The following financial supplement is provided to assist in your understanding of Arch Capital Group Ltd. (“Arch Capital”) and its subsidiaries (collectively, the “Company”).
This report is for informational purposes only. It should be read in conjunction with documents filed by Arch Capital with the U.S. Securities and Exchange Commission, including the most recent Annual Report on Form 10-K and the Quarterly Reports on Form 10-Q. Please refer to the Company’s website at www.archcapgroup.com for further information describing Arch Capital.
Contacts
Arch Capital Group Ltd.
Investor Relations
François Morin: (441) 278-9250
Donald Watson: (914) 872-3616; dwatson@archgroup.com
All financial information contained herein is unaudited, however, certain information relating to the consolidated balance sheet at December 31, 2020 is derived from or agrees to audited financial information. During the 2021 first quarter, the Company changed its presentation of ‘income (loss) from operating affiliates’ on its consolidated statements of income for all periods presented to reclass such item from ‘other income (loss)’. The Company also changed its presentation of ‘investment in operating affiliates’ on its consolidated balance sheet for all periods presented to reclass such item from ‘other assets’. Unless otherwise noted, all data is in thousands, except for share and per share amounts and ratio information.
In March 2014, the Company invested $100.0 million to acquire common equity and a warrant to purchase additional common equity of Watford Holdings Ltd. In accordance with GAAP, the Company consolidates the results of Watford Holdings Ltd. (“Watford”) in its financial statements, although it only owns approximately 10% of Watford’s outstanding common equity at March 31, 2021. Watford is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford. As such, 100% of the results of Watford are included in the Company’s consolidated financial statements. The portion of Watford’s earnings owned by third parties is recorded in the consolidated statements of income as ‘amounts attributable to noncontrolling interests.’ In addition, the Company reflects Watford’s redeemable preference shares in the mezzanine section of the Company’s consolidated balance sheets as ‘redeemable noncontrolling interests’ because they have redemption features that are not solely within the control of Watford.
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This release or any other written or oral statements made by or on behalf of Arch Capital and its subsidiaries may include forward-looking statements, which reflect the Company’s current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this release are forward-looking statements.
Forward-looking statements can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or their negative or variations or similar terminology. Forward-looking statements involve the Company’s current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: adverse general economic and market conditions; increased competition; pricing and policy term trends; fluctuations in the actions of rating agencies and the Company’s ability to maintain and improve the Company’s ratings; investment performance; the loss of key personnel; the adequacy of the Company’s loss reserves, severity and/or frequency of losses, greater than expected loss ratios and adverse development on claim and/or claim expense liabilities; greater frequency or severity of unpredictable natural and man-made catastrophic events; including pandemics such as COVID-19; the impact of acts of terrorism and acts of war; changes in regulations and/or tax laws in the United States or elsewhere; the Company’s ability to successfully integrate, establish and maintain operating procedures as well as integrate the businesses we have acquired or may acquire into the existing operations; changes in accounting principles or policies; material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; availability and cost to the Company of reinsurance to manage gross and net exposures; the failure of others to meet their obligations to the Company; changes in the method for determining the London Inter-bank Offered Rate (“LIBOR”) and the potential replacement of LIBOR and other factors identified in the Company’s filings with the U.S. Securities and Exchange Commission.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on the Company’s behalf are expressly qualified in their entirety by these cautionary statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
2
Arch Capital Group Ltd. and Subsidiaries
Financial Highlights
The following table presents financial highlights (1):
(U.S. Dollars in thousands, except share data)
Three Months Ended
March 31,
2021
2020
Change
Underwriting results:
Gross premiums written
$
3,277,293
$
2,698,537
21.4
%
Net premiums written
2,329,146
1,950,546
19.4
%
Net premiums earned
1,800,691
1,604,405
12.2
%
Underwriting income (loss) (2)
198,997
160,060
24.3
%
Loss ratio
60.2
%
62.6
%
(2.4)
Acquisition expense ratio
15.3
%
14.1
%
1.2
Other operating expense ratio
13.7
%
13.8
%
(0.1)
Combined ratio
89.2
%
90.5
%
(1.3)
Net investment income
$
78,729
$
113,028
(30.3)
%
Per diluted share
$
0.19
$
0.27
(29.6)
%
Net income available to Arch common shareholders
$
427,753
$
133,714
219.9
%
Per diluted share
$
1.05
$
0.32
228.1
%
After-tax operating income available to Arch common shareholders (2)
$
239,769
$
189,756
26.4
%
Per diluted share
$
0.59
$
0.46
28.3
%
Comprehensive income (loss) available to Arch
$
155,089
$
(46,030)
n/m
Net cash provided by operating activities
$
755,928
$
585,956
29.0
%
Weighted average common shares and common share equivalents outstanding — diluted
409,223,253
414,033,570
(1.2)
%
Financial measures:
Change in book value per common share during period
0.8
%
(1.2)
%
2.0
Annualized return on average common equity
13.9
%
5.0
%
8.9
Annualized operating return on average common equity (2)
7.8
%
7.1
%
0.7
Total return on investments (3)
(0.18)
%
(0.86)
%
68 bps
(1)Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2)See ‘Comments on Regulation G’ for a further discussion of consolidated underwriting income or loss, after-tax operating income or loss available to Arch common shareholders and annualized operating return on average common equity.
(3)Total return on investments includes net investment income, equity in net income (loss) of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains and losses and is calculated on a pre-tax basis and before investment expenses. See ‘Comments on Regulation G’ for a further discussion of the presentation of total return on investments.
3
Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Income
(U.S. Dollars in thousands, except share data)
Three Months Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Revenues
Net premiums earned
$
1,948,422
$
1,811,045
$
1,771,092
$
1,665,354
$
1,744,444
Net investment income
98,856
114,458
128,512
131,485
145,153
Net realized gains (losses)
142,461
353,333
280,499
556,588
(366,960)
Other underwriting income
6,110
7,852
5,413
6,667
6,852
Equity in net income (loss) of investment funds accounted for using the equity method
71,686
89,286
126,735
(65,119)
(4,209)
Other income (loss)
(1,741)
(36)
—
33
32
Total revenues
2,265,794
2,375,938
2,312,251
2,295,008
1,525,312
Expenses
Losses and loss adjustment expenses
(1,203,100)
(1,127,385)
(1,216,273)
(1,230,522)
(1,115,419)
Acquisition expenses
(304,481)
(254,828)
(247,942)
(254,789)
(247,283)
Other operating expenses
(261,033)
(215,697)
(215,686)
(209,249)
(234,544)
Corporate expenses
(25,384)
(25,335)
(17,937)
(17,920)
(20,796)
Amortization of intangible assets
(14,402)
(19,196)
(16,715)
(16,489)
(16,631)
Interest expense
(38,346)
(38,419)
(41,343)
(31,139)
(32,555)
Net foreign exchange gains (losses)
20,063
(72,209)
(44,885)
(39,211)
72,671
Total expenses
(1,826,683)
(1,753,069)
(1,800,781)
(1,799,319)
(1,594,557)
Income (loss) before income taxes and income (loss) from operating affiliates
439,111
622,869
511,470
495,689
(69,245)
Income tax expense
(38,860)
(34,059)
(23,707)
(26,127)
(27,945)
Income (loss) from operating affiliates
75,457
10,504
919
(3,173)
8,516
Net income (loss)
475,708
599,314
488,682
466,389
(88,674)
Net (income) loss attributable to noncontrolling interests
(37,552)
(55,770)
(69,643)
(167,568)
232,791
Net income (loss) attributable to Arch
438,156
543,544
419,039
298,821
144,117
Preferred dividends
(10,403)
(10,403)
(10,403)
(10,403)
(10,403)
Net income (loss) available to Arch common shareholders
$
427,753
$
533,141
$
408,636
$
288,418
$
133,714
Comprehensive income (loss) available to Arch
$
155,089
$
646,082
$
455,907
$
626,366
$
(46,030)
Net income (loss) per common share and common share equivalent
Basic
$
1.07
$
1.32
$
1.01
$
0.72
$
0.33
Diluted
$
1.05
$
1.30
$
1.00
$
0.71
$
0.32
Weighted average common shares and common share equivalents outstanding
Basic
400,807,895
403,005,335
402,850,485
402,503,687
403,892,161
Diluted
409,223,253
410,281,852
409,194,657
408,119,681
414,033,570
4
Arch Capital Group Ltd. and Subsidiaries
Consolidated Balance Sheets
(U.S. Dollars in thousands, except share data)
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Assets
Investments:
Fixed maturities available for sale, at fair value
$
18,723,035
$
18,717,825
$
18,452,888
$
17,207,731
$
16,841,571
Short-term investments available for sale, at fair value
1,269,631
1,924,922
2,039,097
2,277,866
944,531
Collateral received under securities lending, at fair value
143,894
301,096
64,259
473,790
182,284
Equity securities, at fair value
1,532,906
1,444,830
1,502,015
1,257,317
1,181,903
Other investments
4,435,354
4,324,796
3,749,575
3,520,771
3,310,517
Investments accounted for using the equity method
2,256,327
2,047,889
1,883,702
1,727,302
1,676,055
Total investments
28,361,147
28,761,358
27,691,536
26,464,777
24,136,861
Cash
941,951
906,448
976,398
854,259
882,284
Accrued investment income
101,108
103,299
106,940
102,064
118,089
Securities pledged under securities lending, at fair value
140,949
294,912
62,749
464,503
177,442
Investment in operating affiliates
739,783
129,291
115,411
111,175
132,460
Premiums receivable
2,618,175
2,064,586
2,225,311
2,203,753
2,155,204
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses
4,041,076
4,500,802
4,621,937
4,363,507
4,303,135
Contractholder receivables
1,919,655
1,986,924
2,185,614
2,179,124
2,140,724
Ceded unearned premiums
1,406,489
1,234,075
1,450,200
1,364,603
1,357,284
Deferred acquisition costs
919,740
790,708
750,901
714,531
708,848
Receivable for securities sold
199,424
92,743
158,674
167,281
221,573
Goodwill and intangible assets
679,509
692,863
713,777
688,490
705,450
Other assets
2,135,261
1,724,288
1,656,587
1,521,581
1,376,772
Total assets
$
44,204,267
$
43,282,297
$
42,716,035
$
41,199,648
$
38,416,126
Liabilities
Reserve for losses and loss adjustment expenses
$
16,443,952
$
16,513,929
$
15,900,526
$
15,044,874
$
14,309,580
Unearned premiums
5,549,127
4,838,965
5,062,052
4,827,445
4,817,191
Reinsurance balances payable
919,125
683,263
873,067
793,467
737,597
Contractholder payables
1,925,508
1,995,562
2,191,515
2,185,414
2,149,762
Collateral held for insured obligations
222,245
215,581
221,957
208,449
211,597
Senior notes
2,861,417
2,861,113
2,860,811
2,860,733
1,871,869
Revolving credit agreement borrowings
155,688
155,687
210,687
335,587
500,587
Securities lending payable
143,886
301,089
64,251
473,783
182,274
Payable for securities purchased
386,453
218,779
382,236
275,257
327,359
Other liabilities
1,565,860
1,510,888
1,681,181
1,467,739
1,392,905
Total liabilities
30,173,261
29,294,856
29,448,283
28,472,748
26,500,721
Redeemable noncontrolling interests
57,670
58,548
57,835
55,986
55,376
Shareholders’ equity
Non-cumulative preferred shares
780,000
780,000
780,000
780,000
780,000
Common shares
645
643
642
642
642
Additional paid-in capital
2,014,741
1,977,794
1,950,782
1,935,514
1,921,487
Retained earnings
12,790,216
12,362,463
11,829,322
11,420,686
11,132,268
Accumulated other comprehensive income (loss), net of deferred income tax
205,827
488,895
386,357
349,488
21,944
Common shares held in treasury, at cost
(2,694,957)
(2,503,909)
(2,495,106)
(2,494,505)
(2,489,097)
Total shareholders’ equity available to Arch
13,096,472
13,105,886
12,451,997
11,991,825
11,367,244
Non-redeemable noncontrolling interests
876,864
823,007
757,920
679,089
492,785
Total shareholders’ equity
13,973,336
13,928,893
13,209,917
12,670,914
11,860,029
Total liabilities, noncontrolling interests and shareholders’ equity
$
44,204,267
$
43,282,297
$
42,716,035
$
41,199,648
$
38,416,126
Common shares and common share equivalents outstanding, net of treasury shares
403,313,377
406,720,642
406,018,958
405,970,251
405,609,867
Book value per common share (1)
$
30.54
$
30.31
$
28.75
$
27.62
$
26.10
(1) Excludes the effects of stock options and restricted stock units outstanding.
