Q2 2025 Arch Capital Group Ltd Earnings Call
Good day, ladies and gentlemen, and welcome to the second quarter 2025 Arch Capital earnings conference call. At this time, all participants are in a less and only mode later, we will conduct a question and answer session and instructions will follow at that time.
As a reminder, this conference call is being recorded.
Before the company gets started with its update management wants to First remind everyone that certain statements in yesterday's press release and discussed on this call, May constitute forward-looking statements under the federal Securities laws.
Management's current assessments and assumptions and our subject to a number of risks and uncertainties.
Consequently, actual results May differ materially from those expressed or implied.
For more information on the risks and other factors that may affect future performance. Investors should review periodic reports that are filed by the company with the SEC from time to time including our annual report on form. 10K for the 2024 fiscal year. Additionally certain statements contained in the call that are not based on historical facts or forward looking statements within the meeting of the private Securities, litigation Reform, Act of 1995, the company intends to forward-looking statements in the call to be subject to the safe harbor created. Thereby management also will make reference to certain non-gaap measures of financial performance. The responsibility is to gap 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.arch.com and on the sev's website at www.sec.gov
I would now like to introduce your host for today's conference call Mr. Nicholas and Mr. From Swamp Morin.
Good morning and welcome to Arch's. Second quarter earnings call. We are pleased to report another solid quarter with a tax operating income of 979 million resulting in an operating earnings per share of 2.58 cents.
On the year to date basis, we have gold book value per share by 11.4%. A strong outcome that reflects our focus on execution and long-term value creation for shareholders. We achieved this result by staying true to our core principle of cycle management, where we actively grow our writings in lines of business that offer attractive returns, while selectively reducing exposure in areas where risk can just start the return for short of our targets.
This disciplined underwriting approach paired with proactive Capital management, positions us to consistently, generate Superior returns across Market Cycles.
PNC market conditions. We are largely consistent with the first quarter.
Some sectors are seeing increased price competitions While others continue to achieve rate improvements.
In the current environment, much of our growth is because of the strengths of our relationship with distribution partners and insured.
It not only reflects Arch's increased scale, but also the increased relevance of our platform.
1 built on a broad and flexible set of capabilities and the ID expertise supported by our Advanced Data, in analytics capabilities enables us to deliver valuable insight and innovative solutions that help our customer achieve their ambitions.
Ultimately, the strength of our relationships are commitment to consistently deliver, meaningful customer value, and our ability to respond quickly to changing market conditions are significant differentiators in today's environment.
as we've discussed on previous call there, isn't 1 under writing cycle but many
This principle was reinforced last month. We are pulling great arches, former chairman and 1 of its founder spoke to a gathering of our top leaders.
It was a unique opportunity for a New York team members to hear directly from someone whose Vision continued to influence our culture and operations.
In addition to sharing stories from arches early days, Paul reminded us of the enduring value of a diversified platform. A core part of arches, original vision.
He explained that the insurance Market is comprised of a thousand points of light, each representing a potential opportunity while the intensity and location of some of those light may have shifted in 2 days under writing environment. Many continue to shine our role. As always is to find those with the greatest potential. Our message is this the PNC industry still presents meaningful opportunities for disciplined, Underwriters to generate attractive, risk registered during turn on Capitol.
Now, I will briefly walk through segment performance starting with our Property and Casualty Insurance Group.
Underwriting income for the quarter was 129 million and net premium returns surpassed 2 billion dollars up 30.7% from the second quarter of 2024.
451 million in net. Premium return.
Organic growth outside the acquisition was modest.
We remain focused on integrating the new unit, with client retention and portfolio optimization progressing in line with expectations.
Growing our presence in the small and mid-size Market is Central to our strategy.
Elsewhere in North America.
Right increases broadly offset loss Trends. We saw selective growth in casualty lines, particularly in Alternative Market, Inna casualty and larger on casualty. We are fighting continued to help base loss trends.
However, competitive pressure persists in ens property, xsd Ando and cyber
While pricing in excess DNO and cyber appears to be stabilizing, we are maintaining a cautious stance and prioritizing margin over volume in these lines.
Internationally are loads and London Market business. I experiencing increased but rational competition.
Our long-term investment in establishing a leadership position at Lloyds, continue to yield strong results. Reflected in favorable signing and our ability to attract top tier on the writing Talent.
the reinsurance segment delivers, strong second quarter results, generating 451 million, in underlying income on, over 2 billion dollars in net, premium return,
The underlying business is attractive with growth within premium increasing 8.7% compared to the 7 quarter of 2024.
We grew our casualty reinsurance premium year over year, supported by selective new business and rate improvements. We also expanded our property presence, particularly in Florida, where we identified attractive risk-adjusted returns and responded to increased client demand for additional limits.
Specialty lines Remain the Strategic focus and our teams bound several New Opportunities. This quarter.
That said our property portfolio. Other than cat excess of loss. Contracted a student within more risk and margin on certain portion of the portfolio. Fell below our Target.
We are actively managing our exposure in this area as to maintain on the righting discipline and long-term profitability.
We were generally pleased with the state of the media, catastrophe excess of loss. When year olds pricing was slightly down the terms and conditions were stable with primary insurer maintaining higher retention overall, catastrophe excess of loss, margin remain attractive.
The water Insurance Market continued to exhibit discipline.
We are growing selectively. Focusing on areas where margins are attractive.
We are committed to pursuing the brighter opportunities. Those are following the strongest risk adjusted return.
