Arch favors buybacks over expensive M&A
Arch Capital Group Capital held its second-quarter 2026 earnings call on July 29. Here are the key takeaways.
Arch says the soft market is only beginning
After five years of favorable pricing in property and other short-tail lines, Arch is seeing more capacity, greater competition and falling rates. Management still considers the overall underwriting environment attractive but expects growth to become more difficult.
“While the underwriting environment is increasingly competitive, it is important to note that we are still in the early stages of this softening market.”
Arch returned 94% of first-half net income through buybacks
Arch repurchased $1.2 billion of shares during the second quarter, bringing first-half repurchases to $1.95 billion. Management said the company cannot deploy all of the capital generated during the hard market at acceptable returns, making buybacks its preferred option.
Arch could return all its earnings if growth remains limited
Management said Arch has sufficient capital and earnings power to continue returning capital when underwriting opportunities do not justify additional deployment. M&A or other opportunities could alter that decision.
Property catastrophe rates fell by the mid-teens
Arch observed mid-teens rate reductions during midyear property catastrophe renewals. Management believes pricing remains above 2022 levels and may be closer to 2023, although adequacy varies significantly by region.
Arch is reducing property exposure
Reinsurance net premiums written declined 10% as some clients retained more risk and increased competition pushed down property rates. Arch also bought more retrocession and shifted business to third-party capital to manage its net exposure.
Casualty reinsurance remains attractive—but capacity is abundant
Arch continues to see opportunity in specialty casualty reinsurance when the underlying insurer is a strong underwriter. The main challenge is too much reinsurance capacity competing for a limited amount of business, particularly through quota-share contracts with high ceding commissions.
Arch requires casualty underwriting profit
The company does not use higher investment yields to justify inadequate casualty pricing. It credits underwriters with a risk-free investment return but still requires the insurance itself to generate an underwriting profit.
Middle-market property is holding up better than large and E&S property
Arch’s middle-market package business continues to receive mid-single-digit rate increases, while property pricing is roughly flat. This is more favorable than the double-digit decreases seen in large-account and E&S property.
“We don’t see the double-digit decrease that we see elsewhere on the Excess and Surplus property or large account property.”
Middle East losses came from damaged properties
Arch recorded $201 million in catastrophe losses during the quarter from the Iran conflict and US severe convective storms. Most of the insurance-segment catastrophe losses came from refineries and other properties that were physically damaged, rather than precautionary reserves for potential claims.
The conflict also created new business opportunities
War and terrorism prices increased sharply after the losses. Arch selectively deployed more capacity while managing geographic concentrations and serving existing clients whose standard property policies excluded war.
“Prices at some point were a multiple of what they were before the conflict, and so we decided to deploy a bit of capacity.”
Arch does not yet see tort reform changing loss trends
Management acknowledged more industry efforts to challenge plaintiff attorneys but said the results have not yet appeared in Arch’s casualty loss data.
Mortgage insurance remains the stable leg
Arch’s mortgage segment generated $220 million in underwriting income, supported by a 2.1% US delinquency rate. Management contrasted the sharp price swings in property catastrophe reinsurance with mortgage insurance, where the market responds quickly even to small pricing changes.
Buybacks currently beat a special dividend
Arch issued a special dividend in 2024 when its shares traded at approximately twice book value. With the stock now trading around 1.5 to 1.6 times book value, management believes repurchases remain more attractive.
“Right now, we’re in the buyback range.”
M&A is expensive
Arch views acquisitions as a way to add capabilities or scale in strategically important markets—not simply as another outlet for excess capital. Management said current valuations are high and warned that deals made as the market softens can bring weaker balance sheets.
“My honest view on M&A in this market is it’s expensive.”
Arch is prepared to walk away
The company is reducing premium in areas where pricing no longer meets its return requirements, including E&S property and certain program business. Management sees this discipline as central to navigating the early soft market.
“A more competitive environment doesn’t mean a lack of opportunity. It simply requires greater discipline in where and how capital is deployed.”
