UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

Or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-16209

 

ARCH CAPITAL GROUP LTD.

(Exact name of registrant as specified in its charter)

Bermuda				98-0374481
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)
Waterloo House, Ground Floor
100 Pitts Bay Road,	Pembroke	HM 08,	Bermuda	(441)	278-9250
(Address of principal executive offices)				(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol (s)	Name of each exchange on which registered
Common shares, $0.0011 par value per share	ACGL	NASDAQ	Stock Market
Depositary shares, each representing a 1/1000th interest in a 5.45% Series F preferred share	ACGLO	NASDAQ	Stock Market
Depositary shares, each representing a 1/1000th interest in a 4.55% Series G preferred share	ACGLN	NASDAQ	Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☑ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller reporting company ☐ 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. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of November 6, 2023, there were 373,171,909 common shares, $0.0011 par value per share, of the registrant outstanding.

ARCH CAPITAL GROUP LTD.

INDEX TO FORM 10-Q

		Page No.
	PART I
	Financial Information	2
Item 1.	Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63
Item 4.	Controls and Procedures	63
	PART II
	Other Information	63
Item 1.	Legal Proceedings	63
Item 1A.	Risk Factors	63
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	65
	Signatures	66

ARCH CAPITAL  1 2023 THIRD QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements 

The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides a “safe harbor” for forward-looking statements. This report or any other written or oral statements made by or on behalf of us may include forward-looking statements, which reflect our 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 report 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 our 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 report and in our periodic reports filed with the Securities and Exchange Commission (“SEC”), and include:

•our ability to successfully implement our business strategy during “soft” as well as “hard” markets;

•acceptance of our business strategy, security and financial condition by rating agencies and regulators, as well as by brokers and our insureds and reinsureds;

•our ability to consummate acquisitions and integrate the business we have acquired or may acquire into our existing operations;

•our ability to maintain or improve our ratings, which may be affected by our 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 we operate;

•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 our access to such markets;

•our ability to successfully enhance, integrate and maintain operating procedures (including information technology) to effectively support our 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 our 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 us and adverse development on claim and/or claim expense liabilities related to business written by our insurance, reinsurance and mortgage 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 for natural or man-made catastrophic events or severe economic events in our insurance, reinsurance and mortgage businesses could cause large losses and substantial volatility in our results of operations;

•the effect of climate change on our business;

•the effect of contagious diseases (including COVID-19) on our business;

•acts of terrorism, political unrest and other hostilities or other unforecasted and unpredictable events;

ARCH CAPITAL  2 2023 THIRD QUARTER FORM 10-Q

•availability to us of reinsurance to manage our gross and net exposures and the cost of such reinsurance;

•the failure of reinsurers, managing general agents, third party administrators or others to meet their obligations to us;

•the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by us;

•our investment performance, including legislative or regulatory developments that may adversely affect the fair value of our investments;

•changes in general economic conditions, including sovereign debt concerns or downgrades of U.S. securities by credit rating agencies, which could affect our business, financial condition and results of operations;

•the volatility of our shareholders’ equity from foreign currency fluctuations, which could increase due to us not matching portions of our projected liabilities in foreign currencies with investments in the same currencies;

•changes in accounting principles or policies or in our application of such accounting principles or policies;

•changes in the political environment of certain countries in which we operate or underwrite business;

•a disruption caused by cyber attacks or other technology breaches or failures on us or our business partners and service providers, which could negatively impact our business and/or expose us to litigation;

•statutory or regulatory developments, including as to tax 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 us, our subsidiaries, brokers or customers, including the implementation of the Organization for Economic Cooperation and Development (“OECD”) Pillar I and Pillar II initiatives and the possible enactment of a recently proposed Bermuda corporate income tax; 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 our Annual Report on Form 10-K for the year ended December 31, 2022, as well as the other factors set forth in our 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 us or persons acting on our 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. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. 

