See Notes to Consolidated Financial Statements



ARCH CAPITAL	~~ACGL 2017~~6	2023 THIRD QUARTER FORM 10-Q	7

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(U.S. dollars in thousands)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Comprehensive Income

Net income (loss) $ (45,217 ) $ 303,620
$ 427,917
$ 728,604
Other comprehensive income (loss), net of deferred income tax
Unrealized appreciation (decline) in value of available-for-sale investments:
Unrealized holding gains (losses) arising during period 66,462
16,281
260,223
251,722
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax —
—
—
(150 )
Reclassification of net realized (gains) losses, net of income taxes, included in net income (loss) (23,912 ) (54,992 ) (46,180 ) (109,309 )
Foreign currency translation adjustments 8,280
(5,312 ) 29,701
(6,150 )
Comprehensive income 5,613
259,597
671,661
864,717
Net (income) loss attributable to noncontrolling interests 11,561
(50,748 ) (23,279 ) (109,879 )
Foreign currency translation adjustments attributable to noncontrolling interests 411
(59 ) 479
141
Comprehensive income available to Arch $ 17,585
$ 208,790
$ 648,861
$ 754,979
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(U.S. dollars in millions)


	(Unaudited)				(Unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Comprehensive Income
Net income (loss)	$	723	$	18	$	2,109	$	620
Other comprehensive income (loss), net of deferred income tax
Unrealized appreciation (decline) in value of available-for-sale investments:
Unrealized holding gains (losses) arising during period	(190)		(610)		(118)		(1,892)

Reclassification of net realized (gains) losses, included in net income (loss)	96		46		344		206
Foreign currency translation adjustments	(40)		(70)		(33)		(141)
Comprehensive income (loss)	589		(616)		2,302		(1,207)
Net (income) loss attributable to noncontrolling interests	—		(1)		—		(3)

Comprehensive income (loss) available to Arch	$	589	$	(617)	$	2,302	$	(1,210)

See Notes to Consolidated Financial Statements



ARCH CAPITAL	~~ACGL 2017~~7	2023 THIRD QUARTER FORM 10-Q	8

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(U.S. dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
2017 2016
Non-cumulative preferred shares

Balance at beginning of year $ 772,555
$ 325,000
Preferred shares issued 230,000
450,000
Preferred shares redeemed (230,000 ) —
Balance at end of period 772,555
775,000

Convertible non-voting common equivalent preferred shares
Balance at beginning of year 1,101,304
—
Preferred shares converted to common shares (611,677 ) —
Balance at end of period 489,627
—

Common shares
Balance at beginning of year 582
577
Common shares issued, net 28
5
Balance at end of period 610
582

Additional paid-in capital

Balance at beginning of year 531,687
467,339
Preferred shares converted to common shares 611,653
—
Issue costs on preferred shares (7,946 ) (15,101 )
Reversal of original issue costs on redeemed preferred shares 6,735
—
All other 70,831
63,966
Balance at end of period 1,212,960
516,204

Retained earnings

Balance at beginning of year 7,996,701
7,332,032
Cumulative effect of an accounting change (314 ) —
Balance at beginning of year, as adjusted 7,996,387
7,332,032
Net income 427,917
728,604
Net (income) loss attributable to noncontrolling interests (23,279 ) (109,879 )
Preferred share dividends (34,936 ) (16,453 )
Loss on redemption of preferred shares (6,735 ) —
Balance at end of period 8,359,354
7,934,304

Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of year (114,541 ) (16,502 )
Unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax:
Balance at beginning of year (27,641 ) 50,085
Unrealized holding gains (losses) arising during period, net of reclassification adjustment 214,043
142,413
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax —
(150 )
Balance at end of period 186,402
192,348
Foreign currency translation adjustments:
Balance at beginning of year (86,900 ) (66,587 )
Foreign currency translation adjustments 29,701
(6,150 )
Foreign currency translation adjustments attributable to noncontrolling interests 479
141
Balance at end of period (56,720 ) (72,596 )
Balance at end of period 129,682
119,752

Common shares held in treasury, at cost
Balance at beginning of year (2,034,570 ) (1,941,904 )
Shares repurchased for treasury (19,074 ) (89,955 )
Balance at end of period (2,053,644 ) (2,031,859 )

Total shareholders’ equity available to Arch 8,911,144
7,313,983
Non-redeemable noncontrolling interests 860,898
834,808
Total shareholders’ equity $ 9,772,042
$ 8,148,791
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(U.S. dollars in millions)


	(Unaudited)				(Unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Non-cumulative preferred shares



Balance at beginning and end of period	$	830	$	830	$	830	$	830







Common shares


Balance at beginning and end of period	1		1		1		1

Additional paid-in capital
Balance at beginning of period	2,278		2,170		2,211		2,085



Amortization of share-based compensation	15		14		73		80



Other changes	4		3		13		22
Balance at end of period	2,297		2,187		2,297		2,187

Retained earnings
Balance at beginning of period	17,258		15,036		15,892		14,456


Net income (loss)	723		18		2,109		620
Net (income) loss attributable to noncontrolling interests	—		(1)		—		(3)
Preferred share dividends	(10)		(10)		(30)		(30)

Balance at end of period	17,971		15,043		17,971		15,043

Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of period	(1,319)		(1,258)		(1,646)		(65)
Unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax:
Balance at beginning of period	(1,192)		(1,109)		(1,512)		13


Unrealized holding gains (losses) during period, net of reclassification adjustment	(94)		(564)		226		(1,686)


Balance at end of period	(1,286)		(1,673)		(1,286)		(1,673)
Foreign currency translation adjustments, net of deferred income tax:
Balance at beginning of period	(127)		(149)		(134)		(78)
Foreign currency translation adjustments	(40)		(70)		(33)		(141)

Balance at end of period	(167)		(219)		(167)		(219)
Balance at end of period	(1,453)		(1,892)		(1,453)		(1,892)

Common shares held in treasury, at cost
Balance at beginning of period	(4,407)		(4,361)		(4,378)		(3,761)
Shares repurchased for treasury	—		(12)		(29)		(612)
Balance at end of period	(4,407)		(4,373)		(4,407)		(4,373)



Total shareholders’ equity	$	15,239	$	11,796	$	15,239	$	11,796

See Notes to Consolidated Financial Statements



ARCH CAPITAL	~~ACGL 2017~~8	2023 THIRD QUARTER FORM 10-Q	9

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
2017 2016
Operating Activities

Net income $ 427,917
$ 728,604
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses (141,944 ) (262,112 )
Net impairment losses recognized in earnings 5,415
16,849
Equity in net income or loss of investment funds accounted for using the equity method and other income or loss (63,784 ) 8,157
Amortization of intangible assets 93,942
14,493
Share-based compensation 58,308
46,311
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable 602,652
277,277
Unearned premiums, net of ceded unearned premiums 230,581
243,109
Premiums receivable (167,143 ) (198,909 )
Deferred acquisition costs (73,631 ) (40,906 )
Reinsurance balances payable 37,528
49,198
Other items, net 71,293
155,068
Net Cash Provided By Operating Activities 1,081,134
1,037,139
Investing Activities

Purchases of fixed maturity investments (28,079,129 ) (27,840,555 )
Purchases of equity securities (667,135 ) (377,767 )
Purchases of other investments (1,406,528 ) (1,008,774 )
Proceeds from sales of fixed maturity investments 27,629,474
26,731,924
Proceeds from sales of equity securities 751,873
464,904
Proceeds from sales, redemptions and maturities of other investments 938,581
879,330
Proceeds from redemptions and maturities of fixed maturity investments 747,621
540,823
Net settlements of derivative instruments (20,952 ) 23,396
Net (purchases) sales of short-term investments (964,653 ) (604,162 )
Change in cash collateral related to securities lending 148,692
(27,935 )
Acquisitions, net of cash (27,709 ) (20,911 )
Purchases of fixed assets (16,862 ) (11,565 )
Other 86,145
(3,816 )
Net Cash Provided By (Used For) Investing Activities (880,582 ) (1,255,108 )
Financing Activities

Proceeds from issuance of preferred shares, net 222,054
434,899
Redemption of preferred shares (230,000 ) —
Purchases of common shares under share repurchase program —
(75,256 )
Proceeds from common shares issued, net (7,484 ) (3,785 )
Proceeds from borrowings 238,915
46,000
Repayments of borrowings (172,000 ) (179,171 )
Change in cash collateral related to securities lending (148,692 ) 27,935
Dividends paid to redeemable noncontrolling interests (13,491 ) (13,491 )
Other (49,280 ) 33,113
Preferred dividends paid (34,936 ) (16,453 )
Net Cash Provided By (Used For) Financing Activities (194,914 ) 253,791

Effects of exchange rate changes on foreign currency cash 13,781
(10,332 )

Increase (decrease) in cash 19,419
25,490
Cash beginning of year 842,942
553,326
Cash end of period $ 862,361
$ 578,816

Income taxes paid $ 47,907
$ 40,742
Interest paid $ 64,613
$ 35,234
(U.S. dollars in millions)


	(Unaudited)
	Nine Months Ended
	September 30,
	2023		2022
Operating Activities
Net income (loss)	$	2,109	$	620
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net realized (gains) losses	367		742

Equity in net (income) or loss of investment funds accounted for using the equity method and other income or loss	(104)		107
Amortization of intangible assets	71		80
Share-based compensation	73		80
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	1,604		1,554
Unearned premiums, net of ceded unearned premiums	1,111		1,125
Premiums receivable	(1,333)		(1,096)
Deferred acquisition costs	(190)		(242)
Reinsurance balances payable	692		128
Other items, net	(316)		(264)
Net cash provided by operating activities	4,084		2,834
Investing Activities
Purchases of fixed maturity investments	(13,024)		(13,065)
Purchases of equity securities	(176)		(787)
Purchases of other investments	(1,112)		(1,270)
Proceeds from sales of fixed maturity investments	9,655		9,990
Proceeds from sales of equity securities	216		1,540
Proceeds from sales, redemptions and maturities of other investments	345		1,075
Proceeds from redemptions and maturities of fixed maturity investments	589		578
Net settlements of derivative instruments	(69)		(106)

Net (purchases) sales of short-term investments	(323)		(152)




Purchases of fixed assets	(37)		(37)
Other	—		128
Net cash used for investing activities	(3,936)		(2,106)
Financing Activities


Purchases of common shares under share repurchase program	—		(586)
Proceeds from common shares issued, net	5		(3)




Change in third party investment in redeemable noncontrolling interests	(22)		—

Other	(5)		(85)
Preferred dividends paid	(30)		(30)
Net cash used for financing activities	(52)		(704)

Effects of exchange rate changes on foreign currency cash and restricted cash	(14)		(80)

Increase (decrease) in cash and restricted cash	82		(56)
Cash and restricted cash, beginning of year	1,273		1,314
Cash and restricted cash, end of period	$	1,355	$	1,258

See Notes to Consolidated Financial Statements



ARCH CAPITAL	~~ACGL 2017~~9	2023 THIRD QUARTER FORM 10-Q	10

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ~~General~~Basis of Presentation and Recent Accounting Pronouncements

General

Arch Capital Group Ltd. (“~~ACGL”~~Arch Capital”) is a publicly listed Bermuda ~~public limited liability~~exempted company which provides insurance, reinsurance and mortgage insurance on a worldwide basis through its wholly-owned subsidiaries. As used herein, the “Company” means ~~ACGL~~Arch Capital and its subsidiaries. ~~The Company’s consolidated financial statements include the results~~

Basis of ~~Watford Holdings Ltd. and its wholly owned subsidiaries. See Note 3.~~

On December 31, 2016, the Company completed the acquisition of United Guaranty Corporation, a North Carolina corporation (“UGC”) pursuant to a stock purchase agreement with American International Group, Inc. (“AIG”). The acquisition of UGC (“UGC acquisition”) expanded the scale of Arch’s existing mortgage insurance businesses by combining UGC’s position as the market leader in the U.S. private mortgage insurance industry with Arch’s financial strength and history of innovation, further diversifying the Company’s business profile and customer base.Presentation

The interim consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany transactions and balances have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of results on an interim basis. The results of any interim period are not necessarily indicative of the results for a full year or any future periods.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted; however, management believes that the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2022 (“~~2016~~2022 Form 10-K”), including the Company’s audited consolidated financial statements and related notes.

The Company has reclassified the presentation of certain prior year information to conform to the current ~~presentation, including the presentation of ‘amortization of intangible assets’ on its consolidated statements of income to split out such item~~

~~(previously reflected in acquisition expenses and/or other operating expenses).~~presentation. Such reclassifications had no effect on the Company’s net income, comprehensive income, shareholders’ equity or cash flows. ~~Tabular~~All amounts are in ~~U.S. Dollars in thousands,~~millions, except per share amounts, unless otherwise noted.

2. Recent Accounting Pronouncements

Recently Issued Accounting Standards Adopted

~~The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2016-09, “Compensation - Stock Compensation (Topic 718) -~~ ~~Improvements to Employee Share-Based Payment Accounting,”~~ ~~effective January 1, 2017~~. ~~This ASU was issued in the 2016 first quarter to improve and simplify the~~For information regarding additional accounting for employee share-based payment transactions. This ASU provides simplifications with respect to income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows for these types of transactions. With respect to the forfeiture accounting policy election,standards that the Company has ~~elected to account for forfeitures as they occur, which did~~ not result in a material cumulative effect adjustment. With respect to the change in presentation in the statement of cash flows related to excess tax benefits, the Company has applied the guidance prospectively and prior periods have not been adjusted.

~~Recently Issued~~yet adopted, see note 3(t), “Significant Accounting ~~Standards Not Yet Adopted~~

~~ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),~~Policies—Recent Accounting Pronouncements,” was issued in the 2014 second quarter and updated through various ASUs in 2016. This ASU (and as updated in 2016) creates a new comprehensive revenue recognition standard that will serve as a single source of revenue guidance for all companies in all industries. The guidance applies to all companies that either enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of non-financial assets, unless those contracts are within the scope of other standards, such as insurance contracts or financial instruments.The ASU also requires enhanced disclosures about revenue. The ASU is effective in the 2018 first quarter and the Company intends on adopting the ASU using the modified retrospective method, whereby the cumulative effect of adoption will be recognized as an adjustment to retained earnings at the date of initial application. The adoption of this ASU will not impact the Company's insurance premium revenues or revenues from its investment portfolio, which represent a substantial portion of consolidated revenues, but may have an impact on the Company's other revenues. Based on the Company’s evaluation of the ~~impacted revenue streams, the ASU is not expected~~notes to ~~have a material effect on the Company’s~~ consolidated financial statements ~~and~~in the ~~cumulative effect adjustment to retained earnings at the date of initial application is not expected to be material.~~

Company’s 2022 Form 10-K.

2. Share Transactions

Share Repurchases

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

Employee Share Purchase Plan

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



ARCH CAPITAL	~~ACGL 2017~~ 10	2023 THIRD QUARTER FORM 10-Q	11

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3. Earnings Per Common Share

~~ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10) -~~ ~~Recognition and Measurement of Financial Assetsand Financial Liabilities,~~” was issued in the 2016 first quarter to enhance the reporting model for financial instruments and to provide improved financial information to readers of the financial statements. Among other provisions focused on improving the recognition and measurement of financial instruments, the ASU requires that equity investments be measured at fair value on the balance sheet with changes in fair value reported in the income statement and that an exit price notion be used when measuring the fair value of financial instruments for disclosure purposes. The ASU is effective in the 2018 first quarter and, aside from limited situations, cannot be early adopted. The Company is currently assessing the impact the implementation of this ASU will have on its consolidated financial statements. The adoption of this ASU is not expected to have a material impact on the Company's financial position, cash flows, or total comprehensive income, but will have a material impact on the Company's results of operations as changes in fair value of equity instruments will be presented in net income rather than other comprehensive income.

~~ASU 2016-18, "Statement of Cash Flows (Topic 230) -~~ ~~Restricted Cash~~ ~~" was issued in the 2016 fourth quarter.~~ The ASU requires that restricted cash and restricted cash equivalents be included with cash and cash equivalents in the reconciliation of beginning and ending cash on the statements of cash flows. As a result, transfers between cash and cash equivalents and restricted cash and restricted cash equivalents will no longer be presented on the statement of cash flows. The ASU is effective, with retrospective adoption, for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is currently assessing the impact the implementation of this ASU will have on its consolidated financial statements. The adoption of this ASU is not expected to have a material effect on the Company’s results of operations, financial position, comprehensive income or net cash provided from operating activities.

~~ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20):~~ ~~Premium Amortization on Purchased Callable Debt Securities,”~~ ~~was issued in the 2017 first quarter.~~The ASU amends the amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date. The ASU will be effective for the Company on January 1, 2019 and is required to be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. ~~The Company is currently assessing the impact the implementation of this ASU will have on its consolidated financial statements. The adoption of this~~

~~ASU is not expected to have a material effect on the Company’s results of operations, financial position or cash flows~~.

~~ASU 2017-09, “Compensation - Stock Compensation (Topic 718) -~~ ~~Scope of Modification Accounting” was issued in the 2017 second quarter. The ASU provides updated guidance~~ to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. ~~The ASU is effective prospectively for all companies for annual periods beginning on or after December 15, 2017, with early adoption permitted.~~ ~~The adoption of this ASU is not expected to have a material effect on the Company’s results of operations, financial position or cash flows~~.


3.			~~Variable Interest Entities and Noncontrolling Interests~~

~~A variable interest entity (“VIE”) refers to an entity that has characteristics such as (i) insufficient equity at risk to allow~~The following table sets forth the ~~entity to finance its activities without additional financial support or (ii) instances where the equity investors, as a group, do~~computation of basic and diluted earnings per common share:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Numerator:
Net income (loss)	$	723	$	18	$	2,109	$	620
Net (income) loss attributable to noncontrolling interests	—		(1)		—		(3)
Net income (loss) available to Arch	723		17		2,109		617
Preferred dividends	(10)		(10)		(30)		(30)

Net income (loss) available to Arch common shareholders	$	713	$	7	$	2,079	$	587

Denominator:


Weighted average common shares and common share equivalents outstanding — basic	369.2		365.2		368.4		369.5
Effect of dilutive common share equivalents:
Nonvested restricted shares	2.6		2.3		2.4		2.2
Stock options (1)	7.6		6.2		7.5		6.7
Weighted average common shares and common share equivalents outstanding — diluted	379.4		373.7		378.3		378.4

Earnings per common share:
Basic	$	1.93	$	0.02	$	5.64	$	1.59
Diluted	$	1.88	$	0.02	$	5.50	$	1.55

(1) Certain stock options were not have characteristics of a controlling financial interest. The primary beneficiary of a VIE is defined as the variable interest holder that is determined to have the controlling financial interest as a result of having both (i) the power to direct the activities of a VIE that most significantly impact the economic performance of the VIE and (ii) the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. If a company is determined to be the primary beneficiary, it is required to consolidate the VIE in its financial statements.

~~Watford Holdings Ltd.~~

In March 2014, the Company invested $100.0 million and acquired approximately 11% of Watford Holdings Ltd.’s common equity and a warrant to purchase additional common equity. Watford Holdings Ltd. is the parent of Watford Re Ltd., a multi-line Bermuda reinsurance company (together with Watford Holdings Ltd., “Watford Re”). Watford Re is considered a VIE and the Company concluded that it is the primary beneficiary of Watford Re. As such, the results of Watford Re are included in the ~~Company’s consolidated financial statements.~~

~~The Company does not guarantee~~computation of diluted earnings per share where the exercise price of the stock options exceeded the average market price and would have been anti-dilutive or ~~provide credit support for Watford Re,~~where, when applying the treasury stock method to in-the-money options, the sum of the proceeds, including unrecognized compensation, exceeded the average market price and would have been anti-dilutive. For the ~~Company’s financial exposure to Watford Re is limited to its investment in Watford Re’s common~~2023 third quarter and ~~preferred shares~~2022 third quarter, the number of stock options excluded were 0.3 million and ~~counterparty credit risk (mitigated by collateral) arising from reinsurance transactions.~~

0.8 million, respectively. For the nine months ended September 30, 2023 and 2022, the number of stock options excluded were 0.5 million and 0.8 million, respectively.



ARCH CAPITAL	~~ACGL 2017~~ 11	2023 THIRD QUARTER FORM 10-Q	12

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~The following table provides the carrying amount and balance sheet caption in which the assets and liabilities of Watford Re are reported:~~

September 30, December 31,
2017 2016
Assets
Investments accounted for using the fair value option $ 2,457,365
$ 1,857,623
Cash 57,151
74,893
Accrued investment income 13,718
17,017
Premiums receivable 209,985
189,911
Reinsurance recoverable on unpaid and paid losses and LAE 37,575
24,420
Ceded unearned premiums 23,538
12,145
Deferred acquisition costs 87,692
86,379
Receivable for securities sold 74,051
1,326
Goodwill and intangible assets 7,650
7,650
Other assets 132,796
111,386
Total assets of consolidated VIE $ 3,101,521
$ 2,382,750

Liabilities
Reserves for losses and loss adjustment expenses $ 735,132
$ 510,809
Unearned premiums 344,060
293,480
Reinsurance balances payable 22,487
12,289
Revolving credit agreement borrowings 426,242
256,650
Payable for securities purchased 211,065
42,922
Other liabilities 174,472
88,976
Total liabilities of consolidated VIE $ 1,913,458
$ 1,205,126

Redeemable noncontrolling interests $ 220,529
$ 220,253

For the nine months ended September 30, 2017, Watford Re generated $221.9 million of cash provided by operating activities, $394.4 million of cash used for investing activities and $152.5 million of cash provided by financing activities, compared to $207.0 million of cash provided by operating activities, $124.0 million of cash used for investing activities and $119.6 million of cash used for financing activities for the nine months ended September 30, 2016.

~~Non-redeemable noncontrolling interests~~

The Company accounts for the portion of Watford Re’s common equity attributable to third party investors in the shareholders’ equity section of its consolidated balance sheets. The noncontrolling ownership in Watford Re’s common shares was approximately 89% at September 30, 2017. The portion of Watford Re’s income or loss attributable to third party investors is recorded in the consolidated statements of income in ‘net (income) loss attributable to noncontrolling interests.’

~~The following table sets forth activity in the non-redeemable noncontrolling interests:~~

September 30,
2017 2016
Three Months Ended
Balance, beginning of period $ 877,456
$ 788,589
Amounts attributable to noncontrolling interests (16,147 ) 46,160
Foreign currency translation adjustments attributable to noncontrolling interests (411 ) 59
Balance, end of period $ 860,898
$ 834,808

Nine Months Ended
Balance, beginning of year $ 851,854
$ 738,831
Amounts attributable to noncontrolling interests 9,523
96,118
Foreign currency translation adjustments attributable to noncontrolling interests (479 ) (141 )
Balance, end of period $ 860,898
$ 834,808

~~Redeemable noncontrolling interests~~

The Company accounts for redeemable noncontrolling interests in the mezzanine section of its consolidated balance sheets in accordance with applicable accounting guidance. Such redeemable noncontrolling interests relate to the 9,065,200 cumulative redeemable preference shares (“Watford Preference Shares”) issued in March 2014 with a par value of $0.01 per share and a liquidation preference of $25.00 per share. Preferred dividends, including the accretion of the discount and issuance costs, are included in ‘net (income) loss attributable to noncontrolling interests’ in the Company’s consolidated statements of income.

~~The following table sets forth activity in the redeemable non-controlling interests:~~

September 30,
2017 2016
Three Months Ended
Balance, beginning of period $ 205,736
$ 205,366
Accretion of preference share issuance costs 93
93
Balance, end of period $ 205,829
$ 205,459

Nine Months Ended
Balance, beginning of year $ 205,553
$ 205,182
Accretion of preference share issuance costs 276
277
Balance, end of period $ 205,829
$ 205,459

4. Segment Information



			~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	13

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

The portion of Watford Re’s income or loss attributable to third party investors, recorded in the Company’s consolidated statements of income in ‘net (income) loss attributable to noncontrolling interests,’ are summarized in the table below:

September 30,
2017 2016
Three Months Ended
Amounts attributable to non-redeemable noncontrolling interests $ 16,147
$ (46,160 )
Dividends attributable to redeemable noncontrolling interests (4,586 ) (4,588 )
Net (income) loss attributable to noncontrolling interests $ 11,561
$ (50,748 )

Nine Months Ended
Amounts attributable to non-redeemable noncontrolling interests $ (9,523 ) $ (96,118 )
Dividends attributable to redeemable noncontrolling interests (13,756 ) (13,761 )
Net (income) loss attributable to noncontrolling interests $ (23,279 ) $ (109,879 )

~~Bellemeade Re I and II~~

Upon closing of the UGC acquisition, the Company acquired the rights and obligations related to aggregate excess of loss reinsurance agreements with Bellemeade Re I Ltd. (“Bellemeade I”), entered into in July 2015, and with Bellemeade Re II Ltd. (“Bellemeade II”), entered into in May 2016 (the “Bellemeade Agreements”). Bellemeade I and Bellemeade II are special purpose reinsurance companies domiciled in Bermuda, each of which provided for up to approximately $300 million of aggregate excess of loss reinsurance coverage at inception for new delinquencies on portfolios of in-force policies issued.

As a result of the evaluation of the Bellemeade Agreements, the Company concluded that both Bellemeade I and Bellemeade II are VIEs. However, given that the ceding insurers do not have the unilateral power to direct those activities that are significant to the economic performance of Bellemeade I and Bellemeade II, the Company does not consolidate Bellemeade I and Bellemeade II in its consolidated financial statements.

~~The following table presents total assets of Bellemeade I and Bellemeade II as well as the Company’s maximum exposure to loss associated with these VIEs:~~

Maximum Exposure to Loss
Total VIE Assets On-Balance Sheet Off-Balance Sheet Total
Bellemeade I $ 112,090
$ 533
$ 1,009
$ 1,542
Bellemeade II 191,387
(53 ) 746
693
Total $ 303,477
$ 480
$ 1,755
$ 2,235

~~See note 18, “Subsequent Event.”~~

~~Irving Partners Limited Partnership~~

Upon closing of the UGC acquisition, the Company acquired a limited partnership interest in Irving Partners Limited Partnership (“Irving Partners”), which owns and operates an office building in Greensboro, North Carolina in which the Company is the main tenant. The Company concluded that Irving Partners is a VIE but that it is not the primary beneficiary. During the 2017 third quarter, the Company’s ownership in Irving Partners was sold to a third party for approximately $14.5 million.



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	14

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~4. Earnings (Loss) Per Common Share~~

Due to the net loss recorded in the 2017 third quarter, diluted weighted average common shares and common share equivalents outstanding for the 2017 third quarter do not include the effect of 4.7 million otherwise dilutive securities since the inclusion of such securities is anti-dilutive to per share results. Since the Company reported net income for the other periods presented, the computation of diluted average shares outstanding includes dilutive securities for such periods.

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

Three Months Ended
Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Numerator:
Net income (loss) $ (45,217 ) $ 303,620
$ 427,917
$ 728,604
Amounts attributable to noncontrolling interests 11,561
(50,748 ) (23,279 ) (109,879 )
Net income (loss) available to Arch (33,656 ) 252,872
404,638
618,725
Preferred dividends (12,369 ) (5,484 ) (34,936 ) (16,453 )
Loss on redemption of preferred shares (6,735 ) —
(6,735 ) —
Net income (loss) available to Arch common shareholders $ (52,760 ) $ 247,388
$ 362,967
$ 602,272

Denominator:
Weighted average common shares outstanding 129,211,251
120,938,916
124,526,611
120,656,420
Series D preferred shares (1) 5,674,200
—
9,945,518
—
Weighted average common shares and common share equivalents outstanding — basic 134,885,451
120,938,916
134,472,129
120,656,420
Effect of dilutive common share equivalents:
Nonvested restricted shares —
1,313,025
1,459,879
1,295,825
Stock options (2) —
2,679,712
3,290,316
2,575,929
Weighted average common shares and common share equivalents outstanding — diluted (3) 134,885,451
124,931,653
139,222,324
124,528,174

Earnings (loss) per common share:
Basic $ (0.39 ) $ 2.05
$ 2.70
$ 4.99
Diluted $ (0.39 ) $ 1.98
$ 2.61
$ 4.84


~~(1)~~	~~Such shares are convertible non-voting common equivalent preferred shares issued in connection with the UGC acquisition.~~

~~(2)~~

Certain stock options were not included in the computation of diluted earnings per share where the exercise price of the stock options exceeded the average market price and would have been anti-dilutive or where, when applying the treasury stock method to in-the-money options, the sum of the proceeds, including unrecognized compensation, exceeded the average market price and would have been anti-dilutive. For the 2017 third quarter and 2016 third quarter, the number of stock options excluded were nil and 334,203, respectively. For the nine months ended September 30, 2017 and 2016, the number of stock options excluded were 838,868 and 842,105, respectively.



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	15

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~5. Segment Information~~

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 determined its reportable segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.

The 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 Chairman and~~makers. The Chief Executive Officer, the Chief Financial Officer and Treasurer and the President and Chief ~~Operating~~Underwriting Officer ~~and~~are the ~~Chief Financial Officer of ACGL. The~~Company’s chief operating decision ~~makers~~makers. They do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures segment performance for its three underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment, with the exception of goodwill and intangible assets, and accordingly, investment income is not allocated to each underwriting segment.

The Company determined its reportable segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.

The insurance segment consists of the Company’s insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include: construction and national accounts; excess and surplus casualty; ~~lenders products;~~ professional lines; programs; property, energy, marine and aviation; travel, accident and health; warranty and lenders solutions; and other (consisting of alternative markets, excess workers' compensation and surety business).

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

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

The corporate ~~(non-underwriting)~~ segment results include net investment income, ~~other income (loss), corporate expenses, UGC transaction costs and other, interest expense, items related to the Company’s non-cumulative preferred shares,~~ net realized gains or losses ~~net impairment~~(which includes realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains and losses ~~included~~on derivative instruments and changes in ~~earnings,~~the allowance for credit losses on financial assets), equity in net income or loss of investment funds accounted for using the equity method, other income (loss), corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, net foreign exchange gains or losses, ~~and~~ income ~~taxes. Such amounts exclude the results of the ‘other’ segment.~~

The ‘other’ segment includes the results of Watford Re (see Note 3). Watford Re has its own management and board of directors that is responsible for the overall profitability of the ‘other’ segment. For the ‘other’ segment, performance is measured based on nettaxes items, income or ~~loss.~~loss from operating affiliates and items related to the Company’s non cumulative preferred shares.



ARCH CAPITAL	~~ACGL 2017~~ 12	2023 THIRD QUARTER FORM 10-Q	16

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


	Three Months Ended
	September 30, 2023
	Insurance			Reinsurance			Mortgage			Total

Gross premiums written (1)	$	2,043		$	2,138		$	347		$	4,527
Premiums ceded	(521)			(576)			(76)			(1,172)
Net premiums written	1,522			1,562			271			3,355
Change in unearned premiums	(110)			(19)			22			(107)
Net premiums earned	1,412			1,543			293			3,248
Other underwriting income (loss)	—			2			3			5
Losses and loss adjustment expenses	(812)			(870)			35			(1,647)
Acquisition expenses	(269)			(304)			(2)			(575)
Other operating expenses	(202)			(61)			(47)			(310)
Underwriting income (loss)	$	129		$	310		$	282		721

Net investment income										269
Net realized gains (losses)										(248)

Equity in net income (loss) of investment funds accounted for using the equity method										59
Other income (loss)										(4)
Corporate expenses (2)										(20)
Transaction costs and other (2)										—
Amortization of intangible assets										(24)
Interest expense										(34)
Net foreign exchange gains (losses)										22
Income (loss) before income taxes and income (loss) from operating affiliates										741
Income tax (expense) benefit										(72)
Income (loss) from operating affiliates										54
Net income (loss)										723
Net (income) loss attributable to noncontrolling interests										—

Net income (loss) available to Arch										723
Preferred dividends										(10)

Net income (loss) available to Arch common shareholders										$	713

Underwriting Ratios
Loss ratio	57.5		%	56.4		%	(12.1)		%	50.7		%
Acquisition expense ratio	19.1		%	19.7		%	0.6		%	17.7		%
Other operating expense ratio	14.3		%	3.9		%	16.2		%	9.5		%
Combined ratio	90.9		%	80.0		%	4.7		%	77.9		%

Goodwill and intangible assets	$	220		$	132		$	387		$	739

Three Months Ended
September 30, 2017
Insurance Reinsurance Mortgage Sub-Total Other Total

Gross premiums written (1) $ 787,447
$ 422,083
$ 347,951
$ 1,557,179
$ 166,198
$ 1,648,246
Premiums ceded (222,516 ) (105,389 ) (57,900 ) (385,503 ) (12,471 ) (322,843 )
Net premiums written 564,931
316,694
290,051
1,171,676
153,727
1,325,403
Change in unearned premiums (29,766 ) 6,879
(15,533 ) (38,420 ) (25,097 ) (63,517 )
Net premiums earned 535,165
323,573
274,518
1,133,256
128,630
1,261,886
Other underwriting income (loss) —
1,728
3,599
5,327
737
6,064
Losses and loss adjustment expenses (568,795 ) (318,609 ) (35,156 ) (922,560 ) (123,581 ) (1,046,141 )
Acquisition expenses (82,638 ) (57,340 ) (21,803 ) (161,781 ) (32,073 ) (193,854 )
Other operating expenses (90,875 ) (36,214 ) (34,770 ) (161,859 ) (8,268 ) (170,127 )
Underwriting income (loss) $ (207,143 ) $ (86,862 ) $ 186,388
(107,617 ) (34,555 ) (142,172 )

Net investment income 94,127
22,332
116,459
Net realized gains (losses) 64,104
2,171
66,275
Net impairment losses recognized in earnings (1,878 ) —
(1,878 )
Equity in net income (loss) of investment funds accounted for using the equity method 31,090
—
31,090
Other income (loss) (342 ) —
(342 )
Corporate expenses (2) (14,108 ) —
(14,108 )
UGC transaction costs and other (2) (2,990 ) —
(2,990 )
Amortization of intangible assets (31,824 ) —
(31,824 )
Interest expense (26,264 ) (3,246 ) (29,510 )
Net foreign exchange gains (losses) (27,785 ) (243 ) (28,028 )
Income (loss) before income taxes (23,487 ) (13,541 ) (37,028 )
Income tax (expense) benefit (8,168 ) (21 ) (8,189 )
Net income (loss) (31,655 ) (13,562 ) (45,217 )
Dividends attributable to redeemable noncontrolling interests —
(4,586 ) (4,586 )
Amounts attributable to nonredeemable noncontrolling interests —
16,147
16,147
Net income (loss) available to Arch (31,655 ) (2,001 ) (33,656 )
Preferred dividends (12,369 ) —
(12,369 )
Loss on redemption of preferred shares (6,735 ) —
(6,735 )
Net income (loss) available to Arch common shareholders $ (50,759 ) $ (2,001 ) $ (52,760 )

Underwriting Ratios

Loss ratio 106.3 % 98.5 % 12.8 % 81.4 % 96.1 % 82.9 %
Acquisition expense ratio 15.4 % 17.7 % 7.9 % 14.3 % 24.9 % 15.4 %
Other operating expense ratio 17.0 % 11.2 % 12.7 % 14.3 % 6.4 % 13.5 %
Combined ratio 138.7 % 127.4 % 33.4 % 110.0 % 127.4 % 111.8 %

Goodwill and intangible assets $ 23,445
$ 417
$ 652,893
$ 676,755
$ 7,650
$ 684,405


~~(1)~~	(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.


