Welcome back to what I think is the insurance sleeve of day two of the Bank of America Financial Services Conference. We're very pleased to have Arch Capital talking with us here. We have the distinguished leadership team here, Marc Grandisson, who is President and CEO, and François Morin, who is the Executive Vice President and Chief Financial Officer of the company. Just a little background. Marc was promoted to the position of CEO of the group on March 3rd, 2018. He's been there from the beginning, so formerly President and COO of the company and Chairman and CEO of the Arch Re business, Chairman and CEO of the Arch Mortgage business. As one of the original employees, he joined Arch Re in October of 2001 as Chief Actuary. Yeah. Has worked for Berkshire Hathaway, AIG Re, Tillinghast-Towers Perrin, and he also looks great in a trilby hat. All right. François, Executive Vice President, Chief Financial Officer, and Treasurer, formerly Chief Risk Officer, joined in 2011, October. Yeah. Also, some experience at Towers Watson, Tillinghast. Both Marc and François are graduates of Université Laval in Quebec City, oldest French-language-speaking school in North America. Thank God there were no phones back then. Well Thank God. We'd have pictures. They're in our mind, but we don't want to share with anybody else, right, François? [Foreign language] Bonjour. Exactly. [Foreign language] [Foreign language] Okay. probably if this was a couple of days ago, I would have some different questions, but you reported earnings- Yesterday the previous evening before. Yeah. They were good. Can we talk a little bit. That's it? That's all we get, good? Well, I mean. Record earnings, good. Well, the stock was only up 1% yesterday, so you know. Fair enough. Fair enough. Can we talk a little about, I should say, look, these were 28% ROE in the quarter, and it's still, we're talking about 2022. We haven't even had the inflection of what's going on in 2023. Can we talk about what's been going on the last six weeks and how we can expect to build from there on the business? Quickly on the 28%, it was low cat activity, healthy reserve release, as you know, on the MI space, and also we know a lot of business written historically for the last two or three years that came in with healthy margins. All these things added to that good quarter, which was exceptional from our perspective. Very happy and very pleased. We think it's better than good, personally, but that's just my view. Going forward, I think for 2023, I think it's more of the same. I think that the conditions that we've seen in 2022, it seemed like early 2022, we were still having a good market, but it was sort of losing a bit of its steam, a little bit of its momentum. I think Ian, unfortunately or fortunately, depending on where you sit, sort of reinflated, reinvigorated the hardening market. I think it really just made us sort of getting a second wind, if you will, in this market. We start seeing it emerging in the fourth quarter, and it's become pretty clear, the renewal. I think that the psychology, like I mentioned yesterday on the call, the psychology of the market is squarely at the camp of having more of that in 2023. We're very optimistic about the opportunities that we have ahead of us for the rest of the year, not only in property cat, although property cat is certainly a number, a big story. I think we still have very healthy rate level, are maintaining, holding up better than I would've expected being in stage 2 perhaps of the market cycle. Overall, I don't know what they're always going to look like this year. We don't have any guidance, we certainly are collectively, not only Arch, in a really good position to earn very good returns over the next 12 months. I think if I ask you, I ask the same question about two or three times a year to get to test on different Arch businesses. If I go back to six months, what is the return on allocated capital in various businesses? If I remember six months ago, we're going to say that insurance was 14%-16%. MI, 12%-14%. In reinsurance, 11%-13%. Maybe I'm wrong, sort of in the right areas. That was six months ago. Where are we today? Yeah, the numbers are kind of in that ballpark. Yeah. We certainly, I think we thought that all three of our segments were kind of at the same level- in, call it six months ago. We were all mid-teenish kind of results or returns, which is different than, call it two years ago when we saw better returns from mortgage, and you saw us deploy more capital in that space. When people ask us what's your favorite child, and all those good questions, we certainly had mortgage ahead of the other two, and then depending on kind of specific quarters or views or what we were thinking about, insurance and reinsurance were still kind of bit below. That kind of ranking, I think, has changed. I think mortgage, while we still think is going to be good for us going forward, we're downplaying it a little bit. Still kind of in the, call it double-digit returns, maybe down a point or two from what it was six months ago. Call it 11-13 kind of range. Where the shift has taken place is really on reinsurance, where reinsurance has gone up by more than a couple of points, and we see that as truly in this market, really the one where we think there's better opportunities. How long that lasts and how good can it be, can it get even better? Time will tell, based on what we saw 1/1, we're