Bermuda
|
Not applicable
|
(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)
|
Title of each class
|
Name of each exchange on which registered
|
Common Shares, $0.0033 par value per share
|
NASDAQ Stock Market (Common Shares)
|
6.75% Non-Cumulative Preferred Shares, Series C, $0.01 par value per share
|
New York Stock Exchange
|
5.25% Non-Cumulative Preferred Shares, Series E, $0.01 par value per share
|
NASDAQ Stock Market
|
5.45% Non-Cumulative Preferred Shares, Series F, $0.01 par value per share
|
NASDAQ Stock Market
|
DOCUMENTS INCORPORATED BY REFERENCE
|
|
Portions of Part III and Part IV
incorporate by reference our definitive proxy statement for the 2018 annual meeting of shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A before May 1, 2018.
|
|
|
|
ARCH CAPITAL GROUP LTD.
|
||
TABLE OF CONTENTS
|
||
|
|
|
Item
|
|
Page
|
|
|
|
PART I
|
||
|
|
|
ITEM 1.
|
||
ITEM 1A.
|
||
ITEM 1B.
|
||
ITEM 2.
|
||
ITEM 3.
|
||
ITEM 4.
|
||
|
|
|
PART II
|
||
|
|
|
ITEM 5.
|
||
ITEM 6.
|
||
ITEM 7.
|
||
ITEM 7A.
|
||
ITEM 8.
|
||
ITEM 9.
|
||
ITEM 9A.
|
||
ITEM 9B.
|
||
|
|
|
PART III
|
||
|
|
|
ITEM 10.
|
||
ITEM 11.
|
||
ITEM 12.
|
||
ITEM 13.
|
||
ITEM 14.
|
||
|
|
|
PART IV
|
||
|
|
|
ITEM 15.
|
•
|
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;
|
•
|
the integration of United Guaranty Corporation and any other businesses 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) and conditions specific to the reinsurance and insurance markets (including the length and magnitude of the current “soft” market) 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 of key personnel;
|
•
|
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, which for a relatively new insurance and reinsurance company, like our company, are even more difficult to make than those made in a mature company since relatively limited historical information has been reported to us through December 31, 2017;
|
•
|
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 and reinsurance subsidiaries;
|
•
|
severity and/or frequency of losses;
|
•
|
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;
|
•
|
acts of terrorism, political unrest and other hostilities or other unforecasted and unpredictable events;
|
•
|
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 new or continued sovereign debt concerns in Eurozone countries 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;
|
•
|
losses relating to aviation business and business produced by a certain managing underwriting agency for which we may be liable to the purchaser of our prior reinsurance business or to others in connection with the May 5, 2000 asset sale described in our periodic reports filed with the SEC;
|
•
|
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;
|
•
|
statutory or regulatory developments, including as to tax policy and 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 recently enacted Tax Cuts and Jobs Act of 2017; 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 this Annual Report on Form 10-K, as well as the other factors set forth in Arch Capital Group Ltd.’s other documents on file with the SEC, and management’s response to any of the aforementioned factors.
|
ITEM 1.
|
BUSINESS
|
ARCH CAPITAL
|
4
|
2017 FORM 10-K
|
ARCH CAPITAL
|
5
|
2017 FORM 10-K
|
•
|
Capitalize on profitable underwriting opportunities
. Our insurance group believes that its experienced management and underwriting teams are positioned to locate and identify business with attractive risk/reward characteristics. As profitable underwriting opportunities are identified, our insurance group will continue to seek to make additions to its product portfolio in order to take advantage of market trends. This includes adding underwriting and other professionals with specific expertise in specialty lines of insurance.
|
•
|
Centralize responsibility for underwriting
. Our insurance group consists of a range of product lines. The underwriting executive in charge of each product line oversees all aspects of the underwriting product development process within such product line. Our insurance group believes that centralizing the control of such product line with the respective underwriting executive allows for close management of underwriting and creates clear accountability for results. Our U.S. insurance group has four regional offices, and the executive in charge of each region is primarily responsible for all aspects of the marketing and distribution of our insurance group’s products, including the management of broker and other producer relationships in such executive’s respective region. In our non-U.S. offices, a similar philosophy is observed, with responsibility for the management of each product line residing with the senior underwriting executive in charge of such product line.
|
•
|
Maintain a disciplined underwriting philosophy
. Our insurance group’s underwriting philosophy is to generate an underwriting profit through prudent risk selection and proper pricing. Our insurance group believes that the key to this approach is adherence to uniform underwriting standards across all types of business. Our insurance
|
•
|
Focus on providing superior claims management
. Our insurance group believes that claims handling is an integral component of credibility in the market for insurance products. Therefore, our insurance group believes that its ability to handle claims expeditiously and satisfactorily is a key to its success. Our insurance group employs experienced claims professionals and also utilizes experienced external claims managers (third party administrators) where appropriate.
|
•
|
Predominantly utilize a brokerage distribution system
. Our insurance group believes that by utilizing a brokerage distribution system, consisting of select international, national and regional brokers, both wholesale and retail, it can efficiently access a broad customer base while maintaining underwriting control and discipline.
|
•
|
Grow strategic partnerships in stable and niche areas.
Our insurance group aims to build more integrated long-term alignment with strategic partners offering superior access to niche opportunities, quality scalable businesses, or lines with reliable defensive qualities.
|
•
|
Construction and national accounts:
primary and excess casualty coverages to middle and large accounts in the construction industry and a wide range of products for middle and large national accounts, specializing in loss sensitive primary casualty insurance programs (including large deductible, self-insured retention and retrospectively rated programs).
|
•
|
Excess and surplus casualty:
primary and excess casualty insurance coverages, including middle market energy business, and contract binding, which primarily provides casualty coverage through a network of appointed agents to small and medium risks.
|
•
|
Lenders products:
collateral protection, debt cancellation and service contract reimbursement products to banks, credit unions, automotive dealerships and original equipment manufacturers and other specialty programs that pertain to automotive lending and leasing.
|
•
|
Professional lines:
directors’ and officers’ liability, errors and omissions liability, employment practices liability, fiduciary liability, crime, professional indemnity and other financial related coverages for corporate, private equity, venture capital, real estate investment trust, limited partnership, financial institution and not-for-profit clients of all sizes and medical professional and general liability
|
ARCH CAPITAL
|
6
|
2017 FORM 10-K
|
•
|
Programs:
primarily package policies, underwriting workers’ compensation and umbrella liability business in support of desirable package programs, targeting program managers with unique expertise and niche products offering general liability, commercial automobile, inland marine and property business with minimal catastrophe exposure.
|
•
|
Property, energy, marine and aviation:
primary and excess general property insurance coverages, including catastrophe-exposed property coverage, for commercial clients. Coverages for marine include hull, war, specie and liability. Aviation and stand-alone terrorism are also offered.
|
•
|
Travel, accident and health:
specialty travel and accident and related insurance products for individual, group travelers, travel agents and suppliers, as well as accident and health, which provides accident, disability and medical plan insurance coverages for employer groups, medical plan members, students and other participant groups.
|
•
|
Other:
includes alternative market risks (including captive insurance programs), excess workers’ compensation and employer’s liability insurance coverages for qualified self-insured groups, associations and trusts, statutory Defense Base Act workers compensation and employers liability, and contract and commercial surety coverages, including contract bonds (payment and performance bonds) primarily for medium and large contractors and commercial surety bonds for Fortune 1000 companies and smaller transaction business programs.
|
•
|
risk selection;
|
•
|
desired attachment point;
|
•
|
limits and retention management;
|
•
|
due diligence, including financial condition, claims history, management, and product, class and territorial exposure;
|
•
|
underwriting authority and appropriate approvals; and
|
•
|
collaborative decision making.
|
|
Year Ended December 31,
|
||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||||||||
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|||||||
Professional lines
|
$
|
452,748
|
|
|
21
|
|
$
|
440,149
|
|
|
21
|
|
$
|
434,024
|
|
|
21
|
Programs
|
386,618
|
|
|
18
|
|
330,322
|
|
|
16
|
|
423,157
|
|
|
21
|
|||
Construction and national accounts
|
327,648
|
|
|
15
|
|
328,997
|
|
|
16
|
|
299,463
|
|
|
15
|
|||
Travel, accident and health
|
247,738
|
|
|
12
|
|
224,380
|
|
|
11
|
|
160,132
|
|
|
8
|
|||
Excess and surplus casualty
|
179,511
|
|
|
9
|
|
214,863
|
|
|
10
|
|
204,856
|
|
|
10
|
|||
Property, energy, marine and aviation
|
172,240
|
|
|
8
|
|
175,376
|
|
|
9
|
|
203,186
|
|
|
10
|
|||
Lenders products
|
96,867
|
|
|
5
|
|
105,650
|
|
|
5
|
|
106,916
|
|
|
5
|
|||
Other
|
259,070
|
|
|
12
|
|
252,544
|
|
|
12
|
|
213,937
|
|
|
11
|
|||
Total
|
$
|
2,122,440
|
|
|
100
|
|
$
|
2,072,281
|
|
|
100
|
|
$
|
2,045,671
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
By client location
|
|
|
|
|
|
|
|
|
|
|
|
||||||
United States
|
$
|
1,744,560
|
|
|
82
|
|
$
|
1,718,415
|
|
|
83
|
|
$
|
1,710,918
|
|
|
84
|
Europe
|
185,365
|
|
|
9
|
|
173,423
|
|
|
8
|
|
187,020
|
|
|
9
|
|||
Asia and Pacific
|
100,062
|
|
|
5
|
|
93,752
|
|
|
5
|
|
64,638
|
|
|
3
|
|||
Other
|
92,453
|
|
|
4
|
|
86,691
|
|
|
4
|
|
83,095
|
|
|
4
|
|||
Total
|
$
|
2,122,440
|
|
|
100
|
|
$
|
2,072,281
|
|
|
100
|
|
$
|
2,045,671
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
By underwriting location
|
|
|
|
|
|
|
|
|
|
|
|
||||||
United States
|
$
|
1,715,467
|
|
|
81
|
|
$
|
1,690,208
|
|
|
82
|
|
$
|
1,673,867
|
|
|
82
|
Europe
|
344,836
|
|
|
16
|
|
327,034
|
|
|
16
|
|
317,998
|
|
|
16
|
|||
Other
|
62,137
|
|
|
3
|
|
55,039
|
|
|
3
|
|
53,806
|
|
|
3
|
|||
Total
|
$
|
2,122,440
|
|
|
100
|
|
$
|
2,072,281
|
|
|
100
|
|
$
|
2,045,671
|
|
|
100
|
ARCH CAPITAL
|
7
|
2017 FORM 10-K
|
•
|
Actively select and manage risks
. Our reinsurance group only underwrites business that meets certain profitability criteria, and it emphasizes disciplined underwriting over premium growth. To this end, our reinsurance group maintains centralized control over reinsurance underwriting guidelines and authorities.
|
•
|
Maintain flexibility and respond to changing market conditions
. Our reinsurance group’s organizational structure and philosophy allows it to take advantage of
|
ARCH CAPITAL
|
8
|
2017 FORM 10-K
|
•
|
Maintain a low cost structure
. Our reinsurance group believes that maintaining tight control over its staffing level and operating primarily as a broker market reinsurer permits it to maintain low operating costs relative to its capital and premiums.
|
•
|
Casualty:
provides coverage to ceding company clients on third party liability and workers’ compensation exposures from ceding company clients, primarily on a treaty basis.
|
•
|
Marine and aviation:
provides coverage for energy, hull, cargo, specie, liability and transit, and aviation business, including airline and general aviation risks. Business written may also include space business, which includes coverages for satellite assembly, launch and operation for commercial space programs.
|
•
|
Other specialty:
provides coverage to ceding company clients for proportional motor and other lines, including surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and political risk.
|
•
|
Property catastrophe:
provides protection for most catastrophic losses that are covered in the underlying policies written by reinsureds, including hurricane, earthquake, flood, tornado, hail and fire, and coverage for other perils on a case-by-case basis. Property catastrophe reinsurance provides coverage on an excess of loss basis when aggregate losses and loss adjustment expense from a single occurrence or aggregation of losses from a covered peril exceed the retention specified in the contract.
|
•
|
Property excluding property catastrophe:
provides coverage for both personal lines and commercial property exposures and principally covers buildings, structures, equipment and contents. The primary perils in this business include fire, explosion, collapse, riot, vandalism, wind, tornado, flood and earthquake. Business is assumed on both a proportional and excess of loss basis. In addition, facultative business is written which focuses on individual commercial property risks on an excess of loss basis.
|
•
|
Other.
includes life reinsurance business on both a proportional and non-proportional basis, casualty clash business and, in limited instances, non-traditional business which is intended to provide insurers with risk management solutions that complement traditional reinsurance.
|
•
|
adequacy of underlying rates for a specific class of business and territory;
|
ARCH CAPITAL
|
9
|
2017 FORM 10-K
|
•
|
the reputation of the proposed cedent and the likelihood of establishing a long-term relationship with the cedent, the geographic area in which the cedent does business, together with its catastrophe exposures, and our aggregate exposures in that area;
|
•
|
historical loss data for the cedent and, where available, for the industry as a whole in the relevant regions, in order to compare the cedent’s historical loss experience to industry averages;
|
•
|
projections of future loss frequency and severity; and
|
•
|
the perceived financial strength of the cedent.
|
|
Year Ended December 31,
|
||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||||||||
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|||||||
Other specialty
|
$
|
459,213
|
|
|
39
|
|
$
|
348,852
|
|
|
33
|
|
$
|
298,794
|
|
|
29
|
Casualty
|
340,429
|
|
|
29
|
|
305,252
|
|
|
29
|
|
303,093
|
|
|
29
|
|||
Property excluding property catastrophe
|
243,693
|
|
|
21
|
|
267,548
|
|
|
25
|
|
280,511
|
|
|
27
|
|||
Property catastrophe
|
70,155
|
|
|
6
|
|
75,789
|
|
|
7
|
|
91,620
|
|
|
9
|
|||
Marine and aviation
|
32,759
|
|
|
3
|
|
37,790
|
|
|
4
|
|
50,834
|
|
|
5
|
|||
Other
|
28,225
|
|
|
2
|
|
18,625
|
|
|
2
|
|
13,556
|
|
|
1
|
|||
Total
|
$
|
1,174,474
|
|
|
100
|
|
$
|
1,053,856
|
|
|
100
|
|
$
|
1,038,408
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
By client location
|
|
|
|
|
|
|
|
|
|
|
|
||||||
United States
|
$
|
439,229
|
|
|
37
|
|
$
|
448,763
|
|
|
43
|
|
$
|
470,484
|
|
|
45
|
Europe
|
466,750
|
|
|
40
|
|
337,168
|
|
|
32
|
|
307,165
|
|
|
30
|
|||
Asia and Pacific
|
86,133
|
|
|
7
|
|
111,821
|
|
|
11
|
|
94,609
|
|
|
9
|
|||
Bermuda
|
89,004
|
|
|
8
|
|
74,347
|
|
|
7
|
|
80,888
|
|
|
8
|
|||
Other
|
93,358
|
|
|
8
|
|
81,757
|
|
|
8
|
|
85,262
|
|
|
8
|
|||
Total
|
$
|
1,174,474
|
|
|
100
|
|
$
|
1,053,856
|
|
|
100
|
|
$
|
1,038,408
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
By underwriting location
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Bermuda
|
$
|
350,681
|
|
|
30
|
|
$
|
277,625
|
|
|
26
|
|
$
|
281,985
|
|
|
27
|
United States
|
399,379
|
|
|
34
|
|
432,683
|
|
|
41
|
|
439,190
|
|
|
42
|
|||
Europe and other
|
424,414
|
|
|
36
|
|
343,548
|
|
|
33
|
|
317,233
|
|
|
31
|
|||
Total
|
$
|
1,174,474
|
|
|
100
|
|
$
|
1,053,856
|
|
|
100
|
|
$
|
1,038,408
|
|
|
100
|
ARCH CAPITAL
|
10
|
2017 FORM 10-K
|
•
|
Capitalize on profitable underwriting opportunities
. Our mortgage group believes that its experienced management, analytics and underwriting teams are positioned to identify and evaluate business with attractive risk/reward characteristics.
|
•
|
Maintain a disciplined credit risk philosophy
. Our mortgage group’s credit risk philosophy is to generate underwriting profit through disciplined credit risk analysis and proper pricing. Our mortgage group believes that the key to this approach is maintaining discipline across all phases of the applicable housing and mortgage lending cycles.
|
•
|
Provide superior and innovative mortgage products and services
. Our mortgage group believes that it can leverage its financial capacity, experience across insurance product lines, and its analytics and technology to provide innovative products and superior service. The mortgage group believes that its delivery of tailored products that meet the specific, evolving needs of its customers will be a key to the group’s success.
|
•
|
Maintain our position as a leading provider of U.S. mortgage insurance business
. Prior to our 2014 acquisition, Arch Mortgage Insurance Company was the leading provider of mortgage insurance products and services to credit unions in the U.S. We broadened its customer base into national and regional banks and mortgage originators while maintaining and increasing its share of the mortgage insurance credit union market. With the acquisition of UGC, a leading provider of mortgage insurance products and services to national and regional banks and mortgage originators, we are the leading provider of U.S. mortgage insurance.
|
•
|
Direct mortgage insurance in the United States
. Under their monoline insurance licenses, each of Arch’s eligible mortgage insurers may only offer private mortgage insurance covering first lien, one-to-four family residential mortgages. Nearly all of our mortgage insurance written provides first loss protection on loans originated by mortgage lenders and sold to the GSEs. Each GSE’s Congressional charter generally prohibits it from purchasing a mortgage where the principal balance of the mortgage is in excess of 80% of the value of the property securing the mortgage unless the excess portion of the mortgage is protected against default by lender recourse, participation or by a qualified insurer. As a result, such
|
ARCH CAPITAL
|
11
|
2017 FORM 10-K
|
•
|
Direct mortgage insurance in Europe and other countries where we identify profitable underwriting opportunities
. Since 2011, Arch MI Europe has offered mortgage insurance to European mortgage lenders. Arch MI Europe’s mortgage insurance is primarily purchased by European mortgage lenders in order to reduce lenders’ credit risk and regulatory capital requirements associated with the insured mortgages. In certain European countries, lenders purchase mortgage insurance to facilitate regulatory compliance with respect to high loan-to-value residential lending. Arch MI Europe offers mortgage insurance on both a “flow” basis to cover new originations and through structured transactions to cover one or more portfolios of previously originated residential loans. In addition, with our acquisition of Arch MI Asia on July 1, 2017, we will focus on expanding origination opportunities for lenders in Hong Kong and throughout Asia.
|
•
|
Reinsurance
. Arch Re Bermuda provides quota share reinsurance covering U.S. and international mortgages. Such amounts include a quota share reinsurance agreement with PMI pursuant to which it agreed to provide 100% quota share indemnity reinsurance to PMI for all certificates of insurance that were issued by PMI from January 1, 2009 through December 31, 2011 that were not in default as of an agreed upon effective date. Other than this quota share, no PMI legacy mortgage insurance exposures were assumed.
|
•
|
Other credit risk-sharing products
. In addition to providing traditional mortgage insurance and reinsurance, we offer various credit risk-sharing products to government agencies and mortgage lenders. The GSEs have reduced their exposure to mortgage risk and continue to shift more of it to the private sector, creating opportunities for insurers to assume additional mortgage risk. In 2013, Arch Re Bermuda became the first (re)insurance company to participate in Freddie Mac’s program to transfer certain credit risk in its single-family portfolio to the private sector. Since that time, Arch Re Bermuda and its affiliates have regularly participated in both Fannie Mae and Freddie Mac risk sharing programs.
|
•
|
ability and willingness of the mortgage borrower to pay its obligations under the mortgage loan being insured;
|
•
|
characteristics of the mortgage loan being insured and value of the collateral securing the mortgage loan;
|
•
|
financial strength, quality of operations and reputation of the lender originating the mortgage loan;
|
•
|
expected future home price movements which vary by geography;
|
•
|
projections of future loss frequency and severity; and
|
•
|
adequacy of premium rates.
|
|
Year Ended December 31,
|
||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||||||||
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|||||||
By client location
|
|
|
|
|
|
|
|
|
|
|
|
||||||
United States
|
$
|
1,005,437
|
|
|
90
|
|
$
|
280,509
|
|
|
72
|
|
$
|
193,617
|
|
|
72
|
Other
|
105,905
|
|
|
10
|
|
110,957
|
|
|
28
|
|
73,876
|
|
|
28
|
|||
Total
|
$
|
1,111,342
|
|
|
100
|
|
$
|
391,466
|
|
|
100
|
|
$
|
267,493
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
By underwriting location
|
|
|
|
|
|
|
|
|
|
|
|
||||||
United States
|
$
|
903,329
|
|
|
81
|
|
$
|
186,826
|
|
|
48
|
|
$
|
125,317
|
|
|
47
|
Other
|
208,013
|
|
|
19
|
|
204,640
|
|
|
52
|
|
142,176
|
|
|
53
|
|||
Total
|
$
|
1,111,342
|
|
|
100
|
|
$
|
391,466
|
|
|
100
|
|
$
|
267,493
|
|
|
100
|
ARCH CAPITAL
|
12
|
2017 FORM 10-K
|
•
|
paying the insurance coverage percentage specified in the certificate of insurance multiplied by the loss amount;
|
•
|
in the event the property is sold pursuant to an approved prearranged sale, paying the lesser of (i) 100% of the loss amount less the proceeds of sale of the property, or (ii) the specified coverage percentage multiplied by the loss amount; or
|
•
|
paying 100% of the loss amount in exchange for the insured’s conveyance to us of good and marketable title to the property, with us then selling the property for our own account.
|
ARCH CAPITAL
|
13
|
2017 FORM 10-K
|
ARCH CAPITAL
|
14
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Loss Reserves at beginning of year
|
$
|
10,200,960
|
|
|
$
|
9,125,250
|
|
|
$
|
9,036,448
|
|
Unpaid losses and LAE recoverable
|
2,083,575
|
|
|
1,828,837
|
|
|
1,778,303
|
|
|||
Net Loss Reserves at beginning of year
|
8,117,385
|
|
|
7,296,413
|
|
|
7,258,145
|
|
|||
|
|
|
|
|
|
||||||
Net incurred losses and LAE relating to losses occurring in:
|
|
|
|
|
|
||||||
Current year
|
3,205,428
|
|
|
2,455,563
|
|
|
2,336,026
|
|
|||
Prior years
|
(237,982
|
)
|
|
(269,964
|
)
|
|
(285,123
|
)
|
|||
Total net incurred losses and LAE
|
2,967,446
|
|
|
2,185,599
|
|
|
2,050,903
|
|
|||
|
|
|
|
|
|
||||||
Net Loss Reserves of acquired
business (1)
|
—
|
|
|
551,096
|
|
|
262
|
|
|||
|
|
|
|
|
|
||||||
Foreign exchange losses (gains)
|
186,963
|
|
|
(102,367
|
)
|
|
(143,653
|
)
|
|||
|
|
|
|
|
|
||||||
Net paid losses and LAE relating to losses occurring in:
|
|
|
|
|
|
||||||
Current year
|
(505,424
|
)
|
|
(445,700
|
)
|
|
(454,179
|
)
|
|||
Prior years
|
(1,847,488
|
)
|
|
(1,367,656
|
)
|
|
(1,415,065
|
)
|
|||
Total net paid losses and LAE
|
(2,352,912
|
)
|
|
(1,813,356
|
)
|
|
(1,869,244
|
)
|
|||
|
|
|
|
|
|
||||||
Net Loss Reserves at end of year
|
8,918,882
|
|
|
8,117,385
|
|
|
7,296,413
|
|
|||
Unpaid losses and LAE recoverable
|
2,464,910
|
|
|
2,083,575
|
|
|
1,828,837
|
|
|||
Loss Reserves at end of year
|
$
|
11,383,792
|
|
|
$
|
10,200,960
|
|
|
$
|
9,125,250
|
|
(1)
|
2016 amount relates to our acquisition of UGC.
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||
|
Amount
|
|
%
|
|
Amount
|
|
%
|
||||||
Investable assets (1) (2):
|
|
|
|
|
|
|
|
||||||
Fixed maturities available for sale, at fair value
|
$
|
13,876,003
|
|
|
70.4
|
|
|
$
|
13,426,577
|
|
|
72.0
|
|
Fixed maturities, at fair value (3)
|
465,822
|
|
|
2.4
|
|
|
364,856
|
|
|
2.0
|
|
||
Fixed maturities pledged under securities lending agreements, at fair value
|
456,388
|
|
|
2.3
|
|
|
730,341
|
|
|
3.9
|
|
||
Total fixed maturities
|
14,798,213
|
|
|
75.1
|
|
|
14,521,774
|
|
|
77.9
|
|
||
|
|
|
|
|
|
|
|
||||||
Equity securities available for sale, at fair value
|
495,804
|
|
|
2.5
|
|
|
518,041
|
|
|
2.8
|
|
||
Equity securities, at fair value (3)
|
71,707
|
|
|
0.4
|
|
|
25,328
|
|
|
0.1
|
|
||
Equity securities pledged under securities lending agreements, at fair value
|
8,529
|
|
|
—
|
|
|
14,639
|
|
|
0.1
|
|
||
Total equity securities
|
576,040
|
|
|
2.9
|
|
|
558,008
|
|
|
3.0
|
|
||
|
|
|
|
|
|
|
|
||||||
Other investments available for sale, at fair value
|
264,989
|
|
|
1.3
|
|
|
167,970
|
|
|
0.9
|
|
||
Other investments, at fair value (3)
|
1,211,971
|
|
|
6.1
|
|
|
1,108,871
|
|
|
6.0
|
|
||
Total other investments
|
1,476,960
|
|
|
7.4
|
|
|
1,276,841
|
|
|
6.9
|
|
||
|
|
|
|
|
|
|
|
||||||
Investments accounted for using the equity method (4)
|
1,041,322
|
|
|
5.3
|
|
|
811,273
|
|
|
4.4
|
|
||
|
|
|
|
|
|
|
|
||||||
Short-term investments available for sale, at fair value
|
1,469,042
|
|
|
7.5
|
|
|
612,005
|
|
|
3.3
|
|
||
Short-term investments, at fair value (3)
|
40,671
|
|
|
0.2
|
|
|
64,542
|
|
|
0.3
|
|
||
Total short-term investments
|
1,509,713
|
|
|
7.7
|
|
|
676,547
|
|
|
3.6
|
|
||
|
|
|
|
|
|
|
|
||||||
Cash
|
551,696
|
|
|
2.8
|
|
|
768,049
|
|
|
4.1
|
|
||
|
|
|
|
|
|
|
|
||||||
Securities transactions entered into but not settled at the balance sheet date
|
(237,523
|
)
|
|
(1.2
|
)
|
|
23,697
|
|
|
0.1
|
|
||
Total investable assets held by Arch
|
$
|
19,716,421
|
|
|
100.0
|
|
|
$
|
18,636,189
|
|
|
100.0
|
|
ARCH CAPITAL
|
15
|
2017 FORM 10-K
|
(1)
|
The table above excludes investable assets attributable to the ‘other’ segment. Such amounts are summarized as follows:
|
(U.S. dollars in thousands)
|
December 31,
2017 |
|
December 31,
2016 |
||||
Investable assets in ‘other’ segment:
|
|
|
|
||||
Cash
|
$
|
54,503
|
|
|
$
|
74,893
|
|
Investments accounted for using the fair value option
|
2,426,066
|
|
|
1,857,623
|
|
||
Securities sold but not yet purchased
|
(34,375
|
)
|
|
(33,157
|
)
|
||
Securities transactions entered into but not settled at the balance sheet date
|
(6,127
|
)
|
|
(41,596
|
)
|
||
Total investable assets included in ‘other’ segment
|
$
|
2,440,067
|
|
|
$
|
1,857,763
|
|
(2)
|
This table excludes the collateral received and reinvested and includes the securities pledged under securities lending agreements, at fair value.
|
(3)
|
Represents investments which are carried at fair value under the fair value option and reflected as “investments accounted for using the fair value option” on our balance sheet. Changes in the carrying value of such investments are recorded in net realized gains or losses.
|
(4)
|
Changes in the carrying value of investment funds accounted for using the equity method are recorded as “equity in net income (loss) of investment funds accounted for using the equity method” rather than as an unrealized gain or loss component of accumulated other comprehensive income.
|
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||
Rating (1)
|
|
Fair Value
|
|
%
|
|
Fair Value
|
|
%
|
||||||
U.S. government and government agencies (2)
|
|
$
|
3,771,835
|
|
|
25.5
|
|
|
$
|
3,210,899
|
|
|
22.1
|
|
AAA
|
|
4,080,808
|
|
|
27.6
|
|
|
3,918,739
|
|
|
27.0
|
|
||
AA
|
|
2,440,864
|
|
|
16.5
|
|
|
3,148,226
|
|
|
21.7
|
|
||
A
|
|
2,470,936
|
|
|
16.7
|
|
|
2,338,834
|
|
|
16.1
|
|
||
BBB
|
|
1,157,136
|
|
|
7.8
|
|
|
1,203,942
|
|
|
8.3
|
|
||
BB
|
|
313,286
|
|
|
2.1
|
|
|
226,321
|
|
|
1.6
|
|
||
B
|
|
254,011
|
|
|
1.7
|
|
|
156,405
|
|
|
1.1
|
|
||
Lower than B
|
|
77,543
|
|
|
0.5
|
|
|
90,833
|
|
|
0.6
|
|
||
Not rated
|
|
231,794
|
|
|
1.6
|
|
|
227,574
|
|
|
1.6
|
|
||
Total
|
|
$
|
14,798,213
|
|
|
100.0
|
|
|
$
|
14,521,774
|
|
|
100.0
|
|
(1)
|
For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.
|
(2)
|
Includes U.S. government-sponsored agency mortgage backed securities and agency commercial mortgage backed securities.
|
(1)
|
Our investment expenses were approximately
0.30%
,
0.34%
and
0.35%
, respectively, of average invested assets in
2017
,
2016
and
2015
.
|
ARCH CAPITAL
|
16
|
2017 FORM 10-K
|
ARCH CAPITAL
|
17
|
2017 FORM 10-K
|
ARCH CAPITAL
|
18
|
2017 FORM 10-K
|
ARCH CAPITAL
|
19
|
2017 FORM 10-K
|
ARCH CAPITAL
|
20
|
2017 FORM 10-K
|
ARCH CAPITAL
|
21
|
2017 FORM 10-K
|
ARCH CAPITAL
|
22
|
2017 FORM 10-K
|
ARCH CAPITAL
|
23
|
2017 FORM 10-K
|
ARCH CAPITAL
|
24
|
2017 FORM 10-K
|
ARCH CAPITAL
|
25
|
2017 FORM 10-K
|
ARCH CAPITAL
|
26
|
2017 FORM 10-K
|
ARCH CAPITAL
|
27
|
2017 FORM 10-K
|
•
|
an individual who is a citizen or resident of the U.S.;
|
•
|
a corporation or entity treated as a corporation created or organized under the laws of the U.S., any state thereof, or the District of Columbia;
|
•
|
an estate the income of which is subject to U.S. federal income taxation regardless of its source;
|
•
|
a trust if either (i) a court within the U.S. is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust or (ii) the trust has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes; or
|
•
|
any other person or entity that is treated for U.S. federal income tax purposes as if it were one of the foregoing.
|
ARCH CAPITAL
|
28
|
2017 FORM 10-K
|
ARCH CAPITAL
|
29
|
2017 FORM 10-K
|
•
|
For any year in which Arch Capital is not a PFIC, no income tax consequences would result.
|
•
|
For any year in which Arch Capital is a PFIC, the shareholder would include in its taxable income a proportionate share of the net ordinary income and net capital gains of Arch Capital and certain of its non-U.S. subsidiaries.
|
ARCH CAPITAL
|
30
|
2017 FORM 10-K
|
ITEM 1A.
|
RISK FACTORS
|
ARCH CAPITAL
|
31
|
2017 FORM 10-K
|
ARCH CAPITAL
|
32
|
2017 FORM 10-K
|
ARCH CAPITAL
|
33
|
2017 FORM 10-K
|
ARCH CAPITAL
|
34
|
2017 FORM 10-K
|
ARCH CAPITAL
|
35
|
2017 FORM 10-K
|
ARCH CAPITAL
|
36
|
2017 FORM 10-K
|
ARCH CAPITAL
|
37
|
2017 FORM 10-K
|
ARCH CAPITAL
|
38
|
2017 FORM 10-K
|
ARCH CAPITAL
|
39
|
2017 FORM 10-K
|
ARCH CAPITAL
|
40
|
2017 FORM 10-K
|
ARCH CAPITAL
|
41
|
2017 FORM 10-K
|
ARCH CAPITAL
|
42
|
2017 FORM 10-K
|
ARCH CAPITAL
|
43
|
2017 FORM 10-K
|
ARCH CAPITAL
|
44
|
2017 FORM 10-K
|
ARCH CAPITAL
|
45
|
2017 FORM 10-K
|
ARCH CAPITAL
|
46
|
2017 FORM 10-K
|
ARCH CAPITAL
|
47
|
2017 FORM 10-K
|
•
|
whether dividends have been declared and are likely to be declared on any series of our preferred shares from time to time;
|
•
|
our creditworthiness, financial condition, performance and prospects;
|
•
|
whether the ratings on any series of our preferred shares provided by any ratings agency have changed;
|
•
|
the market for similar securities; and
|
•
|
economic, financial, geopolitical, regulatory or judicial events that affect us and/or the insurance or financial markets generally.
|
ARCH CAPITAL
|
48
|
2017 FORM 10-K
|
ARCH CAPITAL
|
49
|
2017 FORM 10-K
|
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
ITEM 2.
|
PROPERTIES
|
ARCH CAPITAL
|
50
|
2017 FORM 10-K
|
ITEM 3.
|
LEGAL PROCEEDINGS
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
|
2017
|
|
2016
|
||||||||||||
|
High
|
|
Low
|
|
High
|
|
Low
|
||||||||
1st Quarter
|
|
$96.05
|
|
|
|
$84.21
|
|
|
|
$71.67
|
|
|
|
$59.83
|
|
2nd Quarter
|
|
$99.21
|
|
|
|
$92.00
|
|
|
|
$73.12
|
|
|
|
$67.50
|
|
3rd Quarter
|
|
$99.47
|
|
|
|
$90.52
|
|
|
|
$85.16
|
|
|
|
$68.85
|
|
4th Quarter
|
|
$102.60
|
|
|
|
$89.30
|
|
|
|
$88.41
|
|
|
|
$76.47
|
|
|
|
Issuer Purchases of Common Shares
|
|||||||||||
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 (2)
|
|||||
10/1/2017-10/31/2017
|
|
2,320
|
|
$
|
99.76
|
|
|
—
|
|
|
$
|
446,501
|
|
11/1/2017-11/30/2017
|
|
217,501
|
|
$
|
95.36
|
|
|
—
|
|
|
$
|
446,501
|
|
12/1/2017-12/31/2017
|
|
34,473
|
|
$
|
90.65
|
|
|
—
|
|
|
$
|
446,501
|
|
Total
|
|
254,294
|
|
$
|
94.76
|
|
|
—
|
|
|
$
|
446,501
|
|
(1)
|
Includes repurchases by Arch Capital of shares, from time to time, from employees in order to facilitate the payment of withholding taxes on restricted shares granted and the exercise of stock appreciation rights. We purchased these shares at their fair market 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)
|
Remaining amount available at
December 31, 2017
under Arch Capital’s share repurchase authorization, under which repurchases may be effected from time to time in open market or privately negotiated transactions through December 31, 2019.
|
ARCH CAPITAL
|
51
|
2017 FORM 10-K
|
|
|
Base Period
|
|
|
|
|
|
||||||||||||
|
Company Name/Index
|
12/31/12
|
12/31/13
|
|
12/31/14
|
|
12/31/15
|
|
12/31/16
|
|
12/31/17
|
|
|||||||
l
|
Arch Capital Group Ltd.
|
|
$100.00
|
|
|
$135.60
|
|
|
$134.26
|
|
|
$158.45
|
|
|
$196.02
|
|
|
$206.20
|
|
n
|
S&P 500 Index
|
|
$100.00
|
|
|
$132.39
|
|
|
$150.51
|
|
|
$152.59
|
|
|
$170.84
|
|
|
$208.14
|
|
p
|
S&P 500 Property & Casualty Insurance Index
|
|
$100.00
|
|
|
$138.29
|
|
|
$160.06
|
|
|
$175.32
|
|
|
$202.85
|
|
|
$248.26
|
|
(1)
|
Stock price appreciation plus dividends.
|
(2)
|
The above graph assumes that the value of the investment was $100 on December 31, 2012.
|
(3)
|
This graph is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any filing by us under the Securities Act of 1933 or the Securities and Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
|
ARCH CAPITAL
|
52
|
2017 FORM 10-K
|
ITEM 6.
|
SELECTED FINANCIAL DATA
|
(U.S. dollars in thousands except share data)
|
Year Ended December 31,
|
||||||||||||||||||
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|||||||||||
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Net premiums written
|
$
|
4,961,373
|
|
|
$
|
4,031,391
|
|
|
$
|
3,817,531
|
|
|
$
|
3,891,938
|
|
|
$
|
3,351,367
|
|
Net premiums earned
|
4,844,532
|
|
|
3,884,822
|
|
|
3,733,905
|
|
|
3,593,748
|
|
|
3,145,952
|
|
|||||
Net investment income
|
470,872
|
|
|
366,742
|
|
|
348,090
|
|
|
302,585
|
|
|
267,219
|
|
|||||
Equity in net income (loss) of investment funds accounted for using the equity method
|
142,286
|
|
|
48,475
|
|
|
25,455
|
|
|
19,883
|
|
|
35,701
|
|
|||||
Net realized gains (losses)
|
149,141
|
|
|
137,586
|
|
|
(185,842
|
)
|
|
102,917
|
|
|
74,018
|
|
|||||
Total revenues
|
5,627,375
|
|
|
4,463,556
|
|
|
3,936,590
|
|
|
3,988,873
|
|
|
3,526,157
|
|
|||||
Income before income taxes
|
757,277
|
|
|
855,552
|
|
|
567,194
|
|
|
844,247
|
|
|
734,770
|
|
|||||
Net income
|
$
|
629,709
|
|
|
$
|
824,178
|
|
|
$
|
526,582
|
|
|
$
|
821,260
|
|
|
$
|
703,119
|
|
Net (income) loss attributable to noncontrolling interests
|
(10,431
|
)
|
|
(131,440
|
)
|
|
11,156
|
|
|
13,095
|
|
|
—
|
|
|||||
Net income available to Arch
|
619,278
|
|
|
692,738
|
|
|
537,738
|
|
|
834,355
|
|
|
703,119
|
|
|||||
Preferred dividends
|
(46,041
|
)
|
|
(28,070
|
)
|
|
(21,938
|
)
|
|
(21,938
|
)
|
|
(21,938
|
)
|
|||||
Loss on redemption of preferred shares
|
(6,735
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Net income available to Arch common shareholders
|
$
|
566,502
|
|
|
$
|
664,668
|
|
|
$
|
515,800
|
|
|
$
|
812,417
|
|
|
$
|
681,181
|
|
Diluted net income per share
|
$
|
4.07
|
|
|
$
|
5.33
|
|
|
$
|
4.09
|
|
|
$
|
6.02
|
|
|
$
|
5.02
|
|
Cash dividends per share
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
After-tax operating income available to Arch common shareholders (1)
|
$
|
447,155
|
|
|
$
|
577,444
|
|
|
$
|
565,199
|
|
|
$
|
617,312
|
|
|
$
|
589,103
|
|
After-tax operating income available to Arch common shareholders per share — diluted (1)
|
$
|
3.21
|
|
|
$
|
4.63
|
|
|
$
|
4.48
|
|
|
$
|
4.58
|
|
|
$
|
4.34
|
|
After-tax return on average common equity (2)
|
7.2
|
%
|
|
10.9
|
%
|
|
8.9
|
%
|
|
14.7
|
%
|
|
13.5
|
%
|
|||||
After-tax operating return on average common equity (2)
|
5.7
|
%
|
|
9.4
|
%
|
|
9.7
|
%
|
|
11.2
|
%
|
|
11.7
|
%
|
|||||
Weighted average common shares and common share equivalents outstanding — diluted (2)
|
139,261,675
|
|
|
124,717,493
|
|
|
126,038,743
|
|
|
134,922,322
|
|
|
135,777,183
|
|
(1)
|
After-tax operating income available to Arch common shareholders is defined as net income available to Arch common shareholders, excluding net realized gains or losses, net impairment losses included in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, UGC transaction costs and other and loss on redemption of preferred shares, net of income taxes. The presentation of after-tax operating income available to Arch common shareholders is a “non-GAAP financial measure” as defined in Regulation G. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—General—Comment on Non-GAAP Financial Measures” for further details.
|
(2)
|
Equals after-tax operating income available to Arch common shareholders divided by the average of beginning and ending common shareholders’ equity for each period presented. For the 2016 period, the return on average common shareholders’ equity reflects the weighted impact of the $1.10 billion of convertible non-voting common equivalent preferred shares, which were issued on December 31, 2016 as part of the UGC acquisition.
|
ARCH CAPITAL
|
53
|
2017 FORM 10-K
|
(U.S. dollars in thousands except share data)
|
December 31,
|
||||||||||||||||||
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|||||||||||
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Total investable assets (1)
|
$
|
22,156,488
|
|
|
$
|
20,493,952
|
|
|
$
|
16,340,938
|
|
|
$
|
15,762,730
|
|
|
$
|
14,049,525
|
|
Premiums receivable
|
1,135,249
|
|
|
1,072,435
|
|
|
983,443
|
|
|
948,695
|
|
|
753,924
|
|
|||||
Reinsurance recoverables on unpaid and paid losses and loss adjustment expenses
|
2,540,143
|
|
|
2,114,138
|
|
|
1,867,373
|
|
|
1,812,845
|
|
|
1,804,330
|
|
|||||
Total assets
|
32,051,658
|
|
|
29,372,109
|
|
|
23,138,931
|
|
|
21,967,742
|
|
|
19,518,715
|
|
|||||
Reserves for losses and loss adjustment expenses:
|
|
|
|
|
|
|
|
|
|
||||||||||
Before unpaid losses and loss adjustment expenses recoverable
|
11,383,792
|
|
|
10,200,960
|
|
|
9,125,250
|
|
|
9,036,448
|
|
|
8,824,696
|
|
|||||
Net of unpaid losses and loss adjustment expenses recoverable
|
8,918,882
|
|
|
8,117,385
|
|
|
7,296,413
|
|
|
7,258,145
|
|
|
7,076,446
|
|
|||||
Unearned premiums:
|
|
|
|
|
|
|
|
|
|
||||||||||
Before ceded unearned premiums
|
3,622,314
|
|
|
3,406,870
|
|
|
2,333,932
|
|
|
2,231,578
|
|
|
1,896,365
|
|
|||||
Net of ceded unearned premiums
|
2,695,703
|
|
|
2,547,303
|
|
|
1,906,323
|
|
|
1,854,500
|
|
|
1,568,022
|
|
|||||
Senior notes
|
1,732,884
|
|
|
1,732,258
|
|
|
791,306
|
|
|
791,141
|
|
|
790,960
|
|
|||||
Revolving credit agreement borrowings
|
816,132
|
|
|
756,650
|
|
|
530,434
|
|
|
100,000
|
|
|
100,000
|
|
|||||
Total liabilities
|
21,805,723
|
|
|
20,060,984
|
|
|
16,028,376
|
|
|
14,887,435
|
|
|
13,909,558
|
|
|||||
Total shareholders’ equity
|
10,040,013
|
|
|
9,105,572
|
|
|
6,905,373
|
|
|
6,860,795
|
|
|
5,609,157
|
|
|||||
Total shareholders' equity available to Arch
|
9,196,602
|
|
|
8,253,718
|
|
|
6,166,542
|
|
|
6,091,714
|
|
|
5,609,157
|
|
|||||
Preferred shareholders' equity
|
872,555
|
|
|
772,555
|
|
|
325,000
|
|
|
325,000
|
|
|
325,000
|
|
|||||
Common shareholders' equity available to Arch
|
$
|
8,324,047
|
|
|
$
|
7,481,163
|
|
|
$
|
5,841,542
|
|
|
$
|
5,766,714
|
|
|
$
|
5,284,157
|
|
Common shares and common share equivalents outstanding, net of treasury shares (2)
|
136,652,139
|
|
|
135,550,337
|
|
|
122,627,783
|
|
|
127,367,934
|
|
|
133,674,884
|
|
|||||
Book value per share (2) (3)
|
$
|
60.91
|
|
|
$
|
55.19
|
|
|
$
|
47.64
|
|
|
$
|
45.28
|
|
|
$
|
39.53
|
|
(1)
|
This table excludes the collateral received and reinvested and includes the securities pledged under securities lending agreements, at fair value.
|
(2)
|
Reflects the impact of outstanding convertible non-voting common equivalent preferred shares which were issued on December 31, 2016 as part of the UGC acquisition.
|
(3)
|
Excludes the effects of stock options and restricted stock units.
|
ARCH CAPITAL
|
54
|
2017 FORM 10-K
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
ARCH CAPITAL
|
55
|
2017 FORM 10-K
|
|
Arch
Portfolio (1)
|
|
Benchmark
Return
|
||
Pre-tax total return (before investment expenses):
|
|
|
|
||
Year Ended December 31, 2017
|
5.87
|
%
|
|
4.74
|
%
|
Year Ended December 31, 2016
|
2.07
|
%
|
|
2.13
|
%
|
Year Ended December 31, 2015
|
0.41
|
%
|
|
-0.38
|
%
|
(1)
|
Our investment expenses were approximately
0.30%
,
0.34%
and
0.35%
, respectively, of average invested assets in
2017
,
2016
and
2015
.
