Item 1. CONSOLIDATED FINANCIAL STATEMENTS

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Item 1. CONSOLIDATED FINANCIAL STATEMENTS


						Page No.



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

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

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

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

Consolidated Statements of Cash Flows
For the nine month periods ended September 30, 2024 and 2023 (unaudited)						9

Notes to Consolidated Financial Statements (unaudited)
Note 1 - Basis of Presentation and Recent Accounting Pronouncements						10
Note 2 - Acquisitions						10
Note 3 - Share Transactions						11
Note 4 - Earnings Per Common Share						12
Note 5 - Segment Information						13
Note 6 - Reserve for Losses and Loss Adjustment Expenses						18
Note 7 - Allowance for Expected Credit Losses						20
Note 8 - Investment Information						22
Note 9 - Fair Value						28
Note 10 - Derivative Instruments						34
Note 1 1 - Commitments and Contingencies						35

Note 1 2 - Variable Interest Entities						35
Note 1 3 - Other Comprehensive Income (Loss)						36

Note 1 4 - Income Taxes						37
Note 1 5 - Legal Proceedings						37
Note 1 6 - Transactions with Related Parties						37
Note 1 7 - Subsequent Events						37


ARCH CAPITAL			4			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(U.S. dollars and shares in millions)


	(Unaudited)
	September 30, 2024		December 31, 2023
Assets
Investments:
Fixed maturities available for sale, at fair value (amortized cost: $28,466 and $24,131; net of allowance for credit losses: $19 and $28)	$	28,434	$	23,553
Short-term investments available for sale, at fair value (amortized cost: $3,337 and $2,064; net of allowance for credit losses: $0 and $0)	3,341		2,063

Equity securities, at fair value	1,623		1,186

Other investments, at fair value	3,261		2,488
Investments accounted for using the equity method	5,244		4,566
Total investments	41,903		33,856

Cash	1,025		917
Accrued investment income	292		236


Investment in operating affiliates	1,236		1,119
Premiums receivable (net of allowance for credit losses: $52 and $34)	6,364		4,644
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses (net of allowance for credit losses: $17 and $21)	7,948		7,064
Contractholder receivables (net of allowance for credit losses: $4 and $3)	2,078		1,814
Ceded unearned premiums	2,935		2,170
Deferred acquisition costs	1,744		1,531
Receivable for securities sold	790		63
Goodwill and intangible assets	1,486		731

Other assets	5,855		4,761
Total assets	$	73,656	$	58,906

Liabilities
Reserve for losses and loss adjustment expenses	$	28,679	$	22,752
Unearned premiums	11,238		8,808
Reinsurance balances payable	2,586		2,000
Contractholder payables	2,082		1,817
Collateral held for insured obligations	268		259
Senior notes	2,727		2,726


Payable for securities purchased	967		247
Other liabilities	2,835		1,942
Total liabilities	51,382		40,551

Commitments and contingencies (refer to Note 1 1)
Redeemable noncontrolling interests	—		2

Shareholders' Equity
Non-cumulative preferred shares	830		830

Common shares ($0.0011 par, shares issued: 595.2 and 591.9)	1		1
Additional paid-in capital	2,465		2,327
Retained earnings	23,642		20,295
Accumulated other comprehensive income (loss), net of deferred income tax	(200)		(676)
Common shares held in treasury, at cost (shares: 219.0 and 218.5)	(4,464)		(4,424)
Total shareholders' equity available to Arch	22,274		18,353


Total liabilities, noncontrolling interests and shareholders' equity	$	73,656	$	58,906

See Notes to Consolidated Financial Statements


ARCH CAPITAL			5			2024 THIRD QUARTER FORM 10-Q

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,
	2024		2023		2024		2023
Revenues


Net premiums earned	$	3,970	$	3,248	10,957		9,096
Net investment income	399		269		1,090		710
Net realized gains (losses)	169		(248)		358		(354)





Other underwriting income	5		5		20		21
Equity in net income (loss) of investment funds accounted for using the equity method	171		59		437		176
Other income (loss)	8		(4)		30		10
Total revenues	4,722		3,329		12,892		9,659

Expenses
Losses and loss adjustment expenses	2,403		1,647		5,958		4,609
Acquisition expenses	681		575		1,921		1,669
Other operating expenses	353		310		1,062		942
Corporate expenses	49		20		143		71
Amortization of intangible assets	88		24		136		71
Interest expense	35		34		104		99
Net foreign exchange (gains) losses	63		(22)		31		1
Total expenses	3,672		2,588		9,355		7,462

Income (loss) before income taxes and income (loss) from operating affiliates	1,050		741		3,537		2,197
Income tax (expense) benefit	(98)		(72)		(296)		(203)
Income (loss) from operating affiliates	36		54		136		115


Net income (loss) available to Arch	988		723		3,377		2,109
Preferred dividends	(10)		(10)		(30)		(30)

Net income (loss) available to Arch common shareholders	$	978	$	713	$	3,347	$	2,079

Net income per common share and common share equivalent
Basic	$	2.62	$	1.93	$	8.99	$	5.64
Diluted	$	2.56	$	1.88	$	8.78	$	5.50

Weighted average common shares and common share equivalents outstanding
Basic	373.2		369.2		372.3		368.4
Diluted	382.3		379.4		381.3		378.3

See Notes to Consolidated Financial Statements


ARCH CAPITAL			6			2024 THIRD QUARTER FORM 10-Q

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,
	2024		2023		2024		2023
Comprehensive Income
Net income (loss)	$	988	$	723	$	3,377	$	2,109
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	645		(190)		478		(118)
Portion of other-than-temporary impairment losses recognized in other comprehensive income	—		—		—		—
Reclassification of net realized (gains) losses, included in net income (loss)	(60)		96		22		344
Foreign currency translation adjustments	25		(40)		(24)		(33)



Comprehensive income (loss) available to Arch	$	1,598	$	589	$	3,853	$	2,302

See Notes to Consolidated Financial Statements


ARCH CAPITAL			7			2024 THIRD QUARTER FORM 10-Q

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,
	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	2,443		2,278		2,327		2,211



Amortization of share-based compensation	16		15		100		73



Other changes	6		4		38		13
Balance at end of period	2,465		2,297		2,465		2,297

Retained earnings
Balance at beginning of period	22,664		17,258		20,295		15,892


Net income (loss)	988		723		3,377		2,109

Preferred share dividends	(10)		(10)		(30)		(30)

Balance at end of period	23,642		17,971		23,642		17,971

Accumulated other comprehensive income (loss), net of deferred income tax
Balance at beginning of period	(810)		(1,319)		(676)		(1,646)
Unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax:
Balance at beginning of period	(650)		(1,192)		(565)		(1,512)


