8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K

Current Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

October 29, 2020

Date of Report (Date of earliest event reported) 

Arch Capital Group Ltd.

(Exact name of registrant as specified in its charter)

Bermuda	001-16209	98-0374481
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

Waterloo House, Ground Floor, 100 Pitts Bay Road, Pembroke HM 08, Bermuda

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:

(441) 278-9250

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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 1/1,000th interest in a 5.25% Series E preferred share	ACGLP	NASDAQ	Stock Market
Depositary shares, each representing a 1/1,000th interest in a 5.45% Series F preferred share	ACGLO	NASDAQ	Stock Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

    Emerging growth company     ☐

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

ITEM 2.02           Results of Operations and Financial Condition.

On October 29, 2020, Arch Capital Group Ltd. issued a press release reporting its earnings and the availability of its financial supplement for the quarter ended September 30, 2020. The press release and financial supplement are attached to this Current Report on Form 8-K as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated herein by reference.

The information in this Current Report on Form 8-K, including the information set forth in Exhibit 99.1 and Exhibit 99.2, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

ITEM 9.01           Financial Statements and Exhibits.

(d):     The following exhibits are being filed herewith.

EXHIBIT NO.	DESCRIPTION
99.1	Press Release dated October 29, 2020 announcing the earnings of Arch Capital Group Ltd. for the quarter ended September 30, 2020
99.2	2020 Third Quarter Financial Supplement
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

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

	ARCH CAPITAL GROUP LTD.
Date: October 29, 2020	By:	/s/ François Morin
		Name:	François Morin
		Title:	Executive Vice President, Chief Financial Officer and Treasurer

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EX-99.1

		EXHIBIT 99.1
	PRESS RELEASE	Arch Capital Group Ltd.
	NASDAQ Symbol: ACGL	Waterloo House, Ground Floor
	For Immediate Release	100 Pitts Bay Road
	October 29, 2020	Pembroke HM 08 Bermuda

ARCH CAPITAL GROUP LTD. REPORTS 2020 THIRD QUARTER RESULTS

PEMBROKE, BERMUDA--(BUSINESS WIRE)--Arch Capital Group Ltd. (NASDAQ: ACGL) announces its 2020 third quarter results. The results included:

•Net income available to Arch common shareholders of $408.6 million, or $1.00 per share, a 14.3% annualized return on average common equity, compared to $382.1 million, or $0.92 per share, for the 2019 third quarter;

•After-tax operating income available to Arch common shareholders(1) of $120.3 million, or $0.29 per share, a 4.2% annualized return on average common equity, compared to $261.0 million, or $0.63 per share, for the 2019 third quarter;

•Pre-tax current accident year catastrophic losses for the Company’s insurance and reinsurance segments, net of reinsurance and reinstatement premiums(1) of $203.3 million, primarily related to Hurricanes Isaias, Laura and Sally along with losses related to the Derecho Windstorm, California wildfires and other events. Such amount also includes $11.9 million of COVID-19 related losses;

•Favorable development in prior year loss reserves, net of related adjustments(1) of $46.4 million;

•Combined ratio excluding catastrophic activity and prior year development(1) of 84.3%, compared to 80.9% for the 2019 third quarter;

•The percentage of loans in default on U.S. primary mortgage business was 4.69% at September 30, 2020, compared to 5.14% at June 30, 2020;

•Total return on investments(1) of 2.30%;

•Book value per common share of $28.75 at September 30, 2020, a 4.1% increase from June 30, 2020 and a 12.2% increase from September 30, 2019.

All earnings per share amounts discussed in this release are on a diluted basis. The following table summarizes the Company’s underwriting results, both (i) on a consolidated basis and (ii) on a consolidated basis excluding the ‘other’ segment (i.e., results of Watford):

(U.S. dollars in thousands)	Consolidated							Consolidated Excluding ‘Other’ Segment (1)
	Three Months Ended September 30,							Three Months Ended September 30,
	2020			2019			% Change	2020			2019			% Change
Gross premiums written	$	2,681,032		$	2,181,121		22.9	$	2,556,914		$	2,043,292		25.1
Net premiums written	1,874,144			1,613,457			16.2	1,726,828			1,457,705			18.5
Net premiums earned	1,771,092			1,438,023			23.2	1,625,061			1,312,191			23.8
Underwriting income	96,604			231,262			(58.2)	104,877			235,705			(55.5)
Underwriting Ratios							% Point Change							% Point Change
Loss ratio	68.7		%	55.8		%	12.9	67.7		%	53.8		%	13.9
Underwriting expense ratio	26.2		%	28.4		%	(2.2)	26.2		%	28.4		%	(2.2)
Combined ratio	94.9		%	84.2		%	10.7	93.9		%	82.2		%	11.7
Combined ratio excluding catastrophic activity and prior year development (1)								84.3		%	80.9		%	3.4

(1)    Presentation represents a “non-GAAP” financial measure as defined in Regulation G. Such presentation excludes the results of Watford Holdings Ltd. (“Watford”). Pursuant to GAAP, the Company consolidates the results of Watford in its financial statements, although it only owns approximately 13% of Watford’s outstanding common equity as of September 30, 2020. See ‘Comments on Regulation G’ for further details.

1

The following table summarizes the Company’s 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 and related diluted per share results:

(U.S. dollars in thousands, except share data)	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Net income available to Arch common shareholders	$	408,636		$	382,050		$	830,768		$	1,278,726
Net realized (gains) losses	(219,726)			(77,959)			(517,007)			(316,882)
Equity in net (income) loss of investment funds accounted for using the equity method	(126,735)			(17,130)			(57,407)			(96,533)
Net foreign exchange (gains) losses	39,462			(30,160)			17,003			(29,100)
Transaction costs and other	1,674			1,995			5,246			5,363
Income tax expense (benefit) (1)	17,010			2,156			48,088			12,708
After-tax operating income available to Arch common shareholders	$	120,321		$	260,952		$	326,691		$	854,282
Diluted per common share results:
Net income available to Arch common shareholders	$	1.00		$	0.92		$	2.02		$	3.11
Net realized (gains) losses	(0.54)			(0.19)			(1.25)			(0.77)
Equity in net (income) loss of investment funds accounted for using the equity method	(0.31)			(0.04)			(0.14)			(0.23)
Net foreign exchange (gains) losses	0.10			(0.07)			0.04			(0.07)
Transaction costs and other	0.00			0.00			0.01			0.01
Income tax expense (benefit) (1)	0.04			0.01			0.12			0.03
After-tax operating income available to Arch common shareholders	$	0.29		$	0.63		$	0.80		$	2.08
Weighted average common shares and common share equivalents outstanding — diluted	409,194,657			413,180,201			410,314,897			410,807,402
Beginning common shareholders’ equity	$	11,211,825		$	9,977,352		$	10,717,371		$	8,659,827
Ending common shareholders’ equity	11,671,997			10,378,096			11,671,997			10,378,096
Average common shareholders’ equity	$	11,441,911		$	10,177,724		$	11,194,684		$	9,518,962
Annualized return on average common equity	14.3		%	15.0		%	9.9		%	17.9		%
Annualized operating return on average common equity	4.2		%	10.3		%	3.9		%	12.0		%

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

Each line item in the table above reflects the impact of the Company’s ownership of Watford’s outstanding common equity. See ‘Comments on Regulation G’ for a discussion of non-GAAP financial measures.

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Segment Information

The following section provides analysis on the Company’s 2020 third quarter performance by operating segment.For additional details regarding the Company’s operating segments, please refer to the Company’s Financial Supplement dated September 30, 2020. The Company’s segment information includes the use of underwriting income (loss) and a combined ratio excluding catastrophic activity and prior year development. Such items are non-GAAP financial measures (see ‘Comments on Regulation G’ for further details).

Insurance Segment

	Three Months Ended September 30,
(U.S. dollars in thousands)	2020			2019			% Change
Gross premiums written	$	1,206,328		$	1,005,874		19.9
Net premiums written	824,161			703,840			17.1
Net premiums earned	719,154			605,336			18.8
Underwriting income (loss)	$	(31,159)		$	(24,113)		(29.2)
Underwriting Ratios							% Point Change
Loss ratio	73.0		%	69.8		%	3.2
Underwriting expense ratio	31.2		%	34.2		%	(3.0)
Combined ratio	104.2		%	104.0		%	0.2
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums	10.3		%	4.3		%	6.0
Net (favorable) adverse development in prior year loss reserves, net of related adjustments	(0.2)		%	(0.6)		%	0.4
Combined ratio excluding catastrophic activity and prior year development (1)	94.1		%	100.3		%	(6.2)

(1)See ‘Comments on Regulation G’ for further discussion.

Gross premiums written by the insurance segment in the 2020 third quarter were 19.9% higher than in the 2019 third quarter while net premiums written were 17.1% higher than in the 2019 third quarter. The higher level of net premiums written reflected increases across most lines of business, due in part to new business opportunities, rate increases and growth in existing accounts, partially offset by a decrease in travel business, reflecting the ongoing impact of the COVID-19 global pandemic. Net premiums earned in the 2020 third quarter were 18.8% higher than in the 2019 third quarter, and reflect changes in net premiums written over the previous five quarters.

The 2020 third quarter loss ratio reflected 10.3 points of current year catastrophic activity, primarily related to Hurricanes Isaias, Laura and Sally, including 0.5 points related to COVID-19. The 2019 third quarter included 4.3 points of current year catastrophic activity. Estimated net favorable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 0.3 points in the 2020 third quarter, compared to 0.7 points in the 2019 third quarter. The 2020 third quarter loss ratio also reflected changes in mix of business, the effect of rate increases and a lower level of attritional losses than in the 2019 third quarter.

The underwriting expense ratio was 31.2% in the 2020 third quarter, compared to 34.2% in the 2019 third quarter, with the decrease due primarily to growth in net premiums earned.

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Reinsurance Segment

	Three Months Ended September 30,
(U.S. dollars in thousands)	2020			2019			% Change
Gross premiums written	$	1,004,590		$	662,572		51.6
Net premiums written	604,202			436,476			38.4
Net premiums earned	554,498			363,855			52.4
Other underwriting income (loss)	298			(1,208)			124.7
Underwriting income (loss)	$	5,506		$	(2,658)		307.1
Underwriting Ratios							% Point Change
Loss ratio	76.1		%	74.3		%	1.8
Underwriting expense ratio	22.9		%	26.0		%	(3.1)
Combined ratio	99.0		%	100.3		%	(1.3)
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums	23.3		%	11.5		%	11.8
Net (favorable) adverse development in prior year loss reserves, net of related adjustments	(7.4)		%	(4.0)		%	(3.4)
Combined ratio excluding catastrophic activity and prior year development (1)	83.1		%	92.8		%	(9.7)

(1)See ‘Comments on Regulation G’ for further discussion.

Gross premiums written by the reinsurance segment in the 2020 third quarter were 51.6% higher than in the 2019 third quarter, while net premiums written were 38.4% higher than 2019 third quarter. The growth in net premiums written is less than the growth in gross premiums written, primarily reflecting a higher level of retrocessions on certain property and casualty business. The higher level of net premiums written primarily reflected increases in property and other specialty lines, mainly due to new business and rate increases. Net premiums earned by the reinsurance segment in the 2020 third quarter were 52.4% higher than in the 2019 third quarter, and reflect changes in net premiums written over the previous five quarters.

The 2020 third quarter loss ratio reflected 26.1 points of current year catastrophic activity, primarily related to Hurricanes Laura and Sally and the Derecho Windstorm, including 1.5 points related to COVID-19. The 2019 third quarter included 12.2 points of current year catastrophic activity, primarily related to Hurricane Dorian and Typhoon Faxai. Estimated net favorable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 7.6 points in the 2020 third quarter, compared to 4.2 points in the 2019 third quarter. The 2020 third quarter loss ratio also reflected a lower level of attritional losses, changes in the mix of business and the effect of rate increases.

The underwriting expense ratio was 22.9% in the 2020 third quarter, compared to 26.0% in the 2019 third quarter, with the decrease due primarily to growth in net premiums earned.

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Mortgage Segment

	Three Months Ended September 30,
(U.S. dollars in thousands)	2020			2019			% Change
Gross premiums written	$	346,248		$	375,092		(7.7)
Net premiums written	298,465			317,389			(6.0)
Net premiums earned	351,409			343,000			2.5
Other underwriting income	4,600			3,955			16.3
Underwriting income	$	130,530		$	262,476		(50.3)
Underwriting Ratios							% Point Change
Loss ratio	43.6		%	3.8		%	39.8
Underwriting expense ratio	20.6		%	20.8		%	(0.2)
Combined ratio	64.2		%	24.6		%	39.6
Prior year development:
Net (favorable) adverse development in prior year loss reserves, net of related adjustments	(1.3)		%	(9.6)		%	8.3
Combined ratio excluding prior year development (1)	65.5		%	34.2		%	31.3

(1)See ‘Comments on Regulation G’ for further discussion.

Gross premiums written by the mortgage segment in the 2020 third quarter were 7.7% lower than in the 2019 third quarter, while net premiums written were 6.0% lower, primarily reflecting a reduction in U.S. primary mortgage insurance in force due to mortgage refinance activity and a lower contribution from single premium policies. Net premiums written for the 2020 third quarter also reflected a lower level of ceded premiums on U.S. primary mortgage business. Net premiums earned were 2.5% higher for the 2020 third quarter and reflected a higher level of single premiums earned as a result of policy terminations due to mortgage refinance activity, which more than offset the reduction in U.S. primary mortgage insurance in force noted above.

U.S. primary mortgage business generated $32.8 billion of new insurance written (“NIW”) in the 2020 third quarter, compared to $25.3 billion in the 2019 third quarter, with the growth primarily reflecting the significant increase in mortgage originations in the market. Monthly premium policies contributed 97.4% of NIW in the 2020 third quarter, compared to 92.3% in the 2019 third quarter.

Incurred losses for the 2020 third quarter reflected elevated delinquency rates in comparison to the 2019 third quarter due, in part, to financial stress from the COVID-19 pandemic. The percentage of loans in default on U.S. primary mortgage business was 4.69% at September 30, 2020, compared to 5.14% at June 30, 2020. Estimated net favorable development in prior year loss reserves, before related adjustments, reduced the 2020 third quarter loss ratio by 1.3 points, compared to 9.6 points in the 2019 third quarter.

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Corporate and Non-Underwriting

Corporate and non-underwriting results include net investment income, other income (loss), corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, items related to the Company’s non-cumulative preferred shares, net realized gains or losses (which includes changes in the allowance for credit losses on financial assets and 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 and income taxes. Such amounts exclude the results of the ‘other’ segment.

Pre-tax net investment income for the 2020 third quarter was $0.24 per share, or $99.9 million, compared to $0.31 per share, or $126.9 million, for the 2019 third quarter. The annualized pre-tax investment income yield was 1.76% for the 2020 third quarter, compared to 2.58% for the 2019 third quarter, with the decrease primarily due to lower yields available in the financial markets. Total return, a non-GAAP measure, was 2.30% for the 2020 third quarter. See ‘Comments on Regulation G’ for a discussion of non-GAAP financial measures.

Interest expense for the 2020 third quarter was $36.2 million, compared to $23.2 million for the 2019 third quarter. The higher level of interest expense mainly resulted from the issuance of $1.0 billion of 3.635% senior notes in June 2020.

On a pre-tax basis, net foreign exchange losses for the 2020 third quarter were $38.7 million, compared to net foreign exchange gains for the 2019 third quarter of $29.8 million. For both periods, such amounts were primarily unrealized and resulted from the effects of revaluing the Company’s net insurance liabilities required to be settled in foreign currencies at each balance sheet date. Changes in the value of available-for-sale investments held in foreign currencies due to foreign currency rate movements are reflected as a direct increase or decrease to shareholders’ equity and are not included in the consolidated statements of income. Although the Company generally attempts to match the currency of its projected liabilities with investments in the same currencies, the Company may elect to over or underweight one or more currencies from time to time, which could increase the Company’s exposure to foreign currency fluctuations and increase the volatility of the Company’s shareholders’ equity.

The Company’s effective tax rate on income before income taxes (based on the Company’s estimated annual effective tax rate) was 5.3% for the 2020 third quarter, compared to 8.9% for the 2019 third quarter. The Company’s effective tax rate on pre-tax operating income available to Arch common shareholders was 4.8% for the 2020 third quarter, compared to 11.7% for the 2019 third quarter. The Company’s effective tax rate may fluctuate from period to period based upon the relative mix of income or loss reported by jurisdiction, the level of catastrophic loss activity incurred, and the varying tax rates in each jurisdiction. The Company’s quarterly tax provision is adjusted to reflect changes in its estimated annual effective tax rate, if any.

