89.6%.

Speaker 5: Most of our line of business still benefit from excellent market conditions, both in the US and internationally, and our expectations for the coming year remain very positive.

Speaker 5: Our mortgage segments continue to run a quarter with results better than long-term averages.

Speaker 5: as claim activity for the buildings remaining alone.

Speaker 5: While production volumes were down-duced as a lower level of originations in the market.

Speaker 5: We remain positive on the return prospects for this business.

Speaker 5: Death pre-inferring or ux likely on the sequential basis as the persistent T of our enforce insurance at 79.5% that you have a quarter continue to improve.

Speaker 5: The combined ratio excluding priority development was 45% for the quarter.

Speaker 5: and reflects our proven approach to loss-reserving.

Speaker 5: one of our key operating principles.

Speaker 5: Our online income reflected $270 million of favorable prior year development on a pre-tack basis across all segments this quarter.

Speaker 5: which represents approximately 66 cents per share after debt.

Speaker 5: While most of this favorable prior development, 211 million came from the mortgage segment, mostly on claim reserves set up for COVID-related delinquencies in the 2020 and 2021 accident years.

Speaker 5: of the global prior development, 200 and a lot of millions came from the mortgage segment. Mostly on claim reserves set up for COVID-related delinquencies in the 2020 and 2021 accident years at U.S.M.I.

Speaker 5: It is worth pointing out that our P and C reserves also contribute to the overall result.

Speaker 5: Of note, both our insurance and reinsurance segments had another quarter of favorable resurgence and we are

Speaker 5: And the 2042 calendar year phase two in court ratio for P&C operations was 58.7%.

Speaker 5: It's lower, it's lower and more than five years.

Speaker 5: Both these metrics provide some insight into the adequacy of our loss reserves, which constitutes an important element in the quality of our value.

Speaker 5: Quarterly income from operating affiliates stood at $36 million and was generated from good results at full fast and summers.

Speaker 5: Next, then, investment income was 48 cents per share, up 41% from the third quarter of 2022.

Speaker 5: Cash flow from operations over a $3.0 billion per year was strong, and what combined with a proceeds from maturedies and sales of securities and a rapidly rising yield environment and has the underlying contribution from our investment portfolio.

Speaker 5: Going forward with new money rates in our fishing sum portfolio in the 4.5 to 5% range.

Speaker 5: in a growing day from the end of the day.

Speaker 5: We are well positioned to deliver an increasing level of investment income to help you or bottom line.

Speaker 5: Total return for our investment portfolio was 2.6% on the US dollar basis for the quarter, with all of our strategies delivering positive returns.

Speaker 5: The contributions to the overall result was primarily led by a fixing-comfortfolio, which benefited from relatively stable interest rates and tightening credits rent.

Speaker 5: The overall position of our investment portfolio remains relatively unchanged.

Speaker 5: as we remain cautious relative to duration, credit, and equity risk.

Speaker 5: Turning to rich management, our natural camp PML on a net basis stood at 970 million as a January 1 or 8% of tangible shareholder's equity.

Speaker 5: Again, welcome over internal limits at the single of that one is 200 years, 250 year return level.

Speaker 5: Our PZONE PML remains a floor at Fry County Region.

Speaker 5: And as Mark mentioned, the PMLs we report represents a point in time estimates of the exposure from our reports portfolio, and the premium associated with the January 1 renewals will get reported, the international will start in the next quarter.

Speaker 5: On the capital front, we did not repurchase any shares this quarter, as our assessment of the market opportunity in 2023 remains very positive.

Speaker 5: One world we should be able to deploy meaningful capital into our business.

Speaker 5: and attractive returns for the benefit of our shareholder.

Speaker 5: Finally, as Mark mentioned in his remarks, the result we enjoyed this year across our operation were achieved through a thoughtful and deliberate execution of our cycle management strategy.

Speaker 5: and a strong culture of allocating capital to the most profitable market that opportunity.

Speaker 5: These results, which were an important contributor to us joining the S&P 500.

Speaker 5: We're only made possible by the ongoing hard work and dedication of our over 5,000 employees across the globe.

Speaker 5: These are the surveys from Mendis Amatta credit for making us who we are today.

Speaker 5: And industry leader with a stellar 24 year track record that is ready for the opportunities and challenges ahead of us.

Speaker 5: With these introductory comments, we are now prepared to take your questions.

Speaker 3: Thank you. Ladies and gentlemen, if you have a question at this time, please press star 11 on your touch tone telephone and wait for your name to be announced.

Speaker 3: that star one wants to ask the question.

Speaker 3: If your question has been answered or you wish yourself from the queue, please press star one one again.

Speaker 3: Please stand by while we compile the Q&A roster.

Speaker 3: First question comes from the line of Tracy, Ben Gigi with Barclays. Your line is open.

Speaker 6: Thank you. Good morning. Your 1 in 250 pml to tangible equity of 8% as of 1 one wasn't too dissimilar to your 7.7% as of September 30th. From wondering what made you pause to incrementally take more exposure that have anything to do with less retro capacity or your view of ROE based on

Speaker 4: is that we increase CAD exposure across a wider range of subsomes.

Speaker 4: And that doesn't really come across through that tri-county. And I remind you, Tracy, that the tri-county renewal is going to be more important and more apparent as a June 1 renewal. So it's also one first step into it. So we have grown a European exposure because the resource was pretty good there. Even better.

Speaker 4: significantly it would not show up into that one single number, right? It belies sort of the true increase in allocated capital to catastrophe.

Speaker 4: If you look at the aggregate number, which is a better reflection there is than the increase, that will be commensurate. You'll see the premium increase and the cap allocation increase are, if they will make sense.

Speaker 6: Okay, that's very helpful. So as you look through the year, even though 25% is your maximum threshold, where do you think you could realistically land?

Speaker 7: Based on your risk appetite. The question, this is a great question. 35.

Speaker 4: My more typical answer is you tell me what the rate levels are like.

Speaker 4: and we'll tell you what we think we can do. We have a plan based on certain very level of the rate changes and technical conditions changes by zone by region. And our team as you can appreciate is is willing and able to open that base. If you take a step back, I think the overall capital position of the company is we have to maintain the opportunity to deploy.

Speaker 4: It's hard to us, it's hard to us for us right now to see going all over the 25.

Speaker 4: But certainly we have room to grow and we have the capital and the relationships to do so.

Speaker 6: Okay, and also really quickly on the reinsurance side, in recent times you focus more on quota share over XOL. So with hard pricing, we're doing the best opportunities. I'm thinking about lower seating commissions on quota shares and the higher rate online on the XOL side.

Speaker 4: So I think if across the board you just mentioned that we have improved economic growth on the courtship and the access of law. I think that the numbers you see in Q4, a lot of it has to do with our recent growth in the courtship that we've written. I think by virtue of the Catexcel as we just talked about it a few minutes ago, increasing I think that we would be in a position to increase our access of law.

Speaker 4: contributions of the bottom line. But when our hard market is around, which we still see on the range of the side and the end of the insurance and the BNC side, that we have a tendency to migrate towards a quarter share, there's a few reasons for that. Number one of the big reasons that we like to talk about is you inherit some diversification within that portfolio.

Speaker 4: but you otherwise would not miss the gift from an excess of lost perspective.

Speaker 4: And we really, really like this. And we like to be closer to the rate change, right? When you're on a port of share basis, you side by side with a client. As opposed to the access of loss, you need to be relying on your sole pricing to make it work. So over time when the market gets...

Speaker 4: It's harder, I think you would expect us as part of the cycle management to underwrite more core share versus

Speaker 8: to Mente cahdoth'm a beautiful large.

Speaker 4: But you can see the both. The TLO both are pretty good.

Speaker 9: Thanks. Thank you.

Speaker 3: Please stand by for our next question.

Speaker 2: Public.

Speaker 2: Yes.

Speaker 3: Our next question comes from the line of Michael Serminsky with BMO, the line is open.

Speaker 10: Hey, good morning, thanks. I'll stick with the primary insurance segment. I feel like most of the questions will probably be any further responding and relay?.

Speaker 10: The growth has been decelerating there a bit. Mark, we heard your prepared remarks. You're still excited, but maybe you can talk about what's driving to deceleration. I don't know if it's worth advocating between kind of...

Speaker 10: E and S, X-O surface lines versus non-ENS. I'm just curious if the discipline there is dissipating a bit more versus re-insurance.

Speaker 4: I think we're just experiencing on the fourth quarter. That will probably change in 23, I think, opportunities have gone at a resurface and more broadly than we even had in the fourth quarter. I think it took a little while for the market to digest Ian and to what it means for their overall market. I think not the market. It's clearly in the camp of, you know.

