Arch Capital Group Ltd. (ACGL): PESTLE Analysis [Nov-2025 Updated]

You need to know where Arch Capital Group Ltd. (ACGL) stands in late 2025. The core story is a powerful tailwind from a hard reinsurance market and high interest rates, projecting Gross Written Premiums (GWP) near $14.5 billion for the fiscal year-a defintely strong position. But honestly, that upside is balanced by real risks: the mounting costs from social inflation (higher jury awards) and the relentless financial volatility driven by climate-related catastrophe events. It's a high-stakes balance of opportunity and exposure, and we need to map out exactly how Political, Economic, Social, Technological, Legal, and Environmental forces are shaping their next move.

Arch Capital Group Ltd. (ACGL) - PESTLE Analysis: Political factors

You're looking at Arch Capital Group Ltd. (ACGL) and trying to map the political risks that could hit their bottom line, and honestly, the biggest change for 2025 isn't a surprise-it's the tax bill. The long-standing advantage of their Bermuda domicile is being fundamentally reshaped by global tax harmonization, which is already visible in their quarterly results. Plus, the US political shift is accelerating the debate around Fannie Mae and Freddie Mac, which directly impacts their massive mortgage insurance segment.

The political landscape is forcing a clear-eyed look at effective tax rates and the future of their largest US-backed business line. It's a moment for realism, not panic.

Bermuda's stable, low-tax jurisdiction remains a core competitive advantage.

Bermuda has long been a cornerstone of the global reinsurance market, offering a stable political environment and a zero corporate income tax rate. That zero-tax era for large multinational enterprises (MNEs) ended on January 1, 2025, with the enactment of the Corporate Income Tax (CIT) Act. Still, the jurisdiction maintains a strong regulatory environment and a deep pool of experienced talent, which is why S&P Global Ratings expects its status as a global re/insurance hub to remain intact despite the tax change. The political stability and regulatory sophistication of the Bermuda Monetary Authority (BMA) remain significant competitive advantages for Arch Capital Group Ltd. over less-regulated domiciles.

Global tax harmonization efforts, specifically the OECD's Pillar Two minimum tax, could affect effective tax rates starting in 2025.

The Organization for Economic Cooperation and Development's (OECD) Pillar Two framework, which mandates a 15% global minimum corporate tax rate for MNEs with annual revenue over €750 million, is the single largest political risk factor for ACGL's financial results in 2025. Bermuda's new CIT, which is effective for tax years beginning on or after January 1, 2025, directly addresses this. This change has already caused a material jump in the company's reported tax rate.

Here's the quick math on the near-term tax impact, based on the company's 2025 fiscal year reports:

The effective tax rate on pre-tax operating income jumped by 3.2 percentage points in Q1 and 5.7 percentage points in Q2 of 2025, largely due to the new Bermuda tax. This higher tax burden is a permanent shift, defintely requiring a recalibration of financial models.

Increased US federal scrutiny on Government-Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac, impacting the mortgage insurance segment.

Arch Capital Group Ltd. is a major player in the US private mortgage insurance (PMI) market, which is inextricably linked to the Government-Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. Political action in Washington, D.C., is focused on GSE reform and a potential exit from conservatorship, with the administration signaling a roadmap in 2025 and potential material action in 2026 or 2027. There's even talk of a possible GSE Initial Public Offering (IPO) as soon as November 2025. The FHFA is actively shaping the market through new directives:

• The FHFA rescinded a 2024 advisory bulletin that asserted its authority to regulate Unfair or Deceptive Acts or Practices (UDAP) by the GSEs, shifting the focus back to the Federal Trade Commission (FTC).
• The agency ended the Special Purpose Credit Programs (SPCPs) at the GSEs, determining the level of support was inappropriate for entities in conservatorship.
• New FHFA leadership is emphasizing support for expanding housing supply, which could influence the types of mortgages the GSEs purchase and, by extension, the demand for PMI.

As a key counterparty, ACGL's business is directly exposed to how the GSEs define their credit risk transfer (CRT) requirements and the volume of loans they purchase. Any change to the GSEs' capital framework or a shift in their mission could alter the competitive landscape for PMI carriers.

Sanctions and trade policies in global areas increase political risk for specialty lines.

ACGL's specialty insurance and reinsurance segments, which cover complex risks like marine, energy, and political violence, are highly sensitive to geopolitical tensions and trade policies. The coordinated but often diverging sanctions regimes of the US, UK, and EU create a significant compliance and underwriting challenge.

