Good morning, everyone. I'm Harry Fong. I'm the insurance analyst at Roth MKM. I appreciate all of you attending the session this morning. With me is François Morin, the Chief Financial Officer for a small-cap company called Arch Capital Group with a market cap of about $30-$35 billion. I should add that Arch Capital has been my favorite stock pick for literally the last two years. As many of you may know, most Wall Street analysts are asked. 2. 2, or 20? Are we? Only two? Only two. I, I w. They're the best in terms of the best. Oh, okay. You've liked us for a long time. I've liked you literally from day one, following 9/11 when Arch Capital was born. In fact, it's the only stock that I've had a continuous buy recommendation on since 9/11. If you go back and take a look at the performance, you'll, I think, be very pleasantly surprised that this was probably one of the best long-term investments in the insurance business. François is with the company as CFO. As I mentioned, he's been at the company for 5, 6 years? No, 12. But six in the current role, yeah. That long already. Okay. Time flies by when you're having fun. In any event, we're pleased to have Arch Capital and François with us. François, just to begin with, can you sort of briefly give us an introduction to Arch Capital, the success, you know, behind the organization, and just a brief overview of where you would like the company to head over the next number of years? Sure. Thanks for having us. Yeah, as Harry mentioned, we were formed after, and you know, right after 9/11, when there was a few folks much smarter than I that saw an opportunity in a dislocated insurance marketplace, lack of capacity, just a different mindset around property casualty risk, right? So they felt it was a good opportunity to start a fresh company. So private equity investors came along. We were, you know, in the initial funding round; funding was about $750 million. And we've been on this journey for the last 22+ years to, you know, in that space, right? So we started out in Bermuda. We're a Bermuda-based company with operations, obviously, in the US and in most, you know, I call it Continental Europe and London. We, you know, spanned a little bit into Australia. But, you know, our main geographies are North America and Continental Europe. And, really, the approach we took to the business was, in our parlance, we call it cycle management. The insurance business, specifically property casualty, right, so we insure we don't do personal lines. We don't do homeowners, auto. We do commercial-only and reinsurance. And later on in our journey, we got into mortgage insurance. But, those lines can be what we call very cyclical in the sense that the pricing, which is really driven by supply and demand for the product, fluctuates wildly, wildly. So, we felt it was important for us to not be, you know, always have our chips on the table. You know, we felt it was important to know when to deploy capital and when to pull it back and be smart about, you know, return expectations and what it means in our business. That's something that many of our competitors in the space talk about. They mention it. Cycle management is a theme that you might hear others talk about. But we feel we've done it maybe a bit differently than others or maybe more diligently than others. That has shown in our top line, right? For us, market share or growing at all costs is not how we win the game. We are more than happy to grow very rapidly as we have in the last few years because it's currently a very good market for us. But when the time comes, when, you know, market conditions aren't as good, we'll be more than happy to pull back. We've done that a few times through the cycles in our history. You know, ultimately, it's about, you know, for every good decision we can make in on the underwriting side, right, a good risk at a good price, you can lose a lot more if you make a bad decision. So for us, it's all about, you know, protecting the downside. And certainly, that is critical when the market isn't as good and also taking advantage of the good, the good times as we have today. Terrific. Terrific. François, I've already mentioned that the past 20+ years has been an outstanding period for the company's share price. Given where the share price is today, you know, how should investors think about Arch looking forward? Yeah, I think we, you know, we've grown a lot. The stock has done extremely well. We focus, you know, compensation-wise, like, for executives, I mean, we focus on growth in book value per share, which is really, for us, the right metric to really demonstrate the performance we generate, the results we have. Share price is a byproduct of that. If we can keep growing book value over time at a good clip, and in over a 22-year history, we've grown book value over 15% compounded annually, so that we think that's a good result. And that's really kind of like our target. We feel it's, if we can deliver that, we'll be in a good place, and the stock price will follow. Right now, there's expectations. You know, stock price, as you know, varies a little bit about, you know, sentiment in the space and whether people feel, you know, insurance in general is a sector that is attractive versus others, whether it's other financials or other sectors totally out of financials. Right now, the market is good. So I think the price, the stock performance has been good for us and many others. We still feel, you know, we can deliver on that growth in book value per share. So if we can maintain that in terms of when we talk about multiples, whether price to book or price to earnings, you know, while they're currently maybe a bit higher than they've been at some point, you know, some periods in the past, we think there's