Document:

EX-99.2 supplement 12.31.14

Exhibit 99.2
 
 	
		
	

	
	 

	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.

	
			
	 
	32Exhibit 10.1 Securities Purchase Agreement

EXHIBIT 10.1

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of February 3, 2015, by and among the members of STI Signature Spirits Group, LLC , a New York limited liability company (the “Company”) listed on Exhibit A attached hereto (collectively referred to as the Seller”), STI Signature Spirits Group, LLC and Accelpath, Inc. (the “Purchaser”); and

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), the Seller desires to sell to the Purchaser, and the Purchaser desires to purchase 52.78 membership interests of the Company, representing fifty two percent (52%) of the issued and outstanding membership interests of the Company (the “Majority Interest”), and assume certain debt of the Company, as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Sellers and the Purchaser agree as follows:

ARTICLE I

DEFINITIONS

1.1

Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings indicated in this Section 1.1:

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 144.

“Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Closing” means the closing of the purchase and sale of the Common Stock pursuant to Section 2.1.

“Closing Date” means the Business Day when this Agreement has been executed and delivered by the applicable parties thereto, and all conditions precedent to the Purchaser’s obligations to pay the Purchase Price have been satisfied or waived.

“Commission” means the Securities and Exchange Commission.

“Common Stock Equivalents” means any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“Losses” means a lien, charge, security interest, encumbrance, rights of first refusal, preemptive right or other restriction.

“Majority Interest” means 52.78 membership interests held by the Seller (as set forth in Exhibit A) representing fifty two percent (52%) of the issued and outstanding membership interest of the Company to be sold to the Purchaser pursuant to this Agreement.

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Preferred Stock” means Series K Convertible Preferred Stock issued by Purchaser as consideration to Seller, the form of certificate of designation of which is set forth as Exhibit E attached hereto.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Securities Act” means the Securities Act of 1933, as amended.

ARTICLE II

PURCHASE AND SALE

2.1

Closing. At the Closing, Purchaser shall deliver (a) shares of Preferred Stock to Seller with a Stated Value equal to $750,000.00 as consideration for the Majority Interest, and (b) shares of restricted common stock to various parties as set forth on Exhibit B. The Seller shall be entitled to additional shares of Preferred Stock with a Stated Value of up to $2,250,000.00 pursuant to a three (3) year earn out based on the number of units sold and booked by the Company for each calendar year, beginning the calendar year 2015, as set forth in Exhibit C. The Seller shall deliver to Purchaser the Majority Interest. The Purchaser shall also assume $485,516.53 worth of obligations of the Company as set forth on Exhibit D. Upon satisfaction of the conditions set forth in Section 2.2, the Closing shall occur at the offices of the Company, or such other location as the parties shall mutually agree, on or before February 15, 2014.

2.2

Closing Conditions.

(a)

At each Closing the Seller shall deliver to the Purchaser:

(i)

this Agreement duly executed by the Company, and Seller; and

(ii)

certificates evidencing the Majority Interest registered in the name of the Purchaser.

(b)

At the Closing the Purchaser shall deliver or cause to be delivered to the Seller the following:

(i)

this Agreement duly executed by the Purchaser; and

(ii)

the Preferred Stock in the amount set forth on Exhibit A; and

(iii)

the restricted Common Stock issued to various parties pursuant to Exhibit B

(iv)

evidence of the assumption of Company obligations set forth in Exhibit D.

(c)

All representations and warranties of the other party contained herein shall remain true and correct as of the Closing Date and all covenants of the other party shall have been performed if due prior to such date.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

3.1 

Representations and Warranties of the Company. The Company hereby makes the following representations and warranties set forth below to the Purchaser:

(a)

Subsidiaries. The Company has no direct or indirect subsidiaries.

(b)

Organization and Qualification. The Company is duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company is not in violation of any of the provisions of its certificate or articles of incorporation, bylaws or other organizational or charter documents. The Company is duly qualified to do business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, (i) could not, individually or in the aggregate adversely affect the legality, validity or enforceability of this Agreement, (ii) has had or could not reasonably be expected to result in a material adverse effect on the results of operations, assets, prospects, business or condition (financial or otherwise) of the Company, or (iii) could not, individually or in the aggregate, adversely impair the Company’s ability to perform fully on a timely basis its obligations under this Agreement (any of (i), (ii) or (iii), a “Material Adverse Effect”).

(c)

Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder or thereunder. The execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company and no further consent or action is required by the Company other than Required Approvals. This Agreement has been (or upon delivery will be) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and general principles of equity. The Company is not in violation of any of the provisions of its certificate or articles of incorporation, by-laws or other organizational or charter documents.

