Arch Capital Group - Q4 2023

Transcript

Operator (participant)

Good day, ladies and gentlemen, and welcome to the Q4 2023 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 I discussed on this call may constitute forward-looking statements under the federal securities laws. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. Consequently, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may affect future performance, investors should review periodic reports that are filed by the company with the SEC from time to time.

Additionally, certain statements contained in the call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends the forward-looking statements in the call to be subject to the safe harbor created thereby. Management will also make reference to certain non-GAAP measures of financial performance. The reconciliations to GAAP for each non-GAAP financial measure can be found in the company's current report on Form 8-K, furnished to the SEC yesterday, which contains the company's earnings press release and is available on the company's website at www.archgroup.com and on the SEC's website at www.sec.gov. I would now like to introduce your hosts for today's conference, Mr. Marc Grandisson and Mr. François Morin. Sirs, you may begin.

Marc Grandisson (CEO)

Thank you, Gigi. Good morning, and thank you for joining our earnings call. Our fourth quarter results conclude another record year as we continued to lean into broadly favorable underwriting conditions in the property and casualty sectors. Our full-year financial performance was excellent, with an annual operating return on average common equity of 21.6% and an exceptional 43.9% increase in book value per share, which remains an impressive 34.2% if we exclude the one-time benefit from the deferred tax asset we booked in the fourth quarter. The $3.2 billion of operating income reported in 2023 made it Arch's most profitable year to date. Growth was strong all year as we allocated capital to our property and casualty teams, which wrote over $17 billion of gross premium and over $12.4 billion of net premium.

While most current growth opportunities are in the P&C sector, it's important to recognize the steady, quality underwriting performance of our mortgage group. Although mortgage market conditions meant fewer opportunities for top-line MI growth, the business unit continued to generate significant profits, totaling nearly $1.1 billion of underwriting income for the year. As we have mentioned on previous calls, those earnings have helped fund growth opportunities in the segments with the best risk-adjusted returns, demonstrating that the disciplined underwriting approach and active capital allocation are essential throughout the cycle. Our ability to deploy capital early in the hard market cycle is paying dividends as we "own the renewals," a phrase I learned from Paul Ingrey, a personal mentor and foundational leader of Arch. What Paul meant was quite simple: when markets turn hard, you should aggressively write business early in the cycle.

This puts your underwriters in a strong position to fully capitalize on the market opportunity. By making decisive early moves, you'll become as you grow alongside your platform audience, who then want to do more business with you. In some ways, the growth becomes self-sustaining, which explains part of our success throughout this hard market. At Arch, our primary focus has always been on rate adequacy regardless of market conditions. Our underwriting culture dictates that we include a meaningful margin of safety in our pricing, especially in softer conditions. We also take a longer view of inflation and rates. For these reasons, Arch was underweight in casualty premium from 2016 to 2019 when cumulative rates were cut by as much as 50%. I thought I'd borrow a soccer analogy to help explain the current casualty market.

In soccer, players who commit a deliberate foul are often given a yellow card. Two yellow cards mean the player is ejected from the remainder of the match, and their team continues with a one-player disadvantage. Today's casualty market feels as though some market participants took to the field with a yellow card from a prior game. They're playing in match but cautiously, not wanting to make an error that will put their entire team at a disadvantage. So while Arch sometimes plays aggressively, we've remained disciplined and avoided drawing a yellow card. At a high level, we must remember that casualty lines take longer to remediate than property. So if insurers are being cautious in adding to their margin of safety, we could experience profitable underwriting opportunities in an improving casualty market for the next several years.

Now I'll provide some additional color about the performance of our operating units, starting with reinsurance. The performance of our reinsurance segment last year was nothing short of stellar. For the year, reinsurance net premium written were $6.6 billion, an increase of over $1.6 billion from 2022. Underwriting income of nearly $1.1 billion is a record for the segment and a significant improvement from the cat-heavy 2022. Reinsurance underwriting results remain excellent as we ended the year with an 81.4% combined ratio overall and a 77.4% combined ratio ex CAT in prior year development, both significant improvements over 2022. Turning now to our insurance segment, which continued its growth trajectory by writing nearly $5.9 billion of net premium in 2023, a 17% increase from the prior year.

