Prepared remarks
Good day, ladies and gentlemen, and welcome to the Second Quarter 2025 Arch Capital Earnings Conference Call. As a reminder, this conference call is being recorded. Before the company gets started with its update, management wants to first remind everyone that certain statements in yesterday's press release and discussed on this call may constitute forward-looking statements under the federal securities laws. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. Consequently, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may affect future performance, investors should review periodic reports that are filed by the company with the SEC from time to time, including our annual report on Form 10-K for the 2024 fiscal year. Additionally, certain statements contained in the call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
The company intends the forward-looking statements in the call to be subject to the safe harbor created thereby. Management also will make reference to certain non-GAAP measures of financial performance. The reconciliations to GAAP for each non-GAAP financial measure can be found in the company's current report on Form 8-K furnished to the SEC yesterday, which contains the company's earnings press release and is available on the company's website at www.archgroup.com and on the SEC's website at www.sec.gov. I would now like to introduce your host for today's conference call, Mr. Nicolas Papadopoulo and Mr. Francois Morin.
Good morning, and welcome to Arch's second quarter earnings call. We are pleased to report another solid quarter with after-tax operating income of $979 million, resulting in an operating earnings per share of $2.58. On a year-to-date basis, we have grown book value per share by 11.4%, a strong outcome that reflects our focus on execution and long-term value creation for our shareholders. We achieved this result by staying true to our core principle of cycle management, where we actively grow our writings in lines of business that offer attractive returns while selectively reducing exposure in areas where risk-adjusted returns fall short of our targets. This disciplined underwriting approach paired with proactive capital management positions us to consistently generate superior returns across market cycles. P&C market conditions were largely consistent with the first quarter. Some sectors are seeing increased price competition, while others continue to achieve rate improvements.
In the current environment, much of our growth is because of the strength of our relationship with distribution partners and insurers. This not only reflects Arch's increased scale, but also the increased relevance of our platform, one built on a broad and flexible set of capabilities. Our underwriting expertise, supported by our advanced data and analytics capabilities, enables us to deliver valuable insight and innovative solutions that help our customers achieve their ambitions. Ultimately, the strength of our relationships, our commitment to consistently deliver meaningful customer value and our ability to respond quickly to changing market conditions are significant differentiators in today's environment. As we've discussed on previous calls, there isn't one underwriting cycle, but many. This principle was reinforced last month where Paul Ingrey, Arch's former Chairman and one of its founders, spoke to a gathering of our top leaders.
It was a unique opportunity for our newer team members to hear directly from someone whose vision continues to influence our culture and operations. In addition to sharing stories from Arch's early days, Paul reminded us of the enduring value of a diversified platform, a core part of Arch's original vision. He explained that the insurance market is comprised of 1,000 points of light, each representing a potential opportunity. While the intensity and location of some of those lights may have shifted in today's underwriting environment, many continue to shine. Our role, as always, is to find those with the greatest potential. Our message is this: The P&C industry still presents meaningful opportunities for disciplined underwriters to generate attractive risk-adjusted returns on capital. Now I will briefly walk through segment performance, starting with our Property and Casualty Insurance group.
Underwriting income for the quarter was $129 million and net premium written surpassed $2 billion, up 30.7% from the second quarter of 2024. This growth was largely driven by our acquisition of the U.S. middle market and entertainment businesses, which contributed $451 million in net premium written. Organic growth outside the acquisition was modest. We remain focused on integrating the new unit with client retention and portfolio optimization progressing in line with expectations. Growing our presence in the small and midsized market is central to our strategy. Elsewhere in North America, rate increases broadly offset loss trends. We saw selective growth in casualty lines, particularly in the alternative market, E&S casualty and large account casualty, where pricing continued to outpace loss trends. However, competitive pressure persists in E&S property, excess D&O and cyber. While pricing in excess D&O and cyber appears to be stabilizing, we are maintaining a cautious stance and prioritizing margin over volume in these lines.