Conference Call

The Company will hold a conference call for investors and analysts at 11:00 a.m. Eastern Time on October 30, 2020. A live webcast of this call will be available via the Investors section of the Company’s website at http://www.archcapgroup.com. A telephone replay of the conference call also will be available beginning on October 30, 2020 at 2:00 p.m. Eastern Time until November 6, 2020 at midnight Eastern Time. To access the replay, domestic callers should dial 855-859-2056, and international callers should dial 404-537-3406 (passcode 6457629 for all callers).

Please refer to the Company’s Financial Supplement dated September 30, 2020, which is available via the Investors section of the Company’s website at http://www.archcapgroup.com. The Financial Supplement provides additional detail regarding the financial performance of the Company. From time to time, the Company posts additional financial information and presentations to its website, including information with respect to its subsidiaries. Investors and other recipients of this information are encouraged to check the Company’s website regularly for additional information regarding the Company.

Arch Capital Group Ltd., a Bermuda-based company with approximately $15.2 billion in capital at September 30, 2020, provides insurance, reinsurance and mortgage insurance on a worldwide basis through its wholly owned subsidiaries.

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Comments on Regulation G

Throughout this release, the Company presents its operations in the way it believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use the Company’s financial information in evaluating the performance of the Company and that investors and such other persons benefit from having a consistent basis for comparison between quarters and for comparison with other companies within the industry. These measures may not, however, be comparable to similarly titled measures used by companies outside of the insurance industry. Investors are cautioned not to place undue reliance on these non-GAAP financial measures in assessing the Company’s overall financial performance.

This presentation includes the use of “after-tax operating income or loss available to Arch common shareholders,” which is defined as net income available to Arch common shareholders, excluding net realized gains or losses (which includes changes in the allowance for credit losses on financial assets and 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 and transaction costs and other, net of 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 GAAP financial measures) in accordance with Regulation G is included on page 2 of this release.

The Company believes that net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other in any particular period are not indicative of the performance of, or trends in, the Company’s business performance. Although net realized gains or losses, 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 the Company’s 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 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 the Company’s financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. In addition, changes in the allowance for credit losses and net impairment losses recognized in earnings on the Company’s investments represent other-than-temporary declines in expected recovery values on securities without actual realization. The use of the equity method on certain of the Company’s 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 the Company’s proportionate share of the net income or loss of the funds (which include changes in the fair value of the underlying securities in the funds). This method of accounting is different from the way the Company accounts for its 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 costs related to acquisitions and Watford’s non-recurring listing expenses. The Company believes that transaction costs and other, due to their non-recurring nature, are not indicative of the performance of, or trends in, the Company’s business performance. Due to these reasons, the Company excludes net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other from the calculation of after-tax operating income or loss available to Arch common shareholders.

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

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The Company’s 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 its 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 the Company’s individual underwriting operations. Underwriting income or loss does not incorporate items included in the Company’s corporate (non-underwriting) segment. While these measures are presented in the Segment Information footnote to the Company’s 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 on the following pages.

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 and, accordingly, investment income and other non-underwriting related items are not allocated to each underwriting segment. As noted earlier, the ‘other’ segment includes the results of Watford. Watford has its own management and board of directors that is responsible for its own results and profitability. For the ‘other’ segment, performance is measured based on net income or loss. The Company does not guarantee or provide credit support for Watford, and the Company’s financial exposure to Watford is limited to its investment in Watford’s senior notes, common and preferred shares and counterparty credit risk (mitigated by collateral) arising from reinsurance transactions.

Along with consolidated underwriting income, the Company provides a subtotal of underwriting income or loss before the contribution from the ‘other’ segment and believes that this presentation enables investors and other users of the Company’s financial information to analyze the Company’s underwriting performance in a manner similar to how the Company’s management analyzes performance.

In addition, the Company’s segment information includes the use of a combined ratio excluding catastrophic activity and prior year development, for the insurance and reinsurance segments, and a combined ratio excluding prior year development, for the mortgage segment. These ratios are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to the combined ratio (the most directly comparable GAAP financial measure) in accordance with Regulation G are shown on the individual segment pages. The Company’s management utilizes the adjusted combined ratios excluding current accident year catastrophic events and favorable or adverse development in prior year loss reserves in its analysis of the underwriting performance of each of its 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 (excluding changes in the allowance for credit losses on non-investment related financial assets) 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. Management uses total return on investments as a key measure of the return generated to Arch common shareholders, and compares the return generated by the Company’s investment portfolio against benchmark returns during the periods presented.

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The following tables summarize the Company’s results by segment for the 2020 third quarter and 2019 third quarter and a reconciliation of underwriting income or loss to income or loss before income taxes and net income or loss available to Arch common shareholders:

(U.S. Dollars in thousands)	Three Months Ended
	September 30, 2020
	Insurance			Reinsurance			Mortgage			Sub-total			Other			Total
Gross premiums written (1)	$	1,206,328		$	1,004,590		$	346,248		$	2,556,914		$	197,480		$	2,681,032
Premiums ceded	(382,167)			(400,388)			(47,783)			(830,086)			(50,164)			(806,888)
Net premiums written	824,161			604,202			298,465			1,726,828			147,316			1,874,144
Change in unearned premiums	(105,007)			(49,704)			52,944			(101,767)			(1,285)			(103,052)
Net premiums earned	719,154			554,498			351,409			1,625,061			146,031			1,771,092
Other underwriting income (loss)	(31)			298			4,600			4,867			546			5,413
Losses and loss adjustment expenses	(525,321)			(422,084)			(153,055)			(1,100,460)			(115,813)			(1,216,273)
Acquisition expenses	(102,420)			(85,388)			(35,716)			(223,524)			(24,418)			(247,942)
Other operating expenses	(122,541)			(41,818)			(36,708)			(201,067)			(14,619)			(215,686)
Underwriting income (loss)	$	(31,159)		$	5,506		$	130,530		104,877			(8,273)			96,604
Net investment income										99,857			28,655			128,512
Net realized gains (losses)										210,984			69,515			280,499
Equity in net income (loss) of investment funds accounted for using the equity method										126,735			—			126,735
Other income										919			—			919
Corporate expenses										(16,263)			—			(16,263)
Transaction costs and other										(1,674)			—			(1,674)
Amortization of intangible assets										(16,715)			—			(16,715)
Interest expense										(36,224)			(5,119)			(41,343)
Net foreign exchange gains (losses)										(38,681)			(6,204)			(44,885)
Income (loss) before income taxes										433,815			78,574			512,389
Income tax expense										(23,638)			(69)			(23,707)
Net income (loss)										410,177			78,505			488,682
Dividends attributable to redeemable noncontrolling interests										(882)			(993)			(1,875)
Amounts attributable to nonredeemable noncontrolling interests										—			(67,768)			(67,768)
Net income (loss) available to Arch										409,295			9,744			419,039
Preferred dividends										(10,403)			—			(10,403)
Net income (loss) available to Arch common shareholders										$	398,892		$	9,744		$	408,636
Underwriting Ratios
Loss ratio	73.0		%	76.1		%	43.6		%	67.7		%	79.3		%	68.7		%
Acquisition expense ratio	14.2		%	15.4		%	10.2		%	13.8		%	16.7		%	14.0		%
Other operating expense ratio	17.0		%	7.5		%	10.4		%	12.4		%	10.0		%	12.2		%
Combined ratio	104.2		%	99.0		%	64.2		%	93.9		%	106.0		%	94.9		%
Net premiums written to gross premiums written	68.3		%	60.1		%	86.2		%	67.5		%	74.6		%	69.9		%

(1)    Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. 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.

9

(U.S. Dollars in thousands)	Three Months Ended
	September 30, 2019
	Insurance			Reinsurance			Mortgage			Sub-total			Other			Total
Gross premiums written (1)	$	1,005,874		$	662,572		$	375,092		$	2,043,292		$	249,960		$	2,181,121
Premiums ceded	(302,034)			(226,096)			(57,703)			(585,587)			(94,208)			(567,664)
Net premiums written	703,840			436,476			317,389			1,457,705			155,752			1,613,457
Change in unearned premiums	(98,504)			(72,621)			25,611			(145,514)			(29,920)			(175,434)
Net premiums earned	605,336			363,855			343,000			1,312,191			125,832			1,438,023
Other underwriting income (loss)	—			(1,208)			3,955			2,747			579			3,326
Losses and loss adjustment expenses	(422,782)			(270,379)			(13,080)			(706,241)			(96,214)			(802,455)
Acquisition expenses	(91,259)			(62,393)			(34,396)			(188,048)			(23,072)			(211,120)
Other operating expenses	(115,408)			(32,533)			(37,003)			(184,944)			(11,568)			(196,512)
Underwriting income (loss)	$	(24,113)		$	(2,658)		$	262,476		235,705			(4,443)			231,262
Net investment income										126,874			34,614			161,488
Net realized gains (losses)										80,014			(18,659)			61,355
Equity in net income (loss) of investment funds accounted for using the equity method										17,130			—			17,130
Other income										1,338			—			1,338
Corporate expenses										(15,066)			—			(15,066)
Transaction costs and other										(1,995)			—			(1,995)
Amortization of intangible assets										(20,003)			—			(20,003)
Interest expense										(23,237)			(8,091)			(31,328)
Net foreign exchange gains (losses)										29,794			3,330			33,124
Income (loss) before income taxes										430,554			6,751			437,305
Income tax expense										(38,116)			—			(38,116)
Net income (loss)										392,438			6,751			399,189
Dividends attributable to redeemable noncontrolling interests										—			(6,600)			(6,600)
Amounts attributable to nonredeemable noncontrolling interests										—			(136)			(136)
Net income (loss) available to Arch										392,438			15			392,453
Preferred dividends										(10,403)			—			(10,403)
Net income (loss) available to Arch common shareholders										$	382,035		$	15		$	382,050
Underwriting Ratios
Loss ratio	69.8		%	74.3		%	3.8		%	53.8		%	76.5		%	55.8		%
Acquisition expense ratio	15.1		%	17.1		%	10.0		%	14.3		%	18.3		%	14.7		%
Other operating expense ratio	19.1		%	8.9		%	10.8		%	14.1		%	9.2		%	13.7		%
Combined ratio	104.0		%	100.3		%	24.6		%	82.2		%	104.0		%	84.2		%
Net premiums written to gross premiums written	70.0		%	65.9		%	84.6		%	71.3		%	62.3		%	74.0		%

(1)    Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. 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.

10

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides a “safe harbor” for forward-looking statements. This release or any other written or oral statements made by or on behalf of the Company 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, 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 the Company’s 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 release and in the Company’s periodic reports filed with the Securities and Exchange Commission (the “SEC”), and include:

•the Company’s ability to successfully implement its business strategy during “soft” as well as “hard” markets;

•acceptance of the Company’s business strategy, security and financial condition by rating agencies and regulators, as well as by brokers and its insureds and reinsureds;

•the Company’s ability to consummate acquisitions and integrate any businesses it has acquired or may acquire into its existing operations;

•the Company’s ability to maintain or improve its ratings, which may be affected by its 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 in which the Company operates;

•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 the Company’s access to such markets;

•the Company’s ability to successfully enhance, integrate and maintain operating procedures (including information technology) to effectively support its current and new business;

•the loss of key personnel;

•accuracy of those estimates and judgments utilized in the preparation of the Company’s 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;

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

•severity and/or frequency of losses;

•claims resulting from natural or man-made catastrophic events or severe economic events in the Company’s insurance, reinsurance and mortgage businesses could cause large losses and substantial volatility in the Company’s results of operations;

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

•the effect of contagious diseases (including COVID-19) on the Company’s business;

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

•availability to the Company of reinsurance to manage its 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 the Company;

11

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

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

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

•changes in the method for determining the London Inter-bank Offered Rate (“LIBOR”) and the potential replacement of LIBOR;

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

•changes in accounting principles or policies or in the Company’s application of such accounting principles or policies;

•changes in the political environment of certain countries in which the Company operates, underwrites business or invests;

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

•statutory or regulatory developments, including as to tax policy 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 the Company, its 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 the Company’s Annual Report on Form 10-K, as well as the other factors set forth in the Company’s 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 the Company or persons acting on its 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. 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.

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

12

EX-99.2

EXHIBIT 99.2

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

Financial Supplement

Financial Information

as of September 30, 2020

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		3
II.	Consolidated Financial Statements
	a.	Consolidated Statements of Income	4
	b.	Consolidated Balance Sheets	5
	c.	Consolidated Statements of Changes in Shareholders’ Equity	6
	d.	Consolidated Statements of Cash Flows	7
III.	Segment Information
	a.	Overview	8
	b.	Consolidated Results	10
	c.	Insurance Segment Results	14
	d.	Reinsurance Segment Results	16
	e.	Mortgage Segment Results	18
	f.	Consolidated Results Excluding ‘Other’ Segment	22
	g.	Selected Information on Losses and Loss Adjustment Expenses	23
IV.	Investment Information
	a.	Investable Asset Summary and Investment Portfolio Metrics	24
	b.	Composition of Net Investment Income, Yield and Total Return	25
	c.	Composition of Fixed Maturities	26
	d.	Credit Quality Distribution and Maturity Profile	27
	e.	Analysis of Corporate Exposures	28
	f.	Structured Securities	29
V.	Other
	a.	Comments on Regulation G	30
	b.	Operating Income Reconciliation and Annualized Operating Return on Average Common Equity	31
	c.	Operating Income and Effective Tax Rate Calculations	32
	d.	Capital Structure and Share Repurchase Activity	33

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, 2019 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 September 30, 2020. 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; including pandemics such as COVID-19; 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; changes in the method for determining the London Inter-bank Offered Rate (“LIBOR”) and the potential replacement of LIBOR 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								Nine Months Ended
	September 30,								September 30,
	2020			2019			Change		2020			2019			Change
Underwriting results:
Gross premiums written	$	2,556,914		$	2,043,292		25.1	%	$	7,461,860		$	5,853,574		27.5	%
Net premiums written	1,726,828			1,457,705			18.5	%	5,239,829			4,163,105			25.9	%
Net premiums earned	1,625,061			1,312,191			23.8	%	4,763,285			3,847,372			23.8	%
Underwriting income (loss) (2)	104,877			235,705			(55.5)	%	251,527			798,958			(68.5)	%
Loss ratio	67.7		%	53.8		%	13.9		67.8		%	51.2		%	16.6
Acquisition expense ratio	13.8		%	14.3		%	(0.5)		14.3		%	14.0		%	0.3
Other operating expense ratio	12.4		%	14.1		%	(1.7)		13.0		%	14.5		%	(1.5)
Combined ratio	93.9		%	82.2		%	11.7		95.1		%	79.7		%	15.4
Net investment income	$	99,857		$	126,874		(21.3)	%	$	313,916		$	371,161		(15.4)	%
Per diluted share	$	0.24		$	0.31		(22.6)	%	$	0.77		$	0.90		(14.4)	%
Net income available to Arch common shareholders	$	408,636		$	382,050		7.0	%	$	830,768		$	1,278,726		(35.0)	%
Per diluted share	$	1.00		$	0.92		8.7	%	$	2.02		$	3.11		(35.0)	%
After-tax operating income available to Arch common shareholders (2)	$	120,321		$	260,952		(53.9)	%	$	326,691		$	854,282		(61.8)	%
Per diluted share	$	0.29		$	0.63		(54.0)	%	$	0.80		$	2.08		(61.5)	%
Comprehensive income (loss) available to Arch	$	455,907		$	397,340		14.7	%	$	1,036,243		$	1,700,369		(39.1)	%
Net cash provided by operating activities	$	963,654		$	769,486		25.2	%	$	2,198,037		$	1,366,762		60.8	%
Weighted average common shares and common share equivalents outstanding — diluted	409,194,657			413,180,201			(1.0)	%	410,314,897			410,807,402			(0.1)	%
Financial measures:
Change in book value per common share during period	4.1		%	3.9		%	0.2		8.8		%	19.0		%	(10.2)
Annualized return on average common equity	14.3		%	15.0		%	(0.7)		9.9		%	17.9		%	(8.0)
Annualized operating return on average common equity (2)	4.2		%	10.3		%	(6.1)		3.9		%	12.0		%	(8.1)
Total return on investments (3)	2.30		%	1.00		%	130 bps		5.19		%	6.20		%	-101 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										Nine Months Ended
	September 30,		June 30,		March 31,		December 31,		September 30,		September 30,		September 30,
	2020		2020		2020		2019		2019		2020		2019
Revenues
Net premiums written	$	1,874,144	$	1,668,311	$	2,137,246	$	1,455,453	$	1,613,457	$	5,679,701	$	4,583,614
Change in unearned premiums	(103,052)		(2,957)		(392,802)		60,429		(175,434)		(498,811)		(312,998)
Net premiums earned	1,771,092		1,665,354		1,744,444		1,515,882		1,438,023		5,180,890		4,270,616
Net investment income	128,512		131,485		145,153		154,263		161,488		405,150		473,475
Net realized gains (losses)	280,499		556,588		(366,960)		40,830		61,355		470,127		322,368
Other underwriting income	5,413		6,667		6,852		6,757		3,326		18,932		18,104
Equity in net income (loss) of investment funds accounted for using the equity method	126,735		(65,119)		(4,209)		27,139		17,130		57,407		96,533
Other income (loss)	919		(3,140)		8,548		(1,317)		1,338		6,327		3,550
Total revenues	2,313,170		2,291,835		1,533,828		1,743,554		1,682,660		6,138,833		5,184,646
Expenses
Losses and loss adjustment expenses	(1,216,273)		(1,230,522)		(1,115,419)		(844,922)		(802,455)		(3,562,214)		(2,288,530)
Acquisition expenses	(247,942)		(254,789)		(247,283)		(221,888)		(211,120)		(750,014)		(619,057)
Other operating expenses	(215,686)		(209,249)		(234,544)		(204,408)		(196,512)		(659,479)		(596,589)
Corporate expenses	(17,937)		(17,920)		(20,796)		(26,837)		(17,061)		(56,653)		(53,274)
Amortization of intangible assets	(16,715)		(16,489)		(16,631)		(21,890)		(20,003)		(49,835)		(60,214)
Interest expense	(41,343)		(31,139)		(32,555)		(31,199)		(31,328)		(105,037)		(89,673)
Net foreign exchange gains (losses)	(44,885)		(39,211)		72,671		(52,306)		33,124		(11,425)		31,697
Total expenses	(1,800,781)		(1,799,319)		(1,594,557)		(1,403,450)		(1,245,355)		(5,194,657)		(3,675,640)
Income (loss) before income taxes	512,389		492,516		(60,729)		340,104		437,305		944,176		1,509,006
Income tax expense	(23,707)		(26,127)		(27,945)		(27,336)		(38,116)		(77,779)		(128,474)
Net income (loss)	488,682		466,389		(88,674)		312,768		399,189		866,397		1,380,532
Net (income) loss attributable to noncontrolling interests	(69,643)		(167,568)		232,791		13,616		(6,736)		(4,420)		(70,597)
Net income (loss) attributable to Arch	419,039		298,821		144,117		326,384		392,453		861,977		1,309,935
Preferred dividends	(10,403)		(10,403)		(10,403)		(10,403)		(10,403)		(31,209)		(31,209)
Net income (loss) available to Arch common shareholders	$	408,636	$	288,418	$	133,714	$	315,981	$	382,050	$	830,768	$	1,278,726
Comprehensive income (loss) available to Arch	$	455,907	$	626,366	$	(46,030)	$	326,760	$	397,340	$	1,036,243	$	1,700,369
Net income (loss) per common share and common share equivalent
Basic	$	1.01	$	0.72	$	0.33	$	0.78	$	0.95	$	2.06	$	3.19
Diluted	$	1.00	$	0.71	$	0.32	$	0.76	$	0.92	$	2.02	$	3.11
Weighted average common shares and common share equivalents outstanding
Basic	402,850,485		402,503,687		403,892,161		402,941,290		402,564,121		403,081,266		401,419,153
Diluted	409,194,657		408,119,681		414,033,570		414,124,920		413,180,201		410,314,897		410,807,402

