0000947484-21-000136.txt : 20211027 0000947484-21-000136.hdr.sgml : 20211027 20211027161914 ACCESSION NUMBER: 0000947484-21-000136 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20211027 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20211027 DATE AS OF CHANGE: 20211027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARCH CAPITAL GROUP LTD. CENTRAL INDEX KEY: 0000947484 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 980374481 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-16209 FILM NUMBER: 211353022 BUSINESS ADDRESS: STREET 1: WATERLOO HOUSE, GROUND FLOOR STREET 2: 100 PITTS BAY ROAD CITY: PEMBROKE STATE: D0 ZIP: HM 08 BUSINESS PHONE: 441-278-9250 MAIL ADDRESS: STREET 1: WATERLOO HOUSE, GROUND FLOOR STREET 2: 100 PITTS BAY ROAD CITY: PEMBROKE STATE: D0 ZIP: HM 08 FORMER COMPANY: FORMER CONFORMED NAME: ARCH CAPITAL GROUP LTD DATE OF NAME CHANGE: 20000508 FORMER COMPANY: FORMER CONFORMED NAME: RISK CAPITAL HOLDINGS INC DATE OF NAME CHANGE: 19950816 FORMER COMPANY: FORMER CONFORMED NAME: RISK CAPITAL RE INC DATE OF NAME CHANGE: 19950703 8-K 1 acgl-20211027.htm 8-K acgl-20211027
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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 27, 2021
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 classTrading Symbol (s)Name of each exchange on which registered
Common shares, $0.0011 par value per shareACGLNASDAQStock Market
Depositary shares, each representing a 1/1,000th interest in a 5.45% Series F preferred share
ACGLO
NASDAQStock Market
Depositary shares, each representing a 1/1,000th interest in a 4.55% Series G preferred shareACGLNNASDAQStock 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 27, 2021, Arch Capital Group Ltd. issued a press release reporting its earnings and the availability of its financial supplement for the quarter ended September 30, 2021. 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 
99.2 
104Cover 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 27, 2021By:/s/ François Morin
  Name:François Morin
  Title:Executive Vice President, Chief Financial Officer and Treasurer


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EX-99.1 2 ex-991release93021.htm EX-99.1 Document

EXHIBIT 99.1
archlogorgbsolida38a.jpg
PRESS RELEASEArch Capital Group Ltd.
NASDAQ Symbol: ACGLWaterloo House, Ground Floor
For Immediate Release100 Pitts Bay Road
October 27, 2021
Pembroke HM 08 Bermuda

ARCH CAPITAL GROUP LTD. REPORTS 2021 THIRD QUARTER RESULTS

PEMBROKE, BERMUDA--(BUSINESS WIRE)--Arch Capital Group Ltd. (NASDAQ: ACGL) announces its 2021 third quarter results. The results included:
Net income available to Arch common shareholders of $388.8 million, or $0.98 per share, a 12.3% annualized net income return on average common equity, compared to $408.6 million, or $1.00 per share, for the 2020 third quarter;
After-tax operating income available to Arch common shareholders(1) of $294.7 million, or $0.74 per share, a 9.3% annualized operating return on average common equity, compared to $120.3 million, or $0.29 per share, for the 2020 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 $335.9 million, primarily related to Hurricane Ida, European floods and other global events;
Favorable development in prior year loss reserves, net of related adjustments(1) of $118.3 million;
Combined ratio excluding catastrophic activity and prior year development(1) of 80.1%, compared to 84.3% for the 2020 third quarter;
The percentage of loans in default on U.S. primary mortgage business was 2.67% at September 30, 2021, compared to 3.11% at June 30, 2021;
Closing of the Watford transaction resulted in a one-time net income gain of $62.5 million, or $0.16 per share, as well as an additional $161.2 million in ceded premiums written in the quarter for the reinsurance segment due to retrocessions to Watford, with no corresponding impact to underwriting income;
9.7 million shares repurchased at an aggregate cost of $386.9 million;
Book value per common share of $32.43 at September 30, 2021, a 1.3% increase from June 30, 2021 and a 12.8% increase from September 30, 2020.