(d)

No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of the Company’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) subject to obtaining the Required Approvals, conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company debt or otherwise) or other understanding to which the Company is a party or by which any property or asset of the Company is bound or affected, or (iii) result, in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected; except in the case of each of clauses (ii) and (iii), such as has not had or could not reasonably be expected to result in a Material Adverse Effect.

(e)

Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of this Agreement.

(f)

Majority Interest. The Majority Interest are duly authorized and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in this Agreement.

(g)

Capitalization. The capitalization of the Company as of the Closing Date is as described on Schedule 3.1(g) and will remain as of the Closing Date. The Company has not issued any membership interests or other capital stock since such date. Except as set forth on Schedule 3.1(g), there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, membership interests, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional membership interests, or securities or rights convertible or exchangeable into membership interests. The issuance and sale of the Majority Interest will not obligate the Company to issue membership interest or other securities to any Person (other than the Purchaser) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities.

(h)

Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which: (i) adversely affects or challenges the legality, validity or enforceability of any of this Agreement or the Shares or (ii) could reasonably be expected to result in a Material Adverse Effect. Neither the Company, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty that has had or could reasonably be expected to result in a Material Adverse Effect. The Company does not have pending before the Commission any request for confidential treatment of information. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company that has had or could reasonably be expected to result in a Material Adverse Effect.

(i)

Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which has had or could reasonably be expected to result in a Material Adverse Effect. None of The Company’s employees is a member of a union that relates to such employee’s relationship with the Company, and the Company is not a party to a collective bargaining agreement, and the Company believes that its relationships with their employees are good. No officer, to the Knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other Contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company to any liability with respect to any of the foregoing matters. The Company is in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours.

(j)

Compliance. The Company is not: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company), nor has the Company received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived) that has had or could reasonably be expected to result in a Material Adverse Effect, (ii) is in violation of any order of any court, arbitrator or governmental body that has had or could reasonably be expected to result in a Material Adverse Effect, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority that has had or could reasonably be expected to result in a Material Adverse Effect.

(k)

Regulatory Permits. The Company possesses all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their business, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and the Company has not received any notice of proceedings relating to the revocation or modification of any Material Permit.

(l)

Title to Assets. The Company has good and marketable title in fee simple to all real property owned by it that is material to the business of the Company and good and marketable title in all personal property owned by it that is material to the business of the Company, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company is held by it under valid, subsisting and enforceable leases of which the Company is in compliance, except where the failure to be in compliance would not reasonably be expected to result in a Material Adverse Effect.

(m)

Patents and Trademarks. The Company has, or has rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights necessary or material for use in connection with its businesses and which the failure to so have has had or could reasonably be expected to result in a Material Adverse Effect (collectively, the “Intellectual Property Rights”). The Company has not received a written notice that the Intellectual Property Rights used by the Company violates or infringes upon the rights of any Person that has had or could reasonably be expected to result in a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights that has had or could reasonably be expected to result in a Material Adverse Effect.

(n)

Insurance. The Company maintains no insurance.

(o)

Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement, and the Company has not taken any action that would cause the Purchaser to be liable for any such fees or commissions.

(p)

Financial Statements. The financial statements of the Company as supplied to the Purchasers (“Financial Statements”) comply in all material respects with applicable accounting requirements with respect thereto as in effect at the time of filing. The Financial Statements have been prepared in accordance with GAAP, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

(q)

Material Changes. Since the date of the latest Financial Statement: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise), (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities. Except for the issuance of the Shares contemplated by this Agreement, no event, liability or development has occurred or exists with respect to the Company or its business, properties, operations or financial condition, that would be required to be disclosed by the Company.

(r)

Tax Status. The Company has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, statute or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.

(s)

Foreign Corrupt Practices. Neither the Company, nor to the Knowledge of the Company, any agent or other person acting on behalf of the Company, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(t)

No Disagreements with Accountants and Lawyers. There are no disagreements of any kind, including but not limited to any disagreements regarding fees owed for services rendered, presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company, and the Company is current with respect to any fees owed to its accountants and lawyers.

(u)

Minute Books. The minute books of the Company made available to the Purchaser contain a complete summary of all meetings and written consents in lieu of meetings of directors and stockholders since the time of incorporation.

(v)

Employee Benefits. The Company has never had any plans which are subject to ERISA.