Unrealized holding gains (losses) during period, net of reclassification adjustment	585		(94)		500		226


Balance at end of period	(65)		(1,286)		(65)		(1,286)
Foreign currency translation adjustments, net of deferred income tax:
Balance at beginning of period	(160)		(127)		(111)		(134)
Foreign currency translation adjustments	25		(40)		(24)		(33)

Balance at end of period	(135)		(167)		(135)		(167)
Balance at end of period	(200)		(1,453)		(200)		(1,453)

Common shares held in treasury, at cost
Balance at beginning of period	(4,463)		(4,407)		(4,424)		(4,378)
Shares repurchased for treasury	(1)		—		(40)		(29)
Balance at end of period	(4,464)		(4,407)		(4,464)		(4,407)



Total shareholders’ equity	$	22,274	$	15,239	$	22,274	$	15,239

See Notes to Consolidated Financial Statements


ARCH CAPITAL			8			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)


	(Unaudited)
	Nine Months Ended
	September 30,
	2024		2023
Operating Activities
Net income (loss)	$	3,377	$	2,109
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net realized (gains) losses	(361)		367

Equity in net (income) or loss of investment funds accounted for using the equity method and other income or loss	(336)		(104)
Amortization of intangible assets	136		71
Share-based compensation	100		73
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	2,447		1,604
Unearned premiums, net of ceded unearned premiums	956		1,111
Premiums receivable	(1,504)		(1,333)
Deferred acquisition costs	(166)		(190)
Reinsurance balances payable	589		692
Deferred income tax assets, net	61		40
Other items, net	(199)		(356)
Net cash provided by operating activities	5,100		4,084
Investing Activities
Purchases of fixed maturity investments	(21,559)		(13,024)
Purchases of equity securities	(932)		(176)
Purchases of other investments	(1,898)		(1,112)
Proceeds from sales of fixed maturity investments	16,447		9,655
Proceeds from sales of equity securities	673		216
Proceeds from sales, redemptions and maturities of other investments	1,024		345
Proceeds from redemptions and maturities of fixed maturity investments	1,270		589
Net settlements of derivative instruments	127		(69)

Net (purchases) sales of short-term investments	(818)		(323)

Acquisitions, net of cash	852		—


Purchases of fixed assets	(38)		(37)
Other	(29)		—
Net cash used for investing activities	(4,881)		(3,936)
Financing Activities



Proceeds from common shares issued, net	(2)		5




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

Other	(3)		(5)
Preferred dividends paid	(30)		(30)
Net cash used for financing activities	(35)		(52)
Effects of exchange rate changes on foreign currency cash and restricted cash	30		(14)
Increase (decrease) in cash and restricted cash	214		82
Cash and restricted cash, beginning of year	1,498		1,273
Cash and restricted cash, end of period	$	1,712	$	1,355
Income taxes paid (received)	221		127
Interest paid	63		63

See Notes to Consolidated Financial Statements


ARCH CAPITAL			9			2024 THIRD QUARTER FORM 10-Q

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. Acquisitions

On August 1, 2024, the Company completed the acquisition of Allianz’s U.S Middle Market Property & Casualty Insurance and U.S. Entertainment Property and Casualty Insurance Business. This business is written by Fireman’s Fund Insurance Company, an affiliate of Allianz (“MCE”), and its subsidiaries (together with MCE, collectively, the “Business Entities”), in each case, relating to relevant policies with accident years 2016 and onwards (collectively, the “Business”), as well as certain assets of Allianz and its affiliates related to the Business. In connection with the acquisition of the Business, the Company also entered into certain reinsurance agreements relating to the Business and the Business Entities and other agreements providing for administration and other services for the Business Entities by the Company for the applicable policies being reinsured following the closing. The acquisition of the Business is an important part of the Company’s growth strategy, and provides a ballast to our existing insurance business. It further enhances the Company’s capabilities in the U.S. middle markets and represents an attractive way to enter a new niche entertainment insurance market.

Aggregate cash consideration for the transaction was $450 million. Direct costs related to the acquisition are immaterial, and were expensed as incurred. These include one-time costs that are directly attributable to third party consulting fees and other professional and legal fees related to the acquisition. Such costs are included within ‘corporate expenses’ in the consolidated statement of income. The Business acquired is included within the Company’s insurance segment beginning from the acquisition date, August 1, 2024.


ARCH CAPITAL			10			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes the Company’s allocation of the purchase price to the acquired assets and liabilities assumed based on estimated fair values on August 1, 2024. The fair value of the assets and liabilities are preliminary and may change with offsetting adjustments to goodwill. The Company may make further adjustments to its purchase price allocation through the end of the permissible one-year measurement period.


		Total		Useful Life
Purchase price
	Cash paid (a)	$	450

Assets Acquired
	Cash and investments, at fair value	$	2,332
	Premiums receivable	290
	Intangible asset -- distribution relationships	220		10 years
	Intangible asset -- value of business acquired	163		1-2 years
	Intangible asset -- other (1)	178		5-7 years
	Other assets acquired	158
	Total assets acquired	$	3,341

Liabilities Acquired
	Reserves for losses and loss adjustment expenses	$	2,404
	Unearned premiums	632
	Other liabilities acquired	121
	Total liabilities acquired	3,157
	Identifiable net assets acquired (b)	$	184
Goodwill (a) - (b)		$	266

(1) Includes $128 million related to the net fair value adjustment to reserves for loss and loss adjustment expenses on August 1, 2024.

The Company recognized goodwill of $266 million that is primarily attributed to the expanded presence and long-term growth opportunities in the insurance market provided by this strategic acquisition. Approximately $568 million of the acquired goodwill and intangibles is expected to be deductible for income tax purposes. At the date of the acquisition, the Company established a net deferred tax asset of $23 million related to the estimated fair value of reserves for losses and loss adjustment expenses and unearned premiums.

Intangible assets resulting from the acquisition are amortized as part of ‘amortization of intangible assets’ in the Company’s consolidated statements of income. The significant fair value adjustments and related future amortization are as follows:

Value of business acquired (“VOBA”)— which represents the present value of the expected underwriting profit within the unearned premium liability, less costs to service the related policies and a risk premium. The fair value of VOBA was determined after taking into consideration certain key assumptions, including the estimated cost of capital, investment yield, loss ratio and related expenses;

*Reserves for losses and loss adjustment expenses—*to reflect a decrease related to the present value of the reserve for losses and loss adjustment expenses based on the estimated payout patterns, partially offset by an increase in losses and loss adjustment expenses related to the estimated market based risk margin. The risk margin represents the estimated costs of capital required by a market participant to assume the losses and loss adjustment expenses. The fair value of the reserve for losses and loss adjustment expenses was determined after taking into consideration certain key assumptions, including the estimated cost of capital, and investment yield.

