Arch Capital Group Fourth Quarter 2025 Earnings Call - Record underwriting profits, but reinsurance rate pressure and competition are forcing disciplined deployment

Conference Operator: Today, ladies and gentlemen, and welcome to Fortune 2024-25 Arch Capital Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. 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. These statements are based upon management’s current assessments and assumptions and are subject to a number of risks and uncertainties. Consequently, actual results may differ materially from those expressed or implied.

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 10-K for the 2024 fiscal year. Additionally, certain statements contained in the call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends to forward-looking statements in the call to be subject to safe harbor created thereby. Management also will make reference to certain non-GAAP measures of financial performance. The reconciliations to non-GAAP for each non-GAAP financial measure can be found in the company’s current report on Form 8-K furnished to the SEC yesterday, which contains the company’s earnings press release and is available on the company’s website at www.archgroup.com and on the SEC website at www.sec.gov.

I will now, sorry, introduce your hosts for today’s conference, Mr. Nicolas Papadopoulo, and Mr. François Morin. Sirs, you may begin.

Nicolas Papadopoulo, CEO, Arch Capital Group: 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 over 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 strengths but recognize that competition is increasing in several lines of business. In an evolving market, the Arch 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 premiums written increased 2% from the fourth quarter of 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 premiums written, 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 that 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-cap and prior-year development was 74.9%, consistent with the prior-year quarter and reflective of continued underlying market profitability. Gross premium returns were flat versus the fourth quarter of 2024, despite the non-renewal of a large structure transaction. Net premium return declined primarily due to a change in the timing of certain retrocession purchases. On January 1, property cap and, more generally, short-term excess of loss renewals were highly competitive, with rates down 10%-20%. Ceding commission increased in proportional reinsurance as supply continued to outpace demand. Despite these headwinds, our underwriting teams performed well by 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 returns remain modest, and insurance enforcement was stable. The underlying credit quality of the portfolio is excellent, as illustrated by favorable Q 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, investment 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 surpass $47 billion at year-end, to provide a stable, recurring earnings stream that enhances the group’s overall returns.

As we move past 2:00 P.M. on the PNC underwriting clock, it is increasingly important to focus on business that generates adequate risk-adjusted returns. For almost 25 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 our underwriting discipline and acumen. Hard 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 strengths, we believe Arch is ready for the task and well positioned to outperform the sector. This year marks Arch’s 25th anniversary. Having been here since 2001, I firmly believe that Arch’s culture, driven by our dedicated people, is the 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, CFO, Arch Capital Group: 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-cat accident year combined ratio of 79.5%, down 100 basis points from last quarter. Our underwriting income included $118 million of favorable prior development on a pre-tax 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 US severe convective storms, Hurricane Milton, and a series of global events. The insurance segment’s gross premiums written grew 2.3%, 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 MC 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 the fourth quarter of 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 pre-tax 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 non-renewal of a large transaction, as Nicolas mentioned, and in property catastrophe due to changes in the timing of certain retrocession purchases. We finished 2024 with an 80.8% combined ratio 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 USMI 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, or $1.60 per share pre-tax.

Strong positive cash flow from operations, $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 of very high quality, with a short duration, and remains in line with our asset allocation targets. Income from operating affiliates was strong at $61 million, due especially to a very good quarter at Somers Re. 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 our financial results, primarily through the expense ratio for our reinsurance segment and the corporate expenses line.

Of note, included in these numbers are some one-time benefits which we would not expect to recur in future years. Going forward, our view is that the impact of the QRTCs 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-$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 pre-tax operating income was 14.9%, reflecting the mix of income by tax jurisdiction. It was slightly below the 16%-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%-18% range for the full year. As of January 1, our peak zone nat cat probable maximum loss for a single event, 1-in-250-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%-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 at the start of the year. We have repurchased an additional $349 million in shares so far this year through last night. We closed 2024 with a balance sheet in excellent health, with strong capitalization and low leverage, giving us plenty of optionality as we continue to put to work the capital our shareholders have entrusted in us. With these introductory comments, we are now prepared to take your questions.