Our mortgage statement delivered 2028 million dollars of underwing income in the second quarter.
Mortgage originations remain relatively low.
Reflecting the impact of higher mortgage rates on affordability.
Still the strength of our Global enforce portfolio and high persistency allows, the mortgage group to provide steady profitability and valuable earnings diversification. Even with lower volumes of new insurance written in in recent years,
despite ongoing economic uncertainty and low origination activity. We remain confident in the quality and durability of our reinforced portfolio, which is a core driver of our mortgage earnings.
Investable assets. Grew 4.4% in the second quarter benefiting from our strong premium growth and cash flow.
Net investment income was 7% from the first quarter to 45 million with overall years remaining elevated.
I'll change the ability to dynamically adapt to multiple on the writing cycle, and continue to set a support.
This is a function of both our founding principle and a culture that prioritizes and rewards under writing profit of our premium volume, even in a competitive environment.
Our Global Diversified platform offer, many points of light for our underwriting teams to pursue.
For a company with a strong, underlying culture like our car. This remains a market where we can deliver differentiated performance and maximize long-term shareholder return.
I will now turn the call over to Francois, who will provide more details on the financial results before we open the line for your questions.
Average, common Equity of 18.22%.
These operating earnings combined with a high level of realized gains solid contributions from our Equity method, Investments, and a noticeable appreciation. In our fixed maturities Investment Portfolio. Resulted in our book, value per share growing by 7.3% in the quarter.
Similar to last quarter, our 3, business segments, delivered, excellent, under underlying results. With an overall, xcap accent year, combined ratio of 80.9% down 10 basis points from last quarter.
Our unwanted 139 million dollars of favorable prior year development on the pre-tax basis in the second quarter or 3.2 points on the overall combined ratio.
We recognize favorable development across all three of our segments and in many of our lines of business.
the most significant improvements were once again, most seen in short tail lines in our reinsurance segment and in mortgage due to strong cure activity
Current year catastrophe and losses at 154 million, net of reinsurance. And reinstatement, premiums were slightly below last year's level for the same quarter and were primarily the result of severe convective storms in the US.
This is the fourth and last quarter, where we were, where we are separately reporting the contribution of the Mid Corp and Entertainment unit to the Insurance segment financial results.
For the quarter, net premiums written for the acquired businesses were 451 million.
Contributing 28.9 points to the reported year-over-year premium growth for the segment and generally consistent with last quarter.
The strong premium volume this quarter reflects the seasonality of the business. With the second quarter generally having the most significant renewal activity,
We are now on track to write slightly more than $1.5 billion of annualized premium for the first year of owning this business, which is slightly higher than the forecast at the time of the acquisition.
The inclusion of the acquired business and the segments results increased, the current accent year, xcat combined ratio by 40 basis points.
This can be further broken down to include the other operating expense ratio, which was lowered by 40 basis points.
The current year, the acquisition expense ratio was lowered by 20 basis points.
Due to the right off of deferred acquisition costs for the acquired business at closing under purchase Gap.
As expected, this benefit has become less significant as policies written before the acquisition date have rolled off.
And the ACT accent loss ratio that was 100 basis points higher, reflecting the underlying results of the Accord business.
The reinsurance segment produced its best quarter ever in terms of preda pre-tax underwriting income reflecting the underlying profitability of the business written over the last few quarters, and the absence of significant catastrophe activity.
Oh note, the 5.8% growth in net premium written in the quarter was muted due to the timing of certain seated premium approvals.
The effect of this change in timing was to reduce our net premiums written in the property. Catastrophe line of Business by approximately 94 million this quarter.
We expect to record an equivalent offsetting benefit in net premiums written next quarter.
Overall, this item should not have a significant impact on net premiums earned.
Once again our mortgage segment delivered, another very strong quarter with underwriting income of 238 million.
We note that these results, reflect the completion of tender offers for 2. Bellamy resek at a 1-time cost of 15 million dollars.
We expect that this expense will be recouped through lower levels of seated premium over time, mostly through the end of 2027.
and will ultimately result in a net economic benefit to us,
The delinquency rate for our usmi business decreased slightly to a very low 1.93%, as new notices of default were more than offset by strong cure activity.
Million dollars from net investment income and income from funds. Accounted using the equity method for 1 dollar fifty cents per share pre-tax.
Net investment income in the next few quarters should grow in line with the size of our Investment Portfolio as our portfolio book yield and new money yield that converged in the last few quarters.
Income from operating Affiliates was comparable to the amount in the same quarter last year. We have contributions from both co-signs and some Summers re.
Cash flow from operations, remains strong, and approximately 1.1 billion for the quarter.
As of January 1, our Peak Zone, natural account PML on a single event 1 in 200 year, 501 and 250 year return level on the net basis.
Increased slightly to 1.9 billion dollars and now stands at 8.6% of tangible shareholders equity.
Our PML remains well below. Our internal limits.
On the Capital Management front. We repurchased 161 million of our dollars of our shares in the month of July.
In addition to the 360 million dollars worth of common shares, repurchased this year through the end of the second quarter.
In closing our strong balance sheet, affirmed by a re recent credit ratings upgrade. And our Diversified platform positioned as well to deliver a superior results in the periods ahead.
With these introductory comments, we are now prepared to take your questions.
Jenny.
Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speaker-phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again press star 1 to ask a question and we'll pause for just a moment to allow everyone an opportunity to sign that for questions.
Our first question comes from Elise, Greenspan from Wells. Fargo, your line is now open.
