The following financial supplement is provided to assist in your understanding of Arch Capital Group Ltd. (“Arch”) and its subsidiaries (collectively, the “Company”).
This report is for informational purposes only. It should be read in conjunction with documents filed by Arch with the U.S. Securities and Exchange Commission, including the most recent Annual Report on Form 10-K and the Quarterly Reports on Form 10-Q. Please refer to the Company’s website at www.archgroup.com for further information describing Arch.
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, 2021 is derived from or agrees to audited financial information. During the 2021 first quarter, the Company changed its presentation of ‘income (loss) from operating affiliates’ on its consolidated statements of income for all periods presented to reclass such item from ‘other income (loss)’. The Company also changed its presentation of ‘investment in operating affiliates’ on its consolidated balance sheet for all periods presented to reclass such item from ‘other assets’. Unless otherwise noted, all data is in thousands, except for share and per share amounts and ratio information.
In March 2014, the Company invested $100.0 million to acquire common equity and a warrant to purchase additional common equity of Somers Group Holdings Ltd. (formerly Watford Holdings Ltd.), (“Somers”). In accordance with GAAP, the Company consolidated the results of Somers in its financial statements. Somers was considered a variable interest entity and the Company concluded that it was the primary beneficiary of Somers, through June 30, 2021. As such, 100% of the results of Somers were included in the Company’s consolidated financial statements as of and for the periods ended June 30, 2021. The portion of Somers’ earnings owned by third parties was recorded in the consolidated statements of income as ‘amounts attributable to noncontrolling interests.’ In addition, through June 30, 2021 the Company reflected Somers’ redeemable preference shares in the mezzanine section of the Company’s consolidated balance sheets as ‘redeemable noncontrolling interests’. In July 2021, the Company announced the completion of the previously disclosed acquisition of Somers by Greysbridge. Based on the governing documents of Greysbridge, the Company has concluded that, while it will retain significant influence over Somers, Somers no longer constitutes a variable interest entity. Accordingly, effective July 1, 2021, Arch no longer consolidates the results of Somers in its consolidated financial statements and footnotes.
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This release or any other written or oral statements made by or on behalf of Arch and its subsidiaries may include forward-looking statements, which reflect the Company’s current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this release are forward-looking statements.
Forward-looking statements can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or their negative or variations or similar terminology. Forward-looking statements involve the Company’s current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: adverse general economic and market conditions; increased competition; pricing and policy term trends; fluctuations in the actions of rating agencies and the Company’s ability to maintain and improve the Company’s ratings; investment performance; the loss and addition of key personnel; the adequacy of the Company’s loss reserves, severity and/or frequency of losses, greater than expected loss ratios and adverse development on claim and/or claim expense liabilities; greater frequency or severity of unpredictable natural and man-made catastrophic events; including pandemics such as COVID-19; the impact of acts of terrorism and acts of war; changes in regulations and/or tax laws in the United States or elsewhere; the Company’s ability to successfully integrate, establish and maintain operating procedures as well as integrate the businesses we have acquired or may acquire into the existing operations; changes in accounting principles or policies; material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; availability and cost to the Company of reinsurance to manage gross and net exposures; the failure of others to meet their obligations to the Company; uncertainty relating to determination of the London Inter-bank Offered Rate (“LIBOR”) and the phasing out and replacement of LIBOR with alternative benchmark rates; a disruption caused by cyber-attacks or other technology breaches or failures on the Company or the Company’s business partners and service providers, which could negatively impact the Company’s business and/or expose the Company to litigation; 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
Year Ended
December 31,
December 31,
2022
2021
Change
2022
2021
Change
Underwriting results:
Gross premiums written
$
3,795,262
$
2,861,575
32.6
%
$
15,326,447
$
12,463,788
23.0
%
Net premiums written
3,034,636
2,034,427
49.2
%
11,077,189
8,663,635
27.9
%
Net premiums earned
2,760,919
2,083,630
32.5
%
9,678,077
7,750,330
24.9
%
Underwriting income (loss) (2)
734,264
471,611
55.7
%
1,796,032
1,239,740
44.9
%
Loss ratio
45.0
%
47.8
%
(2.8)
51.9
%
55.8
%
(3.9)
Acquisition expense ratio
18.1
%
17.2
%
0.9
18.0
%
16.0
%
2.0
Other operating expense ratio
10.4
%
12.6
%
(2.2)
11.7
%
12.5
%
(0.8)
Combined ratio
73.5
%
77.6
%
(4.1)
81.6
%
84.3
%
(2.7)
Net investment income
$
181,079
$
90,454
100.2
%
$
496,547
$
346,808
43.2
%
Per diluted share
$
0.48
$
0.23
108.7
%
$
1.31
$
0.87
50.6
%
Net income available to Arch common shareholders
$
849,504
$
613,081
38.6
%
$
1,436,197
$
2,093,405
(31.4)
%
Per diluted share
$
2.26
$
1.58
43.0
%
$
3.80
$
5.23
(27.3)
%
After-tax operating income available to Arch common shareholders (2)
$
805,922
$
493,257
63.4
%
$
1,840,389
$
1,434,930
28.3
%
Per diluted share
$
2.14
$
1.27
68.5
%
$
4.87
$
3.58
36.0
%
Comprehensive income (loss) available to Arch
$
1,105,345
$
509,482
117.0
%
$
(104,637)
$
1,603,354
(106.5)
%
Net cash provided by operating activities
$
981,510
$
800,004
22.7
%
$
3,815,227
$
3,380,701
12.9
%
Weighted average common shares and common share equivalents outstanding — diluted
375,878,279
388,869,378
(3.3)
%
377,609,767
400,345,936
(5.7)
%
Financial measures:
Change in book value per common share during period
9.9
%
3.5
%
6.4
(2.8)
%
10.7
%
(13.5)
Annualized net income return on average common equity
29.5
%
19.4
%
10.1
11.6
%
16.7
%
(5.1)
Annualized operating return on average common equity (2)
28.0
%
15.6
%
12.4
14.8
%
11.5
%
3.3
Total return on investments (3)
2.60
%
0.39
%
221 bps
(6.45)
%
1.90
%
-835 bps
(1)Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2)See ‘Comments on Regulation G’ for a further discussion of consolidated underwriting income or loss, after-tax operating income or loss available to Arch common shareholders and annualized operating return on average common equity.
(3)Total return on investments includes investment income, equity in net income (loss) of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains and losses and is calculated on a pre-tax basis and before investment expenses. See ‘Comments on Regulation G’ for a further discussion of the presentation of total return on investments.
3
Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Income
(U.S. Dollars in thousands, except share data)
Three Months Ended
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Revenues
Net premiums earned
$
2,760,919
$
2,470,750
$
2,325,775
$
2,120,633
$
2,083,630
$
9,678,077
$
8,082,298
Net investment income
181,079
128,640
106,392
80,436
90,454
496,547
389,118
Net realized gains (losses)
79,932
(183,673)
(266,579)
(292,414)
59,517
(662,734)
379,845
Other underwriting income
1,283
3,077
2,970
5,897
3,160
13,227
22,073
Equity in net income (loss) of investment funds accounted for using the equity method
40,351
(18,861)
58,061
36,305
67,132
115,856
366,402
Other income (loss)
8,321
(13,684)
(11,777)
(9,025)
9,093
(26,165)
10,244
Total revenues
3,071,885
2,386,249
2,214,842
1,941,832
2,312,986
9,614,808
9,249,980
Expenses
Losses and loss adjustment expenses
(1,241,330)
(1,682,696)
(1,102,656)
(1,000,835)
(995,853)
(5,027,517)
(4,584,803)
Acquisition expenses
(500,515)
(447,587)
(413,319)
(378,159)
(357,539)
(1,739,580)
(1,303,178)
Other operating expenses
(286,093)
(274,747)
(277,392)
(289,943)
(261,787)
(1,128,175)
(998,595)
Corporate expenses
(17,820)
(17,710)
(27,620)
(32,332)
(18,150)
(95,482)
(79,157)
Amortization of intangible assets
(25,722)
(26,104)
(27,207)
(27,167)
(33,132)
(106,200)
(82,955)
Interest expense
(31,700)
(33,063)
(32,795)
(32,708)
(32,248)
(130,266)
(139,470)
Net foreign exchange gains (losses)
(81,224)
90,509
87,775
3,845
3,163
100,905
41,529
Total expenses
(2,184,404)
(2,391,398)
(1,793,214)
(1,757,299)
(1,695,546)
(8,126,315)
(7,146,629)
Income (loss) before income taxes and income (loss) from operating affiliates
887,481
(5,149)
421,628
184,533
617,440
1,488,493
2,103,351
Income tax (expense) benefit
(60,919)
14,900
(22,323)
(11,619)
(34,406)
(79,961)
(128,582)
Income (loss) from operating affiliates
36,226
8,507
4,640
24,518
40,641
73,891
264,693
Net income (loss)
862,788
18,258
403,945
197,432
623,675
1,482,423
2,239,462
Net (income) loss attributable to noncontrolling interests
(3,100)
(1,157)
399
(1,632)
(410)
(5,490)
(82,613)
Net income (loss) attributable to Arch
859,688
17,101
404,344
195,800
623,265
1,476,933
2,156,849
Preferred dividends
(10,184)
(10,184)
(10,184)
(10,184)
(10,184)
(40,736)
(48,343)
Loss on redemption of preferred shares
—
—
—
—
—
—
(15,101)
Net income (loss) available to Arch common shareholders
$
849,504
$
6,917
$
394,160
$
185,616
$
613,081
$
1,436,197
$
2,093,405
Comprehensive income (loss) available to Arch
$
1,105,345
$
(616,461)
$
(204,476)
$
(389,045)
$
509,482
$
(104,637)
$
1,603,354
Net income (loss) per common share and common share equivalent
Basic
$
2.32
$
0.02
$
1.07
$
0.50
$
1.62
$
3.90
$
5.34
Diluted
$
2.26
$
0.02
$
1.04
$
0.48
$
1.58
$
3.80
$
5.23
Weighted average common shares and common share equivalents outstanding
Basic
365,902,520
365,190,527
369,241,193
374,243,812
379,431,442
368,612,197
391,748,715
Diluted
375,878,279
373,727,277
377,952,988
384,194,363
388,869,378
377,609,767
400,345,936
4
Arch Capital Group Ltd. and Subsidiaries
Consolidated Balance Sheets
(U.S. Dollars in thousands, except share data)
December 31,
September 30,
June 30,
March 31,
December 31,
2022
2022
2022
2022
2021
Assets
Investments:
Fixed maturities available for sale, at fair value
$
19,682,789
$
18,120,727
$
17,585,029
$
17,648,853
$
17,998,109
Short-term investments available for sale, at fair value
1,331,662
1,940,857
2,227,874
2,332,624
1,734,716
Equity securities, at fair value
859,969
809,869
772,689
1,002,572
1,804,170
Other investments
1,644,197
1,578,751
1,634,368
1,686,666
1,973,550
Investments accounted for using the equity method
3,774,310
3,565,946
3,496,341
3,325,543
3,077,611
Total investments
27,292,927
26,016,150
25,716,301
25,996,258
26,588,156
Cash
855,118
813,583
813,548
812,917
858,668
Accrued investment income
158,680
116,263
116,102
82,607
85,453
Investment in operating affiliates
964,604
891,212
967,603
1,144,255
1,135,655
Premiums receivable
3,624,777
3,579,380
3,634,182
3,223,504
2,633,280
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses
6,563,654
6,356,456
5,938,511
5,941,000
5,880,735
Contractholder receivables
1,731,293
1,735,730
1,758,018
1,810,199
1,828,691
Ceded unearned premiums
1,799,197
2,115,539
2,123,915
1,951,960
1,729,455
Deferred acquisition costs
1,263,870
1,122,711
1,069,845
1,001,866
901,841
Receivable for securities sold
12,493
27,042
157,329
116,633
60,179
Goodwill and intangible assets
804,289
806,655
868,014
926,427
944,983
Other assets
2,919,605
2,756,383
2,555,826
2,670,315
2,453,849
Total assets
$
47,990,507
$
46,337,104
$
45,719,194
$
45,677,941
$
45,100,945
Liabilities
Reserve for losses and loss adjustment expenses
$
20,031,943
$
19,288,291
$
18,194,324
$
18,109,107
$
17,757,156
Unearned premiums
7,337,002
7,271,279
7,145,297
6,737,779
6,011,942
Reinsurance balances payable
1,529,919
1,669,592