Internationally, our Lloyd's and London market business are experiencing increased but rational competition. Our long-term investment in establishing a leadership position at Lloyd's continued to yield strong results, reflected in favorable signing and our ability to attract top-tier underwriting talent. The Reinsurance segment delivered strong second quarter results, generating $451 million in underwriting income and over $2 billion in net premium written. The underlying business is attractive with gross written premium increasing 8.7% compared to the second quarter of 2024. We grew our casualty reinsurance premium year-over-year, supported by selective new business and rate improvements. We also expanded our property catastrophe writings, particularly in Florida, where we identified attractive risk-adjusted returns and responded to increased client demand for additional limits. Specialty lines remained a strategic focus, and our teams found several new opportunities this quarter.
That said, our property portfolio, other than cat excess of loss, contracted. As cedents retain more risk, margins on certain portions of the portfolio fell below our target. We are actively managing our exposure in these areas to maintain underwriting discipline and long-term profitability. We were generally pleased with the state of the midyear catastrophe excess of loss renewals. Pricing was slightly down, but terms and conditions were stable, with primary insurers maintaining high retentions. Overall, catastrophe excess of loss margin remained attractive. The broader reinsurance market continued to exhibit discipline. We are growing selectively, focusing on areas where margins are attractive. We are committed to pursuing the brightest opportunities, those offering the strongest risk-adjusted returns. Our Mortgage segment delivered $238 million of underwriting income in the second quarter.
Mortgage originations remained relatively low, reflecting the impact of higher mortgage rates and affordability. Still, the strength of our global in-force portfolio and high persistency allows the mortgage group to provide steady profitability and valuable earnings diversification even with lower volumes of new insurance written in recent years. Despite ongoing economic uncertainty and low origination activity, we remain confident in the quality and durability of our in-force portfolio, which is the core driver of our mortgage earnings. Investable assets grew 4.4% in the second quarter, benefiting from our strong premium growth and cash flow. Net investment income rose 7% from the first quarter to $405 million, with overall yields remaining elevated. Arch's ability to dynamically adapt to multiple underwriting cycles continues to set us apart. This is a function of both our founding principle and a culture that prioritizes and rewards underwriting profit over premium volume.
Even in a competitive environment, our global diversified platform offers many points of light for our underwriting teams to pursue. For a company with a strong underwriting culture like Arch, this remains a market where we can deliver differentiated performance and maximize long-term shareholder returns. I will now turn the call over to Francois, who will provide more details on the financial results before we open the line for your questions.
Thank you, Nicolas, and good morning to all. Last night, we reported our second quarter results with after-tax operating income of $2.58 per share, resulting in an annualized operating return on average common equity of 18.2%. These operating earnings, combined with a high level of realized gains, solid contributions from our equity method investments, and noticeable appreciation in our fixed maturities investment portfolio resulted in our book value per share growing by 7.3% in the quarter. Similar to last quarter, our three business segments delivered excellent underlying results with an overall ex-cat accident year combined ratio of 80.9%, down 10 basis points from last quarter. Our underwriting income included $139 million of favorable prior year development on a pretax basis in the second quarter, or 3.2 points on the overall combined ratio. We recognized favorable development across all three of our segments and in many of our lines of business.
The most significant improvements were once again seen in short tail lines in our Reinsurance segment and in mortgage due to strong cure activity. Current year catastrophe losses at $154 million, net of reinsurance and reinstatement premiums were slightly below last year's level for the same quarter and were primarily the result of severe convective storms in the U.S. This is the fourth and last quarter where we are separately reporting the contribution of the MidCorp and entertainment unit to the insurance segment financial results. For the quarter, net premiums written for the acquired businesses were $451 million, contributing 28.9 points to the reported year-over-year premium growth for the segment and generally consistent with last quarter. The strong premium volume this quarter reflects the seasonality of the business, with the second quarter generally having the most significant renewal activity.
