EX-99.2 3 ex-992supplement123119.htm EX 99.2 SUPPLEMENT Exhibit


EXHIBIT 99.2
 
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Arch Capital Group Ltd.
Waterloo House, Ground Floor
100 Pitts Bay Road
Pembroke HM 08 Bermuda
 
 
 
 
 
 

Financial Supplement

Financial Information
as of December 31, 2019
 
The following financial supplement is provided to assist in your understanding of Arch Capital Group Ltd. (“Arch Capital”) and its subsidiaries (collectively, the “Company”).
 
This report is for informational purposes only.  It should be read in conjunction with documents filed by Arch Capital with the U.S. Securities and Exchange Commission, including the most recent Annual Report on Form 10-K and the Quarterly Reports on Form 10-Q.  Please refer to the Company’s website at www.archcapgroup.com for further information describing Arch Capital.


Contacts
 
Arch Capital Group Ltd.
Investor Relations
François Morin: (441) 278-9250
Donald Watson: (914) 872-3616; dwatson@archcapservices.com




Arch Capital Group Ltd. and Subsidiaries
Table of Contents


 
 
Page
 
 
 
I.
Financial Highlights
 
 
 
II.
Consolidated Financial Statements
 
 
a.
Consolidated Statements of Income
 
b.
Consolidated Balance Sheets
 
c.
Consolidated Statements of Changes in Shareholders’ Equity
 
d.
Consolidated Statements of Cash Flows
 
 
 
III.
Segment Information
 
 
a.
Overview
 
b.
Consolidated Results
 
c.
Insurance Segment Results
 
d.
Reinsurance Segment Results
 
e.
Mortgage Segment Results
 
f.
Consolidated Results Excluding ‘Other’ Segment
 
g.
Selected Information on Losses and Loss Adjustment Expenses
 
 
 
IV.
Investment Information
 
 
a.
Investable Asset Summary and Investment Portfolio Metrics
 
b.
Composition of Net Investment Income, Yield and Total Return
 
c.
Composition of Fixed Maturities
 
d.
Credit Quality Distribution and Maturity Profile
 
e.
Analysis of Corporate Exposures
 
f.
Structured Securities
 
 
 
V.
Other
 
 
a.
Comments on Regulation G
 
b.
Operating Income Reconciliation and Annualized Operating Return on Average Common Equity
 
c.
Operating Income and Effective Tax Rate Calculations
 
d.
Capital Structure and Share Repurchase Activity


 
1
 

Arch Capital Group Ltd. and Subsidiaries
Basis of Presentation


Basis of Presentation

All financial information contained herein is unaudited, however, certain information relating to the consolidated balance sheet at December 31, 2018 is derived from or agrees to audited financial information. Unless otherwise noted, all data is in thousands, except for share and per share amounts and ratio information.

In March 2014, the Company invested $100.0 million to acquire common equity and a warrant to purchase additional common equity of Watford Holdings Ltd. In accordance with GAAP, the Company consolidates the results of Watford Holdings Ltd. (“Watford”) in its financial statements, although it only owns approximately 13% of Watford’s outstanding common equity at December 31, 2019. Watford is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford. As such, 100% of the results of Watford are included in the Company’s consolidated financial statements. The portion of Watford’s earnings owned by third parties is recorded in the consolidated statements of income as ‘amounts attributable to noncontrolling interests.’ In addition, the Company reflects Watford’s redeemable preference shares in the mezzanine section of the Company’s consolidated balance sheets as ‘redeemable noncontrolling interests’ because they have redemption features that are not solely within the control of Watford.

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This release or any other written or oral statements made by or on behalf of Arch Capital and its subsidiaries may include forward-looking statements, which reflect the Company’s 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 release are forward-looking statements.
 
Forward-looking statements can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or their negative or variations or similar terminology. Forward-looking statements involve the Company’s current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: adverse general economic and market conditions; increased competition; pricing and policy term trends; fluctuations in the actions of rating agencies and the Company’s ability to maintain and improve the Company’s ratings; investment performance; the loss of key personnel; the adequacy of the Company’s loss reserves, severity and/or frequency of losses, greater than expected loss ratios and adverse development on claim and/or claim expense liabilities; greater frequency or severity of unpredictable natural and man-made catastrophic events; the impact of acts of terrorism and acts of war; changes in regulations and/or tax laws in the United States or elsewhere; the Company’s ability to successfully integrate, establish and maintain operating procedures as well as integrate the businesses we have acquired or may acquire into the existing operations; changes in accounting principles or policies; material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; availability and cost to the Company of reinsurance to manage gross and net exposures; the failure of others to meet their obligations to the Company; and other factors identified in the Company’s filings with the U.S. Securities and Exchange Commission.
 