5
Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(U.S. Dollars in thousands)
Three Months Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Non-cumulative preferred shares
Balance at beginning and end of period
$
780,000
$
780,000
$
780,000
$
780,000
$
780,000
Common shares
Balance at beginning of period
643
642
642
642
638
Common shares issued, net
2
1
—
—
4
Balance at end of period
645
643
642
642
642
Additional paid-in capital
Balance at beginning of period
1,977,794
1,950,782
1,935,514
1,921,487
1,889,683
Amortization of share-based compensation
40,573
14,663
14,662
13,160
28,050
All other
(3,626)
12,349
606
867
3,754
Balance at end of period
2,014,741
1,977,794
1,950,782
1,935,514
1,921,487
Retained earnings
Balance at beginning of period
12,362,463
11,829,322
11,420,686
11,132,268
11,021,006
Cumulative effect of an accounting change (1)
—
—
—
—
(22,452)
Balance at beginning of period, as adjusted
12,362,463
11,829,322
11,420,686
11,132,268
10,998,554
Net income
475,708
599,314
488,682
466,389
(88,674)
Amounts attributable to noncontrolling interests
(37,552)
(55,770)
(69,643)
(167,568)
232,791
Preferred share dividends
(10,403)
(10,403)
(10,403)
(10,403)
(10,403)
Balance at end of period
12,790,216
12,362,463
11,829,322
11,420,686
11,132,268
Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of period
488,895
386,357
349,488
21,944
212,091
Change in unrealized appreciation (decline) in value of available-for-sale investments
(254,584)
63,008
19,800
305,338
(145,337)
Change in foreign currency translation adjustments
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses
(161,007)
(366,942)
(282,907)
(557,740)
362,964
Equity in net (income) or loss of investment funds accounted for using the equity method and other income or loss
(135,939)
(78,257)
(95,078)
96,350
29,034
Amortization of intangible assets
14,402
19,196
16,715
16,489
16,631
Share-based compensation
40,812
14,829
14,521
13,363
28,549
Changes in:
Reserve for losses and loss adjustment expenses, net
560,153
445,758
509,623
652,389
506,057
Unearned premiums, net
560,035
(53,030)
103,052
2,957
392,802
Premiums receivable
(608,250)
143,123
1,872
(45,181)
(418,457)
Deferred acquisition costs
(126,701)
(36,710)
(14,801)
(17,302)
(75,135)
Reinsurance balances payable
240,206
(139,670)
73,459
52,354
79,807
Other items, net
(96,574)
7,444
194,732
31,058
(223,124)
Net cash provided by operating activities
762,845
555,055
1,009,870
711,126
610,454
Investing Activities
Purchases of fixed maturity investments
(11,530,968)
(5,714,394)
(8,640,034)
(13,444,854)
(11,965,995)
Purchases of equity securities
(309,419)
(239,162)
(330,699)
(264,466)
(760,683)
Purchases of other investments
(430,961)
(966,841)
(340,194)
(273,221)
(228,471)
Proceeds from sales of fixed maturity investments
10,917,134
5,404,479
7,711,837
13,109,907
11,723,123
Proceeds from sales of equity securities
284,986
415,471
151,447
314,045
266,301
Proceeds from sales, redemptions and maturities of other investments
323,591
237,771
319,619
256,057
216,131
Proceeds from redemptions and maturities of fixed maturity investments
421,042
225,842
276,052
170,884
198,356
Net settlements of derivative instruments
47,660
15,716
12,819
(45,017)
195,488
Net (purchases) sales of short-term investments
589,175
129,670
164,012
(1,311,586)
(11,777)
Change in cash collateral related to securities lending
—
—
26,614
(405)
55,001
Purchase of operating affiliate, net
(546,349)
—
—
—
—
Purchases of fixed assets
(12,490)
(13,155)
(9,030)
(9,217)
(8,470)
Other
(246,590)
69,795
(140,671)
(33,821)
42,500
Net cash provided by (used for) investing activities
(493,189)
(434,808)
(798,228)
(1,531,694)
(278,496)
Financing Activities
Purchases of common shares under share repurchase program
(179,266)
(7,986)
—
—
(75,486)
Proceeds from common shares issued, net
(10,008)
11,532
5
(5,134)
(4,527)
Proceeds from borrowings
—
—
13,875
988,618
16,300
Repayments of borrowings
—
(55,000)
(139,000)
(165,000)
—
Change in cash collateral related to securities lending
—
—
(26,614)
405
(55,001)
Change in third party investment in non-redeemable noncontrolling interests
15,971
—
—
—
(2,867)
Dividends paid to redeemable noncontrolling interests
(948)
(1,404)
(1,001)
(1,359)
(1,181)
Other
(1,948)
18,449
57,891
(1,294)
(1,331)
Preferred dividends paid
(10,403)
(10,403)
(10,403)
(10,403)
(10,403)
Net cash provided by (used for) financing activities
(186,602)
(44,812)
(105,247)
805,833
(134,496)
Effects of exchange rate changes on foreign currency cash and restricted cash
(6,084)
28,136
15,895
8,981
(30,723)
Increase (decrease) in cash and restricted cash
76,970
103,571
122,290
(5,754)
166,739
Cash and restricted cash, beginning of period
1,290,544
1,186,973
1,064,683
1,070,437
903,698
Cash and restricted cash, end of period
$
1,367,514
$
1,290,544
$
1,186,973
$
1,064,683
$
1,070,437
Income taxes paid (received)
$
7,099
$
56,126
$
136,404
$
3,023
$
7,387
Interest paid
$
988
$
72,936
$
3,141
$
50,767
$
6,647
Net cash provided by operating activities, excluding the ‘other’ segment
$
755,928
$
507,017
$
963,654
$
648,427
$
585,956
7
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Overview
The Company classifies its businesses into three underwriting segments — insurance, reinsurance and mortgage — and two other operating segments — ‘other’ and corporate (non-underwriting). The Company’s Insurance, Reinsurance and Mortgage segments each have managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company’s chief operating decision makers, the President and Chief Executive Officer of Arch Capital and the Chief Financial Officer of Arch Capital. The chief operating decision makers do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures segment performance for its three core underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment and, accordingly, investment income is not allocated to each underwriting segment.
The Company determined its reportable operating segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.
Insurance Segment
The insurance segment consists of the Company’s insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:
• Construction and national accounts: primary and excess casualty coverages to middle and large accounts in the construction industry and a wide range of products for middle and large national accounts, specializing in loss sensitive primary casualty insurance programs (including large deductible, self-insured retention and retrospectively rated programs).
• Excess and surplus casualty: primary and excess casualty insurance coverages, including middle market energy business, and contract binding, which primarily provides casualty coverage through a network of appointed agents to small and medium risks.
• Lenders products: collateral protection, debt cancellation and service contract reimbursement products to banks, credit unions, automotive dealerships and original equipment manufacturers and other specialty programs that pertain to automotive lending and leasing.
• Professional lines: directors’ and officers’ liability, errors and omissions liability, employment practices liability, fiduciary liability, crime, professional indemnity and other financial related coverages for corporate, private equity, venture capital, real estate investment trust, limited partnership, financial institution and not-for-profit clients of all sizes and medical professional and general liability insurance coverages for the healthcare industry. The business is predominately written on a claims-made basis.
• Programs: primarily package policies, underwriting workers’ compensation and umbrella liability business in support of desirable package programs, targeting program managers with unique expertise and niche products offering general liability, commercial automobile, inland marine and property business with minimal catastrophe exposure.
• Property, energy, marine and aviation: primary and excess general property insurance coverages, including catastrophe-exposed property coverage, for commercial clients. Coverages for marine include hull, war, specie and liability. Aviation and stand alone terrorism are also offered.
• Travel, accident and health: specialty travel and accident and related insurance products for individual, group travelers, travel agents and suppliers, as well as accident and health, which provides accident, disability and medical plan insurance coverages for employer groups, medical plan members, students and other participant groups.
• Other: includes alternative market risks (including captive insurance programs), excess workers’ compensation and employer’s liability insurance coverages for qualified self-insured groups, associations and trusts, and contract and commercial surety coverages, including contract bonds (payment and performance bonds) primarily for medium and large contractors and commercial surety bonds for Fortune 1,000 companies and smaller transaction business programs.
8
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Overview
Reinsurance Segment
The reinsurance segment consists of the Company’s reinsurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:
•Casualty: provides coverage to ceding company clients on third party liability and workers’ compensation exposures from ceding company clients, primarily on a treaty basis. Exposures include, among others, executive assurance, professional liability, workers’ compensation, excess and umbrella liability, excess motor and healthcare business.
•Marine and aviation: provides coverage for energy, hull, cargo, specie, liability and transit, and aviation business, including airline and general aviation risks. Business written may also include space business, which includes coverages for satellite assembly, launch and operation for commercial space programs.
•Other specialty: provides coverage to ceding company clients for proportional motor and other lines including surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and political risk.
•Property catastrophe: provides protection for most catastrophic losses that are covered in the underlying policies written by reinsureds, including hurricane, earthquake, flood, tornado, hail and fire, and coverage for other perils on a case-by-case basis. Property catastrophe reinsurance provides coverage on an excess of loss basis when aggregate losses and loss adjustment expense from a single occurrence of a covered peril exceed the retention specified in the contract.
•Property excluding property catastrophe: provides coverage for both personal lines and commercial property exposures and principally covers buildings, structures, equipment and contents. The primary perils in this business include fire, explosion, collapse, riot, vandalism, wind, tornado, flood and earthquake. Business is assumed on both a proportional and excess of loss basis. In addition, facultative business is written which focuses on commercial property risks on an excess of loss basis.
•Other. includes life reinsurance business on both a proportional and non-proportional basis, casualty clash business and, in limited instances, non-traditional business which is intended to provide insurers with risk management solutions that complement traditional reinsurance.
Mortgage Segment
The mortgage segment includes the Company’s U.S. and international mortgage insurance and reinsurance operations as well as government sponsored enterprise (“GSE”) credit-risk sharing transactions. Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (combined “Arch MI U.S.”) are approved as eligible mortgage insurers by Fannie Mae and Freddie Mac.
