EX-99.2 3 ex-992supplement63022.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 June 30, 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 EndedSix Months Ended
June 30,June 30,
20222021Change20222021Change
Underwriting results:
Gross premiums written$3,869,727 $3,117,505 24.1 %$7,670,502 $6,394,798 19.9 %
Net premiums written2,684,639 2,224,133 20.7 %5,318,779 4,553,279 16.8 %
Net premiums earned2,325,775 1,936,672 20.1 %4,446,408 3,737,363 19.0 %
Underwriting income (loss) (2)535,378 395,387 35.4 %992,971 594,384 67.1 %
Loss ratio47.4 %52.6 %(5.2)47.3 %56.3 %(9.0)
Acquisition expense ratio17.8 %15.5 %2.3 17.8 %15.4 %2.4 
Other operating expense ratio11.9 %11.7 %0.2 12.8 %12.7 %0.1 
Combined ratio77.1 %79.8 %(2.7)77.9 %84.4 %(6.5)
Net investment income$106,392 $89,430 19.0 %$186,828 $168,159 11.1 %
Per diluted share$0.28 $0.22 27.3 %$0.49 $0.41 19.5 %
Net income available to Arch common shareholders$394,160 $663,820 (40.6)%$579,776 $1,091,573 (46.9)%
Per diluted share$1.04 $1.63 (36.2)%$1.52 $2.68 (43.3)%
After-tax operating income available to Arch common shareholders (2)$506,496 $407,216 24.4 %$928,495 $646,985 43.5 %
Per diluted share$1.34 $1.00 34.0 %$2.44 $1.59 53.5 %
Comprehensive income (loss) available to Arch$(204,476)$699,705 (129.2)%$(593,521)$854,794 (169.4)%
Net cash provided by operating activities$902,405 $809,790 11.4 %$1,453,968 $1,565,718 (7.1)%
Weighted average common shares and common share equivalents outstanding — diluted377,952,988 406,485,994 (7.0)%380,905,512 407,687,680 (6.6)%
Financial measures:      
Change in book value per common share during period(2.5)%4.8 %(7.3)(6.5)%5.6 %(12.1)
Annualized net income return on average common equity13.3 %21.2 %(7.9)9.5 %17.4 %(7.9)
Annualized operating return on average common equity (2)17.1 %13.0 %4.1 15.3 %10.3 %5.0 
Total return on investments (3)(3.02)%1.58 %-460 bps(6.00)%1.39 %-739 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 EndedSix Months Ended
 June 30,March 31,December 31,September 30,June 30,June 30,June 30,
 2022202220212021202120222021
Revenues       
Net premiums earned$2,325,775 $2,120,633 $2,083,630 $1,929,337 $2,120,909 $4,446,408 $4,069,331 
Net investment income106,392 80,436 90,454 88,195 111,613 186,828 210,469 
Net realized gains (losses)(266,579)(292,414)59,517 (25,040)202,907 (558,993)345,368 
Other underwriting income2,970 5,897 3,160 7,274 5,529 8,867 11,639 
Equity in net income (loss) of investment funds accounted for using the equity method58,061 36,305 67,132 105,398 122,186 94,366 193,872 
Other income (loss)(11,777)(9,025)9,093 (3,960)6,852 (20,802)5,111 
Total revenues2,214,842 1,941,832 2,312,986 2,101,204 2,569,996 4,156,674 4,835,790 
Expenses
Losses and loss adjustment expenses(1,102,656)(1,000,835)(995,853)(1,226,019)(1,159,831)(2,103,491)(2,362,931)
Acquisition expenses(413,319)(378,159)(357,539)(306,015)(335,143)(791,478)(639,624)
Other operating expenses(277,392)(289,943)(261,787)(230,832)(244,943)(567,335)(505,976)
Corporate expenses(27,620)(32,332)(18,150)(19,672)(15,951)(59,952)(41,335)
Amortization of intangible assets(27,207)(27,167)(33,132)(20,135)(15,286)(54,374)(29,688)
Interest expense(32,795)(32,708)(32,248)(33,176)(35,700)(65,503)(74,046)
Net foreign exchange gains (losses)87,775 3,845 3,163 36,078 (17,775)91,620 2,288 
Total expenses(1,793,214)(1,757,299)(1,695,546)(1,799,771)(1,824,629)(3,550,513)(3,651,312)