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. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on the Company’s behalf are expressly qualified in their entirety by these cautionary statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 
2
 

Arch Capital Group Ltd. and Subsidiaries
Financial Highlights

The following table presents financial highlights (1):
(U.S. Dollars in thousands, except share data)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
December 31,
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Underwriting results:
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
 
$
1,842,071

 
$
1,599,085

 
15.2
%
 
$
7,695,645

 
$
6,534,423

 
17.8
 %
Net premiums written
 
1,343,100

 
1,169,394

 
14.9
%
 
5,506,205

 
4,742,572

 
16.1
 %
Net premiums earned
 
1,382,437

 
1,222,462

 
13.1
%
 
5,229,809

 
4,653,113

 
12.4
 %
Underwriting income (2)
 
288,672

 
188,986

 
52.7
%
 
1,087,630

 
897,116

 
21.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
51.4
%
 
57.1
%
 
(5.7
)
 
51.3
%
 
52.6
%
 
(1.3
)
Acquisition expense ratio
 
14.3
%
 
14.6
%
 
(0.3
)
 
14.1
%
 
14.6
%
 
(0.5
)
Other operating expense ratio
 
13.9
%
 
12.7
%
 
1.2

 
14.3
%
 
13.8
%
 
0.5

Combined ratio
 
79.6
%
 
84.4
%
 
(4.8
)
 
79.7
%
 
81.0
%
 
(1.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net investment income
 
$
119,906

 
$
115,626

 
3.7
%
 
$
491,067

 
$
437,958

 
12.1
 %
Per diluted share
 
$
0.29

 
$
0.28

 
3.6
%
 
$
1.19

 
$
1.06

 
12.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income available to Arch common shareholders
 
$
315,981

 
$
126,091

 
150.6
%
 
$
1,594,707

 
$
713,616

 
123.5
 %
Per diluted share
 
$
0.76

 
$
0.31

 
145.2
%
 
$
3.87

 
$
1.73

 
123.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
After-tax operating income available to Arch common shareholders (2)
 
$
308,357

 
$
189,171

 
63.0
%
 
$
1,162,639

 
$
909,190

 
27.9
 %
Per diluted share
 
$
0.74

 
$
0.46

 
60.9
%
 
$
2.82

 
$
2.20

 
28.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income available to Arch
 
$
326,760

 
$
178,817

 
82.7
%
 
$
2,027,129

 
$
611,003

 
231.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
443,298

 
$
383,622

 
15.6
%
 
$
1,810,060

 
$
1,331,278

 
36.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares and common share equivalents outstanding — diluted
 
414,124,920

 
410,112,097

 
1.0
%
 
411,609,478

 
412,906,478

 
(0.3
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial measures:
 
 

 
 

 
 

 
 

 
 

 
 

Change in book value per common share during period
 
3.2
%
 
1.7
%
 
1.5

 
22.8
%
 
6.0
%
 
16.8

 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized return on average common equity
 
12.0
%
 
5.9
%
 
6.1

 
16.5
%
 
8.4
%
 
8.1

Annualized operating return on average common equity (2)
 
11.7
%
 
8.8
%
 
2.9

 
12.0
%
 
10.7
%
 
1.3

 
 
 
 
 
 
 
 
 
 
 
 
 
Total return on investments (3)
 
1.07
%
 
0.51
%
 
56 bps

 
7.30
%
 
0.33
%
 
697 bps

 
(1)
Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2)
See ‘Comments on Regulation G’ for a further discussion of consolidated underwriting income or loss, after-tax operating income or loss available to Arch common shareholders and annualized operating return on average common equity.
(3)
Total return on investments includes net investment income, equity in net income (loss) of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains and losses and is calculated on a pre-tax basis and before investment expenses. See ‘Comments on Regulation G’ for a further discussion of the presentation of total return on investments.

