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

All right. Well, let's get started, I guess. Everyone find a seat. Okay. We'll see if you're joining us right now, are we live? Okay, we're live. So thank you for joining us at the Bank of America Global Financial Services Conference. If you're listening in here, this is the Arch Capital Group session. We are really -- it's a treat to have Arch Capital Group presenting obviously, a U.S. listed company, which is an exception here at the conference. We have Nicolas Papadopoulo, CEO; Francois Morin, CFO, to talk about what's going on in Arch here and thank you all for attending, and let's get started. So for people who are unfamiliar with Arch story, I just want to say a few little background, Arch was one of the so-called class of 2001 start-ups that was formed out of the hard market that was spurred by the '97 to 2001 underwriting crisis and the fall of World Trade, a large $20 billion loss in a single day. Since that time, the end of one, Arch's compounded book value per share to 15.5% CAGR, which I'm pretty sure is the best of any insurance company in any market. I mean, someone might show me a 23-year CAGR that's better than Arch. I don't think it exists. And I'll be happy to if we've been wrong, but I don't think it's true. The company, from a standing start of nothing, the company has grown its equity to $23 billion. It's an investment portfolio of $45 billion, and it's also returned $8 billion of capital to shareholders over that same period of time starting in 2007. The growth has been almost entirely organic, intangibles are barely anything. And even though Arch has done a few deals at very choice prices. It's also worth mentioning that the success is not part of the past. The ROEs today are better than the long-term ROEs meaning what you're delivering now is in excess of the past record. And so it's a pretty good time for Arch.

I mean the question is how did you do it? And why is it going to continue? And so I don't know how you want to take it, but Nick and Francois you have some thoughts on that matter.

Yes. I think the -- the story of Arch is it's a company that was created around a few principles. And one of the key principle is cycle management, being diversified. So having the ability when you cycle management to look for not being like in one line of business, but I mean the ability to arrive cross lines of business. It's a company that really a specialty, a global specialty insurer and reinsurer. And I think in the journey over the last 25 years, we added a mortgage insurer in the United States. But I think the principle that we have today, I think they're very similar to the original principal that we had back then. I think the company was created by -- I started to work at Arch 25 years ago when the company was recapitalized back in 2001. And the gentlemen that at the time hired me Paul Ingrey believed and brought with him this culture and this strategy of cycle management. At the time, he teamed up with a little bit later Dinos Iordanou, which brought with Bob Clements, the insurance side of the business. So being able to provide sustainable value proposition to our insured and distribution partner being specialized and being able to -- in the specialty business to have limited competition. And I think that has been really the philosophy that has been behind us. We've been a very strong steward of capital all along. I think we -- the thing that makes us different, maybe from others. We talked about it this morning with some of our investors is really we allocate capital to underwriting units at the end of the year. A lot of people give underwriters a budget and they say this and deploy the capital to the best of our ability. I think the way we manage capital is we -- we tell people with a lot of oversight from management. But ultimately, we have a culture of a business owner, people have a business plan to execute. But ultimately, we never tell them they have a budget to meet. I think the success of that has been to be able to be agile enough to -- within the holding company to deal with the excess capital in another form that deploying it in the business where the returns were not attractive. I think culture is a big deal. I think we have a culture that's really a culture of collaborations where I think you work at us, that's my case. I think I've worked on us for 25 years because I value working with others. I think we have a lot of smart people, but I think as a group, we are a lot smarter than we were in any individuals. If you have a very bright person that comes to work for Arch and wants to do it on his own, he probably won't work. So I think I don't know that capture...

