Arch Capital Group - Q3 2024
October 31, 2024
Transcript
Operator (participant)
Good day, ladies and gentlemen, and welcome to the Q3 2024 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 today'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 the periodic reports that are filed by the company with the SEC from time to time, including our annual report on Form 10-K for the 2023 fiscal year. Additionally, certain statements contained in the call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends the forward-looking statements in the call to be subject to the safe harbor created thereby. Management will also make references to certain non-GAAP measures of financial performance.
The reconciliations to GAAP for each non-GAAP financial measure can be found in the company's current report on Form 8-K furnished to the SEC yesterday, which contains the company's earnings press release and is available on the company's website at www.archgroup.com and on the SEC's website at www.sec.gov. I would now like to introduce your hosts for today's conference, Mr. Nicolas Papadopoulo and Mr. François Morin. Sirs, you may begin.
Nicolas Papadopoulo (CEO)
Good morning and welcome to our Q3 Earnings Call. I'd like to begin by wishing the best to my friend and my business partner of 23 years, Marc Grandisson, who retired earlier this month after the fantastic run under Marc's leadership. While we will miss him, I'm very excited about the opportunities before us. My message to our shareholders, employees, brokers, clients, and business partners is that it is business as usual at Arch. Our core objective remains unchanged: to be the best-in-class specialty lines insurer in the market. We will continue to execute on the key pillars of our strategy, which are: build a diversified mix of businesses, actively manage the underwriting cycle, remain prudent stewards of capital, be dynamic managers of a data-driven enterprise, and foster a culture that attracts best-in-class talent.
Back to the quarter, where Arch generated strong top and bottom-line results with an annualized operating return on equity of 14.8% and an 8.1% increase in book value per share. Our third-quarter results included $450 million of CAT losses across multiple events, including Hurricane Helene. It's worth noting that this CAT loss is within our third-quarter seasonally adjusted CAT load. Overall, the P&C environment remains very favorable despite increasing competition in many lines of business, making underwriting and risk mitigation increasingly important. Our underwriting strategies empower our businesses to respond quickly to their trading environment. This has been and remains a competitive advantage as we pursue those opportunities with the best risk-adjusted return. Industry CAT losses have once again exceeded $100 billion for the third quarter. We should continue to support increasing demand for property insurance and reinsurance.
Even with this increased CAT activity, we believe the property market remains attractive and one in which disciplined underwriters can produce attractive returns on CAT. Casualty rates continue to outpace trend, which is consistent with our hypothesis of a hardening casualty market. We have selectively increased our casualty writings in both insurance and reinsurance as the markets respond to claims inflation and uncertainty around loss trends with higher prices. Turning now to our underwriting segment, our insurance segment wrote $1.8 billion of net premium and delivered $120 million of underwriting income in the third quarter. Our acquisition of the mid-corp and entertainment business from Allianz in August helped drive a 20% growth over the same quarter a year ago. We are confident that the mid-corp team will be an important part of our growth story as we further enhance our capabilities in the middle markets.
Excluding mid-corp, insurance growth was mid-single digit as we continue to find attractive growth opportunities in casualty programs and our London market specialty business. Premium rates remain competitive in E&S property and professional lines. Reinsurance had another excellent growth quarter with net premium return up more than 24% to over $1.9 billion, along with underwriting income of $149 million as our team continued to benefit from a more robust relationship with our brokers and cedants. Growth was driven by property ex-CAT, including facultative business, casualty, and other specialty. Our industry-leading mortgage segment again contributed significantly to our earnings with $269 million of underwriting income for the quarter. Underlying fundamentals remain excellent for the mortgage insurance industry, including strong credit conditions and continued favorable house price appreciation.
Mortgage origination activities remain light, but new insurance written of $13.5 billion was in line with our expectations as relatively high mortgage rates and continued house price appreciation have kept most buyers on the sidelines. Finally, the contribution from our investment portfolio was substantial. In the quarter, Arch Investment Management generated $399 million of net investment income. Significant operating cash flows from our underwriting unit should support continued growth of our assets under management, setting us up for strong investment contributions in the years to come. Looking ahead, we leverage our position in the market opportunities. This is true as we enter a responsible growth part of the P&C cycle where disciplined underwriting and thoughtful risk selection are essential to success. A few final comments in closing.
Arch has proven to be an exceptional company defined by a culture of underwriting excellence, underpinned by our core strategies of cycle management and thoughtful capital allocation. That was true yesterday, it is true today, and it will be true tomorrow. I'm very excited and proud to lead this company and work with our leadership team as we continue to strive to deliver the greatest value to our clients and shareholders over the long term. I'll now turn it over to François to provide some more color on our financial results in the quarter, and then we will return to take your questions. François.
François Morin (CFO)
Thank you, Nicolas, and good morning to all. As you know by now, we reported third-quarter after-tax operating income of $1.99 per share for an annualized operating return on average common equity of 14.8%. Book value per share was $57 as of September 30, up 8.1% for the quarter and 21.4% on a year-to-date basis. Once again, our three business segments delivered excellent underlying results, highlighted by $538 million in underwriting income and an 86.6% combined ratio, which was slightly elevated from an active catastrophe quarter. Our combined ratio was 78.3% on an underlying ex-CAT accident year basis. Overall, current accident year catastrophe losses were $450 million for the group in the quarter, split roughly 80%-20% between the reinsurance and insurance segments.