Hi, thanks. Um, good morning. Um, my first question, um, is just on the insurance segment. Um, you know, if we back out, um, MC Right growth was around 2% in the quarter. Um, it feels like, based on commentary, the market was stable. So maybe that's about where you guys are, you know, running in the short term. But I know, obviously, there's a lot of, you know, business lines that triangulate into that number. So we're just hoping to get kind of, you know, a forward view to stuff.
On, you know, premium growth, um, with within the insurance segment, unlike, you know, the xmc piece.
Yes, it is.
Yeah, I think so. The story here is that again we as I discussed in my opening, remark, we repeatedly where the opportunities are and kind of uh,
You know, adding out where the, uh, where we think the business is less attractive. So, so this quarter, I think we we, we we, we like the casualty line. So I think we, we grew in the, in the casualty lines.
And and I think we we grew on international business and then we have, we have a big book of professional lines. So as those market conditions were more competitive and more difficult to trade, that had a negative headwind on on the premium, for the quarter, but the good news there.
Is that it looks like, you know, the the the red decreases on both, you know, excess dno and and cyber are leveling off. So, I think we
You know, as we as we look to the future, I think I don't have a crystal ball, but you know, we we, we think the, the favorable wind on the, on the casualty should support additional goals and, uh, that's what I can tell you.
Thanks. Um, and then my second question was just on Capital. It sounds like right Francois, uh, you know, Capital return. Sherry purchased picked up in July, um, just kind of, um, you know, looking for a current thoughts just around excess Capital levels and just, um, you know, willingness I guess to lean in to buy back as we go through, you know, the third quarter and and get into, you know, the peak of 1 season.
We've been able to achieve. So no question that Capital return is is a is a focus area for us. Uh something we you know no different now than it's ever been. We look at it you know on a on a you know regular uh
Basis with, you know, management and the board for sure. Um, and uh, you know, no question that Capital return in the second half of the year. I mean we think will be there. Um, not knowing again. What opportunities might be in front of us, but we look at both share BuyBacks and and potentially dividend if, if we need to uh, those will be uh, very much part of that then, you know, you know, historically we've kind of slowed down a little bit. Um, you know, during the win season. I don't think we uh, necessarily, you know, we're we're a different company, I'd say right now. So we're going to keep looking at the, um, you know, the opportunity in front of us. But certainly at current price levels, we find the, the stock to be attractive and be more than happy to to buy back as we move forward.
And then, just my last 1 was there any adverse development in the quarter? Um, from the UK Russia Aviation ruling. And if, if it was even small, um, if you could just let us know the number,
Well, we don't, I mean, no question that we, we had, um, you know, we had some adverse in the sense that yes, we, we increased our, our idnr for both on the insurance and the reinsurance side. Uh, the reality is these again, we're not big players in that space, But you know, the the the claims of evolved then, uh, you know, that was basically absorbed within our ibnr through, uh, short tail lines. So, uh, what you're seeing, uh, and what we'll, you know, we'll dispose more of and, and our 10q is, you know, no adverse in total, we still have favorable in total but, um, yeah. We reflected some, uh, some changes some, you know, new developments, and in the Ukraine, Russia conflict.
Thank you.
You're welcome.
Thank you. And your next question is from Mike Zamski from BML. Your line is now open.
Hey morning. Thanks. Um,
Um um on the prepare remarks um make comments about uh expanding the prop cat writings uh believe in Florida. Uh particularly just you know maybe just macro levels. I feel like you you all have have been excellent Underwriters and continue to be in in in prop cat. Especially, you know, would you say that um, expected roles are. I don't know if you're willing to kind of put a corridor around them in the in the 20s come from the 30s or just, I guess, you know, we get asked a lot.
A lot about, you know, is, uh, can prop cat, reinsurance pricing continue to decline off. Excellent levels. Um, so like the consensus is yes, but, uh, just curious given the the rate of decrease over the past year. You know, how do Roe's kind of um look in terms of uh risk reward.
Yeah, I believe is that I always feel very attracted.
and just to qualify, I think the
Price decreased. You know, M is not always possible. So I think, for instance, in Florida.
What what what we've seen is, most of the competition is really on the higher layer and at this renewal I think, uh, you know, the, the attachment points. So there was a need for a capacity below the FHS and about the size of the FHS. So I think, you know, we we we actually we are able to
To write, you know, more below above and and, and by the side because we are able to, to to write a pro, ac across the board. So I think and below the FHS, I think the, the price decreased, where, you know, they're pretty flat, I think so. I think it's a
So I think we we we you know, if, if you look at where we come from, this is, you know, a year ago probably price where we had gone through 100%, you know, already increased, I think we, we've seen some decrease but, you know, the business went and really attracted as we can, as we see it.
Okay. Got it, that's helpful. Um, maybe pivoting to um,
You know, um, main Market or is it kind of a broad appetite to just go continue? Going kind of down Market. Um, more broadly,
I think for for us to think we, we really start in the in the mid Market, as you've seen with the the acquisition, with the, the audience portfolio. I think that, uh, that's our sweet spot. You know, we, we, we come from the larger account. So I think we, we had
You know, strategic aspirations to go in the Upper Middle Market. I think that's why the acquisition fit strategically well. And I think the.
Uh, the the strategy.
Uh, changes behind it. I think it's it's even more competing today than it was when when we did the deals.
Yeah, and I'd add to that, um, that.
