ACGL - Earnings call transcript Q2 2019

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, ladies and gentlemen, and welcome to the Q2 2019 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. [Operator Instructions] 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 today's press release and discussed on this call may constitute forward-looking statements under the federal securities laws. upon a assessments uncertainties. number based are assumptions are to subject of statements management's and current and These risks and

actual materially differ results expressed Consequently, implied. or from those may

other information factors investors the review that with the reports filed periodic more time-to-time. the For risks SEC should that affect from future on may performance, by Company are and

XXXX. meaning to Additionally, The to Reform are forward-looking facts based on certain statements historical forward-looking Litigation the contained intends be Harbor Securities in within Company the thereby. of the statements call Act call Private of that the are not the created, the statements in Safe subject

Company's Management also X-K furnished report the performance. definition the financial GAAP and on SEC will of to and the on contains available yesterday, release reference Company's the make of press operating non-GAAP website. be Company's current measures reconciliation is can earnings to some Form The income which to in found

Mr. would now and to host Morin. introduce Mr. your I today's like you begin. Marc François Grandisson; Sirs, may conference, for

Marc Grandisson

morning and Thank you, all. to you Crystal, good

increase markets value were to operating and and solid by equity driven higher catastrophe this in together performance, good per like prices share financial Our this were underwriting losses, X.X% bond book quarter a which very in results our with led quarter.

for XX.X% ROE remains satisfactory. the at operating second quarter Our

selectively our writings. Market conditions in a our Property Casualty segments increased as result, continue to improve we and

selection focus in on and is expected those book In to business. segmentation favors that market characteristics. focus a are we capital the continue firming and allocating risk hope who selection nimble which we their to lines legs, companies market While this risk returns, best on with and has those view, of building our risk/reward who the will

positioned is deployment, seen board. across in of makes It better cautious and property as we in Across noting these capital factor have these we kept dry today and we occurring where markets the to Despite in flex that markets, margin the rates industry, is powder have surrounding soft our the the are that improve. One we London the in increased safety. not U.S. our recent the worth tailwinds, is uncertainty lines into because several market the us E&S firming notably have opportunities casualty

on some rates on all plus but X.X%. relative measured basis cases, In quarter, in are our an averaged increasing only, not changes, on Insurance a rate the basis. adequate Group's are second lines Across renewals absolute as around

a majority new business. However, came there renewal is the strong a than transitioning market. in the that This evidence sign is business of our better of levels anecdotal at

inadequate. that estimate number Overall, There premium the increased by results attendant of we for firming current today's the industry P&C premium levels in roughly could implicit well-known volatility significantly, recent from growth. in balance factors quality in exacerbates years; reserve of a in came losses significant two, sustained interest by pricing be further competitors; our XX% of rates; cat levels one, three, rate that rate and writings support fourth, that margin and of some the driving exposure most lack a recognition our environment. the Number need insurance and in derisking from are

of market led segment. will good of opportunities at insurance fortunes to see peel our also in Catastrophe providers specific the the minute, when with the primary the good Reinsurance in see and as numbers, alternative improved some midyear. and XX% markets losses also lines follow had tend and back experiencing to you we Francois property increases in capital floor renewals difficulties XX% to of years of two Reinsurance past a to rates marine

to rate were our writings but on our significant still property a gross need peak in As financial additional capital zones. can supplement, we to basis, commit our see able we you grow more to

facultative also several strong is time in in submission increased in tails U.S. direct markets, one this property the and quarters. frac where saw our first transitioning for of market in the the We units, demand international and activity substantially

step me path of Taking quite of of we back, kind vacation our with the view, in yet?" becoming underwriting asking, your underwriting P&C car kids summer better profitability – better profit reminds the clearer. the path the there In a environment back But yet. is "Are not a the to to

characteristics insurance portfolio to the risk-in-force segment. favorable to and our economic given well, Arch high-quality mortgage MI now Turning continues of perform the conditions. our

know, insurance insurance with mortgage credit force in increases together earned which may in you growth As results. premium, drive quality produces in our