4

Arch Capital Group Ltd. and Subsidiaries

Consolidated Balance Sheets

(U.S. Dollars in thousands, except share data)	September 30,		June 30,		March 31,		December 31,		September 30,
	2020		2020		2020		2019		2019
Assets
Investments:
Fixed maturities available for sale, at fair value	$	18,452,888	$	17,207,731	$	16,841,571	$	16,894,526	$	16,470,523
Short-term investments available for sale, at fair value	2,039,097		2,277,866		944,531		956,546		751,989
Collateral received under securities lending, at fair value	64,259		473,790		182,284		388,376		430,263
Equity securities, at fair value	1,502,015		1,257,317		1,181,903		838,925		550,485
Investments accounted for using the fair value option	3,749,575		3,520,771		3,310,517		3,663,477		3,838,243
Investments accounted for using the equity method	1,883,702		1,727,302		1,676,055		1,660,396		1,575,832
Total investments	27,691,536		26,464,777		24,136,861		24,402,246		23,617,335
Cash	976,398		854,259		882,284		726,230		880,099
Accrued investment income	106,940		102,064		118,089		117,937		116,196
Securities pledged under securities lending, at fair value	62,749		464,503		177,442		379,868		420,415
Premiums receivable	2,225,311		2,203,753		2,155,204		1,778,717		1,618,186
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	4,621,937		4,363,507		4,303,135		4,346,816		3,168,195
Contractholder receivables	2,185,614		2,179,124		2,140,724		2,119,460		2,094,683
Ceded unearned premiums	1,450,200		1,364,603		1,357,284		1,234,683		1,168,258
Deferred acquisition costs	750,901		714,531		708,848		633,400		622,028
Receivable for securities sold	158,674		167,281		221,573		24,133		50,615
Goodwill and intangible assets	713,777		688,490		705,450		738,083		624,500
Other assets	1,771,998		1,632,756		1,509,232		1,383,788		1,192,093
Total assets	$	42,716,035	$	41,199,648	$	38,416,126	$	37,885,361	$	35,572,603
Liabilities
Reserve for losses and loss adjustment expenses	$	15,900,526	$	15,044,874	$	14,309,580	$	13,891,842	$	12,389,384
Unearned premiums	5,062,052		4,827,445		4,817,191		4,339,549		4,243,372
Reinsurance balances payable	873,067		793,467		737,597		667,072		601,891
Contractholder payables	2,191,515		2,185,414		2,149,762		2,119,460		2,094,683
Collateral held for insured obligations	221,957		208,449		211,597		206,698		205,449
Senior notes	2,860,811		2,860,733		1,871,869		1,871,626		1,871,386
Revolving credit agreement borrowings	210,687		335,587		500,587		484,287		490,720
Securities lending payable	64,251		473,783		182,274		388,366		430,255
Payable for securities purchased	382,236		275,257		327,359		87,579		176,130
Other liabilities	1,681,181		1,467,739		1,392,905		1,513,330		1,007,524
Total liabilities	29,448,283		28,472,748		26,500,721		25,569,809		23,510,794
Redeemable noncontrolling interests	57,835		55,986		55,376		55,404		48,789
Shareholders’ equity
Non-cumulative preferred shares	780,000		780,000		780,000		780,000		780,000
Common shares	642		642		642		638		638
Additional paid-in capital	1,950,782		1,935,514		1,921,487		1,889,683		1,864,468
Retained earnings	11,829,322		11,420,686		11,132,268		11,021,006		10,705,025
Accumulated other comprehensive income (loss), net of deferred income tax	386,357		349,488		21,944		212,091		211,714
Common shares held in treasury, at cost	(2,495,106)		(2,494,505)		(2,489,097)		(2,406,047)		(2,403,749)
Total shareholders’ equity available to Arch	12,451,997		11,991,825		11,367,244		11,497,371		11,158,096
Non-redeemable noncontrolling interests	757,920		679,089		492,785		762,777		854,924
Total shareholders’ equity	13,209,917		12,670,914		11,860,029		12,260,148		12,013,020
Total liabilities, noncontrolling interests and shareholders’ equity	$	42,716,035	$	41,199,648	$	38,416,126	$	37,885,361	$	35,572,603
Common shares and common share equivalents outstanding, net of treasury shares	406,018,958		405,970,251		405,609,867		405,619,201		405,230,531
Book value per common share (1)	$	28.75	$	27.62	$	26.10	$	26.42	$	25.61

(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										Nine Months Ended
	September 30,		June 30,		March 31,		December 31,		September 30,		September 30,		September 30,
	2020		2020		2020		2019		2019		2020		2019
Non-cumulative preferred shares
Balance at beginning and end of period	$	780,000	$	780,000	$	780,000	$	780,000	$	780,000	$	780,000	$	780,000
Common shares
Balance at beginning of period	642		642		638		638		638		638		634
Common shares issued, net	—		—		4		—		—		4		4
Balance at end of period	642		642		642		638		638		642		638
Additional paid-in capital
Balance at beginning of period	1,935,514		1,921,487		1,889,683		1,864,468		1,847,949		1,889,683		1,793,781
Amortization of share-based compensation	14,662		13,160		28,050		11,862		12,775		55,872		52,290
All other	606		867		3,754		13,353		3,744		5,227		18,397
Balance at end of period	1,950,782		1,935,514		1,921,487		1,889,683		1,864,468		1,950,782		1,864,468
Retained earnings
Balance at beginning of period	11,420,686		11,132,268		11,021,006		10,705,025		10,322,975		11,021,006		9,426,299
Cumulative effect of an accounting change (1)	—		—		(22,452)		—		—		(22,452)		—
Balance at beginning of period, as adjusted	11,420,686		11,132,268		10,998,554		10,705,025		10,322,975		10,998,554		9,426,299
Net income	488,682		466,389		(88,674)		312,768		399,189		866,397		1,380,532
Amounts attributable to noncontrolling interests	(69,643)		(167,568)		232,791		13,616		(6,736)		(4,420)		(70,597)
Preferred share dividends	(10,403)		(10,403)		(10,403)		(10,403)		(10,403)		(31,209)		(31,209)
Balance at end of period	11,829,322		11,420,686		11,132,268		11,021,006		10,705,025		11,829,322		10,705,025
Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of period	349,488		21,944		212,091		211,714		206,827		212,091		(178,720)
Change in unrealized appreciation (decline) in value of available-for-sale investments	19,800		305,338		(145,337)		(24,707)		21,566		179,801		397,371
Change in foreign currency translation adjustments	17,069		22,206		(44,810)		25,084		(16,679)		(5,535)		(6,937)
Balance at end of period	386,357		349,488		21,944		212,091		211,714		386,357		211,714
Common shares held in treasury, at cost
Balance at beginning of period	(2,494,505)		(2,489,097)		(2,406,047)		(2,403,749)		(2,401,037)		(2,406,047)		(2,382,167)
Shares repurchased for treasury	(601)		(5,408)		(83,050)		(2,298)		(2,712)		(89,059)		(21,582)
Balance at end of period	(2,495,106)		(2,494,505)		(2,489,097)		(2,406,047)		(2,403,749)		(2,495,106)		(2,403,749)
Total shareholders’ equity available to Arch	12,451,997		11,991,825		11,367,244		11,497,371		11,158,096		12,451,997		11,158,096
Non-redeemable noncontrolling interests	757,920		679,089		492,785		762,777		854,924		757,920		854,924
Total shareholders’ equity	$	13,209,917	$	12,670,914	$	11,860,029	$	12,260,148	$	12,013,020	$	13,209,917	$	12,013,020

(1) Adoption of ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).”

6

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Cash Flows

(U.S. Dollars in thousands)	Three Months Ended										Nine Months Ended
	September 30,		June 30,		March 31,		December 31,		September 30,		September 30,		September 30,
	2020		2020		2020		2019		2019		2020		2019
Operating Activities
Net income (loss)	$	488,682	$	466,389	$	(88,674)	$	312,768	$	399,189	$	866,397	$	1,380,532
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses	(282,907)		(557,740)		362,964		(51,435)		(63,597)		(477,683)		(326,532)
Equity in net income or loss of investment funds accounted for using the equity method and other income or loss	(95,078)		96,350		29,034		24,899		6,808		30,306		(38,912)
Amortization of intangible assets	16,715		16,489		16,631		21,890		20,003		49,835		60,214
Share-based compensation	14,521		13,363		28,549		11,985		12,895		56,433		54,432
Changes in:
Reserve for losses and loss adjustment expenses, net	509,623		652,389		506,057		112,907		222,678		1,668,069		377,074
Unearned premiums, net	103,052		2,957		392,802		(60,429)		175,434		498,811		312,998
Premiums receivable	1,872		(45,181)		(418,457)		91,013		(26,715)		(461,766)		(328,765)
Deferred acquisition costs	(14,801)		(17,302)		(75,135)		(8,654)		(13,816)		(107,238)		(38,606)
Reinsurance balances payable	73,459		52,354		79,807		(32,770)		75,487		205,620		214,902
Other items, net	194,732		31,058		(223,124)		83,146		22,249		2,666		(124,198)
Net cash provided by operating activities	1,009,870		711,126		610,454		505,320		830,615		2,331,450		1,543,139
Investing Activities
Purchases of fixed maturity investments	(8,640,034)		(13,444,854)		(11,965,995)		(6,043,154)		(7,677,977)		(34,050,883)		(24,010,623)
Purchases of equity securities	(330,699)		(264,466)		(760,683)		(287,916)		(92,112)		(1,355,848)		(524,051)
Purchases of other investments	(340,194)		(273,221)		(228,471)		(455,620)		(337,862)		(841,886)		(1,014,925)
Proceeds from sales of fixed maturity investments	7,711,837		13,109,907		11,723,123		5,888,011		7,075,372		32,544,867		22,707,854
Proceeds from sales of equity securities	151,447		314,045		266,301		58,688		194,429		731,793		371,130
Proceeds from sales, redemptions and maturities of other investments	319,619		256,057		216,131		382,042		292,819		791,807		827,517
Proceeds from redemptions and maturities of fixed maturity investments	276,052		170,884		198,356		248,546		149,770		645,292		394,719
Net settlements of derivative instruments	12,819		(45,017)		195,488		(32,441)		4,722		163,290		92,423
Net (purchases) sales of short-term investments	164,012		(1,311,586)		(11,777)		(89,245)		(72,442)		(1,159,351)		129,078
Change in cash collateral related to securities lending	26,614		(405)		55,001		(69,183)		(600)		81,210		6,990
Purchases of fixed assets	(9,030)		(9,217)		(8,470)		(10,202)		(11,276)		(26,717)		(27,635)
Other	(140,671)		(33,821)		42,500		(145,533)		(28,375)		(131,992)		(202,953)
Net cash provided by (used for) investing activities	(798,228)		(1,531,694)		(278,496)		(556,007)		(503,532)		(2,608,418)		(1,250,476)
Financing Activities
Purchases of common shares under share repurchase program	—		—		(75,486)		—		—		(75,486)		(2,871)
Proceeds from common shares issued, net	5		(5,134)		(4,527)		5,685		1,075		(9,656)		518
Proceeds from borrowings	13,875		988,618		16,300		—		137,283		1,018,793		200,083
Repayments of borrowings	(139,000)		(165,000)		—		(21,644)		—		(304,000)		(27,538)
Change in cash collateral related to securities lending	(26,614)		405		(55,001)		69,183		600		(81,210)		(6,990)
Change in third party investment in non-redeemable noncontrolling interests	—		—		(2,867)		(75,056)		—		(2,867)		—
Change in third party investment in redeemable noncontrolling interests	—		—		—		(8)		(161,874)		—		(161,874)
Dividends paid to redeemable noncontrolling interests	(1,001)		(1,359)		(1,181)		(1,107)		(2,414)		(3,541)		(11,408)
Other	57,891		(1,294)		(1,331)		(816)		(1,678)		55,266		(5,207)
Preferred dividends paid	(10,403)		(10,403)		(10,403)		(10,403)		(10,403)		(31,209)		(31,209)
Net cash provided by (used for) financing activities	(105,247)		805,833		(134,496)		(34,166)		(37,411)		566,090		(46,496)
Effects of exchange rate changes on foreign currency cash and restricted cash	15,895		8,981		(30,723)		26,076		(10,272)		(5,847)		(8,335)
Increase (decrease) in cash and restricted cash	122,290		(5,754)		166,739		(58,777)		279,400		283,275		237,832
Cash and restricted cash, beginning of period	1,064,683		1,070,437		903,698		962,475		683,075		903,698		724,643
Cash and restricted cash, end of period	$	1,186,973	$	1,064,683	$	1,070,437	$	903,698	$	962,475	$	1,186,973	$	962,475
Income taxes paid (received)	$	136,404	$	3,023	$	7,387	$	62,398	$	3,565	$	146,814	$	47,065
Interest paid	$	3,141	$	50,767	$	6,647	$	58,385	$	7,702	$	60,555	$	68,560
Net cash provided by operating activities, excluding the ‘other’ segment	$	963,654	$	648,427	$	585,956	$	443,298	$	769,486	$	2,198,037	$	1,366,762

7

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Overview

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’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 core underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment and, accordingly, investment income is not allocated to each underwriting segment.

The Company determined its reportable operating 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.

Insurance 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: 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.

8

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Overview

Reinsurance Segment

The reinsurance segment consists of the Company’s 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 of 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 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.

Mortgage Segment

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 Fannie Mae and Freddie Mac.

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 the Company’s non-cumulative preferred shares, net realized gains or losses, 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.

