Prepared remarks
Good day, ladies and gentlemen. And welcome to the 4Q 2025 Arch Capital Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. 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 for forward-looking statements in the call to be subject to 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 website at www.sec.gov. I would now like to introduce your host for today's conference, Mr. Nicolas Papadopoulo and Mr. François Morin. Sirs, you may begin.
Good morning, and welcome to our fourth quarter earnings call. We concluded another exceptional year by generating $1.1 billion of after-tax operating income in the fourth quarter, up 26% from the same period in 2024. Our quarterly consolidated combined ratio of 80.6% reflects excellent underwriting results across the group. For the full year, we produced $3.7 billion of after-tax operating income, a new high, resulting in after-tax operating earnings per share of $9.84 and a 17.1% annualized operating return on average common equity for 2025. Continued strong operating cash flows and capital generation enabled the repurchase of $1.9 billion of Arch common stock in 2025. We strongly believe our stock is a good long-term investment and share buybacks represent an efficient way to return excess capital to our shareholders over time. Since our inception, Arch's commitment to maximize long-term shareholder value has been unwavering. In 2025, book value per share, our preferred measure of value creation, increased by 22.6%. Since our start in 2001, book value per share has grown at a compound annual growth rate in excess of 15%, placing us at the top of our peer group. We remain confident in our ability to deliver strong returns throughout the underwriting cycle and to build on a legacy of disciplined execution and consistent results. We head into 2026 with measured optimism. We are starting from a position of strength, but recognize that competition is increasing in several lines of business. In an evolving market, the house playbook, which has served us well over the years, is a differentiator that remains as valid and effective as ever. Our playbook is anchored by an underwriting culture defined by deep expertise and disciplined risk selection. Combined with a diversified business model, a proven record of best-in-class cycle management, and the strengths of the Arch brand, we are well-positioned to consistently deliver superior results for our shareholders. I will now provide updates on our reporting segments. I'll begin with our insurance group, which delivered $119 million of underwriting income in the fourth quarter. Underwriting performance was solid, with an underlying ex-cat combined ratio of 90.8% in the quarter, similar to the fourth quarter last year. Gross premium return increased 2% from 2024. In North America, we continue to grow in specialty casualty lines including alternative markets, construction, and E&S casualty. As for our international units, we increased writings through our Bermuda platform and in Continental Europe. I will note that we experienced a year-over-year decline in net premium return which François will explain in his remarks. Across the insurance platform, our underwriters pivoted towards lines of business offering the most attractive margins and we grew premium volume in more than half of our business units, indicating a healthier underlying market than industry headlines would suggest. In North America, the rate environment is largely keeping pace with loss cost trends, while pricing in our international business units is tracking slightly below loss trends. Within each geography, consistent with our cycle management approach, we will adjust our business mix in response to changing market conditions and pricing dynamics. Our insurance platform has expanded significantly over the last several years, providing more opportunities to capitalize on attractive margins in many areas. Going forward, our underwriters will continue to pursue growth in those areas where risk-adjusted returns exceed or meet our long-term objectives. Moving to reinsurance, which delivered a record $1.6 billion of underwriting income for the year. The fourth quarter combined ratio ex-cat and prior year development was 74.9%, consistent with the prior year quarter, and reflective of continued underlying market profitability. Gross premium return was flat versus 2024 despite the nonrenewal of a large structured transaction. Net premium return declined primarily due to a change in the timing of certain retrocession purchases. On January 1, property cat and more generally, short-tail excess of loss renewals were highly competitive with rates down 10 to 20%. Ceding commission increased in proportional reinsurance as supply continued to outpace demand. Despite these headwinds, our underwriting teams performed well, leveraging the strengths of our platform to source a handful of new opportunities. These opportunities will reduce the negative top-line impact from the rate pressure. The mortgage segment produced $1 billion of underwriting income for the year, our fourth consecutive year exceeding the $1 billion threshold. In our USMI business, new insurance return remained modest and insurance in force was stable. The underlying credit quality of the portfolio is excellent, as illustrated by favorable cure rates on delinquent mortgages, which show favorable reserve development in the quarter. While lower mortgage rates are beginning to support increased origination activity, the current market is still constrained. The team remains focused on underwriting discipline, expense management, and perfecting its data and analytical platforms to further optimize the business. Finally, investments generated $434 million of net investment income in the quarter, while equity