~~(2)~~	~~Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘UGC transaction costs and other.’~~

(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’



ARCH CAPITAL	~~ACGL 2017~~ 13	2023 THIRD QUARTER FORM 10-Q	17

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


	Three Months Ended
	September 30, 2022
	Insurance			Reinsurance			Mortgage			Total

Gross premiums written (1)	$	1,862		$	1,639		$	362		$	3,861
Premiums ceded	(493)			(560)			(86)			(1,137)
Net premiums written	1,369			1,079			276			2,724
Change in unearned premiums	(182)			(77)			6			(253)
Net premiums earned	1,187			1,002			282			2,471
Other underwriting income (loss)	—			—			3			3
Losses and loss adjustment expenses	(823)			(928)			68			(1,683)
Acquisition expenses	(233)			(208)			(7)			(448)
Other operating expenses	(165)			(63)			(47)			(275)
Underwriting income (loss)	$	(34)		$	(197)		$	299		68

Net investment income										129
Net realized gains (losses)										(184)

Equity in net income (loss) of investment funds accounted for using the equity method										(19)
Other income (loss)										(14)
Corporate expenses (2)										(18)
Transaction costs and other (2)										—
Amortization of intangible assets										(26)
Interest expense										(33)
Net foreign exchange gains (losses)										91
Income (loss) before income taxes and income (loss) from operating affiliates										(6)
Income tax (expense) benefit										15
Income (loss) from operating affiliates										9
Net income (loss)										18
Net (income) loss attributable to noncontrolling interests										(1)

Net income (loss) available to Arch										17
Preferred dividends										(10)

Net income (loss) available to Arch common shareholders										$	7

Underwriting Ratios
Loss ratio	69.3		%	92.6		%	(24.1)		%	68.1		%
Acquisition expense ratio	19.6		%	20.8		%	2.4		%	18.1		%
Other operating expense ratio	13.9		%	6.3		%	16.5		%	11.1		%
Combined ratio	102.8		%	119.7		%	(5.2)		%	97.3		%

Goodwill and intangible assets	$	225		$	141		$	441		$	807

Three Months Ended
September 30, 2016
Insurance Reinsurance Mortgage Sub-Total Other Total

Gross premiums written (1) $ 758,934
$ 324,361
$ 131,726
$ 1,214,765
$ 163,736
$ 1,278,765
Premiums ceded (217,446 ) (89,551 ) (51,182 ) (357,923 ) (6,300 ) (264,487 )
Net premiums written 541,488
234,810
80,544
856,842
157,436
1,014,278
Change in unearned premiums (22,410 ) 17,117
(3,582 ) (8,875 ) (47,000 ) (55,875 )
Net premiums earned 519,078
251,927
76,962
847,967
110,436
958,403
Other underwriting income (loss) —
2,216
4,740
6,956
1,024
7,980
Losses and loss adjustment expenses (332,845 ) (105,924 ) (11,107 ) (449,876 ) (74,307 ) (524,183 )
Acquisition expenses (77,146 ) (50,192 ) (5,190 ) (132,528 ) (28,739 ) (161,267 )
Other operating expenses (86,613 ) (35,389 ) (24,249 ) (146,251 ) (7,035 ) (153,286 )
Underwriting income (loss) $ 22,474
$ 62,638
$ 41,156
126,268
1,379
127,647

Net investment income 66,282
27,336
93,618
Net realized gains (losses) 95,946
29,159
125,105
Net impairment losses recognized in earnings (3,867 ) —
(3,867 )
Equity in net income (loss) of investment funds accounted for using the equity method 16,662
—
16,662
Other income (loss) (400 ) —
(400 )
Corporate expenses (2) (11,343 ) —
(11,343 )
UGC transaction costs and other (2) (7,142 ) —
(7,142 )
Amortization of intangible assets (4,865 ) —
(4,865 )
Interest expense (12,924 ) (3,019 ) (15,943 )
Net foreign exchange gains (losses) (4,232 ) 1,611
(2,621 )
Income (loss) before income taxes 260,385
56,466
316,851
Income tax (expense) benefit (13,232 ) 1
(13,231 )
Net income (loss) 247,153
56,467
303,620
Dividends attributable to redeemable noncontrolling interests —
(4,588 ) (4,588 )
Amounts attributable to nonredeemable noncontrolling interests —
(46,160 ) (46,160 )
Net income (loss) available to Arch 247,153
5,719
252,872
Preferred dividends (5,484 ) —
(5,484 )
Net income (loss) available to Arch common shareholders $ 241,669
$ 5,719
$ 247,388

Underwriting Ratios

Loss ratio 64.1 % 42.0 % 14.4 % 53.1 % 67.3 % 54.7 %
Acquisition expense ratio 14.9 % 19.9 % 6.7 % 15.6 % 26.0 % 16.8 %
Other operating expense ratio 16.7 % 14.0 % 31.5 % 17.2 % 6.4 % 16.0 %
Combined ratio 95.7 % 75.9 % 52.6 % 85.9 % 99.7 % 87.5 %

Goodwill and intangible assets $ 26,367
$ 1,228
$ 55,696
$ 83,291
$ 7,650
$ 90,941
(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.


~~(1)~~	Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.


~~(2)~~	~~Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘UGC transaction~~(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’



ARCH CAPITAL	~~ACGL 2017~~ 14	2023 THIRD QUARTER FORM 10-Q	18

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


	Nine Months Ended
	September 30, 2023
	Insurance			Reinsurance			Mortgage			Total

Gross premiums written (1)	$	5,977		$	7,142		$	1,037		$	14,152
Premiums ceded	(1,564)			(2,145)			(240)			(3,945)
Net premiums written	4,413			4,997			797			10,207
Change in unearned premiums	(416)			(781)			86			(1,111)
Net premiums earned	3,997			4,216			883			9,096
Other underwriting income (loss)	—			9			12			21
Losses and loss adjustment expenses	(2,276)			(2,379)			46			(4,609)
Acquisition expenses	(778)			(875)			(16)			(1,669)
Other operating expenses	(592)			(203)			(147)			(942)
Underwriting income (loss)	$	351		$	768		$	778		1,897

Net investment income										710
Net realized gains (losses)										(354)

Equity in net income (loss) of investment funds accounted for using the equity method										176
Other income (loss)										10
Corporate expenses (2)										(69)
Transaction costs and other (2)										(2)
Amortization of intangible assets										(71)
Interest expense										(99)
Net foreign exchange gains (losses)										(1)
Income (loss) before income taxes and income (loss) from operating affiliates										2,197
Income tax (expense) benefit										(203)
Income (loss) from operating affiliates										115
Net income (loss)										2,109
Net (income) loss attributable to noncontrolling interests										—

Net income (loss) available to Arch										2,109
Preferred dividends										(30)

Net income (loss) available to Arch common shareholders										$	2,079

Underwriting Ratios
Loss ratio	57.0		%	56.4		%	(5.3)		%	50.7		%
Acquisition expense ratio	19.5		%	20.7		%	1.8		%	18.3		%
Other operating expense ratio	14.8		%	4.8		%	16.7		%	10.4		%
Combined ratio	91.3		%	81.9		%	13.2		%	79.4		%

(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

Nine Months Ended
September 30, 2017
Insurance Reinsurance Mortgage Sub-Total Other Total

Gross premiums written (1) $ 2,313,630
$ 1,351,051
$ 1,032,800
$ 4,697,007
$ 473,131
$ 4,915,895
Premiums ceded (704,057 ) (386,743 ) (194,139 ) (1,284,465 ) (35,315 ) (1,065,537 )
Net premiums written 1,609,573
964,308
838,661
3,412,542
437,816
3,850,358
Change in unearned premiums (51,188 ) (81,182 ) (61,776 ) (194,146 ) (36,435 ) (230,581 )
Net premiums earned 1,558,385
883,126
776,885
3,218,396
401,381
3,619,777
Other underwriting income (loss) —
1,143
11,999
13,142
2,377
15,519
Losses and loss adjustment expenses (1,252,375 ) (631,669 ) (84,915 ) (1,968,959 ) (319,612 ) (2,288,571 )
Acquisition expenses (236,378 ) (154,638 ) (76,235 ) (467,251 ) (99,328 ) (566,579 )
Other operating expenses (271,268 ) (110,458 ) (108,790 ) (490,516 ) (24,311 ) (514,827 )
Underwriting income (loss) $ (201,636 ) $ (12,496 ) $ 518,944
304,812
(39,493 ) 265,319

Net investment income 282,459
62,998
345,457
Net realized gains (losses) 110,662
11,501
122,163
Net impairment losses recognized in earnings (5,415 ) —
(5,415 )
Equity in net income (loss) of investment funds accounted for using the equity method 111,884
—
111,884
Other income (loss) (3,118 ) —
(3,118 )
Corporate expenses (2) (48,517 ) —
(48,517 )
UGC transaction costs and other (2) (21,249 ) —
(21,249 )
Amortization of intangible assets (93,942 ) —
(93,942 )
Interest expense (77,932 ) (9,003 ) (86,935 )
Net foreign exchange gains (losses) (85,451 ) (1,524 ) (86,975 )
Income (loss) before income taxes 474,193
24,479
498,672
Income tax (expense) benefit (70,734 ) (21 ) (70,755 )
Net income (loss) 403,459
24,458
427,917
Dividends attributable to redeemable noncontrolling interests —
(13,756 ) (13,756 )
Amounts attributable to nonredeemable noncontrolling interests —
(9,523 ) (9,523 )
Net income (loss) available to Arch 403,459
1,179
404,638
Preferred dividends (34,936 ) —
(34,936 )
Loss on redemption of preferred shares (6,735 ) —
(6,735 )
Net income (loss) available to Arch common shareholders $ 361,788
$ 1,179
$ 362,967

Underwriting Ratios
Loss ratio 80.4 % 71.5 % 10.9 % 61.2 % 79.6 % 63.2 %
Acquisition expense ratio 15.2 % 17.5 % 9.8 % 14.5 % 24.7 % 15.7 %
Other operating expense ratio 17.4 % 12.5 % 14.0 % 15.2 % 6.1 % 14.2 %
Combined ratio 113.0 % 101.5 % 34.7 % 90.9 % 110.4 % 93.1 %
(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’


~~(1)~~	Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.


~~(2)~~	~~Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘UGC transaction costs and other.’~~



ARCH CAPITAL	~~ACGL 2017~~ 15	2023 THIRD QUARTER FORM 10-Q	19

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


	Nine Months Ended
	September 30, 2022
	Insurance			Reinsurance			Mortgage			Total

Gross premiums written (1)	$	5,287		$	5,151		$	1,099		$	11,532
Premiums ceded	(1,483)			(1,770)			(241)			(3,489)
Net premiums written	3,804			3,381			858			8,043
Change in unearned premiums	(488)			(647)			10			(1,125)
Net premiums earned	3,316			2,734			868			6,918
Other underwriting income (loss)	—			6			6			12
Losses and loss adjustment expenses	(2,054)			(1,920)			187			(3,787)
Acquisition expenses	(643)			(569)			(27)			(1,239)
Other operating expenses	(493)			(199)			(150)			(842)
Underwriting income (loss)	$	126		$	52		$	884		1,062

Net investment income										315
Net realized gains (losses)										(743)

Equity in net income (loss) of investment funds accounted for using the equity method										75
Other income (loss)										(35)
Corporate expenses (2)										(78)
Transaction costs and other (2)										—
Amortization of intangible assets										(80)
Interest expense										(99)
Net foreign exchange gains (losses)										183
Income (loss) before income taxes and income (loss) from operating affiliates										600
Income tax (expense) benefit										(19)
Income (loss) from operating affiliates										39
Net income (loss)										620
Net (income) loss attributable to noncontrolling interests										(3)

Net income (loss) available to Arch										617
Preferred dividends										(30)

Net income (loss) available to Arch common shareholders										$	587

Underwriting Ratios
Loss ratio	61.9		%	70.2		%	(21.6)		%	54.7		%
Acquisition expense ratio	19.4		%	20.8		%	3.2		%	17.9		%
Other operating expense ratio	14.9		%	7.3		%	17.3		%	12.2		%
Combined ratio	96.2		%	98.3		%	(1.1)		%	84.8		%

Nine Months Ended
September 30, 2016
Insurance Reinsurance Mortgage Sub-Total Other Total

Gross premiums written (1) $ 2,319,530
$ 1,217,804
$ 361,440
$ 3,898,025
$ 421,627
$ 4,046,667
Premiums ceded (713,110 ) (370,068 ) (62,918 ) (1,145,347 ) (15,229 ) (887,591 )
Net premiums written 1,606,420
847,736
298,522
2,752,678
406,398
3,159,076
Change in unearned premiums (46,603 ) (43,345 ) (93,283 ) (183,231 ) (59,878 ) (243,109 )
Net premiums earned 1,559,817
804,391
205,239
2,569,447
346,520
2,915,967
Other underwriting income (loss) —
22,659
12,670
35,329
2,922
38,251
Losses and loss adjustment expenses (1,011,087 ) (363,613 ) (20,102 ) (1,394,802 ) (236,922 ) (1,631,724 )
Acquisition expenses (228,806 ) (160,706 ) (16,947 ) (406,459 ) (95,323 ) (501,782 )
Other operating expenses (263,111 ) (108,561 ) (70,590 ) (442,262 ) (18,486 ) (460,748 )
Underwriting income (loss) $ 56,813
$ 194,170
$ 110,270
361,253
(1,289 ) 359,964

Net investment income 207,088
68,603
275,691
Net realized gains (losses) 168,735
61,912
230,647
Net impairment losses recognized in earnings (16,849 ) —
(16,849 )
Equity in net income (loss) of investment funds accounted for using the equity method 32,054
—
32,054
Other income (loss) (432 ) —
(432 )
Corporate expenses (2) (37,926 ) —
(37,926 )
UGC transaction costs and other (2) (7,142 ) —
(7,142 )
Amortization of intangible assets (14,493 ) —
(14,493 )
Interest expense (37,983 ) (9,730 ) (47,713 )
Net foreign exchange gains (losses) (3,812 ) 2,287
(1,525 )
Income (loss) before income taxes 650,493
121,783
772,276
Income tax (expense) benefit (43,673 ) 1
(43,672 )
Net income (loss) 606,820
121,784
728,604
Dividends attributable to redeemable noncontrolling interests —
(13,761 ) (13,761 )
Amounts attributable to nonredeemable noncontrolling interests —
(96,118 ) (96,118 )
Net income (loss) available to Arch 606,820
11,905
618,725
Preferred dividends (16,453 ) —
(16,453 )
Net income (loss) available to Arch common shareholders $ 590,367
$ 11,905
$ 602,272

Underwriting Ratios
Loss ratio 64.8 % 45.2 % 9.8 % 54.3 % 68.4 % 56.0 %
Acquisition expense ratio 14.7 % 20.0 % 8.3 % 15.8 % 27.5 % 17.2 %
Other operating expense ratio 16.9 % 13.5 % 34.4 % 17.2 % 5.3 % 15.8 %
Combined ratio 96.4 % 78.7 % 52.5 % 87.3 % 101.2 % 89.0 %


~~(1)~~	Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.


~~(2)~~	~~Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘UGC transaction~~(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’



ARCH CAPITAL	~~ACGL 2017~~ 16	2023 THIRD QUARTER FORM 10-Q	20

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6.5. Reserve for Losses and Loss Adjustment Expenses

The following table represents an analysis of losses and loss adjustment expenses and a reconciliation of the beginning and ending reserve for losses and loss adjustment expenses:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Reserve for losses and loss adjustment expenses at beginning of period	$	21,268	$	18,194	$	20,032	$	17,757
Unpaid losses and loss adjustment expenses recoverable	6,394		5,686		6,280		5,599
Net reserve for losses and loss adjustment expenses at beginning of period	14,874		12,508		13,752		12,158

Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year	1,793		1,863		5,012		4,279
Prior years	(146)		(180)		(403)		(492)
Total net incurred losses and loss adjustment expenses	1,647		1,683		4,609		3,787







Net foreign exchange (gains) losses and other	(123)		(245)		(24)		(527)

Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year	(345)		(227)		(700)		(464)
Prior years	(713)		(538)		(2,297)		(1,773)
Total net paid losses and loss adjustment expenses	(1,058)		(765)		(2,997)		(2,237)

Net reserve for losses and loss adjustment expenses at end of period	15,340		13,181		15,340		13,181
Unpaid losses and loss adjustment expenses recoverable	6,496		6,107		6,496		6,107
Reserve for losses and loss adjustment expenses at end of period	$	21,836	$	19,288	$	21,836	$	19,288

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Reserve for losses and loss adjustment expenses at beginning of period $ 10,520,511
$ 9,471,647
$ 10,200,960
$ 9,125,250
Unpaid losses and loss adjustment expenses recoverable and deferred charges 2,116,210
2,003,768
2,083,575
1,828,837
Net reserve for losses and loss adjustment expenses at beginning of period 8,404,301
7,467,879
8,117,385
7,296,413

Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year 1,092,175
598,940
2,487,212
1,848,299
Prior years (45,232 ) (74,757 ) (197,839 ) (216,575 )
Discount and accretion on retroactive reinsurance (802 ) —
(802 ) —
Total net incurred losses and loss adjustment expenses 1,046,141
524,183
2,288,571
1,631,724

Net foreign exchange losses (gains) 61,919
1,463
168,493
(13,270 )

Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year (167,450 ) (128,432 ) (282,952 ) (285,468 )
Prior years (457,183 ) (304,673 ) (1,403,769 ) (1,068,979 )
Total net paid losses and loss adjustment expenses (624,633 ) (433,105 ) (1,686,721 ) (1,354,447 )

Net reserve for losses and loss adjustment expenses at end of period 8,887,728
7,560,420
8,887,728
7,560,420
Unpaid losses and loss adjustment expenses recoverable and deferred charges 2,463,539
2,049,769
2,463,539
2,049,769
Reserve for losses and loss adjustment expenses at end of period $ 11,351,267
$ 9,610,189
$ 11,351,267
$ 9,610,189

~~2017 Third Quarter Catastrophe Losses~~

The Company’s 2017 third quarter results reflect estimated net losses from current accident year catastrophic events of $347.8 million, net of reinsurance and reinstatement premiums, which consisted of $133.4 million from the reinsurance segment and $214.5 million from the insurance segment. Such amounts were primarily related to Hurricanes Harvey, Irma and Maria, along with the Mexican earthquakes and other more minor global events. In addition, estimated net losses from current accident year catastrophic events for the 2017 third quarter in the ‘other’ segment were $19.8 million.

Development on Prior Year Loss Reserves

~~2017~~2023 Third Quarter

During the ~~2017~~2023 third quarter, the Company recorded net favorable development on prior year loss reserves of ~~$45.2~~$146 million, which consisted of ~~$36.5~~$10 million from the insurance segment, $44 million from the reinsurance segment ~~$3.0 million from the insurance segment, $21.5~~and $92 million from the mortgage ~~segment~~segment.

The insurance segment’s net favorable development of $10 million, or 0.7 loss ratio points, for the 2023 third quarter consisted of $30 million of net favorable development in short-tailed and long-tailed lines and $20 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines included $8 million of ~~$15.8 million~~favorable development in property (excluding marine), primarily from the ~~‘other’ segment.~~2021 and 2022 accident years (i.e., the year in which a loss occurred), $6 million of favorable development in warranty and lenders solutions and $6 million favorable development related to travel and accident business, both primarily from the 2022 accident year. Net favorable development in long-tailed lines included $7 million of favorable development in executive assurance business, primarily from the 2019, 2021 and 2022 accident years, and $7 million of favorable development in alternative markets business, spread across most prior accident years. Net adverse development in medium-tailed lines included

$25 million of adverse development in professional liability, primarily from 2019 and 2020 accident years.

The reinsurance segment’s net favorable development of ~~$36.5~~$44 million, or ~~11.3~~2.8 loss ratio points, for the ~~2017~~2023 third quarter consisted of ~~$16.9~~$69 million ~~from~~of net favorable development in short-tailed lines and ~~$19.6~~$25 million ~~from~~of net adverse development in medium and long-tailed ~~and medium-tailed~~ lines. ~~Favorable~~Net favorable development in

short-tailed lines included ~~$11.8~~$29 million ~~from property catastrophe and~~of favorable development related to property other than property catastrophe ~~reserves, across most~~business, primarily from the 2020 to 2022 underwriting years (i.e., all premiums and losses attributable to contracts having an inception or renewal date within the given twelve-month period), ~~reflecting lower levels~~$22 million of ~~reported and paid claims activity than previously anticipated which led~~favorable development related to decreases in certain loss ratio selections during the period. Favorable development in long-tailed and medium-tailed lines reflected reductions in casualty reserves of $13.4 million based on varying levels of reported and paid claims activity,property catastrophe business, primarily from the ~~2002 to 2009~~2021 and 2022 underwriting years, and $19 million of favorable development ~~in marine reserves of $4.3 million across most~~related to other specialty lines, primarily from the 2021 and prior underwriting years.

The insurance segment’s net favorable development of $3.0 million, or 0.6 points, for the 2017 third quarter consisted of $1.8 million of net favorable development in short-tailed lines and $1.2 million of net favorable development in long-tailed and medium-tailed lines. Net ~~favorable development in short-tailed lines primarily resulted from property (including special risk other than marine) reserves from the 2011 to 2016 accident years (i.e., the year in which a loss occurred). Net favorable~~adverse development in medium-tailed lines included $4 million in marine and aviation lines, primarily from the 2021 underwriting year, while net adverse development in long-tailed lines reflected ~~$11.9 million from professional liability reserves across most accident years and in surety reserves with $4.2 million of favorable development. Such amounts were partially offset by $12.9~~$21 million of adverse development ~~on a small number of programs~~ in casualty business, primarily from the ~~2014~~2016 to ~~2016 accident~~2020 underwriting years.



ARCH CAPITAL	~~ACGL 2017~~ 17	2023 THIRD QUARTER FORM 10-Q	21

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The mortgage segment’s net favorable development was ~~$21.5~~$92 million, or ~~7.8~~31.4 loss ratio points, for the ~~2017~~2023 third quarter. ~~The 2017 third quarter development was~~Such amounts were primarily ~~driven by continued lower than expected claim emergence across most origination years and also reflected $6.1 million~~ related to ~~second~~reductions on reserves for delinquent loans associated with the U.S. first lien portfolio from the 2020 through 2022 accident years. The Company’s credit risk transfer and ~~other portfolios, primarily due~~international businesses also contributed to ~~subrogation recoveries.~~the favorable development.

~~2016~~2022 Third Quarter

During the ~~2016~~2022 third quarter, the Company recorded net favorable development on prior year loss reserves of ~~$74.8~~$180 million, which consisted of ~~$59.5~~$5 million from the insurance segment, $49 million from the reinsurance segment ~~$13.7 million from the insurance segment, $2.5~~and $126 million from the mortgage ~~segment~~segment.

The insurance segment’s net favorable development of $5 million, or 0.5 loss ratio points, for the 2022 third quarter consisted of $16 million of net favorable development in short-tailed lines and $11 million of net adverse development in medium-tailed and long-tailed lines. Net favorable development in short-tailed lines reflected $9 million of ~~$0.9~~favorable development in property (excluding marine), primarily from 2020 and 2021 accident years and $6 million of favorable development in warranty and lenders solutions products, primarily from the ~~‘other’ segment.~~2021 accident year. Net adverse development in medium-tailed lines included $11 million of adverse development in professional liability business, primarily from the 2013 to 2016 and 2020 accident years, partially offset by favorable development in marine business of $6 million, across most accident years. Net adverse development in long-tailed lines reflected $12 million related to casualty business, primarily from the 2014 and 2020 accident years, partially offset by favorable development in construction, executive assurance and other lines of business.

The reinsurance segment’s net favorable development of ~~$59.5~~$49 million, or ~~23.6~~4.9 loss ratio points, for the ~~2016~~2022 third quarter consisted of $27.7 million from short-tailed lines and $31.8 million from long-tailed and medium-tailed lines. Favorable development in short-tailed lines included $23.2 million from property catastrophe and property other than property catastrophe reserves, across most underwriting years, reflecting lower levels of reported and paid claims activity than previously anticipated which led to decreases in certain loss ratio selections during the period. Favorable development in long-tailed lines reflected reductions in casualty reserves of $29.3 million based on varying levels of reported and paid claims activity, primarily from the 2002 to 2010 underwriting years and 2012 to 2013 underwriting years.

~~The insurance segment’s net favorable development of $13.7 million, or 2.6 points, for the 2016 third quarter consisted of $18.2~~$58 million of net favorable development in ~~long-tailed~~short-tailed and medium-tailed lines ~~partially offset by $2.4~~and $9 million of net adverse development in ~~short-tailed lines and $2.0 million of net adverse development in medium-tailed~~long-tailed lines. Net favorable development in ~~long-tailed~~short-tailed lines reflected ~~net reductions in executive assurance reserves~~$36 million of favorable development related to property other than property catastrophe business, primarily from 2015 to 2021 underwriting years and $13 million of favorable development related to property catastrophe business, primarily from the ~~2008~~2014 to ~~2015 accident years,~~2017 underwriting years. Net favorable development in medium-tailed lines included $8 million in marine and ~~net reductions in casualty reserves from the 2007 and 2008 accident~~aviation lines, across most underwriting years. Net adverse development in ~~short-tailed~~long-tailed lines reflected $10 million related to casualty business, primarily ~~resulted from property (including special risk other than marine) reserves~~ from the ~~2015 accident year, primarily due~~2014 to a small number of attritional losses. Net adverse development in medium-tailed lines primarily resulted from an increase in programs of $6.2 million stemming in part from terminated programs, partially offset by favorable development of $4.2 million in other medium-tailed lines, primarily in professional liability and surety.2017 underwriting years.

The mortgage segment’s net favorable development was ~~$2.5~~$126 million, or ~~3.2~~44.7 loss ratio points, for the ~~2016 third quarter. The 2016~~2022 third quarter, ~~development was primarily driven by lower than expected claim rates across most origination~~with the largest contributor being reserve releases associated with the U.S. first lien portfolio from the 2020 and 2021 accident years. The Company’s credit risk transfer, international, second lien and student loan businesses also contributed to the favorable development.

Nine Months Ended September 30, ~~2017~~2023

During the nine months ended September 30, ~~2017,~~2023, the Company recorded net favorable development on prior year loss reserves of ~~$197.8~~$403 million, which consisted of ~~$133.3~~$34 million from the insurance segment, $126 million from the reinsurance segment ~~$7.2 million from the insurance segment, $74.9~~and $243 million from the mortgage ~~segment and adverse development of $17.5 million from the ‘other’~~ segment.

The reinsurance segment’s net favorable development of $133.3 million, or 15.1 points, for the 2017 period consisted of $85.8 million from short-tailed lines and $47.5 million from long-tailed and medium-tailed lines. Favorable development in short-tailed lines included $62.7 million from property catastrophe and property other than property catastrophe reserves, across most underwriting years, reflecting lower levels of reported and paid claims activity than previously anticipated which led to decreases in certain loss ratio selections during the period. Favorable development in long-tailed and medium-tailed lines reflected reductions in casualty reserves of $28.0 million based on varying levels of reported and paid claims activity, primarily from the 2002 to 2013 underwriting years, and favorable development in marine reserves of $16.6 million across most underwriting years.

The insurance segment’s net favorable development of ~~$7.2~~$34 million, or ~~0.5~~0.8 loss ratio points, for the ~~2017~~2023 period consisted of ~~$9.0~~$86 million of net favorable development in ~~short-tailed~~short and long-tailed lines and ~~$7.4 million of net favorable development in long-tailed lines, partially offset by $9.2~~$52 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines ~~primarily resulted from~~reflected $33 million of favorable development in property ~~(including special risk other than~~(excluding marine) ~~reserves~~, primarily from the ~~2011~~2022 accident year, $20 million of favorable development related to ~~2016~~warranty and lenders solutions business, primarily from the 2022 accident year and $11 million of favorable development related to travel and accident business, primarily from the 2020 and 2022 accident years. Net favorable development in long-tailed lines ~~reflected net reductions~~included $24 million of favorable development in executive assurance ~~reserves~~business, primarily from the ~~2008 to 2014~~2019 and 2021 accident years, and ~~reductions in healthcare reserves across various accident years, partially offset by $17.2~~$13 million of ~~adverse~~favorable development ~~on construction reserves across various~~in alternative markets business, from 2021 and prior accident years. Net adverse development in medium-tailed lines included $48 million of adverse development in professional liability business, primarily ~~resulted~~ from ~~an increase in programs of $39.3 million stemming in part from development on a small number of programs in~~ the ~~2013~~2017 to ~~2015~~2020 accident years, and $11 million of adverse development in contract binding business, primarily from the 2014 to 2017 accident years. Such amounts were partially offset by $11 million of favorable development in marine business, primarily from 2021 and 2022 accident years.

The reinsurance segment’s net favorable development of ~~$30.1~~$126 million, ~~in other medium-tailed lines, primarily in professional liability and surety.~~

~~The mortgage segment’s~~or 3.0 loss ratio points, for the 2023 period consisted of $168 million of net favorable development ~~was $74.9~~from short and medium-tailed lines, partially offset by $42 million ~~or 9.6 points, for~~of net adverse development from long-tailed lines. Net favorable development in short-tailed lines reflected $75 million of favorable development from property other than property catastrophe business, primarily from the ~~2017 period. The~~2021 and 2022 underwriting years, $29 million of favorable development ~~was~~from property catastrophe, primarily ~~driven by continued lower than expected claim emergence across most origination~~from the 2019 and 2022 underwriting years, $46 million from other specialty business, primarily from the 2021 underwriting year, and ~~also reflected $19.2~~$12 million ~~related to second lien and~~of favorable development from other ~~portfolios,~~lines of business, primarily ~~due to subrogation recoveries.~~from the 2020 underwriting year.



ARCH CAPITAL	~~ACGL 2017~~ 18	2023 THIRD QUARTER FORM 10-Q	22

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net favorable development in medium-tailed lines included $5 million in marine and aviation lines, primarily from the 2019 and prior underwriting years. Net adverse development in long-tailed lines primarily reflected $39 million in casualty, primarily from the 2014 to 2020 underwriting years.

The mortgage segment’s net favorable development was $243 million, or 27.5 loss ratio points, for the 2023 period, with the largest contributor being reserve releases associated with the U.S. first lien portfolio from the 2020 to 2022 accident years. The Company’s credit risk transfer and international businesses also contributed to the favorable development.

Nine Months Ended September 30, ~~2016~~2022

During the nine months ended September 30, ~~2016,~~2022, the Company recorded net favorable development on prior year loss reserves of ~~$216.6~~$492 million, which consisted of ~~$176.7~~$19 million from the insurance segment, $127 million from the reinsurance segment, ~~$24.8 million from the insurance segment, $16.3~~$346 million from the mortgage ~~segment~~segment.

The insurance segment’s net favorable development of $19 million, or 0.6 loss ratio points, for the 2022 period consisted of $49 million of net favorable development in short-tailed and $30 million of net adverse development in medium and long-tailed lines. Net favorable development in short-tailed lines reflected $37 million of ~~$1.2 million~~favorable development in warranty and lenders solutions business, primarily from the ~~‘other’ segment.~~2021 accident year, and $14 million of favorable development related to travel and accident business, primarily from the 2019 to 2021 accident years. Net adverse development in medium-tailed lines included $25 million of adverse development in professional liability business, primarily from the 2013 to 2015 and 2018 to 2020 accident years, and $6 million of adverse development in contract binding business, across most accident years, partially offset by $11 million of favorable development in marine business, across most accident years. Net adverse development in long-tailed lines reflected $18 million of adverse development related to casualty business, primarily from the 2020 and 2021 accident years, partially offset by $17 million of favorable development in other business, including alternative markets and excess workers’ compensation, primarily from the 2019 and prior accident years.

The reinsurance segment’s net favorable development of ~~$176.7~~$127 million, or ~~22.0~~4.7 loss ratio points, for the ~~2016~~2022 period consisted of $113.1 million from short-tailed lines and $63.6 million from long-tailed and medium-tailed lines. Favorable development in short-tailed lines included $92.6 million from property catastrophe and property other than property catastrophe reserves, across most underwriting years. The net reduction of loss estimates for the reinsurance segment’s short-tailed lines primarily resulted from varying levels of reported and paid claims activity than previously anticipated which led to decreases in certain loss ratio selections during the period. Favorable development in long-tailed lines reflected reductions in casualty reserves of $66.4 million based on varying levels of reported and paid claims activity, primarily from the 2002 to 2013 underwriting years. Such amounts were partially offset by net adverse development on marine reserves, primarily from the 2002 and 2015 underwriting years, partially offset by favorable development from most other underwriting years.

~~The insurance segment’s net favorable development of $24.8 million, or 1.6 points, for the 2016 period consisted of $36.2~~$148 million of net favorable development ~~in long-tailed lines~~from short and ~~$7.7 million of net favorable development in short-tailed~~medium-tailed lines, partially offset by ~~$19.1~~$20 million of net adverse development ~~in medium-tailed~~from long-tailed lines. Net favorable development in long-tailed lines reflected net reductions in executive assurance reserves from the 2008 to 2009 accident years and 2011 to 2013 accident years, and net reductions in casualty reserves across most accident years, partially offset by a large energy casualty claim from the 2015 accident year. Net favorable development in short-tailed lines ~~primarily resulted~~reflected $83 million of favorable development from ~~reductions in~~ property ~~(including special risk~~ other than ~~marine) reserves~~property catastrophe business, primarily from the ~~2009~~2015 to ~~2014 accident~~2021 underwriting years, $22 million of favorable development from property catastrophe, primarily ~~due~~from the

2018 to ~~varying levels of reported claims activity.~~2020 underwriting years, and $20 million from other specialty business, primarily from the 2021 underwriting year. Net favorable development in medium-tailed lines included $23 million in marine and aviation lines, across most underwriting years. Net adverse development in ~~medium-tailed~~long-tailed lines primarily ~~resulted from an increase in programs of $28.6 million stemming in part from terminated programs, partially offset by favorable development of $9.5~~reflected $19 million in ~~other medium-tailed lines,~~casualty reserves, primarily ~~in professional liability and surety.~~from the 2021 underwriting year.

The mortgage segment’s net favorable development was ~~$16.3~~$346 million, or ~~7.9~~39.9 loss ratio points, for the ~~2016 period.~~2022 period, with the largest contributor being reserve releases associated with the U.S. first lien portfolio from the 2020 and 2021 accident years. The ~~development was primarily driven by lower than~~Company’s credit risk transfer, international, second lien and student loan businesses also contributed to the favorable development.

6. Allowance for Expected Credit Losses

Premiums Receivable

The following table provides a roll forward of the allowance for expected ~~claim rates across most origination years.~~credit losses of the Company’s premium receivables:


	Premium Receivables, Net of Allowance		Allowance for Expected Credit Losses
Three Months Ended September 30, 2023
Balance at beginning of period	$	5,296	$	34
Change for provision of expected credit losses (1)			$	—
Balance at end of period	$	4,937	$	34

Three Months Ended September 30, 2022
Balance at beginning of period	$	3,634	$	38
Change for provision of expected credit losses (1)			$	—
Balance at end of period	$	3,579	$	38

Nine Months Ended September 30, 2023
Balance at beginning of period	$	3,625	$	35
Change for provision of expected credit losses (1)			(1)
Balance at end of period	$	4,937	$	34

Nine Months Ended September 30, 2022
Balance at beginning of period	$	2,633	$	40
Change for provision of expected credit losses (1)			(2)
Balance at end of period	$	3,579	$	38

(1)Amounts deemed uncollectible are written-off in operating expenses. For the 2023 third quarter and 2022 third quarter, amounts written off were nil and $2 million, respectively. For the nine months ended September 30, 2023 and 2022 period, amounts written off were $2 million and $7 million, respectively.