Other Segment

The ‘other’ segment includes the results of Watford. Subsidiaries of the Company act as Watford’s reinsurance and insurance underwriting managers while HPS Investment Partners, LLC manages Watford’s non-investment grade credit portfolios and the Company manages Watford’s investment grade portfolios, all under long term services agreements. Pursuant to generally accepted accounting principles, Watford is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford. As such, the Company consolidates the results of Watford in its consolidated financial statements, although it only owns approximately 13% of Watford’s common equity (listed on the Nasdaq Select Global Market under the ticker symbol “WTRE”). Watford has its own management and board of directors that is responsible for its own results and profitability. The portion of Watford’s earnings attributable to third party investors is recorded in the consolidated statements of income as ‘amounts attributable to noncontrolling interests.’ Management measures segment performance for the ‘other’ segment based on net income or loss.

9

Arch Capital Group Ltd. and Subsidiaries

Segment Information

(U.S. Dollars in thousands)	Three Months Ended
	September 30, 2020
	Insurance			Reinsurance			Mortgage			Sub-total (Core)			Other			Total
Gross premiums written (1)	$	1,206,328		$	1,004,590		$	346,248		$	2,556,914		$	197,480		$	2,681,032
Premiums ceded	(382,167)			(400,388)			(47,783)			(830,086)			(50,164)			(806,888)
Net premiums written	824,161			604,202			298,465			1,726,828			147,316			1,874,144
Change in unearned premiums	(105,007)			(49,704)			52,944			(101,767)			(1,285)			(103,052)
Net premiums earned	719,154			554,498			351,409			1,625,061			146,031			1,771,092
Other underwriting income (loss)	(31)			298			4,600			4,867			546			5,413
Losses and loss adjustment expenses	(525,321)			(422,084)			(153,055)			(1,100,460)			(115,813)			(1,216,273)
Acquisition expenses	(102,420)			(85,388)			(35,716)			(223,524)			(24,418)			(247,942)
Other operating expenses	(122,541)			(41,818)			(36,708)			(201,067)			(14,619)			(215,686)
Underwriting income (loss)	$	(31,159)		$	5,506		$	130,530		104,877			(8,273)			96,604
Net investment income										99,857			28,655			128,512
Net realized gains (losses)										210,984			69,515			280,499
Equity in net income (loss) of investment funds accounted for using the equity method										126,735			—			126,735
Other income										919			—			919
Corporate expenses (2)										(16,263)			—			(16,263)
Transaction costs and other (2)										(1,674)			—			(1,674)
Amortization of intangible assets										(16,715)			—			(16,715)
Interest expense										(36,224)			(5,119)			(41,343)
Net foreign exchange gains (losses)										(38,681)			(6,204)			(44,885)
Income (loss) before income taxes										433,815			78,574			512,389
Income tax (expense) benefit										(23,638)			(69)			(23,707)
Net income (loss)										410,177			78,505			488,682
Dividends attributable to redeemable noncontrolling interests										(882)			(993)			(1,875)
Amounts attributable to nonredeemable noncontrolling interests										—			(67,768)			(67,768)
Net income (loss) available to Arch										409,295			9,744			419,039
Preferred dividends										(10,403)			—			(10,403)
Net income (loss) available to Arch common shareholders										$	398,892		$	9,744		$	408,636
Underwriting Ratios
Loss ratio	73.0		%	76.1		%	43.6		%	67.7		%	79.3		%	68.7		%
Acquisition expense ratio	14.2		%	15.4		%	10.2		%	13.8		%	16.7		%	14.0		%
Other operating expense ratio	17.0		%	7.5		%	10.4		%	12.4		%	10.0		%	12.2		%
Combined ratio	104.2		%	99.0		%	64.2		%	93.9		%	106.0		%	94.9		%
Net premiums written to gross premiums written	68.3		%	60.1		%	86.2		%	67.5		%	74.6		%	69.9		%
Total investable assets										$	25,724,501		$	2,693,452		$	28,417,953
Total assets										39,105,137			3,610,898			42,716,035
Total liabilities										26,747,061			2,701,222			29,448,283

(1)    Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. 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.’ See ‘Comments on Regulation G’ for a further discussion of such items.

10

Arch Capital Group Ltd. and Subsidiaries

Segment Information

(U.S. Dollars in thousands)	Three Months Ended
	September 30, 2019
	Insurance			Reinsurance			Mortgage			Sub-total (Core)			Other			Total
Gross premiums written (1)	$	1,005,874		$	662,572		$	375,092		$	2,043,292		$	249,960		$	2,181,121
Premiums ceded	(302,034)			(226,096)			(57,703)			(585,587)			(94,208)			(567,664)
Net premiums written	703,840			436,476			317,389			1,457,705			155,752			1,613,457
Change in unearned premiums	(98,504)			(72,621)			25,611			(145,514)			(29,920)			(175,434)
Net premiums earned	605,336			363,855			343,000			1,312,191			125,832			1,438,023
Other underwriting income (loss)	—			(1,208)			3,955			2,747			579			3,326
Losses and loss adjustment expenses	(422,782)			(270,379)			(13,080)			(706,241)			(96,214)			(802,455)
Acquisition expenses	(91,259)			(62,393)			(34,396)			(188,048)			(23,072)			(211,120)
Other operating expenses	(115,408)			(32,533)			(37,003)			(184,944)			(11,568)			(196,512)
Underwriting income (loss)	$	(24,113)		$	(2,658)		$	262,476		235,705			(4,443)			231,262
Net investment income										126,874			34,614			161,488
Net realized gains (losses)										80,014			(18,659)			61,355
Equity in net income (loss) of investment funds accounted for using the equity method										17,130			—			17,130
Other income (loss)										1,338			—			1,338
Corporate expenses (2)										(15,066)			—			(15,066)
Transaction costs and other (2)										(1,995)			—			(1,995)
Amortization of intangible assets										(20,003)			—			(20,003)
Interest expense										(23,237)			(8,091)			(31,328)
Net foreign exchange gains (losses)										29,794			3,330			33,124
Income (loss) before income taxes										430,554			6,751			437,305
Income tax (expense) benefit										(38,116)			—			(38,116)
Net income (loss)										392,438			6,751			399,189
Dividends attributable to redeemable noncontrolling interests										—			(6,600)			(6,600)
Amounts attributable to nonredeemable noncontrolling interests										—			(136)			(136)
Net income (loss) available to Arch										392,438			15			392,453
Preferred dividends										(10,403)			—			(10,403)
Net income (loss) available to Arch common shareholders										$	382,035		$	15		$	382,050
Underwriting Ratios
Loss ratio	69.8		%	74.3		%	3.8		%	53.8		%	76.5		%	55.8		%
Acquisition expense ratio	15.1		%	17.1		%	10.0		%	14.3		%	18.3		%	14.7		%
Other operating expense ratio	19.1		%	8.9		%	10.8		%	14.1		%	9.2		%	13.7		%
Combined ratio	104.0		%	100.3		%	24.6		%	82.2		%	104.0		%	84.2		%
Net premiums written to gross premiums written	70.0		%	65.9		%	84.6		%	71.3		%	62.3		%	74.0		%
Total investable assets										$	21,566,088		$	2,730,247		$	24,296,335
Total assets										31,961,107			3,611,496			35,572,603
Total liabilities										20,912,352			2,598,442			23,510,794

(1)    Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. 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.’ See ‘Comments on Regulation G’ for a further discussion of such items.

11

Arch Capital Group Ltd. and Subsidiaries

Segment Information

(U.S. Dollars in thousands)	Nine Months Ended
	September 30, 2020
	Insurance			Reinsurance			Mortgage			Sub-total (Core)			Other			Total
Gross premiums written (1)	$	3,444,335		$	2,934,174		$	1,084,337		$	7,461,860		$	590,309		$	7,831,554
Premiums ceded	(1,119,165)			(967,698)			(136,154)			(2,222,031)			(150,437)			(2,151,853)
Net premiums written	2,325,170			1,966,476			948,183			5,239,829			439,872			5,679,701
Change in unearned premiums	(202,188)			(388,321)			113,965			(476,544)			(22,267)			(498,811)
Net premiums earned	2,122,982			1,578,155			1,062,148			4,763,285			417,605			5,180,890
Other underwriting income (loss)	(31)			1,767			15,649			17,385			1,547			18,932
Losses and loss adjustment expenses	(1,550,632)			(1,235,586)			(444,721)			(3,230,939)			(331,275)			(3,562,214)
Acquisition expenses	(317,428)			(255,516)			(108,304)			(681,248)			(68,766)			(750,014)
Other operating expenses	(370,947)			(125,831)			(120,178)			(616,956)			(42,523)			(659,479)
Underwriting income (loss)	$	(116,056)		$	(37,011)		$	404,594		251,527			(23,412)			228,115
Net investment income										313,916			91,234			405,150
Net realized gains (losses)										523,964			(53,837)			470,127
Equity in net income (loss) of investment funds accounted for using the equity method										57,407			—			57,407
Other income (loss)										6,327			—			6,327
Corporate expenses (2)										(51,407)			—			(51,407)
Transaction costs and other (2)										(5,246)			—			(5,246)
Amortization of intangible assets										(49,835)			—			(49,835)
Interest expense										(86,599)			(18,438)			(105,037)
Net foreign exchange gains (losses)										(17,812)			6,387			(11,425)
Income (loss) before income taxes										942,242			1,934			944,176
Income tax (expense) benefit										(78,112)			333			(77,779)
Net income (loss)										864,130			2,267			866,397
Dividends attributable to redeemable noncontrolling interests										(1,873)			(3,125)			(4,998)
Amounts attributable to nonredeemable noncontrolling interests										—			578			578
Net income (loss) available to Arch										862,257			(280)			861,977
Preferred dividends										(31,209)			—			(31,209)
Net income (loss) available to Arch common shareholders										$	831,048		$	(280)		$	830,768
Underwriting Ratios
Loss ratio	73.0		%	78.3		%	41.9		%	67.8		%	79.3		%	68.8		%
Acquisition expense ratio	15.0		%	16.2		%	10.2		%	14.3		%	16.5		%	14.5		%
Other operating expense ratio	17.5		%	8.0		%	11.3		%	13.0		%	10.2		%	12.7		%
Combined ratio	105.5		%	102.5		%	63.4		%	95.1		%	106.0		%	96.0		%
Net premiums written to gross premiums written	67.5		%	67.0		%	87.4		%	70.2		%	74.5		%	72.5		%

(1)    Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. 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.’ See ‘Comments on Regulation G’ for a further discussion of such items.

12

Arch Capital Group Ltd. and Subsidiaries

Segment Information

(U.S. Dollars in thousands)	Nine Months Ended
	September 30, 2019
	Insurance			Reinsurance			Mortgage			Sub-total (Core)			Other			Total
Gross premiums written (1)	$	2,867,753		$	1,890,974		$	1,095,607		$	5,853,574		$	598,627		$	6,196,809
Premiums ceded	(914,751)			(627,120)			(149,358)			(1,690,469)			(178,118)			(1,613,195)
Net premiums written	1,953,002			1,263,854			946,249			4,163,105			420,509			4,583,614
Change in unearned premiums	(201,719)			(186,450)			72,436			(315,733)			2,735			(312,998)
Net premiums earned	1,751,283			1,077,404			1,018,685			3,847,372			423,244			4,270,616
Other underwriting income (loss)	—			4,393			11,867			16,260			1,844			18,104
Losses and loss adjustment expenses	(1,168,677)			(751,147)			(50,226)			(1,970,050)			(318,480)			(2,288,530)
Acquisition expenses	(265,177)			(173,504)			(98,722)			(537,403)			(81,654)			(619,057)
Other operating expenses	(338,327)			(102,197)			(116,697)			(557,221)			(39,368)			(596,589)
Underwriting income (loss)	$	(20,898)		$	54,949		$	764,907		798,958			(14,414)			784,544
Net investment income										371,161			102,314			473,475
Net realized gains (losses)										316,201			6,167			322,368
Equity in net income (loss) of investment funds accounted for using the equity method										96,533			—			96,533
Other income (loss)										3,550			—			3,550
Corporate expenses (2)										(47,911)			—			(47,911)
Transaction costs and other (2)										(5,363)			—			(5,363)
Amortization of intangible assets										(60,214)			—			(60,214)
Interest expense										(70,094)			(19,579)			(89,673)
Net foreign exchange gains (losses)										28,779			2,918			31,697
Income (loss) before income taxes										1,431,600			77,406			1,509,006
Income tax (expense) benefit										(128,454)			(20)			(128,474)
Net income (loss)										1,303,146			77,386			1,380,532
Dividends attributable to redeemable noncontrolling interests										—			(15,778)			(15,778)
Amounts attributable to nonredeemable noncontrolling interests										—			(54,819)			(54,819)
Net income (loss) available to Arch										1,303,146			6,789			1,309,935
Preferred dividends										(31,209)			—			(31,209)
Net income (loss) available to Arch common shareholders										$	1,271,937		$	6,789		$	1,278,726
Underwriting Ratios
Loss ratio	66.7		%	69.7		%	4.9		%	51.2		%	75.2		%	53.6		%
Acquisition expense ratio	15.1		%	16.1		%	9.7		%	14.0		%	19.3		%	14.5		%
Other operating expense ratio	19.3		%	9.5		%	11.5		%	14.5		%	9.3		%	14.0		%
Combined ratio	101.1		%	95.3		%	26.1		%	79.7		%	103.8		%	82.1		%
Net premiums written to gross premiums written	68.1		%	66.8		%	86.4		%	71.1		%	70.2		%	74.0		%

(1)    Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. 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.’ See ‘Comments on Regulation G’ for a further discussion of such items.

13

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. Dollars in thousands)	Three Months Ended															Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2020			2020			2020			2019			2019			2020			2019
Gross premiums written	$	1,206,328		$	1,030,362		$	1,207,645		$	1,040,240		$	1,005,874		$	3,444,335		$	2,867,753
Premiums ceded	(382,167)			(358,101)			(378,897)			(351,516)			(302,034)			(1,119,165)			(914,751)
Net premiums written	824,161			672,261			828,748			688,724			703,840			2,325,170			1,953,002
Change in unearned premiums	(105,007)			15,648			(112,829)			(42,927)			(98,504)			(202,188)			(201,719)
Net premiums earned	719,154			687,909			715,919			645,797			605,336			2,122,982			1,751,283
Other underwriting income (loss)	(31)			—			—			—			—			(31)			—
Losses and loss adjustment expenses	(525,321)			(518,203)			(507,108)			(446,798)			(422,782)			(1,550,632)			(1,168,677)
Acquisition expenses	(102,420)			(107,671)			(107,337)			(96,437)			(91,259)			(317,428)			(265,177)
Other operating expenses	(122,541)			(118,757)			(129,649)			(116,443)			(115,408)			(370,947)			(338,327)
Underwriting income (loss)	$	(31,159)		$	(56,722)		$	(28,175)		$	(13,881)		$	(24,113)		$	(116,056)		$	(20,898)
Underwriting Ratios
Loss ratio	73.0		%	75.3		%	70.8		%	69.2		%	69.8		%	73.0		%	66.7		%
Acquisition expense ratio	14.2		%	15.7		%	15.0		%	14.9		%	15.1		%	15.0		%	15.1		%
Other operating expense ratio	17.0		%	17.3		%	18.1		%	18.0		%	19.1		%	17.5		%	19.3		%
Combined ratio	104.2		%	108.3		%	103.9		%	102.1		%	104.0		%	105.5		%	101.1		%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums	10.3		%	12.5		%	6.9		%	0.9		%	4.3		%	9.9		%	1.6		%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments	(0.2)		%	(0.3)		%	(0.1)		%	(0.4)		%	(0.6)		%	(0.2)		%	(0.4)		%
Combined ratio excluding catastrophic activity and prior year development (1)	94.1		%	96.1		%	97.1		%	101.6		%	100.3		%	95.8		%	99.9		%
Net premiums written to gross premiums written	68.3		%	65.2		%	68.6		%	66.2		%	70.0		%	67.5		%	68.1		%

(1)See ‘Comments on Regulation G’ for further discussion.

