Arch Capital Group Ltd. (ACGL) Earnings Call Transcript & Summary

Thank you for joining us again. We waited to -- are going to join us now. Of course, this is the Bank of America U.S. Insurance Conference. We're in the Arch Capital session. [Operator Instructions] There already is a question coming in, so that's happening pretty fast. We'll get to it. So we have here CEO, Marc Grandisson; and CFO, Francois Morin of Arch Capital. I don't think they're making -- plan to make any introductory remarks, so we'll -- we can go right into Q&A.

Thank you, gentlemen, for joining us today. I hope you're having a good day meeting with investors. A question that I asked a few companies today, and I'll ask you. So Arch recently celebrated its 20th anniversary as a company, congratulations.

Thank you.

And a few stats in 2001. It says the reinsurance business had 36 employees and the insurance had 37 employees. And so I think you're around 4,500 employees today. That's pretty good growth. And the pandemic has told people they can do a lot of things remotely. Companies are rationalizing the real estate footprints and trying to add more flex work for people. What does this mean for Arch Capital in terms of, a, trying to balance the opportunity to give people the work-life balance they want? But also how does this factor into the culture, training young people to be successful in the business who don't already know how to underwrite with the success? And how does Arch maintain the desire to be working for a team as opposed to just collecting a paycheck if you're working out of your house?

That's a lot of questions. I could probably ask the same thing from all your folks at Bank of America. I think everybody had the same -- a very similar story. So it's great to be here, Josh. Nice seeing you. I wish we could do it live. I'm in London, as you know. But it's great to be here and spend some time with you and answer some questions. So at a high level, I think that it has made life, at least at the beginning or for the first year, a lot more productive. I think the meetings were happening much cleaner, much more on time and it would end up on time a lot more. So I think overall, it's been a net gain. Or for -- from our perspective, I think we're both on track and really get in touch with our clients and brokers to make sure that things were not slowed down at all. I think we sort of lost a little bit of that productivity, probably like everyone else in the second year of the pandemic. I think it's about time we get back to the office. And I think what happened early on, why we were so productive is -- to your point, it's because we had this good cultural set altogether, really knowing each other, how to work and what needed to be done and everybody made a big, big, big difference in delivering what we need to do. We have a pretty unique culture, Josh, as you know by now. We're a cycle manager. We're very collaborative in terms of making decisions. So -- and you're right, getting new people in to onboard them and make them aware and make him adhere to the culture is harder during a pandemic. And I think most of our executives, most of our managers have said that we'll have to go back to some kind of face-to-face, working together to make sure it happens. But I think the day of the 45 hours a week in the office are probably not going to come back in full force. I think we'll have -- always have a -- because there are cultural aspects. And I'm in London this week, I haven't been here in a long time. And there's something to be said for being face-to-face with people and really getting the nuance and the color and read all the different shades of discussion that you can have. Sometimes off the cuff -- most of the discussions we have that make a difference in the company could be over the watercooler, right, over a coffee. They don't necessarily have to happen during a staged meeting 1 hour or 0.5 hour meeting. So I think it's probably more of a challenge than we want to admit in terms of keeping the culture. Although now we're coming out of the COVID pandemic, I think have every assurance that we'll be able to maintain it. I really think that to be a large -- a true Archie, you need to live with the manager and really understand how we operate and look at the business. And sometimes, it's not so much -- it's not as important probably when the market is hard as it is right now because it's a lot easier to say yes. We also have developed data analytics that allow us to really do a lot of work. Mining the data, the submission counts and whoever's producing the business, it's a bit easier to do than to have to travel to all the various locations to get that data and actually be more productive that way. But I think that we're -- we need -- we'll need our people to get back to really continue this culture. It's very unique at Arch, something that, really, I believe, makes a huge difference in our results over time, as we've demonstrated.

So I may ask you a question I asked before, but I think it's the -- maybe the most important question, just get it out. You have basically -- I mean, look, you have an infinite amount of opportunity sets, but we'll divide them really into 3 against capital return: mortgage insurance, reinsurance and the capital return. Can you sort of give us an ROI view on what each of the returns are from your options right now in the market?