You know, while I mean and I mean truly small business is is is not an immediate action item. I mean, I mean down the road who knows where where things go but uh, it's a different animal. I think the the, the technology, the systems the distribution. So, uh, let let us focus on the Middle Market acquisition. There's a lot we need to do with it a lot. We want to do with it. We're we're you know, we're things are are going well, but I mean it's still early days, so I think there there's a, there's a lot we can, a lot of value, we can generate from that asset.
And that'll be the focus for the short term.
Okay, and um, maybe I'll think 1 last 1 in, maybe just I'm gonna stick, I guess, high level, uh, mortgage insurance continues just to be, uh, a gift that keeps giving. Um, you know, there's
and we're seeing some data points on, you know, your data too, but maybe less. So, but delinquency rates going a bit higher, but we're still seeing a good still some levels of HPA, you know, I guess just more broadly. Um,
You know, is is anything changed, um, over the last couple quarters in terms of the, uh, the mortgage Outlook other than, you know, I think we we we clearly know the the Top Line in the US is is going to continue to be negative. But any macro data points that that are kind of changing arches kind of viewpoint on a medium-term basis.
I wouldn't say anything's changed on Viewpoint. Uh, certainly, uh, the housing market data has, uh, itself evolved a little bit which was maybe in line with how we thought about, uh,
A home prices moving forward. Uh for example we have shied away or we've been I think underweight in certain geographical areas that seem to be you know currently under pressure in terms of home prices maybe even coming down in some of those places. So that's been part of our I'd say approach is to to manage our our, our production or manage our
New insurance written, uh, strategically with, you know, having a focus on where we thought home prices would be more sustainable and, and, uh, less risky. I'd say so that's maybe, 1 data point again. It, I mean, what's happening? What we seems to happen in the, you know, what data seems to be in line with how we we approach the business going in. Uh, but you know, bottom line is, you know, we our portfolio has been constructed to be a little bit gonna um you know again staying away from the high-risk areas high risk. Not only Geo geographical areas but types of loans. So iltv igti. So that's been kind of a little bit. You know, how we constructed portfolio and so far that seems to be paying off? You know well for us
Thank you.
You're welcome.
Thank you. Your next question is from KB manto area from Deutsche Bank, your line is now open
Thank you. My first question is on the Florida market.
um,
Can you give us a bit more color? Um, is it maybe like the torque or form from 2 years ago that are feeding through it or that's making the market a bit more attractive now. Um can you like me break down a bit more. Um, what's making Florida? A lot more attractive now.
So so I think the third reformed had had an impact, I think on the sign benefits. So we've seen the the local companies even know attrition loss ratio dropping from.
Price. That's, you know, if you buy.
A limited amount of capacity you pay 1 price, but as they looking to buy closer to the 100% more money. So I think that that's what, what has made the, you know, the, the and, and the storm. So, if you did number of storms that have been destroyed, I meant the market attractive, or, or the excess of bases.
My follow up sticking with me Insurance, the uh the 5.8% growth. You said had a bit of negative impact. Um,
From the timing point of view, uh, of some business that have you say, was 94 million negative impact. So does that mean that you're streaming growth in reinsurance and the quarter would have been double digit this quarter adjusting for that. And and if so what are the pockets of growth that you were able to just
uh sign on for um Vision to for um for reinsurance I mean Florida is 1 of them. Was there anything else that you want to flag? You know, I mean, yeah, you're right. I mean that, uh, again is timing issue. So it's really something that typically would happen in the Q3. It happened in Q2 in terms of either premium, if you adjust for the 94 million dollars, correct. That the, the net written premium growth for the segment, would have been double digits, uh, you know, slightly higher than the growth written rate in growth of 8% or so, right? So, uh,
Uh, in line, and we bought a little bit less, you know, reinsurance in some Pockets. So, I mean, that, that that's part of the strategy along the way. So I think those 2 numbers in terms of in premium are are aligned. And, and if you convert, uh, more specifically, the growth, uh, to property cap, you you've seen property cap premium growth. Um, call it, uh, you know, higher than the segment, right? So, uh, 20% range. Um, and that, that was really the story, I'd say the quarter, I think, you know, we saw some some attractive opportunities and property cap, um, and you know, the rest as you know, there's offsetting and other property and other specialty. But, you know, a good part of the story would have been in in process. There was, there was, in fact,
There was more demand in the marketplace. I think we, I want to, uh,
Secure, I'd like to know if I was clear about that. What is pricing? It's not only about getting market share; it's mostly about being able to uh,
Uh uh go along with the the need or support the needs of our, our major clients as they buy more limits. So that that's really the big, big reason, for the world.
Yes, very helpful.
Thank you.
You're welcome.
Thank you. And your next question is from Andrew clearman from De Cowen. Your line is now open
Hey, good morning. So um, emry insurance.
Uh, you mentioned that you're growing in casualty and, uh, I'm kind of curious. You know, on a lot of the calls that we've heard so far, uh, casualty rates in general, I pinpoint them in a range of 10%. Um, but I'm hearing reinsurance pricing in the casualty area has come down a bit. So, I'm wondering if you could.
uh,
give a little more color on what you're seeing on the primary level in in various casualty lines and what's happening in reinsurance particularly for orange.
Yeah. So the story The casualty business I think it's mostly quarter share. So I think you know the story of the primary side and the reinsurance side as far as the underlying business is is very similar. And there I think we we've seen rates, you know as you said the following the the all all exceeding Trends. I think it's it makes it you know and and we are effectively growing more from the insurance and trying to grow on the on on the railroad. I think we're what where you you see the
The difference.
in Market behavior is I think there is a there is a lot of Supply on the on the issue on the insurance side and uh it's difficult for
For many of the market to to expand their writings because you know, there's a there's a lot of, a lot of the competition is also looking to to to expand. So that translates in terms and conditions and selling commissions not
For some of those, some of those treaties you have seen commissions.
