管理層發言
Good day, ladies and gentlemen. And welcome to the second quarter 2026 Arch Capital Group 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 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 will also 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 hosts for today's conference, Mr. Nicolas Papadopoulo and Mr. François Morin. Sirs, you may begin.
Good morning, and welcome to Arch's second quarter earnings call. We reported strong earnings this quarter with solid underwriting performance from each of our three segments. After-tax operating income in the quarter was $893 million, or $2.56 of earnings per share. Slowing top line growth and strong earnings freed up capital for additional share repurchases in the quarter, bringing the total for the first half of the year to $1.95 billion. Book value per share grew by 2.8% in the quarter and has increased by 4.5% in the first half of the year. While the underwriting environment is increasingly competitive, it is important to note that we are still in the early stages of this softening market. Overall, fundamentals are attractive with some lines experiencing increased competition while others continue to see rate increases. Arch's diversified business model ensures that we can find opportunities to deploy capital that generate appropriate risk-adjusted returns. Our position as an industry leader in specialty insurance, reinsurance, and mortgage insurance provides us a meaningful competitive advantage. Clients come to us not only for capacity but also for our underwriting expertise, claims capabilities, and valuable perspectives that help them better manage risk. Our commitment to cycle management is embedded in our culture and guides our underwriting approach. This is reinforced by a compensation structure that incentivizes quality underwriting by aligning performance with long-term profitability and shareholder returns. Let us now turn to our segment performance. Starting with insurance, where results were negatively affected by catastrophe losses related to the Iran conflict. Arch is a leading writer of political violence, terrorism, and marine war in the London market. So while losses affected this quarter's results, we are seeing ongoing opportunities to support clients with assets in the region. Underwriting income of $27 million does not reflect the good underlying performance of the segment which delivered a current accident year combined ratio ex-cat of 91.6%. As reported by others, and consistent with our comments last quarter, competition is increasing, particularly in property and short-tail lines. That said, the middle market commercial business and casualty-oriented lines continue to experience rate increases. Additionally, pricing in directors and officers is rebounding slowly while rate declines in cyber insurance have moderated. Our gross and net premiums written were negatively impacted by the nonrenewal of certain program business as discussed in prior calls, and we are also impacted by reduced writing of our excess and surplus lines property business. We continue to see premium growth in casualty-oriented lines in North America including excess and surplus casualty, construction, and national accounts. We also saw positive trends in certain specialty London market lines, including war and terrorism. Looking ahead, our diversified platform provides us with the flexibility to grow in those areas where pricing supports our return objectives. Reinsurance underwriting results were excellent, aided by relatively light catastrophe losses, resulting in $410 million of underwriting income in the quarter. The current quarter accident year ex-cat combined ratio was 79.9%, a 270 basis point increase from last year due to changes in mix and lower pricing in property lines. Net premiums written were down 10% from the same quarter last year as some of our clients opted to retain more risk and increasing competition lowered rates particularly in property. We increased our cession to traditional reinsurance and third-party capital which impacted our net-to-gross ratio. Our ability to leverage these capabilities enables us to provide solutions to our brokers and cedents while maintaining flexibility to manage our net risk portfolio. Similar to insurance, casualty reinsurance is an area where we see attractive business opportunities, though competition is elevated due to abundant reinsurance capacity. Within our Reinsurance business, our focus is on maintaining our position as a leading reinsurance partner through disciplined underwriting and by consistently delivering business expertise across market cycles. The mortgage segment continued to provide strong, stable results, delivering $220 million of underwriting income in the quarter. The mortgage portfolio performed well, driven by a resilient economy and high quality risk in force. Our U.S. MI portfolio delinquency rate remained flat at 2.1%. Favorable reserve development continued, although slower than in prior quarters. While affordability and housing supply constraints limit new mortgage origination, mortgage insurance remains a consistent contributor to earnings as the strengths of the in-force portfolio and favorable credit characteristics continue to support steady profitability. Investment contributed $417 million, or $1.20 of net investment income per share in the quarter. This is supported by our conservatively managed portfolio which maintains an average credit quality of AA-. We continue to benefit from an asset base that has grown to $49.5 billion supported by strong cash flows. Investments accounted for using the equity method which are excluded from operating earnings performed well, adding an additional $196 million, or $0.56 per share to net income, reflecting strong returns across the portfolio. Over the last five years, we have enjoyed favorable market conditions in property and short-tail lines and consequently, we now face early stages of a competitive market driven by an influx of capacity. This part of the cycle is to be expected. Importantly, a more competitive environment does not mean a lack of opportunity. It simply requires greater discipline in where and how capital is deployed. Our playbook is built upon our enduring strengths: a diversified platform, best-in-class cycle management, a strong brand that enhances our relationship with clients and distribution partners, as well as disciplined capital management. In sum, we remain well positioned to consistently deliver superior results for our shareholders. As Arch approaches its 25th anniversary, one thing is clear. While the company has evolved, the principles and playbook we rely upon create long-term shareholder value. With that, I will turn the call over to François. François?