 
3
 

Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Income

(U.S. Dollars in thousands, except share data)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2019
 
2019
 
2019
 
2019
 
2018
 
2019
 
2018
Revenues
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net premiums written
 
$
1,455,453

 
$
1,613,457

 
$
1,444,898

 
$
1,525,259

 
$
1,301,754

 
$
6,039,067

 
$
5,346,747

Change in unearned premiums
 
60,429

 
(175,434
)
 
18,829

 
(156,393
)
 
67,681

 
(252,569
)
 
(114,772
)
Net premiums earned
 
1,515,882

 
1,438,023

 
1,463,727

 
1,368,866

 
1,369,435

 
5,786,498

 
5,231,975

Net investment income
 
154,263

 
161,488

 
155,038

 
156,949

 
157,217

 
627,738

 
563,633

Net realized gains (losses)
 
41,474

 
62,518

 
120,806

 
141,565

 
(166,030
)
 
366,363

 
(405,344
)
Net impairment losses recognized in earnings
 
(644
)
 
(1,163
)
 
(49
)
 
(1,309
)
 
(1,705
)
 
(3,165
)
 
(2,829
)
Other underwriting income
 
6,757

 
3,326

 
5,953

 
8,825

 
27

 
24,861

 
15,073

Equity in net income (loss) of investment funds accounted for using the equity method
 
27,139

 
17,130

 
32,536

 
46,867

 
(6,882
)
 
123,672

 
45,641

Other income (loss)
 
(1,317
)
 
1,338

 
1,129

 
1,083

 
(42
)
 
2,233

 
2,419

Total revenues
 
1,743,554

 
1,682,660

 
1,779,140

 
1,722,846

 
1,352,020

 
6,928,200

 
5,450,568

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Losses and loss adjustment expenses
 
(844,922
)
 
(802,455
)
 
(767,543
)
 
(718,532
)
 
(827,673
)
 
(3,133,452
)
 
(2,890,106
)
Acquisition expenses
 
(221,888
)
 
(211,120
)
 
(210,089
)
 
(197,848
)
 
(209,319
)
 
(840,945
)
 
(805,135
)
Other operating expenses
 
(204,408
)
 
(196,512
)
 
(198,914
)
 
(201,163
)
 
(165,515
)
 
(800,997
)
 
(677,809
)
Corporate expenses
 
(26,837
)
 
(17,061
)
 
(18,251
)
 
(17,962
)
 
(26,835
)
 
(80,111
)
 
(78,994
)
Amortization of intangible assets
 
(21,890
)
 
(20,003
)
 
(19,794
)
 
(20,417
)
 
(26,147
)
 
(82,104
)
 
(105,670
)
Interest expense
 
(31,199
)
 
(31,328
)
 
(29,280
)
 
(29,065
)
 
(29,774
)
 
(120,872
)
 
(120,484
)
Net foreign exchange gains (losses)
 
(52,306
)
 
33,124

 
(4,952
)
 
3,525

 
24,579

 
(20,609
)
 
69,402

Total expenses
 
(1,403,450
)
 
(1,245,355
)
 
(1,248,823
)
 
(1,181,462
)
 
(1,260,684
)
 
(5,079,090
)
 
(4,608,796
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
340,104

 
437,305

 
530,317

 
541,384

 
91,336

 
1,849,110

 
841,772

Income tax expense
 
(27,336
)
 
(38,116
)
 
(44,472
)
 
(45,886
)
 
(35,012
)
 
(155,810
)
 
(113,951
)
Net income
 
312,768

 
399,189

 
485,845

 
495,498

 
56,324

 
1,693,300

 
727,821

Net (income) loss attributable to noncontrolling interests
 
13,616

 
(6,736
)
 
(16,891
)
 
(46,970
)
 
80,170

 
(56,981
)
 
30,150

Net income attributable to Arch
 
326,384

 
392,453

 
468,954

 
448,528

 
136,494

 
1,636,319

 
757,971

Preferred dividends
 
(10,403
)
 
(10,403
)
 
(10,403
)
 
(10,403
)
 
(10,403
)
 
(41,612
)
 
(41,645
)
Loss on redemption of preferred shares
 

 

 

 

 

 