While the business model for primary insurance means that shifts may not appear as dramatic as our reinsurance groups, a look at where we've allocated capital year-over-year provides meaningful insight into our view of the market opportunities. In 2023, the most notable gains came in from property, marine, construction, and national accounts. The $450 million of underwriting income generated by the insurance segment in 2023 doubled our 2022 output as we continue to earn in premium from our deliberate growth during the early years of this hard market. Underwriting results remained solid on the year as the insurance segment delivered a combined ratio of 91.7% and a healthy 89.6%, excluding CAT in prior year development. Now on to mortgage. Our industry-leading mortgage segment continued to deliver profitable results despite a significant industry-wide reduction in mortgage originations last year.

The high persistency of our insurance-in-force portfolio, which carries its own unique version of owning the renewals, enables the segment to consistently serve as an earnings engine for our shareholders. The credit profile of our U.S. primary MI portfolio remains excellent, and the overall MI market continues to be disciplined and return-focused. These conditions should help to ensure that our mortgage segment remains a valuable source of earnings diversification for Arch. On to investments. Net investment income grew to over $1 billion for the year due to rising interest rates that enhanced earnings from the float generated by our increasing cash flows from underwriting. A significant increase as to our asset base provided a tailwind for our creative investment group to further increase its contributions to Arch's earnings.

Over the past several years, Arch has leaned into both the hard market and our role as a market leader in the specialty insurance space. We have successfully deployed capital into our diversified operating segments to fuel growth while also making substantial operational enhancements to our platform, including entering new lines, expanding into new geographies, and making investments into new underwriting teams, technology, and data analytics. Finally, as we bid adieu to 2023, I want to take a moment to thank our more than 6,500 employees around the world who helped deliver so much value to our customers and shareholders. Our people are our competitive advantage, and without their creativity, dedication, and integrity, none of this would be possible. So thank you to Team Arch. François?

François Morin (EVP, CFO and Treasurer)

Thank you, Marc, and good morning to all. Thanks for joining us today. As Marc mentioned, we closed the year on a high note with after-tax operating income of $2.49 per share for the quarter, for an annualized operating return on average common equity of 23.7%. Book value per share was $46.94 as of December 31, up 21.5% for the quarter and 43.9% for the year, aided by the establishment of a net deferred tax asset related to the recently introduced Bermuda corporate income tax, which I will expand on in a moment. Our excellent performance resulted from an outstanding quarter across our three business segments, highlighted by $715 million in underwriting income. We delivered strong net premium written growth across our insurance and reinsurance segments, a 22% increase over the fourth quarter of 2022 after adjusting for large non-recurring reinsurance transactions we discussed last year, and an excellent combined ratio of 78.9% for the group.

Our underwriting income reflected $135 million of favorable prior year development on a pre-tax basis, or 4.1 points on the combined ratio across our three segments. We observed favorable development across many units, but primarily in short-tail lines in our property and casualty segments and in mortgage due to strong cure activity. While there were no major catastrophe industry events this quarter, a series of smaller events that occurred across the globe throughout the year resulted in current accident year catastrophe losses of $137 million for the group in the quarter. Overall, the catastrophe losses we recognize were below our expected catastrophe load.

As of January 1, our peak zone natural CAT PML for a single event, 1-in-250-year return level on a net basis, increased 11% from October 1 but has declined relative to our capital and now stands at 9.2% of tangible shareholders' equity, well below our internal limits. On the investment front, we earned $415 million combined from net investment income and income from funds accounted using the equity method, up 27% from last quarter. This amount represents $1.09 per share. With an investable asset base approaching $35 billion, supported by a record $5.7 billion of cash flow from operating activities in 2023 and new money rates near 5%, we should see continued positive momentum in our investment returns. Our capital base grew to $21.1 billion, with a low leverage ratio of 16.9%, represented as debt plus preferred shares to total capital.

Overall, our balance sheet remains extremely strong, and we retain significant financial flexibility to pursue any opportunities that arise. Moving to the recently introduced Bermuda corporate income tax. As mentioned in our earnings release and in connection with the law change, we recognize a net deferred tax asset of $1.18 billion this quarter, which we have excluded from operating income due to its non-recurring nature. This asset will amortize mostly over a 10-year period in our financials, reducing our cash tax payments in those years. All things equal, we expect our effective tax rate to be in the 9%-11% range for 2024, with a higher expected rate starting in 2025.