Approximately 45% of our catastrophe losses this quarter are due to Hurricane Helene, with the rest coming from a series of events including Canadian events, smaller named hurricanes, U.S. severe convective storms, flooding in Europe, and other events across the globe. As of October 1, our peak zone natural CAT probable maximum loss for a single event, one in 200-year return level on a net basis, increased slightly and now stands at 8.1% of tangible shareholders' equity as we incorporated exposures from the mid-corp acquisition on August 1. Our PML remains well below our internal limits. Our underwriting income included $119 million of favorable prior development on a pre-tax basis in the quarter, or three points on the combined ratio across our three segments.
We recognize favorable development across many lines of business, but primarily in short-tail lines in our property and casualty segments and in mortgage due to strong cure activity. As you know, we closed on our purchase of the U.S. mid-corp and entertainment insurance businesses from Allianz on August 1, and I would like to expand on a few items that impacted our financials this quarter. First, the net written premium coming from the acquired businesses was $209 million for the two-month period, contributing to the reported year-over-year premium growth for our insurance segment. Second, in accordance with U.S. GAAP, the fair value of the acquired balance sheet does not include an asset for deferred acquisition costs.
Therefore, since there is no amortization of deferred acquisition costs associated with the acquired business at the time of the acquisition, the current quarter's acquisition expense ratio is lower than in the third quarter of 2023. This item resulted in a benefit this quarter of approximately 1.9 point in the insurance segment's acquisition expense ratio, although we would expect this benefit to become less significant over the next three to four quarters as a larger proportion of our earned premium relates to premium written after the closing date. Operating expenses in the new business were also somewhat lower than ultimately expected as we ramp up operations, contributing to a 60 basis point benefit in the quarter.
Third, as is required with business combinations, we recorded goodwill and intangibles in connection with the transaction, primarily from the value of the business acquired, distribution relationships, and the present value adjustment related to the reserves for losses and loss adjustment expenses. This quarter, we incurred an expense for the amortization of intangibles of $88 million, $63 million of which was for the mid-corp and entertainment acquisition. We expect our overall amortization expense across the group to be approximately $100 million in the fourth quarter of this year and $195 million in 2025, spread evenly throughout the four quarters. While still early, the mid-corp business is performing as expected or even maybe slightly better, and we are satisfied with the progress we are making in our integration activities. Turning to our reinsurance group, the team delivered a very solid 92.3% combined ratio in an active catastrophe quarter.
Of note, the reported net written premium growth of 24.5% in the quarter was augmented by reinstatement premiums. Adjusting for this item, the growth rate would have been approximately 22.4%. The mortgage segment reported an excellent 14.8% combined ratio as cure activity on delinquent mortgages is strong and the underlying credit quality of the book remains very high. The reported delinquency rate at USMI inched up slightly this quarter and was impacted primarily by seasonal factors. On the investment front, we earned a combined $570 million pre-tax from net investment income and income from funds accounted using the equity method, or $1.49 per share. Our investment income reflects approximately $20 million earned during the two-month period from the assets we received in connection with the mid-corp acquisition.
Total return for the portfolio came in at 3.97% for the quarter as there was significant price appreciation on our fixed income portfolio due to lower interest rates. The appreciation of our available for sale investment portfolio resulted in a book value increase of $1.56 per share net of tax. Cash flow from operations remains strong and exceeds $5 billion on a year-to-date basis. Our effective tax rate on a pre-tax operating income was an expense of 8% for the third quarter, and our annualized effective tax rate remains in the 9%-11% range for the full year 2024. In closing, our balance sheet is strong with common shareholders' equity of $21.4 billion and a debt plus preferred to capital ratio of 14.2%. This level of financial resources gives us flexibility to deploy capital as needed and continue delivering outstanding results for the benefit of our shareholders.
With these introductory comments, we are now prepared to take your questions.
Operator (participant)
Thank you. If you have dialed in and would like to ask a question at this time, please press star one on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press star one again. And if you are using a speakerphone, please lift the handset. Our first question comes from the line of Elyse Greenspan with Wells Fargo. Please go ahead.
Hi, thanks. Good morning.
François Morin (CFO)
Good morning.
I guess my first question is on the Allianz deal. You gave us some good color on the expenses, but anyway, could you give us a sense of just the impact on the underlying loss ratio within the insurance segment in the quarter?
Yeah, sure. I mean, just to give you a bit more details on that, yeah, the normalized, meaning ex-CAT, ex-accident year loss ratio for the segment was 57.6, right? And the standalone for the mid-corp business was 62% in the quarter. So that's how it came up. So effectively kind of increased, call it by 70 basis points, it increased the reported loss ratio or the ex-CAT loss ratio.
Okay. And then in reinsurance, the margin sometimes does fluctuate quarter to quarter, but the underlying loss ratio did trend up in the Q3. Was there anything business mix in there that might have impacted that in the quarter?
Nothing specific. Again, we'll go back to our trailing 12 months' way of looking at things. I mean, I took another look this morning, and there's nothing unusual in the quarter. I mean, the trends are very consistent. The trailing 12 months are doing very well. So the answer is nothing to report. I mean, there's just kind of some claims happen, some don't. And over the last 12 months, we're very comfortable with the loss picks and how things are behaving.
