Arch Capital Group Ltd (NASDAQ: ACGL) Q4 2025 Earnings Call dated Feb. 10, 2026
Corporate Participants:
Nicolas Alain Papadopoulo — Chief Executive Officer & Director
François Morin — Executive Vice President, Chief Financial Officer & Treasurer
Analysts:
Elyse Greenspan — Analyst
Tracy Benguigui — Analyst
Cave Montazeri — Analyst
Michael Zaremski — Analyst
Andrew Andersen — Analyst
Matthew Carletti C — Analyst
David Motemaden — Analyst
Yaron Kinar — Analyst
Matthew Heimermann — Analyst
Meyer Shields — Analyst
Rowland Mayor — Analyst
Presentation:
operator
Good day ladies and gentlemen and welcome to 4Q 202425 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 10K 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 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 8K 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 SCC website at www.sec.gov. i would now like to turn the call over. I will now sorry introduce your host for today’s conference, Mr. Nicholas Apodopoulou and Mr. Francois Morin. Sirs, you may begin.
Nicolas Alain Papadopoulo — Chief Executive Officer & Director
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 produce $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 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 the legacy of disciplined execution and consistent results.
We head into 2026 with measured optimism. We are starting from a position of strength that recognize that competition is increasing in several lines of business in an evolving market. The Arch 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 the fourth quarter of 2024. In North America, we continue to grow in specialty casualty lines including alternative market construction and ENS casualty. As for our international units, we increased ridings through our Bermuda platform and in continental Europe. I will note that we experienced a year over year decline in net premium return which Francois 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 that 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 condition 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 cats and prior year development was 74.9% consistent with the prior year quarter and reflective of continued underlying market profitability. Gross premium return were flat versus the fourth quarter of 2024 despite the non renewal of a large structured transaction. Net premium return decline primarily due to to a change in the timing of certain retrostation purchases on January 1st.
Property Cat and more generally short term excess of loss renewals were highly competitive with rates down 10 to 20%. Ceiling Commission increased in proportional reinsurance as supply continued to outpace demand. Despite these headwinds, our underwriting teams performed well by 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 remain 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 drove 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, investment 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 surpass $47 billion at year end to provide a stable recurring earnings stream that enhances the group’s overall returns.
As we move past 2pm on the PNC underwriting plug, it is increasingly important to focus on business that generates adequate risk adjusted returns. For almost 25 years, Arch has perfected its cycle management capabilities but adhering to some foundational principles 1 leveraging a diversified specialty platform to maximize flexibility and reduce volatility 2 Embracing a business owner mindset anchored on delivering a differentiated customer experience3 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 our underwriting discipline and acumen. Hard 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 25th anniversary. Having been here since 2001, I firmly believe that Arches culture, driven by our dedicated people, is a foundation of our success. So before I turn the call over to Francois, I want to thank Team Arch for another outstanding year and for positioning the company for continued success in the years ahead.
Francois.
François Morin — Executive Vice President, Chief Financial Officer & Treasurer
Thank you Nicholas 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 cap accident year combined ratio of 79.5%, down 100 basis points from last quarter. Our underwriting income included $118 million of favorable prior development on a pre tax 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 PNC 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 US severe convective storms, Hurricane Melissa and a series of global events. The insurance segment’s gross Premiums written grew 2.3% 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 MC 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 the fourth quarter of 2024 from the write off of deferred acquisition cost. The MC acquired business rolled off.
The reinsurance segment had another stellar quarter in terms of pre tax 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 Nicholas mentioned, and in property catastrophe due to changes in the timing of certain retrocession purchases. We finished 2025 with an 80.8% combined ratio 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 DOL. 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 USMI 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 or $1.6 per share pre tax. Strong positive cash flow from operations $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 a very high quality with a short duration and remains in line with our asset allocation targets. Income from operating affiliates was strong at $61 million due especially to a very good quarter at Summers Re 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 our 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% and 4.5% and 2 our corporate expenses should also be reduced from their run rate levels and be approximately between 80 and 90 million dollars.
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 or 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 pre tax 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 1 in 250 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 and excellent health with strong capitalization and low leverage, giving us plenty of optionality. As we continue to work 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:
operator
Thank you. If you would like to ask a question, please Signal by pressing STAR1 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 one to ask a question and we’ll pause for just a moment to allow everyone an opportunity to signal for questions. Our first question comes from Elise Griesman at Wells Fargo. Please go ahead.
