0000947484-22-000031.txt : 20220427 0000947484-22-000031.hdr.sgml : 20220427 20220427161417 ACCESSION NUMBER: 0000947484-22-000031 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20220427 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20220427 DATE AS OF CHANGE: 20220427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARCH CAPITAL GROUP LTD. CENTRAL INDEX KEY: 0000947484 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 980374481 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-16209 FILM NUMBER: 22859715 BUSINESS ADDRESS: STREET 1: WATERLOO HOUSE, GROUND FLOOR STREET 2: 100 PITTS BAY ROAD CITY: PEMBROKE STATE: D0 ZIP: HM 08 BUSINESS PHONE: 441-278-9250 MAIL ADDRESS: STREET 1: WATERLOO HOUSE, GROUND FLOOR STREET 2: 100 PITTS BAY ROAD CITY: PEMBROKE STATE: D0 ZIP: HM 08 FORMER COMPANY: FORMER CONFORMED NAME: ARCH CAPITAL GROUP LTD DATE OF NAME CHANGE: 20000508 FORMER COMPANY: FORMER CONFORMED NAME: RISK CAPITAL HOLDINGS INC DATE OF NAME CHANGE: 19950816 FORMER COMPANY: FORMER CONFORMED NAME: RISK CAPITAL RE INC DATE OF NAME CHANGE: 19950703 8-K 1 acgl-20220427.htm 8-K acgl-20220427
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 8-K
 
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 
April 27, 2022
Date of Report (Date of earliest event reported) 
Arch Capital Group Ltd.
(Exact name of registrant as specified in its charter)
Bermuda 001-16209 98-0374481
(State or other
jurisdiction of
incorporation or
organization)
 (Commission File Number) (I.R.S. Employer
Identification No.)
 
Waterloo House, Ground Floor, 100 Pitts Bay Road, Pembroke HM 08, Bermuda
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code:
(441) 278-9250
 
N/A
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol (s)Name of each exchange on which registered
Common shares, $0.0011 par value per shareACGLNASDAQStock Market
Depositary shares, each representing a 1/1,000th interest in a 5.45% Series F preferred share
ACGLO
NASDAQStock Market
Depositary shares, each representing a 1/1,000th interest in a 4.55% Series G preferred shareACGLNNASDAQStock Market
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

    Emerging growth company     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o



ITEM 2.02           Results of Operations and Financial Condition.
 
On April 27, 2022, Arch Capital Group Ltd. issued a press release reporting its earnings and the availability of its financial supplement for the quarter ended March 31, 2022. The press release and financial supplement are attached to this Current Report on Form 8-K as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated herein by reference.
 
The information in this Current Report on Form 8-K, including the information set forth in Exhibit 99.1 and Exhibit 99.2, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

ITEM 9.01    Financial Statements and Exhibits.

(d):     The following exhibits are being filed herewith.
EXHIBIT NO. DESCRIPTION
99.1 
99.2 
104Cover Page Interactive Data File (embedded within the Inline XBRL document)
2


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 ARCH CAPITAL GROUP LTD.
   
   
Date:April 27, 2022By:/s/ François Morin
  Name:François Morin
  Title:Executive Vice President, Chief Financial Officer and Treasurer


3
EX-99.1 2 ex-991release33122.htm EX-99.1 Document

EXHIBIT 99.1
archlogorgbsolida38a.jpg
PRESS RELEASEArch Capital Group Ltd.
NASDAQ Symbol: ACGLWaterloo House, Ground Floor
For Immediate Release100 Pitts Bay Road
April 27, 2022
Pembroke HM 08 Bermuda

ARCH CAPITAL GROUP LTD. REPORTS 2022 FIRST QUARTER RESULTS

PEMBROKE, BERMUDA--(BUSINESS WIRE)--Arch Capital Group Ltd. (NASDAQ: ACGL; “Arch” or “the Company”) announces its 2022 first quarter results. The results included:
Net income available to Arch common shareholders of $185.6 million, or $0.48 per share, a 6.0% annualized net income return on average common equity, compared to $427.8 million, or $1.05 per share, for the 2021 first quarter;
After-tax operating income available to Arch common shareholders(1) of $422.0 million, or $1.10 per share, a 13.6% annualized operating return on average common equity, compared to $239.8 million, or $0.59 per share, for the 2021 first quarter;
Pre-tax current accident year catastrophic losses for the Company’s insurance and reinsurance segments, net of reinsurance and reinstatement premiums(1) of $85.8 million, including amounts associated with Russia’s invasion of Ukraine;
Favorable development in prior year loss reserves, net of related adjustments(1) of $129.4 million;
Combined ratio excluding catastrophic activity and prior year development(1) of 80.8%, compared to 81.0% for the 2021 first quarter;
5.6 million shares repurchased at an aggregate cost of approximately $255.0 million;
Book value per common share of $32.18 at March 31, 2022, a 4.1% decrease from December 31, 2021.

