Prepared remarks
Good day, ladies and gentlemen, and welcome to the 1Q 2026 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 the 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 2025 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, Mr. Nicolas Papadopoulo, and Mr. Francois Morin. Sirs, you may begin.
Good morning, and welcome to Arch's First Quarter 2026 Earnings Call. We delivered a strong quarter, reflecting both attractive underwriting margin and the disciplined execution of our underwriting and capital management strategies. After-tax operating income for the quarter was $901 million or $2.50 per share, producing an annualized net income return on average common equity of 17.8%. Today's market is clearly more competitive than in recent years. That said, rates and terms and conditions in aggregate still support strong returns. Capturing those returns requires the ability and willingness to actively manage the portfolio across and within lines of business. This is embedded in Arch's operating principles and among our differentiating traits to dynamically add to areas where returns are attractive while declining those risks that no longer provide an adequate margin of safety. Regardless of where we are in the cycle, Arch is committed to generating superior returns for our shareholders. I'll now provide updates across our reporting segments, beginning with insurance, which generated $66 million of underwriting income in the first quarter. It compares favorably to the first quarter in 2025 that was impacted by the California wildfires. Overall, market conditions remained favorable. However, top line growth in the segment was essentially flat in the quarter, reflecting our focus on profitability over volume as competitive pressures increase. Growth opportunities remain across most casualty-focused businesses, including excess and surplus line casualty, construction, alternative market as well as a number of our London market businesses. Growth was offset by softening rates in a few areas, including large account and excess and surplus lines property as well as in some short-term lines in London. We also chose not to renew certain program business acquired in the middle market commercial transaction that did not align with our risk appetite or meet our profitability requirements. As we have discussed on prior calls, these nonrenewals are expected to reduce net premium written by approximately $250 million throughout 2026. I also want to note a significant operational milestone achieved in our middle market commercial business. Earlier this month, our team successfully completed the data and system migration of the acquired businesses from Allianz to Arch systems. The ability to complete this effort in just 18 months speaks not only to the dedication of our teams but also represents a strong use case for artificial intelligence in accelerating systems and platform transformation. With a significant step completed, the business can now pursue its objective of creating a scalable best-in-class experience for clients and distribution partners. Our reinsurance segment delivered an excellent $441 million of underwriting income in the quarter, a significant increase from the $167 million in the first quarter of 2025 which was heavily impacted by the California wildfires. Rate reductions and increased retention by our clients contributed to a 6% decline in net premiums written versus the same quarter last year. Shorter lines, including other property, property catastrophe and marine were the primary drivers of these declines. Strong industry results over the past few years attracted significant new capacity from traditional markets and third-party capital, resulting in a broadly competitive environment; this additional supply continues to put downward pressure on property catastrophe and short-term rates while also moderating the push for needed rate increases in some casualty lines. However, underwriting performance remains excellent. Our focus and disciplined underwriting led to the reinsurance group's 76% combined ratio marking the fourth straight quarter of sub-80% combined ratios. Consistent with our cycle management philosophy, our reinsurance team actively manages the portfolio mix by continuing to write new business at a risk-adjusted return target and by reducing our share of business that falls below our minimum return thresholds. The mortgage segment delivered another strong quarter with $221 million of underwriting income to go along with $266 million of net premiums earned. Mortgage originations picked up modestly in the first quarter; affordability challenges tied to high mortgage rates and home prices continue to constrain demand. Credit quality across the mortgage insurance portfolio remains excellent with delinquencies normalizing from seasonally higher levels in the fourth quarter of 2025. Competition remains disciplined and we continue to pursue growth through innovation and new product introductions across our global footprint. Overall, mortgage performance continues to exceed expectations and provide shareholders with a differentiated and diversifying source of earnings that support long-term value creation. Turning to