We are now on track to write slightly more than $1.5 billion of annualized premium for the first year of owning this business, which is slightly higher than the forecast at the time of the acquisition. The inclusion of the acquired business in the segment's results increased the current accident year ex-cat combined ratio by 40 basis points. This can be further broken down to include the other operating expense ratio that was lowered by 40 basis points, the current year acquisition expense ratio that was lowered by 20 basis points due to the write-off of deferred acquisition costs for the acquired business at closing under purchase GAAP. As expected, this benefit has become less significant as policies written before the acquisition date have rolled off and the accident year ex-cat loss ratio that was 100 basis points higher, reflecting the underlying results of the acquired business. The Reinsurance segment produced its best quarter ever in terms of pretax underwriting income, reflecting the underlying profitability of the business written over the last few quarters and the absence of significant catastrophe activity.
Of note, the 5.8% growth in net premium written in the quarter was muted due to the timing of certain ceded premium accruals. The effect of this change in timing was to reduce our net premiums written in the property catastrophe line of business by approximately $94 million this quarter. We expect to record an equivalent offsetting benefit in net premiums written next quarter. Overall, this item should not have a significant impact on net premiums earned. Once again, our Mortgage segment delivered another very strong quarter with underwriting income of $238 million. We note that these results reflect the completion of tender offers for two Bellemeade Re securities at a one-time cost of $15 million. We expect that this expense will be recouped through lower levels of ceded premium over time, mostly through the end of 2027, and will ultimately result in a net economic benefit to us. The delinquency rate for our U.S. MI business increased slightly to a very low 1.93% as new notices of default were more than offset by strong cure activity.
On the investment front, we earned a combined $567 million from net investment income and income from funds accounted using the equity method for $1.50 per share pretax. Net investment income in the next few quarters should grow in line with the size of our investment portfolio as our portfolio book yield and new money yield have converged in the last few quarters. Income from operating affiliates was comparable to the amount in the same quarter last year with contributions from both Coface and Somers Re. Cash flow from operations remained strong at approximately $1.1 billion for the quarter. As of January 1, our peak zone natural cat PML on a single event, 1 in 250-year return level on a net basis increased slightly to $1.9 billion and now stands at 8.6% of tangible shareholders' equity. Our PML remains well below our internal limits. On the capital management front, we repurchased $161 million of our shares in the month of July, in addition to the $360 million worth of common shares repurchased this year through the end of the second quarter.
In closing, our strong balance sheet affirmed by our recent credit ratings upgrade and our diversified platform position us well to deliver superior results in the periods ahead. With these introductory comments, we are now prepared to take your questions.
Questions and answers
Our first question comes from Elyse Greenspan from Wells Fargo.
My first question is just on the insurance segment. If we back out MCE, right, growth was around 2% in the quarter. It feels like based on commentary, the market was stable. So maybe that's about where you guys are running in the short term. But I know, obviously, there's a lot of business lines that triangulate into that number. So just hoping to get kind of a forward view just on premium growth within the insurance segment unlike the exMCE piece.
Yes, it is. I believe the key point is that, as I mentioned earlier, we are shifting our focus to where we see the most opportunities while filtering out areas of the business that are less appealing. This quarter, we performed well in the casualty lines, and our international business also experienced growth. We have a substantial portfolio in professional lines; however, the more competitive market conditions in that area negatively impacted the premium for this quarter. The positive aspect is that the rate decreases for both excess D&O and cyber seem to be stabilizing. Looking ahead, while I can't predict the future precisely, we believe that the favorable trends in the casualty segment should support further growth.
And then my second question was just on capital. It sounds like, right, Francois, capital return, share repurchase picked up in July. Just kind of looking for current thoughts just around excess capital levels and just willingness, I guess, to lean into buyback as we go through the third quarter and get into the peak of wind season.