All earnings per share amounts discussed in this release are on a diluted basis. The following table summarizes the Company’s underwriting results, both (i) on a consolidated basis and (ii) on a consolidated basis excluding the ‘other’ segment (i.e., results of Somers). Effective July 1, 2021, the Company no longer consolidates the results of Somers in its consolidated financial statements.
(U.S. dollars in thousands)Consolidated
Consolidated Excluding ‘Other’ Segment (1)
Three Months Ended March 31,Three Months Ended March 31,
20222021% Change20222021% Change
Gross premiums written$3,800,775 $3,397,206 11.9 $3,800,775 $3,277,293 16.0 
Net premiums written2,634,140 2,508,457 5.0 2,634,140 2,329,146 13.1 
Net premiums earned2,120,633 1,948,422 8.8 2,120,633 1,800,691 17.8 
Underwriting income457,593 185,918 146.1 457,593 198,997 129.9 
Underwriting Ratios% Point Change% Point Change
Loss ratio47.2 %61.7 %(14.5)47.2 %60.2 %(13.0)
Underwriting expense ratio31.5 %29.0 %2.5 31.5 %29.0 %2.5 
Combined ratio78.7 %90.7 %(12.0)78.7 %89.2 %(10.5)
Combined ratio excluding catastrophic activity and prior year development (1)
80.8 %81.0 %(0.2)
(1)    Presentation represents a “non-GAAP” financial measure as defined in Regulation G. Such presentation excludes the results of Somers Group Holdings Ltd. (“Somers”), formerly known as Watford Holdings Ltd., which the Company consolidated in its financial statements through June 30, 2021 pursuant to GAAP. See ‘Comments on Regulation G’ for further details.
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The following table summarizes the Company’s consolidated financial data, including a reconciliation of net income or loss available to Arch common shareholders to after-tax operating income or loss available to Arch common shareholders and related diluted per share results (see ‘Comments on Regulation G’ for a discussion of non-GAAP financial measures):
(U.S. dollars in thousands, except share data)Three Months Ended
March 31,
20222021
Net income available to Arch common shareholders$185,616 $427,753 
Net realized (gains) losses292,414 (105,551)
Equity in net (income) loss of investment funds accounted for using the equity method(36,305)(71,686)
Net foreign exchange (gains) losses(3,855)(21,332)
Transaction costs and other397 1,274 
Income tax expense (benefit) (1)(16,268)9,311 
After-tax operating income available to Arch common shareholders$421,999 $239,769 
Diluted per common share results:
Net income available to Arch common shareholders$0.48 $1.05 
Net realized (gains) losses0.76 (0.25)
Equity in net (income) loss of investment funds accounted for using the equity method(0.09)(0.18)
Net foreign exchange (gains) losses(0.01)(0.05)
Transaction costs and other0.00 0.00 
Income tax expense (benefit) (1)(0.04)0.02 
After-tax operating income available to Arch common shareholders$1.10 $0.59 
Weighted average common shares and common share equivalents outstanding — diluted384,194,363 409,223,253 
Beginning common shareholders’ equity$12,715,896 $12,325,886 
Ending common shareholders’ equity12,089,589 12,316,472 
Average common shareholders’ equity$12,402,743 $12,321,179 
Annualized net income return on average common equity6.0 %13.9 %
Annualized operating return on average common equity13.6 %7.8 %
(1)    Income tax expense (benefit) on net realized gains or losses, equity in net income (loss) of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and loss on redemption of preferred shares reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.

2


Segment Information
The following section provides analysis on the Company’s 2022 first quarter performance by operating segment. For additional details regarding the Company’s operating segments, please refer to the Company’s Financial Supplement dated March 31, 2022. The Company’s segment information includes the use of underwriting income (loss) and a combined ratio excluding catastrophic activity and prior year development. Such items are non-GAAP financial measures (see ‘Comments on Regulation G’ for further details).
Insurance Segment
Three Months Ended March 31,
(U.S. dollars in thousands)20222021% Change
Gross premiums written$1,719,605 $1,415,886 21.5 
Net premiums written1,206,896 994,839 21.3 
Net premiums earned1,026,696 819,474 25.3 
Underwriting income$63,482 $18,392 245.2 
Underwriting Ratios% Point Change
Loss ratio58.5 %65.4 %(6.9)
Underwriting expense ratio35.3 %32.3 %3.0 
Combined ratio93.8 %97.7 %(3.9)
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums3.1 %5.1 %(2.0)
Net (favorable) adverse development in prior year loss reserves, net of related adjustments(0.1)%(0.7)%0.6 
Combined ratio excluding catastrophic activity and prior year development90.8 %93.3 %(2.5)
Gross premiums written by the insurance segment in the 2022 first quarter were 21.5% higher than in the 2021 first quarter while net premiums written were 21.3% higher than in the 2021 first quarter. The higher level of net premiums written reflected increases in most lines of business, due in part to rate increases, new business opportunities and growth in existing accounts. Net premiums earned in the 2022 first quarter were 25.3% higher than in the 2021 first quarter, and reflect changes in net premiums written over the previous five quarters.
The 2022 first quarter loss ratio reflected 3.1 points of current year catastrophic activity, primarily related to Russia’s invasion of Ukraine and other natural catastrophes occurring in the quarter, compared to 5.1 points of catastrophic activity in the 2021 first quarter, primarily related to winter storms Uri and Viola. Estimated net favorable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 0.7 points in the 2022 first quarter, compared to 0.5 in the 2021 first quarter. The improvement in the 2022 first quarter loss ratio also reflected the impact of rate increases and changes in mix of business.
The underwriting expense ratio was 35.3% in the 2022 first quarter, compared to 32.3% in the 2021 first quarter. The increase in the 2022 first quarter was primarily due to a changing mix of business, attributed to growth in lines with higher acquisition costs, higher contingent commission accruals and lower levels of ceding commissions as a result of changes in our ceded reinsurance programs. The underwriting expense ratio in the 2022 first quarter also reflected increased incentive compensation costs, which were more than offset by a higher level of net premiums earned.
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Reinsurance Segment
Three Months Ended March 31,
(U.S. dollars in thousands)20222021% Change
Gross premiums written$1,718,942 $1,471,060 16.9 
Net premiums written1,139,124 999,112 14.0 
Net premiums earned804,400 644,900 24.7 
Other underwriting income (loss)836 (1,198)169.8 
Underwriting income (loss)$108,764 $(19,707)651.9 
Underwriting Ratios% Point Change
Loss ratio56.5 %75.2 %(18.7)
Underwriting expense ratio30.1 %27.7 %2.4 
Combined ratio86.6 %102.9 %(16.3)
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums6.7 %22.7 %(16.0)
Net (favorable) adverse development in prior year loss reserves, net of related adjustments(2.8)%(3.8)%1.0 
Combined ratio excluding catastrophic activity and prior year development82.7 %84.0 %(1.3)
Gross premiums written by the reinsurance segment in the 2022 first quarter were 16.9% higher than in the 2021 first quarter, while net premiums written were 14.0% higher than in the 2021 first quarter. The growth in net premiums written was observed in other specialty, casualty and property excluding property catastrophe lines, primarily related to rate increases, new business opportunities and growth in existing accounts. Net premiums earned by the reinsurance segment in the 2022 first quarter were 24.7% higher than in the 2021 first quarter, and reflect changes in net premiums written over the previous five quarters.
The 2022 first quarter loss ratio reflected 6.5 points of current year catastrophic activity, primarily related to Russia’s invasion of Ukraine, compared to 24.7 points of catastrophic activity in the 2021 first quarter, primarily related to winter storms Uri and Viola as well as other minor global events. Estimated net favorable development of prior year loss reserves, before related adjustments, reduced the loss ratio by 4.0 points in the 2022 first quarter, compared to 4.2 points in the 2021 first quarter. The improvement in the 2022 first quarter loss ratio also reflected the impact of rate increases and changes in mix of business.
The underwriting expense ratio was 30.1% in the 2022 first quarter, which included 1.2 points of expenses related to favorable development of prior year loss reserves, compared to 27.7% in the 2021 first quarter, with the balance of the increase primarily resulting from the change in mix of business to lines with higher acquisition costs. The underwriting expense ratio in the 2022 first quarter also reflected increased incentive compensation costs, which were more than offset by a higher level of net premiums earned.
4


