EX-99.2 3 ex-992supplement123121.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 December 31, 2021
 
The following financial supplement is provided to assist in your understanding of Arch Capital Group Ltd. (“Arch”) and its subsidiaries (collectively, the “Company”).
 
This report is for informational purposes only. It should be read in conjunction with documents filed by Arch 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.archgroup.com for further information describing Arch.


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 Somers Holdings Ltd. (formerly Watford Holdings Ltd.). In accordance with GAAP, the Company consolidated the results of Somers Holdings Ltd. (“Somers”) in its financial statements. Somers was considered a variable interest entity and the Company concluded that it was the primary beneficiary of Somers, through June 30, 2021. As such, 100% of the results of Somers were included in the Company’s consolidated financial statements as of and for the periods ended June 30, 2021. The portion of Somers’ 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 Somers’ 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 Somers by Greysbridge. Based on the governing documents of Greysbridge, the Company has concluded that, while it will retain significant influence over Somers, Somers no longer constitutes a variable interest entity. Accordingly, effective July 1, 2021, Arch no longer consolidates the results of Somers 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 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 and addition 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 replacement of LIBOR with alternative benchmark rates 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 EndedYear Ended
December 31,December 31,
20212020Change20212020Change
Underwriting results:
Gross premiums written$2,861,575 $2,170,831 31.8 %$12,463,788 $9,632,691 29.4 %
Net premiums written2,034,427 1,660,298 22.5 %8,663,635 6,900,127 25.6 %
Net premiums earned2,083,630 1,668,299 24.9 %7,750,330 6,431,584 20.5 %
Underwriting income (loss) (2)471,611 229,542 105.5 %1,239,740 481,069 157.7 %
Loss ratio47.8 %61.0 %(13.2)55.8 %66.1 %(10.3)
Acquisition expense ratio17.2 %13.5 %3.7 16.0 %14.1 %1.9 
Other operating expense ratio12.6 %12.1 %0.5 12.5 %12.7 %(0.2)
Combined ratio77.6 %86.6 %(9.0)84.3 %92.9 %(8.6)
Net investment income$90,454 $87,992 2.8 %$346,808 $401,908 (13.7)%
Per diluted share$0.23 $0.21 9.5 %$0.87 $0.98 (11.2)%
Net income available to Arch common shareholders$613,081 $533,141 15.0 %$2,093,405 $1,363,909 53.5 %
Per diluted share$1.58 $1.30 21.5 %$5.23 $3.32 57.5 %
After-tax operating income available to Arch common shareholders (2)$493,257 $230,417 114.1 %$1,434,930 $557,108 157.6 %
Per diluted share$1.27 $0.56 126.8 %$3.58 $1.36 163.2 %
Comprehensive income (loss) available to Arch$509,482 $646,082 (21.1)%$1,603,354 $1,682,325 (4.7)%
Net cash provided by operating activities$800,004 $507,017 57.8 %$3,380,701 $2,705,054 25.0 %
Weighted average common shares and common share equivalents outstanding — diluted388,869,378 410,281,852 (5.2)%400,345,936 410,259,455 (2.4)%
Financial measures:      
Change in book value per common share during period3.5 %5.4 %(1.9)10.7 %14.7 %(4.0)
Annualized net income return on average common equity19.4 %17.8 %1.6 16.7 %11.8 %4.9 
Annualized operating return on average common equity (2)15.6 %7.7 %7.9 11.5 %4.8 %6.7 
Total return on investments (3)0.39 %2.46 %-207 bps1.90 %7.77 %-587 bps
 
(1)Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers). 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 EndedYear Ended
 December 31,September 30,June 30,March 31,December 31,December 31,December 31,
 2021202120212021202020212020
Revenues       
Net premiums earned$2,083,630 $1,929,337 $2,120,909 $1,948,422 $1,811,045 $8,082,298 $6,991,935 
Net investment income90,454 88,195 111,613 98,856 114,458 389,118 519,608 
Net realized gains (losses)59,517 (25,040)202,907 142,461 353,333 379,845 823,460 
Other underwriting income3,160 7,274 5,529 6,110 7,852 22,073 26,784 
Equity in net income (loss) of investment funds accounted for using the equity method67,132 105,398 122,186 71,686 89,286 366,402 146,693 
Other income (loss)9,093 (3,960)6,852 (1,741)(36)10,244 29 
Total revenues2,312,986 2,101,204 2,569,996 2,265,794 2,375,938 9,249,980 8,508,509 
Expenses
Losses and loss adjustment expenses(995,853)(1,226,019)(1,159,831)(1,203,100)(1,127,385)(4,584,803)(4,689,599)
Acquisition expenses(357,539)(306,015)(335,143)(304,481)(254,828)(1,303,178)(1,004,842)
Other operating expenses(261,787)(230,832)(244,943)(261,033)(215,697)(998,595)(875,176)
Corporate expenses(18,150)(19,672)(15,951)(25,384)(25,335)(79,157)(81,988)
Amortization of intangible assets(33,132)(20,135)(15,286)(14,402)(19,196)(82,955)(69,031)
Interest expense(32,248)(33,176)(35,700)(38,346)(38,419)(139,470)(143,456)
Net foreign exchange gains (losses)3,163 36,078 (17,775)20,063 (72,209)41,529 (83,634)
Total expenses(1,695,546)(1,799,771)(1,824,629)(1,826,683)(1,753,069)(7,146,629)(6,947,726)
Income (loss) before income taxes and income (loss) from operating affiliates617,440 301,433 745,367 439,111 622,869 2,103,351 1,560,783 
Income tax expense(34,406)(4,137)(51,179)(38,860)(34,059)(128,582)(111,838)
Income (loss) from operating affiliates40,641 124,119 24,476 75,457 10,504 264,693 16,766 
Net income (loss)623,675 421,415 718,664 475,708 599,314 2,239,462 1,465,711 
Net (income) loss attributable to noncontrolling interests(410)(1,473)(43,178)(37,552)(55,770)(82,613)(60,190)
Net income (loss) attributable to Arch623,265 419,942 675,486 438,156 543,544 2,156,849 1,405,521 
Preferred dividends(10,184)(16,090)(11,666)(10,403)(10,403)(48,343)(41,612)
Loss on redemption of preferred shares— (15,101)— — — (15,101)— 
Net income (loss) available to Arch common shareholders$613,081 $388,751 $663,820 $427,753 $533,141 $2,093,405 $1,363,909 
Comprehensive income (loss) available to Arch$509,482 $239,078 $699,705 $155,089 $646,082 $1,603,354 $1,682,325 
Net income (loss) per common share and common share equivalent
Basic$1.62 $1.00 $1.67 $1.07 $1.32 $5.34 $3.38 
Diluted$1.58 $0.98 $1.63 $1.05 $1.30 $5.23 $3.32 
Weighted average common shares and common share equivalents outstanding
Basic379,431,442 389,274,220 397,743,402 400,807,895 403,005,335 391,748,715 403,062,179 
Diluted388,869,378 397,903,347 406,485,994 409,223,253 410,281,852 400,345,936 410,259,455 



4

Arch Capital Group Ltd. and Subsidiaries
Consolidated Balance Sheets

(U.S. Dollars in thousands, except share data)December 31,September 30,June 30,March 31,December 31,
20212021202120212020
Assets     
Investments:     
Fixed maturities available for sale, at fair value$17,998,109 $16,768,363 $18,073,779 $18,723,035 $18,717,825 
Short-term investments available for sale, at fair value1,734,716 3,069,965 2,248,613 1,269,631 1,924,922 
Collateral received under securities lending, at fair value— — 172,116 143,894 301,096 
Equity securities, at fair value1,804,170 1,790,640 1,693,552 1,532,906 1,444,830 
Other investments1,973,550 2,043,970 4,571,497 4,435,354 4,324,796 
Investments accounted for using the equity method3,077,611 2,741,293 2,539,124 2,256,327 2,047,889 
Total investments26,588,156 26,414,231 29,298,681 28,361,147 28,761,358 
Cash858,668 1,137,721 1,234,059 941,951 906,448 
Accrued investment income85,453 75,832 96,546 101,108 103,299 
Securities pledged under securities lending, at fair value— — 168,548 140,949 294,912 
Investment in operating affiliates1,135,655 1,111,825 731,810 739,783 129,291 
Premiums receivable2,633,280 2,807,720 2,866,578 2,618,175 2,064,586 
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses5,880,735 5,358,852 4,314,515 4,041,076 4,500,802 
Contractholder receivables1,828,691 1,824,990 1,882,948 1,919,655 1,986,924 
Ceded unearned premiums1,729,455 1,824,910 1,541,093 1,406,489 1,234,075 
Deferred acquisition costs901,841 893,665 1,013,657 919,740 790,708 
Receivable for securities sold60,179 84,019 309,234 199,424 92,743 
Goodwill and intangible assets944,983 963,322 667,153 679,509 692,863 
Other assets2,453,849 2,286,649 2,357,064 2,135,261 1,724,288 
Total assets$45,100,945 $44,783,736 $46,481,886 $44,204,267 $43,282,297 
Liabilities     
Reserve for losses and loss adjustment expenses$17,757,156 $17,331,047 $17,196,648 $16,443,952 $16,513,929 
Unearned premiums6,011,942 6,165,114 6,011,369 5,549,127 4,838,965 
Reinsurance balances payable1,583,253 1,403,929 1,079,106 919,125 683,263 
Contractholder payables1,832,127 1,828,474 1,887,418 1,925,508 1,995,562 
Collateral held for insured obligations242,352 254,259 235,618 222,245 215,581 
Senior notes2,724,394 2,724,149 2,861,728 2,861,417 2,861,113 
Revolving credit agreement borrowings— — 155,687 155,687 155,687 
Securities lending payable— — 172,109 143,886 301,089 
Payable for securities purchased64,850 357,531 586,881 386,453 218,779 
Other liabilities1,329,742 1,321,470 1,332,843 1,565,861 1,510,888 
Total liabilities31,545,816 31,385,973 31,519,407 30,173,261 29,294,856 
Redeemable noncontrolling interests9,233 10,237 57,533 57,670 58,548 
Shareholders’ equity     
Non-cumulative preferred shares830,000 830,000 1,280,000 780,000 780,000 
Common shares648 648 647 645 643 
Additional paid-in capital2,085,075 2,061,906 2,028,919 2,014,741 1,977,794 
Retained earnings14,455,868 13,842,787 13,454,036 12,790,216 12,362,463 
Accumulated other comprehensive income (loss), net of deferred income tax(64,600)49,184 230,048 205,827 488,895 
Common shares held in treasury, at cost(3,761,095)(3,396,999)(3,007,578)(2,694,957)(2,503,909)
Total shareholders’ equity available to Arch13,545,896 13,387,526 13,986,072 13,096,472 13,105,886 
Non-redeemable noncontrolling interests— — 918,874 876,864 823,007 
Total shareholders’ equity13,545,896 13,387,526 14,904,946 13,973,336 13,928,893 
Total liabilities, noncontrolling interests and shareholders’ equity$45,100,945 $44,783,736 $46,481,886 $44,204,267 $43,282,297 
Common shares and common share equivalents outstanding, net of treasury shares378,923,894 387,257,752 396,771,251 403,313,377 406,720,642 
Book value per common share (1)$33.56 $32.43 $32.02 $30.54 $30.31 
(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 EndedYear Ended
 December 31,September 30,June 30,March 31,December 31,December 31,December 31,
 2021202120212021202020212020
Non-cumulative preferred shares       
Balance at beginning of period$830,000 $1,280,000 $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 $830,000 $1,280,000 $780,000 $780,000 $830,000 $780,000 
Common shares
Balance at beginning of period648 647 645 643 642 643 638 
Common shares issued, net— 
Balance at end of period648 648 647 645 643 648 643 
Additional paid-in capital
Balance at beginning of period2,061,906 2,028,919 2,014,741 1,977,794 1,950,782 1,977,794 1,889,683 
Issue costs on preferred shares— — (14,179)— — (14,179)— 
Reversal of original issue costs on redeemed preferred shares— 15,101 — — — 15,101 — 
Amortization of share-based compensation14,774 14,216 16,490 40,573 14,663 86,053 70,535 
All other8,395 3,670 11,867 (3,626)12,349 20,306 17,576 
Balance at end of period2,085,075 2,061,906 2,028,919 2,014,741 1,977,794 2,085,075 1,977,794 
Retained earnings
Balance at beginning of period13,842,787 13,454,036 12,790,216 12,362,463 11,829,322 12,362,463 11,021,006 
Cumulative effect of an accounting change (1)— — — — — — (22,452)
Balance at beginning of period, as adjusted13,842,787 13,454,036 12,790,216 12,362,463 11,829,322 12,362,463 10,998,554 
Net income623,675 421,415 718,664 475,708 599,314 2,239,462 1,465,711 
Amounts attributable to noncontrolling interests(410)(1,473)(43,178)(37,552)(55,770)(82,613)(60,190)
Preferred share dividends(10,184)(16,090)(11,666)(10,403)(10,403)(48,343)(41,612)
Loss on redemption of preferred shares— (15,101)— — — (15,101)— 
Balance at end of period14,455,868 13,842,787 13,454,036 12,790,216 12,362,463 14,455,868 12,362,463 
Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of period49,184 230,048 205,827 488,895 386,357 488,895 212,091 
Change in unrealized appreciation (decline) in value of available-for-sale investments(103,391)(147,825)17,991 (254,584)63,008 (487,809)242,809 
Change in foreign currency translation adjustments(10,393)(33,039)6,230 (28,484)39,530 (65,686)33,995 
Balance at end of period(64,600)49,184 230,048 205,827 488,895 (64,600)488,895 
Common shares held in treasury, at cost
Balance at beginning of period(3,396,999)(3,007,578)(2,694,957)(2,503,909)(2,495,106)(2,503,909)(2,406,047)
Shares repurchased for treasury(364,096)(389,421)(312,621)(191,048)(8,803)(1,257,186)(97,862)
Balance at end of period(3,761,095)(3,396,999)(3,007,578)(2,694,957)(2,503,909)(3,761,095)(2,503,909)
Total shareholders’ equity available to Arch13,545,896 13,387,526 13,986,072 13,096,472 13,105,886 13,545,896 13,105,886 
Non-redeemable noncontrolling interests— — 918,874 876,864 823,007 — 823,007 
Total shareholders’ equity$13,545,896 $13,387,526 $14,904,946 $13,973,336 $13,928,893 $13,545,896 $13,928,893 

