Arch Capital (ACGL) Q4 2025 Earnings Transcript

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DATE

Tuesday, February 10, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• President and Chief Underwriting Officer — Nicolas Papadopoulo
• Executive Vice President, Chief Financial Officer, and Treasurer — François Morin

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TAKEAWAYS

• After-Tax Operating Income -- $1.1 billion for the quarter, representing a 26% increase.
• Quarterly Combined Ratio -- 80.6% for the group, reflecting favorable underwriting performance.
• Full-Year After-Tax Operating Earnings Per Share -- $9.84.
• Full-Year After-Tax Operating Income -- $3.7 billion, reaching a company record.
• Operating Return on Average Common Equity -- 17.1% annualized for fiscal year 2025.
• Book Value Per Share Growth -- Increased by 22.6% in fiscal year 2025.
• Share Repurchases -- $1.9 billion for 2025, equal to 21.2 million shares or 5.6% of beginning-year outstanding shares.
• Insurance Segment Underwriting Income -- $119 million for the quarter, with an underlying ex-cat combined ratio of 90.8%.
• Insurance Segment Gross Premiums Written -- Increased 2%, while net premiums written declined 4% due to timing and business mix shifts.
• Insurance Segment Ex-Cat Accident Year Loss Ratio -- Improved by 80 basis points to 57.5% compared to prior year period.
• Insurance Segment Acquisition Expense Ratio -- Rose by 150 basis points, due to the roll-off of prior year deferred acquisition cost write-off.
• Reinsurance Segment Underwriting Income -- $1.6 billion for the year, a record result.
• Reinsurance Segment Quarterly Combined Ratio Ex-Cat and Prior Year Development -- 74.9%, consistent with prior year quarter.
• Reinsurance Segment Gross Premium Written -- Flat for the year, while net premiums written declined approximately 5.2% in the quarter.
• Reinsurance Segment Cat Property and Short-Tail Excess of Loss Renewals -- Rates down 10%-20% at January 1.
• Ceding Commissions (Reinsurance) -- Increased in proportional reinsurance as supply outpaced demand.
• Mortgage Segment Underwriting Income -- $1 billion for the year and $250 million for the quarter; fourth consecutive year above $1 billion.
• Mortgage Segment Persistency Rate (USMI) -- 81.8%, with insurance in force relatively flat.
• Mortgage Segment Delinquency Rate (UMI) -- 2.17% at quarter end.
• Net Investment Income -- $434 million for the quarter; equity method investments contributed an additional $155 million.
• Investable Assets -- Exceeded $47 billion at year-end; $47.4 billion as of quarter close.
• Cash Flow from Operations -- $6.2 billion for the year.
• Current Accident Year Catastrophe Losses -- $164 million net, below seasonally adjusted expectations but higher than last quarter.
• Favorable Prior Year Development -- $118 million pretax in the quarter, reducing the combined ratio by 2.8 points.
• Effective Tax Rate -- 14.9% for the year, below prior guidance due to a 1.4% benefit from discrete items.
• Expected 2026 Effective Tax Rate -- Anticipated at 16%-18% for the full year.
• Bermuda QRTCs (Qualified Refundable Tax Credits) -- Full-year effect recognized in the quarter; primary impact on reinsurance segment expense ratio and corporate expenses.
• Reinsurance Segment Expense Ratio Guidance -- Targeted for 3.9%-4.5% in 2026 due to QRTCs.
• Corporate Expenses (Guidance) -- Expected at $80 million-$90 million for 2026, aided by QRTCs benefit.
• Peak Zone Natural Catastrophe PML -- $1.9 billion net, representing 8.2% of tangible shareholders’ equity.
• Estimated 2026 Catastrophe Losses -- Projected at 7%-8% of overall net earned premium.
• Additional Share Repurchases in 2026 -- $349 million through February 9, 2026.

SUMMARY

Management affirmed a disciplined approach to underwriting and capital allocation, noting increasing competition in several business lines while emphasizing tactical growth in segments with favorable risk-adjusted returns. Strategic capital deployment included fully completing re-underwriting of acquired program business slated for nonrenewal in 2026, potentially improving segment margins depending on market conditions. Management provided forward guidance that recent Bermuda tax legislation will lower core expense ratios particularly in the reinsurance segment and reduce corporate overhead, though the largest impact accrued in the current quarter and is not expected to recur. The company described current market conditions as bringing segment attractiveness closer together, with reinsurance opportunities remaining favorable but competition rising and return differentials narrowing across insurance, reinsurance, and mortgage operations. No major changes were signaled regarding capital structure, regulatory capital deployment, or M&A appetite, though buybacks remain flexible and opportunistic based on evolving growth and market prospects.

• Executive commentary indicated "margins are definitely under pressure" in the reinsurance segment, particularly due to declining pricing on excess of loss and rising ceding commissions, yet diversification should support continued opportunity sourcing.
• The impact of the Bermuda Qualified Refundable Tax Credits was described as "one-time benefits," with management stating, "we would not expect to recur in future years," thus cautioning investors regarding forward comparability.
• For property catastrophe business, management reiterated that recent rate declines may lead to further underwriting selectivity, stating, "if rates were to continue to to go down you know, in the mid teens, you know, we we we we we will have to on the case by case basis, you know, realize where it makes sense and where where where it doesn't."
• The company highlighted favorable prior year reserve development across all segments, most notably in mortgage and short-tail property, supporting current-quarter results but not guaranteed for future periods.
• On capital return, management said pacing of buybacks will remain "pretty active," though not governed by fixed targets, with opportunities for increased shareholder distributions if organic growth opportunities remain limited.
• In mortgage insurance, management noted persistency remained high at 81.8% and that new insurance written in USMI reached its peak level for the year in the quarter, even as overall origination activity remains constrained.