ARCH CAPITAL	~~ACGL 2017~~ 19	2023 THIRD QUARTER FORM 10-Q	23

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Reinsurance Recoverables

The following table provides a roll forward of the allowance for expected credit losses of the Company’s reinsurance recoverables:


	Reinsurance Recoverables, Net of Allowance		Allowance for Expected Credit Losses
Three Months Ended September 30, 2023
Balance at beginning of period	$	6,717	$	22
Change for provision of expected credit losses			1
Balance at end of period	$	6,821	$	23

Three Months Ended September 30, 2022
Balance at beginning of period	$	5,939	$	15
Change for provision of expected credit losses			2
Balance at end of period	$	6,356	$	17

Nine Months Ended September 30, 2023
Balance at beginning of period	$	6,564	$	22
Change for provision of expected credit losses			1
Balance at end of period	$	6,821	$	23

Nine Months Ended September 30, 2022
Balance at beginning of period	$	5,881	$	13
Change for provision of expected credit losses			4
Balance at end of period	$	6,356	$	17

The following table summarizes the Company’s reinsurance recoverables on paid and unpaid losses (not including ceded unearned premiums):


	September 30,			December 31
	2023			2022
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	$	6,821		$	6,564
% due from carriers with A.M. Best rating of “A-” or better	66.7		%	68.8		%
% due from all other rated carriers	0.2		%	0.1		%
% due from all other carriers with no A.M. Best rating (1)	33.1		%	31.1		%
Largest balance due from any one carrier as % of total shareholders’ equity	8.3		%	9.0		%

(1) At September 30, 2023 and December 31, 2022 over 95% of such amount were collateralized through reinsurance trusts, funds withheld arrangements, letters of credit or other, respectively.

Contractholder Receivables

The following table provides a roll forward of the allowance for expected credit losses of the Company’s contractholder receivables:


	Contract-holder Receivables, Net of Allowance		Allowance for Expected Credit Losses
Three Months Ended September 30, 2023
Balance at beginning of period	$	1,761	$	3
Change for provision of expected credit losses			—
Balance at end of period	$	1,805	$	3

Three Months Ended September 30, 2022
Balance at beginning of period	$	1,758	$	3
Change for provision of expected credit losses			(1)
Balance at end of period	1,736		$	2

Nine Months Ended September 30, 2023
Balance at beginning of period	$	1,731	$	3
Change for provision of expected credit losses			—
Balance at end of period	$	1,805	$	3

Nine Months Ended September 30, 2022
Balance at beginning of period	$	1,829	$	3
Change for provision of expected credit losses			(1)
Balance at end of period	1,736		$	2


ARCH CAPITAL			20			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7. Investment Information

~~At September 30, 2017, total investable assets of $22.00 billion included $19.70 billion managed by the Company and $2.30 billion attributable to Watford Re.~~

Available For Sale Investments

The following table summarizes the fair value and cost or amortized cost of the Company’s ~~investments~~securities classified as available for sale:


	Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Expected Credit Losses		Cost or Amortized Cost
September 30, 2023
Fixed maturities:
Corporate bonds	$	10,064	$	33	$	(747)	$	(47)	$	10,825
U.S. government and government agencies	5,662		15		(240)		—		5,887
Asset backed securities	2,342		10		(76)		(5)		2,413
Non-U.S. government securities	2,052		9		(173)		(2)		2,218
Commercial mortgage backed securities	1,102		—		(46)		(3)		1,151
Residential mortgage backed securities	965		5		(100)		—		1,060
Municipal bonds	298		2		(32)		—		328
Total	22,485		74		(1,414)		(57)		23,882

Short-term investments	1,682		3		(1)		—		1,680
Total	$	24,167	$	77	$	(1,415)	$	(57)	$	25,562

December 31, 2022
Fixed maturities:
Corporate bonds	$	8,020	$	55	$	(781)	$	(30)	$	8,776
U.S. government and government agencies	5,162		15		(343)		—		5,490
Asset backed securities	1,927		1		(107)		(6)		2,039
Non-U.S. government securities	2,313		9		(238)		(2)		2,544
Commercial mortgage backed securities	1,047		1		(58)		(3)		1,107
Residential mortgage backed securities	795		5		(87)		—		877
Municipal bonds	419		3		(33)		—		449
Total	19,683		89		(1,647)		(41)		21,282

Short-term investments	1,332		1		(2)		—		1,333
Total	$	21,015	$	90	$	(1,649)	$	(41)	$	22,615

Estimated
Fair
Value

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Cost or
Amortized
Cost

OTTI
Unrealized
Losses (2)
September 30, 2017
Fixed maturities (1):
Corporate bonds $ 4,275,437
$ 49,576
$ (22,303 ) $ 4,248,164
$ (73 )
Mortgage backed securities 323,900
5,078
(2,540 ) 321,362
(2,146 )
Municipal bonds 2,353,234
31,202
(7,614 ) 2,329,646
—
Commercial mortgage backed securities 584,730
3,114
(4,377 ) 585,993
—
U.S. government and government agencies 3,761,612
3,303
(20,246 ) 3,778,555
—
Non-U.S. government securities 1,473,819
49,570
(21,647 ) 1,445,896
—
Asset backed securities 1,544,919
9,053
(4,748 ) 1,540,614
(22 )
Total 14,317,651
150,896
(83,475 ) 14,250,230
(2,241 )
Equity securities 480,607
84,755
(7,873 ) 403,725
—
Other investments 260,339
54,512
(1 ) 205,828
—
Short-term investments 1,646,036
667
(504 ) 1,645,873
—
Total $ 16,704,633
$ 290,830
$ (91,853 ) $ 16,505,656
$ (2,241 )

December 31, 2016
Fixed maturities (1):
Corporate bonds $ 4,392,373
$ 27,606
$ (46,905 ) $ 4,411,672
$ (2,285 )
Mortgage backed securities 490,093
4,794
(8,357 ) 493,656
(3,323 )
Municipal bonds 3,713,434
8,554
(29,154 ) 3,734,034
(201 )
Commercial mortgage backed securities 536,051
2,876
(6,508 ) 539,683
—
U.S. government and government agencies 2,804,540
9,319
(24,437 ) 2,819,658
—
Non-U.S. government securities 1,096,440
19,036
(56,872 ) 1,134,276
—
Asset backed securities 1,123,987
6,897
(6,526 ) 1,123,616
(22 )
Total 14,156,918
79,082
(178,759 ) 14,256,595
(5,831 )
Equity securities 532,680
62,627
(17,517 ) 487,570
—
Other investments 167,970
21,358
(2,465 ) 149,077
—
Short-term investments 612,005
272
(145 ) 611,878
—
Total $ 15,469,573
$ 163,339
$ (198,886 ) $ 15,505,120
$ (5,831 )


~~(1)~~	In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

~~(2)~~

Represents the total other-than-temporary impairments (“OTTI”) recognized in accumulated other comprehensive income (“AOCI”). It does not include the change in fair value subsequent to the impairment measurement date. At September 30, 2017, the net unrealized gain related to securities for which a non-credit OTTI was recognized in AOCI was $0.9 million, compared to a net unrealized gain of $2.8 million at December 31, 2016.



ARCH CAPITAL	~~ACGL 2017~~ 21	2023 THIRD QUARTER FORM 10-Q	24

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes, for all available for sale securities in an unrealized loss position, the fair value and gross unrealized loss by length of time the security has been in a continual unrealized loss position:

Less than 12 Months 12 Months or More Total
Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
September 30, 2017
Fixed maturities (1):
Corporate bonds $ 1,173,096
$ (18,315 ) $ 191,382
$ (3,988 ) $ 1,364,478
$ (22,303 )
Mortgage backed securities 146,352
(2,477 ) 1,511
(63 ) 147,863
(2,540 )
Municipal bonds 745,410
(5,958 ) 110,752
(1,656 ) 856,162
(7,614 )
Commercial mortgage backed securities 282,901
(3,579 ) 17,570
(798 ) 300,471
(4,377 )
U.S. government and government agencies 3,083,239
(19,736 ) 25,894
(510 ) 3,109,133
(20,246 )
Non-U.S. government securities 1,149,528
(20,741 ) 37,655
(906 ) 1,187,183
(21,647 )
Asset backed securities 587,561
(4,404 ) 22,051
(344 ) 609,612
(4,748 )
Total 7,168,087
(75,210 ) 406,815
(8,265 ) 7,574,902
(83,475 )
Equity securities 170,937
(7,873 ) —
—
170,937
(7,873 )
Other investments 725
(1 ) —
—
725
(1 )
Short-term investments 110,444
(504 ) —
—
110,444
(504 )
Total $ 7,450,193
$ (83,588 ) $ 406,815
$ (8,265 ) $ 7,857,008
$ (91,853 )

December 31, 2016
Fixed maturities (1):
Corporate bonds $ 1,700,813
$ (43,011 ) $ 46,902
$ (3,894 ) $ 1,747,715
$ (46,905 )
Mortgage backed securities 402,699
(8,134 ) 6,105
(223 ) 408,804
(8,357 )
Municipal bonds 1,513,308
(28,504 ) 29,636
(650 ) 1,542,944
(29,154 )
Commercial mortgage backed securities 231,374
(6,331 ) 5,635
(177 ) 237,009
(6,508 )
U.S. government and government agencies 1,888,018
(24,437 ) —
—
1,888,018
(24,437 )
Non-U.S. government securities 807,598
(56,872 ) —
—
807,598
(56,872 )
Asset backed securities 627,557
(5,465 ) 65,723
(1,061 ) 693,280
(6,526 )
Total 7,171,367
(172,754 ) 154,001
(6,005 ) 7,325,368
(178,759 )
Equity securities 269,381
(17,517 ) —
—
269,381
(17,517 )
Other investments 39,299
(2,465 ) —
—
39,299
(2,465 )
Short-term investments 29,146
(145 ) —
—
29,146
(145 )
Total $ 7,509,193
$ (192,881 ) $ 154,001
$ (6,005 ) $ 7,663,194
$ (198,886 )


~~(1)~~	In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”


	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
September 30, 2023
Fixed maturities:
Corporate bonds	$	4,813	$	(141)	$	5,272	$	(606)	$	10,085	$	(747)
U.S. government and government agencies	3,922		(93)		1,294		(147)		5,216		(240)
Non-U.S. government securities	1,002		(25)		956		(148)		1,958		(173)
Residential mortgage backed securities	420		(15)		521		(85)		941		(100)
Asset backed securities	190		(4)		1,287		(72)		1,477		(76)
Commercial mortgage backed securities	153		(3)		907		(43)		1,060		(46)
Municipal bonds	84		(5)		212		(27)		296		(32)
Total	10,584		(286)		10,449		(1,128)		21,033		(1,414)

Short-term investments	192		(1)		—		—		192		(1)
Total	$	10,776	$	(287)	$	10,449	$	(1,128)	$	21,225	$	(1,415)

December 31, 2022
Fixed maturities:
Corporate bonds	$	4,823	$	(393)	$	2,559	$	(388)	$	7,382	$	(781)
U.S. government and government agencies	3,557		(197)		1,443		(146)		5,000		(343)
Non-U.S. government securities	1,703		(154)		542		(84)		2,245		(238)
Residential mortgage backed securities	546		(52)		154		(35)		700		(87)
Asset backed securities	1,148		(66)		512		(41)		1,660		(107)
Commercial mortgage backed securities	598		(35)		445		(23)		1,043		(58)
Municipal bonds	364		(30)		16		(3)		380		(33)
Total	12,739		(927)		5,671		(720)		18,410		(1,647)

Short-term investments	237		(2)		—		—		237		(2)
Total	$	12,976	$	(929)	$	5,671	$	(720)	$	18,647	$	(1,649)

At September 30, ~~2017,~~2023, on a lot level basis, approximately ~~2,870~~11,140 security lots out of a total of approximately ~~7,410~~14,320 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was ~~$1.6~~$6 million. At December 31, ~~2016,~~2022, on a lot level basis, approximately ~~3,540~~9,810 security lots out of a total of approximately ~~7,240~~12,590 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was ~~$4.6~~$7 million.



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	25

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

The contractual maturities of the Company’s fixed maturities are shown in the following table. Expected maturities, which are management’s best estimates, will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	September 30, 2023				December 31, 2022
Maturity	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Due in one year or less	$	683	$	708	$	511	$	537
Due after one year through five years	12,561		13,123		11,016		11,715
Due after five years through 10 years	4,515		5,035		3,984		4,527
Due after 10 years	317		392		403		480
	18,076		19,258		15,914		17,259
Residential mortgage backed securities	965		1,060		795		877
Commercial mortgage backed securities	1,102		1,151		1,047		1,107
Asset backed securities	2,342		2,413		1,927		2,039
Total	$	22,485	$	23,882	$	19,683	$	21,282

September 30, 2017 December 31, 2016
Maturity
Estimated
Fair
Value

Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Due in one year or less $ 537,043
$ 534,513
$ 560,830
$ 557,675
Due after one year through five years 7,547,002
7,508,674
6,158,148
6,211,099
Due after five years through 10 years 3,495,424
3,480,251
4,676,847
4,710,017
Due after 10 years 284,633
278,823
610,962
620,849
11,864,102
11,802,261
12,006,787
12,099,640
Mortgage backed securities 323,900
321,362
490,093
493,656
Commercial mortgage backed securities 584,730
585,993
536,051
539,683
Asset backed securities 1,544,919
1,540,614
1,123,987
1,123,616
Total (1) $ 14,317,651
$ 14,250,230
$ 14,156,918
$ 14,256,595


~~(1)~~	In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

~~Securities Lending Agreements~~

The Company enters into securities lending agreements with financial institutions to enhance investment income whereby it loans certain of its securities to third parties, primarily major brokerage firms, for short periods of time through a lending agent. The Company maintains legal control over the securities it lends, retains the earnings and cash flows associated with the loaned securities and receives a fee from the borrower for the temporary use of the securities. An indemnification agreement with the lending agent protects the Company in the event a borrower becomes insolvent or fails to return any of the securities on loan from the Company.

The Company receives collateral in the form of cash or securities. At September 30, 2017, the fair value of the cash collateral received on securities lending was $63.8 million and the fair value of security collateral received was $479.5 million. At December 31, 2016, the fair value of the cash collateral received on securities lending was $212.5 million, and the fair value of security collateral received was $550.1 million. Cash collateral is reinvested in short-term investments.

~~The Company’s securities lending transactions were accounted for as secured borrowings with significant investment categories as follows:~~

Remaining Contractual Maturity of the Agreements
Overnight and Continuous Less than 30 Days 30-90 Days 90 Days or More Total
September 30, 2017
U.S. government and government agencies $ 424,838
$ 8,186
$ 74,930
$ —
$ 507,954
Corporate bonds 31,305
—
—
—
31,305
Equity securities 3,984
—
—
—
3,984
Total $ 460,127
$ 8,186
$ 74,930
$ —
$ 543,243
Gross amount of recognized liabilities for securities lending in offsetting disclosure in Note 9 $ —
Amounts related to securities lending not included in offsetting disclosure in Note 9 $ 543,243

December 31, 2016
U.S. government and government agencies $ 556,015
$ 31,244
$ 126,093
$ 5,140
$ 718,492
Corporate bonds 29,078
—
—
—
29,078
Equity securities 14,984
—
—
—
14,984
Total $ 600,077
$ 31,244
$ 126,093
$ 5,140
$ 762,554
Gross amount of recognized liabilities for securities lending in offsetting disclosure in Note 9 $ —
Amounts related to securities lending not included in offsetting disclosure in Note 9 $ 762,554



ARCH CAPITAL	~~ACGL 2017~~ 22	2023 THIRD QUARTER FORM 10-Q	26

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Equity Securities, at Fair Value

At September 30, 2023, the Company held $894 million of equity securities, at fair value, compared to $860 million at December 31, 2022. Such holdings include publicly traded common stocks primarily in the consumer cyclical and non-cyclical, technology, communication and financial sectors and exchange-traded funds in fixed income, equity and other sectors.

Other Investments, at Fair Value

The following table summarizes the Company’s other investments ~~including available~~and other investable assets:


	September 30, 2023		December 31, 2022
Other investments	$	1,404	$	1,043
Fixed maturities	644		554
Equity securities	7		14
Short-term investments	13		33



Total	$	2,068	$	1,644

The following table summarizes the Company’s other investments, as detailed in the previous table, by strategy:


	September 30, 2023		December 31, 2022
Lending	$	460	$	406
Investment grade fixed income	418		271
Term loan investments	242		164
Private equity	182		123
Credit related funds	84		56
Energy	18		23


Total	$	1,404	$	1,043

Investments Accounted For Using the Equity Method

The following table summarizes the Company’s investments accounted for ~~sale and fair value option components:~~using the equity method, by strategy:


	September 30, 2023		December 31, 2022
Credit related funds	$	1,165	$	1,136
Private equity	1,083		917
Real estate	620		535
Lending	555		531
Infrastructure	298		245
Fixed income	258		130
Equities	171		169
Energy	101		111
Total	$	4,251	$	3,774

September 30,
2017 December 31,
2016
Available for sale:
Asian and emerging markets $ 123,225
$ 84,778
Investment grade fixed income 53,325
33,923
Credit related funds 20,752
7,469
Other 63,037
41,800
Total available for sale 260,339
167,970
Fair value option:
Term loan investments (par value: $1,378,797 and $1,208,537) 1,387,663
1,190,799
Mezzanine debt funds 172,000
127,943
Credit related funds 194,200
218,298
Investment grade fixed income 95,151
75,468
Asian and emerging markets 300,552
178,568
Other (1) 147,639
129,717
Total fair value option 2,297,205
1,920,793
Total $ 2,557,544
$ 2,088,763


~~(1)~~	~~Includes fund investments with strategies in mortgage servicing rights, transportation, infrastructure and other.~~

Certain of the Company’s other investments are in investment funds for which the Company has the option to redeem at agreed upon values as described in each investment fund’s subscription agreement. Depending on the terms of the various subscription agreements, investments in investment funds may be redeemed daily, monthly, quarterly or on other terms. Two common redemption restrictions which may impact the Company’s ability to redeem these investment funds are gates and lockups. A gate is a suspension of redemptions which may be implemented by the general partner or investment manager of the fund in order to defer, in whole or in part, the redemption request in the event the aggregate amount of redemption requests exceeds a predetermined percentage of the investment fund’s net assets which may otherwise hinder the general partner or investment manager’s ability to liquidate holdings in an orderly fashion in order to generate the cash necessary to fund extraordinarily large redemption payouts. A lockup period is the initial amount of time an investor is contractually required to hold the security before having the ability to redeem. If the investment funds are eligible to be redeemed, the time to redeem such fund can take weeks or months following the notification.

~~Fair Value Option~~

~~The following table summarizes the Company’s assets and liabilities which are accounted for using the fair value option:~~

September 30,
2017 December 31,
2016
Fixed maturities $ 1,508,204
$ 1,099,116
Other investments 2,297,205
1,920,793
Short-term investments 349,540
373,669
Equity securities 94,685
27,642
Investments accounted for using the fair value option $ 4,249,634
$ 3,421,220

Limited ~~partnership interests~~Partnership Interests

In the normal course of its activities, the Company invests in limited partnerships as part of its overall investment strategy. Such amounts are included in ‘investments accounted for using the equity method’ and ‘investments accounted for using the fair value option.’ The Company has determined that it is not required to consolidate these investments because it is not the primary beneficiary of the funds. The Company’s maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported in the Company’s consolidated balance sheet and any unfundedcommitment.

The following table summarizes investments in limited partnership interests where the Company has a variable interest by balance sheet line item:


	September 30, 2023		December 31, 2022
Investments accounted for using the equity method (1)	$	4,251	$	3,774
Investments accounted for using the fair value option (2)	128		131
Total	$	4,379	$	3,905

(1) Aggregate unfunded commitments were $3.0 billion at September 30, 2023, compared with $2.6 billion at December 31, 2022.

(2) Aggregate unfunded commitments were $32 million at September 30, 2023, compared to $17 million at December 31, 2022.

September 30,
2017 December 31,
2016
Investments accounted for using the equity method (1) $ 962,574
$ 800,970
Investments accounted for using the fair value option (2) 109,157
90,804
Total $ 1,071,731
$ 891,774


~~(1)~~	~~Aggregate unfunded commitments were $850.4 million at September 30, 2017, compared to $776.6 million at December 31, 2016.~~


~~(2)~~	~~Aggregate unfunded commitments were $162.3 million at September 30, 2017, compared to $16.7 million at December 31, 2016.~~



ARCH CAPITAL	~~ACGL 2017~~ 23	2023 THIRD QUARTER FORM 10-Q	27

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net Investment Income

The components of net investment income were derived from the following sources:


	September 30,
	2023		2022
Three Months Ended
Fixed maturities	$	243	$	124

Equity securities	5		4
Short-term investments	19		9
Other (1)	22		9
Gross investment income	289		146
Investment expenses	(20)		(17)
Net investment income	$	269	$	129

Nine Months Ended
Fixed maturities	$	645	$	311

Equity securities	15		16
Short-term investments	48		16
Other (1)	60		29
Gross investment income	768		372
Investment expenses	(58)		(57)
Net investment income	$	710	$	315

(1) Amounts include dividends and other distributions on investment funds, term loan investments, funds held balances, cash balances and other items.

September 30,
2017 2016
Three Months Ended
Fixed maturities $ 96,144
$ 71,366
Equity securities 2,887
3,311
Short-term investments 2,957
1,703
Other (1) 37,957
37,466
Gross investment income 139,945
113,846
Investment expenses (23,486 ) (20,228 )
Net investment income $ 116,459
$ 93,618

Nine Months Ended
Fixed maturities $ 284,807
$ 223,033
Equity securities 9,184
10,409
Short-term investments 6,732
3,015
Other (1) 111,613
98,089
Gross investment income 412,336
334,546
Investment expenses (66,879 ) (58,855 )
Net investment income $ 345,457
$ 275,691


~~(1)~~	~~Includes income distributions from investment funds, term loan investments and other items.~~

Net Realized Gains (Losses)

Net realized gains (losses), which include changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings were as ~~follows, excluding other than-temporary impairment provision.~~follows:


	September 30,
	2023		2022
Three Months Ended
Available for sale securities:
Gross gains on investment sales	$	12	$	18
Gross losses on investment sales	(116)		(74)
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities	(16)		(19)
Other investments	3		(18)
Equity securities	—		(1)
Short-term investments	—		(1)
Equity securities, at fair value:
Net realized gains (losses) on sales during the period	14		(6)
Net unrealized gains (losses) on equity securities still held at reporting date	(46)		(36)
Allowance for credit losses:
Investments related	—		9
Underwriting related	(1)		(4)

Derivative instruments (1)	(102)		(48)
Other	4		(4)
Net realized gains (losses)	$	(248)	$	(184)

Nine Months Ended
Available for sale securities:
Gross gains on investment sales	$	51	$	53
Gross losses on investment sales	(396)		(239)
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities	(12)		(89)
Other investments	17		(37)
Equity securities	1		(6)
Short-term investments	—		(3)
Equity securities, at fair value:
Net realized gains (losses) on sales during the period	50		76
Net unrealized gains (losses) on equity securities still held at reporting date	17		(318)
Allowance for credit losses:
Investments related	(23)		(48)
Underwriting related	(2)		(7)

Derivative instruments (1)	(61)		(118)
Other	4		(7)
Net realized gains (losses)	$	(354)	$	(743)

September 30,
2017 2016
Three Months Ended
Available for sale securities:

Gross gains on investment sales $ 66,565
$ 84,451
Gross losses on investment sales (39,015 ) (22,985 )
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities 4,035
43,935
Other investments 24,264
46,428
Equity securities 10,230
(52 )
Short-term investments (3,320 ) 1,150
Derivative instruments (1) 4,298
(16,964 )
Other (2) (782 ) (10,858 )
Net realized gains (losses) $ 66,275
$ 125,105

Nine Months Ended
Available for sale securities:
Gross gains on investment sales $ 212,470
$ 266,965
Gross losses on investment sales (152,996 ) (129,409 )
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities 34,232
62,234
Other investments 42,149
38,016
Equity securities 16,604
385
Short-term investments 12
107
Derivative instruments (1) (9,653 ) 24,102
Other (2) (20,655 ) (31,753 )
Net realized gains (losses) $ 122,163
$ 230,647


~~(1)~~	~~See Note 9 for information on the Company’s derivative instruments.~~


~~(2)~~	~~Includes the re-measurement of contingent consideration liability amounts.~~

(1) See note 9 for information on the Company’s derivative instruments.

Equity in Net Income (Loss) of Investment Funds Accounted for Using the Equity Method

The Company recorded ~~$31.1~~income of $59 million ~~of equity in net income~~ related to investment funds accounted for using the equity method in the ~~2017~~2023 third quarter, compared to ~~$16.7~~a loss of $19 million for


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

the ~~2016~~2022 third quarter and ~~$111.9~~income of $176 million for the nine months ended September 30, ~~2017,~~2023, compared to ~~$32.1~~income of $75 million for ~~the 2016 period.~~nine months ended September 30, 2022. In applying the equity method, 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 market value of the underlying securities in the funds). Such investments are generally recorded on a one to three month lag based on the availability of reports from the investment funds.

Investments in Operating Affiliates

Investments in which the Company has significant influence over the operating and financial policies are classified as ‘investments in operating affiliates’ on the Company’s balance sheets and are accounted for under the equity method. Such investments primarily include the Company’s investment in Coface SA (“Coface”), Greysbridge Holdings Ltd., (“Greysbridge”) and Premia Holdings Ltd. Investments in Coface and Premia Holdings Ltd. are generally recorded on a three month lag, while the Company’s investment in

Greysbridge is not recorded on a lag.

As of September 30, 2023, the Company owned approximately 29.9% of the issued shares of Coface, or 30% excluding treasury shares, with a carrying value of $521 million, compared to $563 million at December 31, 2022.

As of September 30, 2023, the Company owned 40% of Greysbridge with a carrying value of $362 million, compared to $306 million at December 31, 2022.

Income from operating affiliates for the 2023 third quarter was $54 million, compared to $9 million, for the 2022 third quarter, and income of $115 million for the nine months ended September 30, 2023, compared to income of $39 million for nine months ended September 30, 2022.

See note 15 for information on Company’s transactions with related parties.

Allowance for Expected Credit Losses

The following table provides a roll forward of the allowance for expected credit losses of the Company’s securities classified as available for sale:


	Structured Securities (1)		Corporate Bonds		Non-U.S. Government Securities		Total
Three Months Ended September 30, 2023
Balance at beginning of period	$	8	$	50	$	3	$	61

Additions for current-period provision for expected credit losses	2		4		—		6
Additions (reductions) for previously recognized expected credit losses	—		(3)		—		(3)
Reductions due to disposals	(2)		(4)		(1)		(7)

Balance at end of period	$	8	$	47	$	2	$	57

Three Months Ended September 30, 2022
Balance at beginning of period	$	19	$	40	$	—	$	59

Additions for current-period provision for expected credit losses	2		2		—		4
Additions (reductions) for previously recognized expected credit losses	(10)		(3)		—		(13)
Reductions due to disposals	(2)		(2)		—		(4)

Balance at end of period	$	9	$	37	$	—	$	46

Nine Months Ended September 30, 2023
Balance at beginning of period	$	9	$	30	$	2	$	41

Additions for current-period provision for expected credit losses	2		5		—		7
Additions (reductions) for previously recognized expected credit losses	(1)		18		1		18
Reductions due to disposals	(2)		(6)		(1)		(9)

Balance at end of period	$	8	$	47	$	2	$	57

Nine Months Ended September 30, 2022
Balance at beginning of period	$	1	$	2	$	—	$	3

Additions for current-period provision for expected credit losses	13		40		—		53
Additions (reductions) for previously recognized expected credit losses	(3)		(3)		—		(6)
Reductions due to disposals	(2)		(2)		—		(4)

Balance at end of period	$	9	$	37	$	—	$	46

(1) Includes asset backed securities, residential mortgage backed securities and commercial mortgage backed securities.



ARCH CAPITAL	~~ACGL 2017~~ 25	2023 THIRD QUARTER FORM 10-Q	28

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~Other-Than-Temporary Impairments~~

The Company performs quarterly reviews of its available for sale investments in order to determine whether declines in fair value below the amortized cost basis were considered other-than-temporary in accordance with applicable guidance.

~~The following table details the net impairment losses recognized in earnings by asset class:~~

September 30,
2017 2016
Three Months Ended
Fixed maturities:

Mortgage backed securities $ (50 ) $ (233 )
Corporate bonds (82 ) —
Non-U.S. government securities (178 ) (545 )
U.S. government and government agencies (426 ) —
Municipal bonds (202 ) —
Total (938 ) (778 )
Equity securities (940 ) (557 )
Other investments —
(2,532 )
Net impairment losses recognized in earnings $ (1,878 ) $ (3,867 )

Nine Months Ended
Fixed maturities:
Mortgage backed securities $ (1,461 ) $ (788 )
Corporate bonds (1,484 ) (5,655 )
Non-U.S. government securities (376 ) (777 )
Asset backed securities —
(2,506 )
U.S. government and government agencies (426 ) —
Municipal bonds (375 ) —
Total (4,122 ) (9,726 )
Equity securities (1,126 ) (3,594 )
Other investments (167 ) (3,529 )
Net impairment losses recognized in earnings $ (5,415 ) $ (16,849 )

Net impairment losses recognized in earnings in the 2017 third quarter were primarily related to equities and on fixed maturities with foreign currency fluctuations. For the nine months ended September 30, 2017, net impairment losses recognized in earnings reflected the Company’s decision to liquidate a portfolio of mortgage backed securities in April 2017. The Company recorded impairment losses on securities in such portfolio that were in an unrealized loss position at March 31, 2017.

The Company believes that the $2.2 million of OTTI included in accumulated other comprehensive income at September 30, 2017 on the securities which were considered by the Company to be impaired was due to market and sector-related factors (~~i.e.~~, not credit losses). At September 30, 2017, the Company did not intend to sell these securities, or any other securities which were in an unrealized loss position, and determined that it is more likely than not that the Company will not be required to sell such securities before recovery of their cost basis.

~~The following table provides a roll forward of the amount related to credit losses recognized in earnings for which a portion of an OTTI was recognized in accumulated other comprehensive income:~~

September 30,
2017 2016
Three Months Ended
Balance at start of period $ 4,437
$ 14,847
Credit loss impairments recognized on securities not previously impaired —
38
Credit loss impairments recognized on securities previously impaired 15
60
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security —
—
Reductions for securities sold during the period (689 ) (1,166 )
Balance at end of period $ 3,763
$ 13,779

Nine Months Ended
Balance at start of year $ 13,138
$ 26,875
Credit loss impairments recognized on securities not previously impaired 31
1,388
Credit loss impairments recognized on securities previously impaired 210
582
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security —
—
Reductions for securities sold during the period (9,616 ) (15,066 )
Balance at end of period $ 3,763
$ 13,779

Restricted Assets

The Company is required to maintain assets on deposit, which primarily consist of fixed maturities, with various regulatory authorities to support its ~~insurance and reinsurance~~underwriting operations. The Company’s ~~insurance and reinsurance~~ subsidiaries maintain assets in trust accounts as collateral for ~~insurance and reinsurance~~ transactions with affiliated companies and also have investments in segregated portfolios primarily to provide collateral or guarantees for letters of credit to third parties. See ~~Note 10 for further details.~~ note 18, “Commitments and Contingencies,” of the notes to consolidated financial statements in the Company’s 2022 Form 10-K.

The following table details the value of the Company’s restricted assets:

September 30,
2017 December 31,
2016
Assets used for collateral or guarantees:

Affiliated transactions $ 4,264,131
$ 3,871,971
Third party agreements 1,689,104
1,513,079
Deposits with U.S. regulatory authorities 618,136
472,890
Deposits with non-U.S. regulatory authorities 56,753
44,399
Total restricted assets $ 6,628,124
$ 5,902,339


	September 30, 2023		December 31, 2022
Assets used for collateral or guarantees:
Affiliated transactions	$	4,572	$	4,254
Third party agreements	2,849		2,633
Deposits with U.S. regulatory authorities	788		776
Other (1)	1,250		1,038

Total restricted assets	$	9,459	$	8,701

(1) Primarily includes Funds at Lloyds, deposits with non-U.S. regulatory authorities and other restricted assets.

Reconciliation of Cash and Restricted Cash

The following table details reconciliation of cash and restricted cash within the Consolidated Balance Sheets:


	September 30, 2023		December 31, 2022
Cash	$	859	$	855
Restricted cash (included in ‘other assets’)	496		418
Cash and restricted cash	$	1,355	$	1,273

8. Fair Value



			~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	29

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~8. Fair Value~~

Accounting guidance regarding fair value measurements addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement (Level 1 being the highest priority and Level 3 being the lowest priority).

The levels in the hierarchy are defined as follows:


Level 1:						Inputs to the valuation methodology are observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets


Level 2:						Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument


Level 3:						Inputs to the valuation methodology are unobservable and significant to the fair value measurement

Following is a description of the valuation methodologies used for securities measured at fair value, as well as the general classification of such securities pursuant to the valuation hierarchy. The Company reviews its securities measured at fair value and discusses the proper classification of such investments with investment advisers and others.

The Company determines the existence of an active market based on its judgment as to whether transactions for the financial instrument occur in such market with sufficient frequency and volume to provide reliable pricing information. The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. The Company uses quoted values and other data provided by nationally recognized independent pricing sources as inputs into its process for determining fair values of its fixed maturity investments. To validate the techniques or models used by pricing sources, the Company's review process includes, but is not limited to: (i) quantitative analysis ~~(e.g.~~(e.g.,

comparing the quarterly return for each managed portfolio to its target benchmark, with significant differences identified and investigated); (ii) a review of the average number of prices obtained in the pricing process and the range of resulting fair values; (iii) initial and ongoing evaluation of methodologies used by outside parties to calculate fair value; (iv) a comparison of the fair value estimates to the Company’s knowledge of the current market; (v) a comparison of the pricing services' fair values to other pricing services' fair values for the same investments; and (vi) periodic back-testing, which includes randomly selecting purchased or sold securities and comparing the executed prices to the fair value estimates from the pricing service. A price source hierarchy was maintained in order to determine which price source would be used (i.e., a price obtained from a pricing service with more seniority in the hierarchy will be used over a less senior one in all cases). The hierarchy prioritizes pricing


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

services based on availability and reliability and assigns the highest priority to index providers. Based on the above review, the Company will challenge any prices for a security or portfolio which are considered not to be representative of fair value. The Company did not adjust any of the prices obtained from the independent pricing sources at September 30, ~~2017.~~2023.

In certain circumstances, when fair values are unavailable from these independent pricing sources, quotes are obtained directly from broker-dealers who are active in the corresponding markets. Such quotes are subject to the validation procedures noted above. Where quotes are unavailable, fair value is determined by the Investment Manager using quantitative and qualitative assessments such as internally modeled values. Of the ~~$21.14~~$27.5 billion of financial assets and liabilities measured at fair value at September 30, ~~2017,~~2023, approximately ~~$242.9~~$15 million, or ~~1.2%~~0.1%, were priced using non-binding broker-dealer ~~quotes.~~quotes or modeled valuations. Of the ~~$19.10~~$23.8 billion of financial assets and liabilities measured at fair value at December 31, ~~2016,~~2022, approximately ~~$234.0~~$13 million, or ~~1.2%~~0.1%, were priced using non-binding broker-dealer ~~quotes.~~quotes or modeled valuations.

Fixed maturities

The Company uses the market approach valuation technique to estimate the fair value of its fixed maturity securities, when possible. The market approach includes obtaining prices from independent pricing services, such as index providers and pricing vendors, as well as to a lesser extent quotes from broker-dealers. The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. Each source has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of “matrix pricing” in which the independent pricing source uses observable market inputs including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair value.



