Good day, ladies and gentlemen, and welcome to the Q1 2023 Arch Capital Group Earnings Conference Call. [Operator Instructions]. Before the company gets started with this update, management wants to first remind everyone that certain statements in today's press release and discussed on this call may constitute forward-looking statements under the federal securities laws. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. Consequently, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may affect future performance, investors should review periodic reports that are filed on the company -- excuse me, filed by the company with the SEC from time to time. Additionally, certain statements contained in the call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends the forward-looking statements in the call to be subject to the safe harbor created thereby. Management also may make reference to certain non-GAAP measures of financial performance. The reconciliation to GAAP for each non-GAAP financial measure can be found in the company's current report on Form 8-K furnished on the SEC yesterday, which contains the company's earnings press release and is available on the company's website and on the SEC's website. I would now like to introduce your host for today's conference, Mr. Marc Grandisson and Mr. Francois Morin. Sirs, you may begin.

Thank you, Lisa. Good morning, and welcome to Arch's earnings call for the first quarter of 2023. I'm pleased to report that as a direct result of our premium growth momentum from the past few hard market years, we reported an excellent start to the year. Financial highlights include book value per share growth of 8.4% in the quarter and an annualized operating ROE of 20.7%. Our P&C underwriting teams continue to lean into attractive market conditions were excellent risk-adjusted returns remain available, growing net premiums written by 35% over the same period last year. A key element of cycle management is to respond aggressively when you see conditions change. Since 2019, we have seen the market psychology pivot to underwriting discipline and our underwriting teams were prepared to become a more willing provider of capacity. The current property cat dislocation has resulted in us targeting growth in property lines and this should further improve our returns as we continue to benefit on the cumulative effect of improved rates, terms and conditions. The $327 million of underwriting income generated from our 2 P&C segments this quarter is a testament to our commitment in the improved market. Our mortgage segment operates on a different cycle than the P&C, but it remains a significant contributor to earnings, generating a healthy $243 million of underwriting income in the quarter as our high-quality insurance in force portfolio remained stable at $513 million. And in our P&C growth, I want to emphasize that Arch is first and foremost, an underwriting company. Being an effective underwriting cycle manager means that our underwriters know that they have degrees of freedom in choosing to deploy capital across our diversified specialty focused platform. Because we have a wider range of choices to allocate underwriting capital at any time, we…

Thank you, Marc, and good morning to all, and thanks for joining us today. As Marc highlighted, we kicked off 2023 with excellent underwriting results across all the segments, and our investment income continued its upward path, benefiting from a higher interest rate environment and strong operating cash flows. For the quarter, we reported after-tax operating income of $1.73 per share for an annualized operating return on average common equity of 20.7%. Book value per share was up 8.4% in the quarter to $35.35, reflecting not only our strong results, but also the unwinding of approximately $350 million of unrealized losses on our fixed income portfolio net of taxes. Turning to the operating segments. Net premium written by our reinsurance segment remained on its strong trajectory and grew by 51.5% over the same quarter last year. This growth occurred across most of our lines of business with a particular emphasis on property lines, marine and aviation and other specialties. The overall bottom line of the segment will also very good with a combined ratio of 84.3% and a relatively small impact of $59 million from current accident year capacity lawsuits. It's worth mentioning that our top line reflects the impact of some larger transactions which are not uncommon during periods of significant market dislocation. We cannot tell whether the frequency and size of these transactions will recur in future periods, but we are optimistic that market conditions will remain attractive for this foreseeable future. The Insurance segment also performed well with first quarter net premium revenue growth of 19.1% over the same quarter 1 year ago and an [indiscernible] quarter combined ratio, excluding cat of 89.8%. There were a handful of items affecting our top line marked significantly this quarter, such as a large transaction in the lenders and the…

[Operator Instructions]. The first question comes from Elyse Greenspan of Wells Fargo.

My first question, Marc, in your introductory comments, you said that we're in the early stages of improvement in the property market, right? We've seen strong rates at January 1 that have persisted into April 1. And my sense is could persist through the midyear. So could you just comment on what you mean by early stages and how you could see this playing out in -- during the rest of 2023 and into 2024.