still room to grow. You know, as long as we keep delivering the bottom-line performance, that will follow. Terrific. You know, there's no doubt, as an analyst following this industry for many, many years, that price to book value is probably the best indicator of success over time. Given where we are in the P&C cycle, the likelihood over the next few years of return on book value or return on equity exceeding 15% significantly exists. There's one analyst out there that believe we could see 30% returns for the next two or three years. Assuming that Arch is able to perform similarly, what are the plans for all of the capital you're going to be building? It's a great question. It's a, and as we say, it's a good problem to have. No question that we are a capital-intensive industry, right? So I think we need capital to maintain our ratings with, you know, the rating agencies. That is important to us. That gives us access to the market. So having a strong capital base that investors can look at and really think of it as being, you know, solid and I call it accurate to the best of our ability. Again, for those of you that may not be insurance specialists, we got, you know, a significant liability on our balance sheet is our loss reserves, which is, you know, in our world, it's an estimate. So there's no, there, there's multiple people would come to different answers. So having the investor base be confident that the loss reserves are stated adequate or accurately or as accurately as possible is critical to us. So that's reflected in our book value and, and how we grow our capital base. You know, what do we do with, you know, as we generate new capital? You know, the last couple of years, as you know, we've grown a lot so that capital has been reinvested in the business. We've been able to deploy it in new opportunities. Reinsurance, in particular, has grown substantially. So that was a good way to deploy the capital. If, you know, if we get to a place down the road, which we hope is not, you know, we don't think is anytime soon, but will most likely happen at some point where the opportunities just aren't as good, we'll probably look to return that capital, ultimately. That's always been our playbook. We look to put the capital to work in the business as best we can. And at the moment when and if it happens that we either have too much or we don't see the same opportunities, we've done a fair amount of share buybacks over the years, and we would probably expect to do something similar. Terrific. In the success of Arch Capital over the years has clearly been on the underwriting side. You know, the P&C business is one where many people believe that one company is exactly the same as another company, and that there's no difference between insurers. You know, what may distinguish Arch relative to the competition? Any specific ways in which you underwrite, manage, incent people that may be different than the rest of the industry? Yeah, you're right. We are strong believers that we win the game by being better underwriters, by making better decisions on the front line. We are not. Our business model is not about being efficient or necessarily having scale. We try to be efficient, obviously, but it's not how we can really outperform. We think outperformance is really delivered at the time of underwriting. And also, as I talked, you know, earlier, I talked about cycle management, really kind of stepping in and out at the right time. So kind of having a sense of when the opportunities are there and really kind of deploying more capital when the time is right. What makes this a bit different to your question, I think the one thing that we put in place since day one is, you know, our compensation system for our underwriters has been, we feel, is different. Nobody in our company is rewarded on top line. So there is that, you know, right off the bat, there's no pressure to meet a budget. And we, I mean, to be honest, budget is a taboo word for us. We don't really, we have plans, but we don't expect people to say, you shall write $X million of premium for me next year. There's, you know, we make sure that the underwriters are, you know, understand where the opportunity is, but ultimately, they're the ones that are making the decisions to write or not write a certain risk. So who am I to tell them, you need to write this thing or this book of business? It's not my role. But we want to make sure they have the tools to make the right decisions, and they live and die by those decisions. So ultimately, if that business ends up being very profitable, they'll get paid more. And if it ends up being, you know, not as profitable, then they'll make less. But they will still be there. There's a mechanism that, you know, over a number of 10-year period where people can actually build up a bank of, call it, excess returns that can then feed some of their compensation in the not-so-good years. So they're not kind of betting the ranch every single year or not, but they also have this kind of mechanism in the back that protects them in case the market conditions just aren't as good. And we think that, you know, that's worked out really well for us. And it kind of promotes a more dynamic way of underwriting in the sense that, you know, people really try to, you know, make sure that the business is accretive, is value-enhancing versus just writing the business because, you know, we have to meet certain premium targets. Super. I'm sure most of the folks in the audience today have read many stories in the press of how difficult the insurance marketplace has been, primarily on the personal line side, but it has been equally as difficult on the commercial line side. That said, not sure if you noticed coming into the room, but there's an insurance broker