10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number:  001-16209

ARCH CAPITAL GROUP LTD.

(Exact name of registrant as specified in its charter)

Bermuda	Not applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Waterloo House, Ground Floor
100 Pitts Bay Road, Pembroke HM 08, Bermuda	(441) 278-9250
(Address of principal executive offices)	(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þNo o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ     Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated Filer þAccelerated Filer o Non-accelerated Filer oSmaller reporting company oEmerging growth company o

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo þ

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol (s)	Name of each exchange on which registered
Common shares, $0.0011 par value per share	ACGL	NASDAQ Stock Market
Depositary shares, each representing a 1/100th interest in a 5.25% Series E preferred share	ACGLP	NASDAQ Stock Market
Depositary shares, each representing a 1/100th interest in a 5.45% Series F preferred share	ACGLO	NASDAQ Stock Market

As of May 1, 2019, there were 403,803,412 common shares, $0.0011 par value per share, of the registrant outstanding.

ARCH CAPITAL GROUP LTD.

INDEX TO FORM 10-Q

		Page No.
	PART I
	Financial Information	2
Item 1.	Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63
Item 4.	Controls and Procedures	64
	PART II
	Other Information	65
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 5.	Other Information	66
Item 6.	Exhibits	67
	Signatures	68

ARCH CAPITAL 1 2019 FIRST QUARTER FORM 10-Q

PART I.  FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides a “safe harbor” for forward-looking statements. This report or any other written or oral statements made by or on behalf of us may include forward-looking statements, which reflect our current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this report are forward-looking statements. Forward-looking statements, for purposes of the PSLRA or otherwise, can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” and similar statements of a future or forward-looking nature or their negative or variations or similar terminology.

Forward-looking statements involve our current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed below and elsewhere in this report and in our periodic reports filed with the Securities and Exchange Commission (the “SEC”), and include:

• our ability to successfully implement our business strategy during “soft” as well as “hard” markets;

• acceptance of our business strategy, security and financial condition by rating agencies and regulators, as well as by brokers and our insureds and reinsureds;

• the integration of any businesses we have acquired or may acquire into our existing operations;

• our ability to maintain or improve our ratings, which may be affected by our ability to raise additional equity or debt financings, by ratings agencies’ existing or new policies and practices, as well as other factors described herein;

• general economic and market conditions (including inflation, interest rates, unemployment, housing prices, foreign currency exchange rates, prevailing credit terms and the depth and duration of a recession) and conditions specific to the reinsurance and insurance markets (including the length and magnitude of the current “soft” market) in which we operate;

• competition, including increased competition, on the basis of pricing, capacity (including alternative sources of capital), coverage terms, or other factors;

• developments in the world’s financial and capital markets and our access to such markets;

• our ability to successfully enhance, integrate and maintain operating procedures (including information technology) to effectively support our current and new business;

• the loss of key personnel;

• accuracy of those estimates and judgments utilized in the preparation of our financial statements, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment valuations, intangible assets, bad debts, income taxes, contingencies and litigation, and any determination to use the deposit method of accounting, which for a relatively new insurance and reinsurance company, like our company, are even more difficult to make than those made in a mature company since relatively limited historical information has been reported to us through March 31, 2019;

• greater than expected loss ratios on business written by us and adverse development on claim and/or claim expense liabilities related to business written by our insurance and reinsurance subsidiaries;

• severity and/or frequency of losses;

• claims for natural or man-made catastrophic events or severe economic events in our insurance, reinsurance and mortgage businesses could cause large losses and substantial volatility in our results of operations;

• the effect of climate change on the Company’s business;

• acts of terrorism, political unrest and other hostilities or other unforecasted and unpredictable events;

• availability to us of reinsurance to manage our gross and net exposures and the cost of such reinsurance;

• the failure of reinsurers, managing general agents, third party administrators or others to meet their obligations to us;

• the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by us;

ARCH CAPITAL 2 2019 FIRST QUARTER FORM 10-Q

• our investment performance, including legislative or regulatory developments that may adversely affect the fair value of our investments;

• changes in general economic conditions, including new or continued sovereign debt concerns in Eurozone countries or downgrades of U.S. securities by credit rating agencies, which could affect our business, financial condition and results of operations;

• the volatility of our shareholders’ equity from foreign currency fluctuations, which could increase due to us not matching portions of our projected liabilities in foreign currencies with investments in the same currencies;

• changes in accounting principles or policies or in our application of such accounting principles or policies;

• changes in the political environment of certain countries in which we operate or underwrite business;

• a disruption caused by cyber-attacks or other technology breaches or failures on us or our business partners and service providers, which could negatively impact our business and/or expose us to litigation;

• statutory or regulatory developments, including as to tax matters and insurance and other regulatory matters such as the adoption of proposed legislation that would affect Bermuda-headquartered companies and/or Bermuda-based insurers or reinsurers and/or changes in regulations or tax laws applicable to us, our subsidiaries, brokers or customers, including the Tax Cuts and Jobs Act of 2017; and

• the other matters set forth under Item 1A “Risk Factors”, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of our Annual Report on Form 10-K for the year ended December 31, 2018, as well as the other factors set forth in our other documents on file with the SEC, and management’s response to any of the aforementioned factors.

All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. 

ARCH CAPITAL 3 2019 FIRST QUARTER FORM 10-Q

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

	Page No.
Report of Independent Registered Public Accounting Firm	5
Consolidated Balance Sheets
March 31, 2019 (unaudited) and December 31, 2018	6
Consolidated Statements of Income
For the three month periods ended March 31, 2019 and 2018 (unaudited)	7
Consolidated Statements of Comprehensive Income
For the three month periods ended March 31, 2019 and 2018 (unaudited)	8
Consolidated Statements of Changes in Shareholders’ Equity
For the three month periods ended March 31, 2019 and 2018 (unaudited)	9
Consolidated Statements of Cash Flows
For the three month periods ended March 31, 2019 and 2018 (unaudited)	10
Notes to Consolidated Financial Statements (unaudited)
Note 1 - Basis of Presentation and Recent Accounting Pronouncements	11
Note 2 - Share Transactions	12
Note 3 - Earnings Per Common Share	13
Note 4 - Segment Information	14
Note 5 - Reserves for Losses and Loss Adjustment Expenses	17
Note 6 - Investment Information	19
Note 7 - Fair Value	24
Note 8 - Derivative Instruments	29
Note 9 - Commitments and Contingencies	30
Note 10 - Leases	30
Note 11 - Variable Interest Entities and Noncontrolling Interests	31
Note 12 - Other Comprehensive Income (Loss)	34
Note 13 - Guarantor Financial Information	35
Note 14 - Income Taxes	41
Note 15 - Legal Proceedings	41
Note 16 - Subsequent Event	41

ARCH CAPITAL 4 2019 FIRST QUARTER FORM 10-Q

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Arch Capital Group Ltd.:

Results of Review of Financial Statements

We have reviewed the accompanying consolidated balance sheet of Arch Capital Group Ltd. and its subsidiaries (the “Company”) as of March 31, 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the three-month periods ended March 31, 2019 and 2018, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2018, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein), and in our report dated February 28, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

New York, NY

May 7, 2019

ARCH CAPITAL 5 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands, except share data)
	(Unaudited)
	March 31, 2019			December 31, 2018
Assets
Investments:
Fixed maturities available for sale, at fair value (amortized cost: $15,063,594 and $14,829,902)	$	15,177,312		$	14,699,010
Short-term investments available for sale, at fair value (amortized cost: $705,954 and $956,238)	706,214			955,880
Collateral received under securities lending, at fair value (amortized cost: $415,048 and $274,125)	415,056			274,133
Equity securities, at fair value	495,895			338,899
Investments accounted for using the fair value option	3,969,623			3,983,571
Investments accounted for using the equity method	1,563,779			1,493,791
Total investments	22,327,879			21,745,284
Cash	633,100			646,556
Accrued investment income	112,935			114,641
Securities pledged under securities lending, at fair value (amortized cost: $400,948 and $266,786)	404,262			268,395
Premiums receivable	1,584,682			1,299,150
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	3,099,823			2,919,372
Contractholder receivables	2,087,720			2,079,111
Ceded unearned premiums	1,099,581			975,469
Deferred acquisition costs	597,526			569,574
Receivable for securities sold	334,982			36,246
Goodwill and intangible assets	659,215			634,920
Other assets	1,035,332			929,611
Total assets	$	33,977,037		$	32,218,329
Liabilities
Reserve for losses and loss adjustment expenses	$	12,010,041		$	11,853,297
Unearned premiums	4,036,119			3,753,636
Reinsurance balances payable	453,058			393,107
Contractholder payables	2,087,720			2,079,111
Collateral held for insured obligations	232,411			236,630
Senior notes	1,733,694			1,733,528
Revolving credit agreement borrowings	488,612			455,682
Securities lending payable	415,048			274,125
Payable for securities purchased	376,332			90,034
Other liabilities	984,942			911,500
Total liabilities	22,817,977			21,780,650
Commitments and Contingencies
Redeemable noncontrolling interests	206,383			206,292
Shareholders' Equity
Non-cumulative preferred shares	780,000			780,000
Common shares ($0.0011 par, shares issued: 572,238,363 and 570,737,283)	636			634
Additional paid-in capital	1,819,605			1,793,781
Retained earnings	9,864,424			9,426,299
Accumulated other comprehensive income (loss), net of deferred income tax	38,323			(178,720		)
Common shares held in treasury, at cost (shares: 168,499,599 and 168,282,449)	(2,388,392		)	(2,382,167		)
Total shareholders' equity available to Arch	10,114,596			9,439,827
Non-redeemable noncontrolling interests	838,081			791,560
Total shareholders' equity	10,952,677			10,231,387
Total liabilities, noncontrolling interests and shareholders' equity	$	33,977,037		$	32,218,329

See Notes to Consolidated Financial Statements

ARCH CAPITAL 6 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (U.S. dollars in thousands, except share data)
	(Unaudited)
	Three Months Ended
	March 31,
	2019			2018
Revenues
Net premiums written	$	1,525,259		$	1,412,544
Change in unearned premiums	(156,393		)	(177,645		)
Net premiums earned	1,368,866			1,234,899
Net investment income	156,949			126,724
Net realized gains (losses)	141,565			(110,998		)
Other-than-temporary impairment losses	(1,309		)	(162		)
Less investment impairments recognized in other comprehensive income, before taxes	—			—
Net impairment losses recognized in earnings	(1,309		)	(162		)
Other underwriting income	8,825			5,349
Equity in net income of investment funds accounted for using the equity method	46,867			28,069
Other income	1,083			74
Total revenues	1,722,846			1,283,955
Expenses
Losses and loss adjustment expenses	718,532			636,860
Acquisition expenses	197,848			191,376
Other operating expenses	201,163			175,015
Corporate expenses	17,962			15,312
Amortization of intangible assets	20,417			26,736
Interest expense	29,065			30,636
Net foreign exchange (gains) losses	(3,525		)	19,721
Total expenses	1,181,462			1,095,656
Income before income taxes	541,384			188,299
Income tax expense	(45,886		)	(21,915		)
Net income	$	495,498		$	166,384
Net (income) loss attributable to noncontrolling interests	(46,970		)	(15,961		)
Net income available to Arch	448,528			150,423
Preferred dividends	(10,403		)	(10,437		)
Loss on redemption of preferred shares	—			(2,710		)
Net income available to Arch common shareholders	$	438,125		$	137,276
Net income per common share and common share equivalent
Basic	$	1.09		$	0.34
Diluted	$	1.07		$	0.33
Weighted average common shares and common share equivalents outstanding
Basic	400,184,404			407,539,728
Diluted	408,971,029			417,893,802

See Notes to Consolidated Financial Statements

ARCH CAPITAL 7 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (U.S. dollars in thousands)
	(Unaudited)
	Three Months Ended
	March 31,
	2019			2018
Comprehensive Income
Net income	$	495,498		$	166,384
Other comprehensive income (loss), net of deferred income tax
Unrealized appreciation (decline) in value of available-for-sale investments:
Unrealized holding gains (losses) arising during period	225,887			(166,677		)
Reclassification of net realized (gains) losses, net of income taxes, included in net income (loss)	(10,221		)	62,461
Foreign currency translation adjustments	5,516			1,282
Comprehensive income	716,680			63,450
Net (income) loss attributable to noncontrolling interests	(46,970		)	(15,961		)
Other comprehensive (income) loss attributable to noncontrolling interests	(4,139		)	673
Comprehensive income available to Arch	$	665,571		$	48,162

See Notes to Consolidated Financial Statements

ARCH CAPITAL 8 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (U.S. dollars in thousands)
	(Unaudited)
	Three Months Ended
	March 31,
	2019			2018
Non-cumulative preferred shares
Balance at beginning of period	$	780,000		$	872,555
Preferred shares redeemed	—			(92,555		)
Balance at end of period	780,000			780,000
Convertible non-voting common equivalent preferred shares
Balance at beginning of period	—			489,627
Preferred shares converted to common shares	—			(489,627		)
Balance at end of period	—			—
Common shares
Balance at beginning of period	634			611
Common shares issued, net	2			19
Balance at end of period	636			630
Additional paid-in capital
Balance at beginning of period	1,793,781			1,230,617
Preferred shares converted to common shares	—			489,608
Other changes	25,824			17,753
Balance at end of period	1,819,605			1,737,978
Retained earnings
Balance at beginning of period	9,426,299			8,562,889
Cumulative effect of an accounting change	—			149,794
Balance at beginning of period, as adjusted	9,426,299			8,712,683
Net income	495,498			166,384
Net (income) loss attributable to noncontrolling interests	(46,970		)	(15,961		)
Preferred share dividends	(10,403		)	(10,437		)
Loss on redemption of preferred shares	—			(2,710		)
Balance at end of period	9,864,424			8,849,959
Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of period	(178,720		)	118,044
Unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax:
Balance at beginning of period	(114,178		)	157,400
Cumulative effect of an accounting change	—			(149,794		)
Balance at beginning of period, as adjusted	(114,178		)	7,606
Unrealized holding gains (losses) during period, net of reclassification adjustment	215,666			(104,216		)
Unrealized holding gains (losses) during period attributable to noncontrolling interests	(4,286		)	372
Balance at end of period	97,202			(96,238		)
Foreign currency translation adjustments, net of deferred income tax:
Balance at beginning of period	(64,542		)	(39,356		)
Foreign currency translation adjustments	5,516			1,282
Foreign currency translation adjustments attributable to noncontrolling interests	147			303
Balance at end of period	(58,879		)	(37,771		)
Balance at end of period	38,323			(134,009		)
Common shares held in treasury, at cost
Balance at beginning of period	(2,382,167		)	(2,077,741		)
Shares repurchased for treasury	(6,225		)	(6,445		)
Balance at end of period	(2,388,392		)	(2,084,186		)
Total shareholders’ equity available to Arch	10,114,596			9,150,372
Non-redeemable noncontrolling interests	838,081			854,112
Total shareholders’ equity	$	10,952,677		$	10,004,484

See Notes to Consolidated Financial Statements

ARCH CAPITAL 9 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands)
	(Unaudited)
	Three Months Ended
	March 31,
	2019			2018
Operating Activities
Net income	$	495,498		$	166,384
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses	(145,400		)	101,995
Net impairment losses recognized in earnings	1,309			162
Equity in net income or loss of investment funds accounted for using the equity method and other income or loss	(29,752		)	(19,383		)
Amortization of intangible assets	20,417			26,736
Share-based compensation	25,891			14,664
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	(6,005		)	86,319
Unearned premiums, net of ceded unearned premiums	156,393			177,645
Premiums receivable	(285,137		)	(233,772		)
Deferred acquisition costs	(23,168		)	(30,347		)
Reinsurance balances payable	62,605			53,634
Other items, net	(37,253		)	56,143
Net cash provided by operating activities	235,398			400,180
Investing Activities
Purchases of fixed maturity investments	(7,444,470		)	(9,681,267		)
Purchases of equity securities	(203,810		)	(377,000		)
Purchases of other investments	(324,593		)	(522,454		)
Proceeds from sales of fixed maturity investments	7,076,590			8,679,147
Proceeds from sales of equity securities	95,017			291,311
Proceeds from sales, redemptions and maturities of other investments	216,483			436,566
Proceeds from redemptions and maturities of fixed maturity investments	100,424			287,031
Net settlements of derivative instruments	29,737			36,070
Net sales of short-term investments	292,601			595,318
Change in cash collateral related to securities lending	(29,618		)	161,567
Purchases of fixed assets	(9,423		)	(4,240		)
Other	(93,731		)	40,037
Net cash used for investing activities	(294,793		)	(57,914		)
Financing Activities
Redemption of preferred shares	—			(92,555		)
Purchases of common shares under share repurchase program	(2,871		)	(3,299		)
Proceeds from common shares issued, net	(1,901		)	(2,779		)
Proceeds from borrowings	59,000			39,585
Repayments of borrowings	(26,038		)	(101,000		)
Change in cash collateral related to securities lending	29,618			(161,567		)
Dividends paid to redeemable noncontrolling interests	(4,497		)	(4,497		)
Other	(1,389		)	(2,356		)
Preferred dividends paid	(10,403		)	(10,437		)
Net cash provided by (used for) financing activities	41,519			(338,905		)
Effects of exchange rate changes on foreign currency cash and restricted cash	3,449			1,611
Increase (decrease) in cash and restricted cash	(14,427		)	4,972
Cash and restricted cash, beginning of year	724,643			727,284
Cash and restricted cash, end of period	$	710,216		$	732,256

See Notes to Consolidated Financial Statements

ARCH CAPITAL 10 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.    Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation

Arch Capital Group Ltd. (“Arch Capital”) is a Bermuda public limited liability company which provides insurance, reinsurance and mortgage insurance on a worldwide basis through its wholly-owned subsidiaries. As used herein, the “Company” means Arch Capital and its subsidiaries. The Company’s consolidated financial statements include the results of Watford Holdings Ltd. and its wholly owned subsidiaries. See note 11.

On January 1, 2019, the Company’s U.K. insurance operations entered into a transaction with The Ardonagh Group to acquire renewal rights for a U.K. commercial lines book of business, consisting of commercial property, casualty, motor, professional liability, personal accident and travel business.

The interim consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany transactions and balances have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of results on an interim basis. The results of any interim period are not necessarily indicative of the results for a full year or any future periods.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted; however, management believes that the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”), including the Company’s audited consolidated financial statements and related notes.

The Company has reclassified the presentation of certain prior year information to conform to the current presentation. Such reclassifications had no effect on the Company’s net income, comprehensive income, shareholders’ equity or cash flows. Tabular amounts are in U.S. Dollars in thousands, except share amounts, unless otherwise noted.

Recent Accounting Pronouncements

Recently Issued Accounting Standards Adopted

The Company adopted ASU 2016-02, “Leases (Topic 842)”, which provides a new comprehensive model for lease accounting. Topic 842 requires a lessee to recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The Company adopted the modified retrospective approach of this standard, that resulted in the recognition of a right-of-use asset of  $147.9 million as part of other assets and a lease liability of $163.6 million as part of other liabilities in the consolidated balance sheet as of January 1, 2019. The Company de-recognizing the liability for deferred rent that was required under the previous guidance.

In addition, the Company adopted ASU 2018-11, “Leases: Targeted Improvements (Topic 842),” which provides an additional (optional) transition method to adopt the new lease standard. The Company adopted the alternative transition method and elected to utilize a cumulative-effect adjustment to the opening balance of the retained earnings for the year of adoption. As such, the Company’s reporting for the comparative periods prior to the adoption continue to be presented in the financial statements in accordance with previous lease accounting guidance. The Company also adopted the practical expedients as a package which allows the Company to not reassess (1) whether any expired or existing contracts are or contain leases (2) the lease classification for any expired or existing leases (3) initial direct costs for any existing leases and (4) to account for the lease and non lease components as a single lease component. In addition to electing the practical expedients as a package, the Company elected to include hindsight to determine the lease term of existing leases, and made an accounting policy election to not apply the recognition requirements to short-term leases (lease term of less than twelve months). The cumulative effect adjustment to the opening balance of retained earnings was zero. The adoption of the updated guidance did not have a material effect on the Company’s results of operations or liquidity.

The Company adopted ASU 2018-07 “Improvements to Nonemployee Share-Based Payment Accounting,” which was issued in June 2018 to simplify the accounting for share-based payments granted to nonemployees for goods and services. Under this ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The ASU is effective for reporting periods beginning after December 15, 2018. This guidance and the adoption of this provision did not have a material effect on the Company's financial position, results of operations or cash flows.

ASU 2018-02 “Income Statement-Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects

ARCH CAPITAL 11 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

from Accumulated Other Comprehensive Income,” was issued in February 2018 to allow the reclassification of the stranded tax effects in accumulated other comprehensive income (“AOCI”) resulting from the Tax Cuts and Jobs Act of 2017 (“Tax Cuts Act”). Current guidance requires the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in the accounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited directly to AOCI. The amount of the reclassification would include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of the enactment of the Tax Cuts Act related to items in AOCI. The updated guidance is effective for reporting periods beginning after December 15, 2018 and is to be applied retrospectively to each period in which the effect of the Tax Cuts Act related to items remaining in AOCI are recognized or at the beginning of the period of adoption. The adoption of this ASU did not have a material effect on the Company’s results of operations, financial position or liquidity.

Recently Issued Accounting Standards Not Yet Adopted

For information regarding additional accounting standards that the Company has not yet adopted, see note 3(q), “Significant Accounting Policies—Recent Accounting Pronouncements,” of the notes to consolidated financial statements in the Company’s 2018 Form 10-K.

2.    Share Transactions

Share-Based Compensation

Annual long-term incentive awards have historically been made in the second quarter of each year. However, beginning in 2019, the awards were made in the first quarter.

During the 2019 first quarter, the Company granted 1,182,264 stock options, 672,768 performance share awards (“PSAs”) and units (“PSUs”) and 1,099,125 restricted shares and units to certain employees. The stock options were valued at the grant date using the Black-Scholes option pricing model. The weighted average grant-date fair value of the stock options, PSAs/PSUs and restricted shares and units granted during the 2019 first quarter were approximately $7.90, $35.83 and $32.64 per share, respectively. Such values are being amortized over the respective substantive vesting period.

During the 2018 second quarter, the Company made a stock grant of 2,199,656 stock options, 705,345 PSAs/PSUs and 1,264,931 restricted shares and units to certain employees and directors. The stock options were valued at the grant date using the Black-Scholes option pricing model. The weighted average grant-date fair value of the stock options, PSAs/PSUs and

restricted shares and units granted during the 2018 second quarter were approximately $7.43, $24.65 and $26.56 per share, respectively. Such values are being amortized over the respective substantive vesting period.

Share Repurchases

The board of directors of Arch Capital has authorized the investment in Arch Capital’s common shares through a share repurchase program. Since the inception of the share repurchase program, Arch Capital has repurchased 386.3 million common shares for an aggregate purchase price of $3.97 billion. For the three months ended March 31, 2019, Arch Capital repurchased 0.1 million shares under the share repurchase program with an aggregate purchase price of $2.9 million. Arch Capital repurchased 0.1 million shares under the share repurchase program with an aggregate purchase price of $3.3 million during the three months ended March 31, 2018. At March 31, 2019, $160.9 million of share repurchases were available under the program, which may be effected from time to time in open market or privately negotiated transactions through December 31, 2019. The timing and amount of the repurchase transactions under this program will depend on a variety of factors, including market conditions and corporate and regulatory considerations.

Conversion of Convertible Non-Voting Common Equivalent Preferred Shares

In March 2018, Arch Capital completed an underwritten public secondary offering of 17.0 million common shares (split adjusted) by American International Group, Inc. (“AIG”) following transfer of 0.6 million Series D convertible non-voting common equivalent preferred shares (“Series D Preferred Shares”). Proceeds from the sale of common shares pursuant to the public offering were received by AIG. At March 31, 2019, no Series D Preferred Shares were outstanding.

Series C Preferred Shares

On January 2, 2018, Arch Capital redeemed all outstanding 6.75% Series C non-cumulative preferred shares. The preferred shares were redeemed at a redemption price equal to $25 per share, plus all declared and unpaid dividends to (but excluding) the redemption date. In accordance with GAAP, following the redemption, original issuance costs related to such shares were removed from additional paid-in capital and recorded as a “loss on redemption of preferred shares.” Such adjustment had no impact on total shareholders’ equity or cash flows.

ARCH CAPITAL 12 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.    Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share:

	Three Months Ended
	March 31,
	2019			2018
Numerator:
Net income	$	495,498		$	166,384
Amounts attributable to noncontrolling interests	(46,970		)	(15,961		)
Net income available to Arch	448,528			150,423
Preferred dividends	(10,403		)	(10,437		)
Loss on redemption of preferred shares	—			(2,710		)
Net income available to Arch common shareholders	$	438,125		$	137,276
Denominator:
Weighted average common shares outstanding	400,184,404			394,110,789
Series D preferred shares (1)	—			13,428,939
Weighted average common shares and common share equivalents outstanding — basic	400,184,404			407,539,728
Effect of dilutive common share equivalents:
Nonvested restricted shares	1,807,488			2,159,577
Stock options (2)	6,979,137			8,194,497
Weighted average common shares and common share equivalents outstanding — diluted	408,971,029			417,893,802
Earnings per common share:
Basic	$	1.09		$	0.34
Diluted	$	1.07		$	0.33

(1) Such shares are convertible non-voting common equivalent preferred shares issued in connection with the UGC acquisition. See note 2.

(2) Certain stock options were not included in the computation of diluted earnings per share where the exercise price of the stock options exceeded the average market price and would have been anti-dilutive or where, when applying the treasury stock method to in-the-money options, the sum of the proceeds, including unrecognized compensation, exceeded the average market price and would have been anti-dilutive. For the 2019 first quarter and 2018 first quarter, the number of stock options excluded were 5,577,724 and 3,168,786, respectively.

ARCH CAPITAL 13 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.    Segment Information

The Company classifies its businesses into three underwriting segments — insurance, reinsurance and mortgage — and two other operating segments — ‘other’ and corporate (non-underwriting). The Company determined its reportable segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.

The Company’s insurance, reinsurance and mortgage segments each have managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company’s chief operating decision makers, the President and Chief Executive Officer of Arch Capital, and the Chief Financial Officer of Arch Capital. The chief operating decision makers do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures segment performance for its three underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment, with the exception of goodwill and intangible assets, and, accordingly, investment income is not allocated to each underwriting segment.

The insurance segment consists of the Company’s insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include: construction and national accounts; excess and surplus casualty; lenders products; professional lines; programs; property, energy, marine and aviation; travel, accident and health; and other (consisting of alternative markets, excess workers' compensation and surety business).

The reinsurance segment consists of the Company’s reinsurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include: casualty; marine and aviation; other specialty; property catastrophe; property excluding property catastrophe (losses on a single risk, both excess of loss and pro rata); and other (consisting of life reinsurance, casualty clash and other).

The mortgage segment includes the Company’s U.S. and international mortgage insurance and reinsurance operations as well as government sponsored enterprise (“GSE”) credit-risk sharing transactions. Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (combined “Arch MI U.S.”) are approved as eligible mortgage insurers by Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), each a GSE.

The corporate (non-underwriting) segment results include net investment income, other income (loss), corporate expenses, transaction costs and other, interest expense, items related to the Company’s non-cumulative preferred shares, net realized gains or losses, net impairment losses included in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and income taxes. Such amounts exclude the results of the ‘other’ segment.

The ‘other’ segment includes the results of Watford Holdings Ltd. Watford Holdings Ltd. is the parent of Watford Re Ltd., a multi-line Bermuda reinsurance company (together with Watford Holdings Ltd., “Watford Re”) (see note 11). Watford Re has its own management and board of directors that is responsible for the overall profitability of the ‘other’ segment. For the ‘other’ segment, performance is measured based on net income or loss.

ARCH CAPITAL 14 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following tables summarize the Company’s underwriting income or loss by segment, together with a reconciliation of underwriting income or loss to net income available to Arch common shareholders:

	Three Months Ended
	March 31, 2019
	Insurance			Reinsurance			Mortgage			Sub-Total			Other			Total
Gross premiums written (1)	$	941,954		$	682,855		$	356,050		$	1,980,453		$	186,689		$	2,077,879
Premiums ceded	(320,622		)	(231,567		)	(48,798		)	(600,581		)	(41,302		)	(552,620		)
Net premiums written	621,332			451,288			307,252			1,379,872			145,387			1,525,259
Change in unearned premiums	(67,827		)	(104,923		)	15,650			(157,100		)	707			(156,393		)
Net premiums earned	553,505			346,365			322,902			1,222,772			146,094			1,368,866
Other underwriting income (loss)	—			4,377			3,856			8,233			592			8,825
Losses and loss adjustment expenses	(356,723		)	(239,810		)	(11,149		)	(607,682		)	(110,850		)	(718,532		)
Acquisition expenses	(82,824		)	(54,326		)	(31,672		)	(168,822		)	(29,026		)	(197,848		)
Other operating expenses	(113,396		)	(35,704		)	(39,875		)	(188,975		)	(12,188		)	(201,163		)
Underwriting income (loss)	$	562		$	20,902		$	244,062		265,526			(5,378		)	260,148
Net investment income										121,249			35,700			156,949
Net realized gains (losses)										112,433			29,132			141,565
Net impairment losses recognized in earnings										(1,309		)	—			(1,309		)
Equity in net income (loss) of investment funds accounted for using the equity method										46,867			—			46,867
Other income (loss)										1,083			—			1,083
Corporate expenses (2)										(16,772		)	—			(16,772		)
Transaction costs and other (2)										(1,190		)	—			(1,190		)
Amortization of intangible assets										(20,417		)	—			(20,417		)
Interest expense										(23,482		)	(5,583		)	(29,065		)
Net foreign exchange gains (losses)										5,175			(1,650		)	3,525
Income before income taxes										489,163			52,221			541,384
Income tax expense										(45,886		)	—			(45,886		)
Net income										443,277			52,221			495,498
Dividends attributable to redeemable noncontrolling interests										—			(4,588		)	(4,588		)
Amounts attributable to nonredeemable noncontrolling interests										—			(42,382		)	(42,382		)
Net income available to Arch										443,277			5,251			448,528
Preferred dividends										(10,403		)	—			(10,403		)
Net income available to Arch common shareholders										$	432,874		$	5,251		$	438,125
Underwriting Ratios
Loss ratio	64.4		%	69.2		%	3.5		%	49.7		%	75.9		%	52.5		%
Acquisition expense ratio	15.0		%	15.7		%	9.8		%	13.8		%	19.9		%	14.5		%
Other operating expense ratio	20.5		%	10.3		%	12.3		%	15.5		%	8.3		%	14.7		%
Combined ratio	99.9		%	95.2		%	25.6		%	79.0		%	104.1		%	81.7		%
Goodwill and intangible assets	$	156,735		$	—		$	494,830		$	651,565		$	7,650		$	659,215

(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’

ARCH CAPITAL 15 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	Three Months Ended
	March 31, 2018
	Insurance			Reinsurance			Mortgage			Sub-Total			Other			Total
Gross premiums written (1)	$	823,378		$	577,483		$	321,178		$	1,721,605		$	213,870		$	1,838,214
Premiums ceded	(247,180		)	(195,730		)	(46,137		)	(488,613		)	(34,318		)	(425,670		)
Net premiums written	576,198			381,753			275,041			1,232,992			179,552			1,412,544
Change in unearned premiums	(37,461		)	(102,581		)	5,201			(134,841		)	(42,804		)	(177,645		)
Net premiums earned	538,737			279,172			280,242			1,098,151			136,748			1,234,899
Other underwriting income (loss)	—			1,232			3,416			4,648			701			5,349
Losses and loss adjustment expenses	(353,730		)	(141,675		)	(43,466		)	(538,871		)	(97,989		)	(636,860		)
Acquisition expenses	(85,169		)	(48,319		)	(26,567		)	(160,055		)	(31,321		)	(191,376		)
Other operating expenses	(91,974		)	(35,571		)	(38,771		)	(166,316		)	(8,699		)	(175,015		)
Underwriting income (loss)	$	7,864		$	54,839		$	174,854		237,557			(560		)	236,997
Net investment income										100,243			26,481			126,724
Net realized gains (losses)										(111,859		)	861			(110,998		)
Net impairment losses recognized in earnings										(162		)	—			(162		)
Equity in net income (loss) of investment funds accounted for using the equity method										28,069			—			28,069
Other income (loss)										74			—			74
Corporate expenses (2)										(14,482		)	—			(14,482		)
Transaction costs and other (2)										(830		)	—			(830		)
Amortization of intangible assets										(26,736		)	—			(26,736		)
Interest expense										(25,907		)	(4,729		)	(30,636		)
Net foreign exchange gains (losses)										(15,039		)	(4,682		)	(19,721		)
Income before income taxes										170,928			17,371			188,299
Income tax expense										(21,912		)	(3		)	(21,915		)
Net income										149,016			17,368			166,384
Dividends attributable to redeemable noncontrolling interests										—			(4,585		)	(4,585		)
Amounts attributable to nonredeemable noncontrolling interests										—			(11,376		)	(11,376		)
Net income available to Arch										149,016			1,407			150,423
Preferred dividends										(10,437		)	—			(10,437		)
Loss on redemption of preferred shares										(2,710		)	—			(2,710		)
Net income available to Arch common shareholders										$	135,869		$	1,407		$	137,276
Underwriting Ratios
Loss ratio	65.7		%	50.7		%	15.5		%	49.1		%	71.7		%	51.6		%
Acquisition expense ratio	15.8		%	17.3		%	9.5		%	14.6		%	22.9		%	15.5		%
Other operating expense ratio	17.1		%	12.7		%	13.8		%	15.1		%	6.4		%	14.2		%
Combined ratio	98.6		%	80.7		%	38.8		%	78.8		%	101.0		%	81.3		%
Goodwill and intangible assets	$	21,664		$	—		$	596,690		$	618,354		$	7,650		$	626,004

(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’

ARCH CAPITAL 16 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5.    Reserve for Losses and Loss Adjustment Expenses

The following table represents an analysis of losses and loss adjustment expenses and a reconciliation of the beginning and ending reserve for losses and loss adjustment expenses:

	Three Months Ended
	March 31,
	2019			2018
Reserve for losses and loss adjustment expenses at beginning of period	$	11,853,297		$	11,383,792
Unpaid losses and loss adjustment expenses recoverable	2,814,291			2,464,910
Net reserve for losses and loss adjustment expenses at beginning of period	9,039,006			8,918,882
Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year	757,964			687,885
Prior years	(39,432		)	(51,025		)
Total net incurred losses and loss adjustment expenses	718,532			636,860
Retroactive reinsurance transaction (1)	(225,500		)	—
Net foreign exchange (gains) losses	(504		)	44,014
Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year	(64,340		)	(36,000		)
Prior years	(427,312		)	(514,541		)
Total net paid losses and loss adjustment expenses	(491,652		)	(550,541		)
Net reserve for losses and loss adjustment expenses at end of period	9,039,882			9,049,215
Unpaid losses and loss adjustment expenses recoverable	2,970,159			2,446,990
Reserve for losses and loss adjustment expenses at end of period	$	12,010,041		$	11,496,205

(1) During the 2019 first quarter, a subsidiary of the Company entered into a retroactive reinsurance transaction with a third party reinsurer to reinsure liabilities associated with certain U.S. insurance exposures.

Development on Prior Year Loss Reserves

2019 First Quarter

During the 2019 first quarter, the Company recorded net favorable development on prior year loss reserves of $39.4 million, which consisted of $4.4 million of favorable development from the insurance segment, $36.6 million from the mortgage segment and $0.1 million from the ‘other’ segment, partially offset by $1.7 million of adverse development from the reinsurance segment.

The insurance segment’s net favorable development of $4.4 million, or 0.8 loss ratio points, for the 2019 first quarter consisted of $9.7 million of net favorable development in short-tailed lines, $6.9 million of net adverse development in medium-tailed lines and $1.6 million of net favorable development in long-tailed lines. Net favorable development in short-tailed lines primarily resulted from property (including special risk other than marine) reserves from the 2017 accident year (i.e., the year in which a loss occurred). Net adverse development in medium-tailed lines primarily resulted from $7.7 million of adverse development on program business and $6.0 million of adverse development on contract binding

business. Such amounts were partially offset by $6.8 million of net favorable development in other medium-tailed lines, including professional liability and surety business, across most accident years.

The reinsurance segment’s net adverse development of $1.7 million, or 0.5 loss ratio points, for the 2019 first quarter consisted of $6.2 million of net adverse development from short-tailed lines, partially offset by $4.5 million of net favorable development from long-tailed and medium-tailed lines. Net adverse development in short-tailed lines included $13.8 million from property catastrophe and property other than property catastrophe reserves, primarily due to an increase in reserves on Typhoon Jebi of $16.0 million, or 4.6 points, based on receipt of updated information from cedents and additional updated industry data. Such amounts were partially offset by net favorable development of $9.6 million from other specialty reserves, primarily from the 2016 and 2018 underwriting years (i.e., all premiums and losses attributable to contracts having an inception or renewal date within the given twelve-month period). Favorable development in long-tailed and medium-tailed lines reflected reductions in casualty and marine reserves from most underwriting years.

ARCH CAPITAL 17 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The mortgage segment’s net favorable development was $36.6 million, or 11.3 loss ratio points, for the 2019 first quarter. The 2019 first quarter development was primarily driven by continued favorable claim rates on first lien business and subrogation recoveries on second lien business at Arch MI U.S.

2018 First Quarter

During the 2018 first quarter, the Company recorded net favorable development on prior year loss reserves of $51.0 million, which consisted of $36.5 million from the reinsurance segment, $2.1 million from the insurance segment, $13.0 million from the mortgage segment and adverse development of $0.6 million from the ‘other’ segment.

The insurance segment’s net favorable development of $2.1 million, or 0.4 loss ratio points, for the 2018 first quarter consisted of $8.7 million of net favorable development in short-tailed lines and $3.0 million of net favorable development in long-tailed lines, partially offset by $9.6 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines primarily resulted from property (including special risk other than marine) reserves from the 2017 accident year (i.e., the year in which a loss occurred) while net favorable development in long-tailed lines primarily resulted from reductions in casualty reserves of $3.9 million, primarily from the 2012 to 2014 accident years. Net adverse development in medium-tailed lines reflected $10.2 million of adverse development in program business, primarily driven by a few inactive programs that were non-renewed in 2015 and early in 2016.

The reinsurance segment’s net favorable development of $36.5 million, or 13.1 loss ratio points, for the 2018 first quarter consisted of $28.9 million from short-tailed lines and $7.6 million from long-tailed and medium-tailed lines. Favorable development in short-tailed lines included $21.1 million from property catastrophe and property other than property catastrophe reserves, across most underwriting years (i.e., all premiums and losses attributable to contracts having an inception or renewal date within the given twelve-month period), reflecting lower levels of reported and paid claims activity than previously anticipated which led to decreases in certain loss ratio selections during the period. Favorable development in long-tailed and medium-tailed lines reflected reductions in marine reserves of $6.2 million, primarily from the 2011 accident year, and in casualty reserves of $1.1 million based on varying levels of reported and paid claims activity, primarily from the 2002 to 2009 underwriting years.

The mortgage segment’s net favorable development was $13.0 million, or 4.6 loss ratio points, for the 2018 first quarter. The 2018 first quarter development was primarily driven by continued lower than expected claim rates on first lien business and subrogation recoveries on second lien business at Arch MI U.S.

ARCH CAPITAL 18 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6.    Investment Information

At March 31, 2019, total investable assets of $22.88 billion included $20.06 billion held by the Company and $2.82 billion attributable to Watford Re.

Available For Sale Investments

The following table summarizes the fair value and cost or amortized cost of the Company’s securities classified as available for sale:

	Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Cost or Amortized Cost		OTTI Unrealized Losses (2)
March 31, 2019
Fixed maturities (1):
Corporate bonds	$	5,816,885	$	81,520	$	(31,276	)	$	5,766,641	$	(69	)
Mortgage backed securities	499,962		5,825		(1,576		)	495,713		(6		)
Municipal bonds	715,893		14,725		(1,773		)	702,941		—
Commercial mortgage backed securities	610,754		7,336		(1,854		)	605,272		—
U.S. government and government agencies	4,579,711		40,584		(4,127		)	4,543,254		—
Non-U.S. government securities	1,797,484		33,435		(34,093		)	1,798,142		—
Asset backed securities	1,545,355		15,115		(6,809		)	1,537,049		—
Total	15,566,044		198,540		(81,508		)	15,449,012		(75		)
Short-term investments	706,214		352		(92		)	705,954		—
Total	$	16,272,258	$	198,892	$	(81,600	)	$	16,154,966	$	(75	)
December 31, 2018
Fixed maturities (1):
Corporate bonds	$	5,537,548	$	14,476	$	(105,428	)	$	5,628,500	$	(69	)
Mortgage backed securities	541,193		3,991		(3,216		)	540,418		(6		)
Municipal bonds	1,013,395		5,380		(11,891		)	1,019,906		—
Commercial mortgage backed securities	729,442		2,650		(10,751		)	737,543		—
U.S. government and government agencies	3,758,698		27,189		(8,474		)	3,739,983		—
Non-U.S. government securities	1,771,338		14,477		(50,948		)	1,807,809		—
Asset backed securities	1,600,896		8,060		(14,798		)	1,607,634		—
Total	14,952,510		76,223		(205,506		)	15,081,793		(75		)
Short-term investments	955,880		36		(394		)	956,238		—
Total	$	15,908,390	$	76,259	$	(205,900	)	$	16,038,031	$	(75	)

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

(2) Represents the total other-than-temporary impairments (“OTTI”) recognized in accumulated other comprehensive income (“AOCI”). It does not include the change in fair value subsequent to the impairment measurement date. At March 31, 2019 and December 31, 2018, the net unrealized loss related to securities for which a non-credit OTTI was recognized in AOCI was nil.

ARCH CAPITAL 19 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes, for all available for sale securities in an unrealized loss position, the fair value and gross unrealized loss by length of time the security has been in a continual unrealized loss position:

	Less than 12 Months					12 Months or More					Total
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
March 31, 2019
Fixed maturities (1):
Corporate bonds	$	450,609	$	(14,755	)	$	1,376,117	$	(16,521	)	$	1,826,726	$	(31,276	)
Mortgage backed securities	41,253		(272		)	106,136		(1,304		)	147,389		(1,576		)
Municipal bonds	12,604		(36		)	177,113		(1,737		)	189,717		(1,773		)
Commercial mortgage backed securities	69,792		(347		)	91,338		(1,507		)	161,130		(1,854		)
U.S. government and government agencies	696,039		(656		)	378,351		(3,471		)	1,074,390		(4,127		)
Non-U.S. government securities	1,062,659		(31,117		)	257,300		(2,976		)	1,319,959		(34,093		)
Asset backed securities	324,034		(4,143		)	299,844		(2,666		)	623,878		(6,809		)
Total	2,656,990		(51,326		)	2,686,199		(30,182		)	5,343,189		(81,508		)
Short-term investments	67,807		(92		)	—		—			67,807		(92		)
Total	$	2,724,797	$	(51,418	)	$	2,686,199	$	(30,182	)	$	5,410,996	$	(81,600	)
December 31, 2018
Fixed maturities (1):
Corporate bonds	$	2,983,195	$	(68,910	)	$	1,234,865	$	(36,518	)	$	4,218,060	$	(105,428	)
Mortgage backed securities	84,296		(695		)	109,009		(2,521		)	193,305		(3,216		)
Municipal bonds	233,081		(2,074		)	408,155		(9,817		)	641,236		(11,891		)
Commercial mortgage backed securities	223,341		(2,831		)	193,956		(7,920		)	417,297		(10,751		)
U.S. government and government agencies	635,049		(1,354		)	391,102		(7,120		)	1,026,151		(8,474		)
Non-U.S. government securities	1,028,340		(35,524		)	389,671		(15,424		)	1,418,011		(50,948		)
Asset backed securities	533,592		(8,832		)	368,095		(5,966		)	901,687		(14,798		)
Total	5,720,894		(120,220		)	3,094,853		(85,286		)	8,815,747		(205,506		)
Short-term investments	122,878		(394		)	—		—			122,878		(394		)
Total	$	5,843,772	$	(120,614	)	$	3,094,853	$	(85,286	)	$	8,938,625	$	(205,900	)

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

At March 31, 2019, on a lot level basis, approximately 2,940 security lots out of a total of approximately 9,250 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $2.5 million. At December 31, 2018, on a lot level basis, approximately 5,870 security lots out of a total of approximately 8,450 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $2.6 million.

ARCH CAPITAL 20 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The contractual maturities of the Company’s fixed maturities are shown in the following table. Expected maturities, which are management’s best estimates, will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2019				December 31, 2018
Maturity	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Due in one year or less	$	436,875	$	438,023	$	276,682	$	279,135
Due after one year through five years	9,359,874		9,315,567		8,666,297		8,738,944
Due after five years through 10 years	2,939,707		2,884,260		2,919,232		2,951,582
Due after 10 years	173,517		173,128		218,768		226,537
	12,909,973		12,810,978		12,080,979		12,196,198
Mortgage backed securities	499,962		495,713		541,193		540,418
Commercial mortgage backed securities	610,754		605,272		729,442		737,543
Asset backed securities	1,545,355		1,537,049		1,600,896		1,607,634
Total (1)	$	15,566,044	$	15,449,012	$	14,952,510	$	15,081,793

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

Securities Lending Agreements

The Company enters into securities lending agreements with financial institutions to enhance investment income whereby it loans certain of its securities to third parties, primarily major brokerage firms, for short periods of time through a lending agent. The Company maintains legal control over the securities it lends, retains the earnings and cash flows associated with the loaned securities and receives a fee from the borrower for the temporary use of the securities. An indemnification agreement with the lending agent protects the Company in the event a borrower becomes insolvent or fails to return any of the securities on loan from the Company.

The Company receives collateral in the form of cash or securities. Cash collateral primarily consists of short term investments. At March 31, 2019, the fair value of the cash collateral received on securities lending was $48.6 million and the fair value of security collateral received was $366.4 million. At December 31, 2018, the fair value of the cash collateral received on securities lending was $19.0 million, and the fair value of security collateral received was $255.1 million.

The Company’s securities lending transactions were accounted for as secured borrowings with significant investment categories as follows:

	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Less than 30 Days		30-90 Days		90 Days or More		Total
March 31, 2019
U.S. government and government agencies	$	339,404	$	7,424	$	48,903	$	—	$	395,731
Corporate bonds	3,625		—		—		—		3,625
Equity securities	15,692		—		—		—		15,692
Total	$	358,721	$	7,424	$	48,903	$	—	$	415,048
Gross amount of recognized liabilities for securities lending in offsetting disclosure in note 8									$	—
Amounts related to securities lending not included in offsetting disclosure in note 8									$	415,048
December 31, 2018
U.S. government and government agencies	$	219,276	$	—	$	32,583	$	—	$	251,859
Corporate bonds	7,129		—		—		—		7,129
Equity securities	15,137		—		—		—		15,137
Total	$	241,542	$	—	$	32,583	$	—	$	274,125
Gross amount of recognized liabilities for securities lending in offsetting disclosure in note 8									$	—
Amounts related to securities lending not included in offsetting disclosure in note 8									$	274,125

ARCH CAPITAL 21 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Equity Securities, at Fair Value

At March 31, 2019, the Company held $495.9 million of equity securities, at fair value, compared to $338.9 million at December 31, 2018. Such holdings include publicly traded common stocks in the natural resources, energy, consumer staples and other sectors.

Other Investments

The following table summarizes the Company’s other investments which are included in investments accounted for using the fair value option, by strategy:

	March 31, 2019		December 31, 2018
Term loan investments (par value: $1,375,936 and $1,369,216)	$	1,297,025	$	1,282,287
Lending	545,569		524,112
Credit related funds	225,876		202,123
Energy	126,612		117,509
Investment grade fixed income	97,676		101,902
Infrastructure	54,421		45,371
Private equity	24,501		24,383
Real estate	15,930		14,252
Total	$	2,387,610	$	2,311,939

Investments Accounted For Using the Equity Method

The following table summarizes the Company’s investments accounted for using the equity method, by strategy:

	March 31, 2019		December 31, 2018
Credit related funds	$	438,208	$	429,402
Equities	350,315		375,273
Real estate	248,739		232,647
Lending	192,346		125,041
Private equity	111,454		114,019
Infrastructure	126,706		113,748
Energy	96,011		103,661
Total	$	1,563,779	$	1,493,791

Certain of the Company’s other investments are in investment funds for which the Company has the option to redeem at agreed upon values as described in each investment fund’s subscription agreement. Depending on the terms of the various subscription agreements, investments in investment funds may be redeemed daily, monthly, quarterly or on other terms. Two common redemption restrictions which may impact the Company’s ability to redeem these investment funds are gates and lockups. A gate is a suspension of redemptions which may be implemented by the general partner or investment manager of the fund in order to defer, in whole or in part, the redemption request in the event the aggregate amount of redemption requests exceeds a predetermined percentage of the investment fund’s net assets which may otherwise hinder the general

partner or investment manager’s ability to liquidate holdings in an orderly fashion in order to generate the cash necessary to fund extraordinarily large redemption payouts. A lockup period is the initial amount of time an investor is contractually required to hold the security before having the ability to redeem. If the investment funds are eligible to be redeemed, the time to redeem such fund can take weeks or months following the notification.

Fair Value Option

The following table summarizes the Company’s assets which are accounted for using the fair value option:

	March 31, 2019		December 31, 2018
Fixed maturities	$	1,192,486	$	1,245,562
Other investments	2,387,610		2,311,939
Short-term investments	282,139		322,177
Equity securities	107,388		103,893
Investments accounted for using the fair value option	$	3,969,623	$	3,983,571

Limited Partnership Interests

In the normal course of its activities, the Company invests in limited partnerships as part of its overall investment strategy. Such amounts are included in ‘investments accounted for using the equity method’ and ‘investments accounted for using the fair value option.’ The Company has determined that it is not required to consolidate these investments because it is not the primary beneficiary of the funds. The Company’s maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported in the Company’s consolidated balance sheet and any unfundedcommitment.

The following table summarizes investments in limited partnership interests where the Company has a variable interest by balance sheet line item:

	March 31, 2019		December 31, 2018
Investments accounted for using the equity method (1)	1,563,779		1,493,791
Investments accounted for using the fair value option (2)	178,572		162,398
Total	$	1,742,351	$	1,656,189

(1) Aggregate unfunded commitments were $1.34 billion at March 31, 2019, compared to $1.22 billion at December 31, 2018.

(2) Aggregate unfunded commitments were $177.0 million at March 31, 2019, compared to $117.5 million at December 31, 2018.

ARCH CAPITAL 22 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net Investment Income

The components of net investment income were derived from the following sources:

	March 31,
	2019			2018
Three Months Ended
Fixed maturities	$	129,799		$	107,887
Term loans	24,616			19,764
Equity securities	2,988			2,568
Short-term investments	4,179			4,860
Other (1)	21,196			17,610
Gross investment income	182,778			152,689
Investment expenses	(25,829		)	(25,965		)
Net investment income	$	156,949		$	126,724

(1) Includes income distributions from investment funds and other items.

Net Realized Gains (Losses)

Net realized gains (losses) were as follows, excluding net impairment losses recognized in earnings:

	March 31,
	2019			2018
Three Months Ended
Available for sale securities:
Gross gains on investment sales	$	43,365		$	14,965
Gross losses on investment sales	(31,656		)	(82,551		)
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities	31,148			(17,551		)
Other investments	18,195			(6,374		)
Equity securities	4,266			6,668
Short-term investments	720			(151		)
Equity securities, at fair value:
Net realized gains (losses) on sales during the period	10,930			(5,368		)
Net unrealized gains (losses) on equity securities still held at reporting date	37,136			(7,583		)
Derivative instruments (1)	35,871			(3,963		)
Other (2)	(8,410		)	(9,090		)
Net realized gains (losses)	$	141,565		$	(110,998	)

(1) See note 8 for information on the Company’s derivative instruments.

(2) Includes the re-measurement of contingent consideration liability amounts.

Equity in Net Income (Loss) of Investment Funds Accounted for Using the Equity Method

The Company recorded $46.9 million of equity in net income related to investment funds accounted for using the equity method in the 2019 first quarter, compared to $28.1 million for the 2018 first quarter. In applying the equity method, investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). Such

investments are generally recorded on a one to three month lag based on the availability of reports from the investment funds.

Net Impairment Losses Recognized in Earnings

The Company performs quarterly reviews of its available for sale investments in order to determine whether declines in fair value below the amortized cost basis were considered other-than-temporary in accordance with applicable guidance.

The following table details the net impairment losses recognized in earnings by asset class:

	March 31,
	2019			2018
Three Months Ended
Fixed maturities:
Mortgage backed securities	$	(531	)	$	(42	)
Corporate bonds	(565		)	(120		)
Asset backed securities	(213		)	—
Total	(1,309		)	(162		)
Net impairment losses recognized in earnings	$	(1,309	)	$	(162	)

Net impairment losses recognized in earnings in the 2019 first quarter reflected foreign currency impacts and other impairments on corporate bonds and other securities.

The Company believes that the $0.1 million of OTTI included in accumulated other comprehensive income at March 31, 2019 on the securities which were considered by the Company to be impaired was due to market and sector-related factors (i.e., not credit losses). At March 31, 2019, the Company did not intend to sell these securities, or any other securities which were in an unrealized loss position, and determined that it is more likely than not that the Company will not be required to sell such securities before recovery of their cost basis.

