Arch Capital Group Ltd. Q1 FY2026 Earnings Call

Good day, ladies and gentlemen, and welcome to the 1Q 2026 Arch Capital Earnings Conference Call. As a reminder, this conference call is being recorded. Before the company gets started with its update, management wants to first remind everyone that certain statements in yesterday's press release and discussed on this call may constitute forward-looking statements under the federal securities laws. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. Consequently, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may affect future performance, investors should review the periodic reports that are filed by the company with the SEC from time to time, including our annual report on Form 10-K for the 2025 fiscal year. Additionally, certain statements contained in the call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends 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 at www.archgroup.com and on the SEC's website at www.sec.gov. I would now like to introduce your host for today's conference, Mr. Nicolas Papadopoulo, and Mr. Francois Morin. Sirs, you may begin.

Good morning, and welcome to Arch's First Quarter 2026 Earnings Call. We delivered a strong quarter, reflecting both attractive underwriting margin and the disciplined execution of our underwriting and capital management strategies. After-tax operating income for the quarter was $901 million or $2.50 per share, producing an annualized net income return on average common equity of 17.8%. Today's market is clearly more competitive than in recent years. That said, rates and terms and conditions in aggregate still support strong returns. Capturing those returns requires the ability and willingness to actively manage the portfolio across and within lines of business. This is embedded in Arch's operating principles and among our differentiating traits to dynamically add to areas where returns are attractive while declining those risks that no longer provide an adequate margin of safety. Regardless of where we are in the cycle, Arch is committed to generating superior returns for our shareholders. I'll now provide updates across our reporting segments, beginning with insurance, which generated $66 million of underwriting income in the first quarter. It compares favorably to the first quarter in 2025 that was impacted by the California wildfires. Overall, market conditions remained favorable. However, top-line growth in the segment was essentially flat in the quarter, reflecting our focus on profitability over volume as competitive pressures increase. Growth opportunities remain across most casualty-focused businesses, including excess and surplus line casualty, construction, alternative market as well as a number of our London market businesses. Growth was offset by softening rates in a few areas, including large account and excess and surplus lines property as well as in some short-tail lines in London. We also chose not to renew certain program business acquired in the middle market commercial transaction that did not align with our risk appetite or meet our profitability requirements. As we have discussed on prior calls, these nonrenewals are expected to reduce net premium written by approximately $250 million throughout 2026. I also want to note a significant operational milestone achieved in our middle market commercial business. Earlier this month, our team successfully completed the data and system migration of the acquired businesses from Allianz to Arch systems. The ability to complete this effort in just 18 months speaks not only to the dedication of our teams but also represents a strong use case for artificial intelligence in accelerating systems and platform transformation. With a significant step completed, the business can now pursue its objective of creating a scalable best-in-class experience for clients and distribution partners. Our reinsurance segment delivered an excellent $441 million of underwriting income in the quarter, a significant increase from the $167 million in the first quarter of 2025 which was heavily impacted by the California wildfires. Rate reductions and increased retention by our cedents contributed to a 6% decline in net premiums written versus the same quarter last year. Short-tail lines, including other property, property catastrophe and marine were the primary driver of these declines. Strong industry results over the past few years attracted significant new capacity from traditional markets and third-party capital. This additional supply continues to put downward pressure on property catastrophe and short-term rates while also moderating the push for needed rate increases in some casualty lines. However, underwriting performance remains excellent. Our focus and disciplined underwriting led to the reinsurance group's 76% combined ratio, marking the fourth straight quarter of sub-80% combined ratios. Consistent with our cycle management philosophy, our reinsurance team actively manages the portfolio mix by continuing to write new business that meets a risk-adjusted return target and by reducing our share of business that falls below our minimum return thresholds. The mortgage segment delivered another strong quarter with $221 million of underwriting income to go along with $266 million of net premiums written. Mortgage originations picked up modestly in the first quarter; affordability challenges tied to high mortgage rates and home prices continue to constrain demand. Credit quality across the mortgage insurance portfolio remains excellent with delinquencies normalizing from seasonally higher levels in the fourth quarter of 2025. Competition remains disciplined and we continue to pursue growth through innovation and new product introductions across our global footprint. Overall, mortgage performance continues to exceed expectations and provide shareholders with a differentiated and diversifying source of earnings that support long-term value creation. Turning to investments, which contributed $408 million or $1.13 of net investment income per share in the quarter. The decline in net investment income from the fourth quarter of 2025 was driven in part by lower cash yields, lower qualified refundable tax credit benefits and seasonal compensation payouts. Our nearly $48 billion investment portfolio provides a material contribution to earnings and book value growth, effectively raising our quarterly earnings flow. In the first quarter, we repurchased $783 million worth of our common stock while still increasing book value per share by 1.7%. Our first priority remains to deploy capital into our business. When organic opportunities do not meet our return threshold, we view repurchasing our shares as an attractive use of excess capital, reflecting our conviction in the intrinsic value of the franchise. The Board's recent $3 billion increase to our share repurchase authorization underscores its approach to capital allocation. To conclude, Arch delivered another strong quarter, true to our principles of disciplined cycle management and by leveraging the strengths of the Arch brand and our diversified platform. In today's market, underwriting discipline powered by insights from our investment in data and analytics, rewarding our underwriters for profit and volume, and prudent capital management continues to differentiate Arch and drive long-term value for our investors. Arch's 25-year record of strong returns and compounding book value at double-digit rates is a direct result of hard work and discipline. That is Arch. That is our DNA, and that is why we believe we will continue to deliver best-in-class results across market cycles and into the future. I will now turn the call over to Francois, who will talk through the financials in more detail. Francois?