(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 EndedYear Ended
December 31,September 30,June 30,March 31,December 31,December 31,December 31,
2021202120212021202020212020
Operating Activities       
Net income (loss)$623,675 $421,415 $718,664 $475,708 $599,314 $2,239,462 $1,465,711 
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses(60,054)11,736 (218,042)(161,007)(366,942)(427,367)(844,625)
Equity in net (income) or loss of investment. funds accounted for using the equity method and other income or loss(91,400)(191,622)(45,089)(135,939)(78,257)(464,050)(47,951)
Amortization of intangible assets33,132 20,135 15,286 14,402 19,196 82,955 69,031 
Share-based compensation14,791 14,739 16,752 40,812 14,829 87,094 71,262 
Changes in:
Reserve for losses and loss adjustment expenses, net213,979 599,706 388,352 560,153 445,758 1,762,190 2,113,827 
Unearned premiums, net(49,203)146,592 278,615 560,035 (53,030)936,039 445,781 
Premiums receivable161,884 (65,707)(173,141)(608,250)143,123 (685,214)(318,643)
Deferred acquisition costs(15,277)(33,073)(88,192)(126,701)(36,710)(263,243)(143,948)
Reinsurance balances payable(118,506)287,110 91,255 240,206 (139,670)500,065 65,950 
Other items, net86,983 (196,052)(134,733)(96,574)7,444 (340,376)10,110 
Net cash provided by operating activities800,004 1,014,979 849,727 762,845 555,055 3,427,555 2,886,505 
Investing Activities       
Purchases of fixed maturity investments(5,581,835)(6,315,639)(12,023,416)(11,530,968)(5,714,394)(35,451,858)(39,765,277)
Purchases of equity securities(196,529)(358,177)(311,355)(309,419)(239,162)(1,175,480)(1,595,010)
Purchases of other investments(509,040)(316,922)(602,173)(430,961)(966,841)(1,859,096)(1,808,727)
Proceeds from sales of fixed maturity investments3,509,653 6,937,404 12,213,254 10,917,134 5,404,479 33,577,445 37,949,346 
Proceeds from sales of equity securities222,512 153,343 257,304 284,986 415,471 918,145 1,147,264 
Proceeds from sales, redemptions and maturities of other investments277,614 715,370 448,958 323,591 237,771 1,765,533 1,029,578 
Proceeds from redemptions and maturities of fixed maturity investments394,343 428,576 384,794 421,042 225,842 1,628,755 871,134 
Net settlements of derivative instruments27,758 (85,116)(30,374)47,660 15,716 (40,072)179,006 
Net (purchases) sales of short-term investments1,338,070 (794,712)(967,261)589,175 129,670 165,272 (1,029,681)
Change in cash collateral related to securities lending— 826 (826)— — — 81,210 
Purchase of operating affiliate, net— (207,567)— (546,349)— (753,916)— 
Impact of the deconsolidation of a variable interest entity— (349,202)— — — (349,202)— 
Purchases of fixed assets(6,987)(10,822)(11,095)(12,490)(13,155)(41,394)(39,872)
Other(162,007)(156,968)41,701 (246,590)69,795 (523,864)(62,197)
Net cash provided by (used for) investing activities(686,448)(359,606)(600,489)(493,189)(434,808)(2,139,732)(3,043,226)
Financing Activities       
Proceeds from issuance of preferred shares, net— — 485,821 — — 485,821 — 
Redemption of preferred shares— (450,000)— — — (450,000)— 
Purchases of common shares under share repurchase program(362,097)(386,882)(306,049)(179,266)(7,986)(1,234,294)(83,472)
Proceeds from common shares issued, net6,137 96 10,193 (10,008)11,532 6,418 1,876 
Proceeds from borrowings— — — — — — 1,018,793 
Repayments of borrowings— — — — (55,000)— (359,000)
Change in cash collateral related to securities lending— (826)826 — — — (81,210)
Change in third party investment in non-redeemable noncontrolling interests— — — 15,971 — 15,971 (2,867)
Dividends paid to redeemable noncontrolling interests— — (959)(948)(1,404)(1,907)(4,945)
Other18,474 (49,391)29,587 (1,948)18,449 (3,278)73,715 
Preferred dividends paid(10,184)(17,291)(10,402)(10,403)(10,403)(48,280)(41,612)
Net cash provided by (used for) financing activities(347,670)(904,294)209,017 (186,602)(44,812)(1,229,549)521,278 
Effects of exchange rate changes on foreign currency cash and restricted cash(24)(20,633)(7,306)(6,084)28,136 (34,047)22,289 
Increase (decrease) in cash and restricted cash(234,138)(269,554)450,949 76,970 103,571 24,227 386,846 
Cash and restricted cash, beginning of period1,548,909 1,818,463 1,367,514 1,290,544 1,186,973 1,290,544 903,698 
Cash and restricted cash, end of period$1,314,771 $1,548,909 $1,818,463 $1,367,514 $1,290,544 $1,314,771 $1,290,544 
Income taxes paid (received)$84,371 $61,343 $133,997 $7,099 $56,126 $286,810 $202,940 
Interest paid$63,498 $1,104 $73,711 $988 $72,936 $139,301 $133,491 
Net cash provided by operating activities, excluding the ‘other’ segment$800,004 $1,014,979 $809,790 $755,928 $507,017 $3,380,701 $2,705,054 
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 segment. 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, the Chief Financial Officer and Treasurer of Arch and the President and Chief Underwriting Officer of Arch. 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 underwriting units which offer mortgage insurance and reinsurance products worldwide basis. Underwriting units include:
U.S. primary mortgage insurance: offers private mortgage insurance through Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (combined “Arch MI U.S.”), both approved eligible mortgage insurers by Fannie Mae and Freddie Mac. Arch MI U.S. also includes Arch Mortgage Guaranty Company, which is not a government sponsored enterprise “GSE” approved entity.
U.S. credit risk transfer (CRT) and other: underwrites CRT transactions, which are predominantly with GSEs, and other U.S. reinsurance transactions.
International mortgage insurance/reinsurance: underwrites mortgage insurance and reinsurance outside of the U.S.
Corporate Segment
The corporate segment results include net investment income, 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, other income (loss), corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, net foreign exchange gains or losses, income taxes items, income or loss from operating affiliates and items related to the Company’s non-cumulative preferred shares. Such amounts exclude the results of the ‘other’ segment.
Other Segment
Through June 30, 2021, the ‘other’ segment included the results of Somers. Pursuant to GAAP, Somers was considered a variable interest entity and the Company concluded that it was the primary beneficiary of Somers. As such, the Company consolidated the results of Somers in its consolidated financial statements through June 30, 2021. The portion of Somers’ earnings attributable to third party investors was 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. In July 2021, the Company announced the completion of the previously disclosed acquisition of Somers by Greysbridge. Based on the governing documents of Greysbridge, the Company has concluded that, while it retains significant influence over Somers, Somers no longer constitutes a variable interest entity. Accordingly, effective July 1, 2021, Arch no longer consolidates the results of Somers in its consolidated financial statements.