*Distribution relationships—*the value of the distribution relationships was determined after taking into consideration certain key assumptions, including the estimated cost of capital, investment yield, retention rates, loss ratios, related expenses and effective tax rates that would impact the expected cash flows from Business policies written on a go forward basis.

The results of the acquired Business Entities have been included in the Company’s consolidated financial statements beginning as of their acquisition date. It is impracticable to provide historical supplemental pro forma financial information along with revenue and earnings subsequent to the acquisition due to a variety of factors, including access to historical information and the operations of acquirees being integrated within the Company shortly after closing and not operating as discrete operations within the Company’s organizational structure.

3. 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, 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			11			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4. 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,
	2024		2023		2024		2023
Numerator:


Net income (loss) available to Arch	$	988	$	723	$	3,377	$	2,109
Preferred dividends	(10)		(10)		(30)		(30)

Net income (loss) available to Arch common shareholders	$	978	$	713	$	3,347	$	2,079

Denominator:


Weighted average common shares and common share equivalents outstanding — basic	373.2		369.2		372.3		368.4
Effect of dilutive common share equivalents:
Nonvested restricted shares	2.0		2.6		1.8		2.4
Stock options (1)	7.1		7.6		7.2		7.5
Weighted average common shares and common share equivalents outstanding — diluted	382.3		379.4		381.3		378.3

Earnings per common share:
Basic	$	2.62	$	1.93	$	8.99	$	5.64
Diluted	$	2.56	$	1.88	$	8.78	$	5.50

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


ARCH CAPITAL			12			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5. 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 and the Chief Financial Officer and Treasurer are the Company’s chief operating decision makers. The Company’s chief operating decision makers 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 reportable segments based on underwriting income or loss. The Company does not manage its assets by segment, with the exception of goodwill and intangible assets, and accordingly, investment income is not allocated to each segment.

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

The Company’s insurance segment primarily consists of commercial insurance lines of business, with a focus on specialty insurance products. These products are mainly offered in North America, Bermuda, the United Kingdom, continental Europe and Australia. Products offered in North America include: commercial automobile; commercial multi‐peril; other liability—claims made, which includes financial and professional lines; other liability—occurrence, which includes admitted and excess and surplus casualty lines; property and short-tail specialty; workers compensation; and other. Products offered across the Company’s International units include: property and short-tail specialty; and casualty and other.

The Company’s reinsurance segment offers reinsurance products on a worldwide basis. Product lines of business include: casualty; marine and aviation; other specialty; property catastrophe; property excluding property catastrophe; and other.

The Company’s mortgage segment consists of U.S. primary mortgage insurance business written predominantly on loans sold to the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), each a government sponsored entity ("GSE") and also through non GSE approved entities (combined “Arch MI U.S.”); reinsurance and underwriting services related to U.S. credit-risk transfer (“CRT”) business which are predominately with the GSEs and other U.S. mortgage reinsurance transactions; and international mortgage insurance and reinsurance business covering loans primarily in Australia and Europe.

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			13			2024 THIRD QUARTER FORM 10-Q

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, 2024
	Insurance			Reinsurance			Mortgage			Total

Gross premiums written (1)	$	2,341		$	2,763		$	339		$	5,440
Premiums ceded (1)	(521)			(818)			(57)			(1,393)
Net premiums written	1,820			1,945			282			4,047
Change in unearned premiums	(55)			(53)			31			(77)
Net premiums earned	1,765			1,892			313			3,970
Other underwriting income (loss)	—			2			3			5
Losses and loss adjustment expenses	(1,087)			(1,317)			1			(2,403)
Acquisition expenses	(308)			(374)			1			(681)
Other operating expenses	(250)			(54)			(49)			(353)
Underwriting income (loss)	$	120		$	149		$	269		538

Net investment income										399
Net realized gains (losses)										169

Equity in net income (loss) of investment funds accounted for using the equity method										171
Other income (loss)										8
Corporate expenses (2)										(19)
Transaction costs and other (2)										(30)
Amortization of intangible assets										(88)
Interest expense										(35)
Net foreign exchange gains (losses)										(63)
Income (loss) before income taxes and income (loss) from operating affiliates										1,050
Income tax (expense) benefit										(98)
Income (loss) from operating affiliates										36



Net income (loss) available to Arch										988
Preferred dividends										(10)

Net income (loss) available to Arch common shareholders										$	978

Underwriting Ratios
Loss ratio	61.6		%	69.6		%	(0.4)		%	60.5		%
Acquisition expense ratio	17.4		%	19.8		%	(0.4)		%	17.2		%
Other operating expense ratio	14.1		%	2.9		%	15.6		%	8.9		%
Combined ratio	93.1		%	92.3		%	14.8		%	86.6		%

Goodwill and intangible assets	$	1,025		$	113		$	348		$	1,486

(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			14			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


	Three Months Ended
	September 30, 2023
	Insurance			Reinsurance			Mortgage			Total

Gross premiums written (1)	$	2,043		$	2,138		$	347		$	4,527
Premiums ceded (1)	(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) 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

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


ARCH CAPITAL			15			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


	Nine Months Ended
	September 30, 2024
	Insurance			Reinsurance			Mortgage			Total

Gross premiums written (1)	$	6,569		$	9,171		$	1,020		$	16,755
Premiums ceded (1)	(1,649)			(3,013)			(185)			(4,842)
Net premiums written	4,920			6,158			835			11,913
Change in unearned premiums	(226)			(820)			90			(956)
Net premiums earned	4,694			5,338			925			10,957
Other underwriting income (loss)	—			5			15			20
Losses and loss adjustment expenses	(2,789)			(3,206)			37			(5,958)
Acquisition expenses	(872)			(1,050)			1			(1,921)
Other operating expenses	(718)			(193)			(151)			(1,062)
Underwriting income (loss)	$	315		$	894		$	827		2,036

Net investment income										1,090
Net realized gains (losses)										358

Equity in net income (loss) of investment funds accounted for using the equity method										437
Other income (loss)										30
Corporate expenses (2)										(88)
Transaction costs and other (2)										(55)
Amortization of intangible assets										(136)
Interest expense										(104)
Net foreign exchange gains (losses)										(31)
Income (loss) before income taxes and income (loss) from operating affiliates										3,537
Income tax (expense) benefit										(296)
Income (loss) from operating affiliates										136



Net income (loss) available to Arch										3,377
Preferred dividends										(30)

