Good day, ladies and gentlemen, and welcome to the first quarter 2022 Arch Capital Group 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. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. 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 today's press release and discussed on this call may constitute forward-looking statements under the federal securities laws. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. Consequently, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may affect future performance, investors should review periodic reports that are filed by the company with the SEC from time to time. Additionally, certain statements contained in the call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends the forward-looking statements in the call to be subject to the safe harbor created thereby. Management also will make reference to some non-GAAP measures of financial performance. The reconciliation to GAAP and definition of operating income 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. I would now like to introduce your hosts for today's conference, Mr. Marc Grandisson and Mr. François Morin. Sirs, you may begin. Thank you very much. Good morning and welcome to Arch's earnings call for the first quarter of 2022. Arch delivered a strong first quarter as our dynamic capital allocation and cycle management strategy, combined with strong underwriting skills, delivered a 13.6% annualized operating ROE. This past quarter provided yet another reminder that we live in a world of uncertainty. The war in Ukraine has affected countless lives and initiated a humanitarian crisis that is still unfolding, and the pandemic continues now into year three. In addition to the war in Ukraine, global inflation and supply chain issues pushed interest rates up, which in turn led to investment markdowns in the quarter. In spite of these headwinds for our industry, we demonstrated the effectiveness of our diversified platform as, one, we grew premium above market average again. Two, repurchased 5.6 million shares, and three, generated a strong operating ROE. Our objective remains, as always, to deliver long-term value for our shareholders using all the levers available to us. The underlying fundamentals of our businesses continue to improve as we benefit from better market conditions in the P&C industry and execute our cycle management strategy, where we actively allocate capital to the most attractive sectors of our business. Our P&C operations generated $2.3 billion of net written premium in the quarter, which represents an increase of 18% from the same quarter in 2021, and speaks to our confidence in the improving underwriting conditions in our P&C operations. Mortgage insurance contributed substantial underwriting profit in the quarter, and insurance in force grew modestly, again highlighting that mortgage remains a positive differentiator of our business model. Now, inflation is top of mind for everyone in the P&C industry, which, to its credit, has historically been adept at adequately respond to inflation trends. Inflation is not a new phenomenon, and in fact, it permeates discussions in evaluating claims all the time in an insurance company. As such, our focus is always on proactively incorporating new data into our reserving and pricing. We believe that this focus, in addition to increased future investment returns and reserving prudently, will help mitigate inflation's impact. As far as our mortgage business is concerned, inflation mainly has a positive effect as it increases homeowner equity, which again mitigates potential losses. I'll now share a few highlights from our segments. Across most lines, our P&C units remain in a growth phase of the underwriting cycle, according to Paul Ingrey's Insurance Clock. In the quarter, our P&C net premium earned grew by 25% over the first quarter of 2021 as we continue to earn in the rate increases of the past 24 months. Our data indicates that we are still experiencing average rate increases in excess of expected loss cost. In specialty insurance, underwriting conditions remain very good as pricing discipline, terms and conditions, and limit management are stable across most markets. This stability, combined with the uncertainties I mentioned at the beginning of this call, should help keep the market disciplined and sustain rate increases. Our specialty business in Lloyd's and our U.K. regional business delivered strong growth in the quarter as our European insurance operations now represent 30% of Arch Insurance's total net written premium, up from 20% pre-pandemic. We are pleased to see the positive results of the investments we made into this platform prior to 2020. We also created meaningful growth across our U.S. operations in the quarter, primarily in professional liability, including cyber, as well as travel, where we believe relative returns are attractive. On the reinsurance side of our business, the emphasis remains on quota share treaties over excess of loss reinsurance. This allows Arch to participate in the rate increases on primary insurance while improving the balance between the risk and the return. Overall, in our reinsurance group, growth opportunities remain strong. Since it's been a talking point on prior calls, it's worth noting that although property Cat rates have improved in response to elevated loss activity in the past few years, we have remained disciplined and have not allocated material additional capital to this line as we maintain our view that other lines of business have better risk-adjusted returns. Turning now to the mortgage segment, which once again delivered excellent underwriting results as we continue to benefit from strong housing demand and excellent credit conditions. Delinquency rates on our MI portfolio continue to trend to historically low levels, and cures on delinquent mortgages in our portfolio resulted in favorable prior development in the quarter. The increase in mortgage interest rates, currently at 5% for 30-year fixed rate mortgages, is a steeper rise than we have seen in decades. These higher rates have dramatically curtailed refinancing. However, our MI business is far more geared to the purchase market, which continues to benefit from strong demand and limited housing supply. Of note, the decline in refinancing activity improves persistency, which in turn should improve returns on our in-force portfolio. While the rise in mortgage