Conference 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 for just a moment to allow everyone an opportunity to signal for questions. Our first question comes from Elyse Greenspan at Wells Fargo. Please go ahead.

Elyse Greenspan, Analyst, Wells Fargo: 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 opportunities at 1/1 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, CEO, Arch Capital Group: So good morning, Elyse. I think the opportunities we referred to in our comments, I mean, are not in property cat. I think they come from other geographies and mostly in specialty lines.

Elyse Greenspan, Analyst, Wells Fargo: Okay. And then my second question was just on capital. It sounds like there was the level of and the pace of buyback, François, based on your comments, picked up to start the year. I know you guys typically buybacks, it depends upon capital as well as the stock price. But how should we think about the level trending from here, $350 million in a little bit over a month? Is it pretty big level?

François Morin, CFO, Arch Capital Group: Yeah. I mean, share buybacks are, I think, certainly, as we said, a good way to return capital. I mean, we don’t set a target. It’s not like we’re saying we’re going to return $X by the end of the year. But if the market, depending on stock price and what we see or in our ability to deploy capital in the business, we’ll be active for sure. I mean, the pace will vary. It’s not necessarily, I’d say, a binary event whether we buy or we don’t buy. We buy different levels during different times during the year. But I think no question that given the market environment we’re in, I think you should expect us to be pretty active on the share buybacks throughout the year.

Elyse Greenspan, Analyst, Wells Fargo: And then one last one. On the MCE side, can you just remind us of the expectations for the re-underwriting in terms of the premium impact? And 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 four quarters of 2026?

François Morin, CFO, Arch Capital Group: Yeah. I mean, part B, no question that the business is pretty well distributed throughout the year. There’s not much seasonality in it. The re-underwriting question, we touched on it in prior quarters. There was definitely some business that came with the acquisition, primarily in the form of programs that we identified that were going to be non-renewed. We’ve done that work. That will start to really impact our top line in 2026. And we hopefully, depending on market conditions, can offset some of that reduction by growth in truly the middle market business that we have on the books. But again, very much a function of market conditions. But that’s the current thinking on that.

Elyse Greenspan, Analyst, Wells Fargo: Thank you.

François Morin, CFO, Arch Capital Group: You’re welcome.

Conference Operator: Next question will be from Tracy Benguigui at Barclays. Please go ahead.

Elyse Greenspan, Analyst, Wells Fargo: Good morning. On the 10%-20% decreases at 1/1, based on prior conversations I had with Arch, I 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 a 20% ROE, maybe 15% will get you between 16%-20%. Now, the 10%-20% is a wide band. So how does this all shake out on an ROE perspective for prop cat business?

Nicolas Papadopoulo, CEO, Arch Capital Group: So overall, I think we still like the cat business we wrote at 1/1. I think, as you said, some areas have been more competitive than others. We’ve seen Europe being very competitive. I think in the U.S., probably less so compared to Europe. And I think we just adjust our writings to the target profitability that is set by regions. So overall, I think we were able to retain most of our renewals. We got some very favorable signings from our broker because of the service we provide and the longstanding relationship we have with many of our ceding companies. So I think we still like the business. I think if rates were to continue to go down in the markets, we will have to, on the case-by-case basis, realize where it makes sense and where it doesn’t.

Elyse Greenspan, Analyst, Wells Fargo: Okay. Any early thoughts on midyear reinsurance renewal pricing relative to what you’re seeing in January?

Nicolas Papadopoulo, CEO, Arch Capital Group: So our thought is more about the market in general. I think the competition we are seeing is really a reflection of the excellent results we’ve all benefited from in the last three years, so. The fact that we had only one large major cat, which was the California wildfire. So I think, absent of any other major cat, I would expect the supplies to continue to be there. So I think people should pay attention to the risk-adjusted return going forward because it’s a big element of how we underwrite the business.

