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What changed in ARCH CAPITAL GROUP LTD.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ARCH CAPITAL GROUP LTD.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+676 added−667 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-24)

Top changes in ARCH CAPITAL GROUP LTD.'s 2023 10-K

676 paragraphs added · 667 removed · 495 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

204 edited+107 added−54 removed350 unchanged
Biggest changeIn ARCH CAPITAL 32 2022 FORM 10-K Table of Contents addition, the following summary does not describe the U.S. federal income tax consequences that may be relevant to certain types of shareholders, such as banks, insurance companies, regulated investment companies, real estate investment trusts, financial asset securitization investment trusts, dealers in securities or traders that adopt a mark-to-market method of tax accounting, tax exempt entities, expatriates, U.S. holders that hold our common shares or preferred shares through a non-U.S. broker or other non-U.S. intermediary, persons who hold the common shares or preferred shares as part of a hedging or conversion transaction or as part of a straddle, who may be subject to special rules or treatment under the Code or persons required for U.S. federal income tax purposed to recognize income no later than such income is reported on such persons’ applicable financial statements.
Biggest changeIn addition, the following summary (except as to matters explicitly discussed therein) does not describe the U.S. federal income tax consequences that may be relevant to certain types of shareholders, such as banks, insurance companies, and other financial institutions, regulated investment companies, real estate investment trusts, financial asset securitization investment trusts, brokers, dealers or traders in securities, entities or arrangements classified as partnerships or pass-through entities for U.S. federal income tax purposes or holders of equity interests therein, tax exempt entities, “individual retirement accounts” or “Roth IRAs”, expatriates and former citizens or long-term residents of the United States, persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar, persons that own, directly, indirectly or constructively, ten percent (10%) or more of the total voting power or value of all of our outstanding shares, persons owning our common shares or preferred shares in connection with a trade or business conducted outside the United States, U.S. holders that hold our common shares or preferred shares through a non-U.S. broker or other non-U.S. intermediary, persons who hold our common shares or preferred shares as part of a hedging or conversion transaction or as part of a straddle or wash sale, who may be subject to special rules or treatment under the Code or persons required for U.S. federal income tax purposed to recognize income no later than such income is reported on such persons’ applicable financial statements, and persons subject to the alternative minimum tax.
Premia Holdings Ltd. is the parent of Premia Reinsurance Ltd., a multi-line Bermuda reinsurance company (together with Premia Holdings Ltd., “Premia”). In 2021, the Company completed the share purchase agreement with Natixis, a French financial services firm, to purchase 29.5% of the common equity of Coface SA (“Coface”), a France-based leader in the global trade credit insurance market.
Premia Holdings Ltd. is the parent of Premia Reinsurance Ltd., a multi-line Bermuda reinsurance company (together with Premia Holdings Ltd., “Premia”). In 2021, a Company completed the share purchase agreement with Natixis, a French financial services firm, to purchase 29.5% of the common equity of Coface SA (“Coface”), a France-based leader in the global trade credit insurance market.
In 2019 we established Arch Credit Risk Services (Bermuda) (“Arch CRS”) Ltd. Arch CRS is licensed by the Bermuda Monetary Authority (“BMA”) as an insurance agent in Bermuda. Arch CRS offers mortgage credit assessment and underwriting advisory services with respect to participation in GSE credit risk transfer transactions. Underwriting Philosophy .
In 2019, we established Arch Credit Risk Services (Bermuda) Ltd. (“Arch CRS”). Arch CRS is licensed by the Bermuda Monetary Authority (“BMA”) as an insurance agent in Bermuda. Arch CRS offers mortgage credit assessment and underwriting advisory services with respect to participation in GSE credit risk transfer transactions. Underwriting Philosophy .
See “Risk Factors—Risks Relating to Our Industry, Business and Operations—“We operate in a highly competitive environment, and we may not be able to compete successfully in our industry.” In our property casualty insurance and reinsurance businesses, we compete with insurers and reinsurers that provide specialty property and casualty lines of insurance, including, but not limited to Allianz, American Financial Group, Inc., American International Group, Inc., Aviva, AXA XL, AXIS Capital Holdings Limited, Berkshire Hathaway, Inc., Chubb Limited, CNA Financial Corp., Convex Group Limited, Everest Re Group Ltd., Fairfax Financial Holdings Limited, Hannover Rück SE, The Hartford Financial Services Group, Inc., Liberty Mutual Group, Lloyd’s, Markel Corporation, Munich Re Group, PartnerRe Ltd., RenaissanceRe Holdings Ltd., RLI Corp., SCOR, Sompo International, Swiss Reinsurance Company, Tokio Marine, The Travelers Companies, Inc., W.R.
See “Risk Factors—Risks Relating to Our Industry, Business and Operations—“We operate in a highly competitive environment, and we may not be able to compete successfully in our industry.” In our property casualty insurance and reinsurance businesses, we compete with insurers and reinsurers that provide specialty property and casualty lines of insurance, including, but not limited to Allianz, American Financial Group, Inc., American International Group, Inc., Aviva, AXA XL, AXIS Capital Holdings Limited, Berkshire Hathaway, Inc., Chubb Limited, CNA Financial Corp., Convex Group Limited, Everest Group Ltd., Fairfax Financial Holdings Limited, Hannover Rück SE, The Hartford Financial Services Group, Inc., Liberty Mutual Group, Lloyd’s, Markel Corporation, Munich Re Group, PartnerRe Ltd., RenaissanceRe Holdings Ltd., RLI Corp., SCOR, Sompo International, Swiss Reinsurance Company, Tokio Marine, The Travelers Companies, Inc., W.R.
It outlines our approach to risk identification and assessment and provides an overview of our risk appetite and tolerance for each of the following major risks: underwriting (insurance) risk including pricing, reserving and catastrophe; investment including market and liquidity risks; group risk including strategic, governance, rating agency and capital market risk; credit risk; and operational risk, including regulatory, investor relations (reputational risk) and outsourcing risks.
It outlines our approach to risk identification and assessment and provides an overview of our risk appetite and tolerance for each of the following major risks: underwriting (insurance) risk including pricing, reserving and catastrophe; investment risk including market and liquidity risks; group risk including strategic, governance, rating agency and capital market risk; credit risk; and operational risk including regulatory, investor relations (reputational risk) and outsourcing risks.
Licensed U.S. property and casualty insurance and reinsurance companies are subject to risk-based capital requirements that are designed to assess capital adequacy and to raise the level of protection that statutory surplus provides for policyholder obligations.
Risk-Based Capital Requirements . Licensed U.S. property and casualty insurance and reinsurance companies are subject to risk-based capital requirements that are designed to assess capital adequacy and to raise the level of protection that statutory surplus provides for policyholder obligations.
Absent any future agreement between the U.K. and the EU on the provision of financial services by U.K. financial institutions into the EU, the post-Brexit status and rules applicable to U.K. branches of EEA financial institutions will be primarily driven by U.K. law and regulation.
Absent any future agreement between the U.K. and the EU on the provision of financial services into the U.K., the post-Brexit status and rules applicable to U.K. branches of EEA financial institutions will be primarily driven by U.K. law and regulation.
The principal impact of the IDD is on the insurance market, however, requirements that apply across insurance and reinsurance include more specific conditions regarding knowledge and continuing professional development requirements for those involved in distribution of (re)insurance products.
The principal impact of the IDD is on the insurance market, however, requirements that apply across insurance and reinsurance include more specific conditions regarding knowledge and continuing professional development for those involved in distribution of (re)insurance products.
Each of Arch Re Europe, Arch Insurance (EU) and Arch Underwriters Europe is incorporated and resident in Ireland for corporation tax purposes and will be subject to Irish corporate tax on worldwide profits, including the profits of the branches of Arch Re Europe, Arch Insurance (EU) and Arch Underwriters Europe.
Ireland . Each of Arch Re Europe, Arch Insurance (EU) and Arch Underwriters Europe is incorporated and resident in Ireland for corporation tax purposes and will be subject to Irish corporate tax on worldwide profits, including the profits of the branches of Arch Re Europe, Arch Insurance (EU) and Arch Underwriters Europe.
While we believe that the 2020 final PFIC insurance regulations and the 2020 proposed PFIC insurance regulations should not adversely impact the our ability to satisfy the insurance company exception and avoid being treated as a PFIC, there can be no assurance that such exception will in fact apply and/or will continue to apply at all times in the future.
While we believe that the 2020 final PFIC insurance regulations and the 2020 proposed PFIC insurance regulations should not adversely impact our ability to satisfy the insurance company exception and avoid being treated as a PFIC, there can be no assurance that such exception will in fact apply and/or will continue to apply at all times in the future.
Information Reporting and Backup Withholding . Non-U.S. holders of common shares or preferred shares will not be subject to U.S. information reporting or backup withholding with respect to dispositions of common shares effected through a non-U.S. office of a broker, unless the broker has certain connections to the U.S. or is a U.S. person.
Information Reporting and Backup Withholding . Non-U.S. holders of common shares or preferred shares will not be subject to U.S. information reporting or backup withholding with respect to dispositions of common or preferred shares effected through a non-U.S. office of a broker, unless the broker has certain connections to the U.S. or is a U.S. person.
We offer competitive compensation and comprehensive benefits packages, including an employee share purchase plan, parental leave, generous contributions to retirement savings plans and programs to support employee mental and physical well-being. We recognize the financial burden of educational loans in the United States and have supported our employees with a student debt assistance program.
We offer competitive compensation and comprehensive benefits packages, including an employee share purchase plan, parental leave, contributions to retirement savings plans and programs to support employee mental and physical well-being. We recognize the financial burden of educational loans in the United States and have supported our employees with a student debt assistance program.
The GSEs continued their respective mortgage CRT programs including the use of front and back-end transactions with multi-line reinsurers, with approximately 25 unique insurers that regularly participate in transactions in addition to funded credit investors. These transactions continue to create opportunities for multi-line property casualty reinsurance groups and capital markets participants.
The GSEs continued their respective mortgage CRT programs, including the use of front and back-end transactions with multi-line reinsurers, with approximately 25 unique (re)insurers that regularly participate in transactions in addition to funded credit investors. These transactions continue to create opportunities for multi-line property casualty reinsurance groups and capital markets participants.
Enterprise Risk Management (“ERM”) is a key element in our philosophy, strategy and culture. We employ an ERM framework that includes underwriting, reserving, investment, credit and operational risks. Risk appetite and exposure limits are set by our executive management team, reviewed with the Board and its committees and routinely discussed with business unit management.
Enterprise Risk Management (“ERM”) is a key element in our philosophy, strategy and culture. We employ an ERM framework that includes underwriting, reserving, investment, credit, group and operational risks. Risk appetite and exposure limits are set by our executive management team, reviewed with the Board and its committees and routinely discussed with business unit management.
EEA Member States were required to transpose the IDD by October 1, 2018. It replaces the existing Insurance Mediation Directive. The IDD applies to all distributors of insurance and reinsurance products (including insurers and reinsurers selling directly to customers) and strengthens the regulatory regime applicable to distribution activities through increased transparency, information and conduct requirements.
EEA Member States were required to transpose the IDD by October 1, 2018. The IDD replaces the existing Insurance Mediation Directive. The IDD applies to all distributors of insurance and reinsurance products (including insurers and reinsurers selling directly to customers) and strengthens the regulatory regime applicable to distribution activities through increased transparency, information and conduct requirements.
Arch Re U.S. is licensed or is an accredited or otherwise approved reinsurer in 50 states, the District of Columbia and Puerto Rico, the provinces of Ontario and Quebec in Canada with its principal U.S. offices in Morristown, New Jersey. Treaty operations in Canada are conducted through the Canadian branch of Arch Re U.S. (“Arch Re Canada”).
Arch Re U.S. is licensed or is an accredited or otherwise approved reinsurer in 50 states, the District of Columbia and Puerto Rico, the provinces of Ontario and Quebec in Canada with its principal U.S. offices in Morristown, New Jersey. Treaty and facultative operations in Canada are conducted through the Canadian branch of Arch Re U.S. (“Arch Re Canada”).
Arch Re Bermuda is providing a 25% quota share reinsurance treaty on certain business written by Premia, and subsidiaries of Arch Capital are providing certain administrative and support services to Premia, in each case pursuant to separate multi-year agreements. Arch Re Bermuda has appointed two directors to serve on the seven person board of directors of Premia.
Arch Re Bermuda is providing a quota share reinsurance treaty on certain business written by Premia, and subsidiaries of Arch Capital are providing certain administrative and support services to Premia, in each case pursuant to separate multi-year agreements. Arch has appointed two directors to serve on the seven person board of directors of Premia.
U.K. insurance regulatory laws do not prohibit the payment of dividends, but the PRA or FCA, as applicable, requires that insurance companies, insurance intermediaries and other regulated entities maintain certain solvency margins and may restrict the payment of a dividend by Arch Insurance (U.K.), AMAL or Castel, for example. European Union Considerations .
U.K. insurance regulatory laws do not prohibit the payment of dividends, but the PRA or FCA, as applicable, requires that insurance companies, insurance intermediaries and other regulated entities maintain certain solvency margins and may restrict the payment of a dividend by Arch Insurance (U.K.) or AMAL, for example. European Union Considerations .
Additionally, in early February 2023, EIOPA issued its finalized Supervisory Statement on the use by EU-authorized (re)insurers of governance arrangements (such as branches) in third countries to perform functions or activities in respect of EU policyholders and risks. Arch is assessing the impact of the Supervisory Statement on its EU operations.
In early February 2023, EIOPA issued its finalized Supervisory Statement on the use by EU-authorized (re)insurers of governance arrangements (such as branches) in third countries to perform functions or activities in respect of EU policyholders and risks. Arch is assessing the impact of the Supervisory Statement on its EU operations.
Similarly, there has been no decision yet made by the European Commission on whether or not the U.K.’s financial services regulatory regime will be granted third-country equivalence for the purposes of reinsurance, solvency calculation and/or group supervision under Solvency II.
There has been no decision yet made by the European Commission on whether or not the U.K.’s financial services regulatory regime will be granted third-country equivalence for the purposes of reinsurance, solvency calculation and/or group supervision under Solvency II.
The regulations generally align risk disclosures (aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (“TCFD”)). In 2021, the U.K. government published its Greening Finance Roadmap to Sustainable Investing (the “Roadmap”), which announced proposals to extend the scope of the U.K.’s sustainable finance framework beyond climate change.
The regulations generally align risk disclosures with the recommendations of the Taskforce on Climate-related Financial Disclosures (“TCFD”). In 2021, the U.K. government published its Greening Finance Roadmap to Sustainable Investing (the “Roadmap”), which announced proposals to extend the scope of the U.K.’s sustainable finance framework beyond climate change.
Arch Insurance Canada is taxed on its worldwide income. Arch Re U.S. is taxed on its net business income earned in Canada. The general federal corporate income tax rate in Canada is currently 15%. Provincial and territorial corporate income tax rates are added to the general federal corporate income tax rate and generally vary between 8% and 16%. Ireland .
Canada . Arch Insurance Canada is taxed on its worldwide income. Arch Re U.S. is taxed on its net business income earned in Canada. The general federal corporate income tax rate in Canada is currently 15%. Provincial and territorial corporate income tax rates are added to the general federal corporate income tax rate and generally vary between 8% and 16%.
The reporting, review and approval of risk management information is integrated into our annual planning process, capital modeling and allocation, reinsurance purchasing strategy and reviewed at insurance business reviews, reinsurance underwriting meetings and board level committees. Risk Management Process and Procedures.
The reporting, review and approval of risk management information is integrated into our annual planning process, capital modeling and allocation, and reinsurance purchasing strategy. Such information is reviewed at insurance business reviews, reinsurance underwriting meetings and board level committees. Risk Management Process and Procedures.
The EU GDPR governs the collection, use, disclosure, transfer or other processing of personal data, and its scope extends to certain entities not established in the EEA if they process personal data or offer goods or services to, or monitor the behavior of, EEA data subjects.
The EU GDPR governs the collection, use, disclosure, transfer or other processing of personal data. Its scope extends to certain entities not established in the EEA if they process personal data or offer goods or services to, or monitor the behavior of, EEA data subjects.
As a result of the requirements relating to the provision of credit for reinsurance, Arch Re U.S. and Arch Re Bermuda are indirectly subject to certain regulatory requirements imposed by U.S. jurisdictions in which ceding companies are domiciled.
As a result of the requirements relating to the provision of credit for reinsurance, Arch Re U.S., Arch Re Bermuda and AGRL are indirectly subject to certain regulatory requirements imposed by U.S. jurisdictions in which ceding companies are domiciled.
Arch Specialty is an approved excess and surplus lines insurer in 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands and an authorized insurer in one state. Arch Indemnity Insurance is an admitted insurer in 50 states and the District of Columbia.
Virgin Islands and Guam. Arch Specialty is an approved excess and surplus lines insurer in 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands and an authorized insurer in one state. Arch Indemnity Insurance is an admitted insurer in 50 states and the District of Columbia.
Our insurance group may enter into contingent commission arrangements with some brokers that provided for the payment of additional commissions based on volume or profitability of business. Currently, some of our contracts with brokers provide for additional commissions based on volume.
Our insurance group may enter into contingent commission arrangements with some brokers that provide for the payment of additional commissions based on volume or profitability of business. Currently, some of our contracts with brokers provide for additional commissions based on volume.
In addition to “embedding” inclusion into our talent processes, e.g., promotion reviews, over 500 employees (mostly managers) have attended our intensive, six-week Fostering Inclusive Leadership program. Importantly, this program requires participants to complete a business-related project as well as attend group discussions, where participants focus on how to apply inclusive techniques into the work experience.
In addition to “embedding” inclusion into our talent processes, e.g., promotion reviews, over 700 employees (mostly managers) have attended our intensive, six-week Fostering Inclusive Leadership program. Importantly, this program requires participants to complete a business-related project as well as attend group discussions, where participants focus on how to apply inclusive techniques into the work experience.
