Arch Capital Group Ltd. (ACGL) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary reflects strong financial performance with substantial share repurchases and a focus on shareholder returns. Growth in the insurance and mortgage segments is promising. The Q&A highlights management's confidence in navigating market competition and leveraging AI for efficiency. Despite some margin pressures and uncertainties in reinsurance, the overall outlook remains positive. The company's focus on capital deployment and strategic partnerships further supports a positive sentiment. Given these factors, a positive stock price movement is expected over the next two weeks.
Key Financial Performance
After-tax operating income (Q4 2025) $1.1 billion, up 26% from the same period in 2024. The increase reflects excellent underwriting results across the group.
Quarterly consolidated combined ratio 80.6%, reflecting excellent underwriting results across the group.
After-tax operating income (Full Year 2025) $3.7 billion, a new high. This resulted in after-tax operating earnings per share of $9.84 and a 17.1% annualized operating return on average common equity for 2025.
Stock repurchase (2025) $1.9 billion of Arch common stock repurchased. This was enabled by strong operating cash flows and capital generation.
Book value per share (2025) Increased by 22.6%. This is Arch's preferred measure of value creation.
Insurance group underwriting income (Q4 2025) $119 million. Gross premium written increased 2% from Q4 2024, but net premium written declined due to timing of retrocession purchases and changes in business mix.
Reinsurance underwriting income (2025) $1.6 billion, a record. Gross premium written was flat versus Q4 2024, but net premium written declined due to timing of retrocession purchases.
Mortgage segment underwriting income (2025) $1 billion, marking the fourth consecutive year exceeding this threshold. Favorable reserve development was driven by strong cure rates on delinquent mortgages.
Net investment income (Q4 2025) $434 million, with equity method investments adding another $155 million to net income.
Gross premiums written (Insurance segment, Q4 2025) Increased by 2.3%, while net premiums written declined 4% year-over-year due to timing of ceded written premium accruals and changes in business mix.
Combined ratio (Reinsurance segment, 2025) 80.8%, the lowest since 2016, reflecting excellent underwriting results.
Net premiums earned (Mortgage segment, Q4 2025) Down approximately $11 million from last quarter, mostly across CRT and Australian businesses.
Delinquency rate (USMI business, Q4 2025) Increased to 2.17%, in line with expectations.
Net investment income and equity method income (Q4 2025) $589 million combined, supported by strong positive cash flow from operations of $6.2 billion for the year.
Share repurchase (Q4 2025) $798 million repurchased. For the year, $1.9 billion repurchased, representing 5.6% of outstanding common shares at the start of the year.
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Operating Highlights
New insurance written in USMI: Fourth quarter new insurance written at USMI reached its highest level for the year, with persistency remaining high at 81.8%.
North America specialty casualty lines: Continued growth in specialty casualty lines, including alternative markets, construction, and E&S casualty.
International expansion: Increased writings through Bermuda platform and in Continental Europe.
Underwriting income: Insurance group delivered $119 million of underwriting income in Q4, and reinsurance delivered a record $1.6 billion of underwriting income for the year.
Investment income: Generated $434 million of net investment income in Q4, with equity method investments adding $155 million to net income.
Operational efficiencies in Bermuda: Recognized the full year effect of the 2025 Qualified Refundable Tax Credits (QRTCs), significantly impacting financial results and reducing expense ratios.
Capital management: Repurchased $1.9 billion of Arch common stock in 2025, representing 5.6% of outstanding shares at the start of the year.
Cycle management: Focused on leveraging a diversified specialty platform, disciplined risk selection, and data analytics to enhance risk selection and profitability.
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Risk or Challenges
Competition in several lines of business: The company recognizes increasing competition in several lines of business, which could impact its ability to maintain or grow market share and profitability.
Pricing in international business units: Pricing in international business units is tracking slightly below loss trends, which could pressure margins and profitability in these regions.
Rate pressure in property catastrophe and short-tail excess of loss renewals: Rates in property catastrophe and short-tail excess of loss renewals were down 10% to 20%, creating a highly competitive environment and potential challenges in maintaining profitability.
Ceding commission increases in proportional reinsurance: Ceding commission increases in proportional reinsurance due to supply outpacing demand could negatively impact profitability.
Decline in net premium written: The company experienced a year-over-year decline in net premium written, partly due to the nonrenewal of a large structured transaction and changes in retrocession purchase timing, which could affect revenue.
Constrained mortgage market: The mortgage market remains constrained despite lower mortgage rates, limiting growth opportunities in this segment.
Catastrophe losses: Current year catastrophe losses were $164 million, higher than the previous quarter, driven by events such as U.S. severe convective storms and Hurricane Melissa, which could impact financial performance.
Delinquency rate in USMI business: The delinquency rate for the USMI business increased to 2.17%, which could signal potential risks in the mortgage insurance portfolio.
