ARCH CAPITAL GROUP LTD. [ACGL] Filings

10-Q 1 acgl-20240630.htm 10-Q acgl-20240630

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

June 30, 2024



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 August 2, 2024, there were 376,057,841 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	62
Item 4.	Controls and Procedures	62

	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			2024 SECOND QUARTER FORM 10-Q

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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, deferred income tax assets, 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;


ARCH CAPITAL			2			2024 SECOND QUARTER FORM 10-Q

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

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

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

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

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

•changes in general economic conditions, including 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;

•an incident, disruption in operations or other cyber event caused by cyber attacks, the use of artificial intelligence technologies or other technology on our systems or those of 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 legislation that affects 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 enactment of 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, 2023, 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. The Company’s forward-looking statements speak only as of the date of this report or as of the date they are made, and 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			2024 SECOND QUARTER FORM 10-Q

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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS


						Page No.



Consolidated Balance Sheets
June 30, 2024 and December 31, 2023 (unaudited)						5

Consolidated Statements of Income
For the three and six month periods ended June 30, 2024 and 2023 (unaudited)						6

Consolidated Statements of Comprehensive Income
For the three and six month periods ended June 30, 2024 and 2023 (unaudited)						7

Consolidated Statements of Changes in Shareholders’ Equity
For the three and six month periods ended June 30, 2024 and 2023 (unaudited)						8

Consolidated Statements of Cash Flows
For the six month periods ended June 30, 2024 and 2023 (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						28
Note 9 - Derivative Instruments						34
Note 10 - Commitments and Contingencies						35

Note 11 - Variable Interest Entities						35
Note 12 - Other Comprehensive Income (Loss)						36

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


ARCH CAPITAL			4			2024 SECOND QUARTER FORM 10-Q

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(U.S. dollars and shares in millions)


	(Unaudited)
	June 30, 2024		December 31, 2023
Assets
Investments:
Fixed maturities available for sale, at fair value (amortized cost: $25,882 and $24,131; net of allowance for credit losses: $27 and $28)	$	25,202	$	23,553
Short-term investments available for sale, at fair value (amortized cost: $2,296 and $2,064; net of allowance for credit losses: $0 and $0)	2,297		2,063

Equity securities, at fair value	1,397		1,186

Other investments, at fair value	3,206		2,488
Investments accounted for using the equity method	4,983		4,566
Total investments	37,085		33,856

Cash	1,020		917
Accrued investment income	287		236


Investment in operating affiliates	1,143		1,119
Premiums receivable (net of allowance for credit losses: $36 and $34)	6,268		4,644
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses (net of allowance for credit losses: $20 and $21)	7,473		7,064
Contractholder receivables (net of allowance for credit losses: $4 and $3)	2,016		1,814
Ceded unearned premiums	2,981		2,170
Deferred acquisition costs	1,635		1,531
Receivable for securities sold	116		63
Goodwill and intangible assets	725		731

Other assets	4,716		4,761
Total assets	$	65,465	$	58,906

Liabilities
Reserve for losses and loss adjustment expenses	$	24,466	$	22,752
Unearned premiums	10,452		8,808
Reinsurance balances payable	2,591		2,000
Contractholder payables	2,020		1,817
Collateral held for insured obligations	263		259
Senior notes	2,727		2,726


Payable for securities purchased	410		247
Other liabilities	1,871		1,942
Total liabilities	44,800		40,551

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

Shareholders' Equity
Non-cumulative preferred shares	830		830

Common shares ($0.0011 par, shares issued: 595.0 and 591.9)	1		1
Additional paid-in capital	2,443		2,327
Retained earnings	22,664		20,295
Accumulated other comprehensive income (loss), net of deferred income tax	(810)		(676)
Common shares held in treasury, at cost (shares: 219.0 and 218.5)	(4,463)		(4,424)
Total shareholders' equity available to Arch	20,665		18,353


Total liabilities, noncontrolling interests and shareholders' equity	$	65,465	$	58,906

See Notes to Consolidated Financial Statements


ARCH CAPITAL			5			2024 SECOND QUARTER FORM 10-Q

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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				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Revenues


Net premiums earned	$	3,565	$	2,965	6,987		5,848
Net investment income	364		242		691		441
Net realized gains (losses)	122		(123)		189		(106)





Other underwriting income	3		6		15		16
Equity in net income (loss) of investment funds accounted for using the equity method	167		69		266		117
Other income (loss)	8		3		22		14
Total revenues	4,229		3,162		8,170		6,330