Thank you, Nicolas, and good morning to all. Last night, we reported our first quarter results with after-tax operating income of $2.50 per share and an annualized operating income return on average common equity of 15.4%. Book value per share grew by 1.7% in the quarter. Our three business segments once again delivered excellent underlying results with an overall ex-cat accident year combined ratio of 82.3%, up 130 basis points from the same quarter last year and consistent with the more competitive environment we are facing. I will provide more color on trends in each of our segments shortly. Our underwriting income included $200 million of favorable prior-year development on a pretax basis in the first quarter, or five points on the overall combined ratio. We recognized favorable development across all three of our segments and in many of our lines of business, but mainly in short-tail lines in our P&C segments and in mortgage due to strong cure activity. Of note this quarter, we commuted a large transaction, which increased the level of favorable prior-year development in our reinsurance segment by approximately 25% in the quarter. Current-year catastrophe losses were $174 million, net of reinsurance and reinstatement premiums, and were mainly the result of winter storms in the U.S. and the Iran conflict. All in, these losses were slightly lower than our seasonally adjusted expectations for natural catastrophes. The insurance segment's gross premiums written grew 2% while net premiums written declined 1.4% year-over-year. As Nicolas explained, the nonrenewal of certain program business acquired as part of the MCE transaction impacted our top line this quarter. In addition, net premiums written were also impacted by a shift in business mix toward lines with lower net-to-gross retention ratios. The ex-cat accident year loss ratio improved by 70 basis points to 56.7% compared to the same quarter one year ago. The acquisition expense ratio for the current accident year increased by 160 basis points; the benefit we observed in the first quarter of 2025 from the write-off of deferred acquisition costs from the MCE-acquired business rolled off. We would expect the most recent acquisition expense ratio to be more representative of long-term expectations. Our operating expense ratio was higher this quarter as we incurred additional expenses related to the transition of our middle market business to Arch systems. We would expect our operating expense ratio to revert back to a level closer to historical levels during the second half of the year. The reinsurance segment had an excellent quarter with $441 million in pretax underwriting income. Overall, gross premiums written were down by 2.3%, while net premiums written were down by 6% from the same quarter one year ago. Net premiums written were up in specialty partly due to timing differences in the recognition of certain treaty renewals that impacted our financials in the first quarter of 2025. Over one-third of the decrease in net premiums written in property catastrophe was attributable to a lower level of reinstatement premiums compared to a year ago, which were impacted by the California wildfires. Overall, our ex-cat accident year combined ratio of 78.1% is comparable to last year's results for the same quarter. Our mortgage segment produced another very strong quarter with underwriting income of $221 million. Net premiums earned were down by approximately $6 million from last quarter, mostly driven by lower levels of cancellation premiums in our CRT business. Of note this quarter, new insurance written at USMI reflects a large non-GSE transaction of $2.2 billion in NIW. Absent this transaction, which increased our NIW by 15%, we would expect our market share of the PMI market to remain relatively unchanged from the prior quarter. The delinquency rate for our U.S. MI business decreased to 2.06%, consistent with our expectations and seasonal trends. On the investment front, we earned a combined $568 million from net investment income and income from funds accounted for using the equity method, or $1.57 per share pretax, slightly down from the $1.60 per share we earned last quarter. Cash flow from operations remained positive at $1.2 billion for the quarter. Our portfolio remains very high quality with a short duration and in line with our asset allocation targets. Income from operating affiliates was $36 million for the quarter, up from $17 million from the same quarter one year ago, which was impacted by the California wildfires. As a reminder, this quarter's result reflects our lower ownership stake in Sompo's Re since the start of the year. Our effective tax rate on pretax operating income was 14.8%, reflecting the mix of income by tax jurisdiction. It was slightly below the 16% to 18% previously guided range mostly due to a 1.7% benefit from discrete items. As of January 1, our peak zone natural catastrophe probable maximum loss from a single event at the 1-in-250-year return level on a net basis remained flat at $1.9 billion and now stands at 8.2% of tangible shareholders' equity. On the capital management front, we repurchased $783 million of our shares in the quarter, or 8.3 million shares. We have repurchased an additional $311 million in shares so far this quarter through last night. Our balance sheet remains in excellent health with strong capitalization and low leverage. With these introductory comments, we are now prepared to take your questions.

