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Segment Information
3 Months Ended
Mar. 31, 2021
Segment Reporting [Abstract]  
Segment Information Segment Information
The Company classifies its businesses into three underwriting segments — insurance, reinsurance and mortgage — and two other operating segments — ‘other’ and corporate (non-underwriting). The Company determined its reportable segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.
The Company’s insurance, reinsurance and mortgage segments each have managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company’s chief operating decision makers, the Chief Executive Officer of Arch Capital, the Chief Financial Officer and Treasurer of Arch Capital and the President and Chief Underwriting Officer of Arch Capital. The chief operating decision makers do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures segment performance for its three underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment, with the exception of goodwill and intangible assets, and, accordingly, investment income is not allocated to each underwriting segment.
The insurance segment consists of the Company’s insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include: construction and national accounts; excess and surplus casualty; lenders products; professional lines; programs; property, energy, marine and aviation; travel, accident and health; and other (consisting of alternative markets, excess workers' compensation and surety business).
The reinsurance segment consists of the Company’s reinsurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include: casualty; marine and aviation; other specialty; property catastrophe; property excluding property catastrophe (losses on a single risk, both excess of loss and pro rata); and other (consisting of life reinsurance, casualty clash and other).
The mortgage segment includes the Company’s U.S. and international mortgage insurance and reinsurance operations as well as government sponsored enterprise (“GSE”) credit-risk sharing transactions. Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (combined “Arch MI U.S.”) are approved as eligible mortgage insurers by Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), each a GSE. Arch MI U.S. also includes Arch Mortgage Guaranty Company, which is not a GSE-approved entity.
The corporate (non-underwriting) segment results include net investment income, other income (loss), corporate expenses, transaction costs and other, interest expense, items related to the Company’s non-cumulative preferred shares, net realized gains or losses (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, income or loss from operating affiliates and income taxes. Such amounts exclude the results of the ‘other’ segment.
The ‘other’ segment includes the results of Watford (see note 11). For the ‘other’ segment, performance is measured based on net income or loss.
The following tables summarize the Company’s underwriting income or loss by segment, together with a reconciliation of underwriting income or loss to net income available to Arch common shareholders:
Three Months Ended
March 31, 2021
 InsuranceReinsuranceMortgageSub-TotalOtherTotal
Gross premiums written (1)$1,415,886 $1,471,060 $391,246 $3,277,293 $216,523 $3,397,206 
Premiums ceded(421,047)(471,948)(56,051)(948,147)(37,212)(888,749)
Net premiums written994,839 999,112 335,195 2,329,146 179,311 2,508,457 
Change in unearned premiums(175,365)(354,212)1,122 (528,455)(31,580)(560,035)
Net premiums earned819,474 644,900 336,317 1,800,691 147,731 1,948,422 
Other underwriting income (loss)— (1,198)6,897 5,699 411 6,110 
Losses and loss adjustment expenses(535,747)(484,870)(63,689)(1,084,306)(118,794)(1,203,100)
Acquisition expenses(128,222)(118,025)(30,082)(276,329)(28,152)(304,481)
Other operating expenses(137,113)(60,514)(49,131)(246,758)(14,275)(261,033)
Underwriting income (loss)$18,392 $(19,707)$200,312 198,997 (13,079)185,918 
Net investment income78,729 20,127 98,856 
Net realized gains (losses)101,336 41,125 142,461 
Equity in net income (loss) of investment funds accounted for using the equity method71,686 — 71,686 
Other income (loss)(1,741)— (1,741)
Corporate expenses (2)(23,468)— (23,468)
Transaction costs and other (2)(1,201)(715)(1,916)
Amortization of intangible assets(14,402)— (14,402)
Interest expense(34,197)(4,149)(38,346)
Net foreign exchange gains (losses)21,505 (1,442)20,063 
Income (loss) before income taxes and income (loss) from operating affiliates397,244 41,867 439,111 
Income tax (expense) benefit(38,852)(8)(38,860)
Income (loss) from operating affiliates75,457 — 75,457 
Net income (loss)433,849 41,859 475,708 
Amounts attributable to redeemable noncontrolling interests117 (972)(855)
Amounts attributable to nonredeemable noncontrolling interests— (36,697)(36,697)
Net income (loss) available to Arch433,966 4,190 438,156 
Preferred dividends(10,403)— (10,403)
Net income (loss) available to Arch common shareholders$423,563 $4,190 $427,753 
Underwriting Ratios
Loss ratio65.4 %75.2 %18.9 %60.2 %80.4 %61.7 %
Acquisition expense ratio15.6 %18.3 %8.9 %15.3 %19.1 %15.6 %
Other operating expense ratio16.7 %9.4 %14.6 %13.7 %9.7 %13.4 %
Combined ratio97.7 %102.9 %42.4 %89.2 %109.2 %90.7 %
Goodwill and intangible assets$276,211 $17,807 $377,841 $671,859 $7,650 $679,509 
(1)    Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.