Yes. I mean we -- I'm not sure if we mentioned them. I'll let Francois correct me if I'm wrong. I think that the 3 underwriting units, we also have no -- there's 2 other units with -- 2 other opportunities we have to deploy capital, as you know, is -- yes, you're right, one of them is share buyback, returning the capital, but the other one is obviously the investment function, which we're taking a much more proactive view of and a lot more -- bringing us a fourth leg of the stool, if you will, to the extent possible. And then we're doing pretty good initial work there as well. I mean we worked on it for a long time, but it's really starting to pay off, we believe. In terms of the 3 operating units, which I think you were asking for, I think mortgage is still in the mid-teens, solid, very good, very, very solid return. I think reinsurance is right behind or on par with that 13% to 15%. I would say insurance is about 11% to 13%. Insurance is actually continuing to build momentum. You will say, well, why do you deploy capital in insurance, why not all in mortgage? Well, isn't it -- these are questions of balance, a question of risk management and capital management and diversification that we also are very keen to have, right? Diversification is one of our core principles, one of our key operating principles at Arch. So -- and I think reinsurance, as we know, it takes a little while longer to really ramp up. Mortgage was already a very solid market, after -- even pre-COVID. But sort of after COVID, it still had really good opportunities to deploy cap there. But we're one of the largest -- kind of the larger MI provider in the U.S., it's kind of hard to do a lot more than that than where we are. On the reinsurance, it's a lot easier to get access to market more quickly. I think on the insurance, we're still building momentum because I do believe that our rates are still above trend on pretty much all lines of business, and they're actually improving the smaller risk, which is an important piece. [ It's not so random. ] We have about $1 billion worth of small business that is currently, as we speak, we're getting double-digit price increase for the first time since the market hardening. So that really makes the insurance where it is competing, if you will, to get towards the mid-teen returns. So we have a pretty good choice opportunity set, as you mentioned.

So at about 11:34 last Thursday, the stock started to go down. The fact that you can time it to the moment that -- I think, on the transfer, someone said, the stock is trading 1.4x booked. And people looked up and said, "1.4x booked. Oh, my God, how can it be so expensive?" And so -- look, I followed the company for 20 years. I think that there's been sort of a transition. Okay. I don't know when it was, but when the buyback began, the idea was that Arch shares were worth buying back, one of the best uses of capital, if you could buy them below 3-year ahead of book value. And at one time, I heard one said that, "Maybe we should buy it 5-year ahead of book value because the mortgage earnings are so forecastable that it increases the valuation." But I feel, it seems like it's changed in some ways that the -- it's -- we want to buy at 1.3x book or below. And like -- and I don't -- I think that, that -- I don't think that's where -- has it changed? Is 3-year ahead of book value the right benchmark that we should be thinking about? I don't want to be too persnickety, but I can tell you that the number 1.4 freaked everybody out. So I'm trying to figure out what we can do there.

Yes. I'll let Francois mention that. I'll let Francois cover what's going on with this and clarify if he has to.

Leave me the -- with the easy question. Yes, you're talking about people, and I'll talk about capital. But yes, no, you're spot on, Josh. I think the -- a little bit of -- a slight -- I'd say slight confusion maybe. Your description is spot on with the intent and how we've operated for quite some time, right? It's the -- really, a 3-year payback based on the forward-looking view of ROEs. As you know, our ROEs weren't as high as they are today a few years back. And I think along the way, people converted the 3-year payback to a 1.3x book. But it's still the 1- to 3-year payback. And in this environment, as you know, we think that it could certainly support us buying back at a higher price than -- or higher multiple than what we've been buying at. On top of which, and Marc touched on it on the call, I think there's other factors that we consider, namely yield reserve strength or the strength of our balance sheet, the embedded value in the mortgage portfolio, those are things that are, call it, off balance sheet that aren't necessarily captured but we have a view on, and that informs how we think about share buybacks. And it's not to say that we would always buy back at that price. I mean there's always M&A or other needs for the capital that come into play. And I'd like to -- we've had many questions on that topic today with all the one-on-ones. And hopefully, we've clarified a little bit of the comment, but as you can imagine, it's not a static thing. It's something we talk about all the time, and we adjust as we move forward.