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	30

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

The following describes the significant inputs generally used to determine the fair value of the Company’s fixed maturity securities by asset class:

•U.S. government and government agencies — – valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The Company determined that all U.S. Treasuries would be classified as Level 1 securities due to observed levels of trading activity, the high number of strongly correlated pricing quotes received on U.S. Treasuries and other factors. The fair values of U.S. government agency securities are generally determined using the spread above the risk-free

yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency securities are classified within Level 2.

•Corporate bonds —– valuations provided by independent pricing services, substantially all through index providers and pricing vendors with a small amount through broker-dealers. The fair values of these securities are generally determined using the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. As the significant inputs used in the pricing process for corporate bonds are observable market inputs, the fair value of these securities are classified within Level 2. A small number of securities are included in Level 3 due to a low level of transparency on the inputs used in the pricing process.

•~~Mortgage-backed~~Municipal bonds– valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The fair values of these securities —are generally determined using spreads obtained from broker-dealers who trade in the relevant security market, trade prices and the new issue market. As the significant inputs used in the pricing process for municipal bonds are observable market inputs, the fair value of these securities are classified within Level 2.

Residential mortgage-backed securities– valuations provided by independent pricing services, substantially all through pricing vendors and index providers with a small amount through broker-dealers. The fair values of these securities are generally determined through the use of pricing models (including Option Adjusted Spread) which use spreads to determine the expected average life of the securities. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. The pricing services also review prepayment speeds and other indicators, when applicable. As the significant inputs used in the pricing process for mortgage-backed securities are observable market inputs, the fair value of these securities are classified within Level 2. A small number of securities are included in Level 3 due to a low level of transparency on the inputs used in the pricing process.

•Municipal bonds — valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The fair values of these securities are generally determined using spreads obtained from broker-dealers who trade in the relevant security market, trade prices and the new issue market. As the significant inputs used in the pricing process for municipal bonds are observable market inputs, the fair value of these securities are classified within Level 2.

•Commercial mortgage-backed securities —– valuations provided by independent pricing services, substantially all through index providers and pricing vendors with a small amount through broker-dealers. The fair values of these securities are generally determined through the use of pricing models which use spreads to determine the appropriate average life of the securities. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. The pricing services also review prepayment speeds


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

and other indicators, when applicable. As the significant inputs used in the pricing process for commercial mortgage-backed securities are observable market inputs, the fair value of these securities are classified within Level 2. ~~A small number of securities are included in Level 3 due to a low level of transparency on the inputs used in the pricing process.~~

•Non-U.S. government securities —– valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The fair values of these securities are generally based on international indices or valuation models which include daily observed yield curves, cross-currency basis index spreads and country credit spreads. As the significant inputs used in the pricing process for non-U.S. government securities are observable market inputs, the fair value of these securities are classified within Level 2.

•Asset-backed securities —– valuations provided by independent pricing services, substantially all through index providers and pricing vendors with a small amount through broker-dealers. The fair values of these securities are generally determined through the use of pricing models (including Option Adjusted Spread) which use spreads to determine the appropriate average life of the securities. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. The pricing services also review prepayment speeds and other indicators, when applicable. As the significant inputs used in the pricing process for asset-backed securities are observable market inputs, the fair value of these securities are classified within Level 2. ~~A small number of securities are included in Level 3 due to a low level of transparency on the inputs used in the pricing process.~~

~~During the 2017 third quarter, the Company transferred $17.6 million of fixed maturities from Level 2 to Level 3 based on a review of the pricing of such securities, as described above.~~

Equity securities

The Company determined that exchange-traded equity securities would be included in Level 1 as their fair values are based on quoted market prices in active markets. ~~Other~~Certain equity securities are included in Level 2 of the valuation ~~hierarchy.~~



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	31

~~Table~~hierarchy as the significant inputs used in the pricing process for such securities are observable market inputs. Other equity securities are included in Level 3 due to the lack of ~~Contents~~an available independent price source for such securities. As the significant inputs used to price these securities are unobservable, the fair value of such securities are classified as Level 3.

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Other investments

The ~~Company determined that exchange-traded~~Company’s other investments ~~in mutual funds would be included in Level 1 as their fair values are based on quoted market prices in active markets. Other investments also~~ include term loan investments for which fair values are estimated by using quoted prices of term loan investments with similar characteristics, pricing models or matrix pricing. Such investments are generally classified within Level 2. The fair values for certain of the Company’s other investments are determined using net asset values as advised by external fund managers. The net asset value is based on the fund manager’s valuation of the underlying holdings in accordance with the fund’s governing documents. In accordance with applicable accounting guidance, certain investments that are measured at

fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. A small number of securities are included in Level 3 due to the lack of an available independent price source for such securities. ~~During the 2017 third quarter, the Company transferred $4.8 million of other investments from Level 2 to Level 3 based on a review of the pricing of such securities, as described above.~~

Derivative instruments

The Company’s futures contracts, foreign currency forward contracts, interest rate swaps and other derivatives trade in the over-the-counter derivative market. The Company uses the market approach valuation technique to estimate the fair value for these derivatives based on significant observable market

inputs from third party pricing vendors, non-binding broker-dealer quotes and/or recent trading activity. As the significant inputs used in the pricing process for these derivative instruments are observable market inputs, the fair value of these securities are classified within Level 2.

Short-term investments

The Company determined that certain of its short-term investments held in highly liquid money market-type funds, Treasury bills and commercial paper would be included in Level 1 as their fair values are based on quoted market prices in active markets. The fair values of ~~other~~certain short-term investments are generally determined using the spread above the risk-free yield curve and are classified within Level 2. Other short-term investments are included in Level 3 due to the lack of an available independent price source for such securities. As the significant inputs used to price these short-term securities are unobservable, the fair value of such securities are classified as Level 3.

~~Contingent consideration liabilities~~Residential mortgage loans

~~Contingent consideration liabilities~~The Company’s residential mortgage loans (included in ‘other ~~liabilities’~~assets’ in the consolidated balance sheets) include amounts related to the ~~acquisition~~Company’s whole mortgage loan purchase and sell program. Fair values of ~~CMG Mortgage Insurance Company~~residential mortgage loans are generally determined based on market prices. As significant inputs used in pricing process for these residential mortgage loans are observable market inputs, the fair value of these securities are classified within Level 2.

Other liabilities

The Company’s other liabilities include contingent and ~~its affiliated mortgage insurance companies and other~~deferred consideration liabilities related to the Company’s acquisitions. ~~Such amounts~~Contingent consideration liabilities are remeasured at fair value at each balance sheet date with changes in fair value recognized in ‘net realized gains (losses).’ To determine the fair value of contingent consideration liabilities, the Company estimates the future payments using an income approach based on modeled inputs which include a weighted average cost of capital. Deferred consideration liabilities are measured at fair value on the transaction date. The Company determined that contingent and deferred consideration liabilities would be included within Level 3.



ARCH CAPITAL	~~ACGL 2017~~ 28	2023 THIRD QUARTER FORM 10-Q	32

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the Company’s financial assets and liabilities measured at fair value by level at September 30, ~~2017:~~

2023:


															Estimated Fair Value Measurements Using:
													Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured at fair value:												Assets measured at fair value:
Available for sale securities:												Available for sale securities:
Fixed maturities:												Fixed maturities:
Corporate bonds												Corporate bonds	$	10,064	$	—	$	9,940	$	124
U.S. government and government agencies												U.S. government and government agencies	5,662		5,640		22		—
Asset backed securities												Asset backed securities	2,342		—		2,342		—
Non-U.S. government securities												Non-U.S. government securities	2,052		—		2,052		—
Commercial mortgage backed securities												Commercial mortgage backed securities	1,102		—		1,102		—
Residential mortgage backed securities												Residential mortgage backed securities	965		—		965		—
Municipal bonds												Municipal bonds	298		—		298		—
Total												Total	22,485		5,640		16,721		124

Short-term investments												Short-term investments	1,682		1,635		47		—

Equity securities, at fair value												Equity securities, at fair value	894		860		29		5

				Estimated Fair Value Measurements Using:
	Estimated Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets measured at fair value (1):
Available for sale securities:
Fixed maturities:
Corporate bonds	$	4,275,437		$	—	$	4,263,446		$	11,991
Mortgage backed securities	323,900			—		323,496			404
Municipal bonds	2,353,234			—		2,353,234			—
Commercial mortgage backed securities	584,730			—		584,185			545
U.S. government and government agencies	3,761,612			3,687,126		74,486			—
Non-U.S. government securities	1,473,819			—		1,473,819			—
Asset backed securities	1,544,919			—		1,539,919			5,000
Total	14,317,651			3,687,126		10,612,585			17,940

Equity securities	480,607			473,908		6,699			—
Derivative instruments (2)												Derivative instruments (2)	192		—		192		—

Short-term investments	1,646,036			1,600,885		45,151			—

Other investments	84,671			83,254		1,417			—
Other investments measured at net asset value (2)	175,668
Total other investments	260,339			83,254		1,417			—

Derivative instruments (4)	33,141			—		33,141			—
Residential mortgage loans												Residential mortgage loans	2		—		2		—

Fair value option:												Fair value option:
Corporate bonds	823,181			—		811,710			11,471			Corporate bonds	620		—		620		—
Non-U.S. government bonds	97,614			—		97,614			—			Non-U.S. government bonds	15		—		15		—
Mortgage backed securities	21,218			—		21,218			—
Municipal bonds	2,740			—		2,740			—
Commercial mortgage backed securities	12,539			—		12,539			—

Asset backed securities	63,437			—		63,437			—			Asset backed securities	2		—		2		—
U.S. government and government agencies	487,475			487,475		—			—			U.S. government and government agencies	7		7		—		—
Short-term investments	349,540			343,620		5,920			—			Short-term investments	13		1		8		4
Equity securities	94,685			59,332		35,353			—			Equity securities	7		3		—		4
Other investments	1,298,198			120,212		1,146,840			31,146			Other investments	341		—		241		100
Other investments measured at net asset value (2)	999,007
Other investments measured at net asset value (1)												Other investments measured at net asset value (1)	1,063
Total	4,249,634			1,010,639		2,197,371			42,617			Total	2,068		11		886		108

Total assets measured at fair value	$	20,987,408		$	6,855,812	$	12,896,364		$	60,557		Total assets measured at fair value	$	27,323	$	8,146	$	17,877	$	237

Liabilities measured at fair value:												Liabilities measured at fair value:
Contingent consideration liabilities	$	(59,248	)	$	—	$	—		$	(59,248	)
Securities sold but not yet purchased (3)	(72,682		)	—		(72,682		)	—
Derivative instruments (4)	(23,037		)	—		(23,037		)	—
Other liabilities												Other liabilities	$	(21)	$	—	$	—	$	(21)

Derivative instruments (2)												Derivative instruments (2)	(114)		—		(114)		—
Total liabilities measured at fair value	$	(154,967	)	$	—	$	(95,719	)	$	(59,248	)	Total liabilities measured at fair value	$	(135)	$	—	$	(114)	$	(21)


~~(1)~~	In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See Note 7, “Investment Information—Securities Lending Agreements.”

~~(2)~~

In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.


~~(3)~~	Represents the Company’s obligations to deliver securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company’s consolidated balance sheets.


~~(4)~~	~~See Note 9, “Derivative Instruments.”~~

(1) In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

(2) See note 9.



ARCH CAPITAL	~~ACGL 2017~~ 29	2023 THIRD QUARTER FORM 10-Q	33

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the Company’s financial assets and liabilities measured at fair value by level at December 31, ~~2016:~~2022:


			Estimated Fair Value Measurements Using:
	Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured at fair value:
Available for sale securities:
Fixed maturities:
Corporate bonds	$	8,020	$	—	$	7,899	$	121
U.S. government and government agencies	5,162		5,145		17		—
Asset backed securities	1,927		—		1,927		—
Non-U.S. government securities	2,313		—		2,313		—
Commercial mortgage backed securities	1,047		—		1,047		—
Residential mortgage backed securities	795		—		795		—
Municipal bonds	419		—		419		—
Total	19,683		5,145		14,417		121

Short-term investments	1,332		1,198		134		—

Equity securities, at fair value	860		829		28		3





Derivative instruments (2)	149		—		149		—

Residential mortgage loans	2		—		2		—


Fair value option:
Corporate bonds	543		—		543		—
Non-U.S. government bonds	4		—		4		—



Asset backed securities	2		—		2		—
U.S. government and government agencies	5		5		—		—
Short-term investments	33		1		32		—
Equity securities	14		10		—		4
Other investments	196		—		163		33
Other investments measured at net asset value (1)	847
Total	1,644		16		744		37

Total assets measured at fair value	$	23,670	$	7,188	$	15,474	$	161

Liabilities measured at fair value:
Other liabilities	$	(14)	$	—	$	—	$	(14)

Derivative instruments (2)	(76)		—		(76)		—
Total liabilities measured at fair value	$	(90)	$	—	$	(76)	$	(14)

Estimated Fair Value Measurements Using:
Estimated
Fair
Value
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets measured at fair value (1):

Available for sale securities:

Fixed maturities:

Corporate bonds $ 4,392,373
$ —
$ 4,374,029
$ 18,344
Mortgage backed securities 490,093
—
490,093
—
Municipal bonds 3,713,434
—
3,713,434
—
Commercial mortgage backed securities 536,051
—
536,051
—
U.S. government and government agencies 2,804,540
2,691,575
112,965
—
Non-U.S. government securities 1,096,440
—
1,096,440
—
Asset backed securities 1,123,987
—
1,112,698
11,289
Total 14,156,918
2,691,575
11,435,710
29,633

Equity securities 532,680
529,695
2,985
—

Short-term investments 612,005
608,862
3,143
—

Other investments 112,313
112,313
—
—
Other investments measured at net asset value (2) 55,657

Total other investments 167,970
112,313
—
—

Derivative instruments (4) 28,410
—
28,410
—

Fair value option:
Corporate bonds 790,935
—
790,935
—
Non-U.S. government bonds 61,747
—
61,747
—
Mortgage backed securities 18,624
—
18,624
—
Asset backed securities 30,324
—
30,324
—
U.S. government and government agencies 197,486
197,486
—
—
Short-term investments 373,669
309,127
64,542
—
Equity securities 27,642
25,328
2,314
—
Other investments 1,226,242
80,706
1,120,536
25,000
Other investments measured at net asset value (2) 694,551

Total 3,421,220
612,647
2,089,022
25,000

Total assets measured at fair value $ 18,919,203
$ 4,555,092
$ 13,559,270
$ 54,633

Liabilities measured at fair value:

Contingent consideration liabilities $ (122,350 ) $ —
$ —
$ (122,350 )
Securities sold but not yet purchased (3) (33,157 ) —
(33,157 ) —
Derivative instruments (4) (26,049 ) —
(26,049 ) —
Total liabilities measured at fair value $ (181,556 ) $ —
$ (59,206 ) $ (122,350 )


~~(1)~~	In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See Note 7, “Investment Information—Securities Lending Agreements.”

~~(2)~~


~~(3)~~	Represents the Company’s obligations to deliver securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company’s consolidated balance sheets.


~~(4)~~	~~See Note 9, “Derivative Instruments.”~~

(2) See note 9.



ARCH CAPITAL	~~ACGL 2017~~ 30	2023 THIRD QUARTER FORM 10-Q	34

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents a reconciliation of the beginning and ending balances for all financial assets and liabilities measured at fair value on a recurring basis using Level 3 inputs:


	Assets										Liabilities
s	Available For Sale				Fair Value Option						Fair Value
	Structured Securities (1)		Corporate Bonds		Other Investments		Short-tem Investments		Equity Securities		Equity Securities		Other Liabilities
Three Months Ended September 30, 2023
Balance at beginning of period	$	—	$	100	$	86	$	—	$	4	$	5	$	(19)
Total gains or (losses) (realized/unrealized)
Included in earnings (2)	—		—		—		—		—		—		—
Included in other comprehensive income	—		(1)		—		—		—		—		—
Purchases, issuances, sales and settlements
Purchases	—		25		29		4		—		—		—
Issuances	—		—		—		—		—		—		(4)
Sales	—		—		(6)		—		—		—		—
Settlements	—		—		(9)		—		—		—		2
Transfers in and/or out of Level 3	—		—		—		—		—		—		—
Balance at end of period	$	—	$	124	$	100	$	4	$	4	$	5	$	(21)

Three Months Ended September 30, 2022
Balance at beginning of period	$	3	$	4	$	34	$	—	$	5	$	3	$	(17)
Total gains or (losses) (realized/unrealized)
Included in earnings (2)	(1)		—		—		—		—		—		—
Included in other comprehensive income	—		—		—		—		—		—		1
Purchases, issuances, sales and settlements
Purchases	—		—		1		—		—		—		—
Issuances	—		—		—		—		—		—		—
Sales	(2)		(4)		(1)		—		—		—		—
Settlements	—		—		—		—		—		—		2
Transfers in and/or out of Level 3	—		—		—		—		—		—		—
Balance at end of period	$	—	$	—	$	34	$	—	$	5	$	3	$	(14)

Nine Months Ended September 30, 2023
Balance at beginning of year	$	—	$	121	$	33	$	—	$	4	$	4	$	(14)
Total gains or (losses) (realized/unrealized)
Included in earnings (2)	—		1		(1)		—		—		—		—
Included in other comprehensive income	—		(1)		—		—		—		—		—
Purchases, issuances, sales and settlements
Purchases	—		68		87		4		—		1		—
Issuances	—		—		—		—		—		—		(9)
Sales	—		—		(10)		—		—		—		—
Settlements	—		(65)		(9)		—		—		—		2
Transfers in and/or out of Level 3	—		—		—		—		—		—		—
Balance at end of period	$	—	$	124	$	100	$	4	$	4	$	5	$	(21)

Nine Months Ended September 30, 2022
Balance at beginning of year	$	3	$	—	$	28	$	—	$	5	$	3	$	(17)
Total gains or (losses) (realized/unrealized)
Included in earnings (2)	(1)		—		—		—		—		—		—
Included in other comprehensive income	—		—		—		—		—		—		1
Purchases, issuances, sales and settlements
Purchases	—		—		12		—		—		—		—
Issuances	—		—		—		—		—		—		—
Sales	(2)		(4)		(3)		—		—		—		—
Settlements	—		—		(3)		—		—		—		2
Transfers in and/or out of Level 3	—		4		—		—		—		—		—
Balance at end of period	$	—	$	—	$	34	$	—	$	5	$	3	$	(14)

(1) Includes asset backed securities, residential mortgage backed securities and commercial mortgage backed securities.

(2) Gains or losses were included in net realized gains (losses).

Assets Liabilities
s Available For Sale Fair Value Option
Structured Securities (1) Corporate
Bonds Corporate
Bonds
Other
Investments
Total Contingent Consideration Liabilities
Three Months Ended September 30, 2017

Balance at beginning of period $ —
$ 11,570
$ —
$ 25,000
$ 36,570
$ (57,246 )
Total gains or (losses) (realized/unrealized)
Included in earnings (2) —
—
—
—
—
(2,002 )
Included in other comprehensive income —
289
—
—
289
—
Purchases, issuances, sales and settlements
Purchases —
—
—
1,348
1,348
—
Issuances —
—
—
—
—
—
Sales —
—
—
—
—
—
Settlements —
—
—
—
—
—
Transfers in and/or out of Level 3 5,949
132
11,471
4,798
22,350
—
Balance at end of period $ 5,949
$ 11,991
$ 11,471
$ 31,146
$ 60,557
$ (59,248 )

Three Months Ended September 30, 2016

Balance at beginning of period $ 49,211
$ 17,305
$ —
$ —
$ 66,516
$ (111,670 )
Total gains or (losses) (realized/unrealized)
Included in earnings (2) —
1,667
—
—
1,667
(4,795 )
Included in other comprehensive income —
—
—
—
—
88
Purchases, issuances, sales and settlements
Purchases —
—
—
—
—
—
Issuances —
—
—
—
—
—
Sales —
—
—
—
—
—
Settlements (22,435 ) —
—
—
(22,435 ) —
Transfers in and/or out of Level 3 —
—
—
—
—
—
Balance at end of period $ 26,776
$ 18,972
$ —
$ —
$ 45,748
$ (116,377 )

Nine Months Ended September 30, 2017

Balance at beginning of year $ 11,289
$ 18,344
$ —
$ 25,000
$ 54,633
$ (122,350 )
Total gains or (losses) (realized/unrealized)
Included in earnings (2) 3,779
893
—
—
4,672
(9,089 )
Included in other comprehensive income —
289
—
—
289
—
Purchases, issuances, sales and settlements
Purchases —
4,935
—
1,348
6,283
—
Issuances —
—
—
—
—
—
Sales (13,640 ) (12,602 ) —
—
(26,242 ) —
Settlements (1,428 ) —
—
—
(1,428 ) 72,191
Transfers in and/or out of Level 3 5,949
132
11,471
4,798
22,350
—
Balance at end of period $ 5,949
$ 11,991
$ 11,471
$ 31,146
$ 60,557
$ (59,248 )

Nine Months Ended September 30, 2016

Balance at beginning of year $ 57,500
$ 16,368
$ —
$ —
$ 73,868
$ (96,048 )
Total gains or (losses) (realized/unrealized)
Included in earnings (2) (2,500 ) 1,828
—
—
(672 ) (20,916 )
Included in other comprehensive income —
—
—
—
—
51
Purchases, issuances, sales and settlements
Purchases —
776
—
—
776
—
Issuances —
—
—
—
—
—
Sales —
—
—
—
—
—
Settlements (28,224 ) —
—
—
(28,224 ) 536
Transfers in and/or out of Level 3 —
—
—
—
—
—
Balance at end of period $ 26,776
$ 18,972
$ —
$ —
$ 45,748
$ (116,377 )


~~(1)~~	~~Includes asset backed securities, mortgage backed securities and commercial mortgage backed securities.~~


~~(2)~~	For the 2017 periods, gains or losses were included in net realized gains (losses). For the 2016 periods, losses on structured securities were included in net impairment losses recognized in earnings gains or losses while gains or losses on corporate bonds and contingent consideration liabilities were included in net realized gains (losses).



ARCH CAPITAL	~~ACGL 2017~~ 31	2023 THIRD QUARTER FORM 10-Q	35

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Financial Instruments Disclosed, But Not Carried, At Fair Value

The Company uses various financial instruments in the normal course of its business. The carrying values of cash, accrued investment income, receivable for securities sold, certain other assets, payable for securities purchased and certain other liabilities approximated their fair values at September 30, ~~2017,~~2023, due to their respective short maturities. As these financial instruments are not actively traded, their respective fair values are classified within Level 2.

At September 30, ~~2017,~~2023, the Company’s senior notes ~~of ACGL~~ were carried at their cost, net of debt issuance costs, of ~~$297.0 million~~$2.7 billion and had a fair value of ~~$406.0 million, while~~$2.3 billion. At December 31, 2022, the Company’s senior notes ~~of Arch Capital Group (U.S.) Inc. (“Arch-U.S.”)~~ were carried at their cost, net of debt issuance costs, of ~~$494.6 million~~$2.7 billion and had a fair value of $566.2 million. The senior notes of Arch Capital Finance LLC due in 2026 were carried at their cost, net of debt issuance costs, of $496.0 million and had a fair value of $519.8 million, while the senior notes due in 2046 were carried at their cost, net of debt issuance costs, of $445.1 million and had a fair value of $503.5 million.$2.4 billion. The fair values of the senior notes were obtained from a third party pricing service and are based on observable market inputs. As such, the fair values of the senior notes are classified within Level 2.

9. Derivative Instruments

The Company’s investment strategy allows for the use of derivative instruments. The Company’s derivative instruments are recorded on its consolidated balance sheets at fair value. The Company utilizes exchange traded U.S. Treasury note, Eurodollar and other futures contracts and commodity futures to manage portfolio duration or replicate investment positions in its portfolios and the Company routinely utilizes foreign currency forward contracts, currency options, index futures contracts and other derivatives as part of its total return objective. In addition, certain of the Company’s investments are managed in portfolios which incorporate the use of foreign currency forward contracts which are intended to provide an economic hedge against foreign currency movements.

~~In addition,~~From time to time, the Company purchases to-be-announced mortgage backed securities (“TBAs”) as part of its investment strategy. TBAs represent commitments to purchase a future issuance of agency mortgage backed securities. For the period between purchase of a TBA and issuance of the underlying security, the Company’s position is accounted for as a derivative. The Company purchases TBAs in both long and short positions to enhance investment performance and as part of its overall investment strategy.

The following table summarizes information on the fair values and notional values of the Company’s derivative instruments:


	Estimated Fair Value
	Asset Derivatives (1)		Liability Derivatives (1)		Notional Value (2)
September 30, 2023
Futures contracts	$	129	$	(62)	$	4,515
Foreign currency forward contracts	32		(35)		1,481

Other (3)	31		(17)		275
Total	$	192	$	(114)

December 31, 2022
Futures contracts	$	51	$	(17)	$	3,138
Foreign currency forward contracts	39		(35)		1,136

Other (3)	59		(24)		3,592
Total	$	149	$	(76)

Estimated Fair Value
Asset Derivatives Liability Derivatives
Notional
Value (1)
September 30, 2017
Futures contracts (2) $ 5,351
$ (6,722 ) $ 1,524,985
Foreign currency forward contracts (2) 19,376
(5,348 ) 805,201
TBAs (3) 18,331
—
18,143
Other (2) 8,414
(10,967 ) 2,032,922
Total $ 51,472
$ (23,037 )

December 31, 2016
Futures contracts (2) $ 360
$ (9,398 ) $ 1,655,530
Foreign currency forward contracts (2) 9,354
(12,941 ) 1,186,386
TBAs (3) —
—
—
Other (2) 20,287
(3,710 ) 1,014,863
Total $ 30,001
$ (26,049 )
(1) The fair value of asset derivatives are included in ‘other assets’ and the fair value of liability derivatives are included in ‘other liabilities.’


~~(1)~~	~~Represents the absolute notional value of all outstanding contracts, consisting of long and short positions.~~


~~(2)~~	~~The fair value of asset derivatives are included in ‘other assets’ and the fair value of liability derivatives are included in ‘other liabilities.’~~


~~(3)~~	~~The fair value of TBAs are included in ‘fixed maturities available for sale, at fair value.’~~

(2) Represents the absolute notional value of all outstanding contracts, consisting of long and short positions.

(3) Includes swaps, options and other derivatives contracts.

The Company did not hold any derivatives which were designated as hedging instruments at September 30, ~~2017~~2023 or December 31, ~~2016.~~2022.

The Company’s derivative instruments can be traded under master netting agreements, which establish terms that apply to all derivative transactions with a counterparty. In the event of a bankruptcy or other stipulated event of default, such agreements provide that the non-defaulting party may elect to terminate all outstanding derivative transactions, in which case all individual derivative positions (loss or gain) with a counterparty are closed out and netted and replaced with a single amount, usually referred to as the termination amount, which is expressed in a single currency. The resulting single net amount, where positive, is payable to the party “in-the-money” regardless of whether or not it is the defaulting party,

unless the parties have agreed that only the non-defaulting party is entitled to receive a termination payment where the net amount is positive and is in its favor. Contractual close-out netting reduces derivatives credit exposure from gross to net exposure.

At September 30, ~~2017,~~2023, asset derivatives and liability derivatives of ~~$49.4~~$192 million and ~~$22.5~~$114 million, respectively, were subject to a master netting agreement, compared to ~~$28.4~~$147 million and ~~$26.0~~$73 million, respectively, at December 31, ~~2016.~~2022. The remaining derivatives included in the preceding table were not subject to a master netting agreement.

~~All realized~~


ARCH CAPITAL			32			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Realized and unrealized contract gains and losses on the Company’s derivative instruments are reflected in ~~net~~‘net realized



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	36

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

gains (losses)’ in the consolidated statements of income, as summarized in the following table:


Derivatives not designated as	September 30,
hedging instruments:	2023		2022

Three Months Ended
Net realized gains (losses):
Futures contracts	$	(87)	$	(26)
Foreign currency forward contracts	(20)		(18)

Other (1)	5		(4)
Total	$	(102)	$	(48)

Nine Months Ended
Net realized gains (losses):
Futures contracts	$	(73)	$	(112)
Foreign currency forward contracts	4		(46)

Other (1)	8		40
Total	$	(61)	$	(118)

Derivatives not designated as September 30,
hedging instruments: 2017 2016

Three Months Ended
Net realized gains (losses):
Futures contracts $ 4,899
$ (15,368 )
Foreign currency forward contracts (228 ) 4,583
TBAs 122
(23 )
Other (495 ) (6,156 )
Total $ 4,298
$ (16,964 )

Nine Months Ended
Net realized gains (losses):
Futures contracts $ 7,309
$ 45,954
Foreign currency forward contracts (12,266 ) (13,951 )
TBAs 143
311
Other (4,839 ) (8,212 )
Total $ (9,653 ) $ 24,102
(1) Includes realized gains and losses on swaps, options and other derivatives contracts.

10. Commitments and Contingencies

Letter of Credit and Revolving Credit Facilities

~~ACGL~~In the normal course of its operations, the Company enters into agreements with financial institutions to obtain secured and unsecured credit facilities. On August 23, 2023, Arch Capital and certain of its subsidiaries amended the existing credit agreement (the “Credit Facility”). The Credit Facility, as amended, consists of a $425 million secured facility for letters of credit (the “Secured Facility”) and a $500 million unsecured facility for revolving loans and letters of credit (the “Unsecured Facility”). Obligations of each borrower for letters of credit under the Secured Facility are secured by cash and eligible securities of such borrower and held in collateral accounts. Commitments under the Credit Facility may be increased up to, but not exceeding, an aggregate of $1.5 billion. Arch Capital has a one-time option to convert any or all outstanding revolving loans of Arch Capital and/or Arch Capital Group (U.S.) Inc. (“Arch-U.S.”) to term loans with the same terms as the revolving loans except that any prepayments may not be re-borrowed. Borrowings of revolving loans may be made at a variable rate based on Secured Overnight Financing Rate (“SOFR”). Secured letters of credit are available for issuance on behalf of certain Arch Capital subsidiaries. Arch Capital guarantees the obligations of Arch-U.S. and Arch U.S. MI Holdings Inc., Arch-U.S. guarantees the obligations of Arch Capital, and Arch Capital Finance LLC guarantees the obligations of Arch Capital and Arch-U.S.

The commitments under the Credit Agreement will expire on August 23, 2028, and all loans then outstanding under the Credit Facility must be repaid ~~$100.0~~at such time. Letters of credit issued under the Credit Facility will not have an expiration date later than August 23, 2029.

On September 27, 2023, Arch Reinsurance Ltd., (“Arch Re Bermuda”) a wholly-owned subsidiary of Arch Capital, entered as the borrower into a Letter of Credit Facility Agreement (the “LOC Agreement”) with Lloyds Bank Corporate Markets plc (“Lloyds Bank”). The LOC Agreement provides for a $175 million unsecured facility for letters of ~~borrowings~~credit. The commitments under ~~its unsecured revolving loan and~~the LOC Agreement will expire on September 27, 2025.

At September 30, 2023, the $425 million secured letter of credit facility had $355 million of letters of credit outstanding and remaining capacity of $70 million. In addition, certain of Arch Capital’s subsidiaries had outstanding secured and unsecured letters of credit through other facilities of $35 million and $400 million respectively, which were issued in the ~~2017 third quarter, offset by an increase in borrowings in the Company’s ‘other’ segment.~~normal course of business.

See note 16, “Subsequent Events.”

Investment Commitments

The Company’s investment commitments, which are primarily related to agreements entered into by the Company to invest in funds and separately managed accounts when called upon, were approximately ~~$1.58~~$3.1 billion at September 30, ~~2017,~~2023, compared to ~~$1.29~~$2.9 billion at December 31, ~~2016.~~2022.

Interest Paid

~~11. Share Transactions~~

~~Share Repurchases~~

~~The board of directors of ACGL has authorized~~Interest paid on the ~~investment in ACGL’s common shares through a share repurchase program. Since the inception of the share repurchase program, ACGL has repurchased approximately 125.2~~Company’s senior notes and other borrowings was $63 million common shares for an aggregate purchase price of $3.68 billion. For the nine months ended September 30, 2017, the Company did not repurchase any shares under the share repurchase program, compared to 1.1 million common shares repurchased for the nine months ended September 30, ~~2016 with an aggregate purchase price of $75.3~~2023, compared to $65 million ~~(no repurchases in the 2016 third quarter). At September 30, 2017, $446.5 million of share~~

repurchases were available under the program, which may be effected from time to time in open market or privately negotiated transactions through December 31, 2019. The timing and amount of the repurchase transactions under this program will depend on a variety of factors, including market conditions and corporate and regulatory considerations.

~~Conversion of Convertible Non-Voting Common Equivalent Preferred Shares~~

On June 8, 2017, ACGL and AIG entered into Amendment No. 1 (the “Amendment”) to the Investor Rights Agreement (the “Investor Rights Agreement”) dated as of December 31, 2016 to amend the restrictions on transfers of the 1,276,282 shares of ACGL’s convertible non-voting common-equivalent preference shares owned by AIG (the “Convertible Preferred Shares”). The Convertible Preferred Shares were issued to AIG as part of the consideration in UGC acquisition. Pursuant to the certificate of designations for the ~~Convertible Preferred Shares and in accordance with the terms and conditions set forth therein, each Convertible Preferred Share is convertible into ten common shares of ACGL.~~

Pursuant to the Amendment, ACGL permitted AIG to transfer: (i) 638,141 Convertible Preferred Shares from and after June 8, 2017, and up to an additional 95,721 of the Convertible Preferred Shares to the extent that the several underwriters exercise the option to purchase additional securities expected to be granted pursuant to an underwritten secondary offering of ACGL common shares issuable upon conversion of the Convertible Preferred Shares by AIG and (ii) any and all of the Convertible Preferred Shares from and after January 15, 2018, subject to certain exceptions, and in each case subject to the terms and conditions of the Investor Rights Agreement. All other terms of the Investor Rights Agreement remain in effect.

In June 2017, ACGL completed an underwritten public secondary offering of 7,088,620 common shares by AIG following transfer of 708,862 Convertible Preferred Shares. Proceeds from the sale of common shares pursuant to the public offering were received by AIG. At September 30, 2017, 567,420 Convertible Preferred Shares were outstanding.

~~Series F Preferred Shares~~

In August 2017, ACGL completed a $230 million underwritten public offering of 9.2 million depositary shares (the “Depositary Shares”), each of which represents a 1/1,000th interest in a share of its 5.45% Non-Cumulative Preferred Shares, Series F, have a $0.01 par value and $25,000 liquidation preference per share (equivalent to $25 liquidation preference per Depositary Share) (the “Series F Preferred Shares”). Each Depositary Share, evidenced by a depositary receipt, entitles the holder, through the depositary, to a proportional fractional interest in all rights and preferences of the Series F Preferred Shares represented thereby (including any dividend, liquidation, redemption and voting rights).2022 period.