I see, thank you for that. And and then just shifting over to midcourt. Um, could you give an update on, you know, where you are in the process of incorporating data and analytics? Um, is the performance, uh, the underwriting performance where you've, you know, is it where you expected it and and, and when do you think mid-court could kind of pivot to growth?
Yes. So
I would say that the, you know, it's it's a process. All right, so long process it was uh so the integration is actually pretty much on track. I think the
you know, we've almost
Almost mentally all over the book. Over to Arch, and so that's almost done.
I think, you know, yeah, I want to remind you that we still a year away from the, the full separation we value. So,
That's hanging there, but we feel we feel good about, you know, the rollover of the book, we feel good about the, the team and the, uh, and the underlying business that we've acquired, I mean. And again, as I said earlier, the Strategic case is I think is even more more compelling in, in, in our views.
Yeah. And I I added I think a middle Market book part of the overall acquisition I think has um you know the pricing environment is is good, is attractive. Uh so that's that's I'd say exciting for us. I think that's a uh an opportunity for us as we move forward. In a you know gives us another uh opportunity set to to to get into and and kind of pursue aggressively so like say we're
We're excited about that. I mean, the platform is there, the distribution is there and then team, the team and then uh, you know, the the rate environment we think will support it. So that's, that's, uh, the deposit sign.
Thank you.
You're welcome.
Thank you. And your next question is from Josh chancre from Bank of America. Your line is now open.
Yeah, thank you. So looking at your commentary about floor and the general traffic in the property cat market, you can't help but look at the Front Range to see how they've declined. There were some one-off transactions in Q2 2024. Can you square how much of the business a year ago was just a few unique things that really boosted the numbers and what a normalized growth rate might be for the property cat line and the property other line in reinsurance?
Yes, I think.
Your question is a question is other property I just want to make sure so I mean the the the premium volumes are down fairly dramatically from where they were a year ago. But you're leaning in you like the lines, there's a disconnect there so I'm trying to bridge that
So we get side. I mean let's transfer explaining because
We talked about it earlier so we can go.
on the, on the other, on the other property I think the
come on, I would like to make is that is really uh
You have to, you guys have to understand it so we mix bag of line of business. So, you know, bit of homeowner a bit of commercial, you know, it's geographically diverse as US. Canada International. Yeah, f****** treaties. So so I think the the, the, the reduction in other property is quarter is really driven by. As I said, you know, deciding not to buy some revision. You know, in certain of the sub segments of the book based on the companies, not meeting their, you know, their their targets because, you know, for constantly ens, we've seen some classic introduction and also, you know, a couple of decisions that our team made and 1 of them, is, is a big deal, not to not to renew, uh, uh, a contract. So I think
You know, overall I think the the business women very attractive but it has to be it has to be managed. So I think this, uh, and I will contrast the experience of the other property with a similar experience. We have in specialty where there, you know, it's also a mixed bag of lines of business and there I think you know has winds have been cyber but this quarter and international side we were able to to land a few large transactions and so we are significantly better so I think you you have to reinsurance as as we deploy, you know?
You know, somebody's going up. You love it when it goes up but you know, sometimes it goes the other way. I think that's what happened in other proposals. Yeah, and just to finish up again on property Gap. I mean, Josh, once you adjust for this timing issue on, on the, the, the Retro, uh, prop cap. Again up call at 20% uh year-over-year uh, in that in the, in the quarter. So that's, I think that's a reflection, you know, big picture again. We, we like both prop cap and property other than property caps. Uh, still very interactive business, but the Nicholas's Point specifically, you know, there's a, you know, the reality, there's some transactions that don't always kind of come back or, you know, change in their form or their substance. And you know, the scenes buy less Etc. So uh that's that's been that that's uh that's truly what what happened this quarter and uh you know unfortunately I can't help you on on how uh the third and fourth quarters are going to look like but we think they're
Is, um, you know, it's still a very attractive market.
And just in terms of the the impact on um, on acquisition cost ratios did did that cause a a 1-time unusual item that we should feature anything about going forward for normalization?
Uh, not in a big way, uh, you know, Inquisition, uh, for reinsurance, you know, where you see the variability sometimes is more on the profit commission. So, I mean, the underlying performance of the book will will end up having maybe a more a bigger impact. So, uh, the fact that these, you know, uh a non-renewal and or growth, I think uh generally speaking, you should not have a in and of itself a, a significant impact
Thank you.
You're welcome.
Thank you, and your next question is.
Caroline, is that open?
All right, thanks. Good morning on, um, sticking with the the reinsurance segment. Uh, the press release had called out um uh attritional losses, higher attritional losses within the the underlying loss ratio there. I'm wondering if you could just elaborate on, on the nature of those. Um, what lines, um, or was it just, you know, kind of things swing 1 way or the other, you know, any given quarter just sort of a normal volatility
Yeah. I mean, there's no question that when we compare year-over-year, last year was maybe one of our best quarters ever. There was, you know, literally not much that went on in the call.