Elyse Greenspan
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 1:1, right. That, you know, serve 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.
Nicolas Alain Papadopoulo
So. Good morning. 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.
Elyse Greenspan
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. Francois, based on your comments, picked up to start the year. I know you guys, right, Typically buybacks, right. It’s dependent upon capital as well, the stock price. But how should we think about the level trending from here? Right. 350 million. Right. And in a little bit over a month. Right. Is a pretty, pretty big level.
François Morin
Yeah. I think, I mean share buybacks are, I think are certainly as we said, like a good way to return capital. I don’t think, I mean we don’t set a target. It’s not like we’re saying we’re going to return X dollars by the end of the year. But you know, if the market, depending on stock price and what we see are in our ability to deploy capital in the business, we’ll be active for sure. I mean the pace will vary. It’s not necessarily, I’d say a binary event whether we buy or we don’t buy. It’s, you know, there’s, 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.
Elyse Greenspan
And then one last one on the MCE side. Can you just remind us of the, the expectations for the RE underwriting in terms of the premium impact and 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 4/4 of 26?
François Morin
Yeah, I mean part B, no question that the business is pretty well distributed throughout the year. There’s not much seasonality in it. The RE underwriting question, we touched on it in prior quarters. There was definitely some business that came with the acquisition primarily in the form of programs that we identified that were going to be non renewed. We’ve done that work that will start to really impact 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 the middle market business that we have on the books.
But again, very much a function of market conditions. But that was the, that’s the current thinking on that.
Elyse Greenspan
Thank you.
François Morin
You’re welcome.
operator
Next question will be From Tracy Bengigi at Wolf Research. Please go ahead. Good morning.
Tracy Benguigui
On the 10 to 20% rate decreases at 11 based on prior conversations I had with Architect, 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 a 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 an ROE perspective for PropCap business?
Nicolas Alain Papadopoulo
So overall I think we still like the cat business we wrote at 1:1. I think we, as you said, some areas have been more competitive than others. We’ve seen Europe being very competitive, I think in the US probably less so compared to Europe. And I think we just 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 got some very favorable signing from our broker because of the service we provide and the, the long standing relationship we have with many of our stealing companies.
So I think we still like the business. I think if rates were to continue to go down in the mid teens, we will have to on the case by case basis realize where it makes sense and where it doesn’t.
Tracy Benguigui
Okay. And any early thoughts on mid year reinsurance renewal pricing relative to what you’re seeing in January?
Nicolas Alain Papadopoulo
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 we’ve all benefited from in the last three years. So and you know, the fact that we had only one major cat, which was the, the California Wildfires. I think we, you know, of any other major cat, I would expect, you know, the supplies to continue to be there. So I think people should pay attention to the risk adjusted return, you know, going forward because it will be, it’s a big element of how we underwrite the business.
Tracy Benguigui
Thank you.
operator
Thank you. Next question will be from KV Montezeri at Deutsche Bank. Please go ahead.
Cave Montazeri
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 via improved efficiencies and smarter risk selection rather than at risk of disruption, which I suspect is probably more limited to some distribution platforms or maybe the carriers on the right lines are more commoditized. Love to hear your thoughts on this topic.
Nicolas Alain Papadopoulo
Yes, I think I agree with your premise. I think we think of AI as more of an opportunity for efficiency and rather than afraid. But ultimately the beneficiary of AI will be the consumers, you know, as most of the savings and efficiency will be passed on to the, to the insured. So. But yes, I think the, you know, the advantage of being in the specialty market is it’s, it’s complex and I think it will not say it’s impossible, but it will take time for models to learn to replicate the behavior of. The, of the underwriters. So I think what, what we’re seeing is, you know, personal lines or SME, may, maybe, maybe, maybe happening there faster than in the, in, in the space. That we are playing.
Cave Montazeri
Okay, and my follow up question is, is a follow up on capital return? I guess in theory if there is no growth in 2026, and I hope you guys see growth, but if there is no growth, you could distribute close to 100% of the, the capital you generate. Is that something you would consider? If not, what’s the highest payout ratio you consider in the no growth and no M and a scenario?
François Morin
You’re right. I mean if we’re not growing, which again, we don’t know if we will or not, but you know, dependence on, depends on the market. But absolutely, if the market, you know, we’re not growing, you know, their capital needs should remain relatively flat and every dollar of, you know, income that we generate technically could be, you know, creating more excess capital. What’s our, you know, do we have a, you know, do we have a set of target. No, we don’t, but we are, you know, if the market, you know, points us in a certain direction and the opportunity is there to buy back, you know, more than you would, you know, you see, saw us buy back last year, for example, we’re happy to do that.