investments, which contributed $408 million or $1.13 of net investment income per share in the quarter: the decline in net investment income from the fourth quarter of 2025 was driven in part by lower cash yields, lower qualified refundable tax credit benefits, and seasonal compensation payouts. Our nearly $48 billion investment portfolio provides a material contribution to earnings and book value growth, effectively raising our quarterly earnings flow. In the first quarter, we repurchased $783 million worth of our common stock while still increasing book value per share by 1.7%. Our first priority remains to deploy capital into our business. When organic opportunities do not meet our return threshold, we view repurchasing our shares as an attractive use of excess capital, reflecting our conviction in the intrinsic value of the franchise. The Board's recent $3 billion increase to our share repurchase authorization underscores its approach to capital allocation. To conclude, Arch delivered another strong quarter, I think true to our principles of disciplined cycle management and by leveraging the strengths of the Arch brand and our diversified platform. In today's market, underwriting discipline powered by insights from our investment in data and analytics, rewarding our underwriters for profit and volume, and prudent capital management continues to differentiate Arch and drive long-term value for our investors. Arch's 25-year record of strong returns and compounding book value at double-digit rates is a direct result of hard work and discipline. That is Arch. That is our DNA, and that is why we believe we will continue to deliver best-in-class results across market cycles and into the future. I will now turn the call over to Francois, who will talk through the financials in more detail. Francois?
Thank you, Nicolas, and good morning to all. Last night, we reported our first quarter results with after-tax operating income of $2.50 per share and an annualized operating income return on average common equity of 15.4%. Book value per share grew by 1.7% in the quarter. Our three business segments once again delivered excellent underlying results with an overall ex-cat accident year combined ratio of 82.3%, up 130 basis points from the same quarter last year and consistent with the more competitive environment we are facing. I will provide more color on trends in each of our segments shortly. Our underwriting income included $200 million of favorable prior year development on a pretax basis in the first quarter or five points on the overall combined ratio. We recognized favorable development across all three of our segments and in many of our lines of business, but mainly in short-tail lines in our P&C segments and in mortgage due to strong cure activity. Of note this quarter, we commuted a large transaction, which increased the level of favorable prior year development in our reinsurance segment by approximately 25% in the quarter. Current year catastrophe losses were $174 million, net of reinsurance and reinstatement premiums and were mainly the result of winter storms in the U.S. and the Iran conflict. All in, these losses were slightly lower than our seasonally adjusted expectations for natural catastrophes. The insurance segment's gross premiums written grew 2% while net premiums written declined 1.4% year-over-year. As Nicolas explained, the nonrenewal of certain program business acquired as part of the MCE transaction impacted our top line this quarter. In addition, net premiums written were also impacted by a shift in business mix toward lines with lower net-to-gross retention ratios. The ex-cat accident year loss ratio improved by 70 basis points to 56.7% compared to the same quarter one year ago. The acquisition expense ratio for the current accident year increased by 160 basis points; the benefit we observed in the first quarter of 2025 from the write-off of deferred acquisition costs from the MCE acquired business rolled off. We would expect the most recent acquisition expense ratio to be more representative of long-term expectations. Our operating expense ratio was higher this quarter as we incurred additional expenses related to the transition of our middle market business to Arch systems. We would expect our operating expense ratio to revert back to a level closer to historical levels during the second half of the year. The reinsurance segment had an excellent quarter to $441 million in pretax underwriting income. Overall, gross premiums written were down by 2.3%, while net premiums written were down by 6% from the same quarter one year ago. Net premiums written were up in specialty partly due to timing differences in the recognition of certain treaty renewals that impacted our financials in the first quarter of 2025. Over one-third of the decrease in net premiums written in property catastrophe was attributable to a lower level of reinstatement premiums compared to a year ago, which were impacted by the California wildfires. Overall, our ex-cat accident year combined ratio of 78.1% is comparable to last year's results for the same quarter. Our mortgage segment produced another very strong quarter with underwriting income of $221 million. Net