Speaker 4: making doing what it needs to do to improve the return of the price in property, which I think also we heard on the calls, I think we'll impact broader setup of line of business beyond the property.

Speaker 4: exposure. But it could go back. So if you look at the 70% growth over a period that's about three times the size three or four years ago, you know, we did have a lot of growth in the beginning of your market. So as you get into the late stages, I think a 70% could be equivalent to another 50% increase in

Speaker 4: 2020 when we started to lean into the market. I think this is a natural phenomenon that after a while, you've not that you've mined everything, but you've really pushed as hard as you could, and you're still pushing hard. Even 70% to me is about three times the average growth in the premium in the industry.

Speaker 4: That tells me that we still see a lot of opportunities, but it's again like I said, we're later in the stage of the hard tackle. And I think that...

Speaker 4: We'll see a really re-rejuvenation, if you will, of that growth possibly because the insurance companies are going to have to increase as we all know they're pricing.

Speaker 4: One is the property cap and the higher retention by the more risk retained. So we're participating like the other guys on the insurance markets who we expect market to start getting a second bite of the apple if you will.

Speaker 8: of the Hardening Market.

Speaker 10: And as a follow-up sticking to with the primary insurance segment, it sounds like the opportunities might fall within the property space if I am interpreting your comments correctly. And when we are thinking about the segments combined ratio, I feel like looking at my older notes, it was kind of...

Speaker 10: mid-90s was the goal, is that still what you're thinking or if time's been so good in terms of the market cycle that we should be thinking lower 90s is the more near-term goal.

Speaker 4: I think we said a few things about the combined ratio. The 95 was meant as a target back in 1617 when interest rates were quite a bit lower. They went down further as you know that meant that we needed to have lower combined ratio targets which we...

Speaker 4: targeted over the last two, three and a four, you see their impact.

Speaker 4: I think from our perspective, low 90s, it's still what high 80s is for what we're still pushing for because within the interest rates, they may revert back and come down after a while, a year, year and a half for now. So you don't want to be to rushing to recognize all the various interest rates. Although we are currently, you know, we are pricing into our business.

Speaker 4: We tend to take a longer view like we do on the trend on our inflation and we think that we might come back down. So I think we would still target a lower 90s, high 80s together with terms that we think we deserve.

Speaker 10: Understood. Thank you.

Speaker 9: Thank you.

Speaker 3: Please stand by for our next question.

Speaker 3: Our next question comes from Alana Jammeider Buller with J.P. Morgan. Your line is open.

Speaker 11: Hi, first set a question on the reinsurance business. If you look at your premium growth, even excluding the sort of large transactions, one time transactions, you mentioned the numbers extremely strong and obviously doesn't have the impact of one one of the nodes in it. So what's really driving that and

Speaker 11: do you expect some of those factors that drove the strong growth to continue into 23 years old?

Speaker 5: Yeah, I mean, the one thing that, you know, right from the get go, I think you need to appreciate the, you know, the course or business is something that we, you know, we might have written a...

Speaker 5: A deal in January 1 of 22, the premium gets written over the four quarters.

Speaker 5: So we're benefiting from that that's showing up in each of the four quarters. If the underlying rate increases also from the seeding companies are higher than what we might have expected at the start, that gets adjusted for the year. So the couple of factors were basically, you know, we're just following effectively the fortunes of this.

Speaker 5: but still I think our teams deserve a lot of credit for going after these opportunities. You know, the response I've had to client needs.

Speaker 5: being in providing good capacity with good rating. So that's the that's the continuing on in 23. So we think the market is there and it's all like a bloke was not only some other business. Pretty much.

Speaker 5: A yield property and property scatters. Got a lot of attention in the last few weeks. But still, on all lines of business, other specialty, casualty, marine aviation, we need it. I think all under, I think, in the position to really keep going. We have a good question for the police.

Speaker 11: Okay, then just shifting on to my your loss issues obviously very good, but I think the loss pick did pick up a little bit in the fourth quarter. So is that more sort of national driven or is it more regional to where you're starting to see some maybe?

Speaker 11: softening in the market in certain regions or states.

Speaker 5: Well, we've navigated through the regional differences in our pricing. So I think we've placed...

Speaker 5: I think we have constructed a portfolio that we're very happy with, stayed away from what we perceive to be the more dangerous areas and underpriced areas. So I think that's showing up in our performance over time. In terms of reserving, I'd say two things. One, the delinquency rates are still very low. So if that might work.

Speaker 5: really take pressure at this point and turns up a higher level of delinquency.

Speaker 5: the report and the law of racial thick is really more a function of than us being a bit more approved. I think there's a little bit of uncertainty with their home prices and they about to come down. Does that create some some potential pressure? We think we're very very very

Speaker 5: You know, aware of that, whether there's a recession, etc. But, you know, we're still very, very positive on the second. It's just a realization that, hey, this is maybe a slightly riskier environment that we were in, like a year or two years ago. And our reserves are, you know, to reflect that.

Speaker 9: Okay, thank you.

Speaker 9: Okay, thank you.

Speaker 3: Thank you. Please stand by for our next question.

Speaker 3: Our next question comes from the line of Bryant Murtis with UBS. Your line is open. Your line is open.

Speaker 10: Yeah, thank you. A couple of them here for me. First, Mark Francois, you guys typically provide in your 10Qs the 1-250 for all the other regions well, Northeast and Gulf of Mexico, UK. I'm wondering if you could have those statistics so we can get a better sense of what type of growth you're going to see.

Speaker 10: you know, at one one renewals. And maybe focus also on Europe , because I know Europe was, you've got a good operation there, and a lot of opportunities there.

Speaker 5: Yeah, I mean, the ones we reported a couple more regions, we don't have to, I don't want to have those handy. I think he had the most of my, the most point I think a lot of these.

Speaker 5: The growth, you know, that we saw at least at one one, you know, will come through in regions that were, I say, we were probably a little bit underweight in the past. So that's going to show up in Q1 premium.

Speaker 10: from rough of a year, but turns a PML that really does have an impact. Got you. Okay. And then second question, I'm just curious, Mark. If I take a look back and I'm going to date myself a little bit here. You know, if I look back at which your underlying kind of combined ratios looks like back in 2003, 2004.

Speaker 10: after the last hard market, you're getting pretty close there in the re-insurance business. Are we getting to the point where we're kind of seeing Max margins in that business maybe a little bit more in 2023, but how much more do you think you really get here?

Speaker 4: It's a really good question, Brian . I don't know the answer to that. I like the comparison to 0203. I would actually like to compare it to a bit more like.

Speaker 4: at the combination of O2 or 2-E-MDO4 and Li-VLT and MDO6 are set on the property side.

Speaker 4: So I don't know what that means. We haven't blended. I'm going in the combined ratio that we had in this studio, but that probably would be a close to what we can do. I mean, look, there's a lot of things that are different this time around. The interest rates are lower.

Speaker 4: than the work before International International, specifically where we're an international diversified or we influence the company.

Speaker 4: hard to tell, but it's sort of going in a way of getting above a long term and an former derelince was the consequence of the family, and they were the sober ones in

Speaker 4: for sure and that's really what in the end what we drive us as you know

Speaker 10: Great. Thank you. Well.

Speaker 3: Thank you. Please stand by for our next question.

Speaker 3: Our next question comes from the line of Yarrah Khanar with Jeffries. Yalin is open.

Speaker 12: Thank you. Good morning, everybody. My first question, look at the ROE profile of the company. Clearly, there is upwards momentum here. Can you maybe talk about what the...

Speaker 12: Target would be and be if you see a coming more from or the expansion from here on coming more from NII or more from underwriting.

Speaker 5: Yeah, I like to think we get room to grow, but you're right that I think the biggest probably opportunity is an IAJ just with the leverage.

Speaker 5: and the correction or the increase in interest rates we saw last year, I think that's going to take still a little bit of time to show up in the numbers. But as we look forward over the next 12 to 24 months, like to think that there's leverage there that we can show up in the numbers.

Speaker 5: end up, you know, the collection or the increase in interest rates we saw last year. I think that's going to take still a little bit of time to show up in the numbers. But as we look forward over the next 12 to 24 months, like to think that that will, that there's leverage there that we can show up in the numbers.

Speaker 5: In terms of the segment's results, I think they can all... More gives, again, the reported results, significant reserve releases, which certainly help the bottom line in the ROEs that are reported, but we think the segment's, the fundamentals on the line each of the three segments.

Speaker 5: that there's no very good that they can actually tell there was a very healthy result.

Speaker 12: Great. And then my second question, just look at the insurance business. It sounds like you think that there may be some inflection to accelerating growth again in 23. Can you maybe help us think about the impact of the reinsurance market, kind of available capacity, cost of reinsurance.