Our first question comes from Elyse Greenspan from Wells Fargo.

My first question is on property cat on the reinsurance side. I was just hoping to get some of your expectations for the midyear renewals? And then if you expect declines in the book to continue, would you expect your cat load to come down after the mid-years?

Yes, Elyse. As we have always said, we don't have a crystal ball, but for the 6/1 renewals, we really expect the market to remain competitive and we will adjust our underwriting stance based on the actual rate decreases that we see at that time. So we don't have a precise forecast today. On the overall trend of the catastrophe portfolio, I think we face headwinds because of double-digit rate decreases. As I've said on prior calls, we monitor property catastrophe through a lens of 50 separate zones. Two years ago many zones were all green; today we have a bunch that are still green, a number that are yellow and some that have churn dynamics. Florida, for example, remains attractive for us. Depending on where the business renews and our perception of the attractiveness of that zone, our underwriting team will make decisions accordingly.

Okay. And then on the casualty side, you mentioned there are still some good opportunities on both the insurance and the reinsurance side. Can you just talk through within casualty where you're currently seeing the best growth opportunities?

Yes. We remain optimistic on casualty. We think the pain from older years is not entirely behind us—there are still some development items from 2016 and 2017—but more recent years such as 2021 through 2024 have shown adverse development and that should, in our view, continue to sustain price increases above trend. In terms of our risk appetite across insurance and reinsurance, it hasn't changed. We like specialty casualty, excess and surplus line casualty, and primary positions on large accounts. We are staying away from commercial auto and also the larger account excess towers, which we think are still very challenging despite some of the rate increases we've seen.

Our next question comes from David Motamaden from Evercore ISI.

I was hoping maybe just to get an update on the insurance book where we stand just on rate versus trend in both the U.S. and internationally.