rates may ultimately cool demand and slow the rapid home price appreciation of the last year, so far, we have yet to see demand weaken, and we expect home prices to continue to rise, albeit at a slower pace. Again, as mentioned earlier, rising home prices increase equity for homeowners, which ultimately reduces the risk of claim in mortgage insurance. Our perspective is that this expected future equity build-up and the strong credit profiles of borrowers should strengthen the resilience of our in-force mortgage portfolio. Moving forward, our diversified platform and cycle management philosophy will enable our MI team to continue to make measured, responsible decisions with our capital. Our MI group has the flexibility to grow or moderate the business they choose to write based on their view of market conditions. A few brief notes on investments, where net investment income was down from last quarter as we reduced risk positions, primarily equities, given increasing market volatility. Rising interest rates also caused mark-to-market losses in the quarter. However, the relatively short duration of our investment portfolio, as well as our healthy cash flow, will naturally allow us to reinvest at higher interest rates, which should be reflected in future quarters. In closing, even with current uncertainties, opportunities exist. In the quarter, Arch was able to deliver strong results with positive growth across its businesses, and we're well-positioned to sustain our growth trajectory in this favorable P&C market. We've consistently demonstrated our ability to allocate capital effectively to the areas of our business with the most attractive returns. As you know, with Arch, we are constantly looking for and seizing the opportunities that offer the best returns for our shareholders. François? Thank you, Marc, and good morning to all. Thanks for joining us today. As Marc shared earlier, our P&C units remained on their path of underlying margin improvement, while the mortgage group delivered another quarter of strong underlying performance, which was supplemented by solid cure activity in their insured loan portfolio. Overall, our results translated into an after-tax operating income of $1.10 per share for the quarter and an annualized operating return on average common equity of 13.6%. In the insurance segment, net written premium grew 21.3% over the same quarter one year ago. Growth was particularly strong within our professional liability and travel business units and was achieved both in North America and internationally. Underwriting performance was excellent, with an excellent quarter combined ratio excluding cats of 90.8%, a 250 basis point improvement over the same quarter one year ago. Similar to last quarter, a change in our business mix as a result of more pronounced growth in lines of business with lower loss ratios helps explain some of the 470 basis point improvement we observed in our underlying loss ratio. This benefit was slightly offset by a higher acquisition expense ratio. Increased contingent commission accruals on profitable business and lower levels of ceded business for lines with higher ceding commission offsets also slightly increased the expense ratio. As we have said before, our focus remains on improving our expected returns through a variety of levers, and we are encouraged to see that our efforts are paying off for our shareholders. In the reinsurance segment, it's worth mentioning that reinsurance agreements that were put in place at the time of the closing of the Somers acquisition in the third quarter of last year made comparisons from the current to prior periods imperfect. For example, while our reported growth in net written premium remained solid at 14% on a quarter-over-quarter basis, it would have been 26.6% after adjusting for the Somers cession. The growth came primarily in our casualty and other specialty lines where rate increases, new business opportunities, and growth in existing accounts helped increase the top line. The segment produced a net Cat accident year combined ratio of 82.7%. An excellent result as we continue to enjoy healthy underwriting conditions in most of the lines we write. Losses from first quarter catastrophic events, net of reinsurance recoverables and reinstatement premiums stood at $85.8 million or 4.0 combined ratio points compared to 10.5 combined ratio points in the first quarter of 2021. Approximately 2/3 of the estimated losses came from the Russian invasion of Ukraine, with the rest coming from other global natural catastrophe events, including the Australian floods. Our mortgage segment had an excellent quarter with a combined ratio of 3.1%, due in large part to favorable prior year development of $105.6 million. In line with last quarter's results, net premiums earned decreased on a sequential basis due to a combination of higher levels of ceded premiums, a lower level of earnings from single premium policy terminations, and reduced U.S. primary mortgage insurance monthly premiums, primarily from recent originations which remain of excellent credit quality. Production levels were down slightly from last quarter, but certainly in line with seasonal trends and new purchases and diminishing refinancing opportunities for borrowers. As we have discussed on prior calls, one of the benefits of higher interest rates is an improving persistency rate, which now stands at 66.9% and should continue to increase throughout 2022. Ultimately, higher persistency benefits our insurance in force and should result in a stable base of premium income to help drive underwriting income for the rest of the year and beyond. With respect to claim activity, approximately three-quarters of the favorable claim development came from our first lien insured portfolio at USMI as we benefited from better than expected cure activity, mostly related to the 2020 accident year. The remainder of the favorable development came from recoveries on second lien loans and better than expected claim development in our CRT portfolio and our international MI operations. We maintain a prudent approach in setting loss reserves in light of the uncertainty we are facing with borrowers exiting forbearance programs and moratoriums on foreclosures. Income from operating affiliates stood at $24.5 million and was generated from good results across our various investments, including Coface, Somers Re, and Premia. Total investment return for