Expenses
Losses and loss adjustment expenses	1,827		1,491		3,555		2,962
Acquisition expenses	633		561		1,240		1,094
Other operating expenses	346		313		709		632
Corporate expenses	41		21		94		51
Amortization of intangible assets	27		24		48		47
Interest expense	35		33		69		65
Net foreign exchange (gains) losses	(1)		5		(32)		23
Total expenses	2,908		2,448		5,683		4,874

Income (loss) before income taxes and income (loss) from operating affiliates	1,321		714		2,487		1,456
Income tax (expense) benefit	(97)		(67)		(198)		(131)
Income (loss) from operating affiliates	45		22		100		61
Net income (loss)	$	1,269	$	669	$	2,389	$	1,386
Net (income) loss attributable to noncontrolling interests	—		2		—		—
Net income (loss) available to Arch	1,269		671		2,389		1,386
Preferred dividends	(10)		(10)		(20)		(20)

Net income (loss) available to Arch common shareholders	$	1,259	$	661	$	2,369	$	1,366

Net income per common share and common share equivalent
Basic	$	3.38	$	1.79	$	6.37	$	3.71
Diluted	$	3.30	$	1.75	$	6.22	$	3.62

Weighted average common shares and common share equivalents outstanding
Basic	372.7		368.7		371.8		368.0
Diluted	381.6		378.4		380.9		377.8

See Notes to Consolidated Financial Statements


ARCH CAPITAL			6			2024 SECOND QUARTER FORM 10-Q

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(U.S. dollars in millions)


	(Unaudited)				(Unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Comprehensive Income
Net income (loss)	$	1,269	$	669	$	2,389	$	1,386
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	(26)		(173)		(167)		72

Reclassification of net realized (gains) losses, included in net income (loss)	53		149		82		248
Foreign currency translation adjustments	(16)		2		(49)		7
Comprehensive income (loss)	1,280		647		2,255		1,713
Net (income) loss attributable to noncontrolling interests	—		2		—		—

Comprehensive income (loss) available to Arch	$	1,280	$	649	$	2,255	$	1,713

See Notes to Consolidated Financial Statements


ARCH CAPITAL			7			2024 SECOND QUARTER FORM 10-Q

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(U.S. dollars in millions)


	(Unaudited)				(Unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
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	2,401		2,260		2,327		2,211



Amortization of share-based compensation	16		17		84		58



Other changes	26		1		32		9
Balance at end of period	2,443		2,278		2,443		2,278

Retained earnings
Balance at beginning of period	21,405		16,597		20,295		15,892


Net income (loss)	1,269		669		2,389		1,386
Net (income) loss attributable to noncontrolling interests	—		2		—		—
Preferred share dividends	(10)		(10)		(20)		(20)

Balance at end of period	22,664		17,258		22,664		17,258

Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of period	(821)		(1,297)		(676)		(1,646)
Unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax:
Balance at beginning of period	(677)		(1,168)		(565)		(1,512)


Unrealized holding gains (losses) during period, net of reclassification adjustment	27		(24)		(85)		320


Balance at end of period	(650)		(1,192)		(650)		(1,192)
Foreign currency translation adjustments, net of deferred income tax:
Balance at beginning of period	(144)		(129)		(111)		(134)
Foreign currency translation adjustments	(16)		2		(49)		7

Balance at end of period	(160)		(127)		(160)		(127)
Balance at end of period	(810)		(1,319)		(810)		(1,319)

Common shares held in treasury, at cost
Balance at beginning of period	(4,461)		(4,403)		(4,424)		(4,378)
Shares repurchased for treasury	(2)		(4)		(39)		(29)
Balance at end of period	(4,463)		(4,407)		(4,463)		(4,407)



Total shareholders’ equity	$	20,665	$	14,641	$	20,665	$	14,641

See Notes to Consolidated Financial Statements


ARCH CAPITAL			8			2024 SECOND QUARTER FORM 10-Q

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)


	(Unaudited)
	Six Months Ended
	June 30,
	2024		2023
Operating Activities
Net income (loss)	$	2,389	$	1,386
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net realized (gains) losses	(196)		110

Equity in net (income) or loss of investment funds accounted for using the equity method and other income or loss	(174)		(49)
Amortization of intangible assets	48		47
Share-based compensation	84		58
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	1,369		1,020
Unearned premiums, net of ceded unearned premiums	879		1,004
Premiums receivable	(1,682)		(1,648)
Deferred acquisition costs	(80)		(152)
Reinsurance balances payable	616		652
Deferred income tax assets, net	45		58
Other items, net	(216)		(372)
Net cash provided by operating activities	3,082		2,114
Investing Activities
Purchases of fixed maturity investments	(14,123)		(8,840)
Purchases of equity securities	(654)		(104)
Purchases of other investments	(1,369)		(557)
Proceeds from sales of fixed maturity investments	11,220		7,079
Proceeds from sales of equity securities	547		161
Proceeds from sales, redemptions and maturities of other investments	619		201
Proceeds from redemptions and maturities of fixed maturity investments	878		368
Net settlements of derivative instruments	12		46

