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