UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended

~~March 31,~~September 30, 2023



Or

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

Commission file number: 001-16209

ARCH CAPITAL GROUP LTD.

(Exact name of registrant as specified in its charter)

Bermuda

98-0374481

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

Waterloo House, Ground Floor

100 Pitts Bay Road,

Pembroke

HM 08,

Bermuda

(441)

278-9250

(Address of principal executive offices)

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol (s)

Name of each exchange on which registered

Common shares, $0.0011 par value per share

ACGL

NASDAQ

Stock Market

Depositary shares, each representing a 1/1000th interest in a 5.45% Series F preferred share

ACGLO

NASDAQ

Stock Market

Depositary shares, each representing a 1/1000th interest in a 4.55% Series G preferred share

ACGLN

NASDAQ

Stock Market

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

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

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

Large Accelerated Filer ☑ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of ~~May 1,~~November 6, 2023, there were ~~372,422,622~~373,171,909 common shares, $0.0011 par value per share, of the registrant outstanding.

Table of Contents

ARCH CAPITAL GROUP LTD.

INDEX TO FORM 10-Q


		Page No.
	PART I
	Financial Information	2
Item 1.	Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3438
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5563
Item 4.	Controls and Procedures	5563

	PART II
	Other Information	5663
Item 1.	Legal Proceedings	5663
Item 1A.	Risk Factors	5663
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5664
Item 3.	Defaults Upon Senior Securities	5764
Item 4.	Mine Safety Disclosures	5764
Item 5.	Other Information	5764
Item 6.	Exhibits	5865
	Signatures	5966


ARCH CAPITAL			1			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

PART I. FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides a “safe harbor” for forward-looking statements. This report or any other written or oral statements made by or on behalf of us may include forward-looking statements, which reflect our current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this report are forward-looking statements. Forward-looking statements, for purposes of the PSLRA or otherwise, can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” and similar statements of a future or forward-looking nature or their negative or variations or similar terminology.

Forward-looking statements involve our current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed below and elsewhere in this report and in our periodic reports filed with the Securities and Exchange Commission (“SEC”), and include:

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

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

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

•our ability to maintain or improve our ratings, which may be affected by our ability to raise additional equity or debt financings, by ratings agencies’ existing or new policies and practices, as well as other factors described herein;

•general economic and market conditions (including inflation, interest rates, unemployment, housing prices, foreign currency exchange rates, prevailing credit terms and the depth and duration of a recession, including those resulting from COVID-19) and conditions specific to the reinsurance and insurance markets in which we operate;

•competition, including increased competition, on the basis of pricing, capacity (including alternative sources of capital), coverage terms, or other factors;

•developments in the world’s financial and capital markets and our access to such markets;

•our ability to successfully enhance, integrate and maintain operating procedures (including information technology) to effectively support our current and new business;

•the loss and addition of key personnel;

•material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;

•accuracy of those estimates and judgments utilized in the preparation of our financial statements, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment valuations, intangible assets, bad debts, income taxes, contingencies and litigation, and any determination to use the deposit method of accounting;

•greater than expected loss ratios on business written by us and adverse development on claim and/or claim expense liabilities related to business written by our insurance, reinsurance and ~~reinsurance~~mortgage subsidiaries;

•the adequacy of the Company’s loss reserves;

•severity and/or frequency of losses;

•greater frequency or severity of unpredictable natural and man-made catastrophic events;

•claims for natural or man-made catastrophic events or severe economic events in our insurance, reinsurance and mortgage businesses could cause large losses and substantial volatility in our results of operations;

•the effect of climate change on our business;

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

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


ARCH CAPITAL			2			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

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

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

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

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

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

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

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

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

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

•statutory or regulatory developments, including as to tax matters and insurance and other regulatory matters such as the adoption of proposed legislation that would affect Bermuda-headquartered companies and/or Bermuda-based insurers or reinsurers and/or changes in regulations or tax laws applicable to us, our subsidiaries, brokers or customers, including the ~~possible~~ implementation of the Organization for Economic Cooperation and Development (“OECD”) Pillar I and Pillar II ~~initiatives;~~initiatives and the possible enactment of a recently proposed Bermuda corporate income tax; and

•the other matters set forth under Item 1A “Risk Factors,” Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of our Annual Report on Form 10-K for the year ended December 31, 2022, as well as the other factors set forth in our other documents on file with the SEC, and management’s response to any of the aforementioned factors.

All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.


ARCH CAPITAL			3			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS


						Page No.

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

Consolidated Balance Sheets
~~March 31,~~September 30, 2023 and December 31, 2022 (unaudited)						65

Consolidated Statements of Income
For the three and nine month periods ended ~~March 31,~~September 30, 2023 and 2022 (unaudited)						76

Consolidated Statements of Comprehensive Income
For the three and nine month periods ended ~~March 31,~~September 30, 2023 and 2022 (unaudited)						87

Consolidated Statements of Changes in Shareholders’ Equity
For the three and nine month periods ended ~~March 31,~~September 30, 2023 and 2022 (unaudited)						98

Consolidated Statements of Cash Flows
For the ~~three~~nine month periods ended ~~March 31,~~September 30, 2023 and 2022 (unaudited)						109

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

Note 2 - Share Transactions						1110
Note 3 - Earnings Per Common Share						1211
Note 4 - Segment Information						1312
Note 5 - Reserve for Losses and Loss Adjustment Expenses						1617
Note 6 - Allowance for Expected Credit Losses						1819
Note 7 - Investment Information						1921
Note 8 - Fair Value						2426
Note 9 - Derivative Instruments						2932
Note 10 - Commitments and Contingencies						3033

Note 11 - Variable Interest Entities						3134
Note 12 - Other Comprehensive Income (Loss)						3235

Note 13 - Income Taxes						3336
Note 14 - Legal Proceedings						3336
Note 15 - Transactions with Related Parties						3336
Note 16 - Subsequent Event s						37


ARCH CAPITAL			4			2023 ~~FIRST QUARTER FORM 10-Q~~

~~Table of Contents~~

~~Report of Independent Registered Public Accounting Firm~~

~~To the Board of Directors and Shareholders of Arch Capital Group Ltd.~~

~~Results of Review of Interim Financial Statements~~

We have reviewed the accompanying consolidated balance sheet of Arch Capital Group Ltd. and its subsidiaries (the “Company”) as of March 31, 2023, and the related consolidated statements of income, comprehensive income, and changes in shareholders’ equity and the consolidated statements of cash flows for the three-month periods ended March 31, 2023 and 2022, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein), and in our report dated February 24, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

~~Basis for Review Results~~

These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

~~/s/ PricewaterhouseCoopers LLP~~

~~New York, New York~~

~~May 4, 2023~~


~~ARCH CAPITAL~~			5			~~2023 FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(U.S. dollars and shares in millions)


		(Unaudited)					(Unaudited)
		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Assets	Assets					Assets
Investments:	Investments:					Investments:
Fixed maturities available for sale, at fair value (amortized cost: $21,922 and $21,282; net of allowance for credit losses: $56 and $41)		$	20,692	$	19,683
Short-term investments available for sale, at fair value (amortized cost: $1,553 and $1,333; net of allowance for credit losses: $0 and $0)		1,553		1,332
Fixed maturities available for sale, at fair value (amortized cost: $23,882 and $21,282; net of allowance for credit losses: $57 and $41)						Fixed maturities available for sale, at fair value (amortized cost: $23,882 and $21,282; net of allowance for credit losses: $57 and $41)	$	22,485	$	19,683
Short-term investments available for sale, at fair value (amortized cost: $1,680 and $1,333; net of allowance for credit losses: $0 and $0)						Short-term investments available for sale, at fair value (amortized cost: $1,680 and $1,333; net of allowance for credit losses: $0 and $0)	1,682		1,332

Equity securities, at fair value	Equity securities, at fair value	859		860		Equity securities, at fair value	894		860

Other investments, at fair value	Other investments, at fair value	1,776		1,644		Other investments, at fair value	2,068		1,644
Investments accounted for using the equity method	Investments accounted for using the equity method	3,896		3,774		Investments accounted for using the equity method	4,251		3,774
Total investments	Total investments	28,776		27,293		Total investments	31,380		27,293

Cash	Cash	803		855		Cash	859		855
Accrued investment income	Accrued investment income	163		159		Accrued investment income	217		159

Investment in operating affiliates	Investment in operating affiliates	1,015		965		Investment in operating affiliates	1,000		965
Premiums receivable (net of allowance for credit losses: $36 and $35)		4,513		3,625
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses (net of allowance for credit losses: $21 and $22)		6,612		6,564
Contractholder receivables (net of allowance for credit losses: $2 and $3)		1,750		1,731
Premiums receivable (net of allowance for credit losses: $34 and $35)						Premiums receivable (net of allowance for credit losses: $34 and $35)	4,937		3,625
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses (net of allowance for credit losses: $23 and $22)						Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses (net of allowance for credit losses: $23 and $22)	6,821		6,564
Contractholder receivables (net of allowance for credit losses: $3 and $3)						Contractholder receivables (net of allowance for credit losses: $3 and $3)	1,805		1,731
Ceded unearned premiums	Ceded unearned premiums	2,116		1,799		Ceded unearned premiums	2,444		1,799
Deferred acquisition costs	Deferred acquisition costs	1,355		1,264		Deferred acquisition costs	1,483		1,264
Receivable for securities sold	Receivable for securities sold	84		12		Receivable for securities sold	59		12
Goodwill and intangible assets	Goodwill and intangible assets	785		804		Goodwill and intangible assets	739		804

Other assets	Other assets	3,131		2,919		Other assets	3,483		2,919
Total assets	Total assets	$	51,103	$	47,990	Total assets	$	55,227	$	47,990

Liabilities	Liabilities					Liabilities
Reserve for losses and loss adjustment expenses	Reserve for losses and loss adjustment expenses	$	20,758	$	20,032	Reserve for losses and loss adjustment expenses	$	21,836	$	20,032
Unearned premiums	Unearned premiums	8,218		7,337		Unearned premiums	9,074		7,337
Reinsurance balances payable	Reinsurance balances payable	1,819		1,530		Reinsurance balances payable	2,215		1,530
Contractholder payables	Contractholder payables	1,752		1,734		Contractholder payables	1,807		1,734
Collateral held for insured obligations	Collateral held for insured obligations	252		249		Collateral held for insured obligations	274		249
Senior notes	Senior notes	2,726		2,725		Senior notes	2,726		2,725

Payable for securities purchased	Payable for securities purchased	262		95		Payable for securities purchased	417		95
Other liabilities	Other liabilities	1,317		1,367		Other liabilities	1,637		1,367
Total liabilities	Total liabilities	37,104		35,069		Total liabilities	39,986		35,069

Commitments and contingencies (refer to Note 10)	Commitments and contingencies (refer to Note 10)					Commitments and contingencies (refer to Note 10)
Redeemable noncontrolling interests	Redeemable noncontrolling interests	11		11		Redeemable noncontrolling interests	2		11

Shareholders' Equity	Shareholders' Equity					Shareholders' Equity
Non-cumulative preferred shares	Non-cumulative preferred shares	830		830		Non-cumulative preferred shares	830		830

Common shares ($0.0011 par, shares issued: 590.5 and 588.3)		1		1
Common shares ($0.0011 par, shares issued: 591.4 and 588.3)						Common shares ($0.0011 par, shares issued: 591.4 and 588.3)	1		1
Additional paid-in capital	Additional paid-in capital	2,260		2,211		Additional paid-in capital	2,297		2,211
Retained earnings	Retained earnings	16,597		15,892		Retained earnings	17,971		15,892
Accumulated other comprehensive income (loss), net of deferred income tax	Accumulated other comprehensive income (loss), net of deferred income tax	(1,297)		(1,646)		Accumulated other comprehensive income (loss), net of deferred income tax	(1,453)		(1,646)
Common shares held in treasury, at cost (shares: 218.3 and 217.9)	Common shares held in treasury, at cost (shares: 218.3 and 217.9)	(4,403)		(4,378)		Common shares held in treasury, at cost (shares: 218.3 and 217.9)	(4,407)		(4,378)
Total shareholders' equity available to Arch	Total shareholders' equity available to Arch	13,988		12,910		Total shareholders' equity available to Arch	15,239		12,910

Total liabilities, noncontrolling interests and shareholders' equity	Total liabilities, noncontrolling interests and shareholders' equity	$	51,103	$	47,990	Total liabilities, noncontrolling interests and shareholders' equity	$	55,227	$	47,990

See Notes to Consolidated Financial Statements


ARCH CAPITAL			65			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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


		(Unaudited)				(Unaudited)				(Unaudited)
		Three Months Ended				Three Months Ended				Nine Months Ended
		March 31,				September 30,				September 30,
		2023		2022				2023		2022		2023		2022
Revenues	Revenues						Revenues

Net premiums earned	Net premiums earned	$	2,883	$	2,121		Net premiums earned	$	3,248	$	2,471	9,096		6,918
Net investment income	Net investment income	199		80			Net investment income	269		129		710		315
Net realized gains (losses)	Net realized gains (losses)	17		(292)			Net realized gains (losses)	(248)		(184)		(354)		(743)

Other underwriting income	Other underwriting income	10		6			Other underwriting income	5		3		21		12
Equity in net income (loss) of investment funds accounted for using the equity method	Equity in net income (loss) of investment funds accounted for using the equity method	48		36			Equity in net income (loss) of investment funds accounted for using the equity method	59		(19)		176		75
Other income (loss)	Other income (loss)	11		(9)			Other income (loss)	(4)		(14)		10		(35)
Total revenues	Total revenues	3,168		1,942			Total revenues	3,329		2,386		9,659		6,542

Expenses	Expenses						Expenses
Losses and loss adjustment expenses	Losses and loss adjustment expenses	1,471		1,001			Losses and loss adjustment expenses	1,647		1,683		4,609		3,787
Acquisition expenses	Acquisition expenses	533		378			Acquisition expenses	575		448		1,669		1,239
Other operating expenses	Other operating expenses	319		290			Other operating expenses	310		275		942		842
Corporate expenses	Corporate expenses	30		32			Corporate expenses	20		18		71		78
Amortization of intangible assets	Amortization of intangible assets	23		27			Amortization of intangible assets	24		26		71		80
Interest expense	Interest expense	32		33			Interest expense	34		33		99		99
Net foreign exchange (gains) losses	Net foreign exchange (gains) losses	18		(4)			Net foreign exchange (gains) losses	(22)		(91)		1		(183)
Total expenses	Total expenses	2,426		1,757			Total expenses	2,588		2,392		7,462		5,942

Income (loss) before income taxes and income (loss) from operating affiliates	Income (loss) before income taxes and income (loss) from operating affiliates	742		185			Income (loss) before income taxes and income (loss) from operating affiliates	741		(6)		2,197		600
Income tax (expense) benefit	Income tax (expense) benefit	(64)		(12)			Income tax (expense) benefit	(72)		15		(203)		(19)
Income (loss) from operating affiliates	Income (loss) from operating affiliates	39		25			Income (loss) from operating affiliates	54		9		115		39
Net income (loss)	Net income (loss)	$	717	$	198		Net income (loss)	$	723	$	18	$	2,109	$	620
Net (income) loss attributable to noncontrolling interests	Net (income) loss attributable to noncontrolling interests	(2)		(2)			Net (income) loss attributable to noncontrolling interests	—		(1)		—		(3)
Net income (loss) available to Arch	Net income (loss) available to Arch	715		196			Net income (loss) available to Arch	723		17		2,109		617
Preferred dividends	Preferred dividends	(10)		(10)			Preferred dividends	(10)		(10)		(30)		(30)

Net income (loss) available to Arch common shareholders	Net income (loss) available to Arch common shareholders	$	705	$	186		Net income (loss) available to Arch common shareholders	$	713	$	7	$	2,079	$	587

Net income per common share and common share equivalent	Net income per common share and common share equivalent						Net income per common share and common share equivalent
Basic	Basic	$	1.92	$	0.50		Basic	$	1.93	$	0.02	$	5.64	$	1.59
Diluted	Diluted	$	1.87	$	0.48		Diluted	$	1.88	$	0.02	$	5.50	$	1.55

Weighted average common shares and common share equivalents outstanding	Weighted average common shares and common share equivalents outstanding						Weighted average common shares and common share equivalents outstanding
Basic	Basic	367.3		374.2			Basic	369.2		365.2		368.4		369.5
Diluted	Diluted	377.6		384.2			Diluted	379.4		373.7		378.3		378.4

See Notes to Consolidated Financial Statements


ARCH CAPITAL			76			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(U.S. dollars in millions)


		(Unaudited)				(Unaudited)				(Unaudited)
		Three Months Ended				Three Months Ended				Nine Months Ended
		March 31,				September 30,				September 30,
		2023		2022				2023		2022		2023		2022
Comprehensive Income	Comprehensive Income						Comprehensive Income
Net income (loss)	Net income (loss)	$	717	$	198		Net income (loss)	$	723	$	18	$	2,109	$	620
Other comprehensive income (loss), net of deferred income tax	Other comprehensive income (loss), net of deferred income tax						Other comprehensive income (loss), net of deferred income tax
Unrealized appreciation (decline) in value of available-for-sale investments:	Unrealized appreciation (decline) in value of available-for-sale investments:						Unrealized appreciation (decline) in value of available-for-sale investments:
Unrealized holding gains (losses) arising during period	Unrealized holding gains (losses) arising during period	245		(684)			Unrealized holding gains (losses) arising during period	(190)		(610)		(118)		(1,892)

Reclassification of net realized (gains) losses, included in net income (loss)	Reclassification of net realized (gains) losses, included in net income (loss)	99		102			Reclassification of net realized (gains) losses, included in net income (loss)	96		46		344		206
Foreign currency translation adjustments	Foreign currency translation adjustments	5		(3)			Foreign currency translation adjustments	(40)		(70)		(33)		(141)
Comprehensive income (loss)	Comprehensive income (loss)	1,066		(387)			Comprehensive income (loss)	589		(616)		2,302		(1,207)
Net (income) loss attributable to noncontrolling interests	Net (income) loss attributable to noncontrolling interests	(2)		(2)			Net (income) loss attributable to noncontrolling interests	—		(1)		—		(3)

Comprehensive income (loss) available to Arch	Comprehensive income (loss) available to Arch	$	1,064	$	(389)		Comprehensive income (loss) available to Arch	$	589	$	(617)	$	2,302	$	(1,210)

See Notes to Consolidated Financial Statements


ARCH CAPITAL			87			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(U.S. dollars in millions)


		(Unaudited)				(Unaudited)				(Unaudited)
		Three Months Ended				Three Months Ended				Nine Months Ended
		March 31,				September 30,				September 30,
		2023		2022				2023		2022		2023		2022
Non-cumulative preferred shares	Non-cumulative preferred shares						Non-cumulative preferred shares

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

Common shares	Common shares						Common shares

Balance at beginning and end of period	Balance at beginning and end of period	1		1			Balance at beginning and end of period	1		1		1		1

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

Amortization of share-based compensation	Amortization of share-based compensation	41		45			Amortization of share-based compensation	15		14		73		80

Other changes	Other changes	8		4			Other changes	4		3		13		22
Balance at end of period	Balance at end of period	2,260		2,134			Balance at end of period	2,297		2,187		2,297		2,187

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

Net income (loss)	Net income (loss)	717		198			Net income (loss)	723		18		2,109		620
Net (income) loss attributable to noncontrolling interests	Net (income) loss attributable to noncontrolling interests	(2)		(2)			Net (income) loss attributable to noncontrolling interests	—		(1)		—		(3)
Preferred share dividends	Preferred share dividends	(10)		(10)			Preferred share dividends	(10)		(10)		(30)		(30)

Balance at end of period	Balance at end of period	16,597		14,642			Balance at end of period	17,971		15,043		17,971		15,043

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

Unrealized holding gains (losses) during period, net of reclassification adjustment	Unrealized holding gains (losses) during period, net of reclassification adjustment	344		(582)			Unrealized holding gains (losses) during period, net of reclassification adjustment	(94)		(564)		226		(1,686)

Balance at end of period	Balance at end of period	(1,168)		(569)			Balance at end of period	(1,286)		(1,673)		(1,286)		(1,673)
Foreign currency translation adjustments, net of deferred income tax:	Foreign currency translation adjustments, net of deferred income tax:						Foreign currency translation adjustments, net of deferred income tax:
Balance at beginning of period	Balance at beginning of period	(134)		(78)			Balance at beginning of period	(127)		(149)		(134)		(78)
Foreign currency translation adjustments	Foreign currency translation adjustments	5		(3)			Foreign currency translation adjustments	(40)		(70)		(33)		(141)

Balance at end of period	Balance at end of period	(129)		(81)			Balance at end of period	(167)		(219)		(167)		(219)
Balance at end of period	Balance at end of period	(1,297)		(650)			Balance at end of period	(1,453)		(1,892)		(1,453)		(1,892)

Common shares held in treasury, at cost	Common shares held in treasury, at cost						Common shares held in treasury, at cost
Balance at beginning of period	Balance at beginning of period	(4,378)		(3,761)			Balance at beginning of period	(4,407)		(4,361)		(4,378)		(3,761)
Shares repurchased for treasury	Shares repurchased for treasury	(25)		(276)			Shares repurchased for treasury	—		(12)		(29)		(612)
Balance at end of period	Balance at end of period	(4,403)		(4,037)			Balance at end of period	(4,407)		(4,373)		(4,407)		(4,373)

Total shareholders’ equity	Total shareholders’ equity	$	13,988	$	12,920		Total shareholders’ equity	$	15,239	$	11,796	$	15,239	$	11,796

See Notes to Consolidated Financial Statements


ARCH CAPITAL			98			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)


		(Unaudited)					(Unaudited)
		Three Months Ended					Nine Months Ended
		March 31,					September 30,
		2023		2022			2023		2022
Operating Activities	Operating Activities					Operating Activities
Net income (loss)	Net income (loss)	$	717	$	198	Net income (loss)	$	2,109	$	620
Adjustments to reconcile net income (loss) to net cash provided by operating activities:	Adjustments to reconcile net income (loss) to net cash provided by operating activities:					Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net realized (gains) losses	Net realized (gains) losses	(17)		289		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	Equity in net (income) or loss of investment funds accounted for using the equity method and other income or loss	(66)		(11)		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	Amortization of intangible assets	23		27		Amortization of intangible assets	71		80
Share-based compensation	Share-based compensation	41		45		Share-based compensation	73		80
Changes in:	Changes in:					Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	603		276		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	Unearned premiums, net of ceded unearned premiums	541		513		Unearned premiums, net of ceded unearned premiums	1,111		1,125
Premiums receivable	Premiums receivable	(871)		(601)		Premiums receivable	(1,333)		(1,096)
Deferred acquisition costs	Deferred acquisition costs	(75)		(97)		Deferred acquisition costs	(190)		(242)
Reinsurance balances payable	Reinsurance balances payable	279		(74)		Reinsurance balances payable	692		128
Other items, net	Other items, net	(212)		(13)		Other items, net	(316)		(264)
Net cash provided by operating activities	Net cash provided by operating activities	963		552		Net cash provided by operating activities	4,084		2,834
Investing Activities	Investing Activities					Investing Activities
Purchases of fixed maturity investments	Purchases of fixed maturity investments	(3,901)		(6,728)		Purchases of fixed maturity investments	(13,024)		(13,065)
Purchases of equity securities	Purchases of equity securities	(8)		(409)		Purchases of equity securities	(176)		(787)
Purchases of other investments	Purchases of other investments	(266)		(616)		Purchases of other investments	(1,112)		(1,270)
Proceeds from sales of fixed maturity investments	Proceeds from sales of fixed maturity investments	3,034		6,053		Proceeds from sales of fixed maturity investments	9,655		9,990
Proceeds from sales of equity securities	Proceeds from sales of equity securities	75		1,100		Proceeds from sales of equity securities	216		1,540
Proceeds from sales, redemptions and maturities of other investments	Proceeds from sales, redemptions and maturities of other investments	96		570		Proceeds from sales, redemptions and maturities of other investments	345		1,075
Proceeds from redemptions and maturities of fixed maturity investments	Proceeds from redemptions and maturities of fixed maturity investments	180		241		Proceeds from redemptions and maturities of fixed maturity investments	589		578
Net settlements of derivative instruments	Net settlements of derivative instruments	14		(2)		Net settlements of derivative instruments	(69)		(106)

Net (purchases) sales of short-term investments	Net (purchases) sales of short-term investments	(208)		(511)		Net (purchases) sales of short-term investments	(323)		(152)

Purchases of fixed assets	Purchases of fixed assets	(11)		(11)		Purchases of fixed assets	(37)		(37)
Other	Other	(1)		—		Other	—		128
Net cash used for investing activities	Net cash used for investing activities	(996)		(313)		Net cash used for investing activities	(3,936)		(2,106)
Financing Activities	Financing Activities					Financing Activities

Purchases of common shares under share repurchase program	Purchases of common shares under share repurchase program	—		(255)		Purchases of common shares under share repurchase program	—		(586)
Proceeds from common shares issued, net	Proceeds from common shares issued, net	(18)		(17)		Proceeds from common shares issued, net	5		(3)

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

Other	Other	(2)		49		Other	(5)		(85)
Preferred dividends paid	Preferred dividends paid	(10)		(10)		Preferred dividends paid	(30)		(30)
Net cash used for financing activities	Net cash used for financing activities	(30)		(233)		Net cash used for financing activities	(52)		(704)

Effects of exchange rate changes on foreign currency cash and restricted cash	Effects of exchange rate changes on foreign currency cash and restricted cash	5		(4)		Effects of exchange rate changes on foreign currency cash and restricted cash	(14)		(80)

Increase (decrease) in cash and restricted cash	Increase (decrease) in cash and restricted cash	(58)		2		Increase (decrease) in cash and restricted cash	82		(56)
Cash and restricted cash, beginning of year	Cash and restricted cash, beginning of year	1,273		1,314		Cash and restricted cash, beginning of year	1,273		1,314
Cash and restricted cash, end of period	Cash and restricted cash, end of period	$	1,215	$	1,316	Cash and restricted cash, end of period	$	1,355	$	1,258

See Notes to Consolidated Financial Statements


ARCH CAPITAL			109			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation and Recent Accounting Pronouncements

General

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

Basis of Presentation

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

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

Recent Accounting Pronouncements

Recently Issued Accounting Standards Adopted

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

2. Share Transactions

~~Share-Based Compensation~~Share Repurchases

~~During~~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, ~~first quarter,~~$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 ~~granted 0.5 million stock options, 0.6 million performance~~an opportunity to purchase common shares through payroll deductions, thereby encouraging employees to share ~~awards~~in the economic growth and performance share units (“PSAs/PSUs”) and 0.8 million restricted shares and units to certain employees. The stock options were valued at the grant date using the Black-Scholes option pricing model. The weighted average grant-date fair valuesuccess of the ~~stock options, PSAs/PSUs and restricted shares and units granted during the 2023 first quarter were approximately $23.49, $74.06 and $69.25 per~~Company. The ESPP is designed to qualify as an “employee share ~~respectively. Such values are being amortized over the respective substantive vesting period.~~

During the 2022 first quarter, the Company granted 0.7 million stock options, 0.7 million PSAs/PSUs and 1.0 million restricted shares and units to certain employees. The stock options were valued at the grant date using the Black-Scholes option pricing model. The weighted average grant-date fair valuepurchase plan” under Section 423 of the ~~stock options, PSAs/PSUs and restricted~~Internal Revenue Code of 1986, as amended. At September 30, 2023, 3.7 million shares ~~and units granted during the 2022 first quarter were approximately $13.13, $49.91 and $47.54 per share, respectively. Such values are being amortized over the respective substantive vesting period.~~remain available for issuance.