method investments added another $155 million to net income. We continue to look to the investment portfolio, where assets surpassed $47 billion at year-end, to provide a stable recurring earnings stream that enhances the group's overall returns. As we move past 2 PM, the PLC underwriting clock is increasingly important to focus on business that generates adequate risk-adjusted returns. For almost twenty-five years, Arch has perfected its cycle management capabilities by adhering to some foundational principles. One, leveraging a diversified specialty platform to maximize flexibility and reduce volatility. Two, embracing a business owner mindset anchored on delivering a differentiated customer experience. Three, using data and analytics to sharpen insights and enhance risk selection. And last but not least, ensuring alignment with investors by rewarding underwriters for profitability, not volume, and incentivizing our executives to grow book value per share above all else. This stage of the underwriting cycle will test underwriting discipline and acumen. Our markets are exciting for many reasons, but successfully managing the cycle is equally, if not more, rewarding. As the decisions made today will shape future returns. With our experience, focus, proven track record, and capital strength, we believe Arch is ready for the task and well-positioned to outperform the sector. This year marks Arch's twenty-fifth anniversary. Having been here since 2001, I firmly believe that Arch's culture, driven by our dedicated people, is a foundation of our success. So before I turn the call over to François, I want to thank team Arch for another outstanding year and for positioning the company for continued success in the years ahead.
Thank you, Nicolas. And good morning to all. Last night, we reported our fourth quarter results with after-tax operating income of $2.98 per share, and an annualized net income return on average common equity of 21.2%. Book value per share grew by 4.5% in the quarter. Our three business segments once again delivered excellent underlying results, with an overall ex-cat accident year combined ratio of 79.5%, down 100 basis points from last quarter. Our underwriting income included $118 million of favorable prior year development on a pretax basis in the fourth quarter, or 2.8 points on the overall combined ratio. We recognize 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 P&C segments, and in mortgage due to strong cure activity. Current year catastrophe losses were $164 million net of reinsurance and reinstatement premiums. Lower than our seasonally adjusted expectations, but higher than last quarter, mostly as a result of U.S. severe convective storms, hurricane Melissa, and a series of global events. The insurance segment's gross premiums written grew 2% while net premiums written declined 4% year over year. The decrease in net premiums written was due in part to the timing of ceded written premium accruals related to the M acquisition in the prior year quarter and changes in business mix resulting from different levels of net to gross retention ratios. The ex-cat accident year loss ratio improved by 80 basis points to 57.5% compared to the same quarter one year ago. The acquisition expense ratio for the current accident year increased by 150 basis points as the benefit we observed in 2024 from the write-off of deferred acquisition costs for the MC acquired business rolled off. The Reinsurance segment had another stellar quarter in terms of pretax underwriting income, at $458 million. Overall, gross premiums written were flat and net premiums written were down approximately 5.2% from the same quarter one year ago. Our net premium volume was up in casualty and property other than property catastrophe but was down in specialty due to the impact of the nonrenewal of a large transaction as Nicolas mentioned. And then property catastrophe due to changes in the timing of certain retrocession purchases. We finished 2025 with an 80.8% combined for the year, certainly an excellent result and the lowest since 2016. Once again, our mortgage segment delivered another very strong quarter with underwriting income of $250 million. Net premiums earned were down approximately $11 million from last quarter, mostly across our CRT and Australian businesses. That said, with fourth quarter new insurance written at USMI at its highest level for the year, and persistency remaining high at 81.8%, USMI insurance in force was relatively flat. The current accident year combined ratio remained low at 34%, considering the increase in new notices of default due to seasonality. The delinquency rate for our UMI business increased to 2.17% in line with our expectations. On the investment front, we earned a combined $589 million from net investment income and income from funds accounted using the equity method amounting to $1.60 per share pretax. Strong positive cash flow from operations of $6.2 billion for the year helped us further increase the size of our investable assets which now stands at $47.4 billion. Our portfolio remains of very high quality with a short duration and remains in line with our allocation targets. Income from operating affiliates was strong at $61 million, due especially to a very good quarter at Summers REIT. As you have heard, the Bermuda government enacted in December the Tax Credits Act 2025, designed to incentivize tangible on-island economic activity. At the heart of the act are qualified refundable tax credits or QRTCs, which are available to us given our operational presence in Bermuda. This quarter, we recognized a full year effect of the 2025 QRTCs, significantly impacting your financial results, primarily through the expense ratio for our Reinsurance segment and the corporate expenses line.