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). Effective July 1, 2021, the Company no longer consolidates the results of Watford in its consolidated financial statements.
(U.S. dollars in thousands)Consolidated
Consolidated Excluding ‘Other’ Segment (1)
Three Months Ended September 30,Three Months Ended September 30,
20212020% Change20212020% Change
Gross premiums written$3,207,415 $2,681,032 19.6 $3,207,415 $2,556,914 25.4 
Net premiums written2,075,929 1,874,144 10.8 2,075,929 1,726,828 20.2 
Net premiums earned1,929,337 1,771,092 8.9 1,929,337 1,625,061 18.7 
Underwriting income173,745 96,604 79.9 173,745 104,877 65.7 
Underwriting Ratios% Point Change% Point Change
Loss ratio63.5 %68.7 %(5.2)63.5 %67.7 %(4.2)
Underwriting expense ratio27.9 %26.2 %1.7 27.9 %26.2 %1.7 
Combined ratio91.4 %94.9 %(3.5)91.4 %93.9 %(2.5)
Combined ratio excluding catastrophic activity and prior year development (1)
80.1 %84.3 %(4.2)
(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 consolidated the results of Watford in its financial statements through June 30, 2021. See ‘Comments on Regulation G’ for further details.
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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 EndedNine Months Ended
September 30,September 30,
2021202020212020
Net income available to Arch common shareholders$388,751 $408,636 $1,480,324 $830,768 
Net realized (gains) losses25,040 (219,726)(247,949)(517,007)
Equity in net (income) loss of investment funds accounted for using the equity method(105,398)(126,735)(299,270)(57,407)
Net foreign exchange (gains) losses(36,078)39,462 (39,522)17,003 
Transaction costs and other1,036 1,674 889 5,246 
Loss on redemption of preferred shares15,101 — 15,101 — 
Income tax expense (benefit) (1)6,236 17,010 32,100 48,088 
After-tax operating income available to Arch common shareholders$294,688 $120,321 $941,673 $326,691 
Diluted per common share results:
Net income available to Arch common shareholders$0.98 $1.00 $3.66 $2.02 
Net realized (gains) losses0.05 (0.54)(0.61)(1.25)
Equity in net (income) loss of investment funds accounted for using the equity method(0.26)(0.31)(0.74)(0.14)
Net foreign exchange (gains) losses(0.09)0.10 (0.10)0.04 
Transaction costs and other0.00 0.00 0.00 0.01 
Loss on redemption of preferred shares0.04 — 0.04 — 
Income tax expense (benefit) (1)0.02 0.04 0.08 0.12 
After-tax operating income available to Arch common shareholders$0.74 $0.29 $2.33 $0.80 
Weighted average common shares and common share equivalents outstanding — diluted397,903,347 409,194,657 404,260,485 410,314,897 
Beginning common shareholders’ equity$12,706,072 $11,211,825 $12,325,886 $10,717,371 
Ending common shareholders’ equity12,557,526 11,671,997 12,557,526 11,671,997 
Average common shareholders’ equity$12,631,799 $11,441,911 $12,441,706 $11,194,684 
Annualized net income return on average common equity12.3 %14.3 %15.9 %9.9 %
Annualized operating return on average common equity9.3 %4.2 %10.1 %3.9 %
(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, transaction costs and other and loss on redemption of preferred shares reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.

Each line item in the table above reflects the impact of the Company’s ownership of Watford’s outstanding common equity through June 30, 2021. 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 2021 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, 2021. 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)20212020% Change
Gross premiums written$1,596,619 $1,206,328 32.4 
Net premiums written1,153,813 824,161 40.0 
Net premiums earned938,670 719,154 30.5 
Underwriting income (loss)$(21,358)$(31,159)31.5 
Underwriting Ratios% Point Change
Loss ratio71.2 %73.0 %(1.8)
Underwriting expense ratio31.0 %31.2 %(0.2)
Combined ratio102.2 %104.2 %(2.0)
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums12.2 %10.3 %1.9 
Net (favorable) adverse development in prior year loss reserves, net of related adjustments(0.5)%(0.2)%(0.3)
Combined ratio excluding catastrophic activity and prior year development (1)90.5 %94.1 %(3.6)
(1)See ‘Comments on Regulation G’ for further discussion.
Gross premiums written by the insurance segment in the 2021 third quarter were 32.4% higher than in the 2020 third quarter while net premiums written were 40.0% higher than in the 2020 third quarter. The higher level of net premiums written reflected increases in most lines of business, due in part to rate increases, new business opportunities and growth in existing accounts. Net premiums earned in the 2021 third quarter were 30.5% higher than in the 2020 third quarter, and reflect changes in net premiums written over the previous five quarters.
The 2021 third quarter loss ratio reflected 12.2 points of current year catastrophic activity, primarily related to Hurricane Ida and other global events, compared to 10.3 points in the 2020 third quarter. Estimated net favorable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 0.5 points in the 2021 third quarter, compared to 0.3 points in the 2020 third quarter. The improvement in the 2021 third quarter loss ratio also reflected the effect of changes in mix of business and the impact of rate increases.
The underwriting expense ratio was 31.0% in the 2021 third quarter, consistent with 31.2% in the 2020 third quarter.
3