 
(2,710
)
Net income available to Arch common shareholders
 
$
315,981

 
$
382,050

 
$
458,551

 
$
438,125

 
$
126,091

 
$
1,594,707

 
$
713,616

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income available to Arch
 
$
326,760

 
$
397,340

 
$
637,458

 
$
665,571

 
$
178,817

 
$
2,027,129

 
$
611,003

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per common share and common share equivalent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.78

 
$
0.95

 
$
1.14

 
$
1.09

 
$
0.31

 
$
3.97

 
$
1.76

Diluted
 
$
0.76

 
$
0.92

 
$
1.12

 
$
1.07

 
$
0.31

 
$
3.87

 
$
1.73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares and common share equivalents outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
402,941,290

 
402,564,121

 
401,482,784

 
400,184,404

 
402,185,557

 
401,802,815

 
404,347,621

Diluted
 
414,124,920

 
413,180,201

 
410,899,483

 
408,971,029

 
410,112,097

 
411,609,478

 
412,906,478





 
4
 

Arch Capital Group Ltd. and Subsidiaries
Consolidated Balance Sheets


(U.S. Dollars in thousands, except share data)
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2019
 
2019
 
2019
 
2019
 
2018
Assets
 
 

 
 

 
 

 
 

 
 

Investments:
 
 

 
 

 
 

 
 

 
 

Fixed maturities available for sale, at fair value
 
$
16,894,526

 
$
16,470,523

 
$
15,881,732

 
$
15,177,312

 
$
14,699,010

Short-term investments available for sale, at fair value
 
956,546

 
751,989

 
821,961

 
706,214

 
955,880

Collateral received under securities lending, at fair value
 
388,376

 
430,263

 
450,320

 
415,056

 
274,133

Equity securities, at fair value
 
838,925

 
550,485

 
670,943

 
495,895

 
338,899

Investments accounted for using the fair value option
 
3,663,477

 
3,838,243

 
3,721,035

 
3,969,623

 
3,983,571

Investments accounted for using the equity method
 
1,660,396

 
1,575,832

 
1,581,972

 
1,563,779

 
1,493,791

Total investments
 
24,402,246

 
23,617,335

 
23,127,963

 
22,327,879

 
21,745,284

Cash
 
726,230

 
880,099

 
605,316

 
633,100

 
646,556

Accrued investment income
 
117,937

 
116,196

 
119,252

 
112,935

 
114,641

Securities pledged under securities lending, at fair value
 
379,868

 
420,415

 
440,510

 
404,262

 
268,395

Premiums receivable
 
1,778,717

 
1,618,186

 
1,606,040

 
1,584,682

 
1,299,150

Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses
 
4,346,816

 
3,168,195

 
3,171,257

 
3,099,823

 
2,919,372

Contractholder receivables
 
2,119,460

 
2,094,683

 
2,102,544

 
2,087,720

 
2,079,111

Ceded unearned premiums
 
1,234,683

 
1,168,258

 
1,136,728

 
1,099,581

 
975,469

Deferred acquisition costs
 
633,400

 
622,028

 
600,740

 
597,526

 
569,574

Receivable for securities sold
 
24,133

 
50,615

 
164,592

 
334,982

 
36,246

Goodwill and intangible assets
 
738,083

 
624,500

 
641,010

 
659,215

 
634,920

Other assets
 
1,383,788

 
1,192,093

 
1,135,718

 
1,035,332

 
929,611

Total assets
 
$
37,885,361

 
$
35,572,603

 
$
34,851,670

 
$
33,977,037

 
$
32,218,329

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Reserve for losses and loss adjustment expenses
 
$
13,891,842

 
$
12,389,384

 
$
12,230,316

 
$
12,010,041

 
$
11,853,297

Unearned premiums
 
4,339,549

 
4,243,372

 
4,056,860

 
4,036,119

 
3,753,636

Reinsurance balances payable
 
667,072

 
601,891

 
531,990

 
453,058

 
393,107

Contractholder payables
 
2,119,460

 
2,094,683

 
2,102,544

 
2,087,720

 
2,079,111

Collateral held for insured obligations
 
206,698

 
205,449

 
237,056

 
232,411

 
236,630

Senior notes
 
1,871,626

 
1,871,386

 
1,733,865

 
1,733,694

 
1,733,528

Revolving credit agreement borrowings
 
484,287

 
490,720

 
491,006

 
488,612

 
455,682

Securities lending payable
 
388,366

 
430,255

 
450,312

 
415,048

 
274,125

Payable for securities purchased
 
87,579

 
176,130

 
294,109

 
376,332

 
90,034

Other liabilities
 
1,513,330

 
1,007,524

 
904,438

 
984,942

 
911,500

Total liabilities
 
25,569,809

 
23,510,794

 
23,032,496

 
22,817,977

 
21,780,650

 
 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interests
 
55,404

 
48,789

 
206,475

 
206,383

 
206,292

 
 