14

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. Dollars in thousands)	Three Months Ended																				Nine Months Ended
	September 30,				June 30,				March 31,				December 31,				September 30,				September 30,				September 30,
	2020				2020				2020				2019				2019				2020				2019
Net premiums written
Property, energy, marine and aviation	$	152,193	18.5	%	$	159,801	23.8	%	$	127,585	15.4	%	$	95,849	13.9	%	$	97,966	13.9	%	$	439,579	18.9	%	$	272,271	13.9	%
Professional lines (1)	199,163		24.2	%	157,899		23.5	%	169,118		20.4	%	145,841		21.2	%	137,569		19.5	%	526,180		22.6	%	388,482		19.9	%
Programs	123,768		15.0	%	104,930		15.6	%	112,532		13.6	%	96,653		14.0	%	120,039		17.1	%	341,230		14.7	%	329,882		16.9	%
Construction and national accounts	88,790		10.8	%	57,144		8.5	%	115,999		14.0	%	114,437		16.6	%	98,522		14.0	%	261,933		11.3	%	254,765		13.0	%
Excess and surplus casualty (2)	78,889		9.6	%	64,703		9.6	%	65,419		7.9	%	61,549		8.9	%	62,843		8.9	%	209,011		9.0	%	166,474		8.5	%
Travel, accident and health	28,972		3.5	%	27,997		4.2	%	126,046		15.2	%	65,337		9.5	%	75,192		10.7	%	183,015		7.9	%	239,833		12.3	%
Lenders products	60,830		7.4	%	23,690		3.5	%	33,292		4.0	%	35,915		5.2	%	31,005		4.4	%	117,812		5.1	%	75,793		3.9	%
Other (3)	91,556		11.1	%	76,097		11.3	%	78,757		9.5	%	73,143		10.6	%	80,704		11.5	%	246,410		10.6	%	225,502		11.5	%
Total	$	824,161	100.0	%	$	672,261	100.0	%	$	828,748	100.0	%	$	688,724	100.0	%	$	703,840	100.0	%	$	2,325,170	100.0	%	$	1,953,002	100.0	%
Underwriting location
United States	$	574,699	69.7	%	$	453,215	67.4	%	$	602,677	72.7	%	$	507,193	73.6	%	$	532,808	75.7	%	$	1,630,591	70.1	%	$	1,476,283	75.6	%
Europe	212,203		25.7	%	181,566		27.0	%	196,042		23.7	%	151,182		22.0	%	145,512		20.7	%	589,811		25.4	%	408,032		20.9	%
Other	37,259		4.5	%	37,480		5.6	%	30,029		3.6	%	30,349		4.4	%	25,520		3.6	%	104,768		4.5	%	68,687		3.5	%
Total	$	824,161	100.0	%	$	672,261	100.0	%	$	828,748	100.0	%	$	688,724	100.0	%	$	703,840	100.0	%	$	2,325,170	100.0	%	$	1,953,002	100.0	%
Net premiums earned
Property, energy, marine and aviation	$	133,827	18.6	%	$	120,781	17.6	%	$	111,183	15.5	%	$	90,087	13.9	%	$	80,246	13.3	%	$	365,791	17.2	%	$	208,879	11.9	%
Professional lines (1)	168,502		23.4	%	154,812		22.5	%	151,700		21.2	%	133,423		20.7	%	135,343		22.4	%	475,014		22.4	%	365,801		20.9	%
Programs	104,861		14.6	%	108,464		15.8	%	108,878		15.2	%	109,498		17.0	%	104,432		17.3	%	322,203		15.2	%	304,605		17.4	%
Construction and national accounts	95,386		13.3	%	91,605		13.3	%	99,700		13.9	%	91,489		14.2	%	81,472		13.5	%	286,691		13.5	%	234,198		13.4	%
Excess and surplus casualty (2)	69,978		9.7	%	60,966		8.9	%	65,097		9.1	%	56,397		8.7	%	53,991		8.9	%	196,041		9.2	%	144,218		8.2	%
Travel, accident and health	36,726		5.1	%	52,117		7.6	%	77,375		10.8	%	67,922		10.5	%	81,952		13.5	%	166,218		7.8	%	237,163		13.5	%
Lenders products (4)	33,401		4.6	%	23,111		3.4	%	25,343		3.5	%	25,001		3.9	%	(5,724)		(0.9)	%	81,855		3.9	%	41,078		2.3	%
Other (3)	76,473		10.6	%	76,053		11.1	%	76,643		10.7	%	71,980		11.1	%	73,624		12.2	%	229,169		10.8	%	215,341		12.3	%
Total	$	719,154	100.0	%	$	687,909	100.0	%	$	715,919	100.0	%	$	645,797	100.0	%	$	605,336	100.0	%	$	2,122,982	100.0	%	$	1,751,283	100.0	%

(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.

(4)    Reflects a change in earning patterns on certain business in the 2019 third quarter.

15

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. Dollars in thousands)	Three Months Ended															Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2020			2020			2020			2019			2019			2020			2019
Gross premiums written	$	1,004,590		$	807,065		$	1,122,519		$	432,249		$	662,572		$	2,934,174		$	1,890,974
Premiums ceded	(400,388)			(241,971)			(325,339)			(93,380)			(226,096)			(967,698)			(627,120)
Net premiums written	604,202			565,094			797,180			338,869			436,476			1,966,476			1,263,854
Change in unearned premiums	(49,704)			(84,897)			(253,720)			50,116			(72,621)			(388,321)			(186,450)
Net premiums earned	554,498			480,197			543,460			388,985			363,855			1,578,155			1,077,404
Other underwriting income (loss)	298			(651)			2,120			2,051			(1,208)			1,767			4,393
Losses and loss adjustment expenses	(422,084)			(383,433)			(430,069)			(260,182)			(270,379)			(1,235,586)			(751,147)
Acquisition expenses	(85,388)			(90,522)			(79,606)			(65,528)			(62,393)			(255,516)			(173,504)
Other operating expenses	(41,818)			(38,716)			(45,297)			(39,287)			(32,533)			(125,831)			(102,197)
Underwriting income (loss)	$	5,506		$	(33,125)		$	(9,392)		$	26,039		$	(2,658)		$	(37,011)		$	54,949
Underwriting Ratios
Loss ratio	76.1		%	79.8		%	79.1		%	66.9		%	74.3		%	78.3		%	69.7		%
Acquisition expense ratio	15.4		%	18.9		%	14.6		%	16.8		%	17.1		%	16.2		%	16.1		%
Other operating expense ratio	7.5		%	8.1		%	8.3		%	10.1		%	8.9		%	8.0		%	9.5		%
Combined ratio	99.0		%	106.8		%	102.0		%	93.8		%	100.3		%	102.5		%	95.3		%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums	23.3		%	25.3		%	12.7		%	6.4		%	11.5		%	20.2		%	5.0		%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments	(7.4)		%	(6.0)		%	(2.0)		%	(4.9)		%	(4.0)		%	(5.1)		%	(2.3)		%
Combined ratio excluding catastrophic activity and prior year development (1)	83.1		%	87.5		%	91.3		%	92.3		%	92.8		%	87.4		%	92.6		%
Net premiums written to gross premiums written	60.1		%	70.0		%	71.0		%	78.4		%	65.9		%	67.0		%	66.8		%

(1)See ‘Comments on Regulation G’ for further discussion.

16

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. Dollars in thousands)	Three Months Ended																				Nine Months Ended
	September 30,				June 30,				March 31,				December 31,				September 30,				September 30,				September 30,
	2020				2020				2020				2019				2019				2020				2019
Net premiums written
Property excluding property catastrophe	$	223,880	37.1	%	$	163,639	29.0	%	$	158,924	19.9	%	$	85,859	25.3	%	$	118,671	27.2	%	$	546,443	27.8	%	$	317,461	25.1	%
Property catastrophe	42,125		7.0	%	117,676		20.8	%	89,092		11.2	%	37,069		10.9	%	23,597		5.4	%	248,893		12.7	%	73,574		5.8	%
Other specialty (1)	159,969		26.5	%	117,375		20.8	%	284,952		35.7	%	103,254		30.5	%	94,072		21.6	%	562,296		28.6	%	363,723		28.8	%
Casualty (2)	142,401		23.6	%	105,049		18.6	%	190,880		23.9	%	85,063		25.1	%	178,802		41.0	%	438,330		22.3	%	425,311		33.7	%
Marine and aviation	27,839		4.6	%	32,372		5.7	%	49,785		6.2	%	11,921		3.5	%	10,181		2.3	%	109,996		5.6	%	41,758		3.3	%
Other (3)	7,988		1.3	%	28,983		5.1	%	23,547		3.0	%	15,703		4.6	%	11,153		2.6	%	60,518		3.1	%	42,027		3.3	%
Total	$	604,202	100.0	%	$	565,094	100.0	%	$	797,180	100.0	%	$	338,869	100.0	%	$	436,476	100.0	%	$	1,966,476	100.0	%	$	1,263,854	100.0	%
Underwriting location
Bermuda	$	240,193	39.8	%	$	240,451	42.6	%	$	333,619	41.8	%	$	116,974	34.5	%	$	190,998	43.8	%	$	814,263	41.4	%	$	461,644	36.5	%
United States	189,135		31.3	%	162,027		28.7	%	187,466		23.5	%	119,003		35.1	%	145,231		33.3	%	538,628		27.4	%	410,940		32.5	%
Europe and other	174,874		28.9	%	162,616		28.8	%	276,095		34.6	%	102,892		30.4	%	100,247		23.0	%	613,585		31.2	%	391,270		31.0	%
Total	$	604,202	100.0	%	$	565,094	100.0	%	$	797,180	100.0	%	$	338,869	100.0	%	$	436,476	100.0	%	$	1,966,476	100.0	%	$	1,263,854	100.0	%
Net premiums earned
Property excluding property catastrophe	$	163,081	29.4	%	$	124,019	25.8	%	$	112,652	20.7	%	$	103,212	26.5	%	$	90,358	24.8	%	$	399,752	25.3	%	$	259,629	24.1	%
Property catastrophe	69,524		12.5	%	55,226		11.5	%	53,000		9.8	%	31,048		8.0	%	22,617		6.2	%	177,750		11.3	%	59,886		5.6	%
Other specialty (1)	141,201		25.5	%	123,006		25.6	%	203,385		37.4	%	108,074		27.8	%	112,349		30.9	%	467,592		29.6	%	370,443		34.4	%
Casualty (2)	136,421		24.6	%	132,756		27.6	%	135,071		24.9	%	118,258		30.4	%	116,242		31.9	%	404,248		25.6	%	311,030		28.9	%
Marine and aviation	26,744		4.8	%	24,960		5.2	%	24,858		4.6	%	12,919		3.3	%	11,798		3.2	%	76,562		4.9	%	35,355		3.3	%
Other (3)	17,527		3.2	%	20,230		4.2	%	14,494		2.7	%	15,474		4.0	%	10,491		2.9	%	52,251		3.3	%	41,061		3.8	%
Total	$	554,498	100.0	%	$	480,197	100.0	%	$	543,460	100.0	%	$	388,985	100.0	%	$	363,855	100.0	%	$	1,578,155	100.0	%	$	1,077,404	100.0	%

(1)    Includes proportional motor, surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and other.

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

(3)     Includes life, casualty clash and other.    

17

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Mortgage Segment

(U.S. Dollars in thousands)	Three Months Ended															Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2020			2020			2020			2019			2019			2020			2019
Gross premiums written	$	346,248		$	369,144		$	368,945		$	370,658		$	375,092		$	1,084,337		$	1,095,607
Premiums ceded	(47,783)			(44,044)			(44,327)			(55,151)			(57,703)			(136,154)			(149,358)
Net premiums written	298,465			325,100			324,618			315,507			317,389			948,183			946,249
Change in unearned premiums	52,944			40,613			20,408			32,148			25,611			113,965			72,436
Net premiums earned	351,409			365,713			345,026			347,655			343,000			1,062,148			1,018,685
Other underwriting income (1)	4,600			6,450			4,599			4,138			3,955			15,649			11,867
Losses and loss adjustment expenses	(153,055)			(224,100)			(67,566)			(3,287)			(13,080)			(444,721)			(50,226)
Acquisition expenses	(35,716)			(34,052)			(38,536)			(35,597)			(34,396)			(108,304)			(98,722)
Other operating expenses	(36,708)			(37,574)			(45,896)			(36,395)			(37,003)			(120,178)			(116,697)
Underwriting income	$	130,530		$	76,437		$	197,627		$	276,514		$	262,476		$	404,594		$	764,907
Underwriting Ratios
Loss ratio	43.6		%	61.3		%	19.6		%	0.9		%	3.8		%	41.9		%	4.9		%
Acquisition expense ratio	10.2		%	9.3		%	11.2		%	10.2		%	10.0		%	10.2		%	9.7		%
Other operating expense ratio	10.4		%	10.3		%	13.3		%	10.5		%	10.8		%	11.3		%	11.5		%
Combined ratio	64.2		%	80.9		%	44.1		%	21.6		%	24.6		%	63.4		%	26.1		%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments	(1.3)		%	(0.1)		%	(1.8)		%	(9.4)		%	(9.6)		%	(1.0)		%	(9.1)		%
Combined ratio excluding prior year development (2)	65.5		%	81.0		%	45.9		%	31.0		%	34.2		%	64.4		%	35.2		%
Net premiums written to gross premiums written	86.2		%	88.1		%	88.0		%	85.1		%	84.6		%	87.4		%	86.4		%
Net premiums written by underwriting location
United States	$	245,971		$	261,124		$	264,108		$	258,512		$	260,202		$	771,203		$	774,356
Other	52,494			63,976			60,510			56,995			57,187			176,980			171,893
Total	$	298,465		$	325,100		$	324,618		$	315,507		$	317,389		$	948,183		$	946,249
United States %	82.4		%	80.3		%	81.4		%	81.9		%	82.0		%	81.3		%	81.8		%
Other %	17.6		%	19.7		%	18.6		%	18.1		%	18.0		%	18.7		%	18.2		%

(1)     Primarily related to income earned on various risk-sharing products offered to government sponsored enterprises and mortgage lenders.

(2)    See ‘Comments on Regulation G’ for further discussion.

18

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Mortgage Segment

(U.S. Dollars in millions)	September 30, 2020					June 30, 2020					March 31, 2020					December 31, 2019					September 30, 2019
Insurance In Force (IIF) (1)
U.S. primary mortgage insurance	$	275,846		66.8	%	$	276,643		65.9	%	$	284,203		68.9	%	$	287,150		68.7	%	$	284,496		69.7	%
Mortgage reinsurance	28,421			6.9	%	27,457			6.5	%	24,335			5.9	%	26,768			6.4	%	25,440			6.2	%
Other (2)	108,786			26.3	%	115,803			27.6	%	103,731			25.2	%	104,346			24.9	%	98,054			24.0	%
Total	$	413,053		100.0	%	$	419,903		100.0	%	$	412,269		100.0	%	$	418,264		100.0	%	$	407,990		100.0	%
Risk In Force (RIF) (3)
U.S. primary mortgage insurance	$	69,620		91.0	%	$	70,200		91.0	%	$	72,566		92.0	%	$	73,388		91.9	%	$	72,916		92.0	%
Mortgage reinsurance	2,145			2.8	%	2,116			2.7	%	1,961			2.5	%	2,129			2.7	%	2,086			2.6	%
Other (2)	4,750			6.2	%	4,795			6.2	%	4,387			5.6	%	4,380			5.5	%	4,216			5.3	%
Total	$	76,515		100.0	%	$	77,111		100.0	%	$	78,914		100.0	%	$	79,897		100.0	%	$	79,218		100.0	%
Supplemental disclosures for U.S. primary mortgage insurance:
Total RIF by credit quality (FICO score):
>=740	$	40,017		57.5	%	$	40,297		57.4	%	$	41,738		57.5	%	$	42,301		57.6	%	$	41,975		57.6	%
680-739	24,236			34.8	%	24,346			34.7	%	25,078			34.6	%	25,240			34.4	%	25,013			34.3	%
620-679	5,016			7.2	%	5,188			7.4	%	5,368			7.4	%	5,444			7.4	%	5,501			7.5	%
<620	351			0.5	%	369			0.5	%	382			0.5	%	403			0.5	%	427			0.6	%
Total	$	69,620		100.0	%	$	70,200		100.0	%	$	72,566		100.0	%	$	73,388		100.0	%	$	72,916		100.0	%
Weighted average FICO score	743					743					743					743					743
Total RIF by Loan-To-Value (LTV):
95.01% and above	$	8,789		12.6	%	$	8,859		12.6	%	$	9,060		12.5	%	$	9,064		12.4	%	$	8,948		12.3	%
90.01% to 95.00%	37,278			53.5	%	37,830			53.9	%	39,594			54.6	%	40,136			54.7	%	40,086			55.0	%
85.01% to 90.00%	19,870			28.5	%	20,071			28.6	%	20,619			28.4	%	20,890			28.5	%	20,708			28.4	%
85.00% and below	3,683			5.3	%	3,440			4.9	%	3,293			4.5	%	3,298			4.5	%	3,174			4.4	%
Total	$	69,620		100.0	%	$	70,200		100.0	%	$	72,566		100.0	%	$	73,388		100.0	%	$	72,916		100.0	%
Weighted average LTV	92.9		%			92.9		%			93.0		%			93.0		%			93.1		%
Total RIF by State:
Texas	$	5,536		8.0	%	$	5,560		7.9	%	$	5,683		7.8	%	$	5,678		7.7	%	$	5,599		7.7	%
California	5,019			7.2	%	4,948			7.0	%	5,106			7.0	%	5,187			7.1	%	4,984			6.8	%
Florida	3,648			5.2	%	3,737			5.3	%	3,863			5.3	%	3,887			5.3	%	3,821			5.2	%
Georgia	2,890			4.2	%	2,861			4.1	%	2,819			3.9	%	2,753			3.8	%	2,667			3.7	%
Illinois	2,670			3.8	%	2,643			3.8	%	2,621			3.6	%	2,616			3.6	%	2,602			3.6	%
Virginia	2,540			3.6	%	2,656			3.8	%	2,814			3.9	%	2,881			3.9	%	2,907			4.0	%
North Carolina	2,516			3.6	%	2,459			3.5	%	2,475			3.4	%	2,470			3.4	%	2,469			3.4	%
Minnesota	2,489			3.6	%	2,473			3.5	%	2,509			3.5	%	2,514			3.4	%	2,480			3.4	%
Massachusetts	2,344			3.4	%	2,345			3.3	%	2,409			3.3	%	2,432			3.3	%	2,424			3.3	%
Washington	2,222			3.2	%	2,291			3.3	%	2,426			3.3	%	2,474			3.4	%	2,466			3.4	%
Other	37,746			54.2	%	38,227			54.5	%	39,841			54.9	%	40,496			55.2	%	40,497			55.5	%
Total	$	69,620		100.0	%	$	70,200		100.0	%	$	72,566		100.0	%	$	73,388		100.0	%	$	72,916		100.0	%
Weighted average coverage (end of period RIF divided by IIF)	25.2		%			25.4		%			25.5		%			25.6		%			25.6		%
U.S. mortgage insurance total RIF, net of reinsurance (4)	$	56,067				$	57,258				$	58,693				$	58,512				$	57,768
Analysts’ persistency (5)	62.5		%			66.6		%			72.6		%			75.7		%			78.6		%
Risk-to-capital ratio -- Arch MI U.S. (6)	9.6:1					10.2:1					11.3:1					12.0:1					12.9:1
PMIER sufficiency ratio -- Arch MI U.S. (7)	158		%			161		%			165		%			161		%			154		%

(1)    The aggregate dollar amount of each insured mortgage loan’s current principal balance.         (4)    Total RIF for the U.S. mortgage insurance operations (see note 3) after external reinsurance.