Income (loss) before income taxes and income (loss) from operating affiliates421,628 184,533 617,440 301,433 745,367 606,161 1,184,478 
Income tax expense(22,323)(11,619)(34,406)(4,137)(51,179)(33,942)(90,039)
Income (loss) from operating affiliates4,640 24,518 40,641 124,119 24,476 29,158 99,933 
Net income (loss)403,945 197,432 623,675 421,415 718,664 601,377 1,194,372 
Net (income) loss attributable to noncontrolling interests399 (1,632)(410)(1,473)(43,178)(1,233)(80,730)
Net income (loss) attributable to Arch404,344 195,800 623,265 419,942 675,486 600,144 1,113,642 
Preferred dividends(10,184)(10,184)(10,184)(16,090)(11,666)(20,368)(22,069)
Loss on redemption of preferred shares— — — (15,101)— — — 
Net income (loss) available to Arch common shareholders$394,160 $185,616 $613,081 $388,751 $663,820 $579,776 $1,091,573 
Comprehensive income (loss) available to Arch$(204,476)$(389,045)$509,482 $239,078 $699,705 $(593,521)$854,794 
Net income (loss) per common share and common share equivalent
Basic$1.07 $0.50 $1.62 $1.00 $1.67 $1.56 $2.73 
Diluted$1.04 $0.48 $1.58 $0.98 $1.63 $1.52 $2.68 
Weighted average common shares and common share equivalents outstanding
Basic369,241,193 374,243,812 379,431,442 389,274,220 397,743,402 371,728,683 399,267,183 
Diluted377,952,988 384,194,363 388,869,378 397,903,347 406,485,994 380,905,512 407,687,680 



4

Arch Capital Group Ltd. and Subsidiaries
Consolidated Balance Sheets

(U.S. Dollars in thousands, except share data)June 30,March 31,December 31,September 30,June 30,
20222022202120212021
Assets     
Investments:     
Fixed maturities available for sale, at fair value$17,585,029 $17,648,853 $17,998,109 $16,768,363 $18,073,779 
Short-term investments available for sale, at fair value2,227,874 2,332,624 1,734,716 3,069,965 2,248,613 
Collateral received under securities lending, at fair value— — — — 172,116 
Equity securities, at fair value772,689 1,002,572 1,804,170 1,790,640 1,693,552 
Other investments1,634,368 1,686,666 1,973,550 2,043,970 4,571,497 
Investments accounted for using the equity method3,496,341 3,325,543 3,077,611 2,741,293 2,539,124 
Total investments25,716,301 25,996,258 26,588,156 26,414,231 29,298,681 
Cash813,548 812,917 858,668 1,137,721 1,234,059 
Accrued investment income116,102 82,607 85,453 75,832 96,546 
Securities pledged under securities lending, at fair value— — — — 168,548 
Investment in operating affiliates967,603 1,144,255 1,135,655 1,111,825 731,810 
Premiums receivable3,634,182 3,223,504 2,633,280 2,807,720 2,866,578 
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses5,938,511 5,941,000 5,880,735 5,358,852 4,314,515 
Contractholder receivables1,758,018 1,810,199 1,828,691 1,824,990 1,882,948 
Ceded unearned premiums2,123,915 1,951,960 1,729,455 1,824,910 1,541,093 
Deferred acquisition costs1,069,845 1,001,866 901,841 893,665 1,013,657 
Receivable for securities sold157,329 116,633 60,179 84,019 309,234 
Goodwill and intangible assets868,014 926,427 944,983 963,322 667,153 
Other assets2,555,826 2,670,315 2,453,849 2,286,649 2,357,064 
Total assets$45,719,194 $45,677,941 $45,100,945 $44,783,736 $46,481,886 
Liabilities     
Reserve for losses and loss adjustment expenses$18,194,324 $18,109,107 $17,757,156 $17,331,047 $17,196,648 
Unearned premiums7,145,297 6,737,779 6,011,942 6,165,114 6,011,369 
Reinsurance balances payable1,634,700 1,510,906 1,583,253 1,403,929 1,079,106 