(w)

Business Records and Due Diligence. Prior to the Closing, the Company has delivered (or will deliver) to the Purchaser all records and documents relating to the Company, which the Company and possesses, including, without limitation, books, records, government filings, Tax Returns, Charter Documents, corporate records, stock records, consent decrees, orders, and correspondence, director and stockholder minutes, resolutions and written consents, stock ownership records, financial information and records, and other documents used in or associated with the Company.

(x)

Contracts. Except as set forth on Schedule 3.1(x), The Company is not a party to any Contracts.

(y)

No Undisclosed Liabilities. Except as otherwise disclosed in the Company’ Financial Statements, the Company has no other undisclosed liabilities whatsoever, either direct or indirect, matured or unmatured, accrued, absolute, contingent or otherwise. The Company represents that at the date of Closing, except as set forth on Schedule 3.1 (y) the Company shall have no liabilities or obligations whatsoever, either direct or indirect, matured or unmatured, accrued, absolute, contingent or otherwise.

3.2

Representations and Warranties of the Purchaser. The Purchaser represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

(a)

Organization; Authority. The Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations thereunder. The execution, delivery and performance by the Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Purchaser. This Agreement, to which it is party has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(b)

Investment Intent. The Purchaser understands that the Shares are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Shares as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Shares or any part thereof, has no present intention of distributing any of such Shares and has no arrangement or understanding with any other persons regarding the distribution of such Shares. The Purchaser is acquiring the Shares hereunder in the ordinary course of its business. The Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Shares.

3.3

Representations and Warranties of the Seller. The Seller represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

(a)

Ownership. The Seller is the legal, beneficial and registered owner(s) of Majority Interest, free and clear of any liens, security interests, charges or other encumbrances of any nature whatsoever. The Majority Interest are each validly issued, fully paid and non-assessable.

(b)

No Conflict. The execution, delivery and performance by the Seller of this Agreement, and the consummation of the transactions contemplated hereby, will not (i) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any contractual obligations or other agreements of the Seller, or (ii) violate any provision of law applicable to the Seller.

(c)

Consents. No registration, filing with the consent or approval of, or other action by, any federal, state or other governmental authority, agency, regulatory body, third party or other Person is or will be required in connection with the execution, delivery and performance by the Seller of this Agreement and the consummation of the transactions contemplated hereby.

ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES

4.1

Transfer Restrictions.

(a)

The Preferred Stock may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Preferred Stock other than pursuant to an effective registration statement or Rule 144, the Purchaser may require the transferor thereof to provide an opinion of counsel selected by the transferor and reasonably acceptable to Purchaser, the form and substance of which opinion shall be reasonably satisfactory to the Purchaser, to the effect that such transfer does not require registration of such transferred Preferred Stock under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of the Seller under this Agreement.

(b)

The Seller agrees to the imprinting, so long as is required by this Section 4.1(b), of the following legend on any certificate evidencing the Preferred Stock:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

4.2

Leak Out. Each Seller agrees not to convert more than twenty percent (20%) of the stated value of the Preferred Stock it / / she / he holds during any calendar quarter (3 month period).

4.3

Working Capital Facility. Purchaser shall provide a working capital loan with monthly installments of a minimum of $50,000.00 per calendar month to be paid by the 5th day of each calendar month pursuant to the Working Capital Loan (“Loan”) set forth in Exhibit F. Pursuant to the Loan, Purchaser shall provide $25,000.00 upon closing and $75,000.00 within 20 business days of the Closing Date. Subject to the applicable cure period in the Loan Agreement, any default of the Working Capital Loan shall be a default under this Agreement.

ARTICLE V

MISCELLANEOUS

5.1

Fees and Expenses. Except as otherwise set forth in this Agreement, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all stamp and other taxes and duties levied in connection with the sale of the Shares.

5.2

Entire Agreement. This Agreement, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

5.3

Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 6:00 p.m. (New York time) on a Business Day, (b) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Business Day or later than 6:00 p.m. (New York time) on any Business Day, (c) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

5.4

Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

5.5

Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

5.6

Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser. The Purchaser may assign its rights under this Agreement to any Person to whom the Purchaser assigns or transfers any Shares.

5.7

No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.5.

5.8

Governing Law; Venue; Waiver of Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the County of New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of this Agreement), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

5.9

Survival. The representations, warranties and covenants contained herein shall survive for a period of 12 months after the Closing Date and delivery and/or exercise of the Shares, as applicable.

5.10

Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

5.11

Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

(Signature Page Follows)

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

ACCELPATH, INC.

