Good day, ladies and gentlemen, and welcome to the Arch Capital 3Q 2025 Earnings Conference Call. This conference call is being recorded. Before we begin, we want to remind everyone that some statements made during this call and in yesterday's press release may be forward-looking statements based on our current assessments and assumptions, which involve various risks and uncertainties. As a result, actual results may vary significantly from those expressed or implied. For further information on the risks and other factors that could impact future performance, we encourage investors to review our periodic reports filed with the SEC, including our annual report on Form 10-K for the 2024 fiscal year. Additionally, any statements made during this call that are not based on historical facts are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. We intend for these forward-looking statements to be protected by the safe harbor provision. We will also refer to certain non-GAAP measures of financial performance, and the reconciliation to GAAP for these non-GAAP measures can be found in our current report on Form 8-K submitted to the SEC yesterday, which includes our earnings press release and is accessible on our website and the SEC website. Now, I would like to introduce your hosts for today's conference, Mr. Nicolas Papadopoulo and Mr. Francois Morin. Sirs, you may begin.

Good morning. And welcome to Arch's Third Quarter Earnings Call. We delivered record results in the quarter with over $1 billion of after-tax operating income and over $1.3 billion of net income both up 37% year-over-year. After-tax operating earnings per share of $2.77, another record, represented an 18.5% annualized operating return on average common equity. These results reinforce the strength of our diversified platform, which enables our underwriters to pursue opportunities and deploy capital across the enterprise. Meaningful contributions from all three segments combined with solid investment returns, pushed year-to-date book value per share growth to 17.3%. Our quarterly consolidated combined ratio of 79.8% reflects excellent underwriting and low catastrophic activity in the quarter. Big picture, our 9 months combined ratio of 83.6%, which includes the impact of California wildfires and severe convective storms, highlights the strong underwriting performance across our businesses. Now some comments about market conditions. As you have heard on other calls, competition is generally increasing. As cycle managers, we lean into the strengths of our brand, including underwriting discipline and using risk-based pricing tools to generate profitable business. We deployed capital into businesses we believe will generate superior risk-adjusted returns. However, given relatively weaker market pricing and an attractive entry point for our stock, we repurchased $732 million of shares in the quarter. Critically, our strong balance sheet and strong capital-generating capabilities permit us to both invest in our business and return capital to investors. Our objective is clear throughout the cycle: to maximize return for our shareholders over the long term. Importantly, I want to emphasize that we are actively looking to deploy as much capital as possible towards attractive underwriting opportunities. Our playbook remains consistent: allocate capital to attractive opportunities that meet our risk-adjusted target returns, pursue profitable growth while prioritizing renewals that meet our return thresholds, and take full advantage of our operating flexibility across insurance, reinsurance, and mortgage. Over time, this playbook has been key in enabling us to deliver consistently strong returns without regard to market cycles. I will now provide some color from our reporting segment, starting with our Property and Casualty Insurance Group. Underwriting income for the quarter was $129 million, up 8% year-over-year or nearly $2 billion of net premium written. Our combined ratio was 93.4%, with a current accident year-ex catastrophy combined ratio of 91.3%, reflecting the strong underlying margins of our insurance portfolio. The distinguishing strengths of our insurance segment is its breadth across specialty lines, areas where our team applied deep knowledge and experience to drive better risk selection. Successfully navigating a transitioning market demands that our underwriters employ the capabilities and experience they have developed to leverage our differentiated offerings and market leadership position as we look to drive profitable returns. When compared to the third quarter last year, we grew net written premium in North America other liability occurrence by 17%, supported by growth in middle market and double-digit rate increase in E&S casualty. Net written premium in our North America property and short-tail book increased 15%. Growth in middle market and property more than offset declines in excess and surplus property. International premium volume was essentially flat. The strategic element of our insurance growth is our middle market business in North America, which was significantly enhanced through the MidCorp and Entertainment acquisition last year. As discussed previously, the acquired business provides a significant platform from which we intend to build further scale in the middle market sectors. Importantly, it is already driving growth and yielding tangible returns. At the outset, we set three integration priorities for the acquired business: roll over the portfolio, remediate less attractive areas and separate from legacy systems. We have completed the portfolio rollover; remediation and separation are on target. Even though there is still work to do, we remain excited about this opportunity, which has been well received by our distribution partners. Next to reinsurance, which delivered another strong quarter with a record of $482 million of underwriting income, a 76.1% combined ratio was a significant improvement over last year's catastrophe heavy third quarter and illustrates our ability to generate attractive underwriting returns. Net premiums written were $1.7 billion, down roughly 11% year-over-year, reflecting current pricing conditions in short-tail and property catastrophe lines and increased retention by cedents. The diversity of our reinsurance platform means we aren't overly concentrated in any one line. For example, property catastrophe, which has been a hot topic of recent industry conferences, represents only 14% of reinsurance total net premium written for the trailing 12 months ended September 30. Our diversified reinsurance platform, supported by strong partnerships with our broker and ceding company across multiple lines and geographies, further enhances our ability to navigate a competitive environment. We continue to like our prospects in most lines of business and with improving conditions in casualty lines, our agility and ability to create opportunities is an advantage for us in this market. Moving to mortgage, which continues to operate exceptionally well, generating $260 million of underwriting income for the quarter. The segment remains on pace to deliver approximately $1 billion of underwriting income for the year and is a steady diversifying contributor to Arch's earnings. While mortgage originations remain modest due to affordability challenges, our high-quality in-force portfolio continues to outperform expectations. We are well positioned to support first-time homebuyers when the U.S. housing market eventually expands. The broader mortgage insurance market remains healthy with disciplined underwriting and stable pricing. Now turning to investments, where strong earnings and cash flow grew investable assets to $46.7 billion this quarter, with net investment income of $408 million, a quarterly record for Arch. We continue to position the portfolio to remain conservative in the current environment with an eye towards generating reliable and sustainable earnings and cash flows for the group. To conclude my opening remarks, I want to emphasize that we manage Arch with a long-term lens. That was true in the past, it is true today, and it will be true tomorrow. Market cycles span years, not quarters. And in a transitioning environment, our focus remains on producing superior returns and profitable growth. Our ability to remain successful is rooted in our differentiated customer experience, superior risk-based pricing, and the creativity of our underwriting teams, which are empowered and incentivized to generate profitable business aligned with shareholder value. Today, we are well positioned to outperform in an increasingly competitive market. Our strong capital position gives us the flexibility to invest in the most attractive risk-adjusted opportunities, whether in the business or by returning capital to shareholders. This transitioning market is a moment to lean into our strengths with confidence and clarity. I'll now turn the call over to Francois before returning to answer your questions.