AGRL will be a U.S. taxpayer through a section 953(d) voluntary election under the Internal Revenue Code of 1986, as amended. Strategy. Our reinsurance group’s strategy is to capitalize on our financial capacity, experienced management and operational flexibility to offer multiple products through our operations. The reinsurance group’s operating principles are to: • Actively select and manage risks .
AGRL is a U.S. taxpayer through a section 953(d) voluntary election under the Internal Revenue Code of 1986, as amended. Strategy. Our reinsurance group’s strategy is to capitalize on our financial capacity, experienced management and operational flexibility to offer multiple products through our operations. The reinsurance group’s operating principles are to: • Actively select and manage risks .
In Australia, Arch Indemnity provides lenders’ mortgage insurance on a flow basis to cover new originations and offers coverage through structured transactions to cover one or more portfolios of previously originated residential loans. • Reinsurance . Arch Re Bermuda provides quota share reinsurance covering U.S. and international mortgages. • Other credit risk-sharing products .
In Australia, Arch Indemnity provides lenders’ mortgage insurance on a flow basis to cover new originations and offers coverage through structured transactions to cover one or more portfolios of previously originated residential loans. • Reinsurance . Arch Re Bermuda provides quota share and excess of loss reinsurance covering U.S. and international mortgages. • Other credit risk-sharing products .
Arch P&C, which is not currently writing business, is an admitted insurer in 40 states and the District of Columbia and is filing applications for admission in all remaining states where it is not yet admitted. Our insurance group also operates McNeil, a specialized risk manager and a program administrator based in Cortland, New York.
Arch P&C, which is not currently writing business, is an admitted insurer in 44 states and the District of Columbia and is filing applications for admission in all remaining states where it is not yet admitted. Our insurance group also operates McNeil, a specialized risk manager and a program administrator based in Cortland, New York.
Our mortgage group includes direct mortgage insurance in the U.S. primarily through Arch Mortgage Insurance Company, United Guaranty Residential Insurance Company, and Arch Mortgage Guaranty Company (together, “Arch MI U.S.”); mortgage reinsurance primarily through Arch Re Bermuda to mortgage insurers on both a proportional and non-proportional basis globally; mortgage insurance and reinsurance in the EEA and U.K. through Arch Insurance (EU), and in Australia through Arch Indemnity; and participation in various GSE credit risk-sharing products primarily through Arch Re Bermuda.
Our mortgage group includes direct mortgage insurance in the U.S. primarily through Arch Mortgage Insurance Company, United Guaranty Residential Insurance Company, and Arch Mortgage Guaranty Company (together, “Arch MI U.S.”); mortgage reinsurance primarily through Arch Re Bermuda on both a proportional and non-proportional basis globally; mortgage insurance and reinsurance in the EEA and U.K. primarily through Arch Insurance (EU), and in Australia through Arch Indemnity; and participation in various GSE credit risk-sharing products primarily through Arch Re Bermuda.
The sanctions imposed include prohibitions on providing financial services (including insurance and reinsurance) to persons connected with Russia in relation to certain restricted goods and services, and the freezing of assets owned or controlled by designated persons. The U.K., U.S. and EU often consult with each other with respect to their respective sanctions programs.
The sanctions imposed include prohibitions on providing financial services (including insurance and reinsurance) to persons connected with Russia in relation to certain restricted goods and services, and the freezing of assets owned or controlled by designated persons. The U.K., U.S. and EU often consult with each other with respect to their respective sanctions programs. Privacy and Cybersecurity.
The European Data Protection Board issued additional guidance regarding international transfers which may require us to implement additional safeguards to further enhance the security of data transferred out of the EEA and the European Commission published new versions of the SCCs in June 2021, which place onerous obligations on the parties. On October 7, 2022, the U.S.
The European Data Protection Board issued additional guidance regarding international transfers which may require us to implement additional safeguards to further enhance the security of data transferred out of the EEA. The European Commission published new versions of the EU SCCs in June 2021, which place onerous obligations on the parties. On October 7, 2022, the U.S.
The “modified taxable income” of a corporation is determined without deduction for certain payments by such corporation to its non-U.S. affiliates (including reinsurance premiums). Final Treasury Regulations interpreting the base erosion and anti-abuse tax were issued in December 2019. United Kingdom .
The “modified taxable income” of a corporation is determined without deduction for certain payments by such corporation to its non-U.S. affiliates (including reinsurance premiums). Final Treasury Regulations interpreting the base erosion and anti-abuse tax were issued in December 2019 and October 2020. United Kingdom .
The CRO is responsible for maintaining Arch Capital’s risk register and continually reviewing and challenging risk assessments, including the impact of emerging risks and significant business developments. Any new high-level risks or change in inherent or residual designations are brought to the Board’s or the relevant committee’s attention . Risk Monitoring and Control.
The CRO is responsible for maintaining Arch Capital’s risk register and continually reviewing and challenging risk assessments, including the impact of emerging risks and significant business developments. Any new high-level risks or changes in inherent or residual designations are brought to the Board’s or the relevant committee’s attention . Risk Monitoring and Control.
Upon notice of a default, in certain cases we may coordinate with loan servicers to facilitate and enhance retention workouts on insured loans. Retention workouts include payment forbearance, loan modifications and other loan repayment options, which may enable borrowers to cure mortgage defaults and retain ownership of their homes.
Upon notice of a default, in certain cases we may coordinate with loan servicers to facilitate and enhance retention workouts on insured loans. Retention workouts include payment deferral or forbearance, loan modifications and other loan repayment options, which may enable borrowers to cure mortgage defaults and retain ownership of their homes.
In addition, 2019 amendments to the NAIC Model Law and Regulation eliminate reinsurance collateral requirements for reinsurers that (1) have their head office or are domiciled in member states of the EU, the U.K. and other jurisdictions deemed “reciprocal jurisdictions” by the NAIC (although individual states may reject the designation of such other jurisdictions as a “reciprocal jurisdiction”), and (2) have been approved as a “reciprocal jurisdiction reinsurer.” The NAIC list of reciprocal jurisdictions includes Bermuda, Japan and Switzerland.
In addition, 2019 amendments to the NAIC Model Law and Regulation eliminate reinsurance collateral requirements for reinsurers that (1) have their head office or are domiciled in EU Member States, the U.K., NAIC accredited U.S. jurisdictions and other jurisdictions deemed “reciprocal jurisdictions” by the NAIC (although individual states may approve or reject the designation of such other jurisdictions as a “reciprocal jurisdiction”), and (2) have been approved as a “reciprocal jurisdiction reinsurer.” The NAIC list of approved reciprocal jurisdictions includes Bermuda, Japan and Switzerland.
Any foreign branch corporate tax payable will be creditable against Arch Re Europe’s Irish corporate tax liability on the results of Arch Re Europe’s branches with the same principle applied to Arch Insurance (EU)’s branches and Arch Underwriters Europe’s branches. The current rate of Irish corporation tax applicable to such trading profits is 12.5%. Switzerland .
Any foreign branch corporate tax payable is creditable against Arch Re Europe’s Irish corporate tax liability on the results of Arch Re Europe’s branches with the same principle applied to Arch Insurance (EU)’s branches and Arch Underwriters Europe’s branches. The current rate of Irish corporation tax applicable to such trading profits is 12.5%. Switzerland .
Since the inception of the share repurchase program in February 2007 through December 31, 2022, Arch Capital has repurchased 433.6 million common shares for an aggregate purchase price of $5.9 billion. At December 31, 2022, the total remaining authorization under the share repurchase program was $1.0 billion.
Since the inception of the share repurchase program in February 2007 through December 31, 2023, Arch Capital has repurchased 433.6 million common shares for an aggregate purchase price of $5.9 billion. At December 31, 2023, the total remaining authorization under the share repurchase program was $1.0 billion.
It is the practice for the brokers and producers to make the client aware of any contingent commissions arrangements that may be in place with us. We have also entered into service agreements with select international brokers that provide access to their proprietary industry analytics.
It is the practice for the brokers and producers to make the client aware of any contingent commission arrangements that may be in place with us. We have also entered into service agreements with select international brokers that provide access to their proprietary industry analytics.
Our European business is written through our Ireland-based carrier, Arch Insurance (EU) Designated Activity Company (“Arch Insurance (EU)”), which was authorized in 2011 to provide mortgage insurance products and services to the European and U.K. markets. In 2019, Arch LMI Pty Ltd.
The majority of our European business is written through our Ireland-based carrier, Arch Insurance (EU) Designated Activity Company (“Arch Insurance (EU)”), which was authorized in 2011 to provide mortgage insurance products and services to the European and U.K. markets. In 2019, Arch LMI Pty Ltd.
The Corporate Sustainability Reporting Directive (“CSRD”), which replaces the Non-Financial Reporting Directive (“NFRD”), was published in the Official Journal of the EU in November 16, 2022 and enters into effect on January 5, 2023. Certain of our European subsidiaries are subject to NFRD.
The Corporate Sustainability Reporting Directive (“CSRD”), which replaces the Non-Financial Reporting Directive (“NFRD”), was published in the Official Journal of the EU on November 16, 2022 and entered into effect on January 5, 2023. Certain of our European subsidiaries are subject to NFRD.
All Bermuda insurers, insurance managers and intermediaries registered under the Insurance Act are required to company with the BMA’s Cyber Risk Management Code of Conduct, which established duties, requirements and standards to be complied by each registrant in relation to operational cyber risk management.
All Bermuda insurers, insurance managers and intermediaries registered under the Insurance Act are required to comply with the BMA’s Cyber Risk Management Code of Conduct, which established duties, requirements and standards to be complied by each registrant in relation to operational cyber risk management.
In the U.S., our master policies generally provide that within 60 days of the perfection of a primary insurance claim, we have the option of: • paying the insurance coverage percentage specified in the certificate of insurance multiplied by the loss amount; • in the event the property is sold pursuant to an approved prearranged sale, paying the lesser of (i) 100% of the loss amount less the proceeds of sale of the property, or (ii) the specified coverage percentage multiplied by the loss amount; or ARCH CAPITAL 11 2022 FORM 10-K Table of Contents • paying 100% of the loss amount in exchange for the insured’s conveyance to us of good and marketable title to the property, with us then selling the property for our own account.
In the U.S., our master policies generally provide that within 60 days of the perfection of a primary insurance claim, we have the option of: • paying the insurance coverage percentage specified in the certificate of insurance multiplied by the loss amount; • in the event the property is sold pursuant to an approved prearranged sale, paying the lesser of (i) 100% of the loss amount less the proceeds of sale of the property, or (ii) the specified coverage percentage multiplied by the loss amount; or ARCH CAPITAL 11 2023 FORM 10-K • paying 100% of the loss amount in exchange for the insured’s conveyance to us of good and marketable title to the property, with us then selling the property for our own account.
As a result, for taxable years beginning after December 31, 2017, the voting cut-back limitation contained in our bye-laws that limits the votes conferred by the Controlled Shares (as defined in our bye-laws) of any U.S.
As a result of a change in law for taxable years beginning after December 31, 2017, the voting cut-back limitation contained in our bye-laws that limits the votes conferred by the Controlled Shares (as defined in our bye-laws) of any U.S.
Our U.K. subsidiaries are companies that are incorporated and have their central management and control in the U.K. and are therefore resident in the U.K. for corporation tax purposes. As a result, they will be subject to U.K. corporation tax on their respective profits.
Our U.K. subsidiaries are companies that are incorporated and have their central management and control in the U.K. and are therefore resident in the U.K. for corporation tax purposes. As a result, they are subject to U.K. corporation tax on their respective profits.
In addition, there are other Australian legislation and regulations applicable to the financial services sector that our group operates in, such as: • privacy legislation on the collection, use and storage of personal information and sensitive information of individuals and a mandatory data breach notification regime, which are overseen by the Office of the Australian Information Commissioner; • cyber security obligations imposed by APRA and ASIC and also on larger insurers in Australia under Australian security of critical infrastructure legislation; • modern slavery legislation which imposes a statutory reporting regime for larger companies operating in Australia; and • anti-money laundering and counter-terrorism financing legislation, which is administered by the Australian Transaction Reports and Analysis Centre.
In addition, there are other Australian legislation and regulations applicable to the financial services sector that our group operates in, such as: • privacy legislation on the collection, use and storage of personal information and sensitive information of individuals and a mandatory data breach notification regime, which are overseen by the Office of the Australian Information Commissioner; • cyber security obligations imposed by APRA and ASIC as part of their respective licensing regimes for insurers, and also on larger insurers in Australia under Australian security of critical infrastructure legislation; • modern slavery legislation which imposes a statutory reporting regime for larger companies operating in Australia; and • anti-money laundering and counter-terrorism financing legislation, which is administered by the Australian Transaction Reports and Analysis Centre.
In December 2020, EIOPA provided an opinion to the European Commission in relation to the review of the Solvency II regime. This review was initiated by the European Commission to determine if the Solvency II regime remains fit for purpose.
In December 2020, EIOPA provided an opinion to the European Commission in relation to the review of the Solvency II regime. This review was initiated by the European Commission to determine whether the Solvency II regime remains fit for purpose.
A foreign corporation deemed to be so engaged would be subject to U.S. federal income tax, as well as the branch profits tax, on its income, which is treated as effectively connected with the conduct of that trade or business unless the corporation is entitled to relief under the permanent establishment provisions of a tax treaty.
A foreign corporation deemed to be so engaged would be subject to U.S. federal income tax, as well as the branch profits tax, on its income, which is treated as effectively connected with the conduct of that trade or business unless the corporation is entitled to relief under a tax treaty.
We believe that we were not a PFIC for any taxable year ended on or before December 31, 2022 and we currently are not expecting to become a PFIC for any subsequent taxable year.
We believe that we were not a PFIC for any taxable year ended on or before December 31, 2023, and we currently are not expecting to become a PFIC for any subsequent taxable year.
For so long as the shares of Arch Capital are listed on the NASDAQ or another recognized stock exchange, any person who, directly or indirectly, becomes a holder of at least 10%, 20%, 33% or 50% of our common shares must notify the BMA in writing within 45 days of becoming such a holder (or ceasing to be such a holder).
For so long as the shares of Arch Capital are listed on the Nasdaq or another recognized stock exchange, any person who, directly or indirectly, becomes a holder of at least 10%, 20%, 33% or 50% of our common shares must notify the BMA in writing ARCH CAPITAL 17 2023 FORM 10-K within 45 days of becoming such a holder (or ceasing to be such a holder).
The IDD continues the existing ability for intermediaries established in a Member State of the EU to establish branches and provide services to all EEA states.
The IDD continues the pre-existing ability of intermediaries established in a Member State of the EU to establish branches and provide services to all EEA states.
While the main focus of this proposal is on conducting due diligence on human rights and environmental impacts within a company and across its value chain, there are also additional sustainability requirements for certain in scope entities.
While the main focus of the CSDD is on conducting due diligence on human rights and environmental impacts within a company and across its value chain, there are also additional sustainability requirements for certain in-scope entities.
We also take the results of the ORSA into account within our system of governance, including long-term capital management, business planning and new product development. The results of the ORSA also contribute to various elements of our strategic decision-making including how best to optimize capital management, establishing the most appropriate premium levels and deciding whether to retain or transfer risks.
We also take the results of the ORSA into account within our system of governance, including long-term capital management, business planning and new product development. The results of the ORSA also contribute to various elements of our strategic decision-making including how best to optimize capital management, establish the most appropriate premium levels and decide whether to retain or transfer risks.
While the Court of Justice upheld the use of other data transfer mechanisms, such as the Standard Contractual Clauses (“SCCs”), the decision has led to some uncertainty regarding the use of such mechanisms for data transfers to the U.S. and the Court of Justice made clear that reliance on SCCs alone may not necessarily be sufficient in all circumstances.
While the Court of Justice upheld the use of other data transfer mechanisms, such as the Standard Contractual Clauses (“EU SCCs”), the decision has led to some uncertainty regarding the use of such mechanisms for data transfers to the U.S., and the Court of Justice made clear that reliance on EU SCCs alone may not necessarily be sufficient in all circumstances.
Our employees are our greatest asset, and we maintain a sharp focus on improving the ways we attract, develop and retain our high-performing talent. Our goal is to cultivate a workplace culture where all our employees can thrive by building awareness of inclusive practices and incorporating them into our regular course of business.
Our employees are integral to the company, and we maintain a sharp focus on improving the ways we attract, develop and retain our high-performing talent. Our goal is to cultivate a workplace culture where all our employees can thrive by building awareness of inclusive practices and incorporating them into our regular course of business.
The California Consumer Privacy Act of 2018 (“CCPA”), came into effect on January 1, 2020, and grants California consumers certain rights to, among other things, access and delete data about them subject to certain exceptions, as well as a private right of action related to cybersecurity breaches with statutory penalties.
The California Consumer Privacy Act of 2018 (“CCPA”), which went into effect January 1, 2020 grants California consumers certain rights to, among other things, access and delete data about them subject to certain exceptions, as well as a private right of action related to cybersecurity breaches with statutory penalties.
The EU has adopted a range of measures to combat unprecedented levels of inflation, with EIOPA issuing a supervisory statement outlining its expectations of (re)insurers on inflation-related issues in December 2022. We are monitoring ongoing developments and considering the impact of EU and EIOPA guidance on inflation on its business.
The EU has adopted a range of measures to combat unprecedented levels of inflation, with EIOPA issuing a supervisory statement outlining its expectations of (re)insurers on inflation-related issues in December 2022. We are monitoring ongoing developments and considering the impact of EU and EIOPA guidance on inflation on its business. Third Country Governance Arrangements.
Under the relevant Code Section 302(b) tests, the redemption should be treated as a sale or exchange only if it (1) is substantially disproportionate, (2) constitutes a complete termination of the holder's stock interest in us or (3) is “not essentially equivalent to a dividend.” In determining whether any of these tests are met, shares considered to be owned by the holder by reason of certain constructive ownership rules set forth in the Code, as well as shares actually owned, must generally be taken into account.
