By Chris Munro

April 30 - (The Insurer) - Arch Capital Group may continue leaning into property catastrophe at the midyear Florida renewals provided rates hold up as CEO Nicolas Papadopoulo declared the company is “definitely” getting rate above casualty loss trend and warned social inflation’s impact “has not fully played out."

During a call with analysts on Wednesday morning to discuss Arch’s Q1 2025 results, Papadopoulou described the company’s reinsurance net premiums written growth of 2.2% year on year in Q1 2025 to $2.32 billion as “modest”.

That limited expansion, the executive said, reflected increased competition, cedants retaining more risk retention and company reducing its participation on some deals where margins no longer met its hurdles.

Papadopoulo explained that one area where Arch Re did deploy additional capacity in Q1 2025 was in property catastrophe lines where opportunities remain attractive, notably on loss-affected accounts.

“As we look towards midyear renewals, particularly wind coverage in Florida and the Gulf, we expect additional demand from existing and new clients,” the executive said.

“On the supply side, it is worth noting that for many reinsurers and the ILS funds, this zone represents peak exposure.

“As a result, significant additional capacity may be harder to come by, even if the market is more competitive on the margin,” Papadopoulo added.

Reflecting on property catastrophe market conditions, Arch’s chief financial officer Francois Morin said in the wake of the California wildfires, the company expects there will be “some stabilization” in the sector.

Looking ahead to the Florida renewals though, Morin noted the Sunshine State “is its own different market.”

Papadopoulo said the Florida outlook is for pricing to be “pretty flattish.”

That comes against a backdrop where Papadopoulo said Arch expects there to be more demand for reinsurance in Florida at the upcoming renewals.

He cited several reasons for that belief, including the Florida Hurricane Catastrophe Fund raising its own retention by $1.5 billion, along with cedants generally wanting to increase their limits of coverage – something they may not have been able to do in recent years owing to a lack of capacity.

“We like the business,” he said.

“We think there’s an opportunity to potentially do more if the rates hold up,” Papadopoulo added.

The executive said the market dynamic in Florida means the midyear renewals will differ from those at the Japan-dominated April 1 discussions.

At April 1, Papadopoulo said rates were broadly down by the single digits, with the decreases “a bit more than that in Japan” mainly because of one cedant buying less, prompting a “market scramble."

“The dynamic in Florida is…a little different because it's a peak zone for most markets,” he said, with “not that much supply in the marketplace.”

At the Florida midyear renewals, there will be more competitive pressure at the top of programs than at the bottom, Papadopoulo suggested.

“The dynamic is people like the top layers, but there aren’t that many top layers and people don't like the bottom of the program,” he said.

Papadopoulo said the bottom of programs that were affected by Hurricane Milton last year are expected to see some price increases.

“Would that be compensated by price decrease at the top of the program? I don't know,” he said.

“But that's why I think our view is, if things play out the way they should which they never do, we would expect something more flattish for Florida.

“And at that point, we feel that based on our positioning, we should be able at least to keep our share of the programs that are buying more, and therefore, we may have opportunity to deploy more capital.”

SOCIAL INFLATION CONCERNS REMAIN

During the call, Deutsche Bank analyst Cave Montazeri asked Arch’s management whether given the relatively limited reserve strengthening seen so far in 2025, is the industry now “past the point of maximum fear with regard to social inflation?"

Papadopoulo dismissed that notion.

“I don't know when the pain will come, but it will come. There's more pain,” the Arch chief declared.

“How people manage the pain, I can't tell, but we think the casualty social inflation story has not fully played out.”

Papadopoulo said Arch is “definitely” getting rate above loss trend in its casualty business.

“Where we feel comfortable with the exposure, the jurisdiction, the type of the terms and condition that we get, I think we're willing to lean in,” he said.

“But I don't think we are still at the case where it's a market that you can take a share of it and guarantee that you're going to make an adequate return,” Papadopoulo added.