Thank you, Nicolas, and good morning to all. Last night, we reported our third quarter results with after-tax operating income of $2.77 per share and an annualized net income return on average common equity of 23.8%. Book value per share grew by 5.3% in the quarter. Similar to last quarter, our three business segments delivered excellent underlying results with an overall ex-catastrophe accident year combined ratio of 80.5%, down 40 basis points from last quarter. Our underwriting income included $103 million of favorable prior year development on a pre-tax basis in the third quarter or 2.4 points on the overall combined ratio. We recognized 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 our short-tail lines in our P&C segments and in mortgage due to strong cure activity. Current year catastrophe losses were low at $72 million, net of reinsurance and reinstatement premiums in what is typically our most active quarter for catastrophes. The insurance segment's net premiums written grew by 7.3% compared to the same quarter 1 year ago, mostly due to the contribution of the MidCorp and Entertainment unit for a full 3 months this quarter compared to only 2 months from the same quarter 1 year ago. The ex-cat accident year loss ratio improved by 10 basis points to 57.5% compared to the same quarter 1 year ago, and the 220 basis point increase in the acquisition expense ratio is primarily due to the benefit we observed in the third quarter of 2024 from the write-off of deferred acquisition costs for the acquired business at closing under purchase GAAP. Profit commissions paid for prior accident years also explain some of the increase from the same quarter 1 year ago by approximately 40 basis points. The reinsurance segment produced its best quarter ever in terms of pre-tax underwriting income at $482 million, a direct reflection of the strong underlying profitability of the business written over the last few quarters and the absence of significant catastrophe activity in the quarter. Overall, net written premium was down by approximately 10.7% from the same quarter 1 year ago. Of note, approximately 75% of the overall reduction is the result of two large transactions from the third quarter in 2024 in our specialty line of business that did not renew this quarter. The absence of reinstatement premiums also negatively impacted our top line this quarter. Our ex-cat accident year combined ratio remained very strong at 76.8%, reflecting the robust level of underwriting margins in our book of business. Once again, our mortgage segment delivered another very strong quarter with underwriting income of $260 million. The improvement from last quarter was primarily due to a lower level of ceded premiums as a result of the tender offers we executed in the second quarter for two Bellemeade Re securities. There was also a slight benefit due to a higher level of cancellations on CRT transactions. The delinquency rate of our USMI business increased to 2.04%, in line with our expectations due to seasonality in the business. On the investment front, we earned a combined $542 million from net investment income and income from funds accounted for using the equity method or $1.44 per share pre-tax. Net investment income remains an important source of income for us. And with the help of strong positive cash flow from operations, $2.2 billion in the quarter, it should continue to grow in line with the size of our investment portfolio. The allocation of our portfolio remained neutral relative to our targeted benchmark. Income from operating affiliates was strong at $62 million due especially to a very good quarter at Somers Re. Our operating effective tax rate on a year-to-date basis stands at 14.7% and reflects the mix of income by tax jurisdiction. It is slightly below the 16% to 18% previously guided range, mostly due to a 1.7% benefit from discrete items. As of October 1, our peak zone natural catastrophe probable maximum loss for a single event, one in 200-year return level on a net basis remained flat at $1.9 billion and now stands at 8.4% of tangible shareholders' equity. Our PML remains well below our internal limits. On the capital management front, we repurchased $732 million of our shares in the quarter and added $250 million to this number so far in October. On a year-to-date basis, we have repurchased 15.1 million shares, representing 4% of the outstanding number of common shares at the start of the year. As Nicolas mentioned, our balance sheet is stronger than it's ever been, and it remains a significant asset for us as we focus on executing our playbook and leveraging the value of the Arch brand as we move forward in this dynamic market. With these introductory comments, we are now prepared to take your questions.