The following table provides a roll forward of the amount related to credit losses recognized in earnings for which a portion of an OTTI was recognized in accumulated other comprehensive income:

	March 31,
	2019			2018
Three Months Ended
Balance at start of period	$	637		$	767
Credit loss impairments recognized on securities not previously impaired	—			—
Credit loss impairments recognized on securities previously impaired	—			—
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security	—			—
Reductions for securities sold during the period	(291		)	—
Balance at end of period	$	346		$	767

ARCH CAPITAL 23 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Restricted Assets

The Company is required to maintain assets on deposit, which primarily consist of fixed maturities, with various regulatory authorities to support its operations. The Company’s subsidiaries maintain assets in trust accounts as collateral for transactions with affiliated companies and also have investments in segregated portfolios primarily to provide collateral or guarantees for letters of credit to third parties. See note 16, “Commitments and Contingencies,” of the notes to consolidated financial statements in the Company’s 2018 Form 10-K. The following table details the value of the Company’s restricted assets:

	March 31, 2019		December 31, 2018
Assets used for collateral or guarantees:
Affiliated transactions	$	4,796,096	$	4,623,483
Third party agreements	2,403,392		2,181,682
Deposits with U.S. regulatory authorities	780,916		689,114
Deposits with non-U.S. regulatory authorities	59,680		59,624
Total restricted assets	$	8,040,084	$	7,553,903

Reconciliation of Cash and Restricted Cash

The following table details reconciliation of cash and restricted cash within the Consolidated Balance Sheets:

	March 31, 2019		December 31, 2018
Cash	$	633,100	$	646,556
Restricted cash (included in ‘other assets’)	$	77,116	$	78,087
Cash and restricted cash	$	710,216	$	724,643

7.    Fair Value

Accounting guidance regarding fair value measurements addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement (Level 1 being the highest priority and Level 3 being the lowest priority).

The levels in the hierarchy are defined as follows:

Level 1: Inputs to the valuation methodology are observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets

Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement

Following is a description of the valuation methodologies used for securities measured at fair value, as well as the general classification of such securities pursuant to the valuation hierarchy. The Company reviews its securities measured at fair value and discusses the proper classification of such investments with investment advisers and others.

The Company determines the existence of an active market based on its judgment as to whether transactions for the financial instrument occur in such market with sufficient frequency and volume to provide reliable pricing information. The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. The Company uses quoted values and other data provided by nationally recognized independent pricing sources as inputs into its process for determining fair values of its fixed maturity investments. To validate the techniques or models used by pricing sources, the Company's review process includes, but is not limited to: (i) quantitative analysis (e.g., comparing the quarterly return for each managed portfolio to its target benchmark, with significant differences identified and investigated); (ii) a review of the average number of prices obtained in the pricing process and the range of resulting fair values; (iii) initial and ongoing evaluation of methodologies used by outside parties to calculate fair value; (iv) a comparison of the fair value estimates to the Company’s knowledge of the current market; (v) a comparison of the pricing services' fair values to other pricing services' fair values for the same investments; and (vi) periodic back-testing, which includes randomly selecting purchased or sold securities and comparing the executed prices to the fair value estimates from the pricing service. A price source hierarchy was maintained in order to determine which price source would be used (i.e., a price obtained from a pricing service with more seniority in the hierarchy will be used over a less senior one in all cases). The hierarchy prioritizes pricing services based on availability and reliability and assigns the highest priority to index providers. Based on the above review, the Company will challenge any prices for a security or portfolio which are considered not to be

ARCH CAPITAL 24 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

representative of fair value. The Company did not adjust any of the prices obtained from the independent pricing sources at March 31, 2019.

In certain circumstances, when fair values are unavailable from these independent pricing sources, quotes are obtained directly from broker-dealers who are active in the corresponding markets. Such quotes are subject to the validation procedures noted above. Of the $20.88 billion of financial assets and liabilities measured at fair value at March 31, 2019, approximately $221.0 million, or 1.1%, were priced using non-binding broker-dealer quotes. Of the $20.41 billion of financial assets and liabilities measured at fair value at December 31, 2018, approximately $217.9 million, or 1.1%, were priced using non-binding broker-dealer quotes.

Fixed maturities

The Company uses the market approach valuation technique to estimate the fair value of its fixed maturity securities, when possible. The market approach includes obtaining prices from independent pricing services, such as index providers and pricing vendors, as well as to a lesser extent quotes from broker-dealers. The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. Each source has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of “matrix pricing” in which the independent pricing source uses observable market inputs including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair value.

The following describes the significant inputs generally used to determine the fair value of the Company’s fixed maturity securities by asset class:

•U.S. government and government agencies — valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The Company determined that all U.S. Treasuries would be classified as Level 1 securities due to observed levels of trading activity, the high number of strongly correlated pricing quotes received on U.S. Treasuries and other factors. The fair values of U.S. government agency securities are generally determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency securities are classified within Level 2.

•Corporate bonds — valuations provided by independent pricing services, substantially all through index providers and pricing vendors with a small amount through broker-dealers. The fair values of these securities are generally determined using the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary

trading and from broker-dealers who trade in the relevant security market. As the significant inputs used in the pricing process for corporate bonds are observable market inputs, the fair value of these securities are classified within Level 2. A small number of securities are included in Level 3 due to a low level of transparency on the inputs used in the pricing process.

•Mortgage-backed securities — valuations provided by independent pricing services, substantially all through pricing vendors and index providers with a small amount through broker-dealers. The fair values of these securities are generally determined through the use of pricing models (including Option Adjusted Spread) which use spreads to determine the expected average life of the securities. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. The pricing services also review prepayment speeds and other indicators, when applicable. As the significant inputs used in the pricing process for mortgage-backed securities are observable market inputs, the fair value of these securities are classified within Level 2. A small number of securities are included in Level 3 due to a low level of transparency on the inputs used in the pricing process.

•Municipal bonds — valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The fair values of these securities are generally determined using spreads obtained from broker-dealers who trade in the relevant security market, trade prices and the new issue market. As the significant inputs used in the pricing process for municipal bonds are observable market inputs, the fair value of these securities are classified within Level 2.

•Commercial mortgage-backed securities — valuations provided by independent pricing services, substantially all through index providers and pricing vendors with a small amount through broker-dealers. The fair values of these securities are generally determined through the use of pricing models which use spreads to determine the appropriate average life of the securities. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. The pricing services also review prepayment speeds and other indicators, when applicable. As the significant inputs used in the pricing process for commercial mortgage-backed securities are observable market inputs, the fair value of these securities are classified within Level 2.

•Non-U.S. government securities — valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The fair values of these securities are generally based on international indices or valuation models which include daily observed yield curves, cross-currency basis index spreads and country credit spreads. As the significant inputs used in the pricing process for non-

ARCH CAPITAL 25 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

U.S. government securities are observable market inputs, the fair value of these securities are classified within Level 2.

•Asset-backed securities — valuations provided by independent pricing services, substantially all through index providers and pricing vendors with a small amount through broker-dealers. The fair values of these securities are generally determined through the use of pricing models (including Option Adjusted Spread) which use spreads to determine the appropriate average life of the securities. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. The pricing services also review prepayment speeds and other indicators, when applicable. As the significant inputs used in the pricing process for asset-backed securities are observable market inputs, the fair value of these securities are classified within Level 2.

Equity securities

The Company determined that exchange-traded equity securities would be included in Level 1 as their fair values are based on quoted market prices in active markets. Other equity securities are included in Level 2 of the valuation hierarchy.

Other investments

The Company determined that exchange-traded investments in mutual funds would be included in Level 1 as their fair values are based on quoted market prices in active markets. Other investments also include term loan investments for which fair values are estimated by using quoted prices of term loan investments with similar characteristics, pricing models or matrix pricing. Such investments are generally classified within Level 2. The fair values for certain of the Company’s other investments are determined using net asset values as advised by external fund managers. The net asset value is based on the fund manager’s valuation of the underlying holdings in accordance with the fund’s governing documents. In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not

been classified in the fair value hierarchy. A small number of securities are included in Level 3 due to the lack of an available independent price source for such securities.

Derivative instruments

The Company’s futures contracts, foreign currency forward contracts, interest rate swaps and other derivatives trade in the over-the-counter derivative market. The Company uses the market approach valuation technique to estimate the fair value for these derivatives based on significant observable market inputs from third party pricing vendors, non-binding broker-dealer quotes and/or recent trading activity. As the significant inputs used in the pricing process for these derivative instruments are observable market inputs, the fair value of these securities are classified within Level 2.

Short-term investments

The Company determined that certain of its short-term investments held in highly liquid money market-type funds, Treasury bills and commercial paper would be included in Level 1 as their fair values are based on quoted market prices in active markets. The fair values of other short-term investments are generally determined using the spread above the risk-free yield curve and are classified within Level 2.

Contingent consideration liabilities

Contingent consideration liabilities (included in ‘other liabilities’ in the consolidated balance sheets) include amounts related to the acquisition of CMG Mortgage Insurance Company and its affiliated mortgage insurance companies and other acquisitions. Such amounts are remeasured at fair value at each balance sheet date with changes in fair value recognized in ‘net realized gains (losses).’ To determine the fair value of contingent consideration liabilities, the Company estimates future payments using an income approach based on modeled inputs which include a weighted average cost of capital. The Company determined that contingent consideration liabilities would be included within Level 3.

ARCH CAPITAL 26 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the Company’s financial assets and liabilities measured at fair value by level at March 31, 2019:

				Estimated Fair Value Measurements Using:
	Estimated Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets measured at fair value (1):
Available for sale securities:
Fixed maturities:
Corporate bonds	$	5,816,885		$	—	$	5,809,318		$	7,567
Mortgage backed securities	499,962			—		499,660			302
Municipal bonds	715,893			—		715,893			—
Commercial mortgage backed securities	610,754			—		610,754			—
U.S. government and government agencies	4,579,711			4,439,888		139,823			—
Non-U.S. government securities	1,797,484			—		1,797,484			—
Asset backed securities	1,545,355			—		1,545,355			—
Total	15,566,044			4,439,888		11,118,287			7,869
Short-term investments	706,214			682,778		23,436			—
Equity securities, at fair value	511,425			433,317		78,108			—
Derivative instruments (4)	13,966			—		13,966			—
Fair value option:
Corporate bonds	786,476			—		784,243			2,233
Non-U.S. government bonds	82,982			—		82,982			—
Mortgage backed securities	16,328			—		16,328			—
Municipal bonds	6,587			—		6,587			—
Commercial mortgage backed securities	—			—		—			—
Asset backed securities	190,448			—		190,448			—
U.S. government and government agencies	109,665			109,557		108			—
Short-term investments	282,139			272,904		9,235			—
Equity securities	107,388			51,113		56,275			—
Other investments	1,286,645			46,661		1,177,655			62,329
Other investments measured at net asset value (2)	1,100,965
Total	3,969,623			480,235		2,323,861			64,562
Total assets measured at fair value	$	20,767,272		$	6,036,218	$	13,557,658		$	72,431
Liabilities measured at fair value:
Contingent consideration liabilities	$	(68,121	)	$	—	$	—		$	(68,121	)
Securities sold but not yet purchased (3)	(28,737		)	—		(28,737		)	—
Derivative instruments (4)	(11,547		)	—		(11,547		)	—
Total liabilities measured at fair value	$	(108,405	)	$	—	$	(40,284	)	$	(68,121	)

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See note 6, “—Securities Lending Agreements.”

(2) In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

(3) Represents the Company’s obligations to deliver securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company’s consolidated balance sheets.

(4) See note 8.

ARCH CAPITAL 27 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the Company’s financial assets and liabilities measured at fair value by level at December 31, 2018:

				Estimated Fair Value Measurements Using:
	Estimated Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets measured at fair value (1):
Available for sale securities:
Fixed maturities:
Corporate bonds	$	5,537,548		$	—	$	5,529,407		$	8,141
Mortgage backed securities	541,193			—		540,884			309
Municipal bonds	1,013,395			—		1,013,395			—
Commercial mortgage backed securities	729,442			—		729,438			4
U.S. government and government agencies	3,758,698			3,657,181		101,517			—
Non-U.S. government securities	1,771,338			—		1,771,338			—
Asset backed securities	1,600,896			—		1,600,896			—
Total	14,952,510			3,657,181		11,286,875			8,454
Equity securities	353,794			321,927		31,867			—
Short-term investments	955,880			875,881		79,999			—
Derivative instruments (4)	73,893			—		73,893			—
Fair value option:
Corporate bonds	852,585			—		846,827			5,758
Non-U.S. government bonds	79,066			—		79,066			—
Mortgage backed securities	16,731			—		16,731			—
Municipal bonds	7,144			—		7,144			—
Commercial mortgage backed securities	—			—		—			—
Asset backed securities	178,790			—		178,790			—
U.S. government and government agencies	111,246			111,138		108			—
Short-term investments	322,177			278,579		43,598			—
Equity securities	103,893			48,827		55,066			—
Other investments	1,254,220			39,107		1,152,408			62,705
Other investments measured at net asset value (2)	1,057,719
Total	3,983,571			477,651		2,379,738			68,463
Total assets measured at fair value	$	20,319,648		$	5,332,640	$	13,852,372		$	76,917
Liabilities measured at fair value:
Contingent consideration liabilities	$	(66,665	)	$	—	$	—		$	(66,665	)
Securities sold but not yet purchased (3)	(7,790		)	—		(7,790		)	—
Derivative instruments (4)	(20,664		)	—		(20,664		)	—
Total liabilities measured at fair value	$	(95,119	)	$	—	$	(28,454	)	$	(66,665	)

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See note 6, “—Securities Lending Agreements.”

(2) In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

(3) Represents the Company’s obligations to deliver securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company’s consolidated balance sheets.

(4) See note 8.

ARCH CAPITAL 28 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents a reconciliation of the beginning and ending balances for all financial assets and liabilities measured at fair value on a recurring basis using Level 3 inputs:

	Assets															Liabilities
s	Available For Sale						Fair Value Option
	Structured Securities (1)			Corporate Bonds			Corporate Bonds			Other Investments			Total			Contingent Consideration Liabilities
Three Months Ended March 31, 2019
Balance at beginning of period	$	313		$	8,141		$	5,758		$	62,705		$	76,917		$	(66,665	)
Total gains or (losses) (realized/unrealized)
Included in earnings (2)	1,757			—			(290		)	298			1,765			(908		)
Included in other comprehensive income	4			(118		)	—			—			(114		)	—
Purchases, issuances, sales and settlements
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			(548		)
Sales	(1,757		)	—			(3,235		)	(74		)	(5,066		)	—
Settlements	(15		)	(456		)	—			(600		)	(1,071		)	—
Transfers in and/or out of Level 3	—			—			—			—			—			—
Balance at end of period	$	302		$	7,567		$	2,233		$	62,329		$	72,431		$	(68,121	)
Three Months Ended March 31, 2018
Balance at beginning of period	$	5,927		$	9,460		$	12,217		$	59,167		$	86,771		$	(60,996	)
Total gains or (losses) (realized/unrealized)
Included in earnings (2)	1			—			12			17			30			(1,453		)
Included in other comprehensive income	(4		)	148			(87		)	(732		)	(675		)	—
Purchases, issuances, sales and settlements
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(511		)	(456		)	(270		)	—			(1,237		)	—
Transfers in and/or out of Level 3	—			—			—			—			—			—
Balance at end of period	$	5,413		$	9,152		$	11,872		$	58,452		$	84,889		$	(62,449	)

(1) Includes asset backed securities, mortgage backed securities and commercial mortgage backed securities.

(2) Gains or losses were included in net realized gains (losses).

Financial Instruments Disclosed, But Not Carried, At Fair Value

The Company uses various financial instruments in the normal course of its business. The carrying values of cash, accrued investment income, receivable for securities sold, certain other assets, payable for securities purchased and certain other liabilities approximated their fair values at March 31, 2019, due to their respective short maturities. As these financial instruments are not actively traded, their respective fair values are classified within Level 2.

At March 31, 2019, the Company’s senior notes were carried at their cost, net of debt issuance costs, of $1.73 billion and had a fair value of $1.98 billion. At December 31, 2018, Company’s senior notes were carried at their cost, net of debt issuance costs, of $1.73 billion and had a fair value of $1.88 billion. The fair values of the senior notes were obtained from a third party pricing service and are based on observable market inputs. As such, the fair values of the senior notes are classified within Level 2.

8.    Derivative Instruments

The Company’s investment strategy allows for the use of derivative instruments. The Company’s derivative instruments are recorded on its consolidated balance sheets at fair value. The Company utilizes exchange traded U.S. Treasury note, Eurodollar and other futures contracts and commodity futures to manage portfolio duration or replicate investment positions in its portfolios and the Company routinely utilizes foreign currency forward contracts, currency options, index futures contracts and other derivatives as part of its total return objective. In addition, certain of the Company’s investments are managed in portfolios which incorporate the use of foreign currency forward contracts which are intended to provide an economic hedge against foreign currency movements. 

In addition, the Company purchases to-be-announced mortgage backed securities (“TBAs”) as part of its investment strategy. TBAs represent commitments to purchase a future issuance of agency mortgage backed securities. For the period between

ARCH CAPITAL 29 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

purchase of a TBA and issuance of the underlying security, the Company’s position is accounted for as a derivative. The Company purchases TBAs in both long and short positions to enhance investment performance and as part of its overall investment strategy.

The following table summarizes information on the fair values and notional values of the Company’s derivative instruments:

	Estimated Fair Value
	Asset Derivatives		Liability Derivatives			Notional Value (1)
March 31, 2019
Futures contracts (2)	$	1,238	$	(1,302	)	$	3,650,464
Foreign currency forward contracts (2)	405		(3,825		)	1,228,530
TBAs (3)	15,456		—			14,846
Other (2)	12,323		(6,420		)	2,504,873
Total	$	29,422	$	(11,547	)
December 31, 2018
Futures contracts (2)	$	51,800	$	(2,115	)	$	3,153,518
Foreign currency forward contracts (2)	8,147		(7,796		)	1,008,907
TBAs (3)	8,292		—			8,132
Other (2)	13,946		(10,753		)	2,213,981
Total	$	82,185	$	(20,664	)

(1) Represents the absolute notional value of all outstanding contracts, consisting of long and short positions.

(2) The fair value of asset derivatives are included in ‘other assets’ and the fair value of liability derivatives are included in ‘other liabilities.’

(3) The fair value of TBAs are included in ‘fixed maturities available for sale, at fair value.’

The Company did not hold any derivatives which were designated as hedging instruments at March 31, 2019 or December 31, 2018.

The Company’s derivative instruments can be traded under master netting agreements, which establish terms that apply to all derivative transactions with a counterparty. In the event of a bankruptcy or other stipulated event of default, such agreements provide that the non-defaulting party may elect to terminate all outstanding derivative transactions, in which case all individual derivative positions (loss or gain) with a counterparty are closed out and netted and replaced with a single amount, usually referred to as the termination amount, which is expressed in a single currency. The resulting single net amount, where positive, is payable to the party “in-the-money” regardless of whether or not it is the defaulting party, unless the parties have agreed that only the non-defaulting party is entitled to receive a termination payment where the net amount is positive and is in its favor. Contractual close-out netting reduces derivatives credit exposure from gross to net exposure. The remaining derivatives included in the table above were not subject to a master netting agreement.

At March 31, 2019, asset derivatives and liability derivatives of $27.9 million and $14.5 million, respectively, were subject to a master netting agreement, compared to $80.4 million and $18.9 million, respectively, at December 31, 2018. The remaining derivatives included in the preceding table were not subject to a master netting agreement.

Realized and unrealized contract gains and losses on the Company’s derivative instruments are reflected in ‘net realized gains (losses)’ in the consolidated statements of income, as summarized in the following table:

Derivatives not designated as	March 31,
hedging instruments:	2019			2018
Three Months Ended
Net realized gains (losses):
Futures contracts	$	27,336		$	5,030
Foreign currency forward contracts	(13,709		)	(5,924		)
TBAs	190			(97		)
Other	22,054			(2,972		)
Total	$	35,871		$	(3,963	)

9.    Commitments and Contingencies

Investment Commitments

The Company’s investment commitments, which are primarily related to agreements entered into by the Company to invest in funds and separately managed accounts when called upon, were approximately $1.83 billion at March 31, 2019, compared to $1.77 billion at December 31, 2018.

Interest Paid

Interest paid on the Company’s senior notes and other borrowings were $6.2 million for the three months ended March 31, 2019, compared to $7.9 million for the 2018 period.

10.    Leases

In the ordinary course of business, the Company renews and enters into new leases for office property and equipment. At the lease inception date, the Company determines whether a contract contains a lease and its classification as a finance or operating lease. Primarily all of the Company’s leases are classified as operating leases. The Company’s operating leases have remaining lease terms of up to 12 years, some of which include options to extend the lease term. The Company considers these options when determining the lease term and measuring its lease liability and right-of-use asset.

Short-term operating leases with an initial term of twelve months or less were excluded on the Company's consolidated

ARCH CAPITAL 30 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

balance sheet and represent an inconsequential amount of operating lease expense.

As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

For the three months ended March 31, 2019, the Company recognized approximately $7.6 million in operating lease costs.

Additional information regarding the Company’s operating leases is as follows:

	March 31,
	2019
Other information on operating leases
Cash payments included in the measurement of lease liabilities reported in operating cash flows	$	6,900
Right-of-use assets obtained in exchange for new lease liabilities	$	—
Right-of-use assets (a)	$	140,741
Operating lease liability (b)	$	157,729
Weighted average discount rate	3.9		%
Weighted average remaining lease term	7.2 years

(a) Included in ‘other assets’ on our consolidated balance sheet

(b) Included in ‘other liabilities’ on our consolidated balance sheet

The following table presents the contractual maturities of the Company's operating lease liabilities:

Years Ending December 31,
Remainder of 2019	$	22,457
2020	29,796
2021	28,632
2022	25,349
2023	20,901
Thereafter	53,902
Total undiscounted lease liability	$	181,037
Less: present value adjustment	(23,308		)
Operating lease liability	$	157,729

At December 31, 2018, the future minimum rental commitments, exclusive of escalation clauses and maintenance costs and net of rental income, for all of the Company’s operating leases are as follows:

2019	$	31,088
2020	30,491
2021	29,351
2022	26,068
2023	21,408
2024 and thereafter	54,745
Total	$	193,151

11. Variable Interest Entities and Noncontrolling Interests

Watford Holdings Ltd.

In March 2014, the Company invested $100.0 million and acquired 2,500,000 common shares, approximately 11% of Watford Holdings Ltd.’s common equity, and a warrant to purchase up to 975,503 additional common shares. The warrants expire on March 31, 2020. The exercise price of the warrants is determined on the date of exercise based on certain targeted returns for existing common shareholders. Watford Holdings Ltd.’s common shares are listed on the Nasdaq Select Global Market under the ticker symbol “WTRE”.

Watford Re is considered a VIE and the Company concluded that it is the primary beneficiary of Watford Re. As such, the results of Watford Re are included in the Company’s consolidated financial statements.

The Company does not guarantee or provide credit support for Watford Re, and the Company’s financial exposure to Watford Re is limited to its investment in Watford Re’s common and preferred shares and counterparty credit risk (mitigated by collateral) arising from reinsurance transactions.

ARCH CAPITAL 31 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table provides the carrying amount and balance sheet caption in which the assets and liabilities of Watford Re are reported:

	March 31,		December 31,
	2019		2018
Assets
Investments accounted for using the fair value option	$	2,215,322	$	2,312,003
Fixed maturities available for sale, at fair value	549,834		393,351
Equity securities, at fair value	65,009		32,206
Cash	56,301		63,529
Accrued investment income	17,346		19,461
Premiums receivable	252,850		227,301
Reinsurance recoverable on unpaid and paid losses and LAE	102,818		86,445
Ceded unearned premiums	72,960		61,587
Deferred acquisition costs	80,664		80,858
Receivable for securities sold	62,566		24,507
Goodwill and intangible assets	7,650		7,650
Other assets	69,547		63,959
Total assets of consolidated VIE	$	3,552,867	$	3,372,857
Liabilities
Reserves for losses and loss adjustment expenses	$	1,104,532	$	1,032,760
Unearned premiums	401,838		390,114
Reinsurance balances payable	27,039		21,034
Revolving credit agreement borrowings	488,612		455,682
Payable for securities purchased	95,577		60,142
Other liabilities (1)	272,295		302,524
Total liabilities of consolidated VIE	$	2,389,893	$	2,262,256
Redeemable noncontrolling interests	$	221,083	$	220,992

(1) Includes certain borrowings related to investing activities.

For the three months ended March 31, 2019, Watford Re generated $70.3 million of cash provided by operating activities, $105.9 million of cash used for investing activities and $28.1 million of cash provided by financing activities, compared to $30.2 million of cash provided by operating activities, $35.4 million of cash used for investing activities and $66.2 million of cash used for financing activities for the three months ended March 31, 2018.

Non-redeemable noncontrolling interests

The Company accounts for the portion of Watford Re’s common equity attributable to third party investors in the shareholders’ equity section of its consolidated balance sheets. The noncontrolling ownership in Watford Re’s common shares was approximately 89% at March 31, 2019. The portion of Watford Re’s income or loss attributable to third party investors is recorded in the consolidated statements of income in ‘net (income) loss attributable to noncontrolling interests.’

The following table sets forth activity in the non-redeemable noncontrolling interests:

	March 31,
	2019		2018
Three Months Ended
Balance, beginning of period	$	791,560	$	843,411
Amounts attributable to noncontrolling interests	42,382		11,376
Other comprehensive income attributable to noncontrolling interests	4,139		(675		)
Balance, end of period	$	838,081	$	854,112

Redeemable noncontrolling interests

The Company accounts for redeemable noncontrolling interests in the mezzanine section of its consolidated balance sheets in accordance with applicable accounting guidance. Such redeemable noncontrolling interests relate to the 9,065,200 cumulative redeemable preference shares (“Watford Preference Shares”) issued in late March 2014 with a par value of $0.01 per share and a liquidation preference of $25.00 per share. The Watford Preference Shares were issued at a discounted amount of $24.50 per share. Preferred dividends, including the accretion of the discount and issuance costs, are included in ‘net (income) loss attributable to noncontrolling interests’ in the Company’s consolidated statements of income.

The following table sets forth activity in the redeemable non-controlling interests:

	March 31,
	2019		2018
Three Months Ended
Balance, beginning of period	$	206,292	$	205,922
Accretion of preference share issuance costs	91		91
Balance, end of period	$	206,383	$	206,013

The portion of Watford Re’s income or loss attributable to third party investors, recorded in the Company’s consolidated statements of income in ‘net (income) loss attributable to noncontrolling interests,’ are summarized in the table below:

	March 31,
	2019			2018
Three Months Ended
Amounts attributable to non-redeemable noncontrolling interests	$	(42,382	)	$	(11,376	)
Dividends attributable to redeemable noncontrolling interests	(4,588		)	(4,585		)
Net (income) loss attributable to noncontrolling interests	$	(46,970	)	$	(15,961	)

ARCH CAPITAL 32 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Bellemeade Re

The Company has entered into various aggregate excess of loss mortgage reinsurance agreements with various special purpose reinsurance companies domiciled in Bermuda (the “Bellemeade Agreements”). At the time the Bellemeade Agreements were entered into, the applicability of the accounting guidance that addresses VIEs was evaluated. As a result of the evaluation of the Bellemeade Agreements, the Company concluded that these entities are VIEs. However, given that the ceding insurers do not have the unilateral power to direct those activities that are significant to their economic performance, the Company does not consolidate such entities in its consolidated financial statements.

The following table presents the total assets of the Bellemeade entities, as well as the Company’s maximum exposure to loss associated with these VIEs, calculated as the maximum historical observable spread between the one month LIBOR, the basis for the contractual payments to bond holders, and short term invested trust asset yields.

			Maximum Exposure to Loss
Bellemeade Entities (Issue Date)	Total VIE Assets		On-Balance Sheet (Asset) Liability			Off-Balance Sheet		Total
Mar 31, 2019
Bellemeade 2015-1 Ltd. (Jul-15)	$	34,176	$	(76	)	$	163	$	87
Bellemeade 2017-1 Ltd. (Oct-17)	296,773		721			8,088		8,809
Bellemeade 2018-1 Ltd. (Apr-18)	374,460		(858		)	10,035		9,177
Bellemeade 2018-2 Ltd. (Aug-18)	625,523		(2,318		)	9,688		7,370
Bellemeade 2018-3 Ltd. (Oct-18)	506,110		(430		)	8,975		8,545
Bellemeade 2019-1 Ltd. (Mar-19)	341,790		—			5,397		5,397
Total	$	2,178,832	$	(2,961	)	$	42,346	$	39,385
Dec 31, 2018
Bellemeade 2015-1 Ltd. (Jul-15)	$	43,246	$	112		$	498	$	610
Bellemeade 2017-1 Ltd. (Oct-17)	304,373		165			1,312		1,477
Bellemeade 2018-1 Ltd. (Apr-18)	374,460		132			3,539		3,671
Bellemeade 2018-2 Ltd. (Aug-18)	653,278		874			4,005		4,879
Bellemeade 2018-3 Ltd. (Oct-18)	506,110		469			1,836		2,305
Total	$	1,881,467	$	1,752		$	11,190	$	12,942

See note 16.

ARCH CAPITAL 33 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

12.    Other Comprehensive Income (Loss)

The following tables present details about amounts reclassified from accumulated other comprehensive income and the tax effects allocated to each component of other comprehensive income (loss):

		Amounts Reclassified from AOCI
	Consolidated Statement of Income	Three Months Ended
Details About	Line Item That Includes	March 31,
AOCI Components	Reclassification	2019			2018
Unrealized appreciation on available-for-sale investments
	Net realized gains (losses)	$	11,709		$	(67,586	)
	Other-than-temporary impairment losses	(1,309		)	(162		)
	Total before tax	10,400			(67,748		)
	Income tax (expense) benefit	(179		)	5,287
	Net of tax	$	10,221		$	(62,461	)

	Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
Three Months Ended March 31, 2019
Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	254,990		$	29,103		$	225,887
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)	—			—			—
Less reclassification of net realized gains (losses) included in net income	10,400			179			10,221
Foreign currency translation adjustments	5,644			128			5,516
Other comprehensive income (loss)	$	250,234		$	29,052		$	221,182
Three Months Ended March 31, 2018
Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	(189,943	)	$	(23,266	)	$	(166,677	)
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)	—			—			—
Less reclassification of net realized gains (losses) included in net income	(67,748		)	(5,287		)	(62,461		)
Foreign currency translation adjustments	1,432			150			1,282
Other comprehensive income (loss)	$	(120,763	)	$	(17,829	)	$	(102,934	)

ARCH CAPITAL 34 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

13.     Guarantor Financial Information

The following tables present condensed financial information for Arch Capital, Arch Capital Group (U.S.) Inc. (“Arch-U.S.”), a 100% owned subsidiary of Arch Capital, and Arch Capital’s other subsidiaries.

		March 31, 2019
Condensed Consolidating Balance Sheet		Arch Capital (Parent Guarantor)		Arch-U.S. (Subsidiary Issuer)		Other Arch Capital Subsidiaries		Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Assets
Total investments		$	40	$	464,872	$	21,877,667	$	(14,700	)	$	22,327,879
Cash		12,065		40,716		580,319		—			633,100
Investments in subsidiaries		10,403,671		4,249,796		—		(14,653,467		)	—
Due from subsidiaries and affiliates		—		2		1,883,339		(1,883,341		)	—
Premiums receivable		—		—		2,226,386		(641,704		)	1,584,682
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses		—		—		8,658,803		(5,558,980		)	3,099,823
Contractholder receivables		—		—		2,087,720		—			2,087,720
Ceded unearned premiums		—		—		1,951,746		(852,165		)	1,099,581
Deferred acquisition costs		—		—		669,145		(71,619		)	597,526
Goodwill and intangible assets		—		—		659,215		—			659,215
Other assets		21,943		46,146		2,026,386		(206,964		)	1,887,511
	Total assets	$	10,437,719	$	4,801,532	$	42,620,726	$	(23,882,940	)	$	33,977,037
Liabilities
Reserve for losses and loss adjustment expenses		$	—	$	—	$	17,335,960	$	(5,325,919	)	$	12,010,041
Unearned premiums		—		—		4,888,284		(852,165		)	4,036,119
Reinsurance balances payable		—		—		1,094,762		(641,704		)	453,058
Contractholder payables		—		—		2,087,720		—			2,087,720
Collateral held for insured obligations		—		—		232,411					232,411
Senior notes		297,175		494,749		941,770		—			1,733,694
Revolving credit agreement borrowings		—		—		488,612		—			488,612
Due to subsidiaries and affiliates		—		542,045		1,341,296		(1,883,341		)	—
Other liabilities		25,948		34,073		2,227,945		(511,644		)	1,776,322
	Total liabilities	323,123		1,070,867		30,638,760		(9,214,773		)	22,817,977
Redeemable noncontrolling interests		—		—		221,083		(14,700		)	206,383
Shareholders’ Equity
Total shareholders’ equity available to Arch		10,114,596		3,730,665		10,922,802		(14,653,467		)	10,114,596
Non-redeemable noncontrolling interests		—		—		838,081		—			838,081
	Total shareholders’ equity	10,114,596		3,730,665		11,760,883		(14,653,467		)	10,952,677
	Total liabilities, noncontrolling interests and shareholders’ equity	$	10,437,719	$	4,801,532	$	42,620,726	$	(23,882,940	)	$	33,977,037

ARCH CAPITAL 35 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

		December 31, 2018
Condensed Consolidating Balance Sheet		Arch Capital (Parent Guarantor)		Arch-U.S. (Subsidiary Issuer)		Other Arch Capital Subsidiaries		Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Assets
Total investments		$	104	$	452,674	$	21,307,206	$	(14,700	)	$	21,745,284
Cash		6,125		5,940		634,491		—			646,556
Investments in subsidiaries		9,735,256		3,999,243		—		(13,734,499		)	—
Due from subsidiaries and affiliates		9		2		1,802,686		(1,802,697		)	—
Premiums receivable		—		—		1,834,389		(535,239		)	1,299,150
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses		—		—		8,618,660		(5,699,288		)	2,919,372
Contractholder receivables		—		—		2,079,111		—			2,079,111
Ceded unearned premiums		—		—		1,730,262		(754,793		)	975,469
Deferred acquisition costs		—		—		618,535		(48,961		)	569,574
Goodwill and intangible assets		—		—		634,920		—			634,920
Other assets		12,588		80,949		1,466,438		(211,082		)	1,348,893
	Total assets	$	9,754,082	$	4,538,808	$	40,726,698	$	(22,801,259	)	$	32,218,329
Liabilities
Reserve for losses and loss adjustment expenses		$	—	$	—	$	17,345,142	$	(5,491,845	)	$	11,853,297
Unearned premiums		—		—		4,508,429		(754,793		)	3,753,636
Reinsurance balances payable		—		—		928,346		(535,239		)	393,107
Contractholder payables		—		—		2,079,111		—			2,079,111
Collateral held for insured obligations		—		—		236,630		—			236,630
Senior notes		297,150		494,723		941,655		—			1,733,528
Revolving credit agreement borrowings		—		—		455,682		—			455,682
Due to subsidiaries and affiliates		—		536,805		1,265,892		(1,802,697		)	—
Other liabilities		17,105		26,270		1,699,768		(467,484		)	1,275,659
	Total liabilities	314,255		1,057,798		29,460,655		(9,052,058		)	21,780,650
Redeemable noncontrolling interests		—		—		220,992		(14,700		)	206,292
Shareholders’ Equity
Total shareholders’ equity available to Arch		9,439,827		3,481,010		10,253,491		(13,734,501		)	9,439,827
Non-redeemable noncontrolling interests		—		—		791,560		—			791,560
	Total shareholders’ equity	9,439,827		3,481,010		11,045,051		(13,734,501		)	10,231,387
	Total liabilities, noncontrolling interests and shareholders’ equity	$	9,754,082	$	4,538,808	$	40,726,698	$	(22,801,259	)	$	32,218,329

ARCH CAPITAL 36 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

		Three Months Ended March 31, 2019
Condensed Consolidating Statement of Income and Comprehensive Income		Arch Capital (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other Arch Capital Subsidiaries			Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Revenues
Net premiums earned		$	—		$	—		$	1,368,866		$	—		$	1,368,866
Net investment income		46			3,679			175,672			(22,448		)	156,949
Net realized gains (losses)		—			8,518			138,053			(5,006		)	141,565
Net impairment losses recognized in earnings		—			—			(1,309		)	—			(1,309		)
Other underwriting income		—			—			8,825			—			8,825
Equity in net income (loss) of investment funds accounted for using the equity method		—			—			46,867			—			46,867
Other income (loss)		(239		)	—			1,322			—			1,083
	Total revenues	(193		)	12,197			1,738,296			(27,454		)	1,722,846
Expenses
Losses and loss adjustment expenses		—			—			718,532			—			718,532
Acquisition expenses		—			—			197,848			—			197,848
Other operating expenses		—			—			201,163			—			201,163
Corporate expenses		16,307			2,166			(511		)	—			17,962
Amortization of intangible assets		—			—			20,417			—			20,417
Interest expense		5,538			11,951			33,706			(22,130		)	29,065
Net foreign exchange (gains) losses		2			—			(123		)	(3,404		)	(3,525		)
	Total expenses	21,847			14,117			1,171,032			(25,534		)	1,181,462
Income (loss) before income taxes		(22,040		)	(1,920		)	567,264			(1,920		)	541,384
Income tax (expense) benefit		—			543			(46,429		)	—			(45,886		)
Income (loss) before equity in net income of subsidiaries		(22,040		)	(1,377		)	520,835			(1,920		)	495,498
Equity in net income of subsidiaries		470,568			136,554			—			(607,122		)	—
Net income		448,528			135,177			520,835			(609,042		)	495,498
Net (income) loss attributable to noncontrolling interests		—			—			(47,289		)	319			(46,970		)
Net income available to Arch		448,528			135,177			473,546			(608,723		)	448,528
Preferred dividends		(10,403		)	—			—			—			(10,403		)
Net income available to Arch common shareholders		$	438,125		$	135,177		$	473,546		$	(608,723	)	$	438,125
Comprehensive income available to Arch		$	665,571		$	238,156		$	688,540		$	(926,696	)	$	665,571

ARCH CAPITAL 37 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

		Three Months Ended March 31, 2018
Condensed Consolidating Statement of Income and Comprehensive Income		Arch Capital (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other Arch Capital Subsidiaries			Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Revenues
Net premiums earned		$	—		$	—		$	1,234,899		$	—		$	1,234,899
Net investment income		20			258			148,767			(22,321		)	126,724
Net realized gains (losses)		29			(7		)	(111,020		)	—			(110,998		)
Net impairment losses recognized in earnings		—			—			(162		)	—			(162		)
Other underwriting income		—			—			5,349			—			5,349
Equity in net income (loss) of investment funds accounted for using the equity method		—			—			28,069			—			28,069
Other income (loss)		(78		)	—			152			—			74
	Total revenues	(29		)	251			1,306,054			(22,321		)	1,283,955
Expenses
Losses and loss adjustment expenses		—			—			636,860			—			636,860
Acquisition expenses		—			—			191,376			—			191,376
Other operating expenses		—			—			175,015			—			175,015
Corporate expenses		16,169			289			(1,146		)	—			15,312
Amortization of intangible assets		—			—			26,736			—			26,736
Interest expense		5,536			11,926			35,172			(21,998		)	30,636
Net foreign exchange (gains) losses		29			—			16,436			3,256			19,721
	Total expenses	21,734			12,215			1,080,449			(18,742		)	1,095,656
Income (loss) before income taxes		(21,763		)	(11,964		)	225,605			(3,579		)	188,299
Income tax (expense) benefit		—			2,951			(24,866		)	—			(21,915		)
Income (loss) before equity in net income of subsidiaries		(21,763		)	(9,013		)	200,739			(3,579		)	166,384
Equity in net income of subsidiaries		172,186			86,420			—			(258,606		)	—
Net income (loss)		150,423			77,407			200,739			(262,185		)	166,384
Net (income) loss attributable to noncontrolling interests		—			—			(16,284		)	323			(15,961		)
Net income (loss) available to Arch		150,423			77,407			184,455			(261,862		)	150,423
Preferred dividends		(10,437		)	—			—			—			(10,437		)
Loss on redemption of preferred shares		(2,710		)	—			—			—			(2,710		)
Net income (loss) available to Arch common shareholders		$	137,276		$	77,407		$	184,455		$	(261,862	)	$	137,276
Comprehensive income available to Arch		$	48,162		$	6,537		$	79,081		$	(85,618	)	$	48,162

ARCH CAPITAL 38 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

		Three Months Ended March 31, 2019
Condensed Consolidating Statement of Cash Flows		Arch Capital (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other Arch Capital Subsidiaries			Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Operating Activities
	Net Cash Provided By (Used For) Operating Activities	$	23,171		$	37,324		$	234,706		$	(59,803	)	$	235,398
Investing Activities
Purchases of fixed maturity investments		—			(38,678		)	(7,405,792		)	—			(7,444,470		)
Purchases of equity securities		—			(56,062		)	(219,992		)	72,244			(203,810		)
Purchases of other investments		—			(17,500		)	(307,093		)	—			(324,593		)
Proceeds from the sales of fixed maturity investments		—			75,583			7,001,007			—			7,076,590
Proceeds from the sales of equity securities		—			—			167,261			(72,244		)	95,017
Proceeds from the sales, redemptions and maturities of other investments		—			—			216,483			—			216,483
Proceeds from redemptions and maturities of fixed maturity investments		—			—			100,424			—			100,424
Net settlements of derivative instruments		—			—			29,737			—			29,737
Net (purchases) sales of short-term investments		63			34,109			258,429			—			292,601
Change in cash collateral related to securities lending		—			—			(29,618		)	—			(29,618		)
Contributions to subsidiaries		(2,121		)	—			(53,906		)	56,027			—
Issuance of intercompany loans		—			—			(43,647		)	43,647			—
Purchases of fixed assets		—			—			(9,423		)	—			(9,423		)
Other		—			—			(93,731		)	—			(93,731		)
	Net Cash Provided By (Used For) Investing Activities	(2,058		)	(2,548		)	(389,861		)	99,674			(294,793		)
Financing Activities
Purchases of common shares under share repurchase program		(2,871		)	—			—			—			(2,871		)
Proceeds from common shares issued, net		(1,901		)	—			56,027			(56,027		)	(1,901		)
Proceeds from intercompany borrowings		—			—			43,647			(43,647		)	—
Proceeds from borrowings		—			—			59,000			—			59,000
Repayments of borrowings		—			—			(26,038		)	—			(26,038		)
Change in cash collateral related to securities lending		—			—			29,618			—			29,618
Dividends paid to redeemable noncontrolling interests		—			—			(4,816		)	319			(4,497		)
Dividends paid to parent (1)		—			—			(59,484		)	59,484			—
Other		—			—			(1,389		)	—			(1,389		)
Preferred dividends paid		(10,403		)	—			—			—			(10,403		)
	Net Cash Provided By (Used For) Financing Activities	(15,175		)	—			96,565			(39,871		)	41,519
Effects of exchange rates changes on foreign currency cash and restricted cash		—			—			3,449			—			3,449
Increase (decrease) in cash and restricted cash		5,938			34,776			(55,141		)	—			(14,427		)
Cash and restricted cash, beginning of year		6,159			5,940			712,544			—			724,643
Cash and restricted cash, end of period		$	12,097		$	40,716		$	657,403		$	—		$	710,216

(1)     Dividends received by parent are included in net cash provided by (used for) operating activities.

ARCH CAPITAL 39 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

		Three Months Ended March 31, 2018
Condensed Consolidating Statement of Cash Flows		Arch Capital (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other Arch Capital Subsidiaries			Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Operating Activities
	Net Cash Provided By (Used For) Operating Activities	$	13,315		$	74,248		$	419,956		$	(107,339	)	$	400,180
Investing Activities
Purchases of fixed maturity investments		—			(26,501		)	(10,050,206		)	395,440			(9,681,267		)
Purchases of equity securities		—			—			(377,000		)	—			(377,000		)
Purchases of other investments		—			—			(522,454		)	—			(522,454		)
Proceeds from the sales of fixed maturity investments		—			16,997			9,057,590			(395,440		)	8,679,147
Proceeds from the sales of equity securities		—			—			291,311			—			291,311
Proceeds from the sales, redemptions and maturities of other investments		—			—			436,566			—			436,566
Proceeds from redemptions and maturities of fixed maturity investments		—			—			287,031			—			287,031
Net settlements of derivative instruments		—			—			36,070			—			36,070
Net (purchases) sales of short-term investments		92,885			(15,547		)	517,980			—			595,318
Change in cash collateral related to securities lending		—			—			161,567			—			161,567
Contributions to subsidiaries		—			—			(2,970		)	2,970			—
Purchases of fixed assets		(13		)	—			(4,227		)	—			(4,240		)
Other		—			—			40,037			—			40,037
	Net Cash Provided By (Used For) Investing Activities	92,872			(25,051		)	(128,705		)	2,970			(57,914		)
Financing Activities
Redemption of preferred shares		(92,555		)	—			—			—			(92,555		)
Purchases of common shares under share repurchase program		(3,299		)	—			—			—			(3,299		)
Proceeds from common shares issued, net		(2,779		)	—			2,970			(2,970		)	(2,779		)
Proceeds from borrowings		—			—			39,585			—			39,585
Repayments of borrowings		—			—			(101,000		)	—			(101,000		)
Change in cash collateral related to securities lending		—			—			(161,567		)	—			(161,567		)
Dividends paid to redeemable noncontrolling interests		—			—			(4,816		)	319			(4,497		)
Dividends paid to parent (1)		—			—			(107,020		)	107,020			—
Other		—			—			(2,356		)	—			(2,356		)
Preferred dividends paid		(10,437		)	—			—			—			(10,437		)
	Net Cash Provided By (Used For) Financing Activities	(109,070		)	—			(334,204		)	104,369			(338,905		)
Effects of exchange rates changes on foreign currency cash and restricted cash		(4		)	—			1,615			—			1,611
Increase (decrease) in cash and restricted cash		(2,887		)	49,197			(41,338		)	—			4,972
Cash and restricted cash, beginning of year		10,052			30,380			686,852			—			727,284
Cash and restricted cash, end of period		$	7,165		$	79,577		$	645,514		$	—		$	732,256

(1)     Dividends received by parent are included in net cash provided by (used for) operating activities.

ARCH CAPITAL 40 2019 FIRST QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

14.    Income Taxes

The Company’s income tax provision on income before income taxes resulted in an expense of 8.5% for the three months ended March 31, 2019, compared to an expense of 11.6% for the 2018 period. The Company’s effective tax rate, which is based upon the expected annual effective tax rate, may fluctuate from period to period based on the relative mix of income or loss reported by jurisdiction and the varying tax rates in each jurisdiction. For interim reporting purposes, the Company has calculated its annual effective tax rate for the full year of 2019 by treating excess tax benefits that arise from the accounting for stock based compensation as a discrete item. As such, this amount is not included when projecting the Company’s full year annual effective tax rate but rather is accounted for at the U.S. Federal statutory rate of 21% after applying the projected full year annual effective tax rate to actual three months results before the discrete item. The impact of the discrete item resulted in a benefit of 0.5% for the three months ended March 31, 2019.

The Company had a net deferred tax liability of $18.9 million at March 31, 2019, compared to a net deferred tax asset of $22.5 million at December 31, 2018. The change is primarily a result of the appreciation of the Company’s fixed maturities from December 31, 2018 to March 31, 2019. In addition, the Company recovered$32.7 million and $49.9 million of income taxes for the three months ended March 31, 2019 and 2018, respectively.

15.    Legal Proceedings

The Company, in common with the insurance industry in general, is subject to litigation and arbitration in the normal course of its business. As of March 31, 2019, the Company was not a party to any litigation or arbitration which is expected by management to have a material adverse effect on the Company’s results of operations and financial condition and liquidity.

16.    Subsequent Event

In April 2019, the Company’s first-lien U.S. mortgage insurance subsidiaries entered into an aggregate excess of loss reinsurance agreement with Bellemeade Re 2019-2 Ltd. (“Bellemeade 2019-2”), a special purpose reinsurance company domiciled in Bermuda. The Bellemeade 2019-2 agreement provides for up to $621.0 million of aggregate excess of loss reinsurance coverage at inception in excess of $221.8 million of aggregate losses for new delinquencies on a portfolio of in-force policies primarily issued in the second half of 2018. The coverage amount decreases over a ten-year period as the underlying covered mortgages amortize.

Bellemeade 2019-2 financed the coverage through the issuance of mortgage insurance-linked notes in an aggregate amount of

approximately $621.0 million to unrelated investors (the “Notes”). The maturity date of the Notes is April 25, 2029. The Notes will be redeemed prior to maturity upon the occurrence of a mandatory termination event or if the ceding insurers trigger a termination of the reinsurance agreement following the occurrence of an optional termination event. All of the proceeds paid to Bellemeade 2019-2 from the sale of the Notes were deposited into a reinsurance trust as security for Bellemeade 2019-2’s obligations. At all times, funds in the reinsurance trust account are required to be invested in high credit quality money market funds.

ARCH CAPITAL 41 2019 FIRST QUARTER FORM 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our financial condition and results of operations. This should be read in conjunction with our consolidated financial statements included in Item 1 of this report and also our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”). In addition, readers should review “Risk Factors” set forth in Item 1A of Part I of our 2018 Form 10-K. Tabular amounts are in U.S. Dollars in thousands, except share amounts, unless otherwise noted.

Arch Capital Group Ltd. (“Arch Capital” and, together with its subsidiaries, “we” or “us”) is a Bermuda public limited liability company with approximately $11.85 billion in capital at March 31, 2019 and, through operations in Bermuda, the United States, Europe, Canada and Australia, writes insurance, reinsurance and mortgage insurance on a worldwide basis.

CURRENT OUTLOOK

Our objective is to achieve an average operating return on average equity of 15% or greater over the insurance cycle, which we believe to be an attractive return to our common shareholders given the risks we assume. We continue to look for opportunities to find acceptable books of business to underwrite without sacrificing underwriting discipline and continue to write a portion of our overall book in catastrophe-exposed business which has the potential to increase the volatility of our operating results.

The broad property casualty insurance market environment continues to be competitive, with modest upward rate movement in property and select casualty lines. We believe that the modest improvement in the property and casualty markets reflects broader economic growth, particularly in the U.S. However, the spread between rate changes and loss trend continues to be a key variable in assessing expected returns and, in specialty lines, is volatile by nature. Our underwriting teams continue to execute a disciplined strategy by emphasizing small and medium-sized accounts over large accounts, shrinking premiums in more commoditized lines such as general liability and directors and officers, and by utilizing reinsurance purchases to reduce volatility on large account, high capacity business. Writings in property catastrophe-exposed business continued to remain low in the 2019 first quarter.

Our mortgage segment continues to experience generally favorable market conditions. Although pricing remains competitive in the U.S., borrower credit quality and the general

economy remain strong. Our results continue to reflect our success in making high quality credit underwriting risk decisions and building customer relationships.

Arch remains committed to providing solutions across many offerings as the marketplace evolves, including the mortgage credit risk transfer programs initiated by government sponsored enterprises, or “GSEs,” in 2018. Such programs have continued to generate business. In addition, we completed two Bellemeade risk transfers in March and April, increasing our protection for mortgage tail risk.

FINANCIAL MEASURES

Management uses the following three key financial indicators in evaluating our performance and measuring the overall growth in value generated for Arch Capital’s common shareholders:

Book Value per Share

Book value per share represents total common shareholders’ equity available to Arch divided by the number of common shares outstanding. Management uses growth in book value per share as a key measure of the value generated for our common shareholders each period and believes that book value per share is the key driver of Arch Capital’s share price over time. Book value per share is impacted by, among other factors, our underwriting results, investment returns and share repurchase activity, which has an accretive or dilutive impact on book value per share depending on the purchase price.

Book value per share was $23.12 at March 31, 2019, compared to $21.52 at December 31, 2018 and $20.41 at March 31, 2018. The 7.4%increase for the 2019 first quarter reflected strong underwriting results and the impact of a decrease in interest rates on our fixed income securities while the 13.3%increase over the trailing twelve months reflected strong underwriting results and the impact of higher interest rates.

Operating Return on Average Common Equity

Operating return on average common equity (“Operating ROAE”) represents annualized after-tax operating income available to Arch common shareholders divided by the average of beginning and ending common shareholders’ equity available to Arch during the period. After-tax operating income available to Arch common shareholders, a non-GAAP financial measure as defined in Regulation G, represents net income available to Arch common shareholders, excluding net realized gains or losses, net impairment losses recognized in earnings,

ARCH CAPITAL 42 2019 FIRST QUARTER FORM 10-Q

equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other, loss on redemption of preferred shares and income taxes. Management uses Operating ROAE as a key measure of the return generated to common shareholders. See “Comment on Non-GAAP Financial Measures.”

Our Operating ROAE was 12.3% for the 2019 first quarter, compared to 11.3% for the 2018 first quarter. The 2019 and 2018 returns reflected favorable mortgage insurance underwriting performance, strong investment returns and a low level of catastrophic activity.

Total Return on Investments

Total return on investments includes investment income, equity in net income or loss of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains and losses generated by Arch’s investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses, excludes amounts reflected in the ‘other’ segment, and reflects the effect of financial market conditions along with foreign currency fluctuations. In addition, total return incorporates the timing of investment returns during the periods. The following table summarizes our total return compared to the benchmark return against which we measured our portfolio during the periods. See “Comment on Non-GAAP Financial Measures.”

