Q4 2023 Arch Capital Group Ltd Earnings Call
We will conduct a question answer session and instructions will follow at that time.
As a reminder, this conference call is being recorded before the company gets started with its update management wants to first remind everyone that certain statements in today's press release I am discussed on this call may constitute forward looking statements under the federal Securities laws.
Yeah.
Okay.
Operator: Good day, ladies and gentlemen, and welcome to the Arch Capital Q4 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Speaker Change: Good day, ladies and gentlemen, and welcome to the Q4 2023 arch capital earnings Conference call.
Speaker Change: At this time all participants are in a listen only mode. Later, we will conduct a question answer session and instructions will follow at that time.
Operator: Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. Before the company gets started with its update, management wants to first remind everyone that certain statements in today's press release and discussed on this call may constitute forward-looking statements under the Federal Securities Law. Such statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. Consequently, actual results may differ materially from those expressed or implied.
These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties.
Speaker Change: As a reminder, this conference call is being recorded.
Speaker Change: Before the company gets started with its update management wants to first remind everyone that certain statements in today's press release I Undiscussed on this call may constitute forward looking statements under the federal Securities laws.
Consequently, actual results may differ materially from those expressed or implied for more information on the risks and other factors that may affect future performance investors should review periodic reports that are filed by the company with the S. E C from time to time.
Speaker Change: These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties.
Additionally, certain statements contained in the call that are not based on historical facts are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Speaker Change: Consequently, actual results may differ materially from those expressed or implied for more information on the risks and other factors that may affect future performance investors should review periodic reports that are filed by the company with the FCC from time to time.
Operator: For more information on the risks and other factors that may affect future performance, investors should review periodic reports that are filed by the company with the SEC from time to time. Additionally, certain statements contained in the call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends the forward-looking statements in the call to be subject to the safe harbor created thereby. Management will also make reference to certain non-GAAP measures of financial performance. The reconciliations to GAAP for each non-GAAP financial measure can be found in the company's current report on Form 8K, furnished to the SEC yesterday, which contains the company's earnings press release and is available on the company's website at www.archgroup.com and on the SEC's website at www.sec.gov. I would now like to introduce your hosts for today's conference, Mr. Marc Grandisson and Mr. Francois Sirs, you may begin.
The company intends the forward looking statements in the call to be subject to the safe Harbor created thereby.
Management will also make rasp reference to certain non-GAAP measures of financial performance.
Speaker Change: Additionally, certain statements contained in the call that are not based on historical facts are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
The reconciliations to GAAP for each non-GAAP financial measure can be found in the company's current report on form 8-K furnished to the S. E. C yesterday, which contains the company's earnings press release and is available on the company's website at Www Dot arch group Dot com and on the S.
Speaker Change: The company intends the forward looking statements in the call to be subject to the safe Harbor created thereby <unk>.
Speaker Change: Management will also make rasp reference to certain non-GAAP measures of financial performance.
He sees website at Www Dot S E C Dot Gov I would now like to introduce your host for today's conference Mr. Mark Grandison and Mr. Francois Morin Sirs you may begin.
Speaker Change: The reconciliations to GAAP for each non-GAAP financial measure can be found in the company's current report on form 8-K furnished to the S. E. C yesterday, which contains the company's earnings press release and is available on the company's website at Www Dot arch group Dot com and on the S.
Thank you Gigi good morning, and thank you for joining our earnings call. Our fourth quarter results conclude another record year as we continued to lean into broadly favorable underwriting conditions in our property and casualty sectors. Our full year financial performance was excellent with an annual operating return on AD.
Speaker Change: He sees website at Www Dot S E C Dot Gov I would now like to introduce your host for today's conference Mr. Mark Grandison and Mr. Francois Morin Sirs you may begin.
Average common equity of 21, 6% and an exceptional 43, 9% increase in book value per share, which remained at an impressive 34, 2%. If we exclude the onetime benefit from the deferred tax asset we booked in the fourth quarter.
Marc Grandisson: Thank you, Gigi. Good morning, and thank you for joining our earnings call. Our fourth-quarter results conclude another record year as we continue to lean into broadly favorable underwriting conditions in the property and casualty sector. Our full-year financial performance was excellent, with an annual operating return on average common equity of 21.6% and an exceptional 43.9% increase in book value per share, which remains an impressive 34.2% if we exclude the one-time benefit from the deferred tax asset we booked in the fourth quarter. The $3.2 billion of operating income reported in 2023 made it Arch's most profitable year to date.
Marc Grandisson: Thank you Gigi good morning, and thank you for joining our earnings call.
Marc Grandisson: Our fourth quarter results conclude another record year as we continued to lean into broadly favorable underwriting conditions in our property and casualty sectors. Our full year financial performance was excellent with an annual operating return on average common equity of 21, 6% and an exceptional 43.
The $3 2 billion of operating income reported in 2023 made its arches, most profitable year to date.
Growth was strong all year as we allocated capital to our property and casualty teams with short over $17 billion of gross premium and over $12 4 billion of net premiums.
Marc Grandisson: 9% increase in book value per share, which remained at an impressive 34, 2%. If we exclude the onetime benefit from the deferred tax asset we booked in the fourth quarter.
And while most current growth opportunities are in the P&C sector, it's important to recognize a steady quality underwriting performance of our mortgage group.
Marc Grandisson: The $3 $2 billion of operating income reported in 2023 made its arches, most profitable year to date.
Marc Grandisson: Growth was strong all year as we allocated capital to our property and casualty teams. We wrote over $17 billion of gross premium and over $12.4 billion of net premium. And while most current growth opportunities are in the PNC sector, it's important to recognize the steady quality underwriting performance of our mortgage business. Although mortgage market conditions meant fewer opportunities for Kaplan MI growth, the business unit continued to generate significant profits, totaling nearly $1.1 billion of underwriting income for the year. As we have mentioned on previous calls, those earnings have helped fund growth opportunities in the segments with the best risk-adjusted returns, demonstrating that Our ability to deploy capital early in the hard market cycle is paying dividends as we own the renewals. A phrase I learned from Paul Ingres, a personal mentor and foundational leader of Arch. What Paul meant was quite simple.
Marc Grandisson: <unk> was strong all year as we allocated capital to our property and casualty teams with short over $17 billion of gross premium and over $12 4 billion of net premiums.
Although mortgage market conditions meant fewer opportunities for top line growth the business unit continue to generate significant profits totaling nearly $1 $1 billion of underwriting income for the year.
Marc Grandisson: And while most current growth opportunities are in the P&C sector. It is important to recognize a steady quality underwriting performance of our mortgage group.
As we have mentioned on previous calls those earnings have helped fund growth opportunities in this segment with the best risk adjusted returns demonstrating that the disciplined underwriting approach and active capital allocation.
Marc Grandisson: Although mortgage market conditions meant fewer opportunities for topline growth. The business unit continues to generate significant profits totaling nearly $1 $1 billion of underwriting income for the year as.
Central throughout the cycle.
Our ability to deploy capital early in the hard market cycle is paying dividends as we own the renewals afraid I learned from falling Ray a personal mentor and foundational leader of arch.
Marc Grandisson: As we have mentioned on previous calls those earnings have helped fund growth opportunities in the segments with the best risk adjusted returns demonstrating that the disciplined underwriting approach and active capital allocation are essential throughout the cycle.
But Paul <unk> was quite simple.
When markets turn hard you should aggressively right business early in the cycle.
Marc Grandisson: Our ability to deploy capital early in the hard market cycle is paying dividends as we own theyre going Newell's afraid I learned from falling Ray a personal mentor and foundational leader of arch.
This puts your underwriters in a strong position to fully capitalize on the market opportunity.
By making decisive early moves you've won become.
Marc Grandisson: What Paul meant was quite simple.
Marc Grandisson: When markets turn hard, you should aggressively write business early in the cycle. This puts your underwriters in a strong position to fully capitalize on the market opportunity. By making decisive early moves, you'll win.
Marc Grandisson: When markets turn hard you should aggressively right business early in the cycle.
Hey, guys, who then want to do more business with you in some ways the growth becomes self sustaining which explains part of our success throughout this hard market.
Marc Grandisson: This puts your underwriters in a strong position to fully capitalize on the market opportunity.
By making decisive early moves you've won.
At arch, our primary focus has always been on rate adequacy, regardless of market conditions.
Our underwriting culture dictates that we include a meaningful margin of safety in our pricing, especially in softer conditions.
Marc Grandisson: You grow alongside your constituents, who then want to do more business with you. In some ways, the growth becomes self-sustaining, which explains part of our success throughout this hard market. At Arch, our primary focus has always been on rate adequacy, regardless of market conditions.
Marc Grandisson: Alongside your platform.
Marc Grandisson: We then want to do more business with you in some ways the growth becomes self sustaining which explains part of our success throughout this hard market.
And we also take a longer view of inflation and.
When rates for these reasons arch was underweight in casualty premium from 2016 to 2019, when cumulative rates were cut by as much as 50%.
Marc Grandisson: At arch our primary focus has always been on rate adequacy, regardless of market conditions, our underwriting culture dictates that we include a meaningful margin of safety in our pricing, especially in softer conditions.
Marc Grandisson: Our underwriting culture dictates that we include a meaningful margin of safety in our pricing, especially in softer conditions, and we also take a longer view of inflation and rates. For these reasons, Arch was underweight in the casualty premium from 2016 to 2019 when cumulative rates were cut by as much as 50%. I thought I'd borrow a soccer analogy to help explain the current casualty market. In soccer, players who commit a deliberate foul are often given a yellow card.
I thought at borrow a soccer analogy to help explain the current casualty market.
And soccer players, who commit a deliberate file are often given a yellow card.
Marc Grandisson: And we also take a longer view of inflation.
Marc Grandisson: And rates for these reasons arch was underweight in casualty premium from 2016 to 2019, when cumulative rates were cut by as much as 50%.
Two yellow cars mean, the player is ejected from the remainder of the match and their team continues with a one player disadvantage today's casualty market feels as though some market participants took to the field with a yellow card from a prior game, they're playing in match, but cautiously.
Speaker Change: I thought at borrow a soccer analogy to help explain the current casualty market in.
Speaker Change: And soccer players, who commit a deliberate file are often given a yellow card.
One thing to make a narrowed I will put their entire team at a disadvantage. So while arch sometimes plays aggressively we've remained disciplined and avoid a drawing a yellow card.
Marc Grandisson: Two yellow cards mean the player is ejected from the remainder of the match, and their team continues with a one player disadvantage. Today's casualty market feels as though some market participants took to the field with a yellow card from a prior game. They're playing in a match but cautiously, not wanting to make an error that will put their entire team at a disadvantage. So while Art sometimes plays aggressively, we've remained disciplined and avoided drawing a yellow card. At a high level, we must remember that casualty lines take longer to remediate than property. So if insurers are being cautious and adding to their margin of safety, they could experience profitable underwriting opportunities in an improving casualty market for the next several years. Now I'll provide some additional color about the performance of our operating units, starting with reinsurance. The performance of our reinsurance segment last year was nothing short of stellar. For the year, reinsurance net premium written was $6.6 billion, an increase of over $1.6 billion from 2022.
Speaker Change: Yellow cars mean, the player is ejected from the remainder of the match and their team continues with a one player disadvantage today's casualty market feels as though some market participants took to the field with a yellow card from a prior game, they're playing and match but cautiously.
At a high level, we must remember that casualty lines take longer to remediate than property. So if insurers are being cautious in adding to their margin of safety.
Speaker Change: One thing to make an arrow that will put their entire team at a disadvantage. So whilst arch sometimes plays aggressively we've remained disciplined and avoid a drawing a yellow card.
We could experience profitable underwriting opportunities in an improving casualty market for the next several years.
Now I'll provide some additional color about the performance of our operating units starting with reinsurance.
Speaker Change: At a high level, we must remember that casualty lines take longer to remediate and properties.
The performance of our reinsurance segment last year was nothing short of stellar for the year reinsurance net premiums written were $6 $6 billion, an increase of over $1 $6 billion from 2022.