And your first question will be from Elyse Greenspan at Wells Fargo.

My first question is just on capital. The level of buyback went up in the quarter. So, I guess my question is maybe two-pronged. Just how do we think about the level of buybacks going forward just given the strong earnings this year? And then, I know last year, you guys had gone the route of a pretty substantial special dividend. So, is this year the route more of buyback versus a special in terms of capital return?

Yes. We see two options, but it's unlikely we will pursue both simultaneously. In the current environment, while our earnings outlook looks very strong, we recognize limited opportunities for aggressive business growth. Therefore, returning capital to shareholders will continue to be a priority. Given the current stock price, share buybacks will likely be our preferred approach in the short term. We'll monitor how things develop moving forward, and this is something we discuss regularly with our Board. Our balance sheet is very strong, so there is definitely potential for more buybacks as we progress, and we will keep assessing this option.

My second question is about the growth of insurance premiums. We have accounted for the mid-corp deal, but there will be some effects from non-renewals. Additionally, the overall market is experiencing some softness. How are you approaching pricing in light of the non-renewals related to MidCorp, and what is your outlook for premium growth in your insurance portfolio moving forward?

On the insurance side, I think we're still very much bullish about the business. I think we like the market we trade in, and we would like to grow and we talk about profitable growth. That's what we're really focusing on. And you have to divide the market into three broad categories. First one being areas where we still see some rate increase, like casualty will be the main one and the middle market business where we think we have the rate increase, and I think we have the propensity to grow. Then, you have the second segment, which is the one that has witnessed headwinds in the past, which is mostly professional lines, whether it's GNO or cyber. The good news there, I think the rate decrease has really moderated on the GNO, pretty flat. And on cyber, there are signs that they are moderating. So, that should be less of a headwind going forward. And third, it's really the property, whether it's the large account property and the E&S property. The good news for us is that we don't write much of the shared and layer property business. And we have a relatively small footprint on the E&S side, which is really under a lot of pressure today. So, I think overall, if I look at the outlook for us and our positioning in the London market as well, if I look at the outlook, I would expect us to have the ability of the insurance to grow better than the market we play into.

That's helpful. And then just one last one. There's a hurricane out there right now with the potential to impact the Caribbean. I don't think there is a lot of insurance or even reinsurance exposure there. But do you guys just have high-level thoughts there just on potential exposure?