And then my last question is on capital, right? You guys have left the door open just given your excess capital position to doing something to return to shareholders, be that a quarterly dividend, a special, or even a return to repurchase. So what's the timing there? I thought maybe it was post the end of one season. Does that still apply? And how are you thinking about how you might look to return capital to shareholders?
I mean, you hit all the good points. I think it's very much a conversation, and it's not a new conversation. It's a conversation we have all the time. And yes, we had certainly mentioned that we wanted to wait till the end of the wind season, which is coming close to an end. And as we get ready for 2025, certainly part of the outlook for 2025, growth opportunities, where we may be able to deploy the capital is something we'll consider as well. But yeah, no question that this is an area that we're focused on. And I'll say you should, yeah, we're not sleeping on it, and we'll report back when there's more to say on that.
Okay. Thank you.
You're welcome.
Operator (participant)
Our next question comes from the line of Andrew Kligerman with TD Cowen.
Andrew Scott Kligerman (Analyst)
Good morning. Maybe following up on the insurance division and mid-corp, and I think, François, if I heard correctly, the mid-corp impact on the underlying loss ratio was about 60-70 basis points. If that's the case, it kind of moved up a fair amount, like 250 basis points year over year. I'm trying to get a sense of should we be thinking that this is kind of a good run rate underlying number for the loss ratio? How should we think about it going forward?
François Morin (CFO)
Well, I mean, we indicated that we thought initially, I mean, we have to get, call it under the hood, we have to understand the business. But we certainly had said that in the first year, we thought this business was going to be break-even for us. So yeah, we should expect a little increase in the loss ratio and the combined ratio for the segment, no question. In terms of run rate, I'd be a little bit hesitant to commit to anything beyond, call it the first year. I think we're already making adjustments, taking underwriting actions in terms of what we like, what we don't like as much. I think there's good traction, good opportunities in terms of the casualty business that they write. The right environment is very strong, so that will help, we think. So that's, again, the short-term answer is yes.
I think the combined ratio will probably inch up a little bit, but we have very definitive ideas and plans on how to bring that down as we move forward.
Nicolas Papadopoulo (CEO)
Yeah. And I think it's and maybe it's dynamic. I mean, again, I mean, if you look at the insurance group overall, it's heavy non-property line. So the property line attracts lower loss ratios. So we were growing in the property line in the last couple of years, and the market now makes it more difficult. And we have a large component of professional lines where rates have been challenging. So that probably impacts the combined ratio. And then we have casualty where I think we think there are opportunities potentially to grow more with higher margin, but it may come also with a higher loss ratio than property. So that's the playbook that we are facing.
Andrew Scott Kligerman (Analyst)
Interesting. And maybe breaking down some of the lines of business in insurance, what kind of rate are you seeing, and is this rate exceeding loss costs? I suspect it's not in property, but maybe you could talk a little bit about some of the key lines in insurance.
Nicolas Papadopoulo (CEO)
So I mean, let's talk about casualty, which is talk of the town. I think in casualty, we definitely see rate softening trend, but there are really good reasons for that. I think the market is going through some pain. And so I think we are underweight casualty. We historically underweight casualty. So now I think based on our own analysis of the pocket of casualty business that we like, we are selectively growing both on the insurance and the reinsurance side. So there, I expect margin to expand. I think if you mention property, if you talk about reinsurance versus insurance, we are mostly focusing on insurance. On E&S property, we think the profitability is actually very attractive.
I think over the last few years and post the hurricane Ian, I think the business has reacted with a lot of rate increase and a lot of change in terms and conditions, which make the business really attractive. So there, I think after a year without losses, people have really short memories. We see a lot more competition coming from Lloyd's, coming from MGAs, coming from new insurers that want to have a piece of that business. So I think our rates are pretty flat, but I think we would expect that margin on the business will depend on the reaction to the catastrophes that just happened. So I think with Milton and Helene, my expectation was things would stabilize, but ultimately, it's the supply and the demand. There's more supply. We think there's more demand.
I think the demand has been constrained by the high price and the high deductible and the high retention on the reinsurance side. So I think we're close to an equilibrium. So I think the business will remain attractive for a while.
Andrew Scott Kligerman (Analyst)
Awesome. Thank you very much.
François Morin (CFO)
Thank you.
Operator (participant)
Our next question comes from the line of Mike Zarembski with BMO Capital Markets.
Michael David Zaremski (Analyst)
Hi. First question, thanks, is on catastrophes. So I don't know if you disclosed what you're assuming for Hurricane Helene. I think the caps were a bit higher than consensus, but you guys have done a good job of giving us disclosure that you've been taking more risk in Florida specifically and just overall. And then also, should we be thinking about Milton as well? I think there's some conflicting numbers out there. Milton PCS is only at $5 billion so far, but there's some much bigger numbers out there.
François Morin (CFO)
Yeah, sure. On Helene, our view is that it's going to be the type of event that probably will have a bit more leakage than you would otherwise expect. I mean, it's just multiple states, and it's a lot of flooding. So we are currently assuming, call it a $12 billion-$14 billion industry loss, which is maybe higher than others, but that's how we see it today. I mean, things could change, but that hopefully informs how we thought about the event initially and is reflected in our third quarter numbers. As relates to Milton, we need to do a bit more work, but we will certainly give you our initial thoughts on that, I think, in the coming weeks in terms of what our loss, what our range of estimates could be for us.