It’s very much a function of market conditions and, and you know, that’s something we evaluate, you know, on a daily basis.
Cave Montazeri
Thanks.
François Morin
You’re welcome.
operator
Thank you. Next question will be from Mike Zurinski at bmo. Please go ahead.
Michael Zaremski
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, you know, it’s, it’s nudging a bit higher into the low to low 50s. I guess it’s thinking about 26. To the extent, you know, the reinsurance market plays out, the way, you’re 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 or the cat load?
Nicolas Alain Papadopoulo
Yeah, I think the reinsurance side, I think margin are definitely under pressure. So I think you’re right and it comes from the pricing on the excess of loss and also, you know, on the expense side, you know, we’re seeing also sitting commission, you know, going up. So. Okay. And, but we still like the business. I think it’s, you know, we, we have a big diversified platform, we write the business in many geographies. So I think we believe that we, we can find ways to, to continue to track attractive, attractive market. But yes, the margin, I mean they were very high, but the margins are definitely under pressure.
Michael Zaremski
Okay, great. And I’m going to 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, you know, times that you’re, you know, making a bet that the market isn’t as conducive for growth. So on capital management, is there, are there any items that would, you know, other than, you know, we can see the shrinkage in top line growth that, that could free up more capital than we can kind of see at a high level like the mortgage segment.
Is that releasing, you know, a material amount of regulatory capital that we should take and essentially take into account.
François Morin
On that question? Mike? I don’t think so. I mean, I think we touched, well, we certainly have touched on in the past. I think the overall capital position, you know, the fact that yes, maybe there’s some capital that is trapped in the MI companies hasn’t really been a factor. I think we’ve been able to distribute through dividends like meaningful amounts of capital from our MI company to, you know, to buy back stock, to return to shareholders, et cetera. So I don’t think that should be any, you know, it shouldn’t be materially different going forward. The one thing that you know, is, you know, capital consumer is, you know, the investment portfolio.
Let’s, you know, that’s one thing that we have some, I think, ability to influence capital requirements depending on how much capital or assets we deploy in riskier assets such as equities and, or 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, that impacts our net retained premium. But at this point I wouldn’t expect drastic changes in how we think about excess capital or how we think about returning capital. It’s pretty much, I’d say 26 should be at a high level, a continuation of what we saw in 25.
Michael Zaremski
Great. And just speaking one quick one in Nicholas, you know, you said the North America rate environment largely keeping pace with trend, but international probably slightly below. I thought that was a bit of a provocative statement since I think that the assumption is that 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 us versus international. Thanks.
Nicolas Alain Papadopoulo
Yes, I think that’s, you know, the remarks that I made is really based on our own portfolio for the lines of business we write. And remember, the bend in North America is more about, you know, long tail. We’re more of a casualty rider. And in casualty we’ve seen, you know, rates about above trend. So that drives and certainly in the shorter lines we’ve seen rates coming down. So I think that but when you take the entire portfolio and then we see one offsetting the other at this stage in the market.
Michael Zaremski
Thank you.
operator
Next question will be from Andrew Anderson at Jefferies. Please go ahead.
Andrew Andersen
Hey, good morning. Could you share about a bit what the conditions are on the casualty reinsurance market there? Are you still seeing right ahead of loss cost?
Nicolas Alain Papadopoulo
So on the casualty side, you know, generally on the primary, before we talk about the insurance market, I think on the primary side we, we feel that rates are still, you know, we are still getting more rate than trend. You know, it’s, it seems that it’s decelerating a little bit of what we saw in the last quarter. But I personally believe that there’s still pain. You know, I think we still will see some unfavorable development in the market for the old years and the 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 there’s a lot of supply, a lot of willingness for the reinsurer to ride the business. And I think the thing that has been is, you know, maybe based on what I said earlier, the ability or the willingness of our sitting companies to retain more of the business, which is, which has added, you know, the supply is constant and the demand is stable to down. So that is another layer of competition there.
Andrew Andersen
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 mid year.
Nicolas Alain Papadopoulo
The one I talked about is about casualty. I think on property we’ve seen, you know, on the reinsurance side and especially on the CAD access of loss side, we’ve seen retention being stable. Only a few CDN decided to add, you know, sub layers to their program. So I think that. And on the other property, yeah, we’re seeing companies based on the, again, as I said earlier, the excellent result of the last three years willing now to take on more of the business. So that’s a factor there too.