Certainly. As you've seen, we achieved strong results in the second quarter, and our capital position remains robust. We're actively focused on deploying that capital in the business, which is always our primary goal. We believe there are opportunities for this, although perhaps not to the full extent of our capital generation. Capital return continues to be a priority for us, as it always has been. We regularly assess it with management and the Board. We anticipate that capital return in the second half of the year will be possible, although we remain uncertain about future opportunities. We are considering both share buybacks and potential dividends as part of this strategy. Historically, we have slightly reduced activity during the wind season, but we see ourselves as a different company now. We will continue to evaluate opportunities as they arise. At current price levels, we find the stock appealing, and we are ready to proceed with buybacks as we advance.
And then just my last one. Was there any adverse development in the quarter from the U.K., Russia aviation ruling? And if it was even small, if you could just let us know the number?
We did experience some adverse effects, specifically with an increase in our IBNR for both insurance and reinsurance. While we aren't major players in that area, the claims situation has changed, and this was mainly managed within our IBNR through short-tail lines. What you will see, and what we'll elaborate on in our 10-Q, is that there is no overall adverse impact. We maintain a favorable position overall. However, we did account for some changes and new developments related to the Ukraine-Russia conflict.
And your next question is from Michael Zaremski from BMO.
In your prepared remarks, you discussed expanding property catastrophe writings, particularly in Florida. Overall, I believe you have been exceptional underwriters in this area. Would you say that the anticipated returns on equity are expected to be in the 20s, down from the 30s? We often get asked if property catastrophe reinsurance pricing can continue to decrease from strong levels. The general consensus seems to be yes. However, I am curious about how the rate of decline over the past year impacts the outlook for returns on equity in terms of risk and reward.
Yes. We believe that return on equities are still very appealing. To clarify, I think the price decrease isn't uniform across the board. For example, in Florida, most of the competition seems to be on the high end. With this renewal, the FHCF raised their attachment points, creating a need for capacity below the FHCF and relating to its size. As a result, we were able to write more across different levels. I believe that below the FHCF, the price decreases have been fairly stable. If we consider where we were a year ago, we had experienced 100% rate increases. While we have seen some rate decreases now, we still find the business very attractive.
Okay. Got it. That's helpful. Maybe pivoting to the strategy about growing your presence in the SME marketplace. I know you've been doing that strategically, inorganically and organically. But just curious, maybe you'd be willing to elaborate, is there kind of a specific pocket that's really high up on the wish list like U.S. retail, traditional main market? Or is it kind of a broad appetite to just go continue going kind of down market more broadly?
I think for us, I think we really start in the mid-market that you've seen with the acquisition we've made of the Allianz portfolio that's our sweet spot. We come from the larger accounts. So I think we had strategic aspiration to grow in the upper middle market. And I think that's why the acquisition fits strategically well. And I think the strategy thesis behind it, I think is even more compelling today than it was when we did the deal.
Yes, I want to emphasize that while small business isn't an immediate focus for us, it's a different challenge that we might consider in the future. Right now, our priority is on enhancing our middle market acquisition. There's significant work and potential in that area, and although it's still early, we believe we can generate substantial value from this asset in the short term.
Okay. I'll sneak in one last question. At a high level, mortgage insurance continues to perform well. We're observing some trends, though delinquency rates are rising slightly, we still see positive trends in housing price appreciation. More generally, has anything shifted in the mortgage outlook over the past couple of quarters, besides the clear expectation that the top line in the U.S. will remain negative? Are there any macro data points that might be influencing Arch's medium-term perspective?
I wouldn't say anything has changed our viewpoint. The housing market data has evolved a bit, aligning with our expectations for home prices moving forward. For instance, we have been cautious and underweight in certain geographical areas that appear to be under pressure regarding home prices, which may even be declining in some locations. This has been a part of our approach, managing our production and new insurance written strategically, focusing on areas where we believe home prices will be more sustainable and less risky. That's one aspect to consider. Overall, the trends we’re seeing and the data seem to confirm our business approach. Ultimately, our portfolio has been constructed to avoid high-risk areas, not only in terms of geography but also regarding types of loans, such as high loan-to-value and high debt-to-income ratios. This strategy has been effective for us so far.
Your next question is from Cave Montazeri from Deutsche Bank.
