Operator: Thank you. One moment for our next question. Our next question comes from the line of Josh Shanker from Bank of America.
Josh Shanker: 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. So — and I hear you. 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 —
Marc Grandisson: Yes, Josh, we can hear you. So hopefully, it’s been recorded. I don’t know if it’s been recorded.
Josh Shanker: Okay, very good.
Marc Grandisson: Yes.
Josh Shanker: So yes, I’ve 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 premiers capital ratio went up. Can you sort of talk about the moving pieces that are driving that?
Marc Grandisson: Well, our PMIers, — well, very much a function of a Bellemeade transactions that we called Josh, I think there’s significant amounts of capital protection that we exercised on and no longer give us capital credit.
Josh Shanker: Yes, that’s obviously what it is. Yes, definitely that makes sense.
Marc Grandisson: Yes.
Josh Shanker: And another easy one, it looks to me from quarter end 2000, September 30 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. There’s some summers in that. There’s other things in there. Can you talk about the moving pieces?
François Morin: Well, Coface, I mean, the stock price is one thing, but obviously for us, we booked the income, right. And they declared pretty much. I don’t know the exact numbers, but their dividend, their annual dividend has been close to their full net income, 100% kind of payout ratio. So that ends up being what we book in our financials. So yes, the stock price is going to move up and down over the year, but it doesn’t directly, I’d say factor in or end up in their financials.
Josh Shanker: Okay. And just so I’m getting a lot of inbound call volume or e-mails 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.
Marc Grandisson: Hold on a second, Josh. Are we being recorded? Let’s work a little bit through this quickly. Maybe we can fix it.
François Morin: What’s happening now?
Marc Grandisson: Yes.
Josh Shanker: Okay. So just so that I don’t know. Anyway, they’re addressing it. People can’t hear the Arch team. But for people who are emailing you right now saying they can’t hear the Arch team, they’re working on addressing it.
Operator: 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: Hey, good morning, everybody. Should I ask the questions or should we wait till this issue is fixed?
Marc Grandisson: I think we should continue on. Just ask your question. It’s recorded. Hopefully people can —
François Morin: There will be a replay.
Marc Grandisson: Yes, it’ll be a replay for everyone, hopefully. We apologize for this, but we’ll try to figure it out afterwards. Let’s go for it in line, yes.
Yaron Kinar: Yes. No problem. So I guess first question, when you set loss fix 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?
Marc Grandisson: Yes, I think our tendency when we do loss ratio of fixed; you’re on, especially on the long tail line. Remember François mentioned that earlier, we’re much more of a short tail player than we were in proportion, right? So property is a bit easier to understand, right? It is what it is. You get the loss, you don’t get the loss. So you do pick the loss ratio at the end of the year for what you think the attritional will be and there’s no cap, then you can’t really book the cap, right? There’s a couple of things you need to address. On the liability and then we’ll see over the next 12 months how it develops. And there are cadences of releasing or decreasing the IDNR on property, that’s a bit shorter tail as you can appreciate.
On the liability side, our tendency as an insurance or reinsurer on both sides of the equation of the aisle is to actually pick a loss ratio that has a little bit of a margin of safety at the beginning, not 100%, recognizing all potential benefits that we’ve seen, and we let it season for a while before we go in and make a change to them. And what we look at is obviously how the emergence, which I mentioned about, you may not have heard this one, but I mentioned about the emergence of the losses, how they are emerging versus what we expected. And you do this throughout the lifecycle of the deal, but that’s a longer-term phenomenon.
Yaron Kinar: Got it. And then my second question Marc, 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?
Marc Grandisson: It’s a really good question, Yaron. My — our — we look at the actual as expected and we see it much more in the softer years, to be honest with you. The recent ones, it’s here or there, plus or minuses as François mentioned, but it’s all well, as far as we can tell, our portfolio is well within a range of reasonable expectations. It’s nothing really that’s surprising because your honestly, remember starting 2019, there were improvements in the marketplace, there were price increases already. So I think that those years are not as soft, clearly not as soft as 2016 to 2019 were.
Yaron Kinar: Right. But I guess the question would be, even if they weren’t as soft and you were getting a lot of piece, the industry was getting a lot of rate at that point, if the expectation was for a inflationary trend of five and it ended up being seven, you could still see some deterioration of very profitable years nonetheless.
Marc Grandisson: You could, but we do reserving with the rate level in mind. So when we were writing the bids in 2021, we tend to look at a longer-term loss ratio and not the more recent years that before the stock market, for instance. So when you factor it all that in, we will tend to take higher loss ratio pick initial loss ratio, pick ourselves on the liability side. So you don’t have a similar. One of the things that happened in 2016, 2019, and it was mentioned before is that people probably were more aggressive than they should have been on the loss ratio pick that they did in those years. I think by the time we get to 2021, I think already there was recognition and we saw through the rate increases that the market was trying to get to. I think the loss ratios lifted up a little bit, and I don’t think we have a similar kind of deviation from initial loss ratio in those years.
Yaron Kinar: Got it. I’ll just end by saying I think you disappointed a lot of swifty fans, including my daughter, by referencing rest of world football instead of U.S. football this quarter.