ARCH CAPITAL  3 2023 THIRD QUARTER FORM 10-Q

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

	Page No.
Consolidated Balance Sheets
September 30, 2023 and December 31, 2022 (unaudited)	5
Consolidated Statements of Income
For the three and nine month periods ended September 30, 2023 and 2022 (unaudited)	6
Consolidated Statements of Comprehensive Income
For the three and nine month periods ended September 30, 2023 and 2022 (unaudited)	7
Consolidated Statements of Changes in Shareholders’ Equity
For the three and nine month periods ended September 30, 2023 and 2022 (unaudited)	8
Consolidated Statements of Cash Flows
For the nine month periods ended September 30, 2023 and 2022 (unaudited)	9
Notes to Consolidated Financial Statements (unaudited)
Note 1 - Basis of Presentation and Recent Accounting Pronouncements	10
Note 2 - Share Transactions	10
Note 3 - Earnings Per Common Share	11
Note 4 - Segment Information	12
Note 5 - Reserve for Losses and Loss Adjustment Expenses	17
Note 6 - Allowance for Expected Credit Losses	19
Note 7 - Investment Information	21
Note 8 - Fair Value	26
Note 9 - Derivative Instruments	32
Note 10 - Commitments and Contingencies	33
Note 11 - Variable Interest Entities	34
Note 12 - Other Comprehensive Income (Loss)	35
Note 13 - Income Taxes	36
Note 14 - Legal Proceedings	36
Note 15 - Transactions with Related Parties	36
Note 16 - Subsequent Events	37

ARCH CAPITAL  4 2023 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(U.S. dollars and shares in millions)

	(Unaudited)
	September 30, 2023		December 31, 2022
Assets
Investments:
Fixed maturities available for sale, at fair value (amortized cost: $23,882 and $21,282; net of allowance for credit losses: $57 and $41)	$	22,485	$	19,683
Short-term investments available for sale, at fair value (amortized cost: $1,680 and $1,333; net of allowance for credit losses: $0 and $0)	1,682		1,332
Equity securities, at fair value	894		860
Other investments, at fair value	2,068		1,644
Investments accounted for using the equity method	4,251		3,774
Total investments	31,380		27,293
Cash	859		855
Accrued investment income	217		159
Investment in operating affiliates	1,000		965
Premiums receivable (net of allowance for credit losses: $34 and $35)	4,937		3,625
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses (net of allowance for credit losses: $23 and $22)	6,821		6,564
Contractholder receivables (net of allowance for credit losses: $3 and $3)	1,805		1,731
Ceded unearned premiums	2,444		1,799
Deferred acquisition costs	1,483		1,264
Receivable for securities sold	59		12
Goodwill and intangible assets	739		804
Other assets	3,483		2,919
Total assets	$	55,227	$	47,990
Liabilities
Reserve for losses and loss adjustment expenses	$	21,836	$	20,032
Unearned premiums	9,074		7,337
Reinsurance balances payable	2,215		1,530
Contractholder payables	1,807		1,734
Collateral held for insured obligations	274		249
Senior notes	2,726		2,725
Payable for securities purchased	417		95
Other liabilities	1,637		1,367
Total liabilities	39,986		35,069
Commitments and contingencies (refer to Note 10)
Redeemable noncontrolling interests	2		11
Shareholders' Equity
Non-cumulative preferred shares	830		830
Common shares ($0.0011 par, shares issued: 591.4 and 588.3)	1		1
Additional paid-in capital	2,297		2,211
Retained earnings	17,971		15,892
Accumulated other comprehensive income (loss), net of deferred income tax	(1,453)		(1,646)
Common shares held in treasury, at cost (shares: 218.3 and 217.9)	(4,407)		(4,378)
Total shareholders' equity available to Arch	15,239		12,910
Total liabilities, noncontrolling interests and shareholders' equity	$	55,227	$	47,990

See Notes to Consolidated Financial Statements

ARCH CAPITAL 5 2023 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(U.S. dollars and shares in millions, except per share data)

