What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-23 · 274 added, 239 removed, 1154 unchanged (31% of the section changed)

16 unchanged sentences

Mortgage Segment 75

Corporate Segment 73

Summary of Critical Accounting Estimates 78

18 unchanged sentences

CURRENT OUTLOOK

As we conclude another record year and head into 2024, our objective remains the same, to deliver long term value for our shareholders.

With our commitment to underwriting acumen, prudent reserving and cycle-focused capital allocation, we were able to deliver another profitable year.

Our full year financial performance was excellent, with an annualized net income and operating returns on average common equity of 29.7% and 21.6%, respectively.

See “Comment on Non-GAAP Financial Measures.”

We continue to execute our cycle management strategy by actively allocating capital to the segments with the best risk adjusted returns.

Growth was strong all year in our property and casualty segments which wrote over $17 billion of gross premium written and over $12.4 billion of net premium written, and, while most current growth opportunities are in the property and casualty sector, it is important to recognize the steady and quality underwriting performance of our mortgage group.

Although mortgage market conditions meant fewer opportunities for top line growth, the mortgage segment continued to generate significant profits totaling nearly $1.1 billion of underwriting income for the year.

At Arch, our primary focus has always been on rate adequacy, regardless of market conditions.

Our underwriting culture dictates that we include a meaningful margin of safety in our pricing, especially in softer conditions and take a longer term view of inflation and rates.

As underwriting opportunities arise, our reinsurance segment is able to react quickly and significantly when markets pivot.

In the reinsurance property market, our overall exposure to property catastrophe risk remains well below our self imposed threshold (see “Catastrophic and Severe Economic Events” ) and, because of our diversified portfolio and broad set of opportunities, we retain the flexibility to pursue the most attractive returns across lines and geographies.

The hard market conditions remained elevated in several lines during the January 1, 2024 renewal cycle.

In our insurance segment, we continue to take advantage of favorable global market conditions with net premiums written up 17% in 2023.

Although pricing has declined in some lines, such as large public directors and officers liability insurance, the markets in which our insurance segment operates generally continue to provide adequate returns.

In 2023, the most notable gains came in property, marine, construction and national accounts.

As we head into 2025, our objective to deliver long-term value for our shareholders remains the same.

We will continue to execute on the key pillars of our strategy which are:

to build a diversified mix of businesses;

actively manage the underwriting cycle;

remain prudent stewards of the capital entrusted to us by our shareholders;

and be dynamic managers of a data-driven enterprise with a culture that attracts best-in-class talent.

Book value per share, a key measure of value creation, ended 2024 at $53.11, representing a 13.1% increase for the year and up 23.8% after adjusting for the impact of the $5 per share special dividend paid to common shareholders in December 2024.

The decision to pay a special dividend was the result of Arch's strong financial performance and capital position and represented an effective means of returning excess capital to our shareholders.

Overall, we believe the property and casualty environment remains favorable, despite increasing competition in many of our lines of business.

This makes underwriting and risk mitigation increasingly important.

Our underwriting strategies empower our businesses to respond quickly to their trading environment.

This has been, and remains, a competitive advantage as we have the agility and expertise to reallocate capital to more profitable opportunities across our diversified platform.

We are selectively deploying capital to the areas producing attractive risk-adjusted returns, such as insurance and reinsurance liability lines, specialty business at Lloyd's and property catastrophe reinsurance.

A high level of industry catastrophic losses throughout 2024, combined with the California wildfires at the start of 2025, should continue to support demand for property insurance and reinsurance.

Notwithstanding this increased loss activity, we believe the property market remains attractive.

On the casualty side, we believe that rates are continuing to outpace loss cost trends, and have selectively increased casualty writings in both our insurance and reinsurance segments.

Our property and casualty underwriting teams continued to benefit from attractive market conditions, delivering a combined $1.6 billion of underwriting income and over $20 billion of gross premiums written in 2024, up nearly 19% from 2023.

ARCH CAPITAL 68

2024 FORM 10-K

Inflation continues to be a focus for our industry.

We proactively analyze available data and we incorporate emerging trends into our pricing and reserving.

We believe that this discipline, coupled with increases in future investment returns and prudent reserving, allows us to maximize the capabilities of our diversified platform.

Our mortgage segment continues to deliver a steady level of earnings for our shareholders.

Higher persistency of our in force U.S.

primary mortgage insurance portfolio helped offset the significant industry wide reduction in mortgage originations in 2023.

The credit profile of our U.S.

primary mortgage insurance portfolio remains excellent and the overall mortgage market continues to be disciplined and return focused.

We continue to see meaningful opportunities for the mortgage segment outside of the U.S.

and our strategic decision to diversify our mortgage operations is yielding positive results.

Our reinsurance segment contributed $1.2 billion of underwriting income in 2024, despite the impact of catastrophic events.

At the January 1, 2025 renewals, we selectively increased our writings in property, liability and specialty lines with a focus not only on price adequacy, but also terms and conditions.

Our underwriting culture dictates that we include a meaningful margin of safety in our pricing, especially given competitive market conditions, and take a longer term view of inflation and rates.

As underwriting opportunities arise, our reinsurance segment reacts quickly and significantly when markets pivot.

Our insurance segment also seized on strong growth opportunities in 2024, while elevated catastrophe activity such as Hurricanes Helene and Milton limited underwriting income.

For the full year, the insurance group contributed $6.9 billion of net premium written, a 17% increase from 2023 and delivered $0.3 billion of underwriting income.

On August 1, 2024, we completed the acquisition of the U.S.

MidCorp and Entertainment insurance businesses from Allianz (“MCE Acquisition”).

As such, the insurance segment’s 2024 results include five months of activity related to the acquired business.

This acquisition expands our capabilities for insureds in the U.S.

middle markets and represents an important component of our insurance segment.

Excluding the MCE Acquisition, insurance growth was in the mid-single digits and included attractive opportunities in casualty, programs and in the London specialty market.

Looking ahead, we expect primary market conditions to remain competitive given the attractive underlying margins, which may result in a slowdown of new business opportunities.

Our mortgage segment continued to deliver a steady level of earnings for our shareholders, generating $1.1 billion of underwriting income in 2024, resulting in the third consecutive year of delivering over $1 billion of underwriting income.

While new originations remain tempered by relatively high mortgage interest rates, underlying fundamentals remained strong and our U.S.

market share was stable as industry pricing discipline held.

The persistency of our in force U.S.

primary mortgage insurance portfolio remained a healthy 82.1% and the delinquency rate remained low.

FINANCIAL MEASURES

4 unchanged sentences

Book value per share is impacted by, among other factors, our underwriting results, investment returns and share repurchase activity, which has an accretive or dilutive impact on book value per share depending on the purchase price.

Book value per share was $46.94 at December 31, 2023, a 43.9% increase from $32.62 at December 31, 2022.

The increase in book value per share in 2023 reflected strong underwriting and investment results and also reflected the establishment of a net deferred income tax asset of $1.18 billion, or $3.16 per share, related to the enactment of Bermuda’s new corporate income tax.

Book value per share was $53.11 at December 31, 2024, a 13.1% increase from $46.94 at December 31, 2023, and an increase of 23.8% when incorporating the impact of the $1.9 billion special dividend paid to common shareholders in December 2024.

Operating Return on Average Common Equity

Operating return on average common equity (“Operating ROAE”) represents annualized after-tax operating income available to Arch common shareholders divided by average common shareholders’ equity available to Arch during the period.