ARCH CAPITAL	~~ACGL 2017~~ 33	2023 THIRD QUARTER FORM 10-Q	37

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

11. Variable Interest Entities

Bellemeade Re

~~Holders~~The Company has entered into aggregate excess of ~~Series F Preferred Shares will be entitled to receive dividend payments only when, as and if declared by our board of directors or a duly authorized committee~~loss mortgage reinsurance agreements with various special purpose reinsurance companies domiciled in Bermuda (the “Bellemeade Agreements”). At the time the Bellemeade Agreements were entered into, the applicability of the ~~board. Any~~accounting guidance that addresses VIEs was evaluated. As a result of the evaluation of the Bellemeade Agreements, the Company concluded that these entities are VIEs. However, given that the ceding insurers do not have the unilateral power to direct those activities that are significant to their economic performance, the Company does not consolidate such ~~dividends will be payable from, and including,~~entities in its consolidated financial statements. The reinsurance premium paid in regard to the ~~date~~Bellemeade Agreements is calculated by multiplying the outstanding reinsurance coverage amount at the beginning of ~~original issue on~~the period by the coupon rate, which is the SOFR plus a ~~noncumulative basis, quarterly in arrears~~contractual risk margin, less the actual investment income collected during the preceding month on the ~~last day~~assets included in the underlying reinsurance trusts. In the event the assets included in the underlying reinsurance trusts (became severely impaired or worthless and the special purpose reinsurance companies were unable to meet their future obligations, the Company’s mortgage insurance subsidiaries would be liable to fulfill claim payments to policyholders. The Company’s maximum exposure to loss associated with these VIEs is determined as the amount of ~~March, June, September and December of each year, at an annual rate of 5.45%. Dividends~~mortgage insurance claim payments on the ~~Series F Preferred Shares are not cumulative.~~ insured policies, net of aggregate reinsurance payments previously received, up to the full aggregate excess of loss reinsurance coverage amounts. See note 16, “Subsequent Events.”

The ~~Company will be restricted from paying dividends on or repurchasing its common shares unless certain dividend payments are made on~~following table summarizes the ~~Series F Preferred Shares.~~

~~Except in specified circumstances relating to certain tax or corporate events, the Series F Preferred Shares are not redeemable prior to August 17, 2022 (the fifth anniversary~~total assets of the ~~issue date). On and after that date, the Series F Preferred Shares will be redeemable~~Bellemeade entities:



	September 30, 2023		December 31, 2022
Bellemeade Entities (Issue Date)	Total VIE Assets			Coverage Remaining from Reinsurers (1)		Total VIE Assets
2017-1 Ltd. (Oct-17)	$	—		$	—	$	37
2018-1 Ltd. (Apr-18)	51			—		90
2018-3 Ltd. (Oct-18)	154			—		199
2019-1 Ltd. (Mar-19)	80			—		108
2019-2 Ltd. (Apr-19)	265			—		325
2019-3 Ltd. (Jul-19)	120			—		223
2019-4 Ltd. (Oct-19)	218			—		266
2020-2 Ltd. (Sep-20)	54			—		105
2020-3 Ltd. (Nov-20)	183			4		244
2020-4 Ltd. (Dec-20)	67			2		98
2021-1 Ltd. (Mar-21)	388			17		467
2021-2 Ltd. (Jun-21)	380			58		458
2021-3 Ltd. (Sep-21)	444			116		490
2022-1 Ltd. (Jan-22)	269			30		284
2022-2 Ltd. (Sep-22)	201			126		201
Total	$	2,874		$	353	$	3,595

(1) Coverage from a separate panel of reinsurers remaining at the Company’s option, in whole or in part, at a redemption price of $25,000 per share of the Series F Preferred Shares (equivalent to $25 per depositary share), plus any declared and unpaid dividends, without accumulation of any undeclared dividends to, but excluding, the redemption date. The Depositary Shares will be redeemed if and to the extent the related Series F Preferred Shares are redeemed by the Company. Neither the Depositary Shares nor the Series F Preferred Shares have a stated maturity, nor will they be subject to any sinking fund or mandatory redemption. The Series F Preferred Shares are not convertible into any other securities. The Series F Preferred Shares will not have voting rights, except under limited circumstances.

The net proceeds from the offering of $222.1 million and other available funds were used to redeem in part its outstanding 6.75% Series C Non-Cumulative Preferred Shares. The preferred shares were redeemed at a redemption price equal to $25 per share, plus all declared and unpaid dividends to (but excluding) the redemption date. In accordance with GAAP, following the redemption, original issuance costs related to such shares have been removed from additional paid-in capital and recorded as a “loss on redemption of preferred shares.” Such adjustment had no impact on total shareholders’ equity or cash flows.September 30, 2023.



ARCH CAPITAL	~~ACGL 2017~~ 34	2023 THIRD QUARTER FORM 10-Q	38

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

12. Other Comprehensive Income (Loss)

The following tables present details about amounts reclassified from accumulated other comprehensive income and the tax effects allocated to each component of other comprehensive income (loss):


		Amounts Reclassified from AOCI
	Consolidated Statement of Income	Three Months Ended				Nine Months Ended
Details About	Line Item That Includes	September 30,				September 30,
AOCI Components	Reclassification	2023		2022		2023		2022

Unrealized appreciation (decline) on available-for-sale investments
	Net realized gains (losses)	$	(104)	$	(56)	$	(345)	$	(186)
	Provision for credit losses	—		9		(23)		(48)

	Total before tax	(104)		(47)		(368)		(234)
	Income tax (expense) benefit	8		1		24		28
	Net of tax	$	(96)	$	(46)	$	(344)	$	(206)

Amounts Reclassified from AOCI
Consolidated Statement of Income Three Months Ended Nine Months Ended
Details About Line Item That Includes September 30, September 30,
AOCI Components Reclassification 2017 2016 2017 2016

Unrealized appreciation on available-for-sale investments
Net realized gains (losses) $ 27,550
$ 61,464
$ 59,474
$ 137,555
Other-than-temporary impairment losses (1,878 ) (3,867 ) (5,415 ) (16,999 )
Total before tax 25,672
57,597
54,059
120,556
Income tax (expense) benefit (1,760 ) (2,605 ) (7,879 ) (11,247 )
Net of tax $ 23,912
$ 54,992
$ 46,180
$ 109,309


											Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
	Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
Three Months Ended September 30, 2017
Three Months Ended September 30, 2023										Three Months Ended September 30, 2023
Unrealized appreciation (decline) in value of investments:										Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	69,330		$	2,868		$	66,462		Unrealized holding gains (losses) arising during period	$	(208)	$	(18)	$	(190)
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)	—			—			—

Less reclassification of net realized gains (losses) included in net income	25,672			1,760			23,912			Less reclassification of net realized gains (losses) included in net income	(104)		(8)		(96)
Foreign currency translation adjustments	8,590			310			8,280			Foreign currency translation adjustments	(40)		—		(40)
Other comprehensive income (loss)	$	52,248		$	1,418		$	50,830		Other comprehensive income (loss)	$	(144)	$	(10)	$	(134)

Three Months Ended September 30, 2016
Three Months Ended September 30, 2022										Three Months Ended September 30, 2022
Unrealized appreciation (decline) in value of investments:										Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	11,692		$	(4,589	)	$	16,281		Unrealized holding gains (losses) arising during period	$	(672)	$	(62)	$	(610)
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)	—			—			—

Less reclassification of net realized gains (losses) included in net income	57,597			2,605			54,992			Less reclassification of net realized gains (losses) included in net income	(47)		(1)		(46)
Foreign currency translation adjustments	(5,407		)	(95		)	(5,312		)	Foreign currency translation adjustments	(70)		—		(70)
Other comprehensive income (loss)	$	(51,312	)	$	(7,289	)	$	(44,023	)	Other comprehensive income (loss)	$	(695)	$	(61)	$	(634)

Nine Months Ended September 30, 2017
Nine Months Ended September 30, 2023										Nine Months Ended September 30, 2023
Unrealized appreciation (decline) in value of investments:										Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	288,813		$	28,590		$	260,223		Unrealized holding gains (losses) arising during period	$	(131)	$	(13)	$	(118)
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)	—			—			—

Less reclassification of net realized gains (losses) included in net income	54,059			7,879			46,180			Less reclassification of net realized gains (losses) included in net income	(368)		(24)		(344)
Foreign currency translation adjustments	30,264			563			29,701			Foreign currency translation adjustments	(33)		—		(33)
Other comprehensive income (loss)	$	265,018		$	21,274		$	243,744		Other comprehensive income (loss)	$	204	$	11	$	193

Nine Months Ended September 30, 2016
Nine Months Ended September 30, 2022										Nine Months Ended September 30, 2022
Unrealized appreciation (decline) in value of investments:										Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	281,770		$	30,048		$	251,722		Unrealized holding gains (losses) arising during period	$	(2,132)	$	(240)	$	(1,892)
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)	(150		)	—			(150		)

Less reclassification of net realized gains (losses) included in net income	120,556			11,247			109,309			Less reclassification of net realized gains (losses) included in net income	(234)		(28)		(206)
Foreign currency translation adjustments	(5,733		)	417			(6,150		)	Foreign currency translation adjustments	(141)		—		(141)
Other comprehensive income (loss)	$	155,331		$	19,218		$	136,113		Other comprehensive income (loss)	$	(2,039)	$	(212)	$	(1,827)



ARCH CAPITAL	~~ACGL 2017~~ 35	2023 THIRD QUARTER FORM 10-Q	39

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

13. ~~Guarantor Financial Information~~

~~The following tables present condensed financial information for ACGL, Arch-U.S., a 100% owned subsidiary of ACGL, and ACGL’s other subsidiaries.~~

September 30, 2017
Condensed Consolidating Balance Sheet ACGL (Parent Guarantor) Arch-U.S. (Subsidiary Issuer) Other ACGL Subsidiaries Consolidating Adjustments and Eliminations ACGL Consolidated
Assets
Total investments $ 402
$ 69,671
$ 21,876,508
$ (14,700 ) $ 21,931,881
Cash 4,868
88,818
768,675
—
862,361
Investments in subsidiaries 9,214,178
4,028,493
—
(13,242,671 ) —
Due from subsidiaries and affiliates 81
117
1,923,941
(1,924,139 ) —
Premiums receivable —
—
1,863,203
(593,525 ) 1,269,678
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses —
—
7,023,836
(4,517,821 ) 2,506,015
Contractholder receivables —
—
1,864,348
—
1,864,348
Ceded unearned premiums —
—
2,240,129
(1,292,994 ) 947,135
Deferred acquisition costs —
—
677,567
(146,371 ) 531,196
Goodwill and intangible assets —
—
684,405
—
684,405
Other assets 13,357
59,734
2,146,993
(192,306 ) 2,027,778
Total assets $ 9,232,886
$ 4,246,833
$ 41,069,605
$ (21,924,527 ) $ 32,624,797

Liabilities
Reserve for losses and loss adjustment expenses $ —
$ —
$ 15,836,263
$ (4,484,996 ) $ 11,351,267
Unearned premiums —
—
5,044,544
(1,292,994 ) 3,751,550
Reinsurance balances payable —
—
945,530
(593,524 ) 352,006
Contractholder payables —
—
�� 1,864,348
—
1,864,348
Collateral held for insured obligations —
—
345,726

345,726
Senior notes 297,030
494,596
941,100
—
1,732,726
Revolving credit agreement borrowings —
—
826,242
—
826,242
Due to subsidiaries and affiliates 41
542,103
1,381,996
(1,924,140 ) —
Other liabilities 24,671
100,278
2,669,614
(371,502 ) 2,423,061
Total liabilities 321,742
1,136,977
29,855,363
(8,667,156 ) 22,646,926

Redeemable noncontrolling interests —
—
220,529
(14,700 ) 205,829

Shareholders’ Equity
Total shareholders’ equity available to Arch 8,911,144
3,109,856
10,132,815
(13,242,671 ) 8,911,144
Non-redeemable noncontrolling interests —
—
860,898
—
860,898
Total shareholders’ equity 8,911,144
3,109,856
10,993,713
(13,242,671 ) 9,772,042

Total liabilities, noncontrolling interests and shareholders’ equity $ 9,232,886
$ 4,246,833
$ 41,069,605
$ (21,924,527 ) $ 32,624,797

Income Taxes



			~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	40

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

December 31, 2016
Condensed Consolidating Balance Sheet ACGL (Parent Guarantor) Arch-U.S. (Subsidiary Issuer) Other ACGL Subsidiaries Consolidating Adjustments and Eliminations ACGL Consolidated
Assets
Total investments $ 2,612
$ 41,672
$ 19,690,067
$ (14,700 ) $ 19,719,651
Cash 1,687
71,955
769,300
—
842,942
Investments in subsidiaries 8,660,586
3,716,681
—
(12,377,267 ) —
Due from subsidiaries and affiliates 14,297
51,298
1,866,681
(1,932,276 ) —
Premiums receivable —
—
1,579,865
(507,430 ) 1,072,435
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses —
—
6,114,518
(4,000,380 ) 2,114,138
Contractholder receivables —
—
1,717,436
—
1,717,436
Ceded unearned premiums —
—
1,985,311
(1,125,744 ) 859,567
Deferred acquisition costs —
—
577,461
(129,901 ) 447,560
Goodwill and intangible assets —
—
781,553
—
781,553
Other assets 15,725
49,244
1,901,786
(149,928 ) 1,816,827
Total assets $ 8,694,907
$ 3,930,850
$ 36,983,978
$ (20,237,626 ) $ 29,372,109

Liabilities
Reserve for losses and loss adjustment expenses $ —
$ —
$ 14,164,191
$ (3,963,231 ) $ 10,200,960
Unearned premiums —
—
4,532,614
(1,125,744 ) 3,406,870
Reinsurance balances payable —
—
807,837
(507,430 ) 300,407
Contractholder payables —
—
1,717,436
—
1,717,436
Collateral held for insured obligations —
—
301,406
—
301,406
Deposit accounting liabilities —
—
22,150
—
22,150
Senior notes 296,957
494,525
940,776
—
1,732,258
Revolving credit agreement borrowings 100,000
—
656,650
—
756,650
Due to subsidiaries and affiliates 26,270
535,584
1,370,422
(1,932,276 ) —
Other liabilities 17,962
54,823
1,867,040
(316,978 ) 1,622,847
Total liabilities 441,189
1,084,932
26,380,522
(7,845,659 ) 20,060,984

Redeemable noncontrolling interests —
—
220,253
(14,700 ) 205,553

Shareholders’ Equity
Total shareholders’ equity available to Arch 8,253,718
2,845,918
9,531,349
(12,377,267 ) 8,253,718
Non-redeemable noncontrolling interests —
—
851,854
—
851,854
Total shareholders’ equity 8,253,718
2,845,918
10,383,203
(12,377,267 ) 9,105,572

Total liabilities, noncontrolling interests and shareholders’ equity $ 8,694,907
$ 3,930,850
$ 36,983,978
$ (20,237,626 ) $ 29,372,109



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	41

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Three Months Ended September 30, 2017
Condensed Consolidating Statement of Income and Comprehensive Income ACGL (Parent Guarantor) Arch-U.S. (Subsidiary Issuer) Other ACGL Subsidiaries Consolidating Adjustments and Eliminations ACGL Consolidated
Revenues
Net premiums earned $ —
$ —
$ 1,261,886
$ —
$ 1,261,886
Net investment income 117
151
138,784
(22,593 ) 116,459
Net realized gains (losses) —
—
66,275
—
66,275
Net impairment losses recognized in earnings —
—
(1,878 ) —
(1,878 )
Other underwriting income —
—
6,064
—
6,064
Equity in net income (loss) of investment funds accounted for using the equity method —
—
31,090
—
31,090
Other income (loss) (102 ) —
(240 ) —
(342 )
Total revenues 15
151
1,501,981
(22,593 ) 1,479,554

Expenses
Losses and loss adjustment expenses —
—
1,046,141
—
1,046,141
Acquisition expenses —
—
193,854
—
193,854
Other operating expenses —
—
170,127
—
170,127
Corporate expenses 14,576
410
2,112
—
17,098
Amortization of intangible assets —
—
31,824
—
31,824
Interest expense 5,934
12,037
33,811
(22,272 ) 29,510
Net foreign exchange (gains) losses —
—
20,510
7,518
28,028
Total expenses 20,510
12,447
1,498,379
(14,754 ) 1,516,582

Income (loss) before income taxes (20,495 ) (12,296 ) 3,602
(7,839 ) (37,028 )
Income tax (expense) benefit —
4,432
(12,621 ) —
(8,189 )
Income (loss) before equity in net income of subsidiaries (20,495 ) (7,864 ) (9,019 ) (7,839 ) (45,217 )
Equity in net income (loss) of subsidiaries (13,161 ) 50,057
—
(36,896 ) —
Net income (loss) (33,656 ) 42,193
(9,019 ) (44,735 ) (45,217 )
Net (income) loss attributable to noncontrolling interests —
—
11,238
323
11,561
Net income (loss) available to Arch (33,656 ) 42,193
2,219
(44,412 ) (33,656 )
Preferred dividends (12,369 ) —
—
—
(12,369 )
Loss on redemption of preferred shares (6,735 ) —
—
—
(6,735 )
Net income (loss) available to Arch common shareholders $ (52,760 ) $ 42,193
$ 2,219
$ (44,412 ) $ (52,760 )

Comprehensive income (loss) available to Arch $ 17,585
$ 47,676
$ 45,936
$ (93,612 ) $ 17,585



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	42

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Three Months Ended September 30, 2016
Condensed Consolidating Statement of Income and Comprehensive Income ACGL (Parent Guarantor) Arch-U.S. (Subsidiary Issuer) Other ACGL Subsidiaries Consolidating Adjustments and Eliminations ACGL Consolidated
Revenues
Net premiums earned $ —
$ —
$ 958,403
$ —
$ 958,403
Net investment income 6
803
99,654
(6,845 ) 93,618
Net realized gains (losses) —
—
125,105
—
125,105
Net impairment losses recognized in earnings —
—
(3,867 ) —
(3,867 )
Other underwriting income —
—
7,980
—
7,980
Equity in net income (loss) of investment funds accounted for using the equity method —
—
16,662
—
16,662
Other income (loss) 71
—
(471 ) —
(400 )
Total revenues 77
803
1,203,466
(6,845 ) 1,197,501

Expenses
Losses and loss adjustment expenses —
—
524,183
—
524,183
Acquisition expenses —
—
161,267
—
161,267
Other operating expenses —
—
153,286
—
153,286
Corporate expenses 18,488
608
(611 ) —
18,485
Amortization of intangible assets —
—
4,865
—
4,865
Interest expense 5,948
6,627
9,890
(6,522 ) 15,943
Net foreign exchange (gains) losses —
—
2,723
(102 ) 2,621
Total expenses 24,436
7,235
855,603
(6,624 ) 880,650

Income (loss) before income taxes (24,359 ) (6,432 ) 347,863
(221 ) 316,851
Income tax (expense) benefit —
2,116
(15,347 ) —
(13,231 )
Income (loss) before equity in net income of subsidiaries (24,359 ) (4,316 ) 332,516
(221 ) 303,620
Equity in net income of subsidiaries 277,231
21,945
—
(299,176 ) —
Net income 252,872
17,629
332,516
(299,397 ) 303,620
Net (income) loss attributable to noncontrolling interests —
—
(51,071 ) 323
(50,748 )
Net income available to Arch 252,872
17,629
281,445
(299,074 ) 252,872
Preferred dividends (5,484 ) —
—
—
(5,484 )
Net income available to Arch common shareholders $ 247,388
$ 17,629
$ 281,445
$ (299,074 ) $ 247,388

Comprehensive income (loss) available to Arch $ 208,790
$ 2,019
$ 237,555
$ (239,574 ) $ 208,790



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	43

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Nine Months Ended September 30, 2017
Condensed Consolidating Statement of Income and Comprehensive Income ACGL (Parent Guarantor) Arch-U.S. (Subsidiary Issuer) Other ACGL Subsidiaries Consolidating Adjustments and Eliminations ACGL Consolidated
Revenues
Net premiums earned $ —
$ —
$ 3,619,777
$ —
$ 3,619,777
Net investment income 123
1,151
410,392
(66,209 ) 345,457
Net realized gains (losses) —
—
122,163
—
122,163
Net impairment losses recognized in earnings —
—
(5,415 ) —
(5,415 )
Other underwriting income —
—
15,519
—
15,519
Equity in net income of investment funds accounted for using the equity method —
—
111,884
—
111,884
Other income (loss) (368 ) —
(2,750 ) —
(3,118 )
Total revenues (245 ) 1,151
4,271,570
(66,209 ) 4,206,267

Expenses
Losses and loss adjustment expenses —
—
2,288,571
—
2,288,571
Acquisition expenses —
—
566,579
—
566,579
Other operating expenses —
—
514,827
—
514,827
Corporate expenses 53,639
3,727
12,400
—
69,766
Amortization of intangible assets —
—
93,942
—
93,942
Interest expense 18,024
35,956
98,197
(65,242 ) 86,935
Net foreign exchange losses (gains) —
—
65,701
21,274
86,975
Total expenses 71,663
39,683
3,640,217
(43,968 ) 3,707,595

Income (loss) before income taxes (71,908 ) (38,532 ) 631,353
(22,241 ) 498,672
Income tax (expense) benefit —
13,374
(84,129 ) —
(70,755 )
Income (loss) before equity in net income of subsidiaries (71,908 ) (25,158 ) 547,224
(22,241 ) 427,917
Equity in net income of subsidiaries 476,546
213,586
—
(690,132 ) —
Net income 404,638
188,428
547,224
(712,373 ) 427,917
Amounts attributable to noncontrolling interests —
—
(24,247 ) 968
(23,279 )
Net income available to Arch 404,638
188,428
522,977
(711,405 ) 404,638
Preferred dividends (34,936 ) —
—
—
(34,936 )
Loss on redemption of preferred shares (6,735 ) —
—
—
(6,735 )
Net income available to Arch common shareholders $ 362,967
$ 188,428
$ 522,977
$ (711,405 ) $ 362,967

Comprehensive income (loss) available to Arch $ 648,861
$ 240,759
$ 745,856
$ (986,615 ) $ 648,861



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	44

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Nine Months Ended September 30, 2016
Condensed Consolidating Statement of Income and Comprehensive Income ACGL (Parent Guarantor) Arch-U.S. (Subsidiary Issuer) Other ACGL Subsidiaries Consolidating Adjustments and Eliminations ACGL Consolidated
Revenues
Net premiums earned $ —
$ —
$ 2,915,967
$ —
$ 2,915,967
Net investment income 7
2,351
294,012
(20,679 ) 275,691
Net realized gains (losses) —
—
230,647
—
230,647
Net impairment losses recognized in earnings —
—
(16,849 ) —
(16,849 )
Other underwriting income —
—
54,749
(16,498 ) 38,251
Equity in net income of investment funds accounted for using the equity method —
—
32,054
—
32,054
Other income (loss) 270
—
(702 ) —
(432 )
Total revenues 277
2,351
3,509,878
(37,177 ) 3,475,329

Expenses
Losses and loss adjustment expenses —
—
1,631,724
—
1,631,724
Acquisition expenses —
—
501,782
—
501,782
Other operating expenses —
—
460,748
—
460,748
Corporate expenses 45,284
1,549
(1,765 ) —
45,068
Amortization of intangible assets —
—
14,493
—
14,493
Interest expense 17,811
19,946
46,169
(36,213 ) 47,713
Net foreign exchange losses (gains) —
—
5,093
(3,568 ) 1,525
Total expenses 63,095
21,495
2,658,244
(39,781 ) 2,703,053

Income (loss) before income taxes (62,818 ) (19,144 ) 851,634
2,604
772,276
Income tax (expense) benefit —
6,446
(50,118 ) —
(43,672 )
Income (loss) before equity in net income of subsidiaries (62,818 ) (12,698 ) 801,516
2,604
728,604
Equity in net income of subsidiaries 681,543
64,684
—
(746,227 ) —
Net income 618,725
51,986
801,516
(743,623 ) 728,604
Amounts attributable to noncontrolling interests —
—
(110,844 ) 965
(109,879 )
Net income available to Arch 618,725
51,986
690,672
(742,658 ) 618,725
Preferred dividends (16,453 ) —
—
—
(16,453 )
Net income available to Arch common shareholders $ 602,272
$ 51,986
$ 690,672
$ (742,658 ) $ 602,272

Comprehensive income (loss) available to Arch $ 754,979
$ 89,204
$ 830,348
$ (919,552 ) $ 754,979



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	45

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Nine Months Ended September 30, 2017
Condensed Consolidating Statement
of Cash Flows
ACGL (Parent Guarantor) Arch-U.S. (Subsidiary Issuer) Other ACGL Subsidiaries Consolidating Adjustments and Eliminations ACGL Consolidated
Operating Activities
Net Cash Provided By (Used For) Operating Activities $ 130,715
$ 70,761
$ 1,464,701
$ (585,043 ) $ 1,081,134
Investing Activities
Purchases of fixed maturity investments —
—
(28,079,129 ) —
(28,079,129 )
Purchases of equity securities —
—
(667,135 ) —
(667,135 )
Purchases of other investments —
—
(1,406,528 ) —
(1,406,528 )
Proceeds from the sales of fixed maturity investments —
—
27,629,474
—
27,629,474
Proceeds from the sales of equity securities —
—
751,873
—
751,873
Proceeds from the sales, redemptions and maturities of other investments —
—
938,581
—
938,581
Proceeds from redemptions and maturities of fixed maturity investments —
—
747,621
—
747,621
Net settlements of derivative instruments —
—
(20,952 ) —
(20,952 )
Net (purchases) sales of short-term investments 2,209
(27,998 ) (938,864 ) —
(964,653 )
Change in cash collateral related to securities lending —
—
148,692
—
148,692
Contributions to subsidiaries 20,641
(72,900 ) (353,588 ) 405,847
—
Issuance of intercompany loans —
—
(47,000 ) 47,000
—
Repayment of intercompany loans —
47,000
—
(47,000 ) —
Acquisitions, net of cash —
—
(27,709 ) —
(27,709 )
Purchases of fixed assets (18 ) —
(16,844 ) —
(16,862 )
Other —
—
106,786
(20,641 ) 86,145
Net Cash Provided By (Used For) Investing Activities 22,832
(53,898 ) (1,234,722 ) 385,206
(880,582 )
Financing Activities
Proceeds from issuance of preferred shares, net 222,054
—
—
—
222,054
Redemption of preferred shares (230,000 ) —
—
—
(230,000 )
Proceeds from common shares issued, net (7,484 ) —
405,847
(405,847 ) (7,484 )
Proceeds from intercompany borrowings —
—
47,000
(47,000 ) —
Proceeds from borrowings —
—
238,915
—
238,915
Repayments of intercompany borrowings —
—
(47,000 ) 47,000
—
Repayments of borrowings (100,000 ) —
(72,000 ) —
(172,000 )
Change in cash collateral related to securities lending —
—
(148,692 ) —
(148,692 )
Dividends paid to redeemable noncontrolling interests —
—
(14,447 ) 956
(13,491 )
Dividends paid to parent (1) —
—
(584,087 ) 584,087
—
Other —
—
(69,921 ) 20,641
(49,280 )
Preferred dividends paid (34,936 ) —
—
—
(34,936 )
Net Cash Provided By (Used For) Financing Activities (150,366 ) —
(244,385 ) 199,837
(194,914 )
Effects of exchange rates changes on foreign currency cash —
—
13,781
—
13,781
Increase (decrease) in cash 3,181
16,863
(625 ) —
19,419
Cash beginning of year 1,687
71,955
769,300
—
842,942
Cash end of period $ 4,868
$ 88,818
$ 768,675
$ —
$ 862,361

~~(1) Dividends received by parent are included in net cash provided by (used for) operating activities.~~



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	46

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Nine Months Ended September 30, 2016
Condensed Consolidating Statement
of Cash Flows
ACGL (Parent Guarantor) Arch-U.S. (Subsidiary Issuer) Other ACGL Subsidiaries Consolidating Adjustments and Eliminations ACGL Consolidated
Operating Activities
Net Cash Provided By (Used For) Operating Activities $ 94,250
$ 14,448
$ 1,096,443
$ (168,002 ) $ 1,037,139
Investing Activities
Purchases of fixed maturity investments —
—
(27,840,555 ) —
(27,840,555 )
Purchases of equity securities —
—
(377,767 ) —
(377,767 )
Purchases of other investments —
—
(1,008,774 ) —
(1,008,774 )
Proceeds from the sales of fixed maturity investments —
—
26,731,924
—
26,731,924
Proceeds from the sales of equity securities —
—
464,904
—
464,904
Proceeds from the sales, redemptions and maturities of other investments —
—
879,330
—
879,330
Proceeds from redemptions and maturities of fixed maturity investments —
41,500
499,323
—
540,823
Net settlements of derivative instruments —
—
23,396
—
23,396
Net (purchases) sales of short-term investments (436,830 ) (53,779 ) (113,553 ) —
(604,162 )
Change in cash collateral related to securities lending —
—
(27,935 ) —
(27,935 )
Contributions to subsidiaries (3,585 ) —
(9,247 ) 12,832
—
Acquisitions, net of cash —
—
(20,911 ) —
(20,911 )
Purchases of fixed assets (8 ) —
(11,557 ) —
(11,565 )
Other 2,000
—
(5,816 ) —
(3,816 )
Net Cash Provided By (Used For) Investing Activities (438,423 ) (12,279 ) (817,238 ) 12,832
(1,255,108 )
Financing Activities
Proceeds from issuance of preferred shares, net 434,899
—
—
—
434,899
Purchases of common shares under share repurchase program (75,256 ) —
—
—
(75,256 )
Proceeds from common shares issued, net (3,785 ) —
12,832
(12,832 ) (3,785 )
Proceeds from borrowings —
—
46,000
—
46,000
Repayments of borrowings —
—
(179,171 ) —
(179,171 )
Change in cash collateral related to securities lending —
—
27,935
—
27,935
Dividends paid to redeemable noncontrolling interests —
—
(14,448 ) 957
(13,491 )
Dividends paid to parent (1) —
—
(167,045 ) 167,045
—
Other —
200
32,913
—
33,113
Preferred dividends paid (16,453 ) —
—
—
(16,453 )
Net Cash Provided By (Used For) Financing Activities 339,405
200
(240,984 ) 155,170
253,791
Effects of exchange rates changes on foreign currency cash —
—
(10,332 ) —
(10,332 )
Increase (decrease) in cash (4,768 ) 2,369
27,889
—
25,490
Cash beginning of year 6,809
17,023
529,494
—
553,326
Cash end of period $ 2,041
$ 19,392
$ 557,383
$ —
$ 578,816

~~(1) Dividends received by parent are included in net cash provided by (used for) operating activities.~~



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	47

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~14. Income Taxes~~

The Company’s income tax provision on income before income taxes, including income (loss) from operating affiliates, resulted in an ~~expense~~effective tax rate of ~~14.2%~~8.8% for the nine months ended September 30, ~~2017,~~2023, compared to ~~an expense of 5.7%~~3.0% for the ~~2016 period.~~nine months ended September 30, 2022. The Company’s effective tax rate, which is based upon the expected annual effective tax rate, may fluctuate from period to period based on the relative mix of income or loss reported by jurisdiction and the varying tax rates in each jurisdiction. ~~For interim reporting purposes, the Company has calculated its~~The effective tax rate for the full year of 2017 by treating any excess tax benefits that arise from the accounting for stock based compensation as a discrete item. As such, this amount is not included when projecting the Company’s full year effective tax rate but rather is accounted for at the U.S. Federal statutory rate of 35% after applying the projected full year effective tax rate to actual nine-month results before the discrete item. The impact of the discrete item resulted in a benefit of 1.5% for the nine months ended September 30, ~~2017.~~2023 and 2022, included discrete income tax benefits of $6 million and $37 million, which had the effect of decreasing the effective tax rate on net income available to Arch common shareholders by 0.3% and 5.7%, respectively. The discrete tax items in the 2023 and 2022 periods were primarily related to equity compensation windfall benefits and the release of a valuation allowance on certain U.K. deferred tax assets, respectively.

The Company had a net deferred tax asset of ~~$248.3~~$496 million at September 30, ~~2017,~~2023, compared to ~~$221.2~~a net deferred tax asset of $531 million at December 31, ~~2016.~~2022. The change is primarily a result of market value fluctuations in the Company’s investment portfolio. In addition, the Company paid ~~$47.9~~$127 million and ~~$40.7~~$202 million of income taxes for the nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

~~15.~~14. Legal Proceedings

The Company, in common with the insurance industry in general, is subject to litigation and arbitration in the normal course of its business. As of September 30, ~~2017,~~2023, the Company was not a party to any litigation or arbitration which is expected by management to have a material adverse effect on the Company’s results of operations and financial condition and liquidity.

~~16.~~15. Transactions with Related Parties

~~Kewsong Lee, a director of ACGL,~~Premia Reinsurance Ltd. is a ~~Managing Director and Deputy Chief Investment Officer for Corporate Private Equity of Carlyle Group LP (“Carlyle”~~multi-line Bermuda reinsurance company (and its affiliates together with Premia Holdings Ltd., “Premia”). As part of its investment philosophy, the Company invests a portion of its investment portfolio in alternative investment funds. As of September 30, 2017, the total value of the Company’s investments in funds or other investments managed by Carlyle was approximately $248.5 million, and the Company had aggregate unfunded commitments to funds managed by Carlyle of $471.6 million. The Company ~~may make additional commitments to funds managed by Carlyle from time to time. During~~has entered into certain reinsurance transactions with Premia. For the nine months ended September 30, ~~2017 and 2016,~~2023, the Company ~~made aggregate capital contributions~~recorded net premiums written and earned of approximately $80 million, compared to a de minimis amount for the nine months ended September 30, 2022. At September 30, 2023, the Company recorded a funds ~~managed~~held asset from Premia of $176 million, compared to $119 million at December 31, 2022.

Somers Group Holdings Ltd. and its wholly owned subsidiaries (collectively, “Somers”) are wholly owned by ~~Carlyle~~Greysbridge. The Company has entered into certain reinsurance transactions with Somers. For the nine months ended September 30, 2023, the Company’s net premiums written was reduced by $457 million, compared to $552 million for the nine months ended September 30, 2022. In addition, Somers paid certain acquisition costs and administrative fees to the Company. At September 30, 2023, the Company recorded a reinsurance recoverable on unpaid and paid losses from Somers of ~~$86.0~~$1.3 billion and a reinsurance balance payable to Somers of $499 million, compared to $1.2 billion and ~~$50.1~~$414 million, respectively, and received aggregate cash distributions from funds managed by Carlyle of $48.7 million and $17.9 million, respectively. Effective November 2, 2017, Mr. Lee resigned from ACGL’s Board of Directors because of the expansion of his duties at ~~Carlyle following his recent promotion to co-CEO effective January 1, 2018.~~

~~17. Acquisition~~

On July 1, 2017, the Company completed its previously announced acquisition of AIG United Guaranty Insurance (Asia) Limited (renamed “Arch MI Asia Limited”) following the payment of $40.0 million to AIG. Arch MI Asia Limited compliments the Company’s existing private mortgage insurance businesses, which have operations in the United States, Europe and Australia.

The purchase price was allocated to the acquired assets and liabilities of Arch MI Asia Limited based on estimated fair values on the acquisition date. The Company recognized other intangible assets of $2.3 million and goodwill of $0.8 million. The goodwill balance is primarily attributed to Arch MI Asia Limited’s assembled workforce and access to the mortgage insurance market. None of the goodwill recognized is expected to be deductible for income tax purposes.December 31, 2022.



ARCH CAPITAL	~~ACGL 2017~~ 36	2023 THIRD QUARTER FORM 10-Q	48

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~18.~~16. Subsequent Events

OnBellemeade Re 2023-1 Ltd.

In October ~~25, 2017,~~2023, the Company’s ~~first-lien~~ U.S. mortgage insurance subsidiaries entered into an aggregate excess of loss reinsurance agreement with Bellemeade Re ~~2017-1~~2023-1 Ltd. (“Bellemeade ~~III”~~2023-1”), a special purpose reinsurance company domiciled in Bermuda. The Bellemeade ~~III~~2023-1 agreement provides for up to ~~$368.1~~$233 million of aggregate excess of loss reinsurance coverage at inception in excess of $62 million of aggregate losses for new delinquencies on a portfolio of in-force policies primarily issued ~~between~~from January ~~1, 2017 and June 30, 2017. For the coverage period, Bellemeade III will cover $368.1 million in excess of $165.7 million of aggregate losses.~~2023 through September 2023. The coverage amount decreases over a ten-year period as the underlying covered mortgages amortize.