• The UK is introducing new sanctions that will bar British insurers from servicing tankers carrying Russian liquefied natural gas (LNG), with a phased rollout through 2026.
• Reinsurers are tightening terms across the board, notably by pushing for explicit Russia, Ukraine, and Belarus (RUB) exclusions in treaties to limit aggregation risk from the war.
• Insurers are increasingly 'de-risking' beyond the letter of the law, meaning they are declining to underwrite certain trades or counterparties to avoid the severe financial and criminal penalties associated with sanctions breaches.

This political risk translates into higher operational costs for due diligence and a shrinking pool of insurable specialty risks, particularly in marine and energy sectors operating in politically volatile regions.

Arch Capital Group Ltd. (ACGL) - PESTLE Analysis: Economic factors

The economic environment in 2025 presents a dual-edged sword for Arch Capital Group Ltd. (ACGL): high interest rates continue to supercharge investment income, which is a major tailwind, but persistent social inflation and softening property reinsurance pricing create significant underwriting challenges.

The company's ability to generate superior returns is currently underpinned by its investment portfolio and its disciplined approach to the still-hard casualty reinsurance market. A key figure to watch is the annualized operating return on average common equity, which stood at a robust 18.5% in the third quarter of 2025.

Sustained High Interest Rates Boosting Investment Income

The Federal Reserve's policy stance, while easing, has kept the benchmark interest rate elevated, a massive benefit for an insurer with a large pool of investable assets. The US Federal Funds Rate was in a target range of 3.75%-4.00% as of the October 2025 meeting, a level that still provides a strong yield on Arch Capital's fixed-income portfolio.

Here's the quick math: higher rates mean a higher return on the float (the premiums collected but not yet paid out as claims). This translated directly into a significant financial boost for the company, with net investment income reaching $567 million in the second quarter of 2025. This income stream provides a crucial buffer against volatility in underwriting results.

Global Reinsurance Market Dynamics Driving Premium Growth

The global reinsurance market is normalizing in 2025 but remains bifurcated. While property-catastrophe rates are beginning to soften due to increased capital inflow, the casualty and specialty lines remain firmly in a hard market, allowing Arch Capital to secure rate increases.

The company's overall gross premiums written (GPW) surged by over 15% to $6.2 billion in the second quarter of 2025, driven by both organic growth and strategic acquisitions. However, the third quarter showed signs of moderation, with the Reinsurance segment's GPW decreasing 9.0% to $2.515 billion year-over-year, reflecting the easing property market and unique prior-year transactions.

The strength of the underwriting environment is evident in the segment results:

Near-Term Headwinds in Mortgage Insurance Segment

Near-term economic uncertainty and higher borrowing costs are defintely tempering growth in the Mortgage segment, which is highly sensitive to the housing market. The segment's gross premiums written fell by 5.0% to $323 million in Q2 2025 and a further 2.7% to $330 million in Q3 2025. This reduction is directly linked to a lower volume of mortgage originations, especially in international businesses, as high interest rates suppress refinancing and new home sales activity.

High Inflation and Social Inflation Impacts on Claims Costs

High inflation is a persistent economic risk for all property and casualty (P&C) insurers. It drives up the cost to repair or replace insured properties, increasing the ultimate claim payout (claims severity). Compounding this is social inflation (the rising cost of insurance claims due to legal and societal trends that exceed general economic inflation).

Social inflation is a major concern in Arch Capital's casualty lines, manifesting as:

• Escalation of 'nuclear verdicts' (jury awards over $10 million).
• Increased litigation funding, which prolongs cases and raises settlement demands.
• Pressure for double-digit rate increases in US casualty lines to offset rising loss costs.

What this estimate hides is the effect of this on underwriting profitability: Arch Capital's combined ratio (excluding catastrophic activity and prior year development) increased to 80.9% in Q2 2025 and 80.5% in Q3 2025, up from 76.7% and 78.3% respectively in the prior year quarters. This upward trend signals that underlying claims costs, influenced by social inflation, are rising faster than earned premiums, even with strong rate increases.

Arch Capital Group Ltd. (ACGL) - PESTLE Analysis: Social factors

Growing social inflation-the trend of higher jury awards and litigation costs-is raising loss ratios in the casualty and specialty insurance segments.

You need to understand that social inflation is a massive headwind, especially for Arch Capital Group Ltd.'s (ACGL) casualty and specialty lines. This isn't just regular inflation; it's the convergence of anti-corporate sentiment, third-party litigation funding, and 'nuclear verdicts'-jury awards exceeding $10 million-that are skyrocketing loss costs.

