Exhibit 99.2
 
 
[bannera01a01a01a01.jpg]
[archnewlogo2.jpg]
 
Waterloo House, Ground Floor
100 Pitts Bay Road
Pembroke HM 08 Bermuda
 
441-278-9250
441-278-9255 fax
 
Contact:
Mark D. Lyons
Executive Vice President and Chief Financial Officer

 
Financial Supplement
 
Financial Information
as of December 31, 2014
 
The following financial supplement is provided to assist in your understanding
of Arch Capital Group Ltd.
 
This report is for informational purposes only.  It should be read in
conjunction with documents filed by Arch Capital Group Ltd. with the U.S.
Securities and Exchange Commission, including the most recent Annual Report on
Form 10-K and the Quarterly Reports on Form 10-Q.  Please refer to the Company’s
website at www.archcapgroup.com for further information describing Arch Capital
Group Ltd. 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Table of Contents

 
 
Page
 
 
 
I.
Financial Highlights
3
 
 
 
II.
Consolidated Financial Statements
 
 
c.
Consolidated Statements of Income
4
 
a.
Consolidated Statements of Income -- Underwriting Format
5
 
b.
Consolidated Balance Sheets
6
 
d.
Consolidated Statements of Changes in Shareholders’ Equity
7
 
e.
Consolidated Statements of Cash Flows
8
 
 
 
III.
Segment Information
 
 
a.
Overview
9
 
b.
Consolidated Results
11
 
c.
Insurance Segment Results
15
 
d.
Reinsurance Segment Results
17
 
e.
Mortgage Segment Results
19
 
 
 
IV.
Investment Information
 
 
a.
Investable Asset Summary and Investment Portfolio Metrics
22
 
b.
Composition of Fixed Maturities
23
 
c.
Credit Quality Distribution and Maturity Profile
24
 
d.
Analysis of Corporate Exposures
25
 
e.
Structured Securities
26
 
f.
Bank Loan Investments
27
 
g.
Eurozone Investments
28
 
 
 
V.
Other
 
 
a.
Comments on Regulation G
29
 
b.
Operating Income Reconciliation and Annualized Operating Return on Average
Common Equity
30
 
c.
Operating Income and Effective Tax Rate Calculations
31
 
d.
Capital Structure and Share Repurchase Activity
32

 
1
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Basis of Presentation

Basis of Presentation

All financial information contained herein is unaudited, however, certain
information relating to the consolidated balance sheet at December 31, 2013 is
derived from or agrees to audited financial information. 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, shareholders’ equity or cash flows. Unless otherwise noted, all data
is in thousands, except for share and per share amounts and ratio information.

In March 2014, the Company invested $100.0 million to acquire approximately 11%
of Watford Holdings Ltd.’s common equity and a warrant to purchase additional
common equity. Watford Holdings Ltd. is the parent of Watford Re Ltd., a
multi-line Bermuda reinsurance company (together with Watford Holdings Ltd.,
“Watford”). In accordance with GAAP, Watford is considered a variable interest
entity and the Company concluded that it is the primary beneficiary of Watford.
As such, 100% of the results of Watford are included in the Company’s
consolidated financial statements. The portion of Watford’s earnings owned by
third parties is recorded in the consolidated statements of income as ‘amounts
attributable to noncontrolling interests’. In addition, the Company reflects
Watford’s redeemable preference shares in the mezzanine section of the Company’s
consolidated balance sheets as ‘redeemable noncontrolling interests’ because
they have redemption features that are not solely within the control of Watford.

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor”
for forward-looking statements. This release or any other written or oral
statements made by or on behalf of Arch Capital Group Ltd. and its subsidiaries
may include forward-looking statements, which reflect the Company’s current
views with respect to future events and financial performance. All statements
other than statements of historical fact included in or incorporated by
reference in this release are forward-looking statements.
 
Forward-looking statements can generally be identified by the use of
forward-looking terminology such as “may,” “will,” “expect,” “intend,”
“estimate,” “anticipate,” “believe” or “continue” or their negative or
variations or similar terminology. Forward-looking statements involve the
Company’s current assessment of risks and uncertainties. Actual events and
results may differ materially from those expressed or implied in these
statements. A non-exclusive list of the important factors that could cause
actual results to differ materially from those in such forward-looking
statements includes the following: adverse general economic and market
conditions; increased competition; pricing and policy term trends; fluctuations
in the actions of rating agencies and the Company’s ability to maintain and
improve the Company’s ratings; investment performance; the loss of key
personnel; the adequacy of the Company’s loss reserves, severity and/or
frequency of losses, greater than expected loss ratios and adverse development
on claim and/or claim expense liabilities; greater frequency or severity of
unpredictable natural and man-made catastrophic events; the impact of acts of
terrorism and acts of war; changes in regulations and/or tax laws in the United
States or elsewhere; the Company’s ability to successfully integrate, establish
and maintain operating procedures as well as integrate the businesses we have
acquired or may acquire into the existing operations; changes in accounting
principles or policies; material differences between actual and expected
assessments for guaranty funds and mandatory pooling arrangements; availability
and cost to the Company of reinsurance to manage gross and net exposures; the
failure of others to meet their obligations to the Company; and other factors
identified in the Company’s filings with the U.S. Securities and Exchange
Commission.
 
The foregoing review of important factors should not be construed as exhaustive
and should be read in conjunction with other cautionary statements that are
included herein or elsewhere. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on the Company’s behalf
are expressly qualified in their entirety by these cautionary statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.

 
2
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Financial Highlights

(U.S. Dollars in thousands, except share data)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
December 31,
 
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting results (1):
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
 
$
1,069,932

 
$
955,199

 
12.0
 %
 
$
4,760,394

 
$
4,196,623

 
13.4
 %
Net premiums written
 
804,836

 
748,921

 
7.5
 %
 
3,617,482

 
3,351,367

 
7.9
 %
Net premiums earned
 
869,604

 
839,366

 
3.6
 %
 
3,490,271

 
3,145,952

 
10.9
 %
Underwriting income
 
114,300

 
128,318

 
(10.9
)%
 
474,178

 
451,737

 
5.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
52.8
%
 
51.7
%
 
1.1

 
53.0
%
 
53.4
%
 
(0.4
)
Acquisition expense ratio
 
18.4
%
 
18.8
%
 
(0.4
)
 
18.0
%
 
17.9
%
 
0.1

Other operating expense ratio
 
16.3
%
 
14.9
%
 
1.4

 
15.8
%
 
14.6
%
 
1.2

Combined ratio
 
87.5
%
 
85.4
%
 
2.1

 
86.8
%
 
85.9
%
 
0.9

 
 
 
 
 
 
 
 
 
 
 
 
 
Net investment income (1)
 
$
72,646

 
$
67,095

 
8.3
 %
 
$
284,336

 
$
267,219

 
6.4
 %
Per diluted share
 
$
0.56

 
$
0.49

 
14.3
 %
 
$
2.11

 
$
1.97

 
7.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income available to Arch common shareholders
 
$
209,679

 
$
156,005

 
34.4
 %
 
$
812,417

 
$
687,793

 
18.1
 %
Per diluted share
 
$
1.60

 
$
1.14

 
40.4
 %
 
$
6.02

 
$
5.07

 
18.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
After-tax operating income available to Arch common shareholders (2)
 
$
150,184

 
$
152,741

 
(1.7
)%
 
$
617,312

 
$
595,715

 
3.6
 %
Per diluted share
 
$
1.15

 
$
1.12

 
2.7
 %
 
$
4.58

 
$
4.39

 
4.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income available to Arch
 
$
241,834

 
$
194,499

 
24.3
 %
 
$
888,247

 
$
497,678

 
78.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flow from operations (1)
 
$
226,948

 
$
223,820

 
1.4
 %
 
$
997,815

 
$
850,868

 
17.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted weighted average common shares and common share equivalents outstanding
 
130,855,218

 
136,467,998

 
(4.1
)%
 
134,922,322

 
135,777,183

 
(0.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial measures:
 
 

 
 

 
 

 
 

 
 

 
 

Change in book value per common share during period
 
3.5
%
 
3.9
%
 
(0.4
)
 
14.5
%
 
10.0
%
 
4.5

 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized operating return on average common equity
 
10.4
%
 
11.7
%
 
(1.3
)
 
11.1
%
 
11.7
%
 
(0.6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total return on investments (1) (3)
 
 

 
 

 
 

 
 

 
 

 
 

Including effects of foreign exchange
 
0.85
%
 
0.97
%
 
-12 bps

 
3.21
%
 
1.28
%
 
193 bps

Excluding effects of foreign exchange
 
1.34
%
 
0.85
%
 
49 bps

 
4.26
%
 
1.13
%
 
313 bps

 
(1)
Excludes amounts reflected in the ‘other’ segment.

(2)
See Comments on Regulation G.

(3)
Total return on investments includes net investment income, equity in net income
(loss) of investment funds accounted for using the equity method, net realized
gains and losses and the change in unrealized gains and losses generated by the
Company’s investment portfolio. Total return is calculated on a pre-tax basis
and before investment expenses.

 
3
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Income

(U.S. Dollars in thousands, except share data)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
2014
 
2013
Revenues
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net premiums written
 
$
895,481

 
$
959,539

 
$
971,928

 
$
1,064,990

 
$
748,921

 
$
3,891,938

 
$
3,351,367

Change in unearned premiums
 
27,684

 
(55,888
)
 
(64,776
)
 
(205,210
)
 
90,445

 
(298,190
)
 
(205,415
)
Net premiums earned
 
923,165

 
903,651

 
907,152

 
859,780

 
839,366

 
3,593,748

 
3,145,952

Net investment income
 
82,496

 
80,105

 
72,990

 
66,994

 
67,095

 
302,585

 
267,219

Net realized gains (losses)
 
10,561

 
18,515

 
54,144

 
19,697

 
9,048

 
102,917

 
74,018

Net impairment losses recognized in earnings
 
(3,837
)
 
(8,593
)
 
(14,749
)
 
(2,971
)
 
(88
)
 
(30,150
)
 
(3,786
)
Other underwriting income
 
4,825

 
1,702

 
2,033

 
1,582

 
5,673

 
10,142

 
7,639

Equity in net income of investment funds accounted for using the equity method
 
2,424

 
4,966

 
9,240

 
3,253

 
5,272

 
19,883

 
35,701

Other income (loss)
 
(5,183
)
 
(7,815
)
 
4,850

 
(2,104
)
 
(3,288
)
 
(10,252
)
 
(586
)
Total revenues
 
1,014,451

 
992,531

 
1,035,660

 
946,231

 
923,078

 
3,988,873

 
3,526,157

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Losses and loss adjustment expenses
 
(495,819
)
 
(501,673
)
 
(485,518
)
 
(436,240
)
 
(434,323
)
 
(1,919,250
)
 
(1,679,424
)
Acquisition expenses
 
(175,215
)
 
(163,547
)
 
(158,158
)
 
(160,342
)
 
(157,521
)
 
(657,262
)
 
(564,103
)
Other operating expenses
 
(154,595
)
 
(149,480
)
 
(156,350
)
 
(145,799
)
 
(135,069
)
 
(606,224
)
 
(500,730
)
Interest expense
 
(12,744
)
 
(4,152
)
 
(14,334
)
 
(14,404
)
 
(9,373
)
 
(45,634
)
 
(27,060
)
Net foreign exchange gains (losses)
 
36,570

 
56,031

 
(2,294
)
 
(6,563
)
 
(9,848
)
 
83,744

 
(12,335
)
Total expenses
 
(801,803
)
 
(762,821
)
 
(816,654
)
 
(763,348
)
 
(746,134
)
 
(3,144,626
)
 
(2,783,652
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
212,648

 
229,710

 
219,006

 
182,883

 
176,944

 
844,247

 
742,505

Income tax expense
 
(5,514
)
 
(6,446
)
 
(7,289
)
 
(3,738
)
 
(15,454
)
 
(22,987
)
 
(32,774
)
Net income
 
207,134

 
223,264

 
211,717

 
179,145

 
161,490

 
821,260

 
709,731

Amounts attributable to noncontrolling interests
 
8,030

 
5,411

 
(3,701
)
 
3,355

 
—

 
13,095

 
—

Net income attributable to Arch
 
215,164

 
228,675

 
208,016

 
182,500

 
161,490

 
834,355

 
709,731

Preferred dividends
 
(5,485
)
 
(5,484
)
 
(5,485
)
 
(5,484
)
 
(5,485
)
 
(21,938
)
 
(21,938
)
Net income available to Arch common shareholders
 
$
209,679

 
$
223,191

 
$
202,531

 
$
177,016

 
$
156,005

 
$
812,417

 
$
687,793

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss) available to Arch
 
$
241,834

 
$
96,978

 
$
318,180

 
$
231,255

 
$
194,499

 
$
888,247

 
$
497,678

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per common share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
1.65

 
$
1.69

 
$
1.53

 
$
1.34

 
$
1.19

 
$
6.21

 
$
5.24

Diluted
 
$
1.60

 
$
1.64

 
$
1.48

 
$
1.30

 
$
1.14

 
$
6.02

 
$
5.07

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares and common share equivalents outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
126,857,041

 
131,945,962

 
132,650,634

 
131,857,910

 
131,631,606

 
130,817,610

 
131,355,392

Diluted
 
130,855,218

 
135,876,605

 
136,889,944

 
136,562,717

 
136,467,998

 
134,922,322

 
135,777,183

 
4
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Income -- Underwriting Format

(U.S. Dollars in thousands)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
 
$
1,113,812

 
$
1,159,907

 
$
1,271,761

 
$
1,295,136

 
$
955,199

 
$
4,840,616

 
$
4,196,623

Premiums ceded
 
(218,331
)
 
(200,368
)
 
(299,833
)
 
(230,146
)
 
(206,278
)
 
(948,678
)
 
(845,256
)
Net premiums written
 
895,481

 
959,539

 
971,928

 
1,064,990

 
748,921

 
3,891,938

 
3,351,367

Change in unearned premiums
 
27,684

 
(55,888
)
 
(64,776
)
 
$
(205,210
)
 
90,445

 
(298,190
)
 
(205,415
)
Net premiums earned
 
923,165

 
903,651

 
907,152

 
859,780

 
839,366

 
3,593,748

 
3,145,952

Other underwriting income
 
4,825

 
1,702

 
2,033

 
1,582

 
5,673

 
10,142

 
7,639

Losses and loss adjustment expenses
 
(495,819
)
 
(501,673
)
 
(485,518
)
 
(436,240
)
 
(434,323
)
 
(1,919,250
)
 
(1,679,424
)
Acquisition expenses, net
 
(175,215
)
 
(163,547
)
 
(158,158
)
 
(160,342
)
 
(157,521
)
 
(657,262
)
 
(564,103
)
Other operating expenses
 
(143,492
)
 
(139,046
)
 
(141,418
)
 
(132,324
)
 
(124,877
)
 
(556,280
)
 
(458,327
)
Underwriting income
 
113,464

 
101,087

 
124,091

 
132,456

 
128,318

 
471,098

 
451,737

Net investment income
 
82,496

 
80,105

 
72,990

 
66,994

 
67,095

 
302,585

 
267,219

Net realized gains (losses)
 
10,561

 
18,515

 
54,144

 
19,697

 
9,048

 
102,917

 
74,018

Net impairment losses recognized in earnings
 
(3,837
)
 
(8,593
)
 
(14,749
)
 
(2,971
)
 
(88
)
 
(30,150
)
 
(3,786
)
Equity in net income of investment funds accounted for using the equity method
 
2,424

 
4,966

 
9,240

 
3,253

 
5,272

 
19,883

 
35,701

Other income (loss)
 
(5,183
)
 
(7,815
)
 
4,850

 
(2,104
)
 
(3,288
)
 
(10,252
)
 
(586
)
Other expenses
 
(11,103
)
 
(10,434
)
 
(14,932
)
 
(13,475
)
 
(10,192
)
 
(49,944
)
 
(42,403
)
Interest expense
 
(12,744
)
 
(4,152
)
 
(14,334
)
 
(14,404
)
 
(9,373
)
 
(45,634
)
 
(27,060
)
Net foreign exchange gains (losses)
 
36,570

 
56,031

 
(2,294
)
 
(6,563
)
 
(9,848
)
 
83,744

 
(12,335
)
Income before income taxes
 
212,648

 
229,710

 
219,006

 
182,883

 
176,944

 
844,247

 
742,505

Income tax expense
 
(5,514
)
 
(6,446
)
 
(7,289
)
 
(3,738
)
 
(15,454
)
 
(22,987
)
 
(32,774
)
Net income
 
207,134

 
223,264

 
211,717

 
179,145

 
161,490

 
821,260

 
709,731

Amounts attributable to noncontrolling interests
 
8,030

 
5,411

 
(3,701
)
 
3,355

 
—

 
13,095

 
—

Net income available to Arch
 
215,164

 
228,675

 
208,016

 
182,500

 
161,490

 
834,355

 
709,731

Preferred dividends
 
(5,485
)
 
(5,484
)
 
(5,485
)
 