So in the early days of Arch '01, '02, '03, '04, obviously, there was a lot of fear in the insurance markets. You didn't have a complete data set. You guys knew what you were doing, but -- and it turns out, it's not just you, but a couple of your other Class 01 companies. The loss picks that you picked in those early years turned out to be wildly redundant. And we're now in the best place we've had in 20 years. And everybody -- I'm one of the gray-haired people, and I still think I'm kind of a young guy, that shows that nobody really knows anything that happened before 1997, I think. And so does it repeat itself? Are we going to see an industry that's wildly over-reserved for the past few years? And I add to that, the pandemic and the closure of the courts and whatnot has really messed up our ability to look at paid-to-incurred ratios as any indicator of actual payout trends. So a, what advice do you have for an investor to think about reserve adequacy? And two, how -- does this play out the same way? Is this a different story than it was 20 years ago?

No, I think that not much has changed, unfortunately. I go back I think more than 20. I go back 25, 27 years ago. So I have no hair, unlike you. At least you have some hair, so you should be proud of that. I'd be happy with that. I think that you'll see a very similar situation. I think if you look back at the initial pickup in the insurance industry, it tends to hover around a very, very narrow band, much narrow band, regardless of the underlying condition. It's because we're looking back in the rearview mirror and trying to pick up the numbers. It's very hard for people to say or to believe that the portfolio is 15 points better than it was or 15 points worse than we think we're pricing it for. So I think what you end up with is misses on the upside and downside. And I think you're going to see -- we're going to continue to see that kind of mismatch, and that's what creates cycles, actually, because you don't have perfect information. It really takes a long time to -- for development to happen. I think with the -- I think that COVID probably or might have slowed down the recognition of some of the losses that we believe probably should have happened. I think that the loss pick will probably maintain at a high level. And the question is, are they truly maintained there because there's cushion built in the current numbers because of the uncertainty? Or is it because, well, maybe it's too early to declare victory? And the other question that went -- I may add is, well, maybe that's because some of the ones that were picked 4 or 5 years ago are maybe on the low side and maybe the reserving process is sort of a holistic, total global approach to -- and within each company. So I think I wouldn't be surprised if we see a very similar phenomenon, Josh. I think that -- from my perspective, I'm one of the -- lone believer in the cycles for the long run. They're not going to go away. For as long as we have inability to predict the future, we're going to have people making decisions based on their best knowledge, and their best knowledge is never really truly perfect. So I think we're going to see some of that. I think that what we -- I mean, the one thing I would say -- I would tell the investors that I would -- I feel proud about for ourselves is, if you look at the way we've looked at our insurance group, I would -- Francois and I were reporting numbers in '17, '18, '19, that were not great, right? 101, 100, 102, 98, and I think that we were -- what we were trying to tell -- the Street was telling us, "Well, everybody's printing 92 or 91." And we need to tell you that we're trying to target mid-90s. And we're really trying to improve the portfolio performance. And I think that we -- the market helped us say, "I think our number, our picks and the way we've improved the results of our insurance group sort of speaks to the consistency in the -- it's congruent to what we've been telling the Street, that pricing is improving." So we have migrated the loans picked in the region where we think it should go, which is it should go down because the price went up. So which means to me as an investor, I'll say, "Well, the numbers that you're picking up now are probably -- are solid, are fairly solid because you didn't -- it's one thing to go from 100 to 92. It's a different one to go from 95 to 94. I mean this market is truly -- the rates are going up, and it's truly improving your performance." So I would tend to look for people that are truly booking numbers, and there's a differentiation between years and rate levels within years -- no, between years, right? The loss ratio in '17, '18 is not as good as it was in 2021. There is just no -- it's just mathematically not -- almost impossible but -- despite the COVID. I think that COVID, to your point, exacerbates possibly the improvement that is perceived at this point in time. But that improvement may not be there. That's why I would tend to think that the loss ratios are not going to show the full -- possible full credit for the rate above trend for a little while because there are -- there is indeed more uncertainty, clearly, in this time than there was in '02, '03, '04. So there's a lot more stable market and liability side, for instance, after the crisis of the D&O in the World Trade Center. It's not the same now. It's a -- it seems that we have a -- sort of an in between war kind of feeling right now. So we'll have a little bit of an interesting time to go through in '23, '24. But the pricing is good. So that should -- that moved for a lot of -- it should cater for a lot of potential -- no, huge deviation for what we think it's going to be. But the market is getting better. I think if I was an investor, I would look for consistency or logic in terms of how the combined ratio has been selected through the cycle. That's a huge indicator.