You said it all. I mean it's well done. I mean, again, back to the -- again, just the cycle management is one thing I think that many companies talk about, but I would say the where we may be a bit different is, again, again, is on the diversification part where we have 3 distinct segments and we think of ourselves as capital allocators, right? We think of ourselves as, okay, where is the best opportunity to deploy the capital? We've gone through a very good period the last, call it, 3 to 5 years in the P&C space in general, but that was different before that when the market was definitely softer, more competitive mortgage insurance became for us really the most attractive opportunity at that time, call it, in the 2016 to 2020 years. So there's a time not everything stays static. So things change over time, and it's our role to react to those market conditions and not be afraid to pull back if the market just isn't -- doesn't meet our expectations in terms of returns and vice versa. When the market is more than it meets a lot of our -- there's a lot of green light flashing, we're more than happy to really step on the accelerator and be very aggressive in those lines of business.

Yes. I think the secret sauce is a combination of leadership of Arch and the people that lead the various units having combining, I think, a macro view of where the market is and the attractiveness of the overall market or deferred class of business within that market and the micro view, our underwriter having all the information that they need to make decisions once at a time. So I think if you let your underwriter on the right deals based on their own profitability, you end up in one place. If you have a macro view, and you say this market based on the profitability and the sum of the part that makes the market, I would like to be at that level, being able to reconcile the 2 is, I think, something that has forced us to be a lot more aggressive when the market is favorable and maybe a lot more conservative when the market is not as favorable because I think we have this feedback loop where we try to match what people do every day where we want them to be, I think.

So you mentioned Bob Clements and Dinos and Paul. And obviously, you're running a company now and you have a Maamoun and David as your good tenets, I can think about 10 or 12 other people who I know who I think we're there at the company before the first day of premium even being written. And sometimes a certain group of people just come together in gel and make something magnificent happen. I think it's a wonderful thing, but there's also some concern that the -- like a fine wine that once it's over, it's over in some ways. And what's going on in the culture that says that even after those initial -- that initial founding momentum that really has delivered on this is gone, it's still -- the Arch culture is still intact. And how has been building it for a next generation of nonfounder leaders sort of transpired over time?

So we have 7,000 employees. So even today, I think I would say, half of our employees, more than half of our employees have probably joined Arch in the last 5 years. So just -- so I think my role, obviously my role as CEO, as a strategy and culture. And I think the culture, I think it's not my view linked to individuals. I think people like Paul Ingrey, Dinos, Bob Clements, Marc Grandisson, others, what they bring is interpretation of the strategy and they have impact on the culture. But the culture in itself exists. I mean the culture that we share is the culture of collaboration, business owners, where people have a lot of leeway to execute on their plan, the culture of urgency, culture of vigilance. So all this, I think we -- we spend a lot of time teaching and not only me, but across the organization, the leaders of today, they teach and leave that culture every day. And I think we spent a decent amount of time reinforcing the culture and Paul Ingrey is no longer here, I think Bob Clements, Dinos has unfortunately passed away. So I think -- but the culture exists. And I think it's not in my view linked to any one individual. It's the Arch culture. That's how I see it.

One thing that you didn't include, which I think is an important part, is the comp structure. And so in these -- certainly, it makes sense at the early part of Arch establishing a long-term comp structure that everyone got tied up for a long period of time, that you would make the right decisions for shareholders over the long run. And there'll be no short-term type of decisions that had an adverse effect over the longer-term for the firm. And it had a few effects. One is that it's very hard to hire people away from Arch because they have a long tail in their compensation on the way coming to them. But two, it also creates a culture around long-term decision-making. Now I looked at the 10-K from 2001, and I counted 76 employees. We're now at 7,600 employees. Does that long-term comp structure work in a small organization differently than it can work on a large organization?

I think I love our comp structure. The reason I still work for Arch is at times where reinsurance was doing well, not all part of reinsurance was doing well. Insurance may have done okay. I knew that I would get paid for what I do for the company, not an average across the company. So that still exists. I think today, I think the construction that you described probably applies to the key decision-maker in the company, people that control the significant business. I think the majority of our employees are on the discretionary plan. That fluctuates with the performance of the company, but not to the extent that the original comp structure with would. But I think it's because it's on every of our decision maker, and we have -- I don't know how many people on the 600...

