INVESTOR PRESENTATION 2025 First Quarter ©2025 Arch Capital Group Ltd. All rights reserved. ©2025 Arch Capital Group Ltd. All rights reserved. 1 Informational Statements The Private Securities Litigation Reform Act of 1995 ("PSLRA") provides a "safe harbor" for forward-looking statements. This release or any other written or oral statements made by or on behalf of Arch Capital Group Ltd. and its subsidiaries may include forward-looking statements, which reflect our current views with respect to future event ...

Core Viewpoint - Arch Capital Group (ACGL) has been a highly searched stock recently, indicating potential investor interest and market activity [1] Earnings Estimates - Arch Capital is expected to report earnings of $2.34 per share for the current quarter, reflecting a year-over-year decline of 9% [5] - The consensus earnings estimate for the current fiscal year is $7.89, indicating a year-over-year decrease of 15% [5] - For the next fiscal year, the consensus earnings estimate is $9.57, showing a year-over-year increase of 21.2% [6] - Over the last 30 days, the earnings estimates have seen slight changes of -1.8% for the current quarter and -0.1% for the current fiscal year [5][6] Revenue Growth Forecast - The consensus sales estimate for the current quarter is $4.68 billion, representing a year-over-year increase of 18.8% [11] - For the current fiscal year, the revenue estimate is $18.91 billion, indicating a growth of 13.8%, while the next fiscal year is projected at $20.32 billion, reflecting a growth of 7.5% [11] Last Reported Results and Surprise History - In the last reported quarter, Arch Capital achieved revenues of $4.56 billion, a year-over-year increase of 21.3% [12] - The EPS for the same period was $1.54, down from $2.45 a year ago, with a surprise of +12.41% compared to the consensus estimate [12][13] - The company has consistently beaten consensus EPS estimates in the last four quarters and topped revenue estimates three times [13] Valuation - Arch Capital has a Zacks Rank of 3 (Hold), suggesting it may perform in line with the broader market in the near term [7][18] - The Zacks Value Style Score for Arch Capital is graded B, indicating it is trading at a discount compared to its peers [17]

Financial Performance - Total revenues for Q1 2025 increased to $4,673 million, up 18.6% from $3,941 million in Q1 2024[19] - Net premiums earned rose to $4,188 million, a 22.4% increase compared to $3,422 million in the same period last year[19] - Net income available to Arch common shareholders decreased to $564 million, down 49.2% from $1,110 million in Q1 2024[19] - Comprehensive income for Q1 2025 was $886 million, compared to $975 million in Q1 2024, reflecting a decrease of 9.1%[22] - Basic net income per common share was $1.51, down from $2.99 in Q1 2024, representing a decline of 49.7%[19] - Net income for Q1 2025 was $574 million, a decrease of 48.8% compared to $1,120 million in Q1 2024[29] - After-tax operating income available to Arch common shareholders was $587 million for Q1 2025, down from $933 million in Q1 2024[192] - The annualized net income return on average common equity for Q1 2025 was 11.1%, compared to 24.6% in Q1 2024[192] Assets and Liabilities - Total assets increased to $75,176 million, up 5.8% from $70,906 million at the end of 2024[15] - The reserve for losses and loss adjustment expenses rose to $30,946 million, an increase of 5.4% from $29,369 million at the end of 2024[15] - Shareholders' equity available to Arch increased to $21,545 million, up 3.5% from $20,820 million at the end of 2024[15] - Cash and restricted cash at the end of Q1 2025 was $1,985 million, up from $1,600 million at the end of Q1 2024[29] - Total restricted assets increased to $13.769 billion as of March 31, 2025, from $13.048 billion at December 31, 2024[106] Investment Income - The company reported net investment income of $378 million, an increase of 15.6% from $327 million in Q1 2024[19] - Income from investments accounted for using the equity method for Q1 2025 was $53 million, down from $99 million in Q1 2024[98] - The total fair value of available-for-sale investments as of March 31, 2025, was $31,275 million, compared to $29,819 million at the end of 2024, indicating a 4.9% increase[81] - The company reported gross gains on investment sales of $51 million and gross losses of $113 million for the first quarter of 2025[91] Underwriting Performance - Underwriting income for the total company was $417 million, with the insurance segment reporting a loss of $2 million, the reinsurance segment generating $167 million, and the mortgage segment contributing $252 million[60] - The combined ratio for the insurance segment was 100.1%, while the reinsurance segment had a combined ratio of 91.8%, and the mortgage segment reported a combined ratio of 16.1%[60] - The insurance segment experienced a $2 million underwriting loss, primarily due to California wildfires, but net premiums written grew by $373 million from the MCE Acquisition, reflecting a 24.2% increase compared to the first