Thank you, Nicolas, and good morning to all. Before I provide some additional color on our results, I wanted to walk you through our capital allocation and management actions this quarter. Capital management is an essential tool to help us manage our business through the insurance cycle. The latest hard market provided Arch the opportunity to generate significant excess capital that, as the market transitions, cannot be fully deployed into our business. Our preferred option has first been to return excess capital to our shareholders through share repurchases and secondly, through special dividends. After considering the opportunities available to us to deploy capital in the business, both existing and new, we determined that share buybacks remain an accretive use of excess capital in enhancing shareholder returns at current prices. As a result, we repurchased 12.4 million shares at an aggregate cost of $1.2 billion in the quarter. Through the first half of the year, we have repurchased approximately 94% of our net income in our own shares. As you know, we also accessed the debt market in May, raising $2 billion in a combination of 10-year and 30-year senior notes. The proceeds from this issuance will be used to 1) redeem the $500 million of 10-year senior notes maturing later this year, and 2) purchase $418 million of our 2043 and 2046 senior notes through a recently completed tender offer with the remainder for general corporate purposes. The tender offer was designed to replace debt that no longer meets updated regulatory capital requirements with fully compliant capital instruments. As a result of the debt raise, we expect our interest expense to be approximately $60 million to $63 million for each of the next two quarters. As of the end of the second quarter, our debt plus preferred to capital leverage ratio stands at a conservative 18.1%. Turning back to our operating performance for the quarter, our three business segments delivered excellent underlying results, with an overall ex-cat accident year combined ratio of 82.5%, up 160 basis points from the same quarter last year. Our underwriting income included $165 million of favorable prior year development on a pre-tax basis in the quarter, or 4.1 points on the overall combined ratio. We recognized favorable development in 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. Current year catastrophe losses were $201 million net of reinsurance and reinstatement premiums, and were a combination of losses from the Iran conflict and severe convective storms in the U.S. The Insurance segment's net premiums written declined 5.1% year-over-year due in part to the nonrenewal of certain program business. The ex-cat accident year loss ratio net of reinstatement premiums improved by 90 basis points to 56.4% compared to the same quarter one year ago, due primarily to strong performance in our international operations. The acquisition expense ratio for the current accident year increased by 30 basis points as the benefit we observed from the write-off of deferred acquisition costs for the MCE-acquired business rolled off. Our operating expense ratio was higher this quarter due to the transition of our middle market business to Arch Systems. As mentioned last quarter, we would expect our operating expense ratio to revert to historical levels during the second half of the year. Turning to the reinsurance segment, net premiums written were down 10.4% from the same quarter one year ago, reflecting reduced writings from lower rates and a higher level of retrocession purchases primarily in the specialty and property catastrophe lines. Overall, our ex-catastrophe accident year combined ratio of 79.9% is up from last year due to the shift in line of business mix and a more competitive rate environment for certain subsegments. Our mortgage segment produced another very strong quarter with underwriting income of $220 million. Net premiums earned were flat from last quarter with a reduction in our U.S. MI business mostly offset by higher levels of earned premium in Australia. On the investment front, we earned a combined $613 million of net investment income and income from funds accounted for using the equity method, or $1.76 per share pre-tax, up from the $1.57 per share we earned last quarter. We note that the returns of equity method funds contributed 340 basis points to our annualized net income return on average common equity in the quarter. Cash flow from operations remained very strong at $1.3 billion for the quarter. Income from operating affiliates was $46 million for the quarter, slightly higher than the $40 million from the same quarter one year ago. Our effective tax rate on pre-tax operating income was 15.1% reflecting the mix of income by tax jurisdiction. As of July 1, our peak zone natural cat probable maximum loss for a single event at a 1-in-250-year return level on a net basis is down slightly to $1.8 billion and now stands at 8% of tangible shareholders' equity. With these introductory comments, we are now prepared to take your questions.
分析師問答
Thank you. If you would like to ask a question, please signal by pressing star one 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, press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. Our first question comes from the line of Elyse Greenspan with Wells Fargo. Elyse, your line is open. Please go ahead.