our investment portfolio was -3.07% on a U.S. dollar basis for the quarter, which explains the decrease in our book value per share to $32.18 at March 31, down 4.1% in the quarter. The decrease was primarily due to the mark-to-market impact for our available for sale fixed maturities portfolio, resulting in a $1.55 hit to our book value per share. This quarter, the meaningful increase in interest rates and negative returns in the equity markets contributed to the negative total return. As you know, we have maintained a relatively short duration in our investment portfolio for some time, and this strategy helped temper the mark-to-market hit to book value in the first quarter. While still relatively short, we have extended our duration slightly to 2.93 years at the end of the quarter in order to get closer to our duration target. The change in net investment income this quarter on a sequential basis was mostly due to a lower level of dividends as we shifted out of some equity positions and higher investment expenses related to incentive compensation payments, as is normal for us in the first quarter of the year. Going forward, we would expect net investment income to increase over the next few quarters as our portfolio gets reinvested at higher yields. At the end of the quarter, new money yields were approximately 145 basis points higher than the embedded book yield in our fixed income portfolio. Alternative investments representing approximately 15% of our total portfolio returned 1.4% in the quarter. The performance of our alternative investments is generally reported on a one-quarter lag. I wanted to spend a brief moment on corporate expenses and what you should expect for the rest of the year. As you know, the first quarter is always elevated relative to the other quarters due to the timing of incentive compensation accruals. This year, you should also expect a slightly higher amount in the second quarter, again due to our accounting policy for non-cash compensation for retirement eligible employees. As a result, we expect corporate expenses to be approximately $25 million in the second quarter before coming down to a level closer to the 2021 amounts for the third and fourth quarters. Turning briefly to risk management, our national Cat PML on a net basis stood at $768 million as of April 1, or 6.4% of tangible shareholders' equity. Again, well below our internal limits of the single event 1 in 250-year return level. Our peak zone PML is currently the Florida Tri-County region. On the capital front, we repurchased approximately 5.6 million common shares at an aggregate cost of $255 million in the first quarter. Our remaining share repurchase authorization currently stands at $927.2 million. With these introductory comments, we are now prepared to take your questions. Thank you. If you have a question at this time, please press the star then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. If you're using a speakerphone, please lift the handset. Our first question comes from Jimmy Bhullar with JP Morgan. Hey, good morning. I had a question first just on the expense ratio, and I guess if you could discuss a little bit more how much of it is just because of a mix shift in the business where some of the lines that entail a higher loss ratio or lower loss ratio, but higher expense ratio are growing faster, versus incentive comp or other expenses that might sustain through the rest of the year. Well, I think to me, it's the way to think about it is. I mean, if you want to focus on operating expenses is where all the incentive comp payments or expenses will come through. That you can easily see that our track record the last, you know, 12 months where you see in Q1 there's higher and then it levels off in the second through the fourth quarters. That should give you a good idea of how to project that out. The rest, I would say, I'd like to think of it in combination. Loss and acquisition to me are. We can't think of them separately. They have to go together. There's offsets. We think about it, you know, when we write the business. So, you know, ultimately, the way, you know, we certainly think about the whole, you know, kinda underwriting performance is the combined ratio. And, you know, that's how I'd, you know, suggest you maybe think about it. I think from a perspective of acquisition expense, I think the mix has shifted over the last couple of years. I think I would probably look at the last, you know, one quarter or two quarters as an indication for the future because our mix is shifting in that direction. It's clearly. As a result of that, you see the loss ratio expectations, you know, actually coming down, which makes sense based on what François Morin just mentioned. Then on your Cat losses, I think you mentioned that a majority of the Cat losses that were booked this quarter were Russia related, and I'm assuming most of those were IBNR. If you could give some color on that. Relatedly, you've in the past indicated what you had in terms of COVID reserves, and I think most of those were IBNR as well. If you can talk about what you would need to see to be able to start releasing some of those reserves related to COVID. Yes, I'll start with Ukraine. I think Ukraine, again, very early to me, it's somewhat similar to COVID two years ago, when, you know, it's still ongoing, right? We took a fairly, we think, prudent approach at this point based on what we know. We think we're going to have some losses, but, it's all IBNR, right? To the question really, we don't have any claims yet that are, you know, certain or we have to set up case reserves for. It's highly preliminary at this point, and it's based on kind of some assessment of what we think the overall exposure might be. You know, we think we're in, you know, a good place right now, but we're going to have to monitor it and see how it goes in future quarters. I believe our COVID losses, we're about 70% IBNR at this point in time, so it's still not, you know, finalized by any means. What's the magnitude? Well, our numbers haven't changed. Total reserves, right? Total reserves for COVID is about $160 million. You know, 70% of that is COVID. Sorry, not COVID. IBNR. IBNR. Yeah. Good. Thank you. You're welcome. Our next question comes from Tracy Benguigui with Barclays. Hello, everyone. I recognize that the 10-year anniversary for mortgage insurers setting up their contingency reserves is approaching, where