Operator
Good day, ladies and gentlemen, and welcome to the 2Q2026 Arch Capital Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. Before the company gets started with its update, management wants to first remind everyone that certain statements in yesterday's press release and discussed on this call may constitute forward-looking statements under the federal securities laws. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. Consequently, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may affect future performance, investors should review periodic reports that are filed by the company with the SEC from time to time, including our annual report on Form 10-K for the 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 will also make reference to certain non-gap measures of financial performance the reconciliations to gap for each non-gap financial measure can be found in the company's current report on form 8k 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 hosts for today's conference, Mr. Nicolas Papadopoulou and Mr. Francois Morin. Sirs, you may begin.
Good morning and welcome to Archer's second quarter earnings call. We reported strong earnings this quarter with solid underwriting performance from each of our three segments. After-tax operating income in the quarter was $893 million or $2.56 of earnings per share. Slowing top-line growth and strong earnings freed up capital for additional share repurchases in the quarter, bringing the total for the first half of the year to $1.95 billion. Book value per share grew by 2.8% in the quarter and has increased by 4.5% in the first half of the year. While the underwriting environment is increasingly competitive, it is important to note that we are still in the early stages of the softening market. Overall, fundamentals are attractive, with some lines experiencing increased competition, while others continue to see rate increases. Archer's diversified business model ensures that we can find opportunities to deploy capital that generate appropriate risk-adjusted returns. Our position as an industry leader in specialty insurance, reinsurance, and mortgage insurance provides us with a meaningful competitive advantage. Clients come to us not only for capacity, but also for our underwriting expertise, claim capabilities, and valuable perspectives that help them better manage risk. Our commitment to cycle management is embedded in our culture and guides our underwriting approach. This is reinforced by a compensation structure that incentivizes quality underwriting by aligning performance with long-term profitability and shareholder returns. Let us now turn to our segment performance, starting with insurance, where results were negatively affected by catastrophe losses related to the Iran conflict. Arch is a leading rider of political violence, terrorism and marine war in the London market. So while losses affected this quarter's results, we are seeing ongoing opportunities to support clients with assets in the region. Underwriting income of 27 million dollars does not reflect the good underlying performance of the segment which delivered a current accident year combined ratio x cat of 91.6 as reported by others and consistent with our comments last quarter competition is increasing particularly in property and short-tailed lines that said the middle market commercial business and casualty oriented lines continue to experience rate increases Additionally, pricing in directors and officers is rebounding slowly, while rate declines in cyber insurance have moderated. Our gross and net premium return were negatively impacted by the non-renewal of certain program business as discussed in prior calls, and were also impacted by reduced rating of our excess and surplus property business. We continue to see premium growth in casualty-oriented lines in North America, including excess and surplus casualty, construction, and national accounts. And we also saw positive trends in certain specialty London market lines, including war and terrorism. Looking ahead, our diversified platform provides us with the flexibility to grow in those areas where pricing supports our return objectives. Reinsurance underwriting results were excellent, added by relatively light catastrophe losses, resulting in $410 million of underwriting income in the quarter. The current quarter accident year XCAT combined ratio was 79.9%, a 270 basis point increase from last year due to changes in mix and lower pricing in property lines. Net premiums written were down 10% from the same quarter last year, as some of our clients opted to retain more risk, and increasing competition lowered rates, particularly in property. We increased our session to traditional reinsurance and third-party capital, which impacted our net-to-growth ratio. Our ability to leverage these capabilities enables us to provide solutions to our brokers incident while maintaining flexibility to manage our net risk portfolio. Similar to insurance, casualty reinsurance is an area where we see attractive business. Opportunities remain though competition is elevated due to abundant reinsurance capacity. Within our reinsurance business, our focus is on maintaining our position as a leading reinsurance partner through disciplined underwriting and by consistently delivering business expertise across market cycles. The mortgage segment continued to provide strong, stable results, delivering 220 million dollars of underwriting income in the quarter. Our mortgage portfolio performed well, driven by a resilient economy and high quality risk in force. Our US MI portfolio delinquency rate remained flat at 2.1 percent favorable reserve development continued although slower than in prior quarters while affordability and housing supply constraints limit new mortgage origination mortgage insurance remains a consistent contributor to earnings as the strengths of the enforced portfolio and favorable credit characteristic continue to support steady profitability investment contributed 417 million dollars or a dollar and 20 cents of net investment income per share in the quarter this is supported by our conservatively managed portfolio which maintains an average credit quality of double a minus we continue to benefit from an asset base that has grown to 49.5 billion dollars supported by strong cash flows investment accounted for using the equity method, which are excluded from operating earnings, performed well, adding an additional $196 million or $0.56 per share to net income, reflecting strong returns across the portfolio. Over the last five years, we have enjoyed favorable market conditions in property and short-end lines, and consequently, we now face the early stages of a competitive market driven by an influx of capacity. This part of the cycle is to be expected. Importantly, a more competitive environment doesn't mean a lack of opportunity. It simply requires greater discipline in where and how capital is deployed. Our playbook is built upon our enduring strengths. A diversified platform, best-in-class cycle management, a strong brand that enhances our relationship with clients and distribution partners, as well as disciplined capital management. In sum, we remain well positioned to consistently deliver superior results for our shareholders. As ART approaches its 25th anniversary, one thing is clear. While the company has evolved, the principle and playbook we rely upon create long-term shareholder value. Thank you. With that, I will turn the call over to Francois. Francois.