1,634,700
1,510,906
1,583,253
Contractholder payables
1,733,984
1,738,089
1,761,023
1,813,930
1,832,127
Collateral held for insured obligations
249,238
254,720
251,063
244,502
242,352
Senior notes
2,725,410
2,725,153
2,724,896
2,724,642
2,724,394
Payable for securities purchased
95,041
174,769
292,106
176,452
64,850
Other liabilities
1,367,068
1,411,193
1,289,760
1,431,271
1,329,742
Total liabilities
35,069,605
34,533,086
33,293,169
32,748,589
31,545,816
Redeemable noncontrolling interests
10,829
8,908
8,459
9,763
9,233
Shareholders’ equity
Non-cumulative preferred shares
830,000
830,000
830,000
830,000
830,000
Common shares
654
652
652
651
648
Additional paid-in capital
2,211,444
2,186,599
2,170,661
2,134,241
2,085,075
Retained earnings
15,892,065
15,042,561
15,035,644
14,641,484
14,455,868
Accumulated other comprehensive income (loss), net of deferred income tax
(1,646,170)
(1,891,827)
(1,258,265)
(649,445)
(64,600)
Common shares held in treasury, at cost
(4,377,920)
(4,372,875)
(4,361,126)
(4,037,342)
(3,761,095)
Total shareholders’ equity
12,910,073
11,795,110
12,417,566
12,919,589
13,545,896
Total liabilities, noncontrolling interests and shareholders’ equity
$
47,990,507
$
46,337,104
$
45,719,194
$
45,677,941
$
45,100,945
Common shares and common share equivalents outstanding, net of treasury shares
370,345,997
369,321,990
369,346,815
375,730,891
378,923,894
Book value per common share (1)
$
32.62
$
29.69
$
31.37
$
32.18
$
33.56
(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
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Non-cumulative preferred shares
Balance at beginning of period
$
830,000
$
830,000
$
830,000
$
830,000
$
830,000
$
830,000
$
780,000
Preferred shares issued
—
—
—
—
—
—
500,000
Preferred shares redeemed
—
—
—
—
—
—
(450,000)
Balance at beginning and end of period
$
830,000
$
830,000
$
830,000
$
830,000
$
830,000
$
830,000
$
830,000
Common shares
Balance at beginning of period
652
652
651
648
648
648
643
Common shares issued, net
2
—
1
3
—
6
5
Balance at end of period
654
652
652
651
648
654
648
Additional paid-in capital
Balance at beginning of period
2,186,599
2,170,661
2,134,241
2,085,075
2,061,906
2,085,075
1,977,794
Issue costs on preferred shares
—
—
—
—
—
—
(14,179)
Reversal of original issue costs on redeemed preferred shares
—
—
—
—
—
—
15,101
Amortization of share-based compensation
7,597
13,518
21,137
45,368
14,774
87,620
86,053
All other
17,248
2,420
15,283
3,798
8,395
38,749
20,306
Balance at end of period
2,211,444
2,186,599
2,170,661
2,134,241
2,085,075
2,211,444
2,085,075
Retained earnings
Balance at beginning of period
15,042,561
15,035,644
14,641,484
14,455,868
13,842,787
14,455,868
12,362,463
Net income
862,788
18,258
403,945
197,432
623,675
1,482,423
2,239,462
Amounts attributable to noncontrolling interests
(3,100)
(1,157)
399
(1,632)
(410)
(5,490)
(82,613)
Preferred share dividends
(10,184)
(10,184)
(10,184)
(10,184)
(10,184)
(40,736)
(48,343)
Loss on redemption of preferred shares
—
—
—
—
—
—
(15,101)
Balance at end of period
15,892,065
15,042,561
15,035,644
14,641,484
14,455,868
15,892,065
14,455,868
Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of period
(1,891,827)
(1,258,265)
(649,445)
(64,600)
49,184
(64,600)
488,895
Change in unrealized appreciation (decline) in value of available-for-sale investments
160,696
(563,174)
(540,295)
(582,077)
(103,391)
(1,524,850)
(487,809)
Change in foreign currency translation adjustments
84,961
(70,388)
(68,525)
(2,768)
(10,393)
(56,720)
(65,686)
Balance at end of period
(1,646,170)
(1,891,827)
(1,258,265)
(649,445)
(64,600)
(1,646,170)
(64,600)
Common shares held in treasury, at cost
Balance at beginning of period
(4,372,875)
(4,361,126)
(4,037,342)
(3,761,095)
(3,396,999)
(3,761,095)
(2,503,909)
Shares repurchased for treasury
(5,045)
(11,749)
(323,784)
(276,247)
(364,096)
(616,825)
(1,257,186)
Balance at end of period
(4,377,920)
(4,372,875)
(4,361,126)
(4,037,342)
(3,761,095)
(4,377,920)
(3,761,095)
Total shareholders’ equity
$
12,910,073
$
11,795,110
$
12,417,566
$
12,919,589
$
13,545,896
$
12,910,073
$
13,545,896
6
Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
(U.S. Dollars in thousands)
Three Months Ended
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Operating Activities
Net income (loss)
$
862,788
$
18,258
$
403,945
$
197,432
$
623,675
$
1,482,423
$
2,239,462
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses
(91,112)
187,407
266,060
289,213
(60,054)
651,568
(427,367)
Equity in net (income) or loss of investment funds accounted for using the equity method and other income or loss
46,752
62,590
55,235
(11,420)
(91,400)
153,157
(464,050)
Amortization of intangible assets
25,722
26,104
27,207
27,167
33,132
106,200
82,955
Share-based compensation
7,599
13,511
21,139
45,379
14,791
87,628
87,094
Changes in:
Reserve for losses and loss adjustment expenses, net
335,931
918,602
358,528
275,954
213,979
1,889,015
1,762,190
Unearned premiums, net
273,717
253,024
358,864
513,507
(49,203)
1,399,112
936,039
Premiums receivable
(13,488)
(9,951)
(485,099)
(600,691)
161,884
(1,109,229)
(685,214)
Deferred acquisition costs
(131,690)
(68,466)
(76,912)
(96,999)
(15,277)
(374,067)
(263,243)
Reinsurance balances payable
(163,927)
56,323
146,117
(74,022)
(118,506)
(35,509)
500,065
Other items, net
(170,782)
(77,653)
(172,679)
(13,957)
86,983
(435,071)
(340,376)
Net cash provided by operating activities
981,510
1,379,749
902,405
551,563
800,004
3,815,227
3,427,555
Investing Activities
Purchases of fixed maturity investments
(3,325,173)
(3,359,345)
(2,978,292)
(6,727,665)
(5,581,835)
(16,390,475)
(35,451,858)
Purchases of equity securities
(10,265)
(131,160)
(246,958)
(408,615)
(196,529)
(796,998)
(1,175,480)
Purchases of other investments
(450,358)
(349,715)
(303,725)
(616,659)
(509,040)
(1,720,457)
(1,859,096)
Proceeds from sales of fixed maturity investments
1,853,586
1,911,450
2,025,616
6,053,352
3,509,653
11,844,004
33,577,445
Proceeds from sales of equity securities
14,308
49,596
389,956
1,100,256
222,512
1,554,116
918,145
Proceeds from sales, redemptions and maturities of other investments
145,393
212,346
292,992
570,341
277,614
1,221,072
1,765,533
Proceeds from redemptions and maturities of fixed maturity investments
136,655
133,791
203,320
240,753
394,343
714,519
1,628,755
Net settlements of derivative instruments
37,529
(61,509)
(42,328)
(2,510)
27,758
(68,818)
(40,072)
Net (purchases) sales of short-term investments
619,229
288,012
70,760
(510,752)
1,338,070
467,249
165,272
Purchase of operating affiliate, net
—
—
—
—
—
—
(753,916)
Impact of the deconsolidation of a variable interest entity
—
—
—
—
—
—
(349,202)
Purchases of fixed assets
(13,289)
(14,553)
(12,060)
(11,770)
(6,987)
(51,672)
(41,394)
Other
(2,949)
29,968
97,836
550
(162,007)
125,405
(523,864)
Net cash provided by (used for) investing activities
(995,334)
(1,291,119)
(502,883)
(312,719)
(686,448)
(3,102,055)
(2,139,732)
Financing Activities
Proceeds from issuance of preferred shares, net
—
—
—
—
—
—
485,821
Redemption of preferred shares
—
—
—
—
—
—
(450,000)
Purchases of common shares under share repurchase program
—
(10,147)
(320,688)
(254,988)
(362,097)
(585,823)
(1,234,294)
Proceeds from common shares issued, net
9,523
1,202
13,195
(17,260)
6,137
6,660
6,418
Third party investment in non-redeemable noncontrolling interests
—
—
—
—
—
—
15,971
Dividends paid to redeemable noncontrolling interests
—
—
—
—
—
—
(1,907)
Other
(1,188)
(2,632)
(130,866)
48,859
18,474
(85,827)
(3,278)
Preferred dividends paid
(10,184)
(10,184)
(10,184)
(10,184)
(10,184)
(40,736)
(48,280)
Net cash provided by (used for) financing activities
(1,849)
(21,761)
(448,543)
(233,573)
(347,670)
(705,726)
(1,229,549)
Effects of exchange rate changes on foreign currency cash and restricted cash
30,677
(36,776)
(38,866)
(3,924)
(24)
(48,889)
(34,047)
Increase (decrease) in cash and restricted cash
15,004
30,093
(87,887)
1,347
(234,138)
(41,443)
24,227
Cash and restricted cash, beginning of period
1,258,324
1,228,231
1,316,118
1,314,771
1,548,909
1,314,771
1,290,544
Cash and restricted cash, end of period
$
1,273,328
$
1,258,324
$
1,228,231
$
1,316,118
$
1,314,771
$
1,273,328
$
1,314,771
Income taxes paid (received)
$
53,371
$
72,930
$
119,616
$
9,005
$
84,371
$
254,922
$
286,810
Interest paid
$
63,413
$
416
$
63,948
$
648
$
63,498
$
128,425
$
139,301
Net cash provided by operating activities, excluding the ‘other’ segment
$
981,510
$
1,379,749
$
902,405
$
551,563
$
800,004
$
3,815,227
$
3,380,701
7
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Overview
The Company classifies its businesses into three underwriting segments — insurance, reinsurance and mortgage — and two other operating segments — ‘other’ and corporate segment. The Company’s Insurance, Reinsurance and Mortgage segments each have managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company’s chief operating decision makers, the Chief Executive Officer of Arch, the Chief Financial Officer and Treasurer of Arch and the President and Chief Underwriting Officer of Arch. The chief operating decision makers do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures segment performance for its three core underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment and, accordingly, investment income is not allocated to each underwriting segment.
The Company determined its reportable operating segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.
Insurance Segment
The insurance segment consists of the Company’s insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:
• Construction and national accounts: primary and excess casualty coverages for middle market and large construction accounts, a comprehensive range of products for middle market accounts in specialty industries and casualty solutions for large national accounts, including loss sensitive primary insurance programs (large deductible, self-insured retention and retrospectively rated programs).
• Excess and surplus casualty: primary and excess casualty insurance coverages written on a non-admitted basis.
• Warranty and lenders solutions: collateral protection, debt cancellation and service contract reimbursement products to banks, credit unions, automotive dealerships and original equipment manufacturers and other specialty programs that pertain to automotive lending and leasing.
• Professional lines: directors’ and officers’ liability, errors and omissions liability, employment practices liability, fiduciary liability, crime, professional indemnity and other financial related coverages for corporate, private equity, venture capital, real estate investment trust, limited partnership, financial institution and not-for-profit clients of all sizes, cyber insurance, and medical professional and general liability insurance coverages for the healthcare industry. The business is predominately written on a claims-made basis.
• Programs: primarily targeting program managers with unique expertise and niche products offering some combination of general liability, commercial automobile, property, inland marine, umbrella and workers’ compensation.
• 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, cargo, war, specie and liability. Aviation, standalone terrorism and political risks are also offered. Coverage may be provided for operational and construction risk.
• 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, commercial and transactional surety coverages.
8
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Overview
Reinsurance Segment
The reinsurance segment consists of the Company’s reinsurance underwriting units which offer specialty product lines on a worldwide basis. Reinsurance agreements are typically offered on a proportional and/or excess of loss basis and provide coverage to ceding company clients for specific underlying written policies. Product lines include:
•Casualty: provides coverage on third party liability exposures including, among others, executive assurance, professional liability, excess and umbrella liability, excess motor and healthcare business, and workers’ compensation. Business is assumed primarily on a treaty basis, with some facultative coverages also offered.