9

Arch Capital Group Ltd. and Subsidiaries
Segment Information
(U.S. Dollars in thousands)Three Months Ended
December 31, 2021
 InsuranceReinsuranceMortgageSub-total (Core)OtherTotal
Gross premiums written (1)$1,486,362 $1,013,090 $364,134 $2,861,575 $— $2,861,575 
Premiums ceded(450,376)(303,949)(74,834)(827,148)— (827,148)
Net premiums written1,035,986 709,141 289,300 2,034,427 — 2,034,427 
Change in unearned premiums(33,089)70,676 11,616 49,203 — 49,203 
Net premiums earned1,002,897 779,817 300,916 2,083,630 — 2,083,630 
Other underwriting income (loss)— 521 2,639 3,160 — 3,160 
Losses and loss adjustment expenses(594,108)(430,180)28,435 (995,853)— (995,853)
Acquisition expenses(188,724)(155,694)(13,121)(357,539)— (357,539)
Other operating expenses(149,520)(61,954)(50,313)(261,787)— (261,787)
Underwriting income (loss)$70,545 $132,510 $268,556 471,611 — 471,611 
Net investment income90,454 — 90,454 
Net realized gains (losses)59,517 — 59,517 
Equity in net income (loss) of investment funds accounted for using the equity method67,132 — 67,132 
Other income (loss)9,093 — 9,093 
Corporate expenses (2)(17,840)— (17,840)
Transaction costs and other (2)(310)— (310)
Amortization of intangible assets(33,132)— (33,132)
Interest expense(32,248)— (32,248)
Net foreign exchange gains (losses)3,163 — 3,163 
Income (loss) before income taxes and income (loss) from operating affiliates617,440 — 617,440 
Income tax (expense) benefit(34,406)— (34,406)
Income (loss) from operating affiliates40,641 — 40,641 
Net income (loss)623,675 — 623,675 
Dividends attributable to redeemable noncontrolling interests(410)— (410)
Net income (loss) available to Arch623,265 — 623,265 
Preferred dividends(10,184)— (10,184)
Loss on redemption of preferred shares— — — 
Net income (loss) available to Arch common shareholders$613,081 $— $613,081 
Underwriting Ratios
Loss ratio59.2 %55.2 %(9.4)%47.8 %— %47.8 %
Acquisition expense ratio18.8 %20.0 %4.4 %17.2 %— %17.2 %
Other operating expense ratio14.9 %7.9 %16.7 %12.6 %— %12.6 %
Combined ratio92.9 %83.1 %11.7 %77.6 %— %77.6 %
Net premiums written to gross premiums written69.7 %70.0 %79.4 %71.1 %— %71.1 %
Total investable assets$27,442,153 $— $27,442,153 
Total assets45,100,945 — 45,100,945 
Total liabilities31,545,816 — 31,545,816 
(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
December 31, 2020
 InsuranceReinsuranceMortgageSub-total (Core)OtherTotal
Gross premiums written (1)$1,244,227 $537,912 $389,662 $2,170,831 $138,237 $2,256,514 
Premiums ceded(406,490)(47,018)(57,995)(510,533)(40,520)(498,499)
Net premiums written837,737 490,894 331,667 1,660,298 97,717 1,758,015 
Change in unearned premiums(89,299)93,180 4,120 8,001 45,029 53,030 
Net premiums earned748,438 584,074 335,787 1,668,299 142,746 1,811,045 
Other underwriting income (loss)— 2,687 4,667 7,354 498 7,852 
Losses and loss adjustment expenses(541,821)(392,734)(83,623)(1,018,178)(109,207)(1,127,385)
Acquisition expenses(101,055)(98,532)(25,936)(225,523)(29,305)(254,828)
Other operating expenses(118,206)(42,180)(42,024)(202,410)(13,287)(215,697)
Underwriting income (loss)$(12,644)$53,315 $188,871 229,542 (8,555)220,987 
Net investment income87,992 26,466 114,458 
Net realized gains (losses)289,817 63,516 353,333 
Equity in net income (loss) of investment funds accounted for using the equity method89,286 — 89,286 
Other income (loss)(36)— (36)
Corporate expenses (2)(17,085)— (17,085)
Transaction costs and other (2)(4,210)(4,040)(8,250)
Amortization of intangible assets(19,196)— (19,196)
Interest expense(33,615)(4,804)(38,419)
Net foreign exchange gains (losses)(62,349)(9,860)(72,209)
Income (loss) before income taxes and income (loss) from operating affiliates560,146 62,723 622,869 
Income tax (expense) benefit(33,700)(359)(34,059)
Income (loss) from operating affiliates10,504 — 10,504 
Net income (loss)536,950 62,364 599,314 
Dividends attributable to redeemable noncontrolling interests(1,124)(992)(2,116)
Amounts attributable to nonredeemable noncontrolling interests— (53,654)(53,654)
Net income (loss) available to Arch535,826 7,718 543,544 
Preferred dividends(10,403)— (10,403)
Net income (loss) available to Arch common shareholders$525,423 $7,718 $533,141 
Underwriting Ratios
Loss ratio72.4 %67.2 %24.9 %61.0 %76.5 %62.3 %
Acquisition expense ratio13.5 %16.9 %7.7 %13.5 %20.5 %14.1 %
Other operating expense ratio15.8 %7.2 %12.5 %12.1 %9.3 %11.9 %
Combined ratio101.7 %91.3 %45.1 %86.6 %106.3 %88.3 %
Net premiums written to gross premiums written67.3 %91.3 %85.1 %76.5 %70.7 %77.9 %
Total investable assets$26,856,295 $2,657,612 $29,513,907 
Total assets39,791,983 3,490,314 43,282,297 
Total liabilities26,789,149 2,505,707 29,294,856 
 
(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)Year Ended
December 31, 2021
 InsuranceReinsuranceMortgageSub-total (Core)OtherTotal
Gross premiums written (1)$5,867,734 $5,093,930 $1,507,825 $12,463,788 $457,465 $12,752,487 
Premiums ceded(1,719,541)(1,839,556)(246,757)(3,800,153)(102,763)(3,734,150)
Net premiums written4,148,193 3,254,374 1,261,068 8,663,635 354,702 9,018,337 
Change in unearned premiums(521,725)(413,931)22,351 (913,305)(22,734)(936,039)
Net premiums earned3,626,468 2,840,443 1,283,419 7,750,330 331,968 8,082,298 
Other underwriting income (loss)— 3,669 17,665 21,334 739 22,073 
Losses and loss adjustment expenses(2,344,365)(1,924,719)(56,677)(4,325,761)(259,042)(4,584,803)
Acquisition expenses(606,265)(536,754)(97,418)(1,240,437)(62,741)(1,303,178)
Other operating expenses(558,906)(212,810)(194,010)(965,726)(32,869)(998,595)
Underwriting income (loss)$116,932 $169,829 $952,979 1,239,740 (21,945)1,217,795 
Net investment income346,808 42,310 389,118 
Net realized gains (losses)299,207 80,638 379,845 
Equity in net income (loss) of investment funds accounted for using the equity method366,402 — 366,402 
Other income (loss)10,244 — 10,244 
Corporate expenses (2)(77,119)— (77,119)
Transaction costs and other (2)(1,103)(935)(2,038)
Amortization of intangible assets(82,057)(898)(82,955)
Interest expense(131,060)(8,410)(139,470)
Net foreign exchange gains (losses)42,854 (1,325)41,529 
Income (loss) before income taxes and income (loss) from operating affiliates2,013,916 89,435 2,103,351 
Income tax (expense) benefit(128,348)(234)(128,582)
Income (loss) from operating affiliates264,693 — 264,693 
Net income (loss)2,150,261 89,201 2,239,462 
Dividends attributable to redeemable noncontrolling interests(2,346)(1,953)(4,299)
Amounts attributable to nonredeemable noncontrolling interests— (78,314)(78,314)
Net income (loss) available to Arch2,147,915 8,934 2,156,849 
Preferred dividends(48,343)— (48,343)
Loss on redemption of preferred shares(15,101)— (15,101)
Net income (loss) available to Arch common shareholders$2,084,471 $8,934 $2,093,405 
Underwriting Ratios
Loss ratio64.6 %67.8 %4.4 %55.8 %78.0 %56.7 %
Acquisition expense ratio16.7 %18.9 %7.6 %16.0 %18.9 %16.1 %
Other operating expense ratio15.4 %7.5 %15.1 %12.5 %9.9 %12.4 %
Combined ratio96.7 %94.2 %27.1 %84.3 %106.8 %85.2 %
Net premiums written to gross premiums written70.7 %63.9 %83.6 %69.5 %77.5 %70.7 %
 
(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.
(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)Year Ended
December 31, 2020
 InsuranceReinsuranceMortgageSub-total (Core)OtherTotal
Gross premiums written (1)$4,688,562 $3,472,086 $1,473,999 $9,632,691 $728,546 $10,088,068 
Premiums ceded(1,525,655)(1,014,716)(194,149)(2,732,564)(190,957)(2,650,352)
Net premiums written3,162,907 2,457,370 1,279,850 6,900,127 537,589 7,437,716 
Change in unearned premiums(291,487)(295,141)118,085 (468,543)22,762 (445,781)
Net premiums earned2,871,420 2,162,229 1,397,935 6,431,584 560,351 6,991,935 
Other underwriting income (loss)(31)4,454 20,316 24,739 2,045 26,784 
Losses and loss adjustment expenses(2,092,453)(1,628,320)(528,344)(4,249,117)(440,482)(4,689,599)
Acquisition expenses(418,483)(354,048)(134,240)(906,771)(98,071)(1,004,842)
Other operating expenses(489,153)(168,011)(162,202)(819,366)(55,810)(875,176)
Underwriting income (loss)$(128,700)$16,304 $593,465 481,069 (31,967)449,102 
Net investment income401,908 117,700 519,608 
Net realized gains (losses)813,781 9,679 823,460 
Equity in net income (loss) of investment funds accounted for using the equity method146,693 — 146,693 
Other income (loss)29 — 29 
Corporate expenses (2)(68,492)— (68,492)
Transaction costs and other (2)(9,456)(4,040)(13,496)
Amortization of intangible assets(69,031)— (69,031)
Interest expense(120,214)(23,242)(143,456)
Net foreign exchange gains (losses)(80,161)(3,473)(83,634)
Income (loss) before income taxes and income (loss) from operating affiliates1,496,126 64,657 1,560,783 
Income tax (expense) benefit(111,812)(26)(111,838)
Income (loss) from operating affiliates16,766 — 16,766 
Net income (loss)1,401,080 64,631 1,465,711 
Dividends attributable to redeemable noncontrolling interests(2,997)(4,117)(7,114)
Amounts attributable to nonredeemable noncontrolling interests— (53,076)(53,076)
Net income (loss) available to Arch1,398,083 7,438 1,405,521 
Preferred dividends(41,612)— (41,612)
Net income (loss) available to Arch common shareholders$1,356,471 $7,438 $1,363,909 
Underwriting Ratios
Loss ratio72.9 %75.3 %37.8 %66.1 %78.6 %67.1 %
Acquisition expense ratio14.6 %16.4 %9.6 %14.1 %17.5 %14.4 %
Other operating expense ratio17.0 %7.8 %11.6 %12.7 %10.0 %12.5 %
Combined ratio104.5 %99.5 %59.0 %92.9 %106.1 %94.0 %
Net premiums written to gross premiums written67.5 %70.8 %86.8 %71.6 %73.8 %73.7 %
 