(5,484
)
 
(5,485
)
 
(21,938
)
 
(21,938
)
Net income available to Arch common shareholders
 
$
209,679

 
$
223,191

 
$
202,531

 
$
177,016

 
$
156,005

 
$
812,417

 
$
687,793

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting Ratios
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
53.7
%
 
55.5
%
 
53.5
%
 
50.7
%
 
51.7
%
 
53.4
%
 
53.4
%
Acquisition expense ratio
 
19.0
%
 
18.1
%
 
17.4
%
 
18.6
%
 
18.8
%
 
18.3
%
 
17.9
%
Other operating expense ratio
 
15.5
%
 
15.4
%
 
15.6
%
 
15.4
%
 
14.9
%
 
15.5
%
 
14.6
%
Combined ratio
 
88.2
%
 
89.0
%
 
86.5
%
 
84.7
%
 
85.4
%
 
87.2
%
 
85.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written to gross premiums written
 
80.4
%
 
82.7
%
 
76.4
%
 
82.2
%
 
78.4
%
 
80.4
%
 
79.9
%

 
5
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Consolidated Balance Sheets

 
(U.S. Dollars in thousands, except share data)
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
Assets
 
 

 
 

 
 

 
 

 
 

Investments:
 
 

 
 

 
 

 
 

 
 

Fixed maturities available for sale, at fair value
 
$
10,750,770

 
$
10,733,382

 
$
10,714,532

 
$
9,775,730

 
$
9,571,776

Short-term investments available for sale, at fair value
 
797,226

 
748,659

 
977,058

 
1,484,280

 
1,478,367

Investment of funds received under securities lending, at fair value
 
44,301

 
104,252

 
82,603

 
96,264

 
100,584

Equity securities available for sale, at fair value
 
658,182

 
582,075

 
608,820

 
548,168

 
496,824

Other investments available for sale, at fair value
 
296,224

 
431,833

 
457,567

 
426,917

 
498,310

Investments accounted for using the fair value option
 
2,435,532

 
2,202,995

 
2,041,091

 
1,256,650

 
1,221,534

Investments accounted for using the equity method
 
349,014

 
307,252

 
281,464

 
255,488

 
244,339

Total investments
 
15,331,249

 
15,110,448

 
15,163,135

 
13,843,497

 
13,611,734

Cash
 
485,702

 
663,726

 
926,443

 
1,569,605

 
434,057

Accrued investment income
 
74,316

 
65,042

 
64,869

 
59,701

 
66,848

Investment in joint venture
 
90,426

 
97,313

 
103,934

 
102,803

 
104,856

Fixed maturities and short-term investments pledged under securities lending, at
fair value
 
50,802

 
107,547

 
87,031

 
100,590

 
105,081

Premiums receivable
 
948,695

 
1,027,204

 
1,098,692

 
1,008,375

 
753,924

Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses
 
1,812,845

 
1,814,190

 
1,796,403

 
1,790,025

 
1,804,330

Contractholder receivables
 
1,309,192

 
1,286,799

 
1,234,392

 
1,118,991

 
1,064,246

Prepaid reinsurance premiums
 
377,078

 
404,661

 
430,214

 
349,077

 
328,343

Deferred acquisition costs, net
 
414,525

 
409,174

 
399,385

 
384,294

 
342,314

Receivable for securities sold
 
78,170

 
672,259

 
261,669

 
426,431

 
50,555

Goodwill and intangible assets
 
109,539

 
111,528

 
118,721

 
120,875

 
27,319

Other assets
 
927,004

 
840,794

 
888,627

 
926,094

 
872,487

Total assets
 
$
22,009,543

 
$
22,610,685

 
$
22,573,515

 
$
21,800,358

 
$
19,566,094

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Reserve for losses and loss adjustment expenses
 
$
9,036,448

 
$
8,958,734

 
$
9,018,989

 
$
8,938,958

 
$
8,824,696

Unearned premiums
 
2,231,578

 
2,303,247

 
2,299,692

 
2,148,475

 
1,896,365

Reinsurance balances payable
 
219,312

 
244,379

 
263,347

 
201,794

 
196,167

Contractholder payables
 
1,309,192

 
1,286,799

 
1,234,392

 
1,118,991

 
1,064,246

Deposit accounting liabilities
 
327,384

 
349,850

 
397,337

 
409,080

 
421,297

Senior notes
 
800,000

 
800,000

 
800,000

 
800,000

 
800,000

Revolving credit agreement borrowings
 
100,000

 
100,000

 
100,000

 
100,000

 
100,000

Securities lending payable
 
50,529

 
110,736

 
89,298

 
103,330

 
107,999

Payable for securities purchased
 
128,413

 
740,953

 
552,075

 
499,473

 
51,318

Other liabilities
 
688,041

 
633,502

 
577,320

 
575,394

 
456,510

Total liabilities
 
14,890,897

 
15,528,200

 
15,332,450

 
14,895,495

 
13,918,598

 
 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interests
 
219,512

 
219,419

 
219,326

 
219,234

 
—

 
 
 
 
 
 
 
 
 
 
 
Shareholders’ equity
 
 

 
 

 
 

 
 

 
 

Non-cumulative preferred shares
 
325,000

 
325,000

 
325,000

 
325,000

 
325,000

Common shares
 
572

 
571

 
570

 
567

 
565

Additional paid-in capital
 
383,073

 
366,408

 
353,208

 
320,503

 
299,517

Retained earnings
 
6,854,571

 
6,644,892

 
6,421,701

 
6,219,170

 
6,042,154

Accumulated other comprehensive income, net of deferred income tax
 
128,856

 
102,186

 
233,883

 
123,719

 
74,964

Common shares held in treasury, at cost
 
(1,562,019
)
 
(1,358,011
)
 
(1,104,963
)
 
(1,096,826
)
 
(1,094,704
)
Total shareholders’ equity available to Arch
 
6,130,053

 
6,081,046

 
6,229,399

 
5,892,133

 
5,647,496

Non-redeemable noncontrolling interests
 
769,081

 
782,020

 
792,340

 
793,496

 
—

Total shareholders’ equity
 
6,899,134

 
6,863,066

 
7,021,739

 
6,685,629

 
5,647,496

Total liabilities, noncontrolling interests and shareholders’ equity
 
$
22,009,543

 
$
22,610,685

 
$
22,573,515

 
$
21,800,358

 
$
19,566,094

 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding, net of treasury shares
 
127,367,934

 
130,700,619

 
135,030,886

 
134,084,138

 
133,674,884

Book value per common share (1)
 
$
45.58

 
$
44.04

 
$
43.73

 
$
41.52

 
$
39.82

 
(1)    Excludes the effects of stock options and restricted stock units
outstanding.

 
6
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity

(U.S. Dollars in thousands)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
2014
 
2013
Non-Cumulative Preferred Shares
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance at beginning and end of period
 
$
325,000

 
$
325,000

 
$
325,000

 
$
325,000

 
$
325,000

 
$
325,000

 
$
325,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
571

 
570

 
567

 
565

 
565

 
565

 
561

Common shares issued, net
 
1

 
1

 
3

 
2

 
—

 
7

 
4

Balance at end of period
 
572

 
571

 
570

 
567

 
565

 
572

 
565

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-in Capital
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
366,408

 
353,208

 
320,503

 
299,517

 
283,449

 
299,517

 
227,778

Common shares issued, net
 
3,189

 
41

 
6,360

 
—

 
2,654

 
9,590

 
8,237

Exercise of stock options
 
3,771

 
3,658

 
3,179

 
8,054

 
3,123

 
18,662

 
10,561

Amortization of share-based compensation
 
9,671

 
9,491

 
21,452

 
14,175

 
8,932

 
54,789

 
49,237

Other
 
34

 
10

 
1,714

 
(1,243
)
 
1,359

 
515

 
3,704

Balance at end of period
 
383,073

 
366,408

 
353,208

 
320,503

 
299,517

 
383,073

 
299,517

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retained Earnings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
6,644,892

 
6,421,701

 
6,219,170

 
6,042,154

 
5,886,149

 
6,042,154

 
5,354,361

Net income
 
207,134

 
223,264

 
211,717

 
179,145

 
161,490

 
821,260

 
709,731

Amounts attributable to noncontrolling interests
 
8,030

 
5,411

 
(3,701
)
 
3,355

 
—

 
13,095

 
—

Preferred share dividends
 
(5,485
)
 
(5,484
)
 
(5,485
)
 
(5,484
)
 
(5,485
)
 
(21,938
)
 
(21,938
)
Balance at end of period
 
6,854,571

 
6,644,892

 
6,421,701

 
6,219,170

 
6,042,154

 
6,854,571

 
6,042,154

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Other Comprehensive Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
102,186

 
233,883

 
123,719

 
74,964

 
41,955

 
74,964

 
287,017

Unrealized appreciation in value of available-for-sale investments, net of
deferred income tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
122,837

 
230,939

 
130,796

 
80,692

 
49,000

 
80,692

 
289,956

Unrealized holding gains (losses) arising during period, net of reclassification
adjustment
 
39,081

 
(108,102
)
 
100,143

 
50,104

 
31,692

 
81,226

 
(209,089
)
Portion of other-than-temporary impairment losses recognized in other
comprehensive income, net of deferred income tax
 
(320
)
 
—

 
—

 
—

 
—

 
(320
)
 
(175
)
Balance at end of period
 
161,598

 
122,837

 
230,939

 
130,796

 
80,692

 
161,598

 
80,692

Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
(20,651
)
 
2,944

 
(7,077
)
 
(5,728
)
 
(7,045
)
 
(5,728
)
 
(2,939
)
Foreign currency translation adjustments
 
(12,091
)
 
(23,595
)
 
10,021

 
(1,349
)
 
1,317

 
(27,014
)
 
(2,789
)
Balance at end of period
 
(32,742
)
 
(20,651
)
 
2,944

 
(7,077
)
 
(5,728
)
 
(32,742
)
 
(5,728
)
Balance at end of period
 
128,856

 
102,186

 
233,883

 
123,719

 
74,964

 
128,856

 
74,964

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Shares Held in Treasury, at Cost
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
(1,358,011
)
 
(1,104,963
)
 
(1,096,826
)
 
(1,094,704
)
 
(1,093,833
)
 
(1,094,704
)
 
(1,025,839
)
Shares repurchased for treasury
 
(204,008
)
 
(253,048
)
 
(8,137
)
 
(2,122
)
 
(871
)
 
(467,315
)
 
(68,865
)
Balance at end of period
 
(1,562,019
)
 
(1,358,011
)
 
(1,104,963
)
 
(1,096,826
)
 
(1,094,704
)
 
(1,562,019
)
 
(1,094,704
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total shareholders’ equity available to Arch
 
6,130,053

 
6,081,046

 
6,229,399

 
5,892,133

 
5,647,496

 
6,130,053

 
5,647,496

Non-redeemable noncontrolling interests
 
769,081

 
782,020

 
792,340

 
793,496

 
—

 
769,081

 
—

Total shareholders’ equity
 
$
6,899,134

 
$
6,863,066

 
$
7,021,739

 
$
6,685,629

 
$
5,647,496

 
$
6,899,134

 
$
5,647,496

 
7
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows

(U.S. Dollars in thousands)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
2014
 
2013
Operating Activities
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income
 
$
207,134

 
$
223,264

 
$
211,717

 
$
179,145

 
$
161,490

 
$
821,260

 
$
709,731

Adjustments to reconcile net income to net cash provided by operating
activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net realized (gains) losses
 
(14,478
)
 
(25,513
)
 
(65,153
)
 
(22,367
)
 
(11,127
)
 
(127,511
)
 
(78,084
)
Net impairment losses included in earnings
 
3,837

 
8,593

 
14,749

 
2,971

 
88

 
30,150

 
3,786

Equity in net income or loss of investment funds accounted for using the equity
method and other income or loss
 
9,556

 
3,919

 
(9,694
)
 
9,559

 
17,190

 
13,340

 
52,824

Share-based compensation
 
9,671

 
9,491

 
21,452

 
14,175

 
8,932

 
54,789

 
49,237

Changes in:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss
adjustment expenses recoverable
 
61,956

 
33,781

 
50,148

 
10,326

 
(5,088
)
 
156,211

 
(29,393
)
Unearned premiums, net of prepaid reinsurance premiums
 
(27,684
)
 
55,888

 
64,776

 
205,210

 
(90,445
)
 
298,190

 
205,415

Premiums receivable
 
62,731

 
46,187

 
(83,337
)
 
(242,616
)
 
99,867

 
(217,035
)
 
(60,224
)
Deferred acquisition costs, net
 
(9,464
)
 
(16,298
)
 
(13,834
)
 
(41,988
)
 
(2,155
)
 
(81,584
)
 
(75,948
)
Reinsurance balances payable
 
(22,922
)
 
(16,182
)
 
60,375

 
5,428

 
4,257

 
26,699

 
6,830

Other liabilities
 
(16,132
)
 
74,756

 
(16,152
)
 
59,285

 
(14,096
)
 
101,757

 
(29,989
)
Other items, net
 
(26,734
)
 
(51,290
)
 
19,847

 
19,041

 
54,907

 
(39,136
)
 
96,683

Net Cash Provided By Operating Activities
 
237,471

 
346,596

 
254,894

 
198,169

 
223,820

 
1,037,130

 
850,868

Investing Activities
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Purchases of fixed maturity investments
 
(6,714,417
)
 
(7,719,114
)
 
(7,180,677
)
 
(7,131,071
)
 
(5,738,401
)
 
(28,745,279
)
 
(18,174,988
)
Purchases of equity securities
 
(154,239
)
 
(191,891
)
 
(85,460
)
 
(89,227
)
 
(97,602
)
 
(520,817
)
 
(535,857
)
Purchases of other investments
 
(660,790
)
 
(573,704
)
 
(718,533
)
 
(304,454
)
 
(333,794
)
 
(2,257,481
)
 
(1,326,729
)
Proceeds from sales of fixed maturity investments
 
6,538,323

 
7,080,015

 
6,190,573

 
7,014,281

 
5,319,195

 
26,823,192

 
17,196,614

Proceeds from sales of equity securities
 
106,328

 
206,347

 
49,073

 
49,614

 
89,787

 
411,362

 
462,787

Proceeds from sales, redemptions and maturities of other investments
 
612,099

 
412,194

 
287,531

 
331,176

 
349,111

 
1,643,000

 
1,162,707

Proceeds from redemptions and maturities of fixed maturities
 
126,266

 
204,689

 
263,556

 
168,484

 
136,205

 
762,995

 
731,708

Net sales (purchases) of short-term investments
 
(101,262
)
 
248,084

 
274,042

 
156,262

 
(481,645
)
 
577,126

 
(750,613
)
Change in investment of securities lending collateral
 
60,207

 
(21,438
)
 
14,032

 
4,669

 
(58,151
)
 
57,470

 
(55,643
)
Purchase of business, net of cash acquired
 
(1,528
)
 
—

 
—

 
(235,578
)
 
—

 
(237,106
)
 
—

Purchases of furniture, equipment and other
 
(5,308
)
 
(4,215
)
 
(4,978
)
 
(5,382
)
 
(6,546
)
 
(19,883
)
 
(17,499
)
Net Cash Used For Investing Activities
 
(194,321
)
 
(359,033
)
 
(910,841
)
 
(41,226
)
 
(821,841
)
 
(1,505,421
)
 
(1,307,513
)
Financing Activities
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Purchases of common shares under share repurchase program
 
(202,218
)
 
(251,919
)
 
—

 
—

 
—

 
(454,137
)
 
(57,796
)
Proceeds from common shares issued, net
 
3,579

 
727

 
(500
)
 
3,021

 
3,476

 
6,827

 
3,051

Proceeds from borrowings
 
—

 
—

 
—

 
—

 
494,228

 
—

 
494,228

Change in securities lending collateral
 
(60,207
)
 
21,438

 
(14,032
)
 
(4,669
)
 
58,151

 
(57,470
)
 
55,643

Third party investment in non-redeemable noncontrolling interests
 
—

 
—

 
—

 
796,903

 
—

 
796,903

 
—

Third party investment in redeemable noncontrolling interests
 
—

 
—

 
32,340

 
186,893

 
—

 
219,233

 
—

Dividends paid to redeemable noncontrolling interests
 
(4,816
)
 
(4,816
)
 
(4,816
)
 
—

 
—

 
(14,448
)
 
—

Other
 
58,414

 
1,853

 
3,006

 
1,700

 
45,151

 
64,973

 
50,830

Preferred dividends paid
 
(5,485
)
 
(5,484
)
 
(5,485
)
 
(5,484
)
 
(5,485
)
 
(21,938
)
 
(21,938
)
Net Cash Provided By (Used For) Financing Activities
 
(210,733
)
 
(238,201
)
 
10,513

 
978,364

 
595,521

 
539,943

 
524,018

Effects of exchange rate changes on foreign currency cash
 
(10,441
)
 
(12,079
)
 
2,272

 
241

 
416

 
(20,007
)
 
(4,357
)
Increase (decrease) in cash
 
(178,024
)
 
(262,717
)
 
(643,162
)
 
1,135,548

 
(2,084
)
 
51,645

 
63,016

Cash beginning of period
 
663,726

 
926,443

 
1,569,605

 
434,057

 
436,141

 
434,057

 
371,041

Cash end of period
 
$
485,702

 
$
663,726

 
$
926,443

 
$
1,569,605

 
$
434,057

 
$
485,702

 
$
434,057

Income taxes paid, net
 
$
7,588

 
$
5,056

 
$
6,679

 
$
1,600

 
$
7,656

 
$
20,923

 
$
15,288

Interest paid
 
$
24,318

 
$
415

 
$
21,292

 
$
404

 
$
11,442

 
$
46,429

 
$
23,733

 
8
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Segment Information — Overview

The Company classifies its businesses into three underwriting segments —
insurance, reinsurance and mortgage — and two other operating segments — ‘other’
and corporate (non-underwriting). 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 Chairman, President and Chief
Executive Officer of ACGL and the Chief Financial Officer of ACGL. The 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 underwriting segments based on
underwriting income or loss. The Company does not manage its assets by
underwriting segment and, accordingly, investment income is not allocated to
each underwriting segment.

