Diversified Financials at RBC, stepping in for my teammate, Roland Meyer. Thrilled today to be hosting François Morin, CFO of Arch Capital Group. Arch is a roughly $35 billion diversified insurer with insurance, reinsurance, and mortgage insurance operations, and they were added to the S&P 500 in 2022. François, welcome. Thank you. Thanks for joining us. Maybe we could start at a high level with regards to Arch strategy. You know, what are you focused on, and what would you say are your three engines of growth? If you could tie into that capital allocation. Sure. Yeah, as you said, like we are a kinda global property casualty specialty insurer and reinsurer. What we focus on is, you know, we would consider to be specialty lines of business, and by that we mean lines of business where the underwriting expertise is key in the process. Yes, scale matters and being efficient and kinda having good processes is always a positive, but we think where we can differentiate and outperform the market will truly be in how we, you know, go through risk selection and certainly kinda the underwriting process. For us, our platform is really, you know, divided into three key segments. One is commercial insurance, and that is predominantly done outside of North America and in continental Europe. We have a reinsurance group that is more global in nature, somewhat centralized in terms of underwriting, but has broad access to global risks, Asia, North America and Europe and around the world. Finally, where maybe is the one differentiating factor at Arch compared to some of our peers is we have a mortgage insurance group or segment that is somewhat unique. You know, a lot of the mortgage insurance companies that you may have heard of in the U.S. are monoline companies. At Arch, you know, we have the benefit, and when we talk about capital deployment. Yeah Of having this mortgage insurance company that, or group that is part of a diversified group. That really has been one area I'd say where we've been able to really do well, is that has given us really a third vehicle, a really another way to deploy capital as we try to navigate through cycles. As you know, the insurance industry, particularly on the P&C side, can be very cyclical. Yeah. You know, for us, the game is not about being a market share player. It's not about being the largest or, you know, the most efficient in any one line of business. Really where we think we can outperform is around being smart and thoughtful about where we play, where we deploy our capital in the right time in the market. You know, stepping back a number of years in the, you know, the last soft market on the P&C side that really materialized more in the 2015-2019 years or so, the opportunities on the traditional insurance, commercial insurance side were not really as exciting, and that's the time when we really grew our mortgage insurance presence. Mm. That really, we thought, you know, that, you know, showed the value of the diversified platform we have. Since then, I think it's been a slightly different story where the P&C markets have done much better the last few years, you know, starting in 2021 or so and through last year for sure, both insurance and reinsurance have done well. Our mortgage business has still done well, but has become less critical to the overall engine. That's really how I present Arch to you all. It's really a business model that is founded around diversification, around cycle management, around capital deployment to what we perceive to be the best opportunities given the, I mean, their respective cycles. Got it. Thanks for that helpful overview. Maybe we can segue from that last point around, you know, there's concerns around being in a soft pricing cycle, largely attributed to property at the moment. Yep When you see that play out and the three engines within your business could be impacted, like how do you think about deploying capital into those different businesses with that sort of broader pricing dynamic, if you will? Right. It's an ongoing process, something we do, you know, regularly, quarterly, et cetera. Like each of our business units is tasked with finding the right opportunities where they can put the capital to work. I'd say the one thing that maybe makes us a bit different than some of our peers, again, is we don't really set targets on premium- Okay Growth or capital deployment. Really, those are more a result and not an input, I'd say, in the process. We at Group make sure that we obviously have enough capital to be able to deploy, but each of their segments are really tasked with evaluating the opportunities, and if they perceive that the opportunities are good enough to put the capital to work and achieve the returns that we're expecting, it's on them to really make that happen. Mm. If the opportunities to your example, if property is one where, you know, they don't see the same level of profitability in the business, they are encouraged, and we expect them to really pull back. Mm. Because, you know, at the end of the day, for us, it's really about delivering the bottom line results and the bottom line returns. It's truly an evaluation ongoing between returns and, you know, kinda where's the best opportunity. You know, in the last few years we've been somewhat, I'd say, spoiled in that all three of