ARCH CAPITAL GROUP LTD. (Form: 10-Q, Received: 11/09/2023 15:08:41)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended

September 30, 2023



Or

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

Commission file number: 001-16209

ARCH CAPITAL GROUP LTD.

(Exact name of registrant as specified in its charter)

Bermuda

98-0374481

(State or other jurisdiction of incorporation or organization)

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

Waterloo House, Ground Floor

100 Pitts Bay Road,

Pembroke

HM 08,

Bermuda

(441)

278-9250

(Address of principal executive offices)

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol (s)

Name of each exchange on which registered

Common shares, $0.0011 par value per share

ACGL

NASDAQ

Stock Market

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

ACGLO

NASDAQ

Stock Market

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

ACGLN

NASDAQ

Stock Market

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

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

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

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

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

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

As of November 6, 2023, there were 373,171,909 common shares, $0.0011 par value per share, of the registrant outstanding.

Table of Contents

ARCH CAPITAL GROUP LTD.

INDEX TO FORM 10-Q


		Page No.
	PART I
	Financial Information	2
Item 1.	Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63
Item 4.	Controls and Procedures	63

	PART II
	Other Information	63
Item 1.	Legal Proceedings	63
Item 1A.	Risk Factors	63
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	65
	Signatures	66


ARCH CAPITAL			1			2023 THIRD QUARTER FORM 10-Q

Table of Contents

PART I. FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements

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

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

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

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

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

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

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

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

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

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

•the loss and addition of key personnel;

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

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

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

•the adequacy of the Company’s loss reserves;

•severity and/or frequency of losses;

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

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

•the effect of climate change on our business;

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

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


ARCH CAPITAL			2			2023 THIRD QUARTER FORM 10-Q

Table of Contents

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

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

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

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

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

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

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

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

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

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

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

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


ARCH CAPITAL			3			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS


						Page No.



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

Consolidated Statements of Income
For the three and nine month periods ended September 30, 2023 and 2022 (unaudited)						6

Consolidated Statements of Comprehensive Income
For the three and nine month periods ended September 30, 2023 and 2022 (unaudited)						7

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

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

Notes to Consolidated Financial Statements (unaudited)
Note 1 - Basis of Presentation and Recent Accounting Pronouncements						10

Note 2 - Share Transactions						10
Note 3 - Earnings Per Common Share						11
Note 4 - Segment Information						12
Note 5 - Reserve for Losses and Loss Adjustment Expenses						17
Note 6 - Allowance for Expected Credit Losses						19
Note 7 - Investment Information						21
Note 8 - Fair Value						26
Note 9 - Derivative Instruments						32
Note 10 - Commitments and Contingencies						33

Note 11 - Variable Interest Entities						34
Note 12 - Other Comprehensive Income (Loss)						35

Note 13 - Income Taxes						36
Note 14 - Legal Proceedings						36
Note 15 - Transactions with Related Parties						36
Note 16 - Subsequent Event s						37


ARCH CAPITAL			4			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(U.S. dollars and shares in millions)


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

Equity securities, at fair value	894		860

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

Cash	859		855
Accrued investment income	217		159


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

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

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


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

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

Shareholders' Equity
Non-cumulative preferred shares	830		830

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


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

See Notes to Consolidated Financial Statements


ARCH CAPITAL			5			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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


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


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





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

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

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

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

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

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

See Notes to Consolidated Financial Statements


ARCH CAPITAL			6			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(U.S. dollars in millions)


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

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

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

See Notes to Consolidated Financial Statements


ARCH CAPITAL			7			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(U.S. dollars in millions)


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



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







Common shares


Balance at beginning and end of period	1		1		1		1

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



Amortization of share-based compensation	15		14		73		80



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

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


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

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

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


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


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

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

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



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

See Notes to Consolidated Financial Statements


ARCH CAPITAL			8			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)


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

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

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




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


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




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

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

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

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

See Notes to Consolidated Financial Statements


ARCH CAPITAL			9			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation and Recent Accounting Pronouncements

General

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

Basis of Presentation

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

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

Recent Accounting Pronouncements

Recently Issued Accounting Standards Adopted

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

2. Share Transactions

Share Repurchases

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

Employee Share Purchase Plan

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


ARCH CAPITAL			10			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3. Earnings Per Common Share

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


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

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

Denominator:


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

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

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


ARCH CAPITAL			11			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4. Segment Information

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

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

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

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

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

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


ARCH CAPITAL			12			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


	Three Months Ended
	September 30, 2023
	Insurance			Reinsurance			Mortgage			Total

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

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

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

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

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

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

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

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

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


ARCH CAPITAL			13			2023 THIRD QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


	Three Months Ended
	September 30, 2022
	Insurance			Reinsurance			Mortgage			Total

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

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

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

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

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

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

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

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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


	Nine Months Ended
	September 30, 2023
	Insurance			Reinsurance			Mortgage			Total

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

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

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

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

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

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

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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


	Nine Months Ended
	September 30, 2022
	Insurance			Reinsurance			Mortgage			Total

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

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

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

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

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

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

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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5. Reserve for Losses and Loss Adjustment Expenses

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


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

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







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

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

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

Development on Prior Year Loss Reserves

2023 Third Quarter

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

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

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

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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

2022 Third Quarter

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

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

The reinsurance segment’s net favorable development of $49 million, or 4.9 loss ratio points, for the 2022 third quarter consisted of $58 million of net favorable development in short-tailed and medium-tailed lines and $9 million of net adverse development in long-tailed lines. Net favorable development in short-tailed lines reflected $36 million of favorable development related to property other than property catastrophe business, primarily from 2015 to 2021 underwriting years and $13 million of favorable development related to property catastrophe business, primarily from the 2014 to 2017 underwriting years. Net favorable development in medium-tailed lines included $8 million in marine and aviation lines, across most underwriting years. Net adverse development in long-tailed lines reflected $10 million related to casualty business, primarily from the 2014 to 2017 underwriting years.

The mortgage segment’s net favorable development was $126 million, or 44.7 loss ratio points, for the 2022 third quarter, with the largest contributor being reserve releases associated with the U.S. first lien portfolio from the 2020 and 2021 accident years. The Company’s credit risk transfer, international, second lien and student loan businesses also contributed to the favorable development.