 
 
 
 
 
 
 
 
 
Shareholders’ equity
 
 

 
 

 
 

 
 

 
 

Non-cumulative preferred shares
 
780,000

 
780,000

 
780,000

 
780,000

 
780,000

Common shares
 
638

 
638

 
638

 
636

 
634

Additional paid-in capital
 
1,889,683

 
1,864,468

 
1,847,949

 
1,819,605

 
1,793,781

Retained earnings
 
11,021,006

 
10,705,025

 
10,322,975

 
9,864,424

 
9,426,299

Accumulated other comprehensive income (loss), net of deferred income tax
 
212,091

 
211,714

 
206,827

 
38,323

 
(178,720
)
Common shares held in treasury, at cost
 
(2,406,047
)
 
(2,403,749
)
 
(2,401,037
)
 
(2,388,392
)
 
(2,382,167
)
Total shareholders’ equity available to Arch
 
11,497,371

 
11,158,096

 
10,757,352

 
10,114,596

 
9,439,827

Non-redeemable noncontrolling interests
 
762,777

 
854,924

 
855,347

 
838,081

 
791,560

Total shareholders’ equity
 
12,260,148

 
12,013,020

 
11,612,699

 
10,952,677

 
10,231,387

Total liabilities, noncontrolling interests and shareholders’ equity
 
$
37,885,361

 
$
35,572,603

 
$
34,851,670

 
$
33,977,037

 
$
32,218,329

 
 
 
 
 
 
 
 
 
 
 
Common shares and common share equivalents outstanding, net of treasury shares
 
405,619,201

 
405,230,531

 
404,887,534

 
403,738,764

 
402,454,834

Book value per common share (1)
 
$
26.42

 
$
25.61

 
$
24.64

 
$
23.12

 
$
21.52


(1)
Excludes the effects of stock options and restricted stock units outstanding.

 
5
 

Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity


(U.S. Dollars in thousands)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2019
 
2019
 
2019
 
2019
 
2018
 
2019
 
2018
Non-cumulative preferred shares
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
780,000

 
$
780,000

 
$
780,000

 
$
780,000

 
$
780,000

 
$
780,000

 
$
872,555

Preferred shares redeemed
 

 

 

 

 

 

 
(92,555
)
Balance at end of period
 
$
780,000

 
$
780,000

 
$
780,000

 
$
780,000

 
$
780,000

 
$
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
 
638

 
638

 
636

 
634

 
633

 
634

 
611

Common shares issued, net
 

 

 
2

 
2

 
1

 
4

 
23

Balance at end of period
 
638

 
638

 
638

 
636

 
634

 
638

 
634

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional paid-in capital
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
1,864,468

 
1,847,949

 
1,819,605

 
1,793,781

 
1,775,499

 
1,793,781

 
1,230,617

Preferred shares converted to common shares
 

 

 

 

 

 

 
489,608

Reversal of original issue costs on redeemed preferred shares
 

 

 

 

 

 

 
2,710

All other
 
25,215


16,519


28,344


25,824


18,282


95,902


70,846

Balance at end of period
 
1,889,683

 
1,864,468

 
1,847,949

 
1,819,605

 
1,793,781

 
1,889,683

 
1,793,781

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retained earnings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
10,705,025

 
10,322,975

 
9,864,424

 
9,426,299

 
9,300,208

 
9,426,299

 
8,562,889

Cumulative effect of an accounting change
 

 

 

 

 

 

 
149,794

Balance at beginning of period, as adjusted
 
10,705,025

 
10,322,975

 
9,864,424

 
9,426,299

 
9,300,208

 
9,426,299

 
8,712,683

Net income
 
312,768

 
399,189

 
485,845

 
495,498

 
56,324

 
1,693,300

 
727,821

Amounts attributable to noncontrolling interests
 
13,616

 
(6,736
)
 
(16,891
)
 