Speaker Change: We finished errors are being cautious in adding to their margin of safety.
Speaker Change: We could experience profitable underwriting opportunities in an improving casualty market for the next several years.
Underwriting income of nerdy, one for $1 billion is a record for this segment and a significant improvement from the cat heavy 2022.
Speaker Change: Now I'll provide some additional color about the performance of our operating units starting with reinsurance.
Speaker Change: The performance of our reinsurance segment last year was nothing short of stellar for the year reinsurance net premiums written were $6 6 billion, an increase of over $1 6 billion from 2022.
Reinsurance underwriting results remain excellent as we ended the year with an 81, 4% combined ratio overall and a 77, 4% combined ratio ex cat and prior year development, both significant improvements over 2022.
Marc Grandisson: Underwriting income of nearly $1.1 billion is a record for this segment and a significant improvement from the cat-heavy 2022. Reinsurance underwriting results remain excellent as we ended the year with an 81.4% combined ratio overall and a 77.4% combined ratio X-cap in prior year development, both significant improvements over 2022. Turning now to our insurance segment, which continued its growth trajectory by riding nearly $5.9 billion of net premium in 2023, a 17% increase from the prior year. While the business model for primary insurance means that shifts may not appear as dramatic as for our re-insurance groups, a look at where we've allocated capital year over year provides meaningful insight into our view of the market opportunities. In 2023, the most notable gains came from property, marine, construction, and national accounts.
Speaker Change: Underwriting income of $91 1 billion is a record for this segment and a significant improvement from the cat heavy 2022.
Turning now to our insurance segment, which continued its growth trajectory by writing nearly $5 9 billion of net premium in 2023 <unk>.
Speaker Change: Reinsurance underwriting results remain excellent as we ended the year with an 81, 4% combined ratio overall and a 77, 4% combined ratio ex cat and prior year development.
A 17% increase from the prior year.
While the business model for primary insurance means that shifts may not appear as dramatic as a as a reinsurance groups look at where we've allocated capital year over year provides meaningful insight into our view of the market opportunities in 2023. The most notable gains came in from property Marine construction.
Speaker Change: Significant improvements over 2022.
Turning now to our insurance segment, which continued its growth trajectory by writing nearly $5 9 billion of net premium in 2023 <unk>.
Speaker Change: A 17% increase from the prior year.
Traction in national accounts.
Speaker Change: While the business model for primary insurance means that shifts may not appear as dramatic as it as a reinsurance groups I look at where we've allocated capital year over year provides meaningful insight into our view of the market opportunities in 2023. The most notable gains came in from property Marine construction.
The $450 million of underwriting income generated by the insurance segment in 2023 doubled our 2020 to output as we continue to earn in premium from our deliberate growth during the early years of this hard market.
Underwriting results remained solid on the year as the insurance segment delivered a combined ratio of 91, 7% and a healthy 89, 6%, excluding cats and prior year development.
Speaker Change: <unk> and national accounts.
Marc Grandisson: The $450 million of underwriting income generated by the insurance segment in 2023 doubled our 2022 output as we continue to earn in premium from our deliberate growth during the early years of this hard market. Underwriting results remained solid for the year, as the insurance segment delivered a combined ratio of 91.7% and a healthy 89.6%, excluding capped in prior year development. Now on to Morgan.
Speaker Change: The $450 million of underwriting income generated by the insurance segment in 2023 doubled our 2022 output as we continue to earn in premium from our deliberate growth during the early years of this hard market.
Now onto mortgage.
Our industry, leading mortgage segment continued to deliver profitable results. Despite a significant industrywide industrywide reduction in mortgage originations last year.
Speaker Change: Underwriting results remained solid on the year as the insurance segment delivered a combined ratio of 91, 7% and a healthy 89, 6%, excluding cats and prior year development.
The high persistency of our insurance in force portfolio, which carries its own unique version of owning of the renewables enabled the segment to consistently serve as an earnings engine for our shareholders.
Speaker Change: Now on to mortgage.
Marc Grandisson: Our industry-leading mortgage segment continued to deliver profitable results despite a significant industry-wide reduction in mortgage originations last year. The high persistency of our insurance-enforced portfolio, which carries its own unique version of owning the renewals, enables the segment to consistently serve as an earnings engine for our shareholders. The credit profile of our U.S. primary M.I.
Our industry, leading mortgage segment continued to deliver profitable results. Despite a significant industrywide industrywide reduction in mortgage originations last year.
The credit profile of our U S primary portfolio remained excellent and the overall market continues to be disciplined and return focused.
Speaker Change: The high persistency of our insurance in force portfolio, which carries its own unique version of owning of the renewables enabled the segment to consistently serve as an earnings engine for our shareholders. The.
These conditions should help to ensure that our mortgage segment remains a valuable source of earnings diversification for arch.
Onto investments.
Speaker Change: The credit profile of our U S primary portfolio remains excellent and the overall market continues to be disciplined and returns focused.
Net investment income grew to over $1 billion for the year due to rising interest rates that in enhanced earnings from the float generated by our increasing cash flows from underwriting.
Marc Grandisson: The portfolio remains excellent, and the overall M.I. market continues to be disciplined and return-focused. These conditions should help to ensure that our mortgage segment remains a valuable source of earnings diversification for us. On to investment. Net investment income grew to over $1 billion for the year due to rising interest rates that enhanced earnings from the float generated by our increasing cash flows from underwriting.
Speaker Change: These conditions should help to ensure that our mortgage segment remains a valuable source of earnings diversification for arch.
The significant increases to our asset base provide a tailwind for our creative investment group to further increase its contributions to arches earnings.
Speaker Change: Onto investments.
Speaker Change: Net investment income grew to over $1 billion for the year due to rising interest rates set in enhanced earnings from the float generated by our increase in cash flows from underwriting.
Over the past several years <unk> has leaned into both the hard market and our role as a market leader in a specialty insurance space. We have successfully deployed capital into our diversified operating segments to fuel growth, while also making substantial operational enhancements to our platform including <unk>.
Marc Grandisson: The significant increases to our asset base provide a tailwind for our creative investment group to further increase its contributions to Arch's earnings. Over the past several years, ARK has leaned into both the hard market and its role as a market leader in the specialty insurance space. We have successfully deployed capital into our diversified operating segments to fuel growth, while also making substantial operational enhancements to our platform, including entering new lines, expanding into new geographies, and making investments in new underwriting teams, technology, and data analytics. Finally, as we bid adieu to 2023, I want to take a moment to thank our more than 6,500 employees around the world who have helped deliver so much value to our customers and shareholders. Our people are our competitive advantage, and without their creativity, dedication, and integrity, none of this would be possible. So, thank you, Team Arch. Francois.
The significant increases to our asset base provide a tailwind for our creative investment group to further increase its contributions to <unk> earnings.
Entering new lines, expanding into new geographies, and making investments into new underwriting teams technology and data analytics.
Speaker Change: Over the past several years <unk> has leaned into both the hard market and our role as a market leader in a specialty insurance space. We have successfully deployed capital into our diversified operating segments to fuel growth, while also making substantial operational enhancements to our platform including <unk>.
Finally, as we bid adieu to 2023 I want to take a moment to thank our more than 6500 employees around the world, who helped deliver so much value to our customers and shareholders. Our people are our competitive advantage and without their creativity dedication.
Speaker Change: Entering new lines, expanding into new geographies, and making investments into new underwriting teams technology and data analytics.
<unk> and integrity, none of this would be possible. So thank you to team arch crosswalk.
Speaker Change: Finally, as we bid adieu to 2023 I want to take a moment to thank our more than 6500 employees around the world, who helped deliver so much value to our customers and shareholders. Our people are our competitive advantage and without their creativity dedication.
Thank you Mark and good morning to all thanks for joining us today as Marc mentioned, we closed the year on a high note with after tax operating income of $2 49 per share for the quarter for an annualized operating return on average common equity of 23, 7%.
Speaker Change: <unk> and integrity, none of this would be possible. So thank you to the team arch.
Book value per share was $46 94 as of December 31, up 21, 5% for the quarter and 43, 9% for the year aided by the establishment of our net deferred tax asset related to the recently introduced Bermuda corporate income tax, which I will.
Speaker Change: Roswell.
Franois Morin: Thank you, Marc, and good morning to all. Thanks for joining us today. As Marc mentioned, we closed the year on a high note with after-tax operating income of $2.49 per share for the quarter, for an annualized operating return on average common equity of 23.7%. Book value per share was $46.94 as of December 31, up 21.5% for the quarter and 43.9% for the year, aided by the establishment of a net deferred tax asset related to the recently introduced Bermuda corporate income tax, which I will Our excellent performance resulted from an outstanding quarter across our three business segments, highlighted by $715 million in underwriting income. We delivered strong net premium written growth across our insurance and reinsurance segments, a 22% increase over the fourth quarter of 2022 after adjusting for the large non-recurring reinsurance transactions we discussed last year, and an excellent combined ratio of 78.9% for the group.
Speaker Change: Thank you Mark and good morning to all thanks for joining us today as Marc mentioned, we closed the year on a high note with after tax operating income of $2 49 per share for the quarter for an annualized operating return on average common equity of 23, 7%.
Spanned on in a moment.
Speaker Change: Book value per share was $46 94 as of December 31, up 21, 5% for the quarter and 43, 9% for the year aided by the establishment of our net deferred tax asset related to the recently introduced Bermuda corporate income tax, which I will.
Our excellent performance resulted from an outstanding quarter across our three business segments highlighted by $715 million in underwriting income we.
We delivered strong net premium written growth across our insurance and reinsurance segments, a 22% increase over the fourth quarter of 2022 after adjusting for a large nonrecurring of reinsurance transactions, we discussed last year.
Speaker Change: <unk> in a moment.
Speaker Change: Our excellent performance resulted from an outstanding quarter across our three business segments highlighted by $715 million in underwriting income we.
And an excellent combined ratio of 78, 9% for the group.
Our underwriting income reflected 135 million of favorable prior year development on a pretax basis or four one points on the combined ratio across our three segments, we observed favorable development across many units, but primarily in short tail lines in our property and casualty segments.
Speaker Change: We delivered strong net premium written growth across our insurance and reinsurance segments, a 22% increase over the fourth quarter of 2022 after adjusting for a large nonrecurring your reinsurance transactions, we discussed last year.
Speaker Change: And an excellent combined ratio of 78, 9% for the group.
And in mortgage due to strong cure activity.
Franois Morin: Our underwriting income reflected $135 million of favorable prior year development on a pre-tax basis, or 4.1 points on the combined ratio across our three segments. We observe favorable development across many units, but primarily in short tail lines in our property and casualty segments and in mortgage due to strong cure activity. While there were no major catastrophe industry events this quarter, a series of smaller events that occurred across the globe throughout the year resulted in current accident-year catastrophe losses of $137 million for the group in the quarter. Overall, the catastrophe losses we recognize were below our expected catastrophe load.
Speaker Change: Our underwriting income reflected 135 million of favorable prior year development on a pre tax basis or four one points on the combined ratio across our three segments, we observed favorable development across many units, but primarily in short tail lines in our property and casualty segments.
While there were no major catastrophe industry events this quarter.
A series of smaller events that occurred across the globe throughout the year resulted in current accident year catastrophe losses of $137 million for the group in the quarter.
Overall, the catastrophe losses, we recognize were below our expected catastrophe load.
Speaker Change: And in mortgage due to strong cure activity.
As of January one our peak zone natural cap PMO offer a single event one in 250 year return level on a net basis increased 11% from October one but has declined relative to our capital.
While there were no major catastrophe industry events this quarter.
Speaker Change: Series of smaller events that occurred across the globe throughout the year resulted in current accident year catastrophe losses of $137 million for the group in the quarter.
Speaker Change: Overall, the catastrophe losses, we recognized were below our expected catastrophe load.
Now stands at nine 2% of tangible shareholders' equity well below our internal limits.