The Company determined its reportable operating 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 Corporate
(non-underwriting) segment results include net investment income, other income
(loss), other expenses incurred by the Company, interest expense, net realized
gains or losses, net impairment losses included in earnings, equity in net
income (loss) of investment funds accounted for using the equity method, net
foreign exchange gains or losses, income taxes and items related to the
Company’s non-cumulative preferred shares. Such amounts exclude the results of
the ‘other’ segment.

Insurance Segment

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

•
Construction and national accounts: primary and excess casualty coverages to
middle and large accounts in the construction industry and a wide range of
products for middle and large national accounts, specializing in loss sensitive
primary casualty insurance programs (including large deductible, self-insured
retention and retrospectively rated programs).

•
Excess and surplus casualty: primary and excess casualty insurance coverages,
including middle market energy business, and contract binding, which primarily
provides casualty coverage through a network of appointed agents to small and
medium risks.

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

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

•
Programs: primarily package policies, underwriting workers’ compensation and
umbrella liability business in support of desirable package programs, targeting
program managers with unique expertise and niche products offering general
liability, commercial automobile, inland marine and property business with
minimal catastrophe exposure.

•
Property, energy, marine and aviation: primary and excess general property
insurance coverages, including catastrophe-exposed property coverage, for
commercial clients. Coverages for marine include hull, war, specie and
liability. Aviation and stand alone terrorism are also offered.

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

•
Other: includes alternative market risks (including captive insurance programs),
excess workers’ compensation and employer’s liability insurance coverages for
qualified self-insured groups, associations and trusts, and contract and
commercial surety coverages, including contract bonds (payment and performance
bonds) primarily for medium and large contractors and commercial surety bonds
for Fortune 1,000 companies and smaller transaction business programs.

 
9
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Segment Information — Overview

Reinsurance Segment
The reinsurance segment consists of the Company’s reinsurance underwriting units
which offer specialty product lines on a worldwide basis. Product lines include:

•
Casualty: provides coverage to ceding company clients on third party liability
and workers’ compensation exposures from ceding company clients, primarily on a
treaty basis. Exposures include, among others, executive assurance, professional
liability, workers’ compensation, excess and umbrella liability, excess motor
and healthcare business.

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

•
Other specialty: provides coverage to ceding company clients for non-excess
motor, including U.K. business primarily emanating from one significant client,
and other lines including surety, accident and health, workers’ compensation
catastrophe, agriculture, trade credit and political risk.

•
Property catastrophe: provides protection for most catastrophic losses that are
covered in the underlying policies written by reinsureds, including hurricane,
earthquake, flood, tornado, hail and fire, and coverage for other perils on a
case-by-case basis. Property catastrophe reinsurance provides coverage on an
excess of loss basis when aggregate losses and loss adjustment expense from a
single occurrence of a covered peril exceed the retention specified in the
contract.

•
Property excluding property catastrophe: provides coverage for both personal
lines and commercial property exposures and principally covers buildings,
structures, equipment and contents. The primary perils in this business include
fire, explosion, collapse, riot, vandalism, wind, tornado, flood and earthquake.
Business is assumed on both a proportional and excess of loss basis. In
addition, facultative business is written which focuses on commercial property
risks on an excess of loss basis.

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

Mortgage Segment

The mortgage segment was formed in the 2014 first quarter and consists of the
Company’s mortgage insurance and reinsurance business. On January 30, 2014, the
Company completed the acquisition of CMG Mortgage Insurance Company
(subsequently renamed Arch Mortgage Insurance Company), which prior to the
acquisition had been approved as an eligible mortgage insurer by Fannie Mae and
Freddie Mac (each a government sponsored enterprise, or “GSE”) only for credit
union customers. As part of the transaction, Arch Mortgage Insurance Company was
approved as an eligible mortgage insurer by the GSEs. The completion of the
transaction enabled the Company to enter the U.S. mortgage insurance marketplace
and to serve banks and other lenders nationwide, including existing credit union
customers. The mortgage segment also provides reinsurance on both a proportional
and non-proportional basis on a global basis, direct mortgage insurance in
Europe and various risk-sharing products to government agencies and mortgage
lenders.

Other Segment

The ‘other’ segment includes the results of Watford Holdings Ltd. and its
subsidiary Watford Re Ltd., a multi-line Bermuda reinsurance company, which was
launched in March 2014. The Company acts as Watford’s reinsurance manager, and
Highbridge Principal Strategies, LLC, a subsidiary of JPMorgan Chase & Co.,
manages Watford’s investment assets, each under a long term services agreement.
The Company invested $100 million to acquire approximately 11% of Watford’s
common equity and a warrant to purchase additional common equity. Watford has
its own management and board of directors and is responsible for the overall
profitability of the ‘other’ segment. The Company is required to consolidate the
results of Watford in its financial statements. The portion of Watford’s
earnings attributable to third party investors is recorded in the consolidated
statements of income as ‘amounts attributable to noncontrolling interests.’
Management measures segment performance for the ‘other’ segment based on net
income or loss.

 
10
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Segment Information

(U.S. Dollars in thousands)
 
Three Months Ended
 
 
December 31, 2014
 
 
Insurance
 
Reinsurance
 
Mortgage
 
Sub-total
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written (1)
 
$
699,109

 
$
314,604

 
$
57,584

 
$
1,069,932

 
$
98,388

 
$
1,113,812

Premiums ceded
 
(215,933
)
 
(45,631
)
 
(4,897
)
 
(265,096
)
 
(7,743
)
 
(218,331
)
Net premiums written
 
483,176

 
268,973

 
52,687

 
804,836

 
90,645

 
895,481

Change in unearned premiums
 
29,594

 
36,832

 
(1,658
)
 
64,768

 
(37,084
)
 
27,684

Net premiums earned
 
512,770

 
305,805

 
51,029

 
869,604

 
53,561

 
923,165

Other underwriting income
 
622

 
2,333

 
1,870

 
4,825

 
—

 
4,825

Losses and loss adjustment expenses
 
(324,338
)
 
(118,705
)
 
(15,736
)
 
(458,779
)
 
(37,040
)
 
(495,819
)
Acquisition expenses, net
 
(81,152
)
 
(61,765
)
 
(16,807
)
 
(159,724
)
 
(15,491
)
 
(175,215
)
Other operating expenses
 
(85,046
)
 
(37,766
)
 
(18,814
)
 
(141,626
)
 
(1,866
)
 
(143,492
)
Underwriting income (loss)
 
$
22,856

 
$
89,902

 
$
1,542

 
114,300

 
(836
)
 
113,464

 
 
 
 
 
 
 
 
 
 
 
 
 
Net investment income
 
 
 
 
 
 
 
72,646

 
9,850

 
82,496

Net realized gains (losses)
 
 
 
 
 
 
 
31,310

 
(20,749
)
 
10,561

Net impairment losses recognized in earnings
 
 
 
 
 
 
 
(3,837
)
 
—

 
(3,837
)
Equity in net income of investment funds accounted for using the equity method
 
 
 
 
 
 
 
2,424

 
—

 
2,424

Other income (loss)
 
 
 
 
 
 
 
(5,183
)
 
—

 
(5,183
)
Other expenses
 
 
 
 
 
 
 
(11,103
)
 
—

 
(11,103
)
Interest expense
 
 
 
 
 
 
 
(12,744
)
 
—

 
(12,744
)
Net foreign exchange gains (losses)
 
 
 
 
 
 
 
34,467

 
2,103

 
36,570

Income before income taxes
 
 
 
 
 
 
 
222,280

 
(9,632
)
 
212,648

Income tax expense
 
 
 
 
 
 
 
(5,514
)
 
—

 
(5,514
)
Net income
 
 
 
 
 
 
 
216,766

 
(9,632
)
 
207,134

Dividends attributable to redeemable noncontrolling interests
 
 
 
 
 
 
 
—

 
(4,909
)
 
(4,909
)
Amounts attributable to nonredeemable noncontrolling interests
 
 
 
 
 
 
 
—

 
12,939

 
12,939

Net income available to Arch
 
 
 
 
 
 
 
216,767

 
(1,603
)
 
215,164

Preferred dividends
 
 
 
 
 
 
 
(5,485
)
 
—

 
(5,485
)
Net income available to Arch common shareholders
 
 
 
 
 
 
 
$
211,282

 
$
(1,603
)
 
$
209,679

 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting Ratios
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
63.3
%
 
38.8
%
 
30.8
%
 
52.8
%
 
69.2
%
 
53.7
%
Acquisition expense ratio
 
15.8
%
 
20.2
%
 
32.9
%
 
18.4
%
 
28.9
%
 
19.0
%
Other operating expense ratio
 
16.6
%
 
12.3
%
 
36.9
%
 
16.3
%
 
3.5
%
 
15.5
%
Combined ratio
 
95.7
%
 
71.3
%
 
100.6
%
 
87.5
%
 
101.6
%
 
88.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written to gross premiums written
 
69.1
%
 
85.5
%
 
91.5
%
 
75.2
%
 
92.1
%
 
80.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Total investable assets
 
 
 
 
 
 
 
$
14,609,969

 
$
1,163,240

 
$
15,773,209

Total assets
 
 
 
 
 
 
 
20,527,027

 
1,482,516

 
22,009,543

Total liabilities
 
 
 
 
 
 
 
14,492,237

 
398,660

 
14,890,897

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

 
11
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Segment Information

(U.S. Dollars in thousands)
 
Three Months Ended
 
 
December 31, 2013
 
 
Insurance
 
Reinsurance
 
Mortgage
 
Sub-total
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written (1)
 
$
636,949

 
$
299,818

 
$
20,435

 
$
955,199

 
$
—

 
$
955,199

Premiums ceded
 
(196,242
)
 
(12,039
)
 
—

 
(206,278
)
 
—

 
(206,278
)
Net premiums written
 
440,707

 
287,779

 
20,435

 
748,921

 
—

 
748,921

Change in unearned premiums
 
52,557

 
44,150

 
(6,262
)
 
90,445

 
—

 
90,445

Net premiums earned
 
493,264

 
331,929

 
14,173

 
839,366

 
—

 
839,366

Other underwriting income
 
523

 
4,891

 
259

 
5,673

 
—

 
5,673

Losses and loss adjustment expenses
 
(307,865
)
 
(127,989
)
 
1,531

 
(434,323
)
 
—

 
(434,323
)
Acquisition expenses, net
 
(84,098
)
 
(66,876
)
 
(6,547
)
 
(157,521
)
 
—

 
(157,521
)
Other operating expenses
 
(83,171
)
 
(38,356
)
 
(3,350
)
 
(124,877
)
 
—

 
(124,877
)
Underwriting income
 
$
18,653

 
$
103,599

 
$
6,066

 
128,318

 
—

 
128,318

 
 
 
 
 
 
 
 
 
 
 
 
 
Net investment income
 
 
 
 
 
 
 
67,095

 
—

 
67,095

Net realized gains (losses)
 
 
 
 
 
 
 
9,048

 
—

 
9,048

Net impairment losses recognized in earnings
 
 
 
 
 
 
 
(88
)
 
—

 
(88
)
Equity in net income of investment funds accounted for using the equity method
 
 
 
 
 
 
 
5,272

 
—

 
5,272

Other income (loss)
 
 
 
 
 
 
 
(3,288
)
 
—

 
(3,288
)
Other expenses
 
 
 
 
 
 
 
(10,192
)
 
—

 
(10,192
)
Interest expense
 
 
 
 
 
 
 
(9,373
)
 
—

 
(9,373
)
Net foreign exchange gains (losses)
 
 
 
 
 
 
 
(9,848
)
 
—

 
(9,848
)
Income before income taxes
 
 
 
 
 
 
 
176,944

 
—

 
176,944

Income tax expense
 
 
 
 
 
 
 
(15,454
)
 
—

 
(15,454
)
Net income
 
 
 
 
 
 
 
161,490

 
—

 
161,490

Dividends attributable to redeemable noncontrolling interests
 
 
 
 
 
 
 
—

 
—

 
—

Amounts attributable to nonredeemable noncontrolling interests
 
 
 
 
 
 
 
—

 
—

 
—

Net income available to Arch
 
 
 
 
 
 
 
161,490

 
—

 
161,490

Preferred dividends
 
 
 
 
 
 
 
(5,485
)
 
—

 
(5,485
)
Net income available to Arch common shareholders
 
 
 
 
 
 
 
$
156,005

 
$
—

 
$
156,005

 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting Ratios
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
62.4
%
 
38.6
%
 
(10.8
)%
 
51.7
%
 
—

 
51.7
%
Acquisition expense ratio
 
17.0
%
 
20.1
%
 
46.2
 %
 
18.8
%
 
—

 
18.8
%
Other operating expense ratio
 
16.9
%
 
11.6
%
 
23.6
 %
 
14.9
%
 
—

 
14.9
%
Combined ratio
 
96.3
%
 
70.3
%
 
59.0
 %
 
85.4
%
 
—

 
85.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written to gross premiums written
 
69.2
%
 
96.0
%
 
100.0
 %
 
78.4
%
 
—

 
78.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Total investable assets
 
 
 
 
 
 
 
$
14,049,525

 
$
—

 
$
14,049,525

Total assets
 
 
 
 
 
 
 
19,566,094

 
—

 
19,566,094

Total liabilities
 
 
 
 
 
 
 
13,918,598

 
—

 
13,918,598

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

 
12
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Segment Information

(U.S. Dollars in thousands)
 
Year Ended
 
 
December 31, 2014
 
 
Insurance
 
Reinsurance
 
Mortgage
 
Sub-total
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written (1)
 
$
3,008,669

 
$
1,527,245

 
$
227,356

 
$
4,760,394

 
$
288,627

 
$
4,840,616

Premiums ceded
 
(862,015
)
 
(261,254
)
 
(22,519
)
 
(1,142,912
)
 
(14,171
)
 
(948,678
)
Net premiums written
 
2,146,654

 
1,265,991

 
204,837

 
3,617,482

 
274,456

 
3,891,938

Change in unearned premiums
 
(129,284
)
 
13,337

 
(11,264
)
 
(127,211
)
 
(170,979
)
 
(298,190
)
Net premiums earned
 
2,017,370

 
1,279,328

 
193,573

 
3,490,271

 
103,477

 
3,593,748

Other underwriting income
 
2,135

 
3,167

 
4,840

 
10,142

 
—

 
10,142

Losses and loss adjustment expenses
 
(1,260,953
)
 
(532,450
)
 
(55,674
)
 
(1,849,077
)
 
(70,173
)
 
(1,919,250
)
Acquisition expenses, net
 
(316,308
)
 
(261,438
)
 
(49,400
)
 
(627,146
)
 
(30,116
)
 
(657,262
)
Other operating expenses
 
(335,157
)
 
(147,964
)
 
(66,891
)
 
(550,012
)
 
(6,268
)
 
(556,280
)
Underwriting income (loss)
 
$
107,087

 
$
340,643

 
$
26,448

 
474,178

 
(3,080
)
 
471,098

 
 
 
 
 
 
 
 
 
 
 
 
 
Net investment income
 
 
 
 
 
 
 
284,336

 
18,249

 
302,585

Net realized gains (losses)
 
 
 
 
 
 
 
133,384

 
(30,467
)
 
102,917

Net impairment losses recognized in earnings
 
 
 
 
 
 
 
(30,150
)
 
—

 
(30,150
)
Equity in net income of investment funds accounted for using the equity method
 
 
 
 
 
 
 
19,883

 
—

 
19,883

Other income (loss)
 
 
 
 
 
 
 
(10,252
)
 
—

 
(10,252
)
Other expenses
 
 
 
 
 
 
 
(47,615
)
 
(2,329
)
 
(49,944
)
Interest expense
 
 
 
 
 
 
 
(45,634
)
 
—

 
(45,634
)
Net foreign exchange gains (losses)
 
 
 
 
 
 
 