Bellemeade ~~III~~2023-1 financed the coverage through the issuance of mortgage insurance-linked notes in an aggregate amount of approximately ~~$368.1~~$187 million to unrelated investors (the “Notes”). and an additional $46 million capacity was provided directly to Arch MI U.S. by a separate panel of reinsurers. The maturity date of the Notes is October 25, ~~2027.~~2033. The Notes will be redeemed prior to maturity upon the occurrence of a mandatory termination event or if the ceding insurers trigger a termination of the reinsurance agreement following the occurrence of an optional termination event. All of the proceeds paid to Bellemeade ~~III~~2023-1 from the sale of the Notes were deposited into a reinsurance trust ~~for the sole benefit of the ceding insurers~~ as security for Bellemeade ~~III’s~~2023-1’s obligations. At all times, funds in the reinsurance trust account are required to be invested in high credit quality money market funds.

Letter of Credit Facility Agreement

On October 2017, a series of wildfires burned across several California counties. With the information available, the Company has established a preliminary range of pre-tax losses of $30 million to $55 million for these wildfires, net of reinsurance25, 2023, Arch Re Bermuda entered into Amendment No. 3 and reinstatement premiums. At this time, there are significant uncertainties surrounding the numbers of claims and scope of damage for these wildfires. The Company’s preliminary estimate for the wildfires is based on currently available information derived from modeling techniques, industry assessments of exposure, preliminary claims information obtained from the Company’s clients and brokers to date and a review of in-force contracts. Actual losses from these wildfires may vary materially from the estimates dueJoinder to the ~~inherent uncertainties~~Letter of Credit Facility Agreement with Lloyds Bank, which amends the Letter of Credit Facility Agreement, dated as of November 3, 2020, as amended by Amendment No. 1 to Letter of Credit Facility Agreement dated as of October 29, 2021 and as further amended by Amendment No. 2 and Joinder to Letter of Credit Facility Agreement dated as of October 27, 2022 (the “Existing LOC Agreement”). The Existing LOC Agreement, as amended by Amendment No. 3 (the “Amended LOC Agreement”), provides for a $530 million facility for letters of credit in ~~making such determinations.~~

respect of Tier 2 Funds at Lloyds. As of October 25, 2023, $530 million face amount of letters of credit had been issued under this facility. The availability period ends on May 31, 2024.


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			~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	49

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


~~ITEM 2.~~			~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

The following is a discussion and analysis of our financial condition and results of operations. This should be read in conjunction with our consolidated financial statements included in Item 1 of this report and also our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2022 (“~~2016~~2022 Form 10-K”). In addition, readers should review “Risk Factors” set forth in Item 1A of Part I of our ~~2016~~2022 Form ~~10-K. Tabular~~10-K and “ITEM 1A—Risk Factors” of this Form 10-Q. All amounts are in ~~U.S. Dollars in thousands,~~millions, except per share amounts, unless otherwise noted.

Arch Capital Group Ltd. (“~~ACGL”~~Arch Capital” and, together with its subsidiaries, “Arch”, “we”, “our” or “us”) is a publicly listed Bermuda ~~public limited liability~~exempted company with approximately ~~$11.04~~$18.0 billion in capital at September 30, ~~2017~~2023 and, through operations in Bermuda, the United States, Europe, Canada and Australia, writes insurance, reinsurance and mortgage insurance on a worldwide basis.


		Page No.

Current Outlook		39
Financial Measures		39
Comments on Non-GAAP Measures		40
Results of Operations		42
	Insurance Segment	43
	Reinsurance Segment	45
	Mortgage Segment	48
	Corporate Segment	50
Critical Accounting Policies, Estimates and Recent Accounting Pronouncements		52
Financial Condition		52
Liquidity		57
Capital Resources		58
Catastrophic and Severe Economic Events		60
Market Sensitive Instruments and Risk Management		61


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CURRENT OUTLOOK

As we near the end of 2023 and look ahead to 2024, our objective to deliver long term value for our shareholders remains the same. With our commitment to underwriting acumen, prudent reserving and cycle-focused capital allocation, we were able to deliver another profitable quarter. The 2023 third quarter net income available to Arch common shareholder was $713 million, primarily reflecting strong underwriting returns. Our underwriting teams capitalized on good market conditions and relatively light catastrophe losses to produce an outstanding $721 million of underwriting income in the 2023 third quarter. Financial highlights for the quarter included book value per share growth of 4.3% and annualized net income and operating returns on average common equity of 20.2% and 24.8%, respectively. See “Comment on Non-GAAP Financial Measures.”

Our property and casualty underwriting teams continued to lean into attractive market conditions where excellent risk-adjusted returns remain available resulting in $3.1 billion of net premium written in the 2023 third quarter, up 26% from one year ago. Broadly, we continue to achieve rate increases above loss trend in most sectors of the property and casualty market. Although rate increases are slowing in some lines, they are re-accelerating in others, which is a good reminder that there is not a single insurance cycle, but many. We continue to execute our cycle management strategy by actively allocating capital to the segments with the best risk-adjusted returns.

In our insurance segment, we continue to take advantage of favorable global market conditions. Growth in net premiums written in the insurance segment was over 11% in the 2023 third quarter. Such growth was more broad-based because of our focus on small and medium-sized specialty accounts. Although pricing has declined in some lines, such as large public directors’ and officers’ liability insurance, the property and casualty markets in which our insurance segment operates generally continue to provide adequate returns.

As underwriting opportunities arise, our reinsurance segment is able to react quickly and significantly when markets pivot. In the reinsurance property market, our overall exposure to property catastrophe risk remains well below our self-imposed threshold (see “Catastrophic and Severe Economic Events ”) and, because of our diversified portfolio and broad set of opportunities, we retain the flexibility to pursue the most attractive returns across lines and geographies. Our expectation is that we will continue to see hard property ~~casualty insurance~~ market ~~environment~~conditions through next year’s renewal cycle as loss activity remains elevated.

Inflation continues to be ~~competitive~~a focus for our industry. We proactively analyze available data and we incorporate emerging trends into our pricing and reserving. We believe

that this discipline, coupled with increases in our business, consistent with our view in prior quarters, reflecting slight deterioration in rates across certain sectors. As in prior quarters, this has led to flat or lower writings in certain property casualty lines in the 2017 third quarter. However, with the continued low interest rate environment, additional price increases are needed in many lines in order forfuture investment returns and prudent reserving, allows us to ~~achieve~~maximize the capabilities of our return requirements. Recent catastrophic loss activity, including Hurricanes Harvey, Irma and Maria and the California wildfires, may result in improvements in rates and provide opportunities for growth. Our underwriting teams continue to execute a disciplined strategy by emphasizing small and medium-sized accounts over large accounts and by utilizing reinsurance purchases to reduce volatility on large account, high capacity business.diversified platform.

Our mortgage segment continues to ~~experience favorable market conditions. The mortgage segment includes~~deliver a steady level of earnings for our shareholders. Higher persistency of our in force U.S. primary mortgage insurance ~~operations, international~~portfolio helped offset the slight decrease in new insurance written, which has been affected by a lower volume of mortgage ~~insurance and reinsurance operations~~originations primarily as ~~well as government sponsored enterprise (“GSE”) credit-risk sharing transactions. On December 31, 2016, we completed the acquisition~~a result of ~~United Guaranty Corporation, a North Carolina corporation (“UGC”) from American International Group, Inc. (“AIG”). The acquisition of UGC expanded our U.S. primary~~higher mortgage insurance operations by combining UGC’s position as the market leader in the U.S. private mortgage insurance industry with Arch’s financial strength and history of innovation. On July 1, 2017, we completed our previously announced

~~acquisition of AIG United Guaranty Insurance (Asia) Limited from AIG (renamed “Arch MI Asia Limited”).~~

We insure mortgages for homes in areas that have been impacted by catastrophic events, such as Hurricanes Harvey and Irma and the California wildfires. We anticipate that we will experience an increase in delinquency notices on insured loans impacted by such events, principally in the 2017 fourth quarter. Generally, mortgage insurance losses occur only when a credit event occurs and, following a physical damage event, when the home is restored to pre-storm condition. Our ultimate claims exposure will depend on the number of delinquency notices received and the ultimate claim rate related to such notices. In the event of natural disasters, cure rates are influenced by the adequacy of homeowners and flood insurance carried on a related property, and a borrower's access to aid from government entities and private organizations, in addition to other factors which generally impact cure rates in unaffected areas. The 2017 third quarter results do not include a reserve for claims associated with future notices not yet reported as, in accordance with GAAP, no reserves are recorded until we are notified of the delinquencies. Management anticipates that subsequent quarters may experience some loss activity from the impacted areas, but does not expect this to be material.

Our objective is to achieve an average operating return on average equity of 15% or greater over the insurance cycle, which we believe to be an attractive return to our common shareholders given the risks we assume.rates. We continue to ~~look~~see meaningful opportunities for opportunities to find acceptable books of business to underwrite without sacrificing underwriting discipline and continue to write a portion of our overall book in catastrophe-exposed business which has the ~~potential to increase the volatility of our operating results.~~

Changing economic conditions could have a material impact on the frequency and severity of claims and, therefore, could negatively impact our underwriting returns. In addition, volatility in the financial markets could continue to significantly affect our investment returns, reported results and shareholders’ equity. We consider the potential impact of economic trends in the estimation process for establishing unpaid losses and loss adjustment expenses and in determining our investment strategies. In addition, weaknessmortgage segment outside of the U.S.~~, European countries~~ and other key economies, projected budget deficits for the U.S., European countries and other governments and the consequences associated with potential downgrades of securities of the U.S., European countries and other governments by credit rating agenciesour strategic decision to diversify our mortgage operations is ~~inherently unpredictable and could have a material adverse effect on financial markets and economic conditions in the U.S. and~~

yielding positive results.

FINANCIAL MEASURES



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throughout the world. In turn, this could have a material adverse effect on our business, financial condition and results of operations and, in particular, this could have a material adverse effect on the value and liquidity of securities in our investment portfolio.

~~NATURAL CATASTROPHE RISK~~

We monitor our natural catastrophe risk globally for all perils and regions, in each case, where we believe there is significant exposure. Our models employ both proprietary and vendor-based systems and include cross-line correlations for property, marine, offshore energy, aviation, workers compensation and personal accident. Currently, we seek to limit our 1-in-250 year return period net probable maximum pre-tax loss from a severe catastrophic event in any geographic zone to approximately 25% of total shareholders’ equity available to Arch. We reserve the right to change this threshold at any time.

Based on in-force exposure estimated as of October 1, 2017, our modeled peak zone catastrophe exposure was a windstorm affecting the Northeastern U.S., with a net probable maximum pre-tax loss of $493 million, followed by windstorms affecting the Gulf of Mexico and Florida Tri-County regions with net probable maximum pre-tax losses of $442 million and $383 million, respectively. Our exposures to other perils, such as U.S. earthquake and international events, were less than the exposures arising from U.S. windstorms and hurricanes. As of October 1, 2017, our modeled peak zone earthquake exposure (Los Angeles earthquake) represented approximately 60% of our peak zone catastrophe exposure, and our modeled peak zone international exposure (Japan earthquake) was substantially less than both our peak zone windstorm and earthquake exposures.

Net probable maximum pre-tax loss estimates are net of expected reinsurance recoveries, before income tax and before excess reinsurance reinstatement premiums. Loss estimates are reflective of the zone indicated and not the entire portfolio. Since hurricanes and windstorms can affect more than one zone and make multiple landfalls, our loss estimates include clash estimates from other zones. The loss estimates shown above do not represent our maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates. There can be no assurances that we will not suffer a net loss greater than 25% of total shareholders’ equity available to Arch from one or more catastrophic events due to several factors, including the inherent uncertainties in estimating the frequency and severity of such events and the margin of error in making such determinations resulting from potential inaccuracies and inadequacies in the data provided by clients and brokers, the modeling techniques and the application of such techniques or as a result of a decision to change the percentage of shareholders’ equity exposed to a single catastrophic event. Actual losses may also increase if our

reinsurers fail to meet their obligations to us or the reinsurance protections purchased by us are exhausted or are otherwise unavailable. See “Risk Factors—Risks Relating to Our Industry” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Natural and Man-Made Catastrophic Events” in our 2016 Form 10-K.

~~FINANCIAL MEASURES~~

Management uses the following three key financial indicators in evaluating our performance and measuring the overall growth in value generated for ~~ACGL’s~~Arch Capital’s common shareholders:

Book Value per ~~Common~~ Share

Book value per ~~common~~ share represents total common shareholders’ equity available to Arch divided by the number of common shares outstanding. Management uses growth in book value per ~~common~~ share as a key measure of the value generated for our common shareholders each period and believes that book value per ~~common~~ share is the key driver of ~~ACGL’s~~Arch Capital’s share price over time. Book value per ~~common~~ share is impacted by, among other factors, our underwriting results, investment returns and share repurchase activity, which has an accretive or dilutive impact on book value per ~~common~~ share depending on the purchase price.

Book value per ~~common~~ share was ~~$59.61~~$38.62 at September 30, ~~2017,~~2023, compared to ~~$59.60~~$37.04 at June 30, ~~2017~~2023, and ~~$53.30~~$29.69 at September 30, ~~2016.~~2022. The ~~11.8%~~ 4.3% increase ~~over~~ in book value per share for the ~~trailing twelve months~~2023 third quarter reflected strong ~~investment and~~ underwriting ~~results, albeit impacted by the 2017 third quarter catastrophic event activity.~~results.

Operating Return on Average Common Equity

Operating return on average common equity (“Operating ROAE”) represents annualized after-tax operating income available to Arch common shareholders divided by the average of beginning and ending common shareholders’ equity available to Arch during the period. After-tax operating income available to Arch common shareholders, a non-GAAP financial measure as defined in Regulation G, represents 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,~~earnings), equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, ~~UGC~~ transaction costs and other, loss on ~~repurchase~~redemption of preferred shares and income taxes. Management uses Operating ROAE as a key measure of the


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return generated to common shareholders. See ~~“Comment~~“Comment on Non-GAAP Financial Measures.”

Our ~~Operating ROAE~~annualized net income return on average common equity was ~~(5.3)%~~20.2% for the ~~2017~~2023 third quarter, compared to ~~9.3%~~0.2% for the ~~2016~~2022 third quarter, and ~~4.4%~~20.9% for the nine months ended September 30, ~~2017,~~2023, compared to ~~9.4%~~6.6% for



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the ~~2016~~2022 period. Our Operating ROAE was 24.8% for the 2023 third quarter, compared to 3.8% for the 2022 third quarter, and 22.7% for the nine months ended September 30, 2023, compared to 11.6% for the 2022 period. The ~~2017~~2023 periods reflected strong underwriting and investment results, while the 2022 periods reflected lower underwriting returns, ~~reflect the high~~due in part to a higher level of catastrophic loss ~~activity in the 2017 third quarter, partially offset by strong mortgage insurance underwriting performance and favorable investment returns.~~activity.

Total Return on Investments

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. In addition, total return incorporates the timing of investment returns during the periods. The following table summarizes our total return compared to the benchmark return against which we measured our portfolio during the periods. See ~~“Comment~~“Comment on Non-GAAP Financial Measures.”


	Arch Portfolio		Benchmark Return
Pre-tax total return (before investment expenses):
2023 Third Quarter	(0.40)	%	(0.36)	%
2022 Third Quarter	(3.01)	%	(4.01)	%

Nine Months Ended September 30, 2023	2.68	%	2.97	%
Nine Months Ended September 30, 2022	(8.83)	%	(12.78)	%

Arch
Portfolio

Benchmark
Return
2017 Third Quarter 1.60 % 1.24 %
2016 Third Quarter 0.88 % 0.83 %

Nine Months Ended September 30, 2017 5.05 % 4.33 %
Nine Months Ended September 30, 2016 4.03 % 4.43 %

Excluding the effects of foreign exchange, total return was 1.26% for the 2017 third quarter and 4.24% for the nine months ended September 30, 2017, reflecting strong returns on equity and alternative strategies. Total return for the ~~2017~~2023 third quarter ~~reflected~~was negative as our fixed income portfolio was impacted by the ~~weakening~~increase in interest rates. We continue to maintain a relatively short duration on our portfolio of ~~the U.S. Dollar against the Euro, British Pound Sterling and other major currencies on non-U.S. Dollar denominated investments.~~

~~The benchmark return index included weightings to the following indices, which are primarily from The Bank of America Merrill Lynch (“BoAML”):~~



	%
~~BoAML 1-10 Year U.S. Corporate & All Yankees, A - AAA Rated Index~~	~~20.00~~	%
~~BoAML 1-10 Year U.S. Municipal Securities Index~~	~~17.00~~
~~BoAML 1-5 Year U.S. Treasury Index~~	~~13.00~~
~~BoAML 3-5 Year Fixed Rate Asset Backed Securities Index~~	~~7.00~~
~~BoAML 5-10 Year U.S. Treasury Index~~	~~5.00~~
~~Barclays CMBS Inv. Grade, AAA Rated Index~~	~~5.00~~
~~MSCI All Country World Gross Total Return Index~~	~~5.00~~
~~BoAML German Government Index~~	~~4.50~~
~~BoAML U.S. Mortgage Backed Securities Index~~	~~4.00~~
~~BoAML 1-5 Year U.K. Gilt Index~~	~~3.00~~
~~Hedge Fund Research HFRX Fixed Income Credit Index~~	~~2.50~~
~~Hedge Fund Research HFRX Equal Weighted Strategies~~	~~2.50~~
~~BoAML U.S. High Yield Constrained Index~~	~~2.50~~
~~BoAML 1-5 Year Australian Governments Index~~	~~2.50~~
~~S&P Leveraged Loan Index~~	~~2.50~~
~~BoAML 0-3 Month U.S. Treasury Bill Index~~	~~2.00~~
~~BoAML 1-5 Year Canada Government Index~~	~~1.50~~
~~BoAML 20+ Year Canada Government Index~~	~~0.50~~
~~Total~~	~~100.00~~	%

2.97 years at September 30, 2023.

The benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality while also matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities. Although the estimated duration and average credit quality of this index will move as the duration and rating of its constituent securities change, generally we do not adjust the composition of the benchmark return index except to incorporate changes to the mix of liability currencies and durations noted above. The

benchmark return index should not be interpreted as expressing a preference for or aversion to any particular sector or sector weight. The index is intended solely to provide, unlike many master indices that change based on the size of their constituent indices, a relatively stable basket of investable indices. At September 30, ~~2017,~~2023, the benchmark return index had an average credit quality of ~~“Aa2”~~“A1” by Moody’s Investors Service (“Moody’s”), and an estimated duration of ~~3.55~~2.72 years.

The benchmark return index included weightings to the following indices:



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~%
ICE BofA 1-10 Year U.S. Corporate Index	5228.50
Yield on 3-5 Year U.S. Treasury Index plus 6%	16.50
ICE BofA 1-10 Year U.S. Treasury Index	15.75
ICE BofA U.S. High Yield Constrained Index	8.00
ICE BofA 1-5 Year U.K. Gilt Index	5.50
JPM CLOIE Investment Grade	4.50
ICE BofA German Government 1-10 Year Index	4.00
S&P 500 Total Return Index	4.00
ICE BofA 0-3 Month U.S. Treasury Index	3.00
ICE BofA U.S. ABS & CMBS Index	3.00
ICE BofA 1-5 Year Canada Government Index	2.50
ICE BofA 1-5 Year Australia Government Index	2.50
ICE BofA U.S. Mortgage Backed Securities Index	1.50
ICE BofA 15+ Year Canada Government Index	0.50
ICE BofA 1-5 Year Japan Government Index	0.25
Total	100.00	%

~~Table of Contents~~

COMMENT ON NON-GAAP FINANCIAL MEASURES

Throughout this filing, we present our operations in the way that we believe will be the most meaningful and useful to investors, analysts, rating agencies and others who use our financial information in evaluating the performance of our 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,~~earnings), equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, ~~UGC~~ transaction costs and other, ~~loss on redemption of preferred shares and~~ income taxes, and the use of annualized operating return on average common equity. The presentation of after-tax operating income available to Arch common shareholders and annualized operating return on average common equity are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to net income available to Arch common shareholders and annualized net income return on average common equity (the most directly comparable


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GAAP financial measures) in accordance with Regulation G is included under “Results of Operations” below.

We believe that net realized gains or losses, ~~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, ~~UGC~~ transaction costs and other ~~and loss on repurchase of preferred shares~~ in any particular period are not indicative of the performance of, or trends, in our business. Although net realized gains or losses, ~~net impairment losses recognized in earnings,~~ 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 our 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 net impairment 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 lossesthese items, are independent of the insurance underwriting process and result, in large part, from general economic and financial market conditions. Furthermore, certain users of our 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 our investments represent other-than-temporary declines in expected recovery values on securities without actual realization.

The use of the equity method on certain of our 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 our

proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). This method of accounting is different from the way that we account for our other ~~fixed maturity securities~~investments 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. ~~UGC transaction~~

Transaction costs and other include advisory, financing, legal, severance, incentive compensation and other transaction costs related to ~~the UGC acquisition. The Company believes~~acquisitions. We believe that ~~UGC~~ transaction costs and other, due to their non-recurring nature, are not indicative of the performance of, or trends in, ~~the Company’s~~our business performance. ~~The loss on redemption of preferred shares related to the redemption of our Series C preferred shares in September 2017 and had no impact on shareholders' equity or cash flows.~~

Due to these reasons, we exclude net realized gains or losses, ~~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 ~~UGC~~and transaction costs and other ~~and loss on redemption of preferred shares~~ from the calculation of after-tax operating income available to Arch common shareholders.

We believe that showing net income available to Arch common shareholders exclusive of the items referred to above reflects the underlying fundamentals of our business since we evaluate the performance of and manage our business to produce an underwriting profit. In addition to presenting the net income available to Arch common shareholders, we believe that this presentation enables

investors and other users of our financial information to analyze our performance in a manner similar to how management analyzes performance. We also believe that this measure follows industry practice and, therefore, allows the users of financial information to compare our performance with our industry peer group. We believe that the equity analysts and certain rating agencies which follow us and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.

Our segment information includes the presentation of consolidated underwriting income or ~~loss and a subtotal of underwriting income or loss before the contribution from the ‘other’ segment.~~loss. Such measures represent the pre-tax profitability of our 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 our individual underwriting operations. Underwriting income or loss does not incorporate items included in our corporate ~~(non-underwriting)~~ segment. While these measures are presented in ~~Note 5,~~note 4, “Segment Information,” of the notes accompanying our consolidated financial statements, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis. The



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reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis, ~~and a subtotal before the contribution from the ‘other’ segment,~~ in accordance with Regulation G, is shown in ~~Note 5,~~note 4, “Segment Information” of the notes accompanying our consolidated financial statements.

We measure segment performance for our three underwriting segments based on underwriting income or loss. We do not manage our assets by underwriting segment, with the exception of goodwill and intangibles and, accordingly, investment income and other non-underwriting related items are not allocated to each underwriting segment. ~~For the ‘other’ segment, performance is measured based on net income or loss.~~

Along with consolidated underwriting income, we provide a subtotal of underwriting income or loss before the contribution from the ‘other’ segment. Pursuant to generally accepted accounting principles, Watford Re is considered a variable interest entity and we concluded that we are the primary beneficiary of Watford Re. As such, we consolidate the results of Watford Re in our consolidated financial statements, although we only own approximately 11% of Watford Re’s common equity. Watford Re has its own management and board of directors that is responsible for its overall profitability. In addition, we do not guarantee or provide credit support for Watford Re. Since Watford Re is an independent company, the assets of Watford Re can be used only to settle obligations of Watford Re and Watford Re is solely responsible for its own liabilities and commitments. Our financial exposure to Watford Re is limited to our investment in Watford Re’s common and preferred shares and counterparty credit risk (mitigated by collateral) arising from the reinsurance transactions. We believe that presenting certain information excluding the ‘other’ segment enables investors and other users of our financial information to analyze our performance in a manner similar to how our management analyzes performance

Our presentation of segment information includes the use of a current year loss ratio which excludes favorable or adverse development in prior year loss reserves. This ratio is a non-GAAP financial measure as defined in Regulation G. The reconciliation of such measure to the loss ratio (the most directly comparable GAAP financial measure) in accordance with Regulation G is shown on the individual segment pages. Management utilizes the current year loss ratio in its analysis of the underwriting performance of each of our underwriting segments.


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financial market conditions along with foreign currency fluctuations. In addition, total return incorporates the timing of investment returns during the

periods. There is no directly comparable GAAP financial measure for total return. Management uses total return on investments as a key measure of the return generated to Arch common shareholders, ~~on the capital held in the business,~~ and compares the return generated by our investment portfolio against benchmark returns ~~which we measured our portfolio against~~ during the periods.

RESULTS OF OPERATIONS

The following table summarizes our consolidated financial data, including a reconciliation of net income or loss available to Arch common shareholders to after-tax operating income or loss available to Arch common shareholders. ~~Each line item~~See “Comment on Non-GAAP Financial Measures.”


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net income available to Arch common shareholders	$	713	$	7	$	2,079	$	587
Net realized (gains) losses (1)	248		184		354		743

Equity in net (income) loss of investment funds accounted for using the equity method	(59)		19		(176)		(75)
Net foreign exchange (gains) losses	(22)		(91)		2		(183)
Transaction costs and other	1		—		2		—

Income tax expense (benefit) (2)	(5)		(13)		(5)		(38)
After-tax operating income available to Arch common shareholders	$	876	$	106	$	2,256	$	1,034

Beginning common shareholders’ equity	$	13,811	$	11,588	$	12,080	$	12,716
Ending common shareholders’ equity	14,409		10,966		$	14,409	$	10,966
Average common shareholders’ equity	$	14,110	$	11,277	$	13,245	$	11,841

Annualized net income return on average common equity %	20.2		0.2		20.9		6.6
Annualized operating return on average common equity %	24.8		3.8		22.7		11.6

(1) Net realized gains or losses include realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains and losses on derivative instruments and changes in the allowance for credit losses on financial assets.

(2) Income tax expense on 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 reflects the ~~impact of our approximate 11% ownership of Watford Re’s common equity.~~

relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Net income (loss) available to Arch common shareholders $ (52,760 ) $ 247,388
$ 362,967
$ 602,272
Net realized (gains) losses (64,344 ) (99,159 ) (111,930 ) (175,558 )
Net impairment losses recognized in earnings 1,878
3,867
5,415
16,849
Equity in net (income) loss of investment funds accounted for using the equity method (31,090 ) (16,662 ) (111,884 ) (32,054 )
Net foreign exchange (gains) losses 27,811
4,054
85,619
3,560
UGC transaction costs and other 2,990
7,142
21,249
7,142
Loss on redemption of preferred shares 6,735
—
6,735
—
Income tax expense (benefit) (1) 1,647
2,970
1,580
13,705
After-tax operating income (loss) available to Arch common shareholders $ (107,133 ) $ 149,600
$ 259,751
$ 435,916

Beginning common shareholders’ equity $ 8,126,332
$ 6,340,583
$ 7,481,163
$ 5,841,542
Ending common shareholders’ equity 8,138,589
6,538,983
8,138,589
6,538,983
Average common shareholders’ equity $ 8,132,461
$ 6,439,783
$ 7,809,876
$ 6,190,263

Annualized return on average common equity % (2.6 ) 15.4
6.2
13.0
Annualized operating return on average
common equity %
(5.3 ) 9.3
4.4
9.4


~~(1)~~	Income tax on net realized gains or losses, 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, UGC transaction costs and other and loss on redemption of preferred shares reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.



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Segment Information

We classify our businesses into three underwriting ~~segments —~~segments: insurance, reinsurance and ~~mortgage — and two other operating segments — corporate (non-underwriting) and ‘other.’~~mortgage. Our 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 our chief operating decision ~~makers, the Chairman and~~makers. The Chief Executive Officer, the Chief Financial Officer and Treasurer and the President and Chief ~~Operating~~Underwriting Officer ~~and~~are the ~~Chief Financial Officer of ACGL. The~~Company’s chief operating decision ~~makers~~makers. They do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures segment performance for our three underwriting segments based on underwriting income or loss. We do not manage our assets by underwriting segment, with the exception of goodwill and intangible assets, and accordingly, investment income is not allocated to each underwriting segment.

We determined our reportable segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. The accounting policies of the segments are the same as those used for the preparation of our consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.


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Insurance Segment

The following tables set forth our insurance segment’s underwriting results:

Three Months Ended September 30,
2017 2016 % Change
Gross premiums written $ 787,447
$ 758,934
3.8
Premiums ceded (222,516 ) (217,446 )
Net premiums written 564,931
541,488
4.3
Change in unearned premiums (29,766 ) (22,410 )
Net premiums earned 535,165
519,078
3.1
Losses and loss adjustment expenses (568,795 ) (332,845 )
Acquisition expenses (82,638 ) (77,146 )
Other operating expenses (90,875 ) (86,613 )
Underwriting income (loss) $ (207,143 ) $ 22,474
(1,021.7 )

Underwriting Ratios

% Point
Change
Loss ratio 106.3 % 64.1 % 42.2
Acquisition expense ratio 15.4 % 14.9 % 0.5
Other operating expense ratio 17.0 % 16.7 % 0.3
Combined ratio 138.7 % 95.7 % 43.0


	Three Months Ended September 30,
	2023			2022			% Change
Gross premiums written	$	2,043		$	1,862		9.7
Premiums ceded	(521)			(493)
Net premiums written	1,522			1,369			11.2
Change in unearned premiums	(110)			(182)
Net premiums earned	1,412			1,187			19.0

Losses and loss adjustment expenses	(812)			(823)
Acquisition expenses	(269)			(233)
Other operating expenses	(202)			(165)
Underwriting income (loss)	$	129		$	(34)		479.4

Underwriting Ratios							% Point Change
Loss ratio	57.5		%	69.3		%	(11.8)
Acquisition expense ratio	19.1		%	19.6		%	(0.5)
Other operating expense ratio	14.3		%	13.9		%	0.4
Combined ratio	90.9		%	102.8		%	(11.9)


	Nine Months Ended September 30,									Nine Months Ended September 30,
	2017			2016			% Change			2023			2022			% Change
Gross premiums written	$	2,313,630		$	2,319,530		(0.3	)	Gross premiums written	$	5,977		$	5,287		13.1
Premiums ceded	(704,057		)	(713,110		)			Premiums ceded	(1,564)			(1,483)
Net premiums written	1,609,573			1,606,420			0.2		Net premiums written	4,413			3,804			16.0
Change in unearned premiums	(51,188		)	(46,603		)			Change in unearned premiums	(416)			(488)
Net premiums earned	1,558,385			1,559,817			(0.1	)	Net premiums earned	3,997			3,316			20.5

Losses and loss adjustment expenses	(1,252,375		)	(1,011,087		)			Losses and loss adjustment expenses	(2,276)			(2,054)
Acquisition expenses	(236,378		)	(228,806		)			Acquisition expenses	(778)			(643)
Other operating expenses	(271,268		)	(263,111		)			Other operating expenses	(592)			(493)
Underwriting income (loss)	$	(201,636	)	$	56,813		(454.9	)	Underwriting income (loss)	$	351		$	126		178.6

Underwriting Ratios							% Point Change		Underwriting Ratios							% Point Change
Loss ratio	80.4		%	64.8		%	15.6		Loss ratio	57.0		%	61.9		%	(4.9)
Acquisition expense ratio	15.2		%	14.7		%	0.5		Acquisition expense ratio	19.5		%	19.4		%	0.1
Other operating expense ratio	17.4		%	16.9		%	0.5		Other operating expense ratio	14.8		%	14.9		%	(0.1)
Combined ratio	113.0		%	96.4		%	16.6		Combined ratio	91.3		%	96.2		%	(4.9)

The insurance segment consists of our insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:

•Construction and national accounts: primary and excess casualty coverages tofor middle market and large construction accounts, ~~in the construction industry and~~ a ~~wide~~comprehensive range of products for middle market accounts in specialty industries and casualty solutions for large national accounts, ~~specializing in~~including loss sensitive primary ~~casualty~~ insurance programs ~~(including large~~(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~~written on a ~~network of appointed agents to small and medium risks.~~non-admitted basis.

•~~Lenders products:~~ collateral protection, debt cancellation and service contract reimbursement products to banks, credit unions, automotive dealerships and original equipment manufacturers and other specialty programs that pertain to automotive lending and leasing.

•

Professional lines: directors’ and officers’ liability, errors and omissions liability, employment practices liability, fiduciary liability, crime, professional indemnity and other financial related coverages for corporate, private equity, venture capital, real estate investment trust, limited partnership, financial institution and not-for-profit clients of all sizes, cyber insurance, and medical professional and general liability insurance coverages for the healthcare industry. The business is predominately written on a claims-made basis.

•Programs: primarily ~~package policies, underwriting workers’ compensation and umbrella liability business in support of desirable package programs,~~ targeting program



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managers with unique expertise and niche products offering some combination of general liability, commercial automobile, property, inland marine, umbrella and ~~property business with minimal catastrophe exposure.~~workers’ compensation.

•Property, energy, marine and aviation: primary and excess general property insurance coverages, including catastrophe-exposed property coverage, for commercial clients. Coverages for marine include hull, cargo, war, specie and liability. Aviation, stand-alone terrorism and ~~stand alone terrorism~~political risks are also offered. Coverage may be provided for operational and construction risk.

•Travel, accident and health: specialty travel and accident and related insurance products for individual, group travelers, travel agents and suppliers, as well as accident and health, which provides accident, disability and medical plan insurance coverages for employer groups, medical plan members, students and other participant groups.

•Warranty and lenders solutions: collateral protection, debt cancellation and service contract reimbursement products to banks, credit unions, automotive dealerships and original equipment manufacturers and other specialty programs that pertain to automotive lending and leasing.

Other: includes alternative market risks (including captive insurance programs), excess workers’ compensation and employer’s liability insurance coverages for qualified self-insured groups, associations and trusts, and contract, commercial and ~~commercial~~transactional 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.coverages.


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Premiums Written.

The following ~~table sets~~tables set forth our insurance segment’s net premiums written by major line of business:


	Three Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
Professional lines	$	375	24.6	$	412	30.1
Property, energy, marine and aviation	342		22.5	241		17.6
Programs	202		13.3	189		13.8
Excess and surplus casualty	130		8.5	111		8.1
Construction and national accounts	129		8.5	98		7.2
Travel, accident and health	126		8.3	107		7.8
Warranty and lenders solutions	51		3.4	42		3.1
Other	167		11.0	169		12.3
Total	$	1,522	100.0	$	1,369	100.0

Three Months Ended September 30,
2017 2016
Amount % Amount %
Professional lines $ 120,509
21.3
$ 119,198
22.0
Programs 109,805
19.4
91,165
16.8
Construction and national accounts 66,053
11.7
65,105
12.0
Travel, accident and health 71,386
12.6
63,453
11.7
Excess and surplus casualty 43,853
7.8
54,075
10.0
Property, energy, marine and aviation 48,396
8.6
42,092
7.8
Lenders products 25,732
4.6
28,633
5.3
Other 79,197
14.0
77,767
14.4
Total $ 564,931
100.0
$ 541,488
100.0

~~2017~~2023 Third Quarter versus ~~2016 Third Quarter~~. 2022 Period. Gross premiums written by the insurance segment in the ~~2017~~2023 third quarter were ~~3.8%~~9.7% higher than in the ~~2016~~2022 third quarter, while net premiums written were ~~4.3% higher than in the 2016 third quarter. The increase~~11.2% higher. Growth in net premiums written reflected ~~growth~~increases in ~~program~~most lines of business, due in part to new business opportunities, increases in existing accounts and rate changes. In addition, the ~~continued effects~~insurance segment retained a higher portion of ~~two newer programs, and~~business written in ~~travel business. Such amounts were partially offset by a decrease~~the 2023 third quarter than in ~~excess and surplus casualty business which reflected a lower level of project-related premiums, primarily due to~~ the ~~fact that the 2016 period included a~~

2022 third quarter.