Andrew Andersen
Thank you.
operator
Next question will be from David Motemaden at Evercore. Please go ahead.
Matthew Carletti C
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 running through the puts and takes on growth and different sources and uses. Will be great to get an update on that front.
François Morin
Yeah, I mean, listen, we. Excess capital is a, you know, it’s a, it’s a number that changes, you know, is not static. Right. And you know, but no question that, you know, given the level of results and returns we’ve generated the last few years, we did end up accumulating some excess capital. You know, 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. Returns, you know, after that. Yes, we absolutely are committed to returning the capital to the shareholders.
But you know, we want to do what’s right for the shareholders. And sometimes it may just mean that, you know, for given, you know, some period of time, we, we do hold on to the capital for a bit longer. The money is, you know, has been, has been said before on our calls. It’s, it’s in our pockets. It’s not burned, it’s not burning anything. It’s just sitting there. It’s maybe not the most optimal way. Right. But it’s still, it’s not really destroying value in a meaningful way. So we’re, listen, we’re all about what doing is right for the shareholder.
And you know, if in an environment, again, if we don’t grow materially going forward, at least for the short term, you know, you could certainly think that, you know, you know, you should think of the level of earnings we’re going to generate to be, you know, additive to our excess capital position and that, you know, gives us more opportunity to, to return more capital to shareholders.
David Motemaden
Great, thanks. 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 to cycle. I’m interested, Nicholas, you had talked about I guess higher seeds on proportional reinsurance. You know, I was assuming that is for property. But given, you know, your answer to the, you know, one of the previous questions it sounds like you know, is. Or I guess I’m wondering are you seeing higher seeds on. On casualty re just given the supply demand changes and you know, do you still view casualty RE as a, you know, a growth opportunity in 26 that can help offset some of the pressure on the property side.
Nicolas Alain Papadopoulo
So to answer your first question, I think it’s marginal on the casualty and it works both ways. Like underperforming account. You see ceiling commission going down a bit, should be more but and you know, excellent account that everybody is looking for. You may see marginal increase. But really I should have clarified earlier not the big factor. It’s mostly the big swing has been on other, on other properties. And to answer your second question on appetite in the space, I think backing the right seating company people like, you know, a little bit arch have you know, real good understanding of the business and can navigate their way in ultimately pretty favorable, you know, in some pockets.
Primary casualty market, we think it’s something we would like to do more of. So we. It’s hard to do based on what I explained earlier. But again, our brand in the reinsurance side is good and you know, we have huge trading relationship with our sitting companies. So we can, you know, we can find ways to. We certainly first call when you know, new programs are set up or you know, some insurers, you know, decided to be move out of the program or reduce. I think we have a shift at growing going forward, I think.
Matthew Carletti C
Awesome. Thank you.
Nicolas Alain Papadopoulo
You’re welcome.
operator
Next question will be from Yaron Kinnar at Mizuho. Please go ahead.
Yaron Kinar
Thank you. Good morning. Francois, 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 seating 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 see that lower pricing.
François Morin
Yeah, I mean, that’s part of the equation, right? I mean, just like, you know, we have the advantage of having both insurance and reinsurance in our blessings. So we see both ways. But, you know, as a buyer of reinsurance, we’re no different than some of the seeding companies that buy from Archery. And you know, you know, Nicholas touched on it, it’s like, well, yeah, sure, I mean, I can get, you know, maybe a slightly higher seeding commission and that’s part of the economics of the transaction. But, you know, given the rate increases we’ve seen on the primary side the last couple of years, that have compounded and certainly maybe not across the board, but in sub segments of our book, you know, primary insurers like the business, like the pricing a lot as it is today.
So you have to, you know, compare the two. Am I better off retaining a bit more or do I just kind of lock in my profit effectively and just kind of go for the same commission? So I think it’s, it’s, you know, as you can imagine, we have multiple reinsurance programs that we evaluate throughout the year. It’s not a, every one of them is looked at individually, depending on market conditions and what we see, what the opportunities are. But I wouldn’t say that we’re necessarily planning to buy more, buy less at this point, but it could happen.
And again, that’s something that will evolve throughout the year.