Under the relevant Code Section 302(b) tests, the redemption should be treated as a sale or exchange only if it (1) is substantially disproportionate, (2) constitutes a complete ARCH CAPITAL 36 2023 FORM 10-K termination of the holder's stock interest in us or (3) is “not essentially equivalent to a dividend.” In determining whether any of these tests are met, shares considered to be owned by the holder by reason of certain constructive ownership rules set forth in the Code, as well as shares actually owned, must generally be taken into account.
By better reflecting the demographics in the markets in which we operate while also actively instilling norms for inclusive behavior, we leverage all the best contributions and thinking across our Company. To that end, we are committed to further integrating diversity and inclusion principles in our operations.
By better reflecting the demographics in the markets in which we operate while also actively seeking to instill norms for inclusive behavior, we aim to leverage all the best contributions and thinking across our Company. To that end, we are committed to further integrating diversity and inclusion principles in our operations.
In our non-U.S. mortgage insurance businesses, we compete with insurance subsidiaries of Helia Group Ltd. (formerly a Genworth Financial Inc. subsidiary) and QBE Insurance Group, Ltd. in Australia; in Europe, our competitors on structured capital relief transactions include approximately 5-10 highly rated multi-line (re)insurers in addition to over 30 funded credit investors. ENTERPRISE RISK MANAGEMENT General.
In our non-U.S. mortgage insurance businesses, we compete with insurance subsidiaries of Helia Group Ltd. and QBE Insurance Group, Ltd. in Australia; in Europe, our competitors on structured capital relief transactions include approximately 5-10 highly rated multi-line (re)insurers in addition to over 30 funded credit investors. ENTERPRISE RISK MANAGEMENT General.
ESG Considerations . A comprehensive package of measures to facilitate the progression towards sustainable economic activities was approved in principle by the European Commission in April 2021. In August 2021, two delegated regulations (the “EC Regulations”) amending sectoral legislation, including the Solvency II Directive and the Insurance Distribution Directive, were published.
A comprehensive package of measures to facilitate the progression towards sustainable economic activities was approved in principle by the European Commission in April 2021. In August 2021, two delegated regulations (the “EC Regulations”) amending sectoral legislation, including the Solvency II Directive and the IDD, were published.
This insurance business is managed by and distributed through local coverholders and is subject to Lloyd’s Supervision. In addition, the business is subject to local Australian prudential regulatory oversight by APRA, and additional separate financial services market conduct regulation by the Australian Securities and Investments Commission.
This insurance business is managed by and distributed through local coverholders and is subject to Lloyd’s Supervision. In addition, the business is subject to local Australian prudential regulatory oversight by APRA, and additional separate financial services market conduct regulation by ASIC.
This discussion does not include any description of the tax laws of any state or local governments within the U.S., or of any foreign government, that may be applicable to our common shares or preferred shares or the shareholders.
This discussion does not include any description of the tax laws of any state or local governments within the U.S., or of any foreign government, that may be applicable to our common shares or preferred shares or the shareholders. There can be no assurance the U.S.
Future changes to the FHA program, including any reduction to premiums charged may impact the demand for private mortgage insurance. In addition, Arch MI U.S. and other private mortgage insurers increasingly compete with multi-line reinsurers and capital markets alternatives to private mortgage insurance.
Future changes to the FHA program, including any reduction to premiums charged, may impact the demand for private mortgage insurance. ARCH CAPITAL 14 2023 FORM 10-K In addition, Arch MI U.S. and other private mortgage insurers increasingly compete with multi-line reinsurers and capital markets alternatives to private mortgage insurance.
(including branches and affiliates) accounted for 7.1% and 6.3% of our gross premiums written for the years ending December 31, 2022 and 2021, respectively. No other customer accounted for greater than 2.8% of the gross premiums written for the years ending December 31, 2022 and 2021, respectively.
(including branches and affiliates) accounted for 7.3% and 7.1% of our gross premiums written for the years ending December 31, 2023 and 2022, respectively. No other customer accounted for greater than 2.9% and 2.8% of the gross premiums written for the years ending December 31, 2023 and 2022, respectively.
(the “Treaty”), Arch Capital's Bermuda insurance subsidiaries will be subject to U.S. income tax on any insurance premium income that is effectively connected with a U.S. trade or business only if that trade or business is conducted through a permanent establishment in the U.S. No Treasury Regulations interpreting the Treaty have been issued.
(the “Treaty”), Arch Capital's Bermuda insurance subsidiaries will be subject to U.S. income tax on any insurance premium income that is effectively connected with ARCH CAPITAL 33 2023 FORM 10-K a U.S. trade or business only if that trade or business is conducted through a permanent establishment in the U.S. No Treasury Regulations interpreting the Treaty have been issued.
The National Association of Insurance Commissioners (“NAIC”) Insurance Holding Company System Model Act and Model Regulation includes provisions that, when adopted by states, will require the ultimate controlling person of an insurance holding company system to file an annual group capital calculation, unless the ultimate controlling person or its insurance holding company system is exempt from the filing requirement.
The National Association of Insurance Commissioners (“NAIC”) Insurance Holding Company System Model Act and Model Regulation includes provisions that, when adopted by states, will require the ultimate controlling person of an insurance holding company system to file an annual group capital calculation, unless the ultimate controlling ARCH CAPITAL 19 2023 FORM 10-K person or its insurance holding company system is exempt from the filing requirement.
We refer you to Item 1A “Risk Factors” for a discussion of risk factors relating to our business. OUR COMPANY General Arch Capital is a publicly listed Bermuda exempted company with approximately $15.6 billion in capital at December 31, 2022 and is part of the S&P 500 index.
We refer you to Item 1A “Risk Factors” for a discussion of risk factors relating to our business. OUR COMPANY General Arch Capital is a publicly listed Bermuda exempted company with approximately $21.1 billion in capital at December 31, 2023 and is part of the S&P 500 index.
The NAIC has adopted an Insurance Data Security Model Law, requires insurers, insurance producers and other entities required to be licensed under state insurance laws to comply with certain requirements under state insurance laws, such as developing and maintaining a written information security program, conducting risk assessments and overseeing the data security practices of third-party vendors and meeting expanded breach notification requirements.
The NAIC adopted an Insurance Data Security Model Law in 2017 that requires insurers, insurance producers and other entities required to be licensed under state insurance laws to comply with certain requirements under state insurance laws, such as developing and maintaining a written information security program, conducting risk assessments overseeing the data security practices of third party service providers and meeting expanded breach notification requirements.
The acquisition included Somerset’s motor insurance managing general agent, distribution capabilities through ARCH CAPITAL 3 2022 FORM 10-K Table of Contents direct and aggregator channels, affiliated insurer and fully integrated claims operation. See “Operations—Reinsurance Operations” for further details on our reinsurance operations.
The acquisition included Somerset’s Group’s motor insurance managing general agent, distribution capabilities ARCH CAPITAL 3 2023 FORM 10-K through direct and aggregator channels, affiliated insurer and fully integrated claims operation. See “Operations—Reinsurance Operations” for further details on our reinsurance operations.
As of January 2020, all of the insurance business in the European Union (“EU”) previously written by Arch Insurance (U.K.) is now written through Arch Insurance (EU). Arch Insurance (EU) has branches in Italy and the U.K.
From January 2020, all of the insurance business in the European Union (“EU”) previously written by Arch Insurance (U.K.) is now written through Arch Insurance (EU). Arch Insurance (EU) has branches in Italy, France, Spain and the U.K.
Sales and Distribution . In the U.S., we employ a sales force to directly sell mortgage insurance products and services to our customers, which include mortgage originators such as mortgage bankers, mortgage brokers, commercial banks, savings institutions, credit unions and community banks. Our largest single mortgage insurance customer in the U.S.
ARCH CAPITAL 10 2023 FORM 10-K Sales and Distribution . In the U.S., we employ a sales force to directly sell mortgage insurance products and services to our customers, which include mortgage originators such as mortgage bankers, mortgage brokers, commercial banks, savings institutions, credit unions and community banks. Our largest single mortgage insurance customer in the U.S.
By offering a meaningful and inclusive employee experience, we not only help people perform at their best among colleagues who care, but also support our strategy of delivering specialty products and innovative solutions to our customers in each of our business segments.
By continuously working to offer a meaningful and inclusive employee experience, we not only seek to help people perform at their best among colleagues who care, but also aim to support our strategy of delivering specialty products and innovative solutions to our customers in each of our business segments.
As part of the underwriting process, our mortgage group typically assesses a variety of factors, including the: • ability and willingness of the mortgage borrower to pay its obligations under the mortgage loan being insured; • characteristics of the mortgage loan being insured and the value of the collateral securing the mortgage loan; • financial strength, quality of operations and reputation of the lender originating the mortgage loan; • expected future home price movements which vary by geography; ARCH CAPITAL 10 2022 FORM 10-K Table of Contents • projections of future loss frequency and severity; and • adequacy of premium rates.
As part of the underwriting process, our mortgage group typically assesses a variety of factors, including the: • ability and willingness of the mortgage borrower to pay its obligations under the mortgage loan being insured; • characteristics of the mortgage loan being insured and the value of the collateral securing the mortgage loan; • financial strength, quality of operations and reputation of the lender originating the mortgage loan; • home price trends and expected future home price movements which vary by geography; • projections of future loss frequency and severity; and • adequacy of premium rates.
In general, the penalty tax is equivalent to an interest charge on taxes that are deemed due during the period the shareholder owned the shares, computed by assuming that the excess distribution or gain (in the case of a sale) with respect to the shares was taxable in equal portions throughout the holder’s period of ownership.
In general, the penalty tax is equivalent to an interest charge on taxes that are deemed due during the period the shareholder owned the shares, computed by assuming that the excess distribution or gain (in the case of a sale) with respect ARCH CAPITAL 38 2023 FORM 10-K to the shares was taxable in equal portions throughout the holder’s period of ownership.
We or any of our non-U.S. subsidiaries generally will be treated as a CFC with respect to any taxable year if at any time during such taxable year, one or more “10% U.S.
Shareholders Controlled Foreign Corporation Rules . We or any of our non-U.S. subsidiaries generally will be treated as a CFC with respect to any taxable year if at any time during such taxable year, one or more “10% U.S.
Under their monoline insurance licenses, each of Arch’s eligible mortgage insurers may only offer private mortgage insurance covering first lien, one-to-four family residential mortgages. Nearly all of our mortgage insurance written provides first loss protection on loans originated by mortgage lenders and sold to the GSEs.
Under their monoline insurance licenses, each of Arch’s eligible mortgage insurers may only offer private mortgage insurance covering first lien, one-to-four family residential mortgages. Nearly all of our mortgage insurance written provides first loss protection on loans ARCH CAPITAL 9 2023 FORM 10-K originated by mortgage lenders and sold to the GSEs.
Under Irish law, the prior consent of the CBI is required before any person can acquire or increase a qualifying holding in an Irish insurer or reinsurer, including Arch Insurance (EU) and Arch Re Europe, or their parent undertakings.
Under Irish law, the prior consent of the CBI is required before any person can acquire or increase a qualifying holding in an Irish insurer or reinsurer, including Arch Insurance (EU) and Arch Re ARCH CAPITAL 27 2023 FORM 10-K Europe, or their parent undertakings.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeChanges to existing regulation and supervisory standards, or failure to comply with applicable requirements, could adversely affect our business and results of operations. • We are subject to ongoing legal and policy actions around climate change which may result in implications or additional requirements that could prompt us to shift our risk selection and business strategy in ways which may adversely impact our results of operations. • The Russian invasion of Ukraine has created global instability and also resulted in the imposition of sanctions by the U.S., U.K. and EU on Russia and Russia-related businesses. • Our customers and policyholders may also be impacted by regulatory, technological, market or other risks relating to climate change in ways which we cannot predict with certainty and adversely impact our results of operations. • As we continue to incorporate climate change in our business strategy, we cannot be certain that shareholders, investors and other influential environmental groups will agree with our approach, which may adversely impact our ability to raise funds in the capital markets, our share price and our results of operations. • Governmental, regulatory and rating actions in response to the COVID-19 pandemic have impacted us, and the continuation or reinstatement of such actions may adversely affect our financial performance. • We could face unanticipated losses from war, terrorism, cyber attacks, pandemics and political instability, and these or other unanticipated losses could have a material adverse effect on our financial condition and results of operations. • Underwriting risks and reserving for losses are based on probabilities and related modeling, which are subject to inherent uncertainties. • The failure of any of the loss limitation methods we employ could have a material adverse effect on our financial condition or results of operations. • The availability of reinsurance, retrocessional coverage and capital market transactions to limit our exposure to risks may be limited, and counterparty credit and other risks associated with our reinsurance arrangements may result in losses which could adversely affect our financial condition ARCH CAPITAL 37 2022 FORM 10-K Table of Contents and results of operations. • We could be materially adversely affected to the extent that important third parties with whom we do business do not adequately or appropriately manage their risks, commit fraud or otherwise breach obligations owed to us. • Emerging claim and coverage issues, including issues relating to the COVID-19 pandemic, may adversely affect our business. • Acquisitions, the addition of new lines of insurance or reinsurance business, expansion into new geographic regions and/or entering into joint ventures or partnerships expose us to risks. • Our information technology systems may be unable to meet the demands of customers and our workforce. • Technology failures and cyber attacks, including, but not limited to, ransomware, exploitation in software or code with malicious intent, state-sponsored cyber attacks, may impact us or our business partners and service providers, causing a disruption in service and operations which would negatively impact our business and/or expose us to litigation. • Cyber incidents or data breaches caused by bad actors or unintentional human error impacting data, including personal data, we maintain or use during our business operations may result in regulatory fines or action, reputation damage and a disruption in our business operations. • A downgrade in our ratings or our inability to obtain a rating for our operating insurance and reinsurance subsidiaries may adversely affect our relationships with clients and brokers and negatively impact sales of our products. • Our ability to execute successfully our business strategy, continue to grow and innovate and offer our employees a dynamic and supportive workplace depends on the recruitment, retention and promotion of talented, agile, diverse and resilient employees at all levels of our organization. • Our success will depend on our ability to maintain and enhance effective operating procedures and internal controls and our ERM program. • We are exposed to credit risk in certain of our business operations. • Our business is subject to applicable laws and regulations relating to economic trade sanctions and foreign bribery laws, the violation of which could adversely affect our operations. • New legislation or regulations relating to the U.K.’s withdrawal from the EU could adversely affect us.
Biggest changeChanges to existing regulation and supervisory standards, or failure to comply with applicable requirements, could adversely affect our business and results of operations. • We are subject to ongoing legal and policy actions around climate change which may result in additional requirements that could prompt us to shift our risk selection and business strategy in ways which may adversely impact our results of operations. • The Russian invasion of Ukraine and the resulting imposition of sanctions by the U.S., U.K. and EU on Russia and Russia-related businesses created global instability. • Our customers and policyholders may also be impacted by regulatory, technological, market or other risks relating to climate change in ways which we cannot predict with certainty and adversely impact our results of operations. • As we continue to incorporate climate change and other ESG factors in our business strategy, we cannot be certain that shareholders, investors and other influential environmental and social-focused groups will agree with our approach, which may adversely impact our ability to raise funds in the capital markets, our share price and our results of operations. • We could face unanticipated losses from increased geopolitical tensions, hostilities, war, terrorism, cyber attacks and general political instability, and these or other unanticipated losses could have a material adverse effect on our financial condition and results of operations. • Underwriting risks and reserving for losses are based on probabilities and related modeling, which are subject to inherent uncertainties. • The failure of any of the loss limitation methods we employ could have a material adverse effect on our financial condition or results of operations. • The availability of reinsurance, retrocessional coverage and capital market transactions to limit our exposure to risks may be limited, and counterparty credit and other risks associated with our reinsurance arrangements may result in losses which could adversely affect our financial condition and results of operations. • We could be materially adversely affected to the extent that important third parties with whom we do business do not adequately or appropriately manage their risks, commit fraud or otherwise breach obligations owed to us. • Emerging claim and coverage issues may adversely affect our business. • Acquisitions, the addition of new lines of insurance or reinsurance business, expansion into new geographic regions and/or entering into joint ventures or partnerships expose us to risks. • Our information technology systems may be unable to meet the demands of customers and our workforce. • Technology failures and cyber attacks, including, but not limited to, ransomware, exploitation in software or code with malicious intent, state-sponsored cyber attacks, as well as vulnerabilities relating to new technologies, such as generative AI, may impact us or our business partners and service providers, causing a disruption in service and operations which could materially and negatively impact our business and/or expose us to litigation. • Cyber incidents or data breaches caused by bad actors or unintentional human error impacting data, including personal data, we maintain or use during our business operations may result in regulatory fines or action, reputation damage and a disruption in our business operations. • Changes in criteria used by rating agencies which may result in a downgrade in our ratings, our inability to obtain a rating or a change in capital allocation or requirements for our operating insurance and reinsurance subsidiaries may adversely affect our relationships with clients and brokers and negatively impact sales of our products. • Our ability to execute our business strategy successfully, continue to grow and innovate and offer our employees a dynamic and supportive workplace depends on the recruitment, retention and promotion of talented, agile, diverse and resilient employees at all levels of our organization. • Our success will depend on our ability to maintain and enhance effective operating procedures and internal controls and our ERM program. • We are exposed to credit risk in certain of our business operations. • Our business is subject to applicable laws and regulations relating to economic trade sanctions and foreign bribery laws, the violation of which could adversely affect our operations. • New legislation or regulations relating to the U.K.’s withdrawal from the EU could adversely affect us.
On a quarterly basis, we review our investments by applying an approach based on the CECL and whether declines in fair value below the cost basis requires an estimate of the expected credit loss. There can be no assurance that our management has accurately assessed the level of the credit loss allowance taken reflected in our financial statements.
On a quarterly basis, we review our investments by applying an approach based on the CECL and whether declines in fair value below the cost basis requires an estimate of the expected credit loss. There can be no assurance that our management has accurately assessed the level of the credit loss allowance taken, as reflected in our financial statements.