When we talk about use of capital, I mean, we didn't really pay enough attention to M&A as an option. At the beginning of the pandemic, you took a 29.5% stake in Coface. And just last month, Natixis sold its last 10% stake in Coface to a third party. They didn't seem to want to wait the 2 years for you to be an eligible bidder in case you were interested in that asset. And I'm trying to think, you did say on the last conference that you're still interested in Coface at the right price, but it seems like that from a game theory perspective, to make 1 more month or whatever it would take for Natixis to see what Arch's price might have been, does the buyer, whoever bought that business, are they seeing themselves as a poison pill? Like what is the mentality behind that transaction mean for you, acquiring Coface at a reasonable price?

I'll start and then I'll ask Francois to come in as well. He pointed on it -- about it on the call. I take that -- I don't know what the belief was. I think certainly, the bankers are telling us that the people who bought from Natixis are fully expecting a stop gap of sort that we'll just pick it up at some point and then we're fully expecting it. But there is no plan, right? There's no immediate plan. We never -- we didn't think -- we don't think in those terms. And I think Natixis, as Francois mentioned on the call, they did that transaction really without telling us, but for a couple of days before it happened, just let us know what -- that was happening. I think it was a truly core desire of Natixis to get out of the stock. And I think some people might think that it's not a bad price to pay for. I mean there was somewhat of a discount to the price that it was trading at. I mean it's hard for me to speculate how they were thinking. I mean from our perspective, we're patient, as you know, Josh, and then we'll see how that works. I mean we're barely working with them for like a year. You know us, we'll take our time to make sure we know and understand fully what's happening before we go into the full distance. And we do -- so far, so good, we're really pleased with what we're seeing. It's a very well-run company. They also had COVID issues, as you know, like everyone else, so that certainly put a little bit of a higher distance in terms of our aspirations, perhaps. But you're right, we had some time consideration that needed to be taken out. So I'll just -- I'll leave it to Francois, I think, to add on this. I'm not sure...

Yes, just a quick clarification, Josh. The -- there was multiple buyers in that stake. So it wasn't only one buyer. It was multiple institutional investors. From what I recall, I think not a single one of them had more than a 5% stake in the overall kind of stake that was available. I think the timing was, I mean, very much around regulatory approval. I mean if we had gone forward with that 11% or 12% stake, it would have required regulatory approval, and that would have taken time. So I think, to Marc's point, I'm not quite sure how anxious Natixis was to sell out. But certainly, if they'd come to us and we'd offer them what they thought was a better price, then it would have been the trade-off. "Hey, we got to wait 6 months, maybe a little longer and then things could happen." So what -- just take the money and run might have been their thinking. And quick note, I mean, you may have been busy, but Coface reported tonight after the close in Paris and had another very solid quarter. So I think it supports our thesis that it's a very good business that we want to -- we have a lot of appetite for. And how it plays out going forward, we'll keep looking at it.

So if I look over the past 2 years, premium base has grown by about 40% each of the last 2 years. The -- you spent $530 million to acquire that Coface stake. You spent $210 million to increase your stake from 10% in Watford Re to 30% in Somers Re. You have also incurred about $0.5 billion in losses associated with the mortgage insurance industry, which may come back to you, we'll see what happens, but that's obviously chewing up capital in the interim. You have raised some debt preferred. What's the level of capital flexibility on February 15, 2021, compared to February 15, 2000?