(2)    Includes GSE credit risk-sharing transactions and international insurance business.        (5)    Represents the % of IIF at the beginning of a 12-month period that remained in force at the end of the period.

(3)    The aggregate dollar amount of each insured mortgage loan’s current principal balance multiplied    (6)    Represents current (non-delinquent) RIF, net of reinsurance, divided by statutory capital (estimate for September 30, 2020).

    by the insurance coverage percentage specified in the policy for insurance policies issued and    (7)    Calculated as available assets divided by required assets as defined within PMIERs (estimate for September 30, 2020).

    after contract limits and/or loss ratio caps for risk-sharing or reinsurance transactions.            There was approximately $1.33 billion of excess available assets at September 30, 2020.

19

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Mortgage Segment

(U.S. Dollars in millions, except policy/loan/claim count)	Three Months Ended
	September 30, 2020					June 30, 2020					March 31, 2020					December 31, 2019					September 30, 2019
Supplemental disclosures for U.S. primary mortgage insurance:
Total new insurance written (NIW) (1)	$	32,787				$	24,551				$	16,778				$	24,051				$	25,313
Total NIW by credit quality (FICO score):
>=740	$	21,160		64.5	%	$	15,851		64.6	%	$	10,069		60.0	%	$	14,793		61.5	%	$	15,204		60.1	%
680-739	10,562			32.2	%	7,781			31.7	%	5,787			34.5	%	8,092			33.6	%	8,725			34.5	%
620-679	1,065			3.2	%	919			3.7	%	922			5.5	%	1,166			4.8	%	1,384			5.5	%
Total	$	32,787		100.0	%	$	24,551		100.0	%	$	16,778		100.0	%	$	24,051		100.0	%	$	25,313		100.0	%
Total NIW by LTV:
95.01% and above	$	2,561		7.8	%	$	1,948		7.9	%	$	1,668		9.9	%	$	2,260		9.4	%	$	3,182		12.6	%
90.01% to 95.00%	13,967			42.6	%	9,403			38.3	%	7,199			42.9	%	10,059			41.8	%	10,409			41.1	%
85.01% to 90.00%	10,052			30.7	%	8,140			33.2	%	5,329			31.8	%	7,839			32.6	%	7,762			30.7	%
85.00% and below	6,207			18.9	%	5,060			20.6	%	2,582			15.4	%	3,893			16.2	%	3,960			15.6	%
Total	$	32,787		100.0	%	$	24,551		100.0	%	$	16,778		100.0	%	$	24,051		100.0	%	$	25,313		100.0	%
Total NIW monthly vs. single:
Monthly	$	31,928		97.4	%	$	23,391		95.3	%	$	15,692		93.5	%	$	22,707		94.4	%	$	23,358		92.3	%
Single	859			2.6	%	1,160			4.7	%	1,086			6.5	%	1,344			5.6	%	1,955			7.7	%
Total	$	32,787		100.0	%	$	24,551		100.0	%	$	16,778		100.0	%	$	24,051		100.0	%	$	25,313		100.0	%
Total NIW purchase vs. refinance:
Purchase	$	24,256		74.0	%	$	14,956		60.9	%	$	12,299		73.3	%	$	16,476		68.5	%	$	19,068		75.3	%
Refinance	8,531			26.0	%	9,595			39.1	%	4,479			26.7	%	7,575			31.5	%	6,245			24.7	%
Total	$	32,787		100.0	%	$	24,551		100.0	%	$	16,778		100.0	%	$	24,051		100.0	%	$	25,313		100.0	%
Ending number of policies in force (PIF) (2)	1,245,408					1,259,328					1,293,799					1,307,884					1,304,263
Rollforward of insured loans in default:
Beginning delinquent number of loans	64,667					18,414					20,163					19,243					18,761
Plus: new notices	19,967					58,374					9,419					10,289					10,111
Less: cures	(26,029)					(11,664)					(10,541)					(8,724)					(8,970)
Less: paid claims	(243)					(457)					(627)					(645)					(659)
Ending delinquent number of loans (2)	58,362					64,667					18,414					20,163					19,243
Ending percentage of loans in default (2)	4.69		%			5.14		%			1.42		%			1.54		%			1.48		%
Losses:
Number of claims paid	243					457					627					645					659
Total paid claims (in thousands)	$	9,420				$	20,101				$	26,038				$	25,253				$	26,082
Average per claim (in thousands)	$	38.8				$	44.0				$	41.5				$	39.2				$	39.6
Severity (3)	88.6		%			96.3		%			92.8		%			94.0		%			95.6		%
Average case reserve per default (in thousands)	$	10.1				$	6.9				$	14.4				$	13.3				$	14.7

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

(2)    Includes first lien primary and pool policies.    

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

20

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Mortgage Segment

Supplemental disclosures for U.S. primary mortgage insurance:

(U.S. Dollars in millions)	September 30, 2020												December 31, 2019
	Loss Reserves, Net (1)		Primary IIF (2)				Primary RIF (3)				Delinquency Rate		Loss Reserves, Net (1)		Primary IIF (2)				Primary RIF (3)				Delinquency Rate
	% of Total		Total		% of Total		Total		% of Total				% of Total		Total		% of Total		Total		% of Total
Policy year:
2010 and prior	27.8	%	$	14,603	5.3	%	3,320		4.8	%	11.59	%	58.2	%	$	17,251	6.0	%	3,990		5.4	%	8.79	%
2011	0.6	%	1,141		0.4	%	308		0.4	%	3.67	%	0.7	%	1,678		0.6	%	464		0.6	%	1.59	%
2012	1.5	%	4,467		1.6	%	1,228		1.8	%	2.92	%	1.3	%	6,293		2.2	%	1,753		2.4	%	0.89	%
2013	3.2	%	8,754		3.2	%	2,447		3.5	%	3.37	%	3.0	%	12,276		4.3	%	3,433		4.7	%	0.99	%
2014	2.5	%	9,613		3.5	%	2,647		3.8	%	4.02	%	2.4	%	13,714		4.8	%	3,778		5.1	%	1.16	%
2015	3.9	%	17,752		6.4	%	4,778		6.9	%	3.79	%	3.2	%	25,788		9.0	%	6,880		9.4	%	0.87	%
2016	9.5	%	29,299		10.6	%	7,753		11.1	%	4.89	%	7.6	%	40,898		14.2	%	10,670		14.5	%	1.03	%
2017	12.9	%	29,537		10.7	%	7,639		11.0	%	5.52	%	9.9	%	43,896		15.3	%	11,262		15.3	%	1.00	%
2018	16.1	%	32,788		11.9	%	8,304		11.9	%	6.66	%	11.2	%	51,776		18.0	%	13,086		17.8	%	0.86	%
2019	17.6	%	56,189		20.4	%	13,900		20.0	%	4.68	%	2.4	%	73,580		25.6	%	18,072		24.6	%	0.14	%
2020	4.6	%	71,703		26.0	%	17,296		24.8	%	1.01	%
Total	100.0	%	$	275,846	100.0	%	$	69,620	100.0	%	4.69	%	100.0	%	$	287,150	100.0	%	$	73,388	100.0	%	1.54	%

(1)    Total reserves for losses and loss adjustment expenses, net of recoverables, was $593.2 million at September 30, 2020, compared to $278.7 million at December 31, 2019.

(2)    The aggregate dollar amount of each insured mortgage loan’s current principal balance.

(3)    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 risk-sharing transactions.

21

Arch Capital Group Ltd. and Subsidiaries

Segment Information - Consolidated Excluding the 'Other' Segment (Sub-Total (Core))

(U.S. Dollars in thousands)	Three Months Ended															Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2020			2020			2020			2019			2019			2020			2019
Gross premiums written	$	2,556,914		$	2,206,410		$	2,698,537		$	1,842,071		$	2,043,292		$	7,461,860		$	5,853,574
Premiums ceded	(830,086)			(643,955)			(747,991)			(498,971)			(585,587)			(2,222,031)			(1,690,469)
Net premiums written	1,726,828			1,562,455			1,950,546			1,343,100			1,457,705			5,239,829			4,163,105
Change in unearned premiums	(101,767)			(28,636)			(346,141)			39,337			(145,514)			(476,544)			(315,733)
Net premiums earned	1,625,061			1,533,819			1,604,405			1,382,437			1,312,191			4,763,285			3,847,372
Other underwriting income (loss)	4,867			5,799			6,719			6,189			2,747			17,385			16,260
Losses and loss adjustment expenses	(1,100,460)			(1,125,736)			(1,004,743)			(710,267)			(706,241)			(3,230,939)			(1,970,050)
Acquisition expenses	(223,524)			(232,245)			(225,479)			(197,562)			(188,048)			(681,248)			(537,403)
Other operating expenses	(201,067)			(195,047)			(220,842)			(192,125)			(184,944)			(616,956)			(557,221)
Underwriting income (loss)	$	104,877		$	(13,410)		$	160,060		$	288,672		$	235,705		$	251,527		$	798,958
Underwriting Ratios
Loss ratio	67.7		%	73.4		%	62.6		%	51.4		%	53.8		%	67.8		%	51.2		%
Acquisition expense ratio	13.8		%	15.1		%	14.1		%	14.3		%	14.3		%	14.3		%	14.0		%
Other operating expense ratio	12.4		%	12.7		%	13.8		%	13.9		%	14.1		%	13.0		%	14.5		%
Combined ratio	93.9		%	101.2		%	90.5		%	79.6		%	82.2		%	95.1		%	79.7		%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums	12.5		%	13.5		%	7.4		%	2.2		%	5.2		%	11.1		%	2.2		%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments	(2.9)		%	(2.0)		%	(1.1)		%	(4.0)		%	(3.9)		%	(2.0)		%	(3.2)		%
Combined ratio excluding catastrophic activity and prior year development (1)	84.3		%	89.7		%	84.2		%	81.4		%	80.9		%	86.0		%	80.7		%
Components of losses and loss adjustment expenses incurred (1)
Paid losses and loss adjustment expenses	$	618,638		$	550,481		$	530,012		$	627,929		$	508,364		$	1,699,131		$	1,433,456
Change in unpaid losses and loss adjustment expenses	481,822			575,255			474,731			82,338			197,877			1,531,808			536,594
Total losses and loss adjustment expenses	$	1,100,460		$	1,125,736		$	1,004,743		$	710,267		$	706,241		$	3,230,939		$	1,970,050
Net premiums written to gross premiums written	67.5		%	70.8		%	72.3		%	72.9		%	71.3		%	70.2		%	71.1		%

(1)See ‘Comments on Regulation G’ for further discussion.

22

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Selected Information on Losses and Loss Adjustment Expenses

(U.S. Dollars in thousands)	Three Months Ended															Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2020			2020			2020			2019			2019			2020			2019
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments (1)
Net impact on underwriting results:
Insurance	$	(1,136)		$	(2,148)		$	(776)		$	(2,839)		$	(3,934)		$	(4,060)		$	(7,054)
Reinsurance	(40,766)			(28,933)			(10,960)			(19,081)			(14,716)			(80,659)			(24,387)
Mortgage	(4,523)			(306)			(6,101)			(32,763)			(33,031)			(10,930)			(92,450)
Total	$	(46,425)		$	(31,387)		$	(17,837)		$	(54,683)		$	(51,681)		$	(95,649)		$	(123,891)
Impact on losses and loss adjustment expenses:
Insurance	$	(2,282)		$	(2,518)		$	(1,115)		$	(4,403)		$	(4,354)		$	(5,915)		$	(11,387)
Reinsurance	(41,960)			(40,211)			(11,627)			(20,058)			(15,309)			(93,798)			(26,338)
Mortgage	(4,523)			(208)			(6,101)			(32,763)			(33,031)			(10,832)			(92,456)
Total	$	(48,765)		$	(42,937)		$	(18,843)		$	(57,224)		$	(52,694)		$	(110,545)		$	(130,181)
Impact on acquisition expenses:
Insurance	$	1,146		$	370		$	339		$	1,564		$	420		$	1,855		$	4,333
Reinsurance	1,194			11,278			667			977			593			13,139			1,951
Mortgage	—			(98)			—			—			—			(98)			6
Total	$	2,340		$	11,550		$	1,006		$	2,541		$	1,013		$	14,896		$	6,290
Impact on combined ratio:
Insurance	(0.2)		%	(0.3)		%	(0.1)		%	(0.4)		%	(0.6)		%	(0.2)		%	(0.4)		%
Reinsurance	(7.4)		%	(6.0)		%	(2.0)		%	(4.9)		%	(4.0)		%	(5.1)		%	(2.3)		%
Mortgage	(1.3)		%	(0.1)		%	(1.8)		%	(9.4)		%	(9.6)		%	(1.0)		%	(9.1)		%
Total	(2.9)		%	(2.0)		%	(1.1)		%	(4.0)		%	(3.9)		%	(2.0)		%	(3.2)		%
Impact on loss ratio:
Insurance	(0.3)		%	(0.4)		%	(0.2)		%	(0.7)		%	(0.7)		%	(0.3)		%	(0.7)		%
Reinsurance	(7.6)		%	(8.4)		%	(2.1)		%	(5.2)		%	(4.2)		%	(5.9)		%	(2.4)		%
Mortgage	(1.3)		%	(0.1)		%	(1.8)		%	(9.4)		%	(9.6)		%	(1.0)		%	(9.1)		%
Total	(3.0)		%	(2.8)		%	(1.2)		%	(4.1)		%	(4.0)		%	(2.3)		%	(3.4)		%
Impact on acquisition expense ratio:
Insurance	0.1		%	0.1		%	0.1		%	0.3		%	0.1		%	0.1		%	0.3		%
Reinsurance	0.2		%	2.4		%	0.1		%	0.3		%	0.2		%	0.8		%	0.1		%
Mortgage	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%
Total	0.1		%	0.8		%	0.1		%	0.1		%	0.1		%	0.3		%	0.2		%
Estimated net losses incurred from current accident year catastrophic events (2)
Insurance	$	74,365		$	85,929		$	49,483		$	5,531		$	26,085		$	209,777		$	28,704
Reinsurance	128,939			121,263			68,953			24,831			41,948			319,155			54,361
Total	$	203,304		$	207,192		$	118,436		$	30,362		$	68,033		$	528,932		$	83,065
Impact on combined ratio:
Insurance	10.3		%	12.5		%	6.9		%	0.9		%	4.3		%	9.9		%	1.6		%
Reinsurance	23.3		%	25.3		%	12.7		%	6.4		%	11.5		%	20.2		%	5.0		%
Total	12.5		%	13.5		%	7.4		%	2.2		%	5.2		%	11.1		%	2.2		%
Estimated impact of COVID-19 event, net of reinsurance and reinstatement premiums, included in current accident year catastrophic events (3)
Insurance	$	3,442		$	78,059		$	35,946		$	—		$	—		$	117,447		$	—
Reinsurance	8,449			$	95,039		50,700			—			—			154,188			—
Total	$	11,891		$	173,098		$	86,646		$	—		$	—		$	271,635		$	—
Impact on combined ratio:
Insurance	0.5		%	11.3		%	5.0		%	0.0		%	0.0		%	5.5		%	0.0		%
Reinsurance	1.5		%	19.8		%	9.3		%	0.0		%	0.0		%	9.8		%	0.0		%
Total	0.7		%	11.3		%	5.4		%	0.0		%	0.0		%	5.7		%	0.0		%

(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)Equals estimated losses from catastrophic events occurring in the current accident year (e.g. natural catastrophes, man-made events, pandemic events), net of reinsurance and reinstatement premiums. As regards the natural catastrophe estimates included within, amounts shown for the insurance segment are for named catastrophic events only, while amounts shown for the reinsurance segment include (i) named events with over $5 million of losses incurred by its Bermuda and Europe operations and (ii) all catastrophe losses incurred by its U.S. operations. Amounts not applicable for the mortgage segment.