Very good question, Elyse. I think the -- when we have a dislocation such as the one we sort of realized and experienced after Ian in the fourth quarter of last year, the renewals took place on the reinsurance place at much higher rates by 30%, 50%, 60% price and the rate increases. Obviously, you have heard that on other calls. We had the same experience. The reason [indiscernible] the first to move reacting to deploying capacity and they should because they have to commit the capital for a 12-month period. Now we have a lot of portfolio from the insurance side. This is what I think is going to be leading the market and continue to underscore and support the market is the insurance portfolios hours included at the interest level, they're going through a reoptimization, realigning of capacity, realigning our pricing terms and positions, and this is widely spread across the industry. But an insurance product does not get all renewed at 1/1, right? The renewal takes place over a 12-month deal. So what we're seeing and hearing right now is the market psychology is squarely in the camp of getting improved terms and positions on the primary side. Which will then lead to obviously further improvement from the distance as a reinsurer. Now this will take 12 to 18 months to really take hold, and we believe, which is actually a little bit positive from our perspective. We should see that improvement carrying on and staying around for more than this year. We expect the underlying property improvements to be there for 2, maybe 2.5, maybe 3 years, which is a great, great leading position to be on insurance. So first, the reinsurance react. The interest is reacting, it takes a longer time to modify and correct itself as momentum being built and creating a better equilibrium on the insurance level the region will get renewed again at . We most likely have more things to improve on the portfolio. I think this is how hard market takes place over time, how it developed and unfolds over time. what we mean. We think that we have a little bit quite some nice runway ahead of us because of that reason.

That's helpful. Then could you give us a sense if in your margins in both insurance and reinsurance, did social inflation or financial inflation that impact on how you booked the current accident year in both insurance and reinsurance?

Yes. So the way we operate and the way we put our reserving or loss ratio you won't be surprised to hear from us is we tend to take a prudent stance. That's the first step that you need to understand and we could all realize, and I know we saw that historically is one of the key things that we need to -- that we work on. Our game plan is to look at the trend and look at the rate level on a quarterly basis, modified if we have a good reason to modify it. And book it to a [indiscernible] 60th percentile confidence interval, not playing too close to the average because we want to have some protections because who knows what the future will hold. So if you look at the reserving overall in our company, we look line by line, we look at inflation in financial, social, bilayer by attachment point by region, and we correspondingly loss ratio for the overall portfolio. And what you see in our results in our numbers is a sum total of the aggregation of all of these very decisions within our insurance or reinsurance units. And I think that -- and then at the end of the day, as when I look at it to make sure that we have -- we feel more comfortable than possibly the average bear out there, and we make sure that it's on a trajectory that is responsible and prudent as well. So our tendency will not depict all the good news right away. We will probably wait and see and we've grown as well, at least, as you know. So it means that we have to be [indiscernible] careful and thoughtful in the way the [indiscernible], which we would recognize some of these improvements.

And maybe just one more, sticking there, Marc, right? In the reinsurance segment, right, the -- the growth, exceptional really strong, but the underlying loss ratio, right, was did tick up from last year. And I think part of that, there's always noise in each quarter, and it does take time to earn in this business for January 1. But can you help us kind of put that all together and just give us a sense of the margin profile of the reinsurance business over the balance of the year.

Yes. I'll take that one, Elyse. I think a lot of interest people obviously look at the quarterly numbers. Our view is we -- we look at it, but we don't lose sleep over it. I think we look at long-term trends. We look at the quality of the business and how it prices and what the expected returns are. And when we find the deals. But specific to this quarter, as I mentioned, didn't give you really a whole lot specifics, but there's 2 transactions that really distorted a little bit our ratios with basically higher loss ratios and lower acquisition. So yes, you saw a little bit of movement on both the loss ratio and the combined ratio impact on the ex cat accident year loss ratio was 2.2 points. So it's -- if there -- we know it's there. We don't -- again, I wouldn't make that a trend. I mean it's just the reality of the business we've had this quarter. That's why I mentioned that we these are nonrecurring items. But in this market, we know there could be more in the coming quarters. So that's kind of how we -- that's the result of the business we have this quarter.