Nine Months Ended September 30, 2023

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

The insurance segment’s net favorable development of $34 million, or 0.8 loss ratio points, for the 2023 period consisted of $86 million of net favorable development in short and long-tailed lines and $52 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines reflected $33 million of favorable development in property (excluding marine), primarily from the 2022 accident year, $20 million of favorable development related to warranty and lenders solutions business, primarily from the 2022 accident year and $11 million of favorable development related to travel and accident business, primarily from the 2020 and 2022 accident years. Net favorable development in long-tailed lines included $24 million of favorable development in executive assurance business, primarily from the 2019 and 2021 accident years, and $13 million of favorable development in alternative markets business, from 2021 and prior accident years. Net adverse development in medium-tailed lines included $48 million of adverse development in professional liability business, primarily from the 2017 to 2020 accident years, and $11 million of adverse development in contract binding business, primarily from the 2014 to 2017 accident years. Such amounts were partially offset by $11 million of favorable development in marine business, primarily from 2021 and 2022 accident years.

The reinsurance segment’s net favorable development of $126 million, or 3.0 loss ratio points, for the 2023 period consisted of $168 million of net favorable development from short and medium-tailed lines, partially offset by $42 million of net adverse development from long-tailed lines. Net favorable development in short-tailed lines reflected $75 million of favorable development from property other than property catastrophe business, primarily from the 2021 and 2022 underwriting years, $29 million of favorable development from property catastrophe, primarily from the 2019 and 2022 underwriting years, $46 million from other specialty business, primarily from the 2021 underwriting year, and $12 million of favorable development from other lines of business, primarily from the 2020 underwriting year.


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

Nine Months Ended September 30, 2022

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

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

The reinsurance segment’s net favorable development of $127 million, or 4.7 loss ratio points, for the 2022 period consisted of $148 million of net favorable development from short and medium-tailed lines, partially offset by $20 million of net adverse development from long-tailed lines. Net favorable development in short-tailed lines reflected $83 million of favorable development from property other than property catastrophe business, primarily from the 2015 to 2021 underwriting years, $22 million of favorable development from property catastrophe, primarily from the

2018 to 2020 underwriting years, and $20 million from other specialty business, primarily from the 2021 underwriting year. Net favorable development in medium-tailed lines included $23 million in marine and aviation lines, across most underwriting years. Net adverse development in long-tailed lines primarily reflected $19 million in casualty reserves, primarily from the 2021 underwriting year.

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

6. Allowance for Expected Credit Losses

Premiums Receivable

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


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

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

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

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

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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Reinsurance Recoverables

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


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

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

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

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

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


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

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

Contractholder Receivables

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


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

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

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

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


ARCH CAPITAL			20			2023 THIRD QUARTER FORM 10-Q

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7. Investment Information

Available For Sale Investments

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


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

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

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

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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


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

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

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

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

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

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


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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Equity Securities, at Fair Value

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

Other Investments, at Fair Value

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


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



Total	$	2,068	$	1,644

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


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


Total	$	1,404	$	1,043

Investments Accounted For Using the Equity Method

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


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

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

Limited Partnership Interests

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

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


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

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

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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net Investment Income

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


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

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

Nine Months Ended
Fixed maturities	$	645	$	311

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

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

Net Realized Gains (Losses)

Net realized gains (losses), which include changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings were as follows:


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

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

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

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

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

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

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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

the 2022 third quarter and income of $176 million for the nine months ended September 30, 2023, compared to income of $75 million for nine months ended September 30, 2022. In applying the equity method, investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). Such investments are generally recorded on a one to three month lag based on the availability of reports from the investment funds.

Investments in Operating Affiliates

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

Greysbridge is not recorded on a lag.

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

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

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

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

Allowance for Expected Credit Losses

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


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

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

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

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

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

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

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

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

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

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

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

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

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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Restricted Assets

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

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


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

Total restricted assets	$	9,459	$	8,701

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

Reconciliation of Cash and Restricted Cash

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


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

8. Fair Value

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

The levels in the hierarchy are defined as follows:


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

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

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

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

The Company determines the existence of an active market based on its judgment as to whether transactions for the financial instrument occur in such market with sufficient frequency and volume to provide reliable pricing information. The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. The Company uses quoted values and other data provided by nationally recognized independent pricing sources as inputs into its process for determining fair values of its fixed maturity investments. To validate the techniques or models used by pricing sources, the Company's review process includes, but is not limited to: (i) quantitative analysis (e.g., comparing the quarterly return for each managed portfolio to its target benchmark, with significant differences identified and investigated); (ii) a review of the average number of prices obtained in the pricing process and the range of resulting fair values; (iii) initial and ongoing evaluation of methodologies used by outside parties to calculate fair value; (iv) a comparison of the fair value estimates to the Company’s knowledge of the current market; (v) a comparison of the pricing services' fair values to other pricing services' fair values for the same investments; and (vi) periodic back-testing, which includes randomly selecting purchased or sold securities and comparing the executed prices to the fair value estimates from the pricing service. A price source hierarchy was maintained in order to determine which price source would be used (i.e., a price obtained from a pricing service with more seniority in the hierarchy will be used over a less senior one in all cases). The hierarchy prioritizes pricing


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

Fixed maturities

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

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

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

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

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

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

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

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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

and other indicators, when applicable. As the significant inputs used in the pricing process for commercial mortgage-backed securities are observable market inputs, the fair value of these securities are classified within Level 2.

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

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

Equity securities

The Company determined that exchange-traded equity securities would be included in Level 1 as their fair values are based on quoted market prices in active markets. Certain equity securities are included in Level 2 of the valuation hierarchy as the significant inputs used in the pricing process for such securities are observable market inputs. Other equity securities are included in Level 3 due to the lack of an available independent price source for such securities. As the significant inputs used to price these securities are unobservable, the fair value of such securities are classified as Level 3.

Other investments

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

fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. A small number of securities are included in Level 3 due to the lack of an available independent price source for such securities.

Derivative instruments

The Company’s futures contracts, foreign currency forward contracts, interest rate swaps and other derivatives trade in the over-the-counter derivative market. The Company uses the market approach valuation technique to estimate the fair value for these derivatives based on significant observable market inputs from third party pricing vendors, non-binding broker-dealer quotes and/or recent trading activity. As the significant inputs used in the pricing process for these derivative instruments are observable market inputs, the fair value of these securities are classified within Level 2.