My first question is on the Florida market. Can you give us a bit more color? Is it mainly like the tort reform from 2 years ago that are feeding through that's making the market a bit more attractive now? Can you like maybe break down a bit more what's making Florida a lot more attractive now?
I believe that tort reform has influenced the signed benefits. We have observed that local companies' attritional loss ratios have decreased from the 50s to the 20s. A positive aspect for us is that we primarily operate in the excess of loss market in Florida. This situation allows these companies to allocate funds for the reinsurance needed to safeguard the capital invested by their shareholders. However, if they aim to purchase a larger amount of capacity, like close to 100 or 200, they will need to incur higher costs. Therefore, this has contributed to making the market appealing for us on an excess of loss basis, especially given the recent storms that have affected Florida.
Helpful. And my follow-up, sticking with reinsurance. The 5.8% growth you said had a bit of negative impact from a timing point of view of some business that you said it was $94 million negative impact. So does that mean that your premium growth in reinsurance in the quarter would have been double digit this quarter, adjusting for that? And if so, what are the pockets of growth that you were able to just lean on for reinsurance? I mean, Florida is one of them. Was there anything else that you want to flag?
No, I mean yes, you're right. I mean, again, it's a timing issue. So it's really something that typically would happen in Q3, it happened in Q2 in terms of ceded premium. If you adjust for the $94 million, correct, the net written premium growth for the segment would have been double digits, slightly higher than the gross written premium growth of about 8% or so, right? So in line, and we bought a little bit less reinsurance in some pockets. So I mean, that's part of the strategy along the way. So I think those two numbers in terms of written premium are aligned. And if you convert more specifically the growth to property cat, you see property cat premium growth, call it, higher than the segment, right? So 20% range. And that was really the story I'd say this quarter. I think we saw some attractive opportunities in property cat. And the rest, as you know, there's offsetting in other property and other specialty, but a good part of the story would have been in prop cat.
There was indeed more demand in the marketplace, which allowed us to secure what we considered attractive pricing. This growth is not only about gaining market share, but it's primarily about meeting the needs of our major clients as they purchase more limits. This is a significant reason for our growth.
And your next question is from Andrew Kligerman from TD Cowen.
So in reinsurance, you mentioned that you're growing in casualty. And I'm kind of curious, on a lot of the calls that we've heard so far, casualty rates in general, I'll and point them at around 10%. But I'm hearing reinsurance pricing in the casualty area has come down a bit. So I'm wondering if you could give a little more color on what you're seeing on the primary level in various casualty lines and what's happening in reinsurance, particularly for Arch?
Yes. The casualty business is primarily focused on quota share. The trends on both the primary and reinsurance sides appear to be quite similar. We've noticed that rates are likely outpacing typical trends. We are strategically growing in both the insurance and reinsurance sectors. However, there's a significant supply in the reinsurance market, making it challenging for many players to expand their writings as there is considerable competition seeking growth as well. This situation affects the terms, conditions, and ceding commissions, which remain stable because, when evaluating the portfolios and their development from the previous year, it seems that some of those treaties could justify lower ceding commissions.
I see. Can you provide an update on your progress with incorporating data and analytics into MidCorp? Is the underwriting performance meeting your expectations? When do you anticipate MidCorp will shift towards growth?
Yes, I would say that it's a lengthy process. The integration is largely on track. We have nearly completed the transfer of the portfolio to Arch. However, I want to note that we are still about a year away from the full separation with Allianz. Despite that, we are confident about the portfolio transition and the team along with the underlying business we have acquired. Furthermore, as I mentioned earlier, we believe the strategic rationale is even more compelling in our perspective.
I believe the middle market book, as part of the overall acquisition, has an attractive pricing environment. This presents an exciting opportunity for us moving forward and allows us another avenue to pursue aggressively. We are enthusiastic about this. The platform and distribution are in place, along with our team, and we believe the current rate environment will support our efforts. This is a positive sign for us.
And your next question is from Josh Shanker from Bank of America.