Disruption in the financial markets and the downturn in global economic activity resulting from the geopolitical conflict, elevated financing rates, housing market declines or other macro-and micro-economic conditions could adversely affect the valuation of securities in our investment portfolio. Credit spread widening and/or equity market volatility could result in temporary or permanent impairment.
Disruption in the financial markets and the downturn in global economic activity resulting from geopolitical conflict, elevated financing rates, housing market declines or other macro-and micro-economic conditions could adversely affect the valuation of securities in our investment portfolio. Credit deterioration spread widening and/or equity market volatility could result in temporary or permanent impairment.
Although the loss experience of catastrophe insurers and reinsurers has historically been characterized as low frequency, climate change has impacted the frequency and severity of extreme weather events and natural catastrophes such as hurricanes, tornado activity, other windstorms, floods and wildfires in recent years and may continue to increase in the future.
Although the loss experience of catastrophe insurers and reinsurers has historically been characterized as low frequency, climate change has impacted the frequency and severity of extreme weather events and natural catastrophes such as hurricanes, tornado activity, other windstorms, floods, wildfires and droughts in recent years and may continue to increase in the future.
Additionally, catastrophic events could result in increased credit exposure to reinsurers and other counterparties we transact business with, declines in the value of investments we hold and significant disruptions to our physical infrastructure, systems and operations. Climate change-related risks may also specifically adversely impact the value of the securities that we hold.
Catastrophic events could result in increased credit exposure to reinsurers and other counterparties we transact business with, declines in the value of investments we hold and significant disruptions to our physical infrastructure, systems and operations. Climate change-related risks may also specifically adversely impact the value of the securities that we hold.
New sanction regimes may be initiated, or existing sanctions expanded, at any time, which can immediately impact our business activities. Since the Russian invasion of Ukraine in February 2022, there have been several sanctions packages imposed by the U.S., U.K. and EU which impact our business.
New sanctions regimes may be initiated, or existing sanctions expanded, at any time, which can immediately impact our business activities. Since the Russian invasion of Ukraine in February 2022, there have been several sanctions packages imposed by the U.S., U.K. and EU which impact our business.
Our policyholders and customers are located primarily in countries and regions, such as the U.S., U.K. and EU, where there are regulatory, policy, legal and technological changes resulting from actions relating to climate change.
Our policyholders and customers are located primarily in countries and regions, such as the U.S., U.K., EU and Australia where there are regulatory, policy, legal and technological changes resulting from actions relating to climate change.
Our leadership and Board are actively engaged in understanding the ever-changing ESG landscape and assessing our business operations to ensure that our business strategy reflects our values, that our success depends on our commitment to a diverse workforce, an informed and active dialogue about ESG issues with our customers and shareholders and the strength of our ERM framework.
Our leadership and Board are actively engaged in understanding the ever-changing ESG landscape and assessing our business operations to ensure that our business strategy reflects our values. We believe that our success depends on our commitment to a diverse workforce, an informed and active dialogue about ESG issues with our customers and shareholders and the strength of our ERM framework.
Our eligible mortgage insurers each satisfied the PMIERs’ financial requirements as of December 31, 2022. While we intend to continue to comply with these requirements, there can be no assurance that the GSEs will not change the PMIERs or that Arch Mortgage Insurance Company or United Guaranty Residential Insurance Company will continue as eligible mortgage insurers.
Our eligible mortgage insurers each satisfied the PMIERs’ financial requirements as of December 31, 2023. While we intend to continue to comply with these requirements, there can be no assurance that the GSEs will not change the PMIERs or that Arch Mortgage Insurance Company or United Guaranty Residential Insurance Company will continue as eligible mortgage insurers.
The program trigger for calendar year 2022 and any program year thereafter through 2027 is $200 million. If an act (or acts) of terrorism result in covered losses exceeding the $100 billion annual limit, insurers with losses exceeding their deductibles will not be responsible for additional losses.
The program trigger for calendar year 2023 and any program year thereafter through 2027 is $200 million. If an act (or acts) of terrorism result in covered losses exceeding the $100 billion annual limit, insurers with losses exceeding their deductibles will not be responsible for additional losses.
We also compete on the basis of product offerings and other factors, such as our approach to ESG, and customers may be drawn to our competitors based on these factors. Any failure by us to effectively compete could adversely affect our financial condition and results of operations.
We also compete on the basis of product offerings and other factors, such as our approach to ESG and our use of technologies, and customers may be drawn to our competitors based on these factors. Any failure by us to effectively compete could adversely affect our financial condition and results of operations.
We have substantial exposure to unexpected, large losses resulting from future man-made catastrophic events, such as acts of war, acts of terrorism, pandemics similar to the COVID-19 pandemic, political instability and social unrest. These risks are inherently unpredictable.
We have substantial exposure to unexpected, large losses resulting from future man-made catastrophic events, such as acts of war, regional hostilities, acts of terrorism, political instability, social unrest and pandemics similar to the COVID-19 pandemic. These risks are inherently unpredictable.
Any estimates and assumptions made as part of the reserving process could prove to be inaccurate due to several factors, including the fact that for certain lines of business relatively limited historical information has been reported to us through December 31, 2022.
Any estimates and assumptions made as part of the reserving process could prove to be inaccurate due to several factors, including the fact that for certain lines of business relatively limited historical information has been reported to us through December 31, 2023.
We rely on information technology systems to process, transmit, store and protect the electronic information, financial data and proprietary models that are critical to our business. Furthermore, a significant portion of the communications between our employees and our business partners and service providers depends on information technology and electronic information exchange.
We rely on information technology systems to securely process, transmit, store and protect the confidential and electronic information, financial data and proprietary models that are critical to our business. Furthermore, a significant portion of the communications between our employees and our business partners and service providers depends on information technology and electronic information exchange.
This practice exposes us to increased risks related to data security, service disruptions, supply chain issues or the effectiveness of our control system, which could result in our ability to conduct business operations, monetary and reputational damage or harm to our competitive position.
This practice exposes us to increased risks related to data security, service disruptions, supply chain issues or the effectiveness of our control system, which could result in our inability to conduct business operations, monetary and reputational damage or harm to our competitive position.
A cyber incident could also result in a violation of applicable privacy, data protection or other laws, damage our reputation, cause a loss of customers, adversely affect our stock price, cause us to incur remediation costs, increased insurance premiums, and/or give rise to monetary fines and penalties, any of which could adversely affect our business.
A cybersecurity incident could also result in a violation of applicable privacy, data protection or other laws, damage our reputation, cause a loss of customers, adversely affect our stock price, cause us to incur remediation costs, increased insurance premiums, and/or give rise to monetary fines, penalties, or litigation any of which could adversely affect our business.
Changes to the role of the GSEs in the U.S. housing market or to GSE eligibility requirements for mortgage insurers could negatively impact our results of operations and financial condition, or reduce our operating flexibility. Substantially all of Arch MI U.S.’s insurance written has been for loans sold to the GSEs.
Changes to the role of the GSEs in the U.S. housing market or to GSE eligibility requirements for mortgage insurers or to the GSEs’ use of CRT could negatively impact our results of operations and financial condition or reduce our operating flexibility. Substantially all of Arch MI U.S.’s insurance written has been for loans sold to the GSEs.
As a result, our results of operations may be impacted by the loss of those customers or a shift in their patterns or levels of insurance coverage in ways we cannot predict.
As a result of these factors, our results of operations may be impacted by the loss of those customers or a shift in their patterns or levels of insurance coverage in ways we cannot predict.
Actual losses from future catastrophic events may vary materially from estimates due to the inherent uncertainties in making such determinations resulting from several factors, including the potential inaccuracies and inadequacies in the data provided by clients, brokers and ceding companies, the modeling techniques and the application of such techniques, the contingent nature of business interruption exposures, the effects of any resultant demand surge on claims activity and attendant coverage issues.
Actual losses from future catastrophic events have varied materially from estimates due to the inherent uncertainties in making such determinations resulting from several factors, including the potential inaccuracies and inadequacies in the data provided by clients, brokers and ceding companies, the modeling techniques and the application of such techniques, the contingent nature of business interruption exposures, the effects of any resultant demand surge on claims activity and attendant coverage issues.
We may need to raise additional funds through equity or debt financings. Any equity or debt financing, if available at all, may be on terms that are unfavorable to us.
We may need to raise additional funds through equity or debt financings or other investments. Any equity or debt financing, if available at all, may be on terms that are unfavorable to us.
Security breaches by third parties could expose us to the loss or misuse of our information, litigation, financial losses and potential liability. In addition, cyber incidents that impact the availability, reliability, speed, accuracy or other proper functioning of these systems could have a significant negative impact on our operations and possibly our results.
Security breaches by third parties could expose us to the loss or misuse of our information, financial losses, reputational damage and potential liability and litigation. In addition, cyber incidents and other disruptions that impact the availability, reliability, speed, accuracy or other proper functioning of these systems could have a significant negative impact on our operations and results.
As we continue to incorporate climate change in our business strategy, we cannot be certain that shareholders, investors and other influential environmental groups will agree with our approach, which may adversely impact our ability to raise funds in the capital markets, our share price and our results of operations.
As we continue to incorporate climate change and other ESG factors in our business strategy, we cannot be certain that shareholders, investors and other influential environmental and social-focused groups will agree with our approach, which may adversely impact our ability to raise funds in the capital markets, our share price and our results of operations.
The potential also exists, after a catastrophe loss or pandemic events like COVID-19, for the development of inflationary pressures in a local economy. This may have a material effect on the adequacy of our reserves for losses and loss adjustment expenses, especially in longer-tailed lines of business.
The potential also exists, after a catastrophe loss or pandemic events like COVID-19, or geopolitical tensions and hostilities for the development of inflationary pressures in a local or regional economy. This may have a material effect on the adequacy of our reserves for losses and loss adjustment expenses, especially in longer-tailed lines of business.
In December 2017, the Basel Committee published final revisions to the Basel Capital Accord which is informally denominated in the U.S. as “Basel IV.” The Basel Committee expects the new rules to be fully implemented by January 2027.
In December 2017, the Basel Committee published final revisions to the Basel Capital Accord which is informally denominated in the U.S. as “Basel III Endgame.” The Basel Committee expects the new rules to be fully implemented by January 2027.
Our customers, especially our mortgage insurance customers, require that we conduct our business in a secure manner, electronically via the Internet or via electronic data transmission. We must continually invest significant resources in establishing and maintaining electronic connectivity with customers.
Our customers, require that we conduct our business in a secure manner, electronically via the Internet or via electronic data transmission. We must continually invest significant resources in establishing and maintaining electronic connectivity with customers.
The implementation of the Basel III Capital Accord and FHFA’s Enterprise Capital Rule may adversely affect the use of mortgage insurance and CRT opportunities. With certain exceptions, the Basel III Rules became effective on January 1, 2014.
The implementation of the Basel III Capital Accord and FHFA’s Enterprise Regulator Capital Framework may adversely affect the use of mortgage insurance and CRT opportunities. With certain exceptions, the Basel III Rules became effective on January 1, 2014.
Elevated levels of inflation could drive higher U.S. and global interest rates, negatively impacting asset prices, particularly in fixed income. In addition, a lack of pricing transparency, decreased market liquidity, the strengthening or weakening of foreign currencies against the U.S.
Elevated levels of inflation could drive higher U.S. and global interest rates, negatively impacting asset prices, particularly in fixed income and financial flexibility of operating businesses. In addition, a lack of pricing transparency, decreased market liquidity, the strengthening or weakening of foreign currencies against the U.S.
Risks Relating to Our Mortgage Operations • The ultimate performance of the Arch MI U.S. mortgage insurance portfolio remains uncertain. • If the volume of low down payment mortgage originations declines, or if other government housing policies, practices or regulations change, the amount of mortgage insurance we write in the U.S. could decline, which would reduce our mortgage insurance revenues. • Changes to the role of the GSEs in the U.S. housing market or to GSE eligibility requirements for mortgage insurers could negatively impact our results of operations and financial condition or reduce our operating flexibility. • The implementation of the Basel III Capital Accord and FHFA’s Enterprise Capital Rule may adversely affect the use of mortgage insurance and CRT opportunities.
Risks Relating to Our Mortgage Operations • The ultimate performance of our mortgage insurance portfolios remains uncertain. • If the volume of low down payment mortgage originations declines, or if other government housing policies, practices or regulations change, the amount of mortgage insurance we write in the U.S. could decline, which would reduce our mortgage insurance revenues. • Changes to the role of the GSEs in the U.S. housing market or to GSE eligibility requirements for mortgage insurers or to the GSEs’ use of CRT could negatively impact our results of operations and financial condition or reduce our operating flexibility. • The implementation of the Basel III Capital Accord and FHFA’s Enterprise Regulator Capital Framework may adversely affect the use of mortgage insurance and CRT opportunities.
The Russian invasion of Ukraine has created global instability and also resulted in the imposition of sanctions by the U.S., U.K. and EU on Russia and Russia-related businesses. The Russian invasion of Ukraine and ongoing hostilities have created a high level of uncertainty as well as disruption in certain sectors of the global economy.
The Russian invasion of Ukraine and the resulting imposition of sanctions by the U.S., U.K. and EU on Russia and Russia-related businesses created global instability. The Russian invasion of Ukraine and ongoing hostilities have created a high level of uncertainty as well as disruption in certain sectors of the global economy.
The issuance of securities ranking equally with or senior to our preferred shares may reduce the amount available for dividends and the amount recoverable by holders of such series in the event of a liquidation, dissolution or winding-up of Arch Capital. The voting rights of holders of our preferred shares are limited.
The issuance of securities ranking equally with or senior to our preferred shares may reduce the amount available for dividends and the amount recoverable by holders of such series in the event of a liquidation, dissolution or winding-up of Arch Capital. ARCH CAPITAL 57 2023 FORM 10-K The voting rights of holders of our preferred shares are limited.
Pillar II addresses the remaining BEPS risk of profit shifting to entities in low tax jurisdictions by introducing a global minimum tax (15%) and a proposed tax on base eroding payments, which would operate through a denial of a deduction or imposition of source-based taxation (including withholding tax) on certain payments.
Pillar II addresses the remaining BEPS risk of profit shifting to certain in-scope entities in low tax jurisdictions by introducing a global minimum tax (15%), which would operate through a denial of a deduction or imposition of source-based taxation (including withholding tax) on certain payments.
The financial requirements require a mortgage insurer’s available assets, which generally include only the most liquid assets, to meet or exceed “minimum required assets” as of each quarter end. Arch MI U.S.’s minimum required assets under the PMIERs will be determined, in part, by the particular risk profiles of the loans it insures.
The financial requirements require a mortgage insurer’s available assets to meet or exceed “minimum required assets” as of each quarter end. Arch MI U.S.’s minimum required assets under the PMIERs will be determined, in part, by the particular risk profiles of the loans it insures.
ARCH CAPITAL 49 2022 FORM 10-K Table of Contents Foreign currency exchange rate fluctuation may adversely affect our financial results. We write business on a worldwide basis, and our results of operations may be affected by fluctuations in the value of currencies other than the U.S. Dollar.
ARCH CAPITAL 52 2023 FORM 10-K Foreign currency exchange rate fluctuation may adversely affect our financial results. We write business on a worldwide basis, and our results of operations may be affected by fluctuations in the value of currencies other than the U.S. Dollar.
Our ability to execute successfully our business strategy, continue to grow and innovate and offer our employees a dynamic and supportive workplace depends on the recruitment, retention and promotion of talented, agile, diverse and resilient employees at all levels of our organization.
Our ability to execute our business strategy successfully, continue to grow and innovate and offer our employees a dynamic and supportive workplace depends on the recruitment, retention and promotion of talented, agile, diverse and resilient employees at all levels of our organization. The success of our business depends on attracting and retaining a capable and talented workforce.
We may become subject to increased taxation in Bermuda and other countries as a result of the OECD's plan on “Base erosion and profit shifting.” The OECD, with the support of the G20, initiated the “base erosion and profit shifting” (“BEPS”) project in 2013 in response to concerns that changes are needed to international tax laws to address situations where multinationals may pay little or no tax in certain jurisdictions by shifting profits away from jurisdictions where the activities creating those profits may take place.
Risks Relating to Taxation We expect to become subject to increased taxation in Bermuda as a result of the recently adopted Bermuda CIT Act, and may become subject to increased taxation in other countries as a result of th e implementation of the OECD's plan on “Base Erosion and Profit Shifting.” The OECD, with the support of the G20, initiated the “Base Erosion and Profit Shifting” (“BEPS”) project in 2013 in response to concerns that changes are needed to international tax laws to address situations where multinationals may pay little or no tax in certain jurisdictions by shifting profits away from jurisdictions where the activities creating those profits may take place.
A significant portion of cash and invested assets held by Arch consists of fixed maturities ( 72.1% as of December 31, 2022). Although our current investment guidelines and approach stress preservation of capital, market liquidity and diversification of risk, our investments are subject to market-wide risks and fluctuations.
A significant portion of cash and invested assets held by Arch consists of fixed maturities ( 70.1% as of December 31, 2023). Although our current investment guidelines and approach emphasize preservation of capital, market liquidity and diversification of risk, our investments are subject to market-wide risks and fluctuations.
The frequency and severity of claims we incur is uncertain and will depend largely on general economic factors outside of our control, including, among others, changes in unemployment, home prices and interest rates in the U.S.
The frequency and severity of claims we incur is uncertain and will depend largely on general economic factors outside of our control, including, among others, changes in unemployment and home prices affordability.
Consequently, we assume a degree of credit and operational risk of those parties, and a material failure to manage their risks may result in material losses or damage to us. Emerging claim and coverage issues, including issues relating to the COVID-19 pandemic, may adversely affect our business.
Consequently, we assume a degree of credit and operational risk of those parties, and a material failure to manage their risks may result in material losses or damage to us. Emerging claim and coverage issues may adversely affect our business.
Moreover, the higher risk-capital charges for residential mortgages could be incorporated into the PMIERs standards, thereby requiring mortgage insurers to hold higher capital levels in order to be recognized as approved counterparties for the GSEs. This could have a negative impact on our return on equity.