82,658

 
1,086

 
83,744

Income before income taxes
 
 
 
 
 
 
 
860,788

 
(16,541
)
 
844,247

Income tax expense
 
 
 
 
 
 
 
(22,987
)
 
—

 
(22,987
)
Net income
 
 
 
 
 
 
 
837,801

 
(16,541
)
 
821,260

Dividends attributable to redeemable noncontrolling interests
 
 
 
 
 
 
 
—

 
(14,727
)
 
(14,727
)
Amounts attributable to nonredeemable noncontrolling interests
 
 
 
 
 
 
 
—

 
27,822

 
27,822

Net income available to Arch
 
 
 
 
 
 
 
837,802

 
(3,447
)
 
834,355

Preferred dividends
 
 
 
 
 
 
 
(21,938
)
 
—

 
(21,938
)
Net income available to Arch common shareholders
 
 
 
 
 
 
 
$
815,864

 
$
(3,447
)
 
$
812,417

 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting Ratios
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
62.5
%
 
41.6
%
 
28.8
%
 
53.0
%
 
67.8
%
 
53.4
%
Acquisition expense ratio
 
15.7
%
 
20.4
%
 
25.5
%
 
18.0
%
 
29.1
%
 
18.3
%
Other operating expense ratio
 
16.6
%
 
11.6
%
 
34.6
%
 
15.8
%
 
6.1
%
 
15.5
%
Combined ratio
 
94.8
%
 
73.6
%
 
88.9
%
 
86.8
%
 
103.0
%
 
87.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written to gross premiums written
 
71.3
%
 
82.9
%
 
90.1
%
 
76.0
%
 
95.1
%
 
80.4
%

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

 
13
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Segment Information

(U.S. Dollars in thousands)
 
Year Ended
 
 
December 31, 2013
 
 
Insurance
 
Reinsurance
 
Mortgage
 
Sub-total
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written (1)
 
$
2,712,509

 
$
1,399,621

 
$
89,570

 
$
4,196,623

 
$
—

 
$
4,196,623

Premiums ceded
 
(763,713
)
 
(86,620
)
 
—

 
(845,256
)
 
—

 
(845,256
)
Net premiums written
 
1,948,796

 
1,313,001

 
89,570

 
3,351,367

 
—

 
3,351,367

Change in unearned premiums
 
(72,782
)
 
(94,329
)
 
(38,304
)
 
(205,415
)
 
—

 
(205,415
)
Net premiums earned
 
1,876,014

 
1,218,672

 
51,266

 
3,145,952

 
—

 
3,145,952

Other underwriting income
 
2,122

 
5,258

 
259

 
7,639

 
—

 
7,639

Losses and loss adjustment expenses
 
(1,188,445
)
 
(486,236
)
 
(4,743
)
 
(1,679,424
)
 
—

 
(1,679,424
)
Acquisition expenses, net
 
(311,904
)
 
(234,373
)
 
(17,826
)
 
(564,103
)
 
—

 
(564,103
)
Other operating expenses
 
(315,387
)
 
(134,563
)
 
(8,377
)
 
(458,327
)
 
—

 
(458,327
)
Underwriting income
 
$
62,400

 
$
368,758

 
$
20,579

 
451,737

 
—

 
451,737

 
 
 
 
 
 
 
 
 
 
 
 
 
Net investment income
 
 
 
 
 
 
 
267,219

 
—

 
267,219

Net realized gains (losses)
 
 
 
 
 
 
 
74,018

 
—

 
74,018

Net impairment losses recognized in earnings
 
 
 
 
 
 
 
(3,786
)
 
—

 
(3,786
)
Equity in net income of investment funds accounted for using the equity method
 
 
 
 
 
 
 
35,701

 
—

 
35,701

Other income (loss)
 
 
 
 
 
 
 
(586
)
 
—

 
(586
)
Other expenses
 
 
 
 
 
 
 
(42,403
)
 
—

 
(42,403
)
Interest expense
 
 
 
 
 
 
 
(27,060
)
 
—

 
(27,060
)
Net foreign exchange gains (losses)
 
 
 
 
 
 
 
(12,335
)
 
—

 
(12,335
)
Income before income taxes
 
 
 
 
 
 
 
742,505

 
—

 
742,505

Income tax expense
 
 
 
 
 
 
 
(32,774
)
 
—

 
(32,774
)
Net income
 
 
 
 
 
 
 
709,731

 
—

 
709,731

Dividends attributable to redeemable noncontrolling interests
 
 
 
 
 
 
 
—

 
—

 
—

Amounts attributable to nonredeemable noncontrolling interests
 
 
 
 
 
 
 
—

 
—

 
—

Net income available to Arch
 
 
 
 
 
 
 
709,731

 
—

 
709,731

Preferred dividends
 
 
 
 
 
 
 
(21,938
)
 
—

 
(21,938
)
Net income available to Arch common shareholders
 
 
 
 
 
 
 
$
687,793

 
$
—

 
$
687,793

 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting Ratios
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
63.3
%
 
39.9
%
 
9.3
%
 
53.4
%
 
—

 
53.4
%
Acquisition expense ratio
 
16.6
%
 
19.2
%
 
34.8
%
 
17.9
%
 
—

 
17.9
%
Other operating expense ratio
 
16.8
%
 
11.0
%
 
16.3
%
 
14.6
%
 
—

 
14.6
%
Combined ratio
 
96.7
%
 
70.1
%
 
60.4
%
 
85.9
%
 
—

 
85.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written to gross premiums written
 
71.8
%
 
93.8
%
 
100.0
%
 
79.9
%
 
—

 
79.9
%

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

 
14
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Segment Information — Insurance Segment

(U.S. Dollars in thousands)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
 
$
699,109

 
$
726,683

 
$
852,231

 
$
730,646

 
$
636,949

 
$
3,008,669

 
$
2,712,509

Premiums ceded
 
(215,933
)
 
(187,689
)
 
(273,349
)
 
(185,044
)
 
(196,242
)
 
(862,015
)
 
(763,713
)
Net premiums written
 
483,176

 
538,994

 
578,882

 
545,602

 
440,707

 
2,146,654

 
1,948,796

Change in unearned premiums
 
29,594

 
(19,607
)
 
(71,170
)
 
(68,101
)
 
52,557

 
(129,284
)
 
(72,782
)
Net premiums earned
 
512,770

 
519,387

 
507,712

 
477,501

 
493,264

 
2,017,370

 
1,876,014

Other underwriting income
 
622

 
499

 
514

 
500

 
523

 
2,135

 
2,122

Losses and loss adjustment expenses
 
(324,338
)
 
(338,319
)
 
(311,526
)
 
(286,770
)
 
(307,865
)
 
(1,260,953
)
 
(1,188,445
)
Acquisition expenses, net
 
(81,152
)
 
(81,775
)
 
(76,449
)
 
(76,932
)
 
(84,098
)
 
(316,308
)
 
(311,904
)
Other operating expenses
 
(85,046
)
 
(83,138
)
 
(85,829
)
 
(81,144
)
 
(83,171
)
 
(335,157
)
 
(315,387
)
Underwriting income
 
$
22,856

 
$
16,654

 
$
34,422

 
$
33,155

 
$
18,653

 
$
107,087

 
$
62,400

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting Ratios
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
63.3
 %
 
65.1
 %
 
61.4
 %
 
60.1
 %
 
62.4
 %
 
62.5
 %
 
63.3
 %
Acquisition expense ratio
 
15.8
 %
 
15.7
 %
 
15.1
 %
 
16.1
 %
 
17.0
 %
 
15.7
 %
 
16.6
 %
Other operating expense ratio
 
16.6
 %
 
16.0
 %
 
16.9
 %
 
17.0
 %
 
16.9
 %
 
16.6
 %
 
16.8
 %
Combined ratio
 
95.7
 %
 
96.8
 %
 
93.4
 %
 
93.2
 %
 
96.3
 %
 
94.8
 %
 
96.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Catastrophic activity and prior year development:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current accident year catastrophic events, net of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
reinsurance and reinstatement premiums
 
1.1
 %
 
0.4
 %
 
0.7
 %
 
0.5
 %
 
0.4
 %
 
0.7
 %
 
1.1
 %
Net (favorable) adverse development in prior year loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
reserves, net of related adjustments
 
(1.8
)%
 
(1.6
)%
 
(3.2
)%
 
(2.2
)%
 
(0.6
)%
 
(2.2
)%
 
(1.9
)%
Combined ratio excluding such items
 
96.4
 %
 
98.0
 %
 
95.9
 %
 
94.9
 %
 
96.5
 %
 
96.3
 %
 
97.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written to gross premiums written
 
69.1
 %
 
74.2
 %
 
67.9
 %
 
74.7
 %
 
69.2
 %
 
71.3
 %
 
71.8
 %

 

 
15
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Segment Information — Insurance Segment

(U.S. Dollars in thousands)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Programs
 
$
102,391

 
21.2
%
 
$
129,227

 
24.0
%
 
$
126,722

 
21.9
%
 
$
122,240

 
22.4
%
 
$
96,781

 
22.0
%
 
$
480,580

 
22.4
%
 
$
419,673

 
21.5
%
Professional lines (1)
 
119,487

 
24.7
%
 
119,798

 
22.2
%
 
114,411

 
19.8
%
 
122,908

 
22.5
%
 
106,174

 
24.1
%
 
476,604

 
22.2
%
 
476,193

 
24.4
%
Construction and national accounts
 
56,984

 
11.8
%
 
55,342

 
10.3
%
 
79,171

 
13.7
%
 
95,497

 
17.5
%
 
66,177

 
15.0
%
 
286,994

 
13.4
%
 
271,110

 
13.9
%
Property, energy, marine and aviation
 
43,869

 
9.1
%
 
53,485

 
9.9
%
 
84,530

 
14.6
%
 
62,756

 
11.5
%
 
38,064

 
8.6
%
 
244,640

 
11.4
%
 
280,551

 
14.4
%
Excess and surplus casualty (2)
 
59,238

 
12.3
%
 
50,552

 
9.4
%
 
58,789

 
10.2
%
 
43,940

 
8.1
%
 
48,230

 
10.9
%
 
212,519

 
9.9
%
 
149,286

 
7.7
%
Travel, accident and health
 
26,001

 
5.4
%
 
44,500

 
8.3
%
 
34,393

 
5.9
%
 
40,838

 
7.5
%
 
22,835

 
5.2
%
 
145,732

 
6.8
%
 
104,903

 
5.4
%
Lenders products
 
25,693

 
5.3
%
 
27,799

 
5.2
%
 
24,909

 
4.3
%
 
22,006

 
4.0
%
 
23,212

 
5.3
%
 
100,407

 
4.7
%
 
101,576

 
5.2
%
Other (3)
 
49,513

 
10.2
%
 
58,291

 
10.8
%
 
55,957

 
9.7
%
 
35,417

 
6.5
%
 
39,234

 
8.9
%
 
199,178

 
9.3
%
 
145,504

 
7.5
%
Total
 
$
483,176

 
100.0
%
 
$
538,994

 
100.0
%
 
$
578,882

 
100.0
%
 
$
545,602

 
100.0
%
 
$
440,707

 
100.0
%
 
$
2,146,654

 
100.0
%
 
$
1,948,796

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Client location
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
389,125

 
80.5
%
 
$
448,932

 
83.3
%
 
$
464,730

 
80.3
%
 
$
423,394

 
77.6
%
 
$
363,982

 
82.6
%
 
$
1,726,181

 
80.4
%
 
$
1,526,156

 
78.3
%
Europe
 
55,959

 
11.6
%
 
40,810

 
7.6
%
 
57,918

 
10.0
%
 
85,449

 
15.7
%
 
42,437

 
9.6
%
 
240,136

 
11.2
%
 
226,254

 
11.6
%
Asia and Pacific
 
15,834

 
3.3
%
 
21,314

 
4.0
%
 
23,833

 
4.1
%
 
18,583

 
3.4
%
 
19,188

 
4.4
%
 
79,564

 
3.7
%
 
95,970

 
4.9
%
Other
 
22,258

 
4.6
%
 
27,938

 
5.2
%
 
32,401

 
5.6
%
 
18,176

 
3.3
%
 
15,100

 
3.4
%
 
100,773

 
4.7
%
 
100,416

 
5.2
%
Total
 
$
483,176

 
100.0
%
 
$
538,994

 
100.0
%
 
$
578,882

 
100.0
%
 
$
545,602

 
100.0
%
 
$
440,707

 
100.0
%
 
$
2,146,654

 
100.0
%
 
$
1,948,796

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting location
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
380,828

 
78.8
%
 
$
442,193

 
82.0
%
 
$
449,823

 
77.7
%
 
$
416,043

 
76.3
%
 
$
356,452

 
80.9
%
 
$
1,688,887

 
78.7
%
 
$
1,478,930

 
75.9
%
Europe
 
86,791

 
18.0
%
 
82,820

 
15.4
%
 
108,115

 
18.7
%
 
116,704

 
21.4
%
 
66,160

 
15.0
%
 
394,430

 
18.4
%
 
389,763

 
20.0
%
Other
 
15,557

 
3.2
%
 
13,981

 
2.6
%
 
20,944

 
3.6
%
 
12,855

 
2.4
%
 
18,095

 
4.1
%
 
63,337

 
3.0
%
 
80,103

 
4.1
%
Total
 
$
483,176

 
100.0
%
 
$
538,994

 
100.0
%
 
$
578,882

 
100.0
%
 
$
545,602

 
100.0
%
 
$
440,707

 
100.0
%
 
$
2,146,654

 
100.0
%
 
$
1,948,796

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Programs
 
$
119,081

 
23.2
%
 
$
118,087

 
22.7
%
 
$
114,043

 
22.5
%
 
$
109,181

 
22.9
%
 
$
106,038

 
21.5
%
 
$
460,392

 
22.8
%
 
$
386,840

 
20.6
%
Professional lines (1)
 
109,529

 
21.4
%
 
118,204

 
22.8
%
 
116,031

 
22.9
%
 
112,744

 
23.6
%
 
117,573

 
23.8
%
 
456,508

 
22.6
%
 
491,791

 
26.2
%
Construction and national accounts
 
68,529

 
13.4
%
 
68,229

 
13.1
%
 
72,064

 
14.2
%
 
68,989

 
14.4
%
 
67,319

 
13.6
%
 
277,811

 
13.8
%
 
250,729

 
13.4
%
Property, energy, marine and aviation
 
57,732

 
11.3
%
 
59,432

 
11.4
%
 
66,221

 
13.0
%
 
61,589

 
12.9
%
 
76,874

 
15.6
%
 
244,974

 
12.1
%
 
304,294

 
16.2
%
Excess and surplus casualty (2)
 
50,601

 
9.9
%
 
48,716

 
9.4
%
 
43,600

 
8.6
%
 
39,107

 
8.2
%
 
35,529

 
7.2
%
 
182,024

 
9.0
%
 
118,395

 
6.3
%
Travel, accident and health
 
33,990

 
6.6
%
 
34,991

 
6.7
%
 
30,645

 
6.0
%
 
28,065

 
5.9
%
 
27,964

 
5.7
%
 
127,691

 
6.3
%
 
97,135

 
5.2
%
Lenders products
 
24,252

 
4.7
%
 
23,591

 
4.5
%
 
22,763

 
4.5
%
 
23,832

 
5.0
%
 
25,370

 
5.1
%
 
94,438

 
4.7
%
 
99,847

 
5.3
%
Other (3)
 
49,056

 
9.6
%
 
48,137

 
9.3
%
 
42,345

 
8.3
%
 
33,994

 
7.1
%
 
36,597

 
7.4
%
 
173,532

 
8.6
%
 
126,983

 
6.8
%
Total
 
$
512,770

 
100.0
%
 
$
519,387

 
100.0
%
 
$
507,712

 
100.0
%
 
$
477,501

 
100.0
%
 
$
493,264

 
100.0
%
 
$
2,017,370

 
100.0
%
 
$
1,876,014

 
100.0
%

(1)    Includes professional liability, executive assurance and healthcare
business.
(2)    Includes casualty and contract binding business.
(3)    Includes alternative markets, excess workers’ compensation and surety
business.