Thank you, Nicholas, and good morning to all. Before I provide some additional color on our results, I wanted to walk you through our capital allocation and management actions this quarter. Capital management is an essential tool to help us to manage our business through the insurance cycle. The latest hard market provided Arch the opportunity to generate significant excess capital that that, as the market transitions, cannot be fully deployed into our business. Our preferred option has first been to return excess capital to our shareholders through share repurchases and, secondly, through special dividends. After considering the opportunities available to us to deploy capital in the business, both existing and new, we determined that share buybacks remain an accretive use of excess capital in enhancing shareholder returns at current prices. As a result, we repurchased 12.4 million shares at an aggregate cost of $1.2 billion in the quarter. Through the first half of the year, we have repurchased approximately 94% of our net income in our own shares. As you know, we also accessed the debt market in May, raising $2 billion in a combination of 10-year and 30-year senior notes the proceeds from this issuance will be used to one redeem the 500 million dollars of 10-year senior notes maturing later this year to purchase 418 million dollars of our 2043 and 2046 senior notes through a recently completed tender offer with the remainder for general corporate purposes the tender offer was designed to replace debt that no longer meets updated regulatory capital requirements with fully compliant capital instruments. As a result of the debt raise, we expect our interest expense to be approximately $60 to $63 million for each of the next two quarters. As of the end of the second quarter, our debt plus preferred to capital leverage ratio stands at a conservative 18.1%. Turning back to our operating performance for the quarter, our three business segments delivered excellent underlying results with an overall X cat accident year combined ratio of 82.5% up 160 basis points from the same quarter last year our underwriting income included 165 million dollars of favorable prior development on a pre-tax basis in the quarter or 4.1 points on the overall combined ratio we recognize favorable development in all three of our segments and in many of our lines of business but mainly in short tail lines in our PNC segments and in mortgage due to strong cure activity current year catastrophe losses were 201 million dollars net of reinsurance and reinstatement premiums and were a combination of losses from the Iran conflict and severe convective storms in the US the insurance segments net premiums written declined 5.1 percent year-over-year due in part to the non-renewal of certain program business the X cat accident year loss ratio net of rain statement premiums improved by 90 basis points to 56.4 percent compared to the same quarter one year ago due primarily to strong performance in our international operations. The acquisition expense ratio for the current accident year increased by 30 basis points, as the benefit we observed from the write-off of deferred acquisition costs for the MCE-acquired business rolled off. Our operating expense ratio was higher this quarter due to the transition of our middle market business to Arch Systems. As mentioned last quarter, we would expect our operating expense ratio to revert back to historical levels during the second half of the year turning to the reinsurance segment net frames written we're down 10.4 percent from the same quarter one year ago reflecting reduced ratings from lower rates in a higher level of retrocession purchases primarily in the specialty and property catastrophe lines overall our x catastrophe accident year combined ratio of 79.9 percent is up from last year due to the shift in line of business mix and a more competitive rate environment for certain sub-segments. Our mortgage segment produced another very strong quarter with underwriting income of $220 million. Net premiums earned were flat from last quarter with a reduction in our USMI business mostly offset by higher levels of earned premium in Australia. On the investment front, we earned a combined $613 million dollars from net investment income and income from funds accounted for using the equity method for 1.76 dollars per share pre-tax up from the 1.57 cents per share we earned last quarter we aren't we note that the returns of equity method funds contributed 340 basis points to our annualized net income return on average common equity in the quarter cash flow from operations remained very strong at 1.3 billion dollars for the quarter. Income from operating affiliates was 46 million dollars for the quarter slightly higher than the 40 million dollars from the same quarter one year ago. Our effective tax rate on pre-tax operating income was 15.1 percent reflecting the mix of income by tax jurisdiction. As of July 1 our peak zone natural cap probable maximum loss for a single event at a 1 in 250 year return level on a net basis is down slightly to 1.8 billion and now stands at 8% of tangible shareholders' equity. With these introductory comments, we are now prepared to take your questions.