Mortgage Segment
Three Months Ended March 31,
(U.S. dollars in thousands)20222021% Change
Gross premiums written$364,839 $391,246 (6.7)
Net premiums written288,120 335,195 (14.0)
Net premiums earned289,537 336,317 (13.9)
Other underwriting income5,061 6,897 (26.6)
Underwriting income$285,347 $200,312 42.5 
Underwriting Ratios% Point Change
Loss ratio(18.9)%18.9 %(37.8)
Underwriting expense ratio22.0 %23.5 %(1.5)
Combined ratio3.1 %42.4 %(39.3)
Prior year development:
Net (favorable) adverse development in prior year loss reserves, net of related adjustments(36.5)%(3.4)%(33.1)
Combined ratio excluding prior year development39.6 %45.8 %(6.2)
Gross premiums written by the mortgage segment in the 2022 first quarter were 6.7% lower than in the 2021 first quarter, while net premiums written were 14.0% lower. The reduction in gross premiums written primarily reflected lower U.S. primary mortgage insurance monthly and single premium volume, partially offset by growth in Australian single premium mortgage insurance. Net premiums written for the 2022 first quarter reflected a higher level of premiums ceded than in the 2021 first quarter, while the reduction in net premiums earned also reflected a lower level of earnings from single premium policy terminations.
The 2022 first quarter loss ratio reflected the impact of lower new delinquencies and favorable cure activity. Estimated net favorable development in prior year loss reserves, before related adjustments, reduced the 2022 first quarter loss ratio by 35.3 points, primarily related to the U.S. first lien portfolio from the 2020 accident year, compared to 3.2 points in the 2021 first quarter. The percentage of loans in default on U.S. primary mortgage insurance business was 2.09% at March 31, 2022, compared to 2.36% at December 31, 2021.
The underwriting expense ratio was 22.0% in the 2022 first quarter, compared to 23.5% in the 2021 first quarter, with the decrease primarily due to lower acquisition expenses on Australian mortgage insurance following the acquisition of Westpac LMI in the 2021 third quarter and profit commissions on business ceded related to favorable development of prior year loss reserves. Such amounts were partially offset by a lower level of net premiums earned in the U.S. primary mortgage insurance business.
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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.
Pre-tax net investment income for the 2022 first quarter was $0.21 per share, or $80.4 million, compared to $0.19 per share, or $78.7 million, for the 2021 first quarter. The annualized pre-tax investment income yield was 1.34% for the 2022 first quarter, consistent with 1.31% for the 2021 first quarter. Total return, a non-GAAP measure, was -3.07% for the 2022 first quarter, primarily reflecting the impact of rising interest rates, compared to -0.18% for the 2021 first quarter. See ‘Comments on Regulation G’ for a discussion of non-GAAP financial measures.
Interest expense for the 2022 first quarter was $32.7 million, compared to $34.2 million for the 2021 first quarter, and primarily reflects amounts related to the Company’s outstanding senior notes.

On a pre-tax basis, net foreign exchange gains for the 2022 first quarter were $3.8 million, compared to net foreign exchange gains for the 2021 first quarter of $21.5 million. For both periods, such amounts were primarily unrealized and resulted from the effects of revaluing the Company’s net insurance liabilities required to be settled in foreign currencies at each balance sheet date. Changes in the value of available-for-sale investments held in foreign currencies due to foreign currency rate movements are reflected as a direct increase or decrease to shareholders’ equity and are not included in the consolidated statements of income. Although the Company generally attempts to match the currency of its projected liabilities with investments in the same currencies, the Company may elect to over or underweight one or more currencies from time to time, which could increase the Company’s exposure to foreign currency fluctuations and increase the volatility of the Company’s shareholders’ equity.
The Company’s effective tax rate on income before income taxes (based on the Company’s estimated annual effective tax rate) was 5.6% for the 2022 first quarter, compared to 8.1% for the 2021 first quarter. The Company’s effective tax rate on pre-tax operating income available to Arch common shareholders was 6.3% for the 2022 first quarter, compared to 10.6% for the 2021 first quarter. The effective tax rate for the 2022 first quarter included a net discrete income tax benefit of $0.9 million. This benefit had the effect of decreasing the 2022 first quarter effective tax rate on operating income available to Arch common shareholders by 0.2%. The Company’s effective tax rate may fluctuate from period to period based upon the relative mix of income or loss reported by jurisdiction, the level of catastrophic loss activity incurred, and the varying tax rates in each jurisdiction.
Income from operating affiliates for the 2022 first quarter was income of $24.5 million, or $0.06 per share, compared to income of $75.5 million, or $0.18 per share, for the 2021 first quarter. Results for the 2021 first quarter reflected a one-time gain of $74.5 million realized from the Company’s investment in Coface SA.
Conference Call
The Company will hold a conference call for investors and analysts at 11:00 a.m. Eastern Time on April 28, 2022. A live webcast of this call will be available via the Investors section of the Company’s website at http://www.archgroup.com. A telephone replay of the conference call also will be available beginning on April 28, 2022 at 2:00 p.m. Eastern Time until May 5, 2022 at midnight Eastern Time. To access the replay, domestic callers should dial 855-859-2056, and international callers should dial 404-537-3406 (passcode 4026115 for all callers).
Please refer to the Company’s Financial Supplement dated March 31, 2022, which is available via the Investors section of the Company’s website at http://www.archgroup.com. The Financial Supplement provides additional detail regarding the financial performance of the Company. From time to time, the Company posts additional financial information and presentations to its website, including information with respect to its subsidiaries. Investors and other recipients of this information are encouraged to check the Company’s website regularly for additional information regarding the Company.
Arch Capital Group Ltd., a publicly listed Bermuda exempted company with approximately $15.6 billion in capital at March 31, 2022, provides insurance, reinsurance and mortgage insurance on a worldwide basis through its wholly owned subsidiaries.
6