•Marine and aviation: provides coverage for energy, hull, cargo, specie, liability and transit, and aviation business, including airline and general aviation risks. Business written may also include space business, which includes coverages for satellite assembly, launch and operation for commercial space programs.
•Other specialty: provides coverage for proportional motor reinsurance, whole account multi-line treaties, cyber, trade credit and surety, accident and health, workers’ compensation catastrophe, agriculture and political risk, among others.
•Property catastrophe: provides protection for most types of catastrophic losses, including hurricane, earthquake, flood, tornado, hail and fire, and for other perils on a case-by-case basis. Excess of loss coverages are triggered when aggregate losses and loss adjustment expense from a single occurrence of a covered peril exceed the retention specified in the contract.
•Property excluding property catastrophe: provides coverage for personal lines and/or commercial property exposures and principally covers buildings, structures, equipment and contents. The primary perils in this business include fire, explosion, collapse, riot, vandalism, wind, tornado, flood and earthquake. Business is assumed on either a treaty or facultative basis.
•Other: includes life reinsurance business, casualty clash business and, in limited instances, non-traditional business which is intended to provide insurers with risk management solutions that complement traditional reinsurance.
Mortgage Segment
The mortgage segment includes the Company’s underwriting units which offer mortgage insurance and reinsurance products on a worldwide basis. Underwriting units include:
•U.S. primary mortgage insurance: offers private mortgage insurance through Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (combined “Arch MI U.S.”), both approved eligible mortgage insurers by Fannie Mae and Freddie Mac. Arch MI U.S. also includes Arch Mortgage Guaranty Company, which is not a government sponsored enterprise (“GSE”) approved entity.
•U.S. credit risk transfer (“CRT”) and other: underwrites CRT transactions, which are predominantly with GSEs, and other U.S. reinsurance transactions.
•International mortgage insurance/reinsurance: underwrites mortgage insurance and reinsurance outside of the U.S.
Corporate Segment
The corporate segment results include net investment income, net realized gains or losses (which includes changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings), equity in net income or loss of investment funds accounted for using the equity method, other income (loss), corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, net foreign exchange gains or losses, income taxes items, income or loss from operating affiliates and items related to the Company’s non-cumulative preferred shares. Such amounts exclude the results of the ‘other’ segment.
Other Segment
Through June 30, 2021, the ‘other’ segment included the results of Somers. Pursuant to GAAP, Somers was considered a variable interest entity and the Company concluded that it was the primary beneficiary of Somers. As such, the Company consolidated the results of Somers in its consolidated financial statements through June 30, 2021. The portion of Somers’ earnings attributable to third party investors was recorded in the consolidated statements of income as ‘amounts attributable to noncontrolling interests.’ Management measures segment performance for the ‘other’ segment based on net income or loss. In July 2021, the Company announced the completion of the previously disclosed acquisition of Somers by Greysbridge. Based on the governing documents of Greysbridge, the Company has concluded that, while it retains significant influence over Somers, Somers no longer constitutes a variable interest entity. Accordingly, effective July 1, 2021, Arch no longer consolidates the results of Somers in its consolidated financial statements.
9
Arch Capital Group Ltd. and Subsidiaries
Segment Information
(U.S. Dollars in thousands)
Three Months Ended
December 31, 2022
Insurance
Reinsurance
Mortgage
Sub-total (Core)
Other
Total
Gross premiums written (1)
$
1,644,066
$
1,797,037
$
355,827
$
3,795,262
$
—
$
3,795,262
Premiums ceded
(427,336)
(253,655)
(81,303)
(760,626)
—
(760,626)
Net premiums written
1,216,730
1,543,382
274,524
3,034,636
—
3,034,636
Change in unearned premiums
26,857
(318,174)
17,600
(273,717)
—
(273,717)
Net premiums earned
1,243,587
1,225,208
292,124
2,760,919
—
2,760,919
Other underwriting income (loss)
—
(943)
2,226
1,283
—
1,283
Losses and loss adjustment expenses
(729,784)
(648,654)
137,108
(1,241,330)
—
(1,241,330)
Acquisition expenses
(244,059)
(243,640)
(12,816)
(500,515)
—
(500,515)
Other operating expenses
(172,060)
(68,925)
(45,108)
(286,093)
—
(286,093)
Underwriting income (loss)
$
97,684
$
263,046
$
373,534
734,264
—
734,264
Net investment income
181,079
—
181,079
Net realized gains (losses)
79,932
—
79,932
Equity in net income (loss) of investment funds accounted for using the equity method
40,351
—
40,351
Other income (loss)
8,321
—
8,321
Corporate expenses (2)
(17,462)
—
(17,462)
Transaction costs and other (2)
(358)
—
(358)
Amortization of intangible assets
(25,722)
—
(25,722)
Interest expense
(31,700)
—
(31,700)
Net foreign exchange gains (losses)
(81,224)
—
(81,224)
Income (loss) before income taxes and income (loss) from operating affiliates
887,481
—
887,481
Income tax (expense) benefit
(60,919)
—
(60,919)
Income (loss) from operating affiliates
36,226
—
36,226
Net income (loss)
862,788
—
862,788
Amounts attributable to redeemable noncontrolling interests
(3,100)
—
(3,100)
Net income (loss) available to Arch
859,688
—
859,688
Preferred dividends
(10,184)
—
(10,184)
Net income (loss) available to Arch common shareholders
$
849,504
$
—
$
849,504
Underwriting Ratios
Loss ratio
58.7
%
52.9
%
(46.9)
%
45.0
%
—
%
45.0
%
Acquisition expense ratio
19.6
%
19.9
%
4.4
%
18.1
%
—
%
18.1
%
Other operating expense ratio
13.8
%
5.6
%
15.4
%
10.4
%
—
%
10.4
%
Combined ratio
92.1
%
78.4
%
(27.1)
%
73.5
%
—
%
73.5
%
Net premiums written to gross premiums written
74.0
%
85.9
%
77.2
%
80.0
%
—
%
80.0
%
Total investable assets
$
28,065,497
$
—
$
28,065,497
Total assets
47,990,507
—
47,990,507
Total liabilities
35,069,605
—
35,069,605
(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.
(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘Transaction costs and other.’ See ‘Comments on Regulation G’ for a further discussion of such items.
10
Arch Capital Group Ltd. and Subsidiaries
Segment Information
(U.S. Dollars in thousands)
Three Months Ended
December 31, 2021
Insurance
Reinsurance
Mortgage
Sub-total (Core)
Other
Total
Gross premiums written (1)
$
1,486,362
$
1,013,090
$
364,134
$
2,861,575
$
—
$
2,861,575
Premiums ceded
(450,376)
(303,949)
(74,834)
(827,148)
—
(827,148)
Net premiums written
1,035,986
709,141
289,300
2,034,427
—
2,034,427
Change in unearned premiums
(33,089)
70,676
11,616
49,203
—
49,203
Net premiums earned
1,002,897
779,817
300,916
2,083,630
—
2,083,630
Other underwriting income (loss)
—
521
2,639
3,160
—
3,160
Losses and loss adjustment expenses
(594,108)
(430,180)
28,435
(995,853)
—
(995,853)
Acquisition expenses
(188,724)
(155,694)
(13,121)
(357,539)
—
(357,539)
Other operating expenses
(149,520)
(61,954)
(50,313)
(261,787)
—
(261,787)
Underwriting income (loss)
$
70,545
$
132,510
$
268,556
471,611
—
471,611
Net investment income
90,454
—
90,454
Net realized gains (losses)
59,517
—
59,517
Equity in net income (loss) of investment funds accounted for using the equity method
67,132
—
67,132
Other income (loss)
9,093
—
9,093
Corporate expenses (2)
(17,840)
—
(17,840)
Transaction costs and other (2)
(310)
—
(310)
Amortization of intangible assets
(33,132)
—
(33,132)
Interest expense
(32,248)
—
(32,248)
Net foreign exchange gains (losses)
3,163
—
3,163
Income (loss) before income taxes and income (loss) from operating affiliates
617,440
—
617,440
Income tax (expense) benefit
(34,406)
—
(34,406)
Income (loss) from operating affiliates
40,641
—
40,641
Net income (loss)
623,675
—
623,675
Amounts attributable to redeemable noncontrolling interests
(410)
—
(410)
Net income (loss) available to Arch
623,265
—
623,265
Preferred dividends
(10,184)
—
(10,184)
Net income (loss) available to Arch common shareholders
$
613,081
$
—
$
613,081
Underwriting Ratios
Loss ratio
59.2
%
55.2
%
(9.4)
%
47.8
%
—
%
47.8
%
Acquisition expense ratio
18.8
%
20.0
%
4.4
%
17.2
%
—
%
17.2
%
Other operating expense ratio
14.9
%
7.9
%
16.7
%
12.6
%
—
%
12.6
%
Combined ratio
92.9
%
83.1
%
11.7
%
77.6
%
—
%
77.6
%
Net premiums written to gross premiums written
69.7
%
70.0
%
79.4
%
71.1
%
—
%
71.1
%
Total investable assets
$
27,442,153
$
—
$
27,442,153
Total assets
45,100,945
—
45,100,945
Total liabilities
31,545,816
—
31,545,816
(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.
(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘Transaction costs and other.’ See ‘Comments on Regulation G’ for a further discussion of such items.
11
Arch Capital Group Ltd. and Subsidiaries
Segment Information
(U.S. Dollars in thousands)
Year Ended
December 31, 2022
Insurance
Reinsurance
Mortgage
Sub-total (Core)
Other
Total
Gross premiums written (1)
$
6,930,864
$
6,948,438
$
1,454,971
$
15,326,447
$
—
$
15,326,447
Premiums ceded
(1,910,222)
(2,024,462)
(322,400)
(4,249,258)
—
(4,249,258)
Net premiums written
5,020,642
4,923,976
1,132,571
11,077,189
—
11,077,189
Change in unearned premiums
(461,307)
(964,595)
26,790
(1,399,112)
—
(1,399,112)
Net premiums earned
4,559,335
3,959,381
1,159,361
9,678,077
—
9,678,077
Other underwriting income (loss)
—
4,871
8,356
13,227
—
13,227
Losses and loss adjustment expenses
(2,782,945)
(2,568,843)
324,271
(5,027,517)
—
(5,027,517)
Acquisition expenses
(885,866)
(813,555)
(40,159)
(1,739,580)
—
(1,739,580)
Other operating expenses
(665,472)
(267,531)
(195,172)
(1,128,175)
—
(1,128,175)
Underwriting income (loss)
$
225,052
$
314,323
$
1,256,657
1,796,032
—
1,796,032
Net investment income
496,547
—
496,547
Net realized gains (losses)
(662,734)
—
(662,734)
Equity in net income (loss) of investment funds accounted for using the equity method
115,856
—
115,856
Other income (loss)
(26,165)
—
(26,165)
Corporate expenses (2)
(94,390)
—
(94,390)
Transaction costs and other (2)
(1,092)
—
(1,092)
Amortization of intangible assets
(106,200)
—
(106,200)
Interest expense
(130,266)
—
(130,266)
Net foreign exchange gains (losses)
100,905
—
100,905
Income (loss) before income taxes and income (loss) from operating affiliates
1,488,493
—
1,488,493
Income tax (expense) benefit
(79,961)
—
(79,961)
Income (loss) from operating affiliates
73,891
—
73,891
Net income (loss)
1,482,423
—
1,482,423
Amounts attributable to redeemable noncontrolling interests
(5,490)
—
(5,490)
Net income (loss) available to Arch
1,476,933
—
1,476,933
Preferred dividends
(40,736)
—
(40,736)
Net income (loss) available to Arch common shareholders
$
1,436,197
$
—
$
1,436,197
Underwriting Ratios
Loss ratio
61.0
%
64.9
%
(28.0)
%
51.9
%
—
%
51.9
%
Acquisition expense ratio
19.4
%
20.5
%
3.5
%
18.0
%
—
%
18.0
%
Other operating expense ratio
14.6
%
6.8
%
16.8
%
11.7
%
—
%
11.7
%
Combined ratio
95.0
%
92.2
%
(7.7)
%
81.6
%
—
%
81.6
%
Net premiums written to gross premiums written
72.4
%
70.9
%
77.8
%
72.3
%
—
%
72.3
%
(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.
(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘Transaction costs and other.’ See ‘Comments on Regulation G’ for a further discussion of such items.
