The following financial supplement is provided to assist in your understanding of Arch Capital Group Ltd. (“Arch Capital”) and its subsidiaries (collectively, the “Company”).
This report is for informational purposes only. It should be read in conjunction with documents filed by Arch Capital 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.archcapgroup.com for further information describing Arch Capital.
Contacts
Arch Capital Group Ltd.
Investor Relations
François Morin: (441) 278-9250
Donald Watson: (914) 872-3616; dwatson@archgroup.com
All financial information contained herein is unaudited, however, certain information relating to the consolidated balance sheet at December 31, 2020 is derived from or agrees to audited financial information. During the 2021 first quarter, the Company changed its presentation of ‘income (loss) from operating affiliates’ on its consolidated statements of income for all periods presented to reclass such item from ‘other income (loss)’. The Company also changed its presentation of ‘investment in operating affiliates’ on its consolidated balance sheet for all periods presented to reclass such item from ‘other assets’. Unless otherwise noted, all data is in thousands, except for share and per share amounts and ratio information.
In March 2014, the Company invested $100.0 million to acquire common equity and a warrant to purchase additional common equity of Watford Holdings Ltd. In accordance with GAAP, the Company consolidated the results of Watford Holdings Ltd. (“Watford”) in its financial statements.Watford was considered a variable interest entity and the Company concluded that it was the primary beneficiary of Watford. As such, 100% of the results of Watford were included in the Company’s consolidated financial statements through June 30, 2021. The portion of Watford’s 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 Watford’s 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 Watford by Greysbridge. Based on the governing documents of Greysbridge, the Company has concluded that, while it will retain significant influence over Watford, Watford no longer constitutes a variable interest entity of which the Company is the primary beneficiary. Accordingly, effective July 1, 2021, Arch no longer consolidates the results of Watford in its consolidated financial statements and footnotes.
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 Capital 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 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 potential replacement of LIBOR 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
Nine Months Ended
September 30,
September 30,
2021
2020
Change
2021
2020
Change
Underwriting results:
Gross premiums written
$
3,207,415
$
2,556,914
25.4
%
$
9,602,213
$
7,461,860
28.7
%
Net premiums written
2,075,929
1,726,828
20.2
%
6,629,208
5,239,829
26.5
%
Net premiums earned
1,929,337
1,625,061
18.7
%
5,666,700
4,763,285
19.0
%
Underwriting income (loss) (2)
173,745
104,877
65.7
%
768,129
251,527
205.4
%
Loss ratio
63.5
%
67.7
%
(4.2)
58.8
%
67.8
%
(9.0)
Acquisition expense ratio
15.9
%
13.8
%
2.1
15.6
%
14.3
%
1.3
Other operating expense ratio
12.0
%
12.4
%
(0.4)
12.4
%
13.0
%
(0.6)
Combined ratio
91.4
%
93.9
%
(2.5)
86.8
%
95.1
%
(8.3)
Net investment income
$
88,195
$
99,857
(11.7)
%
$
256,354
$
313,916
(18.3)
%
Per diluted share
$
0.22
$
0.24
(8.3)
%
$
0.63
$
0.77
(18.2)
%
Net income available to Arch common shareholders
$
388,751
$
408,636
(4.9)
%
$
1,480,324
$
830,768
78.2
%
Per diluted share
$
0.98
$
1.00
(2.0)
%
$
3.66
$
2.02
81.2
%
After-tax operating income available to Arch common shareholders (2)
$
294,688
$
120,321
144.9
%
$
941,673
$
326,691
188.2
%
Per diluted share
$
0.74
$
0.29
155.2
%
$
2.33
$
0.80
191.3
%
Comprehensive income (loss) available to Arch
$
239,078
$
455,907
(47.6)
%
$
1,093,872
$
1,036,243
5.6
%
Net cash provided by operating activities
$
1,014,979
$
963,654
5.3
%
$
2,580,697
$
2,198,037
17.4
%
Weighted average common shares and common share equivalents outstanding — diluted
397,903,347
409,194,657
(2.8)
%
404,260,485
410,314,897
(1.5)
%
Financial measures:
Change in book value per common share during period
1.3
%
4.1
%
(2.8)
7.0
%
8.8
%
(1.8)
Annualized net income return on average common equity
12.3
%
14.3
%
(2.0)
15.9
%
9.9
%
6.0
Annualized operating return on average common equity (2)
9.3
%
4.2
%
5.1
10.1
%
3.9
%
6.2
Total return on investments (3)
0.01
%
2.30
%
-229 bps
1.50
%
5.19
%
-369 bps
(1)Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2)See ‘Comments on Regulation G’ for a further discussion of consolidated underwriting income or loss, after-tax operating income or loss available to Arch common shareholders and annualized operating return on average common equity.
(3)Total return on investments includes net investment income, equity in net income (loss) of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains and losses and is calculated on a pre-tax basis and before investment expenses. See ‘Comments on Regulation G’ for a further discussion of the presentation of total return on investments.
3
Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Income
(U.S. Dollars in thousands, except share data)
Three Months Ended
Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
2020
Revenues
Net premiums earned
$
1,929,337
$
2,120,909
$
1,948,422
$
1,811,045
$
1,771,092
$
5,998,668
$
5,180,890
Net investment income
88,195
111,613
98,856
114,458
128,512
298,664
405,150
Net realized gains (losses)
(25,040)
202,907
142,461
353,333
280,499
320,328
470,127
Other underwriting income
7,274
5,529
6,110
7,852
5,413
18,913
18,932
Equity in net income (loss) of investment funds accounted for using the equity method
105,398
122,186
71,686
89,286
126,735
299,270
57,407
Other income (loss)
(3,960)
6,852
(1,741)
(36)
—
1,151
65
Total revenues
2,101,204
2,569,996
2,265,794
2,375,938
2,312,251
6,936,994
6,132,571
Expenses
Losses and loss adjustment expenses
(1,226,019)
(1,159,831)
(1,203,100)
(1,127,385)
(1,216,273)
(3,588,950)
(3,562,214)
Acquisition expenses
(306,015)
(335,143)
(304,481)
(254,828)
(247,942)
(945,639)
(750,014)
Other operating expenses
(230,832)
(244,943)
(261,033)
(215,697)
(215,686)
(736,808)
(659,479)
Corporate expenses
(19,672)
(15,951)
(25,384)
(25,335)
(17,937)
(61,007)
(56,653)
Amortization of intangible assets
(20,135)
(15,286)
(14,402)
(19,196)
(16,715)
(49,823)
(49,835)
Interest expense
(33,176)
(35,700)
(38,346)
(38,419)
(41,343)
(107,222)
(105,037)
Net foreign exchange gains (losses)
36,078
(17,775)
20,063
(72,209)
(44,885)
38,366
(11,425)
Total expenses
(1,799,771)
(1,824,629)
(1,826,683)
(1,753,069)
(1,800,781)
(5,451,083)
(5,194,657)
Income (loss) before income taxes and income (loss) from operating affiliates
301,433
745,367
439,111
622,869
511,470
1,485,911
937,914
Income tax expense
(4,137)
(51,179)
(38,860)
(34,059)
(23,707)
(94,176)
(77,779)
Income (loss) from operating affiliates
124,119
24,476
75,457
10,504
919
224,052
6,262
Net income (loss)
421,415
718,664
475,708
599,314
488,682
1,615,787
866,397
Net (income) loss attributable to noncontrolling interests
(1,473)
(43,178)
(37,552)
(55,770)
(69,643)
(82,203)
(4,420)
Net income (loss) attributable to Arch
419,942
675,486
438,156
543,544
419,039
1,533,584
861,977
Preferred dividends
(16,090)
(11,666)
(10,403)
(10,403)
(10,403)
(38,159)
(31,209)
Loss on redemption of preferred shares
(15,101)
—
—
—
—
(15,101)
—
Net income (loss) available to Arch common shareholders
$
388,751
$
663,820
$
427,753
$
533,141
$
408,636
$
1,480,324
$
830,768
Comprehensive income (loss) available to Arch
$
239,078
$
699,705
$
155,089
$
646,082
$
455,907
$
1,093,872
$
1,036,243
Net income (loss) per common share and common share equivalent
Basic
$
1.00
$
1.67
$
1.07
$
1.32
$
1.01
$
3.74
$
2.06
Diluted
$
0.98
$
1.63
$
1.05
$
1.30
$
1.00
$
3.66
$
2.02
Weighted average common shares and common share equivalents outstanding
Basic
389,274,220
397,743,402
400,807,895
403,005,335
402,850,485
395,899,591
403,081,266
Diluted
397,903,347
406,485,994
409,223,253
410,281,852
409,194,657
404,260,485
410,314,897
4
Arch Capital Group Ltd. and Subsidiaries
Consolidated Balance Sheets
(U.S. Dollars in thousands, except share data)
September 30,
June 30,
March 31,
December 31,
September 30,
2021
2021
2021
2020
2020
Assets
Investments:
Fixed maturities available for sale, at fair value
$
16,768,363
$
18,073,779
$
18,723,035
$
18,717,825
$
18,452,888
Short-term investments available for sale, at fair value
3,069,965
2,248,613
1,269,631
1,924,922
2,039,097
Collateral received under securities lending, at fair value
—
172,116
143,894
301,096
64,259
Equity securities, at fair value
1,790,640
1,693,552
1,532,906
1,444,830
1,502,015
Other investments
2,043,970
4,571,497
4,435,354
4,324,796
3,749,575
Investments accounted for using the equity method
2,741,293
2,539,124
2,256,327
2,047,889
1,883,702
Total investments
26,414,231
29,298,681
28,361,147
28,761,358
27,691,536
Cash
1,137,721
1,234,059
941,951
906,448
976,398
Accrued investment income
75,832
96,546
101,108
103,299
106,940
Securities pledged under securities lending, at fair value
—
168,548
140,949
294,912
62,749
Investment in operating affiliates
1,111,825
731,810
739,783
129,291
115,411
Premiums receivable
2,807,720
2,866,578
2,618,175
2,064,586
2,225,311
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses
5,358,852
4,314,515
4,041,076
4,500,802
4,621,937
Contractholder receivables
1,824,990
1,882,948
1,919,655
1,986,924
2,185,614
Ceded unearned premiums
1,824,910
1,541,093
1,406,489
1,234,075
1,450,200
Deferred acquisition costs
893,665
1,013,657
919,740
790,708
750,901
Receivable for securities sold
84,019
309,234
199,424
92,743
158,674
Goodwill and intangible assets
963,322
667,153
679,509
692,863
713,777
Other assets
2,286,649
2,357,064
2,135,261
1,724,288
1,656,587
Total assets
$
44,783,736
$
46,481,886
$
44,204,267
$
43,282,297
$
42,716,035
Liabilities
Reserve for losses and loss adjustment expenses
$
17,331,047
$
17,196,648
$
16,443,952
$
16,513,929
$
15,900,526
Unearned premiums
6,165,114
6,011,369
5,549,127
4,838,965
5,062,052
Reinsurance balances payable
1,403,929
1,079,106
919,125
683,263
873,067
Contractholder payables
1,828,474
1,887,418
1,925,508
1,995,562
2,191,515
Collateral held for insured obligations
254,259
235,618
222,245
215,581
221,957
Senior notes
2,724,149
2,861,728
2,861,417
2,861,113
2,860,811
Revolving credit agreement borrowings
—
155,687
155,687
155,687
210,687
Securities lending payable
—
172,109
143,886
301,089
64,251
Payable for securities purchased
357,531
586,881
386,453
218,779
382,236
Other liabilities
1,321,470
1,332,843
1,565,861
1,510,888
1,681,181
Total liabilities
31,385,973
31,519,407
30,173,261
29,294,856
29,448,283
Redeemable noncontrolling interests
10,237
57,533
57,670
58,548
57,835
Shareholders’ equity
Non-cumulative preferred shares
830,000
1,280,000
780,000
780,000
780,000
Common shares
648
647
645
643
642
Additional paid-in capital
2,061,906
2,028,919
2,014,741
1,977,794
1,950,782
Retained earnings
13,842,787
13,454,036
12,790,216
12,362,463
11,829,322
Accumulated other comprehensive income (loss), net of deferred income tax
49,184
230,048
205,827
488,895
386,357
Common shares held in treasury, at cost
(3,396,999)
(3,007,578)
(2,694,957)
(2,503,909)
(2,495,106)
Total shareholders’ equity available to Arch
13,387,526
13,986,072
13,096,472
13,105,886
12,451,997
Non-redeemable noncontrolling interests
—
918,874
876,864
823,007
757,920
Total shareholders’ equity
13,387,526
14,904,946
13,973,336
13,928,893
13,209,917
Total liabilities, noncontrolling interests and shareholders’ equity
$
44,783,736
$
46,481,886
$
44,204,267
$
43,282,297
$
42,716,035
Common shares and common share equivalents outstanding, net of treasury shares
387,257,752
396,771,251
403,313,377
406,720,642
406,018,958
Book value per common share (1)
$
32.43
$
32.02
$
30.54
$
30.31
$
28.75
(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
Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
2020
Non-cumulative preferred shares
Balance at beginning of period
$
1,280,000
$
780,000
$
780,000
$
780,000
$
780,000
$
780,000
$
780,000
Preferred shares issued
—
500,000
—
—
—
500,000
—
Preferred shares redeemed
(450,000)
—
—
—
—
(450,000)
—
Balance at beginning and end of period
$
830,000
$
1,280,000
$
780,000
$
780,000
$
780,000
$
830,000
$
780,000
Common shares
Balance at beginning of period
647
645
643
642
642
643
638
Common shares issued, net
1
2
2
1
—
5
4
Balance at end of period
648
647
645
643
642
648
642
Additional paid-in capital
Balance at beginning of period
2,028,919
2,014,741
1,977,794
1,950,782
1,935,514
1,977,794
1,889,683
Issue costs on preferred shares
—
(14,179)
—
—
—
(14,179)
—
Reversal of original issue costs on redeemed preferred shares
15,101
—
—
—
—
15,101
—
Amortization of share-based compensation
14,216
16,490
40,573
14,663
14,662
71,279
55,872
All other
3,670
11,867
(3,626)
12,349
606
11,911
5,227
Balance at end of period
2,061,906
2,028,919
2,014,741
1,977,794
1,950,782
2,061,906
1,950,782
Retained earnings