But no question that what people thought might have been a really scary and large event doesn't seem to have materialized. I think industry estimates are coming down as we speak. So call it the $30 billion plus or minus market loss seems to be about right, given what we know today. And in terms of our own loss related to that, I mean, again, more to come, but you shouldn't expect anything unusual from us. I think from what we can tell at this point, it should be in a relatively consistent kind of market share for us for an event of that size.
Michael David Zaremski (Analyst)
Okay. That's helpful, and my last question for Nicolas: is there any context or color you can add to why the CEO change took place? That's been the number one question I'm sure you all have received, and we have too. People are wondering if it's performance-related versus just some other events or anything else. Any color you'd be able to add?
Nicolas Papadopoulo (CEO)
I didn't understand the deal.
François Morin (CFO)
No, the CEO, Marc's departure.
Nicolas Papadopoulo (CEO)
Oh, sorry.
Andrew Scott Kligerman (Analyst)
Yeah. Sorry.
Nicolas Papadopoulo (CEO)
Should know that. No, I mean, again, it was a personal decision of his, I think. As I said, Marc and I were a good friend. It's a bit bittersweet for me, but based on his decision, I'm actually very excited about the opportunity in front of us. I think Marc is, I think, our heart is bigger than any one of us, and I think we have a lot to do, and we have a lot of exciting things to continue to do in the coming years. I think we have a really good management team. We have 7,000 employees that are really engaged. And as I said, I think Arch is an exceptional company, and I'm really looking forward to continue its journey. And certainly, I think Marc's departure is not performance-related. The guy, under his leadership, as I said, the company had performed amazingly well.
Michael David Zaremski (Analyst)
And I guess, Nicolas, that's helpful. Obviously, you'll put your own stamp on the company over time, and you're a different type of leader, and we're all excited about your position. But I'm just curious, now that you are the boss, are there certain things we should kind of stay tuned for that have kind of been on your wish list that you'll be able to kind of push through, or do you kind of expect just more of the same directionally? Thanks.
Nicolas Papadopoulo (CEO)
No, my message to it is really business as usual. I think I've been with the company for 23 years. I've worked very closely with Marc in the last five or six years in setting up strategies, looking at operational changes, looking at culture. So I think him and I were extremely aligned. So I think I would not expect any changes in the way we operate.
Michael David Zaremski (Analyst)
Thank you.
Operator (participant)
Our next question comes from the line of Jimmy Bhullar with J.P. Morgan.
Jamminder Singh Bhullar (Analyst)
Hey, good morning. First, just had a question on your views on 1/1 renewals, and what do you think about the sort of supply-demand imbalance, and has that sort of shifted given losses from Milton, or is your view consistent with how you would have thought before?
Nicolas Papadopoulo (CEO)
So is the question on property cat, I assume?
Michael David Zaremski (Analyst)
Yeah, yeah.
Nicolas Papadopoulo (CEO)
Yeah. So I think on property cat, I think, as you've seen, we've grown the book quite a bit in the last two or three years. So we think the returns are really attractive. Yes, I think the event of Milton and Helene, in my view, what we hear is it should stabilize the market. And I think there was some supply, as I said earlier, either from Lloyd's or from MGAs or from our competitors. After one year without losses, really wanting to get back into business and realizing that they may have missed out on a profitable line of business. So what I would expect, and we sit on the insurance side, that things have stabilized. And I think my guess at this stage is that they will do the same on the cats insurance side.
Michael David Zaremski (Analyst)
More specifically, are you expecting pricing to be down, flat, and to whatever extent you're able to quantify would be helpful?
Nicolas Papadopoulo (CEO)
Yeah. I don't have a crystal ball, but I would say, again, it's always the same. With programs that have been impacted by losses, I would expect prices to go up. In regions that have had no losses, you could see in the bottom of the programs, I think people are still really scared about frequencies. So I'd expect the bottom to middle side of the program to perform well. The upper layers where people seem to be more comfortable to play where competition is coming because you are away from the mid-size losses, it could be a little bit of weakness, but not really have a strong conviction in a way. But I think mostly stable, I would say.
Jamminder Singh Bhullar (Analyst)
And then on casualty reserves, a lot of companies have had adverse development, some on recent years, some on even pre-COVID years as well. Can you talk about your own comfort with your casualty reserves on your legacy book as well as the Watford business?
François Morin (CFO)
Sure. I mean, reserves is something we looked at. We look at regularly, quarterly, right? So it's nothing new here. I think, to answer your question, we're very comfortable with our reserve levels. I think from a couple of reasons. One is, as Nicolas said, we have been underweight in casualty for a number of years. So as much as, yes, we do feel and see some of the impacts of social inflation and pressures on loss trends on casualty business in general, I mean, the fact that we're underweight in those lines has been very helpful. So yes, we are monitoring casualty reserves. We have experienced some adverse development, but it's been overall very manageable.
That explains, in our mind, is a big reason as to why rates are moving up because the industry is seeing the pressure, and a way to correct for those results is really by getting more rate.
Michael David Zaremski (Analyst)
Thank you.
François Morin (CFO)
Yep.
Operator (participant)
Our next question comes from the line of Kaveh Montazeri with Deutsche Bank.