Corporate (Non-Underwriting) Segment
The corporate (non-underwriting) segment results include net investment income, other income (loss), corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, items related to the Company’s non-cumulative preferred shares, net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, income or loss from operating affiliates and income taxes. Such amounts exclude the results of the ‘other’ segment.
Other Segment
The ‘other’ segment includes the results of Watford. Subsidiaries of the Company act as Watford’s reinsurance and insurance underwriting managers while HPS Investment Partners, LLC manages Watford’s non-investment grade credit portfolios and the Company manages Watford’s investment grade portfolios, all under long term services agreements. Pursuant to generally accepted accounting principles, Watford is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford. As such, the Company consolidates the results of Watford in its consolidated financial statements, although it only owns approximately 10% of Watford’s common equity (listed on the Nasdaq Select Global Market under the ticker symbol “WTRE”). Watford has its own management and board of directors that is responsible for its own results and profitability. The portion of Watford’s earnings attributable to third party investors is 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.
9
Arch Capital Group Ltd. and Subsidiaries
Segment Information
(U.S. Dollars in thousands)
Three Months Ended
March 31, 2021
Insurance
Reinsurance
Mortgage
Sub-total (Core)
Other
Total
Gross premiums written (1)
$
1,415,886
$
1,471,060
$
391,246
$
3,277,293
$
216,523
$
3,397,206
Premiums ceded
(421,047)
(471,948)
(56,051)
(948,147)
(37,212)
(888,749)
Net premiums written
994,839
999,112
335,195
2,329,146
179,311
2,508,457
Change in unearned premiums
(175,365)
(354,212)
1,122
(528,455)
(31,580)
(560,035)
Net premiums earned
819,474
644,900
336,317
1,800,691
147,731
1,948,422
Other underwriting income (loss)
—
(1,198)
6,897
5,699
411
6,110
Losses and loss adjustment expenses
(535,747)
(484,870)
(63,689)
(1,084,306)
(118,794)
(1,203,100)
Acquisition expenses
(128,222)
(118,025)
(30,082)
(276,329)
(28,152)
(304,481)
Other operating expenses
(137,113)
(60,514)
(49,131)
(246,758)
(14,275)
(261,033)
Underwriting income (loss)
$
18,392
$
(19,707)
$
200,312
198,997
(13,079)
185,918
Net investment income
78,729
20,127
98,856
Net realized gains (losses)
101,336
41,125
142,461
Equity in net income (loss) of investment funds accounted for using the equity method
71,686
—
71,686
Other income (loss)
(1,741)
—
(1,741)
Corporate expenses (2)
(23,468)
—
(23,468)
Transaction costs and other (2)
(1,201)
(715)
(1,916)
Amortization of intangible assets
(14,402)
—
(14,402)
Interest expense
(34,197)
(4,149)
(38,346)
Net foreign exchange gains (losses)
21,505
(1,442)
20,063
Income (loss) before income taxes and income (loss) from operating affiliates
397,244
41,867
439,111
Income tax (expense) benefit
(38,852)
(8)
(38,860)
Income (loss) from operating affiliates
75,457
—
75,457
Net income (loss)
433,849
41,859
475,708
Dividends attributable to redeemable noncontrolling interests
117
(972)
(855)
Amounts attributable to nonredeemable noncontrolling interests
—
(36,697)
(36,697)
Net income (loss) available to Arch
433,966
4,190
438,156
Preferred dividends
(10,403)
—
(10,403)
Net income (loss) available to Arch common shareholders
$
423,563
$
4,190
$
427,753
Underwriting Ratios
Loss ratio
65.4
%
75.2
%
18.9
%
60.2
%
80.4
%
61.7
%
Acquisition expense ratio
15.6
%
18.3
%
8.9
%
15.3
%
19.1
%
15.6
%
Other operating expense ratio
16.7
%
9.4
%
14.6
%
13.7
%
9.7
%
13.4
%
Combined ratio
97.7
%
102.9
%
42.4
%
89.2
%
109.2
%
90.7
%
Net premiums written to gross premiums written
70.3
%
67.9
%
85.7
%
71.1
%
82.8
%
73.8
%
Total investable assets
$
26,338,599
$
2,740,428
$
29,079,027
Total assets
40,541,201
3,663,066
44,204,267
Total liabilities
27,533,009
2,640,252
30,173,261
(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
March 31, 2020
Insurance
Reinsurance
Mortgage
Sub-total (Core)
Other
Total
Gross premiums written (1)
$
1,207,645
$
1,122,519
$
368,945
$
2,698,537
$
234,902
$
2,832,830
Premiums ceded
(378,897)
(325,339)
(44,327)
(747,991)
(48,202)
(695,584)
Net premiums written
828,748
797,180
324,618
1,950,546
186,700
2,137,246
Change in unearned premiums
(112,829)
(253,720)
20,408
(346,141)
(46,661)
(392,802)
Net premiums earned
715,919
543,460
345,026
1,604,405
140,039
1,744,444
Other underwriting income (loss)
—
2,120
4,599
6,719
133
6,852
Losses and loss adjustment expenses
(507,108)
(430,069)
(67,566)
(1,004,743)
(110,676)
(1,115,419)
Acquisition expenses
(107,337)
(79,606)
(38,536)
(225,479)
(21,804)
(247,283)
Other operating expenses
(129,649)
(45,297)
(45,896)
(220,842)
(13,702)
(234,544)
Underwriting income (loss)
$
(28,175)
$
(9,392)
$
197,627
160,060
(6,010)
154,050
Net investment income
113,028
32,125
145,153
Net realized gains (losses)
(72,109)
(294,851)
(366,960)
Equity in net income (loss) of investment funds accounted for using the equity method
(4,209)
—
(4,209)
Other income (loss)
32
—
32
Corporate expenses (2)
(18,201)
—
(18,201)
Transaction costs and other (2)
(2,595)
—
(2,595)
Amortization of intangible assets
(16,631)
—
(16,631)
Interest expense
(25,245)
(7,310)
(32,555)
Net foreign exchange gains (losses)
63,307
9,364
72,671
Income (loss) before income taxes and income (loss) from operating affiliates
197,437
(266,682)
(69,245)
Income tax (expense) benefit
(27,945)
—
(27,945)
Income (loss) from operating affiliates
8,516
—
8,516
Net income (loss)
178,008
(266,682)
(88,674)
Dividends attributable to redeemable noncontrolling interests
(57)
(1,096)
(1,153)
Amounts attributable to nonredeemable noncontrolling interests
—
233,944
233,944
Net income (loss) available to Arch
177,951
(33,834)
144,117
Preferred dividends
(10,403)
—
(10,403)
Net income (loss) available to Arch common shareholders
$
167,548
$
(33,834)
$
133,714
Underwriting Ratios
Loss ratio
70.8
%
79.1
%
19.6
%
62.6
%
79.0
%
63.9
%
Acquisition expense ratio
15.0
%
14.6
%
11.2
%
14.1
%
15.6
%
14.2
%
Other operating expense ratio
18.1
%
8.3
%
13.3
%
13.8
%
9.8
%
13.4
%
Combined ratio
103.9
%
102.0
%
44.1
%
90.5
%
104.4
%
91.5
%
Net premiums written to gross premiums written
68.6
%
71.0
%
88.0
%
72.3
%
79.5
%
75.4
%
Total investable assets
$
22,375,852
$
2,502,589
$
24,878,441
Total assets
35,049,744
3,366,382
38,416,126
Total liabilities
23,740,716
2,760,005
26,500,721
(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 — Insurance Segment
(U.S. Dollars in thousands)
Three Months Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Gross premiums written
$
1,415,886
$
1,244,227
$
1,206,328
$
1,030,362
$
1,207,645
Premiums ceded
(421,047)
(406,490)
(382,167)
(358,101)
(378,897)
Net premiums written
994,839
837,737
824,161
672,261
828,748
Change in unearned premiums
(175,365)
(89,299)
(105,007)
15,648
(112,829)
Net premiums earned
819,474
748,438
719,154
687,909
715,919
Other underwriting income (loss)
—
—
(31)
—
—
Losses and loss adjustment expenses
(535,747)
(541,821)
(525,321)
(518,203)
(507,108)
Acquisition expenses
(128,222)
(101,055)
(102,420)
(107,671)
(107,337)
Other operating expenses
(137,113)
(118,206)
(122,541)
(118,757)
(129,649)
Underwriting income (loss)
$
18,392
$
(12,644)
$
(31,159)
$
(56,722)
$
(28,175)
Underwriting Ratios
Loss ratio
65.4
%
72.4
%
73.0
%
75.3
%
70.8
%
Acquisition expense ratio
15.6
%
13.5
%
14.2
%
15.7
%
15.0
%
Other operating expense ratio
16.7
%
15.8
%
17.0
%
17.3
%
18.1
%
Combined ratio
97.7
%
101.7
%
104.2
%
108.3
%
103.9
%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums
5.1
%
8.3
%
10.3
%
12.5
%
6.9
%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments
(0.7)
%
(0.2)
%
(0.2)
%
(0.3)
%
(0.1)
%
Combined ratio excluding catastrophic activity and prior year development (1)
93.3
%
93.6
%
94.1
%
96.1
%
97.1
%
Net premiums written to gross premiums written
70.3
%
67.3
%
68.3
%
65.2
%
68.6
%
(1)See ‘Comments on Regulation G’ for further discussion.
12
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Insurance Segment
(U.S. Dollars in thousands)
Three Months Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Net premiums written
Property, energy, marine and aviation
$
170,498
17.1
%
$
179,455
21.4
%
$
152,193
18.5
%
$
159,801
23.8
%
$
127,585
15.4
%
Professional lines (1)
238,246
23.9
%
217,306
25.9
%
199,163
24.2
%
157,899
23.5
%
169,118
20.4
%
Programs
158,401
15.9
%
96,743
11.5
%
123,768
15.0
%
104,930
15.6
%
112,532
13.6
%
Construction and national accounts
134,792
13.5
%
102,171
12.2
%
88,790
10.8
%
57,144
8.5
%
115,999
14.0
%
Excess and surplus casualty (2)
85,593
8.6
%
88,319
10.5
%
78,889
9.6
%
64,703
9.6
%
65,419
7.9
%
Travel, accident and health
92,306
9.3
%
29,959
3.6
%
28,972
3.5
%
27,997
4.2
%
126,046
15.2
%
Lenders products
34,860
3.5
%
38,307
4.6
%
60,830
7.4
%
23,690
3.5
%
33,292
4.0
%
Other (3)
80,143
8.1
%
85,477
10.2
%
91,556
11.1
%
76,097
11.3
%
78,757
9.5
%
Total
$
994,839
100.0
%
$
837,737
100.0
%
$
824,161
100.0
%
$
672,261
100.0
%
$
828,748
100.0
%
Underwriting location
United States
$
675,840
67.9
%
$
527,824
63.0
%
$
574,699
69.7
%
$
453,215
67.4
%
$
602,677
72.7
%
Europe
276,122
27.8
%
266,761
31.8
%
212,203
25.7
%
181,566
27.0
%
196,042
23.7
%
Other
42,877
4.3
%
43,152
5.2
%
37,259
4.5
%
37,480
5.6
%
30,029
3.6
%
Total
$
994,839
100.0
%
$
837,737
100.0
%
$
824,161
100.0
%
$
672,261
100.0
%
$
828,748
100.0
%
Net premiums earned
Property, energy, marine and aviation
$
157,259
19.2
%
$
151,456
20.2
%
$
133,827
18.6
%
$
120,781
17.6
%
$
111,183
15.5
%
Professional lines (1)
199,671
24.4
%
180,858
24.2
%
168,502
23.4
%
154,812
22.5
%
151,700
21.2
%
Programs
112,840
13.8
%
110,651
14.8
%
104,861
14.6
%
108,464
15.8
%
108,878
15.2
%
Construction and national accounts
102,671
12.5
%
101,243
13.5
%
95,386
13.3
%
91,605
13.3
%
99,700
13.9
%
Excess and surplus casualty (2)
75,367
9.2
%
74,579
10.0
%
69,978
9.7
%
60,966
8.9
%
65,097
9.1
%
Travel, accident and health
49,666
6.1
%
24,726
3.3
%
36,726
5.1
%
52,117
7.6
%
77,375
10.8
%
Lenders products
40,081
4.9
%
32,832
4.4
%
33,401
4.6
%
23,111
3.4
%
25,343
3.5
%
Other (3)
81,919
10.0
%
72,093
9.6
%
76,473
10.6
%
76,053
11.1
%
76,643
10.7
%
Total
$
819,474
100.0
%
$
748,438
100.0
%
$
719,154
100.0
%
$
687,909
100.0
%
$
715,919
100.0
%
(1) Includes professional liability, executive assurance and healthcare business.