Hi. Thanks. Good morning. My first question is on the insurance segment. I was hoping to get a sense of the sustainability of the underlying loss ratio you saw in the quarter. François, I think you pointed out strong international results for the second quarter in a row, so I'm just trying to get a sense of the sustainability there. And then was there any change in your loss pick assumptions within your insurance book in the quarter?
Two things on that, Elyse. First, international is more of a short-tail book, so it has been running very well. There is always potential volatility to consider, so it is hard to know exactly how that will play out, but the business is doing extremely well and we are pleased with that. On the North American side, what also helped a little bit is the nonrenewal of some of the programs that started out earlier this year. Those premiums earn in, or rather the lack of premium earn-in has brought down the loss ratio a little bit. Where does it go from here? At a high level, we think we are comfortable with the levels where we are. There is a possibility we stay around this number. Regarding movement in loss trends, there has been no systematic change in our loss pick assumptions for any particular line. Absent the normal adjustment of rate-over-trend that we apply across our lines of business, we have not decided to move down the loss ratio pick for one line in particular or another. So nothing new there.
Remember, in insurance, you can actually adjust the mix of the book. Most of our books today are split in what we call quartiles or quintiles where some of the book runs at a lower expense, lower ex-loss ratio, and the other side runs at a higher loss ratio. The work of the underwriter is really to get pricing or to manage a higher loss ratio out. So we have more propensity to keep the loss ratio where it is.
Thanks. And then my follow-up was just on capital. Obviously buybacks picked up in the quarter. We mentioned slower growth and strong earnings and capital position. How are you thinking about the level of buybacks from here, recognizing obviously, in the midst of wind season, would you expect to slow down this quarter and then pick back up? Or just how are you thinking about the level of capital return going forward?
We do not have targets or plans to buy back a certain number of shares or dollars. We certainly thought that in the second quarter the stock price was very attractive to us, which is why we bought back more than we had in the past. Does that level stay? I do not know. At current prices, we like the stock and think it is still very attractive. We have capacity to buy back more, so we will see how that plays out. Wind season is always something we have at the back of our minds. Going forward, we are in a position where growth will be harder to come by, we think, and share buybacks will remain part of the arsenal we use to manage our returns.
Your next question comes from the line of Pablo Singzon with J.P. Morgan. Your line is open. Please go ahead.
Hi. Good morning. Retention in the insurance business has ticked up over the past couple of years. Is your approach here to keep retention the same, or could you potentially increase that and internalize more of the underwriting income? I'm just not sure if ceding is economically more attractive like it is in reinsurance today.
Can you repeat the question? Are you asking about retention of the insurance segment, noting retention has been going down and you have been ceding less? In the soft market, it is a function of the market we are in. In reinsurance, we placed a little more retrocession on some short tails because as rates were going down and we increased our limits, we bought more reinsurance. There are many factors that influence net-to-gross, but the market is certainly a factor we look at. We are here to solve the problem for insureds and brokers, and reinsurance is a good tool to stay in front of clients. Ultimately, we decide what we want to keep.
And in the insurance segment, what is your stance on net-to-gross there?
On the insurance side, the dynamics are similar but reflect the particular market conditions. The line of business mix, client preferences, and pricing all influence net-to-gross. As I said, it's about solving the problem for clients and distribution partners, and we will use reinsurance where it makes sense to manage our net portfolio.
Your next question comes from the line of Andrew Kligerman with TD Cowen. Your line is open. Please go ahead.
Good morning. Nicholas, I was intrigued by your early comments in the prepared remarks where you talked about an influx of capacity and that we are in the early stages of a soft market. I hope you can elaborate a little bit separately on property and casualty. Do you think property rates could come down materially more and to what potential degree? And you mentioned that casualty was decelerating. Do you think we could start to see that turn negative?
I truly believe that the market we are trading in still offers favorable opportunities. On the insurance side, and to a large extent on the reinsurance side, there is new business we can write. We are made to trade in this type of environment. Specific to property, it is a big headwind: rates have been coming down and we are trading quite carefully, which is reflected in net premium declines. We are much more optimistic on the casualty side. There is more competition, but the market is remaining disciplined, especially on the insurance side. We have not seen broad loosening of terms — we have seen management of limits, which we track closely, and competition overall remains relatively disciplined.
And I would add that catastrophe activity will have an impact on property. It is still early in the season; so far it has been quiet, but that could change as we look into 2027.