Uh, large attritional space this quarter. We had a, I mean, a little bit of a
The hit with the Air India crash. We had a couple of refineries that exploded. I mean those make the news and you know we don't we're not here to we're not going to get into all the details of each 1 of them. But you know that explains a little bit the volatility I mean that's a bit the business world, right. So uh, so you know I think the takeaways that there's nothing alarming it's part of the normal volatility in the book. You know? Again we we go back to our preferred way of looking at it on a trail trailing 12 month basis to
I mean, at least temporary or some of these kind of shocks or kind of events that may or may not happen in a given quarter but uh, that that's really the story. So a couple of large claims that just happened to take place this quarter and we didn't have those a year ago.
Got it. No, thanks. Thanks for that. Uh, makes sense. And then, um, just, um, also just sticking with, uh, the reinsurance business. So, um,
I think you called out specialty lines, their remaining as strategic Focus, um, and that there were some some new opportunities that were Bound in this quarter, um, wondering if you know your outlook has changed at all in terms of um the growth Outlook there, how the how the pipeline is looking. Um, and you know, if you see this sort of growth being sustained,
So, you know, on specialty, I think the...
the headwinds have been really cyber, you know, we we had a decent sized book of cyber so that has been on the, you know, pricing pressure. So I think that probably, you know, as we we we, we not allocated that much Capital to the line, then that, that we need for the year ago, but I think,
The, you know, again it's a mixed bag of lines of business and a lot of those lines of business.
You know, we we we like to grow. So the question is, you know, our teams, you know, doing the work, they need to do to to generate those opportunities. So we ended a couple of this quarter.
But, you know, whether we find out about it or not, you know, I can tell.
Great. Thank you.
Welcome.
Thank you. And your next question is from Alex Scott from Barclays. Your line is now open.
Hi. Um, I wanted to ask about the insurance segment and I guess just wanted to see if you could provide an update on sort of how far you are through uh some of the mid-core remediation and and just maybe high level comments on how we should think about some of the benefits from that which would, you know, help margins uh and and any potential offsets from, you know, just thinking through like, pricing versus loss cost Trend. Uh,
Spread. And, and whether there's deterioration
I think, you know, I think we're going as I explained earlier, we're going through the Integrations. I think we we feel good about, you know, where we are today. I think the the only area I think
I like, in terms of performance,
Is probably on the program side. I think we we've taken some action on the articulation of the program side that should lead to
Some performance improvements, try over the next 12 to 18 months so that that's, you know, that's the only thing that I think you'll be able to to to to to see ya.
But we we're doing a lot of work, but you know, that work will be, you know, it will, it will, it will, it will take time, but the actions on the program, you know, the next 12 months, you'll be able to, to see some of the facts of that. Yeah, the last ration, the expense ratio, I'd say the the operating expense, uh, benefit that we're getting in terms of scale, I think are are sustainable, right? So there there's no question that, uh, adding call at a billion and a half a premium to, uh, to the insurance segment, uh, with, you know, not necessarily a corresponding amount of, uh, you know, operating expense in terms of it and, and management Etc. So that that's the benefit that we think is, is, is here to stay. Yeah.
Yep, that'll make sense.
Follow up. I have, uh, so on insurance.
Are you seeing any changes in in just the Dynamics with emitted versus ens and, and in terms of volume, I mean, you know, if I kind of go back to the, you know, I think it's part of the rationale to to buy mid-core. If you guys, you know, sort about this entity and at some point having, you know, more of a presence. And emitted may may be very helpful if if you know volume and and appetite kind of returns.
To admitted it in a way, you could use that growth opportunity. I mean, is that, are we closer to that? Are you seeing any of that kind of, uh, opportunity to take, you know, some of what was going in the into the ins Market?
Yeah, I think the Midco business is very different from the EMS business we, uh,
We, we, we ride today. I mean, you know, business, we ride today. I think it's very distressed. I think the midco business is mostly popular. So that business doesn't lend itself to be in the ends market. And I think the, you know, the attractiveness of the, uh,
Of the mid-core business? Is it difficult to access limited access? I think we, we had to buy a platform to become a player into it in in, in the space. So I think it, you know, we've been trying to be a bigger player in that space for probably the last 5 or 6 years but you know, scale matters and
Ability to generate to have, you know, decent size property limits in the hundreds of millions to to solve the problem of the of the agency Network, I think is key. So I think those are 2 different business and the attractiveness of the of the mid Core Business is really that
It's less subject to, to, to cycle and it's more. You have a, a higher, you know, the value proposition, the thing you do for the resonate, more with with the agent and and the issue could you provide multi line, you know, and there is 1 agent. So I think it's a maybe it's a different, it's a different business.
Time. And some of that work is as as as taking place. So, you know, in Medicare areas or maybe in a slightly better position in some areas to retain that business. But um, you know, you know, if Market is still, you know, big picture, we're doing doing well.
Yeah, I think it’s one of the CNS sides. I think we see, you know, as long as we have these social issues in patients and...
I think we see more of the casualty business flowing into the NS markets because you can write it at your own price with your, you know, flexible set of exclusions that is not always available yet in the market. So I think that that trend will continue.
Thanks.
You're welcome.
Thank you. And your next question is from Andrew Anderson from Jeffrey. Your line is now open.
Hey, good morning. You had mentioned some casual pricing above loss trends, and I think in the past year we have seen loss trends maybe 2 to 2.5 points above CPI, and for excess layers, perhaps even higher. Can you just provide us with your latest view on loss trends?
Yes, sir, it would be, it would be on channel. I think I would say my single digit on the, on the primary and the double digits on the, on the excess. I think that's what we used and
I would say, compared to a year ago, there have been notable changes.