12
Arch Capital Group Ltd. and Subsidiaries
Segment Information
(U.S. Dollars in thousands)
Year Ended
December 31, 2021
Insurance
Reinsurance
Mortgage
Sub-total (Core)
Other
Total
Gross premiums written (1)
$
5,867,734
$
5,093,930
$
1,507,825
$
12,463,788
$
457,465
$
12,752,487
Premiums ceded
(1,719,541)
(1,839,556)
(246,757)
(3,800,153)
(102,763)
(3,734,150)
Net premiums written
4,148,193
3,254,374
1,261,068
8,663,635
354,702
9,018,337
Change in unearned premiums
(521,725)
(413,931)
22,351
(913,305)
(22,734)
(936,039)
Net premiums earned
3,626,468
2,840,443
1,283,419
7,750,330
331,968
8,082,298
Other underwriting income (loss)
—
3,669
17,665
21,334
739
22,073
Losses and loss adjustment expenses
(2,344,365)
(1,924,719)
(56,677)
(4,325,761)
(259,042)
(4,584,803)
Acquisition expenses
(606,265)
(536,754)
(97,418)
(1,240,437)
(62,741)
(1,303,178)
Other operating expenses
(558,906)
(212,810)
(194,010)
(965,726)
(32,869)
(998,595)
Underwriting income (loss)
$
116,932
$
169,829
$
952,979
1,239,740
(21,945)
1,217,795
Net investment income
346,808
42,310
389,118
Net realized gains (losses)
299,207
80,638
379,845
Equity in net income (loss) of investment funds accounted for using the equity method
366,402
—
366,402
Other income (loss)
10,244
—
10,244
Corporate expenses (2)
(77,119)
—
(77,119)
Transaction costs and other (2)
(1,103)
(935)
(2,038)
Amortization of intangible assets
(82,057)
(898)
(82,955)
Interest expense
(131,060)
(8,410)
(139,470)
Net foreign exchange gains (losses)
42,854
(1,325)
41,529
Income (loss) before income taxes and income (loss) from operating affiliates
2,013,916
89,435
2,103,351
Income tax (expense) benefit
(128,348)
(234)
(128,582)
Income (loss) from operating affiliates
264,693
—
264,693
Net income (loss)
2,150,261
89,201
2,239,462
Amounts attributable to redeemable noncontrolling interests
(2,346)
(1,953)
(4,299)
Amounts attributable to nonredeemable noncontrolling interests
—
(78,314)
(78,314)
Net income (loss) available to Arch
2,147,915
8,934
2,156,849
Preferred dividends
(48,343)
—
(48,343)
Loss on redemption of preferred shares
(15,101)
—
(15,101)
Net income (loss) available to Arch common shareholders
$
2,084,471
$
8,934
$
2,093,405
Underwriting Ratios
Loss ratio
64.6
%
67.8
%
4.4
%
55.8
%
78.0
%
56.7
%
Acquisition expense ratio
16.7
%
18.9
%
7.6
%
16.0
%
18.9
%
16.1
%
Other operating expense ratio
15.4
%
7.5
%
15.1
%
12.5
%
9.9
%
12.4
%
Combined ratio
96.7
%
94.2
%
27.1
%
84.3
%
106.8
%
85.2
%
Net premiums written to gross premiums written
70.7
%
63.9
%
83.6
%
69.5
%
77.5
%
70.7
%
(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
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Gross premiums written
$
1,644,066
$
1,862,026
$
1,705,167
$
1,719,605
$
1,486,362
$
6,930,864
$
5,867,734
Premiums ceded
(427,336)
(493,267)
(476,910)
(512,709)
(450,376)
(1,910,222)
(1,719,541)
Net premiums written
1,216,730
1,368,759
1,228,257
1,206,896
1,035,986
5,020,642
4,148,193
Change in unearned premiums
26,857
(181,851)
(126,113)
(180,200)
(33,089)
(461,307)
(521,725)
Net premiums earned
1,243,587
1,186,908
1,102,144
1,026,696
1,002,897
4,559,335
3,626,468
Losses and loss adjustment expenses
(729,784)
(822,663)
(629,759)
(600,739)
(594,108)
(2,782,945)
(2,344,365)
Acquisition expenses
(244,059)
(232,469)
(213,688)
(195,650)
(188,724)
(885,866)
(606,265)
Other operating expenses
(172,060)
(165,499)
(161,088)
(166,825)
(149,520)
(665,472)
(558,906)
Underwriting income (loss)
$
97,684
$
(33,723)
$
97,609
$
63,482
$
70,545
$
225,052
$
116,932
Underwriting Ratios
Loss ratio
58.7
%
69.3
%
57.1
%
58.5
%
59.2
%
61.0
%
64.6
%
Acquisition expense ratio
19.6
%
19.6
%
19.4
%
19.1
%
18.8
%
19.4
%
16.7
%
Other operating expense ratio
13.8
%
13.9
%
14.6
%
16.2
%
14.9
%
14.6
%
15.4
%
Combined ratio
92.1
%
102.8
%
91.1
%
93.8
%
92.9
%
95.0
%
96.7
%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums
2.8
%
13.4
%
1.5
%
3.1
%
2.0
%
5.3
%
5.6
%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments
(0.3)
%
(0.1)
%
(0.4)
%
(0.1)
%
(0.3)
%
(0.2)
%
(0.4)
%
Combined ratio excluding catastrophic activity and prior year development (1)
89.6
%
89.5
%
90.0
%
90.8
%
91.2
%
89.9
%
91.5
%
Net premiums written to gross premiums written
74.0
%
73.5
%
72.0
%
70.2
%
69.7
%
72.4
%
70.7
%
(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
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Net premiums written
Professional Lines
$
393,032
32.3
%
$
412,173
30.1
%
$
349,402
28.4
%
$
347,841
28.8
%
$
373,752
36.1
%
$
1,502,448
29.9
%
$
1,177,144
28.4
%
Property, energy, marine and aviation
190,325
15.6
%
241,357
17.6
%
245,724
20.0
%
200,661
16.6
%
158,120
15.3
%
878,067
17.5
%
722,582
17.4
%
Construction and national accounts
134,997
11.1
%
98,381
7.2
%
100,656
8.2
%
135,683
11.2
%
98,468
9.5
%
469,717
9.4
%
431,952
10.4
%
Programs
129,919
10.7
%
189,263
13.8
%
163,339
13.3
%
129,401
10.7
%
92,002
8.9
%
611,922
12.2
%
595,824
14.4
%
Excess and surplus casualty
129,083
10.6
%
110,917
8.1
%
120,509
9.8
%
100,289
8.3
%
101,199
9.8
%
460,798
9.2
%
359,458
8.7
%
Travel, accident and health
106,111
8.7
%
107,434
7.8
%
105,970
8.6
%
165,332
13.7
%
79,176
7.6
%
484,847
9.7
%
305,390
7.4
%
Warranty and lenders solutions
36,084
3.0
%
41,889
3.1
%
36,042
2.9
%
25,232
2.1
%
32,833
3.2
%
139,247
2.8
%
146,984
3.5
%
Other
97,179
8.0
%
167,345
12.2
%
106,615
8.7
%
102,457
8.5
%
100,436
9.7
%
473,596
9.4
%
408,859
9.9
%
Total
$
1,216,730
100.0
%
$
1,368,759
100.0
%
$
1,228,257
100.0
%
$
1,206,896
100.0
%
$
1,035,986
100.0
%
$
5,020,642
100.0
%
$
4,148,193
100.0
%
Underwriting location
United States
$
786,692
64.7
%
$
915,833
66.9
%
$
842,851
68.6
%
$
794,662
65.8
%
$
680,840
65.7
%
$
3,340,038
66.5
%
$
2,813,039
67.8
%
Europe
351,396
28.9
%
380,063
27.8
%
316,363
25.8
%
357,897
29.7
%
292,591
28.2
%
1,405,719
28.0
%
1,125,192
27.1
%
Other
78,642
6.5
%
72,863
5.3
%
69,043
5.6
%
54,337
4.5
%
62,555
6.0
%
274,885
5.5
%
209,962
5.1
%
Total
$
1,216,730
100.0
%
$
1,368,759
100.0
%
$
1,228,257
100.0
%
$
1,206,896
100.0
%
$
1,035,986
100.0
%
$
5,020,642
100.0
%
$
4,148,193
100.0
%
Net premiums earned
Professional Lines
$
368,475
29.6
%
$
341,833
28.8
%
$
314,115
28.5
%
$
289,813
28.2
%
$
280,041
27.9
%
$
1,314,236
28.8
%
$
942,817
26.0
%
Property, energy, marine and aviation
214,907
17.3
%
202,483
17.1
%
180,663
16.4
%
174,335
17.0
%
179,566
17.9
%
772,388
16.9
%
667,892
18.4
%
Construction and national accounts
125,816
10.1
%
109,905
9.3
%
98,831
9.0
%
97,468
9.5
%
98,510
9.8
%
432,020
9.5
%
416,107
11.5
%
Programs
150,917
12.1
%
150,453
12.7
%
148,681
13.5
%
139,809
13.6
%
137,754
13.7
%
589,860
12.9
%
506,867
14.0
%
Excess and surplus casualty
104,048
8.4
%
100,175
8.4
%
98,369
8.9
%
90,761
8.8
%
85,713
8.5
%
393,353
8.6
%
318,027
8.8
%
Travel, accident and health
123,587
9.9
%
133,445
11.2
%
130,185
11.8
%
104,630
10.2
%
87,212
8.7
%
491,847
10.8
%
255,590
7.0
%
Warranty and lenders solutions
35,787
2.9
%
33,253
2.8
%
27,594
2.5
%
30,588
3.0
%
34,451
3.4
%
127,222
2.8
%
153,958
4.2
%
Other
120,050
9.7
%
115,361
9.7
%
103,706
9.4
%
99,292
9.7
%
99,650
9.9
%
438,409
9.6
%
365,210
10.1
%
Total
$
1,243,587
100.0
%
$
1,186,908
100.0
%
$
1,102,144
100.0
%
$
1,026,696
100.0
%
$
1,002,897
100.0
%
$
4,559,335
100.0
%
$
3,626,468
100.0
%
15
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Reinsurance Segment
(U.S. Dollars in thousands)
Three Months Ended
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Gross premiums written
$
1,797,037
$
1,639,061
$
1,793,398
$
1,718,942
$
1,013,090
$
6,948,438
$
5,093,930
Premiums ceded
(253,655)
(560,225)
(630,764)
(579,818)
(303,949)
(2,024,462)
(1,839,556)
Net premiums written
1,543,382
1,078,836
1,162,634
1,139,124
709,141
4,923,976
3,254,374
Change in unearned premiums
(318,174)
(77,062)
(234,635)
(334,724)
70,676
(964,595)
(413,931)
Net premiums earned
1,225,208
1,001,774
927,999
804,400
779,817
3,959,381
2,840,443
Other underwriting income (loss)
(943)
452
4,526
836
521
4,871
3,669
Losses and loss adjustment expenses
(648,654)
(927,911)
(537,578)
(454,700)
(430,180)
(2,568,843)
(1,924,719)
Acquisition expenses
(243,640)
(208,425)
(189,494)
(171,996)
(155,694)
(813,555)
(536,754)
Other operating expenses
(68,925)
(62,777)
(66,053)
(69,776)
(61,954)
(267,531)
(212,810)
Underwriting income (loss)
$
263,046
$
(196,887)
$
139,400
$
108,764
$
132,510
$
314,323
$
169,829
Underwriting Ratios
Loss ratio
52.9
%
92.6
%
57.9
%
56.5
%
55.2
%
64.9
%
67.8
%
Acquisition expense ratio
19.9
%
20.8
%
20.4
%
21.4
%
20.0
%
20.5
%
18.9
%
Other operating expense ratio
5.6
%
6.3
%
7.1
%
8.7
%
7.9
%
6.8
%
7.5