ARCH CAPITAL			1110			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3. Earnings Per Common Share

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


		Three Months Ended				Three Months Ended				Nine Months Ended
		March 31,				September 30,				September 30,
		2023		2022				2023		2022		2023		2022
Numerator:	Numerator:						Numerator:
Net income (loss)	Net income (loss)	$	717	$	198		Net income (loss)	$	723	$	18	$	2,109	$	620
Amounts attributable to noncontrolling interests		(2)		(2)
Net (income) loss attributable to noncontrolling interests							Net (income) loss attributable to noncontrolling interests	—		(1)		—		(3)
Net income (loss) available to Arch	Net income (loss) available to Arch	715		196			Net income (loss) available to Arch	723		17		2,109		617
Preferred dividends	Preferred dividends	(10)		(10)			Preferred dividends	(10)		(10)		(30)		(30)

Net income (loss) available to Arch common shareholders	Net income (loss) available to Arch common shareholders	$	705	$	186		Net income (loss) available to Arch common shareholders	$	713	$	7	$	2,079	$	587

Denominator:	Denominator:						Denominator:

Weighted average common shares and common share equivalents outstanding — basic	Weighted average common shares and common share equivalents outstanding — basic	367.3		374.2			Weighted average common shares and common share equivalents outstanding — basic	369.2		365.2		368.4		369.5
Effect of dilutive common share equivalents:	Effect of dilutive common share equivalents:						Effect of dilutive common share equivalents:
Nonvested restricted shares	Nonvested restricted shares	2.8		2.7			Nonvested restricted shares	2.6		2.3		2.4		2.2
Stock options (1)	Stock options (1)	7.5		7.3			Stock options (1)	7.6		6.2		7.5		6.7
Weighted average common shares and common share equivalents outstanding — diluted	Weighted average common shares and common share equivalents outstanding — diluted	377.6		384.2			Weighted average common shares and common share equivalents outstanding — diluted	379.4		373.7		378.3		378.4

Earnings per common share:	Earnings per common share:						Earnings per common share:
Basic	Basic	$	1.92	$	0.50		Basic	$	1.93	$	0.02	$	5.64	$	1.59
Diluted	Diluted	$	1.87	$	0.48		Diluted	$	1.88	$	0.02	$	5.50	$	1.55

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


ARCH CAPITAL			1211			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4. Segment Information

The Company’s insurance, reinsurance and mortgage segments each have managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company’s chief operating decision makers. The Chief Executive Officer, the Chief Financial Officer and Treasurer and the President and Chief Underwriting Officer are the Company’s chief operating decision makers. They do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures segment performance for its three underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment, with the exception of goodwill and intangible assets, and accordingly, investment income is not allocated to each underwriting segment.

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

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

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

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

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


ARCH CAPITAL			1312			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

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									Three Months Ended
		March 31, 2023									September 30, 2023
		Insurance			Reinsurance			Mortgage				Total				Insurance			Reinsurance			Mortgage			Total

Gross premiums written (1)	Gross premiums written (1)	$	1,979		$	2,460		$	343			$	4,780		Gross premiums written (1)	$	2,043		$	2,138		$	347		$	4,527
Premiums ceded	Premiums ceded	(542)			(734)			(82)				(1,356)			Premiums ceded	(521)			(576)			(76)			(1,172)
Net premiums written	Net premiums written	1,437			1,726			261				3,424			Net premiums written	1,522			1,562			271			3,355
Change in unearned premiums	Change in unearned premiums	(180)			(396)			35				(541)			Change in unearned premiums	(110)			(19)			22			(107)
Net premiums earned	Net premiums earned	1,257			1,330			296				2,883			Net premiums earned	1,412			1,543			293			3,248
Other underwriting income (loss)	Other underwriting income (loss)	—			4			6				10			Other underwriting income (loss)	—			2			3			5
Losses and loss adjustment expenses	Losses and loss adjustment expenses	(703)			(766)			(2)				(1,471)			Losses and loss adjustment expenses	(812)			(870)			35			(1,647)
Acquisition expenses	Acquisition expenses	(245)			(281)			(7)				(533)			Acquisition expenses	(269)			(304)			(2)			(575)
Other operating expenses	Other operating expenses	(195)			(74)			(50)				(319)			Other operating expenses	(202)			(61)			(47)			(310)
Underwriting income (loss)	Underwriting income (loss)	$	114		$	213		$	243			570			Underwriting income (loss)	$	129		$	310		$	282		721

Net investment income	Net investment income											199			Net investment income										269
Net realized gains (losses)	Net realized gains (losses)											17			Net realized gains (losses)										(248)

Equity in net income (loss) of investment funds accounted for using the equity method	Equity in net income (loss) of investment funds accounted for using the equity method											48			Equity in net income (loss) of investment funds accounted for using the equity method										59
Other income (loss)	Other income (loss)											11			Other income (loss)										(4)
Corporate expenses (2)	Corporate expenses (2)											(29)			Corporate expenses (2)										(20)
Transaction costs and other (2)	Transaction costs and other (2)											(1)			Transaction costs and other (2)										—
Amortization of intangible assets	Amortization of intangible assets											(23)			Amortization of intangible assets										(24)
Interest expense	Interest expense											(32)			Interest expense										(34)
Net foreign exchange gains (losses)	Net foreign exchange gains (losses)											(18)			Net foreign exchange gains (losses)										22
Income (loss) before income taxes and income (loss) from operating affiliates	Income (loss) before income taxes and income (loss) from operating affiliates											742			Income (loss) before income taxes and income (loss) from operating affiliates										741
Income tax (expense) benefit	Income tax (expense) benefit											(64)			Income tax (expense) benefit										(72)
Income (loss) from operating affiliates	Income (loss) from operating affiliates											39			Income (loss) from operating affiliates										54
Net income (loss)	Net income (loss)											717			Net income (loss)										723
Amounts attributable to redeemable noncontrolling interests												(2)
Net (income) loss attributable to noncontrolling interests															Net (income) loss attributable to noncontrolling interests										—

Net income (loss) available to Arch	Net income (loss) available to Arch											715			Net income (loss) available to Arch										723
Preferred dividends	Preferred dividends											(10)			Preferred dividends										(10)

Net income (loss) available to Arch common shareholders	Net income (loss) available to Arch common shareholders											$	705		Net income (loss) available to Arch common shareholders										$	713

Underwriting Ratios	Underwriting Ratios														Underwriting Ratios
Loss ratio	Loss ratio	55.9		%	57.6		%	0.6		%		51.0		%	Loss ratio	57.5		%	56.4		%	(12.1)		%	50.7		%
Acquisition expense ratio	Acquisition expense ratio	19.5		%	21.1		%	2.5		%		18.5		%	Acquisition expense ratio	19.1		%	19.7		%	0.6		%	17.7		%
Other operating expense ratio	Other operating expense ratio	15.5		%	5.6		%	16.9		%		11.1		%	Other operating expense ratio	14.3		%	3.9		%	16.2		%	9.5		%
Combined ratio	Combined ratio	90.9		%	84.3		%	20.0		%		80.6		%	Combined ratio	90.9		%	80.0		%	4.7		%	77.9		%

Goodwill and intangible assets	Goodwill and intangible assets	$	228		$	142		$	415			$	785		Goodwill and intangible assets	$	220		$	132		$	387		$	739

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

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


ARCH CAPITAL			13			2023 THIRD QUARTER FORM 10-Q

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

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


ARCH CAPITAL			14			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three Months Ended
March 31, 2022
Insurance Reinsurance Mortgage Total
Gross premiums written (1) $ 1,720 $ 1,719 $ 365 $ 3,801
Premiums ceded (513) (580) (77) (1,167)
Net premiums written 1,207 1,139 288 2,634
Change in unearned premiums (180) (335) 2 (513)
Net premiums earned 1,027 804 290 2,121
Other underwriting income (loss) — 1 5 6
Losses and loss adjustment expenses (601) (454) 54 (1,001)
Acquisition expenses (196) (172) (10) (378)
Other operating expenses (167) (70) (53) (290)
Underwriting income (loss) $ 63 $ 109 $ 286 458
Net investment income 80
Net realized gains (losses) (292)
Equity in net income (loss) of investment funds accounted for using the equity method 36
Other income (loss) (9)
Corporate expenses (2) (32)
Transaction costs and other (2) —
Amortization of intangible assets (27)
Interest expense (33)
Net foreign exchange gains (losses) 4
Income (loss) before income taxes and income (loss) from operating affiliates 185
Income tax (expense) benefit (12)
Income (loss) from operating affiliates 25
Net income (loss) 198
Amounts attributable to redeemable noncontrolling interests (2)
Net income (loss) available to Arch 196
Preferred dividends (10)
Net income (loss) available to Arch common shareholders $ 186
Underwriting Ratios
Loss ratio 58.5 % 56.5 % (18.9) % 47.2 %
Acquisition expense ratio 19.1 % 21.4 % 3.6 % 17.8 %
Other operating expense ratio 16.2 % 8.7 % 18.4 % 13.7 %
Combined ratio 93.8 % 86.6 % 3.1 % 78.7 %
Goodwill and intangible assets $ 249 $ 184 $ 493 $ 926


	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		%

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


ARCH CAPITAL			15			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

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		%

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


ARCH CAPITAL			16			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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				Three Months Ended				Nine Months Ended
		March 31,				September 30,				September 30,
		2023		2022				2023		2022		2023		2022
Reserve for losses and loss adjustment expenses at beginning of period	Reserve for losses and loss adjustment expenses at beginning of period	$	20,032	$	17,757		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	Unpaid losses and loss adjustment expenses recoverable	6,280		5,599			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	Net reserve for losses and loss adjustment expenses at beginning of period	13,752		12,158			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:	Net incurred losses and loss adjustment expenses relating to losses occurring in:						Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year	Current year	1,607		1,142			Current year	1,793		1,863		5,012		4,279
Prior years	Prior years	(136)		(141)			Prior years	(146)		(180)		(403)		(492)
Total net incurred losses and loss adjustment expenses	Total net incurred losses and loss adjustment expenses	1,471		1,001			Total net incurred losses and loss adjustment expenses	1,647		1,683		4,609		3,787

Net foreign exchange (gains) losses and other	Net foreign exchange (gains) losses and other	55		(33)			Net foreign exchange (gains) losses and other	(123)		(245)		(24)		(527)

Net paid losses and loss adjustment expenses relating to losses occurring in:	Net paid losses and loss adjustment expenses relating to losses occurring in:						Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year	Current year	(140)		(71)			Current year	(345)		(227)		(700)		(464)
Prior years	Prior years	(727)		(656)			Prior years	(713)		(538)		(2,297)		(1,773)
Total net paid losses and loss adjustment expenses	Total net paid losses and loss adjustment expenses	(867)		(727)			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	Net reserve for losses and loss adjustment expenses at end of period	14,411		12,399			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	Unpaid losses and loss adjustment expenses recoverable	6,347		5,710			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	Reserve for losses and loss adjustment expenses at end of period	$	20,758	$	18,109		Reserve for losses and loss adjustment expenses at end of period	$	21,836	$	19,288	$	21,836	$	19,288

Development on Prior Year Loss Reserves

2023 ~~First~~Third Quarter

During the 2023 ~~first~~third quarter, the Company recorded net favorable development on prior year loss reserves of ~~$136~~$146 million, which consisted of ~~$12~~$10 million from the insurance segment, ~~$53~~$44 million from the reinsurance segment and ~~$71~~$92 million from the mortgage segment.

The insurance segment’s net favorable development of ~~$12~~$10 million, or ~~0.9~~0.7 loss ratio points, for the 2023 ~~first~~third quarter consisted of ~~$25~~$30 million of net favorable development in short-tailed and long-tailed lines and ~~$13~~$20 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines ~~reflected $9~~included $8 million of favorable development in property (excluding marine), primarily from ~~2020~~the 2021 and 2022 accident years (i.e., the year in which a loss occurred), $8$6 million of favorable development in warranty and lenders solutions and $6 million favorable development related to travel and accident business, ~~primarily from the 2020 to 2022 accident years, and $7 million of favorable development in warranty and lenders solutions,~~both primarily from the 2022 accident year. Net favorable development in long-tailed lines ~~of $1~~included $7 million ~~included~~of favorable development in executive assurance business, ~~partially offset by adverse~~primarily from the 2019, 2021 and 2022 accident years, and $7 million of favorable development in ~~casualty and healthcare.~~alternative markets business, spread across most prior accident years. Net adverse development in medium-tailed lines included ~~$18~~

$25 million of adverse development in professional liability,

~~business,~~ primarily from ~~the 2017 to~~ 2019 ~~accident years, partially offset by favorable development in marine business of $7 million, primarily from the 2021~~ and ~~2022~~2020 accident years.

The reinsurance segment’s net favorable development of ~~$53~~$44 million, or ~~4.0~~2.8 loss ratio points, for the 2023 ~~first~~third quarter consisted of ~~$49~~$69 million of net favorable development in short-tailed lines and $3$25 million of net ~~favorable~~adverse development in ~~medium-tailed~~medium and long-tailed lines. Net favorable development in short-tailed lines ~~reflected $23~~included $29 million of favorable development related to property other than property catastrophe business, ~~across most~~primarily from the 2020 to 2022 underwriting years ~~(i.e.~~(i.e., all premiums and losses attributable to contracts having an inception or renewal date within the given twelve-month period), ~~$18 million of favorable development related to other specialty and other short-tailed lines, primarily from the 2020 and 2021 underwriting years, and $8~~$22 million of favorable development related to property catastrophe business, primarily from the ~~2018, 2019~~2021 and 2022 underwriting years, and $19 million of favorable development related to other specialty lines, primarily from the 2021 and prior underwriting years. Net ~~favorable~~adverse development in medium-tailed lines included $2$4 million in marine and aviation lines, primarily from the 2021 underwriting year, while net ~~favorable~~adverse development in long-tailed lines ~~included $3~~reflected $21 million of adverse development in casualty ~~business.~~business, primarily from the 2016 to 2020 underwriting years.


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The mortgage segment’s net favorable development was ~~$71~~$92 million, or ~~23.9~~31.4 loss ratio points, for the 2023 ~~first~~third quarter. Such amounts were primarily related to reductions on reserves for delinquent loans ~~becoming delinquent after~~associated with the ~~onset of~~U.S. first lien portfolio from the ~~COVID-19 pandemic.The~~2020 through 2022 accident years. The Company’s credit risk transfer and international businesses also contributed to the favorable development.

2022 ~~First~~Third Quarter

During the 2022 ~~first~~third quarter, the Company recorded net favorable development on prior year loss reserves of ~~$141~~$180 million, which consisted of $7$5 million from the insurance segment, ~~$32~~$49 million from the reinsurance segment and ~~$102~~$126 million from the mortgage segment.

The insurance segment’s net favorable development of $7$5 million, or ~~0.7~~0.5 loss ratio points, for the 2022 ~~first~~third quarter consisted of ~~$19~~$16 million of net favorable development in short-tailed lines and ~~$12~~$11 million of net adverse development in medium-tailed and long-tailed lines. Net favorable development in short-tailed lines reflected ~~$19~~$9 million of 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 2021 accident year. Net adverse development in medium-tailed lines included $7$11 million of adverse development in professional liability business, primarily from the ~~2010~~2013 to ~~2013, 2015~~2016 and ~~2019 accident years, and $6 million of adverse development in contract binding business, across most~~2020 accident years, partially offset by favorable development in ~~program~~marine business of $5$6 million, ~~primarily from the 2020~~across most accident ~~year.~~years. Net adverse development in long-tailed lines ~~primarily~~ reflected $6$12 million ~~of unfavorable development~~ related to casualty ~~lines,~~business, primarily from ~~2019 to 2021~~the 2014 and 2020 accident ~~years.~~years, partially offset by favorable development in construction, executive assurance and other lines of business.

The reinsurance segment’s net favorable development of ~~$32~~$49 million, or ~~4.0~~4.9 loss ratio points, for the 2022 ~~first~~third quarter consisted ~~$35~~of $58 million of net favorable development in short-tailed and medium-tailed lines and $3$9 million of net adverse development in long-tailed lines. Net favorable development in short-tailed lines reflected ~~$19~~$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 ~~and property other than property catastrophe~~ business, primarily from the ~~2018, 2019 and 2021~~2014 to 2017 underwriting years. Net favorable development in medium-tailed lines included ~~$11~~$8 million ~~of favorable development~~ in marine and aviation lines, across most underwriting years. ~~Adverse~~Net adverse development in long-tailed lines reflected ~~an increase in~~$10 million related to casualty ~~reserves,~~business, primarily from the ~~2021 underwriting year, which was partially offset by favorable development in earlier~~2014 to 2017 underwriting years.

The mortgage segment’s net favorable development was ~~$102~~$126 million, or ~~35.3~~44.7 loss ratio points, for the 2022 ~~first~~third quarter, ~~primarily reflecting~~with the ~~impact of lower new delinquencies and favorable cure activity related to~~largest contributor being reserve releases associated with the U.S. first lien portfolio ~~primarily~~ from the 2020 and 2021 accident ~~year.~~years. The Company’s credit risk transfer, international, second lien and student loan ~~business~~businesses also contributed to the favorable development.

Nine Months Ended September 30, 2023

During the nine months ended September 30, 2023, the Company recorded net favorable development on prior year loss reserves of $403 million, which consisted of $34 million from the insurance segment, $126 million from the reinsurance segment and $243 million from the mortgage segment.

The insurance segment’s net favorable development of $34 million, or 0.8 loss ratio points, for the 2023 period consisted of $86 million of net favorable development in short and long-tailed lines and $52 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines reflected $33 million of favorable development in property (excluding marine), primarily from the 2022 accident year, $20 million of favorable development related to 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 included $24 million of favorable development in executive assurance business, primarily from the 2019 and 2021 accident years, and $13 million of favorable development 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 from the 2017 to 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 $126 million, or 3.0 loss ratio points, for the 2023 period consisted of $168 million of net favorable development from short and medium-tailed lines, partially offset by $42 million 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 2021 and 2022 underwriting years, $29 million of favorable development from property catastrophe, primarily from the 2019 and 2022 underwriting years, $46 million from other specialty business, primarily from the 2021 underwriting year, and $12 million of favorable development from other lines of business, primarily from the 2020 underwriting year.


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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, 2022

During the nine months ended September 30, 2022, the Company recorded net favorable development on prior year loss reserves of $492 million, which consisted of $19 million from the insurance segment, $127 million from the reinsurance segment, $346 million from the mortgage 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 favorable development in warranty and lenders solutions business, primarily from the 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 $127 million, or 4.7 loss ratio points, for the 2022 period consisted of $148 million of net favorable development from short and medium-tailed lines, partially offset by $20 million of net adverse development from long-tailed lines. Net favorable development in short-tailed lines reflected $83 million of favorable development from property other than property catastrophe business, primarily from the 2015 to 2021 underwriting years, $22 million of favorable development from property catastrophe, primarily from the

2018 to 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 long-tailed lines primarily reflected $19 million in casualty reserves, primarily from the 2021 underwriting year.

The mortgage segment’s net favorable development was $346 million, or 39.9 loss ratio points, for the 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 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 credit losses of the Company’s premium receivables:


		Premium Receivables, Net of Allowance		Allowance for Expected Credit Losses			Premium Receivables, Net of Allowance		Allowance for Expected Credit Losses
Three Months Ended March 31, 2023
Three Months Ended September 30, 2023						Three Months Ended September 30, 2023
Balance at beginning of period	Balance at beginning of period	$	3,625	$	35	Balance at beginning of period	$	5,296	$	34
Change for provision of expected credit losses (1)	Change for provision of expected credit losses (1)			$	1	Change for provision of expected credit losses (1)			$	—
Balance at end of period	Balance at end of period	$	4,513	$	36	Balance at end of period	$	4,937	$	34

Three Months Ended March 31, 2022
Three Months Ended September 30, 2022						Three Months Ended September 30, 2022
Balance at beginning of period	Balance at beginning of period	$	2,633	$	40	Balance at beginning of period	$	3,634	$	38
Change for provision of expected credit losses (1)	Change for provision of expected credit losses (1)			$	(1)	Change for provision of expected credit losses (1)			$	—
Balance at end of period	Balance at end of period	$	3,224	$	39	Balance at end of period	$	3,579	$	38

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

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

(1)Amounts deemed uncollectible are written-off in operating expenses. For the 2023 ~~first~~third quarter and 2022 ~~first~~third quarter, amounts written off were ~~$1 million~~nil and $2 million, respectively.