Of note, included in these numbers are some one-time benefits.
Which we would not expect to recur in future years. Going forward, our view is that the impact of the QRTC should be most visible in two places. One, for the reinsurance segment, we would expect our operating expense ratio to benefit, resulting in a full year 2026 operating expense ratio between 3.9-4.5%. And two, our corporate expenses should also be reduced from their run rate levels and be approximately between $80 million and $90 million in 2026. The QRTCs will also benefit other expense line items including the insurance and mortgage segment expense ratios and net investment income, but to a much lesser extent. As a reminder, our pattern of corporate expenses is typically skewed towards the first quarter of the year due to the impact of equity compensation grants. For the 2025 year, our effective tax rate on pretax operating income was 14.9%, reflecting the mix of income by tax jurisdiction. It was slightly below the 16% to 18% previously guided range mostly due to a 1.4% benefit from discrete items. As we look ahead to 2026, we would expect our annualized effective tax rate to return to the 16% to 18% range for the full year. As of January 1, our peak zone natural cap probable maximum loss for a single event one and two fifty year return period on a net level basis remained flat at $1.9 billion and now stands at 8.2% of tangible shareholders' equity. For 2026, our current estimate of the full year catastrophe losses stands within a range of 7% to 8% of overall net earned premium similar to the estimate we disclosed last year. On the capital management front, we repurchased $798 million of our shares in the fourth quarter. For the year, we repurchased $1.9 billion or 21.2 million shares representing 5.6% of the outstanding common shares at the start of the year. We have repurchased an additional $349 million in shares so far this year through last night.
We closed 2025 with a balance sheet in excellent health.
With strong capitalization and low leverage, giving us plenty of optionality as we continue to put to work the capital our shareholders have entrusted in us. With these introductory comments, we are now prepared to take your questions.
Questions and answers
Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question, and we'll pause. First question comes from Elyse Greenspan at Wells Fargo. Please go ahead.
Hi. Thanks. Good morning. I wanted to start with the comments that you guys made on property cat. I think you said that there were some, you know, opportunities at one one, like that served to offset the impact of the price declines. Can you just expand, I guess, on the opportunities that you saw and just how you expect, I guess, growth in property cat re during 2026?
Good morning, Helene. I think the opportunities we refer to in our comments are not in property cat. I think they come from other geographies and mostly in specialty lines.
Okay. And then my second question was just on capital. You guys it sounds like there was a, you know, the level of and the pace of buyback, François, based on your comments, picked up just at the start of the year. I know you guys, right, typically buy back, so it is dependent upon capital as well as the stock price. But how should we think about the level trending from here, right, $350 million, right? And a little bit over a month, right, is a pretty big level.
Yeah. I think share buybacks are, I think, certainly, as we said, like a good way to return capital. I don't think we don't set a target that, not like we're saying we're gonna return x dollars by the end of the year, but you know, the market, you know, depending on stock price and we'll see are in our ability to deploy capital in the business, we'll we’ll be active for sure. I mean, the pace will vary. It's not necessarily a binary event whether we buy or we don't buy. If, you know, we buy different levels during different times during the year, but you know, I think no question that given the market environment we're in, I think we should expect us to be pretty active on the share buybacks throughout the year.
And then one last one. On the MCE side, can you just remind us of the expectations for the reunderwriting in terms of the premium impact? And what from a seasonality perspective, is that more weighted to one quarter of the year versus another, or should we think about that being an even impact during the April '26?