Comments on Regulation G
Throughout this release, the Company presents its operations in the way it believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use the Company’s financial information in evaluating the performance of the Company and that investors and such other persons benefit from having a consistent basis for comparison between quarters and for comparison with other companies within the industry. These measures may not, however, be comparable to similarly titled measures used by companies outside of the insurance industry. Investors are cautioned not to place undue reliance on these non-GAAP financial measures in assessing the Company’s overall financial performance.
This presentation includes the use of “after-tax operating income or loss available to Arch common shareholders,” which is defined as net income available to Arch common shareholders, excluding net realized gains or losses (which includes changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings), equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and loss on redemption of preferred shares, net of income taxes, and the use of annualized operating return on average common equity. The presentation of after-tax operating income available to Arch common shareholders and annualized operating return on average common equity are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to net income available to Arch common shareholders and annualized net income return on average common equity (the most directly comparable GAAP financial measures) in accordance with Regulation G is included on page 2 of this release.
The Company believes that net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and loss on redemption of preferred shares in any particular period are not indicative of the performance of, or trends in, the Company’s business performance. Although net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of the Company’s operations, the decision to realize investment gains or losses, the recognition of the change in the carrying value of investments accounted for using the fair value option in net realized gains or losses, the recognition of equity in net income or loss of investment funds accounted for using the equity method and the recognition of foreign exchange gains or losses are independent of the insurance underwriting process and result, in large part, from general economic and financial market conditions. Furthermore, certain users of the Company’s financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. In addition, changes in the allowance for credit losses and net impairment losses recognized in earnings on the Company’s investments represent other-than-temporary declines in expected recovery values on securities without actual realization. The use of the equity method on certain of the Company’s investments in certain funds that invest in fixed maturity securities is driven by the ownership structure of such funds (either limited partnerships or limited liability companies). In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the fair value of the underlying securities in the funds). This method of accounting is different from the way the Company accounts for its other fixed maturity securities and the timing of the recognition of equity in net income or loss of investment funds accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments. Transaction costs and other include advisory, financing, legal, severance, incentive compensation and other costs related to acquisitions. The Company believes that transaction costs and other, due to their non-recurring nature, are not indicative of the performance of, or trends in, the Company’s business performance. The loss on redemption of preferred shares related to the redemption of the Company's Series E preferred shares in September 2021 had no impact on shareholders' equity or cash flows. Due to these reasons, the Company excludes net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other from the calculation of after-tax operating income or loss available to Arch common shareholders.
The Company believes that showing net income available to Arch common shareholders exclusive of the items referred to above reflects the underlying fundamentals of the Company’s business since the Company evaluates the performance of and manages its business to produce an underwriting profit. In addition to presenting net income available to Arch common shareholders, the Company believes that this presentation enables investors and other users of the Company’s financial information to analyze the Company’s performance in a manner similar to how the Company’s management analyzes performance. The Company also believes that this measure follows industry practice and, therefore, allows the users of the Company’s financial information to compare the Company’s performance with its industry peer group. The Company
7


believes that the equity analysts and certain rating agencies which follow the Company and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.
The Company’s segment information includes the presentation of consolidated underwriting income or loss and a subtotal of underwriting income or loss before the contribution from the ‘other’ segment. Such measures represent the pre-tax profitability of its underwriting operations and include net premiums earned plus other underwriting income, less losses and loss adjustment expenses, acquisition expenses and other operating expenses. Other operating expenses include those operating expenses that are incremental and/or directly attributable to the Company’s individual underwriting operations. Underwriting income or loss does not incorporate items included in the Company’s corporate segment. While these measures are presented in the Segment Information footnote to the Company’s Consolidated Financial Statements, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis. The reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis and a subtotal before the contribution from the ‘other’ segment, in accordance with Regulation G, is shown on the following pages.
Management measures segment performance for its three underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment and, accordingly, investment income, income from operating affiliates and other corporate segment related items are not allocated to each underwriting segment. As noted earlier, the ‘other’ segment includes the results of Somers through June 30, 2021.
Along with consolidated underwriting income, the Company provides a subtotal of underwriting income or loss before the contribution from the ‘other’ segment and believes that this presentation enables investors and other users of the Company’s financial information to analyze the Company’s underwriting performance in a manner similar to how the Company’s management analyzes performance. Pursuant to GAAP, 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. In the 2020 fourth quarter, Arch, Somers, and Greysbridge Ltd., a wholly-owned subsidiary of Arch (“Greysbridge”), entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”). 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 the Company, 30% by certain investment funds managed by Kelso & Company and 30% by certain investment funds managed by Warburg Pincus LLC. Based on the governing documents of Greysbridge, the Company has concluded that, while it retains significant influence over Greysbridge, Greysbridge does not constitute a variable interest entity. Accordingly, effective July 1, 2021, Arch no longer consolidates the results of Somers in its consolidated financial statements and footnotes.
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.
8