Francois, you go ahead.

Well, I just want -- I mean, I want to make sure, February 15, 2021, or '22, today, you mean?

'22. I'm looking at the -- I'm saying, here is a big growth in the footprint. You've spent $750 million on acquisitions. You have to hold the capital for $500 million and loss on the MI business, so I mean...

'22 or a year ago was really the -- I mean...

We're going 2 years ago. 2 years ago, yes.

Oh, okay, before pre-COVID.

Yes.

Pre-COVID?

Yes.

I mean -- right, so along the way, we raised $1 billion, which was really -- I mean, we said it was both defensive and somewhat us playing a bit of offense. We thought the market would get better and we wanted to have the resources to grow. No question that things have worked out, I think, a bit better than what we would have thought at the time. So yes, if we -- when we look at flexibility and what we have -- we're capable of doing today compared to even like early 2020, I'd say we're in a much better position. The market has improved, I think, faster and in a bigger way than we thought it would back then, even though we thought it would get better. $2 billion of earnings last year, we were able to buy back about 60%, return that to the shareholders. I'd like to think that '22 has a lot in store for us to the good. So that gives us a lot of flexibility in whether it's -- again, we talk about M&A, we talk about capital management, we talk about growing the business. I think we've got a lot of things that we can do with the capital base we have and we feel that much more confident with it.

Do we know what the January 1, 2022, PML is yet for the peak zone exposure? Has that number come out?

Yes. We quoted that on the earnings call. It's about just under 6% of tangible equity, yes.

All right. So 6%. And so it's a little below where it was back at 3Q '20. Prices are up in property cap, maybe not nearly up enough where they should be. Maybe just the return that you have just better opportunities elsewhere is really -- how much -- how do you figure out what the right amount of the balance sheet to put at risk for the major event is?

Yes, yes, I mean, we talk -- I mean, at some point, it just builds itself. It's not like every year, you fire all the deals or say no to all the deals and you rewrite the whole thing. So we're anchoring ourselves to recycle, right, up or down. And I think the question we have to ask ourselves as well, all right, so the pricing has gone up 10%, 11%, maybe 8% over last year. If you look at the returns on [ a cat ex sale ] versus a return on other property deployment, including some [ property rate ], in fact, for instance, the returns pale in comparison on the excess of loss. We do believe that the excess of loss is somewhat -- the returns are still subdued and still lagging, and they're not -- nowhere near what they should be. So I think what you'll say, "Well, okay, we were at [ $840,000 PML, down $1 million PML ] last year. Pricing is going up. But you know what, we have a better way to deploy it somewhere else. It doesn't really add to that as much as the PML and other ways to deploy capital. So there's a better deployment and better use of capital for us. So the PML goes on, and that's totally okay. Well, we're totally fine with that. I think it's a -- it's more like the way we build the portfolio. I mean we have gone rails as to where we want to be, which is up to 25, which is we're nowhere near that as we speak. I think that we sort of let our team figure out what kind of return -- I know what they're seeing and how they will deploy the capital as they underwrite and renew the business. And I think what we see in terms of PML going down slightly from last year, it tells you what you need to know, is that there are better opportunities somewhere else. On the property side, clearly, the quarter share is better than the excess of loss at this point in time, yes.

So I can quote all the virtues of mortgage insurance. I'll -- I'm going to give you a few of them. The underwriting of the underlying mortgage is extremely tight. The inventory of affordable single-family homes in this country is very thin. The tail for a major mortgage disaster is in the reinsured fixed income markets. And your underwriting in particular and the underwriting at UGC was multivariate long before the rest of the industry adopted it. So whatever is the industry results, your results are going to be better for the back book. And yet, the stock price is what it is. You can see where your comparison mortgage are. The investors don't like the mortgage insurance industry. Is there a price where it behooves you to sell the future earnings to somebody else and realize more value? Is that an option available to you? I mean is that a desperate option? I mean like in the end, if you can't beat them, join them. Like what is your view on saying, "Look, the markets can get it, we deploy that capital better and then -- and you have -- and at a better price," how do you feel about that sort of characterization?