Yeah. By I mean, part b, no question that the business is pretty well distributed throughout the year. There's not much seasonality in it. You know, the reunderwriting question, we touched on it in prior quarters. There was definitely some business that came with the acquisition primarily in, in the form of programs that we identified that were gonna be nonrenewed. We've done that work that will start to really affect our top line in 2026. And, you know, we hopefully, you know, depending on market conditions, can offset some of that reduction by growth in the truly middle market business that we have on the books. But again, very much a function of market conditions, but that was the current thinking on that.
Thank you.
You're welcome.
Next question will be from Tracy Benguigui at Wolfe Research. Please go ahead.
Good morning. On the 10 to 20% rate decreases at one one. Based on prior conversations I had with Arch, I understand you don't like cat business below a 16% ROE. So in terms of sensitivities, I understood going into renewal, you thought that let's say, if you got a 10% rate reduction, you could still land at 20% ROE, maybe 15% will get you between 16 to 20%. Now the 10 to 20% is a wide band. So how does this all shake out on a ROE perspective for a prop cat business?
So overall, I think we still like the cat business. We wrote at one one. I think we, as you said, some areas have been more competitive than others. We've seen Europe, you know, being very competitive. I think in The US, you know, probably less so compared to Europe. I think we adjust our writings to the target profitability that is set by region. So overall, I think we were able to retain most of our renewals. We received some very favorable signing from our broker because of the service we provide and the long-standing relationship we have with our, you know, many of our selling companies. So I think we still like the business. I think if rates were to continue to go down, you know, in the mid-teens, we will have to on a case-by-case basis, you know, realize where it makes sense and where it doesn't.
Okay. And any early thoughts on midyear reinsurance renewal pricing relative to what you're seeing in January?
So our thought is more about the market in general. I think the competition we are seeing is really a reflection of the excellent results that all benefited from in the last three years. And you know, the fact that we had only one major catastrophe, which was the California wildfires. I think we expect the supply to continue to be there. So I think people should pay attention to the risk-adjusted return going forward because it will be a big element of how we underwrite the business.
Thank you. Next question will be from Cave Mohaghegh Montazeri at Deutsche Bank. Please go ahead.
Morning. Given yesterday's move in the market, I was going to ask you about the risk of disruption to your business model from AI. And whether you're more likely to be a net beneficiary from AI. Their improved efficiencies and smaller risk selection, rather than at risk of disruption, which I suspect is probably more limited to some distribution platforms. Or maybe to carriers from the right lines that are more commoditized. Love to hear your thoughts on this topic.
Yes. I think I agree with your premise. I think we think of AI as more of an opportunity for efficiency rather than a threat. Ultimately, the beneficiary of AI will be the consumers. Most of the savings and efficiency will be passed on to the insured. But yes, I think the advantage of being in the specialty market is it's complex. I think it will take time for models to learn to replicate the behavior of the underwriters. So I think what we're seeing is, you know, personal lines or SME may be happening there faster than in the space that we are playing.
Okay. And my follow-up question is on capital return I guess, theory, if there is no growth in 2026, I hope you guys see growth. But if there is no growth, you could distribute close to 100% of the capital you generate. Is that something you would consider? If not, what's the highest payout ratio you'd consider in the no growth and no M&A scenario?
No. You're right. I mean, if we're not growing, which again, we don't know if we will or not, but depends on the market. But absolutely, if the market is such that we're not growing, then our capital needs should remain relatively flat, and every dollar of income that we generate technically could be creating more excess capital. What's our, you know, do we have a, you know, do we have a set of targets? No, we don't. But we are, you know, if the market points us in a certain direction and the opportunity is there to buy back, you know, more than you would see us buyback last year, for example, we're happy to do that. Very much a function of market conditions.
Thanks.
You're welcome.
Thank you. Next question will be from Michael Zaremski at BMO. Please go ahead.
Hey, thanks. Good morning. I guess first question on the Reinsurance segment, specifically. Just, I guess, a lot goes into the loss ratio, of course, for the segment. If we're looking at the underlying loss ratio trend, it's nudging a bit higher into the low fifties. I guess it's thinking about 26% to the extent the reinsurance market plays out the way you're thinking in terms of just some additional downwards rate pressure. Should we continue kind of to nudge that loss ratio underlying loss ratio trend line higher? For the cat load? Yeah. I think so. I think I think the margin on the reinsurance side, I think margins are definitely under pressure. So I think I think you're right. And it comes from the pricing on the excess of loss and also, you know, on the expense side, we're seeing also ceding commissions, you know, going up.