The following tables summarize the Company’s results by segment for the 2022 first quarter and 2021 first quarter and a reconciliation of underwriting income or loss to income or loss before income taxes and net income or loss available to Arch common shareholders:
(U.S. Dollars in thousands)Three Months Ended
March 31, 2022
 InsuranceReinsuranceMortgageSub-totalOtherTotal
Gross premiums written (1)$1,719,605 $1,718,942 $364,839 $3,800,775 $— $3,800,775 
Premiums ceded(512,709)(579,818)(76,719)(1,166,635)— (1,166,635)
Net premiums written1,206,896 1,139,124 288,120 2,634,140 — 2,634,140 
Change in unearned premiums(180,200)(334,724)1,417 (513,507)— (513,507)
Net premiums earned1,026,696 804,400 289,537 2,120,633 — 2,120,633 
Other underwriting income (loss)— 836 5,061 5,897 — 5,897 
Losses and loss adjustment expenses(600,739)(454,700)54,604 (1,000,835)— (1,000,835)
Acquisition expenses(195,650)(171,996)(10,513)(378,159)— (378,159)
Other operating expenses(166,825)(69,776)(53,342)(289,943)— (289,943)
Underwriting income (loss)$63,482 $108,764 $285,347 457,593 — 457,593 
Net investment income80,436 — 80,436 
Net realized gains (losses)(292,414)— (292,414)
Equity in net income (loss) of investment funds accounted for using the equity method36,305 — 36,305 
Other income (loss)(9,025)— (9,025)
Corporate expenses(31,935)— (31,935)
Transaction costs and other(397)— (397)
Amortization of intangible assets(27,167)— (27,167)
Interest expense(32,708)— (32,708)
Net foreign exchange gains (losses)3,845 — 3,845 
Income (loss) before income taxes and income (loss) from operating affiliates184,533 — 184,533 
Income tax expense(11,619)— (11,619)
Income (loss) from operating affiliates24,518 — 24,518 
Net income (loss)197,432 — 197,432 
Dividends attributable to redeemable noncontrolling interests(1,632)— (1,632)
Net income (loss) available to Arch195,800 — 195,800 
Preferred dividends(10,184)— (10,184)
Net income (loss) available to Arch common shareholders$185,616 $— $185,616 
Underwriting Ratios
Loss ratio58.5 %56.5 %(18.9)%47.2 %— %47.2 %
Acquisition expense ratio19.1 %21.4 %3.6 %17.8 %— %17.8 %
Other operating expense ratio16.2 %8.7 %18.4 %13.7 %— %13.7 %
Combined ratio93.8 %86.6 %3.1 %78.7 %— %78.7 %
Net premiums written to gross premiums written70.2 %66.3 %79.0 %69.3 %— %69.3 %
 
(1)    Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

9


(U.S. Dollars in thousands)Three Months Ended
March 31, 2021
 InsuranceReinsuranceMortgageSub-totalOtherTotal
Gross premiums written (1)$1,415,886 $1,471,060 $391,246 $3,277,293 $216,523 $3,397,206 
Premiums ceded(421,047)(471,948)(56,051)(948,147)(37,212)(888,749)
Net premiums written994,839 999,112 335,195 2,329,146 179,311 2,508,457 
Change in unearned premiums(175,365)(354,212)1,122 (528,455)(31,580)(560,035)
Net premiums earned819,474 644,900 336,317 1,800,691 147,731 1,948,422 
Other underwriting income (loss)— (1,198)6,897 5,699 411 6,110 
Losses and loss adjustment expenses(535,747)(484,870)(63,689)(1,084,306)(118,794)(1,203,100)
Acquisition expenses(128,222)(118,025)(30,082)(276,329)(28,152)(304,481)
Other operating expenses(137,113)(60,514)(49,131)(246,758)(14,275)(261,033)
Underwriting income (loss)$18,392 $(19,707)$200,312 198,997 (13,079)185,918 
Net investment income78,729 20,127 98,856 
Net realized gains (losses)101,336 41,125 142,461 
Equity in net income (loss) of investment funds accounted for using the equity method71,686 — 71,686 
Other income (loss)(1,741)— (1,741)
Corporate expenses(23,468)— (23,468)
Transaction costs and other(1,201)(715)(1,916)
Amortization of intangible assets(14,402)— (14,402)
Interest expense(34,197)(4,149)(38,346)
Net foreign exchange gains (losses)21,505 (1,442)20,063 
Income (loss) before income taxes and income (loss) from operating affiliates397,244 41,867 439,111 
Income tax expense(38,852)(8)(38,860)
Income (loss) from operating affiliates75,457 — 75,457 
Net income (loss)433,849 41,859 475,708 
Dividends attributable to redeemable noncontrolling interests117 (972)(855)
Amounts attributable to nonredeemable noncontrolling interests— (36,697)(36,697)
Net income (loss) available to Arch433,966 4,190 438,156 
Preferred dividends(10,403)— (10,403)
Net income (loss) available to Arch common shareholders$423,563 $4,190 $427,753 
Underwriting Ratios
Loss ratio65.4 %75.2 %18.9 %60.2 %80.4 %61.7 %
Acquisition expense ratio15.6 %18.3 %8.9 %15.3 %19.1 %15.6 %
Other operating expense ratio16.7 %9.4 %14.6 %13.7 %9.7 %13.4 %
Combined ratio97.7 %102.9 %42.4 %89.2 %109.2 %90.7 %
Net premiums written to gross premiums written70.3 %67.9 %85.7 %71.1 %82.8 %73.8 %
 
(1)    Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

10


Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides a “safe harbor” for forward-looking statements. This release or any other written or oral statements made by or on behalf of the Company may include forward-looking statements, which reflect the Company’s current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this release are forward-looking statements. Forward-looking statements, for purposes of the PSLRA or otherwise, can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” and similar statements of a future or forward-looking nature or their negative or variations or similar terminology.
Forward-looking statements involve the Company’s current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed below and elsewhere in this release and in the Company’s periodic reports filed with the Securities and Exchange Commission (the “SEC”), and include:
the Company’s ability to successfully implement its business strategy during “soft” as well as “hard” markets;
acceptance of the Company’s business strategy, security and financial condition by rating agencies and regulators, as well as by brokers and its insureds and reinsureds;
the Company’s ability to consummate acquisitions and integrate any businesses it has acquired or may acquire into its existing operations;
the Company’s ability to maintain or improve its ratings, which may be affected by its ability to raise additional equity or debt financings, by ratings agencies’ existing or new policies and practices, as well as other factors described herein;
general economic and market conditions (including inflation, interest rates, unemployment, housing prices, foreign currency exchange rates, prevailing credit terms and the depth and duration of a recession, including those resulting from COVID-19) and conditions specific to the reinsurance and insurance markets in which the Company operates;
competition, including increased competition, on the basis of pricing, capacity (including alternative sources of capital), coverage terms or other factors;
developments in the world’s financial and capital markets and the Company’s access to such markets;
the Company’s ability to successfully enhance, integrate and maintain operating procedures (including information technology) to effectively support its current and new business;
the loss and addition of key personnel;
material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;
accuracy of those estimates and judgments utilized in the preparation of the Company’s financial statements, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment valuations, intangible assets, bad debts, income taxes, contingencies and litigation, and any determination to use the deposit method of accounting;
greater than expected loss ratios on business written by the Company and adverse development on claim and/or claim expense liabilities related to business written by its insurance and reinsurance subsidiaries;
the adequacy of the Company’s loss reserves;
severity and/or frequency of losses;
greater frequency or severity of unpredictable natural and man-made catastrophic events;
claims resulting from natural or man-made catastrophic events or severe economic events in the Company’s insurance, reinsurance and mortgage businesses could cause large losses and substantial volatility in the Company’s results of operations;
the effect of climate change on the Company’s business;
the effect of contagious diseases (including COVID-19) on the Company’s business;
acts of terrorism, political unrest and other hostilities or other unforecasted and unpredictable events;
availability to the Company of reinsurance to manage its gross and net exposures and the cost of such reinsurance;
11