And the next question is coming from Jimmy Bhullar of JPMorgan.

So first, I had a question on your comments on pricing, obviously very positive, both in reinsurance and insurance. But can you distinguish between pricing in both reinsurance and insurance on property and more of the cat-exposed business versus the casualty lines?

Yes. So the last numbers we heard is a good question. Last number we heard on the primary side, we're looking at pricing depending on the cat exposed, obviously, is more acute, but rate increases 40% to 50% plus, definitely, and a little bit less if you're intercoastal, if you win in land, it's many 10% to 15% increase. But it's clearly, clearly a push for rate increase. But what's not really fully reflected and you should hear there are other things going on underneath the terms and conditions, deductibles are going up. That's also a really important factor also helps if you're a reinsurer of this portfolio. There's a statement of value, which pretty much states that any company now providing coverage needs to have an up-to-date valuation of the property you're trying to ensure. And that is a big deal because the industry has been frankly lacked in updating these numbers. And once you have the right exposure, it actually makes the pricing that much more effective and accurate. So this is the whole market is moving in that direction. And thirdly, I think that's also important, which creates more dislocation there is a shrinking of capacity at the individual players. So when people were putting $25 million, $30 million worth of capacity on even a cat exposed. So these are [indiscernible] going down $2.5 million to -- $2.5 million, maybe $10 million on an exceptional basis. So I think that the -- so the insurance portfolio, the rates are going up for a lot of reflection, echo back to questions about an inflation on the property side that is reflected the statement of value. So we're definitely clearing that one. So depending on where you are in working , lesser get exposed to , cat exposed. On the reinsurance side, it's a little bit similar, although it's a bit more of a monolithic marketplace. The rates are going in a more slower narrow range. It's almost like more commoditized, if you will. It's a little bit between to 50 pretty much broadly across. Of course, there will be differences. We'll see what the doing reserve for us. But the more acute the cat need, the more acute in the key zones of capacity demand the higher the pricing. But the general -- the overall general pricing is in sync. The insurance one will be able to grab those increased rates and improve time on condition over the next 12 months. The reinsurance or were able to get there quicker.

And then just on the MI business. You had very high cues. I'm assuming most of these are just on reserves you put on around COVID when there were forbearance programs. And if that is the case, how much more of these such reserves do you have that will most likely I'm assuming it will be released over the course of this year?

Well, we still have -- we definitely do have still some delinquencies that are in forbearance programs. I quote 80% of our loss reserves are from post COVID periods. We don't have all the detail around how much or by year, et cetera. But just hopefully, that gives you a flavor of like what maybe could potentially be down coming down the pike in terms of more releases if able to secure. I think the fact that unemployment levels are still performing very well. I think that's a good sign, right? I mean that's there's some pressure on home prices, et cetera. But for the in-force book, we think, again, the credit quality has been excellent, and we think there is performing well. And when we go to cure those delinquencies over time, hopefully, that should help the bottom line.

The next question is coming from Tracy Benguigui of Barclays.

I'm trying to understand mechanically why an LPT type of transaction could add noise to your underlying loss ratio on the reinsurance side. Is it that you're not imposing a loss corridor and you're assuming losses would attach at inception? Or is it accounting on the premium recognition? If you could explain the mechanics, that would be helpful.

Sure. I mean at a high level what these transactions typically look like is the limited. So in terms of, a, the acquisition expenses is hero, if not very, very small. So if you think in a traditional quota share deal where the -- I assume the acquisition ratio could be 30%, well, that goes away. And then you're effectively just picking up losses and the investment income on the float is effectively part of the overall return of the transaction. So it changes the dynamic, and that's what we're trying to convey here is that -- on the underwriting side, it's usually book closer to 100% combined within that kind of range. But the investment income that you pick up is significant. So that impacts the overall bottom line return on the business.

Okay. Also, and maybe a little bit early, but can you discuss how June 1 and July 1 renewals are shaping up at this point? Like how would you compare pricing to what you saw in January?