|
ARCH CAPITAL
|
56
|
2017 FORM 10-K
|
|
%
|
|
BoAML 1-10 Year U.S. Corporate & All Yankees, A - AAA Rated Index
|
20.00
|
%
|
BoAML 1-10 Year U.S. Municipal Securities Index
|
17.00
|
|
BoAML 1-5 Year U.S. Treasury Index
|
13.00
|
|
BoAML 3-5 Year Fixed Rate Asset Backed Securities Index
|
7.00
|
|
BoAML 5-10 Year U.S. Treasury Index
|
5.00
|
|
Barclays CMBS Investment Grade, AAA Rated Index
|
5.00
|
|
MSCI All Country World Gross Total Return Index
|
5.00
|
|
BoAML German Government Index
|
4.50
|
|
BoAML U.S. Mortgage Backed Securities Index
|
4.00
|
|
BoAML 1-5 Year U.K. Gilt Index
|
3.00
|
|
Hedge Fund Research HFRX Fixed Income Credit Index
|
2.50
|
|
Hedge Fund Research HFRX Equal Weighted Strategies
|
2.50
|
|
BoAML U.S. High Yield Constrained Index
|
2.50
|
|
BoAML 1-5 Year Australian Governments Index
|
2.50
|
|
S&P Leveraged Loan Index
|
2.50
|
|
BoAML 0-3 Month U.S. Treasury Bill Index
|
2.00
|
|
BoAML 1-5 Year Canada Government Index
|
1.50
|
|
BoAML 20+ Year Canada Government Index
|
0.50
|
|
Total
|
100.00
|
%
|
ARCH CAPITAL
|
57
|
2017 FORM 10-K
|
ARCH CAPITAL
|
58
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Net income available to Arch common shareholders
|
$
|
566,502
|
|
|
$
|
664,668
|
|
|
$
|
515,800
|
|
Net realized (gains) losses
|
(148,836
|
)
|
|
(77,081
|
)
|
|
108,690
|
|
|||
Net impairment losses recognized in earnings
|
7,138
|
|
|
30,442
|
|
|
20,116
|
|
|||
Equity in net (income) loss of investment funds accounted for using the equity method
|
(142,286
|
)
|
|
(48,475
|
)
|
|
(25,456
|
)
|
|||
Net foreign exchange (gains) losses
|
113,613
|
|
|
(31,987
|
)
|
|
(63,011
|
)
|
|||
UGC transaction costs and other
|
22,150
|
|
|
41,729
|
|
|
—
|
|
|||
Loss on redemption of preferred shares
|
6,735
|
|
|
—
|
|
|
—
|
|
|||
Income tax expense (benefit) (1)
|
22,139
|
|
|
(1,852
|
)
|
|
9,060
|
|
|||
After-tax operating income available to Arch common shareholders
|
$
|
447,155
|
|
|
$
|
577,444
|
|
|
$
|
565,199
|
|
|
|
|
|
|
|
||||||
Beginning common shareholders’ equity
|
$
|
7,481,163
|
|
|
$
|
5,841,542
|
|
|
$
|
5,766,714
|
|
Ending common
shareholders’ equity
|
8,324,047
|
|
|
7,481,163
|
|
|
5,841,542
|
|
|||
Average common shareholders’ equity (2)
|
$
|
7,902,605
|
|
|
$
|
6,113,718
|
|
|
$
|
5,804,128
|
|
|
|
|
|
|
|
||||||
Annualized return on average common equity % (2)
|
7.2
|
|
|
10.9
|
|
|
8.9
|
|
|||
Annualized operating return on average common equity % (2)
|
5.7
|
|
|
9.4
|
|
|
9.7
|
|
(1)
|
Income tax on net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, UGC transaction costs and other and loss on redemption of preferred shares reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.
|
(2)
|
2016 period reflects the weighted impact of the $1.10 billion of convertible non-voting common equivalent preferred shares issued on December 31, 2016 as part of the UGC acquisition.
|
|
Year Ended December 31,
|
|||||||||
|
2017
|
|
2016
|
|
% Change
|
|||||
Gross premiums written
|
$
|
3,081,086
|
|
|
$
|
3,027,049
|
|
|
1.8
|
|
Premiums ceded
|
(958,646
|
)
|
|
(954,768
|
)
|
|
|
|||
Net premiums written
|
2,122,440
|
|
|
2,072,281
|
|
|
2.4
|
|
||
Change in unearned premiums
|
(9,422
|
)
|
|
1,623
|
|
|
|
|||
Net premiums earned
|
2,113,018
|
|
|
2,073,904
|
|
|
1.9
|
|
||
Losses and loss adjustment expenses
|
(1,622,444
|
)
|
|
(1,359,313
|
)
|
|
|
|||
Acquisition expenses
|
(323,639
|
)
|
|
(304,050
|
)
|
|
|
|||
Other operating expenses
|
(359,524
|
)
|
|
(350,260
|
)
|
|
|
|||
Underwriting income (loss)
|
$
|
(192,589
|
)
|
|
$
|
60,281
|
|
|
(419.5
|
)
|
|
|
|
|
|
|
|||||
Underwriting Ratios
|
|
|
|
|
% Point Change
|
|||||
Loss ratio
|
76.8
|
%
|
|
65.5
|
%
|
|
11.3
|
|
||
Acquisition expense ratio
|
15.3
|
%
|
|
14.7
|
%
|
|
0.6
|
|
||
Other operating expense ratio
|
17.0
|
%
|
|
16.9
|
%
|
|
0.1
|
|
||
Combined ratio
|
109.1
|
%
|
|
97.1
|
%
|
|
12.0
|
|
ARCH CAPITAL
|
59
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
|||||||||
|
2016
|
|
2015
|
|
% Change
|
|||||
Gross premiums written
|
$
|
3,027,049
|
|
|
$
|
2,944,018
|
|
|
2.8
|
|
Premiums ceded
|
(954,768
|
)
|
|
(898,347
|
)
|
|
|
|||
Net premiums written
|
2,072,281
|
|
|
2,045,671
|
|
|
1.3
|
|
||
Change in unearned premiums
|
1,623
|
|
|
(863
|
)
|
|
|
|||
Net premiums earned
|
2,073,904
|
|
|
2,044,808
|
|
|
1.4
|
|
||
Other underwriting income
|
—
|
|
|
1,993
|
|
|
|
|||
Losses and loss adjustment expenses
|
(1,359,313
|
)
|
|
(1,292,647
|
)
|
|
|
|||
Acquisition expenses
|
(304,050
|
)
|
|
(296,040
|
)
|
|
|
|||
Other operating expenses
|
(350,260
|
)
|
|
(354,416
|
)
|
|
|
|||
Underwriting income
|
$
|
60,281
|
|
|
$
|
103,698
|
|
|
(41.9
|
)
|
|
|
|
|
|
|
|||||
Underwriting Ratios
|
|
|
|
|
% Point Change
|
|||||
Loss ratio
|
65.5
|
%
|
|
63.2
|
%
|
|
2.3
|
|
||
Acquisition expense ratio
|
14.7
|
%
|
|
14.5
|
%
|
|
0.2
|
|
||
Other operating expense ratio
|
16.9
|
%
|
|
17.3
|
%
|
|
(0.4
|
)
|
||
Combined ratio
|
97.1
|
%
|
|
95.0
|
%
|
|
2.1
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
||||||||
|
Amount
|
|
%
|
|
Amount
|
|
%
|
||||
Professional lines
|
$
|
452,748
|
|
|
21.3
|
|
$
|
440,149
|
|
|
21.2
|
Programs
|
386,618
|
|
|
18.2
|
|
330,322
|
|
|
15.9
|
||
Construction and national accounts
|
327,648
|
|
|
15.4
|
|
328,997
|
|
|
15.9
|
||
Travel, accident and health
|
247,738
|
|
|
11.7
|
|
224,380
|
|
|
10.8
|
||
Excess and surplus casualty
|
179,511
|
|
|
8.5
|
|
214,863
|
|
|
10.4
|
||
Property, energy, marine and aviation
|
172,240
|
|
|
8.1
|
|
175,376
|
|
|
8.5
|
||
Lenders products
|
96,867
|
|
|
4.6
|
|
105,650
|
|
|
5.1
|
||
Other
|
259,070
|
|
|
12.2
|
|
252,544
|
|
|
12.2
|
||
Total
|
$
|
2,122,440
|
|
|
100.0
|
|
$
|
2,072,281
|
|
|
100.0
|
ARCH CAPITAL
|
60
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
||||||||
|
Amount
|
|
%
|
|
Amount
|
|
%
|
||||
Professional lines
|
$
|
440,149
|
|
|
21.2
|
|
$
|
434,024
|
|
|
21.2
|
Programs
|
330,322
|
|
|
15.9
|
|
423,157
|
|
|
20.7
|
||
Construction and national accounts
|
328,997
|
|
|
15.9
|
|
299,463
|
|
|
14.6
|
||
Travel, accident and health
|
224,380
|
|
|
10.8
|
|
160,132
|
|
|
7.8
|
||
Excess and surplus casualty
|
214,863
|
|
|
10.4
|
|
204,856
|
|
|
10.0
|
||
Property, energy, marine and aviation
|
175,376
|
|
|
8.5
|
|
203,186
|
|
|
9.9
|
||
Lenders products
|
105,650
|
|
|
5.1
|
|
106,916
|
|
|
5.2
|
||
Other
|
252,544
|
|
|
12.2
|
|
213,937
|
|
|
10.5
|
||
Total
|
$
|
2,072,281
|
|
|
100.0
|
|
$
|
2,045,671
|
|
|
100.0
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
||||||||
|
Amount
|
|
%
|
|
Amount
|
|
%
|
||||
Professional lines
|
$
|
444,137
|
|
|
21.0
|
|
$
|
431,391
|
|
|
20.8
|
Programs
|
364,639
|
|
|
17.3
|
|
357,715
|
|
|
17.2
|
||
Construction and national accounts
|
324,517
|
|
|
15.4
|
|
322,072
|
|
|
15.5
|
||
Travel, accident and health
|
257,358
|
|
|
12.2
|
|
219,169
|
|
|
10.6
|
||
Excess and surplus casualty
|
195,154
|
|
|
9.2
|
|
219,046
|
|
|
10.6
|
||
Property, energy, marine and aviation
|
173,779
|
|
|
8.2
|
|
188,938
|
|
|
9.1
|
||
Lenders products
|
97,043
|
|
|
4.6
|
|
98,517
|
|
|
4.8
|
||
Other
|
256,391
|
|
|
12.1
|
|
237,056
|
|
|
11.4
|
||
Total
|
$
|
2,113,018
|
|
|
100.0
|
|
$
|
2,073,904
|
|
|
100.0
|
|
Year Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
||||||||
|
Amount
|
|
%
|
|
Amount
|
|
%
|
||||
Professional lines
|
$
|
431,391
|
|
|
20.8
|
|
$
|
424,968
|
|
|
20.8
|
Programs
|
357,715
|
|
|
17.2
|
|
446,512
|
|
|
21.8
|
||
Construction and national accounts
|
322,072
|
|
|
15.5
|
|
296,828
|
|
|
14.5
|
||
Travel, accident and health
|
219,169
|
|
|
10.6
|
|
153,578
|
|
|
7.5
|
||
Excess and surplus casualty
|
219,046
|
|
|
10.6
|
|
208,091
|
|
|
10.2
|
||
Property, energy, marine and aviation
|
188,938
|
|
|
9.1
|
|
216,127
|
|
|
10.6
|
||
Lenders products
|
98,517
|
|
|
4.8
|
|
90,906
|
|
|
4.4
|
||
Other
|
237,056
|
|
|
11.4
|
|
207,798
|
|
|
10.2
|
||
Total
|
$
|
2,073,904
|
|
|
100.0
|
|
$
|
2,044,808
|
|
|
100.0
|
|
Year Ended December 31,
|
|||||||
|
2017
|
|
2016
|
|
2015
|
|||
Current year
|
77.2
|
%
|
|
67.1
|
%
|
|
65.5
|
%
|
Prior period reserve development
|
(0.4
|
)%
|
|
(1.6
|
)%
|
|
(2.3
|
)%
|
Loss ratio
|
76.8
|
%
|
|
65.5
|
%
|
|
63.2
|
%
|
ARCH CAPITAL
|
61
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
|||||||||
|
2017
|
|
2016
|
|
% Change
|
|||||
Gross premiums written
|
$
|
1,640,399
|
|
|
$
|
1,494,397
|
|
|
9.8
|
|
Premiums ceded
|
(465,925
|
)
|
|
(440,541
|
)
|
|
|
|||
Net premiums written
|
1,174,474
|
|
|
1,053,856
|
|
|
11.4
|
|
||
Change in unearned premiums
|
(31,853
|
)
|
|
2,376
|
|
|
|
|||
Net premiums earned
|
1,142,621
|
|
|
1,056,232
|
|
|
8.2
|
|
||
Other underwriting income
|
11,336
|
|
|
36,403
|
|
|
|
|||
Losses and loss adjustment expenses
|
(773,923
|
)
|
|
(475,762
|
)
|
|
|
|||
Acquisition expenses
|
(221,250
|
)
|
|
(212,258
|
)
|
|
|
|||
Other operating expenses
|
(146,663
|
)
|
|
(142,616
|
)
|
|
|
|||
Underwriting income
|
$
|
12,121
|
|
|
$
|
261,999
|
|
|
(95.4
|
)
|
|
|
|
|
|
|
|||||
Underwriting Ratios
|
|
|
|
|
% Point Change
|
|
||||
Loss ratio
|
67.7
|
%
|
|
45.0
|
%
|
|
22.7
|
|
||
Acquisition expense ratio
|
19.4
|
%
|
|
20.1
|
%
|
|
(0.7
|
)
|
||
Other operating expense ratio
|
12.8
|
%
|
|
13.5
|
%
|
|
(0.7
|
)
|
||
Combined ratio
|
99.9
|
%
|
|
78.6
|
%
|
|
21.3
|
|
|
Year Ended December 31,
|
|||||||||
|
2016
|
|
2015
|
|
% Change
|
|||||
Gross premiums written
|
$
|
1,494,397
|
|
|
$
|
1,419,022
|
|
|
5.3
|
|
Premiums ceded
|
(440,541
|
)
|
|
(380,614
|
)
|
|
|
|||
Net premiums written
|
1,053,856
|
|
|
1,038,408
|
|
|
1.5
|
|
||
Change in unearned premiums
|
2,376
|
|
|
38,727
|
|
|
|
|||
Net premiums earned
|
1,056,232
|
|
|
1,077,135
|
|
|
(1.9
|
)
|
||
Other underwriting income
|
36,403
|
|
|
10,606
|
|
|
|
|||
Losses and loss adjustment expenses
|
(475,762
|
)
|
|
(440,350
|
)
|
|
|
|||
Acquisition expenses
|
(212,258
|
)
|
|
(222,470
|
)
|
|
|
|||
Other operating expenses
|
(142,616
|
)
|
|
(155,811
|
)
|
|
|
|||
Underwriting income
|
$
|
261,999
|
|
|
$
|
269,110
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
|||||
Underwriting Ratios
|
|
|
|
|
% Point Change
|
|||||
Loss ratio
|
45.0
|
%
|
|
40.9
|
%
|
|
4.1
|
|
||
Acquisition expense ratio
|
20.1
|
%
|
|
20.7
|
%
|
|
(0.6
|
)
|
||
Other operating expense ratio
|
13.5
|
%
|
|
14.5
|
%
|
|
(1.0
|
)
|
||
Combined ratio
|
78.6
|
%
|
|
76.1
|
%
|
|
2.5
|
|
ARCH CAPITAL
|
62
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
||||||||
|
Amount
|
|
%
|
|
Amount
|
|
%
|
||||
Other specialty
|
$
|
459,213
|
|
|
39.1
|
|
$
|
348,852
|
|
|
33.1
|
Casualty
|
340,429
|
|
|
29.0
|
|
305,252
|
|
|
29.0
|
||
Property excluding property catastrophe
|
243,693
|
|
|
20.7
|
|
267,548
|
|
|
25.4
|
||
Property catastrophe
|
70,155
|
|
|
6.0
|
|
75,789
|
|
|
7.2
|
||
Marine and aviation
|
32,759
|
|
|
2.8
|
|
37,790
|
|
|
3.6
|
||
Other
|
28,225
|
|
|
2.4
|
|
18,625
|
|
|
1.8
|
||
Total
|
$
|
1,174,474
|
|
|
100.0
|
|
$
|
1,053,856
|
|
|
100.0
|
|
|
|
|
|
|
|
|
||||
Pro rata
|
$
|
708,694
|
|
|
60.3
|
|
$
|
558,671
|
|
|
53.0
|
Excess of loss
|
465,780
|
|
|
39.7
|
|
495,185
|
|
|
47.0
|
||
Total
|
$
|
1,174,474
|
|
|
100.0
|
|
$
|
1,053,856
|
|
|
100.0
|
|
Year Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
||||||||
|
Amount
|
|
%
|
|
Amount
|
|
%
|
||||
Other specialty
|
$
|
348,852
|
|
|
33.1
|
|
$
|
298,794
|
|
|
28.8
|
Casualty
|
305,252
|
|
|
29.0
|
|
303,093
|
|
|
29.2
|
||
Property excluding property catastrophe
|
267,548
|
|
|
25.4
|
|
280,511
|
|
|
27.0
|
||
Property catastrophe
|
75,789
|
|
|
7.2
|
|
91,620
|
|
|
8.8
|
||
Marine and aviation
|
37,790
|
|
|
3.6
|
|
50,834
|
|
|
4.9
|
||
Other
|
18,625
|
|
|
1.8
|
|
13,556
|
|
|
1.3
|
||
Total
|
$
|
1,053,856
|
|
|
100.0
|
|
$
|
1,038,408
|
|
|
100.0
|
|
|
|
|
|
|
|
|
||||
Pro rata
|
$
|
558,671
|
|
|
53.0
|
|
$
|
537,556
|
|
|
51.8
|
Excess of loss
|
495,185
|
|
|
47.0
|
|
500,852
|
|
|
48.2
|
||
Total
|
$
|
1,053,856
|
|
|
100.0
|
|
$
|
1,038,408
|
|
|
100.0
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
||||||||
|
Amount
|
|
%
|
|
Amount
|
|
%
|
||||
Other specialty
|
$
|
408,566
|
|
|
35.8
|
|
$
|
329,994
|
|
|
31.2
|
Casualty
|
341,122
|
|
|
29.9
|
|
300,160
|
|
|
28.4
|
||
Property excluding property catastrophe
|
255,453
|
|
|
22.4
|
|
282,018
|
|
|
26.7
|
||
Property catastrophe
|
73,300
|
|
|
6.4
|
|
73,803
|
|
|
7.0
|
||
Marine and aviation
|
36,214
|
|
|
3.2
|
|
52,579
|
|
|
5.0
|
||
Other
|
27,966
|
|
|
2.4
|
|
17,678
|
|
|
1.7
|
||
Total
|
$
|
1,142,621
|
|
|
100.0
|
|
$
|
1,056,232
|
|
|
100.0
|
|
|
|
|
|
|
|
|
||||
Pro rata
|
$
|
657,490
|
|
|
57.5
|
|
$
|
561,986
|
|
|
53.2
|
Excess of loss
|
485,131
|
|
|
42.5
|
|
494,246
|
|
|
46.8
|
||
Total
|
$
|
1,142,621
|
|
|
100.0
|
|
$
|
1,056,232
|
|
|
100.0
|
ARCH CAPITAL
|
63
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
||||||||
|
Amount
|
|
%
|
|
Amount
|
|
%
|
||||
Other specialty
|
$
|
329,994
|
|
|
31.2
|
|
$
|
311,307
|
|
|
28.9
|
Casualty
|
300,160
|
|
|
28.4
|
|
310,249
|
|
|
28.8
|
||
Property excluding property catastrophe
|
282,018
|
|
|
26.7
|
|
295,487
|
|
|
27.4
|
||
Property catastrophe
|
73,803
|
|
|
7.0
|
|
96,865
|
|
|
9.0
|
||
Marine and aviation
|
52,579
|
|
|
5.0
|
|
50,808
|
|
|
4.7
|
||
Other
|
17,678
|
|
|
1.7
|
|
12,419
|
|
|
1.2
|
||
Total
|
$
|
1,056,232
|
|
|
100.0
|
|
$
|
1,077,135
|
|
|
100.0
|
|
|
|
|
|
|
|
|
||||
Pro rata
|
$
|
561,986
|
|
|
53.2
|
|
$
|
563,585
|
|
|
52.3
|
Excess of loss
|
494,246
|
|
|
46.8
|
|
513,550
|
|
|
47.7
|
||
Total
|
$
|
1,056,232
|
|
|
100.0
|
|
$
|
1,077,135
|
|
|
100.0
|
|
Year Ended December 31,
|
|||||||
|
2017
|
|
2016
|
|
2015
|
|||
Current year
|
82.2
|
%
|
|
65.7
|
%
|
|
61.8
|
%
|
Prior period reserve development
|
(14.5
|
)%
|
|
(20.7
|
)%
|
|
(20.9
|
)%
|
Loss ratio
|
67.7
|
%
|
|
45.0
|
%
|
|
40.9
|
%
|
ARCH CAPITAL
|
64
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
|||||||||
|
2017
|
|
2016
|
|
% Change
|
|||||
Gross premiums written
|
$
|
1,368,138
|
|
|
$
|
499,725
|
|
|
173.8
|
|
Premiums ceded
|
(256,796
|
)
|
|
(108,259
|
)
|
|
|
|||
Net premiums written
|
1,111,342
|
|
|
391,466
|
|
|
183.9
|
|
||
Change in unearned premiums
|
(54,176
|
)
|
|
(104,750
|
)
|
|
|
|||
Net premiums earned
|
1,057,166
|
|
|
286,716
|
|
|
268.7
|
|
||
Other underwriting income
|
15,737
|
|
|
17,024
|
|
|
|
|||
Losses and loss adjustment expenses
|
(134,677
|
)
|
|
(28,943
|
)
|
|
|
|||
Acquisition expenses
|
(100,598
|
)
|
|
(21,790
|
)
|
|
|
|||
Other operating expenses
|
(146,336
|
)
|
|
(96,672
|
)
|
|
|
|||
Underwriting income
|
$
|
691,292
|
|
|
$
|
156,335
|
|
|
342.2
|
|
|
|
|
|
|
|
|||||
Underwriting Ratios
|
|
|
|
|
% Point Change
|
|
||||
Loss ratio
|
12.7
|
%
|
|
10.1
|
%
|
|
2.6
|
|
||
Acquisition expense ratio
|
9.5
|
%
|
|
7.6
|
%
|
|
1.9
|
|
||
Other operating expense ratio
|
13.8
|
%
|
|
33.7
|
%
|
|
(19.9
|
)
|
||
Combined ratio
|
36.0
|
%
|
|
51.4
|
%
|
|
(15.4
|
)
|
|
Year Ended December 31,
|
|||||||||
|
2016
|
|
2015
|
|
% Change
|
|||||
Gross premiums written
|
$
|
499,725
|
|
|
$
|
295,557
|
|
|
69.1
|
|
Premiums ceded
|
(108,259
|
)
|
|
(28,064
|
)
|
|
|
|||
Net premiums written
|
391,466
|
|
|
267,493
|
|
|
46.3
|
|
||
Change in unearned premiums
|
(104,750
|
)
|
|
(53,383
|
)
|
|
|
|||
Net premiums earned
|
286,716
|
|
|
214,110
|
|
|
33.9
|
|
||
Other underwriting income
|
17,024
|
|
|
18,430
|
|
|
|
|||
Losses and loss adjustment expenses
|
(28,943
|
)
|
|
(40,247
|
)
|
|
|
|||
Acquisition expenses
|
(21,790
|
)
|
|
(30,817
|
)
|
|
|
|||
Other operating expenses
|
(96,672
|
)
|
|
(78,142
|
)
|
|
|
|||
Underwriting income
|
$
|
156,335
|
|
|
$
|
83,334
|
|
|
87.6
|
|
|
|
|
|
|
|
|||||
Underwriting Ratios
|
|
|
|
|
% Point Change
|
|||||
Loss ratio
|
10.1
|
%
|
|
18.8
|
%
|
|
(8.7
|
)
|
||
Acquisition expense ratio
|
7.6
|
%
|
|
14.4
|
%
|
|
(6.8
|
)
|
||
Other operating expense ratio
|
33.7
|
%
|
|
36.5
|
%
|
|
(2.8
|
)
|
||
Combined ratio
|
51.4
|
%
|
|
69.7
|
%
|
|
(18.3
|
)
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Net premiums written by client location
|
|
|
|
|
|
||||||
United States
|
$
|
1,005,437
|
|
|
$
|
280,509
|
|
|
$
|
193,617
|
|
Other
|
105,905
|
|
|
110,957
|
|
|
73,876
|
|
|||
Total
|
$
|
1,111,342
|
|
|
$
|
391,466
|
|
|
$
|
267,493
|
|
|
|
|
|
|
|
||||||
Net premiums written by underwriting location
|
|
|
|
|
|
||||||
United States
|
$
|
903,329
|
|
|
$
|
186,826
|
|
|
$
|
125,317
|
|
Other
|
208,013
|
|
|
204,640
|
|
|
142,176
|
|
|||
Total
|
$
|
1,111,342
|
|
|
$
|
391,466
|
|
|
$
|
267,493
|
|
ARCH CAPITAL
|
65
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Net premiums earned by client location
|
|
|
|
|
|
||||||
United States
|
$
|
1,014,439
|
|
|
$
|
265,527
|
|
|
$
|
202,930
|
|
Other
|
42,727
|
|
|
21,189
|
|
|
11,180
|
|
|||
Total
|
$
|
1,057,166
|
|
|
$
|
286,716
|
|
|
$
|
214,110
|
|
|
|
|
|
|
|
||||||
Net premiums earned by underwriting location
|
|
|
|
|
|
||||||
United States
|
$
|
901,858
|
|
|
$
|
155,929
|
|
|
$
|
113,062
|
|
Other
|
155,308
|
|
|
130,787
|
|
|
101,048
|
|
|||
Total
|
$
|
1,057,166
|
|
|
$
|
286,716
|
|
|
$
|
214,110
|
|
|
Year Ended December 31,
|
|||||||
|
2017
|
|
2016
|
|
2015
|
|||
Current year
|
21.7
|
%
|
|
17.5
|
%
|
|
24.5
|
%
|
Prior period reserve development
|
(9.0
|
)%
|
|
(7.4
|
)%
|
|
(5.7
|
)%
|
Loss ratio
|
12.7
|
%
|
|
10.1
|
%
|
|
18.8
|
%
|
ARCH CAPITAL
|
66
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Fixed maturities
|
$
|
336,894
|
|
|
$
|
242,310
|
|
|
$
|
241,389
|
|
Equity securities
|
12,703
|
|
|
13,823
|
|
|
14,339
|
|
|||
Short-term investments
|
9,343
|
|
|
3,619
|
|
|
574
|
|
|||
Other (1)
|
79,789
|
|
|
66,300
|
|
|
61,011
|
|
|||
Gross investment income
|
438,729
|
|
|
326,052
|
|
|
317,313
|
|
|||
Investment expenses (2)
|
(56,657
|
)
|
|
(48,859
|
)
|
|
(45,633
|
)
|
|||
Net investment income
|
$
|
382,072
|
|
|
$
|
277,193
|
|
|
$
|
271,680
|
|
(1)
|
Amounts include dividends and other distributions on investment funds, term loan investments, funds held balances, cash balances and other.
|
(2)
|
Investment expenses were approximately
0.30%
of average invested assets for
2017
, compared to
0.34%
for
2016
and
0.35%
for
2015
.
|
ARCH CAPITAL
|
67
|
2017 FORM 10-K
|
ARCH CAPITAL
|
68
|
2017 FORM 10-K
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Insurance segment:
|
|
|
|
||||
Case reserves
|
$
|
1,648,910
|
|
|
$
|
1,414,603
|
|
IBNR reserves
|
3,272,351
|
|
3,187,451
|
||||
Total net reserves
|
4,921,261
|
|
|
4,602,054
|
|
||
Reinsurance segment:
|
|
|
|
||||
Case reserves
|
1,033,413
|
|
|
762,730
|
|
||
Additional case reserves
|
158,377
|
|
92,524
|
||||
IBNR reserves
|
1,499,962
|
|
1,517,983
|
||||
Total net reserves
|
2,691,752
|
|
|
2,373,237
|
|
||
Mortgage segment:
|
|
|
|
||||
Case reserves
|
443,069
|
|
|
593,222
|
|
||
IBNR reserves
|
104,169
|
|
59,791
|
||||
Total net reserves (1)
|
547,238
|
|
|
653,013
|
|
||
Other segment:
|
|
|
|
||||
Case reserves
|
260,876
|
|
|
125,703
|
|
||
Additional case reserves
|
32,587
|
|
|
9,513
|
|
||
IBNR reserves
|
465,168
|
|
|
353,865
|
|
||
Total net reserves
|
758,631
|
|
|
489,081
|
|
||
Total:
|
|
|
|
||||
Case reserves
|
3,386,268
|
|
|
2,896,258
|
|
||
Additional case reserves
|
190,964
|
|
102,037
|
||||
IBNR reserves
|
5,341,650
|
|
5,119,090
|
||||
Total net reserves
|
$
|
8,918,882
|
|
|
$
|
8,117,385
|
|
(1)
|
At
December 31, 2017
, total net reserves include
$477.1 million
from U.S. primary mortgage insurance business, of which
68.3%
represents policy years 2007 and prior,
11.5%
from 2008 and the remainder from later policy years. At
December 31, 2016
, total net reserves include
$606.9 million
from U.S. primary mortgage insurance business, of which
76.6%
represents policy years 2007 and prior,
12.3%
from 2008 and the remainder from later policy years.
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Professional lines (1)
|
$
|
1,308,261
|
|
|
$
|
1,293,667
|
|
Construction and national accounts
|
1,094,300
|
|
|
976,109
|
|
||
Excess and surplus casualty (2)
|
672,903
|
|
|
687,305
|
|
||
Programs
|
644,340
|
|
|
667,677
|
|
||
Property, energy, marine and aviation
|
437,518
|
|
|
302,057
|
|
||
Travel, accident and health
|
86,122
|
|
|
72,726
|
|
||
Lenders products
|
53,912
|
|
|
42,147
|
|
||
Other (3)
|
623,905
|
|
|
560,366
|
|
||
Total net reserves
|
$
|
4,921,261
|
|
|
$
|
4,602,054
|
|
(1)
|
Includes professional liability, executive assurance and healthcare business.
|
(2)
|
Includes casualty and contract binding business.
|
(3)
|
Includes alternative markets, excess workers’ compensation and surety business.
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Casualty
|
$
|
1,489,933
|
|
|
$
|
1,355,362
|
|
Other specialty
|
523,321
|
|
|
428,205
|
|
||
Property excluding property catastrophe
|
376,020
|
|
|
297,200
|
|
||
Marine and aviation
|
135,484
|
|
|
147,700
|
|
||
Property catastrophe
|
98,622
|
|
|
86,026
|
|
||
Other
|
68,372
|
|
|
58,744
|
|
||
Total net reserves
|
$
|
2,691,752
|
|
|
$
|
2,373,237
|
|
ARCH CAPITAL
|
69
|
2017 FORM 10-K
|
INSURANCE SEGMENT
|
Higher Expected Loss Ratios
|
|
Slower Loss Development Patterns
|
||||
Reserving lines selected assumptions:
|
|
|
|
||||
Property, energy, marine and aviation
|
5 points
|
|
|
3 months
|
|
||
Third party occurrence business
|
10
|
|
|
6
|
|
||
Third party claims-made business
|
10
|
|
|
6
|
|
||
All other
|
10
|
|
|
6
|
|
||
|
|
|
|
||||
Increase (decrease) in Loss Reserves:
|
|
|
|
||||
Property, energy, marine and aviation
|
$
|
25,425
|
|
|
$
|
50,468
|
|
Third party occurrence business
|
109,501
|
|
|
86,978
|
|
||
Third party claims-made business
|
233,750
|
|
|
161,112
|
|
||
All other
|
120,361
|
|
|
137,097
|
|
INSURANCE SEGMENT
|
Lower Expected Loss Ratios
|
|
Faster Loss Development Patterns
|
||||
Reserving lines selected assumptions:
|
|
|
|
||||
Property, energy, marine and aviation
|
(5) points
|
|
|
(3) months
|
|
||
Third party occurrence business
|
(10)
|
|
|
(6)
|
|
||
Third party claims-made business
|
(10)
|
|
|
(6)
|
|
||
Multi-line and other specialty
|
(10)
|
|
|
(6)
|
|
||
|
|
|
|
||||
Increase (decrease) in Loss Reserves:
|
|
|
|
||||
Property, energy, marine and aviation
|
$
|
(25,425
|
)
|
|
$
|
(26,077
|
)
|
Third party occurrence business
|
(107,948
|
)
|
|
(70,278
|
)
|
||
Third party claims-made business
|
(233,687
|
)
|
|
(136,850
|
)
|
||
Multi-line and other specialty
|
(117,257
|
)
|
|
(94,729
|
)
|
REINSURANCE SEGMENT
|
Higher Expected Loss Ratios
|
|
Slower Loss Development Patterns
|
||||
Reserving lines selected assumptions:
|
|
|
|
||||
Casualty
|
10 points
|
|
|
6 months
|
|
||
Other specialty
|
5
|
|
|
3
|
|
||
Property excluding property catastrophe
|
5
|
|
|
3
|
|
||
Property catastrophe
|
5
|
|
|
3
|
|
||
Marine and aviation
|
5
|
|
|
3
|
|
||
Other
|
5
|
|
|
3
|
|
||
|
|
|
|
||||
Increase (decrease) in Loss Reserves:
|
|
|
|
||||
Casualty
|
$
|
108,249
|
|
|
$
|
124,560
|
|
Other specialty
|
50,383
|
|
|
26,952
|
|
||
Property excluding property catastrophe
|
13,718
|
|
|
34,757
|
|
||
Property catastrophe
|
3,439
|
|
|
5,966
|
|
||
Marine and aviation
|
6,937
|
|
|
10,685
|
|
||
Other
|
4,440
|
|
|
2,727
|
|
REINSURANCE SEGMENT
|
Lower Expected Loss Ratios
|
|
Faster Loss Development Patterns
|
||||
Reserving lines selected assumptions:
|
|
|
|
||||
Casualty
|
(10) points
|
|
|
(6) months
|
|
||
Other specialty
|
(5)
|
|
|
(3)
|
|
||
Property excluding property catastrophe
|
(5)
|
|
|
(3)
|
|
||
Property catastrophe
|
(5)
|
|
|
(3)
|
|
||
Marine and aviation
|
(5)
|
|
|
(3)
|
|
||
Other
|
(5)
|
|
|
(3)
|
|
||
|
|
|
|
||||
Increase (decrease) in Loss Reserves:
|
|
|
|
||||
Casualty
|
$
|
(108,249
|
)
|
|
$
|
(98,666
|
)
|
Other specialty
|
(50,383
|
)
|
|
(44,630
|
)
|
||
Property excluding property catastrophe
|
(13,717
|
)
|
|
(31,273
|
)
|
||
Property catastrophe
|
(3,437
|
)
|
|
(3,814
|
)
|
||
Marine and aviation
|
(6,939
|
)
|
|
(10,631
|
)
|
||
Other
|
(4,440
|
)
|
|
(2,571
|
)
|
ARCH CAPITAL
|
70
|
2017 FORM 10-K
|
|
Insurance Segment
|
|
Reinsurance Segment
|
|
Mortgage Segment
|
|
Total
|
||||||||
Loss
Reserves (1)
|
|
$4,921,261
|
|
|
|
$2,691,752
|
|
|
|
$547,238
|
|
|
|
$8,160,251
|
|
|
|
|
|
|
|
|
|
||||||||
Simulation results:
|
|
|
|
|
|
|
|
||||||||
90th percentile (2)
|
|
$5,968,241
|
|
|
|
$3,384,491
|
|
|
|
$654,929
|
|
|
|
$9,570,321
|
|
10th percentile (3)
|
|
$3,976,173
|
|
|
|
$2,089,025
|
|
|
|
$446,850
|
|
|
|
$6,875,498
|
|
(1)
|
Net of reinsurance recoverables and deferred reinsurance charge asset. Excludes amounts reflected in the ‘other’ segment.
|
(2)
|
Simulation results indicate that a 90% probability exists that the net reserves for losses and loss adjustment expenses will not exceed the indicated amount.
|
(3)
|
Simulation results indicate that a 10% probability exists that the net reserves for losses and loss adjustment expenses will be at or below the indicated amount.
|
(U.S. Dollars in millions)
|
December 31,
|
||||||||||||
2017
|
|
2016
|
|||||||||||
|
Amount
|
|
%
|
|
Amount
|
|
%
|
||||||
Insurance In Force (IIF) (1):
|
|
|
|
|
|
|
|
||||||
U.S. mortgage insurance
|
$
|
253,914
|
|
|
72.2
|
|
|
$
|
234,518
|
|
|
74.3
|
|
Mortgage reinsurance
|
28,017
|
|
|
8.0
|
|
|
24,315
|
|
|
7.7
|
|
||
Other (2)
|
69,905
|
|
|
19.9
|
|
|
56,776
|
|
|
18.0
|
|
||
Total
|
$
|
351,836
|
|
|
100.0
|
|
|
$
|
315,609
|
|
|
100.0
|
|
Risk In Force (RIF) (3):
|
|
|
|
|
|
|
|
||||||
U.S. mortgage insurance
|
$
|
64,904
|
|
|
92.3
|
|
|
$
|
59,712
|
|
|
92.7
|
|
Mortgage reinsurance
|
2,473
|
|
|
3.5
|
|
|
2,489
|
|
|
3.9
|
|
||
Other (2)
|
2,921
|
|
|
4.2
|
|
|
2,242
|
|
|
3.5
|
|
||
Total
|
$
|
70,298
|
|
|
100.0
|
|
|
$
|
64,443
|
|
|
100.0
|
|
(1)
|
Represents the aggregate dollar amount of each insured mortgage loan’s current principal balance.
|
(2)
|
Includes GSE credit risk-sharing transactions and international insurance business.
|
(3)
|
Represents the aggregate 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 credit risk-sharing or reinsurance transactions.
|
(U.S. Dollars in millions)
|
IIF
|
|
RIF
|
|
Delinquency
|
|||||||||||
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Rate (1)
|
||||||||
Policy year:
|
|
|
|
|
|
|
|
|
|
|||||||
2007 and prior
|
$
|
20,716
|
|
|
8.2
|
|
|
$
|
4,665
|
|
|
7.2
|
|
|
11.05
|
%
|
2008
|
5,424
|
|
|
2.1
|
|
|
1,338
|
|
|
2.1
|
|
|
6.21
|
%
|
||
2009
|
1,072
|
|
|
0.4
|
|
|
253
|
|
|
0.4
|
|
|
2.94
|
%
|
||
2010
|
1,089
|
|
|
0.4
|
|
|
295
|
|
|
0.5
|
|
|
2.31
|
%
|
||
2011
|
3,828
|
|
|
1.5
|
|
|
1,046
|
|
|
1.6
|
|
|
1.37
|
%
|
||
2012
|
13,247
|
|
|
5.2
|
|
|
3,629
|
|
|
5.6
|
|
|
0.75
|
%
|
||
2013
|
21,840
|
|
|
8.6
|
|
|
5,996
|
|
|
9.2
|
|
|
0.95
|
%
|
||
2014
|
22,884
|
|
|
9.0
|
|
|
6,112
|
|
|
9.4
|
|
|
1.10
|
%
|
||
2015
|
41,991
|
|
|
16.5
|
|
|
10,828
|
|
|
16.7
|
|
|
0.77
|
%
|
||
2016
|
62,020
|
|
|
24.4
|
|
|
15,643
|
|
|
24.1
|
|
|
0.80
|
%
|
||
2017
|
59,803
|
|
|
23.6
|
|
|
15,099
|
|
|
23.3
|
|
|
0.35
|
%
|
||
Total
|
$
|
253,914
|
|
|
100.0
|
|
|
$
|
64,904
|
|
|
100.0
|
|
|
2.23
|
%
|
(1)
|
Represents the ending percentage of loans in default.
|
ARCH CAPITAL
|
71
|
2017 FORM 10-K
|
(U.S. Dollars in millions)
|
IIF
|
|
RIF
|
|
Delinquency
|
|||||||||||
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Rate (1)
|
||||||||
Policy year:
|
|
|
|
|
|
|
|
|
|
|||||||
2007 and prior
|
$
|
26,185
|
|
|
11.2
|
|
|
$
|
6,042
|
|
|
10.1
|
|
|
12.01
|
%
|
2008
|
6,245
|
|
|
2.7
|
|
|
1,536
|
|
|
2.6
|
|
|
7.01
|
%
|
||
2009
|
1,773
|
|
|
0.8
|
|
|
419
|
|
|
0.7
|
|
|
2.42
|
%
|
||
2010
|
1,890
|
|
|
0.8
|
|
|
508
|
|
|
0.9
|
|
|
1.75
|
%
|
||
2011
|
5,488
|
|
|
2.3
|
|
|
1,494
|
|
|
2.5
|
|
|
1.15
|
%
|
||
2012
|
18,475
|
|
|
7.9
|
|
|
4,993
|
|
|
8.4
|
|
|
0.66
|
%
|
||
2013
|
27,698
|
|
|
11.8
|
|
|
7,450
|
|
|
12.5
|
|
|
0.74
|
%
|
||
2014
|
29,491
|
|
|
12.6
|
|
|
7,767
|
|
|
13.0
|
|
|
0.65
|
%
|
||
2015
|
50,400
|
|
|
21.5
|
|
|
12,793
|
|
|
21.4
|
|
|
0.29
|
%
|
||
2016
|
66,873
|
|
|
28.5
|
|
|
16,710
|
|
|
28.0
|
|
|
0.08
|
%
|
||
Total
|
$
|
234,518
|
|
|
100.0
|
|
|
$
|
59,712
|
|
|
100.0
|
|
|
2.57
|
%
|
(1)
|
Represents the ending percentage of loans in default.
|
(U.S. Dollars in millions)
|
December 31,
|
||||||||||||
2017
|
|
2016
|
|||||||||||
Amount
|
|
%
|
|
Amount
|
|
%
|
|||||||
Credit quality (FICO):
|
|
|
|
|
|
|
|
||||||
>=740
|
$
|
37,794
|
|
|
58.2
|
|
|
$
|
34,867
|
|
|
58.4
|
|
680-739
|
21,213
|
|
|
32.7
|
|
|
18,976
|
|
|
31.8
|
|
||
620-679
|
5,159
|
|
|
7.9
|
|
|
5,050
|
|
|
8.5
|
|
||
<620
|
738
|
|
|
1.1
|
|
|
819
|
|
|
1.4
|
|
||
Total
|
$
|
64,904
|
|
|
100.0
|
|
|
$
|
59,712
|
|
|
100.0
|
|
Weighted average FICO score
|
743
|
|
|
|
|
743
|
|
|
|
||||
|
|
|
|
|
|
|
|
||||||
Loan-to-Value (LTV):
|
|
|
|
|
|
|
|
||||||
95.01% and above
|
$
|
6,337
|
|
|
9.8
|
|
|
$
|
5,781
|
|
|
9.7
|
|
90.01% to 95.00%
|
36,174
|
|
|
55.7
|
|
|
32,986
|
|
|
55.2
|
|
||
85.01% to 90.00%
|
19,482
|
|
|
30.0
|
|
|
18,140
|
|
|
30.4
|
|
||
85.00% and below
|
2,911
|
|
|
4.5
|
|
|
2,805
|
|
|
4.7
|
|
||
Total
|
$
|
64,904
|
|
|
100.0
|
|
|
$
|
59,712
|
|
|
100.0
|
|
Weighted average LTV
|
92.9
|
%
|
|
|
|
92.9
|
%
|
|
|
||||
|
|
|
|
|
|
|
|
||||||
Total RIF, net of external reinsurance
|
$
|
49,100
|
|
|
|
|
$
|
42,183
|
|
|
|
(U.S. Dollars in millions)
|
December 31,
|
||||||||||||
2017
|
|
2016
|
|||||||||||
Amount
|
|
%
|
|
Amount
|
|
%
|
|||||||
Total RIF by State:
|
|
|
|
|
|
|
|
||||||
Texas
|
$
|
5,151
|
|
|
7.9
|
|
|
$
|
4,961
|
|
|
8.3
|
|
California
|
3,803
|
|
|
5.9
|
|
|
3,222
|
|
|
5.4
|
|
||
Florida
|
2,881
|
|
|
4.4
|
|
|
2,367
|
|
|
4.0
|
|
||
Virginia
|
2,773
|
|
|
4.3
|
|
|
2,586
|
|
|
4.3
|
|
||
North Carolina
|
2,410
|
|
|
3.7
|
|
|
2,245
|
|
|
3.8
|
|
||
Georgia
|
2,331
|
|
|
3.6
|
|
|
2,111
|
|
|
3.5
|
|
||
Washington
|
2,294
|
|
|
3.5
|
|
|
2,331
|
|
|
3.9
|
|
||
Maryland
|
2,234
|
|
|
3.4
|
|
|
2,080
|
|
|
3.5
|
|
||
Illinois
|
2,229
|
|
|
3.4
|
|
|
2,090
|
|
|
3.5
|
|
||
Minnesota
|
2,165
|
|
|
3.3
|
|
|
1,986
|
|
|
3.3
|
|
||
Others
|
36,633
|
|
|
56.4
|
|
|
33,733
|
|
|
56.5
|
|
||
Total
|
$
|
64,904
|
|
|
100.0
|
|
|
$
|
59,712
|
|
|
100.0
|
|
(U.S. Dollars in thousands, except loan and claim count)
|
Year Ended December 31,
|
||||||
2017
|
|
2016
|
|||||
Rollforward of insured loans in default:
|
|
|
|
||||
Beginning delinquent number of loans (1)
|
29,691
|
|
|
2,702
|
|
||
New notices (3)
|
41,846
|
|
|
4,493
|
|
||
Cures
|
(38,413
|
)
|
|
(4,073
|
)
|
||
Paid claims
|
(6,056
|
)
|
|
(719
|
)
|
||
Acquired delinquent loans (2)
|
—
|
|
|
27,288
|
|
||
Ending delinquent number of loans (1)(3)
|
27,068
|
|
|
29,691
|
|
||
|
|
|
|
||||
Ending number of policies in force (1)
|
1,213,382
|
|
|
1,153,630
|
|
||
|
|
|
|
||||
Delinquency rate (1)(3)
|
2.23
|
%
|
|
2.57
|
%
|
||
|
|
|
|
||||
Losses:
|
|
|
|
||||
Number of claims paid
|
6,056
|
|
|
719
|
|
||
Total paid claims
|
$
|
265,924
|
|
|
$
|
28,505
|
|
Average per claim
|
$
|
43.9
|
|
|
$
|
39.6
|
|
Severity (4)
|
103.4
|
%
|
|
93.1
|
%
|
||
|
|
|
|
||||
Average reserve per default (in thousands) (1)(3)
|
$
|
16.5
|
|
|
$
|
20.5
|
|
(
1)
|
Includes first lien primary and pool policies.