(which includes changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings), equity in net income or loss of investments accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other, loss on redemption of preferred shares and income taxes.

After-tax operating income available to Arch common shareholders, a “non-GAAP measure” as defined in the SEC rules, represents net income available to Arch common shareholders, excluding net realized gains or losses (which includes realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains or losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains or losses realized from the acquisition or disposition of subsidiaries), equity in net income or loss of investments accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other, loss on redemption of preferred shares and income taxes.

Management uses Operating ROAE as a key measure of the return generated to Arch common shareholders.

1 unchanged sentence

Our annualized net income return on average common equity was 22.8% for 2024, compared to 29.7% for 2023.

Our Operating ROAE was 21.6% for 2023, compared to 14.8% for 2022, with the higher return in 2023 primarily resulting from improved underwriting results and growth in net investment income.

Our Operating ROAE was 18.9% for 2024, compared to 21.6% for 2023.

Returns for 2024 reflected strong underwriting and investment returns, albeit with an elevated level of catastrophe activity.

ARCH CAPITAL 69

2024 FORM 10-K

Total Return on Investments

Total return on investments includes investment income, equity in net income or loss of investments accounted for using the equity method, net realized gains or losses and the change in unrealized gains or losses generated by Arch’s investment portfolio.

Total return is calculated on a pre-tax basis before investment expenses, excluding amounts reflected in the ‘other’ segment, and reflects the effect of financial market conditions along with foreign currency fluctuations.

Total return is calculated on a pre-tax basis before investment expenses and reflects the effect of financial market conditions along with foreign currency fluctuations.

Management uses total return on investments as a key measure of the return generated for Arch common shareholders on the capital held in the business, and compares the return generated by our investment portfolio against benchmark returns.

5 unchanged sentences

Year Ended December 31, 2023 7.57 % 8.28 %

(1) Our investment expenses were approximately 0.26% and 0.28%, respectively, of average invested assets in 2023 and 2022.

Total return for 2023 reflected strong returns in fixed income, equity and alternative strategies.

Actual performance trailed the benchmark return for the year, largely due to the portfolio being underweight risk assets compared to the benchmark.

We continue to maintain a relatively short duration on our portfolio of 2.91 years at December 31, 2023.

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.

Although the estimated duration and average credit quality of this index will move as the duration and rating of its constituent securities change, generally we do not adjust the composition of the benchmark return index except to incorporate changes to the mix of liability currencies and durations noted above.

Total return for 2024 primarily reflected the effects of sustained higher interest rates available in the market, along with growth in invested assets due in part to strong operating cash flows.

We continue to maintain a relatively short duration on our fixed income portfolio of 3.31 years at December 31, 2024.

The benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality with a fixed income component matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities.

It is recalibrated annually.

Although the estimated fixed income duration and average credit quality of this index will move as the duration and rating of its constituent securities change, generally we do not adjust the composition of the benchmark return index during the year except to incorporate changes to the mix of liability currencies and durations noted above.

The benchmark return index should not be interpreted as expressing a preference for or aversion to any particular sector or sector weight.

The index is intended solely to provide, unlike many master indices that change based on the size of their constituent indices, a relatively stable basket of investable indices.

At December 31, 2023, the benchmark return index had an average credit quality of “A1” by Moody’s, an estimated duration of 2.64 years.

At December 31, 2024, the fixed income portion of the benchmark had an average credit quality of “A1” by Moody’s and an estimated fixed income duration of 3.18 years.

The benchmark return index included weightings to the following indices:

5 unchanged sentences

Treasury Index 15.00

JPM CLOIE Investment Grade 6.00

ICE BofA U.S.

2 unchanged sentences

Gilt Index 5.25

JPM CLOIE Investment Grade 4.50

S&P 500 Total Return Index 4.75

ICE BofA U.S.

ABS & CMBS Index 4.50

ICE BofA German Government 1-5 Year Index 3.25

ICE BofA German Government 5-7 Year Index 0.60

S&P 500 Total Return Index 4.00

ICE BofA 0-3 Month U.S.

Treasury Index 3.00

ICE BofA U.S.

ABS & CMBS Index 3.00

ICE BofA 1-5 Year Canada Government Index 2.55

ICE BofA 15+ Year Canada Government Index 0.30

ICE BofA 1-5 Year Australia Government Index 2.35

1 unchanged sentence

Mortgage 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

1 unchanged sentence

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.

This presentation includes the use of after-tax operating income available to Arch common shareholders, which is defined as net income available to Arch common shareholders, excluding net realized gains or losses (which includes changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings), equity in net income or loss of investments accounted for using the equity method, net foreign exchange

gains or losses, transaction costs and other, net of income taxes (which for the 2023 fourth quarter includes a one-time deferred income tax benefit related to the enactment of Bermuda’s new corporate income tax), and the use of annualized operating return on average common equity.

This presentation includes the use of after-tax operating income available to Arch common shareholders, which is defined as net income available to Arch common shareholders, excluding net realized gains or losses (which includes realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains or losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains or losses realized from the acquisition or disposition of subsidiaries), equity in net income or loss of investments accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other, net of income taxes (which for the 2023 fourth quarter includes a one-time deferred income tax benefit related to the enactment of Bermuda’s new corporate income tax), and the use of annualized operating return on average common equity.

The presentation of after-tax operating income available to Arch common shareholders and annualized operating return on average common equity are non-GAAP financial measures as defined in Regulation G.

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.

ARCH CAPITAL 70

2024 FORM 10-K

We believe that net realized gains or losses, equity in net income or loss of investments accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other in any particular period are not indicative of the performance of, or trends in, our business.

2 unchanged sentences

In addition, changes in the allowance for credit losses and net impairment losses recognized in earnings on the Company’s investments represent other-than-temporary declines in expected recovery values on securities without actual realization.

Furthermore, we exclude net realized gains or losses from the acquisition or disposition of subsidiaries, due to their non-recurring nature, such items are not indicative of the performance of, or trends in, our business performance.

The use of the equity method on certain of our investments in certain funds that invest in fixed maturity securities is driven by the ownership structure of such funds (either limited partnerships or limited liability companies).

1 unchanged sentence

This method of accounting is different from the way we account for our other investments and the timing of the recognition of equity in net income or loss of investments accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments.

Transaction costs and other include advisory, financing, legal, severance, incentive compensation and other transaction costs related to acquisitions.

We believe that transaction costs and other, due to their non-recurring nature, are not indicative of the performance of, or trends in, our business performance.

ARCH CAPITAL 67

2023 FORM 10-K

Transaction costs and other include integration, advisory, financing, legal, severance, incentive compensation and all other transaction costs directly related to acquisitions.

We believe that transaction costs and other, due to their nonrecurring nature, are not indicative of the performance of, or trends in, our business performance.

In the 2023 fourth quarter, the Company established a net deferred income tax asset, resulting in a benefit of $1.18 billion, consistent with the transition provisions specified in the Bermuda CIT Act.

4 unchanged sentences

We believe that the equity analysts and certain rating agencies that follow us and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.

Our segment information includes the presentation of consolidated underwriting income or loss and a subtotal of underwriting income or loss before the contribution from the ‘other’ segment.

Our segment information includes the presentation of consolidated underwriting income or loss.

Such measures represent the pre-tax profitability of our underwriting operations and include net premiums earned plus other underwriting income, less losses and loss adjustment expenses, acquisition expenses and other operating expenses.