	Arch Portfolio		Benchmark Return
Pre-tax total return (before investment expenses):
2019 First Quarter	2.70	%	2.82	%
2018 First Quarter	(0.32	)%	(0.68	)%

Excluding the effects of foreign exchange, total return was 2.67% for the 2019 first quarter. Total return for the 2019 first quarter reflected the impact of a decline in interest rates, which increased the total return on our investment grade fixed income portfolio, aided by favorable returns on equities.

The benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality while also matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities. Although the estimated duration and average credit quality of this index will move as the duration and rating of its constituent securities change, generally we do not adjust the composition of the benchmark return index except to incorporate changes to the mix of liability currencies and durations noted above. The benchmark return index should not be interpreted as expressing a preference for or aversion to any particular sector or sector weight. The index is intended solely to provide, unlike many master indices that change based on the size of their constituent indices, a relatively stable basket

of investable indices. At March 31, 2019, the benchmark return index had an average credit quality of “Aa3” by Moody’s Investors Service (“Moody’s”), and an estimated duration of 3.06 years.

The benchmark return index included weightings to the following indices:

	%
ICE BoAML 1-10 Year AAA - A U.S. Corporate Index	21.00	%
ICE BoAML 1-5 Year U.S. Treasury Index	15.00
ICE BoAML 3-5 Year Fixed Rate Asset Backed Securities Index	7.00
ICE BoAML 1-10 Year U.S. Municipal Securities Index	5.00
Bloomberg Barclays CMBS Invest Grade Aaa Total Return Index	5.00
MSCI ACWI Net Total Return USD Index	5.00
Hedge Fund Research HFRX Fixed Income Credit Index	5.00
Hedge Fund Research HFRX Equal Weighted Strategies	5.00
ICE BoAML 1-10 Year BBB U.S. Corporate Index	4.00
ICE BoAML German Government 1-10 Year Index	4.00
ICE BoAML U.S. Mortgage Backed Securities Index	4.00
ICE BoAML 0-3 Month U.S. Treasury Bill Index	4.00
ICE BoAML 1-5 Year U.K. Gilt Index	3.50
ICE BoAML 5-10 Year U.S. Treasury Index	3.00
ICE BoAML 1-5 Year Australian Governments Index	3.00
ICE BoAML U.S. High Yield Constrained Index	2.50
S&P Leveraged Loan Total Return Index	2.50
ICE BoAML 1-5 Year Canada Government Index	1.00
ICE BoAML 20+ Year Canada Government Index	0.50
Total	100.00	%

COMMENT ON NON-GAAP FINANCIAL MEASURES

Throughout this filing, we present our operations in the way we believe will be the most meaningful and useful to investors, analysts, rating agencies and others who use our financial information in evaluating the performance of our company. This presentation includes the use of after-tax operating income available to Arch common shareholders, which is defined as net income available to Arch common shareholders, excluding net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other, loss on redemption of preferred shares and income taxes, and the use of annualized operating return on average common equity. The presentation of after-tax operating income available to Arch common shareholders and annualized operating return on average common equity are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to net income available to Arch common shareholders and annualized return on average common equity (the most directly comparable

ARCH CAPITAL 43 2019 FIRST QUARTER FORM 10-Q

GAAP financial measures) in accordance with Regulation G is included under “Results of Operations” below. 

We believe that net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and loss on redemption of preferred shares in any particular period are not indicative of the performance of, or trends in, our business. Although net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of our operations, the decision to realize investment gains or losses, the recognition of the change in the carrying value of investments accounted for using the fair value option in net realized gains or losses, the recognition of net impairment losses, the recognition of equity in net income or loss of investment funds accounted for using the equity method and the recognition of foreign exchange gains or losses are independent of the insurance underwriting process and result, in large part, from general economic and financial market conditions. Furthermore, certain users of our financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. In addition, net impairment losses recognized in earnings on our investments represent other-than-temporary declines in expected recovery values on securities without actual realization. The use of the equity method on certain of our investments in certain funds that invest in fixed maturity securities is driven by the ownership structure of such funds (either limited partnerships or limited liability companies). In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on our proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). This method of accounting is different from the way we account for our other fixed maturity securities and the timing of the recognition of equity in net income or loss of investment funds accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments. Transaction costs and other include advisory, financing, legal, severance, incentive compensation and other transaction costs related to the acquisition of United Guaranty Corporation, a North Carolina corporation (“UGC”) which closed at the end of 2016. We believe that transaction costs and other, due to their non-recurring nature, are not indicative of the performance of, or trends in, our business performance. The loss on redemption of preferred shares related to the redemption of our Series C preferred shares in January 2018 and had no impact on shareholders' equity or cash flows. Due to these reasons, we exclude net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and loss on redemption of preferred shares from

the calculation of after-tax operating income available to Arch common shareholders. 

We believe that showing net income available to Arch common shareholders exclusive of the items referred to above reflects the underlying fundamentals of our business since we evaluate the performance of and manage our business to produce an underwriting profit. In addition to presenting net income available to Arch common shareholders, we believe that this presentation enables investors and other users of our financial information to analyze our performance in a manner similar to how management analyzes performance. We also believe that this measure follows industry practice and, therefore, allows the users of financial information to compare our performance with our industry peer group. We believe that the equity analysts and certain rating agencies which follow us and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.

Our segment information includes the presentation of consolidated underwriting income or loss and a subtotal of underwriting income or loss before the contribution from the ‘other’ segment. Such measures represent the pre-tax profitability of our underwriting operations and include net premiums earned plus other underwriting income, less losses and loss adjustment expenses, acquisition expenses and other operating expenses. Other operating expenses include those operating expenses that are incremental and/or directly attributable to our individual underwriting operations. Underwriting income or loss does not incorporate items included in our corporate (non-underwriting) segment. While these measures are presented in note 4, “Segment Information,” of the notes accompanying our consolidated financial statements, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis. The reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis and a subtotal before the contribution from the ‘other’ segment, in accordance with Regulation G, is shown in note 4, “Segment Information” to our consolidated financial statements.

We measure segment performance for our three underwriting segments based on underwriting income or loss. We do not manage our assets by underwriting segment, with the exception of goodwill and intangibles and, accordingly, investment income and other non-underwriting related items are not allocated to each underwriting segment. For the ‘other’ segment, performance is measured based on net income or loss.

Along with consolidated underwriting income, we provide a subtotal of underwriting income or loss before the contribution from the ‘other’ segment. Pursuant to generally accepted accounting principles, Watford Re is considered a variable interest entity and we concluded that we are the primary beneficiary of Watford Re. As such, we consolidate the results

ARCH CAPITAL 44 2019 FIRST QUARTER FORM 10-Q

of Watford Re in our consolidated financial statements, although we only own approximately 11% of Watford Re’s common equity. Watford Re has its own management and board of directors that is responsible for its overall profitability. In addition, we do not guarantee or provide credit support for Watford Re. Since Watford Re is an independent company, the assets of Watford Re can be used only to settle obligations of Watford Re and Watford Re is solely responsible for its own liabilities and commitments. Our financial exposure to Watford Re is limited to our investment in Watford Re’s common and preferred shares and counterparty credit risk (mitigated by collateral) arising from the reinsurance transactions. We believe that presenting certain information excluding the ‘other’ segment enables investors and other users of our financial information to analyze our performance in a manner similar to how our management analyzes performance.

Our presentation of segment information includes the use of a current year loss ratio which excludes favorable or adverse development in prior year loss reserves. This ratio is a non-GAAP financial measure as defined in Regulation G. The reconciliation of such measure to the loss ratio (the most directly comparable GAAP financial measure) in accordance with Regulation G is shown on the individual segment pages. Management utilizes the current year loss ratio in its analysis of the underwriting performance of each of our underwriting segments.

Total return on investments includes investment income, equity in net income or loss of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains and losses generated by Arch’s investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses, excludes amounts reflected in the ‘other’ segment, and reflects the effect of financial market conditions along with foreign currency fluctuations. In addition, total return incorporates the timing of investment returns during the periods. There is no directly comparable GAAP financial measure for total return. Management uses total return on investments as a key measure of the return generated to Arch common shareholders on the capital held in the business, and compares the return generated by our investment portfolio against benchmark returns which we measured our portfolio against during the periods.

RESULTS OF OPERATIONS

The following table summarizes our consolidated financial data, including a reconciliation of net income or loss available to Arch common shareholders to after-tax operating income or loss available to Arch common shareholders. Each line item reflects the impact of our approximate 11% ownership of Watford Re’s common equity.

	Three Months Ended
	March 31,
	2019			2018
Net income available to Arch common shareholders	$	438,125		$	137,276
Net realized (gains) losses	(115,644		)	111,764
Net impairment losses recognized in earnings	1,309			162
Equity in net (income) loss of investment funds accounted for using the equity method	(46,867		)	(28,069		)
Net foreign exchange (gains) losses	(4,994		)	15,556
Transaction costs and other	1,190			830
Loss on redemption of preferred shares	—			2,710
Income tax expense (benefit) (1)	2,778			(5,086		)
After-tax operating income available to Arch common shareholders	$	275,897		$	235,143
Beginning common shareholders’ equity	$	8,659,827		$	8,324,047
Ending common shareholders’ equity	9,334,596			8,370,372
Average common shareholders’ equity	$	8,997,212		$	8,347,210
Annualized return on average common equity %	19.5			6.6
Annualized operating return on average common equity %	12.3			11.3

(1) Income tax on net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and loss on redemption of preferred shares reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.

Segment Information

We classify our businesses into three underwriting segments — insurance, reinsurance and mortgage — and two other operating segments — corporate (non-underwriting) and ‘other.’ Our insurance, reinsurance and mortgage segments each have managers who are responsible for the overall profitability of their respective segments and who are directly accountable to our chief operating decision makers, the President and Chief Executive Officer of Arch Capital and the Chief Financial Officer of Arch Capital. The chief operating decision makers do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures segment performance for our three underwriting segments based on underwriting income or loss. We do not manage our assets by underwriting segment, with the exception of goodwill and intangible assets, and, accordingly, investment income is not allocated to each underwriting segment.

ARCH CAPITAL 45 2019 FIRST QUARTER FORM 10-Q

We determined our reportable segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. The accounting policies of the segments are the same as those used for the preparation of our consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.

Insurance Segment

The following tables set forth our insurance segment’s underwriting results:

	Three Months Ended March 31,
	2019			2018			% Change
Gross premiums written	$	941,954		$	823,378		14.4
Premiums ceded	(320,622		)	(247,180		)
Net premiums written	621,332			576,198			7.8
Change in unearned premiums	(67,827		)	(37,461		)
Net premiums earned	553,505			538,737			2.7
Losses and loss adjustment expenses	(356,723		)	(353,730		)
Acquisition expenses	(82,824		)	(85,169		)
Other operating expenses	(113,396		)	(91,974		)
Underwriting income	$	562		$	7,864		(92.9	)
Underwriting Ratios							% Point Change
Loss ratio	64.4		%	65.7		%	(1.3	)
Acquisition expense ratio	15.0		%	15.8		%	(0.8	)
Other operating expense ratio	20.5		%	17.1		%	3.4
Combined ratio	99.9		%	98.6		%	1.3

The insurance segment consists of our insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:

•Construction and national accounts: primary and excess casualty coverages to middle and large accounts in the construction industry and a wide range of products for middle and large national accounts, specializing in loss sensitive primary casualty insurance programs (including large deductible, self-insured retention and retrospectively rated programs).

•Excess and surplus casualty: primary and excess casualty insurance coverages, including middle market energy business, and contract binding, which primarily provides casualty coverage through a network of appointed agents to small and medium risks.

•Lenders products: collateral protection, debt cancellation and service contract reimbursement products to banks, credit unions, automotive dealerships and original equipment manufacturers and other specialty programs that pertain to automotive lending and leasing.

•Professional lines: directors’ and officers’ liability, errors and omissions liability, employment practices liability,

fiduciary liability, crime, professional indemnity and other financial related coverages for corporate, private equity, venture capital, real estate investment trust, limited partnership, financial institution and not-for-profit clients of all sizes and medical professional and general liability insurance coverages for the healthcare industry. The business is predominately written on a claims-made basis.

•Programs: primarily package policies, underwriting workers’ compensation and umbrella liability business in support of desirable package programs, targeting program managers with unique expertise and niche products offering general liability, commercial automobile, inland marine and property business with minimal catastrophe exposure.

•Property, energy, marine and aviation: primary and excess general property insurance coverages, including catastrophe-exposed property coverage, for commercial clients. Coverages for marine include hull, war, specie and liability. Aviation and stand alone terrorism are also offered.

•Travel, accident and health: specialty travel and accident and related insurance products for individual, group travelers, travel agents and suppliers, as well as accident and health, which provides accident, disability and medical plan insurance coverages for employer groups, medical plan members, students and other participant groups.

•Other: includes alternative market risks (including captive insurance programs), excess workers’ compensation and employer’s liability insurance coverages for qualified self-insured groups, associations and trusts, and contract and commercial surety coverages, including contract bonds (payment and performance bonds) primarily for medium and large contractors and commercial surety bonds for Fortune 1,000 companies and smaller transaction business programs.

ARCH CAPITAL 46 2019 FIRST QUARTER FORM 10-Q

Premiums Written.

The following tables set forth our insurance segment’s net premiums written by major line of business:

	Three Months Ended March 31,
	2019			2018
	Amount		%	Amount		%
Professional lines	$	129,234	20.8	$	119,789	20.8
Programs	101,172		16.3	96,556		16.8
Construction and national accounts	95,355		15.3	98,428		17.1
Travel, accident and health	88,104		14.2	80,524		14.0
Property, energy, marine and aviation	70,486		11.3	52,127		9.0
Excess and surplus casualty	45,165		7.3	41,922		7.3
Lenders products	22,415		3.6	21,984		3.8
Other	69,401		11.2	64,868		11.3
Total	$	621,332	100.0	$	576,198	100.0

Gross premiums written by the insurance segment in the 2019 first quarter were 14.4%higher than in the 2018 first quarter, while net premiums written were 7.8%higher. The increase in net premiums written primarily reflects the acquisition of renewal rights of a U.K. commercial lines book of business on January 1, 2019, along with the growth in most lines of business. The percentage increase in gross premiums written is higher than the increase in net premiums written due to a single large national account, for which the premium written in the quarter was substantially ceded.

Net Premiums Earned.

The following tables set forth our insurance segment’s net premiums earned by major line of business:

	Three Months Ended March 31,
	2019			2018
	Amount		%	Amount		%
Professional lines	$	114,791	20.7	$	116,018	21.5
Programs	97,486		17.6	95,011		17.6
Construction and national accounts	75,931		13.7	77,212		14.3
Travel, accident and health	71,575		12.9	66,835		12.4
Property, energy, marine and aviation	59,638		10.8	48,603		9.0
Excess and surplus casualty	42,369		7.7	46,544		8.6
Lenders products	23,232		4.2	22,816		4.2
Other	68,483		12.4	65,698		12.2
Total	$	553,505	100.0	$	538,737	100.0

Net premiums written are primarily earned on a pro rata basis over the terms of the policies for all products, usually 12 months. Net premiums earned reflect changes in net premiums written over the previous five quarters. Net premiums earned in the

2019 first quarter were 2.7%higher than in the 2018 first quarter.

Losses and Loss Adjustment Expenses.

The table below shows the components of the insurance segment’s loss ratio:

	Three Months Ended
	March 31,
	2019		2018
Current year	65.2	%	66.1	%
Prior period reserve development	(0.8	)%	(0.4	)%
Loss ratio	64.4	%	65.7	%

Current Year Loss Ratio.

The insurance segment’s current year loss ratio in the 2019 first quarter was 0.9 points lower than in the 2018 first quarter and reflected minimal current year catastrophic activity, consistent with the 2018 first quarter.

Prior Period Reserve Development.

The insurance segment’s net favorable development was $4.4 million, or 0.8 points, for the 2019 first quarter, compared to $2.1 million, or 0.4 points, for the 2018 first quarter. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements for information about the insurance segment’s prior year reserve development.

Underwriting Expenses.

The insurance segment’s underwriting expense ratio was 35.5% in the 2019 first quarter, compared to 32.9% in the 2018 first quarter. The increase in the underwriting expense ratio reflected a previously announced change in the timing of our incentive compensation practices, with a large portion of the expense associated with the share based compensation grants reflected in the 2019 first quarter. In prior periods, share based compensation grants occurred in the second quarter. On the U.K. acquisition noted above, only a small portion of net premiums written were earned in the 2019 first quarter while the Company incurred a full quarter of expenses. This resulted in a higher expense ratio in the period, which is expected to moderate as the business matures. The Company did not acquire any loss reserves or unearned premiums as part of the transaction.

ARCH CAPITAL 47 2019 FIRST QUARTER FORM 10-Q

Reinsurance Segment

The following tables set forth our reinsurance segment’s underwriting results:

	Three Months Ended March 31,
	2019			2018			% Change
Gross premiums written	$	682,855		$	577,483		18.2
Premiums ceded	(231,567		)	(195,730		)
Net premiums written	451,288			381,753			18.2
Change in unearned premiums	(104,923		)	(102,581		)
Net premiums earned	346,365			279,172			24.1
Other underwriting income	4,377			1,232
Losses and loss adjustment expenses	(239,810		)	(141,675		)
Acquisition expenses	(54,326		)	(48,319		)
Other operating expenses	(35,704		)	(35,571		)
Underwriting income	$	20,902		$	54,839		(61.9	)
Underwriting Ratios							% Point Change
Loss ratio	69.2		%	50.7		%	18.5
Acquisition expense ratio	15.7		%	17.3		%	(1.6	)
Other operating expense ratio	10.3		%	12.7		%	(2.4	)
Combined ratio	95.2		%	80.7		%	14.5

The reinsurance segment consists of our reinsurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:

•Casualty: provides coverage to ceding company clients on third party liability and workers’ compensation exposures from ceding company clients, primarily on a treaty basis. Exposures include, among others, executive assurance, professional liability, workers’ compensation, excess and umbrella liability, excess motor and healthcare business.

•Marine and aviation: provides coverage for energy, hull, cargo, specie, liability and transit, and aviation business, including airline and general aviation risks. Business written may also include space business, which includes coverages for satellite assembly, launch and operation for commercial space programs.

•Other specialty: provides coverage to ceding company clients for proportional motor and other lines, including surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and political risk.

•Property catastrophe: provides protection for most catastrophic losses that are covered in the underlying policies written by reinsureds, including hurricane, earthquake, flood, tornado, hail and fire, and coverage for other perils on a case-by-case basis. Property catastrophe reinsurance provides coverage on an excess of loss basis when aggregate losses and loss adjustment expense from a single occurrence or aggregation of losses from a covered peril exceed the retention specified in the contract.

•Property excluding property catastrophe: provides coverage for both personal lines and commercial property exposures and principally covers buildings, structures, equipment and contents. The primary perils in this business include fire, explosion, collapse, riot, vandalism, wind, tornado, flood and earthquake. Business is assumed on both a proportional and excess of loss basis. In addition, facultative business is written which focuses on individual commercial property risks on an excess of loss basis.

•Other: includes life reinsurance business on both a proportional and non-proportional basis, casualty clash business and, in limited instances, non-traditional business which is intended to provide insurers with risk management solutions that complement traditional reinsurance.

Premiums Written.

The following tables set forth our reinsurance segment’s net premiums written by major line of business:

	Three Months Ended March 31,
	2019			2018
	Amount		%	Amount		%
Other specialty	$	140,477	31.1	$	138,992	36.4
Casualty	168,484		37.3	130,176		34.1
Property excluding property catastrophe	102,740		22.8	85,170		22.3
Property catastrophe	3,383		0.7	7,632		2.0
Marine and aviation	15,958		3.5	10,012		2.6
Other	20,246		4.5	9,771		2.6
Total	$	451,288	100.0	$	381,753	100.0

Gross and net premiums written by the reinsurance segment in the 2019 first quarter were 18.2%higher than in the 2018 first quarter. The increase in net premiums written in the 2019 first quarter primarily reflected growth from selected new business opportunities in casualty and property excluding property catastrophe lines of business.

Net Premiums Earned.

The following tables set forth our reinsurance segment’s net premiums earned by major line of business:

	Three Months Ended March 31,
	2019			2018
	Amount		%	Amount		%
Other specialty	$	121,521	35.1	$	103,717	37.2
Casualty	91,624		26.5	69,372		24.8
Property excluding property catastrophe	83,792		24.2	68,754		24.6
Property catastrophe	18,732		5.4	18,387		6.6
Marine and aviation	11,059		3.2	9,389		3.4
Other	19,637		5.7	9,553		3.4
Total	$	346,365	100.0	$	279,172	100.0

ARCH CAPITAL 48 2019 FIRST QUARTER FORM 10-Q

Net premiums written, irrespective of the class of business, are generally earned on a pro rata basis over the terms of the underlying policies or reinsurance contracts. For the 2019 first quarter, net premiums earned were 24.1%higher than in the 2018 first quarter.

Other Underwriting Income.

Other underwriting income for the 2019 first quarter was $4.4 million, compared to $1.2 million for the 2018 first quarter.

Losses and Loss Adjustment Expenses.

The table below shows the components of the reinsurance segment’s loss ratio:

	Three Months Ended
	March 31,
	2019		2018
Current year	68.7	%	63.8	%
Prior period reserve development	0.5	%	(13.1	)%
Loss ratio	69.2	%	50.7	%

Current Year Loss Ratio.

The reinsurance segment’s current year loss ratio in the 2019 first quarter was 4.9 points higher than in the 2018 first quarter and reflected 2.3 points of current year catastrophic activity, compared to 0.4 points in the 2018 first quarter.

Prior Period Reserve Development.

The reinsurance segment’s net adverse development was $1.7 million, or 0.5 points, for the 2019 first quarter, compared to $36.5 million, or 13.1 points, of net favorable development for the 2018 first quarter. The estimated net adverse development in the 2019 first quarter included an increase in reserves on Typhoon Jebi of $16.0 million, or 4.6 points, based on receipt of updated information from cedents and additional updated industry data. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements for information about the reinsurance segment’s prior year reserve development.

Underwriting Expenses.

The underwriting expense ratio for the reinsurance segment was 26.0% in the 2019 first quarter, compared to 30.0% in the 2018 first quarter, reflecting growth in net premiums earned and changes in mix of business.

Mortgage Segment

Our mortgage operations include U.S. and international mortgage insurance and reinsurance operations as well as participation in GSE credit risk-sharing transactions. Our mortgage group includes direct mortgage insurance in the U.S. primarily through Arch Mortgage Insurance Company and

United Guaranty Residential Insurance Company (together, “Arch MI U.S.”), mortgage reinsurance by Arch Reinsurance Ltd. (“Arch Re Bermuda”) to mortgage insurers on both a proportional and non-proportional basis globally; direct mortgage insurance in Europe through Arch Insurance (EU) Designated Activity Company (“Arch MI Europe”) and in Hong Kong through Arch MI Asia Limited (“Arch MI Asia”); and participation in various GSE credit risk-sharing products primarily through Arch Re Bermuda.

The following tables set forth our mortgage segment’s underwriting results.

	Three Months Ended March 31,
	2019			2018			% Change
Gross premiums written	$	356,050		$	321,178		10.9
Premiums ceded	(48,798		)	(46,137		)
Net premiums written	307,252			275,041			11.7
Change in unearned premiums	15,650			5,201
Net premiums earned	322,902			280,242			15.2
Other underwriting income	3,856			3,416
Losses and loss adjustment expenses	(11,149		)	(43,466		)
Acquisition expenses	(31,672		)	(26,567		)
Other operating expenses	(39,875		)	(38,771		)
Underwriting income	$	244,062		$	174,854		39.6
Underwriting Ratios							% Point Change
Loss ratio	3.5		%	15.5		%	(12.0	)
Acquisition expense ratio	9.8		%	9.5		%	0.3
Other operating expense ratio	12.3		%	13.8		%	(1.5	)
Combined ratio	25.6		%	38.8		%	(13.2	)

Premiums Written.

The following tables set forth our mortgage segment’s net premiums written by underwriting location (i.e., where the business is underwritten):

	Three Months Ended March 31,
	2019			2018
	Amount		%	Amount		%
Underwriting location:
United States	$	255,380	83.1	$	221,177	80.4
Other	51,872		16.9	53,864		19.6
Total	$	307,252	100.0	$	275,041	100.0

Gross premiums written by the mortgage segment in the 2019 first quarter were 10.9%higher than in the 2018 first quarter, while net premiums written were 11.7%higher. The growth in net premiums written primarily reflected an increase in monthly premiums business due to growth in U.S. insurance in force, partially offset by a lower level of U.S. single premium business, a decrease in Australian mortgage reinsurance business and higher ceded premiums related to Bellemeade transactions.

ARCH CAPITAL 49 2019 FIRST QUARTER FORM 10-Q

The persistency rate, which represents the percentage of mortgage insurance in force at the beginning of a 12-month period that remains in force at the end of such period, of the Arch MI U.S. portfolio of mortgage loans was 81.3% at March 31, 2019, compared to 81.5% at December 31, 2018.

Arch MI U.S. generated $11.2 billion of new insurance written (“NIW”) in the 2019 first quarter, consistent with the $11.4 billion in the 2018 first quarter. NIW represents the original principal balance of all loans that received coverage during the period. Monthly premium policies contributed 91.6% of NIW in the 2019 first quarter, compared to 91.4% for the 2018 first quarter.

The following tables provide details on the NIW generated by Arch MI U.S.:

(U.S. Dollars in millions)	Three Months Ended March 31,
	2019			2018
	Amount		%	Amount		%
Total new insurance written (NIW) (1)	$	11,207		$	11,373
Credit quality (FICO):
>=740	$	6,350	56.7	$	6,612	58.1
680-739	4,041		36.1	4,042		35.5
620-679	816		7.3	719		6.3
Total	$	11,207	100.0	$	11,373	100.0
Loan-to-value (LTV):
95.01% and above	$	1,808	16.1	$	1,262	11.1
90.01% to 95.00%	4,975		44.4	5,136		45.2
85.01% to 90.00%	3,149		28.1	3,643		32.0
85.01% and below	1,275		11.4	1,332		11.7
Total	$	11,207	100.0	$	11,373	100.0
Monthly vs. single:
Monthly	$	10,263	91.6	$	10,390	91.4
Single	944		8.4	983		8.6
Total	$	11,207	100.0	$	11,373	100.0
Purchase vs. refinance:
Purchase	$	10,289	91.8	$	10,288	90.5
Refinance	918		8.2	1,085		9.5
Total	$	11,207	100.0	$	11,373	100.0

(1) Represents the original principal balance of all loans that received coverage during the period.

Net Premiums Earned.

The following tables set forth our mortgage segment’s net premiums earned by underwriting location:

	Three Months Ended March 31,
	2019			2018
	Amount		%	Amount		%
Underwriting location:
United States	$	274,473	85.0	$	238,141	85.0
Other	48,429		15.0	42,101		15.0
Total	$	322,902	100.0	$	280,242	100.0

Net premiums earned for the 2019 first quarter were 15.2% higher than in the 2018 first quarter. The increase was primarily due to growth in insurance in force over the last twelve months.

Other Underwriting Income.

Other underwriting income, which is primarily related to older GSE credit risk-sharing transactions receiving derivative accounting treatment, was $3.9 million for the 2019 first quarter, compared to $3.4 million for the 2018 first quarter.

Losses and Loss Adjustment Expenses.

The table below shows the components of the mortgage segment’s loss ratio:

	Three Months Ended
	March 31,
	2019		2018
Current year	14.8	%	20.1	%
Prior period reserve development	(11.3	)%	(4.6	)%
Loss ratio	3.5	%	15.5	%

Current Year Loss Ratio.

The mortgage segment’s current year loss ratio was 5.3 points lower in the 2019 first quarter than in the 2018 first quarter. The lower current year loss ratio for the 2019 first quarter reflects the current favorable macroeconomic environment.

Prior Period Reserve Development.

The mortgage segment’s net favorable development was $36.6 million, or 11.3 points, for the 2019 first quarter, compared to $13.0 million, or 4.6 points, for the 2018 first quarter. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements for information about the mortgage segment’s prior year reserve development.

Underwriting Expenses.

The underwriting expense ratio for the mortgage segment was 22.1% in the 2019 first quarter, compared to 23.3% in the 2018 first quarter. The lower ratio in the 2019 first quarter primarily resulted from the higher level of net premiums earned.

Corporate (Non-Underwriting) Segment

The corporate (non-underwriting) segment results include net investment income, other income (loss), corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, items related to our non-cumulative preferred shares, net realized gains or losses, net impairment losses included in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and income taxes. Such amounts exclude the results of the ‘other’ segment.

ARCH CAPITAL 50 2019 FIRST QUARTER FORM 10-Q

Net Investment Income.

The components of net investment income were derived from the following sources:

	Three Months Ended
	March 31,
	2019			2018
Fixed maturities	$	110,651		$	92,438
Equity securities	2,246			2,750
Short-term investments	4,298			3,949
Other (1)	22,944			19,229
Gross investment income	140,139			118,366
Investment expenses (2)	(18,890		)	(18,123		)
Net investment income	$	121,249		$	100,243

(1) Amounts include dividends and other distributions on investment funds, term loan investments, funds held balances, cash balances and other items.

(2) Investment expenses were approximately 0.38% of average invested assets for the 2019 first quarter, consistent with 0.38% for the 2018 first quarter.

The higher level of net investment income for the 2019 first quarter reflected an increase in the embedded book yield on fixed income securities, reflecting the reinvestment at higher available yields and the shift from municipal bonds to corporates over the last twelve months. The pre-tax investment income yield, calculated based on amortized cost and on an annualized basis, was 2.67% for the 2019 first quarter, compared to 2.13% for the 2018 first quarter.

Corporate Expenses.

Corporate expenses were $16.8 million for the 2019 first quarter, compared to $14.5 million for the 2018 first quarter. The increase in corporate expenses in the 2019 first quarter primarily reflected a previously announced change in the timing of our incentive compensation practices, with a large portion of the expense associated with the share based compensation grants reflected in the 2019 first quarter. In prior periods, share based compensation grants occurred in the second quarter.

Transaction Costs and Other.

Transaction costs and other were $1.2 million for the 2019 first quarter, compared to $0.8 million for the 2018 first quarter. Amounts in both periods primarily related to severance and related costs.

Amortization of Intangible Assets.

Amortization of intangible assets for the 2019 first quarter was $20.4 million, compared to $26.7 million for the 2018 first quarter. Expenses in both periods primarily related to the UGC acquisition, while the 2019 first quarter also included amortization related to the previously announced acquisitions of (i) renewal rights of a U.K. commercial lines book of business on January 1, 2019; and (ii) McNeil &Co. on December 6, 2018.

See the consolidated financial statements contained in our 2018 Form 10-K for disclosures on our amortization pattern.

Interest Expense.

Interest expense was $23.5 million for the 2019 first quarter, compared to the $25.9 million for the 2018 first quarter, reflecting the paydown of revolving credit agreement borrowings in the second half of 2018.

Loss on Redemption of Preferred Shares.

In January 2018, we redeemed all remaining 6.75% Series C preferred shares and, in accordance with GAAP, recorded a loss of $2.7 million to remove original issuance costs related to the redeemed shares from additional paid-in capital. Such adjustment had no impact on total shareholders’ equity or cash flows.

Net Realized Gains or Losses.

We recorded net realized gains of $112.4 million for the 2019 first quarter, compared to net realized losses of $111.9 million for the 2018 first quarter. Currently, our portfolio is actively managed to maximize total return within certain guidelines. The effect of financial market movements on the investment portfolio will directly impact net realized gains and losses as the portfolio is adjusted and rebalanced. Net realized gains or losses from the sale of fixed maturities primarily results from our decisions to reduce credit exposure, to change duration targets, to rebalance our portfolios or due to relative value determinations. Net realized gains or losses also include realized and unrealized contract gains and losses on our derivative instruments, changes in the fair value of assets accounted for using the fair value option and in the fair value of equities, along with re-measurement of contingent consideration liability amounts. See note 6, “Investment Information—Net Realized Gains (Losses),” to our consolidated financial statements for additional information.

Net Impairment Losses Recognized in Earnings.

We recorded $1.3 million of impairment losses for the 2019 first quarter, compared to $0.2 million for the 2018 first quarter. See note 6, “Investment Information—Other-Than-Temporary Impairments,” to our consolidated financial statements for additional information.

Equity in Net Income (Loss) of Investment Funds Accounted for Using the Equity Method.

We recorded $46.9 million of equity in net income related to investment funds accounted for using the equity method in the 2019 first quarter, compared to $28.1 million of income for the 2018 first quarter. Investment funds accounted for using the equity method totaled $1.56 billion at March 31, 2019, compared to $1.49 billion at December 31, 2018. See note 6, “Investment Information—Investments Accounted For Using

ARCH CAPITAL 51 2019 FIRST QUARTER FORM 10-Q

the Equity Method,” to our consolidated financial statements for additional information.

Net Foreign Exchange Gains or Losses.

Net foreign exchange gains for the 2019 first quarter were $5.2 million, compared to net foreign exchange losses for the 2018 first quarter of $15.0 million. Amounts in both periods were primarily unrealized and resulted from the effects of revaluing our net insurance liabilities required to be settled in foreign currencies at each balance sheet date.

Income Tax Expense.

Our income tax provision on income before income taxes resulted in an expense of 9.4% for the 2019 first quarter, compared to 12.8% for the 2018 period. The effective tax rate for the 2019 first quarter included a discrete income tax benefit of $1.8 million related to share based compensation. Our effective tax rate, which is based upon the expected annual effective tax rate, may fluctuate from period to period based on the relative mix of income or loss reported by jurisdiction and the varying tax rates in each jurisdiction.

Other Segment

The ‘other’ segment includes the results of Watford Re. Pursuant to generally accepted accounting principles, Watford Re is considered a variable interest entity and we concluded that we are the primary beneficiary of Watford Re. As such, we consolidate the results of Watford Re in our consolidated financial statements, although we only own approximately 11% of Watford Re’s common equity. See note 11, “Variable Interest Entities and Noncontrolling Interests,” and note 4, “Segment Information,” to our consolidated financial statements for additional information on Watford Re.

CRITICAL ACCOUNTING POLICIES,

ESTIMATES AND RECENT ACCOUNTING PRONOUNCEMENTS

Critical accounting policies, estimates and recent accounting pronouncements are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2018 Form 10-K, updated where applicable in the notes accompanying our consolidated financial statements, including note 1, “Basis of Presentation and Recent Accounting Pronouncements.”

ARCH CAPITAL 52 2019 FIRST QUARTER FORM 10-Q

FINANCIAL CONDITION

Investable Assets

At March 31, 2019, total investable assets held by Arch were $20.06 billion, excluding the $2.82 billion included in the ‘other’ segment (i.e., attributable to Watford Re).

Investable Assets Held by Arch

The following table summarizes the fair value of the investable assets held by Arch:

Investable assets (1):	Estimated Fair Value			% of Total
March 31, 2019
Fixed maturities (2)	$	15,382,680		76.7
Short-term investments (2)	731,643			3.6
Cash	576,799			2.9
Equity securities (2)	495,002			2.5
Other investments (2)	1,313,816			6.6
Investments accounted for using the equity method	1,563,779			7.8
Securities transactions entered into but not settled at the balance sheet date	(8,339		)	0.0
Total investable assets held by Arch	$	20,055,380		100.0
Average effective duration (in years)	3.47
Average S&P/Moody’s credit ratings (3)	AA/Aa2
Embedded book yield (4)	2.95		%
December 31, 2018
Fixed maturities (2)	$	14,881,902		76.1
Short-term investments (2)	995,926			5.1
Cash	583,027			3.0
Equity securities (2)	368,843			1.9
Other investments (2)	1,261,525			6.4
Investments accounted for using the equity method	1,493,791			7.6
Securities transactions entered into but not settled at the balance sheet date	(18,153		)	(0.1	)
Total investable assets held by Arch	$	19,566,861		100.0
Average effective duration (in years)	3.38
Average S&P/Moody’s credit ratings (3)	AA/Aa2
Embedded book yield (4)	2.89		%

(1) In securities lending transactions, we receive collateral in excess of the fair value of the securities pledged. For purposes of this table, we have excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value.

(2) Includes investments carried at fair value under the fair value option.

(3) Average credit ratings on our investment portfolio on securities with ratings by Standard & Poor’s Rating Services (“S&P”) and Moody’s Investors Service (“Moody’s”).

(4) Before investment expenses.

At March 31, 2019, approximately $14.30 billion, or 71.3%, of total investable assets held by Arch were internally managed, compared to $14.08 billion, or 72.0%, at December 31, 2018.

The following table summarizes our fixed maturities and fixed maturities pledged under securities lending agreements (“Fixed Maturities”) by type:

	Estimated Fair Value		% of Total
March 31, 2019
Corporate bonds	$	6,054,114	39.4
Mortgage backed securities	492,255		3.2
Municipal bonds	714,790		4.6
Commercial mortgage backed securities	610,754		4.0
U.S. government and government agencies	4,352,266		28.3
Non-U.S. government securities	1,740,110		11.3
Asset backed securities	1,418,391		9.2
Total	$	15,382,680	100.0
December 31, 2018
Corporate bonds	$	5,735,526	38.5
Mortgage backed securities	535,763		3.6
Municipal bonds	1,012,308		6.8
Commercial mortgage backed securities	729,442		4.9
U.S. government and government agencies	3,601,269		24.2
Non-U.S. government securities	1,713,891		11.5
Asset backed securities	1,553,703		10.4
Total	$	14,881,902	100.0

The following table provides the credit quality distribution of our Fixed Maturities. For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.

	Estimated Fair Value		% of Total
March 31, 2019
U.S. government and gov’t agencies (1)	$	4,895,315	31.8
AAA	3,096,530		20.1
AA	1,886,690		12.3
A	3,213,166		20.9
BBB	1,437,907		9.3
BB	363,887		2.4
B	231,544		1.5
Lower than B	60,577		0.4
Not rated	197,064		1.3
Total	$	15,382,680	100.0
December 31, 2018
U.S. government and gov’t agencies (1)	$	4,194,676	28.2
AAA	3,551,039		23.9
AA	2,129,336		14.3
A	3,069,656		20.6
BBB	1,251,205		8.4
BB	275,201		1.8
B	183,614		1.2
Lower than B	61,271		0.4
Not rated	165,904		1.1
Total	$	14,881,902	100.0

(1) Includes U.S. government-sponsored agency residential mortgage-backed securities and agency commercial mortgage-backed securities.

ARCH CAPITAL 53 2019 FIRST QUARTER FORM 10-Q

The following table provides information on the severity of the unrealized loss position as a percentage of amortized cost for all Fixed Maturities which were in an unrealized loss position:

Severity of gross unrealized losses:	Estimated Fair Value		Gross Unrealized Losses			% of Total Gross Unrealized Losses
March 31, 2019
0-10%	$	5,296,513	$	(73,911	)	90.7
10-20%	44,878		(6,816		)	8.4
20-30%	1,625		(499		)	0.6
Greater than 30%	173		(282		)	0.3
Total	$	5,343,189	$	(81,508	)	100.0
December 31, 2018
0-10%	$	8,722,837	$	(190,170	)	92.5
10-20%	87,188		(13,012		)	6.3
20-30%	3,359		(1,058		)	0.5
Greater than 30%	2,363		(1,266		)	0.6
Total	$	8,815,747	$	(205,506	)	100.0

The following table summarizes our top ten exposures to fixed income corporate issuers by fair value at March 31, 2019, excluding guaranteed amounts and covered bonds:

	Estimated Fair Value		Credit Rating (1)
JPMorgan Chase & Co.	$	238,973	A-/A2
Bank of America Corporation	208,129		A-/A2
Wells Fargo & Company	195,423		A/A1
Citigroup Inc.	160,741		A/A1
Apple Inc.	160,052		AA+/Aa1
U.S. Bancorp	124,936		AA-/A1
BP P.L.C.	113,032		A-/A1
Morgan Stanley	112,792		BBB+/A3
Nestle S.A.	112,305		AA-/Aa2
Daimler AG	111,970		A/A2
Total	$	1,538,353

(1) Average credit ratings as assigned by S&P and Moody’s, respectively.

The following table provides information on our structured securities, which includes residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”):

	Agencies		Investment Grade		Below Investment Grade		Total
Mar 31, 2019
RMBS	$	435,123	$	21,797	$	35,335	$	492,255
CMBS	107,928		478,255		24,571		610,754
ABS	—		1,332,715		85,676		1,418,391
Total	$	543,051	$	1,832,767	$	145,582	$	2,521,400
Dec 31, 2018
RMBS	$	488,862	$	15,410	$	31,491	$	535,763
CMBS	104,547		602,865		22,030		729,442
ABS	—		1,485,150		68,553		1,553,703
Total	$	593,409	$	2,103,425	$	122,074	$	2,818,908

At March 31, 2019, our structured securities included $38.4 million par value in sub-prime securities with a fair value of $32.3 million and average credit quality ratings from S&P/Moody’s of “CCC-/Caa3,” compared to $38.2 million par value with a fair value of $31.7 million and average credit quality ratings of “CCC-/Caa3” at December 31, 2018.

At March 31, 2019, our investment portfolio included $495.0 million of equity securities, compared to $368.8 million at December 31, 2018. Our equity portfolio includes publicly traded common stocks in the natural resources, energy, consumer staples and other sectors.

The following table summarizes our other investments:

	March 31, 2019		December 31, 2018
Lending	$	545,569	$	524,112
Term loan investments	$	274,787	$	281,486
Energy	126,612		117,509
Credit related funds	174,320		152,510
Investment grade fixed income	97,676		101,902
Infrastructure	54,421		45,371
Private equity	24,501		24,383
Real estate	15,930		14,252
Total	$	1,313,816	$	1,261,525

(1) Includes fund investments with strategies in mortgage servicing rights, transportation and infrastructure assets and other.

For details on our investments accounted for using the equity method, see note 6, “Investment Information—Investments Accounted For Using the Equity Method,” to our consolidated financial statements.

Our investment strategy allows for the use of derivative instruments. We utilize various derivative instruments such as futures contracts to enhance investment performance, replicate

ARCH CAPITAL 54 2019 FIRST QUARTER FORM 10-Q

investment positions or manage market exposures and duration risk that would be allowed under our investment guidelines if implemented in other ways. See note 8, “Derivative Instruments,” to our consolidated financial statements for additional disclosures related to derivatives.

Accounting guidance regarding fair value measurements addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP. See note 7, “Fair Value,” to our consolidated financial statements for a summary of our financial assets and liabilities measured at fair value, segregated by level in the fair value hierarchy.

Investable Assets in the ‘Other’ Segment

Investable assets in the ‘other’ segment are managed by Watford Re. The board of directors of Watford Re establishes its investment policies and guidelines. Watford Re’s investments are accounted for using the fair value option with changes in the carrying value of such investments recorded in net realized gains or losses.

The following table summarizes investable assets in the ‘other’ segment:

	March 31, 2019			December 31, 2018
Investments accounted for using the fair value option:
Other investments	$	1,073,794		$	1,050,414
Fixed maturities	826,016			922,819
Short-term investments	256,710			282,131
Equity securities	58,801			56,638
Total	2,215,321			2,312,002
Fixed maturities available for sale, at fair value	549,834			393,351
Equity securities, at fair value	65,010			32,206
Cash	56,301			63,529
Securities sold but not yet purchased	(28,737		)	(7,790		)
Securities transactions entered into but not settled at the balance sheet date	(33,011		)	(35,635		)
Total investable assets included in ‘other’ segment	$	2,824,718		$	2,757,663

Reinsurance

The effects of reinsurance on written and earned premiums and losses and loss adjustment expenses (“LAE”) with unaffiliated reinsurers were as follows:

	Three Months Ended
	March 31,
	2019			2018
Premiums written:
Direct	$	1,363,506		$	1,200,362
Assumed	714,373			637,852
Ceded	(552,620		)	(425,670		)
Net	$	1,525,259		$	1,412,544
Premiums earned:
Direct	$	1,266,063		$	1,147,676
Assumed	533,279			445,969
Ceded	(430,476		)	(358,746		)
Net	$	1,368,866		$	1,234,899
Losses and LAE:
Direct	$	616,062		$	568,466
Assumed	338,400			220,310
Ceded	(235,930		)	(151,916		)
Net	$	718,532		$	636,860

Reinsurance Recoverables

The following table summarizes the Company’s reinsurance recoverables on paid and unpaid losses (not including ceded unearned premiums) at March 31, 2019 and December 31, 2018:

	March 31, 2019			December 31, 2018
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	$	3,099,823		$	2,919,372
% due from carriers with A.M. Best rating of “A-” or better	59.9		%	63.0		%
% due from unrated fully collateralized reinsurers (1)	16.2		%	12.9		%
% due from all other carriers with no A.M. Best rating (2)	23.9		%	24.1		%
Largest balance due from any one carrier as % of total shareholders’ equity	2.3		%	2.7		%

(1) Such amount is fully collateralized through reinsurance trusts.

(2) Over 90% of such amount is collateralized through reinsurance trusts or letters of credit.

Growth in items not rated in the 2019 first quarter is due to recoverables from a third party reinsurer related to a retroactive reinsurance transaction to reinsure liabilities associated with certain U.S. insurance exposures. Such amounts are fully collateralized. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements for additional information.

ARCH CAPITAL 55 2019 FIRST QUARTER FORM 10-Q

Bellemeade Re

The Company has entered into various aggregate excess of loss mortgage reinsurance agreements with various special purpose reinsurance companies domiciled in Bermuda (the “Bellemeade Agreements”). For the respective coverage periods, the Company will retain the first layer of the respective aggregate losses and the special purpose reinsurance companies will provide second layer coverage up to the outstanding coverage amount. The Company will then retain losses in excess of the outstanding coverage limit. The aggregate excess of loss reinsurance coverage decreases over a ten-year period as the underlying covered mortgages amortize.

The following table summarizes the respective coverages and retentions at March 31, 2019:

	Initial Coverage at Issuance		Coverage at Mar. 31, 2019		First Layer Retention
Bellemeade 2015-1 Ltd. (1)	$	300,000	$	34,176	$	129,900
Bellemeade 2017-1 Ltd. (2)	368,100		296,773		165,700
Bellemeade 2018-1 Ltd. (3)	374,460		374,460		168,510
Bellemeade 2018-2 Ltd. (4)	653,278		625,523		352,258
Bellemeade 2018-3 Ltd. (5)	506,110		506,110		179,331
Bellemeade 2019-1 Ltd. (6)	341,790		341,790		208,046

(1) Issued in July 2015, covering in-force policies issued between January 1, 2009 and March 31, 2013.

(2) Issued in October 2017, covering in-force policies issued between January 1, 2017 and June 30, 2017.

(3) Issued in April 2018, covering in-force policies issued between July 1, 2017 and December 31, 2017.

(4) Issued in August 2018, covering in-force policies issued between April 1, 2013 and December 31, 2015.

(5) Issued in October 2018, covering in-force policies issued between January 1, 2018 and June 30, 2018.

(6) Issued in March 2019, covering in-force policies issued through 2015.

Reserves for Losses and Loss Adjustment Expenses

We establish reserves for losses and loss adjustment expenses (“Loss Reserves”) which represent estimates involving actuarial and statistical projections, at a given point in time, of our expectations of the ultimate settlement and administration costs of losses incurred. Estimating Loss Reserves is inherently difficult, which is exacerbated by the fact that we have relatively limited historical experience upon which to base such estimates. We utilize actuarial models as well as available historical insurance industry loss ratio experience and loss development patterns to assist in the establishment of Loss Reserves. Actual losses and loss adjustment expenses paid will deviate, perhaps substantially, from the reserve estimates reflected in our financial statements.

At March 31, 2019 and December 31, 2018, our Loss Reserves, net of unpaid losses and loss adjustment expenses recoverable, by type and by operating segment were as follows:

	March 31, 2019		December 31, 2018
Insurance segment:
Case reserves	$	1,431,754	$	1,489,644
IBNR reserves	3,216,327		3,266,796
Total net reserves	4,648,081		4,756,440
Reinsurance segment:
Case reserves	1,077,680		1,082,917
Additional case reserves	205,026		191,002
IBNR reserves	1,644,973		1,578,907
Total net reserves	2,927,679		2,852,826
Mortgage segment:
Case reserves	325,708		355,606
IBNR reserves	132,450		122,304
Total net reserves (1)	458,158		477,910
Other segment:
Case reserves	407,437		364,052
Additional case reserves	12,543		36,512
IBNR reserves	585,984		551,266
Total net reserves	1,005,964		951,830
Total:
Case reserves	3,242,579		3,292,219
Additional case reserves	217,569		227,514
IBNR reserves	5,579,734		5,519,273
Total net reserves	$	9,039,882	$	9,039,006

(1) At March 31, 2019, total net reserves include $346.1 million from U.S. mortgage insurance business, of which 70.3% represents policy years 2009 and prior and the remainder from later policy years. At December 31, 2018, total net reserves include $375.8 million from U.S. mortgage insurance business, of which 73.4% represents policy years 2009 and prior and the remainder from later policy years.

At March 31, 2019 and December 31, 2018, the insurance segment’s Loss Reserves by major line of business, net of unpaid losses and loss adjustment expenses recoverable, were as follows:

	March 31, 2019		December 31, 2018
Insurance segment:
Professional lines (1)	$	1,253,362	$	1,247,914
Construction and national accounts	1,185,524		1,166,143
Excess and surplus casualty (2)	490,223		631,370
Programs	501,851		482,045
Property, energy, marine and aviation	351,684		388,710
Travel, accident and health	85,297		83,836
Lenders products	51,599		52,007
Other (3)	728,541		704,415
Total net reserves	$	4,648,081	$	4,756,440

(1) Includes professional liability, executive assurance and healthcare business.

(2) Includes casualty and contract binding business.

(3) Includes alternative markets, excess workers’ compensation and surety business.

ARCH CAPITAL 56 2019 FIRST QUARTER FORM 10-Q

At March 31, 2019 and December 31, 2018, the reinsurance segment’s Loss Reserves by major line of business, net of unpaid losses and loss adjustment expenses recoverable, were as follows:

	March 31, 2019		December 31, 2018
Reinsurance segment:
Casualty (1)	$	1,568,735	$	1,551,550
Other specialty (2)	621,725		582,420
Property excluding property catastrophe	434,926		422,612
Marine and aviation	128,617		130,683
Property catastrophe	95,261		90,635
Other (3)	78,415		74,926
Total net reserves	$	2,927,679	$	2,852,826

(1) Includes executive assurance, professional liability, workers’ compensation, excess motor, healthcare and other.

(2) Includes non-excess motor, surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and other.

(3) Includes life, casualty clash and other.

Mortgage Operations Supplemental Information

The mortgage segment’s insurance in force (“IIF”) and risk in force (“RIF”) were as follows at March 31, 2019 and December 31, 2018:

(U.S. Dollars in millions)	March 31, 2019			December 31, 2018
	Amount		%	Amount		%
Insurance In Force (IIF) (1):
U.S. primary mortgage insurance	$	276,699	70.9	$	276,538	72.1
Mortgage reinsurance	26,487		6.8	25,975		6.8
Other (2)	87,190		22.3	81,147		21.2
Total	$	390,376	100.0	$	383,660	100.0
Risk In Force (RIF) (3):
U.S. primary mortgage insurance	$	71,114	92.2	$	70,995	92.3
Mortgage reinsurance	2,204		2.9	2,217		2.9
Other (2)	3,772		4.9	3,728		4.8
Total	$	77,090	100.0	$	76,940	100.0

(1) Represents the aggregate dollar amount of each insured mortgage loan’s current principal balance.

(2) Includes GSE credit risk-sharing transactions and international insurance business.

(3) Represents the aggregate dollar amount of each insured mortgage loan’s current principal balance multiplied by the insurance coverage percentage specified in the policy for insurance policies issued and after contract limits and/or loss ratio caps for credit risk-sharing or reinsurance transactions.

The insurance in force and risk in force for our U.S. primary mortgage insurance business by policy year were as follows at March 31, 2019:

(U.S. Dollars in millions)	IIF			RIF			Delinquency
	Amount		%	Amount		%	Rate (1)
Policy year:
2009 and prior	$	20,142	7.3	$	4,640	6.5	8.70	%
2010	582		0.2	157		0.2	2.65	%
2011	2,278		0.8	634		0.9	1.60	%
2012	8,569		3.1	2,379		3.3	0.75	%
2013	15,926		5.8	4,433		6.2	0.87	%
2014	17,376		6.3	4,733		6.7	1.01	%
2015	32,221		11.6	8,477		11.9	0.71	%
2016	50,121		18.1	12,900		18.1	0.77	%
2017	52,837		19.1	13,458		18.9	0.60	%
2018	65,496		23.7	16,507		23.2	0.25	%
2019	11,151		4.0	2,796		3.9	0.02	%
Total	$	276,699	100.0	$	71,114	100.0	1.54	%

(1) Represents the ending percentage of loans in default.

The insurance in force and risk in force for our U.S. primary mortgage insurance business by policy year were as follows at December 31, 2018:

(U.S. Dollars in millions)	IIF			RIF			Delinquency
	Amount		%	Amount		%	Rate (1)
Policy year:
2009 and prior	$	21,210	7.7	$	4,900	6.9	8.90	%
2010	646		0.2	175		0.2	2.62	%
2011	2,530		0.9	701		1.0	1.57	%
2012	9,650		3.5	2,664		3.8	0.78	%
2013	16,823		6.1	4,676		6.6	0.89	%
2014	18,274		6.6	4,947		7.0	0.97	%
2015	33,781		12.2	8,849		12.5	0.69	%
2016	52,324		18.9	13,407		18.9	0.77	%
2017	54,287		19.6	13,793		19.4	0.55	%
2018	67,013		24.2	16,883		23.8	0.15	%
Total	$	276,538	100.0	$	70,995	100.0	1.60	%

(1) Represents the ending percentage of loans in default.