Nicolas Alain Papadopoulo
Yeah. And I think the other way you can retain more is by switching the structure of your insurance, which is to go from quota share insurance to an excess of loss. And traditionally not what the reinsurers like to offer, but based on the competition, the marketplace, I think those structures have been more common. So I think that’s something we look at as well. And again, we lack the casualty in most of our markets, so it’s true. Also outside the US I think both on the insurance and reinsurance we had, we have a decent sized portfolio outside the US Just I wanted to make sure we mention that.
Yaron Kinar
Yeah, that makes sense and I appreciate the thought. On the restructuring of reinsurance programs. I hadn’t thought about that as much. My second question, one that’s been asked on prior calls as well, can you give us an update as we look into 2026, how you rank the appetite and attractiveness of new business between the three segments in terms of capital deployment?
François Morin
Yeah, I mean, no question that, you know, reinsurance has been, you know, the last couple of years definitely, you know, you know, a very attractive market for us. And we’ve deployed meaningfully. You saw our growth and you saw what we, you know, how we performed in that market. As the market comes down, it’s, I think it’s less, you know, ahead of the others. I would say so, you know, if I had to rank them today, I’d say yeah, reinsurance to me is still ahead, but, you know, the gap has narrowed, it’s come down. Reinsurance is doing still very well, very attractive.
But, you know, I think the gap between reinsurance and insurance is, is not as significant as it was a year ago. And mortgage, you know, we haven’t, you know, we haven’t had a question yet on mortgage. I mean, it’s, if it’s a good thing, we love it. Right. I mean, it’s a great business. It’s steady, it’s been a great source of earnings for us. You know, again, we’ve laughed about it. We talked about prior calls, like, which one of you 3k you like the most or like the late or not like as many as much as the others.
We love them all right. We love all three of our segments. But certainly, you know, I think that the fact that the reinsurance market is compressing a little bit, I think just brings all three segments a bit closer to each other.
Yaron Kinar
Thank you very much.
François Morin
You’re welcome.
operator
Next question will be from Matthew Heimerman at Citi. Please go ahead.
Matthew Heimermann
Hey, good morning. A couple of questions. One was just with respect to the MCE reunderwriting, you can ask about the premium consequences of that. I’d be curious about the margin consequences of that.
François Morin
Well, I mean, you’d like to think that, you know, the business that we’re shedding is the worst performing business. So absent, you know, absent any other event, you would think that our margins should improve, but that doesn’t factor in kind of that comment, as you know, obviously has been true, but the market in front of us may be different than what we had assumed. So on the one hand, no question that the non renewals will improve our margins, but maybe depending on where the market, what the pricing looks like, it’s still a very good market.
Middle market business has been, I think, in a good place. I think rates have been holding up and have been, you know, improving. So that’s been good. But you know, what’s, you know, margins going forward, Hard to comment on that.
Nicolas Alain Papadopoulo
Yeah. And I think some of the program we’ve shared are actually cat exposed. So, you know, the upfront result may have looked okay, but we think it’s a bad allocation of capital and we can get better return by deploying that capacity elsewhere. So I think, especially on the, on the reinsurance side. So I think those are the decisions we’ve made. I mean, some of them are, you know, running hard, but a few of them that we decided to share were more, you know, cost of capital, you know, opportunity being better elsewhere. And I feel, but again, if to answer your question, overall, I think we, we still thinking that the business could run one day in the low 90s.
Matthew Heimermann
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.
François Morin
Not as a direct result. I’d say we will make and have made investments, you know, over time based on, you know, what we’re trying to accomplish and, you know, trying to streamline operations, trying to be more efficient and whether it’s, you know, improving some systems, etc. So I think that’s, you know, that that’s nothing is different in that respect. You know, the fact that, you know, certainly reinforces, you know, the value for sure for us and it’s been there throughout the value having a presence in Bermuda. And I think we are committed, remain committed to the island.
So that reaffirms that. But in terms of making, I’d say direct investments as a result of the QRTCs, I don’t think it’s the case. It’s more based on need and based on what we were trying to accomplish.
Nicolas Alain Papadopoulo
And I think it’s really an offset to the high cost of doing business in Bermuda. So I think that’s smart from the, the Bermuda government standpoint to make their jurisdiction more attractive to companies like Arch.
Matthew Heimermann
Yeah, that’s totally fair. And then I just normally wouldn’t ask a third, but your comment on the demand quotient potentially changing for casualty insurance 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. Point that’s informing that or is that unrelated?