Speaker 4: us as a sitting company, right? I mean, since our clients and sitting companies that need more needs to be charged to be insured that they can in turn later reach or they need to buy. Even if they went there, right? We heard that a lot of increasing retention is to more volatility that's absorbed by those insurance carriers, which...

Speaker 4: should lead to again needing a higher rate of everything else being the equal. So I think what we're seeing is what we'll see is gradually and again on the range transactions of loss you're on, you can just renew a business one one and everything change on a dime right on one strike ever pen on the interest high to 12 month period to transition and transform and then reprise the the whole business. So that's what I think we're going to see.

Speaker 4: companies to present to find a way to not to tell but find a way to have a better with sharing what they're insured.

Speaker 4: when it comes down to other policies. So I guess for that reason that's what underlies is that sticker shock, not sticker shock, but a good increase in the insurance at the beginning of the year that will have to filter through all the plans and budgeting for all the insurance companies including ourselves as we go forward in 2022. So it's going to be a slow motion but it's still going to happen.

Speaker 12: That's why I'm talking about that. Got it. And in our positive, I'm going to try and think one more in here. Clarification, when you've talked about targeting low 90s, high 80s combined ratio, was that a reported combined ratio in the insurance segment?

Speaker 4: That's false a year, Target.

Speaker 4: I expected, you're on, it's expected, like.

Speaker 8: It's plus or minus as you know in our space it's all till you run the expected numbers.

Speaker 8: in locker in the will to the

Speaker 12: Because he's been running at mid-90s, so where's that improvement coming from? Is it OC?

Speaker 12: which is better rate than in risk selection.

Speaker 4: Well, we're running around, we're running about 90 now, and I think that we still could just be improvement in pricing.

Speaker 12: Okay, thank you.

Speaker 13: Thank you. Thank you.

Speaker 3: Please stand by for our next question.

Speaker 12: Our next question comes from the line of Ryan Tunis with autonomous. Philan is open. And nice good afternoon. First question, I guess following up on Tracy. Could you give us some indication of I guess how you're viewing your.

Speaker 10: You're overall cat budget this year relative to 21. Based on what you saw the one-win renewal should we expect to kind of the expected cat ratio to be higher.

Speaker 5: The cat will reach you or cat will mean in terms of cat load.

Speaker 5: Capitoli dollars of Kathy and we think we'll go up. No question.

Speaker 5: You know, we've been targeting or targeting. I mean, our caneload in 22 was called at 80 million of four. Now it's probably.

Speaker 5: Between 120 for the first quarter, 43, based on what we wrote.

Speaker 5: Right? And we'll see how that develops with our other the year. I mean, depending on how the 4161 sub-oom rules, how those kind of materialize, there is, you know, I say, you know, a good probability that it will keep going up throughout the year or five.

Speaker 5: based on the enforceable tenor that we have currently for the first quarter. I mean, that's kind of how we see the exposure to the cat losses.

Speaker 5: or that we have currently for the first quarter. That's kind of how we see the exposure to the cat losses. Perfect. That's helpful. And then.

Speaker 14: I had one from Mark, I guess, more on the.

Speaker 14: The man-made cat side was, isn't something we've talked about too much, but I would think that's one of the better markets right now on the reinsurance side.

Speaker 14: I guess just try to size that and whether or not, you know, maybe some of the rate increases post Ukraine, if that can move the needle relative to property cap. Just looking at your marine and aviation premium. It's actually pretty chunky relative to property cat. So, if you could just give us some indication of, you know.

Speaker 14: Can that move the needle? Is that something that we should be paying more attention to in terms of the markets we're seeing? They're getting incremental firming that could help us.

Speaker 8: It's a good question, Ryan. I think the one thing with an event such as Ukraine, which is a war event, there's actually a strategic market for those kinds of risks.

Speaker 4: So it's not like it's included part of the overall Coverage is for cat or whatever else out there with some or some But there's definitely a result of that event in attempt to exclude a lot of these war events and bring them back into the proper Aviation war on marine war market for instance

Speaker 4: So, yeah, there is a lot of activity there, or rate increases there, or participating in that. But those markets are to begin with pretty small.

Speaker 4: So that's why I think you'll see some improvement, but it may not be necessary enough to move the needle for the industry. Even though it's a very healthy proposition of reason for the road, as you can appreciate for the right reason, and those are your business.

Speaker 14: Yeah, it makes sense. And then just lastly, the acquisition expense ratio has been kind of hard to pin down. It works over the past few years that's gone up. Obviously, it's not like there are some changes in terms of seating, commission structures, things like that at 1-1.

Speaker 14: Is there anything directional you can say about, you know, maybe how the acquisition expense ratios could move in 23 versus 22, or do we just kind of expect something relatively more?

Speaker 5: Yeah, I don't think it's gonna move a whole lot more than I think.

Speaker 5: There's been a lot of shifts in the mix of business over the years, right, particularly as our insurance book in the UK has grown, it's a bit higher acquisition ratio, different kind of reinsurance purchasing decisions. So there's...

Speaker 5: You know, there's a long list of reasons or explanations as to why it is word is now. And obviously, what we focus on is the bottom line returns, whether, you know, if we're going to pay a bit more acquisition, we certainly think we're going to get it.

Speaker 5: a lower loss ratio and that hasn't been the case. So, but for your modeling, I think exercise, I think assume something pretty similar to 22 as a starting point in law.

Speaker 5: We'll keep you updated as the year goes on.

Speaker 9: as the year goes on. Thanks to the

Speaker 9: Thank you.

Speaker 15: Thank you.

Speaker 3: Please stand by for our next question.

Speaker 3: How next question comes from the line of LC Green Bay with Wells Fargo. Your line is open.

Speaker 6: Hi, thanks. Good morning. My first question, I guess, is going back to the re-insurance margin discussion that came up earlier. So, you guys have a flat PML and you guys are seeing 30 to 50 percent rate increases in CAT. Wouldn't that triangulate into margin improvement coming through in the re-insurance book in 2023?

Speaker 8: Well, just if I could just isolate, first we wonder where you were, so good to see you there. Second, I think the, if you look at the properly-can-athella leads, I think it returns dramatically improved.

Speaker 8: But as you know for us, it's going to be incrementally of course accretive to our bottom line, but we're not.

Speaker 4: not in the biggest line of business for us, so that's what allowed us, we believe the opportunity to and in the room to grow the way we think we could grow in 2.23. So it's hard to say how much more, but the property can excel, market itself.

Speaker 6: has significant marginal improvement. Would you say, building on that Mark, would you say that of all your business lines, as you sit here today, the line with the best expected return in 23 would be catastrophe reinsurance? It's up there, but there are others that.

Speaker 8: be honest and you heard on the call, this is a good time to write property cadets out. So really good time.

Speaker 6: And then you said right, well on the PML discussion you had mentioned right that we need to kind of see how things come together, you know, a June 1 that could also be a good opportunity. What could derail this? Is it just alternative capital and more capital coming into the re-internet space? As you think, you know, leading up to June 1.

Speaker 6: And when we think beyond that, what are you guys concerned about that could derail the uplift that we've seen in the catastrophe re-insurance market?

Speaker 8: I mean it's hard to imagine at least I think the

Speaker 8: The third party capital you mentioned is still the civil war in a wait-and-see attitude

Speaker 4: The US renewal, as we all know, is a small portion of the overall cat riding in the year. So more has to happen, and as we all know.

Speaker 4: In one of our tricunony was a Florida Explorer. Florida is the biggest exposure. So it's hard to tell what could derail it.

Speaker 8: I mean I'm trying to think out loud you know, they're already coming in. I don't see it being a case. No cat in the first half of the year. Well we better have. It'd be great for it industry to take advantage of the less cat activity.

Speaker 8: Now it's hard to see anything at least because I think that the psychology of the market is squarely at the camp of mediating.

Speaker 8: You know, what needs to be remediated and a property catch space at all levels, you know, from the speech we've all the way down to the on the writing system desk, I think it's clearly a recognition that we need more. I think the only thing I could say is, you know, the one thing that I could say is just to help you out here, I think I will make sense to you.

Speaker 4: that we may have a little bit less than perhaps some people have budgeted, or maybe a bit more than budgeted pricing increase when you have a delta around what we see. In terms of core okay core capital limits unless you have given him varying levels MAD

Speaker 8: and supplying the mail to the emergency. I'm the long question because I was thinking out loud here, but there you go.

Speaker 6: No, that was great. Thanks Mark. Appreciate the color. Sure.

Speaker 15: Thank you.

Speaker 3: Please stand by for our next question.

Speaker 3: Our next question comes from the line of Maya Shields with KBW. Your line is open.