Short-term investments

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

Residential mortgage loans

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

Other liabilities

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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


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

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

Equity securities, at fair value	894		860		29		5





Derivative instruments (2)	192		—		192		—

Residential mortgage loans	2		—		2		—

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



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

Total assets measured at fair value	$	27,323	$	8,146	$	17,877	$	237

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

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

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

(2) See note 9.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


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

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

Equity securities, at fair value	860		829		28		3





Derivative instruments (2)	149		—		149		—

Residential mortgage loans	2		—		2		—


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



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

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

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

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

(2) See note 9.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


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

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

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

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

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

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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Financial Instruments Disclosed, But Not Carried, At Fair Value

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

At September 30, 2023, the Company’s senior notes were carried at their cost, net of debt issuance costs, of $2.7 billion and had a fair value of $2.3 billion. At December 31, 2022, the Company’s senior notes were carried at their cost, net of debt issuance costs, of $2.7 billion and had a fair value of $2.4 billion. The fair values of the senior notes were obtained from a third party pricing service and are based on observable market inputs. As such, the fair values of the senior notes are classified within Level 2.

9. Derivative Instruments

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

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

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


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

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

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

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

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

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

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

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

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

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

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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Realized and unrealized contract gains and losses on the Company’s derivative instruments are reflected in ‘net realized gains (losses)’ in the consolidated statements of income, as summarized in the following table:


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

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

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

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

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

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

10. Commitments and Contingencies

Letter of Credit and Revolving Credit Facilities

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

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

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

At September 30, 2023, the $425 million secured letter of credit facility had $355 million of letters of credit outstanding and remaining capacity of $70 million. In addition, certain of Arch Capital’s subsidiaries had outstanding secured and unsecured letters of credit through other facilities of $35 million and $400 million respectively, which were issued in the normal course of business.

See note 16, “Subsequent Events.”

Investment Commitments

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

Interest Paid

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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

11. Variable Interest Entities

Bellemeade Re

The Company has entered into aggregate excess of loss mortgage reinsurance agreements with various special purpose reinsurance companies domiciled in Bermuda (the “Bellemeade Agreements”). At the time the Bellemeade Agreements were entered into, the applicability of the accounting guidance that addresses VIEs was evaluated. As a result of the evaluation of the Bellemeade Agreements, the Company concluded that these entities are VIEs. However, given that the ceding insurers do not have the unilateral power to direct those activities that are significant to their economic performance, the Company does not consolidate such entities in its consolidated financial statements. The reinsurance premium paid in regard to the Bellemeade Agreements is calculated by multiplying the outstanding reinsurance coverage amount at the beginning of the period by the coupon rate, which is the SOFR plus a contractual risk margin, less the actual investment income collected during the preceding month on the assets included in the underlying reinsurance trusts. In the event the assets included in the underlying reinsurance trusts (became severely impaired or worthless and the special purpose reinsurance companies were unable to meet their future obligations, the Company’s mortgage insurance subsidiaries would be liable to fulfill claim payments to policyholders. The Company’s maximum exposure to loss associated with these VIEs is determined as the amount of mortgage insurance claim payments on the insured policies, net of aggregate reinsurance payments previously received, up to the full aggregate excess of loss reinsurance coverage amounts. See note 16, “Subsequent Events.”

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



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

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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

12. Other Comprehensive Income (Loss)

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


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

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

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


	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Three Months Ended September 30, 2023
Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	(208)	$	(18)	$	(190)

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

Three Months Ended September 30, 2022
Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	(672)	$	(62)	$	(610)

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

Nine Months Ended September 30, 2023
Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	(131)	$	(13)	$	(118)

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

Nine Months Ended September 30, 2022
Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	(2,132)	$	(240)	$	(1,892)

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


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

13. Income Taxes

The Company’s income tax provision on income before income taxes, including income (loss) from operating affiliates, resulted in an effective tax rate of 8.8% for the nine months ended September 30, 2023, compared to 3.0% for the nine months ended September 30, 2022. The Company’s effective tax rate, which is based upon the expected annual effective tax rate, may fluctuate from period to period based on the relative mix of income or loss reported by jurisdiction and the varying tax rates in each jurisdiction. The effective tax rate for the nine months ended September 30, 2023 and 2022, included discrete income tax benefits of $6 million and $37 million, which had the effect of decreasing the effective tax rate on net income available to Arch common shareholders by 0.3% and 5.7%, respectively. The discrete tax items in the 2023 and 2022 periods were primarily related to equity compensation windfall benefits and the release of a valuation allowance on certain U.K. deferred tax assets, respectively.

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

14. Legal Proceedings

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

15. Transactions with Related Parties

Premia Reinsurance Ltd. is a multi-line Bermuda reinsurance company (and its affiliates together with Premia Holdings Ltd., “Premia”). The Company has entered into certain reinsurance transactions with Premia. For the nine months ended September 30, 2023, the Company recorded net premiums written and earned of approximately $80 million, compared to a de minimis amount for the nine months ended September 30, 2022. At September 30, 2023, the Company recorded a funds held asset from Premia of $176 million, compared to $119 million at December 31, 2022.

Somers Group Holdings Ltd. and its wholly owned subsidiaries (collectively, “Somers”) are wholly owned by Greysbridge. The Company has entered into certain reinsurance transactions with Somers. For the nine months ended September 30, 2023, the Company’s net premiums written was reduced by $457 million, compared to $552 million for the nine months ended September 30, 2022. In addition, Somers paid certain acquisition costs and administrative fees to the Company. At September 30, 2023, the Company recorded a reinsurance recoverable on unpaid and paid losses from Somers of $1.3 billion and a reinsurance balance payable to Somers of $499 million, compared to $1.2 billion and $414 million, respectively, at December 31, 2022.


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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

16. Subsequent Events

Bellemeade Re 2023-1 Ltd.

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

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

Letter of Credit Facility Agreement

On October 25, 2023, Arch Re Bermuda entered into Amendment No. 3 and Joinder to the Letter of Credit Facility Agreement with Lloyds Bank, which amends the Letter of Credit Facility Agreement, dated as of November 3, 2020, as amended by Amendment No. 1 to Letter of Credit Facility Agreement dated as of October 29, 2021 and as further amended by Amendment No. 2 and Joinder to Letter of Credit Facility Agreement dated as of October 27, 2022 (the “Existing LOC Agreement”). The Existing LOC Agreement, as amended by Amendment No. 3 (the “Amended LOC Agreement”), provides for a $530 million facility for letters of credit in respect of Tier 2 Funds at Lloyds. As of October 25, 2023, $530 million face amount of letters of credit had been issued under this facility. The availability period ends on May 31, 2024.


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

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

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


		Page No.