ARCH CAPITAL 57 2019 FIRST QUARTER FORM 10-Q

The following tables provide supplemental disclosures on risk in force for our U.S. primary mortgage insurance business at March 31, 2019 and December 31, 2018:

(U.S. Dollars in millions)	March 31, 2019				December 31, 2018
	Amount			%	Amount			%
Credit quality (FICO):
>=740	$	41,053		57.7	$	41,066		57.8
680-739	24,122			33.9	23,954			33.7
620-679	5,476			7.7	5,485			7.7
<620	463			0.7	490			0.7
Total	$	71,114		100.0	$	70,995		100.0
Weighted average FICO score	743				743
Loan-to-value (LTV):
95.01% and above	$	8,175		11.5	$	7,918		11.2
90.01% to 95.00%	39,500			55.5	39,370			55.5
85.01% to 90.00%	20,418			28.7	20,643			29.1
85.00% and below	3,021			4.2	3,064			4.3
Total	$	71,114		100.0	$	70,995		100.0
Weighted average LTV	93.1		%		93.0		%
Total RIF, net of external reinsurance	$	55,957			$	55,755

(U.S. Dollars in millions)	March 31, 2019			December 31, 2018
	Amount		%	Amount		%
Total RIF by State:
Texas	$	5,488	7.7	$	5,491	7.7
California	4,574		6.4	4,505		6.3
Florida	3,601		5.1	3,541		5.0
Virginia	2,915		4.1	2,931		4.1
Georgia	2,565		3.6	2,573		3.6
Illinois	2,492		3.5	2,482		3.5
North Carolina	2,477		3.5	2,505		3.5
Washington	2,408		3.4	2,408		3.4
Maryland	2,404		3.4	2,407		3.4
Minnesota	2,404		3.4	2,400		3.4
Others	39,786		55.9	39,752		56.0
Total	$	71,114	100.0	$	70,995	100.0

The following table provides supplemental disclosures for our U.S. primary mortgage insurance business related to insured loans and loss metrics:

(U.S. Dollars in thousands, except policy, loan and claim count)	Three Months Ended
	March 31,
	2019			2018
Roll-forward of insured loans in default:
Beginning delinquent number of loans	20,665			27,068
New notices	9,711			9,640
Cures	(9,706		)	(11,592		)
Paid claims	(843		)	(1,054		)
Ending delinquent number of loans (1)	19,827			24,062
Ending number of policies in force (1)	1,286,877			1,214,539
Delinquency rate (1)	1.54		%	1.98		%
Losses:
Number of claims paid	843			1,054
Total paid claims	$	33,494		$	47,645
Average per claim	$	39.7		$	45.2
Severity (2)	98.9		%	105.2		%
Average reserve per default (in thousands)	$	16.6		$	18.3

(1) Includes first lien primary and pool policies.

(2) Represents total paid claims divided by RIF of loans for which claims were paid.

The risk-to-capital ratio, which represents total current (non-delinquent) risk in force, net of reinsurance, divided by total statutory capital, for Arch MI U.S. was approximately 12.2 to 1 at March 31, 2019, compared to 13.0 to 1 at December 31, 2018.

Shareholders’ Equity and Book Value per Share

Total shareholders’ equity available to Arch was $10.11 billion at March 31, 2019, compared to $9.44 billion at December 31, 2018. The increase reflected strong underwriting and investment returns.

The following table presents the calculation of book value per share:

(U.S. dollars in thousands, except  share data)	March 31, 2019		December 31, 2018
Total shareholders’ equity available to Arch	$	10,114,596	$	9,439,827
Less preferred shareholders’ equity	780,000		780,000
Common shareholders’ equity available to Arch	$	9,334,596	$	8,659,827
Common shares and common share equivalents outstanding, net of treasury shares (1)	403,738,764		402,454,834
Book value per share	$	23.12	$	21.52

(1) Excludes the effects of 20,482,427 and 20,076,593 stock options and 2,095,337 and 1,307,304 restricted stock units outstanding at March 31, 2019 and December 31, 2018, respectively.

ARCH CAPITAL 58 2019 FIRST QUARTER FORM 10-Q

LIQUIDITY

This section does not include information specific to Watford Re. We do not guarantee or provide credit support for Watford Re, and our financial exposure to Watford Re is limited to our investment in Watford Re’s common and preferred shares and counterparty credit risk (mitigated by collateral) arising from reinsurance transactions with Watford Re.

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations.

Arch Capital is a holding company whose assets primarily consist of the shares in its subsidiaries. Generally, Arch Capital depends on its available cash resources, liquid investments and dividends or other distributions from its subsidiaries to make payments, including the payment of debt service obligations and operating expenses it may incur and any dividends or liquidation amounts with respect to our preferred and common shares.

For the three months ended March 31, 2019, Arch Capital received dividends of $39.7 million from Arch Re Bermuda, our Bermuda-based reinsurer and insurer, which can pay approximately $2.58 billion to Arch Capital during the remainder of 2019 without providing an affidavit to the Bermuda Monetary Authority (“BMA”).

We expect that our liquidity needs, including our anticipated (re)insurance obligations and operating and capital expenditure needs, for the next twelve months, at a minimum, will be met by funds generated from underwriting activities and investment income, as well as by our balance of cash, short-term investments, proceeds on the sale or maturity of our investments, and our credit facilities.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities, excluding amounts related to the ‘other’ segment (i.e., Watford Re). See note 11, “Variable Interest Entities and Noncontrolling Interests,” for cash flows related to Watford Re.

	Three Months Ended
	March 31,
	2019			2018
Total cash provided by (used for):
Operating activities	$	165,411		$	370,261
Investing activities	(188,853		)	(22,475		)
Financing activities	13,055			(272,994		)
Effects of exchange rate changes on foreign currency cash	3,188			776
Increase (decrease) in cash and restricted cash	$	(7,199	)	$	75,568

•Cash provided by operating activities for the three months ended March 31, 2019 were lower than in the 2018 period, primarily due to the impact of a retroactive reinsurance transaction with a third party reinsurer.

•Cash used for investing activities for the three months ended March 31, 2019 was higher than in the 2018 period, reflecting a decrease in cash collateral received on securities lending.

•Cash provided by financing activities for the three months ended March 31, 2019 was higher than in the 2018 period, reflecting a decrease in cash collateral received on securities lending. In addition, the 2018 first quarter included the redemption of Series C preferred shares of $92.6 million.

CAPITAL RESOURCES

This section does not include information specific to Watford Re. We do not guarantee or provide credit support for Watford Re, and our financial exposure to Watford Re is limited to our investment in Watford Re’s common and preferred shares and counterparty credit risk (mitigated by collateral) arising from reinsurance transactions with Watford Re.

The following table provides an analysis of our capital structure:

(U.S. dollars in thousands, except  share data)	Mar 31, 2019			Dec 31, 2018
Debt:
Senior notes, due May 2034	$	300,000		$	300,000
Arch-U.S. senior notes, due Nov 2043 (1)	500,000			500,000
Arch Finance senior notes, due Dec 2026 (1)	500,000			500,000
Arch Finance senior notes, due Dec 2046 (1)	450,000			450,000
Deferred debt costs on senior notes	(16,306		)	(16,472		)
Revolving credit agreement borrowings due Oct 2021 (2)	—			—
Total	$	1,733,694		$	1,733,528
Shareholders’ equity available to Arch:
Series E non-cumulative preferred shares	$	450,000		$	450,000
Series F non-cumulative preferred shares	330,000			330,000
Common shareholders’ equity	9,334,596			8,659,827
Total	$	10,114,596		$	9,439,827
Total capital available to Arch	$	11,848,290		$	11,173,355
Senior notes to total capital (%)	14.6			15.5
Revolving credit agreement borrowings to total capital (%)	—			—
Debt to total capital (%)	14.6			15.5
Preferred to total capital (%)	6.6			7.0
Debt and preferred to total capital (%)	21.2			22.5

(1) Fully and unconditionally guaranteed by Arch Capital.

(2) $500 million unsecured facility for revolving loans and letters of credit.

ARCH CAPITAL 59 2019 FIRST QUARTER FORM 10-Q

Arch Capital and Arch-U.S. are each holding companies and, accordingly, they conduct substantially all of their operations through their operating subsidiaries. Arch Capital Finance LLC (“Arch Finance”) is a wholly owned subsidiary of Arch U.S. MI Holdings Inc. As a result, Arch Capital, Arch-U.S. and Arch Finance's cash flows and their ability to service their debt depends upon the earnings of their operating subsidiaries, or affiliates in the case of Arch Finance, and on their ability to distribute the earnings, loans or other payments from such subsidiaries or affiliates to Arch Capital, Arch-U.S. and Arch Finance, respectively.

In addition, Arch MI U.S. is required to maintain compliance with the GSEs requirements, known as the Private Mortgage Insurer Eligibility Requirements or “PMIERs.” The financial requirements require an eligible mortgage insurer’s available assets, which generally include only the most liquid assets of an insurer, to meet or exceed “minimum required assets” as of each quarter end. Minimum required assets are calculated from PMIERs tables with several risk dimensions (including origination year, original loan-to-value and original credit score of performing loans, and the delinquency status of non-performing loans) and are subject to a minimum amount. Arch MI U.S. satisfied the PMIERs’ financial requirements as of March 31, 2019 with an estimated PMIER sufficiency ratio of 146%, compared to 141% at December 31, 2018.

Arch Capital, through its subsidiaries, provides financial support to certain of its insurance subsidiaries and affiliates, through certain reinsurance arrangements beneficial to the ratings of such subsidiaries. Historically, our insurance, reinsurance and mortgage insurance subsidiaries have entered into separate reinsurance arrangements with Arch Re Bermuda covering individual lines of business. The reinsurance agreements between our U.S.-based property casualty insurance and reinsurance subsidiaries and Arch Re Bermuda were canceled on a cutoff basis as of January 1, 2018. As a result, the level of subject business ceded to Arch Re Bermuda for the reported periods was substantially lower than in 2017 and prior periods.

SHARE REPURCHASE PROGRAM

The board of directors of Arch Capital has authorized the investment in Arch Capital’s common shares through a share repurchase program. For the three months ended March 31, 2019, Arch Capital repurchased 0.1 million shares under the share repurchase program with an aggregate purchase price of $2.9 million. Since the inception of the share repurchase program through March 31, 2019, Arch Capital has repurchased 386.3 million common shares for an aggregate purchase price of $3.97 billion. At March 31, 2019, approximately $160.9 million of share repurchases were available under the program, which may be effected from time

to time in open market or privately negotiated transactions through December 31, 2019.

The timing and amount of the repurchase transactions under this program will depend on a variety of factors, including market conditions and corporate and regulatory considerations. We will continue to monitor our share price and, depending upon results of operations, market conditions and the development of the economy, as well as other factors, we will consider share repurchases on an opportunistic basis.

CATASTROPHIC EVENTS AND SEVERE ECONOMIC EVENTS

We have large aggregate exposures to natural and man-made catastrophic events and severe economic events. Catastrophes can be caused by various events, including hurricanes, floods, windstorms, earthquakes, hailstorms, tornadoes, explosions, severe winter weather, fires, droughts and other natural disasters. Catastrophes can also cause losses in non-property business such as mortgage insurance, workers’ compensation or general liability. In addition to the nature of property business, we believe that economic and geographic trends affecting insured property, including inflation, property value appreciation and geographic concentration, tend to generally increase the size of losses from catastrophic events over time.

Our models employ both proprietary and vendor-based systems and include cross-line correlations for property, marine, offshore energy, aviation, workers compensation and personal accident. We seek to limit the probable maximum pre-tax loss to a specific level for severe catastrophic events. Currently, we seek to limit our 1-in-250 year return period net probable maximum loss from a severe catastrophic event in any geographic zone to approximately 25% of total shareholders’ equity available to Arch. We reserve the right to change this threshold at any time.

Based on in-force exposure estimated as of April 1, 2019, our modeled peak zone catastrophe exposure was a windstorm affecting the Northeastern U.S., with a net probable maximum pre-tax loss of $371 million, followed by windstorms affecting Florida Tri-County and the Gulf of Mexico regions with net probable maximum pre-tax losses of $313 million and $302 million, respectively. Our exposures to other perils, such as U.S. earthquake and international events, were less than the exposures arising from U.S. windstorms and hurricanes. As of April 1, 2019, our modeled peak zone earthquake exposure (San Francisco earthquake) represented approximately 80% of our peak zone catastrophe exposure, and our modeled peak zone international exposure (Japan earthquake) was substantially less than both our peak zone windstorm and earthquake exposures.

ARCH CAPITAL 60 2019 FIRST QUARTER FORM 10-Q

Effective July 1, 2018, our insurance operations had in effect a reinsurance program which provided coverage for certain property-catastrophe related losses equal to $275 million in excess of various retentions per occurrence. Such amounts compare to $200 million in excess of a $150 million retention per occurrence prior to July 1, 2018.

We also have significant exposure to losses due to mortgage defaults resulting from severe economic events in the future. For our U.S. mortgage insurance business, we have developed a proprietary risk model (“Realistic Disaster Scenario” or “RDS”) that simulates the maximum loss resulting from a severe economic downturn impacting the housing market. The RDS models the collective impact of adverse conditions for key economic indicators, the most significant of which is a decline in home prices. The RDS model projects paths of future home prices, unemployment rates, income levels and interest rates and assumes correlation across states and geographic regions.  The resulting future performance of our in-force portfolio is then estimated under the economic stress scenario, reflecting loan and borrower information. 

Currently, we seek to limit our modeled RDS loss from a severe economic event to approximately 25% of total tangible shareholders’ equity available to Arch (total shareholders’ equity available to Arch less goodwill and intangible assets). We reserve the right to change this threshold at any time. Based on in-force exposure estimated as of April 1, 2019, our modeled RDS loss was less than 10% of tangible shareholders’ equity available to Arch.

Net probable maximum loss estimates are net of expected reinsurance recoveries, before income tax and before excess reinsurance reinstatement premiums. RDS loss estimates are net of expected reinsurance recoveries and after income tax. Catastrophe loss estimates are reflective of the zone indicated and not the entire portfolio. Since hurricanes and windstorms can affect more than one zone and make multiple landfalls, our catastrophe loss estimates include clash estimates from other zones. Our catastrophe loss estimates and RDS loss estimates do not represent our maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates. There can be no assurances that we will not suffer pre-tax losses greater than 25% of our total shareholders' equity or tangible shareholders’ equity from one or more catastrophic events or severe economic events due to several factors, including the inherent uncertainties in estimating the frequency and severity of such events and the margin of error in making such determinations resulting from potential inaccuracies and inadequacies in the data provided by clients and brokers, the modeling techniques and the application of such techniques or as a result of a decision to change the percentage of shareholders' equity exposed to a single catastrophic event or severe economic event. In addition, actual losses may increase if our reinsurers fail to meet their obligations to us or the reinsurance protections purchased by

us are exhausted or are otherwise unavailable. See “Risk Factors—Risks Relating to Our Industry” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Catastrophic Events and Severe Economic Events” in our 2018 Form 10-K.

OFF-BALANCE SHEET ARRANGEMENTS

Off-balance sheet arrangements are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2018 Form 10-K.

MARKET SENSITIVE INSTRUMENTS AND RISK MANAGEMENT

In accordance with the SEC’s Financial Reporting Release No. 48, we performed a sensitivity analysis to determine the effects that market risk exposures could have on the future earnings, fair values or cash flows of our financial instruments as of March 31, 2019. Market risk represents the risk of changes in the fair value of a financial instrument and is comprised of several components, including liquidity, basis and price risks. We have not included Watford Re in the following analyses as we do not guarantee or provide credit support for Watford Re, and our financial exposure to Watford Re is limited to our investment in Watford Re’s common and preferred shares and counterparty credit risk (mitigated by collateral) arising from reinsurance transactions.

An analysis of material changes in market risk exposures at March 31, 2019 that affect the quantitative and qualitative disclosures presented in our 2018 Form 10-K (see section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Sensitive Instruments and Risk Management”) were as follows: 

Investment Market Risk

Fixed Income Securities. We invest in interest rate sensitive securities, primarily debt securities. We consider the effect of interest rate movements on the fair value of our fixed maturities, fixed maturities pledged under securities lending agreements, short-term investments and certain of our other investments which invest in fixed income securities and the corresponding change in unrealized appreciation. As interest rates rise, the fair value of our interest rate sensitive securities falls, and the converse is also true. Based on historical observations, there is a low probability that all interest rate yield curves would shift in the same direction at the same time. Furthermore, at times interest rate movements in certain credit sectors exhibit a much lower correlation to changes in U.S. Treasury yields. Accordingly, the actual effect of interest rate movements may differ materially from the amounts set forth in the following tables.

ARCH CAPITAL 61 2019 FIRST QUARTER FORM 10-Q

The following table summarizes the effect that an immediate, parallel shift in the interest rate yield curve would have had on our fixed income securities:

(U.S. dollars in  billions)	Interest Rate Shift in Basis Points
	-100			-50			—		+50			+100
Mar 31, 2019
Total fair value	$	19.61		$	19.29		$	18.98	$	18.64		$	18.32
Change from base	3.3		%	1.6		%			(1.8		)%	(3.5		)%
Change in unrealized value	$	0.63		$	0.30				$	(0.34	)	$	(0.66	)
Dec 31, 2018
Total fair value	$	19.23		$	18.91		$	18.62	$	18.30		$	17.98
Change from base	3.3		%	1.6		%			(1.7		)%	(3.4		)%
Change in unrealized value	$	0.61		$	0.30				$	(0.32	)	$	(0.63	)

In addition, we consider the effect of credit spread movements on the market value of our fixed maturities, fixed maturities pledged under securities lending agreements, short-term investments and certain of our other investments and investment funds accounted for using the equity method which invest in fixed income securities and the corresponding change in unrealized appreciation. As credit spreads widen, the fair value of our fixed income securities falls, and the converse is also true.

The following table summarizes the effect that an immediate, parallel shift in credit spreads in a static interest rate environment would have had on our fixed income securities:

(U.S. dollars in  billions)	Credit Spread Shift in Percentage Points
	-100			-50			—		+50			+100
Mar 31, 2019
Total fair value	$	19.42		$	19.19		$	18.98	$	18.77		$	18.55
Change from base	2.3		%	1.1		%			(1.1		)%	(2.3		)%
Change in unrealized value	$	0.44		$	0.21				$	(0.21	)	$	(0.44	)
Dec 31, 2018
Total fair value	$	19.08		$	18.84		$	18.62	$	18.39		$	18.15
Change from base	2.5		%	1.2		%			(1.2		)%	(2.5		)%
Change in unrealized value	$	0.47		$	0.22				$	(0.22	)	$	(0.47	)

Another method that attempts to measure portfolio risk is Value-at-Risk (“VaR”). VaR attempts to take into account a broad cross-section of risks facing a portfolio by utilizing relevant securities volatility data skewed towards the most recent months and quarters. VaR measures the amount of a portfolio at risk for outcomes 1.65 standard deviations from the mean based on normal market conditions over a one year time horizon and is expressed as a percentage of the portfolio’s initial value. In other words, 95% of the time, should the risks taken into account in the VaR model perform per their historical tendencies, the portfolio’s loss in any one year period is expected to be less than or equal to the calculated VaR, stated

as a percentage of the measured portfolio’s initial value. As of March 31, 2019, our portfolio’s VaR was estimated to be 3.29% compared to an estimated 3.02% at December 31, 2018.

Equity Securities. At March 31, 2019 and December 31, 2018, the fair value of our investments in equity securities totaled $495.0 million and $368.8 million, respectively. These investments are exposed to price risk, which is the potential loss arising from decreases in fair value. An immediate hypothetical 10% decline in the value of each position would reduce the fair value of such investments by approximately $49.5 million and $36.9 million at March 31, 2019 and December 31, 2018, respectively, and would have decreased book value per share by approximately $0.12 and $0.09, respectively. An immediate hypothetical 10% increase in the value of each position would increase the fair value of such investments by approximately $49.5 million and $36.9 million at March 31, 2019 and December 31, 2018, respectively, and would have increased book value per share by approximately $0.12 and $0.09, respectively.

Investment-Related Derivatives. At March 31, 2019, the notional value of all derivative instruments (excluding to-be-announced mortgage backed securities which are included in the fixed income securities analysis above and foreign currency forward contracts which are included in the foreign currency exchange risk analysis below) was $6.16 billion, compared to $4.95 billion at December 31, 2018. If the underlying exposure of each investment-related derivative held at March 31, 2019 depreciated by 100 basis points, it would have resulted in a reduction in net income of approximately $61.6 million, and a decrease in book value per share of approximately $0.15 per share, compared to $49.5 million and $0.12 per share, respectively, on investment-related derivatives held at December 31, 2018. If the underlying exposure of each investment-related derivative held at March 31, 2019 appreciated by 100 basis points, it would have resulted in an increase in net income of approximately $61.6 million, and an increase in book value per share of approximately $0.15 per share, compared to $49.5 million and $0.12 per share, respectively, on investment-related derivatives held at December 31, 2018. See note 8, “Derivative Instruments,” to our consolidated financial statements for additional disclosures concerning derivatives.

For further discussion on investment activity, please refer to “Financial Condition—Investable Assets.”

Foreign Currency Exchange Risk

Foreign currency rate risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Through our subsidiaries and branches located in various foreign countries, we conduct our insurance and reinsurance operations in a variety of local currencies other than the U.S. Dollar. We generally hold

ARCH CAPITAL 62 2019 FIRST QUARTER FORM 10-Q

investments in foreign currencies which are intended to mitigate our exposure to foreign currency fluctuations in our net insurance liabilities. We may also utilize foreign currency forward contracts and currency options as part of our investment strategy. See note 8, “Derivative Instruments,” to our consolidated financial statements for additional information.

The following table provides a summary of our net foreign currency exchange exposures, as well as foreign currency derivatives in place to manage these exposures:

(U.S. dollars in thousands, except  per share data)	March 31, 2019			December 31, 2018
Net assets (liabilities), denominated in foreign currencies, excluding shareholders’ equity and derivatives	$	(435,022	)	$	(561,311	)
Shareholders’ equity denominated in foreign currencies (1)	521,206			478,678
Net foreign currency forward contracts outstanding (2)	126,404			241,442
Net exposures denominated in foreign currencies	$	212,588		$	158,809
Pre-tax impact of a hypothetical 10% appreciation of the U.S. Dollar against foreign currencies:
Shareholders’ equity	$	(21,259	)	$	(15,881	)
Book value per share	$	(0.05	)	$	(0.04	)
Pre-tax impact of a hypothetical 10% decline of the U.S. Dollar against foreign currencies:
Shareholders’ equity	$	21,259		$	15,881
Book value per share	$	0.05		$	0.04

(1) Represents capital contributions held in the foreign currencies of our operating units.

(2) Represents the net notional value of outstanding foreign currency forward contracts.

Although we generally attempt to match the currency of our projected liabilities with investments in the same currencies, from time to time we may elect to over or underweight one or more currencies, which could increase our exposure to foreign currency fluctuations and increase the volatility of our shareholders’ equity. Historical observations indicate a low probability that all foreign currency exchange rates would shift against the U.S. Dollar in the same direction and at the same time and, accordingly, the actual effect of foreign currency rate movements may differ materially from the amounts set forth above. For further discussion on foreign exchange activity, please refer to “—Results of Operations.”

Effects of Inflation

We do not believe that inflation has had a material effect on our consolidated results of operations, except insofar as inflation may affect our reserves for losses and loss adjustment expenses and interest rates. The potential exists, after a catastrophe loss, for the development of inflationary pressures in a local economy. The anticipated effects of inflation on us are

considered in our catastrophe loss models. The actual effects of inflation on our results cannot be accurately known until claims are ultimately settled.

OTHER FINANCIAL INFORMATION

The consolidated financial statements as of March 31, 2019 and for the three month periods ended March 31, 2019 and 2018 have been reviewed by PricewaterhouseCoopers LLP, the registrant's independent public accountants, whose report is included as an exhibit to this filing. The report of PricewaterhouseCoopers LLP states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act of 1933.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to the information appearing above under the subheading “Market Sensitive Instruments and Risk Management” under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which information is hereby incorporated by reference. 

ARCH CAPITAL 63 2019 FIRST QUARTER FORM 10-Q

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the filing of this Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to applicable Exchange Act Rules as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of and during the period covered by this report with respect to information being recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms and with respect to timely communication to them and other members of management responsible for preparing periodic reports of all material information required to be disclosed in this report as it relates to Arch Capital and its consolidated subsidiaries.

We continue to enhance our operating procedures and internal controls to effectively support our business and our regulatory and reporting requirements. Our management does not expect that our disclosure controls or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. As a result of the inherent limitations in a cost-effective control system, misstatement due to error or fraud may occur and not be detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the disclosure controls and procedures are met.

Changes in Internal Controls Over Financial Reporting

There have been no changes in internal control over financial reporting that occurred during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

ARCH CAPITAL 64 2019 FIRST QUARTER FORM 10-Q

PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We, in common with the insurance industry in general, are subject to litigation and arbitration in the normal course of our business. As of March 31, 2019, we were not a party to any litigation or arbitration which is expected by management to have a material adverse effect on our results of operations and financial condition and liquidity.

ITEM 1A. RISK FACTORS

There were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table summarizes our purchases of common shares for the 2019 first quarter:

	Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that  May Yet be Purchased Under the Plan or Programs (2)
1/1/2019 - 1/31/2019	119,663	$	26.11	110,598	$	160,867
2/1/2019 - 2/28/2019	65,520	31.46		—	$	160,867
3/1/2019 - 3/31/2019	31,967	32.50		—	$	160,867
Total	217,150	$	28.66	110,598

(1) Represents repurchases by Arch Capital of shares, from time to time, from employees in order to facilitate the payment of withholding taxes on restricted shares granted and the exercise of stock appreciation rights. We purchased these shares at their fair value, as determined by reference to the closing price of our common shares on the day the restricted shares vested or the stock appreciation rights were exercised.

(2) Remaining amount available at March 31, 2019 under Arch Capital’s share repurchase authorization, under which repurchases may be effected from time to time in open market or privately negotiated transactions through December 31, 2019.

ARCH CAPITAL 65 2019 FIRST QUARTER FORM 10-Q

ITEM 5. OTHER INFORMATION

In accordance with Section 10a(i)(2) of the Securities Exchange Act of 1934, as amended, we are responsible for disclosing non-audit services to be provided by our independent auditor, PricewaterhouseCoopers LLP, which are approved by the Audit Committee of our board of directors. During the 2019 first quarter, the Audit Committee approved engagements of PricewaterhouseCoopers LLP for permitted non-audit services, which consisted of tax consulting services, tax compliance services and other accounting consulting services.

Disclosure of Certain Activities Under Section 13(r) of the Securities Exchange Act of 1934

Section 13(r) of the Securities Exchange Act of 1934, as amended, requires an issuer to disclose in its annual or quarterly reports whether it or an affiliate knowingly engaged in certain activities described in that section, including certain activities related to Iran during the period covered by the report.

Certain of our non-U.S. subsidiaries underwrite insurance and facultative reinsurance on a global basis to non-U.S. insureds and insurers, including for liability, marine, aviation and energy risks. Coverage provided to non-Iranian business may indirectly cover an exposure in Iran. For example, certain of our operations underwrite global marine hull and cargo policies that provide coverage for vessels navigating into and out of ports worldwide, including Iran. For the quarter ended March 31, 2019, there has been no material amount of premium allocated or apportioned to activities relating to Iran, and we are unable to attribute gross revenues or net profits from any such policies because they insure multiple voyages and fleets containing multiple ships. Such non-U.S. subsidiaries will continue to provide such coverage only to the extent permitted by applicable law.

ARCH CAPITAL 66 2019 FIRST QUARTER FORM 10-Q

ITEM 6. EXHIBITS

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Original Number	Date Filed	Filed Herewith
10.1	Agreement dated as of March 15, 2019 between the Company and Constantine Iordanou†	8-K	10.1	March 21, 2019
15	Accountants’ Awareness Letter (regarding unaudited interim financial information)				X
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X
101	The following financial information from Arch Capital Group Ltd.’s Quarterly Report for the quarter ended March 31, 2019 formatted in XBRL: (i) Consolidated Balance Sheets at March 31, 2019 and December 31, 2018; (ii) Consolidated Statements of Income for the three month periods ended March 31, 2019 and 2018; (iii) Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2019 and 2018; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three month periods ended March 31, 2019 and 2018; (v) Consolidated Statements of Cash Flows for the three month periods ended March 31, 2019 and 2018; and (vi) Notes to Consolidated Financial Statements.				X
†	Management contract or compensatory plan or arrangement

ARCH CAPITAL 67 2019 FIRST QUARTER FORM 10-Q

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ARCH CAPITAL GROUP LTD.
	(REGISTRANT)
	/s/ Marc Grandisson
Date: May 7, 2019	Marc Grandisson
	President and Chief Executive Officer (Principal Executive Officer)
	/s/ François Morin
Date: May 7, 2019	François Morin
	Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

ARCH CAPITAL 68 2019 FIRST QUARTER FORM 10-Q

EX-15

Exhibit 15

May 7, 2019

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

Commissioners:

We are aware that our report dated May 7, 2019, on our review of interim financial information of Arch Capital Group Ltd., which appears in this Quarterly Report on Form 10-Q, is incorporated by reference in the Registration Statements on Form S-3 (Nos. 333-221344, 333-221344-01 and 333-221344-02) and in the Registration Statements on Form S-8 (Nos. 333-211193, 333-98971, 333-142835, 333-181308, 333-203993 and 333-224783) of Arch Capital Group Ltd.

Very truly yours,

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

New York, NY

1 of 1

EX-31.1

Exhibit 31.1

Certification

of Chief Executive Officer

Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, Marc Grandisson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Arch Capital Group Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 7, 2019
By:	/s/ Marc Grandisson
Name:	Marc Grandisson
Title:	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

of Chief Financial Officer

Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, François Morin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Arch Capital Group Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 7, 2019
By:	/s/ François Morin
Name:	François Morin
Title:	Executive Vice President, Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

Certification Pursuant to Chapter 63, Title 18 United States Code §1350

As Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Arch Capital Group Ltd. (the “Company”) on Form 10-Q for the period ending March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Marc Grandisson, as President and Chief Executive Officer of the Company, certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

(2) the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	May 7, 2019
By:	/s/ Marc Grandisson
Name:	Marc Grandisson
Title:	President and Chief Executive Officer

A signed original of this written statement required by Section 906 or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Arch Capital Group Ltd. and will be retained by Arch Capital Group Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification Pursuant to Chapter 63, Title 18 United States Code §1350

As Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Arch Capital Group Ltd. (the “Company”) on Form 10-Q for the period ending March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), François Morin, as Executive Vice President, Chief Financial Officer and Treasurer of the Company, certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

(2) the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	May 7, 2019
By:	/s/ François Morin
Name:	François Morin
Title:	Executive Vice President, Chief Financial Officer and Treasurer

A signed original of this written statement required by Section 906 or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Arch Capital Group Ltd. and will be retained by Arch Capital Group Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 01, 2019
Document and Entity Information [Abstract]
Entity Registrant Name	ARCH CAPITAL GROUP LTD.
Entity Central Index Key	0000947484
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		403,803,412

XML

Unaudited Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Investments:
Fixed maturities available for sale, at fair value (amortized cost: $15,063,594 and $14,829,902)	$ 15,177,312	$ 14,699,010
Short-term investments available for sale, at fair value (amortized cost: $705,954 and $956,238)	706,214	955,880
Collateral received under securities lending, at fair value (amortized cost: $415,048 and $274,125)	415,056	274,133
Equity securities, at fair value	495,895	338,899
Investments accounted for using the fair value option	3,969,623	3,983,571
Investments accounted for using the equity method	1,563,779	1,493,791
Total investments	22,327,879	21,745,284
Cash	633,100	646,556
Accrued investment income	112,935	114,641
Securities pledged under securities lending, at fair value (amortized cost: $400,948 and $266,786)	404,262	268,395
Premiums receivable	1,584,682	1,299,150
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	3,099,823	2,919,372
Contractholder receivables	2,087,720	2,079,111
Ceded unearned premiums	1,099,581	975,469
Deferred acquisition costs	597,526	569,574
Receivable for securities sold	334,982	36,246
Goodwill and intangible assets	659,215	634,920
Other assets	1,035,332	929,611
Total assets	33,977,037	32,218,329
Liabilities
Reserve for losses and loss adjustment expenses	12,010,041	11,853,297
Unearned premiums	4,036,119	3,753,636
Reinsurance balances payable	453,058	393,107
Contractholder payables	2,087,720	2,079,111
Collateral held for insured obligations	232,411	236,630
Senior notes	1,733,694	1,733,528
Revolving credit agreement borrowings	488,612	455,682
Securities lending payable	415,048	274,125
Payable for securities purchased	376,332	90,034
Other liabilities	984,942	911,500
Total liabilities	22,817,977	21,780,650
Commitments and Contingencies
Redeemable noncontrolling interests	206,383	206,292
Shareholders' Equity
Non-cumulative preferred shares	780,000	780,000
Common shares ($0.0011 par, shares issued: 572,238,363 and 570,737,283)	636	634
Additional paid-in capital	1,819,605	1,793,781
Retained earnings	9,864,424	9,426,299
Accumulated other comprehensive income (loss), net of deferred income tax	38,323	(178,720)
Common shares held in treasury, at cost (shares: 168,499,599 and 168,282,449)	(2,388,392)	(2,382,167)
Total shareholders' equity available to Arch	10,114,596	9,439,827
Non-redeemable noncontrolling interests	838,081	791,560
Total shareholders' equity	10,952,677	10,231,387
Total liabilities, noncontrolling interests and shareholders' equity	$ 33,977,037	$ 32,218,329

XML

Unaudited Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fixed maturities available for sale, at amortized cost	$ 15,063,594	$ 14,829,902
Short-term investments available for sale, at amortized cost	705,954	956,238
Collateral received under securities lending, at amortized cost	415,048	274,125
Securities pledged under securities lending, at amortized cost	$ 400,948	$ 266,786
Common shares, par value per share	$ 0.0011	$ 0.0011
Common shares issued (shares)	572,238,363	570,737,283
Common shares held in treasury (shares)	168,499,599	168,282,449

XML

Unaudited Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenues
Net premiums written	$ 1,525,259	$ 1,412,544
Change in unearned premiums	(156,393)	(177,645)
Net premiums earned	1,368,866	1,234,899
Net investment income	156,949	126,724
Net realized gains (losses)	141,565	(110,998)
Other-than-temporary impairment losses	(1,309)	(162)
Less investment impairments recognized in other comprehensive income, before taxes	0	0
Net impairment losses recognized in earnings	(1,309)	(162)
Other underwriting income	8,825	5,349
Equity in net income of investment funds accounted for using the equity method	46,867	28,069
Other income	1,083	74
Total revenues	1,722,846	1,283,955
Expenses
Losses and loss adjustment expenses	718,532	636,860
Acquisition expenses	197,848	191,376
Other operating expenses	201,163	175,015
Corporate expenses	17,962	15,312
Amortization of intangible assets	20,417	26,736
Interest expense	29,065	30,636
Net foreign exchange (gains) losses	(3,525)	19,721
Total expenses	1,181,462	1,095,656
Income before income taxes	541,384	188,299
Income tax expense	(45,886)	(21,915)
Net income	495,498	166,384
Net (income) loss attributable to noncontrolling interests	(46,970)	(15,961)
Net income available to Arch	448,528	150,423
Preferred dividends	(10,403)	(10,437)
Loss on redemption of preferred shares	0	(2,710)
Net income available to Arch common shareholders	$ 438,125	$ 137,276
Net income per common share and common share equivalent
Basic (per share)	$ 1.09	$ 0.34
Diluted (per share)	$ 1.07	$ 0.33
Weighted average common shares and common share equivalents outstanding
Basic (shares)	400,184,404	407,539,728
Diluted (shares)	408,971,029	417,893,802

XML

Unaudited Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Comprehensive Income
Net income	$ 495,498	$ 166,384
Unrealized appreciation (decline) in value of available-for-sale investments:
Unrealized holding gains (losses) arising during period	225,887	(166,677)
Reclassification of net realized (gains) losses, net of income taxes, included in net income (loss)	(10,221)	62,461
Foreign currency translation adjustments	5,516	1,282
Comprehensive income	716,680	63,450
Net (income) loss attributable to noncontrolling interests	(46,970)	(15,961)
Other comprehensive (income) loss attributable to noncontrolling interests	(4,139)	673
Comprehensive income available to Arch	$ 665,571	$ 48,162

XML

Unaudited Consolidated Statements of Changes in Shareholders' Equity - USD ($) $ in Thousands	Total	Non-cumulative preferred shares	Common shares	Additional paid-in capital	Retained earnings	Accumulated other comprehensive income (loss), net of deferred income tax	Unrealized appreciation (decline) in value of available-for-sale securities, net of deferred income tax	Foreign currency translation adjustments	Common shares held in treasury, at cost	Convertible non-voting common equivalent preferred shares
Balance at beginning of period, as adjusted					$ 8,712,683		$ 7,606
Balance at beginning of period at Dec. 31, 2017		$ 872,555	$ 611	$ 1,230,617	8,562,889	$ 118,044	157,400	$ (39,356)	$ (2,077,741)	$ 489,627
Cumulative effect of an accounting change at Dec. 31, 2017					149,794		(149,794)
Preferred shares redeemed		(92,555)
Preferred shares converted to common shares				489,608						(489,627)
Common shares issued, net			19
Other changes				17,753
Net income	$ 166,384				166,384
Net (income) loss attributable to noncontrolling interests	(15,961)				(15,961)
Preferred share dividends	(10,437)				(10,437)
Loss on redemption of preferred shares	(2,710)				(2,710)
Unrealized holding gains (losses) during period, net of reclassification adjustment							(104,216)
Unrealized holding gains (losses) during period attributable to noncontrolling interests							372
Foreign currency translation adjustments	1,282							1,282
Foreign currency translation adjustments attributable to noncontrolling interests								303
Shares repurchased for treasury	(3,300)								(6,445)
Balance at end of period at Mar. 31, 2018	9,150,372	780,000	630	1,737,978	8,849,959	(134,009)	(96,238)	(37,771)	(2,084,186)	0
Non-redeemable noncontrolling interests, end of period at Mar. 31, 2018	854,112
Total shareholders’ equity at Mar. 31, 2018	10,004,484
Balance at beginning of period, as adjusted					9,426,299		(114,178)
Balance at beginning of period at Dec. 31, 2018	9,439,827	780,000	634	1,793,781	9,426,299	(178,720)	(114,178)	(64,542)	(2,382,167)	0
Cumulative effect of an accounting change at Dec. 31, 2018					0		0
Preferred shares redeemed		0
Preferred shares converted to common shares				0						0
Common shares issued, net			2
Other changes				25,824
Net income	495,498				495,498
Net (income) loss attributable to noncontrolling interests	(46,970)				(46,970)
Preferred share dividends	(10,403)				(10,403)
Loss on redemption of preferred shares	0				0
Unrealized holding gains (losses) during period, net of reclassification adjustment							215,666
Unrealized holding gains (losses) during period attributable to noncontrolling interests							(4,286)
Foreign currency translation adjustments	5,516							5,516
Foreign currency translation adjustments attributable to noncontrolling interests								147
Shares repurchased for treasury	(2,900)								(6,225)
Balance at end of period at Mar. 31, 2019	10,114,596	$ 780,000	$ 636	$ 1,819,605	$ 9,864,424	$ 38,323	$ 97,202	$ (58,879)	$ (2,388,392)	$ 0
Non-redeemable noncontrolling interests, end of period at Mar. 31, 2019	838,081
Total shareholders’ equity at Mar. 31, 2019	$ 10,952,677

XML

Unaudited Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Operating Activities
Net income	$ 495,498	$ 166,384
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses	(145,400)	101,995
Net impairment losses recognized in earnings	1,309	162
Equity in net income or loss of investment funds accounted for using the equity method and other income or loss	(29,752)	(19,383)
Amortization of intangible assets	20,417	26,736
Share-based compensation	25,891	14,664
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	(6,005)	86,319
Unearned premiums, net of ceded unearned premiums	156,393	177,645
Premiums receivable	(285,137)	(233,772)
Deferred acquisition costs	(23,168)	(30,347)
Reinsurance balances payable	62,605	53,634
Other items, net	(37,253)	56,143
Net cash provided by operating activities	235,398	400,180
Investing Activities
Purchases of fixed maturity investments	(7,444,470)	(9,681,267)
Purchases of equity securities	(203,810)	(377,000)
Purchases of other investments	(324,593)	(522,454)
Proceeds from sales of fixed maturity investments	7,076,590	8,679,147
Proceeds from sales of equity securities	95,017	291,311
Proceeds from sales, redemptions and maturities of other investments	216,483	436,566
Proceeds from redemptions and maturities of fixed maturity investments	100,424	287,031
Net settlements of derivative instruments	29,737	36,070
Net sales of short-term investments	292,601	595,318
Change in cash collateral related to securities lending	(29,618)	161,567
Purchases of fixed assets	(9,423)	(4,240)
Other	(93,731)	40,037
Net cash used for investing activities	(294,793)	(57,914)
Financing Activities
Redemption of preferred shares	0	(92,555)
Purchases of common shares under share repurchase program	(2,871)	(3,299)
Proceeds from common shares issued, net	(1,901)	(2,779)
Proceeds from borrowings	59,000	39,585
Repayments of borrowings	(26,038)	(101,000)
Change in cash collateral related to securities lending	29,618	(161,567)
Dividends paid to redeemable noncontrolling interests	(4,497)	(4,497)
Other	(1,389)	(2,356)
Preferred dividends paid	(10,403)	(10,437)
Net cash provided by (used for) financing activities	41,519	(338,905)
Effects of exchange rate changes on foreign currency cash and restricted cash	3,449	1,611
Increase (decrease) in cash and restricted cash	(14,427)	4,972
Cash and restricted cash, beginning of year	724,643	727,284
Cash and restricted cash, end of period	$ 710,216	$ 732,256

XML

Basis of Presentation and Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation

Arch Capital Group Ltd. (“Arch Capital”) is a Bermuda public limited liability company which provides insurance, reinsurance and mortgage insurance on a worldwide basis through its wholly-owned subsidiaries. As used herein, the “Company” means Arch Capital and its subsidiaries. The Company’s consolidated financial statements include the results of Watford Holdings Ltd. and its wholly owned subsidiaries. See note 11.

On January 1, 2019, the Company’s U.K. insurance operations entered into a transaction with The Ardonagh Group to acquire renewal rights for a U.K. commercial lines book of business, consisting of commercial property, casualty, motor, professional liability, personal accident and travel business.

The interim consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany transactions and balances have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of results on an interim basis. The results of any interim period are not necessarily indicative of the results for a full year or any future periods.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted; however, management believes that the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”), including the Company’s audited consolidated financial statements and related notes.

The Company has reclassified the presentation of certain prior year information to conform to the current presentation. Such reclassifications had no effect on the Company’s net income, comprehensive income, shareholders’ equity or cash flows. Tabular amounts are in U.S. Dollars in thousands, except share amounts, unless otherwise noted.

Recent Accounting Pronouncements

Recently Issued Accounting Standards Adopted

The Company adopted ASU 2016-02, “Leases (Topic 842)”, which provides a new comprehensive model for lease accounting. Topic 842 requires a lessee to recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The Company adopted the modified retrospective approach of this standard, that resulted in the recognition of a right-of-use asset of  $147.9 million as part of other assets and a lease liability of $163.6 million as part of other liabilities in the consolidated balance sheet as of January 1, 2019. The Company de-recognizing the liability for deferred rent that was required under the previous guidance.

In addition, the Company adopted ASU 2018-11, “Leases: Targeted Improvements (Topic 842),” which provides an additional (optional) transition method to adopt the new lease standard. The Company adopted the alternative transition method and elected to utilize a cumulative-effect adjustment to the opening balance of the retained earnings for the year of adoption. As such, the Company’s reporting for the comparative periods prior to the adoption continue to be presented in the financial statements in accordance with previous lease accounting guidance. The Company also adopted the practical expedients as a package which allows the Company to not reassess (1) whether any expired or existing contracts are or contain leases (2) the lease classification for any expired or existing leases (3) initial direct costs for any existing leases and (4) to account for the lease and non lease components as a single lease component. In addition to electing the practical expedients as a package, the Company elected to include hindsight to determine the lease term of existing leases, and made an accounting policy election to not apply the recognition requirements to short-term leases (lease term of less than twelve months). The cumulative effect adjustment to the opening balance of retained earnings was zero. The adoption of the updated guidance did not have a material effect on the Company’s results of operations or liquidity.

The Company adopted ASU 2018-07 “Improvements to Nonemployee Share-Based Payment Accounting,” which was issued in June 2018 to simplify the accounting for share-based payments granted to nonemployees for goods and services. Under this ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The ASU is effective for reporting periods beginning after December 15, 2018. This guidance and the adoption of this provision did not have a material effect on the Company's financial position, results of operations or cash flows.

ASU 2018-02 “Income Statement-Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” was issued in February 2018 to allow the reclassification of the stranded tax effects in accumulated other comprehensive income (“AOCI”) resulting from the Tax Cuts and Jobs Act of 2017 (“Tax Cuts Act”). Current guidance requires the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in the accounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited directly to AOCI. The amount of the reclassification would include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of the enactment of the Tax Cuts Act related to items in AOCI. The updated guidance is effective for reporting periods beginning after December 15, 2018 and is to be applied retrospectively to each period in which the effect of the Tax Cuts Act related to items remaining in AOCI are recognized or at the beginning of the period of adoption. The adoption of this ASU did not have a material effect on the Company’s results of operations, financial position or liquidity.

Recently Issued Accounting Standards Not Yet Adopted

For information regarding additional accounting standards that the Company has not yet adopted, see note 3(q), “Significant Accounting Policies—Recent Accounting Pronouncements,” of the notes to consolidated financial statements in the Company’s 2018 Form 10-K.

XML

Share Transactions

3 Months Ended

Mar. 31, 2019

Stockholders' Equity Note [Abstract]

Share Transactions

Share Transactions

Share-Based Compensation

Annual long-term incentive awards have historically been made in the second quarter of each year. However, beginning in 2019, the awards were made in the first quarter.

During the 2019 first quarter, the Company granted 1,182,264 stock options, 672,768 performance share awards (“PSAs”) and units (“PSUs”) and 1,099,125 restricted shares and units to certain employees. The stock options were valued at the grant date using the Black-Scholes option pricing model. The weighted average grant-date fair value of the stock options, PSAs/PSUs and restricted shares and units granted during the 2019 first quarter were approximately $7.90, $35.83 and $32.64 per share, respectively. Such values are being amortized over the respective substantive vesting period.

During the 2018 second quarter, the Company made a stock grant of 2,199,656 stock options, 705,345 PSAs/PSUs and 1,264,931 restricted shares and units to certain employees and directors. The stock options were valued at the grant date using the Black-Scholes option pricing model. The weighted average grant-date fair value of the stock options, PSAs/PSUs and restricted shares and units granted during the 2018 second quarter were approximately $7.43, $24.65 and $26.56 per share, respectively. Such values are being amortized over the respective substantive vesting period.

Share Repurchases

The board of directors of Arch Capital has authorized the investment in Arch Capital’s common shares through a share repurchase program. Since the inception of the share repurchase program, Arch Capital has repurchased 386.3 million common shares for an aggregate purchase price of $3.97 billion. For the three months ended March 31, 2019, Arch Capital repurchased 0.1 million shares under the share repurchase program with an aggregate purchase price of $2.9 million. Arch Capital repurchased 0.1 million shares under the share repurchase program with an aggregate purchase price of $3.3 million during the three months ended March 31, 2018. At March 31, 2019, $160.9 million of share repurchases were available under the program, which may be effected from time to time in open market or privately negotiated transactions through December 31, 2019. The timing and amount of the repurchase transactions under this program will depend on a variety of factors, including market conditions and corporate and regulatory considerations.

Conversion of Convertible Non-Voting Common Equivalent Preferred Shares

In March 2018, Arch Capital completed an underwritten public secondary offering of 17.0 million common shares (split adjusted) by American International Group, Inc. (“AIG”) following transfer of 0.6 million Series D convertible non-voting common equivalent preferred shares (“Series D Preferred Shares”). Proceeds from the sale of common shares pursuant to the public offering were received by AIG. At March 31, 2019, no Series D Preferred Shares were outstanding.

Series C Preferred Shares

On January 2, 2018, Arch Capital redeemed all outstanding 6.75% Series C non-cumulative preferred shares. The preferred shares were redeemed at a redemption price equal to $25 per share, plus all declared and unpaid dividends to (but excluding) the redemption date. In accordance with GAAP, following the redemption, original issuance costs related to such shares were removed from additional paid-in capital and recorded as a “loss on redemption of preferred shares.” Such adjustment had no impact on total shareholders’ equity or cash flows.

XML

Earnings Per Common Share

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Earnings Per Common Share

Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share:

	Three Months Ended
	March 31,
	2019			2018
Numerator:
Net income	$	495,498		$	166,384
Amounts attributable to noncontrolling interests	(46,970		)	(15,961		)
Net income available to Arch	448,528			150,423
Preferred dividends	(10,403		)	(10,437		)
Loss on redemption of preferred shares	—			(2,710		)
Net income available to Arch common shareholders	$	438,125		$	137,276
Denominator:
Weighted average common shares outstanding	400,184,404			394,110,789
Series D preferred shares (1)	—			13,428,939
Weighted average common shares and common share equivalents outstanding — basic	400,184,404			407,539,728
Effect of dilutive common share equivalents:
Nonvested restricted shares	1,807,488			2,159,577
Stock options (2)	6,979,137			8,194,497
Weighted average common shares and common share equivalents outstanding — diluted	408,971,029			417,893,802
Earnings per common share:
Basic	$	1.09		$	0.34
Diluted	$	1.07		$	0.33

(1) Such shares are convertible non-voting common equivalent preferred shares issued in connection with the UGC acquisition. See note 2.

(2) Certain stock options were not included in the computation of diluted earnings per share where the exercise price of the stock options exceeded the average market price and would have been anti-dilutive or where, when applying the treasury stock method to in-the-money options, the sum of the proceeds, including unrecognized compensation, exceeded the average market price and would have been anti-dilutive. For the 2019 first quarter and 2018 first quarter, the number of stock options excluded were 5,577,724 and 3,168,786, respectively.

XML

Segment Information

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Segment Information

Segment Information

The Company classifies its businesses into three underwriting segments — insurance, reinsurance and mortgage — and two other operating segments — ‘other’ and corporate (non-underwriting). The Company determined its reportable segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.

The Company’s insurance, reinsurance and mortgage segments each have managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company’s chief operating decision makers, the President and Chief Executive Officer of Arch Capital, and the Chief Financial Officer of Arch Capital. The chief operating decision makers do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures segment performance for its three underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment, with the exception of goodwill and intangible assets, and, accordingly, investment income is not allocated to each underwriting segment.

The insurance segment consists of the Company’s insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include: construction and national accounts; excess and surplus casualty; lenders products; professional lines; programs; property, energy, marine and aviation; travel, accident and health; and other (consisting of alternative markets, excess workers' compensation and surety business).

The reinsurance segment consists of the Company’s reinsurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include: casualty; marine and aviation; other specialty; property catastrophe; property excluding property catastrophe (losses on a single risk, both excess of loss and pro rata); and other (consisting of life reinsurance, casualty clash and other).

The mortgage segment includes the Company’s U.S. and international mortgage insurance and reinsurance operations as well as government sponsored enterprise (“GSE”) credit-risk sharing transactions. Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (combined “Arch MI U.S.”) are approved as eligible mortgage insurers by Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), each a GSE.

The corporate (non-underwriting) segment results include net investment income, other income (loss), corporate expenses, transaction costs and other, interest expense, items related to the Company’s non-cumulative preferred shares, net realized gains or losses, net impairment losses included in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and income taxes. Such amounts exclude the results of the ‘other’ segment.

The ‘other’ segment includes the results of Watford Holdings Ltd. Watford Holdings Ltd. is the parent of Watford Re Ltd., a multi-line Bermuda reinsurance company (together with Watford Holdings Ltd., “Watford Re”) (see note 11). Watford Re has its own management and board of directors that is responsible for the overall profitability of the ‘other’ segment. For the ‘other’ segment, performance is measured based on net income or loss.

