Good day, ladies and gentlemen, and welcome to the Q3 2023 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 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 will make reference to certain non-GAAP measures of financial performance. The reconciliations to GAAP for each non-GAAP financial measure can be found in the Company's current report on Form 8-K furnished to 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. François Morin. Sirs, you may begin.

Thank you, Gigi. Good morning, and thank you for joining our third quarter earnings call. I hope everybody is safe and well. Yesterday, we reported another excellent quarter, highlighted by strong performances from each of our three operating segments that resulted in an annualized operating return of 25% and a 4% increase in book value per share. Overall, our teams capitalized on good underwriting conditions and relatively light catastrophe losses to produce an outstanding $721 million of underwriting income in the quarter. Our property and casualty teams continued to lean into favorable market conditions to drive $3 billion of net premium, up 26% from one year ago. Mortgage insurance once again delivered impressive high-quality underwriting earnings that we redeployed into our P&C segments where opportunities abound. Broadly, we continue to achieve rate increases above loss trend in most sectors of the P&C market. Although rate increases are slowing in some lines, they are reaccelerating, which is a good reminder that there is not a single insurance cycle with many facets. As always, Arch is well-positioned to navigate across these many cycles by reallocating capital to the segment with the best risk-adjusted returns. One of our core differentiating principles is that our underwriters are aligned with our shareholders through our unique compensation structure. Our underwriting teams are always seeking to maximize opportunities as long as they meet our shareholders' targets. As we near the end of 2023 and look ahead to 2024, I believe that although the dynamics may shift, this hard market will continue to support profitable growth. Let's take a moment to recap the current state of the market and where we are likely headed. I see it as a play in three acts. The first act, the current hard market started in primary liability insurance in 2019 and then had the unique circumstance of a two-year pause in claims activity due to a global pandemic. The second act introduced Hurricane Ian as a main character where property reinsurers had to adjust both their pricing and risk appetite. In addition, capital got more expensive, and the industry had to respond to meet new expectations from investors. While property has been the most recent driver of this market, as we move into act three, we are faced with increasing evidence that casualty rates were widely underpriced and oversold during the last submarket that needed to increase. We expect this third act of the extended hard market, already one of the longest in memory, to persist until the industry's reserving issues are resolved and until capital rates generate positive results. Arch is well-positioned to capitalize on this operating environment. As new hard market underwriting opportunities arise, our incredibly nimble reinsurance group allows us to grow more quickly and significantly than our insurance group and is, therefore, where we are most likely to deploy capital first. Today, market trends point to a reinsurance-driven general liability hard market, and we stand ready to act. The third act has very started, but things are very promising for Arch. Now some color on our operating segments. Our reinsurance group has once again driven our growth with third quarter net premium written of $1.6 billion, up 45% from the same quarter in 2022, and 60% over the last 12 months. Underwriting performance in the reinsurance group was excellent with a combined ratio of 80% for the quarter. Our expectation is that we will continue to see hard property market conditions into next year's renewal cycle as uncertainty and loss activity remains elevated. As noted above, we expect increased opportunities in liability as well. Our insurance group also remains in growth mode in both our North American and international units, while net premium written in the Insurance segment, up 16% over the past 12 months, are more modest than in reinsurance, they are more broad-based because of our focus on small- and medium-sized specialty accounts. Underwriting income continues to build with increased earned premium and a strong combined ratio of 90.9%. Today, there are still plenty of opportunities to grow profitably in insurance. Property and short-dated lines pricing in terms and conditions remained very strong with rate increases in excess of 15%. The casualty pricing is increasing in response to overall casualty trends in the market and our programs unit continues to achieve rate increases above trend. Professional liability rates softened in the quarter, with net premiums written down 9% in the third quarter of '22. We share the marketplace sentiment about the directors and officers segment, where both IPO and M&A activity decreased, at the same time as pressures from competition and security class action activity increased. However, returns in that segment are still strong. In the same vein, we maintained a positive outlook on cyber pricing on an absolute basis despite rate decreases in the 15% range. Our outstanding mortgage group continues to deliver quality earnings for our shareholders and a higher persistency of our in-force portfolio helped offset the slight decrease in new insurance written, which has been affected by lower mortgage originations. Although we tend to focus our comments on the U.S. primary mortgage insurance market, it is worth noting that nearly 40% of our mortgage segment underwriting profit this quarter came from non-U.S. operations compared to just over 10% in 2017. International business represents a significant growth opportunity for the mortgage group at Arch and our strategic decision to diversify our mortgage operations is yielding positive results that further differentiate Arch from our competitors. We are currently in a positive cycle on the investment side of our business, where increasing cash flows from growth are being invested into today's higher yield environment. New money rates are well in excess of our book yield, which should continue to boost our investment income over time and provide us with an additional ongoing tailwind. In late October, which for baseball fans means it's time for the World Series, baseball is somewhat unique in that it's one of the few team sports that isn't limited to a specific length of time. You can score as many runs as possible until the other team gets three outs. To me, the current hard market feels like a baseball game. We know there's only nine innings to be played, but we have no idea how long those innings will take. We've got a great lineup, and we're happy to keep paying our singles, doubles, and occasional home runs until the beginning is over. At Arch, we remain committed to being good stewards of the capital entrusted to us. We do that by following a tried-and-true data-driven approach that maximizes the capability of our diversified platform, diligently adheres to a cycle management philosophy, and is centered around superior risk selection and prudent reserving. All the while, our underwriters are fully aligned with our shareholders. These principles are foundational to our playbook and underscore our long-term commitment to superior value creation. As we close out 2023, we have significant momentum in all three of our businesses and a reliable and high-quality earnings engine in our mortgage group that are helping fuel our growing investment base. All the pieces are fitting together nicely, and we are well-positioned for the future. Now I'll call François up on the on-deck circle, and we'll return to answer your questions shortly.