these reserves will be released on a first-in, first-out basis into unassigned statutory funds. I believe Arch has about $3.1 billion of such contingency MI reserves. I'm just wondering if this anniversary is of any significance for Arch. Like, does this orderly reserve release improve your ordinary statutory dividend capacity or improve your view of capital allocation in any way? First of all, I mean, the fact that the contingency reserves, no question, are a statutory requirement. They're part of our, you know, overall way of operating. I would say they haven't really been a constraint in the sense of how we deploy capital, where we deploy it, or ability to come in and out of markets. I think it's certainly something we watch and are aware of, but I wanted to make sure that everybody understood that it's not, it hasn't been really, you know, caused a major issue for us at this point. You're correct. The 10 years, though, you know, we're going to start getting closer to our ability to release contingency reserves. Yes, no question that you know effectively shifts the money from you know contingency reserves to available surplus to you know and gives us more ability to declare dividends upstream from the MI companies. That said, we are always looking and you know it's you know and we've been able to do a little bit of that with the regulators the last few years to you know to on an exception basis and you know have you know kinda submitted some plans to them to make it so that we can actually access some of those funds maybe a bit earlier than would have been y ou know, I guess officially the case with the constituent reserves, but we're still, you know, it's something that we're constantly working on. Got it. I'd also like to touch on the negative marks in your investment portfolio. I noticed in your proxy, your key KPIs like growth and book value per share or ROE, these are metrics that Arch doesn't adjust for unrealized gains or losses, while some of your peers do. My question basically is, do these negative marks change your view of deployable capital in any way? No, not really. I think that the way we look at the operating ROE, it's more of like a run rate as to how our core business is performing, fully recognizing that a lot of the mark-to-markets will eventually recover. It's really the way we've chosen way back in our history to get a better reflection of how we're performing from a core business perspective, letting the vagaries of the market volatility, you know, find their way over time. That's really our way to be a bit more, you know, forward thinking and looking as to how we present our returns and our performance. Got it. Thank you. Thanks. You're welcome. Our next question comes from Josh Shanker with Bank of America. Yeah, thank you. If I go back in time, about nine months ago when I asked you about opportunities you have to deploy capital, you know, we looked at it as mortgage insurance, reinsurance, share buybacks, acquisitions. The mortgage issuing pace was hot, and reinsurance was attractive. It still is. But ceding commissions are up now, and maybe with where rates are going, mortgage issuance is going to be declining. Does that make insurance and buybacks more attractive on the relative slate of things you can do right now? What's changed about the ROI in mortgage and reinsurance over the last six months? Yeah. I think over the last year, Josh, good question. In terms of rank ordering our opportunities right now, I think the growth in premium speaks for itself. It's really an indication of where we think the value proposition is for our shareholders. I think that clearly reinsurance and insurance are close to one another. Our reinsurance team would argue that they have a better return perspective. We like to have these you know discussions internally, but certainly the P&C, it has moved up in the rank in terms of top return. I think MI is a close second. As you saw in the share repurchase, I mean, it's clearly another way for us to deploy capital that's very attractive for our shareholders. We have a lot of levers that we can deploy at that point in time. Having said this, our focus right now is really to grow the business, because we have so many good opportunities ahead of us. The Ukraine crisis has caused skepticism about the value of trade credit, which has hurt the valuation of Coface. In terms of your view of the attractiveness of that asset post Ukraine and whether the diminished price is an opportunity, do you have any thoughts there? Well, I think first, the Ukraine and Russia, you know, area is not a big portion of what companies such as Coface would be playing into. That certainly is a smaller footprint. You know, a lot of the, you know, losses that could have emerged or are emerging, they'll be short-tailed by and large, right? It's definitely a shorter term, you know, even though we're not out of the woods yet in terms of developing losses broadly. I think on trade credit, I'm confident that our Coface team has a good handle as to what their exposures is. I think if I take COVID as an example for, you know, how resilient they are, you know, even absent the government scheme, I think that, we like the resilience and the diversification even within Coface themselves, what they provided to the shareholders. Let's just say we're not overly concerned. I mean, I think the numbers are gonna come today or very recently. I think they'll have way more insight into this. At this point in time, our expectation is that it's, you know, it will have an impact on the result, but not to the extent that as always, it seems that the market is expecting way more downside than actually meets the eye. Because it's a line of business that I believe is largely misunderstood, and the way that, Xavi and his team has developed and, you know, the default risk management is underappreciated. I think Coface, they do a very, very good job in risk managing the portfolio. If I can sneak one more in. You said that 75% of COVID reserves are still in IBNR. Is COVID a long tail or a short tail risk? What would you be waiting for to get better comfort on the use or lack thereof of the IBNR reserves? I think on a short and long tail, I would say yes. It's both, right? I mean, there's a lot of things going on, and I think we certainly saw some of the BI losses, right, Josh, last year or even, you know, even early or middle of 2020. I think some of