Yes, I'm ambivalent with that characterization. First, I think that it's, totally, I agree with you, underappreciated. I mean it's got so many things, good things going forward. It's a vastly different industry than it was pre '06, '07. It's really -- it's a lot more disciplined, a lot more attentive to risk and a lot more focused on doing the right thing. But the fact that most people don't like mortgage insurance, actually, in a silly way or an obvious way, probably makes for those returns to be as good as they are for as long as they have become. The fear of mortgage. Now mind you, the mortgage insurance is not alone in being extremely difficult making money. Banks don't make money issuing mortgage. Mortgage originators are struggling. The margins are thin. So the whole mortgage industry -- forget only mortgage insurance -- mortgage industry is not -- is nowhere near its heyday. If you told me everything in the mortgage space is back to where it was in '04 -- '03, '04, and we would be lagging, I would feel a lot different. But I think it's just a reflection of the market. I think we still -- it's a heavy hangover that we have from the '07, '08. I think it allowed us to get those pricing -- the pricing, however healthy it is, for that long because of that sort of lack of faith in the numbers. Now what it means in terms of multiples, we are an Arch firm believer. We've said this since 2001. If we keep doing the right thing and we do the underwriting well and we do cycle management the way we do it, the market will, over time, recognize the value of what we bring. And at some point, the mortgage interest is doing 15% plus return. It's been doing so for a long time. It keeps on doing it. We are very prudent, very careful, as you know, in the way we price it, the way we manage it to the Bellemeade and whatever else is out there. So I have confidence, I have faith, I'm a man of faith. You got to believe that at some point, people will realize that this is a beautiful business because we do believe it's a beautiful business. And listen, being a contrarian guy is what it's all about. Sometimes we'll do things that the general market, whether it's you, the analysts, the investor has -- more like, but what matters to us is our shareholders like what we do. And our shareholders actually appreciate that we're building book value at a healthy clip. And frankly, without MI over the last 4 or 5 years, it would have been a lot difficult, a lot more difficult for us to invest and still maintain discipline in the P&C space. So I would do that deal 5x over, if I could do deals like that. And I have to believe, I have faith that, over time, those multiples will become more reasonable.

In the third party -- and just quickly, Josh, I mean, let's not forget that we were trading at 1.8x book literally 2 years ago. So it may seem like a long time ago, but it wasn't that long ago. So we got to have a slightly longer-term view than just the whole...

Well, that's why you buy back more stock. That's why I'm here.

You got it.

So third-party capital. In 2019, you bought Barbican. And I think a big part of the idea was that Arch would become a bigger player in the third-party market. The hedge fund remodel maybe didn't work out as planned. And so you sort of reworked your homegrown third-party business Watford turning to Somers Re. Where does Arch see itself as a player in third-party capital? Is that a -- that business really has seemed only successful for cat writers or principal cat writers in some ways. But you have your eyes on a longer term, where do you see Arch and third-party REIT?

Yes, we think it could work. I mean third-party capital or long-tail lines has worked in other places. Lloyd's is a clear example. It has not worked for some of them, but it has worked for some if you do it well. So I think that we have -- we're not giving up on that one either. I think that Somers Re being private, and as Francois and I have been talking about this for a long time, it is more -- it's better in a public -- in a private setting than is a public setting. It's a very different kind of model. And you're right that the increasing risk on the investment side may not be as appropriate. And frankly, now we have a great market or a hard market. So I think at a high level, I wouldn't mind if we had more and more third-party capital to manage, but we'll never have the majority of our capital being third-party managed because we want to still be able to manage and be able to trade through potential issues in the marketplace. I think the biggest key for us, Josh, on the third-party capital is to build it the right way so the returns are there so people have faith and confidence and trust and want to invest with us, alongside with us. And you're right, it's worked a bit better for the property cap because there's entry and exit, but also because of ease of entry and exit also means that there's a crisis that money is going to come out of there faster than probably you would want as a manager of that third-party capital. So that's why, in a way, that third-party liabilities -- third-party capital was interesting to us because it has to stick for a little while longer than usual. But I think there's still a model viable there. I think that we want to leverage underwriting platform, right? That's what we're all about. We want to leverage what we do well, which is the underwriting function, but it's a build that's going to be slow because we want to do it the right way. And again, Josh, we're not perfect. We make mistakes like everyone else. We may have had a few missteps. We've learned from it. I think that over the next 5 or 10 years with the hard market and the experience we've had, I think it's going to be a lot more solid than it was. And I think it's there to stay. From our perspective, the third-party capital is there to stay. I think we do provide a good proposition for an investor. We are very good underwriters. So hopefully people recognize this and want to invest alongside with us.