Franois Morin: As of January 1, our peak zone natural cap PML, for a single event, 1 in 250-year return level on a net basis, increased 11% from October 1, but has declined relative to our capital and now stands at 9.2% of tangible shareholders' equity, well below our internal limit. On the investment front, we earned $415 million combined from net investment income and income from funds accounted for using the equity method, up 27% from last quarter. This amount represents $1.09 per share.
Speaker Change: As of January one our peak zone natural cap P&L all for a single event one in 250 year return level on a net basis increased 11% from October one but has declined relative to our capital.
On the investment front, we earned $415 million combined from net investment income and income from funds accounted using the equity method up 27% from last quarter.
This amount represents $1 nine per share.
Speaker Change: Now stands at nine 2% of tangible shareholders' equity.
With an investable asset base approaching $35 billion supported.
Speaker Change: Below our internal limits.
Speaker Change: On the investment front, we earned $415 million combined from net investment income and income from funds accounted using the equity method up 27% from last quarter.
Supported by a record $5 7 billion of cash flow from operating activities in 2023.
And new money rates near 5%, we should see continued positive momentum in our investment returns.
Speaker Change: This amount represents $1 <unk> per share.
Our capital base grew to $21 1 billion with a low leverage ratio of 16, 9% represented as debt plus preferred shares to total capital.
Franois Morin: With an investable asset base approaching $35 billion, supported by a record $5.7 billion of cash flow from operating activities in 2023, and new money rates near 5%, we should see continued positive momentum in our investment return. Our capital base grew to $21.1 billion, with a low leverage ratio of 16.9%, represented as debt plus preferred shares, the total capital. Overall, our balance sheet remains extremely strong, and we retain significant financial flexibility to pursue any opportunities that arise, moving to the recently introduced Bermuda Corporate Income Test. As mentioned in our earnings release and in connection with the law change, we recognize a net deferred tax asset of $1.18 billion this quarter, which we have excluded from operating income due to its non-recurring nature. This asset will amortize mostly over a 10 year period in our financials, reducing our cash tax payments in those years. All things equal, we expect our effective tax rate to be in the 9 to 11 percent range for 2024, with a higher expected rate starting in 2025.
Speaker Change: With an investable asset base approaching $35 billion.
Speaker Change: Supported by a record $5 7 billion of cash flow from operating activities in 2023.
Overall, our balance sheet remains extremely strong and we retain significant financial flexibility.
Speaker Change: And new money rates near 5%, we should see continued positive momentum in our investment returns.
To pursue any opportunities that arise.
Speaker Change: Our capital base grew to $21 1 billion with a low leverage ratio of 16, 9% represented as debt plus preferred shares to total capital.
Moving to the recently introduced corporate Bermuda corporate income tax.
As mentioned in our earnings release and in connection with the law change we recognized a net deferred tax assets of 1.18 billion this quarter, which we have excluded from operating income due to its nonrecurring nature.
Speaker Change: Overall, our balance sheet remains extremely strong and we retain significant financial flexibility to pursue any opportunities that arise.
This asset will amortize, mostly over a 10 year period in our financials, reducing our cash tax payments in those years.
Speaker Change: Moving to the recently introduced corporate Bermuda corporate income tax.
Speaker Change: As mentioned in our earnings release and in connection with the law change we recognized a net deferred tax asset of $1. One 8 billion this quarter, which we have excluded from operating income due to its non recurring nature.
All things equal, we expect our affect our effective tax rate to be in the 9% to 11% range for 2024 with a higher expected rate starting in 2025.
As regards our income from operating affiliates, it's worth mentioning that approximately 40% of this quarter's income is it purely vegetables or nonrecurring items, such as coal prices adoption of Ifr F 17, and the establishment of a deferred tax asset at summers.
Speaker Change: This asset will amortize, mostly over a 10 year period in our financials, reducing our cash tax payments in those years.
Speaker Change: All things equal, we expect our affect our effective tax rate to be in the 9% to 11% range for 2024 with a higher expected rate starting in 2025.
In connection with the Bermuda corporate income tax.
Franois Morin: As regards our income from operating affiliates, it's worth mentioning that approximately 40% of this quarter's income is attributable to non-recurring items such as COFAS's adoption of IFRS 17 and the establishment of a deferred tax asset at Summers in connection with the Bermuda corporate income. With these introductory comments, we are now prepared to take your questions. Thank you. If you have a question at this time, please press the star 11 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press star 11 again. And if you are using a speakerphone, please lift the handset.
Speaker Change: As regards our income from operating affiliates, it's worth mentioning that approximately 40% of this quarter's income is it sure debatable to nonrecurring items, such as coal prices adoption of <unk> 17, and the establishment of a deferred tax asset at summers in.
With these introductory comments, we are now prepared to take your questions.
Thank you.
If you have a question at this time. Please press star one one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press star one one again and if you are using a speaker phone please lift the handset.
Speaker Change: In connection with the Bermuda corporate income tax.
Speaker Change: With these introductory comments, we are now prepared to take your questions.
Thank you.
One moment for our first question.
Speaker Change: If you have a question at this time. Please press star one one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press star one one again and if you are using a speaker phone please lift the handset.
Our first question comes from the line of on these Greenspan from Wells Fargo.
Hi, Thanks, Good morning, My first.
Thanks, Good Mark My first question I wanted to expand on some of your introductory comments just on the casualty side like we started to see some.
Operator: One moment for our first question. Our first question comes from the line of Elyse Greenspan from Wells Fargo. Hi, thanks. Good morning.
Speaker Change: One moment for our first question.
Some reserve additions this quarter.
Speaker Change: Our first question comes from the line of Elyse Greenspan from Wells Fargo.
Thank you alluded to that last quarter as being what was going to drive the market turn.
Elyse Greenspan: Hi, Thanks, Good morning, My first question.
So how do you see it playing out from here I know you said it.
Elyse Greenspan: My first question. Thanks. Good, Marc.
As you play out over the next several years can you just give us a little bit of a road map and how you and how you think about this opportunity emerging for arch.
Marc Grandisson: My first question is, I wanted to expand on some of your introductory comments just on the casualty side, right? We've started to see, you know, some reserve additions this quarter. And I think, you know, you alluded to that last quarter as being what was going to drive the market turn. So, how do you see it playing out from here? I know you said it should play out over the next several years.
Elyse Greenspan: Mark My first question I wanted to expand on some of your introductory comments just on the casualty side like we started to see some some reserve additions this quarter.
Yes, great Great question, I think that where we're absorbing our own book of business. We also look at all the information around I think from a from an actuarial perspective, both foster and I have maybe dusting off our actuarial diplomas.
Elyse Greenspan: I think you alluded to that last quarter as being what was going to drive the market turn.
Marc Grandisson: So how do you see it playing out from here I know you said it should play out over the next several years can you just give us a little bit of a road map and how you and how you think about this opportunity emerging for arch.
Marc Grandisson: Could you just give us a little bit of a, you know, road map in how you can help and how you think about this opportunity emerging for us? Yes, great, great question. I think that we're, you know, observing our own book of business. We also look at all the information around us. I think from an actuarial perspective, both Francois and I have maybe dusted off our actuarial diplomas, you rely on data that's historically stable or at least has some kind of predictability. And I think what we've seen over the last two, three years, you know, as a result of the pandemic, largely in the courts being closed, and everything else in between, all the uncertainty, and then the piles As we all know, reserving leads to pricing, right? By virtue of reserving, and having the right number for the reserving, you then feed that into your pricing.
You rely on data, that's historically stable or at least has some kind of predictability and I think what we've seen over the last two three years as a result of the pandemic largely in the courts being close and everything else in between all the uncertainty in the balance of inflation. There is a lot of data that's really hard to pin down and it will get cut.
Speaker Change: Yes, Great quick question, I think that where we are absorbing our own book of business. We also look at all the information Ron I think from a from an actuarial perspective, both foster and I have maybe dusting off our actuarial diplomas.
Comparable with to make your prediction for what.
Speaker Change: You rely on data, that's historically stable or at least have some kind of predictability and I think what we've seen over the last two or three years.
You should be pricing the business as we all know reserving leads to the pricing way by virtue of reserving and having the right number for the reserving you then feed that into your pricing. So we're in a situation where people will have lesser visibility are above what the reserving will ultimately develop too so I can totally understand our clients and our.
Speaker Change: As a result of the pandemic largely in the courts being close and everything else in between all of the uncertainty and then the balance of inflation. There is a lot of data.
Speaker Change: Really hard to pin down and get comfortable with to make it.
Speaker Change: Your prediction for what.
Competitors have.
Having to adjust on the fly we're having to adjust.
Speaker Change: You should be pricing the business as we all know reserving leads to the pricing right by virtue of reserving and having the right number for the reserving you then feed that into your pricing. So we are in a situation where people have lesser visibility are above what the reserving will ultimately developed too so I can totally understand our clients and our <unk>.
<unk> progressive intuitively the issue with with casualty Elyse as you know is even if you have that information and you make some correction of corrective actions is still it takes a while to to evaluate whether what you did was enough or what you need to do so I think right now we have we already had.
Marc Grandisson: So we're in a situation where people have less visibility or about what the reserve will ultimately develop to. So I can totally understand our clients and our competitors, you know, having to adjust on the fly or having to adjust a little bit, you know, progressively and primitively. The issue with casualties, at least, as you know, is even if you have that information, and you take some corrective actions, it still takes a while to evaluate whether what you did was enough or was what you needed to do.
Speaker Change: <unk> having.
Speaker Change: Having to adjust on the fly we're having to adjust.
Rate increases in casualty starting in 2020, but I think that now we're realizing that maybe it's a little bit worse.
Progressive intuitively the issue with casualty Elyse as you know is even if you have that information and you make some correction of corrective actions is still it takes a while to to evaluate whether what you did was enough or what you need to do so I think right now we have we already had.
Collectively as an industry than we than we thought and there's a lot more uncertainty a lot more inflation certainly as we all know is a big factor. So what I would expect right now is people will start.
Marc Grandisson: So I think right now we have, you know, we already had a couple of rate increases in casualty starting in 2020. But I think that now we're realizing that maybe it's a little bit worse collectively as an industry than we thought. And there's a lot more uncertainty, a lot more, and inflation, certainly, as we all know, is a big factor. So what I would expect right now is people to start, you know, refining their book of business. They will try to re-underwrite away from social inflation, you know, impact lines. And they'll probably push for rates. Some of them might kick some business to DNS.
Refining their book of business, they will try to re underwrite away from the social inflation impact lines. They will probably push for rates some of them might kick some business to the E&S until such time as we have more stability in the reserving now the loss emerges as it relates to what you.
Speaker Change: Rate increases in casualty starting in 2020, but I think that now we're realizing that maybe it's a little bit worse.
Speaker Change: Collectively as an industry than we than we thought and there's a lot more uncertainty a lot more inflation certainly as we all know is a big factor. So what I would expect right now is people will start.
Our initial pricing.
Speaker Change: Refining their book of business, they will try to re underwrite away from the social inflation.
Assumptions was and in casualty that's why it takes several years and if history is any indication.
In fact, nine they will probably push for rates some of them might kick some business to the E&S until such time as we have more stability in the reserving now the loss emerges as it relates to what your initial pricing.
Rebecca.
Even the <unk> hundred 87 market and then the <unk> the augment <unk> 99, or 2000 to 2003. It took three to four years from the start of that even in the middle of it to really get clarity in the market got much higher in fact in all 405 than it was in 2002, <unk>, because yes, who duty action and see.
Marc Grandisson: Until such time as we have more stability in the reserving, now the loss emerges as it relates to what your initial pricing, you know, assumption, and in casualty, that's why it takes several years and, if history is any indication. If you look back at the 83 to 87 market and then the 90s, 99 or 2000 to 2003, it took three to four years from the start of that, even in the middle of And the market got, you know, much harder, in fact, in 04, 05 than it was in 2002, just because you have to do the action and see what the action does, what you think. And I think that's what we're collectively as an industry going through, and we're seeing it with our clients. And And that's really what's happening.