(2) Includes casualty and contract binding business.
(3) Includes alternative markets, excess workers’ compensation and surety business.
13
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Reinsurance Segment
(U.S. Dollars in thousands)
Three Months Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Gross premiums written
$
1,471,060
$
537,912
$
1,004,590
$
807,065
$
1,122,519
Premiums ceded
(471,948)
(47,018)
(400,388)
(241,971)
(325,339)
Net premiums written
999,112
490,894
604,202
565,094
797,180
Change in unearned premiums
(354,212)
93,180
(49,704)
(84,897)
(253,720)
Net premiums earned
644,900
584,074
554,498
480,197
543,460
Other underwriting income (loss)
(1,198)
2,687
298
(651)
2,120
Losses and loss adjustment expenses
(484,870)
(392,734)
(422,084)
(383,433)
(430,069)
Acquisition expenses
(118,025)
(98,532)
(85,388)
(90,522)
(79,606)
Other operating expenses
(60,514)
(42,180)
(41,818)
(38,716)
(45,297)
Underwriting income (loss)
$
(19,707)
$
53,315
$
5,506
$
(33,125)
$
(9,392)
Underwriting Ratios
Loss ratio
75.2
%
67.2
%
76.1
%
79.8
%
79.1
%
Acquisition expense ratio
18.3
%
16.9
%
15.4
%
18.9
%
14.6
%
Other operating expense ratio
9.4
%
7.2
%
7.5
%
8.1
%
8.3
%
Combined ratio
102.9
%
91.3
%
99.0
%
106.8
%
102.0
%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums
22.7
%
16.1
%
23.3
%
25.3
%
12.7
%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments
(3.8)
%
(6.9)
%
(7.4)
%
(6.0)
%
(2.0)
%
Combined ratio excluding catastrophic activity and prior year development (1)
84.0
%
82.1
%
83.1
%
87.5
%
91.3
%
Net premiums written to gross premiums written
67.9
%
91.3
%
60.1
%
70.0
%
71.0
%
(1)See ‘Comments on Regulation G’ for further discussion.
14
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Reinsurance Segment
(U.S. Dollars in thousands)
Three Months Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Net premiums written
Property excluding property catastrophe
$
292,833
29.3
%
$
150,643
30.7
%
$
223,880
37.1
%
$
163,639
29.0
%
$
158,924
19.9
%
Property catastrophe
117,207
11.7
%
37,317
7.6
%
42,125
7.0
%
117,676
20.8
%
89,092
11.2
%
Other specialty (1)
284,331
28.5
%
147,012
29.9
%
159,969
26.5
%
117,375
20.8
%
284,952
35.7
%
Casualty (2)
218,256
21.8
%
103,989
21.2
%
142,401
23.6
%
105,049
18.6
%
190,880
23.9
%
Marine and aviation
61,638
6.2
%
31,418
6.4
%
27,839
4.6
%
32,372
5.7
%
49,785
6.2
%
Other (3)
24,847
2.5
%
20,515
4.2
%
7,988
1.3
%
28,983
5.1
%
23,547
3.0
%
Total
$
999,112
100.0
%
$
490,894
100.0
%
$
604,202
100.0
%
$
565,094
100.0
%
$
797,180
100.0
%
Underwriting location
Bermuda
$
518,241
51.9
%
$
187,727
38.2
%
$
240,193
39.8
%
$
240,451
42.6
%
$
333,619
41.8
%
United States
208,101
20.8
%
148,994
30.4
%
189,135
31.3
%
162,027
28.7
%
187,466
23.5
%
Europe and other
272,770
27.3
%
154,173
31.4
%
174,874
28.9
%
162,616
28.8
%
276,095
34.6
%
Total
$
999,112
100.0
%
$
490,894
100.0
%
$
604,202
100.0
%
$
565,094
100.0
%
$
797,180
100.0
%
Net premiums earned
Property excluding property catastrophe
$
187,782
29.1
%
$
162,456
27.8
%
$
163,081
29.4
%
$
124,019
25.8
%
$
112,652
20.7
%
Property catastrophe
88,011
13.6
%
59,986
10.3
%
69,524
12.5
%
55,226
11.5
%
53,000
9.8
%
Other specialty (1)
163,898
25.4
%
158,817
27.2
%
141,201
25.5
%
123,006
25.6
%
203,385
37.4
%
Casualty (2)
149,031
23.1
%
144,808
24.8
%
136,421
24.6
%
132,756
27.6
%
135,071
24.9
%
Marine and aviation
40,108
6.2
%
33,062
5.7
%
26,744
4.8
%
24,960
5.2
%
24,858
4.6
%
Other (3)
16,070
2.5
%
24,945
4.3
%
17,527
3.2
%
20,230
4.2
%
14,494
2.7
%
Total
$
644,900
100.0
%
$
584,074
100.0
%
$
554,498
100.0
%
$
480,197
100.0
%
$
543,460
100.0
%
(1) Includes proportional motor, surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and other.
(2) Includes executive assurance, professional liability, workers’ compensation, excess motor, healthcare and other.
(3) Includes life, casualty clash and other.
15
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
(U.S. Dollars in thousands)
Three Months Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Gross premiums written
$
391,246
$
389,662
$
346,248
$
369,144
$
368,945
Premiums ceded
(56,051)
(57,995)
(47,783)
(44,044)
(44,327)
Net premiums written
335,195
331,667
298,465
325,100
324,618
Change in unearned premiums
1,122
4,120
52,944
40,613
20,408
Net premiums earned
336,317
335,787
351,409
365,713
345,026
Other underwriting income (1)
6,897
4,667
4,600
6,450
4,599
Losses and loss adjustment expenses
(63,689)
(83,623)
(153,055)
(224,100)
(67,566)
Acquisition expenses
(30,082)
(25,936)
(35,716)
(34,052)
(38,536)
Other operating expenses
(49,131)
(42,024)
(36,708)
(37,574)
(45,896)
Underwriting income
$
200,312
$
188,871
$
130,530
$
76,437
$
197,627
Underwriting Ratios
Loss ratio
18.9
%
24.9
%
43.6
%
61.3
%
19.6
%
Acquisition expense ratio
8.9
%
7.7
%
10.2
%
9.3
%
11.2
%
Other operating expense ratio
14.6
%
12.5
%
10.4
%
10.3
%
13.3
%
Combined ratio
42.4
%
45.1
%
64.2
%
80.9
%
44.1
%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments
(3.4)
%
(2.4)
%
(1.3)
%
(0.1)
%
(1.8)
%
Combined ratio excluding prior year development (2)
45.8
%
47.5
%
65.5
%
81.0
%
45.9
%
Net premiums written to gross premiums written
85.7
%
85.1
%
86.2
%
88.1
%
88.0
%
Net premiums written by underwriting location
United States
$
247,529
$
250,747
$
245,971
$
261,124
$
264,108
Other
87,666
80,920
52,494
63,976
60,510
Total
$
335,195
$
331,667
$
298,465
$
325,100
$
324,618
United States %
73.8
%
75.6
%
82.4
%
80.3
%
81.4
%
Other %
26.2
%
24.4
%
17.6
%
19.7
%
18.6
%
(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.
16
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
(U.S. Dollars in millions)
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
March 31, 2020
Insurance In Force (IIF) (1)
U.S. primary mortgage insurance
$
276,179
64.7
%
$
280,579
66.2
%
$
275,846
66.8
%
$
276,643
65.9
%
$
284,203
68.9
%
Mortgage reinsurance
31,699
7.4
%
31,220
7.4
%
28,421
6.9
%
27,457
6.5
%
24,335
5.9
%
Other (2)
119,138
27.9
%
111,740
26.4
%
108,786
26.3
%
115,803
27.6
%
103,731
25.2
%
Total
$
427,016
100.0
%
$
423,539
100.0
%
$
413,053
100.0
%
$
419,903
100.0
%
$
412,269
100.0
%
Risk In Force (RIF) (3)
U.S. primary mortgage insurance
$
69,234
89.9
%
$
70,522
90.5
%
$
69,620
91.0
%
$
70,200
91.0
%
$
72,566
92.0
%
Mortgage reinsurance
2,214
2.9
%
2,226
2.9
%
2,145
2.8
%
2,116
2.7
%
1,961
2.5
%
Other (2)
5,573
7.2
%
5,146
6.6
%
4,750
6.2
%
4,795
6.2
%
4,387
5.6
%
Total
$
77,021
100.0
%
$
77,894
100.0
%
$
76,515
100.0
%
$
77,111
100.0
%
$
78,914
100.0
%
Supplemental disclosures for U.S. primary mortgage insurance:
Total RIF by credit quality (FICO score):
>=740
$
40,230
58.1
%
$
40,774
57.8
%
$
40,017
57.5
%
$
40,297
57.4
%
$
41,738
57.5
%
680-739
24,006
34.7
%
24,498
34.7
%
24,236
34.8
%
24,346
34.7
%
25,078
34.6
%
620-679
4,607
6.7
%
4,837
6.9
%
5,016
7.2
%
5,188
7.4
%
5,368
7.4
%
<620
391
0.6
%
413
0.6
%
351
0.5
%
369
0.5
%
382
0.5
%
Total
$
69,234
100.0
%
$
70,522
100.0
%
$
69,620
100.0
%
$
70,200
100.0
%
$
72,566
100.0
%
Weighted average FICO score
744
743
743
743
743
Total RIF by Loan-To-Value (LTV):
95.01% and above
$
8,310
12.0
%
$
8,643
12.3
%
$
8,789
12.6
%
$
8,859
12.6
%
$
9,060
12.5
%
90.01% to 95.00%
37,193
53.7
%
37,877
53.7
%
37,278
53.5
%
37,830
53.9
%
39,594
54.6
%
85.01% to 90.00%
19,648
28.4
%
20,013
28.4
%
19,870
28.5
%
20,071
28.6
%
20,619
28.4
%
85.00% and below
4,083
5.9
%
3,989
5.7
%
3,683
5.3
%
3,440
4.9
%
3,293
4.5
%
Total
$
69,234
100.0
%
$
70,522
100.0
%
$
69,620
100.0
%
$
70,200
100.0
%
$
72,566
100.0
%
Weighted average LTV
92.8
%
92.8
%
92.9
%
92.9
%
93.0
%
Total RIF by State:
Texas
$
5,569
8.0
%
$
5,636
8.0
%
$
5,536
8.0
%
$
5,560
7.9
%
$
5,683
7.8
%
California
5,343
7.7
%
5,261
7.5
%
5,019
7.2
%
4,948
7.0
%
5,106
7.0
%
Florida
3,544
5.1
%
3,632
5.2
%
3,648
5.2
%
3,737
5.3
%
3,863
5.3
%
Georgia
2,929
4.2
%
2,959
4.2
%
2,890
4.2
%
2,861
4.1
%
2,819
3.9
%
Illinois
2,728
3.9
%
2,762
3.9
%
2,670
3.8
%
2,643
3.8
%
2,621
3.6
%
North Carolina
2,610
3.8
%
2,622
3.7
%
2,516
3.6
%
2,459
3.5
%
2,475
3.4
%
Virginia
2,458
3.6
%
2,526
3.6
%
2,540
3.6
%
2,656
3.8
%
2,814
3.9
%
Minnesota
2,452
3.5
%
2,520
3.6
%
2,489
3.6
%
2,473
3.5
%
2,509
3.5
%
Massachusetts
2,434
3.5
%
2,464
3.5
%
2,344
3.4
%
2,345
3.3
%
2,409
3.3
%
Washington
2,154
3.1
%
2,220
3.1
%
2,222
3.2
%
2,291
3.3
%
2,426
3.3
%
Other
37,013
53.5
%
37,920
53.8
%
37,746
54.2
%
38,227
54.5
%
39,841
54.9
%
Total
$
69,234
100.0
%
$
70,522
100.0
%
$
69,620
100.0
%
$
70,200
100.0
%
$
72,566
100.0
%
Weighted average coverage (end of period RIF divided by IIF)
25.1
%
25.1
%
25.2
%
25.4
%
25.5
%
U.S. mortgage insurance total RIF, net of reinsurance (4)
$
55,503
$
56,658
$
56,067
$
57,258
$
58,693
Analysts’ persistency (5)
54.1
%
58.7
%
62.5
%
66.6
%
72.6
%
Risk-to-capital ratio -- Arch MI U.S. (6)
8.7:1
9.3:1
9.6:1
10.2:1
11.3:1
PMIER sufficiency ratio -- Arch MI U.S. (7)
190
%
173
%
158
%
161
%
165
%
(1) The aggregate dollar amount of each insured mortgage loan’s current principal balance. (4) Total RIF for the U.S. mortgage insurance operations (see note 3) after external reinsurance.