our segments have been generating very good returns. As the market may soften, if it starts, you know, it has begun to soften, and if it continues in that trajectory, we'll have to make, you know, decisions along the way to pull back in some lines and effectively deploy less capital, which will return to shareholders, and with the expectation that we'll, you know, we'll be able to deploy it down the road when the market's more attractive. We're somewhat agnostic as to where we deploy the capital as long as it meets our bottom line expectations. Okay. That's helpful. Could you unpack that last point a little bit? Because if you pull back from writing business, you know, you're building excess capital, and could we think of a potentially fourth stool, i.e., capital return then in that dynamic? Like, how should investors think about that this year or next year as part of the Arch story? Absolutely Capital return? I mean, capital return is front and center for us at the moment. You know, again, stepping back the last few years, we've grown at a quite rapid pace, specifically in reinsurance, where I think our premium volume went up 5x over five years. It was a pretty steep growth rate in the last few years. That growth has tapered off. I mean. Mm-hmm You know, we saw some numbers even, you know, we shrank in a few places last year. In an environment where growth will be harder to come, and it's not that we don't wanna grow, but I think the opportunities for growth are more limited, as in general, the more the market is doing, I mean, trying, working hard to retain what they have. Yeah. Like, there's no pull back in terms of capacity deployment. You know, the reality is, you know. We're still in an environment where the returns are very good. You know, we're effectively building up excess capital, you know, at a pretty healthy pace and, you know, our you know, the most important thing we don't wanna do is not waste that capital. Mm-hmm. In the event and more likely than not, that we won't be able to deploy it all, we'll return it to the shareholders. Great. I think that makes total sense. Wanna talk about reinsurance. We just came through 1/1 renewals. Any takeaways from your perspective that you saw in that renewal cycle? Can you give us kind of unpacking a little bit of your mix within the reinsurance segment? Yeah. It was not unexpected, although maybe the severity or the quantum of the rate decreases were maybe a bit higher than. Mm Than we would've expected, call it, back in September, right? We were—as we were planning the 1/1 renewals, we thought, yeah, I mean, it's been. You know, we've had really two+ years of truly spectacular returns on the property side in particular. Yeah. Like, there was a you know significant reset in 2023, so 2023, 2024, you know, very strong pricing. 2025, very good, although at midyear, 2025 started to inch down a little. We were expecting some level of rate decreases at 1/1 this year. It turned out, you know, maybe that they were a bit higher. There's more competition for that business than we expected. So not a big surprise. On the property side, you know, very much a result again of the strong returns and, you know, whether it's third-party capital that, you know, incrementally coming into the space. You know, if I try to summarize it, to me, it's more that the incumbents, the existing players just- Uh Wanted to retain the business, right? Mm. You have two+ years of north of 20% returns, and that just creates more capital to deploy into the space. Mm. I think that kinda fueled a little bit some of these rate decreases. Mm. Other than that, the other lines of business behaved, you know, as I think expected. You know, we thought casualty would do maybe a bit better, not in the sense of the pricing, but in certain terms of volume, in terms of opportunities that we thought we might be able to see. Again, some of that is not necessarily our decision. Sometimes it's the ceding companies that- Yeah Like the business as well. Pricing is good. You know, they're comfortable holding on to a bit more of that business. They're not looking to. Right To transfer as much out. You know, some of it is not totally within our control. We would have liked to see a bit more opportunities there, but still what we saw was I think healthy, good returns. We're happy what we got. For us, it's again, 1/1, as you know, is a big part of. Yeah It's half of the business effectively or so renews at 1/1. There'll be more to come, you know, at 4/1, 6/1, 7/1. You know, even though returns are lower than they were a year ago, they're still very healthy. That's Okay That's the takeaway at this point. Okay. That's a good color. Maybe just to get a little bit specific on the 1/1 renewals, could you walk us through from a competition perspective, what you saw in property cat in terms of, do you get the sense that like the bottom's forming or is competition still sort of elevated in there? What are your reads on the dynamic there? I mean, the dynamic is somewhat similar to the last couple of years. I think there's more capacity, more competition in the upper layers. Okay. I think there's. You know, as you get to be more risk remote, I think, you know, carriers and third-party capital providers are, you know, get a sense of comfort that I can get some premium with