The higher risk-capital charges for residential mortgages could be incorporated into the PMIERs standards, thereby requiring mortgage insurers to hold higher capital levels in order to be recognized as approved counterparties for the GSEs. This could have a negative impact on our return on equity. In addition, higher capital standards could impact the guarantee fees charged to acquire loans.
Risks Relating to Our Industry, Business and Operations • We operate in a highly competitive environment. • The insurance and reinsurance industry is highly cyclical, and we may at times experience periods characterized by excess underwriting capacity and unfavorable premium rates. • The effects of inflation and global recessionary conditions impact the insurance and reinsurance industry in ways which may negatively impact our business, financial condition and results of operations. • Claims for natural and man-made catastrophic events could cause large losses and substantial volatility in our results of operations and could have a material adverse effect on our financial position and results of operations. • The impacts of the COVID-19 pandemic, the shift to a COVID-19 endemic approach and related risks could materially affect our results of operations, financial position and/or liquidity. • The impact of climate change will affect our loss limitation methods, such as the purchase of third party reinsurance and catastrophe risk modeling and risk selection in ways which may adversely impact our business, financial condition and results of operations. • Our insurance and reinsurance subsidiaries are subject to supervision and regulation.
Risks Relating to Our Industry, Business and Operations • We operate in a highly competitive environment. • The insurance and reinsurance industry is highly cyclical, and we may at times experience periods characterized by excess underwriting capacity and unfavorable premium rates. • The effects of inflation and global recessionary conditions impact the insurance and reinsurance industry in ways which may negatively impact our business, financial condition and results of operations. • Claims for natural and man-made catastrophic events could cause large losses and substantial volatility in our results of operations and could have a material adverse effect on our financial position and results of operations. • The impact of climate change will affect our loss limitation methods, such as the purchase of third party reinsurance and catastrophe risk modeling and risk selection in ways which may adversely impact our business, financial condition and results of operations.
Arch Capital is a holding company and is dependent on dividends and other distributions from its operating subsidiaries. Arch Capital is a holding company whose assets primarily consist of the shares in our subsidiaries.
ARCH CAPITAL 56 2023 FORM 10-K Arch Capital is a holding company and is dependent on dividends and other distributions from its operating subsidiaries. Arch Capital is a holding company whose assets primarily consist of the shares in our subsidiaries.
Risks Relating to Financial Markets and Investment s • Adverse developments in the financial markets could have a material adverse effect on our results of operations, financial position and our businesses, and may also limit our access to capital; our policyholders, reinsurers and retrocessionaires may also be affected by such developments, which could adversely affect their ability to meet their obligations to us. • Disruption to the financial markets and weak economic conditions resulting from situations such as post pandemic imbalances, inflation and geopolitical conflict may adversely and materially impact our investments, financial condition and results of operation. • Foreign currency exchange rate fluctuation may adversely affect our financial results. • Uncertainty relating to the determination of the London Interbank Offered Rate (“LIBOR”) and the phasing out and replacement of LIBOR with alternative benchmark rates may adversely impact us. • The determination of the amount of current expected credit losses (“CECL”) allowances taken on our investments is highly subjective and could materially impact our results of operations or financial position. • Our reinsurance subsidiaries may be required to provide collateral to ceding companies, by applicable regulators, their contracts or other commercial considerations.
Risks Relating to Financial Markets and Investment s • Adverse developments in the financial markets could have a material adverse effect on our results of operations, financial position and our businesses, and may also limit our access to capital; our policyholders, reinsurers and retrocessionaires may also be affected by such developments, which could adversely affect their ability to meet their obligations to us. • Disruption to the financial markets and weak economic conditions resulting from situations such as post pandemic imbalances, inflation and geopolitical conflict may ARCH CAPITAL 41 2023 FORM 10-K adversely and materially impact our investments, financial condition and results of operation. • Foreign currency exchange rate fluctuation may adversely affect our financial results. • The determination of the amount of current expected credit losses (“CECL”) allowances taken on our investments is highly subjective and could materially impact our results of operations or financial position. • Our reinsurance subsidiaries may be required to provide collateral to ceding companies, by applicable regulators, their contracts or other commercial considerations.
ARCH CAPITAL 38 2022 FORM 10-K Table of Contents Risk Relating to Our Company • Some of the provisions of our bye-laws and our shareholders agreement may have the effect of hindering, delaying or preventing third party takeovers or changes in management initiated by shareholders.
ARCH CAPITAL 55 2023 FORM 10-K Risk Relating to Our Company and Our Shares Some of the provisions of our bye-laws and our shareholders agreement may have the effect of hindering, delaying or preventing third party takeovers or changes in management initiated by shareholders.
Governments, regulators, legislators and influential non-governmental organizations continue to focus on enacting laws, regulations and other requirements relating to climate change. We are subject to some of these changing laws, regulations and public policy debates, which are difficult to ARCH CAPITAL 41 2022 FORM 10-K Table of Contents predict and quantify and may have an adverse impact on our business.
Governments, regulators, legislators and influential non-governmental organizations continue to focus on enacting laws, regulations and other requirements relating to climate change. We are subject to some of these changing laws, regulations and public policy debates, which are difficult to predict and quantify and may have an adverse impact on our business.
A decrease in the amount of premium received or an increase in the number or size of claims, compared to what we anticipate, could adversely affect Arch MI U.S.’s results of operations and financial condition.
A decrease in the amount of premium received or an increase in the number or size of claims, compared to what we anticipate, could adversely affect our results of operations and financial condition.
In some instances, these changes may not become apparent until sometime after we have issued insurance or reinsurance contracts that are ARCH CAPITAL 45 2022 FORM 10-K Table of Contents affected by the changes. As a result, the full extent of liability under our insurance or reinsurance contracts may not be known for many years after a contract is issued.
In some instances, these changes may not become apparent until sometime after we have issued insurance or reinsurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance or reinsurance contracts may not be known for many years after a contract is issued.
Future changes to the FHA program, including any reduction to mortgage insurance premiums charged may negatively impact the amount of mortgage insurance we write in the U.S. The Federal Housing Finance Agency (“FHFA”) as conservator of the GSEs continues to evaluate loan level price adjustments (“LLPAs”) assessed by the GSEs when purchasing loans.
This change, and any future changes to the FHA program may, negatively impact the amount of mortgage insurance we write in the U.S. The Federal Housing Finance Agency (“FHFA”) as conservator of the GSEs continues to evaluate loan level price adjustments (“LLPAs”) and guarantees fees assessed by the GSEs when purchasing loans.
Risks Relating to Taxation • We and our non-U.S. subsidiaries may become subject to U.S. federal income taxation and/or the U.S. federal income tax liabilities of our U.S. subsidiaries may increase, including as a result of changes in tax law. • The continuing implementation of the Tax Cuts Act may have a material and adverse impact on our operations and financial condition. • Proposed Treasury Regulations issued on January 24, 2022, if finalized in their current form, could (on prospective basis) cause our U.S. shareholders (including tax-exempt U.S. shareholders) to be subject to current U.S. federal income tax on the portion of our earnings attributable to certain intercompany reinsurance income (whether or not such income is distributed). • We may become subject to taxes in Bermuda after March 31, 2035, which may have a material adverse effect on our results of operations. • The impact of Bermuda's letter of commitment to the OECD to eliminate harmful tax practices is uncertain and could adversely affect our tax status in Bermuda. • Legislation enacted in Bermuda as to Economic Substance may affect our operations. • We may become subject to increased taxation in Bermuda and other countries as a result of the OECD's plan on “Base erosion and profit shifting.” • Application of the EU Anti-Tax Avoidance Directives.
Risks Relating to Taxation • We and our non-U.S. subsidiaries may become subject to U.S. federal income taxation and/or the U.S. federal income tax liabilities of our U.S. subsidiaries may increase, including as a result of changes in tax law. • The continuing implementation of the Tax Cuts Act may have a material and adverse impact on our operations and financial condition. • Proposed Treasury Regulations issued on January 24, 2022, if finalized in their current form, could (on prospective basis) cause our U.S. shareholders (including tax-exempt U.S. shareholders) to be subject to current U.S. federal income tax on the portion of our earnings attributable to certain intercompany reinsurance income (whether or not such income is distributed). • Legislation enacted in Bermuda as to Economic Substance may affect our operations. • We expect to become subject to increased taxation in Bermuda as a result of the recently adopted Bermuda CIT Act, and may become subject to increased taxation in other countries as a result of the implementation of the OECD's plan on “Base Erosion and Profit Shifting.” • Application of the EU Anti-Tax Avoidance Directives.
We provide a work environment and culture which reflects our goal to “Enable Possibility”. We offer flexible work arrangements, when possible, for our employees globally, as well as competitive compensation packages which include participation in our Employee Stock Purchase Plan and the possibility of equity awards at certain job levels.
We offer flexible work arrangements, when possible, for our employees globally, as well as competitive compensation packages which include participation in our Employee Stock Purchase Plan and the possibility of equity awards at certain job levels.
ARCH CAPITAL 40 2022 FORM 10-K Table of Contents The impact of climate change will affect our loss limitation methods, such as the purchase of third party reinsurance and catastrophe risk modeling and risk selection in ways which may adversely impact our business, financial condition and results of operations.
The impact of climate change will affect our loss limitation methods, such as the purchase of third party reinsurance and catastrophe risk modeling and risk selection in ways which may adversely impact our business, financial condition and results of operations.
We may be adversely impacted if shareholders or investors do not agree with, or are not satisfied with, our business strategy and approach to climate change and decide to sell or not purchase our equity or debt instruments or to publicize their dissatisfaction.
We may be adversely impacted if shareholders or investors do not agree with, or are not satisfied with, our business strategy and approach to climate change or social concerns and decide to sell or not purchase our equity or debt instruments or to publicize their ARCH CAPITAL 45 2023 FORM 10-K dissatisfaction.
The sanctions are complex, numerous and nuanced, requiring close review and assessment as they pertain to our business. We are also subject to the U.S. Foreign Corrupt Practices Act and other anti-bribery laws such as the U.K.
The sanctions are complex, numerous and nuanced, requiring close review and assessment as they pertain to our business. We are also subject to the U.S. Foreign Corrupt Practices Act and other anti-bribery laws such as the U.K. Bribery Act that generally bar corrupt payments or unreasonable gifts to foreign governments or officials.
In addition, we may interpret a complex sanction in a way which may differ from a regulator. In these cases, we could be exposed to fines, criminal penalties and other sanctions. Such violations could limit our ability to conduct business and/or damage our reputation, resulting in a material adverse effect on our financial condition and results of operations.
In these cases, we could be exposed to fines, criminal penalties and other sanctions. Such violations could limit our ability to conduct business and/or damage our reputation, resulting in a material adverse effect on our financial condition and results of operations.
We are dependent on certain third party technology service providers and other service providers to operate our business, notably major cloud providers, Software-as-a-Service (or SaaS) solutions, and on-premise software, including proprietary and open source solutions. We also outsource certain business process functions to third parties and may continue do so in the future.
We rely on certain third party technology service providers and other service providers, notably major cloud providers, Software-as-a-Service (or SaaS) solutions, and on-premise software, including proprietary and open source solutions. ARCH CAPITAL 49 2023 FORM 10-K We also outsource certain business process functions to third parties and may continue do so in the future.
The insurance and reinsurance industry is highly cyclical, and we may at times experience periods characterized by excess underwriting capacity and unfavorable premium rates.
ARCH CAPITAL 42 2023 FORM 10-K The insurance and reinsurance industry is highly cyclical, and we may at times experience periods characterized by excess underwriting capacity and unfavorable premium rates.
We are at risk that losses could exceed the collateral we have obtained. Our failure to establish adequate reinsurance or retrocessional arrangements or the failure of our existing reinsurance or retrocessional arrangements to protect us from overly concentrated risk exposure could adversely affect our financial condition and results of operations.
Our failure to establish adequate reinsurance or retrocessional arrangements or the failure of our existing reinsurance or retrocessional arrangements to protect us from overly concentrated risk exposure could adversely affect our financial condition and results of operations.
We have implemented changes in our operations to accommodate Brexit; however we remain subject to new proposals and regulations which may negatively impact U.K. underwriting activities in respect of EU risks and policyholders.
We have implemented changes in our operations to accommodate Brexit; however, we remain subject to new proposals such as third country governance guidance provided by EIOPA in 2023, and regulations which may negatively impact U.K. underwriting activities in respect of EU risks and policyholders.
The effects of unforeseen developments or substantial government intervention could adversely impact us. While we had exposure to a number of lines of business, such as trade credit, travel, workers compensation and property where business interruption coverage under a pandemic such as COVID-19 was at issue, the number of claims in this area has decreased greatly in 2022.
While we had exposure to a number of lines of business, such as trade credit, travel, workers compensation and property where business interruption coverage under a pandemic such as COVID-19 was at issue, the number of claims in this area has decreased greatly in 2022. and into 2023.
As of December 31, 2022, our consolidated reserves for unpaid losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable, were approximately $13.8 billion. Such reserves were established in accordance with applicable insurance laws and GAAP. Loss reserves are inherently subject to uncertainty.
ARCH CAPITAL 46 2023 FORM 10-K As of December 31, 2023, our consolidated reserves for unpaid losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable, were approximately $16.1 billion. Such reserves were established in accordance with applicable insurance laws and GAAP. Loss reserves are inherently subject to uncertainty.
Deteriorating economic conditions in the U.S., potentially due to prolonged recessionary conditions increasing levels of unemployment and inflation, could adversely affect the performance of our U.S. mortgage insurance portfolio and could adversely affect our results of operations and financial condition.
Deteriorating economic conditions, potentially due to prolonged recessionary conditions increasing levels of unemployment and inflation, could adversely affect the performance of our mortgage insurance portfolio and could ARCH CAPITAL 53 2023 FORM 10-K adversely affect our results of operations and financial condition.
ARCH CAPITAL 44 2022 FORM 10-K Table of Contents The availability of reinsurance, retrocessional coverage and capital market transactions to limit our exposure to risks may be limited, and counterparty credit and other risks associated with our reinsurance arrangements may result in losses which could adversely affect our financial condition and results of operations.
The availability of reinsurance, retrocessional coverage and capital market transactions to limit our exposure to risks may be limited, and counterparty credit and other risks associated with our reinsurance arrangements may result in losses which could adversely affect our financial condition and results of operations. We manage risk using reinsurance, retrocessional coverage and capital markets transactions.
Economic conditions, including but not limited to recessionary conditions, inflation, declining home prices or the impact of climate change could also have a material impact on our ability to manage our risk aggregations through reinsurance or capital markets transactions. As a result of these factors, we may not be able to successfully mitigate risk through reinsurance and retrocessional arrangements.
Economic conditions, including but not limited to recessionary conditions, inflation, declining home prices or the impact of climate change could also have a material impact on our ability to manage our risk aggregations through reinsurance or capital markets transactions.
Acquisitions, the addition of new lines of insurance or reinsurance business, expansion into new geographic regions and/or entering into joint ventures or partnerships expose us to risks. We may seek, from time to time, to acquire other companies, acquire selected blocks of business, expand our business lines, expand into new geographic regions and/or enter into joint ventures or partnerships.
We may seek, from time to time, to acquire other companies, acquire selected blocks of business, expand our business lines, expand into new geographic regions and/or enter into joint ventures or partnerships.
A downgrade in our ratings or our inability to obtain a rating for our operating insurance and reinsurance subsidiaries may adversely affect our relationships with clients and brokers and negatively impact sales of our products.
Changes in criteria used by rating agencies which may result in a downgrade in our ratings, our inability to obtain a rating or a change in capital application or requirements for our operating insurance and reinsurance subsidiaries may adversely affect our relationships with clients and brokers and negatively impact sales of our products.
In addition, our reinsurance subsidiaries participate in “common account” retrocessional arrangements for certain pro rata treaties. Such arrangements reduce the effect of individual or aggregate losses to all companies participating on such treaties, including the reinsurers, such as our reinsurance subsidiaries, and the ceding company.
Such arrangements reduce the effect of individual or aggregate losses to all companies participating on such treaties, including the reinsurers, such as our reinsurance subsidiaries, and the ceding company.
Over the past few years, we have also implemented and expanded our learning programs, career leveling and employee networks, all of which we believe will help us retain talent.
Over the past few years, we have also implemented and expanded our learning programs, career leveling and employee networks, all of which we believe will help us retain talent. In 2023, we launched our talent acquisitions shared services team for our North American entities.
In the past, we have not paid dividends on our common shares. ARCH CAPITAL 54 2022 FORM 10-K Table of Contents Our preferred shares are equity and are subordinate to our existing and future indebtedness. Our preferred shares are equity interests and do not constitute indebtedness.
In the past, we have not paid dividends on our common shares. Our preferred shares are equity and are subordinate to our existing and future indebtedness. Our preferred shares are equity interests and do not constitute indebtedness.
Like all companies, our information technology systems are vulnerable to data breaches, interruptions or failures due to events that may be beyond our control, including, but not limited to, natural disasters, power outages, theft, terrorist attacks, computer viruses, malicious actors, errors in usage or through social engineering or phishing and general technology failures.
Like all companies, our information technology systems and the systems of third parties we do business with are vulnerable to data breaches, interruptions or failures due to events that may be beyond our control, including, but not limited to, natural disasters, power outages, theft, terrorist attacks, computer viruses, hackers, employee or vendor error or misconduct, malicious actors, errors in usage or deepfake or social engineering or schemes, phishing attacks, other external hazards and general technology failures.
Changes in the assumptions used ARCH CAPITAL 43 2022 FORM 10-K Table of Contents by these models or by management could lead to an increase in our estimate of ultimate losses in the future.
Changes in the assumptions used by these models or by management could lead to an increase in our estimate of ultimate losses in the future.
Risk Relating to Our Company and Our Shares Some of the provisions of our bye-laws and our shareholders agreement may have the effect of hindering, delaying or preventing third party takeovers or changes in management initiated by shareholders. These provisions may also prevent our shareholders from receiving premium prices for their shares in an unsolicited takeover.