So starting with the U.S., we are broadly getting rate at trend. As I mentioned earlier, we are getting rate above trend on the casualty lines of business. The pressure is really coming from short-tail property lines where we've seen a rapid rate decrease. When you sum it up for North America, we're seeing rate slightly below trend. Internationally, we have more short-tail lines in the book, so we're seeing some rate pressure on those lines. Overall, we're seeing low single-digit rate decreases versus trend on the international book. We started with pretty high margins, so we feel good about the business there.

Got it. And then I believe you mentioned in reinsurance some of the supply there and good returns in short-tail lines trickling into casualty re. Does that change how you're thinking about growth opportunity there as an offset to the headwinds on the property side?

On the casualty reinsurance side, much of what we're seeing is quota share activity. We like the fundamentals of specialty casualty, but the difficulty is really in the ceding commissions. Based on past casualty markets, ceding commissions should have gone down, but with excess supply—many competitors wanting to increase share—the ceding commission has tended to stay flat while prices on the best accounts continue to go up. Sidecars are the latest vehicle adding to that dynamic, and they will influence the market as well.

Our next question comes from Tracy Benguigui from Wolfe Research.

One of the largest primary insurers said on their earnings call some pessimistic views of property pricing, particularly shared and layered in North America and in London, and the culprit they cited was cheaper forms of capital coming in from MGAs, reinsurers and alternative capital. From your vantage point, is this a real structural shift in the market? And how does that influence your underwriting appetite?

For us it's more business as usual. The advantage we have is that we are not a large retail large-account player; we don't play in that exact space. We play in the excess and surplus line property business, which is becoming competitive and where we are taking a very careful approach today. We are selective and disciplined in that line of business.

Excellent. And there was also a recent settlement development early in the second quarter around the Francis Scott Key Bridge collapse. Are you currently sizing industry loss? And has that pushed your loss estimate upward?

In that particular case, we were holding a more conservative estimate than other loss estimates in the market, so there has been no real change for us.

Our next question comes from Mike Zaremski from BMO.

In the insurance segment, the underlying loss ratio continues to show some healthy improvement. Can you talk about some of the drivers? I believe some of the nonrenewals on some programs are helping that, but can you discuss the dynamics we should consider?

Yes. This quarter, in particular, we benefited from a relatively benign level of attritional losses in London. Our international segment performed very well this quarter, which explains most of the favorable reduction in the ex-cat loss ratio compared to a year ago. As a reminder, we'd encourage you to look at trailing 12-month rolling numbers to get a view on performance of the book. The impact of the MCE nonrenewals will show up as the business earns out, but at this time we don't think it will be material. Given an approximately $8 billion insurance segment, the impact of nonrenewing some of these programs will be limited. So this quarter was largely about strong performance out of London.

Got it. Francois, my follow-up: you mentioned catastrophe losses this quarter were a bit lower than 'normal,' and you also added a bit on the Iran conflict. Can you elaborate on the Iran conflict? Is it all IBNR, are there real losses, or...

There have been no material payments to date, but there are real losses emerging—particularly in our specialty London book that is exposed to terror and political violence lines. We took a first stab at reserving for what happened in March, but we expect more losses to come through in the second quarter and we'll keep reporting on it. We were able to absorb those losses in the first quarter as part of our overall catastrophe load, even though technically this is man-made rather than a natural catastrophe. We still report it as part of our catastrophe losses in our public reporting.

Our next question comes from Andrew Kligerman from TD Cowen.

To gauge a sense of where we are in the cycle, could you share where you're seeing risk-adjusted returns in property catastrophe reinsurance? I know there are different layers and risk on-line, but if you had to gauge a risk-adjusted return range, what are we seeing today? And maybe the same question for E&S property that you've been writing.

The way we manage property catastrophe is very dynamic based on actual underlying profitability in our 50 zones. Two or three years ago we were in the 30s on returns; the mix has shifted since then, and the business we have on the book today is a different mix but remains attractive to us. We're not writing business that falls below our threshold. For the business that we are underwriting today, we believe we are still in the high teens on risk-adjusted returns.