About 10% of our employees are in that.

Yes. So 10%, those are the people that really make things happen at Arch. And they all have the same mindset that they're going to be paid for what they do. They pay for performance is key. And so I think it's still working and still a key fundamental difference maybe with people looking at what have you written this year, are you took advantage of that market, great job. I give you 1.5. In our culture, if you've done a great job, you're going to pay 2x. There's no 1.5 or if you've done a bad job, you're probably going to be a 0.5 or 0 as opposed to be to 0.8. So I think it's aligned really -- and I live that culture. I was a recipient of that culture, and I -- there were times where we thought of changing it and a lot of us fall against it. So I think it's still there today.

And just on this comp and culture things, so look, I've never underwritten anything in my entire life, those that can't do teach. And so when I think about like -- I mentioned, I would like to be a property cat underwriter for the last 2.5 years. That sounds like a really good job, and I really wouldn't want to be a property cat underwriter, from 2017 through 2022. If I could pick my timing, it would be really good and then other thing how does the comp structure work with something like that when a market is so hard that it's shooting fish in a barrel versus periods of time. I mean, Arch could pull back, but truth PMLs have not radically changed. I mean, we've gone from I think like you're at 7.5% right now, you're at the bottom, I think 3.9%, and that's twice as much, but back in '08, you were at 24%, it was a historic...

Two questions that you asked, Josh. You -- I mean comp structure, we can -- you can get -- short. I mean we have things are very cyclical...

I mean we have caps effectively, we manage. It's not all like -- I mean, yes, you eat what you kill but up to a point. There's carry forward mechanisms. There's ways to soften the compensation for our employees over time, let's be honest, when hurricane -- even in a really good market for property cat, if there's an active cat season -- you're going to lose money. But it's not -- hopefully not going to happen every year. So we can -- that's how we try to even things out over time with some mechanisms of carry forwards and...

Specific -- you don't get paid on 1-year result of cat because this rundown. You get paid over a 5- or 6- years period. So I think there is a smoothing mechanism. And I think the PML question that you -- so -- and ultimately, so I'll give you my example. I started on the property side. At the time, casualty was flavor of the day. I think it was not a flavor of the day. It was a decision that we made in terms of relative opportunities. There was after certain element, a definite opportunity on the property. But it came with a lot of volatility. At the time, the casualty market was in shamble. Price were multiplied by 2 or 3 times. We thought the casualty based on the pricing we are getting as a lot of safer for us to deploy capital, a lot of capital in that that's rolling the dice on the property. So we decided to go that way. So I was on the property underwriting deal, but I felt a little -- my colleagues at the time on the casualty, the David of the world, the Maamoun and Mark at the time, they're having more fun than I have. I was having fun, but then the casualty market peaked and then Katrina happened, and then everybody had a $1 billion loss and Arch had a $200 million loss. And so suddenly, we were in the property market, and we had a lot of fun for a number of years. So my view, but during all those years the unit got paid. There was some variation, but pretty much everybody get paid the same multiple because we are a team. So it's not like the property guys get paid when the wind doesn't blow and the casualty guys get paid. It's everybody is -- we are a team. So I think people see others doing the job. They are doing their part, which is to cut back. Some people are doing their part, which is to maximize the opportunity. But we all work as a team. So that's, I think, a little bit of the culture of the company. I think we don't win along. We win as part of the delivering to our shareholders the return that makes sense.

Well, you may have sort of said 2 questions. I'm trying to segue into a different sort of -- and I tell you, everybody wants to talk about the property cat market. I mean maybe it's -- Arch is a whole lot more the right property cat, but it seems to be what's on everybody's mind right now. I mean the amount of capital you're deploying in property cat, it's not crazy amount of capital. Pricing is really good. People came back from Monte Carlo, depending on what your -- you went in thinking. You came out thinking the same thing, but with stronger conviction on what you already thought. I don't think anyone changed their minds of anything. Where are we? What's happening? How good is the market compared to where it's been?