I think it's just too early to tell. It will likely be a significant event for Jamaica and could have repercussions that might affect the Caribbean as a whole, but it's too early to make any definitive assessments.

Just quickly, it depends on where it hits. Some of the resorts may have insured values that could lead to our participation, but we cannot predict at this point where things may land. In terms of potential exposures and impacts, that would be the main area of focus.

Next question will be from Andrew Kligerman at TD Cowen.

Starting with the growth in insurance linked to a lease, I'd like to transition to reinsurance. You mentioned earlier that in the first quarter, you anticipated an adjusted net written premium growth of 6% or 7%. You reiterated that figure in reinsurance during the second quarter. However, in this quarter, you raised concerns about two deals and reinstatement premiums causing some fluctuations. Can you provide insight into what the normalized growth would have been without these factors? Additionally, how do you view growth in that segment moving forward?

Well, I'll take the first part, and then maybe Nicolas can share in the second. I mean, the normalized growth absent all of these kind of one-offs or again, and they happen, right? We talked about it in the past, it's reinsurance can be lumpy. There's deals that happen, they don't happen. The timing of it is not always predictable. But yes, the fact that, with a little bit of the headwinds that we're seeing, again, coming from a very high bar on the property, property cat 7/1 renewals, I'd say our growth in the quarter might have been around, like call it, a decrease of 3% to 4%, not the 10% that we reported in the quarter.

Thank you, Francois. Regarding the growth outlook for reinsurance, it is quite similar to that of insurance. There is rate pressure on the short-tail lines, however, we are noticing rate increases in the casualty lines that could present opportunities. Overall, the picture is similar, but a significant challenge we face is that many companies prefer to retain business like we do. After a few years, there’s less anxiety in the market, and companies feel more confident in their balance sheets. As a result, they are retaining more, which poses a considerable challenge for the reinsurance sector. By doing this, they either keep the business or often shift to an excess of loss position, which offers additional opportunities for us. Furthermore, the margin on excess of loss is typically better than that on quota share, suggesting we may see a different margin composition moving forward.

I see. And then maybe shifting back to insurance. As a specialty writer and especially with pressure in E&S property these days, just more from the industry perspective, and you touched on your view of how Arch is going to do, but maybe again a little bit. But how do you see E&S premium for the industry playing out over the next few years? I mean, not only have we've seen such tremendous growth over the last few years, but is it possible that E&S premium as an industry starts to decline over the next few years? So outlook and then just Arch in E&S over the near intermediate term as well.

I believe the industry's outlook presents two distinct narratives. On the casualty side, the current market conditions and issues from previous years suggest that more business will continue shifting towards the excess and surplus side. This side offers flexibility in rates and forms, allowing for the incorporation of exclusions that take significantly longer to implement in the admitted market. While we may see some shared and layered business, as well as catastrophe-exposed business, returning to the admitted market as has been done in the past, I find it challenging to predict exact outcomes. However, I anticipate that the fundamental shift driven by casualty will persist.

I see. And then Arch, how do you see yourselves? Do you see gaining share on the short-tail and the casualty, respectively?

I mean, the short-tail will be a challenge based on what we see in terms of the pricing. I think we are more optimistic on the casualty side where we've been underweight in the difficult years. And I think our loss picks have been holding pretty well. So, that gives us confidence in how we price the business forward. So, I think that as rates continue to improve, that gives us an opportunity certainly to do more at a time maybe where our competitors are still kind of caught up into looking at the right things they did in the earlier years.

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

Yes, I don't want to limit your response too much, but you certainly engaged in substantial buybacks in the third quarter. Some companies avoid buybacks during this period due to concerns about the hurricane season's impact. I'm trying to understand your plans for the fourth quarter and possibly the first quarter. When did you begin the buybacks? Did you buy back shares throughout the entire quarter, or was the $732 million achieved primarily within about a month at the end of the quarter?

Yes, it was consistent throughout the quarter, with a bit more activity in September. We've also been active in October. As I mentioned in the last call, we would have previously avoided buying during hurricane season. However, Arch is different now; we are more diversified, stronger, and less exposed in terms of equity regarding a major or capital PML, even at a 1 in 250 or lower. For these reasons, we felt much more comfortable with buybacks during the wind season. We plan to continue pursuing this opportunity as we move forward.