Okay. So it sounds like there is business out there that Arch won't write that is well below your upper-teens return threshold. Is that fair?

That's fair.

Our next question comes from Cave Montazeri from Deutsche Bank.

First question on share repurchases: it was nice to see a little uptick. This quarter you repurchased roughly 87% of operating income versus roughly 70% over the past two quarters. If current pricing trends continue and you don't need capital to grow, and you're starting from a healthy capital position, is there any reason you couldn't pay out of income potentially even more? What held you back from doing more this quarter?

There is nothing structurally stopping us. We don't set a fixed target for buybacks; we assess opportunities based on stock price and liquidity. So far liquidity hasn't been an issue. Could we buy back 100% of our income for the year? We could, but that's not how we think about capital allocation. It's more an outcome based on daily execution relative to stock price and volume. The Board's reauthorization gives you a sense of how we think about the opportunity and the amount of capital we might return, but timing isn't set in stone. We'll react to what's in front of us. Beyond regulatory considerations around buybacks, there are no structural limitations.

My second question is on cyber insurance. Can you help separate cyclical versus structural pieces? First, where are we in the underwriting clock for cyber? Second, structurally, given developments in AI and potential for more frequent and destructive cyber attacks, does that change your view of tail or aggregation risk or the long-term insurability of the product?

In terms of the underwriting clock, I would place cyber roughly around 3:00 p.m.—it's getting to the point where it's more challenging but still manageable. AI developments are a real and current threat; models like Anthropic's Mythos accelerate both attack capabilities and defensive capabilities. We see this as an acceleration of the arms race between attackers and defenders. Mythos can help attackers scale, but defenders can also leverage similar models to strengthen defenses. The net effect is an increased systemic risk. We are taking a very careful approach to scenario planning and RDS scenarios given this heightened systemic potential.

Our next question comes from Josh Shanker from Bank of America.

You don't give guidance on margins, but broadly speaking, Arch and others have loss ratios roughly in the same range as a year ago while growth has slowed. As you look ahead over the next year, do you expect Arch's and the industry's loss ratios to begin to deteriorate from here, or do you think current levels are supportable?

I can't speak for the industry, but we are confident in our ability to manage the cycle. That's our first line of defense: if returns fall below our threshold, we reduce participation. We are confident we will continue to find attractive opportunities to expand. Property market rates are coming down, but we see opportunity on the casualty side. Based on our own mix of business, we see rates just below trend which supports a thesis that margins are sustainable for the near future.

Regarding SME commercial business and the mid-core acquisition intended to be less cyclical: are you seeing fruits of that play out in 2026 and capturing incremental share in less cyclical business?

We just finished the systems cutover. Our main focus has been to roll over the portfolio and create an underwriting workbench on Arch paper. Now that the cutover is complete, we can pursue value-enhancing initiatives and scale the business. I would expect more noticeable impact in 2027 rather than 2026, as we stabilize the platform and build new tools to increase underwriter productivity and selection.

Our next question comes from Rob Cox with Goldman Sachs.

On premium leverage: on the one hand, the business is shifting away from property and property cat, which should allow for an increase in premium leverage. But historically, it's been hard to right-size leverage in a softening market due to lack of growth opportunities. Do you foresee premium leverage continuing to fall as the market softens? How does that impact your view on future ROEs?

We manage the equity side of leverage actively. If we can't grow and deploy capital into the business, we will continue returning capital to shareholders, which is a lever we have been and will continue to use. That helps us keep ROEs attractive. If mix shifts more toward long-tail business, it will help on leverage. We are watching the equity part of leverage carefully.

A follow-up on terms and conditions: did you see negotiations on terms and conditions change in the quarter, and which terms might become further negotiated as the market softens, particularly in property catastrophe reinsurance?

We've seen a bit more structuring at the margin, particularly more focus on aggregates and some top-end drops, but so far it's a relatively small portion of the market. As the market becomes more competitive, we'd expect more of those complex structures to come back to the market and be negotiated, which can be difficult to price.