Reinsurance Segment
Three Months Ended September 30,
(U.S. dollars in thousands)20212020% Change
Gross premiums written$1,251,760 $1,004,590 24.6 
Net premiums written621,389 604,202 2.8 
Net premiums earned678,702 554,498 22.4 
Other underwriting income (loss)3,293 298 1,005.0 
Underwriting income (loss)$(38,948)$5,506 (807.4)
Underwriting Ratios% Point Change
Loss ratio80.4 %76.1 %4.3 
Underwriting expense ratio25.8 %22.9 %2.9 
Combined ratio106.2 %99.0 %7.2 
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums32.6 %23.3 %9.3 
Net (favorable) adverse development in prior year loss reserves, net of related adjustments(9.6)%(7.4)%(2.2)
Combined ratio excluding catastrophic activity and prior year development (1)83.2 %83.1 %0.1 
(1)See ‘Comments on Regulation G’ for further discussion.
Gross premiums written by the reinsurance segment in the 2021 third quarter were 24.6% higher than in the 2020 third quarter, while net premiums written were 2.8% higher than in the 2020 third quarter. The lower level of growth in net premiums written compared to gross premiums written primarily reflected a higher level of premiums ceded due to a one-time $161.2 million adjustment, resulting from retrocessions to Watford following its ownership change on July 1, 2021. Absent this item, the growth in net premiums written would have been 29.5%, consistent with the level of growth in gross premiums written, reflecting increases in most lines of business, due in part to new business opportunities and rate increases. Net premiums earned by the reinsurance segment in the 2021 third quarter were 22.4% higher than in the 2020 third quarter, and reflect changes in net premiums written over the previous five quarters.

The 2021 third quarter loss ratio reflected 34.6 points of current year catastrophic activity, primarily related to Hurricane Ida, European floods and other global events, compared to 26.1 points in the 2020 third quarter. Estimated net favorable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 10.7 points in the 2021 third quarter, compared to 7.6 points in the 2020 third quarter. The 2021 third quarter loss ratio also reflected the effect of changes in the mix of business.
The underwriting expense ratio was 25.8% in the 2021 third quarter, compared to 22.9% in the 2020 third quarter, with the increase primarily resulting from changes in mix of business to lines with higher acquisition costs and a higher level of expenses related to favorable development of prior year loss reserves.
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Mortgage Segment
Three Months Ended September 30,
(U.S. dollars in thousands)20212020% Change
Gross premiums written$360,934 $346,248 4.2 
Net premiums written300,727 298,465 0.8 
Net premiums earned311,965 351,409 (11.2)
Other underwriting income3,981 4,600 (13.5)
Underwriting income$234,051 $130,530 79.3 
Underwriting Ratios% Point Change
Loss ratio3.7 %43.6 %(39.9)
Underwriting expense ratio22.5 %20.6 %1.9 
Combined ratio26.2 %64.2 %(38.0)
Prior year development:
Net (favorable) adverse development in prior year loss reserves, net of related adjustments(15.5)%(1.3)%(14.2)
Combined ratio excluding prior year development (1)41.7 %65.5 %(23.8)
(1)See ‘Comments on Regulation G’ for further discussion.
Gross premiums written by the mortgage segment in the 2021 third quarter were 4.2% higher than in the 2020 third quarter, while net premiums written were 0.8% higher. The increase in gross premiums written reflected growth in Australian single premium mortgage insurance as a result of the previously disclosed acquisition of Westpac Lenders Mortgage Insurance Limited. The lower increase in net premiums written reflected a higher level of premiums ceded on U.S. primary mortgage insurance. Net premiums earned in the 2021 third quarter were 11.2% lower than in the 2020 third quarter, primarily reflecting a lower level of single premium policy terminations.
The 2021 third quarter loss ratio reflected the impact of lower new delinquencies and favorable cure activity. The percentage of loans in default on U.S. primary mortgage insurance business was 2.67% at September 30, 2021, compared to 3.11% at June 30, 2021. Estimated net favorable development in prior year loss reserves, before related adjustments, reduced the 2021 third quarter loss ratio by 14.5 points, compared to 1.3 points in the 2020 third quarter.
The underwriting expense ratio was 22.5% in the 2021 third quarter, compared to 20.6% in the 2020 third quarter, with the increase primarily due to a lower level in net premiums earned on U.S. primary mortgage insurance business.


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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, income or loss from operating affiliates and income taxes. Such amounts exclude the results of the ‘other’ segment.
Pre-tax net investment income for the 2021 third quarter was $0.22 per share, or $88.2 million, compared to $0.24 per share, or $99.9 million, for the 2020 third quarter. The annualized pre-tax investment income yield was 1.41% for the 2021 third quarter, compared to 1.76% for the 2020 third quarter, with the decrease primarily due to lower yields available in the financial markets. Total return, a non-GAAP measure, was 0.01% for the 2021 third quarter, compared to 2.30% for the 2020 third quarter, primarily as a result of the mark-to-market impacts of higher interest rates in the 2021 period. See ‘Comments on Regulation G’ for a discussion of non-GAAP financial measures.
Interest expense for the 2021 third quarter was $33.2 million, compared to $36.2 million for the 2020 third quarter. Interest expense primarily reflects amounts related to the Company’s outstanding senior notes. Preferred dividends for the 2021 third quarter were $16.1 million, compared to $10.4 million for the 2020 third quarter, with the increase reflecting the impact of the issuance of series G preferred shares in June 2021. The proceeds from the preferred offering were used to redeem the Company’s Series E preferred shares on September 30, 2021. As such, in accordance with GAAP, the Company recorded a loss of $15.1 million to remove original issuance costs related to the redeemed shares from additional paid-in capital. For additional information on the Company’s capital structure, please refer to the Financial Supplement dated September 30, 2021.