Thanks. And then just on the mortgage segment, you know, I think some mortgage associations are talking about originations picking up in 2026. Are you kind of thinking about that as we turn to next year, or are you still envisioning more of a software market there?
Great question. I think, you know, as you know, I mean, I can
For or, or gonna get updated. Um, you know, we, we we still see and know, at least for the the, you know, the next little while mortgage rates kind of staying where they're at, uh, that's certainly, um, you know, that, that that's not ideal in the sense of, you know, creating uh, you know, a housing more housing demand. Uh, but, you know, we'll see, I mean into 26, maybe things will change a little bit. Uh, maybe interest rates come down at that point and mortgage rates follow. Um, but yeah. I mean, that's, um, something we look at very carefully. But for the, I mean, too early to really have a, a clear view of that at this time,
Thank you.
You're welcome.
Thank you and your next question is from Brian Meredith. Um, UPS your line is now open. Hey, just 2 quick ones. Here, the first 1. Um just following back up on the MCA program business. Um, can you scale it? How how much business is that and, and did you just start non-renewing? I was surprised. You said, it's another 12 to 18 months before, we're going to see the benefits there. Given, I thought you started to give notifications when you close the deal.
Yeah, so I think the
Further, I would say a third was program. I mean, that's not why we bought. You know, to be clear, we bought, uh,
You know the the portfolio for the other to so that that we we've been able to scoot in eyes and as you know right and it takes time, you know, it takes time, you have, you know, good to the end. So I think we you know we mostly take an under I think actions and look at, you know, the list of forum we could and with you when the time comes and talking to the MGs to Give Them Enough notice, I think that's where that's where we are. So I think expect most of the effects to start in 2026.
And, and Brian on that just to be clear on an earned basis, right? It's on a written basis. Uh, some of these, you know, some of these actions were taken, you know, late last year early this year. So that, that the, the, on the written basis, you will start to see some some reductions or some, you know, some changes in the second half of 25. But the, the the full 12 18 months on an urn basis is really why? I mean that that's as these, um, you know, the earnings kind of take up a bit longer to, to come through.
All right, that makes sense. Thanks. And then the second one, France, I'm just curious. Could you give maybe an update on where we stand with the Bermuda tax credits? Not the DTA stuff, but the credits that I know the Bermuda Monetary Authority has been talking about providing.
We love Bermuda. I think the Bermuda government, I know, the Bermuda government likes Arch, and others being on the island. So we're we're a big part of the community here, uh, and that's, I mean, it'll be effectively the negotiation with, uh, not only the Bermuda kind of involved parties, but there's, uh, the oecd that kind of has a little bit of of some oversight there. So we're expecting more development, uh, in call it the third quarter, um, late can the late third quarter and, and, you know, with, hopefully some some kind of actionable items in the fourth quarter for us. So we'll, we'll give you an update next quarter. But um, right now, I mean, there's nothing official that we know of that, we can really share with everybody here.
Uh that that's helpful. Thanks. Just just quickly too. First on that 1. Um, yeah, if indeed these do happen to come through, are they a credit to your taxes or do they sit somewhere else in the p&l
Well, what's been talked to?
Are muted government and that would uh, you know, most likely I mean, come through as a as a reduction to our operating expenses. So the tax rate per se would not be impacted uh but it would impact. Uh, I mean mostly well, all places where we have, you know, operating expenses in Bermuda. So for us, it'd be in each of our segments.
Because we have Bermuda based, you know, expenses and each of the 3 segments, it would also impact a little bit. Uh, our investment uh income because uh, we, you know, our expenses flow through that. We've got a our investment professionals here, based in Bermuda. Also would impact our corporate expenses because Nicholas and I and others are are based here in Bermuda. So, uh, that's where in so it would hit a couple of different spots on the income statement but uh, would come through again as an offset to operating expenses.
Very helpful, thanks.
You're welcome.
Thank you. And your next question is from Mayor Shields from KBW. Your line is now open.
Uh, thanks so much and good morning. Two quick modeling questions. Uh, first, if we add back the 20 basis points of, uh, I guess acquisition accounting impact for the insurance segment's acquisition expense ratio, is that a good run rate going forward? Or are the changes in the program going to change that as well?
I mean, I I would start there. I mean, the the again, the benefits or the the impact to call it to the loss ratio as we as our underwriting actions on the programs business, kind of
Materialize. Uh, we'd like to think that, you know, we we can get more than that exactly when that takes place or when that, you know, again, shows up in in our, underlying performance. Uh, it's a little bit, you know, it's not that clear, right? So, but we'd like to think that we can do better than that. If, if know if if not later this year, uh, it'll be in 2026.
Okay perfect that's helpful. Uh and then second just because mid Corp I think in the past few talked about having a significant property exposure and a couple of carriers of serving season has talked about particularly benign weather and low uh non-cat losses. And I was wondering if you sign anything like that in the mid-core book.
I think that this quarter was a pretty low cat quarter. I think, you know,
When we started, we got a little bit unlucky, I think with some of the hurricanes and and then the Wildfire. But I think so for the first time this quarter I think we got a little cut quarter so I agree with something that
Okay, fantastic. Thank you.
You're welcome.
Thank you. And your next question is from Jimmy Fuller from JP Morgan. Your line is now open.
Hi. Um, so the question just differentiating between uh, pricing movements versus price adequacy. Uh, if you look across your business, where it is, is it that you're seeing attractive, attractive growth opportunities across. Um reinsurance and insurance versus maybe highlight some of the lines where you might have been active in the past, but you just feel like the risk rewards not that compelling.