So I think even the market peaked 2 years ago and I think since that we probably lost maybe double-digit rates. I think it -- yes, the returns, I remember back at the end of 2022, when we really invested a lot of the capital in the cat business very few people did it. So price was skyrocketing. We've come back double-digit down from that point. I think the business, as far as we are -- we see is still very attractive. So we're trying to maintain what we have. In terms of the PML, I mean, we talked about it earlier. I think Florida is a weird zone because there's not a lot of people -- a lot of purchase above the 100 years because companies don't have the money to buy as much as nationwide companies. So I think if you look at our PML, which is our peak zone in Florida, they're probably a bit deflated because there's -- if everybody would buy up to the 150 years, our PML may be double digit, maybe a bit higher. So I think it's also an imperfect view of how we see cat. I think we deployed more cat, which I think is better for us, more on a diversified basis across a number of zones. So I think our book is much bigger than -- it doubled compared to what it was before. So I think it's a much bigger book, but -- and we think it's still very attractive.

If pricing were down 10% at January 1, let's say, does that mean Arch would deploy less capital as a proportion of the balance sheet? Or it's still -- whether it's or -- we're not at the point where we have to make those decisions.

I think the latter because I think we have this concept of what we call an S curve, where you stay on as long as the thing is really attractive. When you start to be border line, that's when you cut back. So I think we -- I would expect us for us to be in.

Still very attractive. I mean it's a bottom line. I mean, we're only -- again, let's remember, 2023 might have been the best market ever. I mean, according depending on what we talk to, but some people best market in their career. So we're down from that, but we're not at a point and we're far from a point where we think we have to really cut back on our exposure.

The hurricane season is far from over, although some people are already declaring victory or some failure because some people want the wind to blow. You had a lot of different ideas going out there, what's -- but we did have a massive wildfire this year. That's strange one we expect. We haven't seen an earthquake in a very long time. We -- and there was a Tsunami warning just about a month ago. How is Arch thinking about those weird risks? Are you exposed to them in the same way that you are the things we hurricane risk? And is the industry correctly discounting the risk of things that have happened so rarely that they've forgotten they happen?

I mean in a way, it's difficult to price for what hasn't happened, but I think that's why we need a margin of safety. That's why when you look at the pricing of catastrophe or even the pricing of cat business, you can never -- it's true of every line of business. You never talk -- to actions and casualty, you need a margin offset. You never want to be in a line of business in a significant trade that is priced to perfection, what you know. There is always -- we don't know the cost of the good we manufacture. That's the insurance company. And in our business, there is volatility, there's a lot of unknowns. So I think you have to always factor in your pricing, some margin of safety to be able to support those. And you don't always get it right. But over time, I think if you apply the philosophy, I think across the line of business and across the book, I think you can sustain an event like California wildfire. It's much bigger than what people anticipated.

I think Arch has said various people, maybe in yourself sometimes that the hard market is an elevator and the soft market is an escalator. If you were listening to a lot of broker conference calls in 2Q, it felt like to them that the soft market was an elevator, and they would argue that E&S property pricing down 30%, 40%. It's staggering numbers. Arch does write excess and surplus property. The way you're talking about the cat markets, yes, it's going down, but it's going down in an orderly way just like you would expect. Is there something different happening in the primary markets on property that it's causing us to decouple from what you would otherwise expect on coastal property risks?