Risk Relating to Our Company • Some of the provisions of our bye-laws and our shareholders agreement may have the effect of hindering, delaying or preventing third party takeovers or changes in management initiated by shareholders.
In response to this aggression, the governments of the U.S., U.K., EU and other countries have implemented several sanctions programs relating to, among other things, the import and transportation of Russian oil and gas and other goods originating in Russia.
In response to this aggression, the governments of the U.S., U.K., EU and other countries implemented several sanctions programs relating to, among other things, the import and transportation of Russian oil and gas and other goods originating in Russia. Sanctions imposed also target entities, individuals and financial institutions which support Russia’s military and defense systems.
Our business, financial condition and operating results may be adversely affected if we do not possess or timely acquire the requisite set of electronic integrations necessary to keep pace with the technological demands of customers.
Our business, financial condition and operating results may be adversely affected if we do not possess or timely acquire the requisite set of electronic integrations necessary to keep pace with the technological demands of customers. We continuously evaluate the security and adequacy of our information technology systems in order to ensure that we are utilizing the most appropriate technologies.
Climate change and increasing catastrophic events could increase property damage to residential real estate secured by mortgages owned by the GSEs, and by extension could increase losses to CRT investors. Additionally, climate change may make modeled outcomes less certain or produce new, non-modeled risks.
Climate change and increasing catastrophic events could increase property damage to residential real estate secured by mortgages owned by the GSEs, and by extension could increase losses to CRT investors.
We manage risk using reinsurance, retrocessional coverage and capital markets transactions. Our insurance subsidiaries typically cede a portion of their premiums through pro rata, excess of loss and facultative reinsurance agreements. Our reinsurance subsidiaries purchase a limited amount of retrocessional coverage as part of their aggregate risk management program.
Our insurance subsidiaries typically cede a portion of their premiums through pro rata, excess of loss and facultative reinsurance agreements. Our reinsurance subsidiaries purchase a limited amount of retrocessional coverage as part of their aggregate risk management program. In addition, our reinsurance subsidiaries participate in “common account” retrocessional arrangements for certain pro rata treaties.
Adverse developments in the financial markets, resulting from inflation, global recessionary pressures, geopolitical conflict, among other factors, has increased uncertainty levels and heightened volatility in the capital and credit markets.
Adverse developments in the financial markets, resulting from inflation, global recessionary pressures, geopolitical conflict, liquidity conditions among other factors, can increase uncertainty and heighten volatility in the credit and equity markets.
Our losses for a given event or occurrence may increase if our reinsurers or retrocessionaires dispute or fail to meet their obligations to us or the reinsurance or retrocessional protections purchased by us are exhausted or are otherwise unavailable for any reason. In certain instances, we also require collateral to mitigate our credit risk to our reinsurers or retrocessionaires.
Our losses for a given event or occurrence may increase if our reinsurers or retrocessionaires dispute or fail ARCH CAPITAL 47 2023 FORM 10-K to meet their obligations to us or the reinsurance or retrocessional protections purchased by us are exhausted or are otherwise unavailable for any reason.
As a result, such actions could have a material effect on our results of operations and financial condition. We are subject to ongoing legal and policy actions around climate change which may result in implications or additional requirements which could prompt us to shift our risk selection and business strategy in ways which may adversely impact our results of operations.
ARCH CAPITAL 44 2023 FORM 10-K We are subject to ongoing legal and policy actions around climate change which may result in additional requirements which could prompt us to shift our risk selection and business strategy in ways which may adversely impact our results of operations.
Equity financings could be dilutive to our existing shareholders and could result in the issuance of securities that have rights, preferences and privileges that are senior to those of our outstanding securities. If we are not able to obtain adequate capital, our business, results of operations and financial condition could be adversely affected.
Equity financings could be dilutive to our existing shareholders and could result in the issuance of securities that have rights, preferences and privileges that are senior to those of our outstanding securities.
Our information technology systems may be unable to meet the demands of customers and our workforce. Our information technology systems service our insurance portfolios. Accordingly, we are highly dependent on the effective operation of these systems.
We are dependent on our information technology systems to conduct our business. Specifically, our information technology systems service our insurance portfolios. Accordingly, we are highly dependent on the effective operation of these systems.
On January 19, 2023, FHFA announced three new pricing grids that broadly adjusted pricing to GSE purchases. These, and future actions could cause a decline in the volume of low-down payment home mortgage purchases by the GSEs, could decrease demand for mortgage insurance, and could decrease our U.S. new insurance written and reduce mortgage insurance revenues.
These, and future actions taken as a result of the RFI could cause a decline in the volume of low-down payment home mortgage purchases by the GSEs, could decrease demand for mortgage insurance, and could decrease our U.S. new insurance written and reduce mortgage insurance revenues.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur mortgage group leases space for offices in the U.S., Hong Kong and Australia. We believe that the above described office space is adequate for our needs. However, as we continue to develop our business, we may open additional office locations in 2023 .
Biggest changeOur mortgage group leases space for offices in the U.S., Hong Kong and Australia. We believe that the above described office space is adequate for our needs. However, as we continue to develop our business, we may open additional office locations in 2024 .

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAs of December 31, 2022, we were not a party to any litigation or arbitration which is expected by management to have a material adverse effect on our results of operations and financial condition and liquidity.
Biggest changeAs of December 31, 2023, we were not a party to any litigation or arbitration which is expected by management to have a material adverse effect on our results of operations and financial condition and liquidity. ARCH CAPITAL 61 2023 FORM 10-K ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeISSUER PURCHASES OF EQUITY SECURITIES The following table summarizes our purchases of common shares for the 2022 fourth quarter: Issuer Purchases of Common Shares Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan or Programs ($000’s) (2) 10/1/2022-10/31/2022 59,926 $ 53.08 — $ 596,411 11/1/2022-11/30/2022 29,362 $ 56.43 — $ 596,411 12/1/2022-12/31/2022 3,420 $ 60.61 — $ 1,000,000 Total 92,708 $ 54.42 — $ 1,000,000 (1) Includes repurchases by Arch Capital of shares, from time to time, from employees in order to facilitate the payment of withholding taxes on restricted shares granted and the exercise of stock appreciation rights.
Biggest changeISSUER PURCHASES OF EQUITY SECURITIES The following table summarizes our purchases of common shares for the 2023 fourth quarter: Issuer Purchases of Common Shares Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan or Programs ($000’s) (2) 10/1/2023-10/31/2023 56,056 $ 82.70 — $ 1,000,000 11/1/2023-11/30/2023 134,250 $ 85.28 — $ 1,000,000 12/1/2023-12/31/2023 11,201 $ 74.71 — $ 1,000,000 Total 201,507 $ 83.97 — $ 1,000,000 (1) This column represents (in whole shares) open market share repurchases, including an aggregate of 56,056, 134,250 and 11,201 shares repurchased by Arch Capital during October, November and December, respectively, other than through publicly announced plans or programs.
ARCH CAPITAL 59 2022 FORM 10-K Table of Contents PERFORMANCE GRAPH The following graph compares the cumulative total shareholder return on our common shares for each of the last five years through December 31, 2022 to the cumulative total return, assuming reinvestment of dividends, of (1) S&P 500 Composite Stock Index (“S&P 500 Index”) and (2) the S&P 500 Property & Casualty Insurance Index.
ARCH CAPITAL 62 2023 FORM 10-K PERFORMANCE GRAPH The following graph compares the cumulative total shareholder return on our common shares for each of the last five years through December 31, 2023 to the cumulative total return, assuming reinvestment of dividends, of (1) S&P 500 Composite Stock Index (“S&P 500 Index”) and (2) the S&P 500 Property & Casualty Insurance Index.
(2) The above graph assumes that the value of the investment was $100 on December 31, 2017.
(2) The above graph assumes that the value of the investment was $100 on December 31, 2018.
(2) Remaining amount available at December 31, 2022 under Arch Capital’s $1.0 billion share repurchase authorization, authorized by the Board of Directors of ACGL on December 19, 2022. Repurchases under this authorization may be effected from time to time in open market or privately negotiated transactions through December 31, 2024.
(2) This column represents the remaining approximate dollar amount available at the end of each applicable period under Arch Capital’s $1.0 billion share repurchase authorization, authorized by the Board of Directors of ACGL on December 19, 2022. Repurchases may be effected from time to time in open market or privately negotiated transactions through December 31, 2024.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES HOLDERS As of February 17, 2023, and based on information provided to us by our transfer agent and proxy solicitor, there were 1,150 holders of record of our common shares (NASDAQ: ACGL) and approximately 215,000 beneficial holders of our common shares.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES HOLDERS As of February 16, 2024, and based on information provided to us by our transfer agent and proxy solicitor, there were 1,200 holders of record of our common shares (Nasdaq: ACGL) and approximately 360,100 beneficial holders of our common shares.
We purchased these shares at their fair market value, as determined by reference to the closing price of our common shares on the day the restricted shares vested or the stock appreciation rights were exercised.
We repurchased these shares from employees in order to facilitate the payment of withholding taxes on restricted shares granted and the exercise of stock appreciation rights, in each case at their fair value as determined by reference to the closing price of our common shares on the day the restricted shares vested or the stock appreciation rights were exercised.
CUMULATIVE TOTAL SHAREHOLDER RETURN (1)(2)(3) Base Period Company Name/Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 l Arch Capital Group Ltd. $100.00 $88.31 $141.75 $119.21 $146.91 $207.49 n S&P 500 Index $100.00 $95.62 $125.72 $148.85 $191.58 $156.88 p S&P 500 Property & Casualty Insurance Index $100.00 $95.31 $119.97 $128.31 $153.05 $181.93 (1) Stock price appreciation plus dividends.
CUMULATIVE TOTAL SHAREHOLDER RETURN (1)(2)(3) Base Period Company Name/Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 l Arch Capital Group Ltd. $100.00 $160.52 $134.99 $166.35 $234.96 $277.96 n S&P 500 Index $100.00 $131.49 $155.68 $200.37 $164.08 $207.21 p S&P 500 Property & Casualty Insurance Index $100.00 $125.87 $134.63 $160.58 $190.89 $211.53 (1) Stock price appreciation plus dividends.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe benchmark return index included weightings to the following indices: % ICE BofAML US Corporates, A - AAA Rated 1-5 Yr Index 13.00 % ICE BofAML 1-5 Year US Treasury Index 12.00 ICE BofAML US Corporates, AAA-A 5-10 Year Index 11.00 ICE BofAML US Corporates, BBB Rated 1-10 Yr Index 5.00 JPM CLOIE Investment Grade 5.00 ICE BofAML 1-5 Year UK Gilt Index 4.25 ICE BofAML AAA US Fixed Rate CMBS Index 4.00 ICE BofAML US Mortgage Backed Securities Index 4.00 ICE BofAML German Government 1-10 Year Index 4.00 MSCI ACWI Net Total Return USD Index 4.00 Equity (MSCI ACWI) 3.30 ICE BofAML 0-3 Month US Treasury Bill Index 3.00 ICE BofAML 5-10 Year US Treasury Index 3.00 ICE BofAML 1-10 Year US Municipal Securities Index 3.00 Bloomberg Barclays ABS Aaa Total Return Index 3.00 ICE BofAML 1-5 Year Canada Government Index 2.50 ICE BofAML 1-5 Year Australia Government Index 2.50 Morningstar LSTA US Leveraged Loan TR USD 2.50 ICE BofAML US High Yield Constrained Index 2.50 Senior Lending (S&P Leveraged Loan) 2.48 Opportunistic Credit (Barclays Global HY) 1.38 Distressed (Ice BofA CCC and Lower) 1.38 Int'l Equity RE (DJ International RE) 0.83 US RE Mezz (FTSE NAREIT Mortgage Plus Capped Index) 0.83 US RE Senior (Barclays CMBS Erisa Eligible) 0.83 ICE BofAML 15+ Year Canada Government Index 0.50 ICE BofA 1-5 Year Japan Government Index 0.25 Total 100.0 % COMMENT ON NON-GAAP FINANCIAL MEASURES Throughout this filing, we present our operations in the way we believe will be the most meaningful and useful to investors, analysts, rating agencies and others who use our financial information in evaluating the performance of our company.
Biggest changeMortgage Backed Securities Index 1.50 ICE BofA 1-5 Year Canada Government Index 2.70 ICE BofA 15+ Year Canada Government Index 0.30 ICE BofA 1-5 Year Japan Government Index 0.25 Total 100.00 % COMMENT ON NON-GAAP FINANCIAL MEASURES Throughout this filing, we present our operations in the way we believe will be the most meaningful and useful to investors, analysts, rating agencies and others who use our financial information in evaluating the performance of our company.
These factors influence, among other things, the demand for insurance or reinsurance, the supply of which is generally related to the total capital of competitors in the market. Mortgage insurance and reinsurance is subject to similar cycles to property casualty except that they have historically been more dependent on macroeconomic conditions.
These factors influence, among other things, the demand for insurance or reinsurance, the supply of which is generally related to the total capital of competitors in the market. Mortgage insurance and reinsurance are subject to similar cycles to property casualty except that they have historically been more dependent on macroeconomic conditions.
See “Risk Factors—Risks Relating to Our Industry, Business and Operations—The failure of any of the loss limitation methods we employ could have a material adverse effect on our financial condition or results of operations.” For purposes of managing risk, we reinsure a portion of our exposures, paying to reinsurers a part of the premiums received on the policies we write, and we may also use retrocessional protection.
See Item 1A, “Risk Factors—Risks Relating to Our Industry, Business and Operations—The failure of any of the loss limitation methods we employ could have a material adverse effect on our financial condition or results of operations.” For purposes of managing risk, we reinsure a portion of our exposures, paying to reinsurers a part of the premiums received on the policies we write, and we may also use retrocessional protection.
The Credit Facility contains certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, consolidated tangible net worth, minimum shareholders’ equity levels and minimum financial strength ratings. Arch Capital and its subsidiaries which are party to the agreement were in compliance with all covenants contained therein at December 31, 2022.
The Credit Facility contains certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, consolidated tangible net worth, minimum shareholders’ equity levels and minimum financial strength ratings. Arch Capital and its subsidiaries which are party to the agreement were in compliance with all covenants contained therein at December 31, 2023.
In addition, the potential variability shown in the tables above are reasonably likely scenarios of changes in our key assumptions at December 31, 2022 and are not meant to be a “best case” or “worst case” series of outcomes and therefore, it is possible that future variations may be more or less than the amounts set forth above.
In addition, the potential variability shown in the tables above are reasonably likely scenarios of changes in our key assumptions at December 31, 2023 and are not meant to be a “best case” or “worst case” series of outcomes and therefore, it is possible that future variations may be more or less than the amounts set forth above.
See “Risk Factors—Risks Relating to Our Industry, Business and Operations—We are exposed to credit risk in certain of our business operations” and “Financial Condition, Liquidity and Capital Resources” for further details. We have entered into various aggregate excess of loss reinsurance agreements with various special purpose reinsurance companies domiciled in Bermuda.
See Item 1A, “Risk Factors—Risks Relating to Our Industry, Business and Operations—We are exposed to credit risk in certain of our business operations” and “Financial Condition, Liquidity and Capital Resources” for further details. We have entered into various aggregate excess of loss reinsurance agreements with various special purpose reinsurance companies domiciled in Bermuda.
The Credit Facility, as amended, consists of a $425.0 million secured facility for letters of credit (the “Secured Facility”) and a $500.0 million unsecured facility for revolving loans and letters of credit (the “Unsecured Facility”).
The Credit Facility, as amended, consists of a $425 million secured facility for letters of credit (the “Secured Facility”) and a $500 million unsecured facility for revolving loans and letters of credit (the “Unsecured Facility”).
Comparisons between 2021 and 2020 have been omitted from this Form 10-K, but may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K year ended December 31, 2021 filed with the SEC.
Comparisons between 2022 and 2021 have been omitted from this Form 10-K, but may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K year ended December 31, 2022 filed with the SEC.
The scenarios shown in the tables summarize the effect of (i) changes to the expected loss ratio selections used at December 31, 2022, which represent loss ratio point increases or decreases to the expected loss ratios used, and (ii) changes to the loss development patterns used in our reserving process at December 31, 2022, which represent claims reporting that is either slower or faster than the reporting patterns used.
The scenarios shown in the tables summarize the effect of (i) changes to the expected loss ratio selections used at December 31, 2023, which represent loss ratio point increases or decreases to the expected loss ratios used, and (ii) changes to the loss development patterns used in our reserving process at December 31, 2023, which represent claims reporting that is either slower or faster than the reporting patterns used.
See “ Risk Factors—Risks Relating to Our Industry, Business and Operations” Depending on business opportunities and the mix of business that may comprise our insurance, reinsurance and mortgage portfolios, we may seek to adjust our self-imposed limitations on probable maximum pre-tax loss for catastrophe exposed business and mortgage default exposed business.
See Item 1A, “ Risk Factors—Risks Relating to Our Industry, Business and Operations” Depending on business opportunities and the mix of business that may comprise our insurance, reinsurance and mortgage portfolios, we may seek to adjust our self-imposed limitations on probable maximum pre-tax loss for catastrophe exposed business and mortgage default exposed business.
The models, assumptions and estimates we use to evaluate the need for a PDR may prove to be inaccurate, especially during an extended economic downturn or a period of extreme market volatility and uncertainty. No premium deficiency charges were recorded by us during 2022 or 2021.
The models, assumptions and estimates we use to evaluate the need for a PDR may prove to be inaccurate, especially during an extended economic downturn or a period of extreme market volatility and uncertainty. No premium deficiency charges were recorded by us during 2023 or 2022.
In accordance with the SEC’s Financial Reporting Release No. 48, we performed a sensitivity analysis to determine the effects that market risk exposures could have on the future earnings, fair values or cash flows of our financial instruments as of December 31, 2022.