Balance at beginning of period
13,454,036
12,790,216
12,362,463
11,829,322
11,420,686
12,362,463
11,021,006
Cumulative effect of an accounting change (1)
—
—
—
—
—
—
(22,452)
Balance at beginning of period, as adjusted
13,454,036
12,790,216
12,362,463
11,829,322
11,420,686
12,362,463
10,998,554
Net income
421,415
718,664
475,708
599,314
488,682
1,615,787
866,397
Amounts attributable to noncontrolling interests
(1,473)
(43,178)
(37,552)
(55,770)
(69,643)
(82,203)
(4,420)
Preferred share dividends
(16,090)
(11,666)
(10,403)
(10,403)
(10,403)
(38,159)
(31,209)
Loss on redemption of preferred shares
(15,101)
—
—
—
—
(15,101)
—
Balance at end of period
13,842,787
13,454,036
12,790,216
12,362,463
11,829,322
13,842,787
11,829,322
Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of period
230,048
205,827
488,895
386,357
349,488
488,895
212,091
Change in unrealized appreciation (decline) in value of available-for-sale investments
(147,825)
17,991
(254,584)
63,008
19,800
(384,418)
179,801
Change in foreign currency translation adjustments
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses
11,736
(218,042)
(161,007)
(366,942)
(282,907)
(367,313)
(477,683)
Equity in net (income) or loss of investment. funds accounted for using the equity method and other income or loss
(191,622)
(45,089)
(135,939)
(78,257)
(95,078)
(372,650)
30,306
Amortization of intangible assets
20,135
15,286
14,402
19,196
16,715
49,823
49,835
Share-based compensation
14,739
16,752
40,812
14,829
14,521
72,303
56,433
Changes in:
Reserve for losses and loss adjustment expenses, net
599,706
388,352
560,153
445,758
509,623
1,548,211
1,668,069
Unearned premiums, net
146,592
278,615
560,035
(53,030)
103,052
985,242
498,811
Premiums receivable
(65,707)
(173,141)
(608,250)
143,123
1,872
(847,098)
(461,766)
Deferred acquisition costs
(33,073)
(88,192)
(126,701)
(36,710)
(14,801)
(247,966)
(107,238)
Reinsurance balances payable
287,110
91,255
240,206
(139,670)
73,459
618,571
205,620
Other items, net
(196,052)
(134,733)
(96,574)
7,444
194,732
(427,359)
2,666
Net cash provided by operating activities
1,014,979
849,727
762,845
555,055
1,009,870
2,627,551
2,331,450
Investing Activities
Purchases of fixed maturity investments
(6,315,639)
(12,023,416)
(11,530,968)
(5,714,394)
(8,640,034)
(29,870,023)
(34,050,883)
Purchases of equity securities
(358,177)
(311,355)
(309,419)
(239,162)
(330,699)
(978,951)
(1,355,848)
Purchases of other investments
(316,922)
(602,173)
(430,961)
(966,841)
(340,194)
(1,350,056)
(841,886)
Proceeds from sales of fixed maturity investments
6,937,404
12,213,254
10,917,134
5,404,479
7,711,837
30,067,792
32,544,867
Proceeds from sales of equity securities
153,343
257,304
284,986
415,471
151,447
695,633
731,793
Proceeds from sales, redemptions and maturities of other investments
715,370
448,958
323,591
237,771
319,619
1,487,919
791,807
Proceeds from redemptions and maturities of fixed maturity investments
428,576
384,794
421,042
225,842
276,052
1,234,412
645,292
Net settlements of derivative instruments
(85,116)
(30,374)
47,660
15,716
12,819
(67,830)
163,290
Net (purchases) sales of short-term investments
(794,712)
(967,261)
589,175
129,670
164,012
(1,172,798)
(1,159,351)
Change in cash collateral related to securities lending
826
(826)
—
—
26,614
—
81,210
Purchase of operating affiliate, net
(207,567)
—
(546,349)
—
—
(753,916)
—
Impact of the deconsolidation of a variable interest entity
(349,202)
—
—
—
—
(349,202)
—
Purchases of fixed assets
(10,822)
(11,095)
(12,490)
(13,155)
(9,030)
(34,407)
(26,717)
Other
(156,968)
41,701
(246,590)
69,795
(140,671)
(361,857)
(131,992)
Net cash provided by (used for) investing activities
(359,606)
(600,489)
(493,189)
(434,808)
(798,228)
(1,453,284)
(2,608,418)
Financing Activities
Proceeds from issuance of preferred shares, net
—
485,821
—
—
—
485,821
—
Redemption of preferred shares
(450,000)
—
—
—
—
(450,000)
—
Purchases of common shares under share repurchase program
(386,882)
(306,049)
(179,266)
(7,986)
—
(872,197)
(75,486)
Proceeds from common shares issued, net
96
10,193
(10,008)
11,532
5
281
(9,656)
Proceeds from borrowings
—
—
—
—
13,875
—
1,018,793
Repayments of borrowings
—
—
—
(55,000)
(139,000)
—
(304,000)
Change in cash collateral related to securities lending
(826)
826
—
—
(26,614)
—
(81,210)
Change in third party investment in non-redeemable noncontrolling interests
—
—
15,971
—
—
15,971
(2,867)
Dividends paid to redeemable noncontrolling interests
—
(959)
(948)
(1,404)
(1,001)
(1,907)
(3,541)
Other
(49,391)
29,587
(1,948)
18,449
57,891
(21,752)
55,266
Preferred dividends paid
(17,291)
(10,402)
(10,403)
(10,403)
(10,403)
(38,096)
(31,209)
Net cash provided by (used for) financing activities
(904,294)
209,017
(186,602)
(44,812)
(105,247)
(881,879)
566,090
Effects of exchange rate changes on foreign currency cash and restricted cash
(20,633)
(7,306)
(6,084)
28,136
15,895
(34,023)
(5,847)
Increase (decrease) in cash and restricted cash
(269,554)
450,949
76,970
103,571
122,290
258,365
283,275
Cash and restricted cash, beginning of period
1,818,463
1,367,514
1,290,544
1,186,973
1,064,683
1,290,544
903,698
Cash and restricted cash, end of period
$
1,548,909
$
1,818,463
$
1,367,514
$
1,290,544
$
1,186,973
$
1,548,909
$
1,186,973
Income taxes paid (received)
$
61,343
$
133,997
$
7,099
$
56,126
$
136,404
$
202,439
$
146,814
Interest paid
$
1,104
$
73,711
$
988
$
72,936
$
3,141
$
75,803
$
60,555
Net cash provided by operating activities, excluding the ‘other’ segment
$
1,014,979
$
809,790
$
755,928
$
507,017
$
963,654
$
2,580,697
$
2,198,037
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 (non-underwriting). 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 Capital, the Chief Financial Officer and Treasurer of Arch Capital and the President and Chief Underwriting Officer of Arch Capital. The chief operating decision makers do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures segment performance for its three core underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment and, accordingly, investment income is not allocated to each underwriting segment.
The Company determined its reportable operating segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.
Insurance Segment
The insurance segment consists of the Company’s insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:
• Construction and national accounts: primary and excess casualty coverages to middle and large accounts in the construction industry and a wide range of products for middle and large national accounts, specializing in loss sensitive primary casualty insurance programs (including large deductible, self-insured retention and retrospectively rated programs).
• Excess and surplus casualty: primary and excess casualty insurance coverages, including middle market energy business, and contract binding, which primarily provides casualty coverage through a network of appointed agents to small and medium risks.
• Lenders products: collateral protection, debt cancellation and service contract reimbursement products to banks, credit unions, automotive dealerships and original equipment manufacturers and other specialty programs that pertain to automotive lending and leasing.
• Professional lines: directors’ and officers’ liability, errors and omissions liability, employment practices liability, fiduciary liability, crime, professional indemnity and other financial related coverages for corporate, private equity, venture capital, real estate investment trust, limited partnership, financial institution and not-for-profit clients of all sizes and medical professional and general liability insurance coverages for the healthcare industry. The business is predominately written on a claims-made basis.
• Programs: primarily package policies, underwriting workers’ compensation and umbrella liability business in support of desirable package programs, targeting program managers with unique expertise and niche products offering general liability, commercial automobile, inland marine and property business with minimal catastrophe exposure.
• Property, energy, marine and aviation: primary and excess general property insurance coverages, including catastrophe-exposed property coverage, for commercial clients. Coverages for marine include hull, war, specie and liability. Aviation and stand alone terrorism are also offered.
• Travel, accident and health: specialty travel and accident and related insurance products for individual, group travelers, travel agents and suppliers, as well as accident and health, which provides accident, disability and medical plan insurance coverages for employer groups, medical plan members, students and other participant groups.
• Other: includes alternative market risks (including captive insurance programs), excess workers’ compensation and employer’s liability insurance coverages for qualified self-insured groups, associations and trusts, and contract and commercial surety coverages, including contract bonds (payment and performance bonds) primarily for medium and large contractors and commercial surety bonds for Fortune 1,000 companies and smaller transaction business programs.
8
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Overview
Reinsurance Segment
The reinsurance segment consists of the Company’s reinsurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:
•Casualty: provides coverage to ceding company clients on third party liability and workers’ compensation exposures from ceding company clients, primarily on a treaty basis. Exposures include, among others, executive assurance, professional liability, workers’ compensation, excess and umbrella liability, excess motor and healthcare business.
•Marine and aviation: provides coverage for energy, hull, cargo, specie, liability and transit, and aviation business, including airline and general aviation risks. Business written may also include space business, which includes coverages for satellite assembly, launch and operation for commercial space programs.
•Other specialty: provides coverage to ceding company clients for proportional motor and other lines including surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and political risk.
•Property catastrophe: provides protection for most catastrophic losses that are covered in the underlying policies written by reinsureds, including hurricane, earthquake, flood, tornado, hail and fire, and coverage for other perils on a case-by-case basis. Property catastrophe reinsurance provides coverage on an excess of loss basis when aggregate losses and loss adjustment expense from a single occurrence of a covered peril exceed the retention specified in the contract.
•Property excluding property catastrophe: provides coverage for both personal lines and commercial property exposures and principally covers buildings, structures, equipment and contents. The primary perils in this business include fire, explosion, collapse, riot, vandalism, wind, tornado, flood and earthquake. Business is assumed on both a proportional and excess of loss basis. In addition, facultative business is written which focuses on commercial property risks on an excess of loss basis.
•Other. includes life reinsurance business on both a proportional and non-proportional basis, casualty clash business and, in limited instances, non-traditional business which is intended to provide insurers with risk management solutions that complement traditional reinsurance.
Mortgage Segment
The mortgage segment includes the Company’s U.S. and international mortgage insurance and reinsurance operations as well as government sponsored enterprise (“GSE”) credit-risk sharing transactions. Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (combined “Arch MI U.S.”) are approved as eligible mortgage insurers by Fannie Mae and Freddie Mac.
Corporate (Non-Underwriting) Segment
The corporate (non-underwriting) segment results include net investment income, other income (loss), corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, items related to the Company’s non-cumulative preferred shares, 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, income or loss from operating affiliates and income taxes. Such amounts exclude the results of the ‘other’ segment.
Other Segment
Through June 30, 2021, the ‘other’ segment included the results of Watford. Pursuant to GAAP, Watford was considered a variable interest entity and the Company concluded that it was the primary beneficiary of Watford. As such, the Company consolidated the results of Watford in its consolidated financial statements through June 30, 2021. The portion of Watford’s 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 Watford by Greysbridge. Based on the governing documents of Greysbridge, the Company has concluded that, while it retains significant influence over Watford, Watford no longer constitutes a variable interest entity of which the Company is the primary beneficiary. Accordingly, effective July 1, 2021, Arch no longer consolidates the results of Watford in its consolidated financial statements.