The numbers are stark: the average jury verdict award in favor of plaintiffs reached $16.2 million in 2024, a dramatic jump from $9.2 million just two years prior. This trend directly impacts ACGL's underwriting profitability in its Insurance and Reinsurance segments. While the company's Q2 2025 combined ratio, excluding catastrophic activity and prior year development, rose to 80.9% from 76.7% in Q2 2024, the underlying loss ratio in the Insurance segment increased by 1.9 percentage points to 53.1%. That increase shows the pressure is building, even with ACGL's disciplined underwriting.

Here's the quick math on the industry-wide spike in liability exposure:

• Total damages in US insurance-related cases: $3.2 billion (2020-2024).
• Increase in total damages (2020-2024 vs. 2015-2019): 187%.
• Average jury verdict award (2024): $16.2 million.

ACGL's management is defintely focused on cycle management, but this social factor means you must consistently re-evaluate reserving and pricing models to stay ahead of the curve. You can't underprice this risk.

Increased public and investor demand for transparent Environmental, Social, and Governance (ESG) reporting and climate-risk disclosure.

The push for greater transparency in ESG is no longer a niche investor concern; it's a core operational and reputational risk. ACGL has responded by embedding climate risk into its enterprise-wide risk management framework, which is what large, sophisticated firms should be doing. They filed their 2024 Annual Report on Form 10-K on February 27, 2025, and their 2024 Sustainability Report in March 2025, aligning with global standards.

The focus is on two main areas:

• Underwriting Risk: How climate change (e.g., California wildfires, which caused $547 million in Q1 2025 catastrophe losses) impacts property and casualty exposures.
• Investment Risk: Integrating sustainability factors into investment selection, as outlined in their Responsible Investing Policy updated in July 2025.

You should expect this pressure to intensify with new mandates like the European Union's Corporate Sustainability Reporting Directive (CSRD) and US state-level requirements, which will demand even more granular data on Scope 1, 2, and 3 emissions starting in 2026 and 2027.

Demographic shifts in the US housing market, including the rise of first-time homebuyers, influence the volume and risk profile of ACGL's mortgage insurance book.

The US housing market dynamics are creating a mixed bag for ACGL's Mortgage segment. On one hand, high home prices and elevated mortgage rates, which averaged near 6.7% for the 30-year fixed rate for much of 2025, have pushed the share of first-time homebuyers down to a historic low of just 24% of all purchasers. This slowdown in new home purchases directly reduces the volume of new mortgage insurance policies ACGL can write.

This is why the Mortgage segment's Gross Premiums Written fell 5.0% to $323 million in Q2 2025, with Net Premiums Written dropping 8.3% year-over-year. Still, the existing book is incredibly strong. ACGL's mortgage unit profits were excellent at $260 million in Q3 2025, largely because policies written in earlier, low-rate years have a large equity cushion due to home price appreciation. This is evident in the Q3 2025 loss ratio being decreased by 18.1 points from favorable development in prior year loss reserves due to better-than-expected cure rates.

Public perception of insurance affordability is a rising political and regulatory pressure point.

Public dissatisfaction over insurance costs, while often focused on health and auto, bleeds into the regulatory environment for all lines, including ACGL's property and casualty exposures. The general public sentiment is that insurance is a heavy financial burden; for example, about 62% of US adults are worried about affording healthcare costs or unexpected medical bills. This worry is translating into direct regulatory focus.

State regulators and the National Association of Insurance Commissioners (NAIC) are actively prioritizing efforts to address the affordability and accessibility of homeowners' insurance in 2025, which is a key area for ACGL's P&C business. This heightened scrutiny means that any significant premium increases in ACGL's specialty or property lines will face intense pushback from regulators concerned about consumer protection and market stability. The industry is facing a challenge of balancing solvency against consumer demands for lower prices, and this political pressure will influence rate approval processes across the country.

Arch Capital Group Ltd. (ACGL) - PESTLE Analysis: Technological factors

You need to understand how technology is both a massive lever for profit and a significant cost center for Arch Capital Group Ltd. (ACGL). The firm's ability to maintain its strong Combined Ratio of 79.8% in Q3 2025 hinges on its tech investments, especially in areas like Artificial Intelligence (AI) and advanced catastrophe modeling. This is not optional spending; it's the cost of staying competitive and managing complex global risk.