real somewhat limited risk. Mm. There's been more competition there. I think where we typically play pretty much across the stack. We're- Mm-hmm You know, we'll play in different places and, you know, we're, you know, certainly we don't wanna be in a position where we're just trading dollars. I think with the reset we saw in 2023, that is less the case than it used to be. Mm-hmm. The retentions are still high enough that, you know, we don't have that risk as much. What we see is, you know, an area where the return periods are a bit more attractive to us. Competition, I think, again, more so in the higher layers, in the lower layers, you know, depends on the zone, you know, where people are playing, but nothing that was, I'd say, unusual. Okay, thanks for that. Maybe we can turn to primary now. You've announced some re-underwriting efforts, if you will, in the MC&E segment. Yeah. Can you maybe walk us through that and how we should think about the growth profitability outcome as a result of those? Sure Re-underwriting efforts? Yeah. The re-underwriting was more, I'd say, in a piece of the business that came with the transaction, specifically with their programs division within the acquisition that we identified. You know, we didn't necessarily want it, but it came with the transaction as something that was probably going to be I mean, we looked at immediately and identified as an area that we'd probably downsize, and that's what we did. We effectively had some non-renewal kinda actions that took place in the latter part of 2024 and early 2025, and those are being kinda are earning in or they're you know. Yeah They're gonna start to materialize a bit more in our financial statements as we move forward. That was more a decision of, you know, whether I mean, the as you know, the challenge sometimes with MGAs or program managers is alignment of interests and making sure that they, you know, underwrite the classes of business that, you know, are attractive to us. You know, there's some things that, you know, some of the programs that came with it that we just didn't feel comfortable with. We acted on those pretty quickly, but that's kinda, I wanna say, the decision, the actions have taken place. Now it's just a matter of Mm-hmm Of kinda having that flow through the financials. The core asset that we wanted and what we got our hands on was the true middle market business. For us, like, just in terms of scale, this is business, call it middle. Again, not the Fortune 500 companies, but still sizable companies, you know, with what we call usually property-led. So they will have, you know, a generally, you know, sizable property exposure, could be a hotel, could be manufacturing plant. You know, where we play is more in what we call the upper middle market with an average premium of, call it, $200,000 per policy. Okay. It's still sizable with property, with casualty exposures as part of the package. You know, that business has done well for us. It was still for us a way to get into that business that is, you know, established and it's hard to build. We had thought about building that from scratch, but, you know, the distribution that you require to be present- Mm-hmm In all 50 states, et cetera, is a difficult thing to do. For us, the acquisition we made was the right way to play the game at this point. We're very happy with that. It's done well. Now as we kinda season it, and we have one year of renewals under our belt, I think we're Mm-hmm You know, our plans are really to try to make it better, make it a bit more sizable in as part of the Arch family, and hopefully we can do that in the not too distant future. Great. Thanks for that. I wanna move towards industry reserves as a topic and, you know, it's a concern for investors. You've spent time at Arch as chief risk officer and chief actuary, so you've got a great lens on this. Can you walk us through reserving philosophy at Arch? Then secondly, like, are you taking any actions? Have you looked at any past books in terms of that dynamic? Yeah, that's a great question. I think reserves are, you know, all companies, you know, it's something that you know, there's different ways to go about it. Yeah. I think our view has been, you know, the most critical thing, and I know that's probably easier said than done, but is to be realistic from the first data point, right? Call it the initial loss pick is probably what matters more than anything because, you know, we're big believers that reserving feeds into pricing and feeds into reserving. Mm-hmm. It's that whole cycle that is so critical in how companies perform. If you walk into a line of business or you have, you know, a somewhat optimistic view of what- Yeah Types of risk you're underwriting and, you know, the downside that maybe you take with that line of business. Well, you know, if you're optimistic there, it's gonna mean that most likely you're gonna maybe be, you know, one of the cheaper prices on the street, which will mean you'll grow that business and then, you know, you'll reinforce that decision early on that, yeah, my loss pick was good. Then you do that a few years, you accumulate a lot of exposure, and then, you know, maybe you wake up three, four, five years down the road and realize that. Yeah You know, you missed the market a little. We take, you