And one last question on cyber. My personal view is there's not that many companies that made money in cat over the past 20 years. I think you guys have done it. Ren Re's done it. I think Valid has did it. Not many others. Is it -- maybe I'm wrong. I feel like the major cyber cat event hasn't really happened yet. And everybody is playing in cyber, and we're going to see who's wearing the pants when the water goes out. Can you sort of tell me, is cyber like cat? Is there going to be a major reckoning? Are you making money? Is everyone making money? Is it all -- it's like if you make money -- how does that shake out?

I think the industry has not lost as much or actually has made some money historically. It's just there's a lot of squeeze because those events hit, frankly, the front page of the paper and they do come in probably bigger than people would expect them to come in. I think that we're bullish on the cyber to some extent because the market is -- the pricing has increased, as you know, Josh, and being a cycle manager, our playbook as well with price increase, we start sniffing. So as we start sniffing, we start realizing that the terms and conditions are also improving, right? There's a lot of cutting in terms and conditions. And there's a lot of oversight. This one line of business, which I love about is the more hazard, it is really minimized. Now companies do not want to have a cyber event occurring to them. I'm not talking about the major ones that could happen that squeeze the whole industry. But I'm talking about individually or even a cyber event that affects a portion of the industry, of a certain industry, there's no desire -- there's a desire to protect clients and reputation, frankly, against that. So I think the amount of investment, Josh, that we've seen over last 2, 3 years by our clients, the questionnaires, the level of insight and questioning that even ourselves as a buyer of cyber, we have to go through. It's not that different from what it was 18 months ago. The market is really, really focusing and paying attention. It reminds you a little bit of a terrorism event after the 9/11 event. Like there was a tightened scrutiny on what the risk meant than what it meant. And people were tracking their aggregates. People are watching it and looking at it. And it's like -- insurance terms is very simple, right? At a high level, there's how much are we willing to lose? [ Besides ] the cat, we're talking about 6% of PML, and this is what we're willing to risk for this year on behalf of shareholders because the returns are giving us this. I think that cyber is nowhere near that amount. Obviously, it's starting. We're starting. We're doing a lot of small risk. We're looking to do some of the bigger risks, but we're buying some reinsurance. I think we're establishing our cyber practice to be long-lasting. And we believe it's going to be profitable. I think it's a very profitable market right now. And fear is driving the market, right, which we want to hear. The fear is driving what's happening. And this is a kind of a market that Arch will do well in because we're not going to risk the balance sheet of the whole company. The big event happens, Josh. I think you know we're keeping track, as I said of our aggregates, but it's going to be manageable from our perspective as usual. Nothing is going to be -- and it will also depend on how much further it improves throughout the year. It's improving almost on a weekly basis. So it's a very, very aggressively hardening market. And a hardening market is impressive, actually. It's a very, very interesting market for us, at least.

Well, we are out of time. I do appreciate, especially late at night for you, Marc, your time today. Francois, thank you. And we might have some more meetings, but the day is running to a close for the public events. [Operator Instructions] And we're done for today. See you tomorrow morning on the webcast. Thank you, gentlemen, very much. Be well. Travel safe.

Thank you, Josh.

Thank you, Josh.

Thank you. Bye-bye.

Bye-bye.