Thank you, Marc, and good morning to all. Thanks for joining us today. To add to the baseball team, I would also emphasize that while this long winning streak has certainly been fueled by a timely and dynamic offense, we're also very much aware that team defense has played an important role in our success. We've been working hard not to waste any offensive production with careless errors and by executing well actively and on the field. We produced exceptional third quarter results from high-quality earnings across all our lines. The highlights of this team effort are numerous and include after-tax operating income of $2.31 per share for an annualized operating return on average common equity of 24.8% and a book value per share of $38.62 as of September 30, up 4.3% in the quarter and 18.4% on a year-to-date basis. Similar to the quarterly results, our reinsurance segment grew net written premium by 45% over the same quarter last year, led by the property other than catastrophe line, which was 73% higher than the same quarter one year ago. As for our property catastrophe business, it's worth mentioning that the net written premium in the third quarter one year ago included approximately $34 million of reinstatement premiums, mostly as a result of Hurricane Ian. If we adjust for the impact of reinstatement premiums, our growth in net written premium for this line would have been approximately 64% year-over-year. The quarterly bottom line for the segment was excellent with a combined ratio of 80%, 73.5% on an accident year ex-cat basis, producing an underwriting profit of $310 million. The Insurance segment had another very strong quarter, with third quarter net premium growth of 11% over the same quarter one year ago. Similar to last quarter's results, we experienced good growth in most lines of business with the main exception being professional lines where the market remains competitive, particularly in public directors and officers liability. If we exclude professional lines, net written premiums would have been 20% higher this quarter compared to the same quarter one year ago. Overall, market conditions for our insurance and reinsurance segments remain attractive, and we expect the returns on the business underwritten this year to exceed our long-term targets by a solid margin for some business units. Profitable growth during periods of favorable market conditions is one of the hallmarks of our cycle management strategy, and the current hard market is definitely giving us the opportunity to deploy meaningful capital in many areas. Our mortgage segment's combined average has consistently been a league leader, and this quarter was no different with a 4.7% combined ratio. Net premiums earned were in line with the past few quarters across each of our lines of business. Included in our results was approximately $98 million of favorable prior year reserve development in the quarter, net of acquisition expenses, with over 75% of that amount coming from U.S. mortgage insurance and the rest from other underwriting units. Our delinquency rate at U.S. mortgage insurance remains low based on historical averages, and close to 85% of our net reserves at U.S. mortgage insurance are from post-COVID accident periods at the end of the quarter. Across our three segments, our underwriting income reflected $152 million of favorable prior-year development on a pretax basis or 4.7 points on the combined ratio was observed across all three segments, driven by short-cat lines. Current accident-year catastrophe losses across the group were $180 million, approximately half of which are related to U.S. severe convective storms, with the rest coming from the Lahaina wildfire, Hurricane Idalia, and other global events. Pretax net investment income was $0.71 per share, up 11% from last quarter as our pretax investment income yield was up by approximately 18 basis points since last quarter. Total return for our investment portfolio was a negative 40 basis points on a U.S. dollar basis for the quarter, as our fixed income portfolio was impacted by the increase in interest rates during the quarter and most other asset classes and negative returns in line with broader financial market indices, such as the S&P 500, which was approximately 3.7% in the quarter. Net cash flow from operating activities has been very strong so far this year in excess of $4 billion, which has helped grow our invested asset base by approximately 20% in the last 12 months. With new money rates in our fixed income portfolio comfortably above 5%, we should see continued meaningful tailwinds in our net investment income. Turning to risk management. As of October 1, on a net basis, our peak zone natural cat PML for a single event 1- to 250-year return level remains basically unchanged on a dollar basis from July 1 and now stands at 10.1% of tangible shareholders' equity, well below our internal earnings. Our capital base grew and got stronger during the quarter and now stands at $18 billion. Our leverage ratio represented as debt plus preferred shares to total capital is currently under 20%, which provides us with significant flexibility as we look to deploy capital as opportunities arise. With these introductory comments, we are now prepared to take your questions.