Cave Montazeri (Research Analyst)
Good morning. First question is on growth. I guess, François, you've already explained the growth in primary insurance. I guess underlying, once you exclude mid-corps, about 5%. In reinsurance, you also mentioned the impact of reinstatement premium. But I think you said it was still 22% growth, even adjusting for that. It's still a big number. Could you give us a bit more color on what drove that in terms of how much of that was pricing, how much of that was unique growth, how much of that was maybe writing more casualty business? Any type of color on that would be quite helpful, please.
Nicolas Papadopoulo (CEO)
Yes. I think for the quarter, the driver of the growth was a bit of casualty runoff, mostly out of our U.S. company where I think we selectively are trying to get on programs that we haven't been. As rates get better, we think there's opportunities for us to write attractive casualty business. The other side of the business that grew is the specialty business, the runoff. That's more of a business that we wrote at 1/1 that is coming in on quota shares. Some of it is we have a decent-sized book of business that supports Lloyd's, Lloyd's Syndicates, where it's called backstop Lloyd's, where we get quota share of what they write, net of their protection. So that business is growing. Lloyd's is growing, and we think it's profitable business, so we benefit from that.
The second aspect is we have a decent-sized book of motor, United Kingdom motor, and that business is really dislocated. It has been dislocated, and we've been playing in that field for a while. As rates are continuing to go up, and I think they added 11 additional relationships, we're benefiting from this in the quarter, but it's not any action that we actually took during this specific quarter. I think the last piece is our facultative operation that has an amazing track record and is one of the leading facultative property operations in North America, and they also have shown some excellent growth.
Cave Montazeri (Research Analyst)
Perfect. My follow-up is on the mortgage insurance business. I guess two parts to that question. The first one is the growth in the quarter. Was that primarily driven by the Fed cuts that just boosted demand? And I guess linked to that is the pickup in delinquency in mortgage insurance. Is that also just linked to more activity? I know you mentioned some seasonal factors. Don't know what those were. If there's any details we can have on that, please.
François Morin (CFO)
Yeah. I'll start with that. I think the delinquency, again, yes, it's up, but it's absolutely very much within our expectations. The one thing maybe for people to remember or appreciate is, given we refinanced a significant part of the book in 2020 and 2021, we're now entering the call it the prime years of when delinquencies get reported. So that's very much part of the, again, within our expectations, right? So as new loans get on the books, usually it takes three, four years for them to show a bit of, just call it really predictable and normal delinquencies. So that explains why, in aggregate, delinquency rate is trending up a little bit.
More specifically on the seasonal aspect, I mean, every year, there's fairly predictable behaviors that we see from the borrowers, whether they get their tax refunds in the first quarter and then they catch up on their mortgages and whether they borrow more to buy holiday presents. So that happens. And then the third quarter is typically expected and seen as. I mean, we've seen that in the recent history that the delinquency rate just goes up in the third quarter without any more; it's just seasonal. So again, we're very comfortable with the overall rate. And again, there's a little bit the same differential that I mentioned last quarter related to the RMIC acquisition is still there. So it's a pre-financial crisis book that has its own set of characteristics. So we're again overall very happy, very comfortable with the delinquency rate.
In terms of the premium, your first part of the question, there's a couple of accounting differences or nuances this quarter. So I wouldn't read too much. I think in the growth that we saw this quarter, there's a little bit of a catch-up on premium that was related to old or related to Allianz transactions on the ceded side. So generally speaking, I'd say the mortgage segment is relatively flat in terms of growth opportunities.
Cave Montazeri (Research Analyst)
Thank you.
François Morin (CFO)
You're welcome.
Operator (participant)
Our next question comes from the line of David Motemaden with Evercore ISI.
David Kenneth Motemaden (Analyst)
Thanks. Good morning.
François, thanks so much for all the detail you gave on the insurance underlying loss ratio, both including and excluding the mid-corp acquisition. So I guess just sort of running through those numbers there, it looks like if I take out mid-corp, it was about a 57% underlying loss ratio for the sort of core Arch insurance business. And so that ticked up a little over 100 basis points versus last quarter and also on a year-over-year basis. So I'm just wondering if you could help me think through some of the drivers of that increase?
François Morin (CFO)
Yeah. I'd say, again, as Nicolas touched on it, it's growth-related and mixed, right, in the sense that where you saw us grow this quarter. And I don't know if you had the time to look at in the supplement how we report the lines of business, which is we have changed this quarter relative to the past. More growth in casualty and other liability lines of business, both, I mean, primarily on an occurrence basis, claims made, which is more professional lines book and cyber, that has come down. But that business typically carries a higher accident year loss ratio than property business once we remove the CAT load. So that is really the big driver of the pickup is really mix as we have grown in the last little while, more in casualty and remained relatively flat on property.
David Kenneth Motemaden (Analyst)
Got it. Okay. That's helpful. I appreciate that. And then maybe a follow-up on the reserves just within insurance and reinsurance. I was wondering if there's any way you could size those moving pieces for us between the short tail and the long tail development?
François Morin (CFO)
I mean, in total, I mean, and that'll be in the queue, but yeah, we definitely very favorable on short tail lines of business, a little bit of adverse on long tail lines. So that's consistent with recent trends. I mean, as I mentioned earlier, we are seeing a little bit of pressure on casualty, longer tail lines of business. There's been some favorable on workers' comp, as you've seen, I'm sure, with many of our competitors. I think that's been a consistent story for quite some time. But again, the bottom line in aggregate is we're observing kind of favorable development, lower actual than expected, and that is coming through in our numbers.
