Arch Capital Group Ltd. Q1 FY2023 Earnings Call

Good day, ladies and gentlemen, and welcome to the Q1 2023 Arch Capital Group Earnings Conference Call. Before the company gets started with this update, management wants to first remind everyone that certain statements in today's press release and discussed on this call may constitute forward-looking statements under the federal securities 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. Additionally, certain statements contained in the call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends the forward-looking statements in the call to be subject to the safe harbor created thereby. Management also may make reference to certain non-GAAP measures of financial performance. The reconciliation to GAAP for each non-GAAP financial measure can be found in the company's current report on Form 8-K furnished on the SEC yesterday, which contains the company's earnings press release and is available on the company's website and on the SEC's website. I would now like to introduce your host for today's conference, Mr. Marc Grandisson and Mr. Francois Morin. Sirs, you may begin.

Thank you, Lisa. Good morning, and welcome to Arch's earnings call for the first quarter of 2023. I'm pleased to report that as a direct result of our premium growth momentum from the past few hard market years, we reported an excellent start to the year. Financial highlights include book value per share growth of 8.4% in the quarter and an annualized operating ROE of 20.7%. Our P&C underwriting teams continue to lean into attractive market conditions where excellent risk-adjusted returns remain available, growing net premiums written by 35% over the same period last year. A key element of cycle management is to respond aggressively when you see conditions change. Since 2019, we have seen the market psychology pivot to underwriting discipline and our underwriting teams were prepared to become a more willing provider of capacity. The current property cat dislocation has resulted in us targeting growth in property lines and this should further improve our returns as we continue to benefit on the cumulative effect of improved rates, terms and conditions. The $327 million of underwriting income generated from our 2 P&C segments this quarter is a testament to our commitment in the improved market. Our mortgage segment operates on a different cycle than the P&C, but it remains a significant contributor to earnings, generating a healthy $243 million of underwriting income in the quarter as our high-quality insurance in force portfolio remained stable at $513 million. And in our P&C growth, I want to emphasize that Arch is first and foremost, an underwriting company. Being an effective underwriting cycle manager means that our underwriters know that they have degrees of freedom in choosing to deploy capital across our diversified specialty-focused platform. Because we have a wider range of choices to allocate underwriting capital at any time, we can generate more consistent and stable underwriting income over the long run. Our growth in this hard market would not exist without our unwavering underwriting integrity. Our focus on underwriting leads through profit stability and better reserving visibility. And over time, these more stable results lead to greater balance sheet strength which in turn enables us to more aggressively deploy capital when we see market conditions change in our favor. At Arch, we're deeply committed to the art and science of underwriting because we know that underwriting integrity over time solidifies our conviction and agility to proactively respond to changing market positions. I'll now share a few highlights from our segments. First with P&C. Overall, the P&C environment continues to offer plenty of opportunities as evidenced by our growth. As you see in our premium numbers, the reinsurance market, in particular, is very attractive right now. Reinsurance typically reacts more quickly to the changing environment than primary insurance, and we are witnessing this phenomenon in these early stages of improvement in the property market. In our insurance segment, we continue to take advantage of favorable market conditions. For the past few quarters, property has seen significant rate escalation, which supported our 37% net premium written growth in that line of business during the first quarter of '23. The property market is still broadly dislocated, and we believe it will take further rate improvement before it finds equilibrium. Elsewhere, general liability rates have picked up again, and large account D&O is one of the few P&C lines that has decelerating rates. Overall, the market remains disciplined in its behavior, and we continue to obtain rates above trend. On our last earnings call, we noted property cat reinsurance dislocation at the 1/1 renewals, which led to significant effective rate increases. For the first quarter, reinsurance cat net premiums written roughly doubled over the same period in '22. From our perspective, the improved conditions at 1/1 are a positive leading indicator as we prepare for the mid-year renewals, where peak zone capacity remains tight. We are well-positioned to take advantage of this opportunity. Arch is an increasingly prominent provider of choice in the property and casualty space. This is to be expected over time because of our differentiated cycle management strategy. To execute our strategy, we continuously invest in improving our capabilities. We hire and retain top-tier talent and teams, and we seek to enhance our tools and technology with the aim of becoming a more intelligent, stable, and able provider of insurance products for our clients. Finally, our compensation structure rewards underwriting performance first and foremost. This is a powerful glue that aligns strategy with execution. Now let me move to mortgage. Our mortgage segment continued to generate solid underwriting income and risk-adjusted returns, largely because our portfolio was shaped with a focus on credit quality and data-driven risk selection. Credit quality in our mortgage portfolio is excellent, as demonstrated by our 1.65% delinquency rate, the lowest since March of 2020. Our disciplined underwriting approach has produced a portfolio with a more favorable risk profile, including higher fiber scores and both lower loan-to-value and debt-to-income ratios than our peers in the sector. Typical seasonality and tempered demand for housing in the first quarter affected new insurance written. However, production was in line with our expectations given the healthy market conditions. We're seeing pricing discipline across the MI industry as rates have increased over the past year. The MI industry's underwriting discipline is encouraging and allows us to maintain our focus on risk selection to achieve adequate risk-adjusted return. The MI industry is competitive, but faced with the current risk factors in the broader economy is acting rationally. As a result, our MI team continues to have opportunities to deploy capital. It isn't football season yet, but with the NFL draft beginning tonight, football is on my mind. Back in the 1960s, a football team from a small Wisconsin town dominated the sport, winning five championships in a decade. The team, as you all know, was the Green Bay Packers, and their coach was Vince Lombardi, widely regarded as one of the greatest coaches of all time in any sport. One thing that made Lombardi a great leader was his obsession with excellence and execution. During their dominance, a key part of their offense was a very simple play called the Power Sweep. The quarterback would hand the ball to the running back, who ran the ball to one side of the offensive line, and then the defensive line acted as blockers, allowing the running back to score a touchdown. No frills, no surprises. Opponents knew what was coming, but the execution was so precise, and nobody could stop it. We talk a lot about cycle management and underwriting discipline on these calls for good reason. It's hardwired into how we operate the company. They are not novel concepts. They're actually quite simplistic. The key, like with Lombardi's Green Bay Packers, is conviction and execution excellence. So day after day and year after year, we line up and essentially run the same play, write a lot of business when rates are high, and a lot less when rates are low.