The following tables summarize the Company’s underwriting income or loss by segment, together with a reconciliation of underwriting income or loss to net income available to Arch common shareholders:

	Three Months Ended
	March 31, 2019
	Insurance			Reinsurance			Mortgage			Sub-Total			Other			Total
Gross premiums written (1)	$	941,954		$	682,855		$	356,050		$	1,980,453		$	186,689		$	2,077,879
Premiums ceded	(320,622		)	(231,567		)	(48,798		)	(600,581		)	(41,302		)	(552,620		)
Net premiums written	621,332			451,288			307,252			1,379,872			145,387			1,525,259
Change in unearned premiums	(67,827		)	(104,923		)	15,650			(157,100		)	707			(156,393		)
Net premiums earned	553,505			346,365			322,902			1,222,772			146,094			1,368,866
Other underwriting income (loss)	—			4,377			3,856			8,233			592			8,825
Losses and loss adjustment expenses	(356,723		)	(239,810		)	(11,149		)	(607,682		)	(110,850		)	(718,532		)
Acquisition expenses	(82,824		)	(54,326		)	(31,672		)	(168,822		)	(29,026		)	(197,848		)
Other operating expenses	(113,396		)	(35,704		)	(39,875		)	(188,975		)	(12,188		)	(201,163		)
Underwriting income (loss)	$	562		$	20,902		$	244,062		265,526			(5,378		)	260,148
Net investment income										121,249			35,700			156,949
Net realized gains (losses)										112,433			29,132			141,565
Net impairment losses recognized in earnings										(1,309		)	—			(1,309		)
Equity in net income (loss) of investment funds accounted for using the equity method										46,867			—			46,867
Other income (loss)										1,083			—			1,083
Corporate expenses (2)										(16,772		)	—			(16,772		)
Transaction costs and other (2)										(1,190		)	—			(1,190		)
Amortization of intangible assets										(20,417		)	—			(20,417		)
Interest expense										(23,482		)	(5,583		)	(29,065		)
Net foreign exchange gains (losses)										5,175			(1,650		)	3,525
Income before income taxes										489,163			52,221			541,384
Income tax expense										(45,886		)	—			(45,886		)
Net income										443,277			52,221			495,498
Dividends attributable to redeemable noncontrolling interests										—			(4,588		)	(4,588		)
Amounts attributable to nonredeemable noncontrolling interests										—			(42,382		)	(42,382		)
Net income available to Arch										443,277			5,251			448,528
Preferred dividends										(10,403		)	—			(10,403		)
Net income available to Arch common shareholders										$	432,874		$	5,251		$	438,125
Underwriting Ratios
Loss ratio	64.4		%	69.2		%	3.5		%	49.7		%	75.9		%	52.5		%
Acquisition expense ratio	15.0		%	15.7		%	9.8		%	13.8		%	19.9		%	14.5		%
Other operating expense ratio	20.5		%	10.3		%	12.3		%	15.5		%	8.3		%	14.7		%
Combined ratio	99.9		%	95.2		%	25.6		%	79.0		%	104.1		%	81.7		%
Goodwill and intangible assets	$	156,735		$	—		$	494,830		$	651,565		$	7,650		$	659,215

(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’

	Three Months Ended
	March 31, 2018
	Insurance			Reinsurance			Mortgage			Sub-Total			Other			Total
Gross premiums written (1)	$	823,378		$	577,483		$	321,178		$	1,721,605		$	213,870		$	1,838,214
Premiums ceded	(247,180		)	(195,730		)	(46,137		)	(488,613		)	(34,318		)	(425,670		)
Net premiums written	576,198			381,753			275,041			1,232,992			179,552			1,412,544
Change in unearned premiums	(37,461		)	(102,581		)	5,201			(134,841		)	(42,804		)	(177,645		)
Net premiums earned	538,737			279,172			280,242			1,098,151			136,748			1,234,899
Other underwriting income (loss)	—			1,232			3,416			4,648			701			5,349
Losses and loss adjustment expenses	(353,730		)	(141,675		)	(43,466		)	(538,871		)	(97,989		)	(636,860		)
Acquisition expenses	(85,169		)	(48,319		)	(26,567		)	(160,055		)	(31,321		)	(191,376		)
Other operating expenses	(91,974		)	(35,571		)	(38,771		)	(166,316		)	(8,699		)	(175,015		)
Underwriting income (loss)	$	7,864		$	54,839		$	174,854		237,557			(560		)	236,997
Net investment income										100,243			26,481			126,724
Net realized gains (losses)										(111,859		)	861			(110,998		)
Net impairment losses recognized in earnings										(162		)	—			(162		)
Equity in net income (loss) of investment funds accounted for using the equity method										28,069			—			28,069
Other income (loss)										74			—			74
Corporate expenses (2)										(14,482		)	—			(14,482		)
Transaction costs and other (2)										(830		)	—			(830		)
Amortization of intangible assets										(26,736		)	—			(26,736		)
Interest expense										(25,907		)	(4,729		)	(30,636		)
Net foreign exchange gains (losses)										(15,039		)	(4,682		)	(19,721		)
Income before income taxes										170,928			17,371			188,299
Income tax expense										(21,912		)	(3		)	(21,915		)
Net income										149,016			17,368			166,384
Dividends attributable to redeemable noncontrolling interests										—			(4,585		)	(4,585		)
Amounts attributable to nonredeemable noncontrolling interests										—			(11,376		)	(11,376		)
Net income available to Arch										149,016			1,407			150,423
Preferred dividends										(10,437		)	—			(10,437		)
Loss on redemption of preferred shares										(2,710		)	—			(2,710		)
Net income available to Arch common shareholders										$	135,869		$	1,407		$	137,276
Underwriting Ratios
Loss ratio	65.7		%	50.7		%	15.5		%	49.1		%	71.7		%	51.6		%
Acquisition expense ratio	15.8		%	17.3		%	9.5		%	14.6		%	22.9		%	15.5		%
Other operating expense ratio	17.1		%	12.7		%	13.8		%	15.1		%	6.4		%	14.2		%
Combined ratio	98.6		%	80.7		%	38.8		%	78.8		%	101.0		%	81.3		%
Goodwill and intangible assets	$	21,664		$	—		$	596,690		$	618,354		$	7,650		$	626,004

(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’

XML

Reserve for Losses and Loss Adjustment Expenses

3 Months Ended

Mar. 31, 2019

Liability for Future Policy Benefits and Unpaid Claims and Claims Adjustment Expense [Abstract]

Reserve for losses and loss adjustment expenses

Reserve for Losses and Loss Adjustment Expenses

The following table represents an analysis of losses and loss adjustment expenses and a reconciliation of the beginning and ending reserve for losses and loss adjustment expenses:

	Three Months Ended
	March 31,
	2019			2018
Reserve for losses and loss adjustment expenses at beginning of period	$	11,853,297		$	11,383,792
Unpaid losses and loss adjustment expenses recoverable	2,814,291			2,464,910
Net reserve for losses and loss adjustment expenses at beginning of period	9,039,006			8,918,882
Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year	757,964			687,885
Prior years	(39,432		)	(51,025		)
Total net incurred losses and loss adjustment expenses	718,532			636,860
Retroactive reinsurance transaction (1)	(225,500		)	—
Net foreign exchange (gains) losses	(504		)	44,014
Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year	(64,340		)	(36,000		)
Prior years	(427,312		)	(514,541		)
Total net paid losses and loss adjustment expenses	(491,652		)	(550,541		)
Net reserve for losses and loss adjustment expenses at end of period	9,039,882			9,049,215
Unpaid losses and loss adjustment expenses recoverable	2,970,159			2,446,990
Reserve for losses and loss adjustment expenses at end of period	$	12,010,041		$	11,496,205

(1) During the 2019 first quarter, a subsidiary of the Company entered into a retroactive reinsurance transaction with a third party reinsurer to reinsure liabilities associated with certain U.S. insurance exposures.

Development on Prior Year Loss Reserves

2019 First Quarter

During the 2019 first quarter, the Company recorded net favorable development on prior year loss reserves of $39.4 million, which consisted of $4.4 million of favorable development from the insurance segment, $36.6 million from the mortgage segment and $0.1 million from the ‘other’ segment, partially offset by $1.7 million of adverse development from the reinsurance segment.

The insurance segment’s net favorable development of $4.4 million, or 0.8 loss ratio points, for the 2019 first quarter consisted of $9.7 million of net favorable development in short-tailed lines, $6.9 million of net adverse development in medium-tailed lines and $1.6 million of net favorable development in long-tailed lines. Net favorable development in short-tailed lines primarily resulted from property (including special risk other than marine) reserves from the 2017 accident year (i.e., the year in which a loss occurred). Net adverse development in medium-tailed lines primarily resulted from $7.7 million of adverse development on program business and $6.0 million of adverse development on contract binding business. Such amounts were partially offset by $6.8 million of net favorable development in other medium-tailed lines, including professional liability and surety business, across most accident years.

The reinsurance segment’s net adverse development of $1.7 million, or 0.5 loss ratio points, for the 2019 first quarter consisted of $6.2 million of net adverse development from short-tailed lines, partially offset by $4.5 million of net favorable development from long-tailed and medium-tailed lines. Net adverse development in short-tailed lines included $13.8 million from property catastrophe and property other than property catastrophe reserves, primarily due to an increase in reserves on Typhoon Jebi of $16.0 million, or 4.6 points, based on receipt of updated information from cedents and additional updated industry data. Such amounts were partially offset by net favorable development of $9.6 million from other specialty reserves, primarily from the 2016 and 2018 underwriting years (i.e., all premiums and losses attributable to contracts having an inception or renewal date within the given twelve-month period). Favorable development in long-tailed and medium-tailed lines reflected reductions in casualty and marine reserves from most underwriting years.

The mortgage segment’s net favorable development was $36.6 million, or 11.3 loss ratio points, for the 2019 first quarter. The 2019 first quarter development was primarily driven by continued favorable claim rates on first lien business and subrogation recoveries on second lien business at Arch MI U.S.

2018 First Quarter

During the 2018 first quarter, the Company recorded net favorable development on prior year loss reserves of $51.0 million, which consisted of $36.5 million from the reinsurance segment, $2.1 million from the insurance segment, $13.0 million from the mortgage segment and adverse development of $0.6 million from the ‘other’ segment.

The insurance segment’s net favorable development of $2.1 million, or 0.4 loss ratio points, for the 2018 first quarter consisted of $8.7 million of net favorable development in short-tailed lines and $3.0 million of net favorable development in long-tailed lines, partially offset by $9.6 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines primarily resulted from property (including special risk other than marine) reserves from the 2017 accident year (i.e., the year in which a loss occurred) while net favorable development in long-tailed lines primarily resulted from reductions in casualty reserves of $3.9 million, primarily from the 2012 to 2014 accident years. Net adverse development in medium-tailed lines reflected $10.2 million of adverse development in program business, primarily driven by a few inactive programs that were non-renewed in 2015 and early in 2016.

The reinsurance segment’s net favorable development of $36.5 million, or 13.1 loss ratio points, for the 2018 first quarter consisted of $28.9 million from short-tailed lines and $7.6 million from long-tailed and medium-tailed lines. Favorable development in short-tailed lines included $21.1 million from property catastrophe and property other than property catastrophe reserves, across most underwriting years (i.e., all premiums and losses attributable to contracts having an inception or renewal date within the given twelve-month period), reflecting lower levels of reported and paid claims activity than previously anticipated which led to decreases in certain loss ratio selections during the period. Favorable development in long-tailed and medium-tailed lines reflected reductions in marine reserves of $6.2 million, primarily from the 2011 accident year, and in casualty reserves of $1.1 million based on varying levels of reported and paid claims activity, primarily from the 2002 to 2009 underwriting years.

The mortgage segment’s net favorable development was $13.0 million, or 4.6 loss ratio points, for the 2018 first quarter. The 2018 first quarter development was primarily driven by continued lower than expected claim rates on first lien business and subrogation recoveries on second lien business at Arch MI U.S.

XML

Investment Information

3 Months Ended

Mar. 31, 2019

Disclosure Investment Information [Abstract]

Investment Information

Investment Information

At March 31, 2019, total investable assets of $22.88 billion included $20.06 billion held by the Company and $2.82 billion attributable to Watford Re.

Available For Sale Investments

The following table summarizes the fair value and cost or amortized cost of the Company’s securities classified as available for sale:

	Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Cost or Amortized Cost		OTTI Unrealized Losses (2)
March 31, 2019
Fixed maturities (1):
Corporate bonds	$	5,816,885	$	81,520	$	(31,276	)	$	5,766,641	$	(69	)
Mortgage backed securities	499,962		5,825		(1,576		)	495,713		(6		)
Municipal bonds	715,893		14,725		(1,773		)	702,941		—
Commercial mortgage backed securities	610,754		7,336		(1,854		)	605,272		—
U.S. government and government agencies	4,579,711		40,584		(4,127		)	4,543,254		—
Non-U.S. government securities	1,797,484		33,435		(34,093		)	1,798,142		—
Asset backed securities	1,545,355		15,115		(6,809		)	1,537,049		—
Total	15,566,044		198,540		(81,508		)	15,449,012		(75		)
Short-term investments	706,214		352		(92		)	705,954		—
Total	$	16,272,258	$	198,892	$	(81,600	)	$	16,154,966	$	(75	)
December 31, 2018
Fixed maturities (1):
Corporate bonds	$	5,537,548	$	14,476	$	(105,428	)	$	5,628,500	$	(69	)
Mortgage backed securities	541,193		3,991		(3,216		)	540,418		(6		)
Municipal bonds	1,013,395		5,380		(11,891		)	1,019,906		—
Commercial mortgage backed securities	729,442		2,650		(10,751		)	737,543		—
U.S. government and government agencies	3,758,698		27,189		(8,474		)	3,739,983		—
Non-U.S. government securities	1,771,338		14,477		(50,948		)	1,807,809		—
Asset backed securities	1,600,896		8,060		(14,798		)	1,607,634		—
Total	14,952,510		76,223		(205,506		)	15,081,793		(75		)
Short-term investments	955,880		36		(394		)	956,238		—
Total	$	15,908,390	$	76,259	$	(205,900	)	$	16,038,031	$	(75	)

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

(2) Represents the total other-than-temporary impairments (“OTTI”) recognized in accumulated other comprehensive income (“AOCI”). It does not include the change in fair value subsequent to the impairment measurement date. At March 31, 2019 and December 31, 2018, the net unrealized loss related to securities for which a non-credit OTTI was recognized in AOCI was nil.

The following table summarizes, for all available for sale securities in an unrealized loss position, the fair value and gross unrealized loss by length of time the security has been in a continual unrealized loss position:

	Less than 12 Months					12 Months or More					Total
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
March 31, 2019
Fixed maturities (1):
Corporate bonds	$	450,609	$	(14,755	)	$	1,376,117	$	(16,521	)	$	1,826,726	$	(31,276	)
Mortgage backed securities	41,253		(272		)	106,136		(1,304		)	147,389		(1,576		)
Municipal bonds	12,604		(36		)	177,113		(1,737		)	189,717		(1,773		)
Commercial mortgage backed securities	69,792		(347		)	91,338		(1,507		)	161,130		(1,854		)
U.S. government and government agencies	696,039		(656		)	378,351		(3,471		)	1,074,390		(4,127		)
Non-U.S. government securities	1,062,659		(31,117		)	257,300		(2,976		)	1,319,959		(34,093		)
Asset backed securities	324,034		(4,143		)	299,844		(2,666		)	623,878		(6,809		)
Total	2,656,990		(51,326		)	2,686,199		(30,182		)	5,343,189		(81,508		)
Short-term investments	67,807		(92		)	—		—			67,807		(92		)
Total	$	2,724,797	$	(51,418	)	$	2,686,199	$	(30,182	)	$	5,410,996	$	(81,600	)
December 31, 2018
Fixed maturities (1):
Corporate bonds	$	2,983,195	$	(68,910	)	$	1,234,865	$	(36,518	)	$	4,218,060	$	(105,428	)
Mortgage backed securities	84,296		(695		)	109,009		(2,521		)	193,305		(3,216		)
Municipal bonds	233,081		(2,074		)	408,155		(9,817		)	641,236		(11,891		)
Commercial mortgage backed securities	223,341		(2,831		)	193,956		(7,920		)	417,297		(10,751		)
U.S. government and government agencies	635,049		(1,354		)	391,102		(7,120		)	1,026,151		(8,474		)
Non-U.S. government securities	1,028,340		(35,524		)	389,671		(15,424		)	1,418,011		(50,948		)
Asset backed securities	533,592		(8,832		)	368,095		(5,966		)	901,687		(14,798		)
Total	5,720,894		(120,220		)	3,094,853		(85,286		)	8,815,747		(205,506		)
Short-term investments	122,878		(394		)	—		—			122,878		(394		)
Total	$	5,843,772	$	(120,614	)	$	3,094,853	$	(85,286	)	$	8,938,625	$	(205,900	)

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

At March 31, 2019, on a lot level basis, approximately 2,940 security lots out of a total of approximately 9,250 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $2.5 million. At December 31, 2018, on a lot level basis, approximately 5,870 security lots out of a total of approximately 8,450 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $2.6 million.

The contractual maturities of the Company’s fixed maturities are shown in the following table. Expected maturities, which are management’s best estimates, will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2019				December 31, 2018
Maturity	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Due in one year or less	$	436,875	$	438,023	$	276,682	$	279,135
Due after one year through five years	9,359,874		9,315,567		8,666,297		8,738,944
Due after five years through 10 years	2,939,707		2,884,260		2,919,232		2,951,582
Due after 10 years	173,517		173,128		218,768		226,537
	12,909,973		12,810,978		12,080,979		12,196,198
Mortgage backed securities	499,962		495,713		541,193		540,418
Commercial mortgage backed securities	610,754		605,272		729,442		737,543
Asset backed securities	1,545,355		1,537,049		1,600,896		1,607,634
Total (1)	$	15,566,044	$	15,449,012	$	14,952,510	$	15,081,793

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

Securities Lending Agreements

The Company enters into securities lending agreements with financial institutions to enhance investment income whereby it loans certain of its securities to third parties, primarily major brokerage firms, for short periods of time through a lending agent. The Company maintains legal control over the securities it lends, retains the earnings and cash flows associated with the loaned securities and receives a fee from the borrower for the temporary use of the securities. An indemnification agreement with the lending agent protects the Company in the event a borrower becomes insolvent or fails to return any of the securities on loan from the Company.

The Company receives collateral in the form of cash or securities. Cash collateral primarily consists of short term investments. At March 31, 2019, the fair value of the cash collateral received on securities lending was $48.6 million and the fair value of security collateral received was $366.4 million. At December 31, 2018, the fair value of the cash collateral received on securities lending was $19.0 million, and the fair value of security collateral received was $255.1 million.

The Company’s securities lending transactions were accounted for as secured borrowings with significant investment categories as follows:

	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Less than 30 Days		30-90 Days		90 Days or More		Total
March 31, 2019
U.S. government and government agencies	$	339,404	$	7,424	$	48,903	$	—	$	395,731
Corporate bonds	3,625		—		—		—		3,625
Equity securities	15,692		—		—		—		15,692
Total	$	358,721	$	7,424	$	48,903	$	—	$	415,048
Gross amount of recognized liabilities for securities lending in offsetting disclosure in note 8									$	—
Amounts related to securities lending not included in offsetting disclosure in note 8									$	415,048
December 31, 2018
U.S. government and government agencies	$	219,276	$	—	$	32,583	$	—	$	251,859
Corporate bonds	7,129		—		—		—		7,129
Equity securities	15,137		—		—		—		15,137
Total	$	241,542	$	—	$	32,583	$	—	$	274,125
Gross amount of recognized liabilities for securities lending in offsetting disclosure in note 8									$	—
Amounts related to securities lending not included in offsetting disclosure in note 8									$	274,125

Equity Securities, at Fair Value

At March 31, 2019, the Company held $495.9 million of equity securities, at fair value, compared to $338.9 million at December 31, 2018. Such holdings include publicly traded common stocks in the natural resources, energy, consumer staples and other sectors.

Other Investments

The following table summarizes the Company’s other investments which are included in investments accounted for using the fair value option, by strategy:

	March 31, 2019		December 31, 2018
Term loan investments (par value: $1,375,936 and $1,369,216)	$	1,297,025	$	1,282,287
Lending	545,569		524,112
Credit related funds	225,876		202,123
Energy	126,612		117,509
Investment grade fixed income	97,676		101,902
Infrastructure	54,421		45,371
Private equity	24,501		24,383
Real estate	15,930		14,252
Total	$	2,387,610	$	2,311,939

Investments Accounted For Using the Equity Method

The following table summarizes the Company’s investments accounted for using the equity method, by strategy:

	March 31, 2019		December 31, 2018
Credit related funds	$	438,208	$	429,402
Equities	350,315		375,273
Real estate	248,739		232,647
Lending	192,346		125,041
Private equity	111,454		114,019
Infrastructure	126,706		113,748
Energy	96,011		103,661
Total	$	1,563,779	$	1,493,791

Certain of the Company’s other investments are in investment funds for which the Company has the option to redeem at agreed upon values as described in each investment fund’s subscription agreement. Depending on the terms of the various subscription agreements, investments in investment funds may be redeemed daily, monthly, quarterly or on other terms. Two common redemption restrictions which may impact the Company’s ability to redeem these investment funds are gates and lockups. A gate is a suspension of redemptions which may be implemented by the general partner or investment manager of the fund in order to defer, in whole or in part, the redemption request in the event the aggregate amount of redemption requests exceeds a predetermined percentage of the investment fund’s net assets which may otherwise hinder the general partner or investment manager’s ability to liquidate holdings in an orderly fashion in order to generate the cash necessary to fund extraordinarily large redemption payouts. A lockup period is the initial amount of time an investor is contractually required to hold the security before having the ability to redeem. If the investment funds are eligible to be redeemed, the time to redeem such fund can take weeks or months following the notification.

Fair Value Option

The following table summarizes the Company’s assets which are accounted for using the fair value option:

	March 31, 2019		December 31, 2018
Fixed maturities	$	1,192,486	$	1,245,562
Other investments	2,387,610		2,311,939
Short-term investments	282,139		322,177
Equity securities	107,388		103,893
Investments accounted for using the fair value option	$	3,969,623	$	3,983,571

Limited Partnership Interests

In the normal course of its activities, the Company invests in limited partnerships as part of its overall investment strategy. Such amounts are included in ‘investments accounted for using the equity method’ and ‘investments accounted for using the fair value option.’ The Company has determined that it is not required to consolidate these investments because it is not the primary beneficiary of the funds. The Company’s maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported in the Company’s consolidated balance sheet and any unfundedcommitment.

The following table summarizes investments in limited partnership interests where the Company has a variable interest by balance sheet line item:

	March 31, 2019		December 31, 2018
Investments accounted for using the equity method (1)	1,563,779		1,493,791
Investments accounted for using the fair value option (2)	178,572		162,398
Total	$	1,742,351	$	1,656,189

(1) Aggregate unfunded commitments were $1.34 billion at March 31, 2019, compared to $1.22 billion at December 31, 2018.

(2) Aggregate unfunded commitments were $177.0 million at March 31, 2019, compared to $117.5 million at December 31, 2018.

Net Investment Income

The components of net investment income were derived from the following sources:

	March 31,
	2019			2018
Three Months Ended
Fixed maturities	$	129,799		$	107,887
Term loans	24,616			19,764
Equity securities	2,988			2,568
Short-term investments	4,179			4,860
Other (1)	21,196			17,610
Gross investment income	182,778			152,689
Investment expenses	(25,829		)	(25,965		)
Net investment income	$	156,949		$	126,724

(1) Includes income distributions from investment funds and other items.

Net Realized Gains (Losses)

Net realized gains (losses) were as follows, excluding net impairment losses recognized in earnings:

	March 31,
	2019			2018
Three Months Ended
Available for sale securities:
Gross gains on investment sales	$	43,365		$	14,965
Gross losses on investment sales	(31,656		)	(82,551		)
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities	31,148			(17,551		)
Other investments	18,195			(6,374		)
Equity securities	4,266			6,668
Short-term investments	720			(151		)
Equity securities, at fair value:
Net realized gains (losses) on sales during the period	10,930			(5,368		)
Net unrealized gains (losses) on equity securities still held at reporting date	37,136			(7,583		)
Derivative instruments (1)	35,871			(3,963		)
Other (2)	(8,410		)	(9,090		)
Net realized gains (losses)	$	141,565		$	(110,998	)

(1) See note 8 for information on the Company’s derivative instruments.

(2) Includes the re-measurement of contingent consideration liability amounts.

Equity in Net Income (Loss) of Investment Funds Accounted for Using the Equity Method

The Company recorded $46.9 million of equity in net income related to investment funds accounted for using the equity method in the 2019 first quarter, compared to $28.1 million for the 2018 first quarter. In applying the equity method, investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). Such investments are generally recorded on a one to three month lag based on the availability of reports from the investment funds.

Net Impairment Losses Recognized in Earnings

The Company performs quarterly reviews of its available for sale investments in order to determine whether declines in fair value below the amortized cost basis were considered other-than-temporary in accordance with applicable guidance.

The following table details the net impairment losses recognized in earnings by asset class:

	March 31,
	2019			2018
Three Months Ended
Fixed maturities:
Mortgage backed securities	$	(531	)	$	(42	)
Corporate bonds	(565		)	(120		)
Asset backed securities	(213		)	—
Total	(1,309		)	(162		)
Net impairment losses recognized in earnings	$	(1,309	)	$	(162	)

Net impairment losses recognized in earnings in the 2019 first quarter reflected foreign currency impacts and other impairments on corporate bonds and other securities.

The Company believes that the $0.1 million of OTTI included in accumulated other comprehensive income at March 31, 2019 on the securities which were considered by the Company to be impaired was due to market and sector-related factors (i.e., not credit losses). At March 31, 2019, the Company did not intend to sell these securities, or any other securities which were in an unrealized loss position, and determined that it is more likely than not that the Company will not be required to sell such securities before recovery of their cost basis.

The following table provides a roll forward of the amount related to credit losses recognized in earnings for which a portion of an OTTI was recognized in accumulated other comprehensive income:

	March 31,
	2019			2018
Three Months Ended
Balance at start of period	$	637		$	767
Credit loss impairments recognized on securities not previously impaired	—			—
Credit loss impairments recognized on securities previously impaired	—			—
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security	—			—
Reductions for securities sold during the period	(291		)	—
Balance at end of period	$	346		$	767

Restricted Assets

The Company is required to maintain assets on deposit, which primarily consist of fixed maturities, with various regulatory authorities to support its operations. The Company’s subsidiaries maintain assets in trust accounts as collateral for transactions with affiliated companies and also have investments in segregated portfolios primarily to provide collateral or guarantees for letters of credit to third parties. See note 16, “Commitments and Contingencies,” of the notes to consolidated financial statements in the Company’s 2018 Form 10-K. The following table details the value of the Company’s restricted assets:

	March 31, 2019		December 31, 2018
Assets used for collateral or guarantees:
Affiliated transactions	$	4,796,096	$	4,623,483
Third party agreements	2,403,392		2,181,682
Deposits with U.S. regulatory authorities	780,916		689,114
Deposits with non-U.S. regulatory authorities	59,680		59,624
Total restricted assets	$	8,040,084	$	7,553,903

Reconciliation of Cash and Restricted Cash

The following table details reconciliation of cash and restricted cash within the Consolidated Balance Sheets:

	March 31, 2019		December 31, 2018
Cash	$	633,100	$	646,556
Restricted cash (included in ‘other assets’)	$	77,116	$	78,087
Cash and restricted cash	$	710,216	$	724,643

XML

Fair Value

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value

Fair Value

Accounting guidance regarding fair value measurements addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement (Level 1 being the highest priority and Level 3 being the lowest priority).

The levels in the hierarchy are defined as follows:

Level 1: Inputs to the valuation methodology are observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets

Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement

Following is a description of the valuation methodologies used for securities measured at fair value, as well as the general classification of such securities pursuant to the valuation hierarchy. The Company reviews its securities measured at fair value and discusses the proper classification of such investments with investment advisers and others.

The Company determines the existence of an active market based on its judgment as to whether transactions for the financial instrument occur in such market with sufficient frequency and volume to provide reliable pricing information. The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. The Company uses quoted values and other data provided by nationally recognized independent pricing sources as inputs into its process for determining fair values of its fixed maturity investments. To validate the techniques or models used by pricing sources, the Company's review process includes, but is not limited to: (i) quantitative analysis (e.g., comparing the quarterly return for each managed portfolio to its target benchmark, with significant differences identified and investigated); (ii) a review of the average number of prices obtained in the pricing process and the range of resulting fair values; (iii) initial and ongoing evaluation of methodologies used by outside parties to calculate fair value; (iv) a comparison of the fair value estimates to the Company’s knowledge of the current market; (v) a comparison of the pricing services' fair values to other pricing services' fair values for the same investments; and (vi) periodic back-testing, which includes randomly selecting purchased or sold securities and comparing the executed prices to the fair value estimates from the pricing service. A price source hierarchy was maintained in order to determine which price source would be used (i.e., a price obtained from a pricing service with more seniority in the hierarchy will be used over a less senior one in all cases). The hierarchy prioritizes pricing services based on availability and reliability and assigns the highest priority to index providers. Based on the above review, the Company will challenge any prices for a security or portfolio which are considered not to be representative of fair value. The Company did not adjust any of the prices obtained from the independent pricing sources at March 31, 2019.

In certain circumstances, when fair values are unavailable from these independent pricing sources, quotes are obtained directly from broker-dealers who are active in the corresponding markets. Such quotes are subject to the validation procedures noted above. Of the $20.88 billion of financial assets and liabilities measured at fair value at March 31, 2019, approximately $221.0 million, or 1.1%, were priced using non-binding broker-dealer quotes. Of the $20.41 billion of financial assets and liabilities measured at fair value at December 31, 2018, approximately $217.9 million, or 1.1%, were priced using non-binding broker-dealer quotes.

Fixed maturities

The Company uses the market approach valuation technique to estimate the fair value of its fixed maturity securities, when possible. The market approach includes obtaining prices from independent pricing services, such as index providers and pricing vendors, as well as to a lesser extent quotes from broker-dealers. The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. Each source has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of “matrix pricing” in which the independent pricing source uses observable market inputs including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair value.

The following describes the significant inputs generally used to determine the fair value of the Company’s fixed maturity securities by asset class:

•U.S. government and government agencies — valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The Company determined that all U.S. Treasuries would be classified as Level 1 securities due to observed levels of trading activity, the high number of strongly correlated pricing quotes received on U.S. Treasuries and other factors. The fair values of U.S. government agency securities are generally determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency securities are classified within Level 2.

•Corporate bonds — valuations provided by independent pricing services, substantially all through index providers and pricing vendors with a small amount through broker-dealers. The fair values of these securities are generally determined using the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. As the significant inputs used in the pricing process for corporate bonds are observable market inputs, the fair value of these securities are classified within Level 2. A small number of securities are included in Level 3 due to a low level of transparency on the inputs used in the pricing process.

•Mortgage-backed securities — valuations provided by independent pricing services, substantially all through pricing vendors and index providers with a small amount through broker-dealers. The fair values of these securities are generally determined through the use of pricing models (including Option Adjusted Spread) which use spreads to determine the expected average life of the securities. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. The pricing services also review prepayment speeds and other indicators, when applicable. As the significant inputs used in the pricing process for mortgage-backed securities are observable market inputs, the fair value of these securities are classified within Level 2. A small number of securities are included in Level 3 due to a low level of transparency on the inputs used in the pricing process.

•Municipal bonds — valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The fair values of these securities are generally determined using spreads obtained from broker-dealers who trade in the relevant security market, trade prices and the new issue market. As the significant inputs used in the pricing process for municipal bonds are observable market inputs, the fair value of these securities are classified within Level 2.

•Commercial mortgage-backed securities — valuations provided by independent pricing services, substantially all through index providers and pricing vendors with a small amount through broker-dealers. The fair values of these securities are generally determined through the use of pricing models which use spreads to determine the appropriate average life of the securities. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. The pricing services also review prepayment speeds and other indicators, when applicable. As the significant inputs used in the pricing process for commercial mortgage-backed securities are observable market inputs, the fair value of these securities are classified within Level 2.

•Non-U.S. government securities — valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The fair values of these securities are generally based on international indices or valuation models which include daily observed yield curves, cross-currency basis index spreads and country credit spreads. As the significant inputs used in the pricing process for non-U.S. government securities are observable market inputs, the fair value of these securities are classified within Level 2.

•Asset-backed securities — valuations provided by independent pricing services, substantially all through index providers and pricing vendors with a small amount through broker-dealers. The fair values of these securities are generally determined through the use of pricing models (including Option Adjusted Spread) which use spreads to determine the appropriate average life of the securities. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. The pricing services also review prepayment speeds and other indicators, when applicable. As the significant inputs used in the pricing process for asset-backed securities are observable market inputs, the fair value of these securities are classified within Level 2.

Equity securities

The Company determined that exchange-traded equity securities would be included in Level 1 as their fair values are based on quoted market prices in active markets. Other equity securities are included in Level 2 of the valuation hierarchy.

Other investments

The Company determined that exchange-traded investments in mutual funds would be included in Level 1 as their fair values are based on quoted market prices in active markets. Other investments also include term loan investments for which fair values are estimated by using quoted prices of term loan investments with similar characteristics, pricing models or matrix pricing. Such investments are generally classified within Level 2. The fair values for certain of the Company’s other investments are determined using net asset values as advised by external fund managers. The net asset value is based on the fund manager’s valuation of the underlying holdings in accordance with the fund’s governing documents. In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. A small number of securities are included in Level 3 due to the lack of an available independent price source for such securities.

Derivative instruments

The Company’s futures contracts, foreign currency forward contracts, interest rate swaps and other derivatives trade in the over-the-counter derivative market. The Company uses the market approach valuation technique to estimate the fair value for these derivatives based on significant observable market inputs from third party pricing vendors, non-binding broker-dealer quotes and/or recent trading activity. As the significant inputs used in the pricing process for these derivative instruments are observable market inputs, the fair value of these securities are classified within Level 2.

Short-term investments

The Company determined that certain of its short-term investments held in highly liquid money market-type funds, Treasury bills and commercial paper would be included in Level 1 as their fair values are based on quoted market prices in active markets. The fair values of other short-term investments are generally determined using the spread above the risk-free yield curve and are classified within Level 2.

Contingent consideration liabilities

Contingent consideration liabilities (included in ‘other liabilities’ in the consolidated balance sheets) include amounts related to the acquisition of CMG Mortgage Insurance Company and its affiliated mortgage insurance companies and other acquisitions. Such amounts are remeasured at fair value at each balance sheet date with changes in fair value recognized in ‘net realized gains (losses).’ To determine the fair value of contingent consideration liabilities, the Company estimates future payments using an income approach based on modeled inputs which include a weighted average cost of capital. The Company determined that contingent consideration liabilities would be included within Level 3.

The following table presents the Company’s financial assets and liabilities measured at fair value by level at March 31, 2019:

				Estimated Fair Value Measurements Using:
	Estimated Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets measured at fair value (1):
Available for sale securities:
Fixed maturities:
Corporate bonds	$	5,816,885		$	—	$	5,809,318		$	7,567
Mortgage backed securities	499,962			—		499,660			302
Municipal bonds	715,893			—		715,893			—
Commercial mortgage backed securities	610,754			—		610,754			—
U.S. government and government agencies	4,579,711			4,439,888		139,823			—
Non-U.S. government securities	1,797,484			—		1,797,484			—
Asset backed securities	1,545,355			—		1,545,355			—
Total	15,566,044			4,439,888		11,118,287			7,869
Short-term investments	706,214			682,778		23,436			—
Equity securities, at fair value	511,425			433,317		78,108			—
Derivative instruments (4)	13,966			—		13,966			—
Fair value option:
Corporate bonds	786,476			—		784,243			2,233
Non-U.S. government bonds	82,982			—		82,982			—
Mortgage backed securities	16,328			—		16,328			—
Municipal bonds	6,587			—		6,587			—
Commercial mortgage backed securities	—			—		—			—
Asset backed securities	190,448			—		190,448			—
U.S. government and government agencies	109,665			109,557		108			—
Short-term investments	282,139			272,904		9,235			—
Equity securities	107,388			51,113		56,275			—
Other investments	1,286,645			46,661		1,177,655			62,329
Other investments measured at net asset value (2)	1,100,965
Total	3,969,623			480,235		2,323,861			64,562
Total assets measured at fair value	$	20,767,272		$	6,036,218	$	13,557,658		$	72,431
Liabilities measured at fair value:
Contingent consideration liabilities	$	(68,121	)	$	—	$	—		$	(68,121	)
Securities sold but not yet purchased (3)	(28,737		)	—		(28,737		)	—
Derivative instruments (4)	(11,547		)	—		(11,547		)	—
Total liabilities measured at fair value	$	(108,405	)	$	—	$	(40,284	)	$	(68,121	)

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See note 6, “—Securities Lending Agreements.”

(2) In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

(3) Represents the Company’s obligations to deliver securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company’s consolidated balance sheets.

(4) See note 8.

The following table presents the Company’s financial assets and liabilities measured at fair value by level at December 31, 2018:

				Estimated Fair Value Measurements Using:
	Estimated Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets measured at fair value (1):
Available for sale securities:
Fixed maturities:
Corporate bonds	$	5,537,548		$	—	$	5,529,407		$	8,141
Mortgage backed securities	541,193			—		540,884			309
Municipal bonds	1,013,395			—		1,013,395			—
Commercial mortgage backed securities	729,442			—		729,438			4
U.S. government and government agencies	3,758,698			3,657,181		101,517			—
Non-U.S. government securities	1,771,338			—		1,771,338			—
Asset backed securities	1,600,896			—		1,600,896			—
Total	14,952,510			3,657,181		11,286,875			8,454
Equity securities	353,794			321,927		31,867			—
Short-term investments	955,880			875,881		79,999			—
Derivative instruments (4)	73,893			—		73,893			—
Fair value option:
Corporate bonds	852,585			—		846,827			5,758
Non-U.S. government bonds	79,066			—		79,066			—
Mortgage backed securities	16,731			—		16,731			—
Municipal bonds	7,144			—		7,144			—
Commercial mortgage backed securities	—			—		—			—
Asset backed securities	178,790			—		178,790			—
U.S. government and government agencies	111,246			111,138		108			—
Short-term investments	322,177			278,579		43,598			—
Equity securities	103,893			48,827		55,066			—
Other investments	1,254,220			39,107		1,152,408			62,705
Other investments measured at net asset value (2)	1,057,719
Total	3,983,571			477,651		2,379,738			68,463
Total assets measured at fair value	$	20,319,648		$	5,332,640	$	13,852,372		$	76,917
Liabilities measured at fair value:
Contingent consideration liabilities	$	(66,665	)	$	—	$	—		$	(66,665	)
Securities sold but not yet purchased (3)	(7,790		)	—		(7,790		)	—
Derivative instruments (4)	(20,664		)	—		(20,664		)	—
Total liabilities measured at fair value	$	(95,119	)	$	—	$	(28,454	)	$	(66,665	)

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See note 6, “—Securities Lending Agreements.”

(2) In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

(3) Represents the Company’s obligations to deliver securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company’s consolidated balance sheets.

(4) See note 8.

The following table presents a reconciliation of the beginning and ending balances for all financial assets and liabilities measured at fair value on a recurring basis using Level 3 inputs:

	Assets															Liabilities
s	Available For Sale						Fair Value Option
	Structured Securities (1)			Corporate Bonds			Corporate Bonds			Other Investments			Total			Contingent Consideration Liabilities
Three Months Ended March 31, 2019
Balance at beginning of period	$	313		$	8,141		$	5,758		$	62,705		$	76,917		$	(66,665	)
Total gains or (losses) (realized/unrealized)
Included in earnings (2)	1,757			—			(290		)	298			1,765			(908		)
Included in other comprehensive income	4			(118		)	—			—			(114		)	—
Purchases, issuances, sales and settlements
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			(548		)
Sales	(1,757		)	—			(3,235		)	(74		)	(5,066		)	—
Settlements	(15		)	(456		)	—			(600		)	(1,071		)	—
Transfers in and/or out of Level 3	—			—			—			—			—			—
Balance at end of period	$	302		$	7,567		$	2,233		$	62,329		$	72,431		$	(68,121	)
Three Months Ended March 31, 2018
Balance at beginning of period	$	5,927		$	9,460		$	12,217		$	59,167		$	86,771		$	(60,996	)
Total gains or (losses) (realized/unrealized)
Included in earnings (2)	1			—			12			17			30			(1,453		)
Included in other comprehensive income	(4		)	148			(87		)	(732		)	(675		)	—
Purchases, issuances, sales and settlements
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(511		)	(456		)	(270		)	—			(1,237		)	—
Transfers in and/or out of Level 3	—			—			—			—			—			—
Balance at end of period	$	5,413		$	9,152		$	11,872		$	58,452		$	84,889		$	(62,449	)

(1) Includes asset backed securities, mortgage backed securities and commercial mortgage backed securities.

(2) Gains or losses were included in net realized gains (losses).

Financial Instruments Disclosed, But Not Carried, At Fair Value

The Company uses various financial instruments in the normal course of its business. The carrying values of cash, accrued investment income, receivable for securities sold, certain other assets, payable for securities purchased and certain other liabilities approximated their fair values at March 31, 2019, due to their respective short maturities. As these financial instruments are not actively traded, their respective fair values are classified within Level 2.

At March 31, 2019, the Company’s senior notes were carried at their cost, net of debt issuance costs, of $1.73 billion and had a fair value of $1.98 billion. At December 31, 2018, Company’s senior notes were carried at their cost, net of debt issuance costs, of $1.73 billion and had a fair value of $1.88 billion. The fair values of the senior notes were obtained from a third party pricing service and are based on observable market inputs. As such, the fair values of the senior notes are classified within Level 2.

XML

Derivative Instruments

3 Months Ended

Mar. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

The Company’s investment strategy allows for the use of derivative instruments. The Company’s derivative instruments are recorded on its consolidated balance sheets at fair value. The Company utilizes exchange traded U.S. Treasury note, Eurodollar and other futures contracts and commodity futures to manage portfolio duration or replicate investment positions in its portfolios and the Company routinely utilizes foreign currency forward contracts, currency options, index futures contracts and other derivatives as part of its total return objective. In addition, certain of the Company’s investments are managed in portfolios which incorporate the use of foreign currency forward contracts which are intended to provide an economic hedge against foreign currency movements. 

In addition, the Company purchases to-be-announced mortgage backed securities (“TBAs”) as part of its investment strategy. TBAs represent commitments to purchase a future issuance of agency mortgage backed securities. For the period between purchase of a TBA and issuance of the underlying security, the Company’s position is accounted for as a derivative. The Company purchases TBAs in both long and short positions to enhance investment performance and as part of its overall investment strategy.

The following table summarizes information on the fair values and notional values of the Company’s derivative instruments:

	Estimated Fair Value
	Asset Derivatives		Liability Derivatives			Notional Value (1)
March 31, 2019
Futures contracts (2)	$	1,238	$	(1,302	)	$	3,650,464
Foreign currency forward contracts (2)	405		(3,825		)	1,228,530
TBAs (3)	15,456		—			14,846
Other (2)	12,323		(6,420		)	2,504,873
Total	$	29,422	$	(11,547	)
December 31, 2018
Futures contracts (2)	$	51,800	$	(2,115	)	$	3,153,518
Foreign currency forward contracts (2)	8,147		(7,796		)	1,008,907
TBAs (3)	8,292		—			8,132
Other (2)	13,946		(10,753		)	2,213,981
Total	$	82,185	$	(20,664	)

(1) Represents the absolute notional value of all outstanding contracts, consisting of long and short positions.

(2) The fair value of asset derivatives are included in ‘other assets’ and the fair value of liability derivatives are included in ‘other liabilities.’

(3) The fair value of TBAs are included in ‘fixed maturities available for sale, at fair value.’

The Company did not hold any derivatives which were designated as hedging instruments at March 31, 2019 or December 31, 2018.

The Company’s derivative instruments can be traded under master netting agreements, which establish terms that apply to all derivative transactions with a counterparty. In the event of a bankruptcy or other stipulated event of default, such agreements provide that the non-defaulting party may elect to terminate all outstanding derivative transactions, in which case all individual derivative positions (loss or gain) with a counterparty are closed out and netted and replaced with a single amount, usually referred to as the termination amount, which is expressed in a single currency. The resulting single net amount, where positive, is payable to the party “in-the-money” regardless of whether or not it is the defaulting party, unless the parties have agreed that only the non-defaulting party is entitled to receive a termination payment where the net amount is positive and is in its favor. Contractual close-out netting reduces derivatives credit exposure from gross to net exposure. The remaining derivatives included in the table above were not subject to a master netting agreement.

At March 31, 2019, asset derivatives and liability derivatives of $27.9 million and $14.5 million, respectively, were subject to a master netting agreement, compared to $80.4 million and $18.9 million, respectively, at December 31, 2018. The remaining derivatives included in the preceding table were not subject to a master netting agreement.

Realized and unrealized contract gains and losses on the Company’s derivative instruments are reflected in ‘net realized gains (losses)’ in the consolidated statements of income, as summarized in the following table:

Derivatives not designated as	March 31,
hedging instruments:	2019			2018
Three Months Ended
Net realized gains (losses):
Futures contracts	$	27,336		$	5,030
Foreign currency forward contracts	(13,709		)	(5,924		)
TBAs	190			(97		)
Other	22,054			(2,972		)
Total	$	35,871		$	(3,963	)

XML

Commitments and Contingencies

3 Months Ended

Mar. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Investment Commitments

The Company’s investment commitments, which are primarily related to agreements entered into by the Company to invest in funds and separately managed accounts when called upon, were approximately $1.83 billion at March 31, 2019, compared to $1.77 billion at December 31, 2018.

Interest Paid

Interest paid on the Company’s senior notes and other borrowings were $6.2 million for the three months ended March 31, 2019, compared to $7.9 million for the 2018 period.

XML

Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

Leases

In the ordinary course of business, the Company renews and enters into new leases for office property and equipment. At the lease inception date, the Company determines whether a contract contains a lease and its classification as a finance or operating lease. Primarily all of the Company’s leases are classified as operating leases. The Company’s operating leases have remaining lease terms of up to 12 years, some of which include options to extend the lease term. The Company considers these options when determining the lease term and measuring its lease liability and right-of-use asset.

Short-term operating leases with an initial term of twelve months or less were excluded on the Company's consolidated balance sheet and represent an inconsequential amount of operating lease expense.

As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

For the three months ended March 31, 2019, the Company recognized approximately $7.6 million in operating lease costs.

Additional information regarding the Company’s operating leases is as follows:

	March 31,
	2019
Other information on operating leases
Cash payments included in the measurement of lease liabilities reported in operating cash flows	$	6,900
Right-of-use assets obtained in exchange for new lease liabilities	$	—
Right-of-use assets (a)	$	140,741
Operating lease liability (b)	$	157,729
Weighted average discount rate	3.9		%
Weighted average remaining lease term	7.2 years

(a) Included in ‘other assets’ on our consolidated balance sheet

(b) Included in ‘other liabilities’ on our consolidated balance sheet

The following table presents the contractual maturities of the Company's operating lease liabilities:

Years Ending December 31,
Remainder of 2019	$	22,457
2020	29,796
2021	28,632
2022	25,349
2023	20,901
Thereafter	53,902
Total undiscounted lease liability	$	181,037
Less: present value adjustment	(23,308		)
Operating lease liability	$	157,729

At December 31, 2018, the future minimum rental commitments, exclusive of escalation clauses and maintenance costs and net of rental income, for all of the Company’s operating leases are as follows:

2019	$	31,088
2020	30,491
2021	29,351
2022	26,068
2023	21,408
2024 and thereafter	54,745
Total	$	193,151

XML

Variable Interest Entities and Noncontrolling Interests

3 Months Ended

Mar. 31, 2019

Noncontrolling Interest [Abstract]

Variable Interest Entity and Noncontrolling Interests

Variable Interest Entities and Noncontrolling Interests

Watford Holdings Ltd.

In March 2014, the Company invested $100.0 million and acquired 2,500,000 common shares, approximately 11% of Watford Holdings Ltd.’s common equity, and a warrant to purchase up to 975,503 additional common shares. The warrants expire on March 31, 2020. The exercise price of the warrants is determined on the date of exercise based on certain targeted returns for existing common shareholders. Watford Holdings Ltd.’s common shares are listed on the Nasdaq Select Global Market under the ticker symbol “WTRE”.

Watford Re is considered a VIE and the Company concluded that it is the primary beneficiary of Watford Re. As such, the results of Watford Re are included in the Company’s consolidated financial statements.

The Company does not guarantee or provide credit support for Watford Re, and the Company’s financial exposure to Watford Re is limited to its investment in Watford Re’s common and preferred shares and counterparty credit risk (mitigated by collateral) arising from reinsurance transactions.

The following table provides the carrying amount and balance sheet caption in which the assets and liabilities of Watford Re are reported:

	March 31,		December 31,
	2019		2018
Assets
Investments accounted for using the fair value option	$	2,215,322	$	2,312,003
Fixed maturities available for sale, at fair value	549,834		393,351
Equity securities, at fair value	65,009		32,206
Cash	56,301		63,529
Accrued investment income	17,346		19,461
Premiums receivable	252,850		227,301
Reinsurance recoverable on unpaid and paid losses and LAE	102,818		86,445
Ceded unearned premiums	72,960		61,587
Deferred acquisition costs	80,664		80,858
Receivable for securities sold	62,566		24,507
Goodwill and intangible assets	7,650		7,650
Other assets	69,547		63,959
Total assets of consolidated VIE	$	3,552,867	$	3,372,857
Liabilities
Reserves for losses and loss adjustment expenses	$	1,104,532	$	1,032,760
Unearned premiums	401,838		390,114
Reinsurance balances payable	27,039		21,034
Revolving credit agreement borrowings	488,612		455,682
Payable for securities purchased	95,577		60,142
Other liabilities (1)	272,295		302,524
Total liabilities of consolidated VIE	$	2,389,893	$	2,262,256
Redeemable noncontrolling interests	$	221,083	$	220,992

(1) Includes certain borrowings related to investing activities.

For the three months ended March 31, 2019, Watford Re generated $70.3 million of cash provided by operating activities, $105.9 million of cash used for investing activities and $28.1 million of cash provided by financing activities, compared to $30.2 million of cash provided by operating activities, $35.4 million of cash used for investing activities and $66.2 million of cash used for financing activities for the three months ended March 31, 2018.

Non-redeemable noncontrolling interests

The Company accounts for the portion of Watford Re’s common equity attributable to third party investors in the shareholders’ equity section of its consolidated balance sheets. The noncontrolling ownership in Watford Re’s common shares was approximately 89% at March 31, 2019. The portion of Watford Re’s income or loss attributable to third party investors is recorded in the consolidated statements of income in ‘net (income) loss attributable to noncontrolling interests.’

The following table sets forth activity in the non-redeemable noncontrolling interests:

	March 31,
	2019		2018
Three Months Ended
Balance, beginning of period	$	791,560	$	843,411
Amounts attributable to noncontrolling interests	42,382		11,376
Other comprehensive income attributable to noncontrolling interests	4,139		(675		)
Balance, end of period	$	838,081	$	854,112

Redeemable noncontrolling interests

The Company accounts for redeemable noncontrolling interests in the mezzanine section of its consolidated balance sheets in accordance with applicable accounting guidance. Such redeemable noncontrolling interests relate to the 9,065,200 cumulative redeemable preference shares (“Watford Preference Shares”) issued in late March 2014 with a par value of $0.01 per share and a liquidation preference of $25.00 per share. The Watford Preference Shares were issued at a discounted amount of $24.50 per share. Preferred dividends, including the accretion of the discount and issuance costs, are included in ‘net (income) loss attributable to noncontrolling interests’ in the Company’s consolidated statements of income.

The following table sets forth activity in the redeemable non-controlling interests:

	March 31,
	2019		2018
Three Months Ended
Balance, beginning of period	$	206,292	$	205,922
Accretion of preference share issuance costs	91		91
Balance, end of period	$	206,383	$	206,013

The portion of Watford Re’s income or loss attributable to third party investors, recorded in the Company’s consolidated statements of income in ‘net (income) loss attributable to noncontrolling interests,’ are summarized in the table below:

	March 31,
	2019			2018
Three Months Ended
Amounts attributable to non-redeemable noncontrolling interests	$	(42,382	)	$	(11,376	)
Dividends attributable to redeemable noncontrolling interests	(4,588		)	(4,585		)
Net (income) loss attributable to noncontrolling interests	$	(46,970	)	$	(15,961	)

Bellemeade Re

The Company has entered into various aggregate excess of loss mortgage reinsurance agreements with various special purpose reinsurance companies domiciled in Bermuda (the “Bellemeade Agreements”). At the time the Bellemeade Agreements were entered into, the applicability of the accounting guidance that addresses VIEs was evaluated. As a result of the evaluation of the Bellemeade Agreements, the Company concluded that these entities are VIEs. However, given that the ceding insurers do not have the unilateral power to direct those activities that are significant to their economic performance, the Company does not consolidate such entities in its consolidated financial statements.

The following table presents the total assets of the Bellemeade entities, as well as the Company’s maximum exposure to loss associated with these VIEs, calculated as the maximum historical observable spread between the one month LIBOR, the basis for the contractual payments to bond holders, and short term invested trust asset yields.

			Maximum Exposure to Loss
Bellemeade Entities (Issue Date)	Total VIE Assets		On-Balance Sheet (Asset) Liability			Off-Balance Sheet		Total
Mar 31, 2019
Bellemeade 2015-1 Ltd. (Jul-15)	$	34,176	$	(76	)	$	163	$	87
Bellemeade 2017-1 Ltd. (Oct-17)	296,773		721			8,088		8,809
Bellemeade 2018-1 Ltd. (Apr-18)	374,460		(858		)	10,035		9,177
Bellemeade 2018-2 Ltd. (Aug-18)	625,523		(2,318		)	9,688		7,370
Bellemeade 2018-3 Ltd. (Oct-18)	506,110		(430		)	8,975		8,545
Bellemeade 2019-1 Ltd. (Mar-19)	341,790		—			5,397		5,397
Total	$	2,178,832	$	(2,961	)	$	42,346	$	39,385
Dec 31, 2018
Bellemeade 2015-1 Ltd. (Jul-15)	$	43,246	$	112		$	498	$	610
Bellemeade 2017-1 Ltd. (Oct-17)	304,373		165			1,312		1,477
Bellemeade 2018-1 Ltd. (Apr-18)	374,460		132			3,539		3,671
Bellemeade 2018-2 Ltd. (Aug-18)	653,278		874			4,005		4,879
Bellemeade 2018-3 Ltd. (Oct-18)	506,110		469			1,836		2,305
Total	$	1,881,467	$	1,752		$	11,190	$	12,942

See note 16.