~~Reinsurance Recoverables~~

~~The following table provides a roll forward of~~ For 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 March 31, 2023
Balance at beginning of period $ 6,564 $ 22
Change for provision of expected credit losses (1)
Balance at end of period $ 6,612 $ 21
Three Months Ended March 31, 2022
Balance at beginning of period $ 5,881 $ 13
Change for provision of expected credit losses 5
Balance at end of period $ 5,941 $ 18

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

March 31, December 31
2023 2022
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses $ 6,612 $ 6,564
% due from carriers with A.M. Best rating of “A-” or better 68.3 % 68.8 %
% due from all other rated carriers 0.2 % 0.1 %
% due from all other carriers with no A.M. Best rating (1) 31.5 % 31.1 %
Largest balance due from any one carrier as % of total shareholders’ equity 8.7 % 9.0 %

~~(1) At March 31,~~nine months ended September 30, 2023 and ~~December 31,~~ 2022 ~~over 94%~~period, amounts written off were $2 million and ~~95% of such amount were collateralized through reinsurance trusts, funds withheld arrangements, letters of credit or other,~~$7 million, 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 March 31, 2023
Balance at beginning of period $ 1,731 $ 3
Change for provision of expected credit losses (1)
Balance at end of period $ 1,750 $ 2
Three Months Ended March 31, 2022
Balance at beginning of period $ 1,829 $ 3
Change for provision of expected credit losses 1
Balance at end of period 1,810 $ 4


ARCH CAPITAL			1819			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

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

Available For Sale Investments

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


		Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Expected Credit Losses		Cost or Amortized Cost			Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Expected Credit Losses		Cost or Amortized Cost
March 31, 2023
September 30, 2023												September 30, 2023
Fixed maturities:	Fixed maturities:											Fixed maturities:
Corporate bonds	Corporate bonds	$	9,409	$	84	$	(636)	$	(45)	$	10,006	Corporate bonds	$	10,064	$	33	$	(747)	$	(47)	$	10,825
U.S. government and government agencies												U.S. government and government agencies	5,662		15		(240)		—		5,887
Asset backed securities												Asset backed securities	2,342		10		(76)		(5)		2,413
Non-U.S. government securities												Non-U.S. government securities	2,052		9		(173)		(2)		2,218
Commercial mortgage backed securities												Commercial mortgage backed securities	1,102		—		(46)		(3)		1,151
Residential mortgage backed securities	Residential mortgage backed securities	823		6		(74)		—		891		Residential mortgage backed securities	965		5		(100)		—		1,060
Municipal bonds	Municipal bonds	314		2		(24)		—		336		Municipal bonds	298		2		(32)		—		328
Commercial mortgage backed securities		1,035		1		(54)		(2)		1,090
U.S. government and government agencies		4,563		14		(234)		—		4,783
Non-U.S. government securities		2,187		13		(178)		(3)		2,355
Asset backed securities		2,361		3		(97)		(6)		2,461
Total	Total	20,692		123		(1,297)		(56)		21,922		Total	22,485		74		(1,414)		(57)		23,882

Short-term investments	Short-term investments	1,553		1		(1)		—		1,553		Short-term investments	1,682		3		(1)		—		1,680
Total	Total	$	22,245	$	124	$	(1,298)	$	(56)	$	23,475	Total	$	24,167	$	77	$	(1,415)	$	(57)	$	25,562

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

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


ARCH CAPITAL			1921			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

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					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			Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
March 31, 2023
September 30, 2023														September 30, 2023
Fixed maturities:	Fixed maturities:													Fixed maturities:
Corporate bonds	Corporate bonds	$	2,723	$	(101)	$	4,702	$	(535)	$	7,425	$	(636)	Corporate bonds	$	4,813	$	(141)	$	5,272	$	(606)	$	10,085	$	(747)
Residential mortgage backed securities		412		(18)		279		(56)		691		(74)
Municipal bonds		131		(6)		164		(18)		295		(24)
Commercial mortgage backed securities		167		(8)		855		(46)		1,022		(54)
U.S. government and government agencies	U.S. government and government agencies	1,209		(40)		2,137		(194)		3,346		(234)		U.S. government and government agencies	3,922		(93)		1,294		(147)		5,216		(240)
Non-U.S. government securities	Non-U.S. government securities	1,109		(61)		863		(117)		1,972		(178)		Non-U.S. government securities	1,002		(25)		956		(148)		1,958		(173)
Residential mortgage backed securities														Residential mortgage backed securities	420		(15)		521		(85)		941		(100)
Asset backed securities	Asset backed securities	909		(31)		1,006		(66)		1,915		(97)		Asset backed securities	190		(4)		1,287		(72)		1,477		(76)
Commercial mortgage backed securities														Commercial mortgage backed securities	153		(3)		907		(43)		1,060		(46)
Municipal bonds														Municipal bonds	84		(5)		212		(27)		296		(32)
Total	Total	6,660		(265)		10,006		(1,032)		16,666		(1,297)		Total	10,584		(286)		10,449		(1,128)		21,033		(1,414)

Short-term investments	Short-term investments	274		(1)		—		—		274		(1)		Short-term investments	192		(1)		—		—		192		(1)
Total	Total	$	6,934	$	(266)	$	10,006	$	(1,032)	$	16,940	$	(1,298)	Total	$	10,776	$	(287)	$	10,449	$	(1,128)	$	21,225	$	(1,415)

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

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

At ~~March 31,~~September 30, 2023, on a lot level basis, approximately ~~9,380~~11,140 security lots out of a total of approximately ~~12,970~~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 $7$6 million. At December 31, 2022, on a lot level basis, approximately 9,810 security lots out of a total of approximately 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 $7 million.

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.


		March 31, 2023				December 31, 2022					September 30, 2023				December 31, 2022
Maturity	Maturity	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Maturity	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Due in one year or less	Due in one year or less	$	483	$	507	$	511	$	537	Due in one year or less	$	683	$	708	$	511	$	537
Due after one year through five years	Due after one year through five years	11,405		11,938		11,016		11,715		Due after one year through five years	12,561		13,123		11,016		11,715
Due after five years through 10 years	Due after five years through 10 years	4,430		4,840		3,984		4,527		Due after five years through 10 years	4,515		5,035		3,984		4,527
Due after 10 years	Due after 10 years	155		195		403		480		Due after 10 years	317		392		403		480
		16,473		17,480		15,914		17,259			18,076		19,258		15,914		17,259
Residential mortgage backed securities	Residential mortgage backed securities	823		891		795		877		Residential mortgage backed securities	965		1,060		795		877
Commercial mortgage backed securities	Commercial mortgage backed securities	1,035		1,090		1,047		1,107		Commercial mortgage backed securities	1,102		1,151		1,047		1,107
Asset backed securities	Asset backed securities	2,361		2,461		1,927		2,039		Asset backed securities	2,342		2,413		1,927		2,039
Total	Total	$	20,692	$	21,922	$	19,683	$	21,282	Total	$	22,485	$	23,882	$	19,683	$	21,282


ARCH CAPITAL			2022			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Equity Securities, at Fair Value

At ~~March 31,~~September 30, 2023, the Company held ~~$859~~$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 and other investable assets:


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Other investments						Other investments	$	1,404	$	1,043
Fixed maturities	Fixed maturities	$	631	$	554	Fixed maturities	644		554
Other investments		1,121		1,043
Equity securities						Equity securities	7		14
Short-term investments	Short-term investments	17		33		Short-term investments	13		33
Equity securities		7		14

Total	Total	$	1,776	$	1,644	Total	$	2,068	$	1,644

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


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Lending	Lending	$	420	$	406	Lending	$	460	$	406
Investment grade fixed income	Investment grade fixed income	280		271		Investment grade fixed income	418		271
Term loan investments	Term loan investments	209		164		Term loan investments	242		164
Private equity	Private equity	131		123		Private equity	182		123
Credit related funds	Credit related funds	62		56		Credit related funds	84		56
Energy	Energy	19		23		Energy	18		23

Total	Total	$	1,121	$	1,043	Total	$	1,404	$	1,043

Investments Accounted For Using the Equity Method

The following table summarizes the Company’s investments accounted for using the equity method, by strategy:


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Credit related funds	Credit related funds	$	1,156	$	1,136	Credit related funds	$	1,165	$	1,136
Private equity	Private equity	944		917		Private equity	1,083		917
Real estate	Real estate	574		535		Real estate	620		535
Lending	Lending	533		531		Lending	555		531
Infrastructure	Infrastructure	271		245		Infrastructure	298		245
Fixed income						Fixed income	258		130
Equities	Equities	173		169		Equities	171		169
Fixed income		135		130
Energy	Energy	110		111		Energy	101		111
Total	Total	$	3,896	$	3,774	Total	$	4,251	$	3,774

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.

Limited 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 unfunded commitment.

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


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Investments accounted for using the equity method (1)	Investments accounted for using the equity method (1)	$	3,896	$	3,774	Investments accounted for using the equity method (1)	$	4,251	$	3,774
Investments accounted for using the fair value option (2)	Investments accounted for using the fair value option (2)	130		131		Investments accounted for using the fair value option (2)	128		131
Total	Total	$	4,026	$	3,905	Total	$	4,379	$	3,905

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

(2) Aggregate unfunded commitments were ~~$61~~$32 million at ~~March 31,~~September 30, 2023, compared to $17 million at December 31, 2022.


ARCH CAPITAL			2123			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

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:


		March 31,					September 30,
		2023		2022			2023		2022
Three Months Ended	Three Months Ended					Three Months Ended
Fixed maturities	Fixed maturities	$	188	$	82	Fixed maturities	$	243	$	124
Term loans		0		2

Equity securities	Equity securities	4		6		Equity securities	5		4
Short-term investments	Short-term investments	14		3		Short-term investments	19		9
Other (1)	Other (1)	13		10		Other (1)	22		9
Gross investment income	Gross investment income	219		103		Gross investment income	289		146
Investment expenses	Investment expenses	(20)		(23)		Investment expenses	(20)		(17)
Net investment income	Net investment income	$	199	$	80	Net investment income	$	269	$	129

Nine Months Ended						Nine Months Ended
Fixed maturities						Fixed maturities	$	645	$	311

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

(1) ~~Includes income~~Amounts include dividends and other distributions ~~from~~on investment funds, term loan investments, funds held balances, cash balances 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:


		March 31,					September 30,
		2023		2022			2023		2022
Three Months Ended	Three Months Ended					Three Months Ended
Available for sale securities:	Available for sale securities:					Available for sale securities:
Gross gains on investment sales	Gross gains on investment sales	$	17	$	20	Gross gains on investment sales	$	12	$	18
Gross losses on investment sales	Gross losses on investment sales	(111)		(108)		Gross losses on investment sales	(116)		(74)
Change in fair value of assets and liabilities accounted for using the fair value option:	Change in fair value of assets and liabilities accounted for using the fair value option:					Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities	Fixed maturities	6		(31)		Fixed maturities	(16)		(19)
Other investments	Other investments	9		4		Other investments	3		(18)
Equity securities	Equity securities	1		(3)		Equity securities	—		(1)

Short-term investments						Short-term investments	—		(1)
Equity securities, at fair value:	Equity securities, at fair value:					Equity securities, at fair value:
Net realized gains (losses) on sales during the period	Net realized gains (losses) on sales during the period	19		65		Net realized gains (losses) on sales during the period	14		(6)
Net unrealized gains (losses) on equity securities still held at reporting date	Net unrealized gains (losses) on equity securities still held at reporting date	38		(176)		Net unrealized gains (losses) on equity securities still held at reporting date	(46)		(36)
Allowance for credit losses:	Allowance for credit losses:					Allowance for credit losses:
Investments related	Investments related	(16)		(32)		Investments related	—		9
Underwriting related	Underwriting related	0		(4)		Underwriting related	(1)		(4)

Derivative instruments (1)	Derivative instruments (1)	56		(24)		Derivative instruments (1)	(102)		(48)
Other	Other	(2)		(3)		Other	4		(4)
Net realized gains (losses)	Net realized gains (losses)	$	17	$	(292)	Net realized gains (losses)	$	(248)	$	(184)

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

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

(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 an income of ~~$48~~$59 million related to investment funds accounted for using the equity method in the 2023 ~~first~~third quarter, compared to ~~$36~~a loss of $19 million for


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the 2022 third quarter and income of $176 million for the ~~2022 first quarter.~~nine months ended September 30, 2023, compared to income of $75 million for 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 ~~March 31,~~September 30, 2023, the Company owned approximately ~~29.86%~~29.9% of the issued shares of Coface, or ~~30.09%~~30% excluding treasury shares, with a carrying value of ~~$576~~$521 million, compared to $563 million at December 31, 2022.

As of ~~March 31,~~September 30, 2023, the Company owned 40% of Greysbridge with a carrying value of ~~$330~~$362 million, compared to $306 million at December 31, 2022.

Income from operating affiliates for the 2023 ~~first~~third quarter was ~~$39~~$54 million, compared to ~~$25~~$9 million, for the 2022 ~~first quarter.~~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.


~~ARCH CAPITAL~~			22			~~2023 FIRST QUARTER FORM 10-Q~~

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~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

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

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			Structured Securities (1)		Corporate Bonds		Non-U.S. Government Securities		Total
Three Months Ended March 31, 2023
Three Months Ended September 30, 2023										Three Months Ended September 30, 2023
Balance at beginning of period	Balance at beginning of period	$	9	$	30	$	2	$	41	Balance at beginning of period	$	8	$	50	$	3	$	61

Additions for current-period provision for expected credit losses	Additions for current-period provision for expected credit losses	—		1		—		1		Additions for current-period provision for expected credit losses	2		4		—		6
Additions (reductions) for previously recognized expected credit losses	Additions (reductions) for previously recognized expected credit losses	(1)		15		1		15		Additions (reductions) for previously recognized expected credit losses	—		(3)		—		(3)
Reductions due to disposals	Reductions due to disposals	—		(1)		—		(1)		Reductions due to disposals	(2)		(4)		(1)		(7)

Balance at end of period	Balance at end of period	$	8	$	45	$	3	$	56	Balance at end of period	$	8	$	47	$	2	$	57

Three Months Ended March 31, 2022
Three Months Ended September 30, 2022										Three Months Ended September 30, 2022
Balance at beginning of period	Balance at beginning of period	$	1	$	2	$	—	$	3	Balance at beginning of period	$	19	$	40	$	—	$	59

Additions for current-period provision for expected credit losses	Additions for current-period provision for expected credit losses	6		25		—		31		Additions for current-period provision for expected credit losses	2		2		—		4
Additions (reductions) for previously recognized expected credit losses	Additions (reductions) for previously recognized expected credit losses	—		—		—		—		Additions (reductions) for previously recognized expected credit losses	(10)		(3)		—		(13)
Reductions due to disposals	Reductions due to disposals	—		—		—		—		Reductions due to disposals	(2)		(2)		—		(4)

Balance at end of period	Balance at end of period	$	7	$	27	$	—	$	34	Balance at end of period	$	9	$	37	$	—	$	46

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

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

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

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

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

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

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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Restricted Assets

The Company is required to maintain assets on deposit, which primarily consist of fixed maturities, with various regulatory authorities to support its underwriting operations. The Company’s subsidiaries maintain assets in trust accounts as collateral for 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 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:


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Assets used for collateral or guarantees:	Assets used for collateral or guarantees:					Assets used for collateral or guarantees:
Affiliated transactions	Affiliated transactions	$	4,353	$	4,254	Affiliated transactions	$	4,572	$	4,254
Third party agreements	Third party agreements	2,764		2,633		Third party agreements	2,849		2,633
Deposits with U.S. regulatory authorities	Deposits with U.S. regulatory authorities	805		776		Deposits with U.S. regulatory authorities	788		776
Other (1)	Other (1)	1,089		1,038		Other (1)	1,250		1,038

Total restricted assets	Total restricted assets	$	9,011	$	8,701	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:

March 31,
2023 December 31,
2022
Cash $ 803 $ 855
Restricted cash (included in ‘other assets’) 412 418
Cash and restricted cash $ 1,215 $ 1,273


~~ARCH CAPITAL~~			23			~~2023 FIRST QUARTER FORM 10-Q~~


	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

~~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., 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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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 ~~March 31,~~September 30, 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 ~~$25.2~~$27.5 billion of financial assets and liabilities measured at fair value at ~~March 31,~~September 30, 2023, approximately ~~$13~~$15 million, or 0.1%, were priced using non-binding broker-dealer quotes or modeled valuations. Of the $23.8 billion of financial assets and liabilities measured at fair value at December 31, 2022, approximately $13 million, or 0.1%, were priced using non-binding broker-dealer 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


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~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

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

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.

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.

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.

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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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.

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.~~


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~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

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

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. Certain equity securities are included in Level 2 of the valuation 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 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.

Other investments

The Company’s other investments 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.

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.

Residential mortgage loans

The Company’s residential mortgage loans (included in ‘other assets’ in the consolidated balance sheets) include amounts related to the Company’s whole mortgage loan purchase and sell program. Fair values of 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 deferred consideration liabilities related to the Company’s acquisitions. 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.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the Company’s financial assets and liabilities measured at fair value by level at ~~March 31,~~September 30, 2023:


				Estimated Fair Value Measurements Using:									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)			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:									Assets measured at fair value:
Available for sale securities:	Available for sale securities:									Available for sale securities:
Fixed maturities:	Fixed maturities:									Fixed maturities:
Corporate bonds	Corporate bonds	$	9,409	$	—	$	9,340	$	69	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	823		—		823		—		Residential mortgage backed securities	965		—		965		—
Municipal bonds	Municipal bonds	314		—		314		—		Municipal bonds	298		—		298		—
Commercial mortgage backed securities		1,035		—		1,035		—
U.S. government and government agencies		4,563		4,546		17		—
Non-U.S. government securities		2,187		—		2,187		—
Asset backed securities		2,361		—		2,361		—
Total	Total	20,692		4,546		16,077		69		Total	22,485		5,640		16,721		124

Short-term investments	Short-term investments	1,553		1,406		147		—		Short-term investments	1,682		1,635		47		—

Equity securities, at fair value	Equity securities, at fair value	859		825		29		5		Equity securities, at fair value	894		860		29		5

Derivative instruments (2)	Derivative instruments (2)	211		—		211		—		Derivative instruments (2)	192		—		192		—

Residential mortgage loans	Residential mortgage loans	2		—		2		—		Residential mortgage loans	2		—		2		—

Fair value option:	Fair value option:									Fair value option:
Corporate bonds	Corporate bonds	613		—		613		—		Corporate bonds	620		—		620		—
Non-U.S. government bonds	Non-U.S. government bonds	7		—		7		—		Non-U.S. government bonds	15		—		15		—

Asset backed securities	Asset backed securities	2		—		2		—		Asset backed securities	2		—		2		—
U.S. government and government agencies	U.S. government and government agencies	9		9		—		—		U.S. government and government agencies	7		7		—		—
Short-term investments	Short-term investments	17		1		16		—		Short-term investments	13		1		8		4
Equity securities	Equity securities	7		3		—		4		Equity securities	7		3		—		4
Other investments	Other investments	249		—		203		46		Other investments	341		—		241		100
Other investments measured at net asset value (1)	Other investments measured at net asset value (1)	872								Other investments measured at net asset value (1)	1,063
Total	Total	1,776		13		841		50		Total	2,068		11		886		108

Total assets measured at fair value	Total assets measured at fair value	$	25,093	$	6,790	$	17,307	$	124	Total assets measured at fair value	$	27,323	$	8,146	$	17,877	$	237

Liabilities measured at fair value:	Liabilities measured at fair value:									Liabilities measured at fair value:
Other liabilities	Other liabilities	$	(14)	$	—	$	—	$	(14)	Other liabilities	$	(21)	$	—	$	—	$	(21)

Derivative instruments (2)	Derivative instruments (2)	(101)		—		(101)		—		Derivative instruments (2)	(114)		—		(114)		—
Total liabilities measured at fair value	Total liabilities measured at fair value	$	(115)	$	—	$	(101)	$	(14)	Total liabilities measured at fair value	$	(135)	$	—	$	(114)	$	(21)

(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.


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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, 2022:


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

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

Equity securities, at fair value	Equity securities, at fair value	860		829		28		3		Equity securities, at fair value	860		829		28		3

Derivative instruments (2)	Derivative instruments (2)	149		—		149		—		Derivative instruments (2)	149		—		149		—

Residential mortgage loans	Residential mortgage loans	2		—		2		—		Residential mortgage loans	2		—		2		—

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

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

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

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

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

(2) See note 9.


ARCH CAPITAL			2830			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

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		Assets												Liabilities
s	s	Available For Sale				Fair Value Option				Fair Value					s	Available For Sale				Fair Value Option						Fair Value
		Structured Securities (1)		Corporate Bonds		Other Investments		Equity Securities		Equity Securities			Other Liabilities			Structured Securities (1)		Corporate Bonds		Other Investments		Short-tem Investments		Equity Securities		Equity Securities		Other Liabilities
Three Months Ended March 31, 2023
Three Months Ended September 30, 2023															Three Months Ended September 30, 2023
Balance at beginning of period	Balance at beginning of period	$	—	$	121	$	33	$	4	$	4		$	(14)	Balance at beginning of period	$	—	$	100	$	86	$	—	$	4	$	5	$	(19)
Total gains or (losses) (realized/unrealized)	Total gains or (losses) (realized/unrealized)														Total gains or (losses) (realized/unrealized)
Included in earnings (2)	Included in earnings (2)	—		1		(1)		—		—			—		Included in earnings (2)	—		—		—		—		—		—		—
Included in other comprehensive income	Included in other comprehensive income	—		—		—		—		—			—		Included in other comprehensive income	—		(1)		—		—		—		—		—
Purchases, issuances, sales and settlements	Purchases, issuances, sales and settlements														Purchases, issuances, sales and settlements
Purchases	Purchases	—		—		18		—		1			—		Purchases	—		25		29		4		—		—		—
Issuances	Issuances	—		—		—		—		—			—		Issuances	—		—		—		—		—		—		(4)
Sales	Sales	—		—		(4)		—		—			—		Sales	—		—		(6)		—		—		—		—
Settlements	Settlements	—		(53)		—		—		—			—		Settlements	—		—		(9)		—		—		—		2
Transfers in and/or out of Level 3	Transfers in and/or out of Level 3	—		—		—		—		—			—		Transfers in and/or out of Level 3	—		—		—		—		—		—		—
Balance at end of period	Balance at end of period	$	—	$	69	$	46	$	4	$	5		$	(14)	Balance at end of period	$	—	$	124	$	100	$	4	$	4	$	5	$	(21)

Three Months Ended March 31, 2022
Three Months Ended September 30, 2022															Three Months Ended September 30, 2022
Balance at beginning of period	Balance at beginning of period	$	3	$	—	$	28	$	5	$	3		$	(17)	Balance at beginning of period	$	3	$	4	$	34	$	—	$	5	$	3	$	(17)
Total gains or (losses) (realized/unrealized)	Total gains or (losses) (realized/unrealized)														Total gains or (losses) (realized/unrealized)
Included in earnings (2)	Included in earnings (2)	—		—		—		—		—			—		Included in earnings (2)	(1)		—		—		—		—		—		—
Included in other comprehensive income	Included in other comprehensive income	—		—		—		—		—			(1)		Included in other comprehensive income	—		—		—		—		—		—		1
Purchases, issuances, sales and settlements	Purchases, issuances, sales and settlements														Purchases, issuances, sales and settlements
Purchases	Purchases	—		—		—		—		—			—		Purchases	—		—		1		—		—		—		—
Issuances	Issuances	—		—		—		—		—			—		Issuances	—		—		—		—		—		—		—
Sales	Sales	—		—		(2)		—		—			—		Sales	(2)		(4)		(1)		—		—		—		—
Settlements	Settlements	—		—		(3)		—		—			—		Settlements	—		—		—		—		—		—		2
Transfers in and/or out of Level 3	Transfers in and/or out of Level 3	—		4		—		—		—			—		Transfers in and/or out of Level 3	—		—		—		—		—		—		—
Balance at end of period	Balance at end of period	$	3	$	4	$	23	$	5	$	3		$	(18)	Balance at end of period	$	—	$	—	$	34	$	—	$	5	$	3	$	(14)

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

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


ARCH CAPITAL			31			2023 THIRD QUARTER FORM 10-Q

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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 ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2023, the Company’s senior notes were carried at their cost, net of debt issuance costs, of $2.7 billion and had a fair value of ~~$2.5~~$2.3 billion. At December 31, 2022, the Company’s senior notes were carried at their cost, net of debt issuance costs, of $2.7 billion and had a fair value of $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.

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


~~ARCH CAPITAL~~			29			~~2023 FIRST QUARTER FORM 10-Q~~

~~Table of Contents~~

~~ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES~~

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

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							Estimated Fair Value
		Asset Derivatives (1)		Liability Derivatives (1)		Notional Value (2)			Asset Derivatives (1)		Liability Derivatives (1)		Notional Value (2)
March 31, 2023
September 30, 2023								September 30, 2023
Futures contracts	Futures contracts	$	105	$	(47)	$	2,516	Futures contracts	$	129	$	(62)	$	4,515
Foreign currency forward contracts	Foreign currency forward contracts	21		(26)		1,062		Foreign currency forward contracts	32		(35)		1,481

Other		85		(28)		1,006
Other (3)								Other (3)	31		(17)		275
Total	Total	$	211	$	(101)			Total	$	192	$	(114)

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

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

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

(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 ~~March 31,~~September 30, 2023 or December 31, 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 ~~March 31,~~September 30, 2023, asset derivatives and liability derivatives of ~~$210~~$192 million and ~~$95~~$114 million, respectively, were subject to a master netting agreement, compared to $147 million and $73 million, respectively, at December 31, 2022. The remaining derivatives included in the preceding table were not subject to a master netting agreement.


ARCH CAPITAL			32			2023 THIRD QUARTER FORM 10-Q

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


Derivatives not designated as	Derivatives not designated as	March 31,				Derivatives not designated as	September 30,
hedging instruments:	hedging instruments:	2023		2022		hedging instruments:	2023		2022

Three Months Ended	Three Months Ended					Three Months Ended
Net realized gains (losses):	Net realized gains (losses):					Net realized gains (losses):
Futures contracts	Futures contracts	$	39	$	(47)	Futures contracts	$	(87)	$	(26)
Foreign currency forward contracts	Foreign currency forward contracts	9		(2)		Foreign currency forward contracts	(20)		(18)

Other (1)	Other (1)	8		25		Other (1)	5		(4)
Total	Total	$	56	$	(24)	Total	$	(102)	$	(48)

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

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

(1) Includes realized gains and losses on swaps, options and other derivatives contracts.

10. Commitments and Contingencies

Letter of Credit and Revolving Credit Facilities

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 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 credit. The commitments under 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 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 ~~$2.9~~$3.1 billion at ~~March 31,~~September 30, 2023, ~~consistent with~~compared to $2.9 billion at December 31, 2022.

