Arch Capital Group Ltd. Q4 FY2024 earnings call

• Offered thoughts and sympathies to those affected by California wildfires, expecting net loss between $450 million and $550 million from the wildfires. • Arch had solid Q4 with $3.8 billion of net premium (17% increase y-o-y), but underwriting income $625 million was down 13% due to cat losses. • Full-year after-tax operating income was $3.5 billion, operating return on average common equity 18.9%, book value per share $53.11 (+13% y-o-y). • Paid special dividend and repurchased shares in Q4 as part of capital management. • Reinsurance segment strong with record full-year underwriting income. • Insurance segment saw growth with Midcorp acquisition, international insurance as bright spot. • Mortgage segment fundamentals positive with strong persistency and excellent credit quality. • Investment group delivered strong net investment income.

Reinsurance: Fourth quarter underwriting income was $328 million, with the full-year reinsurance group delivering a record $1.2 billion of underwriting income while writing over $7.7 billion of net premium. Insurance: Fourth quarter underwriting income was $30 million, with the full-year insurance group writing $6.9 billion of net premium (a 17% increase from 2023) and delivering $345 million of underwriting income. Mortgage: Contributed $267 million of underwriting income in the fourth quarter, resulting in the first consecutive years of delivering over $1 billion in underwriting income. Investment: Delivered nearly $1.5 billion of annual net investment income from an asset base that increased to over $40 billion after accounting for the special dividend.

• Expect cat load to represent approximately 7% to 8% of full-year group-wide net earned premium. • Annualized effective tax rate expected to be in the 16% to 18% range for 2025. • Midcorp integration is on plan and progressing as expected, with positive growth prospects ahead.

• California wildfires could impact losses and potentially other cat renewal seasons. • Competitive pressures eroding margins in certain lines of business (e.g., public D&O, cyber). • OECD guidance may partially impact the realizable value of the deferred tax asset (DTA).

Q: On insurance underlying loss ratio and Midcorp impact.

A: Francois Morin noted Midcorp adds ~one point to the loss ratio, with Arch's standalone run rate loss ratio being stable.

Q: On reinsurance PML and California fire impact.

A: Nicolas Papadopoulo said they like the business and the California fire loss will affect market enthusiasm for writing business.

Q: On casualty GL environment.

A: Francois Morin said reserves are comfortable, rate increases keeping up with loss trends but being cautious in some areas.

Q: On tax rate guidance and DTA.

A: Francois Morin discussed potential tweaks to DTA due to OECD guidance but Bermuda law still followed.

Q: On MI reserve releases and share buybacks.

A: Francois Morin said reserve releases from curing and lower severity, and share buybacks are considered when capital can't be deployed attractively.

Q: On favorable development in reinsurance.

A: Francois Morin said vast majority from property cat and other short tail lines.

Q: On casualty reinsurance rate adequacy.

A: Nicolas Papadopoulo discussed ENS liability business, rate increases, and selective underwriting.

Q: On Midcorp integration.

A: Nicolas Papadopoulo said integration is on plan, with double-digit rate increases in property and liability.

Q: On PMLs and Midcorp premium trajectory.

A: Nicolas Papadopoulo and Francois Morin discussed limited aggregate reinsurance exposure and Midcorp integration impact on premiums.

Q: On tariffs and GL loss trend.

A: Francois Morin said tariffs not significantly impacting, and GL loss trends vary by line.

Q: On structured reinsurance opportunity.

A: Nicolas Papadopoulo and Francois Morin said reactive to opportunities based on market needs.

Q: On cat load and Midcorp post-integration.

A: Francois Morin explained cat load includes wildfires and Midcorp integration expected to keep ex-cat loss ratio in line with legacy arch.