(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.
(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 EndedYear Ended
 December 31,September 30,June 30,March 31,December 31,December 31,December 31,
 2021202120212021202020212020
Gross premiums written$1,486,362 $1,596,619 $1,368,867 $1,415,886 $1,244,227 $5,867,734 $4,688,562 
Premiums ceded(450,376)(442,806)(405,312)(421,047)(406,490)(1,719,541)(1,525,655)
Net premiums written1,035,986 1,153,813 963,555 994,839 837,737 4,148,193 3,162,907 
Change in unearned premiums(33,089)(215,143)(98,128)(175,365)(89,299)(521,725)(291,487)
Net premiums earned1,002,897 938,670 865,427 819,474 748,438 3,626,468 2,871,420 
Other underwriting income (loss)— — — — — — (31)
Losses and loss adjustment expenses(594,108)(668,630)(545,880)(535,747)(541,821)(2,344,365)(2,092,453)
Acquisition expenses(188,724)(152,467)(136,852)(128,222)(101,055)(606,265)(418,483)
Other operating expenses(149,520)(138,931)(133,342)(137,113)(118,206)(558,906)(489,153)
Underwriting income (loss)$70,545 $(21,358)$49,353 $18,392 $(12,644)$116,932 $(128,700)
Underwriting Ratios
Loss ratio59.2 %71.2 %63.1 %65.4 %72.4 %64.6 %72.9 %
Acquisition expense ratio18.8 %16.2 %15.8 %15.6 %13.5 %16.7 %14.6 %
Other operating expense ratio14.9 %14.8 %15.4 %16.7 %15.8 %15.4 %17.0 %
Combined ratio92.9 %102.2 %94.3 %97.7 %101.7 %96.7 %104.5 %
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums2.0 %12.2 %3.2 %5.1 %8.3 %5.6 %9.5 %
Net (favorable) adverse development in prior year loss reserves, net of related adjustments(0.3)%(0.5)%(0.3)%(0.7)%(0.2)%(0.4)%(0.2)%
Combined ratio excluding catastrophic activity and prior year development (1)91.2 %90.5 %91.4 %93.3 %93.6 %91.5 %95.2 %
Net premiums written to gross premiums written69.7 %72.3 %70.4 %70.3 %67.3 %70.7 %67.5 %
 
(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 EndedYear Ended
 December 31,September 30,June 30,March 31,December 31,December 31,December 31,
 2021202120212021202020212020
Net premiums written
Professional lines (1)$373,752 36.1 %$310,185 26.9 %$254,961 26.5 %$238,246 23.9 %$217,306 25.9 %$1,177,144 28.4 %$743,486 23.5 %
Property, energy, marine
and aviation
177,632 17.1 %215,062 18.6 %207,762 21.6 %170,498 17.1 %179,455 21.4 %770,954 18.6 %619,034 19.6 %
Excess and surplus casualty (2)101,199 9.8 %98,320 8.5 %74,346 7.7 %85,593 8.6 %88,319 10.5 %359,458 8.7 %297,330 9.4 %
Programs92,002 8.9 %196,048 17.0 %149,373 15.5 %158,401 15.9 %96,743 11.5 %595,824 14.4 %437,973 13.8 %
Travel, accident and health79,176 7.6 %62,837 5.4 %71,071 7.4 %92,306 9.3 %29,959 3.6 %305,390 7.4 %212,974 6.7 %
Construction and national accounts78,956 7.6 %92,253 8.0 %77,579 8.1 %134,792 13.5 %102,171 12.2 %383,580 9.2 %364,104 11.5 %
Lenders products32,833 3.2 %38,905 3.4 %40,386 4.2 %34,860 3.5 %38,307 4.6 %146,984 3.5 %156,119 4.9 %
Other (3)100,436 9.7 %140,203 12.2 %88,077 9.1 %80,143 8.1 %85,477 10.2 %408,859 9.9 %331,887 10.5 %
Total$1,035,986 100.0 %$1,153,813 100.0 %$963,555 100.0 %$994,839 100.0 %$837,737 100.0 %$4,148,193 100.0 %$3,162,907 100.0 %
Underwriting location
United States$680,840 65.7 %$797,395 69.1 %$658,964 68.4 %$675,840 67.9 %$527,824 63.0 %$2,813,039 67.8 %$2,158,415 68.2 %
Europe292,591 28.2 %301,877 26.2 %254,602 26.4 %276,122 27.8 %266,761 31.8 %1,125,192 27.1 %856,572 27.1 %
Other62,555 6.0 %54,541 4.7 %49,989 5.2 %42,877 4.3 %43,152 5.2 %209,962 5.1 %147,920 4.7 %
Total$1,035,986 100.0 %$1,153,813 100.0 %$963,555 100.0 %$994,839 100.0 %$837,737 100.0 %$4,148,193 100.0 %$3,162,907 100.0 %
Net premiums earned
Professional lines (1)$280,041 27.9 %$249,007 26.5 %$214,098 24.7 %$199,671 24.4 %$180,858 24.2 %$942,817 26.0 %$655,872 22.8 %
Property, energy, marine
and aviation
189,813 18.9 %187,905 20.0 %167,716 19.4 %157,259 19.2 %151,456 20.2 %702,693 19.4 %517,247 18.0 %
Excess and surplus casualty (2)85,713 8.5 %84,048 9.0 %72,899 8.4 %75,367 9.2 %74,579 10.0 %318,027 8.8 %270,620 9.4 %
Programs137,754 13.7 %137,299 14.6 %118,974 13.7 %112,840 13.8 %110,651 14.8 %506,867 14.0 %432,854 15.1 %
Travel, accident and health87,212 8.7 %56,102 6.0 %62,610 7.2 %49,666 6.1 %24,726 3.3 %255,590 7.0 %190,944 6.6 %
Construction and national accounts88,263 8.8 %94,523 10.1 %95,849 11.1 %102,671 12.5 %101,243 13.5 %381,306 10.5 %387,934 13.5 %
Lenders products34,451 3.4 %33,030 3.5 %46,396 5.4 %40,081 4.9 %32,832 4.4 %153,958 4.2 %114,687 4.0 %
Other (3)99,650 9.9 %96,756 10.3 %86,885 10.0 %81,919 10.0 %72,093 9.6 %365,210 10.1 %301,262 10.5 %
Total$1,002,897 100.0 %$938,670 100.0 %$865,427 100.0 %$819,474 100.0 %$748,438 100.0 %$3,626,468 100.0 %$2,871,420 100.0 %

(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.

15

Arch Capital Group Ltd. and Subsidiaries
Segment Information — Reinsurance Segment
(U.S. Dollars in thousands)Three Months EndedYear Ended
 December 31,September 30,June 30,March 31,December 31,December 31,December 31,
 2021202120212021202020212020
Gross premiums written$1,013,090 $1,251,760 $1,358,020 $1,471,060 $537,912 $5,093,930 $3,472,086 
Premiums ceded(303,949)(630,371)(433,288)(471,948)(47,018)(1,839,556)(1,014,716)
Net premiums written709,141 621,389 924,732 999,112 490,894 3,254,374 2,457,370 
Change in unearned premiums70,676 57,313 (187,708)(354,212)93,180 (413,931)(295,141)
Net premiums earned779,817 678,702 737,024 644,900 584,074 2,840,443 2,162,229 
Other underwriting income (loss)521 3,293 1,053 (1,198)2,687 3,669 4,454 
Losses and loss adjustment expenses(430,180)(545,846)(463,823)(484,870)(392,734)(1,924,719)(1,628,320)
Acquisition expenses(155,694)(129,450)(133,585)(118,025)(98,532)(536,754)(354,048)
Other operating expenses(61,954)(45,647)(44,695)(60,514)(42,180)(212,810)(168,011)
Underwriting income (loss)$132,510 $(38,948)$95,974 $(19,707)$53,315 $169,829 $16,304 
Underwriting Ratios
Loss ratio55.2 %80.4 %62.9 %75.2 %67.2 %67.8 %75.3 %
Acquisition expense ratio20.0 %19.1 %18.1 %18.3 %16.9 %18.9 %16.4 %
Other operating expense ratio7.9 %6.7 %6.1 %9.4 %7.2 %7.5 %7.8 %
Combined ratio83.1 %106.2 %87.1 %102.9 %91.3 %94.2 %99.5 %
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums6.7 %32.6 %2.5 %22.7 %16.1 %15.4 %19.1 %
Net (favorable) adverse development in prior year loss reserves, net of related adjustments(6.4)%(9.6)%(2.5)%(3.8)%(6.9)%(5.6)%(5.6)%
Combined ratio excluding catastrophic activity and prior year development (1)82.8 %83.2 %87.1 %84.0 %82.1 %84.4 %86.0 %
Net premiums written to gross premiums written70.0 %49.6 %68.1 %67.9 %91.3 %63.9 %70.8 %
 
(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 EndedYear Ended
 December 31,September 30,June 30,March 31,December 31,December 31,December 31,
 2021202120212021202020212020
Net premiums written
Property excluding property catastrophe$225,127 31.7 %$237,025 38.1 %$249,101 26.9 %$292,833 29.3 %$150,643 30.7 %$1,004,086 30.9 %$697,086 28.4 %
Other specialty (1)207,812 29.3 %167,006 26.9 %296,325 32.0 %284,331 28.5 %147,012 29.9 %955,474 29.4 %709,308 28.9 %
Casualty (2)176,952 25.0 %187,066 30.1 %225,890 24.4 %218,256 21.8 %103,989 21.2 %808,164 24.8 %542,319 22.1 %
Marine and aviation40,708 5.7 %19,159 3.1 %50,248 5.4 %61,638 6.2 %31,418 6.4 %171,753 5.3 %141,414 5.8 %
Property catastrophe35,536 5.0 %(7,125)(1.1)%87,642 9.5 %117,207 11.7 %37,317 7.6 %233,260 7.2 %286,210 11.6 %
Other (3)23,006 3.2 %18,258 2.9 %15,526 1.7 %24,847 2.5 %20,515 4.2 %81,637 2.5 %81,033 3.3 %
Total$709,141 100.0 %$621,389 100.0 %$924,732 100.0 %$999,112 100.0 %$490,894 100.0 %$3,254,374 100.0 %$2,457,370 100.0 %
Underwriting location
Bermuda$340,108 48.0 %$221,336 35.6 %$477,609 51.6 %$518,241 51.9 %$187,727 38.2 %$1,557,294 47.9 %$1,001,990 40.8 %
United States201,079 28.4 %207,815 33.4 %211,509 22.9 %208,101 20.8 %148,994 30.4 %828,504 25.5 %687,622 28.0 %
Europe and other167,954 23.7 %192,238 30.9 %235,614 25.5 %272,770 27.3 %154,173 31.4 %868,576 26.7 %767,758 31.2 %
Total$709,141 100.0 %$621,389 100.0 %$924,732 100.0 %$999,112 100.0 %$490,894 100.0 %$3,254,374 100.0 %$2,457,370 100.0 %
Net premiums earned
Property excluding property catastrophe$235,731 30.2 %$210,280 31.0 %$202,780 27.5 %$187,782 29.1 %$162,456 27.8 %$836,573 29.5 %$562,208 26.0 %
Other specialty (1)247,437 31.7 %195,649 28.8 %211,817 28.7 %163,898 25.4 %158,817 27.2 %818,801 28.8 %626,409 29.0 %
Casualty (2)174,180 22.3 %159,697 23.5 %183,846 24.9 %149,031 23.1 %144,808 24.8 %666,754 23.5 %549,056 25.4 %
Marine and aviation40,256 5.2 %29,818 4.4 %42,773 5.8 %40,108 6.2 %33,062 5.7 %152,955 5.4 %109,624 5.1 %
Property catastrophe55,453 7.1 %61,107 9.0 %76,167 10.3 %88,011 13.6 %59,986 10.3 %280,738 9.9 %237,736 11.0 %
Other (3)26,760 3.4 %22,151 3.3 %19,641 2.7 %16,070 2.5 %24,945 4.3 %84,622 3.0 %77,196 3.6 %
Total$779,817 100.0 %$678,702 100.0 %$737,024 100.0 %$644,900 100.0 %$584,074 100.0 %$2,840,443 100.0 %$2,162,229 100.0 %
                        