Operator
Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. Our first question comes from the line of Elyse Greenspan with Wells Fargo. Elyse, your line is open. Please go ahead.
Hi, thanks. Good morning. My first question is on the insurance segment. I was hoping to both just get a sense of the sustainability of the underlying loss ratio you saw on the quarter. Francois, I think you pointed out strong international results for the second quarter in a row. So just trying to get a sense of the sustainability there. And then was there any change in your loss pick assumptions within your insurance book in the quarter?
Yeah, two things, or a few points on that, Elise. First, international, you know, as you know, it's more of a short-tailed book. So, you know, it's been running very well. And, you know, there's always potential volatility that we have to think about. So, I mean, hard for us to know how that's going to play out. But the business is doing extremely well. So we're happy with that. But on the North American side, I mean, what's also helped a little bit is the non-renewal of some of the programs that, you know, started out earlier this year. So as those kind of earn in, right, the premium earns in or the lack of premium, I think that has brought down the loss ratio a little bit. So, I mean, where does it go from here? I think, I mean, at a high level where we think we're comfortable with the levels where we're at. And, you know, I think there's a good chance or there's a possibility that we, you know, we stay at levels that are around this number.
And no movement in loss trends?
No movement in specific loss picks. I mean, it's really, I mean, absent just the normal adjustment of rate over trend that we go through each of our lines of business, but that we haven't like systematically decided to move down the loss ratio pick for one line in particular or another. So nothing new there.
And there is remember in insurance, you can actually adjust the mix of the book. So most of our books today are split in what we call quartile or quintile, where some of the book is running at the lower loss ratio, and the other side is running at a higher loss ratio. So the work of the underwriter is really to get pricing or manage a higher loss ratio out. So we have more propensity to keep the loss ratio where it is.
Thanks. Thanks. And then my follow up was just on capital. You know, obviously, buyback, right, picked up in the quarter. I think you guys just mentioned, right, slower growth, obviously, you know, strong earnings and capital position. How are you guys thinking about the level of buybacks from here, you know, recognizing, obviously, you know, we're in the midst of win season, would you expect to slow down this quarter and then pick back up? Or just how are you thinking about the level of capital return going forward?
Um, yes, we don't certainly don't have targets or plans to buy back a certain number or dollars of shares. We certainly thought that in the second quarter, the price of the stock was very attractive to us. So that's why we were able to certainly buy back more than we had done in the past. Does that stay at this level? I don't know. And the current prices, we like the stock still we think it's very attractive and you know we have you know we have capacity to buy back more so we'll see that plays out you know when seasons always something that is a little bit of back of our minds that we have to think about but you know going forward I think we're in a position where again the growth is going to be harder to come we think and you know sure buybacks will remain part of the arsenal that we have to manage our uh our returns thank you you're welcome your next question comes from the line of pablo sings on with jp morgan your line
is open please go ahead um hi good morning uh retention in the insurance business has ticked on over the past couple years uh is your approach to keep retention the same or could you potentially increase that and internalize more of the underwriting income uh i'm just not sure seeding is economically more attractive like it is in reinsurance today so can you repeat the question you're asking about retention of in the insurance segment uh your your retention has been going down right you've been essentially feeding less just not over not overgrowth right and i think in the soft market yep yep yeah so again it's a function of really the the market the
market we are in so i think in uh in reinsurance we we've seen we've seen a little more because i think we um if i remember we um we placed a little bit more on the shorter lines you know because of you know as the as the as the rate was going down and you know we try we also increase our capacity you know as we increase our limits we we buy more insurance so there's many factors that that influence you know the the the the the net to growth but the the market is certainly a factor we uh we we look at as well you know we we i said it in my we we're here to solve the problem for insured you know and for our brokers so you know the the the the insurance is is a good tool to stay in front of the clients and ultimately uh figure out what we want to keep uh after after it so and in insurance the current segment what's your stance and not the growth there I you know the question I asked you earlier was more on the you know it works on both the same way but down so more on the insurance side I'm sorry I correct the line is really your line is really bad so on the on the on the insurance I probably gave you the answer on the under insurance I think we are much more active, I would say, on the buying, especially because the property CAD business is specifically, we think, is quite stressed. So, we have to manage the net portfolio. And the tool we've used is relying on capacity out there that have a lower cost of capital to help, again, solve the problem for the clients or distribution partners.