|
(2)
|
Reflects the acquisition of UGC on December 31, 2016.
|
(3)
|
2017 year includes approximately 3,700 new notices and 3,200 ending delinquent loans from areas impacted by the 2017 third quarter hurricanes.
|
(4)
|
Represents total paid claims divided by RIF of loans for which claims were paid.
|
ARCH CAPITAL
|
72
|
2017 FORM 10-K
|
ARCH CAPITAL
|
73
|
2017 FORM 10-K
|
|
December 31, 2017
|
||||||||||
|
Gross Amount
|
|
Acquisition Expenses
|
|
Net
Amount |
||||||
Other specialty
|
$
|
191,305
|
|
|
$
|
(61,563
|
)
|
|
$
|
129,742
|
|
Casualty
|
170,675
|
|
|
(55,903
|
)
|
|
114,772
|
|
|||
Property excluding property catastrophe
|
55,970
|
|
|
(18,562
|
)
|
|
37,408
|
|
|||
Marine and aviation
|
25,299
|
|
|
(7,241
|
)
|
|
18,058
|
|
|||
Property catastrophe
|
1,832
|
|
|
(164
|
)
|
|
1,668
|
|
|||
Other
|
52,275
|
|
|
(11,286
|
)
|
|
40,989
|
|
|||
Total
|
$
|
497,356
|
|
|
$
|
(154,719
|
)
|
|
$
|
342,637
|
|
ARCH CAPITAL
|
74
|
2017 FORM 10-K
|
ARCH CAPITAL
|
75
|
2017 FORM 10-K
|
ARCH CAPITAL
|
76
|
2017 FORM 10-K
|
Investable assets (1):
|
Estimated
Fair Value
|
|
% of
Total
|
|||
December 31, 2017
|
|
|
|
|||
Fixed maturities (2)
|
$
|
14,798,213
|
|
|
75.1
|
|
Short-term investments (2)
|
1,509,713
|
|
|
7.7
|
|
|
Cash
|
551,696
|
|
|
2.8
|
|
|
Equity securities (2)
|
576,040
|
|
|
2.9
|
|
|
Other investments (2)
|
1,476,960
|
|
|
7.5
|
|
|
Investments accounted for using the equity method
|
1,041,322
|
|
|
5.3
|
|
|
Securities transactions entered into but not settled at the balance sheet date
|
(237,523
|
)
|
|
(1.2
|
)
|
|
Total investable assets held by Arch
|
$
|
19,716,421
|
|
|
100.0
|
|
|
|
|
|
|||
December 31, 2016
|
|
|
|
|||
Fixed maturities (2)
|
$
|
14,521,774
|
|
|
77.9
|
|
Short-term investments (2)
|
676,547
|
|
|
3.6
|
|
|
Cash
|
768,049
|
|
|
4.1
|
|
|
Equity securities (2)
|
558,008
|
|
|
3.0
|
|
|
Other investments (2)
|
1,276,841
|
|
|
6.9
|
|
|
Investments accounted for using the equity method
|
811,273
|
|
|
4.4
|
|
|
Securities transactions entered into but not settled at the balance sheet date
|
23,697
|
|
|
0.1
|
|
|
Total investable assets held by Arch
|
$
|
18,636,189
|
|
|
100.0
|
|
(1)
|
In securities lending transactions, we receive collateral in excess of the fair value of the securities pledged. For purposes of this table, we have excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value.
|
(2)
|
Includes investments carried as available for sale, at fair value and at fair value under the fair value option.
|
|
Estimated
Fair Value
|
|
% of
Total
|
|||
December 31, 2017
|
|
|
|
|
||
Corporate bonds
|
$
|
4,787,272
|
|
|
32.4
|
|
Mortgage backed securities
|
328,924
|
|
|
2.2
|
|
|
Municipal bonds
|
2,158,840
|
|
|
14.6
|
|
|
Commercial mortgage backed securities
|
545,817
|
|
|
3.7
|
|
|
U.S. government and government agencies
|
3,484,257
|
|
|
23.5
|
|
|
Non-U.S. government securities
|
1,704,337
|
|
|
11.5
|
|
|
Asset backed securities
|
1,788,766
|
|
|
12.1
|
|
|
Total
|
$
|
14,798,213
|
|
|
100.0
|
|
|
|
|
|
|||
December 31, 2016
|
|
|
|
|
||
Corporate bonds
|
$
|
4,696,079
|
|
|
32.3
|
|
Mortgage backed securities
|
504,677
|
|
|
3.5
|
|
|
Municipal bonds
|
3,713,434
|
|
|
25.6
|
|
|
Commercial mortgage backed securities
|
536,051
|
|
|
3.7
|
|
|
U.S. government and government agencies
|
2,804,811
|
|
|
19.3
|
|
|
Non-U.S. government securities
|
1,142,735
|
|
|
7.9
|
|
|
Asset backed securities
|
1,123,987
|
|
|
7.7
|
|
|
Total
|
$
|
14,521,774
|
|
|
100.0
|
|
ARCH CAPITAL
|
77
|
2017 FORM 10-K
|
|
Estimated Fair Value
|
|
% of
Total
|
|||
December 31, 2017
|
|
|
|
|||
U.S. government and gov’t agencies (1)
|
$
|
3,771,835
|
|
|
25.5
|
|
AAA
|
4,080,808
|
|
|
27.6
|
|
|
AA
|
2,440,864
|
|
|
16.5
|
|
|
A
|
2,470,936
|
|
|
16.7
|
|
|
BBB
|
1,157,136
|
|
|
7.8
|
|
|
BB
|
313,286
|
|
|
2.1
|
|
|
B
|
254,011
|
|
|
1.7
|
|
|
Lower than B
|
77,543
|
|
|
0.5
|
|
|
Not rated
|
231,794
|
|
|
1.6
|
|
|
Total
|
$
|
14,798,213
|
|
|
100.0
|
|
|
|
|
|
|||
December 31, 2016
|
|
|
|
|||
U.S. government and gov’t agencies (1)
|
$
|
3,210,899
|
|
|
22.1
|
|
AAA
|
3,918,739
|
|
|
27.0
|
|
|
AA
|
3,148,226
|
|
|
21.7
|
|
|
A
|
2,338,834
|
|
|
16.1
|
|
|
BBB
|
1,203,942
|
|
|
8.3
|
|
|
BB
|
226,321
|
|
|
1.6
|
|
|
B
|
156,405
|
|
|
1.1
|
|
|
Lower than B
|
90,833
|
|
|
0.6
|
|
|
Not rated
|
227,574
|
|
|
1.6
|
|
|
Total
|
$
|
14,521,774
|
|
|
100.0
|
|
(1)
|
Includes U.S. government-sponsored agency mortgage backed securities and agency commercial mortgage backed securities.
|
Severity of gross unrealized losses:
|
Estimated Fair Value
|
|
Gross
Unrealized
Losses
|
|
% of
Total Gross
Unrealized
Losses
|
|||||
December 31, 2017
|
|
|
|
|
|
|||||
0-10%
|
$
|
9,598,768
|
|
|
$
|
(93,057
|
)
|
|
87.6
|
|
10-20%
|
82,638
|
|
|
(11,269
|
)
|
|
10.6
|
|
||
20-30%
|
2,108
|
|
|
(671
|
)
|
|
0.6
|
|
||
Greater than 30%
|
1,881
|
|
|
(1,184
|
)
|
|
1.1
|
|
||
Total
|
$
|
9,685,395
|
|
|
$
|
(106,181
|
)
|
|
100.0
|
|
|
|
|
|
|
|
|||||
December 31, 2016
|
|
|
|
|
|
|||||
0-10%
|
$
|
7,078,582
|
|
|
$
|
(127,909
|
)
|
|
71.6
|
|
10-20%
|
155,403
|
|
|
(24,219
|
)
|
|
13.5
|
|
||
20-30%
|
89,887
|
|
|
(25,929
|
)
|
|
14.5
|
|
||
Greater than 30%
|
1,496
|
|
|
(702
|
)
|
|
0.4
|
|
||
Total
|
$
|
7,325,368
|
|
|
$
|
(178,759
|
)
|
|
100.0
|
|
|
Estimated Fair Value
|
|
Credit
Rating (1)
|
||
Apple Inc.
|
$
|
239,649
|
|
|
AA+/Aa1
|
Citigroup Inc.
|
129,196
|
|
|
A/A2
|
|
Microsoft Corporation
|
118,895
|
|
|
AAA/Aaa
|
|
Philip Morris International Inc.
|
118,647
|
|
|
A/A2
|
|
JPMorgan Chase & Co.
|
112,047
|
|
|
A-/A3
|
|
Wells Fargo & Company
|
104,159
|
|
|
A/A1
|
|
Oracle Corporation
|
98,753
|
|
|
AA-/A1
|
|
The Bank of New York Mellon Corporation
|
87,933
|
|
|
A/A1
|
|
The Goldman Sachs Group, Inc.
|
79,476
|
|
|
BBB+/A3
|
|
American Express Company
|
76,185
|
|
|
BBB+/A3
|
|
Total
|
$
|
1,164,940
|
|
|
|
(1)
|
Average credit ratings as assigned by S&P and Moody’s, respectively.
|
|
Agencies
|
|
Investment Grade
|
|
Below Investment Grade
|
|
Total
|
||||||||
Dec. 31, 2017
|
|
|
|
|
|
|
|
|
|
||||||
RMBS
|
$
|
284,466
|
|
|
$
|
14,581
|
|
|
$
|
29,877
|
|
|
$
|
328,924
|
|
CMBS
|
3,112
|
|
|
465,980
|
|
|
76,725
|
|
|
545,817
|
|
||||
ABS
|
—
|
|
|
1,691,232
|
|
|
97,534
|
|
|
1,788,766
|
|
||||
Total
|
$
|
287,578
|
|
|
$
|
2,171,793
|
|
|
$
|
204,136
|
|
|
$
|
2,663,507
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Dec. 31, 2016
|
|
|
|
|
|
|
|
|
|
||||||
RMBS
|
$
|
393,188
|
|
|
$
|
60,600
|
|
|
$
|
50,889
|
|
|
$
|
504,677
|
|
CMBS
|
12,900
|
|
|
513,266
|
|
|
9,885
|
|
|
536,051
|
|
||||
ABS
|
—
|
|
|
1,077,614
|
|
|
46,373
|
|
|
1,123,987
|
|
||||
Total
|
$
|
406,088
|
|
|
$
|
1,651,480
|
|
|
$
|
107,147
|
|
|
$
|
2,164,715
|
|
ARCH CAPITAL
|
78
|
2017 FORM 10-K
|
Severity of gross unrealized losses:
|
Estimated Fair Value
|
|
Gross
Unrealized
Losses
|
|
% of
Total Gross
Unrealized
Losses
|
|||||
December 31, 2017
|
|
|
|
|
|
|||||
0-10%
|
$
|
157,810
|
|
|
$
|
(3,592
|
)
|
|
64.3
|
|
10-20%
|
6,110
|
|
|
(884
|
)
|
|
15.8
|
|
||
20-30%
|
1,482
|
|
|
(402
|
)
|
|
7.2
|
|
||
Greater than 30%
|
1,160
|
|
|
(705
|
)
|
|
12.6
|
|
||
Total
|
$
|
166,562
|
|
|
$
|
(5,583
|
)
|
|
100.0
|
|
|
|
|
|
|
|
|||||
December 31, 2016
|
|
|
|
|
|
|||||
0-10%
|
$
|
214,364
|
|
|
$
|
(8,776
|
)
|
|
50.1
|
|
10-20%
|
52,034
|
|
|
(7,100
|
)
|
|
40.5
|
|
||
20-30%
|
1,983
|
|
|
(607
|
)
|
|
3.5
|
|
||
Greater than 30%
|
1,000
|
|
|
(1,034
|
)
|
|
5.9
|
|
||
Total
|
$
|
269,381
|
|
|
$
|
(17,517
|
)
|
|
100.0
|
|
Country (1)
|
Sovereign
(2)
|
|
Corporate Bonds
|
|
Other
(3)
|
|
Total
|
||||||||
Germany
|
$
|
151,138
|
|
|
$
|
3,069
|
|
|
$
|
48,015
|
|
|
$
|
202,222
|
|
Netherlands
|
106,924
|
|
|
59,007
|
|
|
5,952
|
|
|
171,883
|
|
||||
Belgium
|
67,845
|
|
|
9,068
|
|
|
1,206
|
|
|
78,119
|
|
||||
France
|
—
|
|
|
12,656
|
|
|
36,947
|
|
|
49,603
|
|
||||
Luxembourg
|
—
|
|
|
16,065
|
|
|
16,727
|
|
|
32,792
|
|
||||
Spain
|
—
|
|
|
1,642
|
|
|
18,417
|
|
|
20,059
|
|
||||
Austria
|
18,503
|
|
|
—
|
|
|
—
|
|
|
18,503
|
|
||||
Ireland
|
—
|
|
|
6,608
|
|
|
1,425
|
|
|
8,033
|
|
||||
Greece
|
2,356
|
|
|
—
|
|
|
4,313
|
|
|
6,669
|
|
||||
Finland
|
—
|
|
|
—
|
|
|
4,346
|
|
|
4,346
|
|
||||
Italy
|
—
|
|
|
2,191
|
|
|
457
|
|
|
2,648
|
|
||||
Portugal
|
—
|
|
|
—
|
|
|
1,047
|
|
|
1,047
|
|
||||
Total
|
$
|
346,766
|
|
|
$
|
110,306
|
|
|
$
|
138,852
|
|
|
$
|
595,924
|
|
(1)
|
The country allocations set forth in the table are based on various assumptions made by us in assessing the country in which the underlying credit risk resides, including a review of the jurisdiction of organization, business operations and other factors. Based on such analysis, we do not believe that we have any other Eurozone investments at
December 31, 2017
.
|
(2)
|
Includes securities issued and/or guaranteed by Eurozone governments.
|
(3)
|
Includes bank loans, equities and other.
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Available for sale:
|
|
|
|
||||
Asian and emerging markets
|
$
|
135,140
|
|
|
$
|
84,778
|
|
Investment grade fixed income
|
53,878
|
|
|
33,923
|
|
||
Credit related funds
|
18,365
|
|
|
7,469
|
|
||
Other
|
57,606
|
|
|
41,800
|
|
||
Total available for sale
|
264,989
|
|
|
167,970
|
|
||
Fair value option:
|
|
|
|
||||
Term loan investments
|
326,085
|
|
|
378,877
|
|
||
Mezzanine debt funds
|
252,160
|
|
|
127,943
|
|
||
Credit related funds
|
175,422
|
|
|
218,298
|
|
||
Investment grade fixed income
|
102,347
|
|
|
75,468
|
|
||
Asian and emerging markets
|
208,928
|
|
|
178,568
|
|
||
Other (1)
|
147,029
|
|
|
129,717
|
|
||
Total fair value option
|
1,211,971
|
|
|
1,108,871
|
|
||
Total
|
$
|
1,476,960
|
|
|
$
|
1,276,841
|
|
(1)
|
Includes fund investments with strategies in mortgage servicing rights, transportation and infrastructure assets and other.
|
ARCH CAPITAL
|
79
|
2017 FORM 10-K
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Investments accounted for using the fair value option:
|
|
|
|
||||
Other investments
|
$
|
924,410
|
|
|
$
|
811,922
|
|
Fixed maturities
|
1,177,033
|
|
|
734,260
|
|
||
Short-term investments
|
256,755
|
|
|
309,127
|
|
||
Equity securities
|
67,868
|
|
|
2,314
|
|
||
Total
|
2,426,066
|
|
|
1,857,623
|
|
||
Cash
|
54,503
|
|
|
74,893
|
|
||
Securities sold but not yet purchased
|
(34,375
|
)
|
|
(33,157
|
)
|
||
Securities transactions entered into but not settled at the balance sheet date
|
(6,127
|
)
|
|
(41,596
|
)
|
||
Total investable assets included in ‘other’ segment
|
$
|
2,440,067
|
|
|
$
|
1,857,763
|
|
|
% of Total
|
|
A.M. Best
Rating (1)
|
|
Everest Reinsurance Company
|
7.9
|
|
|
A+
|
Munich Reinsurance America, Inc.
|
6.3
|
|
|
A+
|
Hannover Rückversicherung AG
|
5.0
|
|
|
A+
|
Swiss Reinsurance America Corporation
|
4.9
|
|
|
A+
|
XL Catlin plc
|
4.4
|
|
|
A
|
Transatlantic Reinsurance Company
|
4.3
|
|
|
A+
|
Partner Reinsurance Company of the U.S.
|
4.3
|
|
|
A
|
Lloyd’s syndicates (2)
|
3.3
|
|
|
A
|
Berkley Insurance Company
|
3.2
|
|
|
A+
|
Liberty Mutual Insurance Company
|
3.0
|
|
|
A
|
Odyssey America Reinsurance Corporation
|
2.7
|
|
|
A
|
All other -- “A-” or better
|
20.6
|
|
|
|
All other -- not rated (3)
|
30.1
|
|
|
|
Total
|
100.0
|
|
|
|
(1)
|
The financial strength ratings are as of February 12, 2018 and were assigned by A.M. Best based on its opinion of the insurer’s financial strength as of such date. An explanation of the ratings listed in the table follows: the rating of “A+” is designated “Superior”; and the “A” rating is designated “Excellent.”
|
(2)
|
The A.M. Best group rating of “A” (Excellent) has been applied to all Lloyd’s syndicates.
|
(3)
|
Over 90% of such amount is collateralized through reinsurance trusts or letters of credit.
|
ARCH CAPITAL
|
80
|
2017 FORM 10-K
|
(U.S. dollars in thousands, except share data)
|
December 31,
|
||||||
2017
|
|
2016
|
|||||
Total shareholders’ equity available to Arch
|
$
|
9,196,602
|
|
|
$
|
8,253,718
|
|
Less preferred shareholders’ equity
|
872,555
|
|
|
772,555
|
|
||
Common shareholders’ equity available to Arch
|
$
|
8,324,047
|
|
|
$
|
7,481,163
|
|
Common shares and common share equivalents outstanding, net of treasury shares (1)
|
136,652,139
|
|
135,550,337
|
||||
Book value per share
|
$
|
60.91
|
|
|
$
|
55.19
|
|
(1)
|
Excludes the effects of
6,590,058
and
6,872,494
stock options and
304,496
and
381,461
restricted stock units outstanding at
December 31, 2017
and
December 31, 2016
, respectively.
|
ARCH CAPITAL
|
81
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Total cash provided by (used for):
|
|
|
|
|
|
||||||
Operating activities
|
$
|
827,319
|
|
|
$
|
1,109,913
|
|
|
$
|
705,128
|
|
Investing activities
|
(888,341
|
)
|
|
(2,602,714
|
)
|
|
(357,038
|
)
|
|||
Financing activities
|
(166,829
|
)
|
|
1,830,042
|
|
|
(367,529
|
)
|
|||
Effects of exchange rate changes on foreign currency cash
|
11,502
|
|
|
(13,967
|
)
|
|
(10,031
|
)
|
|||
Increase (decrease) in cash
|
$
|
(216,349
|
)
|
|
$
|
323,274
|
|
|
$
|
(29,470
|
)
|
ARCH CAPITAL
|
82
|
2017 FORM 10-K
|
(U.S. dollars in thousands, except
share data)
|
December 31,
|
||||||
2017
|
|
2016
|
|||||
Debt:
|
|
|
|
||||
Senior notes, due May 2034
|
$
|
297,053
|
|
|
$
|
296,957
|
|
Arch-U.S. senior notes, due Nov 2043 (1)
|
494,621
|
|
|
494,525
|
|
||
Arch Finance senior notes, due Dec 2026 (1)
|
496,043
|
|
|
495,689
|
|
||
Arch Finance senior notes, due Dec 2046 (1)
|
445,167
|
|
|
445,087
|
|
||
Revolving credit agreement borrowings due Oct 2021
|
375,000
|
|
|
500,000
|
|
||
Total
|
$
|
2,107,884
|
|
|
$
|
2,232,258
|
|
|
|
|
|
||||
Shareholders’ equity available to Arch:
|
|
|
|
||||
Series C non-cumulative preferred shares (2)
|
$
|
92,555
|
|
|
$
|
322,555
|
|
Series E non-cumulative preferred shares
|
450,000
|
|
|
450,000
|
|
||
Series F non-cumulative preferred shares
|
330,000
|
|
|
—
|
|
||
Common shareholders’ equity
|
8,324,047
|
|
|
7,481,163
|
|
||
Total
|
$
|
9,196,602
|
|
|
$
|
8,253,718
|
|
|
|
|
|
||||
Total capital available to Arch
|
$
|
11,304,486
|
|
|
$
|
10,485,976
|
|
|
|
|
|
||||
Debt to total capital (%)
|
18.6
|
|
|
21.3
|
|
||
Debt and preferred to total capital (%)
|
26.4
|
|
|
28.7
|
|
(1)
|
Fully and unconditionally guaranteed by Arch Capital.
|
(2)
|
Redeemed on January 2, 2018.
|
ARCH CAPITAL
|
83
|
2017 FORM 10-K
|
ARCH CAPITAL
|
84
|
2017 FORM 10-K
|
ARCH CAPITAL
|
85
|
2017 FORM 10-K
|
|
Payment due by period
|
||||||||||||||||||
|
Total
|
|
2018
|
|
2019 and 2020
|
|
2021 and 2022
|
|
Thereafter
|
||||||||||
Operating activities
|
|
|
|
|
|
|
|
|
|
||||||||||
Estimated gross payments for losses and loss adjustment expenses (1)
|
$
|
10,585,530
|
|
|
$
|
2,763,000
|
|
|
$
|
3,153,090
|
|
|
$
|
1,661,268
|
|
|
$
|
3,008,172
|
|
Deposit accounting liabilities (2)
|
22,319
|
|
|
3,089
|
|
|
2,989
|
|
|
783
|
|
|
15,458
|
|
|||||
Contractholder payables (3)
|
1,978,414
|
|
|
644,823
|
|
|
695,979
|
|
|
276,162
|
|
|
361,450
|
|
|||||
Operating lease obligations
|
167,995
|
|
|
28,230
|
|
|
55,638
|
|
|
46,665
|
|
|
37,462
|
|
|||||
Purchase obligations
|
29,721
|
|
|
19,665
|
|
|
8,328
|
|
|
1,728
|
|
|
—
|
|
|||||
Contingent consideration liabilities (4)
|
68,215
|
|
|
—
|
|
|
68,215
|
|
|
—
|
|
|
—
|
|
|||||
Investing activities
|
|
|
|
|
|
|
|
|
|
||||||||||
Unfunded investment commitments (5)
|
1,699,994
|
|
|
1,699,994
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Financing activities
|
|
|
|
|
|
|
|
|
|
||||||||||
Securities lending payable (6)
|
476,605
|
|
|
476,605
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Senior notes (including interest payments)
|
3,617,618
|
|
|
90,465
|
|
|
180,929
|
|
|
180,929
|
|
|
3,165,295
|
|
|||||
Capital lease obligations
|
15,552
|
|
|
9,655
|
|
|
5,765
|
|
|
132
|
|
|
—
|
|
|||||
Revolving credit agreement borrowings (7)
|
375,000
|
|
|
375,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total contractual obligations and commitments
|
$
|
19,036,963
|
|
|
$
|
6,110,526
|
|
|
$
|
4,170,933
|
|
|
$
|
2,167,667
|
|
|
$
|
6,587,837
|
|
(1)
|
The estimated expected contractual commitments related to the reserves for losses and loss adjustment expenses are presented on a gross basis (
i.e.
, not reflecting any corresponding reinsurance recoverable amounts that would be due to us). It should be noted that until a claim has been presented to us, determined to be valid, quantified and settled, there is no known obligation on an individual transaction basis, and while estimable in the aggregate, the timing and amount contain significant uncertainty. Approximately 62% of our reserves for losses and loss adjustment expenses were incurred but not reported at
December 31, 2017
.
|
(2)
|
The estimated expected contractual commitments related to deposit accounting liabilities have been estimated using projected cash flows from the underlying contracts. It should be noted that, due to the nature of such liabilities, the timing and amount contain significant uncertainty.
|
(3)
|
Certain insurance policies written by our insurance operations feature large deductibles, primarily in construction and national accounts lines. Under such contracts, we are obligated to pay the claimant for the full amount of the claim and are subsequently reimbursed by the policyholder for the deductible amount. In the event we are unable to collect from the policyholder, we would be liable for such defaulted amounts.
|
(4)
|
Pursuant to our 2014 acquisition of the CMG Entities, we are required to make remaining contingent consideration payments as re-calculated over an earn-out period. For purposes of this table, the maximum exposure has been shown using an estimated payout pattern.
|
(5)
|
Unfunded investment commitments are callable by our investment managers. We have assumed that such investments will be funded in the next year but the funding may occur over a longer period of time, due to market conditions and other factors.
|
(6)
|
As part of our securities lending program, we loan securities to third parties and receive collateral in the form of cash or securities. Such collateral is due back to the third parties at the close of the securities lending transactions, a majority of which is overnight and continuous by nature.
|
(7)
|
Amounts outstanding under credit facilities represent borrowings by Arch U.S. MI Holdings Inc., a wholly owned subsidiary of Arch Capital. Due to the variable nature of the interest payments on these borrowings and the ability to repay such borrowings at will, no interest payments have been reflected.
|
ARCH CAPITAL
|
86
|
2017 FORM 10-K
|
ARCH CAPITAL
|
87
|
2017 FORM 10-K
|
ARCH CAPITAL
|
88
|
2017 FORM 10-K
|
ARCH CAPITAL
|
89
|
2017 FORM 10-K
|
(U.S. dollars in billions)
|
Interest Rate Shift in Basis Points
|
||||||||||||||||||
-100
|
|
-50
|
|
-
|
|
+50
|
|
+100
|
|||||||||||
Dec. 31, 2017
|
|
|
|
|
|
|
|
|
|
||||||||||
Total fair value
|
$
|
19.11
|
|
|
$
|
18.85
|
|
|
$
|
18.59
|
|
|
$
|
18.33
|
|
|
$
|
18.09
|
|
Change from base
|
2.8
|
%
|
|
1.4
|
%
|
|
|
|
(1.4
|
)%
|
|
(2.7
|
)%
|
||||||
Change in unrealized value
|
$
|
0.52
|
|
|
$
|
0.26
|
|
|
|
|
$
|
(0.26
|
)
|
|
$
|
(0.50
|
)
|
||
Dec. 31, 2016
|
|
|
|
|
|
|
|
|
|
||||||||||
Total fair value
|
$
|
17.95
|
|
|
$
|
17.62
|
|
|
$
|
17.31
|
|
|
$
|
17.00
|
|
|
$
|
16.70
|
|
Change from base
|
3.7
|
%
|
|
1.8
|
%
|
|
|
|
(1.8
|
)%
|
|
(3.5
|
)%
|
||||||
Change in unrealized value
|
$
|
0.64
|
|
|
$
|
0.31
|
|
|
|
|
$
|
(0.31
|
)
|
|
$
|
(0.61
|
)
|
ARCH CAPITAL
|
90
|
2017 FORM 10-K
|
(U.S. dollars in billions)
|
Credit Spread Shift in Percentage
|
||||||||||||||||||
-100
|
|
-50
|
|
-
|
|
+50
|
|
+100
|
|||||||||||
Dec. 31, 2017
|
|
|
|
|
|
|
|
|
|
||||||||||
Total fair value
|
$
|
18.96
|
|
|
$
|
18.77
|
|
|
$
|
18.59
|
|
|
$
|
18.40
|
|
|
$
|
18.22
|
|
Change from base
|
2.0
|
%
|
|
1.0
|
%
|
|
|
|
(1.0
|
)%
|
|
(2.0
|
)%
|
||||||
Change in unrealized value
|
$
|
0.37
|
|
|
$
|
0.19
|
|
|
|
|
$
|
(0.19
|
)
|
|
$
|
(0.37
|
)
|
||
Dec. 31, 2016
|
|
|
|
|
|
|
|
|
|
||||||||||
Total fair value
|
$
|
17.79
|
|
|
$
|
17.55
|
|
|
$
|
17.31
|
|
|
$
|
17.07
|
|
|
$
|
16.83
|
|
Change from base
|
2.8
|
%
|
|
1.4
|
%
|
|
|
|
(1.4
|
)%
|
|
(2.8
|
)%
|
||||||
Change in unrealized value
|
$
|
0.48
|
|
|
$
|
0.24
|
|
|
|
|
$
|
(0.24
|
)
|
|
$
|
(0.48
|
)
|
ARCH CAPITAL
|
91
|
2017 FORM 10-K
|
(U.S. dollars in thousands, except
per share data)
|
December 31,
2017 |
|
December 31,
2016 |
||||
Net assets (liabilities), denominated in foreign currencies, excluding shareholders’ equity and derivatives
|
$
|
401,966
|
|
|
$
|
(63,077
|
)
|
Shareholders’ equity denominated in foreign currencies (1)
|
345,743
|
|
|
290,752
|
|
||
Net foreign currency forward contracts outstanding (2)
|
(123,732
|
)
|
|
(250,263
|
)
|
||
Net exposures denominated in foreign currencies
|
$
|
623,977
|
|
|
$
|
(22,588
|
)
|
|
|
|
|
||||
Pre-tax impact of a hypothetical 10% appreciation of the U.S. Dollar against foreign currencies:
|
|
|
|
|
|
||
Shareholders’ equity
|
$
|
(62,398
|
)
|
|
$
|
2,259
|
|
Book value per share
|
$
|
(0.46
|
)
|
|
$
|
0.02
|
|
|
|
|
|
||||
Pre-tax impact of a hypothetical 10% decline of the U.S. Dollar against foreign currencies:
|
|
|
|
|
|
||
Shareholders’ equity
|
$
|
62,398
|
|
|
$
|
(2,259
|
)
|
Book value per share
|
$
|
0.46
|
|
|
$
|
(0.02
|
)
|
(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.
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ARCH CAPITAL
|
92
|
2017 FORM 10-K
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Index to Financial Statements
|
Page No.
|
|
|
|
|
|
|
|
|
||
|
At December 31, 2017 and December 31, 2016
|
|
|
|
|
|
||
|
For the years ended December 31, 2017, 2016 and 2015
|
|
|
|
|
|
||
|
For the years ended December 31, 2017, 2016 and 2015
|
|
|
|
|
|
||
|
For the years ended December 31, 2017, 2016 and 2015
|
|
|
|
|
|
||
|
For the years ended December 31, 2017, 2016 and 2015
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
ARCH CAPITAL
|
93
|
2017 FORM 10-K
|
ARCH CAPITAL
|
94
|
2017 FORM 10-K
|
ARCH CAPITAL
|
95
|
2017 FORM 10-K
|
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands, except share data) |
|||||||
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Assets
|
|
|
|
||||
Investments:
|
|
|
|
||||
Fixed maturities available for sale, at fair value (amortized cost: $13,869,460 and $13,522,671)
|
$
|
13,876,003
|
|
|
$
|
13,426,577
|
|
Short-term investments available for sale, at fair value (amortized cost: $1,468,955 and $611,878)
|
1,469,042
|
|
|
612,005
|
|
||
Collateral received under securities lending, at fair value (amortized cost: $476,605 and $762,554)
|
476,615
|
|
|
762,565
|
|
||
Equity securities available for sale, at fair value (cost: $416,010 and $475,085)
|
495,804
|
|
|
518,041
|
|
||
Other investments available for sale, at fair value (cost: $198,163 and $149,077)
|
264,989
|
|
|
167,970
|
|
||
Investments accounted for using the fair value option
|
4,216,237
|
|
|
3,421,220
|
|
||
Investments accounted for using the equity method
|
1,041,322
|
|
|
811,273
|
|
||
Total investments
|
21,840,012
|
|
|
19,719,651
|
|
||
|
|
|
|
||||
Cash
|
606,199
|
|
|
842,942
|
|
||
Accrued investment income
|
113,133
|
|
|
124,483
|
|
||
Securities pledged under securities lending, at fair value (amortized cost: $463,181 and $746,409)
|
464,917
|
|
|
744,980
|
|
||
Premiums receivable
|
1,135,249
|
|
|
1,072,435
|
|
||
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses
|
2,540,143
|
|
|
2,114,138
|
|
||
Contractholder receivables
|
1,978,414
|
|
|
1,717,436
|
|
||
Ceded unearned premiums
|
926,611
|
|
|
859,567
|
|
||
Deferred acquisition costs
|
535,824
|
|
|
447,560
|
|
||
Receivable for securities sold
|
205,536
|
|
|
58,284
|
|
||
Goodwill and intangible assets
|
652,611
|
|
|
781,553
|
|
||
Other assets
|
1,053,009
|
|
|
889,080
|
|
||
Total assets
|
$
|
32,051,658
|
|
|
$
|
29,372,109
|
|
|
|
|
|
||||
Liabilities
|
|
|
|
||||
Reserve for losses and loss adjustment expenses
|
$
|
11,383,792
|
|
|
$
|
10,200,960
|
|
Unearned premiums
|
3,622,314
|
|
|
3,406,870
|
|
||
Reinsurance balances payable
|
323,496
|
|
|
300,407
|
|
||
Contractholder payables
|
1,978,414
|
|
|
1,717,436
|
|
||
Collateral held for insured obligations
|
240,183
|
|
|
301,406
|
|
||
Senior notes
|
1,732,884
|
|
|
1,732,258
|
|
||
Revolving credit agreement borrowings
|
816,132
|
|
|
756,650
|
|
||
Securities lending payable
|
476,605
|
|
|
762,554
|
|
||
Payable for securities purchased
|
449,186
|
|
|
76,183
|
|
||
Other liabilities
|
782,717
|
|
|
806,260
|
|
||
Total liabilities
|
21,805,723
|
|
|
20,060,984
|
|
||
|
|
|
|
||||
Commitments and Contingencies
|
|
|
|
||||
Redeemable noncontrolling interests
|
205,922
|
|
|
205,553
|
|
||
|
|
|
|
||||
Shareholders’ Equity
|
|
|
|
||||
Non-cumulative preferred shares
|
872,555
|
|
|
772,555
|
|
||
Convertible non-voting common equivalent preferred shares
|
489,627
|
|
|
1,101,304
|
|
||
Common shares ($0.0033 par, shares issued: 183,290,742 and 174,644,101)
|
611
|
|
|
582
|
|
||
Additional paid-in capital
|
1,230,617
|
|
|
531,687
|
|
||
Retained earnings
|
8,562,889
|
|
|
7,996,701
|
|
||
Accumulated other comprehensive income (loss), net of deferred income tax
|
118,044
|
|
|
(114,541
|
)
|
||
Common shares held in treasury, at cost (shares: 52,312,803 and 51,856,584)
|
(2,077,741
|
)
|
|
(2,034,570
|
)
|
||
Total shareholders' equity available to Arch
|
9,196,602
|
|
|
8,253,718
|
|
||
Non-redeemable noncontrolling interests
|
843,411
|
|
|
851,854
|
|
||
Total shareholders' equity
|
10,040,013
|
|
|
9,105,572
|
|
||
Total liabilities, noncontrolling interests and shareholders' equity
|
$
|
32,051,658
|
|
|
$
|
29,372,109
|
|
ARCH CAPITAL
|
96
|
2017 FORM 10-K
|
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (U.S. dollars in thousands, except share data) |
|||||||||||
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Revenues
|
|
|
|
|
|
||||||
Net premiums written
|
$
|
4,961,373
|
|
|
$
|
4,031,391
|
|
|
$
|
3,817,531
|
|
Change in unearned premiums
|
(116,841
|
)
|
|
(146,569
|
)
|
|
(83,626
|
)
|
|||
Net premiums earned
|
4,844,532
|
|
|
3,884,822
|
|
|
3,733,905
|
|
|||
Net investment income
|
470,872
|
|
|
366,742
|
|
|
348,090
|
|
|||
Net realized gains (losses)
|
149,141
|
|
|
137,586
|
|
|
(185,842
|
)
|
|||
Other-than-temporary impairment losses
|
(7,138
|
)
|
|
(30,794
|
)
|
|
(26,152
|
)
|
|||
Less investment impairments recognized in other comprehensive income, before taxes
|
—
|
|
|
352
|
|
|
6,036
|
|
|||
Net impairment losses recognized in earnings
|
(7,138
|
)
|
|
(30,442
|
)
|
|
(20,116
|
)
|
|||
|
|
|
|
|
|
||||||
Other underwriting income
|
30,253
|
|
|
57,173
|
|
|
35,497
|
|
|||
Equity in net income of investment funds accounted for using the equity method
|
142,286
|
|
|
48,475
|
|
|
25,455
|
|
|||
Other income (loss)
|
(2,571
|
)
|
|
(800
|
)
|
|
(399
|
)
|
|||
Total revenues
|
5,627,375
|
|
|
4,463,556
|
|
|
3,936,590
|
|
|||
|
|
|
|
|
|
||||||
Expenses
|
|
|
|
|
|
||||||
Losses and loss adjustment expenses
|
2,967,446
|
|
|
2,185,599
|
|
|
2,050,903
|
|
|||
Acquisition expenses
|
775,458
|
|
|
667,625
|
|
|
662,778
|
|
|||
Other operating expenses
|
684,451
|
|
|
624,090
|
|
|
603,288
|
|
|||
Corporate expenses
|
83,752
|
|
|
81,746
|
|
|
49,745
|
|
|||
Amortization of intangible assets
|
125,778
|
|
|
19,343
|
|
|
22,926
|
|
|||
Interest expense
|
117,431
|
|
|
66,252
|
|
|
45,874
|
|
|||
Net foreign exchange losses (gains)
|
115,782
|
|
|
(36,651
|
)
|
|
(66,118
|
)
|
|||
Total expenses
|
4,870,098
|
|
|
3,608,004
|
|
|
3,369,396
|
|
|||
|
|
|
|
|
|
||||||
Income before income taxes
|
757,277
|
|
|
855,552
|
|
|
567,194
|
|
|||
|
|
|
|
|
|
||||||
Income taxes:
|
|
|
|
|
|
||||||
Current tax (benefit) expense
|
(45,736
|
)
|
|
50,745
|
|
|
44,194
|
|
|||
Deferred tax expense (benefit)
|
173,304
|
|
|
(19,371
|
)
|
|
(3,582
|
)
|
|||
Income tax expense
|
127,568
|
|
|
31,374
|
|
|
40,612
|
|
|||
|
|
|
|
|
|
||||||
Net income
|
$
|
629,709
|
|
|
$
|
824,178
|
|
|
$
|
526,582
|
|
Net (income) loss attributable to noncontrolling interests
|
(10,431
|
)
|
|
(131,440
|
)
|
|
11,156
|
|
|||
Net income available to Arch
|
619,278
|
|
|
692,738
|
|
|
537,738
|
|
|||
Preferred dividends
|
(46,041
|
)
|
|
(28,070
|
)
|
|
(21,938
|
)
|
|||
Loss on redemption of preferred shares
|
(6,735
|
)
|
|
—
|
|
|
—
|
|
|||
Net income available to Arch common shareholders
|
$
|
566,502
|
|
|
$
|
664,668
|
|
|
$
|
515,800
|
|
|
|
|
|
|
|
||||||
Net income per common share and common share equivalent
|
|
|
|
|
|
||||||
Basic
|
$
|
4.21
|
|
|
$
|
5.50
|
|
|
$
|
4.24
|
|
Diluted
|
$
|
4.07
|
|
|
$
|
5.33
|
|
|
$
|
4.09
|
|
|
|
|
|
|
|
||||||
Weighted average common shares and common share equivalents outstanding
|
|
|
|
|
|
||||||
Basic
|
134,712,788
|
|
|
120,792,114
|
|
|
121,786,127
|
|
|||
Diluted
|
139,261,675
|
|
|
124,717,493
|
|
|
126,038,743
|
|
ARCH CAPITAL
|
97
|
2017 FORM 10-K
|
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (U.S. dollars in thousands) |
|||||||||||
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Comprehensive Income
|
|
|
|
|
|
||||||
Net income
|
$
|
629,709
|
|
|
$
|
824,178
|
|
|
$
|
526,582
|
|
Other comprehensive income (loss), net of deferred income tax
|
|
|
|
|
|
||||||
Unrealized appreciation (decline) in value of available-for-sale investments:
|
|
|
|
|
|
||||||
Unrealized holding gains (losses) arising during year
|
252,904
|
|
|
(21,013
|
)
|
|
(77,244
|
)
|
|||
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax
|
—
|
|
|
(352
|
)
|
|
(6,036
|
)
|
|||
Reclassification of net realized gains, net of income taxes, included in net income
|
(67,863
|
)
|
|
(56,361
|
)
|
|
(28,233
|
)
|
|||
Foreign currency translation adjustments
|
47,014
|
|
|
(20,381
|
)
|
|
(34,111
|
)
|
|||
Comprehensive income
|
861,764
|
|
|
726,071
|
|
|
380,958
|
|
|||
Net (income) loss attributable to noncontrolling interests
|
(10,431
|
)
|
|
(131,440
|
)
|
|
11,156
|
|
|||
Foreign currency translation adjustments attributable to noncontrolling interests
|
530
|
|
|
68
|
|
|
265
|
|
|||
Comprehensive income available to Arch
|
$
|
851,863
|
|
|
$
|
594,699
|
|
|
$
|
392,379
|
|
ARCH CAPITAL
|
98
|
2017 FORM 10-K
|
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (U.S. dollars in thousands) |
|||||||||||
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Non-cumulative preferred shares
|
|
|
|
|
|
||||||
Balance at beginning of year
|
$
|
772,555
|
|
|
$
|
325,000
|
|
|
$
|
325,000
|
|
Preferred shares issued
|
330,000
|
|
|
450,000
|
|
|
—
|
|
|||
Preferred shares redeemed
|
(230,000
|
)
|
|
(2,445
|
)
|
|
—
|
|
|||
Balance at end of year
|
872,555
|
|
|
772,555
|
|
|
325,000
|
|
|||
|
|
|
|
|
|
||||||
Convertible non-voting common equivalent preferred shares
|
|
|
|
|
|
||||||
Balance at beginning of year
|
1,101,304
|
|
|
—
|
|
|
—
|
|
|||
Series D preferred shares issued
|
—
|
|
|
1,101,304
|
|
|
—
|
|
|||
Preferred shares converted to common shares
|
(611,677
|
)
|
|
—
|
|
|
—
|
|
|||
Balance at end of year
|
489,627
|
|
|
1,101,304
|
|
|
—
|
|
|||
|
|
|
|
|
|
||||||
Common shares
|
|
|
|
|
|
||||||
Balance at beginning of year
|
582
|
|
|
577
|
|
|
572
|
|
|||
Common shares issued, net
|
29
|
|
|
5
|
|
|
5
|
|
|||
Balance at end of year
|
611
|
|
|
582
|
|
|
577
|
|
|||
|
|
|
|
|
|
||||||
Additional paid-in capital
|
|
|
|
|
|
||||||
Balance at beginning of year
|
531,687
|
|
|
467,339
|
|
|
383,073
|
|
|||
Common shares issued, net
|
18,732
|
|
|
11,919
|
|
|
10,576
|
|
|||
Issue costs on preferred shares issued
|
(10,306
|
)
|
|
(15,101
|
)
|
|
—
|
|
|||
Reversal of issue costs on preferred shares redeemed
|
6,735
|
|
|
—
|
|
|
—
|
|
|||
Preferred shares converted to common shares
|
611,653
|
|
|
—
|
|
|
—
|
|
|||
Exercise of stock options
|
4,432
|
|
|
9,448
|
|
|
15,926
|
|
|||
Amortization of share-based compensation
|
67,856
|
|
|
56,581
|
|
|
56,096
|
|
|||
Other
|
(172
|
)
|
|
1,501
|
|
|
1,668
|
|
|||
Balance at end of year
|
1,230,617
|
|
|
531,687
|
|
|
467,339
|
|
|||
|
|
|
|
|
|
||||||
Retained earnings
|
|
|
|
|
|
||||||
Balance at beginning of year
|
7,996,701
|
|
|
7,332,032
|
|
|
6,816,232
|
|
|||
Cumulative effect of an accounting change
|
(314
|
)
|
|
—
|
|
|
—
|
|
|||
Balance at beginning of year, as adjusted
|
7,996,387
|
|
|
7,332,032
|
|
|
6,816,232
|
|
|||
Net income
|
629,709
|
|
|
824,178
|
|
|
526,582
|
|
|||
Net (income) loss attributable to noncontrolling interests
|
(10,431
|
)
|
|
(131,439
|
)
|
|
11,156
|
|
|||
Preferred share dividends
|
(46,041
|
)
|
|
(28,070
|
)
|
|
(21,938
|
)
|
|||
Loss on redemption of preferred shares
|
(6,735
|
)
|
|
—
|
|
|
—
|
|
|||
Balance at end of year
|
8,562,889
|
|
|
7,996,701
|
|
|
7,332,032
|
|
|||
|
|
|
|
|
|
||||||
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
||||||
Balance at beginning of year
|
(114,541
|
)
|
|
(16,502
|
)
|
|
128,856
|
|
|||
Unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax:
|
|
|
|
|
|
||||||
Balance at beginning of year
|
(27,641
|
)
|
|
50,085
|
|
|
161,598
|
|
|||
Unrealized holding gains (losses) arising during period, net of reclassification adjustment
|
185,041
|
|
|
(77,374
|
)
|
|
(105,477
|
)
|
|||
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax
|
—
|
|
|
(352
|
)
|
|
(6,036
|
)
|
|||
Balance at end of year
|
157,400
|
|
|
(27,641
|
)
|
|
50,085
|
|
|||
Foreign currency translation adjustments, net of deferred income tax:
|
|
|
|
|
|
||||||
Balance at beginning of year
|
(86,900
|
)
|
|
(66,587
|
)
|
|
(32,742
|
)
|
|||
Foreign currency translation adjustments
|
47,014
|
|
|
(20,381
|
)
|
|
(34,111
|
)
|
|||
Foreign currency translation adjustments attributable to noncontrolling interests
|
530
|
|
|
68
|
|
|
266
|
|
|||
Balance at end of year
|
(39,356
|
)
|
|
(86,900
|
)
|
|
(66,587
|
)
|
|||
Balance at end of year
|
118,044
|
|
|
(114,541
|
)
|
|
(16,502
|
)
|
|||
|
|
|
|
|
|
||||||
Common shares held in treasury, at cost
|
|
|
|
|
|
||||||
Balance at beginning of year
|
(2,034,570
|
)
|
|
(1,941,904
|
)
|
|
(1,562,019
|
)
|
|||
Shares repurchased for treasury
|
(43,171
|
)
|
|
(92,666
|
)
|
|
(379,885
|
)
|
|||
Balance at end of year
|
(2,077,741
|
)
|
|
(2,034,570
|
)
|
|
(1,941,904
|
)
|
|||
|
|
|
|
|
|
||||||
Total shareholders’ equity available to Arch
|
9,196,602
|
|
|
8,253,718
|
|
|
6,166,542
|
|
|||
Non-redeemable noncontrolling interests
|
843,411
|
|
|
851,854
|
|
|
738,831
|
|
|||
Total shareholders’ equity
|
$
|
10,040,013
|
|
|
$
|
9,105,572
|
|
|
$
|
6,905,373
|
|
ARCH CAPITAL
|
99
|
2017 FORM 10-K
|
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands) |
|||||||||||
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Operating Activities
|
|
|
|
|
|
||||||
Net income
|
$
|
629,709
|
|
|
$
|
824,178
|
|
|
$
|
526,582
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Net realized (gains) losses
|
(174,517
|
)
|
|
(178,507
|
)
|
|
149,961
|
|
|||
Net impairment losses recognized in earnings
|
7,138
|
|
|
30,442
|
|
|
20,116
|
|
|||
Equity in net income or loss of investment funds accounted for using the
equity method and other income or loss
|
(79,540
|
)
|
|
5,644
|
|
|
3,857
|
|
|||
Amortization of intangible assets
|
125,778
|
|
|
19,343
|
|
|
22,926
|
|
|||
Share-based compensation
|
67,798
|
|
|
56,581
|
|
|
56,096
|
|
|||
Changes in:
|
|
|
|
|
|
||||||
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable
|
614,534
|
|
|
372,244
|
|
|
181,658
|
|
|||
Unearned premiums, net of ceded unearned premiums
|
116,841
|
|
|
146,569
|
|
|
83,626
|
|
|||
Premiums receivable
|
(31,405
|
)
|
|
(71,613
|
)
|
|
(26,783
|
)
|
|||
Deferred acquisition costs
|
(78,378
|
)
|
|
(38,597
|
)
|
|
(29,008
|
)
|
|||
Reinsurance balances payable
|
8,529
|
|
|
31,542
|
|
|
(5,885
|
)
|
|||
Other items, net
|
(93,870
|
)
|
|
198,818
|
|
|
14,760
|
|
|||
Net Cash Provided By Operating Activities
|
1,112,617
|
|
|
1,396,644
|
|
|
997,906
|
|
|||
|
|
|
|
|
|
||||||
Investing Activities
|
|
|
|
|
|
||||||
Purchases of fixed maturity investments
|
(36,806,913
|
)
|
|
(35,532,810
|
)
|
|
(29,451,873
|
)
|
|||
Purchases of equity securities
|
(1,021,016
|
)
|
|
(665,702
|
)
|
|
(515,413
|
)
|
|||
Purchases of other investments
|
(2,020,624
|
)
|
|
(1,389,406
|
)
|
|
(1,749,525
|
)
|
|||
Proceeds from sales of fixed maturity investments
|
35,686,779
|
|
|
34,559,966
|
|
|
28,094,047
|
|
|||
Proceeds from sales of equity securities
|
1,056,401
|
|
|
751,728
|
|
|
564,011
|
|
|||
Proceeds from sales, redemptions and maturities of other investments
|
1,528,617
|
|
|
1,149,328
|
|
|
1,250,883
|
|
|||
Proceeds from redemptions and maturities of fixed maturity investments
|
907,417
|
|
|
755,007
|
|
|
748,529
|
|
|||
Net settlements of derivative instruments
|
(28,563
|
)
|
|
(17,068
|
)
|
|
(5,056
|
)
|
|||
Proceeds from investment in joint venture
|
—
|
|
|
—
|
|
|
40,000
|
|
|||
Net (purchases) sales of short-term investments
|
(734,554
|
)
|
|
(123,410
|
)
|
|
169,095
|
|
|||
Change in cash collateral related to securities lending
|
12,540
|
|
|
(155,248
|
)
|
|
(6,662
|
)
|
|||
Acquisitions, net of cash
|
(27,709
|
)
|
|
(1,992,720
|
)
|
|
818
|
|
|||
Purchases of fixed assets
|
(22,841
|
)
|
|
(15,303
|
)
|
|
(15,736
|
)
|
|||
Other
|
110,470
|
|
|
(45,905
|
)
|
|
(36,993
|
)
|
|||
Net Cash Used For Investing Activities
|
(1,359,996
|
)
|
|
(2,721,543
|
)
|
|
(913,875
|
)
|
|||
|
|
|
|
|
|
||||||
Financing Activities
|
|
|
|
|
|
||||||
Proceeds from issuance of preferred shares, net
|
319,694
|
|
|
434,899
|
|
|
—
|
|
|||
Redemption of preferred shares
|
(230,000
|
)
|
|
(2,445
|
)
|
|
—
|
|
|||
Purchases of common shares under share repurchase program
|
—
|
|
|
(75,256
|
)
|
|
(365,383
|
)
|
|||
Proceeds from common shares issued, net
|
(21,048
|
)
|
|
(2,418
|
)
|
|
4,861
|
|
|||
Proceeds from borrowings
|
253,415
|
|
|
1,386,741
|
|
|
431,362
|
|
|||
Repayments of borrowings
|
(197,000
|
)
|
|
(219,171
|
)
|
|
—
|
|
|||
Change in cash collateral related to securities lending
|
(12,540
|
)
|
|
155,248
|
|
|
6,662
|
|
|||
Dividends paid to redeemable noncontrolling interests
|
(17,989
|
)
|
|
(17,989
|
)
|
|
(18,307
|
)
|
|||
Other
|
(51,896
|
)
|
|
4,130
|
|
|
(41,913
|
)
|
|||
Preferred dividends paid
|
(46,041
|
)
|
|
(28,070
|
)
|
|
(21,938
|
)
|
|||
Net Cash Provided By (Used For) Financing Activities
|
(3,405
|
)
|
|
1,635,669
|
|
|
(4,656
|
)
|
|||
|
|
|
|
|
|
||||||
Effects of exchange rate changes on foreign currency cash
|
14,041
|
|
|
(21,154
|
)
|
|
(11,751
|
)
|
|||
|
|
|
|
|
|
||||||
Increase (decrease) in cash
|
(236,743
|
)
|
|
289,616
|
|
|
67,624
|
|
|||
Cash beginning of year
|
842,942
|
|
|
553,326
|
|
|
485,702
|
|
|||
Cash end of year
|
$
|
606,199
|
|
|
$
|
842,942
|
|
|
$
|
553,326
|
|
|
|
|
|
|
|
||||||
Income taxes paid
|
$
|
51,781
|
|
|
$
|
50,621
|
|
|
$
|
40,273
|
|
Interest paid
|
$
|
117,374
|
|
|
$
|
63,288
|
|
|
$
|
52,728
|
|
Non-cash consideration paid in convertible non-voting common equivalent preferred shares
|
$
|
—
|
|
|
$
|
1,101,304
|
|
|
$
|
—
|
|
ARCH CAPITAL
|
100
|
2017 FORM 10-K
|
|
|
Total
|
|
Useful Life
|
||
Purchase price
|
|
|
|
|
||
Cash paid
|
|
$
|
2,159,524
|
|
|
|
Convertible non-voting common equivalent preferred shares (1)
|
|
1,101,304
|
|
|
|
|
Total purchase price (a)
|
|
$
|
3,260,828
|
|
|
|
|
|
|
|
|
||
Assets acquired
|
|
|
|
|
||
Cash
|
|
$
|
187,715
|
|
|
|
Investments, at fair value
|
|
3,404,267
|
|
|
|
|
Accrued investment income
|
|
33,770
|
|
|
|
|
Premiums receivable
|
|
34,545
|
|
|
|
|
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses
|
|
27,280
|
|
|
|
|
Ceded unearned premiums
|
|
302,090
|
|
|
|
|
Intangible asset -- acquired insurance contracts
|
|
350,000
|
|
|
9 years
|
|
Intangible asset -- distribution relationships
|
|
115,000
|
|
|
20 years
|
|
Intangible asset -- operating platform
|
|
15,000
|
|
|
5 years
|
|
Intangible asset -- insurance licenses
|
|
27,000
|
|
|
Indefinite
|
|
Other assets acquired
|
|
133,222
|
|
|
|
|
Total assets acquired
|
|
4,629,889
|
|
|
|
|
|
|
|
|
|
||
Liabilities acquired
|
|
|
|
|
||
Reserves for losses and loss adjustment expenses
|
|
$
|
577,268
|
|
|
|
Unearned premiums
|
|
837,175
|
|
|
|
|
Reinsurance balances payable
|
|
49,295
|
|
|
|
|
Other liabilities acquired
|
|
94,081
|
|
|
|
|
Total liabilities acquired
|
|
1,557,819
|
|
|
|
|
Net assets acquired (b)
|
|
$
|
3,072,070
|
|
|
|
Goodwill (a)-(b)
|
|
$
|
188,758
|
|
|
|
ARCH CAPITAL
|
101
|
2017 FORM 10-K
|
|
Unaudited Pro Forma
|
||||||
|
Year Ended December 31,
|
||||||
|
2016
|
|
2015
|
||||
Total revenues
|
$
|
5,311,729
|
|
|
$
|
4,840,084
|
|
Net income available to Arch common shareholders
|
$
|
913,882
|
|
|
$
|
718,463
|
|
Net income per common share and common share equivalent
|
|
|
|
||||
Basic
|
$6.84
|
|
$5.34
|
||||
Diluted
|
$6.65
|
|
$5.18
|
•
|
The reserve for losses and loss adjustment expenses;
|
•
|
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses, including the provision for uncollectible amounts;
|
•
|
Estimates of written and earned premiums;
|
•
|
The valuation of the investment portfolio and assessment of other-than-temporary impairments (“OTTI”);
|
•
|
The valuation of purchased intangible assets;
|
•
|
The assessment of goodwill and intangible assets for impairment; and
|
•
|
the valuation of deferred tax assets.