Speaker 8: Great, thanks much for taking the time. I hope this wasn't covered. I missed about a minute of the call, but I was hoping to be digging into the non-recurring transactions in re-insurance. I'm assuming it was a retroactive re-insurance. That's something you could talk about specifically the sort of risks or the lines of business that you're assuming.

Speaker 5: and maybe give us an update on what that market looks like now. Yeah, I mean, to keep it, again, fairly high level, those are general, I mean, I consider them to be kind of capital relief, capital support transactions. For a variety of reasons, companies have grown a lot under some rating agency pressure, they need capital relief.

Speaker 5: They are clothed, you saw it in our lines of business. They did hit multiple of our lines of business, some were other specialty, some were casualty, some were a little bit of property, so it's...

Speaker 5: It spread But if So allliday a vibrant market I mean there's a lot of paying that the companies are experiencing right now and they're working for motions and again. We're T think we have strong balance sheet and capital to support them. So I think.

Speaker 5: We don't know if they're going to happen again. There's, I mean, those are multi, but given when they are presented to us, we're happy to consider them. And once in a while they end up writing a few of them. No, that's helpful. Thank you. I think you question on board is insurance. Off.

Speaker 8: And I don't even know how to phrase this, but you put up very conservative reserves for mortgage insurance over the course of COVID, and I'm wondering how much of that unusual reserve is still there, because clearly, you know, speaking at least for myself, we haven't done a great job forecasting your reserve releases in that unit.

Speaker 5: Well, it's a great question which is becoming harder and harder to answer because

Speaker 5: In the early days, no question that we had adjusted are, you know, because so many loans as the linkages that were in our inventory were in forbearance and try to make a distinction between kind of forbearance and non-forbearance, you know, the linkages and how much of that work was.

Speaker 5: no question that we had adjusted are, you know, because so many loans of the linkages that were in our inventory were in forbearance and try to make a distinction between kind of forbearance and non-forbearance, you know, the linkages and how much of that work was, you know, a new...

Speaker 5: The concept or new kind of reality we were facing over time. I mean, you know, it's been three years now I think the reality is like the inventory is somewhat kind of cold angles So you know, we don't really think of local folk errands and a bad differently than we look at the other loans Even though we know there's a few of them in the inventory so

Speaker 5: I mean, long story to say that, you know, it's not something we can quantify directly every quarter anymore, but we still perceive that there's a bit of risk with COVID-related reserves, and that's why we've been holding on to the reserves up to the point where we think we just need them.

Speaker 5: right now this quarter was an example or I think the data got suggested that we were well this is the right time to early but there are more of the reserves that worked that up in the year and my quickly I think what Fonsley's saying is true follow-on to business and the authority but I will try to think of proven standpoint research to make sure we had enough and with that data speak for itself and this one is very unusual my right?

Speaker 4: and then make with something unlike anything else. Like when we have another one, we'll have a better playbook to use, but we just didn't know. And we still don't know. We still not over one six of our inner leaves, the hard core bearing. So it's still coming back in the first knot. Totally gone yet. That's what leads us to be that much more.

Speaker 4: From the outside it looked like we're concerned but we think we're recruiting and the data speak for itself. And we'll see if it happens that we don't need it and we'll adjust it based on the data we see.

Speaker 8: Okay, nope, I'll do so. Thank you very much. Great, thanks. Thank you.

Speaker 15: Thank you.

Speaker 3: Please stand by for our next question. We have a follow-up question from the line of Tracy Benjiji with Barclays. Shilani is open.

Speaker 16: Thank you for taking me back and the cue. I'm wondering what your outlook is on professional lines, but then your insurance segment and particularly what stage you would classify that business in when you went through your stages.

Speaker 7: Tracy, do you include DNO there or you just want to take the non-DNO? Professional lines are a really broad market.

Speaker 4: IN TION??

Speaker 4: We expect similar trends that we see so in the last fourth quarter. It may change a little bit as our result of the overall thing is having a marketplace.

Speaker 4: The trend in the large commercial, for instance, have been neutral to negative actually for that three, four years. So I would say that even though we may hear you here, as I know, rate decrease is an ideal for large commercial, there's rationality behind it. So we expect rationality to sit at the exit. It's not.

Speaker 4: There's a lot of data that points to that, you know, the validates, what kind of price things we're seeing on the DNO side. On the smaller DNO side, which we do a fair amount of to remind you, with a fair amount of DNO, we shall see a very, very stable, very good marketplace. But again, the smaller DNO is on another big ticket items that you would expect by a lot of them on our B.

Speaker 4: You know, an awful profit, small policy. So minimum premium is really, you know, a lot of times what happens, and that 5% increase might be $50, right? So, you need to look at the things that we do, and we have to go on, to a mile at a geez now. Guess what? My patient. So I got a minute. Live in a

Speaker 4: coming in the section what we do. The market is healthy from a things perspective, right? To go back to what I said about the large commercial, the S.C.E.s are down 25%, 30% of the last four years. So it's a pretty good market to be there. The IPO market has stabilized. It was pretty hot for a while. Pricing got crazy. We took advantage of a lot of opportunity. It's not crazy, but...

Speaker 4: take a stitch three which is still very possible and you know a little bit of you can reach in there or you can slide and crease.

Speaker 17: Thank you.

Speaker 2: You

Speaker 15: Thank you.

Speaker 3: I'm not showing any further questions in the queue. I will now like to turn the conference back over to Mr. Mark, Anderson for closing remarks.

Speaker 4: We'll spend a good day with your loved ones and we'll see you in the next quarter. Thanks for listening guys.

Speaker 3: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker 3: That concludes today's conference call. Thank you for your participation. You may now disconnect.

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Speaker 3: Later we will conduct a question and answer session and instructions will follow at that time.

Speaker 3: As a reminder, this conference call has been recorded.

Speaker 3: Before the company gets started with this update, management wants to first remind everyone that certain statements and today's press release and discuss what this call may constitute to quote the statements under the Federal Security Law.

Speaker 3: These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties.

Speaker 3: Consequently, actual results mean different material from those expressed or implied.

Speaker 3: For more information on the risk and other factors they may affect future performance and vested should review periodic reports that are filed in the companies with the SEC from time to time. Additionally certain statements contained in the call that are not based on historic facts or for looking statements within the meaning of the private security litigation reform at the baid's

Speaker 3: of 1995. The company intends the four-looking statements and this call to be subject to the safe hub created thereby.

Speaker 3: Management also will make reference to some non-GAAP measures of financial performance.

Speaker 3: The reconciliation to gap and definition of operating income can be found in the company's current report or form 8K furnished to the SEC yesterday, which contains the company's earnings press release and is available on the company's website.

Speaker 3: I would now like to introduce your host for today's conference, Mr. Mark Gredison and Mr. Francois Moran. Sir, you may begin.

Speaker 4: Thank you, Tohanda. Good morning and welcome to the fourth quarter earnings call for Hearts

Speaker 4: Have you learned how to do it?

Speaker 4: and pleased to share that for the fourth quarter of 2022, each of our three underwriting segments produced exceptional results.

Speaker 4: Our quarters results were voodied by a lower than average catwalk experience.

Speaker 4: a significant favorable development in mortgage reserves and a higher level of profitable premiums from our recent growth.

Speaker 4: This quarter demonstrates the power of our strategy. Name the album management of the underground cycle across the diversified.

Speaker 4: Thank for people at all, yo, with the product preserving and underwriting fans.

Speaker 4: Our PNC insurance underwriting teams continue to lean into hard market conditions, and our mortgage team delivered record underwriting income, which is again a direct result of our years as the established market leader there. For the four year of 2022, ARCH generated over $1.8 billion of operating...

Speaker 4: wrote from our PNC units for the national.

Speaker 4: Re-insurance segments and TW Group 51% for 2022 as the team seized on market dislocations while our insurance segment grew in a robust 21% on the year. We continue to see a broader array of opportunities to allocate capital where rates

Speaker 4: and turns in conditions allow for growth in attractive returns. Taking stock of where we are in the current market cycle.

Speaker 4: It's important to note that we've recorded premium growth significantly above the long-term industry average.

Speaker 4: Over the last four years, we've grown property and casualty net premium written threefold to nearly $10 billion from less than $3.6 billion in 2018, while overall rates increased cumulatively by over 40%.

Speaker 4: As we have stated previously, our cycle management strategy dictates that we maximize premium volume on rate of rising, which is precisely what we've done. While we expect to continue to allocate more capital to the B&C segments for the next double years, I wish to remind our shareholders.

Speaker 4: that we've capitalized on the attractive return opportunities in our MI segment to the tune of 5.4 billion dollars of underwriting income since 2017.