On a pre-tax basis, net foreign exchange gains for the 2021 third quarter were $36.1 million, compared to net foreign exchange losses for the 2020 third quarter of $38.7 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 an expense of 1.0% for the 2021 third quarter, compared to an expense of 5.3% for the 2020 third quarter. The Company’s effective tax rate on pre-tax operating income available to Arch common shareholders was a benefit of 0.7% for the 2021 third quarter, compared to an expense of 4.8% for the 2020 third quarter. The effective tax rates for the 2021 third quarter included discrete income tax benefits of $25.3 million which had the effect of decreasing the 2021 third quarter effective tax rate on operating income available to Arch common shareholders by 8.2%. The discrete tax items in the 2021 third quarter primarily relate to the partial release of a valuation allowance on certain U.K. deferred tax assets. 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.
During the 2021 first quarter, the Company changed its presentation of ‘income (loss) from operating affiliates’ on its consolidated statements of income for all periods presented to reclass such item from ‘other income (loss).’ The Company also changed its presentation of ‘investment in operating affiliates’ on its consolidated balance sheet for all periods presented to reclass such item from ‘other assets.’ Income from operating affiliates for the 2021 third quarter was $124.1 million, or $0.31 per share, compared to income of $0.9 million, or $0.00 per share, for the 2020 third quarter. Results for the 2021 third quarter reflected a one-time gain of $95.7 million recognized from the Company’s previously disclosed acquisition of a 40% share of Watford. In addition, the ‘net realized gains (losses)’ line on the Company’s consolidated statements of income included a $33.1 million loss as a result of this transaction this quarter.
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Conference Call
The Company will hold a conference call for investors and analysts at 11:00 a.m. Eastern Time on October 28, 2021. A live webcast of this call will be available via the Investors section of the Company’s website at http://www.archgroup.com. A telephone replay of the conference call also will be available beginning on October 28, 2021 at 2:00 p.m. Eastern Time until November 4, 2021 at midnight Eastern Time. To access the replay, domestic callers should dial 855-859-2056, and international callers should dial 404-537-3406 (passcode 3440118 for all callers).
Please refer to the Company’s Financial Supplement dated September 30, 2021, which is available via the Investors section of the Company’s website at http://www.archgroup.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 publicly listed Bermuda exempted company with approximately $16.1 billion in capital at September 30, 2021, provides insurance, reinsurance and mortgage insurance on a worldwide basis through its wholly owned subsidiaries.
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, transaction costs and other and loss on redemption of preferred shares, 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 net income 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, transaction costs and other and loss on redemption of preferred shares in any particular period are not indicative of the performance of, or trends in, 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
7


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. 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. The loss on redemption of preferred shares related to the redemption of the Company's Series E preferred shares in September 2021 and had no impact on shareholders' equity or cash flows. 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.
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 through June 30, 2021.
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. Pursuant to GAAP, Watford was considered a variable interest entity and the Company concluded that it was the primary beneficiary of Watford through June 30, 2021. As such, the Company consolidated the results of Watford in its consolidated financial statements. The Company’s presentation of information on a ‘core’ basis enabled 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 analyzed performance. In the 2020 fourth quarter, Arch Capital, Watford, and Greysbridge Ltd., a wholly-owned subsidiary of Arch Capital (“Greysbridge”), entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) pursuant to which, among other things, Arch Capital agreed to acquire all of the common shares of Watford Holdings Ltd. not owned by Arch. Arch Capital assigned its rights under the Merger Agreement to Greysbridge. The merger and the related Greysbridge equity financing closed on July 1, 2021. Effective July 1, 2021, Watford is wholly owned by Greysbridge and Greysbridge is owned 40% by the Company, 30% by certain investment funds managed by Kelso & Company and 30% by certain investment funds managed by Warburg Pincus LLC. Based on the governing documents of Greysbridge, the Company has concluded that, while it retains significant influence over Greysbridge, Greysbridge does not constitute a variable interest entity of which the Company is the primary beneficiary. Accordingly, effective July 1, 2021, Arch no longer consolidates the results of Watford in its consolidated financial statements and footnotes.
8