Got it. So in terms of casualty, when you say you are disciplined, are you keeping up with loss costs in your rate? And the prior year development was 1.4 favorable in insurance and 5.3 favorable in reinsurance; I know you said it was mainly short-tail. Could you give a little color on the amount and geography by accident year in casualty, or was it insignificant?
Casualty at a high level is kind of neutral overall; by subline and by year there is some up and some down, but in total it is about neutral. Most of the favorable development is in short-tail lines in the last two to three accident or underwriting years.
Your next question comes from the line of Cave Montazeri with Deutsche Bank. Your line is open. Please go ahead.
Thank you. I just want to follow up on the $1.2 billion of share repurchases you did this quarter. I think it is the first time in a while since you went over 100% of operating income. Part of that is dictated by the stock price, but there is still a pretty meaningful gap between where you are trading and intrinsic value based on three or four times book. How long can you sustain share repurchases above 100% of operating earnings you generate? You mentioned excess capital from the hard market and that you could issue more debt if you wanted. Is there a multiyear clear path to sustaining above 100% payout through the soft cycle, not knowing its length?
You are asking if we have a crystal ball — which we do not — but we are confident in our ability to generate strong earnings through all phases of the cycle. We have three pillars to our operations and they are performing well. We believe we can generate earnings for the foreseeable future at a minimum. If we are not growing, we could return those earnings back to shareholders. Could we do something else? There could be M&A or other uses for capital, and we would consider them, but the second quarter was a demonstration that we are active and like the stock as a natural and attractive way to return capital. We will continue, unless things change materially.
Linked to this, your PML went down a bit this quarter but not as much as net premium. Can you give some color on what kind of business you are sending to the retrocession market? Should we expect your PML to go down over time as the cycle softens? That could be another source of capital released for buybacks or other uses.
The PMLs you look at are for Florida Tri-County, which is one of the 50 zones we monitor. Florida business is our peak zone and historically has had the highest margin, which is why it is our peak. Rate reductions have been pretty much across the property cat book. We would expect that the PML could reduce, but think of Florida as the highest margin business in our property cat books.
As a percentage of shareholders' equity we were at 8%. In the last soft market we were at 4%. We are a different animal today — much bigger and more relevant to clients and brokers. Yes, our PML could come down. Whether it goes down to prior levels is unknown.
Your next question comes from the line of Robert Cox with Goldman Sachs. Your line is open. Please go ahead.
Hey, thanks. First question was on casualty reinsurance. You leaned in with some selective cedents in 2025. As we think about deceleration in casualty reinsurance growth year to date, is that reflective of those outperforming cedents choosing to retain more risk? Or has Arch changed its view on casualty reinsurance returns?
No, we have not changed our view. We still see specialty casualty areas as attractive and we like the fundamentals of underlying insurance casualty in those areas. The issue is excess capacity chasing limited business, and the opportunities are hit-or-miss on terms and conditions. Some quota share structures and ceding commissions can be too high. We are still looking for the right opportunities to add casualty insurance to our books in the right lines and with the right ceding companies.
Thanks. I just wanted to follow up on the Middle East losses this quarter. Some losses from a cat perspective, but also incremental opportunities to write new business. Could you give some sense of your strategy to write new business there and how you determine what is a good risk?
Following the losses in the Iran region, prices adjusted and at times were multiples of pre-conflict levels. We decided to deploy some capacity and stay with our insureds. Some insureds sought coverage where war was previously excluded from their property policies and wanted one-off coverage. Selectively, we have deployed capacity in the region while making sure we avoid concentrations. We are taking a careful approach to continue servicing distribution partners and clients in the region.
Your next question comes from the line of David Motemaden with Evercore. Your line is open. Please go ahead.
Hey, thanks. Good morning. Wondering if you could quantify the Iran losses this quarter that impacted the insurance segment, and elaborate on how you are thinking about them and the cat load within insurance going forward. I'm also interested in any sort of IBNR versus actual loss detail you could share.
The majority of the insurance catastrophe losses come from Iran. Cat load going forward — we continue to quote the 6-8% kind of range on an annual basis for the group; that has not changed. The Iran-related losses are actual claims: case reserves have been set up. They are not hypothetical IBNR. There is damage to refineries and other assets that have been hit. There are always questions around business interruption and we do not yet know the full magnitude of the outcome, but the claims are real and tangible.
We operate out of London at Lloyd's and are leaders in political violence and terrorism markets. When those losses happen, we expect them, and pricing supports our participation in that space, which is why we've been meaningfully active there the last few years. We remain committed to the space.