right outside, BRP. And on that, on their message board indicated that they write a broker D&O insurance and cyber insurance. Those two lines of insurance have been mentioned as seeing more price competition lately, whereas almost all other lines of insurance continues to operate in a hard market. Where are we with respect to D&O and E&O, D&O, E&O, cyber insurance? And I suspect many of the smaller companies here could be interested in that insurance place as well. Sure. I mean, D&O is a line of business that we've been written you know, we've written forever, right? And it's been around for a long time. The D&O, broadly speaking, we bucket it in different categories where there's been more pressure, more competition, more capacity, being deployed in the space has been around large commercial, call it Fortune 1000 companies where, you know, you think of a large corporation needs to buy a significant amount of protection. And those upper layers, whether they buy $100 million, $200 million of coverage, those upper layers, there's been more competition for that, and pricing has come down, you know, 15% or so the last two years running. So that's an area that has been more competitive. But we would also say that the pricing had gotten much, much better the three years prior to that. So then it's a matter of, well, on a relative basis, pricing isn't as good. On an absolute basis, maybe there's still some opportunities to make, you know, decent returns with some risks. For maybe the more people hear what we call the private D&O or the small D&O, that has been less competitive in the sense that, you know, the rates didn't spike up nearly as much as they did on large commercial, but they're not coming down as fast either. So it's been going up. It's been steadier. Rates are, you know, holding up pretty, you know, holding up better for us. and ultimately, it's, you know, that's where the brokers come in, as you know, where, you know, the bigger accounts usually end up shopping their programs with the bigger names, the Marshes and the Aons of the world that have a lot of clout in the market. And they can, you know, somewhat, you know, along the way, kind of influence the pricing. In terms of cyber, cyber is a newer, you know, newer type of exposure for us, right? I think cyber, up until, you know, very recently, I want to say 3-4 years ago, cyber was effectively what was made available as part of a package policy that covered, you know, E&O professional liability, other types of exposures from the corporation's point of view. As cyber grew, I mean, became more widely known and what the exposure was, ransomware, other types of risks, companies looked to make that a standalone policy, and that has become more the norm, I'd say, in the last 3, 4 years. And, you know, unfortunately, good or bad, you know, there's not a ton of history or claim history on how to price the product. You know, people are saying, hey, you know, like, I could get hacked tomorrow, whether it's a small corporation, it's a healthcare system, it's an institution, you name it, everybody's, you know, exposed to potential, you know, hacking incident or, again, which may trigger ransomware. So, for an insurer's point of view, there's limited data on which to base the pricing. So the pricing has been a little bit more, call it, more art than science, capacity-driven. People have fears or some are more fearful of the exposure, some not as much. Needless to say that the pricing has been very good, very, you know, very, you know, strong from our point of view the last few years. It seems to be coming down a little bit, I think, again, as a reaction to, you know, whether the how significant people perceive the exposure to be. But also, I think people are demonstrating companies of all sizes are demonstrating that they're better prepared to handle a cyber, you know, event. They are investing more in their own technology, better defenses, multifactor authentication, all these things that are in place in more and more institutions, more companies and institutions nowadays. So that kind of helps reduce the exposure and therefore, the pricing is following. Terrific. As a follow-on to the D&O insurance area, you know, do you have any thoughts on what companies should think about as they begin to think of moving from a private entity to the initial, you know, IPO process? Any thoughts in terms, and does Arch participate as companies transition? Yeah, we've been careful, from our point of view, the SPAC, call it, you know, phenomenon of the last few years was not something that we were particularly interested in participating on because we were, you know, for us to underwrite, again, where we can kind of, I mean, demonstrate that we have expertise, it's hard to underwrite a SPAC entity not knowing that the principals may actually have the expertise to run the business that they're going to acquire or they're going to, you know, become public on. So that was not an area that we played on. But on the IPO front, absolutely, we feel, you know, understanding, you know, what the opportunity is, what the business plan is, whether the company that's going public, that wants to access the public markets, whether they have, you know, all what it takes to be successful in the long term. And it's not, you know, they're not selling a promise that something could happen down the road. If there's, you know, a real business that has, you know, positive cash and earnings and all the attributes that we think make it gives us a really good chance of success in the IPO markets, we've been supportive of that. And you know, it's a rigorous underwriting process, but it's something where we think we can be part of the solution. Terrific. Moving on, from the P&C area, to the mortgage