But we still like the business. I think it's, you know, we have a big diversified platform. We write the business in many ways. So I believe that we can find ways to continue to track attractive markets, but yes, the margins are definitely under pressure.
Okay. Great. And I'm gonna ask another capital management question just because, you know, you all, as you point out, are good cycle managers, and you're one of the few that's able or maybe willing to shrink, in times when you're making a bet that the market isn't as conducive for growth. So on capital management, is there are there any items that would other than we could see the shrinkage in top line growth that could free up more capital than we can kind of see at a high level, like, the mortgage segment. Is that releasing a material amount of regulatory capital that we should take into account?
On that question, Mike, I don't think so. I mean, the overall capital position, you know, perhaps some capital that is trapped in the MI companies has not really been a factor. I think we've been able to distribute through dividends, meaningful amounts of capital from our MI company to buy back stock, to return to shareholders, etc. So I don't think that should be materially different going forward. The one thing that is, you know, a capital consumer is the investment portfolio. That's one thing that we have some ability to influence capital requirements depending on how much capital or assets we deploy in riskier assets such as equities and private investments. But other than that, I think and we can also play certainly on the reinsurance side, whether we buy more or less reinsurance like that impacts our net retained premium. But at this point, I wouldn't expect drastic changes in our thinking about excess capital or how we think about returning capital. It's pretty much, you know, I'd say, 2026 should be at a high level, a continuation of what we saw in 2025.
Great. And just sneaking one quick one in. Nicolas, you said the North America rate environment largely keeping pace with trend, but international probably slightly below. I think I thought that was a bit of a provocative statement since I think that this assumption is that what the data we're seeing is that, you know, lawsuit inflation continues to be an issue in the US. So any context you could additional color you want to put on kind of, you know, why you feel better about U.S. versus international?
Yes. I think that's, you know, the remarks that I made are based on our portfolio for the lines of business we write. And remember, the band in North America is more about long-tail. We're more of a casualty writer. And in casualty, we've seen, you know, rates about or above trends. That drives and certainly in the shorter lines, we've seen, you know, rates coming down. So I think, you know, when you take the entire portfolio, we see one offsetting the other at this stage in the market.
Next question will be from Andrew Andersen at Jefferies. Please go ahead.
Hey, good morning. Could you share about a bit what the conditions are on the casual reinsurance market? Are you still seeing rate ahead of loss cost?
So on the casualty side, you know, generally on the primary before we talk about the reinsurance market, I think on the primary side, we feel that rates are still getting more rate than trend. You know, it seems that they're still waiting a little bit of what we saw in the last quarter, but I personally believe that the steep pain is still something we will see some unfavorable developments in the market for the old years and the ones prior to 2022. So I'm optimistic that the rates could continue to at least meet trend for the foreseeable future. So that's the background. When we look at specifically at the reinsurance, I think we've seen a lot of supply, a lot of willingness for the reinsurer to write the business, and I think the thing that has been new is the willingness of the selling companies to retain more of the business. This has added to the supply being constant and the demand being stable to down. So that is another layer of competition there.
Thanks. And that demand comment on stable to down, was that just on casualty? Or perhaps you could update us on how you're thinking about property demand into midyear?
The one I talked about is about casualty. I think on property, we’re seeing, you know, on the reinsurance side and especially on the cat excess of loss side, we've seen retention being stable. Only a few, saying decided to add, you know, sublayers to their coverage. I think that on the other property, we're seeing companies based on the fact that we've had very good excess results in the last three years willing now to take on more of the business. So that’s a factor there too.
Thank you. Next question will be from David Motemaden at Evercore.
Hey, thanks. Good morning. Just had a question. Encouraging to see the level of buyback continue in the first quarter. But I'm just sort of wondering how you guys would frame how we should be thinking about the current excess capital position that you guys have before we start thinking about, you know, running through the puts and takes on growth and different sources and uses. Will be great to get an update on that front.