them are being resolved as we speak. I think we're of the mind that, you know, this is a big event. Things have happened. You know, people are still trying to figure out as they recover into this new market, this new environment, and it's still being thrown into it, some inflation and more, it seems more dislocation. I think that we may have, you know, things coming through, potentially on the liabilities side of things eventually. It's hard to know what it's going to look like, but it's clearly a loss that we've never faced before. That's why we will tend to be more prudent at Arch, as you know us. There's a lot more uncertainty than the average loss that we've seen so far in our history. Even the short tail coverages that you would think of are gonna be litigated, and that will take time to resolve itself. I mean, we're keeping an eye on it, but you know, we think it's gonna be with us for you know, quite a bit longer. Thank you for all the answers. Thanks, Josh. Our next question comes from Ryan Tunis with Autonomous. Hey, thanks. Ryan, are you still there, Ryan? We can't hear you. Ryan, you may be on mute. Yeah. Ryan. Yeah, I think Ryan just came out somehow. Can you hear me? Oh, Ryan? Yeah, you guys got me? Yeah, we got you now. Great. Hello? Oh, hey. We got you. Really sorry about that. Yeah, I had a MI reserve question. It's not as deep MI as the last one, I don't think. What I was curious about is just like trying to get a feel for how 2020, that year, has developed. Obviously, you guys released a lot of reserves from that year, this quarter, and maybe it's something I can calculate myself, but yeah, what have been the total number of reserve releases on the 20 years since you initially booked it? Oh, boy, I don't have that number handy with me. It's most of it. No, well, on the ones we just did, that would be most of it, because most of the delinquencies, and there was the largest cohort in April and May of 2020, second quarter, and those are the ones that are obviously coming out of foreclosure, delinquencies and, you know, being settled. Most of it is from the 2020 year. Do you have a sense, I guess, Marc, for like, I mean, if we were to compare what that ultimate is now relative to, you know, kind of the years headed into 2020, are we getting to a point where, you know, on a fully developed basis that year looks like, you know, similar years? I'm just trying to understand, like, you know h ow much more reserve potential there could be. Well, I have to be careful the way I answer it. I think I would say to you that 2020 and 2021 may turn out to be more like a, like an average year. There's a good possibility for that to happen. It's still uncertain because we're still going through the forbearance and exiting as we speak. It's accelerating on really as we speak, literally. I think 2020 and 2021 will turn out to be, you know, much more of average years than we had, you know, maybe feared when we talked about it second quarter 2021. Got it. On the P&C side, I guess I might be wrong on this, but I don't remember there being quite this much, you know, volatility with the acquisition costs. Like, this seems like something that is kind of rampant, like, as you said, the past two, three quarters. Could you just give us, like, maybe a little bit of a better understanding of, you know, why are we seeing more of that now? Is it because of the amount of loss ratio improvement that's going through the business? Is it the way you've structured reinsurance? I'm just kind of trying to kind of qualitatively understand what might have changed. It's a good question, and I would just welcome you to Arch's way of cycle management, which is moving and pivoting to where the opportunities are. It will be probably surprising to you as François already, and I don't really know what kind of acquisition expense we'll have any one quarter because our team just make the best evaluation possible as to what's ahead of them. I think on the reinsurance side, right, we mentioned in our commentary is that a quota share focus definitely, you know, over time will increase the acquisition expense ratio. On the insurance side of travel, for instance, right, was a really, you know, really went down in premium written, as you remember, Ryan, in 2020. It's coming back up. That has historically a high expense ratio. We also have some programs, new programs that we've entertained on the insurance side, and those will naturally come up with, you know, higher acquisitions. I think that it's a really dynamic market. I don't think we've seen that kind of market where, you know, we can shuffle around and really pivot and, you know, make, you know, capital allocation or decision to write more of one or the other. To your point about not having more volatility this quarter than ever before, it's because we had a very stable to frankly dull market for about five or six years. We were defensive. There was really no need for us to shift, and we were sort of across the board shifting down our involvement on the P&C side. I think it's way more dynamic, and that's why you have this shift around. To your question about the loss ratio, the loss ratio itself will find its way naturally whether we write, you know, quarter share or excess of loss. The, you know, higher the expense ratio, frankly, the lower you should expect the loss ratio to be, because it's really a combined ratio game, as we said before. I understand that it's not easy to pin down. We understand, but it's really due to the cycle management and where we are in this marketplace. Understood. That makes sense. Thanks, guys. Thanks. Our next question comes from Meyer Shields with KBW. Thanks. I want to start with one underwriting question, and maybe it pertains to what you were just talking about, Marc. We've seen year-over-year written premiums and programs actually go down after some very solid growth in the first three quarters of 2021. I was hoping you could talk us through what's going on there. Yeah. That there's a bit of noise. I think it's really related to the timing of a renewal of a program and when we onboarded one. I wouldn't kind of read too much into that, Meyer. I think it's very, you know, it's a one-off. I think the earned premium is a better indicator of the trajectory of where we're going here. Okay, perfect. That's very helpful. The second question. I'm sorry? Go ahead, Meyer. Oh, okay. You talked a lot and very helpful