Interest Paid

Interest paid on the Company’s senior notes and other borrowings was ~~nominal~~$63 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2023, compared to $1$65 million for the 2022 period.


ARCH CAPITAL			3033			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

11. Variable Interest Entities

Bellemeade Re

The Company has entered into aggregate excess of 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 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 entities in its consolidated financial statements. The reinsurance premium paid in regard to the Bellemeade Agreements is calculated by multiplying the outstanding reinsurance coverage amount at the beginning of the period by the coupon rate, which is the SOFR plus a contractual risk margin, less the actual investment income collected during the preceding month on the 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 ~~on-balance sheet liability was $5 million at March 31, 2023, compared~~mortgage insurance subsidiaries would be liable to ~~$2 million at December 31, 2022, while the maximum off-balance sheet exposure~~fulfill claim payments to ~~loss was $24 million at March 31, 2023, compared to $27 million at December 31, 2022.~~policyholders. The Company’s maximum exposure to loss associated with these VIEs is ~~calculated~~determined as the maximum historical observable spread between the benchmark index for each respective transaction and short term invested trust asset yields. The benchmark index for agreements effective prior to 2021 is based on one-month LIBOR, while the benchmark index for 2021 and later agreements is basedamount of mortgage insurance claim payments on the ~~Secured Overnight Financing Rate (“SOFR”). SOFR is a measure~~insured policies, net of aggregate reinsurance payments previously received, up to the ~~cost~~full aggregate excess of ~~borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions.~~ loss reinsurance coverage amounts. See note 16, “Subsequent Events.”

The following table summarizes the total assets of the Bellemeade entities:


		March 31, 2023		December 31, 2022			September 30, 2023			December 31, 2022
Bellemeade Entities (Issue Date)	Bellemeade Entities (Issue Date)	Total VIE Assets			Coverage Remaining from Reinsurers (1)			Total VIE Assets			Bellemeade Entities (Issue Date)	Total VIE Assets		Coverage Remaining from Reinsurers (1)		Total VIE Assets
2017-1 Ltd. (Oct-17)	2017-1 Ltd. (Oct-17)	$	—		$	—		$	37		2017-1 Ltd. (Oct-17)	$	—	$	—	$	37
2018-1 Ltd. (Apr-18)	2018-1 Ltd. (Apr-18)	78			—			90			2018-1 Ltd. (Apr-18)	51		—		90
2018-3 Ltd. (Oct-18)	2018-3 Ltd. (Oct-18)	183			—			199			2018-3 Ltd. (Oct-18)	154		—		199
2019-1 Ltd. (Mar-19)	2019-1 Ltd. (Mar-19)	99			—			108			2019-1 Ltd. (Mar-19)	80		—		108
2019-2 Ltd. (Apr-19)	2019-2 Ltd. (Apr-19)	307			—			325			2019-2 Ltd. (Apr-19)	265		—		325
2019-3 Ltd. (Jul-19)	2019-3 Ltd. (Jul-19)	182			—			223			2019-3 Ltd. (Jul-19)	120		—		223
2019-4 Ltd. (Oct-19)	2019-4 Ltd. (Oct-19)	252			—			266			2019-4 Ltd. (Oct-19)	218		—		266
2020-2 Ltd. (Sep-20)	2020-2 Ltd. (Sep-20)	89			—			105			2020-2 Ltd. (Sep-20)	54		—		105
2020-3 Ltd. (Nov-20)	2020-3 Ltd. (Nov-20)	224			6			244			2020-3 Ltd. (Nov-20)	183		4		244
2020-4 Ltd. (Dec-20)	2020-4 Ltd. (Dec-20)	87			3			98			2020-4 Ltd. (Dec-20)	67		2		98
2021-1 Ltd. (Mar-21)	2021-1 Ltd. (Mar-21)	438			29			467			2021-1 Ltd. (Mar-21)	388		17		467
2021-2 Ltd. (Jun-21)	2021-2 Ltd. (Jun-21)	434			71			458			2021-2 Ltd. (Jun-21)	380		58		458
2021-3 Ltd. (Sep-21)	2021-3 Ltd. (Sep-21)	481			125			490			2021-3 Ltd. (Sep-21)	444		116		490
2022-1 Ltd. (Jan-22)	2022-1 Ltd. (Jan-22)	284			33			284			2022-1 Ltd. (Jan-22)	269		30		284
2022-2 Ltd. (Sep-22)	2022-2 Ltd. (Sep-22)	201			126			201			2022-2 Ltd. (Sep-22)	201		126		201
Total	Total	$	3,339		$	393		$	3,595		Total	$	2,874	$	353	$	3,595

(1) Coverage from a separate panel of reinsurers remaining at ~~March 31,~~September 30, 2023.


ARCH CAPITAL			3134			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

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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					Amounts Reclassified from AOCI
		Consolidated Statement of Income	Three Months Ended					Consolidated Statement of Income		Three Months Ended			Nine Months Ended
Details About	Details About	Line Item That Includes	March 31,				Details About	Line Item That Includes		September 30,			September 30,
AOCI Components	AOCI Components	Reclassification	2023		2022				AOCI Components	Reclassification	2023		2022		2023		2022

Unrealized appreciation (decline) on available-for-sale investments	Unrealized appreciation (decline) on available-for-sale investments								Unrealized appreciation (decline) on available-for-sale investments
		Net realized gains (losses)	$	(94)	$	(88)				Net realized gains (losses)	$	(104)	$	(56)	$	(345)	$	(186)
		Provision for credit losses	(16)		(32)					Provision for credit losses	—		9		(23)		(48)

		Total before tax	(110)		(120)					Total before tax	(104)		(47)		(368)		(234)
		Income tax (expense) benefit	11		18					Income tax (expense) benefit	8		1		24		28
		Net of tax	$	(99)	$	(102)				Net of tax	$	(96)	$	(46)	$	(344)	$	(206)


		Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount			Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Three Months Ended March 31, 2023
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 appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	Unrealized holding gains (losses) arising during period	$	281	$	36	$	245	Unrealized holding gains (losses) arising during period	$	(208)	$	(18)	$	(190)

Less reclassification of net realized gains (losses) included in net income	Less reclassification of net realized gains (losses) included in net income	(110)		(11)		(99)		Less reclassification of net realized gains (losses) included in net income	(104)		(8)		(96)
Foreign currency translation adjustments	Foreign currency translation adjustments	5		—		5		Foreign currency translation adjustments	(40)		—		(40)
Other comprehensive income (loss)	Other comprehensive income (loss)	$	396	$	47	$	349	Other comprehensive income (loss)	$	(144)	$	(10)	$	(134)

Three Months Ended March 31, 2022
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 appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	Unrealized holding gains (losses) arising during period	$	(784)	$	(100)	$	(684)	Unrealized holding gains (losses) arising during period	$	(672)	$	(62)	$	(610)

Less reclassification of net realized gains (losses) included in net income	Less reclassification of net realized gains (losses) included in net income	(120)		(18)		(102)		Less reclassification of net realized gains (losses) included in net income	(47)		(1)		(46)
Foreign currency translation adjustments	Foreign currency translation adjustments	(3)		—		(3)		Foreign currency translation adjustments	(70)		—		(70)
Other comprehensive income (loss)	Other comprehensive income (loss)	$	(667)	$	(82)	$	(585)	Other comprehensive income (loss)	$	(695)	$	(61)	$	(634)

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								Unrealized holding gains (losses) arising during period	$	(131)	$	(13)	$	(118)

Less reclassification of net realized gains (losses) included in net income								Less reclassification of net realized gains (losses) included in net income	(368)		(24)		(344)
Foreign currency translation adjustments								Foreign currency translation adjustments	(33)		—		(33)
Other comprehensive income (loss)								Other comprehensive income (loss)	$	204	$	11	$	193

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								Unrealized holding gains (losses) arising during period	$	(2,132)	$	(240)	$	(1,892)

Less reclassification of net realized gains (losses) included in net income								Less reclassification of net realized gains (losses) included in net income	(234)		(28)		(206)
Foreign currency translation adjustments								Foreign currency translation adjustments	(141)		—		(141)
Other comprehensive income (loss)								Other comprehensive income (loss)	$	(2,039)	$	(212)	$	(1,827)


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

13. Income Taxes

The Company’s income tax provision on income before income taxes, including income (loss) from operating affiliates, resulted in an effective tax rate of ~~8.2%~~8.8% for the ~~three~~nine months ended ~~March 31,~~September 30, 2023, compared to ~~5.6%~~3.0% for the ~~three~~nine months ended ~~March 31,~~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. The effective tax rate for the nine months ended September 30, 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 ~~$450~~$496 million at ~~March 31,~~September 30, 2023, compared to a net deferred tax asset of $531 million at December 31, 2022. The change is primarily a result of market value fluctuations in the Company’s investment portfolio. In addition, the Company paid $4$127 million and $9$202 million of income taxes for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 and 2022, respectively.

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 ~~March 31,~~September 30, 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.

15. Transactions with Related Parties

Premia Reinsurance Ltd. is a multi-line Bermuda reinsurance company (and its affiliates together with Premia Holdings Ltd., “Premia”). The Company has entered into certain reinsurance transactions with Premia. For the ~~three~~nine months ended ~~March 31,~~September 30, 2023, the Company recorded net premiums written and earned of ~~$75~~approximately $80 million, compared to ~~$1 million~~a de minimis amount for the ~~three~~nine months ended ~~March 31,~~September 30, 2022. At ~~March 31,~~September 30, 2023, the Company recorded a funds held asset from Premia of ~~$199~~$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 Greysbridge. The Company has entered into certain reinsurance transactions with Somers. For the ~~three~~nine months ended ~~March 31,~~September 30, 2023, the ~~Company recorded ceded~~Company’s net premiums written ~~related to such transactions of $219~~was reduced by $457 million, compared to ~~$221~~$552 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2022. In addition, Somers paid certain acquisition costs and administrative fees to the Company. At ~~March 31,~~September 30, 2023, the Company recorded a reinsurance recoverable on unpaid and paid losses from Somers of ~~$1.2~~$1.3 billion and a reinsurance balance payable to Somers of ~~$435~~$499 million, compared to $1.2 billion and $414 million, respectively, at December 31, 2022.


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

16. Subsequent Events

Bellemeade Re 2023-1 Ltd.

In October 2023, the Company’s U.S. mortgage insurance subsidiaries entered into an aggregate excess of loss reinsurance agreement with Bellemeade Re 2023-1 Ltd. (“Bellemeade 2023-1”), a special purpose reinsurance company domiciled in Bermuda. The Bellemeade 2023-1 agreement provides for up to $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 from January 2023 through September 2023. The coverage amount decreases over a ten-year period as the underlying covered mortgages amortize.

Bellemeade 2023-1 financed the coverage through the issuance of mortgage insurance-linked notes in an aggregate amount of approximately $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, 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 2023-1 from the sale of the Notes were deposited into a reinsurance trust as security for Bellemeade 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 25, 2023, Arch Re Bermuda entered into Amendment No. 3 and Joinder to the 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 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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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, 2022 (“2022 Form 10-K”). In addition, readers should review “Risk Factors” set forth in Item 1A of Part I of our 2022 Form 10-K and “ITEM 1A—Risk Factors” of this Form 10-Q. All amounts are in millions, except per share amounts, unless otherwise noted.

Arch Capital Group Ltd. (“Arch Capital” and, together with its subsidiaries, “Arch”, “we”, “our” or “us”) is a publicly listed Bermuda exempted company with approximately ~~$16.7~~$18.0 billion in capital at ~~March 31,~~September 30, 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		3539
Financial Measures		3539
Comments on Non-GAAP Measures		3640
Results of Operations		3842
	Insurance Segment	3843
	Reinsurance Segment	4045
	Mortgage Segment	4148
	Corporate Segment	4350
Critical Accounting Policies, Estimates and Recent Accounting Pronouncements		4452
Financial Condition		4452
Liquidity		5057
Capital Resources ~~and Other~~		5058
Catastrophic and Severe Economic Events		60
Market Sensitive Instruments and Risk Management		61


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CURRENT OUTLOOK

~~Our~~As we near the end of 2023 and look ahead to 2024, our objective ~~in 2023 remains the same,~~ to deliver long term value for our ~~shareholders.~~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 ~~first~~third quarter ~~financial~~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 ~~8.4%~~4.3% and an annualized net income and operating ~~return~~returns on average common equity of ~~22.3%~~20.2% and ~~20.7%~~24.8%, respectively. See “Comment on Non-GAAP Financial Measures.”

Our property and casualty underwriting teams ~~continue~~continued to lean into attractive market conditions where excellent risk-adjusted returns remain ~~available. The~~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 ~~environment continues to offer opportunities, as evidenced by the growth~~market. Although rate increases are slowing in ~~our premiums numbers. A key element of~~some lines, they are re-accelerating in others, which is a good reminder that there is not a single insurance cycle, ~~management is to respond aggressively when conditions change.~~but many. We continue to execute our cycle management strategy by actively allocating capital to the ~~sectors where rates allow for returns that are higher than our cost of capital.~~

Being an effective underwriting cycle manager means that our underwriters know that they have degrees of freedom in choosing to deploy capital across our diversified, specialty-focused platform. Our belief is that, because we have a wide range of choices to allocate underwriting capital at any time, we can generate more consistent and stable underwriting income oversegments with the ~~long run.~~best risk-adjusted returns.

In our insurance segment, we continue to take advantage of favorable global market conditions. ~~For~~Growth in net premiums written in the ~~past few quarters,~~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 ~~has seen significant rate escalation. The property market is still broadly dislocated,~~ and we believe it will take further rate improvement before it finds equilibrium. General liability rates have picked up again and large account D&O is one of the very few lines that has seen decelerating rates. Overall, the market remains disciplinedcasualty markets in ~~its behavior and we~~which our insurance segment operates generally continue to ~~obtain rate above trend.~~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, ~~pricing for January 1 renewals was strong. This was fueled in part by improved pricing and terms and conditions on the primary side. As a result,~~our overall exposure to property catastrophe ~~net premiums written for~~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 ~~2023 first quarter were nearly double from~~flexibility to pursue the ~~2022 first quarter. From our perspective, the improved~~most attractive returns across lines and geographies. Our expectation is that we will continue to see hard property market conditions ~~at January 1 renewals are a leading indicator~~through next year’s renewal cycle as ~~we prepare for the mid-year renewals.~~loss activity remains elevated.

Inflation continues to be 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 future investment returns and prudent reserving, ~~helps~~allows us ~~somewhat mitigate inflation’s impact.~~to maximize the capabilities of our diversified platform.

Our mortgage segment ~~operates on~~continues to deliver a ~~different cycle than~~steady level of earnings for our shareholders. Higher persistency of our in force U.S. primary mortgage insurance portfolio helped offset the ~~property~~slight decrease in new insurance written, which has been affected by a lower volume of mortgage originations primarily as a result of higher mortgage rates. We continue to see meaningful opportunities for the mortgage segment outside of the U.S. and ~~casualty segments, but it remains a significant contributor~~our strategic decision to ~~earnings, generating $243 million of~~

diversify our mortgage operations is yielding positive results.

underwriting income in the 2023 first quarter. Our mortgage portfolio was shaped with a focus on credit quality and data-driven risk selection as demonstrated by our 1.65% delinquency rate at March 31, 2023, the lowest since March 31, 2020. Our disciplined underwriting approach has produced a portfolio with a favorable risk profile, including higher FICO scores and favorable loan-to-value and debt-to-income ratios.

FINANCIAL MEASURES

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

Book Value per Share

Book value per share represents total common shareholders’ equity available to Arch divided by the number of common shares outstanding. Management uses growth in book value per share as a key measure of the value generated for our common shareholders each period and believes that book value per share is the key driver of Arch Capital’s share price over time. Book value per 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 share depending on the purchase price. Book value per share was ~~$35.35~~$38.62 at ~~March 31,~~September 30, 2023, compared to ~~$32.62~~$37.04 at ~~December 31, 2022,~~June 30, 2023, and ~~$32.18~~$29.69 at ~~March 31,~~September 30, 2022. The ~~8.4%~~4.3% increase in book value per share for the 2023 ~~first~~third quarter reflected strong underwriting ~~and investment~~ 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), equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other, loss on redemption of preferred shares and income taxes. Management uses Operating ROAE as a key measure of the ~~return generated to common shareholders. See~~ ~~“Comment on Non-GAAP Financial Measures.”~~


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

Our annualized net income return on average common equity was ~~22.3%~~20.2% for the 2023 ~~first~~third quarter, compared to ~~6.0%~~0.2% for the 2022 ~~first quarter.~~third quarter, and 20.9% for the nine months ended September 30, 2023, compared to 6.6% for the 2022 period. Our Operating ROAE was ~~20.7%~~24.8% for the 2023 ~~first~~third quarter, compared to ~~13.6%~~3.8% for the 2022 ~~first quarter.~~third quarter, and 22.7% for the nine months ended September 30, 2023, compared to 11.6% for the 2022 period. The 2023 ~~first quarter annualized net income return~~periods reflected strong underwriting and investment results, while the 2022 ~~period~~periods reflected ~~strong~~lower underwriting ~~results, partially offset by~~returns, due in part to a higher level of ~~net realized losses which included mark-to-market losses on equities.~~catastrophic loss 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 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 on Non-GAAP Financial Measures.”

Arch
Portfolio Benchmark
Return
Pre-tax total return (before investment expenses):
2023 First Quarter 2.54 % 2.64 %
2022 First Quarter (3.07) % (3.97) %


	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)	%

Total return for the 2023 ~~first~~third quarter ~~primarily reflected strong returns in~~was negative as our fixed income portfolio ~~which benefited from a slight downward pressure on~~was impacted by the increase in interest ~~rates during the quarter.~~rates. We continue to maintain a relatively short duration on our portfolio of ~~2.89~~2.97 years at ~~March 31,~~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 ~~March 31,~~September 30, 2023, the benchmark return index had an average credit quality of “A1” by Moody’s

Investors Service (“Moody’s”), and an estimated duration of ~~2.81~~2.72 years.

The benchmark return index included weightings to the following indices:


	%
ICE BofA 1-10 Year U.S. Corporate Index	28.50
~~Alternatives -~~ 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	%

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), equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other, 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, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other in any particular period are not indicative of the performance of, or trends, in our business.


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Although net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of our operations, the decision to realize these 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 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 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.

Transaction costs and other include advisory, financing, legal, severance, incentive compensation and other transaction costs related to acquisitions. We believe that transaction costs and other, due to their non-recurring nature, are not indicative of the performance of, or trends in, our business performance.

Due to these reasons, we exclude net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other from the calculation of after-tax operating income 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. 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 segment. While these measures are presented in 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 reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis, in accordance with Regulation G, is shown in note 4, “Segment Information” toof 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.

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, and compares the return generated by our


~~ARCH CAPITAL~~			37			~~2023 FIRST QUARTER FORM 10-Q~~

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investment portfolio against benchmark returns 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. See “Comment on Non-GAAP Financial Measures.”


		Three Months Ended				Three Months Ended				Nine Months Ended
		March 31,				September 30,				September 30,
		2023		2022				2023		2022		2023		2022
Net income available to Arch common shareholders	Net income available to Arch common shareholders	$	705	$	186		Net income available to Arch common shareholders	$	713	$	7	$	2,079	$	587
Net realized (gains) losses(1)	Net realized (gains) losses(1)	(17)		292			Net realized (gains) losses(1)	248		184		354		743

Equity in net (income) loss of investment funds accounted for using the equity method	Equity in net (income) loss of investment funds accounted for using the equity method	(48)		(36)			Equity in net (income) loss of investment funds accounted for using the equity method	(59)		19		(176)		(75)
Net foreign exchange (gains) losses	Net foreign exchange (gains) losses	18		(4)			Net foreign exchange (gains) losses	(22)		(91)		2		(183)
Transaction costs and other	Transaction costs and other	(1)		—			Transaction costs and other	1		—		2		—

Income tax expense (benefit) ~~(1)~~(2)	Income tax expense (benefit) ~~(1)~~(2)	(3)		(16)			Income tax expense (benefit) ~~(1)~~(2)	(5)		(13)		(5)		(38)
After-tax operating income available to Arch common shareholders	After-tax operating income available to Arch common shareholders	$	654	$	422		After-tax operating income available to Arch common shareholders	$	876	$	106	$	2,256	$	1,034

Beginning common shareholders’ equity	Beginning common shareholders’ equity	$	12,080	$	12,716		Beginning common shareholders’ equity	$	13,811	$	11,588	$	12,080	$	12,716
Ending common shareholders’ equity	Ending common shareholders’ equity	13,158		12,090			Ending common shareholders’ equity	14,409		10,966		$	14,409	$	10,966
Average common shareholders’ equity	Average common shareholders’ equity	$	12,619	$	12,403		Average common shareholders’ equity	$	14,110	$	11,277	$	13,245	$	11,841

Annualized net income return on average common equity %	Annualized net income return on average common equity %	22.3		6.0			Annualized net income return on average common equity %	20.2		0.2		20.9		6.6
Annualized operating return on average common equity %	Annualized operating return on average common equity %	20.7		13.6			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 relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.

Segment Information

We classify our businesses into three underwriting ~~segments~~segments: insurance, reinsurance and 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 Chief Executive Officer, the Chief Financial Officer and Treasurer and the President and Chief Underwriting Officer are the Company’s chief operating decision makers. They do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures segment performance for 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 March 31,								Three Months Ended September 30,
		2023			2022			% Change		2023			2022			% Change
Gross premiums written	Gross premiums written	$	1,979		$	1,720		15.1	Gross premiums written	$	2,043		$	1,862		9.7
Premiums ceded	Premiums ceded	(542)			(513)				Premiums ceded	(521)			(493)
Net premiums written	Net premiums written	1,437			1,207			19.1	Net premiums written	1,522			1,369			11.2
Change in unearned premiums	Change in unearned premiums	(180)			(180)				Change in unearned premiums	(110)			(182)
Net premiums earned	Net premiums earned	1,257			1,027			22.4	Net premiums earned	1,412			1,187			19.0

Losses and loss adjustment expenses	Losses and loss adjustment expenses	(703)			(601)				Losses and loss adjustment expenses	(812)			(823)
Acquisition expenses	Acquisition expenses	(245)			(196)				Acquisition expenses	(269)			(233)
Other operating expenses	Other operating expenses	(195)			(167)				Other operating expenses	(202)			(165)
Underwriting income (loss)	Underwriting income (loss)	$	114		$	63		81.0	Underwriting income (loss)	$	129		$	(34)		479.4

Underwriting Ratios	Underwriting Ratios							% Point Change	Underwriting Ratios							% Point Change
Loss ratio	Loss ratio	55.9		%	58.5		%	(2.6)	Loss ratio	57.5		%	69.3		%	(11.8)
Acquisition expense ratio	Acquisition expense ratio	19.5		%	19.1		%	0.4	Acquisition expense ratio	19.1		%	19.6		%	(0.5)
Other operating expense ratio	Other operating expense ratio	15.5		%	16.2		%	(0.7)	Other operating expense ratio	14.3		%	13.9		%	0.4
Combined ratio	Combined ratio	90.9		%	93.8		%	(2.9)	Combined ratio	90.9		%	102.8		%	(11.9)


	Nine Months Ended September 30,
	2023			2022			% Change
Gross premiums written	$	5,977		$	5,287		13.1
Premiums ceded	(1,564)			(1,483)
Net premiums written	4,413			3,804			16.0
Change in unearned premiums	(416)			(488)
Net premiums earned	3,997			3,316			20.5

Losses and loss adjustment expenses	(2,276)			(2,054)
Acquisition expenses	(778)			(643)
Other operating expenses	(592)			(493)
Underwriting income (loss)	$	351		$	126		178.6

Underwriting Ratios							% Point Change
Loss ratio	57.0		%	61.9		%	(4.9)
Acquisition expense ratio	19.5		%	19.4		%	0.1
Other operating expense ratio	14.8		%	14.9		%	(0.1)
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 for middle market and large construction accounts, a comprehensive range of products for middle market accounts in specialty industries and casualty solutions for large national accounts, including loss sensitive primary insurance programs (large deductible, self-insured retention and retrospectively rated programs).

Excess and surplus casualty: primary and excess casualty insurance coverages written on a non-admitted basis.

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.


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Programs: primarily targeting program managers with unique expertise and niche products offering some combination of general liability, commercial automobile, property, inland marine, umbrella and workers’ compensation.

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

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

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 transactional surety coverages.


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Premiums Written.