Yeah. I mean, listen. We the excess capital is, you know, it's a number that changes, is not static, right? And but no question that given the level of results and returns we've generated the last few years, we did end up accumulating some excess capital. Our number one mission, we've said it before, is to put the capital to work in the business where we think it makes sense, where we can generate adequate returns. After that, yes, we absolutely are committed to returning the capital to shareholders. But we want to do what's right for the shareholders. There may be some periods of time when we hold on to the capital for a bit longer. The money, you know, it's in our pockets. It's not burning anything. It's just sitting there. It's maybe not the most optimal way, but it is still there. So we’re all about doing what is right for the shareholder. And, you know, if in an environment where we don't grow materially going forward or at least in the short term, you could certainly think that, you know, the level of earnings we're going to generate could be additive to our excess capital position, providing us with more opportunity to return more capital.
Great. And then maybe just following up on the casualty reinsurance side. You've seen decent growth there. It's offset some of the pressure on the property side as you guys have managed the cycle. I'm interested, Nicolas, you had talked about I guess, higher ceding commissions on proportional reinsurance. I was assuming that is for property. But given your answer to the previous questions, I’m wondering, are you seeing higher ceding commissions on casualty RE as well, just given the supply-demand changes? And do you still view casualty re as a growth opportunity in '26 that can help offset some of the pressure on the property side?
To answer your first question, I think it’s marginal on the casualty. It works both ways. Underperforming accounts see ceding commissions going down a bit, but external accounts that everybody is looking for may see marginal increases. But it's really not, I should have clarified earlier, not the big factor. The big swing has been on property. And to answer your second question on appetite in the space, I think backing the right ceding company and people, like Arch has a good understanding of the business, can navigate their way in a pretty favorable manner in some pockets of the primary casualty market. We think it’s something we would like to do more of. It's hard to do based on what I explained earlier, but again, our brand in the reinsurance side is good; we have huge trading relationships with our ceding companies. So we can find ways to certainly be the first call when new programs are set up or some reinsurers decide to move out of the program or reduce. I think we have a very good chance of growing going forward.
Awesome. Thank you.
You're welcome.
Next question will be from Yaron Kinar at Mizuho. Please go ahead.
Thank you. Good morning. François, I want to go back to your comment regarding looking to potentially retain more premiums in '26. Can you elaborate on that? Just given the ceding commission rates that are increasing and the supply-demand imbalance, I think pointing to more of a buyer's market. Is it that the margin on new casualty and specialty business in insurance is so much better that it's still more economic to keep it than to cede that lower pricing?
Yeah. I mean, that’s part of the equation. Right? Just like we have the advantage of having both insurance and reinsurance in our platforms. So we see it both ways. But as a buyer of reinsurance, we're no different than some of the ceding companies that buy from Arch. And Nicolas touched on it. It’s like, well, yeah, sure. I can maybe get a slightly higher ceding commission, and that's part of the economics of the transaction. But given the rate increases we've seen on the primary side in the last couple of years that have compounded, and certainly, maybe not across the board, but in subsectors of our book, primary insurers are liking the business and the pricing as it is today. So you have to compare the two. Am I better off retaining a bit more, or do I just lock in my profit and go for the same commission? I think we have multiple reinsurance that we evaluate throughout the year. Every one of them is looked at individually depending on market conditions. And what the opportunities are. But I wouldn't say that we're necessarily planning to buy more or buy less at this point, but it could happen. And again, that’s something we’ll evolve throughout the year.
And I think the other way you can retain more is by switching the structure of your insurance from quota share insurance to excess of loss. Traditionally, this is not what the reinsurers prefer to offer, but based on the competition in the marketplace, those structures have become more common. So that’s something we look at as well. And again, we like the casualty, both in most of our markets. This is also true outside the US. I think we should mention that.
Yeah. That makes sense. I appreciate the thought on the restructuring of reinsurance programs. My second question, one that’s been asked on prior calls as well. Can you give us an update on how you rank the appetite and track of new business between the three segments in terms of capital deployment?