Operator
Your next question comes from the line of Andrew Kligerman with TD Cohen. Your line is open. Please go ahead.
Good morning. Nicholas, I was intrigued by your early comments, prepared remarks, where you talked about an influx of capacity and that we're in the, quote-unquote, early stages of a soft market. So I'm hoping you can elaborate a little bit separately on property and casualty. Do you think property rates could come down materially more and to what potential degree? And you mentioned that casualty was decelerating. Do you think we could start to see that turn negative? Yes.
First, I think we, you know, I truly believe that the market that we are trading in is a favorable market. So, there are business that our teams can, on the insurance side, and to a large extent, on the reinsurance side, there's new business that we can write. So, we were made to trade in this type of environment. So, specific to property, Yeah, it's a big have the wins, you know, okay, you know, rates have been, you know, coming down and there I think we trade quite carefully and you saw both on the insurance and reinsurance on net premium going down. We are much more optimistic on the casualty side. I think there's more competition there. But the market is remaining disciplined, especially on the insurance side. We haven't seen any, you know, we've seen management of limit, which is a critical aspect of what we track. Our competition stays very disciplined.
Yeah, and I'd say, too, I mean, property, I mean, the cat activity will have an impact. I mean, it's still early in the season. so far it's been quiet but things could change depending on you know as we look into 2027.
Got it so um so in terms of um of casualty and maybe it's just like kind of a two-part when you when you say you're disciplined are you keeping up with lost costs on your rate and then you the the prior year development was 1.4 favorable in insurance, 5.3 favorable in reinsurance. And I know in the prepared remarks, you said it was mainly short tail stuff, but could you give a little color on the amount and geography by accident year in casualty or maybe it was just and significant, but I'd be curious around how casualty played out in prior year development.
Casualty at a high level is kind of neutral. I mean, so, you know, and there's some, you know, by year by subline, there's some up, some down. In total, it's about neutral. So, yes, the short answer is like most of the favorables and the short tailed lines in the last two to three accident slash underwriting years.
Operator
Your next question comes from the line of KV Montessori with Deutsche Bank. Your line is open. Please go ahead.
Thank you. I just want to follow up on the 1.2 billion dollars of shared purchases you did this quarter. I think it's the first time in a while we went over 100% of offering income. And I know, you know, part of that's dictated by the stock price but there's still a pretty meaningful gap between where you're trading and kind of like the intrinsic value based on three or four book value so at current levels like how i'm trying to get a sense of how long you can sustain share purchases above 100 of of your operating earnings you generate so you did mention you've built up a decent amount of excess capital during the hard market, there's probably a bit more debt you can issue if you wanted to. Just wondering, can you give us a stance of, could you sustain above 100% payout throughout the soft cycle?
Not knowing how long the soft cycle will last, but is it like a multi-year triad power that You're asking me if we have the crystal ball, which we don't, but let's just say that we've got, again, we are very confident in our ability to generate strong earnings through all phases of the cycle. We got three kind of pillars to our operations, three lights of the stool. They're all performing well. So we believe strongly that we have an ability to generate earnings for the, you know, for the, maybe not forever, right? But, you know, for the foreseeable future at a minimum so you're asking me are we able to return if we're not growing could we return all those earnings in back and in back to the shareholders the answer is yes we could um could we do something else again that's like i don't want to speculate what we're going to do in a year or two years because is there mna is there other things that we where we need the capital before what we you know we deploy it differently but um again the the quarter second quarter was again, hopefully a good demonstration that we are active and like to stock and think it's an attractive way to return to shareholders, and we'll keep doing the same as long as things change materially.
I guess linked to this, your TML went down a bit this quarter, I guess not as much as your premium on a net basis. Can you maybe give us some color, what kind of business you are sending to the retro market? And should you expect your PML to kind of go down over time as the cycle softens? Because I guess that could be an additional source of capital that'll be released that you could use for sharing purchases or whatever else you wanna do with it.
So the PML that you look at, I think is Florida, tri-county so it's one of the 50 zones that we monitor so i mean florida business is our peak zone so it's you know it's a big zone for most of the reinsurers in the in the field so that is historically as at the the highest margin so that's that that's why so i think you know the the the retribution are pretty much across the board you know on the on the on the property So we would expect that the PML could reduce, but think of Florida as the highest margin business in our proper T-CAD books.