Speaker 4: This profit allowed us to redeploy capital into more creative uses, including $2 billion worth of shared repurchases since 2018.

Speaker 4: and the substantial growth in profitable P&C agreement. MI has been vital to our ability to propel our P&C on the right-wing growth.

Speaker 4: Underwriting cycle management is core to our culture.

Speaker 4: And I want to take a brief detour into how we think about the underwriting cycle here at Arch.

Speaker 4: Here, then, simplification of polyngrates insurance cloth split into four stages.

Speaker 4: Stage 1. At the onset of the hard market, we see rates increase dramatically and capacity

Speaker 4: Results on the previous soft market results only begin to show up in plain activity.

Speaker 4: on the previous soft market results only begins to show up in claims activity. Stage 2

Speaker 4: This is the beginning of the restoration phase which is indicated by second and sometimes third round of rate increases along with some improvements to the full of interest in the term conditions as the industry adjusts its appetite and underwriting policies.

Speaker 4: Much of the focus during the stage is also geared to filling gaps in and replenishing reserve shortfalls from the soft years while showing rapid improvements.

Speaker 4: the stage, it's also geared to filling gaps in and replenishing reserve shortfalls from the soft years while showing rapid improvements. Stage 3.

Speaker 4: That next period is where great, graduate degrees often as a result of overreactions in stage 2.

Speaker 4: Underwriting profits from the hard market years gradually show up in the results.

Speaker 4: The steer is can be lengthy and it usually allows for still profitable growth, especially for the discipline underwriters.

Speaker 4: can be lengthy and it usually allows for still profitable growth, especially for the discipline underwriters. And finally, stage 4.

Speaker 4: Statement Stage 4 is where the industry foresakes underwriting discipline and overly focuses on top line growth even as great decreases accelerate. This is where artists culture of underwriting discipline is most apparent as we've got exposure and prepare for the return of Stage 1.

Speaker 4: Right now we are at Stage 2 in most lines. Some, for instance, property are back to Stage 1 since the fourth quarter. Understanding where you are at each point of the cycle for every product line and the nuances within each stage is critical to the time you allocate the capital to the areas of greatest opportunity.

Speaker 4: One of our most sustainable advantages is the breadth of its capabilities across many specialty insurance lines enhancing greatly our cycle management capabilities.

Speaker 4: A course strategic candidate arch is that underwriting acumen and discipline through the cycle drives superior risk adjusted returns. Now I'd like to share some highlights from our underwriting unit. We'll check it out with re-insurance. For the fourth quarter, net premium written in a re-insurance segment was $1.5 billion. That's more than double the same quarter one year ago.

Speaker 4: Francois will cover the details, but much of this growth is because we were well positioned to capitalize on broad market opportunities as well as several one-off opportunities resulting from market dislocations.

Speaker 4: of this growth is because we were well positioned to capitalize on broad market opportunities as well as several one-off opportunities resulting from market dislocations emerging in the fourth quarter.

Speaker 4: It is worth noting that a fourth-quarter growth does not include the Jeremy I property and property catman nobles, which will be affected in our next quarter's results.

Speaker 4: As you've heard, pricing for the January 1 renewals was strong. Catrising in terms both improved, leading to effective rate changes in the plus 30 to 50% range.

Speaker 4: We anticipate these strands will continue at the mid-year property capron new world and should translate to strong property cap treatment growth in 2023 for the region of Bitege.

Speaker 4: Moving now to our insurance segment, where we continue to read the benefits of the investments we've made in enhancing our specialty businesses in the UK and in the US.

Speaker 4: On the year, we will owe over $5 billion of NPW, net Korean Britain, compared to $4.1 billion in 2021, with growth coming from a diverse mix of business.

Speaker 4: Underwriting performance continues to be excellent with an X-Cat accent gear to a ratio of 89.6%.

Speaker 4: Great increases with a few exceptions remain above last-cost rent and we expect this strong momentum.

Speaker 4: to continue for 2020's reason. The insurance market remains rational and disciplined.

Speaker 4: We expect also continued opportunities due to the ongoing global uncertainty and remain optimistic that this discipline behavior that we saw in the TNT industry for the last three years will persist as we move through stage two of the titles. Next, our mortgage team.

Speaker 4: Again, had an exceptional quarter, capping up an excellent year. As we benefited from earnings, from our embedded book as well, as from favorable reserve development, as cures on the linkages, exceeded our expectations. The mortgage segment delivered $374 million of underwriting income in the quarter, and $1.3 billion for the year.

Speaker 4: an action and contribution in the year where higher mortgage interest rates slowed new new originations.

Speaker 4: Our insurance enforce the earnings foundation of the mortgage segment grew to 513 billion dollars at year-end 22, as the system increased due to higher mortgage rates.

Speaker 4: As expected, higher mortgage rates lead to reduced NW, as mortgage rates touch 7% of the highest rates in 20 years. Looking broadly at the M.I. industry's health, we have borrow or credit quality which is outstanding and accept housing demand above supply. The U.S. unemployment rate is made at the historic load.

Speaker 4: and the borrowers' equity in their homes remain at very healthy levels. One thing worthy of mention is that the M.I. industry is acting in a disciplined and responsible manner. In the face of these economic uncertainties, premium rates are increasing.

Speaker 4: while underwriting quality remains strong. Finding the interest rate increases which seen in the last 12 plus months should help fuel our net investment income through 2023. We are forced to benefit from a higher or being investment rate coupled with it growth in invested assets.

Speaker 4: How about auto racing on my mind lately? And when I look at our industry, I can't help but think that art is one of the best cars on the track.

Speaker 4: We know that winning the race comes down to more than having a great driver or the fastest car. There is much preparation, analysis and looking at the conditions of the track as well as monitoring the other drivers.

Speaker 4: By recognizing the submarket conditions in 17 and 18, we avoided the mistakes others made early in the race on the might of burn tires or overheated their engines. The thrifting began to improve in 2019, where you're able to take advantage of some of our competition's back fit stops and engine problems.

Speaker 4: and we took the opportunity to take more of an even on the track by increasing substantially our riding. And then once we saw some clear track ahead of us, we were able to accelerate even faster.

Speaker 4: Today we're firing on all cylinders and I know we've got the right crew to bring in home. That's hand of wheel over to François before coming back to answer your questions. As well? Thank you, Bart, and good morning to all. Thanks for joining us today.

Speaker 5: I'm very pleased to share that once again, Arch had an excellent quarter on virtually average growth.

Speaker 5: The year concluded with four quarter after tax operating income of $2.14 per share for an annualized operating return on average common equity of 28%. annual value per share was up 9.9% in the quarter to $32.62.

Speaker 5: And down only 2.8% on the year, a great result considering the right de-evac raising interest rates had on our fixed income portfolio, the difficult year in equity markets, and the elevated catastrophe activity we experienced.

Speaker 5: this year. Turning to the operating segments.

Speaker 5: Net Premium written by a re-insured segment, grew by an exceptional 118% COVID-19 quarter last year.

Speaker 5: Although this quarter we had a few large one-off transactions that impacted our results and contributed $407 million to our net written premium. Adjusting for these transactions, our net premium revenue was still elevated at 61% for the court.

Speaker 5: These transactions are yet another example of the dislocated state of the insurance market.

Speaker 5: where our strong balance sheet provided significant advantage as we looked at it, where meaningful capital for support city companies have turned the need of target with direct expectations.

Speaker 5: More importantly, the underlying performance of the segment this quarter was very good, with an X-Cat accent mirror combined ratio 82.9%.

Speaker 5: and a diminimum impact from current acting in your capacity loss. Reflecting ongoing hard market conditions, the insurance segment also flows a year in a very good note.

Speaker 5: With fourth quarter net pre and revenue of 17.4% over the same quarter one year ago.

Speaker 5: and an active quarter combined with SHILDs, including CACI, 89.6%. Most of our language of business still benefit from excellent market conditions, both in the US and internationally, and our expectations for the coming year remain very positive. Our mortgage segment continues its run of quarters with results better than long-term.

Speaker 5: cases as the persistent T of our enforce ensures at 79.5% that the corners continue to ent meaning

Speaker 5: The combined ratio excluding prior development was 45% for the quarter.

Speaker 5: and reflects our prudence approach to loss-reserving one of our key operating principles. Our unwriting income reflected $270 million of favorable prior year development on a pre-tax basis across all segments this quarter, which represents approximately 66 cents per share at the 2nd episode.

Speaker 5: It is worth pointing out that our P and C reserves also contribute to the overall itself.

Speaker 5: Of note, both our insurance and reinsurance segments had another quarter of favorable reserves development. And the 2022 calendar year phase II incurred ratio for our P&C operations was 58.7%.