	(Unaudited)				(Unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Revenues
Net premiums earned	$	3,248	$	2,471	9,096		6,918
Net investment income	269		129		710		315
Net realized gains (losses)	(248)		(184)		(354)		(743)
Other underwriting income	5		3		21		12
Equity in net income (loss) of investment funds accounted for using the equity method	59		(19)		176		75
Other income (loss)	(4)		(14)		10		(35)
Total revenues	3,329		2,386		9,659		6,542
Expenses
Losses and loss adjustment expenses	1,647		1,683		4,609		3,787
Acquisition expenses	575		448		1,669		1,239
Other operating expenses	310		275		942		842
Corporate expenses	20		18		71		78
Amortization of intangible assets	24		26		71		80
Interest expense	34		33		99		99
Net foreign exchange (gains) losses	(22)		(91)		1		(183)
Total expenses	2,588		2,392		7,462		5,942
Income (loss) before income taxes and income (loss) from operating affiliates	741		(6)		2,197		600
Income tax (expense) benefit	(72)		15		(203)		(19)
Income (loss) from operating affiliates	54		9		115		39
Net income (loss)	$	723	$	18	$	2,109	$	620
Net (income) loss attributable to noncontrolling interests	—		(1)		—		(3)
Net income (loss) available to Arch	723		17		2,109		617
Preferred dividends	(10)		(10)		(30)		(30)
Net income (loss) available to Arch common shareholders	$	713	$	7	$	2,079	$	587
Net income per common share and common share equivalent
Basic	$	1.93	$	0.02	$	5.64	$	1.59
Diluted	$	1.88	$	0.02	$	5.50	$	1.55
Weighted average common shares and common share equivalents outstanding
Basic	369.2		365.2		368.4		369.5
Diluted	379.4		373.7		378.3		378.4

See Notes to Consolidated Financial Statements

ARCH CAPITAL 6 2023 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(U.S. dollars in millions)

	(Unaudited)				(Unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Comprehensive Income
Net income (loss)	$	723	$	18	$	2,109	$	620
Other comprehensive income (loss), net of deferred income tax
Unrealized appreciation (decline) in value of available-for-sale investments:
Unrealized holding gains (losses) arising during period	(190)		(610)		(118)		(1,892)
Reclassification of net realized (gains) losses, included in net income (loss)	96		46		344		206
Foreign currency translation adjustments	(40)		(70)		(33)		(141)
Comprehensive income (loss)	589		(616)		2,302		(1,207)
Net (income) loss attributable to noncontrolling interests	—		(1)		—		(3)
Comprehensive income (loss) available to Arch	$	589	$	(617)	$	2,302	$	(1,210)

See Notes to Consolidated Financial Statements

ARCH CAPITAL 7 2023 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(U.S. dollars in millions)

	(Unaudited)				(Unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Non-cumulative preferred shares
Balance at beginning and end of period	$	830	$	830	$	830	$	830
Common shares
Balance at beginning and end of period	1		1		1		1
Additional paid-in capital
Balance at beginning of period	2,278		2,170		2,211		2,085
Amortization of share-based compensation	15		14		73		80
Other changes	4		3		13		22
Balance at end of period	2,297		2,187		2,297		2,187
Retained earnings
Balance at beginning of period	17,258		15,036		15,892		14,456
Net income (loss)	723		18		2,109		620
Net (income) loss attributable to noncontrolling interests	—		(1)		—		(3)
Preferred share dividends	(10)		(10)		(30)		(30)
Balance at end of period	17,971		15,043		17,971		15,043
Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of period	(1,319)		(1,258)		(1,646)		(65)
Unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax:
Balance at beginning of period	(1,192)		(1,109)		(1,512)		13
Unrealized holding gains (losses) during period, net of reclassification adjustment	(94)		(564)		226		(1,686)
Balance at end of period	(1,286)		(1,673)		(1,286)		(1,673)
Foreign currency translation adjustments, net of deferred income tax:
Balance at beginning of period	(127)		(149)		(134)		(78)
Foreign currency translation adjustments	(40)		(70)		(33)		(141)
Balance at end of period	(167)		(219)		(167)		(219)
Balance at end of period	(1,453)		(1,892)		(1,453)		(1,892)
Common shares held in treasury, at cost
Balance at beginning of period	(4,407)		(4,361)		(4,378)		(3,761)
Shares repurchased for treasury	—		(12)		(29)		(612)
Balance at end of period	(4,407)		(4,373)		(4,407)		(4,373)
Total shareholders’ equity	$	15,239	$	11,796	$	15,239	$	11,796