Thank you, Marc, and good morning to all, and thanks for joining us today. As Marc highlighted, we kicked off 2023 with excellent underwriting results across all the segments, and our investment income continued its upward path, benefiting from a higher interest rate environment and strong operating cash flows. For the quarter, we reported after-tax operating income of $1.73 per share for an annualized operating return on average common equity of 20.7%. Book value per share was up 8.4% in the quarter to $35.35, reflecting not only our strong results, but also the unwinding of approximately $350 million of unrealized losses on our fixed-income portfolio net of taxes. Turning to the operating segments. Net premium written by our reinsurance segment remained on its strong trajectory and grew by 51.5% over the same quarter last year. This growth occurred across most of our lines of business, with a particular emphasis on property lines, marine and aviation, and other specialties. The overall bottom line of the segment was also very good with a combined ratio of 84.3% and a relatively small impact of $59 million from current accident year capacity lawsuits. It's worth mentioning that our top line reflects the impact of some larger transactions that are not uncommon during periods of significant market dislocation. We cannot tell whether the frequency and size of these transactions will recur in future periods, but we are optimistic that market conditions will remain attractive for the foreseeable future. The Insurance segment also performed well with first quarter net premium revenue growth of 19.1% over the same quarter 1 year ago and a combined ratio, excluding cat, of 89.8%. There were a handful of items affecting our top line significantly this quarter, such as a large transaction in the lenders and the warranty line of business and very strong market conditions in the property, energy, and marine lines of business, both positives, which were partially offset by the headwinds of weaker foreign currencies against the U.S. dollar compared to a year ago. We estimate that on a constant dollar basis, our net written premium growth would have been approximately 230 basis points higher than reported in our financials. Most of our lines of business still benefit from excellent market conditions both in the U.S. and internationally, and we remain positive about our ability to grow and write business at expected returns as we approach the second half of the year. Our Mortgage segment had another excellent quarter with a combined ratio of 20% from strong performance across all our units. Net premiums earned were up slightly on a sequential basis reflecting the increased persistency of our insurance in force during the quarter at U.S. MI and good growth in our units outside of U.S. MI. We recorded approximately $73 million of favorable prior reserve development in the quarter, with approximately two-thirds coming from U.S. MI and the rest spread across our other units. Activity this quarter in U.S. MI was particularly strong as we benefited from the highest first-quarter cure rate we have seen in the past six years, excluding 2020. At the end of the quarter, over 80% of our net reserves at U.S. MI are from post-COVID accident periods. Overall, our underwriting income reflected $126 million of favorable prior year reserve development on a pretax basis or 4.3 points on the combined ratio and was observed across all three segments. Quarterly income from operating affiliates stood at $39 million and was generated from good results at Coface, Somers, and Premia. As you may already know, Coface recently declared a dividend of EUR 1.52 per share, which should result in a EUR 68 million dividend to Arch in May, subject to Coface shareholder approval. Although this amount will not benefit our income statement next quarter, we believe it reflects very well on Coface's results and prospects for the periods ahead. Pretax net investment income was $0.53 per share, up 10% from the fourth quarter of 2022 as our pretax investment income yield exceeded 3% for the first quarter since 2011. With new money rates in our fixed income portfolio holding relatively flat in the 4.5% to 5% range, we should see further improvement in our net investment income returns in the coming quarters. Total return for our investment portfolio was 2.54% on a U.S. dollar basis for the quarter, with all our strategies delivering positive returns. The contribution to the overall result was primarily led by our fixed income portfolio, which benefited from slight downward pressure on interest rates during the quarter. While fixed income market volatility was elevated intra-quarter because of the stress in the U.S. and Swiss banking systems and the implications for monetary policies of central banks, spreads at quarter end were generally consistent with those at year-end 2022. The overall position of our investment portfolio remains neutral relative to our target allocation, and we are well positioned to capitalize should there be further dislocation in the capital markets. Of interest, our commercial real estate exposure is distributed across a variety of strategies. Our commercial real estate accounts are only 6% of Arch's investment portfolio, are highly rated with a low loan-to-value ratio and are more concentrated in multifamily housing investments with minimal positions in the office properties. The acquisitions are concentrated with large money central banks with no significant exposure to U.S. regional banks. Turning to risk management. Our natural cat PML on a net basis stood at $1.69 billion as of April 1 or 8.1% of tangible shareholders' equity, again, well below our internal limits at the single event 1 in 250-year return level. Our peak zone PML is currently the U.S. Northeast and reflects some pockets of increased capacity that we deployed at April 1 in response to good market opportunities ahead of the more active renewal period at June 1 and July 1. In summary, we remain very positive on the current market and the opportunities ahead of us across all the segments. As the current expected returns, we believe deploying meaningful capacity in our businesses currently represents our best option to maximize returns for the benefit of our shareholders. Our commitment to being active yet disciplined capital allocators remains a core principle of ours that should lead to long-term value creation and success. With these introductory comments, we are now prepared to take your questions.

The first question comes from Elyse Greenspan of Wells Fargo.

My first question, Marc, in your introductory comments, you said that we're in the early stages of improvement in the property market. We've seen strong rates at January 1 that have persisted into April 1. And my sense is that could persist through the midyear. So could you just comment on what you mean by early stages and how you could see this playing out during the rest of 2023 and into 2024?

Very good question, Elyse. I think when we have a dislocation such as the one we sort of realized and experienced after Ian in the fourth quarter of last year, the renewals took place on the reinsurance place at much higher rates by 30%, 50%, 60% price and rate increases. Obviously, you have heard that on other calls. We had the same experience. The reason primary insurers are the first to move is because they must commit the capital for a 12-month period. Now we have a lot of portfolios from the insurance side. This is what I think is going to be leading the market and continue to underscore and support the market is the insurance portfolios, which are going through a reoptimization and realigning of capacity, pricing terms and positions that are widely spread across the industry. But an insurance product does not get all renewed at 1/1, right? The renewal takes place over a 12-month deal. So what we're seeing and hearing right now is the market psychology is squarely in favor of obtaining improved terms and positions on the primary side, which will then lead to further improvement from the reinsurance side. Now this will take 12 to 18 months to really take hold, and we believe, which is actually a little bit positive from our perspective. We should see that improvement continue for more than this year. We expect the underlying property improvements to be there for 2, maybe 2.5, maybe 3 years, which is a significant position to be in for insurance. So first, the reinsurance reacts. The primary side is slower to adjust but shows positive trends as the change creates momentum and improves the portfolio. This is how a hard market develops and unfolds over time, and it's a very promising scenario for us.

That's helpful. Then could you give us a sense if in your margins in both the insurance and reinsurance, did social inflation or financial inflation impact how you booked the current accident year in both insurance and reinsurance?

Yes. So the way we operate and the way we put our reserving or loss ratio, you won't be surprised to hear from us is we tend to take a prudent stance. That's the first step that you need to understand. Our game plan is to look at trends and rate levels on a quarterly basis, modifying if we have a good reason to do so. We book it to a prudent confidence interval, not playing too close to the average because we want to have protections as we navigate uncertainties about the future. So overall, we assess reserving line-by-line, taking into account inflation in various forms and adjusting our loss ratios accordingly. In our results, you will see reflect a sum total of the aggregation of all of these careful decisions. Our tendency will not depict all the good news right away. We tend to be cautious. We must be careful and thoughtful in recognizing improvements.

And maybe just one more, sticking there, Marc. Right? In the reinsurance segment, right, the growth was exceptionally strong, but the underlying loss ratio did tick up from last year. And I think part of that there’s always noise in each quarter, and it does take time to earn in this business for January 1. But can you help us kind of put that all together and just give us a sense of the margin profile of the reinsurance business over the balance of the year?

Yes. I'll take that one, Elyse. I think a lot of interest people obviously look at the quarterly numbers. Our view is we look at it, but we don't lose sleep over it. I think we look at long-term trends. We look at the quality of the business, how it prices, and what the expected returns are when we find the deals. But specific to this quarter, as I mentioned, didn't give you a whole lot of specifics, but there are two transactions that really distorted a little bit our ratios with higher loss ratios and lower acquisition. So, yes, you saw a bit of movement on both the loss ratio and the combined ratio. The ex-cat accident year loss ratio was negatively impacted by 2.2 points. So it's there, but I wouldn't consider it a long-term trend. It's just the reality of the business we've encountered this quarter.

And the next question is coming from Jimmy Bhullar of JPMorgan.

So first, I had a question on your comments on pricing, obviously very positive, both in reinsurance and insurance. But can you distinguish between pricing in both reinsurance and insurance on property and more of the cat-exposed business versus the casualty lines?

Yes. So the last numbers we heard, it's a good question. Last number we heard on the primary side, we're looking at pricing, depending on the cat exposed, obviously more acute, but rate increases of 40% to 50% plus, definitely, with a little bit less if you're inland, maybe 10% to 15% increase. But it's clearly a push for rate increase. However, what's not fully reflected are underlying terms and conditions, including rising deductibles. Additionally, insurers must now have an up-to-date valuation for properties seeking coverage, something the industry has historically neglected. This increase in clarity actually enhances pricing accuracy. The market is also experiencing a shrinking of capacity as individual players are pulling back. This trend is impacting insurance portfolios, resulting in three different pricing phenomena. On the reinsurance side, adjustments are slightly more uniform, but similar overall trends apply. The rates are moving together, but the more acute cat needs bring significantly higher pricing, evidenced by critical zones of capacity demand.

And then just on the MI business. You had very high cure rates. I'm assuming most of these are just on reserves you put on around COVID when there were forbearance programs. And if that is the case, how much more of these such reserves do you have that will most likely be released over the course of this year?

Well, we still have some delinquencies that are in forbearance programs. I quoted that 80% of our loss reserves are from post-COVID periods. We don't have all the details around how much or by year, etc., but hopefully, that gives you a flavor of what may potentially be coming down the pike in terms of additional releases if conditions remain stable. I think the fact that unemployment levels are performing very well is a good sign. There is some pressure on home prices, but for the in-force book, we believe the credit quality remains excellent and that we are performing well. When we do go to cure those delinquencies over time, we anticipate this will help our bottom line.

The next question is coming from Tracy Benguigui of Barclays.

I'm trying to understand mechanically why an LPT type of transaction could add noise to your underlying loss ratio on the reinsurance side. Is it that you're not imposing a loss corridor and you're assuming losses would attach at inception? Or is it accounting on the premium recognition? If you could explain the mechanics, that would be helpful.

Sure. At a high level, these transactions typically look like limited. In terms of acquisition expenses, it's very small. If you think in a traditional quota share deal, the acquisition ratio could be 30%; that goes away. Then you're effectively just picking up losses and the investment income on the float is effectively part of the overall transaction return. So it changes the dynamic. On the underwriting side, it's usually booked closer to a 100% combined ratio within that type of range. The investment income you pick is significant and that impacts the overall bottom line return on the business.

Okay. Also, and maybe a little bit early, but can you discuss how June 1 and July 1 renewals are shaping up at this point? How would you compare pricing to what you saw in January?

We have been talking to our team quite a bit lately, and at a high level, the continuation of the hard market that we saw at 1/1 is continuing into June 1 and July 1 renewals, if not improving. However, I want to emphasize that 6/1 and 7/1 renewals are not finalized yet, and people are still very actively engaged in negotiations. The momentum suggests that it should be similar or better than the trends we saw earlier this year.

So how would you characterize the momentum? Do you see it being the same or better since January?

It's early days right now, and I don't want to venture a specific prediction because also need to recognize that the 7/1 of '22 was also a good renewal time. So it may not require as much pricing adjustments. Moreover, we believe that specific to Europe, we aren't as well priced as our risk exposure indicates. While we expect better rates, it may not reach the upswing of 1/1 which indicates peaks of available capital.

The next question is coming from Yaron Kinar of Jefferies.

I want to go back to the margins in reinsurance, the underlying margins. And even with the LPTs, the accident year loss ratio ex-cats still deteriorated a bit. I just want to understand the context of why that would be if we are seeing business mix shifting more to inherently lower loss ratio lines on an underlying basis and with the rate environment?

Yes, three things I'd say. First, we focus on overall returns. While what’s in front of you is just the underwriting side of it, we focus on long-term returns. Second, you've got to give us a little bit of a chance to earn the premium. I mean, the market was solid in '22 and improved at 1/1/23. We're a quarter into the year, so I think more benefits are on the road ahead. Third, as Marc said earlier, we will reassess as we gather more data. If the data shows that we were high, we’ll happily release those reserves and maintain a responsible outlook.

Okay. And then a second question just on cat. Can you maybe offer some color on the distribution between the various sources, whether it's Turkey or New Zealand floods, the European storms, and so on in both reinsurance and insurance?

Yes. The losses were minor for us. The biggest one for us was we had a $25 million loss in Turkey. We also had some participations in New Zealand due to the cyclone and floods. The U.S. related incidents were primarily related to the usual tornadoes and storms, which were mostly reflected in insurance but also had some noise in reinsurance. So, consider this a mix of smaller items, but Turkey was our largest loss this quarter.

Next question will be coming from Josh Shanker of Bank of America.

Yes. I was looking at the investment return. There are many ways to measure yield. Let me just take the investment income divided by the float. I'm getting about 2.76% for the quarter, making Arch the lowest burner on its float in your peer group. I know you have a more conservative portfolio that has also allowed you to redeploy quickly, but with new money yields maybe in the 5% range without taking any equity risk, do you have an opportunity to increase that yield, or do you feel you should still remain conservative in seeking yield?

Yes, we recognize that new money yields are higher. However, it becomes a question of crystallizing losses and accounting implications between statutory and GAAP. We want to do what is ultimately best for our shareholders. Sometimes we’re better off holding onto some investments rather than taking a loss on them and reinvesting the money faster. Regarding opportunities, we see more in alternative investments, which we have been growing our presence in the last few years. Alternatives generally represent more structured investments, where we expect better opportunities, although these do not show up as income but in equity method funds. We expect to see a pickup in this area going forward.

We're also considering the overall risk exposure across the enterprise. Given our push for underwriting growth, that's an important factor in our risk assessment.

And what's the new money yield right now for you?

We're targeting around 5%.

Okay. And then, look, I know that you do listen to your competitors' conference calls and think about what they're saying. It looks like the pricing environment is pretty attractive. I think that's universally viewed. A few of your competitors have said as much. And then when we look at their premium growth in the quarter, it's kind of tepid, especially on the insurance side. You guys are growing your net premium at about 20% right now. It's been going that way for a little while. Is business hard to capture? Is there a challenge to get the business you want, and you've been especially successful outmaneuvering your competitors? Also, why are you successful growing when others have not been able to do so?

From a rate acuity perspective, I mean, this is a core principle for our company. We have a robust process for validating assumptions and projections at the individual underwriter, group, and corporate levels. We are confident in our growth trajectory because we believe the returns are in our favor. However, this does not guarantee that we will attain our returns precisely as projected; in an uncertain world, we are betting on long-term expected results. We've been proactive in a generally contracting market since 2019, creating opportunities for clients that have fostered goodwill and relationships. When new business comes, producers will turn to us as we have established solid partnerships. In addition, our presence in the E&S market is timely, as it is currently growing. Our past three to four years of growth momentum has established valuable inertia that serves us well even in a competitive landscape. We aim to remain a desirable partner in the future and leverage the relationships we've built.

Thank you for the thorough answers. Congratulations to everyone for graduating from rounding to the nearest thousand to rounding to the nearest million.

A couple of questions for you. Just quickly, Francois, you gave us the loss ratio impact of the LPT. Can you give us what the combined ratio, maybe the premium impact just for modeling purposes?

The combined ratio was negatively impacted by 1.1 points; 2.2 in the loss ratio and all that cap, and the premium was $118 million.

Marc, looking at the 6/1 renewals in Florida, I guess, one, what is the impact of the legislation that was recently enacted having, you think, on that marketplace? Will it affect renewals, pricing capacity coming into the market? How do you typically think about Florida from a reinsurance perspective? Is it a market you'd like to play cat? Or do you prefer quota share? How do you consider the Florida market?

Regarding Florida, as for the second part, that's an easier question. We tend to be more focused on excess of loss rather than quota share for strategic reasons. This seems to also be where the market is migrating more towards at this time. The first part of your question, the impact of legislation, is interesting. While in Florida, we might as well be in Missouri, we need to see and evidence that these reforms will have a tangible effect. However, it's likely to take a while to see results. As we know, there will be claims made before the prices crystallize post reforms. Moreover, if prior year's losses are developing adversely, this may not be helpful to firms looking to renew. Therefore, we predict that the market will assess exposures differently but won't wholly credit for those reforms yet. So we expect some effect but not fully understood at this moment.

And the next question comes from Meyer Shields of KBW.

I have a technical question on the LPT side of things. Is it fair to assume that this is 100% combined ratio business as you write it? Or does the fact that it pertains to ... Well, let me stop there.

Yes, that's typically where we book it; plus or minus, that's where the combined ratio lands.

The profit contribution and margin, you see going up a lot more based on investment income than rating income.

Okay. And then speaking, I don't know if you want to talk about the transactions or the demand that you're seeing. You talked about, I guess, understand that we being a function of distress in the marketplace. Is this the market right now focusing on, let's say, the 2019 and earlier accident years where pricing was soft? Or is there interest in even more recent years because of loss trends?

Yes. The market is indeed focusing on that because reopening the courts post-COVID has increased uncertainty in pricing accuracy. We’ve heard about various types of inflation, which has led to greater scrutiny in pricing especially for years where rates were lower. We see many looking at these trends as they recast loss ratios to provide more assurance. This contributes to continued rate increases, particularly in general liability, as the industry works to ensure pricing is representative of risks involved.

Okay. That's helpful. And if I can just pick up on that because in your prepared comments you talked about GL rate increases ticking up a little bit. I haven't heard a lot of that. We've heard a lot on the property side. I was hoping to get a little more color.

Yes, the liability lines are, of course, largely led by auto, specifically on the umbrella side. However, general liability is also experiencing an uptick, especially internationally. We're keen to note that our book of business remains positioned well, as we're witnessing a reevaluation by others regarding lines of coverage. The last few quarters have contributed to a stronger focus on underwriting discipline, leading to the current market conditions for both GL and excess layers, reflecting some positive movement.

We have a follow-up question from Jimmy.

On your PMLs, they've gone up because you've written a lot more business and you're retaining a lot more. The 8.1% number that you mentioned, it's still lower than peers. Where would you feel comfortable taking it if the market environment remains favorable?

We believe it's important to note that our current focus is on the Northeast and the Florida Tri-County regions, which are at similar levels. The January renewals were more international and involved national accounts, not specific to the Southeast. We expect to see more activity during the June and July renewals. We anticipate that rates could increase if market conditions persist, potentially by 10% to 12%, which is a reasonable estimate based on our evaluations. However, we will need to wait and see how everything aligns during the renewal periods.

I'm not seeing any further questions. Would you like to have closing remarks?

Thank you, everyone, for listening to our story. It's a great one, and we are looking forward to additional good news in the July call. So thank you for everything.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.