(2) Includes GSE credit risk-sharing transactions and international insurance business. (5) Represents the % of IIF at the beginning of a 12-month period that remained in force at the end of the period.
(3) The aggregate dollar amount of each insured mortgage loan’s current principal balance multiplied (6) Represents current (non-delinquent) RIF, net of reinsurance, divided by statutory capital (estimate for March 31, 2021).
by the insurance coverage percentage specified in the policy for insurance policies issued and (7) Calculated as available assets divided by required assets as defined within PMIERs (estimate for March 31, 2021).
after contract limits and/or loss ratio caps for risk-sharing or reinsurance transactions. There was approximately $1.8 billion of excess available assets at March 31, 2021.
17
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
(U.S. Dollars in millions, except policy/loan/claim count)
Three Months Ended
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
March 31, 2020
Supplemental disclosures for U.S. primary mortgage insurance:
Total new insurance written (NIW) (1)
$
27,019
$
38,011
$
32,787
$
24,551
$
16,778
Total NIW by credit quality (FICO score):
>=740
$
17,818
65.9
%
$
25,128
66.1
%
$
21,160
64.5
%
$
15,851
64.6
%
$
10,069
60.0
%
680-739
8,418
31.2
%
11,877
31.2
%
10,562
32.2
%
7,781
31.7
%
5,787
34.5
%
620-679
783
2.9
%
1,006
2.6
%
1,065
3.2
%
919
3.7
%
922
5.5
%
Total
$
27,019
100.0
%
$
38,011
100.0
%
$
32,787
100.0
%
$
24,551
100.0
%
$
16,778
100.0
%
Total NIW by LTV:
95.01% and above
$
1,608
6.0
%
$
2,475
6.5
%
$
2,561
7.8
%
$
1,948
7.9
%
$
1,668
9.9
%
90.01% to 95.00%
12,288
45.5
%
17,783
46.8
%
13,967
42.6
%
9,403
38.3
%
7,199
42.9
%
85.01% to 90.00%
8,312
30.8
%
11,014
29.0
%
10,052
30.7
%
8,140
33.2
%
5,329
31.8
%
85.00% and below
4,811
17.8
%
6,739
17.7
%
6,207
18.9
%
5,060
20.6
%
2,582
15.4
%
Total
$
27,019
100.0
%
$
38,011
100.0
%
$
32,787
100.0
%
$
24,551
100.0
%
$
16,778
100.0
%
Total NIW monthly vs. single:
Monthly
$
24,989
92.5
%
$
35,672
93.8
%
$
31,928
97.4
%
$
23,391
95.3
%
$
15,692
93.5
%
Single
2,030
7.5
%
2,339
6.2
%
859
2.6
%
1,160
4.7
%
1,086
6.5
%
Total
$
27,019
100.0
%
$
38,011
100.0
%
$
32,787
100.0
%
$
24,551
100.0
%
$
16,778
100.0
%
Total NIW purchase vs. refinance:
Purchase
$
20,505
75.9
%
$
29,584
77.8
%
$
24,256
74.0
%
$
14,956
60.9
%
$
12,299
73.3
%
Refinance
6,514
24.1
%
8,427
22.2
%
8,531
26.0
%
9,595
39.1
%
4,479
26.7
%
Total
$
27,019
100.0
%
$
38,011
100.0
%
$
32,787
100.0
%
$
24,551
100.0
%
$
16,778
100.0
%
Ending number of policies in force (PIF) (2)
1,214,245
1,245,771
1,245,408
1,259,328
1,293,799
Rollforward of insured loans in default:
Beginning delinquent number of loans
52,234
58,362
64,667
18,414
20,163
Plus: new notices
10,990
14,564
19,967
58,374
9,419
Less: cures
(16,131)
(20,457)
(26,029)
(11,664)
(10,541)
Less: paid claims
(179)
(235)
(243)
(457)
(627)
Ending delinquent number of loans (2)
46,914
52,234
58,362
64,667
18,414
Ending percentage of loans in default (2)
3.86
%
4.19
%
4.69
%
5.14
%
1.42
%
Losses:
Number of claims paid
179
235
243
457
627
Total paid claims (in thousands)
$
6,882
$
9,344
$
9,420
$
20,101
$
26,038
Average per claim (in thousands)
$
38.4
$
39.8
$
38.8
$
44.0
$
41.5
Severity (3)
82.0
%
87.2
%
88.6
%
96.3
%
92.8
%
Average case reserve per default (in thousands)
$
15.2
$
12.6
$
10.1
$
6.9
$
14.4
(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.
18
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment
Supplemental disclosures for U.S. primary mortgage insurance:
(U.S. Dollars in millions)
March 31, 2021
December 31, 2020
Loss Reserves, Net (1)
Primary IIF (2)
Primary RIF (3)
Delinquency Rate
Loss Reserves, Net (1)
Primary IIF (2)
Primary RIF (3)
Delinquency Rate
% of Total
Total
% of Total
Total
% of Total
% of Total
Total
% of Total
Total
% of Total
Policy year:
2011 and prior
29.1
%
$
13,569
4.9
%
$
3,086
4.5
%
11.16
%
28.3
%
$
14,588
5.2
%
$
3,327
4.7
%
11.36
%
2012
1.2
%
2,769
1.0
%
734
1.1
%
3.17
%
1.3
%
3,651
1.3
%
992
1.4
%
2.98
%
2013
2.9
%
6,522
2.4
%
1,817
2.6
%
3.17
%
3.0
%
7,546
2.7
%
2,107
3.0
%
3.30
%
2014
2.2
%
7,250
2.6
%
1,993
2.9
%
3.96
%
2.2
%
8,261
2.9
%
2,273
3.2
%
4.06
%
2015
3.4
%
12,971
4.7
%
3,495
5.0
%
3.64
%
3.4
%
15,032
5.4
%
4,048
5.7
%
3.72
%
2016
8.7
%
21,354
7.7
%
5,718
8.3
%
4.66
%
8.8
%
24,958
8.9
%
6,648
9.4
%
4.77
%
2017
12.3
%
20,826
7.5
%
5,413
7.8
%
5.46
%
12.9
%
24,748
8.8
%
6,413
9.1
%
5.52
%
2018
16.4
%
22,856
8.3
%
5,794
8.4
%
6.98
%
16.8
%
27,304
9.7
%
6,918
9.8
%
6.76
%
2019
17.3
%
40,743
14.8
%
10,157
14.7
%
4.72
%
17.8
%
48,304
17.2
%
12,001
17.0
%
4.61
%
2020
6.5
%
100,435
36.4
%
24,460
35.3
%
0.91
%
5.5
%
106,187
37.8
%
25,795
36.6
%
0.76
%
2021
0.0
%
26,884
9.7
%
6,567
9.5
%
0.03
%
Total
100.0
%
$
276,179
100.0
%
$
69,234
100.0
%
3.86
%
100.0
%
$
280,579
100.0
%
$
70,522
100.0
%
4.19
%
(1) Total reserves for losses and loss adjustment expenses, net of recoverables, was $700.2 million at March 31, 2021, compared to $649.7 million at December 31, 2020.
(2) The aggregate dollar amount of each insured mortgage loan’s current principal balance.
(3) The aggregate dollar amount of each insured mortgage loan’s current principal balance multiplied by the insurance coverage percentage specified in the policy for insurance policies issued and after contract limits and/or loss ratio caps for risk-sharing transactions.
19
Arch Capital Group Ltd. and Subsidiaries
Segment Information - Consolidated Excluding the 'Other' Segment (Sub-Total (Core))
(U.S. Dollars in thousands)
Three Months Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Gross premiums written
$
3,277,293
$
2,170,831
$
2,556,914
$
2,206,410
$
2,698,537
Premiums ceded
(948,147)
(510,533)
(830,086)
(643,955)
(747,991)
Net premiums written
2,329,146
1,660,298
1,726,828
1,562,455
1,950,546
Change in unearned premiums
(528,455)
8,001
(101,767)
(28,636)
(346,141)
Net premiums earned
1,800,691
1,668,299
1,625,061
1,533,819
1,604,405
Other underwriting income (loss)
5,699
7,354
4,867
5,799
6,719
Losses and loss adjustment expenses
(1,084,306)
(1,018,178)
(1,100,460)
(1,125,736)
(1,004,743)
Acquisition expenses
(276,329)
(225,523)
(223,524)
(232,245)
(225,479)
Other operating expenses
(246,758)
(202,410)
(201,067)
(195,047)
(220,842)
Underwriting income (loss)
$
198,997
$
229,542
$
104,877
$
(13,410)
$
160,060
Underwriting Ratios
Loss ratio
60.2
%
61.0
%
67.7
%
73.4
%
62.6
%
Acquisition expense ratio
15.3
%
13.5
%
13.8
%
15.1
%
14.1
%
Other operating expense ratio
13.7
%
12.1
%
12.4
%
12.7
%
13.8
%
Combined ratio
89.2
%
86.6
%
93.9
%
101.2
%
90.5
%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and reinstatement premiums
10.5
%
9.4
%
12.5
%
13.5
%
7.4
%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments
(2.3)
%
(3.0)
%
(2.9)
%
(2.0)
%
(1.1)
%
Combined ratio excluding catastrophic activity and prior year development (1)
81.0
%
80.2
%
84.3
%
89.7
%
84.2
%
Components of losses and loss adjustment expenses incurred (1)
Paid losses and loss adjustment expenses
$
572,589
$
652,077
$
618,638
$
550,481
$
530,012
Change in unpaid losses and loss adjustment expenses
511,717
366,101
481,822
575,255
474,731
Total losses and loss adjustment expenses
$
1,084,306
$
1,018,178
$
1,100,460
$
1,125,736
$
1,004,743
Net premiums written to gross premiums written
71.1
%
76.5
%
67.5
%
70.8
%
72.3
%
(1)See ‘Comments on Regulation G’ for further discussion.