Net income (loss) available to Arch common shareholders										$	3,347

Underwriting Ratios
Loss ratio	59.4		%	60.1		%	(4.0)		%	54.4		%
Acquisition expense ratio	18.6		%	19.7		%	(0.1)		%	17.5		%
Other operating expense ratio	15.3		%	3.6		%	16.3		%	9.7		%
Combined ratio	93.3		%	83.4		%	12.2		%	81.6		%

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


ARCH CAPITAL			16			2024 THIRD QUARTER FORM 10-Q

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)	(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) available to Arch										2,109
Preferred dividends										(30)

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

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

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


ARCH CAPITAL			17			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6. 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,
	2024		2023		2024		2023
Reserve for losses and loss adjustment expenses at beginning of period	$	24,466	$	21,268	$	22,752	$	20,032
Unpaid losses and loss adjustment expenses recoverable	7,083		6,394		6,690		6,280
Net reserve for losses and loss adjustment expenses at beginning of period	17,383		14,874		16,062		13,752

Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year	2,524		1,793		6,324		5,012
Prior years	(121)		(146)		(366)		(403)
Total net incurred losses and loss adjustment expenses	2,403		1,647		5,958		4,609

Net losses and loss adjustment expense reserves of acquired businesses (1)	2,413		—		2,463		—





Net foreign exchange (gains) losses and other	246		(123)		152		(24)

Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year	(362)		(345)		(647)		(700)
Prior years	(967)		(713)		(2,872)		(2,297)
Total net paid losses and loss adjustment expenses	(1,329)		(1,058)		(3,519)		(2,997)

Net reserve for losses and loss adjustment expenses at end of period	21,116		15,340		21,116		15,340
Unpaid losses and loss adjustment expenses recoverable	7,563		6,496		7,563		6,496
Reserve for losses and loss adjustment expenses at end of period	$	28,679	$	21,836	$	28,679	$	21,836

(1) Activity for the 2024 third quarter related to the acquisition of MCE (see note 2) and Watford Insurance Company (see note 16), while activity for the nine months ended September 30, 2024 also reflects the Company’s acquisition of RMIC Companies, Inc. and its wholly-owned subsidiaries (“RMIC”) that, together, comprise the run-off mortgage insurance business of Old Republic International Corporation.

Prior year development (“PYD”) arises from changes in loss estimates during the current period related to events occurring in prior calendar years. Long-tailed lines include lines of business that typically take many years for claims to settle such as third-party liability; short-tailed lines are those that settle more quickly such as property. The table below summarizes (favorable) and adverse net PYD by segment and tail length:


	Three Months Ended						Nine Months Ended
(Favorable) Adverse	September 30,						September 30,

2024	Short-tailed		Long-tailed		Total		Short-tailed		Long-tailed		Total
Insurance	$	(31)	$	15	$	(16)	$	(61)	$	30	$	(31)
Reinsurance	(68)		27		(41)		(158)		43		(115)
Mortgage	(64)		—		(64)		(220)		—		(220)
Total	$	(163)	$	42	$	(121)	$	(439)	$	73	$	(366)

2023
Insurance	$	(29)	$	19	$	(10)	$	(74)	$	40	$	(34)
Reinsurance	(65)		21		(44)		(168)		42		(126)
Mortgage	(92)		—		(92)		(243)		—		(243)
Total	$	(186)	$	40	$	(146)	$	(485)	$	82	$	(403)


ARCH CAPITAL			18			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2024 Third Quarter

The insurance segment’s short-tailed lines included $15 million of favorable development in property and marine, primarily from the 2012 and 2023 accident years (i.e., the year in which a loss occurred), and $11 million of favorable development in travel and accident, primarily from the 2023 accident year. Long tailed lines primarily included adverse development in programs, mainly from the 2023 accident year.

The reinsurance segment’s short-tailed lines included $35 million of favorable development from other specialty lines, primarily from the 2012 and subsequent underwriting years (i.e., all premiums and losses attributable to contracts having an inception or renewal date within the given 12 month period), and $20 million of favorable development from property other than property catastrophe, primarily from the 2022 and 2023 underwriting years. Long-tailed lines included $27 million of adverse development in casualty, primarily from the 2020 and 2022 underwriting years.

The mortgage segment’s favorable development was driven by reductions on reserves for delinquent loans associated with the U.S. first lien portfolio from the 2023 accident year. The Company’s credit risk transfer and international businesses also contributed to the favorable development.

2023 Third Quarter

The insurance segment’s short-tailed lines included $16 million of favorable development in property and marine, primarily from the 2021 and 2022 accident years. Long-tailed lines included $25 million of adverse development in professional liability, primarily from 2019 and 2020 accident years.

The reinsurance segment’s short-tailed lines included $29 million of favorable development in property other than property catastrophe, primarily from the 2020 to 2022 underwriting years, $22 million of favorable development in property catastrophe, primarily from the 2021 and 2022 underwriting years, and $19 million of favorable development in other specialty lines, primarily from the 2021 and prior underwriting years. Long-tailed lines included $21 million of adverse development in casualty, primarily from the 2016 to 2020 underwriting years.

The mortgage segment’s favorable development was driven by reserve releases associated with the U.S. first lien portfolio from the 2020 through 2022 accident years, with the credit risk transfer and international businesses also contributing.

Nine Months Ended September 30, 2024

The insurance segment’s short-tailed lines included $31 million of favorable development in surety, primarily from the 2007 and 2022 accident years, and $29 million of favorable development in travel and accident, primarily from the 2023 accident year. Net adverse development in long-tailed lines primarily included adverse development in programs, mainly from the 2023 accident year.

The reinsurance segment’s short-tailed lines included $72 million of favorable development from other specialty lines, primarily from the 2015 and subsequent underwriting years and $71 million of favorable development from property other than property catastrophe, primarily from the 2022 and 2023 underwriting years. Long-tailed lines included $43 million of adverse development in casualty, primarily from the 2017 and 2020 underwriting years.

The mortgage segment’s favorable development was driven by reserve releases associated with the U.S. first lien portfolio from the 2022 and 2023 accident years. The Company’s credit risk transfer and international businesses also contributed to the favorable development.

Nine Months Ended September 30, 2023

The insurance segment’s short-tailed lines included $44 million of favorable development in property and marine, primarily from the 2021 and 2022 accident years and $20 million of favorable development in warranty and lenders solutions, primarily from the 2022 accident year. Long-tailed lines included $48 million of adverse development in professional liability, primarily from the 2017 to 2020 accident years, partially offset by $24 million of favorable development in executive assurance, primarily from the 2019 and 2021 accident years.