We heard from our team, we've been talking to them quite a bit of late, and the -- I can talk about all specifics, but at a high level, the continuation of the hard market that we saw at 1/1. We're seeing continuing partnering or continuing on the same level as 1/1 if not that better. But I want treatment to tell you, 6/1 and 7/1 are not done yet, like people are still very actively for ended. But is the momentum is there, clearly.

So how would that compare and you see momentum the same or better since January?

It's early. I think it's early right now. I don't want to venture because also rather we all want to collect the veto keep in mind is 7/1 of '22 was also pretty good renewal floor, for instance, right? So it may not need as much of a pricing because we believe we're specifically in Europe, that we're -- we believe, not as well priced as ought to be based on the risk that you're taking. So it's still going to be return-wise, better, most likely better return than possibility, most likely the 1/1 that we sell because it such peaks up if everybody source of capital or use of capital.

The next question is coming from Yaron Kinar of Jefferies.

I want to go back to the margins in reinsurance, the underlying margins. And I think that even with the LPTs, the accident year loss ratio ex cats, still deteriorated a bit. And I just want to understand kind of the context of why that would be if we are seeing business mix shifting more to kind of inherently lower loss ratio lines on an underlying basis and with the rate environment?

Yes, 3 things I'd say, a, is I mean we focus on return. And while the obviously, what's in front of you is just the underwriting part of it. We focus on overall returns, which is the first thing. Second thing I'd say is you've got to give us a little bit of a chance to earn the premium. I mean, the market was solid in '22 and get better at 1/1/23. We're a quarter into the year. I think there's more benefit or more improvements that come, but it doesn't all sell up initially. And third thing, as Marc said earlier, I think we'll be proven. I mean, the math may suggest that, a, if you did this on that, that the combined ratio of losses should be yes. But we are proven in how we look at things. And when the data tells us that maybe we were a bit high, we'll be more than happy to release those reserves. But we're not going to declare victory quite yet.

Okay. And then a second question just on cat. Can you maybe offer some color on the distribution between the various sources, whether it's Turkey or New Zealand floods, the European stores and so on in both reinsurance and insurance?

Yes. I mean it's small ticket items. I think the biggest one for us was we had $25 million loss in Turkey, which is kind of what we do. It's not a huge deal, but that was the biggest item. Yes, we had some kind of participations in New Zealand with the cyclone and also some floods. And in the U.S., kind of the normal[indiscernible] tornados, [indiscernible] storms that hit -- that was mostly insurance, but a little bit of noise there as well in reinsurance so it's -- call it a hunch punch of small things, but the biggest one was -- for us this quarter was a Turkey.

And was Turkey and New Zealand were those mostly reinsurance?

Yes. Yes. Turkey was only reinsurance. Yes. Okay. And so -- I mean both of them are only reinsurances..

Next question will be coming from Josh Shanker of Bank of America.

Yes. I was looking at the investment return. I mean, there's a lot of ways to measure yield. Let me just take the investment income divided by the float. I'm getting about 2.76% for the quarter, which makes Arch the lowest burner on its float in your peer group. I know you guys have a more conservative portfolio that's also allowed you to redeploy pretty quickly, but with new money yields maybe in the 5% range without taking any equity risk or whatnot, you have an opportunity to increase that yield of are you still seeing some powder drive? You still think it's time to be fairly conservative in seeking yield less points?

I think it's something we obviously realized that there's -- new money yields are higher. And for us, it becomes a question of like crystallizing losses, there's implications around statutory versus GAAP accounting, we have restrictions in some places. So I think for us, we do the analysis very carefully in trying to make sure that we're doing what's best for the -- ultimately the shareholders. Sometimes we're better off kind of holding some investments to majority until and not kind of taking on the loss and reinvesting the money faster. But in terms of opportunities, whether we see more or want to think on more risk, it's something that we are thinking about. And we have grown our presence in alternative in the last few years, and that's something that -- and for us alternatives is, call it, more right structure kind of investments, and that's where we see the better opportunity and we've been pretty aggressive in growing the money there. But obviously, the returns there don't show up in investment income. They show up in equity method funds for the most part and that's where we expect to see a little bit of pickup as well going forward.