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.
9


The following tables summarize the Company’s results by segment for the 2021 third quarter and 2020 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, 2021
 InsuranceReinsuranceMortgageSub-totalOtherTotal
Gross premiums written (1)$1,596,619 $1,251,760 $360,934 $3,207,415 $— $3,207,415 
Premiums ceded(442,806)(630,371)(60,207)(1,131,486)— (1,131,486)
Net premiums written1,153,813 621,389 300,727 2,075,929 — 2,075,929 
Change in unearned premiums(215,143)57,313 11,238 (146,592)— (146,592)
Net premiums earned938,670 678,702 311,965 1,929,337 — 1,929,337 
Other underwriting income (loss)— 3,293 3,981 7,274 — 7,274 
Losses and loss adjustment expenses(668,630)(545,846)(11,543)(1,226,019)— (1,226,019)
Acquisition expenses(152,467)(129,450)(24,098)(306,015)— (306,015)
Other operating expenses(138,931)(45,647)(46,254)(230,832)— (230,832)
Underwriting income (loss)$(21,358)$(38,948)$234,051 173,745 — 173,745 
Net investment income88,195 — 88,195 
Net realized gains (losses)(25,040)— (25,040)
Equity in net income (loss) of investment funds accounted for using the equity method105,398 — 105,398 
Other income (loss)(3,960)— (3,960)
Corporate expenses(18,636)— (18,636)
Transaction costs and other(1,036)— (1,036)
Amortization of intangible assets(20,135)— (20,135)
Interest expense(33,176)— (33,176)
Net foreign exchange gains (losses)36,078 — 36,078 
Income (loss) before income taxes and income (loss) from operating affiliates301,433 — 301,433 
Income tax expense(4,137)— (4,137)
Income (loss) from operating affiliates124,119 — 124,119 
Net income (loss)421,415 — 421,415 
Dividends attributable to redeemable noncontrolling interests(1,473)— (1,473)
Amounts attributable to nonredeemable noncontrolling interests— — — 
Net income (loss) available to Arch419,942 — 419,942 
Preferred dividends(16,090)— (16,090)
Loss on redemption of preferred shares(15,101)— (15,101)
Net income (loss) available to Arch common shareholders$388,751 $— $388,751 
Underwriting Ratios
Loss ratio71.2 %80.4 %3.7 %63.5 %— %63.5 %
Acquisition expense ratio16.2 %19.1 %7.7 %15.9 %— %15.9 %
Other operating expense ratio14.8 %6.7 %14.8 %12.0 %— %12.0 %
Combined ratio102.2 %106.2 %26.2 %91.4 %— %91.4 %
Net premiums written to gross premiums written72.3 %49.6 %83.3 %64.7 %— %64.7 %
 
(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


(U.S. Dollars in thousands)Three Months Ended
September 30, 2020
 InsuranceReinsuranceMortgageSub-totalOtherTotal
Gross premiums written (1)$1,206,328 $1,004,590 $346,248 $2,556,914 $197,480 $2,681,032 
Premiums ceded(382,167)(400,388)(47,783)(830,086)(50,164)(806,888)
Net premiums written824,161 604,202 298,465 1,726,828 147,316 1,874,144 
Change in unearned premiums(105,007)(49,704)52,944 (101,767)(1,285)(103,052)
Net premiums earned719,154 554,498 351,409 1,625,061 146,031 1,771,092 
Other underwriting income (loss)(31)298 4,600 4,867 546 5,413 
Losses and loss adjustment expenses(525,321)(422,084)(153,055)(1,100,460)(115,813)(1,216,273)
Acquisition expenses(102,420)(85,388)(35,716)(223,524)(24,418)(247,942)
Other operating expenses(122,541)(41,818)(36,708)(201,067)(14,619)(215,686)
Underwriting income (loss)$(31,159)$5,506 $130,530 104,877 (8,273)96,604 
Net investment income99,857 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 method126,735 — 126,735 
Other income (loss)— — — 
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 and income (loss) from operating affiliates432,896 78,574 511,470 
Income tax expense(23,638)(69)(23,707)
Income (loss) from operating affiliates919 — 919 
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 Arch409,295 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 ratio73.0 %76.1 %43.6 %67.7 %79.3 %68.7 %
Acquisition expense ratio14.2 %15.4 %10.2 %13.8 %16.7 %14.0 %
Other operating expense ratio17.0 %7.5 %10.4 %12.4 %10.0 %12.2 %
Combined ratio104.2 %99.0 %64.2 %93.9 %106.0 %94.9 %
Net premiums written to gross premiums written68.3 %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.

11


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, including those resulting from COVID-19) 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;
the adequacy of the Company’s loss reserves;
severity and/or frequency of losses;
greater frequency or severity of unpredictable natural and man-made catastrophic events;
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;
12


the failure of reinsurers, managing general agents, third party administrators or others to meet their obligations to the Company;
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) 278-9250Donald Watson: (914) 872-3616; dwatson@archgroup.com
Source - Arch Capital Group Ltd.
arch-corporate

13
EX-99.2 3 ex-992supplement93021.htm EX-99.2 Document

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

Financial Supplement

Financial Information
as of September 30, 2021
 
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) 278-9250Donald Watson: (914) 872-3616; dwatson@archgroup.com