$XX.X second shares rest in a the for of early year believe, adopting next to quarterly industry XX% period primarily learning and MI the we ago volatility quarters. decrease in billion, from risk-based the which of a of the stages NIW and market quarter was use pricing, to lead greater could the the same several reflects

than rather our to have What returns, and risk. write at before, we matters above of Arch realistic As we focus assessment that is that market is or our our targeted said in us diligent and on business are share. returns we at

key remains our favorable every at risk barometer levels. Today, in U.S. portfolio MI

in-force combined our U.S. score of mortgage by book with ratio of was indicated as quarter excellent scores, strong FICO Credit remained quality, second XXX. a across at The XX%. our weighted-average

excellent it of or borrowers measure period. repay the relative ability LRS, portfolio to pre-crisis better loan in significantly of was risk, remains loans their score than the in-house indicates and risk our Our that what

recorded in rates, a increase over investment to our the recent repositioned in XX per And have book a result in last we value share. to as the months operations, substantial the longer portfolio duration. a of our slightly interest respect we With declines

call Francois. that, hand to Francois? the over with And I'll

Francois Morin

and all. Marc, morning you, good Thank to

comments second financial on Ltd. i.e., the prior observations Watford the which you quarter, corresponds our for a to I you to are on basis, that some excluding the Arch's Before wanted remind of I core practice, and results other give comments results, with these operations Holdings consistent segment,

an return on includes for consolidated equity and $XXX.X which common term operating per $X.XX the annualized Watford. After-tax translates operating was quarter filings, the our share. XX.X% In average income to million,

year-ago. Book XX.X% from a increase our to in operations a our last XX, from quarter reflects share both contributions underwriting $XX.XX grew investment and effect value at This strong one X.X% portfolio. the per result of from June increase

with quarter underwriting combined recoverables These points. from reinsurance and our net of Losses the Starting events stood the ratio X.X catastrophic storm in were in activity flow reinstatement reinsurance both $X.X through results. to segments or U.S. primarily second premiums convective and insurance and XXXX at million due losses

quarter development, million combined of combined X.X three $XX.X related our $XX.X of period favorable million experienced to All $XX.X development the prior and in for net insurance, second adjustments at $X.X second net points of the compared segments loss X.X mortgage quarter, points or million, respectively. for recognized XXXX. reinsurance As of segments, we reserve the development ratio million and in approximately favorable ratio

basis The XX.X%, the period items. for comparison insurance segment's excluding The the segment higher insurance for year-ago. cabs one accident XX same notable is points two quarter than by was combined ratio year-over-year affected

XX relatively this of of is in First, attritional our lines points. we a quarter year integration overall across this discussed for segment book and activity second, quarter, UK experienced accident a loss increased the ratio approximately current level basis last as our business the regional quarter higher few by ongoing this U.K; expense of

premium that We muted expect growth rate business have renewal, from until ago. was reaches over year. quarter for quarter solid state. grown the segment this to remain the expense that transaction to reinsurance the run of in the continue acquired of this that same long-term ratio renewal will earned steady a had one-year would partially higher the effect less this large written the net Adjusting premium segment this We due the XX.X% capacity a quarter by this required for the than

same on compared same year-over-year at basis by excluding movement points difference explained explains one-year approximately since XXX the ago. the contributed of cats last remaining quarter which basis resulting property year, points. primarily is an the segment's facultative of XXX% year-over-year impact the XXX growth elevated basis The combined the expense ratio same quarter to accident is for ratio Most in approximately losses mentioned, level driven ago. difference operating of stood XX.X% from one-year The renewal by premiums of earned the which quarter the the just and improvements

was higher ago that was of last favorable quarter development was improved performance result the was points higher quarter the operations. than result quarter. last quarter as XXX by observed second The strong of basis loss helped earned than year, of a expense to period a calendar accident segment's ratio in result of this ratio the quarter of of the approximately the prior XXXX, points level loss basis on same the XXX primary XX.X%, by XXX same X.X% underlying although of year's lower MI premiums. particularly our book, The ratio one-year identical a mortgage The basis continued points by as U.S. ratio observed what combined within is in