Speaker Change: Sanctions was and in casualty that's why it takes several years and if history is any indication.
Speaker Change: If you go back.
What are the actions did what you what you thought and I think thats what were going to collectively as an industry are going through and we're seeing it with our clients and.
Speaker Change: Even the 80% to 87 market and then the <unk> towards the augment 1990 902002 2003. It took three years to four years from the start of that even in the middle of it to really get clarity in the market got much higher in fact in all 405 than it was in 2002, just because you have to do reaction and see what.
And Thats really whats happening.
Okay.
Thanks, and then my second question.
The second quarter in a row right, we've seen the underlying loss ratio within your reinsurance business come in.
Sub 50.
Speaker Change: The actions did what you what you thought and I think thats what were going to collectively as an industry are going through and we're seeing it.
And.
You guys are obviously, earning an write cat business, where the net strong rates last year, how should we think about the sustainability of our sub 50.
Speaker Change: Clients and.
Speaker Change: And Thats really whats happening.
Speaker Change: Okay.
Marc Grandisson: Thanks, and then my second question on, you know, second quarter in a row, right? We've seen the underlying loss ratio within your reinsurance business come in, you know, sub 50. And, you know, you guys are obviously earning in, right, cat business written at strong weights last year. How should we think about the sustainability of, you know, a sub-50, you know, underlying loss ratio within your reinsurance? Well, I mean, sustainability is a great question.
Speaker Change: Thanks, and then my second question.
Underlying loss ratio with it within your reinsurance book.
Speaker Change: Second quarter in a row right, we've seen the underlying loss ratio within your reinsurance business come in.
Well I mean, we all.
Speaker Change: Sub 50.
Sustainability is a great question I think you're absolutely right that we have more property premium that is more short tail and should have a lower loss ratio ex cap and then they're not right compared to other lines.
And you guys are obviously, earning and write cat business within that strong rates last year, how should we think about the sustainability of a sub 50 underlay.
It's a good market, so obviously profitability.
Speaker Change: Underlying loss ratio with it within your reinsurance book.
Bedded in the business should be strong.
Speaker Change: Okay.
Speaker Change: Well I mean, we.
But we send you back to kind of quarterly volatility, where sometimes we have a better than call. It normal quarter, even as a portion of the book and sometimes not there is going to be volatility. We said it before we'll say it again that 12 months.
Speaker Change: <unk>.
Speaker Change: Sustainability is a great question I think.
Marc Grandisson: I think you're absolutely right that we have more property premium that is more of a short tail and should have a lower loss ratio x cap than not, right, compared to other lines. You know, it's a good market. So obviously, profitability embedded in the business should be strong. But we send you back to kind of quarterly volatility where sometimes, you know, we have a better than call it a normal quarter, even as a function of the book, and sometimes not, there's going to be volatility. We said it before, and we'll say it again, the 12 month kind of rolling average is, to us, a better way to look at it.
Speaker Change: Absolutely right that we have more property premium that is more short tail and should have a lower loss ratio ex cap and then they're not right compared to other lines.
Speaker Change: It's a good market, so obviously profitability embedded in the business should be strong.
Rolling average is to us a better way to look at it.
<unk>.
That's how we see it but certainly we like the profitability in the book and it should be it should remain strong at one thing I will tell you at least for you probably heard on other calls is that the market reinsurance market is continuing to improve somewhat into the one one renewals. So it is still a very very good market. So what it means for the loss ratio.
Speaker Change: But we send you back to kind of quarterly volatility, where sometimes we have a better than call. It normal order, even as a portion of the book and sometimes it's not there is going to be volatility. We said before we'll say it again that 12 months Rolling average is to us a better way to look at it.
Marc Grandisson: And, you know, that's how we see it. But certainly, we like the profitability in the book, and it should be, it should remain strong. And one thing I will tell you, Elyse, you probably heard on the other calls is that the market, the reinterest market, is continuing to improve somewhat into the 1.1 renewal. So it is still a very, very good marketplace. So what it means for the loss ratio, I don't know, but certainly we think it's an improvement. And then just one last one on capital, right? I believe there were some pushes and pulls from the S&P capital changes on your capital, but it should be positive relative to your mortgage business.
I don't know, but certainly we're seeing improvement.
Speaker Change: That's how we see it but certainly we like the profitability in the book and it should be it should remain strong, but one thing I will tell you at least for you probably heard on other calls is that the market reinsurance market is continuing to improve somewhat into the one one renewals. So it is still a very very good marketplace. So what.
And then just one last one on capital right I believe.
There were some pushes and pulls from the S&P capital changes on your capital but.
Should be positive relative to your mortgage business can you just help us think through your capital position.
It means for the loss ratio I don't know, but certainly we're seeing improvement.
And you know.
Relative to organic growth opportunities you see at hand over the next year.
Speaker Change: And then just one last one on capital right I believe.
Well, certainly I mean, S&P's one thing that we look at we look at many different ways.
Whereas some pushes and pulls from the S&P capital changes on your capital but should.
Speaker Change: Should be positive relative to your mortgage business can you just help us think through your capital position.
Have different looks at capital adequacy, however, our own internal view, which drives really how we make our decisions rating agencies are an important factor, but I think more importantly is how we think about it.
Marc Grandisson: Can you just help us think through your capital position relative to just the organic growth opportunities you see at hand? Well, certainly, I mean, S&P is one thing that we look at. We look at things in many different ways. I mean, we have different views on capital adequacy. We have our own internal view, which drives really how we make our decisions. Rating agencies are an important factor, but, you know, I think more importantly is how we think about it. But you're right.
Speaker Change: No.
Speaker Change: Relative to just organic growth opportunities you see at hand over the next year.
But youre right I mean, no question that from the S&P point of view, we did the change of their model was a net benefit and that's reduced.
Speaker Change: Well, certainly I mean, S&P's one thing that we look at we look at many different ways.
Speaker Change: Looks at capital adequacy, we have our own internal view, which drives really how we make our decisions rating agencies are an important factor, but I think more importantly is how we think about it.
Give us a I'd say a bit more excess capital.
But we don't know and we look at it very carefully we want to make sure that we're we're we're able to seize the opportunities that will be in front of us and we see plenty for 2024.
Speaker Change: But youre right I mean, no question that from the S&P point of view, we did the change in their model was a net benefit.
Franois Morin: I mean, no question that from the S&P point of view, we did, I mean, the change in their model was a net benefit. And that's reduced, kind of, you know, given us, I'd say a bit more excess capital. But we know, and we look at it very carefully. We want to make sure that we're able to seize the opportunities that will be in front of us. And, you know, we see plenty for 2024. So, you know, right now, we're very, you know, our main focus is growing the business and kind of deploying that capital into what's in front of us. And then we'll see how the rest of the year plays out. Thank you. You're welcome.
So right now we're very.
Our main focus is growing the business and kind of deploying that capital into what's in front of US and then we will see how the rest of the year plays out.
Speaker Change: And that's reduced can give.
Speaker Change: Give us a I'd say a bit more excess capital.
Speaker Change: But we and we look at it very carefully we want to make sure that we're we're we're able to seize the opportunities that will be in front of us and we see plenty for 2024, So right now we're very.
Thank you.
Thanks.
Thank you one moment for our next question.
Speaker Change: Our main focus is growing the business and kind of deploying that capital into what's in front of US and then we will see how the rest of the year plays out.
Our next question comes from the line of Andrew Kilgour men from TD Cowen.
Hey, good morning.
Speaker Change: Thank you.
Wanted to ask question good.
Good morning.
Speaker Change: Thanks Youre welcome. Thank you.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Andrew Kilgerman from TD Cowen. Hey, good morning.
First question would be around M&A, we've seen a lot of in the.
Speaker Change: One moment for our next question.
In the media about other specialty players that could be acquired arch as has been mentioned along with other companies and I know you can't comment on specific transactions.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Andrew Kill Goodman from TD Cowen.
Speaker Change: Hey, good morning.
And that you've talked a lot about <unk>.
15% return on capital over time, but when you do transactions could you give us a little color on what the parameters might be what what's really important to arch when you do deals.
Speaker Change: One question.
Andrew Kilgerman: The first question would be around M&A. We've seen a lot in the media about other specialty players that could be acquired; Arch has been mentioned, along with other companies. And I know you can comment on specific transactions and that you've talked a lot about 15% return on capital over time. But when you do transactions, could you give us a little color on what the parameters might be? What's really important to Arch when you do the deal?
Speaker Change: First question would be around M&A, we've seen a lot of them.
Speaker Change: In the media about other specialty players that could be acquired arches has.
Speaker Change: Ben mentioned, along with other companies and I know you can't comment on specific transactions.
Yeah on the M&A front, where we're very <unk>.
Prudent and careful when we do if we do anything and I think historically, our historical track record is probably the best way to look at this.
Speaker Change: And that you've talked a lot about.
Speaker Change: <unk>, 15% return on capital over time, but when you do transactions could you give us a little color on what the parameters might be what what's really important to arch when we do deals.
We'll look for something where our opportunities to earn a return is.
With a proper margin of safety is fairly healthy.
Marc Grandisson: Yeah, on the M&A front, we're very prudent and careful when we do, if we do anything. And I think historically, our historical track record is probably the best way to look at this. You know, we'll look for something where our opportunities to earn a return are, you know, with a proper margin of safety, it's fairly healthy. We're not, there's no desire to grow for growth sake in this company.
Speaker Change: Yes on the M&A front, where we're very prudent and careful when we do if we do anything and I think historically, our historical track record is probably the best way to look at this.
We're not there's no there's not.
As Ara to grow for Growth's sake, and this company is really has to do with the return on capital and that's fine for mentioned the fact that we have opportunities to above 15% opportunities.
Speaker Change: You know, we'll look for something where our opportunities to earn a return is.
In this marketplace certainly makes it a little bit more in his heart, having said all this we might be my mix are not exceptions, but it might be some other considerations as it relates to maybe a strategic maybe a different kind of product, maybe a geography or maybe and we prefer that maybe a new team that can really bring the expertise on an underwriting basis. So it's a very.
Speaker Change: With a proper margin of safety is fairly healthy.
Speaker Change: We're not there's no there's no desire to grow for growth's sake, and this company is really has to do with the return of capital and Thats Fine. We will mentioned the fact that we have opportunities to above 15% opportunities.
Marc Grandisson: It really has to do with the return on capital. And as Francois mentioned, the fact that we have opportunities to earn above 15% opportunities, you know, in this marketplace certainly makes it a little bit more hard. Having said all this, we might mix, not exceptions, but there might be some other considerations as it relates to maybe a strategic, maybe a different kind of product, maybe a geography, or maybe, and we prefer that, maybe a new team that can really bring the expertise on a non-running basis. So it's a very, very, you know, disciplined approach to M&E that we take. And we have the luxury because we're, you know, we have plenty of organic growth available to us.
Barry.
<unk> disciplined approach to.
In this marketplace certainly makes it a little bit more in his heart, having said all this we might be my mix not exceptions, but it might be some other considerations as it relates to maybe a strategic maybe a different kind of product, maybe a geography or maybe and we prefer that maybe a new team that can really bring the expertise on an underwriting basis. So it's a very very.
To emanate out note that we take and we have the luxury because where we have plenty of organic growth available to us. So something has to be very compelling for us to engage in dose and also other risks as you all know.
We don't want to take on this Saturday the number one is the culture and we're very very adamant about keeping our culture. The way it is and Thats, a really something at a quite often times. The thing that makes the most and that is probably the one that makes the most difference and whether or not we will entertain an M&A or not.
Speaker Change: Disciplined approach to.
Speaker Change: M&A that we take and we have the luxury because where we have plenty of organic growth available to us. So something has to be very compelling for us to engage in dose and also other risks as you all know that.
Marc Grandisson: So something has to be very compelling for us to engage in those, and also other risks, as you all know, that we don't necessarily want to take on. The number one is culture. And we're very, very adamant about keeping our culture the way it is.
Yeah.
That makes a lot of sense.
You mentioned on the favorable developments that.