The percentage of children's equity, we're at 8%. We've been in the soft market, the last soft market, we were at 4%. So we're a different animal.
We're much more relevant. we're much more I mean bigger partner to to many of our clients and brokers uh so yes could our PML come down absolutely does it go down to the same level back that we said we don't know yeah your next question comes from the line of Rob Cox with Goldman Sachs your line is open please go ahead hey thanks um the first question was just on casualty reinsurance I think you all had taken a maybe somewhat differentiated view on casualty re versus peers in 2025 by leaning in with some of these selective sedents. As we think about the deceleration in casualty reinsurance growth year-to-date, is that reflective of those outperforming sedents choosing to retain more risk, or has ARCH changed its view on casualty re-returns?
No, I don't think we've changed our view i think we as i think i mentioned in my prepared remark we we stay you know i think it's an attractive line of of business we like the fundamental of the underlying business in the specialty casualty area the issue it's not new is you know too much capacity or insurance capacity chasing too little business and the way we we see it is hit or miss on the terms and conditions. So there are certain terms and conditions that works. And for others, we think that sometimes it's mostly quota share contract, the ceiling commission is too high. So I think we're still looking for the right opportunity to add insurance casualty to our books in the right lines of business and with the right ceiling companies.
Okay, thank you. And I just want to follow up on, you know, the Middle East, um, some losses this quarter from a cap perspective, but it also seems like there's some incremental opportunities, um, to write new business. Could you just give us some sense of what the strategy is to write new business and, you know, how you go about managing that and determining, you know, what's a good risk?
Yes, obviously, you know, following the losses in the iron regions that we're all aware about, you know, prices have adjusted. And for us, we, you know, prices at some point were multiple of what they were before the conflict. And so we decided to deploy a bit of capacity and stay with our insured. you know some of our insured you know there's uh you know we we may do a run on your business now they suddenly figure out that you know the the the war which was excluded from their property policy they'd like to buy you know some coverage and so selectively we've we've deployed more capacity in the region you know making sure that we we we avoid concentration so we so we have a a careful approach to continuing to service our distribution partner and our clients in the region.
Operator
Your next question comes from the line of David Motomeyden with Evercore. Your line is open. Please go ahead.
Hey, thanks. I'm wondering if you guys could just quantify the Iran losses this quarter that impacted the insurance segment and then maybe just elaborate on how you're thinking about them and the cat load within insurance going forward. I'm interested also in any sort of IB&R versus actual loss detail you could share.
Well, I mean, the majority of the insurance cat losses come from your wire on. Cat load going forward, I mean, we quoted the 68% kind of, you know, on an annual basis for, you know, the group, that hasn't changed. I think the losses that we, you know, around conflict is more, is actual refineries, it's actual claims. So case reserves have been set up. It's not a hypothetical IVNR, you know, we'll put it up in case something happens. And those are, you know, large refineries, et cetera, that, you know, people are well aware of. They've been kind of hit and they, you know, there's damage associated with them. There's always questions around business interruption. So we don't know the magnitude of the outcome, but the claims are real and tangible. So that's how we think about it. I mean, again, Nicholas mentioned it. We are out of London at Lloyd's. We are leaders in the political violence, terrorism kind of market, and that's the losses when they happen. We expect them, and we think the pricing supports it, And that's why we've been in that space in a more meaningful way the last few years. And we're, you know, we're still in it.
Got it. Thanks. No, that makes sense. And then maybe just on the reinsurance segment, the accident year loss ratio, XCAT, you know, deteriorated 370 basis points year on year. Sounds like that's, you know, well within expectations that you guys have had just given the mixed shift. um, away from, from property. Um, and then also just the, the pricing pressure there on that line. I mean, is, is that the same sort of deterioration we should expect, um, as we head throughout the rest of this year or, um, yeah, sort of wondering how you guys are thinking about that.