INDUSTRY GLOSSARY

• Combined Ratio: Measures underwriting profitability, calculated as (incurred losses + expenses) / earned premiums; a ratio below 100% indicates underwriting profit.
• Ex-cat: Excludes losses from catastrophe events; used to assess underlying results without cat volatility.
• PML (Probable Maximum Loss): The largest loss expected from a catastrophic event on a certain probability interval, often referenced at "one in 250 years."
• QRTC (Qualified Refundable Tax Credits): Bermuda-issued tax credits designed to incentivize local economic activity, directly reducing expense ratios when received.
• USMI: U.S. Mortgage Insurance; refers to the company's U.S.-based mortgage insurance activities.
• CRT: Credit Risk Transfer; insurance or reinsurance product that shares mortgage credit risk.
• Persistency Rate: The portion of insurance policies remaining in force over a period, highlighting policy retention.

Full Conference Call Transcript

Nicolas Papadopoulo: Good morning, and welcome to our fourth quarter earnings call. We concluded another exceptional year by generating $1.1 billion of after-tax operating income in the fourth quarter, up 26% from the same period in 2024. Our quarterly consolidated combined ratio of 80.6% reflects excellent underwriting results across the group. For the full year, we produced $3.7 billion of after-tax operating income, a new high, resulting in after-tax operating earnings per share of $9.84 and a 17.1% annualized operating return on average common equity for 2025. Continued strong operating cash flows and capital generation enabled the repurchase of $1.9 billion of Arch common stock in 2025.

We strongly believe our stock is a good long-term investment and share buybacks represent an efficient way to return excess capital to our shareholders for the time. Since our inception, Arch's commitment to maximize long-term shareholder value has been unwavering. In 2025, book value per share, our preferred measure of value creation, increased by 22.6%. Since our start in 2001, book value per share has grown at a compound annual growth rate in excess of 15%, placing us at the top of our peer group. We remain confident in our ability to deliver strong returns throughout the underwriting cycle and to build on a legacy of disciplined execution and consistent results. We head into 2026 with measured optimism.

We are starting from a position of strength, but recognize that competition is increasing in several lines of business. In an evolving market, the house playbook, which has served us well over the years, is a differentiator that remains as valid and effective as ever. Our playbook is anchored by an underwriting culture defined by deep expertise and disciplined risk selection. Combined with a diversified business model, a proven record of best-in-class cycle management, and the strengths of the Arch brand, we are well-positioned to consistently deliver superior results for our shareholders. I will now provide updates on our reporting segments. I'll begin with our insurance group, which delivered $119 million of underwriting income in the fourth quarter.

Underwriting performance was solid, with an underlying ex-cat combined ratio of 90.8% in the quarter, similar to the fourth quarter last year. Gross premium return increased 2% from 2024. In North America, we continue to grow in specialty casualty lines including alternative markets, construction, and E&S casualty. As for our international units, we increased writings through our Bermuda platform and in Continental Europe. I will note that we experienced a year-over-year decline in net premium return which François will explain in his remarks.

Across the insurance platform, our underwriters pivoted towards lines of business offering the most attractive margins and we grew premium volume in more than half of our business units, indicating a healthier underlying market than industry headlines would suggest. In North America, the rate environment is largely keeping pace with loss cost trends, while pricing in our international business units is tracking slightly below loss trends. Within each geography, consistent with our cycle management approach, we will adjust our business mix in response to changing market conditions and pricing dynamics. Our insurance platform has expanded significantly over the last several years, providing more opportunities to capitalize on attractive margins in many areas.

Going forward, our underwriters will continue to pursue growth in those areas where risk-adjusted returns exceed or meet our long-term objectives. Moving to reinsurance, which delivered a record $1.6 billion of underwriting income for the year. The fourth quarter combined ratio ex-cat and prior year development was 74.9%, consistent with the prior year quarter, and reflective of continued underlying market profitability. Gross premium return was flat versus 2024 despite the nonrenewal of a large structured transaction. Net premium return declined primarily due to a change in the timing of certain retrocession purchases. On January 1, property cat and more generally, short-tail excess of loss renewals were highly competitive with rates down 10 to 20%.

Ceding commission increased in proportional reinsurance as supply continued to outpace demand. Despite these headwinds, our underwriting teams performed well, leveraging the strengths of our platform to source a handful of new opportunities. These opportunities will reduce the negative top-line impact from the rate pressure. The mortgage segment produced $1 billion of underwriting income for the year, our fourth consecutive year exceeding the $1 billion threshold. In our USMI business, new insurance return remained modest and insurance in force was stable. The underlying credit quality of the portfolio is excellent, as illustrated by favorable cure rates on delinquent mortgages, which show favorable reserve development in the quarter.

While lower mortgage rates are beginning to support increased origination activity, the current market is still constrained. The team remains focused on underwriting discipline, expense management, and perfecting its data and analytical platforms to further optimize the business. Finally, investments generated $434 million of net investment income in the quarter, while equity method investments added another $155 million to net income. We continue to look to the investment portfolio, where assets surpassed $47 billion at year-end, to provide a stable recurring earnings stream that enhances the group's overall returns. As we move past 2 PM, the PLC underwriting clock is increasingly important to focus on business that generates adequate risk-adjusted returns.