Speaker Change: We don't want to take on this Saturday the number one is the culture and we're very very adamant about keeping our culture. The way it is and Thats really something that is quite often times. The thing that makes them then that is probably.
Short tail property was was the big drivers so to looking at insurance at $21 million favorable reinsurance had seven favorable.
Franois Morin: And that's really something. And quite often, the thing that matters most is probably the one that makes the most difference in whether or not we'll entertain an M&E or not. That makes a lot of sense. Um, you mentioned in the favorable developments that short tail property was a big driver. So, looking at insurance at 21 million favorable, and reinsurance at seven favorable, I'm just trying to understand, were there any large casualty offsets that that might have played in? And if so, what would they be?
Speaker Change: Probably the one that makes the most difference and whether or not we will entertain an M&A or not.
Just trying to understand were there any.
Speaker Change: That makes a lot of sense.
Large casualty offsets that.
Speaker Change: You mentioned on the favorable developments.
That might have played in and if so what would they be.
Speaker Change: That short tail property was was a big driver. So so looking at insurance at $21 million favorable reinsurance had seven favorable.
Yes, Theres no I'd say offsets I mean, we look at each line on its own.
Theres always going to be pluses and minuses and then every single quarter. We look at the data we will react to the data I think as you can imagine or I mean, very much a function of the type of business that we've written in the last few years, we in reinsurance in particular, we've grown a lot in property.
Speaker Change: Just trying to understand were there any.
Large casualty offsets that.
Speaker Change: That might have played in and if so what would they be.
Franois Morin: Yeah, well, there's no, I'd say, offsets. I mean, we look at each line on its own. There's always going to be pluses and minuses in every single quarter. We look at the data, we react to the data, I think, as you can imagine, or I mean, very much a function of the type of business that we've written in the last few years. In reinsurance, in particular, we've grown a lot in property. We've taken our usual, you know, used our same methodology, same approach, to reserve and, you know, that generated a little bit of redundancies or, you know, releases this quarter on the short tail side. You know, there's always a little bit of noise in any line of business.
Speaker Change: Yes, there is no I'd say offsets.
Speaker Change: At each line on its own.
We've taken our usual.
Speaker Change: There is always going to be pluses and minuses and then every single quarter.
User same methodology same approach to reserve and and <unk>.
Speaker Change: We look at the data when we reacted the data I think as you can imagine or I mean, very much a function of the type of business that we've written in the last few years in our reinsurance in particular, we've grown a lot in property.
<unk> generated a little bit of redundancies or releases this quarter on the on the short tail side, there's always a little bit of noise on any line of business. Yes, if we have a couple of.
Sub lines or sell them and casualty worthy.
<unk> taken our usual.
A little bit of adverse absolutely, but it's I wouldn't call. It an offset I mean, we book every single line on its own we will react to the data on them.
Speaker Change: Same methodologies same approach to reserve and <unk>.
Speaker Change: <unk> generated a little bit of redundancies or releases this quarter on the short tail side. There is always a little bit of noise on any line of business. Yes. We did we have a couple of sub lines are going to sell.
Number has come up as what we end up with one thing I would add to this the results.
Our reserving approach at a high level it is too.
Franois Morin: Yes, we have a couple of sub lines or kind of cells and casualty where they, you know, we had a little bit of adverse, absolutely. But it's not, I wouldn't call it an offset. I mean, we book every single line on its own. We react to the data, and then, you know, what numbers come up is what we end up with. One thing I would add to this is that our reserving approach at a high level is to typically recognize bad news quickly and good news over time. So, again, our philosophy hasn't changed at all in all those years.
Typically recognize bad news quickly and good news over time, so again, our philosophy hasnt changed at all and all of those years.
Speaker Change: Cells in casualty worthy.
Speaker Change: Adding a little bit of adverse absolutely, but it's I wouldn't call. It an offset I mean, we book every single line on its own we will react to the data on them.
Maybe if I can sneak one quick one in you mentioned during the call that.
One of the growth areas in insurance was national account what type of limits do you write on national accounts.
Speaker Change: Number has come up as what we end up with one thing I would add to this as our results are.
Reserving approach at a high level, there's two typically recognize bad news quickly and good news over time, So again, our philosophy hasnt changed at all and all of those years.
Yeah.
While our statutory right so and it's on an excess of loss basis and these are lost zyla davila sharing of experience plus or minuses with clients. They tend to be larger clients in national accounts is 90% to 95% plus workers comp.
Franois Morin: Maybe if I could sweep one quick one in. You mentioned during the call that one of the growth areas in insurance was national accounts. What type of limits do you write on national accounts? Well, it's statutory, right?
Speaker Change: Maybe if I could sneak one quick one in you mentioned during the call that.
One of the growth areas in insurance was national account what type of limits do you write on national accounts.
It's really a self insured sort of structure.
Absorbed we provide the paper and the actual the document to allow people to operating their state because you need that required.
Speaker Change: Yes.
Speaker Change: While our statutory right so and that's on an excess of loss basis and these are lost they look there's a lot of sharing of experience plus or minuses with clients. They tend to be larger clients in national accounts at 90, 95% plus workers comp.
Marc Grandisson: So, and this is on an excessive loss basis, and these are losses sharing of experience plus or minuses with clients. They tend to be larger clients. The national account is usually 90, 95% plus workers comp. It's really, you know, a self-insured sort of structure that of sorts. We provide the paper and the actual document to allow people to operate in their state because you need the required thing to be able to demonstrate that you have workers comp insurance as protection.
To be able to demonstrate that you have workers' comp insurance.
Protection.
This is the statutory so it's unlimited by definition, we have some reinsurance to protect some of the casting that's really what it is.
Rudy: Rudy <unk>.
Insured sort of structure.
Got it helpful. Thank you.
Rudy: As.
Rudy: I'll sort, we provide the paper and the actual the document to allow people to operating their state because you need that required I think.
Sure.
Thank you.
One moment for our next question.
Rudy: To be able to demonstrate that you have workers' comp insurance.
Yeah.
Our next question comes from the line of Jim Me be bowler from J P. Morgan.
Rudy: Protection.
Marc Grandisson: This is statutory, so it's unlimited. By definition, we have some reinsurance that protects some of the capping. That's really what it is.
Rudy: This is statutory so it's unlimited by definition, we have some reinsurance to protect some of the Capex that's really what it is.
Hey, good morning, So first just a question on the casualty business, we've seen significant growth in your property exposures.
Andrew Kilgerman: Got it. Helpful. Thank you. Sure. Thank you.
Speaker Change: Got it helpful. Thank you.
Speaker Change: Sure.
Speaker Change: Thank you.
Operator: One moment for our next question. Our next question comes from the line of Jimmy Bhullar from J.P. Morgan. Hey, good morning.
One moment for our next question.
With the hard since the hardening of the market.
Or significant hardening in the market since early last year.
Speaker Change: Our next question comes from the line of Jimmy Buhler from J P. Morgan.
What are your views on just overall market trends on the casualty side and are you comfortable enough with pricing and terms.
Jamminder Singh Bhullar: So first, just a question on the casualty business. We've seen significant growth in your property exposures with the hard since the hardening of the market or significant hardening of the market since early last year. What are your views on just overall market trends on the casualty side? And are you comfortable enough with pricing in terms to increase volumes in that area? Yeah, I think our comfort, great question, on the casualty or liability in general, the more general liability, right, is to exclude professional lines.
Jimmy Buhler: Hey, good morning, So first just a question on the casualty business, we've seen significant growth in your property exposures.
To increase volumes in that area.
I think our comfort great question I'll comfort on the casualty and liability in general and for general liability write Asics to professional lines I think we are.
Jimmy Buhler: With the hard since the hardening of the market.
Jimmy Buhler: Or significant hardening in the market since early last year.
Jimmy Buhler: What are your views on just overall market trends on the casualty side and are you comfortable enough with pricing and terms.
The market is turning or has more pressure on the primary side. So I think that our focus right. Now is we have a primary as it can see in our reinsurance what we did in reinsurance for the last year and we think the reinsurance market is a little bit delayed in in reacting to what's happening.
Jimmy Buhler: Due to increased volumes in that area.
Speaker Change: Yes, I think our comfort great question of comfort on the casualty liability in general for general liability <unk> professional lines.
In some of the development that we see in some of the increase in inflation and of course reopening that we mentioned so I think that we'll probably see.
Marc Grandisson: I think we're, you know, the market is turning or has more pressure on the primary side. So I think that our focus right now is we're in the primary, as you can see from our reinsurance, you know, what we did in reinsurance for the last year, and we think the reinsurance market is a little bit delayed in reacting to what happened, you know, as in some of the developments that we see in some of the increase in inflation, and of course, your point that we mentioned. So I think that we'll probably see, first, an insurance market that really takes it to heart, like I mentioned, all the remediation that they need to do. And I think the reinsurance market will probably follow suit, you know, with their own, possibly their own way to look at this. If the prior hard markets are any indication, On the reinsurance side, one thing that's a little bit beneficial at this point in time, and there's a reason why reinsurers are not.
Speaker Change: Think we are.
Speaker Change: The market is turning or has more pressure on the primary side. So I think that our focus right. Now is we have a primary as it can see in our reinsurance what we did in reinsurance for the last year and we think the reinsurance market is a little bit delayed in in reacting to what's happening.
First an insurance market that really takes it to heart like I mentioned, all the remediation that they need to do nothing the reinsurance market will probably follow suit.
With their own possibly there one way to look at this.
Speaker Change: Some of the development that we see in some of the increase in inflation and of course, where your point that we mentioned so I think that we'll probably see.
Yes.
The prior.
Hard markets are any indication.
On the reinsurance side, one thing that's a little bit beneficial at this point in time and does it right. There is a reason why reinsurers are not reacting, possibly as as as abruptly as it probably should.
Speaker Change: First an insurance market that really takes it to heart like I mentioned, all the remediation that they need to do nothing the reinsurance market will probably follow suit.
As it.
With regards to Sydney Commission is that we.
Speaker Change: With their own possibly there one way to look at this.
We collectively understand as an industry that our clients are.
Speaker Change: If the prior.
Speaker Change: Hard markets are any indication.
Or are trying to make those changes so we're trying to do.
Speaker Change: On the reinsurance side, the one thing Thats, a little bit beneficial at this point in time and does it right. There is a reason why reinsurers are not reacting possibly <expletive>.
<unk>, along with them and help them.
Support them in their efforts, we will see whether thats enough. Our team is a little bit waiting to see whether that develops but.
Speaker Change: As abruptly as it probably should.
Speaker Change: As in the.
Speaker Change: With regards to Sydney Commission is that we.
But I do expect this to also come around and also provide another opportunity for us to grow.
Speaker Change: We collectively understand as an industry that our clients are.
Okay.
Speaker Change: Trying to make those changes so we're trying to do.
And then on mortgage insurance I would've assumed that reserve releases would moderate overtime and they've actually.
Speaker Change: Along with them and help them.
Speaker Change: Support them in their efforts, we'll see whether thats enough. Our team is a little bit waiting to see whether that develops but.
Become even more favorable and I think there is a.
Shifting what's driving that it used to be Covid reserves last year and now it's.
Speaker Change: But I do expect this to also come around and also provide another opportunity for us to grow.
Stuff written post both school, but.
As you think about.
Speaker Change: Okay.
Just wanted to get an idea on what are you assuming in your reserves that you are putting on the book right. Now are you assuming experience commensurate with what youre seeing in the market or.
Speaker Change: And then on mortgage insurance I would've assumed that reserve releases would moderate overtime and they've actually.
Speaker Change: And become even more favorable and I think there is a.
Is it reasonable to assume that if the environment stays the way it is theres more room to go in terms of reserve releases.
Speaker Change: Shifting what's driving that it used to be Covid reserves last year and now it's.
Speaker Change: Stuff written post post COVID-19.
Great question, I'd say, a reserve releases this year in general.
As you think about.
Speaker Change: Just wanted to get an idea on what are you assuming in your reserves that you are putting on the book right. Now are you assuming experienced commensurate with what youre seeing in the market.