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


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CURRENT OUTLOOK

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

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

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

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

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

that this discipline, coupled with increases in future investment returns and prudent reserving, allows us to maximize the capabilities of our diversified platform.

Our mortgage segment continues to deliver a steady level of earnings for our shareholders. Higher persistency of our in force U.S. primary mortgage insurance portfolio helped offset the slight decrease in new insurance written, which has been affected by a lower volume of mortgage originations primarily as a result of higher mortgage rates. We continue to see meaningful opportunities for the mortgage segment outside of the U.S. and our strategic decision to diversify our mortgage operations is yielding positive results.

FINANCIAL MEASURES

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

Book Value per Share

Book value per share represents total common shareholders’ equity available to Arch divided by the number of common shares outstanding. Management uses growth in book value per share as a key measure of the value generated for our common shareholders each period and believes that book value per share is the key driver of Arch Capital’s share price over time. Book value per share is impacted by, among other factors, our underwriting results, investment returns and share repurchase activity, which has an accretive or dilutive impact on book value per share depending on the purchase price. Book value per share was $38.62 at September 30, 2023, compared to $37.04 at June 30, 2023, and $29.69 at September 30, 2022. The 4.3% increase in book value per share for the 2023 third quarter reflected strong underwriting results.

Operating Return on Average Common Equity

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


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

Our annualized net income return on average common equity was 20.2% for the 2023 third quarter, compared to 0.2% for the 2022 third quarter, and 20.9% for the nine months ended September 30, 2023, compared to 6.6% for the 2022 period. Our Operating ROAE was 24.8% for the 2023 third quarter, compared to 3.8% for the 2022 third quarter, and 22.7% for the nine months ended September 30, 2023, compared to 11.6% for the 2022 period. The 2023 periods reflected strong underwriting and investment results, while the 2022 periods reflected lower underwriting returns, due in part to a higher level of catastrophic loss activity.

Total Return on Investments

Total return on investments includes investment income, equity in net income or loss of investment funds accounted for using the equity method, net realized gains and losses (excluding changes in the allowance for credit losses on non-investment related financial assets) and the change in unrealized gains and losses generated by Arch’s investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses and reflects the effect of financial market conditions along with foreign currency fluctuations. In addition, total return incorporates the timing of investment returns during the periods. The following table summarizes our total return compared to the benchmark return against which we measured our portfolio during the periods. See “Comment on Non-GAAP Financial Measures.”


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

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

Total return for the 2023 third quarter was negative as our fixed income portfolio was impacted by the increase in interest rates. We continue to maintain a relatively short duration on our portfolio of 2.97 years at September 30, 2023.

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

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

The benchmark return index included weightings to the following indices:


	%
ICE BofA 1-10 Year U.S. Corporate Index	28.50
Yield on 3-5 Year U.S. Treasury Index plus 6%	16.50
ICE BofA 1-10 Year U.S. Treasury Index	15.75
ICE BofA U.S. High Yield Constrained Index	8.00
ICE BofA 1-5 Year U.K. Gilt Index	5.50
JPM CLOIE Investment Grade	4.50
ICE BofA German Government 1-10 Year Index	4.00
S&P 500 Total Return Index	4.00
ICE BofA 0-3 Month U.S. Treasury Index	3.00
ICE BofA U.S. ABS & CMBS Index	3.00
ICE BofA 1-5 Year Canada Government Index	2.50
ICE BofA 1-5 Year Australia Government Index	2.50
ICE BofA U.S. Mortgage Backed Securities Index	1.50
ICE BofA 15+ Year Canada Government Index	0.50
ICE BofA 1-5 Year Japan Government Index	0.25
Total	100.00	%

COMMENT ON NON-GAAP FINANCIAL MEASURES

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


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

We believe that net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other in any particular period are not indicative of the performance of, or trends, in our business. Although net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of our operations, the decision to realize these items, are independent of the insurance underwriting process and result, in large part, from general economic and financial market conditions. Furthermore, certain users of our financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. In addition, changes in the allowance for credit losses and net impairment losses recognized in earnings on our investments represent other-than-temporary declines in expected recovery values on securities without actual realization.

The use of the equity method on certain of our investments is driven by the ownership structure of such funds (either limited partnerships or limited liability companies). In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on our proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). This method of accounting is different from the way that we account for our other investments and the timing of the recognition of equity in net income or loss of investment funds accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments.

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

Due to these reasons, we exclude net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other from the calculation of after-tax operating income available to Arch common shareholders.

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

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

Our segment information includes the presentation of consolidated underwriting income or loss. Such measures represent the pre-tax profitability of our underwriting operations and include net premiums earned plus other underwriting income, less losses and loss adjustment expenses, acquisition expenses and other operating expenses. Other operating expenses include those operating expenses that are incremental and/or directly attributable to our individual underwriting operations. Underwriting income or loss does not incorporate items included in our corporate segment. While these measures are presented in note 4, “Segment Information,” of the notes accompanying our consolidated financial statements, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis. The reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis, in accordance with Regulation G, is shown in note 4, “Segment Information” of the notes accompanying our consolidated financial statements.

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

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


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financial market conditions along with foreign currency fluctuations. In addition, total return incorporates the timing of investment returns during the periods. There is no directly comparable GAAP financial measure for total return. Management uses total return on investments as a key measure of the return generated to Arch common shareholders, and compares the return generated by our investment portfolio against benchmark returns during the periods.

RESULTS OF OPERATIONS

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


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

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

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

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

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

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

(2) Income tax expense on net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.

Segment Information

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

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


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Insurance Segment

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


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

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

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


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

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

Underwriting Ratios							% Point Change
Loss ratio	57.0		%	61.9		%	(4.9)
Acquisition expense ratio	19.5		%	19.4		%	0.1
Other operating expense ratio	14.8		%	14.9		%	(0.1)
Combined ratio	91.3		%	96.2		%	(4.9)

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

Construction and national accounts: primary and excess casualty coverages for middle market and large construction accounts, a comprehensive range of products for middle market accounts in specialty industries and casualty solutions for large national accounts, including loss sensitive primary insurance programs (large deductible, self-insured retention and retrospectively rated programs).

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

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

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

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

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

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

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


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Premiums Written.

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


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

2023 Third Quarter versus 2022 Period. Gross premiums written by the insurance segment in the 2023 third quarter were 9.7% higher than in the 2022 third quarter, while net premiums written were 11.2% higher. Growth in net premiums written reflected increases in most lines of business, due in part to new business opportunities, increases in existing accounts and rate changes. In addition, the insurance segment retained a higher portion of business written in the 2023 third quarter than in the 2022 third quarter.