We're also just thinking about the overall risk, right, about the enterprise, right? So we have a lot of underwriting push and growth. So that's also factored in our risk -- now that we're -- sorry, but just it's all one of the other part of the equation that we have to factor in as well.

And what's the new money yield right now for you?

We're to.

Okay. And then, look, I know that you do listen to your competitors' conference calls and think about what they're saying. It looks like the pricing environment is pretty attractive. I think that's universally viewed few of your competitors have said as much. And then when we look at their premium growth in the quarter, it's kind of tepid, especially on the insurance side. You guys are growing your net premium in about 20% right now. It's been going that way for a little while. Is business hard to capture? Is it hard to get the business you want, and you've been silly successful outmaneuvering your competitors? I guess there's 2 things. One is, why are you so successful growing when others have not been able to do so. And two, can you give comfort on the fact that maybe some question, maybe the market is not as good as we think it is, and maybe there should be more concerned. So how can you give a comment with the rate adequacy? And why are you successful where others have failed?

So from a rate acuity perspective, I mean, this is sort of a system that's well establishing our company. I don't know how many kind of reverify the assumptions and projections beat the individual underwriter level, group level in segment level corporate between the holding company, including the Board. I mean there's a lot of vetting going on comparing to and triangulating. So we're pretty confident. We wouldn't be growing that level if we didn't think that the returns were in our favor. Does that mean that we're going to get all the returns that we expect precisely to the decimal, most likely enough, Josh, we're in uncertain world, and we're making a bet on the longer term expected and that's the best thing that we can do right now. We are a fans of thinking about the rate as being by far the most important place to start to make sure that you have enough -- you put the odds in your favor and the rates going up, a lot of lines -- rates go up 60%, 80%, 70%, even some of them went to 2x and even if there's some of it decrease goes to 1.9x. While we also look at the history of the industry and the industry was printing 5 or 6 years ago, 60%, 65% loss ratio, even if they were on a reserving level grows to 80% and you put all the factor in the trend and you put a cumulative rate impact, I think that there's no certainty, but there's certainly a level of margin safety that you build within the price and that's what makes us feel that much more comfortable. Now in terms of our reduction in the marketplace, how we're able to lean in and see that business. First, we…

Well, thank for the fulsome answers. And congratulations to everyone on graduating from rounding to the nearest thousand surrounding to the nearest million from bunch of new people.

Next question is coming from Brian Meredith of UBS.

A couple with me for you. Just quickly. Francois, you gave us loss ratio impact of the LPT. Can you give us what the combined ratio, maybe the premium impact just for modeling reason purposes?

Combined ratio was 1.1 point. 2.2 in the loss ratio and all that cap, and the premium was $118 million.

Brilliant. Second question, Marc, looking at the 6/1 renewals, Florida, I guess, one, what is the impact of the legislation that was recently enacted having, you think, on that marketplace? Will it have an impact on renewals, pricing capacity coming into the market? And then, how do you typically think about Florida from a reinsurance perspective. Is it a market you'd like to play cat? Do you like to play quota share? How do you kind of think about it when you look at the Florida market?

But the second part -- Brian, the second part of your question is easier. I think we're much more of a excess of loss in the library floor. We believe it's a better play for us at this point in time. And that seems to be sort of well also where the market is slowly migrating towards at least from the first indication. The second part -- the first part of your question which is the most interesting one is we're in Florida, we might well be in Missouri. You did show me state, but we stole to see and as evidence that those to reform will take hold. It's going to take a while. As we all know, we've got through a claims when before the 1st of April, 1st of May [indiscernible] of claims to make sure that we -- that they take advantage of the last resonance of the weaker toward area there. But that's going to take a while to work through. It also might mean that some of the losses from prior years are developing adversely, which is not necessarily useful and helpful for those who try to renew for on an ongoing basis, why if you have more losses from that on the prior years, the acceleration of losses you may have to make up for a lot of that or some of that, it's not a lot of it is pure value of reinsurance. So I think overall, I think the market will take sort of a view that it's not there at 100% and they'll probably sort of factor in who is more -- is more or less exposed to those, but they get credit those more or less exposed. But you're not going to get -- like everything else, we'll need to see it through to get full credit. I think the market will get some credit, but not the full extent of it. There's no way at least not at this time. Maybe in 2 years or next year or 2 years time, but don't take a while because we need to show and see what's happening for.