9
Arch Capital Group Ltd. and Subsidiaries
Segment Information
(U.S. Dollars in thousands)
Three Months Ended
September 30, 2021
Insurance
Reinsurance
Mortgage
Sub-total (Core)
Other
Total
Gross premiums written (1)
$
1,596,619
$
1,251,760
$
360,934
$
3,207,415
$
—
$
3,207,415
Premiums ceded
(442,806)
(630,371)
(60,207)
(1,131,486)
—
(1,131,486)
Net premiums written
1,153,813
621,389
300,727
2,075,929
—
2,075,929
Change in unearned premiums
(215,143)
57,313
11,238
(146,592)
—
(146,592)
Net premiums earned
938,670
678,702
311,965
1,929,337
—
1,929,337
Other underwriting income (loss)
—
3,293
3,981
7,274
—
7,274
Losses and loss adjustment expenses
(668,630)
(545,846)
(11,543)
(1,226,019)
—
(1,226,019)
Acquisition expenses
(152,467)
(129,450)
(24,098)
(306,015)
—
(306,015)
Other operating expenses
(138,931)
(45,647)
(46,254)
(230,832)
—
(230,832)
Underwriting income (loss)
$
(21,358)
$
(38,948)
$
234,051
173,745
—
173,745
Net investment income
88,195
—
88,195
Net realized gains (losses)
(25,040)
—
(25,040)
Equity in net income (loss) of investment funds accounted for using the equity method
105,398
—
105,398
Other income (loss)
(3,960)
—
(3,960)
Corporate expenses (2)
(18,636)
—
(18,636)
Transaction costs and other (2)
(1,036)
—
(1,036)
Amortization of intangible assets
(20,135)
—
(20,135)
Interest expense
(33,176)
—
(33,176)
Net foreign exchange gains (losses)
36,078
—
36,078
Income (loss) before income taxes and income (loss) from operating affiliates
301,433
—
301,433
Income tax (expense) benefit
(4,137)
—
(4,137)
Income (loss) from operating affiliates
124,119
—
124,119
Net income (loss)
421,415
—
421,415
Dividends attributable to redeemable noncontrolling interests
(1,473)
—
(1,473)
Net income (loss) available to Arch
419,942
—
419,942
Preferred dividends
(16,090)
—
(16,090)
Loss on redemption of preferred shares
(15,101)
—
(15,101)
Net income (loss) available to Arch common shareholders
$
388,751
$
—
$
388,751
Underwriting Ratios
Loss ratio
71.2
%
80.4
%
3.7
%
63.5
%
—
%
63.5
%
Acquisition expense ratio
16.2
%
19.1
%
7.7
%
15.9
%
—
%
15.9
%
Other operating expense ratio
14.8
%
6.7
%
14.8
%
12.0
%
—
%
12.0
%
Combined ratio
102.2
%
106.2
%
26.2
%
91.4
%
—
%
91.4
%
Net premiums written to gross premiums written
72.3
%
49.6
%
83.3
%
64.7
%
—
%
64.7
%
Total investable assets
$
27,278,440
$
—
$
27,278,440
Total assets
44,783,736
—
44,783,736
Total liabilities
31,385,973
—
31,385,973
(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
September 30, 2020
Insurance
Reinsurance
Mortgage
Sub-total (Core)
Other
Total
Gross premiums written (1)
$
1,206,328
$
1,004,590
$
346,248
$
2,556,914
$
197,480
$
2,681,032
Premiums ceded
(382,167)
(400,388)
(47,783)
(830,086)
(50,164)
(806,888)
Net premiums written
824,161
604,202
298,465
1,726,828
147,316
1,874,144
Change in unearned premiums
(105,007)
(49,704)
52,944
(101,767)
(1,285)
(103,052)
Net premiums earned
719,154
554,498
351,409
1,625,061
146,031
1,771,092
Other underwriting income (loss)
(31)
298
4,600
4,867
546
5,413
Losses and loss adjustment expenses
(525,321)
(422,084)
(153,055)
(1,100,460)
(115,813)
(1,216,273)
Acquisition expenses
(102,420)
(85,388)
(35,716)
(223,524)
(24,418)
(247,942)
Other operating expenses
(122,541)
(41,818)
(36,708)
(201,067)
(14,619)
(215,686)
Underwriting income (loss)
$
(31,159)
$
5,506
$
130,530
104,877
(8,273)
96,604
Net investment income
99,857
28,655
128,512
Net realized gains (losses)
210,984
69,515
280,499
Equity in net income (loss) of investment funds accounted for using the equity method
126,735
—
126,735
Other income (loss)
—
—
—
Corporate expenses (2)
(16,263)
—
(16,263)
Transaction costs and other (2)
(1,674)
—
(1,674)
Amortization of intangible assets
(16,715)
—
(16,715)
Interest expense
(36,224)
(5,119)
(41,343)
Net foreign exchange gains (losses)
(38,681)
(6,204)
(44,885)
Income (loss) before income taxes and income (loss) from operating affiliates
432,896
78,574
511,470
Income tax (expense) benefit
(23,638)
(69)
(23,707)
Income (loss) from operating affiliates
919
—
919
Net income (loss)
410,177
78,505
488,682
Dividends attributable to redeemable noncontrolling interests
(882)
(993)
(1,875)
Amounts attributable to nonredeemable noncontrolling interests
—
(67,768)
(67,768)
Net income (loss) available to Arch
409,295
9,744
419,039
Preferred dividends
(10,403)
—
(10,403)
Net income (loss) available to Arch common shareholders
$
398,892
$
9,744
$
408,636
Underwriting Ratios
Loss ratio
73.0
%
76.1
%
43.6
%
67.7
%
79.3
%
68.7
%
Acquisition expense ratio
14.2
%
15.4
%
10.2
%
13.8
%
16.7
%
14.0
%
Other operating expense ratio
17.0
%
7.5
%
10.4
%
12.4
%
10.0
%
12.2
%
Combined ratio
104.2
%
99.0
%
64.2
%
93.9
%
106.0
%
94.9
%
Net premiums written to gross premiums written
68.3
%
60.1
%
86.2
%
67.5
%
74.6
%
69.9
%
Total investable assets
$
25,724,501
$
2,693,452
$
28,417,953
Total assets
39,105,137
3,610,898
42,716,035
Total liabilities
26,747,061
2,701,222
29,448,283
(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)
Nine Months Ended
September 30, 2021
Insurance
Reinsurance
Mortgage
Sub-total (Core)
Other
Total
Gross premiums written (1)
$
4,381,372
$
4,080,840
$
1,143,691
$
9,602,213
$
457,465
$
9,890,912
Premiums ceded
(1,269,165)
(1,535,607)
(171,923)
(2,973,005)
(102,763)
(2,907,002)
Net premiums written
3,112,207
2,545,233
971,768
6,629,208
354,702
6,983,910
Change in unearned premiums
(488,636)
(484,607)
10,735
(962,508)
(22,734)
(985,242)
Net premiums earned
2,623,571
2,060,626
982,503
5,666,700
331,968
5,998,668
Other underwriting income (loss)
—
3,148
15,026
18,174
739
18,913
Losses and loss adjustment expenses
(1,750,257)
(1,494,539)
(85,112)
(3,329,908)
(259,042)
(3,588,950)
Acquisition expenses
(417,541)
(381,060)
(84,297)
(882,898)
(62,741)
(945,639)
Other operating expenses
(409,386)
(150,856)
(143,697)
(703,939)
(32,869)
(736,808)
Underwriting income (loss)
$
46,387
$
37,319
$
684,423
768,129
(21,945)
746,184
Net investment income
256,354
42,310
298,664
Net realized gains (losses)
239,690
80,638
320,328
Equity in net income (loss) of investment funds accounted for using the equity method
299,270
—
299,270
Other income (loss)
1,151
—
1,151
Corporate expenses (2)
(59,279)
—
(59,279)
Transaction costs and other (2)
(793)
(935)
(1,728)
Amortization of intangible assets
(48,925)
(898)
(49,823)
Interest expense
(98,812)
(8,410)
(107,222)
Net foreign exchange gains (losses)
39,691
(1,325)
38,366
Income (loss) before income taxes and income (loss) from operating affiliates
1,396,476
89,435
1,485,911
Income tax (expense) benefit
(93,942)
(234)
(94,176)
Income (loss) from operating affiliates
224,052
—
224,052
Net income (loss)
1,526,586
89,201
1,615,787
Dividends attributable to redeemable noncontrolling interests
(1,936)
(1,953)
(3,889)
Amounts attributable to nonredeemable noncontrolling interests
—
(78,314)
(78,314)
Net income (loss) available to Arch
1,524,650
8,934
1,533,584
Preferred dividends
(38,159)
—
(38,159)
Loss on redemption of preferred shares
(15,101)
—
(15,101)
Net income (loss) available to Arch common shareholders
$
1,471,390
$
8,934
$
1,480,324
Underwriting Ratios
Loss ratio
66.7
%
72.5
%
8.7
%
58.8
%
78.0
%
59.8
%
Acquisition expense ratio
15.9
%
18.5
%
8.6
%
15.6
%
18.9
%
15.8
%
Other operating expense ratio
15.6
%
7.3
%
14.6
%
12.4
%
9.9
%
12.3
%
Combined ratio
98.2
%
98.3
%
31.9
%
86.8
%
106.8
%
87.9
%
Net premiums written to gross premiums written
71.0
%
62.4
%
85.0
%
69.0
%
77.5
%
70.6
%
(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)
Nine Months Ended
September 30, 2020
Insurance
Reinsurance
Mortgage
Sub-total (Core)
Other
Total
Gross premiums written (1)
$
3,444,335
$
2,934,174
$
1,084,337
$
7,461,860
$
590,309
$
7,831,554
Premiums ceded
(1,119,165)
(967,698)
(136,154)
(2,222,031)
(150,437)
(2,151,853)
Net premiums written
2,325,170
1,966,476
948,183
5,239,829
439,872
5,679,701
Change in unearned premiums
(202,188)
(388,321)
113,965
(476,544)
(22,267)
(498,811)
Net premiums earned
2,122,982
1,578,155
1,062,148
4,763,285
417,605
5,180,890
Other underwriting income (loss)
(31)
1,767
15,649
17,385
1,547
18,932
Losses and loss adjustment expenses
(1,550,632)
(1,235,586)
(444,721)
(3,230,939)
(331,275)
(3,562,214)
Acquisition expenses
(317,428)
(255,516)
(108,304)
(681,248)
(68,766)
(750,014)
Other operating expenses
(370,947)
(125,831)
(120,178)
(616,956)
(42,523)
(659,479)
Underwriting income (loss)
$
(116,056)
$
(37,011)
$
404,594
251,527
(23,412)
228,115
Net investment income
313,916
91,234
405,150
Net realized gains (losses)
523,964
(53,837)
470,127
Equity in net income (loss) of investment funds accounted for using the equity method
57,407
—
57,407
Other income (loss)
65
—
65
Corporate expenses (2)
(51,407)
—
(51,407)
Transaction costs and other (2)
(5,246)
—
(5,246)
Amortization of intangible assets
(49,835)
—
(49,835)
Interest expense
(86,599)
(18,438)
(105,037)
Net foreign exchange gains (losses)
(17,812)
6,387
(11,425)
Income (loss) before income taxes and income (loss) from operating affiliates
935,980
1,934
937,914
Income tax (expense) benefit
(78,112)
333
(77,779)
Income (loss) from operating affiliates
6,262
—
6,262
Net income (loss)
864,130
2,267
866,397
Dividends attributable to redeemable noncontrolling interests
(1,873)
(3,125)
(4,998)
Amounts attributable to nonredeemable noncontrolling interests
—
578
578
Net income (loss) available to Arch
862,257
(280)
861,977
Preferred dividends
(31,209)
—
(31,209)
Net income (loss) available to Arch common shareholders
$
831,048
$
(280)
$
830,768
Underwriting Ratios
Loss ratio
73.0
%
78.3
%
41.9
%
67.8
%
79.3
%
68.8
%
Acquisition expense ratio
15.0
%
16.2
%
10.2
%
14.3
%
16.5
%
14.5
%
Other operating expense ratio
17.5
%
8.0
%
11.3
%
13.0
%
10.2
%
12.7
%
Combined ratio
105.5
%
102.5
%
63.4
%
95.1
%
106.0
%
96.0
%
Net premiums written to gross premiums written
67.5
%
67.0
%
87.4
%
70.2
%
74.5
%
72.5
%
(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.
(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘Transaction costs and other.’ See ‘Comments on Regulation G’ for a further discussion of such items.
13
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Insurance Segment
(U.S. Dollars in thousands)
Three Months Ended
Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
2020
Gross premiums written
$
1,596,619
$
1,368,867
$
1,415,886
$
1,244,227
$
1,206,328
$
4,381,372
$
3,444,335
Premiums ceded
(442,806)
(405,312)
(421,047)
(406,490)
(382,167)
(1,269,165)
(1,119,165)
Net premiums written
1,153,813
963,555
994,839
837,737
824,161
3,112,207
2,325,170
Change in unearned premiums
(215,143)
(98,128)
(175,365)
(89,299)
(105,007)
(488,636)
(202,188)
Net premiums earned
938,670
865,427
819,474
748,438
719,154
2,623,571
2,122,982
Other underwriting income (loss)
—
—
—
—
(31)
—
(31)
Losses and loss adjustment expenses
(668,630)
(545,880)
(535,747)
(541,821)
(525,321)
(1,750,257)
(1,550,632)
Acquisition expenses
(152,467)
(136,852)
(128,222)
(101,055)
(102,420)
(417,541)
(317,428)
Other operating expenses
(138,931)
(133,342)
(137,113)
(118,206)
(122,541)
(409,386)
(370,947)
Underwriting income (loss)
$
(21,358)
$
49,353
$
18,392
$
(12,644)
$
(31,159)
$
46,387
$
(116,056)
Underwriting Ratios
Loss ratio
71.2
%
63.1
%
65.4
%
72.4
%
73.0
%
66.7
%
73.0
%
Acquisition expense ratio
16.2
%
15.8
%
15.6
%
13.5
%
14.2
%
15.9
%
15.0
%
Other operating expense ratio
14.8
%
15.4
%
16.7
%
15.8
%
17.0
%
15.6
%
17.5
%
Combined ratio
102.2
%
94.3
%
97.7
%
101.7
%
104.2
%
98.2
%
105.5
%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums
12.2
%
3.2
%
5.1
%
8.3
%
10.3
%
7.0
%
9.9
%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments
(0.5)
%
(0.3)
%
(0.7)
%
(0.2)
%
(0.2)
%
(0.5)
%
(0.2)
%
Combined ratio excluding catastrophic activity and prior year development (1)
90.5
%
91.4
%
93.3
%
93.6
%
94.1
%
91.7
%
95.8
%
Net premiums written to gross premiums written
72.3
%
70.4
%
70.3
%
67.3
%
68.3
%
71.0
%
67.5
%
(1)See ‘Comments on Regulation G’ for further discussion.