Our next question comes from Ryan Tunis with Cantor.

The company is much larger today than seven years ago, both on the premium side and OpEx. I imagine much of the increase in OpEx supports hard market growth. Now that we're no longer in a hard market, to what extent are you looking at managing OpEx as a potential source of boosting margins?

Yes, that's absolutely on our mind. While loss ratio is the first priority as the market softens, expense management is important too—particularly in the insurance group. We are paying attention to operating expenses and will manage them appropriately.

A follow-up for Francois: the underlying loss ratio in the mortgage insurance segment looked a little elevated. Maybe a higher reserve for default—was that seasonal, and how should we interpret this quarter's loss ratio?

Some of it is the change in the average mortgage size going into notice of default (NOD). The loans currently going into NOD this quarter are from more recent vintages, post-COVID, when mortgage loan sizes were larger. Frequency assumptions have been flat for the last couple of years; severity remains stable. The driving factor is the average size of loan hitting the loss ratio, so the loss ratio has gone up a bit due to that math, but it remains within our expectations for mortgage.

Our next question comes from Taylor Scott with Barclays.

Thinking broadly about excess capital and uses beyond buybacks: given limited internal growth opportunities and that you typically have one of three businesses being particularly attractive, does this create any need to look at diversifying transactions? And is doubling down on AI and technology to drive growth something you think is achievable?

All three of our businesses are doing well, but growth opportunities across them are somewhat limited today. We are looking internationally and into product innovation, but it's harder to see outsized growth in any segment right now. Share buybacks are one way to return excess capital, but we also look at M&A selectively; any transaction for us would need to be truly additive, make us better or increase scale in a meaningful way. We're not interested in deals for the sake of deals. We're also thinking creatively about other ways to invest capital that improve competitiveness. Regarding AI, it's coming quickly and we are exploring ways to automate and improve productivity, but it's still early days and will evolve.

In fact, we've been investing in AI for the last 10 years across mortgage and P&C and have deployed many machine-learning models. The pace of change is very fast, and the industry challenge is to demonstrate measurable results while building a data strategy and integrated systems to support AI at scale. We also need to think ahead about what AI will look like in three years because it's changing rapidly. Models like the latest generative systems open huge opportunities, but it's still early and requires investment to deliver productivity and insights for underwriters.

As a follow-up, can you talk about exposure to private credit? I know in the past you've discussed alternatives allocations; do you have private credit within the fixed maturity part of the book?

We have some private credit exposure but it's limited. We hold it across public and private market allocations. Our strategy has generally been to lean toward higher-quality loans with low loan-to-value and strong collateral supporting the investments. We're watching the space like everyone else, but there are no red flags today that would require action.

Our next question comes from Matthew Heimermann with Citi.

I wanted to follow up on your comment about using AI in the technology rollover of the mid-corp business. How was that experience different than past migrations? You noted it was helpful and provocative.

AI helped accelerate the process primarily by assisting with code generation and, importantly, testing. A lot of the testing activities were automated using AI, which accelerated the time to market. Those were the two main impacts our teams highlighted as meaningful benefits from AI during the migration.

To add, this was a build-out of a brand-new platform infrastructure because we acquired the business but did not acquire a platform that fit with Arch. Creating a new platform internally is unusual and AI capabilities helped speed up that process.

Just to clarify on the term 'testing': should I think about that as auditing output or running scenario validations?

Think of it as running scenarios and automating the functional tests you normally perform every time you create new software. When you build a new platform you have a lot of testing to ensure the software performs as intended. Much of that testing today can be automated with AI rather than relying exclusively on manual testing by individuals.

Our next question comes from Meyer Shields with KBW.

François, I expected operating expense in reinsurance to be down because you should have more Bermuda tax credits, but I didn't see that. Can you talk through the moving parts?