in terms of the guidance for corporate expenses. Is there the same sort of accrual trend in the individual segments? I'm asking because of the year-over-year growth in other operating expenses. Well, I mean, it's the same general. I mean, the timing is the same. It's just that obviously, at the corporate, in the corporate segment or what you see in corporate expenses, it's a very. I mean, it's, a, there's, yes, more non-cash comp that comes into play, right? And that is again more tilted to the first quarter. You know, that's just basically all it is. I mean, for the most part, it's just comp and benefits versus the OpEx in the segments you know has a lot more to it, right? There's systems, there's IT, there's a lot more things that you know, so you you'll never have that much impact or as much volatility in the segments. The rules are the same though. I mean, when we have people that become retirement age eligible, you know, it triggers that, yeah, different kind of accounting or, you know, immediate expensing of the non-cash comp, and that's part of it. Related, I think to just, you know, the growth in the OpEx dollar is no question that went up. You know, we say—I mean, we all look at that. We certainly wanna make sure that premium is growing faster. I think the ratio, as you saw in all the segments, certainly insurance arrangements went down. I think the important message here is that, you know, we've been performing well, and we need to pay our people. Our people is basically all we have. We need to retain that talent, and that came through in Q1, as we kinda made incentive comp decisions. Meyer, what I would add to this is you can look at that line item as either as an expense or as an investment item. I think from our perspective, we also are investing in our people, as you heard from François, and investing other things, right, that will improve, you know, the results over time. That's, you know, this is a good time to invest. You know, we have, it's a growing platform. Money's coming in, so it's a good time to invest. We're really also spending some money to make it more sustainable as a platform. Okay. Perfect. Thank you so much. You're welcome. Our next question comes from Mark Dwelle with RBC Capital Markets. Hey, good morning. Just a couple questions. We've already covered a lot of ground. On the Russia-Ukraine losses, what lines of business or products were impacted there? Was it your own trade credit or was, you know, war or marine whatever? Yeah. It's the traditional lines you would expect. I think that most of our losses come from our exposure at Lloyd's, either through from the insurance platform, the reinsurance platform. That's what you would expect, right? Because this is where the specialty lines have been underwritten. Either through Lloyd's of London real operation. This is where we're expecting it from. In terms of trade credit, it's part of the considerations. Again, like I said, it's also part of that as well. We look across all lines of business. I would think London, Lloyd's, you know, aviation, marine war, you know, the classic, you know, Lloyd's exposure. Okay. Building on that, I'm just trying to make sure I understand it correctly. To the extent that Coface incurs losses, you're picking those up effectively on a one quarter lag basis. Whatever they have, you'll get your proportional share, of how those run through in the second quarter and so on going forward, correct? 100% correct. Yes. Okay. The last question is, I just wanted to clarify, you made a number of comments related to the investment portfolio. Am I understanding correctly, so you're both extending the duration and getting a higher new money yield on both the reinvestment as well as, I guess, any new money that you're generating? Yeah. New money yield, no question. I mean, I mentioned the 145 basis points. That is, you know, comparing your embedded book yield on the portfolio at the end of the quarter to what we're currently seeing in the market. The extent and the duration is really a bit more of a strategic thing. I mean, we were short, I mean, relative to our benchmark. We got a bit closer to the benchmark. You know, just being a bit more of a defensive move, wanna make sure we weren't too far off from the target. In terms of thinking forward, which will have the greater impact on rising investment income? It'll be the, I would assume it would probably be the higher new money rate more so than the duration extension. Totally. Yes. We, I mean, listen, we, you know, we don't know how quickly the portfolio will turn over but certainly, as Marc mentioned, the free cash flow coming in and also, how quickly the portfolio will turn or you know, either mature and/or we'll trade in and out of certain securities, we'll be able to reinvest that. It'll take, you know, certainly a few quarters, but, as I mentioned, I think we'll start seeing some benefits, you know, starting next quarter. By the end of the year, it should be, hopefully, somewhat, you know, measurable and meaningful. Okay. Thank you. I appreciate the thoughts. You're welcome. Our next question comes from Yaron Kinar with Jefferies. Hey, good morning, everybody. My first question, and maybe it's more of just me rephrasing and making sure I'm thinking about it correctly. Am I to understand that really your focus or your myopic focus is on getting the loss ratio better, and you're kind of agnostic as to whether the expense ratio goes up and/or down as long as the combined ratio comes down because the loss ratio improves more? Yeah, I think you're right. I think the combined ratio, which leads to return on equity is what we're focusing on. Yes. Okay. I should probably be careful with how I phrase this. Maybe we talk industry here. You know, at some stage you expect in the cycle to see some adverse reserve development and then probably followed by some favorable development. I guess, where do you see the industry at today? Maybe at what point do you start seeing the reported combined ratio improvement coming more from favorable development as opposed to the accident year losses improving? Yeah. I can't speak really to the level of reserve in the industry. I mean, everybody, you know, it's like beauty is in the eye of the beholder, right? It's kind of difficult for me to opine on this. I think in terms of earnings versus pricing cycles, I think it's true that the pricing cycle peaks and then the earnings