north of mid-teens for sure in reinsurance. Insurance is still very good, and I think there's still room to grow there. A lot of it will depend on, I think, the ability that the insurers have to pass on the costs of reinsurance. There is that one, like it or not, the 1/1 renewals, insurers have to pay more to buy the reinsurance coverage. I think they will have to find a way to pass that on to their insureds. It might take a bit of time. It won't happen all in the first half of the year, that's why we think the momentum will keep growing and staying with us on the insurance front. Back in 2001, you had about three, four years in a row of very underpriced risk in the insurance markets, then some of the big cash flow problem when you had to pay out a $25 billion claim for the Trade Center. Arch was formed along with other companies saying this was a seminal moment in the industry. Compared to that opportunity, how far away is the marketplace from it being a seminal moment in the cycle of the industry's history where we are right now? Yeah, I think it's hard to compare. Interest rates were different back then, I think that the trough of 1997 to 2001 was deeper than what we're seeing right now. We had a few member insolvencies and people by the wayside, laying on the wayside. I think it's different this time around. I think it's large part because of the capital regime that's improved and well improved. It's getting more heavy for the insurance carriers. I think that makes them a bit less susceptible to default in this day and age. In terms of pricing, we're not as much in a trough, but I think that if I look at the liability side of things, I think we had similar reaction in 2021 and into 2022 in terms of picking up the prices. We had a lot of people pulling back their lines heavily, that really got a big repricing in the market that continues to this day on the E&S and still dislocation on the general liability, as we all know, and in property, obviously, for obvious reasons. I think it's probably more like it's a combination a little bit of being in 2003, 2004 and having just survived or suffered through KRW. It sort of feels very similar, but I think the liability market has already corrected. It's a very similar, actually, come to think of it almost feels like we're in 2006, 2007, which again, as we know, was a great starting point for multiple years of good profit for our industry. That's what it feels like right now. I think if I go back, I've been covering the stock from the beginning, so I have a complete history. I don't have all the data. I think that in 2008, you started giving out PML information. Yes. The peak PML risk of the company as a percentage of shareholders' equity was in 3Q 2008. '08 22.8% of the company's risk. The company in its sort of bylaw says, "We're never going to exceed 25%, but we'll play in that sandbox from 0% to 25%, depending on the market opportunity. Right. We are a long, long way from exposing 22.8% of the company's capital against a major cat event in the Tri-County Florida peak wind zone. We've been trying to scale the opportunity right now and say that Arch has a lot of capital it could put to work if we wanted to. When we'll want to? If the pricing is at the level that we think where it's at, and where we think it will be for 2023, the answer is obviously we want to put the capital to work, and we have the appetite to do so. Just pretty basic math, like getting to 25% is not something that we think is achievable in this environment. 25% of $12 billion is a much bigger number, and when you start adding up just rough numbers, just the limits that are purchased across either the U.S. or internationally, it would mean that we would become a much larger market share participant in that space. Unless some companies go under, there's insolvencies, we just don't see that happening. Could we go from our 8% to 10% to 12%? Absolutely, and we think there's a lot of room to grow there. Getting north of 20, I think it would take a different kind of a major market correction for us to even be able to get to that. Still, we think there's a lot of opportunity in front of us. Yeah, Josh, we're a different animal. We're much bigger, much wider. We have much more diverse. We have M&A that we didn't have back then. We have a big insurance play, then the reinsurance play is also much bigger. We were more dependent on a few things back then than we are now, right? It's a bigger pond to fish from than we had before. That makes a big difference. Well, just to put it in perspective. I want to let you know that it's possible that you can ask questions. I have plenty of questions, if you raise a hand, I'll stop and pause, just so you know. All right. I might get in trouble with them and trying to trip you guys up a little bit. We'll see. If we think about back in 2005, Arch, from 2001 to 2005, Arch said, "You know what? It'll be easy to start a property reinsurance business when we want to. We're not going to go all in. We're going to try to do some more complicated things. We're going to start an insurance practice, we're going to try and work more in casualty and build a practice there." Then Katrina, Rita, Wilma hit. Everyone else had mismanaged their PMLs and created a great opportunity, better than even in 2001, which was crowded to go in. That's right. Suddenly, Arch was the only game in town. It became a great moment for you. Yeah. Fast-forward