quarter of 2024[174] - The mortgage segment generated $252 million of underwriting income, with a persistency rate of 81.9% and a low delinquency rate, indicating stable market conditions[175] Acquisition and Growth - The company completed the acquisition of the U.S MidCorp and Entertainment insurance business from Allianz for $450 million on August 1, 2024[35][36] - Total assets acquired in the Allianz transaction amounted to $3,292 million, with total liabilities acquired at $3,088 million, resulting in identifiable net assets of $204 million[39] - Goodwill recognized from the acquisition was $246 million, primarily due to expanded market presence and growth opportunities[40] Shareholder Actions - The company repurchased 2.2 million shares for $196.4 million in Q1 2025, with a total of $800.4 million remaining under the share repurchase program[49] - The company repurchased approximately 1.2 million common shares for an aggregate purchase price of $108 million from April 1 to May 2, 2025[166] Tax and Regulatory - The effective tax rate for the first quarter of 2025 was 17.4%, up from 8.3% in the same period of 2024, primarily due to the enactment of a 15% corporate income tax in Bermuda[160] - The company paid $18 million in income taxes for the first quarter of 2025, compared to a tax recovery of $6 million in the same quarter of 2024[161] Losses and Reserves - The total net incurred losses and loss adjustment expenses for Q1 2025 were $2,587 million, compared to $1,728 million in Q1 2024, representing a 50% increase[66] - The net reserve for losses and loss adjustment expenses at the end of Q1 2025 was $22,567 million, an increase from $16,636 million at the end of Q1 2024, marking a 36% rise[66] - Catastrophe losses for the current year amounted to $547 million, net of reinstatement premiums, impacting overall profitability[170] Market Conditions - The average credit quality of the benchmark return index was rated "A1" by Moody's as of March 31, 2025[180] - The estimated fixed income duration of the benchmark return index was 3.33 years as of March 31, 2025[180]

Core Insights - Baron is an asset management firm that specializes in growth equity investment solutions [1] - Founded in 1982, Baron has established a reputation for its long-term, fundamental, and active approach to growth investing [1] - Research remains a central component of Baron's business model, as it was originally founded as an equity research firm [1]

Core Viewpoint - Arch Capital Group Ltd. (ACGL) reported a first-quarter 2025 operating income of $1.54 per share, exceeding the Zacks Consensus Estimate by 12.4%, although it represented a 37.1% decline year over year. The results were supported by higher premiums in the Insurance and Reinsurance segments and improved net investment income, but were negatively impacted by poor underwriting income and increased catastrophic losses [1]. Premiums and Income - Gross premiums written increased by 8.9% year over year to $6.4 billion, while net premiums written rose by 10.5% year over year to $4.5 billion, driven by higher premiums in both Insurance and Reinsurance segments [2]. - Net investment income grew by 15.6% year over year to $378 million, although it fell short of the estimate of $436.2 million, influenced by a reduction in investable assets due to a $1.9 billion special cash dividend paid in December 2024 and higher investment expenses [3]. Revenue and Losses - Operating revenues reached $4.5 billion, marking a 21.2% increase year over year, but missed the Zacks Consensus Estimate by 0.9%. Pre-tax current accident year catastrophic losses amounted to $547 million, significantly higher than the previous year's loss of $58 million. Underwriting income declined by 43.3% year over year to $417 million [4]. - The combined ratio, indicating the percentage of premiums paid out as claims and expenses, worsened by 1,130 basis points to 90.1, compared to the estimate of 94.5 [5]. Segment Performance - In the Insurance segment, gross premiums written rose by 24.4% year over year to $2.6 billion, with net premiums written climbing 25.4% to $1.9 billion, driven by new business opportunities and rate changes, despite competitive market pressures [6]. - The Reinsurance segment saw gross premiums written increase by 0.8% year over year to $3.5 billion, while net premiums written rose by 2.2% to $2.3 billion, primarily due to rate increases and growth in existing accounts, although offset by reductions in specialty lines [7][8]. - The Mortgage segment experienced a decline, with gross premiums written dropping by 4.4% year over year to $326 million and net premiums written decreasing by 4% to $266 million, attributed to lower mortgage originations [9]. Financial Position - As of March 31, 2025, the company had cash of $1.2 billion, a 21.2% increase from the end of 2024. Debt remained flat at $2.7 billion. Book value per share was $55.15, up 3.8% from the end of 2024, while annualized operating return on average common equity contracted by 920 basis points year over year to 11.5% [11].