(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 EndedYear Ended
 December 31,September 30,June 30,March 31,December 31,December 31,December 31,
2021202120212021202020212020
Gross premiums written$364,134 $360,934 $391,511 $391,246 $389,662 $1,507,825 $1,473,999 
Premiums ceded(74,834)(60,207)(55,665)(56,051)(57,995)(246,757)(194,149)
Net premiums written289,300 300,727 335,846 335,195 331,667 1,261,068 1,279,850 
Change in unearned premiums11,616 11,238 (1,625)1,122 4,120 22,351 118,085 
Net premiums earned300,916 311,965 334,221 336,317 335,787 1,283,419 1,397,935 
Other underwriting income (1)2,639 3,981 4,148 6,897 4,667 17,665 20,316 
Losses and loss adjustment expenses28,435 (11,543)(9,880)(63,689)(83,623)(56,677)(528,344)
Acquisition expenses(13,121)(24,098)(30,117)(30,082)(25,936)(97,418)(134,240)
Other operating expenses(50,313)(46,254)(48,312)(49,131)(42,024)(194,010)(162,202)
Underwriting income$268,556 $234,051 $250,060 $200,312 $188,871 $952,979 $593,465 
Underwriting Ratios
Loss ratio(9.4)%3.7 %3.0 %18.9 %24.9 %4.4 %37.8 %
Acquisition expense ratio4.4 %7.7 %9.0 %8.9 %7.7 %7.6 %9.6 %
Other operating expense ratio16.7 %14.8 %14.5 %14.6 %12.5 %15.1 %11.6 %
Combined ratio11.7 %26.2 %26.5 %42.4 %45.1 %27.1 %59.0 %
Net (favorable) adverse development in prior year loss reserves, net of related adjustments(24.2)%(15.5)%(13.1)%(3.4)%(2.4)%(13.8)%(1.4)%
Combined ratio excluding prior year development (2)35.9 %41.7 %39.6 %45.8 %47.5 %40.9 %60.4 %
Net premiums written to gross premiums written79.4 %83.3 %85.8 %85.7 %85.1 %83.6 %86.8 %
Net premiums written by underwriting location
United States$210,988 $221,315 $234,645 $247,529 $250,747 $914,477 $1,021,950 
Other78,312 79,412 101,201 87,666 80,920 346,591 257,900 
Total$289,300 $300,727 $335,846 $335,195 $331,667 $1,261,068 $1,279,850 
United States %72.9 %73.6 %69.9 %73.8 %75.6 %72.5 %79.8 %
Other %27.1 %26.4 %30.1 %26.2 %24.4 %27.5 %20.2 %

(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)December 31, 2021September 30, 2021June 30, 2021March 31, 2021December 31, 2020
Insurance In Force (IIF) (1)
U.S. primary mortgage insurance$280,945 61.0 %$280,379 61.3 %$277,887 65.8 %$276,179 64.7 %$280,579 66.2 %
U.S. credit risk transfer (CRT) and other (2)110,018 23.9 %108,203 23.6 %103,970 24.6 %111,159 26.0 %103,535 24.4 %
International mortgage insurance/reinsurance (3)69,655 15.1 %69,127 15.1 %40,580 9.6 %39,678 9.3 %39,425 9.3 %
Total$460,618 100.0 %$457,709 100.0 %$422,437 100.0 %$427,016 100.0 %$423,539 100.0 %
Risk In Force (RIF) (4)
U.S. primary mortgage insurance$70,619 84.3 %$70,320 84.8 %$69,587 90.3 %$69,234 89.9 %$70,522 90.5 %
U.S. credit risk transfer and other (2)5,120 6.1 %4,817 5.8 %4,706 6.1 %5,107 6.6 %4,699 6.0 %
International mortgage insurance/reinsurance (3)7,983 9.5 %7,803 9.4 %2,727 3.5 %2,680 3.5 %2,673 3.4 %
Total$83,722 100.0 %$82,940 100.0 %$77,020 100.0 %$77,021 100.0 %$77,894 100.0 %
Supplemental disclosures for U.S. primary mortgage insurance:
Total RIF by credit quality (FICO score):
>=740$42,451 60.1 %$41,927 59.6 %$41,156 59.1 %$40,230 58.1 %$40,774 57.8 %
680-73923,646 33.5 %23,732 33.7 %23,663 34.0 %24,006 34.7 %24,498 34.7 %
620-6794,196 5.9 %4,323 6.1 %4,401 6.3 %4,607 6.7 %4,837 6.9 %
<620326 0.5 %338 0.5 %367 0.5 %391 0.6 %413 0.6 %
Total$70,619 100.0 %$70,320 100.0 %$69,587 100.0 %$69,234 100.0 %$70,522 100.0 %
Weighted average FICO score746 745 745 744 743 
Total RIF by Loan-To-Value (LTV):
95.01% and above$7,538 10.7 %$7,708 11.0 %$7,975 11.5 %$8,310 12.0 %$8,643 12.3 %
90.01% to 95.00%38,829 55.0 %38,378 54.6 %37,619 54.1 %37,193 53.7 %37,877 53.7 %
85.01% to 90.00%20,006 28.3 %19,980 28.4 %19,784 28.4 %19,648 28.4 %20,013 28.4 %
85.00% and below4,246 6.0 %4,254 6.0 %4,209 6.0 %4,083 5.9 %3,989 5.7 %
Total$70,619 100.0 %$70,320 100.0 %$69,587 100.0 %$69,234 100.0 %$70,522 100.0 %
Weighted average LTV92.8 %92.8 %92.8 %92.8 %92.8 %
Total RIF by State:
Texas$5,594 7.9 %$5,590 7.9 %$5,560 8.0 %$5,569 8.0 %$5,636 8.0 %
California5,559 7.9 %5,451 7.8 %5,324 7.7 %5,343 7.7 %5,261 7.5 %
Florida3,303 4.7 %3,344 4.8 %3,367 4.8 %3,544 5.1 %3,632 5.2 %
Illinois2,933 4.2 %2,920 4.2 %2,832 4.1 %2,728 3.9 %2,762 3.9 %
North Carolina2,921 4.1 %2,921 4.2 %2,924 4.2 %2,610 3.8 %2,622 3.7 %
Minnesota2,916 4.1 %2,936 4.2 %2,973 4.3 %2,452 3.5 %2,520 3.6 %
Georgia2,902 4.1 %2,908 4.1 %2,886 4.1 %2,929 4.2 %2,959 4.2 %
Massachusetts2,537 3.6 %2,519 3.6 %2,459 3.5 %2,434 3.5 %2,464 3.5 %
Michigan2,492 3.5 %2,500 3.6 %2,509 3.6 %2,035 2.9 %2,073 2.9 %
Virginia2,446 3.5 %2,412 3.4 %2,372 3.4 %2,458 3.6 %2,526 3.6 %
Other37,016 52.4 %36,819 52.4 %36,381 52.3 %37,132 53.6 %38,067 54.0 %
Total$70,619 100.0 %$70,320 100.0 %$69,587 100.0 %$69,234 100.0 %$70,522 100.0 %
Weighted average coverage (end of period RIF divided by IIF)25.1 %25.1 %25.0 %25.1 %25.1 %
U.S. mortgage insurance total RIF, net of reinsurance (5)$54,574 $54,847 $55,557 $55,503 $56,658 
Analysts’ persistency (6)62.4 %57.7 %54.8 %54.1 %58.7 %
Risk-to-capital ratio -- Arch MI U.S. (7)8.0:1 8.6:1 8.5:1 8.7:1 9.3:1
PMIER sufficiency ratio -- Arch MI U.S. (8)197 %195 %196 %190 %173 %

(1) The aggregate dollar amount of each insured mortgage loan’s current principal balance.(5) Total RIF for the U.S. mortgage insurance operations (see note 4) after external reinsurance.
(2) Includes all CRT transactions, which are predominantly with GSEs, and other U.S. reinsurance transactions.
(6) Represents the % of IIF at the beginning of a 12-mo. period that remained in force at the end of the period.
(3) International mortgage insurance and reinsurance with risk primarily located in Australia and to lesser extent Europe and Asia.
(7) Represents current (non-delinquent) RIF, net of reinsurance, divided by statutory capital (estimate for December 31, 2021).
(4) 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 or reinsurance transactions
(8) Calculated as available assets divided by required assets as defined within PMIERs (estimate for December 31, 2021). There was approximately $1.9 billion of excess available assets at December 31, 2021.
19

Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
(U.S. Dollars in millions, except policy/loan/claim count)Three Months Ended
December 31, 2021September 30, 2021June 30, 2021March 31, 2021December 31, 2020
Supplemental disclosures for U.S. primary mortgage insurance:
Total new insurance written (NIW) (1)$22,544 $27,841 $28,372 $27,019 $38,011 
Total NIW by credit quality (FICO score):
>=740$14,349 63.6 %$17,514 62.9 %$19,240 67.8 %$17,818 65.9 %$25,128 66.1 %
680-7397,238 32.1 %9,012 32.4 %8,113 28.6 %8,418 31.2 %11,877 31.2 %
620-679957 4.2 %1,315 4.7 %1,019 3.6 %783 2.9 %1,006 2.6 %
  Total$22,544 100.0 %$27,841 100.0 %$28,372 100.0 %$27,019 100.0 %$38,011 100.0 %
Total NIW by LTV:
95.01% and above$1,475 6.5 %$1,554 5.6 %$1,484 5.2 %$1,608 6.0 %$2,475 6.5 %
90.01% to 95.00%11,382 50.5 %14,240 51.1 %13,936 49.1 %12,288 45.5 %17,783 46.8 %
85.01% to 90.00%6,677 29.6 %8,394 30.1 %8,675 30.6 %8,312 30.8 %11,014 29.0 %
85.00% and below3,010 13.4 %3,653 13.1 %4,277 15.1 %4,811 17.8 %6,739 17.7 %
  Total$22,544 100.0 %$27,841 100.0 %$28,372 100.0 %$27,019 100.0 %$38,011 100.0 %
Total NIW monthly vs. single:
Monthly$21,623 95.9 %$26,515 95.2 %$26,725 94.2 %$24,989 92.5 %$35,672 93.8 %
Single921 4.1 %1,326 4.8 %1,647 5.8 %2,030 7.5 %2,339 6.2 %
  Total$22,544 100.0 %$27,841 100.0 %$28,372 100.0 %$27,019 100.0 %$38,011 100.0 %
Total NIW purchase vs. refinance:
Purchase$21,174 93.9 %$25,711 92.3 %$25,010 88.2 %$20,505 75.9 %$29,584 77.8 %
Refinance1,370 6.1 %2,130 7.7 %3,362 11.8 %6,514 24.1 %8,427 22.2 %
  Total$22,544 100.0 %$27,841 100.0 %$28,372 100.0 %$27,019 100.0 %$38,011 100.0 %
Ending number of policies in force (PIF) (2)1,171,835 1,188,768 1,199,918 1,214,245 1,245,771 
Rollforward of insured loans in default:
Beginning delinquent number of loans31,770 37,319 46,914 52,234 58,362 
Plus: new notices9,071 8,068 7,425 10,990 14,564 
Less: cures(13,038)(13,410)(16,793)(16,131)(20,457)
Less: paid claims(158)(207)(227)(179)(235)
Ending delinquent number of loans (2)27,645 31,770 37,319 46,914 52,234 
Ending percentage of loans in default (2)2.36 %2.67 %3.11 %3.86 %4.19 %
Losses:
Number of claims paid158 207 227 179 235 
Total paid claims (in thousands)$8,131 $7,551 $8,415 $6,882 $9,344 
Average per claim (in thousands)$51.5 $36.5 $37.1 $38.4 $39.8 
Severity (3)83.0 %78.7 %80.3 %82.0 %87.2 %
Average case reserve per default (in thousands)$26.7 $23.5 $19.5 $15.2 $12.6 