Got it. Thanks. On the reinsurance segment, the accident year loss ratio ex-cat deteriorated 370 basis points year-on-year. That seems within expectations given mix shift away from property and pricing pressure. Is that the sort of deterioration we should expect through the rest of this year?
As we've said before, we like to look at trailing 12 months for reinsurance because of volatility. The mix has changed with a little less short-tail, which is reflected in the increased loss ratio. The market is a bit more competitive and rate reductions have not fully earned in, so that may earn in over time. The recent quarter is a little higher than a simple run rate would suggest given these moving parts, but it is within our expectations. We will see how it plays out going forward.
Your next question comes from the line of Tracy Benguigui with Wolfe Research. Your line is open. Please go ahead.
You quantified the property cat rate decreases you saw at mid-year renewals and shared your view of rate adequacy. Looking at one broker survey, pricing looks like 2021 levels, but a competitor said it looked more like 2023. Where in the spectrum is your view?
I concur with other calls: the rate reductions we saw were in the mid-teens. I don't think we are back to pre-hurricane levels. Are we back to 2022? We think the market trades above that. Are we in 2023? Maybe. It depends on the region. We have 50 zones; some are still performing above adequate return levels while others are under pressure. We actively manage the portfolio. In terms of rate index, our view is that pricing is still above some prior hurricane-era indices.
Great. Can you touch on your appetite to reinsure MGAs? I realize you are the lead reinsurer for at least one of the fronting companies. What structural safeguards do you have in place?
Our involvement with MGAs has mostly been on the property side, short-tail. It was a way for our insurance team to access business they otherwise could not. Because it is shorter tail, it can limit some of the risk with MGAs. The bigger issue with MGAs is more for insurers and insureds: for long-tail lines, five or six years later, if the MGA no longer exists, who pays the claims and is reinsurance capacity still available? That is more of a concern for insureds and brokers than it is for the reinsurer in our view.
Your next question comes from the line of Yaron Kinar with Mizuho. Your line is open. Please go ahead.
Thank you. Good morning. Two questions on the reinsurance segment and opportunities there. First, you said you are still seeing an attractive environment for casualty. That sounds different from other executives this season. You mentioned partnering with the right underlying risk; can you offer additional color as to what makes casualty more attractive for you?
What makes the opportunity interesting is the underlying insurance casualty business in certain specialty areas, which we think is profitable. We are trying, through our insurance relationships, to access companies we think are good underwriters and do business in those specialty casualty areas.
On the property side, following up on Tracy's question, we heard Southern Florida is back to 2017 property cat levels. A competitor said they were lightening up the load in Florida. What are you seeing in Florida? Can you give more color on Southern versus Northern Florida, west versus east?
At June 1, rate reductions were across the board. Historically, reductions were larger at the top end of programs and smaller in frequency layers. This cycle, appetite for reductions has been more across the board. Tri-County is a big zone and typically attracts higher pricing. Regions like Galveston or other areas may see lower pricing because they are not peak zones for everyone. The market is efficient: pricing reflects capacity and new entrant appetite, and model usage ensures differentiation across zones. We do not see a huge red flag.
Your next question comes from the line of Rowland Mayer with RBC Capital Markets. Your line is open. Please go ahead.
Hi. Good morning. Do you expect continued benefits from higher investment yields to add pressure to casualty competition over time? And do you embed views of investment yields in your rate adequacy decisions on long-tail lines?
We do not embed investment yield expectations in underwriting decisions for casualty. We ask our casualty underwriters to write for an underwriting profit and we credit them with a risk-free rate; we require an underwriting profit. That is very clear for us.
Thank you. As my follow-up, are we close to the point where special dividends make more sense than buybacks? In 2024, you were above 1.8x book and ROE expectations were higher when you made that decision.
Back in 2024 we were at 2x book, so buybacks did not make sense and a special dividend was the right answer. Right now we are trading in the 1.45x–1.6x book value range, so buybacks still make sense. Our preference is either one or the other, and currently buybacks are the appropriate tool. We will continue to assess as circumstances change. Our visibility on forward-looking earnings is positive and that supports value creation and strong returns for the next few years, which factors into our buyback economics.
Your next question comes from the line of Brian Meredith with UBS. Your line is open. Please go ahead.
Yes. Thanks. Nicholas, first question, focusing on middle market. Ex the program business you are intentionally running off, how has growth been? How has retention been? Has it been more challenging to keep the business given the competitive market, and how should we think about it going forward?