|
ARCH CAPITAL
|
102
|
2017 FORM 10-K
|
ARCH CAPITAL
|
103
|
2017 FORM 10-K
|
ARCH CAPITAL
|
104
|
2017 FORM 10-K
|
ARCH CAPITAL
|
105
|
2017 FORM 10-K
|
ARCH CAPITAL
|
106
|
2017 FORM 10-K
|
ARCH CAPITAL
|
107
|
2017 FORM 10-K
|
ARCH CAPITAL
|
108
|
2017 FORM 10-K
|
ARCH CAPITAL
|
109
|
2017 FORM 10-K
|
ARCH CAPITAL
|
110
|
2017 FORM 10-K
|
4
.
|
Variable Interest Entity and Noncontrolling Interests
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Assets
|
|
|
|
||||
Investments accounted for using the fair value option
|
$
|
2,426,066
|
|
|
$
|
1,857,623
|
|
Cash
|
54,503
|
|
|
74,893
|
|
||
Accrued investment income
|
18,261
|
|
|
17,017
|
|
||
Premiums receivable
|
177,492
|
|
|
189,911
|
|
||
Reinsurance recoverable on unpaid and paid losses and LAE
|
42,777
|
|
|
24,420
|
|
||
Ceded unearned premiums
|
24,762
|
|
|
12,145
|
|
||
Deferred acquisition costs, net
|
85,961
|
|
|
86,379
|
|
||
Receivable for securities sold
|
36,374
|
|
|
1,326
|
|
||
Goodwill and intangible assets
|
7,650
|
|
|
7,650
|
|
||
Other assets
|
140,808
|
|
|
111,386
|
|
||
Total assets of consolidated VIE
|
$
|
3,014,654
|
|
|
$
|
2,382,750
|
|
|
|
|
|
||||
Liabilities
|
|
|
|
||||
Reserves for losses and loss adjustment expenses
|
$
|
798,262
|
|
|
$
|
510,809
|
|
Unearned premiums
|
330,644
|
|
|
293,480
|
|
||
Reinsurance balances payable
|
18,424
|
|
|
12,289
|
|
||
Revolving credit agreement borrowings
|
441,132
|
|
|
256,650
|
|
||
Payable for securities purchased
|
42,501
|
|
|
42,922
|
|
||
Other liabilities
|
215,186
|
|
|
88,976
|
|
||
Total liabilities of consolidated VIE
|
$
|
1,846,149
|
|
|
$
|
1,205,126
|
|
|
|
|
|
||||
Redeemable noncontrolling interests
|
$
|
220,622
|
|
|
$
|
220,253
|
|
ARCH CAPITAL
|
111
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
|||||||
|
2017
|
|
2016
|
|
2015
|
|||
Total cash provided by (used for):
|
|
|
|
|
|
|||
Operating activities
|
286,558
|
|
|
288,006
|
|
|
293,736
|
|
Investing activities
|
(471,640
|
)
|
|
(118,829
|
)
|
|
(556,837
|
)
|
Financing activities
|
162,152
|
|
|
(195,647
|
)
|
|
361,917
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Balance, beginning of year
|
$
|
851,854
|
|
|
$
|
738,831
|
|
Amounts attributable to noncontrolling interests
|
(7,913
|
)
|
|
113,091
|
|
||
Foreign currency translation adjustments
|
(530
|
)
|
|
(68
|
)
|
||
Balance, end of year
|
$
|
843,411
|
|
|
$
|
851,854
|
|
|
December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Balance, beginning of year
|
$
|
205,553
|
|
|
$
|
205,182
|
|
|
$
|
219,512
|
|
Shares acquired by the Company (1)
|
—
|
|
|
—
|
|
|
(14,700
|
)
|
|||
Accretion of preference share issuance costs
|
369
|
|
|
371
|
|
|
370
|
|
|||
Balance, end of year
|
$
|
205,922
|
|
|
$
|
205,553
|
|
|
$
|
205,182
|
|
|
December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Amounts attributable to non-redeemable noncontrolling interests
|
$
|
7,913
|
|
|
$
|
(113,091
|
)
|
|
$
|
29,984
|
|
Dividends attributable to redeemable noncontrolling interests
|
(18,344
|
)
|
|
(18,349
|
)
|
|
(18,828
|
)
|
|||
Net (income) loss attributable to noncontrolling interests
|
$
|
(10,431
|
)
|
|
$
|
(131,440
|
)
|
|
$
|
11,156
|
|
ARCH CAPITAL
|
112
|
2017 FORM 10-K
|
|
|
|
Maximum Exposure to Loss
|
||||||||||||
|
Total VIE Assets
|
|
On-Balance Sheet
|
|
Off-Balance Sheet
|
|
Total
|
||||||||
Bellemeade Re I Ltd.
|
$
|
92,390
|
|
|
$
|
471
|
|
|
$
|
832
|
|
|
$
|
1,303
|
|
Bellemeade Re II Ltd.
|
135,201
|
|
|
20
|
|
|
527
|
|
|
547
|
|
||||
Bellemeade 2017-1 Ltd.
|
347,139
|
|
|
391
|
|
|
1,867
|
|
|
2,258
|
|
||||
Total
|
$
|
574,730
|
|
|
$
|
882
|
|
|
$
|
3,226
|
|
|
$
|
4,108
|
|
•
|
Construction and national accounts:
primary and excess casualty coverages to middle and large accounts in the construction industry and a wide range of products for middle and large national accounts, specializing in loss sensitive primary casualty insurance programs (including large deductible, self-insured retention and retrospectively rated programs).
|
•
|
Excess and surplus casualty:
primary and excess casualty insurance coverages, including middle market energy business, and contract binding, which primarily provides casualty coverage through a network of appointed agents to small and medium risks.
|
•
|
Lenders products:
collateral protection, debt cancellation and service contract reimbursement products to banks, credit unions, automotive dealerships and original equipment manufacturers and other specialty programs that pertain to automotive lending and leasing.
|
•
|
Professional lines:
directors’ and officers’ liability, errors and omissions liability, employment practices liability, fiduciary liability, crime, professional indemnity and other financial related coverages for corporate, private equity, venture capital, real estate investment trust, limited partnership, financial institution and not-for-profit clients of all sizes and medical professional and general liability insurance coverages for the healthcare industry. The business is predominately written on a claims-made basis.
|
•
|
Programs:
primarily package policies, underwriting workers’ compensation and umbrella liability business in support of desirable package programs, targeting program managers with unique expertise and niche products offering general liability, commercial automobile, inland marine and property business with minimal catastrophe exposure.
|
•
|
Property, energy, marine and aviation:
primary and excess general property insurance coverages, including catastrophe-exposed property coverage, for commercial clients. Coverages for marine include hull, war, specie and liability. Aviation and stand-alone terrorism are also offered.
|
•
|
Travel, accident and health:
specialty travel and accident and related insurance products for individual, group travelers, travel agents and suppliers, as well as accident and health, which provides accident, disability and medical plan insurance coverages for employer groups, medical plan members, students and other participant groups.
|
•
|
Other:
includes alternative market risks (including captive insurance programs), excess workers’
|
ARCH CAPITAL
|
113
|
2017 FORM 10-K
|
•
|
Casualty:
provides coverage to ceding company clients on third party liability and workers’ compensation exposures from ceding company clients, primarily on a treaty basis. Exposures include, among others, executive assurance, professional liability, workers’ compensation, excess and umbrella liability, excess motor and healthcare business.
|
•
|
Marine and aviation:
provides coverage for energy, hull, cargo, specie, liability and transit, and aviation business, including airline and general aviation risks. Business written may also include space business, which includes coverages for satellite assembly, launch and operation for commercial space programs.
|
•
|
Other specialty:
provides coverage to ceding company clients for proportional motor and other lines including surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and political risk.
|
•
|
Property catastrophe:
provides protection for most catastrophic losses that are covered in the underlying policies written by reinsureds, including hurricane, earthquake, flood, tornado, hail and fire, and coverage for other perils on a case-by-case basis. Property catastrophe reinsurance provides coverage on an excess of loss basis when aggregate losses and loss adjustment expense from a single occurrence of a covered peril exceed the retention specified in the contract.
|
•
|
Property excluding property catastrophe:
provides coverage for both personal lines and commercial property exposures and principally covers buildings, structures,
|
•
|
Other.
includes life reinsurance business on both a proportional and non-proportional basis, casualty clash business and, in limited instances, non-traditional business which is intended to provide insurers with risk management solutions that complement traditional reinsurance.
|
ARCH CAPITAL
|
114
|
2017 FORM 10-K
|
|
Year Ended December 31, 2017
|
||||||||||||||||||||||
|
Insurance
|
|
Reinsurance
|
|
Mortgage
|
|
Sub-Total
|
|
Other
|
|
Total
|
||||||||||||
Gross premiums written (1)
|
$
|
3,081,086
|
|
|
$
|
1,640,399
|
|
|
$
|
1,368,138
|
|
|
$
|
6,088,254
|
|
|
$
|
600,304
|
|
|
$
|
6,368,425
|
|
Premiums ceded
|
(958,646
|
)
|
|
(465,925
|
)
|
|
(256,796
|
)
|
|
(1,679,998
|
)
|
|
(47,187
|
)
|
|
(1,407,052
|
)
|
||||||
Net premiums written
|
2,122,440
|
|
|
1,174,474
|
|
|
1,111,342
|
|
|
4,408,256
|
|
|
553,117
|
|
|
4,961,373
|
|
||||||
Change in unearned premiums
|
(9,422
|
)
|
|
(31,853
|
)
|
|
(54,176
|
)
|
|
(95,451
|
)
|
|
(21,390
|
)
|
|
(116,841
|
)
|
||||||
Net premiums earned
|
2,113,018
|
|
|
1,142,621
|
|
|
1,057,166
|
|
|
4,312,805
|
|
|
531,727
|
|
|
4,844,532
|
|
||||||
Other underwriting income
|
—
|
|
|
11,336
|
|
|
15,737
|
|
|
27,073
|
|
|
3,180
|
|
|
30,253
|
|
||||||
Losses and loss adjustment expenses
|
(1,622,444
|
)
|
|
(773,923
|
)
|
|
(134,677
|
)
|
|
(2,531,044
|
)
|
|
(436,402
|
)
|
|
(2,967,446
|
)
|
||||||
Acquisition expenses
|
(323,639
|
)
|
|
(221,250
|
)
|
|
(100,598
|
)
|
|
(645,487
|
)
|
|
(129,971
|
)
|
|
(775,458
|
)
|
||||||
Other operating expenses
|
(359,524
|
)
|
|
(146,663
|
)
|
|
(146,336
|
)
|
|
(652,523
|
)
|
|
(31,928
|
)
|
|
(684,451
|
)
|
||||||
Underwriting income (loss)
|
$
|
(192,589
|
)
|
|
$
|
12,121
|
|
|
$
|
691,292
|
|
|
510,824
|
|
|
(63,394
|
)
|
|
447,430
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net investment income
|
|
|
|
|
|
|
382,072
|
|
|
88,800
|
|
|
470,872
|
|
|||||||||
Net realized gains (losses)
|
|
|
|
|
|
|
148,798
|
|
|
343
|
|
|
149,141
|
|
|||||||||
Net impairment losses recognized in earnings
|
|
|
|
|
|
|
(7,138
|
)
|
|
—
|
|
|
(7,138
|
)
|
|||||||||
Equity in net income (loss) of investment funds accounted for using the equity method
|
|
|
|
|
|
|
142,286
|
|
|
—
|
|
|
142,286
|
|
|||||||||
Other income (loss)
|
|
|
|
|
|
|
(2,571
|
)
|
|
—
|
|
|
(2,571
|
)
|
|||||||||
Corporate expenses (2)
|
|
|
|
|
|
|
(61,602
|
)
|
|
—
|
|
|
(61,602
|
)
|
|||||||||
UGC transaction costs and other (2)
|
|
|
|
|
|
|
(22,150
|
)
|
|
—
|
|
|
(22,150
|
)
|
|||||||||
Amortization of intangible assets
|
|
|
|
|
|
|
(125,778
|
)
|
|
—
|
|
|
(125,778
|
)
|
|||||||||
Interest expense
|
|
|
|
|
|
|
(103,592
|
)
|
|
(13,839
|
)
|
|
(117,431
|
)
|
|||||||||
Net foreign exchange gains (losses)
|
|
|
|
|
|
|
(113,345
|
)
|
|
(2,437
|
)
|
|
(115,782
|
)
|
|||||||||
Income before income taxes
|
|
|
|
|
|
|
747,804
|
|
|
9,473
|
|
|
757,277
|
|
|||||||||
Income tax expense
|
|
|
|
|
|
|
(127,547
|
)
|
|
(21
|
)
|
|
(127,568
|
)
|
|||||||||
Net income
|
|
|
|
|
|
|
620,257
|
|
|
9,452
|
|
|
629,709
|
|
|||||||||
Dividends attributable to redeemable noncontrolling interests
|
|
|
|
|
|
|
—
|
|
|
(18,344
|
)
|
|
(18,344
|
)
|
|||||||||
Amounts attributable to nonredeemable noncontrolling interests
|
|
|
|
|
|
|
—
|
|
|
7,913
|
|
|
7,913
|
|
|||||||||
Net income (loss) available to Arch
|
|
|
|
|
|
|
620,257
|
|
|
(979
|
)
|
|
619,278
|
|
|||||||||
Preferred dividends
|
|
|
|
|
|
|
(46,041
|
)
|
|
—
|
|
|
(46,041
|
)
|
|||||||||
Loss on redemption of preferred shares
|
|
|
|
|
|
|
(6,735
|
)
|
|
—
|
|
|
(6,735
|
)
|
|||||||||
Net income (loss) available to Arch common shareholders
|
|
|
|
|
|
|
$
|
567,481
|
|
|
$
|
(979
|
)
|
|
$
|
566,502
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Underwriting Ratios
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loss ratio
|
76.8
|
%
|
|
67.7
|
%
|
|
12.7
|
%
|
|
58.7
|
%
|
|
82.1
|
%
|
|
61.3
|
%
|
||||||
Acquisition expense ratio
|
15.3
|
%
|
|
19.4
|
%
|
|
9.5
|
%
|
|
15.0
|
%
|
|
24.4
|
%
|
|
16.0
|
%
|
||||||
Other operating expense ratio
|
17.0
|
%
|
|
12.8
|
%
|
|
13.8
|
%
|
|
15.1
|
%
|
|
6.0
|
%
|
|
14.1
|
%
|
||||||
Combined ratio
|
109.1
|
%
|
|
99.9
|
%
|
|
36.0
|
%
|
|
88.8
|
%
|
|
112.5
|
%
|
|
91.4
|
%
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Goodwill and intangible assets
|
$
|
22,310
|
|
|
$
|
211
|
|
|
$
|
622,440
|
|
|
$
|
644,961
|
|
|
$
|
7,650
|
|
|
$
|
652,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total investable assets
|
|
|
|
|
|
|
$
|
19,716,421
|
|
|
$
|
2,440,067
|
|
|
$
|
22,156,488
|
|
||||||
Total assets
|
|
|
|
|
|
|
29,037,004
|
|
|
3,014,654
|
|
|
32,051,658
|
|
|||||||||
Total liabilities
|
|
|
|
|
|
|
19,959,574
|
|
|
1,846,149
|
|
|
21,805,723
|
|
(1)
|
Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.
|
(2)
|
Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘UGC transaction costs and other.’ See ‘Comments on Regulation G’ for a further discussion of the presentation of such items.
|
ARCH CAPITAL
|
115
|
2017 FORM 10-K
|
|
Year Ended December 31, 2016
|
||||||||||||||||||||||
|
Insurance
|
|
Reinsurance
|
|
Mortgage
|
|
Sub-Total
|
|
Other
|
|
Total
|
||||||||||||
Gross premiums written (1)
|
$
|
3,027,049
|
|
|
$
|
1,494,397
|
|
|
$
|
499,725
|
|
|
$
|
5,019,363
|
|
|
$
|
535,094
|
|
|
$
|
5,202,134
|
|
Premiums ceded
|
(954,768
|
)
|
|
(440,541
|
)
|
|
(108,259
|
)
|
|
(1,501,760
|
)
|
|
(21,306
|
)
|
|
(1,170,743
|
)
|
||||||
Net premiums written
|
2,072,281
|
|
|
1,053,856
|
|
|
391,466
|
|
|
3,517,603
|
|
|
513,788
|
|
|
4,031,391
|
|
||||||
Change in unearned premiums
|
1,623
|
|
|
2,376
|
|
|
(104,750
|
)
|
|
(100,751
|
)
|
|
(45,818
|
)
|
|
(146,569
|
)
|
||||||
Net premiums earned
|
2,073,904
|
|
|
1,056,232
|
|
|
286,716
|
|
|
3,416,852
|
|
|
467,970
|
|
|
3,884,822
|
|
||||||
Other underwriting income
|
—
|
|
|
36,403
|
|
|
17,024
|
|
|
53,427
|
|
|
3,746
|
|
|
57,173
|
|
||||||
Losses and loss adjustment expenses
|
(1,359,313
|
)
|
|
(475,762
|
)
|
|
(28,943
|
)
|
|
(1,864,018
|
)
|
|
(321,581
|
)
|
|
(2,185,599
|
)
|
||||||
Acquisition expenses, net
|
(304,050
|
)
|
|
(212,258
|
)
|
|
(21,790
|
)
|
|
(538,098
|
)
|
|
(129,527
|
)
|
|
(667,625
|
)
|
||||||
Other operating expenses (2)
|
(350,260
|
)
|
|
(142,616
|
)
|
|
(96,672
|
)
|
|
(589,548
|
)
|
|
(25,163
|
)
|
|
(614,711
|
)
|
||||||
Underwriting income (loss)
|
$
|
60,281
|
|
|
$
|
261,999
|
|
|
$
|
156,335
|
|
|
478,615
|
|
|
(4,555
|
)
|
|
474,060
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net investment income
|
|
|
|
|
|
|
277,193
|
|
|
89,549
|
|
|
366,742
|
|
|||||||||
Net realized gains (losses)
|
|
|
|
|
|
|
69,586
|
|
|
68,000
|
|
|
137,586
|
|
|||||||||
Net impairment losses recognized in earnings
|
|
|
|
|
|
|
(30,442
|
)
|
|
—
|
|
|
(30,442
|
)
|
|||||||||
Equity in net income (loss) of investment funds accounted for using the equity method
|
|
|
|
|
|
|
48,475
|
|
|
—
|
|
|
48,475
|
|
|||||||||
Other income (loss)
|
|
|
|
|
|
|
(800
|
)
|
|
—
|
|
|
(800
|
)
|
|||||||||
Corporate expenses (2)
|
|
|
|
|
|
|
(49,396
|
)
|
|
—
|
|
|
(49,396
|
)
|
|||||||||
UGC transaction costs and other (2)
|
|
|
|
|
|
|
(41,729
|
)
|
|
—
|
|
|
(41,729
|
)
|
|||||||||
Amortization of intangible assets
|
|
|
|
|
|
|
(19,343
|
)
|
|
—
|
|
|
(19,343
|
)
|
|||||||||
Interest expense
|
|
|
|
|
|
|
(53,464
|
)
|
|
(12,788
|
)
|
|
(66,252
|
)
|
|||||||||
Net foreign exchange gains (losses)
|
|
|
|
|
|
|
31,409
|
|
|
5,242
|
|
|
36,651
|
|
|||||||||
Income before income taxes
|
|
|
|
|
|
|
710,104
|
|
|
145,448
|
|
|
855,552
|
|
|||||||||
Income tax (expense) benefit
|
|
|
|
|
|
|
(31,375
|
)
|
|
1
|
|
|
(31,374
|
)
|
|||||||||
Net income
|
|
|
|
|
|
|
678,729
|
|
|
145,449
|
|
|
824,178
|
|
|||||||||
Dividends attributable to redeemable noncontrolling interests
|
|
|
|
|
|
|
—
|
|
|
(18,349
|
)
|
|
(18,349
|
)
|
|||||||||
Amounts attributable to nonredeemable noncontrolling interests
|
|
|
|
|
|
|
—
|
|
|
(113,091
|
)
|
|
(113,091
|
)
|
|||||||||
Net income available to Arch
|
|
|
|
|
|
|
678,729
|
|
|
14,009
|
|
|
692,738
|
|
|||||||||
Preferred dividends
|
|
|
|
|
|
|
(28,070
|
)
|
|
—
|
|
|
(28,070
|
)
|
|||||||||
Net income available to Arch common shareholders
|
|
|
|
|
|
|
$
|
650,659
|
|
|
$
|
14,009
|
|
|
$
|
664,668
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Underwriting Ratios
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loss ratio
|
65.5
|
%
|
|
45.0
|
%
|
|
10.1
|
%
|
|
54.6
|
%
|
|
68.7
|
%
|
|
56.3
|
%
|
||||||
Acquisition expense ratio
|
14.7
|
%
|
|
20.1
|
%
|
|
7.6
|
%
|
|
15.7
|
%
|
|
27.7
|
%
|
|
17.2
|
%
|
||||||
Other operating expense ratio
|
16.9
|
%
|
|
13.5
|
%
|
|
33.7
|
%
|
|
17.3
|
%
|
|
5.4
|
%
|
|
15.8
|
%
|
||||||
Combined ratio
|
97.1
|
%
|
|
78.6
|
%
|
|
51.4
|
%
|
|
87.6
|
%
|
|
101.8
|
%
|
|
89.3
|
%
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Goodwill and intangible assets
|
$
|
25,206
|
|
|
$
|
956
|
|
|
$
|
747,741
|
|
|
$
|
773,903
|
|
|
$
|
7,650
|
|
|
$
|
781,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total investable assets
|
|
|
|
|
|
|
$
|
18,636,189
|
|
|
$
|
1,857,763
|
|
|
$
|
20,493,952
|
|
||||||
Total assets
|
|
|
|
|
|
|
26,989,359
|
|
|
2,382,750
|
|
|
29,372,109
|
|
|||||||||
Total liabilities
|
|
|
|
|
|
|
18,855,858
|
|
|
1,205,126
|
|
|
20,060,984
|
|
(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 ‘other operating expenses’ and reflected in ‘UGC transaction costs and other.’ See ‘Comments on Regulation G’ for a further discussion of the presentation of such items.
|
ARCH CAPITAL
|
116
|
2017 FORM 10-K
|
|
Year Ended December 31, 2015
|
||||||||||||||||||||||
|
Insurance
|
|
Reinsurance
|
|
Mortgage
|
|
Sub-Total
|
|
Other
|
|
Total
|
||||||||||||
Gross premiums written (1)
|
$
|
2,944,018
|
|
|
$
|
1,419,022
|
|
|
$
|
295,557
|
|
|
$
|
4,656,723
|
|
|
$
|
488,899
|
|
|
$
|
4,797,163
|
|
Premiums ceded
|
(898,347
|
)
|
|
(380,614
|
)
|
|
(28,064
|
)
|
|
(1,305,151
|
)
|
|
(22,940
|
)
|
|
(979,632
|
)
|
||||||
Net premiums written
|
2,045,671
|
|
|
1,038,408
|
|
|
267,493
|
|
|
3,351,572
|
|
|
465,959
|
|
|
3,817,531
|
|
||||||
Change in unearned premiums
|
(863
|
)
|
|
38,727
|
|
|
(53,383
|
)
|
|
(15,519
|
)
|
|
(68,107
|
)
|
|
(83,626
|
)
|
||||||
Net premiums earned
|
2,044,808
|
|
|
1,077,135
|
|
|
214,110
|
|
|
3,336,053
|
|
|
397,852
|
|
|
3,733,905
|
|
||||||
Other underwriting income
|
1,993
|
|
|
10,606
|
|
|
18,430
|
|
|
31,029
|
|
|
4,468
|
|
|
35,497
|
|
||||||
Losses and loss adjustment expenses
|
(1,292,647
|
)
|
|
(440,350
|
)
|
|
(40,247
|
)
|
|
(1,773,244
|
)
|
|
(277,659
|
)
|
|
(2,050,903
|
)
|
||||||
Acquisition expenses, net
|
(296,040
|
)
|
|
(222,470
|
)
|
|
(30,817
|
)
|
|
(549,327
|
)
|
|
(113,451
|
)
|
|
(662,778
|
)
|
||||||
Other operating expenses
|
(354,416
|
)
|
|
(155,811
|
)
|
|
(78,142
|
)
|
|
(588,369
|
)
|
|
(14,919
|
)
|
|
(603,288
|
)
|
||||||
Underwriting income (loss)
|
$
|
103,698
|
|
|
$
|
269,110
|
|
|
$
|
83,334
|
|
|
456,142
|
|
|
(3,709
|
)
|
|
452,433
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net investment income
|
|
|
|
|
|
|
271,680
|
|
|
76,410
|
|
|
348,090
|
|
|||||||||
Net realized gains (losses)
|
|
|
|
|
|
|
(99,133
|
)
|
|
(86,709
|
)
|
|
(185,842
|
)
|
|||||||||
Net impairment losses recognized in earnings
|
|
|
|
|
|
|
(20,116
|
)
|
|
—
|
|
|
(20,116
|
)
|
|||||||||
Equity in net income (loss) of investment funds accounted for using the equity method
|
|
|
|
|
|
|
25,455
|
|
|
—
|
|
|
25,455
|
|
|||||||||
Other income (loss)
|
|
|
|
|
|
|
(399
|
)
|
|
—
|
|
|
(399
|
)
|
|||||||||
Corporate expenses
|
|
|
|
|
|
|
(49,745
|
)
|
|
—
|
|
|
(49,745
|
)
|
|||||||||
Amortization of intangible assets
|
|
|
|
|
|
|
(22,926
|
)
|
|
—
|
|
|
(22,926
|
)
|
|||||||||
Interest expense
|
|
|
|
|
|
|
(41,518
|
)
|
|
(4,356
|
)
|
|
(45,874
|
)
|
|||||||||
Net foreign exchange gains (losses)
|
|
|
|
|
|
|
62,624
|
|
|
3,494
|
|
|
66,118
|
|
|||||||||
Income (loss) before income taxes
|
|
|
|
|
|
|
582,064
|
|
|
(14,870
|
)
|
|
567,194
|
|
|||||||||
Income tax benefit
|
|
|
|
|
|
|
(40,612
|
)
|
|
—
|
|
|
(40,612
|
)
|
|||||||||
Net income (loss)
|
|
|
|
|
|
|
541,452
|
|
|
(14,870
|
)
|
|
526,582
|
|
|||||||||
Dividends attributable to redeemable noncontrolling interests
|
|
|
|
|
|
|
—
|
|
|
(18,828
|
)
|
|
(18,828
|
)
|
|||||||||
Amounts attributable to nonredeemable noncontrolling interests
|
|
|
|
|
|
|
—
|
|
|
29,984
|
|
|
29,984
|
|
|||||||||
Net income (loss) available to Arch
|
|
|
|
|
|
|
541,452
|
|
|
(3,714
|
)
|
|
537,738
|
|
|||||||||
Preferred dividends
|
|
|
|
|
|
|
(21,938
|
)
|
|
—
|
|
|
(21,938
|
)
|
|||||||||
Net income (loss) available to Arch common shareholders
|
|
|
|
|
|
|
$
|
519,514
|
|
|
$
|
(3,714
|
)
|
|
$
|
515,800
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Underwriting Ratios
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loss ratio
|
63.2
|
%
|
|
40.9
|
%
|
|
18.8
|
%
|
|
53.2
|
%
|
|
69.8
|
%
|
|
54.9
|
%
|
||||||
Acquisition expense ratio
|
14.5
|
%
|
|
20.7
|
%
|
|
14.4
|
%
|
|
16.5
|
%
|
|
28.5
|
%
|
|
17.8
|
%
|
||||||
Other operating expense ratio
|
17.3
|
%
|
|
14.5
|
%
|
|
36.5
|
%
|
|
17.6
|
%
|
|
3.7
|
%
|
|
16.2
|
%
|
||||||
Combined ratio
|
95.0
|
%
|
|
76.1
|
%
|
|
69.7
|
%
|
|
87.3
|
%
|
|
102.0
|
%
|
|
88.9
|
%
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Goodwill and intangible assets
|
$
|
28,810
|
|
|
$
|
1,875
|
|
|
$
|
66,846
|
|
|
$
|
97,531
|
|
|
$
|
—
|
|
|
$
|
97,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total investable assets
|
|
|
|
|
|
|
$
|
14,644,831
|
|
|
$
|
1,696,107
|
|
|
$
|
16,340,938
|
|
||||||
Total assets
|
|
|
|
|
|
|
21,016,599
|
|
|
2,122,332
|
|
|
23,138,931
|
|
|||||||||
Total liabilities
|
|
|
|
|
|
|
14,956,274
|
|
|
1,072,102
|
|
|
16,028,376
|
|
(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.
|
ARCH CAPITAL
|
117
|
2017 FORM 10-K
|
INSURANCE SEGMENT
|
Year Ended December 31,
|
||||||||||
2017
|
|
2016
|
|
2015
|
|||||||
Net premiums written (1)
|
|
|
|
|
|
||||||
Professional lines (2)
|
$
|
452,748
|
|
|
$
|
440,149
|
|
|
$
|
434,024
|
|
Programs
|
386,618
|
|
|
330,322
|
|
|
423,157
|
|
|||
Construction and national accounts
|
327,648
|
|
|
328,997
|
|
|
299,463
|
|
|||
Travel, accident and health
|
247,738
|
|
|
224,380
|
|
|
160,132
|
|
|||
Excess and surplus casualty (3)
|
179,511
|
|
|
214,863
|
|
|
204,856
|
|
|||
Property, energy, marine and aviation
|
172,240
|
|
|
175,376
|
|
|
203,186
|
|
|||
Lenders products
|
96,867
|
|
|
105,650
|
|
|
106,916
|
|
|||
Other (4)
|
259,070
|
|
|
252,544
|
|
|
213,937
|
|
|||
Total
|
$
|
2,122,440
|
|
|
$
|
2,072,281
|
|
|
$
|
2,045,671
|
|
|
|
|
|
|
|
||||||
Net premiums earned (1)
|
|
|
|
|
|
||||||
Professional lines (2)
|
$
|
444,137
|
|
|
$
|
431,391
|
|
|
$
|
424,968
|
|
Programs
|
364,639
|
|
|
357,715
|
|
|
446,512
|
|
|||
Construction and national accounts
|
324,517
|
|
|
322,072
|
|
|
296,828
|
|
|||
Travel, accident and health
|
257,358
|
|
|
219,169
|
|
|
153,578
|
|
|||
Excess and surplus casualty (3)
|
195,154
|
|
|
219,046
|
|
|
208,091
|
|
|||
Property, energy, marine and aviation
|
173,779
|
|
|
188,938
|
|
|
216,127
|
|
|||
Lenders products
|
97,043
|
|
|
98,517
|
|
|
90,906
|
|
|||
Other (4)
|
256,391
|
|
|
237,056
|
|
|
207,798
|
|
|||
Total
|
$
|
2,113,018
|
|
|
$
|
2,073,904
|
|
|
$
|
2,044,808
|
|
|
|
|
|
|
|
||||||
Net premiums written by client location (1)
|
|
|
|
|
|
||||||
United States
|
$
|
1,744,560
|
|
|
$
|
1,718,415
|
|
|
$
|
1,710,918
|
|
Europe
|
185,365
|
|
|
173,423
|
|
|
187,020
|
|
|||
Asia and Pacific
|
100,062
|
|
|
93,752
|
|
|
64,638
|
|
|||
Other
|
92,453
|
|
|
86,691
|
|
|
83,095
|
|
|||
Total
|
$
|
2,122,440
|
|
|
$
|
2,072,281
|
|
|
$
|
2,045,671
|
|
|
|
|
|
|
|
||||||
Net premiums written by underwriting location (1)
|
|
|
|
|
|
||||||
United States
|
$
|
1,715,467
|
|
|
$
|
1,690,208
|
|
|
$
|
1,673,867
|
|
Europe
|
344,836
|
|
|
327,034
|
|
|
317,998
|
|
|||
Other
|
62,137
|
|
|
55,039
|
|
|
53,806
|
|
|||
Total
|
$
|
2,122,440
|
|
|
$
|
2,072,281
|
|
|
$
|
2,045,671
|
|
(1)
|
Insurance segment results include premiums written and earned assumed through intersegment transactions and exclude premiums written and earned ceded through intersegment transactions.
|
(2)
|
Includes professional liability, executive assurance and healthcare business.
|
(3)
|
Includes casualty and contract binding business.
|
(4)
|
Includes alternative markets, excess workers' compensation and surety business.
|
ARCH CAPITAL
|
118
|
2017 FORM 10-K
|
REINSURANCE SEGMENT
|
Year Ended December 31,
|
||||||||||
2017
|
|
2016
|
|
2015
|
|||||||
Net premiums written (1)
|
|
|
|
|
|
||||||
Other specialty (2)
|
$
|
459,213
|
|
|
$
|
348,852
|
|
|
$
|
298,794
|
|
Casualty (3)
|
340,429
|
|
|
305,252
|
|
|
303,093
|
|
|||
Property excluding property catastrophe (4)
|
243,693
|
|
|
267,548
|
|
|
280,511
|
|
|||
Property catastrophe
|
70,155
|
|
|
75,789
|
|
|
91,620
|
|
|||
Marine and aviation
|
32,759
|
|
|
37,790
|
|
|
50,834
|
|
|||
Other (5)
|
28,225
|
|
|
18,625
|
|
|
13,556
|
|
|||
Total
|
$
|
1,174,474
|
|
|
$
|
1,053,856
|
|
|
$
|
1,038,408
|
|
|
|
|
|
|
|
||||||
Net premiums earned (1)
|
|
|
|
|
|
||||||
Other specialty (2)
|
$
|
408,566
|
|
|
$
|
329,994
|
|
|
$
|
311,307
|
|
Casualty (3)
|
341,122
|
|
|
300,160
|
|
|
310,249
|
|
|||
Property excluding property catastrophe (4)
|
255,453
|
|
|
282,018
|
|
|
295,487
|
|
|||
Property catastrophe
|
73,300
|
|
|
73,803
|
|
|
96,865
|
|
|||
Marine and aviation
|
36,214
|
|
|
52,579
|
|
|
50,808
|
|
|||
Other (5)
|
27,966
|
|
|
17,678
|
|
|
12,419
|
|
|||
Total
|
$
|
1,142,621
|
|
|
$
|
1,056,232
|
|
|
$
|
1,077,135
|
|
|
|
|
|
|
|
||||||
Net premiums written (1)
|
|
|
|
|
|
||||||
Pro rata
|
$
|
708,694
|
|
|
$
|
558,671
|
|
|
$
|
537,556
|
|
Excess of loss
|
465,780
|
|
|
495,185
|
|
|
500,852
|
|
|||
Total
|
$
|
1,174,474
|
|
|
$
|
1,053,856
|
|
|
$
|
1,038,408
|
|
|
|
|
|
|
|
||||||
Net premiums earned (1)
|
|
|
|
|
|
||||||
Pro rata
|
$
|
657,490
|
|
|
$
|
561,986
|
|
|
$
|
563,585
|
|
Excess of loss
|
485,131
|
|
|
494,246
|
|
|
513,550
|
|
|||
Total
|
$
|
1,142,621
|
|
|
$
|
1,056,232
|
|
|
$
|
1,077,135
|
|
|
|
|
|
|
|
||||||
Net premiums written by client location (1)
|
|
|
|
|
|
||||||
United States
|
$
|
439,229
|
|
|
$
|
448,763
|
|
|
$
|
470,484
|
|
Europe
|
466,750
|
|
|
337,168
|
|
|
307,165
|
|
|||
Bermuda
|
89,004
|
|
|
74,347
|
|
|
80,888
|
|
|||
Asia and Pacific
|
86,133
|
|
|
111,821
|
|
|
94,609
|
|
|||
Other
|
93,358
|
|
|
81,757
|
|
|
85,262
|
|
|||
Total
|
$
|
1,174,474
|
|
|
$
|
1,053,856
|
|
|
$
|
1,038,408
|
|
|
|
|
|
|
|
||||||
Net premiums written by underwriting location (1)
|
|
|
|
|
|
||||||
United States
|
$
|
399,379
|
|
|
$
|
432,683
|
|
|
$
|
439,190
|
|
Bermuda
|
350,681
|
|
|
277,625
|
|
|
281,985
|
|
|||
Europe and other
|
424,414
|
|
|
343,548
|
|
|
317,233
|
|
|||
Total
|
$
|
1,174,474
|
|
|
$
|
1,053,856
|
|
|
$
|
1,038,408
|
|
(1)
|
Reinsurance segment results include premiums written and earned assumed through intersegment transactions and exclude premiums written and earned ceded through intersegment transactions.