(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)December 31, 2021December 31, 2020
Loss Reserves, Net (1)Primary IIF (2)Primary RIF (3)Delinquency RateLoss Reserves, Net (1)Primary IIF (2)Primary RIF (3)Delinquency Rate
% of TotalTotal% of TotalTotal% of Total% of TotalTotal% of TotalTotal% of Total
Policy year:
2011 and prior27.0 %$11,245 4.0 %$2,509 3.6 %9.24 %28.3 %$14,588 5.2 %$3,327 4.7 %11.36 %
20121.0 %1,785 0.6 %451 0.6 %2.33 %1.3 %3,651 1.3 %992 1.4 %2.98 %
20132.6 %4,206 1.5 %1,148 1.6 %2.63 %3.0 %7,546 2.7 %2,107 3.0 %3.30 %
20141.9 %4,822 1.7 %1,328 1.9 %3.14 %2.2 %8,261 2.9 %2,273 3.2 %4.06 %
20153.0 %8,703 3.1 %2,340 3.3 %2.67 %3.4 %15,032 5.4 %4,048 5.7 %3.72 %
20167.6 %14,344 5.1 %3,841 5.4 %3.29 %8.8 %24,958 8.9 %6,648 9.4 %4.77 %
201710.9 %13,128 4.7 %3,436 4.9 %4.09 %12.9 %24,748 8.8 %6,413 9.1 %5.52 %
201815.2 %14,046 5.0 %3,562 5.0 %5.28 %16.8 %27,304 9.7 %6,918 9.8 %6.76 %
201915.2 %25,841 9.2 %6,467 9.2 %3.13 %17.8 %48,304 17.2 %12,001 17.0 %4.61 %
202012.5 %82,502 29.4 %20,341 28.8 %0.97 %5.5 %106,187 37.8 %25,795 36.6 %0.76 %
20213.2 %100,323 35.7 %25,196 35.7 %0.29 %
Total100.0 %$280,945 100.0 %$70,619 100.0 %2.36 %100.0 %$280,579 100.0 %$70,522 100.0 %4.19 %

(1)    Total reserves for losses and loss adjustment expenses, net of recoverables, was $710.7 million at December 31, 2021, compared to $649.7 million at December 31, 2020.
(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 EndedYear Ended
 December 31,September 30,June 30,March 31,December 31,December 31,December 31,
 2021202120212021202020212020
Gross premiums written$2,861,575 $3,207,415 $3,117,505 $3,277,293 $2,170,831 $12,463,788 $9,632,691 
Premiums ceded(827,148)(1,131,486)(893,372)(948,147)(510,533)(3,800,153)(2,732,564)
Net premiums written2,034,427 2,075,929 2,224,133 2,329,146 1,660,298 8,663,635 6,900,127 
Change in unearned premiums49,203 (146,592)(287,461)(528,455)8,001 (913,305)(468,543)
Net premiums earned2,083,630 1,929,337 1,936,672 1,800,691 1,668,299 7,750,330 6,431,584 
Other underwriting income (loss)3,160 7,274 5,201 5,699 7,354 21,334 24,739 
Losses and loss adjustment expenses(995,853)(1,226,019)(1,019,583)(1,084,306)(1,018,178)(4,325,761)(4,249,117)
Acquisition expenses(357,539)(306,015)(300,554)(276,329)(225,523)(1,240,437)(906,771)
Other operating expenses(261,787)(230,832)(226,349)(246,758)(202,410)(965,726)(819,366)
Underwriting income (loss)$471,611 $173,745 $395,387 $198,997 $229,542 $1,239,740 $481,069 
Underwriting Ratios
Loss ratio47.8 %63.5 %52.6 %60.2 %61.0 %55.8 %66.1 %
Acquisition expense ratio17.2 %15.9 %15.5 %15.3 %13.5 %16.0 %14.1 %
Other operating expense ratio12.6 %12.0 %11.7 %13.7 %12.1 %12.5 %12.7 %
Combined ratio77.6 %91.4 %79.8 %89.2 %86.6 %84.3 %92.9 %
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums3.5 %17.4 %2.4 %10.5 %9.4 %8.3 %10.7 %
Net (favorable) adverse development in prior year loss reserves, net of related adjustments(6.0)%(6.1)%(3.3)%(2.3)%(3.0)%(4.5)%(2.3)%
Combined ratio excluding catastrophic activity and prior year development (1)80.1 %80.1 %80.7 %81.0 %80.2 %80.5 %84.5 %
Components of losses and loss adjustment expenses incurred (1)
Paid losses and loss adjustment expenses$783,806 $626,291 $684,087 $572,589 $652,077 $2,666,773 $2,351,208 
Change in unpaid losses and loss adjustment expenses212,047 599,728 335,496 511,717 366,101 1,658,988 1,897,909 
Total losses and loss adjustment expenses$995,853 $1,226,019 $1,019,583 $1,084,306 $1,018,178 $4,325,761 $4,249,117 
Net premiums written to gross premiums written71.1 %64.7 %71.3 %71.1 %76.5 %69.5 %71.6 %
 
(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 EndedYear Ended
 December 31,September 30,June 30,March 31,December 31,December 31,December 31,
 2021202120212021202020212020
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments (1)
Net impact on underwriting results:
Insurance$(2,990)$(4,439)$(2,640)$(5,474)$(1,158)$(15,543)$(5,218)
Reinsurance(49,762)(65,439)(18,309)(24,765)(40,472)(158,275)(121,131)
Mortgage(72,865)(48,416)(43,883)(11,492)(8,151)(176,656)(19,081)
Total $(125,617)$(118,294)$(64,832)$(41,731)$(49,781)$(350,474)$(145,430)
Impact on losses and loss adjustment expenses:
Insurance$(3,115)$(5,066)$(3,998)$(4,057)$(1,906)$(16,236)$(7,821)
Reinsurance(59,219)(72,319)(20,476)(26,809)(40,156)(178,823)(133,954)
Mortgage(70,419)(45,124)(43,102)(10,913)(8,151)(169,558)(18,983)
Total$(132,753)$(122,509)$(67,576)$(41,779)$(50,213)$(364,617)$(160,758)
Impact on acquisition expenses:
Insurance$125 $627 $1,358 $(1,417)$748 $693 $2,603 
Reinsurance9,457 6,880 2,167 2,044 (316)20,548 12,823 
Mortgage(2,446)(3,292)(781)(579)— (7,098)(98)
Total$7,136 $4,215 $2,744 $48 $432 $14,143 $15,328 
Impact on combined ratio:
Insurance(0.3)%(0.5)%(0.3)%(0.7)%(0.2)%(0.4)%(0.2)%
Reinsurance(6.4)%(9.6)%(2.5)%(3.8)%(6.9)%(5.6)%(5.6)%
Mortgage(24.2)%(15.5)%(13.1)%(3.4)%(2.4)%(13.8)%(1.4)%
Total (6.0)%(6.1)%(3.3)%(2.3)%(3.0)%(4.5)%(2.3)%
Impact on loss ratio:
Insurance(0.3)%(0.5)%(0.5)%(0.5)%(0.3)%(0.4)%(0.3)%
Reinsurance(7.6)%(10.7)%(2.8)%(4.2)%(6.9)%(6.3)%(6.2)%
Mortgage(23.4)%(14.5)%(12.9)%(3.2)%(2.4)%(13.2)%(1.4)%
Total(6.4)%(6.3)%(3.5)%(2.3)%(3.0)%(4.7)%(2.5)%
Impact on acquisition expense ratio:
Insurance0.0 %0.0 %0.2 %(0.2)%0.1 %0.0 %0.1 %
Reinsurance1.2 %1.1 %0.3 %0.4 %0.0 %0.7 %0.6 %
Mortgage(0.8)%(1.0)%(0.2)%(0.2)%0.0 %(0.6)%0.0 %
Total 0.4 %0.2 %0.2 %0.0 %0.0 %0.2 %0.2 %
Estimated net losses incurred from current accident year catastrophic events (2)
Insurance$20,312 $114,433 $27,999 $41,876 $62,398 $204,620 $272,175 
Reinsurance51,966 221,431 18,467 146,379 93,959 438,243 413,114 
Total$72,278 $335,864 $46,466 $188,255 $156,357 $642,863 $685,289 
Impact on combined ratio:
Insurance2.0 %12.2 %3.2 %5.1 %8.3 %5.6 %9.5 %
Reinsurance6.7 %32.6 %2.5 %22.7 %16.1 %15.4 %19.1 %
Total3.5 %17.4 %2.4 %10.5 %9.4 %8.3 %10.7 %
Estimated impact of COVID-19 event, net of reinsurance and reinstatement premiums, included in current accident year catastrophic events (3)
Insurance$(9)$(584)$178 $572 $(75)$157 $117,372 
Reinsurance(482)$779 703 15 446 1,015 154,634 
Total$(491)$195 $881 $587 $371 $1,172 $272,006 
Impact on combined ratio:
Insurance0.0 %(0.1)%0.0 %0.1 %0.0 %0.0 %4.1 %
Reinsurance(0.1)%0.1 %0.1 %0.0 %0.1 %0.0 %7.2 %
Total0.0 %0.0 %0.0 %0.0 %0.0 %0.0 %4.2 %
(1)Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers). 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 December 31, 2021 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)December 31,September 30,June 30,March 31,December 31,
20212021202120212020
Investable assets (1) (2):
Fixed maturities available for sale, at fair value$17,998,109 65.6 %$16,768,363 61.5 %$17,448,357 63.9 %$18,136,604 68.9 %$18,104,322 67.4 %
Fixed maturities—fair value option (3)416,698 1.5 %414,007 1.5 %417,700 1.5 %360,616 1.4 %388,191 1.4 %
Fixed maturities pledged under securities lending agreements, at fair value— 0.0 %— 0.0 %156,056 0.6 %130,152 0.5 %278,783 1.0 %
Total fixed maturities18,414,807 67.1 %17,182,370 63.0 %18,022,113 66.0 %18,627,372 70.7 %18,771,296 69.9 %
Equity securities, at fair value1,804,170 6.6 %1,790,640 6.6 %1,595,929 5.8 %1,470,592 5.6 %1,392,420 5.2 %
Equity securities—fair value option (3)26,493 0.1 %24,523 0.1 %25,158 0.1 %25,640 0.1 %27,555 0.1 %
Equity securities pledged under securities lending agreements, at fair value— 0.0 %— 0.0 %12,492 0.0 %10,797 0.0 %16,129 0.1 %
Total equity securities1,830,663 6.7 %1,815,163 6.7 %1,633,579 6.0 %1,507,029 5.7 %1,436,104 5.3 %
Other investments—fair value option (3)1,432,553 5.2 %1,489,759 5.5 %1,512,317 5.5 %1,527,999 5.8 %1,480,347 5.5 %
Other investable assets (3)— 0.0 %— 0.0 %500,000 1.8 %500,000 1.9 %500,000 1.9 %
Total other investments1,432,553 5.2 %1,489,759 5.5 %2,012,317 7.4 %2,027,999 7.7 %1,980,347 7.4 %
Investments accounted for using the equity method (4)3,077,611 11.2 %2,741,293 10.0 %2,539,124 9.3 %2,256,327 8.6 %2,047,889 7.6 %
Short-term investments available for sale, at fair value1,734,716 6.3 %3,069,965 11.3 %2,248,613 8.2 %1,269,631 4.8 %1,924,922 7.2 %
Short-term investments—fair value option (3)97,806 0.4 %115,681 0.4 %131,403 0.5 %140,329 0.5 %138,318 0.5 %
Total short-term investments1,832,522 6.7 %3,185,646 11.7 %2,380,016 8.7 %1,409,960 5.4 %2,063,240 7.7 %
Cash858,668 3.1 %1,137,721 4.2 %884,857 3.2 %705,787 2.7 %694,997 2.6 %
Securities transactions entered into but not settled at the balance sheet date(4,671)0.0 %(273,512)(1.0)%(180,592)(0.7)%(195,875)(0.7)%(137,578)(0.5)%
Total investable assets held by the Company$27,442,153 100.0 %$27,278,440 100.0 %$27,291,414 100.0 %$26,338,599 100.0 %$26,856,295 100.0 %
Average effective duration (in years)2.70 2.68 2.31 2.71 3.01  
Average S&P/Moody’s credit ratings (5) AA-/Aa3  AA-/Aa3  AA/Aa1  AA-/Aa3  AA/Aa2  
Embedded book yield (before investment expenses)1.63 %1.54 %1.45 %1.59 %1.56 % 