Impact of Bermuda Tax Credits Act 2025: While the Bermuda Tax Credits Act 2025 provides benefits, the company noted that some of the financial impacts recognized this quarter are one-time benefits and may not recur, potentially affecting future financial results.
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Guidance & Outlook
2026 Outlook: The company enters 2026 with measured optimism, recognizing increasing competition in several lines of business. Arch plans to leverage its underwriting culture, diversified business model, and proven cycle management to deliver superior results.
Insurance Segment Growth: Underwriters will continue to pursue growth in areas where risk-adjusted returns meet or exceed long-term objectives. The insurance platform has expanded significantly, providing opportunities to capitalize on attractive margins.
Reinsurance Segment Trends: Despite competitive conditions with rates down 10%-20% in property catastrophe renewals, the company expects to mitigate negative top-line impacts through new opportunities. The underwriting teams aim to leverage the platform's strength to source profitable opportunities.
Mortgage Segment Projections: The team remains focused on underwriting discipline, expense management, and enhancing data and analytical platforms. While lower mortgage rates may support increased origination activity, the market remains constrained.
Investment Portfolio: The company aims to maintain a stable recurring earnings stream from its $47 billion investment portfolio, focusing on high-quality assets with short duration.
Tax Credits Act 2025 Impact: The Bermuda Tax Credits Act 2025 is expected to reduce operating expense ratios and corporate expenses in 2026. The reinsurance segment's operating expense ratio is projected to be between 3.9% and 4.5%, while corporate expenses are expected to range between $80 million and $90 million.
Effective Tax Rate: The annualized effective tax rate for 2026 is projected to be in the range of 16%-18%.
Catastrophe Loss Estimates: For 2026, the estimated full-year catastrophe losses are expected to range between 7%-8% of overall net earned premium, similar to the previous year.
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Shareholder Return Plan
Share Buyback Program: Continued strong operating cash flows and capital generation enabled the repurchase of $1.9 billion of Arch common stock in 2025. Management believes share buybacks represent an efficient way to return excess capital to shareholders over time. In the fourth quarter alone, $798 million worth of shares were repurchased. For the year, 21.2 million shares were repurchased, representing 5.6% of the outstanding common shares at the start of the year. An additional $349 million in shares have been repurchased so far in 2026.
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Key Q&A
Q:Can you expand on the opportunities you saw in property cat and how you expect growth in property cat during 2026?
A:The opportunities referred to are not in property cat but come from other geographies and mostly in specialty lines.
Q:How should we think about the level of share buybacks trending from here, given the $350 million buyback in a little over a month?
A:Share buybacks are a good way to return capital. The pace will vary depending on stock price and the ability to deploy capital in the business. The company expects to be active on share buybacks throughout the year.
Q:What are the expectations for the re-underwriting in terms of premium impact and seasonality for MCE?
A:The business is well distributed throughout the year with no significant seasonality. The re-underwriting involves non-renewing some programs, which will impact the top line in 2026. The company hopes to offset this reduction with growth in middle market business, depending on market conditions.
Q:How does the 10%-20% rate decrease at 1/1 affect ROE for property cat business?
A:The company still likes the cat business and adjusts writings to target profitability by region. Retention of renewals was high, and favorable broker signings were achieved. If rates continue to decline in the mid-teens, decisions will be made on a case-by-case basis.
Q:What are your early thoughts on mid-year reinsurance renewal pricing relative to January?
A:The competition reflects excellent results over the last three years and the absence of major catastrophes. The company expects supply to remain stable and emphasizes the importance of risk-adjusted returns.
Q:What is the risk of disruption to your business model from AI, and are you more likely to benefit from AI?
A:AI is seen as an opportunity for efficiency rather than a threat. The specialty market is complex, and it will take time for models to replicate underwriter behavior. Personal lines or SME may adopt AI faster than the specialty market.
Q:If there is no growth in 2026, would you consider distributing close to 100% of the capital generated?
A:If there is no growth, capital needs should remain flat, and excess capital could be distributed. The company evaluates market conditions daily and is open to buying back more stock if the opportunity arises.
Q:Should we expect the underlying loss ratio trend in the reinsurance segment to nudge higher in 2026?
A:Margins in the reinsurance segment are under pressure due to pricing on excess of loss and rising ceding commissions. The company believes it can continue to attract the market despite these pressures.
Q:Are there any items that could free up more capital than expected, such as the mortgage segment?
A:The mortgage segment has not been a factor in freeing up capital. The company has been able to distribute meaningful amounts of capital through dividends. Capital requirements can be influenced by investment portfolio decisions and reinsurance purchases.
Q:Why do you feel better about the U.S. rate environment compared to international?
A:The U.S. portfolio is more focused on casualty lines, where rates are above trend. In shorter lines, rates are coming down, but the overall portfolio offsets these trends.