We have been positively surprised. Our initial goal was to move the business over to Arch and transition policy administration from Allianz to our systems; that created some disruptions but the value of our brand and relationships worked in our favor. We are now in a good place: the underwriting team and policy administration are on Arch systems, and we are moving to a phase where we can provide better tools, analytics, triage, and claims improvements. There are many things we want to do that should lead to more growth in the future.
Do you see better market dynamics in that segment compared to other areas?
Mid-corporate is more muted compared to large property and E&S. We still see overall package rate increases in the mid single digits, and property itself is flatter — we do not see the double-digit decreases evident in excess and surplus property or large account property.
Your next question comes from the line of Chris Hartwell with Autonomous Research. Your line is open. Please go ahead.
Good morning. Quick question on mid-year renewal conversations with your ceding clients over the last few months. What are they really pushing for in terms of rate versus risk transfer? Are they pushing more on price versus structural changes?
The primary message we get from brokers and cedents is price. There is some slippage on terms and conditions as clients look to save money by making changes to underlying layers, but that is marginal. Right now it is mostly price.
Okay. Thanks. On the mortgage business, there was quarter-over-quarter growth in new insurance written. Can you provide color on what is driving that? Also, profitability has been strong but growth limited. As the back book matures, how should we think about the trade-off between margin and growth going forward?
This quarter we signed a new client in Australia which contributed to new premium. We also reduced some quota share reinsurance that we bought, which helped net written premium. So those are the two elements driving the growth. Looking ahead, the mortgage market is less volatile in pricing than property catastrophe — rate moves are smaller — and competition reacts quickly. We expect steady profitability given the quality of our in-force portfolio and credit characteristics.
Your next question comes from the line of Meyer Shields with KBW. Your line is open. Please go ahead.
Great, thanks. I want to talk about casualty loss trends. Given social inflation, are you seeing clients and cedents get better at pushing back, so that net loss trends are not as bad? Are defense outcomes improving?
We would love to see more improvement. There is some pushback and effort to manage trends, but we do not yet see meaningful impact in the numbers from tort reform or improved defense outcomes. It is not reflected materially in our loss trends yet.
Understood. And if hurricane forecasts are benign, does that increase your appetite for property cat, given current rates?
Seasonal forecasts are a factor and we have meteorologists on staff who provide outlooks, but correlation is only one factor among many. It's considered, but not the main factor in our underwriting decisions.
Your next question comes from the line of Mike Zaremski with BMO. Your line is open. Please go ahead.
Hey, thanks. Good morning. On the mortgage segment where growth popped and you called out nonrenewing some of the Bellemeade and less reinsurance, can you quantify that impact and whether we should annualize that for the next three quarters?
This quarter is a good starting point. Agreements like the Bellemeade cancellations have benefited monthly premium flows because those premiums are monthly. The benefit from the Bellemeade and reduced quota shares will continue. I would expect relatively flat premium on U.S. MI in the near term, with international growth driven by the new Australian client that started in Q1 contributing more as the year progresses. So for year-over-year comparisons, expect some growth from our international book.
Got it. And on the Middle East losses, can you add color on how to think about further potential losses if the war endures? Is the industry estimate you're using concentrated or broad-based?
There could be more losses if the conflict persists. The Q2 impact reflected specific insured risks that were hit; it is case-by-case rather than an aggregate industry shock like a pandemic. If similar damage events occur in Q3 or Q4 we could see more, but these are property-specific claims tied to actual damage.
Our estimate for industry loss since the last earnings call has not materially changed. The industry estimate for Middle East-related losses remains in the vicinity of $3 billion based on known events to date.
Your next question comes from the line of Brian Meredith with UBS. Your line is open. Please go ahead.
Hey, thanks for letting me get one more question. You talk a lot about share buybacks, but how are you thinking about M&A in this environment? Historically, M&A picks up in soft markets. Are you seeing opportunities?
We do not think of M&A as an alternative to organic growth or returning capital. M&A is a strategic option to build capabilities where we lack scale — more a build-versus-buy decision. The Allianz transaction was an example where we paid to acquire a franchise to operate in a desired space. Right now, M&A is expensive in this market and timing is tricky. We think successful M&A is difficult and can create issues, so we approach it very carefully. We consider M&A for strategic reasons rather than for short-term capital deployment.
Thank you. I am not showing any further questions. I would now like to turn the conference over to Mr. Nicolas Papadopoulo for closing remarks.
Yes. Thank you for your time today, and another good quarter for Arch. We are looking forward to talking to you next quarter.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.