20
Arch Capital Group Ltd. and Subsidiaries
Segment Information — Selected Information on Losses and Loss Adjustment Expenses
(U.S. Dollars in thousands)
Three Months Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments (1)
Net impact on underwriting results:
Insurance
$
(5,474)
$
(1,158)
$
(1,136)
$
(2,148)
$
(776)
Reinsurance
(24,765)
(40,472)
(40,766)
(28,933)
(10,960)
Mortgage
(11,492)
(8,151)
(4,523)
(306)
(6,101)
Total
$
(41,731)
$
(49,781)
$
(46,425)
$
(31,387)
$
(17,837)
Impact on losses and loss adjustment expenses:
Insurance
$
(4,057)
$
(1,906)
$
(2,282)
$
(2,518)
$
(1,115)
Reinsurance
(26,809)
(40,156)
(41,960)
(40,211)
(11,627)
Mortgage
(10,913)
(8,151)
(4,523)
(208)
(6,101)
Total
$
(41,779)
$
(50,213)
$
(48,765)
$
(42,937)
$
(18,843)
Impact on acquisition expenses:
Insurance
$
(1,417)
$
748
$
1,146
$
370
$
339
Reinsurance
2,044
(316)
1,194
11,278
667
Mortgage
(579)
—
—
(98)
—
Total
$
48
$
432
$
2,340
$
11,550
$
1,006
Impact on combined ratio:
Insurance
(0.7)
%
(0.2)
%
(0.2)
%
(0.3)
%
(0.1)
%
Reinsurance
(3.8)
%
(6.9)
%
(7.4)
%
(6.0)
%
(2.0)
%
Mortgage
(3.4)
%
(2.4)
%
(1.3)
%
(0.1)
%
(1.8)
%
Total
(2.3)
%
(3.0)
%
(2.9)
%
(2.0)
%
(1.1)
%
Impact on loss ratio:
Insurance
(0.5)
%
(0.3)
%
(0.3)
%
(0.4)
%
(0.2)
%
Reinsurance
(4.2)
%
(6.9)
%
(7.6)
%
(8.4)
%
(2.1)
%
Mortgage
(3.2)
%
(2.4)
%
(1.3)
%
(0.1)
%
(1.8)
%
Total
(2.3)
%
(3.0)
%
(3.0)
%
(2.8)
%
(1.2)
%
Impact on acquisition expense ratio:
Insurance
(0.2)
%
0.1
%
0.1
%
0.1
%
0.1
%
Reinsurance
0.4
%
0.0
%
0.2
%
2.4
%
0.1
%
Mortgage
(0.2)
%
0.0
%
0.0
%
0.0
%
0.0
%
Total
0.0
%
0.0
%
0.1
%
0.8
%
0.1
%
Estimated net losses incurred from current accident year catastrophic events (2)
Insurance
$
41,876
$
62,398
$
74,365
$
85,929
$
49,483
Reinsurance
146,379
93,959
128,939
121,263
68,953
Total
$
188,255
$
156,357
$
203,304
$
207,192
$
118,436
Impact on combined ratio:
Insurance
5.1
%
8.3
%
10.3
%
12.5
%
6.9
%
Reinsurance
22.7
%
16.1
%
23.3
%
25.3
%
12.7
%
Total
10.5
%
9.4
%
12.5
%
13.5
%
7.4
%
Estimated impact of COVID-19 event, net of reinsurance and reinstatement premiums, included in current accident year catastrophic events (3)
Insurance
$
572
$
(75)
$
3,442
$
78,059
$
35,946
Reinsurance
15
$
446
8,449
95,039
50,700
Total
$
587
$
371
$
11,891
$
173,098
$
86,646
Impact on combined ratio:
Insurance
0.1
%
0.0
%
0.5
%
11.3
%
5.0
%
Reinsurance
0.0
%
0.1
%
1.5
%
19.8
%
9.3
%
Total
0.0
%
0.0
%
0.7
%
11.3
%
5.4
%
(1)Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2)Equals estimated losses from catastrophic events occurring in the current accident year (e.g. natural catastrophes, man-made events, pandemic events), net of reinsurance and reinstatement premiums. As regards the natural catastrophe estimates included within, amounts shown for the insurance segment are for named catastrophic events only, while amounts shown for the reinsurance segment include (i) named events with over $5 million of losses incurred by its Bermuda and Europe operations and (ii) all catastrophe losses incurred by its U.S. operations. Amounts not applicable for the mortgage segment.
(3)Equals estimated losses for exposures through March 31, 2021 to the COVID-19 global pandemic, net of reinsurance and reinstatement premiums. The amounts represent a subset of the estimated losses for the current accident year catastrophic events.
21
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Investable Asset Summary and Investment Portfolio Metrics
The following table summarizes the Company’s investable assets and portfolio metrics (1):
(U.S. Dollars in thousands)
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Investable assets (1) (2):
Fixed maturities available for sale, at fair value
$
18,136,604
68.9
%
$
18,104,322
67.4
%
$
17,844,866
69.4
%
$
16,557,966
67.5
%
$
16,163,702
72.2
%
Fixed maturities—fair value option (3)
360,616
1.4
%
388,191
1.4
%
386,865
1.5
%
375,793
1.5
%
342,241
1.5
%
Fixed maturities pledged under securities lending agreements, at fair value
130,152
0.5
%
278,783
1.0
%
62,749
0.2
%
457,906
1.9
%
177,442
0.8
%
Total fixed maturities
18,627,372
70.7
%
18,771,296
69.9
%
18,294,480
71.1
%
17,391,665
70.9
%
16,683,385
74.6
%
Equity securities, at fair value
1,470,592
5.6
%
1,392,420
5.2
%
1,449,208
5.6
%
1,194,874
4.9
%
1,118,734
5.0
%
Equity securities—fair value option (3)
25,640
0.1
%
27,555
0.1
%
30,494
0.1
%
31,197
0.1
%
29,905
0.1
%
Equity securities pledged under securities lending agreements, at fair value
10,797
0.0
%
16,129
0.1
%
—
0.0
%
6,597
0.0
%
—
0.0
%
Total equity securities
1,507,029
5.7
%
1,436,104
5.3
%
1,479,702
5.8
%
1,232,668
5.0
%
1,148,639
5.1
%
Other investments—fair value option (3)
1,527,999
5.8
%
1,480,347
5.5
%
1,276,867
5.0
%
1,212,788
4.9
%
1,153,737
5.2
%
Other investable assets (3)
500,000
1.9
%
500,000
1.9
%
—
0.0
%
—
0.0
%
—
0.0
%
Total other investments
2,027,999
7.7
%
1,980,347
7.4
%
1,276,867
5.0
%
1,212,788
4.9
%
1,153,737
5.2
%
Investments accounted for using the equity method (4)
2,256,327
8.6
%
2,047,889
7.6
%
1,883,702
7.3
%
1,727,302
7.0
%
1,676,055
7.5
%
Short-term investments available for sale, at fair value
1,269,631
4.8
%
1,924,922
7.2
%
2,039,097
7.9
%
2,277,866
9.3
%
944,531
4.2
%
Short-term investments—fair value option (3)
140,329
0.5
%
138,318
0.5
%
118,313
0.5
%
14,317
0.1
%
52,548
0.2
%
Total short-term investments
1,409,960
5.4
%
2,063,240
7.7
%
2,157,410
8.4
%
2,292,183
9.3
%
997,079
4.5
%
Cash
705,787
2.7
%
694,997
2.6
%
781,065
3.0
%
746,606
3.0
%
785,704
3.5
%
Securities transactions entered into but not settled at the balance sheet date
(195,875)
(0.7)
%
(137,578)
(0.5)
%
(148,725)
(0.6)
%
(72,018)
(0.3)
%
(68,747)
(0.3)
%
Total investable assets held by the Company
$
26,338,599
100.0
%
$
26,856,295
100.0
%
$
25,724,501
100.0
%
$
24,531,194
100.0
%
$
22,375,852
100.0
%
Average effective duration (in years)
2.71
3.01
3.21
3.18
3.19
Average S&P/Moody’s credit ratings (5)
AA-/Aa3
AA/Aa2
AA/Aa2
AA/Aa2
AA/Aa2
Embedded book yield (before investment expenses)
1.59
%
1.56
%
1.71
%
1.85
%
2.34
%
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. Such amounts are summarized as follows:
Investable assets in ‘other’ segment:
Cash
$
236,164
$
211,451
$
195,333
$
107,653
$
96,580
Investments accounted for using the fair value option
1,880,770
1,790,385
1,937,036
1,886,676
1,732,086
Fixed maturities available for sale, at fair value
586,431
613,503
608,022
649,765
677,869
Equity securities, at fair value
62,314
52,410
52,807
62,443
63,169
Securities sold but not yet purchased
(34,097)
(21,679)
(24,909)
(29,289)
(30,076)
Securities transactions entered into but not settled at the balance sheet date
8,846
11,542
(74,837)
(35,958)
(37,039)
Total investable assets included in ‘other’ segment
$
2,740,428
$
2,657,612
$
2,693,452
$
2,641,290
$
2,502,589
(2) This table excludes the collateral received and reinvested and includes the securities pledged under securities lending agreements, at fair value.
(3) Included in “other investments” on the balance sheet.
(4) Changes in the carrying value of investment funds accounted for using the equity method are recorded as “equity in net income (loss) of investment funds accounted for using the equity method” rather than as an unrealized gain or loss component of accumulated other comprehensive income.
(5) Average credit ratings on the Company’s investment portfolio on securities with ratings assigned by Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”).
22
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
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Composition of net investment income (1):
Fixed maturities
$
79,017
$
80,942
$
84,608
$
91,491
$
101,763
Equity securities (dividends)
5,650
9,695
6,659
6,023
5,630
Short-term investments
644
1,129
1,162
897
3,385
Other (2)
15,559
15,053
24,594
17,825
20,479
Gross investment income
100,870
106,819
117,023
116,236
131,257
Investment expenses
(22,141)
(18,827)
(17,166)
(15,205)
(18,229)
Net investment income
$
78,729
$
87,992
$
99,857
$
101,031
$
113,028
Per share
$
0.19
$
0.21
$
0.24
$
0.25
$
0.27
Investment income yield, at amortized cost (1) (3):
Pre-tax
1.31
%
1.45
%
1.76
%
1.92
%
2.20
%
After-tax
1.14
%
1.26
%
1.57
%
1.68
%
1.91
%
Total return on investments (1) (4)
(0.18)
%
2.46
%
2.30
%
3.72
%
(0.86)
%
(1)Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2)Amounts include dividends and other distributions on investment funds, term loan investments funds held balances, cash balances and other.