14
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Insurance Segment
(U.S. Dollars in thousands)
Three Months Ended
Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
2020
Net premiums written
Property, energy, marine and aviation
$
215,062
18.6
%
$
207,762
21.6
%
$
170,498
17.1
%
$
179,455
21.4
%
$
152,193
18.5
%
$
593,322
19.1
%
$
439,579
18.9
%
Professional lines (1)
310,185
26.9
%
254,961
26.5
%
238,246
23.9
%
217,306
25.9
%
199,163
24.2
%
803,392
25.8
%
526,180
22.6
%
Programs
196,048
17.0
%
149,373
15.5
%
158,401
15.9
%
96,743
11.5
%
123,768
15.0
%
503,822
16.2
%
341,230
14.7
%
Construction and national accounts
92,253
8.0
%
77,579
8.1
%
134,792
13.5
%
102,171
12.2
%
88,790
10.8
%
304,624
9.8
%
261,933
11.3
%
Excess and surplus casualty (2)
98,320
8.5
%
74,346
7.7
%
85,593
8.6
%
88,319
10.5
%
78,889
9.6
%
258,259
8.3
%
209,011
9.0
%
Travel, accident and health
62,837
5.4
%
71,071
7.4
%
92,306
9.3
%
29,959
3.6
%
28,972
3.5
%
226,214
7.3
%
183,015
7.9
%
Lenders products
38,905
3.4
%
40,386
4.2
%
34,860
3.5
%
38,307
4.6
%
60,830
7.4
%
114,151
3.7
%
117,812
5.1
%
Other (3)
140,203
12.2
%
88,077
9.1
%
80,143
8.1
%
85,477
10.2
%
91,556
11.1
%
308,423
9.9
%
246,410
10.6
%
Total
$
1,153,813
100.0
%
$
963,555
100.0
%
$
994,839
100.0
%
$
837,737
100.0
%
$
824,161
100.0
%
$
3,112,207
100.0
%
$
2,325,170
100.0
%
Underwriting location
United States
$
797,395
69.1
%
$
658,964
68.4
%
$
675,840
67.9
%
$
527,824
63.0
%
$
574,699
69.7
%
$
2,132,199
68.5
%
$
1,630,591
70.1
%
Europe
301,877
26.2
%
254,602
26.4
%
276,122
27.8
%
266,761
31.8
%
212,203
25.7
%
832,601
26.8
%
589,811
25.4
%
Other
54,541
4.7
%
49,989
5.2
%
42,877
4.3
%
43,152
5.2
%
37,259
4.5
%
147,407
4.7
%
104,768
4.5
%
Total
$
1,153,813
100.0
%
$
963,555
100.0
%
$
994,839
100.0
%
$
837,737
100.0
%
$
824,161
100.0
%
$
3,112,207
100.0
%
$
2,325,170
100.0
%
Net premiums earned
Property, energy, marine and aviation
$
187,905
20.0
%
$
167,716
19.4
%
$
157,259
19.2
%
$
151,456
20.2
%
$
133,827
18.6
%
$
512,880
19.5
%
$
365,791
17.2
%
Professional lines (1)
249,007
26.5
%
214,098
24.7
%
199,671
24.4
%
180,858
24.2
%
168,502
23.4
%
662,776
25.3
%
475,014
22.4
%
Programs
137,299
14.6
%
118,974
13.7
%
112,840
13.8
%
110,651
14.8
%
104,861
14.6
%
369,113
14.1
%
322,203
15.2
%
Construction and national accounts
94,523
10.1
%
95,849
11.1
%
102,671
12.5
%
101,243
13.5
%
95,386
13.3
%
293,043
11.2
%
286,691
13.5
%
Excess and surplus casualty (2)
84,048
9.0
%
72,899
8.4
%
75,367
9.2
%
74,579
10.0
%
69,978
9.7
%
232,314
8.9
%
196,041
9.2
%
Travel, accident and health
56,102
6.0
%
62,610
7.2
%
49,666
6.1
%
24,726
3.3
%
36,726
5.1
%
168,378
6.4
%
166,218
7.8
%
Lenders products
33,030
3.5
%
46,396
5.4
%
40,081
4.9
%
32,832
4.4
%
33,401
4.6
%
119,507
4.6
%
81,855
3.9
%
Other (3)
96,756
10.3
%
86,885
10.0
%
81,919
10.0
%
72,093
9.6
%
76,473
10.6
%
265,560
10.1
%
229,169
10.8
%
Total
$
938,670
100.0
%
$
865,427
100.0
%
$
819,474
100.0
%
$
748,438
100.0
%
$
719,154
100.0
%
$
2,623,571
100.0
%
$
2,122,982
100.0
%
(1) Includes professional liability, executive assurance and healthcare business.
(2) Includes casualty and contract binding business.
(3) Includes alternative markets, excess workers’ compensation and surety business.
15
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Reinsurance Segment
(U.S. Dollars in thousands)
Three Months Ended
Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
2020
Gross premiums written
$
1,251,760
$
1,358,020
$
1,471,060
$
537,912
$
1,004,590
$
4,080,840
$
2,934,174
Premiums ceded
(630,371)
(433,288)
(471,948)
(47,018)
(400,388)
(1,535,607)
(967,698)
Net premiums written
621,389
924,732
999,112
490,894
604,202
2,545,233
1,966,476
Change in unearned premiums
57,313
(187,708)
(354,212)
93,180
(49,704)
(484,607)
(388,321)
Net premiums earned
678,702
737,024
644,900
584,074
554,498
2,060,626
1,578,155
Other underwriting income (loss)
3,293
1,053
(1,198)
2,687
298
3,148
1,767
Losses and loss adjustment expenses
(545,846)
(463,823)
(484,870)
(392,734)
(422,084)
(1,494,539)
(1,235,586)
Acquisition expenses
(129,450)
(133,585)
(118,025)
(98,532)
(85,388)
(381,060)
(255,516)
Other operating expenses
(45,647)
(44,695)
(60,514)
(42,180)
(41,818)
(150,856)
(125,831)
Underwriting income (loss)
$
(38,948)
$
95,974
$
(19,707)
$
53,315
$
5,506
$
37,319
$
(37,011)
Underwriting Ratios
Loss ratio
80.4
%
62.9
%
75.2
%
67.2
%
76.1
%
72.5
%
78.3
%
Acquisition expense ratio
19.1
%
18.1
%
18.3
%
16.9
%
15.4
%
18.5
%
16.2
%
Other operating expense ratio
6.7
%
6.1
%
9.4
%
7.2
%
7.5
%
7.3
%
8.0
%
Combined ratio
106.2
%
87.1
%
102.9
%
91.3
%
99.0
%
98.3
%
102.5
%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums
32.6
%
2.5
%
22.7
%
16.1
%
23.3
%
18.7
%
20.2
%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments
(9.6)
%
(2.5)
%
(3.8)
%
(6.9)
%
(7.4)
%
(5.3)
%
(5.1)
%
Combined ratio excluding catastrophic activity and prior year development (1)
83.2
%
87.1
%
84.0
%
82.1
%
83.1
%
84.9
%
87.4
%
Net premiums written to gross premiums written
49.6
%
68.1
%
67.9
%
91.3
%
60.1
%
62.4
%
67.0
%
(1)See ‘Comments on Regulation G’ for further discussion.
16
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Reinsurance Segment
(U.S. Dollars in thousands)
Three Months Ended
Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
2020
Net premiums written
Property excluding property catastrophe
$
237,025
38.1
%
$
249,101
26.9
%
$
292,833
29.3
%
$
150,643
30.7
%
$
223,880
37.1
%
$
778,959
30.6
%
$
546,443
27.8
%
Property catastrophe
(7,125)
(1.1)
%
87,642
9.5
%
117,207
11.7
%
37,317
7.6
%
42,125
7.0
%
197,724
7.8
%
248,893
12.7
%
Other specialty (1)
167,006
26.9
%
296,325
32.0
%
284,331
28.5
%
147,012
29.9
%
159,969
26.5
%
747,662
29.4
%
562,296
28.6
%
Casualty (2)
187,066
30.1
%
225,890
24.4
%
218,256
21.8
%
103,989
21.2
%
142,401
23.6
%
631,212
24.8
%
438,330
22.3
%
Marine and aviation
19,159
3.1
%
50,248
5.4
%
61,638
6.2
%
31,418
6.4
%
27,839
4.6
%
131,045
5.1
%
109,996
5.6
%
Other (3)
18,258
2.9
%
15,526
1.7
%
24,847
2.5
%
20,515
4.2
%
7,988
1.3
%
58,631
2.3
%
60,518
3.1
%
Total
$
621,389
100.0
%
$
924,732
100.0
%
$
999,112
100.0
%
$
490,894
100.0
%
$
604,202
100.0
%
$
2,545,233
100.0
%
$
1,966,476
100.0
%
Underwriting location
Bermuda
$
221,336
35.6
%
$
477,609
51.6
%
$
518,241
51.9
%
$
187,727
38.2
%
$
240,193
39.8
%
$
1,217,186
47.8
%
$
814,263
41.4
%
United States
207,815
33.4
%
211,509
22.9
%
208,101
20.8
%
148,994
30.4
%
189,135
31.3
%
627,425
24.7
%
538,628
27.4
%
Europe and other
192,238
30.9
%
235,614
25.5
%
272,770
27.3
%
154,173
31.4
%
174,874
28.9
%
700,622
27.5
%
613,585
31.2
%
Total
$
621,389
100.0
%
$
924,732
100.0
%
$
999,112
100.0
%
$
490,894
100.0
%
$
604,202
100.0
%
$
2,545,233
100.0
%
$
1,966,476
100.0
%
Net premiums earned
Property excluding property catastrophe
$
210,280
31.0
%
$
202,780
27.5
%
$
187,782
29.1
%
$
162,456
27.8
%
$
163,081
29.4
%
$
600,842
29.2
%
$
399,752
25.3
%
Property catastrophe
61,107
9.0
%
76,167
10.3
%
88,011
13.6
%
59,986
10.3
%
69,524
12.5
%
225,285
10.9
%
177,750
11.3
%
Other specialty (1)
195,649
28.8
%
211,817
28.7
%
163,898
25.4
%
158,817
27.2
%
141,201
25.5
%
571,364
27.7
%
467,592
29.6
%
Casualty (2)
159,697
23.5
%
183,846
24.9
%
149,031
23.1
%
144,808
24.8
%
136,421
24.6
%
492,574
23.9
%
404,248
25.6
%
Marine and aviation
29,818
4.4
%
42,773
5.8
%
40,108
6.2
%
33,062
5.7
%
26,744
4.8
%
112,699
5.5
%
76,562
4.9
%
Other (3)
22,151
3.3
%
19,641
2.7
%
16,070
2.5
%
24,945
4.3
%
17,527
3.2
%
57,862
2.8
%
52,251
3.3
%
Total
$
678,702
100.0
%
$
737,024
100.0
%
$
644,900
100.0
%
$
584,074
100.0
%
$
554,498
100.0
%
$
2,060,626
100.0
%
$
1,578,155
100.0
%
(1) Includes proportional motor, surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and other.
(2) Includes executive assurance, professional liability, workers’ compensation, excess motor, healthcare and other.
(3) Includes life, casualty clash and other.
17
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
(U.S. Dollars in thousands)
Three Months Ended
Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
2020
Gross premiums written
$
360,934
$
391,511
$
391,246
$
389,662
$
346,248
$
1,143,691
$
1,084,337
Premiums ceded
(60,207)
(55,665)
(56,051)
(57,995)
(47,783)
(171,923)
(136,154)
Net premiums written
300,727
335,846
335,195
331,667
298,465
971,768
948,183
Change in unearned premiums
11,238
(1,625)
1,122
4,120
52,944
10,735
113,965
Net premiums earned
311,965
334,221
336,317
335,787
351,409
982,503
1,062,148
Other underwriting income (1)
3,981
4,148
6,897
4,667
4,600
15,026
15,649
Losses and loss adjustment expenses
(11,543)
(9,880)
(63,689)
(83,623)
(153,055)
(85,112)
(444,721)
Acquisition expenses
(24,098)
(30,117)
(30,082)
(25,936)
(35,716)
(84,297)
(108,304)
Other operating expenses
(46,254)
(48,312)
(49,131)
(42,024)
(36,708)
(143,697)
(120,178)
Underwriting income
$
234,051
$
250,060
$
200,312
$
188,871
$
130,530
$
684,423
$
404,594
Underwriting Ratios
Loss ratio
3.7
%
3.0
%
18.9
%
24.9
%
43.6
%
8.7
%
41.9
%
Acquisition expense ratio
7.7
%
9.0
%
8.9
%
7.7
%
10.2
%
8.6
%
10.2
%
Other operating expense ratio
14.8
%
14.5
%
14.6
%
12.5
%
10.4
%
14.6
%
11.3
%
Combined ratio
26.2
%
26.5
%
42.4
%
45.1
%
64.2
%
31.9
%
63.4
%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments
(15.5)
%
(13.1)
%
(3.4)
%
(2.4)
%
(1.3)
%
(10.6)
%
(1.0)
%
Combined ratio excluding prior year development (2)
41.7
%
39.6
%
45.8
%
47.5
%
65.5
%
42.5
%
64.4
%
Net premiums written to gross premiums written
83.3
%
85.8
%
85.7
%
85.1
%
86.2
%
85.0
%
87.4
%
Net premiums written by underwriting location
United States
$
221,315
$
234,645
$
247,529
$
250,747
$
245,971
$
703,489
$
771,203
Other
79,412
101,201
87,666
80,920
52,494
268,279
176,980
Total
$
300,727
$
335,846
$
335,195
$
331,667
$
298,465
$
971,768
$
948,183
United States %
73.6
%
69.9
%
73.8
%
75.6
%
82.4
%
72.4
%
81.3
%
Other %
26.4
%
30.1
%
26.2
%
24.4
%
17.6
%
27.6
%
18.7
%
(1) Primarily related to income earned on various risk-sharing products offered to government sponsored enterprises and mortgage lenders.
(2) See ‘Comments on Regulation G’ for further discussion.