(3)Equals estimated losses for exposures through September 30, 2020 to the COVID-19 global pandemic, net of reinsurance and reinstatement premiums. The amounts represent a subset of the estimated losses for the current accident year catastrophic events.

23

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Investable Asset Summary and Investment Portfolio Metrics

The following table summarizes the Company’s investable assets and portfolio metrics (1):

(U.S. Dollars in thousands)	September 30,					June 30,					March 31,					December 31,					September 30,
	2020					2020					2020					2019					2019
Investable assets (1) (2):
Fixed maturities available for sale, at fair value	$	17,844,866		69.4	%	$	16,557,966		67.5	%	$	16,163,702		72.2	%	$	16,187,651		72.6	%	$	15,831,411		73.4	%
Fixed maturities—fair value option (3)	386,865			1.5	%	375,793			1.5	%	342,241			1.5	%	337,860			1.5	%	345,588			1.6	%
Fixed maturities pledged under securities lending agreements, at fair value	62,749			0.2	%	457,906			1.9	%	177,442			0.8	%	368,510			1.7	%	409,795			1.9	%
Total fixed maturities	18,294,480			71.1	%	17,391,665			70.9	%	16,683,385			74.6	%	16,894,021			75.8	%	16,586,794			76.9	%
Equity securities, at fair value	1,449,208			5.6	%	1,194,874			4.9	%	1,118,734			5.0	%	773,588			3.5	%	506,998			2.4	%
Equity securities—fair value option (3)	30,494			0.1	%	31,197			0.1	%	29,905			0.1	%	42,896			0.2	%	41,436			0.2	%
Equity securities pledged under securities lending agreements, at fair value	—			0.0	%	6,597			0.0	%	—			0.0	%	11,358			0.1	%	10,620			0.0	%
Total equity securities	1,479,702			5.8	%	1,232,668			5.0	%	1,148,639			5.1	%	827,842			3.7	%	559,054			2.6	%
Other investments—fair value option (3)	1,276,867			5.0	%	1,212,788			4.9	%	1,153,737			5.2	%	1,336,920			6.0	%	1,369,554			6.4	%
Investments accounted for using the equity method (4)	1,883,702			7.3	%	1,727,302			7.0	%	1,676,055			7.5	%	1,660,396			7.5	%	1,575,832			7.3	%
Short-term investments available for sale, at fair value	2,039,097			7.9	%	2,277,866			9.3	%	944,531			4.2	%	956,546			4.3	%	751,989			3.5	%
Short-term investments—fair value option (3)	118,313			0.5	%	14,317			0.1	%	52,548			0.2	%	47,711			0.2	%	33,369			0.2	%
Total short-term investments	2,157,410			8.4	%	2,292,183			9.3	%	997,079			4.5	%	1,004,257			4.5	%	785,358			3.6	%
Cash	781,065			3.0	%	746,606			3.0	%	785,704			3.5	%	623,793			2.8	%	799,709			3.7	%
Securities transactions entered into but not settled at the balance sheet date	(148,725)			(0.6)	%	(72,018)			(0.3)	%	(68,747)			(0.3)	%	(61,553)			(0.3)	%	(110,213)			(0.5)	%
Total investable assets held by the Company	$	25,724,501		100.0	%	$	24,531,194		100.0	%	$	22,375,852		100.0	%	$	22,285,676		100.0	%	$	21,566,088		100.0	%
Average effective duration (in years)	3.21					3.18					3.19					3.40					3.64
Average S&P/Moody’s credit ratings (5)	AA/Aa2					AA/Aa2					AA/Aa2					AA/Aa2					AA/Aa2
Embedded book yield (before investment expenses)	1.71		%			1.85		%			2.34		%			2.55		%			2.70		%

(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. Such amounts are summarized as follows:

Investable assets in ‘other’ segment:
Cash	$	195,333	$	107,653	$	96,580	$	102,437	$	80,390
Investments accounted for using the fair value option	1,937,036		1,886,676		1,732,086		1,898,090		2,048,296
Fixed maturities available for sale, at fair value	608,022		649,765		677,869		706,875		639,112
Equity securities, at fair value	52,807		62,443		63,169		65,337		43,487
Securities sold but not yet purchased	(24,909)		(29,289)		(30,076)		(66,257)		(65,736)
Securities transactions entered into but not settled at the balance sheet date	(74,837)		(35,958)		(37,039)		(1,893)		(15,302)
Total investable assets included in ‘other’ segment	$	2,693,452	$	2,641,290	$	2,502,589	$	2,704,589	$	2,730,247

(2)    This table excludes the collateral received and reinvested and includes the securities pledged under securities lending agreements, at fair value.

(3)    Represents investments which are carried at fair value under the fair value option and reflected as “investments accounted for using the fair value option” on the balance sheet.

(4)    Changes in the carrying value of investment funds accounted for using the equity method are recorded as “equity in net income (loss) of investment funds accounted for using the equity method” rather than as an unrealized gain or loss component of accumulated other comprehensive income.

(5)    Average credit ratings on the Company’s investment portfolio on securities with ratings assigned by Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”).

24

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Composition of Net Investment Income, Yield and Total Return

The following table summarizes the Company’s net investment income, yield and total return (1):

(U.S. Dollars in thousands, except share data)	Three Months Ended															Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2020			2020			2020			2019			2019			2020			2019
Composition of net investment income (1):
Fixed maturities	$	84,608		$	91,491		$	101,763		$	108,885		$	109,953		$	277,862		$	331,939
Equity securities (dividends)	6,659			6,023			5,630			4,134			3,581			18,312			9,321
Short-term investments	1,162			897			3,385			3,464			3,432			5,444			11,178
Other (2)	24,594			17,825			20,479			19,211			24,170			62,898			67,229
Gross investment income	117,023			116,236			131,257			135,694			141,136			364,516			419,667
Investment expenses	(17,166)			(15,205)			(18,229)			(15,788)			(14,262)			(50,600)			(48,506)
Net investment income	$	99,857		$	101,031		$	113,028		$	119,906		$	126,874		$	313,916		$	371,161
Per share	$	0.24		$	0.25		$	0.27		$	0.29		$	0.31		$	0.77		$	0.90
Investment income yield, at amortized cost (1) (3):
Pre-tax	1.76		%	1.92		%	2.20		%	2.36		%	2.58		%	1.94		%	2.62		%
After-tax	1.57		%	1.68		%	1.91		%	2.07		%	2.31		%	1.70		%	2.35		%
Total return on investments (1) (4)	2.30		%	3.72		%	(0.86)		%	1.07		%	1.00		%	5.19		%	6.20		%

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

(3)Presented on an annualized basis and excluding the impact of investments for which returns are not included within investment income, such as investments accounted for using the equity method and certain equities.

(4)Total return on investments includes net investment income, equity in net income or loss of investment funds accounted for using the equity method, net realized gains and losses (excluding changes in allowance for credit loses on non-investment related financial assets) and the change in unrealized gains or 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.

25

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Composition of Fixed Maturities

The following table summarizes the Company’s fixed maturities and fixed maturities pledged under securities lending agreements (1):

(U.S. Dollars in thousands)	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Net Unrealized Gains (Losses)		Allowance for Credit Losses		Amortized Cost		Fair Value / Amortized Cost		Fair Value % of Total
At September 30, 2020
Corporates	$	8,137,582	$	382,992	$	(35,491)	$	347,501	$	(1,389)	$	7,791,470	104.4	%	44.5	%
U.S. government and government agencies	4,662,260		38,105		(4,388)		33,717		—		4,628,543		100.7	%	25.5	%
Municipal bonds	525,617		26,873		(877)		25,996		(62)		499,683		105.2	%	2.9	%
Non-U.S. government securities	2,196,827		81,050		(16,135)		64,915		—		2,131,912		103.0	%	12.0	%
Asset-backed securities	1,693,291		29,690		(15,536)		14,154		(1,537)		1,680,674		100.8	%	9.3	%
Commercial mortgage-backed securities	375,510		8,523		(4,660)		3,863		(256)		371,903		101.0	%	2.1	%
Residential mortgage-backed securities	703,393		12,456		(2,328)		10,128		(280)		693,545		101.4	%	3.8	%
Total	$	18,294,480	$	579,689	$	(79,415)	$	500,274	$	(3,524)	$	17,797,730	102.8	%	100.0	%
At December 31, 2019
Corporates	$	6,561,354	$	189,917	$	(12,752)	$	177,165	$	—	$	6,384,189	102.8	%	38.8	%
U.S. government and government agencies	4,632,947		34,892		(9,997)		24,895		—		4,608,052		100.5	%	27.4	%
Municipal bonds	880,119		24,582		(2,213)		22,369		—		857,750		102.6	%	5.2	%
Non-U.S. government securities	1,995,813		45,019		(19,297)		25,722		—		1,970,091		101.3	%	11.8	%
Asset-backed securities	1,547,744		23,403		(4,028)		19,375		—		1,528,369		101.3	%	9.2	%
Commercial mortgage-backed securities	734,244		14,951		(2,330)		12,621		—		721,623		101.7	%	4.3	%
Residential mortgage-backed securities	541,800		9,651		(887)		8,764		—		533,036		101.6	%	3.2	%
Total	$	16,894,021	$	342,415	$	(51,504)	$	290,911	$	—	$	16,603,110	101.8	%	100.0	%

(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.

26

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Credit Quality Distribution and Maturity Profile

The following table summarizes the credit quality distribution and maturity profile of the Company’s fixed maturities and fixed maturities pledged under securities lending agreements (1):

(U.S. Dollars in thousands)	September 30,				June 30,				March 31,				December 31,				September 30,
	2020				2020				2020				2019				2019
Credit quality distribution of total fixed maturities (2) (3):
U.S. government and government agencies (4)	$	5,360,798	29.3	%	$	5,566,339	32.0	%	$	4,804,048	28.8	%	$	5,215,489	30.9	%	$	5,403,271	32.6	%
AAA	3,352,902		18.3	%	3,035,513		17.5	%	3,486,700		20.9	%	3,392,341		20.1	%	3,240,708		19.5	%
AA	2,087,245		11.4	%	1,818,693		10.5	%	1,994,127		12.0	%	2,115,828		12.5	%	1,879,728		11.3	%
A	3,895,053		21.3	%	4,232,245		24.3	%	3,937,053		23.6	%	3,849,458		22.8	%	3,648,581		22.0	%
BBB	2,542,233		13.9	%	1,874,332		10.8	%	1,565,912		9.4	%	1,495,467		8.9	%	1,576,052		9.5	%
BB	504,570		2.8	%	406,342		2.3	%	366,759		2.2	%	355,803		2.1	%	362,117		2.2	%
B	231,774		1.3	%	211,638		1.2	%	205,181		1.2	%	216,663		1.3	%	210,824		1.3	%
Lower than B	54,118		0.3	%	51,273		0.3	%	51,712		0.3	%	56,865		0.3	%	61,205		0.4	%
Not rated	265,787		1.5	%	195,290		1.1	%	271,893		1.6	%	196,107		1.2	%	204,308		1.2	%
Total fixed maturities, at fair value	$	18,294,480	100.0	%	$	17,391,665	100.0	%	$	16,683,385	100.0	%	$	16,894,021	100.0	%	$	16,586,794	100.0	%
Maturity profile of total fixed maturities (2):
Due in one year or less	$	314,243	1.7	%	$	350,520	2.0	%	$	459,191	2.8	%	$	443,914	2.6	%	$	571,738	3.4	%
Due after one year through five years	9,744,246		53.3	%	9,730,262		55.9	%	9,381,924		56.2	%	9,875,925		58.5	%	9,924,224		59.8	%
Due after five years through ten years	4,861,677		26.6	%	4,342,055		25.0	%	3,416,637		20.5	%	3,296,839		19.5	%	3,052,774		18.4	%
Due after 10 years	602,120		3.3	%	467,099		2.7	%	555,462		3.3	%	453,555		2.7	%	229,085		1.4	%
	15,522,286		84.8	%	14,889,936		85.6	%	13,813,214		82.8	%	14,070,233		83.3	%	13,777,821		83.1	%
Mortgage-backed securities	703,393		3.8	%	593,799		3.4	%	449,024		2.7	%	541,800		3.2	%	528,227		3.2	%
Commercial mortgage-backed securities	375,510		2.1	%	396,813		2.3	%	781,417		4.7	%	734,244		4.3	%	754,306		4.5	%
Asset-backed securities	1,693,291		9.3	%	1,511,117		8.7	%	1,639,730		9.8	%	1,547,744		9.2	%	1,526,440		9.2	%
Total fixed maturities, at fair value	$	18,294,480	100.0	%	$	17,391,665	100.0	%	$	16,683,385	100.0	%	$	16,894,021	100.0	%	$	16,586,794	100.0	%

(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)    This table excludes the collateral received and reinvested and includes the fixed maturities pledged under securities lending agreements, at fair value.

(3)     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.

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

27

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Analysis of Corporate Exposures

The following table summarizes the Company’s corporate bonds by sector (1):

(U.S. Dollars in thousands)	September 30,				June 30,				March 31,				December 31,				September 30,
	2020				2020				2020				2019				2019
Sector:
Industrials	$	5,303,089	65.2	%	$	4,650,615	63.6	%	$	3,903,927	58.5	%	$	3,639,891	55.5	%	$	3,588,041	55.2	%
Financials	2,156,871		26.5	%	2,164,859		29.6	%	2,400,415		35.9	%	2,645,393		40.3	%	2,612,883		40.2	%
Utilities	562,939		6.9	%	409,778		5.6	%	321,022		4.8	%	224,615		3.4	%	237,042		3.6	%
Covered bonds	2,072		0.0	%	1,974		0.0	%	2,662		0.0	%	3,520		0.1	%	2,543		0.0	%
All other (2)	112,611		1.4	%	82,190		1.1	%	49,981		0.7	%	47,935		0.7	%	54,145		0.8	%
Total	$	8,137,582	100.0	%	$	7,309,416	100.0	%	$	6,678,007	100.0	%	$	6,561,354	100.0	%	$	6,494,654	100.0	%
Credit quality distribution (3):
AAA	$	291,154	3.6	%	$	76,923	1.1	%	$	86,420	1.3	%	$	95,559	1.5	%	$	95,340	1.5	%
AA	1,068,945		13.1	%	894,495		12.2	%	982,202		14.7	%	1,035,817		15.8	%	1,021,056		15.7	%
A	3,478,591		42.7	%	3,834,480		52.5	%	3,480,871		52.1	%	3,392,134		51.7	%	3,240,957		49.9	%
BBB	2,427,829		29.8	%	1,773,620		24.3	%	1,451,807		21.7	%	1,355,868		20.7	%	1,450,372		22.3	%
BB	478,445		5.9	%	388,112		5.3	%	348,848		5.2	%	334,264		5.1	%	339,952		5.2	%
B	224,644		2.8	%	205,342		2.8	%	198,828		3.0	%	207,713		3.2	%	201,352		3.1	%
Lower than B	30,423		0.4	%	27,865		0.4	%	22,869		0.3	%	22,233		0.3	%	26,969		0.4	%
Not rated	137,551		1.7	%	108,579		1.5	%	106,162		1.6	%	117,766		1.8	%	118,656		1.8	%
Total	$	8,137,582	100.0	%	$	7,309,416	100.0	%	$	6,678,007	100.0	%	$	6,561,354	100.0	%	$	6,494,654	100.0	%

(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)    Includes sovereign securities, supranational securities and other.

(3)    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.