Elyse Greenspan, Analyst, Wells Fargo: Okay. Thank you.

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

Cave Mohaghegh Montazeri, Analyst, Deutsche Bank: Morning. Given yesterday’s move in the market, I was going to ask you about the risk of disruption to a business model from AI and whether you’re more likely to be a net beneficiary from AI via improved efficiencies and smarter risk selection 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 that are more commoditized. Love to hear your thoughts on this topic.

Nicolas Papadopoulo, CEO, Arch Capital Group: Yes. I think I agree with your premise. I think we think of AI as more of an opportunity for efficiency rather than a threat. But ultimately, the beneficiary of AI will be the consumers, as most of the savings and efficiency will be passed on to the insured. But yes, I think the advantage of being in the specialty market is it’s complex. And 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 underwriters. So I think what we’re seeing is personal lines or SME may be happening there faster than in the space that we are playing.

Cave Mohaghegh Montazeri, Analyst, Deutsche Bank: Got it. My follow-up question is a follow-up on capital return. I guess, in theory, if there is no growth in 2026 and I hope you guys see growth, but if there is no growth, you could distribute close to 100% of the capital you generate. Is that something you would consider? If not, what’s the highest payout ratio you’d consider in a no-growth and no-M&A scenario?

François Morin, CFO, Arch Capital Group: No, you’re right. I mean, if we’re not growing, which, again, we don’t know if we will or not, but it depends on the market. But absolutely, if the market we’re not growing, our capital needs should remain relatively flat. And every dollar of income that we generate technically could be creating more excess capital. Do we have a set of targets? No, we don’t. But if the market points us in a certain direction and the opportunity is there to buy back more than you would. You saw us buy back last year, for example, we’re happy to do that. It’s very much a function of market conditions. And that’s something we evaluate on a daily basis.

Cave Mohaghegh Montazeri, Analyst, Deutsche Bank: Thanks.

François Morin, CFO, Arch Capital Group: You’re welcome.

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

Mike Zaremski, Analyst, BMO: Hey, thanks. Good morning. I guess first question on the reinsurance segment specifically. I guess a lot goes into the loss ratio, of course, for the segment. If we’re looking at the underlying loss ratio trend, it’s nudging a bit higher into the low 50s%. I guess thinking about 2026 to the extent the reinsurance market plays out the way you’re thinking in terms of just some additional downwards rate pressure, should we continue kind of to nudge that underlying loss ratio trendline higher or the cat low?

Nicolas Papadopoulo, CEO, Arch Capital Group: Yeah, I think so. I think on the reinsurance side, I think margins are definitely under pressure. So I think you’re right. And it comes from the pricing on the excess of loss. And also, on the expense side, we’re seeing also ceding commission going up, so.

Cave Mohaghegh Montazeri, Analyst, Deutsche Bank: Okay. And.

Nicolas Papadopoulo, CEO, Arch Capital Group: But we still like the business. I think we have a big diversified platform. We write the business in many geographies. So I think we believe that we can find ways to continue to track attractive market. But yes, the margins, I mean, they were very high, but the margins are definitely under pressure.

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

François Morin, CFO, Arch Capital Group: On that question, Mike, I don’t think so. I mean, I think we touched. Well, we certainly have touched on it in the past. I think the overall capital position, the fact that, yes, maybe there’s some capital that is trapped in the MI companies, hasn’t really been a factor. I think we’ve been able to distribute through dividends meaningful amounts of capital from our MI company to buy back stock, to return to shareholders, etc. So I don’t think that should be any. It shouldn’t be materially different going forward. The one thing that is a capital consumer is the investment portfolio. 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. That impacts our net retained premium. But at this point, I wouldn’t expect drastic changes in how we think about excess capital or how we think about returning capital. It’s pretty much, I’d say, 2026 should be, at a high level, a continuation of what we saw in 2025.