Q:What are the conditions in the casualty reinsurance market, and are rates still ahead of loss costs?
A:Rates on the primary side are still ahead of trend, though decelerating. There is a lot of supply in the reinsurance market, and ceding companies are retaining more business, adding competition.
Q:How are you thinking about property demand into midyear?
A:Retention in property reinsurance is stable, with some cedents adding sub-layers to their programs. Companies are willing to take on more business due to excellent results over the last three years.
Q:How should we think about the current excess capital position and its impact on growth and capital return?
A:Excess capital changes over time. The company prioritizes deploying capital in the business and returning it to shareholders. If growth is limited, excess capital will increase, providing more opportunities for shareholder returns.
Q:Do you still view casualty reinsurance as a growth opportunity in 2026?
A:Yes, the company sees growth opportunities in casualty reinsurance, especially with strong trading relationships and a favorable primary casualty market.
Q:What is your appetite and attractiveness ranking for new business between the three segments?
A:Reinsurance remains attractive but less so than before. The gap between reinsurance and insurance has narrowed. The mortgage segment is steady and continues to be a great source of earnings.
Q:What are the margin consequences of the MCE re-underwriting?
A:Non-renewed business is expected to improve margins as it was underperforming or had poor capital allocation. The company aims to deploy capacity elsewhere for better returns.
Q:Are there any opportunistic investments in tech or operations being considered?
A:Investments are made based on need and to streamline operations. The company remains committed to Bermuda and sees the tax credits as an offset to high business costs there.
Q:Are you seeing any changes to subject premium basis in reinsurance treaties?
A:On casualty, underlying business is still growing, and ceding companies are retaining more. On property, some companies have revised projections downward due to aggressive moves into excess and surplus property.
Q:What is the carrying value of the deferred tax asset, and when will there be clarification on its recognition?
A:The deferred tax asset is approximately $1.2 billion, reduced by $100 million in 2025. Its status depends on Bermuda law, which may change in late 2026 or early 2027.
Q:What is your view on M&A in the current environment?
A:The company is open to strategic assets that improve the platform or add lines of business. However, given market conditions, it is unlikely to pursue M&A unless it is an exceptional deal.
Q:Review of Unclear Management Responses
A:Management avoided providing direct answers or lacked clarity on several questions, including:
1. The specific level of share buybacks expected throughout the year.
2. The exact margin consequences of the MCE re-underwriting.
3. The potential impact of opportunistic investments in tech or operations.
4. The detailed impact of non-renewed program business on the acquisition expense ratio.
5. The specific timeline and implications of changes to the deferred tax asset recognition.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America specialty
Bermuda platform
Continental Europe
Europe decline
Francois remark
Francois success
MI insurance
PC underwriting
PM PC
Sirs tax
Underwriting ex
ability return
activity market
acumen market
alignment investor
analytics insight
anniversary culture
approach mix
area underwriter
brand result
buyback way
capability principle
capital inception
capital strength
casualty unit
cat development
cat tail
insurance platform
line market
playbook
record
risk selection
stock
underwriting cycle
underwriting discipline
volume
ACGL Transcript
Arch Capital Group Ltd. (ACGL) Q4 2025 Earnings Call Transcript
Positive2-10
The earnings call summary reflects strong financial performance with substantial share repurchases and a focus on shareholder returns. Growth in the insurance and mortgage segments is promising. The Q&A highlights management's confidence in navigating market competition and leveraging AI for efficiency. Despite some margin pressures and uncertainties in reinsurance, the overall outlook remains positive. The company's focus on capital deployment and strategic partnerships further supports a positive sentiment. Given these factors, a positive stock price movement is expected over the next two weeks.
Arch Capital Group Ltd. (ACGL) Q3 2025 Earnings Call Transcript
Positive10-28
The earnings call summary indicates strong financial performance with a notable increase in net premium and investment income. The company is effectively managing capital with significant buybacks, and the Q&A reveals optimism about opportunities in casualty lines and property catastrophe renewals. While there are headwinds in short-tail lines and uncertainties in the MGA marketplace, the overall sentiment is positive, driven by strategic growth areas and a strong balance sheet.
Arch Capital Group Ltd. (ACGL) Presents at Bank of America 30th Annual Financials CEO Conference 2025 Transcript
Neutral9-16
Arch Capital Group Ltd. (ACGL) Q2 2025 Earnings Call Transcript
Unknown7-30
The earnings call presents a mixed picture. While there is strong financial performance and a positive outlook on casualty lines, the unclear guidance and adverse developments in the U.K.-Russia aviation ruling create uncertainty. The Q&A section reveals management's reluctance to provide specific guidance, which may dampen investor sentiment. Additionally, while the company plans share repurchases, the lack of clarity on other capital return strategies tempers optimism. Overall, the sentiment is neutral due to these balancing factors.
ACGL Report
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