the failure of reinsurers, managing general agents, third party administrators or others to meet their obligations to the Company;
the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by the Company;
the Company’s investment performance, including legislative or regulatory developments that may adversely affect the fair value of the Company’s investments;
changes in general economic conditions, including new or continued sovereign debt concerns or downgrades of U.S. securities by credit rating agencies, which could affect the Company’s business, financial condition and results of operations;
changes in the method for determining the London Inter-bank Offered Rate (“LIBOR”) and the replacement of LIBOR with alternative benchmark rates;
the volatility of the Company’s shareholders’ equity from foreign currency fluctuations, which could increase due to us not matching portions of the Company’s projected liabilities in foreign currencies with investments in the same currencies;
changes in accounting principles or policies or in the Company’s application of such accounting principles or policies;
changes in the political environment of certain countries in which the Company operates, underwrites business or invests;
a disruption caused by cyber-attacks or other technology breaches or failures on the Company or the Company’s business partners and service providers, which could negatively impact the Company’s business and/or expose the Company to litigation;
statutory or regulatory developments, including as to tax policy matters and insurance and other regulatory matters such as the adoption of proposed legislation that would affect Bermuda-headquartered companies and/or Bermuda-based insurers or reinsurers and/or changes in regulations or tax laws applicable to the Company, its subsidiaries, brokers or customers, including new guidance implementing the Tax Cuts and Jobs Act of 2017 and the possible implementation of the Organization for Economic Cooperation and Development (“OECD”) Pillar I and Pillar II initiative; and
the other matters set forth under Item 1A “Risk Factors”, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of the Company’s Annual Report on Form 10-K, as well as the other factors set forth in the Company’s other documents on file with the SEC, and management’s response to any of the aforementioned factors.

All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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

12
EX-99.2 3 ex-992supplement33122.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 March 31, 2022
 
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, 2021 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 Group Holdings Ltd. (formerly Watford Holdings Ltd.), (“Somers”). In accordance with GAAP, the Company consolidated the results of 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 Ended
March 31,
20222021Change
Underwriting results:
Gross premiums written$3,800,775 $3,277,293 16.0 %
Net premiums written2,634,140 2,329,146 13.1 %
Net premiums earned2,120,633 1,800,691 17.8 %
Underwriting income (loss) (2)457,593 198,997 129.9 %
Loss ratio47.2 %60.2 %(13.0)
Acquisition expense ratio17.8 %15.3 %2.5 
Other operating expense ratio13.7 %13.7 %— 
Combined ratio78.7 %89.2 %(10.5)
Net investment income$80,436 $78,729 2.2 %
Per diluted share$0.21 $0.19 10.5 %
Net income available to Arch common shareholders$185,616 $427,753 (56.6)%
Per diluted share$0.48 $1.05 (54.3)%
After-tax operating income available to Arch common shareholders (2)$421,999 $239,769 76.0 %
Per diluted share$1.10 $0.59 86.4 %
Comprehensive income (loss) available to Arch$(389,045)$155,089 (350.9)%
Net cash provided by operating activities$551,563 $755,928 (27.0)%
Weighted average common shares and common share equivalents outstanding — diluted384,194,363 409,223,253 (6.1)%
Financial measures:   
Change in book value per common share during period(4.1)%0.8 %(4.9)
Annualized net income return on average common equity6.0 %13.9 %(7.9)
Annualized operating return on average common equity (2)13.6 %7.8 %5.8 
Total return on investments (3)(3.07)%(0.18)%-289 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 investment income, equity in net income (loss) of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains and losses and is calculated on a pre-tax basis and before investment expenses. See ‘Comments on Regulation G’ for a further discussion of the presentation of total return on investments.
3

Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Income
(U.S. Dollars in thousands, except share data)Three Months Ended
 March 31,December 31,September 30,June 30,March 31,
 20222021202120212021
Revenues     
Net premiums earned$2,120,633 $2,083,630 $1,929,337 $2,120,909 $1,948,422 
Net investment income80,436 90,454 88,195 111,613 98,856 
Net realized gains (losses)(292,414)59,517 (25,040)202,907 142,461 
Other underwriting income5,897 3,160 7,274 5,529 6,110 
Equity in net income (loss) of investment funds accounted for using the equity method36,305 67,132 105,398 122,186 71,686 
Other income (loss)(9,025)9,093 (3,960)6,852 (1,741)
Total revenues1,941,832 2,312,986 2,101,204 2,569,996 2,265,794 
Expenses
Losses and loss adjustment expenses(1,000,835)(995,853)(1,226,019)(1,159,831)(1,203,100)
Acquisition expenses(378,159)(357,539)(306,015)(335,143)(304,481)
Other operating expenses(289,943)(261,787)(230,832)(244,943)(261,033)
Corporate expenses(32,332)(18,150)(19,672)(15,951)(25,384)
Amortization of intangible assets(27,167)(33,132)(20,135)(15,286)(14,402)
Interest expense(32,708)(32,248)(33,176)(35,700)(38,346)
Net foreign exchange gains (losses)3,845 3,163 36,078 (17,775)20,063 
Total expenses(1,757,299)(1,695,546)(1,799,771)(1,824,629)(1,826,683)
Income (loss) before income taxes and income (loss) from operating affiliates184,533 617,440 301,433 745,367 439,111 
Income tax expense(11,619)(34,406)(4,137)(51,179)(38,860)
Income (loss) from operating affiliates24,518 40,641 124,119 24,476 75,457 
Net income (loss)197,432 623,675 421,415 718,664 475,708 
Net (income) loss attributable to noncontrolling interests(1,632)(410)(1,473)(43,178)(37,552)
Net income (loss) attributable to Arch195,800 623,265 419,942 675,486 438,156 
Preferred dividends(10,184)(10,184)(16,090)(11,666)(10,403)
Loss on redemption of preferred shares— — (15,101)— — 
Net income (loss) available to Arch common shareholders$185,616 $613,081 $388,751 $663,820 $427,753 
Comprehensive income (loss) available to Arch$(389,045)$576,479 $239,078 $699,705 $155,089 
Net income (loss) per common share and common share equivalent
Basic$0.50 $1.62 $1.00 $1.67 $1.07 
Diluted$0.48 $1.58 $0.98 $1.63 $1.05 
Weighted average common shares and common share equivalents outstanding
Basic374,243,812 379,431,442 389,274,220 397,743,402 400,807,895 
Diluted384,194,363 388,869,378 397,903,347 406,485,994 409,223,253 