And you're not worried, in the past, you've said part of the reason to do a special dividend was because you just don't think you can return as much capital as you desire to through the buyback of the limitations as you look out into the end of this quarter and beyond? Do you think you can satisfy every bit of capital return you need through repurchases?

We monitor our situation on a daily basis. I genuinely believe we can enhance our capital return. We don't establish specific targets, so it's an ongoing process. There is currently substantial liquidity in the stock, allowing us to buy back shares at what we consider to be an attractive price. We plan to do as much as we deem appropriate, and we will evaluate our position as we proceed.

Next question will be from Tracy Benguigui at Wolfe Research.

This is a bit belated, but it's been a while since I've been on your call. Congrats on your S&P upgrade back in June. Since capital is so topical, my question is, while it's great that you have a AA- rating, it's a new category. You now have to hold AAA capital, back when you were rated A+, you only had to hold AA capital. And I realize a lot of that was just model methodology driven. But my question is, how important is it to you to stay in this new rating category when you're thinking about your ability to deploy capital?

Is it critical? Not necessarily, but it certainly provides an advantage, and we've already seen benefits in some areas, especially in Europe. There's no doubt that the new higher rating has been positively received, and we are able to leverage it. However, it does come with certain costs. That said, the S&P capital model is just one aspect we consider. We also have our own internal capital assessment and we look at other rating agencies as well. Overall, I believe our capital position remains very robust; it has always been strong. We aim to optimize within the constraints imposed by various rating agencies and regulators assessing us. But the AAA capital level mentioned isn’t new to us, as we were already operating at that standard. Thus, it didn't represent an additional burden or an initial hurdle we needed to overcome.

I believe we don't just manage one point. Typically, we consider AA and AAA ratings. For a period, we may have been somewhat restricted due to our mortgage insurance. However, I don't think this has completely altered our capital structure. It has also been beneficial in relation to mortgage insurance, credit risk transfer, and structured risk transfer, where buyers are very sensitive to the ratings of those layers and tend to pay more for higher ratings. As Francois mentioned, in Europe, particularly in reinsurance and insurance, our strength lies in casualty professional lines. As we focus on those markets, having an AA- rating is advantageous.

Okay. I mean, do you view it just opportunistically? Or could you see a scenario where you could reduce capital and live with the back to the A+ rating?

It's a trade-off we constantly evaluate. We consider how much capital we need to maintain the margin for an incremental rating. Currently, we have sufficient capital and are in a strong position. However, if conditions change in the future, we will need to reassess whether it's worth holding that additional capital. At the moment, given our capital position and the strength of our earnings, we are in an excellent situation.

Okay. My next question is, you said you liked insurance and you're optimistic about the business, and you mentioned increases in casualty rates. Casualty can cover a lot of areas. So, if I exclude some of the casualty lines like you mentioned professional lines, what is left in terms of attractive pricing such as general liability, commercial auto, and excess liability, which includes auto? So, I'm curious about where you're seeing the opportunities. Is it more focused on auto? Or could you share which casualty lines you find appealing?

I believe that one of the opportunities in the excess and surplus casualty market lies in excess liabilities. This includes some auto coverage, but we typically do not emphasize auto in the E&S sector. Additionally, we have other key segments such as national accounts or construction, which focus on casualty lines that include significant portions of workers' compensation and general liability, with a smaller emphasis on auto. These are the areas where we see potential for growth.

Next question will be from Ryan Tunis at Cantor.

Just wanted to go back, I thought it was an interesting comment that on the reinsurance side, you're seeing cedents proactively retain more. And I guess I'm curious, when I look at the facultative property decline of 17% this quarter, how much of that is, I don't know, you guys proactively walking away or a decline in exposure as opposed to rate, because I was thinking it was kind of more rate-driven, but that comment maybe think it might be more volume-based.

No, I don't think we are cutting back. At this stage, regarding the other property line of business, the main factors are that a couple of our clients on the E&S side are retaining more business. We would like to do more in this area. It's also important to note that rates are going down, leading some of our cedents to revise their ceded premium downward. Therefore, the two components impacting our insurance volume are their desire to retain more business and their reforecasting of growth downwards.