For almost twenty-five years, Arch has perfected its cycle management capabilities by adhering to some foundational principles. One, leveraging a diversified specialty platform to maximize flexibility and reduce volatility. Two, embracing a business owner mindset anchored on delivering a differentiated customer experience. Three, using data and analytics to sharpen insights and enhance risk selection. And last but not least, ensuring alignment with investors by rewarding underwriters for profitability, not volume, and incentivizing our executives to grow book value per share above all else. This stage of the underwriting cycle will test underwriting discipline and acumen. Our markets are exciting for many reasons, but successfully managing the cycle is equally, if not more, rewarding.

As the decisions made today will shape future returns. With our experience, focus, proven track record, and capital strength, we believe Arch is ready for the task and well-positioned to outperform the sector. This year marks Arch's twenty-fifth anniversary. Having been here since 2001, I firmly believe that Arch's culture, driven by our dedicated people, is a foundation of our success. So before I turn the call over to François, I want to thank team Arch for another outstanding year and for positioning the company for continued success in the years ahead. François?

François Morin: Thank you, Nicolas. And good morning to all. Last night, we reported our fourth quarter results with after-tax operating income of $2.98 per share, and an annualized net income return on average common equity of 21.2%. Book value per share grew by 4.5% in the quarter. Our three business segments once again delivered excellent underlying results, with an overall ex-cap accident year combined ratio of 79.5%, down 100 basis points from last quarter. Our underwriting income included $118 million of favorable prior year development on a pretax basis in the fourth quarter, or 2.8 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 seen in short-tail lines in our P&C segments, and in mortgage due to strong cure activity. Current year catastrophe losses were $164 million net of reinsurance and reinstatement premiums. Lower than our seasonally adjusted expectations, but higher than last quarter, mostly as a result of U.S. severe convective storms, hurricane Melissa, and a series of global events. The insurance segment's gross premiums written grew 2% while net premiums written declined 4% year over year.

The decrease in net premiums written was due in part to the timing of ceded written premium accruals related to the M acquisition in the prior year quarter and changes in business mix resulting from different levels of net to gross retention ratios. The ex-cat accident year loss ratio improved by 80 basis points to 57.5% compared to the same quarter one year ago. The acquisition expense ratio for the current accident year increased by 150 basis points as the benefit we observed in 2024 from the write-off of deferred acquisition costs for the MC acquired business rolled off. The Reinsurance segment had another stellar quarter in terms of pretax underwriting income, at $458 million.

Overall, gross premiums written were flat and net premiums written were down approximately 5.2% from the same quarter one year ago. Our net premium volume was up in casualty and property other than property catastrophe but was down in specialty due to the impact of the nonrenewal of a large transaction as Nicolas mentioned. And then property catastrophe due to changes in the timing of certain retrocession purchases. We finished 2025 with an 80.8% combined for the year, certainly an excellent result and the lowest since 2016. Once again, our mortgage segment delivered another very strong quarter with underwriting income of $250 million.

Net premiums earned were down approximately $11 million from last quarter, mostly across our CRT and Australian businesses. That said, with fourth quarter new insurance written at USMI at its highest level for the year, and persistency remaining high at 81.8%, USMI insurance in force was relatively flat. The current accident year combined ratio remained low at 34%, considering the increase in new notices of default due to seasonality. The delinquency rate for our UMI business increased to 2.17% in line with our expectations. On the investment front, we earned a combined $589 million from net investment income and income from funds accounted using the equity method are $1.60 per share pretax.

Strong positive cash flow from operations of $6.2 billion for the year helped us further increase the size of our investable assets which now stands at $47.4 billion. Our portfolio remains a very high quality with a short duration and remains in line with our allocation asset allocation targets. Income from operating affiliates was strong at $61 million due especially to a very good quarter at Summers REIT. As you have heard, the Bermuda government enacted in December the Tax Credits Act 2025, designed to incentivize tangible on-island economic activity. At the heart of the act are qualified refundable tax credits or QRTCs, which are available to us given our operational presence in Bermuda.

This quarter, we recognized a full year effect of the 2025 QRTCs, significantly impacting your financial results, primarily through the expense ratio for our Reinsurance segment and the corporate expenses line.

Nicolas Papadopoulo: Of note, included in these numbers are some one-time benefits.

François Morin: Which we would not expect to recur in future years. Going forward, our view is that the impact of the QRTC should be most visible in two places. One, for the reinsurance segment, we would expect our operating expense ratio to benefit resulting in a full year 2026 operating expense ratio between 3.9-4.5%. And two, our corporate expenses should also be reduced from their run rate levels and be approximately between $80 million and $90 million in 2026. The QRTCs will also benefit other expense line items including the insurance and mortgage segment expense ratios and net investment income, but to a much lesser extent.

As a reminder, our pattern of corporate expenses is typically skewed towards the first quarter of the year due to the impact of equity compensation grants. For the 2025 year, our effective tax rate on pretax operating income was 14.9% reflecting the mix of income by tax jurisdiction. It was slightly below the 16% to 18% previously guided range mostly due to a 1.4% benefit from discrete items. As we look ahead to 2026, we would expect our annualized effective tax rate to return to the 16% to 18% range for the full year.

As of January 1, our peak zone natural cap probable maximum loss for a single event one and two fifty year return period on a net level basis, remained flat at $1.9 billion and now stands at 8.2% of tangible shareholders' equity. For 2026, our current estimate of the full year catastrophe losses stands within a range of 7% to 8% of overall net earned premium similar to the estimate we disclosed last year. On the capital management front, we repurchased $798 million of our shares in the fourth quarter. For the year, we repurchased $1.9 billion or 21.2 million shares representing 5.6% of the outstanding common shares of the start of the year.

We have repurchased an additional $349 million in shares so far this year through last night.

Operator: We closed 2025 with a balance sheet and excellent health.

