ARCH CAPITAL GROUP LTD

Previous wording

Arch Capital Group Ltd. (“Arch Capital” and, together with its subsidiaries, “Arch”, “we”, “our” or “us”) is a publicly listed Bermuda exempted company with approximately $23.4 billion in capital at June 30, 2024 and, through operations in Bermuda, the United States, Europe, Canada and Australia, writes insurance, reinsurance and mortgage insurance on a worldwide basis.

Current wording

Arch Capital Group Ltd. (“Arch Capital” and, together with its subsidiaries, “Arch”, “we”, “our” or “us”) is a publicly listed Bermuda exempted company with approximately $25.0 billion in capital at September 30, 2024 and, through operations in Bermuda, the United States, Europe, Canada and Australia, writes insurance, reinsurance and mortgage insurance on a worldwide basis.

Previous wording

Our property and casualty underwriting teams continued to lean into attractive market conditions, delivering $475 million of underwriting income and writing $5 billion of gross premiums written, up 12% from the 2023 second quarter.

Current wording

Our property and casualty underwriting teams continued to benefit from attractive market conditions, delivering a combined $269 million of underwriting income and over $5 billion of gross premiums written, up 22% from the 2023 third quarter.

Previous wording

Our reinsurance segment contributed $366 million of underwriting income in the 2024 second quarter, despite higher frequency of catastrophic events. Due to our view of heightened overall storm risk this year, we chose to not grow our property catastrophe writings at mid-year renewals. While we have significantly expanded our property catastrophe portfolio in recent years, we strive to have the right balance across our overall portfolio. Casualty lines remain an area of interest that we will continue to monitor as we observe rate increases and ongoing reserve development taking place across the industry.

Current wording

Our reinsurance segment contributed $149 million of underwriting income in the 2024 third quarter, despite the higher frequency of catastrophic events. As noted last quarter, due to our view of heightened overall storm risk this year, we chose to not grow our property catastrophe writings at mid-year renewals. Growth was driven by property excluding property catastrophe, including our treaty and facultative businesses, casualty and other specialty lines.

Previous wording

Our mortgage segment continues to deliver a steady level of earnings for our shareholders. New originations remain tempered by high mortgage interest rates. The persistency of our in force U.S. primary mortgage insurance portfolio

Current wording

Our mortgage segment continued to deliver a steady level of earnings for our shareholders, generating $269 million of underwriting income in the 2024 third quarter. 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 82.9% and the delinquency rate remained low.

Previous wording

Book value per share represents total common shareholders’ equity available to Arch divided by the number of common shares outstanding. Management uses growth in book value per share as a key measure of the value generated for our common shareholders each period and believes that book value per share is the key driver of Arch Capital’s share price over time. 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 $52.75 at June 30, 2024, compared to $49.36 at March 31, 2024, and $37.04 at June 30, 2023. The 6.9% increase in book value per share for the 2024 second quarter reflected strong underwriting and investment results.

Current wording

Book value per share represents total common shareholders’ equity available to Arch divided by the number of common shares outstanding. Management uses growth in book value per share as a key measure of the value generated for our common shareholders each period and believes that book value per share is the key driver of Arch Capital’s share price over time. 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 $57.00 at September 30, 2024, compared to $52.75 at June 30, 2024, and $38.62 at September 30, 2023. The 8.1% increase in book value per share for the 2024 third quarter reflected strong investment results.

Previous wording

Operating return on average common equity (“Operating ROAE”) represents annualized after-tax operating income available to Arch common shareholders divided by the average of beginning and ending common shareholders’ equity available to Arch during the period. After-tax operating income available to Arch common shareholders, a non-GAAP financial measure as defined in Regulation G, 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 investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and income taxes. Management uses Operating ROAE as a key measure of the return generated to common shareholders. See“Comment on Non-GAAP Financial Measures.”

Current wording

Operating return on average common equity (“Operating ROAE”) represents annualized after-tax operating income available to Arch common shareholders divided by the average of beginning and ending common shareholders’ equity available to Arch during the period. After-tax operating income available to Arch common shareholders, a non-GAAP financial measure as defined in Regulation G, 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 investment funds accounted for using the equity method, net foreign exchange gains or losses,

Previous wording

Our annualized net income return on average common equity was 26.3% for the 2024 second quarter, compared to 19.6% for the 2023 second quarter, and 25.4% for the six months ended June 30, 2024, compared to 21.1% for the 2023 period. Our Operating ROAE was 20.5% for the 2024 second quarter, compared to 21.5% for the 2023 second quarter, and 20.5% for the six months ended June 30, 2024, compared to 21.3% for the 2023 period. Operating ROAE for the 2024 periods reflected strong underwriting results along with growth in net investment income.