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


		Three Months Ended March 31,						Three Months Ended September 30,
		2023			2022				2023		2022
		Amount		%	Amount		%				Amount		%	Amount		%
Professional lines	Professional lines	$	328	22.8	$	348	28.8			Professional lines	$	375	24.6	$	412	30.1
Property, energy, marine and aviation	Property, energy, marine and aviation	275		19.1	201		16.7			Property, energy, marine and aviation	342		22.5	241		17.6
Travel, accident and health		180		12.5	165		13.7
Construction and national accounts		173		12.0	136		11.3
Programs	Programs	141		9.8	129		10.7			Programs	202		13.3	189		13.8
Excess and surplus casualty	Excess and surplus casualty	131		9.1	100		8.3			Excess and surplus casualty	130		8.5	111		8.1
Construction and national accounts										Construction and national accounts	129		8.5	98		7.2
Travel, accident and health										Travel, accident and health	126		8.3	107		7.8
Warranty and lenders solutions	Warranty and lenders solutions	89		6.2	25		2.1			Warranty and lenders solutions	51		3.4	42		3.1
Other	Other	120		8.4	103		8.5			Other	167		11.0	169		12.3
Total	Total	$	1,437	100.0	$	1,207	100.0			Total	$	1,522	100.0	$	1,369	100.0

2023 ~~First~~Third Quarter versus 2022 Period. Gross premiums written by the insurance segment in the 2023 ~~first~~third quarter were ~~15.1%~~9.7% higher than in the 2022 ~~first~~third quarter, while net premiums written were ~~19.1%~~11.2% higher. ~~The higher level of~~Growth in net premiums written reflected increases in most lines of

business, due in part to new business opportunities, ~~growth~~increases in existing accounts and rate ~~increases.~~changes. In addition, the insurance segment retained a higher portion of business written in the 2023 third quarter than in the 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

Nine Months Ended September 30, 2023 versus 2022 period. Gross premiums written by the insurance segment for the nine months ended September 30, 2023 were 13.1% higher than in the 2022 period, while net premiums written were 16.0% higher than in the 2022 period. The increase in net premiums written reflected growth in most lines of business, primarily due to rate increases, new business opportunities and growth in existing accounts. In addition, the insurance segment retained more business in the 2023 ~~first quarter due to ongoing changes to its reinsurance programs and was impacted by changes~~period than in the ~~mix of business.~~2022 period.

Net Premiums Earned.

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


		Three Months Ended March 31,						Three Months Ended September 30,
		2023			2022				2023		2022
		Amount		%	Amount		%				Amount		%	Amount		%
Professional lines	Professional lines	$	349	27.8	$	290	28.2			Professional lines	$	363	25.7	$	342	28.8
Property, energy, marine and aviation	Property, energy, marine and aviation	227		18.1	174		16.9			Property, energy, marine and aviation	288		20.4	202		17.0
Travel, accident and health		128		10.2	105		10.2
Construction and national accounts		126		10.0	97		9.4
Programs	Programs	144		11.5	140		13.6			Programs	167		11.8	150		12.6
Excess and surplus casualty	Excess and surplus casualty	111		8.8	91		8.9			Excess and surplus casualty	126		8.9	100		8.4
Construction and national accounts										Construction and national accounts	147		10.4	110		9.3
Travel, accident and health										Travel, accident and health	148		10.5	133		11.2
Warranty and lenders solutions	Warranty and lenders solutions	50		4.0	31		3.0			Warranty and lenders solutions	43		3.0	33		2.8
Other	Other	122		9.7	99		9.6			Other	130		9.2	117		9.9
Total	Total	$	1,257	100.0	$	1,027	100.0			Total	$	1,412	100.0	$	1,187	100.0


	Nine Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
Professional lines	$	1,067	26.7	$	946	28.5
Property, energy, marine and aviation	752		18.8	557		16.8
Programs	473		11.8	439		13.2
Excess and surplus casualty	353		8.8	289		8.7
Construction and national accounts	406		10.2	306		9.2
Travel, accident and health	423		10.6	368		11.1
Warranty and lenders solutions	142		3.6	92		2.8
Other	381		9.5	319		9.6
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. For the 2023 ~~first~~third quarter, net premiums earned were ~~22.4%~~19.0% higher than in the 2022 ~~first~~third quarter. Net premiums earned for the nine months ended September 30, 2023 were 20.5% higher than in the 2022 period.


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Losses and Loss Adjustment Expenses.

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


		Three Months Ended				Three Months Ended				Nine Months Ended
		March 31,				September 30,				September 30,
		2023		2022				2023		2022		2023		2022
Current year	Current year	56.8	%	59.2	%		Current year	58.2	%	69.8	%	57.8	%	62.5	%
Prior period reserve development	Prior period reserve development	(0.9)	%	(0.7)	%		Prior period reserve development	(0.7)	%	(0.5)	%	(0.8)	%	(0.6)	%
Loss ratio	Loss ratio	55.9	%	58.5	%		Loss ratio	57.5	%	69.3	%	57.0	%	61.9	%

Current Year Loss Ratio.

2023 ~~First~~Third Quarter versus 2022 Period. The insurance segment’s current year loss ratio in the 2023 ~~first~~third quarter was ~~2.4~~11.6 points lower than in the 2022 ~~first~~third quarter. The 2023 ~~first~~third quarter loss ratio reflected ~~1.4~~2.6 points of current year catastrophic activity, spread across a series of global events, compared to ~~3.1~~13.4 points of catastrophic activity for the 2022 ~~first~~third quarter, primarily related to ~~Russia’s invasion~~Hurricane Ian. The balance of ~~Ukraine and other natural catastrophes occurring~~the change in the 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, 2023 was 4.7 points lower than in the 2022 ~~first quarter.~~period and reflected 2.3 points of current year catastrophic activity, spread across series of global events, compared to 6.1 points in the 2022 period. The balance of the change in the current year loss ratio resulted, in part, from changes in mix of business.


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Prior Period Reserve Development.

The insurance segment’s net favorable development was ~~$12 million, or 0.9 points, for the 2023 first quarter, compared to $7~~$10 million, or 0.7 points, for the 2023 third quarter, compared to $5 million, or 0.5 points, for the 2022 ~~first quarter.~~third quarter, and $34 million, or 0.8 points, for the nine months ended September 30, 2023, compared to $19 million, or 0.6 points, for the 2022 period. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements for information about the insurance segment’s prior year reserve development.

Underwriting Expenses.

2023 ~~First~~Third Quarter versus 2022 Period. The insurance segment’s underwriting expense ratio was ~~35.0%~~33.4% in the 2023 ~~first~~third quarter, compared to ~~35.3%~~33.5% in the 2022 ~~first quarter,~~third quarter.

Nine Months Ended September 30, 2023 versus 2022 period. The insurance segment’s underwriting expense ratio was 34.3% for the nine months ended September 30, 2023, consistent with 34.3% for the ~~decrease primarily due to growth in net premiums earned.~~2022 period.

Reinsurance Segment

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


		Three Months Ended March 31,								Three Months Ended September 30,
		2023			2022			% Change		2023			2022			% Change
Gross premiums written	Gross premiums written	$	2,460		$	1,719		43.1	Gross premiums written	$	2,138		$	1,639		30.4
Premiums ceded	Premiums ceded	(734)			(580)				Premiums ceded	(576)			(560)
Net premiums written	Net premiums written	1,726			1,139			51.5	Net premiums written	1,562			1,079			44.8
Change in unearned premiums	Change in unearned premiums	(396)			(335)				Change in unearned premiums	(19)			(77)
Net premiums earned	Net premiums earned	1,330			804			65.4	Net premiums earned	1,543			1,002			54.0
Other underwriting income (loss)	Other underwriting income (loss)	4			1				Other underwriting income (loss)	2			—
Losses and loss adjustment expenses	Losses and loss adjustment expenses	(766)			(454)				Losses and loss adjustment expenses	(870)			(928)
Acquisition expenses	Acquisition expenses	(281)			(172)				Acquisition expenses	(304)			(208)
Other operating expenses	Other operating expenses	(74)			(70)				Other operating expenses	(61)			(63)
Underwriting income (loss)	Underwriting income (loss)	$	213		$	109		95.4	Underwriting income (loss)	$	310		$	(197)		257.4

Underwriting Ratios	Underwriting Ratios							% Point Change	Underwriting Ratios							% Point Change
Loss ratio	Loss ratio	57.6		%	56.5		%	1.1	Loss ratio	56.4		%	92.6		%	(36.2)
Acquisition expense ratio	Acquisition expense ratio	21.1		%	21.4		%	(0.3)	Acquisition expense ratio	19.7		%	20.8		%	(1.1)
Other operating expense ratio	Other operating expense ratio	5.6		%	8.7		%	(3.1)	Other operating expense ratio	3.9		%	6.3		%	(2.4)
Combined ratio	Combined ratio	84.3		%	86.6		%	(2.3)	Combined ratio	80.0		%	119.7		%	(39.7)


	Nine Months Ended September 30,
	2023			2022			% Change
Gross premiums written	$	7,142		$	5,151		38.7
Premiums ceded	(2,145)			(1,770)
Net premiums written	4,997			3,381			47.8
Change in unearned premiums	(781)			(647)
Net premiums earned	4,216			2,734			54.2
Other underwriting income	9			6
Losses and loss adjustment expenses	(2,379)			(1,920)
Acquisition expenses	(875)			(569)
Other operating expenses	(203)			(199)
Underwriting income (loss)	$	768		$	52		1,376.9

Underwriting Ratios							% Point Change
Loss ratio	56.4		%	70.2		%	(13.8)
Acquisition expense ratio	20.7		%	20.8		%	(0.1)
Other operating expense ratio	4.8		%	7.3		%	(2.5)
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. Reinsurance agreements are typically offered on a proportional and/or excess of loss basis and provide coverage to ceding company clients for specific underlying written policies. Product lines include:

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


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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 for proportional motor reinsurance, whole account multi-line treaties, cyber, trade credit and surety, accident and health, workers’ compensation catastrophe, agriculture and political risk, among others.

Property catastrophe: provides protection for most types of catastrophic losses, including hurricane, earthquake, flood, tornado, hail and fire, and for other perils on a case-by-case basis. Excess of loss coverages are triggered when aggregate losses and loss adjustment expense from a single occurrence or aggregation of losses from a covered peril exceed the retention specified in the contract.

Property excluding property catastrophe: provides coverage for personal lines and/or commercial property exposures and principally covers buildings, structures, equipment and contents. The primary perils in this business include fire, explosion, collapse, riot, vandalism, wind, tornado, flood and earthquake. Business is assumed on either a treaty basis or facultative basis.

Other: includes life reinsurance business, casualty clash business and, in limited instances, non-traditional business which is intended to provide insurers with risk management solutions that complement traditional reinsurance.

Premiums Written.

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


		Three Months Ended March 31,						Three Months Ended September 30,
		2023			2022				2023		2022
		Amount		%	Amount		%				Amount		%	Amount		%
Property excluding property catastrophe										Property excluding property catastrophe	$	593	38.0	$	342	31.7
Other specialty	Other specialty	$	619	35.9	$	364	32.0			Other specialty	527		33.7	381		35.3
Property excluding property catastrophe		446		25.8	295		25.9
Casualty	Casualty	283		16.4	266		23.4			Casualty	273		17.5	230		21.3
Property catastrophe	Property catastrophe	257		14.9	129		11.3			Property catastrophe	76		4.9	78		7.2
Marine and aviation	Marine and aviation	99		5.7	52		4.6			Marine and aviation	54		3.5	29		2.7
Other	Other	22		1.3	33		2.9			Other	39		2.5	19		1.8
Total	Total	$	1,726	100.0	$	1,139	100.0			Total	$	1,562	100.0	$	1,079	100.0

2023 ~~First~~Third Quarter versus 2022 Period. Gross premiums written by the reinsurance segment in the 2023 ~~first~~third quarter were ~~43.1%~~30.4% higher than in the 2022 ~~first~~third quarter, while net premiums written were ~~51.5%~~44.8% higher. Growth in net premiums written primarily reflected increases in ~~most~~property excluding property catastrophe and other specialty lines, ~~of business,~~ due in part to rate increases, new business opportunities and growth in existing accounts. In addition, the reinsurance

segment retained ~~more~~a higher portion of business written in the 2023


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~~first~~ third quarter ~~due to a lower level of retrocession activity~~ than in the 2022 ~~first quarter and was impacted~~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, 2023 versus 2022 period. Gross premiums written by ~~changes~~the reinsurance segment for the nine months ended September 30, 2023 were 38.7% higher than in the ~~mix~~2022 period, while net premiums written were 47.8% higher than in the 2022 period. The increase in net premiums written reflected growth in most lines of ~~business.~~business, primarily due to new business, rate increases and growth in 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 March 31,						Three Months Ended September 30,
		2023			2022				2023		2022
		Amount		%	Amount		%				Amount		%	Amount		%
Property excluding property catastrophe										Property excluding property catastrophe	$	449	29.1	$	282	28.1
Other specialty	Other specialty	$	511	38.4	$	232	28.9			Other specialty	505		32.7	330		32.9
Property excluding property catastrophe		354		26.6	232		28.9
Casualty	Casualty	253		19.0	198		24.6			Casualty	264		17.1	222		22.2
Property catastrophe	Property catastrophe	139		10.5	77		9.6			Property catastrophe	219		14.2	118		11.8
Marine and aviation	Marine and aviation	51		3.8	42		5.2			Marine and aviation	66		4.3	25		2.5
Other	Other	22		1.7	23		2.9			Other	40		2.6	25		2.5
Total	Total	$	1,330	100.0	$	804	100.0			Total	$	1,543	100.0	$	1,002	100.0


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	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. Net premiums earned by the reinsurance segment in the 2023 ~~first~~third quarter were ~~65.4%~~54.0% higher than in the 2022 ~~first~~third quarter, and reflect changes in net premiums written over the previous five quarters. Net premiums earned for the nine months ended September 30, 2023 were 54.2% higher than in the 2022 period.

Other Underwriting Income (Loss).

Other underwriting income for the 2023 ~~first~~third quarter was $4$2 million, compared to $1nil for the 2022 third quarter, and $9 million for the nine months ended September 30, 2023, compared to $6 million for the 2022 ~~first quarter.~~period.

Losses and Loss Adjustment Expenses.

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


		Three Months Ended				Three Months Ended				Nine Months Ended
		March 31,				September 30,				September 30,
		2023		2022				2023		2022		2023		2022
Current year	Current year	61.6	%	60.5	%		Current year	59.2	%	97.5	%	59.4	%	74.9	%
Prior period reserve development	Prior period reserve development	(4.0)	%	(4.0)	%		Prior period reserve development	(2.8)	%	(4.9)	%	(3.0)	%	(4.7)	%
Loss ratio	Loss ratio	57.6	%	56.5	%		Loss ratio	56.4	%	92.6	%	56.4	%	70.2	%

Current Year Loss Ratio.

2023 ~~First~~Third Quarter versus 2022 Period. The reinsurance segment’s current year loss ratio in the 2023 ~~first~~third quarter was ~~1.1~~38.3 points ~~higher~~lower than in the 2022 ~~first~~third quarter. The 2023 ~~first~~third quarter loss ratio reflected ~~5.4~~9.7 points of current year catastrophic activity spread across a series of global events. The 2022 ~~first~~third quarter included ~~6.5~~42.8 points of current year catastrophic activity, primarily related to ~~Russia’s invasion of Ukraine. In addition,~~Hurricane Ian and other global events. The improvement in the ~~2023 first 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, 2023 was 15.5 points lower than in the 2022 period and reflected 7.4 points of current year catastrophic activity, compared to 20.1 points in the ~~2022 first quarter.~~

2022 period. The improvement in the 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.

Prior Period Reserve Development.

The reinsurance segment’s net favorable development was ~~$53~~$44 million, or ~~4.0~~2.8 points, for the 2023 ~~first~~third quarter, compared to ~~$32~~$49 million, or ~~4.0~~4.9 points, for the 2022 ~~first quarter.~~third quarter, and $126 million, or 3.0 points, for the nine months ended September 30, 2023, compared to $127 million, or 4.7 points, for the 2022 period. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements for information about the reinsurance segment’s prior year reserve development.

Underwriting Expenses.

2023 ~~First~~Third Quarter versus 2022 Period. The underwriting expense ratio for the reinsurance segment was ~~26.7%~~23.6% in the 2023 ~~first~~third quarter, compared to ~~30.1%~~27.1% in the 2022 ~~first~~third quarter, with the decrease primarily due to growth in net premiums earned. The 2022 third quarter ratio also reflected a lower level of contingent commissions on ceded business, primarily due to Hurricane Ian.

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


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Table of Contents

Mortgage Segment

Our mortgage operations include U.S. and international mortgage insurance and reinsurance operations as well as participation in GSE credit risk-sharing transactions.

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


		Three Months Ended March 31,								Three Months Ended September 30,
		2023			2022			% Change		2023			2022			% Change
Gross premiums written	Gross premiums written	$	343		$	365		(6.0)	Gross premiums written	$	347		$	362		(4.1)
Premiums ceded	Premiums ceded	(82)			(77)				Premiums ceded	(76)			(86)
Net premiums written	Net premiums written	261			288			(9.4)	Net premiums written	271			276			(1.8)
Change in unearned premiums	Change in unearned premiums	35			2				Change in unearned premiums	22			6
Net premiums earned	Net premiums earned	296			290			2.1	Net premiums earned	293			282			3.9
Other underwriting income	Other underwriting income	6			5				Other underwriting income	3			3
Losses and loss adjustment expenses	Losses and loss adjustment expenses	(2)			54				Losses and loss adjustment expenses	35			68
Acquisition expenses	Acquisition expenses	(7)			(10)				Acquisition expenses	(2)			(7)
Other operating expenses	Other operating expenses	(50)			(53)				Other operating expenses	(47)			(47)
Underwriting income	Underwriting income	$	243		$	286		(15.0)	Underwriting income	$	282		$	299		(5.7)

Underwriting Ratios	Underwriting Ratios							% Point Change	Underwriting Ratios							% Point Change
Loss ratio	Loss ratio	0.6		%	(18.9)		%	19.5	Loss ratio	(12.1)		%	(24.1)		%	12.0
Acquisition expense ratio	Acquisition expense ratio	2.5		%	3.6		%	(1.1)	Acquisition expense ratio	0.6		%	2.4		%	(1.8)
Other operating expense ratio	Other operating expense ratio	16.9		%	18.4		%	(1.5)	Other operating expense ratio	16.2		%	16.5		%	(0.3)
Combined ratio	Combined ratio	20.0		%	3.1		%	16.9	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


~~ARCH CAPITAL~~			41			~~2023 FIRST QUARTER FORM 10-Q~~

~~Table of Contents~~

Premiums Written.

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

Three Months Ended March 31,
2023 2022
Amount % Amount %
Underwriting location:
United States $ 188 72.0 $ 201 69.8
Other 73 28.0 87 30.2
Total $ 261 100.0 $ 288 100.0


	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

2023 ~~First~~Third Quarter versus 2022 Period. Gross premiums written by the mortgage segment in the 2023 ~~first~~third quarter were ~~6.0%~~4.1% lower than in the 2022 ~~first~~third quarter, while net premiums written were ~~9.4%~~1.8% lower. The ~~decrease~~reduction in ~~gross~~net premiums written primarily 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 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, 2023 versus 2022 Period. Gross premiums written by the mortgage segment for the nine months ended September 30, 2023 were 5.6% lower than in the 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 reflected lower levels of mortgage originations in the Australian market and a ~~reduction~~decrease in U.S. primary mortgage insurance ~~single premium~~ business, which was partially offset by a higher volume of credit risk transfer transactions. ~~Net premiums written for the 2023 first quarter reflected a higher level of ceded premiums through quota share reinsurance agreements than in the 2022 first quarter.~~

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, was ~~81.7%~~83.9% for the Arch MI U.S. portfolio of mortgage insurance policies at ~~March 31, 2023, reflecting~~September 30, 2023. This compares to 75.4% at September 30, 2022 and reflects a lower level of ~~mortgage~~ refinancing activity ~~compared to 66.9% at March 31, 2022.~~in the period.

The following tables provide details on the new insurance written (“NIW”) generated by Arch MI U.S. NIW represents the original principal balance of all loans that received coverage during the period.

Three Months Ended March 31,
2023 2022
Amount % Amount %
Total new insurance written (NIW) (1) $ 10,394 $ 20,015
Credit quality (FICO):
>=740 $ 6,672 64.2 $ 13,152 65.7
680-739 3,490 33.6 6,254 31.2
620-679 229 2.2 606 3.0
<620 3 0.0 3 0.0
Total $ 10,394 100.0 $ 20,015 100.0
Loan-to-value (LTV):
95.01% and above $ 519 5.0 $ 1,096 5.5
90.01% to 95.00% 6,043 58.1 10,778 53.8
85.01% to 90.00% 2,772 26.7 5,733 28.6
85.00% and below 1,060 10.2 2,408 12.0
Total $ 10,394 100.0 $ 20,015 100.0
Monthly vs. single:
Monthly $ 10,106 97.2 $ 19,201 95.9
Single 288 2.8 814 4.1
Total $ 10,394 100.0 $ 20,015 100.0
Purchase vs. refinance:
Purchase $ 10,201 98.1 $ 19,157 95.7
Refinance 193 1.9 858 4.3
Total $ 10,394 100.0 $ 20,015 100.0


ARCH CAPITAL			48			2023 THIRD QUARTER FORM 10-Q

Table of Contents


	Three Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
Total new insurance written (NIW) (1)	$	11,494		$	17,425

Credit quality (FICO):
>=740	$	7,646	66.5	$	11,615	66.7
680-739	3,520		30.6	5,322		30.5
620-679	326		2.8	485		2.8
<620	2		—	3		—
Total	$	11,494	100.0	$	17,425	100.0

Loan-to-value (LTV):
95.01% and above	$	880	7.7	$	973	5.6
90.01% to 95.00%	6,306		54.9	9,916		56.9
85.01% to 90.00%	3,126		27.2	4,839		27.8
85.00% and below	1,182		10.3	1,697		9.7
Total	$	11,494	100.0	$	17,425	100.0

Monthly vs. single:
Monthly	$	10,712	93.2	$	16,911	97.1
Single	782		6.8	514		2.9
Total	$	11,494	100.0	$	17,425	100.0

Purchase vs. refinance:
Purchase	$	11,334	98.6	$	17,159	98.5
Refinance	160		1.4	266		1.5
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.

Net Premiums Earned.

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

Three Months Ended March 31,
2023 2022
Amount % Amount %
Underwriting location:
United States $ 197 66.6 $ 210 72.4
Other 99 33.4 80 27.6
Total $ 296 100.0 $ 290 100.0


	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

2023 ~~First~~Third Quarter versus 2022 Period. Net premiums earned for the 2023 ~~first~~third quarter were ~~2.1%~~3.9% higher than in the 2022 ~~first~~third quarter, primarily due to growth in credit risk transfer and international business, which was partially offset by ~~higher ceded premiums and lower single premium policy terminations on~~a small decrease in U.S. primary mortgage ~~insurance.~~insurance in force.


	Nine Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
U.S. primary mortgage insurance	$	582	65.9	$	607	69.9
U.S. credit risk transfer (CRT) and other	165		18.7	143		16.5
International mortgage insurance/ reinsurance	136		15.4	118		13.6
Total	$	883	100.0	$	868	100.0

Nine Months Ended September 30, 2023 versus 2022 Period. For the nine months ended September 30, 2023, net premiums earned were 1.7% higher than in the 2022 period, primarily due to growth in credit risk transfer and international business, which was partially offset by a decrease in U.S. primary mortgage insurance in force.

Other Underwriting Income (Loss).

Other underwriting income, which is primarily related to GSE credit risk-sharing transactions and our whole mortgage loan purchase and sell program was $6$3 million for the 2023 ~~first~~third quarter, ~~compared to $5~~consistent with $3 million for the 2022 ~~first~~third quarter.


ARCH CAPITAL			4249			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q

Table of Contents

Losses and Loss Adjustment Expenses.

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


		Three Months Ended				Three Months Ended				Nine Months Ended
		March 31,				September 30,				September 30,
		2023		2022				2023		2022		2023		2022
Current year	Current year	24.5	%	16.4	%		Current year	19.3	%	20.6	%	22.2	%	18.3	%
Prior period reserve development	Prior period reserve development	(23.9)	%	(35.3)	%		Prior period reserve development	(31.4)	%	(44.7)	%	(27.5)	%	(39.9)	%
Loss ratio	Loss ratio	0.6	%	(18.9)	%		Loss ratio	(12.1)	%	(24.1)	%	(5.3)	%	(21.6)	%

Current Year Loss Ratio.

2023 ~~First~~Third Quarter versus 2022 Period. The mortgage segment’s current year loss ratio was ~~8.1~~1.3 points ~~higher~~lower in the 2023 ~~first~~third quarter than in the 2022 ~~first~~third quarter. The current year loss ratio for the 2023 third quarter, excluding net favorable development, was down slightly, reflecting lower estimated claim rates partially offset by slightly higher new delinquencies than in the comparable 2022 third quarter loss ratio.

Nine Months Ended September 30, 2023 versus 2022 Period. The mortgage segment’s current year loss ratio was 3.9 points higher for the nine months ended September 30, 2023 than for the 2022 period. The higher current year loss ratio for the 2023 ~~first quarter~~period reflected higher level of new delinquencies ~~and an increase~~than in ~~reserves due to higher estimated claim rates.~~the 2022 period.

Prior Period Reserve Development.