|
(3)
|
Includes executive assurance, professional liability, workers’ compensation, excess motor, healthcare and other.
|
(4)
|
Includes facultative business.
|
(5)
|
Includes life, casualty clash and other.
|
ARCH CAPITAL
|
119
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
MORTGAGE SEGMENT
|
2017
|
|
2016
|
|
2015
|
||||||
Net premiums written by client location
|
|
|
|
|
|
||||||
United States
|
$
|
1,005,437
|
|
|
$
|
280,509
|
|
|
$
|
193,617
|
|
Other
|
105,905
|
|
|
110,957
|
|
|
73,876
|
|
|||
Total
|
$
|
1,111,342
|
|
|
$
|
391,466
|
|
|
$
|
267,493
|
|
|
|
|
|
|
|
||||||
Net premiums written by underwriting location
|
|
|
|
|
|
||||||
United States
|
$
|
903,329
|
|
|
$
|
186,826
|
|
|
$
|
125,317
|
|
Other
|
208,013
|
|
|
204,640
|
|
|
142,176
|
|
|||
Total
|
$
|
1,111,342
|
|
|
$
|
391,466
|
|
|
$
|
267,493
|
|
|
|
|
|
|
|
||||||
Net premiums earned by client location
|
|
|
|
|
|
||||||
United States
|
$
|
1,014,439
|
|
|
$
|
265,527
|
|
|
$
|
202,930
|
|
Other
|
42,727
|
|
|
21,189
|
|
|
11,180
|
|
|||
Total
|
$
|
1,057,166
|
|
|
$
|
286,716
|
|
|
$
|
214,110
|
|
|
|
|
|
|
|
||||||
Net premiums earned by underwriting location
|
|
|
|
|
|
||||||
United States
|
$
|
901,858
|
|
|
$
|
155,929
|
|
|
$
|
113,062
|
|
Other
|
155,308
|
|
|
130,787
|
|
|
101,048
|
|
|||
Total
|
$
|
1,057,166
|
|
|
$
|
286,716
|
|
|
$
|
214,110
|
|
OTHER SEGMENT
|
Year Ended December 31,
|
||||||||||
2017
|
|
2016
|
|
2015
|
|||||||
Net premiums written (1)
|
|
|
|
|
|
||||||
Casualty (2)
|
$
|
311,742
|
|
|
$
|
329,149
|
|
|
$
|
333,679
|
|
Other specialty (3)
|
166,848
|
|
|
106,086
|
|
|
99,606
|
|
|||
Property catastrophe
|
12,455
|
|
|
11,462
|
|
|
12,441
|
|
|||
Property excluding property catastrophe
|
1,976
|
|
|
701
|
|
|
2,892
|
|
|||
Marine and aviation
|
1,139
|
|
|
1,709
|
|
|
1,256
|
|
|||
Other (4)
|
58,957
|
|
|
64,681
|
|
|
16,085
|
|
|||
Total
|
$
|
553,117
|
|
|
$
|
513,788
|
|
|
$
|
465,959
|
|
|
|
|
|
|
|
||||||
Net premiums earned (1)
|
|
|
|
|
|
||||||
Casualty (2)
|
$
|
333,275
|
|
|
$
|
320,767
|
|
|
$
|
285,067
|
|
Other specialty (3)
|
135,855
|
|
|
101,768
|
|
|
92,229
|
|
|||
Property catastrophe
|
12,690
|
|
|
11,421
|
|
|
12,540
|
|
|||
Property excluding property catastrophe
|
1,392
|
|
|
1,436
|
|
|
1,340
|
|
|||
Marine and aviation
|
1,024
|
|
|
1,811
|
|
|
1,585
|
|
|||
Other (4)
|
47,491
|
|
|
30,767
|
|
|
5,091
|
|
|||
Total
|
$
|
531,727
|
|
|
$
|
467,970
|
|
|
$
|
397,852
|
|
|
|
|
|
|
|
||||||
Net premiums written by client location (1)
|
|
|
|
|
|
||||||
United States
|
$
|
283,314
|
|
|
$
|
344,445
|
|
|
$
|
350,228
|
|
Europe
|
178,110
|
|
|
97,459
|
|
|
67,279
|
|
|||
Bermuda
|
83,594
|
|
|
68,945
|
|
|
39,414
|
|
|||
Other
|
8,099
|
|
|
2,939
|
|
|
9,038
|
|
|||
Total
|
$
|
553,117
|
|
|
$
|
513,788
|
|
|
$
|
465,959
|
|
(1)
|
Other segment results include premiums written and earned assumed through intersegment transactions and exclude premiums written and earned ceded through intersegment transactions.
|
(2)
|
Includes professional liability, excess motor, programs and other.
|
(3)
|
Includes proportional motor and other.
|
(4)
|
Includes mortgage and other.
|
ARCH CAPITAL
|
120
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Reserve for losses and loss adjustment expenses at beginning of year
|
$
|
10,200,960
|
|
|
$
|
9,125,250
|
|
|
$
|
9,036,448
|
|
Unpaid losses and loss adjustment expenses recoverable
|
2,083,575
|
|
|
1,828,837
|
|
|
1,778,303
|
|
|||
Net reserve for losses and loss adjustment expenses at beginning of year
|
8,117,385
|
|
|
7,296,413
|
|
|
7,258,145
|
|
|||
|
|
|
|
|
|
||||||
Net incurred losses and loss adjustment expenses relating to losses occurring in:
|
|
|
|
|
|
||||||
Current year
|
3,205,428
|
|
|
2,455,563
|
|
|
2,336,026
|
|
|||
Prior years
|
(237,982
|
)
|
|
(269,964
|
)
|
|
(285,123
|
)
|
|||
Total net incurred losses and loss adjustment expenses
|
2,967,446
|
|
|
2,185,599
|
|
|
2,050,903
|
|
|||
|
|
|
|
|
|
||||||
Net losses and loss adjustment expense reserves of acquired business (1)
|
—
|
|
|
551,096
|
|
|
262
|
|
|||
|
|
|
|
|
|
||||||
Foreign exchange (gains) losses
|
186,963
|
|
|
(102,367
|
)
|
|
(143,653
|
)
|
|||
|
|
|
|
|
|
||||||
Net paid losses and loss adjustment expenses relating to losses occurring in:
|
|
|
|
|
|
||||||
Current year
|
(505,424
|
)
|
|
(445,700
|
)
|
|
(454,179
|
)
|
|||
Prior years
|
(1,847,488
|
)
|
|
(1,367,656
|
)
|
|
(1,415,065
|
)
|
|||
Total net paid losses and loss adjustment expenses
|
(2,352,912
|
)
|
|
(1,813,356
|
)
|
|
(1,869,244
|
)
|
|||
|
|
|
|
|
|
||||||
Net reserve for losses and loss adjustment expenses at end of year
|
8,918,882
|
|
|
8,117,385
|
|
|
7,296,413
|
|
|||
Unpaid losses and loss adjustment expenses recoverable
|
2,464,910
|
|
|
2,083,575
|
|
|
1,828,837
|
|
|||
Reserve for losses and loss adjustment expenses at end of year
|
$
|
11,383,792
|
|
|
$
|
10,200,960
|
|
|
$
|
9,125,250
|
|
(1)
|
The 2016 amount related to the acquisition of UGC.
|
ARCH CAPITAL
|
121
|
2017 FORM 10-K
|
ARCH CAPITAL
|
122
|
2017 FORM 10-K
|
Reportable segment
|
|
Level of disaggregation
|
|
Included lines of business
|
Insurance
|
|
Property energy, marine and aviation
|
|
Property energy, marine and aviation
|
|
|
Third party occurrence business
|
|
Excess and surplus casualty (excluding contract binding); construction and national accounts; and other (including
alternative market risks, excess workers’ compensation and employer’s liability insurance coverages)
|
|
|
Third party claims-made business
|
|
Professional lines
|
|
|
Multi-line and other specialty
|
|
Programs; contract binding (part of excess and surplus casualty); travel, accident and health; lenders products; and other (c
ontract and commercial surety coverages)
|
|
|
|
|
|
Reinsurance
|
|
Casualty
|
|
Casualty
|
|
|
Property catastrophe
|
|
Property catastrophe
|
|
|
Property excluding property catastrophe
|
|
Property excluding property catastrophe
|
|
|
Marine and aviation
|
|
Marine and aviation
|
|
|
Other specialty
|
|
Other specialty
|
|
|
|
|
|
Mortgage
|
|
Direct mortgage insurance in the U.S.
|
|
Mortgage insurance on U.S. primary exposures
|
ARCH CAPITAL
|
123
|
2017 FORM 10-K
|
•
|
Expected loss methods
- these methods are based on the assumption that ultimate losses vary proportionately with premiums. Expected loss and loss adjustment expense ratios are typically developed based upon the information derived by underwriters and actuaries during the initial pricing of the business, supplemented by industry data available from organizations, such as statistical bureaus and consulting firms, where appropriate. These ratios consider, among other things, rate increases and changes in terms and conditions that have been observed in the market. Expected loss methods are useful for estimating ultimate losses and loss adjustment expenses in the early years of long-tailed lines of business, when little or no paid or incurred loss information is available, and is commonly applied when limited loss experience exists for a company.
|
•
|
Historical incurred loss development methods
- these methods assume that the ratio of losses in one period to losses in an earlier period will remain constant in the future. These methods use incurred losses (
i.e.
, the sum of cumulative historical loss payments plus outstanding case reserves) over discrete periods of time to estimate future losses. Historical incurred loss development methods may be preferable to historical paid loss development methods because they explicitly take into account open cases and the claims adjusters’ evaluations of the cost to settle all known claims. However, historical incurred loss development methods necessarily assume that case reserving practices are consistently applied over time. Therefore, when there have been significant changes in how case reserves are established, using incurred loss data to project ultimate losses may be less reliable than other methods.
|
•
|
Historical paid loss development methods
- these methods, like historical incurred loss development methods, assume that the ratio of losses in one period to losses in an earlier period will remain constant. These methods use historical loss payments over discrete periods of time to estimate future losses and necessarily assume that factors that have affected paid losses in the past, such as inflation or the effects of litigation, will remain constant in the future. Because historical paid loss development methods do not use incurred losses to estimate ultimate losses, they may be more reliable than the other methods that use incurred losses in situations where there are significant changes in how incurred losses are established by a company’s claims adjusters. However, historical paid loss development methods are more leveraged (meaning that small changes
|
ARCH CAPITAL
|
124
|
2017 FORM 10-K
|
•
|
Adjusted historical paid and incurred loss development methods
- these methods take traditional historical paid and incurred loss development methods and adjust them for the estimated impact of changes from the past in factors such as inflation, the speed of claim payments or the adequacy of case reserves. Adjusted historical paid and incurred loss development methods are often more reliable methods of predicting ultimate losses in periods of significant change, provided the actuaries can develop methods to reasonably quantify the impact of changes. As such, these methods utilize more judgment than historical paid and incurred loss development methods.
|
•
|
Bornhuetter-Ferguson (“B-F”) paid and incurred loss methods
- these methods utilize actual paid and incurred losses and expected patterns of paid and incurred losses, taking the initial expected ultimate losses into account to determine an estimate of expected ultimate losses. The B-F paid and incurred loss methods are useful when there are few reported claims and a relatively less stable pattern of reported losses.
|
•
|
Frequency-Severity methods
- These methods utilize actual paid and incurred claim experience, but break the data down into its component pieces: claim counts, often expressed as a ratio to exposure or premium (frequency), and average claim size (severity). The component pieces are projected to an ultimate level and multiplied together to result in an estimate of ultimate loss. These methods are especially useful when the severity of claims can be confined to a relatively stable range of estimated ultimate average claim value.
|
•
|
Additional analyses
- other methodologies are often used in the reserving process for specific types of claims or events, such as catastrophic or other specific major events. These include vendor catastrophe models, which are typically used in the estimation of Loss Reserves at the early stage of known catastrophic events before information has been reported to an insurer or reinsurer.
|
ARCH CAPITAL
|
125
|
2017 FORM 10-K
|
ARCH CAPITAL
|
126
|
2017 FORM 10-K
|
Third party claims-made business ($000’s except claim count)
|
|||||||||||||||||||||||||||||||||||||||||||||||
Incurred losses and allocated loss adjustment expenses, net of reinsurance
|
|
December 31, 2017
|
|||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
Total of IBNR liabilities plus expected development on reported claims
|
|
Cumulative
number of reported claims
|
|||||||||||||||||||||||||||||||||||||||||
|
|
Year ended December 31,
|
|
|
|||||||||||||||||||||||||||||||||||||||||||
Accident year
|
|
2008
unaudited |
|
2009 unaudited
|
|
2010
unaudited |
|
2011 unaudited
|
|
2012
unaudited |
|
2013
unaudited |
|
2014
unaudited |
|
2015
unaudited |
|
2016
unaudited |
|
2017
|
|
|
|||||||||||||||||||||||||
2008
|
|
$
|
326,344
|
|
|
$
|
380,158
|
|
|
$
|
391,971
|
|
|
$
|
397,864
|
|
|
$
|
383,508
|
|
|
$
|
394,166
|
|
|
$
|
397,483
|
|
|
$
|
385,827
|
|
|
$
|
373,924
|
|
|
$
|
365,413
|
|
|
$
|
8,263
|
|
|
9,140
|
|
2009
|
|
|
|
288,072
|
|
|
323,359
|
|
|
313,043
|
|
|
311,581
|
|
|
306,875
|
|
|
306,889
|
|
|
309,987
|
|
|
306,203
|
|
|
304,159
|
|
|
9,205
|
|
|
10,910
|
|
||||||||||||
2010
|
|
|
|
|
|
289,396
|
|
|
315,244
|
|
|
336,798
|
|
|
342,670
|
|
|
335,768
|
|
|
318,926
|
|
|
302,938
|
|
|
291,327
|
|
|
19,771
|
|
|
12,335
|
|
|||||||||||||
2011
|
|
|
|
|
|
|
|
284,961
|
|
|
327,623
|
|
|
319,230
|
|
|
313,824
|
|
|
319,354
|
|
|
300,172
|
|
|
292,332
|
|
|
34,161
|
|
|
11,712
|
|
||||||||||||||
2012
|
|
|
|
|
|
|
|
|
|
314,017
|
|
|
316,819
|
|
|
314,818
|
|
|
309,949
|
|
|
288,426
|
|
|
279,911
|
|
|
42,710
|
|
|
14,544
|
|
|||||||||||||||
2013
|
|
|
|
|
|
|
|
|
|
|
|
299,609
|
|
|
317,560
|
|
|
321,195
|
|
|
319,418
|
|
|
299,194
|
|
|
75,577
|
|
|
13,994
|
|
||||||||||||||||
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262,969
|
|
|
277,812
|
|
|
299,922
|
|
|
282,886
|
|
|
79,059
|
|
|
13,219
|
|
|||||||||||||||||
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
257,183
|
|
|
279,590
|
|
|
281,031
|
|
|
132,145
|
|
|
13,323
|
|
||||||||||||||||||
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
277,541
|
|
|
295,844
|
|
|
160,040
|
|
|
15,300
|
|
|||||||||||||||||||
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
274,527
|
|
|
224,115
|
|
|
12,371
|
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,966,624
|
|
|
|
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||
2008
|
|
$
|
18,826
|
|
|
$
|
74,174
|
|
|
$
|
132,721
|
|
|
$
|
175,437
|
|
|
$
|
210,488
|
|
|
$
|
235,920
|
|
|
$
|
248,340
|
|
|
$
|
286,493
|
|
|
$
|
291,913
|
|
|
$
|
292,598
|
|
|
|
|
|
|||
2009
|
|
|
|
11,418
|
|
|
55,701
|
|
|
108,805
|
|
|
150,949
|
|
|
188,347
|
|
|
203,205
|
|
|
237,204
|
|
|
246,875
|
|
|
251,702
|
|
|
|
|
|
||||||||||||||
2010
|
|
|
|
|
|
13,971
|
|
|
71,297
|
|
|
128,921
|
|
|
164,107
|
|
|
199,653
|
|
|
216,353
|
|
|
231,200
|
|
|
241,035
|
|
|
|
|
|
|||||||||||||||
2011
|
|
|
|
|
|
|
|
13,639
|
|
|
71,797
|
|
|
129,221
|
|
|
173,497
|
|
|
206,608
|
|
|
226,667
|
|
|
243,228
|
|
|
|
|
|
||||||||||||||||
2012
|
|
|
|
|
|
|
|
|
|
17,531
|
|
|
68,125
|
|
|
119,653
|
|
|
162,636
|
|
|
186,520
|
|
|
212,019
|
|
|
|
|
|
|||||||||||||||||
2013
|
|
|
|
|
|
|
|
|
|
|
|
18,777
|
|
|
86,512
|
|
|
136,262
|
|
|
177,048
|
|
|
200,876
|
|
|
|
|
|
||||||||||||||||||
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,702
|
|
|
62,817
|
|
|
129,095
|
|
|
174,852
|
|
|
|
|
|
|||||||||||||||||||
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,957
|
|
|
52,176
|
|
|
101,643
|
|
|
|
|
|
||||||||||||||||||||
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,644
|
|
|
68,904
|
|
|
|
|
|
|||||||||||||||||||||
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,397
|
|
|
|
|
|
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,796,254
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
All outstanding liabilities before 2008, net of reinsurance
|
|
|
94,246
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Liabilities for losses and loss adjustment expenses, net of reinsurance
|
|
|
$
|
1,264,616
|
|
|
|
|
|
ARCH CAPITAL
|
127
|
2017 FORM 10-K
|
|
|
Average annual percentage payout of incurred losses and allocated loss adjustment expenses by age, net of reinsurance
|
||||||||||||||||||||||||||||
|
|
Year 1
|
|
Year 2
|
|
Year 3
|
|
Year 4
|
|
Year 5
|
|
Year 6
|
|
Year 7
|
|
Year 8
|
|
Year 9
|
|
Year 10
|
||||||||||
Property, energy, marine and aviation
|
|
18.7
|
%
|
|
35.9
|
%
|
|
18.6
|
%
|
|
9.7
|
%
|
|
7.0
|
%
|
|
3.7
|
%
|
|
0.8
|
%
|
|
(0.2
|
)%
|
|
0.2
|
%
|
|
0.3
|
%
|
Third party occurrence business
|
|
2.6
|
%
|
|
7.6
|
%
|
|
10.2
|
%
|
|
11.7
|
%
|
|
12.5
|
%
|
|
10.4
|
%
|
|
8.1
|
%
|
|
4.9
|
%
|
|
4.0
|
%
|
|
5.0
|
%
|
Third party claims-made business
|
|
4.6
|
%
|
|
18.0
|
%
|
|
18.6
|
%
|
|
14.0
|
%
|
|
10.3
|
%
|
|
6.7
|
%
|
|
6.3
|
%
|
|
5.7
|
%
|
|
1.5
|
%
|
|
0.2
|
%
|
Multi-line and other specialty
|
|
28.0
|
%
|
|
25.6
|
%
|
|
13.6
|
%
|
|
12.5
|
%
|
|
7.8
|
%
|
|
4.9
|
%
|
|
3.1
|
%
|
|
2.0
|
%
|
|
0.5
|
%
|
|
1.5
|
%
|
ARCH CAPITAL
|
128
|
2017 FORM 10-K
|
ARCH CAPITAL
|
129
|
2017 FORM 10-K
|
ARCH CAPITAL
|
130
|
2017 FORM 10-K
|
Property excluding property catastrophe ($000’s)
|
||||||||||||||||||||||||||||||||||||||||||||||
Incurred losses and allocated loss adjustment expenses, net of reinsurance
|
|
December 31, 2017
|
||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
Total of IBNR liabilities plus expected development on reported claims
|
|
Cumulative
number of reported claims
|
||||||||||||||||||||||||||||||||||||||||
|
|
Year ended December 31,
|
|
|
||||||||||||||||||||||||||||||||||||||||||
Accident year
|
|
2008
unaudited |
|
2009 unaudited
|
|
2010
unaudited |
|
2011 unaudited
|
|
2012
unaudited |
|
2013
unaudited |
|
2014
unaudited |
|
2015
unaudited |
|
2016
unaudited |
|
2017
|
|
|
||||||||||||||||||||||||
2008
|
|
$
|
212,864
|
|
|
$
|
187,495
|
|
|
$
|
190,891
|
|
|
$
|
196,239
|
|
|
$
|
191,461
|
|
|
$
|
188,574
|
|
|
$
|
186,573
|
|
|
$
|
186,114
|
|
|
$
|
180,188
|
|
|
$
|
178,940
|
|
|
$
|
1,198
|
|
|
N/A
|
2009
|
|
|
|
216,844
|
|
|
193,877
|
|
|
171,389
|
|
|
164,633
|
|
|
163,873
|
|
|
161,800
|
|
|
158,856
|
|
|
149,305
|
|
|
148,511
|
|
|
1,092
|
|
|
N/A
|
||||||||||||
2010
|
|
|
|
|
|
143,002
|
|
|
128,702
|
|
|
118,475
|
|
|
112,741
|
|
|
110,802
|
|
|
108,671
|
|
|
104,875
|
|
|
101,693
|
|
|
2,004
|
|
|
N/A
|
|||||||||||||
2011
|
|
|
|
|
|
|
|
206,719
|
|
|
179,368
|
|
|
166,857
|
|
|
163,226
|
|
|
159,084
|
|
|
157,774
|
|
|
155,510
|
|
|
4,243
|
|
|
N/A
|
||||||||||||||
2012
|
|
|
|
|
|
|
|
|
|
156,362
|
|
|
122,033
|
|
|
124,129
|
|
|
119,572
|
|
|
115,159
|
|
|
112,936
|
|
|
4,234
|
|
|
N/A
|
|||||||||||||||
2013
|
|
|
|
|
|
|
|
|
|
|
|
115,913
|
|
|
77,266
|
|
|
70,923
|
|
|
66,552
|
|
|
64,834
|
|
|
5,034
|
|
|
N/A
|
||||||||||||||||
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,093
|
|
|
117,947
|
|
|
99,784
|
|
|
91,079
|
|
|
8,288
|
|
|
N/A
|
|||||||||||||||||
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214,620
|
|
|
189,004
|
|
|
184,637
|
|
|
18,164
|
|
|
N/A
|
||||||||||||||||||
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,002
|
|
|
146,338
|
|
|
28,121
|
|
|
N/A
|
|||||||||||||||||||
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260,425
|
|
|
80,297
|
|
|
N/A
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,444,903
|
|
|
|
|
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
2008
|
|
$
|
56,096
|
|
|
$
|
125,684
|
|
|
$
|
146,850
|
|
|
$
|
161,523
|
|
|
$
|
167,161
|
|
|
$
|
173,245
|
|
|
$
|
174,276
|
|
|
$
|
174,095
|
|
|
$
|
175,016
|
|
|
$
|
176,443
|
|
|
|
|
|
||
2009
|
|
|
|
66,401
|
|
|
117,101
|
|
|
134,441
|
|
|
138,824
|
|
|
140,664
|
|
|
143,183
|
|
|
144,290
|
|
|
145,099
|
|
|
146,209
|
|
|
|
|
|
|||||||||||||
2010
|
|
|
|
|
|
37,942
|
|
|
76,757
|
|
|
88,591
|
|
|
93,782
|
|
|
96,011
|
|
|
97,169
|
|
|
97,814
|
|
|
98,248
|
|
|
|
|
|
||||||||||||||
2011
|
|
|
|
|
|
|
|
47,595
|
|
|
121,216
|
|
|
141,080
|
|
|
145,591
|
|
|
147,648
|
|
|
148,751
|
|
|
148,996
|
|
|
|
|
|
|||||||||||||||
2012
|
|
|
|
|
|
|
|
|
|
26,093
|
|
|
78,296
|
|
|
93,524
|
|
|
102,211
|
|
|
103,210
|
|
|
103,850
|
|
|
|
|
|
||||||||||||||||
2013
|
|
|
|
|
|
|
|
|
|
|
|
26,066
|
|
|
42,994
|
|
|
50,106
|
|
|
53,290
|
|
|
54,097
|
|
|
|
|
|
|||||||||||||||||
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,585
|
|
|
63,045
|
|
|
71,983
|
|
|
76,939
|
|
|
|
|
|
||||||||||||||||||
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,404
|
|
|
119,122
|
|
|
149,655
|
|
|
|
|
|
|||||||||||||||||||
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,347
|
|
|
95,680
|
|
|
|
|
|
||||||||||||||||||||
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,242
|
|
|
|
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,075,359
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
All outstanding liabilities before 2008, net of reinsurance
|
|
|
4,472
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Liabilities for losses and loss adjustment expenses, net of reinsurance
|
|
|
$
|
374,016
|
|
|
|
|
|
ARCH CAPITAL
|
131
|
2017 FORM 10-K
|
Other specialty ($000’s)
|
||||||||||||||||||||||||||||||||||||||||||||||
Incurred losses and allocated loss adjustment expenses, net of reinsurance
|
|
December 31, 2017
|
||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
Total of IBNR liabilities plus expected development on reported claims
|
|
Cumulative
number of reported claims
|
||||||||||||||||||||||||||||||||||||||||
|
|
Year ended December 31,
|
|
|
||||||||||||||||||||||||||||||||||||||||||
Accident year
|
|
2008
unaudited |
|
2009 unaudited
|
|
2010
unaudited |
|
2011 unaudited
|
|
2012
unaudited |
|
2013
unaudited |
|
2014
unaudited |
|
2015
unaudited |
|
2016
unaudited |
|
2017
|
|
|
||||||||||||||||||||||||
2008
|
|
$
|
43,813
|
|
|
$
|
37,434
|
|
|
$
|
34,099
|
|
|
$
|
30,237
|
|
|
$
|
28,288
|
|
|
$
|
30,217
|
|
|
$
|
28,783
|
|
|
$
|
28,669
|
|
|
$
|
27,691
|
|
|
$
|
27,418
|
|
|
$
|
2,185
|
|
|
N/A
|
2009
|
|
|
|
61,515
|
|
|
50,560
|
|
|
45,378
|
|
|
39,257
|
|
|
37,133
|
|
|
35,141
|
|
|
36,397
|
|
|
36,874
|
|
|
37,888
|
|
|
2,734
|
|
|
N/A
|
||||||||||||
2010
|
|
|
|
|
|
44,243
|
|
|
33,744
|
|
|
26,696
|
|
|
24,401
|
|
|
23,402
|
|
|
23,077
|
|
|
22,845
|
|
|
22,587
|
|
|
1,713
|
|
|
N/A
|
|||||||||||||
2011
|
|
|
|
|
|
|
|
114,407
|
|
|
99,156
|
|
|
94,970
|
|
|
93,396
|
|
|
91,617
|
|
|
90,215
|
|
|
89,611
|
|
|
3,001
|
|
|
N/A
|
||||||||||||||
2012
|
|
|
|
|
|
|
|
|
|
230,125
|
|
|
218,333
|
|
|
208,036
|
|
|
202,055
|
|
|
200,025
|
|
|
203,304
|
|
|
21,566
|
|
|
N/A
|
|||||||||||||||
2013
|
|
|
|
|
|
|
|
|
|
|
|
259,466
|
|
|
232,696
|
|
|
222,481
|
|
|
218,827
|
|
|
220,073
|
|
|
28,371
|
|
|
N/A
|
||||||||||||||||
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
283,337
|
|
|
264,072
|
|
|
266,007
|
|
|
258,880
|
|
|
35,422
|
|
|
N/A
|
|||||||||||||||||
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,258
|
|
|
209,337
|
|
|
207,514
|
|
|
39,024
|
|
|
N/A
|
||||||||||||||||||
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233,315
|
|
|
230,646
|
|
|
59,666
|
|
|
N/A
|
|||||||||||||||||||
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294,469
|
|
|
131,878
|
|
|
N/A
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,592,390
|
|
|
|
|
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
2008
|
|
$
|
5,324
|
|
|
$
|
14,998
|
|
|
$
|
21,037
|
|
|
$
|
22,318
|
|
|
$
|
22,985
|
|
|
$
|
24,840
|
|
|
$
|
24,207
|
|
|
$
|
24,814
|
|
|
$
|
24,867
|
|
|
$
|
24,789
|
|
|
|
|
|
||
2009
|
|
|
|
9,440
|
|
|
27,981
|
|
|
30,885
|
|
|
30,764
|
|
|
30,756
|
|
|
30,652
|
|
|
31,172
|
|
|
31,977
|
|
|
32,113
|
|
|
|
|
|
|||||||||||||
2010
|
|
|
|
|
|
4,193
|
|
|
13,786
|
|
|
17,018
|
|
|
18,060
|
|
|
18,861
|
|
|
19,480
|
|
|
19,712
|
|
|
20,334
|
|
|
|
|
|
||||||||||||||
2011
|
|
|
|
|
|
|
|
29,027
|
|
|
58,746
|
|
|
71,240
|
|
|
75,942
|
|
|
79,549
|
|
|
81,396
|
|
|
83,732
|
|
|
|
|
|
|||||||||||||||
2012
|
|
|
|
|
|
|
|
|
|
47,063
|
|
|
125,181
|
|
|
148,565
|
|
|
159,908
|
|
|
167,996
|
|
|
172,326
|
|
|
|
|
|
||||||||||||||||
2013
|
|
|
|
|
|
|
|
|
|
|
|
58,851
|
|
|
122,477
|
|
|
149,149
|
|
|
165,824
|
|
|
175,813
|
|
|
|
|
|
|||||||||||||||||
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,180
|
|
|
151,264
|
|
|
187,952
|
|
|
201,529
|
|
|
|
|
|
||||||||||||||||||
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,095
|
|
|
119,284
|
|
|
144,104
|
|
|
|
|
|
|||||||||||||||||||
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,307
|
|
|
145,348
|
|
|
|
|
|
||||||||||||||||||||
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,549
|
|
|
|
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,080,637
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
All outstanding liabilities before 2008, net of reinsurance
|
|
|
9,012
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Liabilities for losses and loss adjustment expenses, net of reinsurance
|
|
|
$
|
520,765
|
|
|
|
|
|
|
|
Average annual percentage payout of incurred losses and allocated loss adjustment expenses by age, net of reinsurance
|
||||||||||||||||||||||||||||
|
|
Year 1
|
|
Year 2
|
|
Year 3
|
|
Year 4
|
|
Year 5
|
|
Year 6
|
|
Year 7
|
|
Year 8
|
|
Year 9
|
|
Year 10
|
||||||||||
Casualty
|
|
1.7
|
%
|
|
7.3
|
%
|
|
9.7
|
%
|
|
11.2
|
%
|
|
10.5
|
%
|
|
10.2
|
%
|
|
7.3
|
%
|
|
5.9
|
%
|
|
4.4
|
%
|
|
4.4
|
%
|
Property catastrophe
|
|
27.2
|
%
|
|
28.5
|
%
|
|
13.5
|
%
|
|
8.7
|
%
|
|
4.6
|
%
|
|
2.0
|
%
|
|
1.4
|
%
|
|
0.1
|
%
|
|
(6.5
|
)%
|
|
0.1
|
%
|
Property excluding property catastrophe
|
|
30.6
|
%
|
|
37.8
|
%
|
|
12.3
|
%
|
|
5.3
|
%
|
|
1.7
|
%
|
|
1.5
|
%
|
|
0.5
|
%
|
|
0.3
|
%
|
|
0.6
|
%
|
|
0.8
|
%
|
Marine and aviation
|
|
8.7
|
%
|
|
25.5
|
%
|
|
17.2
|
%
|
|
10.1
|
%
|
|
1.8
|
%
|
|
7.1
|
%
|
|
6.4
|
%
|
|
1.4
|
%
|
|
0.3
|
%
|
|
—
|
%
|
Other specialty
|
|
25.7
|
%
|
|
35.7
|
%
|
|
13.5
|
%
|
|
4.7
|
%
|
|
3.1
|
%
|
|
2.7
|
%
|
|
0.7
|
%
|
|
2.4
|
%
|
|
0.3
|
%
|
|
(0.3
|
)%
|
ARCH CAPITAL
|
132
|
2017 FORM 10-K
|
ARCH CAPITAL
|
133
|
2017 FORM 10-K
|
Average annual percentage payout of incurred losses and allocated loss adjustment expenses by age, net of reinsurance
|
||||||||||||||||||
|
|
Year 1
|
|
Year 2
|
|
Year 3
|
|
Year 4
|
|
Year 5
|
|
Year 6
|
||||||
U.S. Primary
|
|
2.4
|
%
|
|
44.0
|
%
|
|
28.6
|
%
|
|
12.7
|
%
|
|
5.9
|
%
|
|
3.4
|
%
|
|
December 31, 2017
|
||
Net outstanding liabilities
|
|
||
Insurance
|
|
||
Property, energy, marine and aviation
|
$
|
429,974
|
|
Third party occurrence business
|
2,030,164
|
|
|
Third party claims-made business
|
1,264,616
|
|
|
Multi-line and other specialty
|
1,081,310
|
|
|
Reinsurance
|
|
||
Casualty
|
1,479,767
|
|
|
Property catastrophe
|
98,512
|
|
|
Property excluding property catastrophe
|
374,016
|
|
|
Marine and aviation
|
135,456
|
|
|
Other specialty
|
520,765
|
|
|
Mortgage
|
|
||
U.S. primary
|
443,985
|
|
|
Other short duration lines not included in disclosures
|
887,624
|
|
|
Total for short duration lines
|
8,746,189
|
|
|
|
|
||
Unpaid losses and loss adjustment expenses recoverable
|
|
||
Insurance
|
|
||
Property, energy, marine and aviation
|
345,188
|
|
|
Third party occurrence business
|
980,850
|
|
|
Third party claims-made business
|
681,664
|
|
|
Multi-line and other specialty
|
138,586
|
|
|
Reinsurance
|
|
||
Casualty
|
433,139
|
|
|
Property catastrophe
|
208,417
|
|
|
Property excluding property catastrophe
|
54,473
|
|
|
Marine and aviation
|
25,506
|
|
|
Other specialty
|
76,962
|
|
|
Mortgage
|
|
||
U.S. primary
|
27,448
|
|
|
Other short duration lines not included in disclosures
|
26,605
|
|
|
Intercompany eliminations
|
(539,519
|
)
|
|
Total for short duration lines
|
2,459,319
|
|
|
|
|
||
Lines other than short duration
|
26,744
|
|
|
Discounting
|
(20,016
|
)
|
|
Unallocated claims adjustment expenses
|
171,556
|
|
|
|
178,284
|
|
|
|
|
||
Total gross reserves for losses and loss adjustment expenses
|
$
|
11,383,792
|
|
ARCH CAPITAL
|
134
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Premiums Written
|
|
|
|
|
|
||||||
Direct
|
$
|
4,447,457
|
|
|
$
|
3,337,690
|
|
|
$
|
3,086,919
|
|
Assumed
|
1,920,968
|
|
|
1,864,444
|
|
|
1,710,244
|
|
|||
Ceded
|
(1,407,052
|
)
|
|
(1,170,743
|
)
|
|
(979,632
|
)
|
|||
Net
|
$
|
4,961,373
|
|
|
$
|
4,031,391
|
|
|
$
|
3,817,531
|
|
|
|
|
|
|
|
||||||
Premiums Earned
|
|
|
|
|
|
||||||
Direct
|
$
|
4,379,131
|
|
|
$
|
3,192,653
|
|
|
$
|
3,002,508
|
|
Assumed
|
1,856,573
|
|
|
1,730,884
|
|
|
1,659,456
|
|
|||
Ceded
|
(1,391,172
|
)
|
|
(1,038,715
|
)
|
|
(928,059
|
)
|
|||
Net
|
$
|
4,844,532
|
|
|
$
|
3,884,822
|
|
|
$
|
3,733,905
|
|
|
|
|
|
|
|
||||||
Losses and Loss Adjustment Expenses
|
|
|
|
|
|
||||||
Direct
|
$
|
2,568,327
|
|
|
$
|
1,976,853
|
|
|
$
|
1,830,785
|
|
Assumed
|
1,442,077
|
|
|
847,038
|
|
|
752,304
|
|
|||
Ceded
|
(1,042,958
|
)
|
|
(638,292
|
)
|
|
(532,186
|
)
|
|||
Net
|
$
|
2,967,446
|
|
|
$
|
2,185,599
|
|
|
$
|
2,050,903
|
|
|
Initial Coverage at Issuance
|
|
Coverage at December 31, 2017
|
|
First Layer Retention
|
||||||
Bellemeade Re I
|
$
|
300,000
|
|
|
$
|
92,390
|
|
|
$
|
129,900
|
|
Bellemeade Re II
|
300,000
|
|
|
135,201
|
|
|
646,900
|
|
|||
Bellemeade 2017-1
|
368,100
|
|
|
347,139
|
|
|
165,700
|
|
ARCH CAPITAL
|
135
|
2017 FORM 10-K
|
|
Estimated
|
|
Gross
|
|
Gross
|
|
Cost or
|
|
OTTI
|
||||||||||
|
Fair
|
|
Unrealized
|
|
Unrealized
|
|
Amortized
|
|
Unrealized
|
||||||||||
|
Value
|
|
Gains
|
|
Losses
|
|
Cost
|
|
Losses (2)
|
||||||||||
December 31, 2017
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed maturities (1):
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate bonds
|
$
|
4,434,439
|
|
|
$
|
30,943
|
|
|
$
|
(32,340
|
)
|
|
$
|
4,435,836
|
|
|
$
|
(73
|
)
|
Mortgage backed securities
|
316,141
|
|
|
1,640
|
|
|
(2,561
|
)
|
|
317,062
|
|
|
(15
|
)
|
|||||
Municipal bonds
|
2,158,840
|
|
|
20,285
|
|
|
(12,308
|
)
|
|
2,150,863
|
|
|
—
|
|
|||||
Commercial mortgage backed securities
|
545,817
|
|
|
2,131
|
|
|
(4,268
|
)
|
|
547,954
|
|
|
—
|
|
|||||
U.S. government and government agencies
|
3,484,257
|
|
|
2,188
|
|
|
(28,769
|
)
|
|
3,510,838
|
|
|
—
|
|
|||||
Non-U.S. government securities
|
1,612,754
|
|
|
48,764
|
|
|
(17,321
|
)
|
|
1,581,311
|
|
|
—
|
|
|||||
Asset backed securities
|
1,780,143
|
|
|
5,147
|
|
|
(8,614
|
)
|
|
1,783,610
|
|
|
—
|
|
|||||
Total
|
14,332,391
|
|
|
111,098
|
|
|
(106,181
|
)
|
|
14,327,474
|
|
|
(88
|
)
|
|||||
Equity securities
|
504,333
|
|
|
88,739
|
|
|
(5,583
|
)
|
|
421,177
|
|
|
—
|
|
|||||
Other investments
|
264,989
|
|
|
66,946
|
|
|
(120
|
)
|
|
198,163
|
|
|
—
|
|
|||||
Short-term investments
|
1,469,042
|
|
|
650
|
|
|
(563
|
)
|
|
1,468,955
|
|
|
—
|
|
|||||
Total
|
$
|
16,570,755
|
|
|
$
|
267,433
|
|
|
$
|
(112,447
|
)
|
|
$
|
16,415,769
|
|
|
$
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
December 31, 2016
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed maturities (1):
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate bonds
|
$
|
4,392,373
|
|
|
$
|
27,606
|
|
|
$
|
(46,905
|
)
|
|
$
|
4,411,672
|
|
|
$
|
(2,285
|
)
|
Mortgage backed securities
|
490,093
|
|
|
4,794
|
|
|
(8,357
|
)
|
|
493,656
|
|
|
(3,323
|
)
|
|||||
Municipal bonds
|
3,713,434
|
|
|
8,554
|
|
|
(29,154
|
)
|
|
3,734,034
|
|
|
(201
|
)
|
|||||
Commercial mortgage backed securities
|
536,051
|
|
|
2,876
|
|
|
(6,508
|
)
|
|
539,683
|
|
|
—
|
|
|||||
U.S. government and government agencies
|
2,804,540
|
|
|
9,319
|
|
|
(24,437
|
)
|
|
2,819,658
|
|
|
—
|
|
|||||
Non-U.S. government securities
|
1,096,440
|
|
|
19,036
|
|
|
(56,872
|
)
|
|
1,134,276
|
|
|
—
|
|
|||||
Asset backed securities
|
1,123,987
|
|
|
6,897
|
|
|
(6,526
|
)
|
|
1,123,616
|
|
|
(22
|
)
|
|||||
Total
|
14,156,918
|
|
|
79,082
|
|
|
(178,759
|
)
|
|
14,256,595
|
|
|
(5,831
|
)
|
|||||
Equity securities
|
532,680
|
|
|
62,627
|
|
|
(17,517
|
)
|
|
487,570
|
|
|
—
|
|
|||||
Other investments
|
167,970
|
|
|
21,358
|
|
|
(2,465
|
)
|
|
149,077
|
|
|
—
|
|
|||||
Short-term investments
|
612,005
|
|
|
272
|
|
|
(145
|
)
|
|
611,878
|
|
|
—
|
|
|||||
Total
|
$
|
15,469,573
|
|
|
$
|
163,339
|
|
|
$
|
(198,886
|
)
|
|
$
|
15,505,120
|
|
|
$
|
(5,831
|
)
|
(1)
|
In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”
|
(2)
|
Represents the total OTTI recognized in accumulated other comprehensive income (“AOCI”). It does not include the change in fair value subsequent to the impairment measurement date. At
December 31, 2017
, the net unrealized gain related to securities for which a non-credit OTTI was recognized in AOCI was
$0.3 million
, compared to a net unrealized loss of
$2.8 million
at
December 31, 2016
.
|
ARCH CAPITAL
|
136
|
2017 FORM 10-K
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
||||||||||||||||||
|
Estimated
|
|
Gross
|
|
Estimated
|
|
Gross
|
|
Estimated
|
|
Gross
|
||||||||||||
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
||||||||||||
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
||||||||||||
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Fixed maturities (1):
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Corporate bonds
|
$
|
2,320,716
|
|
|
$
|
(25,411
|
)
|
|
$
|
279,082
|
|
|
$
|
(6,929
|
)
|
|
$
|
2,599,798
|
|
|
$
|
(32,340
|
)
|
Mortgage backed securities
|
221,113
|
|
|
(1,715
|
)
|
|
28,380
|
|
|
(846
|
)
|
|
249,493
|
|
|
(2,561
|
)
|
||||||
Municipal bonds
|
1,030,389
|
|
|
(8,438
|
)
|
|
132,469
|
|
|
(3,870
|
)
|
|
1,162,858
|
|
|
(12,308
|
)
|
||||||
Commercial mortgage backed securities
|
225,164
|
|
|
(1,899
|
)
|
|
57,291
|
|
|
(2,369
|
)
|
|
282,455
|
|
|
(4,268
|
)
|
||||||
U.S. government and government agencies
|
2,646,415
|
|
|
(26,501
|
)
|
|
111,879
|
|
|
(2,268
|
)
|
|
2,758,294
|
|
|
(28,769
|
)
|
||||||
Non-U.S. government securities
|
1,218,514
|
|
|
(15,546
|
)
|
|
93,530
|
|
|
(1,775
|
)
|
|
1,312,044
|
|
|
(17,321
|
)
|
||||||
Asset backed securities
|
1,111,246
|
|
|
(5,915
|
)
|
|
209,207
|
|
|
(2,699
|
)
|
|
1,320,453
|
|
|
(8,614
|
)
|
||||||
Total
|
8,773,557
|
|
|
(85,425
|
)
|
|
911,838
|
|
|
(20,756
|
)
|
|
9,685,395
|
|
|
(106,181
|
)
|
||||||
Equity securities
|
166,562
|
|
|
(5,583
|
)
|
|
—
|
|
|
—
|
|
|
166,562
|
|
|
(5,583
|
)
|
||||||
Other investments
|
15,025
|
|
|
(120
|
)
|
|
—
|
|
|
—
|
|
|
15,025
|
|
|
(120
|
)
|
||||||
Short-term investments
|
109,528
|
|
|
(563
|
)
|
|
—
|
|
|
—
|
|
|
109,528
|
|
|
(563
|
)
|
||||||
Total
|
$
|
9,064,672
|
|
|
$
|
(91,691
|
)
|
|
$
|
911,838
|
|
|
$
|
(20,756
|
)
|
|
$
|
9,976,510
|
|
|
$
|
(112,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Fixed maturities (1):
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Corporate bonds
|
$
|
1,700,813
|
|
|
$
|
(43,011
|
)
|
|
$
|
46,902
|
|
|
$
|
(3,894
|
)
|
|
$
|
1,747,715
|
|
|
$
|
(46,905
|
)
|
Mortgage backed securities
|
402,699
|
|
|
(8,134
|
)
|
|
6,105
|
|
|
(223
|
)
|
|
408,804
|
|
|
(8,357
|
)
|
||||||
Municipal bonds
|
1,513,308
|
|
|
(28,504
|
)
|
|
29,636
|
|
|
(650
|
)
|
|
1,542,944
|
|
|
(29,154
|
)
|
||||||
Commercial mortgage backed securities
|
231,374
|
|
|
(6,331
|
)
|
|
5,635
|
|
|
(177
|
)
|
|
237,009
|
|
|
(6,508
|
)
|
||||||
U.S. government and government agencies
|
1,888,018
|
|
|
(24,437
|
)
|
|
—
|
|
|
—
|
|
|
1,888,018
|
|
|
(24,437
|
)
|
||||||
Non-U.S. government securities
|
807,598
|
|
|
(56,872
|
)
|
|
—
|
|
|
—
|
|
|
807,598
|
|
|
(56,872
|
)
|
||||||
Asset backed securities
|
627,557
|
|
|
(5,465
|
)
|
|
65,723
|
|
|
(1,061
|
)
|
|
693,280
|
|
|
(6,526
|
)
|
||||||
Total
|
7,171,367
|
|
|
(172,754
|
)
|
|
154,001
|
|
|
(6,005
|
)
|
|
7,325,368
|
|
|
(178,759
|
)
|
||||||
Equity securities
|
269,381
|
|
|
(17,517
|
)
|
|
—
|
|
|
—
|
|
|
269,381
|
|
|
(17,517
|
)
|
||||||
Other investments
|
39,299
|
|
|
(2,465
|
)
|
|
—
|
|
|
—
|
|
|
39,299
|
|
|
(2,465
|
)
|
||||||
Short-term investments
|
29,146
|
|
|
(145
|
)
|
|
—
|
|
|
—
|
|
|
29,146
|
|
|
(145
|
)
|
||||||
Total
|
$
|
7,509,193
|
|
|
$
|
(192,881
|
)
|
|
$
|
154,001
|
|
|
$
|
(6,005
|
)
|
|
$
|
7,663,194
|
|
|
$
|
(198,886
|
)
|
(1)
|
In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received and reinvested and included the fixed maturities pledged. See “—Securities Lending Agreements.”
|
ARCH CAPITAL
|
137
|
2017 FORM 10-K
|
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||||
Maturity
|
|
Estimated Fair Value
|
|
Amortized Cost
|
|
Estimated Fair Value
|
|
Amortized Cost
|
||||||||
Due in one year or less
|
|
$
|
550,711
|
|
|
$
|
548,771
|
|
|
$
|
560,830
|
|
|
$
|
557,675
|
|
Due after one year through five years
|
|
7,436,153
|
|
|
7,434,801
|
|
|
6,158,148
|
|
|
6,211,099
|
|
||||
Due after five years through 10 years
|
|
3,369,635
|
|
|
3,369,750
|
|
|
4,676,847
|
|
|
4,710,017
|
|
||||
Due after 10 years
|
|
333,791
|
|
|
325,526
|
|
|
610,962
|
|
|
620,849
|
|
||||
|
|
11,690,290
|
|
|
11,678,848
|
|
|
12,006,787
|
|
|
12,099,640
|
|
||||
Mortgage backed securities
|
|
316,141
|
|
|
317,062
|
|
|
490,093
|
|
|
493,656
|
|
||||
Commercial mortgage backed securities
|
|
545,817
|
|
|
547,954
|
|
|
536,051
|
|
|
539,683
|
|
||||
Asset backed securities
|
|
1,780,143
|
|
|
1,783,610
|
|
|
1,123,987
|
|
|
1,123,616
|
|
||||
Total
|
|
$
|
14,332,391
|
|
|
$
|
14,327,474
|
|
|
$
|
14,156,918
|
|
|
$
|
14,256,595
|
|
ARCH CAPITAL
|
138
|
2017 FORM 10-K
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Available for sale securities:
|
|
|
|
||||
Asian and emerging markets
|
$
|
135,140
|
|
|
$
|
84,778
|
|
Investment grade fixed income
|
53,878
|
|
|
33,923
|
|
||
Credit related funds
|
18,365
|
|
|
7,469
|
|
||
Other
|
57,606
|
|
|
41,800
|
|
||
Total available for sale
|
264,989
|
|
|
167,970
|
|
||
Fair value option:
|
|
|
|
||||
Term loan investments (par value: $1,223,453 and $1,208,537)
|
1,200,882
|
|
|
1,190,799
|
|
||
Mezzanine debt funds
|
252,160
|
|
|
127,943
|
|
||
Credit related funds
|
175,422
|
|
|
218,298
|
|
||
Investment grade fixed income
|
102,347
|
|
|
75,468
|
|
||
Asian and emerging markets
|
258,541
|
|
|
178,568
|
|
||
Other (1)
|
147,029
|
|
|
129,717
|
|
||
Total fair value option
|
2,136,381
|
|
|
1,920,793
|
|
||
Total
|
$
|
2,401,370
|
|
|
$
|
2,088,763
|
|
(1)
|
Includes fund investments with strategies in mortgage servicing rights, transportation and infrastructure assets and other.