Financial Data and Key Metrics Changes - The company reported after-tax operating income of $587 million, with operating earnings per share of $1.54 and an annualized operating return on equity of 11.5% [5][16] - The book value per share grew by 3.8% for the quarter [16] - The overall ex-cap accident year combined ratio improved to 81, with underwriting income including $167 million of favorable prior year development [16][17] Business Segment Data and Key Metrics Changes - The Reinsurance segment had a combined ratio of 91.8, including 18 points of catastrophe losses, indicating strong underlying profitability despite modest growth in net premiums written [7][19] - The Insurance segment reported a 25% increase in net premiums written, totaling $1.9 billion, driven by the integration of recently acquired businesses [9][18] - The Mortgage segment contributed $252 million in underwriting income, with low delinquency rates below 2% [12][19] Market Data and Key Metrics Changes - The competitive landscape in the Property and Casualty market has intensified, with increased risk retention by primary companies and a reduction in participation for treaties where margins do not meet criteria [6][19] - The company anticipates additional demand for wind coverage in Florida and the Gulf, despite the competitive environment [8][26] Company Strategy and Development Direction - The company emphasizes cycle management by prioritizing profitability and allocating capital to lines with attractive risk-adjusted returns [6][15] - The integration of the middle market commercial and entertainment businesses is progressing well, enhancing the capabilities of the Insurance segment [10][18] - The company is focused on maintaining strong underwriting standards and risk selection amid competitive pressures [6][15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth opportunities despite macroeconomic concerns, including tariffs and inflationary risks [6][15] - The outlook for the mortgage industry remains stable, with expectations for continued attractive underwriting income due to high credit quality [12][19] - Management noted that while premium growth may be more challenging, profitable opportunities still exist in the current market [15][19] Other Important Information - The company repurchased $196 million of common shares in Q1 and an additional $100 million in April, reflecting a disciplined approach to capital management [21] - The effective tax rate on pretax operating income was 11.7%, influenced by a one-time discrete benefit related to non-cash compensation [20] Q&A Session Summary Question: Update on reinsurance group and catastrophe load - Management indicated that the catastrophe load should remain stable, with expectations for stabilization in the market following recent wildfires [25][26] Question: Competition in the London specialty market - Management noted increased competition in the London market, particularly in lines like Terror, Marine, and Energy, with a shift in appetite from local markets [28][30] Question: Drivers of deceleration in reinsurance premium growth - Management highlighted that the 2.2% growth in net premiums written was impacted by non-renewals of large structured transactions and timing differences in treaty renewals [36][37] Question: Thoughts on casualty reserves and social inflation - Management expressed concerns that the social inflation story has not fully played out, indicating potential future challenges [44][45] Question: Commentary on property cat reinsurance market - Management observed pricing pressure primarily at the top of the reinsurance program, with expectations for continued discipline in the market [81][84] Question: Capital management priorities - Management stated that if growth moderates, excess capital would likely be returned to shareholders through dividends and share buybacks [85][86]

Financial Data and Key Metrics Changes - The company reported after-tax operating income of $587 million, with operating earnings per share of $1.54 and an annualized operating return on equity of 11.5% [6][19] - The book value per share grew by 3.8% for the quarter [19] - The overall ex-cap accident year combined ratio improved to 81, with underwriting income including $167 million of favorable prior year development [19][20] Business Line Data and Key Metrics Changes - The Reinsurance segment had a combined ratio of 91.8, including 18 points of catastrophe losses, indicating strong underlying profitability [9] - The Insurance segment reported net premiums written of $1.9 billion, a 25% increase from the first quarter of 2024, despite a small underwriting loss due to California wildfires [11][12] - The Mortgage segment contributed $252 million of underwriting income, with low delinquency rates below 2% [14][15] Market Data and Key Metrics Changes - The Reinsurance Group's net premium written growth was modest at 2.2%, impacted by increased competition and non-renewal of large structured transactions [21] - The company noted that competition in the London Market Specialty lines has increased, making profitable growth more challenging [13] - Economic uncertainty and high mortgage rates have created headwinds for new mortgage origination, but the underlying fundamentals remain strong [14][15] Company Strategy and Development Direction - The company