XML

Other Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2019

Comprehensive Income Note Disclosure [Abstract]

Other Comprehensive Income (Loss)

Other Comprehensive Income (Loss)

The following tables present details about amounts reclassified from accumulated other comprehensive income and the tax effects allocated to each component of other comprehensive income (loss):

		Amounts Reclassified from AOCI
	Consolidated Statement of Income	Three Months Ended
Details About	Line Item That Includes	March 31,
AOCI Components	Reclassification	2019			2018
Unrealized appreciation on available-for-sale investments
	Net realized gains (losses)	$	11,709		$	(67,586	)
	Other-than-temporary impairment losses	(1,309		)	(162		)
	Total before tax	10,400			(67,748		)
	Income tax (expense) benefit	(179		)	5,287
	Net of tax	$	10,221		$	(62,461	)

	Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
Three Months Ended March 31, 2019
Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	254,990		$	29,103		$	225,887
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)	—			—			—
Less reclassification of net realized gains (losses) included in net income	10,400			179			10,221
Foreign currency translation adjustments	5,644			128			5,516
Other comprehensive income (loss)	$	250,234		$	29,052		$	221,182
Three Months Ended March 31, 2018
Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	(189,943	)	$	(23,266	)	$	(166,677	)
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)	—			—			—
Less reclassification of net realized gains (losses) included in net income	(67,748		)	(5,287		)	(62,461		)
Foreign currency translation adjustments	1,432			150			1,282
Other comprehensive income (loss)	$	(120,763	)	$	(17,829	)	$	(102,934	)

XML

Guarantor Financial Information

3 Months Ended

Mar. 31, 2019

Condensed Financial Information Disclosure [Abstract]

Guarantor Financial Information

Guarantor Financial Information

The following tables present condensed financial information for Arch Capital, Arch Capital Group (U.S.) Inc. (“Arch-U.S.”), a 100% owned subsidiary of Arch Capital, and Arch Capital’s other subsidiaries.

		March 31, 2019
Condensed Consolidating Balance Sheet		Arch Capital (Parent Guarantor)		Arch-U.S. (Subsidiary Issuer)		Other Arch Capital Subsidiaries		Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Assets
Total investments		$	40	$	464,872	$	21,877,667	$	(14,700	)	$	22,327,879
Cash		12,065		40,716		580,319		—			633,100
Investments in subsidiaries		10,403,671		4,249,796		—		(14,653,467		)	—
Due from subsidiaries and affiliates		—		2		1,883,339		(1,883,341		)	—
Premiums receivable		—		—		2,226,386		(641,704		)	1,584,682
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses		—		—		8,658,803		(5,558,980		)	3,099,823
Contractholder receivables		—		—		2,087,720		—			2,087,720
Ceded unearned premiums		—		—		1,951,746		(852,165		)	1,099,581
Deferred acquisition costs		—		—		669,145		(71,619		)	597,526
Goodwill and intangible assets		—		—		659,215		—			659,215
Other assets		21,943		46,146		2,026,386		(206,964		)	1,887,511
	Total assets	$	10,437,719	$	4,801,532	$	42,620,726	$	(23,882,940	)	$	33,977,037
Liabilities
Reserve for losses and loss adjustment expenses		$	—	$	—	$	17,335,960	$	(5,325,919	)	$	12,010,041
Unearned premiums		—		—		4,888,284		(852,165		)	4,036,119
Reinsurance balances payable		—		—		1,094,762		(641,704		)	453,058
Contractholder payables		—		—		2,087,720		—			2,087,720
Collateral held for insured obligations		—		—		232,411					232,411
Senior notes		297,175		494,749		941,770		—			1,733,694
Revolving credit agreement borrowings		—		—		488,612		—			488,612
Due to subsidiaries and affiliates		—		542,045		1,341,296		(1,883,341		)	—
Other liabilities		25,948		34,073		2,227,945		(511,644		)	1,776,322
	Total liabilities	323,123		1,070,867		30,638,760		(9,214,773		)	22,817,977
Redeemable noncontrolling interests		—		—		221,083		(14,700		)	206,383
Shareholders’ Equity
Total shareholders’ equity available to Arch		10,114,596		3,730,665		10,922,802		(14,653,467		)	10,114,596
Non-redeemable noncontrolling interests		—		—		838,081		—			838,081
	Total shareholders’ equity	10,114,596		3,730,665		11,760,883		(14,653,467		)	10,952,677
	Total liabilities, noncontrolling interests and shareholders’ equity	$	10,437,719	$	4,801,532	$	42,620,726	$	(23,882,940	)	$	33,977,037

		December 31, 2018
Condensed Consolidating Balance Sheet		Arch Capital (Parent Guarantor)		Arch-U.S. (Subsidiary Issuer)		Other Arch Capital Subsidiaries		Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Assets
Total investments		$	104	$	452,674	$	21,307,206	$	(14,700	)	$	21,745,284
Cash		6,125		5,940		634,491		—			646,556
Investments in subsidiaries		9,735,256		3,999,243		—		(13,734,499		)	—
Due from subsidiaries and affiliates		9		2		1,802,686		(1,802,697		)	—
Premiums receivable		—		—		1,834,389		(535,239		)	1,299,150
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses		—		—		8,618,660		(5,699,288		)	2,919,372
Contractholder receivables		—		—		2,079,111		—			2,079,111
Ceded unearned premiums		—		—		1,730,262		(754,793		)	975,469
Deferred acquisition costs		—		—		618,535		(48,961		)	569,574
Goodwill and intangible assets		—		—		634,920		—			634,920
Other assets		12,588		80,949		1,466,438		(211,082		)	1,348,893
	Total assets	$	9,754,082	$	4,538,808	$	40,726,698	$	(22,801,259	)	$	32,218,329
Liabilities
Reserve for losses and loss adjustment expenses		$	—	$	—	$	17,345,142	$	(5,491,845	)	$	11,853,297
Unearned premiums		—		—		4,508,429		(754,793		)	3,753,636
Reinsurance balances payable		—		—		928,346		(535,239		)	393,107
Contractholder payables		—		—		2,079,111		—			2,079,111
Collateral held for insured obligations		—		—		236,630		—			236,630
Senior notes		297,150		494,723		941,655		—			1,733,528
Revolving credit agreement borrowings		—		—		455,682		—			455,682
Due to subsidiaries and affiliates		—		536,805		1,265,892		(1,802,697		)	—
Other liabilities		17,105		26,270		1,699,768		(467,484		)	1,275,659
	Total liabilities	314,255		1,057,798		29,460,655		(9,052,058		)	21,780,650
Redeemable noncontrolling interests		—		—		220,992		(14,700		)	206,292
Shareholders’ Equity
Total shareholders’ equity available to Arch		9,439,827		3,481,010		10,253,491		(13,734,501		)	9,439,827
Non-redeemable noncontrolling interests		—		—		791,560		—			791,560
	Total shareholders’ equity	9,439,827		3,481,010		11,045,051		(13,734,501		)	10,231,387
	Total liabilities, noncontrolling interests and shareholders’ equity	$	9,754,082	$	4,538,808	$	40,726,698	$	(22,801,259	)	$	32,218,329

		Three Months Ended March 31, 2019
Condensed Consolidating Statement of Income and Comprehensive Income		Arch Capital (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other Arch Capital Subsidiaries			Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Revenues
Net premiums earned		$	—		$	—		$	1,368,866		$	—		$	1,368,866
Net investment income		46			3,679			175,672			(22,448		)	156,949
Net realized gains (losses)		—			8,518			138,053			(5,006		)	141,565
Net impairment losses recognized in earnings		—			—			(1,309		)	—			(1,309		)
Other underwriting income		—			—			8,825			—			8,825
Equity in net income (loss) of investment funds accounted for using the equity method		—			—			46,867			—			46,867
Other income (loss)		(239		)	—			1,322			—			1,083
	Total revenues	(193		)	12,197			1,738,296			(27,454		)	1,722,846
Expenses
Losses and loss adjustment expenses		—			—			718,532			—			718,532
Acquisition expenses		—			—			197,848			—			197,848
Other operating expenses		—			—			201,163			—			201,163
Corporate expenses		16,307			2,166			(511		)	—			17,962
Amortization of intangible assets		—			—			20,417			—			20,417
Interest expense		5,538			11,951			33,706			(22,130		)	29,065
Net foreign exchange (gains) losses		2			—			(123		)	(3,404		)	(3,525		)
	Total expenses	21,847			14,117			1,171,032			(25,534		)	1,181,462
Income (loss) before income taxes		(22,040		)	(1,920		)	567,264			(1,920		)	541,384
Income tax (expense) benefit		—			543			(46,429		)	—			(45,886		)
Income (loss) before equity in net income of subsidiaries		(22,040		)	(1,377		)	520,835			(1,920		)	495,498
Equity in net income of subsidiaries		470,568			136,554			—			(607,122		)	—
Net income		448,528			135,177			520,835			(609,042		)	495,498
Net (income) loss attributable to noncontrolling interests		—			—			(47,289		)	319			(46,970		)
Net income available to Arch		448,528			135,177			473,546			(608,723		)	448,528
Preferred dividends		(10,403		)	—			—			—			(10,403		)
Net income available to Arch common shareholders		$	438,125		$	135,177		$	473,546		$	(608,723	)	$	438,125
Comprehensive income available to Arch		$	665,571		$	238,156		$	688,540		$	(926,696	)	$	665,571

		Three Months Ended March 31, 2018
Condensed Consolidating Statement of Income and Comprehensive Income		Arch Capital (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other Arch Capital Subsidiaries			Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Revenues
Net premiums earned		$	—		$	—		$	1,234,899		$	—		$	1,234,899
Net investment income		20			258			148,767			(22,321		)	126,724
Net realized gains (losses)		29			(7		)	(111,020		)	—			(110,998		)
Net impairment losses recognized in earnings		—			—			(162		)	—			(162		)
Other underwriting income		—			—			5,349			—			5,349
Equity in net income (loss) of investment funds accounted for using the equity method		—			—			28,069			—			28,069
Other income (loss)		(78		)	—			152			—			74
	Total revenues	(29		)	251			1,306,054			(22,321		)	1,283,955
Expenses
Losses and loss adjustment expenses		—			—			636,860			—			636,860
Acquisition expenses		—			—			191,376			—			191,376
Other operating expenses		—			—			175,015			—			175,015
Corporate expenses		16,169			289			(1,146		)	—			15,312
Amortization of intangible assets		—			—			26,736			—			26,736
Interest expense		5,536			11,926			35,172			(21,998		)	30,636
Net foreign exchange (gains) losses		29			—			16,436			3,256			19,721
	Total expenses	21,734			12,215			1,080,449			(18,742		)	1,095,656
Income (loss) before income taxes		(21,763		)	(11,964		)	225,605			(3,579		)	188,299
Income tax (expense) benefit		—			2,951			(24,866		)	—			(21,915		)
Income (loss) before equity in net income of subsidiaries		(21,763		)	(9,013		)	200,739			(3,579		)	166,384
Equity in net income of subsidiaries		172,186			86,420			—			(258,606		)	—
Net income (loss)		150,423			77,407			200,739			(262,185		)	166,384
Net (income) loss attributable to noncontrolling interests		—			—			(16,284		)	323			(15,961		)
Net income (loss) available to Arch		150,423			77,407			184,455			(261,862		)	150,423
Preferred dividends		(10,437		)	—			—			—			(10,437		)
Loss on redemption of preferred shares		(2,710		)	—			—			—			(2,710		)
Net income (loss) available to Arch common shareholders		$	137,276		$	77,407		$	184,455		$	(261,862	)	$	137,276
Comprehensive income available to Arch		$	48,162		$	6,537		$	79,081		$	(85,618	)	$	48,162

		Three Months Ended March 31, 2019
Condensed Consolidating Statement of Cash Flows		Arch Capital (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other Arch Capital Subsidiaries			Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Operating Activities
	Net Cash Provided By (Used For) Operating Activities	$	23,171		$	37,324		$	234,706		$	(59,803	)	$	235,398
Investing Activities
Purchases of fixed maturity investments		—			(38,678		)	(7,405,792		)	—			(7,444,470		)
Purchases of equity securities		—			(56,062		)	(219,992		)	72,244			(203,810		)
Purchases of other investments		—			(17,500		)	(307,093		)	—			(324,593		)
Proceeds from the sales of fixed maturity investments		—			75,583			7,001,007			—			7,076,590
Proceeds from the sales of equity securities		—			—			167,261			(72,244		)	95,017
Proceeds from the sales, redemptions and maturities of other investments		—			—			216,483			—			216,483
Proceeds from redemptions and maturities of fixed maturity investments		—			—			100,424			—			100,424
Net settlements of derivative instruments		—			—			29,737			—			29,737
Net (purchases) sales of short-term investments		63			34,109			258,429			—			292,601
Change in cash collateral related to securities lending		—			—			(29,618		)	—			(29,618		)
Contributions to subsidiaries		(2,121		)	—			(53,906		)	56,027			—
Issuance of intercompany loans		—			—			(43,647		)	43,647			—
Purchases of fixed assets		—			—			(9,423		)	—			(9,423		)
Other		—			—			(93,731		)	—			(93,731		)
	Net Cash Provided By (Used For) Investing Activities	(2,058		)	(2,548		)	(389,861		)	99,674			(294,793		)
Financing Activities
Purchases of common shares under share repurchase program		(2,871		)	—			—			—			(2,871		)
Proceeds from common shares issued, net		(1,901		)	—			56,027			(56,027		)	(1,901		)
Proceeds from intercompany borrowings		—			—			43,647			(43,647		)	—
Proceeds from borrowings		—			—			59,000			—			59,000
Repayments of borrowings		—			—			(26,038		)	—			(26,038		)
Change in cash collateral related to securities lending		—			—			29,618			—			29,618
Dividends paid to redeemable noncontrolling interests		—			—			(4,816		)	319			(4,497		)
Dividends paid to parent (1)		—			—			(59,484		)	59,484			—
Other		—			—			(1,389		)	—			(1,389		)
Preferred dividends paid		(10,403		)	—			—			—			(10,403		)
	Net Cash Provided By (Used For) Financing Activities	(15,175		)	—			96,565			(39,871		)	41,519
Effects of exchange rates changes on foreign currency cash and restricted cash		—			—			3,449			—			3,449
Increase (decrease) in cash and restricted cash		5,938			34,776			(55,141		)	—			(14,427		)
Cash and restricted cash, beginning of year		6,159			5,940			712,544			—			724,643
Cash and restricted cash, end of period		$	12,097		$	40,716		$	657,403		$	—		$	710,216

(1)     Dividends received by parent are included in net cash provided by (used for) operating activities.

		Three Months Ended March 31, 2018
Condensed Consolidating Statement of Cash Flows		Arch Capital (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other Arch Capital Subsidiaries			Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Operating Activities
	Net Cash Provided By (Used For) Operating Activities	$	13,315		$	74,248		$	419,956		$	(107,339	)	$	400,180
Investing Activities
Purchases of fixed maturity investments		—			(26,501		)	(10,050,206		)	395,440			(9,681,267		)
Purchases of equity securities		—			—			(377,000		)	—			(377,000		)
Purchases of other investments		—			—			(522,454		)	—			(522,454		)
Proceeds from the sales of fixed maturity investments		—			16,997			9,057,590			(395,440		)	8,679,147
Proceeds from the sales of equity securities		—			—			291,311			—			291,311
Proceeds from the sales, redemptions and maturities of other investments		—			—			436,566			—			436,566
Proceeds from redemptions and maturities of fixed maturity investments		—			—			287,031			—			287,031
Net settlements of derivative instruments		—			—			36,070			—			36,070
Net (purchases) sales of short-term investments		92,885			(15,547		)	517,980			—			595,318
Change in cash collateral related to securities lending		—			—			161,567			—			161,567
Contributions to subsidiaries		—			—			(2,970		)	2,970			—
Purchases of fixed assets		(13		)	—			(4,227		)	—			(4,240		)
Other		—			—			40,037			—			40,037
	Net Cash Provided By (Used For) Investing Activities	92,872			(25,051		)	(128,705		)	2,970			(57,914		)
Financing Activities
Redemption of preferred shares		(92,555		)	—			—			—			(92,555		)
Purchases of common shares under share repurchase program		(3,299		)	—			—			—			(3,299		)
Proceeds from common shares issued, net		(2,779		)	—			2,970			(2,970		)	(2,779		)
Proceeds from borrowings		—			—			39,585			—			39,585
Repayments of borrowings		—			—			(101,000		)	—			(101,000		)
Change in cash collateral related to securities lending		—			—			(161,567		)	—			(161,567		)
Dividends paid to redeemable noncontrolling interests		—			—			(4,816		)	319			(4,497		)
Dividends paid to parent (1)		—			—			(107,020		)	107,020			—
Other		—			—			(2,356		)	—			(2,356		)
Preferred dividends paid		(10,437		)	—			—			—			(10,437		)
	Net Cash Provided By (Used For) Financing Activities	(109,070		)	—			(334,204		)	104,369			(338,905		)
Effects of exchange rates changes on foreign currency cash and restricted cash		(4		)	—			1,615			—			1,611
Increase (decrease) in cash and restricted cash		(2,887		)	49,197			(41,338		)	—			4,972
Cash and restricted cash, beginning of year		10,052			30,380			686,852			—			727,284
Cash and restricted cash, end of period		$	7,165		$	79,577		$	645,514		$	—		$	732,256

(1)     Dividends received by parent are included in net cash provided by (used for) operating activities.

XML

Income Taxes

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company’s income tax provision on income before income taxes resulted in an expense of 8.5% for the three months ended March 31, 2019, compared to an expense of 11.6% for the 2018 period. The Company’s effective tax rate, which is based upon the expected annual effective tax rate, may fluctuate from period to period based on the relative mix of income or loss reported by jurisdiction and the varying tax rates in each jurisdiction. For interim reporting purposes, the Company has calculated its annual effective tax rate for the full year of 2019 by treating excess tax benefits that arise from the accounting for stock based compensation as a discrete item. As such, this amount is not included when projecting the Company’s full year annual effective tax rate but rather is accounted for at the U.S. Federal statutory rate of 21% after applying the projected full year annual effective tax rate to actual three months results before the discrete item. The impact of the discrete item resulted in a benefit of 0.5% for the three months ended March 31, 2019.

The Company had a net deferred tax liability of $18.9 million at March 31, 2019, compared to a net deferred tax asset of $22.5 million at December 31, 2018. The change is primarily a result of the appreciation of the Company’s fixed maturities from December 31, 2018 to March 31, 2019. In addition, the Company recovered$32.7 million and $49.9 million of income taxes for the three months ended March 31, 2019 and 2018, respectively.

XML

Legal Proceedings

3 Months Ended

Mar. 31, 2019

Disclosure Legal Proceedings [Abstract]

Legal Proceedings

Legal Proceedings

The Company, in common with the insurance industry in general, is subject to litigation and arbitration in the normal course of its business. As of March 31, 2019, the Company was not a party to any litigation or arbitration which is expected by management to have a material adverse effect on the Company’s results of operations and financial condition and liquidity.

XML

Subsequent Events

3 Months Ended

Mar. 31, 2019

Subsequent Events [Abstract]

Subsequent Events

Subsequent Event

In April 2019, the Company’s first-lien U.S. mortgage insurance subsidiaries entered into an aggregate excess of loss reinsurance agreement with Bellemeade Re 2019-2 Ltd. (“Bellemeade 2019-2”), a special purpose reinsurance company domiciled in Bermuda. The Bellemeade 2019-2 agreement provides for up to $621.0 million of aggregate excess of loss reinsurance coverage at inception in excess of $221.8 million of aggregate losses for new delinquencies on a portfolio of in-force policies primarily issued in the second half of 2018. The coverage amount decreases over a ten-year period as the underlying covered mortgages amortize.

Bellemeade 2019-2 financed the coverage through the issuance of mortgage insurance-linked notes in an aggregate amount of approximately $621.0 million to unrelated investors (the “Notes”). The maturity date of the Notes is April 25, 2029. The Notes will be redeemed prior to maturity upon the occurrence of a mandatory termination event or if the ceding insurers trigger a termination of the reinsurance agreement following the occurrence of an optional termination event. All of the proceeds paid to Bellemeade 2019-2 from the sale of the Notes were deposited into a reinsurance trust as security for Bellemeade 2019-2’s obligations. At all times, funds in the reinsurance trust account are required to be invested in high credit quality money market funds.

XML

Basis of Presentation and Recent Accounting Pronouncements (Policies)

3 Months Ended

Mar. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of accounting

The interim consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of results on an interim basis. The results of any interim period are not necessarily indicative of the results for a full year or any future periods.

Recent accounting pronouncements

Recently Issued Accounting Standards Adopted

The Company adopted ASU 2016-02, “Leases (Topic 842)”, which provides a new comprehensive model for lease accounting. Topic 842 requires a lessee to recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The Company adopted the modified retrospective approach of this standard, that resulted in the recognition of a right-of-use asset of  $147.9 million as part of other assets and a lease liability of $163.6 million as part of other liabilities in the consolidated balance sheet as of January 1, 2019. The Company de-recognizing the liability for deferred rent that was required under the previous guidance.

In addition, the Company adopted ASU 2018-11, “Leases: Targeted Improvements (Topic 842),” which provides an additional (optional) transition method to adopt the new lease standard. The Company adopted the alternative transition method and elected to utilize a cumulative-effect adjustment to the opening balance of the retained earnings for the year of adoption. As such, the Company’s reporting for the comparative periods prior to the adoption continue to be presented in the financial statements in accordance with previous lease accounting guidance. The Company also adopted the practical expedients as a package which allows the Company to not reassess (1) whether any expired or existing contracts are or contain leases (2) the lease classification for any expired or existing leases (3) initial direct costs for any existing leases and (4) to account for the lease and non lease components as a single lease component. In addition to electing the practical expedients as a package, the Company elected to include hindsight to determine the lease term of existing leases, and made an accounting policy election to not apply the recognition requirements to short-term leases (lease term of less than twelve months). The cumulative effect adjustment to the opening balance of retained earnings was zero. The adoption of the updated guidance did not have a material effect on the Company’s results of operations or liquidity.

The Company adopted ASU 2018-07 “Improvements to Nonemployee Share-Based Payment Accounting,” which was issued in June 2018 to simplify the accounting for share-based payments granted to nonemployees for goods and services. Under this ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The ASU is effective for reporting periods beginning after December 15, 2018. This guidance and the adoption of this provision did not have a material effect on the Company's financial position, results of operations or cash flows.

ASU 2018-02 “Income Statement-Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” was issued in February 2018 to allow the reclassification of the stranded tax effects in accumulated other comprehensive income (“AOCI”) resulting from the Tax Cuts and Jobs Act of 2017 (“Tax Cuts Act”). Current guidance requires the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in the accounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited directly to AOCI. The amount of the reclassification would include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of the enactment of the Tax Cuts Act related to items in AOCI. The updated guidance is effective for reporting periods beginning after December 15, 2018 and is to be applied retrospectively to each period in which the effect of the Tax Cuts Act related to items remaining in AOCI are recognized or at the beginning of the period of adoption. The adoption of this ASU did not have a material effect on the Company’s results of operations, financial position or liquidity.

Recently Issued Accounting Standards Not Yet Adopted

For information regarding additional accounting standards that the Company has not yet adopted, see note 3(q), “Significant Accounting Policies—Recent Accounting Pronouncements,” of the notes to consolidated financial statements in the Company’s 2018 Form 10-K.

XML

Earnings Per Common Share (Tables)

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Schedule of computation of basic and diluted earnings per common share

The following table sets forth the computation of basic and diluted earnings per common share:

	Three Months Ended
	March 31,
	2019			2018
Numerator:
Net income	$	495,498		$	166,384
Amounts attributable to noncontrolling interests	(46,970		)	(15,961		)
Net income available to Arch	448,528			150,423
Preferred dividends	(10,403		)	(10,437		)
Loss on redemption of preferred shares	—			(2,710		)
Net income available to Arch common shareholders	$	438,125		$	137,276
Denominator:
Weighted average common shares outstanding	400,184,404			394,110,789
Series D preferred shares (1)	—			13,428,939
Weighted average common shares and common share equivalents outstanding — basic	400,184,404			407,539,728
Effect of dilutive common share equivalents:
Nonvested restricted shares	1,807,488			2,159,577
Stock options (2)	6,979,137			8,194,497
Weighted average common shares and common share equivalents outstanding — diluted	408,971,029			417,893,802
Earnings per common share:
Basic	$	1.09		$	0.34
Diluted	$	1.07		$	0.33

(1) Such shares are convertible non-voting common equivalent preferred shares issued in connection with the UGC acquisition. See note 2.

(2) Certain stock options were not included in the computation of diluted earnings per share where the exercise price of the stock options exceeded the average market price and would have been anti-dilutive or where, when applying the treasury stock method to in-the-money options, the sum of the proceeds, including unrecognized compensation, exceeded the average market price and would have been anti-dilutive. For the 2019 first quarter and 2018 first quarter, the number of stock options excluded were 5,577,724 and 3,168,786, respectively.

XML

Segment Information (Tables)

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Analysis of underwriting income or loss by segment and reconciliation to net income available to common shareholders

The following tables summarize the Company’s underwriting income or loss by segment, together with a reconciliation of underwriting income or loss to net income available to Arch common shareholders:

	Three Months Ended
	March 31, 2019
	Insurance			Reinsurance			Mortgage			Sub-Total			Other			Total
Gross premiums written (1)	$	941,954		$	682,855		$	356,050		$	1,980,453		$	186,689		$	2,077,879
Premiums ceded	(320,622		)	(231,567		)	(48,798		)	(600,581		)	(41,302		)	(552,620		)
Net premiums written	621,332			451,288			307,252			1,379,872			145,387			1,525,259
Change in unearned premiums	(67,827		)	(104,923		)	15,650			(157,100		)	707			(156,393		)
Net premiums earned	553,505			346,365			322,902			1,222,772			146,094			1,368,866
Other underwriting income (loss)	—			4,377			3,856			8,233			592			8,825
Losses and loss adjustment expenses	(356,723		)	(239,810		)	(11,149		)	(607,682		)	(110,850		)	(718,532		)
Acquisition expenses	(82,824		)	(54,326		)	(31,672		)	(168,822		)	(29,026		)	(197,848		)
Other operating expenses	(113,396		)	(35,704		)	(39,875		)	(188,975		)	(12,188		)	(201,163		)
Underwriting income (loss)	$	562		$	20,902		$	244,062		265,526			(5,378		)	260,148
Net investment income										121,249			35,700			156,949
Net realized gains (losses)										112,433			29,132			141,565
Net impairment losses recognized in earnings										(1,309		)	—			(1,309		)
Equity in net income (loss) of investment funds accounted for using the equity method										46,867			—			46,867
Other income (loss)										1,083			—			1,083
Corporate expenses (2)										(16,772		)	—			(16,772		)
Transaction costs and other (2)										(1,190		)	—			(1,190		)
Amortization of intangible assets										(20,417		)	—			(20,417		)
Interest expense										(23,482		)	(5,583		)	(29,065		)
Net foreign exchange gains (losses)										5,175			(1,650		)	3,525
Income before income taxes										489,163			52,221			541,384
Income tax expense										(45,886		)	—			(45,886		)
Net income										443,277			52,221			495,498
Dividends attributable to redeemable noncontrolling interests										—			(4,588		)	(4,588		)
Amounts attributable to nonredeemable noncontrolling interests										—			(42,382		)	(42,382		)
Net income available to Arch										443,277			5,251			448,528
Preferred dividends										(10,403		)	—			(10,403		)
Net income available to Arch common shareholders										$	432,874		$	5,251		$	438,125
Underwriting Ratios
Loss ratio	64.4		%	69.2		%	3.5		%	49.7		%	75.9		%	52.5		%
Acquisition expense ratio	15.0		%	15.7		%	9.8		%	13.8		%	19.9		%	14.5		%
Other operating expense ratio	20.5		%	10.3		%	12.3		%	15.5		%	8.3		%	14.7		%
Combined ratio	99.9		%	95.2		%	25.6		%	79.0		%	104.1		%	81.7		%
Goodwill and intangible assets	$	156,735		$	—		$	494,830		$	651,565		$	7,650		$	659,215

(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’

	Three Months Ended
	March 31, 2018
	Insurance			Reinsurance			Mortgage			Sub-Total			Other			Total
Gross premiums written (1)	$	823,378		$	577,483		$	321,178		$	1,721,605		$	213,870		$	1,838,214
Premiums ceded	(247,180		)	(195,730		)	(46,137		)	(488,613		)	(34,318		)	(425,670		)
Net premiums written	576,198			381,753			275,041			1,232,992			179,552			1,412,544
Change in unearned premiums	(37,461		)	(102,581		)	5,201			(134,841		)	(42,804		)	(177,645		)
Net premiums earned	538,737			279,172			280,242			1,098,151			136,748			1,234,899
Other underwriting income (loss)	—			1,232			3,416			4,648			701			5,349
Losses and loss adjustment expenses	(353,730		)	(141,675		)	(43,466		)	(538,871		)	(97,989		)	(636,860		)
Acquisition expenses	(85,169		)	(48,319		)	(26,567		)	(160,055		)	(31,321		)	(191,376		)
Other operating expenses	(91,974		)	(35,571		)	(38,771		)	(166,316		)	(8,699		)	(175,015		)
Underwriting income (loss)	$	7,864		$	54,839		$	174,854		237,557			(560		)	236,997
Net investment income										100,243			26,481			126,724
Net realized gains (losses)										(111,859		)	861			(110,998		)
Net impairment losses recognized in earnings										(162		)	—			(162		)
Equity in net income (loss) of investment funds accounted for using the equity method										28,069			—			28,069
Other income (loss)										74			—			74
Corporate expenses (2)										(14,482		)	—			(14,482		)
Transaction costs and other (2)										(830		)	—			(830		)
Amortization of intangible assets										(26,736		)	—			(26,736		)
Interest expense										(25,907		)	(4,729		)	(30,636		)
Net foreign exchange gains (losses)										(15,039		)	(4,682		)	(19,721		)
Income before income taxes										170,928			17,371			188,299
Income tax expense										(21,912		)	(3		)	(21,915		)
Net income										149,016			17,368			166,384
Dividends attributable to redeemable noncontrolling interests										—			(4,585		)	(4,585		)
Amounts attributable to nonredeemable noncontrolling interests										—			(11,376		)	(11,376		)
Net income available to Arch										149,016			1,407			150,423
Preferred dividends										(10,437		)	—			(10,437		)
Loss on redemption of preferred shares										(2,710		)	—			(2,710		)
Net income available to Arch common shareholders										$	135,869		$	1,407		$	137,276
Underwriting Ratios
Loss ratio	65.7		%	50.7		%	15.5		%	49.1		%	71.7		%	51.6		%
Acquisition expense ratio	15.8		%	17.3		%	9.5		%	14.6		%	22.9		%	15.5		%
Other operating expense ratio	17.1		%	12.7		%	13.8		%	15.1		%	6.4		%	14.2		%
Combined ratio	98.6		%	80.7		%	38.8		%	78.8		%	101.0		%	81.3		%
Goodwill and intangible assets	$	21,664		$	—		$	596,690		$	618,354		$	7,650		$	626,004

(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’

XML

Reserve for Losses and Loss Adjustment Expenses (Tables)

3 Months Ended

Mar. 31, 2019

Liability for Future Policy Benefits and Unpaid Claims and Claims Adjustment Expense [Abstract]

Analysis of losses and loss adjustment expenses and reconciliation of beginning and ending reserve balances

The following table represents an analysis of losses and loss adjustment expenses and a reconciliation of the beginning and ending reserve for losses and loss adjustment expenses:

	Three Months Ended
	March 31,
	2019			2018
Reserve for losses and loss adjustment expenses at beginning of period	$	11,853,297		$	11,383,792
Unpaid losses and loss adjustment expenses recoverable	2,814,291			2,464,910
Net reserve for losses and loss adjustment expenses at beginning of period	9,039,006			8,918,882
Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year	757,964			687,885
Prior years	(39,432		)	(51,025		)
Total net incurred losses and loss adjustment expenses	718,532			636,860
Retroactive reinsurance transaction (1)	(225,500		)	—
Net foreign exchange (gains) losses	(504		)	44,014
Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year	(64,340		)	(36,000		)
Prior years	(427,312		)	(514,541		)
Total net paid losses and loss adjustment expenses	(491,652		)	(550,541		)
Net reserve for losses and loss adjustment expenses at end of period	9,039,882			9,049,215
Unpaid losses and loss adjustment expenses recoverable	2,970,159			2,446,990
Reserve for losses and loss adjustment expenses at end of period	$	12,010,041		$	11,496,205

(1) During the 2019 first quarter, a subsidiary of the Company entered into a retroactive reinsurance transaction with a third party reinsurer to reinsure liabilities associated with certain U.S. insurance exposures.

XML

Investment Information (Tables)

3 Months Ended

Mar. 31, 2019

Disclosure Investment Information [Abstract]

Summary of fair value and cost or amortized cost of available for sale securities

The following table summarizes the fair value and cost or amortized cost of the Company’s securities classified as available for sale:

	Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Cost or Amortized Cost		OTTI Unrealized Losses (2)
March 31, 2019
Fixed maturities (1):
Corporate bonds	$	5,816,885	$	81,520	$	(31,276	)	$	5,766,641	$	(69	)
Mortgage backed securities	499,962		5,825		(1,576		)	495,713		(6		)
Municipal bonds	715,893		14,725		(1,773		)	702,941		—
Commercial mortgage backed securities	610,754		7,336		(1,854		)	605,272		—
U.S. government and government agencies	4,579,711		40,584		(4,127		)	4,543,254		—
Non-U.S. government securities	1,797,484		33,435		(34,093		)	1,798,142		—
Asset backed securities	1,545,355		15,115		(6,809		)	1,537,049		—
Total	15,566,044		198,540		(81,508		)	15,449,012		(75		)
Short-term investments	706,214		352		(92		)	705,954		—
Total	$	16,272,258	$	198,892	$	(81,600	)	$	16,154,966	$	(75	)
December 31, 2018
Fixed maturities (1):
Corporate bonds	$	5,537,548	$	14,476	$	(105,428	)	$	5,628,500	$	(69	)
Mortgage backed securities	541,193		3,991		(3,216		)	540,418		(6		)
Municipal bonds	1,013,395		5,380		(11,891		)	1,019,906		—
Commercial mortgage backed securities	729,442		2,650		(10,751		)	737,543		—
U.S. government and government agencies	3,758,698		27,189		(8,474		)	3,739,983		—
Non-U.S. government securities	1,771,338		14,477		(50,948		)	1,807,809		—
Asset backed securities	1,600,896		8,060		(14,798		)	1,607,634		—
Total	14,952,510		76,223		(205,506		)	15,081,793		(75		)
Short-term investments	955,880		36		(394		)	956,238		—
Total	$	15,908,390	$	76,259	$	(205,900	)	$	16,038,031	$	(75	)

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

(2) Represents the total other-than-temporary impairments (“OTTI”) recognized in accumulated other comprehensive income (“AOCI”). It does not include the change in fair value subsequent to the impairment measurement date. At March 31, 2019 and December 31, 2018, the net unrealized loss related to securities for which a non-credit OTTI was recognized in AOCI was nil.

Summary of available for sale securities in a continual unrealized loss position

The following table summarizes, for all available for sale securities in an unrealized loss position, the fair value and gross unrealized loss by length of time the security has been in a continual unrealized loss position:

	Less than 12 Months					12 Months or More					Total
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
March 31, 2019
Fixed maturities (1):
Corporate bonds	$	450,609	$	(14,755	)	$	1,376,117	$	(16,521	)	$	1,826,726	$	(31,276	)
Mortgage backed securities	41,253		(272		)	106,136		(1,304		)	147,389		(1,576		)
Municipal bonds	12,604		(36		)	177,113		(1,737		)	189,717		(1,773		)
Commercial mortgage backed securities	69,792		(347		)	91,338		(1,507		)	161,130		(1,854		)
U.S. government and government agencies	696,039		(656		)	378,351		(3,471		)	1,074,390		(4,127		)
Non-U.S. government securities	1,062,659		(31,117		)	257,300		(2,976		)	1,319,959		(34,093		)
Asset backed securities	324,034		(4,143		)	299,844		(2,666		)	623,878		(6,809		)
Total	2,656,990		(51,326		)	2,686,199		(30,182		)	5,343,189		(81,508		)
Short-term investments	67,807		(92		)	—		—			67,807		(92		)
Total	$	2,724,797	$	(51,418	)	$	2,686,199	$	(30,182	)	$	5,410,996	$	(81,600	)
December 31, 2018
Fixed maturities (1):
Corporate bonds	$	2,983,195	$	(68,910	)	$	1,234,865	$	(36,518	)	$	4,218,060	$	(105,428	)
Mortgage backed securities	84,296		(695		)	109,009		(2,521		)	193,305		(3,216		)
Municipal bonds	233,081		(2,074		)	408,155		(9,817		)	641,236		(11,891		)
Commercial mortgage backed securities	223,341		(2,831		)	193,956		(7,920		)	417,297		(10,751		)
U.S. government and government agencies	635,049		(1,354		)	391,102		(7,120		)	1,026,151		(8,474		)
Non-U.S. government securities	1,028,340		(35,524		)	389,671		(15,424		)	1,418,011		(50,948		)
Asset backed securities	533,592		(8,832		)	368,095		(5,966		)	901,687		(14,798		)
Total	5,720,894		(120,220		)	3,094,853		(85,286		)	8,815,747		(205,506		)
Short-term investments	122,878		(394		)	—		—			122,878		(394		)
Total	$	5,843,772	$	(120,614	)	$	3,094,853	$	(85,286	)	$	8,938,625	$	(205,900	)

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

Contractual maturities of the Company's fixed maturities and fixed maturities pledged under securities lending arrangements

The contractual maturities of the Company’s fixed maturities are shown in the following table. Expected maturities, which are management’s best estimates, will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2019				December 31, 2018
Maturity	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Due in one year or less	$	436,875	$	438,023	$	276,682	$	279,135
Due after one year through five years	9,359,874		9,315,567		8,666,297		8,738,944
Due after five years through 10 years	2,939,707		2,884,260		2,919,232		2,951,582
Due after 10 years	173,517		173,128		218,768		226,537
	12,909,973		12,810,978		12,080,979		12,196,198
Mortgage backed securities	499,962		495,713		541,193		540,418
Commercial mortgage backed securities	610,754		605,272		729,442		737,543
Asset backed securities	1,545,355		1,537,049		1,600,896		1,607,634
Total (1)	$	15,566,044	$	15,449,012	$	14,952,510	$	15,081,793

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

Securities lending transactions accounted for as secured borrowings, by significant investment category

The Company’s securities lending transactions were accounted for as secured borrowings with significant investment categories as follows:

	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Less than 30 Days		30-90 Days		90 Days or More		Total
March 31, 2019
U.S. government and government agencies	$	339,404	$	7,424	$	48,903	$	—	$	395,731
Corporate bonds	3,625		—		—		—		3,625
Equity securities	15,692		—		—		—		15,692
Total	$	358,721	$	7,424	$	48,903	$	—	$	415,048
Gross amount of recognized liabilities for securities lending in offsetting disclosure in note 8									$	—
Amounts related to securities lending not included in offsetting disclosure in note 8									$	415,048
December 31, 2018
U.S. government and government agencies	$	219,276	$	—	$	32,583	$	—	$	251,859
Corporate bonds	7,129		—		—		—		7,129
Equity securities	15,137		—		—		—		15,137
Total	$	241,542	$	—	$	32,583	$	—	$	274,125
Gross amount of recognized liabilities for securities lending in offsetting disclosure in note 8									$	—
Amounts related to securities lending not included in offsetting disclosure in note 8									$	274,125

Summary of other investments

The following table summarizes the Company’s other investments which are included in investments accounted for using the fair value option, by strategy:

	March 31, 2019		December 31, 2018
Term loan investments (par value: $1,375,936 and $1,369,216)	$	1,297,025	$	1,282,287
Lending	545,569		524,112
Credit related funds	225,876		202,123
Energy	126,612		117,509
Investment grade fixed income	97,676		101,902
Infrastructure	54,421		45,371
Private equity	24,501		24,383
Real estate	15,930		14,252
Total	$	2,387,610	$	2,311,939

Summary of investments accounted for using equity method

The following table summarizes the Company’s investments accounted for using the equity method, by strategy:

	March 31, 2019		December 31, 2018
Credit related funds	$	438,208	$	429,402
Equities	350,315		375,273
Real estate	248,739		232,647
Lending	192,346		125,041
Private equity	111,454		114,019
Infrastructure	126,706		113,748
Energy	96,011		103,661
Total	$	1,563,779	$	1,493,791

Summary of assets and liabilities accounted for using the fair value option

The following table summarizes the Company’s assets which are accounted for using the fair value option:

	March 31, 2019		December 31, 2018
Fixed maturities	$	1,192,486	$	1,245,562
Other investments	2,387,610		2,311,939
Short-term investments	282,139		322,177
Equity securities	107,388		103,893
Investments accounted for using the fair value option	$	3,969,623	$	3,983,571

Summary of investments in limited partnership interests where the Company has a variable interest

The following table summarizes investments in limited partnership interests where the Company has a variable interest by balance sheet line item:

	March 31, 2019		December 31, 2018
Investments accounted for using the equity method (1)	1,563,779		1,493,791
Investments accounted for using the fair value option (2)	178,572		162,398
Total	$	1,742,351	$	1,656,189

(1) Aggregate unfunded commitments were $1.34 billion at March 31, 2019, compared to $1.22 billion at December 31, 2018.

(2) Aggregate unfunded commitments were $177.0 million at March 31, 2019, compared to $117.5 million at December 31, 2018.

Components of net investment income

The components of net investment income were derived from the following sources:

	March 31,
	2019			2018
Three Months Ended
Fixed maturities	$	129,799		$	107,887
Term loans	24,616			19,764
Equity securities	2,988			2,568
Short-term investments	4,179			4,860
Other (1)	21,196			17,610
Gross investment income	182,778			152,689
Investment expenses	(25,829		)	(25,965		)
Net investment income	$	156,949		$	126,724

(1) Includes income distributions from investment funds and other items.

Summary of net realized gains (losses), excluding other-than-temporary impairment provisions

Net realized gains (losses) were as follows, excluding net impairment losses recognized in earnings:

	March 31,
	2019			2018
Three Months Ended
Available for sale securities:
Gross gains on investment sales	$	43,365		$	14,965
Gross losses on investment sales	(31,656		)	(82,551		)
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities	31,148			(17,551		)
Other investments	18,195			(6,374		)
Equity securities	4,266			6,668
Short-term investments	720			(151		)
Equity securities, at fair value:
Net realized gains (losses) on sales during the period	10,930			(5,368		)
Net unrealized gains (losses) on equity securities still held at reporting date	37,136			(7,583		)
Derivative instruments (1)	35,871			(3,963		)
Other (2)	(8,410		)	(9,090		)
Net realized gains (losses)	$	141,565		$	(110,998	)

(1) See note 8 for information on the Company’s derivative instruments.

(2) Includes the re-measurement of contingent consideration liability amounts.

Summary of OTTI recognized in earnings by asset class

The following table details the net impairment losses recognized in earnings by asset class:

	March 31,
	2019			2018
Three Months Ended
Fixed maturities:
Mortgage backed securities	$	(531	)	$	(42	)
Corporate bonds	(565		)	(120		)
Asset backed securities	(213		)	—
Total	(1,309		)	(162		)
Net impairment losses recognized in earnings	$	(1,309	)	$	(162	)

Rollforward of the amount related to credit losses recognized in earnings for which a portion was recognized in AOCI

The following table provides a roll forward of the amount related to credit losses recognized in earnings for which a portion of an OTTI was recognized in accumulated other comprehensive income:

	March 31,
	2019			2018
Three Months Ended
Balance at start of period	$	637		$	767
Credit loss impairments recognized on securities not previously impaired	—			—
Credit loss impairments recognized on securities previously impaired	—			—
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security	—			—
Reductions for securities sold during the period	(291		)	—
Balance at end of period	$	346		$	767

Summary of restricted assets

The following table details the value of the Company’s restricted assets:

	March 31, 2019		December 31, 2018
Assets used for collateral or guarantees:
Affiliated transactions	$	4,796,096	$	4,623,483
Third party agreements	2,403,392		2,181,682
Deposits with U.S. regulatory authorities	780,916		689,114
Deposits with non-U.S. regulatory authorities	59,680		59,624
Total restricted assets	$	8,040,084	$	7,553,903

Reconciliation of cash and restricted cash

The following table details reconciliation of cash and restricted cash within the Consolidated Balance Sheets:

	March 31, 2019		December 31, 2018
Cash	$	633,100	$	646,556
Restricted cash (included in ‘other assets’)	$	77,116	$	78,087
Cash and restricted cash	$	710,216	$	724,643

XML

Fair Value (Tables)

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Fair value hierarchy

The following table presents the Company’s financial assets and liabilities measured at fair value by level at March 31, 2019:

				Estimated Fair Value Measurements Using:
	Estimated Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets measured at fair value (1):
Available for sale securities:
Fixed maturities:
Corporate bonds	$	5,816,885		$	—	$	5,809,318		$	7,567
Mortgage backed securities	499,962			—		499,660			302
Municipal bonds	715,893			—		715,893			—
Commercial mortgage backed securities	610,754			—		610,754			—
U.S. government and government agencies	4,579,711			4,439,888		139,823			—
Non-U.S. government securities	1,797,484			—		1,797,484			—
Asset backed securities	1,545,355			—		1,545,355			—
Total	15,566,044			4,439,888		11,118,287			7,869
Short-term investments	706,214			682,778		23,436			—
Equity securities, at fair value	511,425			433,317		78,108			—
Derivative instruments (4)	13,966			—		13,966			—
Fair value option:
Corporate bonds	786,476			—		784,243			2,233
Non-U.S. government bonds	82,982			—		82,982			—
Mortgage backed securities	16,328			—		16,328			—
Municipal bonds	6,587			—		6,587			—
Commercial mortgage backed securities	—			—		—			—
Asset backed securities	190,448			—		190,448			—
U.S. government and government agencies	109,665			109,557		108			—
Short-term investments	282,139			272,904		9,235			—
Equity securities	107,388			51,113		56,275			—
Other investments	1,286,645			46,661		1,177,655			62,329
Other investments measured at net asset value (2)	1,100,965
Total	3,969,623			480,235		2,323,861			64,562
Total assets measured at fair value	$	20,767,272		$	6,036,218	$	13,557,658		$	72,431
Liabilities measured at fair value:
Contingent consideration liabilities	$	(68,121	)	$	—	$	—		$	(68,121	)
Securities sold but not yet purchased (3)	(28,737		)	—		(28,737		)	—
Derivative instruments (4)	(11,547		)	—		(11,547		)	—
Total liabilities measured at fair value	$	(108,405	)	$	—	$	(40,284	)	$	(68,121	)

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See note 6, “—Securities Lending Agreements.”

(2) In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

(3) Represents the Company’s obligations to deliver securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company’s consolidated balance sheets.

(4) See note 8.

The following table presents the Company’s financial assets and liabilities measured at fair value by level at December 31, 2018:

				Estimated Fair Value Measurements Using:
	Estimated Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets measured at fair value (1):
Available for sale securities:
Fixed maturities:
Corporate bonds	$	5,537,548		$	—	$	5,529,407		$	8,141
Mortgage backed securities	541,193			—		540,884			309
Municipal bonds	1,013,395			—		1,013,395			—
Commercial mortgage backed securities	729,442			—		729,438			4
U.S. government and government agencies	3,758,698			3,657,181		101,517			—
Non-U.S. government securities	1,771,338			—		1,771,338			—
Asset backed securities	1,600,896			—		1,600,896			—
Total	14,952,510			3,657,181		11,286,875			8,454
Equity securities	353,794			321,927		31,867			—
Short-term investments	955,880			875,881		79,999			—
Derivative instruments (4)	73,893			—		73,893			—
Fair value option:
Corporate bonds	852,585			—		846,827			5,758
Non-U.S. government bonds	79,066			—		79,066			—
Mortgage backed securities	16,731			—		16,731			—
Municipal bonds	7,144			—		7,144			—
Commercial mortgage backed securities	—			—		—			—
Asset backed securities	178,790			—		178,790			—
U.S. government and government agencies	111,246			111,138		108			—
Short-term investments	322,177			278,579		43,598			—
Equity securities	103,893			48,827		55,066			—
Other investments	1,254,220			39,107		1,152,408			62,705
Other investments measured at net asset value (2)	1,057,719
Total	3,983,571			477,651		2,379,738			68,463
Total assets measured at fair value	$	20,319,648		$	5,332,640	$	13,852,372		$	76,917
Liabilities measured at fair value:
Contingent consideration liabilities	$	(66,665	)	$	—	$	—		$	(66,665	)
Securities sold but not yet purchased (3)	(7,790		)	—		(7,790		)	—
Derivative instruments (4)	(20,664		)	—		(20,664		)	—
Total liabilities measured at fair value	$	(95,119	)	$	—	$	(28,454	)	$	(66,665	)

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See note 6, “—Securities Lending Agreements.”

(2) In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

(3) Represents the Company’s obligations to deliver securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company’s consolidated balance sheets.

(4) See note 8.

Rollforward of Level 3 investments

The following table presents a reconciliation of the beginning and ending balances for all financial assets and liabilities measured at fair value on a recurring basis using Level 3 inputs:

	Assets															Liabilities
s	Available For Sale						Fair Value Option
	Structured Securities (1)			Corporate Bonds			Corporate Bonds			Other Investments			Total			Contingent Consideration Liabilities
Three Months Ended March 31, 2019
Balance at beginning of period	$	313		$	8,141		$	5,758		$	62,705		$	76,917		$	(66,665	)
Total gains or (losses) (realized/unrealized)
Included in earnings (2)	1,757			—			(290		)	298			1,765			(908		)
Included in other comprehensive income	4			(118		)	—			—			(114		)	—
Purchases, issuances, sales and settlements
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			(548		)
Sales	(1,757		)	—			(3,235		)	(74		)	(5,066		)	—
Settlements	(15		)	(456		)	—			(600		)	(1,071		)	—
Transfers in and/or out of Level 3	—			—			—			—			—			—
Balance at end of period	$	302		$	7,567		$	2,233		$	62,329		$	72,431		$	(68,121	)
Three Months Ended March 31, 2018
Balance at beginning of period	$	5,927		$	9,460		$	12,217		$	59,167		$	86,771		$	(60,996	)
Total gains or (losses) (realized/unrealized)
Included in earnings (2)	1			—			12			17			30			(1,453		)
Included in other comprehensive income	(4		)	148			(87		)	(732		)	(675		)	—
Purchases, issuances, sales and settlements
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(511		)	(456		)	(270		)	—			(1,237		)	—
Transfers in and/or out of Level 3	—			—			—			—			—			—
Balance at end of period	$	5,413		$	9,152		$	11,872		$	58,452		$	84,889		$	(62,449	)

(1) Includes asset backed securities, mortgage backed securities and commercial mortgage backed securities.

(2) Gains or losses were included in net realized gains (losses).

XML

Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Fair value and notional amount of derivatives

The following table summarizes information on the fair values and notional values of the Company’s derivative instruments:

	Estimated Fair Value
	Asset Derivatives		Liability Derivatives			Notional Value (1)
March 31, 2019
Futures contracts (2)	$	1,238	$	(1,302	)	$	3,650,464
Foreign currency forward contracts (2)	405		(3,825		)	1,228,530
TBAs (3)	15,456		—			14,846
Other (2)	12,323		(6,420		)	2,504,873
Total	$	29,422	$	(11,547	)
December 31, 2018
Futures contracts (2)	$	51,800	$	(2,115	)	$	3,153,518
Foreign currency forward contracts (2)	8,147		(7,796		)	1,008,907
TBAs (3)	8,292		—			8,132
Other (2)	13,946		(10,753		)	2,213,981
Total	$	82,185	$	(20,664	)

(1) Represents the absolute notional value of all outstanding contracts, consisting of long and short positions.

(2) The fair value of asset derivatives are included in ‘other assets’ and the fair value of liability derivatives are included in ‘other liabilities.’

(3) The fair value of TBAs are included in ‘fixed maturities available for sale, at fair value.’