18
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
(U.S. Dollars in millions)
September 30, 2021
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
Insurance In Force (IIF) (1)
U.S. primary mortgage insurance
$
280,379
61.3
%
$
277,887
65.8
%
$
276,179
64.7
%
$
280,579
66.2
%
$
275,846
66.8
%
U.S. credit risk transfer (CRT) and other (2)
108,203
23.6
%
103,970
24.6
%
111,159
26.0
%
103,535
24.4
%
103,370
25.0
%
International mortgage insurance/reinsurance (3)
69,127
15.1
%
40,580
9.6
%
39,678
9.3
%
39,425
9.3
%
33,837
8.2
%
Total
$
457,709
100.0
%
$
422,437
100.0
%
$
427,016
100.0
%
$
423,539
100.0
%
$
413,053
100.0
%
Risk In Force (RIF) (4)
U.S. primary mortgage insurance
$
70,320
84.8
%
$
69,587
90.3
%
$
69,234
89.9
%
$
70,522
90.5
%
$
69,620
91.0
%
U.S. credit risk transfer and other (2)
4,817
5.8
%
4,706
6.1
%
5,107
6.6
%
4,699
6.0
%
4,574
6.0
%
International mortgage insurance/reinsurance (3)
7,803
9.4
%
2,727
3.5
%
2,680
3.5
%
2,673
3.4
%
2,321
3.0
%
Total
$
82,940
100.0
%
$
77,020
100.0
%
$
77,021
100.0
%
$
77,894
100.0
%
$
76,515
100.0
%
Supplemental disclosures for U.S. primary mortgage insurance:
Total RIF by credit quality (FICO score):
>=740
$
41,927
59.6
%
$
41,156
59.1
%
$
40,230
58.1
%
$
40,774
57.8
%
$
40,017
57.5
%
680-739
23,732
33.7
%
23,663
34.0
%
24,006
34.7
%
24,498
34.7
%
24,236
34.8
%
620-679
4,323
6.1
%
4,401
6.3
%
4,607
6.7
%
4,837
6.9
%
5,016
7.2
%
<620
338
0.5
%
367
0.5
%
391
0.6
%
413
0.6
%
351
0.5
%
Total
$
70,320
100.0
%
$
69,587
100.0
%
$
69,234
100.0
%
$
70,522
100.0
%
$
69,620
100.0
%
Weighted average FICO score
745
745
744
743
743
Total RIF by Loan-To-Value (LTV):
95.01% and above
$
7,708
11.0
%
$
7,975
11.5
%
$
8,310
12.0
%
$
8,643
12.3
%
$
8,789
12.6
%
90.01% to 95.00%
38,378
54.6
%
37,619
54.1
%
37,193
53.7
%
37,877
53.7
%
37,278
53.5
%
85.01% to 90.00%
19,980
28.4
%
19,784
28.4
%
19,648
28.4
%
20,013
28.4
%
19,870
28.5
%
85.00% and below
4,254
6.0
%
4,209
6.0
%
4,083
5.9
%
3,989
5.7
%
3,683
5.3
%
Total
$
70,320
100.0
%
$
69,587
100.0
%
$
69,234
100.0
%
$
70,522
100.0
%
$
69,620
100.0
%
Weighted average LTV
92.8
%
92.8
%
92.8
%
92.8
%
92.9
%
Total RIF by State:
Texas
$
5,590
7.9
%
$
5,560
8.0
%
$
5,569
8.0
%
$
5,636
8.0
%
$
5,536
8.0
%
California
5,451
7.8
%
5,324
7.7
%
5,343
7.7
%
5,261
7.5
%
5,019
7.2
%
Florida
3,344
4.8
%
3,367
4.8
%
3,544
5.1
%
3,632
5.2
%
3,648
5.2
%
Minnesota
2,936
4.2
%
2,973
4.3
%
2,452
3.5
%
2,520
3.6
%
2,489
3.6
%
North Carolina
2,921
4.2
%
2,924
4.2
%
2,610
3.8
%
2,622
3.7
%
2,516
3.6
%
Illinois
2,920
4.2
%
2,832
4.1
%
2,728
3.9
%
2,762
3.9
%
2,670
3.8
%
Georgia
2,908
4.1
%
2,886
4.1
%
2,929
4.2
%
2,959
4.2
%
2,890
4.2
%
Massachusetts
2,519
3.6
%
2,459
3.5
%
2,434
3.5
%
2,464
3.5
%
2,344
3.4
%
Virginia
2,412
3.4
%
2,372
3.4
%
2,458
3.6
%
2,526
3.6
%
2,540
3.6
%
Ohio
2,263
3.2
%
2,229
3.2
%
2,239
3.2
%
2,264
3.2
%
2,210
3.2
%
Other
37,056
52.7
%
36,661
52.7
%
36,928
53.3
%
37,876
53.7
%
37,758
54.2
%
Total
$
70,320
100.0
%
$
69,587
100.0
%
$
69,234
100.0
%
$
70,522
100.0
%
$
69,620
100.0
%
Weighted average coverage (end of period RIF divided by IIF)
25.1
%
25.0
%
25.1
%
25.1
%
25.2
%
U.S. mortgage insurance total RIF, net of reinsurance (5)
$
54,847
$
55,557
$
55,503
$
56,658
$
56,067
Analysts’ persistency (6)
57.7
%
54.8
%
54.1
%
58.7
%
62.5
%
Risk-to-capital ratio -- Arch MI U.S. (7)
8.6:1
8.5:1
8.7:1
9.3:1
9.6:1
PMIER sufficiency ratio -- Arch MI U.S. (8)
195
%
196
%
190
%
173
%
158
%
(1) The aggregate dollar amount of each insured mortgage loan’s current principal balance.
(5) Total RIF for the U.S. mortgage insurance operations (see note 4) after external reinsurance.
(2) Includes all CRT transactions, which are predominantly with GSEs, and other U.S. reinsurance transactions.
(6) Represents the % of IIF at the beginning of a 12-mo. period that remained in force at the end of the period.
(3) International mortgage insurance and reinsurance with risk primarily located in Australia and to lesser extent Europe and Asia.
(7) Represents current (non-delinquent) RIF, net of reinsurance, divided by statutory capital (estimate for September 30, 2021).
(4) The aggregate dollar amount of each insured mortgage loan’s current principal balance multiplied by the insurance coverage percentage specified in the policy for insurance policies issued and after contract limits and/or loss ratio caps for risk-sharing or reinsurance transactions
(8) Calculated as available assets divided by required assets as defined within PMIERs (estimate for September 30, 2021). There was approximately $1.8 billion of excess available assets at September 30, 2021.
19
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
(U.S. Dollars in millions, except policy/loan/claim count)
Three Months Ended
September 30, 2021
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
Supplemental disclosures for U.S. primary mortgage insurance:
Total new insurance written (NIW) (1)
$
27,841
$
28,372
$
27,019
$
38,011
$
32,787
Total NIW by credit quality (FICO score):
>=740
$
17,514
62.9
%
$
19,240
67.8
%
$
17,818
65.9
%
$
25,128
66.1
%
$
21,160
64.5
%
680-739
9,012
32.4
%
8,113
28.6
%
8,418
31.2
%
11,877
31.2
%
10,562
32.2
%
620-679
1,315
4.7
%
1,019
3.6
%
783
2.9
%
1,006
2.6
%
1,065
3.2
%
Total
$
27,841
100.0
%
$
28,372
100.0
%
$
27,019
100.0
%
$
38,011
100.0
%
$
32,787
100.0
%
Total NIW by LTV:
95.01% and above
$
1,554
5.6
%
$
1,484
5.2
%
$
1,608
6.0
%
$
2,475
6.5
%
$
2,561
7.8
%
90.01% to 95.00%
14,240
51.1
%
13,936
49.1
%
12,288
45.5
%
17,783
46.8
%
13,967
42.6
%
85.01% to 90.00%
8,394
30.1
%
8,675
30.6
%
8,312
30.8
%
11,014
29.0
%
10,052
30.7
%
85.00% and below
3,653
13.1
%
4,277
15.1
%
4,811
17.8
%
6,739
17.7
%
6,207
18.9
%
Total
$
27,841
100.0
%
$
28,372
100.0
%
$
27,019
100.0
%
$
38,011
100.0
%
$
32,787
100.0
%
Total NIW monthly vs. single:
Monthly
$
26,515
95.2
%
$
26,725
94.2
%
$
24,989
92.5
%
$
35,672
93.8
%
$
31,928
97.4
%
Single
1,326
4.8
%
1,647
5.8
%
2,030
7.5
%
2,339
6.2
%
859
2.6
%
Total
$
27,841
100.0
%
$
28,372
100.0
%
$
27,019
100.0
%
$
38,011
100.0
%
$
32,787
100.0
%
Total NIW purchase vs. refinance:
Purchase
$
25,711
92.3
%
$
25,010
88.2
%
$
20,505
75.9
%
$
29,584
77.8
%
$
24,256
74.0
%
Refinance
2,130
7.7
%
3,362
11.8
%
6,514
24.1
%
8,427
22.2
%
8,531
26.0
%
Total
$
27,841
100.0
%
$
28,372
100.0
%
$
27,019
100.0
%
$
38,011
100.0
%
$
32,787
100.0
%
Ending number of policies in force (PIF) (2)
1,188,768
1,199,918
1,214,245
1,245,771
1,245,408
Rollforward of insured loans in default:
Beginning delinquent number of loans
37,319
46,914
52,234
58,362
64,667
Plus: new notices
8,068
7,425
10,990
14,564
19,967
Less: cures
(13,410)
(16,793)
(16,131)
(20,457)
(26,029)
Less: paid claims
(207)
(227)
(179)
(235)
(243)
Ending delinquent number of loans (2)
31,770
37,319
46,914
52,234
58,362
Ending percentage of loans in default (2)
2.67
%
3.11
%
3.86
%
4.19
%
4.69
%
Losses:
Number of claims paid
207
227
179
235
243
Total paid claims (in thousands)
$
7,551
$
8,415
$
6,882
$
9,344
$
9,420
Average per claim (in thousands)
$
36.5
$
37.1
$
38.4
$
39.8
$
38.8
Severity (3)
78.7
%
80.3
%
82.0
%
87.2
%
88.6
%
Average case reserve per default (in thousands)
$
23.5
$
19.5
$
15.2
$
12.6
$
10.1
(1) The original principal balance of all loans that received coverage during the period.
(2) Includes first lien primary and pool policies.
(3) Represents total paid claims divided by RIF of loans for which claims were paid.
20
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
Supplemental disclosures for U.S. primary mortgage insurance:
(U.S. Dollars in millions)
September 30, 2021
December 31, 2020
Loss Reserves, Net (1)
Primary IIF (2)
Primary RIF (3)
Delinquency Rate
Loss Reserves, Net (1)
Primary IIF (2)
Primary RIF (3)
Delinquency Rate
% of Total
Total
% of Total
Total
% of Total
% of Total
Total
% of Total
Total
% of Total
Policy year:
2011 and prior
27.9
%
$
11,888
4.2
%
$
2,672
3.8
%
9.51
%
28.3
%
$
14,588
5.2
%
$
3,327
4.7
%
11.36
%
2012
1.1
%
1,974
0.7
%
505
0.7
%
2.76
%
1.3
%
3,651
1.3
%
992
1.4
%
2.98
%
2013
2.7
%
4,876
1.7
%
1,342
1.9
%
2.72
%
3.0
%
7,546
2.7
%
2,107
3.0
%
3.30
%
2014
2.1
%
5,454
1.9
%
1,501
2.1
%
3.37
%
2.2
%
8,261
2.9
%
2,273
3.2
%
4.06
%
2015
3.2
%
9,810
3.5
%
2,637
3.8
%
2.92
%
3.4
%
15,032
5.4
%
4,048
5.7
%
3.72
%
2016
8.1
%
16,150
5.8
%
4,324
6.1
%
3.64
%
8.8
%
24,958
8.9
%
6,648
9.4
%
4.77
%
2017
11.5
%
15,001
5.4
%
3,910
5.6
%
4.50
%
12.9
%
24,748
8.8
%
6,413
9.1
%
5.52
%
2018
15.6
%
16,193
5.8
%
4,105
5.8
%
5.75
%
16.8
%
27,304
9.7
%
6,918
9.8
%
6.76
%
2019
16.3
%
29,860
10.6
%
7,463
10.6
%
3.58
%
17.8
%
48,304
17.2
%
12,001
17.0
%
4.61
%
2020
10.3
%
88,737
31.6
%
21,777
31.0
%
0.91
%
5.5
%
106,187
37.8
%
25,795
36.6
%
0.76
%
2021
1.2
%
80,436
28.7
%
20,084
28.6
%
0.19
%
Total
100.0
%
$
280,379
100.0
%
$
70,320
100.0
%
2.67
%
100.0
%
$
280,579
100.0
%
$
70,522
100.0
%
4.19
%
(1) Total reserves for losses and loss adjustment expenses, net of recoverables, was $726.6 million at September 30, 2021, compared to $649.7 million at December 31, 2020.
(2) The aggregate dollar amount of each insured mortgage loan’s current principal balance.
(3) The aggregate dollar amount of each insured mortgage loan’s current principal balance multiplied by the insurance coverage percentage specified in the policy for insurance policies issued and after contract limits and/or loss ratio caps for risk-sharing transactions.