Contractholder payables1,761,023 1,813,930 1,832,127 1,828,474 1,887,418 
Collateral held for insured obligations251,063 244,502 242,352 254,259 235,618 
Senior notes2,724,896 2,724,642 2,724,394 2,724,149 2,861,728 
Revolving credit agreement borrowings— — — — 155,687 
Securities lending payable— — — — 172,109 
Payable for securities purchased292,106 176,452 64,850 357,531 586,881 
Other liabilities1,289,760 1,431,271 1,329,742 1,321,470 1,332,843 
Total liabilities33,293,169 32,748,589 31,545,816 31,385,973 31,519,407 
Redeemable noncontrolling interests8,459 9,763 9,233 10,237 57,533 
Shareholders’ equity     
Non-cumulative preferred shares830,000 830,000 830,000 830,000 1,280,000 
Common shares652 651 648 648 647 
Additional paid-in capital2,170,661 2,134,241 2,085,075 2,061,906 2,028,919 
Retained earnings15,035,644 14,641,484 14,455,868 13,842,787 13,454,036 
Accumulated other comprehensive income (loss), net of deferred income tax(1,258,265)(649,445)(64,600)49,184 230,048 
Common shares held in treasury, at cost(4,361,126)(4,037,342)(3,761,095)(3,396,999)(3,007,578)
Total shareholders’ equity available to Arch12,417,566 12,919,589 13,545,896 13,387,526 13,986,072 
Non-redeemable noncontrolling interests— — — — 918,874 
Total shareholders’ equity12,417,566 12,919,589 13,545,896 13,387,526 14,904,946 
Total liabilities, noncontrolling interests and shareholders’ equity$45,719,194 $45,677,941 $45,100,945 $44,783,736 $46,481,886 
Common shares and common share equivalents outstanding, net of treasury shares369,346,815 375,730,891 378,923,894 387,257,752 396,771,251 
Book value per common share (1)$31.37 $32.18 $33.56 $32.43 $32.02 
(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 EndedSix Months Ended
 June 30,March 31,December 31,September 30,June 30,June 30,June 30,
 2022202220212021202120222021
Non-cumulative preferred shares       
Balance at beginning of period$830,000 $830,000 $830,000 $1,280,000 $780,000 $830,000 $780,000 
Preferred shares issued— — — — 500,000 — 500,000 
Preferred shares redeemed— — — (450,000)— — — 
Balance at beginning and end of period$830,000 $830,000 $830,000 $830,000 $1,280,000 $830,000 $1,280,000 
Common shares
Balance at beginning of period651 648 648 647 645 648 643 
Common shares issued, net— 
Balance at end of period652 651 648 648 647 652 647 
Additional paid-in capital
Balance at beginning of period2,134,241 2,085,075 2,061,906 2,028,919 2,014,741 2,085,075 1,977,794 
Issue costs on preferred shares— — — — (14,179)— (14,179)
Reversal of original issue costs on redeemed preferred shares— — — 15,101 — — — 
Amortization of share-based compensation21,137 45,368 14,774 14,216 16,490 66,505 57,063 
All other15,283 3,798 8,395 3,670 11,867 19,081 8,241 
Balance at end of period2,170,661 2,134,241 2,085,075 2,061,906 2,028,919 2,170,661 2,028,919 
Retained earnings
Balance at beginning of period14,641,484 14,455,868 13,842,787 13,454,036 12,790,216 14,455,868 12,362,463 
Net income403,945 197,432 623,675 421,415 718,664 601,377 1,194,372 
Amounts attributable to noncontrolling interests399 (1,632)(410)(1,473)(43,178)(1,233)(80,730)
Preferred share dividends(10,184)(10,184)(10,184)(16,090)(11,666)(20,368)(22,069)
Loss on redemption of preferred shares— — — (15,101)— — — 
Balance at end of period15,035,644 14,641,484 14,455,868 13,842,787 13,454,036 15,035,644 13,454,036 
Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of period(649,445)(64,600)49,184 230,048 205,827 (64,600)488,895 
Change in unrealized appreciation (decline) in value of available-for-sale investments(540,295)(582,077)(103,391)(147,825)17,991 (1,122,372)(236,593)
Change in foreign currency translation adjustments(68,525)(2,768)(10,393)(33,039)6,230 (71,293)(22,254)
Balance at end of period(1,258,265)(649,445)(64,600)49,184 230,048 (1,258,265)230,048 
Common shares held in treasury, at cost
Balance at beginning of period(4,037,342)(3,761,095)(3,396,999)(3,007,578)(2,694,957)(3,761,095)(2,503,909)
Shares repurchased for treasury(323,784)(276,247)(364,096)(389,421)(312,621)(600,031)(503,669)
Balance at end of period(4,361,126)(4,037,342)(3,761,095)(3,396,999)(3,007,578)(4,361,126)(3,007,578)
Total shareholders’ equity available to Arch12,417,566 12,919,589 13,545,896 13,387,526 13,986,072 12,417,566 13,986,072 
Non-redeemable noncontrolling interests— — — — 918,874 — 918,874 
Total shareholders’ equity$12,417,566 $12,919,589 $13,545,896 $13,387,526 $14,904,946 $12,417,566 $14,904,946 

6

Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
(U.S. Dollars in thousands)Three Months EndedSix Months Ended
June 30,March 31,December 31,September 30,June 30,June 30,June 30,
2022202220212021202120222021
Operating Activities       
Net income (loss)$403,945 $197,432 $623,675 $421,415 $718,664 $601,377 $1,194,372 
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses266,060 289,213 (60,054)11,736 (218,042)555,273 (379,049)
Equity in net (income) or loss of investment. funds accounted for using the equity method and other income or loss55,235 (11,420)(91,400)(191,622)(45,089)43,815 (181,028)
Amortization of intangible assets27,207 27,167 33,132 20,135 15,286 54,374 29,688 
Share-based compensation21,139 45,379 14,791 14,739 16,752 66,518 57,564 
Changes in:
Reserve for losses and loss adjustment expenses, net358,528 275,954 213,979 599,706 388,352 634,482 948,505 
Unearned premiums, net358,864 513,507 (49,203)146,592 278,615 872,371 838,650 
Premiums receivable(485,099)(600,691)161,884 (65,707)(173,141)(1,085,790)(781,391)
Deferred acquisition costs(76,912)(96,999)(15,277)(33,073)(88,192)(173,911)(214,893)
Reinsurance balances payable146,117 (74,022)(118,506)287,110 91,255 72,095 331,461 
Other items, net(172,679)(13,957)86,983 (196,052)(134,733)(186,636)(231,307)
Net cash provided by operating activities902,405 551,563 800,004 1,014,979 849,727 1,453,968 1,612,572 
Investing Activities       
Purchases of fixed maturity investments(2,978,292)(6,727,665)(5,581,835)(6,315,639)(12,023,416)(9,705,957)(23,554,384)
Purchases of equity securities(246,958)(408,615)(196,529)(358,177)(311,355)(655,573)(620,774)
Purchases of other investments(303,725)(616,659)(509,040)(316,922)(602,173)(920,384)(1,033,134)
Proceeds from sales of fixed maturity investments2,025,616 6,053,352 3,509,653 6,937,404 12,213,254 8,078,968 23,130,388 
Proceeds from sales of equity securities389,956 1,100,256 222,512 153,343 257,304 1,490,212 542,290 
Proceeds from sales, redemptions and maturities of other investments292,992 570,341 277,614 715,370 448,958 863,333 772,549 
Proceeds from redemptions and maturities of fixed maturity investments203,320 240,753 394,343 428,576 384,794 444,073 805,836 
Net settlements of derivative instruments(42,328)(2,510)27,758 (85,116)(30,374)(44,838)17,286 