(3)Presented on an annualized basis and excluding the impact of investments for which returns are not included within investment income, such as investments accounted for using the equity method and certain equities.
(4)Total return on investments includes net investment income, equity in net income or loss of investment funds accounted for using the equity method, net realized gains and losses (excluding changes in allowance for credit loses on non-investment related financial assets) and the change in unrealized gains or losses and is calculated on a pre-tax basis and before investment expenses. See ‘Comments on Regulation G’ for a further discussion of the presentation of total return on investments.
23
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Composition of Fixed Maturities
The following table summarizes the Company’s fixed maturities and fixed maturities pledged under securities lending agreements (1):
(U.S. Dollars in thousands)
Fair Value
Gross Unrealized Gains
Gross Unrealized Losses
Net Unrealized Gains (Losses)
Allowance for Credit Losses
Amortized Cost
Fair Value / Amortized Cost
Fair Value % of Total
At March 31, 2021
Corporates
$
8,233,771
$
238,003
$
(80,196)
$
157,807
$
(1,968)
$
8,077,932
101.9
%
44.2
%
U.S. government and government agencies
4,876,796
14,346
(30,300)
(15,954)
—
4,892,750
99.7
%
26.2
%
Municipal bonds
455,550
19,849
(4,814)
15,035
(2)
440,517
103.4
%
2.4
%
Non-U.S. government securities
2,287,921
118,874
(18,392)
100,482
(51)
2,187,490
104.6
%
12.3
%
Asset-backed securities
1,958,152
18,038
(4,099)
13,939
(878)
1,945,091
100.7
%
10.5
%
Commercial mortgage-backed securities
256,598
2,755
(1,721)
1,034
(5)
255,569
100.4
%
1.4
%
Residential mortgage-backed securities
558,584
7,065
(10,905)
(3,840)
(319)
562,743
99.3
%
3.0
%
Total
$
18,627,372
$
418,930
$
(150,427)
$
268,503
$
(3,223)
$
18,362,092
101.4
%
100.0
%
At December 31, 2020
Corporates
$
8,039,745
$
405,071
$
(30,666)
$
374,405
$
(700)
$
7,666,040
104.9
%
42.8
%
U.S. government and government agencies
5,354,863
21,490
(12,587)
8,903
—
5,345,960
100.2
%
28.5
%
Municipal bonds
492,734
27,189
(3,835)
23,354
(11)
469,391
105.0
%
2.6
%
Non-U.S. government securities
2,310,157
143,054
(7,958)
135,096
—
2,175,061
106.2
%
12.3
%
Asset-backed securities
1,566,188
18,689
(7,635)
11,054
(1,090)
1,556,224
100.6
%
8.3
%
Commercial mortgage-backed securities
390,990
8,722
(2,954)
5,768
(122)
385,344
101.5
%
2.1
%
Residential mortgage-backed securities
616,619
8,934
(4,280)
4,654
(278)
612,243
100.7
%
3.3
%
Total
$
18,771,296
$
633,149
$
(69,915)
$
563,234
$
(2,201)
$
18,210,263
103.1
%
100.0
%
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
24
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Credit Quality Distribution and Maturity Profile
The following table summarizes the credit quality distribution and maturity profile of the Company’s fixed maturities and fixed maturities pledged under securities lending agreements (1):
(U.S. Dollars in thousands)
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Credit quality distribution of total fixed maturities (2) (3):
U.S. government and government agencies (4)
$
5,432,191
29.2
%
$
5,963,758
31.8
%
$
5,360,798
29.3
%
$
5,566,339
32.0
%
$
4,804,048
28.8
%
AAA
3,145,642
16.9
%
3,117,046
16.6
%
3,352,902
18.3
%
3,035,513
17.5
%
3,486,700
20.9
%
AA
2,069,764
11.1
%
2,063,738
11.0
%
2,087,245
11.4
%
1,818,693
10.5
%
1,994,127
12.0
%
A
3,878,113
20.8
%
3,760,280
20.0
%
3,895,053
21.3
%
4,232,245
24.3
%
3,937,053
23.6
%
BBB
2,829,202
15.2
%
2,699,201
14.4
%
2,542,233
13.9
%
1,874,332
10.8
%
1,565,912
9.4
%
BB
622,448
3.3
%
574,189
3.1
%
504,570
2.8
%
406,342
2.3
%
366,759
2.2
%
B
331,144
1.8
%
268,095
1.4
%
231,774
1.3
%
211,638
1.2
%
205,181
1.2
%
Lower than B
57,659
0.3
%
54,795
0.3
%
54,118
0.3
%
51,273
0.3
%
51,712
0.3
%
Not rated
261,209
1.4
%
270,194
1.4
%
265,787
1.5
%
195,290
1.1
%
271,893
1.6
%
Total fixed maturities, at fair value
$
18,627,372
100.0
%
$
18,771,296
100.0
%
$
18,294,480
100.0
%
$
17,391,665
100.0
%
$
16,683,385
100.0
%
Maturity profile of total fixed maturities (2):
Due in one year or less
$
376,026
2.0
%
$
327,899
1.7
%
$
314,243
1.7
%
$
350,520
2.0
%
$
459,191
2.8
%
Due after one year through five years
10,913,524
58.6
%
10,424,114
55.5
%
9,744,246
53.3
%
9,730,262
55.9
%
9,381,924
56.2
%
Due after five years through ten years
4,054,083
21.8
%
4,901,382
26.1
%
4,861,677
26.6
%
4,342,055
25.0
%
3,416,637
20.5
%
Due after 10 years
510,405
2.7
%
544,104
2.9
%
602,120
3.3
%
467,099
2.7
%
555,462
3.3
%
15,854,038
85.1
%
16,197,499
86.3
%
15,522,286
84.8
%
14,889,936
85.6
%
13,813,214
82.8
%
Mortgage-backed securities
558,584
3.0
%
616,619
3.3
%
703,393
3.8
%
593,799
3.4
%
449,024
2.7
%
Commercial mortgage-backed securities
256,598
1.4
%
390,990
2.1
%
375,510
2.1
%
396,813
2.3
%
781,417
4.7
%
Asset-backed securities
1,958,152
10.5
%
1,566,188
8.3
%
1,693,291
9.3
%
1,511,117
8.7
%
1,639,730
9.8
%
Total fixed maturities, at fair value
$
18,627,372
100.0
%
$
18,771,296
100.0
%
$
18,294,480
100.0
%
$
17,391,665
100.0
%
$
16,683,385
100.0
%
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2) This table excludes the collateral received and reinvested and includes the fixed maturities pledged under securities lending agreements, at fair value.
(3) For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.
(4) Includes U.S. government-sponsored agency mortgage backed securities and agency commercial mortgage backed securities.
25
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Analysis of Corporate Exposures
The following table summarizes the Company’s corporate bonds by sector (1):
(U.S. Dollars in thousands)
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Sector:
Industrials
$
4,744,615
57.6
%
$
4,940,996
61.5
%
$
5,303,089
65.2
%
$
4,650,615
63.6
%
$
3,903,927
58.5
%
Financials
2,868,957
34.8
%
2,432,719
30.3
%
2,156,871
26.5
%
2,164,859
29.6
%
2,400,415
35.9
%
Utilities
521,551
6.3
%
584,869
7.3
%
562,939
6.9
%
409,778
5.6
%
321,022
4.8
%
Covered bonds
2,029
0.0
%
2,013
0.0
%
2,072
0.0
%
1,974
0.0
%
2,662
0.0
%
All other (2)
96,619
1.2
%
79,148
1.0
%
112,611
1.4
%
82,190
1.1
%
49,981
0.7
%
Total
$
8,233,771
100.0
%
$
8,039,745
100.0
%
$
8,137,582
100.0
%
$
7,309,416
100.0
%
$
6,678,007
100.0
%
Credit quality distribution (3):
AAA
$
151,195
1.8
%
$
220,584
2.7
%
$
291,154
3.6
%
$
76,923
1.1
%
$
86,420
1.3
%
AA
961,880
11.7
%
995,742
12.4
%
1,068,945
13.1
%
894,495
12.2
%
982,202
14.7
%
A
3,431,522
41.7
%
3,313,349
41.2
%
3,478,591
42.7
%
3,834,480
52.5
%
3,480,871
52.1
%
BBB
2,684,300
32.6
%
2,574,823
32.0
%
2,427,829
29.8
%
1,773,620
24.3
%
1,451,807
21.7
%
BB
582,086
7.1
%
540,397
6.7
%
478,445
5.9
%
388,112
5.3
%
348,848
5.2
%
B
312,362
3.8
%
258,035
3.2
%
224,644
2.8
%
205,342
2.8
%
198,828
3.0
%
Lower than B
33,667
0.4
%
30,625
0.4
%
30,423
0.4
%
27,865
0.4
%
22,869
0.3
%
Not rated
76,759
0.9
%
106,190
1.3
%
137,551
1.7
%
108,579
1.5
%
106,162
1.6
%
Total
$
8,233,771
100.0
%
$
8,039,745
100.0
%
$
8,137,582
100.0
%
$
7,309,416
100.0
%
$
6,678,007
100.0
%
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2) Includes sovereign securities, supranational securities and other.
(3) For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.
The following table summarizes the Company’s top ten exposures to fixed income corporate issuers by fair value at March 31, 2021 (1):
(U.S. Dollars in thousands)
Fair Value
% of Asset Class
% of Investable Assets
Credit Quality (2)
Issuer:
JPMorgan Chase & Co.
$
389,799
4.7
%
1.5
%
A-/A2
Bank of America Corporation
312,603
3.8
%
1.2
%
A-/A2
Wells Fargo & Company
237,410
2.9
%
0.9
%
BBB+/A2
Citigroup Inc.
231,573
2.8
%
0.9
%
BBB+/A3
Morgan Stanley
214,190
2.6
%
0.8
%
BBB+/A1
The Goldman Sachs Group, Inc.
174,407
2.1
%
0.7
%
BBB+/A2
Nestlé S.A.
158,152
1.9
%
0.6
%
AA-/Aa3
Apple Inc.
131,135
1.6
%
0.5
%
AA+/Aa1
Chevron Corporation
110,767
1.3
%
0.4
%
AA-/Aa2
AT&T Inc.
103,918
1.3
%
0.4
%
BBB/Baa2
Total
$
2,063,954
25.1
%
7.8
%
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2) Average credit ratings assigned by S&P and Moody’s, respectively.
26
Arch Capital Group Ltd. and Subsidiaries
Investment Information — Structured Securities
The following table provides the composition of the Company’s structured securities at March 31, 2021 (1):
(U.S. Dollars in thousands)
Agencies
AAA
AA
A
BBB
Non-Investment Grade
Total
Residential mortgage-backed securities
$
525,144
$
1,262
$
310
$
—
$
55
$
31,813
$
558,584
Commercial mortgage-backed securities
30,251
172,991
5,098
13,741
9,302
25,215
256,598
Asset-backed securities
—
1,241,394
141,043
301,948
80,689
193,078
1,958,152
Total
$
555,395
$
1,415,647
$
146,451
$
315,689
$
90,046
$
250,106
$
2,773,334
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
27
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, and transaction costs and other, 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 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 and transaction costs and other 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 and Watford’s non-recurring listing expenses. 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. Due to these reasons, the Company excludes net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other from the calculation of after-tax operating income or loss available to Arch common shareholders.