Hurricane Ian. I don't know exactly what your loss in Hurricane Ian, the 3Q losses were about $550 million. Hurricane Ian being by far the biggest part. Your one in 250 Tri-County Florida PML at the time was about $888 million. The Gulf of Mexico hurricane lost around $730. It feels to me that Ian is maybe a one in 10, one in 20 year type event, and your PMLs were like for the one in- I know, yeah 250-year event. Not that it has to be right. The models are only as good as the models are. Do we have confidence in Arch's PMLs? We certainly shouldn't have had confidence in a few of your competitors' PMLs in 2005 when we saw what happened during Katrina. How good is the modeling and how comfortable should we be that we really understand that risk? It's a very good question. Even our board is asking that question all the time. It's the one thing that's the most, it's the hardest one to explain. Let me try to explain how it works, right? You have a car, right? You don't have a car. I don't have a car. You have a car. I don't have a car. You have a car. Probably if your car is worth $30,000, the probability of you having a loss any one year is one in 500 or whatever, to have a full total loss on this one, right? If you start adding up all the cars on the block, if you have 10 cars, you multiply the probability of this happening by 10. If you go in the city of New York City. It's pretty sure you're going to have multiple of that number, right? That's the thing about Property-CAT is that when we give you the PML, we give you what is exposed in the Tri-County in this case, right? It's a really localized area. That's where the peak zone is. We don't talk about all the other areas. When you look at Ian, it's a Tampa Bay thing. It's a Tampa Bay deal. When you look at the distribution within the Tampa Bay environment, the model will tell you it's about a one in 100 to one in 150. When you look at our 250 in Tampa Bay, and you look at what it is, it sort of makes sense and it actually holds up pretty well, right? In and of itself for Tampa, it's much closer to the one in 250 because it's a 100 to one in 150. If you take the microscope and you just pull back from Tampa and look at the overall of Florida, a size of loss above $50-$60 is about one in 20. We talk about all the time, if you just step back and look at the overall U.S., include all the other perils and all the other zones, this is the same as going to the New York City and seeing how many cars we're going to lose in a year. It's probably one every seven or eight or nine years as it happens. The question that we ask ourselves is, we have an exposure for Tampa Bay. This is where it hit. What is our market share expected? Did we come out in that line? It's exactly what happened. The modeling has been very sturdy and very solid from that perspective, right? The point that you're making sort of underlies what we talked about yesterday, right? We have a one in PML that increases from 7.7% to 8% of capital. We don't talk about the other ones that we've grown, probably could have grown, right? If you have one in 250 in one zone, it's one thing, but if you had a one in 250 at 900 across a multitude of zones, it's more likely you're going to get to that level. I think historically, our book of business has been more like relying on one or two zones, most likely the U.S., because this is where the better price is. I think this market is allowing us to expand, sort of take a step back and have a broader sense for and a broader exposure around. We should expect pushing the one in 250, which is what we talked about just before on a peak zone. The way we look at capital is more like on a global basis and on an aggregate basis. This, we've grown that this year. To go back to your initial question, everything hangs together pretty well. I'm not surprised at all. It actually gave us what we would expect it to give. We checked that, to be honest, because we want to make sure we get it. I hope so. We get it right. One of the things that has supported pricing over the past few years before this big reinsurance Property-CAT swell, I guess, is that pricing was poor in 2016 to 2019. Yes. Not different than a lot of other companies. You had some adverse development in that area. To what extent do you think the industry, and we haven't seen most of the 10-Ks, so we don't know how 2016 to 2019 developed for most companies. Has the industry finally confessed its sins? Do we have a lot more holes to fill going forward, that's going to be a continued force in pushing rates higher because there are those holes in the past? I think the answer is yes, right? We believe there's some pressure. I think we can't name names, but some of our companies that we reinsure through that period, we can see some development coming through. I don't know, but I'm not certain that things were sort of reconciled at their level and to what they recognized. I think it's a classic state of the cycle where you try to manage the best you can, right? You have some bad losses, some bad news coming through, and you sort of feed off of a much better market right now. I think we're going to have a bit more of that as we go forward. I'm not saying who and how much it's going to be, the hard market by definition is you start seeing the pressure in your book of business through your claims activity and demands and payments and trials and outcomes. I think we're going to