Arch Capital Group Ltd. (NASDAQ:ACGL) Q4 2018 Earnings Conference Call Transcript

Feb 13, 2019 • 11:00 am ET

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Arch Capital Group Ltd. (NASDAQ:ACGL) Q4 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day, ladies and gentleman, and welcome to the Arch Capital Group Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

Before the company gets started with its update, management wants to first remind everyone that certain statements in today's press release and discussed on this call may constitute forward-looking statements under the federal securities laws. 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 also will make reference to some non-GAAP measures of financial performance. The reconciliation to GAAP and definition of operating income 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 also available on the company's website.

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

Executive
Marc Grandisson

Thank you, Shannon, and good morning to you all. Once again this quarter strong earnings from our mortgage segment offset the effects of catastrophe losses in our property casualty segments, as Arch produced an annualized operating return on equity of 8.8% and 10.7% for the 2018 fourth quarter and full year, respectively. Given the level of catastrophe losses across the globe in 2018, our results demonstrate again the value of our core principles of diversification, sound risk selection, underwriting discipline and cycle management. Francois will provide more commentary on our financial results in a moment, but it's worth pausing for a minute to thank all employees at Arch, who are committed to meeting the needs of our clients, while producing superior returns.

Given the notable catastrophe events for the past two years, we will begin our discussion of market conditions with the January 1st renewal market and property cat reinsurance. As you may have heard on other earnings calls, this quarter on average property cat rate increases at Jan 1 were positive, but below expectations, given the record level of insured cat losses that were reported in the past two years. Across the industry, loss affected property accounts saw rate increases of 10% or more, while some property accounts in Europe were flat to down 5%. Hidden within the underlying property cat industry average rate changes, there are some signs of tightening