My first question was, hoping to get some thoughts on the January 1 property cat renewals on the reinsurance side. So where do you think rates end up next year on a risk-adjusted basis?

I think it's still early. There's a lot of activity in the marketplace as capital and people are positioning themselves at various conferences. However, our team generally agrees that we will see improvements on January 1, 2024, although not as significant as those on January 1, 2023. We do anticipate some slight improvement in the reinsurance area. Additionally, this does not fully capture what we believe has been the re-underwriting and capacity reallocation by our clients, and how that will be reflected largely depends on the clients themselves. Overall, we expect a very healthy and robust renewal for property on January 1, 2024.

And then on your casualty comments, Marc, you alluded to that being the third act and really leaning in there on the reinsurance side. I was hoping you could just give us a sense of timing on how that will play out. And if that's a '24 event, do you see the reinsurance book shifting more to casualty? Or do you think it's an environment where both property and casualty offer good growth opportunities for the Company?

It's a great question. I think we have a big play in property, as you saw between the property cat on the reinsurer side and the property other than core shares and things in between. So I think we're still very much keen on that line of the business. Liability is a bit harder to evaluate right now because I think the first order is going to have to be looking at our plan for 2024, looking at the reserve or development in the area, just talking about our clients. So it's going to take a little bit more time for people to figure out what it is they have and what they want to do with it going forward in '24. So we'll probably see some think that we may have a renewal that is a bit more not as stable as it once was. So I think we'll probably see the early innings, to go back to my baseball analogy, of that liability possibly at 1/1. The one beautiful thing about general liability, or the one bad thing depending on the cyber market you're in, is it's a longer-term development on a softening and on the hardening the general liability will take a little bit longer to get to where it needs to get to because it takes time for you to get the losses, reflect them in the reserving, and we have a good sense of where the ultimate results are from the prior year to adjust and help inform the pricing you're going to have over there. So this is going to be much more of a protracted third act than the second one was.

So first, just staying on casualty, there's been a lot of concern about reserves. And obviously, casualty is a fairly broad market category, but what are your thoughts on overall industry reserves in casualty, your reserves? And then maybe any color on the lines within casualty where you think there might be inadequacies and sort of the drivers of that or what's driven the reserve issues?

That's a great question, Jimmy. As you mentioned, it's a broad market. We've certainly experienced some pressure in our results. On both the insurance and reinsurance sides, we're noticing that some clients are acknowledging adverse developments, and the delayed reports from certain clients are becoming evident. We've aimed to be proactive in addressing these concerns, but we can never be entirely certain until the results are finalized. One area we are monitoring closely is the umbrella segment. On the positive side, we have a strong presence in that market during softer years. While we're feeling some impact, it isn't as severe as what others might be facing. It's a critical topic, and we will continue to keep an eye on it.

The one thing I would add, Jimmy, to what François just mentioned, is that you're hearing from the call that it's going to be more acute, more of a pressure point on the larger accounts than the smaller accounts. I think that the limits deployed there and the uncertainty and the combination of all these years developing is a little bit more probably a bit more of an urgency in that sector. So we expect the larger accounts, which we don't do a lot of on the insurance side, to be the first ones to really feel the pressure.