premiums earned were down by approximately $6 million from last quarter, mostly driven by lower levels of cancellation premiums in our CRT business. Of note this quarter, new insurance written at USMI reflects a large non-GSE transaction of $2.2 billion in NIW. Absent this transaction, which increased our NIW by 15%, we would expect our market share of the PMI market to remain relatively unchanged from the prior quarter. The delinquency rate for our U.S. MI business decreased to 2.06%, consistent with our expectations and seasonal trends. On the investment front, we earned a combined $568 million from net investment income and income from funds accounted for using the equity method, or $1.57 per share pretax, slightly down from the $1.60 per share we earned last quarter. Cash flow from operations remained positive at $1.2 billion for the quarter. Our portfolio remains very high quality with a short duration and in line with our asset allocation targets. Income from operating affiliates was $36 million for the quarter, up from $17 million in the same quarter one year ago, which was impacted by the California wildfires. As a reminder, this quarter's result reflects our lower ownership stake in Summers Re since the start of the year. Our effective tax rate on pretax operating income was 14.8%, reflecting the mix of income by tax jurisdiction. It was slightly below the 16% to 18% previously guided range mostly due to a 1.7% benefit from discrete items. As of January 1, our peak zone natural catastrophe probable maximum loss from a single event at the 1-in-250-year return level on a net basis remained flat at $1.9 billion and now stands at 8.2% of tangible shareholders' equity. On the capital management front, we repurchased $783 million of our shares in the quarter or 8.3 million shares. We have repurchased an additional $311 million in shares so far this quarter through last night. Our balance sheet remains in excellent health with strong capitalization and low leverage. 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 on property cat on the reinsurance side. I was just hoping to get some of your expectations for the midyear renewals? And then if you expect declines in the book to continue, would you expect your cat load to come down after the mid-years?
Yes. Elyse, we don't have a crystal ball, but for the 6/1 renewals, I think we really expect the market to remain competitive and to adjust our underwriting stance based on the actual rate decreases that we will see at that time. So we don't really have a precise forecast there. On the overall trend of the catastrophe portfolio, I think we have headwinds because of the double-digit rate decreases, and as I said in prior calls, we really monitor the property cat through a lens of 50 separate zones. Two years ago, many zones were attractive; now we have a mix. Some zones remain attractive—Florida is still attractive—but we have a bunch that are neutral and some that have become challenging. So depending on where the business renews and our perception of the attractiveness of that zone, our underwriting team makes the decision.
Okay. And then on the casualty side, you guys were mentioning still some good opportunities, I think, on both the insurance and the reinsurance side. Can you just talk through within casualty, where you're currently seeing the best growth opportunities?
Yes. I think we are still optimistic on casualty. We think the pain is not fully through yet. We are still seeing some development from older years like 2016 and 2017, and more recent years '21 through '24 have shown additional adverse development. That should, in our view, continue to sustain price increases above trend. In terms of the risk appetite across insurance and reinsurance, our preference hasn't changed: we like specialty casualty, excess and surplus line casualty, and primary positions on large accounts. We are staying away from commercial auto and larger account excess towers, which we think are still very challenging despite some of the rate increases we've seen.
Our next question comes from David Motemaden from Evercore ISI.
I was hoping maybe just to get an update on the insurance book where we stand just on rate versus trend in both the U.S. and internationally.
So starting with the U.S., in the U.S. we are broadly getting rate at trend. As I mentioned earlier, we are getting rate above trend on casualty lines of business. The driver on the trend is really the short-tail property lines of business where we've seen a rapid rate decrease. When you sum it up for North America, I think we're seeing rate slightly below trend. If you go to international, we have more short-tail lines in the international book, so we're seeing some rate pressure on those short-tail lines. Overall, we're seeing a low single-digit rate decrease overall, but we started from pretty high margins, so we feel very good about the business there.
Got it. And then I believe you mentioned just in reinsurance, some of the supply there and good returns in short-tail lines, trickling into casualty re — just wondering, does that change sort of how you're thinking about the growth opportunity there as an offset to the headwinds on the property side?