Somewhat driven by our.
The views we had on the housing market at the start of the year right. So if you roll back the tape a year.
Speaker Change: Is it reasonable to assume that if the environment stays the way it is theres more room to go in terms of reserve releases.
We were more concerned about pulp prices dropping fairly rapidly recession, no soft landing et cetera. So those reserves, we set call. It a year ago, we're very much a function of those assumptions and they just didn't materialize throughout the year.
Speaker Change: Great question, I'd say, a reserve releases this year in general.
Speaker Change: We're somewhat driven by our <unk>.
Speaker Change: Views, we had on the housing market at the start of the year right. So if you roll back the tape a year.
A year or so throughout the year, we saw very strong or very well performing housing market people are hearing your delinquencies much higher than we had actually forecasted home prices are holding up.
Speaker Change: We're more concerned about pulp prices dropping fairly rapidly.
Session no soft landing et cetera, so those reserves, we set call. It a year ago, we're very much a function of those.
Unemployment remains relatively low so you put it all together I mean really what transpired in two three years is very much a function of the reserve releases were reflect kind of how things how much better. They played out relative to what we thought a year ago, where we are today at the start of 'twenty four is certainly a bit more.
Speaker Change: Functions.
Speaker Change: And they just didn't materialize throughout the year. So throughout the year, we saw very strong or very well performing housing market people are hearing your delinquencies much higher than we had actually forecasted home prices are holding up and unemployment remains relatively low. So you put it all together I mean it really.
Wouldn't fall on the optimistic in the sense that we see good home prices and the solid housing market.
What transpired in two three years is very much a function of the reserve releases reflect kind of how things how much better. They played out relative to what we thought a year ago, where we are today at the start of 'twenty four is certainly a bit more.
24, so on a relative basis the reserves that we're holding today are not as high as they were a year ago. So if you extrapolate from that is there room for as margin and reserve releases going forward, probably not but we just don't know.
Speaker Change: I wouldn't call it optimistic in the sense that we see.
Data will again play out as it does and we'll react to it but hopefully that helps you kind of compare and understand how where we sit today versus a year ago.
Speaker Change: Good home prices and the solid housing market for.
Speaker Change: 24, so on a relative basis the reserves that we're holding today are not as high as they were a year ago. So if you extrapolate from that is there room for as margin and reserve releases going forward, probably not but we just don't know.
Okay. Thanks, and then just lastly, your comfort with the reserves in your casualty book. Despite all the industry wide issues does that apply to the business that came over from Watford as well.
Speaker Change: The data will again play out as it does and we will react to it but hopefully that helps you kind of compare and understand how where we sit today versus a year ago.
Because that company, obviously, you had a decent amount of exposure to casualty.
It's an easy one Watford really the underwriting is managed by our team here, so the reserving and approach.
Speaker Change: Okay. Thanks, and then just lastly, your comfort with the reserves in your casualty book. Despite all the industry wide issues does that apply to the business that came over from Woodford as well.
Okay.
Great.
Speaker Change: Because that company, obviously, you had a decent amount of exposure to casualty.
Okay.
Speaker Change: Well, that's an easy one Watford really the underwriting is managed by our team here so the reserving and.
Thanks.
Okay.
Thank you one moment for our next question.
Hum.
Yeah.
Our next question comes from the line of Michael Zaremski from BMO.
Speaker Change: Yeah.
Hey, good morning.
Speaker Change: Thanks.
Okay.
First question for Francois on capital.
Speaker Change: Thank you one moment for our next question.
In regards to mortgage specifically so.
My understanding of.
Speaker Change: Our next question comes from the line of Michael Zaremski from BMO.
The mortgage reserving rules is that you know after a.
Michael Zaremski: Hey, good morning.
A decade or so.
Can start releasing a material amount of reserves.
Speaker Change: Okay.
Michael Zaremski: First question for Francois on capital and.
And in a mortgage obviously isn't isn't growing now so.
Michael Zaremski: In regards to mortgage specifically so.
But you also have a Bermuda.
I think some.
Michael Zaremski: Yeah.
My understanding.
Captives there too. So just curious is there a material amount of capital coming or expected to come from releasing from the legacy mortgage our mortgage business.
Michael Zaremski: The mortgage reserving rules is that after.
Michael Zaremski: A decade or so.
Michael Zaremski: You can start releasing a material amount of reserves.
Well.
Michael Zaremski: And in a mortgage obviously isn't isn't growing now so as I know, but you also have a bermuda.
I would say.
The short answer is yes in the sense that the contingency reserves youre right, we'll start releasing a bit more progressively starting in 'twenty four and 'twenty five.
Speaker Change: I think some.
Speaker Change: Capex there too. So just curious is there a material amount of capital coming or expected to come from releasing from the legacy mortgage our mortgage business.
That will be.
We already have some of that in the fourth quarter of this year. So if you look at our Pmiers ratio why it dropped in the quarter and the fourth quarter was very much a function of of a dividend that we were able to extract from our regulated U S semi company too to the group so that that way.
Thanks, Paul.
Planned in.
It's scheduled to keep.
Shouldnt keep having dividends in 'twenty four and beyond.
But the one point I wanted to touch on is and we touched on it in the past.
While on a regulatory basis, yes, it's relief, we would argue that that capital is already somewhat being deployed in the business. So it's not a.
That is just sitting there not being deployed in the business. It has already been used to other sources, because the regulators and rating agencies look at the aggregate arch cap group kind of level of capital. So.
So yes on a statutory basis the goal here is to.
Put the capital in a better location, but overall it's somewhat.
Not as big an impact as you might imagine.
Okay.
That's helpful and.
Sticking with.
Sticking with capital.
Did you know when a lease asked about you mentioned the S&P capital model, but I don't think you actually gave any quantitative R. R.
The answers on on the benefits because it will meet on paper, we see that.
Speaker Change: Okay.
<unk> appears to be one of if not the most diversified.
Speaker Change: That's helpful and sticky.
Speaker Change: Sticking with.
Any any help there on how much of a benefit or how to think about how much of a benefit that the model offers.
Speaker Change: Sticking with capital.
Speaker Change: Did you know when a lease asked about you mentioned the S&P capital model, but I don't think you actually gave any quantitative or the.
Arch.
Yes, Youre right I didn't quote a number and I'm not going to start quoting a number but but it's a net positive no question that yes mortgage charges diverse station benefit were.
Speaker Change: The answers on on the benefits because we will meet on paper, we see that.
Speaker Change: <unk> appears to be one of if not the most diversified.
Sure.
Speaker Change: Any any help they are on how much of a benefit or how to think about how much of a benefit that the model offers.
There were reductions in capital requirements, but we also the final rulings on that.
It was not.
Right so.
Speaker Change: Arch.
S&P in their new rules, they no longer treat 175 billion of our debt as being capital. So that's a that's a significant offset but all things considered all in as a positive.
But again, what I want to remind everyone is it's not the only thing we look at it as just one thing among many.
And other rating agencies matter and more importantly, again is how we think about the capital we need to run the business.
Okay.
And lastly, since everyone else Thats sneaking in a lot more questions.
Based on the remarks, you've made it.
Unless im understanding correctly, it sounds like the growth might be.
We're more excited about the primary insurance segment.
Ah can primary insurance potentially grow just as much in 'twenty four as it did in 'twenty three.
Speaker Change: Okay.
It's a great question I mean again the way we talk we don't provide guidance because I don't know, we don't know what the market conditions will be this year, but in terms of capabilities and capital and talent and everything else in between absolutely. We have we can do when we could do more yes, we could if the opportunities are there we will do more bolt on insurance or reinsurance for that matter.
Speaker Change: Lastly, since everyone else is sneaking in a lot more questions.
Speaker Change: Based on the remarks, you've made it.
Speaker Change: Unless im understanding correctly, it sounds like the growth might be.
Speaker Change: Youre more excited about the primary insurance segment.
Speaker Change: Can primary insurance potentially grow just as much in 'twenty four as it did in 'twenty three.
Thank you.
Speaker Change: Okay.
Okay.
Thank you one moment for our next question.
Yeah.
Okay.
Okay.
Our next question comes from the line of Josh Shanker from Bank of America.
Hi, everyone I think there might be a problem with the phones, we heard Jimmy and Mike just fine, but we couldn't hear your answers to the questions.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
I don't know.
So and I hear you.
Hope everyone can hear me, let me ask my team can you guys hear me on the phone.
Speaker Change: Our next question comes from the line of Josh Shanker from Bank of America.
They hear me so somehow it's been corrected okay. So I don't know what Josh we can't hear.
Yes, Josh we can hear US often has been recorded I don't know if this is being recorded.
Josh Shanker: Hi, everyone I think there might be a problem with the phones, we heard Jimmy and Mike just fine, but we couldn't hear your answers to the questions.
Okay very good.
<unk>.
Yes, there are a couple of quick quick ones. So it's the lowest quarter of new insurance written in the mortgage insurance business since acquiring UGC.
I don't know if it.
Josh Shanker: So and I hear you I don't know if anyone can here, let me ask my team can you guys hear me I'm sorry.
Josh Shanker: They hear me so it's not been corrected okay. So I don't know maybe I'm the only one maybe.
And yet it looks like the capital utilization went up at least the or.
Risk to capital in the Premier's.
Okay very good.
Capital ratio went up can you just talk about the moving pieces that are driving that.
So.
Josh Shanker: Got a couple of quick quick ones. So it's the lowest quarter of new insurance written in the mortgage insurance business since acquiring UGC.
While our pmiers.
Well, it's very much a function of the <unk> transactions that we call.
Josh Shanker: And yet it looks like the capital utilization went up at least VR.
Josh I think there is.
Josh Shanker: Risk to capital in the <unk>.
Significant amounts of capital protection that we.
Josh Shanker: Capital ratio went up can you sort of talk about the moving pieces that are driving that.
<unk>.
<unk> and no no longer give us capital credit.
Yes.
That's obviously, what it does definitely.
Yes.
And.
Another easy one.
It looks to me from quarter end 2000, and September 30th to year end.
Coface stock was about flat, although it round trip through the quarter and you had very strong other income in the quarter.
Speaker Change: Yes, that's obviously one of those yes definitely that makes sense.
I'm sure some summers and that Theres other things in there can you talk about the moving pieces.
Speaker Change: And.
Speaker Change: Another easy one.
The physical path I mean, your stock price is one thing, but obviously for US we book we booked at the.
Speaker Change: It looks to me from quarter end 2008.
Speaker Change: Number 30 to yearend.
Income right then they they've declared pretty much a I don't know the exact numbers, but there are dividend our annual dividend. That's been closed there are full net income, 100% kind of payout ratio. So they.
Speaker Change: <unk> stock was about flat, although it did round trip through the quarter and you had very strong other income in the quarter.
Or is there some summer was and that Theres other things in there can you talk about the moving pieces.
That ends up being what we booked in our financials. So yes, the stock price is going to move up and down over the year, but it doesn't directly I'd say factor and our end up in their financials.
Okay, and just so you know I'm getting a lot of inbound call volume.
E mails from people right now nobody can hear these answers that you are giving me it may be being recorded.
Hear me, but they don't hear you hold on a second Josh we're being recorded.
Speaker Change: Okay, and just so you know I'm getting a lot of inbound call volume.
Speaker Change: Emails from people right now nobody can meet your these answers.
Speaker Change: Giving me may be being recorded they hear me, but they don't hear you.
And as work a little bit.
Through this quickly when maybe we can fix it and we get the operator, what's happening now.
Okay.
Okay. So I'll, just say no, but I don't know.
Anyway.
They are addressing it people can't hear the arch team, but for people who are emailed me right now, but you can't hear the arch team for working on addressing it.
Yeah.
Speaker Change: Okay. So I'll, just say no, but I don't know.
Thank you.
Speaker Change: Anyway.
One moment for our next question.
They are addressing it people can get here the arch team, but for people who are E mail and Marine I think we can't hear the arch team for working on addressing it.
Yeah.