Rapid adoption of Artificial Intelligence (AI) and machine learning for faster, more precise underwriting and claims processing, improving expense ratios.

The push for AI and machine learning (ML) is a core driver of operational efficiency across the insurance sector, and ACGL is no exception. While the company's total Underwriting Expense Ratio was 28.4% in Q3 2025, which is higher than the prior year due to acquisitions, the underlying goal of tech adoption is to drive that ratio down over the long term. We see ACGL actively using 'AI-driven risk modeling' to enhance its ability to price complex risks accurately, a key differentiator in a competitive market.

Here's the quick math on the industry-wide opportunity: AI-powered claims automation is cutting processing time by up to 70%, which translates to billions in savings across the sector-an estimated $6.5 billion annually for all insurers. For ACGL, leveraging machine learning in underwriting, which has been shown to improve accuracy by 54% for risk assessments, means better loss ratios and stronger profitability. This is how you turn a high-cost expense into a strategic advantage.

• Industry AI Adoption (2025): 91% of insurance companies are adopting AI technologies.
• Underwriting Impact: ML improves premium accuracy by 53%.
• Claims Impact: AI reduces processing time by up to 70%.

Enhanced catastrophe (Cat) modeling uses satellite imagery and big data to better price and manage natural peril exposure.

Catastrophe modeling is no longer just about historical data; it's a real-time, big-data challenge. ACGL's exposure to major events, such as the $547 million in pre-tax current accident year catastrophic losses from the California wildfires in Q1 2025, makes cutting-edge modeling essential for capital deployment and pricing. The firm uses advanced tools that integrate high-resolution satellite imagery, drone data, and geospatial analytics to create a more granular view of risk. This technological edge allows ACGL to deploy capital into property cat reinsurance, even as others pull back, creating favorable pricing opportunities.

The sophistication of these models allows for better risk segmentation, which is crucial when 12% of the company's reinsurance business is property catastrophe. This precision means ACGL can avoid the pitfalls of overleveraging in volatile markets while still capitalizing on high-return opportunities. It's a classic case of using superior data to manage volatility.

Persistent and increasing threat of cyber-attacks requires ACGL to invest heavily in cyber security and offer more complex cyber insurance products.

The dual threat of cyber risk-internal security and external product offering-is a major focus. The global cybersecurity market is projected to reach $267.51 billion in 2025, reflecting the severity of the threat landscape. For ACGL, this means significant, continuous investment in its own defenses to protect its substantial capital base of approximately $26.4 billion as of September 30, 2025.

On the product side, the cyber insurance market is booming, with global premiums expected to reach $20.6 billion in 2025, growing at a rate of 15% to 20% annually. As a major reinsurer, ACGL is a critical pillar in this market, providing the capital and capacity that primary insurers need. The trend is toward offering more complex products that cover emerging risks, such as losses related to generative AI and data poisoning, which will require new underwriting models and policy language.

Legacy system modernization is a continuous, costly effort to remain competitive.

The cost of doing nothing about old systems is high. Industry data shows that organizations are spending up to 70% of their IT budgets just to maintain legacy systems, with the average cost to operate a single one being $30 million. For a large, diversified firm like ACGL, this technical debt (the implied cost of future modernization) is a drag on its impressive operational efficiency, which is otherwise reflected in its strong free cash flow generation of $3.176 billion annually.

Modernization is a continuous, multi-year effort that involves migrating core systems to the cloud and adopting composable architecture (breaking down monolithic systems into reusable components). This isn't a one-time project; it's a strategic shift that enables the integration of the AI and Cat modeling tools discussed above. If modernization is defintely delayed, the firm risks slower innovation and higher operational costs, even as competitors cut costs by up to 65% through proactive modernization.

Arch Capital Group Ltd. (ACGL) - PESTLE Analysis: Legal factors

Escalating litigation risk from climate change-related disclosures and shareholder lawsuits over Cat losses.

You need to be watching the courtroom, not just the weather, because climate change litigation is hitting insurers from two sides: policyholders and shareholders. Arch Capital Group Ltd. (ACGL) explicitly identifies 'Liability Risk' in its 2024 TCFD report, filed in February 2025, which covers direct legal claims against insurers for failing to manage climate risks. This is a big deal.

The global volume of these cases is accelerating fast. As of July 2025, the total number of climate change cases filed globally reached 3,099, a sharp increase from approximately 2,550 two years prior. These lawsuits aren't just about paying claims (Cat losses); they are increasingly about the company's own disclosures and risk management. If a shareholder can prove ACGL misled them about the true financial exposure from catastrophic (Cat) events, that opens the door to costly securities class actions. This is a long-tail liability that is defintely hard to price.