On the casualty reinsurance side, we're mainly talking about quota shares. We like the fundamentals of the specialty casualty business. The difficulty is really the ceding commissions. Based on past experience, ceding commissions should have fallen, but with excess supply there are many competitors looking to increase share in that business, which allows ceding commissions to stay flat while pricing on the best accounts continues to rise. Sidecars are the latest flavor of the day in casualty; they add to that dynamic.
Our next question comes from Tracy Benguigui from Wolfe Research.
One of the largest primary insurers had said on the earnings call some pretty pessimistic views of property pricing, particularly shared and layered in North America and in London and the culprit is cheaper forms of capital coming in from MGAs, reinsurers and alternative capital. So from your vantage point, is this a real structural shift in the market? And how does that influence your underwriting appetite?
For us it's more business as usual. The advantage we have is that we are not a retail large account player; we don't play in that space. That space has come up and come down rapidly, so we are not active there. We play in excess and surplus line property business, and that space is getting competitive. We are taking a very careful approach to that line of business right now.
Excellent. And there was also a recent settlement development early in the second quarter around the Francis Scott Bridge collapse. Are you currently sizing industry loss? And has that pushed your loss estimate upward?
In that particular case, we were holding a more conservative estimate than loss estimates in the market, so no real change for us.
Our next question comes from Mike Zaremski from BMO.
In the insurance segment, the underlying loss ratio continues to show some healthy improvement. Can you talk about some of the drivers? I believe some of the nonrenewals on some programs are helping that, but can you talk around the dynamics we should consider?
This quarter, in particular, we benefited from a relatively benign amount of attritional losses in London, in particular. Our international segment book did very well this quarter, which explains most of the favorable reduction in the ex-cat loss ratio compared to a year ago. As a reminder, we'd encourage you to look at trailing 12-month rolling numbers to get a view on performance of the book. The impact of the MCE nonrenewals is yet to be fully visible; as the business earns out, it will show up in the numbers. At this time, we don't think it will be material — it's still a relatively small part of an approximately $8 billion insurance segment book of business, so the impact will be limited. So the quarter was largely about really good performance out of London.
Got it. And Francois, my follow-up: I think you mentioned on the catastrophe side that this quarter's losses were a bit lower than 'normal.' You also added a bit on the Iran conflict. Maybe you can just elaborate on the Iran conflict, how you guys are thinking about that? Is it all IBNR, are there real losses or...?
There have been no payments yet, but there are certainly real losses developing, particularly in our specialty London book — lines like terrorism and political violence are exposed. It's ongoing. We took a first stab at it this quarter based on what had occurred in March, but we expect more losses to come through in the second quarter. We'll keep reporting on it. Technically, the cat load we report is for natural catastrophes; this is a man-made event, but we still report it as part of our cat losses and include it in the overall number.
Our next question comes from Andrew Kligerman from TD Cowen.
So I know you've gotten a lot of questions about property. Just to gauge where we are in the cycle, could you share where you're seeing risk-adjusted returns in property catastrophe reinsurance? I know there are different layers and risk online, etc., but if you had to give a range, what are we seeing today? And maybe the same question for E&S property that you've been writing.
The way we manage property catastrophe is very dynamic and zone-by-zone across 50 zones. Two to three years ago we were seeing returns in the low 30s for that business. The business on our book today is different in mix than it was three years ago — we've shifted to more attractive zones and declined business that fell below our threshold. The business that remains on our book today remains attractive to us, and we are still seeing returns in the high teens.
I see. It sounds like there is business out there that Arch Capital won't write that is well below your upper teens return threshold. Is that fair?
That's fair.
Our next question comes from Cave Montazeri from Deutsche Bank.