Other operating expenses include those operating expenses that are incremental and/or directly attributable to our individual underwriting operations.

Underwriting income or loss does not incorporate items included in our corporate segment.

Underwriting income or loss does not incorporate certain income and expense items which are included in corporate.

While these measures are presented in note 4, “Segment Information,” to our consolidated financial statements in Item 8, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis.

The reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis and a subtotal before the contribution from the ‘other’ segment, in accordance with Regulation G, is shown in note 4, “Segment Information,” to our consolidated financial statements in Item 8.

The reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis, in accordance with Regulation G, is shown in note 4, “Segment Information,” to our consolidated financial statements in Item 8.

We measure segment performance for our three underwriting segments based on underwriting income or loss.

We do not manage our assets by underwriting segment, with the exception of goodwill and intangible assets, and, accordingly, investment income, income from operating affiliates and other non-underwriting related items are not allocated to each underwriting segment.

Along with consolidated underwriting income, we provide a subtotal of underwriting income or loss before the contribution from the ‘other’ segment.

Through June 30, 2021, the ‘other’ segment included the results of Somers Holdings Ltd.

(formerly Watford Holdings Ltd.).

Somers Holdings Ltd.

is the parent of Somers Re Ltd., a multi-line Bermuda reinsurance company (together with Somers Holdings Ltd., “Somers”).

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.

In the 2020 fourth quarter, Arch Capital, Somers, and Greysbridge Ltd., a wholly-owned subsidiary of Arch Capital, entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”).

Arch Capital assigned its rights under the Merger Agreement to Greysbridge Holdings Ltd.

(“Greysbridge”).

The merger and the related Greysbridge equity financing closed on July 1, 2021.

Effective July 1, 2021, Somers is wholly owned by Greysbridge, and Greysbridge is owned 40% by Arch and 30% by certain funds managed by Kelso and 30% by certain funds managed by Warburg.

Based on the governing documents of Greysbridge, we concluded that, while we retain significant influence over Greysbridge, Greysbridge does not constitute a variable interest entity.

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.

Our presentation of segment information includes the use of a current year loss ratio which excludes favorable or adverse development in prior year loss reserves.

2 unchanged sentences

Management utilizes the current year loss ratio in its analysis of the underwriting performance of each of our underwriting segments.

ARCH CAPITAL 71

2024 FORM 10-K

Total return on investments includes investment income, equity in net income or loss of investments accounted for using the equity method, net realized gains or losses (excluding changes in the allowance for credit losses on non-investment related financial assets) and the change in unrealized gains or losses generated by Arch’s investment portfolio.

Total return is calculated on a pre-tax basis and before investment expenses, excludes amounts reflected in the ‘other’ segment, and reflects the effect of financial market conditions along with foreign currency fluctuations.

Total return is calculated on a pre-tax basis and before investment expenses, and reflects the effect of financial market conditions along with foreign currency fluctuations.

In addition, total return incorporates the timing of investment returns during the periods.

There is no directly comparable GAAP financial measure for total return.

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.

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.

RESULTS OF OPERATIONS

14 unchanged sentences

Annualized operating return on average common equity % 18.9 21.6

(1) Net realized gains or losses include realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains and losses on derivative instruments and changes in the allowance for credit losses on financial assets.

(1) Net realized gains or losses include realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains and losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains or losses realized from the acquisition or disposition of subsidiaries.

(2) Income tax on net realized gains or losses, equity in net income or loss of investments accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.

1 unchanged sentence

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.

We classify our businesses into three underwriting segments insurance, reinsurance and mortgage.

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 and the Chief Financial Officer and Treasurer of Arch Capital.

The chief operating decision makers do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis.

29 unchanged sentences

Amount % Amount %

Professional lines $ 1,401 23.9 $ 1,502 29.9

Property, energy, marine and aviation 1,219 20.8 878 17.5

Programs 742 12.7 611 12.2

Construction and national accounts 628 10.7 470 9.4

Travel, accident and health 559 9.5 484 9.6

Excess and surplus casualty 540 9.2 461 9.2

Warranty and lenders solutions 235 4.0 139 2.8

North America

Property and short-tail specialty $ 1,220 17.7 $ 1,058 18.0

Other liability - occurrence 1,002 14.6 676 11.5

Other liability - claims made 858 12.5 851 14.5

Workers compensation 555 8.1 525 9.0

Commercial automobile 485 7.1 391 6.7

Commercial multi-peril 461 6.7 199 3.4

Other 288 4.2 295 5.0

Total North America 4,869 70.8 3,995 68.2

International

Property and short-tail specialty $ 1,065 15.5 $ 1,042 17.8

Casualty and other 940 13.7 825 14.1

Total International 2,005 29.2 1,867 31.8

Total $ 6,874 100.0 $ 5,862 100.0

Net premiums written by the insurance segment were 16.7% higher in 2023 than in 2022.

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 written by the insurance segment were 17.3% higher in 2024 than in 2023 (7.0% excluding the MCE Acquisition).

Growth in net premiums written reflected the impact of the MCE Acquisition along with an increases in most lines of business due in part to new business opportunities and rate changes.

Net Premiums Earned .

2 unchanged sentences

Amount % Amount %

Professional lines $ 1,419 26.1 $ 1,314 28.8

Property, energy, marine and aviation 1,064 19.5 772 16.9

Programs 658 12.1 590 12.9

Construction and national accounts 561 10.3 432 9.5

Travel, accident and health 557 10.2 492 10.8

Excess and surplus casualty 486 8.9 393 8.6

Warranty and lenders solutions 185 3.4 128 2.8

North America

Property and short-tail specialty $ 1,165 17.6 $ 976 17.9

Other liability - occurrence 942 14.2 618 11.3

Other liability - claims made 843 12.7 866 15.9

Workers compensation 549 8.3 495 9.1

Commercial automobile 459 6.9 343 6.3

Commercial multi-peril 435 6.6 193 3.5

Other 309 4.7 290 5.3

Total North America 4,702 71.0 3,781 69.4

International

Property and short-tail specialty $ 1,050 15.8 $ 885 16.3

Casualty and other 875 13.2 780 14.3

Total International 1,925 29.0 1,665 30.6

Total $ 6,627 100.0 $ 5,446 100.0

Net premiums written are primarily earned on a pro rata basis over the terms of the policies for all products, usually 12 months.

Net premiums earned by the insurance segment were 19.4% higher in 2023 than in 2022, reflecting changes in net premiums written over the previous five quarters.

Net premiums earned by the insurance segment were 21.7% higher in 2024 than in 2023 (10.5% excluding the MCE Acquisition), reflecting changes in net premiums written over the previous five quarters.

Losses and Loss Adjustment Expenses .

6 unchanged sentences

Current Year Loss Ratio .

The insurance segment’s current year loss ratio was 3.5 points lower in 2023 than in 2022.

The 2023 loss ratio included 2.7 points of current year catastrophic event activity, spread across series of global events, compared to 5.2 points in 2022, primarily related to Hurricane Ian and a series of global events.

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.

The insurance segment’s current year loss ratio was 3.8 points higher in 2024 than in 2023.

The 2024 loss ratio included 4.6 points of current year catastrophic event activity, primarily related to Hurricanes Helene and Milton, compared to 2.7 points in 2023.

The current year loss ratio for 2024 also reflected the impact of rate increases and changes in mix of business.

Prior Period Reserve Development .