In accordance with the SEC’s Financial Reporting Release No. 48, we performed a sensitivity analysis to determine the effects that market risk exposures could have on the future earnings, fair values or cash flows of our financial instruments as of December 31, 2023.
Potential Variability in Loss Reserves The following tables summarize the effect of reasonably likely scenarios on the key actuarial assumptions used to estimate our Loss Reserves, net of unpaid losses and loss adjustment expenses recoverable, at December 31, 2022 by underwriting segment and reserving lines.
Potential Variability in Loss Reserves The following tables summarize the effect of reasonably likely scenarios on the key actuarial assumptions used to estimate our Loss Reserves, net of unpaid losses and loss adjustment expenses recoverable, at December 31, 2023 by underwriting segment and reserving lines.
See note 15, “Income Taxes,” to our consolidated financial statements in Item 8 for a reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average statutory tax rate for 2022 and 2021. Income (Loss) from Operating Affiliates.
See note 15, “Income Taxes,” to our consolidated financial statements in Item 8 for a reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average statutory tax rate for 2023 and 2022. Income (Loss) from Operating Affiliates.
Accordingly, effective July 1, 2021, we no longer consolidate the results of Somers in our consolidated financial statements and footnotes. See note 1 2 , “Variable Interest Entities and Noncontrolling Interests” and note 4, “Segment Information,” to our consolidated financial statements for additional information on Somers.
Accordingly, effective July 1, 2021, we no longer consolidate the results of Somers in our consolidated financial statements and footnotes. See note 12, “Variable Interest Entities and Noncontrolling Interests” and note 4, “Segment Information,” to our consolidated financial statements for additional information on Somers.
Share Repurchase Program Our Board has authorized the investment in Arch Capital’s common shares through a share repurchase program. Since the inception of the share repurchase program through December 31, 2022, Arch Capital has repurchased approximately 433.6 million common shares for an aggregate purchase price of $5.9 billion.
Share Repurchase Program Our Board has authorized the investment in Arch Capital’s common shares through a share repurchase program. Since the inception of the share repurchase program through December 31, 2023, Arch Capital has repurchased approximately 433.6 million common shares for an aggregate purchase price of $5.9 billion.
The sensitivity analysis performed as of December 31, 2022 presents hypothetical losses in cash flows, earnings and fair values of market sensitive instruments which were held by us on December 31, 2022 and are sensitive to changes in interest rates and equity security prices.
The sensitivity analysis performed as of December 31, 2023 presents hypothetical losses in cash flows, earnings and fair values of market sensitive instruments which were held by us on December 31, 2023 and are sensitive to changes in interest rates and equity security prices.
For our mortgage segment, we considered the sensitivity of loss reserve estimates at December 31, 2022 by assessing the potential changes resulting from a parallel shift in severity and default to claim rate.
For our mortgage segment, we considered the sensitivity of loss reserve estimates at December 31, 2023 by assessing the potential changes resulting from a parallel shift in severity and default to claim rate.
At December 31, 2022, $1.0 billion of share repurchases were available under the program. Repurchases under the program may be effected from time to time in open market or privately negotiated transactions through December 31, 2024.
At December 31, 2023, $1.0 billion of share repurchases were available under the program. Repurchases under the program may be effected from time to time in open market or privately negotiated transactions through December 31, 2024.
(2) Primarily in corporate at December 31, 2022. (3) Primarily in large cap stocks, foreign equities, healthcare, technology and consumer discretionary at December 31, 2022. Our investment strategy allows for the use of derivative instruments.
(2) Primarily in corporate at December 31, 2023. (3) Primarily in large cap stocks, foreign equities, healthcare, technology and consumer discretionary at December 31, 2023. Our investment strategy allows for the use of derivative instruments.
At December 31, 2022 and 2021, the fair value of our investments in equity securities and certain investments accounted for using the equity method with underlying equity strategies totaled $0.8 billion and $1.4 billion, respectively. These investments are exposed to price risk, which is the potential loss arising from decreases in fair value.
At December 31, 2023 and 2022, the fair value of our investments in equity securities and certain investments accounted for using the equity method with underlying equity strategies totaled $1.0 billion and $0.8 billion, respectively. These investments are exposed to price risk, which is the potential loss arising from decreases in fair value.
The balance of the change in the 2022 current year loss ratio resulted, in part, from the effect of rate increases, changes in mix of business and the level of attritional losses. Prior Period Reserve Development .
The balance of the change in the 2023 current year loss ratio resulted, in part, from the effect of rate increases, changes in mix of business and the level of attritional losses. Prior Period Reserve Development .
The following table summarizes the fair value of investable assets held by Arch: December 31, 2022 2021 Average effective duration (in years) 2.89 2.70 Average S&P/Moody’s credit ratings (1) AA-/Aa3 AA-/Aa3 (1) Average credit ratings on our investment portfolio on securities with ratings by Standard & Poor’s Rating Services (“S&P”) and Moody’s Investors Service (“Moody’s”).
The following table summarizes the fair value of investable assets held by Arch: December 31, 2023 2022 Average effective duration (in years) 2.91 2.89 Average S&P/Moody’s credit ratings (1) AA-/Aa3 AA-/Aa3 (1) Average credit ratings on our investment portfolio on securities with ratings by Standard & Poor’s Rating Services (“S&P”) and Moody’s Investors Service (“Moody’s”).
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion and analysis of the financial condition and results of operations for the year ended December 31, 2022 and 2021.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion and analysis of the financial condition and results of operations for the year ended December 31, 2023 and 2022.
At December 31, 2022, the notional value of all derivative instruments (excluding foreign currency forward contracts which are included in the foreign currency exchange risk analysis below) was $6.6 billion, compared to $6.4 billion at December 31, 2021.
At December 31, 2023, the notional value of all derivative instruments (excluding foreign currency forward contracts which are included in the foreign currency exchange risk analysis below) was $4.2 billion, compared to $6.6 billion at December 31, 2022.
(2) Represents total paid claims divided by RIF of loans for which claims were paid. The risk-to-capital ratio, which represents total current (non-delinquent) risk in force, net of reinsurance, divided by total statutory capital, for Arch MI U.S. was approximately 7.2 to 1 at December 31, 2022, compared to 8 to 1 at December 31, 2021.
(2) Represents total paid claims divided by RIF of loans for which claims were paid. The risk-to-capital ratio, which represents total current (non-delinquent) risk in force, net of reinsurance, divided by total statutory capital, for Arch MI U.S. was approximately 7.3 to 1 at December 31, 2023, compared to 7.2 to 1 at December 31, 2022.
Accordingly, the premium is earned evenly over the term. Contracts which are written on a “risks attaching” basis cover claims which attach to the underlying insurance policies written during the terms of such contracts. Premiums earned on such contracts usually extend beyond the original term of the reinsurance contract, typically resulting in recognition of premiums earned over a 24-month period.
Contracts which are written on a “risks attaching” basis cover claims which attach to the underlying insurance policies written during the terms of such contracts. Premiums earned on such contracts usually extend beyond the original term of the reinsurance contract, typically resulting in recognition of premiums earned over a 24-month period.
As of December 31, 2022, our portfolio’s 95th percentile VaR was estimated to be 8.8%, compared to an estimated 4.8% at December 31, 2021. In periods where the volatility of the risk factors mapped to our portfolio’s exposures is higher due to market conditions, the resulting VaR is higher than in other periods. Equity Securities.
As of December 31, 2023, our portfolio’s 95th percentile VaR was estimated to be 7.8%, compared to an estimated 8.8% at December 31, 2022. In periods where the volatility of the risk factors mapped to our portfolio’s exposures is higher due to market conditions, the resulting VaR is higher than in other periods. Equity Securities.
If we require significant amounts of cash on short notice in excess of anticipated cash requirements, then we may have difficulty selling these investments in a timely manner or may be forced to sell or terminate them at unfavorable values. Our unfunded investment commitments totaled approximately $2.9 billion at December 31, 2022 and are callable by our investment managers.
If we require significant amounts of cash on short notice in excess of anticipated cash requirements, then we may have difficulty selling these investments in a timely manner or may be forced to sell or terminate them at unfavorable values. Our unfunded investment commitments totaled approximately $3.6 billion at December 31, 2023 and are callable by our investment managers.
Although this is not an exact cash flow match in each period, the substantial degree by which the fair value of the fixed income portfolio exceeds the expected present value of the net insurance liabilities, as well as the positive cash flow from newly sold policies and the large amount of high quality liquid bonds, provide assurance of our ability to fund the payment of claims and to service our outstanding debt without having to ARCH CAPITAL 84 2022 FORM 10-K Table of Contents sell securities at distressed prices or access credit facilities.
Although this is not an exact cash flow match in each period, the substantial degree by which the fair value of the fixed income portfolio exceeds the expected present value of the net insurance liabilities, as well as the positive cash flow from newly sold policies and the large amount of high quality liquid bonds, provide assurance of our ability to fund the payment of claims and to service our outstanding debt without having to sell securities at distressed prices or access credit facilities.
Management uses total return on investments as a key measure of the return generated to Arch common shareholders on the capital held in the business, and compares the return generated by our investment portfolio against benchmark returns which we measured our portfolio against during the periods.
Management uses ARCH CAPITAL 68 2023 FORM 10-K total return on investments as a key measure of the return generated to Arch common shareholders on the capital held in the business, and compares the return generated by our investment portfolio against benchmark returns which we measured our portfolio against during the periods.
Amounts in such periods were primarily unrealized and resulted from the effects of revaluing our net insurance liabilities required to be settled in foreign currencies at each balance sheet date. Income Tax Expense. Our income tax provision on income before income taxes resulted in an expense of 5.1% for 2022, compared to an expense of 5.6% for 2021.
Amounts in such periods were primarily unrealized and resulted from the effects of revaluing our net insurance liabilities required to be settled in foreign currencies at each balance sheet date. Income Tax Expense. Our income tax provision on income before income taxes resulted in a benefit of 24.5% for 2023, compared to an expense of 5.1% for 2022.
ARCH CAPITAL 90 2022 FORM 10-K Table of Contents MARKET SENSITIVE INSTRUMENTS AND RISK MANAGEMENT Our investment results are subject to a variety of risks, including risks related to changes in the business, financial condition or results of operations of the entities in which we invest, as well as changes in general economic conditions and overall market conditions.
ARCH CAPITAL 92 2023 FORM 10-K MARKET SENSITIVE INSTRUMENTS AND RISK MANAGEMENT Our investment results are subject to a variety of risks, including risks related to changes in the business, financial condition or results of operations of the entities in which we invest, as well as changes in general economic conditions and overall market conditions.
There can ARCH CAPITAL 89 2022 FORM 10-K Table of Contents be no assurance that various provisions of our policies, such as limitations or exclusions from coverage or choice of forum, will be enforceable in the manner we intend. Disputes relating to coverage and choice of legal forum may also arise.
There can ARCH CAPITAL 91 2023 FORM 10-K be no assurance that various provisions of our policies, such as limitations or exclusions from coverage or choice of forum, will be enforceable in the manner we intend. Disputes relating to coverage and choice of legal forum may also arise.
ARCH CAPITAL 66 2022 FORM 10-K Table of Contents Segment Information We classify our businesses into three underwriting segments – insurance, reinsurance and mortgage – and two operating segments – corporate and ‘other.’ Our insurance, reinsurance and mortgage segments each have managers who are responsible for the overall profitability of their respective segments and who are directly accountable to our chief operating decision makers, the Chief Executive Officer of Arch Capital, Chief Financial Officer and Treasurer of Arch Capital and the President and Chief Underwriting Officer of Arch Capital.
Segment Information We classify our businesses into three underwriting segments – insurance, reinsurance and mortgage – and two operating segments – corporate and ‘other.’ Our insurance, reinsurance and mortgage segments each have managers who are responsible for the overall profitability of their respective segments and who are directly accountable to our chief operating decision makers, the Chief Executive Officer of Arch Capital, the Chief Financial Officer and Treasurer of Arch Capital and the President and Chief Underwriting Officer of Arch Capital.
During 2022 and 2021, we made interest payments of $128.4 million and $131.0 million respectively, related to our senior notes and other financing arrangements. See note 19, “Debt and Financing Arrangements,” to our consolidated financial statements in Item 8 for additional disclosures concerning our senior notes and revolving credit agreement borrowings.
During 2023 and 2022, we made interest payments of $127 million and $128 million, respectively, related to our senior notes and other financing arrangements. See note 19, “Debt and Financing Arrangements,” to our consolidated financial statements in Item 8 for additional disclosures concerning our senior notes and revolving credit agreement borrowings.
It is our belief that our underwriting platform, our experienced management team and our strong capital base have enabled us to establish a strong presence in the insurance and reinsurance markets. The worldwide property casualty insurance and reinsurance industry is highly competitive and has traditionally been subject to an underwriting cycle.
It is our belief that our underwriting platform, experienced management team and strong capital base enable us to establish a strong presence in the markets where we operate. The worldwide property casualty insurance and reinsurance industry is highly competitive and has traditionally been subject to an underwriting cycle.
Please refer to Item 1A “ Risk Factors ” for a discussion of other risks relating to our business and investment portfolio.
See Item 1A “ Risk Factors ” for a discussion of other risks relating to our business and investment portfolio.
Based on in-force exposure estimated as of January 1, 2023, our modeled RDS loss was 12.3% of tangible shareholders’ equity available to Arch. Net probable maximum loss estimates are net of expected reinsurance recoveries, before income tax and before excess reinsurance reinstatement premiums. RDS loss estimates are net of expected reinsurance recoveries and before income tax.
Based on in-force exposure estimated as of January 1, 2024, our modeled RDS loss was 7.0% of tangible shareholders’ equity available to Arch. Net probable maximum loss estimates are net of expected reinsurance recoveries, before income tax and before excess reinsurance reinstatement premiums. RDS loss estimates are net of expected reinsurance recoveries and before income tax.
In addition to establishing loss reserves for delinquent loans, under GAAP, we are required to establish a premium deficiency reserve for our mortgage insurance products if the amount of expected future losses and maintenance costs exceeds expected future premiums, existing reserves and the anticipated investment income for such product.
In addition to establishing loss reserves for delinquent loans, under GAAP, we are required to establish a premium deficiency reserve for our mortgage insurance products if the amount of expected future losses and maintenance costs exceeds expected future premiums, existing reserves and the anticipated investment income for ARCH CAPITAL 72 2023 FORM 10-K such product.
For further discussion on investment activity, please refer to “—Financial Condition, Liquidity and Capital Resources—Financial Condition—Investable Assets.” ARCH CAPITAL 92 2022 FORM 10-K Table of Contents Foreign Currency Exchange Risk Foreign currency rate risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates.
For further discussion on investment activity, please refer to “—Financial Condition, Liquidity and Capital Resources—Financial Condition—Investable Assets.” ARCH CAPITAL 94 2023 FORM 10-K Foreign Currency Exchange Risk Foreign currency rate risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates.
Arch MI U.S. satisfied the PMIERs’ financial requirements as of December 31, 2022 with a PMIER sufficiency ratio of 236%, compared to 197% at December 31, 2021.
Arch MI U.S. satisfied the PMIERs’ financial requirements as of December 31, 2023 with a PMIER sufficiency ratio of 213%, compared to 236% at December 31, 2022.
For example, assuming all other factors remain constant, for every one percentage point change in primary claim severity (which we estimate to be approximately 30% of the unpaid principal balance at December 31, 2022), we estimated that our loss reserves would change by approximately $21.0 million at December 31, 2022.
For example, assuming all other factors remain constant, for every one percentage point change in primary claim severity (which we estimate to be approximately 29% of the unpaid principal balance at December 31, 2023), we estimated that our loss reserves would change by approximately $17 million at December 31, 2023.
On a consolidated basis, ceded premiums written represented 27.7% of gross premiums written for 2022, compared to 29.3% for 2021. We monitor the financial condition of our reinsurers and attempt to place coverages only with substantial, financially sound carriers.
On a consolidated basis, ceded premiums written represented 26.8% of gross premiums written for 2023, compared to 27.7% for 2022. We monitor the financial condition of our reinsurers and attempt to place coverages only with substantial, financially sound carriers.
If the underlying exposure of each investment-related derivative held at December 31, 2022 depreciated by 100 basis points, it would have resulted in a reduction in net income of approximately $66.3 million, and a decrease in book value per share of $0.18, compared to $63.8 million and $0.17, respectively, on investment-related derivatives held at December 31, 2021.
If the underlying exposure of each investment-related derivative held at December 31, 2023 depreciated by 100 basis points, it would have resulted in a reduction in net income of approximately $42 million, and a decrease in book value per share of $0.11, compared to $66 million and $0.18, respectively, on investment-related derivatives held at December 31, 2022.
Dollar against foreign currencies: Shareholders’ equity $ (97,143) $ (28,549) Book value per share $ (0.26) $ (0.08) Pre-tax impact of a hypothetical 10% decline of the U.S. Dollar against foreign currencies: Shareholders’ equity $ 97,143 $ 28,549 Book value per share $ 0.26 $ 0.08 (1) Represents capital contributions held in the foreign currencies of our operating units.
Dollar against foreign currencies: Shareholders’ equity $ (110) $ (97) Book value per share $ (0.30) $ (0.26) Pre-tax impact of a hypothetical 10% decline of the U.S. Dollar against foreign currencies: Shareholders’ equity $ 110 $ 97 Book value per share $ 0.30 $ 0.26 (1) Represents capital contributions held in the foreign currencies of our operating units.
Amounts in both periods primarily reflect changes in the cash surrender value of our investment in corporate-owned life insurance. Corporate Expenses. Corporate expenses were $94.4 million for 2022, compared to $77.1 million for 2021. Such amounts primarily represent certain holding company costs necessary to support our worldwide operations and costs associated with operating as a publicly traded company.
Amounts in both periods primarily reflect changes in the cash surrender value of our investment in corporate-owned life insurance. Corporate Expenses. Corporate expenses were $96 million for 2023, compared to $95 million for 2022. Such amounts primarily represent certain holding company costs necessary to support our worldwide operations and costs associated with operating as a publicly traded company.