Arch Capital Group Ltd. and Subsidiaries
Table of Contents

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

1

Arch Capital Group Ltd. and Subsidiaries
Basis of Presentation

Basis of Presentation

All financial information contained herein is unaudited, however, certain information relating to the consolidated balance sheet at December 31, 2020 is derived from or agrees to audited financial information. During the 2021 first quarter, the Company changed its presentation of ‘income (loss) from operating affiliates’ on its consolidated statements of income for all periods presented to reclass such item from ‘other income (loss)’. The Company also changed its presentation of ‘investment in operating affiliates’ on its consolidated balance sheet for all periods presented to reclass such item from ‘other assets’. 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 consolidated the results of Watford Holdings Ltd. (“Watford”) in its financial statements.Watford was considered a variable interest entity and the Company concluded that it was the primary beneficiary of Watford. As such, 100% of the results of Watford were included in the Company’s consolidated financial statements through June 30, 2021. The portion of Watford’s earnings owned by third parties was recorded in the consolidated statements of income as ‘amounts attributable to noncontrolling interests.’ In addition, through June 30, 2021 the Company reflected Watford’s redeemable preference shares in the mezzanine section of the Company’s consolidated balance sheets as ‘redeemable noncontrolling interests’. In July 2021, the Company announced the completion of the previously disclosed acquisition of Watford by Greysbridge. Based on the governing documents of Greysbridge, the Company has concluded that, while it will retain significant influence over Watford, Watford no longer constitutes a variable interest entity of which the Company is the primary beneficiary. Accordingly, effective July 1, 2021, Arch no longer consolidates the results of Watford in its consolidated financial statements and footnotes.

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 EndedNine Months Ended
September 30,September 30,
20212020Change20212020Change
Underwriting results:
Gross premiums written$3,207,415 $2,556,914 25.4 %$9,602,213 $7,461,860 28.7 %
Net premiums written2,075,929 1,726,828 20.2 %6,629,208 5,239,829 26.5 %
Net premiums earned1,929,337 1,625,061 18.7 %5,666,700 4,763,285 19.0 %
Underwriting income (loss) (2)173,745 104,877 65.7 %768,129 251,527 205.4 %
Loss ratio63.5 %67.7 %(4.2)58.8 %67.8 %(9.0)
Acquisition expense ratio15.9 %13.8 %2.1 15.6 %14.3 %1.3 
Other operating expense ratio12.0 %12.4 %(0.4)12.4 %13.0 %(0.6)
Combined ratio91.4 %93.9 %(2.5)86.8 %95.1 %(8.3)
Net investment income$88,195 $99,857 (11.7)%$256,354 $313,916 (18.3)%
Per diluted share$0.22 $0.24 (8.3)%$0.63 $0.77 (18.2)%
Net income available to Arch common shareholders$388,751 $408,636 (4.9)%$1,480,324 $830,768 78.2 %
Per diluted share$0.98 $1.00 (2.0)%$3.66 $2.02 81.2 %
After-tax operating income available to Arch common shareholders (2)$294,688 $120,321 144.9 %$941,673 $326,691 188.2 %
Per diluted share$0.74 $0.29 155.2 %$2.33 $0.80 191.3 %
Comprehensive income (loss) available to Arch$239,078 $455,907 (47.6)%$1,093,872 $1,036,243 5.6 %
Net cash provided by operating activities$1,014,979 $963,654 5.3 %$2,580,697 $2,198,037 17.4 %
Weighted average common shares and common share equivalents outstanding — diluted397,903,347 409,194,657 (2.8)%404,260,485 410,314,897 (1.5)%
Financial measures:      
Change in book value per common share during period1.3 %4.1 %(2.8)7.0 %8.8 %(1.8)
Annualized net income return on average common equity12.3 %14.3 %(2.0)15.9 %9.9 %6.0 
Annualized operating return on average common equity (2)9.3 %4.2 %5.1 10.1 %3.9 %6.2 
Total return on investments (3)0.01 %2.30 %-229 bps1.50 %5.19 %-369 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 EndedNine Months Ended
 September 30,June 30,March 31,December 31,September 30,September 30,September 30,
 2021202120212020202020212020
Revenues       
Net premiums earned$1,929,337 $2,120,909 $1,948,422 $1,811,045 $1,771,092 $5,998,668 $5,180,890 
Net investment income88,195 111,613 98,856 114,458 128,512 298,664 405,150 
Net realized gains (losses)(25,040)202,907 142,461 353,333 280,499 320,328 470,127 
Other underwriting income7,274 5,529 6,110 7,852 5,413 18,913 18,932 
Equity in net income (loss) of investment funds accounted for using the equity method105,398 122,186 71,686 89,286 126,735 299,270 57,407 
Other income (loss)(3,960)6,852 (1,741)(36)— 1,151 65 
Total revenues2,101,204 2,569,996 2,265,794 2,375,938 2,312,251 6,936,994 6,132,571 
Expenses
Losses and loss adjustment expenses(1,226,019)(1,159,831)(1,203,100)(1,127,385)(1,216,273)(3,588,950)(3,562,214)
Acquisition expenses(306,015)(335,143)(304,481)(254,828)(247,942)(945,639)(750,014)
Other operating expenses(230,832)(244,943)(261,033)(215,697)(215,686)(736,808)(659,479)
Corporate expenses(19,672)(15,951)(25,384)(25,335)(17,937)(61,007)(56,653)
Amortization of intangible assets(20,135)(15,286)(14,402)(19,196)(16,715)(49,823)(49,835)
Interest expense(33,176)(35,700)(38,346)(38,419)(41,343)(107,222)(105,037)
Net foreign exchange gains (losses)36,078 (17,775)20,063 (72,209)(44,885)38,366 (11,425)
Total expenses(1,799,771)(1,824,629)(1,826,683)(1,753,069)(1,800,781)(5,451,083)(5,194,657)
Income (loss) before income taxes and income (loss) from operating affiliates301,433 745,367 439,111 622,869 511,470 1,485,911 937,914 
Income tax expense(4,137)(51,179)(38,860)(34,059)(23,707)(94,176)(77,779)
Income (loss) from operating affiliates124,119 24,476 75,457 10,504 919 224,052 6,262 
Net income (loss)421,415 718,664 475,708 599,314 488,682 1,615,787 866,397 
Net (income) loss attributable to noncontrolling interests(1,473)(43,178)(37,552)(55,770)(69,643)(82,203)(4,420)
Net income (loss) attributable to Arch419,942 675,486 438,156 543,544 419,039 1,533,584 861,977 
Preferred dividends(16,090)(11,666)(10,403)(10,403)(10,403)(38,159)(31,209)
Loss on redemption of preferred shares(15,101)— — — — (15,101)— 
Net income (loss) available to Arch common shareholders$388,751 $663,820 $427,753 $533,141 $408,636 $1,480,324 $830,768 
Comprehensive income (loss) available to Arch$239,078 $699,705 $155,089 $646,082 $455,907 $1,093,872 $1,036,243 
Net income (loss) per common share and common share equivalent
Basic$1.00 $1.67 $1.07 $1.32 $1.01 $3.74 $2.06 
Diluted$0.98 $1.63 $1.05 $1.30 $1.00 $3.66 $2.02 
Weighted average common shares and common share equivalents outstanding
Basic389,274,220 397,743,402 400,807,895 403,005,335 402,850,485 395,899,591 403,081,266 
Diluted397,903,347 406,485,994 409,223,253 410,281,852 409,194,657 404,260,485 410,314,897 