Yeah. Yeah. As we said before, David, I think we, I mean, our view is we, we look at trailing 12 months as first of all, like to our kind of, uh, you know, the, the lens we like to put at our results specifically on reinsurance because there's going to be more, a little bit more volatility in the XCAT loss ratio no matter, you know, no matter what. So that's the first thing we'd say. Two, you're right. I think the mix, you know, has changed a little bit less short tail, which, you know, is reflected in that increase in loss ratio. Three, yeah, the market, you know, a little bit more kind of competition, but the rates are down a little bit more. That hasn't fully earned in so that may earn in um kind of over time so you put it all together like the the last kind of quarter if you focus on the quarter we'd say it's probably a little bit higher than we would you know that we would think the run rate is or kind of reflecting all these moving parts but um you know we're um we're not surprised by it we're thinking again to your point that's very kind of very much within our expectations but you know uh we'll see how things play out going forward your next question comes from the line of tracy benjigi with wolf research your line is open please go ahead you quantified that prop cat rate decreases you saw mid-year
renewals and share your view of rate adequacy looking at one broker survey looks like pricing is back to 2021 levels but a competitor had said it looked more like 2023 so where in the spectrum is your view?
Yeah, so I think, you know, I concur with what other people have said on other calls. I think the rate reductions in the mid-teens, you know, that's what we saw. And I think in terms of rate index, I think we are not back to, you know, the pre-Hurricane in i think we are we 2022 i think we we we think the market trade above that so are we in 2023 maybe but you know i think we depends it really depends on the region so i think that's what you you know we as i said earlier we have uh 50 50 zones so some zones are green still you know both and some zones are now red and some zones are in orange. So I think that's why we actively manage our portfolio. But in terms of index, I think our view is that we're still above the prior hurricane rate index.
Can you touch on your appetite to reinsure MGAs? I realize you're the lead reinsurer and at least one of the fronting companies. What structural safeguards do you have in place?
So our involvement on the reinsurance regarding MGAs has been mostly on the property side. So Shortel, I think we've been a significant player, you know, supported by the pricing on the primary side. It was one way our reinsurance team were able to access business that otherwise they could not access. So we, again, the fact that it's shorter limits some of the risk we see with working with MGA, which is, you know, down the road, you know, who's going to pay the claims and, you know, Who's going to be there if the MGA is no longer there? So I think as far as a reinsurer, you don't have as much of an issue. The issue is more, I think, with the insurer, the insurance company. Sorry, the insured. The insured or the broker, if you deal with an MGA, especially as it relates to long-tail lines, five years, six years from now, you don't have visibility if the MGA no longer exist who is going to pay your claims and will the reinsurance capacity still be there so i think it's more of an issue on the insured broker you know eno than it is for the for the reinsurer in my mind your next question comes from the line of yaron kinar with mizuho your line is open please go ahead thank you uh good morning um two questions on on the reinsurance segment and opportunities
these there. First, it sounds like you are still seeing an attractive environment for casualty there. That does sound a little bit different than what we've heard from other executives this earnings this season. So I understand from your earlier comments that it is a lot about partnering with the right underlying risk, but maybe you can offer some additional color as to what really makes this a more attractive opportunity for you when you look at this market.
I mean, what makes the opportunity interesting to us is the underlying insurance casualty, which we think in certain specialty areas is profitable. is profitable. So I think we are trying to, you know, through our insurance, access those companies that we think are good underwriter and do business in those specialty casualty areas.
Okay. And then on the property side, maybe following up on Tracy's question, I think we heard from another broker yesterday talking about how southern Florida is back to 2017 property cap levels. I think one of your reinsurance competitors talked about lighting up the load a bit in Florida. So curious as to what you're seeing in Florida. I realize there are a lot of zones there, but maybe you can give us a little more color detail on southern Florida versus northern Florida, west versus east.
I mean, what I can tell you, what we saw at 6.1 is the reductions of the rates were across the board. Historically, you know, there were a higher reduction at the top end of the program and lower reduction in the frequency layer. This time around, I think the appetite has been more across the board. And, you know, the Tri-County area is the peak zone, so, you know, I would say usually it attracts the higher pricing. I think if you are in the Galveston area or Orlando area, you know, the pricing would be less because it's probably not the peak zone of everyone. so and the market is efficient you know the the the the you know the the the pricing you know reflect more the the the abundance of capacity and in in in and uh and the new entrant capacity that is chasing the business but the the the differentiation in the pricing between zone i think is uh is efficient you know people are using models so i think we don't see a huge right flag there.
Operator
Your next question comes from the line of Roland Mayer with RBC Capital Markets. Your line is open. Please go ahead.
Hi, good morning. Do you expect continued benefits from higher investment yields to add pressures to casualty competition over time? I guess, do you guys embed some of your investment yields in your rate adequate decision on long tail lines?
We don't. We're very clear on that. We ask our casualty underwriter to write for an underwriting profit, and we credit them with a risk-free rate, but we require an underwriting profit.