and novated the $XX.X for we that quarter respectively. written by segment's earned reinsurance same the XXX ratio earnings premium and the higher, increased approximately by transaction grown XX points mortgage ago, net written quarter As would If premium effect release, of would a segment. during for net mentioned quarter novation, million basis been in ceded one-year have this this the the X.X% not have net over loss and expense the and

by increased transaction the $X.XX. average points operating equity share by operating return the XX group-wide on addition, and annualized improved In income basis the per

points basis portfolio a Total quarter dollar the high-quality on our to basis, a XXX U.S. well. positive continued investment return perform as for was

and our effective during basis pretax in was Our years. XX.X% income to of X.XX quarter. items the corporate tax quarter pretax reflects from the portfolio in and tax discrete up duration The was geographic a benefit the mix operating XX quarter on point income the slightly rate

quarter, result, excluding was the the XX.X% same discrete last a year. pretax on the higher items income effective quarter than rate XX.X% tax from operating rate this As

we in range believe income XX% to tax reasonable to operating it's for full-year. will on the that effective be XX% this At of rate time, the expect still the

and effective the of varying location vary could tax level or tax jurisdiction. each the depending in and income loss always, rate rates As on

at catastrophe cat management. at with the at the return basis July still risk briefly more our our slightly increases Turning level. on X recent low pricing, tangible representing than peak equity X-in-XXX-year Despite levels the X% exposures to Northeast at net a zone common natural in of remain historically

in if increase segment. mentioned calls, expected prior rates participation have this have capacity time, available we meaningful to our improve cat we and over on As returns

our Arch year billion of on In reinsurance our XXXX, $XX X In aggregate July week provides Bellemeade last total, this of which, in over closed reinsurance inception billion. coverage of we that third of since the XXXX, Bellemeade force. insurance million XX, the issuance completed provided program in of segment, of $XXX as has MI nearly indemnity securities transactions $X.X

repurchase we not to capital shares management, quarter. did respect this With

total capital which at million Our stood at XXXX. XXX ratio expires remaining preferred XX authorization, total plus at basis our points stood - XX.X% ratio debt XXXX $XXX and from to at down in debt-to-cap end year-end June XX.X% and quarter capital was December

With now these take introductory prepared are we questions. to your comments,

Operator

And our Thank you. Bank. first question [Operator Shanker is Instructions] from Josh Deutsche

Your line is open.

Joshua Shanker

pricing that you a Marc, there companies is much less competitive so and Thank can and writing have get weren't Brokers way Yes. consistent a write these that were and much. market How customers that with regardless very you business compared come during in pricing in positioned years of to prepared been at you and of in like available sort thought to willing policies of you to them than be that mercenary companies margin? because you to Arch the the your come better tend slumping markets in business. others. that remarks said that the out know not in

Marc Grandisson

as in Josh. Well, – hi,

and As of I continuity been that there's did that think have much we in don't a that pause sort well, say, risk shift of who and – move all coverage the from look present. not market, maybe capacity terms when in very around conditions. different markets. Actually, away we're to we incumbents or want actually risk and do very a take providing some a at still And do every they

or four growth involved the would for our the we say, last or that years. think three market as weren't I I in

look less our of than expected you what at think would to market have you trend I was the grow. growth, have which to rate

So tend be the long-term to below average. we

average. good capacity look long-term outfits. they I like think above else, everything have for capacity, brokers, they when right now you to I the see us quality for be need And

what a chance are And risk we see did we or already that we participate didn't did where coming present. Arch? the and to we are areas happens. You before, inadequate what our found liking, There's have quote write actually or frankly, be and now in Mr. risk, not us some say, not growing price for about and that back before they're to that's it well, on to

across not broker company, has insurer, A not so a billion or you a is insured we're – client is a channels that of the premium relationship through not I'm it solely know, lines do word to you relationship maverick by as the multiple the a – company what business. So market but we're sure writes not $X year mercenary over company. use, is broker

Joshua Shanker

word I way. pejorative in didn't use a mean to that

Marc Grandisson

You did. But you did.