see this through Some of the numbers, but is it going to be as glaring and as obvious as it once was? I don't know. I'm not convinced of that because we're still, by and large, as an industry, printing below 100 combined. We're doing pretty well. We have some margin, and we have an investment income that's picking up collectively. That helps a lot of the returns that we publish collective as an industry. I think, yeah, I don't think we're going to see the true outcome of the policy year 2021, 2022 for a little while. If that's the question. It's going to take a while to see it through. You just mentioned the investment income. Arch has, coming into this moment or this year, shorter than most companies in duration, lower exposure to equity correlated assets. Yep. Which one effect has been you've suppressed some of the earnings in prior years. The ability for you to grow it for years is probably greater than most companies. Is there an undergirding philosophy for why Arch hasn't taken more risk? Ultimately, we see how quickly the investment income's growing. Has that approach paid off? Well, fundamentally, when we were founded, our premise was, we're going to make our money on the underwriting side, right? That's what we're here for. That's where our expertise is. Investments, yes, there's float and we got to manage it well, but we're not here to become something we're not, right? We're here to make money in the underwriting, and we'll enhance that with the investment income. For sure, we had a fairly defensive position and allocation for a number of years. Hindsight is 2020. Could we have been a bit more aggressive? Sure. Could we have made a bit more money? Sure. All in all, that was the strategy, I think we're happy with it. I will say that going forward, I think we are realizing that we are a bit bigger. We have more capital. We have the ability to take on particularly a bit more liquidity risk, right? As much as the regulators and outsiders want you to think that you might have to pay all the claims tomorrow, the reality is it's just not going to work that way. We have the ability to make longer term investments that we think are better risk return propositions for us, and we're doing a bit more of that going forward. I think on the risk spectrum, we're still going to be managing our investment portfolio relatively defensively, I think we're shifting a bit more to taking a bit more risk, whether it's in alternatives or equities, maybe not as much. Right. Structured products, I think is something that. Right We're looking at in a more extended or expanded way. I don't want to get too granular, but I will, I guess. You give some disclosure about where you're deploying capital in the various segments by line. Over the past few years, you've grown a lot in property, marine, aviation, other things that go into that bucket. You've grown some leased-in programs. Your loss ratio has improved dramatically, but your expense ratio has actually gone up in the insurance business. Intuitively for me, and I might be wrong, I feel like that higher risk sort of property, marine, aviation business, I feel that when you take that volatility, oftentimes you don't have to pay as much of an acquisition cost to get it. Whereas, program business is really expensive from an acquisition cost business. You have to pay these programs to get their business over time. Why is the expense ratio, as you've grown so much, not seeing a change that I would expect from the business mix changes? A couple of reasons why a lot of our lines of business that have a higher expense ratio, such as travel, went to zero pretty much during the pandemic. That recovery really made a big difference in terms of the expense structure that we have to do in. The other thing that's happened very nicely for us at Arch, I would say, Josh, is our U.K. business really got a lot better, a lot bigger, a lot more scalable. That carries in and of itself a higher combined ratio. You see the expense ratio. You can see that contribution also adding to this. Recovery from pandemic on lines that were historically higher acquisition ratio and more capital deployed in Lloyd's, which also increases- Very high, yeah expense ratio. The third thing is less quota share, less reimbursement of our expenses through quota share, right? We're buying less, we buy excess in certain times. When you buy excess, as you know, the acquisition ratio does not get shared with the reinsurer. You just carry your gross as net expense. That sort of would also partially inflate your overall OpEx. To us, what we focus on, as you know, is combined ratio and what it means in terms of returns. The returns have improved. We don't really lose a whole lot of sleep over it. We do, to the extent that we don't want to be way off of the market, specifically of the OpEx. The acquisition, it's what you participate in, right? The market carries a 15% expense or 3 or 0 or 20. It is what it is. By virtue of choosing to embark in this marketplace, that's the acquisition. The OpEx is more our own, and we had to grow our OpEx dollar-wise. Percentage-wise, it's decreasing because we're growing, we're earning into it, a lot of it. We had to do this to grow and get access. We almost tripled the book of business, as you know. We need people to make decision. We need a lot of people to take care of that business. All in all, I think it's all explainable and very rational. The