See Notes to Consolidated Financial Statements

ARCH CAPITAL 8 2023 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)

	(Unaudited)
	Nine Months Ended
	September 30,
	2023		2022
Operating Activities
Net income (loss)	$	2,109	$	620
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net realized (gains) losses	367		742
Equity in net (income) or loss of investment funds accounted for using the equity method and other income or loss	(104)		107
Amortization of intangible assets	71		80
Share-based compensation	73		80
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	1,604		1,554
Unearned premiums, net of ceded unearned premiums	1,111		1,125
Premiums receivable	(1,333)		(1,096)
Deferred acquisition costs	(190)		(242)
Reinsurance balances payable	692		128
Other items, net	(316)		(264)
Net cash provided by operating activities	4,084		2,834
Investing Activities
Purchases of fixed maturity investments	(13,024)		(13,065)
Purchases of equity securities	(176)		(787)
Purchases of other investments	(1,112)		(1,270)
Proceeds from sales of fixed maturity investments	9,655		9,990
Proceeds from sales of equity securities	216		1,540
Proceeds from sales, redemptions and maturities of other investments	345		1,075
Proceeds from redemptions and maturities of fixed maturity investments	589		578
Net settlements of derivative instruments	(69)		(106)
Net (purchases) sales of short-term investments	(323)		(152)
Purchases of fixed assets	(37)		(37)
Other	—		128
Net cash used for investing activities	(3,936)		(2,106)
Financing Activities
Purchases of common shares under share repurchase program	—		(586)
Proceeds from common shares issued, net	5		(3)
Change in third party investment in redeemable noncontrolling interests	(22)		—
Other	(5)		(85)
Preferred dividends paid	(30)		(30)
Net cash used for financing activities	(52)		(704)
Effects of exchange rate changes on foreign currency cash and restricted cash	(14)		(80)
Increase (decrease) in cash and restricted cash	82		(56)
Cash and restricted cash, beginning of year	1,273		1,314
Cash and restricted cash, end of period	$	1,355	$	1,258

See Notes to Consolidated Financial Statements

ARCH CAPITAL 9 2023 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.    Basis of Presentation and Recent Accounting Pronouncements

General

Arch Capital Group Ltd. (“Arch Capital”) is a publicly listed Bermuda exempted company which provides insurance, reinsurance and mortgage insurance on a worldwide basis through its wholly-owned subsidiaries. As used herein, the “Company” means Arch Capital and its subsidiaries.

Basis of Presentation

The interim consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany transactions and balances have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of results on an interim basis. The results of any interim period are not necessarily indicative of the results for a full year or any future periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted; however, management believes that the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”), including the Company’s audited consolidated financial statements and related notes.

The Company has reclassified the presentation of certain prior year information to conform to the current presentation. Such reclassifications had no effect on the Company’s net income, comprehensive income, shareholders’ equity or cash flows. All amounts are in millions, except per share amounts, unless otherwise noted.

Recent Accounting Pronouncements

Recently Issued Accounting Standards Adopted

For information regarding additional accounting standards that the Company has not yet adopted, see note 3(t), “Significant Accounting Policies—Recent Accounting Pronouncements,” of the notes to consolidated financial statements in the Company’s 2022 Form 10-K.