(46,970
)
 
80,170

 
(56,981
)
 
30,150

Preferred share dividends
 
(10,403
)
 
(10,403
)
 
(10,403
)
 
(10,403
)
 
(10,403
)
 
(41,612
)
 
(41,645
)
Loss on redemption of preferred shares
 

 

 

 

 

 

 
(2,710
)
Balance at end of period
 
11,021,006

 
10,705,025

 
10,322,975

 
9,864,424

 
9,426,299

 
11,021,006

 
9,426,299

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
211,714

 
206,827

 
38,323

 
(178,720
)
 
(221,041
)
 
(178,720
)
 
118,044

Cumulative effect of an accounting change
 

 

 

 

 

 

 
(149,794
)
Change in unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax
 
(24,707
)
 
21,566

 
164,425

 
211,380

 
58,042

 
372,664

 
(121,784
)
Change in foreign currency translation adjustments
 
25,084

 
(16,679
)
 
4,079

 
5,663

 
(15,721
)
 
18,147

 
(25,186
)
Balance at end of period
 
212,091

 
211,714

 
206,827

 
38,323

 
(178,720
)
 
212,091

 
(178,720
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common shares held in treasury, at cost
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
(2,403,749
)
 
(2,401,037
)
 
(2,388,392
)
 
(2,382,167
)
 
(2,280,151
)
 
(2,382,167
)
 
(2,077,741
)
Shares repurchased for treasury
 
(2,298
)
 
(2,712
)
 
(12,645
)
 
(6,225
)
 
(102,016
)
 
(23,880
)
 
(304,426
)
Balance at end of period
 
(2,406,047
)
 
(2,403,749
)
 
(2,401,037
)
 
(2,388,392
)
 
(2,382,167
)
 
(2,406,047
)
 
(2,382,167
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total shareholders’ equity available to Arch
 
11,497,371

 
11,158,096

 
10,757,352

 
10,114,596

 
9,439,827

 
11,497,371

 
9,439,827

Non-redeemable noncontrolling interests
 
762,777

 
854,924

 
855,347

 
838,081

 
791,560

 
762,777

 
791,560

Total shareholders’ equity
 
$
12,260,148

 
$
12,013,020

 
$
11,612,699

 
$
10,952,677

 
$
10,231,387

 
$
12,260,148

 
$
10,231,387



 
6
 

Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows

(U.S. Dollars in thousands)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2019
 
2019
 
2019
 
2019
 
2018
 
2019
 
2018
Operating Activities
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income
 
$
312,768

 
$
399,189

 
$
485,845

 
$
495,498

 
$
56,324

 
$
1,693,300

 
$
727,821

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net realized (gains) losses
 
(52,079
)
 
(64,760
)
 
(118,893
)
 
(145,400
)
 
162,793

 
(381,132
)
 
387,550

Net impairment losses included in earnings
 
644

 
1,163

 
49

 
1,309

 
1,705

 
3,165

 
2,829

Equity in net income or loss of investment funds accounted for using the equity method and other income or loss
 
24,899

 
6,808

 
(15,968
)
 
(29,752
)
 
30,337

 
(14,013
)
 
36,694

Amortization of intangible assets
 
21,890

 
20,003

 
19,794

 
20,417

 
26,147

 
82,104

 
105,670

Share-based compensation
 
11,985

 
12,895

 
15,646

 
25,891

 
9,970

 
66,417

 
55,776

Changes in:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reserve for losses and loss adjustment expenses, net
 
112,907

 
222,678

 
160,401

 
(6,005
)
 
175,489

 
489,981

 
243,734

Unearned premiums, net
 
(60,429
)
 
175,434

 
(18,829
)
 
156,393

 
(67,681
)
 
252,569

 
114,772

Premiums receivable
 
91,013

 
(26,715
)
 
(16,913
)
 
(285,137
)
 
(8,049
)
 
(237,752
)
 
(211,296
)
Deferred acquisition costs
 
(8,654
)
 
(13,816
)
 
(1,622
)
 
(23,168
)
 
(1,773
)
 
(47,260
)
 
(37,847
)
Reinsurance balances payable
 
(32,770
)
 
75,487

 
76,810

 
62,605

 
(10,258
)
 
182,132

 
73,438

Other items, net
 
83,146

 
22,249

 
(109,194
)
 