Okay. And then on mortgage insurance, I would have thought, and I think most investors thought that at some point, you would see sort of a step down in your results, still strong earnings, but maybe not as strong as they had been in the years following COVID because of the release of COVID-related reserves. Just wondering how we can sort of get an idea on how much of the COVID-related reserves are still on your books and could be released versus maybe an ongoing benefit from that in the next few quarters?

Well, I made the comment close to 85% of our reserves for U.S. mortgage insurance are from post-COVID years. So that would mean '20 and after. But let's remember that when we were coming out of COVID, we saw just a lot of changes in home prices, home price appreciation, and potential overvaluation. When we were setting reserves in the last few years, '21, '22, even up until early '23, that was a concern of ours. So we were somewhat, as you would expect us to be, more prudent in setting our reserves. How that plays out when delinquencies cure, we don't know. Could there be further favorable development? Maybe. But I'd say, for the most part, what's really been happening in the last couple of years is just a function of the housing market, which has been just explosive and then created a different set of kind of data points that we're trying to analyze, and that's what we based our reserves on. So hopefully, that gives you a bit of color on the question.

I'll just add one thing to me on the industry. The industry is extremely disciplined again, a very nice thing to see around us. So from an ongoing perspective, putting the reserve question aside, if I can talk to our expectations. We think that there's still risk on the horizon, but the credit quality of our portfolio, the housing supply imbalance that you hear from François, and the fact that we have a lot of healthy equity into the policies in force looks really, really good. And when we say that our mortgage growth is also doing very well, and that's what we mean. It's in a really good place.

While you posted double-digit insurance premium growth this quarter, the pace has decelerated a bit over the last two years. It looks like peak insurance premium growth was in mid-'21, and that might be a tough benchmark given you've grown a ton in professional liability, and you are shrinking that area, as you pointed out. Could we expect insurance premium growth at double digits to be sustainable going forward? Or should we see it fall to high single digits because of the professional lines headwind? And I'm just wondering if it's fair to assume that you prefer deploying capital into reinsurance now, all else being equal?

Yes. Regarding return expectations, I believe you are correct. Currently, reinsurance is generating very strong returns, and we anticipate this trend to continue into 2024 and 2025. However, within the insurance group, there are a few variables at play due to accounting issues and timing that could affect our results for one quarter. As François mentioned, I am pleased to see growth in areas we want to expand, as the market conditions are favorable. I also expect that some of the nonprofessional lines could perform even better going forward. I would not be surprised if we exceed 10% next quarter and into 2024. Therefore, I don't view this single quarter as indicative of a trend.

Right, very helpful. You slightly shortened the duration of your asset portfolio in September to 2.97 years from 3.03 years in June. It feels like you're taking durational asset mismatch because the mortgage insurance liabilities are much longer dated. Given the shape of the yield curve is beginning to show signs of steepening, I mean, would you consider lengthening your asset duration? Or do you feel comfortable with the sub-3-year duration level?

Good point. I think the duration is probably the lowest it's been in a long, long time, and that's just our investment professionals here again make the decisions, and there's obviously a little bit of tax impacts involved and kind of where they want to play at a certain point in time. But for sure, absolutely. If interest rates, we think the longer the curve ends up being a bit more attractive. I mean, we certainly consider extending the duration a little bit. And we've got a bit of room there anyway just to match with the liabilities to make sure that we're not mismatched there. So that's certainly something that we'll look at in the coming months and quarters, yes.

First question, it sounds like you are pretty constructive looking into 1/24. Can you maybe talk about your prioritization of capital? And maybe give us a way to think about maybe potential available capital you have to deploy into the insurance and reinsurance markets?

We are optimistic about the market heading into 2024. Both Marc and I believe it is a strong overall market, although some areas are performing better than others. The internal capital we've generated in the past few quarters positions us well to grow and seize the opportunities we anticipate. While we do not control the market, we do engage with it. If the market performs as positively as we expect, we will be ready to increase our share. Having capital flexibility has always been a priority for us, and our strategy has focused on ensuring we have sufficient capital to invest when the conditions are favorable. So far, we've managed to achieve that.

Yaron, at a high level, our perspective is different from that of our underwriting units. They initially question how much capital is allocated to them. I want to remind everyone that underwriting fees are tied to the business written, and we charge them for the capital they use afterward. Based on our planning and expectations, our message is that there are no capital constraints or issues affecting your areas. If the market improves and shows potential, feel free to deploy more capital if you choose. We have full support going forward as we pursue the business. After we've written the business, we will allocate the capital accordingly, as we do each year. Regarding property catastrophe, we're approximately 85% allocated to the reinsurance group for PML, as mentioned by François, because the returns on that side are generally more favorable. We also discuss capital allocation at the group level. In specific cases, we collaborate with both the Insurance and Reinsurance Groups, facilitated by Nicolas, to decide broadly where to allocate capital.