2.    Share Transactions

Share Repurchases

The Board of Directors of Arch Capital has authorized the investment in Arch Capital’s common shares through a share repurchase program. At September 30, 2023, $1.0 billion of share repurchases were available under the program. Repurchases under the program may be effected from time to time in open market or privately negotiated transactions through December 31, 2024. The timing and amount of the repurchase transactions under this program will depend on a variety of factors, including market conditions and corporate and regulatory considerations.

Employee Share Purchase Plan

Upon shareholder approval on May 4, 2023, the Amended and Restated Arch Capital Group Ltd. 2007 Employee Share Purchase Plan (the “ESPP”) became effective. The total common shares that may be purchased under the ESPP was increased by 3.0 million shares for a total of 12.75 million shares authorized. The purpose of the ESPP is to give employees of the Company an opportunity to purchase common shares through payroll deductions, thereby encouraging employees to share in the economic growth and success of the Company. The ESPP is designed to qualify as an “employee share purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended. At September 30, 2023, 3.7 million shares remain available for issuance.

ARCH CAPITAL  10 2023 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.    Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Numerator:
Net income (loss)	$	723	$	18	$	2,109	$	620
Net (income) loss attributable to noncontrolling interests	—		(1)		—		(3)
Net income (loss) available to Arch	723		17		2,109		617
Preferred dividends	(10)		(10)		(30)		(30)
Net income (loss) available to Arch common shareholders	$	713	$	7	$	2,079	$	587
Denominator:
Weighted average common shares and common share equivalents outstanding — basic	369.2		365.2		368.4		369.5
Effect of dilutive common share equivalents:
Nonvested restricted shares	2.6		2.3		2.4		2.2
Stock options (1)	7.6		6.2		7.5		6.7
Weighted average common shares and common share equivalents outstanding — diluted	379.4		373.7		378.3		378.4
Earnings per common share:
Basic	$	1.93	$	0.02	$	5.64	$	1.59
Diluted	$	1.88	$	0.02	$	5.50	$	1.55

(1)    Certain stock options were not included in the computation of diluted earnings per share where the exercise price of the stock options exceeded the average market price and would have been anti-dilutive or where, when applying the treasury stock method to in-the-money options, the sum of the proceeds, including unrecognized compensation, exceeded the average market price and would have been anti-dilutive. For the 2023 third quarter and 2022 third quarter, the number of stock options excluded were 0.3 million and 0.8 million, respectively. For the nine months ended September 30, 2023 and 2022, the number of stock options excluded were 0.5 million and 0.8 million, respectively.

ARCH CAPITAL  11 2023 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.    Segment Information

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, the Chief Financial Officer and Treasurer and the President and Chief Underwriting Officer are the Company’s chief operating decision makers. They 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 underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment, with the exception of goodwill and intangible assets, and accordingly, investment income is not allocated to each underwriting segment.

The Company determined its reportable 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.

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; excess and surplus casualty; professional lines; programs; property, energy, marine and aviation; travel, accident and health; warranty and lenders solutions; and other (consisting of alternative markets, excess workers' compensation and surety business).

The reinsurance segment consists of the Company’s reinsurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include: casualty; marine and aviation; other specialty; property catastrophe; property excluding property catastrophe (losses on a single risk, both excess of loss and pro rata); and other (consisting of life reinsurance, casualty clash and other).

The mortgage segment includes the Company’s U.S. primary mortgage insurance business, investment and services related to U.S. credit-risk transfer (“CRT”) which are predominately with government sponsored enterprises (“GSEs”) and international mortgage insurance and reinsurance operations. Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (combined “Arch MI U.S.”) are approved as eligible mortgage insurers by Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), each a GSE. Arch MI U.S. also includes Arch Mortgage Guaranty Company, which is not a GSE-approved entity.

The corporate segment results include net investment income, net realized gains or losses (which includes realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains and losses on derivative instruments and changes in the allowance for credit losses on financial assets), 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.