insurance area. Yep. You know, Arch is one of the six mortgage insurers in the country, in terms of insurance in force, the largest company in the business. How does the mortgage insurance business fit into the strategy of Arch? Sure. Again, quick 30-second background. Mortgage insurance, for those of you that may not know, is effectively required by a lender, an originator, if you want to get a mortgage and you don't have 20% down. So effectively, it's a requirement by the federal government, the Fannie Mae and Freddie Mac, to effectively, if they want to securitize, if a bank wants to sell mortgages to those entities, it needs to have at least 20% down or come with mortgage insurance. So we saw this opportunity back in, you know, right after the financial crisis in 2008, 2009, and starting in 2010, we started looking at the space, thought it was something that we could, you know, I think we were intrigued by the fact that it was very dislocated, right? There was a significant, well, I'm, you know, a few insolvencies, which, you know, weren't necessarily a great time to be in the space. But our mindset's always like, if people are running away from, you know, we think of ourselves a little bit contrarian. Like, if people run away from something, maybe there's an opportunity for us to step in at the right time and make some money, you know, out of that. So yes, we entered the mortgage insurance space in the U.S. and we've grown internationally since then, call it like in 2013, so around 10 years ago. And, it's been something where, again, we think, given our mindset being analytical, being willing to move in and out of markets as the market conditions dictate, is something that it's a game we can play. It's a game we know how to play. Historically, mortgage insurers in the U.S. were very much based on market share. All they did or most of what they did was all focused on, you know, growing the market share, growing their insurance in force. There's value in being large and having some, you know, some presence in the market. But we feel if the market's not good enough, we just pull back. So it's an area that we've grown, an area we still like a lot. And it complements our suite of products where our view is the more diversified we are up to a point, you know, the fact that we have not only insurance, not only reinsurance, but we have these two plus mortgage gives us the ability to navigate through cycles because all cycles are not, you know, don't coincide. They come at different times. They have different features to them. So it gives us an ability to allocate capital in a more dynamic way. Yeah. The mortgage insurance business has been much more volatile than the P&C business. And if we go back 100 years, it was a boom-bust industry about every 20-25 years. How do you manage the risk of the business? Yeah, it's, you're absolutely right. I mean, it has a tag on it. Some people have deep scars from, you know, being exposed to mortgage credit risk up until the financial crisis. Our view has been and we've done, you know, intensive research, lots of analysis, lots of work to get comfortable that the current mortgage insurance business in the U.S. is night and day different than what it was pre-crisis. You know, subprime loans, Alt-A loans, no-doc loans, all the things, but most of the things that created a lot of the pain at that time are no longer being sold. So what we've got currently in the book of business is very much a, you know, a prime, you know, high-credit quality book of business that, you know, still comes with risk. You know, there's you know, we had a little bit of a scare during COVID. There's always unemployment kind of concerns, you know, macroeconomic trends or, you know, factors that can influence the performance. We built a lot of models around those to manage our aggregations, make sure we don't over you know, we don't you know, we protect the downsides. We don't overcommit to that space. But ultimately, we, we've gotten a lot, lot, you know, very comfortable with, with the exposure we have. And, you know, for us, again, it's a nice complement to our book of business. Terrific. We only have a few minutes left. Any questions from the audience? There's a microphone coming your way. Hold on one second. Thank you. Question for. One is always a good idea. Question for both you, Harry, and François. Just your thoughts on parametric insurance, just if you have anything. I mean, I think there's a role for it. I think it's been tried. You know, I mean, it has been a resounding success. I think the difficulty is always in defining the event and, you know, the trigger per se. You know, we talk about cyber, for example. Cyber is an area where, unlike property catastrophe, you know, it's a hurricane, you know, it hit on this day, and there's actual parameters for it. When you get into other types of risk where defining the event and the start, the end, the period, it comes with a set, you know, of issues that, you know, maybe we'll come into. But that's what's made it, I think, more difficult to get real traction. Yeah. Unlike the banking industry, where you know what a loan is, you know what a deposit is, unfortunately, in the insurance business, there's no hard definition of what liability is. You know, the contracts in many cases are written specifically for one client. You change a word in a contract, all of a sudden, the risk parameters could be very different. As a result, the parametric treatment of insurance may or may not yet have enough interest from investors. Any other questions? Well, thank you very much, François. Thank you. Really appreciate it. I think it was a terrific discussion today. Hopefully, another 20 years of great stock performance for you. That's all we can wish for. Thank you.