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

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

Net Premiums Earned.

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


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


	Nine Months Ended September 30,
	2023			2022
	Amount		%	Amount		%
Professional lines	$	1,067	26.7	$	946	28.5
Property, energy, marine and aviation	752		18.8	557		16.8
Programs	473		11.8	439		13.2
Excess and surplus casualty	353		8.8	289		8.7
Construction and national accounts	406		10.2	306		9.2
Travel, accident and health	423		10.6	368		11.1
Warranty and lenders solutions	142		3.6	92		2.8
Other	381		9.5	319		9.6
Total	$	3,997	100.0	$	3,316	100.0

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


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Losses and Loss Adjustment Expenses.

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


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

Current Year Loss Ratio.

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

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

Prior Period Reserve Development.

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

Underwriting Expenses.

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

Nine Months Ended September 30, 2023 versus 2022 period. The insurance segment’s underwriting expense ratio was 34.3% for the nine months ended September 30, 2023, consistent with 34.3% for the 2022 period.

Reinsurance Segment

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


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

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


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

Underwriting Ratios							% Point Change
Loss ratio	56.4		%	70.2		%	(13.8)
Acquisition expense ratio	20.7		%	20.8		%	(0.1)
Other operating expense ratio	4.8		%	7.3		%	(2.5)
Combined ratio	81.9		%	98.3		%	(16.4)

The reinsurance segment consists of our reinsurance underwriting units which offer specialty product lines on a worldwide basis. Reinsurance agreements are typically offered on a proportional and/or excess of loss basis and provide coverage to ceding company clients for specific underlying written policies. Product lines include:

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


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Marine and aviation: provides coverage for energy, hull, cargo, specie, liability and transit, and aviation business, including airline and general aviation risks. Business written may also include space business, which includes coverages for satellite assembly, launch and operation for commercial space programs.

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

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

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

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

Premiums Written.

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


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

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

segment retained a higher portion of business written in the 2023 third quarter than in the 2022 third quarter.


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

Nine Months Ended September 30, 2023 versus 2022 period. Gross premiums written by the reinsurance segment for the nine months ended September 30, 2023 were 38.7% higher than in the 2022 period, while net premiums written were 47.8% higher than in the 2022 period. The increase in net premiums written reflected growth in most lines of business, primarily due to new business, rate increases and growth in existing accounts. In addition, the reinsurance segment retained a higher portion of business written in the 2023 period than in the 2022 period.

Net Premiums Earned.

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


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


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

Net premiums written, irrespective of the class of business, are generally earned on a pro rata basis over the terms of the underlying policies or reinsurance contracts. Net premiums earned by the reinsurance segment in the 2023 third quarter were 54.0% higher than in the 2022 third quarter, and reflect changes in net premiums written over the previous five quarters. Net premiums earned for the nine months ended September 30, 2023 were 54.2% higher than in the 2022 period.

Other Underwriting Income (Loss).

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

Losses and Loss Adjustment Expenses.

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


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

Current Year Loss Ratio.

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

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

2022 period. The improvement in the current year loss ratio reflected the impact of rate increases and changes in mix of business, while the 2022 period reflected a higher level of catastrophic activity.

Prior Period Reserve Development.

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

Underwriting Expenses.

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

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


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Mortgage Segment

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

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


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

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


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

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

Premiums Written.

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


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

2023 Third Quarter versus 2022 Period. Gross premiums written by the mortgage segment in the 2023 third quarter were 4.1% lower than in the 2022 third quarter, while net premiums written were 1.8% lower. The reduction in net premiums written primarily reflected lower levels of mortgage originations in the Australian market than in the 2022 third quarter, partially offset by growth in credit risk transfer business and higher levels of retained premiums in U.S. primary mortgage insurance business.


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

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

The persistency rate, which represents the percentage of mortgage insurance in force at the beginning of a 12-month period that remains in force at the end of such period, was 83.9% for the Arch MI U.S. portfolio of mortgage insurance policies at September 30, 2023. This compares to 75.4% at September 30, 2022 and reflects a lower level of refinancing activity in the period.

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


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

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

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

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

Purchase vs. refinance:
Purchase	$	11,334	98.6	$	17,159	98.5
Refinance	160		1.4	266		1.5
Total	$	11,494	100.0	$	17,425	100.0

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


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

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

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

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

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

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

Net Premiums Earned.

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


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

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


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

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

Other Underwriting Income (Loss).

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


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Losses and Loss Adjustment Expenses.

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


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

Current Year Loss Ratio.

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

Nine Months Ended September 30, 2023 versus 2022 Period. The mortgage segment’s current year loss ratio was 3.9 points higher for the nine months ended September 30, 2023 than for the 2022 period. The higher current year loss ratio for the 2023 period reflected higher level of new delinquencies than in the 2022 period.

Prior Period Reserve Development.

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

Underwriting Expenses.

2023 Third Quarter versus 2022 Period. The underwriting expense ratio for the mortgage segment was 16.8% in the 2023 third quarter, compared to 18.9% in the 2022 third quarter. The decrease was primarily due to higher level of profit commissions on ceded U.S. primary and Australian mortgage insurance business.

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

Corporate Segment

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

Net Investment Income.

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


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

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

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

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

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

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

Corporate Expenses.

Corporate expenses were $20 million for the 2023 third quarter, compared to $18 million for the 2022 third quarter, and $69 million for the nine months ended September 30, 2023, compared to $78 million for the 2022 period. Such amounts primarily represent certain holding company costs


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

Other Income or Losses.

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

Amortization of Intangible Assets.

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

Interest Expense.

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

Net Realized Gains or Losses.

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

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

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

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

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

Net Foreign Exchange Gains or Losses.

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

Income Tax Expense.

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

Income or Losses from Operating Affiliates.