I appreciate that. And then certainly, I think the capital availability and the appetite to deploy is a very important part of the story. And I guess from that perspective, is there anything you can offer us in terms of an attempt to quantify the available capital? Or is that something that we'll just have to watch and see?

Yes. We have plenty of capital available. We're just uncertain about what the market will look like at the beginning of the year. So I would say it's a good idea to wait and see how things develop at that time before making any decisions about utilizing the excess capital.

Okay. And then my other question, just on public directors and officers and cyber, where we're clearly seeing a little bit of competitive pressure there. Do you still view rates as adequate there? And are they clearing the loss cost trends?

Yes, our return expectation on both these lines, cyber and D&O, is still very, very healthy.

Yes. With the high retentions this quarter in terms of premium ceded. Can you go maybe line by line or dig in a little bit about which lines of business you're retaining more? And is that a signal that you've gotten to the point where you have enough information that you love the profitability more and want to keep it yourself? Or is your looking at your capital thing, we have the capital deployed. So let's eat a bigger plates of the pie. How did that all come together?

I think you addressed the question very well. By posing a question to provide the answer, I believe everything you've mentioned is accurate. I will discuss the lines shortly. Your observation is spot on. We are entering a challenging market and still greatly value reinsurance. It is essential for various reasons, including limits management and risk management, as well as for the valuable information reinsurers provide about market conditions. We want to avoid being an outlier, so having this added value from reinsurance companies is beneficial. Regarding our strategy over the past three years, as François noted, we have been accumulating significant capital through our mortgage earnings, which has proven helpful for reinvestment and allows us to retain more net. At a high level, we are purchasing less on the liability lines, particularly those that experienced substantial improvement post-first act. We have definitely observed this trend in property, even though it remains a challenging line of business and quite volatile. We continue to maintain our losses on the catastrophe side and are also buying a significant quota share in that area. Overall, it is about balancing relief or volatility protection while benefiting from the information we receive. Having more capital has certainly enabled us to take on more net risk on our balance sheet.

When you achieve a 25% return on equity in a quarter, it indicates strong profitability, and it's likely that the large team involved would expect recognition for their efforts. Considering we haven't experienced a quarter like this in such an unusual year, how should we approach the recurring pattern and expense of discretionary compensation as it impacts our financial statements, and how does this compare to previous years?

Great question. In terms of timing, our incentive compensation decisions will be made in February of next year. However, throughout the year, we accrue expected bonuses based on our projected performance, with a true-up occurring in the first quarter when final amounts are determined. We are monitoring this closely, as I'm unsure if there will be an early adjustment in the fourth quarter. We want to ensure we don’t distort the first quarter numbers for next year. The Board ultimately decides how much money can be allocated for bonuses, so we aim to be cautious and avoid introducing significant volatility in the operating expense numbers. We'll definitely evaluate this in the fourth quarter to ensure we don’t overlook anything.

First one I had is on the attritional loss ratio in the reinsurance segment. I was just thinking if you could give us a little more color around just what's driving this year, favorable performance year-over-year? And if there's anything new as we should be thinking about or if it's just the pricing environment being as strong as it is?

Two quick points. First, we've mentioned before that reinsurance is best analyzed over a trailing 12-month period. While quarterly results can show both positive and negative trends, we've advised in previous quarters with increased traditional claim activity not to panic or overthink it. We encourage everyone to focus on a trailing 12-month view for a clearer understanding of the long-term prospects of this segment. Secondly, we've seen more growth in property compared to the general liability line. As a result, our ex-cat combined ratio should likely decrease, and it has due to the significant growth in both property cat and property other than cat.

Got it. Very helpful. I wanted to ask a follow-up on the comments you made on casualty reinsurance. And I'm just interested in what is changing that's causing more of this commentary to sort of bubble to the surface? I mean, we've heard it from some of the European reinsurers as well. Is it, I mean, is it truly just that they're starting to see reserves develop in a poor way for some companies? Or is there something that's changed about the social inflation environment? I mean, what do you think is the underlying driver or drivers?