Net (purchases) sales of short-term investments70,760 (510,752)1,338,070 (794,712)(967,261)(439,992)(378,086)
Change in cash collateral related to securities lending— — — 826 (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(12,060)(11,770)(6,987)(10,822)(11,095)(23,830)(23,585)
Other97,836 550 (162,007)(156,968)41,701 98,386 (204,889)
Net cash provided by (used for) investing activities(502,883)(312,719)(686,448)(359,606)(600,489)(815,602)(1,093,678)
Financing Activities       
Proceeds from issuance of preferred shares, net— — — — 485,821 — 485,821 
Redemption of preferred shares— — — (450,000)— — — 
Purchases of common shares under share repurchase program(320,688)(254,988)(362,097)(386,882)(306,049)(575,676)(485,315)
Proceeds from common shares issued, net13,195 (17,260)6,137 96 10,193 (4,065)185 
Change in cash collateral related to securities lending— — — (826)826 — 826 
Change in third party investment in non-redeemable noncontrolling interests— — — — — — 15,971 
Dividends paid to redeemable noncontrolling interests— — — — (959)— (1,907)
Other(130,866)48,859 18,474 (49,391)29,587 (82,007)27,639 
Preferred dividends paid(10,184)(10,184)(10,184)(17,291)(10,402)(20,368)(20,805)
Net cash provided by (used for) financing activities(448,543)(233,573)(347,670)(904,294)209,017 (682,116)22,415 
Effects of exchange rate changes on foreign currency cash and restricted cash(38,866)(3,924)(24)(20,633)(7,306)(42,790)(13,390)
Increase (decrease) in cash and restricted cash(87,887)1,347 (234,138)(269,554)450,949 (86,540)527,919 
Cash and restricted cash, beginning of period1,316,118 1,314,771 1,548,909 1,818,463 1,367,514 1,314,771 1,290,544 
Cash and restricted cash, end of period$1,228,231 $1,316,118 $1,314,771 $1,548,909 $1,818,463 $1,228,231 $1,818,463 
Income taxes paid (received)$119,616 $9,005 $84,371 $61,343 $133,997 $128,621 $141,096 
Interest paid$63,948 $648 $63,498 $1,104 $73,711 $64,596 $74,699 
Net cash provided by operating activities, excluding the ‘other’ segment$902,405 $551,563 $800,004 $1,014,979 $809,790 $1,453,968 $1,565,718 
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, cyber insurance, 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. Reinsurance agreements are typically offered on a proportional and/or excess of loss basis and provide coverage to ceding company clients for specific underlying written policies. Product lines include:
Casualty: provides coverage on third party liability exposures including, among others, executive assurance, professional liability, excess and umbrella liability, excess motor and healthcare business, and workers’ compensation. Business is assumed primarily on a treaty basis, with some facultative coverages also offered.
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 for proportional motor reinsurance, whole account multi-line treaties, cyber, trade credit and surety, accident and health, workers’ compensation catastrophe, agriculture and political risk, among others.
Property catastrophe: provides protection for most types of catastrophic losses, including hurricane, earthquake, flood, tornado, hail and fire, and for other perils on a case-by-case basis. Excess of loss coverages are triggered 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 personal lines and/or 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 either a treaty or facultative basis.