Yeah, so I think most of the casualty lines.
But there is selected pockets of that market, especially in the excess and Chopper size of the market, the more specialty that both both on the insurance and the insurance. We we have a strong appetite to to grow and I think on the insurance is our team is very specialized. So so I think we have a high confidence that they, they'll be able to find the right opportunity. And I think on the insurance is really backing the right, uh, under it teams, people that have, you know, expertise in, in driving the liability portion of those risks that are difficult to price. I think we also have I think some some, uh, some ability to, to, to grow of our retail casualty, where we are primary because I think we are very proposition. I mean, it's a competitive Marketplace. But I think our value proposition resonate, well, with the the big retailers and, and the, the mid Market retailers. I think we we we, we like that.
I think we,
You know as I said in my preferred remark we have you know built in London. I think a different franchise and really capabilities that kind of should or should you know help us you know continue to to grow despite you know more competitive Marketplace.
And I think uh, miss you know, because certainly is an area where we think. You know, we're still getting double digits right increases and I think as we as we continue to integrate the platform, I think we you know, I think we have a different based on the value proposition that we have. We have a ability to grow. I think, in terms of the areas that are more challenged,
You know I mentioned them earlier I think because dno cyber that's not new ens ens property. I think still a very attractive like levels but I think your competition is fierce. I think so. I think it's areas that we we, we are watching. We're watching carefully and
And and on me like obviously if rate decline, there would be a pickup in growth. But do you think a decline in rates overall would be a positive for the business or negative given that there's a high likelihood that rate the client, a decent amount and persistently suffers and the um enforce book which is producing very high margins. Might begin to run off a lot faster. So what what sort of an ideal scenario for the
and my business from a profitability standpoint and how do you view declines in interest rates, affecting that
Yeah, I think, uh, I mean we do all this work.
Of how much rates, uh, what it would take in terms of rate declines for, for or enforce book to have more propensity to refinance. Um, so if it if rates drop, you know, 50 BS, it's not a big deal for us. I think, I think we see more benefits in terms of
Uh, home homes being more affordable. So I think the new production would would overtake that kind of, you know, negative, in terms of refinancing. Um, so, but if there's a big refinancing, boom, then, you know, and yeah, we pick up that share. So it, you know, it's it's in, in, in, in obviously we we like, uh, the enforce book a lot. I think it's it's high quality. It's got a lot of home equity built into those those mortgages. So, um, you know, we we we we we we wouldn't mind giving up a little bit of that and exchange for, you know, new business, but um, you know, absent a um, you know, I'd say I've said that a, a significant drop in interest.
I think the Enforce book will stay with us for quite some time. Yeah, we have to, in that respect, so.
Thank you.
You're welcome.
Thank you. Your next question is from West Carmichael from Autonomous Research. Your line is now open.
Good morning and I know we're over time. So I'll just keep it to 1. But I had a question on reinsurance, um, from some of our conversations with some industry. Participants, it sounds like there was a bit of a return of aggregate treaties with mid years. So I was just curious how you think about your exposure to Aggregates and if your appetite at all has changed, right? That business.
You know, I don't think so much about anything that's material, but the way for the record we always...
Right? I got to get 3 days but we it's a very small portion of what we do and I think yeah flavor of the day a few years back was aggregate, drop downs and all the all the, all the good stuff that you see in the software Market, we we we haven't seen a huge comeback and I'll see him and, you know, supported, you know, the few that have come to the market.
Got it. Thank you.
You're welcome.
Thank you, and your next question is from Elise. Greenspan from Wells, Fargo, your line is now open.
Hi, thanks. Um, I just had a follow-up, I guess coming back to some of the mid-core discussion, um, um, I guess, um, you know, we were talking about, right? The just the program's piece of it, which I know is going to have an impact on the margin, but I know when you guys announced the deal, right? The goal was to get this business right in line with Legacy Arch, right? So, obviously, it's a 100 basis point drag on, on the underlying loss ratio in the quarter. Can you just? I'm and it sounds like, right. Um, the program piece will impact next year. Can you take us through, like, should we start to see some improvement relative to mid-core, you know, and, and serving as like a Tailwind to that insurance segment, um, underlying loss ratio next year and then it picks up more steam in 27. I just want to understand that the Cadence of kind of the Improvement in the mid-court margin and and the trajectory to get um in line with Legacy Arch.
It's a long term, you know, 10 days for making the acquisition and I think the targeted for suitability. I think it's unchanged. I mean the the the timing it's hard to, you know, it's hard to predict we're doing a ton of work around it preparing, you know again. But, uh, you know, I don't have a crystal ball as far as what the market will do. But, you know, around us but
I think the the thing we feel good, is that the assumption that we use, I think we'll be able to realize all the time, so,
Okay, thank you.
You're welcome.
Thank you. I am not showing any further questions. I would now like to turn the conference call over to Mr. Nolo for closing remarks.
Yeah, so I want to thank you all for participating in the call and wish everyone a great summer definitely for when I win it we need to take some a bit of time off.
And uh,
I want to reach you to wait till 1 more time, you know that, you know, we think the market we trade in is, uh, is very attractive and, and the challenge our Challenge. And, you know, a lot of challenge around this Market is really generally a new business. I think that's really, that's really it.
But again, thank you and enjoy your summer.
Thank you, ladies and gentlemen, for participating in today's conference. This concludes the program. You may all disconnect your lines.