 
16
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Segment Information — Reinsurance Segment

(U.S. Dollars in thousands)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
 
$
314,604

 
$
345,747

 
$
349,841

 
$
517,053

 
$
299,818

 
$
1,527,245

 
$
1,399,621

Premiums ceded
 
(45,631
)
 
(83,502
)
 
(58,994
)
 
(73,127
)
 
(12,039
)
 
(261,254
)
 
(86,620
)
Net premiums written
 
268,973

 
262,245

 
290,847

 
443,926

 
287,779

 
1,265,991

 
1,313,001

Change in unearned premiums
 
36,832

 
34,303

 
44,780

 
(102,578
)
 
44,150

 
13,337

 
(94,329
)
Net premiums earned
 
305,805

 
296,548

 
335,627

 
341,348

 
331,929

 
1,279,328

 
1,218,672

Other underwriting income
 
2,333

 
215

 
303

 
316

 
4,891

 
3,167

 
5,258

Losses and loss adjustment expenses
 
(118,705
)
 
(123,784
)
 
(150,325
)
 
(139,636
)
 
(127,989
)
 
(532,450
)
 
(486,236
)
Acquisition expenses, net
 
(61,765
)
 
(60,205
)
 
(66,035
)
 
(73,433
)
 
(66,876
)
 
(261,438
)
 
(234,373
)
Other operating expenses
 
(37,766
)
 
(36,337
)
 
(37,666
)
 
(36,195
)
 
(38,356
)
 
(147,964
)
 
(134,563
)
Underwriting income
 
$
89,902

 
$
76,437

 
$
81,904

 
$
92,400

 
$
103,599

 
$
340,643

 
$
368,758

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting Ratios
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
38.8
 %
 
41.7
 %
 
44.8
 %
 
40.9
 %
 
38.6
 %
 
41.6
 %
 
39.9
 %
Acquisition expense ratio
 
20.2
 %
 
20.3
 %
 
19.7
 %
 
21.5
 %
 
20.1
 %
 
20.4
 %
 
19.2
 %
Other operating expense ratio
 
12.3
 %
 
12.3
 %
 
11.2
 %
 
10.6
 %
 
11.6
 %
 
11.6
 %
 
11.0
 %
Combined ratio
 
71.3
 %
 
74.3
 %
 
75.7
 %
 
73.0
 %
 
70.3
 %
 
73.6
 %
 
70.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Catastrophic activity and prior year development:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current accident year catastrophic events, net of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
reinsurance and reinstatement premiums
 
4.7
 %
 
4.1
 %
 
3.8
 %
 
0.9
 %
 
4.4
 %
 
3.3
 %
 
5.1
 %
Net (favorable) adverse development in prior year loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
reserves, net of related adjustments
 
(20.7
)%
 
(20.4
)%
 
(20.2
)%
 
(20.5
)%
 
(19.0
)%
 
(20.4
)%
 
(17.9
)%
Combined ratio excluding such items
 
87.3
 %
 
90.6
 %
 
92.1
 %
 
92.6
 %
 
84.9
 %
 
90.7
 %
 
82.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written to gross premiums written
 
85.5
 %
 
75.8
 %
 
83.1
 %
 
85.9
 %
 
96.0
 %
 
82.9
 %
 
93.8
 %

 

 
17
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Segment Information — Reinsurance Segment

(U.S. Dollars in thousands)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other specialty (1)
 
$
67,094

 
24.9
%
 
$
84,702

 
32.3
%
 
$
105,721

 
36.3
%
 
$
147,609

 
33.3
%
 
$
99,382

 
34.5
%
 
$
405,126

 
32.0
%
 
$
417,865

 
31.8
%
Property excluding property catastrophe (2)
 
115,843

 
43.1
%
 
77,186

 
29.4
%
 
54,887

 
18.9
%
 
95,127

 
21.4
%
 
62,453

 
21.7
%
 
343,043

 
27.1
%
 
292,536

 
22.3
%
Casualty (3)
 
59,412

 
22.1
%
 
64,048

 
24.4
%
 
67,823

 
23.3
%
 
126,713

 
28.5
%
 
98,664

 
34.3
%
 
317,996

 
25.1
%
 
306,304

 
23.3
%
Property catastrophe
 
6,917

 
2.6
%
 
24,056

 
9.2
%
 
53,986

 
18.6
%
 
52,512

 
11.8
%
 
9,923

 
3.4
%
 
137,471

 
10.9
%
 
220,749

 
16.8
%
Marine and aviation
 
16,886

 
6.3
%
 
9,767

 
3.7
%
 
6,880

 
2.4
%
 
16,911

 
3.8
%
 
13,636

 
4.7
%
 
50,444

 
4.0
%
 
64,380

 
4.9
%
Other (4)
 
2,821

 
1.0
%
 
2,486

 
0.9
%
 
1,550

 
0.5
%
 
5,054

 
1.1
%
 
3,721

 
1.3
%
 
11,911

 
0.9
%
 
11,167

 
0.9
%
Total
 
$
268,973

 
100.0
%
 
$
262,245

 
100.0
%
 
$
290,847

 
100.0
%
 
$
443,926

 
100.0
%
 
$
287,779

 
100.0
%
 
$
1,265,991

 
100.0
%
 
$
1,313,001

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pro rata
 
$
204,803

 
76.1
%
 
$
160,472

 
61.2
%
 
$
123,663

 
42.5
%
 
$
174,197

 
39.2
%
 
$
224,869

 
78.1
%
 
$
663,135

 
52.4
%
 
$
692,024

 
52.7
%
Excess of loss
 
64,170

 
23.9
%
 
101,773

 
38.8
%
 
167,184

 
57.5
%
 
269,729

 
60.8
%
 
62,910

 
21.9
%
 
602,856

 
47.6
%
 
620,977

 
47.3
%
Total
 
$
268,973

 
100.0
%
 
$
262,245

 
100.0
%
 
$
290,847

 
100.0
%
 
$
443,926

 
100.0
%
 
$
287,779

 
100.0
%
 
$
1,265,991

 
100.0
%
 
$
1,313,001

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Client location
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
107,392

 
39.9
%
 
$
123,966

 
47.3
%
 
$
134,649

 
46.3
%
 
$
223,248

 
50.3
%
 
$
157,214

 
54.6
%
 
$
589,255

 
46.5
%
 
$
706,388

 
53.8
%
Europe
 
61,967

 
23.0
%
 
62,102

 
23.7
%
 
74,817

 
25.7
%
 
156,849

 
35.3
%
 
68,454

 
23.8
%
 
355,735

 
28.1
%
 
327,059

 
24.9
%
Asia and Pacific
 
70,122

 
26.1
%
 
24,590

 
9.4
%
 
27,024

 
9.3
%
 
20,890

 
4.7
%
 
18,611

 
6.5
%
 
142,626

 
11.3
%
 
94,252

 
7.2
%
Bermuda
 
12,011

 
4.5
%
 
25,537

 
9.7
%
 
30,497

 
10.5
%
 
9,575

 
2.2
%
 
16,382

 
5.7
%
 
77,620

 
6.1
%
 
87,047

 
6.6
%
Other
 
17,481

 
6.5
%
 
26,050

 
9.9
%
 
23,860

 
8.2
%
 
33,364

 
7.5
%
 
27,118

 
9.4
%
 
100,755

 
8.0
%
 
98,255

 
7.5
%
Total
 
$
268,973

 
100.0
%
 
$
262,245

 
100.0
%
 
$
290,847

 
100.0
%
 
$
443,926

 
100.0
%
 
$
287,779

 
100.0
%
 
$
1,265,991

 
100.0
%
 
$
1,313,001

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting location
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bermuda
 
$
121,459

 
45.2
%
 
$
65,891

 
25.1
%
 
$
100,011

 
34.4
%
 
$
106,990

 
24.1
%
 
$
57,717

 
20.1
%
 
$
394,351

 
31.1
%
 
$
459,467

 
35.0
%
United States
 
90,655

 
33.7
%
 
120,095

 
45.8
%
 
99,636

 
34.3
%
 
182,505

 
41.1
%
 
141,743

 
49.3
%
 
492,891

 
38.9
%
 
507,183

 
38.6
%
Europe
 
50,539

 
18.8
%
 
64,341

 
24.5
%
 
87,080

 
29.9
%
 
141,863

 
32.0
%
 
79,060

 
27.5
%
 
343,823

 
27.2
%
 
309,129

 
23.5
%
Other
 
6,320

 
2.3
%
 
11,918

 
4.5
%
 
4,120

 
1.4
%
 
12,568

 
2.8
%
 
9,259

 
3.2
%
 
34,926

 
2.8
%
 
37,222

 
2.8
%
Total
 
$
268,973

 
100.0
%
 
$
262,245

 
100.0
%
 
$
290,847

 
100.0
%
 
$
443,926

 
100.0
%
 
$
287,779

 
100.0
%
 
$
1,265,991

 
100.0
%
 
$
1,313,001

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other specialty (1)
 
$
93,946

 
30.7
%
 
$
97,337

 
32.8
%
 
$
118,504

 
35.3
%
 
$
114,938

 
33.7
%
 
$
114,964

 
34.6
%
 
$
424,725

 
33.2
%
 
$
387,630

 
31.8
%
Property excluding property catastrophe (2)
 
87,287

 
28.5
%
 
71,663

 
24.2
%
 
69,172

 
20.6
%
 
75,374

 
22.1
%
 
72,862

 
22.0
%
 
303,496

 
23.7
%
 
274,719

 
22.5
%
Casualty (3)
 
79,119

 
25.9
%
 
79,477

 
26.8
%
 
90,176

 
26.9
%
 
78,746

 
23.1
%
 
72,523

 
21.8
%
 
327,518

 
25.6
%
 
241,774

 
19.8
%
Property catastrophe
 
28,674

 
9.4
%
 
32,423

 
10.9
%
 
39,870

 
11.9
%
 
49,794

 
14.6
%
 
56,263

 
17.0
%
 
150,761

 
11.8
%
 
232,423

 
19.1
%
Marine and aviation
 
13,854

 
4.5
%
 
13,110

 
4.4
%
 
15,259

 
4.5
%
 
18,895

 
5.5
%
 
11,043

 
3.3
%
 
61,118

 
4.8
%
 
70,105

 
5.8
%
Other (4)
 
2,925

 
1.0
%
 
2,538

 
0.9
%
 
2,646

 
0.8
%
 
3,601

 
1.1
%
 
4,274

 
1.3
%
 
11,710

 
0.9
%
 
12,021

 
1.0
%
Total
 
$
305,805

 
100.0
%
 
$
296,548

 
100.0
%
 
$
335,627

 
100.0
%
 
$
341,348

 
100.0
%
 
$
331,929

 
100.0
%
 
$
1,279,328

 
100.0
%
 
$
1,218,672

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pro rata
 
$
163,590

 
53.5
%
 
$
156,830

 
52.9
%
 
$
178,344

 
53.1
%
 
$
187,437

 
54.9
%
 
$
177,170

 
53.4
%
 
$
686,201

 
53.6
%
 
$
608,586

 
49.9
%
Excess of loss
 
142,215

 
46.5
%
 
139,718

 
47.1
%
 
157,283

 
46.9
%
 
153,911

 
45.1
%
 
154,759

 
46.6
%
 
593,127

 
46.4
%
 
610,086

 
50.1
%
Total
 
$
305,805

 
100.0
%
 
$
296,548

 
100.0
%
 
$
335,627

 
100.0
%
 
$
341,348

 
100.0
%
 
$
331,929

 
100.0
%
 
$
1,279,328

 
100.0
%
 
$
1,218,672

 
100.0
%

(1)  Includes non-excess motor, surety, accident and health, workers’
compensation catastrophe, agriculture, trade credit and other.        (2)
Includes facultative business.
(3)  Includes executive assurance, professional liability, workers’
compensation, excess motor, healthcare and other.            (4) Includes life,
casualty clash and other.

 
18
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment

(U.S. Dollars in thousands)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
 
$
57,584

 
$
66,389

 
$
55,476

 
$
47,907

 
$
20,435

 
$
227,356

 
$
89,570

Premiums ceded
 
(4,897
)
 
(7,904
)
 
(5,079
)
 
(4,639
)
 
—

 
(22,519
)
 
—

Net premiums written
 
52,687

 
58,485

 
50,397

 
43,268

 
20,435

 
204,837

 
89,570

Change in unearned premiums
 
(1,658
)
 
(5,539
)
 
436

 
(4,503
)
 
(6,262
)
 
(11,264
)
 
(38,304
)
Net premiums earned
 
51,029

 
52,946

 
50,833

 
38,765

 
14,173

 
193,573

 
51,266

Other underwriting income (1)
 
1,870

 
988

 
1,216

 
766

 
259

 
4,840

 
259

Losses and loss adjustment expenses
 
(15,736
)
 
(15,987
)
 
(15,473
)
 
(8,478
)
 
1,531

 
(55,674
)
 
(4,743
)
Acquisition expenses, net
 
(16,807
)
 
(11,958
)
 
(11,481
)
 
(9,154
)
 
(6,547
)
 
(49,400
)
 
(17,826
)
Other operating expenses
 
(18,814
)
 
(17,913
)
 
(16,288
)
 
(13,876
)
 
(3,350
)
 
(66,891
)
 
(8,377
)
Underwriting income
 
$
1,542

 
$
8,076

 
$
8,807

 
$
8,023

 
$
6,066

 
$
26,448

 
$
20,579

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting Ratios
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
30.8
%
 
30.2
 %
 
30.4
%
 
21.9
 %
 
(10.8
)%
 
28.8
 %
 
9.3
 %
Acquisition expense ratio
 
32.9
%
 
22.6
 %
 
22.6
%
 
23.6
 %
 
46.2
 %
 
25.5
 %
 
34.8
 %
Other operating expense ratio
 
36.9
%
 
33.8
 %
 
32.0
%
 
35.8
 %
 
23.6
 %
 
34.6
 %
 
16.3
 %
Combined ratio
 
100.6
%
 
86.6
 %
 
85.0
%
 
81.3
 %
 
59.0
 %
 
88.9
 %
 
60.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (favorable) adverse development in prior year loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
reserves, net of related adjustments
 
1.7
%
 
(1.4
)%
 
0.1
%
 
(3.0
)%
 
(3.1
)%
 
(0.5
)%
 
(0.9
)%
Combined ratio excluding prior year development
 
98.9
%
 
88.0
 %
 
84.9
%
 
84.3
 %
 
62.1
 %
 
89.4
 %
 
61.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written by client location
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
47,027

 
$
54,639

 
$
46,111

 
$
36,556

 
$
13,310

 
$
184,333

 
$
63,692

Other
 
5,660

 
3,846

 
4,286

 
6,712

 
7,125

 
20,504

 
25,878

Total
 
$
52,687

 
$
58,485

 
$
50,397

 
$
43,268

 
$
20,435

 
$
204,837

 
$
89,570

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written by underwriting location
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
25,255

 
$
32,229

 
$
24,594

 
$
16,731

 
$
—

 
$
98,809

 
$
—

Other
 
27,432

 
26,256

 
25,803

 
26,537

 
20,435

 
106,028

 
89,570

Total
 
$
52,687

 
$
58,485

 
$
50,397

 
$
43,268

 
$
20,435

 
$
204,837

 
$
89,570

(1)     Represents income earned on various risk-sharing products offered to
government sponsored enterprises and mortgage lenders.

 
19
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment

(U.S. Dollars in millions)
 
December 31, 2014
 
September 30, 2014
 
June 30, 2014
 
March 31, 2014
Insurance In Force (IIF) (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. mortgage insurance
 
$
22,402

 
47.1
%
 
$
22,055

 
46.3
%
 
$
21,168

 
44.9
%
 
$
21,240

 
46.9
%
Mortgage reinsurance
 
20,772

 
43.7
%
 
21,097

 
44.3
%
 
21,405

 
45.4
%
 
21,161

 
46.7
%
Other (2)
 
4,400

 
9.2
%
 
4,464

 
9.4
%
 
4,586

 
9.7
%
 
2,869

 
6.3
%
Total
 
$
47,574

 
100.0
%
 
$
47,616

 
100.0
%
 
$
47,159

 
100.0
%
 
$
45,270

 
100.0
%
Risk In Force (RIF) (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. mortgage insurance
 
$
5,600

 
55.3
%
 
$
5,506

 
54.4
%
 
$
5,273

 
52.7
%
 
$
5,275

 
52.6
%
Mortgage reinsurance
 
4,393

 
43.4
%
 
4,483

 
44.3
%
 
4,601

 
46.0
%
 
4,664

 
46.6
%
Other (2)
 
136

 
1.3
%
 
136

 
1.3
%
 
139

 
1.4
%
 
80

 
0.8
%
Total
 
$
10,129

 
100.0
%
 
$
10,125

 
100.0
%
 
$
10,013

 
100.0
%
 
$
10,019

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental disclosures for U.S. mortgage insurance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total RIF by credit quality (FICO score):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>=740
 
$
2,917

 
52.1
%
 
$
2,864

 
52.0
%
 
$
2,687

 
51.0
%
 
$
2,671

 
50.6
%
680-739
 
1,846

 
33.0
%
 
1,803

 
32.7
%
 
1,724

 
32.7
%
 
1,713

 
32.5
%
620-679
 
700

 
12.5
%
 
694

 
12.6
%
 
709

 
13.4
%
 
731

 
13.9
%
<620
 
137

 
2.4
%
 
145

 
2.6
%
 
153

 
2.9
%
 
160

 
3.0
%
Total
 
$
5,600

 
100.0
%
 
$
5,506

 
100.0
%
 
$
5,273

 
100.0
%
 
$
5,275

 
100.0
%
Weighted average FICO score
 
733

 
 
 
733

 
 
 
731

 
 
 
730

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total RIF by Loan-To-Value (LTV):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
95.01% and above
 