François Morin: With strong capitalization and low leverage. Giving us plenty of optionality as we continue to work to put to work the capital our shareholders have entrusted in us. With these introductory comments, we are now prepared to take your questions.

Operator: 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 speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question, and we'll pause first question comes from Elyse Greenspan at Wells Fargo. Please go ahead.

Elyse Greenspan: Hi. Thanks. Good morning. I wanted to start with the comments that you guys made on property cat. I think you said that there were some, you know, opportunities at one, like that served to offset the impact of the price declines. Can you just expand, I guess, on the opportunities that you saw and just how you expect, I guess, growth in property cat re during 2026?

Nicolas Papadopoulo: Good morning, Helene. Think the opportunities we refer to in our comments I mean, are not in property cat. I think the they come from other geographies and mostly in specialty lines.

Elyse Greenspan: Okay. And then my second question was just on capital. You guys it sounds like there was a you know, the level of and the pace of buyback, François, based on your comments, picked up just start the year. I know you guys, right, typically buy back, so it is dependent upon capital as well as the stock price. But how should we think about the level trending from here, right, $350 million, right? And a little bit over a month, right, is a pretty big level.

François Morin: Yeah. I think I mean, share buybacks are, I think, certainly, as we said, like a good way to return capital. I don't think mean we don't set a target that not like we're we're saying we're gonna return x dollars by the end of the year, but you know, the market, you know, depending on stock price and we'll we see are in our ability to deploy capital in the business, we'll we'll be active for sure. I mean, the pace will vary. It's not necessarily a say, a binary event whether we buy or we don't buy.

If, you know, there's we buy different levels during different, you know, different times during the year, but you know, I think no question that given the market environment we're in, I think we should expect us to be pretty active on the share buybacks throughout the year.

Elyse Greenspan: And then one last one. On the MCE side, can you just remind us of the expectations for the reunderwriting in terms of the premium impact? And what from a seasonality perspective, is that more weighted to one quarter of the year versus another, or should we think about that being an even impact during the April '26?

François Morin: Yeah. By I mean, part b, no question that the business is pretty well distributed throughout the year. There's not much seasonality in it You know, the reunderwriting question, we touched on it in prior quarters. There was definitely some business that came with the acquisition primarily in, in the form of programs that we identified that were gonna be nonrenewed. We've we've done that work that will start to really our top line in 2026. And, you know, we hopefully, you know, depending on market conditions, can offset some of that reduction by growth in the truly the middle market business that we have on the books.

But again, very much a function of market conditions, but that was the that's the current thinking on that.

Elyse Greenspan: Thank you.

François Morin: You're welcome.

Operator: Next question will be from Tracy Benguigui at Wolfe Research. Please go ahead. Good morning. On the 10 to 20% rate decreases at one,

Tracy Benguigui: Based on prior conversations I had with Arch, understand you don't like cat business below a 16% ROE. So in terms of sensitivities, I understood going into renewal, you thought that let's say, if you got a 10% rate reduction, you could still land at 20% ROE, maybe 15% will get you between 16 to 20%. Now the 10 to 20% is a wide band, So how does this all shake out on a ROE perspective for a prop cat business?

Nicolas Papadopoulo: So overall, I think we still like the cat business. We wrote at one. I think we as you said, some areas have been more competitive than others. We've seen Europe, you know, being very competitive. I think in The US, you know, probably less so compared to Europe, I think we just adjust the, you know, our writings to the target profitability that is set by region. So overall, I think we were able to, you know, retain most of our renewals know, we got some very favorable signing from our broker because of the you know, the service we provide and the long standing relationship we have with our, you know, many of our selling companies.

So I think we still we still we still like the business. I think if rates were to continue to go down you know, in the mid teens, you know, we will have to on the case by case basis, you know, realize where it makes sense and where it doesn't.

Tracy Benguigui: Okay. And any early thoughts on midyear reinsurance renewal pricing relative to what you're seeing in January?

Nicolas Papadopoulo: So our thought is more about the marketing in general. I think the competition we are seeing is really a reflection of the excellent results with all benefited from, you know, in the last in the last three years. So and you know, the fact that we had only one major cat, which was the California wildfires. I think we you know, of any other major cat that we'd expect, you know, the supplies to continue to be there. So I think people should pay attention to the risk adjusted return. Know, going forward because it will be a it's a it's a big element of how we underwrite the business. K. Thank you.

Operator: Thank you. Next question will be from Cave Mohaghegh Montazeri at Deutsche Bank. Please go ahead.

Cave Mohaghegh Montazeri: Morning. Given yesterday's move in the market, I was going to ask you

François Morin: About the risk of disruption to your business model from AI. And whether you're more likely to be a net beneficiary from AI. Their improved efficiencies and smaller risk selection,

Cave Mohaghegh Montazeri: Rather than at risk of disruption, which I suspect is probably more limited to some distribution platforms. Or maybe to carriers from the right lines are more commoditized. Love to hear your thoughts on this topic.

Nicolas Papadopoulo: Yes. I think I agree with your premise. I think we think of AI as more of an opportunity for efficient efficiency and rather than a than a threat, but ultimately, the beneficiary of AI will be the consumers. You know, as most of the savings and efficiency will be part on to the to the insured. So but, yes, I think the you know, the advantage of being in the specialty market is it's it's complex. I think it will I'm not saying it's impossible, but it will take time for models to learn to replicate the behavior of the of the underwriters.

So I think what we're seeing is, you know, personal lines or SME may maybe happening there faster. Than in the in the space that we are playing.