And the next question comes from Meyer Shields of KBW.

I have one, I guess, a technical question on the LPT side of things. Is it fair to assume that this is 100% combined ratio business as you write it? Or does the fact that it pertains to -- well, let me stop there.

Well, that's typically where we book it. I mean plus or minus those types of transactions, that's kind of where they -- yes, that's where the combined ratio is on those.

Because the contribution to profit and margin is square a lot more on the investment income side than it is on the pure rating income side.

Okay. And then speaking -- I don't know if you want to talk about the transactions or the demand that you're seeing. You talked about that, I guess, understand that we being a function of distress in the marketplace. Is this -- is the market right now focusing on the, let's say, 2019 and earlier accident years where pricing was soft or to say and/or is there interest in even more recent years because of loss trends?

Yes. I think the market is focusing on it because I think that -- and also if you add on top of it the reopening of the court post-COVID, there's a lot of uncertainty. We've heard about inflation, financial inflation and social inflation. So there's a lot of scrutiny. And the rates were much lower then. So there is definitely less banked for those years to get the right number, the right loss ratio pick. So yes, definitely, people are looking as we are as well and where we -- on the reinsurance side, if you're treated we can see not anything or some companies have development that adverse in those periods. Some of them don't. But yes, it's definitely a point of discussion, which I think [indiscernible] helps explain why we had the -- we continue to have this price increase in the GL, for instance. I do believe that people are realizing it and understanding that for their recasting, right, the long-term trend and long-term loss ratio projection on a level basis how that works. So I think really that people are reflecting. And that's also why we have this. We don't have massive combined ratio above across the industry. We do have still a healthy level of price increase because of that [indiscernible].

Okay. That's helpful. And if I can just pick up on that because in your prepared comments also you talked about GL rate increases ticking up a little bit. I haven't heard a lot of that. We've heard a lot on the property side. I was hoping to get a little more color.

Yes, the liability lines are -- of course, a lot of it has been historically led by auto, specifically on the umbrella. But the GL is clearly picking up again and it's late it's also international. And we have a low book of business as well as our insurance portfolio in the U.S. I think that there's also a dislocation going on the GL side, people are reevaluating the lines of business, the areas and the industry that they're providing coverage for. So this is happening probably a bit more -- it sort of slowed down a little bit towards the second half of 2022. And I think that's reoptimizing or re-underwriting or refocus on the underwriting and price for the GL and it also led, as you can appreciate, might some increase in trend, specifically in the excess layers because it's levered. So I think that's what we're seeing some of that prior year coming through. We're having to recast the pricing, which you wouldn't have had or would have seen necessarily in 2020, '21 because those years '16 to '19 were probably too young to really get the development coming out. So you probably can see that the duration of development of GL coming through and people reacting to it.

Next question comes from Mike Zaremski of BMO.

Maybe a question or 2 on the catastrophe levels this quarter. I mean, Marc, you brought up terms and conditions changes. I think it probably blows certain people's minds that the valuations on property are just getting up to date and it seems kind of antiquated, but that's just, I guess, the way that the reinsurance maybe -- or sorry, the overall marketplace works. But just curious to the piece, yes, cat loss levels for the industry in the U.S. were way above a normal 1Q. I know you guys aren't right? That's not the best guy for Arch. But it looks like Arch's cat levels were normal-ish, but you can correct me if I'm wrong. Any read-throughs on the terms and conditions changes that have taken place that are -- is there any read through there that there are some good things coming through?

I think on our results, I don't think you would describe the improvement in terms of conditions. I think it's probably just a function of how we book -- where our exposures are, right? We didn't have as much exposure in the areas where the losses occurred. That's -- I guess I would say the miss that could happen, that happens sometimes. That's really all we can see right now. We haven't seen the impact of the things I mentioned already because they're starting to pay holding. So it's going to take a lot of them to see. So that loss of these losses next year would presumably be because of all the conditions in terms that I told you are changing. It would be reasonable to expect that the losses will be less than they are right now, but we have yet to see whether the portfolios go through these changes. So nothing other than our exposure was not where the losses occurred.