Net (purchases) sales of short-term investments	(25)		(333)




Purchases of fixed assets	(26)		(26)
Other	3		4
Net cash used for investing activities	(2,918)		(2,001)
Financing Activities



Proceeds from common shares issued, net	(8)		—




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

Other	—		(3)
Preferred dividends paid	(20)		(20)
Net cash used for financing activities	(28)		(45)
Effects of exchange rate changes on foreign currency cash and restricted cash	(7)		12
Increase (decrease) in cash and restricted cash	129		80
Cash and restricted cash, beginning of year	1,498		1,273
Cash and restricted cash, end of period	$	1,627	$	1,353
Income taxes paid (received)	145		73
Interest paid	63		63

See Notes to Consolidated Financial Statements


ARCH CAPITAL			9			2024 SECOND QUARTER FORM 10-Q

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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, 2023 (“2023 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

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 2023 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 June 30, 2024, $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.


ARCH CAPITAL			10			2024 SECOND QUARTER FORM 10-Q

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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				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Numerator:
Net income (loss)	$	1,269	$	669	$	2,389	$	1,386
Net (income) loss attributable to noncontrolling interests	—		2		—		—
Net income (loss) available to Arch	1,269		671		2,389		1,386
Preferred dividends	(10)		(10)		(20)		(20)

Net income (loss) available to Arch common shareholders	$	1,259	$	661	$	2,369	$	1,366

Denominator:


Weighted average common shares and common share equivalents outstanding — basic	372.7		368.7		371.8		368.0
Effect of dilutive common share equivalents:
Nonvested restricted shares	1.8		2.3		1.9		2.4
Stock options (1)	7.1		7.4		7.2		7.4
Weighted average common shares and common share equivalents outstanding — diluted	381.6		378.4		380.9		377.8

Earnings per common share:
Basic	$	3.38	$	1.79	$	6.37	$	3.71
Diluted	$	3.30	$	1.75	$	6.22	$	3.62

(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 2024 second quarter and 2023 second quarter, the number of stock options excluded were 0.2 million and 0.3 million, respectively. For the six months ended June 30, 2024 and 2023, the number of stock options excluded were 0.4 million and 0.5 million, respectively.


ARCH CAPITAL			11			2024 SECOND QUARTER FORM 10-Q

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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 Company’s results also 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 or losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains or losses realized from the acquisition or disposition of subsidiaries), 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 tax items, income or loss from operating affiliates and items related to the Company’s non-cumulative preferred shares.


ARCH CAPITAL			12			2024 SECOND 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
	June 30, 2024
	Insurance			Reinsurance			Mortgage			Total

Gross premiums written (1)	$	2,102		$	2,941		$	340		$	5,382
Premiums ceded (1)	(544)			(994)			(64)			(1,601)
Net premiums written	1,558			1,947			276			3,781
Change in unearned premiums	(80)			(167)			31			(216)
Net premiums earned	1,478			1,780			307			3,565
Other underwriting income (loss)	—			1			2			3
Losses and loss adjustment expenses	(848)			(1,006)			27			(1,827)
Acquisition expenses	(288)			(345)			—			(633)
Other operating expenses	(233)			(64)			(49)			(346)
Underwriting income (loss)	$	109		$	366		$	287		762

Net investment income										364
Net realized gains (losses)										122

Equity in net income (loss) of investment funds accounted for using the equity method										167
Other income (loss)										8
Corporate expenses (2)										(23)
Transaction costs and other (2)										(18)
Amortization of intangible assets										(27)
Interest expense										(35)
Net foreign exchange gains (losses)										1
Income (loss) before income taxes and income (loss) from operating affiliates										1,321
Income tax (expense) benefit										(97)
Income (loss) from operating affiliates										45



Net income (loss) available to Arch										1,269
Preferred dividends										(10)

Net income (loss) available to Arch common shareholders										$	1,259

Underwriting Ratios
Loss ratio	57.3		%	56.5		%	(8.6)		%	51.2		%
Acquisition expense ratio	19.5		%	19.4		%	0.1		%	17.8		%
Other operating expense ratio	15.8		%	3.6		%	15.9		%	9.7		%
Combined ratio	92.6		%	79.5		%	7.4		%	78.7		%

Goodwill and intangible assets	$	255		$	114		$	356		$	725

(1) Certain assumed and ceded amounts related to intersegment transactions are included in individual segment results. Accordingly, the sum of such transactions for each segment does not agree to the total due to eliminations.

