The operator welcomes participants to the Q2 2024 Arch Capital Earnings Conference Call and reminds them that the call is being recorded. Management warns that certain statements may constitute forward-looking statements and advises investors to review periodic reports for more information. They also mention that non-GAAP measures will be discussed and provide the necessary reconciliations. Marc Grandisson and Francois Morin introduce themselves as hosts and begin the call.

The company had another profitable quarter due to successful deployment of capital in the extended hard market. They have a disciplined approach to underwriting and prioritize shareholder returns. They are acquiring Allianz's U.S. MidCorp and Entertainment businesses to expand their presence in the U.S.

The company is expanding its cycle management toolkit in the primary middle market and is seeing strong performance in its underwriting units. The Reinsurance and Insurance segments delivered $475 million of underwriting income and $5 billion of gross premium. Despite higher frequency of catastrophic events, the company's diversified book of business and higher premium rates enabled excellent underwriting results. The company chose not to grow its property cat writings due to heightened overall storm risk, but will continue to monitor casualty lines for rate increases and reserve strengthening. The Insurance segment contributed $109 million of underwriting income and saw 7% growth in net written premiums, particularly in programs and E&S casualty where rates are improving.

The company is able to quickly reallocate capital to take advantage of growth opportunities in a competitive market. Their international insurance unit is performing well at Lloyd's. The Mortgage segment has consistently delivered strong underwriting income and the company has successfully acquired RMIC. Their investment portfolio has also grown, generating a significant amount of net investment income. The paragraph also mentions the Olympics in Paris and compares the decathlon to the company's diverse range of successful operations.

The decathlon is a challenging event that requires high performance in all 10 events. Similarly, in the insurance market, Arch is built to excel in multiple areas. The passing of their leader, Dinos, is mourned. The company reported excellent second quarter results with a high return on equity and book value per share.

The company's three business segments delivered strong results, with $762 million in underwriting income and a combined ratio of 78.7%. The company continues to benefit from favorable market conditions and disciplined pricing, leading to confidence in future returns. The underwriting income was boosted by favorable prior development and offset by expected catastrophe losses. The company's peak natural cat PML for a single event declined and the recent acquisition of a mortgage insurance business resulted in an increase in primary mortgage insurance in force and a slight increase in delinquency rate.

The company's reported delinquency rate would have improved slightly without a certain transaction, and they earned $531 million in investment income. Cash flow from operations remained strong and the company's investable asset base has grown. The effective tax rate was 9.5% for the quarter and the company expects to close a transaction to acquire new businesses. The balance sheet is in good shape and the company thanks a former leader for their impact.

Marc Grandisson is addressing questions about the slow evolution of the casualty market turn and how it takes time to see the impact of price increases in casualty lines. He explains that it can take several years for the industry to adjust and see the full effects of inflation. Unlike the property cat market, which can adjust more quickly, the casualty market takes longer to see changes. Grandisson expects to see more adjustments in the future.

The speaker discusses the company's reinsurance emissions and how people are slowly recognizing bad years. They also mention the insurance side and how the underlying margin is in the low 90s, which is within expectations. They address mortgage releases and how they have held steady, with better cure activity than expected. The speaker is more positive about the housing market.

The speaker discusses the level of reserves being attached to new delinquencies, which is lower than a year ago. They mention that reserve releases may not be at the same level in the future due to uncertainty regarding unemployment and other factors. The speaker also addresses the favorable development in reserves and explains that their book of business is not as susceptible to casualty issues as their competitors due to the mix and location of their business.

The speaker discusses the company's international book and the favorable movements in the quarter, particularly in short-tail lines. They also mention being comfortable with their level of reserves and managing the cycle. The company's capital is growing, and they plan to use it for growth and potentially return it to shareholders through buybacks or dividends.

Marc Grandisson, CEO of an insurance company, is discussing the current market conditions with a reporter named Josh. Josh brings up a comment Marc made in the past about the hard market of 2024, and Marc admits that they may have pulled back too early in that market. However, he assures Josh that they have learned from that experience and are being more cautious this time around. Marc also mentions that while their P&C growth is still strong at 11%, the market is starting to reach a balance between supply and demand for risk. He explains that they must be careful not to push too hard and dilute the market's return expectations. He notes that other companies in the market are behaving in a similar manner.