2 unchanged sentences

Underwriting Expenses .

The insurance segment’s underwriting expense ratio was 34.4% in 2023, compared to 34.0% in 2022, with the increase primarily related to higher incentive compensation costs.

The insurance segment’s underwriting expense ratio was 33.4% in 2024, compared to 34.4% in 2023.

The impact of the MCE Acquisition lowered the underwriting expense ratio by approximately 1.6 points, primarily due to the effects of the fair value estimation of the assets acquired at closing, including the non-recognition of deferred acquisition costs.

The value of policies in force at closing are considered within the value of business acquired which is amortized through ‘amortization of intangible assets.’ The underwriting expense ratio also benefited from an initial lower level of operating expenses in the acquired business.

ARCH CAPITAL 73

55 unchanged sentences

Current Year Loss Ratio .

The reinsurance segment’s current year loss ratio was 11.8 points lower in 2023 than in 2022.

The 2023 loss ratio included 6.8 points for current year catastrophic event activity spread across a series of global events, compared to 13.9 points in 2022, primarily related to Hurricane Ian and a series of global events.

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.

The reinsurance segment’s current year loss ratio was 4.4 points higher in 2024 than in 2023.

The 2024 loss ratio included 11.8 points for current year catastrophic event activity related to Hurricanes Milton and Helene, and a series of other global events, compared to 6.8 points in 2023.

The current year loss ratio for 2024 also reflected the impact of rate increases and changes in mix of business.

Prior Period Reserve Development .

4 unchanged sentences

The underwriting expense ratio for the reinsurance segment was 23.5% in 2024, compared to 26.1% in 2023, with the decrease primarily due to growth in net premiums earned.

The 2022 ratio also reflected a lower level of contingent commissions on ceded business, primarily due to Hurricane Ian.

Mortgage Segment

24 unchanged sentences

Total $ 1,112 $ 1,052

Net premiums written for 2023 were 7.1% lower than in 2022.

The reduction in net premiums written primarily reflected lower levels of mortgage originations in the Australian market and a decrease in U.S.

primary mortgage insurance business, which was partially offset by a higher volume of credit risk transfer transactions.

Premiums ceded for 2023 reflected $17 million of one-time payments related to the termination of eight Bellemeade agreements.

Net premiums written for 2024 were 5.7% higher than in 2023.

The increase in net premiums written in 2024 primarily reflected a lower level of premiums ceded to Bellemeade entities.

The persistency rate of the U.S.

primary portfolio of mortgage loans was 83.6% at December 31, 2023 compared to 79.5% at December 31, 2022, with the increase primarily reflecting a lower level of refinancing activity due to a higher interest rate environment.

primary portfolio of mortgage loans was 82.1% at December 31, 2024 compared to 83.6% at December 31, 2023.

The persistency rate represents the percentage of mortgage insurance in force at the beginning of a 12-month period that remains in force at the end of such period.

The following tables provide details on the new insurance written (“NIW”) generated by U.S.

primary mortgage insurance operations.

NIW represents the original principal balance of all loans that received coverage during the period.

Year Ended December 31,

Amount % Amount %

Total new insurance written (NIW) (1) $ 48,479 $ 43,531

Credit quality (FICO):

>=740 $ 34,023 70.2 $ 28,527 65.5

680-739 12,805 26.4 13,832 31.8

620-679 1,644 3.4 1,164 2.7

<620 7 0.0 8 0.0

Total $ 48,479 100.0 $ 43,531 100.0

Loan-to-value (LTV):

95.01% and above $ 3,564 7.4 $ 2,582 5.9

90.01% to 95.00% 24,837 51.2 24,299 55.8

85.01% to 90.00% 14,735 30.4 12,160 27.9

85.01% and below 5,343 11.0 4,490 10.3

Total $ 48,479 100.0 $ 43,531 100.0

Monthly $ 45,589 94.0 $ 41,515 95.4

Single 2,890 6.0 2,016 4.6

Total $ 48,479 100.0 $ 43,531 100.0

Purchase $ 46,952 96.9 $ 42,822 98.4

Refinance 1,527 3.1 709 1.6

Total $ 48,479 100.0 $ 43,531 100.0

(1) Represents the original principal balance of all loans that received coverage during the period.

Net Premiums Earned .

5 unchanged sentences

Total $ 1,231 $ 1,158

Net premiums earned for 2023 were 0.2% lower than in 2022.

The 2023 results were impacted by the termination of the Bellemeade agreements noted above.

Net premiums earned for 2024 were 6.3% higher than in 2023, reflecting changes in net premiums written over the previous five quarters.

ARCH CAPITAL 75

2024 FORM 10-K

Other Underwriting Income .

10 unchanged sentences

Because our primary mortgage insurance reserving process does not take into account the impact of future losses from loans that are not delinquent, mortgage insurance loss reserves are not an estimate of ultimate losses.

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.

We assess the need for a premium deficiency reserve on a quarterly basis and perform a full analysis annually.

1 unchanged sentence

Current Year Loss Ratio .

The mortgage segment’s current year loss ratio was 1.0 point higher in 2023 compared to 2022.

The higher current year loss ratio for 2023 reflected an increase in new delinquencies.

The mortgage segment’s current year loss ratio was 2.2 points lower in 2024 compared to 2023.

The lower current year loss ratio for 2024 reflected a lower average case reserve per default.

The percentage of loans in default on U.S.

primary mortgage insurance decreased from 1.77% at December 31, 2022 to 1.74% at December 31, 2023.

primary mortgage insurance increased from 1.74% at December 31, 2023 to 2.09% at December 31, 2024.

We insure mortgages for homes in areas that have been impacted by catastrophic events.

1 unchanged sentence

Our ultimate claims exposure will depend on the number of delinquency notices received and the ultimate claim rate related to such notices.

In the event of natural disasters, cure rates are influenced by the adequacy of homeowners and flood insurance carried on a related property, and a borrower's access to aid from government entities and private organizations, in addition to other factors which generally impact cure rates in unaffected areas.

In the event of natural disasters, cure rates are influenced by the adequacy of homeowners and flood insurance carried on a related property, and a borrower's access to aid from

government entities and private organizations, in addition to other factors which generally impact cure rates in unaffected areas.

Prior Period Reserve Development .

2 unchanged sentences

Underwriting Expenses .

The underwriting expense ratio for the mortgage segment was 18.2% for 2023, compared to 20.3% for 2022, with the decrease primarily due to a higher level of profit commissions on ceded U.S.

primary mortgage insurance business in 2023.

Corporate Segment

The corporate segment results include net investment income, net realized gains or losses, equity in net income or loss of investments accounted for using the equity method, other income (loss), corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, net foreign exchange gains or losses, income taxes items (which for 2023 reflects the establishment of a net deferred income tax asset related to the enactment of Bermuda’s new corporate income tax), income from operating affiliates and items related to our non-cumulative preferred shares.

The underwriting expense ratio for the mortgage segment was 17.0% for 2024, compared to 18.2% for 2023.

The decrease was primarily due to a lower level of profit commissions on U.S.

primary business, along with a higher level of net premiums earned.

The corporate results include net investment income, net realized gains or losses, equity in net income or loss of investments accounted for using the equity method, other income (loss), corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, net foreign exchange gains or losses, income taxes items (which for 2023 reflects the establishment of a net deferred income tax asset related to the enactment of Bermuda’s new corporate income tax), income from operating affiliates and items related to our non-cumulative preferred shares.