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Fixed maturities
|
$
|
1,642,855
|
|
|
$
|
1,099,116
|
|
Other investments
|
2,136,381
|
|
|
1,920,793
|
|
||
Short-term investments
|
297,426
|
|
|
373,669
|
|
||
Equity securities
|
139,575
|
|
|
27,642
|
|
||
Investments accounted for using the fair value option
|
$
|
4,216,237
|
|
|
$
|
3,421,220
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Investments accounted for using the equity method (1)
|
$
|
1,041,321
|
|
|
$
|
800,970
|
|
Investments accounted for using the fair value option (2)
|
130,471
|
|
|
90,804
|
|
||
Total
|
$
|
1,171,792
|
|
|
$
|
891,774
|
|
(1)
|
Aggregate unfunded commitments were
$1,020.1 million
at
December 31, 2017
, compared to
$776.6 million
at
December 31, 2016
.
|
(2)
|
Aggregate unfunded commitments were
$100.4 million
at
December 31, 2017
, compared to
$16.7 million
at
December 31, 2016
.
|
ARCH CAPITAL
|
139
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Fixed maturities
|
$
|
385,919
|
|
|
$
|
295,502
|
|
|
$
|
283,998
|
|
Equity securities
|
11,752
|
|
|
12,536
|
|
|
13,534
|
|
|||
Short-term investments
|
10,964
|
|
|
6,071
|
|
|
669
|
|
|||
Other (1)
|
154,266
|
|
|
132,815
|
|
|
112,927
|
|
|||
Gross investment income
|
562,901
|
|
|
446,924
|
|
|
411,128
|
|
|||
Investment expenses
|
(92,029
|
)
|
|
(80,182
|
)
|
|
(63,038
|
)
|
|||
Net investment income
|
$
|
470,872
|
|
|
$
|
366,742
|
|
|
$
|
348,090
|
|
(1)
|
Includes dividends and other distributions from investment funds, term loan investments, funds held balances, cash balances and other.
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Available for sale securities:
|
|
|
|
|
|
||||||
Gross gains on investment sales
|
$
|
286,415
|
|
|
$
|
309,896
|
|
|
$
|
281,786
|
|
Gross losses on investment sales
|
(203,873
|
)
|
|
(214,447
|
)
|
|
(218,970
|
)
|
|||
Change in fair value of assets and liabilities accounted for using the fair value option:
|
|
|
|
|
|
||||||
Fixed maturities
|
29,451
|
|
|
47,890
|
|
|
(84,620
|
)
|
|||
Other investments
|
51,124
|
|
|
58,687
|
|
|
(122,171
|
)
|
|||
Equity securities
|
18,707
|
|
|
366
|
|
|
(85
|
)
|
|||
Short-term investments
|
272
|
|
|
93
|
|
|
1,462
|
|
|||
Derivative instruments (1)
|
(7,356
|
)
|
|
(22,612
|
)
|
|
(7,114
|
)
|
|||
Other (2)
|
(25,599
|
)
|
|
(42,287
|
)
|
|
(36,130
|
)
|
|||
Net realized gains (losses)
|
$
|
149,141
|
|
|
$
|
137,586
|
|
|
$
|
(185,842
|
)
|
(1)
|
See Note
11
for information on the Company’s derivative instruments.
|
(2)
|
Includes the re-measurement of contingent consideration liability amounts.
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Invested assets
|
$
|
22,351,894
|
|
|
$
|
16,414,190
|
|
Total assets
|
23,932,507
|
|
|
17,988,367
|
|
||
Total liabilities
|
2,734,662
|
|
|
1,499,160
|
|
||
Net assets
|
$
|
21,197,845
|
|
|
$
|
16,489,207
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Total revenues
|
$
|
3,867,874
|
|
|
$
|
2,279,737
|
|
|
$
|
1,429,007
|
|
Total expenses
|
782,773
|
|
|
656,940
|
|
|
521,555
|
|
|||
Net income (loss)
|
$
|
3,085,101
|
|
|
$
|
1,622,797
|
|
|
$
|
907,452
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Fixed maturities:
|
|
|
|
|
|
||||||
Mortgage backed securities
|
$
|
(1,488
|
)
|
|
$
|
(964
|
)
|
|
$
|
(1,794
|
)
|
Corporate bonds
|
(2,884
|
)
|
|
(5,674
|
)
|
|
(10,841
|
)
|
|||
Non-U.S. government securities
|
(376
|
)
|
|
(823
|
)
|
|
—
|
|
|||
Asset backed securities
|
—
|
|
|
(14,736
|
)
|
|
—
|
|
|||
U.S. government and government agencies
|
(426
|
)
|
|
—
|
|
|
—
|
|
|||
Municipal bonds
|
(375
|
)
|
|
(726
|
)
|
|
—
|
|
|||
Total
|
(5,549
|
)
|
|
(22,923
|
)
|
|
(12,635
|
)
|
|||
Short-term investments
|
—
|
|
|
—
|
|
|
(2,341
|
)
|
|||
Equity securities
|
(1,422
|
)
|
|
(3,990
|
)
|
|
(4,206
|
)
|
|||
Other investments
|
(167
|
)
|
|
(3,529
|
)
|
|
(934
|
)
|
|||
Net impairment losses recognized in earnings
|
$
|
(7,138
|
)
|
|
$
|
(30,442
|
)
|
|
$
|
(20,116
|
)
|
•
|
Corporate bonds – the Company reviewed the business prospects, credit ratings, estimated loss given default factors, foreign currency impacts and information received from asset managers and rating agencies for certain
|
ARCH CAPITAL
|
140
|
2017 FORM 10-K
|
•
|
Mortgage backed securities – the Company utilized underlying data provided by asset managers, cash flow projections and additional information from credit agencies in order to determine an expected recovery value for each security. Impairment losses primarily reflected the Company’s decision to liquidate a portfolio of mortgage backed securities in April 2017. The Company recorded impairment losses on securities in such portfolio that were in an unrealized loss position at March 31, 2017;
|
•
|
Equity securities – the Company utilized information received from asset managers on common stocks, including the business prospects, recent events, industry and market data and other factors. Impairment losses were primarily on equities which were in an unrealized loss position for a significant length of time.
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Balance at start of year
|
$
|
13,138
|
|
|
$
|
26,875
|
|
|
$
|
20,196
|
|
Credit loss impairments recognized on securities not previously impaired
|
31
|
|
|
2,186
|
|
|
12,777
|
|
|||
Credit loss impairments recognized on securities previously impaired
|
210
|
|
|
582
|
|
|
1,673
|
|
|||
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security
|
—
|
|
|
—
|
|
|
—
|
|
|||
Reductions for securities sold during the period
|
(12,612
|
)
|
|
(16,505
|
)
|
|
(7,771
|
)
|
|||
Balance at end of year
|
$
|
767
|
|
|
$
|
13,138
|
|
|
$
|
26,875
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Assets used for collateral or guarantees:
|
|
|
|
||||
Affiliated transactions
|
$
|
4,323,726
|
|
|
$
|
3,871,971
|
|
Third party agreements
|
1,674,304
|
|
|
1,513,079
|
|
||
Deposits with U.S. regulatory authorities
|
616,987
|
|
|
472,890
|
|
||
Deposits with non-U.S. regulatory authorities
|
55,895
|
|
|
44,399
|
|
||
Total restricted assets
|
$
|
6,670,912
|
|
|
$
|
5,902,339
|
|
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
|
ARCH CAPITAL
|
141
|
2017 FORM 10-K
|
ARCH CAPITAL
|
142
|
2017 FORM 10-K
|
ARCH CAPITAL
|
143
|
2017 FORM 10-K
|
|
|
|
Fair Value Measurement Using:
|
||||||||||||
|
Estimated
Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
||||||||
Assets measured at fair value:
|
|
|
|
|
|
|
|
||||||||
Available for sale securities:
|
|
|
|
|
|
|
|
||||||||
Fixed maturities (1):
|
|
|
|
|
|
|
|
||||||||
Corporate bonds
|
$
|
4,434,439
|
|
|
$
|
—
|
|
|
$
|
4,424,979
|
|
|
$
|
9,460
|
|
Mortgage backed securities
|
316,141
|
|
|
—
|
|
|
315,754
|
|
|
387
|
|
||||
Municipal bonds
|
2,158,840
|
|
|
—
|
|
|
2,158,840
|
|
|
—
|
|
||||
Commercial mortgage backed securities
|
545,817
|
|
|
—
|
|
|
545,277
|
|
|
540
|
|
||||
U.S. government and government agencies
|
3,484,257
|
|
|
3,408,902
|
|
|
75,355
|
|
|
—
|
|
||||
Non-U.S. government securities
|
1,612,754
|
|
|
—
|
|
|
1,612,754
|
|
|
—
|
|
||||
Asset backed securities
|
1,780,143
|
|
|
—
|
|
|
1,775,143
|
|
|
5,000
|
|
||||
Total
|
14,332,391
|
|
|
3,408,902
|
|
|
10,908,102
|
|
|
15,387
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Equity securities
|
504,333
|
|
|
498,182
|
|
|
6,151
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Short-term investments
|
1,469,042
|
|
|
1,420,732
|
|
|
48,310
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Other investments
|
76,427
|
|
|
74,611
|
|
|
1,816
|
|
|
—
|
|
||||
Other investments measured at net asset value (2)
|
188,562
|
|
|
|
|
|
|
|
|||||||
Total other investments
|
264,989
|
|
|
74,611
|
|
|
1,816
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Derivative instruments (4)
|
15,747
|
|
|
—
|
|
|
15,747
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Fair value option:
|
|
|
|
|
|
|
|
||||||||
Corporate bonds
|
1,068,725
|
|
|
—
|
|
|
1,056,508
|
|
|
12,217
|
|
||||
Non-U.S. government bonds
|
195,788
|
|
|
—
|
|
|
195,788
|
|
|
—
|
|
||||
Mortgage backed securities
|
20,491
|
|
|
—
|
|
|
20,491
|
|
|
—
|
|
||||
Municipal bonds
|
15,210
|
|
|
—
|
|
|
15,210
|
|
|
—
|
|
||||
Commercial mortgage backed securities
|
11,997
|
|
|
—
|
|
|
11,997
|
|
|
—
|
|
||||
Asset backed securities
|
99,354
|
|
|
—
|
|
|
99,354
|
|
|
—
|
|
||||
U.S. government and government agencies
|
231,290
|
|
|
231,019
|
|
|
271
|
|
|
—
|
|
||||
Short-term investments
|
297,426
|
|
|
40,166
|
|
|
257,260
|
|
|
—
|
|
||||
Equity securities
|
139,576
|
|
|
67,440
|
|
|
72,136
|
|
|
—
|
|
||||
Other investments
|
1,128,094
|
|
|
82,291
|
|
|
986,636
|
|
|
59,167
|
|
||||
Other investments measured at net asset value (2)
|
1,008,287
|
|
|
|
|
|
|
|
|||||||
Total
|
4,216,238
|
|
|
420,916
|
|
|
2,715,651
|
|
|
71,384
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Total assets measured at fair value
|
$
|
20,802,740
|
|
|
$
|
5,823,343
|
|
|
$
|
13,695,777
|
|
|
$
|
86,771
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities measured at fair value:
|
|
|
|
|
|
|
|
||||||||
Contingent consideration liabilities
|
$
|
(60,996
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(60,996
|
)
|
Securities sold but not yet purchased (3)
|
(34,375
|
)
|
|
—
|
|
|
(34,375
|
)
|
|
—
|
|
||||
Derivative instruments (4)
|
(20,464
|
)
|
|
—
|
|
|
(20,464
|
)
|
|
—
|
|
||||
Total liabilities measured at fair value
|
$
|
(115,835
|
)
|
|
$
|
—
|
|
|
$
|
(54,839
|
)
|
|
$
|
(60,996
|
)
|
(1)
|
In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See Note
9
, “Investment Information—Securities Lending Agreements.”
|
(2)
|
In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.
|
(3)
|
Represents the Company’s obligations to deliver securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company’s consolidated balance sheets.
|
(4)
|
See Note
11
, “Derivative Instruments.”
|
ARCH CAPITAL
|
144
|
2017 FORM 10-K
|
|
|
|
Fair Value Measurement Using:
|
||||||||||||
|
Estimated
Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
||||||||
Assets measured at fair value:
|
|
|
|
|
|
|
|
||||||||
Available for sale securities:
|
|
|
|
|
|
|
|
||||||||
Fixed maturities (1):
|
|
|
|
|
|
|
|
||||||||
Corporate bonds
|
$
|
4,392,373
|
|
|
$
|
—
|
|
|
$
|
4,374,029
|
|
|
$
|
18,344
|
|
Mortgage backed securities
|
490,093
|
|
|
—
|
|
|
490,093
|
|
|
—
|
|
||||
Municipal bonds
|
3,713,434
|
|
|
—
|
|
|
3,713,434
|
|
|
—
|
|
||||
Commercial mortgage backed securities
|
536,051
|
|
|
—
|
|
|
536,051
|
|
|
—
|
|
||||
U.S. government and government agencies
|
2,804,540
|
|
|
2,691,575
|
|
|
112,965
|
|
|
—
|
|
||||
Non-U.S. government securities
|
1,096,440
|
|
|
—
|
|
|
1,096,440
|
|
|
—
|
|
||||
Asset backed securities
|
1,123,987
|
|
|
—
|
|
|
1,112,698
|
|
|
11,289
|
|
||||
Total
|
14,156,918
|
|
|
2,691,575
|
|
|
11,435,710
|
|
|
29,633
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Equity securities
|
532,680
|
|
|
529,695
|
|
|
2,985
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Short-term investments
|
612,005
|
|
|
608,862
|
|
|
3,143
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Other investments
|
112,313
|
|
|
112,313
|
|
|
—
|
|
|
—
|
|
||||
Other investments measured at net asset value (2)
|
55,657
|
|
|
|
|
|
|
|
|||||||
Total other investments
|
167,970
|
|
|
112,313
|
|
|
—
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Derivative instruments (4)
|
28,410
|
|
|
—
|
|
|
28,410
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Fair value option:
|
|
|
|
|
|
|
|
||||||||
Corporate bonds
|
790,935
|
|
|
—
|
|
|
790,935
|
|
|
—
|
|
||||
Non-U.S. government bonds
|
61,747
|
|
|
—
|
|
|
61,747
|
|
|
—
|
|
||||
Mortgage backed securities
|
18,624
|
|
|
—
|
|
|
18,624
|
|
|
—
|
|
||||
Asset backed securities
|
30,324
|
|
|
—
|
|
|
30,324
|
|
|
—
|
|
||||
U.S. government and government agencies
|
197,486
|
|
|
197,486
|
|
|
—
|
|
|
—
|
|
||||
Short-term investments
|
373,669
|
|
|
309,127
|
|
|
64,542
|
|
|
—
|
|
||||
Equity securities
|
27,642
|
|
|
25,328
|
|
|
2,314
|
|
|
—
|
|
||||
Other investments
|
1,226,242
|
|
|
80,706
|
|
|
1,120,536
|
|
|
25,000
|
|
||||
Other investments measured at net asset value (2)
|
694,551
|
|
|
|
|
|
|
|
|||||||
Total
|
3,421,220
|
|
|
612,647
|
|
|
2,089,022
|
|
|
25,000
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Total assets measured at fair value
|
$
|
18,919,203
|
|
|
$
|
4,555,092
|
|
|
$
|
13,559,270
|
|
|
$
|
54,633
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities measured at fair value:
|
|
|
|
|
|
|
|
||||||||
Contingent consideration liabilities
|
$
|
(122,350
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(122,350
|
)
|
Securities sold but not yet purchased (3)
|
(33,157
|
)
|
|
—
|
|
|
(33,157
|
)
|
|
—
|
|
||||
Derivative instruments (4)
|
(26,049
|
)
|
|
—
|
|
|
(26,049
|
)
|
|
—
|
|
||||
Total liabilities measured at fair value
|
$
|
(181,556
|
)
|
|
$
|
—
|
|
|
$
|
(59,206
|
)
|
|
$
|
(122,350
|
)
|
(1)
|
In securities lending transactions, the Company receives collateral in excess of the fair value of the securities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See Note
9
, “Investment Information—Securities Lending Agreements.”
|
(2)
|
In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.
|
(3)
|
Represents the Company’s obligations to deliver securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company’s consolidated balance sheets.
|
(4)
|
See Note
11
, “Derivative Instruments.”
|
ARCH CAPITAL
|
145
|
2017 FORM 10-K
|
|
|
|
Assets
|
|
Liabilities
|
||||||||||||||||||
|
Available For Sale
|
|
Fair Value Option
|
|
|
|
|
||||||||||||||||
|
Structured Securities (1)
|
|
Corporate Bonds
|
|
Corporate Bonds
|
|
Other Investments
|
|
Total
|
|
Contingent
Consideration
Liabilities
|
||||||||||||
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Balance at beginning of year
|
$
|
11,289
|
|
|
$
|
18,344
|
|
|
$
|
—
|
|
|
$
|
25,000
|
|
|
$
|
54,633
|
|
|
$
|
(122,350
|
)
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Included in earnings (2)
|
3,779
|
|
|
688
|
|
|
1,021
|
|
|
4
|
|
|
5,492
|
|
|
(10,837
|
)
|
||||||
Included in other comprehensive income
|
7
|
|
|
713
|
|
|
—
|
|
|
—
|
|
|
720
|
|
|
—
|
|
||||||
Purchases, issuances, sales and settlements
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Purchases
|
—
|
|
|
4,935
|
|
|
—
|
|
|
1,348
|
|
|
6,283
|
|
|
—
|
|
||||||
Issuances
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Sales
|
(13,640
|
)
|
|
(14,897
|
)
|
|
—
|
|
|
—
|
|
|
(28,537
|
)
|
|
—
|
|
||||||
Settlements
|
(1,457
|
)
|
|
(455
|
)
|
|
(275
|
)
|
|
(901
|
)
|
|
(3,088
|
)
|
|
72,191
|
|
||||||
Transfers in and/or out of Level 3
|
5,949
|
|
|
132
|
|
|
11,471
|
|
|
33,716
|
|
|
51,268
|
|
|
—
|
|
||||||
Balance at end of year
|
$
|
5,927
|
|
|
$
|
9,460
|
|
|
$
|
12,217
|
|
|
$
|
59,167
|
|
|
$
|
86,771
|
|
|
$
|
(60,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Balance at beginning of year
|
$
|
57,500
|
|
|
$
|
16,368
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
73,868
|
|
|
$
|
(96,048
|
)
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Included in earnings (2)
|
(14,730
|
)
|
|
1,200
|
|
|
—
|
|
|
—
|
|
|
(13,530
|
)
|
|
(26,912
|
)
|
||||||
Included in other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
74
|
|
||||||
Purchases, issuances, sales and settlements
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Purchases
|
—
|
|
|
776
|
|
|
—
|
|
|
—
|
|
|
776
|
|
|
—
|
|
||||||
Issuances
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Sales
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Settlements
|
(31,481
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,481
|
)
|
|
536
|
|
||||||
Transfers in and/or out of Level 3
|
—
|
|
|
—
|
|
|
—
|
|
|
25,000
|
|
|
25,000
|
|
|
—
|
|
||||||
Balance at end of year
|
$
|
11,289
|
|
|
$
|
18,344
|
|
|
$
|
—
|
|
|
$
|
25,000
|
|
|
$
|
54,633
|
|
|
$
|
(122,350
|
)
|
(1)
|
Includes asset backed securities, mortgage backed securities and commercial mortgage backed securities.
|
(2)
|
Gains or losses on asset backed securities were included in net impairment losses recognized in earnings while gains or losses on corporate bonds and contingent consideration liabilities were included in net realized gains (losses).
|
ARCH CAPITAL
|
146
|
2017 FORM 10-K
|
|
Estimated Fair Value
|
|
|
||||||||
|
Asset
Derivatives |
|
Liability Derivatives
|
|
Notional
Value (1)
|
||||||
December 31, 2017
|
|
|
|
|
|
|
|
|
|||
Futures contracts (2)
|
$
|
3,371
|
|
|
$
|
(1,542
|
)
|
|
$
|
1,452,497
|
|
Foreign currency forward contracts (2)
|
4,478
|
|
|
(4,381
|
)
|
|
686,941
|
|
|||
TBAs (3)
|
27,184
|
|
|
—
|
|
|
27,066
|
|
|||
Other (2)
|
7,898
|
|
|
(14,541
|
)
|
|
1,457,345
|
|
|||
Total
|
$
|
42,931
|
|
|
$
|
(20,464
|
)
|
|
|
||
|
|
|
|
|
|
||||||
December 31, 2016
|
|
|
|
|
|
|
|
|
|||
Futures contracts (2)
|
$
|
360
|
|
|
$
|
(9,398
|
)
|
|
$
|
1,655,530
|
|
Foreign currency forward contracts (2)
|
9,354
|
|
|
(12,941
|
)
|
|
1,186,386
|
|
|||
TBAs (3)
|
—
|
|
|
—
|
|
|
—
|
|
|||
Other (2)
|
20,287
|
|
|
(3,710
|
)
|
|
1,014,863
|
|
|||
Total
|
$
|
30,001
|
|
|
$
|
(26,049
|
)
|
|
|
(1)
|
Represents the absolute notional value of all outstanding contracts, consisting of long and short positions.
|
(2)
|
The fair value of asset derivatives are included in ‘other assets’ and the fair value of liability derivatives are included in ‘other liabilities.’ Such amounts include risk in force on GSE credit-risk sharing transactions that are accounted for as derivatives.
|
(3)
|
The fair value of TBAs are included in ‘fixed maturities available for sale, at fair value.’
|
ARCH CAPITAL
|
147
|
2017 FORM 10-K
|
Derivatives not designated as hedging instruments
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
|||||||
Net realized gains (losses):
|
|
|
|
|
|
|
||||||
Futures contracts
|
|
$
|
9,318
|
|
|
$
|
(5,474
|
)
|
|
$
|
(21,533
|
)
|
Foreign currency forward contracts
|
|
(14,495
|
)
|
|
(9,588
|
)
|
|
16,045
|
|
|||
TBAs
|
|
9
|
|
|
577
|
|
|
1,452
|
|
|||
Other
|
|
(2,188
|
)
|
|
(8,127
|
)
|
|
(3,078
|
)
|
|||
Total
|
|
$
|
(7,356
|
)
|
|
$
|
(22,612
|
)
|
|
$
|
(7,114
|
)
|
|
Unrealized Appreciation on Available-For-Sale Investments
|
|
Foreign Currency Translation Adjustments
|
|
Total
|
||||||
Year Ended December 31, 2017
|
|
|
|
|
|
||||||
Beginning balance
|
$
|
(27,641
|
)
|
|
$
|
(86,900
|
)
|
|
$
|
(114,541
|
)
|
Other comprehensive income (loss) before reclassifications
|
252,904
|
|
|
47,544
|
|
|
300,448
|
|
|||
Amounts reclassified from accumulated other comprehensive income
|
(67,863
|
)
|
|
—
|
|
|
(67,863
|
)
|
|||
Net current period other comprehensive income (loss)
|
185,041
|
|
|
47,544
|
|
|
232,585
|
|
|||
Ending balance
|
$
|
157,400
|
|
|
$
|
(39,356
|
)
|
|
$
|
118,044
|
|
|
|
|
|
|
|
||||||
Year Ended December 31, 2016
|
|
|
|
|
|
||||||
Beginning balance
|
$
|
50,085
|
|
|
$
|
(66,587
|
)
|
|
$
|
(16,502
|
)
|
Other comprehensive income (loss) before reclassifications
|
(21,365
|
)
|
|
(20,313
|
)
|
|
(41,678
|
)
|
|||
Amounts reclassified from accumulated other comprehensive income
|
(56,361
|
)
|
|
—
|
|
|
(56,361
|
)
|
|||
Net current period other comprehensive income (loss)
|
(77,726
|
)
|
|
(20,313
|
)
|
|
(98,039
|
)
|
|||
Ending balance
|
$
|
(27,641
|
)
|
|
$
|
(86,900
|
)
|
|
$
|
(114,541
|
)
|
|
|
|
|
|
|
||||||
Year Ended December 31, 2015
|
|
|
|
|
|
||||||
Beginning balance
|
$
|
161,598
|
|
|
$
|
(32,742
|
)
|
|
$
|
128,856
|
|
Other comprehensive income (loss) before reclassifications
|
(83,280
|
)
|
|
(33,845
|
)
|
|
(117,125
|
)
|
|||
Amounts reclassified from accumulated other comprehensive income
|
(28,233
|
)
|
|
—
|
|
|
(28,233
|
)
|
|||
Net current period other comprehensive income (loss)
|
(111,513
|
)
|
|
(33,845
|
)
|
|
(145,358
|
)
|
|||
Ending balance
|
$
|
50,085
|
|
|
$
|
(66,587
|
)
|
|
$
|
(16,502
|
)
|
ARCH CAPITAL
|
148
|
2017 FORM 10-K
|
|
|
Consolidated Statement of Income
|
|
Amounts Reclassified from AOCI
|
||||||||||
Details About
|
|
Line Item That Includes
|
|
Year Ended December 31,
|
||||||||||
AOCI Components
|
|
Reclassification
|
|
2017
|
|
2016
|
|
2015
|
||||||
Unrealized appreciation on available-for-sale investments
|
|
|
|
|
|
|
||||||||
|
|
Net realized gains
|
|
$
|
82,542
|
|
|
$
|
95,448
|
|
|
$
|
62,817
|
|
|
|
Other-than-temporary impairment losses
|
|
(7,138
|
)
|
|
(30,794
|
)
|
|
(26,152
|
)
|
|||
|
|
Total before tax
|
|
75,404
|
|
|
64,654
|
|
|
36,665
|
|
|||
|
|
Income tax (expense) benefit
|
|
(7,541
|
)
|
|
(8,293
|
)
|
|
(8,432
|
)
|
|||
|
|
Net of tax
|
|
$
|
67,863
|
|
|
$
|
56,361
|
|
|
$
|
28,233
|
|
|
Before Tax
|
|
Tax Expense
|
|
Net of Tax
|
||||||
|
Amount
|
|
(Benefit)
|
|
Amount
|
||||||
Year Ended December 31, 2017
|
|
|
|
|
|
||||||
Unrealized appreciation (decline) in value of investments:
|
|
|
|
|
|
||||||
Unrealized holding gains (losses) arising during period
|
$
|
266,559
|
|
|
$
|
13,655
|
|
|
$
|
252,904
|
|
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|||
Less reclassification of net realized gains (losses) included in net income
|
75,404
|
|
|
7,541
|
|
|
67,863
|
|
|||
Foreign currency translation adjustments
|
47,549
|
|
|
535
|
|
|
47,014
|
|
|||
Other comprehensive income (loss)
|
$
|
238,704
|
|
|
$
|
6,649
|
|
|
$
|
232,055
|
|
|
|
|
|
|
|
||||||
Year Ended December 31, 2016
|
|
|
|
|
|
||||||
Unrealized appreciation (decline) in value of investments:
|
|
|
|
|
|
||||||
Unrealized holding gains (losses) arising during period
|
$
|
(26,159
|
)
|
|
$
|
(5,146
|
)
|
|
$
|
(21,013
|
)
|
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)
|
(352
|
)
|
|
—
|
|
|
(352
|
)
|
|||
Less reclassification of net realized gains (losses) included in net income
|
64,654
|
|
|
8,293
|
|
|
56,361
|
|
|||
Foreign currency translation adjustments
|
(20,120
|
)
|
|
261
|
|
|
(20,381
|
)
|
|||
Other comprehensive income (loss)
|
$
|
(111,285
|
)
|
|
$
|
(13,178
|
)
|
|
$
|
(98,107
|
)
|
|
|
|
|
|
|
||||||
Year Ended December 31, 2015
|
|
|
|
|
|
||||||
Unrealized appreciation (decline) in value of investments:
|
|
|
|
|
|
||||||
Unrealized holding gains (losses) arising during period
|
$
|
(77,311
|
)
|
|
$
|
(67
|
)
|
|
$
|
(77,244
|
)
|
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)
|
(6,036
|
)
|
|
—
|
|
|
(6,036
|
)
|
|||
Less reclassification of net realized gains (losses) included in net income
|
36,665
|
|
|
8,432
|
|
|
28,233
|
|
|||
Foreign currency translation adjustments
|
(35,679
|
)
|
|
(1,568
|
)
|
|
(34,111
|
)
|
|||
Other comprehensive income (loss)
|
$
|
(155,691
|
)
|
|
$
|
(10,067
|
)
|
|
$
|
(145,624
|
)
|
ARCH CAPITAL
|
149
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Numerator:
|
|
|
|
|
|
||||||
Net income
|
$
|
629,709
|
|
|
$
|
824,178
|
|
|
$
|
526,582
|
|
Amounts attributable to noncontrolling interests
|
(10,431
|
)
|
|
(131,440
|
)
|
|
11,156
|
|
|||
Net income available to Arch
|
619,278
|
|
|
692,738
|
|
|
537,738
|
|
|||
Preferred dividends
|
(46,041
|
)
|
|
(28,070
|
)
|
|
(21,938
|
)
|
|||
Loss on redemption of preferred shares
|
(6,735
|
)
|
|
—
|
|
|
—
|
|
|||
Net income available to Arch common shareholders
|
$
|
566,502
|
|
|
$
|
664,668
|
|
|
$
|
515,800
|
|
|
|
|
|
|
|
||||||
Denominator:
|
|
|
|
|
|
||||||
Weighted average common shares outstanding
|
125,843,876
|
|
|
120,757,243
|
|
|
121,786,127
|
|
|||
Series D preferred securities (1)
|
8,868,912
|
|
|
34,871
|
|
|
—
|
|
|||
Weighted average common shares outstanding – basic
|
134,712,788
|
|
|
120,792,114
|
|
|
121,786,127
|
|
|||
Effect of dilutive common share equivalents:
|
|
|
|
|
|
||||||
Nonvested restricted shares
|
1,312,198
|
|
|
1,292,359
|
|
|
1,253,938
|
|
|||
Stock options (2)
|
3,236,689
|
|
|
2,633,020
|
|
|
2,998,678
|
|
|||
Weighted average common shares and common share equivalents outstanding – diluted
|
139,261,675
|
|
|
124,717,493
|
|
|
126,038,743
|
|
|||
|
|
|
|
|
|
||||||
Earnings per common share:
|
|
|
|
|
|
||||||
Basic
|
$
|
4.21
|
|
|
$
|
5.50
|
|
|
$
|
4.24
|
|
Diluted
|
$
|
4.07
|
|
|
$
|
5.33
|
|
|
$
|
4.09
|
|
(1)
|
The company has determined that, based on a review of the terms, features and rights of the Company’s non-voting common equivalent preferred shares compared to the rights of the Company’s common shareholders, the underlying common shares that the convertible securities convert to were common share equivalents at the time of their issuance.
|
(2)
|
Certain stock options were not included in the computation of diluted earnings per share where the exercise price of the stock options exceeded the average market price and would have been anti-dilutive or where, when applying the treasury stock method to in-the-money options, the sum of the proceeds, including unrecognized compensation, exceeded the average market price and would have been anti-dilutive. For
2017
,
2016
and
2015
, the number of stock options excluded were
867,817
,
722,729
and
799,535
, respectively.
|
ARCH CAPITAL
|
150
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Current expense (benefit):
|
|
|
|
|
|
||||||
United States
|
$
|
(51,705
|
)
|
|
$
|
40,300
|
|
|
$
|
37,186
|
|
Non-U.S.
|
5,969
|
|
|
10,445
|
|
|
7,008
|
|
|||
|
(45,736
|
)
|
|
50,745
|
|
|
44,194
|
|
|||
Deferred expense (benefit):
|
|
|
|
|
|
||||||
United States
|
169,093
|
|
|
(14,641
|
)
|
|
(4,893
|
)
|
|||
Non-U.S.
|
4,211
|
|
|
(4,730
|
)
|
|
1,311
|
|
|||
|
173,304
|
|
|
(19,371
|
)
|
|
(3,582
|
)
|
|||
Income tax expense
|
$
|
127,568
|
|
|
$
|
31,374
|
|
|
$
|
40,612
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Income Before Income Taxes:
|
|
|
|
|
|
||||||
Bermuda
|
$
|
406,054
|
|
|
$
|
801,155
|
|
|
$
|
508,561
|
|
United States
|
381,157
|
|
|
51,577
|
|
|
57,527
|
|
|||
Other
|
(29,934
|
)
|
|
2,820
|
|
|
1,106
|
|
|||
Total
|
$
|
757,277
|
|
|
$
|
855,552
|
|
|
$
|
567,194
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Expected income tax expense (benefit) computed on pre-tax income
at weighted average income tax rate
|
$
|
126,262
|
|
|
$
|
17,365
|
|
|
$
|
20,058
|
|
Addition (reduction) in income tax expense (benefit) resulting from:
|
|
|
|
|
|
||||||
Tax-exempt investment income
|
(13,330
|
)
|
|
(8,830
|
)
|
|
(9,588
|
)
|
|||
Meals and entertainment
|
1,063
|
|
|
954
|
|
|
897
|
|
|||
State taxes, net of U.S. federal tax benefit
|
732
|
|
|
1,073
|
|
|
858
|
|
|||
Foreign branch taxes
|
5,752
|
|
|
5,496
|
|
|
1,456
|
|
|||
Prior year adjustment
|
(559
|
)
|
|
(4,756
|
)
|
|
2,510
|
|
|||
Foreign exchange gains & losses
|
(572
|
)
|
|
223
|
|
|
670
|
|
|||
Changes in applicable tax rate
|
7,745
|
|
|
1,209
|
|
|
40
|
|
|||
Dividend withholding taxes
|
232
|
|
|
3,319
|
|
|
6,323
|
|
|||
Change in valuation allowance
|
14,798
|
|
|
4,730
|
|
|
2,917
|
|
|||
Contingent consideration
|
3,785
|
|
|
9,353
|
|
|
11,548
|
|
|||
Share based compensation
|
(18,733
|
)
|
|
—
|
|
|
—
|
|
|||
Uncertain tax position
|
—
|
|
|
—
|
|
|
2,008
|
|
|||
Other
|
393
|
|
|
1,238
|
|
|
915
|
|
|||
Income tax expense (benefit)
|
$
|
127,568
|
|
|
$
|
31,374
|
|
|
$
|
40,612
|
|
ARCH CAPITAL
|
151
|
2017 FORM 10-K
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Deferred income tax assets:
|
|
|
|
||||
Net operating loss
|
$
|
33,723
|
|
|
$
|
13,061
|
|
AMT credit carryforward
|
12,327
|
|
|
5,350
|
|
||
Discounting of net loss reserves
|
33,659
|
|
|
64,220
|
|
||
Deferred ceding commission
|
6,934
|
|
|
15,505
|
|
||
Net unearned premium reserve
|
47,682
|
|
|
71,760
|
|
||
Compensation liabilities
|
20,234
|
|
|
37,757
|
|
||
Foreign tax credit carryforward
|
6,610
|
|
|
6,421
|
|
||
Interest expense
|
3,815
|
|
|
2,678
|
|
||
Goodwill and intangible assets
|
3,688
|
|
|
9,269
|
|
||
Bad debt reserves
|
5,073
|
|
|
6,961
|
|
||
Net unrealized foreign exchange gains
|
464
|
|
|
1,308
|
|
||
Net unrealized decline of investments
|
1,602
|
|
|
7,384
|
|
||
Other, net
|
10,760
|
|
|
12,123
|
|
||
Deferred tax assets before valuation allowance
|
186,571
|
|
|
253,797
|
|
||
Valuation allowance
|
(30,591
|
)
|
|
(17,028
|
)
|
||
Deferred tax assets net of valuation allowance
|
155,980
|
|
|
236,769
|
|
||
Deferred income tax liabilities:
|
|
|
|
||||
Depreciation and amortization
|
(2,333
|
)
|
|
(7,038
|
)
|
||
Deposit accounting liability
|
(2,392
|
)
|
|
(4,078
|
)
|
||
Contingency reserve
|
(110,632
|
)
|
|
(19,400
|
)
|
||
Other, net
|
(1,061
|
)
|
|
(1,228
|
)
|
||
Total deferred tax liabilities
|
(116,418
|
)
|
|
(31,744
|
)
|
||
Net deferred income tax assets
|
$
|
39,562
|
|
|
$
|
205,025
|
|
ARCH CAPITAL
|
152
|
2017 FORM 10-K
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
|
|
|
|
||||
Balance at beginning of year
|
$
|
2,008
|
|
|
$
|
2,008
|
|
Additions based on tax positions related to the current year
|
—
|
|
|
—
|
|
||
Additions for tax positions of prior years
|
—
|
|
|
—
|
|
||
Reductions for tax positions of prior years
|
—
|
|
|
—
|
|
||
Settlements
|
—
|
|
|
—
|
|
||
Balance at end of year
|
$
|
2,008
|
|
|
$
|
2,008
|
|
Jurisdiction
|
|
Tax Years
|
United States
|
|
2014-2017
|
United Kingdom
|
|
2012-2017
|
Ireland
|
|
2013-2017
|
Canada
|
|
2013-2017
|
Switzerland
|
|
2011-2017
|
Denmark
|
|
2014-2017
|
ARCH CAPITAL
|
153
|
2017 FORM 10-K
|
Broker
|
|
Year Ended December 31,
|
|||||||
|
2017
|
|
2016
|
|
2015
|
||||
Aon Corporation and its subsidiaries
|
|
11.3
|
%
|
|
14.4
|
%
|
|
13.1
|
%
|
Marsh & McLennan Companies and its subsidiaries
|
|
10.7
|
%
|
|
13.5
|
%
|
|
15.3
|
%
|
ARCH CAPITAL
|
154
|
2017 FORM 10-K
|
2018
|
$
|
28,553
|
|
2019
|
28,562
|
|
|
2020
|
27,721
|
|
|
2021
|
25,031
|
|
|
2022
|
21,634
|
|
|
2023 and thereafter
|
37,463
|
|
|
Total
|
$
|
168,964
|
|
ARCH CAPITAL
|
155
|
2017 FORM 10-K
|
|
|
|
|
|
|
Carrying Amount at
|
|||||||||
|
|
Interest
|
|
Principal
|
|
December 31,
|
|||||||||
|
|
(Fixed)
|
|
Amount
|
|
2017
|
|
2016
|
|||||||
2034 notes (1)
|
|
7.350
|
%
|
|
300,000
|
|
|
297,053
|
|
|
296,957
|
|
|||
2043 notes (2)
|
|
5.144
|
%
|
|
500,000
|
|
|
494,621
|
|
|
494,525
|
|
|||
2026 notes (3)
|
|
4.011
|
%
|
|
500,000
|
|
|
496,043
|
|
|
495,689
|
|
|||
2046 notes (4)
|
|
5.031
|
%
|
|
450,000
|
|
|
445,167
|
|
|
445,087
|
|
|||
|
|
|
|
$
|
1,750,000
|
|
|
$
|
1,732,884
|
|
|
$
|
1,732,258
|
|
|
Goodwill
|
|
Intangible assets (indefinite life)
|
|
Intangible assets (finite life)
|
|
Total
|
||||||||
Net balance at Dec. 31, 2015
|
$
|
15,536
|
|
|
$
|
33,524
|
|
|
$
|
48,471
|
|
|
$
|
97,531
|
|
Acquisitions
|
188,758
|
|
|
34,650
|
|
|
481,049
|
|
|
704,457
|
|
||||
Amortization
|
—
|
|
|
—
|
|
|
(19,343
|
)
|
|
(19,343
|
)
|
||||
Foreign currency movements and other adjustments
|
(272
|
)
|
|
—
|
|
|
(820
|
)
|
|
(1,092
|
)
|
||||
Net balance at Dec. 31, 2016
|
204,022
|
|
|
68,174
|
|
|
509,357
|
|
|
781,553
|
|
||||
Acquisitions
|
806
|
|
|
—
|
|
|
2,300
|
|
|
3,106
|
|
||||
Amortization
|
—
|
|
|
—
|
|
|
(125,778
|
)
|
|
(125,778
|
)
|
||||
Foreign currency movements and other adjustments
|
(6,592
|
)
|
|
—
|
|
|
322
|
|
|
(6,270
|
)
|
||||
Net balance at Dec. 31, 2017
|
$
|
198,236
|
|
|
$
|
68,174
|
|
|
$
|
386,201
|
|
|
$
|
652,611
|
|
|
|
|
|
|
|
|
|
||||||||
Gross balance at Dec. 31, 2017
|
$
|
205,192
|
|
|
$
|
68,174
|
|
|
$
|
619,101
|
|
|
$
|
892,467
|
|
Accumulated amortization
|
—
|
|
|
—
|
|
|
(231,520
|
)
|
|
(231,520
|
)
|
||||
Foreign currency movements and other adjustments
|
(6,956
|
)
|
|
—
|
|
|
(1,380
|
)
|
|
(8,336
|
)
|
||||
Net balance at Dec. 31, 2017
|
$
|
198,236
|
|
|
$
|
68,174
|
|
|
$
|
386,201
|
|
|
$
|
652,611
|
|
ARCH CAPITAL
|
156
|
2017 FORM 10-K
|
|
Gross Balance
|
|
Accumulated
Amortization |
|
Foreign Currency Translation Adjustment and Other
|
|
Net
Balance
|
||||||||
Dec. 31, 2017
|
|
|
|
|
|
|
|
||||||||
Acquired insurance contracts
|
$
|
435,067
|
|
|
$
|
(182,947
|
)
|
|
$
|
(150
|
)
|
|
$
|
251,970
|
|
Operating platform
|
44,900
|
|
|
(26,422
|
)
|
|
—
|
|
|
18,478
|
|
||||
Distribution relationships
|
147,611
|
|
|
(28,321
|
)
|
|
(1,230
|
)
|
|
118,060
|
|
||||
Goodwill
|
205,192
|
|
|
—
|
|
|
(6,956
|
)
|
|
198,236
|
|
||||
Insurance licenses
|
68,174
|
|
|
—
|
|
|
—
|
|
|
68,174
|
|
||||
Unfavorable service contract
|
(9,533
|
)
|
|
6,997
|
|
|
—
|
|
|
(2,536
|
)
|
||||
Other
|
1,056
|
|
|
(827
|
)
|
|
—
|
|
|
229
|
|
||||
Total
|
$
|
892,467
|
|
|
$
|
(231,520
|
)
|
|
$
|
(8,336
|
)
|
|
$
|
652,611
|
|
|
|
|
|
|
|
|
|
||||||||
Dec. 31, 2016
|
|
|
|
|
|
|
|
||||||||
Acquired insurance contracts
|
$
|
435,067
|
|
|
$
|
(72,771
|
)
|
|
$
|
(150
|
)
|
|
$
|
362,146
|
|
Operating platform
|
44,900
|
|
|
(17,442
|
)
|
|
—
|
|
|
27,458
|
|
||||
Distribution relationships
|
145,311
|
|
|
(20,675
|
)
|
|
(1,552
|
)
|
|
123,084
|
|
||||
Goodwill
|
204,386
|
|
|
—
|
|
|
(364
|
)
|
|
204,022
|
|
||||
Insurance licenses
|
68,174
|
|
|
—
|
|
|
—
|
|
|
68,174
|
|
||||
Unfavorable service contract
|
(9,533
|
)
|
|
5,762
|
|
|
—
|
|
|
(3,771
|
)
|
||||
Other
|
1,056
|
|
|
(616
|
)
|
|
—
|
|
|
440
|
|
||||
Total
|
$
|
889,361
|
|
|
$
|
(105,742
|
)
|
|
$
|
(2,066
|
)
|
|
$
|
781,553
|
|
2018
|
$
|
106,075
|
|
2019
|
74,324
|
|
|
2020
|
46,485
|
|
|
2021
|
29,839
|
|
|
2022
|
23,945
|
|
|
2023 and thereafter
|
105,533
|
|
|
Total
|
$
|
386,201
|
|
|
Year Ended December 31,
|
|||||||
|
2017
|
|
2016
|
|
2015
|
|||
Common Shares:
|
|
|
|
|
|
|||
Shares issued and outstanding, beginning of year
|
174,644,101
|
|
|
173,107,849
|
|
|
171,672,408
|
|
Shares issued (1)
|
1,129,448
|
|
|
1,149,112
|
|
|
1,001,667
|
|
Conversion of Series D preferred shares (2)
|
7,088,620
|
|
|
—
|
|
|
—
|
|
Restricted shares issued, net of cancellations
|
428,573
|
|
|
387,140
|
|
|
433,774
|
|
Shares issued and outstanding, end of year
|
183,290,742
|
|
|
174,644,101
|
|
|
173,107,849
|
|
Common shares in treasury, end of year
|
(52,312,803
|
)
|
|
(51,856,584
|
)
|
|
(50,480,066
|
)
|
Shares issued and outstanding, end of year
|
130,977,939
|
|
|
122,787,517
|
|
|
122,627,783
|
|
(1)
|
Includes shares issued from the exercise of stock options and stock appreciation rights, and shares issued from the employee share purchase plan.