The market for capacity is returning to a more normal level, with the equilibrium between supply and demand shifting towards the underwriters. The Allianz transaction will use $1.8 billion in capital to acquire assets and support the LPT. The company has been experiencing excellent returns, but they do not want to accumulate excessive capital that cannot be deployed.

The speaker discusses the company's approach to casualty reserve reviews, which typically occur in the summer months. They also reflect on their previous belief that large accounts would be most affected by casualty pressures, but now see that smaller accounts are also feeling the impact, particularly in commercial auto and umbrella portfolios.

The company conducts quarterly reviews of its reserving process and closely monitors actual versus expected experience. Inflation has led to a pressure to pay the full limit on smaller policies. The company also compares trends between its insurance and reinsurance divisions. The frequency of trend analysis may increase in the future.

The company takes action each quarter based on their performance, and this is regularly done in all business units. The Reinsurance segment has more volatility, so they look at longer-term averages. This quarter, there were no lower attritional losses in Reinsurance, but on a 12-month basis, the move is not as drastic. The cat load reported earlier this year was expected, given the growth and diversity of the book. In Mortgage, there is a focus on the macro perspective.

The speaker explains that if home price appreciation continues at a healthy pace, it would have a positive impact on the company's reserve release. This is because increasing equity in homes is a leading indicator for potential foreclosures or losses on policies. The speaker also mentions that a healthy market supply and demand can help homeowners sell their homes and recapture their equity. The next question asks about the underlying loss ratio in the insurance business, which has increased slightly despite a higher mix of short tail business in the earned premium mix.

The loss ratio increased slightly year-on-year, but this is due to a mix of factors and the uncertainty of selecting loss ratio picks. The actual to expected work is done by line and year, and while there are some favorable and adverse outcomes, overall, they are running ahead of expectations for both the quarter and year.

The company's favorable experience is reflected in their prior year development, which is giving them confidence in their reserve levels. They are adjusting their patterns based on internal and external actuarial advice, taking into account the evolving situation. The flattening out of property cat growth may be due to the weather forecast, but the company may reverse course and reaccelerate if there is still good pricing and a better view of their MidCorp business.

The speaker is discussing the impact of the CrowdStrike cyber event and the losses that may result from it. They mention that they are still gathering information and it is difficult to determine the exact losses at this point. They believe the losses could range from $500 million to $1.2 billion. They also mention that this event serves as a reminder of the risks in the cyber insurance portfolio and may lead to a pause in rate decreases. They also mention that if the event does not result in significant losses, it may reinforce the belief that cyber risks are not as high.

The speaker, Marc Grandisson, discusses the professional lines and reinsurance areas of the company. In professional lines, they are maintaining their positioning in D&O and growing their book in healthcare, while also making some changes in underperforming areas. In reinsurance, they are taking advantage of the hard market and finding profitable opportunities.

The company's writing is influenced by a variety of factors, including their expertise and willingness to take on more complicated lines of business. The accounting for these lines may differ from their property cat business. The recent increase in expense ratio is not related to the Allianz book. The company has made investments in other opportunities, such as predictive analytics and tech companies, in order to take advantage of strong returns.

The company is comfortable with its current level of investments and expects some integration expenses related to the Allianz acquisition. They stand by their three-year payback period for share buybacks but may consider extending it in the future. The company's capacity for M&A is dependent on the opportunity and they may attract additional people to assist with integration.

The team at Allianz has experience with integrating guaranteed and has enough bandwidth for their current efforts. If a favorable opportunity arises, they will expand their efforts. The Allianz acquisition is focused on insurance in North America and does not significantly impact PMLs. There was no reshaping of the portfolio to move away from frequency events.

The speaker explains that the company's growth was shaped through retrocession purchases, which helped them reach a more reasonable level of PML. They have not seen any inflection in public D&O pricing coinciding with recovering capital markets activity, as there is a healthy level of rationality in the behavior of third-party players. The call ends with the speaker thanking participants and announcing the next conference in October.

This summary was generated with AI and may contain some inaccuracies.