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


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CRITICAL ACCOUNTING POLICIES,

ESTIMATES AND RECENT ACCOUNTING PRONOUNCEMENTS

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

FINANCIAL CONDITION

Investable Assets Held by Arch

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

September 30, 2023

December 31, 2022

Average effective duration (in years)

2.97

2.89

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

AA-/Aa3

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

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


	Estimated Fair Value		% of Total
September 30, 2023
U.S. government and gov’t agencies (1)	$	6,359	27.5
AAA	4,164		18.0
AA	2,061		8.9
A	4,523		19.6
BBB	4,390		19.0
BB	773		3.3
B	352		1.5
Lower than B	16		0.1
Not rated	491		2.1
Total	$	23,129	100.0

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

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


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


Severity of gross unrealized losses:	Estimated Fair Value		Gross Unrealized Losses		% of Total Gross Unrealized Losses
September 30, 2023
0-10%	$	16,607	$	(571)	40.4
10-20%	3,510		(555)		39.3
20-30%	834		(243)		17.2
Greater than 30%	82		(45)		3.2
Total	$	21,033	$	(1,414)	100.0

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

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


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

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

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


	Agencies		Investment Grade		Below Investment Grade		Total
September 30, 2023
RMBS	$	682	$	283	$	—	$	965
CMBS	7		998		97		1,102
ABS	—		2,205		139		2,344
Total	$	689	$	3,486	$	236	$	4,411

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

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


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

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

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

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

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

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

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


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

Reinsurance

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


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

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

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

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

Bellemeade Re

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

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


Bellemeade Entities (Issue Date)	Initial Coverage at Issuance		Current Coverage		Remaining Retention, Net
2018-1 Ltd. (1)	374		51		149
2018-3 Ltd. (2)	506		154		158
2019-1 Ltd. (3)	342		80		127
2019-2 Ltd. (4)	621		265		198
2019-3 Ltd. (5)	701		120		215
2019-4 Ltd. (6)	577		218		145
2020-2 Ltd. (7)	449		54		241
2020-3 Ltd. (8)	452		187		162
2020-4 Ltd. (9)	337		69		141
2021-1 Ltd. (10)	644		404		154
2021-2 Ltd. (11)	616		438		138
2021-3 Ltd. (12)	639		560		134
2022-1 Ltd. (13)	317		298		139
2022-2 Ltd. (14)	327		327		204
Total	$	6,902	$	3,225	$	2,305

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

Reserve for Losses and Loss Adjustment Expenses

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

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


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





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

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


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

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


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

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


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

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


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Mortgage Operations Supplemental Information

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


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

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

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

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

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


	IIF			RIF			Delinquency
	Amount		%	Amount		%	Rate (1)
Policy year:
2013 and prior	$	11,263	3.8	$	2,842	3.7	6.52	%
2014	2,759		0.9	742		1.0	2.43	%
2015	5,113		1.7	1,366		1.8	1.88	%
2016	7,970		2.7	2,148		2.8	2.51	%
2017	8,016		2.7	2,132		2.8	2.96	%
2018	8,908		3.0	2,302		3.0	3.66	%
2019	16,572		5.7	4,250		5.6	2.22	%
2020	54,238		18.5	13,997		18.5	1.06	%
2021	80,045		27.3	20,567		27.1	1.00	%
2022	65,065		22.2	17,038		22.5	0.72	%
2023	32,954		11.3	8,466		11.2	0.15	%
Total	$	292,903	100.0	$	75,850	100.0	1.65	%

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

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


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

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

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

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


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

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

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


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

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


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

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

Ending number of policies in force (1)	1,129,351			1,168,735

Delinquency rate (1)	1.65		%	1.73		%

Losses:
Number of claims paid	662			534
Total paid claims	$	19,502		$	16,865
Average per claim	$	29.5		$	31.6
Severity (2)	68.8		%	74.3		%
Average case reserve per default (1)	$	21.2		$	27.7

(1)Includes first lien primary and pool policies.

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

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

Shareholders’ Equity and Book Value per Share

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


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

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

LIQUIDITY

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

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

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

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


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Cash Flows

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


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

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

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

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

CAPITAL RESOURCES

The following table provides an analysis of our capital structure:


	September 30, 2023		December 31, 2022







Senior notes	$	2,726	$	2,725

Shareholders’ equity available to Arch:

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

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



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

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

an insurer, to meet or exceed “minimum required assets” as of each quarter end. Minimum required assets are calculated from PMIERs tables with several risk dimensions (including origination year, original loan-to-value and original credit score of performing loans, and the delinquency status of non-performing loans) and are subject to a minimum amount. Arch MI U.S. satisfied the PMIERs’ financial requirements with an estimated PMIER sufficiency ratio of 245% at September 30, 2023, compared to 236% at December 31, 2022.

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

GUARANTOR INFORMATION

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


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

(1)Fully and unconditionally guaranteed by Arch Capital.

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


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

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


	September 30, 2023
	Arch Capital		Arch-U.S.
Assets
Total investments	$	3	$	86
Cash	8		6

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






Other assets	21		32
Total assets	$	36	$	124

Liabilities






Senior notes	1,287		495

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

Non-cumulative preferred shares	$	830	—


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

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






Other assets		18		30
Total assets		$	43	$	119

Liabilities






Senior notes		1,287		495

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

Non-cumulative preferred shares		$	830	—


	Nine Months Ended

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

Net investment income		$	2	$	3



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

Total revenues		2		—

Expenses



Corporate expenses		67		8

Interest expense		44		57

Total expenses		111		65

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

Income (loss) from operating affiliates		(1)		—


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

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



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

Revenues

Net investment income			2		1



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

Total revenues			2		11

Expenses



Corporate expenses			86		13

Interest expense			59		48

Total expenses			145		61

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

Income (loss) from operating affiliates			(1)		—


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

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


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CATASTROPHIC AND SEVERE ECONOMIC EVENTS

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

Our models employ both proprietary and vendor-based systems and include cross-line correlations for property, marine, offshore energy, aviation, workers compensation and personal accident. We seek to limit the probable maximum pre-tax loss to a specific level for severe catastrophic events. Currently, we seek to limit our 1-in-250 year return period net probable maximum loss from a severe catastrophic event in any geographic zone to approximately 25% of tangible shareholders’ equity available to Arch (total shareholders’ equity available to Arch less goodwill and intangible assets). We reserve the right to change this threshold at any time.

Based on in-force exposure estimated as of October 1, 2023, our modeled peak zone catastrophe exposure was a windstorm affecting the Florida Tri-County regions, with a net probable maximum pre-tax loss of $1.47 billion, followed by windstorms affecting the Northeastern U.S. regions and the Gulf of Mexico with net probable maximum pre-tax losses of $1.41 billion and $1.35 billion, respectively. Our exposures to other perils, such as U.S. earthquake and international events, were less than the exposures arising from U.S. windstorms and hurricanes. As of October 1, 2023, our modeled peak zone earthquake exposure (San Francisco earthquake) represented approximately 57% of our peak zone catastrophe exposure, and our modeled peak zone international exposure (UK windstorm) was substantially less than both our peak zone windstorm and earthquake exposures.