Here's the quick math on the exposure: ACGL's pre-tax current accident year catastrophic losses, net of reinsurance, were relatively low at $72 million in the 2025 third quarter, but that number is volatile and subject to legal challenge over what constitutes a covered loss.

Regulatory pressure in the US to standardize or simplify mortgage insurance disclosures to consumers.

The regulatory environment for Arch Capital Group Ltd.'s Mortgage segment is shifting, creating a compliance headache. In early 2025, we saw a notable retreat from federal enforcement, particularly with the Consumer Financial Protection Bureau (CFPB) downsizing and dismissing some ongoing lawsuits. But this federal void is being filled by aggressive state-level consumer protection actions, meaning ACGL must now manage a patchwork of rules, not a single federal standard.

A concrete example of this pressure is the 'Homebuyers Privacy Protection Act of 2025' (HPPA), signed in September 2025. This law directly impacts how mortgage insurers market, as it prohibits credit reporting agencies from selling consumer credit information that is 'triggered' by a loan inquiry for unsolicited marketing. This forces ACGL to overhaul its lead generation and disclosure process to ensure explicit consumer consent. The stakes are high, considering ACGL's Mortgage segment is a powerhouse, delivering more than $1 billion of underwriting income in 2024.

The compliance focus points for the Mortgage segment include:

• Adapting marketing to the Homebuyers Privacy Protection Act of 2025.
• Monitoring state-level consumer protection laws filling the CFPB void.
• Ensuring compliance with the Home Mortgage Disclosure Act (HMDA) threshold, which was set at $58 million for 2025 data collection.

Evolving legal interpretations of 'silent cyber' (unintended coverage in non-cyber policies) are forcing policy rewrites.

The 'silent cyber' problem is a ticking time bomb for the re/insurance industry, and ACGL is heavily exposed through its P&C and Reinsurance segments. Silent cyber is the unintended coverage for cyber-related losses found in traditional insurance policies-like property or general liability-that do not explicitly exclude or include cyber risk. When policy wording is ambiguous, courts often favor the insured, leading to huge, unpriced losses.

The legal pressure is forcing a massive policy cleanup. Insurers are now actively rewriting policy language to either explicitly exclude or sub-limit cyber risk from new standard policies and renewals. This is critical because the potential systemic loss from a single, severe cyber incident in the U.S. is estimated to range between $2.8 billion to $1 trillion. That's a huge gap between premium collected and potential payout.

Here is a summary of the legal action required to manage this risk:

The cost of defending these claims, even if successful, is a drag on underwriting profit. Arch Reinsurance is on the hook to clarify this for its cedents (the primary insurers it reinsures), too.

Increased class-action lawsuits in the property and casualty (P&C) sector, particularly tied to claims handling practices.

The P&C sector is seeing a clear rise in class-action litigation, specifically targeting claims handling practices, which directly impacts ACGL's Insurance group, which wrote $6.9 billion of net premium in 2024. The trend is away from individual bad-faith lawsuits and toward large-scale class actions that challenge systemic insurer practices.

A major precedent was set in July 2025 with the court approval of a class in Pitkin v. State Farm, involving roughly 200,000 policyholders over the practice of deducting sales tax from replacement value claims. This demonstrates courts are willing to certify large classes when the alleged misconduct is based on a standardized policy or claims-handling procedure. Also, in California, a key 2025 Supreme Court ruling revived a policyholder's case by distinguishing Unfair Competition Law claims from standard coverage claims, applying a four-year statute of limitations instead of the one-year policy deadline. This effectively gives policyholders a much longer window to sue over unfair practices.

For ACGL, this means every claims-handling manual and software algorithm is a potential exhibit in a class-action suit. While the company reported a favorable development in prior year loss reserves of $103 million in the 2025 third quarter, this new legal landscape means future reserve releases will be harder to achieve as the liability tail for claims-handling issues gets longer.

Finance: Review Q3 2025 litigation reserves for P&C claims-handling exposure, factoring in the new four-year statute of limitations in key states.

Arch Capital Group Ltd. (ACGL) - PESTLE Analysis: Environmental factors

The environmental forces impacting Arch Capital Group Ltd. (ACGL) in 2025 center squarely on climate-related volatility, which is fundamentally reshaping the property catastrophe (Cat) reinsurance market. You need to understand that this isn't just about hurricanes anymore; it's the increasing frequency and severity of smaller, or secondary, perils that are driving up risk and capital costs.