Mike Zaremski, Analyst, BMO: Great. Just sneaking one quick one in, Nicolas, you said the North America rate environment largely keeping pace with trend, but international probably slightly below. I thought that was a bit of a provocative statement since I think that the assumption is that the data we’re seeing is that lawsuit inflation continues to be an issue in the U.S. Any context you could additional color you want to put on kind of why you feel better about U.S. versus international things?

Nicolas Papadopoulo, CEO, Arch Capital Group: Yes. I think the remarks that I made is really based on our own portfolio for the lines of business we write. I remember the band in North America is more about long-term. We’re more of a casualty rider. And in casualty, we’ve seen rates about above trend. So that drives the and certainly, in the short-term lines, we’ve seen rates coming down. I think that but when you take the entire portfolio, and then we see one upsetting the other at this stage in the market.

Cave Mohaghegh Montazeri, Analyst, Deutsche Bank: Thank you.

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

Andrew Andersen, Analyst, Jefferies: Hey, good morning. Could you share about a bit what the conditions are in the casualty reinsurance market there? Are you still seeing right ahead a loss cost?

Nicolas Papadopoulo, CEO, Arch Capital Group: So on the casualty side, generally, on the primary before we talk about the reinsurance market, I think on the primary side, we feel that rates are still. We’re still getting more rate than trend. It seems that it’s decelerating a little bit of what we saw in the last quarter. But I personally believe that there’s still pain. I think we’ll still see some unfavorable developments in the market for the old years and the prior to 2022. So 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 specifically at the reinsurance, I think we’ve seen there’s a lot of supply, a lot of willingness for the reinsurer to write the business.

I think the thing that has been new is maybe based on what I said earlier, the ability or the willingness of our ceding companies to retain more of the business, which has added to the supply is constant, and the demand is stable to down. So that added another layer of competition there.

Andrew Andersen, Analyst, Jefferies: 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, CEO, Arch Capital Group: The one I talked about is with casualty. I think on property, we’ve seen on the reinsurance side and especially on the cat excess of loss side, we’ve seen retention being stable. Only a few cedants decided to add sub-layers to their program. So I think that and on the other property, yeah, we’re seeing companies based on the, again, as I said earlier, the excellent results of the last three years willing now to take on more of the business. So that’s a factor there too.

Andrew Andersen, Analyst, Jefferies: Thank you.

Conference Operator: Next question will be from David Motemaden at Evercore. Please go ahead.

David Motemaden, Analyst, Evercore: Hey, thanks. Good morning. I just had a question. Encouraging to see the level of buyback continue in the first quarter. But I’m just sort of wondering how you guys would frame how we should be thinking about the current excess capital position that you guys have before we start thinking about running through the puts and takes on growth and different sources and uses. It would be great to get an update on that front.

François Morin, CFO, Arch Capital Group: Yeah. I mean, listen, the excess capital is, it’s a number that changes. It’s not static, right? But no question that given the level of results and returns we’ve generated the last few years, we did end up accumulating some excess capital. 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. After that, yes, we absolutely are committed to returning the capital to the shareholders. But we want to do what’s right for the shareholders. And sometimes it may just mean that for given some period of time, we do hold onto the capital for a bit longer. The money, it’s been said before on our calls, it’s in our pockets. It’s not burning anything. It’s just sitting there.

It’s maybe not the most optimal way, right? But it’s not really destroying value in a meaningful way. So listen, we’re all about what’s doing right for the shareholder. And in an environment, again, if we don’t grow materially going forward, or at least for the short term, you could certainly think that you should think of the level of earnings we’re going to generate to be additive to our excess capital position. And that gives us more opportunity to return more capital to shareholders.

David Motemaden, Analyst, Evercore: Great. Thanks. 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, higher ceding on proportional reinsurance. I was assuming that is for property. But given your answer to one of the previous questions, it sounds like or I guess I’m wondering, are you seeing higher ceding on casualty re, just given the supply-demand changes? And do you still view casualty re as a growth opportunity in 2026 that can help offset some of the pressure on the property side?