%
Combined ratio
78.4
%
119.7
%
85.4
%
86.6
%
83.1
%
92.2
%
94.2
%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums
0.0
%
39.1
%
7.1
%
6.7
%
6.7
%
12.9
%
15.4
%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments
(4.5)
%
(4.9)
%
(4.5)
%
(2.8)
%
(6.4)
%
(4.3)
%
(5.6)
%
Combined ratio excluding catastrophic activity and prior year development (1)
82.9
%
85.5
%
82.8
%
82.7
%
82.8
%
83.6
%
84.4
%
Net premiums written to gross premiums written
85.9
%
65.8
%
64.8
%
66.3
%
70.0
%
70.9
%
63.9
%
(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
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Net premiums written
Other Specialty
$
803,046
52.0
%
$
381,004
35.3
%
$
434,710
37.4
%
$
363,834
31.9
%
$
207,812
29.3
%
$
1,982,594
40.3
%
$
955,474
29.4
%
Property excluding property catastrophe
339,813
22.0
%
341,809
31.7
%
299,042
25.7
%
295,419
25.9
%
225,127
31.7
%
1,276,083
25.9
%
1,004,086
30.9
%
Casualty
264,461
17.1
%
230,308
21.3
%
212,724
18.3
%
266,455
23.4
%
176,952
25.0
%
973,948
19.8
%
808,164
24.8
%
Property catastrophe
54,697
3.5
%
77,606
7.2
%
154,451
13.3
%
128,971
11.3
%
35,536
5.0
%
415,725
8.4
%
233,260
7.2
%
Marine and aviation
51,354
3.3
%
28,633
2.7
%
35,129
3.0
%
51,817
4.5
%
40,708
5.7
%
166,933
3.4
%
171,753
5.3
%
Other
30,011
1.9
%
19,476
1.8
%
26,578
2.3
%
32,628
2.9
%
23,006
3.2
%
108,693
2.2
%
81,637
2.5
%
Total
$
1,543,382
100.0
%
$
1,078,836
100.0
%
$
1,162,634
100.0
%
$
1,139,124
100.0
%
$
709,141
100.0
%
$
4,923,976
100.0
%
$
3,254,374
100.0
%
Underwriting location
Bermuda
$
910,696
59.0
%
$
520,594
48.3
%
$
589,169
50.7
%
$
541,312
47.5
%
$
340,108
48.0
%
$
2,561,771
52.0
%
$
1,557,294
47.9
%
United States
376,736
24.4
%
312,179
28.9
%
286,925
24.7
%
270,667
23.8
%
201,079
28.4
%
1,246,507
25.3
%
828,504
25.5
%
Europe and other
255,950
16.6
%
246,063
22.8
%
286,540
24.6
%
327,145
28.7
%
167,954
23.7
%
1,115,698
22.7
%
868,576
26.7
%
Total
$
1,543,382
100.0
%
$
1,078,836
100.0
%
$
1,162,634
100.0
%
$
1,139,124
100.0
%
$
709,141
100.0
%
$
4,923,976
100.0
%
$
3,254,374
100.0
%
Net premiums earned
Other Specialty
$
531,799
43.4
%
$
330,142
33.0
%
$
284,321
30.6
%
$
231,618
28.8
%
$
247,437
31.7
%
$
1,377,880
34.8
%
$
818,801
28.8
%
Property excluding property catastrophe
309,878
25.3
%
282,488
28.2
%
266,545
28.7
%
232,529
28.9
%
235,731
30.2
%
1,091,440
27.6
%
836,573
29.5
%
Casualty
220,335
18.0
%
221,636
22.1
%
214,714
23.1
%
197,858
24.6
%
174,180
22.3
%
854,543
21.6
%
666,754
23.5
%
Property catastrophe
77,416
6.3
%
117,820
11.8
%
94,679
10.2
%
77,076
9.6
%
55,453
7.1
%
366,991
9.3
%
280,738
9.9
%
Marine and aviation
50,259
4.1
%
25,182
2.5
%
41,768
4.5
%
42,192
5.2
%
40,256
5.2
%
159,401
4.0
%
152,955
5.4
%
Other
35,521
2.9
%
24,506
2.4
%
25,972
2.8
%
23,127
2.9
%
26,760
3.4
%
109,126
2.8
%
84,622
3.0
%
Total
$
1,225,208
100.0
%
$
1,001,774
100.0
%
$
927,999
100.0
%
$
804,400
100.0
%
$
779,817
100.0
%
$
3,959,381
100.0
%
$
2,840,443
100.0
%
17
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
(U.S. Dollars in thousands)
Three Months Ended
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Gross premiums written
$
355,827
$
362,409
$
371,896
$
364,839
$
364,134
$
1,454,971
$
1,507,825
Premiums ceded
(81,303)
(86,230)
(78,148)
(76,719)
(74,834)
(322,400)
(246,757)
Net premiums written
274,524
276,179
293,748
288,120
289,300
1,132,571
1,261,068
Change in unearned premiums
17,600
5,889
1,884
1,417
11,616
26,790
22,351
Net premiums earned
292,124
282,068
295,632
289,537
300,916
1,159,361
1,283,419
Other underwriting income (1)
2,226
2,625
(1,556)
5,061
2,639
8,356
17,665
Losses and loss adjustment expenses
137,108
67,878
64,681
54,604
28,435
324,271
(56,677)
Acquisition expenses
(12,816)
(6,693)
(10,137)
(10,513)
(13,121)
(40,159)
(97,418)
Other operating expenses
(45,108)
(46,471)
(50,251)
(53,342)
(50,313)
(195,172)
(194,010)
Underwriting income
$
373,534
$
299,407
$
298,369
$
285,347
$
268,556
$
1,256,657
$
952,979
Underwriting Ratios
Loss ratio
(46.9)
%
(24.1)
%
(21.9)
%
(18.9)
%
(9.4)
%
(28.0)
%
4.4
%
Acquisition expense ratio
4.4
%
2.4
%
3.4
%
3.6
%
4.4
%
3.5
%
7.6
%
Other operating expense ratio
15.4
%
16.5
%
17.0
%
18.4
%
16.7
%
16.8
%
15.1
%
Combined ratio
(27.1)
%
(5.2)
%
(1.5)
%
3.1
%
11.7
%
(7.7)
%
27.1
%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments
(72.1)
%
(45.1)
%
(40.7)
%
(36.5)
%
(24.2)
%
(48.6)
%
(13.8)
%
Combined ratio excluding prior year development (2)
45.0
%
39.9
%
39.2
%
39.6
%
35.9
%
40.9
%
40.9
%
Net premiums written to gross premiums written
77.2
%
76.2
%
79.0
%
79.0
%
79.4
%
77.8
%
83.6
%
Net premiums written by underwriting location
United States
$
189,650
$
188,290
$
201,166
$
201,150
$
210,988
$
780,256
$
914,477
Other
84,874
87,889
92,582
86,970
78,312
352,315
346,591
Total
$
274,524
$
276,179
$
293,748
$
288,120
$
289,300
$
1,132,571
$
1,261,068
United States %
69.1
%
68.2
%
68.5
%
69.8
%
72.9
%
68.9
%
72.5
%
Other %
30.9
%
31.8
%
31.5
%
30.2
%
27.1
%
31.1
%
27.5
%
(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)
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
Insurance In Force (IIF) (1)
U.S. primary mortgage insurance
$
295,651
57.6
%
$
294,857
58.8
%
$
291,952
59.8
%
$
283,484
59.7
%
$
280,945
61.0
%
U.S. credit risk transfer (CRT) and other (2)
145,087
28.3
%
143,897
28.7
%
129,203
26.5
%
122,189
25.8
%
110,018
23.9
%
International mortgage insurance/reinsurance (3)
72,315
14.1
%
63,068
12.6
%
67,082
13.7
%
68,800
14.5
%
69,655
15.1
%
Total
$
513,053
100.0
%
$
501,822
100.0
%
$
488,237
100.0
%
$
474,473
100.0
%
$
460,618
100.0
%
Risk In Force (RIF) (4)
U.S. primary mortgage insurance
$
75,806
84.8
%
$
75,343
85.1
%
$
74,258
85.0
%
$
71,699
84.3
%
$
70,619
84.3
%
U.S. credit risk transfer and other (2)
6,245
7.0
%
6,473
7.3
%
6,037
6.9
%
5,670
6.7
%
5,120
6.1
%
International mortgage insurance/reinsurance (3)
7,369
8.2
%
6,727
7.6
%
7,103
8.1
%
7,709
9.1
%
7,983
9.5
%
Total
$
89,420
100.0
%
$
88,543
100.0
%
$
87,398
100.0
%
$
85,078
100.0
%
$
83,722
100.0
%
Supplemental disclosures for U.S. primary mortgage insurance:
Total RIF by credit quality (FICO score):
>=740
$
46,812
61.8
%
$
46,538
61.8
%
$
45,612
61.4
%
$
43,509
60.7
%
$
42,451
60.1
%
680-739
24,945
32.9
%
24,671
32.7
%
24,409
32.9
%
23,827
33.2
%
23,646
33.5
%
620-679
3,772
5.0
%
3,850
5.1
%
3,942
5.3
%
4,052
5.7
%
4,196
5.9
%
<620
277
0.4
%
284
0.4
%
295
0.4
%
311
0.4
%
326
0.5
%
Total
$
75,806
100.0
%
$
75,343
100.0
%
$
74,258
100.0
%
$
71,699
100.0
%
$
70,619
100.0
%
Weighted average FICO score
750
748
747
747
746
Total RIF by Loan-To-Value (LTV):
95.01% and above
$
7,289
9.6
%
$
7,334
9.7
%
$
7,400
10.0
%
$
7,421
10.4
%
$
7,538
10.7
%
90.01% to 95.00%
43,681
57.6
%
43,049
57.1
%
41,951
56.5
%
39,882
55.6
%
38,829
55.0
%
85.01% to 90.00%
20,851
27.5
%
20,876
27.7
%
20,718
27.9
%
20,183
28.1
%
20,006
28.3
%
85.00% and below
3,985
5.3
%
4,084
5.4
%
4,189
5.6
%
4,213
5.9
%
4,246
6.0
%
Total
$
75,806
100.0
%
$
75,343
100.0
%
$
74,258
100.0
%
$
71,699
100.0
%
$
70,619
100.0
%
Weighted average LTV
92.8
%
92.9
%
92.8
%
92.8
%
92.8
%
Total RIF by State:
California
$
6,341
8.4
%
$
6,219
8.3
%
$
6,077
8.2
%
$
5,781
8.1
%
$
5,559
7.9
%
Texas
6,151
8.1
%
6,080
8.1
%
5,971
8.0
%
5,733
8.0
%
5,594
7.9
%
Florida
3,268
4.3
%
3,275
4.3
%
3,301
4.4
%
3,272
4.6
%
3,303
4.7
%
Georgia
3,169
4.2
%
3,150
4.2
%
3,109
4.2
%
2,978
4.2
%
2,902
4.1
%
North Carolina
3,160
4.2
%
3,139
4.2
%
3,075
4.1
%
2,964
4.1
%
2,921
4.1
%
Illinois
3,081
4.1
%
3,087
4.1
%
3,054
4.1
%
2,955
4.1
%
2,933
4.2
%
Minnesota
3,003
4.0
%
2,996
4.0
%
2,980
4.0
%
2,913
4.1
%
2,916
4.1
%
Massachusetts
2,809
3.7
%
2,771
3.7
%
2,684
3.6
%
2,566
3.6
%
2,537
3.6
%
Virginia
2,656
3.5
%
2,647
3.5
%
2,634
3.5
%
2,504
3.5
%
2,446
3.5
%
Michigan
2,618
3.5
%
2,587
3.4
%
2,558
3.4
%
2,509
3.5
%
2,492
3.5
%
Other
39,550
52.2
%
39,392
52.3
%
38,815
52.3
%
37,524
52.3
%
37,016
52.4
%
Total
$
75,806
100.0
%
$
75,343
100.0
%
$
74,258
100.0
%
$
71,699
100.0
%
$
70,619
100.0
%
Weighted average coverage (end of period RIF divided by IIF)
25.6
%
25.6
%
25.4
%
25.3
%
25.1
%
U.S. mortgage insurance total RIF, net of reinsurance (5)
$
57,151
$
56,890
$
56,529
$
54,792
$
54,574
Analysts’ persistency (6)
79.5
%
75.4
%
71.3
%
66.9
%
62.4
%
Risk-to-capital ratio -- Arch MI U.S. (7)
7.2:1
7.6:1
7.8:1
7.8:1
8.0:1
PMIER sufficiency ratio -- Arch MI U.S. (8)
236
%
237
%
219
%
205
%
197
%
(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 December 31, 2022).
(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 December 31, 2022). There was approximately $2.16 billion of excess available assets at December 31, 2022.