And as a follow-up, when we're hearing about the substantial rate increases, especially in property, does that take into account the terms and condition changes? Or is that -- are these kind of risk-adjusted rate increases that you're speaking to on some industry participants are speaking to?

Yes. They're not fully risk adjusted, -- it's a really good question because it's a factor of a harder market or a softer market that when you see a rate -- the things that you can measure, you all incorporate into your calculation, but there are things that you cannot calculate or specifically isolate for input in your formula, right? So there's some core insurance wallets in there that are finally going to be put back in the marketplace. But really prevent some of the collections and that could otherwise happen. That's not factored in the pricing. There's -- adding the venue for litigation or mitigation of the losses to be in a different environment, one that's, for instance, more than its 2 or 1 that's left at it, that's not unable to factor that in the pricing. So I would say to the extent that you factor in the deductibles, the sub-living and you can run the cat losses based on the layers where you attach, if you attach higher. I think that is reflected in the pricing that we mentioned. The other things that are also going in the same direction, that's the trademark of a hard market, that is not fully reflected the extra backup that takes a brave that we don't see that we know collectively is there. So it also helps us feel a bit more -- we have more conviction on running more of that business.

Got it. And maybe lastly, switching gears a bit. I believe Arch write a decent amount of professional lines. That's one marketplace that we've seen some stats pointing it to being more of a softer marketplace. Maybe you can comment if that's the case for Arch as well. And I don't know if you gave commentary also just on overall kind of rate increases on your primary insurance book this quarter.

No. So thank you. Good question. So on the first part, for the D&O, we -- our portfolio has been going down a bit further than the rate increase that we saw the professional lines that we have on our financial supplement includes more than this, obviously. But suffice it to say that we're, like everybody else, are seeing a little bit more aggressiveness in that segment. But the one thing that we're -- that makes us being still want to be in there and not declare that this is over by any [indiscernible] is that the trends have been favorable to the OSC claims were down for the last 2 years. And a lot of clients got more broadbrushed rate increase -- rate increase and personally did not fully deserve it. So there's a lot of pushback on this as we speak right now. So again, talk about underwriting and risk selection. There are ways and there are areas where you'll keep getting a 10% rate. There are the areas where you're not okay getting a plus 5%. So I think our team is extremely experienced. I've been doing this for almost 30 years. So there, they're pretty good at picking and choosing their spot in that basis. The overall rate change on that -- we don't record it because the overall rate change is not a good indicator, especially when you have so many varied line of business going up and down. I think that the delta between the rate and -- but you heard with other people and also our book of business, the average is not really a good indicator. But I think the pickup between the trend and the rate is anywhere between to depending on the line of business. So we're still getting some pickup. And those that we may not be getting pickup in margin, at least from the appearance the jury is not as to whether the losses -- the loss trend is truly positive. So it's still not certain where these lines will to be specific D&O.

We have a follow-up question from Jimmy.

On your PMLs, they've obviously gone up because you've written a lot more business and you're retaining a lot more. The 8.1% number that you mentioned, it's still lower than peers. Where would you feel comfortable taking it if the market environment remains favorable?

Well, we think -- yes, just a quick reminder, I think zones for us right now, we're kind of Northeast [indiscernible], we also have like Florida Tri-County, which is kind of at the same level. The 1/1 renewals were more international, more national. So national accounts, not really Southeast specific where we expect to see more activity at 6/1 and 7/1. So no question that we think it will go up. I mean if the market stays as it is right now, could it go up 10%, 12%, we think so, and I think it's a reasonable scenario. But obviously, we'll have to wait and see and figure out and see how the renewals -- how everything gets lined up, but then directionally, I think that's kind of where we think we might be at July 1.

I'm not seeing any further questions. Would you like to have closing remarks?

Thank you, everyone, for listening to our story. It's a great one, and we are looking forward to get even more good news in the July call. So thank you for everything then.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.