know, the you know, we challenge ourselves, like, you know, constantly whether and it's more an issue, you know, mortgage is a different animal, but certainly on insurance and reinsurance to really think about, you know, both, you know, I mean, loss trends like inflation is a key factor certainly in long tail lines. How does that, you know, how do we think about it? We are big believers in having more of a long-term view, not being overly influenced by recent trends, whether they're favorable or unfavorable on loss cost trends. We're trying really to have a long-term view. Then, you know, we stick with it. You know, certainly the more years you can accumulate, the more information you have, so that's a good thing. We think that's why like newer players are somewhat disadvantaged when they're starting a new line of business. For us, it's the initial loss pick and then it's, you know, our philosophy is react to the bad news quickly and take as long as you can to react to the good news. It doesn't mean because there's no claim, you know, that's being reported that it's all gonna run well. You know, you hope it does, but until we know for sure, we're just gonna hold on to the reserves we have, and maybe it takes 3, 5, 10+ years. Mm To release the favorable news. That's kinda been our mindset is react to the bad news as soon as you can. Good news, let's wait and see. You know, again, the reserves is just an estimate. Yeah They'll play out over time, but there's no rush in our mind. Okay. That's helpful. Do you see any lines from an industry level where just underwriters are getting in over their skis on the reserves or like some pockets, or is it? Well, I think commercial auto in general has been maybe the most difficult line for many carriers. I think it's been the challenge around, you know, maybe the large jury awards and like loss trends. Yeah That have been running hot for many, many years, even though, you know, pricing has been very good. I mean, the rate increases have been strong, double digits, et cetera, but keeping up with loss trends has been a challenge. Mm. You know, are we closer to being about right or adequate? You hope so, but every time we say that, something else happens. That's probably been the most difficult line. You know, you can point to, you know, oversized, you know, jury awards and, you know, you know the way, you know, law firms or plaintiff bar has been kinda. Mm A bit more aggressive trying to get larger settlements. Yeah Out of the carrier. That's been something we've been watching carefully. For us, it's not a big thing for us. We don't do a ton of commercial auto, so I think we've been able to avoid that for the most part. I'd say that's probably the one that sticks out the most. Then, you know, any kind of excess kinda business umbrella like businesses- Mm Where, again, going back to my earlier point around the initial loss pick and assumptions you make about the, you know, loss cost inflation. Again, if you miss that early on, it finds a way to compound over time, so that can be a problem. Okay. Got it. Helpful. Thank you. Wanted to touch on alternative sources of capital, if you will, or new entrants and, you know, there's MGAs, ILS and how is. Sure Arch involved, if at all, within those dynamics, and could you walk us through that? Sure. Specifically on MGAs, I mean, we have, you know, been working with MGAs forever. I think for us right now, it's a different strategy, different execution for the insurance side versus the reinsurance side. On the insurance side, for the most part, we have a handful of managers that we've dealt with or worked with for many years. As you know, you know, program managers, you know, I talked about aligning incentives, and that's. Mm-hmm Certainly something we have to worry about and think about. You know, establishing a relationship with a program manager, it takes time and, you know, connectivity in the systems and aligning kinda, you know, underwriting authority, et cetera. Mm. There's a lot of things that have to work well for the program to be successful. You know, the reality is it's not something you wanna come in and out of, you know. Right. Each year, right? You go into a relationship with a view to being, you know, somewhat of a long-term commitment, and that's even though it's an annual decision, you wanna kinda. Mm There's an investment you make to get it started, so you wanna see that kinda, you know, produce some results for you. We've had those, but the reality is, you know, that hasn't really grown. I think the number of carriers or program managers we deal with has been relatively stable. It gives us access to some lines of business or some distribution, some niches of business that we wouldn't get otherwise. Mm. That's been our strategy. There's a, you know, I think the right place, the right time for program, you know, business to be part of the broader offering. Our preference is still to go out to the market with the Arch brand. We think it's better for us for the long term to Mm To be the brand that they know in the market. On the reinsurance side, it's a slightly different kinda story because, you know, as you think about our ability and willingness to really flex in and out of markets more so on the reinsurance side, as the market gets better. Mm. You know, partnering with