Please note everyone that this call has been recorded and it will be available after the call is over.
Our next question comes from the line of your own Qunar from Jefferies.
Speaker Change: Yes.
Hey, good morning, everybody.
Thank you.
Speaker Change: One moment for our next question.
Sure sure sure.
Should I ask the questions or should we wait until this issue is fixed I think we should can continue you. Ron just ask your question is recorded hopefully people can also be a replay via replay for everyone. Hopefully I really apologize for this but we'll try to figure it out afterwards, let's go forward kind of on its normally yes, yes, no problem.
Speaker Change: Please note everyone that this call has been recorded and it will be available after the call is over.
Speaker Change: Our next question comes from the line of Yo Rone Qunar from Jefferies.
Speaker Change: Hey, good morning, everybody.
I guess first question when you set loss specs into a year I guess.
Speaker Change: Should I ask the questions or should we wait until this issue is fixed.
Do you update those other than for bad news or frequency and what I'm trying to get at here is when you look at the reinsurance.
Loss ratios.
Are they already incorporating the step change in the reinsurance market that we signed 23 or were those losses or the loss ratio essentially a reflection of your expectations heading into 'twenty three and we should therefore see another step up in margins over the course of 2014.
Speaker Change: Okay.
Speaker Change: Yeah, no problem. So I guess my first question.
Speaker Change: When you set loss specs into a year.
Speaker Change: Do you update those other than for bad news or frequency and what I'm trying to get at here is when we look at the reinsurance.
Yes, I think our tendency when we do a loss ratio of fixed Huron, especially on the long tail lines.
Speaker Change: Loss ratios.
Speaker Change: Are they already incorporating the step change in the reinsurance market that we find twenty-three or where those losses or the loss ratio essentially a reflection of your expectations heading into 'twenty three and we should therefore see another step up in margins over the course of 2014.
Remember.
<unk> mentioned that earlier.
We're much more of a shorter short tail player than we were in it in proportion right. So property is a bit easier to understand right. It is what it is you give the law. So you don't get the law. So you do pick loss ratio at the end of the year for what you think the Attritional will be there is no cap then you can't really book the Katmai Theres a couple of things you need to address.
On the liability so and then we'll see over the next 12 months, how it develops and they are the cadences of releasing or decreasing the IBM <unk> and property is a bit shorter tail. As you can appreciate on the liability side, our tendency as a as an insurance or reinsurance on both sides of the equation.
Speaker Change: Okay.
Oil is to actually pick a loss ratio that does add a little bit of a margin of safety at the beginning not 100% of recognizing all of the potential benefit that we've seen and we let it.
And for a while before we go in and make and make the.
<unk>.
Change to them and what we look at is obviously, how the emergence which I mentioned about you may not have heard this one I mentioned about the emergence of the losses, how they are emerging versus what we expected and you do this throughout the throughout the life of the lifecycle of the deal, but that's a longer term.
<unk> phenomenon.
Got it.
And then my second question Mark I think in your prepared comments you had said that.
Casualty may be collectively worse than expected for the industry and I'm curious.
That comment is that really referencing kind of the soft market years of 13 through 18 or 19 or do you think there could also be some of that emerging for the more recent accident years, where market conditions were clearly good but maybe the expectations of inflationary trends, where so a bit lower than what they ended up being.
Got it.
And then my second question Mark I think in your prepared comments you had said that.
Speaker Change: Casualty may be collectively worse than expected for the industry.
Speaker Change: And I'm curious what that comment is that really referencing kind of the soft market years of 13 through 18 or 19 or do you think there could also be some of that emerging for it in the more recent accident years, where market conditions were clearly good but maybe the expectations of inflationary trends, where so a bit lower.
It's a really good question.
Our we look at the actual was expected and we see it much more in a softer years to be honest with you.
The read the recent ones.
It's here or there plus or minus those that <unk> mentioned, but it's all well as far as we can tell our portfolio is well within our range of reasonable expectations. It's nothing really surprising because you own as you remember starting 19, there were improvements in the marketplace. There were price increases already so I think that those years are not as.
Speaker Change: And then what they ended up being.
Speaker Change: Okay.
As soft clearly not as up to 16% to 19 work.
Right.
I guess the question would be even if they weren't had softened you were getting a lot of the industry was getting a lot of that rate at that point. If the expectation was for a inflationary trend of five and end up being at southern you could still see some deterioration of very profitable years. Nonetheless, you could but if we do reserving.
With the right level in mind, so when we were writing the base in 2021, we tend to look at a longer term loss ratio and not.
Speaker Change: Right, but I guess the question would be even if they weren't had softened you were getting.
Speaker Change: A lot of repeat from the industry was getting a lot of that rate at that point. If the expectation was for a inflationary trend of five and it ended up being southern you could still see some deterioration of very profitable years. Nonetheless.
More recent years before to soft market for instance, so when you factor all that in we will tend to take higher loss ratio pick initial loss ratio pick ourselves and liability side. So you don't have the similar.
One of the things that happened in 2019 than it was.
As mentioned before that people probably were more aggressive than it should have been.
On the loss ratio pick and they did in those years I think by the time, we get to 2021 I think already there was a recognition and we talked to the rate increases that the market was trying to get to and I think the loss ratios lifted up a little bit and I don't think we have a similar kind of deviation from initial loss ratio in those years.
Got it.
I'll just add by saying, yes, I think a disappoint a lot of swifty fans, including my daughter by referencing rest of world football instead of a U S football.
This quarter okay.
Yes.
Alright. Thanks.
Yes.
Thank you one moment for our next question.
Speaker Change: Got it.
Sure.
Speaker Change: I'll just end by saying that I think would disappoint a lot of swifty fans, including my daughter by referencing rest of world football instead of a U S football.
Our next question comes from the line of Bob Gn, who Wang from Morgan Stanley.
Speaker Change: Uh huh.
Speaker Change: This quarter.
Hey, good morning, just two quick ones first.
Speaker Change: Anyway best of luck alright.
Speaker Change: Alright.
Two quarters ago on the earnings call you said.
Speaker Change: Thank you one moment far next question.
When we look at the insurance underwriting cycle, we were at about 11 o'clock, whether that's kind of where we were implying improve race and also loss trend of stabilization just curious in your view what time is it right. Now. He is at 11 30 or is at 11 59, two P. M. Just kind of curious as to where you think.
Speaker Change: Yes.
Bob Gn: Our next question comes from the line of Bob Gn <unk> from Morgan Stanley.
Hey, good morning, just two quick ones first.
Bob Gn: Think two quarters ago on the earnings call you said when we look at the insurance underwriting cycle. We were at about 11 o'clock, whether that's kind of where we were implying improve race and also loss trend of stabilization just curious in your view what time is it right. Now is at 11 30 or is the 11 59.
It's the longest 11 o'clock I've ever seen in my life is what I'm gonna failure. So I think we're still roughly around 11 o'clock, which again that clock has never like a one year. After the other right you can see 11, an unfortunate you can stay into the three and four o'clock or weird.
That you would want so I think that it's still roughly around that level. The 11 o'clock 11, 30, perhaps in some cases, but yes roughly in that range.
Bob Gn: <unk> two P. M just kind of curious as to where you think.
Okay. That's helpful 11th 11th already that that's very helpful. Thank you.
My second question.
Regarding MGA and capacity in general there has been some concern that MGA as have been increasingly aggressive is this something youre seeing is this concern rightfully placed does it have any impact on how you think about your underwriting cycle management are you, becoming more cautious, especially with any reinsurance.
Speaker Change: Okay. That's helpful 11 to 11 30, then that that's that's very helpful. Thank you.
Speaker Change: My second question.
Not sure if you answered that before so I apologize.
Speaker Change: Regarding M G. A N capacity in general there has been some concern that M. G as have been increasingly aggressive.
That's a great question I think I mean, the NGA.
Emerge as we all know when there is a dislocation with a need for capacity and I think we see it more acute in the professional lines.
Is this something Youre seeing is this concern rightfully placed does it have any impact on how you think about your underwriting cycle management are you, becoming more cautious, especially with any reinsurance not sure. If you answered that before so apologies.
And some of them in property, but again between the supply and demand on the professional lines. That's acknowledged that the capacity is probably more plentiful than it was not more of a problem. It is more plentiful than it was so I think it has some impact at the margin of course, it does I think yes.
Okay.
The answer to your second part of your question, which is how do we react well we do it the same way, we always do it which is that the pricing is going down and the returns are not as good we will tend to deemphasize or big or select.
The better the better clients that we have in our portfolio and I can still react the same way we would do.
And the cycle management on the property side. We also have similar MGH and M to use ride, but I think these guys. There is an acute need for property or property coverage and capacity.
It sort of feels that we need all the capacity, we can get our hands on our property at this point in time, so we're not seeing that in most of and as much of an impact the property market is still.
It's still very very strong.
Okay.
Okay. So property side not enough capacity professional line plant at full capacity. That's that's the way we should think about it. Thank you.
Right.
Okay.
Thank you one moment far next question.
Yeah.
Okay.
Our next question comes from the line of Meyer Shields from Keefe, Bruyette and woods.
Speaker Change: Okay. So property side not enough capacity professional line plant to full capacity. That's that's the way we should think about it. Thank you.
Yeah.
Hi.
I can go in the same situation where people can only hear the answers to those specific questions.
Speaker Change: Yep.
Speaker Change: Thank you one moment for next question.
So I'm, hoping that comes through here as well.
A question to Bob we've seen obviously a number of companies report.
Speaker Change: Our next question comes from the line of Meyer Shields from Keefe Bruyette <unk> Woods.
Reserve problems in the fourth quarter and I'm wondering when you look at the book of ceiling that you have within reinsurance and what we're seeing in the public company is a good representation of overall trends or is there something different in the nonpublic world.
Speaker Change: Hi.
Meyer Shields: By echoing the same population where people can only hear the answers to their specific questions.
Well I think when you priced Mike good question.
Meyer Shields: So I'm, hoping that come through sheer as well a similar question to Bob we've seen obviously a number of companies report.
But for the record. This is this will be recorded right. So we'll be able to market.
This will be recorded so we'll be able to share you'll be able to hear the other question for the other answers.
Meyer Shields: Some reserve problems in the fourth quarter and I'm wondering when you look at the bulk of the season that you have within reinsurance and what we're seeing in the public company is a good representation of overall trends or is it something different to the nonpublic world.
Right.
So is it okay perfect.
Thank you.
So I think.
The issue with casualty reserving.
Okay.
Actually as well as I am.
Meyer Shields: Yes.
The actual number is in the highest of whoever is doing the work. So I think it's like everything else. Our teams may have different views about the loss ratio pick for some of the things that we're looking at then they would have themselves.
Meyer Shields: Okay.
Speaker Change: Good luck.
Speaker Change: Hakan.
Hi.
Speaker Change: Okay.
Speaker Change: Okay.
So I wouldn't say that.
Speaker Change: Yeah perfect. Thank you.
As a one to one some of them, we will not renew or some of them. We may not be able to participate on because we have a different view of the ultimate loss ratio. So I think it's a rudy each individual underwriter in each individual company, we're seeing companies come up with their own number and you have to make your own decision and your own opinion as to where it is.
Speaker Change: Okay.
Speaker Change: A critical.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Yeah.
Okay.
Speaker Change: Amit.
I'm sorry go ahead.
Speaker Change: Yes.
No. No go ahead I was wondering whether you were still there so caveat. Please yes.
Speaker Change: Great.
Okay.
Right here.
Speaker Change: Okay.
Similar question I guess, obviously, what we've seen here is a lot of domestic concerns over liability lines on the international casualty side or is that concern worsening of well or should we think that ive just isn't that big concern.
Speaker Change: Okay.
Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay, No that's perfect related.
It's a similar issue it's not to the same acuteness and some kind of level, but they.
Speaker Change: Sorry go ahead.
Speaker Change: Yes, no I'm still here is it a similar question I guess, we obviously, what we're seeing here is a lot of domestic concerns over liability lines on the international casualty side of it is that concern worsening of well or should we think that I've just said about the concern.