21
Arch Capital Group Ltd. and Subsidiaries
Segment Information - Consolidated Excluding the 'Other' Segment (Sub-Total (Core))
(U.S. Dollars in thousands)
Three Months Ended
Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
2020
Gross premiums written
$
3,207,415
$
3,117,505
$
3,277,293
$
2,170,831
$
2,556,914
$
9,602,213
$
7,461,860
Premiums ceded
(1,131,486)
(893,372)
(948,147)
(510,533)
(830,086)
(2,973,005)
(2,222,031)
Net premiums written
2,075,929
2,224,133
2,329,146
1,660,298
1,726,828
6,629,208
5,239,829
Change in unearned premiums
(146,592)
(287,461)
(528,455)
8,001
(101,767)
(962,508)
(476,544)
Net premiums earned
1,929,337
1,936,672
1,800,691
1,668,299
1,625,061
5,666,700
4,763,285
Other underwriting income (loss)
7,274
5,201
5,699
7,354
4,867
18,174
17,385
Losses and loss adjustment expenses
(1,226,019)
(1,019,583)
(1,084,306)
(1,018,178)
(1,100,460)
(3,329,908)
(3,230,939)
Acquisition expenses
(306,015)
(300,554)
(276,329)
(225,523)
(223,524)
(882,898)
(681,248)
Other operating expenses
(230,832)
(226,349)
(246,758)
(202,410)
(201,067)
(703,939)
(616,956)
Underwriting income (loss)
$
173,745
$
395,387
$
198,997
$
229,542
$
104,877
$
768,129
$
251,527
Underwriting Ratios
Loss ratio
63.5
%
52.6
%
60.2
%
61.0
%
67.7
%
58.8
%
67.8
%
Acquisition expense ratio
15.9
%
15.5
%
15.3
%
13.5
%
13.8
%
15.6
%
14.3
%
Other operating expense ratio
12.0
%
11.7
%
13.7
%
12.1
%
12.4
%
12.4
%
13.0
%
Combined ratio
91.4
%
79.8
%
89.2
%
86.6
%
93.9
%
86.8
%
95.1
%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums
17.4
%
2.4
%
10.5
%
9.4
%
12.5
%
10.1
%
11.1
%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments
(6.1)
%
(3.3)
%
(2.3)
%
(3.0)
%
(2.9)
%
(4.0)
%
(2.0)
%
Combined ratio excluding catastrophic activity and prior year development (1)
80.1
%
80.7
%
81.0
%
80.2
%
84.3
%
80.7
%
86.0
%
Components of losses and loss adjustment expenses incurred (1)
Paid losses and loss adjustment expenses
$
626,291
$
684,087
$
572,589
$
652,077
$
618,638
$
1,882,967
$
1,699,131
Change in unpaid losses and loss adjustment expenses
599,728
335,496
511,717
366,101
481,822
1,446,941
1,531,808
Total losses and loss adjustment expenses
$
1,226,019
$
1,019,583
$
1,084,306
$
1,018,178
$
1,100,460
$
3,329,908
$
3,230,939
Net premiums written to gross premiums written
64.7
%
71.3
%
71.1
%
76.5
%
67.5
%
69.0
%
70.2
%
(1)See ‘Comments on Regulation G’ for further discussion.
22
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Selected Information on Losses and Loss Adjustment Expenses
(U.S. Dollars in thousands)
Three Months Ended
Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
2020
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments (1)
Net impact on underwriting results:
Insurance
$
(4,439)
$
(2,640)
$
(5,474)
$
(1,158)
$
(1,136)
$
(12,553)
$
(4,060)
Reinsurance
(65,439)
(18,309)
(24,765)
(40,472)
(40,766)
(108,513)
(80,659)
Mortgage
(48,416)
(43,883)
(11,492)
(8,151)
(4,523)
(103,791)
(10,930)
Total
$
(118,294)
$
(64,832)
$
(41,731)
$
(49,781)
$
(46,425)
$
(224,857)
$
(95,649)
Impact on losses and loss adjustment expenses:
Insurance
$
(5,066)
$
(3,998)
$
(4,057)
$
(1,906)
$
(2,282)
$
(13,121)
$
(5,915)
Reinsurance
(72,319)
(20,476)
(26,809)
(40,156)
(41,960)
(119,604)
(93,798)
Mortgage
(45,124)
(43,102)
(10,913)
(8,151)
(4,523)
(99,139)
(10,832)
Total
$
(122,509)
$
(67,576)
$
(41,779)
$
(50,213)
$
(48,765)
$
(231,864)
$
(110,545)
Impact on acquisition expenses:
Insurance
$
627
$
1,358
$
(1,417)
$
748
$
1,146
$
568
$
1,855
Reinsurance
6,880
2,167
2,044
(316)
1,194
11,091
13,139
Mortgage
(3,292)
(781)
(579)
—
—
(4,652)
(98)
Total
$
4,215
$
2,744
$
48
$
432
$
2,340
$
7,007
$
14,896
Impact on combined ratio:
Insurance
(0.5)
%
(0.3)
%
(0.7)
%
(0.2)
%
(0.2)
%
(0.5)
%
(0.2)
%
Reinsurance
(9.6)
%
(2.5)
%
(3.8)
%
(6.9)
%
(7.4)
%
(5.3)
%
(5.1)
%
Mortgage
(15.5)
%
(13.1)
%
(3.4)
%
(2.4)
%
(1.3)
%
(10.6)
%
(1.0)
%
Total
(6.1)
%
(3.3)
%
(2.3)
%
(3.0)
%
(2.9)
%
(4.0)
%
(2.0)
%
Impact on loss ratio:
Insurance
(0.5)
%
(0.5)
%
(0.5)
%
(0.3)
%
(0.3)
%
(0.5)
%
(0.3)
%
Reinsurance
(10.7)
%
(2.8)
%
(4.2)
%
(6.9)
%
(7.6)
%
(5.8)
%
(5.9)
%
Mortgage
(14.5)
%
(12.9)
%
(3.2)
%
(2.4)
%
(1.3)
%
(10.1)
%
(1.0)
%
Total
(6.3)
%
(3.5)
%
(2.3)
%
(3.0)
%
(3.0)
%
(4.1)
%
(2.3)
%
Impact on acquisition expense ratio:
Insurance
0.0
%
0.2
%
(0.2)
%
0.1
%
0.1
%
0.0
%
0.1
%
Reinsurance
1.1
%
0.3
%
0.4
%
0.0
%
0.2
%
0.5
%
0.8
%
Mortgage
(1.0)
%
(0.2)
%
(0.2)
%
0.0
%
0.0
%
(0.5)
%
0.0
%
Total
0.2
%
0.2
%
0.0
%
0.0
%
0.1
%
0.1
%
0.3
%
Estimated net losses incurred from current accident year catastrophic events (2)
Insurance
$
114,433
$
27,999
$
41,876
$
62,398
$
74,365
$
184,308
$
209,777
Reinsurance
221,431
18,467
146,379
93,959
128,939
386,277
319,155
Total
$
335,864
$
46,466
$
188,255
$
156,357
$
203,304
$
570,585
$
528,932
Impact on combined ratio:
Insurance
12.2
%
3.2
%
5.1
%
8.3
%
10.3
%
7.0
%
9.9
%
Reinsurance
32.6
%
2.5
%
22.7
%
16.1
%
23.3
%
18.7
%
20.2
%
Total
17.4
%
2.4
%
10.5
%
9.4
%
12.5
%
10.1
%
11.1
%
Estimated impact of COVID-19 event, net of reinsurance and reinstatement premiums, included in current accident year catastrophic events (3)
Insurance
$
(584)
$
178
$
572
$
(75)
$
3,442
$
166
$
117,447
Reinsurance
779
$
703
15
446
8,449
1,497
154,188
Total
$
195
$
881
$
587
$
371
$
11,891
$
1,663
$
271,635
Impact on combined ratio:
Insurance
(0.1)
%
0.0
%
0.1
%
0.0
%
0.5
%
0.0
%
5.5
%
Reinsurance
0.1
%
0.1
%
0.0
%
0.1
%
1.5
%
0.1
%
9.8
%
Total
0.0
%
0.0
%
0.0
%
0.0
%
0.7
%
0.0
%
5.7
%
(1)Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2)Equals estimated losses from catastrophic events occurring in the current accident year (e.g. natural catastrophes, man-made events, pandemic events), net of reinsurance and reinstatement premiums. As regards the natural catastrophe estimates included within, amounts shown for the insurance segment are for named catastrophic events only, while amounts shown for the reinsurance segment include (i) named events with over $5 million of losses incurred by its Bermuda and Europe operations and (ii) all catastrophe losses incurred by its U.S. operations. Amounts not applicable for the mortgage segment.
(3)Equals estimated losses for exposures through September 30, 2021 to the COVID-19 global pandemic, net of reinsurance and reinstatement premiums. The amounts represent a subset of the estimated losses for the current accident year catastrophic events.
23
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Investable Asset Summary and Investment Portfolio Metrics
The following table summarizes the Company’s investable assets and portfolio metrics (1):
(U.S. Dollars in thousands)
September 30,
June 30,
March 31,
December 31,
September 30,
2021
2021
2021
2020
2020
Investable assets (1) (2):
Fixed maturities available for sale, at fair value
$
16,768,363
61.5
%
$
17,448,357
63.9
%
$
18,136,604
68.9
%
$
18,104,322
67.4
%
$
17,844,866
69.4
%
Fixed maturities—fair value option (3)
414,007
1.5
%
417,700
1.5
%
360,616
1.4
%
388,191
1.4
%
386,865
1.5
%
Fixed maturities pledged under securities lending agreements, at fair value
—
0.0
%
156,056
0.6
%
130,152
0.5
%
278,783
1.0
%
62,749
0.2
%
Total fixed maturities
17,182,370
63.0
%
18,022,113
66.0
%
18,627,372
70.7
%
18,771,296
69.9
%
18,294,480
71.1
%
Equity securities, at fair value
1,790,640
6.6
%
1,595,929
5.8
%
1,470,592
5.6
%
1,392,420
5.2
%
1,449,208
5.6
%
Equity securities—fair value option (3)
24,523
0.1
%
25,158
0.1
%
25,640
0.1
%
27,555
0.1
%
30,494
0.1
%
Equity securities pledged under securities lending agreements, at fair value
—
0.0
%
12,492
0.0
%
10,797
0.0
%
16,129
0.1
%
—
0.0
%
Total equity securities
1,815,163
6.7
%
1,633,579
6.0
%
1,507,029
5.7
%
1,436,104
5.3
%
1,479,702
5.8
%
Other investments—fair value option (3)
1,489,759
5.5
%
1,512,317
5.5
%
1,527,999
5.8
%
1,480,347
5.5
%
1,276,867
5.0
%
Other investable assets (3)
—
0.0
%
500,000
1.8
%
500,000
1.9
%
500,000
1.9
%
—
0.0
%
Total other investments
1,489,759
5.5
%
2,012,317
7.4
%
2,027,999
7.7
%
1,980,347
7.4
%
1,276,867
5.0
%
Investments accounted for using the equity method (4)
2,741,293
10.0
%
2,539,124
9.3
%
2,256,327
8.6
%
2,047,889
7.6
%
1,883,702
7.3
%
Short-term investments available for sale, at fair value
3,069,965
11.3
%
2,248,613
8.2
%
1,269,631
4.8
%
1,924,922
7.2
%
2,039,097
7.9
%
Short-term investments—fair value option (3)
115,681
0.4
%
131,403
0.5
%
140,329
0.5
%
138,318
0.5
%
118,313
0.5
%
Total short-term investments
3,185,646
11.7
%
2,380,016
8.7
%
1,409,960
5.4
%
2,063,240
7.7
%
2,157,410
8.4
%
Cash
1,137,721
4.2
%
884,857
3.2
%
705,787
2.7
%
694,997
2.6
%
781,065
3.0
%
Securities transactions entered into but not settled at the balance sheet date
(273,512)
(1.0)
%
(180,592)
(0.7)
%
(195,875)
(0.7)
%
(137,578)
(0.5)
%
(148,725)
(0.6)
%
Total investable assets held by the Company
$
27,278,440
100.0
%
$
27,291,414
100.0
%
$
26,338,599
100.0
%
$
26,856,295
100.0
%
$
25,724,501
100.0
%
Average effective duration (in years)
2.68
2.31
2.71
3.01
3.21
Average S&P/Moody’s credit ratings (5)
AA-/Aa3
AA/Aa1
AA-/Aa3
AA/Aa2
AA/Aa2
Embedded book yield (before investment expenses)
1.54
%
1.45
%
1.59
%
1.56
%
1.71
%
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. Such amounts are summarized as follows:
Investable assets in ‘other’ segment:
Cash
$
—
$
349,202
$
236,164
$
211,451
$
195,333
Investments accounted for using the fair value option
—
1,984,919
1,880,770
1,790,385
1,937,036
Fixed maturities available for sale, at fair value
—
625,422
586,431
613,503
608,022
Equity securities, at fair value
—
97,623
62,314
52,410
52,807
Securities sold but not yet purchased
—
(28,068)
(34,097)
(21,679)
(24,909)
Securities transactions entered into but not settled at the balance sheet date
—
(97,055)
8,846
11,542
(74,837)
Total investable assets included in ‘other’ segment
$
—
$
2,932,043
$
2,740,428
$
2,657,612
$
2,693,452
(2) This table excludes the collateral received and reinvested and includes the securities pledged under securities lending agreements, at fair value.
(3) Included in “other investments” on the balance sheet.
(4) Changes in the carrying value of investment funds accounted for using the equity method are recorded as “equity in net income (loss) of investment funds accounted for using the equity method” rather than as an unrealized gain or loss component of accumulated other comprehensive income.
(5) Average credit ratings on the Company’s investment portfolio on securities with ratings assigned by Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”).
24
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Composition of Net Investment Income, Yield and Total Return
The following table summarizes the Company’s net investment income, yield and total return (1):
(U.S. Dollars in thousands, except share data)
Three Months Ended
Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
2020
Composition of net investment income (1):
Fixed maturities
$
75,964
$
77,709
$
79,017
$
80,942
$
84,608
$
232,690
$
277,862
Equity securities (dividends)
9,867
8,282
5,650
9,695
6,659
23,799
18,312
Short-term investments
1,858
972
644
1,129
1,162
3,474
5,444
Other (2)
19,114
21,026
15,559
15,053
24,594
55,699
62,898
Gross investment income
106,803
107,989
100,870
106,819
117,023
315,662
364,516
Investment expenses
(18,608)
(18,559)
(22,141)
(18,827)
(17,166)
(59,308)
(50,600)
Net investment income
$
88,195
$
89,430
$
78,729
$
87,992
$
99,857
$
256,354
$
313,916
Per share
$
0.22
$
0.22
$
0.19
$
0.21
$
0.24
$
0.63
$
0.77
Investment income yield, at amortized cost (1) (3):
Pre-tax
1.41
%
1.47
%
1.31
%
1.45
%
1.76
%
1.40
%
1.94
%
After-tax
1.24
%
1.30
%
1.14
%
1.26
%
1.57
%
1.23
%
1.70
%
Total return on investments (1) (4)
0.01
%
1.58
%
(0.18)
%
2.46
%
2.30
%
1.50
%
5.19
%
(1)Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2)Amounts include dividends and other distributions on investment funds, term loan investments, funds held balances, cash balances and other.
(3)Presented on an annualized basis and excluding the impact of investments for which returns are not included within investment income, such as investments accounted for using the equity method and certain equities.