Yes. I think the way the market reacts is supply and demand. So I think what you've seen in the E&S property. And again, the thing that you hear is and -- there's always an account that's down 40%. But if you look at the majority of our accounts on the E&S property, I would say, we are down double digit. So I think we don't like to be down double digit. We like to be down single digits. But the truth is across our portfolio, the business we renewed and our premium is probably down a bit more than 10%. But -- so I think it's down, but I think sometimes you can't confuse the headlines, the one-off with what's happening on the various account. What happened in the E&S property is exposed in after 3 or 4 years of catastrophe where people didn't make any money. So in was the loss that bought the bank of the account. So ultimately, people said, we can't write that business anymore, no support on the reinsurance on quota share. So when it forced people and especially MGS is to reduce the capacity they have to offer from a couple of MGS $200 million to $10 million. So that in itself creates an event where price more than doubled over a period of 18 months. Unfortunately, 2023 passed, no significant losses, attachment points raise, deductible raise, no significant losses. A year after 2024, the fear of missing out came back. And I think it came back for the carrier ourselves by willing to expand a little bit the limit, but I think the guilty players were the MGAs, where they were able -- a lot of reinsurance capacity came and created allowed MGAs that were reduced to $10 million or $50 million capacity to go to $50 million. And when that happened, in the $200 million program, where everybody thought the year before, you have $10 million, when the first guy comes in and take $50 million, everybody scrambled. So I think that's what you've seen. You've seen the rapid return of large limit into that market that created the dislocation that we are seeing today. So -- and I think it happened first in 2024. And I think it continued in 2025. I think those capacity continue to increase. So I think it put definitely pressure -- put a lot of pressure on the price.

But I would add to that, 100% agree with what Nicolas said. But the -- to your point about the elevator, right, I think that's somewhat of an isolated market. It's not -- I wouldn't want to generalize it for all lines of business, because we still believe strongly that when the market goes softer, it's more in the escalator way. It takes time. It's not overnight. There's people ship away at it here and there and 5% reduction here, another 5% the next year. This example on E&S property to me is -- and again, we talked about the hairy coastal cat-exposed business is a little bit of, again, a unique kind of animal given the dynamics of the MGAs and capacity and you need big limits, et cetera. So that's, again, just a -- I mean just a nuance here on what it is.

It's a good point that Francois is making because it's one of the maybe very few lines of business where MGAs have dominant -- have been dominant in the past. I think we've seen carriers outsourcing their cat underwriting to those MGAs. I think it's -- it's a corner of the market where MGAs have clearly an important -- had played an important role. I don't think it's true maybe cyber, there's the other one, but less so, I think. So that's what the dynamic is that way.

So in your management comments, you spoke about adding mortgage in 2014, 2015, and then big way in '16 of course. You can look at Radian or Magic or -- the investors still don't like that business. What do you think that the markets are getting wrong about that business? And you want to talk about Arch's business necessarily, but do you think that the markets are wrong and how they're treating your competitors? I mean in terms of their thoughts on valuation and whatnot?

Well, I mean I don't think people don't like it. I think that was, call it, 5 years ago. I think people have gotten a lot more comfortable with what we do, what our competitors do. I think the challenge for the monolines is again, what else can you do, right? You're somewhat limited in being a monoline homogeneous product in one country. And so what's the growth potential? And we -- no question that the industry has remained extremely disciplined, which is a great thing for all of us, but beyond how do you return capital, dividends, share buybacks, et cetera, at the end of the day, it's still a small market, right? You got 6 players in it, more maybe the exception being part of a multiline group where we think that is a tremendous way for us to flex in and out with our capital deployment and capital allocation. But I think the challenge still remains for monoline companies is what else can we do? And I think to me, that would be the main reason why investors may just don't value the asset maybe as properly, I'd say there's a discount just based on kind of prospects for either growth or new opportunities to integrate.

It's a small market. It's very -- I mean it's very technical in my view. It's very complicated. So it really didn't perform well in the financial crisis. So people remember that most of those companies could have gone out of business. So I think the -- and I think it's -- yes, it's hard to invest in my view, to invest the time to really understand the -- you guys did a lot of teaching to understand the fundamental of the business. So that's also an area that as far as we see is pretty flat these days in terms of premium growth. So...