As regards to our income from operating affiliates, it's worth mentioning that approximately 40% of this quarter's income is attributable to non-recurring items such as Coface's adoption of IFRS 17 and the establishment of a deferred tax asset at Somers in connection with the Bermuda corporate income tax. With these introductory comments, we are now prepared to take your questions.

Operator (participant)

Thank you. If you have a question at this time, please press star one one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press star one one again. If you are using a speakerphone, please lift the handset. One moment for our first question. Our first question comes from the line of Elyse Greenspan from Wells Fargo.

Elyse Greenspan (Managing Director, Equity Research Analyst)

Hi, thanks. Good morning. My first question, I wanted to expand on some of your introductory comments just on the casualty side, right? We've started to see some reserve additions this quarter, and I think you alluded to that last quarter as being what was going to drive the market turn. So how do you see it playing out from here? I know you said it should play out over the next several years. Could you just give us a little bit of a roadmap in how you think about this opportunity emerging for Arch?

François Morin (EVP, CFO and Treasurer)

Yes, great. Great question. I think that we're observing our own book of business. We also look at all the information around. I think from an actuary's perspective, both François and I have maybe dusting off our actuarial diplomas, you rely on data that's historically stable or at least has some kind of predictability. I think what we've seen over the last 2, 3 years as a result of the pandemic, largely in the courts being closed and everything else in between, all the uncertainty and then the bounce of inflation, there's a lot of data that's really hard to pin down and get comfortable with to make your prediction for what you should be pricing the business. As we all know, reserving leads to the pricing, right? By virtue of reserving and having the right number for the reserving, you then feed that into your pricing.

So we're in a situation where people have lesser visibility about what the reserving will ultimately develop to. So I can totally understand our clients and our competitors having to adjust on the fly or having to adjust a little bit progressively, incrementally. The issue with casualty, at least as you know, is even if you have that information and you make some correction of corrective actions, it still takes a while to evaluate whether what you did was enough or was what you needed to do. So I think right now we already had a couple of rate increases in casualty starting in 2020, but I think that now we're realizing that maybe it's a little bit worse collectively as an industry than we thought, and there's a lot more uncertainty, a lot more, and inflation, certainly, as we all know, is a big factor.

What I would expect right now is people will start refining their book of business. They will try to re-underwrite away from the social inflation-impacted lines. They'll probably push for rates. Some of them might kick some business to the E&S. Until such time as we have more stability in the reserving, now the loss emerges as it relates to what your initial pricing assumptions was. In casualty, that's why it takes several years. If history gives any indication, if you look back at even the 1983-1987 market and then the 2002-2009 or 2000-2003, it took 3-4 years from the start of that, even in the middle of it, to really get clarity.

The market got much harder, in fact, in 2004, 2005 than it was in 2002, just because you have to do the action and see what the actions did, what you thought. I think that's what we're going to collectively as an industry are going through, and we're seeing it with our clients, and that's really what's happening.

Elyse Greenspan (Managing Director, Equity Research Analyst)

Thanks. And then my second question, second quarter in a row, right? We've seen the underlying loss ratio within your reinsurance business come in sub-50. And you guys are obviously earning in, right? CAT business written at strong rates last year. How should we think about the sustainability of a sub-50 underlying loss ratio within your reinsurance book?

Marc Grandisson (CEO)

Well, I mean, sustainability is a great question. I think you're absolutely right that we have more property premium that is more short-tail and should have a lower loss ratio ex cap than not, right, compared to other lines. It's a good market. So obviously, profitability embedded in the business should be strong. But we send you back to kind of quarterly volatility where sometimes we have a better than, call it, normal quarter even as a function of the book, and sometimes not. There's going to be volatility. We said it before. We'll say it again. The 12-month kind of rolling average is, to us, a better way to look at it. And that's how we see it. But certainly, we like the profitability in the book, and it should remain strong.

François Morin (EVP, CFO and Treasurer)

Yeah. One thing I will tell you, Elyse, you probably heard it on the other calls, is the reinsurance market is continuing to improve somewhat into the 1/1 renewal. So it is still a very, very good marketplace. So what it means for the loss ratio, I don't know, but certainly, we're seeing improvement.