First question is on share repurchases. It was nice to see an uptick this quarter; it was 87% of your operating income versus roughly 70% over each of the past two quarters. If current pricing trends continue, you don't really need capital to grow and you're starting from a healthy capital position. Without obvious M&A targets, is there any reason why you couldn't pay out of income potentially even more, given that you're releasing capital when you're shrinking? I'm wondering what held you back from doing more this quarter.
There's nothing stopping us. We don't set hard targets for buybacks — we look at what's in front of us, considering both stock price and liquidity. So far liquidity hasn't been an issue. Could we buy back a larger share of income for the year? Potentially. But that's not how we think about it; it's more of an outcome based on the stock price and the volumes. The Board's reauthorization gives some direction about how much capital we think we can return. Whether it happens this quarter or next, nothing is set in stone. We'll react to what's in front of us, and aside from standard regulatory constraints, there are no structural limitations.
That's great to hear. My second question, pivoting to cyber insurance: can you help separate cyclical versus structural pieces? First, where are we in the underwriting clock today for cyber? And structurally, given developments in AI and the potential for cyber attacks to become more frequent and destructive, does that change your view of tail risk, aggregation risk or even the long-term insurability of the product?
In terms of the underwriting cycle, I would think cyber is probably around 3:00 p.m. — still okay but getting toward the later part of the cycle. The recent advances in AI, such as Anthropic's models, are a real threat and accelerate the pace at which cyber attacks can be conducted. However, we don't see AI changing the cyber product fundamentally. Cyber is an arms race between attacker and defender; the same technologies that help attackers can also help defenders. We do think AI increases the scale and systemic potential of cyber events, so we are taking a careful approach to modeling and scenarios for aggregation and systemic risk.
Our next question comes from Josh Shanker from Bank of America.
I know you don't give guidance on margins, but broadly speaking, Arch and other companies' loss ratios are generally in the same range they were a year ago while growth is down. As you give an internal outlook for the next year, do you expect Arch's and the industry's loss ratios to begin to deteriorate from here? Or do you think current levels are supportable?
I can't speak for the industry. For Arch, we're confident in our ability to manage the cycle — that's our first line of defense. If things fall below our thresholds, we reduce exposure, and we're confident in finding attractive opportunities to expand when appropriate. Property is coming down and everyone sees that, but we still see opportunities on casualty. Based on our mix of business, with rates slightly below trend, we believe margins are sustainable for the near future.
And then in terms of SME commercial business, the mid-core acquisition was in part to be less cyclical. Are you seeing fruits of that play out in 2026 such that you're able to capture incremental share in less cyclical business?
We just finished the systems cutover, and our main focus has been to migrate the portfolio and create a new underwriting workbench on Arch paper. Now that cutover is complete, it opens our ability to enhance the value proposition and scale the business. I would view much of that as a 2027 initiative rather than 2026: you cut over, stabilize, then build new tools to help underwriters with triage, selection and productivity.
Our next question comes from Rob Cox with Goldman Sachs.
Just a question on premium leverage. On the one hand, the business is shifting away from property and property cat, which should allow for an increase to premium leverage. But in the past, it's been hard to rightsize leverage in a softening market due to the lack of growth opportunities. Do you foresee premium leverage continuing to fall as we get further into the soft market? And how does that impact your view on future ROEs?
We're managing the equity side of leverage. If we can't grow and deploy capital into the business, we'll return more capital to shareholders, which is a tool we've been using and will continue to use to keep ROEs attractive. If the mix shifts more to long-tail business, it helps on leverage, and we'll watch the equity component carefully.
That's helpful. And then a follow-up on terms and conditions: did any negotiations on terms and conditions start to change in the quarter, and which terms do you think could be further negotiated as we move deeper into the soft market, especially for property cat reinsurance?
We're seeing a bit more focus on aggregates and top-end limits, but so far it's a small portion of structures. As the market becomes more competitive, we'd expect more of those complex structures that are harder to price to come back into the market.
Our next question comes from Ryan Tunis with Cantor.