Summary of net realized gains (losses) recorded in the consolidated statements of income

Realized and unrealized contract gains and losses on the Company’s derivative instruments are reflected in ‘net realized gains (losses)’ in the consolidated statements of income, as summarized in the following table:

Derivatives not designated as	March 31,
hedging instruments:	2019			2018
Three Months Ended
Net realized gains (losses):
Futures contracts	$	27,336		$	5,030
Foreign currency forward contracts	(13,709		)	(5,924		)
TBAs	190			(97		)
Other	22,054			(2,972		)
Total	$	35,871		$	(3,963	)

XML

Leases (Tables)

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Additional information regarding operating leases

Additional information regarding the Company’s operating leases is as follows:

	March 31,
	2019
Other information on operating leases
Cash payments included in the measurement of lease liabilities reported in operating cash flows	$	6,900
Right-of-use assets obtained in exchange for new lease liabilities	$	—
Right-of-use assets (a)	$	140,741
Operating lease liability (b)	$	157,729
Weighted average discount rate	3.9		%
Weighted average remaining lease term	7.2 years

(a) Included in ‘other assets’ on our consolidated balance sheet

(b) Included in ‘other liabilities’ on our consolidated balance sheet

Contractual maturities of lease liabilities

The following table presents the contractual maturities of the Company's operating lease liabilities:

Years Ending December 31,
Remainder of 2019	$	22,457
2020	29,796
2021	28,632
2022	25,349
2023	20,901
Thereafter	53,902
Total undiscounted lease liability	$	181,037
Less: present value adjustment	(23,308		)
Operating lease liability	$	157,729

Future minimum rental commitments

At December 31, 2018, the future minimum rental commitments, exclusive of escalation clauses and maintenance costs and net of rental income, for all of the Company’s operating leases are as follows:

2019	$	31,088
2020	30,491
2021	29,351
2022	26,068
2023	21,408
2024 and thereafter	54,745
Total	$	193,151

XML

Variable Interest Entities and Noncontrolling Interests (Tables)

3 Months Ended

Mar. 31, 2019

Noncontrolling Interest [Abstract]

Carrying value of assets and liabilities of variable interest entity

The following table provides the carrying amount and balance sheet caption in which the assets and liabilities of Watford Re are reported:

	March 31,		December 31,
	2019		2018
Assets
Investments accounted for using the fair value option	$	2,215,322	$	2,312,003
Fixed maturities available for sale, at fair value	549,834		393,351
Equity securities, at fair value	65,009		32,206
Cash	56,301		63,529
Accrued investment income	17,346		19,461
Premiums receivable	252,850		227,301
Reinsurance recoverable on unpaid and paid losses and LAE	102,818		86,445
Ceded unearned premiums	72,960		61,587
Deferred acquisition costs	80,664		80,858
Receivable for securities sold	62,566		24,507
Goodwill and intangible assets	7,650		7,650
Other assets	69,547		63,959
Total assets of consolidated VIE	$	3,552,867	$	3,372,857
Liabilities
Reserves for losses and loss adjustment expenses	$	1,104,532	$	1,032,760
Unearned premiums	401,838		390,114
Reinsurance balances payable	27,039		21,034
Revolving credit agreement borrowings	488,612		455,682
Payable for securities purchased	95,577		60,142
Other liabilities (1)	272,295		302,524
Total liabilities of consolidated VIE	$	2,389,893	$	2,262,256
Redeemable noncontrolling interests	$	221,083	$	220,992

(1) Includes certain borrowings related to investing activities.

Activity in non-redeemable noncontrolling interests

The following table sets forth activity in the non-redeemable noncontrolling interests:

	March 31,
	2019		2018
Three Months Ended
Balance, beginning of period	$	791,560	$	843,411
Amounts attributable to noncontrolling interests	42,382		11,376
Other comprehensive income attributable to noncontrolling interests	4,139		(675		)
Balance, end of period	$	838,081	$	854,112

Activity in redeemable noncontrolling interests

The following table sets forth activity in the redeemable non-controlling interests:

	March 31,
	2019		2018
Three Months Ended
Balance, beginning of period	$	206,292	$	205,922
Accretion of preference share issuance costs	91		91
Balance, end of period	$	206,383	$	206,013

Portion of income or loss attributable to third party investors

The portion of Watford Re’s income or loss attributable to third party investors, recorded in the Company’s consolidated statements of income in ‘net (income) loss attributable to noncontrolling interests,’ are summarized in the table below:

	March 31,
	2019			2018
Three Months Ended
Amounts attributable to non-redeemable noncontrolling interests	$	(42,382	)	$	(11,376	)
Dividends attributable to redeemable noncontrolling interests	(4,588		)	(4,585		)
Net (income) loss attributable to noncontrolling interests	$	(46,970	)	$	(15,961	)

Total assets and maximum exposure to loss associated with VIEs

The following table presents the total assets of the Bellemeade entities, as well as the Company’s maximum exposure to loss associated with these VIEs, calculated as the maximum historical observable spread between the one month LIBOR, the basis for the contractual payments to bond holders, and short term invested trust asset yields.

			Maximum Exposure to Loss
Bellemeade Entities (Issue Date)	Total VIE Assets		On-Balance Sheet (Asset) Liability			Off-Balance Sheet		Total
Mar 31, 2019
Bellemeade 2015-1 Ltd. (Jul-15)	$	34,176	$	(76	)	$	163	$	87
Bellemeade 2017-1 Ltd. (Oct-17)	296,773		721			8,088		8,809
Bellemeade 2018-1 Ltd. (Apr-18)	374,460		(858		)	10,035		9,177
Bellemeade 2018-2 Ltd. (Aug-18)	625,523		(2,318		)	9,688		7,370
Bellemeade 2018-3 Ltd. (Oct-18)	506,110		(430		)	8,975		8,545
Bellemeade 2019-1 Ltd. (Mar-19)	341,790		—			5,397		5,397
Total	$	2,178,832	$	(2,961	)	$	42,346	$	39,385
Dec 31, 2018
Bellemeade 2015-1 Ltd. (Jul-15)	$	43,246	$	112		$	498	$	610
Bellemeade 2017-1 Ltd. (Oct-17)	304,373		165			1,312		1,477
Bellemeade 2018-1 Ltd. (Apr-18)	374,460		132			3,539		3,671
Bellemeade 2018-2 Ltd. (Aug-18)	653,278		874			4,005		4,879
Bellemeade 2018-3 Ltd. (Oct-18)	506,110		469			1,836		2,305
Total	$	1,881,467	$	1,752		$	11,190	$	12,942

XML

Other Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2019

Comprehensive Income Note Disclosure [Abstract]

Details about amounts reclassified from AOCI

The following tables present details about amounts reclassified from accumulated other comprehensive income and the tax effects allocated to each component of other comprehensive income (loss):

		Amounts Reclassified from AOCI
	Consolidated Statement of Income	Three Months Ended
Details About	Line Item That Includes	March 31,
AOCI Components	Reclassification	2019			2018
Unrealized appreciation on available-for-sale investments
	Net realized gains (losses)	$	11,709		$	(67,586	)
	Other-than-temporary impairment losses	(1,309		)	(162		)
	Total before tax	10,400			(67,748		)
	Income tax (expense) benefit	(179		)	5,287
	Net of tax	$	10,221		$	(62,461	)

Schedule of comprehensive income (loss)

	Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
Three Months Ended March 31, 2019
Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	254,990		$	29,103		$	225,887
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)	—			—			—
Less reclassification of net realized gains (losses) included in net income	10,400			179			10,221
Foreign currency translation adjustments	5,644			128			5,516
Other comprehensive income (loss)	$	250,234		$	29,052		$	221,182
Three Months Ended March 31, 2018
Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	(189,943	)	$	(23,266	)	$	(166,677	)
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)	—			—			—
Less reclassification of net realized gains (losses) included in net income	(67,748		)	(5,287		)	(62,461		)
Foreign currency translation adjustments	1,432			150			1,282
Other comprehensive income (loss)	$	(120,763	)	$	(17,829	)	$	(102,934	)

XML

Guarantor Financial Information (Tables)

3 Months Ended

Mar. 31, 2019

Condensed Financial Information Disclosure [Abstract]

Condensed consolidating balance sheet

		March 31, 2019
Condensed Consolidating Balance Sheet		Arch Capital (Parent Guarantor)		Arch-U.S. (Subsidiary Issuer)		Other Arch Capital Subsidiaries		Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Assets
Total investments		$	40	$	464,872	$	21,877,667	$	(14,700	)	$	22,327,879
Cash		12,065		40,716		580,319		—			633,100
Investments in subsidiaries		10,403,671		4,249,796		—		(14,653,467		)	—
Due from subsidiaries and affiliates		—		2		1,883,339		(1,883,341		)	—
Premiums receivable		—		—		2,226,386		(641,704		)	1,584,682
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses		—		—		8,658,803		(5,558,980		)	3,099,823
Contractholder receivables		—		—		2,087,720		—			2,087,720
Ceded unearned premiums		—		—		1,951,746		(852,165		)	1,099,581
Deferred acquisition costs		—		—		669,145		(71,619		)	597,526
Goodwill and intangible assets		—		—		659,215		—			659,215
Other assets		21,943		46,146		2,026,386		(206,964		)	1,887,511
	Total assets	$	10,437,719	$	4,801,532	$	42,620,726	$	(23,882,940	)	$	33,977,037
Liabilities
Reserve for losses and loss adjustment expenses		$	—	$	—	$	17,335,960	$	(5,325,919	)	$	12,010,041
Unearned premiums		—		—		4,888,284		(852,165		)	4,036,119
Reinsurance balances payable		—		—		1,094,762		(641,704		)	453,058
Contractholder payables		—		—		2,087,720		—			2,087,720
Collateral held for insured obligations		—		—		232,411					232,411
Senior notes		297,175		494,749		941,770		—			1,733,694
Revolving credit agreement borrowings		—		—		488,612		—			488,612
Due to subsidiaries and affiliates		—		542,045		1,341,296		(1,883,341		)	—
Other liabilities		25,948		34,073		2,227,945		(511,644		)	1,776,322
	Total liabilities	323,123		1,070,867		30,638,760		(9,214,773		)	22,817,977
Redeemable noncontrolling interests		—		—		221,083		(14,700		)	206,383
Shareholders’ Equity
Total shareholders’ equity available to Arch		10,114,596		3,730,665		10,922,802		(14,653,467		)	10,114,596
Non-redeemable noncontrolling interests		—		—		838,081		—			838,081
	Total shareholders’ equity	10,114,596		3,730,665		11,760,883		(14,653,467		)	10,952,677
	Total liabilities, noncontrolling interests and shareholders’ equity	$	10,437,719	$	4,801,532	$	42,620,726	$	(23,882,940	)	$	33,977,037

		December 31, 2018
Condensed Consolidating Balance Sheet		Arch Capital (Parent Guarantor)		Arch-U.S. (Subsidiary Issuer)		Other Arch Capital Subsidiaries		Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Assets
Total investments		$	104	$	452,674	$	21,307,206	$	(14,700	)	$	21,745,284
Cash		6,125		5,940		634,491		—			646,556
Investments in subsidiaries		9,735,256		3,999,243		—		(13,734,499		)	—
Due from subsidiaries and affiliates		9		2		1,802,686		(1,802,697		)	—
Premiums receivable		—		—		1,834,389		(535,239		)	1,299,150
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses		—		—		8,618,660		(5,699,288		)	2,919,372
Contractholder receivables		—		—		2,079,111		—			2,079,111
Ceded unearned premiums		—		—		1,730,262		(754,793		)	975,469
Deferred acquisition costs		—		—		618,535		(48,961		)	569,574
Goodwill and intangible assets		—		—		634,920		—			634,920
Other assets		12,588		80,949		1,466,438		(211,082		)	1,348,893
	Total assets	$	9,754,082	$	4,538,808	$	40,726,698	$	(22,801,259	)	$	32,218,329
Liabilities
Reserve for losses and loss adjustment expenses		$	—	$	—	$	17,345,142	$	(5,491,845	)	$	11,853,297
Unearned premiums		—		—		4,508,429		(754,793		)	3,753,636
Reinsurance balances payable		—		—		928,346		(535,239		)	393,107
Contractholder payables		—		—		2,079,111		—			2,079,111
Collateral held for insured obligations		—		—		236,630		—			236,630
Senior notes		297,150		494,723		941,655		—			1,733,528
Revolving credit agreement borrowings		—		—		455,682		—			455,682
Due to subsidiaries and affiliates		—		536,805		1,265,892		(1,802,697		)	—
Other liabilities		17,105		26,270		1,699,768		(467,484		)	1,275,659
	Total liabilities	314,255		1,057,798		29,460,655		(9,052,058		)	21,780,650
Redeemable noncontrolling interests		—		—		220,992		(14,700		)	206,292
Shareholders’ Equity
Total shareholders’ equity available to Arch		9,439,827		3,481,010		10,253,491		(13,734,501		)	9,439,827
Non-redeemable noncontrolling interests		—		—		791,560		—			791,560
	Total shareholders’ equity	9,439,827		3,481,010		11,045,051		(13,734,501		)	10,231,387
	Total liabilities, noncontrolling interests and shareholders’ equity	$	9,754,082	$	4,538,808	$	40,726,698	$	(22,801,259	)	$	32,218,329

Condensed consolidating statement of income and comprehensive income

		Three Months Ended March 31, 2019
Condensed Consolidating Statement of Income and Comprehensive Income		Arch Capital (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other Arch Capital Subsidiaries			Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Revenues
Net premiums earned		$	—		$	—		$	1,368,866		$	—		$	1,368,866
Net investment income		46			3,679			175,672			(22,448		)	156,949
Net realized gains (losses)		—			8,518			138,053			(5,006		)	141,565
Net impairment losses recognized in earnings		—			—			(1,309		)	—			(1,309		)
Other underwriting income		—			—			8,825			—			8,825
Equity in net income (loss) of investment funds accounted for using the equity method		—			—			46,867			—			46,867
Other income (loss)		(239		)	—			1,322			—			1,083
	Total revenues	(193		)	12,197			1,738,296			(27,454		)	1,722,846
Expenses
Losses and loss adjustment expenses		—			—			718,532			—			718,532
Acquisition expenses		—			—			197,848			—			197,848
Other operating expenses		—			—			201,163			—			201,163
Corporate expenses		16,307			2,166			(511		)	—			17,962
Amortization of intangible assets		—			—			20,417			—			20,417
Interest expense		5,538			11,951			33,706			(22,130		)	29,065
Net foreign exchange (gains) losses		2			—			(123		)	(3,404		)	(3,525		)
	Total expenses	21,847			14,117			1,171,032			(25,534		)	1,181,462
Income (loss) before income taxes		(22,040		)	(1,920		)	567,264			(1,920		)	541,384
Income tax (expense) benefit		—			543			(46,429		)	—			(45,886		)
Income (loss) before equity in net income of subsidiaries		(22,040		)	(1,377		)	520,835			(1,920		)	495,498
Equity in net income of subsidiaries		470,568			136,554			—			(607,122		)	—
Net income		448,528			135,177			520,835			(609,042		)	495,498
Net (income) loss attributable to noncontrolling interests		—			—			(47,289		)	319			(46,970		)
Net income available to Arch		448,528			135,177			473,546			(608,723		)	448,528
Preferred dividends		(10,403		)	—			—			—			(10,403		)
Net income available to Arch common shareholders		$	438,125		$	135,177		$	473,546		$	(608,723	)	$	438,125
Comprehensive income available to Arch		$	665,571		$	238,156		$	688,540		$	(926,696	)	$	665,571

		Three Months Ended March 31, 2018
Condensed Consolidating Statement of Income and Comprehensive Income		Arch Capital (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other Arch Capital Subsidiaries			Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Revenues
Net premiums earned		$	—		$	—		$	1,234,899		$	—		$	1,234,899
Net investment income		20			258			148,767			(22,321		)	126,724
Net realized gains (losses)		29			(7		)	(111,020		)	—			(110,998		)
Net impairment losses recognized in earnings		—			—			(162		)	—			(162		)
Other underwriting income		—			—			5,349			—			5,349
Equity in net income (loss) of investment funds accounted for using the equity method		—			—			28,069			—			28,069
Other income (loss)		(78		)	—			152			—			74
	Total revenues	(29		)	251			1,306,054			(22,321		)	1,283,955
Expenses
Losses and loss adjustment expenses		—			—			636,860			—			636,860
Acquisition expenses		—			—			191,376			—			191,376
Other operating expenses		—			—			175,015			—			175,015
Corporate expenses		16,169			289			(1,146		)	—			15,312
Amortization of intangible assets		—			—			26,736			—			26,736
Interest expense		5,536			11,926			35,172			(21,998		)	30,636
Net foreign exchange (gains) losses		29			—			16,436			3,256			19,721
	Total expenses	21,734			12,215			1,080,449			(18,742		)	1,095,656
Income (loss) before income taxes		(21,763		)	(11,964		)	225,605			(3,579		)	188,299
Income tax (expense) benefit		—			2,951			(24,866		)	—			(21,915		)
Income (loss) before equity in net income of subsidiaries		(21,763		)	(9,013		)	200,739			(3,579		)	166,384
Equity in net income of subsidiaries		172,186			86,420			—			(258,606		)	—
Net income (loss)		150,423			77,407			200,739			(262,185		)	166,384
Net (income) loss attributable to noncontrolling interests		—			—			(16,284		)	323			(15,961		)
Net income (loss) available to Arch		150,423			77,407			184,455			(261,862		)	150,423
Preferred dividends		(10,437		)	—			—			—			(10,437		)
Loss on redemption of preferred shares		(2,710		)	—			—			—			(2,710		)
Net income (loss) available to Arch common shareholders		$	137,276		$	77,407		$	184,455		$	(261,862	)	$	137,276
Comprehensive income available to Arch		$	48,162		$	6,537		$	79,081		$	(85,618	)	$	48,162

Condensed consolidating statement of cash flows

		Three Months Ended March 31, 2019
Condensed Consolidating Statement of Cash Flows		Arch Capital (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other Arch Capital Subsidiaries			Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Operating Activities
	Net Cash Provided By (Used For) Operating Activities	$	23,171		$	37,324		$	234,706		$	(59,803	)	$	235,398
Investing Activities
Purchases of fixed maturity investments		—			(38,678		)	(7,405,792		)	—			(7,444,470		)
Purchases of equity securities		—			(56,062		)	(219,992		)	72,244			(203,810		)
Purchases of other investments		—			(17,500		)	(307,093		)	—			(324,593		)
Proceeds from the sales of fixed maturity investments		—			75,583			7,001,007			—			7,076,590
Proceeds from the sales of equity securities		—			—			167,261			(72,244		)	95,017
Proceeds from the sales, redemptions and maturities of other investments		—			—			216,483			—			216,483
Proceeds from redemptions and maturities of fixed maturity investments		—			—			100,424			—			100,424
Net settlements of derivative instruments		—			—			29,737			—			29,737
Net (purchases) sales of short-term investments		63			34,109			258,429			—			292,601
Change in cash collateral related to securities lending		—			—			(29,618		)	—			(29,618		)
Contributions to subsidiaries		(2,121		)	—			(53,906		)	56,027			—
Issuance of intercompany loans		—			—			(43,647		)	43,647			—
Purchases of fixed assets		—			—			(9,423		)	—			(9,423		)
Other		—			—			(93,731		)	—			(93,731		)
	Net Cash Provided By (Used For) Investing Activities	(2,058		)	(2,548		)	(389,861		)	99,674			(294,793		)
Financing Activities
Purchases of common shares under share repurchase program		(2,871		)	—			—			—			(2,871		)
Proceeds from common shares issued, net		(1,901		)	—			56,027			(56,027		)	(1,901		)
Proceeds from intercompany borrowings		—			—			43,647			(43,647		)	—
Proceeds from borrowings		—			—			59,000			—			59,000
Repayments of borrowings		—			—			(26,038		)	—			(26,038		)
Change in cash collateral related to securities lending		—			—			29,618			—			29,618
Dividends paid to redeemable noncontrolling interests		—			—			(4,816		)	319			(4,497		)
Dividends paid to parent (1)		—			—			(59,484		)	59,484			—
Other		—			—			(1,389		)	—			(1,389		)
Preferred dividends paid		(10,403		)	—			—			—			(10,403		)
	Net Cash Provided By (Used For) Financing Activities	(15,175		)	—			96,565			(39,871		)	41,519
Effects of exchange rates changes on foreign currency cash and restricted cash		—			—			3,449			—			3,449
Increase (decrease) in cash and restricted cash		5,938			34,776			(55,141		)	—			(14,427		)
Cash and restricted cash, beginning of year		6,159			5,940			712,544			—			724,643
Cash and restricted cash, end of period		$	12,097		$	40,716		$	657,403		$	—		$	710,216

(1)     Dividends received by parent are included in net cash provided by (used for) operating activities.

		Three Months Ended March 31, 2018
Condensed Consolidating Statement of Cash Flows		Arch Capital (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other Arch Capital Subsidiaries			Consolidating Adjustments and Eliminations			Arch Capital Consolidated
Operating Activities
	Net Cash Provided By (Used For) Operating Activities	$	13,315		$	74,248		$	419,956		$	(107,339	)	$	400,180
Investing Activities
Purchases of fixed maturity investments		—			(26,501		)	(10,050,206		)	395,440			(9,681,267		)
Purchases of equity securities		—			—			(377,000		)	—			(377,000		)
Purchases of other investments		—			—			(522,454		)	—			(522,454		)
Proceeds from the sales of fixed maturity investments		—			16,997			9,057,590			(395,440		)	8,679,147
Proceeds from the sales of equity securities		—			—			291,311			—			291,311
Proceeds from the sales, redemptions and maturities of other investments		—			—			436,566			—			436,566
Proceeds from redemptions and maturities of fixed maturity investments		—			—			287,031			—			287,031
Net settlements of derivative instruments		—			—			36,070			—			36,070
Net (purchases) sales of short-term investments		92,885			(15,547		)	517,980			—			595,318
Change in cash collateral related to securities lending		—			—			161,567			—			161,567
Contributions to subsidiaries		—			—			(2,970		)	2,970			—
Purchases of fixed assets		(13		)	—			(4,227		)	—			(4,240		)
Other		—			—			40,037			—			40,037
	Net Cash Provided By (Used For) Investing Activities	92,872			(25,051		)	(128,705		)	2,970			(57,914		)
Financing Activities
Redemption of preferred shares		(92,555		)	—			—			—			(92,555		)
Purchases of common shares under share repurchase program		(3,299		)	—			—			—			(3,299		)
Proceeds from common shares issued, net		(2,779		)	—			2,970			(2,970		)	(2,779		)
Proceeds from borrowings		—			—			39,585			—			39,585
Repayments of borrowings		—			—			(101,000		)	—			(101,000		)
Change in cash collateral related to securities lending		—			—			(161,567		)	—			(161,567		)
Dividends paid to redeemable noncontrolling interests		—			—			(4,816		)	319			(4,497		)
Dividends paid to parent (1)		—			—			(107,020		)	107,020			—
Other		—			—			(2,356		)	—			(2,356		)
Preferred dividends paid		(10,437		)	—			—			—			(10,437		)
	Net Cash Provided By (Used For) Financing Activities	(109,070		)	—			(334,204		)	104,369			(338,905		)
Effects of exchange rates changes on foreign currency cash and restricted cash		(4		)	—			1,615			—			1,611
Increase (decrease) in cash and restricted cash		(2,887		)	49,197			(41,338		)	—			4,972
Cash and restricted cash, beginning of year		10,052			30,380			686,852			—			727,284
Cash and restricted cash, end of period		$	7,165		$	79,577		$	645,514		$	—		$	732,256

(1)     Dividends received by parent are included in net cash provided by (used for) operating activities.

XML

Basis of Presentation and Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 01, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease liability	$ 157,729
Other assets
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Right-of-use assets	140,741
Other assets | ASU 2016-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Right-of-use assets		$ 147,900
Other liabilities
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease liability	$ 157,729
Other liabilities | ASU 2016-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease liability		$ 163,600

XML

Share Transactions - Share-based compensation (Details) - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted in period, shares	1,182,264	2,199,656
Options granted - Weighted average grant day fair value, per share	$ 7.90	$ 7.43
Performance shares and units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Awards other than options granted in period, shares	672,768	705,345
Awards other than options granted - Weighted average grant day fair value, per share	$ 35.83	$ 24.65
Restricted shares and units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Awards other than options granted in period, shares	1,099,125	1,264,931
Awards other than options granted - Weighted average grant day fair value, per share	$ 32.64	$ 26.56

XML

Share Transactions - Share repurchases (Details) - USD ($) shares in Millions, $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Class of Stock [Line Items]
Treasury stock, shares acquired (shares)	0.1	0.1
Shares repurchased for treasury	$ 2.9	$ 3.3
Common shares
Class of Stock [Line Items]
Cumulative number of shares acquired since inception of share repurchase program	386.3
Aggregate purchase price of shares acquired since inception of share repurchase program	$ 3,970.0
Remaining authorized repurchase amount	$ 160.9

XML

Share Transactions - Conversion of Non-voting common equivalent preferred shares (Details) shares in Millions	1 Months Ended
	Mar. 31, 2018 shares
Class of Stock [Line Items]
Number of common shares issued on conversion	17.0
Number of convertible shares transferred	0.6

XML

Share Transactions - Series C Preferred Shares (Details) - Series C Preferred Shares	Jan. 02, 2018 $ / shares
Class of Stock [Line Items]
Preferred shares, dividend rate	6.75%
Preferred shares, redemption price	$ 25.00

XML

Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Numerator:
Net income		$ 495,498	$ 166,384
Amounts attributable to noncontrolling interests		(46,970)	(15,961)
Net income available to Arch		448,528	150,423
Preferred dividends		(10,403)	(10,437)
Loss on redemption of preferred shares		0	(2,710)
Net income available to Arch common shareholders		$ 438,125	$ 137,276
Denominator:
Weighted average common shares outstanding		400,184,404	394,110,789
Series D preferred shares	[1]	0	13,428,939
Weighted average common shares outstanding — basic		400,184,404	407,539,728
Effect of dilutive common share equivalents:
Nonvested restricted shares		1,807,488	2,159,577
Stock options	[2]	6,979,137	8,194,497
Weighted average common shares and common share equivalents outstanding — diluted		408,971,029	417,893,802
Earnings per common share:
Basic (per share)		$ 1.09	$ 0.34
Diluted (per share)		$ 1.07	$ 0.33
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per common share (shares)		5,577,724	3,168,786

[1] Such shares are convertible non-voting common equivalent preferred shares issued in connection with the UGC acquisition.

[2] Certain stock options were not included in the computation of diluted earnings per share where the exercise price of the stock options exceeded the average market price and would have been anti-dilutive or where, when applying the treasury stock method to in-the-money options, the sum of the proceeds, including unrecognized compensation, exceeded the average market price and would have been anti-dilutive. For the 2019 first quarter and 2018 first quarter, the number of stock options excluded were 5,577,724 and 3,168,786, respectively.

XML

Segment Information - Summary of underwriting income or loss by segment (Details) $ in Thousands		3 Months Ended
		Mar. 31, 2019 USD ($) segment		Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)
Segment Reporting Information [Line Items]
Gross premiums written		$ 2,077,879		$ 1,838,214
Premiums ceded		(552,620)		(425,670)
Net premiums written		1,525,259		1,412,544
Change in unearned premiums		(156,393)		(177,645)
Net premiums earned		1,368,866		1,234,899
Other underwriting income		8,825		5,349
Losses and loss adjustment expenses		(718,532)		(636,860)
Acquisition expenses, net		(197,848)		(191,376)
Other operating expenses		(201,163)		(175,015)
Underwriting income (loss)		260,148		236,997
Net investment income		156,949		126,724
Net realized gains (losses)		141,565		(110,998)
Net impairment losses recognized in earnings		(1,309)		(162)
Equity in net income of investment funds accounted for using the equity method		46,867		28,069
Other income (loss)		1,083		74
Corporate expenses		(16,772)	[1]	(14,482)
Transaction costs and other		(1,190)	[1]	(830)
Amortization of intangible assets		(20,417)		(26,736)
Interest expense		(29,065)		(30,636)
Net foreign exchange gains (losses)		3,525		(19,721)
Income before income taxes		541,384		188,299
Income tax expense		(45,886)		(21,915)
Net income		495,498		166,384
Dividends attributable to redeemable noncontrolling interests		(4,588)		(4,585)
Amounts attributable to non-redeemable noncontrolling interests		(42,382)		(11,376)
Net income available to Arch		448,528		150,423
Preferred dividends		(10,403)		(10,437)
Loss on redemption of preferred shares		0		(2,710)
Net income available to Arch common shareholders		$ 438,125		$ 137,276
Underwriting Ratios
Loss ratio		52.50%		51.60%
Acquisition expense ratio		14.50%		15.50%
Other operating expense ratio		14.70%		14.20%
Combined ratio		81.70%		81.30%
Goodwill and intangible assets		$ 659,215		$ 626,004	$ 634,920
Other
Segment Reporting Information [Line Items]
Number of segments | segment		2
Gross premiums written	[2]	$ 186,689		213,870
Premiums ceded		(41,302)		(34,318)
Net premiums written		145,387		179,552
Change in unearned premiums		707		(42,804)
Net premiums earned		146,094		136,748
Other underwriting income		592		701
Losses and loss adjustment expenses		(110,850)		(97,989)
Acquisition expenses, net		(29,026)		(31,321)
Other operating expenses		(12,188)		(8,699)
Underwriting income (loss)		(5,378)		(560)
Net investment income		35,700		26,481
Net realized gains (losses)		29,132		861
Net impairment losses recognized in earnings		0		0
Equity in net income of investment funds accounted for using the equity method		0		0
Other income (loss)		0		0
Corporate expenses		0	[1]	0
Transaction costs and other		0	[1]	0
Amortization of intangible assets		0		0
Interest expense		(5,583)		(4,729)
Net foreign exchange gains (losses)		(1,650)		(4,682)
Income before income taxes		52,221		17,371
Income tax expense		0		(3)
Net income		52,221		17,368
Dividends attributable to redeemable noncontrolling interests		(4,588)		(4,585)
Amounts attributable to non-redeemable noncontrolling interests		(42,382)		(11,376)
Net income available to Arch		5,251		1,407
Preferred dividends		0		0
Loss on redemption of preferred shares				0
Net income available to Arch common shareholders		$ 5,251		$ 1,407
Underwriting Ratios
Loss ratio		75.90%		71.70%
Acquisition expense ratio		19.90%		22.90%
Other operating expense ratio		8.30%		6.40%
Combined ratio		104.10%		101.00%
Goodwill and intangible assets		$ 7,650		$ 7,650
Sub-Total
Segment Reporting Information [Line Items]
Number of segments | segment		3
Gross premiums written	[2]	$ 1,980,453		1,721,605
Premiums ceded		(600,581)		(488,613)
Net premiums written		1,379,872		1,232,992
Change in unearned premiums		(157,100)		(134,841)
Net premiums earned		1,222,772		1,098,151
Other underwriting income		8,233		4,648
Losses and loss adjustment expenses		(607,682)		(538,871)
Acquisition expenses, net		(168,822)		(160,055)
Other operating expenses		(188,975)		(166,316)
Underwriting income (loss)		265,526		237,557
Net investment income		121,249		100,243
Net realized gains (losses)		112,433		(111,859)
Net impairment losses recognized in earnings		(1,309)		(162)
Equity in net income of investment funds accounted for using the equity method		46,867		28,069
Other income (loss)		1,083		74
Corporate expenses		(16,772)	[1]	(14,482)
Transaction costs and other		(1,190)	[1]	(830)
Amortization of intangible assets		(20,417)		(26,736)
Interest expense		(23,482)		(25,907)
Net foreign exchange gains (losses)		5,175		(15,039)
Income before income taxes		489,163		170,928
Income tax expense		(45,886)		(21,912)
Net income		443,277		149,016
Dividends attributable to redeemable noncontrolling interests		0		0
Amounts attributable to non-redeemable noncontrolling interests		0		0
Net income available to Arch		443,277		149,016
Preferred dividends		(10,403)		(10,437)
Loss on redemption of preferred shares				(2,710)
Net income available to Arch common shareholders		$ 432,874		$ 135,869
Underwriting Ratios
Loss ratio		49.70%		49.10%
Acquisition expense ratio		13.80%		14.60%
Other operating expense ratio		15.50%		15.10%
Combined ratio		79.00%		78.80%
Goodwill and intangible assets		$ 651,565		$ 618,354
Sub-Total | Insurance
Segment Reporting Information [Line Items]
Gross premiums written	[2]	941,954		823,378
Premiums ceded		(320,622)		(247,180)
Net premiums written		621,332		576,198
Change in unearned premiums		(67,827)		(37,461)
Net premiums earned		553,505		538,737
Other underwriting income		0		0
Losses and loss adjustment expenses		(356,723)		(353,730)
Acquisition expenses, net		(82,824)		(85,169)
Other operating expenses		(113,396)		(91,974)
Underwriting income (loss)		$ 562		$ 7,864
Underwriting Ratios
Loss ratio		64.40%		65.70%
Acquisition expense ratio		15.00%		15.80%
Other operating expense ratio		20.50%		17.10%
Combined ratio		99.90%		98.60%
Goodwill and intangible assets		$ 156,735		$ 21,664
Sub-Total | Reinsurance
Segment Reporting Information [Line Items]
Gross premiums written	[2]	682,855		577,483
Premiums ceded		(231,567)		(195,730)
Net premiums written		451,288		381,753
Change in unearned premiums		(104,923)		(102,581)
Net premiums earned		346,365		279,172
Other underwriting income		4,377		1,232
Losses and loss adjustment expenses		(239,810)		(141,675)
Acquisition expenses, net		(54,326)		(48,319)
Other operating expenses		(35,704)		(35,571)
Underwriting income (loss)		$ 20,902		$ 54,839
Underwriting Ratios
Loss ratio		69.20%		50.70%
Acquisition expense ratio		15.70%		17.30%
Other operating expense ratio		10.30%		12.70%
Combined ratio		95.20%		80.70%
Goodwill and intangible assets		$ 0		$ 0
Sub-Total | Mortgage
Segment Reporting Information [Line Items]
Gross premiums written	[2]	356,050		321,178
Premiums ceded		(48,798)		(46,137)
Net premiums written		307,252		275,041
Change in unearned premiums		15,650		5,201
Net premiums earned		322,902		280,242
Other underwriting income		3,856		3,416
Losses and loss adjustment expenses		(11,149)		(43,466)
Acquisition expenses, net		(31,672)		(26,567)
Other operating expenses		(39,875)		(38,771)
Underwriting income (loss)		$ 244,062		$ 174,854
Underwriting Ratios
Loss ratio		3.50%		15.50%
Acquisition expense ratio		9.80%		9.50%
Other operating expense ratio		12.30%		13.80%
Combined ratio		25.60%		38.80%
Goodwill and intangible assets		$ 494,830		$ 596,690

[1] Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’

[2] Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

XML

Reserve for Losses and Loss Adjustment Expenses - Reconciliation of beginning and ending balances of losses and loss adjustment reserves (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Liability for Future Policy Benefits and Unpaid Claims and Claims Adjustment Expense [Abstract]
Reserve for losses and loss adjustment expenses at beginning of period		$ 11,853,297	$ 11,383,792
Unpaid losses and loss adjustment expenses recoverable		2,814,291	2,464,910
Net reserve for losses and loss adjustment expenses at beginning of period		9,039,006	8,918,882
Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year		757,964	687,885
Prior years		(39,432)	(51,025)
Total net incurred losses and loss adjustment expenses		718,532	636,860
Retroactive reinsurance transaction	[1]	(225,500)	0
Net foreign exchange (gains) losses		(504)	44,014
Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year		(64,340)	(36,000)
Prior years		(427,312)	(514,541)
Total net paid losses and loss adjustment expenses		(491,652)	(550,541)
Net reserve for losses and loss adjustment expenses at end of period		9,039,882	9,049,215
Unpaid losses and loss adjustment expenses recoverable		2,970,159	2,446,990
Reserve for losses and loss adjustment expenses at end of period		$ 12,010,041	$ 11,496,205

[1] During the 2019 first quarter, a subsidiary of the Company entered into a retroactive reinsurance transaction with a third party reinsurer to reinsure liabilities associated with certain U.S. insurance exposures.

XML

Reserve for Losses and Loss Adjustment Expenses - Prior year development (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	$ (39,432)	$ (51,025)
Underwriting segments | Reinsurance
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	$ 1,700	$ (36,500)
Percentage of prior year development	(0.50%)	13.10%
Underwriting segments | Reinsurance | Short Tailed Lines
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	$ 6,200	$ (28,900)
Underwriting segments | Reinsurance | Short Tailed Lines | Property catastrophe and property other than property catastrophe
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	13,800	(21,100)
Underwriting segments | Reinsurance | Short Tailed Lines | Property catastrophe and property other than property catastrophe | Typhoon Jebi
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	$ 16,000
Percentage of prior year development	(4.60%)
Underwriting segments | Reinsurance | Short Tailed Lines | Other product lines
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	$ (9,600)
Underwriting segments | Reinsurance | Medium Tailed And Long Tailed Lines
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	(4,500)	(7,600)
Underwriting segments | Reinsurance | Medium Tailed And Long Tailed Lines | Casualty
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years		(1,100)
Underwriting segments | Reinsurance | Medium Tailed And Long Tailed Lines | Marine
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years		(6,200)
Underwriting segments | Insurance
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	$ (4,400)	$ (2,100)
Percentage of prior year development	0.80%	0.40%
Underwriting segments | Insurance | Short Tailed Lines
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	$ (9,700)	$ (8,700)
Underwriting segments | Insurance | Medium Tailed Lines
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	6,900	9,600
Underwriting segments | Insurance | Medium Tailed Lines | Programs
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	7,700	10,200
Underwriting segments | Insurance | Medium Tailed Lines | Contract binding
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	6,000
Underwriting segments | Insurance | Medium Tailed Lines | Other product lines
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	(6,800)
Underwriting segments | Insurance | Long Tailed Lines
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	(1,600)	(3,000)
Underwriting segments | Insurance | Long Tailed Lines | Casualty
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years		(3,900)
Underwriting segments | Mortgage
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	$ (36,600)	$ (13,000)
Percentage of prior year development	11.30%	4.60%
Underwriting segments | Other
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Prior years	$ (100)	$ 600

XML

Investment Information - Summary of available for sale securities (Details) - USD ($) $ in Thousands		3 Months Ended		12 Months Ended
		Mar. 31, 2019		Dec. 31, 2018
Available for sale securities:
Estimated Fair Value		$ 16,272,258		$ 15,908,390
Gross Unrealized Gains		198,892		76,259
Gross Unrealized Losses		(81,600)		(205,900)
Cost or Amortized Cost		16,154,966		16,038,031
OTTI Unrealized Losses		(75)	[1]	(75)
Fixed maturities
Available for sale securities:
Estimated Fair Value		15,566,044		14,952,510
Gross Unrealized Gains	[2]	198,540		76,223
Gross Unrealized Losses	[2]	(81,508)		(205,506)
Cost or Amortized Cost	[2]	15,449,012		15,081,793
OTTI Unrealized Losses	[1],[2]	(75)		(75)
Fixed maturities | Corporate bonds
Available for sale securities:
Estimated Fair Value		5,816,885		5,537,548
Gross Unrealized Gains	[2]	81,520		14,476
Gross Unrealized Losses	[2]	(31,276)		(105,428)
Cost or Amortized Cost	[2]	5,766,641		5,628,500
OTTI Unrealized Losses	[1],[2]	(69)		(69)
Fixed maturities | Mortgage backed securities
Available for sale securities:
Estimated Fair Value		499,962		541,193
Gross Unrealized Gains	[2]	5,825		3,991
Gross Unrealized Losses	[2]	(1,576)		(3,216)
Cost or Amortized Cost	[2]	495,713		540,418
OTTI Unrealized Losses	[1],[2]	(6)		(6)
Fixed maturities | Municipal bonds
Available for sale securities:
Estimated Fair Value		715,893		1,013,395
Gross Unrealized Gains	[2]	14,725		5,380
Gross Unrealized Losses	[2]	(1,773)		(11,891)
Cost or Amortized Cost	[2]	702,941		1,019,906
OTTI Unrealized Losses	[1],[2]	0		0
Fixed maturities | Commercial mortgage backed securities
Available for sale securities:
Estimated Fair Value		610,754		729,442
Gross Unrealized Gains	[2]	7,336		2,650
Gross Unrealized Losses	[2]	(1,854)		(10,751)
Cost or Amortized Cost	[2]	605,272		737,543
OTTI Unrealized Losses	[1],[2]	0		0
Fixed maturities | US government and government agencies
Available for sale securities:
Estimated Fair Value		4,579,711		3,758,698
Gross Unrealized Gains	[2]	40,584		27,189
Gross Unrealized Losses	[2]	(4,127)		(8,474)
Cost or Amortized Cost	[2]	4,543,254		3,739,983
OTTI Unrealized Losses	[1],[2]	0		0
Fixed maturities | Non-US government securities
Available for sale securities:
Estimated Fair Value		1,797,484		1,771,338
Gross Unrealized Gains	[2]	33,435		14,477
Gross Unrealized Losses	[2]	(34,093)		(50,948)
Cost or Amortized Cost	[2]	1,798,142		1,807,809
OTTI Unrealized Losses	[1],[2]	0		0
Fixed maturities | Asset backed securities
Available for sale securities:
Estimated Fair Value		1,545,355		1,600,896
Gross Unrealized Gains	[2]	15,115		8,060
Gross Unrealized Losses	[2]	(6,809)		(14,798)
Cost or Amortized Cost	[2]	1,537,049		1,607,634
OTTI Unrealized Losses	[1],[2]	0		0
Short-term investments
Available for sale securities:
Estimated Fair Value		706,214		955,880
Gross Unrealized Gains		352		36
Gross Unrealized Losses		(92)		(394)
Cost or Amortized Cost		705,954		956,238
OTTI Unrealized Losses	[1]	$ 0		$ 0

[1] Represents the total other-than-temporary impairments (“OTTI”) recognized in accumulated other comprehensive income (“AOCI”). It does not include the change in fair value subsequent to the impairment measurement date. At March 31, 2019 and December 31, 2018, the net unrealized loss related to securities for which a non-credit OTTI was recognized in AOCI was nil.

[2] In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

XML

Investment Information - Aging of available for sale securities in an unrealized loss position (Details) - USD ($) $ in Thousands		Mar. 31, 2019	Dec. 31, 2018
Available for sale securities:
Estimated Fair Value - Less than 12 Months		$ 2,724,797	$ 5,843,772
Gross Unrealized Losses - Less than 12 Months		(51,418)	(120,614)
Estimated Fair Value - 12 Months or More		2,686,199	3,094,853
Gross Unrealized Losses - 12 Months or More		(30,182)	(85,286)
Estimated Fair Value - Total		5,410,996	8,938,625
Gross Unrealized Losses - Total		(81,600)	(205,900)
Fixed maturities
Available for sale securities:
Estimated Fair Value - Less than 12 Months	[1]	2,656,990	5,720,894
Gross Unrealized Losses - Less than 12 Months	[1]	(51,326)	(120,220)
Estimated Fair Value - 12 Months or More	[1]	2,686,199	3,094,853
Gross Unrealized Losses - 12 Months or More	[1]	(30,182)	(85,286)
Estimated Fair Value - Total	[1]	5,343,189	8,815,747
Gross Unrealized Losses - Total	[1]	(81,508)	(205,506)
Fixed maturities | Corporate bonds
Available for sale securities:
Estimated Fair Value - Less than 12 Months	[1]	450,609	2,983,195
Gross Unrealized Losses - Less than 12 Months	[1]	(14,755)	(68,910)
Estimated Fair Value - 12 Months or More	[1]	1,376,117	1,234,865
Gross Unrealized Losses - 12 Months or More	[1]	(16,521)	(36,518)
Estimated Fair Value - Total	[1]	1,826,726	4,218,060
Gross Unrealized Losses - Total	[1]	(31,276)	(105,428)
Fixed maturities | Mortgage backed securities
Available for sale securities:
Estimated Fair Value - Less than 12 Months	[1]	41,253	84,296
Gross Unrealized Losses - Less than 12 Months	[1]	(272)	(695)
Estimated Fair Value - 12 Months or More	[1]	106,136	109,009
Gross Unrealized Losses - 12 Months or More	[1]	(1,304)	(2,521)
Estimated Fair Value - Total	[1]	147,389	193,305
Gross Unrealized Losses - Total	[1]	(1,576)	(3,216)
Fixed maturities | Municipal bonds
Available for sale securities:
Estimated Fair Value - Less than 12 Months	[1]	12,604	233,081
Gross Unrealized Losses - Less than 12 Months	[1]	(36)	(2,074)
Estimated Fair Value - 12 Months or More	[1]	177,113	408,155
Gross Unrealized Losses - 12 Months or More	[1]	(1,737)	(9,817)
Estimated Fair Value - Total	[1]	189,717	641,236
Gross Unrealized Losses - Total	[1]	(1,773)	(11,891)
Fixed maturities | Commercial mortgage backed securities
Available for sale securities:
Estimated Fair Value - Less than 12 Months	[1]	69,792	223,341
Gross Unrealized Losses - Less than 12 Months	[1]	(347)	(2,831)
Estimated Fair Value - 12 Months or More	[1]	91,338	193,956
Gross Unrealized Losses - 12 Months or More	[1]	(1,507)	(7,920)
Estimated Fair Value - Total	[1]	161,130	417,297
Gross Unrealized Losses - Total	[1]	(1,854)	(10,751)
Fixed maturities | US government and government agencies
Available for sale securities:
Estimated Fair Value - Less than 12 Months	[1]	696,039	635,049
Gross Unrealized Losses - Less than 12 Months	[1]	(656)	(1,354)
Estimated Fair Value - 12 Months or More	[1]	378,351	391,102
Gross Unrealized Losses - 12 Months or More	[1]	(3,471)	(7,120)
Estimated Fair Value - Total	[1]	1,074,390	1,026,151
Gross Unrealized Losses - Total	[1]	(4,127)	(8,474)
Fixed maturities | Non-US government securities
Available for sale securities:
Estimated Fair Value - Less than 12 Months	[1]	1,062,659	1,028,340
Gross Unrealized Losses - Less than 12 Months	[1]	(31,117)	(35,524)
Estimated Fair Value - 12 Months or More	[1]	257,300	389,671
Gross Unrealized Losses - 12 Months or More	[1]	(2,976)	(15,424)
Estimated Fair Value - Total	[1]	1,319,959	1,418,011
Gross Unrealized Losses - Total	[1]	(34,093)	(50,948)
Fixed maturities | Asset backed securities
Available for sale securities:
Estimated Fair Value - Less than 12 Months	[1]	324,034	533,592
Gross Unrealized Losses - Less than 12 Months	[1]	(4,143)	(8,832)
Estimated Fair Value - 12 Months or More	[1]	299,844	368,095
Gross Unrealized Losses - 12 Months or More	[1]	(2,666)	(5,966)
Estimated Fair Value - Total	[1]	623,878	901,687
Gross Unrealized Losses - Total	[1]	(6,809)	(14,798)
Short-term investments
Available for sale securities:
Estimated Fair Value - Less than 12 Months		67,807	122,878
Gross Unrealized Losses - Less than 12 Months		(92)	(394)
Estimated Fair Value - 12 Months or More		0	0
Gross Unrealized Losses - 12 Months or More		0	0
Estimated Fair Value - Total		67,807	122,878
Gross Unrealized Losses - Total		$ (92)	$ (394)

[1] In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

XML

Investment Information - Maturity profile of available for sale securities) (Details) - USD ($) $ in Thousands		Mar. 31, 2019	Dec. 31, 2018
Estimated Fair Value:
Estimated fair value		$ 15,177,312	$ 14,699,010
Amortized Cost:
Amortized cost		15,063,594	14,829,902
Fixed maturities
Estimated Fair Value:
Due in one year or less		436,875	276,682
Due after one year through five years		9,359,874	8,666,297
Due after five years through 10 years		2,939,707	2,919,232
Due after 10 years		173,517	218,768
Single maturity date		12,909,973	12,080,979
Estimated fair value	[1]	15,566,044	14,952,510
Amortized Cost:
Due in one year or less		438,023	279,135
Due after one year through five years		9,315,567	8,738,944
Due after five years through 10 years		2,884,260	2,951,582
Due after 10 years		173,128	226,537
Single maturity date		12,810,978	12,196,198
Amortized cost	[1]	15,449,012	15,081,793
Fixed maturities | Mortgage backed securities
Estimated Fair Value:
Securities without single maturity date		499,962	541,193
Amortized Cost:
Securities without single maturity date		495,713	540,418
Fixed maturities | Commercial mortgage backed securities
Estimated Fair Value:
Securities without single maturity date		610,754	729,442
Amortized Cost:
Securities without single maturity date		605,272	737,543
Fixed maturities | Asset backed securities
Estimated Fair Value:
Securities without single maturity date		1,545,355	1,600,896
Amortized Cost:
Securities without single maturity date		$ 1,537,049	$ 1,607,634

[1] In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

XML

Investment Information - Securities lending agreements (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Disclosure Investment Information [Abstract]
Fair value of cash collateral received on securities lending	$ 48,600	$ 19,000
Fair value of non-cash collateral received on securities lending	366,400	255,100
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	415,048	274,125
Gross amount of recognized liabilities for securities lending in offsetting disclosure in note 8	0	0
Amounts related to securities lending not included in offsetting disclosure in note 8	415,048	274,125
US government and government agencies
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	395,731	251,859
Corporate bonds
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	3,625	7,129
Equity securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	15,692	15,137
Overnight and continuous
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	358,721	241,542
Overnight and continuous | US government and government agencies
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	339,404	219,276
Overnight and continuous | Corporate bonds
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	3,625	7,129
Overnight and continuous | Equity securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	15,692	15,137
Less than 30 days
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	7,424	0
Less than 30 days | US government and government agencies
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	7,424	0
Less than 30 days | Corporate bonds
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	0	0
Less than 30 days | Equity securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	0	0
30 - 90 days
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	48,903	32,583
30 - 90 days | US government and government agencies
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	48,903	32,583
30 - 90 days | Corporate bonds
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	0	0
30 - 90 days | Equity securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	0	0
90 days or more
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	0	0
90 days or more | US government and government agencies
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	0	0
90 days or more | Corporate bonds
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	0	0
90 days or more | Equity securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Securities lending payable	$ 0	$ 0

XML

Investment Information - Other investments (Details) - Fair value option - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Schedule Of Other Investments [Line Items]
Other investments	$ 2,387,610	$ 2,311,939
Term loan investments
Schedule Of Other Investments [Line Items]
Other investments	1,297,025	1,282,287
Other investments par	1,375,936	1,369,216
Lending
Schedule Of Other Investments [Line Items]
Other investments	545,569	524,112
Credit related funds
Schedule Of Other Investments [Line Items]
Other investments	225,876	202,123
Energy
Schedule Of Other Investments [Line Items]
Other investments	126,612	117,509
Investment grade fixed income
Schedule Of Other Investments [Line Items]
Other investments	97,676	101,902
Infrastructure
Schedule Of Other Investments [Line Items]
Other investments	54,421	45,371
Private equity
Schedule Of Other Investments [Line Items]
Other investments	24,501	24,383
Real estate
Schedule Of Other Investments [Line Items]
Other investments	$ 15,930	$ 14,252

XML

Investment Information - Equity method investments (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Schedule of Equity Method Investments [Line Items]
Investments accounted for using the equity method	$ 1,563,779	$ 1,493,791
Credit related funds
Schedule of Equity Method Investments [Line Items]
Investments accounted for using the equity method	438,208	429,402
Equity securities
Schedule of Equity Method Investments [Line Items]
Investments accounted for using the equity method	350,315	375,273
Real estate
Schedule of Equity Method Investments [Line Items]
Investments accounted for using the equity method	248,739	232,647
Lending
Schedule of Equity Method Investments [Line Items]
Investments accounted for using the equity method	192,346	125,041
Private equity
Schedule of Equity Method Investments [Line Items]
Investments accounted for using the equity method	111,454	114,019
Infrastructure
Schedule of Equity Method Investments [Line Items]
Investments accounted for using the equity method	126,706	113,748
Energy
Schedule of Equity Method Investments [Line Items]
Investments accounted for using the equity method	$ 96,011	$ 103,661

XML

Investment Information - Fair value option (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value, Option, Quantitative Disclosures [Line Items]
Investments accounted for using the fair value option	$ 3,969,623	$ 3,983,571
Fixed maturities
Fair Value, Option, Quantitative Disclosures [Line Items]
Investments accounted for using the fair value option	1,192,486	1,245,562
Other investments
Fair Value, Option, Quantitative Disclosures [Line Items]
Investments accounted for using the fair value option	2,387,610	2,311,939
Short-term investments
Fair Value, Option, Quantitative Disclosures [Line Items]
Investments accounted for using the fair value option	282,139	322,177
Equity securities
Fair Value, Option, Quantitative Disclosures [Line Items]
Investments accounted for using the fair value option	$ 107,388	$ 103,893

XML

Investment Information - Limited partnership interests (Details) - USD ($) $ in Thousands		Mar. 31, 2019	Dec. 31, 2018
Schedule of Equity Method Investments [Line Items]
Maximum Exposure to Loss		$ 1,742,351	$ 1,656,189
Aggregate unfunded commitments		1,830,000	1,770,000
Equity method investments
Schedule of Equity Method Investments [Line Items]
Maximum Exposure to Loss		1,563,779	1,493,791
Aggregate unfunded commitments		1,340,000	1,220,000
Fair value option
Schedule of Equity Method Investments [Line Items]
Maximum Exposure to Loss	[1]	178,572	162,398
Aggregate unfunded commitments		$ 177,000	$ 117,500

[1] Aggregate unfunded commitments were $177.0 million at March 31, 2019, compared to $117.5 million at December 31, 2018.

XML

Investment Information - Net investment income (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net investment income:
Gross investment income	$ 182,778	$ 152,689
Investment expenses	(25,829)	(25,965)
Net investment income	156,949	126,724
Fixed maturities
Net investment income:
Gross investment income	129,799	107,887
Term loans
Net investment income:
Gross investment income	24,616	19,764
Equity securities
Net investment income:
Gross investment income	2,988	2,568
Short-term investments
Net investment income:
Gross investment income	4,179	4,860
Other
Net investment income:
Gross investment income	$ 21,196	$ 17,610

XML

Investment Information - Net realized gains and losses (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Net realized gains and losses:
Available for sale securities, gross gains on investment sales		$ 43,365	$ 14,965
Available for sale securities, gross losses on investment sales		(31,656)	(82,551)
Net realized gains (losses) on sales during the period		10,930	(5,368)
Net unrealized gains (losses) on equity securities still held at reporting date		37,136	(7,583)
Derivative instruments	[1]	35,871	(3,963)
Other	[2]	(8,410)	(9,090)
Net realized gains (losses)		141,565	(110,998)
Fixed maturities
Net realized gains and losses:
Change in fair value of assets and liabilities accounted for using the fair value option		31,148	(17,551)
Other investments
Net realized gains and losses:
Change in fair value of assets and liabilities accounted for using the fair value option		18,195	(6,374)
Equity securities
Net realized gains and losses:
Change in fair value of assets and liabilities accounted for using the fair value option		4,266	6,668
Short-term investments
Net realized gains and losses:
Change in fair value of assets and liabilities accounted for using the fair value option		$ 720	$ (151)

[1] See note 8 for information on the Company’s derivative instruments.