So looking at your commentary about Florida and the general traction of the property cat market, you can't help, but look at the underwriting and see how they've declined. There were some one-off transactions in Q2 '24. Can you square how much of the business a year ago was just a few unique things that really boosted the numbers and what a normalized year-over-year growth rate might be for the property cat line and the property other line reinsurance?
Yes, I believe your question pertains to other property. I want to address that. For the cat side, I'll let Francois elaborate since we've discussed it before. Regarding other property, it's important to note that it encompasses a variety of business lines, including some homeowner and commercial segments, and it's geographically diverse across the U.S., Canada, and internationally, covering both fact and treaty. The decrease in other property this quarter is primarily due to certain cedents choosing not to purchase revisions in specific subsegments, as some companies did not meet their targets. For example, in the E&S segment, we have witnessed a significant reduction, alongside some strategic decisions from our team, including the notable choice not to renew a contract. Overall, while the business continues to be appealing, it requires careful management. I would compare the situation in other property to our experience in specialty, which also involves a diverse mix of business lines.
In this area, we've faced challenges, particularly with cyber risk; however, this quarter, we successfully secured several large international transactions, leading to considerable growth. It's essential to recognize that in reinsurance, as we engage in large deals, accepting quarter-over-quarter volatility is part of the process. Sometimes we see upward trends, which are favorable, but at other times, we might experience declines, as was the case with other property this quarter.
Yes. To wrap up on property cat, once you adjust for the timing issue on the reinsurance, property cat is still up about 20% year-over-year for the quarter. This reflects our overall positive outlook. We continue to see both property cat and other property segments as attractive opportunities. However, as Nicolas mentioned, some transactions may not always return or change form, and that has impacted us this quarter. Unfortunately, I can't predict how the third and fourth quarters will unfold, but we still believe it's a very appealing market.
And just in terms of the impact on acquisition cost ratios, did that cause a one-time unusual item that we should feature and think about going forward for normalization?
Not in a significant way. The acquisition for reinsurance can have variability, particularly regarding the profit commission. Therefore, the underlying performance of the book may have a more considerable effect. Overall, the nonrenewals and growth should not have a substantial impact on their own.
And your next question is from David Motemaden from Evercore ISI.
On the topic of the Reinsurance segment, the press release mentioned some attritional losses and higher attritional losses within the underlying loss ratio. Could you provide more details on the nature of those losses, which lines they affected, or if they are just part of the usual fluctuations that happen in any given quarter?
Yes, there's no doubt that when we look at year-over-year, last year was possibly one of our best quarters ever. There wasn't much activity in the large attritional space. This quarter, we faced some challenges with the Air India crash and a couple of refinery explosions. These incidents made headlines, and while we won't delve into the specifics of each one, they do contribute to some volatility. That's just part of our business. The key takeaway is that there's nothing alarming; it's all within the normal fluctuations. We prefer to assess performance based on a trailing 12-month perspective to mitigate the impact of such shocks or events that can occur in any given quarter. So, a few significant claims occurred this quarter that we didn't experience a year ago.
Got it. Makes sense. And then just also just sticking with the reinsurance business. So I think you called out specialty lines there remaining a strategic focus and that there were some new opportunities that were bound in this quarter. Wondering if your outlook has changed at all in terms of the growth outlook there, how the pipeline is looking and if you see this sort of growth being sustained?
In the specialty sector, we've been facing significant challenges in cyber, where we have a substantial portfolio that is currently experiencing pricing pressure. As a result, we've allocated less capital to this area compared to last year. Overall, the situation is varied across different lines of business, many of which we aim to expand. The key question is whether our teams are effectively working to create those opportunities. We secured a few this quarter and aim to secure more, but in a competitive landscape, identifying new business can be challenging. I remain optimistic about the future, though it's uncertain whether we'll uncover those opportunities.
And your next question is from Alex Scott from Barclays.