Yeah. I mean, no question that reinsurance has been, you know, the last couple of years definitely, you know, a very attractive market for us, and we deployed meaningful. And you saw our growth, and you saw how we performed in that market. As the market comes down, it's less ahead of the others, I would say. So if I had to rank them today, I'd say, yeah, reinsurance is still ahead, but the gap has narrowed. It’s come down. Reinsurance is doing still very well. Very attractive. But I think the gap between reinsurance and insurance is not as significant as it was a year ago. And mortgage, we haven’t had a question yet on mortgage. If it's a good thing, I mean, we love it, right? I mean, it’s a great business. It’s steady. It’s been a great source of earnings for us. Again, we flapped about it in prior calls. Like, which one of your three kids do you like the most or which one you don't like as many as much as the others? We love them all. We love all three of our segments. But certainly, the fact that the reinsurance market is compressing a little bit brings all three segments a bit closer to each other.
Thank you very much.
You're welcome.
Next question will be from Matthew Hyman at Citi. Please go ahead.
Hi. Good morning. Of questions. One was just with respect to the MCE reunderwriting, been asked about the premium consequences of that. I'd be curious about the margin consequences of that.
Well, I mean, you’d like to think that, you know, the business that we’re shedding is the worst performing business. So absent any other event, you would think that our margins should improve. But that doesn't factor in kind of that comment is obviously has been true, but the market in front of us may be different than what we had assumed. On the one hand, no question that the nonrenewals will improve our margins, but maybe depending on where the market pricing looks like, it’s still a very good market. The middle market business has been in a good place. I think rates have been holding up and improving, so that’s been good. But you know, margins going forward is hard to comment on.
Yeah. And I think some of the programs we share are actually catastrophe exposed. So, you know, the upfront results may have looked okay, but we think it's a bad allocation of capital, and we can get better returns by deploying that capacity elsewhere. So especially on the reinsurance side. I think these are the decisions we've made. Some of them are running hard, but a few of them that we decided to shed were more on the cost of capital, where opportunity is better elsewhere. But again, if to answer your question overall, I think we think that the business could run in the low nineties.
Appreciate that. I guess another question I had was given the QRTCs, any opportunistic investments you're thinking about making in tech or ops or accelerating existing investments?
Not as a direct result. I’d say we will make and have made investments over time based on what we’re trying to accomplish and, you know, trying to streamline operations and be more efficient, whether it’s, you know, improving some systems, etc. I think that nothing is different in that respect. The fact that it reinforces the value for sure for us, and it's been there throughout the value of having a presence in Bermuda. We want to commit and remain committed to the island. So that reaffirms that. But in terms of like making direct investments as a result of the QRTCs, I don’t think that’s the case. It’s more based on need and based on what we’re trying to accomplish.
I think it’s really an offset to the high cost of doing business in Bermuda. So I think that’s smart from the Bermuda government standpoint to make their jurisdiction more attractive to companies like Arch.
Yeah. That's totally fair. And then I just normally went after the third, but your comment on the demand quotient potentially changing for casual reinsurance just made me curious whether or not you are seeing any real changes to subject premium basis in any of your reinsurance treaties at this point. That's informing that, or is that unrelated?
So in terms of can you provide them I’m just curious.
It's maybe a different way to ask it is, over the course of this year, it feels like there have been some companies that have had to adjust down their premium assumptions for their reinsurance book based on updated information from the underlying subject premium basis. I'm just curious whether or not you're seeing any noticeable signal or information there that's worth calling out and whether or not your demand comment we should read as risk in two subject premium basis next year.
So what you described, I think it’s true on the other property. Companies that wanted to go aggressively into the excess and surplus property side or energy had to revise their projections to the downside. I think on casualty, what I was referencing is more companies retaining more, but the underlying business is still growing. So I’ve had a collapse. That’s not the reason.
But to add to that, I think, man, just to be clear, we do I mean, we that’s something we look at every quarter. So we are very active internally, certainly in 2025, and that will remain making sure that yes, we get premium projections from the underwriters, from the scenes. We obviously superimpose some of our own views based on where we think the business may end up. So certainly don't want to be in a position where we have to make a massive downward adjustment because we overshot the mark. So I think we've been very careful and making sure that we remain on top of it throughout the year as we readjust our premium projections based on market conditions.