ARCH CAPITAL  12 2023 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following tables summarize the Company’s underwriting income or loss by segment, together with a reconciliation of underwriting income or loss to net income available to Arch common shareholders:

	Three Months Ended
	September 30, 2023
	Insurance			Reinsurance			Mortgage			Total
Gross premiums written (1)	$	2,043		$	2,138		$	347		$	4,527
Premiums ceded	(521)			(576)			(76)			(1,172)
Net premiums written	1,522			1,562			271			3,355
Change in unearned premiums	(110)			(19)			22			(107)
Net premiums earned	1,412			1,543			293			3,248
Other underwriting income (loss)	—			2			3			5
Losses and loss adjustment expenses	(812)			(870)			35			(1,647)
Acquisition expenses	(269)			(304)			(2)			(575)
Other operating expenses	(202)			(61)			(47)			(310)
Underwriting income (loss)	$	129		$	310		$	282		721
Net investment income										269
Net realized gains (losses)										(248)
Equity in net income (loss) of investment funds accounted for using the equity method										59
Other income (loss)										(4)
Corporate expenses (2)										(20)
Transaction costs and other (2)										—
Amortization of intangible assets										(24)
Interest expense										(34)
Net foreign exchange gains (losses)										22
Income (loss) before income taxes and income (loss) from operating affiliates										741
Income tax (expense) benefit										(72)
Income (loss) from operating affiliates										54
Net income (loss)										723
Net (income) loss attributable to noncontrolling interests										—
Net income (loss) available to Arch										723
Preferred dividends										(10)
Net income (loss) available to Arch common shareholders										$	713
Underwriting Ratios
Loss ratio	57.5		%	56.4		%	(12.1)		%	50.7		%
Acquisition expense ratio	19.1		%	19.7		%	0.6		%	17.7		%
Other operating expense ratio	14.3		%	3.9		%	16.2		%	9.5		%
Combined ratio	90.9		%	80.0		%	4.7		%	77.9		%
Goodwill and intangible assets	$	220		$	132		$	387		$	739

(1)    Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. 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.’

ARCH CAPITAL  13 2023 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	Three Months Ended
	September 30, 2022
	Insurance			Reinsurance			Mortgage			Total
Gross premiums written (1)	$	1,862		$	1,639		$	362		$	3,861
Premiums ceded	(493)			(560)			(86)			(1,137)
Net premiums written	1,369			1,079			276			2,724
Change in unearned premiums	(182)			(77)			6			(253)
Net premiums earned	1,187			1,002			282			2,471
Other underwriting income (loss)	—			—			3			3
Losses and loss adjustment expenses	(823)			(928)			68			(1,683)
Acquisition expenses	(233)			(208)			(7)			(448)
Other operating expenses	(165)			(63)			(47)			(275)
Underwriting income (loss)	$	(34)		$	(197)		$	299		68
Net investment income										129
Net realized gains (losses)										(184)
Equity in net income (loss) of investment funds accounted for using the equity method										(19)
Other income (loss)										(14)
Corporate expenses (2)										(18)
Transaction costs and other (2)										—
Amortization of intangible assets										(26)
Interest expense										(33)
Net foreign exchange gains (losses)										91
Income (loss) before income taxes and income (loss) from operating affiliates										(6)
Income tax (expense) benefit										15
Income (loss) from operating affiliates										9
Net income (loss)										18
Net (income) loss attributable to noncontrolling interests										(1)
Net income (loss) available to Arch										17
Preferred dividends										(10)
Net income (loss) available to Arch common shareholders										$	7
Underwriting Ratios
Loss ratio	69.3		%	92.6		%	(24.1)		%	68.1		%
Acquisition expense ratio	19.6		%	20.8		%	2.4		%	18.1		%
Other operating expense ratio	13.9		%	6.3		%	16.5		%	11.1		%
Combined ratio	102.8		%	119.7		%	(5.2)		%	97.3		%
Goodwill and intangible assets	$	225		$	141		$