Ryan, to clarify, it's evident that the rate environment in property has declined. There is also a decrease in exposure, but that decrease is generally not our decision; it is made by the cedent. In some cases, they may decide to retain more or adopt a different structure, but we remain positive about the product and the line. Overall, we are satisfied with most of our initiatives. Any reduction in exposure that we see is mainly due to cedents opting for different strategies, rather than us choosing to step back.

Got it. And then just a follow-up. You talk about the transitioning market. I think a lot of times we focus on pricing, but I'm curious about what types of lines might be in primary, considering that business is reverting back to admitted while some of the more difficult cases remain in E&S or facultative. It could be that a cedent simply decides to continue seeding the areas where they see an arbitrage. Are there specific areas you could highlight that are particularly challenging to underwrite in this type of market where it's essential to be meticulous?

I think it's a competitive market, Ryan. So, I would say a lot of the market today, you get a lot of anti-selective pressures. So, we develop a lot of data analytics tools to really segment our portfolios and provide underwriters some really granular information that, which price for which risk, which limit for which risk. So, I think underwriting the market, we are bullish because we have those tools. I think if you don't have the tools, I would be a lot less bullish about our ability to write profitable business going forward.

The next question will be from Mike Zaremski at BMO.

Great. Pivoting to the mortgage side of the business, I feel like when we were to quiz most people and ask them what the historical, I don't know, 5-, 6-, 7-year loss ratio was, most people wouldn't guess it was 0. And obviously, there was unique circumstances in the past 5-ish years. But just curious, and we know it's a future family business, but curious if your views on a normalized loss ratio is different than what it was in the past if we think about kind of the current cycle and the next cycle coming.

Not knowing what the next cycle will look like, we would be speculating. We have discussed a normalized loss ratio in the 20% range over the cycle. We strongly believe that home prices are a key factor influencing the performance of the mortgage book. So far, home prices have remained robust, despite some declines in specific areas. Overall, across the U.S., home prices continue to show strength, which largely explains the mortgage business's outperformance relative to our previous expectations. Looking forward, there are many macro factors that will affect this. However, given the current lack of inventory and housing in the U.S., we believe home prices will remain supported in the near future. On that basis, we expect performance to stay strong. It may rise slightly over time as it has been very favorable for an extended period. We remain very optimistic about the mortgage business, as it has been excellent for us.

And the underwriting remains excellent. I think if you look at the FICO distribution, I think they are getting better. So that will drive a better outcome.

Got it. Moving to capital management. Clearly, you signaled buybacks are high on the list. Maybe you can just give us an update. Has anything changed quarter-over-quarter on maybe inorganic opportunities? Is U.S. small commercial still something that's on the retail small commercial still high up on the wish list?

Yes, we have a lengthy wish list. However, we are actively working on various projects, with a strong focus on the middle market. We've previously discussed other growth areas we are interested in. As you know, M&A opportunities aren't very frequent and take time to develop, so we won't hold too much excess capital solely on the chance of a possible transaction. Our leverage ratio is potentially at its lowest point ever, giving us significant flexibility. Our balance sheet is robust, and we have some excess capital available. This provides us with great flexibility, and I believe our ability to act on opportunities is very strong. If there are additional opportunities that can enhance our business, we are eager to pursue them. Meanwhile, we already have plenty of projects that can generate solid earnings as well.

Got it. And maybe just sneaking one last one in since you guys provide excellent market commentary. And Nicolas, you provided a good view of kind of how to think about the E&S marketplace going forward. Do you have a view on what has also been the kind of exponential growth of the MGA marketplace and kind of how it's been impacting Arch or maybe the industry? And do you view the MGA marketplace growth to continue to grow much faster than the rest of the market?

Interesting subject. I'm personally bullish on the MGA. I think historically, strong growth in the MGA, except for a few exceptions, didn't turn out to be good. I think the lack of incentive alignment, the delay in the information to the insurance carrier or the reinsurers, I'm not bullish on that model. So, I think it's been the flavor of the month in the last few years. And I'm still a little bit questioning what the outcome is going to be.

Next question will be from David Motemaden of Evercore ISI.

Just had a question. Obviously, still very good reserve releases. Just focusing in on insurance and reinsurance specifically. Could you talk about the movement between long-tail and short-tail lines between those two? Any sort of things to point out on that front?