I wanted to ask about the Insurance segment. And I guess I just wanted to see if you could provide an update on sort of how far you are through some of the MidCorp remediation and just maybe high-level comments on how we should think about some of the benefits from that, which would help margins and any potential offsets from just thinking through pricing versus loss cost trend spread and whether there's deterioration.
I think we're going through the integration and feel good about our current position. The only area I would highlight regarding performance is on the program side. We've taken some underwriting actions there that should lead to performance improvements over the next 12 to 18 months. That's the main aspect you'll notice. We're doing a lot of work, but it will take time. However, you’ll start to see some impacts from these actions on the program in the coming 12 to 18 months.
Yes, on the loss ratio. On the expense ratio, I'd say the operating expense benefit that we're getting in terms of scale, I think, is sustainable, right? So there is no question that adding, call it, $1.5 billion of premium to the insurance segment without necessarily a corresponding amount of operating expense in terms of IT and management, et cetera. So that's a benefit that we think is here to stay.
That all makes sense. I have a follow-up question about insurance. Are you observing any changes in the dynamics between admitted versus excess and surplus lines regarding volume? Reflecting on the reasons for acquiring MidCorp, it seems that increasing your presence in admitted might be beneficial if volume and interest return to that sector, creating a growth opportunity. Are we getting closer to that? Are you identifying chances to shift some business back from the E&S market?
I believe the MidCorp business is quite distinct from the E&S business. Currently, the E&S business appears to be in a distressed state. In contrast, the MidCorp business primarily focuses on property with lower severity risks, which makes it less suitable for the E&S market. The appeal of the MidCorp business lies in its limited accessibility; entering this market required us to acquire a platform. We have been working to increase our presence in this area for the past five or six years, but achieving scale is important. Having substantial property limits in the hundreds of millions is crucial to addressing the needs of the agency network. Overall, these two businesses operate differently, and the MidCorp business is less influenced by market cycles. Its value proposition is stronger with agents and insurers due to its multiline offerings and singular agent model, which underscores its distinctiveness.
I think there's still business flowing into the E&S market. It's slightly different from what we consider the middle market. The E&S markets are growing, although not as quickly as in previous years. There seems to be a moderation in the amount of business shifting over, primarily because, as you know, these markets require rate approvals, which takes time. Some of that work has already occurred. Therefore, admitted carriers might be in a better position in certain areas to retain that business. Overall, the E&S market is still performing well.
Yes, I want to make a point about the E&S side. As long as social inflation remains an issue, we anticipate more casualty business shifting into the E&S market because you have the ability to set your own prices and use a flexible range of exclusions that aren't always an option in every market. I believe this trend will persist.
And your next question is from Andrew Andersen from Jefferies.
You had mentioned some casualty pricing above loss trend. And I think in the past, your view of loss trend was maybe 2 to 2.5 points above CPI and for excess layers, perhaps even higher. Can you just provide us with your latest view on loss trends?
Yes. It would be unchanged. I think I would say mid-single digit on the primary and double digit on the excess. I think that's what we used. And I would say unchanged compared to a year ago.
And then just on the Mortgage segment, I think some mortgage associations are talking about originations picking up in '26. Are you kind of thinking about that as we turn to next year? Or are you still envisioning more of a softer market there?
Great question. Economic forecasts are going to be updated. We still expect mortgage rates to remain stable for the next little while. That's not ideal for increasing housing demand. However, by 2026, things might change a bit. Interest rates could decrease, which may lead to lower mortgage rates. We monitor this closely, but it's too early to have a definitive outlook at this time.
And your next question is from Brian Meredith from UBS.
Just two quick ones here. The first one, just following back up on the MCE program business. Can you scale how much business is that? And did you just start nonrenewing? I was surprised you said it's another 12 to 18 months before we're going to see the benefits there given I thought you started to get notifications when you closed the deal.
Yes. So I think that out of the total, about one-third was related to the program. I want to clarify that this was not the main reason we made the acquisition. We acquired the portfolio primarily for the other two-thirds. We have been able to closely examine it, and as you know, that takes time. You have to wait until the end. I believe we have mostly taken underwriting actions and assessed the programs we can renew when the time comes, while also communicating with the NGS to provide them ample notice. That’s our current situation, and I expect most of the effects to begin in 2026.