The mortgage segment’s net favorable development was ~~$71~~$92 million, or ~~23.9~~31.4 points, for the 2023 ~~first~~third quarter, compared to ~~$102~~$126 million, or ~~35.3~~44.7 points, for the 2022 ~~first quarter.~~third quarter, and $243 million, or 27.5 points, for the nine months ended September 30, 2023, compared to $346 million, or 39.9 points, for the 2022 period. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements for information about the mortgage segment’s prior year reserve development.

Underwriting Expenses.

2023 ~~First~~Third Quarter versus 2022 Period. The underwriting expense ratio for the mortgage segment was ~~19.4%~~16.8% in the 2023 ~~first~~third quarter, compared to ~~22.0%~~18.9% in the 2022 ~~first quarter, with the~~third quarter. The decrease ~~reflecting lower operating expenses~~was primarily due to ~~lower headcount, and~~ higher level of profit commissions on ~~business~~ ceded ~~related to favorable development of prior year loss reserves.~~U.S. primary and Australian mortgage insurance business.

Nine Months Ended September 30, 2023 versus 2022 period. The underwriting expense ratio for the mortgage segment was 18.5% for the nine months ended September 30, 2023, compared to 20.5% for the 2022 period. The decrease was primarily due to higher level of profit commissions on ceded U.S. primary mortgage insurance business.

Corporate Segment

The corporate segment results include net investment income, net realized gains or losses (which includes realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains and losses on derivative instruments and changes in the allowance for credit losses on financial assets), equity in net income or loss of investments accounted for using the equity method, other income or loss, corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, net foreign exchange gains or losses, income taxes, income from operating affiliates and items related to our non-cumulative preferred shares.

Net Investment Income.

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


		Three Months Ended				Three Months Ended				Nine Months Ended
		March 31,				September 30,				September 30,
		2023		2022				2023		2022		2023		2022
Fixed maturities	Fixed maturities	$	188	$	82		Fixed maturities	$	243	$	124	$	645	$	311

Short-term investments							Short-term investments	19		9		48		16
Equity securities	Equity securities	4		6			Equity securities	5		4		15		16
Short-term investments		14		3

Other (1)	Other (1)	13		12			Other (1)	22		9		60		29
Gross investment income	Gross investment income	219		103			Gross investment income	289		146		768		372
Investment expenses (2)	Investment expenses (2)	(20)		(23)			Investment expenses (2)	(20)		(17)		(58)		(57)
Net investment income	Net investment income	$	199	$	80		Net investment income	$	269	$	129	$	710	315

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

(2) Investment expenses were approximately ~~0.26%~~0.30% of average invested assets for the 2023 ~~first~~third quarter, compared to ~~0.35%~~0.29% for the 2022 ~~first quarter.~~third quarter, and 0.28% for the nine months ended September 30, 2023, compared to 0.30% for the 2022 period.

The higher level of net investment income for the 2023 ~~first~~third quarter was primarily related to higher yields available in the financial market. The pre-tax investment income yield, calculated based on amortized cost and on an annualized basis, was ~~3.03%~~3.68% for the 2023 ~~first~~third quarter, compared to ~~1.34%~~2.06% for the 2022 ~~first quarter.~~third quarter, and 3.41% for the nine months ended September 30, 2023, compared to 1.72% for the 2022 period. Net cash flow from operating activities contributed $4.1 billion for the nine months ended September 30, 2023, which has helped to grow our invested asset base by approximately 20% in the last twelve months and contributed to the growth in net investment income.

Corporate Expenses.

Corporate expenses were ~~$29~~$20 million for the 2023 ~~first~~third quarter, compared to ~~$32~~$18 million for the 2022 ~~first quarter. The decrease in corporate expenses was~~third quarter, and $69 million for the nine months ended September 30, 2023, compared to $78 million for the 2022 period. Such amounts primarily ~~due~~represent certain holding company costs


ARCH CAPITAL			50			2023 THIRD QUARTER FORM 10-Q

Table of Contents

necessary to ~~lower incentive compensation costs.~~support our worldwide operations and costs associated with operating as a publicly traded company.

Other Income ~~(Losses).~~or Losses.

Other income or loss for the 2023 ~~first~~third quarter was ~~$11~~a loss of $4 million, compared to a loss of $9$14 million for the 2022 ~~first quarter.~~third quarter, and income of $10 million for the nine months ended September 30, 2023, compared to a loss of $35 million for the 2022 period. Amounts in both periods primarily reflect changes in the cash surrender value of our investment in corporate-owned life insurance.

Amortization of Intangible Assets.

Amortization of intangible assets for the 2023 ~~first~~third quarter was ~~$23~~$24 million, compared to ~~$27~~$26 million for the 2022 ~~first quarter.~~third quarter, and $71 million for the nine months ended September 30, 2023, compared to $80 million for the 2022 period. Amounts in ~~2023 and 2022 period~~both periods primarily attributed to amortization of finite-lived intangible assets.

Interest Expense.

Interest expense was ~~$32~~$34 million for the 2023 ~~first~~third quarter, compared to ~~the~~ $33 million for the 2022 ~~first quarter.~~third quarter, and $99 million for the nine months ended September 30, 2023, consistent with $99 million for the 2022 period. Interest expense primarily reflects amounts related to our outstanding senior notes.


~~ARCH CAPITAL~~			43			~~2023 FIRST QUARTER FORM 10-Q~~

~~Table of Contents~~

Net Realized Gains or Losses.

~~We recorded net~~Net realized ~~gains of $17 million~~losses for the 2023 ~~first~~third quarter were $248 million, compared to net realized losses of ~~$292~~$184 million for the 2022 ~~first~~third quarter. Net realized losses were $354 million for the nine months ended September 30, 2023, compared to net realized losses of $743 million for the 2022 period. Amounts in both periods reflected sales of investments as well as the ~~2022 period included mark-to-market losses~~impact of financial market movements on the Company’s equity ~~securities.~~securities and investments accounted for under the fair value option method. Currently, our portfolio is actively managed to maximize total return within certain guidelines. The effect of financial market movements on the investment portfolio will directly impact net realized gains and losses as the portfolio is adjusted and rebalanced. Net realized gains or losses from the sale of fixed maturities primarily results from our decisions to reduce credit exposure, to change duration targets, to rebalance our portfolios or due to relative value determinations.

Net realized gains or losses also include realized and unrealized contract gains and losses on our derivative instruments, changes in the fair value of assets accounted for using the fair value option and in the fair value of equities, along with changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings. See note 7, “Investment Information—Net Realized Gains (Losses)” and note 7, “Investment Information—

Allowance for Expected Credit Losses,” to our consolidated financial statements for additional information.

Equity in Net Income or Losses of Investment Funds Accounted for Using the Equity Method.

Equity in net income of investment funds accounted for using the equity method was ~~$48~~$59 million in the 2023 ~~first~~third quarter, compared to ~~$36~~a loss of $19 million for the 2022 ~~first quarter.~~third quarter, and income of $176 million for the nine months ended September 30, 2023, compared to income of $75 million for the 2022 period. Such investments are generally recorded on a one to three month lag based on the availability of reports from the investment funds. Investment funds accounted for using the equity method totaled ~~$3.9~~$4.3 billion at ~~March 31,~~September 30, 2023, compared to $3.8 billion at December 31, 2022. See note 7, “Investment Information—Investments Accounted For Using the Equity Method,” to our consolidated financial statements for additional information.

Net Foreign Exchange Gains or Losses.

Net foreign exchange gains for the 2023 third quarter were $22 million, compared to gains of $91 million for the 2022 third quarter. Net foreign exchange losses for the nine months ended September 30, 2023 ~~first quarter~~ were ~~$18~~$1 million, compared to ~~net foreign exchange~~ gains of $183 million for the 2022 ~~first quarter of $4 million.~~period. Amounts in both periods were primarily unrealized and resulted from the effects of revaluing our net insurance liabilities required to be settled in foreign currencies at each balance sheet date.

Income Tax Expense.

Our income tax provision on income or loss before income taxes, including income or loss from operating affiliates, resulted in an expense of ~~8.2%~~8.8% for the ~~three~~nine months ended ~~March 31,~~September 30, 2023, compared to ~~5.6%~~an expense of 3.0% for the 2022 period. See note 13, “Income Taxes” to our consolidated financial statements for additional information.

Income or Losses from Operating Affiliates.

Income from operating affiliates for 2023 ~~first~~third quarter was ~~$39~~$54 million, compared to ~~$25~~income of $9 million for the 2022 ~~first quarter.~~third quarter, and income of $115 million for the nine months ended September 30, 2023, compared to income of $39 million for the 2022 period. See note 7, “Investment Information—Investments in Operating Affiliates,” to our consolidated financial statements for additional information.


ARCH CAPITAL			51			2023 THIRD QUARTER FORM 10-Q

CRITICAL ACCOUNTING POLICIES,

ESTIMATES AND RECENT ACCOUNTING PRONOUNCEMENTS

Critical accounting policies, estimates and recent accounting pronouncements are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2022 Form 10-K, updated where applicable in the notes accompanying our consolidated financial statements, including note 1, “Basis of Presentation and Recent Accounting Pronouncements.”

FINANCIAL CONDITION

Investable Assets Held by Arch

At ~~March 31,~~September 30, 2023, approximately ~~$19.9~~$20.9 billion, or ~~68%~~65%, of total investable assets held by Arch were internally managed, compared to $18.8 billion, or 67%, at December 31, 2022. See note 7, “Investment Information” to our consolidated financial statements for additional information.

March 31, 2023,

December 31, 2022

September 30, 2023

December 31, 2022

Average effective duration (in years)

2.89

Average effective duration (in years)

2.97

2.89

Average S&P/Moody’s credit ratings (1)

AA-/Aa3

Average S&P/Moody’s credit ratings (1)

AA-/Aa3

(1)Average credit ratings on our investment portfolio on securities with ratings assigned by Standard & Poor’s Rating Services (“S&P”) and Moody’s Investors Service (“Moody’s”).


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The following table provides the credit quality distribution of our fixed maturities. For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.


		Estimated Fair Value		% of Total		Estimated Fair Value		% of Total
March 31, 2023
September 30, 2023					September 30, 2023
U.S. government and gov’t agencies (1)	U.S. government and gov’t agencies (1)	$	5,274	24.7	U.S. government and gov’t agencies (1)	$	6,359	27.5
AAA	AAA	3,826		17.9	AAA	4,164		18.0
AA	AA	2,136		10.0	AA	2,061		8.9
A	A	4,540		21.3	A	4,523		19.6
BBB	BBB	3,875		18.2	BBB	4,390		19.0
BB	BB	711		3.3	BB	773		3.3
B	B	384		1.8	B	352		1.5
Lower than B	Lower than B	18		0.1	Lower than B	16		0.1
Not rated	Not rated	559		2.6	Not rated	491		2.1
Total	Total	$	21,323	100.0	Total	$	23,129	100.0

December 31, 2022	December 31, 2022				December 31, 2022
U.S. government and gov’t agencies (1)	U.S. government and gov’t agencies (1)	$	5,831	28.8	U.S. government and gov’t agencies (1)	$	5,831	28.8
AAA	AAA	3,617		17.9	AAA	3,617		17.9
AA	AA	2,214		10.9	AA	2,214		10.9
A	A	3,993		19.7	A	3,993		19.7
BBB	BBB	3,324		16.4	BBB	3,324		16.4
BB	BB	560		2.8	BB	560		2.8
B	B	377		1.9	B	377		1.9
Lower than B	Lower than B	12		0.1	Lower than B	12		0.1
Not rated	Not rated	309		1.5	Not rated	309		1.5
Total	Total	$	20,237	100.0	Total	$	20,237	100.0

(1)Includes U.S. government-sponsored agency residential mortgage-backed securities and agency commercial mortgage-backed securities.


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The following table provides information on the severity of the unrealized loss position as a percentage of amortized cost for all fixed maturities which were in an unrealized loss position:


Severity of gross unrealized losses:	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
March 31, 2023
September 30, 2023							September 30, 2023
0-10%	0-10%	$	12,393	$	(587)	45.3	0-10%	$	16,607	$	(571)	40.4
10-20%	10-20%	4,094		(646)		49.8	10-20%	3,510		(555)		39.3
20-30%	20-30%	140		(43)		3.3	20-30%	834		(243)		17.2
Greater than 30%	Greater than 30%	39		(21)		1.6	Greater than 30%	82		(45)		3.2
Total	Total	$	16,666	$	(1,297)	100.0	Total	$	21,033	$	(1,414)	100.0

December 31, 2022	December 31, 2022						December 31, 2022
0-10%	0-10%	$	12,343	$	(580)	35.2	0-10%	$	12,343	$	(580)	35.2
10-20%	10-20%	5,331		(844)		51.2	10-20%	5,331		(844)		51.2
20-30%	20-30%	692		(199)		12.1	20-30%	692		(199)		12.1
Greater than 30%	Greater than 30%	44		(24)		1.5	Greater than 30%	44		(24)		1.5
Total	Total	$	18,410	$	(1,647)	100.0	Total	$	18,410	$	(1,647)	100.0

The following table summarizes our top ten exposures to fixed income corporate issuers by fair value at ~~March 31,~~September 30, 2023, excluding guaranteed amounts and covered bonds:


	Estimated Fair Value		Credit Rating (1)
Bank of America Corporation	$	~~427~~	~~A-/A2~~
~~JPMorgan Chase & Co.~~	~~313~~360		A-/A1
Morgan Stanley	~~290~~333		A-/A1
~~Citigroup Inc.~~JPMorgan Chase & Co.	~~269~~315		~~BBB+~~A-/A3A1
The Goldman Sachs Group, Inc.	~~248~~240		BBB+/A2
Citigroup Inc.	222		BBB+/A3
HSBC Holdings plc	167		A-/A2
Blue Owl Capital Inc.	160		BBB-/Baa3
Wells Fargo & Company	~~182~~149		BBB+/A1
~~Blue Owl Capital~~Philip Morris International Inc.	~~166~~		~~BBB-/Baa3~~
~~HSBC Holdings plc~~	~~163~~142		A-/A2
~~Blackstone Inc.~~	~~146~~		~~BBB-/Baa3~~
Deere & Company	~~132~~129		A/A2
Total	$	~~2,336~~2,217

(1)Average credit ratings as assigned by S&P and Moody’s, respectively.


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The following table provides information on our structured securities, which includes residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”):


		Agencies		Investment Grade		Below Investment Grade		Total			Agencies		Investment Grade		Below Investment Grade		Total
March 31, 2023
September 30, 2023										September 30, 2023
RMBS	RMBS	$	686	$	136	$	1	$	823	RMBS	$	682	$	283	$	—	$	965
CMBS	CMBS	17		942		76		1,035		CMBS	7		998		97		1,102
ABS	ABS	—		2,127		236		2,363		ABS	—		2,205		139		2,344
Total	Total	$	703	$	3,205	$	313	$	4,221	Total	$	689	$	3,486	$	236	$	4,411

December 31, 2022	December 31, 2022									December 31, 2022
RMBS	RMBS	$	645	$	134	$	16	$	795	RMBS	$	645	$	134	$	16	$	795
CMBS	CMBS	18		947		82		1,047		CMBS	18		947		82		1,047
ABS	ABS	—		1,788		141		1,929		ABS	—		1,788		141		1,929
Total	Total	$	663	$	2,869	$	239	$	3,771	Total	$	663	$	2,869	$	239	$	3,771

The following table summarizes our equity securities, which include investments in exchange traded funds:


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Equities (1)	Equities (1)	$	554	$	570	Equities (1)	$	528	$	570
Exchange traded funds	Exchange traded funds					Exchange traded funds
Fixed income (2)	Fixed income (2)	276		272		Fixed income (2)	277		272
Equity and other (3)	Equity and other (3)	36		32		Equity and other (3)	96		32
Total	Total	$	866	$	874	Total	$	901	$	874

(1)Primarily in consumer non-cyclical, communications, technology, ~~communications~~financial and ~~financial~~consumer cyclical at ~~March 31,~~September 30, 2023.

(2)Primarily in corporate exposure at ~~March 31,~~September 30, 2023.

(3)Primarily in large cap stocks, foreign equities, healthcare, technology and consumer discretionary at ~~March 31,~~September 30, 2023.

For details on our other investments and other investable assets, see note 7, “Investment Information—Other Investments” to our consolidated financial statements.

For details on our investments accounted for using the equity method, see note 7, “Investment Information—Investments Accounted For Using the Equity Method,” to our consolidated financial statements.

Our investment strategy allows for the use of derivative instruments. We utilize various derivative instruments such as futures contracts to enhance investment performance, replicate investment positions or manage market exposures and duration risk that would be allowed under our investment guidelines if implemented in other ways. See note 9, “Derivative Instruments,” to our consolidated financial statements for additional disclosures related to derivatives.


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for a summary of our financial assets and liabilities measured at fair value, segregated by level in the fair value hierarchy.

Reinsurance

The effects of reinsurance on written and earned premiums and losses and loss adjustment expenses (“LAE”) with unaffiliated reinsurers were as follows:


		Three Months Ended				Three Months Ended				Nine Months Ended
		March 31,				September 30,				September 30,
		2023		2022				2023		2022		2023		2022
Premiums written:	Premiums written:						Premiums written:
Direct	Direct	$	2,358	$	2,132		Direct	$	2,496	$	2,248	$	7,227	$	6,505
Assumed	Assumed	2,422		1,669			Assumed	2,031		1,613		6,925		5,027
Ceded	Ceded	(1,356)		(1,167)			Ceded	(1,172)		(1,137)		(3,945)		(3,489)
Net	Net	$	3,424	$	2,634		Net	$	3,355	$	2,724	$	10,207	$	8,043

Premiums earned:	Premiums earned:						Premiums earned:
Direct	Direct	$	2,154	$	1,885		Direct	$	2,338	$	2,067	$	6,721	$	5,926
Assumed	Assumed	1,774		1,173			Assumed	2,084		1,525		5,675		4,038
Ceded	Ceded	(1,045)		(937)			Ceded	(1,174)		(1,121)		(3,300)		(3,046)
Net	Net	$	2,883	$	2,121		Net	$	3,248	$	2,471	$	9,096	$	6,918

Losses and LAE:	Losses and LAE:						Losses and LAE:
Direct	Direct	$	1,071	$	890		Direct	$	1,206	$	1,228	$	3,438	$	3,017
Assumed	Assumed	997		654			Assumed	1,084		1,370		3,001		2,661
Ceded	Ceded	(597)		(543)			Ceded	(643)		(915)		(1,830)		(1,891)
Net	Net	$	1,471	$	1,001		Net	$	1,647	$	1,683	$	4,609	$	3,787

See note 6, “Allowance for Expected Credit Losses,” to our consolidated financial statements for information about our reinsurance recoverables and related allowance for credit losses.

Bellemeade Re

We have entered into aggregate excess of loss mortgage reinsurance agreements with various special purpose reinsurance companies domiciled in Bermuda (the “Bellemeade Agreements”). For the respective coverage periods, we will retain the first layer of the respective aggregate losses and the special purpose reinsurance companies will provide second layer coverage up to the outstanding coverage amount. We will then retain losses in excess of the outstanding coverage limit. The aggregate excess of loss reinsurance coverage generally decreases over a ten-year period as the underlying covered mortgages amortize, unless provisional call options embedded within certain of the Bellemeade Agreements are executed or if pre-defined delinquency triggering events occur.


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The following table summarizes the respective coverages and retentions at ~~March 31,~~September 30, 2023:


Bellemeade Entities (Issue Date)	Bellemeade Entities (Issue Date)	Initial Coverage at Issuance		Current Coverage		Remaining Retention, Net		Bellemeade Entities (Issue Date)	Initial Coverage at Issuance		Current Coverage		Remaining Retention, Net
2018-1 Ltd. (1)	2018-1 Ltd. (1)	374		78		145		2018-1 Ltd. (1)	374		51		149
2018-3 Ltd. (2)	2018-3 Ltd. (2)	506		183		155		2018-3 Ltd. (2)	506		154		158
2019-1 Ltd. (3)	2019-1 Ltd. (3)	342		99		123		2019-1 Ltd. (3)	342		80		127
2019-2 Ltd. (4)	2019-2 Ltd. (4)	621		307		193		2019-2 Ltd. (4)	621		265		198
2019-3 Ltd. (5)	2019-3 Ltd. (5)	701		182		211		2019-3 Ltd. (5)	701		120		215
2019-4 Ltd. (6)	2019-4 Ltd. (6)	577		252		143		2019-4 Ltd. (6)	577		218		145
2020-2 Ltd. (7)	2020-2 Ltd. (7)	449		89		239		2020-2 Ltd. (7)	449		54		241
2020-3 Ltd. (8)	2020-3 Ltd. (8)	452		230		162		2020-3 Ltd. (8)	452		187		162
2020-4 Ltd. (9)	2020-4 Ltd. (9)	337		91		139		2020-4 Ltd. (9)	337		69		141
2021-1 Ltd. (10)	2021-1 Ltd. (10)	644		467		155		2021-1 Ltd. (10)	644		404		154
2021-2 Ltd. (11)	2021-2 Ltd. (11)	616		505		138		2021-2 Ltd. (11)	616		438		138
2021-3 Ltd. (12)	2021-3 Ltd. (12)	639		606		133		2021-3 Ltd. (12)	639		560		134
2022-1 Ltd. (13)	2022-1 Ltd. (13)	317		317		141		2022-1 Ltd. (13)	317		298		139
2022-2 Ltd. (14)	2022-2 Ltd. (14)	327		327		213		2022-2 Ltd. (14)	327		327		204
Total	Total	$	6,902	$	3,733	$	2,290	Total	$	6,902	$	3,225	$	2,305

(1) Issued in April 2018, covering in-force policies issued between July 1, 2017 and December 31, 2017.

(2) Issued in October 2018, covering in-force policies issued between January 1, 2018 and June 30, 2018.

(3) Issued in March 2019, covering in-force policies primarily issued between 2005-2008 under United Guaranty Residential Insurance Company (“UGRIC”); as well as policies issued through 2015 under both UGRIC and Arch Mortgage Insurance Company.

(4) Issued in April 2019, covering in-force policies issued between July 1, 2018 and December 31, 2018.

(5) Issued in July 2019, covering in-force policies issued in 2016.

(6) Issued in October 2019, covering in-force policies issued between January 1, 2019 and June 30, 2019.

(7) Issued in September 2020, covering in-force policies issued between January 1, 2020 and May 31, 2020. $423 million was directly funded by Bellemeade 2020-2 Ltd. with an additional $26 million of capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.

(8) Issued in November 2020, covering in-force policies issued between June 1, 2020 and August 31, 2020. $418 million was directly funded by Bellemeade 2020-3 Ltd. with an additional $34 million of capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.

(9) Issued in December 2020, covering in-force policies issued between July 1, 2019 and December 31, 2019. $321 million was directly funded by Bellemeade 2020-4 Ltd. with an additional $16 million of capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.

(10) Issued in March 2021, covering in-force policies issued between September 1, 2020 and November 30, 2020. $580 million was directly funded by Bellemeade Re 2021-1 Ltd. with an additional $64 million capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.

(11) Issued in June 2021, covering in-force policies issued between December 1, 2020 and March 31, 2021. $523 million was directly funded by Bellemeade Re 2021-2 Ltd. via insurance-linked notes, with an additional $93 million capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.

(12) Issued in September 2021, covering in-force policies issued between April 1, 2021 and June 30, 2021. $508 million was directly funded by Bellemeade Re 2021-3 Ltd. via insurance-linked notes, with an additional $131 million capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.


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(13) Issued in January 2022, covering in-force policies issued between July 1, 2021 and November 30, 2021. $284 million was directly funded by Bellemeade Re 2022-1 Ltd. via insurance-linked notes, with an additional $33 million capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.

(14) Issued in September 2022, covering in-force policies issued between November 1, 2021 and June 30, 2022. $201 million was directly funded by Bellemeade Re 2022-2 Ltd. via insurance-linked notes, with an additional $126 million capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.

See note 1 6, “Subsequent Event s,” to our consolidated financial statements for information about our Bellemeade Agreements.

Reserve for Losses and Loss Adjustment Expenses

We establish reserve for losses and loss adjustment expenses (“Loss Reserves”) which represent estimates involving actuarial and statistical projections, at a given point in time, of our expectations of the ultimate settlement and administration costs of losses incurred. Estimating Loss Reserves is inherently difficult. We utilize actuarial models as well as available historical insurance industry loss ratio experience and loss development patterns to assist in the establishment of Loss Reserves. Actual losses and loss adjustment expenses paid will deviate, perhaps substantially, from the reserve estimates reflected in our financial statements.