The reinsurance segment’s short-tailed lines included $75 million of favorable development in property other than property catastrophe, primarily from the 2021 and 2022 underwriting years, $46 million in other specialty lines, primarily from the 2021 underwriting year, and $29 million of favorable development in property catastrophe, primarily from the 2019 and 2022 underwriting years. Long-tailed lines primarily included $39 million of adverse development in casualty, primarily from the 2014 to 2020 underwriting years.

The mortgage segment’s favorable development was driven by reserve releases associated with the U.S. first lien portfolio from the 2020 to 2022 accident years, with the credit risk transfer and international businesses also contributing.


ARCH CAPITAL			19			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7. 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, 2024
Balance at beginning of period	$	6,268	$	36
Provision on business acquired (1)			16
Change for provision of expected credit losses (2)			—
Balance at end of period	$	6,364	$	52

Three Months Ended September 30, 2023
Balance at beginning of period	$	5,296	$	34

Change for provision of expected credit losses (2)			—
Balance at end of period	$	4,937	$	34

Nine Months Ended September 30, 2024
Balance at beginning of year	$	4,644	$	34
Provision on business acquired (1)			16
Change for provision of expected credit losses (2)			2
Balance at end of period	$	6,364	$	52

Nine Months Ended September 30, 2023
Balance at beginning of year	$	3,625	$	35

Change for provision of expected credit losses (2)			(1)
Balance at end of period	$	4,937	$	34

(1)Represents MCE’s provision for current expected credit losses on premiums receivable. See note 2.

(2)Amounts deemed uncollectible are written-off in operating expenses. For the 2024 third quarter and 2023 third quarter, amounts written off were $1 million and nil, respectively. For the nine months ended September 30, 2024 and 2023 period, amounts written off were $1 million and $2 million, respectively.

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, 2024
Balance at beginning of period	$	7,473	$	20
Change for provision of expected credit losses			(3)
Balance at end of period	$	7,948	$	17

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

Nine Months Ended September 30, 2024
Balance at beginning of year	$	7,064	$	21
Change for provision of expected credit losses			(4)
Balance at end of period	$	7,948	$	17

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

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


	September 30,			December 31,
	2024			2023
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	$	7,948		$	7,064
% due from carriers with A.M. Best rating of “A-” or better	65.3		%	66.8		%
% due from all other rated carriers	0.0		%	0.1		%
% due from all other carriers with no A.M. Best rating (1)	34.7		%	33.1		%
Largest balance due from any one carrier as % of total shareholders’ equity	7.1		%	7.2		%

(1) At September 30, 2024 and December 31, 2023 over 95% of such amount were collateralized through reinsurance trusts, funds withheld arrangements, letters of credit or other.


ARCH CAPITAL			20			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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, 2024
Balance at beginning of period	$	2,016	$	4
Change for provision of expected credit losses			—
Balance at end of period	$	2,078	$	4

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

Nine Months Ended September 30, 2024
Balance at beginning of year	$	1,814	$	3
Change for provision of expected credit losses			1
Balance at end of period	$	2,078	$	4

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


ARCH CAPITAL			21			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

8. 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, 2024
Fixed maturities:
Corporate bonds	$	13,996	$	339	$	(294)	$	(12)	$	13,963
U.S. government and government agencies	5,863		53		(48)		—		5,858
Asset backed securities	2,989		27		(27)		(5)		2,994
Non-U.S. government securities	2,853		75		(84)		(1)		2,863
Commercial mortgage backed securities	1,146		8		(17)		(1)		1,156
Residential mortgage backed securities	1,313		14		(50)		—		1,349
Municipal bonds	274		2		(11)		—		283
Total	28,434		518		(531)		(19)		28,466

Short-term investments	3,341		6		(2)		—		3,337
Total	$	31,775	$	524	$	(533)	$	(19)	$	31,803

December 31, 2023
Fixed maturities:
Corporate bonds	$	10,855	$	157	$	(464)	$	(20)	$	11,182
U.S. government and government agencies	5,814		63		(86)		—		5,837
Asset backed securities	2,250		11		(55)		(5)		2,299
Non-U.S. government securities	2,062		33		(100)		(1)		2,130
Commercial mortgage backed securities	1,213		3		(34)		(2)		1,246
Residential mortgage backed securities	1,103		7		(66)		—		1,162
Municipal bonds	256		1		(20)		—		275
Total	23,553		275		(825)		(28)		24,131

Short-term investments	2,063		1		(2)		—		2,064
Total	$	25,616	$	276	$	(827)	$	(28)	$	26,195


ARCH CAPITAL			22			2024 THIRD QUARTER FORM 10-Q

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, 2024
Fixed maturities:
Corporate bonds	$	1,903	$	(76)	$	3,316	$	(218)	$	5,219	$	(294)
U.S. government and government agencies	1,815		(10)		571		(38)		2,386		(48)
Non-U.S. government securities	614		(8)		743		(76)		1,357		(84)
Residential mortgage backed securities	213		(2)		485		(48)		698		(50)
Asset backed securities	199		(3)		442		(24)		641		(27)
Commercial mortgage backed securities	176		(1)		644		(16)		820		(17)
Municipal bonds	1		—		185		(11)		186		(11)
Total	4,921		(100)		6,386		(431)		11,307		(531)

Short-term investments	362		(2)		—		—		362		(2)
Total	$	5,283	$	(102)	$	6,386	$	(431)	$	11,669	$	(533)

December 31, 2023
Fixed maturities:
Corporate bonds	$	1,559	$	(45)	$	4,959	$	(419)	$	6,518	$	(464)
U.S. government and government agencies	1,066		(10)		941		(76)		2,007		(86)
Non-U.S. government securities	365		(4)		897		(96)		1,262		(100)
Residential mortgage backed securities	221		(3)		522		(63)		743		(66)
Asset backed securities	234		(1)		1,112		(54)		1,346		(55)
Commercial mortgage backed securities	100		(1)		909		(33)		1,009		(34)
Municipal bonds	20		(1)		215		(19)		235		(20)
Total	3,565		(65)		9,555		(760)		13,120		(825)

Short-term investments	302		(2)		—		—		302		(2)
Total	$	3,867	$	(67)	$	9,555	$	(760)	$	13,422	$	(827)

At September 30, 2024, on a lot level basis, approximately 6,710 security lots out of a total of approximately 19,840 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $4 million. At December 31, 2023, on a lot level basis, approximately 7,100 security lots out of a total of approximately 15,720 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.