(1)    Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers. 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$— $— $349,202 $236,164 $211,451 
Investments accounted for using the fair value option— — 1,984,919 1,880,770 1,790,385 
Fixed maturities available for sale, at fair value— — 625,422 586,431 613,503 
Equity securities, at fair value— — 97,623 62,314 52,410 
Securities sold but not yet purchased— — (28,068)(34,097)(21,679)
Securities transactions entered into but not settled at the balance sheet date— — (97,055)8,846 11,542 
Total investable assets included in ‘other’ segment$— $— $2,932,043 $2,740,428 $2,657,612 
(2)    This table excludes the collateral received and reinvested and includes the securities pledged under securities lending agreements, at fair value.
(3)    Included in “other investments” 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 EndedYear Ended
 December 31,September 30,June 30,March 31,December 31,December 31,December 31,
 2021202120212021202020212020
Composition of net investment income (1):       
Fixed maturities$74,846 $75,964 $77,709 $79,017 $80,942 $307,536 $358,804 
Equity securities (dividends)18,295 9,867 8,282 5,650 9,695 42,094 28,007 
Short-term investments3,325 1,858 972 644 1,129 6,799 6,573 
Other (2)12,712 19,114 21,026 15,559 15,053 68,411 77,951 
Gross investment income109,178 106,803 107,989 100,870 106,819 424,840 471,335 
Investment expenses(18,724)(18,608)(18,559)(22,141)(18,827)(78,032)(69,427)
Net investment income$90,454 $88,195 $89,430 $78,729 $87,992 $346,808 $401,908 
Per share$0.23 $0.22 $0.22 $0.19 $0.21 $0.87 $0.98 
Investment income yield, at amortized cost (1) (3):
Pre-tax1.46 %1.41 %1.47 %1.31 %1.45 %1.41 %1.78 %
After-tax1.27 %1.24 %1.30 %1.14 %1.26 %1.24 %1.56 %
Total return on investments (1) (4)0.39 %0.01 %1.58 %(0.18)%2.46 %1.90 %7.77 %

(1)Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers). 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 December 31, 2021
Corporates$6,941,879 $104,170 $(69,194)$34,976 $(2,037)$6,908,940 100.5 %37.7 %
U.S. government and government agencies4,772,764 10,076 (45,967)(35,891)— 4,808,655 99.3 %25.9 %
Municipal bonds404,666 18,724 (1,409)17,315 (2)387,353 104.5 %2.2 %
Non-U.S. government securities2,144,079 54,048 (34,749)19,299 (82)2,124,862 100.9 %11.6 %
Asset-backed securities2,696,458 6,540 (11,108)(4,568)(708)2,701,734 99.8 %14.6 %
Commercial mortgage-backed securities1,046,484 1,740 (3,117)(1,377)(6)1,047,867 99.9 %5.7 %
Residential mortgage-backed securities408,477 2,825 (5,410)(2,585)(48)411,110 99.4 %2.2 %
Total$18,414,807 $198,123 $(170,954)$27,169 $(2,883)$18,390,521 100.1 %100.0 %
At December 31, 2020
Corporates$8,039,745 $405,071 $(30,666)$374,405 $(700)$7,666,040 104.9 %42.8 %
U.S. government and government agencies5,354,863 21,490 (12,587)8,903 — 5,345,960 100.2 %28.5 %
Municipal bonds492,734 27,189 (3,835)23,354 (11)469,391 105.0 %2.6 %
Non-U.S. government securities2,310,157 143,054 (7,958)135,096 — 2,175,061 106.2 %12.3 %
Asset-backed securities1,566,188 18,689 (7,635)11,054 (1,090)1,556,224 100.6 %8.3 %
Commercial mortgage-backed securities390,990 8,722 (2,954)5,768 (122)385,344 101.5 %2.1 %
Residential mortgage-backed securities616,619 8,934 (4,280)4,654 (278)612,243 100.7 %3.3 %
Total$18,771,296 $633,149 $(69,915)$563,234 $(2,201)$18,210,263 103.1 %100.0 %
 
(1)    Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers). 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)December 31,September 30,June 30,March 31,December 31,
20212021202120212020
Credit quality distribution of total fixed maturities (2) (3):
U.S. government and government agencies (4)$5,063,191 27.5 %$4,830,467 28.1 %$5,221,296 29.0 %$5,432,191 29.2 %$5,963,758 31.8 %
AAA3,783,386 20.5 %3,257,679 19.0 %3,432,285 19.0 %3,145,642 16.9 %3,117,046 16.6 %
AA2,459,413 13.4 %2,217,452 12.9 %2,004,442 11.1 %2,069,764 11.1 %2,063,738 11.0 %
A2,943,594 16.0 %2,773,104 16.1 %3,268,661 18.1 %3,878,113 20.8 %3,760,280 20.0 %
BBB2,936,398 15.9 %2,807,788 16.3 %2,896,453 16.1 %2,829,202 15.2 %2,699,201 14.4 %
BB501,588 2.7 %522,357 3.0 %544,730 3.0 %622,448 3.3 %574,189 3.1 %
B371,747 2.0 %348,036 2.0 %330,639 1.8 %331,144 1.8 %268,095 1.4 %
Lower than B43,756 0.2 %43,751 0.3 %48,230 0.3 %57,659 0.3 %54,795 0.3 %
Not rated311,734 1.7 %381,736 2.2 %275,377 1.5 %261,209 1.4 %270,194 1.4 %
Total fixed maturities, at fair value$18,414,807 100.0 %$17,182,370 100.0 %$18,022,113 100.0 %$18,627,372 100.0 %$18,771,296 100.0 %
Maturity profile of total fixed maturities (2):
Due in one year or less$318,572 1.7 %$430,048 2.5 %$442,507 2.5 %$376,026 2.0 %$327,899 1.7 %
Due after one year through five years8,536,801 46.4 %8,035,751 46.8 %9,873,037 54.8 %10,913,524 58.6 %10,424,114 55.5 %
Due after five years through ten years4,807,858 26.1 %4,601,049 26.8 %4,185,053 23.2 %4,054,083 21.8 %4,901,382 26.1 %
Due after 10 years600,157 3.3 %437,895 2.5 %452,460 2.5 %510,405 2.7 %544,104 2.9 %
14,263,388 77.5 %13,504,743 78.6 %14,953,057 83.0 %15,854,038 85.1 %16,197,499 86.3 %
Mortgage-backed securities408,477 2.2 %405,797 2.4 %374,565 2.1 %558,584 3.0 %616,619 3.3 %
Commercial mortgage-backed securities1,046,484 5.7 %579,424 3.4 %267,574 1.5 %256,598 1.4 %390,990 2.1 %
Asset-backed securities2,696,458 14.6 %2,692,406 15.7 %2,426,917 13.5 %1,958,152 10.5 %1,566,188 8.3 %
Total fixed maturities, at fair value$18,414,807 100.0 %$17,182,370 100.0 %$18,022,113 100.0 %$18,627,372 100.0 %$18,771,296 100.0 %

(1)    Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers). 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)
December 31,September 30,June 30,March 31,December 31,
20212021202120212020
Sector:
Industrials$3,082,440 44.4 %$3,227,049 47.6 %$3,873,768 52.5 %$4,744,615 57.6 %$4,940,996 61.5 %
Financials3,397,199 48.9 %3,132,330 46.2 %2,974,254 40.3 %2,868,957 34.8 %2,432,719 30.3 %
Utilities363,468 5.2 %381,737 5.6 %474,845 6.4 %521,551 6.3 %584,869 7.3 %
Covered bonds4,511 0.1 %2,661 0.0 %3,022 0.0 %2,029 0.0 %2,013 0.0 %
All other (2)94,261 1.4 %34,166 0.5 %49,461 0.7 %96,619 1.2 %79,148 1.0 %
Total$6,941,879 100.0 %$6,777,943 100.0 %$7,375,350 100.0 %$8,233,771 100.0 %$8,039,745 100.0 %
Credit quality distribution (3):
AAA$122,008 1.8 %$114,395 1.7 %$141,983 1.9 %$151,195 1.8 %$220,584 2.7 %
AA1,006,360 14.5 %946,277 14.0 %890,624 12.1 %961,880 11.7 %995,742 12.4 %
A2,414,764 34.8 %2,293,741 33.8 %2,742,121 37.2 %3,431,522 41.7 %3,313,349 41.2 %
BBB2,453,904 35.3 %2,530,014 37.3 %2,687,944 36.4 %2,684,300 32.6 %2,574,823 32.0 %
BB463,072 6.7 %477,833 7.0 %499,327 6.8 %582,086 7.1 %540,397 6.7 %
B355,993 5.1 %329,581 4.9 %311,611 4.2 %312,362 3.8 %258,035 3.2 %
Lower than B30,878 0.4 %30,365 0.4 %31,600 0.4 %33,667 0.4 %30,625 0.4 %
Not rated94,900 1.4 %55,737 0.8 %70,140 1.0 %76,759 0.9 %106,190 1.3 %
Total$6,941,879 100.0 %$6,777,943 100.0 %$7,375,350 100.0 %$8,233,771 100.0 %$8,039,745 100.0 %