[2] Includes the re-measurement of contingent consideration liability amounts.

XML

Investment Information - Net impairment losses recognized in earnings (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Net impairment losses recognized in earnings	$ (1,309)	$ (162)
Fixed maturities
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Net impairment losses recognized in earnings	(1,309)	(162)
Fixed maturities | Mortgage backed securities
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Net impairment losses recognized in earnings	(531)	(42)
Fixed maturities | Corporate bonds
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Net impairment losses recognized in earnings	(565)	(120)
Fixed maturities | Asset backed securities
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Net impairment losses recognized in earnings	$ (213)	$ 0

XML

Investment Information - Other than temporary impairments rollforward (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Rollforward:
Balance at start of period	$ 637	$ 767
Credit loss impairments recognized on securities not previously impaired	0	0
Credit loss impairments recognized on securities previously impaired	0	0
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security	0	0
Reductions for securities sold during the period	(291)	0
Balance at end of period	$ 346	$ 767

XML

Investment Information - Restricted assets (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Restricted Assets [Line Items]
Restricted assets	$ 8,040,084	$ 7,553,903
Collateral or guarantees - affiliated transactions
Restricted Assets [Line Items]
Restricted assets	4,796,096	4,623,483
Collateral or guarantees - third party agreements
Restricted Assets [Line Items]
Restricted assets	2,403,392	2,181,682
Deposits with US regulatory authorities
Restricted Assets [Line Items]
Restricted assets	780,916	689,114
Deposits with non-US regulatory authorities
Restricted Assets [Line Items]
Restricted assets	$ 59,680	$ 59,624

XML

Investment Information - Cash and restricted cash (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Disclosure Investment Information [Abstract]
Cash	$ 633,100	$ 646,556
Restricted cash (included in ‘other assets’)	77,116	78,087
Cash and restricted cash	$ 710,216	$ 724,643	$ 732,256	$ 727,284

XML

Investment Information - Narrative (Details) $ in Thousands	3 Months Ended			12 Months Ended
	Mar. 31, 2019 USD ($) lots		Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($) lots
Narrative items:
Equity securities, at fair value	$ 495,895			$ 338,899
Investable assets	22,880,000
Equity in net income of investment funds accounted for using the equity method	46,867		$ 28,069
OTTI unrealized (losses) gains at current fair value	$ 0			$ 0
Continuous unrealized loss, qualitative disclosures:
Number of positions in an unrealized loss position (lots) | lots	2,940			5,870
Total number of positions (lots) | lots	9,250			8,450
Largest single loss	$ 2,500			$ 2,600
OTTI unrealized losses (gains)	$ 75	[1]		$ 75
Minimum
Narrative items:
Time lag for reporting	1 month
Maximum
Narrative items:
Time lag for reporting	3 months
Underwriting segments
Narrative items:
Investable assets	$ 20,060,000
Equity in net income of investment funds accounted for using the equity method	46,867		28,069
Other
Narrative items:
Investable assets	2,820,000
Equity in net income of investment funds accounted for using the equity method	$ 0		$ 0

[1] Represents the total other-than-temporary impairments (“OTTI”) recognized in accumulated other comprehensive income (“AOCI”). It does not include the change in fair value subsequent to the impairment measurement date. At March 31, 2019 and December 31, 2018, the net unrealized loss related to securities for which a non-credit OTTI was recognized in AOCI was nil.

XML

Fair Value - Fair Value Hierarchy (Details) - Recurring - USD ($) $ in Thousands		Mar. 31, 2019	Dec. 31, 2018
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		$ 6,036,218	$ 5,332,640
Liabilities measured at fair value		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Contingent consideration liability
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities measured at fair value		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Securities sold but not yet purchased
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities measured at fair value	[1]	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Derivative instruments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities measured at fair value		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fixed maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	4,439,888	3,657,181
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fixed maturities | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fixed maturities | Mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fixed maturities | Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fixed maturities | Commercial mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fixed maturities | US government and government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	4,439,888	3,657,181
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fixed maturities | Non-US government securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fixed maturities | Asset backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		682,778	875,881
Quoted Prices in Active Markets for Identical Assets (Level 1) | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		433,317	321,927
Quoted Prices in Active Markets for Identical Assets (Level 1) | Derivative instruments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value option
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		480,235	477,651
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value option | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value option | Mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value option | Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value option | Commercial mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value option | US government and government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		109,557	111,138
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value option | Non-US government securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value option | Asset backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value option | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		272,904	278,579
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value option | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		51,113	48,827
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value option | Other investments fair value option
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		46,661	39,107
Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		13,557,658	13,852,372
Liabilities measured at fair value		(40,284)	(28,454)
Significant Other Observable Inputs (Level 2) | Contingent consideration liability
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities measured at fair value		0	0
Significant Other Observable Inputs (Level 2) | Securities sold but not yet purchased
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities measured at fair value	[1]	(28,737)	(7,790)
Significant Other Observable Inputs (Level 2) | Derivative instruments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities measured at fair value		(11,547)	(20,664)
Significant Other Observable Inputs (Level 2) | Fixed maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	11,118,287	11,286,875
Significant Other Observable Inputs (Level 2) | Fixed maturities | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	5,809,318	5,529,407
Significant Other Observable Inputs (Level 2) | Fixed maturities | Mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	499,660	540,884
Significant Other Observable Inputs (Level 2) | Fixed maturities | Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	715,893	1,013,395
Significant Other Observable Inputs (Level 2) | Fixed maturities | Commercial mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	610,754	729,438
Significant Other Observable Inputs (Level 2) | Fixed maturities | US government and government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	139,823	101,517
Significant Other Observable Inputs (Level 2) | Fixed maturities | Non-US government securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	1,797,484	1,771,338
Significant Other Observable Inputs (Level 2) | Fixed maturities | Asset backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	1,545,355	1,600,896
Significant Other Observable Inputs (Level 2) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		23,436	79,999
Significant Other Observable Inputs (Level 2) | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		78,108	31,867
Significant Other Observable Inputs (Level 2) | Derivative instruments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		13,966	73,893
Significant Other Observable Inputs (Level 2) | Fair value option
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		2,323,861	2,379,738
Significant Other Observable Inputs (Level 2) | Fair value option | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		784,243	846,827
Significant Other Observable Inputs (Level 2) | Fair value option | Mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		16,328	16,731
Significant Other Observable Inputs (Level 2) | Fair value option | Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		6,587	7,144
Significant Other Observable Inputs (Level 2) | Fair value option | Commercial mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Significant Other Observable Inputs (Level 2) | Fair value option | US government and government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		108	108
Significant Other Observable Inputs (Level 2) | Fair value option | Non-US government securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		82,982	79,066
Significant Other Observable Inputs (Level 2) | Fair value option | Asset backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		190,448	178,790
Significant Other Observable Inputs (Level 2) | Fair value option | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		9,235	43,598
Significant Other Observable Inputs (Level 2) | Fair value option | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		56,275	55,066
Significant Other Observable Inputs (Level 2) | Fair value option | Other investments fair value option
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		1,177,655	1,152,408
Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		72,431	76,917
Liabilities measured at fair value		(68,121)	(66,665)
Significant Unobservable Inputs (Level 3) | Contingent consideration liability
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities measured at fair value		(68,121)	(66,665)
Significant Unobservable Inputs (Level 3) | Securities sold but not yet purchased
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities measured at fair value	[1]	0	0
Significant Unobservable Inputs (Level 3) | Derivative instruments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities measured at fair value		0	0
Significant Unobservable Inputs (Level 3) | Fixed maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	7,869	8,454
Significant Unobservable Inputs (Level 3) | Fixed maturities | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	7,567	8,141
Significant Unobservable Inputs (Level 3) | Fixed maturities | Mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	302	309
Significant Unobservable Inputs (Level 3) | Fixed maturities | Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	0	0
Significant Unobservable Inputs (Level 3) | Fixed maturities | Commercial mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	0	4
Significant Unobservable Inputs (Level 3) | Fixed maturities | US government and government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	0	0
Significant Unobservable Inputs (Level 3) | Fixed maturities | Non-US government securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	0	0
Significant Unobservable Inputs (Level 3) | Fixed maturities | Asset backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[2]	0	0
Significant Unobservable Inputs (Level 3) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Significant Unobservable Inputs (Level 3) | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Significant Unobservable Inputs (Level 3) | Derivative instruments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Significant Unobservable Inputs (Level 3) | Fair value option
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		64,562	68,463
Significant Unobservable Inputs (Level 3) | Fair value option | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		2,233	5,758
Significant Unobservable Inputs (Level 3) | Fair value option | Mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Significant Unobservable Inputs (Level 3) | Fair value option | Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Significant Unobservable Inputs (Level 3) | Fair value option | Commercial mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Significant Unobservable Inputs (Level 3) | Fair value option | US government and government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Significant Unobservable Inputs (Level 3) | Fair value option | Non-US government securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Significant Unobservable Inputs (Level 3) | Fair value option | Asset backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Significant Unobservable Inputs (Level 3) | Fair value option | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Significant Unobservable Inputs (Level 3) | Fair value option | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Significant Unobservable Inputs (Level 3) | Fair value option | Other investments fair value option
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		62,329	62,705
Estimated Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		20,767,272	20,319,648
Liabilities measured at fair value		(108,405)	(95,119)
Estimated Fair Value | Contingent consideration liability
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities measured at fair value		(68,121)	(66,665)
Estimated Fair Value | Securities sold but not yet purchased
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities measured at fair value	[1]	(28,737)	(7,790)
Estimated Fair Value | Derivative instruments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities measured at fair value		(11,547)	(20,664)
Estimated Fair Value | Fixed maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		15,566,044	14,952,510
Estimated Fair Value | Fixed maturities | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		5,816,885	5,537,548
Estimated Fair Value | Fixed maturities | Mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		499,962	541,193
Estimated Fair Value | Fixed maturities | Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		715,893	1,013,395
Estimated Fair Value | Fixed maturities | Commercial mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		610,754	729,442
Estimated Fair Value | Fixed maturities | US government and government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		4,579,711	3,758,698
Estimated Fair Value | Fixed maturities | Non-US government securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		1,797,484	1,771,338
Estimated Fair Value | Fixed maturities | Asset backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		1,545,355	1,600,896
Estimated Fair Value | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		706,214	955,880
Estimated Fair Value | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		511,425	353,794
Estimated Fair Value | Derivative instruments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		13,966	73,893
Estimated Fair Value | Fair value option
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		3,969,623	3,983,571
Estimated Fair Value | Fair value option | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		786,476	852,585
Estimated Fair Value | Fair value option | Mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		16,328	16,731
Estimated Fair Value | Fair value option | Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		6,587	7,144
Estimated Fair Value | Fair value option | Commercial mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		0	0
Estimated Fair Value | Fair value option | US government and government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		109,665	111,246
Estimated Fair Value | Fair value option | Non-US government securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		82,982	79,066
Estimated Fair Value | Fair value option | Asset backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		190,448	178,790
Estimated Fair Value | Fair value option | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		282,139	322,177
Estimated Fair Value | Fair value option | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		107,388	103,893
Estimated Fair Value | Fair value option | Other investments fair value option
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value		1,286,645	1,254,220
Estimated Fair Value | Fair value option | Other investments measured at net asset value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value	[3]	$ 1,100,965	$ 1,057,719

[1] Represents the Company’s obligations to deliver securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company’s consolidated balance sheets.

[2] In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See note 6, “—Securities Lending Agreements.”

[3] In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

XML

Fair Value - Rollforward of Level 3 assets and liabilities (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period		$ 76,917	$ 86,771
Total gains or (losses) (realized/unrealized) - included in earnings		1,765	30
Total gains or (losses) (realized/unrealized) - included in other comprehensive income		(114)	(675)
Purchases, issuances, sales and settlements
Purchases		0	0
Issuances		0	0
Sales		(5,066)	0
Settlements		(1,071)	(1,237)
Transfers in and/or out of Level 3		0	0
Balance at end of period		72,431	84,889
Contingent consideration liability
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period		(66,665)	(60,996)
Total gains or (losses) (realized/unrealized) - included in earnings		(908)	(1,453)
Total gains or (losses) (realized/unrealized) - included in other comprehensive income		0	0
Purchases, issuances, sales and settlements
Purchases		0	0
Issuances		(548)	0
Sales		0	0
Settlements		0	0
Transfers in and/or out of Level 3		0	0
Balance at end of period		(68,121)	(62,449)
Available for sale | Structured securities
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period	[1]	313	5,927
Total gains or (losses) (realized/unrealized) - included in earnings	[1]	1,757	1
Total gains or (losses) (realized/unrealized) - included in other comprehensive income	[1]	4	(4)
Purchases, issuances, sales and settlements
Purchases	[1]	0	0
Issuances	[1]	0	0
Sales	[1]	(1,757)	0
Settlements	[1]	(15)	(511)
Transfers in and/or out of Level 3	[1]	0	0
Balance at end of period	[1]	302	5,413
Available for sale | Corporate bonds
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period		8,141	9,460
Total gains or (losses) (realized/unrealized) - included in earnings		0	0
Total gains or (losses) (realized/unrealized) - included in other comprehensive income		(118)	148
Purchases, issuances, sales and settlements
Purchases		0	0
Issuances		0	0
Sales		0	0
Settlements		(456)	(456)
Transfers in and/or out of Level 3		0	0
Balance at end of period		7,567	9,152
Fair value option | Corporate bonds
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period		5,758	12,217
Total gains or (losses) (realized/unrealized) - included in earnings		(290)	12
Total gains or (losses) (realized/unrealized) - included in other comprehensive income		0	(87)
Purchases, issuances, sales and settlements
Purchases		0	0
Issuances		0	0
Sales		(3,235)	0
Settlements		0	(270)
Transfers in and/or out of Level 3		0	0
Balance at end of period		2,233	11,872
Fair value option | Other investments
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period		62,705	59,167
Total gains or (losses) (realized/unrealized) - included in earnings		298	17
Total gains or (losses) (realized/unrealized) - included in other comprehensive income		0	(732)
Purchases, issuances, sales and settlements
Purchases		0	0
Issuances		0	0
Sales		(74)	0
Settlements		(600)	0
Transfers in and/or out of Level 3		0	0
Balance at end of period		$ 62,329	$ 58,452

[1] Includes asset backed securities, mortgage backed securities and commercial mortgage backed securities.

XML

Fair Value - Narrative (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value Disclosures [Abstract]
Total assets and liabilities measured at fair value	$ 20,880,000	$ 20,410,000
Total assets and liabilities measured at fair value priced using non-binding broker quotes	$ 221,000	$ 217,900
Total assets and liabilities measured at fair value priced using non-binding broker quotes (percentage)	1.10%	1.10%
Senior notes	$ 1,733,694	$ 1,733,528
Estimated fair value of senior notes	$ 1,980,000	$ 1,880,000

XML

Derivative Instruments (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019		Mar. 31, 2018	Dec. 31, 2018
Derivative offsetting [Abstract]
Derivative assets subject to master netting agreements		$ 27,900			$ 80,400
Derivative liabilities subject to master netting agreements		14,500			18,900
Net realized gains (losses) on derivative instruments
Net realized gains (losses) on derivative instruments	[1]	35,871		$ (3,963)
Not Designated as Hedging Instrument [Member]
Derivative [Line Items]
Asset derivatives - fair value		29,422			82,185
Liability derivatives - fair value		(11,547)			(20,664)
Net realized gains (losses) on derivative instruments
Net realized gains (losses) on derivative instruments		35,871		(3,963)
Not Designated as Hedging Instrument [Member] | Futures contracts
Derivative [Line Items]
Net derivatives - notional value	[2],[3]	3,650,464			3,153,518
Net realized gains (losses) on derivative instruments
Net realized gains (losses) on derivative instruments		27,336		5,030
Not Designated as Hedging Instrument [Member] | Futures contracts | Other assets
Derivative [Line Items]
Asset derivatives - fair value		1,238	[3]		51,800
Not Designated as Hedging Instrument [Member] | Futures contracts | Other liabilities
Derivative [Line Items]
Liability derivatives - fair value	[3]	(1,302)			(2,115)
Not Designated as Hedging Instrument [Member] | Foreign currency forward contracts
Derivative [Line Items]
Net derivatives - notional value	[2],[3]	1,228,530			1,008,907
Net realized gains (losses) on derivative instruments
Net realized gains (losses) on derivative instruments		(13,709)		(5,924)
Not Designated as Hedging Instrument [Member] | Foreign currency forward contracts | Other assets
Derivative [Line Items]
Asset derivatives - fair value	[3]	405			8,147
Not Designated as Hedging Instrument [Member] | Foreign currency forward contracts | Other liabilities
Derivative [Line Items]
Liability derivatives - fair value	[3]	(3,825)			(7,796)
Not Designated as Hedging Instrument [Member] | TBAs
Derivative [Line Items]
Net derivatives - notional value	[2],[4]	14,846			8,132
Net realized gains (losses) on derivative instruments
Net realized gains (losses) on derivative instruments		190		(97)
Not Designated as Hedging Instrument [Member] | TBAs | Fixed maturities available for sale
Derivative [Line Items]
Asset derivatives - fair value		15,456	[4]		8,292
Liability derivatives - fair value	[4]	0			0
Not Designated as Hedging Instrument [Member] | Other
Derivative [Line Items]
Net derivatives - notional value	[2],[3]	2,504,873			2,213,981
Net realized gains (losses) on derivative instruments
Net realized gains (losses) on derivative instruments		22,054		$ (2,972)
Not Designated as Hedging Instrument [Member] | Other | Other assets
Derivative [Line Items]
Asset derivatives - fair value	[3]	12,323			13,946
Not Designated as Hedging Instrument [Member] | Other | Other liabilities
Derivative [Line Items]
Liability derivatives - fair value	[3]	$ (6,420)			$ (10,753)

[1] See note 8 for information on the Company’s derivative instruments.

[2] Represents the absolute notional value of all outstanding contracts, consisting of long and short positions.

[3] The fair value of asset derivatives are included in ‘other assets’ and the fair value of liability derivatives are included in ‘other liabilities.’

[4] The fair value of TBAs are included in ‘fixed maturities available for sale, at fair value.’

XML

Commitments and Contingencies (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]
Investment commitments	$ 1,830.0		$ 1,770.0
Interest expense on senior notes and other borrowings	$ 6.2	$ 7.9

XML

Leases - Additional information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Lessee, Lease, Description [Line Items]
Operating lease expense	$ 7,600
Cash payments included in the measurement of lease liabilities reported in operating cash flows	6,900
Right-of-use assets obtained in exchange for new lease liabilities	0
Lease liability	$ 157,729
Weighted average discount rate	3.90%
Weighted average remaining lease term in years	7 years 2 months 12 days
Maximum
Lessee, Lease, Description [Line Items]
Operating lease term	12 years
Other assets
Lessee, Lease, Description [Line Items]
Right-of-use assets	$ 140,741
Other liabilities
Lessee, Lease, Description [Line Items]
Lease liability	$ 157,729

XML

Leases - Contractual maturities and future minimum rental payments (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Contractual maturities of operating lease liabilities
Remainder of 2019	$ 22,457
2020	29,796
2021	28,632
2022	25,349
2023	20,901
Thereafter	53,902
Total undiscounted lease liability	181,037
Less: present value adjustment	(23,308)
Operating lease liability	$ 157,729
Future minimum rental commitments:
2019		$ 31,088
2020		30,491
2021		29,351
2022		26,068
2023		21,408
2024 and thereafter		54,745
Total future minimum payments		$ 193,151

XML

Variable Interest Entities and Noncontrolling Interests - Variable interest entity (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2019	Mar. 31, 2018
Variable Interest Entity [Line Items]
Net cash provided by operating activities		$ 235,398	$ 400,180
Net cash used for investing activities		(294,793)	(57,914)
Net cash used for financing activities		41,519	(338,905)
Variable Interest Entity, Primary Beneficiary | Watford Holdings Ltd
Variable Interest Entity [Line Items]
Initial investment contribution amount	$ 100,000
Number of shares acquired	2,500,000
Ownership percentage	11.00%
Number of shares called by warrants	975,503
Variable Interest Entity, Primary Beneficiary | Watford Re
Variable Interest Entity [Line Items]
Net cash provided by operating activities		70,300	30,200
Net cash used for investing activities		(105,900)	(35,400)
Net cash used for financing activities		$ 28,100	$ (66,200)

XML

Variable Interest Entities and Noncontrolling Interests - Carrying amount of assets and liabilities of variable interest entity (Details) - USD ($) $ in Thousands		Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Variable Interest Entity [Line Items]
Investments accounted for using the fair value option		$ 3,969,623	$ 3,983,571
Fixed maturities available for sale, at fair value		15,177,312	14,699,010
Equity securities, at fair value		495,895	338,899
Cash		633,100	646,556
Accrued investment income		112,935	114,641
Premiums receivable		1,584,682	1,299,150
Reinsurance recoverable on unpaid and paid losses and LAE		3,099,823	2,919,372
Ceded unearned premiums		1,099,581	975,469
Deferred acquisition costs		597,526	569,574
Receivable for securities sold		334,982	36,246
Goodwill and intangible assets		659,215	634,920	$ 626,004
Other assets		1,035,332	929,611
Total assets		33,977,037	32,218,329
Reserve for losses and loss adjustment expenses		12,010,041	11,853,297	11,496,205	$ 11,383,792
Unearned premiums		4,036,119	3,753,636
Reinsurance balances payable		453,058	393,107
Revolving credit agreement borrowings		488,612	455,682
Payable for securities purchased		376,332	90,034
Other liabilities		984,942	911,500
Total liabilities of consolidated VIE		22,817,977	21,780,650
Redeemable noncontrolling interests		206,383	206,292
Watford Re
Variable Interest Entity [Line Items]
Redeemable noncontrolling interests		206,383	206,292	$ 206,013	$ 205,922
Variable Interest Entity, Primary Beneficiary | Watford Re
Variable Interest Entity [Line Items]
Investments accounted for using the fair value option		2,215,322	2,312,003
Fixed maturities available for sale, at fair value		549,834	393,351
Equity securities, at fair value		65,009	32,206
Cash		56,301	63,529
Accrued investment income		17,346	19,461
Premiums receivable		252,850	227,301
Reinsurance recoverable on unpaid and paid losses and LAE		102,818	86,445
Ceded unearned premiums		72,960	61,587
Deferred acquisition costs		80,664	80,858
Receivable for securities sold		62,566	24,507
Goodwill and intangible assets		7,650	7,650
Other assets		69,547	63,959
Total assets		3,552,867	3,372,857
Reserve for losses and loss adjustment expenses		1,104,532	1,032,760
Unearned premiums		401,838	390,114
Reinsurance balances payable		27,039	21,034
Revolving credit agreement borrowings		488,612	455,682
Payable for securities purchased		95,577	60,142
Other liabilities	[1]	272,295	302,524
Total liabilities of consolidated VIE		2,389,893	2,262,256
Redeemable noncontrolling interests		$ 221,083	$ 220,992

[1] Includes certain borrowings related to investing activities.

XML

Variable Interest Entities and Noncontrolling Interests - Non-redeemable noncontrolling interests (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Noncontrolling Interest [Line Items]
Non-redeemable noncontrolling interests, beginning of period	$ 791,560
Amounts attributable to noncontrolling interests	42,382	$ 11,376
Non-redeemable noncontrolling interests, end of period	838,081	854,112
Watford Re
Noncontrolling Interest [Line Items]
Non-redeemable noncontrolling interests, beginning of period	791,560	843,411
Amounts attributable to noncontrolling interests	42,382	11,376
Other comprehensive income attributable to noncontrolling interests	4,139	(675)
Non-redeemable noncontrolling interests, end of period	$ 838,081	$ 854,112
Common shares | Watford Re
Noncontrolling Interest [Line Items]
Noncontrolling interest, ownership percentage by noncontrolling owners	89.00%

XML

Variable Interest Entities and Noncontrolling Interests - Redeemable noncontrolling interests (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Redeemable Noncontrolling Interest [Line Items]
Redeemable noncontrolling interests, beginning of period	$ 206,292
Redeemable noncontrolling interests, end of period	206,383
Watford Re
Redeemable Noncontrolling Interest [Line Items]
Redeemable noncontrolling interests, beginning of period	206,292	$ 205,922
Accretion of preference share issuance costs	91	91
Redeemable noncontrolling interests, end of period	$ 206,383	$ 206,013
Cumulative redeemable preference shares | Watford Re
Redeemable Noncontrolling Interest [Line Items]
Preference shares, number of shares issued	9,065,200
Par value per share	$ 0.01
Liquidation preference per share	25.00
Shares Issued, Price Per Share	$ 24.50

XML

Variable Interest Entities and Noncontrolling Interests - Income or loss attributable to third party investors (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Noncontrolling Interest [Abstract]
Amounts attributable to non-redeemable noncontrolling interests	$ (42,382)	$ (11,376)
Dividends attributable to redeemable noncontrolling interests	(4,588)	(4,585)
Net (income) loss attributable to noncontrolling interests	$ (46,970)	$ (15,961)

XML

Variable Interest Entities and Noncontrolling Interests - Other variable interest entity disclosures (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Variable Interest Entity [Line Items]
Maximum Exposure to Loss	$ 1,742,351	$ 1,656,189
Variable Interest Entity, Not Primary Beneficiary
Variable Interest Entity [Line Items]
Total VIE Assets	2,178,832	1,881,467
Maximum Exposure to Loss - On-Balance Sheet (Asset) Liability	(2,961)	1,752
Maximum Exposure to Loss - Off-Balance Sheet	42,346	11,190
Maximum Exposure to Loss	39,385	12,942
Variable Interest Entity, Not Primary Beneficiary | Bellemeade 2015-1 Ltd. (Jul-15)
Variable Interest Entity [Line Items]
Total VIE Assets	34,176	43,246
Maximum Exposure to Loss - On-Balance Sheet (Asset) Liability	(76)	112
Maximum Exposure to Loss - Off-Balance Sheet	163	498
Maximum Exposure to Loss	87	610
Variable Interest Entity, Not Primary Beneficiary | Bellemeade 2017-1 Ltd. (Oct-17)
Variable Interest Entity [Line Items]
Total VIE Assets	296,773	304,373
Maximum Exposure to Loss - On-Balance Sheet (Asset) Liability	721	165
Maximum Exposure to Loss - Off-Balance Sheet	8,088	1,312
Maximum Exposure to Loss	8,809	1,477
Variable Interest Entity, Not Primary Beneficiary | Bellemeade 2018-1 Ltd. (Apr-18)
Variable Interest Entity [Line Items]
Total VIE Assets	374,460	374,460
Maximum Exposure to Loss - On-Balance Sheet (Asset) Liability	(858)	132
Maximum Exposure to Loss - Off-Balance Sheet	10,035	3,539
Maximum Exposure to Loss	9,177	3,671
Variable Interest Entity, Not Primary Beneficiary | Bellemeade 2018-2 Ltd. (Aug-18)
Variable Interest Entity [Line Items]
Total VIE Assets	625,523	653,278
Maximum Exposure to Loss - On-Balance Sheet (Asset) Liability	(2,318)	874
Maximum Exposure to Loss - Off-Balance Sheet	9,688	4,005
Maximum Exposure to Loss	7,370	4,879
Variable Interest Entity, Not Primary Beneficiary | Bellemeade 2018-3 Ltd. (Oct-18)
Variable Interest Entity [Line Items]
Total VIE Assets	506,110	506,110
Maximum Exposure to Loss - On-Balance Sheet (Asset) Liability	(430)	469
Maximum Exposure to Loss - Off-Balance Sheet	8,975	1,836
Maximum Exposure to Loss	8,545	$ 2,305
Variable Interest Entity, Not Primary Beneficiary | Bellemeade 2019-1 Ltd. (Mar-19)
Variable Interest Entity [Line Items]
Total VIE Assets	341,790
Maximum Exposure to Loss - On-Balance Sheet (Asset) Liability	0
Maximum Exposure to Loss - Off-Balance Sheet	5,397
Maximum Exposure to Loss	$ 5,397

XML

Other Comprehensive Income (Loss) - Amounts reclassified from accumulated other comprehensive income (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Other-than-temporary impairment losses	$ (1,309)	$ (162)
Income before income taxes	541,384	188,299
Income tax expense	(45,886)	(21,915)
Net of tax	448,528	150,423
Reclassification out of accumulated other comprehensive income | Unrealized appreciation on available-for-sale investments
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains (losses)	11,709	(67,586)
Other-than-temporary impairment losses	(1,309)	(162)
Income before income taxes	10,400	(67,748)
Income tax expense	(179)	5,287
Net of tax	$ 10,221	$ (62,461)

XML

Other Comprehensive Income (Loss) - Components of other comprehensive income (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Before tax amount:
Unrealized holding gains (losses) arising during period, before tax	$ 254,990	$ (189,943)
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss), before tax	0	0
Less reclassification of net realized gains included in net income, before tax	10,400	(67,748)
Foreign currency translation adjustments, before tax	5,644	1,432
Other comprehensive income (loss), before tax	250,234	(120,763)
Tax expense (benefit):
Unrealized holding gains (losses) arising during period, tax	29,103	(23,266)
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss), tax	0	0
Less reclassification of net realized gains included in net income, tax	179	(5,287)
Foreign currency translation adjustments, tax	128	150
Other comprehensive income (loss), tax	29,052	(17,829)
Net of tax amount:
Unrealized holding gains (losses) arising during period, net of tax	225,887	(166,677)
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss), net of tax	0	0
Less reclassification of net realized gains included in net income, net of tax	10,221	(62,461)
Foreign currency translation adjustments, net of tax	5,516	1,282
Net current period other comprehensive income (loss)	$ 221,182	$ (102,934)

XML

Guarantor Financial Information - Condensed consolidating balance sheet (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Assets
Total investments	$ 22,327,879	$ 21,745,284
Cash	633,100	646,556
Investments in subsidiaries	0	0
Due from subsidiaries and affiliates	0	0
Premiums receivable	1,584,682	1,299,150
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	3,099,823	2,919,372
Contractholder receivables	2,087,720	2,079,111
Ceded unearned premiums	1,099,581	975,469
Deferred acquisition costs	597,526	569,574
Goodwill and intangible assets	659,215	634,920	$ 626,004
Other assets	1,887,511	1,348,893
Total assets	33,977,037	32,218,329
Liabilities
Reserve for losses and loss adjustment expenses	12,010,041	11,853,297	11,496,205	$ 11,383,792
Unearned premiums	4,036,119	3,753,636
Reinsurance balances payable	453,058	393,107
Contractholder payables	2,087,720	2,079,111
Collateral held for insured obligations	232,411	236,630
Senior notes	1,733,694	1,733,528
Revolving credit agreement borrowings	488,612	455,682
Due to subsidiaries and affiliates	0	0
Other liabilities	1,776,322	1,275,659
Total liabilities	22,817,977	21,780,650
Redeemable noncontrolling interests	206,383	206,292
Shareholders' Equity
Total shareholders’ equity available to Arch	10,114,596	9,439,827	9,150,372
Non-redeemable noncontrolling interests	838,081	791,560	854,112
Total shareholders’ equity	10,952,677	10,231,387	$ 10,004,484
Total liabilities, noncontrolling interests and shareholders’ equity	33,977,037	32,218,329
Reportable Legal Entities | Arch Capital (Parent Guarantor)
Assets
Total investments	40	104
Cash	12,065	6,125
Investments in subsidiaries	10,403,671	9,735,256
Due from subsidiaries and affiliates	0	9
Premiums receivable	0	0
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	0	0
Contractholder receivables	0	0
Ceded unearned premiums	0	0
Deferred acquisition costs	0	0
Goodwill and intangible assets	0	0
Other assets	21,943	12,588
Total assets	10,437,719	9,754,082
Liabilities
Reserve for losses and loss adjustment expenses	0	0
Unearned premiums	0	0
Reinsurance balances payable	0	0
Contractholder payables	0	0
Collateral held for insured obligations	0	0
Senior notes	297,175	297,150
Revolving credit agreement borrowings	0	0
Due to subsidiaries and affiliates	0	0
Other liabilities	25,948	17,105
Total liabilities	323,123	314,255
Redeemable noncontrolling interests	0	0
Shareholders' Equity
Total shareholders’ equity available to Arch	10,114,596	9,439,827
Non-redeemable noncontrolling interests	0	0
Total shareholders’ equity	10,114,596	9,439,827
Total liabilities, noncontrolling interests and shareholders’ equity	10,437,719	9,754,082
Reportable Legal Entities | Arch-U.S. (Subsidiary Issuer)
Assets
Total investments	464,872	452,674
Cash	40,716	5,940
Investments in subsidiaries	4,249,796	3,999,243
Due from subsidiaries and affiliates	2	2
Premiums receivable	0	0
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	0	0
Contractholder receivables	0	0
Ceded unearned premiums	0	0
Deferred acquisition costs	0	0
Goodwill and intangible assets	0	0
Other assets	46,146	80,949
Total assets	4,801,532	4,538,808
Liabilities
Reserve for losses and loss adjustment expenses	0	0
Unearned premiums	0	0
Reinsurance balances payable	0	0
Contractholder payables	0	0
Collateral held for insured obligations	0	0
Senior notes	494,749	494,723
Revolving credit agreement borrowings	0	0
Due to subsidiaries and affiliates	542,045	536,805
Other liabilities	34,073	26,270
Total liabilities	1,070,867	1,057,798
Redeemable noncontrolling interests	0	0
Shareholders' Equity
Total shareholders’ equity available to Arch	3,730,665	3,481,010
Non-redeemable noncontrolling interests	0	0
Total shareholders’ equity	3,730,665	3,481,010
Total liabilities, noncontrolling interests and shareholders’ equity	$ 4,801,532	4,538,808
Percentage Ownership of Subsidiary	100.00%
Reportable Legal Entities | Other Arch Capital Subsidiaries
Assets
Total investments	$ 21,877,667	21,307,206
Cash	580,319	634,491
Investments in subsidiaries	0	0
Due from subsidiaries and affiliates	1,883,339	1,802,686
Premiums receivable	2,226,386	1,834,389
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	8,658,803	8,618,660
Contractholder receivables	2,087,720	2,079,111
Ceded unearned premiums	1,951,746	1,730,262
Deferred acquisition costs	669,145	618,535
Goodwill and intangible assets	659,215	634,920
Other assets	2,026,386	1,466,438
Total assets	42,620,726	40,726,698
Liabilities
Reserve for losses and loss adjustment expenses	17,335,960	17,345,142
Unearned premiums	4,888,284	4,508,429
Reinsurance balances payable	1,094,762	928,346
Contractholder payables	2,087,720	2,079,111
Collateral held for insured obligations	232,411	236,630
Senior notes	941,770	941,655
Revolving credit agreement borrowings	488,612	455,682
Due to subsidiaries and affiliates	1,341,296	1,265,892
Other liabilities	2,227,945	1,699,768
Total liabilities	30,638,760	29,460,655
Redeemable noncontrolling interests	221,083	220,992
Shareholders' Equity
Total shareholders’ equity available to Arch	10,922,802	10,253,491
Non-redeemable noncontrolling interests	838,081	791,560
Total shareholders’ equity	11,760,883	11,045,051
Total liabilities, noncontrolling interests and shareholders’ equity	42,620,726	40,726,698
Consolidating Adjustments and Eliminations
Assets
Total investments	(14,700)	(14,700)
Cash	0	0
Investments in subsidiaries	(14,653,467)	(13,734,499)
Due from subsidiaries and affiliates	(1,883,341)	(1,802,697)
Premiums receivable	(641,704)	(535,239)
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	(5,558,980)	(5,699,288)
Contractholder receivables	0	0
Ceded unearned premiums	(852,165)	(754,793)
Deferred acquisition costs	(71,619)	(48,961)
Goodwill and intangible assets	0	0
Other assets	(206,964)	(211,082)
Total assets	(23,882,940)	(22,801,259)
Liabilities
Reserve for losses and loss adjustment expenses	(5,325,919)	(5,491,845)
Unearned premiums	(852,165)	(754,793)
Reinsurance balances payable	(641,704)	(535,239)
Contractholder payables	0	0
Collateral held for insured obligations		0
Senior notes	0	0
Revolving credit agreement borrowings	0	0
Due to subsidiaries and affiliates	(1,883,341)	(1,802,697)
Other liabilities	(511,644)	(467,484)
Total liabilities	(9,214,773)	(9,052,058)
Redeemable noncontrolling interests	(14,700)	(14,700)
Shareholders' Equity
Total shareholders’ equity available to Arch	(14,653,467)	(13,734,501)
Non-redeemable noncontrolling interests	0	0
Total shareholders’ equity	(14,653,467)	(13,734,501)
Total liabilities, noncontrolling interests and shareholders’ equity	$ (23,882,940)	$ (22,801,259)

XML

Guarantor Financial Information - Condensed consolidating statement of income and comprehensive income (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenues
Net premiums earned	$ 1,368,866	$ 1,234,899
Net investment income	156,949	126,724
Net realized gains (losses)	141,565	(110,998)
Net impairment losses recognized in earnings	(1,309)	(162)
Other underwriting income	8,825	5,349
Equity in net income of investment funds accounted for using the equity method	46,867	28,069
Other income (loss)	1,083	74
Total revenues	1,722,846	1,283,955
Expenses
Losses and loss adjustment expenses	718,532	636,860
Acquisition expenses	197,848	191,376
Other operating expenses	201,163	175,015
Corporate expenses	17,962	15,312
Amortization of intangible assets	20,417	26,736
Interest expense	29,065	30,636
Net foreign exchange (gains) losses	(3,525)	19,721
Total expenses	1,181,462	1,095,656
Income (loss) before income taxes	541,384	188,299
Income tax (expense) benefit	(45,886)	(21,915)
Income (loss) before equity in net income of subsidiaries	495,498	166,384
Equity in net income of subsidiaries	0	0
Net income	495,498	166,384
Net (income) loss attributable to noncontrolling interests	(46,970)	(15,961)
Net income available to Arch	448,528	150,423
Preferred dividends	(10,403)	(10,437)
Loss on redemption of preferred shares	0	(2,710)
Net income available to Arch common shareholders	438,125	137,276
Comprehensive income available to Arch	665,571	48,162
Reportable Legal Entities | Arch Capital (Parent Guarantor)
Revenues
Net premiums earned	0	0
Net investment income	46	20
Net realized gains (losses)	0	29
Net impairment losses recognized in earnings	0	0
Other underwriting income	0	0
Equity in net income of investment funds accounted for using the equity method	0	0
Other income (loss)	(239)	(78)
Total revenues	(193)	(29)
Expenses
Losses and loss adjustment expenses	0	0
Acquisition expenses	0	0
Other operating expenses	0	0
Corporate expenses	16,307	16,169
Amortization of intangible assets	0	0
Interest expense	5,538	5,536
Net foreign exchange (gains) losses	2	29
Total expenses	21,847	21,734
Income (loss) before income taxes	(22,040)	(21,763)
Income tax (expense) benefit	0	0
Income (loss) before equity in net income of subsidiaries	(22,040)	(21,763)
Equity in net income of subsidiaries	470,568	172,186
Net income	448,528	150,423
Net (income) loss attributable to noncontrolling interests	0	0
Net income available to Arch	448,528	150,423
Preferred dividends	(10,403)	(10,437)
Loss on redemption of preferred shares		(2,710)
Net income available to Arch common shareholders	438,125	137,276
Comprehensive income available to Arch	665,571	48,162
Reportable Legal Entities | Arch-U.S. (Subsidiary Issuer)
Revenues
Net premiums earned	0	0
Net investment income	3,679	258
Net realized gains (losses)	8,518	(7)
Net impairment losses recognized in earnings	0	0
Other underwriting income	0	0
Equity in net income of investment funds accounted for using the equity method	0	0
Other income (loss)	0	0
Total revenues	12,197	251
Expenses
Losses and loss adjustment expenses	0	0
Acquisition expenses	0	0
Other operating expenses	0	0
Corporate expenses	2,166	289
Amortization of intangible assets	0	0
Interest expense	11,951	11,926
Net foreign exchange (gains) losses	0	0
Total expenses	14,117	12,215
Income (loss) before income taxes	(1,920)	(11,964)
Income tax (expense) benefit	543	2,951
Income (loss) before equity in net income of subsidiaries	(1,377)	(9,013)
Equity in net income of subsidiaries	136,554	86,420
Net income	135,177	77,407
Net (income) loss attributable to noncontrolling interests	0	0
Net income available to Arch	135,177	77,407
Preferred dividends	0	0
Loss on redemption of preferred shares		0
Net income available to Arch common shareholders	135,177	77,407
Comprehensive income available to Arch	238,156	6,537
Reportable Legal Entities | Other Arch Capital Subsidiaries
Revenues
Net premiums earned	1,368,866	1,234,899
Net investment income	175,672	148,767
Net realized gains (losses)	138,053	(111,020)
Net impairment losses recognized in earnings	(1,309)	(162)
Other underwriting income	8,825	5,349
Equity in net income of investment funds accounted for using the equity method	46,867	28,069
Other income (loss)	1,322	152
Total revenues	1,738,296	1,306,054
Expenses
Losses and loss adjustment expenses	718,532	636,860
Acquisition expenses	197,848	191,376
Other operating expenses	201,163	175,015
Corporate expenses	(511)	(1,146)
Amortization of intangible assets	20,417	26,736
Interest expense	33,706	35,172
Net foreign exchange (gains) losses	(123)	16,436
Total expenses	1,171,032	1,080,449
Income (loss) before income taxes	567,264	225,605
Income tax (expense) benefit	(46,429)	(24,866)
Income (loss) before equity in net income of subsidiaries	520,835	200,739
Equity in net income of subsidiaries	0	0
Net income	520,835	200,739
Net (income) loss attributable to noncontrolling interests	(47,289)	(16,284)
Net income available to Arch	473,546	184,455
Preferred dividends	0	0
Loss on redemption of preferred shares		0
Net income available to Arch common shareholders	473,546	184,455
Comprehensive income available to Arch	688,540	79,081
Consolidating Adjustments and Eliminations
Revenues
Net premiums earned	0	0
Net investment income	(22,448)	(22,321)
Net realized gains (losses)	(5,006)	0
Net impairment losses recognized in earnings	0	0
Other underwriting income	0	0
Equity in net income of investment funds accounted for using the equity method	0	0
Other income (loss)	0	0
Total revenues	(27,454)	(22,321)
Expenses
Losses and loss adjustment expenses	0	0
Acquisition expenses	0	0
Other operating expenses	0	0
Corporate expenses	0	0
Amortization of intangible assets	0	0
Interest expense	(22,130)	(21,998)
Net foreign exchange (gains) losses	(3,404)	3,256
Total expenses	(25,534)	(18,742)
Income (loss) before income taxes	(1,920)	(3,579)
Income tax (expense) benefit	0	0
Income (loss) before equity in net income of subsidiaries	(1,920)	(3,579)
Equity in net income of subsidiaries	(607,122)	(258,606)
Net income	(609,042)	(262,185)
Net (income) loss attributable to noncontrolling interests	319	323
Net income available to Arch	(608,723)	(261,862)
Preferred dividends	0	0
Loss on redemption of preferred shares		0
Net income available to Arch common shareholders	(608,723)	(261,862)
Comprehensive income available to Arch	$ (926,696)	$ (85,618)

XML

Guarantor Financial Information - Condensed consolidating statement of cash flows (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Operating Activities
Net Cash Provided by (Used in) Operating Activities		$ 235,398	$ 400,180
Investing Activities
Purchases of fixed maturity investments		(7,444,470)	(9,681,267)
Purchases of equity securities		(203,810)	(377,000)
Purchases of other investments		(324,593)	(522,454)
Proceeds from sales of fixed maturity investments		7,076,590	8,679,147
Proceeds from sales of equity securities		95,017	291,311
Proceeds from sales, redemptions and maturities of other investments		216,483	436,566
Proceeds from redemptions and maturities of fixed maturity investments		100,424	287,031
Net settlements of derivative instruments		29,737	36,070
Net (purchases) sales of short-term investments		292,601	595,318
Change in cash collateral related to securities lending		(29,618)	161,567
Contributions to subsidiaries		0	0
Issuance of intercompany loans		0
Purchases of fixed assets		(9,423)	(4,240)
Other		(93,731)	40,037
Net Cash Provided By (Used For) Investing Activities		(294,793)	(57,914)
Financing Activities
Redemption of preferred shares		0	(92,555)
Purchases of common shares under share repurchase program		(2,871)	(3,299)
Proceeds from common shares issued, net		(1,901)	(2,779)
Proceeds from intercompany borrowings		0
Proceeds from borrowings		59,000	39,585
Repayments of borrowings		(26,038)	(101,000)
Change in cash collateral related to securities lending		29,618	(161,567)
Dividends paid to redeemable noncontrolling interests		(4,497)	(4,497)
Dividends paid to parent	[1]	0	0
Other		(1,389)	(2,356)
Preferred dividends paid		(10,403)	(10,437)
Net Cash Provided By (Used For) Financing Activities		41,519	(338,905)
Effects of exchange rate changes on foreign currency cash and restricted cash		3,449	1,611
Increase (decrease) in cash and restricted cash		(14,427)	4,972
Cash and restricted cash, beginning of year		724,643	727,284
Cash and restricted cash, end of period		710,216	732,256
Reportable Legal Entities | Arch Capital (Parent Guarantor)
Operating Activities
Net Cash Provided by (Used in) Operating Activities		23,171	13,315
Investing Activities
Purchases of fixed maturity investments		0	0
Purchases of equity securities		0	0
Purchases of other investments		0	0
Proceeds from sales of fixed maturity investments		0	0
Proceeds from sales of equity securities		0	0
Proceeds from sales, redemptions and maturities of other investments		0	0
Proceeds from redemptions and maturities of fixed maturity investments		0	0
Net settlements of derivative instruments		0	0
Net (purchases) sales of short-term investments		63	92,885
Change in cash collateral related to securities lending		0	0
Contributions to subsidiaries		(2,121)	0
Issuance of intercompany loans		0
Purchases of fixed assets		0	(13)
Other		0	0
Net Cash Provided By (Used For) Investing Activities		(2,058)	92,872
Financing Activities
Redemption of preferred shares			(92,555)
Purchases of common shares under share repurchase program		(2,871)	(3,299)
Proceeds from common shares issued, net		(1,901)	(2,779)
Proceeds from intercompany borrowings		0
Proceeds from borrowings		0	0
Repayments of borrowings		0	0
Change in cash collateral related to securities lending		0	0
Dividends paid to redeemable noncontrolling interests		0	0
Dividends paid to parent	[1]	0	0
Other		0	0
Preferred dividends paid		(10,403)	(10,437)
Net Cash Provided By (Used For) Financing Activities		(15,175)	(109,070)
Effects of exchange rate changes on foreign currency cash and restricted cash		0	(4)
Increase (decrease) in cash and restricted cash		5,938	(2,887)
Cash and restricted cash, beginning of year		6,159	10,052
Cash and restricted cash, end of period		12,097	7,165
Reportable Legal Entities | Arch-U.S. (Subsidiary Issuer)
Operating Activities
Net Cash Provided by (Used in) Operating Activities		37,324	74,248
Investing Activities
Purchases of fixed maturity investments		(38,678)	(26,501)
Purchases of equity securities		(56,062)	0
Purchases of other investments		(17,500)	0
Proceeds from sales of fixed maturity investments		75,583	16,997
Proceeds from sales of equity securities		0	0
Proceeds from sales, redemptions and maturities of other investments		0	0
Proceeds from redemptions and maturities of fixed maturity investments		0	0
Net settlements of derivative instruments		0	0
Net (purchases) sales of short-term investments		34,109	(15,547)
Change in cash collateral related to securities lending		0	0
Contributions to subsidiaries		0	0
Issuance of intercompany loans		0
Purchases of fixed assets		0	0
Other		0	0
Net Cash Provided By (Used For) Investing Activities		(2,548)	(25,051)
Financing Activities
Redemption of preferred shares			0
Purchases of common shares under share repurchase program		0	0
Proceeds from common shares issued, net		0	0
Proceeds from intercompany borrowings		0
Proceeds from borrowings		0	0
Repayments of borrowings		0	0
Change in cash collateral related to securities lending		0	0
Dividends paid to redeemable noncontrolling interests		0	0
Dividends paid to parent	[1]	0	0
Other		0	0
Preferred dividends paid		0	0
Net Cash Provided By (Used For) Financing Activities		0	0
Effects of exchange rate changes on foreign currency cash and restricted cash		0	0
Increase (decrease) in cash and restricted cash		34,776	49,197
Cash and restricted cash, beginning of year		5,940	30,380
Cash and restricted cash, end of period		40,716	79,577
Reportable Legal Entities | Other Arch Capital Subsidiaries
Operating Activities
Net Cash Provided by (Used in) Operating Activities		234,706	419,956
Investing Activities
Purchases of fixed maturity investments		(7,405,792)	(10,050,206)
Purchases of equity securities		(219,992)	(377,000)
Purchases of other investments		(307,093)	(522,454)
Proceeds from sales of fixed maturity investments		7,001,007	9,057,590
Proceeds from sales of equity securities		167,261	291,311
Proceeds from sales, redemptions and maturities of other investments		216,483	436,566
Proceeds from redemptions and maturities of fixed maturity investments		100,424	287,031
Net settlements of derivative instruments		29,737	36,070
Net (purchases) sales of short-term investments		258,429	517,980
Change in cash collateral related to securities lending		(29,618)	161,567
Contributions to subsidiaries		(53,906)	(2,970)
Issuance of intercompany loans		(43,647)
Purchases of fixed assets		(9,423)	(4,227)
Other		(93,731)	40,037
Net Cash Provided By (Used For) Investing Activities		(389,861)	(128,705)
Financing Activities
Redemption of preferred shares			0
Purchases of common shares under share repurchase program		0	0
Proceeds from common shares issued, net		56,027	2,970
Proceeds from intercompany borrowings		43,647
Proceeds from borrowings		59,000	39,585
Repayments of borrowings		(26,038)	(101,000)
Change in cash collateral related to securities lending		29,618	(161,567)
Dividends paid to redeemable noncontrolling interests		(4,816)	(4,816)
Dividends paid to parent	[1]	(59,484)	(107,020)
Other		(1,389)	(2,356)
Preferred dividends paid		0	0
Net Cash Provided By (Used For) Financing Activities		96,565	(334,204)
Effects of exchange rate changes on foreign currency cash and restricted cash		3,449	1,615
Increase (decrease) in cash and restricted cash		(55,141)	(41,338)
Cash and restricted cash, beginning of year		712,544	686,852
Cash and restricted cash, end of period		657,403	645,514
Consolidating Adjustments and Eliminations
Operating Activities
Net Cash Provided by (Used in) Operating Activities		(59,803)	(107,339)
Investing Activities
Purchases of fixed maturity investments		0	395,440
Purchases of equity securities		72,244	0
Purchases of other investments		0	0
Proceeds from sales of fixed maturity investments		0	(395,440)
Proceeds from sales of equity securities		(72,244)	0
Proceeds from sales, redemptions and maturities of other investments		0	0
Proceeds from redemptions and maturities of fixed maturity investments		0	0
Net settlements of derivative instruments		0	0
Net (purchases) sales of short-term investments		0	0
Change in cash collateral related to securities lending		0	0
Contributions to subsidiaries		56,027	2,970
Issuance of intercompany loans		43,647
Purchases of fixed assets		0	0
Other		0	0
Net Cash Provided By (Used For) Investing Activities		99,674	2,970
Financing Activities
Redemption of preferred shares			0
Purchases of common shares under share repurchase program		0	0
Proceeds from common shares issued, net		(56,027)	(2,970)
Proceeds from intercompany borrowings		(43,647)
Proceeds from borrowings		0	0
Repayments of borrowings		0	0
Change in cash collateral related to securities lending		0	0
Dividends paid to redeemable noncontrolling interests		319	319
Dividends paid to parent	[1]	59,484	107,020
Other		0	0
Preferred dividends paid		0	0
Net Cash Provided By (Used For) Financing Activities		(39,871)	104,369
Effects of exchange rate changes on foreign currency cash and restricted cash		0	0
Increase (decrease) in cash and restricted cash		0	0
Cash and restricted cash, beginning of year		0	0
Cash and restricted cash, end of period		$ 0	$ 0

[1] Dividends received by parent are included in net cash provided by (used for) operating activities

XML

Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Income Tax Disclosure [Abstract]
Effective tax rate on income before income taxes (percentage)	8.50%	11.60%
Statutory federal tax rate	21.00%
Tax benefit on share-based compensation	0.50%
Net deferred tax liabilities	$ (18.9)
Net deferred tax assets			$ 22.5
Income taxes paid	$ (32.7)	$ (49.9)

XML

Subsequent Events (Details) - Subsequent Event - Variable Interest Entity, Not Primary Beneficiary - Bellemeade 2019-2 Ltd. $ in Millions	1 Months Ended
	Apr. 30, 2019 USD ($)
Bellemeade 2019-2 Ltd.
Aggregate excess of loss reinsurance agreement	$ 621.0
Aggregate losses	$ 221.8
Agreement period	10 years
SPV issuance of insurance-linked notes	$ 621.0