	Nine Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
Professional lines	$	1,045	23.7	$	1,109	29.2
Property, energy, marine and aviation	937		21.2	688		18.1
Programs	553		12.5	481		12.6
Excess and surplus casualty	396		9.0	332		8.7
Construction and national accounts	446		10.1	335		8.8
Travel, accident and health	432		9.8	378		9.9
Warranty and lenders solutions	182		4.1	103		2.7
Other	422		9.6	378		9.9
Total	$	4,413	100.0	$	3,804	100.0

~~significant amount of premium from one large construction project, along with a targeted reduction in certain exposures.~~

Nine Months Ended September 30,
2017 2016
Amount % Amount %
Professional lines $ 339,761
21.1
$ 336,184
20.9
Programs 303,190
18.8
256,369
16.0
Construction and national accounts 239,504
14.9
254,839
15.9
Travel, accident and health 189,604
11.8
175,172
10.9
Excess and surplus casualty 134,907
8.4
168,144
10.5
Property, energy, marine and aviation 134,531
8.4
142,261
8.9
Lenders products 71,896
4.5
78,671
4.9
Other 196,180
12.2
194,780
12.1
Total $ 1,609,573
100.0
$ 1,606,420
100.0

Nine Months Ended September 30, ~~2017~~2023 versus ~~2016~~2022 period. Gross premiums written by the insurance segment for the nine months ended September 30, ~~2017~~2023 were ~~0.3% lower~~13.1% higher than in the ~~2016~~2022 period, while net premiums written were ~~0.2%~~16.0% higher than in the ~~2016~~2022 period. The ~~change~~increase in net premiums written ~~largely~~ reflected ~~our response to weaker market conditions, with reductions in excess and surplus casualty, construction and property lines, partially offset by~~ growth in ~~programs and travel, accident and health. The lower level~~most lines of excess and surplus casualty reflected a targeted reduction in certain exposures, increased use of reinsurance and other factors while the decrease in construction premiums reflected non-renewals as well as lower audit and project premiums. The reduction in property lines reflected continued weak market conditions. Growth in program business, primarily ~~reflected the continued impact of two newer programs while the increase in travel, accident~~due to rate increases, new business opportunities and ~~health reflected continued expansion~~growth in existing ~~travel~~ accounts.

In addition, the insurance segment retained more business in the 2023 period than in the 2022 period.



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Net Premiums Earned.

The following tables set forth our insurance segment’s net premiums earned by major line of business:


	Three Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
Professional lines	$	363	25.7	$	342	28.8
Property, energy, marine and aviation	288		20.4	202		17.0
Programs	167		11.8	150		12.6
Excess and surplus casualty	126		8.9	100		8.4
Construction and national accounts	147		10.4	110		9.3
Travel, accident and health	148		10.5	133		11.2
Warranty and lenders solutions	43		3.0	33		2.8
Other	130		9.2	117		9.9
Total	$	1,412	100.0	$	1,187	100.0

Three Months Ended September 30,
2017 2016
Amount % Amount %
Professional lines $ 113,146
21.1
$ 110,614
21.3
Programs 94,353
17.6
84,889
16.4
Construction and national accounts 77,779
14.5
80,090
15.4
Travel, accident and health 66,136
12.4
57,097
11.0
Excess and surplus casualty 47,852
8.9
54,687
10.5
Property, energy, marine and aviation 46,906
8.8
45,304
8.7
Lenders products 23,499
4.4
25,090
4.8
Other 65,494
12.2
61,307
11.8
Total $ 535,165
100.0
$ 519,078
100.0


	Nine Months Ended September 30,							Nine Months Ended September 30,
	2017			2016				2023			2022
	Amount		%	Amount		%		Amount		%	Amount		%
Professional lines	$	330,159	21.2	$	324,114	20.8	Professional lines	$	1,067	26.7	$	946	28.5
Property, energy, marine and aviation							Property, energy, marine and aviation	752		18.8	557		16.8
Programs	267,115		17.1	273,985		17.6	Programs	473		11.8	439		13.2
Excess and surplus casualty							Excess and surplus casualty	353		8.8	289		8.7
Construction and national accounts	236,050		15.1	241,547		15.5	Construction and national accounts	406		10.2	306		9.2
Travel, accident and health	188,053		12.1	164,463		10.5	Travel, accident and health	423		10.6	368		11.1
Excess and surplus casualty	147,709		9.5	166,807		10.7
Property, energy, marine and aviation	126,407		8.1	141,417		9.1
Lenders products	72,160		4.6	72,499		4.6
Warranty and lenders solutions							Warranty and lenders solutions	142		3.6	92		2.8
Other	190,732		12.2	174,985		11.2	Other	381		9.5	319		9.6
Total	$	1,558,385	100.0	$	1,559,817	100.0	Total	$	3,997	100.0	$	3,316	100.0

Net premiums written are primarily earned on a pro rata basis over the terms of the policies for all products, usually 12 months. Net premiums earned reflect changes in net premiums written over the previous five quarters. ~~Net~~For the 2023 third quarter, net premiums earned ~~in the 2017 third quarter~~ were ~~3.1%~~19.0% higher than in the ~~2016~~2022 third ~~quarter, and 0.1% lower~~quarter. Net premiums earned for the nine months ended September 30, ~~2017~~2023 were 20.5% higher than in the ~~2016~~2022 period.


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Table of Contents

Losses and Loss Adjustment Expenses.

The table below shows the components of the insurance segment’s loss ratio:

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Current year 106.9 % 66.7 % 80.9 % 66.4 %
Prior period reserve development (0.6 )% (2.6 )% (0.5 )% (1.6 )%
Loss ratio 106.3 % 64.1 % 80.4 % 64.8 %


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Current year	58.2	%	69.8	%	57.8	%	62.5	%
Prior period reserve development	(0.7)	%	(0.5)	%	(0.8)	%	(0.6)	%
Loss ratio	57.5	%	69.3	%	57.0	%	61.9	%

Current Year Loss Ratio.

2023 Third Quarter versus 2022 Period. The insurance segment’s current year loss ratio in the ~~2017~~2023 third quarter was ~~40.2~~11.6 points ~~higher~~lower than in the ~~2016~~2022 third quarter. The 2023 third quarter ~~and~~loss ratio reflected ~~40.1~~2.6 points of current year catastrophic activity, spread across a series of global events, compared to 13.4 points of catastrophic activity for the 2022 third quarter, primarily related to ~~Hurricanes Harvey, Irma and Maria, compared to 0.3 points~~Hurricane Ian. The balance of the change in the ~~2016 third quarter.~~ current year loss ratio resulted, in part, from changes in mix of business.

Nine Months Ended September 30, 2023 versus 2022 Period. The insurance segment’s current year loss ratio for the nine months ended September 30, ~~2017~~2023 was ~~14.5~~4.7 points ~~higher~~lower than in the ~~2016~~2022 period and reflected ~~14.5~~2.3 points of current year catastrophic activity, spread across series of global events, compared to ~~1.5~~6.1 points in the ~~2016~~2022 period. The balance of the change in the current year loss ~~ratios for the 2017 periods reflected~~ratio resulted, in part, from changes in ~~the~~ mix of ~~business and loss cost trends.~~business.

Prior Period Reserve Development.

The insurance segment’s net favorable development was ~~$3.0~~$10 million, or ~~0.6~~0.7 points, for the ~~2017~~2023 third quarter, compared to ~~$13.7~~$5 million, or ~~2.6~~0.5 points, for the ~~2016~~2022 third quarter, and ~~$7.2~~$34 million, or ~~0.5~~0.8 points, for the nine months ended September 30, ~~2017,~~2023, compared to ~~$24.8~~$19 million, or ~~1.6~~0.6 points, for the ~~2016~~2022 period. See note 6,5, “Reserve for Losses and Loss Adjustment Expenses,” ~~of the notes accompanying~~ to our consolidated financial statements for information about the insurance segment’s prior year reserve development.

Underwriting Expenses.

~~2017~~2023 Third Quarter versus ~~2016 Third Quarter:~~2022 Period. The insurance segment’s underwriting expense ratio was ~~32.4%~~33.4% in the ~~2017~~2023 third quarter, compared to ~~31.6%~~33.5% in the ~~2016~~2022 third quarter. ~~The comparison of the underwriting expense ratios reflects changes in the level of reinsurance ceded on a quota share basis and changes in the mix of business.~~

Nine Months Ended September 30, ~~2017~~2023 versus ~~2016 period:~~2022 period. The insurance segment’s underwriting expense ratio was ~~32.6%~~34.3% for the nine months ended September 30, ~~2017, compared to 31.6%~~2023, consistent with 34.3% for the ~~2016~~2022 period. ~~The comparison of the underwriting expense ratios reflects changes in the level of reinsurance ceded on a quota share basis and changes in the mix of business.~~



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Reinsurance Segment

The following tables set forth our reinsurance segment’s underwriting results:


	Three Months Ended September 30,
	2023			2022			% Change
Gross premiums written	$	2,138		$	1,639		30.4
Premiums ceded	(576)			(560)
Net premiums written	1,562			1,079			44.8
Change in unearned premiums	(19)			(77)
Net premiums earned	1,543			1,002			54.0
Other underwriting income (loss)	2			—
Losses and loss adjustment expenses	(870)			(928)
Acquisition expenses	(304)			(208)
Other operating expenses	(61)			(63)
Underwriting income (loss)	$	310		$	(197)		257.4

Underwriting Ratios							% Point Change
Loss ratio	56.4		%	92.6		%	(36.2)
Acquisition expense ratio	19.7		%	20.8		%	(1.1)
Other operating expense ratio	3.9		%	6.3		%	(2.4)
Combined ratio	80.0		%	119.7		%	(39.7)

Three Months Ended September 30,
2017 2016 % Change
Gross premiums written $ 422,083
$ 324,361
30.1
Premiums ceded (105,389 ) (89,551 )
Net premiums written 316,694
234,810
34.9
Change in unearned premiums 6,879
17,117

Net premiums earned 323,573
251,927
28.4
Other underwriting income 1,728
2,216

Losses and loss adjustment expenses (318,609 ) (105,924 )
Acquisition expenses (57,340 ) (50,192 )
Other operating expenses (36,214 ) (35,389 )
Underwriting income (loss) $ (86,862 ) $ 62,638
(238.7 )

Underwriting Ratios % Point
Change
Loss ratio 98.5 % 42.0 % 56.5
Acquisition expense ratio 17.7 % 19.9 % (2.2 )
Other operating expense ratio 11.2 % 14.0 % (2.8 )
Combined ratio 127.4 % 75.9 % 51.5


	Nine Months Ended September 30,									Nine Months Ended September 30,
	2017			2016			% Change			2023			2022			% Change
Gross premiums written	$	1,351,051		$	1,217,804		10.9		Gross premiums written	$	7,142		$	5,151		38.7
Premiums ceded	(386,743		)	(370,068		)			Premiums ceded	(2,145)			(1,770)
Net premiums written	964,308			847,736			13.8		Net premiums written	4,997			3,381			47.8
Change in unearned premiums	(81,182		)	(43,345		)			Change in unearned premiums	(781)			(647)
Net premiums earned	883,126			804,391			9.8		Net premiums earned	4,216			2,734			54.2
Other underwriting income	1,143			22,659					Other underwriting income	9			6
Losses and loss adjustment expenses	(631,669		)	(363,613		)			Losses and loss adjustment expenses	(2,379)			(1,920)
Acquisition expenses	(154,638		)	(160,706		)			Acquisition expenses	(875)			(569)
Other operating expenses	(110,458		)	(108,561		)			Other operating expenses	(203)			(199)
Underwriting income (loss)	$	(12,496	)	$	194,170		(106.4	)	Underwriting income (loss)	$	768		$	52		1,376.9

Underwriting Ratios							% Point Change		Underwriting Ratios							% Point Change
Loss ratio	71.5		%	45.2		%	26.3		Loss ratio	56.4		%	70.2		%	(13.8)
Acquisition expense ratio	17.5		%	20.0		%	(2.5	)	Acquisition expense ratio	20.7		%	20.8		%	(0.1)
Other operating expense ratio	12.5		%	13.5		%	(1.0	)	Other operating expense ratio	4.8		%	7.3		%	(2.5)
Combined ratio	101.5		%	78.7		%	22.8		Combined ratio	81.9		%	98.3		%	(16.4)

The reinsurance segment consists of our reinsurance underwriting units which offer specialty product lines on a worldwide basis. ~~Product lines include:~~

•~~Casualty:~~ ~~provides~~Reinsurance agreements are typically offered on a proportional and/or excess of loss basis and provide coverage to ceding company clients for specific underlying written policies. Product lines include:

Casualty: provides coverage on third party liability ~~and workers’ compensation~~ exposures ~~from ceding company clients, primarily on a treaty basis. Exposures include,~~including, among others, executive assurance, professional liability, ~~workers’ compensation,~~ excess and umbrella liability, excess motor and healthcare ~~business.~~business, and workers’ compensation. Business is assumed primarily on a treaty basis, with some facultative coverages also offered.


ARCH CAPITAL			45			2023 THIRD QUARTER FORM 10-Q

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•

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 reinsurance, whole account multi-line treaties, cyber, trade credit and ~~other lines including~~ surety, accident and health, workers’ compensation catastrophe, agriculture ~~trade credit~~ and political ~~risk.~~risk, among others.

•Property catastrophe: provides protection for most types of 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~~Excess of loss ~~basis~~coverages are triggered when aggregate losses and loss adjustment expense from a single occurrence or aggregation of losses from a covered peril exceed the retention specified in the contract.

•Property excluding property catastrophe: provides coverage for ~~both~~ personal lines ~~and~~and/or commercial property exposures and principally covers buildings, structures, equipment and contents. The primary perils in this business include fire, explosion, collapse, riot, vandalism, wind, tornado, flood and earthquake. Business is assumed on ~~both~~either a ~~proportional and excess of loss~~treaty basis or facultative basis. ~~In addition, facultative business is written which focuses on commercial property risks on an excess of loss basis.~~

•~~Other.~~ 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.



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	58

~~Table of Contents~~

Premiums Written.

The following ~~table sets~~tables set forth our reinsurance segment’s net premiums written by major line of business:


	Three Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
Property excluding property catastrophe	$	593	38.0	$	342	31.7
Other specialty	527		33.7	381		35.3
Casualty	273		17.5	230		21.3
Property catastrophe	76		4.9	78		7.2
Marine and aviation	54		3.5	29		2.7
Other	39		2.5	19		1.8
Total	$	1,562	100.0	$	1,079	100.0

Three Months Ended September 30,
2017 2016
Amount % Amount %
Other specialty $ 101,400
32.0
$ 74,169
31.6
Casualty 113,446
35.8
59,242
25.2
Property excluding property catastrophe 63,943
20.2
70,733
30.1
Property catastrophe 28,123
8.9
19,793
8.4
Marine and aviation 2,037
0.6
5,435
2.3
Other 7,745
2.4
5,438
2.3
Total $ 316,694
100.0
$ 234,810
100.0

Pro rata $ 206,948
65.3
$ 147,280
62.7
Excess of loss 109,746
34.7
87,530
37.3
Total $ 316,694
100.0
$ 234,810
100.0

~~2017~~2023 Third Quarter versus ~~2016 Third Quarter~~. 2022 Period. Gross premiums written by the reinsurance segment in the ~~2017~~2023 third quarter were ~~30.1%~~30.4% higher than in the ~~2016~~2022 third quarter, while net premiums written were 34.9% higher than in the 2016 third quarter. Gross and net premiums written for the 2017 third quarter reflected an increase of $45.4 million in casualty business related to a retroactive reinsurance contract which was substantially earned in the period and resulted in a corresponding increase to losses and loss adjustment expenses. In addition, reinstatement premiums related to Hurricanes Harvey, Irma and Maria contributed $25.0 million to gross premiums written and $15.8 million to net premiums written in the 2017 third quarter. The increase44.8% higher. Growth in net premiums written primarily reflected increases in property excluding property catastrophe and other specialty lines, due in part to rate increases, new business opportunities and growth in existing accounts. In addition, the reinsurance

segment retained a higher portion of business written in the ~~2017~~2023 third quarter ~~also reflected growth~~than in ~~other specialty business, primarily in international motor quota share contracts.~~the 2022 third quarter.


	Nine Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
Property excluding property catastrophe	$	1,496	29.9	$	936	27.7
Other specialty	1,625		32.5	1,180		34.9
Casualty	787		15.7	709		21.0
Property catastrophe	802		16.0	361		10.7
Marine and aviation	208		4.2	116		3.4
Other	79		1.6	79		2.3
Total	$	4,997	100.0	$	3,381	100.0

Nine Months Ended September 30,
2017 2016
Amount % Amount %
Other specialty $ 371,146
38.5
$ 288,932
34.1
Casualty 287,120
29.8
247,280
29.2
Property excluding property catastrophe 208,445
21.6
214,287
25.3
Property catastrophe 57,773
6.0
59,269
7.0
Marine and aviation 20,510
2.1
24,438
2.9
Other 19,314
2.0
13,530
1.6
Total $ 964,308
100.0
$ 847,736
100.0

Pro rata $ 536,857
55.7
$ 405,720
47.9
Excess of loss 427,451
44.3
442,016
52.1
Total $ 964,308
100.0
$ 847,736
100.0

Nine Months Ended September 30, ~~2017~~2023 versus ~~2016~~2022 period. Gross premiums written by the reinsurance segment for the nine months ended September 30, ~~2017~~2023 were ~~10.9%~~38.7% higher than in the ~~2016~~2022 period, while net premiums written were ~~13.8%~~47.8% higher than in the ~~2016~~2022 period. ~~Gross and net premiums written for the~~

nine months ended September 30, 2017 reflected the casualty retroactive reinsurance contract from the 2017 third quarter noted above and reinstatement premiums from Hurricanes Harvey, Irma and Maria. Gross and net premiums written in both periods also reflected an increase in other specialty business related to certain other retroactive reinsurance contracts written in the second quarter of each period. In addition to the retroactive reinsurance contracts noted above, theThe increase in net premiums written ~~in the nine months ended September 30, 2017~~ reflected growth in ~~other specialty~~most lines of business, primarily due to new business, rate increases and growth in ~~international motor quota share contracts.~~existing accounts. In addition, the reinsurance segment retained a higher portion of business written in the 2023 period than in the 2022 period.

Net Premiums Earned.

The following tables set forth our reinsurance segment’s net premiums earned by major line of business:


	Three Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
Property excluding property catastrophe	$	449	29.1	$	282	28.1
Other specialty	505		32.7	330		32.9
Casualty	264		17.1	222		22.2
Property catastrophe	219		14.2	118		11.8
Marine and aviation	66		4.3	25		2.5
Other	40		2.6	25		2.5
Total	$	1,543	100.0	$	1,002	100.0

Three Months Ended September 30,
2017 2016
Amount % Amount %
Other specialty $ 96,090
29.7
$ 76,686
30.4
Casualty 117,255
36.2
69,414
27.6
Property excluding property catastrophe 65,049
20.1
72,550
28.8
Property catastrophe 30,039
9.3
17,582
7.0
Marine and aviation 6,801
2.1
10,336
4.1
Other 8,339
2.6
5,359
2.1
Total $ 323,573
100.0
$ 251,927
100.0

Pro rata $ 188,874
58.4
$ 132,649
52.7
Excess of loss 134,699
41.6
119,278
47.3
Total $ 323,573
100.0
$ 251,927
100.0

Nine Months Ended September 30,
2017 2016
Amount % Amount %
Other specialty $ 307,620
34.8
$ 260,428
32.4
Casualty 270,126
30.6
225,624
28.0
Property excluding property catastrophe 197,785
22.4
209,990
26.1
Property catastrophe 61,975
7.0
55,358
6.9
Marine and aviation 26,277
3.0
40,773
5.1
Other 19,343
2.2
12,218
1.5
Total $ 883,126
100.0
$ 804,391
100.0

Pro rata $ 503,954
57.1
$ 426,275
53.0
Excess of loss 379,172
42.9
378,116
47.0
Total $ 883,126
100.0
$ 804,391
100.0


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Table of Contents


	Nine Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
Property excluding property catastrophe	$	1,161	27.5	$	780	28.5
Other specialty	1,499		35.6	846		30.9
Casualty	775		18.4	635		23.2
Property catastrophe	527		12.5	290		10.6
Marine and aviation	173		4.1	109		4.0
Other	81		1.9	74		2.7
Total	$	4,216	100.0	$	2,734	100.0

Net premiums written, irrespective of the class of business, are generally earned on a pro rata basis over the terms of the underlying policies or reinsurance contracts. ~~For~~Net premiums earned by the ~~2017~~reinsurance segment in the 2023 third quarter ~~net premiums earned~~ were ~~28.4%~~54.0% higher than in the ~~2016~~2022 third quarter, and reflect ~~the retroactive reinsurance contract and reinstatement premium impacts discussed above as well as~~changes in net premiums written over the previous five quarters. Net premiums earned for the nine months ended September 30, ~~2017~~2023 were ~~9.8%~~54.2% higher than in the ~~2016~~2022 period.



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	59

~~Table of Contents~~

Other Underwriting Income (Loss).

Other underwriting income ~~(loss)~~ for the ~~2017~~2023 third quarter was $2 million, compared to nil for the 2022 third quarter, and ~~nine months ended September 30, 2017 was $1.7 million, compared to $2.2 million for the 2016 third quarter, and $1.1~~$9 million for the nine months ended September 30, ~~2017,~~2023, compared to ~~$22.7~~$6 million for the ~~2016~~2022 period. ~~The 2016 year-to-date period included $19.1 million related to a contract which was commuted during the 2016 second quarter. This contract had been reflected as a deposit accounting liability (i.e., a contract that, in accordance with GAAP, does not pass risk transfer) prior to the commutation.~~

Losses and Loss Adjustment Expenses.

The table below shows the components of the reinsurance segment’s loss ratio:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Current year	59.2	%	97.5	%	59.4	%	74.9	%
Prior period reserve development	(2.8)	%	(4.9)	%	(3.0)	%	(4.7)	%
Loss ratio	56.4	%	92.6	%	56.4	%	70.2	%

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Current year 109.8 % 65.6 % 86.6 % 67.2 %
Prior period reserve development (11.3 )% (23.6 )% (15.1 )% (22.0 )%
Loss ratio 98.5 % 42.0 % 71.5 % 45.2 %

Current Year Loss Ratio.

2023 Third Quarter versus 2022 Period. The reinsurance segment’s current year loss ratio in the ~~2017~~2023 third quarter was ~~44.2~~38.3 points ~~higher~~lower than in the ~~2016~~2022 third quarter. The 2023 third quarter ~~and~~loss ratio reflected ~~46.3~~9.7 points of current year catastrophic activity spread across a series of global events. The 2022 third quarter included 42.8 points of current year catastrophic activity, primarily related to ~~Hurricanes Harvey, Irma~~Hurricane Ian and ~~Maria, compared to 4.1 points~~other global events. The improvement in the ~~2016 third quarter.~~ current year loss ratio reflected the impact of rate increases and changes in mix of business, while the 2022 period reflected a higher level of catastrophic activity.

Nine Months Ended September 30, 2023 versus 2022 Period. The reinsurance segment’s current year loss ratio for the nine months ended September 30, ~~2017~~2023 was ~~19.4~~15.5 points ~~higher~~lower than in the ~~2016~~2022 period and reflected ~~20.0~~7.4 points of current year catastrophic activity, compared to ~~3.9~~20.1 points in the ~~2016~~

2022 period. The ~~balance of the change~~improvement in the ~~2017~~ current year loss ~~ratios resulted, in part, from~~ratio reflected the ~~effects~~impact of ~~market conditions~~rate increases and changes in ~~the~~ mix of ~~business.~~business, while the 2022 period reflected a higher level of catastrophic activity.

Prior Period Reserve Development.

The reinsurance segment’s net favorable development was ~~$36.5~~$44 million, or ~~11.3~~2.8 points, for the ~~2017~~2023 third quarter, compared to ~~$59.5~~$49 million, or ~~23.6~~4.9 points, for the ~~2016~~2022 third quarter, and ~~$133.3~~$126 million, or ~~15.1~~3.0 points, for the nine months ended September 30, ~~2017,~~2023, compared to ~~$176.7~~$127 million, or ~~22.0~~4.7 points, for the ~~2016~~2022 period. See note 6,5, “Reserve for Losses and Loss Adjustment Expenses,” ~~of the notes accompanying~~ to our consolidated financial statements for information about the reinsurance segment’s prior year reserve development.

Underwriting Expenses.

~~2017~~2023 Third Quarter versus ~~2016 Third Quarter:~~2022 Period. The underwriting expense ratio for the reinsurance segment was ~~28.9%~~23.6% in the ~~2017~~2023 third quarter, compared to ~~33.9%~~27.1% in the ~~2016~~

~~third quarter. The retroactive reinsurance contract noted above improved the reported 2017~~2022 third quarter, ~~underwriting expense~~with the decrease primarily due to growth in net premiums earned. The 2022 third quarter ratio ~~by 4.1 points. The comparison of the underwriting expense ratios~~ also reflected ~~changes in the mix and type of business and~~ a ~~higher~~lower level of ~~net premiums earned in the 2017 third quarter.~~contingent commissions on ceded business, primarily due to Hurricane Ian.

Nine Months Ended September 30, ~~2017~~2023 versus ~~2016 period:~~2022 period. The underwriting expense ratio for the reinsurance segment was ~~30.0%~~25.5% for the nine months ended September 30, ~~2017,~~2023, compared to ~~33.5%~~28.1% for the ~~2016 period.~~2022 period, with the decrease primarily due to growth in net premiums earned. The ~~comparison~~2022 period ratio also reflected a lower level of ~~the underwriting expense ratios~~contingent commissions on ceded business, primarily ~~reflected changes~~due to Hurricane Ian.


ARCH CAPITAL			47			2023 THIRD QUARTER FORM 10-Q

Table of Contents

Mortgage Segment

Our mortgage operations include U.S. and international mortgage insurance and reinsurance operations as well as participation in ~~the mix and type of business.~~

~~Mortgage Segment~~GSE credit risk-sharing transactions.

The following tables set forth our mortgage segment’s underwriting ~~results. On December 31, 2016, we completed the acquisition of UGC. As such, the 2017 results reflect the combination of Arch and UGC while the 2016 periods do not reflect UGC activity.~~results:


	Three Months Ended September 30,
	2023			2022			% Change
Gross premiums written	$	347		$	362		(4.1)
Premiums ceded	(76)			(86)
Net premiums written	271			276			(1.8)
Change in unearned premiums	22			6
Net premiums earned	293			282			3.9
Other underwriting income	3			3
Losses and loss adjustment expenses	35			68
Acquisition expenses	(2)			(7)
Other operating expenses	(47)			(47)
Underwriting income	$	282		$	299		(5.7)

Underwriting Ratios							% Point Change
Loss ratio	(12.1)		%	(24.1)		%	12.0
Acquisition expense ratio	0.6		%	2.4		%	(1.8)
Other operating expense ratio	16.2		%	16.5		%	(0.3)
Combined ratio	4.7		%	(5.2)		%	9.9


	Nine Months Ended September 30,
	2023			2022			% Change
Gross premiums written	$	1,037		$	1,099		(5.6)
Premiums ceded	(240)			(241)
Net premiums written	797			858			(7.1)
Change in unearned premiums	86			10
Net premiums earned	883			868			1.7
Other underwriting income	12			6
Losses and loss adjustment expenses	46			187
Acquisition expenses	(16)			(27)
Other operating expenses	(147)			(150)
Underwriting income	$	778		$	884		(12.0)

Underwriting Ratios							% Point Change
Loss ratio	(5.3)		%	(21.6)		%	16.3
Acquisition expense ratio	1.8		%	3.2		%	(1.4)
Other operating expense ratio	16.7		%	17.3		%	(0.6)
Combined ratio	13.2		%	(1.1)		%	14.3

Three Months Ended September 30,
2017 2016 % Change
Gross premiums written $ 347,951
$ 131,726
164.1
Premiums ceded (57,900 ) (51,182 )
Net premiums written 290,051
80,544
260.1
Change in unearned premiums (15,533 ) (3,582 )
Net premiums earned 274,518
76,962
256.7
Other underwriting income 3,599
4,740

Losses and loss adjustment expenses (35,156 ) (11,107 )
Acquisition expenses (21,803 ) (5,190 )
Other operating expenses (34,770 ) (24,249 )
Underwriting income $ 186,388
$ 41,156
352.9

Underwriting Ratios

% Point
Change
Loss ratio 12.8 % 14.4 % (1.6 )
Acquisition expense ratio 7.9 % 6.7 % 1.2
Other operating expense ratio 12.7 % 31.5 % (18.8 )
Combined ratio 33.4 % 52.6 % (19.2 )



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	60

~~Table of Contents~~

Nine Months Ended September 30,
2017 2016 % Change
Gross premiums written $ 1,032,800
$ 361,440
185.7
Premiums ceded (194,139 ) (62,918 )
Net premiums written 838,661
298,522
180.9
Change in unearned premiums (61,776 ) (93,283 )
Net premiums earned 776,885
205,239
278.5
Other underwriting income 11,999
12,670

Losses and loss adjustment expenses (84,915 ) (20,102 )
Acquisition expenses (76,235 ) (16,947 )
Other operating expenses (108,790 ) (70,590 )
Underwriting income $ 518,944
$ 110,270
370.6

Underwriting Ratios % Point
Change
Loss ratio 10.9 % 9.8 % 1.1
Acquisition expense ratio 9.8 % 8.3 % 1.5
Other operating expense ratio 14.0 % 34.4 % (20.4 )
Combined ratio 34.7 % 52.5 % (17.8 )

The mortgage segment includes the results of our U.S. primary mortgage insurance operations, including Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (combined “Arch MI U.S.”), which are approved as eligible mortgage insurers by Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), each a GSE. Arch MI U.S. and Arch Mortgage Insurance Designated Activity Company are leading providers of mortgage insurance products and services to the U.S. and European markets, respectively. The mortgage segment also includes GSE credit risk-sharing transactions and mortgage reinsurance for the U.S. and Australian markets.

Premiums Written.

The following tables set forth our mortgage segment’s net premiums written by ~~client location and underwriting location (i.e., where the business is underwritten):~~major line of business:


	Three Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
U.S. primary mortgage insurance	$	190	70.1	$	185	67.0
U.S. credit risk transfer (CRT) and other	57		21.0	51		18.5
International mortgage insurance/ reinsurance	24		8.9	40		14.5
Total	$	271	100.0	$	276	100.0

Three Months Ended September 30,
2017 2016
Amount % Amount %
Client location:
United States $ 262,028
90.3
$ 77,488
96.2
Other 28,023
9.7
3,056
3.8
Total $ 290,051
100.0
$ 80,544
100.0

Underwriting location:
United States $ 235,447
81.2
$ 50,236
62.4
Other 54,604
18.8
30,308
37.6
Total $ 290,051
100.0
$ 80,544
100.0

Nine Months Ended September 30,
2017 2016
Amount % Amount %
Client location:
United States 756,620
90.2
199,552
66.8
Other 82,041
9.8
98,970
33.2
Total $ 838,661
100.0
$ 298,522
100.0

Underwriting location:
United States $ 679,442
81.0
$ 128,008
42.9
Other 159,219
19.0
170,514
57.1
Total $ 838,661
100.0
$ 298,522
100.0

~~2017~~2023 Third Quarter versus ~~2016 Third Quarter~~. 2022 Period. Gross premiums written by the mortgage segment in the ~~2017~~2023 third quarter were ~~164.1% higher~~4.1% lower than in the ~~2016~~2022 third quarter, while net premiums written were 1.8% lower. The reduction in net premiums written primarily ~~reflecting~~reflected lower levels of mortgage originations in the Australian market than in the 2022 third quarter, partially offset by growth in credit risk transfer business and higher levels of retained premiums in U.S. primary mortgage insurance in force due to the acquisition of UGC. Premiums ceded for the 2017 third quarter were primarily related to the 50% quota share reinsurance agreement to AIG, covering 2014 to 2016 policy years of UGC business on a run-off basis, while the 2016 third quarter reflected the retrocession of $45.4 million of Australian mortgage reinsurance business.


	Nine Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
U.S. primary mortgage insurance	$	562	70.5	$	582	67.8
U.S. credit risk transfer (CRT) and other	164		20.6	143		16.7
International mortgage insurance/ reinsurance	71		8.9	133		15.5
Total	$	797	100.0	$	858	100.0

Nine Months Ended September 30, ~~2017~~2023 versus ~~2016 period~~2022 Period. Gross premiums written by the mortgage segment for the nine months ended September 30, 2023 were ~~185.7% higher~~5.6% lower than in the ~~2016~~2022 period, while net premiums written for the nine months ended September 30, 2023 were 7.1% lower than in the 2022 period. The reduction in net premiums written primarily ~~reflecting~~reflected lower levels of mortgage originations in the ~~growth~~Australian market and a decrease in U.S. primary mortgage insurance ~~in force due to the acquisition~~business, which was partially offset by a higher volume of ~~UGC.~~credit risk transfer transactions.

The persistency rate, which represents the percentage of mortgage insurance in force at the beginning of a 12-month period that remains in force at the end of such period, ofwas 83.9% for the Arch MI U.S. portfolio of mortgage ~~loans was 80.2%~~insurance policies at September 30, ~~2017, compared~~2023. This compares to ~~78.1% at June 30, 2017. The higher persistency rate~~75.4% at September 30, ~~2017~~2022 and reflects ~~changes in~~a lower level of ~~mortgage refinance~~refinancing activity ~~and mortgage interest rates.~~

in the period.