$
1,123

 
20.1
%
 
$
1,139

 
20.7
%
 
$
1,161

 
22.0
%
 
$
1,183

 
22.4
%
90.01% to 95.00%
 
2,652

 
47.4
%
 
2,558

 
46.5
%
 
2,389

 
45.3
%
 
2,337

 
44.3
%
85.01% to 90.00%
 
1,552

 
27.7
%
 
1,544

 
28.0
%
 
1,474

 
28.0
%
 
1,494

 
28.3
%
85.00% and below
 
273

 
4.9
%
 
265

 
4.8
%
 
249

 
4.7
%
 
261

 
4.9
%
Total
 
$
5,600

 
100.0
%
 
$
5,506

 
100.0
%
 
$
5,273

 
100.0
%
 
$
5,275

 
100.0
%
Weighted average LTV
 
93.4
%
 
 
 
93.4
%
 
 
 
93.4
%
 
 
 
93.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total RIF by State:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wisconsin
 
$
538

 
9.6
%
 
$
532

 
9.7
%
 
$
517

 
9.8
%
 
$
510

 
9.7
%
California
 
480

 
8.6
%
 
474

 
8.6
%
 
454

 
8.6
%
 
460

 
8.7
%
Texas
 
302

 
5.4
%
 
293

 
5.3
%
 
283

 
5.4
%
 
285

 
5.4
%
Minnesota
 
274

 
4.9
%
 
271

 
4.9
%
 
258

 
4.9
%
 
255

 
4.8
%
Florida
 
273

 
4.9
%
 
271

 
4.9
%
 
264

 
5.0
%
 
268

 
5.1
%
Washington
 
232

 
4.1
%
 
231

 
4.2
%
 
228

 
4.3
%
 
230

 
4.4
%
Massachusetts
 
210

 
3.8
%
 
209

 
3.8
%
 
204

 
3.9
%
 
203

 
3.8
%
Alaska
 
209

 
3.7
%
 
207

 
3.8
%
 
202

 
3.8
%
 
201

 
3.8
%
Virginia
 
200

 
3.6
%
 
196

 
3.6
%
 
186

 
3.5
%
 
185

 
3.5
%
New York
 
188

 
3.4
%
 
188

 
3.4
%
 
184

 
3.5
%
 
186

 
3.5
%
Others
 
2,694

 
48.1
%
 
2,634

 
47.8
%
 
2,493

 
47.3
%
 
2,492

 
47.2
%
Total
 
$
5,600

 
100.0
%
 
$
5,506

 
100.0
%
 
$
5,273

 
100.0
%
 
$
5,275

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average coverage (end of period RIF divided by IIF)
 
25.0
%
 
 
 
25.0
%
 
 
 
24.9
%
 
 
 
24.8
%
 
 
Analysts’ persistency (4)
 
80.9
%
 
 
 
81.2
%
 
 
 
80.5
%
 
 
 
79.1
%
 
 
Risk-to-capital ratio (5)
 
9.5:1

 
 
 
9.3:1

 
 
 
8.9:1

 
 
 
9.0:1

 
 

(1)    The aggregate dollar amount of each insured mortgage loan’s original
principal balance.     
(2)    Includes risk-sharing products offered to government sponsored
enterprises and mortgage lenders and international insurance business.        
(3)    The aggregate dollar amount of each insured mortgage loan’s current
principal balance multiplied by the insurance coverage percentage specified in
the policy for insurance policies issued.
(4)    Represents the percentage of IIF at the beginning of a 12-month period
that remained in force at the end of the period.        
(5)    Represents total current (non-delinquent) RIF, net of reinsurance,
divided by total statutory capital. Ratio calculated for Arch Mortgage Insurance
Company only (estimate for December 31, 2014).

 
20
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Segment Information — Mortgage Segment

(U.S. Dollars in millions, except policy/loan/claim count)
 
Three Months Ended
 
Year Ended
 
 
December 31, 2014
 
September 30, 2014
 
June 30, 2014
 
March 31, 2014 (1)
 
December 31, 2014 (1)
Supplemental disclosures for U.S. mortgage insurance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total new insurance written (NIW) (2)
 
$
1,359

 
 
 
$
1,982

 
 
 
$
941

 
 
 
$
639

 
 
 
$
4,921

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total NIW by credit quality (FICO score):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>=740
 
$
730

 
53.7
%
 
$
1,279

 
64.5
%
 
$
534

 
56.7
%
 
$
375

 
58.7
%
 
$
2,918

 
59.3
%
680-739
 
480

 
35.3
%
 
629

 
31.7
%
 
339

 
36.0
%
 
225

 
35.2
%
 
1,673

 
34.0
%
620-679
 
149

 
11.0
%
 
74

 
3.7
%
 
68

 
7.2
%
 
39

 
6.1
%
 
330

 
6.7
%
  Total
 
$
1,359

 
100.0
%
 
$
1,982

 
100.0
%
 
$
941

 
100.0
%
 
$
639

 
100.0
%
 
$
4,921

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total NIW by LTV:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
95.01% and above
 
$
79

 
5.8
%
 
$
81

 
4.1
%
 
$
70

 
7.4
%
 
$
45

 
7.0
%
 
$
275

 
5.6
%
90.01% to 95.00%
 
620

 
45.6
%
 
904

 
45.6
%
 
500

 
53.1
%
 
330

 
51.6
%
 
2,354

 
47.8
%
85.01% to 90.00%
 
389

 
28.6
%
 
646

 
32.6
%
 
265

 
28.2
%
 
186

 
29.1
%
 
1,486

 
30.2
%
85.01% and below
 
271

 
19.9
%
 
351

 
17.7
%
 
106

 
11.3
%
 
78

 
12.2
%
 
806

 
16.4
%
  Total
 
$
1,359

 
100.0
%
 
$
1,982

 
100.0
%
 
$
941

 
100.0
%
 
$
639

 
100.0
%
 
$
4,921

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total NIW purchase vs. refinance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchase
 
$
950

 
69.9
%
 
$
1,234

 
62.3
%
 
$
786

 
83.5
%
 
$
487

 
76.2
%
 
$
3,457

 
70.2
%
Refinance
 
409

 
30.1
%
 
748

 
37.7
%
 
155

 
16.5
%
 
152

 
23.8
%
 
1,464

 
29.8
%
  Total
 
$
1,359

 
100.0
%
 
$
1,982

 
100.0
%
 
$
941

 
100.0
%
 
$
639

 
100.0
%
 
$
4,921

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending number of policies in force (PIF)
 
131,111

 
 
 
129,665

 
 
 
126,347

 
 
 
127,019

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rollforward of insured loans in default:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning delinquent number of loans
 
3,625

 
 
 
3,641

 
 
 
3,858

 
 
 
4,469

 
 
 
4,469

 
 
  Plus: new notices
 
1,402

 
 
 
1,553

 
 
 
1,377

 
 
 
1,458

 
 
 
5,790

 
 
  Less: cures
 
(1,202
)
 
 
 
(1,168
)
 
 
 
(1,202
)
 
 
 
(1,635
)
 
 
 
(5,207
)
 
 
  Less: paid claims
 
(351
)
 
 
 
(397
)
 
 
 
(383
)
 
 
 
(429
)
 
 
 
(1,560
)
 
 
  Less: delinquent rescissions and denials
 
—

 
 
 
(4
)
 
 
 
(9
)
 
 
 
(5
)
 
 
 
(18
)
 
 
Ending delinquent number of loans
 
3,474

 
 
 
3,625

 
 
 
3,641

 
 
 
3,858

 
 
 
3,474

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending percentage of loans in default
 
2.6
%
 
 
 
2.8
%
 
 
 
2.9
%
 
 
 
3.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of claims paid
 
351

 
 
 
397

 
 
 
383

 
 
 
429

 
 
 
1,560

 
 
Total paid claims (in thousands)
 
$
15,358

 
 
 
$
17,093

 
 
 
$
16,190

 
 
 
$
18,117

 
 
 
$
66,758

 
 
Average per claim (in thousands)
 
$
43.8

 
 
 
$
43.1

 
 
 
$
42.3

 
 
 
$
42.2

 
 
 
$
42.8

 
 
Severity (3)
 
99.2
%
 
 
 
93.7
%
 
 
 
93.0
%
 
 
 
97.4
%
 
 
 
96.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average reserve per default (in thousands)
 
$
27.5

 
 
 
$
27.1

 
 
 
$
28.1

 
 
 
$
27.5

 
 
 
 
 
 

(1)     Includes activity for January 2014 for comparability purposes
(pre-acquisition date).
(2)    The original principal balance of all loans that received coverage during
the period.        
(3)    Represents total paid claims divided by RIF of loans for which claims
were paid.

 
21
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Investment Information — Investable Asset Summary and Investment Portfolio
Metrics

The following table summarizes the Company’s investable assets and portfolio
metrics:
(U.S. Dollars in thousands)
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investable assets (1) (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities available for sale, at fair value
 
$
10,750,770

 
73.6
 %
 
$
10,733,382

 
73.6
 %
 
$
10,714,532

 
72.9
 %
 
$
9,775,730

 
68.5
 %
 
$
9,571,776

 
68.1
%
Fixed maturities, at fair value (3)
 
377,053

 
2.6
 %
 
359,409

 
2.5
 %
 
372,746

 
2.5
 %
 
456,826

 
3.2
 %
 
448,254

 
3.2
%
Fixed maturities pledged under securities lending agreements, at fair value
 
50,802

 
0.3
 %
 
107,547

 
0.7
 %
 
82,730

 
0.6
 %
 
100,590

 
0.7
 %
 
105,081

 
0.7
%
Total fixed maturities
 
11,178,625

 
76.5
 %
 
11,200,338

 
76.8
 %
 
11,170,008

 
76.0
 %
 
10,333,146

 
72.5
 %
 
10,125,111

 
72.1
%
Short-term investments available for sale, at fair value
 
797,226

 
5.5
 %
 
748,659

 
5.1
 %
 
977,058

 
6.7
 %
 
1,484,280

 
10.4
 %
 
1,478,367

 
10.5
%
Short-term investments pledged under securities lending agreements, at fair
value
 
—

 
—
 %
 
—

 
—
 %
 
4,301

 
—
 %
 
—

 
—
 %
 
—

 
—
%
Cash
 
474,247

 
3.2
 %
 
486,351

 
3.3
 %
 
471,721

 
3.2
 %
 
486,325

 
3.4
 %
 
434,057

 
3.1
%
Equity securities available for sale, at fair value
 
658,182

 
4.5
 %
 
582,075

 
4.0
 %
 
608,820

 
4.1
 %
 
548,168

 
3.8
 %
 
496,824

 
3.5
%
Other investments available for sale, at fair value
 
296,224

 
2.0
 %
 
431,833

 
3.0
 %
 
457,567

 
3.1
 %
 
426,917

 
3.0
 %
 
498,310

 
3.5
%
Other investments, at fair value (3)
 
889,253

 
6.1
 %
 
838,054

 
5.7
 %
 
848,864

 
5.8
 %
 
799,824

 
5.6
 %
 
773,280

 
5.5
%
Investments accounted for using the equity method (4)
 
349,014

 
2.4
 %
 
307,252

 
2.1
 %
 
281,464

 
1.9
 %
 
255,488

 
1.8
 %
 
244,339

 
1.7
%
Securities transactions entered into but not settled at the balance sheet date
 
(32,802
)
 
(0.2
)%
 
(9,835
)
 
(0.1
)%
 
(130,922
)
 
(0.9
)%
 
(73,042
)
 
(0.5
)%
 
(763
)
 
—
%
Total investable assets managed by the Company
 
$
14,609,969

 
100.0
 %
 
$
14,584,727

 
100.0
 %
 
$
14,688,881

 
100.0
 %
 
$
14,261,106

 
100.0
 %
 
$
14,049,525

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average effective duration (in years)
 
3.34

 
 
 
3.28

 
 
 
3.14

 
 
 
3.24

 
 
 
2.62

 
 

Average S&P/Moody’s credit ratings (5)
 
 AA/Aa2

 
 
 
 AA/Aa2

 
 
 
 AA/Aa2

 
 
 
 AA/Aa2

 
 
 
 AA-/Aa2

 
 

Embedded book yield (before investment expenses)
 
2.18
%
 
 
 
2.21
%
 
 
 
2.17
%
 
 
 
2.27
%
 
 
 
2.38
%
 
 

(1)    This table excludes investable assets attributable to the ‘other’
segment. Such amounts are summarized as follows:
(U.S. Dollars in thousands)
 
December 31,
 
September 30,
 
March 31,
 
 
2014
 
2014
 
2014
 
 
 
 
 
 
 
Investable assets in ‘other’ segment:
 
 
 
 
 
 
Cash
 
$
11,455

 
$
177,375

 
$
454,722

Investments accounted for using the fair value option
 
1,169,226

 
1,005,532

 
819,481

Securities transactions entered into but not settled at the balance sheet date
 
(17,441
)
 
(58,859
)
 
(159,484
)
Total investable assets included in ‘other’ segment
 
$
1,163,240

 
$
1,124,048

 
$
1,114,719

(2)    This table excludes the collateral received and reinvested and includes
the fixed maturities and short-term investments pledged under securities lending
agreements, at fair value.
(3)    Represents investments which are carried at fair value under the fair
value option and reflected as “investments accounted for using the fair value
option” on the balance sheet.
(4)
Changes in the carrying value of investment funds accounted for using the equity
method are recorded as “equity in net income (loss) of investment funds
accounted for using the equity method” rather than as an unrealized gain or loss
component of accumulated other comprehensive income.

(5)    Average credit ratings on the Company’s investment portfolio on
securities with ratings assigned by Standard & Poor’s (“S&P”) and Moody’s
Investors Service (“Moody’s”).

 
22
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Investment Information — Composition of Fixed Maturities

 
The following table summarizes the Company’s fixed maturities and fixed
maturities pledged under securities lending agreements (excluding amounts
included in the ‘other’ segment):
(U.S. Dollars in thousands)
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized
Gains (Losses)
 
Amortized
Cost
 
Fair Value /
Amortized Cost
 
% of Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporates
 
$
3,295,930

 
$
36,682

 
$
(37,175
)
 
$
(493
)
 
$
3,296,423

 
100.0
%
 
29.5
%
Non-U.S. government-backed corporates
 
83,209

 
1,246

 
(1,799
)
 
(553
)
 
83,762

 
99.3
%
 
0.7
%
U.S. government and government agencies
 
1,447,972

 
8,345

 
(1,760
)
 
6,585

 
1,441,387

 
100.5
%
 
13.0
%
Agency mortgage-backed securities
 
664,151

 
7,481

 
(2,133
)
 
5,348

 
658,803

 
100.8
%
 
5.9
%
Non-agency mortgage-backed securities
 
301,382

 
11,362

 
(1,709
)
 
9,653

 
291,729

 
103.3
%
 
2.7
%
Agency commercial mortgage-backed securities
 
133,366

 
183

 
(2,971
)
 
(2,788
)
 
136,154

 
98.0
%
 
1.2
%
Non-agency commercial mortgage-backed securities
 
981,162

 
14,411

 
(851
)
 
13,560

 
967,602

 
101.4
%
 
8.8
%
Municipal bonds
 
1,494,122

 
31,227

 
(1,044
)
 
30,183

 
1,463,939

 
102.1
%
 
13.4
%
Non-U.S. government securities
 
1,099,390

 
21,311

 
(37,203
)
 
(15,892
)
 
1,115,282

 
98.6
%
 
9.8
%
Asset-backed securities
 
1,677,941

 
8,425

 
(6,089
)
 
2,336

 
1,675,605

 
100.1
%
 
15.0
%
Total
 
$
11,178,625

 
$
140,673

 
$
(92,734
)
 
$
47,939

 
$
11,130,686

 
100.4
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporates
 
$
2,473,901

 
$
34,529

 
$
(34,204
)
 
$
325

 
$
2,473,576

 
100.0
%
 
24.4
%
Non-U.S. government-backed corporates
 
127,427

 
760

 
(1,333
)
 
(573
)
 
128,000

 
99.6
%
 
1.3
%
U.S. government and government agencies
 
1,301,809

 
3,779

 
(11,242
)
 
(7,463
)
 
1,309,272

 
99.4
%
 
12.9
%
Agency mortgage-backed securities
 
810,232

 
2,428

 
(16,703
)
 
(14,275
)
 
824,507

 
98.3
%
 
8.0
%
Non-agency mortgage-backed securities
 
363,896

 
13,842

 
(5,506
)
 
8,336

 
355,560

 
102.3
%
 
3.6
%
Agency commercial mortgage-backed securities
 
172,012

 
1,063

 
(6,700
)
 
(5,637
)
 
177,649

 
96.8
%
 
1.7
%
Non-agency commercial mortgage-backed securities
 
902,485

 
12,909

 
(8,524
)
 
4,385

 
898,100

 
100.5
%
 
8.9
%
Municipal bonds
 
1,481,738

 
29,378

 
(9,730
)
 
19,648

 
1,462,090

 
101.3
%
 
14.6
%
Non-U.S. government securities
 
1,159,017

 
14,729

 
(19,363
)
 
(4,634
)
 