If the underlying exposure of each investment-related derivative held at December 31, 2022 appreciated by 100 basis points, it would have resulted in an increase in net income of approximately $66.3 million, and an increase in book value per share of $0.18, compared to $63.8 million and $0.17, respectively, on investment-related derivatives held at December 31, 2021.
If the underlying exposure of each investment-related derivative held at December 31, 2023 appreciated by 100 basis points, it would have resulted in an increase in net income of approximately $42 million, and an increase in book value per share of $0.11, compared to $66 million and $0.18, respectively, on investment-related derivatives held at December 31, 2022.
(“Arch Capital” and, together with its subsidiaries, “we” or “us”) is a publicly listed Bermuda exempted company with approximately $15.6 billion in capital at December 31, 2022 and is part of the S&P 500 index.
(“Arch Capital” and, together with its subsidiaries, “we” or “us”) is a publicly listed Bermuda exempted company with approximately $21.1 billion in capital at December 31, 2023 and is part of the S&P 500 index.
Estimating reinsurance recoverables can be more subjective than estimating the underlying reserves for losses and loss adjustment expenses as discussed above in “—Loss Reserves.” In particular, reinsurance recoverables may be affected by deemed inuring reinsurance, industry losses reported by various statistical reporting services, and other factors.
Estimating reinsurance recoverables can be more subjective than estimating the underlying reserves for losses and loss adjustment expenses as discussed above in “—Loss Reserves.” In particular, reinsurance recoverables may be affected by deemed inuring reinsurance, industry losses ARCH CAPITAL 79 2023 FORM 10-K reported by various statistical reporting services, and other factors.
Any adverse developments in the financial markets, such as disruptions, uncertainty or volatility in the capital and credit markets, may result in realized and unrealized capital losses that could have ARCH CAPITAL 85 2022 FORM 10-K Table of Contents a material adverse effect on our results of operations, financial position and our businesses, and may also limit our access to capital required to operate our business.
Any adverse developments in the financial markets, such as disruptions, uncertainty or volatility in the capital and credit markets, may result in realized and unrealized capital losses that could have a material adverse effect on our results of operations, financial position and our businesses, and may also limit our access to capital required to operate our business.
For informational purposes, based on the total simulation results, a change in our Loss Reserves to the amount indicated at the 90th percentile would result in a decrease in income before income taxes of approximately $2.3 billion, or $6.14 per diluted share, while a change in our Loss Reserves to the amount indicated at the 10th percentile would result in an increase in income before income taxes of approximately $2.2 billion, or $5.85 per diluted share.
For informational purposes, based on the total simulation results, a change in our Loss Reserves to the amount indicated at the 90th percentile would result in a decrease in income before income taxes of approximately $2.8 billion, or $7.27 per diluted share, while a change in our Loss Reserves to the amount indicated at the 10th percentile would result in an increase in income before income taxes of approximately $2.6 billion, or $6.95 per diluted share.
We assess the need for a premium deficiency reserve on a quarterly basis and perform a full analysis annually. No such reserve was established during 2022 or 2021. Current Year Loss Ratio . The mortgage segment’s current year loss ratio was 2.2 points higher in 2022 compared to 2021.
We assess the need for a premium deficiency reserve on a quarterly basis and perform a full analysis annually. No such reserve was established during 2023 or 2022. Current Year Loss Ratio . The mortgage segment’s current year loss ratio was 1.0 point higher in 2023 compared to 2022.
Net realized gains or losses also include realized and unrealized contract gains and losses on our derivative instruments, changes in the fair value of assets accounted for using the fair value option and in the fair value of equities, along with changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings.
ARCH CAPITAL 73 2023 FORM 10-K Net realized gains or losses also include realized and unrealized contract gains and losses on our derivative instruments, changes in the fair value of assets accounted for using the fair value option and in the fair value of equities, along with changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings.
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES The preparation of consolidated financial statements in accordance with GAAP requires us to make many estimates and judgments that affect the reported amounts of assets, liabilities (including reserves), revenues and expenses, and related disclosures of contingent liabilities.
ARCH CAPITAL 74 2023 FORM 10-K SUMMARY OF CRITICAL ACCOUNTING ESTIMATES The preparation of consolidated financial statements in accordance with GAAP requires us to make many estimates and judgments that affect the reported amounts of assets, liabilities (including reserves), revenues and expenses, and related disclosures of contingent liabilities.
The benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality while also matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities.
ARCH CAPITAL 66 2023 FORM 10-K The benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality while also matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities.
(4) The aggregate dollar amount of each insured mortgage loan’s current principal balance multiplied by the insurance coverage percentage specified in the policy for insurance policies issued and after contract limits and/or loss ratio caps for risk-sharing or reinsurance transactions.
Such amounts are shown before external reinsurance. (2) The aggregate dollar amount of each insured mortgage loan’s current principal balance multiplied by the insurance coverage percentage specified in the policy for insurance policies issued and after contract limits and/or loss ratio caps for risk-sharing or reinsurance transactions. Such amounts are shown before external reinsurance.
An immediate hypothetical 10% increase in the value of each position would increase the fair value of such investments by approximately $79.1 million and $137.5 million at December 31, 2022 and 2021, respectively, and would have increased book value per share by approximately $0.21 and $0.36, respectively. Investment-Related Derivatives.
An immediate hypothetical 10% increase in the value of each position would increase the fair value of such investments by approximately $101 million and $79 million at December 31, 2023 and 2022, respectively, and would have increased book value per share by approximately $0.27 and $0.21, respectively. Investment-Related Derivatives.
The table below shows the components of the mortgage segment’s loss ratio: Year Ended December 31, 2022 2021 Current year 19.8 % 17.6 % Prior period reserve development (47.8) % (13.2) % Loss ratio (28.0) % 4.4 % Unlike property and casualty business for which we estimate ultimate losses on premiums earned, losses on mortgage insurance business are only recorded at the time a borrower is delinquent on their mortgage, in accordance with primary mortgage insurance industry practice.
The table below shows the components of the mortgage segment’s loss ratio: Year Ended December 31, 2023 2022 Current year 20.8 % 19.8 % Prior period reserve development (29.7) % (47.8) % Loss ratio (8.9) % (28.0) % Unlike property and casualty business for which we estimate ultimate losses on premiums earned, losses on U.S. primary mortgage insurance business are only recorded at the time a borrower is delinquent on their mortgage, in accordance with primary mortgage insurance industry practice.
The reconciliation of such measures to net income available to Arch common ARCH CAPITAL 64 2022 FORM 10-K Table of Contents shareholders and annualized net income return on average common equity (the most directly comparable GAAP financial measures) in accordance with Regulation G is included under “Results of Operations” below.
The reconciliation of such measures to net income available to Arch common shareholders and annualized net income return on average common equity (the most directly comparable GAAP financial measures) in accordance with Regulation G is included under “Results of Operations” below.
The increase in net premiums written reflected growth in professional lines and in property, primarily due to rate increases, new business opportunities and growth in existing accounts, and in travel, primarily due to new business and growth in existing accounts. Net Premiums Earned .
The increase in net premiums written reflected growth in most lines of business, primarily due to rate increases, new business opportunities and growth in existing accounts. Net Premiums Earned .
An immediate hypothetical 10% decline in the value of each position would reduce the fair value of such investments by approximately $79.1 million and $137.5 million at December 31, 2022 and 2021, respectively, and would have decreased book value per share by approximately $0.21 and $0.36, respectively.
An immediate hypothetical 10% decline in the value of each position would reduce the fair value of such investments by approximately $101 million and $79 million at December 31, 2023 and 2022, respectively, and would have decreased book value per share by approximately $0.27 and $0.21, respectively.
For additional information on our preferred shares, see note 21, “Shareholders’ Equity,” to our consolidated financial statements in Item 8. ARCH CAPITAL 86 2022 FORM 10-K Table of Contents The following tables present condensed financial information for Arch Capital (parent guarantor) and Arch-U.S. (subsidiary issuer): December 31, 2022 December 31, 2021 Arch Capital Arch-U.S. Arch Capital Arch-U.S.
For additional information on our preferred shares, see note 21, “Shareholders’ Equity,” to our consolidated financial statements in Item 8. The following tables present condensed financial information for Arch Capital (parent guarantor) and Arch-U.S. (subsidiary issuer): December 31, 2023 December 31, 2022 Arch Capital Arch-U.S. Arch Capital Arch-U.S.
Based on in-force exposure estimated as of January 1, 2023, our modeled peak zone catastrophe exposure is a windstorm affecting the Florida Tri-County, with a net probable maximum pre-tax loss of $970 million, followed by windstorms affecting the Northeast U.S., and the Gulf of Mexico with net probable maximum pre-tax losses of $908 million and $903 million, respectively.
Based on in-force exposure estimated as of January 1, 2024, our modeled peak zone catastrophe exposure is a windstorm affecting the Florida Tri-County, with a net probable maximum pre-tax loss of $1.6 billion, followed by windstorms affecting the Northeast U.S., and the Gulf of Mexico with net probable maximum pre-tax losses of $1.4 billion and $1.3 billion, respectively.
Dollars) against which we measured our portfolio during the periods: Arch Portfolio (1) Benchmark Return Year Ended December 31, 2022 -6.45 % -9.60 % Year Ended December 31, 2021 1.90 % 1.20 % (1) Our investment expenses were approximately 0.28% and 0.32%, respectively, of average invested assets in 2022 and 2021.
Dollars) against which we measured our portfolio during the periods: Arch Portfolio (1) Benchmark Return Year Ended December 31, 2023 7.57 % 8.28 % Year Ended December 31, 2022 -6.45 % -9.60 % (1) Our investment expenses were approximately 0.26% and 0.28%, respectively, of average invested assets in 2023 and 2022.
The 1-year 95th ARCH CAPITAL 91 2022 FORM 10-K Table of Contents percentile parametric VaR reported herein estimates that 95% of the time, the portfolio loss in a one-year horizon would be less than or equal to the calculated number, stated as a percentage of the measured portfolio’s initial value.
The 1-year 95th percentile parametric VaR reported herein estimates that 95% of the time, the portfolio loss in a one-year horizon would be less than or equal to the calculated number, stated as a percentage of the measured portfolio’s initial value.
The mortgage segment’s net favorable development was $554.1 million, or 47.8 points, for 2022, compared to $169.6 million, or 13.2 points, for 2021. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements in Item 8 for information about the mortgage segment’s prior year reserve development. Underwriting Expenses .
The mortgage segment’s net favorable development was $344 million, or 29.7 points, for 2023, compared to $554 million, or 47.8 points, for 2022. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements in Item 8 for information about the mortgage segment’s prior year reserve development. Underwriting Expenses .
We recorded $115.9 million of equity in net income related to investments accounted for using the equity method for 2022, compared to $366.4 million for 2021. Investments accounted for using the equity method totaled $3.8 billion at December 31, 2022, compared to $3.1 billion at December 31, 2021.
We recorded $278 million of equity in net income related to investments accounted for using the equity method for 2023, compared to $115 million for 2022. Investments accounted for using the equity method totaled $4.6 billion at December 31, 2023, compared to $3.8 billion at December 31, 2022.
For every one percentage point change in our primary net default to claim rate (which we estimate to be approximately 37% at December 31, 2022), we estimated a $17.0 million change in our loss reserves at December 31, 2022.
For every one percentage point change in our primary net default to claim rate (which we estimate to be approximately 27% at December 31, 2023), we estimated a $18 million change in our loss reserves at December 31, 2023.
Capital Adequacy We monitor our capital adequacy on a regular basis and will seek to adjust our capital base (up or down) according to the needs of our business.
ARCH CAPITAL 87 2023 FORM 10-K Capital Adequacy We monitor our capital adequacy on a regular basis and will seek to adjust our capital base (up or down) according to the needs of our business.
Best Rating (1) Somers Re (2) 17.7 A- Hannover Rück SE 4.6 A+ Lloyd’s syndicates (3) 3.6 A Swiss Reinsurance America Corporation 3.3 A+ Everest Reinsurance Company 3.2 A+ Munich Reinsurance America, Inc. 3.1 A+ Fortitude Reinsurance Company Ltd. 2.9 A Partner Reinsurance Company of the U.S. 2.9 A+ XL Re 2.5 A+ Berkley Insurance Company 2.0 A+ All other -- “A-” or better 23.0 All other -- rated carriers 0.1 All other -- not rated (4) 31.1 Total 100.0 (1) The financial strength ratings are as of February 6, 2023 and were assigned by A.M.
Best Rating (1) Somers Re (2) 18.6 A- Hannover Rück SE 4.7 A+ Lloyd’s syndicates (3) 4.3 A Munich Reinsurance America, Inc. 3.3 A+ Swiss Reinsurance America Corporation 3.1 A+ Everest Reinsurance Company 2.9 A+ Partner Reinsurance Company of the U.S. 2.5 A+ Fortitude Reinsurance Company Ltd. 2.4 A RenaissanceRe Holdings Ltd. 2.0 A+ AXA XL 2.0 A+ All other -- “A-” or better 21.0 All other -- rated carriers 0.1 All other -- not rated (4) 33.1 Total 100.0 (1) The financial strength ratings are as of January 5, 2024 and were assigned by A.M.
ARCH CAPITAL 83 2022 FORM 10-K Table of Contents Our U.S. insurance and reinsurance subsidiaries are subject to insurance laws and regulations in the jurisdictions in which they operate. The ability of our regulated insurance subsidiaries to pay dividends or make distributions is dependent on their ability to meet applicable regulatory standards.
Our U.S. insurance and reinsurance subsidiaries are subject to insurance laws and regulations in the jurisdictions in which they operate. The ability of our regulated insurance subsidiaries to pay dividends or make distributions is dependent on their ability to meet applicable regulatory standards.
The table below shows the components of the reinsurance segment’s loss ratio: Year Ended December 31, 2022 2021 Current year 69.7 % 74.1 % Prior period reserve development (4.8) % (6.3) % Loss ratio 64.9 % 67.8 % Current Year Loss Ratio . The reinsurance segment’s current year loss ratio was 4.4 points lower in 2022 than in 2021.
The table below shows the components of the reinsurance segment’s loss ratio: Year Ended December 31, 2023 2022 Current year 57.9 % 69.7 % Prior period reserve development (2.6) % (4.8) % Loss ratio 55.3 % 64.9 % Current Year Loss Ratio . The reinsurance segment’s current year loss ratio was 11.8 points lower in 2023 than in 2022.
ARCH CAPITAL 74 2022 FORM 10-K Table of Contents Simulation Results In order to illustrate the potential volatility in our Loss Reserves, we used a Monte Carlo simulation approach to simulate a range of results based on various probabilities. Both the probabilities and related modeling are subject to inherent uncertainties.
Simulation Results In order to illustrate the potential volatility in our Loss Reserves, we used a Monte Carlo simulation approach to simulate a range of results based on various probabilities. Both the probabilities and related modeling are subject to inherent uncertainties.
As of January 1, 2023, our modeled peak zone earthquake exposure (San Francisco area earthquake) represented approximately 60% of our peak zone catastrophe exposure, and our modeled peak zone international exposure (U.K. windstorm) was substantially less than both our peak zone windstorm and earthquake exposures.
As of January 1, 2024, our modeled peak zone earthquake exposure (San Francisco area earthquake) represented approximately 54% of our peak zone catastrophe exposure, and our modeled peak zone international exposure (German windstorm) was substantially less than both our peak zone windstorm and earthquake exposures.
See note 9, “Investment Information—Equity in Net Income (Loss) of Investments Accounted For Using the Equity Method,” to our consolidated financial statements in Item 8 for additional information. Other Income (Loss) Other loss for the 2022 period was $26.2 million, compared to other income of $10.2 million for the 2021 period.
See note 9, “Investment Information—Equity in Net Income (Loss) of Investments Accounted For Using the Equity Method,” to our consolidated financial statements in Item 8 for additional information. Other Income or Losses Other income for the 2023 period was $27 million, compared to a loss of $27 million for the 2022 period.
See note 10, “Fair Value,” to our consolidated financial statements in Item 8 for a summary of our financial assets and liabilities measured at fair value at December 31, 2022 and 2021 segregated by level in the fair value hierarchy. Reinsurance Recoverables The following table details our reinsurance recoverables at December 31, 2022: % of Total A.M.
See note 10, “Fair Value,” to our consolidated financial statements in Item 8 for a summary of our financial assets and liabilities measured at fair value at December 31, 2023 and 2022 segregated by level in the fair value hierarchy.
Pursuant to GAAP, Somers was ARCH CAPITAL 65 2022 FORM 10-K Table of Contents considered a variable interest entity and we concluded that we were the primary beneficiary of Somers. As such, we consolidated the results of Somers in our consolidated financial statements through June 30, 2021.
Pursuant to GAAP, Somers was considered a variable interest entity and we concluded that we were the primary beneficiary of Somers. As such, we consolidated the results of Somers in our consolidated financial statements through June 30, 2021.
Currently, our portfolio is actively managed to maximize total return within certain guidelines. The effect of financial market movements on the investment portfolio will directly impact net realized gains or losses as the portfolio is rebalanced.
We recorded net realized losses of $165 million for 2023, compared to net realized losses of $663 million for 2022. Currently, our portfolio is actively managed to maximize total return within certain guidelines. The effect of financial market movements on the investment portfolio will directly impact net realized gains or losses as the portfolio is rebalanced.
ARCH CAPITAL 80 2022 FORM 10-K Table of Contents The following table provides the credit quality distribution of our Fixed Maturities. For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.
The following table provides the credit quality distribution of our Fixed Maturities. For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to the information appearing above under the subheading “Market Sensitive Instruments and Risk Management” under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” which information is hereby incorporated by reference. ARCH CAPITAL 93 2022 FORM 10-K Table of Contents
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to the information appearing above under the subheading “Market Sensitive Instruments and Risk Management” under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” which information is hereby incorporated by reference. ARCH CAPITAL 95 2023 FORM 10-K

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