In doing the teaching, you kind of let the cat out of the bag in some ways. So I mean on -- I think the UGC also just -- or some of the credit was actually good business that you bought and you guys have some ideas. So one of the major innovations, of course, is going away from FICO score based rate card scoring for pricing and come to multivariate pricing models that ask things that weren't asked before. You decided to offload the tail risk to the bond market in a great way, and you taught everyone how to do it, and now you look at your competitors, and they're also doing those things. The Arch's way was the right way. But in being imitated, I realize that you have the advantage of being multiline, and so you -- not everything is a nail for you when there's -- but have your competitors caught up to you? Is there -- is there an Arch advantage in how they're approaching the business that you haven't given away the secret?

Well, I see it as a little bit like progressive, right? I think we were at the forefront of it. So I would like to think that we still like it. We still have an advantage but the gap has narrowed for sure. I think where we still have an advantage that remain -- I mean, we hold on to is that we're not only in the U.S., right? We're international. We do the CRT program, we're in Australia, we're in Europe. So I think our mortgage segment is much broader than just private MI in the U.S., and that remains a competitive advantage because, again, given the state of the U.S. housing market, it is what it is for all 6 of us, but we can play and we can fish from different ponds and play the game a bit differently.

And I think the team -- our teams have done a remarkable job playing the diversification card. We are in the U.S., our book in the U.S. has shrunk, but we -- the difference has been known and made off by some of the writings in Australia and in Europe and the CRT. So I think we're overall flat where otherwise if we were only in the U.S., our top line would be down. So I think it's...

And I think the takeaway from the UGC acquisition, you bought a good business at a great price in a buyer's market. And it's paid a lot of dividends. You haven't done much M&A. But you did buy MidCorp from Allianz. And I think there's some -- there's still some misunderstanding about exactly where that fits in. Arch was -- is a business that has licenses to write insurance, both on admitted and non-admitted basis. What did the acquisition in MidCorp give Arch that Arch couldn't have built on its own?

Yes. So I think if you -- on the insurance side, the way Arch position historically was more on the large accounts. So we had large accounts and we had a few specialty few program division, but the core of the business that we wrote was -- we need liability, I think professional casualty large accounts. So we wrote D&O, large accounts, we were general liability account, construction and large accounts. So a bunch of large accounts and a bit of -- some smaller business, but we never really had a mid-market offering. And I think the way we got set up, it was to face the larger broker, the Marsh and Willis. So we had experts in D&O facing broker export in D&O had expert in GL facing, in workers' comp facing expert brokers and GL workers' comp. So the mid-market business, it's more of a package component to it. So I think you'll be able to -- and we didn't have that. So we've been in the last probably 5 years, we had decided to go down from the large account to the upper middle market. And we have made enrolled in that market. I think we've done well on the -- on the construction side, we got a decent offering on the middle market construction basis. But on the property led middle market, I think Arch historically has never been outside of the E&S side of the business, which is cat-exposed, a property franchise. So I think -- and we had tried to create one, but it was really not working. So I think we've -- what we bought with MidCorp is really a property-led mid-market offering. So think of manufacturing, hospital -- hospitality. So I think -- and to be able to do this, I think you need large capacity on the property side, which we didn't have, which came along with the portfolio indeed, risk management that we really didn't have on the property side. You need -- we have an HPR group that underwrites highly protected risk. So -- and we got a network of agencies that we do business with that is actually difficult -- you say second-tier, but second level of -- not the big guy, the second-tier level, that takes years to form.. So I think we really got a franchise that's really complementary to what we wanted to achieve. So I think that's -- we also bought like reinsurance program that support those $500 million to $1 billion limit that we put on certain risks. So I think it's a real franchise that we bought that's really complementary to -- and will allow really fast forwarders probably 10 years in what we could have been organically, and that's what we like about it.

So in 2020, you bought a plurality stake in Coface. And I think that it's kind of like mortgage oligopoly business. And you said we would love to be like part of -- we don't have a lot of competition. It was -- has a taint on it that people don't like this business. It's a credit business and people didn't like it. And our said we're smart. We're going to make this business better. And I think actually, of those 3 things, the big surprise was that Arch actually, these Coface guys actually knew what they were doing. No, no. We like other operating it and -- it was a business that you didn't need to fix. And maybe UGC, of course, come out of credit cards, but they also turned out to be much better than everybody else. Is MidCorp a business that needs to be fixed? Or does it come with the capability to solve its own problems?