David Kenneth Motemaden (Analyst)
Understood. Thank you.
François Morin (CFO)
You're welcome.
Operator (participant)
Our next question comes from the line of Yaron Kinar with Jefferies.
François Morin (CFO)
Yaron? I think he might have dropped. We're not hearing anything.
Operator (participant)
Our next question comes from the line of Meyer Shields with KBW.
Meyer Shields (Analyst)
Great. Thanks so much. I think we've talked about this in the past, but I wanted to get Nicolas's thoughts on cycle management, specifically, I guess, with retail distribution and, in particular, the mid-corp business. Is that less amenable to cycle management?
Nicolas Papadopoulo (CEO)
I mean, my view is it's a different type of cycle management. I mean, what's attractive with the mid-corp business is it's more stable, so which means that the cycles are more muted. You don't see the same price going up and down like E&S, public E&S, where you go up 40 and you make up 20 or 10. So I think in the middle market business, I think you have more it's going up slower and it's going down much slower. So I think that provides a I think we like is that provides a much balance to our insurance book that has a large component of larger corporate risk that are more subject to large fluctuations in rates, so.
Yeah, the thing that's attractive to us is the value proposition of a carrier in the mid-corp segment is better because usually the distribution partner, the broker, relies on the carrier to provide more than one line of business. So you're more important to him. The interaction with the carrier is more valued. So you create a stickiness that really help you're not competing solely on price, where when you deal with a large account and a risk manager, price is an important component of the value proposition. But here, I think so it's less subject to, in my view, price competition, which makes it more stable and more attractive.
I think the thing that's interesting to us with the mid-corp acquisition is that the timing is pretty good because we've seen price increases on the property side because this book is more exposed to secondary perils, and the liability component of the book is subject to the discussion that we talked about before. So I think our timing is really good. I think the book looks to be performing well enough, and so we're pretty excited to be able to finally get a decent chunk of that business and to be at scale and being able to expand our footprint in what we think is a very attractive part of the market.
Meyer Shields (Analyst)
Okay. That's very helpful. And then if I can switch gears a little bit, I know it's early on the January 1 discussions for Property Cat. Is there anything you can share with regard to expectations for ceding commission trends in casualty reinsurance?
Nicolas Papadopoulo (CEO)
So I'm going to be the wise person here. I think as we insurers, including ourselves, see more bad news coming from the past. I mean, there will be pressure on ceding commission. You would expect that. The question is the supply. I mean, the pressure on the ceding commission will be muted by the supply. I mean, because if there's more people wanting the business and there's a limited amount of business being placed, I think the brokers is going to play a big role in minimizing, I mean, the directions of where the ceding commission are going to be. So it's going to be some sort of a conflict between what the reinsurers wants and what the ceding companies are willing to do. But the driver would be the supply versus the demand.
I think what I'm hearing is that there is ample supply in the marketplace.
Meyer Shields (Analyst)
Okay. Perfect. Thank you so much.
Operator (participant)
Our next question comes from the line of Yaron Kinar with Jefferies.
Yaron Kinar (Analyst)
Thank you. Good morning. I apologize for dropping earlier. I wanted to dive a little bit deeper into the other liability occurrence growth in insurance. How much of that came from MC versus just organic or legacy growth?
François Morin (CFO)
That's a good question. There was a fair amount of E&S casualty business on our kind of like that was just organic, right? So that is an area of maybe the most kind of exciting area for us. I mean, where rates are well into the double digits in terms of rate increases. So that is a very, very attractive area. The MC book is split. There's some commercial multi-peril. There's some occurrence of the liability occurrence. So it's a mixed bag. But I'd say I don't have the exact numbers in front of me, but I think the takeaway is that the rate environment in that particular line of business is very, very good right now.
Yaron Kinar (Analyst)
Okay. And what is it about this third quarter where the environment seems to have accelerated significantly, or at least the opportunities at another liability occurrence accelerated significantly?
Nicolas Papadopoulo (CEO)
I think it's just the assumptions of people realizing that the way they were looking at the reserves in the last few years is not exactly playing out. I think COVID for a while muted the claims. So people kind of, in my view, sitting out there to make sure they were not making the wrong reason. And since COVID, I think we've seen some severity, larger reward, plenty of jury awards. And we've seen more places where those jury awards are taking place, larger rewards. So I think you have social inflation that's driving much more severity, and you have also frequency of places used to be Cook County, South Texas-Mexican border, but now you have Georgia, you have some place in Nevada where certain juries are actually, if you get caught in one of those juries, you're going to get a significantly larger award.
I think it's a combination of frequency and severity and people realizing that they have to stay ahead of those. The normal reaction, which I think is the right reaction for the market, has been to cut limits because if you're caught up in one of those difficult juries, you want to have small limits. Typically, when you had, I don't know, let's say a $200 million placement with 10 players, and suddenly you have 40 players to complete the placement, some of those layers going to the E&S market, you're starting to see some drastic rate increases. That's what we're witnessing right now, so.
Yaron Kinar (Analyst)
But if I could maybe fuss this out a little more, what you're describing is not new. I mean, if we go back to previous management meetings, conferences, calls, we haven't heard management talk about this for several quarters, if not years even in some cases. So what's happened in this third quarter that seems to have triggered some significant change?