4

Arch Capital Group Ltd. and Subsidiaries
Consolidated Balance Sheets

(U.S. Dollars in thousands, except share data)March 31,December 31,September 30,June 30,March 31,
20222021202120212021
Assets     
Investments:     
Fixed maturities available for sale, at fair value$17,648,853 $17,998,109 $16,768,363 $18,073,779 $18,723,035 
Short-term investments available for sale, at fair value2,332,624 1,734,716 3,069,965 2,248,613 1,269,631 
Collateral received under securities lending, at fair value— — — 172,116 143,894 
Equity securities, at fair value1,002,572 1,804,170 1,790,640 1,693,552 1,532,906 
Other investments1,686,666 1,973,550 2,043,970 4,571,497 4,435,354 
Investments accounted for using the equity method3,325,543 3,077,611 2,741,293 2,539,124 2,256,327 
Total investments25,996,258 26,588,156 26,414,231 29,298,681 28,361,147 
Cash812,917 858,668 1,137,721 1,234,059 941,951 
Accrued investment income82,607 85,453 75,832 96,546 101,108 
Securities pledged under securities lending, at fair value— — — 168,548 140,949 
Investment in operating affiliates1,144,255 1,135,655 1,111,825 731,810 739,783 
Premiums receivable3,223,504 2,633,280 2,807,720 2,866,578 2,618,175 
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses5,941,000 5,880,735 5,358,852 4,314,515 4,041,076 
Contractholder receivables1,810,199 1,828,691 1,824,990 1,882,948 1,919,655 
Ceded unearned premiums1,951,960 1,729,455 1,824,910 1,541,093 1,406,489 
Deferred acquisition costs1,001,866 901,841 893,665 1,013,657 919,740 
Receivable for securities sold116,633 60,179 84,019 309,234 199,424 
Goodwill and intangible assets926,427 944,983 963,322 667,153 679,509 
Other assets2,670,315 2,453,849 2,286,649 2,357,064 2,135,261 
Total assets$45,677,941 $45,100,945 $44,783,736 $46,481,886 $44,204,267 
Liabilities     
Reserve for losses and loss adjustment expenses$18,109,107 $17,757,156 $17,331,047 $17,196,648 $16,443,952 
Unearned premiums6,737,779 6,011,942 6,165,114 6,011,369 5,549,127 
Reinsurance balances payable1,510,906 1,583,253 1,403,929 1,079,106 919,125 
Contractholder payables1,813,930 1,832,127 1,828,474 1,887,418 1,925,508 
Collateral held for insured obligations244,502 242,352 254,259 235,618 222,245 
Senior notes2,724,642 2,724,394 2,724,149 2,861,728 2,861,417 
Revolving credit agreement borrowings— — — 155,687 155,687 
Securities lending payable— — — 172,109 143,886 
Payable for securities purchased176,452 64,850 357,531 586,881 386,453 
Other liabilities1,431,271 1,329,742 1,321,470 1,332,843 1,565,861 
Total liabilities32,748,589 31,545,816 31,385,973 31,519,407 30,173,261 
Redeemable noncontrolling interests9,763 9,233 10,237 57,533 57,670 
Shareholders’ equity     
Non-cumulative preferred shares830,000 830,000 830,000 1,280,000 780,000 
Common shares651 648 648 647 645 
Additional paid-in capital2,134,241 2,085,075 2,061,906 2,028,919 2,014,741 
Retained earnings14,641,484 14,455,868 13,842,787 13,454,036 12,790,216 
Accumulated other comprehensive income (loss), net of deferred income tax(649,445)(64,600)49,184 230,048 205,827 
Common shares held in treasury, at cost(4,037,342)(3,761,095)(3,396,999)(3,007,578)(2,694,957)
Total shareholders’ equity available to Arch12,919,589 13,545,896 13,387,526 13,986,072 13,096,472 
Non-redeemable noncontrolling interests— — — 918,874 876,864 
Total shareholders’ equity12,919,589 13,545,896 13,387,526 14,904,946 13,973,336 
Total liabilities, noncontrolling interests and shareholders’ equity$45,677,941 $45,100,945 $44,783,736 $46,481,886 $44,204,267 
Common shares and common share equivalents outstanding, net of treasury shares375,730,891 378,923,894 387,257,752 396,771,251 403,313,377 
Book value per common share (1)$32.18 $33.56 $32.43 $32.02 $30.54 
(1) Excludes the effects of stock options and restricted stock units outstanding.
5

Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity

(U.S. Dollars in thousands)Three Months Ended
 March 31,December 31,September 30,June 30,March 31,
 20222021202120212021
Non-cumulative preferred shares     
Balance at beginning of period$830,000 $830,000 $1,280,000 $780,000 $780,000 
Preferred shares issued— — — 500,000 — 
Preferred shares redeemed— — (450,000)— — 
Balance at beginning and end of period$830,000 $830,000 $830,000 $1,280,000 $780,000 
Common shares
Balance at beginning of period648 648 647 645 643 
Common shares issued, net— 
Balance at end of period651 648 648 647 645 
Additional paid-in capital
Balance at beginning of period2,085,075 2,061,906 2,028,919 2,014,741 1,977,794 
Issue costs on preferred shares— — — (14,179)— 
Reversal of original issue costs on redeemed preferred shares— — 15,101 — — 
Amortization of share-based compensation45,368 14,774 14,216 16,490 40,573 
All other3,798 8,395 3,670 11,867 (3,626)
Balance at end of period2,134,241 2,085,075 2,061,906 2,028,919 2,014,741 
Retained earnings
Balance at beginning of period14,455,868 13,842,787 13,454,036 12,790,216 12,362,463 
Net income197,432 623,675 421,415 718,664 475,708 
Amounts attributable to noncontrolling interests(1,632)(410)(1,473)(43,178)(37,552)
Preferred share dividends(10,184)(10,184)(16,090)(11,666)(10,403)
Loss on redemption of preferred shares— — (15,101)— — 
Balance at end of period14,641,484 14,455,868 13,842,787 13,454,036 12,790,216 
Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of period(64,600)49,184 230,048 205,827 488,895 
Change in unrealized appreciation (decline) in value of available-for-sale investments(582,077)(103,391)(147,825)17,991 (254,584)
Change in foreign currency translation adjustments(2,768)(10,393)(33,039)6,230 (28,484)
Balance at end of period(649,445)(64,600)49,184 230,048 205,827 
Common shares held in treasury, at cost
Balance at beginning of period(3,761,095)(3,396,999)(3,007,578)(2,694,957)(2,503,909)
Shares repurchased for treasury(276,247)(364,096)(389,421)(312,621)(191,048)
Balance at end of period(4,037,342)(3,761,095)(3,396,999)(3,007,578)(2,694,957)
Total shareholders’ equity available to Arch12,919,589 13,545,896 13,387,526 13,986,072 13,096,472 
Non-redeemable noncontrolling interests— — — 918,874 876,864 
Total shareholders’ equity$12,919,589 $13,545,896 $13,387,526 $14,904,946 $13,973,336 

6

Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
(U.S. Dollars in thousands)Three Months Ended
March 31,December 31,September 30,June 30,March 31,
20222021202120212021
Operating Activities     
Net income (loss)$197,432 $623,675 $421,415 $718,664 $475,708 
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses289,213 (60,054)11,736 (218,042)(161,007)
Equity in net (income) or loss of investment. funds accounted for using the equity method and other income or loss(11,420)(91,400)(191,622)(45,089)(135,939)
Amortization of intangible assets27,167 33,132 20,135 15,286 14,402 
Share-based compensation45,379 14,791 14,739 16,752 40,812 
Changes in:
Reserve for losses and loss adjustment expenses, net275,954 213,979 599,706 388,352 560,153 
Unearned premiums, net513,507 (49,203)146,592 278,615 560,035 
Premiums receivable(600,691)161,884 (65,707)(173,141)(608,250)
Deferred acquisition costs(96,999)(15,277)(33,073)(88,192)(126,701)
Reinsurance balances payable(74,022)(118,506)287,110 91,255 240,206 
Other items, net(13,957)86,983 (196,052)(134,733)(96,574)
Net cash provided by operating activities551,563 800,004 1,014,979 849,727 762,845 
Investing Activities     
Purchases of fixed maturity investments(6,727,665)(5,581,835)(6,315,639)(12,023,416)(11,530,968)
Purchases of equity securities(408,615)(196,529)(358,177)(311,355)(309,419)
Purchases of other investments(616,659)(509,040)(316,922)(602,173)(430,961)
Proceeds from sales of fixed maturity investments6,053,352 3,509,653 6,937,404 12,213,254 10,917,134 
Proceeds from sales of equity securities1,100,256 222,512 153,343 257,304 284,986 
Proceeds from sales, redemptions and maturities of other investments570,341 277,614 715,370 448,958 323,591 
Proceeds from redemptions and maturities of fixed maturity investments240,753 394,343 428,576 384,794 421,042 
Net settlements of derivative instruments(2,510)27,758 (85,116)(30,374)47,660 
Net (purchases) sales of short-term investments(510,752)1,338,070 (794,712)(967,261)589,175 
Change in cash collateral related to securities lending— — 826 (826)— 
Purchase of operating affiliate, net— — (207,567)— (546,349)
Impact of the deconsolidation of a variable interest entity— — (349,202)— — 
Purchases of fixed assets(11,770)(6,987)(10,822)(11,095)(12,490)
Other550 (162,007)(156,968)41,701 (246,590)
Net cash provided by (used for) investing activities(312,719)(686,448)(359,606)(600,489)(493,189)
Financing Activities     
Proceeds from issuance of preferred shares, net— — — 485,821 — 
Redemption of preferred shares— — (450,000)— — 
Purchases of common shares under share repurchase program(254,988)(362,097)(386,882)(306,049)(179,266)
Proceeds from common shares issued, net(17,260)6,137 96 10,193 (10,008)
Change in cash collateral related to securities lending— — (826)826 — 
Change in third party investment in non-redeemable noncontrolling interests— — — — 15,971 
Dividends paid to redeemable noncontrolling interests— — — (959)(948)
Other48,859 18,474 (49,391)29,587 (1,948)
Preferred dividends paid(10,184)(10,184)(17,291)(10,402)(10,403)
Net cash provided by (used for) financing activities(233,573)(347,670)(904,294)209,017 (186,602)
Effects of exchange rate changes on foreign currency cash and restricted cash(3,924)(24)(20,633)(7,306)(6,084)
Increase (decrease) in cash and restricted cash1,347 (234,138)(269,554)450,949 76,970 
Cash and restricted cash, beginning of period1,314,771 1,548,909 1,818,463 1,367,514 1,290,544 
Cash and restricted cash, end of period$1,316,118 $1,314,771 $1,548,909 $1,818,463 $1,367,514 
Income taxes paid (received)$9,005 $84,371 $61,343 $133,997 $7,099 
Interest paid$648 $63,498 $1,104 $73,711 $988 
Net cash provided by operating activities, excluding the ‘other’ segment$551,563 $800,004 $1,014,979 $809,790 $755,928 
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.