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, 2024				December 31, 2023
Maturity	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Due in one year or less	$	430	$	445	$	480	$	499
Due after one year through five years	15,533		15,457		12,924		13,101
Due after five years through 10 years	6,572		6,595		5,249		5,450
Due after 10 years	451		470		334		374
	22,986		22,967		18,987		19,424
Residential mortgage backed securities	1,313		1,349		1,103		1,162
Commercial mortgage backed securities	1,146		1,156		1,213		1,246
Asset backed securities	2,989		2,994		2,250		2,299
Total	$	28,434	$	28,466	$	23,553	$	24,131


ARCH CAPITAL			23			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Equity Securities, at Fair Value

At September 30, 2024, the Company held $1.6 billion of equity securities, at fair value, compared to $1.2 billion at December 31, 2023. 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:


	September 30, 2024		December 31, 2023
Other investments	$	2,096	$	1,777
Fixed maturities	1,097		683
Short term investments	61		21
Equity securities	7		7



Total	$	3,261	$	2,488

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


	September 30, 2024		December 31, 2023
Investment grade fixed income	$	957	$	754
Term loan investments	499		272
Lending	299		427
Private equity	212		182
Credit related funds	111		124
Energy	18		18


Total	$	2,096	$	1,777

Net Investment Income

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


	September 30,
	2024		2023
Three Months Ended
Fixed maturities	$	340	$	243

Short term investments	38		19
Equity securities	9		5
Other (1)	35		22
Gross investment income	422		289
Investment expenses	(23)		(20)
Net investment income	$	399	$	269

Nine Months Ended
Fixed maturities	$	926	$	645

Short term investments	102		48
Equity securities	27		15
Other (1)	103		60
Gross investment income	1,158		768
Investment expenses	(68)		(58)
Net investment income	$	1,090	$	710

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


ARCH CAPITAL			24			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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,
	2024		2023
Three Months Ended
Available for sale securities:
Gross gains on investment sales	$	104	$	12
Gross losses on investment sales	(50)		(116)
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities	25		(16)
Other investments	(120)		3


Equity securities, at fair value:
Net realized gains (losses) on sales during the period	15		14
Net unrealized gains (losses) on equity securities still held at reporting date	58		(46)
Allowance for credit losses:
Investments related	6		—
Underwriting related	2		(1)

Derivative instruments (1)	125		(102)
Other	4		4
Net realized gains (losses)	$	169	$	(248)

Nine Months Ended
Available for sale securities:
Gross gains on investment sales	$	167	$	51
Gross losses on investment sales	(205)		(396)
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities	23		(12)
Other investments	(150)		17
Equity securities	—		1

Equity securities, at fair value:
Net realized gains (losses) on sales during the period	31		50
Net unrealized gains (losses) on equity securities still held at reporting date	147		17
Allowance for credit losses:
Investments related	4		(23)
Underwriting related	—		(2)

Derivative instruments (1)	116		(61)
Other (2)	225		4
Net realized gains (losses)	$	358	$	(354)

(1) See note 10 for information on the Company’s derivative instruments.

(2) Amounts include benefits from the sale of Castel Underwriting Agencies Limited and the acquisition of RMIC.

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, 2024		December 31, 2023
Private equity	$	1,737	$	1,175
Credit related funds	1,366		1,258
Real estate	721		666
Lending	474		597
Fixed income	377		277
Infrastructure	323		320
Equities	177		178
Energy	69		95
Total	$	5,244	$	4,566

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.


ARCH CAPITAL			25			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


	September 30, 2024		December 31, 2023
Investments accounted for using the equity method (1)	$	5,244	$	4,566
Investments accounted for using the fair value option (2)	83		114
Total	$	5,327	$	4,680

(1) Aggregate unfunded commitments were $4.3 billion at September 30, 2024, compared with $3.4 billion at December 31, 2023.

(2) Aggregate unfunded commitments were $21 million at September 30, 2024, compared to $32 million at December 31, 2023.

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

Income from investment funds accounted for using the equity method for the 2024 third quarter was $171 million, compared to $59 million for the 2023 third quarter and an income of $437 million for the nine months ended September 30, 2024, compared to income of $176 million for the nine months ended September 30, 2023. 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, 2024, the Company owned approximately 29.9% of the issued shares of Coface, or 30% excluding treasury shares, with a carrying value of $596 million, compared to $570 million at December 31, 2023.

As of September 30, 2024, the Company owned 40% of Greysbridge with a carrying value of $521 million, compared to $430 million at December 31, 2023.

Income from operating affiliates for the 2024 third quarter was $36 million, compared to $54 million for the 2023 third quarter and income of $136 million for the nine months ended September 30, 2024, compared to income of $115 million for nine months ended September 30, 2023

See note 1 6 for information on Company’s transactions with related parties.


ARCH CAPITAL			26			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Allowance for Expected Credit Losses

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


	Structured Securities (1)		Corporate Bonds		Non-U.S. Government Securities		Total
Three Months Ended September 30, 2024
Balance at beginning of period	$	10	$	16	$	1	$	27


Additions (reductions) for previously recognized expected credit losses	(3)		(3)		—		(6)
Reductions due to disposals	(1)		(1)		—		(2)

Balance at end of period	$	6	$	12	$	1	$	19

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

Nine Months Ended September 30, 2024
Balance at beginning of year	$	7	$	20	$	1	$	28


Additions (reductions) for previously recognized expected credit losses	—		(4)		—		(4)
Reductions due to disposals	(1)		(4)		—		(5)

Balance at end of period	$	6	$	12	$	1	$	19

Nine Months Ended September 30, 2023
Balance at beginning of year	$	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

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

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 2023 Form 10-K.

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


	September 30, 2024		December 31, 2023
Assets used for collateral or guarantees:
Affiliated transactions	$	5,306	$	4,854
Third party agreements (1)	5,679		2,869
Deposits with U.S. regulatory authorities	883		833
Other (2)	1,453		1,376

Total restricted assets	$	13,321	$	9,932

(1) 2024 period includes amounts related to the MCE Acquisition.

(2) 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, 2024		December 31, 2023
Cash	$	1,025	$	917
Restricted cash (included in ‘other assets’)	687		581
Cash and restricted cash	$	1,712	$	1,498


ARCH CAPITAL			27			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9. 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 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, 2024.

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 $36.9 billion of financial assets and liabilities measured at fair value at September 30, 2024, approximately $146 million, or 0.4%, were priced using non-binding broker-dealer quotes or modeled valuations. Of the $29.6 billion of financial assets and liabilities measured at fair value at December 31, 2023, approximately $14 million, or 0.0%, 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


ARCH CAPITAL			28			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair value.

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

U.S. government and government agencies – valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The Company determined that all U.S. Treasuries would be classified as Level 1 securities due to observed levels of trading activity, the high number of strongly correlated pricing quotes received on U.S. Treasuries and other factors. The fair values of U.S. government agency securities are generally determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency securities are classified within Level 2.