Cave Mohaghegh Montazeri: K. And my follow-up question is a follow-up on capital return I guess, theory, if there is no growth, in 2026 I hope you guys see growth. But if there is no growth, you could distribute close to a 100% of the capital you generate. Is that something you would consider If not, what's the highest payout ratio you'd consider in the no growth and no M and A scenario?

François Morin: No. You're right. I mean, if we're not growing, which again, we don't know if we will or not, but depends on the market. But absolutely, if the market you know, we're not growing, you know, their our capital needs should remain relatively flat, and every dollar of, you know, income that we generate technically could be you know, creating more excess capital. What's our you know, do we have a, you know, do we have a set of targets? No. We don't.

But we are you know, if the market, you know, points us in a certain direction and the opportunity is there to buy back you know, more than you would know, you see us saw us buyback last year, for example, we're happy to do that. Very much a function of market conditions, and you know, that's something we evaluate, you know, on a daily basis.

Cave Mohaghegh Montazeri: Thanks. You're welcome.

Operator: Thank you. Next question will be from Michael Zaremski at BMO. Please go ahead.

Michael Zaremski: Hey, thanks. Good morning. I guess first question on the Reinsurance segment, specifically.

Operator: Just, I guess,

Michael Zaremski: A lot goes into the loss ratio, of course, for the segment. If we're looking at the underlying loss ratio trend, it's it's nudging a bit higher into the low to low fifties. I guess it's thinking about 26% to the extent the reinsurance market plays out the way you're you're thinking in terms of just some additional downwards rate pressure? Should we continue kind of to nudge that loss ratio underlying loss ratio trend line higher? For the cat load? Yeah. I think so. I think I think the mark on the reinsurance side, I think,

Nicolas Papadopoulo: Margin are definitely under pressure. So I think I think you're right. And it's it comes from the pricing on the excess of loss and also you know, on the expense side, you know, we're seeing also sitting commission

François Morin: You know, going up. So

Michael Zaremski: Okay.

Nicolas Papadopoulo: And But we but we still but we still like the business. I think it's you know, we have a big diversified platform. We write the business in many So I think we believe that we can find ways to continue to track attractive market, but, yes, the margin mean, they were very high, but the margins are definitely under pressure.

Michael Zaremski: Okay. Great. And I'm gonna ask another capital management question just because, you know, you all, as you point out, are good cycle managers, and you're one of the few that's able or maybe willing to shrink, in, you know, times that you're you know, making a bet that the market isn't as conducive for growth. So on capital management, is there are there any items that would other than we could see the shrinkage in top line growth that could free up more capital than we than we can kinda see at a high level, like, the mortgage segment. Is that releasing you know, a material amount of regulatory capital that we should take in potentially take into account?

François Morin: On that question, Mike, I don't think so. I mean, I think we touched while we certainly have touched on it in the past, I think the overall capital position, you know, the fact that, maybe there's some capital that is, trapped in the MI companies is not hasn't really been a factor. I think we've been able to distribute through dividends, like, meaningful amounts of capital from our MI company to you know, to buy back stock, to return to shareholders, etcetera. So I don't think that should be any you know, it shouldn't be materially different going forward. The one thing that, you know, is, you know, a capital consumer is, you know, the investment portfolio.

Let's you know, that's one thing that we have some, I think, ability to influence capital requirements depending on how much capital or assets we deploy in riskier assets such as equities and or private investments. But other than that, I think and we can also play certainly on the reinsurance side whether we buy more or less reinsurance like that's the effect you know, impacts are our net retained

Nicolas Papadopoulo: Premium. But

François Morin: You know, at this point, I wouldn't expect, like, drastic changes in how we think about excess capital or how we think about returning capital. It's it's pretty much, you know, I'd say, '26 should be you know, at a high level, a continuation of what we saw in '25.

Michael Zaremski: Great. And just sneaking one quick one in. Nicolas, you said they North America rate environment largely keeping pace with trend, but international probably slightly below. I think I thought that was a bit of a provocative statement since I think that this assumption is that what the data we're seeing is that, you know, lawsuit inflation continues to be an issue in The US. So any context you could additional color you want to put on kind of you know, why you feel better about U. S. Versus international?

Nicolas Papadopoulo: Yes. I think that's you know, the remarks that I made is pretty based on our own portfolio for the lines of business we write. And remember, the band in North America is more about

Michael Zaremski: You know, long tail.

Nicolas Papadopoulo: We're more of a casualty rider. And in casualty, we've seen you know, rates about or above trends. So that drives and certainly in the shorter lines, we've seen you know, rates coming down. So I think, you know, that but when you take the entire portfolio and then we see one offsetting the other at this stage in the market.

Michael Zaremski: Thank you.

Operator: Next question will be from Andrew Andersen at Jefferies. Please go ahead.

Andrew Andersen: Hey, good morning. Could you share about a bit what the conditions are on the casual reinsurance market there? Are you still seeing rate ahead of loss cost?

Nicolas Papadopoulo: So on the on the casualty side, you know, generally on the primary before we talk about the reinsurance market, I think on the primary side, feel that rates are still know, we are still getting more rate than trend. You know, it's it seems that it's they're still waiting a little bit. Of what we saw in the last quarter, but I personally believe that the steep pain I think we still we'll still we'll see some unfavorable developments in the market for the old years and the, you know, the prior to 2022. So I'm I'm optimistic that the rates could continue to at least meet trend for the foreseeable future. So that's the background.

When we look at specifically at the reinsurance, I think the we've seen, you know, there's there's there's a there's a lot of supply, a lot of willingness for the reinsurer to write the business, and I think the thing that has been new is you know, maybe based on what I said earlier, the ability or the willingness of the selling companies to retain more of the business, which is which has added you know, the supply is constant. And the demand is stable to down. So that is another layer of a competition there.