Net Investment Income.

2 unchanged sentences

Fixed maturities

$ 1,266 $ 917

Short-term investments

5 unchanged sentences

(1) Includes interest income on operating cash, distributions from investment funds and other items.

(2) Investment expenses were approximately 0.26% of average invested assets for 2023, compared to 0.28% for 2022.

(2) Investment expenses were approximately 0.26% of average invested assets for 2024, consistent with 0.26% for 2023.

ARCH CAPITAL 76

2024 FORM 10-K

The pre-tax investment income yield was 4.25% for 2024, compared to 3.53% for 2023.

The growth in net investment income for 2024 compared to 2023 primarily reflected higher yields available in the financial markets.

Net cash flow from operating activities contributed $5.7 billion in 2023, which increased our invested asset base and contributed to the growth in net investment income.

The pre-tax investment income yields were calculated based on amortized cost.

Net cash flow from operating activities contributed $6.7 billion in 2024, which increased our invested asset base and contributed to the growth in net investment income.

Net investment income in 2024 was partially impacted by a $1.9 billion special dividend paid to common shareholders in December which required us to sell certain investments.

Yields on future investment income may vary based on financial market conditions, investment allocation decisions and other factors.

Net Realized Gains or Losses.

We recorded net realized losses of $165 million for 2023, compared to net realized losses of $663 million for 2022.

We recorded net realized gains of $197 million for 2024, compared to net realized losses of $165 million for 2023.

Currently, our portfolio is actively managed to maximize total return within certain guidelines.

1 unchanged sentence

Net realized gains or losses from the sale of fixed maturities primarily results from our decisions to reduce credit exposure, to change duration targets, to rebalance our portfolios or due to relative value determinations.

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.

See note 9, “Investment Information—Net Realized Gains (Losses),” and note 9, “Investment Information—Allowance for Credit Losses,” to our consolidated financial statements for additional information.

See note 9, “Investment Information—Net Realized Gains (Losses),” and note 9, “Investment Information—Allowance for Expected Credit Losses,” to our consolidated financial statements for additional information.

Equity in Net Income (Loss) of Investments Accounted for Using the Equity Method.

3 unchanged sentences

Other Income or Losses

Other income for the 2023 period was $27 million, compared to a loss of $27 million for the 2022 period.

Other income for 2024 was $42 million, compared to $27 million for 2023.

Amounts in both periods primarily reflect changes in the cash surrender value of our investment in corporate-owned life insurance.

3 unchanged sentences

Transaction Costs and Other.

Transaction costs and other were $6 million for 2023, compared to nil for 2022.

The 2023 expenses were primarily related to acquisition activity.

Transaction costs and other were $81 million for 2024, compared to $6 million for 2023.

The 2024 period primarily includes direct costs related to the MCE Acquisition and ongoing integration efforts.

Amortization of Intangible Assets.

Amortization of intangible assets for 2024 was $235 million, compared to $95 million for 2023.

Amounts in 2023 and 2022 primarily related to amortization of finite-lived intangible assets.

See note 2, “Acquisitions."

Amounts in 2024 and 2023 primarily related to amortization of finite-lived intangible assets with the increase in 2024 primarily related to the MCE Acquisition.

See note 2, “Acquisition.”

Interest Expense .

2 unchanged sentences

Net Foreign Exchange Gains or Losses.

Net foreign exchange losses for 2023 were $60 million, compared to net foreign exchange gains for 2022 of $102 million.

Net foreign exchange gains for 2024 were $75 million, compared to net foreign exchange losses for 2023 of $60 million.

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.

Our income tax provision on income before income taxes resulted in an expense of 7.7% for 2024, compared to a benefit of 24.5% for 2023.

The 2023 provision reflected the establishment of a net deferred income tax asset of $1.18 billion related to the enactment of Bermuda’s new corporate income tax.

Our effective tax rate fluctuates from year to year consistent with the relative mix of income or loss reported by jurisdiction and the varying tax rates in each jurisdiction.

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.

See note 15, “Income Taxes,” to our consolidated financial statements in Item 8 for a reconciliation of the difference

ARCH CAPITAL 77

2024 FORM 10-K

between the provision for income taxes and the expected tax provision at the weighted average statutory tax rate for 2024 and 2023.

Income (Loss) from Operating Affiliates.

We recorded $184 million of net income from our operating affiliates in the 2023 period, compared to income of $75 million in the 2022 period and primarily reflects amounts related to the Company’s investment in Somers Group Holdings Ltd.

We recorded $200 million of net income from our operating affiliates in 2024, compared to $184 million in 2023.

Amounts in both periods primarily reflected amounts related to our investments in Somers Group Holdings Ltd.

and Coface SA.

See note 9, “Investment Information—Investments in Operating Affiliates,” to our consolidated financial statements for additional information.

ARCH CAPITAL 74

2023 FORM 10-K

SUMMARY OF CRITICAL ACCOUNTING ESTIMATES

29 unchanged sentences

At December 31, 2024 and 2023, the insurance segment’s Loss Reserves by major line of business, net of unpaid losses and loss adjustment expenses recoverable, were as follows:

Professional lines $ 2,451 $ 2,070

Construction and national accounts 1,693 1,558

Excess and surplus casualty 975 786

Programs 929 843

Multi-line and other specialty $ 4,105 $ 1,350

Third party occurrence business 4,104 3,719

Third party claims-made business 2,630 2,451

Property, energy, marine and aviation 1,129 836

Travel, accident and health 144 139

Warranty and lenders solutions 65 47

Other 1,263 1,125

Total net reserves $ 11,968 $ 8,356

21 unchanged sentences

We believe that the illustrated sensitivities are indicative of the potential variability inherent in the estimation process of those parameters.

The results show the impact of varying each key actuarial assumption using the chosen sensitivity on our IBNR reserves, on a net basis and across all accident years.

The results show the impact of varying each key actuarial assumption using the chosen sensitivity on our Loss Reserves, on a net basis and across all accident years.

INSURANCE SEGMENT Higher Expected Loss Ratios Slower Loss Development Patterns

80 unchanged sentences

Mortgage Operations Supplemental Information

On June 3, 2024, we completed the acquisition of RMIC Companies, Inc., and its wholly-owned subsidiaries (“RMIC”) that, together, comprise the run-off mortgage insurance business of Old Republic International Corporation.

The acquired business had been in runoff since 2011 and represented $3.6 billion of insurance in force at the time of the acquisition.

The mortgage segment’s insurance in force (“IIF”) and risk in force (“RIF”) were as follows at December 31, 2024 and 2023:

78 unchanged sentences

Minnesota 3,108 4.1 3,069 4.1

Florida 3,007 4.0 3,268 4.3

Illinois 3,056 4.0 2,986 4.0

1 unchanged sentence

Michigan 2,855 3.8 2,773 3.7

Virginia 2,578 3.4 2,656 3.5

Florida 2,824 3.7 3,007 4.0

Ohio 2,716 3.6 2,553 3.4

Others 40,490 53.3 39,818 52.7

8 unchanged sentences

Paid claims (1,279) (902)

Acquired delinquent loans (1) 2,525 —

Ending delinquent number of loans (2) 22,982 19,457

6 unchanged sentences

Average reserve per default (in thousands) (2) $ 15.3 $ 17.7

(1) Represents delinquent loans related to the acquisition of RMIC.

(2) Includes first lien primary and pool policies.

(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.