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

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

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

Net probable maximum loss estimates are net of expected reinsurance recoveries, before income tax and before excess reinsurance reinstatement premiums. RDS loss estimates are net of expected reinsurance recoveries and before income tax. Catastrophe loss estimates are reflective of the zone indicated and not the entire portfolio. Since hurricanes and windstorms can affect more than one zone and make multiple landfalls, our catastrophe loss estimates include clash estimates from other zones. Our catastrophe loss estimates and RDS loss estimates do not represent our maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates. There can be no assurances that we will not suffer pre-tax losses greater than 25% of our tangible shareholders’ equity from one or more catastrophic events or severe economic events due to several factors. These factors include the inherent uncertainties in estimating the frequency and severity of such events and the margin of error in making such determinations resulting from potential inaccuracies and inadequacies in the data provided by clients and brokers, the modeling techniques and the application of such techniques or as a result of a decision to change the percentage of shareholders' equity exposed to a single catastrophic event or severe economic event. In addition, actual losses may increase if our reinsurers fail to meet their obligations to us or the reinsurance protections purchased by us are exhausted or are otherwise unavailable. See “Risk Factors—Risks Relating to Our Industry” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Catastrophic Events and Severe Economic Events” in our 2022 Form 10-K.


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MARKET SENSITIVE INSTRUMENTS AND RISK MANAGEMENT

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

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

Investment Market Risk

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

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


(U.S. dollars in billions)	Interest Rate Shift in Basis Points
	-100			-50			—		+50			+100
September 30, 2023
Total fair value	$	31.2		$	30.7		$	30.3	$	29.8		$	29.4
Change from base	3.0		%	1.5		%			(1.5)		%	(2.9)		%
Change in unrealized value	$	0.9		$	0.5				$	(0.5)		$	(0.9)

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

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

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


(U.S. dollars in billions)	Credit Spread Shift in Percentage Points
	-100			-50			—		+50			+100
September 30, 2023
Total fair value	$	31.5		$	30.9		$	30.3	$	29.7		$	29.0
Change from base	4.0		%	2.0		%			(2.0)		%	(4.0)		%
Change in unrealized value	$	1.2		$	0.6				$	(0.6)		$	(1.2)

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

Another method that attempts to measure portfolio risk is Value-at-Risk (“VaR”). VaR measures the worst expected loss under normal market conditions over a specific time interval at a given confidence level. The 1-year 95th percentile parametric VaR reported herein estimates that 95% of the time, the portfolio loss in a one-year horizon would be less than or equal to the calculated number, stated as a percentage of the measured portfolio’s initial value. The VaR is a variance-covariance based estimate, based on linear sensitivities of a portfolio to a broad set of systematic market risk factors and idiosyncratic risk factors mapped to the portfolio exposures. The relationships between the risk factors are estimated using historical data, and the most recent data points are generally given more weight. As of September 30, 2023, our portfolio’s 95th percentile VaR was estimated to be 7.4%, compared to an estimated 8.8% at December 31, 2022. In periods where the volatility of the risk factors mapped to our portfolio’s exposures is higher due to market conditions, the resulting VaR is higher than in other periods.

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


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

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

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

Foreign Currency Exchange Risk

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

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


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

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

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

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

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

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

Effects of Inflation

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


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

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

Changes in Internal Controls Over Financial Reporting

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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


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

Issuer’s Repurchases of Equity Securities

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


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

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

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

During the three months ended September 30, 2023, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).


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ITEM 6. EXHIBITS

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

Original Number

Date Filed

Filed Herewith

10.1(1)

Fourth Amended and Restated Credit Agreement, dated as of August 23, 2023, by and among Arch Capital Group Ltd., certain of its subsidiaries, Bank of America, N.A., as Administrative Agent, and the lenders party thereto.

10.2(1)

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

8-K

10.1

October 2, 2023

10.3(1)

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

8-K

10.1

October 30, 2023

31.1

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

31.2

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

32.1

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

32.2

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

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

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

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


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SIGNATURES

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


						ARCH CAPITAL GROUP LTD.
						(REGISTRANT)

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

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


ARCH CAPITAL			66			2023 THIRD QUARTER FORM 10-Q


Deal CUSIP Number: G0506YAU1 Tranche A Facility CUSIP: G0506YAV9 Tranche B Facility CUSIP: G0506YAW7 FOURTH AMENDED AND RESTATED CREDIT AGREEMENT Dated as of August 23, 2023 among ARCH CAPITAL GROUP LTD., and CERTAIN SUBSIDIARIES, as the Borrowers, BANK OF AMERICA, N.A., as Administrative Agent, Fronting Bank and L/C Administrator, The Other Lenders Party Hereto and BOFA SECURITIES, INC., as Lead Arranger and Bookrunner


	TABLE OF CONTENTS
		Page

ARTICLE I.	DEFINITIONS AND ACCOUNTING TERMS	1

1.01	Defined Terms	1
1.02	Other Interpretive Provisions	41
1.03	Accounting Terms	42
1.04	Rounding	42
1.05	Exchange Rates; Currency Equivalents.	43
1.06	Additional Alternative Currencies.	43
1.07	Change of Currency.	44
1.08	Times of Day	44
1.09	Letter of Credit Amounts	44
1.10	Allocation of Loans and Percentages at the Effective Time.	45
1.11	Existing Letters of Credit	45
1.12	Interest Rates	46

ARTICLE II.	THE COMMITMENTS AND CREDIT EXTENSIONS	47

2.01	Commitments.	47
2.02	Borrowings, Conversions and Continuations of Loans.	48
2.03	Letters of Credit.	51
2.04	Prepayments; Cash Collateralization.	63
2.05	Termination or Reduction of Commitments.	65
2.06	Repayment of Loans	65
2.07	Interest.	65
2.08	Fees	66
2.09	Computation of Interest and Fees	66
2.10	Evidence of Debt.	67
2.11	Payments Generally; Administrative Agent’s Clawback.	67
2.12	Sharing of Payments by Lenders	69
2.13	Designated Subsidiary Borrowers.	70
2.14	Increase in Commitments.	72
2.15	Cash Collateral.	74
2.16	Defaulting Lenders.	75