Elyse Greenspan (Managing Director, Equity Research Analyst)

And then just one last one on capital, right? I believe there were some pushes and pulls from the S&P capital changes on your capital, but should be positive relative to your mortgage business. Can you just help us think through your capital position and relative to just organic growth opportunities you see at hand over the next year?

Marc Grandisson (CEO)

Well, certainly, I mean, S&P is one thing that we look at. We look at many different ways, I mean, we have different looks at capital adequacy. We have our own internal view, which drives really how we make our decisions. Rating agencies are an important factor, but I think more importantly is how we think about it. But you're right. I mean, no question that from the S&P point of view, we did, I mean, the change of their model was a net benefit, and that's reduced, kind of gave us, I'd say, a bit more excess capital. But we and we look at it very carefully. We want to make sure that we're able to seize the opportunities that will be in front of us, and we see plenty for 2024.

Right now, we're very our main focus is growing the business and kind of deploying that capital into what's in front of us, and then we'll see how the rest of the year plays out.

Elyse Greenspan (Managing Director, Equity Research Analyst)

Thank you.

François Morin (EVP, CFO and Treasurer)

Thanks. You're welcome.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Andrew Kligerman from TD Cowen.

Andrew Kligerman (Managing Director)

Hey. Good morning.

François Morin (EVP, CFO and Treasurer)

Morning.

Andrew Kligerman (Managing Director)

Good morning. First question would be around M&A. We've seen a lot in the media about other specialty players that could be acquired. Arch has been mentioned along with other companies. I know you can't comment on specific transactions and that you've talked a lot about 15% return on capital over time. But when you do transactions, could you give us a little color on what the parameters might be, what's really important to Arch when you do deals?

François Morin (EVP, CFO and Treasurer)

Yeah. On the M&A front, we're very prudent and careful if we do anything. I think historically, our historical track record is probably the best way to look at this. We'll look for something where our opportunities to earn a return with a proper margin of safety is fairly healthy. There's no desire to grow for growth's sake in this company. It really has to do with the return on capital. As François mentioned, the fact that we have opportunities to above 15% opportunities in this marketplace certainly makes it a little bit more harder. Having said all this, we might make not exceptions, but there might be some other considerations as it relates to maybe a strategic, maybe a different kind of product, maybe a geography, or maybe and we prefer that, maybe a new team that can really bring the expertise on an underwriting basis.

It's a very, very disciplined approach to M&A that we take. We have the luxury because we have plenty of organic growth available to us. Something has to be very compelling for us to engage in those and also other risks, as you all know, that we don't want to take on necessarily. The number one is the culture. We're very, very adamant about keeping our culture the way it is. That's really something and quite oftentimes, the thing that makes the most is probably the one that makes the most difference in whether or not we'll entertain an M&A or not.

Andrew Kligerman (Managing Director)

That makes a lot of sense. You mentioned on the favorable developments that short-tail property was a big driver. So looking at insurance at $21 million favorable, reinsurance at $7 million favorable, just trying to understand, were there any large casualty offsets that might have played in? And if so, what would they be?

Marc Grandisson (CEO)

Yeah. Well, there's no, I'd say, offsets. I mean, we look at each line on its own. There's always going to be pluses and minuses in every single quarter. We look at the data. We react to the data, I think, as you can imagine, or I mean, very much a function of the type of business that we've written the last few years. In reinsurance in particular, we've grown a lot in property. We've taken our usual used our same methodology, same approach to reserve, and that generated a little bit of redundancies or releases this quarter on the short-tail side. There's always a little bit of noise on any line of business. Yes, did we have a couple of sublines or kind of sells in casualty where we had a little bit of adverse? Absolutely. But I wouldn't call it an offset.

I mean, we book every single line on its own. We react to the data, and then when numbers come up is what we end up with.

François Morin (EVP, CFO and Treasurer)

Yeah. One thing I would add to this is our reserving approach at a high level is to typically recognize bad news quickly and good news over time. So again, our philosophy hasn't changed at all in all those years.

Andrew Kligerman (Managing Director)

Got it. Maybe if I could sweep one quick one in. You mentioned during the call that one of the growth areas in insurance was national accounts. What type of limits do you write on national accounts?