|
(2)
|
Such shares represent common shares that were issued upon conversion of the non-voting common equivalent preference shares issued in connection with the AIG acquisition.
|
ARCH CAPITAL
|
157
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Aggregate cost of shares repurchased
|
$
|
—
|
|
|
$
|
75,256
|
|
|
$
|
365,383
|
|
Shares repurchased
|
—
|
|
|
1,140,137
|
|
|
5,949,625
|
|
|||
Average price per share repurchased
|
$
|
—
|
|
|
$
|
66.01
|
|
|
$
|
61.41
|
|
ARCH CAPITAL
|
158
|
2017 FORM 10-K
|
ARCH CAPITAL
|
159
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
|||||||
|
2017
|
|
2016
|
|
2015
|
|||
Dividend yield
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
Expected volatility
|
21.3
|
%
|
|
21.7
|
%
|
|
22.1
|
%
|
Risk free interest rate
|
2.0
|
%
|
|
1.4
|
%
|
|
1.8
|
%
|
Expected option life
|
6.0 years
|
|
|
6.0 years
|
|
|
6.0 years
|
|
ARCH CAPITAL
|
160
|
2017 FORM 10-K
|
|
Year Ended December 31, 2017
|
|||||||||||
|
Number of
Options / SARs
|
|
Weighted Average Exercise Price
|
|
Weighted Average Contractual Term
|
|
Aggregate Intrinsic Value
|
|||||
Outstanding, beginning of year
|
6,872,494
|
|
|
$
|
43.74
|
|
|
|
|
|
||
Granted
|
843,690
|
|
|
$
|
95.60
|
|
|
|
|
|
||
Exercised
|
(1,073,311
|
)
|
|
$
|
34.45
|
|
|
|
|
|
||
Forfeited or expired
|
(52,815
|
)
|
|
$
|
70.92
|
|
|
|
|
|
||
Outstanding, end of year
|
6,590,058
|
|
|
$
|
51.67
|
|
|
5.37
|
|
$
|
261,674
|
|
Exercisable, end of year
|
5,583,343
|
|
|
$
|
45.83
|
|
|
4.75
|
|
$
|
251,918
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Weighted average grant date fair value
|
$
|
24.46
|
|
|
$
|
17.12
|
|
|
$
|
15.90
|
|
Aggregate intrinsic value of Options/SARs exercised
|
$
|
64,173
|
|
|
$
|
59,617
|
|
|
$
|
38,616
|
|
|
Restricted
Common
Shares
|
|
Restricted
Unit
Awards
|
||||
Unvested Shares:
|
|
|
|
||||
Unvested balance, beginning of year
|
1,646,324
|
|
|
223,486
|
|
||
Granted
|
476,483
|
|
|
105,909
|
|
||
Vested
|
(1,235,894
|
)
|
|
(170,494
|
)
|
||
Forfeited
|
(47,910
|
)
|
|
(6,742
|
)
|
||
Unvested balance, end of year
|
839,003
|
|
|
152,159
|
|
||
|
|
|
|
||||
Weighted Average Grant Date Fair Value:
|
|
|
|
||||
Unvested balance, beginning of year
|
$
|
54.96
|
|
|
$
|
54.84
|
|
Granted
|
$
|
96.03
|
|
|
$
|
96.10
|
|
Vested
|
$
|
50.94
|
|
|
$
|
51.23
|
|
Forfeited
|
$
|
71.12
|
|
|
$
|
72.46
|
|
Unvested balance, end of year
|
$
|
83.29
|
|
|
$
|
86.82
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Restricted shares and restricted unit awards granted
|
582,392
|
|
|
480,980
|
|
|
571,978
|
|
|||
Weighted average grant date fair value
|
$
|
96.05
|
|
|
$
|
71.73
|
|
|
$
|
62.69
|
|
Aggregate fair value of vested restricted shares and units awards
|
$
|
133,848
|
|
|
$
|
45,206
|
|
|
$
|
43,800
|
|
ARCH CAPITAL
|
161
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Pre-Tax
|
|
|
|
|
|
||||||
Stock options and SARs
|
$
|
18,536
|
|
|
$
|
14,095
|
|
|
$
|
12,715
|
|
Restricted share and unit awards
|
46,884
|
|
|
40,398
|
|
|
41,481
|
|
|||
ESPP
|
2,443
|
|
|
2,089
|
|
|
1,893
|
|
|||
Total
|
$
|
67,863
|
|
|
$
|
56,582
|
|
|
$
|
56,089
|
|
|
|
|
|
|
|
||||||
After-Tax
|
|
|
|
|
|
||||||
Stock options and SARs
|
$
|
16,219
|
|
|
$
|
11,885
|
|
|
$
|
10,504
|
|
Restricted share and unit awards
|
37,708
|
|
|
31,660
|
|
|
32,889
|
|
|||
ESPP
|
2,171
|
|
|
1,861
|
|
|
1,694
|
|
|||
Total
|
$
|
56,098
|
|
|
$
|
45,406
|
|
|
$
|
45,087
|
|
|
December 31, 2017
|
||||||
|
Stock Options and SARs
|
|
Restricted Common
Shares and Units
|
||||
Unrecognized compensation cost related to unvested awards
|
$
|
10,357
|
|
|
$
|
40,942
|
|
Weighted average recognition period (years)
|
1.08
|
|
|
1.11
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Actual capital and surplus (1):
|
|
|
|
||||
Bermuda
|
$
|
9,841,225
|
|
|
$
|
8,960,248
|
|
Ireland
|
543,929
|
|
|
607,410
|
|
||
United States
|
4,850,148
|
|
|
4,660,855
|
|
||
United Kingdom
|
320,857
|
|
|
340,300
|
|
||
Canada
|
63,390
|
|
|
71,247
|
|
||
|
|
|
|
||||
Required capital and surplus:
|
|
|
|
||||
Bermuda
|
$
|
3,761,939
|
|
|
$
|
3,077,684
|
|
Ireland
|
383,966
|
|
|
283,544
|
|
||
United States
|
1,816,919
|
|
|
1,811,938
|
|
||
United Kingdom
|
270,242
|
|
|
276,928
|
|
||
Canada
|
35,846
|
|
|
35,858
|
|
(1)
|
Such amounts include ownership interests in affiliated insurance and reinsurance subsidiaries.
|
ARCH CAPITAL
|
162
|
2017 FORM 10-K
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Statutory net income (loss):
|
|
|
|
|
|
||||||
Bermuda
|
$
|
881,665
|
|
|
$
|
886,492
|
|
|
$
|
514,151
|
|
Ireland
|
(14,438
|
)
|
|
26,935
|
|
|
29,041
|
|
|||
United States
|
500,412
|
|
|
67,826
|
|
|
76,604
|
|
|||
United Kingdom
|
(33,257
|
)
|
|
(7,512
|
)
|
|
(6,924
|
)
|
|||
Canada
|
158
|
|
|
621
|
|
|
(1,098
|
)
|
ARCH CAPITAL
|
163
|
2017 FORM 10-K
|
ARCH CAPITAL
|
164
|
2017 FORM 10-K
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
||||||||
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
||||||||
Net premiums written
|
$
|
1,111,015
|
|
|
$
|
1,325,403
|
|
|
$
|
1,248,695
|
|
|
$
|
1,276,260
|
|
Net premiums earned
|
1,224,755
|
|
|
1,261,886
|
|
|
1,240,874
|
|
|
1,117,017
|
|
||||
Net investment income
|
125,415
|
|
|
116,459
|
|
|
111,124
|
|
|
117,874
|
|
||||
Net realized gains (losses)
|
26,978
|
|
|
66,275
|
|
|
21,735
|
|
|
34,153
|
|
||||
Net impairment losses recognized in earnings
|
(1,723
|
)
|
|
(1,878
|
)
|
|
(1,730
|
)
|
|
(1,807
|
)
|
||||
Underwriting income (loss)
|
182,111
|
|
|
(142,172
|
)
|
|
195,419
|
|
|
212,072
|
|
||||
Net income (loss) attributable to Arch
|
214,640
|
|
|
(33,656
|
)
|
|
185,167
|
|
|
253,127
|
|
||||
Preferred dividends
|
(11,105
|
)
|
|
(12,369
|
)
|
|
(11,349
|
)
|
|
(11,218
|
)
|
||||
Net income (loss) available to Arch common shareholders
|
203,535
|
|
|
(52,760
|
)
|
|
173,818
|
|
|
241,909
|
|
||||
Net income (loss) per common share -- basic
|
$
|
1.50
|
|
|
$
|
(0.39
|
)
|
|
$
|
1.29
|
|
|
$
|
1.80
|
|
Net income (loss) per common share -- diluted
|
$
|
1.46
|
|
|
$
|
(0.39
|
)
|
|
$
|
1.25
|
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
||||||||
Net premiums written
|
$
|
872,315
|
|
|
$
|
1,014,278
|
|
|
$
|
1,023,563
|
|
|
$
|
1,121,235
|
|
Net premiums earned
|
968,855
|
|
|
958,403
|
|
|
1,005,985
|
|
|
951,579
|
|
||||
Net investment income
|
91,051
|
|
|
93,618
|
|
|
88,338
|
|
|
93,735
|
|
||||
Net realized gains (losses)
|
(93,061
|
)
|
|
125,105
|
|
|
68,218
|
|
|
37,324
|
|
||||
Net impairment losses recognized in earnings
|
(13,593
|
)
|
|
(3,867
|
)
|
|
(5,343
|
)
|
|
(7,639
|
)
|
||||
Underwriting income
|
114,096
|
|
|
127,647
|
|
|
116,626
|
|
|
115,691
|
|
||||
Net income attributable to Arch
|
74,013
|
|
|
252,872
|
|
|
211,055
|
|
|
154,798
|
|
||||
Preferred dividends
|
(11,617
|
)
|
|
(5,484
|
)
|
|
(5,485
|
)
|
|
(5,484
|
)
|
||||
Net income available to Arch common shareholders
|
62,396
|
|
|
247,388
|
|
|
205,570
|
|
|
149,314
|
|
||||
Net income per common share -- basic
|
$
|
0.51
|
|
|
$
|
2.05
|
|
|
$
|
1.70
|
|
|
$
|
1.24
|
|
Net income per common share -- diluted
|
$
|
0.50
|
|
|
$
|
1.98
|
|
|
$
|
1.65
|
|
|
$
|
1.20
|
|
ARCH CAPITAL
|
165
|
2017 FORM 10-K
|
|
December 31, 2017
|
||||||||||||||||||
Condensed Consolidating Balance Sheet
|
Arch Capital (Parent Guarantor)
|
|
Arch-U.S. (Subsidiary Issuer)
|
|
Other Arch Capital Subsidiaries
|
|
Consolidating Adjustments and Eliminations
|
|
Arch Capital Consolidated
|
||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
||||||||||
Total investments
|
$
|
96,540
|
|
|
$
|
46,281
|
|
|
$
|
21,711,891
|
|
|
$
|
(14,700
|
)
|
|
$
|
21,840,012
|
|
Cash
|
9,997
|
|
|
30,380
|
|
|
565,822
|
|
|
—
|
|
|
606,199
|
|
|||||
Investments in subsidiaries
|
9,396,621
|
|
|
4,097,765
|
|
|
—
|
|
|
(13,494,386
|
)
|
|
—
|
|
|||||
Due from subsidiaries and affiliates
|
394
|
|
|
—
|
|
|
1,828,864
|
|
|
(1,829,258
|
)
|
|
—
|
|
|||||
Premiums receivable
|
—
|
|
|
—
|
|
|
2,967,701
|
|
|
(1,832,452
|
)
|
|
1,135,249
|
|
|||||
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses
|
—
|
|
|
—
|
|
|
8,442,192
|
|
|
(5,902,049
|
)
|
|
2,540,143
|
|
|||||
Contractholder receivables
|
—
|
|
|
—
|
|
|
1,978,414
|
|
|
—
|
|
|
1,978,414
|
|
|||||
Ceded unearned premiums
|
—
|
|
|
—
|
|
|
2,165,789
|
|
|
(1,239,178
|
)
|
|
926,611
|
|
|||||
Deferred acquisition costs
|
—
|
|
|
—
|
|
|
693,053
|
|
|
(157,229
|
)
|
|
535,824
|
|
|||||
Goodwill and intangible assets
|
—
|
|
|
—
|
|
|
652,611
|
|
|
—
|
|
|
652,611
|
|
|||||
Other assets
|
13,176
|
|
|
49,585
|
|
|
1,860,505
|
|
|
(86,671
|
)
|
|
1,836,595
|
|
|||||
Total assets
|
$
|
9,516,728
|
|
|
$
|
4,224,011
|
|
|
$
|
42,866,842
|
|
|
$
|
(24,555,923
|
)
|
|
$
|
32,051,658
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities
|
|
|
|
|
|
|
|
|
|
||||||||||
Reserve for losses and loss adjustment expenses
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,236,401
|
|
|
$
|
(5,852,609
|
)
|
|
$
|
11,383,792
|
|
Unearned premiums
|
—
|
|
|
—
|
|
|
4,861,491
|
|
|
(1,239,177
|
)
|
|
3,622,314
|
|
|||||
Reinsurance balances payable
|
—
|
|
|
—
|
|
|
2,155,947
|
|
|
(1,832,451
|
)
|
|
323,496
|
|
|||||
Contractholder payables
|
—
|
|
|
—
|
|
|
1,978,414
|
|
|
—
|
|
|
1,978,414
|
|
|||||
Collateral held for insured obligations
|
—
|
|
|
—
|
|
|
240,183
|
|
|
|
|
240,183
|
|
||||||
Deposit accounting liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Senior notes
|
297,053
|
|
|
494,621
|
|
|
941,210
|
|
|
—
|
|
|
1,732,884
|
|
|||||
Revolving credit agreement borrowings
|
—
|
|
|
—
|
|
|
816,132
|
|
|
—
|
|
|
816,132
|
|
|||||
Due to subsidiaries and affiliates
|
235
|
|
|
536,919
|
|
|
1,292,104
|
|
|
(1,829,258
|
)
|
|
—
|
|
|||||
Other liabilities
|
22,838
|
|
|
29,317
|
|
|
1,949,696
|
|
|
(293,343
|
)
|
|
1,708,508
|
|
|||||
Total liabilities
|
320,126
|
|
|
1,060,857
|
|
|
31,471,578
|
|
|
(11,046,838
|
)
|
|
21,805,723
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Redeemable noncontrolling interests
|
—
|
|
|
—
|
|
|
220,622
|
|
|
(14,700
|
)
|
|
205,922
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
||||||||||
Total shareholders' equity available to Arch
|
9,196,602
|
|
|
3,163,154
|
|
|
10,331,231
|
|
|
(13,494,385
|
)
|
|
9,196,602
|
|
|||||
Non-redeemable noncontrolling interests
|
—
|
|
|
—
|
|
|
843,411
|
|
|
—
|
|
|
843,411
|
|
|||||
Total shareholders' equity
|
9,196,602
|
|
|
3,163,154
|
|
|
11,174,642
|
|
|
(13,494,385
|
)
|
|
10,040,013
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Total liabilities, noncontrolling interests and shareholders' equity
|
$
|
9,516,728
|
|
|
$
|
4,224,011
|
|
|
$
|
42,866,842
|
|
|
$
|
(24,555,923
|
)
|
|
$
|
32,051,658
|
|
ARCH CAPITAL
|
166
|
2017 FORM 10-K
|
|
December 31, 2016
|
||||||||||||||||||
Condensed Consolidating Balance Sheet
|
Arch Capital (Parent Guarantor)
|
|
Arch-U.S. (Subsidiary Issuer)
|
|
Other Arch Capital Subsidiaries
|
|
Consolidating Adjustments and Eliminations
|
|
Arch Capital Consolidated
|
||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
||||||||||
Total investments
|
$
|
2,612
|
|
|
$
|
41,672
|
|
|
$
|
19,690,067
|
|
|
$
|
(14,700
|
)
|
|
$
|
19,719,651
|
|
Cash
|
1,687
|
|
|
71,955
|
|
|
769,300
|
|
|
—
|
|
|
842,942
|
|
|||||
Investments in subsidiaries
|
8,660,586
|
|
|
3,716,681
|
|
|
—
|
|
|
(12,377,267
|
)
|
|
—
|
|
|||||
Due from subsidiaries and affiliates
|
14,297
|
|
|
51,298
|
|
|
1,866,681
|
|
|
(1,932,276
|
)
|
|
—
|
|
|||||
Premiums receivable
|
—
|
|
|
—
|
|
|
1,579,865
|
|
|
(507,430
|
)
|
|
1,072,435
|
|
|||||
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses
|
—
|
|
|
—
|
|
|
6,114,518
|
|
|
(4,000,380
|
)
|
|
2,114,138
|
|
|||||
Contractholder receivables
|
—
|
|
|
—
|
|
|
1,717,436
|
|
|
—
|
|
|
1,717,436
|
|
|||||
Ceded unearned premiums
|
—
|
|
|
—
|
|
|
1,985,311
|
|
|
(1,125,744
|
)
|
|
859,567
|
|
|||||
Deferred acquisition costs
|
—
|
|
|
—
|
|
|
577,461
|
|
|
(129,901
|
)
|
|
447,560
|
|
|||||
Goodwill and intangible assets
|
—
|
|
|
—
|
|
|
781,553
|
|
|
—
|
|
|
781,553
|
|
|||||
Other assets
|
15,725
|
|
|
49,244
|
|
|
1,901,786
|
|
|
(149,928
|
)
|
|
1,816,827
|
|
|||||
Total assets
|
$
|
8,694,907
|
|
|
$
|
3,930,850
|
|
|
$
|
36,983,978
|
|
|
$
|
(20,237,626
|
)
|
|
$
|
29,372,109
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities
|
|
|
|
|
|
|
|
|
|
||||||||||
Reserve for losses and loss adjustment expenses
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,164,191
|
|
|
$
|
(3,963,231
|
)
|
|
$
|
10,200,960
|
|
Unearned premiums
|
—
|
|
|
—
|
|
|
4,532,614
|
|
|
(1,125,744
|
)
|
|
3,406,870
|
|
|||||
Reinsurance balances payable
|
—
|
|
|
—
|
|
|
807,837
|
|
|
(507,430
|
)
|
|
300,407
|
|
|||||
Contractholder payables
|
—
|
|
|
—
|
|
|
1,717,436
|
|
|
—
|
|
|
1,717,436
|
|
|||||
Collateral held for insured obligations
|
—
|
|
|
—
|
|
|
301,406
|
|
|
—
|
|
|
301,406
|
|
|||||
Deposit accounting liabilities
|
—
|
|
|
—
|
|
|
22,150
|
|
|
—
|
|
|
22,150
|
|
|||||
Senior notes
|
296,957
|
|
|
494,525
|
|
|
940,776
|
|
|
—
|
|
|
1,732,258
|
|
|||||
Revolving credit agreement borrowings
|
100,000
|
|
|
—
|
|
|
656,650
|
|
|
—
|
|
|
756,650
|
|
|||||
Due to subsidiaries and affiliates
|
26,270
|
|
|
535,584
|
|
|
1,370,422
|
|
|
(1,932,276
|
)
|
|
—
|
|
|||||
Other liabilities
|
17,962
|
|
|
54,823
|
|
|
1,867,040
|
|
|
(316,978
|
)
|
|
1,622,847
|
|
|||||
Total liabilities
|
441,189
|
|
|
1,084,932
|
|
|
26,380,522
|
|
|
(7,845,659
|
)
|
|
20,060,984
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Redeemable noncontrolling interests
|
—
|
|
|
—
|
|
|
220,253
|
|
|
(14,700
|
)
|
|
205,553
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
||||||||||
Total shareholders' equity available to Arch
|
8,253,718
|
|
|
2,845,918
|
|
|
9,531,349
|
|
|
(12,377,267
|
)
|
|
8,253,718
|
|
|||||
Non-redeemable noncontrolling interests
|
—
|
|
|
—
|
|
|
851,854
|
|
|
—
|
|
|
851,854
|
|
|||||
Total shareholders' equity
|
8,253,718
|
|
|
2,845,918
|
|
|
10,383,203
|
|
|
(12,377,267
|
)
|
|
9,105,572
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Total liabilities, noncontrolling interests and shareholders' equity
|
$
|
8,694,907
|
|
|
$
|
3,930,850
|
|
|
$
|
36,983,978
|
|
|
$
|
(20,237,626
|
)
|
|
$
|
29,372,109
|
|
ARCH CAPITAL
|
167
|
2017 FORM 10-K
|
|
Year Ended December 31, 2017
|
||||||||||||||||||
Condensed Consolidating Statement of Income and Comprehensive Income
|
Arch Capital (Parent Guarantor)
|
|
Arch-U.S. (Subsidiary Issuer)
|
|
Other Arch Capital Subsidiaries
|
|
Consolidating Adjustments and Eliminations
|
|
Arch Capital Consolidated
|
||||||||||
Revenues
|
|
|
|
|
|
|
|
|
|
||||||||||
Net premiums earned
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,844,532
|
|
|
$
|
—
|
|
|
$
|
4,844,532
|
|
Net investment income
|
243
|
|
|
1,420
|
|
|
559,963
|
|
|
(90,754
|
)
|
|
470,872
|
|
|||||
Net realized gains (losses)
|
—
|
|
|
—
|
|
|
149,141
|
|
|
—
|
|
|
149,141
|
|
|||||
Net impairment losses recognized in earnings
|
—
|
|
|
—
|
|
|
(7,138
|
)
|
|
—
|
|
|
(7,138
|
)
|
|||||
Other underwriting income
|
—
|
|
|
—
|
|
|
30,253
|
|
|
—
|
|
|
30,253
|
|
|||||
Equity in net income (loss) of investment funds accounted for using the equity method
|
—
|
|
|
—
|
|
|
142,286
|
|
|
—
|
|
|
142,286
|
|
|||||
Other income (loss)
|
(482
|
)
|
|
—
|
|
|
(2,089
|
)
|
|
—
|
|
|
(2,571
|
)
|
|||||
Total revenues
|
(239
|
)
|
|
1,420
|
|
|
5,716,948
|
|
|
(90,754
|
)
|
|
5,627,375
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Expenses
|
|
|
|
|
|
|
|
|
|
||||||||||
Losses and loss adjustment expenses
|
—
|
|
|
—
|
|
|
2,967,446
|
|
|
—
|
|
|
2,967,446
|
|
|||||
Acquisition expenses
|
—
|
|
|
—
|
|
|
775,458
|
|
|
—
|
|
|
775,458
|
|
|||||
Other operating expenses
|
—
|
|
|
—
|
|
|
684,451
|
|
|
—
|
|
|
684,451
|
|
|||||
Corporate expenses
|
67,450
|
|
|
4,152
|
|
|
12,150
|
|
|
—
|
|
|
83,752
|
|
|||||
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
125,778
|
|
|
—
|
|
|
125,778
|
|
|||||
Interest expense
|
23,560
|
|
|
47,993
|
|
|
135,342
|
|
|
(89,464
|
)
|
|
117,431
|
|
|||||
Net foreign exchange (gains) losses
|
2
|
|
|
—
|
|
|
68,900
|
|
|
46,880
|
|
|
115,782
|
|
|||||
Total expenses
|
91,012
|
|
|
52,145
|
|
|
4,769,525
|
|
|
(42,584
|
)
|
|
4,870,098
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Income (loss) before income taxes
|
(91,251
|
)
|
|
(50,725
|
)
|
|
947,423
|
|
|
(48,170
|
)
|
|
757,277
|
|
|||||
Income tax (expense) benefit
|
—
|
|
|
10,333
|
|
|
(137,901
|
)
|
|
—
|
|
|
(127,568
|
)
|
|||||
Income (loss) before equity in net income of subsidiaries
|
(91,251
|
)
|
|
(40,392
|
)
|
|
809,522
|
|
|
(48,170
|
)
|
|
629,709
|
|
|||||
Equity in net income of subsidiaries
|
710,529
|
|
|
303,991
|
|
|
—
|
|
|
(1,014,520
|
)
|
|
—
|
|
|||||
Net income
|
619,278
|
|
|
263,599
|
|
|
809,522
|
|
|
(1,062,690
|
)
|
|
629,709
|
|
|||||
Net (income) loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(11,721
|
)
|
|
1,290
|
|
|
(10,431
|
)
|
|||||
Net income available to Arch
|
619,278
|
|
|
263,599
|
|
|
797,801
|
|
|
(1,061,400
|
)
|
|
619,278
|
|
|||||
Preferred dividends
|
(46,041
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(46,041
|
)
|
|||||
Loss on redemption of preferred shares
|
(6,735
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,735
|
)
|
|||||
Net income available to Arch common shareholders
|
$
|
566,502
|
|
|
$
|
263,599
|
|
|
$
|
797,801
|
|
|
$
|
(1,061,400
|
)
|
|
$
|
566,502
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Comprehensive income (loss) available to Arch
|
$
|
851,863
|
|
|
$
|
288,752
|
|
|
$
|
983,475
|
|
|
$
|
(1,272,227
|
)
|
|
$
|
851,863
|
|
ARCH CAPITAL
|
168
|
2017 FORM 10-K
|
|
Year Ended December 31, 2016
|
||||||||||||||||||
Condensed Consolidating Statement of Income and Comprehensive Income
|
Arch Capital (Parent Guarantor)
|
|
Arch-U.S. (Subsidiary Issuer)
|
|
Other Arch Capital Subsidiaries
|
|
Consolidating Adjustments and Eliminations
|
|
Arch Capital Consolidated
|
||||||||||
Revenues
|
|
|
|
|
|
|
|
|
|
||||||||||
Net premiums earned
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,884,822
|
|
|
$
|
—
|
|
|
$
|
3,884,822
|
|
Net investment income
|
694
|
|
|
3,162
|
|
|
393,114
|
|
|
(30,228
|
)
|
|
366,742
|
|
|||||
Net realized gains (losses)
|
12
|
|
|
5
|
|
|
137,569
|
|
|
—
|
|
|
137,586
|
|
|||||
Net impairment losses recognized in earnings
|
—
|
|
|
—
|
|
|
(30,442
|
)
|
|
—
|
|
|
(30,442
|
)
|
|||||
Other underwriting income
|
—
|
|
|
—
|
|
|
73,671
|
|
|
(16,498
|
)
|
|
57,173
|
|
|||||
Equity in net income (loss) of investment funds accounted for using the equity method
|
—
|
|
|
—
|
|
|
48,475
|
|
|
—
|
|
|
48,475
|
|
|||||
Other income (loss)
|
180
|
|
|
—
|
|
|
(980
|
)
|
|
—
|
|
|
(800
|
)
|
|||||
Total revenues
|
886
|
|
|
3,167
|
|
|
4,506,229
|
|
|
(46,726
|
)
|
|
4,463,556
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Expenses
|
|
|
|
|
|
|
|
|
|
||||||||||
Losses and loss adjustment expenses
|
—
|
|
|
—
|
|
|
2,185,599
|
|
|
—
|
|
|
2,185,599
|
|
|||||
Acquisition expenses
|
—
|
|
|
—
|
|
|
667,625
|
|
|
—
|
|
|
667,625
|
|
|||||
Other operating expenses
|
—
|
|
|
—
|
|
|
624,090
|
|
|
—
|
|
|
624,090
|
|
|||||
Corporate expenses
|
49,540
|
|
|
1,940
|
|
|
30,266
|
|
|
—
|
|
|
81,746
|
|
|||||
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
19,343
|
|
|
—
|
|
|
19,343
|
|
|||||
Interest expense
|
23,769
|
|
|
27,165
|
|
|
60,757
|
|
|
(45,439
|
)
|
|
66,252
|
|
|||||
Net foreign exchange (gains) losses
|
—
|
|
|
—
|
|
|
(17,217
|
)
|
|
(19,434
|
)
|
|
(36,651
|
)
|
|||||
Total expenses
|
73,309
|
|
|
29,105
|
|
|
3,570,463
|
|
|
(64,873
|
)
|
|
3,608,004
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Income (loss) before income taxes
|
(72,423
|
)
|
|
(25,938
|
)
|
|
935,766
|
|
|
18,147
|
|
|
855,552
|
|
|||||
Income tax (expense) benefit
|
—
|
|
|
8,676
|
|
|
(40,050
|
)
|
|
—
|
|
|
(31,374
|
)
|
|||||
Income (loss) before equity in net income of subsidiaries
|
(72,423
|
)
|
|
(17,262
|
)
|
|
895,716
|
|
|
18,147
|
|
|
824,178
|
|
|||||
Equity in net income of subsidiaries
|
765,161
|
|
|
54,497
|
|
|
—
|
|
|
(819,658
|
)
|
|
—
|
|
|||||
Net income
|
692,738
|
|
|
37,235
|
|
|
895,716
|
|
|
(801,511
|
)
|
|
824,178
|
|
|||||
Net (income) loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(132,727
|
)
|
|
1,287
|
|
|
(131,440
|
)
|
|||||
Net income available to Arch
|
692,738
|
|
|
37,235
|
|
|
762,989
|
|
|
(800,224
|
)
|
|
692,738
|
|
|||||
Preferred dividends
|
(28,070
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(28,070
|
)
|
|||||
Net income available to Arch common shareholders
|
$
|
664,668
|
|
|
$
|
37,235
|
|
|
$
|
762,989
|
|
|
$
|
(800,224
|
)
|
|
$
|
664,668
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Comprehensive income (loss) available to Arch
|
$
|
594,699
|
|
|
$
|
13,444
|
|
|
$
|
684,447
|
|
|
$
|
(697,891
|
)
|
|
$
|
594,699
|
|
ARCH CAPITAL
|
169
|
2017 FORM 10-K
|
|
Year Ended December 31, 2015
|
||||||||||||||||||
Condensed Consolidating Statement of Income and Comprehensive Income
|
Arch Capital (Parent Guarantor)
|
|
Arch-U.S. (Subsidiary Issuer)
|
|
Other Arch Capital Subsidiaries
|
|
Consolidating Adjustments and Eliminations
|
|
Arch Capital Consolidated
|
||||||||||
Revenues
|
|
|
|
|
|
|
|
|
|
||||||||||
Net premiums earned
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,733,905
|
|
|
$
|
—
|
|
|
$
|
3,733,905
|
|
Net investment income
|
1
|
|
|
2,342
|
|
|
368,413
|
|
|
(22,666
|
)
|
|
348,090
|
|
|||||
Net realized gains (losses)
|
—
|
|
|
1
|
|
|
(185,843
|
)
|
|
—
|
|
|
(185,842
|
)
|
|||||
Net impairment losses recognized in earnings
|
—
|
|
|
—
|
|
|
(20,116
|
)
|
|
—
|
|
|
(20,116
|
)
|
|||||
Other underwriting income
|
—
|
|
|
—
|
|
|
35,739
|
|
|
(242
|
)
|
|
35,497
|
|
|||||
Equity in net income (loss) of investment funds accounted for using the equity method
|
—
|
|
|
—
|
|
|
25,455
|
|
|
—
|
|
|
25,455
|
|
|||||
Other income (loss)
|
—
|
|
|
—
|
|
|
(399
|
)
|
|
—
|
|
|
(399
|
)
|
|||||
Total revenues
|
1
|
|
|
2,343
|
|
|
3,957,154
|
|
|
(22,908
|
)
|
|
3,936,590
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Expenses
|
|
|
|
|
|
|
|
|
|
||||||||||
Losses and loss adjustment expenses
|
—
|
|
|
—
|
|
|
2,050,903
|
|
|
—
|
|
|
2,050,903
|
|
|||||
Acquisition expenses
|
—
|
|
|
—
|
|
|
662,778
|
|
|
—
|
|
|
662,778
|
|
|||||
Other operating expenses
|
—
|
|
|
—
|
|
|
603,288
|
|
|
—
|
|
|
603,288
|
|
|||||
Corporate expenses
|
48,107
|
|
|
3,689
|
|
|
(2,051
|
)
|
|
—
|
|
|
49,745
|
|
|||||
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
22,926
|
|
|
—
|
|
|
22,926
|
|
|||||
Interest expense
|
23,450
|
|
|
26,502
|
|
|
18,024
|
|
|
(22,102
|
)
|
|
45,874
|
|
|||||
Net foreign exchange (gains) losses
|
—
|
|
|
—
|
|
|
(41,622
|
)
|
|
(24,496
|
)
|
|
(66,118
|
)
|
|||||
Total expenses
|
71,557
|
|
|
30,191
|
|
|
3,314,246
|
|
|
(46,598
|
)
|
|
3,369,396
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Income (loss) before income taxes
|
(71,556
|
)
|
|
(27,848
|
)
|
|
642,908
|
|
|
23,690
|
|
|
567,194
|
|
|||||
Income tax (expense) benefit
|
—
|
|
|
9,732
|
|
|
(50,344
|
)
|
|
—
|
|
|
(40,612
|
)
|
|||||
Income (loss) before equity in net income of subsidiaries
|
(71,556
|
)
|
|
(18,116
|
)
|
|
592,564
|
|
|
23,690
|
|
|
526,582
|
|
|||||
Equity in net income of subsidiaries
|
609,294
|
|
|
50,156
|
|
|
—
|
|
|
(659,450
|
)
|
|
—
|
|
|||||
Net income
|
537,738
|
|
|
32,040
|
|
|
592,564
|
|
|
(635,760
|
)
|
|
526,582
|
|
|||||
Net (income) loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
10,351
|
|
|
805
|
|
|
11,156
|
|
|||||
Net income available to Arch
|
537,738
|
|
|
32,040
|
|
|
602,915
|
|
|
(634,955
|
)
|
|
537,738
|
|
|||||
Preferred dividends
|
(21,938
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,938
|
)
|
|||||
Net income available to Arch common shareholders
|
$
|
515,800
|
|
|
$
|
32,040
|
|
|
$
|
602,915
|
|
|
$
|
(634,955
|
)
|
|
$
|
515,800
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Comprehensive income (loss) available to Arch
|
$
|
392,379
|
|
|
$
|
838
|
|
|
$
|
482,047
|
|
|
$
|
(482,885
|
)
|
|
$
|
392,379
|
|
ARCH CAPITAL
|
170
|
2017 FORM 10-K
|
|
Year Ended December 31, 2017
|
||||||||||||||||||
Condensed Consolidating Statement
of Cash Flows
|
Arch Capital (Parent Guarantor)
|
|
Arch-U.S. (Subsidiary Issuer)
|
|
Other Arch Capital Subsidiaries
|
|
Consolidating Adjustments and Eliminations
|
|
Arch Capital Consolidated
|
||||||||||
Operating Activities
|
|
|
|
|
|
|
|
|
|
||||||||||
Net Cash Provided By (Used For)
Operating Activities
|
$
|
159,130
|
|
|
$
|
(10,289
|
)
|
|
$
|
1,667,490
|
|
|
$
|
(703,714
|
)
|
|
$
|
1,112,617
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
||||||||||
Purchases of fixed maturity investments
|
—
|
|
|
—
|
|
|
(36,806,913
|
)
|
|
—
|
|
|
(36,806,913
|
)
|
|||||
Purchases of equity securities
|
—
|
|
|
—
|
|
|
(1,021,016
|
)
|
|
—
|
|
|
(1,021,016
|
)
|
|||||
Purchases of other investments
|
—
|
|
|
—
|
|
|
(2,020,624
|
)
|
|
—
|
|
|
(2,020,624
|
)
|
|||||
Proceeds from the sales of fixed maturity investments
|
—
|
|
|
—
|
|
|
35,686,779
|
|
|
—
|
|
|
35,686,779
|
|
|||||
Proceeds from the sales of equity securities
|
—
|
|
|
—
|
|
|
1,056,401
|
|
|
—
|
|
|
1,056,401
|
|
|||||
Proceeds from the sales, redemptions and maturities of other investments
|
—
|
|
|
—
|
|
|
1,528,617
|
|
|
—
|
|
|
1,528,617
|
|
|||||
Proceeds from redemptions and maturities of fixed maturity investments
|
—
|
|
|
—
|
|
|
907,417
|
|
|
—
|
|
|
907,417
|
|
|||||
Net settlements of derivative instruments
|
—
|
|
|
—
|
|
|
(28,563
|
)
|
|
—
|
|
|
(28,563
|
)
|
|||||
Net (purchases) sales of short-term investments
|
(93,864
|
)
|
|
(4,586
|
)
|
|
(636,104
|
)
|
|
—
|
|
|
(734,554
|
)
|
|||||
Change in cash collateral related to securities lending
|
—
|
|
|
—
|
|
|
12,540
|
|
|
—
|
|
|
12,540
|
|
|||||
Contributions to subsidiaries
|
20,457
|
|
|
(73,700
|
)
|
|
(423,998
|
)
|
|
477,241
|
|
|
—
|
|
|||||
Issuance of intercompany loans
|
—
|
|
|
—
|
|
|
(47,000
|
)
|
|
47,000
|
|
|
—
|
|
|||||
Repayments of intercompany loans
|
—
|
|
|
47,000
|
|
|
80,840
|
|
|
(127,840
|
)
|
|
—
|
|
|||||
Acquisitions, net of cash
|
—
|
|
|
—
|
|
|
(27,709
|
)
|
|
—
|
|
|
(27,709
|
)
|
|||||
Purchases of fixed assets
|
(18
|
)
|
|
—
|
|
|
(22,823
|
)
|
|
—
|
|
|
(22,841
|
)
|
|||||
Other
|
—
|
|
|
—
|
|
|
131,111
|
|
|
(20,641
|
)
|
|
110,470
|
|
|||||
Net Cash Provided By (Used For)
Investing Activities
|
(73,425
|
)
|
|
(31,286
|
)
|
|
(1,631,045
|
)
|
|
375,760
|
|
|
(1,359,996
|
)
|
|||||
Financing Activities
|
|
|
|
|
|
|
|
|
|
||||||||||
Proceeds from issuance of preferred shares, net
|
319,694
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
319,694
|
|
|||||
Redemption of preferred shares
|
(230,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(230,000
|
)
|
|||||
Proceeds from common shares issued, net
|
(21,048
|
)
|
|
—
|
|
|
477,244
|
|
|
(477,244
|
)
|
|
(21,048
|
)
|
|||||
Proceeds from intercompany borrowings
|
—
|
|
|
—
|
|
|
47,000
|
|
|
(47,000
|
)
|
|
—
|
|
|||||
Proceeds from borrowings
|
—
|
|
|
—
|
|
|
253,415
|
|
|
—
|
|
|
253,415
|
|
|||||
Repayments of intercompany loans
|
—
|
|
|
—
|
|
|
(127,840
|
)
|
|
127,840
|
|
|
—
|
|
|||||
Repayments of borrowings
|
(100,000
|
)
|
|
—
|
|
|
(97,000
|
)
|
|
—
|
|
|
(197,000
|
)
|
|||||
Change in cash collateral related to securities lending
|
—
|
|
|
—
|
|
|
(12,540
|
)
|
|
—
|
|
|
(12,540
|
)
|
|||||
Dividends paid to redeemable noncontrolling interests
|
—
|
|
|
—
|
|
|
(19,264
|
)
|
|
1,275
|
|
|
(17,989
|
)
|
|||||
Dividends paid to parent (1)
|
—
|
|
|
—
|
|
|
(702,442
|
)
|
|
702,442
|
|
|
—
|
|
|||||
Other
|
—
|
|
|
—
|
|
|
(72,537
|
)
|
|
20,641
|
|
|
(51,896
|
)
|
|||||
Preferred dividends paid
|
(46,041
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(46,041
|
)
|
|||||
Net Cash Provided By (Used For)
Financing Activities
|
(77,395
|
)
|
|
—
|
|
|
(253,964
|
)
|
|
327,954
|
|
|
(3,405
|
)
|
|||||
Effects of exchange rates changes on foreign currency cash
|
—
|
|
|
—
|
|
|
14,041
|
|
|
—
|
|
|
14,041
|
|
|||||
Increase (decrease) in cash
|
8,310
|
|
|
(41,575
|
)
|
|
(203,478
|
)
|
|
—
|
|
|
(236,743
|
)
|
|||||
Cash beginning of year
|
1,687
|
|
|
71,955
|
|
|
769,300
|
|
|
—
|
|
|
842,942
|
|
|||||
Cash end of year
|
$
|
9,997
|
|
|
$
|
30,380
|
|
|
$
|
565,822
|
|
|
$
|
—
|
|
|
$
|
606,199
|
|
(1)
|
Included in net cash provided by (used for) operating activities in the Arch Capital (Parent Guarantor) and/or Arch-U.S. (Subsidiary Issuer) columns.