And Brian, just to clarify, regarding an earned basis, some actions were implemented late last year and early this year. Therefore, on a written basis, you can expect to see some reductions or changes in the second half of 2025. However, the full impact on an earned basis will take 12 to 18 months, which is why the earnings take a bit longer to materialize.
All right. That makes sense. And then the second one, Francois, I'm just curious, could you give maybe an update on where we stand with Bermuda tax credits, not the DTA stuff, but the credits that I know the Bermuda Monetary Authority has been talking about providing?
Unfortunately, there is no official news at this time. However, discussions are ongoing, and we remain hopeful and optimistic about reaching a positive outcome with the Bermuda government. We value our presence in Bermuda, and I believe the government appreciates having Arch and others on the island as well. We are an integral part of the community. The process involves negotiations not only with the Bermuda stakeholders but also with the OECD, which has some oversight. We anticipate more developments in the late third quarter, with the hope of having actionable items by the fourth quarter. We will provide an update next quarter, but currently, there is nothing official that we can share.
And your next question is from Meyer Shields from KBW.
Two quick modeling questions. First, if we add back the 20 basis points of, I guess, acquisition accounting impact for the insurance segment's acquisition expense ratio, is that a good run rate going forward? Or are the changes in the program business going to change that as well?
I would start there. The impact on the loss ratio from our underwriting actions in the programs business is something we hope will materialize. We believe we can achieve better results, but it's not entirely clear when that improvement will show up in our performance. Ideally, we expect to see this progress either later this year or in 2026.
And your next question is from Jamie Bhullar from JPMorgan.
Sort of question just differentiating between pricing movements versus price adequacy. If you look across your business, where is it that you're seeing attractive growth opportunities across reinsurance and insurance versus maybe highlight some of the lines where you might have been active in the past, but you just feel like the risk reward is not that compelling.
Yes, I believe that in most casualty lines, we are observing pricing outpacing loss trends. While I mentioned in previous calls that not every segment of the casualty market is appealing to us, we do see certain areas, particularly in the excess and surplus side, where we have a strong interest to expand, especially in specialty insurance and reinsurance. Our insurance team is quite specialized, which gives us confidence in finding the right opportunities. In reinsurance, it’s crucial to support the right underwriting teams who have expertise in pricing liability risks accurately. We also see potential for growth in our retail casualty segment since our value proposition resonates well with both large and mid-market retailers, even in a competitive environment. As I noted in my comments, we’ve established a solid presence with strong capabilities in London, which should aid in our growth despite increasing competition. We continue to see double-digit rate increases in MidCorp, and as we integrate our platform, we believe our value proposition will support further growth. However, we are keeping a close eye on more challenging areas, including D&O and cyber, which are not new concerns, as well as the E&S property market where attractive rates exist but competition remains intense.
Yes. To wrap up on property catastrophe, after adjusting for the timing issue regarding retro, property catastrophe is up about 20% year-over-year in the quarter. This reflects our overall perspective. We find both property catastrophe and other property segments to be attractive businesses. However, as Nicolas pointed out, some transactions don't always revert or evolve as expected, which has been our experience this quarter. Unfortunately, I can't provide insights on how the third and fourth quarters will unfold, but we still believe it's a very appealing market.
I am not showing any further questions. I would now like to turn the conference call over to Mr. Nicolas Papadopoulo for closing remarks.
Yes. So I want to thank you all for participating in the call and wish everyone a great summer. Definitely, Francois, we need to take some time off. And I want to reiterate one more time that we think the market we trade in is very attractive and the challenge, our challenge and a lot of challenges around this market is really generating new business. I think that's really it. So again, thank you, and enjoy the summer.
Thank you, ladies and gentlemen, for participating in today's conference. This concludes the program. You may all disconnect your lines.