Nicolas Alain Papadopoulo
So in terms of can you, can you provide?
Matthew Heimermann
Well, 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, you know, updated information from cedence on the underlying subject premium basis. I’m just curious whether or not you’re, you’re, 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.
Nicolas Alain Papadopoulo
So what you describe I think it’s true on the other property, you know, companies I wanted to go aggressively into the excess and surplus property side or energy, you know have had to you know, revised to the downside their projections. I think on casualty what I was referring referencing is more sedent retaining more but I think the the underlying business is still growing. So I find out that’s not, that’s not that would not be the reason.
François Morin
I think Matt, just to be clear, we you know, we do lack I mean that’s something we look at every quarter. So we are very been very active internally certainly in 2025 and that will remain making sure that, you know, yes, we get premium projections from the underwriters from the scenes and we obviously superimpose some of our own views based on where we think the business may end up. So so we certainly don’t want to be in a position where we have to make a massive downward kind of 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.
Matthew Heimermann
Thanks for that caller. I appreciate it. Have a great day.
François Morin
Yep. Thank you.
operator
Next question will be from Meyershield at kbw. Please go ahead.
Meyer Shields
Great. Thank you so much. Two quick, you mentioned there were a couple of expense items in the quarter besides the tax. Please tell us where.
Nicolas Alain Papadopoulo
Kenneth, hear you.
Meyer Shields
Sorry. Yeah, I mean the line broke down so I apologize. I just, I don’t know if it’s our side or is Meyer. 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.
François Morin
Well, I think I touched on, I mean the Bermuda tax credits. I think the intent of the comment was that Bermuda tax credits, you know, at the core is very much a function of like how much presence we have in Bermuda and the direct, you know, payroll related kind of expenses. So yes, we have expenses in Bermuda in all three of our segments and also in, you know, our investment team. So that is reflected as an investment expense and 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 dollars.
I mean it’s not going to be noticeable to the outside world so in terms of modeling, I would say yes, there’s some benefits, but it’s. So, I mean, it could be, you know, it could be buried. It will be buried as part of the overall expense base of either the insurance or the mortgage segment, for example. So that’s why. Just hard for us to kind of isolate it.
Meyer Shields
No, 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 and just didn’t know where they were.
François Morin
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 were again, that we, we should highlight or identify.
Meyer Shields
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?
François Morin
I would say no. I would say no. I mean that’s again, that’s, we’re talking again, two, $300 million of written premium that we’re shedding 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.
Meyer Shields
Okay, very helpful. Thank you.
François Morin
You’re welcome.
operator
Next question will be from Roland Mayer at RBC Capital Markets. Please go ahead.
Rowland Mayor
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?
François Morin
Yeah, I mean that’s, I mean that’s been. Right. So we wrapped up the first year and you know, we set up. An. Asset at the end of, you know, end of 23 that we started amortizing in 25. So the billion two is now, you know, roughly came down by about $100 million in 25. And you know, we are going to keep amortizing that in 26 and depending on where the law goes in Bermuda, maybe that asset goes away. We just don’t know. I mean, it’s not our decision. It’s obviously we follow the Bermuda law, but you know, there’s been talk that this, you know, depending on, you know, negotiations or kind of what the Bermuda government ends up doing, that this asset could be, you know, could no longer be an asset to us at the either, you know, late, you know, fourth quarter 26 or maybe early part of 27.
Okay, perfect.
Rowland Mayor
And then I just wanted to ask. On your view of M and A in this environment. I know there’s been a couple deals announced in the past month or so and with how your sort of debt to cap is stacking up, you’re kind of naturally deleveraging over time. And just anything on leverage or ma.
François Morin
Yes. On M and A, I think our position hasn’t changed. We lack 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 you know, we, you know, at this stage, especially in terms of where the market is, I think we efficiencies, it will have to be an amazing deal for us to really pursue it. You know, and not saying it’s impossible, but, you know, I think it’s unlikely.
Rowland Mayor
Great. Thank you for the answers.
François Morin
Welcome.
operator
Thank you. I am not showing any further questions, so I would like to turn the conference over to Mr. Nicholas Papadopoulo for closing remarks.
Nicolas Alain Papadopoulo
Yes, thank you everyone for spending an hour with us. And again, another pretty damn good performance, you know, in 2025. And again thanking all the employees for their hard work they did to get us there. And I think we pretty much ready to go for 2026. And we’ll talk to you next quarter. Thank you.
operator
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.