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

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

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

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

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


ARCH CAPITAL			29			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Equity securities

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

Other investments

The Company’s other investments include term loan investments for which fair values are estimated by using quoted prices of term loan investments with similar characteristics, pricing models or matrix pricing. Such investments are generally classified within Level 2. The fair values for certain of the Company’s other investments are determined using net asset values as advised by external fund managers. The net asset value is based on the fund manager’s valuation of the underlying holdings in accordance with the fund’s governing documents. In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. A small number of securities are included in Level 3 due to the lack of an available independent price source for such securities.

Derivative instruments

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

Short-term investments

The Company determined that certain of its short-term investments held in highly liquid money market-type funds, Treasury bills and commercial paper would be included in Level 1 as their fair values are based on quoted market prices in active markets. The fair values of 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.


ARCH CAPITAL			30			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the Company’s financial assets and liabilities measured at fair value by level at September 30, 2024:


			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	$	13,996	$	2	$	13,853	$	141
U.S. government and government agencies	5,863		5,850		13		—
Asset backed securities	2,989		—		2,989		—
Non-U.S. government securities	2,853		—		2,853		—
Commercial mortgage backed securities	1,146		—		1,146		—
Residential mortgage backed securities	1,313		—		1,313		—
Municipal bonds	274		—		274		—
Total	28,434		5,852		22,441		141

Short-term investments	3,341		3,081		163		97

Equity securities, at fair value	1,623		1,590		27		6





Derivative instruments (2)	147		—		147		—

Residential mortgage loans	13		—		13		—

Fair value option:
Corporate bonds	1,085		—		1,085		—
Non-U.S. government bonds	8		—		8		—




U.S. government and government agencies	4		4		—		—
Short-term investments	61		3		43		15
Equity securities	7		3		—		4
Other investments	703		—		413		290
Other investments measured at net asset value (1)	1,393
Total	3,261		10		1,549		309

Total assets measured at fair value	$	36,819	$	10,533	$	24,340	$	553

Liabilities measured at fair value:
Other liabilities	$	(43)	$	—	$	—	$	(43)

Derivative instruments (2)	(81)		—		(81)		—
Total liabilities measured at fair value	$	(124)	$	—	$	(81)	$	(43)

(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 10.


ARCH CAPITAL			31			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the Company’s financial assets and liabilities measured at fair value by level at December 31, 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	$	10,855	$	—	$	10,708	$	147
U.S. government and government agencies	5,814		5,792		22		—
Asset backed securities	2,250		—		2,250		—
Non-U.S. government securities	2,062		—		2,062		—
Commercial mortgage backed securities	1,213		—		1,213		—
Residential mortgage backed securities	1,103		—		1,103		—
Municipal bonds	256		—		256		—
Total	23,553		5,792		17,614		147

Short-term investments	2,063		1,786		193		84

Equity securities, at fair value	1,186		1,151		30		5





Derivative instruments (2)	197		—		197		—

Residential mortgage loans	2		—		2		—


Fair value option:
Corporate bonds	662		—		662		—
Non-U.S. government bonds	6		—		6		—



Asset backed securities	2		—		2		—
U.S. government and government agencies	13		13		—		—
Short-term investments	21		—		11		10
Equity securities	7		3		—		4
Other investments	316		—		210		106
Other investments measured at net asset value (1)	1,461
Total	2,488		16		891		120

Total assets measured at fair value	$	29,489	$	8,745	$	18,927	$	356

Liabilities measured at fair value:
Other liabilities	$	(22)	$	—	$	—	$	(22)

Derivative instruments (2)	(119)		—		(119)		—
Total liabilities measured at fair value	$	(141)	$	—	$	(119)	$	(22)

(2) See note 10.


ARCH CAPITAL			32			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


	Assets										Liabilities
s	Available For Sale				Fair Value Option						Fair Value
	Corporate Bonds		Short-term Investments		Other Investments		Short-term Investments		Equity Securities		Equity Securities		Other Liabilities
Three Months Ended September 30, 2024
Balance at beginning of period	$	160	$	97	$	144	$	14	$	4	$	6	$	(35)
Total gains or (losses) (realized/unrealized)
Included in earnings (1)	—		—		—		—		—		—		(1)
Included in other comprehensive income	—		—		—		—		—		—		—
Purchases, issuances, sales and settlements
Purchases	—		—		39		5		—		—		—
Issuances (2)	—		—		—		—		—		—		(9)
Sales	—		—		(2)		—		—		—		—
Settlements	(19)		—		(14)		(4)		—		—		2
Transfers in and/or out of Level 3	—		—		123		—		—		—		—
Balance at end of period	$	141	$	97	$	290	$	15	$	4	$	6	$	(43)

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 (1)	—		—		—		—		—		—		—
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)

Nine Months Ended September 30, 2024
Balance at beginning of year	$	147	$	84	$	106	$	10	$	4	$	5	$	(22)
Total gains or (losses) (realized/unrealized)
Included in earnings (1)	—		—		(4)		—		—		—		(1)
Included in other comprehensive income	2		1		—		—		—		—		—
Purchases, issuances, sales and settlements
Purchases	98		12		99		15		—		1		—
Issuances (2)	—		—		—		—		—		—		(22)
Sales	—		—		(4)		—		—		—		—
Settlements	(106)		—		(30)		(10)		—		—		2
Transfers in and/or out of Level 3	—		—		123		—		—		—		—
Balance at end of period	$	141	$	97	$	290	$	15	$	4	$	6	$	(43)

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 (1)	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)

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


ARCH CAPITAL			33			2024 THIRD QUARTER FORM 10-Q

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, 2024, 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, 2024, 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 $2.6 billion. At December 31, 2023, the Company’s senior notes were carried at their cost, net of debt issuance costs, of $2.7 billion and had a fair value of $2.5 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.

10. 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, 2024
Futures contracts	$	70	$	(6)	$	3,030
Foreign currency forward contracts	33		(38)		1,400

Other (3)	44		(37)		423
Total	$	147	$	(81)

December 31, 2023
Futures contracts	$	139	$	(61)	$	3,746
Foreign currency forward contracts	27		(32)		1,224

Other (3)	31		(26)		512
Total	$	197	$	(119)

(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, 2024 or December 31, 2023.

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, 2024, asset derivatives and liability derivatives of $147 million and $81 million, respectively, were subject to a master netting agreement, compared to $197 million and $119 million, respectively, at December 31, 2023.