Nicolas Papadopoulo, CEO, Arch Capital Group: So John, so your first question, I think it’s marginal on the casualty. And it works both ways. Underperforming account, you see ceding commission going down a bit. Should be more, but. And excellent account that everybody is looking for, you may see marginal increase. But really, I should have clarified earlier, not the big factor. It’s mostly the big swing has been on other property. And to answer your second question on appetite in the space, I think backing the right ceding company, people a little bit at Arch have real good understanding of the business and can navigate their way in ultimately a pretty favorable in some pocket primary casualty market. We think it’s something we would like to do more of. So it’s hard to do based on what I explained earlier. But again, our brand in the reinsurance side is good.

We have a huge treaty relationship with our ceding companies. So we can find ways to. We certainly first call when new programs are set up or some reinsurers decided to move out of the program or reduce. So I think we have a shot at growing going forward, I think.

David Motemaden, Analyst, Evercore: Awesome. Thank you.

François Morin, CFO, Arch Capital Group: You’re welcome.

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

Cave Mohaghegh Montazeri, Analyst, Deutsche Bank1: Thank you. Good morning. François, I want to go back to your comment regarding looking to potentially retain more premiums in 2026. 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 cede at lower pricing?

François Morin, CFO, Arch Capital Group: Yeah. I mean, that’s part of the equation, right? I mean, just like we have the advantage of having both insurance and reinsurance in our platform, so we see both ways. But as a buyer of reinsurance, we’re no different than some of the ceding companies that buy from Arch Re. And Nicolas touched on it. It’s like, "Well, yeah, sure. I mean, I can get maybe a slightly higher ceding commission." And that’s part of the economics of the transaction. But given the rate increases we’ve seen on the primary side the last couple of years that have compounded, and certainly maybe not across the board, but in sub-segments of our book, primary insurers like the business, like the pricing a lot as it is today. So you have to compare the two.

Am I better off retaining a bit more, or do I just kind of lock in my profit effectively and just kind of go for the ceding commission? So I think it’s as you can imagine, we have multiple reinsurance programs that we evaluate throughout the year. It’s not every one of them is looked at individually depending on market conditions and what we see 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 something that will evolve throughout the year.

Nicolas Papadopoulo, CEO, Arch Capital Group: Yeah. And I think the other way you can retain more is by switching the structure of your insurance, which is to go from quota-share reinsurance to an excess of loss. And traditionally, not what the reinsurers like to offer, but based on the competition, the marketplace having those structures have been more common. So I think that’s something we look at as well. And again, we like the casualty in most of our markets. So it’s true also outside the U.S., I think. And both on the insurance and reinsurance, we have a decent-sized portfolio outside the U.S. Just, I wanted to make sure we mentioned that.

Cave Mohaghegh Montazeri, Analyst, Deutsche Bank1: Yeah. That makes sense. 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 into 2026, how you rank the appetite and attractiveness of new business between the three segments in terms of capital deployment?

François Morin, CFO, Arch Capital Group: Yeah. I mean, no question that reinsurance has been the last couple of years, definitely a very attractive market for us. And we’ve deployed meaningfully. You saw our growth, and you saw how we performed in that market. As the market comes down, I think it’s less ahead of the others, I would say. So if I had to rank them today, I’d say, yeah, reinsurance to me is still ahead. But the gap has narrowed. It’s come down. Reinsurance is doing still very well, very attractive. But I think the gap between reinsurance and insurance is not as significant as it was a year ago. And mortgage, we haven’t had a question yet on mortgage. I mean, if it’s a good thing, we love it, right? I mean, it’s a great business. It’s steady. It’s been a great source of earnings for us. Again, we’ve laughed about it.

We talked about it on prior calls. Which one of you three kids do you like the most or like the least or not like as much as the others? We love them all, right? We love all three of our segments. But certainly, 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.

Cave Mohaghegh Montazeri, Analyst, Deutsche Bank1: Thank you very much.