Increased frequency and severity of secondary peril events challenge traditional Cat modeling assumptions

The biggest environmental risk for ACGL in 2025 has been the rise of secondary perils-events like wildfires, convective storms, and floods that fall outside the scope of traditional, peak-peril modeling (like major hurricanes). Honestly, this is where the old models are defintely breaking down. The most concrete example this year was the impact of the California wildfires in the first quarter of 2025. ACGL reported pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums, of $547 million for the first quarter, with the majority of that loss attributed to the California wildfires. This single event caused the loss ratio for the quarter to include 9.5 points of current year catastrophic activity, highlighting how a non-peak peril can severely impact quarterly earnings.

Here's the quick math on 2025 Cat losses for the first three quarters:

The volatility is clear. A quiet Q3, with just a $72 million Cat loss, followed a tumultuous Q1. But still, the Q1 wildfire loss was a massive wake-up call on the true cost of secondary perils.

ACGL's Cat exposure is a major balance sheet risk, necessitating ongoing capital management through instruments like catastrophe bonds

Catastrophe (Cat) exposure remains a core balance sheet risk for any major reinsurer, and ACGL manages this by actively transferring risk to the capital markets. The company has been disciplined, with its Cat exposure as a share of capital steadily falling since early 2024. This capital management is crucial for maintaining a strong financial position, especially after absorbing a $547 million Cat loss in Q1 2025. One key tool is the catastrophe bond (Cat Bond), which provides multi-year, fully collateralized protection against major events.

The broader Cat Bond market is essential for ACGL's risk transfer strategy, and it's booming in 2025:

• Total Cat Bond issuance for the nine-month period ending September 30, 2025, hit a record $18.6 billion.
• The total outstanding Cat Bond market size surged to $56.1 billion by the end of Q3 2025.
• ACGL is an active sponsor in this market, using these instruments to stabilize its balance sheet against major, low-frequency, high-severity events.

This capital market mechanism allows ACGL to deploy capital strategically into property Cat reinsurance, seizing favorable pricing opportunities when other competitors pull back due to elevated risks. It's smart risk-taking.

Pressure to divest from or limit underwriting of carbon-intensive industries, aligning with net-zero commitments

Stakeholder pressure from investors, regulators, and non-governmental organizations (NGOs) is forcing ACGL to formalize its stance on underwriting and investing in carbon-intensive industries. This is an ESG (Environmental, Social, and Governance) issue that directly impacts the underwriting portfolio. ACGL already has a Thermal Coal Policy in place. Furthermore, the company has developed principles-based policies for sensitive underwriting factors related to oil sands and arctic energy exploration and production. This is a clear move to limit future exposure.

Looking at the investment side, ACGL is actively measuring carbon metrics. As of the end of 2022, ACGL's portfolio exposure to thermal coal was only 1.3% of the total portfolio, or approximately $359 million, with total fossil fuel exposure at 3.8% of the portfolio, or about $1,067 million. While 2025 figures are not yet public, the trend is toward reduction and divestment, aligning with the global push for net-zero emissions. The ultimate action here is to integrate climate-related risk assessments into the Own Risk and Solvency Assessment (ORSA) process, which ACGL does.

The cost of reinsurance for ACGL's own Cat exposure is rising due to global climate trends

The cost of reinsurance-the insurance ACGL buys to protect its own book of business-is a constant pressure point. Global climate trends, especially the increased frequency of secondary perils, are a key driver of higher reinsurance pricing industry-wide. ACGL has consistently flagged the 'availability to the Company of reinsurance to manage our net exposures and the cost of such reinsurance' as a major risk factor in its 2025 filings. However, the market is not monolithic.

While general Cat reinsurance rates are high, specific market dynamics can create exceptions. For instance, the Florida wind exposure market saw some weaker pricing in 2025 due to local tort reform, which helped reduce expected costs for insurers, increasing competition and slightly reducing premiums in that specific line. This is a localized opportunity, but the overall climate-driven trend is for elevated costs. A direct financial reflection of the market tightening is the lower level of reinstatement premiums reported in Q3 2025, which can indicate that fewer companies are buying back full coverage immediately after a loss event due to the high cost.

Next Step: Risk Team: Model the Q1 2025 California wildfire loss ($547 million) against the new Cat Bond issuance capacity to stress-test the 2026 capital plan by month-end.