Joshua Shanker

in so Nicolas the ratio XX%. that And know getting run a I insurance has specific – in I of of business. non-time – there's terms And a combined goal come guess down to to

As years. had over running the not quite years you or the last look at XX the business I people XX insurance

going those can What that's to ratio help bring You been running had for some to incremental XX% you a the combined talent to has moment goals? business. success market of segment. And rare get that Nicolas a that

Marc Grandisson

first this one. little that's transitions group or feel we available the of a is more you in than something that XX team. had we see to really the our and the gross you to mind. that have of bringing So This on isn't years. is proaction experience underwriting – daily different comes when is benefits That's Nicolas when insurance is basis. the talk say analytics shifts. number tools ourselves, that when could bit Predictive Number two terms thing to something market And new relatively and it is, to

across-the-board speaks know the everybody predictive we've Josh segmentation are underwriting the project to Arch to that and embarked talked And as that about. And get analytics. selection to you on

of In see addition, through some this numbers. the you

best-of-breed the do well. group, as and IT amount of terms MI On We in investment. of development, there IT healthy we a that and of from sort we was guy have our took superb which brought

tools tools. So and more of culture access to giving it's really more combination a and having

people I'm not So specific. it's really sure that

Joshua Shanker

hoping a there no didn't a of sort when you behind more that to but a have way like I XX%, getting Or is a say Is that of know to – you is do time, there is specific. a but you we're And say you – give when plan? X-year time any little get this?

Marc Grandisson

have to I'd This be on said I go to it calls, I in Like through but earlier like. we yesterday, steps. think

I and have And long by Josh, quicker. way market made certainly, I'm the the think tailwind is there get improvements we in insurance. very that, development the a the encouraged in that we've going to

Joshua Shanker

you very much. Thank Okay.

Operator

you. Thank

Operator

from Our next Fargo. Wells Greenspan question comes is your for open. Please line Elyse

Elyse Greenspan

I on good morning. Hi, in My tying first question XX%. the guess to question Josh's last

has? three changed kind see on us of Can trend guys bit Obviously, You said, tempered you it insurance about us today see remarks, the X.X%? a have that's gave trend always give a if prepared in your you that's loss Marc, of past within of rates more loss – and you sense over changed been you kind how market. up of how where over where kind you six last months, the to

Marc Grandisson

actually changed think we trend. a around going deep that a very loss are have I hasn't It do this. through uncertainty whole dive in still lot. We

recent have take that us a four economy, years, three last the an is. a science. determine you to finally it's exact would very for to years. or only us It's of kind We take what while going trend – I just not tell different

to try we discernible look pattern. So at

that recognition afoot specifically. there more the heard on is side on of severity things, other is you've calls there a think that I something

pre-opinion. seen, And the going the for is frequency if remains picking for to up. is compound severity definitely to be that But now the

are has taken us very very, what still that's careful. So –we

one up from I talk plus range, made X.X% minus business a of lines XX%. to lease, certain in the XX%, of right, about So when it's

that That's an it about XX%, what you between anything we plus much it. clearing the plus trend, the at gives above the if are could rate X% even increase increase, of if expectations clearing of in of how you who obviously second higher clear comfort. If and be are think XX% is terms a those XX% to year loss on think XX% range it's more So loss X%, you right? expectation trend end,

Elyse Greenspan

you the terms risks How's seeing E&S you price does the market? trajectory your there the the on E&S could pricing, E&S in sense like what things? of the also Okay. – Are And us standard to market? market? And compared a you're of then more within of look to could give what going side

Marc Grandisson

on yes, other A and written in of So, E&S of which as look – lot things business is of market. steps, admitted in we're you E&S of lot side think the sort it's a a know. were if I U.S. back market, you participant into Lloyd's of thrown terms

to coming they country. expiring, those to solely we carriers us. benefiting from the rate E&S would've clearly, than other otherwise have, the lower as coming liked so were not it's this. would've what It's We're in But written And we to around were coming deals.