So I think -- I mean, I think that a lot of the remediation on the part of the business that we like, which is the middle market, package business, property led is they are in a good state. I think can we -- can we help them with their risk appetite, cross-selling more workers count? Can we have them cost saving maybe some private D&O, some employment liability we can. And I think where we can help them is in the data analytics and helping them target better customers, having a better value proposition that resonates with clients. So -- but the fundamental of the business for like 3/4 of the book, I would exclude the program business, which I think we don't like as much. But we -- I think it is there. I think a lot of the work has been done. I think -- there's more we can do, my view, to make the brand more formidable and to make the value proposition resonate further and on a broader basis with the agent network. But I think it's -- my view today is that we bought something that has real value.

In the press release on MidCorp, I think around mid-core and entertainment business, property it's interesting. And of course, one of your competitors had a very large sports entertainment book that they put into runoff after a massive reserve charge they took in the fourth quarter of last year. Is Arch's timing -- is this similar sort of businesses? Arch's timing somehow have lucked out that there's a major competitor who's been taken out of the market at the very time that you've acquired the...

This is a very different business. The entertainment business, again, to us, it came with the acquisition, but it truly is to us a specialty line, very much like the one -- the other specialty lines like to do. Entertainment for us, in this case, is purely, call it, Hollywood. It's live entertainment, it's production, it's TV shows, it's movies. So it has nothing to do with sports or entertainment in that way. It's truly kind of when you turn on your Netflix favorite shows, insurance, again, to make that happen is what it's all about. A lot of it's through a large MGA that has like relevant expertise in that space, and that's how the business comes to us. But that's -- so it's a little bit of a different animal compared to what you might have...

Are you not the underwriter in that business? Are you the capital provider and it's coming through an MGA?

Well, MGA does the underwriting according to the guidelines just like any...

And I think we have -- it's sort of a partnership. I mean some of the underwriting is our tools, but we also have direct connection with all the major studios because the limit that they buy are big. So I think we actually meet with all the clients. So it's a little bit of a -- we're tied to the hip with the MGA. They do certain things. We do a lot of the risk management. We do some of it we do ourselves. So I think it's -- so it's more of a partnership with MGA than it is a true MGA relationship where we outsource all the underwriting to the -- and I think the thing that was attractive to us in that line of business is that post-COVID, studios stopped being able to work. So there was a lot of losses in that business. I think the pricing coming off COVID was very strong. So I think we -- it was -- the timing of getting on that book was very, very good for us.

So one last question, different track. We follow operating earnings for ex gains and losses. But almost consistently income is higher than its operating income, which is different from almost every other company. A lot of companies put mark-to-market gains on illiquid investments into their operating numbers and Arch does not. A couple of years ago, Arch said, we could be doing more with our investment portfolio than we've done in the past. Given Arch's sort of quiet success in investing that you haven't really touted, is that even going to widen further as time goes on as you take more opportunity to use that book? Is that differential widen in the future compared to what...

It might. I mean just for everybody's benefit, yes, we do not include income from alternative or private investments in our operating earnings. It's still a very good source of book value per share growth, which is ultimately maybe the most important metric to us, and no question that given the environment we have and our size, we have increased our allocation to alternative investments. So could the gap wind even more? It might, but we think there's value for us to be consistent in how we report the numbers. We're very transparent about where everything goes. We're not changing our tune every so often. We've been consistent in that way. And -- and ultimately, if it shows up in book value per share growth, I think people will see that. So I think that's a good place for us to be.

Wonderful. Well, thank you for your time. Thanks for being here, and thank you for the audience and anyone listening online.

Awesome. Thank you.

Thank you.