Speaker 5: Of note, both our insurance and reinsurance segments had another quarter of favorable resurgence. And the 2042 calendar year phase two in third ratio for our P&C operations was 58.7%. It's lowest level in more than five years.

Speaker 5: Both these metrics provide some insight into the adequacy of our loss reserves, which constitute an important element in the quality of our balance sheet.

Speaker 5: Quarterly income from operating affiliates stood at $36 million and was generated from good results at full-class and summers.

Speaker 5: 3TAC's men-investment income was 48 cents per share of 41% from the third quarter of 2022.

Speaker 5: Cash flow from operations over a $3.0 billion per year was strong, and what combined with a proceeds from maturedies and sales of securities and a rapidly rising yield environment enhanced the underlying contribution from our investment portfolio.

Speaker 5: Going forward with new money rates in our fishing sum portfolio in the 4.5 to 5% raise.

Speaker 5: in a growing day from an adopted asset.

Speaker 5: We are well-positioned to deliver an increasing level of investment income to help fuel our bottom line.

Speaker 5: Total return for our investment portfolio was 2.6% on the US dollar basis for the quarter, with all of our strategies delivering positive returns. The contributions to the overall result was primarily led by our fixing-come portfolio, which benefited from relatively stable interest rates and tightening credit threats.

Speaker 5: The overall position of our investment portfolio remains relatively unchanged.

Speaker 5: as we remain cautious relative to duration, credit, and equity risks. Turning to risk management, our natural camp PML on a net basis stood at $970 million as of January 1, or 8% of tangible shareholders' equity. And today the NOabout We think

Speaker 5: Again, welcome to our internal limits at the single of that one in 200 year, 250 year return level.

Speaker 5: Our PZone PML remains a Florida Tri-County region. And as Mark mentioned, the PML's report represents a point in time estimate of the exposure from our reports portfolio, and the premium associated with the January 1 renewals will get reported, the international will start in the next.

Speaker 5: on the capital front. We did not re purchase any shares this quarter as our assessment of the market opportunity in 2023 remains very positive. One where we should be able to deploy meaningful capital into our business.

Speaker 5: and attractive returns for the benefit of our shareholders.

Speaker 5: Finally, as Mark mentioned in his remarks, the results we enjoyed this year across our operations were achieved through a thoughtful and deliberate execution of our cycle management strategy, and a strong culture of allocating capital to the most profitable markets that the changing society is a scope of

Speaker 5: which were an important contributor to us joining the Testant P500. We're only made possible by the ongoing hard work and dedication of our over 5,000 employees across the globe.

Speaker 5: They deserve a tremendous amount of credit for making us who we are today.

Speaker 5: And industry leader with a stellar 24 year track record that is ready for the opportunities and challenges ahead of us.

Speaker 5: With these introductory comments, we are now prepared to take your questions.

Speaker 2: Thank you.

Speaker 3: Ladies and gentlemen, if you have a question at this time, please press star 11 on your touch-tone telephone and wait for your name to be announced. That star 11 to ask the question.

Speaker 3: If your question has been answered or you wish yourself from the queue, please press star one one again.

Speaker 3: Please stand by while we compile the Q&A roster.

Speaker 3: while we compound the Q&A roster.

Speaker 16: Wow, first question comes from the line of Tracy, Ben Gigi with Barclays. Yelan, open. Thank you. Good morning. Your 1 in 250 PML to changeable equity of 8% as of 1 one wasn't too dissimilar to your 7.7.

Speaker 4: Yes, I think this number, interesting is numbers one region, one area, one deep zone, what is not seen in the numbers and we'll have more thorough discussion about the two one call is that we increase cat exposure across a wider range of subsomes.

Speaker 4: And that doesn't really come across through that tri-county. And I remind you, Tracy, that the tri-county renewal is going to be more important and more apparent as a June 1 renewal. So it's also one first step into it. So we have grown a European exposure because the resource was pretty good there.

Speaker 4: significantly it would not show up into that one single month or right. It belies sort of the true increase in allocated capital to catastrophe.

If you look at the aggregate number, which is a better reflection there is than the increase, that will be commensurate. You'll see the premium increase and the cap allocation increase are, if they will make sense to you. Okay, that's very helpful. So as you look through the year, even though 25% is your maximum threshold, where do you think you could realistically land?

Based on your risk appetite. You have a question. This is a great question. It's very difficult. My more typical answer is you tell me what the rate levels are like. And we'll tell you what we think we can do. We have a plan based on certain, you know, first level, the rate changes and condition changes, by zone by region.

and our team, as you can appreciate, is willing and able to operate on that basis. If you take a step back, I think the overall capital position of the company is we have too many opportunities to deploy. It's hard to us. Hard to us for us right now is going all the way to 25. But certainly we have room to grow, and we have the capital and the relationships to do so.

Okay, and also really quickly on the reinsurance side, in recent times you focus more on quota share over XOL. So with hard pricing, we're doing the best opportunities. I'm thinking about lower seating commissions on quota shares and the higher rate online on the XOL side.

So I think it's across the board. You just mentioned that we have improved economic flows on the courtship and the access of loss. I think that the numbers you see in Q4, a lot of it has to do with our recent growth in the courtship that we've written. I think by virtue of the Caddxcel, as we just talked about five to two minutes ago, increasing, I think that we would be in a position to increase our access of loss.

contributions of the bottom line. But when a hard market is around, which we still see on the range of the side and the insurance and the BNC side, that we have a tendency to migrate towards a quarter share, there's a few reasons for that. And a more, one of the big reasons that we like to talk about is you inherit some diversification within that portfolio.

But you otherwise would not miss the get from the next loss perspective. And we really, really like this. And we like to be closer to the rate change, right? When you're on a port of share basis, you side by side with a client. As opposed to the next loss, you need to be relying on your sole pricing to make it work. So over time when the market gets...

It's harder I think you will expect us in as part of the cycle management to underwrite more core share versus Accessible law Can't see the both the tier though both up pretty good

Thanks. Thank you.

Please stand by for our next question. Our next question comes from the line of Michael Zerminsky with BMO. The line is open.

Hey, good morning. Thanks. I'll stick with the primary insurance segment. I feel like most of the questions will probably be under insurance.

The growth has been accelerating there a bit. Mark, we heard your prepared remarks. I'm like, you're still excited. But maybe you can talk about our, what's driving to deceleration? What are you guys seeing? I don't know if it's worth advocating between E and S, X and surface lines versus non-ENS.

I'm just curious if the discipline there is dissipating a bit more versus reinsurance.

I think we're just experiencing on the fourth quarter. That will probably change in 23, I think, opportunities are going to resurface more broadly than we even had in the fourth quarter. I think it took a little while for the market to digest the NNC, where it means for the overall market. I think not the market. It's clearly in the camp of...

making doing what it needs to do to improve the return of the pricing on the property, which I think also we heard another call might think will impact a broader set of line of business beyond the property exposure. But if we go back, so if you look at the 70% growth, I mean the 70% growth over a period that about 3 times the size 3, 4 years ago.

You know, we did have a lot of roles in the beginning of your market So as you get into the late stages, having a 70% could be equivalent to another 50% increase in 2021 2021 we started to lean into the market. I think this is a natural Tenominant after a while you've not that you've mungered everything but you've really pushed as hard as you could

And we're still pushing hard. Even 70% to me is about three times the average growth in the premium in the industry. That tells me that we're still seeing a lot of opportunities. But it's, again, like I said, we're later in the stage of the hard tackle. And I think that we'll see a re-rejuvenation, if you will, at that growth possibly because the insurance companies are going to have to increase as we all know they're pricing.

One is the property cap and the higher retention by the more risk retained. So, and we're participating like the other guys on the insurance markets who we expect market to, you know, start sort of getting a second bite of the apple if you will.

of a hard market. And as a follow-up sticking to it with a primary insurance segment, that sounds like the opportunities might fall within the property space if I am interpreting your comments correctly. And when we are thinking about the segments combined ratio, I feel like looking at my older notes, it was kind of...

So I think we said a few things about the combined ratio. The 95 was meant at the target back in 1617 when interest rates were quite a bit lower. They went down further as you know that meant that we needed to have lower combined ratio targets, which we...

targeted over that two, three, and that's what you see there in fact of. I think from our perspective, low 90s, it's still what, or high 80s is for what we're still pushing for because within the interest rates, they may revert back and come down after a while, a year, year and a half from now. So you don't want to be to rushing to recognize all the various interest rates. All the we are currently, you know, we are pricing into our business.