(4)Total return on investments includes net investment income, equity in net income or loss of investment funds accounted for using the equity method, net realized gains and losses (excluding changes in allowance for credit loses on non-investment related financial assets) and the change in unrealized gains or losses and is calculated on a pre-tax basis and before investment expenses. See ‘Comments on Regulation G’ for a further discussion of the presentation of total return on investments.
25
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Composition of Fixed Maturities
The following table summarizes the Company’s fixed maturities and fixed maturities pledged under securities lending agreements (1):
(U.S. Dollars in thousands)
Fair Value
Gross Unrealized Gains
Gross Unrealized Losses
Net Unrealized Gains (Losses)
Allowance for Credit Losses
Amortized Cost
Fair Value / Amortized Cost
Fair Value % of Total
At September 30, 2021
Corporates
$
6,777,943
$
155,246
$
(40,649)
$
114,597
$
(1,440)
$
6,664,786
101.7
%
39.4
%
U.S. government and government agencies
4,460,515
12,912
(30,320)
(17,408)
—
4,477,923
99.6
%
26.0
%
Municipal bonds
382,722
20,096
(1,206)
18,890
(2)
363,834
105.2
%
2.2
%
Non-U.S. government securities
1,883,563
46,378
(28,948)
17,430
(82)
1,866,215
100.9
%
11.0
%
Asset-backed securities
2,692,406
12,576
(7,700)
4,876
(560)
2,688,090
100.2
%
15.7
%
Commercial mortgage-backed securities
579,424
3,598
(548)
3,050
(3)
576,377
100.5
%
3.4
%
Residential mortgage-backed securities
405,797
3,384
(3,966)
(582)
(24)
406,403
99.9
%
2.4
%
Total
$
17,182,370
$
254,190
$
(113,337)
$
140,853
$
(2,111)
$
17,043,628
100.8
%
100.0
%
At December 31, 2020
Corporates
$
8,039,745
$
405,071
$
(30,666)
$
374,405
$
(700)
$
7,666,040
104.9
%
42.8
%
U.S. government and government agencies
5,354,863
21,490
(12,587)
8,903
—
5,345,960
100.2
%
28.5
%
Municipal bonds
492,734
27,189
(3,835)
23,354
(11)
469,391
105.0
%
2.6
%
Non-U.S. government securities
2,310,157
143,054
(7,958)
135,096
—
2,175,061
106.2
%
12.3
%
Asset-backed securities
1,566,188
18,689
(7,635)
11,054
(1,090)
1,556,224
100.6
%
8.3
%
Commercial mortgage-backed securities
390,990
8,722
(2,954)
5,768
(122)
385,344
101.5
%
2.1
%
Residential mortgage-backed securities
616,619
8,934
(4,280)
4,654
(278)
612,243
100.7
%
3.3
%
Total
$
18,771,296
$
633,149
$
(69,915)
$
563,234
$
(2,201)
$
18,210,263
103.1
%
100.0
%
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
26
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Credit Quality Distribution and Maturity Profile
The following table summarizes the credit quality distribution and maturity profile of the Company’s fixed maturities and fixed maturities pledged under securities lending agreements (1):
(U.S. Dollars in thousands)
September 30,
June 30,
March 31,
December 31,
September 30,
2021
2021
2021
2020
2020
Credit quality distribution of total fixed maturities (2) (3):
U.S. government and government agencies (4)
$
4,830,467
28.1
%
$
5,221,296
29.0
%
$
5,432,191
29.2
%
$
5,963,758
31.8
%
$
5,360,798
29.3
%
AAA
3,257,679
19.0
%
3,432,285
19.0
%
3,145,642
16.9
%
3,117,046
16.6
%
3,352,902
18.3
%
AA
2,217,452
12.9
%
2,004,442
11.1
%
2,069,764
11.1
%
2,063,738
11.0
%
2,087,245
11.4
%
A
2,773,104
16.1
%
3,268,661
18.1
%
3,878,113
20.8
%
3,760,280
20.0
%
3,895,053
21.3
%
BBB
2,807,788
16.3
%
2,896,453
16.1
%
2,829,202
15.2
%
2,699,201
14.4
%
2,542,233
13.9
%
BB
522,357
3.0
%
544,730
3.0
%
622,448
3.3
%
574,189
3.1
%
504,570
2.8
%
B
348,036
2.0
%
330,639
1.8
%
331,144
1.8
%
268,095
1.4
%
231,774
1.3
%
Lower than B
43,751
0.3
%
48,230
0.3
%
57,659
0.3
%
54,795
0.3
%
54,118
0.3
%
Not rated
381,736
2.2
%
275,377
1.5
%
261,209
1.4
%
270,194
1.4
%
265,787
1.5
%
Total fixed maturities, at fair value
$
17,182,370
100.0
%
$
18,022,113
100.0
%
$
18,627,372
100.0
%
$
18,771,296
100.0
%
$
18,294,480
100.0
%
Maturity profile of total fixed maturities (2):
Due in one year or less
$
430,048
2.5
%
$
442,507
2.5
%
$
376,026
2.0
%
$
327,899
1.7
%
$
314,243
1.7
%
Due after one year through five years
8,035,751
46.8
%
9,873,037
54.8
%
10,913,524
58.6
%
10,424,114
55.5
%
9,744,246
53.3
%
Due after five years through ten years
4,601,049
26.8
%
4,185,053
23.2
%
4,054,083
21.8
%
4,901,382
26.1
%
4,861,677
26.6
%
Due after 10 years
437,895
2.5
%
452,460
2.5
%
510,405
2.7
%
544,104
2.9
%
602,120
3.3
%
13,504,743
78.6
%
14,953,057
83.0
%
15,854,038
85.1
%
16,197,499
86.3
%
15,522,286
84.8
%
Mortgage-backed securities
405,797
2.4
%
374,565
2.1
%
558,584
3.0
%
616,619
3.3
%
703,393
3.8
%
Commercial mortgage-backed securities
579,424
3.4
%
267,574
1.5
%
256,598
1.4
%
390,990
2.1
%
375,510
2.1
%
Asset-backed securities
2,692,406
15.7
%
2,426,917
13.5
%
1,958,152
10.5
%
1,566,188
8.3
%
1,693,291
9.3
%
Total fixed maturities, at fair value
$
17,182,370
100.0
%
$
18,022,113
100.0
%
$
18,627,372
100.0
%
$
18,771,296
100.0
%
$
18,294,480
100.0
%
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2) This table excludes the collateral received and reinvested and includes the fixed maturities pledged under securities lending agreements, at fair value.
(3) For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.
(4) Includes U.S. government-sponsored agency mortgage backed securities and agency commercial mortgage backed securities.
27
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Analysis of Corporate Exposures
The following table summarizes the Company’s corporate bonds by sector (1):
(U.S. Dollars in thousands)
September 30,
June 30,
March 31,
December 31,
September 30,
2021
2021
2021
2020
2020
Sector:
Industrials
$
3,227,049
47.6
%
$
3,873,768
52.5
%
$
4,744,615
57.6
%
$
4,940,996
61.5
%
$
5,303,089
65.2
%
Financials
3,132,330
46.2
%
2,974,254
40.3
%
2,868,957
34.8
%
2,432,719
30.3
%
2,156,871
26.5
%
Utilities
381,737
5.6
%
474,845
6.4
%
521,551
6.3
%
584,869
7.3
%
562,939
6.9
%
Covered bonds
2,661
0.0
%
3,022
0.0
%
2,029
0.0
%
2,013
0.0
%
2,072
0.0
%
All other (2)
34,166
0.5
%
49,461
0.7
%
96,619
1.2
%
79,148
1.0
%
112,611
1.4
%
Total
$
6,777,943
100.0
%
$
7,375,350
100.0
%
$
8,233,771
100.0
%
$
8,039,745
100.0
%
$
8,137,582
100.0
%
Credit quality distribution (3):
AAA
$
114,395
1.7
%
$
141,983
1.9
%
$
151,195
1.8
%
$
220,584
2.7
%
$
291,154
3.6
%
AA
946,277
14.0
%
890,624
12.1
%
961,880
11.7
%
995,742
12.4
%
1,068,945
13.1
%
A
2,293,741
33.8
%
2,742,121
37.2
%
3,431,522
41.7
%
3,313,349
41.2
%
3,478,591
42.7
%
BBB
2,530,014
37.3
%
2,687,944
36.4
%
2,684,300
32.6
%
2,574,823
32.0
%
2,427,829
29.8
%
BB
477,833
7.0
%
499,327
6.8
%
582,086
7.1
%
540,397
6.7
%
478,445
5.9
%
B
329,581
4.9
%
311,611
4.2
%
312,362
3.8
%
258,035
3.2
%
224,644
2.8
%
Lower than B
30,365
0.4
%
31,600
0.4
%
33,667
0.4
%
30,625
0.4
%
30,423
0.4
%
Not rated
55,737
0.8
%
70,140
1.0
%
76,759
0.9
%
106,190
1.3
%
137,551
1.7
%
Total
$
6,777,943
100.0
%
$
7,375,350
100.0
%
$
8,233,771
100.0
%
$
8,039,745
100.0
%
$
8,137,582
100.0
%
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2) Includes sovereign securities, supranational securities and other.
(3) For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.
The following table summarizes the Company’s top ten exposures to fixed income corporate issuers by fair value at September 30, 2021 (1):
(U.S. Dollars in thousands)
Fair Value
% of Asset Class
% of Investable Assets
Credit Quality (2)
Issuer:
Bank of America Corporation
$
359,893
5.3
%
1.3
%
A-/A2
JPMorgan Chase & Co.
294,411
4.3
%
1.1
%
A-/A2
Citigroup Inc.
247,892
3.7
%
0.9
%
BBB+/A3
Wells Fargo & Company
231,542
3.4
%
0.8
%
BBB+/A1
Morgan Stanley
215,424
3.2
%
0.8
%
BBB+/A1
The Goldman Sachs Group, Inc.
180,324
2.7
%
0.7
%
BBB+/A2
Dai-ichi Life Holdings, Inc.
111,418
1.6
%
0.4
%
AA-/A1
Apple Inc.
111,280
1.6
%
0.4
%
AA+/Aa1
Westpac Banking Corporation
107,389
1.6
%
0.4
%
AA-/Aa3
Nestlé S.A.
83,838
1.2
%
0.3
%
AA-/Aa3
Total
$
1,943,411
28.7
%
7.1
%
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2) Average credit ratings assigned by S&P and Moody’s, respectively.
28
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Structured Securities
The following table provides the composition of the Company’s structured securities at September 30, 2021 (1):
(U.S. Dollars in thousands)
Agencies
AAA
AA
A
BBB
Non-Investment Grade
Total
Residential mortgage-backed securities
$
345,175
$
14,249
$
31,503
$
2,494
$
55
$
12,321
$
405,797
Commercial mortgage-backed securities
24,779
407,316
40,822
10,348
43,732
52,427
579,424
Asset-backed securities
—
1,609,091
211,491
368,478
185,921
317,425
2,692,406
Total
$
369,954
$
2,030,656
$
283,816
$
381,320
$
229,708
$
382,173
$
3,677,627
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
29
Arch Capital Group Ltd. and Subsidiaries
Comments on Regulation G
Throughout this financial supplement, the Company presents its operations in the way it believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use the Company’s financial information in evaluating the performance of the Company. This presentation includes the use of after-tax operating income available to Arch common shareholders, which is defined as net income available to Arch common shareholders, excluding net realized gains or losses (which includes changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings), equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and loss on redemption of preferred shares, net of income taxes, and the use of annualized operating return on average common equity. The presentation of after-tax operating income available to Arch common shareholders and annualized operating return on average common equity are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to net income available to Arch common shareholders and annualized net income return on average common equity (the most directly comparable GAAP financial measures) in accordance with Regulation G is included on the following page.
The Company believes that net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and loss on redemption of preferred shares in any particular period are not indicative of the performance of, or trends in, the Company’s business performance. Although net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of the Company’s operations, the decision to realize investment gains or losses, the recognition of the change in the carrying value of investments accounted for using the fair value option in net realized gains or losses, the recognition of equity in net income or loss of investment funds accounted for using the equity method and the recognition of foreign exchange gains or losses are independent of the insurance underwriting process and result, in large part, from general economic and financial market conditions. Furthermore, certain users of the Company’s financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. In addition, changes in the allowance for credit losses and net impairment losses recognized in earnings on the Company’s investments represent other-than-temporary declines in expected recovery values on securities without actual realization. The use of the equity method on certain of the Company’s investments in certain funds that invest in fixed maturity securities is driven by the ownership structure of such funds (either limited partnerships or limited liability companies). In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the fair value of the underlying securities in the funds). This method of accounting is different from the way the Company accounts for its other fixed maturity securities and the timing of the recognition of equity in net income or loss of investment funds accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments. Transaction costs and other include advisory, financing, legal, severance, incentive compensation and other transaction costs related to acquisitions. The Company believes that transaction costs and other, due to their non-recurring nature, are not indicative of the performance of, or trends in, the Company’s business performance. The loss on redemption of preferred shares related to the redemption of the Company's Series E preferred shares in September 2021 and had no impact on shareholders' equity or cash flows. Due to these reasons, the Company excludes net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and loss on redemption of preferred shares from the calculation of after-tax operating income or loss available to Arch common shareholders.
The Company believes that showing net income available to Arch common shareholders exclusive of the items referred to above reflects the underlying fundamentals of the Company’s business since the Company evaluates the performance of and manages its business to produce an underwriting profit. In addition to presenting net income available to Arch common shareholders, the Company believes that this presentation enables investors and other users of the Company’s financial information to analyze the Company’s performance in a manner similar to how the Company’s management analyzes performance. The Company also believes that this measure follows industry practice and, therefore, allows the users of the Company’s financial information to compare the Company’s performance with its industry peer group. The Company believes that the equity analysts and certain rating agencies which follow the Company and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.