	TABLE OF CONTENTS (continued)
		Page
2.17	Conversion of Revolving Loans.	77

ARTICLE III.	TAXES, YIELD PROTECTION AND ILLEGALITY	78

3.01	Taxes.	78
3.02	Illegality	82
3.03	Inability to Determine Rates.	83
3.04	Increased Costs.	88
3.05	Compensation for Losses	89
3.06	Mitigation Obligations; Replacement of Lenders.	90
3.07	Survival	90

ARTICLE IV.	CONDITIONS PRECEDENT TO CREDIT EXTENSIONS	90

4.01	Conditions of Initial Credit Extension	90
4.02	Conditions to all Credit Extensions	92

ARTICLE V.	REPRESENTATIONS AND WARRANTIES	94

5.01	Corporate Status	94
5.02	Corporate Power and Authority	95
5.03	No Contravention of Laws, Agreements or Organization Documents	95
5.04	Litigation	95
5.05	Use of Proceeds; Margin Regulations.	95
5.06	Approvals	96
5.07	Investment Company Act	96
5.08	True and Complete Disclosure	96
5.09	Financial Condition; Financial Statements.	96
5.1	Tax Returns and Payments	97
5.11	Compliance with ERISA.	97
5.12	Subsidiaries	98
5.13	Compliance with Statutes, Etc	98
5.14	Insurance Licenses	98
5.15	Security Documents	98
5.16	No Section 32 Direction	99


	TABLE OF CONTENTS (continued)
		Page
5.17	Taxpayer Identification Number	99
5.18	Representations as to Foreign Jurisdiction Matters	99
5.19	Sanctioned Person.	100
5.2	USA PATRIOT Act and Other Regulations.	100
5.21	EEA Financial Institutions	100
5.22	Covered Entities	100

ARTICLE VI.	AFFIRMATIVE COVENANTS	100

6.01	Information Covenants	100
6.02	Books, Records and Inspections	104
6.03	Insurance	105
6.04	Payment of Taxes	105
6.05	Maintenance of Existence	105
6.06	Compliance with Statutes, Etc	105
6.07	ERISA	106
6.08	Maintenance of Licenses and Permits	107
6.09	Financial Strength Ratings	107
6.10	End of Fiscal Years; Fiscal Quarters	107
6.11	Further Assurances.	107
6.12	Anti-Corruption Laws; Sanctions	108

ARTICLE VII.	NEGATIVE COVENANTS	108

7.01	Changes in Business and Investments	108
7.02	Consolidations, Mergers, Sales of Assets and Acquisitions.	108
7.03	Liens	109
7.04	Indebtedness	112
7.05	Dissolution	112
7.06	Restricted Payments	112
7.07	Maximum Parent Borrower Leverage Ratio	112
7.08	Minimum Consolidated Tangible Net Worth	112
7.09	Private Act	113
7.10	Sanctions	113
7.11	Anti-Corruption Laws	113


	TABLE OF CONTENTS (continued)
		Page

ARTICLE VIII.	EVENTS OF DEFAULT AND REMEDIES	113

8.01	Events of Default	113
8.02	Remedies Upon Event of Default	116
8.03	Application of Funds	116

ARTICLE IX.	ADMINISTRATIVE AGENT	117

9.01	Appointment and Authority	117
9.02	Rights as a Lender	118
9.03	Exculpatory Provisions	118
9.04	Reliance by Administrative Agent	119
9.05	Delegation of Duties	119
9.06	Resignation of Administrative Agent.	120
9.07	Non-Reliance on Administrative Agent and Other Lenders	121
9.08	No Other Duties, Etc	122
9.09	Administrative Agent May File Proofs of Claim	122
9.10	Collateral Matters	123
9.11	Certain ERISA Matters	123

ARTICLE X.	MISCELLANEOUS	124

10.01	Amendments, Etc	124
10.02	Notices; Effectiveness; Electronic Communication.	126
10.03	No Waiver; Cumulative Remedies; Enforcement	128
10.04	Expenses; Indemnity; Damage Waiver.	129
10.05	Payments Set Aside	131
10.06	Successors and Assigns.	131
10.07	Treatment of Certain Information; Confidentiality	136
10.08	Right of Setoff	137
10.09	Interest Rate Limitation	138
10.10	Counterparts; Integration; Effectiveness	138
10.11	Survival of Representations and Warranties	138
10.12	Severability	138


	TABLE OF CONTENTS (continued)
		Page
10.13	Replacement of Lenders	139
10.14	Governing Law; Jurisdiction; Etc.	140
10.15	Waiver of Jury Trial	141
10.16	No Advisory or Fiduciary Responsibility	141
10.17	Electronic Execution of Assignments and Certain Other Documents	142
10.18	USA PATRIOT Act	142
10.19	Time of the Essence	142
10.20	Judgment Currency	143
10.21	Acknowledgement and Consent to Bail-In of Affected Financial Institutions	143
10.22	ENTIRE AGREEMENT	144
10.23	Amendment and Restatement	144
10.24	Acknowledgement Regarding Any Supported QFCs	144


SCHEDULES

1.01(a)			Existing Several Letters of Credit
2.01			Commitments and Applicable Percentages
5.12			Subsidiaries
7.03			Existing Liens
7.04			Existing Indebtedness
10.02			Administrative Agent’s Office; Certain Addresses for Notices

EXHIBITS

A			Form of Loan Notice
B			Form of Note
C			Form of Compliance Certificate
D-1			Form of Assignment and Assumption
D-2			Form of Administrative Questionnaire
E			Form of Several Letter of Credit
F			Copy of Security Agreement
G			Form of Borrowing Base Certificate
H			Form of Designated Subsidiary Borrower Request and Assumption Agreement
I			Form of Designated Subsidiary Borrower Notice
J			Copy of Confirmation Agreement
K			Copy of ACUS Guaranty
L			Copy of Parent Guaranty
M			Copy of Arch Finance Guaranty


Debt Rating	Pricing Level 1: > A+/A1	Pricing Level 2: A/A2	Pricing Level 3: A-/A3	Pricing Level 4: BBB+/Baal	Pricing Level 5: < BBB/Baa2
Applicable Margin for Term SOFR Loans and Alternative Currency Loans	0.875%	1.000%	1.125%	1.250%	1.500%
Applicable Margin for Base Rate Loans	0.00%	0.00%	0.125%	0.250%	0.500%
Letter of Credit Fee	0.750%	0.875%	1.000%	1.125%	1.375%
Commitment Fee	0.075%	0.100%	0.125%	0.150%	0.200%


			Date:			November 9, 2023

			By:			/s/ Marc Grandisson
			Name:			Marc Grandisson
			Title:			Chief Executive Officer