I would say there’s nothing unusual and it’s very similar to previous quarters. There is a slight adverse impact on casualty, but nothing that is particularly noteworthy. It could be attributed to one accident year within a specific business unit or line of business. So, there’s a small adverse effect on casualty, which isn’t surprising to us. However, when we assess the overall situation regarding the performance of our reserves, our actual results compared to expectations continue to show favorable outcomes, meaning they are better than anticipated, which provides us with a lot of reassurance. We are responding to the data, and while there are trends emerging in certain areas that we are actively addressing, the overall picture indicates that the short-tail segments have performed exceptionally well, as they have for some time, and we will continue to monitor this every quarter.

Got it. And then just taking a step back, the mix shift to casualty lines in both insurance and reinsurance. At least if I look at it on an earned basis, that definitely is up a bit year-over-year hasn't really increased much, I guess, over the past few quarters. Is that having any bit of an impact at all on the underlying loss ratios in either segment? And how should we think about that going forward?

At some point, it will, but I believe the loss peak on the casualty line is somewhat higher than the loss peak on the short-tail lines. However, I think the mix hasn't really changed significantly at this stage. Looking ahead, I believe it might.

Next question will be from Rob Cox at Goldman Sachs.

Just curious, as you start to renew the MCE book, anything interesting you're seeing either on the delegated or the non-delegated side? And how far are we through the non-renewals on the programs book?

So far, I believe we have successfully transferred the entire book to Arch. I am very pleased with what we have seen up to this point. The business has shown strong stickiness, and we are able to offer additional lines of business to our distribution partners, making us more relevant to them. We have also gained valuable property expertise in the admitted property business that we previously lacked. All the assumptions we made during the acquisition have proven to be accurate. Therefore, I am quite satisfied with the strategic decision to proceed with the acquisition. Regarding the dedicated side, we didn't proceed with the deal due to the MGA portfolio involved in the acquisition. We have begun the remediation process, and the outcomes align closely with our expectations. However, it does take more time than anticipated because these MGAs have notice periods. We should start seeing the impact from the non-renewals of the notice periods we signed with several MGAs this year in 2026.

Got it. And then just wanted to follow up on credit. I mean, just given the mortgage book and the investment in Coface and I think a relatively larger private credit book that you guys have. Any thoughts on the credit environment and anywhere you're leaning into or out of just given some of the noise in private credit?

Yes, I think it's important to be cautious about what we're observing. There's no doubt that headlines regarding the underperformance of subprime auto loans exist, but I believe that our borrowers are quite different from that customer segment on the USMI side. We're not experiencing similar results, and our recent quarterly report reflects that. It's important to focus on the specific types of borrowers in the U.S. Regarding trade credit, while there have been a few high-profile insolvencies, including Coface, we remain uncertain about their potential exposure. Events like these usually prompt people to reassess their dependencies on credit and the credit lines they provide, but that's not uncommon. Right now, we feel very secure about our level of exposure and have a solid understanding of it. We are actively monitoring all external data and trends, but nothing has arisen that necessitates a change in our mindset or strategy.

And more specifically on Coface, I think, is a short-term credit. So, the game here of the underwriting is really as you are aware of a weaker credit is really to over time, cut your line to that particular credit name so that when the inevitable happen, your exposure is much less. So, I think they played that game really, really well. And I don't know about the latest insolvencies, but historically, they've been very good at that.

Next question will be from Alex Scott at Barclays.

First one I had was just circling back on Rob's question on the remediation. Could you frame for us at all like how much impact that could have on the insurance segment? Just thinking through trying to dial in premium growth estimates and knowing how much some of us missed our reinsurance growth this quarter from not knowing about the transactions. I just want to make sure I'm layering in enough for this lagged remediation impact.

Yes. The premium we have identified for the programs we acquired, which will not be renewed, is approximately $200 million. As Nicolas mentioned, the notices have already been sent out, and there's a notice period after which managing general agents have 3 to 6 months to secure another carrier. Some may be more successful in finding a replacement sooner, so we might see some of that occurring in the fourth quarter. I can't provide exact projections for when the impact will be reflected on the top line in the upcoming quarters, but we anticipate that this $200 million will affect a total book of around $1.5 billion to $1.6 billion. On the other hand, our middle market business, which we find attractive, has performed exceptionally well. The rate environment for both casualty and property in that segment has been favorable. Recently, during a couple of industry conferences, our business partners expressed strong support and satisfaction in working with Arch. Therefore, we believe that the challenges from the non-renewal of some of these programs can be partially offset by growth in the middle market segment.