François Morin, CFO, Arch Capital Group: You’re welcome.

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

Matthew Heimerman, Analyst, Citi: Hey. Good morning. A couple of questions. One was just with respect to the MCE re-underwriting, you’ve been asked about the premium consequences of that. I’d be curious about the margin consequences of that.

François Morin, CFO, Arch Capital Group: Well, I mean, you’d like to think that the business that we’re shedding is the worst performing business. So absent any other event, you would think that our margins should improve. But that doesn’t factor in kind of that comment obviously has been true. But the market in front of us will may be different than what we had assumed. So on the one hand, no question that the non-renewals 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 improving. So that’s been good. But what’s margins going forward? Hard to comment on that.

Nicolas Papadopoulo, CEO, Arch Capital Group: Yeah. And I think some of the program we’ve shed are actually cat-exposed. So the upfront result may have looked okay, but we think it’s a bad allocation of capital, and we can get better return by deploying that capacity elsewhere. So I think especially on the reinsurance side. So I think those are the decisions we’ve made. I mean, some of them are running hot, but it’s a few of them that we decided to shed were more cost of capital, opportunity being better elsewhere. And I feel that again, to answer your question overall, I think we’re still thinking that the business could run one day in the low 90s, so.

Matthew Heimerman, Analyst, Citi: Got it. Appreciate that. I guess another question I had was, given the QRTCs, any opportunistic investments you’re thinking about making in tech or ops or accelerating existing investments?

François Morin, CFO, Arch Capital Group: Not as a direct result. I’d say we will make and have made investments over time based on what we’re trying to accomplish and trying to streamline operations, trying to be more efficient, and whether it’s improving some systems, etc. So I think that nothing is different in that respect. The fact that certainly reinforces the value for sure for us, and it’s been there throughout, the value of having a presence in Bermuda. And I think we are committed, remain committed to the island. So that reaffirms that. But in terms of making, I’d say, direct investments as a result of the QRTCs, I don’t think it’s the case. It’s more based on need and based on what we were trying to accomplish.

Nicolas Papadopoulo, CEO, Arch Capital Group: I think it’s really an offset to the high cost of doing business in Bermuda. I think that’s smart from the Bermuda government standpoint to make their jurisdiction more attractive to companies like Arch.

Matthew Heimerman, Analyst, Citi: Yeah. That’s totally fair. And then I just normally want to ask a third, but your comment on the demand quote should potentially changing for casualty reinsurance just made me curious whether or not you are seeing any real changes to subject premium bases in any of your reinsurance treaties at this point that’s informing that, or is that unrelated?

Nicolas Papadopoulo, CEO, Arch Capital Group: So, in terms of, can you provide a?

Matthew Heimerman, Analyst, Citi: Well, I’m just curious. 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 updated information from cedent on the underlying subject premium bases. I’m just curious whether or not 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 to subject premium bases next year.

Nicolas Papadopoulo, CEO, Arch Capital Group: So what you describe, I think it’s true on the other property companies that wanted to go aggressively into the excess and surplus property side or energy, have that revised to the downside their projections. I think on casualty, what I was referencing is more cedents retaining more. But I think the underlying business is still growing. So I’ve had that would not be the reason.

Matthew Heimerman, Analyst, Citi: Got it. Thank you.

François Morin, CFO, Arch Capital Group: Yeah. But after that, I think, man, just to be clear, we do—I mean, that’s something we look at every quarter. So we have been very active internally, certainly in 2025, and that will remain, making sure that, yes, we get premium projections from the underwriters, from the teams. And we obviously superimpose some of our own views based on where we think the business may end up. So we certainly don’t want to be in a position where we have to make a massive downward kind of 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 readjust our premium projections based on market conditions.

Matthew Heimerman, Analyst, Citi: Got it. Thank you for that call. I appreciate it. Have a great day.

François Morin, CFO, Arch Capital Group: Yep. Thank you.