François Morin (EVP, CFO and Treasurer)

Well, it's statutory, right? It's on an excessive loss basis. There's a lot of sharing of experience plus or minuses with clients. They tend to be larger clients. National accounts is 95% plus workers' comp. It's really a self-insured sort of structure of sort. We provide the paper and actually the document to allow people to operate in their state because you need. It's a required thing to be able to demonstrate that you have workers' comp insurance as a protection. This is statutory. It's unlimited. By definition, we have some reinsurance that protects some of the capping. That's really what it is.

Andrew Kligerman (Managing Director)

Got it. Helpful. Thank you.

François Morin (EVP, CFO and Treasurer)

Sure.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Jimmy Bhullar from JP Morgan.

Jimmy Bhullar (Managing Director and Senior Equity Analyst)

Hey. Good morning. So first, just a question on the casualty business. We've seen significant growth in your property exposures since the hardening of the market or significant hardening of the market since early last year. What are your views on just overall market trends on the casualty side? And are you comfortable enough with pricing in terms to increase volumes in that area?

François Morin (EVP, CFO and Treasurer)

Yeah. I think our comfort's a great question. Our comfort on the casualty, on liability in general, the more general liability, right? Let's exclude professional lines. I think the market is turning or has more pressure on the primary side. So I think that our focus right now is really on the primary. As they can see on our reinsurance, what we did in reinsurance for the last year, we think the reinsurance market is a little bit delayed in reacting to what's happened, as in some of the development that we see and some of the increase in inflation and, of course, reopening that we mentioned. So I think that we'll probably see first an insurance market that really takes it to heart. Like I mentioned, all the remediation that they need to do.

And I think the reinsurance market will probably follow suit with possibly their own way to look at this if the prior hard markets are any indication. On the reinsurance side, one thing that's a little bit beneficial at this point in time, and there's a reason why reinsurers are not reacting possibly as abruptly as they probably should, as it regards the Ceding Commission, is that we collectively understand as an industry that our clients are trying to make those changes. So we're trying to go along with them and help them, support them in their efforts. We'll see whether that's enough. Our team is a little bit waiting to see whether that develops. But I do expect this to also come around and also provide another opportunity for us to grow.

Jimmy Bhullar (Managing Director and Senior Equity Analyst)

On mortgage insurance, I would have assumed that reserve releases would moderate over time, and they've actually become even more favorable. I think there's a shift in what's driving that. It used to be COVID reserves last year, and now it's stuff written post-COVID. As you think about, I just want to get an idea on what are you assuming in your reserves that you're putting on the book right now? Are you assuming experience commensurate with what you're seeing in the market, or is it reasonable to assume that if the environment stays the way it is, there's more room to go in terms of reserve releases?

Marc Grandisson (CEO)

Great question. I'd say reserve releases this year, in general, were somewhat driven by the views we had on the housing market at the start of the year, right? So if you roll back the tape a year, we were more concerned about home prices dropping fairly rapidly, recession, no soft landing, etc. So the reserves we set, call it, a year ago were very much a function of those assumptions, and they just didn't materialize throughout the year. So throughout the year, we saw a very strong or very well-performing housing market. People are curing their delinquencies much higher than we'd actually forecasted. Home prices are holding up, and unemployment remains relatively low.

So you put it all together, I mean, really, what transpired in 2023 is very much a function of the reserve releases reflect kind of how much better they played out relative to what we thought a year ago. Where we are today at the start of 2024 is certainly a bit more I wouldn't call it, I mean, optimistic in the sense that we see good home prices and a solid housing market for 2024. So on a relative basis, the reserves that we're holding today are not as high as they were a year ago. So if you extrapolate from that, is there room for as much in reserve releases going forward? Probably not, but we just don't know. I mean, the data will, again, play out as it does, and we'll react to it.

Hopefully, that helps you kind of compare and understand where we sit today versus a year ago.

Jimmy Bhullar (Managing Director and Senior Equity Analyst)

Okay. Thanks. And just lastly, your comfort with the reserves in your casualty book despite all the industry-wide issues, does that apply to the business that came over from Watford as well? Because that company obviously had a decent amount of exposure to casualty.

François Morin (EVP, CFO and Treasurer)

Oh, that's an easy one. Watford, really, the underwriting is managed by our team here. So the reserving and.

Jimmy Bhullar (Managing Director and Senior Equity Analyst)

Thanks.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Michael Zaremski from BMO.