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,
20212021202120202020
Assets     
Investments:     
Fixed maturities available for sale, at fair value$16,768,363 $18,073,779 $18,723,035 $18,717,825 $18,452,888 
Short-term investments available for sale, at fair value3,069,965 2,248,613 1,269,631 1,924,922 2,039,097 
Collateral received under securities lending, at fair value— 172,116 143,894 301,096 64,259 
Equity securities, at fair value1,790,640 1,693,552 1,532,906 1,444,830 1,502,015 
Other investments2,043,970 4,571,497 4,435,354 4,324,796 3,749,575 
Investments accounted for using the equity method2,741,293 2,539,124 2,256,327 2,047,889 1,883,702 
Total investments26,414,231 29,298,681 28,361,147 28,761,358 27,691,536 
Cash1,137,721 1,234,059 941,951 906,448 976,398 
Accrued investment income75,832 96,546 101,108 103,299 106,940 
Securities pledged under securities lending, at fair value— 168,548 140,949 294,912 62,749 
Investment in operating affiliates1,111,825 731,810 739,783 129,291 115,411 
Premiums receivable2,807,720 2,866,578 2,618,175 2,064,586 2,225,311 
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses5,358,852 4,314,515 4,041,076 4,500,802 4,621,937 
Contractholder receivables1,824,990 1,882,948 1,919,655 1,986,924 2,185,614 
Ceded unearned premiums1,824,910 1,541,093 1,406,489 1,234,075 1,450,200 
Deferred acquisition costs893,665 1,013,657 919,740 790,708 750,901 
Receivable for securities sold84,019 309,234 199,424 92,743 158,674 
Goodwill and intangible assets963,322 667,153 679,509 692,863 713,777 
Other assets2,286,649 2,357,064 2,135,261 1,724,288 1,656,587 
Total assets$44,783,736 $46,481,886 $44,204,267 $43,282,297 $42,716,035 
Liabilities     
Reserve for losses and loss adjustment expenses$17,331,047 $17,196,648 $16,443,952 $16,513,929 $15,900,526 
Unearned premiums6,165,114 6,011,369 5,549,127 4,838,965 5,062,052 
Reinsurance balances payable1,403,929 1,079,106 919,125 683,263 873,067 
Contractholder payables1,828,474 1,887,418 1,925,508 1,995,562 2,191,515 
Collateral held for insured obligations254,259 235,618 222,245 215,581 221,957 
Senior notes2,724,149 2,861,728 2,861,417 2,861,113 2,860,811 
Revolving credit agreement borrowings— 155,687 155,687 155,687 210,687 
Securities lending payable— 172,109 143,886 301,089 64,251 
Payable for securities purchased357,531 586,881 386,453 218,779 382,236 
Other liabilities1,321,470 1,332,843 1,565,861 1,510,888 1,681,181 
Total liabilities31,385,973 31,519,407 30,173,261 29,294,856 29,448,283 
Redeemable noncontrolling interests10,237 57,533 57,670 58,548 57,835 
Shareholders’ equity     
Non-cumulative preferred shares830,000 1,280,000 780,000 780,000 780,000 
Common shares648 647 645 643 642 
Additional paid-in capital2,061,906 2,028,919 2,014,741 1,977,794 1,950,782 
Retained earnings13,842,787 13,454,036 12,790,216 12,362,463 11,829,322 
Accumulated other comprehensive income (loss), net of deferred income tax49,184 230,048 205,827 488,895 386,357 
Common shares held in treasury, at cost(3,396,999)(3,007,578)(2,694,957)(2,503,909)(2,495,106)
Total shareholders’ equity available to Arch13,387,526 13,986,072 13,096,472 13,105,886 12,451,997 
Non-redeemable noncontrolling interests— 918,874 876,864 823,007 757,920 
Total shareholders’ equity13,387,526 14,904,946 13,973,336 13,928,893 13,209,917 
Total liabilities, noncontrolling interests and shareholders’ equity$44,783,736 $46,481,886 $44,204,267 $43,282,297 $42,716,035 
Common shares and common share equivalents outstanding, net of treasury shares387,257,752 396,771,251 403,313,377 406,720,642 406,018,958 
Book value per common share (1)$32.43 $32.02 $30.54 $30.31 $28.75 