In addition, through June 30, 2021, the Company’s presentation included the use of information prepared on a ‘core’ basis, which excluded amounts related to the ‘other’ segment (i.e., results of Watford). Information provided on a ‘core’ basis represent non-GAAP financial measures as defined in Regulation G. Pursuant to GAAP, Watford was considered a variable interest entity and the Company concluded that it was the primary beneficiary of Watford through June 30, 2021. As such, the Company consolidated the results of Watford in its consolidated financial statements. The Company’s presentation of information on a ‘core’ basis enabled investors and other users of the Company’s financial information to analyze the Company’s performance in a manner similar to how the Company’s management analyzed performance. See ‘Segment Information’ for a further discussion of segment results and a reconciliation of core and consolidated results. In the 2020 fourth quarter, Arch Capital, Watford, and Greysbridge Ltd., a wholly-owned subsidiary of Arch Capital (“Greysbridge”), entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) pursuant to which, among other things, Arch Capital agreed to acquire all of the common shares of Watford Holdings Ltd. not owned by Arch. Arch Capital assigned its rights under the Merger Agreement to Greysbridge. The merger and the related Greysbridge equity financing closed on July 1, 2021. Effective July 1, 2021, Watford 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 of which the Company is the primary beneficiary. Accordingly, effective July 1, 2021, Arch no longer consolidates the results of Watford in its consolidated financial statements and footnotes.
The Company’s segment information includes the presentation of consolidated underwriting income or loss and a subtotal of underwriting income or loss on a ‘core’ basis (for periods prior to July 1, 2021). Such measures represent the pre-tax profitability of the Company’s underwriting operations and include net premiums earned plus other underwriting income, less losses and loss adjustment expenses, acquisition expenses and other operating expenses. Other operating expenses include those operating expenses that are incremental and/or directly attributable to the Company’s individual underwriting operations. Underwriting income or loss does not incorporate items included in the Company’s corporate (non-underwriting) segment. While these measures are presented in the Segment Information footnote to the Company’s Consolidated Financial Statements, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis. The reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis and a ‘core’ basis (for periods prior to July 1, 2021), in accordance with Regulation G, is shown on pages 10 to 13.
In addition, the Company’s segment information includes the use of a combined ratio excluding catastrophic activity and prior year development, for the insurance and reinsurance segments, and a combined ratio excluding prior year development, for the mortgage segment. These ratios are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to the combined ratio (the most directly comparable GAAP financial measure) in accordance with Regulation G are shown on the individual segment pages. The Company’s management utilizes the adjusted combined ratios excluding current accident year catastrophic events and favorable or adverse development in prior year loss reserves in its analysis of the underwriting performance of each of its underwriting segments.
Total return on investments includes investment income, equity in net income or loss of investment funds accounted for using the equity method, net realized gains and losses (excluding changes in the allowance for credit losses on non-investment related financial assets) and the change in unrealized gains and losses generated by Arch’s investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses, excludes amounts reflected in the ‘other’ segment, and reflects the effect of financial market conditions along with foreign currency fluctuations. Management uses total return on investments as a key measure of the return generated to Arch common shareholders, and compares the return generated by the Company’s investment portfolio against benchmark returns during the periods presented.
30
Arch Capital Group Ltd. and Subsidiaries
Operating Income Reconciliation and Annualized Operating Return on Average Common Equity
The following table summarizes the Company’s consolidated financial data, including a reconciliation of net income (loss) available to Arch common shareholders to after-tax operating income (loss) available to Arch common shareholders and related diluted per share results. Each line item reflects the impact of the Company’s ownership of Watford’s outstanding common equity through June 30, 2021:
(U.S. Dollars in thousands, except share data)
Three Months Ended
Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
2020
Net income available to Arch common shareholders
$
388,751
$
663,820
$
427,753
$
533,141
$
408,636
$
1,480,324
$
830,768
Net realized (gains) losses
25,040
(167,438)
(105,551)
(297,801)
(219,726)
(247,949)
(517,007)
Equity in net (income) loss of investment funds accounted for using the equity method
(105,398)
(122,186)
(71,686)
(89,286)
(126,735)
(299,270)
(57,407)
Net foreign exchange (gains) losses
(36,078)
17,888
(21,332)
63,588
39,462
(39,522)
17,003
Transaction costs and other
1,036
(1,421)
1,274
4,718
1,674
889
5,246
Loss on redemption of preferred shares
15,101
—
—
—
—
15,101
—
Income tax expense (benefit) (1)
6,236
16,553
9,311
16,057
17,010
32,100
48,088
After-tax operating income available to Arch common shareholders
$
294,688
$
407,216
$
239,769
$
230,417
$
120,321
$
941,673
$
326,691
Diluted per common share results:
Net income available to Arch common shareholders
$
0.98
$
1.63
$
1.05
$
1.30
$
1.00
$
3.66
$
2.02
Net realized (gains) losses
0.05
(0.41)
(0.25)
(0.72)
(0.54)
(0.61)
(1.25)
Equity in net (income) loss of investment funds accounted for using the equity method
(0.26)
(0.30)
(0.18)
(0.22)
(0.31)
(0.74)
(0.14)
Net foreign exchange (gains) losses
(0.09)
0.04
(0.05)
0.15
0.10
(0.10)
0.04
Transaction costs and other
0.00
0.00
0.00
0.01
0.00
0.00
0.01
Loss on redemption of preferred shares
0.04
—
—
—
—
0.04
0.00
Income tax expense (benefit) (1)
0.02
0.04
0.02
0.04
0.04
0.08
0.12
After-tax operating income available to Arch common shareholders
$
0.74
$
1.00
$
0.59
$
0.56
$
0.29
$
2.33
$
0.80
Weighted average common shares and common share equivalents outstanding - diluted
397,903,347
406,485,994
409,223,253
410,281,852
409,194,657
404,260,485
410,314,897
Beginning common shareholders’ equity
$
12,706,072
$
12,316,472
$
12,325,886
$
11,671,997
$
11,211,825
$
12,325,886
$
10,717,371
Ending common shareholders’ equity
12,557,526
12,706,072
12,316,472
12,325,886
11,671,997
12,557,526
11,671,997
Average common shareholders’ equity
$
12,631,799
$
12,511,272
$
12,321,179
$
11,998,942
$
11,441,911
$
12,441,706
$
11,194,684
Annualized net income return on average common equity
12.3
%
21.2
%
13.9
%
17.8
%
14.3
%
15.9
%
9.9
%
Annualized operating return on average common equity
9.3
%
13.0
%
7.8
%
7.7
%
4.2
%
10.1
%
3.9
%
(1)Income tax expense on net realized gains or losses (which includes changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings), equity in net income (loss) of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.
31
Arch Capital Group Ltd. and Subsidiaries
Operating Income and Effective Tax Rate Calculations
The following table provides a reconciliation of income (loss) before income taxes to after-tax operating income (loss) available to Arch common shareholders and an analysis of the effective tax rate on pre-tax operating income (loss) available to Arch common shareholders:
(U.S. Dollars in thousands)
Three Months Ended
Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
2020
Arch Operating Income Components (1):
Income (loss) before income taxes and income (loss) from operating affiliates
$
301,433
$
697,799
$
397,244
$
560,146
$
432,896
$
1,396,476
$
935,980
Net realized (gains) losses
25,040
(163,394)
(101,336)
(289,817)
(210,984)
(239,690)
(523,964)
Equity in net (income) loss of investment funds accounted for using the equity method
(105,398)
(122,186)
(71,686)
(89,286)
(126,735)
(299,270)
(57,407)
Net foreign exchange (gains) losses
(36,078)
17,892
(21,505)
62,349
38,681
(39,691)
17,812
Transaction costs and other
(437)
(2,018)
1,390
3,086
792
(1,065)
3,373
Income (loss) from operating affiliates
124,119
24,476
75,457
10,504
919
224,052
6,262
Pre-tax operating income
308,679
452,569
279,564
256,982
135,569
1,040,812
382,056
Arch share of ‘other’ segment operating income (loss) (2)
—
733
198
1,526
1,792
931
5,827
Pre-tax operating income available to Arch (b)
308,679
453,302
279,762
258,508
137,361
1,041,743
387,883
Income tax expense (benefit) (a)
2,099
(34,420)
(29,590)
(17,688)
(6,637)
(61,911)
(29,983)
After-tax operating income available to Arch
310,778
418,882
250,172
240,820
130,724
979,832
357,900
Preferred dividends
(16,090)
(11,666)
(10,403)
(10,403)
(10,403)
(38,159)
(31,209)
After-tax operating income available to Arch common shareholders
$
294,688
$
407,216
$
239,769
$
230,417
$
120,321
$
941,673
$
326,691
Effective tax rate on pre-tax operating income (loss) available to Arch (a)/(b)
(0.7)
%
7.6
%
10.6
%
6.8
%
4.8
%
5.9
%
7.7
%
(1) Line items are presented on a ‘core’ basis, excluding amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2) Balances in the ‘other’ segment and a calculation of Arch’s share of the ‘other’ segment operating income (loss) is as follows:
(U.S. Dollars in thousands)
Three Months Ended
Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
2020
Balances in ‘other’ segment:
Underwriting income (loss)
$
—
$
(8,866)
$
(13,079)
$
(8,555)
$
(8,273)
$
(21,945)
$
(23,412)
Net investment income
—
22,183
20,127
26,466
28,655
42,310
91,234
Interest expense
—
(4,261)
(4,149)
(4,804)
(5,119)
(8,410)
(18,438)
Amortization of intangible assets
—
(898)
—
—
—
(898)
—
Preferred dividends
—
(981)
(972)
(992)
(993)
(1,953)
(3,125)
Pre-tax operating income (loss) available to common shareholders
—
7,177
1,927
12,115
14,270
9,104
46,259
Arch ownership (4)
n/a
10
%
10
%
13
%
13
%
n/a
13
%
Arch share of ‘Other’ segment operating income (loss) (3)
$
—
$
733
$
198
$
1,526
$
1,792
$
931
$
5,827
(3) Excludes amounts attributable to net realized gains or losses and net foreign exchange gains or losses in the ‘other’ segment (see ‘Segment Information’).
(4) Effective July 1, 2021, Watford is wholly owned by Greysbridge and Greysbridge is owned 40% by the Company, accordingly, the Company no longer consolidates the results of Watford in its consolidated financial statements. See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
32
Arch Capital Group Ltd. and Subsidiaries
Capital Structure and Share Repurchase Activity
The following table provides an analysis of the Company’s capital structure (1):
(U.S. Dollars in thousands, except share data)
September 30,
June 30,
March 31,
December 31,
September 30,
2021
2021
2021
2020
2020
Debt:
Arch Capital senior notes, due May 1, 2034 ($300,000 principal, 7.35%)
Arch Finance senior notes, due December 15, 2026 ($500,000 principal, 4.011%) (3)
500,000
500,000
500,000
500,000
500,000
Arch Finance senior notes, due December 15, 2046 ($450,000 principal, 5.031%) (3)
450,000
450,000
450,000
450,000
450,000
Arch Capital senior notes, due June 30, 2050 ($1,000,000 principal, 3.635%)
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
Deferred debt costs on senior notes
(25,851)
(26,097)
(26,340)
(26,577)
(26,811)
Revolving credit agreement borrowings, due December 17, 2024 (variable)
—
—
—
—
—
Total debt
$
2,724,149
$
2,723,903
$
2,723,660
$
2,723,423
$
2,723,189
Shareholders’ equity available to Arch:
Series E non-cumulative preferred shares (5.25%)
—
450,000
450,000
450,000
450,000
Series F non-cumulative preferred shares (5.45%)
330,000
330,000
330,000
330,000
330,000
Series G non-cumulative preferred shares (4.55%)
500,000
500,000
—
—
—
Common shareholders’ equity (a)
12,557,526
12,706,072
12,316,472
12,325,886
11,671,997
Total shareholders’ equity available to Arch
$
13,387,526
$
13,986,072
$
13,096,472
$
13,105,886
$
12,451,997
Total capital available to Arch
$
16,111,675
$
16,709,975
$
15,820,132
$
15,829,309
$
15,175,186
Common shares outstanding, net of treasury shares (b)
387,257,752
396,771,251
403,313,377
406,720,642
406,018,958
Book value per common share (4) (a)/(b)
$
32.43
$
32.02
$
30.54
$
30.31
$
28.75
Leverage ratios:
Senior notes/total capital available to Arch
16.9
%
16.3
%
17.2
%
17.2
%
17.9
%
Revolving credit agreement borrowings/total capital available to Arch
—
%
—
%
—
%
—
%
—
%
Debt/total capital available to Arch
16.9
%
16.3
%
17.2
%
17.2
%
17.9
%
Preferred/total capital available to Arch
5.2
%
7.7
%
4.9
%
4.9
%
5.1
%
Debt and preferred/total capital available to Arch
22.1
%
24.0
%
22.1
%
22.1
%
23.1
%
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2) Issued by Arch Capital Group (U.S.) Inc. (“Arch-U.S.”), a wholly owned subsidiary of Arch Capital, and fully and unconditionally guaranteed by Arch Capital.
(3) Issued by Arch Capital Finance LLC (“Arch Finance”), a wholly owned subsidiary of Arch U.S. MI Holdings Inc., and fully and unconditionally guaranteed by Arch Capital.
(4) Excludes the effects of stock options, restricted and performance stock units outstanding.
The following table provides the impact of share repurchases under the Company’s share repurchase program:
(U.S. Dollars in thousands except share data)
Three Months Ended
Cumulative
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
2021
2021
2021
2020
2020
2021
Effect of share repurchases:
Aggregate cost of shares repurchased
$
386,882
$
306,049
$
179,266
$
7,986
$
—
$
4,923,963
Shares repurchased
9,704,956
7,805,455
5,308,319
250,714
—
412,010,812
Average price per share repurchased
$
39.86
$
39.21
$
33.77
$
31.85
$
—
$
11.95
Remaining share repurchase authorization (1)
$
44,331
(1) On October 8th, the Company increased its share repurchase program to an aggregate of up to $1.5 billion, which may be effected from time to time in open market or privately negotiated transactions through December 31, 2022.