(2)    Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’
Three Months Ended
March 31, 2020
 InsuranceReinsuranceMortgageSub-TotalOtherTotal
Gross premiums written (1)$1,207,645 $1,122,519 $368,945 $2,698,537 $234,902 $2,832,830 
Premiums ceded(378,897)(325,339)(44,327)(747,991)(48,202)(695,584)
Net premiums written828,748 797,180 324,618 1,950,546 186,700 2,137,246 
Change in unearned premiums(112,829)(253,720)20,408 (346,141)(46,661)(392,802)
Net premiums earned715,919 543,460 345,026 1,604,405 140,039 1,744,444 
Other underwriting income (loss)— 2,120 4,599 6,719 133 6,852 
Losses and loss adjustment expenses(507,108)(430,069)(67,566)(1,004,743)(110,676)(1,115,419)
Acquisition expenses(107,337)(79,606)(38,536)(225,479)(21,804)(247,283)
Other operating expenses(129,649)(45,297)(45,896)(220,842)(13,702)(234,544)
Underwriting income (loss)$(28,175)$(9,392)$197,627 160,060 (6,010)154,050 
Net investment income113,028 32,125 145,153 
Net realized gains (losses)(72,109)(294,851)(366,960)
Equity in net income (loss) of investment funds accounted for using the equity method(4,209)— (4,209)
Other income (loss)32 — 32 
Corporate expenses (2)(18,201)— (18,201)
Transaction costs and other (2)(2,595)— (2,595)
Amortization of intangible assets(16,631)— (16,631)
Interest expense(25,245)(7,310)(32,555)
Net foreign exchange gains (losses)63,307 9,364 72,671 
Income (loss) before income taxes and income (loss) from operating affiliates197,437 (266,682)(69,245)
Income tax (expense) benefit(27,945)— (27,945)
Income (loss) from operating affiliates8,516 — 8,516 
Net income (loss)178,008 (266,682)(88,674)
Amounts attributable to redeemable noncontrolling interests(57)(1,096)(1,153)
Amounts attributable to nonredeemable noncontrolling interests— 233,944 233,944 
Net income (loss) available to Arch177,951 (33,834)144,117 
Preferred dividends(10,403)— (10,403)
Net income (loss) available to Arch common shareholders$167,548 $(33,834)$133,714 
Underwriting Ratios     
Loss ratio70.8 %79.1 %19.6 %62.6 %79.0 %63.9 %
Acquisition expense ratio15.0 %14.6 %11.2 %14.1 %15.6 %14.2 %
Other operating expense ratio18.1 %8.3 %13.3 %13.8 %9.8 %13.4 %
Combined ratio103.9 %102.0 %44.1 %90.5 %104.4 %91.5 %
Goodwill and intangible assets$268,296 $2,516 $426,988 $697,800 $7,650 $705,450 

(1)    Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.
(2)    Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’