Michael Zaremski: Thanks. And that demand comment on stable to down, was that just on casualty? Or perhaps you could update us on how you're thinking about property demand into midyear?

Nicolas Papadopoulo: The one I talked about is about is with casualty. I think on property, we seen you know, on the on the reinsurance side and especially on the cat excess of loss side, we've seen retention being stable. Only a few, sedan decided to add, you know, sublayers to their So I think that and on the on the other property, yeah, we're seeing companies based on the again, as I said earlier, the Excel result of the last three years, willing now to take on more of the business. So that's a factor there too.

Michael Zaremski: Thank you. Next

Operator: Question will be from David Motemaden at Evercore.

David Motemaden: Hey. Thanks. Good morning. Just had a question

François Morin: Encouraging to see the level of buyback continue in the first quarter.

David Motemaden: But

François Morin: We I'm just sort of wondering how you guys would frame

David Motemaden: How we should be thinking about the current excess capital position that you guys have before we start thinking about you know, running through the puts and takes on growth and different sources and uses. Will be great to get a get an update on that front.

François Morin: Yeah. I mean, listen. We the excess capital is a you know, it's a it's a number that changes is not static, right? And but no question that given the level of results and returns we've generated the last few years, we've we've we did end up accumulating some excess capital. You know, our number one mission, we've said it before, is to put the capital to work in the business where we think it makes sense, where we can generate adequate returns. You know, after that, yes, we absolutely are committed to returning the capital to the shareholders but, you know, we wanna do what's right for the shareholders.

And some period of time, we sometimes it may just mean that, you know, for a given, you know, we do hold on to the capital for a bit longer. The money is, you know, has been it's been said before on our calls. It's it's in our pockets. It's not it's not burning anything. It's it's just sitting there. It's maybe not the most optimal way. Right? But it's still it's not really a strong value in a meaningful way. So we're so we're we're all about what doing is right for the shareholder.

And, you know, if in an environment, again, if we don't grow materially going forward or at least for the short term, you know, you could certainly think that, you know, you know, you should think of the level of earnings we're gonna generate to be you know, additive to our excess capital position, and that's, you know, gives us more opportunity to return more capital to shareholders.

David Motemaden: Great. And then maybe just following up on the casualty reinsurance side. You've seen decent growth there. It's offset some of the pressure on the property side as you guys have managed the cycle. I'm interested, Nicolas, you had talked about I guess, iHire seeds on proportional reinsurance. You know, I was assuming that is for property. But given you know, your answer to the you know, one of the previous questions, it sounds like know, is I guess I'm wondering, are you seeing higher seeds on casualty REIT just given the supply demand

François Morin: Changes? And do you still view casualty re as a

David Motemaden: A growth opportunity in '26 that can help offset some of the pressure on the property side?

Nicolas Papadopoulo: So to answer your first question, I think it's marginal on the casualty and it works both ways. Underperforming accounts, see sitting commission going down a bit, should be more, but and, you know, external account that everybody is looking for. You may see marginal increase, but really not a I should have clarified earlier. Not the big factor. It's mostly the big swing has been on other on the on other property.

And to answer your second questions on appetite in the space, I think backing the right sitting company, people, like, you know, a little bit arched, have, you know, real good understanding of the business, and can navigate their way in ultimately, pretty favorable, you know, in some pockets primary casualty market. We think it's something we would like to do more So we it's hard to do based on what I explained earlier, but again, our brand in the reinsurance side is good, you know, we have huge trading with our sitting companies.

So we can you know we can find ways to we certainly first call when you know, new programs are set up or, you know, some reinsurers you know, decided to be moved out of the program or reduce. I think we have a shot at growing going forward.

David Motemaden: Awesome. Thank you.

Nicolas Papadopoulo: You're welcome.

Operator: Next question will be from Yaron Kinar. At Mizuho. Please go ahead.

Yaron Kinar: Thank you. Good morning. François, I want to go back to your comment regarding

François Morin: Looking to potentially retain more premiums in 'twenty six. Can you elaborate on that? Just given the ceding commission rates that are increasing and the supply demand imbalance, I think, pointing to more of a buyer's market. Is it that the margin on new casualty and specialty business in insurance is so much better that it's still more economic to keep it than to see that lower pricing. Yeah. I mean, the

François Morin: That's part of the equation. Right? I mean, just like you know, we have the advantage of having both insurance and reinsurance in our platforms. So we see both ways. But, you know, as a buyer of reinsurance, we're no different than some of the seeding companies that buy from Archery and you know, you know, Nicolas touched on it. It's like, well, yeah, sure. I mean, I can get, you know, maybe a slightly higher receiving commission and that's part of the economics of the transaction. But you know, given the rate increases we've seen on the primary side in the last couple of years that have compounded and certainly, maybe not across the board, but in

Yaron Kinar: Sub

François Morin: Subsegments of our book,

Nicolas Papadopoulo: You know,

François Morin: Primary insurers are like the business, like the pricing a lot. As it is today. So

Yaron Kinar: You have to, you know,

François Morin: Compare the two. Am I better off retaining a bit more, or do I just kinda lock in my profit effectively and just kinda go for the same commission? So I think it's it's, you know, as you can imagine, we have multiple reinsurance that we evaluate throughout the year. It's not a it's, you know, every one of them is looked at individually depending on market conditions and what we see, you know, what the opportunities are. But I wouldn't say that we're necessarily planning to buy more or buy less at this point, but it could happen. And, again, that's that's something that will evolve throughout the year.