Nicolas Papadopoulo (CEO)
I think it's just the accumulation. I'm hearing that people took actions, but when actuaries or managements look at the chance for the business they're running today to be profitable, they ask themselves they need more safety margin. I think it's a. I think there was some rate increase, double-digit rate increases two or three years ago. Then for a little while, we went to single digit, and suddenly we are back in double digit. It tells you that there is pain in the backyards of people that have returned the business in the early years and in the last few years. And usually, the reaction, it's not unusual that the reactions are more abrupt because at some point, managements lose faith in the story they've been told. So they require more drastic actions. That's a usual playbook of how market happens.
Yaron Kinar (Analyst)
Thank you.
Nicolas Papadopoulo (CEO)
You're welcome.
Operator (participant)
Our next question comes from the line of Brian Meredith with UBS.
Brian Meredith (Research Analyst)
Yes, thanks. Nicolas, I want to follow up on that a little, just a little bit. So I understand what you're saying about your opportunities for growth here in some of the casualty lines, but maybe I can get your perspective a little bit more, and what do you think casualty trend is and where is it going? Just because you must be pretty confident in kind of having a good grasp on where casualty trend is, given that you're growing and some other are shrinking.
Nicolas Papadopoulo (CEO)
Yes. I think, I mean, it's a tale of several stories. I think at the bottom of the program, I think people can have a pretty good idea what the casualty trend is, whether it's a missing digit. The issue is when you go excess. If you go excess of 50 million, if you go excess of 100 million, that's where the trend gets a multiplier effect. And you're certainly in double digits. So I think ourselves, in a way, we were lucky. We didn't have a huge footprint on the casualty business, but we had enough of a footprint to be able to do our own analysis. And again, it's selective. The thing you have to treat different class of business, different geographies.
You have to be able to do really selective price increases analysis to get comfortable that in certain jurisdictions with certain class of business, you think the business, based on your own actual experience, the business makes sense to be written. So it's not. I would not say it's a sea change that suddenly any pieces of business that come across your desk is going to be profitable. You have to be selective and have a thoughtful approach to what you want to underwrite. That's the market we are in.
Brian Meredith (Research Analyst)
Gotcha. Gotcha. And the same question, I guess, for reinsurance, right? Because reinsurance, you're kind of relying on the cedants.
Nicolas Papadopoulo (CEO)
Yes. Again, I mean, the job of the reinsurer is to back the right companies. So I think we are for a while. I think we've been really underweight on the casualty U.S., where pro-rata shares and excess loss. And I think this dislocation in the marketplace has allowed us to get on programs that we wanted to get on two or three years ago because we like the underwriting. We like the limit discipline. We like the class of business they write, but we couldn't get on because nobody was ceding. So I think there is some sort of a flight into quality of who is here for the long term and who is not. And I think we're benefiting from that.
Brian Meredith (Research Analyst)
Makes sense. And then, François, one quick one here for you on the investment portfolio. I guess, one, where are we looking at new money yields versus current book yields? And where are you at deploying the assets you got out of mid-corp? Is there some more potential book yield to come out going forward?
François Morin (CFO)
Yeah. I mean, part of the transaction was certainly some of the, I mean, a good chunk of the assets came in cash. So our investment team's been very disciplined and thoughtful on where to put that money to work. But the good thing is just, I mean, on money market or cash, we're still getting decent yields. But yeah, I'd say call it 4.5% on new money yield. I mean, as you see, the book yield and the new money yields are kind of pretty close to each other right now. We're still very short duration, very high-quality fixed income books. So that's not changing. But yeah, there's certainly been, call it the $2 billion in assets that we got. We are putting that to work and trying to fit that into the portfolio as best we can.
Brian Meredith (Research Analyst)
Great. Thank you.
François Morin (CFO)
You're welcome.
Operator (participant)
Our next question comes from the line of Joshua Shanker with Bank of America.
Joshua Shanker (Research Analyst)
Yeah. Good morning or almost afternoon, everybody. How are you doing?
François Morin (CFO)
Doing good. We're hungry.
Joshua Shanker (Research Analyst)
Good. Good. I get it. I get it. There's less foodie sports talk than ever. But I was wondering, in the past, we've talked about the ROIC on the different legs of the Arch stool Reinsurance Insurance Mortgage. Could you review right now a sort of state of the union on what the return on new capital is for the various businesses?
François Morin (CFO)
We like all our businesses. That has not changed. The one thing that I'd say right now is, I mean, fourth quarter, we're a little bit kind of dependent on where the market goes at 1/1. So that is certainly reinsurance has been just a really, really good environment for 2024. How does it play out in 2025? It's still a little bit early to know for sure. We think it's going to be still a very good market. Is it going to get better to the point where we have the ability to deploy that much more capital in reinsurance? We don't know quite yet. So that's kind of the answer. I mean, there's a little bit wait-and-see approach in terms of how the market plays out.
But again, what we talked about this morning, the growth opportunities and casualty in particular, I think are exciting to us. So both insurance and reinsurance, I think we are ready to play. And mortgage, I don't want to forget about mortgage. I mean, this has been a terrific engine for us. Yeah, no question that the origination market is not as large as we'd like it to be, but that's okay. I mean, we've got terrific earnings coming from the in-force book. And we're finding other opportunities outside of primary MI in the U.S. And we're deploying the capital in the right way. So we're very comfortable with the mix right now.