ARCH CAPITAL			34			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Realized and unrealized contract gains or 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:	2024		2023

Three Months Ended
Net realized gains (losses):
Futures contracts	$	86	$	(87)
Foreign currency forward contracts	31		(20)

Other (1)	8		5
Total	$	125	$	(102)

Nine Months Ended
Net realized gains (losses):
Futures contracts	$	69	$	(73)
Foreign currency forward contracts	32		4

Other (1)	15		8
Total	$	116	$	(61)

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

11. Commitments and Contingencies

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 $4.5 billion at September 30, 2024, compared to $3.6 billion at December 31, 2023.

Interest Paid

Interest paid on the Company’s senior notes and other borrowings was $63 million for the nine months ended September 30, 2024, consistent with $63 million for the 2023 period.

12. 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.

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



	September 30, 2024		December 31, 2023
Bellemeade Entities (Issue Date)	Total VIE Assets			Coverage Remaining from Reinsurers (1)		Total VIE Assets



2019-1 Ltd. (Mar-19)	$	—		$	—	$	71

2019-3 Ltd. (Jul-19)	—			—		99






2021-3 Ltd. (Sep-21)	378			101		429
2022-1 Ltd. (Jan-22)	216			17		256
2022-2 Ltd. (Sep-22)	190			120		201
2023-1 Ltd. (Oct-23)	186			47		186
2024-1 Ltd. (Aug-24)	163			41		—
Total	$	1,133		$	326	$	1,242

(1) Coverage from a separate panel of reinsurers remaining at September 30, 2024.


ARCH CAPITAL			35			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

13. 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	2024		2023		2024		2023

Unrealized appreciation (decline) on available-for-sale investments
	Net realized gains (losses)	$	54	$	(104)	$	(38)	$	(345)
	Provision for credit losses	6		—		4		(23)

	Total before tax	60		(104)		(34)		(368)
	Income tax (expense) benefit	—		8		12		24
	Net of tax	$	60	$	(96)	$	(22)	$	(344)


	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Three Months Ended September 30, 2024
Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	736	$	91	$	645

Less reclassification of net realized gains (losses) included in net income	60		—		60
Foreign currency translation adjustments	25		—		25
Other comprehensive income (loss)	$	701	$	91	$	610

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)

Nine Months Ended September 30, 2024
Unrealized appreciation (decline) in value of investments:
Unrealized holding gains (losses) arising during period	$	549	$	71	$	478

Less reclassification of net realized gains (losses) included in net income	(34)		(12)		(22)
Foreign currency translation adjustments	(24)		—		(24)
Other comprehensive income (loss)	$	559	$	83	$	476

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


ARCH CAPITAL			36			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

14. Income Taxes

The Company’s income tax provision on income before income taxes, including income (loss) from operating affiliates, resulted in an effective tax rate of 8.1% for the nine months ended September 30, 2024, compared to 8.8% for the nine months ended September 30, 2023. 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 Company had a net deferred tax asset of $1.5 billion at September 30, 2024, compared to a net deferred tax asset of $1.6 billion at December 31, 2023. In addition, the Company paid $221 million of income taxes for the nine months ended September 30, 2024, compared to $127 million of income taxes paid for the nine months ended September 30, 2023.

15. 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, 2024, the Company was not a party to any litigation or arbitration which is expected by management to have a material adverse effect on the Company’s results of operations and financial condition and liquidity.

16. 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, 2024, the Company recorded an immaterial amount of net premiums written and earned, compared to $80 million for the nine months ended September 30, 2023. At September 30, 2024, the Company recorded a funds held asset from Premia of $137 million, compared to $158 million at December 31, 2023.

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, 2024, the Company’s net premiums written was reduced by $581 million, compared to $457 million for the nine months ended September 30, 2023. In addition, Somers paid certain acquisition costs and administrative fees to the Company. At September 30, 2024, the Company recorded a reinsurance recoverable on unpaid and paid losses from Somers of $1.6 billion and a reinsurance balance payable to Somers of $546 million, compared to $1.3 billion and $475 million, respectively, at December 31, 2023.

Under the terms of the Greysbridge equity financing, beginning January 1, 2024, the Company has a call right (but not the obligation) and Warburg Pincus LLC (“Warburg”) and Kelso & Company (“Kelso”) each have a put right (but not the obligation) to buy/sell one third of their initial shares annually at the current year end tangible book value per share of Greysbridge. During the 2024 third quarter, Warburg and Kelso both delivered a put option notice to sell one third of their initial shares. The transaction is expected to occur in the first half of the 2025 calendar year, subject to any required regulatory approvals. In association with the put/call notice at September 30, 2024, the Company’s balance sheet reflected $261 million in both other assets and other liabilities.

During the third quarter, the Company completed the acquisition of Watford Insurance Company from Somers for a total consideration paid of $35 million.

17. Subsequent Events

Hurricane Milton

The Company estimates that its 2024 fourth quarter results will be negatively impacted by Hurricane Milton, which occurred in October 2024. The Company currently estimates that the losses will be in a range of $275 million to $375 million, net of reinsurance and reinstatement premiums. This pre-tax preliminary loss estimate is based on industry insured losses ranging from $25 billion to $35 billion. The Company’s preliminary estimate for Hurricane Milton is based on currently available information derived from modeling techniques, industry assessments of exposure, preliminary claims information obtained from the Company’s clients and brokers to date and a review of in-force contracts. The Company’s actual losses from this event may vary materially from the estimates due to the inherent uncertainties in making such determinations.


ARCH CAPITAL			37			2024 THIRD QUARTER FORM 10-Q

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Letter of Credit Facility Agreement

On October 30, 2024, Arch Reinsurance Ltd. (“Arch Re Bermuda”), a wholly-owned subsidiary of Arch Capital, entered into Amendment No. 4 to Letter of Credit Facility Agreement (“Amendment No. 4”), as the borrower with Lloyds Bank Corporate Markets plc, as Administrative Agent and L/C Agent, 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, as further amended by Amendment No. 2 and Joinder to Letter of Credit Facility Agreement dated as of October 27, 2022, and as further amended by Amendment No. 3 and Joinder to Letter of Credit Facility Agreement dated as of October 25, 2023 (the “Existing L/C Agreement”).

The Existing L/C Agreement, as amended by Amendment No. 4, provides for a $700 million facility for letters of credit, the size of which was increased by $170 million, from $530 million. As of October 31, 2024 $700 million face amount of letters of credit had been issued under the facility.

Special Cash Dividend

On November 7, 2024, the Company’s Board of Directors declared a special cash dividend of $1.9 billion to common shareholders, representing $5.00 per outstanding common share payable on December 4, 2024 to common shareholders of record on November 18, 2024.


ARCH CAPITAL			38			2024 THIRD QUARTER FORM 10-Q

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