Michael Zaremski (Managing Director, Senior Equity Research Analyst)

Hey. Good morning. First question for François on capital in regards to mortgage specifically. So my understanding of the mortgage reserving rules is that after a decade or so, you can start releasing a material amount of reserves. And mortgage, obviously, isn't growing now. So I know, but you also have a Bermuda, I think, some captives there too. So just curious, is there a material amount of capital coming or expected to come from releasing from the legacy or old mortgage business? Okay. That's helpful. And sticking with capital, when Elyse asked about you mentioned the S&P capital model, but I don't think you actually gave any quantitative or answers on the benefits. Because on paper, we see that Arch appears to be one of, if not the most, diversified.

Any help there on how much of a benefit or how to think about how much of a benefit the model offers, Arch? Okay. And lastly, since everyone else is sneaking in a lot more questions, based on the remarks you've made, unless I'm understanding incorrectly, it sounds like the growth might be you're more excited about the primary insurance segment. Can primary insurance potentially grow just as much in 2024 as it did in 2023? Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Josh Shanker from Bank of America.

Josh Shanker (Equity Research Analyst)

Hey, everyone. I think there might be a problem with the phones. We heard Jimmy and Mike just fine, but we couldn't hear your answers to the questions. I don't know if you can hear me. I don't know if anyone can hear me. Let me ask my team. Can you guys hear me on the phone? They hear me. So somehow, it's been corrected. Okay. So I don't know what. Maybe I'm the only one. Maybe. Okay. Very good. So yeah, I got a couple of quick ones. So it's the lowest quarter of new insurance written in the mortgage insurance business since acquiring UGC. And yet, it looks like the capital utilization went up, at least the risk-to-capital and the PMIERs capital ratio went up. Can you sort of talk about the moving pieces that are driving that? Yeah. That's obviously what it is. Yeah. Definitely.

That makes sense. And another easy one, it looks to me from quarter-end 2000, September 30th to year-end, Coface stock was about flat, although it round-tripped through the quarter. And yet, you had very strong other income in the quarter. Obviously, there's some summers in that. There's other things in there. Can you talk a little about the moving pieces? Okay. And just so you know, I'm getting a lot of inbound call volume or emails from people right now. Nobody can hear these answers that you're giving me. It may be being recorded. They hear me, but they don't hear you. Okay. So just so you know, I don't know. Anyway, they're addressing it. People can't hear the Arch team. But for people who are emailing right now, it seems they can't hear the Arch team. They're working on addressing it.

Operator (participant)

Thank you. One moment for our next question. Please note, everyone, that this call has been recorded, and it will be available after the call is over. Our next question comes from the line of Yaron Kinar from Jefferies.

Yaron Kinar (Managing Director and Senior Equity Analyst)

Hey. Good morning, everybody. Should I ask the questions, or should we wait till this issue is fixed? Okay. Yeah. No problem. So I guess first question, when you set loss picks into a year, do you update those other than for bad news or frequency? And what I'm trying to get at here is when we look at the reinsurance loss ratios, are they already incorporating the step change in the reinsurance market that we saw in 2023, or were those losses or the loss ratio essentially a reflection of your expectations heading into 2023, and we should therefore see another step up in margins over the course of 2024?

Got it. And then my second question, Marco, I think in your prepared comments, you'd said that casualty may be collectively worse than expected for the industry. And I'm curious, that comment, is that really referencing kind of the soft market years of 2013 through 2018 or 2019, or do you think there could also be some of that emerging for the more recent accident years where market conditions were clearly good, but maybe the expectations of inflationary trends were still a bit lower than what they ended up being? Right.

But I guess the question would be, even if they weren't as soft and you were getting a lot of the industry was getting a lot of rate at that point, if the expectation was for a, I don't know, inflationary trend of 5 and it ended up being 7, you could still see some deterioration of very profitable years, nonetheless. Got it. I'll just end by saying, yeah, I think you disappointed a lot of Swiftie fans, including my daughter, by referencing rest of world football instead of US football this quarter. Anyway, best of luck. All right. Take care.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Bob Jian Huang from Morgan Stanley.