(3) Represents total direct first lien paid claims divided by RIF of loans for which claims were paid, excluding paid claim settlements.

The risk-to-capital ratio, which represents total current (non-delinquent) risk in force, net of reinsurance, divided by total statutory capital, for U.S.

primary mortgage insurance operations was approximately 7.8 to 1 at December 31, 2024, compared to 7.3 to 1 at December 31, 2023.

Ceded Reinsurance

4 unchanged sentences

Such arrangements reduce the effect of individual or aggregate losses to all companies participating on such treaties, including the reinsurers, such as our reinsurance operations, and the ceding company.

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 82

2024 FORM 10-K

reported by various statistical reporting services, and other factors.

affected by deemed inuring reinsurance, industry losses reported by various statistical reporting services, and other factors.

Reinsurance recoverables are recorded as assets, predicated on the reinsurers’ ability to meet their obligations under the reinsurance agreements.

14 unchanged sentences

We have entered into various aggregate excess of loss reinsurance agreements with various special purpose reinsurance companies domiciled in Bermuda.

These are special purpose variable interest entities that are not consolidated in our financial results because we do not have

the unilateral power to direct those activities that are significant to its economic performance.

See note 12, “Variable Interest Entity and Noncontrolling Interests,” to our consolidated financial statements in Item 8 for additional information.

These are special purpose variable interest entities that are not

consolidated in our financial results because we do not have the unilateral power to direct those activities that are significant to its economic performance.

See note 12, “Variable Interest Entities” to our consolidated financial statements in Item 8 for additional information.

Premium Revenues and Related Expenses

89 unchanged sentences

Such amount is included in ‘other assets’ on the Company’s balance sheet.

In January 2025, the OECD issued administrative guidance introducing a new interpretation (with retroactive effect) for determining the treatment of deferred income tax assets and liabilities.

Bermuda has not issued corresponding guidance.

As of December 31, 2024, management’s estimate of the measurement of the deferred tax assets remains unchanged.

The most significant deferred income tax assets recognized relate to the fair value adjustments for identifiable intangible assets.

We estimated the fair value of the identifiable intangible assets of our Bermuda entities using discounted cash flow (“DCF”) models.

The significant assumptions utilized in the DCF models included the future revenue and profits expected to be generated by the identifiable intangible assets and the discount rates.

See note 15, “Income Taxes” to our consolidated financial statements in Item 8 for disclosures concerning our Company’s deferred income tax asset.

The significant assumptions

ARCH CAPITAL 85

2024 FORM 10-K

utilized in the DCF models included the future revenue and profits expected to be generated by the identifiable intangible assets and the discount rates.

See note 15, “Income Taxes” to our consolidated financial statements in Item 8 for disclosures concerning our Company’s deferred income tax asset.

Fair Value Measurements

11 unchanged sentences

The Finance, Investment and Risk Committee (“FIR Committee”) of our Board of Directors (the “Board”) establishes our investment policies and sets the parameters for creating guidelines for our investment managers.

The FIR reviews the implementation of the investment strategy on a regular basis.

The FIR Committee reviews the implementation of the investment strategy on a regular basis.

Our current approach stresses preservation of capital, market liquidity and diversification of risk.

3 unchanged sentences

total investable assets held by Arch were internally managed, compared to $21.9 billion, or 63%, at December 31, 2023.

The following table summarizes the fair value of investable assets held by Arch:

Average effective duration (in years) 2.91 2.89

The following table summarizes the duration and average credit quality of fixed income assets held by Arch:

Average effective fixed maturities duration

(in years) 3.31 3.51

Average S&P/Moody’s credit ratings (1) AA-/Aa3 AA-/Aa3

14 unchanged sentences

AAA 4,305 17.8

AA 2,214 10.9

BBB 5,058 20.9

23 unchanged sentences

Estimated Fair Value Credit

Bank of America Corporation $ 383 A-/A1

JPMorgan Chase & Co.

Morgan Stanley 357 A-/A1

Bank of America Corporation 299 A-/A1

The Goldman Sachs Group, Inc.

Citigroup Inc.

Wells Fargo & Company 171 BBB+/A1

Blue Owl Capital Inc.

242 BBB-/Baa3

Roche Holding AG 147 AA/Aa2

Citigroup Inc.

Blackstone Inc.

UBS Group AG 128 A/A2

188 BBB-/Baa2

Hyundai Motor Company 186 A-/A3

Ford Motor Company 166 BBB-/Ba1

Canada 156 AA-/Aa2

Total $ 2,492

18 unchanged sentences

(2) Primarily in corporate at December 31, 2024.

(3) Primarily in large cap stocks, foreign equities, healthcare, technology and consumer discretionary at December 31, 2023.

(3) Primarily in financials, consumer staples, industrials and energy sectors at December 31, 2024.

Our investment strategy allows for the use of derivative instruments.

We utilize various derivative instruments such as futures contracts to enhance investment performance, replicate investment positions or manage market exposures and duration risk that would be allowed under our investment guidelines if implemented in other ways.

We utilize various derivative instruments such as futures contracts to enhance investment performance, replicate investment positions or manage market exposures and fixed income duration risk that would be allowed under our investment guidelines if implemented in other ways.

See note 11, “Derivative Instruments,” to our consolidated financial statements in Item 8 for additional disclosures concerning derivatives.

6 unchanged sentences

% of Total A.M.

Somers Re (2) 18.6 A-

Somers Re Ltd.

Hannover Rück SE

1 unchanged sentence

Munich Reinsurance America, Inc.

RenaissanceRe Holdings Ltd.

Swiss Reinsurance America Corporation

1 unchanged sentence

Partner Reinsurance Company of the U.S.

Transatlantic Reinsurance Company 1.6 A++

Fortitude Reinsurance Company Ltd.

RenaissanceRe Holdings Ltd.

All other -- “A-” or better

All other -- rated carriers

All other -- not rated (4)

2 unchanged sentences

An explanation of the ratings listed in the table follows:

the rating of “A+” is designated “Superior”;

the rating of “A++” and “A+” are designated “Superior”;

and the “A” and “A-” ratings are designated “Excellent.”

(2) See note 12, “Variable Interest Entity and Noncontrolling Interests” and note 16, “Transactions with Related Parties.”

Best group rating of “A” (Excellent) has been applied to all Lloyd’s syndicates.

(2) See note 16, “Transactions with Related Parties.”

Best group rating of “A+” (Superior) has been applied to all Lloyd’s syndicates.

(4) Over 96% of such amount is collateralized through reinsurance trusts, funds withheld arrangements, letters of credit or other.

7 unchanged sentences

Shareholders’ Equity and Book Value per Share

Total shareholders’ equity available to Arch was $18.4 billion at December 31, 2023, compared to $12.9 billion at December 31, 2022.

The 2023 period primarily reflected strong underwriting and investment returns along with the establishment of a net deferred income tax asset of $1.18 billion, or $3.16 per share, related to the enactment of Bermuda’s new corporate income tax.

The following table presents the calculation of book value per share:

9 unchanged sentences

Generally, Arch Capital depends on its available cash resources, liquid investments and dividends or other distributions from its subsidiaries to make payments, including the payment of debt service obligations and operating expenses it may incur and any dividends or liquidation amounts with respect to our preferred and common shares.

In 2023, Arch Capital received dividends of $164 million from Arch Reinsurance Ltd.

In 2024, Arch Capital received dividends of $2.5 billion from Arch Reinsurance Ltd.