19
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
(U.S. Dollars in millions, except policy/loan/claim count)
Three Months Ended
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
Supplemental disclosures for U.S. primary mortgage insurance:
Total new insurance written (NIW) (1)
$
11,413
$
17,425
$
23,499
$
20,015
$
22,544
Total NIW by credit quality (FICO score):
>=740
$
7,155
62.7
%
$
11,615
66.7
%
$
16,121
68.6
%
$
13,152
65.7
%
$
14,349
63.6
%
680-739
3,992
35.0
%
5,322
30.5
%
6,800
28.9
%
6,254
31.2
%
7,238
32.1
%
620-679
265
2.3
%
485
2.8
%
576
2.5
%
606
3.0
%
957
4.2
%
<620
1
—
%
3
—
%
2
—
%
3
—
%
—
—
%
Total
$
11,413
100.0
%
$
17,425
100.0
%
$
23,499
100.0
%
$
20,015
100.0
%
$
22,544
100.0
%
Total NIW by LTV:
95.01% and above
$
555
4.9
%
$
973
5.6
%
$
1,195
5.1
%
$
1,096
5.5
%
$
1,475
6.5
%
90.01% to 95.00%
6,725
58.9
%
9,916
56.9
%
13,290
56.6
%
10,778
53.8
%
11,382
50.5
%
85.01% to 90.00%
3,040
26.6
%
4,839
27.8
%
6,591
28.0
%
5,733
28.6
%
6,677
29.6
%
85.00% and below
1,093
9.6
%
1,697
9.7
%
2,423
10.3
%
2,408
12.0
%
3,010
13.4
%
Total
$
11,413
100.0
%
$
17,425
100.0
%
$
23,499
100.0
%
$
20,015
100.0
%
$
22,544
100.0
%
Total NIW monthly vs. single:
Monthly
$
11,090
97.2
%
$
16,911
97.1
%
$
22,872
97.3
%
$
19,201
95.9
%
$
21,623
95.9
%
Single
323
2.8
%
514
2.9
%
627
2.7
%
814
4.1
%
921
4.1
%
Total
$
11,413
100.0
%
$
17,425
100.0
%
$
23,499
100.0
%
$
20,015
100.0
%
$
22,544
100.0
%
Total NIW purchase vs. refinance:
Purchase
$
11,202
98.2
%
$
17,159
98.5
%
$
23,059
98.1
%
$
19,157
95.7
%
$
21,174
93.9
%
Refinance
211
1.8
%
266
1.5
%
440
1.9
%
858
4.3
%
1,370
6.1
%
Total
$
11,413
100.0
%
$
17,425
100.0
%
$
23,499
100.0
%
$
20,015
100.0
%
$
22,544
100.0
%
Ending number of policies in force (PIF) (2)
1,160,219
1,168,735
1,168,147
1,159,020
1,171,835
Rollforward of insured loans in default:
Beginning delinquent number of loans
20,214
20,692
24,270
27,645
31,770
Plus: new notices
10,068
9,515
7,978
8,835
9,071
Less: cures
(9,564)
(9,832)
(11,363)
(12,030)
(13,038)
Less: paid claims
(151)
(161)
(193)
(180)
(158)
Ending delinquent number of loans (2)
20,567
20,214
20,692
24,270
27,645
Ending percentage of loans in default (2)
1.77
%
1.73
%
1.77
%
2.09
%
2.36
%
Losses:
Number of claims paid
151
161
193
180
158
Total paid claims (in thousands)
$
4,547
$
5,223
$
5,626
$
6,016
$
8,131
Average per claim (in thousands)
$
30.1
$
32.4
$
29.2
$
33.4
$
51.5
Severity (3)
69.5
%
72.3
%
72.3
%
78.1
%
83.0
%
Average case reserve per default (in thousands)
$
21.1
$
27.7
$
30.3
$
28.4
$
26.7
(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)
December 31, 2022
December 31, 2021
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:
2012 and prior
33.8
%
$
9,931
3.4
%
$
2,424
3.2
%
8.41
%
27.9
%
$
13,030
4.6
%
$
2,960
4.2
%
8.48
%
2013
2.2
%
3,000
1.0
%
798
1.1
%
1.85
%
2.6
%
4,206
1.5
%
1,148
1.6
%
2.63
%
2014
1.9
%
3,696
1.3
%
1,012
1.3
%
2.61
%
1.9
%
4,822
1.7
%
1,328
1.9
%
3.14
%
2015
2.4
%
6,236
2.1
%
1,680
2.2
%
2.08
%
3.0
%
8,703
3.1
%
2,340
3.3
%
2.67
%
2016
5.8
%
10,225
3.5
%
2,744
3.6
%
2.66
%
7.6
%
14,344
5.1
%
3,841
5.4
%
3.29
%
2017
9.1
%
9,508
3.2
%
2,521
3.3
%
3.06
%
10.9
%
13,128
4.7
%
3,436
4.9
%
4.09
%
2018
11.6
%
10,260
3.5
%
2,625
3.5
%
4.11
%
15.2
%
14,046
5.0
%
3,562
5.0
%
5.28
%
2019
10.2
%
19,096
6.5
%
4,840
6.4
%
2.36
%
15.2
%
25,841
9.2
%
6,467
9.2
%
3.13
%
2020
11.3
%
65,141
22.0
%
16,414
21.7
%
1.20
%
12.5
%
82,502
29.4
%
20,341
28.8
%
0.97
%
2021
9.9
%
89,621
30.3
%
22,740
30.0
%
0.95
%
3.2
%
100,323
35.7
%
25,196
35.7
%
0.29
%
2022
1.7
%
68,937
23.3
%
18,008
23.8
%
0.20
%
Total
100.0
%
$
295,651
100.0
%
$
75,806
100.0
%
1.77
%
100.0
%
$
280,945
100.0
%
$
70,619
100.0
%
2.36
%
(1) Total reserves for losses and loss adjustment expenses, net of recoverables, was $415.2 million at December 31, 2022, compared to $710.7 million at December 31, 2021.
(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
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Gross premiums written
$
3,795,262
$
3,860,683
$
3,869,727
$
3,800,775
$
2,861,575
$
15,326,447
$
12,463,788
Premiums ceded
(760,626)
(1,136,909)
(1,185,088)
(1,166,635)
(827,148)
(4,249,258)
(3,800,153)
Net premiums written
3,034,636
2,723,774
2,684,639
2,634,140
2,034,427
11,077,189
8,663,635
Change in unearned premiums
(273,717)
(253,024)
(358,864)
(513,507)
49,203
(1,399,112)
(913,305)
Net premiums earned
2,760,919
2,470,750
2,325,775
2,120,633
2,083,630
9,678,077
7,750,330
Other underwriting income (loss)
1,283
3,077
2,970
5,897
3,160
13,227
21,334
Losses and loss adjustment expenses
(1,241,330)
(1,682,696)
(1,102,656)
(1,000,835)
(995,853)
(5,027,517)
(4,325,761)
Acquisition expenses
(500,515)
(447,587)
(413,319)
(378,159)
(357,539)
(1,739,580)
(1,240,437)
Other operating expenses
(286,093)
(274,747)
(277,392)
(289,943)
(261,787)
(1,128,175)
(965,726)
Underwriting income (loss)
$
734,264
$
68,797
$
535,378
$
457,593
$
471,611
$
1,796,032
$
1,239,740
Underwriting Ratios
Loss ratio
45.0
%
68.1
%
47.4
%
47.2
%
47.8
%
51.9
%
55.8
%
Acquisition expense ratio
18.1
%
18.1
%
17.8
%
17.8
%
17.2
%
18.0
%
16.0
%
Other operating expense ratio
10.4
%
11.1
%
11.9
%
13.7
%
12.6
%
11.7
%
12.5
%
Combined ratio
73.5
%
97.3
%
77.1
%
78.7
%
77.6
%
81.6
%
84.3
%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums
1.3
%
22.3
%
3.5
%
4.0
%
3.5
%
7.8
%
8.3
%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments
(9.8)
%
(7.2)
%
(7.2)
%
(6.1)
%
(6.0)
%
(7.7)
%
(4.5)
%
Combined ratio excluding catastrophic activity and prior year development (1)
82.0
%
82.2
%
80.8
%
80.8
%
80.1
%
81.5
%
80.5
%
Components of losses and loss adjustment expenses incurred (1)
Paid losses and loss adjustment expenses
$
904,261
$
765,542
$
745,134
$
727,011
$
783,806
$
3,141,948
$
2,666,773
Change in unpaid losses and loss adjustment expenses
337,069
917,154
357,522
273,824
212,047
1,885,569
1,658,988
Total losses and loss adjustment expenses
$
1,241,330
$
1,682,696
$
1,102,656
$
1,000,835
$
995,853
$
5,027,517
$
4,325,761
Net premiums written to gross premiums written
80.0
%
70.6
%
69.4
%
69.3
%
71.1
%
72.3
%
69.5
%
(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
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments (1)
Net impact on underwriting results:
Insurance
$
(4,206)
$
(1,171)
$
(4,469)
$
(1,406)
$
(2,990)
$
(11,252)
$
(15,543)
Reinsurance
(55,341)
(49,516)
(41,907)
(22,383)
(49,762)
(169,147)
(158,275)
Mortgage
(210,590)
(127,290)
(120,201)
(105,619)
(72,865)
(563,700)
(176,656)
Total
$
(270,137)
$
(177,977)
$
(166,577)
$
(129,408)
$
(125,617)
$
(744,099)
$
(350,474)
Impact on losses and loss adjustment expenses:
Insurance
$
(5,946)
$
(5,411)
$
(6,711)
$
(7,271)
$
(3,115)
$
(25,339)
$
(16,236)
Reinsurance
(63,472)
(49,194)
(46,422)
(32,473)
(59,219)
(191,561)
(178,823)
Mortgage
(207,732)
(126,218)
(118,093)
(102,068)
(70,419)
(554,111)
(169,558)
Total
$
(277,150)
$
(180,823)
$
(171,226)
$
(141,812)
$
(132,753)
$
(771,011)
$
(364,617)
Impact on acquisition expenses:
Insurance
$
1,740
$
4,240
$
2,242
$
5,865
$
125
$
14,087
$
693
Reinsurance
8,131
(322)
4,515
10,090
9,457
22,414
20,548
Mortgage
(2,858)
(1,072)
(2,108)
(3,551)
(2,446)
(9,589)
(7,098)
Total
$
7,013
$
2,846
$
4,649
$
12,404
$
7,136
$
26,912
$
14,143
Impact on combined ratio:
Insurance
(0.3)
%
(0.1)
%
(0.4)
%
(0.1)
%
(0.3)
%
(0.2)
%
(0.4)
%
Reinsurance
(4.5)
%
(4.9)
%
(4.5)
%
(2.8)
%
(6.4)
%
(4.3)
%
(5.6)
%
Mortgage
(72.1)
%
(45.1)
%
(40.7)
%
(36.5)
%
(24.2)
%
(48.6)
%
(13.8)
%
Total
(9.8)
%
(7.2)
%
(7.2)
%
(6.1)
%
(6.0)
%
(7.7)
%
(4.5)
%
Impact on loss ratio:
Insurance
(0.5)
%
(0.5)
%
(0.6)
%
(0.7)
%
(0.3)
%
(0.6)
%
(0.4)
%
Reinsurance
(5.2)
%
(4.9)
%
(5.0)
%
(4.0)
%
(7.6)
%
(4.8)
%
(6.3)
%
Mortgage
(71.1)
%
(44.7)
%
(39.9)
%
(35.3)
%
(23.4)
%
(47.8)
%
(13.2)
%
Total
(10.0)
%
(7.3)
%
(7.4)
%
(6.7)
%
(6.4)
%
(8.0)
%
(4.7)
%
Impact on acquisition expense ratio:
Insurance
0.2
%
0.4
%
0.2
%
0.6
%
0.0
%
0.4
%
0.0
%
Reinsurance
0.7
%
0.0
%
0.5
%
1.2
%
1.2
%
0.5
%
0.7
%
Mortgage
(1.0)
%
(0.4)
%
(0.8)
%
(1.2)
%
(0.8)
%
(0.8)
%
(0.6)
%
Total
0.2
%
0.1
%
0.2
%
0.6
%
0.4
%
0.3
%
0.2
%
Estimated net losses incurred from current accident year catastrophic events (2)
Insurance
$
34,485
$
158,973
$
16,360
$
31,855
$
20,312
$
241,673
$
204,620
Reinsurance
157
391,843
66,021
53,977
51,966
511,998
438,243
Total
$
34,642
$
550,816
$
82,381
$
85,832
$
72,278
$
753,671
$
642,863
Impact on combined ratio:
Insurance
2.8
%
13.4
%
1.5
%
3.1
%
2.0
%
5.3
%
5.6
%
Reinsurance
0.0
%
39.1
%
7.1
%
6.7
%
6.7
%
12.9
%
15.4
%
Total
1.3
%
22.3
%
3.5
%
4.0
%
3.5
%
7.8
%
8.3
%
(1)Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2)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.