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	61

~~Table of Contents~~

~~Arch MI U.S. generated $17.7 billion of~~The following tables provide details on the new insurance written (“NIW”) ~~in the 2017 third quarter, compared to $8.8 billion in the 2016 third quarter.~~generated by Arch MI U.S. NIW represents the original principal balance of all loans that received coverage during the period. ~~Our NIW for the 2017 third quarter reflected the combination of Arch and UGC, a higher percentage of monthly premium business and an increase in purchase market activity.~~

~~The following tables provide details on the NIW generated by Arch MI U.S.:~~

(U.S. Dollars in millions) Three Months Ended September 30,
2017 2016
Amount % Amount %
Total new insurance written (NIW) (1) $ 17,683
$ 8,753

Credit quality (FICO):
>=740 $ 10,063
56.9
$ 5,187
59.3
680-739 6,357
35.9
3,074
35.1
620-679 1,263
7.1
492
5.6
  Total $ 17,683
100.0
$ 8,753
100.0

Loan-to-value (LTV):
95.01% and above $ 1,757
9.9
$ 507
5.8
90.01% to 95.00% 8,406
47.5
4,261
48.7
85.01% to 90.00% 5,668
32.1
2,883
32.9
85.01% and below 1,852
10.5
1,102
12.6
  Total $ 17,683
100.0
$ 8,753
100.0

Monthly vs. single:
Monthly $ 15,392
87.0
$ 7,765
88.7
Single 2,291
13.0
988
11.3
  Total $ 17,683
100.0
$ 8,753
100.0

Purchase vs. refinance:
Purchase $ 16,460
93.1
$ 7,264
83.0
Refinance 1,223
6.9
1,489
17.0
  Total $ 17,683
100.0
$ 8,753
100.0


~~(1)~~ARCH CAPITAL			~~Represents the original principal balance of all loans that received coverage during the period.~~ 48			2023 THIRD QUARTER FORM 10-Q

Table of Contents


								Three Months Ended September 30,
(U.S. Dollars in millions)	Nine Months Ended September 30,
	2017			2016
								2023			2022
	Amount		%	Amount		%		Amount		%	Amount		%
Total new insurance written (NIW) (1)	$	47,646		$	18,079		Total new insurance written (NIW) (1)	$	11,494		$	17,425

Credit quality (FICO):							Credit quality (FICO):
>=740	$	27,061	56.8	$	10,945	60.5	>=740	$	7,646	66.5	$	11,615	66.7
680-739	17,246		36.2	6,195		34.3	680-739	3,520		30.6	5,322		30.5
620-679	3,339		7.0	938		5.2	620-679	326		2.8	485		2.8
<620	—		—	1		—	<620	2		—	3		—
Total	$	47,646	100.0	$	18,079	100.0	Total	$	11,494	100.0	$	17,425	100.0

Loan-to-value (LTV):							Loan-to-value (LTV):
95.01% and above	$	4,429	9.3	$	1,233	6.8	95.01% and above	$	880	7.7	$	973	5.6
90.01% to 95.00%	22,763		47.8	8,477		46.9	90.01% to 95.00%	6,306		54.9	9,916		56.9
85.01% to 90.00%	15,191		31.9	5,982		33.1	85.01% to 90.00%	3,126		27.2	4,839		27.8
85.01% and below	5,263		11.0	2,387		13.2
85.00% and below							85.00% and below	1,182		10.3	1,697		9.7
Total	$	47,646	100.0	$	18,079	100.0	Total	$	11,494	100.0	$	17,425	100.0

Monthly vs. single:							Monthly vs. single:
Monthly	$	40,592	85.2	$	15,136	83.7	Monthly	$	10,712	93.2	$	16,911	97.1
Single	7,054		14.8	2,943		16.3	Single	782		6.8	514		2.9
Total	$	47,646	100.0	$	18,079	100.0	Total	$	11,494	100.0	$	17,425	100.0

Purchase vs. refinance:							Purchase vs. refinance:
Purchase	$	43,243	90.8	$	14,628	80.9	Purchase	$	11,334	98.6	$	17,159	98.5
Refinance	4,403		9.2	3,451		19.1	Refinance	160		1.4	266		1.5
Total	$	47,646	100.0	$	18,079	100.0	Total	$	11,494	100.0	$	17,425	100.0

(1)Represents the original principal balance of all loans that received coverage during the period.


(U.S. Dollars in millions)	Nine Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
Total new insurance written (NIW) (1)	$	34,180		$	60,939

Credit quality (FICO):
>=740	$	22,469	65.7	$	40,888	67.1
680-739	10,842		31.7	18,376		30.2
620-679	863		2.5	1,667		2.7
<620	6		—	8		—
Total	$	34,180	100.0	$	60,939	100.0

Loan-to-value (LTV):
95.01% and above	$	2,034	6.0	$	3,264	5.4
90.01% to 95.00%	19,204		56.2	33,984		55.8
85.01% to 90.00%	9,414		27.5	17,163		28.2
85.01% and below	3,528		10.3	6,528		10.7
Total	$	34,180	100.0	$	60,939	100.0

Monthly vs. single:
Monthly	$	32,688	95.6	$	58,984	96.8
Single	1,492		4.4	1,955		3.2
Total	$	34,180	100.0	$	60,939	100.0

Purchase vs. refinance:
Purchase	$	33,598	98.3	$	59,375	97.4
Refinance	582		1.7	1,564		2.6
Total	$	34,180	100.0	$	60,939	100.0

(1)Represents the original principal balance of all loans that received coverage during the period.


~~(1)~~	~~Represents the original principal balance of all loans that received coverage during the period.~~

Net Premiums Earned.

The following tables set forth our mortgage segment’s net premiums earned by ~~client location and underwriting location:~~major line of business:


	Three Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
U.S. primary mortgage insurance	$	192	65.5	$	194	68.8
U.S. credit risk transfer (CRT) and other	58		19.8	51		18.1
International mortgage insurance/ reinsurance	43		14.7	37		13.1
Total	$	293	100.0	$	282	100.0

Three Months Ended September 30,
2017 2016
Amount % Amount %
Client Location:
United States $ 262,324
95.6
$ 64,616
84.0
Other 12,194
4.4
12,346
16.0
Total $ 274,518
100.0
$ 76,962
100.0

Underwriting location:
United States $ 233,862
85.2
$ 40,498
52.6
Other 40,656
14.8
36,464
47.4
Total $ 274,518
100.0
$ 76,962
100.0

Nine Months Ended September 30,
2017 2016
Amount % Amount %
Client Location:
United States $ 745,011
95.9
$ 182,794
89.1
Other 31,874
4.1
22,445
10.9
Total $ 776,885
100.0
$ 205,239
100.0

Underwriting location:
United States $ 661,645
85.2
$ 107,142
52.2
Other 115,240
14.8
98,097
47.8
Total $ 776,885
100.0
$ 205,239
100.0



		Page No.
	PART I
	Financial Information	2
Item 1.	Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5038
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7563
Item 4.	Controls and Procedures	7563

	PART II
	Other Information	7663
Item 1.	Legal Proceedings	7663
Item 1A.	Risk Factors	7663
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7764
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	7764
Item 6.	Exhibits	7865
	Signatures	7966

September 30, 2023 and December 31, 2022 (unaudited)			5

		~~Page No.~~

~~Report of Independent Registered Public Accounting Firm~~	5

~~Consolidated Balance Sheets~~
~~September 30, 2017 (unaudited) and December 31, 2016~~	6

Consolidated Statements of Income
For the three and nine month periods ended September 30, ~~2017~~2023 and ~~2016~~2022 (unaudited)			76

Consolidated Statements of Comprehensive Income
For the three and nine month periods ended September 30, ~~2017~~2023 and ~~2016~~2022 (unaudited)			87

Consolidated Statements of Changes in Shareholders’ Equity
For the three and nine month periods ended September 30, 2023 and 2022 (unaudited)			8

Consolidated Statements of Cash Flows
For the nine month periods ended September 30, ~~2017~~2023 and ~~2016~~2022 (unaudited)			9

~~Consolidated Statements of Cash Flows~~
~~For the nine month periods ended September 30, 2017 and 2016 (unaudited)~~	10

Notes to Consolidated Financial Statements (unaudited)
Note 1 - ~~General~~Basis of Presentation and Recent Accounting Pronouncements			1110

Note 2 - ~~Recent Accounting Pronouncements~~Share Transactions			1110
Note 3 - ~~Variable Interest Entities and Noncontrolling Interests~~Earnings Per Common Share			1211
Note 4 - ~~Earnings (Loss) Per Common Share~~Segment Information			1512
Note 5 - ~~Segment Information~~		16
~~Note 6 - Reserves~~Reserve for Losses and Loss Adjustment Expenses		2117
Note 6 - Allowance for Expected Credit Losses			19
Note 7 - Investment Information			2421
Note 8 - Fair Value			3026
Note 9 - Derivative Instruments			3632
Note 10 - Commitments and Contingencies			3733

Note 11 - ~~Share Transactions~~Variable Interest Entities			3734
Note 12 - Other Comprehensive Income (Loss)			3935

Note 13 - ~~Guarantor Financial Information~~Income Taxes			4036
Note 14 - ~~Income Taxes~~Legal Proceedings			4836
Note 15 - ~~Legal Proceedings~~Transactions with Related Parties			4836
Note 16 - ~~Transactions With Related Parties~~Subsequent Event s			4837
~~Note 17 - Acquisition~~	48
~~Note 18 - Subsequent Events~~	49



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



Or

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


		Page No.



Consolidated Balance Sheets	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~	3

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands, except share data)

	(Unaudited)
	September 30, 2017			December 31, 2016
Assets
Investments:
Fixed maturities available for sale, at fair value (amortized cost: $13,722,581 and $13,522,671)	$	13,792,903		$	13,426,577
Short-term investments available for sale, at fair value (amortized cost: $1,645,873 and $611,878)	1,646,036			612,005
Collateral received under securities lending, at fair value (amortized cost: $543,243 and $762,554)	543,252			762,565
Equity securities available for sale, at fair value (cost: $401,674 and $475,085)	477,143			518,041
Other investments available for sale, at fair value (cost: $205,828 and $149,077)	260,339			167,970
Investments accounted for using the fair value option	4,249,634			3,421,220
Investments accounted for using the equity method	962,574			811,273
Total investments	21,931,881			19,719,651

Cash	862,361			842,942
Accrued investment income	101,104			124,483
Securities pledged under securities lending, at fair value (amortized cost: $529,700 and $746,409)	528,212			744,980
Premiums receivable	1,269,678			1,072,435
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	2,506,015			2,114,138
Contractholder receivables	1,864,348			1,717,436
Ceded unearned premiums	947,135			859,567
Deferred acquisition costs	531,196			447,560
Receivable for securities sold	385,952			58,284
Goodwill and intangible assets	684,405			781,553
Other assets	1,012,510			889,080
Total assets	$	32,624,797		$	29,372,109

Liabilities
Reserve for losses and loss adjustment expenses	$	11,351,267		$	10,200,960
Unearned premiums	3,751,550			3,406,870
Reinsurance balances payable	352,006			300,407
Contractholder payables	1,864,348			1,717,436
Collateral held for insured obligations	345,726			301,406
Senior notes	1,732,726			1,732,258
Revolving credit agreement borrowings	826,242			756,650
Securities lending payable	543,243			762,554
Payable for securities purchased	1,091,464			76,183
Other liabilities	788,354			806,260
Total liabilities	22,646,926			20,060,984

Commitments and Contingencies
Redeemable noncontrolling interests	205,829			205,553

Shareholders' Equity
Non-cumulative preferred shares	772,555			772,555
Convertible non-voting common equivalent preferred shares	489,627			1,101,304
Common shares ($0.0033 par, shares issued: 182,924,882 and 174,644,101)	610			582
Additional paid-in capital	1,212,960			531,687
Retained earnings	8,359,354			7,996,701
Accumulated other comprehensive income (loss), net of deferred income tax	129,682			(114,541		)
Common shares held in treasury, at cost (shares: 52,058,509 and 51,856,584)	(2,053,644		)	(2,034,570		)
Total shareholders' equity available to Arch	8,911,144			8,253,718
Non-redeemable noncontrolling interests	860,898			851,854
Total shareholders' equity	9,772,042			9,105,572
Total liabilities, noncontrolling interests and shareholders' equity	$	32,624,797		$	29,372,109



	September 30,		December 31,
	2017		2016
Assets
Investments accounted for using the fair value option	$	2,457,365	$	1,857,623
Cash	57,151		74,893
Accrued investment income	13,718		17,017
Premiums receivable	209,985		189,911
Reinsurance recoverable on unpaid and paid losses and LAE	37,575		24,420
Ceded unearned premiums	23,538		12,145
Deferred acquisition costs	87,692		86,379
Receivable for securities sold	74,051		1,326
Goodwill and intangible assets	7,650		7,650
Other assets	132,796		111,386
Total assets of consolidated VIE	$	3,101,521	$	2,382,750

Liabilities
Reserves for losses and loss adjustment expenses	$	735,132	$	510,809
Unearned premiums	344,060		293,480
Reinsurance balances payable	22,487		12,289
Revolving credit agreement borrowings	426,242		256,650
Payable for securities purchased	211,065		42,922
Other liabilities	174,472		88,976
Total liabilities of consolidated VIE	$	1,913,458	$	1,205,126

Redeemable noncontrolling interests	$	220,529	$	220,253



			Maximum Exposure to Loss
	Total VIE Assets		On-Balance Sheet			Off-Balance Sheet		Total
Bellemeade I	$	112,090	$	533		$	1,009	$	1,542
Bellemeade II	191,387		(53		)	746		693
Total	$	303,477	$	480		$	1,755	$	2,235



	Three Months Ended
	September 30, 2017
	Insurance			Reinsurance			Mortgage			Sub-Total			Other			Total

Gross premiums written (1)	$	787,447		$	422,083		$	347,951		$	1,557,179		$	166,198		$	1,648,246
Premiums ceded	(222,516		)	(105,389		)	(57,900		)	(385,503		)	(12,471		)	(322,843		)
Net premiums written	564,931			316,694			290,051			1,171,676			153,727			1,325,403
Change in unearned premiums	(29,766		)	6,879			(15,533		)	(38,420		)	(25,097		)	(63,517		)
Net premiums earned	535,165			323,573			274,518			1,133,256			128,630			1,261,886
Other underwriting income (loss)	—			1,728			3,599			5,327			737			6,064
Losses and loss adjustment expenses	(568,795		)	(318,609		)	(35,156		)	(922,560		)	(123,581		)	(1,046,141		)
Acquisition expenses	(82,638		)	(57,340		)	(21,803		)	(161,781		)	(32,073		)	(193,854		)
Other operating expenses	(90,875		)	(36,214		)	(34,770		)	(161,859		)	(8,268		)	(170,127		)
Underwriting income (loss)	$	(207,143	)	$	(86,862	)	$	186,388		(107,617		)	(34,555		)	(142,172		)

Net investment income										94,127			22,332			116,459
Net realized gains (losses)										64,104			2,171			66,275
Net impairment losses recognized in earnings										(1,878		)	—			(1,878		)
Equity in net income (loss) of investment funds accounted for using the equity method										31,090			—			31,090
Other income (loss)										(342		)	—			(342		)
Corporate expenses (2)										(14,108		)	—			(14,108		)
UGC transaction costs and other (2)										(2,990		)	—			(2,990		)
Amortization of intangible assets										(31,824		)	—			(31,824		)
Interest expense										(26,264		)	(3,246		)	(29,510		)
Net foreign exchange gains (losses)										(27,785		)	(243		)	(28,028		)
Income (loss) before income taxes										(23,487		)	(13,541		)	(37,028		)
Income tax (expense) benefit										(8,168		)	(21		)	(8,189		)
Net income (loss)										(31,655		)	(13,562		)	(45,217		)
Dividends attributable to redeemable noncontrolling interests										—			(4,586		)	(4,586		)
Amounts attributable to nonredeemable noncontrolling interests										—			16,147			16,147
Net income (loss) available to Arch										(31,655		)	(2,001		)	(33,656		)
Preferred dividends										(12,369		)	—			(12,369		)
Loss on redemption of preferred shares										(6,735		)	—			(6,735		)
Net income (loss) available to Arch common shareholders										$	(50,759	)	$	(2,001	)	$	(52,760	)

Underwriting Ratios
Loss ratio	106.3		%	98.5		%	12.8		%	81.4		%	96.1		%	82.9		%
Acquisition expense ratio	15.4		%	17.7		%	7.9		%	14.3		%	24.9		%	15.4		%
Other operating expense ratio	17.0		%	11.2		%	12.7		%	14.3		%	6.4		%	13.5		%
Combined ratio	138.7		%	127.4		%	33.4		%	110.0		%	127.4		%	111.8		%

Goodwill and intangible assets	$	23,445		$	417		$	652,893		$	676,755		$	7,650		$	684,405



	Three Months Ended
	September 30, 2016
	Insurance			Reinsurance			Mortgage			Sub-Total			Other			Total

Gross premiums written (1)	$	758,934		$	324,361		$	131,726		$	1,214,765		$	163,736		$	1,278,765
Premiums ceded	(217,446		)	(89,551		)	(51,182		)	(357,923		)	(6,300		)	(264,487		)
Net premiums written	541,488			234,810			80,544			856,842			157,436			1,014,278
Change in unearned premiums	(22,410		)	17,117			(3,582		)	(8,875		)	(47,000		)	(55,875		)
Net premiums earned	519,078			251,927			76,962			847,967			110,436			958,403
Other underwriting income (loss)	—			2,216			4,740			6,956			1,024			7,980
Losses and loss adjustment expenses	(332,845		)	(105,924		)	(11,107		)	(449,876		)	(74,307		)	(524,183		)
Acquisition expenses	(77,146		)	(50,192		)	(5,190		)	(132,528		)	(28,739		)	(161,267		)
Other operating expenses	(86,613		)	(35,389		)	(24,249		)	(146,251		)	(7,035		)	(153,286		)
Underwriting income (loss)	$	22,474		$	62,638		$	41,156		126,268			1,379			127,647

Net investment income										66,282			27,336			93,618
Net realized gains (losses)										95,946			29,159			125,105
Net impairment losses recognized in earnings										(3,867		)	—			(3,867		)
Equity in net income (loss) of investment funds accounted for using the equity method										16,662			—			16,662
Other income (loss)										(400		)	—			(400		)
Corporate expenses (2)										(11,343		)	—			(11,343		)
UGC transaction costs and other (2)										(7,142		)	—			(7,142		)
Amortization of intangible assets										(4,865		)	—			(4,865		)
Interest expense										(12,924		)	(3,019		)	(15,943		)
Net foreign exchange gains (losses)										(4,232		)	1,611			(2,621		)
Income (loss) before income taxes										260,385			56,466			316,851
Income tax (expense) benefit										(13,232		)	1			(13,231		)
Net income (loss)										247,153			56,467			303,620
Dividends attributable to redeemable noncontrolling interests										—			(4,588		)	(4,588		)
Amounts attributable to nonredeemable noncontrolling interests										—			(46,160		)	(46,160		)
Net income (loss) available to Arch										247,153			5,719			252,872
Preferred dividends										(5,484		)	—			(5,484		)
Net income (loss) available to Arch common shareholders										$	241,669		$	5,719		$	247,388

Underwriting Ratios
Loss ratio	64.1		%	42.0		%	14.4		%	53.1		%	67.3		%	54.7		%
Acquisition expense ratio	14.9		%	19.9		%	6.7		%	15.6		%	26.0		%	16.8		%
Other operating expense ratio	16.7		%	14.0		%	31.5		%	17.2		%	6.4		%	16.0		%
Combined ratio	95.7		%	75.9		%	52.6		%	85.9		%	99.7		%	87.5		%

Goodwill and intangible assets	$	26,367		$	1,228		$	55,696		$	83,291		$	7,650		$	90,941



	September 30, 2017				December 31, 2016
Maturity	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Due in one year or less	$	537,043	$	534,513	$	560,830	$	557,675
Due after one year through five years	7,547,002		7,508,674		6,158,148		6,211,099
Due after five years through 10 years	3,495,424		3,480,251		4,676,847		4,710,017
Due after 10 years	284,633		278,823		610,962		620,849
	11,864,102		11,802,261		12,006,787		12,099,640
Mortgage backed securities	323,900		321,362		490,093		493,656
Commercial mortgage backed securities	584,730		585,993		536,051		539,683
Asset backed securities	1,544,919		1,540,614		1,123,987		1,123,616
Total (1)	$	14,317,651	$	14,250,230	$	14,156,918	$	14,256,595



	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Less than 30 Days		30-90 Days		90 Days or More		Total
September 30, 2017
U.S. government and government agencies	$	424,838	$	8,186	$	74,930	$	—	$	507,954
Corporate bonds	31,305		—		—		—		31,305
Equity securities	3,984		—		—		—		3,984
Total	$	460,127	$	8,186	$	74,930	$	—	$	543,243
Gross amount of recognized liabilities for securities lending in offsetting disclosure in Note 9									$	—
Amounts related to securities lending not included in offsetting disclosure in Note 9									$	543,243

December 31, 2016
U.S. government and government agencies	$	556,015	$	31,244	$	126,093	$	5,140	$	718,492
Corporate bonds	29,078		—		—		—		29,078
Equity securities	14,984		—		—		—		14,984
Total	$	600,077	$	31,244	$	126,093	$	5,140	$	762,554
Gross amount of recognized liabilities for securities lending in offsetting disclosure in Note 9									$	—
Amounts related to securities lending not included in offsetting disclosure in Note 9									$	762,554



	September 30, 2017		December 31, 2016
Available for sale:
Asian and emerging markets	$	123,225	$	84,778
Investment grade fixed income	53,325		33,923
Credit related funds	20,752		7,469
Other	63,037		41,800
Total available for sale	260,339		167,970
Fair value option:
Term loan investments (par value: $1,378,797 and $1,208,537)	1,387,663		1,190,799
Mezzanine debt funds	172,000		127,943
Credit related funds	194,200		218,298
Investment grade fixed income	95,151		75,468
Asian and emerging markets	300,552		178,568
Other (1)	147,639		129,717
Total fair value option	2,297,205		1,920,793
Total	$	2,557,544	$	2,088,763



	Estimated Fair Value
	Asset Derivatives		Liability Derivatives			Notional Value (1)
September 30, 2017
Futures contracts (2)	$	5,351	$	(6,722	)	$	1,524,985
Foreign currency forward contracts (2)	19,376		(5,348		)	805,201
TBAs (3)	18,331		—			18,143
Other (2)	8,414		(10,967		)	2,032,922
Total	$	51,472	$	(23,037	)

December 31, 2016
Futures contracts (2)	$	360	$	(9,398	)	$	1,655,530
Foreign currency forward contracts (2)	9,354		(12,941		)	1,186,386
TBAs (3)	—		—			—
Other (2)	20,287		(3,710		)	1,014,863
Total	$	30,001	$	(26,049	)



		September 30, 2017
Condensed Consolidating Balance Sheet		ACGL (Parent Guarantor)		Arch-U.S. (Subsidiary Issuer)			Other ACGL Subsidiaries		Consolidating Adjustments and Eliminations			ACGL Consolidated
Assets
Total investments		$	402	$	69,671		$	21,876,508	$	(14,700	)	$	21,931,881
Cash		4,868		88,818			768,675		—			862,361
Investments in subsidiaries		9,214,178		4,028,493			—		(13,242,671		)	—
Due from subsidiaries and affiliates		81		117			1,923,941		(1,924,139		)	—
Premiums receivable		—		—			1,863,203		(593,525		)	1,269,678
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses		—		—			7,023,836		(4,517,821		)	2,506,015
Contractholder receivables		—		—			1,864,348		—			1,864,348
Ceded unearned premiums		—		—			2,240,129		(1,292,994		)	947,135
Deferred acquisition costs		—		—			677,567		(146,371		)	531,196
Goodwill and intangible assets		—		—			684,405		—			684,405
Other assets		13,357		59,734			2,146,993		(192,306		)	2,027,778
	Total assets	$	9,232,886	$	4,246,833		$	41,069,605	$	(21,924,527	)	$	32,624,797

Liabilities
Reserve for losses and loss adjustment expenses		$	—	$	—		$	15,836,263	$	(4,484,996	)	$	11,351,267
Unearned premiums		—		—			5,044,544		(1,292,994		)	3,751,550
Reinsurance balances payable		—		—			945,530		(593,524		)	352,006
Contractholder payables		—		—		��	1,864,348		—			1,864,348
Collateral held for insured obligations		—		—			345,726					345,726
Senior notes		297,030		494,596			941,100		—			1,732,726
Revolving credit agreement borrowings		—		—			826,242		—			826,242
Due to subsidiaries and affiliates		41		542,103			1,381,996		(1,924,140		)	—
Other liabilities		24,671		100,278			2,669,614		(371,502		)	2,423,061
	Total liabilities	321,742		1,136,977			29,855,363		(8,667,156		)	22,646,926

Redeemable noncontrolling interests		—		—			220,529		(14,700		)	205,829

Shareholders’ Equity
Total shareholders’ equity available to Arch		8,911,144		3,109,856			10,132,815		(13,242,671		)	8,911,144
Non-redeemable noncontrolling interests		—		—			860,898		—			860,898
	Total shareholders’ equity	8,911,144		3,109,856			10,993,713		(13,242,671		)	9,772,042

	Total liabilities, noncontrolling interests and shareholders’ equity	$	9,232,886	$	4,246,833		$	41,069,605	$	(21,924,527	)	$	32,624,797



		Three Months Ended September 30, 2017
Condensed Consolidating Statement of Income and Comprehensive Income		ACGL (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other ACGL Subsidiaries			Consolidating Adjustments and Eliminations			ACGL Consolidated
Revenues
Net premiums earned		$	—		$	—		$	1,261,886		$	—		$	1,261,886
Net investment income		117			151			138,784			(22,593		)	116,459
Net realized gains (losses)		—			—			66,275			—			66,275
Net impairment losses recognized in earnings		—			—			(1,878		)	—			(1,878		)
Other underwriting income		—			—			6,064			—			6,064
Equity in net income (loss) of investment funds accounted for using the equity method		—			—			31,090			—			31,090
Other income (loss)		(102		)	—			(240		)	—			(342		)
	Total revenues	15			151			1,501,981			(22,593		)	1,479,554

Expenses
Losses and loss adjustment expenses		—			—			1,046,141			—			1,046,141
Acquisition expenses		—			—			193,854			—			193,854
Other operating expenses		—			—			170,127			—			170,127
Corporate expenses		14,576			410			2,112			—			17,098
Amortization of intangible assets		—			—			31,824			—			31,824
Interest expense		5,934			12,037			33,811			(22,272		)	29,510
Net foreign exchange (gains) losses		—			—			20,510			7,518			28,028
	Total expenses	20,510			12,447			1,498,379			(14,754		)	1,516,582

Income (loss) before income taxes		(20,495		)	(12,296		)	3,602			(7,839		)	(37,028		)
Income tax (expense) benefit		—			4,432			(12,621		)	—			(8,189		)
Income (loss) before equity in net income of subsidiaries		(20,495		)	(7,864		)	(9,019		)	(7,839		)	(45,217		)
Equity in net income (loss) of subsidiaries		(13,161		)	50,057			—			(36,896		)	—
Net income (loss)		(33,656		)	42,193			(9,019		)	(44,735		)	(45,217		)
Net (income) loss attributable to noncontrolling interests		—			—			11,238			323			11,561
Net income (loss) available to Arch		(33,656		)	42,193			2,219			(44,412		)	(33,656		)
Preferred dividends		(12,369		)	—			—			—			(12,369		)
Loss on redemption of preferred shares		(6,735		)	—			—			—			(6,735		)
Net income (loss) available to Arch common shareholders		$	(52,760	)	$	42,193		$	2,219		$	(44,412	)	$	(52,760	)

Comprehensive income (loss) available to Arch		$	17,585		$	47,676		$	45,936		$	(93,612	)	$	17,585



		Nine Months Ended September 30, 2017
Condensed Consolidating Statement of Cash Flows		ACGL (Parent Guarantor)			Arch-U.S. (Subsidiary Issuer)			Other ACGL Subsidiaries			Consolidating Adjustments and Eliminations			ACGL Consolidated
Operating Activities
	Net Cash Provided By (Used For) Operating Activities	$	130,715		$	70,761		$	1,464,701		$	(585,043	)	$	1,081,134
Investing Activities
Purchases of fixed maturity investments		—			—			(28,079,129		)	—			(28,079,129		)
Purchases of equity securities		—			—			(667,135		)	—			(667,135		)
Purchases of other investments		—			—			(1,406,528		)	—			(1,406,528		)
Proceeds from the sales of fixed maturity investments		—			—			27,629,474			—			27,629,474
Proceeds from the sales of equity securities		—			—			751,873			—			751,873
Proceeds from the sales, redemptions and maturities of other investments		—			—			938,581			—			938,581
Proceeds from redemptions and maturities of fixed maturity investments		—			—			747,621			—			747,621
Net settlements of derivative instruments		—			—			(20,952		)	—			(20,952		)
Net (purchases) sales of short-term investments		2,209			(27,998		)	(938,864		)	—			(964,653		)
Change in cash collateral related to securities lending		—			—			148,692			—			148,692
Contributions to subsidiaries		20,641			(72,900		)	(353,588		)	405,847			—
Issuance of intercompany loans		—			—			(47,000		)	47,000			—
Repayment of intercompany loans		—			47,000			—			(47,000		)	—
Acquisitions, net of cash		—			—			(27,709		)	—			(27,709		)
Purchases of fixed assets		(18		)	—			(16,844		)	—			(16,862		)
Other		—			—			106,786			(20,641		)	86,145
	Net Cash Provided By (Used For) Investing Activities	22,832			(53,898		)	(1,234,722		)	385,206			(880,582		)
Financing Activities
Proceeds from issuance of preferred shares, net		222,054			—			—			—			222,054
Redemption of preferred shares		(230,000		)	—			—			—			(230,000		)
Proceeds from common shares issued, net		(7,484		)	—			405,847			(405,847		)	(7,484		)
Proceeds from intercompany borrowings		—			—			47,000			(47,000		)	—
Proceeds from borrowings		—			—			238,915			—			238,915
Repayments of intercompany borrowings		—			—			(47,000		)	47,000			—
Repayments of borrowings		(100,000		)	—			(72,000		)	—			(172,000		)
Change in cash collateral related to securities lending		—			—			(148,692		)	—			(148,692		)
Dividends paid to redeemable noncontrolling interests		—			—			(14,447		)	956			(13,491		)
Dividends paid to parent (1)		—			—			(584,087		)	584,087			—
Other		—			—			(69,921		)	20,641			(49,280		)
Preferred dividends paid		(34,936		)	—			—			—			(34,936		)
	Net Cash Provided By (Used For) Financing Activities	(150,366		)	—			(244,385		)	199,837			(194,914		)
Effects of exchange rates changes on foreign currency cash		—			—			13,781			—			13,781
Increase (decrease) in cash		3,181			16,863			(625		)	—			19,419
Cash beginning of year		1,687			71,955			769,300			—			842,942
Cash end of period		$	4,868		$	88,818		$	768,675		$	—		$	862,361



	Arch Portfolio		Benchmark Return
2017 Third Quarter	1.60	%	1.24	%
2016 Third Quarter	0.88	%	0.83	%

Nine Months Ended September 30, 2017	5.05	%	4.33	%
Nine Months Ended September 30, 2016	4.03	%	4.43	%


~~(1)~~	~~Amounts include dividends and interest distributions on investment funds, term loan investments and other items.~~


~~(2)~~	Investment expenses were approximately 0.32% of average invested assets for the 2017 third quarter, compared to 0.31% for the 2016 third quarter, and 0.30% for the nine months ended September 30, 2017, compared to 0.32% for the 2016 period.



Investable assets (1):	Estimated Fair Value			% of Total
September 30, 2017
Fixed maturities (2)	$	14,731,262		74.8
Short-term investments	1,723,081			8.7
Cash	805,210			4.1
Equity securities (2)	546,027			2.8
Other investments (2)	1,496,531			7.6
Investments accounted for using the equity method	962,574			4.9
Securities transactions entered into but not settled at the balance sheet date	(568,498		)	(2.9	)
Total investable assets held by Arch	$	19,696,187		100.0

December 31, 2016
Fixed maturities (2)	$	14,521,774		77.9
Short-term investments	676,547			3.6
Cash	768,049			4.1
Equity securities (2)	558,008			3.0
Other investments (2)	1,276,841			6.9
Investments accounted for using the equity method	811,273			4.4
Securities transactions entered into but not settled at the balance sheet date	23,697			0.1
Total investable assets held by Arch	$	18,636,189		100.0


~~(1)~~	In securities lending transactions, we receive collateral in excess of the fair value of the securities pledged. For purposes of this table, we have excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value.


~~(2)~~	~~Includes investments carried as available for sale, at fair value and at fair value under the fair value option.~~


~~(1)~~ARCH CAPITAL			~~Includes U.S. government-sponsored agency residential mortgage-backed securities and agency commercial mortgage-backed securities.~~ 52			2023 THIRD QUARTER FORM 10-Q


Severity of gross unrealized losses:	Estimated Fair Value		Gross Unrealized Losses			% of Total Gross Unrealized Losses	Severity of gross unrealized losses:	Estimated Fair Value		Gross Unrealized Losses		% of Total Gross Unrealized Losses
September 30, 2017
September 30, 2023							September 30, 2023
0-10%	$	7,499,372	$	(71,889	)	86.1	0-10%	$	16,607	$	(571)	40.4
10-20%	73,042		(10,600		)	12.7	10-20%	3,510		(555)		39.3
20-30%	2,164		(687		)	0.8	20-30%	834		(243)		17.2
Greater than 30%	324		(299		)	0.4	Greater than 30%	82		(45)		3.2
Total	$	7,574,902	$	(83,475	)	100.0	Total	$	21,033	$	(1,414)	100.0

December 31, 2016
December 31, 2022							December 31, 2022
0-10%	$	7,078,582	$	(127,909	)	71.6	0-10%	$	12,343	$	(580)	35.2
10-20%	155,403		(24,219		)	13.5	10-20%	5,331		(844)		51.2
20-30%	89,887		(25,929		)	14.5	20-30%	692		(199)		12.1
Greater than 30%	1,496		(702		)	0.4	Greater than 30%	44		(24)		1.5
Total	$	7,325,368	$	(178,759	)	100.0	Total	$	18,410	$	(1,647)	100.0



	Estimated Fair Value		Credit Rating (1)
Apple Inc.	$	144,561	AA+/Aa1
Microsoft Corporation	131,597		AAA/Aaa
JPMorgan Chase & Co.	116,451		A-/A3
The Bank of New York Mellon Corporation	89,245		A/A1
Citigroup Inc.	87,285		A-/A3
Wells Fargo & Company	82,560		A/A2
New York Life Insurance Company	74,684		AA+/Aaa
Massmutual Global Funding II C	72,581		AA+/Aa2
MetLife, Inc.	71,893		AA-/Aa3
American Express Company	69,096		A-/A2
Total	$	939,953


~~(1)~~	~~Average credit ratings as assigned by S&P and Moody’s, respectively.~~



	~~ACGL 2017 THIRD QUARTER FORM 10-Q~~Estimated Fair Value		66	Credit Rating (1)
Bank of America Corporation	$	360		A-/A1
Morgan Stanley	333			A-/A1
JPMorgan Chase & Co.	315			A-/A1
The Goldman Sachs Group, Inc.	240			BBB+/A2
Citigroup Inc.	222			BBB+/A3
HSBC Holdings plc	167			A-/A2
Blue Owl Capital Inc.	160			BBB-/Baa3
Wells Fargo & Company	149			BBB+/A1
Philip Morris International Inc.	142			A-/A2
Deere & Company	129			A/A2
Total	$	2,217


	Agencies		Investment Grade		Below Investment Grade		Total
September 30, 2023
RMBS	$	682	$	283	$	—	$	965
CMBS	7		998		97		1,102
ABS	—		2,205		139		2,344
Total	$	689	$	3,486	$	236	$	4,411

December 31, 2022
RMBS	$	645	$	134	$	16	$	795
CMBS	18		947		82		1,047
ABS	—		1,788		141		1,929
Total	$	663	$	2,869	$	239	$	3,771



Country (1)	Sovereign (2)		Corporate Bonds		Other (3)		Total
Netherlands	$	100,463	$	96,733	$	7,154	$	204,350
Germany	103,751		27,931		43,928		175,610
Belgium	47,890		7,522		—		55,412
Luxembourg	—		16,605		18,624		35,229
France	1,011		7,017		23,885		31,914
Austria	16,120		—		—		16,120
Spain	—		1,696		10,192		11,889
Ireland	—		6,698		2,670		9,369
Italy	—		1,685		6,942		8,626
Finland	—		—		4,306		4,306
Portugal	—		—		549		549
Greece	—		—		402		402
Total	$	269,236	$	165,887	$	118,653	$	553,777


~~(1)~~	The country allocations set forth in the table are based on various assumptions made by us in assessing the country in which the underlying credit risk resides, including a review of the jurisdiction of organization, business operations and other factors. Based on such analysis, we do not believe that we have any other Eurozone investments at September 30, 2017.


~~(2)~~	~~Includes securities issued and/or guaranteed by Eurozone governments.~~