Nicolas Papadopoulo: Yeah. And I think the other way the other way you can you know, retain more is by switching the structure of your insurance which is to go from a quota share insurance to an excess of loss. And traditionally, not what the reinsurers like to offer, but based on the know, competition in the marketplace, think those structures have been more common. So I think that's that's something we look at as well. And, again, we like the casualty you know, in most of our markets. So it's it's true also you know, outside The US, I think. And both on the insurance and reinsurance. We have a we have a decent sized portfolio outside The US.

Just I wanted to make sure you we mentioned that.

Yaron Kinar: Yeah. That makes sense. And I appreciate the thought on the restructuring of reinsurance programs. I hadn't thought about that as much. My second question, one that's been asked on prior calls as well. Can you give us an update kind of as we look at into 2026, how you rank the appetite and track of new business between the three segments in terms of capital deployment?

François Morin: Yeah. I mean, no question that reinsurers has been you know, the last couple of years, definitely, you know, the you know, a very attractive market for us, and we deployed meaningful. And you saw our growth, and you saw what we you know, how we performed in that market. As the market comes down, it's I think it's it's it's a less, you know, ahead of the others, I would say. So you know, if I had to rank them today, I'd say, yeah, reinsurance to me is still ahead, but you know, the gap has narrowed. It's come down. Reinsurance is doing still very well. Very attractive.

But, you know, I think the gap between reinsurance and insurance is not as significant as it was a year ago. And mortgage, you know, we haven't, you know, haven't had a question yet on mortgage. I mean, it's if it's a good thing, I mean, we love it. Right? I mean, just a great business. It's it's steady. It's been a great source of earnings for us. You know, again, we flapped about it. We talked about prior calls. Like, which one of your three kids do you like the most or like the late or not like as many as much as the others? We love them all. Right?

We love all three of our segments, but certainly, you know, I think that the fact that the reinsurance market is compressing a little bit, I think, just brings all three segments a bit closer to each other.

Yaron Kinar: Thank you very much.

François Morin: You're welcome.

Operator: Next question will be from Matthew Hyman at Citi. Please go ahead.

Matthew Hyman: Hi. Good morning.

Yaron Kinar: Of questions. One was just with respect to the MCE reunderwriting, been asked about the premium consequences of that. I'd be curious about the margin consequences of that.

François Morin: Well, I mean,

François Morin: You'd like to think that, you know, the business that we're shedding is the worst performing business. So

François Morin: Absent

François Morin: You know, you know, absent any other event, you would think that our margins should improve. But that doesn't factor in kinda that comment is you know, obviously, has been has been true, but the market in front of us you know, will you know, may be different than what we had assumed. So on the one hand, no question that the nonrenewals will improve our margins, but maybe depending on where the market what the pricing looks like, It's still a very good market. Middle market business has been I think, in a good place. I think rates have been holding up and have been, you know, improving, so that's been good.

But you know, what's you know, margins going forward? Hard to comment on that.

Nicolas Papadopoulo: Yeah. And I think some of the program we've shared are actually cat exposed. So, you know, the upfront the upfront result may have looked okay, but we think it's a it's a bad allocation of capital, and we can get better return by deploying that capacity elsewhere. So I think especially on the on the reinsurance side. So I think those are the decisions we've we've made. I mean, some of them are you know, running hard, but a few of them that we decided to shed were more, you know, cost of capital you know, opportunity being better elsewhere. And I and I feel you know?

But, again, if to answer your question overall, I think we still, you know, thinking that the business could run-in

François Morin: You know,

Nicolas Papadopoulo: Monday in the in the low nineties. So

Matthew Hyman: Appreciate that. I guess another question I had was given the

François Morin: QRTTs,

Matthew Hyman: Any opportunistic investments you're thinking about making in tech or ops or accelerating existing investments?

François Morin: Not as a direct result. I'd say we will make and have made investments, you know, over time based on you know, what we're trying to accomplish and, you know, trying to streamline operations trying to be more efficient, and whether it's, you know, improving some systems, etcetera. I think that's you know, that nothing is different in that respect. You know, the fact that, you know, certainly reinforces, you know, the value for sure for us, and it's been there throughout the value having a presence in Bermuda. And I think it's you know, we wanna we are committed, remain committed to the island. So that's that, you know, reaffirms that.

But in terms of, like, making, I'd say, direct investments as a result of the QRTCs, I don't think it's the case. It's more you know, based on need and based on what we were trying to accomplish.

Nicolas Papadopoulo: And I think it's it's really an offset to the high cost of doing business in Bermuda. So I think that's smart from the Bermuda government standpoint to make their jurisdiction more attractive to companies like Arch. Yeah.

Matthew Hyman: Yeah. That's totally fair. And then I just normally went after third, but

François Morin: Your comment on

Matthew Hyman: The demand quotient potentially changing for casual reinsurance.

François Morin: Just it made me curious whether or not you are seeing any real changes

Matthew Hyman: To subject premium basis in any of your reinsurance treaties at this point. That's informing that, or is that unrelated?

Nicolas Papadopoulo: So in terms of can you can you provide them I'm just curious.

Matthew Hyman: It's maybe a different way to ask it is, over the course of this year, it feels like there have been some companies that have had to adjust down their premium assumptions for their reinsurance book based on, you know, updated information from on the underlying subject premium basis. I'm just curious whether or not you're you're you're seeing any noticeable signal or information there that's worth calling out and whether or not your demand comment we should read as risk in two subject premium basis next year.

Nicolas Papadopoulo: So what you described, I think it's true on the other property, you know, companies that wanted to go aggressively into the excess and surplus property side or energy, you know, I've had to, you know, revised to the downside the projections. I think on casualty, what I was referencing is more sedent retaining more, but I think the underlying business is still growing. So I've had a that's that's that's not that would not be the reason.