By: /s/ Gilbert Steedley

Name: Gilbert Steedley

Title: CEO

			
	SELLER:

	 
	 

	 
	 
	 

	Artisan Brands, LLC

	 
	Spirits Trading USA, LLC

	 
	 
	 

	 
	 
	 

	By:

	 
	By:

	 
	 
	 

	 
	 
	 

	Address for Notice:

	 
	Address for Notice:

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	 
	 

	Franklin Dismuke

	 
	Evie Ponce

	 
	 
	 

	Address for Notice:

	 
	Address for Notice:

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	 
	 

	David Cooke

	 
	Kurt Carrington

	 
	 
	 

	Address for Notice:

	 
	Address for Notice:

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	 
	 

	STI Signature Spirits Group, LLC

	 
	Richard Yost

	 
	 
	 

	By:

	 
	 

	Title:

	 
	 

	 
	 
	 

	Address for Notice:

	 
	Address for Notice:

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	 
	 

EXHIBIT A

					
	Seller

	 
	% Membership Interests To Purchaser

	 
	Number of Shares of Preferred Stock

	 
	 
	 
	 
	 

	Artisan Brands, LLC

	 
	23.82%

	 
	343.5

	 
	 
	 
	 
	 

	Spirits Trading USA, LLC

	 
	23.82%

	 
	343.5

	 
	 
	 
	 
	 

	Franklin Dismuke

	 
	1.02%

	 
	14.775

	 
	 
	 
	 
	 

	Evie Ponce

	 
	1.02%

	 
	14.775

	 
	 
	 
	 
	 

	David Cooke

	 
	1.02%

	 
	14.775

	 
	 
	 
	 
	 

	Kurt Carrington

	 
	.77%

	 
	11.25

	 
	 
	 
	 
	 

	Richard Yost

	 
	.52%

	 
	7.425

EXHIBIT B

Stock Incentives for key Company talent/personnel/vendors:

Talent

To receive new class of preferred stock.

Tameka Harris – $50,000

Lonika Atkinson – $2,500

Shekinha Anderson – $10,000

Demetria McKinney – $5,000

Clifford Harris – $10,000

Toya Wrigh – $5,000

Rian Parish – $10,000

Sonja Norwood – $10,000

Sean Porter – $2500

$105,000 New Class Preferred

Sales/Brand Ambassadors

Shawn Steadman – $2500

Ade Alexander – $$2500

Gemma Lancaster – $2500

Victoria Kibunja – $2500

Shaneka Mobley – $2500

Oronde Gadsden – $2500

Jim Jones – $2500

Ronald Coleman – $2500

Antonio McNair – $2500

Quincy Smith – $2500

Coby Kindles – $2500

Shaleah King – $2500

$30,000 value in restricted common stock

Vendors

Anje Collins – $5000

1226 Studios – $5000

Lynsey Mcfail – $5000

Manu Lawrence – $5000

All linked Media – $5000

$25,000 value in restricted common stock

EXHIBIT C

Earn-out Schedule

Initial down payment Upon Closing: $750,00.00 in Series K Preferred Stock

Projected total case sales:

							
	 
	 
	2015

	 
	2016

	 
	2017

	Total # of Cases Sold

	 
	5,094

	 
	18,281

	 
	35,344

The Seller shall receive an earn out in additional shares of Series K Preferred Stock if the Company reaches sales of the following number of cases during the three (3) calendar year period beginning January 1, 2015. Issuances of additional shares of Preferred Stock after any calendar year shall be distributed pro-rata to the Seller pursuant to the issuance amount set forth in Schedule A above:

						
	Calendar Year

	 
	Cases Sold

	 
	$ Amount in Stated Value of Preferred Stock

	 
	 
	 
	 
	 
	 

	2015

	 
	5,094

	 
	$

	750,000.00

	2016

	 
	18,281

	 
	$

	750,000.00

	2017

	 
	35,344

	 
	$

	1,250,000.00

EXHIBIT D

Larry has actuals

				
	Note Holders

	 
	Amounts

	Franklin Dismuke 

	 
	$

	118,000

	Sean Porter

	 
	$

	10,000.00

	Owen May 

	 
	$

	9,000.00

	Janon Costley

	 
	$

	93,436.91

	Robert Montgomery 

	 
	$

	93,333.00

	Eric Banks

	 
	$

	83,333.00

	Brad Donovan

	 
	$

	76,666.00

EXHIBIT E

Certificate of Designation of Series K Preferred Stock

SCHEDULE 3.1(g) 

SCHEDULE 3.1(x)

SCHEDULE 3.1(y)

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