The company is much larger than it was seven years ago, both from a premium side and an OpEx side. I imagine a lot of that increase in OpEx is in support of hard market growth. Now that you're no longer in a hard market, to what extent are you looking at managing the OpEx side as a source of boosting margins?
Yes, we are paying attention to OpEx. As markets soften, loss ratio management is often the most important lever, but expense control, particularly in the insurance group, is also something we are actively managing.
Okay. And then a follow-up for Francois: the underlying loss ratio in the mortgage insurance segment looked a little elevated. Nothing obvious jumped out to me — maybe a slightly higher reserve for defaults. Is that seasonal, and how should we interpret that loss ratio result this quarter?
Some of it is driven by the change in the average mortgage size that goes into notice of default. Loans currently hitting NOD are from more recent vintages and post-COVID, when mortgage loan sizes were larger. Frequency assumptions have been flat; the severity per loan remains stable, but the average size of the loan moving into NOD increases the loss ratio. So the increase is an evolving factor and remains within our expectations for mortgage.
Our next question comes from Alex Scott with Barclays.
I wanted to follow up on the excess capital beyond just buybacks: thinking more broadly, you don't have businesses you can easily lean into for growth and typically one of your three businesses can be legged into. Does that create any need to look to diversify via transaction? And is leaning into AI investment to try to achieve growth something you think is achievable?
All three businesses are doing well but growth opportunities across them are somewhat limited today. We're working to find new opportunities internationally and in mortgage and insurance, but the market conditions make outsized growth harder to see. Share buybacks are one natural use of capital since we don't want excess capital beyond prudent levels. We look at M&A selectively — any deal must be additive and truly make us better at scale. We're trying to think outside the box about opportunities that aren't core today. Regarding AI, it's coming quickly; we're exploring automation and productivity improvements, but it's still early days and will evolve.
We've been investing in machine learning and AI capabilities for years across mortgage and P&C and have deployed many models, but the landscape is changing very fast. The industry's challenge is to show clear results while building a data strategy and system integration to support AI at scale, and to anticipate what AI will look like three years from now. New models open huge opportunities, but they also introduce uncertainty about the next wave. It requires significant investment while trying to create productivity and better underwriting insight for our teams.
All helpful. As a follow-up, could you talk about exposure to private credit? I know in the past you've discussed alternatives allocations, but what would be considered private credit within the fixed maturity part of the book?
We have some private credit exposure but it's limited and held across public and private markets. Our strategy has been to focus on higher-quality loans — lower loan-to-value and strong collateral supporting the investments. We're watching the market like everyone else, but at this point there are no red flags requiring action.
Our next question comes from Matthew Heimermann with Citi.
I wanted to follow up on your comment about using AI in the technology rollover of the mid-corp acquisition. How was that experience different than past integrations?
The way it helped us most was in writing and validating code and significantly accelerating testing. A lot of the testing work was assisted by AI, which sped up time to market. Those were the two main impacts our teams highlighted.
It was a build-out of a brand-new platform infrastructure because we bought the business and didn't inherit the systems. That required creating a brand-new infrastructure that we at Arch did not have. AI capabilities helped speed up that process and the build-out.
That's helpful. I just want to make sure I understand the use of the word testing correctly. Should I think about that as auditing output of...?
Running scenarios to make sure that every time you create a new platform it behaves correctly. When you create software, you have a lot of testing to ensure the software is doing what it's supposed to do. Much of that can now be done through AI as opposed to individuals manually testing every workflow. That includes things like underwriting workflow, collections, and ensuring processes route correctly.
Our next question comes from Meyer Shields with KBW.
François, I expected operating expense in reinsurance to go down because you should have more Bermuda tax credits. I didn't see that; can you talk through the moving parts?
Compared to last quarter, expenses are up. Compared to last year, yes, there are some QRTCs this quarter in reinsurance. What explains the increase is investments in staffing and building out the reinsurance group — hiring in technology and systems improvements is a big part of it. There's also some noise from structured deals we wrote a year ago that were beneficial to the expense ratio then. If you adjust for those items, it explains some of the difference. There's nothing structural that surprised us.