The Company believes that showing net income available to Arch common shareholders exclusive of the items referred to above reflects the underlying fundamentals of the Company’s business since the Company evaluates the performance of and manages its business to produce an underwriting profit. In addition to presenting net income available to Arch common shareholders, the Company believes that this presentation enables investors and other users of the Company’s financial information to analyze the Company’s performance in a manner similar to how the Company’s management analyzes performance. The Company also believes that this measure follows industry practice and, therefore, allows the users of the Company’s financial information to compare the Company’s performance with its industry peer group. The Company believes that the equity analysts and certain rating agencies which follow the Company and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.
In addition, the Company’s presentation includes the use of information prepared on a ‘core’ basis, which excludes amounts related to the ‘other’ segment (i.e., results of Watford). Information provided on a ‘core’ basis are non-GAAP financial measures as defined in Regulation G. Pursuant to generally accepted accounting principles, Watford is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford. As such, the Company consolidates the results of Watford in its consolidated financial statements, although it only owns approximately 10% of Watford’s outstanding common equity. Watford has its own management and board of directors that is responsible for its own results and profitability. In addition, the Company does not guarantee or provide credit support for Watford. Because Watford is an independent company, the assets of Watford can be used only to settle obligations of Watford and Watford is solely responsible for its own liabilities and commitments. The Company’s financial exposure to Watford is limited to its investment in Watford’s senior notes, common and preferred shares and counterparty credit risk (mitigated by collateral) arising from the reinsurance transactions. The Company believes that presenting information on a ‘core’ basis 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. See ‘Segment Information’ for a further discussion of segment results and a reconciliation of core and consolidated results.
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. Such measures represent the pre-tax profitability of the Company’s underwriting operations and include net premiums earned plus other underwriting income, less losses and loss adjustment expenses, acquisition expenses and other operating expenses. Other operating expenses include those operating expenses that are incremental and/or directly attributable to the Company’s individual underwriting operations. Underwriting income or loss does not incorporate items included in the Company’s corporate (non-underwriting) segment. While these measures are presented in the Segment Information footnote to the Company’s Consolidated Financial Statements, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis. The reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis and a ‘core’ basis, in accordance with Regulation G, is shown on pages 10 to 11.
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.
28
Arch Capital Group Ltd. and Subsidiaries
Operating Income Reconciliation and Annualized Operating Return on Average Common Equity
The following table summarizes the Company’s consolidated financial data, including a reconciliation of net income (loss) available to Arch common shareholders to after-tax operating income (loss) available to Arch common shareholders and related diluted per share results. Each line item reflects the impact of the Company’s ownership of Watford’s outstanding common equity:
(U.S. Dollars in thousands, except share data)
Three Months Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Net income available to Arch common shareholders
$
427,753
$
533,141
$
408,636
$
288,418
$
133,714
Net realized (gains) losses
(105,551)
(297,801)
(219,726)
(406,645)
109,364
Equity in net (income) loss of investment funds accounted for using the equity method
(71,686)
(89,286)
(126,735)
65,119
4,209
Net foreign exchange (gains) losses
(21,332)
63,588
39,462
42,032
(64,491)
Transaction costs and other
1,274
4,718
1,674
977
2,595
Income tax expense (benefit) (1)
9,311
16,057
17,010
26,713
4,365
After-tax operating income available to Arch common shareholders
$
239,769
$
230,417
$
120,321
$
16,614
$
189,756
Diluted per common share results:
Net income available to Arch common shareholders
$
1.05
$
1.30
$
1.00
$
0.71
$
0.32
Net realized (gains) losses
(0.25)
(0.72)
(0.54)
(1.00)
0.27
Equity in net (income) loss of investment funds accounted for using the equity method
(0.18)
(0.22)
(0.31)
0.16
0.01
Net foreign exchange (gains) losses
(0.05)
0.15
0.10
0.10
(0.16)
Transaction costs and other
0.00
0.01
0.00
0.00
0.01
Income tax expense (benefit) (1)
0.02
0.04
0.04
0.07
0.01
After-tax operating income available to Arch common shareholders
$
0.59
$
0.56
$
0.29
$
0.04
$
0.46
Weighted average common shares and common share equivalents outstanding - diluted
409,223,253
410,281,852
409,194,657
408,119,681
414,033,570
Beginning common shareholders’ equity
$
12,325,886
$
11,671,997
$
11,211,825
$
10,587,244
$
10,717,371
Ending common shareholders’ equity
12,316,472
12,325,886
11,671,997
11,211,825
10,587,244
Average common shareholders’ equity
$
12,321,179
$
11,998,942
$
11,441,911
$
10,899,535
$
10,652,308
Annualized return on average common equity
13.9
%
17.8
%
14.3
%
10.6
%
5.0
%
Annualized operating return on average common equity
7.8
%
7.7
%
4.2
%
0.6
%
7.1
%
(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.
29
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
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Arch Operating Income Components (1):
Income (loss) before income taxes and income (loss) from operating affiliates
$
397,244
$
560,146
$
432,896
$
305,647
$
197,437
Net realized (gains) losses
(101,336)
(289,817)
(210,984)
(385,089)
72,109
Equity in net (income) loss of investment funds accounted for using the equity method
(71,686)
(89,286)
(126,735)
65,119
4,209
Net foreign exchange (gains) losses
(21,505)
62,349
38,681
42,438
(63,307)
Transaction costs and other
1,390
3,086
792
43
2,538
Income (loss) from operating affiliates
75,457
10,504
919
(3,173)
8,516
Pre-tax operating income
279,564
256,982
135,569
24,985
221,502
Arch share of ‘other’ segment operating income (loss) (2)
198
1,526
1,792
1,798
2,237
Pre-tax operating income available to Arch (b)
279,762
258,508
137,361
26,783
223,739
Income tax expense (a)
(29,590)
(17,688)
(6,637)
234
(23,580)
After-tax operating income available to Arch
250,172
240,820
130,724
27,017
200,159
Preferred dividends
(10,403)
(10,403)
(10,403)
(10,403)
(10,403)
After-tax operating income available to Arch common shareholders
$
239,769
$
230,417
$
120,321
$
16,614
$
189,756
Effective tax rate on pre-tax operating income (loss) available to Arch (a)/(b)
10.6
%
6.8
%
4.8
%
(0.9)
%
10.5
%
(1) Line items are presented on a ‘core’ basis, excluding amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2) Balances in the ‘other’ segment and a calculation of Arch’s share of the ‘other’ segment operating income (loss) is as follows:
(U.S. Dollars in thousands)
Three Months Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Balances in ‘other’ segment:
Underwriting income (loss)
$
(13,079)
$
(8,555)
$
(8,273)
$
(9,129)
$
(6,010)
Net investment income
20,127
26,466
28,655
30,454
32,125
Interest expense
(4,149)
(4,804)
(5,119)
(6,009)
(7,310)
Preferred dividends
(972)
(992)
(993)
(1,036)
(1,096)
Pre-tax operating income (loss) available to common shareholders
1,927
12,115
14,270
14,280
17,709
Arch ownership
10
%
13
%
13
%
13
%
13
%
Arch share of ‘Other’ segment operating income (loss) (3)
$
198
$
1,526
$
1,792
$
1,798
$
2,237
(3) Excludes amounts attributable to net realized gains or losses and net foreign exchange gains or losses in the ‘other’ segment (see ‘Segment Information’).
30
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)
March 31,
December 31,
September 30,
June 30,
March 31,
2021
2020
2020
2020
2020
Debt:
Arch Capital senior notes, due May 1, 2034 ($300,000 principal, 7.35%)
Arch Finance senior notes, due December 15, 2026 ($500,000 principal, 4.011%) (3)
500,000
500,000
500,000
500,000
500,000
Arch Finance senior notes, due December 15, 2046 ($450,000 principal, 5.031%) (3)
450,000
450,000
450,000
450,000
450,000
Arch Capital senior notes, due June 30, 2050 ($1,000,000 principal, 3.635%)
1,000,000
1,000,000
1,000,000
1,000,000
—
Deferred debt costs on senior notes
(26,340)
(26,577)
(26,811)
(26,820)
(15,616)
Revolving credit agreement borrowings, due October 26, 2021 (variable)
—
—
—
—
—
Total debt
$
2,723,660
$
2,723,423
$
2,723,189
$
2,723,180
$
1,734,384
Shareholders’ equity available to Arch:
Series E non-cumulative preferred shares (5.25%)
450,000
450,000
450,000
450,000
450,000
Series F non-cumulative preferred shares (5.45%)
330,000
330,000
330,000
330,000
330,000
Common shareholders’ equity (a)
12,316,472
12,325,886
11,671,997
11,211,825
10,587,244
Total shareholders’ equity available to Arch
$
13,096,472
$
13,105,886
$
12,451,997
$
11,991,825
$
11,367,244
Total capital available to Arch
$
15,820,132
$
15,829,309
$
15,175,186
$
14,715,005
$
13,101,628
Common shares outstanding, net of treasury shares (b)
403,313,377
406,720,642
406,018,958
405,970,251
405,609,867
Book value per common share (4) (a)/(b)
$
30.54
$
30.31
$
28.75
$
27.62
$
26.10
Leverage ratios:
Senior notes/total capital available to Arch
17.2
%
17.2
%
17.9
%
18.5
%
13.2
%
Revolving credit agreement borrowings/total capital available to Arch
—
%
—
%
—
%
—
%
—
%
Debt/total capital available to Arch
17.2
%
17.2
%
17.9
%
18.5
%
13.2
%
Preferred/total capital available to Arch
4.9
%
4.9
%
5.1
%
5.3
%
6.0
%
Debt and preferred/total capital available to Arch
22.1
%
22.1
%
23.1
%
23.8
%
19.2
%
(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.
(2) Issued by Arch Capital Group (U.S.) Inc. (“Arch-U.S.”), a wholly owned subsidiary of Arch Capital, and fully and unconditionally guaranteed by Arch Capital.
(3) Issued by Arch Capital Finance LLC (“Arch Finance”), a wholly owned subsidiary of Arch U.S. MI Holdings Inc., and fully and unconditionally guaranteed by Arch Capital.
(4) Excludes the effects of stock options, restricted and performance stock units outstanding.
The following table provides the impact of share repurchases under the Company’s share repurchase program:
(U.S. Dollars in thousands except share data)
Three Months Ended
Cumulative
March 31,
December 31,
September 30,
June 30,
March 31,
March 31,
2021
2020
2020
2020
2020
2021
Effect of share repurchases:
Aggregate cost of shares repurchased
$
179,266
$
7,986
$
—
$
—
$
75,486
$
4,231,032
Shares repurchased
5,308,319
250,714
—
—
2,599,388
394,500,401
Average price per share repurchased
$
33.77
$
31.85
$
—
$
—
$
29.04
$
10.73
Remaining share repurchase authorization (1)
$
737,262
(1) Repurchases under the share repurchase authorization may be effected from time to time in open market or privately negotiated transactions through December 31, 2021.