property, certainly time, in mostly the it's I And this cat losses. point not by the would say recent helped because at of –

getting remarks, get some you of to the they look position, returns but are I we rate substantial in the from need increases clearly to total sum to, as them back get they seeking. of – E&S are my looking traction, able is rate that getting coming level We're it need we're and if it us. to said to at it's at those increases and So

to that in which is the we seeing They're some this in which through team that the see could amount you. legs time the of is legs – And some number property side, increased our think of quarters, first an seeing – we for encouraging, it. and next really couple to is – really submissions. So specifically the is say of it I

Elyse Greenspan

XXXX I know would little give could on if your – a wondering, of last rule the in just was some event, away. Okay, I just understanding side potential was week exposure just mortgage regulation there comment bit you that, that to Patch an a of be could terms on the great. for And MI out And of on but were a Arch's then impact that kind the us potential go there insurance on change? business. how

Marc Grandisson

it could a big Patch Well, about GSE not is a XX% impact the definitely share segment, MI the but overall of only deal. ours right

and communicating We're comments them and the I on our CFPB to this. view and give we're GSEs with think talking to them. trying our

best be could the find business that would for placement it ways, At way mean level, us to we be this for onto a is clearly this also could would what is market, path high advocate that a the but multiple go I ways its right. a as something private private on well. and more there's

the of way that it's they assured politically. do, to sort they that FHA, have of something I would the Going certainly do be decide to mean can but that

at were at least, point encouraging wish time early. how We involved across too the want think we are CFPB is in that from all which and participants, to to The this I it's the this this. to words markets, in trying capital the the private means field playing and leveling interpret this. definitely GSEs

hopeful with that. are in way and there will will be touch we'll transition be thoughtful that deliberate them resolve and So there we be or very some a to

at it certainly in So this overly are we're time, but intently. not we excited point looking

Elyse Greenspan

all appreciate I color. you. Thank Okay. the

Marc Grandisson

Great. Elyse. Thanks,

Operator

Thank you.

question from Baldini is from Daniel Oberon. Our next

Your line open. is

Daniel Baldini

your talk weakening at effects earlier on your Good end do be about to And do to And of the a business I Hi. there? business. further the of moving activity, exposure from ease likely people you the economy you like call. was business. around will Brexit domestic for there what in continent you increasingly taking Thanks do increased where ability October. the mentioned And your wondering could to London, It morning. a the have London-based you've if specifically, it's hard that my seems

Marc Grandisson

Okay.

So as we the industry, Brexit question. else operation our let have We me repositioned is – European Dublin. already everybody take the in into

is are the is through also timeframe. of within Lloyd's, I currently So the have – business And we EU. the as end March, where Brussels of our Lloyd's this we and is establishment the Brussels believe non-UK for doing

that also So in we're marketplace. participant a

business. last developing of on last Network the more we with question, Ardonagh are we we're year UK we keen the – did of answer going and your carry last on of very – very so very, actually And acquisition that's end retail, Retail well. actually the And the to year

entry for everybody think ourselves to other barriers happens, – business able some ourselves whatever but I hard for whether including creates to up pretty it write it's Brexit has So negotiated establish in possibly setting participants, or being the been good, Brexit.

well ahead presumably support, way large have already expensive it's concentration underwriting and right, but so pricing anyway. happen, you of less, find and we bit So of will could hopefully because then whatever by back-office a through to tend not its more bit – a that are little

very we're And so relaxed with Brexit.

Daniel Baldini

thanks Okay. much. Well, very

Marc Grandisson

you. Thank

Operator

Thank & from you. Partners. comes And our Dowling Dunn next question Geoffrey from

is line Your open.

Geoffrey Dunn

morning. Good Thanks.

Marc Grandisson

Good morning.

Geoffrey Dunn

a Can Just ILN aggregate quarter? through your of disclose line couple first. cost this premium you running the number questions

Francois Morin

about million. It’s $XX

Geoffrey Dunn

of to and the it I was $XX what the the book behind Obviously, million, back then, but it just it? covering piece okay. XX-X, in not about And back respect you didn't you delay one what went was with guess covered, that book back it did do it the XXXX the was now.