cycle peaks probably a couple, two to three years after. I think that was historically that's been the case. I would expect, you know, earnings too if pricing is. I don't see, I'm not saying it's peaking, but once it's peaked, we should probably have earnings still getting better for, you know, a couple of years after that. We're still very much in the margin improvements still in the market. It's a tough question to ask as opposed to what, right, Yaron, where it's going to come from, prior development or current accident years. That's a different, probably also for every company. Fair. I'd be happy for you to opine on Arch specifically if you want. We're doing pretty good. Okay. If I could sneak one last one in. Two-thirds of Cat losses are related to Russia. Is that true for both the insurance and reinsurance segments? It's a good question. I mean, directionally it's about that. Yeah. I mean, we might have a bit more. The non-Ukraine Cat losses were mostly reinsurance. Australia floods is where we kinda, you know, that we picked that up a bit more from the reinsurance side, but it's directionally about, you know, it's not a big difference. Got it. Thanks so much. Yeah. Thanks. Our next question comes from Brian Meredith with UBS. Hey, thanks. A couple ones here for you. First, Mark, can you talk a little bit about what you think about the opportunities maybe in Florida with the renewal season? It's a lot of turmoil and stuff going on down there. Yeah. I can only tell you right now what we hear from our team. What we hear from our teams and including, you know, our colleagues and, you know, brokers and friendly brokers out there is it's going to be a tough renewal. There's a lot of question marks, a lot of decisions that needs to be made. It's too early, Brian, to call what it's gonna look like. People are expecting, I think you may have heard this on another call, a difficult renewal. There's a lot of things that need to be fixed, you know, between the recognition of the, you know, litigation that hasn't really stuck at all, as much as we would have wanted. Some of the companies are struggling to even survive. You know, do you get paid your reinstatement? I understand that the state is also trying to find solution. We probably have an impending discussion from Department of Insurance as to what they wanna do or the direction what they wanna do in Florida. We're like you, Brian. We're on a wait and see kind of mode. The one thing I will tell you, which all our shareholders should hear is if there's an opportunity we have capital to deploy there. We're very well. Great. Great. Great. Great. Yeah. Yeah. That's what I wanted to know. You've got the capital. Yeah. Marc, another one. A couple of stories out last night and this morning about companies looking to potentially sell themselves. I'm just curious what your thoughts are on M&A, kind of Arch's view with respect to the M&A environment. You know, is the organic growth opportunity just too good right now to distract yourself from potential M&A opportunities? Listen, we're a broadly equal opportunity kind of company, right? We'll look at what can be done and what should be done and what makes sense for the shareholders. We're not, you know, looking for transactions necessarily, but our history shows that when a transaction come that's accretive to our shareholders, we'll entertain and look at it. We certainly have a look at what's out there, what has been discussed, you know, as you would expect, Brian. I think we have, you know, probably the best position possible, which is we don't have to do anything. We have plenty of opportunity, and we are in the seat where we can just, like, wait for the pitch to come to us. I feel very, you know, very fortunate to be where we are at Arch Capital. We'll look at it. We'll look at a pitch. If we like it, we'll swing. If not, we'll just let it go by. Great. Thank you. Yeah. Sure. Our next question comes from Elyse Greenspan with Wells Fargo. Hi. Thanks. My first question, you know, if I look at your insurance segment, you know, it's been six quarters in a row where you guys have grown by more than 20%. It seems from your comments, you guys are, you know, still pretty bullish about opportunities there, you know, even with perhaps a little bit less price. You know, Marc, does this feel like an environment where you can continue to see pretty robust levels of growth within your insurance segment, you know, for this year and, you know, beyond? The answer is yes, Elyse. I wonder where you were for the call. The answer is yes. Broadly, it was probably more of a broad market opportunity probably two years ago. Now it's refining itself in more certain lines of business. As we mentioned before, some of the programs we've seen a better, you know, pickup in pricing and property as we speak right now is getting hard again on the heels of, you know, failing to get the value right as an industry. Listen, I think that it's a bit more of an opportunistic. I think we still have, though, the ability and the willingness, to lean in hard if we see opportunities, and we are seeing opportunities. Yes, it's not, just not as broadly based perhaps as it would've been two years ago. You know, as we think about, you know, some stuff that's come up throughout the call, right? We're dealing with higher inflation, also higher interest rates that you guys mentioned can be a tailwind on the investment income side. Where would you put, you know, the ROE within the P&C business? Where do you think that's running at, you know, today when you think about, you know, how 2022 could come in? I know you talked about, right, kind of targeting the double digits in the past. Yeah. Where, you know, where do you think things are now? I think we could speak for our book of business. I think we expect our ROE on the policy year basis, what we write currently to be close to the mid-teens. I mean, we're getting there, inching possibly every quarter since the end of 2019. Yeah, this is sort of where we are, Elyse, and yeah, pretty much. What else? Was there another part of your question? I wanna make sure I think you had something else. No? No, that was it. Okay. There you go. Yeah, there you go. Yeah. Then another one, just on buybacks, and I think this came up a little bit earlier when you guys were talking about ROEs in general. I know in the past we've used some rule of thumbs with book value, right? But you