So I think that's very clear for us. so thank you and then as my follow-up you mentioned buyback as part of the arsenal are we at all close to the point where special dividends make more sense than buybacks in 2024 i think that was when you were above 1.8 times book but also would assume forward roe expectations were higher when you made that decision yeah i mean back in 24 we were two times book so it was very much a uh you know to us was was very clear that buybacks did not make sense and dividend the special was the was the answer right now we're trading in the kind of one five one six range one forty five whatever so i think it's more um still makes sense to do buybacks but um you know so you know we you know our preference obviously it's one or the other and right now we're in the buybacks range and we'll see how that again how things play out but that's kind how we think about it like dividends as long as we again and again i said it earlier i think we have uh we're positive and and and uh you know or you know our visibility in terms forward looking earnings is is very positive so uh to us that supports kind of you know value creation and kind of strong returns for the next three years and that's a big part of how we look at you know the economics of the share buybacks your next question comes from the line of brian meredith with ubs
Operator
Your line is open. Please go ahead.
Yes, thanks. Nicholas, first question, I just want to focus a little bit on MidCorp. If we think about that business, X the program business that I know you're intentionally running off, how has the growth been? How has retention been? Has it been more challenging maybe to keep the business as you thought, given the competitive market? And then how do we think about it going forward?
I think we've been positively surprised. I think that, you know, our goal was really to, you know, the first goal was to move the business over to art. So we did this a year ago. And, you know, the second goal was to move the, you know, the police administration systems from Allianz to us. So that created some disruptions for our underwriters. I mean, you know, it made their life much more difficult. But I think the value of the brand and the relationship worked out for us. I think we are in a good place. I think looking ahead, I think we have now the underwriting team and the policy emission system on the ARCH using ARCH paper, it's ours. And so we're actively moving to the phase where we can provide them with better tools, better analytics, triage, improve the claims. So I think there's a lot of things we want to do that will lead to more growth in the future.
And do you see better call it market dynamics in that segment where Midcorp is than some of the other areas?
Yeah, I think it's muted compared to the large property and ENS. I think we still see overall on the package rate increase that are positive in the mid-single digits. And I think the property itself is flattish. It used to be 5% up.
But we don't see the double-digit decrease that we see elsewhere on the excess and surplus property or large account property your next question comes from the line of Chris Hartwell with Autonomous Research your line is open please go ahead good good morning gentlemen quick question first of all just on the mid-year renewal conversations you're having with your seeding clients over the last few months I guess what I'm trying to understand and in some sense also looking forward into into january uh i mean obviously there's a lot of focus on on price i'm trying to
sort of um understand what the really what the the clients are really sort of pushing for in terms of rate versus risk transfer uh from their um from their reinsurance uh protection so i wonder if you could comment on that please yeah i think so the primary uh message that we got from our brokers and sit on this price right now i think we have a little bit of a slippage in you know in terms and conditions or you know clients you know because they save a significant of money looking to see if they could could add the margin by an underlying layer so we're starting to see
this but it's uh it's really at the margin right now so it's mostly price okay thank you and i guess If I may, can I ask on the mortgage business? I mean it so far hasn't had any attention today so I'll give it a go. There's a decent bit of growth sort of quarter and quarter in terms of new insurance written. I was wondering if you can help just provide some colour on what's driving that. And I guess a part B to the question also is profitability has obviously been very, very strong um for the last uh the last few years but growth um has not really been apparent and i guess as we look forward and as that back book matures and what how should i see the the trade off between um i guess margin um versus versus growth opportunity how should that develop uh as we look forward so on the mortgage side i think this this quarter i think we we signed up a new clients in uh in australia and uh so that benefited that new premium influx helped our growth and the
second factor was um i think we we reduced some amount of quarter share insurance that we that we bought so that that really helped the net as well i think those are the two elements i believe and in terms of the profitability effect i think steady as you go my view is that you know the the This is an interesting market where, you know, we talked about rate decrease of 15%, you know, in property cash or, you know, in mortgage is 1% and the market reacts. So I think people react very quickly to maintain their market share. And I think the six actors have been maintaining the pricing where it is. So I think the variations there are much smaller.
Operator
Your next question comes from the line of Mayor Shields with KBW. Your line is open. Please go ahead.
Great. Thank you so much. I want to talk about casualty loss trends, but from a different perspective. I know, obviously, we're well into social inflation as an external issue, but I'm wondering whether you can talk about how Arch and maybe the company that you're reinsuring on the casualty side, are they getting any better at pushing back to the extent that what I would call net loss trends aren't as bad?