Other: includes life reinsurance business, 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 on a 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
June 30, 2022
 InsuranceReinsuranceMortgageSub-total (Core)OtherTotal
Gross premiums written (1)$1,705,167 $1,793,398 $371,896 $3,869,727 $— $3,869,727 
Premiums ceded(476,910)(630,764)(78,148)(1,185,088)— (1,185,088)
Net premiums written1,228,257 1,162,634 293,748 2,684,639 — 2,684,639 
Change in unearned premiums(126,113)(234,635)1,884 (358,864)— (358,864)
Net premiums earned1,102,144 927,999 295,632 2,325,775 — 2,325,775 
Other underwriting income (loss)— 4,526 (1,556)2,970 — 2,970 
Losses and loss adjustment expenses(629,759)(537,578)64,681 (1,102,656)— (1,102,656)
Acquisition expenses(213,688)(189,494)(10,137)(413,319)— (413,319)
Other operating expenses(161,088)(66,053)(50,251)(277,392)— (277,392)
Underwriting income (loss)$97,609 $139,400 $298,369 535,378 — 535,378 
Net investment income106,392 — 106,392 
Net realized gains (losses)(266,579)— (266,579)
Equity in net income (loss) of investment funds accounted for using the equity method58,061 — 58,061 
Other income (loss)(11,777)— (11,777)
Corporate expenses (2)(27,359)— (27,359)
Transaction costs and other (2)(261)— (261)
Amortization of intangible assets(27,207)— (27,207)
Interest expense(32,795)— (32,795)
Net foreign exchange gains (losses)87,775 — 87,775 
Income (loss) before income taxes and income (loss) from operating affiliates421,628 — 421,628 
Income tax (expense) benefit(22,323)— (22,323)
Income (loss) from operating affiliates4,640 — 4,640 
Net income (loss)403,945 — 403,945 
Dividends attributable to redeemable noncontrolling interests399 — 399 
Net income (loss) available to Arch404,344 — 404,344 
Preferred dividends(10,184)— (10,184)
Net income (loss) available to Arch common shareholders$394,160 $— $394,160 
Underwriting Ratios
Loss ratio57.1 %57.9 %(21.9)%47.4 %— %47.4 %
Acquisition expense ratio19.4 %20.4 %3.4 %17.8 %— %17.8 %
Other operating expense ratio14.6 %7.1 %17.0 %11.9 %— %11.9 %
Combined ratio91.1 %85.4 %(1.5)%77.1 %— %77.1 %
Net premiums written to gross premiums written72.0 %64.8 %79.0 %69.4 %— %69.4 %
Total investable assets$26,395,072 $— $26,395,072 
Total assets45,719,194 — 45,719,194 
Total liabilities33,293,169 — 33,293,169 
(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
June 30, 2021
 InsuranceReinsuranceMortgageSub-total (Core)OtherTotal
Gross premiums written (1)$1,368,867 $1,358,020 $391,511 $3,117,505 $240,942 $3,286,291 
Premiums ceded(405,312)(433,288)(55,665)(893,372)(65,551)(886,767)
Net premiums written963,555 924,732 335,846 2,224,133 175,391 2,399,524 
Change in unearned premiums(98,128)(187,708)(1,625)(287,461)8,846 (278,615)
Net premiums earned865,427 737,024 334,221 1,936,672 184,237 2,120,909 
Other underwriting income (loss)— 1,053 4,148 5,201 328 5,529 
Losses and loss adjustment expenses(545,880)(463,823)(9,880)(1,019,583)(140,248)(1,159,831)
Acquisition expenses(136,852)(133,585)(30,117)(300,554)(34,589)(335,143)
Other operating expenses(133,342)(44,695)(48,312)(226,349)(18,594)(244,943)
Underwriting income (loss)$49,353 $95,974 $250,060 395,387 (8,866)386,521 
Net investment income89,430 22,183 111,613 
Net realized gains (losses)163,394 39,513 202,907 
Equity in net income (loss) of investment funds accounted for using the equity method122,186 — 122,186 
Other income (loss)6,852 — 6,852 
Corporate expenses (2)(17,175)— (17,175)
Transaction costs and other (2)1,444 (220)1,224 
Amortization of intangible assets(14,388)(898)(15,286)
Interest expense(31,439)(4,261)(35,700)
Net foreign exchange gains (losses)(17,892)117 (17,775)