At ~~March 31,~~September 30, 2023 and December 31, 2022, our Loss Reserves, net of unpaid losses and loss adjustment expenses recoverable, by type and by operating segment were as follows:


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Insurance segment:	Insurance segment:					Insurance segment:
Case reserves	Case reserves	$	2,441	$	2,398	Case reserves	$	2,577	$	2,398
IBNR reserves	IBNR reserves	5,127		4,934		IBNR reserves	5,461		4,934
Total net reserves	Total net reserves	7,568		7,332		Total net reserves	8,038		7,332
Reinsurance segment:	Reinsurance segment:					Reinsurance segment:
Case reserves	Case reserves	2,181		1,903		Case reserves	2,267		1,903
Additional case reserves	Additional case reserves	517		481		Additional case reserves	511		481
IBNR reserves	IBNR reserves	3,516		3,403		IBNR reserves	3,954		3,403
Total net reserves	Total net reserves	6,214		5,787		Total net reserves	6,732		5,787
Mortgage segment:	Mortgage segment:					Mortgage segment:
Case reserves	Case reserves	422		447		Case reserves	383		447
IBNR reserves	IBNR reserves	207		186		IBNR reserves	187		186
Total net reserves	Total net reserves	629		633		Total net reserves	570		633

Total:	Total:					Total:
Case reserves	Case reserves	5,044		4,748		Case reserves	5,227		4,748
Additional case reserves	Additional case reserves	517		481		Additional case reserves	511		481
IBNR reserves	IBNR reserves	8,850		8,523		IBNR reserves	9,602		8,523
Total net reserves	Total net reserves	$	14,411	$	13,752	Total net reserves	$	15,340	$	13,752


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At ~~March 31,~~September 30, 2023 and December 31, 2022, the insurance segment’s Loss Reserves by major line of business, net of unpaid losses and loss adjustment expenses recoverable, were as follows:


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Insurance segment:	Insurance segment:					Insurance segment:
Professional lines	Professional lines	$	2,180	$	2,070	Professional lines	$	2,347	$	2,070
Construction and national accounts	Construction and national accounts	1,584		1,558		Construction and national accounts	1,661		1,558
Excess and surplus casualty						Excess and surplus casualty	914		786
Programs	Programs	856		843		Programs	911		843
Excess and surplus casualty		825		786
Property, energy, marine and aviation	Property, energy, marine and aviation	764		764		Property, energy, marine and aviation	762		764
Travel, accident and health	Travel, accident and health	135		139		Travel, accident and health	148		139
Warranty and lenders solutions	Warranty and lenders solutions	56		47		Warranty and lenders solutions	63		47
Other	Other	1,168		1,125		Other	1,232		1,125
Total net reserves	Total net reserves	$	7,568	$	7,332	Total net reserves	$	8,038	$	7,332

At ~~March 31,~~September 30, 2023 and December 31, 2022, the reinsurance segment’s Loss Reserves by major line of business, net of unpaid losses and loss adjustment expenses recoverable, were as follows:


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Reinsurance segment:	Reinsurance segment:					Reinsurance segment:
Casualty	Casualty	$	2,429	$	2,342	Casualty	$	2,606	$	2,342
Other specialty	Other specialty	1,736		1,476		Other specialty	1,949		1,476
Property excluding property catastrophe	Property excluding property catastrophe	1,022		993		Property excluding property catastrophe	1,123		993
Property catastrophe	Property catastrophe	581		536		Property catastrophe	559		536
Marine and aviation	Marine and aviation	302		292		Marine and aviation	350		292
Other	Other	144		148		Other	145		148
Total net reserves	Total net reserves	$	6,214	$	5,787	Total net reserves	$	6,732	$	5,787

At ~~March 31,~~September 30, 2023 and December 31, 2022, the mortgage segment’s Loss Reserves by major line of business, net of unpaid losses and loss adjustment expenses recoverable, were as follows:


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Mortgage segment:						Mortgage segment:
U.S. primary mortgage insurance (1)	U.S. primary mortgage insurance (1)	$	418	$	415	U.S. primary mortgage insurance (1)	$	377	$	415
U.S. credit risk transfer (CRT) and other	U.S. credit risk transfer (CRT) and other	105		109		U.S. credit risk transfer (CRT) and other	102		109
International mortgage insurance/ reinsurance	International mortgage insurance/ reinsurance	106		109		International mortgage insurance/ reinsurance	91		109
Total net reserves	Total net reserves	$	629	$	633	Total net reserves	$	570	$	633

(1) At ~~March 31,~~September 30, 2023, ~~33.4%~~31.8% of total net reserves represents policy years 2013 and prior and the remainder from later policy years. At December 31, 2022, 36.1% of total net reserves represent policy years 2013 and prior and the remainder from later policy years.


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Mortgage Operations Supplemental Information

The mortgage segment’s insurance in force (“IIF”) and risk in force (“RIF”) were as follows at ~~March 31,~~September 30, 2023 and December 31, 2022:


		March 31, 2023			December 31, 2022				September 30, 2023			December 31, 2022
		Amount		%	Amount		%		Amount		%	Amount		%
Insurance In Force (IIF) (1):	Insurance In Force (IIF) (1):							Insurance In Force (IIF) (1):
U.S. primary mortgage insurance	U.S. primary mortgage insurance	$	294,244	57.3	$	295,651	57.6	U.S. primary mortgage insurance	$	292,903	57.4	$	295,651	57.6
U.S. credit risk transfer (CRT) and other (2)		147,731		28.8	145,087		28.3
International mortgage insurance/reinsurance (3)		71,327		13.9	72,315		14.1
U.S. credit risk transfer (CRT) and other								U.S. credit risk transfer (CRT) and other	152,453		29.9	145,087		28.3
International mortgage insurance/reinsurance								International mortgage insurance/reinsurance	65,107		12.8	72,315		14.1
Total	Total	$	513,302	100.0	$	513,053	100.0	Total	$	510,463	100.0	$	513,053	100.0

Risk In Force (RIF) (4):
Risk In Force (RIF) (2):								Risk In Force (RIF) (2):
U.S. primary mortgage insurance	U.S. primary mortgage insurance	$	75,770	84.8	$	75,806	84.8	U.S. primary mortgage insurance	$	75,850	84.9	$	75,806	84.8
U.S. credit risk transfer (CRT) and other (2)		6,286		7.0	6,245		7.0
International mortgage insurance/reinsurance (3)		7,333		8.2	7,369		8.2
U.S. credit risk transfer (CRT) and other								U.S. credit risk transfer (CRT) and other	6,478		7.2	6,245		7.0
International mortgage insurance/reinsurance								International mortgage insurance/reinsurance	7,034		7.9	7,369		8.2
Total	Total	$	89,389	100.0	$	89,420	100.0	Total	$	89,362	100.0	$	89,420	100.0

(1)Represents the aggregate dollar amount of each insured mortgage loan’s current principal balance. Such amounts are shown before external reinsurance.

(2)~~Includes all CRT transactions, which are predominantly with GSEs, and other U.S. reinsurance transactions.~~

~~(3)International mortgage insurance and reinsurance with risk primarily located in Australia and to lesser extent Europe and Asia.~~

~~(4)~~The aggregate dollar amount of each insured mortgage loan’s current principal balance multiplied by the insurance coverage percentage specified in the policy for insurance policies issued and after contract limits and/or loss ratio caps for risk-sharing or reinsurance. Such amounts are shown before external reinsurance.

The IIF and RIF for our U.S. primary mortgage insurance business by policy year were as follows at ~~March 31,~~September 30, 2023:


		IIF			RIF			Delinquency			IIF			RIF			Delinquency
		Amount		%	Amount		%	Rate (1)			Amount		%	Amount		%	Rate (1)
Policy year:	Policy year:									Policy year:
2013 and prior	2013 and prior	$	12,179	4.1	$	3,070	4.1	6.66	%	2013 and prior	$	11,263	3.8	$	2,842	3.7	6.52	%
2014	2014	3,418		1.2	934		1.2	2.36	%	2014	2,759		0.9	742		1.0	2.43	%
2015	2015	5,752		2.0	1,546		2.0	1.88	%	2015	5,113		1.7	1,366		1.8	1.88	%
2016	2016	9,272		3.2	2,496		3.3	2.44	%	2016	7,970		2.7	2,148		2.8	2.51	%
2017	2017	9,045		3.1	2,401		3.2	3.02	%	2017	8,016		2.7	2,132		2.8	2.96	%
2018	2018	9,841		3.3	2,525		3.3	3.70	%	2018	8,908		3.0	2,302		3.0	3.66	%
2019	2019	18,254		6.2	4,647		6.1	2.21	%	2019	16,572		5.7	4,250		5.6	2.22	%
2020	2020	61,353		20.9	15,575		20.6	0.94	%	2020	54,238		18.5	13,997		18.5	1.06	%
2021	2021	87,086		29.6	22,183		29.3	0.84	%	2021	80,045		27.3	20,567		27.1	1.00	%
2022	2022	67,714		23.0	17,697		23.4	0.43	%	2022	65,065		22.2	17,038		22.5	0.72	%
2023	2023	10,330		3.5	2,696		3.6	0.02	%	2023	32,954		11.3	8,466		11.2	0.15	%
Total	Total	$	294,244	100.0	$	75,770	100.0	1.65	%	Total	$	292,903	100.0	$	75,850	100.0	1.65	%

(1)Represents the ending percentage of loans in default.


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The IIF and RIF for our U.S. primary mortgage insurance business by policy year were as follows at December 31, 2022:


	IIF			RIF			Delinquency
	Amount		%	Amount		%	Rate (1)
Policy year:
2013 and prior	$	12,931	4.4	$	3,222	4.3	7.07	%
2014	3,696		1.3	1,012		1.3	2.61	%
2015	6,236		2.1	1,680		2.2	2.08	%
2016	10,225		3.5	2,744		3.6	2.66	%
2017	9,508		3.2	2,521		3.3	3.06	%
2018	10,260		3.5	2,625		3.5	4.11	%
2019	19,096		6.5	4,840		6.4	2.36	%
2020	65,141		22.0	16,414		21.7	1.20	%
2021	89,621		30.3	22,740		30.0	0.95	%
2022	68,937		23.3	18,008		23.8	0.20	%

Total	$	295,651	100.0	$	75,806	100.0	1.77	%

(1)Represents the ending percentage of loans in default.

The following tables provide supplemental disclosures on risk in force for our U.S. primary mortgage insurance business at ~~March 31,~~September 30, 2023 and December 31, 2022:


		March 31, 2023				December 31, 2022					September 30, 2023				December 31, 2022
		Amount			%	Amount			%		Amount			%	Amount			%
Credit quality (FICO):	Credit quality (FICO):									Credit quality (FICO):
>=740	>=740	$	46,788		61.8	$	46,812		61.8	>=740	$	46,990		62.0	$	46,812		61.8
680-739	680-739	25,016			33.0	24,945			32.9	680-739	25,055			33.0	24,945			32.9
620-679	620-679	3,699			4.9	3,772			5.0	620-679	3,554			4.7	3,772			5.0
<620	<620	267			0.4	277			0.4	<620	251			0.3	277			0.4
Total	Total	$	75,770		100.0	$	75,806		100.0	Total	$	75,850		100.0	$	75,806		100.0
Weighted average FICO score	Weighted average FICO score	748				750				Weighted average FICO score	748				750

Loan-to-value (LTV):	Loan-to-value (LTV):									Loan-to-value (LTV):
95.01% and above	95.01% and above	$	7,215		9.5	$	7,289		9.6	95.01% and above	$	7,113		9.4	$	7,289		9.6
90.01% to 95.00%	90.01% to 95.00%	44,066			58.2	43,681			57.6	90.01% to 95.00%	44,675			58.9	43,681			57.6
85.01% to 90.00%	85.01% to 90.00%	20,665			27.3	20,851			27.5	85.01% to 90.00%	20,565			27.1	20,851			27.5
85.00% and below	85.00% and below	3,824			5.0	3,985			5.3	85.00% and below	3,497			4.6	3,985			5.3
Total	Total	$	75,770		100.0	$	75,806		100.0	Total	$	75,850		100.0	$	75,806		100.0
Weighted average LTV	Weighted average LTV	92.9		%		92.8		%		Weighted average LTV	93.0		%		92.8		%

Total RIF, net of external reinsurance	Total RIF, net of external reinsurance	$	57,001			$	57,151			Total RIF, net of external reinsurance	$	56,946			$	57,151


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		March 31, 2023			December 31, 2022				September 30, 2023			December 31, 2022
		Amount		%	Amount		%		Amount		%	Amount		%
Total RIF by State:	Total RIF by State:							Total RIF by State:
California	California	$	6,369	8.4	$	6,341	8.4	California	$	6,235	8.2	$	6,341	8.4
Texas	Texas	6,179		8.2	6,151		8.1	Texas	6,081		8.0	6,151		8.1
Florida		3,225		4.3	3,268		4.3
North Carolina	North Carolina	3,191		4.2	3,160		4.2	North Carolina	3,258		4.3	3,160		4.2
Georgia	Georgia	3,167		4.2	3,169		4.2	Georgia	3,116		4.1	3,169		4.2
Florida								Florida	3,086		4.1	3,268		4.3
Minnesota								Minnesota	3,060		4.0	3,003		4.0
Illinois	Illinois	3,054		4.0	3,081		4.1	Illinois	2,994		3.9	3,081		4.1
Minnesota		2,994		4.0	3,003		4.0
Massachusetts	Massachusetts	2,822		3.7	2,809		3.7	Massachusetts	2,841		3.7	2,809		3.7
Michigan								Michigan	2,722		3.6	2,618		3.5
Virginia	Virginia	2,634		3.5	2,656		3.5	Virginia	2,605		3.4	2,656		3.5
Michigan		2,626		3.5	2,618		3.5
Other	Other	39,509		52.1	39,550		52.2	Other	39,852		52.5	39,550		52.2
Total	Total	$	75,770	100.0	$	75,806	100.0	Total	$	75,850	100.0	$	75,806	100.0

The following table provides supplemental disclosures for our U.S. primary mortgage insurance business related to insured loans and loss metrics:


(U.S. Dollars in thousands, except policy, loan and claim count)	(U.S. Dollars in thousands, except policy, loan and claim count)	Three Months Ended						(U.S. Dollars in thousands, except policy, loan and claim count)	Nine Months Ended
		March 31,							September 30,
		2023			2022				2023			2022
Roll-forward of insured loans in default:	Roll-forward of insured loans in default:							Roll-forward of insured loans in default:
Beginning delinquent number of loans	Beginning delinquent number of loans	20,567			27,645			Beginning delinquent number of loans	20,567			27,645
New notices	New notices	9,476			8,835			New notices	28,642			26,328
Cures	Cures	(10,853)			(12,030)			Cures	(29,903)			(33,225)
Paid claims	Paid claims	(215)			(180)			Paid claims	(662)			(534)

Ending delinquent number of loans (1)	Ending delinquent number of loans (1)	18,975			24,270			Ending delinquent number of loans (1)	18,644			20,214

Ending number of policies in force (1)	Ending number of policies in force (1)	1,147,081			1,159,020			Ending number of policies in force (1)	1,129,351			1,168,735

Delinquency rate (1)	Delinquency rate (1)	1.65		%	2.09		%	Delinquency rate (1)	1.65		%	1.73		%

Losses:	Losses:							Losses:
Number of claims paid	Number of claims paid	215			180			Number of claims paid	662			534
Total paid claims	Total paid claims	$	7,185		$	6,016		Total paid claims	$	19,502		$	16,865
Average per claim	Average per claim	$	33.4		$	33.4		Average per claim	$	29.5		$	31.6
Severity (2)	Severity (2)	81.8		%	78.1		%	Severity (2)	68.8		%	74.3		%
Average case reserve per default (1)	Average case reserve per default (1)	$	23.0		$	28.4		Average case reserve per default (1)	$	21.2		$	27.7

(1)Includes first lien primary and pool policies.

(2)Represents total paid claims divided by RIF of loans for which claims were paid.

The risk to capital ratio, which represents total current (non-delinquent) risk in force, net of reinsurance, divided by total statutory capital, for Arch MI U.S. was approximately ~~6.9~~6.6 to 1 at ~~March 31,~~September 30, 2023, compared to 7.2 to 1 at December 31, 2022.


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Shareholders’ Equity and Book Value per Share

The following table presents the calculation of book value per share:


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Total shareholders’ equity available to Arch	Total shareholders’ equity available to Arch	$	13,988	$	12,910	Total shareholders’ equity available to Arch	$	15,239	$	12,910
Less preferred shareholders’ equity	Less preferred shareholders’ equity	830		830		Less preferred shareholders’ equity	830		830
Common shareholders’ equity available to Arch	Common shareholders’ equity available to Arch	$	13,158	$	12,080	Common shareholders’ equity available to Arch	$	14,409	$	12,080
Common shares and common share equivalents outstanding, net of treasury shares (1)	Common shares and common share equivalents outstanding, net of treasury shares (1)	372.2		370.3		Common shares and common share equivalents outstanding, net of treasury shares (1)	373.1		370.3
Book value per share	Book value per share	$	35.35	$	32.62	Book value per share	$	38.62	$	32.62

(1)Excludes the effects of ~~13.3~~12.7 million and 14.4 million stock options and 0.6 million and 0.6 million restricted stock units outstanding at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

LIQUIDITY

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations.

Arch Capital is a holding company whose assets primarily consist of the shares in its subsidiaries. Generally, Arch Capital depends on its available cash resources, liquid investments and dividends or other distributions from its subsidiaries to make payments, including the payment of debt service obligations and operating expenses it may incur and any dividends or liquidation amounts with respect to our preferred and common shares.

For the ~~three~~nine months ended ~~March 31,~~September 30, 2023, Arch Capital received dividends of ~~$55~~$98 million from Arch Reinsurance Ltd. (“Arch Re Bermuda”), our Bermuda based reinsurer and insurer, which can pay approximately ~~$3.7~~$3.6 billion to Arch Capital during the remainder of 2023 without providing an affidavit to the Bermuda Monetary Authority.

We expect that our liquidity needs, including our anticipated (re)insurance obligations and operating and capital expenditure needs, for at least the next twelve months and thereafter for the foreseeable future, will be met by funds generated from underwriting activities and investment income, as well as by our balance of cash, short-term investments, proceeds on the sale or maturity of our investments, and our credit facilities. During the 2023 third quarter, Arch Capital and certain of its subsidiaries amended the existing credit agreement. For details on our credit agreement, see note 10, “Commitments and Contingencies” and see note 16, “Subsequent Events ” to our consolidated financial statements.


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Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities:


		Three Months Ended					Nine Months Ended
		March 31,					September 30,
		2023		2022			2023		2022
Total cash provided by (used for):	Total cash provided by (used for):					Total cash provided by (used for):
Operating activities	Operating activities	$	963	$	552	Operating activities	$	4,084	$	2,834
Investing activities	Investing activities	(996)		(313)		Investing activities	(3,936)		(2,106)
Financing activities	Financing activities	(30)		(233)		Financing activities	(52)		(704)
Effects of exchange rate changes on foreign currency cash and restricted cash	Effects of exchange rate changes on foreign currency cash and restricted cash	5		(4)		Effects of exchange rate changes on foreign currency cash and restricted cash	(14)		(80)
Increase (decrease) in cash and restricted cash	Increase (decrease) in cash and restricted cash	$	(58)	$	2	Increase (decrease) in cash and restricted cash	$	82	$	(56)

•Cash provided by operating activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 was higher than in the 2022 period. Activity for the nine months ended September 30, 2023 primarily reflected a higher level of premiums collected than in the 2022 period.

•Cash used for investing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 was higher than in the 2022 period. Activity for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 reflected higher net purchases ~~of fixed maturity investments~~ than in the 2022 ~~period.~~period due in part to strong operating cash flows in 2023.

•Cash used for financing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 was lower than in the 2022 period. Activity for the nine months ended September 30, 2023 reflected no repurchases under our share repurchase program, while the 2022 period included ~~$255~~$586 million of share repurchases.

CAPITAL RESOURCES

The following table provides an analysis of our capital structure:


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022

Senior notes	Senior notes	$	2,726	$	2,725	Senior notes	$	2,726	$	2,725

Shareholders’ equity available to Arch:	Shareholders’ equity available to Arch:					Shareholders’ equity available to Arch:

Series F non-cumulative preferred shares	Series F non-cumulative preferred shares	$	330	$	330	Series F non-cumulative preferred shares	$	330	$	330
Series G non-cumulative preferred shares	Series G non-cumulative preferred shares	500		500		Series G non-cumulative preferred shares	500		500
Common shareholders’ equity	Common shareholders’ equity	13,158		12,080		Common shareholders’ equity	14,409		12,080
Total	Total	$	13,988	$	12,910	Total	$	15,239	$	12,910

Total capital available to Arch	Total capital available to Arch	$	16,714	$	15,635	Total capital available to Arch	$	17,965	$	15,635

Debt to total capital (%)	Debt to total capital (%)	16.3		17.4		Debt to total capital (%)	15.2		17.4
Preferred to total capital (%)	Preferred to total capital (%)	5.0		5.3		Preferred to total capital (%)	4.6		5.3
Debt and preferred to total capital (%)	Debt and preferred to total capital (%)	21.3		22.7		Debt and preferred to total capital (%)	19.8		22.7

Arch MI U.S. is required to maintain compliance with the GSEs requirements, known as the Private Mortgage Insurer Eligibility Requirements or “PMIERs.” The financial requirements require an eligible mortgage insurer’s available assets, which generally include only the most liquid assets of

an insurer, to meet or exceed “minimum required assets” as of each quarter end. Minimum required assets are calculated from PMIERs tables with several risk dimensions (including


~~ARCH CAPITAL~~			50			~~2023 FIRST QUARTER FORM 10-Q~~

~~Table of Contents~~

origination year, original loan-to-value and original credit score of performing loans, and the delinquency status of non-performing loans) and are subject to a minimum amount. Arch MI U.S. satisfied the PMIERs’ financial requirements with an estimated PMIER sufficiency ratio of ~~248%~~245% at ~~March 31,~~September 30, 2023, compared to 236% at December 31, 2022.

Arch Capital, through its subsidiaries, provides financial support to certain of its insurance subsidiaries and affiliates, through certain reinsurance arrangements beneficial to the ratings of such subsidiaries. Historically, our insurance, reinsurance and mortgage insurance subsidiaries have entered into separate reinsurance arrangements with Arch Re Bermuda covering individual lines of business.

GUARANTOR INFORMATION

The below table provides a description of our senior notes payable at ~~March 31,~~September 30, 2023:


	Interest		Principal		Carrying
Issuer/Due	(Fixed)		Amount		Amount
Arch Capital:
May 1, 2034	7.350	%	$	300	$	298
June 30, 2050	3.635	%	1,000		989
Arch-U.S.:
Nov. 1, 2043 (1)	5.144	%	500		495
Arch Finance:
Dec. 15, 2026 (1)	4.011	%	500		498
Dec. 15, 2046 (1)	5.031	%	450		446
Total			$	2,750	$	2,726

(1)Fully and unconditionally guaranteed by Arch Capital.

Our senior notes were issued by Arch Capital, Arch Capital Group (U.S.) Inc. (“Arch-U.S.”) and Arch Capital Finance LLC (“Arch Finance”). Arch-U.S. is a wholly-owned subsidiary of Arch Capital and Arch Finance is a wholly-owned finance subsidiary of Arch-U.S. Our 2034 senior notes and 2050 senior notes issued by Arch Capital are unsecured and unsubordinated obligations of Arch Capital and ranked equally with all of its existing and future unsecured and unsubordinated indebtedness. The 2043 senior notes issued by Arch-U.S. are unsecured and unsubordinated obligations of Arch-U.S. and Arch Capital and rank equally and ratably with the other unsecured and unsubordinated indebtedness of Arch-U.S. and Arch Capital. The 2026 senior notes and 2046 senior notes issued by Arch Finance are unsecured and unsubordinated obligations of Arch Finance and Arch Capital and rank equally and ratably with the other unsecured and unsubordinated indebtedness of Arch Finance and Arch Capital.


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Arch-U.S. and Arch Finance depend on their available cash resources, liquid investments and dividends or other distributions from their subsidiaries or affiliates to make payments, including the payment of debt service obligations and operating expenses they may incur.