emphasizes cycle management by prioritizing profitability and allocating capital to lines with attractive risk-adjusted returns [7][18] - The integration of the recently acquired middle market commercial and entertainment businesses is progressing well, enhancing the Insurance platform's capabilities [12][20] - The company is optimistic about growth opportunities despite competitive pressures and macroeconomic concerns [7][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the reinsurance market, expecting additional demand for wind coverage in Florida and the Gulf [11] - The company is cautious about social inflation in casualty lines, indicating that more pain may be forthcoming [45][46] - Management highlighted the importance of risk selection and underwriting discipline in navigating the current competitive landscape [8][18] Other Important Information - The company repurchased $196 million worth of common shares in the first quarter and an additional $100 million in April [24] - The effective tax rate on pretax operating income was 11.7%, reflecting a one-time discrete benefit related to non-cash compensation [22][23] - The company maintains a strong balance sheet with common shareholders' equity of $20.7 billion and a low debt plus preferred to capital ratio of 14.7% [24] Q&A Session Summary Question: Update on reinsurance group and catastrophe load guide - Management expects the catastrophe load to remain stable, with potential for growth in Florida due to increased demand [27][28] Question: Commentary on market competition outside of reinsurance - The London specialty market is experiencing more competition, particularly in lines like Terror, Marine, and Energy, affecting growth opportunities [30][31] Question: Drivers of deceleration in net premium growth in reinsurance - Adjusting for non-renewed structured deals, a growth rate of 6-7% may be more realistic for the near future [38][39] Question: Thoughts on casualty reserves and social inflation - Management believes that social inflation has not fully played out and anticipates more challenges ahead [45][46] Question: Commentary on property cat reinsurance market and ILS impact - Pricing pressure is more pronounced at the top of the program, with expectations of continued discipline in the market [81][82] Question: Capital management priorities and potential for buybacks - The company is likely to return excess capital to shareholders if growth moderates, with a preference for share buybacks [84][85] Question: Observations on primary companies retaining more risk - There is a trend of primary companies retaining more risk as they feel more comfortable with their results [90][91]

Core Insights - Arch Capital Group (ACGL) reported a revenue of $4.56 billion for the quarter ended March 2025, reflecting a year-over-year increase of 21.3% [1] - The earnings per share (EPS) for the quarter was $1.54, down from $2.45 in the same quarter last year, but exceeded the consensus estimate of $1.37 by 12.41% [1] Financial Performance Metrics - The total loss ratio was reported at 61.8%, better than the estimated 65% by analysts [4] - The combined ratio for the mortgage segment was 16.1%, significantly lower than the average estimate of 25.9% [4] - The loss ratio for the mortgage segment was 1.1%, compared to the estimated 8% [4] - The combined ratio for the reinsurance segment was 91.8%, slightly better than the estimated 93.9% [4] Revenue Breakdown - Net investment income was $378 million, below the average estimate of $415.07 million, but showed a year-over-year increase of 15.6% [4] - Net premiums earned totaled $4.19 billion, exceeding the estimate of $4.09 billion, with a year-over-year increase of 22.4% [4] - Net premiums earned in the insurance segment were $1.86 billion, surpassing the estimate of $1.80 billion, reflecting a 28.2% year-over-year change [4] - Net premiums earned in the reinsurance segment were $2.03 billion, compared to the estimate of $2.01 billion, indicating a 21.7% year-over-year increase [4] - Net premiums earned in the mortgage segment were $300 million, slightly above the estimate of $290.01 million, but down 1.6% year-over-year [4] - Other underwriting income was reported at $53 million, significantly higher than the estimate of $7.41 million, representing a year-over-year increase of 341.7% [4] - Equity in net income of investment funds was $53 million, below the estimate of $111.56 million, showing a decline of 46.5% year-over-year [4] - Other income was reported at -$2 million, worse than the estimate of $6.33 million, reflecting a year-over-year change of -114.3% [4] Stock Performance - Arch Capital's shares have returned -5.2% over the past month, compared to a -0.8% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]