What do you mean, net loss trend?
And so sort of call it the trial attorneys are pushing for and then offset by more successful defense on the part of the insurance industry.
Yes. So, you know, I think I'd love to see more. We'd love to see more of that. I think there are a bit more pushback, but in the numbers, we don't see yet the impact of tort reform or different behavior by the defense attorneys and so on. So I think it's not reflected in our last trend because we just don't see it in the numbers yet.
Okay. No, understood. And then I apologize if this has been covered before, but I remember a couple of years ago, there was a little bit more caution on mid-year renewals because there were very negative forecasts for hurricane activity.
And I'm wondering, this year the forecasts are benign. know when there are below average forecasts uh does that increase your appetite for property cat obviously given the rates that are available it's it's a factor i think we have uh you know like most companies we have a meteorologist on staff you know that give us the outlook but we look at the correlation in the past there are some positive correlation but But it's one of the factors we take into account, but that's not the main factor.
Operator
Your next question comes from the line of Mike Zaremsky with BMO. Your line is open. Please go ahead.
Hey, thanks. Good morning. On the mortgage segment where the growth popped and you called out non-renewing some of the Bellamide and less reinsurance, Can you quantify what that impact was and if we should be run writing that for the next three quarters as well?
Yeah, I mean, I think the current quarter is a good starting point, right? Some of these agreements were effectively on the Bellamy side. I mean, they're canceled, so the benefit we got, because it's, again, monthly pay or monthly kind of premium, So benefit, we're getting both on the Bellamita and the quota shares, it's, again, it will continue on. So I don't, I would not, I mean, I would expect, like, at this point, kind of relatively flat kind of premium. On the USMI side, Australia, to Nicholas's point, you know, it's a relatively large new client, which just started in Q1. So as we move throughout the rest of the year, we should see more and more of that business coming in. So when you're doing year-over-year kind of growth, I think I would expect to see a bit more growth out of our international book.
Got it. That's helpful. And just switching gears to the war in the Middle East, I'm not sure if you did quantify the exact cat loss to David's question. But just, you know, if you don't want to, that's fine. But to the extent the war endures or ebbs and flows, should it be, you know, any color on, you know, what loss industry estimate you're using? Or is this very kind of idio to you all because it's, you know, specific to certain, you know, areas that were hit? Or any color you could add to how we should think about it to the extent the war endures? Thanks.
Yeah, I think there could be more. I mean, obviously what we saw in Q2 was a direct reflection of certain risks that we ensure that were hit. If we have the same in Q3 or Q4 as the war persists, yes, we could have more of that. but it's more case-by-case, it's more property-by-property specific and not an ongoing thing like COVID might have been, where it was kind of more an aggregate view of the exposure.
So, this is more kind of case-by-case specific, and we'll react to it if we hear the news that, again, there's some some some damage and i think our estimate for the industry loss since the last earnings call has no chance because i think the uh the event that happened just before the uh the the earnings calls i think we are still i think the industry in general is still around three billion dollars for the for the middle east world losses your next question comes from the line of Brian Meredith with UBS.
Operator
Your line is open. Please go ahead.
Hey, thanks for letting me get one more question. So I was just curious, you talk a lot about share buyback capital, but the one thing that I'm curious about is M&A and kind of how you're thinking about M&A in this environment right I mean, typically we've seen as the market rolls into a soft market, M&A actually picks Maybe give us your perspective and are you seeing any of that in the marketplace? Yes.
We don't think of M&A as an alternative to organic growth or buying back shares or returning capital to shareholders. We think M&A as more of a strategic way of building versus buy. If we want to be in a line of business and we don't have the scale, M&A could be a path to get us there faster and think of the alliance transaction is you know we wanted to be in the middle market property led you know we tried to get there and ultimately this opportunity came and and we paid a decent amount of money to to to to to have a franchise to be able to operate in that business so we're looking at a minute for what it adds to uh to what we have more so than to gain market share. And my honest view on M&A in this market is it's expensive. The price is expensive. And maybe the price comes down, but as the market gets more competitive, maybe the balance sheet gets weaker. So I think you have to think the timing of M&A is tricky. And a successful with M&A, it's difficult. Historically, a lot of the M&A has created the issues for companies, so we are very careful in the way we approach it.
Operator
I'm not showing any further questions. I would now like to turn the conference over to Mr. Nicholas Papadopoulou for closing remarks.
Yes, thank you for the time today and another good quarter for Arch, and we're looking forward to talking to you next quarter.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.