We tend to take a longer view like we do on the trend on our inflation and we think that we might come back down. So I think we would still target a lower 90s, high 80s together with terms that we think are we deserve. Understood. Thank you.

review like we do on the trend on our inflation and we think that we might come back down. So I think we would still target a lower 90s, high 80s to get the returns that we think are we deserve. Thank you. Thank you.

Please stand by for our next question. Our next question comes from the line of Jamminder Boulour with JP Morgan. Yelena is open. Hi. First set of question on the reinsurance business. If you look at your premium growth, even excluding the sort of large transactions.

appreciate the you know the closure business is something that we you know we might have written a a deal in in January one of 22 and you know a premium gets written over the four quarters.

So we're benefiting from that that's showing up in each of the four quarters. If the underlying rate increases also from the seeding companies are higher than what we might have expected at the start, that gets adjusted throughout the year. So the couple of factors were basically, you know, we're just following effectively the fortunes of them.

We've seen companies, but still I think our teams deserve a lot of credit for going after these opportunities. You know, the response that they're applying needs.

being, you know, and providing good capacity with, you know, good reading, and so on. So that's the, that's continuing on in 23rd and so we think the market is there and we saw like a bloke was not only one of the businesses, there was pretty much the development models that it involves.

and your property and property status that I'm a lot of attention to the last few weeks. And still, on all lines of business, other specialty, casualty, marine aviation, and many of that, I think, and all under, I think, in the end of the position to really keep going. And a good question for the police.

Okay, then just shifting on to my, your loss issues are obviously very good, but I think the loss pick did pick up a little bit in the fourth quarter. So is that more sort of national driven or is it more regional to where you're starting to see some maybe softening in the market in certain, certain regions or states? Okay.

Well, we've navigated through the regional differences in our pricing. So I think we have constructive flow that we're very happy with, straight away from what we perceive to be the more dangerous areas and on the price areas. So I think that's going to.

showing up in our performance over time. In terms of reserving, I'd say two things. One, the link with key rates are still very low. So if that were really paying pressure at this point, it turns up a higher level of link with key.

the report. And the law of racial thick is really more a function of and us being a little approved. I think there's a little bit of uncertainty with their home prices. Are they about to come down? Does that create some some potential pressure? We think we're very

very, you know, very, you know, aware of that, whether there's a recession, etc. But, you know, we're still very, very positive on the on the segment. It's just, you know, a realization that, hey, this is maybe a slightly riskier environment than we were in like a year or two years ago, and our reserves are kind of like that.

Okay. Thank you. Thank you. Please stand by for our next question.

Our next question comes from the line of Brian Mertus with UBS. Your line is open.

Yeah, thank you. A couple of them here for me. First, Mark French, why you guys typically provide in your 10Qs the 1-250 for all the other regions well, Northeast and Gulf of Mexico, UK. I'm wondering if you could have those statistics so we can get a better sense of, you know, what type of growth you're going to see.

you know, at one one renewals and maybe focus also on Europe because I know Europe was you've got got a good operation there and a lot of opportunities there. Yeah, I mean the ones we reported usually a couple more regions we don't have I don't want to have those handy I think yeah the most of my smarts point I think a lot of these

The growth, you know, that we saw at least at one one, you know, will come through in regions that were, I say, we were probably a little bit underweight in the past. So that's going to show up in Q1 premium.

from the rest of the year, but turns out PML that really does have an impact. Got you. Okay. And then second question, I'm just curious, Mark. If I take a look back and I'm going to date myself a little bit here. You know, if I look back at which your underlying kind of combined ratios looks like back in 2003, 2004.

after the last hard market, you're getting pretty close there in the re-insurance business. Are we getting to the point where we're kind of seeing Max margins in that business maybe a little bit more in 2023, but how much more do you think you really get here? That's a really good question, Brian . I don't know the answer to that. I like to compare some 202 or 303. I would actually like to compare probably more like a combination of 202 or 304 and Li-Vilti in Medi-O-60.

second on the property side. So I don't know what that means. We haven't blended as going in the combined ratio that we had in this to do, but that probably would be a close to what we can do. I mean look there's a lot of things that are different this time around interest rates are lower than the work before international international, most specifically where we're an international diversified or interested.

company. Hard to tell but it's totally going in a way of getting above a long term and an RLE target. That's for sure.

And that's really what in the end what rejoices as you know. Great. Thank you. Well.

Thank you. Please stand by for our next question.

Our next question comes from the line of Yarran Klanar with Jeffries. Yaline is open. Good morning, everybody. My first question, look at the ROE profile of the company. Clearly, there is upwards momentum here. Can you maybe talk about a...

It is an II just with the leverage and the collection or the increase in interest rates we saw last year. I think that's going to take still a little bit of time to show up in the numbers. But as we look forward over the next 12 to 24 months, like to think that there's leverage there that we can show up in the numbers.

In terms of the segments, you know, results, I think they can all, you know, more gives, you know, again, the report of results, I mean, significant reserve releases, which certainly out the bottom line in the R-O-E that we got on the board, but we think the segments, the fundamentals, the underlying each of the three segments are stuff they're good that they can actually tell, there was a very healthy result.

Great. And then my second question, just look at the insurance business. It sounds like you think that there may be someone flexion through accelerating growth again in 23. Can you maybe help us think about the impact of the re-enturance market, kind of available capacity, cost of re-enturance, how that plays into your potential?

charge to be insured, that they can in turn state a reinsurance that needs to buy. Even if they went bare, right? We heard that a lot of increasing retention is to more volatility that's absorbed by those insurance carriers, which should lead to, again, needing a higher rate everything else being the equal. So I think what we're seeing is, what we'll see is gradually, and again, on the reinsurance act as a boss, you're on.

occurring throughout 20, 20, 23 and beyond. And alongside with those between all of us here, currently conditions are also going to be on the table, on the docket for companies to present to, finally, to not curtail, but finally to have a better risk sharing with their insured.

I'm going to come down to right to policy. So I guess for that reason, that's what underlies is that sick or shocked, that sick or shocked, with a good increase in the insurance as being of a year that will have to filter through all the plants and budgeting for all the insurance companies, including ourselves as we go forward in 23. It's going to be a slow motion, but it's going to happen. That's why I'm optimistic.

Got it. In our positive, I'm going to try and sneak one more in here. Clarification, when you've talked about targeting low 90s, high 80s combined ratio, was that a reported combined ratio in the insurance segment?

That's a, that's a year, Target. I expected, you're on, it's expected, it's expected, right?

It's plus or minus as you know in our space, it's all still around the expected numbers, but it's long term infected. Because you've been running at mid 90s. So where's that improvement coming from? Is it, I'll see, just better, greater and risk for action? Well, we're running around, we're running about nine you now. And I think that we feel the huge improvement in pricing.

So that would, that should help us get there somehow. Okay, thank you.

Thank you.

Thank you. Please stand by for our next question.

Our next question comes from the line of Ryan Tunis with autonomous. Dylan is open. And it's good afternoon. First question, I guess following up on Tracy.

Could you give us some indication of, I guess, how you're viewing your overall cat budget this year relative to 21? Based on what you saw, the one-win renewal should be expected, kind of the expected cat ratio to be higher.

The cat will reach you or cat, I mean in terms of cat loads. Cat loads, dollars of cat, yeah we think we'll go up, no question.

You know, we've been targeting or targeting. I mean, our can load in 22, which was called at 80 million of four. Now it's probably...

between 120 for the first quarter, 23 based on what we wrote, right? And we'll see how that develops for the rest of the year. I mean, depending on how the 4161 civilian rules, how those kind of materialized, there is, you know, I'd say, you know, a good probability that it will keep going up throughout the year, but...

based on the enforceable penalty that we have, you know, currently for the first quarter. I mean, that's kind of how we see the exposure to the cat losses.

Perfect. That's helpful. And then I add one from Mark, I guess, one the the man made cat side which isn't something we've talked about too much, but I would think that's that's one of the better markets right now on the re-injuring side.

I guess just trying to size that, whether or not, you know, maybe some of the rate increases post-U crane, if that can move the needle relative to property cap, just looking at your marine and aviation premium. It's actually pretty chunky relative to property cap. So if you could just give us some indication of, you know, can that move the needle? Is that something that we should be, you know, paying?

all converges for cat or whatever else out there. There was some, there were some, but there definitely is a result of that event in attempt to exclude a lot of these war events and bring them back into the proper aviation war or marine war market, for instance. So yeah, there is a lot of, obviously a lot of activities there, a rate increases there, we're participating in there. Well, those markets are to begin with pretty smart.

So that's why I think you'll see some improvement, but it may not be necessary enough to move the needle for the industry. Even though it's a very healthy proposition and we've gone through a lot of research for the right reasons and those kinds of differences.