Current wording

Our annualized net income return on average common equity was 19.0% for the 2024 third quarter, compared to 20.2% for the 2023 third quarter, and 22.9% for the nine months ended September 30, 2024, compared to 20.9% for the 2023 period. Our Operating ROAE was 14.8% for the 2024 third quarter, compared to 24.8% for the 2023 third quarter, and 18.3% for the nine months ended September 30, 2024, compared to 22.7% for the 2023 period. Operating ROAE for the 2024 periods reflected strong underwriting results along with growth in net investment income.

Previous wording

Total return for both periods 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 portfolio of 2.83 years at June 30, 2024, with average credit ratings of “AA-” from Standard & Poor’s Rating Services (“S&P”) and “Aa3” from Moody’s Investors Service (“Moody’s).

Current wording

Total return for the 2024 periods 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 portfolio of 2.68 years at September 30, 2024, with average credit ratings of “AA-” from Standard & Poor’s Rating Services (“S&P”) and “Aa3” from Moody’s Investors Service (“Moody’s).

Previous wording

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. The benchmark return index should not be interpreted as

Current wording

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

Previous wording

expressing a preference for or aversion to any particular sector or sector weight. The index is intended solely to provide a relatively stable basket of investable indices, unlike many master indices that change based on the size of their constituent indices. At June 30, 2024, the benchmark return index had an estimated duration of 2.51 years and an average credit quality of “A1” by Moody’s.

Current wording

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. 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 a relatively stable basket of investable indices, unlike many master indices that change based on the size of their constituent indices. At September 30, 2024, the benchmark return index had an estimated duration of 2.50 years and an average credit quality of “A1” by Moody’s.

Previous wording

Throughout this filing, we present our operations in the way that 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 realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains or losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains or losses realized from the acquisition or disposition of subsidiaries), equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other, income taxes, 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

Current wording

Throughout this filing, we present our operations in the way that 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 realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains or losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains or losses realized from the acquisition or disposition of subsidiaries), equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other, income taxes, and the use of

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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 non-recurring nature, are not indicative of the performance of, or trends in, our business performance.

Previous wording

We believe that showing net income available to Arch common shareholders exclusive of the items referred to above reflects the underlying fundamentals of our business since we evaluate the performance of and manage our business to produce an underwriting profit. In addition to presenting the net income available to Arch common shareholders, we believe that this presentation enables

Current wording

We believe that showing net income available to Arch common shareholders exclusive of the items referred to

Previous wording

investors and other users of our financial information to analyze our performance in a manner similar to how management analyzes performance. We also believe that this measure follows industry practice and, therefore, allows the users of financial information to compare our performance with our industry peer group. We believe that the equity analysts and certain rating agencies which follow us and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.

Current wording

above reflects the underlying fundamentals of our business since we evaluate the performance of and manage our business to produce an underwriting profit. In addition to presenting the net income available to Arch common shareholders, we believe that this presentation enables investors and other users of our financial information to analyze our performance in a manner similar to how management analyzes performance. We also believe that this measure follows industry practice and, therefore, allows the users of financial information to compare our performance with our industry peer group. We believe that the equity analysts and certain rating agencies which follow us and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.

Previous wording

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 include certain income and expense items which are included in corporate. While these measures are presented innote 4, “Segment Information,” of the notes accompanying our consolidated financial statements, 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, in accordance with Regulation G, is shown innote 4, “Segment Information” of the notes accompanying our consolidated financial statements.

Current wording

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 include certain income and expense items which are included in corporate. While these measures are presented innote 5, “Segment Information,” of the notes accompanying our consolidated financial statements, 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, in accordance with Regulation G, is shown innote 5, “Segment Information” of the notes accompanying our consolidated financial statements.

Previous wording

Total return on investments includes investment income, equity in net income or loss of investment funds 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, and reflects the effect of

Current wording

Total return on investments includes investment income, equity in net income or loss of investment funds accounted for using the equity method, net realized gains or losses

Previous wording

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 total return on investments as a key measure of the return generated to Arch common shareholders, and compares the return generated by our investment portfolio against benchmark returns during the periods.

Current wording

(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, 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 total return on investments as a key measure of the return generated to Arch common shareholders, and compares the return generated by our investment portfolio against benchmark returns during the periods.