Okay. And then shifting gears, there are reports of significant rate increases for product lines exposed to the Iran conflict. Are you trying to write more of that business or being more cautious because of the risk?
We do write some of those lines out of our London office — political violence and terrorism. We've been cautious, but rates have spiked, so we've actually written a little more business, but in a very cautious manner.
Our next question comes from Rowland Mayor from RBC Capital Markets.
On your PML disclosure, do you think catastrophe models are fully capturing the improved loss environment in Florida from AOB reforms and other benefits performed?
It has been reflected. As we model, we include features specific to the Florida market and have updated assumptions for the reforms — changes in fraud and claims handling expenses, for example. Those changes are captured in our modeling and are reflected in what we report.
Our next question comes from Brian Meredith with UBS.
On PMLs, I noticed your PMLs did not decline — they stayed about the same at 4.1% versus your 1/1 disclosure — yet you're declining property cat and other property business. Can you help reconcile what's going on with the PMLs relative to what you're doing with property reinsurance and insurance?
Think of the 4.1% number as the peak zone PML. I wouldn't expect major moves at that level yet. I would expect more meaningful change around the 6/1 and 7/1 renewals. There wasn't a ton of activity that impacted our 4.1 zone at the 1/1 renewals.
When I look at what happened between September and 1/1, it was up despite the reduction in business you had at 1/1 renewals. Is it simply changes in rate, or are you dropping exposure as well?
At 1/1 we actually held on to most business and grew a little. We gave up some rate, but we found that the business still met our return thresholds. Dollars of PML didn't change much — you lose one account and replace it with another — so the margin changes can be small. Looking ahead to 6/1 and 7/1, those are the renewals where we might make more significant changes in PML depending on how we act.
As we said earlier, Florida remains an attractive zone for us. We're getting the returns we require there, so we haven't retreated from Florida; we'll write at the margin where attractive.
Our next question comes from Pablo Singzon with JPMorgan.
Nicolas, following up on sidecars: do you think this is a blip, or is there a risk casualty could face the same structural impact that alternative capital had on property cat?
It's hard to tell. What we know is sidecars and alternative capital are not helping pricing. One mitigating factor is security of capacity: entities using sidecars to access casualty risk may not be the best positioned to pay claims five to seven years from now compared to traditional reinsurers. That may mitigate the impact versus property cat, where losses are more immediate and capital providers are different. So there are differences in how it may play out.
Our next question comes from Yaron Kinar with Mizuho.
Just circling back to the man-made Iran-related losses: can you break them out for us between insurance and reinsurance and maybe indicate associated premiums earned?
We don't break those losses out separately; we report them as part of our catastrophe results. When we write those lines — political violence, terrorism — the risk is priced, but we don't provide a separate premium breakdown for these losses in our public reporting.
To give you a sense, market estimates for the industry loss from the event are about $3 billion, and we estimate that premiums for the lines of business impacted are around $2 billion. Those are not precise totals but give you a directional sense across insurance and reinsurance.
Because when I look at the underlying loss ratio, it may not capture some losses, but we still have the premiums associated with that book and the attritional components. As we think forward, I want to make sure we're using the right base for the underlying loss ratio.
Good point. We can walk through that offline and show you how we treat those lines and the reserve and earned premium dynamics if you'd like.
That would be perfect. Then my other question: in the insurance book I saw that the other liability claims-made line grew nicely in the quarter. What drove that?
That is really transaction liability. We write transaction liability in North America and London, and it was driven by higher pricing in that line and by increased M&A activity over the last couple of quarters.
I'm not showing any further questions. Would you like to proceed with any further remarks?
Yes, I want to thank you all for participating in our call. We feel good about the business even though the market conditions are challenging. As we said, we are equipped and our teams are ready to compete in that environment and generate attractive returns for our shareholders. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.