|
ARCH CAPITAL
|
171
|
2017 FORM 10-K
|
|
Year Ended December 31, 2016
|
||||||||||||||||||
Condensed Consolidating Statement
of Cash Flows
|
Arch Capital (Parent Guarantor)
|
|
Arch-U.S. (Subsidiary Issuer)
|
|
Other Arch Capital Subsidiaries
|
|
Consolidating Adjustments and Eliminations
|
|
Arch Capital Consolidated
|
||||||||||
Operating Activities
|
|
|
|
|
|
|
|
|
|
||||||||||
Net Cash Provided By (Used For)
Operating Activities
|
$
|
148,211
|
|
|
$
|
6,395
|
|
|
$
|
1,465,166
|
|
|
$
|
(223,128
|
)
|
|
$
|
1,396,644
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
||||||||||
Purchases of fixed maturity investments
|
—
|
|
|
—
|
|
|
(35,532,810
|
)
|
|
—
|
|
|
(35,532,810
|
)
|
|||||
Purchases of equity securities
|
—
|
|
|
—
|
|
|
(665,702
|
)
|
|
—
|
|
|
(665,702
|
)
|
|||||
Purchases of other investments
|
—
|
|
|
—
|
|
|
(1,389,406
|
)
|
|
—
|
|
|
(1,389,406
|
)
|
|||||
Proceeds from the sales of fixed maturity investments
|
—
|
|
|
—
|
|
|
34,559,966
|
|
|
—
|
|
|
34,559,966
|
|
|||||
Proceeds from the sales of equity securities
|
—
|
|
|
—
|
|
|
751,728
|
|
|
—
|
|
|
751,728
|
|
|||||
Proceeds from the sales, redemptions and maturities of other investments
|
—
|
|
|
—
|
|
|
1,149,328
|
|
|
—
|
|
|
1,149,328
|
|
|||||
Proceeds from redemptions and maturities of fixed maturity investments
|
—
|
|
|
41,500
|
|
|
713,507
|
|
|
—
|
|
|
755,007
|
|
|||||
Net settlements of derivative instruments
|
—
|
|
|
—
|
|
|
(17,068
|
)
|
|
—
|
|
|
(17,068
|
)
|
|||||
Net (purchases) sales of short-term investments
|
(2,075
|
)
|
|
(40,963
|
)
|
|
(80,372
|
)
|
|
—
|
|
|
(123,410
|
)
|
|||||
Change in cash collateral related to securities lending
|
—
|
|
|
—
|
|
|
(155,248
|
)
|
|
—
|
|
|
(155,248
|
)
|
|||||
Contributions to subsidiaries
|
(479,912
|
)
|
|
(887,650
|
)
|
|
(546,269
|
)
|
|
1,913,831
|
|
|
—
|
|
|||||
Issuance of intercompany loans
|
—
|
|
|
—
|
|
|
(1,460,000
|
)
|
|
1,460,000
|
|
|
—
|
|
|||||
Acquisitions, net of cash
|
—
|
|
|
—
|
|
|
(1,992,720
|
)
|
|
—
|
|
|
(1,992,720
|
)
|
|||||
Purchases of fixed assets
|
(8
|
)
|
|
—
|
|
|
(15,295
|
)
|
|
—
|
|
|
(15,303
|
)
|
|||||
Other
|
2,000
|
|
|
—
|
|
|
(47,905
|
)
|
|
—
|
|
|
(45,905
|
)
|
|||||
Net Cash Provided By (Used For)
Investing Activities
|
(479,995
|
)
|
|
(887,113
|
)
|
|
(4,728,266
|
)
|
|
3,373,831
|
|
|
(2,721,543
|
)
|
|||||
Financing Activities
|
|
|
|
|
|
|
|
|
|
||||||||||
Proceeds from issuance of preferred shares, net
|
434,899
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
434,899
|
|
|||||
Redemption of preferred shares
|
(2,445
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,445
|
)
|
|||||
Purchases of common shares under share repurchase program
|
(75,256
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(75,256
|
)
|
|||||
Proceeds from common shares issued, net
|
(2,418
|
)
|
|
435,450
|
|
|
1,478,381
|
|
|
(1,913,831
|
)
|
|
(2,418
|
)
|
|||||
Proceeds from intercompany borrowings
|
—
|
|
|
500,000
|
|
|
960,000
|
|
|
(1,460,000
|
)
|
|
—
|
|
|||||
Proceeds from borrowings
|
—
|
|
|
—
|
|
|
1,386,741
|
|
|
—
|
|
|
1,386,741
|
|
|||||
Repayments of borrowings
|
—
|
|
|
—
|
|
|
(219,171
|
)
|
|
—
|
|
|
(219,171
|
)
|
|||||
Change in cash collateral related to securities lending
|
—
|
|
|
—
|
|
|
155,248
|
|
|
—
|
|
|
155,248
|
|
|||||
Dividends paid to redeemable noncontrolling interests
|
—
|
|
|
—
|
|
|
(19,264
|
)
|
|
1,275
|
|
|
(17,989
|
)
|
|||||
Dividends paid to parent (1)
|
—
|
|
|
—
|
|
|
(221,853
|
)
|
|
221,853
|
|
|
—
|
|
|||||
Other
|
(48
|
)
|
|
200
|
|
|
3,978
|
|
|
—
|
|
|
4,130
|
|
|||||
Preferred dividends paid
|
(28,070
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(28,070
|
)
|
|||||
Net Cash Provided By (Used For)
Financing Activities
|
326,662
|
|
|
935,650
|
|
|
3,524,060
|
|
|
(3,150,703
|
)
|
|
1,635,669
|
|
|||||
Effects of exchange rates changes on foreign currency cash
|
—
|
|
|
—
|
|
|
(21,154
|
)
|
|
—
|
|
|
(21,154
|
)
|
|||||
Increase (decrease) in cash
|
(5,122
|
)
|
|
54,932
|
|
|
239,806
|
|
|
—
|
|
|
289,616
|
|
|||||
Cash beginning of year
|
6,809
|
|
|
17,023
|
|
|
529,494
|
|
|
—
|
|
|
553,326
|
|
|||||
Cash end of year
|
$
|
1,687
|
|
|
$
|
71,955
|
|
|
$
|
769,300
|
|
|
$
|
—
|
|
|
$
|
842,942
|
|
(1)
|
Included in net cash provided by (used for) operating activities in the Arch Capital (Parent Guarantor) and/or Arch-U.S. (Subsidiary Issuer) columns.
|
ARCH CAPITAL
|
172
|
2017 FORM 10-K
|
|
Year Ended December 31, 2015
|
||||||||||||||||||
Condensed Consolidating Statement
of Cash Flows
|
Arch Capital (Parent Guarantor)
|
|
Arch-U.S. (Subsidiary Issuer)
|
|
Other Arch Capital Subsidiaries
|
|
Consolidating Adjustments and Eliminations
|
|
Arch Capital Consolidated
|
||||||||||
Operating Activities
|
|
|
|
|
|
|
|
|
|
||||||||||
Net Cash Provided By (Used For)
Operating Activities
|
$
|
404,144
|
|
|
$
|
5,505
|
|
|
$
|
1,074,021
|
|
|
$
|
(485,764
|
)
|
|
$
|
997,906
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
||||||||||
Purchases of fixed maturity investments
|
—
|
|
|
(3,505
|
)
|
|
(29,448,368
|
)
|
|
—
|
|
|
(29,451,873
|
)
|
|||||
Purchases of equity securities
|
(8,070
|
)
|
|
—
|
|
|
(507,343
|
)
|
|
—
|
|
|
(515,413
|
)
|
|||||
Purchases of other investments
|
—
|
|
|
—
|
|
|
(1,749,525
|
)
|
|
—
|
|
|
(1,749,525
|
)
|
|||||
Proceeds from the sales of fixed maturity investments
|
—
|
|
|
24,507
|
|
|
28,069,540
|
|
|
—
|
|
|
28,094,047
|
|
|||||
Proceeds from the sales of equity securities
|
—
|
|
|
—
|
|
|
564,011
|
|
|
—
|
|
|
564,011
|
|
|||||
Proceeds from the sales, redemptions and maturities of other investments
|
—
|
|
|
—
|
|
|
1,250,883
|
|
|
—
|
|
|
1,250,883
|
|
|||||
Proceeds from redemptions and maturities of fixed maturity investments
|
—
|
|
|
—
|
|
|
748,529
|
|
|
—
|
|
|
748,529
|
|
|||||
Net settlements of derivative instruments
|
—
|
|
|
—
|
|
|
(5,056
|
)
|
|
—
|
|
|
(5,056
|
)
|
|||||
Proceeds from investment in joint venture
|
—
|
|
|
—
|
|
|
40,000
|
|
|
—
|
|
|
40,000
|
|
|||||
Net (purchases) sales of short-term investments
|
57
|
|
|
(338
|
)
|
|
169,376
|
|
|
—
|
|
|
169,095
|
|
|||||
Change in cash collateral related to securities lending
|
—
|
|
|
—
|
|
|
(6,662
|
)
|
|
—
|
|
|
(6,662
|
)
|
|||||
Contributions to subsidiaries
|
(10,000
|
)
|
|
—
|
|
|
(49,348
|
)
|
|
59,348
|
|
|
—
|
|
|||||
Issuance of intercompany loans
|
—
|
|
|
(39,500
|
)
|
|
(27,500
|
)
|
|
67,000
|
|
|
—
|
|
|||||
Acquisitions, net of cash
|
—
|
|
|
—
|
|
|
818
|
|
|
—
|
|
|
818
|
|
|||||
Purchases of fixed assets
|
(80
|
)
|
|
—
|
|
|
(15,656
|
)
|
|
—
|
|
|
(15,736
|
)
|
|||||
Other
|
—
|
|
|
—
|
|
|
(36,993
|
)
|
|
—
|
|
|
(36,993
|
)
|
|||||
Net Cash Provided By (Used For)
Investing Activities
|
(18,093
|
)
|
|
(18,836
|
)
|
|
(1,003,294
|
)
|
|
126,348
|
|
|
(913,875
|
)
|
|||||
Financing Activities
|
|
|
|
|
|
|
|
|
|
||||||||||
Purchases of common shares under share repurchase program
|
(365,383
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(365,383
|
)
|
|||||
Proceeds from common shares issued, net
|
4,861
|
|
|
—
|
|
|
59,348
|
|
|
(59,348
|
)
|
|
4,861
|
|
|||||
Proceeds from intercompany borrowings
|
—
|
|
|
27,500
|
|
|
39,500
|
|
|
(67,000
|
)
|
|
—
|
|
|||||
Proceeds from borrowings
|
—
|
|
|
—
|
|
|
431,362
|
|
|
—
|
|
|
431,362
|
|
|||||
Change in cash collateral relating to securities lending
|
—
|
|
|
—
|
|
|
6,662
|
|
|
—
|
|
|
6,662
|
|
|||||
Dividends paid to redeemable noncontrolling
|
—
|
|
|
—
|
|
|
(19,263
|
)
|
|
956
|
|
|
(18,307
|
)
|
|||||
Dividends paid to parent (1)
|
—
|
|
|
—
|
|
|
(484,808
|
)
|
|
484,808
|
|
|
—
|
|
|||||
Other
|
—
|
|
|
67
|
|
|
(41,980
|
)
|
|
—
|
|
|
(41,913
|
)
|
|||||
Preferred dividends paid
|
(21,938
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,938
|
)
|
|||||
Net Cash Provided By (Used For)
Financing Activities
|
(382,460
|
)
|
|
27,567
|
|
|
(9,179
|
)
|
|
359,416
|
|
|
(4,656
|
)
|
|||||
Effects of exchange rates changes on foreign currency cash
|
—
|
|
|
—
|
|
|
(11,751
|
)
|
|
—
|
|
|
(11,751
|
)
|
|||||
Increase (decrease) in cash
|
3,591
|
|
|
14,236
|
|
|
49,797
|
|
|
—
|
|
|
67,624
|
|
|||||
Cash beginning of year
|
3,218
|
|
|
2,787
|
|
|
479,697
|
|
|
—
|
|
|
485,702
|
|
|||||
Cash end of year
|
$
|
6,809
|
|
|
$
|
17,023
|
|
|
$
|
529,494
|
|
|
$
|
—
|
|
|
$
|
553,326
|
|
(1)
|
Included in net cash provided by (used for) operating activities in the Arch Capital (Parent Guarantor) and/or Arch-U.S. (Subsidiary Issuer) columns.
|
ARCH CAPITAL
|
173
|
2017 FORM 10-K
|
ARCH CAPITAL
|
174
|
2017 FORM 10-K
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
ARCH CAPITAL
|
175
|
2017 FORM 10-K
|
ITEM 9B.
|
OTHER INFORMATION
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
ARCH CAPITAL
|
176
|
2017 FORM 10-K
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
ARCH CAPITAL
|
177
|
2017 FORM 10-K
|
ITEM 15.
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
1.
|
Financial Statements
|
|
Page No.
|
|
|
|
|
For the years ended December 31, 2017, 2016 and 2015
|
|
|
|
|
|
For the years ended December 31, 2017, 2016 and 2015
|
|
|
|
|
|
For the years ended December 31, 2017, 2016 and 2015
|
ARCH CAPITAL
|
178
|
2017 FORM 10-K
|
|
|
|
|
Incorporated by Reference
|
|
|
||||
Exhibit Number
|
|
Exhibit Description
|
|
Form
|
|
Original Number
|
|
Date Filed
|
|
Filed Herewith
|
3.1
|
|
|
S-4
|
|
3.1
|
|
September 8, 2000
|
|
|
|
3.2
|
|
|
10-Q
|
|
3
|
|
August 5, 2016
|
|
|
|
3.3
|
|
|
10-K
|
|
3.3
|
|
February 28, 2011
|
|
|
|
4.1.1
|
|
|
10-K
|
|
4.1.2
|
|
March 1, 2017
|
|
|
|
4.1.2
|
|
|
8-K
|
|
4.1
|
|
September 29, 2016
|
|
|
|
4.1.3
|
|
|
8-K
|
|
4.1
|
|
August 17, 2017
|
|
|
|
4.2.1
|
|
|
10-K405
|
|
4.1
|
|
April 2, 2001
|
|
|
|
4.2.2
|
|
|
8-K
|
|
4.2
|
|
September 29, 2016
|
|
|
|
4.2.3
|
|
|
8-K
|
|
4.2
|
|
August 17, 2017
|
|
|
|
4.3.1
|
|
|
8-K
|
|
99.2
|
|
May 7, 2004
|
|
|
|
4.3.2
|
|
|
8-K
|
|
99.3
|
|
May 7, 2004
|
|
|
|
4.3.3
|
|
|
8-K
|
|
4.1
|
|
December 13, 2013
|
|
|
|
4.3.4
|
|
|
8-K
|
|
4.2
|
|
December 13, 2013
|
|
|
|
4.4.1
|
|
|
8-K
|
|
4.3
|
|
September 29, 2016
|
|
|
|
4.4.2
|
|
|
8-K
|
|
4.3
|
|
August 17, 2017
|
|
|
|
4.5.1
|
|
|
8-K
|
|
4.4
|
|
September 29, 2016
|
|
|
|
4.5.2
|
|
|
8-K
|
|
4.4
|
|
August 17, 2017
|
|
|
|
4.6.1
|
|
|
8-K
|
|
4.1
|
|
December 9, 2016
|
|
|
|
4.6.2
|
|
|
8-K
|
|
4.2
|
|
December 9, 2016
|
|
|
|
4.7.1
|
|
|
10-K
|
|
4.7
|
|
March 1, 2017
|
|
|
|
4.7.2
|
|
|
8-K
|
|
10.1
|
|
June 8, 2017
|
|
|
|
10.1.1
|
|
|
10-Q
|
|
10.1
|
|
August 14, 2002
|
|
|
|
10.1.2
|
|
|
10-Q
|
|
10.4
|
|
November 12, 2003
|
|
|
|
10.1.3
|
|
|
10-K
|
|
10.6
|
|
March 2, 2009
|
|
|
|
10.2.1
|
|
|
10-Q
|
|
10.7
|
|
August 5, 2016
|
|
|
|
10.2.2
|
|
|
10-Q
|
|
10.1
|
|
May 5, 2017
|
|
|
|
10.3.1
|
|
|
DEF 14A
|
|
|
|
April 3, 2007
|
|
|
|
10.3.2
|
|
|
DEF 14A
|
|
|
|
March 27, 2012
|
|
|
|
10.3.3
|
|
|
DEF 14A
|
|
|
|
March 26, 2015
|
|
|
|
10.3.4
|
|
|
DEF 14A
|
|
|
|
March 23, 2016
|
|
|
|
10.4.1
|
|
|
|
10-K
|
|
10.7.15
|
|
March 10, 2004
|
|
|
10.4.2
|
|
|
10-K
|
|
10.10.9
|
|
March 2, 2009
|
|
|
|
10.4.3
|
|
|
10-Q
|
|
10.1
|
|
November 9, 2009
|
|
|
|
10.4.4
|
|
|
10-Q
|
|
10.3
|
|
November 10, 2008
|
|
|
|
10.4.5
|
|
|
10-K
|
|
10.10.11
|
|
February 26, 2010
|
|
|
ARCH CAPITAL
|
179
|
2017 FORM 10-K
|
10.4.6
|
|
|
10-Q
|
|
10.1
|
|
November 8, 2010
|
|
|
|
10.4.7
|
|
|
10-Q
|
|
10.6
|
|
November 8, 2011
|
|
|
|
10.4.8
|
|
|
10-Q
|
|
10.2
|
|
November 9, 2012
|
|
|
|
10.4.9
|
|
|
10-Q
|
|
10.2
|
|
August 7, 2015
|
|
|
|
10.4.10
|
|
|
10-Q
|
|
10.2
|
|
August 5, 2016
|
|
|
|
10.4.11
|
|
|
10-Q
|
|
10.3
|
|
August 4, 2017
|
|
|
|
10.4.12
|
|
|
10-Q
|
|
10.4
|
|
August 4, 2017
|
|
|
|
10.4.13
|
|
|
|
|
|
|
|
|
X
|
|
10.5.1
|
|
|
10-Q
|
|
10.3
|
|
August 7, 2015
|
|
|
|
10.5.2
|
|
|
10-Q
|
|
10.6
|
|
August 5, 2016
|
|
|
|
10.5.3
|
|
|
10-Q
|
|
10.3
|
|
August 5, 2016
|
|
|
|
10.5.4
|
|
|
10-Q
|
|
10.22
|
|
November 3, 2017
|
|
|
|
10.5.5
|
|
|
10-Q
|
|
10.5
|
|
August 4, 2017
|
|
|
|
10.5.6
|
|
|
|
|
|
|
|
|
X
|
|
10.5.7
|
|
|
|
|
|
|
|
|
X
|
|
10.6.1
|
|
|
10-Q
|
|
10.1
|
|
November 10, 2008
|
|
|
|
10.6.2
|
|
|
10-K
|
|
10.12.4
|
|
February 26, 2010
|
|
|
|
10.6.3
|
|
|
10-Q
|
|
10.4
|
|
November 9, 2012
|
|
|
|
10.6.4
|
|
|
10-Q
|
|
10.4
|
|
November 8, 2010
|
|
|
|
10.6.5
|
|
|
10-Q
|
|
10.7
|
|
November 8, 2011
|
|
|
|
10.6.6
|
|
|
10-Q
|
|
10.9
|
|
November 8, 2011
|
|
|
|
10.6.7
|
|
|
10-Q
|
|
10.10
|
|
November 8, 2011
|
|
|
|
10.6.8
|
|
|
10-Q
|
|
10.12
|
|
November 8, 2011
|
|
|
|
10.6.9
|
|
|
10-Q
|
|
10.1
|
|
November 3, 2017
|
|
|
|
10.6.10
|
|
|
10-Q
|
|
10.5
|
|
November 9, 2012
|
|
|
|
10.6.11
|
|
|
10-Q
|
|
10.3
|
|
November 3, 2017
|
|
|
ARCH CAPITAL
|
180
|
2017 FORM 10-K
|
10.6.12
|
|
|
10-Q
|
|
10.2
|
|
November 3, 2017
|
|
|
|
10.6.13
|
|
|
10-Q
|
|
10.3
|
|
November 9, 2012
|
|
|
|
10.6.14
|
|
|
10-Q
|
|
10.4
|
|
November 3, 2017
|
|
|
|
10.6.15
|
|
|
10-Q
|
|
10.6
|
|
August 9, 2013
|
|
|
|
10.6.16
|
|
|
10-Q
|
|
10.9
|
|
November 3, 2017
|
|
|
|
10.6.17
|
|
|
10-Q
|
|
10.3
|
|
August 9, 2013
|
|
|
|
10.6.18
|
|
|
10-Q
|
|
10.11
|
|
November 3, 2017
|
|
|
|
10.6.19
|
|
|
10-Q
|
|
10.2
|
|
November 8, 2013
|
|
|
|
10.6.20
|
|
|
10-Q
|
|
10.12
|
|
November 3, 2017
|
|
|
|
10.6.21
|
|
|
10-Q
|
|
10.6
|
|
August 8, 2014
|
|
|
|
10.6.22
|
|
|
10-Q
|
|
10.5
|
|
August 8, 2014
|
|
|
|
10.6.23
|
|
|
10-Q
|
|
10.14
|
|
November 3, 2017
|
|
|
|
10.6.24
|
|
|
10-Q
|
|
10.3
|
|
August 8, 2014
|
|
|
|
10.6.25
|
|
|
10-Q
|
|
10.15
|
|
November 3, 2017
|
|
|
|
10.6.26
|
|
|
10-Q
|
|
10.2
|
|
May 8, 2015
|
|
|
|
10.6.27
|
|
|
10-Q
|
|
10.5
|
|
August 5, 2016
|
|
|
|
10.7.1
|
|
|
8-K
|
|
10.7
|
|
September 8, 2000
|
|
|
|
10.7.2
|
|
|
10-K
|
|
10.13
|
|
March 2, 2009
|
|
|
|
10.8.1
|
|
|
8-K
|
|
10.14
|
|
January 4, 2002
|
|
|
|
10.8.2
|
|
|
10-K
|
|
10.15.16
|
|
March 13, 2006
|
|
|
|
10.8.3
|
|
|
10-K
|
|
10.14
|
|
March 2, 2009
|
|
|
|
10.9.1
|
|
|
8-K
|
|
10.1
|
|
October 28, 2008
|
|
|
|
10.9.2
|
|
|
10-Q
|
|
10.1
|
|
May 8, 2015
|
|
|
|
10.10.1
|
|
|
8-K
|
|
10.1
|
|
June 9, 2005
|
|
|
|
10.10.2
|
|
|
10-Q
|
|
10.2
|
|
August 8, 2008
|
|
|
|
10.11.1
|
|
|
8-K
|
|
10.1
|
|
October 6, 2014
|
|
|
|
10.11.2
|
|
|
8-K
|
|
10.1
|
|
September 22, 2017
|
|
|
|
10.12
|
|
|
8-K
|
|
10.1
|
|
July 30, 2012
|
|
|
|
10.13
|
|
|
10-Q
|
|
10.25
|
|
November 3, 2017
|
|
|
|
10.14
|
|
|
10-Q
|
|
10.26
|
|
November 3, 2017
|
|
|
ARCH CAPITAL
|
181
|
2017 FORM 10-K
|
10.15
|
|
|
10-Q
|
|
10.27
|
|
November 3, 2017
|
|
|
|
10.16
|
|
|
10-Q
|
|
10.28
|
|
November 3, 2017
|
|
|
|
10.17
|
|
|
10-K405
|
|
10.8.5
|
|
April 2, 2001
|
|
|
|
10.18
|
|
|
10-K
|
|
10.24
|
|
March 2, 2009
|
|
|
|
10.19.1
|
|
|
8-K
|
|
2.1
|
|
August 16, 2016
|
|
|
|
10.19.2
|
|
|
10-Q
|
|
10.1
|
|
August 4, 2017
|
|
|
|
10.19.3
|
|
|
10-Q
|
|
10.2
|
|
August 4, 2017
|
|
|
|
10.20
|
|
|
8-K
|
|
1.01
|
|
June 12, 2017
|
|
|
|
10.21
|
|
|
8-K
|
|
1.01
|
|
August 16, 2017
|
|
|
|
10.22
|
|
|
8-K
|
|
1.1
|
|
December 1, 2017
|
|
|
|
10.23
|
|
|
8-K
|
|
10.1
|
|
October 26, 2016
|
|
|
|
12
|
|
|
|
|
|
|
|
|
X
|
|
21
|
|
|
|
|
|
|
|
|
X
|
|
23
|
|
|
|
|
|
|
|
|
X
|
|
24
|
|
|
|
|
|
|
|
|
X
|
|
25
|
|
|
8-K
|
|
25.3
|
|
December 12, 2013
|
|
|
|
31.1
|
|
|
|
|
|
|
|
|
X
|
|
31.2
|
|
|
|
|
|
|
|
|
X
|
|
32.1
|
|
|
|
|
|
|
|
|
X
|
|
32.2
|
|
|
|
|
|
|
|
|
X
|
|
101
|
|
The following financial information from ACGL’s Annual Report on Form 10-K for the year ended December 31, 2017 formatted in XBRL: (i) Consolidated Balance Sheets at December 31, 2017 and 2016; (ii) Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2017, 2016 and 2015; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015; and (vi) Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
X
|
ARCH CAPITAL
|
182
|
2017 FORM 10-K
|
|
ARCH CAPITAL GROUP LTD.
(Registrant)
|
||
|
By:
|
/s/ Constantine Iordanou
|
|
|
|
Name:
|
Constantine Iordanou
|
|
|
Title:
|
Chairman of the Board of Directors and
Chief Executive Officer
|
ARCH CAPITAL
|
183
|
2017 FORM 10-K
|
Name
|
Title
|
Date
|
|
|
|
*
|
|
|
Louis J. Paglia
|
Director
|
February 28, 2018
|
|
|
|
*
|
|
|
John M. Pasquesi
|
Director
|
February 28, 2018
|
|
|
|
*
|
|
|
Brian S. Posner
|
Director
|
February 28, 2018
|
|
|
|
*
|
|
|
Eugene S. Sunshine
|
Director
|
February 28, 2018
|
|
|
|
*
|
|
|
John D. Vollaro
|
Director
|
February 28, 2018
|
*
|
By Mark D. Lyons, as attorney-in-fact and agent, pursuant to a power of attorney, a copy of which has been filed with the Securities and Exchange Commission as Exhibit 24 to this report.
|
|
|
/s/ Mark D. Lyons
|
|
Name:
|
Mark D. Lyons
Attorney-in-Fact
|
ARCH CAPITAL
|
184
|
2017 FORM 10-K
|
|
Deferred Acquisition Costs
|
Reserves for Losses and Loss Adjustment Expenses
|
Unearned Premiums
|
Net Premiums Earned
|
Net Investment Income (1)
|
Net Losses and Loss Adjustment Expenses Incurred
|
Amortization of Deferred Acquisition Costs
|
Other Operating Expenses (2)
|
Net Premiums Written
|
||||||||||||||||
December 31, 2017
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Insurance
|
|
$159,224
|
|
|
$6,952,676
|
|
|
$1,451,390
|
|
|
$2,113,018
|
|
NM
|
|
$1,622,444
|
|
|
$323,639
|
|
|
$359,524
|
|
|
$2,122,440
|
|
Reinsurance
|
150,582
|
|
3,053,694
|
|
633,810
|
|
1,142,621
|
|
NM
|
773,923
|
|
221,250
|
|
146,663
|
|
1,174,474
|
|
||||||||
Mortgage
|
140,057
|
|
579,160
|
|
1,206,470
|
|
1,057,166
|
|
NM
|
134,677
|
|
100,598
|
|
146,336
|
|
1,111,342
|
|
||||||||
Other
|
85,961
|
|
798,262
|
|
330,644
|
|
531,727
|
|
NM
|
436,402
|
|
129,971
|
|
31,928
|
|
553,117
|
|
||||||||
Total
|
|
$535,824
|
|
|
$11,383,792
|
|
|
$3,622,314
|
|
|
$4,844,532
|
|
NM
|
|
$2,967,446
|
|
|
$775,458
|
|
|
$684,451
|
|
|
$4,961,373
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Insurance
|
|
$152,983
|
|
|
$6,502,745
|
|
|
$1,403,822
|
|
|
$2,073,904
|
|
NM
|
|
$1,359,313
|
|
|
$304,050
|
|
|
$353,782
|
|
|
$2,072,281
|
|
Reinsurance
|
121,806
|
|
2,506,239
|
|
532,759
|
|
1,056,232
|
|
NM
|
475,762
|
|
212,258
|
|
143,408
|
|
1,053,856
|
|
||||||||
Mortgage
|
86,392
|
|
681,167
|
|
1,176,809
|
|
286,716
|
|
NM
|
28,943
|
|
21,790
|
|
101,293
|
|
391,466
|
|
||||||||
Other
|
86,379
|
|
510,809
|
|
293,480
|
|
467,970
|
|
NM
|
321,581
|
|
129,527
|
|
25,163
|
|
513,788
|
|
||||||||
Total
|
|
$447,560
|
|
|
$10,200,960
|
|
|
$3,406,870
|
|
|
$3,884,822
|
|
NM
|
|
$2,185,599
|
|
|
$667,625
|
|
|
$623,646
|
|
|
$4,031,391
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Insurance
|
|
$131,081
|
|
|
$6,217,777
|
|
|
$1,364,000
|
|
|
$2,044,808
|
|
NM
|
|
$1,292,647
|
|
|
$296,040
|
|
|
$354,416
|
|
|
$2,045,671
|
|
Reinsurance
|
123,226
|
|
2,506,441
|
|
531,385
|
|
1,077,135
|
|
NM
|
440,350
|
|
222,470
|
|
155,811
|
|
1,038,408
|
|
||||||||
Mortgage
|
53,079
|
|
110,035
|
|
188,567
|
|
214,110
|
|
NM
|
40,247
|
|
30,817
|
|
78,142
|
|
267,493
|
|
||||||||
Other
|
75,443
|
|
290,997
|
|
249,980
|
|
397,852
|
|
NM
|
277,659
|
|
113,451
|
|
14,919
|
|
465,959
|
|
||||||||
Total
|
|
$382,829
|
|
|
$9,125,250
|
|
|
$2,333,932
|
|
|
$3,733,905
|
|
NM
|
|
$2,050,903
|
|
|
$662,778
|
|
|
$603,288
|
|
|
$3,817,531
|
|
(1)
|
The Company does not manage its assets by segment and, accordingly, net investment income is not allocated to each underwriting segment. See
note 5, “Segment Information,”
to our consolidated financial statements in Item 8 for information related to the ‘other’ segment.
|
(2)
|
Certain other operating expenses relate to the Company’s corporate segment (non-underwriting). Such amounts are not reflected in the table above.
note 5, “Segment Information,”
to our consolidated financial statements in Item 8 for information related to the corporate segment.
|
ARCH CAPITAL
|
185
|
2017 FORM 10-K
|
|
Gross Amount
|
|
Ceded to Other Companies (1)
|
|
Assumed From Other Companies (1)
|
|
Net
Amount |
|
Percentage of Amount Assumed to Net
|
|||||||||
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|||||||||
Premiums Written:
|
|
|
|
|
|
|
|
|
|
|||||||||
Insurance
|
$
|
3,050,876
|
|
|
$
|
(958,646
|
)
|
|
$
|
30,210
|
|
|
$
|
2,122,440
|
|
|
1.4
|
%
|
Reinsurance
|
152,404
|
|
|
(465,925
|
)
|
|
1,487,995
|
|
|
1,174,474
|
|
|
126.7
|
%
|
||||
Mortgage
|
1,110,319
|
|
|
(256,796
|
)
|
|
257,819
|
|
|
1,111,342
|
|
|
23.2
|
%
|
||||
Other
|
133,858
|
|
|
(47,187
|
)
|
|
466,446
|
|
|
553,117
|
|
|
84.3
|
%
|
||||
Total
|
$
|
4,447,457
|
|
|
$
|
(1,407,052
|
)
|
|
$
|
1,920,968
|
|
|
$
|
4,961,373
|
|
|
38.7
|
%
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|||||||||
Premiums Written:
|
|
|
|
|
|
|
|
|
|
|||||||||
Insurance
|
$
|
2,999,106
|
|
|
$
|
(954,768
|
)
|
|
$
|
27,943
|
|
|
$
|
2,072,281
|
|
|
1.3
|
%
|
Reinsurance
|
62,427
|
|
|
(440,541
|
)
|
|
1,431,970
|
|
|
1,053,856
|
|
|
135.9
|
%
|
||||
Mortgage
|
209,351
|
|
|
(108,259
|
)
|
|
290,374
|
|
|
391,466
|
|
|
74.2
|
%
|
||||
Other
|
66,806
|
|
|
(21,306
|
)
|
|
468,288
|
|
|
513,788
|
|
|
91.1
|
%
|
||||
Total
|
$
|
3,337,690
|
|
|
$
|
(1,170,743
|
)
|
|
$
|
1,864,444
|
|
|
$
|
4,031,391
|
|
|
46.2
|
%
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|||||||||
Premiums Written:
|
|
|
|
|
|
|
|
|
|
|||||||||
Insurance
|
$
|
2,908,906
|
|
|
$
|
(898,347
|
)
|
|
$
|
35,112
|
|
|
$
|
2,045,671
|
|
|
1.7
|
%
|
Reinsurance
|
28,510
|
|
|
(380,614
|
)
|
|
1,390,512
|
|
|
1,038,408
|
|
|
133.9
|
%
|
||||
Mortgage
|
137,338
|
|
|
(28,064
|
)
|
|
158,219
|
|
|
267,493
|
|
|
59.1
|
%
|
||||
Other
|
12,165
|
|
|
(22,940
|
)
|
|
476,734
|
|
|
465,959
|
|
|
102.3
|
%
|
||||
Total
|
$
|
3,086,919
|
|
|
$
|
(979,632
|
)
|
|
$
|
1,710,244
|
|
|
$
|
3,817,531
|
|
|
44.8
|
%
|
(1)
|
Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.
|
ARCH CAPITAL
|
186
|
2017 FORM 10-K
|
ARCH CAPITAL
|
187
|
2017 FORM 10-K
|
(A)
|
any person (within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than a Permitted Person, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of Voting Securities representing 50% or more of the total voting power or value of all the then outstanding Voting Securities; or
|
(B)
|
the individuals who, as of the date hereof, constitute the Board of Directors of the Company (the “Board”) together with those who become directors subsequent to such date and whose recommendation, election or nomination for election to the Board was approved by a vote of at least a majority of the directors then still in office who either were directors as of such date or whose recommendation, election or nomination for election was previously so approved, cease for any reason to constitute a majority of the members of the Board; or
|
(C)
|
the consummation of a merger, consolidation, recapitalization, liquidation, sale or disposition by the Company of all or substantially all of the Company's assets, or reorganization of the Company, other than any such transaction which would (x) result in more than 50% of the total voting power and value represented by the voting securities of the surviving entity outstanding immediately after such transaction being beneficially owned by the former shareholders of the Company and (y) not otherwise be deemed a Change in Control under subparagraphs (A) or (B) of this paragraph.
|
By:
|
/s/ Susie Tindall
|
|
Name: Susie Tindall
|
|
Title: Secretary
|
/s/ Employee signature
|
(A)
|
any person (within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than a Permitted Person, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of Voting Securities representing 50% or more of the total voting power or value of all the then outstanding Voting Securities; or
|
(B)
|
the individuals who, as of the date hereof, constitute the Board of Directors of the Company (the “Board”) together with those who become directors subsequent to such date and whose recommendation, election or nomination for election to the Board was approved by a vote of at least a majority of the directors then still in office who either were directors as of such date or whose recommendation, election or nomination for election was previously so approved, cease for any reason to constitute a majority of the members of the Board; or
|
(C)
|
the consummation of a merger, consolidation, recapitalization, liquidation, sale or disposition by the Company of all or substantially all of the Company's assets, or reorganization of the Company, other than any such transaction which would (x) result in more than 50% of the total voting power and value represented by the voting securities of the surviving entity outstanding immediately after such transaction being beneficially owned by the former shareholders of the Company and (y) not otherwise be deemed a Change in Control under subparagraphs (A) or (B) of this paragraph.
|
By:
|
/s/ Susie Tindall
|
|
Name: Susie Tindall
|
|
Title: Secretary
|
/s/ Maamoun Rajeh
|
(A)
|
any person (within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than a Permitted Person, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of Voting Securities representing 50% or more of the total voting power or value of all the then outstanding Voting Securities; or
|
(B)
|
the individuals who, as of the date hereof, constitute the Board of Directors of the Company (the “Board”) together with those who become directors subsequent to such date and whose recommendation, election or nomination for election to the Board was approved by a vote of at least a majority of the directors then still in office who either were directors as of such date or whose recommendation, election or nomination for election was previously so approved, cease for any reason to constitute a majority of the members of the Board; or
|
(C)
|
the consummation of a merger, consolidation, recapitalization, liquidation, sale or disposition by the Company of all or substantially all of the Company's assets, or reorganization of the Company, other than any such transaction which would (x) result in more than 50% of the total voting power and value represented by the voting securities of the surviving entity outstanding immediately after such transaction being beneficially owned by the former shareholders of the Company and (y) not otherwise be deemed a Change in Control under subparagraphs (A) or (B) of this paragraph.
|
By:
|
/s/ Susie Tindall
|
|
Name: Susie Tindall
|
|
Title: Secretary
|
/s/ Nicolas Papadopoulo
|
Arch Capital Group Ltd. and Subsidiaries
|
|||||||||||||||||||
Computation of Ratio of Earnings to Fixed Charges and Preference Dividends
|
|||||||||||||||||||
(in thousands, except ratios)
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Years Ended December 31,
|
||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Income before income taxes
|
$
|
757,277
|
|
|
$
|
855,552
|
|
|
$
|
567,194
|
|
|
$
|
844,247
|
|
|
$
|
734,770
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Equity in net income or loss of investees
|
(82,113
|
)
|
|
4,844
|
|
|
3,458
|
|
|
(947
|
)
|
|
52,238
|
|
|||||
Fixed charges
|
147,046
|
|
|
93,573
|
|
|
73,065
|
|
|
67,767
|
|
|
33,304
|
|
|||||
Watford preference dividends (1)
|
(19,264
|
)
|
|
(19,264
|
)
|
|
(19,264
|
)
|
|
(14,448
|
)
|
|
—
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Income available for fixed charges
|
$
|
802,946
|
|
|
$
|
934,705
|
|
|
$
|
624,453
|
|
|
$
|
896,619
|
|
|
$
|
820,312
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed charges:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest and amortization on indebtedness
|
117,431
|
|
|
66,252
|
|
|
45,874
|
|
|
45,634
|
|
|
27,060
|
|
|||||
Watford preference dividends (1)
|
19,264
|
|
|
19,264
|
|
|
19,264
|
|
|
14,448
|
|
|
—
|
|
|||||
Estimate of interest component within rental expense, net of sublease income (2)
|
10,351
|
|
|
8,057
|
|
|
7,927
|
|
|
7,685
|
|
|
6,244
|
|
|||||
Total fixed charges
|
147,046
|
|
|
93,573
|
|
|
73,065
|
|
|
67,767
|
|
|
33,304
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Preference dividends (3)
|
46,041
|
|
|
28,070
|
|
|
21,938
|
|
|
21,938
|
|
|
21,938
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Total fixed charges and preference dividends
|
$
|
193,087
|
|
|
$
|
121,643
|
|
|
$
|
95,003
|
|
|
$
|
89,705
|
|
|
$
|
55,242
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Ratio of earnings to fixed charges
|
5.5
|
|
|
10.0
|
|
|
8.5
|
|
|
13.2
|
|
|
24.6
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Ratio of earnings to fixed charges and preference dividends
|
4.2
|
|
|
7.7
|
|
|
6.6
|
|
|
10.0
|
|
|
14.8
|
|
(1)
|
Dividends attributable to preference shares issued by Watford Holdings Ltd.
|
(2)
|
Represents a reasonable approximation of the interest cost component of rental expense, net of sublease income, incurred by the Company.
|
(3)
|
Dividends attributable to preference shares issued by Arch Capital.
|
Name
|
|
Jurisdiction of Incorporation
|
|
|
|
Alternative Re Holdings Limited
|
|
Bermuda
|
|
|
|
Alternative Re Limited
|
|
Bermuda
|
|
|
|
Alternative Underwriting Services, Ltd.
|
|
Bermuda
|
|
|
|
Alwyn Insurance Company Limited
|
|
Gibraltar
|
|
|
|
Arch Capital Finance (Ireland) Limited
|
|
Ireland
|
|
|
|
Arch Capital Finance LLC
|
|
Delaware
|
|
|
|
Arch Capital Group (U.S.) Inc.
|
|
Delaware
|
|
|
|
Arch Capital Holdings Ltd.
|
|
Bermuda
|
|
|
|
Arch Capital Services Inc.
|
|
Delaware
|
|
|
|
Arch Europe Insurance Services Ltd
|
|
United Kingdom
|
|
|
|
Arch Excess & Surplus Insurance Company
|
|
Missouri
|
|
|
|
Arch Financial Holdings Australia Pty Ltd
|
|
Australia
|
|
|
|
Arch Financial Holdings B.V.
|
|
Netherlands
|
|
|
|
Arch Financial Holdings Europe I Limited
|
|
Ireland
|
|
|
|
Arch Financial Holdings Europe II Limited
|
|
Ireland
|
|
|
|
Arch Financial Holdings Europe III Limited
|
|
Ireland
|
|
|
|
Arch Fulfillment Operations Inc.
|
|
Delaware
|
|
|
|
Arch Global Services (Cyprus) Ltd.
|
|
Cyprus
|
|
|
|
Arch Global Services Holdings Ltd.
|
|
Bermuda
|
|
|
|
Arch Global Services Inc.
|
|
Philippines
|
|
|
|
Arch Indemnity Insurance Company
|
|
Missouri
|
|
|
|
Arch Insurance Canada Ltd.
|
|
Canada
|
|
|
|
Arch Insurance Company
|
|
Missouri
|
|
|
|
Arch Insurance Company (Europe) Limited
|
|
United Kingdom
|
|
|
|
Arch Insurance Group Inc.
|
|
Delaware
|
|
|
|
Arch Insurance Solutions Inc.
|
|
Delaware
|
|
|
|
Arch International Services Inc.
|
|
Delaware
|
|
|
|
Arch Investments I LLC
|
|
Delaware
|
|
|
|
Arch Investment Holdings I Ltd.
|
|
Bermuda
|
|
|
|
Arch Investment Holdings II Ltd.
|
|
Bermuda
|
|
|
|
Arch Investment Holdings III Ltd.
|
|
Bermuda
|
|
|
|
Arch Investment Holdings IV Ltd.
|
|
Bermuda
|
|
|
|
Arch Investment Management Ltd.
|
|
Bermuda
|
|
|
|
Arch Investment Holdings (Cyprus) Ltd.
|
|
Cyprus
|
|
|
|
Arch Investment Property Holdings Ltd.
|
|
Bermuda
|
|
|
|
Arch LMI Pty Ltd
|
|
Australia
|
|
|
|
Arch MI Asia Limited
|
|
Hong Kong
|
|
|
|
Arch Mortgage Assurance Company
|
|
Wisconsin
|
|
|
|
Arch Mortgage Insurance Designated Activity Company
|
|
Ireland
|
|
|
|
Arch Mortgage Guaranty Company
|
|
Wisconsin
|
|
|
|
Arch Mortgage Insurance Company
|
|
Wisconsin
|
|
|
|
Arch Mortgage Reinsurance Company
|
|
Wisconsin
|
|
|
|
Arch Mortgage Risk Transfer Holdings Inc.
|
|
Delaware
|
|
|
|
Arch Mortgage Risk Transfer PCC Inc.
|
|
District of Columbia
|
|
|
|
Arch Re Accident & Health ApS
|
|
Denmark
|
|
|
|
Arch Re Facultative Underwriters Inc.
|
|
Delaware
|
|
|
|
Arch Reinsurance Company
|
|
Delaware
|
|
|
|
Arch Reinsurance Europe Underwriting Designated Activity Company
|
|
Ireland
|
|
|
|
Arch Reinsurance Ltd.
|
|
Bermuda
|
|
|
|
Arch Risk Transfer Services Ltd.
|
|
Bermuda
|
|
|
|
Arch Specialty Insurance Agency Inc.
|
|
Missouri
|
|
|
|
Arch Specialty Insurance Company
|
|
Missouri
|
|
|
|
Arch Structured Mortgage Insurance Company
|
|
North Carolina
|
|
|
|
Arch Syndicate Investments Ltd
|
|
United Kingdom
|
|
|
|
Arch Underwriters Ltd.
|
|
Bermuda
|
|
|
|
Arch Underwriters Europe Limited
|
|
Ireland
|
|
|
|
Arch Underwriters (Gulf) Limited
|
|
Dubai International Financial Centre
|
|
|
|
Arch Underwriting Agency (Australia) Pty. Ltd.
|
|
Australia
|
|
|
|
Arch Underwriting Agency LLC
|
|
Delaware
|
|
|
|
Arch Underwriting at Lloyd’s Ltd
|
|
United Kingdom
|
|
|
|
Arch Underwriting at Lloyd’s (Australia) Pty Ltd
|
|
Australia
|
|
|
|
Arch Underwriters Inc.
|
|
Delaware
|
|
|
|
Arch Underwriting Managers at Lloyd’s (South Africa) (Pty) Limited
|
|
Republic of South Africa
|
|
|
|
Arch U.S. MI Holdings Inc.
|
|
Delaware
|
|
|
|
Arch U.S. MI Services Inc.
|
|
Delaware
|
|
|
|
First American Services Corporation
|
|
Missouri
|
|
|
|
Gulf Re Holdings Limited
|
|
Jersey (Channel Islands)
|
|
|
|
Gulf Reinsurance Limited
|
|
Dubai International Financial Centre
|
|
|
|
United Guaranty Commercial Insurance Company of North Carolina
|
|
North Carolina
|
|
|
|
United Guaranty Corporation
|
|
North Carolina
|
|
|
|
United Guaranty Credit Insurance Company
|
|
North Carolina
|
|
|
|
United Guaranty Insurance Company
|
|
North Carolina
|
|
|
|
United Guaranty Mortgage Indemnity Company
|
|
North Carolina
|
|
|
|
United Guaranty Mortgage Insurance Company
|
|
North Carolina
|
|
|
|
United Guaranty Mortgage Insurance Company of North Carolina
|
|
North Carolina
|
|
|
|
United Guaranty Partners Insurance Company
|
|
Vermont
|
|
|
|
United Guaranty Residential Insurance Company
|
|
North Carolina
|
|
|
|
United Guaranty Residential Insurance Company of North Carolina
|
|
North Carolina
|
|
|
|
United Guaranty Services, Inc.
|
|
North Carolina
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Constantine P. Iordanou
Constantine P. Iordanou
|
|
Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer)
|
|
February 27, 2018
|
/s/ Mark D. Lyons
Mark D. Lyons
|
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
|
|
February 27, 2018
|
/s/ John L. Bunce, Jr.
John L. Bunce, Jr.
|
|
Director
|
|
February 27, 2018
|
/s/ Eric W. Doppstadt
Eric W. Doppstadt
|
|
Director
|
|
February 27, 2018
|
/s/ Yiorgos Lillikas
Yiorgos Lillikas
|
|
Director
|
|
February 27, 2018
|
/s/ Louis J. Paglia
Louis J. Paglia
|
|
Director
|
|
February 27, 2018
|
/s/ John M. Pasquesi
John M. Pasquesi |
|
Director
|
|
February 27, 2018
|
/s/ Brian S. Posner
Brian S. Posner |
|
Director
|
|
February 27, 2018
|
/s/ Eugene S. Sunshine
Eugene S. Sunshine |
|
Director
|
|
February 27, 2018
|
/s/ John D. Vollaro
John D. Vollaro |
|
Director
|
|
February 27, 2018
|
1.
|
I have reviewed this annual report on Form 10-K of Arch Capital Group Ltd.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a.
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b.
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c.
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d.
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
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a.
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b.
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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1.
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I have reviewed this annual report on Form 10-K of Arch Capital Group Ltd.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b.
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c.
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d.
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
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a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b.
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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(1)
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the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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(1)
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the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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