fact is, on the reinsurance side, very similarly, right? More quota share, less excess of loss, right? In the marketplace, in the market environment that is beneficial on a quota share basis, well, you're going to have an expense ratio because you have to reimburse the insurance company. All of it is totally in line with what we would have expected. Based on what you know, in travel, for instance, travel, we don't buy any reinsurance on it. Everything we do in terms of acquisition expense flow through gross and net. That also helps explain why it's gone up, not down or has been stable. That's actually a good pivot into my next question. Inwards versus outwards reinsurance. Obviously, you're going to have a great opportunity to sell reinsurance here, but you're also a buyer of reinsurance. You have the ability to retain more of your own cooking. I think that you view everything you write, that you could retain it all. You're not writing it to lose money for your reinsurance partners. Given the higher costs, higher ceding commissions, a higher cost of property catastrophe cessions, where should we expect a ceding commission, or I should say, percentage of the business that you're ceding to move over the next year or two? There's various areas, I'll start, you could probably add. I think at the high level, I think reinsurance is not only an economic transaction. You also have to be reasonable, take a step back as managers of the business and as custodian of the capital on behalf of our shareholders. It's been tried before, as you know, Josh, some people went there and just paid dearly for it. To me, we're always reminded that at any price, we cannot afford not to buy reinsurance because we need to be careful about this, right? There's an extra price that you have to put in the back of your mind that you need to pay for this, bring more stability to the overall balance sheet. Having said all this, I think we've done a lot more purchase on the mortgage insurance side, as you know. That also helps us work with the net exposure that we have on our business. We also do this on the insurance, but now I think it's more the way we're looking at insurance and reinsurance now, the temp that's gross in that cession, I think it's probably more stable. I think we did make a couple of choices on the insurance side a couple years ago, or a year and a half ago, in terms of how we purchased on a quota share basis versus excess. I think most of the changes have been done. I think we should expect a similar kind of run rate going forward on the net-to-gross ratio for insurance. Reinsurance, I don't know, Josh. I wish I could tell you. It depends on the year, depends what's written, depends what they can find. It's always high volatility from that perspective. It's hard to determine what's going to happen. Like I just told you, a bit more purchase on MI because a little bit perceived heightened level risk on the mortgage and the housing. We try to be prudent and careful in the way we're managing the capital there. That's why you see it more. Just one thing to add, there's tremendous value in buying reinsurance beyond just the financial kind of capital support. Exactly. It's the expertise you get with the reinsurers. We'll say that because we know we provide more as reinsurers. We provide more than just a balance sheet to support our ceding companies, right? It's the interaction between the underwriters, because as a reinsurer, you see across the market. You see what's happening. It's an important dialogue that as a buyer of reinsurance, we see value in that as well, right? We're happy to give it. We think it's something that's part of our proposition when we sell reinsurance. As a buyer of the reinsurance as well, it's something that we think has tremendous value. We're not going to go to not buying reinsurance. Never. Whether some lines of business, we're buying a 50% quota share, we go to 40% because the economics tell us that's what we should do. That's absolutely, I think, a rational thing to do. We're not going to go to zero because it costs a bit more money. Over the cycle, you're going to have highs and lows, but also maintaining your relationships, because again, reinsurers do bring a tremendous amount of market intelligence and knowledge about the line of business that is extremely valuable. You mentioned buying maybe a bit more on the mortgage side as the risk changes. The capstone of the Arch MI reinsurance structure are the Bellemeade transactions. We've seen the ILS market get much smaller in the past year because pension funds have said, "Well, we can go get 7%, 8% return on A+ bonds. Yep. Those are also the same kind of Yes purchasers who have supported the Bellemeade structures. Do we need to be concerned that the way that Arch Mortgage is managed has a more difficult time managing itself in a higher interest rate environment? No. What we tell our team is like, listen, in the end, to exactly what François just mentioned, the diversification and the quality of the data information you get out of reinsurance is stability of it, right? You need to be a provider of, buyer of that product, specifically the Bellemeade that you mentioned. I think the Bellemeade for us is a, you just have to buy. Just buy every day and just gives you the information, the feedback from the marketplace, which helps inform what you price on the front end. We tell them this at the margin. Again, we're buying $4 million or $5 million at the clip. It used to be less than 3% yield, spread. What is it now? 600 basis points? 