The following tables present condensed financial information for Arch Capital (parent guarantor) and Arch-U.S. (subsidiary issuer):


		March 31, 2023				September 30, 2023
		Arch Capital		Arch-U.S.				Arch Capital		Arch-U.S.
Assets	Assets						Assets
Total investments	Total investments	$	9	$	79		Total investments	$	3	$	86
Cash	Cash	10		8			Cash	8		6

Investment in operating affiliates	Investment in operating affiliates	5		—			Investment in operating affiliates	4		—
Due from subsidiaries and affiliates	Due from subsidiaries and affiliates	2		—			Due from subsidiaries and affiliates	—		—

Other assets	Other assets	18		35			Other assets	21		32
Total assets	Total assets	$	44	$	122		Total assets	$	36	$	124

Liabilities	Liabilities						Liabilities

Senior notes	Senior notes	1,287		495			Senior notes	1,287		495

Due to subsidiaries and affiliates	Due to subsidiaries and affiliates	—		1,004			Due to subsidiaries and affiliates	—		1,018
Other liabilities	Other liabilities	42		42			Other liabilities	42		45
Total liabilities	Total liabilities	$	1,329	$	1,541		Total liabilities	$	1,329	$	1,558

Non-cumulative preferred shares	Non-cumulative preferred shares	$	830	—			Non-cumulative preferred shares	$	830	—


	December 31, 2022
		Arch Capital		Arch-U.S.
Assets
Total investments		$	7	$	79
Cash		11		10

Investment in operating affiliates		5		—
Due from subsidiaries and affiliates		2		—






Other assets		18		30
Total assets		$	43	$	119

Liabilities






Senior notes		1,287		495

Due to subsidiaries and affiliates		—		991
Other liabilities		37		37
Total liabilities		$	1,324	$	1,523

Non-cumulative preferred shares		$	830	—

Three Months Ended
March 31, 2023
Arch Capital Arch-U.S.
Revenues
Net investment income $ 1 $ 1
Total revenues 1 1
Expenses
Corporate expenses 28 4
Interest expense 15 19
Total expenses 43 23
Income (loss) before income taxes and income (loss) from operating affiliates (42) (22)
Income tax (expense) benefit — 6
Net income available to Arch (42) (16)
Preferred dividends (10) —
Net income (loss) available to Arch common shareholders $ (52) $ (16)


	Nine Months Ended

	September 30, 2023
	Arch Capital	Arch-U.S.
Revenues

Net investment income		$	2	$	3



Equity in net income (loss) of investments accounted for using the equity method		—		(3)

Total revenues		2		—

Expenses



Corporate expenses		67		8

Interest expense		44		57

Total expenses		111		65

Income (loss) before income taxes and income (loss) from operating affiliates		(109)		(65)
Income tax (expense) benefit		—		15

Income (loss) from operating affiliates		(1)		—


Net income available to Arch		(110)		(50)
Preferred dividends		(30)		—

Net income (loss) available to Arch common shareholders		$	(140)	$	(50)



			Year Ended
	December 31, 2022
		Arch Capital	Arch-U.S.

Revenues

Net investment income			2		1



Equity in net income (loss) of investments accounted for using the equity method			—		10

Total revenues			2		11

Expenses



Corporate expenses			86		13

Interest expense			59		48

Total expenses			145		61

Income (loss) before income taxes and income (loss) from operating affiliates			(143)		(50)
Income tax (expense) benefit			—		10

Income (loss) from operating affiliates			(1)		—


Net income available to Arch			(144)		(40)
Preferred dividends			(41)		—

Net income (loss) available to Arch common shareholders			$	(185)	$	(40)


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Year Ended
December 31, 2022
Arch Capital Arch-U.S.
Revenues
Net investment income 2 1
Equity in net income (loss) of investments accounted for using the equity method — 10
Total revenues 2 11
Expenses
Corporate expenses 86 13
Interest expense 59 48
Total expenses 145 61
Income (loss) before income taxes and income (loss) from operating affiliates (143) (50)
Income tax (expense) benefit — 10
Income (loss) from operating affiliates (1) —
Net income available to Arch (144) (40)
Preferred dividends (41) —
Net income (loss) available to Arch common shareholders $ (185) $ (40)

CATASTROPHIC ~~EVENTS~~ AND SEVERE ECONOMIC EVENTS

We have large aggregate exposures to natural and man-made catastrophic events, pandemic events like COVID-19 and severe economic events. Natural catastrophes can be caused by various events, including hurricanes, floods, windstorms, earthquakes, hailstorms, tornadoes, explosions, severe winter weather, fires, droughts and other natural disasters. Man-made catastrophic events may include acts of war, acts of terrorism and political instability. Catastrophes can also cause losses in non-property business such as mortgage insurance, workers’ compensation or general liability. In addition to the nature of property business, we believe that economic and geographic trends affecting insured property, including inflation, property value appreciation and geographic concentration, tend to generally increase the size of losses from catastrophic events over time.

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. We seek to limit the probable maximum pre-tax loss to a specific level for severe catastrophic events. Currently, we seek to limit our 1-in-250 year return period net probable maximum loss from a severe catastrophic event in any geographic zone to approximately 25% of tangible shareholders’ equity available to Arch (total shareholders’ equity available to Arch less goodwill and intangible assets). We reserve the right to change this threshold at any time.

Based on in-force exposure estimated as of ~~April~~October 1, 2023, our modeled peak zone catastrophe exposure was a windstorm affecting the ~~Northeastern U.S.~~Florida Tri-County regions, with a net probable maximum pre-tax loss of ~~$1.07~~$1.47 billion, followed by

windstorms affecting the Northeastern U.S. regions and the Gulf of Mexico ~~and the Florida Tri-County regions~~ with net probable maximum pre-tax losses of ~~$1.07~~$1.41 billion and ~~$1.05~~$1.35 billion, 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 ~~April~~October 1, 2023, our modeled peak zone earthquake exposure (San Francisco earthquake) represented approximately ~~64%~~57% of our peak zone catastrophe exposure, and our modeled peak zone international exposure (UK windstorm) was substantially less than both our peak zone windstorm and earthquake exposures.

We also have significant exposure to losses due to mortgage defaults resulting from severe economic events in the future. For our U.S. mortgage insurance business, we have developed a proprietary risk model (“Realistic Disaster Scenario” or “RDS”) that simulates the maximum loss resulting from a severe economic downturn impacting the housing market. The RDS models the collective impact of adverse conditions for key economic indicators, the most

significant of which is a decline in home prices. The RDS model projects paths of future home prices, unemployment rates, income levels and interest rates and assumes correlation across states and geographic regions. The resulting future performance of our in-force portfolio is then estimated under the economic stress scenario, reflecting loan and borrower information.

Currently, we seek to limit our modeled RDS loss from a severe economic event to approximately 25% of tangible shareholders’ equity available to Arch. We reserve the right to change this threshold at any time. Based on in-force exposure estimated as of ~~April~~October 1, 2023, our modeled RDS loss was approximately ~~13%~~10% of tangible shareholders’ equity available to Arch.

Net probable maximum loss estimates are net of expected reinsurance recoveries, before income tax and before excess reinsurance reinstatement premiums. RDS loss estimates are net of expected reinsurance recoveries and before income tax. Catastrophe 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 catastrophe loss estimates include clash estimates from other zones. Our catastrophe loss estimates and RDS loss estimates 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 pre-tax losses greater than 25% of our tangible shareholders’ equity from one or more catastrophic events or severe economic events due to several factors. These factors include 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


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application of such techniques or as a result of a decision to change the percentage of shareholders' equity exposed to a single catastrophic event or severe economic event. In addition, actual losses may 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—Catastrophic Events and Severe Economic Events” in our 2022 Form 10-K.


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MARKET SENSITIVE INSTRUMENTS AND RISK MANAGEMENT

In accordance with the SEC’s Financial Reporting Release No. 48, we performed a sensitivity analysis to determine the effects that market risk exposures could have on the future earnings, fair values or cash flows of our financial instruments as of ~~March 31,~~September 30, 2023. Market risk represents the risk of changes in the fair value of a financial instrument and is comprised of several components, including liquidity, basis and price risks.

An analysis of material changes in market risk exposures at ~~March 31,~~September 30, 2023 that affect the quantitative and qualitative disclosures presented in our 2022 Form 10-K (see section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Sensitive Instruments and Risk Management”) were as follows:

Investment Market Risk

Fixed Income Securities. We invest in interest rate sensitive securities, primarily debt securities. We consider the effect of interest rate movements on the fair value of our fixed maturities, short-term investments and certain of our other investments, equity securities and investment funds accounted for using the equity method which invest in fixed income securities (collectively, “Fixed Income Securities”) and the corresponding change in unrealized appreciation. As interest rates rise, the fair value of our Fixed Income Securities falls, and the converse is also true. Based on historical observations, there is a low probability that all interest rate yield curves would shift in the same direction at the same time. Furthermore, at times interest rate movements in certain credit sectors exhibit a much lower correlation to changes in U.S. Treasury yields. Accordingly, the actual effect of interest rate movements may differ materially from the amounts set forth in the following tables.

The following table summarizes the effect that an immediate, parallel shift in the interest rate yield curve would have had on our Fixed Income Securities:


(U.S. dollars in billions)	(U.S. dollars in billions)	Interest Rate Shift in Basis Points														(U.S. dollars in billions)	Interest Rate Shift in Basis Points
		-100			-50			—		+50			+100				-100			-50			—		+50			+100
March 31, 2023
September 30, 2023																September 30, 2023
Total fair value	Total fair value	$	28.6		$	28.2		$	27.8	$	27.4		$	27.0		Total fair value	$	31.2		$	30.7		$	30.3	$	29.8		$	29.4
Change from base	Change from base	2.9		%	1.4		%			(1.4)		%	(2.8)		%	Change from base	3.0		%	1.5		%			(1.5)		%	(2.9)		%
Change in unrealized value	Change in unrealized value	$	0.8		$	0.4				$	(0.4)		$	(0.8)		Change in unrealized value	$	0.9		$	0.5				$	(0.5)		$	(0.9)

December 31, 2022	December 31, 2022															December 31, 2022
Total fair value	Total fair value	$	27.2		$	26.8		$	26.4	$	26.0		$	25.7		Total fair value	$	27.2		$	26.8		$	26.4	$	26.0		$	25.7
Change from base	Change from base	2.9		%	1.4		%			(1.4)		%	(2.7)		%	Change from base	2.9		%	1.4		%			(1.4)		%	(2.7)		%
Change in unrealized value	Change in unrealized value	$	0.8		$	0.4				$	(0.4)		$	(0.7)		Change in unrealized value	$	0.8		$	0.4				$	(0.4)		$	(0.7)

In addition, we consider the effect of credit spread movements on the market value of our Fixed Income Securities and the corresponding change in unrealized value. As credit spreads widen, the fair value of our Fixed Income Securities falls, and the converse is also true. In periods where the spreads on our Fixed Income Securities are much higher than their historical average due to short-term market dislocations, a parallel shift in credit spread levels would result in a much more pronounced change in unrealized value.

The following table summarizes the effect that an immediate, parallel shift in credit spreads in a static interest rate environment would have had on our Fixed Income Securities:


(U.S. dollars in billions)	(U.S. dollars in billions)	Credit Spread Shift in Percentage Points														(U.S. dollars in billions)	Credit Spread Shift in Percentage Points
		-100			-50			—		+50			+100				-100			-50			—		+50			+100
March 31, 2023
September 30, 2023																September 30, 2023
Total fair value	Total fair value	$	29.3		$	28.5		$	27.8	$	27.1		$	26.4		Total fair value	$	31.5		$	30.9		$	30.3	$	29.7		$	29.0
Change from base	Change from base	5.2		%	2.6		%			(2.6)		%	(5.2)		%	Change from base	4.0		%	2.0		%			(2.0)		%	(4.0)		%
Change in unrealized value	Change in unrealized value	$	1.4		$	0.7				$	(0.7)		$	(1.4)		Change in unrealized value	$	1.2		$	0.6				$	(0.6)		$	(1.2)

December 31, 2022	December 31, 2022															December 31, 2022
Total fair value	Total fair value	$	27.5		$	26.9		$	26.4	$	25.9		$	25.3		Total fair value	$	27.5		$	26.9		$	26.4	$	25.9		$	25.3
Change from base	Change from base	4.1		%	2.0		%			(2.0)		%	(4.1)		%	Change from base	4.1		%	2.0		%			(2.0)		%	(4.1)		%
Change in unrealized value	Change in unrealized value	$	1.1		$	0.5				$	(0.5)		$	(1.1)		Change in unrealized value	$	1.1		$	0.5				$	(0.5)		$	(1.1)

Another method that attempts to measure portfolio risk is Value-at-Risk (“VaR”). VaR measures the worst expected loss under normal market conditions over a specific time interval at a given confidence level. The 1-year 95th percentile parametric VaR reported herein estimates that 95% of the time, the portfolio loss in a one-year horizon would be less than or equal to the calculated number, stated as a percentage of the measured portfolio’s initial value. The VaR is a variance-covariance based estimate, based on linear sensitivities of a portfolio to a broad set of systematic market risk factors and idiosyncratic risk factors mapped to the portfolio exposures. The relationships between the risk factors are estimated using historical data, and the most


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recent data points are generally given more weight. As of ~~March 31,~~September 30, 2023, our portfolio’s 95th percentile VaR was estimated to be ~~8.8%~~7.4%, compared to an estimated 8.8% at December 31, 2022. In periods where the volatility of the risk factors mapped to our portfolio’s exposures is higher due to market conditions, the resulting VaR is higher than in other periods.

Equity Securities. At ~~March 31,~~September 30, 2023 and December 31, 2022, the fair value of our investments in equity securities and certain investments accounted for using the equity method with underlying equity strategies totaled ~~$783~~$766 million and $791 million, respectively. These investments are exposed to price risk, which is the potential loss arising from decreases in fair value. An immediate hypothetical 10% decline in the value of each position would reduce the fair


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value of such investments by approximately ~~$78~~$77 million and $79 million at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively, and would have decreased book value per share by approximately $0.21 and $0.21, respectively. An immediate hypothetical 10% increase in the value of each position would increase the fair value of such investments by approximately ~~$78~~$77 million and $79 million at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively, and would have increased book value per share by approximately $0.21 and $0.21, respectively.

Investment-Related Derivatives. At ~~March 31,~~September 30, 2023, the notional value of all derivative instruments (excluding foreign currency forward contracts which are included in the foreign currency exchange risk analysis below) was ~~$3.4~~$4.7 billion, compared to $6.6 billion at December 31, 2022. If the underlying exposure of each investment-related derivative held at ~~March 31,~~September 30, 2023 depreciated by 100 basis points, it would have resulted in a reduction in net income of approximately ~~$34~~$47 million, and a decrease in book value per share of approximately ~~$0.09~~$0.13 per share, compared to $66 million and $0.18 per share, respectively, on investment-related derivatives held at December 31, 2022. If the underlying exposure of each investment-related derivative held at ~~March 31,~~September 30, 2023 appreciated by 100 basis points, it would have resulted in an increase in net income of approximately ~~$34~~$47 million, and an increase in book value per share of approximately ~~$0.09~~$0.13 per share, compared to $66 million and $0.18 per share, respectively, on investment-related derivatives held at December 31, 2022. See note 9, “Derivative Instruments,” to our consolidated financial statements for additional disclosures concerning derivatives.

For further discussion on investment activity, please refer to “Financial Condition—Investable Assets.”

Foreign Currency Exchange Risk

Foreign currency rate risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Through our subsidiaries and branches located in various foreign countries, we conduct our insurance and reinsurance operations in a variety of local currencies other than the U.S. Dollar. We generally hold investments in foreign currencies which are intended to mitigate our exposure to foreign currency fluctuations in our net insurance liabilities. We may also utilize foreign currency forward contracts and currency options as part of our investment strategy. See note 9, “Derivative Instruments,” to our consolidated financial statements for additional information.

The following table provides a summary of our net foreign currency exchange exposures, as well as foreign currency derivatives in place to manage these exposures:


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Net assets (liabilities), denominated in foreign currencies, excluding shareholders’ equity and derivatives	Net assets (liabilities), denominated in foreign currencies, excluding shareholders’ equity and derivatives	$	(384)	$	(396)	Net assets (liabilities), denominated in foreign currencies, excluding shareholders’ equity and derivatives	$	(409)	$	(396)
Shareholders’ equity denominated in foreign currencies (1)	Shareholders’ equity denominated in foreign currencies (1)	1,079		1,056		Shareholders’ equity denominated in foreign currencies (1)	1,084		1,056
Net foreign currency forward contracts outstanding (2)	Net foreign currency forward contracts outstanding (2)	237		312		Net foreign currency forward contracts outstanding (2)	4		312
Net exposures denominated in foreign currencies	Net exposures denominated in foreign currencies	$	932	$	972	Net exposures denominated in foreign currencies	$	679	$	972

Pre-tax impact of a hypothetical 10% appreciation of the U.S. Dollar against foreign currencies:	Pre-tax impact of a hypothetical 10% appreciation of the U.S. Dollar against foreign currencies:					Pre-tax impact of a hypothetical 10% appreciation of the U.S. Dollar against foreign currencies:
Shareholders’ equity	Shareholders’ equity	$	(93)	$	(97)	Shareholders’ equity	$	(68)	$	(97)
Book value per share	Book value per share	$	(0.25)	$	(0.26)	Book value per share	$	(0.18)	$	(0.26)

Pre-tax impact of a hypothetical 10% decline of the U.S. Dollar against foreign currencies:	Pre-tax impact of a hypothetical 10% decline of the U.S. Dollar against foreign currencies:					Pre-tax impact of a hypothetical 10% decline of the U.S. Dollar against foreign currencies:
Shareholders’ equity	Shareholders’ equity	$	93	$	97	Shareholders’ equity	$	68	$	97
Book value per share	Book value per share	$	0.25	$	0.26	Book value per share	$	0.18	$	0.26

(1) Represents capital contributions held in the foreign currencies of our operating units.

(2) Represents the net notional value of outstanding foreign currency forward contracts.

Although we generally attempt to match the currency of our projected liabilities with investments in the same currencies, from time to time we may elect to over or underweight one or more currencies, which could increase our exposure to foreign currency fluctuations and increase the volatility of our shareholders’ equity. Historical observations indicate a low probability that all foreign currency exchange rates would shift against the U.S. Dollar in the same direction and at the same time and, accordingly, the actual effect of foreign currency rate movements may differ materially from the amounts set forth above. For further discussion on foreign exchange activity, please refer to “Results of Operations.”


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Effects of Inflation

General economic inflation has increased in recent quarters and may continue to remain at elevated levels for an extended period of time. The potential also exists, after a catastrophe loss or pandemic events like COVID-19, for the development of inflationary pressures in a local economy. This may have a material effect on the adequacy of our reserves for losses and loss adjustment expenses, especially in longer-tailed lines of business, and on the market value of our investment portfolio through rising interest rates. The anticipated effects of inflation are considered in our pricing models, reserving processes and exposure management, across all lines of business and types of loss including natural catastrophe events. The actual effects of inflation on our results cannot be accurately known until claims are ultimately settled and will vary by the specific type of inflation affecting each line of business.

~~OTHER FINANCIAL INFORMATION~~


ARCH CAPITAL			62			2023 THIRD QUARTER FORM 10-Q

~~The consolidated financial statements as~~

Table of March 31, 2023 have been reviewed by PricewaterhouseCoopers LLP, the registrant's independent public accountants, whose report is included as an exhibit to this filing. The report of PricewaterhouseCoopers LLP states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act of 1933.Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to the information appearing above under the subheading “Market Sensitive Instruments and Risk Management” under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which information is hereby incorporated by reference.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the filing of this Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation, as of the end of the period covered by this report, for the purposes set forth in the applicable rules under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of and during the period covered by this report with respect to information being recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms and with respect to timely communication to them and other members of management responsible for preparing periodic reports of all material information required to be disclosed in this report as it relates to Arch Capital and its consolidated subsidiaries.

We continue to enhance our operating procedures and internal controls to effectively support our business and our regulatory and reporting requirements. Our management does not expect that our disclosure controls or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving

its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. As a result of the inherent limitations in a cost-effective control system, misstatement due to error or fraud may occur and not be detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the disclosure controls and procedures are met.


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Changes in Internal Controls Over Financial Reporting

There have been no changes in internal control over financial reporting that occurred during the quarter ended ~~March 31,~~September 30, 2023 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We, in common with the insurance industry in general, are subject to litigation and arbitration in the normal course of our business. As of ~~March 31,~~September 30, 2023, we were not a party to any litigation or arbitration which is expected by management to have a material adverse effect on our results of operations and financial condition and liquidity.

ITEM 1A. RISK FACTORS

There were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.


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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer’s Repurchases of Equity Securities

The following table summarizes our purchases of common shares for the 2023 ~~first~~third quarter:

Period Total Number of Shares
Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of
Publicly Announced
Plans or Programs Approximate Dollar
Value of Shares that
May Yet be Purchased
Under the Plan or
Programs ($000’s) (2)
1/1/2023-1/31/2023 14,081 $ 63.10 — $ 1,000,000
2/1/2023-2/28/2023 298,391 69.00 — $ 1,000,000
3/1/2023-3/31/2023 51,982 66.70 — $ 1,000,000
Total 364,454 $ 68.44 —


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan or Programs ($000’s) (2)
7/1/2023-7/31/2023	6,197	$	77.42	—	$	1,000,000
8/1/2023-8/31/2023	480	76.55		—	$	1,000,000
9/1/2023-9/30/2023	636	77.23		—	$	1,000,000
Total	7,313	$	77.35	—

(1)This column represents (in whole shares) open market share repurchases, including an aggregate of ~~14,081, 298,391~~6,197, 480 and ~~51,982~~636 shares repurchased by Arch Capital during ~~January, February~~July, August and ~~March,~~September, respectively, other than through publicly announced plans or programs. We repurchased these shares from employees in order to facilitate the payment of withholding taxes on restricted shares granted and the exercise of stock appreciation rights, in each case at their fair value as determined by reference to the closing price of our common shares on the day the restricted shares vested or the stock appreciation rights were exercised.

(2)This column represents the remaining approximate dollar amount available at the end of each applicable period under Arch Capital’s $1.0 billion share repurchase authorization, authorized by the Board of Directors of ACGL on December 19, 2022. Repurchases may be effected from time to time in open market or privately negotiated transactions through December 31, 2024.


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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~In accordance with Section 10a(i)(2)~~During the three months ended September 30, 2023, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities ~~and~~ Exchange Act of ~~1934, as amended, we~~1934) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are ~~responsible for disclosing non-audit services to be provided by our independent auditor, PricewaterhouseCoopers LLP, which are approved by~~defined in Item 408 of Regulation S-K of the ~~Audit Committee~~Securities Act of our board of directors. During the 2023 first quarter, the Audit Committee approved engagements of PricewaterhouseCoopers LLP for permitted non-audit services, which consisted of tax consulting services, tax compliance services and other accounting consulting services.1933).


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ITEM 6. EXHIBITS

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

Original Number

Date Filed

Filed Herewith

1510.1(1)

~~Accountants’ Awareness Letter (regarding unaudited interim financial information)~~Fourth Amended and Restated Credit Agreement, dated as of August 23, 2023, by and among Arch Capital Group Ltd., certain of its subsidiaries, Bank of America, N.A., as Administrative Agent, and the lenders party thereto.

10.2(1)

Letter of Credit Facility Agreement, dated as of September 27, 2023, by and between Arch Reinsurance Ltd., as the borrower and Lloyds Bank Corporate Markets plc, as the L/C Issuer.

8-K

10.1

October 2, 2023

10.3(1)

Amendment No. 3 and Joinder to Letter of Credit Facility Agreement, dated as of October 25, 2023, by and between Arch Reinsurance Ltd., as the borrower and Lloyds Bank Corporate Markets plc, as the Administrative Agent and L/C Agent.

8-K

10.1

October 30, 2023

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~10.1~~

~~Third Amendment to Third Amended and Restated ACGL Incentive Compensation Plan~~

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

(1) Certain schedules and exhibits have been omitted pursuant to Item 601(b)(10) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits to the SEC upon request.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						ARCH CAPITAL GROUP LTD.
						(REGISTRANT)

						/s/ Marc Grandisson
Date: ~~May 4,~~November 9, 2023						Marc Grandisson
						Chief Executive Officer (Principal Executive Officer)

						/s/ François Morin
Date: ~~May 4,~~November 9, 2023						François Morin
						Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) and Treasurer


ARCH CAPITAL			5966			2023 ~~FIRST~~THIRD QUARTER FORM 10-Q


	Three Months Ended
	March 31, 2022
	Insurance			Reinsurance			Mortgage			Total

Gross premiums written (1)	$	1,720		$	1,719		$	365		$	3,801
Premiums ceded	(513)			(580)			(77)			(1,167)
Net premiums written	1,207			1,139			288			2,634
Change in unearned premiums	(180)			(335)			2			(513)
Net premiums earned	1,027			804			290			2,121
Other underwriting income (loss)	—			1			5			6
Losses and loss adjustment expenses	(601)			(454)			54			(1,001)
Acquisition expenses	(196)			(172)			(10)			(378)
Other operating expenses	(167)			(70)			(53)			(290)
Underwriting income (loss)	$	63		$	109		$	286		458

Net investment income										80
Net realized gains (losses)										(292)

Equity in net income (loss) of investment funds accounted for using the equity method										36
Other income (loss)										(9)
Corporate expenses (2)										(32)
Transaction costs and other (2)										—
Amortization of intangible assets										(27)
Interest expense										(33)
Net foreign exchange gains (losses)										4
Income (loss) before income taxes and income (loss) from operating affiliates										185
Income tax (expense) benefit										(12)
Income (loss) from operating affiliates										25
Net income (loss)										198
Amounts attributable to redeemable noncontrolling interests										(2)

Net income (loss) available to Arch										196
Preferred dividends										(10)

Net income (loss) available to Arch common shareholders										$	186

Underwriting Ratios
Loss ratio	58.5		%	56.5		%	(18.9)		%	47.2		%
Acquisition expense ratio	19.1		%	21.4		%	3.6		%	17.8		%
Other operating expense ratio	16.2		%	8.7		%	18.4		%	13.7		%
Combined ratio	93.8		%	86.6		%	3.1		%	78.7		%

Goodwill and intangible assets	$	249		$	184		$	493		$	926