MGAs, we think is a very efficient way to do that and flex in and out of markets. You know, you saw us kinda grow our property business significantly in 2023, 2024, in particular in reinsurance, and a lot of that was, you know, through relationships with MGAs. As the market gets more attractive to us and we think we have the ability to deploy more capital, we think, you know, doing that through MGAs that, you know, bring you that distribution is a very efficient way to do that as the market starts to. You know, not be as attractive, that's when we start to. Mm-hmm You know, challenge some of those kinda decisions and say, "Well, maybe we pull back a little bit." I think, again, we have, you know, again, done, you know, a lot of business with MGAs over the years, but I'd say the reinsurance has been more cyclical with the underwriting cycle, whereas on the insurance side it's a little bit stickier. Going forward, I'd say our preference would be more to be more, to lead more with Arch brands than MGA brands. Okay, got it. Within ILS, if we just follow up. Yeah. You know, is that a dynamic that you're seeing? If so, what inning do you think we're in from the ILS market? Like, and how does Arch approach that segment of Yeah. I mean, we've been like, we have a pretty sizable ILS franchise on the property reinsurance side. Yeah. We have third-party capital supporting our underwriting. We have sidecars. We have a couple of the vehicles that have worked well over the years, and that has grown, you know, certainly in the last five+ years, I want to say. I mean, it's a multi-line effectively sidecar called Somers Re. That's been a vehicle for us that is, you know, that's how we can bring in third-party investors with a slightly longer kinda view of the investment and having kind of a more permanent capital base. That is A.M. Best rated. It's a more permanent, you know, vehicle that we think works well for us. Yeah, I mean, you know, third-party capital is an important part of the business for the industry in general. Mm-hmm. I think, you know, the issue is always around, you know, having third-party capital that is, you know, I'd say has, you know, similar if not identical kinda expectations about returns. I think some of the issues we had in the past was, you know, ILS capital being kinda, you know, offering or wanting to participate on risk without, we think, at the right level of return, so that creates some inefficiencies or. Mm Arbitrage in the system. As long as, you know, these providers are, you know, see risk in a similar way as we do, you know, there's a role for them. Ultimately, we still think, you know, going with, you know, for us leading with the Arch brand is better than. You know, and we use them really to. You know, we think we can provide solutions to our partners. That's our goal, right? We wanna be the place they come to. Mm To solve some of their issues, you know, their challenges. You know, for us to have third-party capital supporting the offering, that's great. We wanna leverage that. But ultimately, we wanna be the front, you know, of the discussion or the decision to kinda support these decisions. Got it. Let's talk M&A. There's been a lot of M&A in the industry, within the broader P&C market. Like, could Arch be a participant in that M&A? Are there any product gaps potentially that you'd be looking to fill through that mechanism? Yeah. I mean, we look at a lot of things. I mean, we have, you know, certainly an appetite to get better and get, you know, to be more relevant. I mean, no question that when we look at M&A for us, it's the mindset like, what is there out there that we could, you know, if they were part of Arch, would make Arch better? You know, in the past, we've made a couple of balance sheet, kinda larger acquisitions. United Guaranty on the mortgage side was certainly transformative. You know, as you get bigger, it's harder to find like something. Yeah That we're, you know, you minimize the overlap and, you know, you gotta think about culture. Yeah All these things matter. Ultimately, the MCE Acquisition, we think is a model that we, you know, we think worked well in the sense that it, you know, certainly was a market segment that we weren't in, that we were able to get our, you know, to get some business, you know, extract a business unit from an established carrier. Can we do more of that? Absolutely. Mm. At this point we're. You know, we like what we do. We got a lot of offerings, a lot of franchises, a lot of distribution, both in North America and in Europe. I think we touch a lot of things. I think for us, it's gonna be more, you know, I'd say on the margin trying to. Mm You know, if there's a line of business that, you know, if we're like number five in this space. Right Can we be number two if we did this kinda, this acquisition? Those are the types of questions that we ask ourselves. You know, given our size, as you know, it's, you know, there's a lot of things that we do already. You know, we're always ultra careful. We're just not gonna make an acquisition just to make an acquisition. It's gotta make us better. Great. Thanks for that. I think we're coming up on time, so we'll end it there. Thank you very much for joining us this afternoon, and thank you, François, for spending time with us. Thanks for being here.