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

Meyer Shields, Analyst, KBW: Great. Thank you so much. Two quick, you mentioned there were a couple of expense items in the quarter besides the tax credits. Can you tell us where?

Nicolas Papadopoulo, CEO, Arch Capital Group: Kenneth, hear you.

Conference Operator: I’m sorry. Yeah. I mean, the line broke down. I apologize. I don’t know if it’s our side or it’s Meyer. It’s the caller.

Meyer Shields, Analyst, KBW: Excuse me. No, 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, CFO, Arch Capital Group: Well, I think I touched on I mean, the Bermuda tax credits, I think the intent of the comment was that Bermuda tax credits, at the core, is very much a function of how much presence we have in Bermuda and the direct payroll-related kind of expenses. So yes, we have expenses in Bermuda in all three of our segments and also in our investment team. So that is reflected as an investment expense and the corporate line. So again, 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 single millions of dollars. I mean, it’s not going to be noticeable to the outside world.

So in terms of modeling, I would say, yes, there’s some benefits, but it’s so I mean, it will be buried 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 kind of isolate it.

Meyer Shields, Analyst, KBW: No, no. I appreciate that. You were very clear, 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, and I just didn’t know where they were.

François Morin, CFO, Arch Capital Group: I mean, there’s nothing else really to point out. I mean, sorry for the confusion, but the idea was just that. There’s nothing else to point out that was favorable in terms of expenses that were, again, that we should highlight or identify.

Meyer Shields, Analyst, KBW: Okay. Fair enough. And then final question. 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, CFO, Arch Capital Group: I would say no. I would say no. I mean, again, we’re talking, again, $2,300 million of written premium that we’re shedding on a written premium base of $8 billion. And you do the math from there. I would not factor in any meaningful improvement in the acquisition ratio for the insurance segment.

Meyer Shields, Analyst, KBW: Okay. Okay. Very helpful. Thank you.

François Morin, CFO, Arch Capital Group: You’re welcome.

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

Cave Mohaghegh Montazeri, Analyst, Deutsche Bank0: 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?

François Morin, CFO, Arch Capital Group: Yeah. I mean, that’s been right. So we wrapped up the first year, and we set up an asset at the end of 2023 that we started amortizing in 2025. So the $1.2 billion now roughly came down by about $100 million in 2025. And we are going to keep amortizing that in 2026. And depending on where the law goes in Bermuda, maybe that asset goes away. We just don’t know. I mean, it’s not our decision. Obviously, we follow the Bermuda law. But there’s been talk that depending on negotiations or kind of what the Bermuda government ends up doing, that this asset could be could no longer be an asset to us at either late fourth quarter 2026, or maybe early part of 2027.

Cave Mohaghegh Montazeri, Analyst, Deutsche Bank0: Okay. Perfect. And then I just wanted to ask on your view of M&A in this environment. I know there’s been a couple of deals announced in the past month or so. And with how your sort of debt cap is stacking up, you’re kind of naturally deleveraging over time and just anything on leverage or M&A?

Nicolas Papadopoulo, CEO, Arch Capital Group: Yeah. So on M&A, I think our position hasn’t changed. So we like strategic assets. So anything that can really improve our platform or add lines of business or help us move forward into something we were planning to do and buy versus build. I think we look at everything else, but at this stage, especially in terms of where the market is, I think efficiencies, it will have to be an amazing deal for us to really pursue it. And nothing’s impossible, but I think it’s unlikely.

Cave Mohaghegh Montazeri, Analyst, Deutsche Bank0: Great. Thank you for the answers.

Matthew Heimerman, Analyst, Citi: You’re welcome.

Conference 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, CEO, Arch Capital Group: Yes. Thank you, everyone, for spending an hour with us. Again, another pretty damn good performance in 2025. And again, thanking all the employees for the hard work they did to get us there. And I think we’re pretty much ready to go for 2026, and we’ll talk to you next quarter. Thank you.

Conference 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.