620 basis points or something. It's not insignificant, but in the grand scheme of things, it doesn't really move the needle as much as we might think. We just hedge our nose and just go with it and buy it through the cycle. I remind everyone, they say, "Oh, the spread at $650 is too expensive. You used to buy at $3." Maybe you underpaid at $3. Over a cycle, maybe the real price is $450 or $480. Sometimes you pay a bit more, sometimes you pay a bit less. Again, we're not going to lose sleep over this. These are small amounts of money in the grand scheme of a $15 billion capital company. It's not significant. It's the prudent thing to do. Again, being prudent. If I could get into a time machine, go back six months- Uh-oh Your stock was worth much less than it is today. I think it was worth more. I think it's worth more than it is right now. I mean, wait, wait. Well. Oh, sorry. You were going to. That's my speech. You know. Yeah. If you ask everyone why does a stock trade where it does? "Oh well, Arch has all this business. They have this mortgage insurance business. It's only a five, six, seven times earnings business, if that. It's not a good business." Of course, you don't believe that at all, and we can see where a standalone mortgage insurers trade, and it's not a great valuation. Yeah. To what extent do you think that, A, the market will appreciate the valuation of that mortgage insurance writing and the idea that this was a business that used to be poor but now is a much better run business? If the marketplace doesn't ever decide that mortgage insurers are actually worth the cash flow they generate, is there a closed block solution? Just like some of these life insurance companies have done, said, "Look, if you're not going to appreciate my fixed annuity business, I can sell to somebody who does. I think to me, as a shareholder of Arch, the key thing is, why would we want to get rid of a business that gives that much kind of return? I will tell you, our directors and our shareholders are like, "We understand it, but yeah, it sure as hell helps get the returns and reinvesting in other areas of the business." I have a teenager and she's no longer a teenager. She's 20 years old, and I've been telling her the same things for 10 years, and she doesn't seem to understand. Now it seems like the frontal lobe is growing. I can see green shoots in her brain. It clicks, "Oh, Dad, I think that you were not wrong there. I don't know what I was thinking." My point to you is it takes a while. It just takes a while. I think we're a creature of habits, and it's very hard for us. We're anchoring ourself down to 2007, 2008 as investors. We lost money. People used to have cars to show for and don't want to hear anything about this. I'm a father, so when my daughter The fact that she doesn't listen doesn't mean I won't repeat myself. I'll keep on repeating myself, and at some point she'll grow out of it and she'll say, "You know what, Dad? You're a smart man." "You're a really good man. I wish you the best of luck. A good looking one, too." That's what I would say. All kidding aside, this is sort of the best thing we could do because it's a core thing that you have to believe at Arch. You're going to be going against the grain almost all the time. It's not easy, Josh. You can see I'm almost crying right now. It's been so difficult. Of course. No kidding aside. It's hard to go against the grain when you think about this, why being contrarian. I always tell people we're an agreeable species. We like to say yes. We like to belong, feel like we're part of the group. Oftentimes at Arch, we feel that we're a little bit different than anyone else. This mortgage thing is very similar to what we're used to. What works through time is keeping true north and knowing where it is and keep it through. At some point, numbers will overwhelm everyone. So- It will take a while. I thought we were there before the pandemic. The pandemic, we went to $48 a share. We're at 1.7 or 1.8 times, almost point times book. I was like, "Oh." We're like, "Well, maybe people are finally getting it." Went through it, the forbearance program, everything worked out pretty well. People say, "Well, we still have to go through a crisis," which is fair. I think over time it'll get proven to be extremely beneficial. I think it is already proven, it takes a while for people to realize that. I think that. That's my view. I think the first chatter of Arch going into MI was around 2013. Yep. It took you a little longer than you wanted to acquire the business. Maybe you didn't have intentions on becoming the largest player in the space. No intention UGC came to you at a price. That's right. made a lot of sense. That's right. Also, we didn't get to see UGC as a separately run corporation. We don't have the financials, but we do know that UGC did not do nearly as badly. Not even close in the global financial crisis Not even close as the other Yep companies. They're not True all the same. One of the things that Arch and UGC brought to bear, the Bellemeade transactions Yep to protecting against the tail risk multivariate pricing. Your competitors sort of looked at you, and they also now have Yep a capital market solution for extreme loss scenario. Everyone's kind of migrated away from rate card type