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:
(U.S. Dollars in thousands)
December 31,
September 30,
June 30,
March 31,
December 31,
2022
2022
2022
2022
2021
Investable assets:
Fixed maturities available for sale, at fair value
$
19,682,789
70.1
%
$
18,120,727
67.9
%
$
17,585,029
66.6
%
$
17,648,853
66.0
%
$
17,998,109
65.6
%
Fixed maturities—fair value option (1)
554,120
2.0
%
530,303
2.0
%
525,451
2.0
%
426,187
1.6
%
416,698
1.5
%
Total fixed maturities
20,236,909
72.1
%
18,651,030
69.9
%
18,110,480
68.6
%
18,075,040
67.6
%
18,414,807
67.1
%
Equity securities, at fair value
859,969
3.1
%
809,869
3.0
%
772,689
2.9
%
1,002,572
3.7
%
1,804,170
6.6
%
Equity securities—fair value option (1)
13,792
0.0
%
13,905
0.1
%
14,489
0.1
%
21,300
0.1
%
26,493
0.1
%
Total equity securities
873,761
3.1
%
823,774
3.1
%
787,178
3.0
%
1,023,872
3.8
%
1,830,663
6.7
%
Other investments—fair value option (1)
1,043,184
3.7
%
1,005,929
3.8
%
1,054,771
4.0
%
1,226,808
4.6
%
1,432,553
5.2
%
Investments accounted for using the equity method (2)
3,774,310
13.4
%
3,565,946
13.4
%
3,496,341
13.2
%
3,325,543
12.4
%
3,077,611
11.2
%
Short-term investments available for sale, at fair value
1,331,662
4.7
%
1,940,857
7.3
%
2,227,874
8.4
%
2,332,624
8.7
%
1,734,716
6.3
%
Short-term investments—fair value option (1)
33,101
0.1
%
28,614
0.1
%
39,657
0.2
%
12,371
0.0
%
97,806
0.4
%
Total short-term investments
1,364,763
4.9
%
1,969,471
7.4
%
2,267,531
8.6
%
2,344,995
8.8
%
1,832,522
6.7
%
Cash
855,118
3.0
%
813,583
3.0
%
813,548
3.1
%
812,917
3.0
%
858,668
3.1
%
Securities transactions entered into but not settled at the balance sheet date
(82,548)
(0.3)
%
(147,727)
(0.6)
%
(134,777)
(0.5)
%
(59,819)
(0.2)
%
(4,671)
0.0
%
Total investable assets held by the Company
$
28,065,497
100.0
%
$
26,682,006
100.0
%
$
26,395,072
100.0
%
$
26,749,356
100.0
%
$
27,442,153
100.0
%
Average effective duration (in years)
2.89
2.84
2.94
2.93
2.70
Average S&P/Moody’s credit ratings (3)
AA-/Aa3
AA/Aa2
AA-/Aa3
AA-/Aa3
AA-/Aa3
(1) Included in “other investments” on the balance sheet.
(2) 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.
(3) 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
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Composition of net investment income (1):
Fixed maturities
$
157,696
$
123,568
$
105,342
$
82,053
$
74,846
$
468,659
$
307,536
Equity securities (dividends)
5,877
4,261
6,121
6,238
18,295
22,497
42,094
Short-term investments
13,520
9,304
4,120
2,575
3,325
29,519
6,799
Other (2)
17,943
8,644
7,984
12,076
12,712
46,647
68,411
Gross investment income
195,036
145,777
123,567
102,942
109,178
567,322
424,840
Investment expenses
(13,957)
(17,137)
(17,175)
(22,506)
(18,724)
(70,775)
(78,032)
Net investment income
$
181,079
$
128,640
$
106,392
$
80,436
$
90,454
$
496,547
$
346,808
Per share
$
0.48
$
0.34
$
0.28
$
0.21
$
0.23
$
1.31
$
0.87
Equity in net income (loss) of investment funds accounted for using the equity method
40,351
(18,861)
58,061
36,305
67,132
115,856
366,402
Per share
$
0.11
$
(0.05)
$
0.15
$
0.09
$
0.17
$
0.31
$
0.92
Investment income yield, at amortized cost (1) (3):
Pre-tax
2.80
%
2.06
%
1.76
%
1.34
%
1.46
%
1.99
%
1.41
%
After-tax
2.41
%
1.77
%
1.49
%
1.13
%
1.27
%
1.70
%
1.24
%
Total return on investments (1) (4)
2.60
%
(3.01)
%
(3.02)
%
(3.07)
%
0.39
%
(6.45)
%
1.90
%
(1)Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2)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 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 losses 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:
(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 December 31, 2022
Corporates
$
8,562,883
$
55,468
$
(781,353)
$
(725,885)
$
(29,950)
$
9,318,718
91.9
%
42.3
%
U.S. government and government agencies
5,166,591
14,891
(342,963)
(328,072)
—
5,494,663
94.0
%
25.5
%
Municipal bonds
419,166
3,149
(33,360)
(30,211)
(100)
449,477
93.3
%
2.1
%
Non-U.S. government securities
2,317,134
8,870
(237,846)
(228,976)
(1,882)
2,547,992
90.9
%
11.5
%
Asset-backed securities
1,928,469
761
(106,623)
(105,862)
(6,010)
2,040,341
94.5
%
9.5
%
Commercial mortgage-backed securities
1,047,275
608
(57,667)
(57,059)
(3,415)
1,107,749
94.5
%
5.2
%
Residential mortgage-backed securities
795,391
4,933
(86,587)
(81,654)
2
877,043
90.7
%
3.9
%
Total
$
20,236,909
$
88,680
$
(1,646,399)
$
(1,557,719)
$
(41,355)
$
21,835,983
92.7
%
100.0
%
At December 31, 2021
Corporates
$
6,941,879
$
104,170
$
(69,194)
$
34,976
$
(2,037)
$
6,908,940
100.5
%
37.7
%
U.S. government and government agencies
4,772,764
10,076
(45,967)
(35,891)
—
4,808,655
99.3
%
25.9
%
Municipal bonds
404,666
18,724
(1,409)
17,315
(2)
387,353
104.5
%
2.2
%
Non-U.S. government securities
2,144,079
54,048
(34,749)
19,299
(82)
2,124,862
100.9
%
11.6
%
Asset-backed securities
2,696,458
6,540
(11,108)
(4,568)
(708)
2,701,734
99.8
%
14.6
%
Commercial mortgage-backed securities
1,046,484
1,740
(3,117)
(1,377)
(6)
1,047,867
99.9
%
5.7
%
Residential mortgage-backed securities
408,477
2,825
(5,410)
(2,585)
(48)
411,110
99.4
%
2.2
%
Total
$
18,414,807
$
198,123
$
(170,954)
$
27,169
$
(2,883)
$
18,390,521
100.1
%
100.0
%
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:
(U.S. Dollars in thousands)
December 31,
September 30,
June 30,
March 31,
December 31,
2022
2022
2022
2022
2021
Credit quality distribution of total fixed maturities (1):
U.S. government and government agencies (2)
$
5,829,279
28.8
%
$
5,746,853
30.8
%
$
4,892,483
27.0
%
$
4,981,102
27.6
%
$
5,063,191
27.5
%
AAA
3,616,537
17.9
%
3,344,746
17.9
%
3,352,551
18.5
%
3,171,975
17.5
%
3,783,386
20.5
%
AA
2,214,494
10.9
%
2,030,730
10.9
%
2,064,313
11.4
%
2,222,236
12.3
%
2,459,413
13.4
%
A
3,993,471
19.7
%
3,382,545
18.1
%
3,464,240
19.1
%
3,227,560
17.9
%
2,943,594
16.0
%
BBB
3,324,095
16.4
%
3,001,304
16.1
%
3,114,961
17.2
%
3,181,195
17.6
%
2,936,398
15.9
%
BB
560,213
2.8
%
532,162
2.9
%
551,876
3.0
%
564,762
3.1
%
501,588
2.7
%
B
377,462
1.9
%
357,543
1.9
%
367,275
2.0
%
364,181
2.0
%
371,747
2.0
%
Lower than B
12,029
0.1
%
12,417
0.1
%
4,742
—
%
7,057
—
%
43,756
0.2
%
Not rated
309,329
1.5
%
242,730
1.3
%
298,039
1.6
%
354,972
2.0
%
311,734
1.7
%
Total fixed maturities, at fair value
$
20,236,909
100.0
%
$
18,651,030
100.0
%
$
18,110,480
100.0
%
$
18,075,040
100.0
%
$
18,414,807
100.0
%
Maturity profile of total fixed maturities:
Due in one year or less
$
533,889
2.6
%
$
602,340
3.2
%
$
434,779
2.4
%
$
323,999
1.8
%
$
318,572
1.7
%
Due after one year through five years
11,291,842
55.8
%
10,285,415
55.1
%
9,661,066
53.3
%
9,756,481
54.0
%
8,536,801
46.4
%
Due after five years through ten years
4,155,691
20.5
%
4,031,643
21.6
%
4,261,397
23.5
%
4,296,537
23.8
%
4,807,858
26.1
%
Due after 10 years
484,352
2.4
%
312,381
1.7
%
422,104
2.3
%
535,301
3.0
%
600,157
3.3
%
16,465,774
81.4
%
15,231,779
81.7
%
14,779,346
81.6
%
14,912,318
82.5
%
14,263,388
77.5
%
Residential mortgage-backed securities
795,391
3.9
%
763,371
4.1
%
698,168
3.9
%
416,138
2.3
%
408,477
2.2
%
Commercial mortgage-backed securities
1,047,275
5.2
%
1,064,238
5.7
%
1,023,088
5.6
%
1,066,365
5.9
%
1,046,484
5.7
%
Asset-backed securities
1,928,469
9.5
%
1,591,642
8.5
%
1,609,878
8.9
%
1,680,219
9.3
%
2,696,458
14.6
%
Total fixed maturities, at fair value
$
20,236,909
100.0
%
$
18,651,030
100.0
%
$
18,110,480
100.0
%
$
18,075,040
100.0
%
$
18,414,807
100.0
%
(1) 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.
(2) 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:
(U.S. Dollars in thousands)
December 31,
September 30,
June 30,
March 31,
December 31,
2022
2022
2022
2022
2021
Sector:
Industrials
$
3,463,079
40.4
%
$
2,926,134
38.4
%
$
2,928,443
37.5
%
$
2,990,553
39.1
%
$
3,082,440
44.4
%
Financials
4,246,061
49.6
%
4,094,264
53.7
%
4,191,142
53.7
%
4,054,531
53.0
%
3,397,199
48.9
%
Utilities
545,843
6.4
%
483,490
6.3
%
559,150
7.2
%
460,793
6.0
%
363,468
5.2
%
Covered bonds
4,224
0.0
%
3,848
0.1
%
1,720
0.0
%
1,870
0.0
%
4,511
0.1
%
All other (1)
303,676
3.5
%
112,710
1.5
%
130,807
1.7
%
145,934
1.9
%
94,261
1.4
%
Total
$
8,562,883
100.0
%
$
7,620,446
100.0
%
$
7,811,262
100.0
%
$
7,653,681
100.0
%
$
6,941,879
100.0
%
Credit quality distribution (2):
AAA
$
177,808
2.1
%
$
162,906
2.1
%
$
160,327
2.1
%
$
144,047
1.9
%
$
122,008
1.8
%
AA
767,130
9.0
%
823,931
10.8
%
784,206
10.0
%
835,869
10.9
%
1,006,360
14.5
%
A
3,266,251
38.1
%
2,741,063
36.0
%
2,796,539
35.8
%
2,549,426
33.3
%
2,280,498
32.9
%
BBB
3,095,503
36.2
%
2,834,413
37.2
%
2,931,983
37.5
%
2,968,760
38.8
%
2,453,904
35.3
%
BB
541,221
6.3
%
516,986
6.8
%
522,904
6.7
%
550,960
7.2
%
463,072
6.7
%
B
371,457
4.3
%
351,360
4.6
%
353,134
4.5
%
360,902
4.7
%
355,993
5.1
%
Lower than B
11,585
0.1
%
11,390
0.1
%
4,260
0.1
%
6,210
0.1
%
30,878
0.4
%
Not rated
331,928
3.9
%
178,397
2.3
%
257,909
3.3
%
237,507
3.1
%
229,166
3.3
%
Total
$
8,562,883
100.0
%
$
7,620,446
100.0
%
$
7,811,262
100.0
%
$
7,653,681
100.0
%
$
6,941,879
100.0
%
(1) Includes sovereign securities, supranational securities and other.