The World has similarly closed down and of course some of that.
Internationally as you would expect but we're still seeing some hardening as international casualty as what we saw this for last two or three years. So it's a very similar hardening of the market.
May not be as acute in terms of reserving.
But the quote unquote potential potential issues that I am not talking now to their globals that are.
Internationally underwriting internationally, that's a different story right if they write in the U S. They will have similar issue, but there are similar issues all along all around but it's not to the same level internationally, where you've seen the U S.
Speaker Change: Okay.
Okay fantastic. Thank you so much sure sure.
Speaker Change: Okay.
Speaker Change: Okay.
Thank you.
Thank you.
One moment for our next question.
Speaker Change: Alright.
Okay.
Our next question comes from the line of Elyse Greenspan from Wells Fargo.
Speaker Change: Okay.
Okay.
Hi, Thanks for taking the follow up.
Speaker Change: Okay fantastic. Thank you so much.
I will say I think you have a lot of folks wandering includes mining.
Speaker Change: Okay.
Speaker Change: Okay.
Coverage for your conference call provider.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Right.
My my.
My follow up is on casualty insurance can you give us a sense of the loss trend that you are booking your casualty insurance book two and what.
Speaker Change: Our next question comes from the line of Elyse Greenspan from Wells Fargo.
Speaker Change: Hi.
Elyse Greenspan: For taking the follow up.
Youre getting.
Casualty insurance as well.
Elyse Greenspan: I will say I think you have a lot of folks wondering who's writing.
Well it depends a lot of business Elyse, but I think the numbers youre here around seven to eight 910.
Speaker Change: <unk> coverage for your conference call provider.
Speaker Change: But.
Sometimes it's five it depends on line of business depends on the attachment point it depends on the limit that you provide depends on the size of risk, but the numbers you here the <unk>.
Speaker Change: Yes.
Speaker Change: But my.
Speaker Change: My follow up is on casualty insurance can you give us a sense of the loss trend that you are booking your casualty insurance book too and what rate you're getting.
There are hard around the marketplaces.
We see the similar similar phenomenon I think we tend we said historically is coming.
Speaker Change: And casualty insurance as well.
Happening as we speak.
The insurance trend in liability generally will outpace the CPI increase and we're seeing this coming back so with two to 300 basis points above so were largely consistent with those kinds of of Pik.
Speaker Change: Yes.
So loss trend you said 789, 10, but can vary by line and sometimes be a 5%, whereas to your point wherever.
You put the price increase.
Oh no.
Again, depending on line of business, but where.
And low to mid teens, I would say right now.
Okay, well low to mid teens I'm just also repeating so folks listening I appreciate I appreciate that thank you.
Okay.
Speaker Change: So loss trend you said 789, 10, but can vary by line and sometimes be 5% where would you point.
Can hear the answer so the low to mid teens.
Speaker Change: Where would you put the price increase.
Yeah.
I think thats, one I guess on your one last one your cat you said your PMO went a little bit higher rate, but the percent of equity is.
Speaker Change: Okay, though low to mid teens I'm, just also repeating so folks listening in.
Given the equity raise in the quarter, where would you put.
Your cat load.
Speaker Change: Here.
Speaker Change: Ken here, Ken here the answer so the low to mid teens.
At the start of 'twenty four.
Well, it's certainly up from 23, right I'd say for the year, we're looking at somewhere of loss ratio points right call it 7% or so of like six they call it 6% to 8% of our premium wood.
Speaker Change: Yeah.
Speaker Change: Thats one I guess on your one last one your cat you said your PMO went a little bit higher rate, but the percent of equity is.
Speaker Change: Lower given the equity REIT will surprise in the quarter, where would you put your cat load.
Would be kind of like the catalog.
Okay, 6% to 8% cat load.
Speaker Change: At the start of 'twenty four.
Thank you for taking thank you for taking the follow up. Thank you listen you are welcome.
Thank you one moment for our next question.
Speaker Change: Okay.
Okay.
Our next question comes from the line of coffee Montazeri from Deutsche Bank.
Speaker Change: Okay, 6% to 8% cat load.
Good morning, guys good morning.
Speaker Change: Thank you for taking thank you for taking the follow up.
Okay.
On reinsurance terms and conditions and attachment points.
Speaker Change: Thank you one moment for our next question.
It does feel like overall the industry, probably took on more high frequency low severity risk and the shoot I believe the past couple of years.
Speaker Change: Our next question comes from the line of coffee Montazeri from Deutsche Bank.
And and now maybe on aggregate.
Reinsurers are probably more willing to negotiate on.
Speaker Change: Good morning, guys. It's Katie.
On price then on attachment points with terms and conditions.
Katie: Okay I have a question on reinsurance terms and conditions and attachment points.
Please tell me what your view is on that on that topic.
Katie: Does it feel like overall the industry, probably took on more high frequency low severity risk debt issued I believe the past couple of years.
Are you talking about property excess capital.
Yes, I think well I think what we've seen as we continue to see is that.
<unk> now begun aggregate reaches a play more willing to negotiate.
A lot of lower layers of historically for the last four or five years to turn out to be just swapping me no money trading dollars back and forth and there was a lot more activity, perhaps a frequency as you mentioned in the reinsurance market was willing to take on so there was a natural tendency to.
Katie: On price then on attachment points with terms and conditions.
Katie: Houstonia, what's your view is on that on that topic.
Yes, the property.
Try to increase our premium at those level, but then at some point it breaks down in a sense the declines buying of reinsurance protection.
Katie: Correct.
Is pay more for things and they actually realize they should be retaining that's why you're seeing retention go up now in a sense by virtue of having a higher retention than they've got to turn on and then it's what we've seen there turning onto their own portfolio and try to manage to make it better and improving.
Okay.
Katie: Okay.
Katie: Okay.
No.
Katie: Great.
The aggregate losses that we have here I'm sorry about this.
I think that what we're seeing on the cash access of loss right now is that.
Katie: Okay.
People are buying more on top because they also are appreciating and evaluating.
The total level of exposure capacity music PMO. So I think what people what we're seeing is people trading away to bottom layers and buying more on top of that I think we're going to see that a bit more as we go into 'twenty, four which totally makes sense.
Katie: Okay.
Exactly.
Katie: Alright.
Right.
Okay.
A follow up question is on the.
On mortgage insurance.
Now you had been kind of pulling back even before activity came to a halt.
But if if the fed rate cuts do come.
<unk> lead to a pickup in the U S activity in the housing market.
Katie: Mhm.
Katie: Yeah.
Would you be happy to grow in line with the market or should we expect you to kind of.
Katie: Okay My follow up.
Crow, maybe less fast into the market.
Katie: Now you had been kind of pulling back even before activity came to a halt.
Mortgage absolutely we would be I think.
But if if the fed rate cuts to do come.
Yes. The answer is we would be more happy we have capacity capital to be able to deploy it and I think we would be very very pleased to do more.
Katie: Lead to a pickup in the U S activity in the housing market.
And it's been as you know, we I mean, it's been a very.
Katie: Would you be happy to grow in line with the market or should we expect you to kind of.
Very good market very <unk>.
Katie: Crow, maybe less fast in the market.
Rational market.
No.
Obviously the rates, we're able to charge for the risks will matter and where we how we position the book, but in terms of our ability to grow where we have originations go up we're absolutely capable and willing to do that.
Katie: Yes.
Katie: Yes.
I appreciate this.
Thank you one moment for our next question.
Okay.
Okay.
Yeah.
Our next question comes from the line of David Moore to maiden from Evercore.
Yeah.
Hi, Thanks.
Good morning, and apologies I haven't been hearing the answers so I'm not sure if you've answered any of these already.
Speaker Change: Thank you one moment for our next question.
Katie: Okay.
But just.
Mark you spoke a little bit at the beginning of the call about the.
Katie: Our next question comes from the line of David Moore to maiden from Evercore.
The need or the strategy to lean in at the early part.
Of a hard market.
David Moore: Hi, Thanks.
I guess.
David Moore: Good morning, and apologies I haven't been hearing me to answer so I'm not sure if you've answered any of these already.
How do you manage that.
With potential false starts.
It sounds like the casualty market on.
David Moore:
David Moore: Right.
On the reinsurance side Hasnt.
David Moore: Yeah.
David Moore: Mark you spoke a little bit at the beginning of the call about yeah.
Hasnt heartened as quickly as as you've expected.
David Moore: Need or the strategy to lean in at the early part.
But how do you manage that.
Internally between yeah.
David Moore: Of a hard market.
Writing business that might be.
David Moore: I guess.
David Moore: How do you manage that.
You know hardening, but not totally to where you think it should go.
David Moore: With potential false starts.
David Moore: It sounds like the casualty market on.
And the potential for false starts.
David Moore: On the reinsurance side hasn't hasn't.
A very very good question and I think this is where the art comes into play right in experience in knowing some of the markings of a hardening market a lot of it is also has to do with things you won't hear right as our underwriting team sitting now with clients potential clients and try to understand how do you think about the risk of talk about reinsurance not.
David Moore: It Hasnt heartened as quickly as as you've expected.
David Moore: But how do you manage that just internally between yeah.
David Moore: <unk>, writing business that might be.
Yeah, hardening, but not totally to where you think it should go.
And the potential for false starts.
Quickly and we also have a very healthy database like everyone else, but we also have our own and we have our own view of claims and how it develops and we have again experienced something over 20 years of data and information and this is what we use to hopefully.
Get to accomplish in the right order, but if I can be sitting here and tell you and pretend we're going to get everything right, 100%, it's a little bit more art than science and I would think that.
I'm getting older or the psychology of the market is becoming way more important feels to me than even the numbers and thats, probably what compelled me or what made me.
At the team to leaning into 2019, and you don't know for effect until it's done but there are marketing our signs and the overall market does that help you and support your decision to lean into it heavily.
That's all I can tell you because it's really not.
It's not a one for one there's no like one number one spreadsheet I can point to that will give you the answer yes, and the only thing I'll add quickly David is the reverse is true as well when the market goes off sometimes you pullback and you might go back to work, but that's the game. We play that's the business we're in them and we do our best to again, we're never going to time it perfectly.
But what matters more is the direction of it and then over the cycle, we think what we should come out ahead.
Yeah, no understood that makes sense.
And then.
Mark you had mentioned that at one one you know the property market continued to improve.
Property cat reinsurance market.
I guess as we sit here today, and you know sort of looking forward at the sustainability of that.
As we move through 2024.
What's what's your view now on that and the growth opportunities.
And in in property Cat.
Person.
We have no growth constrained per se, we can grow as you know <unk> mentioned inside of our P&L.
It is nine 2% so we have room to grow there.
The question about where it's going to go is so difficult to answer because it's dependent on what happens and what kind of activity. We see this year.
But if our pipe point to you to the 2006 and a tighter market and or seven that's probably a better way to think about it or 6% or seven seven was a better year in our six.
Oh, eight or 910 were really really good years and property because the market as we all know goes up very very quickly, but does not go down in one fell swoop, you've got a lot of sustainability in our returns for a little while it takes a while before things get.
To close the line or below the loan and what we would want to adjust so we.
We have we have some runway in front of us.
Got it understood and I know in the past you've said alts.
Alternative capital our ILS can has the ability to swing the market one way or the other what exactly are you seeing there.
What we hear is there's still a very high demand for returns which prevents or.
High demand for returns and also still some level of skepticism that might change but.
We'll see where that goes but clearly right now is at the margin some increases but its not.
The way that we saw probably 14 15 16.
Nowhere near that.
Understood. Thank you.
Thank you.
Thank you arch capital group answers have been captured and will be available in the replay I would now like to turn the conference over to Mr. Mark Grandison for closing remarks.
First of all I want to apologize thoroughly for the call quality and are dropping.
In and out there will be a recording available for replay and you know our two two of steam colleagues dawn and <unk> will be available to follow up obviously.
I want to thank you for listening to our call and I'm looking forward to speak to you again.
In April thank you very much.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may all disconnect.