Yes, I think the industry is experiencing several simultaneous challenges that are negatively impacting our sector, particularly in written casualty. As I mentioned earlier, we have witnessed a slowdown in both core activity and settlement activity. Additionally, there is an increase in aggressive litigation funding from the plaintiff bar, which can be viewed as a form of social inflation, though this is not a new phenomenon. We've seen a lull in the market, following a spike between 2020 and the middle of this year. Currently, we are in the process of updating our understanding of losses and adjusting to the current demand. Simultaneously, the industry as a whole is facing pricing pressures, as business was priced in 2015 with inflation around 2%. Now, inflation is above 5, 6, or even 7%, depending on the source. As we reassess and reanalyze, it's crucial to factor in this higher inflation rate. This situation is a classic example of multiple challenges facing our industry, largely driven by economic conditions rather than any actions taken by the industry itself. I believe we are all collectively facing this issue. The positive aspect is that the industry is responding, which is something to appreciate. Other companies have acknowledged these challenges this quarter, and once an issue is recognized, the industry tends to be quite effective in addressing it. I think this response is coming quickly due to the overall environment, which is largely what is influencing the current situation.

Switching gears to the investment portfolio. The net realized losses were quite significant again this quarter. I understand they are not reflected in the main financials, but could you provide some insight? Are you realizing losses to benefit from higher rates, or is there some fluctuation from unrealized losses or possibly previous LPT transactions?

Yes. I mean it's mostly around kind of crystallizing some losses. I think it's a process we go through for each security on the fixed income side, where we make the determination. Is it appropriate to sell some of those and redeploy the proceeds at higher yields, and our investment team does that. So yes, there are going to be some realized losses coming through the fixed income. Obviously, the equity portfolio, which is not huge, but still there's fair value option securities, including equities that are effectively marked to market, and that comes through the realized gains of losses line in the income statement. So those are the two big items. There's a little bit of other stuff going on that is a little bit of the wheat. So, I wouldn't want to go there, but that's directionally hopefully that's just a normal course of action.

Okay. Lastly, is it correct to say that I should consider issuing a second comment letter, possibly under a different name, regarding the potential tax changes that may occur? Could you provide some insight into how things are expected to unfold in the base case over the next year or two? Furthermore, if everything goes as planned, will the increase in the tax rate occur in 2024, 2025, or both?

Yes. It's, again, very early. So too early, unfortunately, to give clear or kind of views on what we think could happen because they're still developing the laws and we expect more progress on that before the end of the year. But at a high level, it doesn't start at one start if it goes through until 2025. So, there's no impact for 2024 and we will be evaluating the and may publish some target tax rate that they will try to get to. But again, more to come. I think we'll do our best to keep you apprised of how we think about it probably on the next call. But until we have work to know any more clarity on where it's going to land, I think it's a bit premature to give you too many details here.

First question on, I guess, casualty reinsurance. This year, like January 2023, we saw not only significant increases in property capital. We saw changes in program structures with higher attachment points. Is there anything analogous to that, that we should see on the casualty side in 2024? Or is it just going to be a great story?

The buying pattern for general liability is primarily focused on quota share, which is the segment seeing a lot of purchases. This is where we prefer to allocate our capacity, especially for those who have followed us over the years. In terms of excess of loss, there isn't a significant amount being bought; people typically do not set limits at $60 million, $80 million, or $100 million. Therefore, the risk in this area is smaller. For events like a catastrophe portfolio, it's clear that exposure can build up to hundreds of millions of dollars. However, on the liability side, the situation is different. There are usually only one or two events that could significantly affect the general liability area. Thus, we expect to see more filters, primarily on a quota share basis, and a bit of excess here and there. The dynamics are quite different from the property market.

Okay. That's very helpful. And second question, and hopefully, I can ask this in a way that makes sense. When we talk about reserve problems from older accident years, ultimately driving casualty rate increases to accelerate. Is that the industry can over-earn in 2024 and backfill? Or is it because the recalculated full year's losses mean that current rates are actually not as adequate as we thought?

I think it's the latter. To be honest, it's somewhat of the former as well. People need to acknowledge their losses if they have them. As we discuss Meyer, you're also aware that the reserving process influences the pricing process. If our reserves are higher than expected, it will clarify your historical loss ratio. You need to analyze trends to help you determine the price increase you are aiming for. As past developments unfold, they will inevitably necessitate a price increase. Additionally, we will pursue a significant amount of large general liability precisely because your second point has historically fallen short on the rate level side.