Compared to last quarter, OpEx is up. Compared to last year, there are some Bermuda QRTCs in reinsurance, but the primary explainers for higher expense this year are investments in staffing and building out the reinsurance group, including hires around technology and systems improvements. There is also some noise from structured deals written a year ago that benefited the expense ratio then. Adjusting for those items explains much of the difference; there's nothing structural or surprising beyond that.

Okay, that's helpful. Shifting gears, there are reports of significant rate increases for product lines exposed to the Iran conflict. Are you trying to write more of that business or being more cautious given the risk?

We write in that space from our London office—political violence, terrorism, and similar lines. We've been cautious but rates have spiked up, so we have written a bit more business but in a very cautious manner.

Our next question comes from Rowland Mayor from RBC Capital Markets.

On your PML disclosure, do you think catastrophe models are fully capturing the improved loss environment in Florida from reforms such as AOB benefit performance?

Yes, those factors have been reflected. Historically, our modeling included loads for specific features of the Florida market. With the reforms, we've changed how we model those items—including fraud and additional claims-handling expenses—so our models and reported PMLs reflect our current view of the market and expected responses to reforms.

Our next question comes from Brian Meredith with UBS.

Your PMLs did not decline and stayed roughly the same at 4.1% versus your 1/1 disclosure, but you are reducing property cat business. Can you help reconcile what is going on with the PMLs relative to what you're doing in property reinsurance and insurance?

Think of the 4.1% number as a peak-zone metric; not a ton of activity at that level of the zone movement impacted our number this quarter. I would expect more meaningful changes after 6/1 and 7/1 renewals depending on our actions and market developments. For the 1/1 renewals we ended up holding on to most of the business and actually grew a bit, so although rates went down, the dollars of PML didn't change dramatically. You lose one account, you replace it with another; on the margin there can be differences, but materially the PML impact wasn't large this quarter.

As we've said earlier, Florida was green for us. We're getting returns we find acceptable there and we didn't reduce exposure materially at renewal, so that contributed to the stability in our PMLs.

Our next question comes from Pablo Singzon with JPMorgan.

On casualty sidecars: do you think this is a blip or is there a risk that casualty could face the same structural issues that property cat experienced when alternative capital exacerbated the soft market?

It's hard to tell. Sidecars and alternative capital are not helping pricing dynamics. One potential mitigating factor for casualty is security and counterparty strength: sidecars are often used by buyers who want to write the business but may have concerns about long-term capacity and the ultimate ability of the vehicle to pay claims years from now. That counterparty risk can be a differentiator versus the property catastrophe market, where losses are often near-term and capital providers are more immediately tested. So casualty dynamics may differ from property, but it's a risk to watch.

Our next question comes from Yaron Kinar with Mizuho.

Can you break out the man-made Iran-related losses between insurance and reinsurance, and what are the associated earned premiums?

We don't break those out separately; we report them as part of our catastrophe reporting. These lines of business—political violence, terrorism, etc.—are priced for those risks when we underwrite them, but we don't provide a separate split in our public disclosures.

To give you a sense of the market, estimates of market loss from the events are roughly $3 billion; we estimate the premium for the lines of business exposed to be around $2 billion. That's an approximate sense of market scale rather than a precise breakout for Arch.

When I look at the underlying loss ratio, it may not capture some losses while premiums continue to run—for modeling forward, I want to make sure we use the right base for the underlying loss ratio.

Good point. We can take that offline and walk through the details with you so you have the right base for your analysis.

One other question: in the insurance book, I saw that the other liability claims-made line grew nicely in the quarter. What drove that?

That's primarily transaction liability. We write transaction liability in North America and London and the increase was driven by higher pricing in that line as well as pickup in M&A activity over the last couple of quarters.

I'm not showing any further questions. Would you like to proceed with any further remarks?

Yes, I want to thank you all for participating in our call. We feel good about the business even though the market conditions are challenging. As we said, we are equipped and our teams are ready to compete in this market environment and generate attractive returns for our shareholders. Thank you.

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