1,163,651

 
99.6
%
 
11.4
%
Asset-backed securities
 
1,332,594

 
20,033

 
(13,795
)
 
6,238

 
1,326,356

 
100.5
%
 
13.2
%
Total
 
$
10,125,111

 
$
133,450

 
$
(127,100
)
 
$
6,350

 
$
10,118,761

 
100.1
%
 
100.0
%

 

 
23
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Investment Information — Credit Quality Distribution and Maturity Profile

The following table summarizes the credit quality distribution and maturity
profile of the Company’s fixed maturities and fixed maturities pledged under
securities lending agreements, excluding amounts included in the ‘other’
segment:
(U.S. Dollars in thousands)
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit quality distribution of total fixed maturities (1) (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and government agencies (3)
 
$
2,245,489

 
20.1
%
 
$
2,328,587

 
20.8
%
 
$
2,339,891

 
20.9
%
 
$
2,070,766

 
20.0
%
 
$
2,284,053

 
22.6
%
AAA
 
4,299,060

 
38.5
%
 
4,282,341

 
38.2
%
 
4,250,726

 
38.1
%
 
3,833,070

 
37.1
%
 
3,709,872

 
36.6
%
AA
 
1,917,392

 
17.2
%
 
1,964,325

 
17.5
%
 
2,072,825

 
18.6
%
 
2,015,706

 
19.5
%
 
1,720,605

 
17.0
%
A
 
1,739,922

 
15.6
%
 
1,623,894

 
14.5
%
 
1,462,471

 
13.1
%
 
1,373,213

 
13.3
%
 
1,359,193

 
13.4
%
BBB
 
339,395

 
3.0
%
 
322,067

 
2.9
%
 
330,207

 
3.0
%
 
279,207

 
2.7
%
 
304,543

 
3.0
%
BB
 
157,232

 
1.4
%
 
166,799

 
1.5
%
 
169,865

 
1.5
%
 
167,484

 
1.6
%
 
180,125

 
1.8
%
B
 
184,869

 
1.7
%
 
203,395

 
1.8
%
 
195,951

 
1.8
%
 
193,581

 
1.9
%
 
188,119

 
1.9
%
Lower than B
 
154,823

 
1.4
%
 
157,499

 
1.4
%
 
177,309

 
1.6
%
 
215,875

 
2.1
%
 
241,463

 
2.4
%
Not rated
 
140,443

 
1.3
%
 
151,431

 
1.4
%
 
170,763

 
1.5
%
 
184,244

 
1.8
%
 
137,138

 
1.4
%
Total fixed maturities, at fair value
 
$
11,178,625

 
100.0
%
 
$
11,200,338

 
100.0
%
 
$
11,170,008

 
100.0
%
 
$
10,333,146

 
100.0
%
 
$
10,125,111

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maturity profile of total fixed maturities (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
247,825

 
2.2
%
 
$
266,002

 
2.4
%
 
$
222,741

 
2.0
%
 
$
312,786

 
3.0
%
 
$
280,187

 
2.8
%
Due after one year through five years
 
4,288,440

 
38.4
%
 
4,409,460

 
39.4
%
 
4,640,884

 
41.5
%
 
4,051,588

 
39.2
%
 
4,005,049

 
39.6
%
Due after five years through ten years
 
2,587,397

 
23.1
%
 
2,310,260

 
20.6
%
 
2,057,463

 
18.4
%
 
1,963,512

 
19.0
%
 
2,049,160

 
20.2
%
Due after 10 years
 
296,961

 
2.7
%
 
273,106

 
2.4
%
 
263,696

 
2.4
%
 
280,970

 
2.7
%
 
209,496

 
2.1
%
 
 
7,420,623

 
66.4
%
 
7,258,828

 
64.8
%
 
7,184,784

 
64.3
%
 
6,608,856

 
64.0
%
 
6,543,892

 
64.6
%
Mortgage-backed securities
 
965,533

 
8.6
%
 
984,767

 
8.8
%
 
1,155,192

 
10.3
%
 
1,127,484

 
10.9
%
 
1,174,128

 
11.6
%
Commercial mortgage-backed securities
 
1,114,528

 
10.0
%
 
1,232,092

 
11.0
%
 
1,119,401

 
10.0
%
 
1,023,055

 
9.9
%
 
1,074,497

 
10.6
%
Asset-backed securities
 
1,677,941

 
15.0
%
 
1,724,651

 
15.4
%
 
1,710,631

 
15.3
%
 
1,573,751

 
15.2
%
 
1,332,594

 
13.2
%
Total fixed maturities, at fair value
 
$
11,178,625

 
100.0
%
 
$
11,200,338

 
100.0
%
 
$
11,170,008

 
100.0
%
 
$
10,333,146

 
100.0
%
 
$
10,125,111

 
100.0
%

(1)    This table excludes the collateral received and reinvested and includes
the fixed maturities and short-term investments pledged under in securities
lending agreements, at fair value.
(2)     For individual fixed maturities, S&P ratings are used. In the absence of
an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch
Ratings.
(3)     Includes U.S. government-sponsored agency mortgage backed securities and
agency commercial mortgage backed securities.

 
24
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Investment Information — Analysis of Corporate Exposures

The following table summarized the Company’s corporate bonds by sector,
excluding government-backed securities and amounts included in the ‘other’
segment:
(U.S. Dollars in thousands)
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sector:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrials
 
$
1,727,553

 
52.4
%
 
$
1,557,042

 
47.9
%
 
$
1,619,675

 
52.4
%
 
$
1,497,915

 
54.6
%
 
$
1,408,012

 
56.9
%
Financials
 
1,149,620

 
34.9
%
 
1,237,335

 
38.0
%
 
1,071,628

 
34.7
%
 
775,732

 
28.3
%
 
702,318

 
28.4
%
Covered bonds
 
209,611

 
6.4
%
 
232,292

 
7.1
%
 
235,787

 
7.6
%
 
233,948

 
8.5
%
 
211,160

 
8.5
%
Utilities
 
146,442

 
4.4
%
 
148,331

 
4.6
%
 
128,012

 
4.1
%
 
125,850

 
4.6
%
 
107,756

 
4.4
%
All other (1)
 
62,704

 
1.9
%
 
77,381

 
2.4
%
 
37,221

 
1.2
%
 
111,472

 
4.1
%
 
44,655

 
1.8
%
Total fixed maturities, at fair value
 
$
3,295,930

 
100.0
%
 
$
3,252,381

 
100.0
%
 
$
3,092,323

 
100.0
%
 
$
2,744,917

 
100.0
%
 
$
2,473,901

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit quality distribution (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AAA
 
$
423,819

 
12.9
%
 
$
446,836

 
13.7
%
 
$
421,711

 
13.6
%
 
$
435,552

 
15.9
%
 
$
312,411

 
12.6
%
AA
 
773,893

 
23.5
%
 
852,197

 
26.2
%
 
843,638

 
27.3
%
 
597,925

 
21.8
%
 
536,110

 
21.7
%
A
 
1,399,218

 
42.5
%
 
1,211,315

 
37.2
%
 
1,059,987

 
34.3
%
 
978,407

 
35.6
%
 
903,956

 
36.5
%
BBB
 
271,826

 
8.2
%
 
262,418

 
8.1
%
 
277,614

 
9.0
%
 
226,918

 
8.3
%
 
246,434

 
10.0
%
BB
 
127,010

 
3.9
%
 
126,557

 
3.9
%
 
126,092

 
4.1
%
 
129,154

 
4.7
%
 
132,271

 
5.3
%
B
 
173,582

 
5.3
%
 
193,645

 
6.0
%
 
180,907

 
5.9
%
 
178,619

 
6.5
%
 
170,831

 
6.9
%
Lower than B
 
20,223

 
0.6
%
 
21,248

 
0.7
%
 
34,213

 
1.1
%
 
40,376

 
1.5
%
 
46,838

 
1.9
%
Not rated
 
106,359

 
3.2
%
 
138,165

 
4.2
%
 
148,161

 
4.8
%
 
157,966

 
5.8
%
 
125,050

 
5.1
%
Total fixed maturities, at fair value
 
$
3,295,930

 
100.0
%
 
$
3,252,381

 
100.0
%
 
$
3,092,323

 
100.0
%
 
$
2,744,917

 
100.0
%
 
$
2,473,901

 
100.0
%

(1)    Includes sovereign securities, supernational securities and other.
(2)    For individual fixed maturities, S&P ratings are used. In the absence of
an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch
Ratings.

The following table summarizes the Company’s top ten exposures to fixed income
corporate issuers by fair value at December 31, 2014, excluding
government-backed securities, covered bonds and amounts included in the ‘other’
segment:
(U.S. Dollars in thousands)
 
Fair
Value
 
% of Asset Class
 
% of Investable Assets
 
Credit Quality (1)
 
 
 
 
 
 
 
 
 
Issuer:
 
 
 
 
 
 
 
 
Apple Inc.
 
$
75,226

 
2.3
%
 
0.5
%
 
AA+/Aa1
General Electric Co.
 
74,471

 
2.3
%
 
0.5
%
 
AA+/A1
Toyota Motor Corporation
 
64,030

 
1.9
%
 
0.4
%
 
AA-/Aa3
Porsche Automobil Holding SE
 
58,583

 
1.8
%
 
0.4
%
 
A/A3
Wells Fargo & Company
 
56,958

 
1.7
%
 
0.4
%
 
A+/A1
Exxon Mobil Corp.
 
56,332

 
1.7
%
 
0.4
%
 
AAA/Aaa
Daimler AG
 
55,951

 
1.7
%
 
0.4
%
 
A-/A3
Caterpillar Inc
 
49,641

 
1.5
%
 
0.3
%
 
A/A2
Royal Dutch Shell PLC
 
44,317

 
1.3
%
 
0.3
%
 
AA/Aa1
New York Life Insurance Company
 
42,801

 
1.3
%
 
0.3
%
 
AA+/Aaa
Total
 
$
578,310

 
17.5
%
 
4.0
%
 
 

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

 
25
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Investment Information — Structured Securities

The following table provides information on the Company’s mortgage-backed
securities (MBS) and commercial mortgage-backed securities (CMBS) at December
31, 2014, excluding amounts guaranteed by U.S. government agencies and amounts
included in the ‘other’ segment:
(U.S. Dollars in thousands)
 
 
 
 
 
Average
 
Estimated Fair Value
 
 
 
 
 
 
 
 
Issuance
 
Amortized
 
Credit
 
 
 
% of Amortized
 
% of Investable
 
 
 
Non-Agency
 
Non-Agency
 
 
Year
 
Cost
 
Quality
 
Total
 
Cost
 
Assets
 
Additional Statistics:
 
MBS
 
CMBS (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-agency MBS:
 
2003-2008
 
$
126,523

 
CCC-
 
$
135,797

 
107.3
%
 
0.9
%
 
Wtd. average loan age (months)
 
82

 
27

 
 
2009
 
28,906

 
AAA
 
28,718

 
99.3
%
 
0.2
%
 
Wtd. average life (months) (2)
 
48

 
55

 
 
2010
 
24,336

 
AA+
 
23,915

 
98.3
%
 
0.2
%
 
Wtd. average loan-to-value % (3)
 
64.2
%
 
57.7
%
 
 
2013
 
90,285

 
AAA
 
91,304

 
101.1
%
 
0.6
%
 
Total delinquencies (4)
 
10.4
%
 
0.5
%
 
 
2014
 
21,679

 
A+
 
21,648

 
99.9
%
 
0.1
%
 
Current credit support % (5)
 
11.5
%
 
35.5
%
Total non-agency MBS
 
 
 
$
291,729

 
BBB-
 
$
301,382

 
103.3
%
 
2.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-agency CMBS:
 
2002-2008
 
$
69,512

 
AA-
 
$
70,297

 
101.1
%
 
0.5
%
 
 
 
 
 
 
 
 
2009
 
368

 
BBB-
 
368

 
100.0
%
 
—
%
 
 
 
 
 
 
 
 
2010
 
43,394

 
AAA
 
44,905

 
103.5
%
 
0.3
%
 
 
 
 
 
 
 
 
2011
 
62,963

 
AAA
 
63,820

 
101.4
%
 
0.4
%
 
 
 
 
 
 
 
 
2012
 
88,584

 
AAA
 
89,851

 
101.4
%
 
0.6
%
 
 
 
 
 
 
 
 
2013
 
239,980

 
AAA
 
244,559

 
101.9
%
 
1.7
%
 
 
 
 
 
 
 
 
2014
 
462,801

 
AAA
 
467,362

 
101.0
%
 
3.2
%
 
 
 
 
 
 
Total non-agency CMBS
 
 
 
$
967,602

 
AAA
 
$
981,162

 
101.4
%
 
6.7
%
 
 
 
 
 
 

 
(1)
Loans defeased with government/agency obligations represented were not material
to the collateral underlying the Company’s CMBS holdings.

(2)
The weighted average life for MBS is based on the interest rates in effect at
December 31, 2014. The weighted average life for CMBS reflects the average life
of the collateral underlying the Company’s CMBS holdings.

(3)
The range of loan-to-values on MBS is 21% to 99%, while the range of
loan-to-values on CMBS is 11% to 100%.

(4)
Total delinquencies includes 60 days and over.

(5)
Current credit support % represents the % for a collateralized mortgage
obligation (“CMO”) or CMBS class/tranche from other subordinate classes in the
same CMO or CMBS deal.

The following table provides information on the Company’s asset-backed
securities (ABS) at December 31, 2014, excluding amounts included in the ‘other’
segment:
(U.S. Dollars in thousands)
 
 
 
Average
 
Weighted
 
Estimated Fair Value
 
 
Amortized
 
Credit
 
Average Credit
 
 
 
% of Amortized
 
% of Investable
 
 
Cost
 
Quality
 
Support
 
Total
 
Cost
 
Assets
 
 
 

 
 
 
 
 
 

 
 

 
 

Sector:
 
 
 
 
 
 
 
 
 
 
 
 
Credit cards
 
$
665,529

 
AAA
 
18
%
 
$
667,806

 
100.3
%
 
4.6
%
Loans
 
301,681

 
AA
 
52
%
 
301,121

 
99.8
%
 
2.1
%
Autos
 
297,384

 
AAA
 
27
%
 
297,954

 
100.2
%
 
2.0
%
Equipment
 
195,860

 
AA-
 
8
%
 
194,629

 
99.4
%
 
1.3
%
Other (1)
 
215,151

 
AA
 
13
%
 
216,431

 
100.6
%
 
1.5
%
Total ABS (2)
 
$
1,675,605

 
AA+
 
 
 
$
1,677,941

 
100.1
%
 
11.5
%

 
(1)
Including rate reduction bonds, commodities, home equity, U.K. securitized and
other.

(2)
The effective duration of the total ABS was 2.1 years at December 31, 2014. The
Company’s investment portfolio included sub-prime securities with a par value of
$16.9 million and estimated fair value of $8.5 million and an average credit
quality of “CCC/Caa3” from S&P/Moody’s at December 31, 2014. Such amounts were
primarily in the home equity sector of ABS with the balance in other ABS, MBS
and CMBS sectors. In addition, the portfolio of collateral backing the Company’s
securities lending program contains sub-prime securities with an estimated fair
value of $5.8 million and an average credit quality of “CCC/Ca” from S&P/Moody’s
at December 31, 2014.

 
26
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Investment Information — Bank Loan Investments

 
The Company’s investments in bank loans are included in the following categories
at December 31, 2014, excluding amounts included in the ‘other’ segment:
(U.S. Dollars in thousands)
 
Fair
Value
 
% of Asset
Class
 
% of Investable
Assets
 
 
 
 
 
 
 
Composition:
 
 

 
 

 
 

Investment funds accounted for using the equity method
 
$
4,767

 
1.2
%
 
—
%
Term loan investments (1)
 
385,970

 
98.8
%
 
2.6
%
Total
 
$
390,737

 
100.0
%
 
2.7
%
 
 
 
 
 
 
 
Currency:
 
 
 
 
 
 
U.S.-denominated
 
$
274,295

 
70.2
%
 
1.9
%
Euro-denominated
 
116,442

 
29.8
%
 
0.8
%
Total
 
$
390,737

 
100.0
%
 
2.7
%
 
 
 
 
 
 
 
Sector:
 
 
 
 
 
 
Consumer cyclical
 
$
92,817

 
23.8
%
 
0.6
%
Consumer non-cyclical
 
81,896

 
21.0
%
 
0.6
%
Industrials
 
76,375

 
19.5
%
 
0.5
%
Utilities
 
46,830

 
12.0
%
 
0.3
%
Media
 
35,626

 
9.1
%
 
0.2
%
Basic materials
 
31,074

 
8.0
%
 
0.2
%
All other
 
26,119

 
6.7
%
 
0.2
%
Total
 
$
390,737

 
100.0
%
 
2.7
%
 
 
 
 
 
 
 
Weighted average rating factor (Moody's)
 
 B1

 
 
 
 

 
(1)    Included in “investments accounted for using the fair value option” on
the Company’s balance sheet.