(“Arch Re Bermuda”), our Bermuda-based reinsurer and insurer.

2 unchanged sentences

The period of time from the occurrence of a claim through the settlement of the liability may extend many years into the future.

Sources of liquidity include cash flows from

Sources of liquidity include cash flows from operations, financing arrangements or routine sales of investments.

As part of our investment strategy, we seek to establish a level of cash and highly liquid short-term and intermediate-term securities which, combined with expected cash flow, is believed by us to be adequate to meet our foreseeable payment obligations.

However, due to the nature of our operations, cash flows are affected by claim payments that

ARCH CAPITAL 88

2024 FORM 10-K

operations, financing arrangements or routine sales of investments.

However, due to the nature of our operations, cash flows are affected by claim payments that may comprise large payments on a limited number of claims and which can fluctuate from year to year.

may comprise large payments on a limited number of claims and which can fluctuate from year to year.

We believe that our liquid investments and cash flow will provide us with sufficient liquidity in order to meet our claim payment obligations.

13 unchanged sentences

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 ability of our regulated insurance subsidiaries to pay dividends or make distributions is dependent on their ability to meet applicable regulatory

These regulations include restrictions that limit the amount of dividends or other distributions, such as loans or cash advances, available to shareholders without prior approval of the insurance regulatory authorities.

10 unchanged sentences

At December 31, 2024 and 2023, such amounts approximated $13.0 billion and $9.9 billion, respectively.

Our investments in certain securities, including certain fixed income and structured securities, investments in funds

ARCH CAPITAL 86

2023 FORM 10-K

accounted for using the equity method, other alternative investments and investments in operating affiliates may be illiquid due to contractual provisions or investment market conditions.

Our investments in certain securities, including certain fixed income and structured securities, investments in funds accounted for using the equity method, other alternative investments and investments in operating affiliates may be illiquid due to contractual provisions or investment market conditions.

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 $4.4 billion at December 31, 2024 and are callable by our investment managers.

The timing of the funding of investment commitments is uncertain and may require us to access cash on short notice.

The timing of the

ARCH CAPITAL 89

2024 FORM 10-K

funding of investment commitments is uncertain and may require us to access cash on short notice.

The following table summarizes our cash flows from operating, investing and financing activities:

6 unchanged sentences

Increase (decrease) in cash $ 262 $ 225

Cash provided by operating activities for the 2023 period was higher than in the 2022 period.

Activity for the 2023 period primarily reflected a higher level of premiums collected than in the 2022 period.

Cash used for investing activities for the 2023 period reflected higher net purchases than in the 2022 period, primarily reflecting the strong operating cash flows in 2023.

Cash used for financing activities for the 2023 period was lower than in the 2022 period.

Activity for the 2022 period included $586 million of share repurchases.

Cash provided by operating activities in 2024 was higher than in 2023.

Activity in 2024 primarily reflected a higher level of premiums collected than in 2023.

Cash used for investing activities in 2024 reflected lower net purchases than in 2023.

Cash used for investing activity during 2024 was partially impacted by a $1.9 billion special dividend paid to common shareholders, which entailed that we liquidate certain investments.

Activity in 2024 also reflected $852 million of net cash received related to the MCE Acquisition.

Cash used for financing activities in 2024 was higher than in 2023.

Activity in 2024 included a $1.9 billion special dividend paid to common shareholders.

At December 31, 2024, our investable assets were $41.4 billion.

18 unchanged sentences

See note 19, “Debt and Financing Arrangements" and note 21, “Shareholders' Equity” , to our consolidated financial statements in Item 8 for additional information on capital structure.

ARCH CAPITAL 87

2023 FORM 10-K

Capital Adequacy

8 unchanged sentences

state insurance regulations.

In addition, AMIC and UGRIC (together, “Arch MI U.S.”) are required to maintain compliance with the GSE requirements, known as PMIERs.

ARCH CAPITAL 90

2024 FORM 10-K

In addition, Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (together, “eligible mortgage insurer”) are required to maintain compliance with the GSE requirements, known as PMIERs.

The financial requirements require an eligible mortgage insurer’s available assets, which generally include only the most liquid assets of an insurer, to meet or exceed “minimum required assets” as of each quarter end.

Minimum required assets are calculated from PMIERs tables with several risk dimensions (including origination year, original loan-to-value and original credit score of performing loans, and the delinquency status of non-performing loans) and are subject to a minimum amount.

satisfied the PMIERs’ financial requirements as of December 31, 2023 with a PMIER sufficiency ratio of 213%, compared to 236% at December 31, 2022.

Together, our eligible mortgage insurers satisfied the PMIERs’ financial requirements as of December 31, 2024 with a PMIER sufficiency ratio of 186%, compared to 213% at December 31, 2023.

On August 21, 2024, Fannie Mae and Freddie Mac (collectively the GSEs) each updated their PMIERs to incorporate new deductions to available assets for investment risk.

This update will become effective March 31, 2025, but the impact will be phased in through September 30, 2026.

If the GSEs had fully implemented this update to PMIERs as of December 31, 2024, the changes would have reduced available assets by 17% and resulted in a Pro-forma PMIERs Sufficiency Ratio of 154% compared with a reported PMIERs Sufficiency Ratio of 186%.

As part of our capital management program, we may seek to raise additional capital or may seek to return capital to our shareholders through share repurchases, cash dividends or other methods (or a combination of such methods).

2 unchanged sentences

We can provide no assurance that, if needed, we would be able to obtain additional funds through financing on satisfactory terms or at all.

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.

In addition to common share capital, we depend on external sources of finance to support our underwriting activities, which can be in the form (or any combination) of debt securities, preference shares, common equity and bank credit facilities providing loans and/or letters of credit.

Arch Capital, through its subsidiaries, provides financial support to certain of its insurance subsidiaries and affiliates, through certain reinsurance arrangements beneficial to the ratings of such subsidiaries.

Arch Capital, through its subsidiaries, provides financial support to certain of its insurance subsidiaries and affiliates,

through certain reinsurance arrangements beneficial to the ratings of such subsidiaries.

Historically, our insurance, reinsurance and mortgage insurance subsidiaries have entered into separate reinsurance arrangements with Arch Re Bermuda covering individual lines of business.

4 unchanged sentences

Since the inception of the share repurchase program through December 31, 2024, Arch Capital has repurchased approximately 433.8 million common shares for an aggregate purchase price of $5.9 billion.

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.

At December 31, 2024, $996.8 million of share repurchases were available under the program.

Repurchases under the program may be effected from time to time in open market.

The timing and amount of the repurchase transactions under this program will depend on a variety of factors, including market conditions, the development of the economy, corporate and regulatory considerations.

We will continue to monitor our share price and, depending upon results of operations, market conditions and the development of the economy, as well as other factors, we will consider share repurchases on an opportunistic basis.

ARCH CAPITAL 88

2023 FORM 10-K

GUARANTOR INFORMATION

11 unchanged sentences

Our senior notes were issued by Arch Capital, Arch Capital Group (U.S.) Inc.

(“Arch-U.S.”) and Arch Capital Finance LLC (“Arch Finance”).

(“Arch-U.S.”) and Arch Capital Finance

ARCH CAPITAL 91

2024 FORM 10-K

LLC (“Arch Finance”).

is a wholly-owned subsidiary of Arch Capital and Arch Finance is a wholly-owned finance subsidiary of Arch-U.S.

13 unchanged sentences

and Arch Finance, respectively.