Congratulations on the quarter. Just a quick question on your insurance segment's loss ratio year-on-year loss ratio improved for about 30 basis points. But given just the strong E&S pricing environment, shouldn't we expect a little bit better improvement in the loss ratio? Is there anything in the loss trends that probably differed from how you thought about your loss picks in the past, just see if there are any comments around that?

I believe the key point is our focus on being cautious with our initial loss estimates. We want to avoid being too optimistic given the significant risks and uncertainties that still exist in the market. This is particularly true in relation to casualty loss trends, which we are monitoring closely. Our strategy has always been to adopt a more realistic and slightly conservative initial loss estimate when we book business, and then we adjust based on incoming data. While we are optimistic about potential positive developments in the future, we are currently satisfied with our loss estimates.

My second question is a follow-up on the reinsurance core combined ratio. It was very strong, and you mentioned that much of it is due to a shift in business mix towards property, which has led to an improving combined ratio and loss ratio. Looking ahead, can we assume that the run rate combined ratio for your reinsurance segment will be closer to what you reported over the last two quarters and likely better than previous quarters? Is that a reasonable perspective for modeling?

I previously mentioned considering the trailing 12 months as a starting point to assist with your assumptions. When looking at the combined ratio in its entirety, if you break down the loss and expense ratios, the most recent quarter's operating expenses may be more sustainable due to our ability to generate premium growth with the same resources. However, regarding the loss ratio, it would be prudent to avoid placing too much emphasis on the latest quarter.

A couple of questions here, first on the MI segment. I know there's clearly some market pressures, but NIW definitely down year-over-year. And it looks like just looking at some of the stats you all have been losing some market share in the MI segment. Is that intentional? Are you any concerns about the outlook here on the MI as far as delinquencies? Or is it more related to perhaps just better use of capital elsewhere?

It's more the latter than the former. I would actually say tell you, right, that the market is better this year than it was last year. So, I would argue that we might change the way we intend the market over the next 12 to 24 months. But certainly, at heart, we have been saying that to you historically it hasn't changed last quarter, which in terms of relative returns based on the three segments on the underwriting segments. MI is a third one, but a very strong one, I would say, at this point in time. But again, it's more a reflection of the relative opportunity between the units than anything else. In the market, Brian, I'll tell you the market is very, very disciplined. We're very impressed by the industry or the MI industry.

Good to hear. And then I guess my second question, Marc, as I think about if this next leg is coming through the third act on the casualty reinsurance side. I guess that probably comes through a lot on the ceding commission side, if you get you get better ceding commissions, should we continue to see kind of the acquisition kind of expense ratios on the reinsurance side kind of moving down here as we head through 2024 given what's going on with the casualty reinsurance part, particularly since you play quota share?

I believe the current ceding commissions are about three percent. We'll see how that develops. There may be a slight change depending on the improvement in the underlying market as a reinsurance player. Currently, our acquisition costs in reinsurance are in the low to mid 20s. If you consider a broader portfolio, that could imply a 30% ceding commission, which might lead to a slight increase in acquisition costs. However, as François pointed out, we often discuss questions related to the expense ratio and loss ratio without restating the returns and considering whether the combined ratio reflects our returns given the losses and expenses we are currently facing.

Just on the MI. I’m wondering if you could expand on the growth opportunity internationally, you referenced in your commentary. I know Australia is a big market for you, but where else are you focused outside of the U.S.? Or is it mostly just Australia you're referring to?

Great question. In addition to the U.S. market, we also have credit risk transfer exposure related to U.S. mortgage insurance, specifically through the excess of loss program developed by government-sponsored enterprises over the past 11 to 12 years. Internationally, we have a significant presence in Australia, where we maintain a strong relationship and are satisfied with our progress. We’re even gaining market share there despite a slowdown in mortgage origination. Another area of development is in Europe, particularly with structured risk transfer involving 90% mortgage-backed credit risk transfer. This is similar to our credit risk transfer business in the U.S. and has been driven by banks needing to release capital due to Basel III regulations. We’ve been active in this space for a while now and have partnered with a well-established European company in this area. This segment is growing as there’s an increasing demand for capital, and it’s crucial for us to provide capital relief, which is something we're focusing more on. Thank you so much, everyone, for listening to our commentary this quarter. Looking forward to the end of the year. Happy Halloween. See you next time.

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