 
27
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Investment Information — Eurozone Investments

 
The fair value of the Company’s Eurozone investments are as follows at December
31, 2014, excluding amounts included in the ‘other’ segment:
(U.S. Dollars in thousands)
 
 
 
Financial
 
Other
 
Bank
 
Equities
 
 
 
 
Sovereign (2)
 
Corporates
 
Corporates
 
Loans (3)
 
and Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Country (1):
 
 

 
 

 
 

 
 

 
 

 
 

Germany
 
$
174,554

 
$
—

 
$
11,427

 
$
23,183

 
$
—

 
$
209,164

Netherlands
 
107,114

 
1,057

 
59,092

 
16,914

 
—

 
184,177

Supranational (4)
 
59,095

 
—

 
—

 
—

 
—

 
59,095

Luxembourg
 
—

 
3,289

 
31,974

 
9,426

 
1,871

 
46,560

Belgium
 
43,960

 
—

 
—

 
—

 
—

 
43,960

France
 
2,082

 
2,372

 
8,146

 
3,957

 
2,966

 
19,523

Ireland
 
—

 
—

 
2,807

 
1,542

 
—

 
4,349

Finland
 
—

 
—

 
—

 
—

 
3,386

 
3,386

Italy
 
—

 
—

 
1,786

 
416

 
—

 
2,202

Spain
 
—

 
—

 
—

 
1,074

 
—

 
1,074

Slovenia
 
823

 
—

 
—

 
—

 
—

 
823

Greece
 
82

 
—

 
—

 
—

 
—

 
82

Total
 
$
387,710

 
$
6,718

 
$
115,232

 
$
56,512

 
$
8,223

 
$
574,395

 
(1)
The country allocations set forth in the table are based on various assumptions
made by the Company in assessing the country in which the underlying credit risk
resides, including a review of the jurisdiction of organization, business
operations and other factors. Based on such analysis, the Company does not
believe that it has any Eurozone investments from Austria, Estonia, Malta,
Portugal or Slovakia at December 31, 2014.

(2)
Sovereign includes securities issued and/or guaranteed by Eurozone governments.

(3)
Included in “term loan investments” in the Bank Loan Investments table.

(4)
Includes World Bank, European Investment Bank, International Finance Corp. and
European Bank for Reconstruction and Development.

 
28
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Comments on Regulation G

Throughout this financial supplement, the Company presents its operations in the
way it believes will be the most meaningful and useful to investors, analysts,
rating agencies and others who use the Company’s financial information in
evaluating the performance of the Company. This presentation includes the use of
after-tax operating income available to Arch common shareholders, which is
defined as net income available to Arch common shareholders, excluding net
realized gains or losses, net impairment losses recognized in earnings, equity
in net income or loss of investment funds accounted for using the equity method
and net foreign exchange gains or losses, net of income taxes. The presentation
of after-tax operating income available to Arch common shareholders is a
“non-GAAP financial measure” as defined in Regulation G. The reconciliation of
such measure to net income available to Arch common shareholders (the most
directly comparable GAAP financial measure) in accordance with Regulation G is
included on the following page.
 
The Company believes that net realized gains or losses, net impairment losses
recognized in earnings, equity in net income or loss of investment funds
accounted for using the equity method and net foreign exchange gains or losses
in any particular period are not indicative of the performance of, or trends in,
the Company’s business performance. Although net realized gains or losses, net
impairment losses recognized in earnings, equity in net income or loss of
investment funds accounted for using the equity method and net foreign exchange
gains or losses are an integral part of the Company’s operations, the decision
to realize investment gains or losses, the recognition of the change in the
carrying value of investments accounted for using the fair value option in net
realized gains or losses, the recognition of net impairment losses recognized in
earnings, the recognition of equity in net income or loss of investment funds
accounted for using the equity method and the recognition of foreign exchange
gains or losses are independent of the insurance underwriting process and
result, in large part, from general economic and financial market conditions.
Furthermore, certain users of the Company’s financial information believe that,
for many companies, the timing of the realization of investment gains or losses
is largely opportunistic. In addition, net impairment losses recognized in
earnings represent other-than-temporary declines in expected recovery values on
securities without actual realization. The use of the equity method on certain
of the Company’s investments in certain funds that invest in fixed maturity
securities is driven by the ownership structure of such funds (either limited
partnerships or limited liability companies). In applying the equity method,
these investments are initially recorded at cost and are subsequently adjusted
based on 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). This method of accounting is different from the way the Company
accounts for its other fixed maturity securities and the timing of the
recognition of equity in net income or loss of investment funds accounted for
using the equity method may differ from gains or losses in the future upon sale
or maturity of such investments. Due to these reasons, the Company excludes net
realized gains or losses, net impairment losses recognized in earnings, equity
in net income or loss of investment funds accounted for using the equity method
and net foreign exchange gains or losses from the calculation of after-tax
operating income available to Arch common shareholders.
 
The Company believes that showing net income available to Arch common
shareholders exclusive of the items referred to above reflects the underlying
fundamentals of the Company’s business since the Company evaluates the
performance of and manages its business to produce an underwriting profit. In
addition to presenting net income available to Arch common shareholders, the
Company believes that this presentation enables investors and other users of the
Company’s financial information to analyze the Company’s performance in a manner
similar to how the Company’s management analyzes performance. The Company also
believes that this measure follows industry practice and, therefore, allows the
users of the Company’s financial information to compare the Company’s
performance with its industry peer group. The Company believes that the equity
analysts and certain rating agencies which follow the Company and the insurance
industry as a whole generally exclude these items from their analyses for the
same reasons.

 
29
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Operating Income Reconciliation and Annualized Operating Return on Average
Common Equity

 
The following table provides a reconciliation of after-tax operating income
(loss) available to Arch common shareholders to net income available to Arch
common shareholders along with related per common share results:
(U.S. Dollars in thousands, except share data)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
After-tax operating income available to Arch common shareholders
 
$
150,184

 
$
142,055

 
$
160,669

 
$
164,404

 
$
152,741

 
$
617,312

 
$
595,715

Net realized gains (losses), net of tax
 
26,847

 
27,476

 
50,267

 
18,273

 
8,584

 
122,863

 
73,844

Net impairment losses recognized in earnings, net of tax
 
(3,837
)
 
(8,593
)
 
(14,749
)
 
(2,971
)
 
(88
)
 
(30,150
)
 
(3,786
)
Equity in net income of investment funds accounted for using the equity method,
net of tax
 
2,252

 
4,765

 
9,054

 
3,164

 
5,309

 
19,235

 
35,738

Net foreign exchange gains (losses), net of tax
 
34,233

 
57,488

 
(2,710
)
 
(5,854
)
 
(10,541
)
 
83,157

 
(13,718
)
Net income available to Arch common shareholders
 
$
209,679

 
$
223,191

 
$
202,531

 
$
177,016

 
$
156,005

 
$
812,417

 
$
687,793

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted per common share results:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
After-tax operating income (loss) available to Arch common shareholders
 
$
1.15

 
$
1.05

 
$
1.17

 
$
1.20

 
$
1.12

 
$
4.58

 
$
4.39

Net realized gains (losses), net of tax
 
$
0.21

 
$
0.20

 
$
0.37

 
$
0.14

 
$
0.06

 
$
0.91

 
$
0.54

Net impairment losses recognized in earnings, net of tax
 
$
(0.03
)
 
$
(0.06
)
 
$
(0.11
)
 
$
(0.02
)
 
$
—

 
$
(0.22
)
 
$
(0.03
)
Equity in net income of investment funds accounted for using the equity method,
net of tax
 
$
0.01

 
$
0.03

 
$
0.07

 
$
0.02

 
$
0.04

 
$
0.14

 
$
0.27

Net foreign exchange gains (losses), net of tax
 
$
0.26

 
$
0.42

 
$
(0.02
)
 
$
(0.04
)
 
$
(0.08
)
 
$
0.61

 
$
(0.10
)
Net income available to Arch common shareholders
 
$
1.60

 
$
1.64

 
$
1.48

 
$
1.30

 
$
1.14

 
$
6.02

 
$
5.07

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares and common share equivalents outstanding —
diluted
 
130,855,218

 
135,876,605

 
136,889,944

 
136,562,717

 
136,467,998

 
134,922,322

 
135,777,183

The following table provides the calculation of annualized operating return on
average common equity:
 (U.S. Dollars in thousands)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
After-tax operating income available to Arch common shareholders
 
$
150,184

 
$
142,055

 
$
160,669

 
$
164,404

 
$
152,741

 
$
617,312

 
$
595,715

Annualized after-tax operating income available to Arch common shareholders (a)
 
$
600,736

 
$
568,220

 
$
642,676

 
$
657,616

 
$
610,964

 
$
617,312

 
$
595,715

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning common shareholders’ equity
 
$
5,756,046

 
$
5,904,399

 
$
5,567,133

 
$
5,322,496

 
$
5,118,285

 
$
5,322,496

 
$
4,843,878

Ending common shareholders’ equity
 
5,805,053

 
5,756,046

 
5,904,399

 
5,567,133

 
5,322,496

 
5,805,053

 
5,322,496

Average common shareholders’ equity (b)
 
$
5,780,550

 
$
5,830,223

 
$
5,735,766

 
$
5,444,815

 
$
5,220,391

 
$
5,563,775

 
$
5,083,187

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized operating return on average common equity (a)/(b)
 
10.4
%
 
9.7
%
 
11.2
%
 
12.1
%
 
11.7
%
 
11.1
%
 
11.7
%

 
30
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Operating Income and Effective Tax Rate Calculations

(U.S. Dollars in thousands)
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Arch Operating Income Components (excludes ‘Other’ segment):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
$
222,280

 
$
236,400

 
$
215,521

 
$
186,587

 
$
176,944

 
$
860,788

 
$
742,505

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net realized gains (losses)
 
31,310

 
31,411

 
50,966

 
19,697

 
9,048

 
133,384

 
74,018

Net impairment losses recognized in earnings
 
(3,837
)
 
(8,593
)
 
(14,749
)
 
(2,971
)
 
(88
)
 
(30,150
)
 
(3,786
)
Equity in net income of investment funds accounted for using the equity method
 
2,424

 
4,966

 
9,240

 
3,253

 
5,272

 
19,883

 
35,701

Net foreign exchange gains (losses)
 
34,467

 
57,611

 
(2,764
)
 
(6,656
)
 
(9,848
)
 
82,658

 
(12,335
)
Pre-tax operating income
 
157,916

 
151,005

 
172,828

 
173,264

 
172,560

 
655,013

 
648,907

Arch share of ‘Other’ segment operating income (loss) (1)
 
452

 
317

 
(536
)
 
(442
)
 
—

 
(209
)
 
—

Pre-tax operating income available to Arch (b)
 
158,368

 
151,322

 
172,292

 
172,822

 
172,560

 
654,804

 
648,907

Income tax expense (a)
 
(2,699
)
 
(3,783
)
 
(6,138
)
 
(2,934
)
 
(14,334
)
 
(15,554
)
 
(31,254
)
After-tax operating income available to Arch
 
155,669

 
147,539

 
166,154

 
169,888

 
158,226

 
639,250

 
617,653

Preferred dividends
 
(5,485
)
 
(5,484
)
 
(5,485
)
 
(5,484
)
 
(5,485
)
 
(21,938
)
 
(21,938
)
After-tax operating income available to Arch common shareholders
 
$
150,184

 
$
142,055

 
$
160,669

 
$
164,404

 
$
152,741

 
$
617,312

 
$
595,715

Effective tax rate on pre-tax operating income available to Arch (a)/(b)
 
1.7
%
 
2.5
%
 
3.6
%
 
1.7
%
 
8.3
%
 
2.4
%
 
4.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances in ‘Other’ segment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting income (loss)
 
$
(836
)
 
$
(80
)
 
$
(1,042
)
 
$
(1,122
)
 
$
—

 
$
(3,080
)
 
$
—

Net investment income
 
9,850

 
7,866

 
532

 
1

 
—

 
18,249

 
—

Other expenses
 
—

 
—

 
347

 
(2,676
)
 
—

 
(2,329
)
 
—

Preferred dividends
 
(4,909
)
 
(4,909
)
 
(4,857
)
 
(52
)
 
—

 
(14,727
)
 
—

Pre-tax operating income available to common shareholders
 
4,105

 
2,877

 
(5,020
)
 
(3,849
)
 
—

 
(1,887
)
 
—

Arch ownership
 
11
%
 
11
%
 
11
%
 
11
%
 
—

 
11
%
 
—

Arch share of ‘Other’ segment operating income (loss) (1)

 
$
452

 
$
317

 
$
(536
)
 
$
(442
)
 
$
—

 
$
(209
)
 
$
—

(1)     Excludes amounts attributable to net realized gains or losses and net
foreign exchange gains or losses in the ‘other’ segment (see ‘Segment
Information’).

 
31
 

--------------------------------------------------------------------------------

Arch Capital Group Ltd. and Subsidiaries
Capital Structure and Share Repurchase Activity

 
The following table provides an analysis of the Company’s capital structure:
(U.S. Dollars in thousands, except share data)
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
Debt:
 
 

 
 

 
 

 
 

 
 

Senior notes, due May 1, 2034 (7.35%) (1)
 
$
300,000

 
$
300,000

 
$
300,000

 
$
300,000

 
$
300,000

Senior notes, due November 1, 2043 (5.144%) (2)
 
500,000

 
500,000

 
500,000

 
500,000

 
500,000

Revolving credit agreement borrowings, due June 30, 2019 (variable)
 
100,000

 
100,000

 
100,000

 
100,000

 
100,000

Total debt
 
$
900,000

 
$
900,000

 
$
900,000

 
$
900,000

 
$
900,000

 
 
 
 
 
 
 
 
 
 
 
Shareholders’ equity available to Arch:
 
 
 
 
 
 
 
 
 
 
Non-cumulative preferred shares (6.75%)
 
$
325,000

 
$
325,000

 
$
325,000

 
$
325,000

 
$
325,000

Common shareholders’ equity (a)
 
5,805,053

 
5,756,046

 
5,904,399

 
5,567,133

 
5,322,496

Total shareholders’ equity available to Arch
 
$
6,130,053

 
$
6,081,046

 
$
6,229,399

 
$
5,892,133

 
$
5,647,496

 
 
 
 
 
 
 
 
 
 
 
Total capital available to Arch
 
$
7,030,053

 
$
6,981,046

 
$
7,129,399

 
$
6,792,133

 
$
6,547,496

 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding, net of treasury shares (b)
 
127,367,934

 
130,700,619

 
135,030,886

 
134,084,138

 
133,674,884

 
 
 
 
 
 
 
 
 
 
 
Book value per common share (3) (a)/(b)
 
$
45.58

 
$
44.04

 
$
43.73

 
$
41.52

 
$
39.82

 
 
 
 
 
 
 
 
 
 
 
Leverage ratios:
 
 
 
 
 
 
 
 
 
 
Senior notes/total capital
 
11.4
%
 
11.5
%
 
11.2
%
 
11.8
%
 
12.2
%
Revolving credit agreement borrowings/total capital
 
1.4
%
 
1.4
%
 
1.4
%
 
1.5
%
 
1.5
%
Debt/total capital
 
12.8
%
 
12.9
%
 
12.6
%
 
13.3
%
 
13.7
%
Preferred/total capital
 
4.6
%
 
4.7
%
 
4.6
%
 
4.8
%
 
5.0
%
Debt and preferred/total capital
 
17.4
%
 
17.5
%
 
17.2
%
 
18.0
%
 
18.7
%

 
(1)
Issued by Arch Capital Group Ltd. (“ACGL”).

(2)
Issued by Arch Capital Group (U.S.) Inc., a wholly owned subsidiary of ACGL, and
fully and unconditionally guaranteed by ACGL.

(3)
Excludes the effects of stock options and restricted stock units outstanding.

The following table provides an analysis of the Company’s share repurchase
program:
(U.S. Dollars in thousands except share data)
 
Three Months Ended
 
Cumulative
 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
2014
Effect of share repurchases:
 
 

 
 

 
 

 
 

 
 

 
 

Aggregate cost of shares repurchased
 
$
202,218

 
$
251,919

 
$
—

 
$
—

 
$
—

 
$
3,242,022

Shares repurchased
 
3,593,114

 
4,593,726

 
—

 
—

 
—

 
118,134,082

Average price per share repurchased
 
$
56.28

 
$
54.84

 
$
—

 
$
—

 
$
—

 
$
27.44

 
 
 
 
 
 
 
 
 
 
 
 
 
Average book value per common share (1)
 
$
44.81

 
$
43.89

 
$
42.63

 
$
40.67

 
$
39.08

 
 
Average repurchase price-to-book multiple
 
1.26
x
 
1.25
x
 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Remaining share repurchase authorization (2)
 
$
887,140

 
 

 
 

 
 

 
 

 
 

 
(1)    Equals average of beginning and ending book value per common share for
each period presented.
(2)
Repurchases under the share repurchase authorization may be effected from time
to time in open market or privately negotiated transactions through December
2016. 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.

 
32