Core Insights - Arch Capital Group (ACGL) reported quarterly earnings of $1.54 per share, exceeding the Zacks Consensus Estimate of $1.37 per share, but down from $2.45 per share a year ago, representing an earnings surprise of 12.41% [1] - The company posted revenues of $4.56 billion for the quarter ended March 2025, slightly missing the Zacks Consensus Estimate by 0.99%, compared to $3.76 billion in the same quarter last year [2] - Arch Capital has surpassed consensus EPS estimates in all four of the last quarters and has topped consensus revenue estimates three times during the same period [2] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $2.36 on revenues of $4.66 billion, while for the current fiscal year, the estimate is $7.85 on revenues of $18.96 billion [7] - The estimate revisions trend for Arch Capital is mixed, leading to a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6] Industry Context - The Insurance - Property and Casualty industry, to which Arch Capital belongs, is currently ranked in the top 15% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Premiums and Income - Gross premiums written increased by 8.9% to $6,463 million compared to $5,933 million in the same period last year[12] - Net premiums earned rose by 22.4% to $4,188 million from $3,422 million year-over-year[12] - Net income available to Arch common shareholders fell by 49.2% to $564 million, compared to $1,110 million in the same quarter last year[12] - After-tax operating income available to Arch common shareholders decreased by 37.1% to $587 million from $933 million year-over-year[12] - Net premiums earned for the mortgage segment reached $300 million in Q1 2025, compared to $305 million in Q1 2024, showing a slight decrease of 1.6%[35] - Net premiums written decreased to $266 million in Q1 2025, down 4.0% from $277 million in Q4 2024[53] - Net premiums earned were $300 million for Q1 2025, compared to $305 million in Q1 2024, reflecting a decrease of 1.6%[53] Underwriting Performance - Underwriting income decreased by 43.3% to $417 million, down from $736 million in the previous year[12] - The combined ratio worsened to 90.1%, an increase of 11.3 percentage points from 78.8% in the prior year[12] - The combined ratio for the insurance segment was 100.1% in Q1 2025, indicating a deterioration from 94.1% in Q1 2024[35] - The loss ratio for the insurance segment was 66.0% in Q1 2025, compared to 58.9% in Q1 2024, reflecting an increase of 7.1 percentage points[35] - The combined ratio for Q1 2025 was 90.1%, up from 85.0% in Q4 2024, reflecting increased costs associated with claims[74] - The loss ratio for Q1 2025 was 61.8%, compared to 57.5% in Q4 2024, indicating a deterioration in underwriting performance[74] Investment Performance - Pre-tax net investment income increased by 15.6% to $378 million, up from $327 million in the previous year[12] - Total return on investments improved by 122 basis points to 2.02% compared to 0.80% in the same period last year[12] - The annualized net income return on average common equity dropped to 11.1%, down from 24.6% in the previous year[12] - Total investable assets increased to $43,054 million in Q1 2025, up from $35,944 million in Q1 2024, representing a growth of 19.7%[35] - The company reported net investment income of $378 million in Q1 2025, compared to $327 million in Q1 2024, showing an increase of 15.6%[35] - The total return on investments for the three months ended March 31, 2025, was 2.02%, recovering from a negative return of (1.05)% in the previous quarter[84] Cash Flow and Assets - Net cash provided by operating activities decreased by 6.8% to $1,458 million from $1,564 million year-over-year[12] - Total assets increased to $75,176 million as of March 31, 2025, up from $70,906 million at December 31, 2024, representing an increase of 3.6%[20] - Cash and restricted cash at the end of the period was $1,985 million, an increase from $1,760 million at the end of the previous quarter[25] - Shareholders' equity reached $21,545 million, up from $20,820 million, indicating a growth of 3.5%[23] - The company reported a net cash provided by operating activities of $1,458 million for the first quarter of 2025[25] Shareholder Actions - The company repurchased shares worth $196 million during the first quarter of 2025[25] - The average price per share repurchased was $88.89 during the same period[117] - The remaining share repurchase authorization is $800.4 million as of March 31, 2025[117] - Cumulative shares repurchased since the program's inception total 436 million shares[117] Debt and Equity - Total debt as of March 31, 2025, is $2,728 million, consistent with the previous quarter[115] - Common shareholders' equity increased to $20,715 million as of March 31, 2025, compared to $19,990 million in the previous quarter[115] - Total capital available to Arch as of March 31, 2025, is $24,273 million, compared to $23,548 million in the previous quarter[115] - Debt and preferred equity to total capital available to Arch is 14.7% as of March 31, 2025, down from 15.1% in the previous quarter[115] Risk and Compliance - The PMIER sufficiency ratio is reported at 186% as of March 31, 2025, indicating strong compliance with GSE requirements[63] - The risk-to-capital ratio for Arch MI U.S. is 7.8:1 as of March 31, 2025, unchanged from the previous quarter[62] - The percentage of RIF by credit quality shows that 62.6% is from borrowers with a FICO score of 740 and above[61] Miscellaneous - The company plans to focus on expanding its market presence and enhancing its product offerings in the upcoming quarters[46] - The effective tax rate on pre-tax operating income available to Arch was 11.7% in Q1 2025, an increase from 8.5% in Q1 2024[113] - The company emphasizes the importance of after-tax operating income as a non-GAAP financial measure to evaluate performance, excluding net realized gains or losses[100]