Francois Morin

trying Well, I know couple as get One the is, of been we've whole book. to things. on protection mean you

XXXX that that had the book. reason timing I I'd coverage XX of it's the was placed did no it only a is year not where it. the yes, the say saw that when not we XXXX years. issuance, mean So And that on had really it to – seasoned you we was year covering – if question big last fact – XXXX-X a the is

book seasoned lot have the just bit, is performance investors much I spreads tighter. that a in visibility the more a are Once and the mean little

it. recent for market the behavior went the with enough we saw until wanted book same just issuance we to this exact until of seasoned So was wait and the kind to

Geoffrey Dunn

the and the with you prior. after is seeing the through the the are in Can on And we're impact provide different go growth, and What little this of new quarter? on books legacy afters the growing XXXX versus I a to their the two respect players on growth in improvement prior? notice decline the more think your XXXX then and at the X% seasoning terms Okay. the notices color a there offsetting transition and all where XXXX XXXX now, bit

Marc Grandisson

these is I is them have XXXX. book what I'm of to our post going XXXX. XX% now. But X% prior at numbers don't to could you I look tell handy. is

So come our most from it's of XXXX, pretty XXXX, the coming growth much those from will Geoff. years. And

it's So not anybody signaled than different around. else really

think mark to I these some of two, finding so… where years' default, a right sort and three have years seasoning they get tend to

Francois Morin

add So are subsequent. quarter where and all I'll than is more the the this of XXXX saw really we first was half from delinquencies

So up it's until obviously up, really now recently XX%. was trending above it but

Marc Grandisson

is Geoff, than thing There rate. we last Geoff, remind most year, a One the nothing you as know, on natural force, read of NODs. to add, over expected. seen these still much business, is insurance XXXX, the But recent We're XX% Even more the tend growing anything rate time, and claim in we those seasoning. the we into right. than book claim this just get NODs, ultimate that to ultimate of had smaller really as all it pre phenomenon I'd all ourselves, some below is for the

Geoffrey Dunn

you. Thank Okay. Helpful.

Marc Grandisson

Thanks Geoff.

Operator

our next from question And from Sean you. Thank KBW. Reitenbach comes

open. line Your is

Sean Reitenbach

are [volatility] you heard just to I related order in What some on book now? of Hello. adverse years business book. binding seeing that development accident

Francois Morin

performance expect Right reunderwritten But book more reserve the think that corrected we've come think made be to We've a volume, the spot think that don't will the shrunk a whole along book we way. issues I an a don't We we're we're good of on development material we extent certainly something it. now in and some it's way. some of I we've book. no our know and eye We've contained we've we that so underperformed some Well, and to a the identified, lot corrections some within question. to keeping to is extent. – there in has it's think it had

Sean Reitenbach

share casualty in helpful. assets and capital some competitors and management also property third-party at That's gaining are see Arch? under Okay. happening lose share. we've then What's some And

Marc Grandisson

We're gaining share.

Francois Morin

a put I like think of Yes, people on more – maybe value we'd has the – bit quality a I there's – think seen think we've to operator more the that.

we and in to we that's I more can I'd we good time, So a track team like have we've doing to And with find on a underwriting property keep demonstrated what solid looking think underwriting side. there's it. a the think record think and capital home over that's

Sean Reitenbach

Okay. I Thank have. all That’s much. you very

Francois Morin

Sean. Thanks,

Operator

Thank you. And phone no back I like conference to remarks. showing questions for Grandisson further am to closing turn now lines. any from Marc our Mr. the I'd over

Marc Grandisson

Thank you, you everyone. next quarter. see We'll

Operator

does participating Well, program gentlemen, you today's for conclude you disconnect. wonderful in ladies thank have and a the conference. This day. and all may Everyone,

Marc Grandisson	President and Chief Executive Officer
Francois Morin	Executive Vice President, Chief Financial Officer and Treasurer
Joshua Shanker	Deutsche Bank
Elyse Greenspan	Wells Fargo Securities
Daniel Baldini	Oberon Asset Management LLC
Geoffrey Dunn	Dowling & Partners Securities, LLC
Sean Reitenbach	Keefe, Bruyette, & Woods, Inc.

Arch Capital (ACGL) 30 Jul 192019 Q2 Earnings call transcript