(37,253
)
 
63,331

 
(41,052
)
 
60,181

Net cash provided by operating activities
 
505,320

 
830,615

 
477,126

 
235,398

 
438,335

 
2,048,459

 
1,559,322

Investing Activities
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Purchases of fixed maturity investments
 
(6,043,154
)
 
(7,677,977
)
 
(8,888,176
)
 
(7,444,470
)
 
(8,489,743
)
 
(30,053,777
)
 
(33,327,660
)
Purchases of equity securities
 
(287,916
)
 
(92,112
)
 
(228,129
)
 
(203,810
)
 
(181,807
)
 
(811,967
)
 
(1,001,149
)
Purchases of other investments
 
(455,620
)
 
(337,862
)
 
(352,470
)
 
(324,593
)
 
(471,290
)
 
(1,470,545
)
 
(2,014,622
)
Proceeds from sales of fixed maturity investments
 
5,888,011

 
7,075,372

 
8,555,892

 
7,076,590

 
8,203,068

 
28,595,865

 
31,513,271

Proceeds from sales of equity securities
 
58,688

 
194,429

 
81,684

 
95,017

 
251,526

 
429,818

 
1,118,445

Proceeds from sales, redemptions and maturities of other investments
 
382,042

 
292,819

 
318,215

 
216,483

 
383,923

 
1,209,559

 
1,561,958

Proceeds from redemptions and maturities of fixed maturity investments
 
248,546

 
149,770

 
144,525

 
100,424

 
168,734

 
643,265

 
892,755

Net settlements of derivative instruments
 
(32,441
)
 
4,722

 
57,964

 
29,737

 
43,934

 
59,982

 
44,699

Net (purchases) sales of short-term investments
 
(89,245
)
 
(72,442
)
 
(91,081
)
 
292,601

 
(68,842
)
 
39,833

 
485,473

Change in cash collateral related to securities lending
 
(69,183
)
 
(600
)
 
37,208

 
(29,618
)
 
43,810

 
(62,193
)
 
180,883

Purchases of fixed assets
 
(10,202
)
 
(11,276
)
 
(6,936
)
 
(9,423
)
 
(10,759
)
 
(37,837
)
 
(29,809
)
Other
 
(145,533
)
 
(28,375
)
 
(80,847
)
 
(93,731
)
 
(36,491
)
 
(348,486
)
 
21,736

Net cash provided by (used for) investing activities
 
(556,007
)
 
(503,532
)
 
(452,151
)
 
(294,793
)
 
(163,937
)
 
(1,806,483
)
 
(554,020
)
Financing Activities
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Redemption of preferred shares
 

 

 

 

 

 

 
(92,555
)
Purchases of common shares under share repurchase program
 

 

 

 
(2,871
)
 
(98,233
)
 
(2,871
)
 
(282,762
)
Proceeds from common shares issued, net
 
5,685

 
1,075

 
1,344

 
(1,901
)
 
4,421

 
6,203

 
(7,608
)
Proceeds from borrowings
 

 
137,283

 
3,800

 
59,000

 
51,000

 
200,083

 
218,259

Repayments of borrowings
 
(21,644
)
 

 
(1,500
)
 
(26,038
)
 
(149,401
)
 
(49,182
)
 
(576,401
)
Change in cash collateral related to securities lending
 
69,183

 
600

 
(37,208
)
 
29,618

 
(43,810
)
 
62,193

 
(180,883
)
Change in third party investment in non-redeemable noncontrolling interests
 
(75,056
)
 

 

 

 

 
(75,056
)
 

Change in third party investment in redeemable noncontrolling interests
 
(8
)
 
(161,874
)
 

 

 

 
(161,882
)
 

Dividends paid to redeemable noncontrolling interests
 
(1,107
)
 
(2,414
)
 
(4,497
)
 
(4,497
)
 
(4,498
)
 
(12,515
)
 
(17,989
)
Other
 
(816
)
 
(1,678
)
 
(2,140
)
 
(1,389
)
 
(1,142
)
 
(6,023
)
 
(7,226
)
Preferred dividends paid
 
(10,403
)
 
(10,403
)
 
(10,403
)
 
(10,403
)
 
(10,403
)
 
(41,612
)
 
(41,645
)
Net cash provided by (used for) financing activities
 
(34,166
)
 
(37,411
)