guys, it seems like bought back your stock, right, within range of 1/4 book into Q1. I know the shares are a little bit higher today, right? Partially that's a function of the mark to market in the quarter. So obviously it would, you know, buybacks would depend upon the growth opportunities. But, you know, it seems like you guys, you know, would still be willing to buy back your stock, you know, given its valuation, say. I think that's fair. I think. Listen, I mean, again, the multiple is not something we focus. You know, we look at it, but again, I think on the heels of Marc's answer to your earlier question, I think we like our prospects. I mean, we think the forward-looking ROEs that we have in front of us are very attractive. We think the stock is priced, you know, relatively attractively for us. You know, depending on what opportunities come our way and how we can deploy the capital, share buybacks are always part of the solution or part of how we deploy our capital. Thanks for the color. Thanks. Our next question comes from Tracy Benguigui with Barclays. Thank you so much for taking me on again. I noticed that you increased your reinsurance prop Cat writings by 10% this quarter, and I recognize you're underweight on PML relative to peers, but still, can you break down how meaningful is this growth driven by exposure increases versus rate increases? If you could just comment about your overall risk appetite for prop Cat risk, you know, balancing pricing, inflation and your exposure management. Yeah. In terms of, I mean, appetite, we've been relatively neutral for the recent, you know, last few quarters. I mean, we haven't grown. I mean, this, again, this is a bit of a slight one-off in terms of the, you saw the growth in the premium, just the timing of a renewal. We had like a 14-month premium that, you know, pro rata program that fell in different quarters. So again, wouldn't read too much into the dollars of growth in the quarter. But, you know, we still, you know, we're still players in the space. We still say and believe that we need to get a bit more to really put the pedals to the metal. We'll see where it goes. Yeah. On the Cat exposure, Tracy, I think that we look at how we deploy it, right? We could deploy it through Cat XL or quota shares or surplus share. You know, it's coming from many lines of business. I think that for the last 18 months or 24 months, because of the, you know, significant increases in T&C changes, improvements on the property and large property, you know, property segments in general, that our deployment of capital from the Cat perspective has been more towards quota share reinsurance. I think the Cat XL has been lagging, frankly, in terms of pricing. We said that more than once. I think that the. Again, that's another one that the similar answer to the question that I answered to Meyer earlier, which is the earned premium is probably a better indicator of our relative, you know, growth or non-growth in this case, in the property Cat space. Okay, great. Just one real quick follow-up on actually Elyse's question. I felt like last quarter you kind of alluded that you could buy back stock above the 1.3x, just given your view of intrinsic value of your MI business. I don't know if those comments were fully appreciated or if it's possible you could flesh out your view of what you think the intrinsic value of your MI book is and how that plays in. Well, it's part of the, I mean, forward-looking ROE. No question that, you know, there is significant embedded value that's built into the MI book and we have good visibility on that. We're very bullish on it, and that gives us even more comfort that, you know, there's significant value in the stock. As we think about buybacks, I mean, no question that from our side it's fully factored in. Thank you. Thanks, Tracy. Our next question comes from Michael Phillips with Morgan Stanley. Hey. Thanks. Just one call from me, and it's back to MI for a second. Trying to marry your earlier comments on the rank order of capital allocation, and you put MI second behind P&C, which I think also makes sense given the fundamentals in the P&C book right now. If we take that and then look at earlier comments, the opening comments, which, you know, were pretty positive on the MI space, I'm trying to figure out how to think about any help you can give us on thinking about, I guess, growth for the MI business, given what we saw this quarter growth over the next year. Well, I mean, it's hard to see from the way we report, but I think the growth, we have a fair amount of growth through the CRT. We also have, you know, a very healthy CRT, which is the credit risk transfer programs in the GSEs. We also have, as you know, taken on the mortgage company that was owned by Westpac in Australia. So that's also seeing some growth. You know, in the U.S., I mean, we have to remember the production was record for 2020 and 2021. So, you know, it's kind of hard to grow from there, you know, significantly. So the market itself probably might be decreasing a little bit. So we'll see where it shakes up. Definitely the refinancing is very, very much, you know, very much, you know, pretty much behind us because of the mortgage rate increases over that six months. I wouldn't say that new production I say would, you know, because by virtue of the size of the market, you know, on the US MI, you know, sort of shrinking somewhat from the refinancing perspective. But what is happening because of this mortgage rate increase in the premium written will be much more stable and actually could increase because of the lack of refinancing precisely, which means the insurance in force will increase, which will give some lift into our ongoing written premium. Even though we may not have a similar production from an NIW perspective, I think that the existing portfolio, I would expect, you know, the written premium to go up on a growth basis, definitely, you know, at some point, you know, starting probably the second half of the year, François, possibly? Yep. Okay. No, thank you, Marc. Definitely. Thanks for the color. Thanks, Mike. I'm not showing any further questions. I'd now like to turn the conference back over to Mr. Marc Grandisson for closing remarks. Yeah, thanks everyone for being here today. Great questions, and we look forward to see and talk to you again in July. Thank you. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.