The following table summarizes the Company’s top ten exposures to fixed income corporate issuers by fair value at September 30, 2020 (1):

(U.S. Dollars in thousands)	Fair Value		% of Asset Class		% of Investable Assets		Credit Quality (2)
Issuer:
Bank of America Corporation	$	320,603	3.9	%	1.2	%	A-/A2
Wells Fargo & Company	259,752		3.2	%	1.0	%	BBB+/A2
Nestlé S.A.	228,219		2.8	%	0.9	%	AA-/Aa3
JPMorgan Chase & Co.	227,543		2.8	%	0.9	%	A-/A2
Johnson & Johnson	220,521		2.7	%	0.9	%	AAA/Aaa
Apple Inc.	169,793		2.1	%	0.7	%	AA+/Aa1
Citigroup Inc.	145,195		1.8	%	0.6	%	BBB+/A3
Morgan Stanley	134,680		1.7	%	0.5	%	BBB+/A3
Comcast Corporation	120,210		1.5	%	0.5	%	A-/A3
BP p.l.c.	120,177		1.5	%	0.5	%	A-/A1
Total	$	1,946,693	23.9	%	7.6	%

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

28

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Structured Securities

The following table provides the composition of the Company’s structured securities at September 30, 2020 (1):

(U.S. Dollars in thousands)	Agencies		AAA		AA		A		BBB		Non-Investment Grade		Total
Residential mortgage-backed securities	$	669,672	$	3,148	$	320	$	—	$	903	$	29,350	$	703,393
Commercial mortgage-backed securities	28,865		269,888		29,947		12,270		14,669		19,871		375,510
Asset-backed securities	—		1,171,008		100,096		256,038		52,024		114,125		1,693,291
Total	$	698,537	$	1,444,044	$	130,363	$	268,308	$	67,596	$	163,346	$	2,772,194

(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.

29

Arch Capital Group Ltd. and Subsidiaries

Comments on Regulation G

Throughout this financial supplement, the Company presents its operations in the way it believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use the Company’s financial information in evaluating the performance of the 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 (which includes changes in the allowance for credit losses on financial assets and 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, and transaction costs and other, net of 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 GAAP financial measures) in accordance with Regulation G is included on the following page.

The Company believes that net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other in any particular period are not indicative of the performance of, or trends in, the Company’s business performance. Although net realized gains or losses, 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 the Company’s 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 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 the Company’s financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. In addition, changes in the allowance for credit losses and net impairment losses recognized in earnings on the Company’s investments represent other-than-temporary declines in expected recovery values on securities without actual realization. The use of the equity method on certain of the Company’s 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 the Company’s proportionate share of the net income or loss of the funds (which include changes in the fair value of the underlying securities in the funds). This method of accounting is different from the way the Company accounts for its 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 acquisitions and Watford’s non-recurring listing expenses. The Company believes that transaction costs and other, due to their non-recurring nature, are not indicative of the performance of, or trends in, the Company’s business performance. Due to these reasons, the Company excludes net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other from the calculation of after-tax operating income or loss available to Arch common shareholders.

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

In addition, the Company’s presentation includes the use of information prepared on a ‘core’ basis, which excludes amounts related to the ‘other’ segment (i.e., results of Watford). Information provided on a ‘core’ basis are non-GAAP financial measures as defined in Regulation G. Pursuant to generally accepted accounting principles, Watford is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford. As such, the Company consolidates the results of Watford in its consolidated financial statements, although it only owns approximately 13% of Watford’s outstanding common equity. Watford has its own management and board of directors that is responsible for its own results and profitability. In addition, the Company does not guarantee or provide credit support for Watford. Because Watford is an independent company, the assets of Watford can be used only to settle obligations of Watford and Watford is solely responsible for its own liabilities and commitments. The Company’s financial exposure to Watford is limited to its investment in Watford’s senior notes, common and preferred shares and counterparty credit risk (mitigated by collateral) arising from the reinsurance transactions. The Company believes that presenting information on a ‘core’ basis enables investors and other users of the Company’s financial information to analyze the Company’s performance in a manner similar to how the Company’s management analyzes performance. See ‘Segment Information’ for a further discussion of segment results and a reconciliation of core and consolidated results.

The Company’s segment information includes the presentation of consolidated underwriting income or loss and a subtotal of underwriting income or loss on a ‘core’ basis. Such measures represent the pre-tax profitability of the Company’s 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 the Company’s individual underwriting operations. Underwriting income or loss does not incorporate items included in the Company’s corporate (non-underwriting) segment. While these measures are presented in the Segment Information footnote to the Company’s 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 ‘core’ basis, in accordance with Regulation G, is shown on pages 10 to 13.

In addition, the Company’s segment information includes the use of a combined ratio excluding catastrophic activity and prior year development, for the insurance and reinsurance segments, and a combined ratio excluding prior year development, for the mortgage segment. These ratios are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to the combined ratio (the most directly comparable GAAP financial measure) in accordance with Regulation G are shown on the individual segment pages. The Company’s management utilizes the adjusted combined ratios excluding current accident year catastrophic events and favorable or adverse development in prior year loss reserves in its analysis of the underwriting performance of each of its 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 (excluding changes in the allowance for credit losses on non-investment related financial assets) 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. Management uses total return on investments as a key measure of the return generated to Arch common shareholders, and compares the return generated by the Company’s investment portfolio against benchmark returns during the periods presented.

30

Arch Capital Group Ltd. and Subsidiaries

Operating Income Reconciliation and Annualized Operating Return on Average Common Equity

The following table summarizes the Company’s consolidated financial data, including a reconciliation of net income (loss) available to Arch common shareholders to after-tax operating income (loss) available to Arch common shareholders and related diluted per share results. Each line item reflects the impact of the Company’s ownership of Watford’s outstanding common equity:

(U.S. Dollars in thousands, except share data)	Three Months Ended															Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2020			2020			2020			2019			2019			2020			2019
Net income available to Arch common shareholders	$	408,636		$	288,418		$	133,714		$	315,981		$	382,050		$	830,768		$	1,278,726
Net realized (gains) losses	(219,726)			(406,645)			109,364			(32,966)			(77,959)			(517,007)			(316,882)
Equity in net (income) loss of investment funds accounted for using the equity method	(126,735)			65,119			4,209			(27,139)			(17,130)			(57,407)			(96,533)
Net foreign exchange (gains) losses	39,462			42,032			(64,491)			39,832			(30,160)			17,003			(29,100)
Transaction costs and other	1,674			977			2,595			9,081			1,995			5,246			5,363
Income tax expense (benefit) (1)	17,010			26,713			4,365			3,568			2,156			48,088			12,708
After-tax operating income available to Arch common shareholders	$	120,321		$	16,614		$	189,756		$	308,357		$	260,952		$	326,691		$	854,282
Diluted per common share results:
Net income available to Arch common shareholders	$	1.00		$	0.71		$	0.32		$	0.76		$	0.92		$	2.02		$	3.11
Net realized (gains) losses	(0.54)			(1.00)			0.27			(0.08)			(0.19)			(1.25)			(0.77)
Equity in net (income) loss of investment funds accounted for using the equity method	(0.31)			0.16			0.01			(0.07)			(0.04)			(0.14)			(0.23)
Net foreign exchange (gains) losses	0.10			0.10			(0.16)			0.10			(0.07)			0.04			(0.07)
Transaction costs and other	0.00			0.00			0.01			0.02			0.00			0.01			0.01
Income tax expense (benefit) (1)	0.04			0.07			0.01			0.01			0.01			0.12			0.03
After-tax operating income available to Arch common shareholders	$	0.29		$	0.04		$	0.46		$	0.74		$	0.63		$	0.80		$	2.08
Weighted average common shares and common share equivalents outstanding - diluted	409,194,657			408,119,681			414,033,570			414,124,920			413,180,201			410,314,897			410,807,402
Beginning common shareholders’ equity	$	11,211,825		$	10,587,244		$	10,717,371		$	10,378,096		$	9,977,352		$	10,717,371		$	8,659,827
Ending common shareholders’ equity	11,671,997			11,211,825			10,587,244			10,717,371			10,378,096			11,671,997			10,378,096
Average common shareholders’ equity	$	11,441,911		$	10,899,535		$	10,652,308		$	10,547,734		$	10,177,724		$	11,194,684		$	9,518,962
Annualized return on average common equity	14.3		%	10.6		%	5.0		%	12.0		%	15.0		%	9.9		%	17.9		%
Annualized operating return on average common equity	4.2		%	0.6		%	7.1		%	11.7		%	10.3		%	3.9		%	12.0		%

(1)Income tax expense on net realized gains or losses (which includes changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings), equity in net income (loss) of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.

31

Arch Capital Group Ltd. and Subsidiaries

Operating Income and Effective Tax Rate Calculations

The following table provides a reconciliation of income (loss) before income taxes to after-tax operating income (loss) available to Arch common shareholders and an analysis of the effective tax rate on pre-tax operating income (loss) available to Arch common shareholders:

(U.S. Dollars in thousands)	Three Months Ended															Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2020			2020			2020			2019			2019			2020			2019
Arch Operating Income Components (1):
Income before income taxes	$	433,815		$	302,474		$	205,953		$	355,837		$	430,554		$	942,242		$	1,431,600
Net realized (gains) losses	(210,984)			(385,089)			72,109			(31,836)			(80,014)			(523,964)			(316,201)
Equity in net (income) loss of investment funds accounted for using the equity method	(126,735)			65,119			4,209			(27,139)			(17,130)			(57,407)			(96,533)
Net foreign exchange (gains) losses	38,681			42,438			(63,307)			38,031			(29,794)			17,812			(28,779)
Transaction costs and other	792			43			2,538			9,081			1,995			3,373			5,363
Pre-tax operating income	135,569			24,985			221,502			343,974			305,611			382,056			995,450
Arch share of ‘other’ segment operating income (loss) (2)	1,792			1,798			2,237			(1,450)			1,704			5,827			5,789
Pre-tax operating income available to Arch (b)	137,361			26,783			223,739			342,524			307,315			387,883			1,001,239
Income tax expense (a)	(6,637)			234			(23,580)			(23,764)			(35,960)			(29,983)			(115,748)
After-tax operating income available to Arch	130,724			27,017			200,159			318,760			271,355			357,900			885,491
Preferred dividends	(10,403)			(10,403)			(10,403)			(10,403)			(10,403)			(31,209)			(31,209)
After-tax operating income available to Arch common shareholders	$	120,321		$	16,614		$	189,756		$	308,357		$	260,952		$	326,691		$	854,282
Effective tax rate on pre-tax operating income (loss) available to Arch (a)/(b)	4.8		%	(0.9)		%	10.5		%	6.9		%	11.7		%	7.7		%	11.6		%

(1)    Line items are presented on a ‘core’ basis, excluding 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)    Balances in the ‘other’ segment and a calculation of Arch’s share of the ‘other’ segment operating income (loss) is as follows:

(U.S. Dollars in thousands)	Three Months Ended															Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2020			2020			2020			2019			2019			2020			2019
Balances in ‘other’ segment:
Underwriting income (loss)	$	(8,273)		$	(9,129)		$	(6,010)		$	(37,251)		$	(4,443)		$	(23,412)		$	(14,414)
Net investment income	28,655			30,454			32,125			34,357			34,614			91,234			102,314
Interest expense	(5,119)			(6,009)			(7,310)			(7,558)			(8,091)			(18,438)			(19,579)
Preferred dividends	(993)			(1,036)			(1,096)			(1,131)			(6,600)			(3,125)			(15,778)
Pre-tax operating income (loss) available to common shareholders	14,270			14,280			17,709			(11,583)			15,480			46,259			52,543
Arch ownership	13		%	13		%	13		%	13		%	11		%	13		%	11		%
Arch share of ‘Other’ segment operating income (loss) (3)	$	1,792		$	1,798		$	2,237		$	(1,450)		$	1,704		$	5,827		$	5,789

(3) Excludes amounts attributable to net realized gains or losses and net foreign exchange gains or losses in the ‘other’ segment (see ‘Segment Information’).

32

Arch Capital Group Ltd. and Subsidiaries

Capital Structure and Share Repurchase Activity

The following table provides an analysis of the Company’s capital structure (1):

(U.S. Dollars in thousands, except share data)	September 30,			June 30,			March 31,			December 31,			September 30,
	2020			2020			2020			2019			2019
Debt:
Arch Capital senior notes, due May 1, 2034 ($300,000 principal, 7.35%)	$	300,000		$	300,000		$	300,000		$	300,000		$	300,000
Arch-U.S. senior notes, due Nov. 1, 2043 ($500,000 principal, 5.144%) (2)	500,000			500,000			500,000			500,000			500,000
Arch Finance senior notes, due December 15, 2026 ($500,000 principal, 4.011%) (3)	500,000			500,000			500,000			500,000			500,000
Arch Finance senior notes, due December 15, 2046 ($450,000 principal, 5.031%) (3)	450,000			450,000			450,000			450,000			450,000
Arch Capital senior notes, due June 30, 2050 ($1,000,000 principal, 3.635%)	1,000,000			1,000,000			—			—			—
Deferred debt costs on senior notes	(26,811)			(26,820)			(15,616)			(15,791)			(15,963)
Revolving credit agreement borrowings, due October 26, 2021 (variable)	—			—			—			—			—
Total debt	$	2,723,189		$	2,723,180		$	1,734,384		$	1,734,209		$	1,734,037
Shareholders’ equity available to Arch:
Series E non-cumulative preferred shares (5.25%)	450,000			450,000			450,000			450,000			450,000
Series F non-cumulative preferred shares (5.45%)	330,000			330,000			330,000			330,000			330,000
Common shareholders’ equity (a)	11,671,997			11,211,825			10,587,244			10,717,371			10,378,096
Total shareholders’ equity available to Arch	$	12,451,997		$	11,991,825		$	11,367,244		$	11,497,371		$	11,158,096
Total capital available to Arch	$	15,175,186		$	14,715,005		$	13,101,628		$	13,231,580		$	12,892,133
Common shares outstanding, net of treasury shares (b)	406,018,958			405,970,251			405,609,867			405,619,201			405,230,531
Book value per common share (4) (a)/(b)	$	28.75		$	27.62		$	26.10		$	26.42		$	25.61
Leverage ratios:
Senior notes/total capital available to Arch	17.9		%	18.5		%	13.2		%	13.1		%	13.5		%
Revolving credit agreement borrowings/total capital available to Arch	—		%	—		%	—		%	—		%	—		%
Debt/total capital available to Arch	17.9		%	18.5		%	13.2		%	13.1		%	13.5		%
Preferred/total capital available to Arch	5.1		%	5.3		%	6.0		%	5.9		%	6.1		%
Debt and preferred/total capital available to Arch	23.1		%	23.8		%	19.2		%	19.0		%	19.5		%

(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)    Issued by Arch Capital Group (U.S.) Inc. (“Arch-U.S.”), a wholly owned subsidiary of Arch Capital, and fully and unconditionally guaranteed by Arch Capital.

(3)    Issued by Arch Capital Finance LLC (“Arch Finance”), a wholly owned subsidiary of Arch U.S. MI Holdings Inc., and fully and unconditionally guaranteed by Arch Capital.

(4)    Excludes the effects of stock options, restricted and performance stock units outstanding.

The following table provides the impact of share repurchases under the Company’s share repurchase program:

(U.S. Dollars in thousands except share data)	Three Months Ended										Cumulative
	September 30,		June 30,		March 31,		December 31,		September 30,		September 30,
	2020		2020		2020		2019		2019		2020
Effect of share repurchases:
Aggregate cost of shares repurchased	$	—	$	—	$	75,486	$	—	$	—	$	4,043,780
Shares repurchased	—		—		2,599,388		—		—		388,941,368
Average price per share repurchased	$	—	$	—	$	29.04	$	—	$	—	$	10.40
Remaining share repurchase authorization (1)											$	924,514

(1)    Repurchases under the share repurchase authorization may be effected from time to time in open market or privately negotiated transactions through December 31, 2021.

33

XML

Document and Entity Information Cover	Oct. 29, 2020
Document and Entity Information [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Oct. 29, 2020
Entity Registrant Name	Arch Capital Group Ltd.
Entity Central Index Key	0000947484
Entity Incorporation, State or Country Code	D0
Entity File Number	001-16209
Entity Tax Identification Number	98-0374481
Entity Address, Address Line One	Waterloo House, Ground Floor
Entity Address, Address Line Two	100 Pitts Bay Road
Entity Address, City or Town	Pembroke
Entity Address, Postal Zip Code	HM 08
Entity Address, Country	BM
City Area Code	441
Local Phone Number	278-9250
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	false
Common shares
Entity Listings [Line Items]
Title of 12(b) Security	Common shares, $0.0011 par value per share
Trading Symbol	ACGL
Security Exchange Name	NASDAQ
Depositary Series E Preferred Shares
Entity Listings [Line Items]
Title of 12(b) Security	Depositary shares, each representing a 1/1,000th interest in a 5.25% Series E preferred share
Trading Symbol	ACGLP
Security Exchange Name	NASDAQ
Depositary Series F Preferred Shares
Entity Listings [Line Items]
Title of 12(b) Security	Depositary shares, each representing a 1/1,000th interest in a 5.45% Series F preferred share
Trading Symbol	ACGLO
Security Exchange Name	NASDAQ