Joshua Shanker (Research Analyst)
Would it be wrong to paraphrase that reinsurance is better than insurance and mortgage, but that's pending what happens on 1/1?
François Morin (CFO)
It's not wrong. I think that's a fair statement. It's better right now. We like to think it's going to stay better, but just don't know quite yet.
Nicolas Papadopoulo (CEO)
It's a higher component. I mean, reinsurance is a higher component of property business, so you have to think of the half of the business is property, so it's high risk, high reward, so I think we get paid the high return, but it's also high risk, as we saw this quarter. I think the insurance work is much more heavily geared toward casualty and professional lines, so I think it's an environment that has its own challenges, but it's a different set of return values. I think you have to balance those two, and sometimes the E in the ROE doesn't do enough of that, I think.
Joshua Shanker (Research Analyst)
And François, you made the comment that the origination market in mortgage isn't quite as strong as you'd like it to be. But also, Arch has lowered its market share of new business compared to where it was three years ago or so. If Arch wanted to ramp it up, is there a possibility of growing that business without improvements in the origination market, or would that cause pricing and margins to weaken in that business?
François Morin (CFO)
Yeah. It's becoming a more kind of homogeneous market, right? So I think the risk of trying to grow market share is just, as you said, I think you have to cut prices. I think we've built a very resilient, very high-quality book through picking different types of loans to insure different geographies. I think we, I mean, we are very comfortable with what we've done. But for us to move from the, call it 16%-17% market share and say we want to be at 18%-20%, right now, we just don't see that happening because the market, I think, will just react with us, and it'll just push prices down. So I think right now, I mean, it would just be surprising for us to grow our market share that significantly in the near term.
Nicolas Papadopoulo (CEO)
Yeah. We've asked this question all the time. And the answer is that we ended up in a worse place. I think the status quo, the current status quo based on the remember, we're dealing with monoline business. That's all what they have. So I think ultimately, they're going to defend their book, and we'll end up in a worse place. So that has been the analysis that we've carried, so.
Joshua Shanker (Research Analyst)
Thank you very much for all the answers, and I'll let you go to lunch.
François Morin (CFO)
Thanks, Josh.
Operator (participant)
Our next question comes from Elyse Greenspan with Wells Fargo.
Elyse Greenspan (Managing Director of Equity Research)
Hi, thanks. I'll just shove a few more in before lunch, but my first question is on Hurricane Helene, right? I think you guys said it was 45% of cats. So I calculate that at just over $200 million. François, so that's like 1.5%-1.7% market share given your 12%-14%. Is that about what you would expect, I guess, for these large-type events, and is that share a good frame of reference when thinking about Milton?
François Morin (CFO)
I mean, your math is about right, but the Helene's a bit unusual for us. I mean, it's a little bit on the elevated side in terms of market share based on some of the accounts we wrote. Again, Milton is different because it's Florida only. So we have a different mix of business there, different type of accounts we write. So I would not draw a correlation or an analogy from the Helene, call it implied market share to what Milton could look like.
Elyse Greenspan (Managing Director of Equity Research)
Okay. That's helpful. And then my second one, I guess, is a follow-up on reserves, right? We had another company this morning that kind of flagged they're kind of going to take an in-depth review, and there might be some movement with their fourth quarter review. It sounds like from earlier questions that you guys really haven't seen a significant change in loss trends or actual versus expected in the third quarter versus earlier in the year. But is there anything, I guess, that you're concerned about or anything that's come up with the quarterly reviews that you guys are paying particular attention to when we go into the end-of-year review?
François Morin (CFO)
There's nothing unusual. I mean, it's something we look at all the time. The trends are relatively stable. I mean, we had views going way back that the loss trends that we were seeing in the market were a bit optimistic. So we've always taken a longer-term view of trends, and we review those annually at a minimum, sometimes twice a year. But yeah, really nothing that stands out that's, I'd say, unusual or that we're overly concerned with. I mean, that's the standard kind of themes that we've been talking about for quite some time.
Elyse Greenspan (Managing Director of Equity Research)
Then I might just shove one last one in there. You guys have an upcoming investor day in a couple of weeks. Is this, are you going to expecting to use this to lay out bigger strategy, financial targets, something on capital, I guess? Can you just give us a little bit of a preview of what you expect to talk to us about in a few weeks?
François Morin (CFO)
We're just missing you guys in person, so that's why we scheduled this. But no, I wouldn't expect anything really unusual from the upcoming investor day. You've known us for a while. The strategy remains the same. Nicolas will obviously be a focal point. So we'll make sure everybody gets to hear a bit more from how he wants to shape the company going forward. But I would not message or think that there's anything unusual or kind of a new revelation that you should expect to hear from us in a couple of weeks.
Elyse Greenspan (Managing Director of Equity Research)
Okay. Thank you.
François Morin (CFO)
You're welcome.
Operator (participant)
I would now like to turn the conference over to Mr. Nicolas Papadopoulo for closing remarks.
Nicolas Papadopoulo (CEO)
Yeah. So there's not any more questions. So this will conclude our presentation today. And thank you for your questions. And we see you next quarter.
Operator (participant)
All right.
Thank you, gentlemen. Thank you for participating in today's conference. This concludes the program. You may all disconnect.