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


ARCH CAPITAL			13			2024 SECOND QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


	Three Months Ended
	June 30, 2023
	Insurance			Reinsurance			Mortgage			Total

Gross premiums written (1)	$	1,955		$	2,544		$	347		$	4,845
Premiums ceded (1)	(501)			(835)			(82)			(1,417)
Net premiums written	1,454			1,709			265			3,428
Change in unearned premiums	(126)			(366)			29			(463)
Net premiums earned	1,328			1,343			294			2,965
Other underwriting income (loss)	—			3			3			6
Losses and loss adjustment expenses	(761)			(743)			13			(1,491)
Acquisition expenses	(264)			(290)			(7)			(561)
Other operating expenses	(195)			(68)			(50)			(313)
Underwriting income (loss)	$	108		$	245		$	253		606

Net investment income										242
Net realized gains (losses)										(123)

Equity in net income (loss) of investment funds accounted for using the equity method										69
Other income (loss)										3
Corporate expenses (2)										(20)
Transaction costs and other (2)										(1)
Amortization of intangible assets										(24)
Interest expense										(33)
Net foreign exchange gains (losses)										(5)
Income (loss) before income taxes and income (loss) from operating affiliates										714
Income tax (expense) benefit										(67)
Income (loss) from operating affiliates										22
Net income (loss)										669
Net (income) loss attributable to noncontrolling interests										2

Net income (loss) available to Arch										671
Preferred dividends										(10)

Net income (loss) available to Arch common shareholders										$	661

Underwriting Ratios
Loss ratio	57.3		%	55.3		%	(4.5)		%	50.3		%
Acquisition expense ratio	19.9		%	21.6		%	2.4		%	18.9		%
Other operating expense ratio	14.7		%	5.0		%	17.1		%	10.6		%
Combined ratio	91.9		%	81.9		%	15.0		%	79.8		%

Goodwill and intangible assets	$	228		$	146		$	401		$	775

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


ARCH CAPITAL			14			2024 SECOND QUARTER FORM 10-Q

Table of Contents

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


	Six Months Ended
	June 30, 2024
	Insurance		Reinsurance		Mortgage		Total

Gross premiums written (1)	$	4,228	$	6,408	$	681	$	11,315
Premiums ceded (1)	(1,128)		(2,195)		(128)		(3,449)
Net premiums written	3,100		4,213		553		7,866
Change in unearned premiums	(171)		(767)		59		(879)
Net premiums earned	2,929		3,446		612

ARCH CAPITAL GROUP LTD. [ACGL] Filings
ARCH CAPITAL GROUP LTD. [ACGLN] Filings
ARCH CAPITAL GROUP LTD. [ACGLO] Filings
10-Q	[2024-08-06]
10-Q	[2024-05-09]
10-K	[2024-02-23]
10-Q	[2023-11-09]
10-Q	[2023-08-02]
10-Q	[2023-05-04]
10-K	[2023-02-24]
10-Q	[2022-11-03]
10-Q	[2022-08-03]
10-Q	[2022-05-04]
10-K	[2022-02-25]
10-Q	[2021-11-04]
10-Q	[2021-08-05]
10-Q	[2021-05-06]
10-K	[2021-02-26]
10-Q	[2020-11-05]
10-Q	[2020-08-06]
10-Q	[2020-05-08]
10-K	[2020-02-28]
10-Q	[2019-11-08]
10-Q	[2019-08-07]
10-Q	[2019-05-07]
10-K	[2019-02-28]
10-Q	[2018-11-09]
10-Q	[2018-08-08]
10-Q	[2018-05-09]
10-K	[2018-02-28]
10-Q	[2017-11-03]
10-Q	[2017-08-04]
10-Q	[2017-05-05]
10-K	[2017-03-01]
10-Q	[2016-11-04]
10-Q	[2016-08-05]
10-Q	[2016-05-06]
10-K	[2016-02-26]
10-Q	[2015-11-09]
10-Q	[2015-08-07]
10-Q	[2015-05-08]
10-K	[2015-02-27]
10-Q	[2014-11-07]
10-Q	[2014-08-08]
10-Q	[2014-05-12]
10-K	[2014-03-03]
10-Q	[2013-11-08]
10-Q	[2013-08-09]
10-Q	[2013-05-10]
10-K	[2013-03-01]
10-Q	[2012-11-09]
10-Q	[2012-08-08]
10-Q	[2012-05-10]
10-K	[2012-02-29]

ARCH CAPITAL GROUP LTD. [ACGL] Filings

ARCH CAPITAL GROUP LTD. [ACGLN] Filings

ARCH CAPITAL GROUP LTD. [ACGLO] Filings