Okay. Thank you for that color. Appreciate it. Have a great day.
Next question will be from Meyer Shields at KBW. Please go ahead.
Great. Thank you so much. Two quick thank you. You mentioned there were a couple of expense items in the quarter besides the tax. And if somebody needs to tell us where cannot hear you already.
I mean, the line broke down, so I apologize. I don't know if it's our side or or it's my or it's the caller's. Assume it's me.
No. It's probably me. You mentioned that there were a couple of favorable expense items beyond the Bermuda tax credits, and I was hoping you could tell us where those showed up in terms of modeling for next year.
Well, I think I touched on it. I mean, the Bermuda tax credits, I think the intent of the comment was that, you know, Bermuda tax credits are a function of how much presence we have in Bermuda and the direct payroll related expenses. So, yes, we have expenses in Bermuda, in all three of our segments and also in our investment team. So that is reflected as an investment expense. In the corporate line. So again, where it's noticeable, as I said, is in the reinsurance segment and in corporate. In the other places, there are I mean, we're talking like single millions of, I mean, it’s not gonna be noticeable to the outside world. So in terms of modeling, I would say, yes, there's some benefits, but it's so insignificant.
No. I appreciate that. You were very clear.
Actually. What I'm trying to get a handle on is the favorable expense items besides the tax credits because you said that there were a couple just didn't know where they were. I mean, there’s nothing else really to point out. Those are, I mean, sorry for the confusion, but the idea was, you know, was just that. So there's nothing else to point out that was favorable in terms of expenses that we should highlight or identify.
Okay. Fair enough. And then final question. Does the fact that we're finally seeing the non-renewed program business actually hit the income statement, is that going to have an observable impact on the acquisition expense ratio in insurance?
I would say no. I would say no. I mean, that’s again, that’s talking about $2.3 billion of written premium that we’re on a written premium base of $8 billion, and you do the math from there. I would not factor in any meaningful improvement in the acquisition ratio for the insurance segment.
Okay. Very helpful. Thank you.
Bye. You're welcome.
Next question will be from Roland Meyer at RBC Capital Markets. Please go ahead.
Good morning. Can you give an update on the carrying value of the deferred tax asset when we expect to hear some clarification on the ability to recognize it?
Yeah. I mean, that’s been right. So we wrapped up the first year, and we set up an asset at the end of 2023 that we started amortizing in 2025. So the billion two is now roughly came down by about a $100 million in 2025 and we are gonna keep amortizing that in 2026. Depending on where the law goes in Bermuda, maybe that asset follows go away. We just don't know. I mean, it's not our decision. It's obviously the Bermuda law, but there's been talk that, you know, this, depending on, you know, negotiations or kind of what the Bermuda government ends up doing, that this asset could no longer be an asset to us. That'd be either late, you know, fourth quarter 2026 or maybe 2027.
Okay. Perfect. And then I just wanted to ask on your view of M&A in this environment. I know there's been a couple of deals announced in the past month or so, and with how your sort of debt to cap is stacking up, you're kind of deleveraging over time and just anything on leverage or M&A?
Yeah. So on M&A, I think our position hasn't changed. So we like strategic assets. So anything that can really improve our platform or add lines of business or help us move forward into something we were planning to do and buy versus build, I think we look at everything else. But at this stage, especially in terms of where the market is, I think we efficiencies, we it will have to be an amazing deal for us to really pursue it. Nothing's impossible, but I think it’s unlikely.
Great. Thanks for the answers.
You're welcome.
Thank you. I am not showing any further questions. So I would like to turn the conference over to Mr. Nicolas Papadopoulo for closing remarks.
Yes. Thank you, everyone, for spending an hour with us. And, again, another pretty good performance in 2025, and again thanking all the employees for their hard work they did to get us there, and I think we’re pretty much ready to go for 2026. And we'll talk to you next quarter. Thank you.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Thank you for participating. You may now disconnect your lines.