François Morin: Yeah. But to add to that,

François Morin: I think, man, just to be clear, we you know, we do I mean, we that's something we look at every quarter. So we are very we've been very active internally, certainly in 2025, and that will remain making sure that you know, yes, we get premium projections from the underwriters, from the scenes and we obviously superimposed some of our own views based on where we think the business may end up

Nicolas Papadopoulo: So

François Morin: Certainly don't wanna be in a position where we have to make a massive downward kinda adjustment because we overshot the mark. So I think we've been very careful and making sure that we remain on top of it throughout the year as we, you know, readjust our premium projections based on market conditions.

Matthew Hyman: Okay. Thank you for that color. Appreciate it. Have a great day. Yep. Thank you.

Operator: Next question will be from Meyer Shields at KBW. Please go ahead.

Meyer Shields: Great. Thank you so much. Two quick thank you.

François Morin: Mentioned there were a couple of

Meyer Shields: Expense items in the quarter besides the tax And if somebody needs to tell us where Cannot hear you already.

François Morin: I mean, the line broke down, so I apologize. I just I don't know if it's our side or it's my or it's the caller's. Assume it's me.

Meyer Shields: No. It's it's probably me. You mentioned that there were a couple of favorable expense items beyond the Bermuda tax credits, and I was hoping you could tell us where those showed up. In terms of modeling for next year.

François Morin: Well, I think I touched on it. I mean, the Bermuda tax credits, I think the intent of the comment was that, you know, Bermuda tax credits you know, at the core, it is very much a function of, like, how much presence we have in Bermuda, and the direct, you know, payroll related kind of expenses. So, yes, we have expenses in Bermuda, in all three of our segments and also in, you know, in our investment team. So that is reflected as an investment expense. In the corporate line. So again, the where it's noticeable, as I said, is in the reinsurance segment and in corporate.

In the other places, there are I mean, we're talking, like, single millions of I mean, it's it's not gonna be noticeable to the outside world. So in terms of modeling, I would say, yes. There's some benefits, but it's it's so

Meyer Shields: Mean, it could be know, it could be very it will be buried in

François Morin: As part of the overall expense base of either the insurance or the mortgage segment, for example. So that's why it's just hard for us to kinda

Meyer Shields: Isolate it.

Meyer Shields: No. No. I appreciate that. You were very clear.

François Morin: Actually. What I'm trying to get a handle on is the favorable expense items besides the tax credits because you said that there were a couple just didn't know where they were.

François Morin: I mean, there's nothing else really to point out. Those are I mean, sorry for the confusion, but the idea was, you know, was just that. So there's nothing else to point out that was favorable in terms of expenses that were again, that you we should, you know, highlight or identify.

Meyer Shields: Okay. Fair enough. And then final question.

Nicolas Papadopoulo: Does the

Meyer Shields: The fact that we're finally seeing the, non renewed program business actually hit the income statement, is that going to have an observable impact on the acquisition expense ratio in insurance?

François Morin: I would say no. I would say no. I mean, that's again, that's talking

Meyer Shields: Shedding

François Morin: Again, $2.3 billion of written premium that we're we're on a written premium base of $8 billion and, you know, you do the math from there. I would not factor in any meaningful improvement in the acquisition ratio. For the insurance segment.

Meyer Shields: Okay. Very helpful. Thank you.

François Morin: Bye. You're welcome.

Operator: Next question will be from Roland Meyer at RBC Capital Markets. Please go ahead.

Roland Meyer: Good morning. Can you give an update on the carrying value of the deferred tax asset when we expect to hear some clarification on the ability to recognize it?

Nicolas Papadopoulo: Yeah. I mean, that's I mean, that's

François Morin: Been right. So we wrapped up the first year, and, you know, we set up a an asset at the end of, you know, in the '23 that we started amortizing in '25. So the billion 2 is now, you know, roughly came down by about a $100 million. In '25 and, you know, we are gonna keep, you know, amortizing that in '26. And depending on where the law goes in Bermuda, maybe that asset followed goes away. We just don't know. I mean, it's not our decision. It's obviously yeah.

We Bermuda law, but, you know, there's there's been talk that, you know, this you know, depending on, you know, negotiations or kinda what the Bermuda government ends up doing, that this asset could be know, no longer be an asset to us. That'd be either, you know, late, you know, fourth quarter 'twenty six or maybe '27.

Roland Meyer: Okay. Perfect. And then I just wanted to ask on your view of M and A. This environment. I know there's been a couple deals announced in the past month or so, and

François Morin: With how your sort of debt to cap is stacking up, you're you're kinda deleveraging over time and just anything on leverage or m and a.

Nicolas Papadopoulo: Yeah. So on m and a, I think our position hasn't changed. So we

Nicolas Papadopoulo: We like strategic assets. So anything that can really improve our platform or add lines of business or help us, you know, move forward into something we were planning to do and buy versus build. I think we look at everything else, but you know, we you know, at this stage, we at especially in terms of where the market is, I think we efficiencies, we it's it will have to be an amazing deal for us to really, pursue it. Know, and nothing's impossible, but, you know, I think it's unlikely.

Roland Meyer: Great. Thanks for the answers.

François Morin: You're welcome.

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

Nicolas Papadopoulo: Yes. Thank you, everyone, for spending an hour with us. And, again, another pretty damn good performance, you know, in 2025, and again, thanking all the employees for their hard work they did to get us there, and I think we pretty much ready to go for 2026. And we'll talk to you next quarter. Thank you.

Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Thank you for participating. You may now disconnect your lines.

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