(2) 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 December 31, 2022:
(U.S. Dollars in thousands)
Fair Value
% of Asset Class
% of Investable Assets
Credit Quality (1)
Issuer:
Bank of America Corporation
$
430,071
5.0
%
1.5
%
A-/A2
JPMorgan Chase & Co.
296,901
3.5
%
1.1
%
A-/A1
Morgan Stanley
290,477
3.4
%
1.0
%
A-/A1
Citigroup Inc.
270,074
3.2
%
1.0
%
BBB+/A3
The Goldman Sachs Group, Inc.
249,547
2.9
%
0.9
%
BBB+/A2
Wells Fargo & Company
242,538
2.8
%
0.9
%
BBB+/A1
Blue Owl Capital Inc.
164,098
1.9
%
0.6
%
BBB-/Baa3
Blackstone Inc.
150,691
1.8
%
0.5
%
BBB-/Baa3
UBS Group AG
130,244
1.5
%
0.5
%
A/Aa3
Spring Funding II Llc
121,221
1.4
%
0.4
%
NA/NA
Total
$
2,345,862
27.4
%
8.4
%
(1) 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:
(U.S. Dollars in thousands)
Agencies
AAA
AA
A
BBB
Non-Investment Grade
Total
At December 31, 2022
Residential mortgage-backed securities
$
645,008
$
106,077
$
27,881
$
—
$
—
$
16,425
$
795,391
Commercial mortgage-backed securities
17,680
681,578
151,774
32,488
81,556
82,199
1,047,275
Asset-backed securities
—
1,135,331
184,078
349,768
118,507
140,785
1,928,469
Total
$
662,688
$
1,922,986
$
363,733
$
382,256
$
200,063
$
239,409
$
3,771,135
At December 31, 2021
Residential mortgage-backed securities
$
268,229
$
86,344
$
40,502
$
2,444
$
6
$
10,952
$
408,477
Commercial mortgage-backed securities
22,198
710,692
141,065
6,990
67,555
97,984
1,046,484
Asset-backed securities
—
1,548,239
230,922
397,242
367,504
152,551
2,696,458
Total
$
290,427
$
2,345,275
$
412,489
$
406,676
$
435,065
$
261,487
$
4,151,419
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 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 that 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 Somers). Information provided on a ‘core’ basis represent non-GAAP financial measures as defined in Regulation G. Pursuant to GAAP, Somers was considered a variable interest entity and the Company concluded that it was the primary beneficiary of Somers through June 30, 2021. As such, the Company consolidated the results of Somers in its consolidated financial statements. The Company’s presentation of information on a ‘core’ basis enabled investors and other users of the Company’s financial information to analyze the Company’s performance in a manner similar to how the Company’s management analyzed performance. See ‘Segment Information’ for a further discussion of segment results and a reconciliation of core and consolidated results. In the 2020 fourth quarter, Arch, Somers, and Greysbridge Ltd., a wholly-owned subsidiary of Arch, entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”). Arch assigned its rights under the Merger Agreement to Greysbridge Holdings Ltd. (“Greysbridge”). The merger and the related Greysbridge equity financing closed on July 1, 2021. Effective July 1, 2021, Somers is wholly owned by Greysbridge, and Greysbridge is owned 40% by Arch and 30% by certain funds managed by Kelso & Company and 30% by certain funds managed by Warburg Pincus LLC. Based on the governing documents of Greysbridge, we concluded that, while we retain significant influence over Greysbridge, Greysbridge does not constitute a variable interest entity. Accordingly, effective July 1, 2021, we no longer consolidate the results of Somers in our 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 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 Somers’ outstanding common equity through June 30, 2021:
(U.S. Dollars in thousands, except share data)
Three Months Ended
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Net income available to Arch common shareholders
$
849,504
$
6,917
$
394,160
$
185,616
$
613,081
$
1,436,197
$
2,093,405
Net realized (gains) losses
(79,932)
183,674
266,579
292,414
(59,517)
662,735
(307,466)
Equity in net (income) loss of investment funds accounted for using the equity method
(40,351)
18,861
(58,061)
(36,305)
(67,132)
(115,856)
(366,402)
Net foreign exchange (gains) losses
81,201
(90,537)
(87,797)
(3,855)
(3,221)
(100,988)
(42,743)
Transaction costs and other
358
76
261
397
310
1,092
1,199
Loss on redemption of preferred shares
—
—
—
—
—
—
15,101
Income tax expense (benefit) (1)
(4,858)
(13,019)
(8,646)
(16,268)
9,736
(42,791)
41,836
After-tax operating income available to Arch common shareholders
$
805,922
$
105,972
$
506,496
$
421,999
$
493,257
$
1,840,389
$
1,434,930
Diluted per common share results:
Net income available to Arch common shareholders
$
2.26
$
0.02
$
1.04
$
0.48
$
1.58
$
3.80
$
5.23
Net realized (gains) losses
(0.22)
0.48
0.70
0.76
(0.16)
1.76
(0.77)
Equity in net (income) loss of investment funds accounted for using the equity method
(0.11)
0.05
(0.15)
(0.09)
(0.17)
(0.31)
(0.92)
Net foreign exchange (gains) losses
0.22
(0.24)
(0.23)
(0.01)
(0.01)
(0.27)
(0.11)
Transaction costs and other
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Loss on redemption of preferred shares
—
—
—
—
—
—
0.04
Income tax expense (benefit) (1)
(0.01)
(0.03)
(0.02)
(0.04)
0.03
(0.11)
0.11
After-tax operating income available to Arch common shareholders
$
2.14
$
0.28
$
1.34
$
1.10
$
1.27
$
4.87
$
3.58
Weighted average common shares and common share equivalents outstanding - diluted
375,878,279
373,727,277
377,952,988
384,194,363
388,869,378
377,609,767
400,345,936
Beginning common shareholders’ equity
$
10,965,110
$
11,587,566
$
12,089,589
$
12,715,896
$
12,557,526
$
12,715,896
$
12,325,886
Ending common shareholders’ equity
12,080,073
10,965,110
11,587,566
12,089,589
12,715,896
12,080,073
12,715,896
Average common shareholders’ equity
$
11,522,592
$
11,276,338
$
11,838,578
$
12,402,743
$
12,636,711
$
12,397,985
$
12,520,891
Annualized net income return on average common equity
29.5
%
0.2
%
13.3
%
6.0
%
19.4
%
11.6
%
16.7
%
Annualized operating return on average common equity
28.0
%
3.8
%
17.1
%
13.6
%
15.6
%
14.8
%
11.5
%
(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
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Arch Operating Income Components (1):
Income (loss) before income taxes and income (loss) from operating affiliates
$
887,481
$
(5,149)
$
421,628
$
184,533
$
617,440
$
1,488,493
$
2,013,916
Net realized (gains) losses
(79,932)
183,673
266,579
292,414
(59,517)
662,734
(299,207)
Equity in net (income) loss of investment funds accounted for using the equity method
(40,351)
18,861
(58,061)
(36,305)
(67,132)
(115,856)
(366,402)
Net foreign exchange (gains) losses
81,224
(90,509)
(87,775)
(3,845)
(3,163)
(100,905)
(42,854)
Transaction costs and other
(2,778)
(1,108)
658
(170)
(171)
(3,398)
(1,236)
Income (loss) from operating affiliates
36,226
8,507
4,640
24,518
40,641
73,891
264,693
Pre-tax operating income
881,870
114,275
547,669
461,145
528,098
2,004,959
1,568,910
Arch share of ‘other’ segment operating income (loss) (2)
—
—
—
—
—
—
931
Pre-tax operating income available to Arch (b)
881,870
114,275
547,669
461,145
528,098
2,004,959
1,569,841
Income tax (expense) benefit (a)
(65,764)
1,881
(30,989)
(28,962)
(24,657)
(123,834)
(86,568)
After-tax operating income available to Arch
816,106
116,156
516,680
432,183
503,441
1,881,125
1,483,273
Preferred dividends
(10,184)
(10,184)
(10,184)
(10,184)
(10,184)
(40,736)
(48,343)
After-tax operating income available to Arch common shareholders
$
805,922
$
105,972
$
506,496
$
421,999
$
493,257
$
1,840,389
$
1,434,930
Effective tax rate on pre-tax operating income (loss) available to Arch (a)/(b)
7.5
%
(1.6)
%
5.7
%
6.3
%
4.7
%
6.2
%
5.5
%
(1) Line items are presented on a ‘core’ basis, excluding amounts related to the ‘other’ segment (i.e., results of Somers). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2) 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
Year Ended
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
2021
Balances in ‘other’ segment:
Underwriting income (loss)
$
—
$
—
$
—
$
—
$
—
$
—
$
(21,945)
Net investment income
—
—
—
—
—
—
42,310
Interest expense
—
—
—
—
—
—
(8,410)
Amortization of intangible assets
—
—
—
—
—
—
(898)
Preferred dividends
—
—
—
—
—
—
(1,953)
Pre-tax operating income (loss) available to common shareholders
—
—
—
—
—
—
9,104
Arch ownership (3)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Arch share of ‘Other’ segment operating income (loss) (4)
$
—
$
—
$
—
$
—
$
—
$
—
$
931
(3) Effective July 1, 2021, Somers is wholly owned by Greysbridge and Greysbridge is owned 40% by the Company, accordingly, the Company no longer consolidates the results of Somers in its consolidated financial statements. See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(4) Excludes amounts attributable to net realized gains or losses and net foreign exchange gains or losses in the ‘other’ segment (see ‘Segment Information’).
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)
December 31,
September 30,
June 30,
March 31,
December 31,
2022
2022
2022
2022
2021
Debt:
Arch 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 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
(24,590)
(24,847)
(25,104)
(25,358)
(25,606)
Revolving credit agreement borrowings, due December 17, 2024 (variable)
—
—
—
—
—
Total debt
$
2,725,410
$
2,725,153
$
2,724,896
$
2,724,642
$
2,724,394
Shareholders’ equity available to Arch:
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
500,000
500,000
500,000
Common shareholders’ equity (a)
12,080,073
10,965,110
11,587,566
12,089,589
12,715,896
Total shareholders’ equity available to Arch
$
12,910,073
$
11,795,110
$
12,417,566
$
12,919,589
$
13,545,896
Total capital available to Arch
$
15,635,483
$
14,520,263
$
15,142,462
$
15,644,231
$
16,270,290
Common shares outstanding, net of treasury shares (b)
370,345,997
369,321,990
369,346,815
375,730,891
378,923,894
Book value per common share (4) (a)/(b)
$
32.62
$
29.69
$
31.37
$
32.18
$
33.56
Leverage ratios:
Senior notes/total capital available to Arch
17.4
%
18.8
%
18.0
%
17.4
%
16.7
%
Revolving credit agreement borrowings/total capital available to Arch
—
%
—
%
—
%
—
%
—
%
Debt/total capital available to Arch
17.4
%
18.8
%
18.0
%
17.4
%
16.7
%
Preferred/total capital available to Arch
5.3
%
5.7
%
5.5
%
5.3
%
5.1
%
Debt and preferred/total capital available to Arch
22.7
%
24.5
%
23.5
%
22.7
%
21.8
%
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Somers). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2) Issued by Arch Capital Group (U.S.) Inc. (“Arch-U.S.”), a wholly owned subsidiary of Arch, and fully and unconditionally guaranteed by Arch.
(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.
(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
December 31,
September 30,
June 30,
March 31,
December 31,
December 31,
2022
2022
2022
2022
2021
2022
Effect of share repurchases:
Aggregate cost of shares repurchased
$
—
$
10,147
$
320,688
$
254,988
$
362,097
$
5,871,883
Shares repurchased
—
236,194
7,090,447
5,564,764
8,668,100
433,570,317
Average price per share repurchased
$
—
$
42.96
$
45.23
$
45.82
$
41.77
$
13.54
Remaining share repurchase authorization (1)
$
1,000,000
(1) Repurchases under the share repurchase authorization may be effected from time to time in open market or privately negotiated transactions through December 31, 2024.