During 2023 and 2022, we made interest payments of $127 million and $128 million, respectively, related to our senior notes and other financing arrangements.

During 2024 and 2023, we made interest payments of $127 million and $127 million, respectively, primarily 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.

For additional information on our preferred shares, see note 21,

“Shareholders’ Equity,” to our consolidated financial statements in Item 8.

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.

15 unchanged sentences

December 31, 2024 December 31, 2023

Year Ended Arch Capital Arch-U.S.

Arch Capital Arch-U.S.

Net investment income $ 5 $ 14 $ 2 $ 4

Net realized gains (losses) (4) — — —

Equity in net income (loss) of investments accounted for using the equity method — (4) — (2)

3 unchanged sentences

Interest expense (intercompany) — 53 — 51

Net foreign exchange (gains) losses — — — —

Total expenses 175 86 152 86

33 unchanged sentences

Letter of Credit and Revolving Credit Facilities

In the normal course of its operations, the Company enters into agreements with financial institutions to obtain secured and unsecured credit facilities.

On August 23, 2023, Arch Capital and certain of its subsidiaries amended the existing credit agreement (the “Credit 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”).

Arch Capital and certain of its subsidiaries have access to a credit facility with a syndicate of financial institutions (the “Group Credit Facility”) that expires on August 23, 2028.

The Group Credit Facility 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”).

At December 31, 2024, the Secured Facility had $275 million of letters of credit outstanding and remaining capacity of $150 million, and the Unsecured Facility had no outstanding revolving loans or letters of credit, with remaining capacity of $500 million.

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.

The Group Credit Facility contains certain restrictive and maintenance covenants customary for facilities of this type, including restrictions on indebtedness, minimum consolidated tangible net worth, maximum leverage 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, 2024.

The commitments under the Credit Facility will expire on August 23, 2028, and all loans then outstanding under the Credit Facility must be repaid at such time.

Letters of credit issued under the Credit Facility will not have an expiration date later than August 23, 2029.

ARCH CAPITAL 90

2023 FORM 10-K

Our ability to underwrite business is affected by the quality of our claims paying ability and financial strength ratings as evaluated by independent agencies.

5 unchanged sentences

Best Company and Fitch Ratings are ratings agencies which have assigned financial strength ratings to one or more of Arch Capital’s subsidiaries.

ARCH CAPITAL 93

2024 FORM 10-K

If we are not able to obtain adequate capital, our business, results of operations and financial condition could be adversely affected, which could include, among other things, the following possible outcomes:

13 unchanged sentences

It is difficult to predict the timing of such events with statistical certainty or estimate the amount of loss any given occurrence will generate.

It is not possible to completely eliminate our exposure to unforecasted or unpredictable events and, to the extent that losses from such risks occur, our financial condition and results of operations could be materially adversely affected.

It is not possible to completely eliminate our exposure to unforecasted or unpredictable events and, to the extent that

losses from such risks occur, our financial condition and results of operations could be materially adversely affected.

Therefore, claims for natural and man-made catastrophic events could expose us to large losses and cause substantial volatility in our results of operations, which could cause the value of our common shares to fluctuate widely.

8 unchanged sentences

Geographic zone limitations involve significant underwriting judgments, including the determination of the area of the zones and the inclusion of a particular policy within a particular zone's limits.

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.

There can 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.

4 unchanged sentences

Our estimated probable maximum pre-tax loss is determined through the use of modeling techniques, but such estimate does not represent our total potential loss for such exposures.

ARCH CAPITAL 94

2024 FORM 10-K

Our models employ both proprietary and vendor-based systems and include cross-line correlations for property, marine, offshore energy, aviation, workers compensation and personal accident.

5 unchanged sentences

We also have significant exposure to losses due to mortgage defaults resulting from severe economic events in the future.

mortgage insurance business, we have developed a proprietary risk model (“Realistic Disaster

Scenario” or “RDS”) that simulates the maximum loss resulting from a severe economic downturn impacting the housing market.

mortgage insurance business, we have developed a proprietary risk model (“Realistic Disaster Scenario” or “RDS”) that simulates the maximum loss resulting from a severe economic downturn impacting the housing market.

The RDS models the collective impact of adverse conditions for key economic indicators, the most significant of which is a decline in home prices.

7 unchanged sentences

Catastrophe loss estimates are reflective of the zone indicated and not the entire portfolio.

Since hurricanes and windstorms can affect more than one zone and make multiple landfalls, our catastrophe loss estimates include clash estimates from other zones.

Since hurricanes and windstorms

can affect more than one zone and make multiple landfalls, our catastrophe loss estimates include clash estimates from other zones.

Our catastrophe loss estimates and RDS loss estimates do not represent our maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates.

3 unchanged sentences

See “—Summary of Critical Accounting Estimates—Ceded Reinsurance” for a discussion of our catastrophe reinsurance programs.

ARCH CAPITAL 92

2023 FORM 10-K

MARKET SENSITIVE INSTRUMENTS AND RISK MANAGEMENT

5 unchanged sentences

The sensitivity analysis performed as of December 31, 2024 presents hypothetical losses in cash flows, earnings and fair values of market sensitive instruments which were held by us on December 31, 2024 and are sensitive to changes in interest rates and equity security prices.

This risk management discussion and the estimated amounts generated from the following sensitivity analysis represent forward-looking statements of market risk assuming certain adverse market conditions occur.

This risk management

ARCH CAPITAL 95

2024 FORM 10-K

discussion and the estimated amounts generated from the following sensitivity analysis represent forward-looking statements of market risk assuming certain adverse market conditions occur.

Actual results in the future may differ materially from these projected results due to actual developments in the global financial markets.

8 unchanged sentences

As interest rates rise, the fair value of our Fixed Income Securities falls, and the converse is also true.

Based on historical observations, there is a low probability that all

interest rate yield curves would shift in the same direction at the same time.

Based on historical observations, there is a low probability that all interest rate yield curves would shift in the same direction at the same time.

Furthermore, at times interest rate movements in certain credit sectors exhibit a much lower correlation to changes in U.S.

20 unchanged sentences

Change in unrealized value $ 1.11 $ 0.56 $ (0.56) $ (1.11)

ARCH CAPITAL 93

2023 FORM 10-K

Another method that attempts to measure portfolio risk is Value-at-Risk (“VaR”).

8 unchanged sentences

These investments are exposed to price risk, which is the potential loss arising from decreases in fair value.

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.

An immediate hypothetical 10% decline in the value of each position would reduce the fair value of such investments by approximately $149 million and $101 million at

ARCH CAPITAL 96

2024 FORM 10-K

December 31, 2024 and 2023, respectively, and would have decreased book value per share by approximately $0.40 and $0.27, respectively.

An immediate hypothetical 10% increase in the value of each position would increase the fair value of such investments by approximately $149 million and $101 million at December 31, 2024 and 2023, respectively, and would have increased book value per share by approximately $0.40 and $0.27, respectively.

5 unchanged sentences

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

26 unchanged sentences

For further discussion on foreign exchange activity, please refer to “—Results of Operations.”

ARCH CAPITAL 97

2024 FORM 10-K

Effects of Inflation

General economic inflation has increased in recent quarters and may continue to remain at elevated levels for an extended period of time.

General economic inflation may continue to remain at elevated levels for an extended period of time.

The potential also exists, after a catastrophe loss or pandemic events like COVID-19, for the development of inflationary pressures in a local economy.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis