Arch Capital Group (NASDAQ:ACGL) executives told investors the company closed “another exceptional year,” citing strong underwriting results, record segment performance in reinsurance, and continued capital return through share repurchases.
Quarter and full-year performance
Chief Executive Officer Nicolas Papadopoulo said Arch generated $1.1 billion of after-tax operating income in the fourth quarter, up 26% from the prior-year period, and posted a consolidated combined ratio of 80.6%. For the full year, the company produced $3.7 billion of after-tax operating income, resulting in after-tax operating earnings per share of $9.84 and a 17.1% annualized operating return on average common equity.
Morin highlighted an overall ex-cat accident year combined ratio of 79.5% for the quarter, down 100 basis points from the prior quarter. Results benefited from $118 million of favorable prior development (pre-tax), which he said represented 2.8 points on the overall combined ratio. He said favorable development was recognized across all three segments, with the most significant improvements again seen in short-tail P&C lines and in mortgage due to strong cure activity.
Current-year catastrophe losses were $164 million net of reinsurance and reinstatement premiums, Morin said, driven mostly by U.S. severe convective storms, Hurricane Melissa, and a series of global events. He described the total as lower than seasonally adjusted expectations but higher than the prior quarter.
Segment updates: insurance, reinsurance, mortgage, and investments
In the insurance group, Papadopoulo said Arch produced $119 million of underwriting income in the fourth quarter, with an underlying ex-cat combined ratio of 90.8%, similar to the prior-year quarter. Gross premiums written increased, while management pointed to mix shifts toward lines with more attractive margins.
Morin said insurance gross premiums written rose 2.3% year-over-year, while net premiums written declined 4%. He attributed the net decline partly to the timing of ceded written premium accruals related to the prior-year quarter and to changes in business mix and retention. The insurance ex-cat accident year loss ratio improved 80 basis points to 57.5%, while the acquisition expense ratio increased 150 basis points as a prior-year benefit from a deferred acquisition cost write-off rolled off.
Papadopoulo said Arch continues to grow North American specialty casualty lines, including alternative markets, construction, and E&S casualty, and increased writings through its Bermuda platform and in continental Europe. Looking ahead, he said North American pricing is largely keeping pace with loss-cost trends, while international pricing is tracking slightly below loss trends.
In reinsurance, Papadopoulo said the segment delivered a record $1.6 billion of underwriting income for the year. He described fourth-quarter profitability as continuing, with a combined ratio ex-cat and prior-year development of 74.9%. Morin said the reinsurance segment produced $458 million of pre-tax underwriting income in the quarter, with gross premiums written flat and net premiums written down about 5.2% year-over-year. Net premium volume increased in casualty and property other than property catastrophe, while it declined in specialty due to the non-renewal of a large transaction and in property catastrophe due to changes in the timing of retrocession purchases.
Management characterized January 1 property catastrophe and other short-term excess-of-loss renewals as “highly competitive,” with Papadopoulo stating rates were down 10% to 20%. He also said ceding commissions increased in proportional reinsurance as supply continued to outpace demand, though he noted the company sourced a handful of new opportunities—primarily outside property catastrophe—to offset some top-line pressure. On the call, management added that Europe was particularly competitive relative to the U.S., and said Arch adjusted writings by region to target profitability.
The mortgage segment produced $1 billion of underwriting income for the year, its fourth consecutive year above that level, Papadopoulo said. Morin reported $250 million of underwriting income in the fourth quarter and a 34% current accident year combined ratio, citing seasonality-related increases in notices of default. He said the USMI delinquency rate increased to 2.17%, in line with expectations, and that the underlying credit quality of the portfolio remained excellent, pointing to favorable cure rates and favorable reserve development.
In investments, Papadopoulo said Arch generated $434 million of net investment income in the quarter, and equity method investments added another $155 million to net income. Morin said net investment income and equity method investment income totaled $589 million, or $1.60 per share pre-tax. He also said strong operating cash flow of $6.2 billion for the year helped lift investable assets to $47.4 billion, and described the portfolio as high quality and short duration.
Bermuda tax credits, expenses, and tax rate outlook
Morin discussed the Bermuda government’s Tax Credits Act 2025 and said Arch recognized a full-year effect of qualified refundable tax credits (QRTCs) in the quarter, which “significantly” impacted financial results, primarily through the reinsurance segment expense ratio and the corporate expenses line. He cautioned that the quarter included some one-time benefits not expected to recur.
Looking to 2026, Morin said the company expects the QRTCs to be most visible in:
- Reinsurance operating expense ratio: expected to benefit, with a full-year 2026 operating expense ratio of 3.9% to 4.5%
- Corporate expenses: expected to be reduced to approximately $80 million to $90 million in 2026
He added that QRTCs should also benefit other expense line items, including insurance and mortgage expense ratios and net investment income, but to a much lesser extent. Morin also said Arch’s 2025 effective tax rate on pre-tax operating income was 14.9%, slightly below its prior guidance range due mainly to discrete items, and he expects the effective tax rate to return to the 16% to 18% range for 2026.
Capital, catastrophe exposure, and buybacks
Capital return remained a major theme. Papadopoulo said Arch repurchased $1.9 billion of common stock in 2025, calling buybacks an efficient way to return excess capital. Morin said the company repurchased $798 million of shares in the fourth quarter and 21.2 million shares for the year, representing 5.6% of outstanding shares at the start of the year. He added that Arch had repurchased an additional $349 million of shares so far in the new year through the prior evening.
When asked about buyback pace, management reiterated it does not set a specific annual target and said activity depends on stock price, capital, and opportunities to deploy capital in the business. However, Morin said investors should expect Arch to be “pretty active” with repurchases given the current market environment.
On catastrophe risk, Morin said Arch’s peak zone nat cat probable maximum loss for a single event at a 1-in-250-year return period remained flat at $1.9 billion, representing 8.2% of tangible shareholders’ equity. For 2026, the company’s estimate for full-year catastrophe losses remains in a 7% to 8% range of overall net earned premium, similar to the prior year’s estimate.
Market conditions, underwriting discipline, and other topics
Management said competition is increasing in several lines as the underwriting cycle matures, with Papadopoulo emphasizing Arch’s cycle management “playbook,” underwriting culture, and diversified platform. Executives also discussed the impact of AI, describing it primarily as an opportunity to improve efficiency and risk selection, while noting specialty underwriting complexity may slow disruption compared with personal lines or small commercial markets.
On M&A, Morin said Arch continues to look for strategic assets that enhance the platform, but he indicated that in the current environment, it would take an “amazing deal” to pursue, making it “unlikely.”
The company also provided an update on a deferred tax asset, with Morin saying a roughly $1.2 billion balance has begun amortizing and declined by about $100 million in 2025, with continued amortization expected in 2026. He said the asset’s future depends on how Bermuda law evolves, and it could potentially cease being an asset in late 2026 or early 2027.
Closing the call, Papadopoulo said the company is entering 2026 with “measured optimism,” while stressing that underwriting discipline will be tested as competition increases.
About Arch Capital Group (NASDAQ:ACGL)
Arch Capital Group Ltd. (NASDAQ: ACGL) is a Bermuda-based insurance and reinsurance holding company that underwrites a broad range of property and casualty, mortgage, and specialty risk products. The company operates through a group of underwriting subsidiaries and platforms to provide insurance, reinsurance and related risk solutions tailored to commercial, institutional and individual clients.
Arch’s product mix includes treaty and facultative reinsurance, primary casualty and property insurance, mortgage insurance and other specialty lines.
See Also
- Five stocks we like better than Arch Capital Group
- They’ve Built Major Gold Stories Before – And They’re Doing It Again
- How to collect $500-$800 weekly (BlackRock’s system)
- Nvidia CEO Issues Bold Tesla Call
- Gold’s rally is big — but what comes next could be bigger
- HCTI: Under the Radar and Building an AI Healthcare Empire