pricing into multivariate pricing. Yep. We're coming down to an industry whose pricing is a matter of basis points. Yep. I don't even know, someone was telling me it's not even decimals. It's rounded to the nearest basis point. One bit, two bits. Right? It's very true. Yep. Have the Arch underwriting advantages and risk advantages been competed away because it was transparent what you were doing? Not all of it. There's a convergence in the industry. I think that is true. I would say it's the same thing for properties, I think for liability, all the lines of business. We're all participating in the same marketplace, but we still find a way to out-perform most of our peer group. That's because the secret doesn't reside really in the technical aspect approach to thing. It really resides with the management and the company's desire and willingness to go in or go out of market, and being really prescribed as to what it is that you write and don't write. I think that underwriting advantage with the cycle management philosophy is still something that is really unique and really hard to replicate because it takes a lot of belief. I just talked about being contrarian. It's not an easy place to be. Our underwriters are saying no from 16 to 19 to deals that are the same as they were before, we can't get to the pricing. The brokers are telling them, "Well, I got like 25 other offers. Why the hell would I keep on calling you?" It's really hard for underwriters to say no for all this time. They got battered up, and they have to believe in a system and the way it's built. Go back to the risk-based pricing on mortgage. I think that over time, we would expect this to converge, the same way auto pricing and everything else converges. I think that the management fortitude and willingness and resilience is different. Yeah. Go ahead. I'd asked a question like, why is Progressive still outperforming the auto market? Because every auto carrier in the country- Has access has the ability to build the same models. Fair. Actuaries and data scientists and modelers are easy to find. It's how you use the models, to Marc's point, that makes the difference. Again, if we can be the Progressive of the MI multivariate models, I think it's not a bad place to be. Going back to MI, PMI had a model that actually gave them the risk indication, forward-looking. When we bought them 2011 or 2012, it took us two or three years to buy them, Don. It took us a while. They had their system. The model was there. If you look at the indicated riskiness in the portfolio, they knew it. It was right in front of them from 2005 through 2007, 2008. The management was like, "No, no, we're going to keep on growing because Wall Street wants it. We need to deliver the growth." They knew it. All the signs were there. You mean when the. Isn't that amazing? They knew it was bad. In the SC financial one, it said that Alt-A is the same as A. Yeah. Like that- Exactly We should have known there was something. The same thing. The PMI executive group were told more than once, a multiple time, under no uncertain terms, that they're going through the wall, and they couldn't help themselves. It's different. Look, I take your Progressive comparison. Progressive is a competitor where they're in a market where there are still 300 competitors. Amazing. In MI, you compete with five or six competitors. I know. Yeah. You like oligopolies. Yeah. I know, I know. Okay. Did I say it out loud or did I not say it? I know. There's another one that you have a 29.5% stake in a business. Oh, yeah. Yep. Coface. You said if the right terms, we'd be happy to be full owners of that business if it made sense. Can you talk about, as you have a lot of places to deploy capital, as you're considering if the right opportunity were to come along, how does the trade credit markets look as a place to deploy capital in today? Everyone's afraid of recession. I know. look, people derided that you paid EUR 9.9. 9.95. EUR 9.95, and it's at EUR 13 right now, so it's been an okay investment. Plus $2, even. $2, a dollar. How much dividend do we get? The answer is, it's like any other opportunity. It's all about the returns. Right now, we like the business. They've done a really good job. Yeah, yeah. It's performed very well, even with COVID, with all the uncertainty in the Ukraine, you name it. Today, we still think there are better opportunities to deploy capital in the reinsurance business primarily. Three years from now, if the market corrects and trade credit starts delivering, we think if we bring it all in-house, part of the Arch family, 100%, and we think it can give us 17, 18 ROEs, we'd be more than happy to do it. It's all about returns. Josh, knowing us, we tend to wait for possibly bad news to happen, then we come after the fact. That would be a much more Arch playbook-like. Then they have a record year this year. We're wait and see, analyzing, looking at them. They buy good reinsurance, for the record. It's a pretty well-run company. Well, I think we'll stop it there as we're at the zero time. I hope that everyone is appreciative of Arch Capital making time for us today. Hope that you have good meetings the rest of the day. Did you learn anything? Did I learn anything? Did you learn anything? No. Oh, I learned tons of things. You know everything, right? I thought you knew everything. I'm going to write a big note right now. Good. Thank you, guys. Thank you.