Income (loss) before income taxes and income (loss) from operating affiliates697,799 47,568 745,367 
Income tax (expense) benefit(50,953)(226)(51,179)
Income (loss) from operating affiliates24,476 — 24,476 
Net income (loss)671,322 47,342 718,664 
Dividends attributable to redeemable noncontrolling interests(580)(981)(1,561)
Amounts attributable to nonredeemable noncontrolling interests— (41,617)(41,617)
Net income (loss) available to Arch670,742 4,744 675,486 
Preferred dividends(11,666)— (11,666)
Net income (loss) available to Arch common shareholders$659,076 $4,744 $663,820 
Underwriting Ratios
Loss ratio63.1 %62.9 %3.0 %52.6 %76.1 %54.7 %
Acquisition expense ratio15.8 %18.1 %9.0 %15.5 %18.8 %15.8 %
Other operating expense ratio15.4 %6.1 %14.5 %11.7 %10.1 %11.5 %
Combined ratio94.3 %87.1 %26.5 %79.8 %105.0 %82.0 %
Net premiums written to gross premiums written70.4 %68.1 %85.8 %71.3 %72.8 %73.0 %
Total investable assets$27,291,414 $2,932,043 $30,223,457 
Total assets42,171,541 4,310,345 46,481,886 
Total liabilities28,281,668 3,237,739 31,519,407 
 
(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)Six Months Ended
June 30, 2022
 InsuranceReinsuranceMortgageSub-total (Core)OtherTotal
Gross premiums written (1)$3,424,772 $3,512,340 $736,735 $7,670,502 $— $7,670,502 
Premiums ceded(989,619)(1,210,582)(154,867)(2,351,723)— (2,351,723)
Net premiums written2,435,153 2,301,758 581,868 5,318,779 — 5,318,779 
Change in unearned premiums(306,313)(569,359)3,301 (872,371)— (872,371)
Net premiums earned2,128,840 1,732,399 585,169 4,446,408 — 4,446,408 
Other underwriting income (loss)— 5,362 3,505 8,867 — 8,867 
Losses and loss adjustment expenses(1,230,498)(992,278)119,285 (2,103,491)— (2,103,491)
Acquisition expenses(409,338)(361,490)(20,650)(791,478)— (791,478)
Other operating expenses(327,913)(135,829)(103,593)(567,335)— (567,335)
Underwriting income (loss)$161,091 $248,164 $583,716 992,971 — 992,971 
Net investment income186,828 — 186,828 
Net realized gains (losses)(558,993)— (558,993)
Equity in net income (loss) of investment funds accounted for using the equity method94,366 — 94,366 
Other income (loss)(20,802)— (20,802)
Corporate expenses (2)(59,294)— (59,294)
Transaction costs and other (2)(658)— (658)
Amortization of intangible assets(54,374)— (54,374)
Interest expense(65,503)— (65,503)
Net foreign exchange gains (losses)91,620 — 91,620 
Income (loss) before income taxes and income (loss) from operating affiliates606,161 — 606,161 
Income tax (expense) benefit(33,942)— (33,942)
Income (loss) from operating affiliates29,158 — 29,158 
Net income (loss)601,377 — 601,377 
Dividends attributable to redeemable noncontrolling interests(1,233)— (1,233)
Net income (loss) available to Arch600,144 — 600,144 
Preferred dividends(20,368)— (20,368)
Net income (loss) available to Arch common shareholders$579,776 $— $579,776 
Underwriting Ratios
Loss ratio57.8 %57.3 %(20.4)%47.3 %— %47.3 %
Acquisition expense ratio19.2 %20.9 %3.5 %17.8 %— %17.8 %
Other operating expense ratio15.4 %7.8 %17.7 %12.8 %— %12.8 %
Combined ratio92.4 %86.0 %0.8 %77.9 %— %77.9 %
Net premiums written to gross premiums written71.1 %65.5 %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.
(2)    Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘Transaction costs and other.’ See ‘Comments on Regulation G’ for a further discussion of such items.
12

Arch Capital Group Ltd. and Subsidiaries
Segment Information
(U.S. Dollars in thousands)Six Months Ended
June 30, 2021
 InsuranceReinsuranceMortgageSub-total (Core)OtherTotal
Gross premiums written (1)$2,784,753 $2,829,080 $782,757