Bob Jian Huang (Equity Research Analyst)

Hey. Good morning. Just two quick ones. First, I think two quarters ago on the earnings call, you said when we look at the insurance underwriting cycle, we were at about 11 o'clock. That's kind of where we were implying improved rates and also loss trend stabilization. Just curious, in your view, what time is it right now? Is it 11:30, or is it 11:59, 2:00 P.M.? Just kind of curious. Is it where you think? Okay. That's helpful. 11:00 to 11:30, that's very helpful. Thank you. My second question, regarding MGA and capacity in general, there has been some concern that MGAs have been increasingly aggressive. Is this something you're seeing? Is this concern rightfully placed? Does it have any impact on how you think about your underwriting cycle management? Are you becoming more cautious, especially with any reinsurance? Not sure if you answered that before, so apologies. Okay.

So property side, not enough capacity, professional line, plentiful capacity. That's the way we should think about it. Thank you. Yep.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Meyer Shields from Keefe, Bruyette & Woods.

Meyer Shields (Managing Director, Equity Research Analyst)

Hi. I think we're in the same situation where people can only hear the answers to their specific questions, so I'm hoping that comes through here as well. Similar question to Bob. We've seen, obviously, a number of companies report some reserve problems in the fourth quarter. And I'm wondering, when you look at the book of cedants that you have within reinsurance, is what we're seeing in the public companies a good representation of overall trends, or is it something different in the nonpublic world? Yes. That's perfect. Thank you. Okay. No, that's perfect. I'm sorry. Go ahead. Yeah. No, I'm still here. Similar question, I guess. Obviously, what we've seen here is a lot of domestic concerns over liability lines. On the international casualty side, is that concern worsening as well, or should we think of that as just a domestic concern? Okay. Fantastic. Thank you so much.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Elyse Greenspan from Wells Fargo.

Elyse Greenspan (Managing Director, Equity Research Analyst)

Hi. Thanks for taking the follow-up. I will say, I think you have a lot of folks wondering who's writing the annual coverage for your conference call provider. But my follow-up is on casualty insurance. Can you give us a sense of the loss trend that you're booking, your casualty insurance book to, and what rate you're getting in casualty insurance as well? So loss trend, you said 7, 8, 9, 10, but can vary by line and sometimes be 5%. Where would you put where would you put the price increase? Okay. Low to mid-teens. I'm just also repeating, so folks listening in can hear the answer. So low to mid-teens. Yeah. I think that's one, I guess, your one last one, your CAT. You said your PML went a little bit higher, right, but the % of equity is lower given the equity rise in the quarter.

Where would you put your CAT load at the start of 2024? Okay. 6%-8% CAT load. Thank you for taking the follow-up.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Kaveh Montazeri from Deutsche Bank.

Kaveh Montazeri (Equity Research Analyst)

Morning, guys. It's Kaveh. Hey. I have a question on reinsurance terms and conditions and attachment points. Does it feel like overall the industry public took on more high-frequency, low-severity risk than they should over the past couple of years? And now, maybe on aggregate, reinsurers are probably more willing to negotiate on price than on attachment points or terms and conditions. Please tell me what your view is on that topic. Yes. Property. Correct. All right. Awesome. And then yeah. Okay. My follow-up. Now, you had been kind of pulling back even before activity came to a halt. But if the Fed rate cuts, if they do come, lead to a pickup in the U.S. activity in the housing market, would you be happy to grow in line with the market, or should we expect you to kind of grow maybe less fast than the market?

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of David Motemaden from Evercore.

David Motemaden (Senior Managing Director and Senior Equity Research Analyst)

Hi. Thanks. Good morning. And apologies, I haven't been hearing the answers, so not sure if you've answered any of these already. But just, Marc, you spoke a little bit at the beginning of the call about the need or the strategy to lean in at the early part of a hard market. I guess, how do you manage that with potential false starts? It sounds like the casualty market on the reinsurance side hasn't hardened as quickly as you've expected. But how do you manage that just internally between writing business that might be hardening but not totally to where you think it should go and the potential for false starts? Yep. No, understood. That makes sense. And then, Marc, you had mentioned that at 1/1, the property market continued to improve, property CAT reinsurance market.

I guess as we sit here today and sort of looking forward at the sustainability of that as we move through 2024, what's your view now on that and the growth opportunities in property CAT? Got it. Understood. And I know in the past you've said alternative capital or ILS has the ability to swing the market one way or the other. What exactly are you seeing there? Understood. Thank you.

Operator (participant)

Thank you. Arch Capital Group answers have been captured and will be available in the replay. I would now like to turn the conference over to Mr. Marc Grandisson for closing remarks. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.