(1)    Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers). 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 December 31, 2021 (1):
(U.S. Dollars in thousands)Fair
Value
% of Asset Class% of Investable AssetsCredit Quality (2)
Issuer:
Bank of America Corporation$406,807 5.9 %1.5 %A-/A2
JPMorgan Chase & Co.338,647 4.9 %1.2 %A-/A2
The Goldman Sachs Group, Inc.237,628 3.4 %0.9 %BBB+/A2
Citigroup Inc.220,915 3.2 %0.8 %BBB+/A3
Morgan Stanley198,106 2.9 %0.7 %BBB+/A1
Wells Fargo & Company183,261 2.6 %0.7 %BBB+/A1
Blackstone Inc.128,138 1.8 %0.5 %NA/Baa3
Dai-ichi Life Holdings, Inc.109,924 1.6 %0.4 %AA-/A1
Apple Inc.109,008 1.6 %0.4 %AA+/Aaa
Westpac Banking Corporation107,678 1.6 %0.4 %AA-/Aa3
Total$2,040,112 29.4 %7.4 %
 
(1)    Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers). 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 December 31, 2021 (1):

(U.S. Dollars in thousands)AgenciesAAAAAABBBNon-Investment GradeTotal
      
Residential mortgage-backed securities$268,229 $86,344 $40,502 $2,444 $$10,952 $408,477 
Commercial mortgage-backed securities22,198 710,692 141,065 6,990 67,555 97,984 1,046,484 
Asset-backed securities— 1,548,239 230,922 397,242 367,504 152,551 2,696,458 
Total$290,427 $2,345,275 $412,489 $406,676 $435,065 $261,487 $4,151,419 

(1)    Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers). 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, 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 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, 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 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. 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 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, transaction costs and other and loss on redemption of preferred shares 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, through June 30, 2021, the Company’s presentation included the use of information prepared on a ‘core’ basis, which excluded amounts related to the ‘other’ segment (i.e., results of Somers). Information provided on a ‘core’ basis represent non-GAAP financial measures as defined in Regulation G. Pursuant to GAAP, Somers was considered a variable interest entity and the Company concluded that it was the primary beneficiary of Somers through June 30, 2021. As such, the Company consolidated the results of Somers 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. See ‘Segment Information’ for a further discussion of segment results and a reconciliation of core and consolidated results. In the 2020 fourth quarter, Arch, Somers, and Greysbridge Ltd., a wholly-owned subsidiary of Arch, entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”). Arch assigned its rights under the Merger Agreement to Greysbridge Holdings Ltd. (“Greysbridge”). The merger and the related Greysbridge equity financing closed on July 1, 2021. Effective July 1, 2021, Somers is wholly owned by Greysbridge, and Greysbridge is owned 40% by Arch and 30% by certain funds managed by Kelso & Company and 30% by certain funds managed by Warburg Pincus LLC. Based on the governing documents of Greysbridge, we concluded that, while we retain significant influence over Greysbridge, Greysbridge does not constitute a variable interest entity. Accordingly, effective July 1, 2021, we no longer consolidate the results of Somers in our consolidated financial statements and footnotes.
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 (for periods prior to July 1, 2021). 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 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 (for periods prior to July 1, 2021), 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 Somers’ outstanding common equity through June 30, 2021:
(U.S. Dollars in thousands, except share data)Three Months EndedYear Ended
 December 31,September 30,June 30,March 31,December 31,December 31,December 31,
 2021202120212021202020212020
Net income available to Arch common shareholders$613,081 $388,751 $663,820 $427,753 $533,141 $2,093,405 $1,363,909 
Net realized (gains) losses(59,517)25,040 (167,438)(105,551)(297,801)(307,466)(814,808)
Equity in net (income) loss of investment funds accounted for using the equity method(67,132)(105,398)(122,186)(71,686)(89,286)(366,402)(146,693)
Net foreign exchange (gains) losses(3,221)(36,078)17,888 (21,332)63,588 (42,743)80,591 
Transaction costs and other310 1,036 (1,421)1,274 4,718 1,199 9,964 
Loss on redemption of preferred shares— 15,101 — — — 15,101 — 
Income tax expense (benefit) (1)9,736 6,236 16,553 9,311 16,057 41,836 64,145 
After-tax operating income available to Arch common shareholders$493,257 $294,688 $407,216 $239,769 $230,417 $1,434,930 $557,108 
Diluted per common share results:
Net income available to Arch common shareholders$1.58 $0.98 $1.63 $1.05 $1.30 $5.23 $3.32 
Net realized (gains) losses(0.16)0.05 (0.41)(0.25)(0.72)(0.77)(1.98)
Equity in net (income) loss of investment funds accounted for using the equity method(0.17)(0.26)(0.30)(0.18)(0.22)(0.92)(0.36)
Net foreign exchange (gains) losses(0.01)(0.09)0.04 (0.05)0.15 (0.11)0.20 
Transaction costs and other0.00 0.00 0.00 0.00 0.01 0.00 0.02 
Loss on redemption of preferred shares— 0.04 — — — 0.04 0.00 
Income tax expense (benefit) (1)0.03 0.02 0.04 0.02 0.04 0.11 0.16 
After-tax operating income available to Arch common shareholders$1.27 $0.74 $1.00 $0.59 $0.56 $3.58 $1.36 
Weighted average common shares and common share equivalents outstanding - diluted388,869,378 397,903,347 406,485,994 409,223,253 410,281,852 400,345,936 410,259,455 
Beginning common shareholders’ equity$12,557,526 $12,706,072 $12,316,472 $12,325,886 $11,671,997 $12,325,886 $10,717,371 
Ending common shareholders’ equity12,715,896 12,557,526 12,706,072 12,316,472 12,325,886 12,715,896 12,325,886 
Average common shareholders’ equity$12,636,711 $12,631,799 $12,511,272 $12,321,179 $11,998,942 $12,520,891 $11,521,629 
Annualized net income return on average common equity19.4 %12.3 %21.2 %13.9 %17.8 %16.7 %11.8 %
Annualized operating return on average common equity15.6 %9.3 %13.0 %7.8 %7.7 %11.5 %4.8 %

(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 EndedYear Ended
December 31,September 30,June 30,March 31,December 31,December 31,December 31,
 2021202120212021202020212020
Arch Operating Income Components (1):
Income (loss) before income taxes and income (loss) from operating affiliates$617,440 $301,433 $697,799 $397,244 $560,146 $2,013,916 $1,496,126 
Net realized (gains) losses(59,517)25,040 (163,394)(101,336)(289,817)(299,207)(813,781)
Equity in net (income) loss of investment funds accounted for using the equity method(67,132)(105,398)(122,186)(71,686)(89,286)(366,402)(146,693)
Net foreign exchange (gains) losses(3,163)(36,078)17,892 (21,505)62,349 (42,854)80,161 
Transaction costs and other(171)(437)(2,018)1,390 3,086 (1,236)6,459 
Income (loss) from operating affiliates
40,641 124,119 24,476 75,457 10,504 264,693 16,766 
Pre-tax operating income528,098 308,679 452,569 279,564 256,982 1,568,910 639,038 
Arch share of ‘other’ segment operating income (loss) (2)— — 733 198 1,526 931 7,353 
Pre-tax operating income available to Arch (b)528,098 308,679 453,302 279,762 258,508 1,569,841 646,391 
Income tax expense (benefit) (a)(24,657)2,099 (34,420)(29,590)(17,688)(86,568)(47,671)
After-tax operating income available to Arch503,441 310,778 418,882 250,172 240,820 1,483,273 598,720 
Preferred dividends(10,184)(16,090)(11,666)(10,403)(10,403)(48,343)(41,612)
After-tax operating income available to Arch common shareholders$493,257 $294,688 $407,216 $239,769 $230,417 $1,434,930 $557,108 
Effective tax rate on pre-tax operating income (loss) available to Arch (a)/(b)4.7 %(0.7)%7.6 %10.6 %6.8 %5.5 %7.4 %

(1)    Line items are presented on a ‘core’ basis, excluding amounts related to the ‘other’ segment (i.e., results of Somers). 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 EndedYear Ended
December 31,September 30,June 30,March 31,December 31,December 31,December 31,
 2021202120212021202020212020
Balances in ‘other’ segment:
Underwriting income (loss)$— $— $(8,866)$(13,079)$(8,555)$(21,945)$(31,967)
Net investment income— — 22,183 20,127 26,466 42,310 117,700 
Interest expense— — (4,261)(4,149)(4,804)(8,410)(23,242)
Amortization of intangible assets— — (898)— — (898)— 
Preferred dividends— — (981)(972)(992)(1,953)(4,117)
Pre-tax operating income (loss) available to common shareholders— — 7,177 1,927 12,115 9,104 58,374 
Arch ownership (4)n/an/a10 %10 %13 %n/a13 %
Arch share of ‘Other’ segment operating income (loss) (3)$— $— $733 $198 $1,526 $931 $7,353 

(3) Excludes amounts attributable to net realized gains or losses and net foreign exchange gains or losses in the ‘other’ segment (see ‘Segment Information’).
(4) Effective July 1, 2021, Somers is wholly owned by Greysbridge and Greysbridge is owned 40% by the Company, accordingly, the Company no longer consolidates the results of Somers in its consolidated financial statements. See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
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)December 31,September 30,June 30,March 31,December 31,
20212021202120212020
Debt:
Arch 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 senior notes, due June 30, 2050 ($1,000,000 principal, 3.635%)1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 
Deferred debt costs on senior notes(25,606)(25,851)(26,097)(26,340)(26,577)
Revolving credit agreement borrowings, due December 17, 2024 (variable)— — — — — 
Total debt$2,724,394 $2,724,149 $2,723,903 $2,723,660 $2,723,423 
Shareholders’ equity available to Arch:
Series E non-cumulative preferred shares (5.25%)— — 450,000 450,000 450,000 
Series F non-cumulative preferred shares (5.45%)330,000 330,000 330,000 330,000 330,000 
Series G non-cumulative preferred shares (4.55%)500,000 500,000 500,000 — — 
Common shareholders’ equity (a)12,715,896 12,557,526 12,706,072 12,316,472 12,325,886 
Total shareholders’ equity available to Arch$13,545,896 $13,387,526 $13,986,072 $13,096,472 $13,105,886 
Total capital available to Arch$16,270,290 $16,111,675 $16,709,975 $15,820,132 $15,829,309 
Common shares outstanding, net of treasury shares (b)378,923,894 387,257,752 396,771,251 403,313,377 406,720,642 
Book value per common share (4) (a)/(b)$33.56 $32.43 $32.02 $30.54 $30.31 
Leverage ratios:
Senior notes/total capital available to Arch16.7 %16.9 %16.3 %17.2 %17.2 %
Revolving credit agreement borrowings/total capital available to Arch— %— %— %— %— %
Debt/total capital available to Arch16.7 %16.9 %16.3 %17.2 %17.2 %
Preferred/total capital available to Arch5.1 %5.2 %7.7 %4.9 %4.9 %
Debt and preferred/total capital available to Arch21.8 %22.1 %24.0 %22.1 %22.1 %
(1)    Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers). 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, and fully and unconditionally guaranteed by Arch.
(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.
(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 EndedCumulative
 December 31,September 30,June 30,March 31,December 31,December 31,
 202120212021202120202021
Effect of share repurchases:
Aggregate cost of shares repurchased$362,097 $386,882 $306,049 $179,266 $7,986 $5,286,060 
Shares repurchased8,668,100 9,704,956 7,805,455 5,308,319 250,714 420,678,912 
Average price per share repurchased$41.77 $39.86 $39.21 $33.77 $31.85 $12.57 
Remaining share repurchase authorization (1)$1,182,234 
(1)    Repurchases under the share repurchase authorization may be effected from time to time in open market or privately negotiated transactions through December 31, 2022.
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