Got it, that's helpful. My second question is about the reinsurance business, particularly in casualty. Regarding the repricing efforts, much of it involves the quota share and the actual underlying primary taking rate. Can you describe what you're observing in that area? Are the underlying primaries taking enough rate to exceed loss costs, thereby improving margins? Is that why you're expressing more optimism? Or is the loss cost environment still significantly high? I'm trying to understand whether there is actual improvement or not.

I think you got it right. We believe in casualty in general, and we are getting more rate than the loss cost, which is elevated. If you look at the reinsurance side and select the right specialty underwriters who manage their limits well and avoid challenging classes like heavy auto, you would want to engage more with them. Over time, we anticipate being able to write a larger volume of that business.

Next question will be from Andrew Andersen at Jefferies.

Maybe you could just expand a bit on how you're thinking about 1/1 prop cat renewals. Do you still see returns of kind of 20% here on this line? And how are you thinking about ILS impacting kind of return levels and industry capital?

Yes. We remain optimistic about the catastrophe sector and its outlook. We appreciate the margins. To share some insights, the market reached its peak in July 2024, just over a year ago. By 2025, prices decreased between 5% and 10%. We are currently experiencing our second round of rate reductions. In some regions, rates that increased from 2021 to 2024 have doubled. Overall, we are in a favorable position, although it varies by region. Generally, we believe the business is appealing, with increasing demand. We saw higher demand last year, and we anticipate more demand in the U.S. and internationally. So, despite anticipated pressure on rates, we view the margins as still very attractive.

Next question will be from Meyer Shields at KBW.

I guess, in the past, you've talked about ramping up some spending associated with mid-corporate. I was hoping if you could get an update of timing and maybe amounts of increased spending?

Increased spending was definitely a focal point. We had a limited team after the transition in August 2024, primarily consisting of underwriters and claims personnel. At that time, we recognized the need to bolster our capabilities in actuarial data analytics and some support functions, which we anticipated would take time to address due to the competitive job market. We have made progress in this area, but I believe we can operate the incremental mid-corporate business with a more efficient or reduced expense ratio compared to before the acquisition, thanks to the synergies and the ability to distribute some infrastructure costs over a larger base. Although we still have a few openings to fill in underwriting and support roles, significant work has been accomplished over the past year, resulting in positive outcomes. The business is performing well, we are executing our strategy, and we are looking to grow in specific areas. We have some tasks left to complete, but we are in a strong position.

Next question will be from Brian Meredith at UBS.

Two quick ones here. Just going back to the whole MCE, MidCorp and the program business runoff, the underlying loss ratio improvement in insurance, is that a direct result of some of the actions being taken there? Is that something else? And therefore, as we start to see this runoff, should we start to see underlying loss ratios continue to improve in insurance?

It's more the latter. The impact of the non-renewals has not significantly affected our earnings on an earned basis. So, the improvement this quarter is not major, but I believe there should be some benefit as this business winds down, leading to some improvement or at least stable loss ratios.

Great. And then, Francois, I wonder if you could talk a little bit about the substance base tax credits that Bermuda came out with, I think it was the end of September, what that impact could potentially be for you all?

A bit early to tell. No question, yes, the consultation paper is out. Comments have been submitted. We have had meetings with, obviously, as an insurance community with the government expressing our views. The biggest, I'd say, remaining item that we don't have clarity on is, is on the transition credits. I mean, at what pace will these kind of credits be allowed to be reflected starting in 2025. So, that is still to be determined. There's work being done on that right now. We expect to have clarity in the first, call it, first half of December, clarity/almost finality, because it has to be enacted before the end of the year for us to be able to reflect it in our financials. But to your question, Brian, I think it will be substantial, we hope. And when we have like the law, I mean, we'll be very quick to share that with you all and give you a bit more color on what that might mean for us.

At this time, I'm not showing any further questions. I would like to turn the conference back over to Nicolas Papadopoulo for closing remarks.

Yes. Thank you for spending time with us this morning, and we're looking forward to talking to you next quarter.

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