(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 EndedNine Months Ended
 September 30,June 30,March 31,December 31,September 30,September 30,September 30,
 2021202120212020202020212020
Non-cumulative preferred shares       
Balance at beginning of period$1,280,000 $780,000 $780,000 $780,000 $780,000 $780,000 $780,000 
Preferred shares issued— 500,000 — — — 500,000 — 
Preferred shares redeemed(450,000)— — — — (450,000)— 
Balance at beginning and end of period$830,000 $1,280,000 $780,000 $780,000 $780,000 $830,000 $780,000 
Common shares
Balance at beginning of period647 645 643 642 642 643 638 
Common shares issued, net— 
Balance at end of period648 647 645 643 642 648 642 
Additional paid-in capital
Balance at beginning of period2,028,919 2,014,741 1,977,794 1,950,782 1,935,514 1,977,794 1,889,683 
Issue costs on preferred shares— (14,179)— — — (14,179)— 
Reversal of original issue costs on redeemed preferred shares15,101 — — — — 15,101 — 
Amortization of share-based compensation14,216 16,490 40,573 14,663 14,662 71,279 55,872 
All other3,670 11,867 (3,626)12,349 606 11,911 5,227 
Balance at end of period2,061,906 2,028,919 2,014,741 1,977,794 1,950,782 2,061,906 1,950,782 
Retained earnings
Balance at beginning of period13,454,036 12,790,216 12,362,463 11,829,322 11,420,686 12,362,463 11,021,006 
Cumulative effect of an accounting change (1)— — — — — — (22,452)
Balance at beginning of period, as adjusted13,454,036 12,790,216 12,362,463 11,829,322 11,420,686 12,362,463 10,998,554 
Net income421,415 718,664 475,708 599,314 488,682 1,615,787 866,397 
Amounts attributable to noncontrolling interests(1,473)(43,178)(37,552)(55,770)(69,643)(82,203)(4,420)
Preferred share dividends(16,090)(11,666)(10,403)(10,403)(10,403)(38,159)(31,209)
Loss on redemption of preferred shares(15,101)— — — — (15,101)— 
Balance at end of period13,842,787 13,454,036 12,790,216 12,362,463 11,829,322 13,842,787 11,829,322 
Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of period230,048 205,827 488,895 386,357 349,488 488,895 212,091 
Change in unrealized appreciation (decline) in value of available-for-sale investments(147,825)17,991 (254,584)63,008 19,800 (384,418)179,801 
Change in foreign currency translation adjustments(33,039)6,230 (28,484)39,530 17,069 (55,293)(5,535)
Balance at end of period49,184 230,048 205,827 488,895 386,357 49,184 386,357 
Common shares held in treasury, at cost
Balance at beginning of period(3,007,578)(2,694,957)(2,503,909)(2,495,106)(2,494,505)(2,503,909)(2,406,047)
Shares repurchased for treasury(389,421)(312,621)(191,048)(8,803)(601)(893,090)(89,059)
Balance at end of period(3,396,999)(3,007,578)(2,694,957)(2,503,909)(2,495,106)(3,396,999)(2,495,106)
Total shareholders’ equity available to Arch13,387,526 13,986,072 13,096,472 13,105,886 12,451,997 13,387,526 12,451,997 
Non-redeemable noncontrolling interests— 918,874 876,864 823,007 757,920 — 757,920 
Total shareholders’ equity$13,387,526 $14,904,946 $13,973,336 $13,928,893 $13,209,917 $13,387,526 $13,209,917 

(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 EndedNine Months Ended
September 30,June 30,March 31,December 31,September 30,September 30,September 30,
2021202120212020202020212020
Operating Activities       
Net income (loss)$421,415 $718,664 $475,708 $599,314 $488,682 $1,615,787 $866,397 
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses11,736 (218,042)(161,007)(366,942)(282,907)(367,313)(477,683)
Equity in net (income) or loss of investment. funds accounted for using the equity method and other income or loss(191,622)(45,089)(135,939)(78,257)(95,078)(372,650)30,306 
Amortization of intangible assets20,135 15,286 14,402 19,196 16,715 49,823 49,835 
Share-based compensation14,739 16,752 40,812