Yeah, it makes sense. And then just lastly, the acquisition expense ratio has been kind of hard to pin down. It works over the past few years that's gone up. Obviously, it's not like there are some changes in terms of seating, commission, structures, things like that at 1-1.

Is there anything directional you can say about, you know, maybe how the acquisition expense ratios could move in 23 versus 22 or do we just kind of expect something relatively similar? Yeah, I don't think it's going to move a whole lot more than I think.

There's been a lot of shifts in the midst of business over the years, particularly as our insurance book in the UK is growing at the higher acquisition ratio, different kind of insurance purchasing decisions. So there's, you know, there's no, yeah.

And along with the reasons or explanations that's the why it is word is now. And obviously, we focus on the bottom line returns whether if we're going to pay a bit more acquisition, we certainly think we're going to get a lower loss ratio and that has been the case.

But for your modeling, we've got to exercise. I think assume something pretty similar to 22 as a starting point in level. We'll see if you updated as a year ago done.

We've got to exercise that they assume something pretty similar to 22 as a starting point and level. We'll keep you updated as a year goes on. Thanks to look.

Thank you. Thank you. Please stand by for our next question. Our next question comes from the line of Elsie Greenspan with Wells Fargo. Your line is open.

Hi, thanks. Good morning. My first question, I guess, is going back to the re-insurance margin discussion that came up earlier. So, you guys have a flat PML and you guys are seeing 30 to 50 percent rate increases in CAT. Wouldn't that triangulate into margin improvement coming through in the re-insurance book in 2023?

Well, just if I could just isolate, first, we wonder what you were, so good to see you there. Second, I think the, if you look at the property canitalities, I think it returns dramatically improved.

But as you know for us, it's going to be incrementally of course accretive to our bottom line, but we're not, you know, not in the biggest line of business for us. So that's what allowed us, we believe the opportunity to, and in the room to grow the way we think we could grow in 223. So it's hard to say how much more, but the property can excel, market itself, has significant margin improvement.

Would you say building on that mark, and would you say that of all your business lines, as you sit here today, the line with the best expected return in 23 would be catastrophe reinsurance?

It's up there, but there are others that we don't advertise too much about really, really helping getting better.

as we speak and as big as not. I have to say some of them might are as big as the property cat export of property cat writing. So then we have quite a few who are giving us pretty high returns. But it's not there. It's not there at all. It says beyond it. I mean, you heard it on the call. This is a good time to write property cat Excel. It's a really good time. And then you said right, well, on the PML discussion, you would mention right that we need

could derail the uplift that we've seen in the catastrophe re-insurance market. I mean it's hard to imagine, I think the...

The third party capital you mentioned is still the Civil War and the way in Seattle to the US renewal as well. No, it's a small portion of the overall cat writing in the year. So more has to happen and as we all know and in one of what our tri-counting with the Florida Explorers Florida is the biggest.

exposure. So it's hard to tell what could derail it. I mean I'm trying to think out loud, you know, or they're, they're probably going to come in. I don't see it being a case. No one can't have the first half of the year. Well, we better have. It'd be great for an industry to actually take advantage of. No, let's get activity. No, it's hard to see anything at least because I think that the site.

that we may have less than perhaps some people as budgeted, or maybe a bit more than budgeted pricing increase, and we have a delta around what we see. In terms of core capital needs.

and supplying the mail on the immediate. I'm just a long question because I was thinking out loud here for a day ago.

No, that was great. Thanks, Mark. Appreciate the color. Sure. Thank you. Please stand by for our next question. Our next question comes from a line of Maya Shields with KBW. The line is open.

Great, thanks so much for taking the time. I hope this wasn't covered. I missed about a minute of the call, but I was hoping to be big into the non-recurring transactions in re-insurance. I'm assuming there's a retroactive re-insurance. That's something you could talk about specifically the sort of risks or the lines of business that you're assuming, and maybe give us something of what that market looks like now.

Yeah, I mean, if they keep it fairly high level, those are generally, I consider them to be capital relief, capital support transactions, for a variety of reasons. Companies that have grown a lot under some breathing agency pressure, maybe capital relief, companies trying to put them exposed behind them, etc. or so, but they're just declarifying that those are not retroactive, so they're all in shape.

So, all of it is a vibrant market. There's a lot of pain that some companies are experiencing right now, and they're looking for solutions. And again, we have strong balance sheets and capital to support them. So, I think.

You know, don't know if they're going to happen again. There's, I mean, those are monthly, but if and when they are presented to us, we're happy to consider them. Once in a while they end up writing a few of them. Okay. No, that's helpful. Thank you. Okay. I think in question onboard is insurance.

And I don't even know how to phrase this, but you put up very conservative reserves for mortgage insurance over the course of COVID, and I'm wondering how much of that unusual reserve is still there, because clearly, you know, speaking at least for myself, we haven't done a great job forecasting your reserve releases in that unit. Well, let's head back.

It's a great question which it is, it's becoming harder and harder to answer because in the early days, no question that we had adjusted are, you know, because so many loans, the linkages that were in our inventory were forbearance and try to...

make a distinction between xenophobarance and non-phobarance, you know, building with cities and how much of that work was, you know, a new...

The concept or new kind of reality we were facing over time. I mean, you know, it's been three years now I think the reality is like the inventory is somewhat kind of cold angles So you know, we don't really think of local bullbearance and a bad differently than we look at the other loans Even though we know there's so a few of them in the inventory. So

I mean, most of us just say that, you know, it's not something we can quantify directly every quarter anymore, but we still perceive that there's a bit of risk with COVID-related reserves, and that's why we've been holding on to the reserves up to the point where we think we just don't need them.

right now this quarter was an example or I think the data got suggested that we were well right time thoroughly but there were more of the reserves that worked that up in the year. Mario quickly I think what Fonsley's saying is true follow-on to business and the authority about well try to take a proven standpoint to research to ensure we had enough and with that data speak for itself and this one is very unusual, Mario, right?

and then make for something unlike anything else. When we have another one, we'll have a better playbook to use, but we just didn't know. And we still don't know. It's still not over. One sixth of our NODs are forbearance. So it's still coming back in the first. Not totally gone yet. That's what.

lead us to be more that much more. From the outside it looked like we're concerned, but we think we're being couped in. And the data speak for itself. And we'll see if it happens, that we don't need it. And we'll involve a justice based on the data we take.

Okay, nope, I'm just saying thank you very much. Great, thank you. Thank you. Please stand by for our next question.

We have a follow up question from the line of Tracy Benjiji with Barclays. Mr. Beyonce??

Thank you for taking me back and the cue. I'm wondering what your outlook is on professional lines within your insurance segment and particularly what stage you would classify that business in when you went through your stages.

So I don't say, Steve, do you include DNO there or you just want to get the XDNL and which line is the real product market? Yeah, okay, so my focus is more on DNO. DNO, okay, so DNO.

We expect similar trends that we see. It's all in the last quarter. It may change a little bit as our result of the overall thing is having in the marketplace. But

The trend on the large commercial, for instance, has been neutral to negative, actually, for that three, four years. So I would say that even though we may hear you hear, as I know, rate decrease is an ideal for large commercial, there's rationality behind it. So we expect rationality to simply because it's not. There's a lot of data that points to that, the validates, what kind of price things we're seeing on the DNO side.

On a smaller DNO, we do a fair amount of it. To remind you, we do a fair amount of DNO. We still see a very, very stable, very good marketplace. But again, the smaller DNO is another big ticket item that you would expect by a lot of them are going to be an awful profit, small policy. So minimum premium is really, a lot of time is what happens.

And that 5% increase might be $50, right? So these are the kinds of things that we do. And we have grown dramatically over the last four or five years.

becoming a big section while we do. The market is healthy from a things perspective, right? To go back what I said about the large commercial, the SDAs are down 25%, 30% of all last four years. So it's a pretty good market to be there, the IPO market as stabilized. It was pretty hot for a while. Pricing got crazy. We took advantage of a lot of opportunities. Not crazy, but.

It was a very acute needing capacity. We expect this to re-normalize again. So I think what we say, D&O is normalizing for large commercial. Sort of a stage four, I meant stage three, where recognizing some of the overreaction, but then the smaller D&O is probably, you know, early stage of stage.

of stage three, which is still very possible. And you'll live in a decrease here and there, or it's life increase. Thank you.

which is still very possible. And you'll live in a decrease here and there or you'll slide to increase. Thank you. Sure. Thank you.

and you'll live in a decrease here and there or you'll slide increase. Thank you. Sure. Thank you.

I'm not showing any further questions in the queue. I would now like to turn the conference back over to Mr. Mark Renderson for closing remarks. We'll spend a good day with your loved ones and we will see you the next quarter. Thanks for listening.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect. Hello, everyone.