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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended | March 31, 2023 |

Or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-16209
ARCH CAPITAL GROUP LTD.
(Exact name of registrant as specified in its charter)

Bermuda | 98-0374481
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
Waterloo House, Ground Floor |
100 Pitts Bay Road, | Pembroke | HM 08, | Bermuda | (441) | 278-9250
(Address of principal executive offices) | (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class |  | Trading Symbol (s) |  | Name of each exchange on which registered
Common shares, $0.0011 par value per share |  | ACGL |  | NASDAQ | Stock Market
Depositary shares, each representing a 1/1000th interest in a 5.45% Series F preferred share |  | ACGLO |  | NASDAQ | Stock Market
Depositary shares, each representing a 1/1000th interest in a 4.55% Series G preferred share |  | ACGLN |  | NASDAQ | Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☑ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of May 1, 2023, there were 372,422,622 common shares, $0.0011 par value per share, of the registrant outstanding.

Table of Contents
ARCH CAPITAL GROUP LTD.
INDEX TO FORM 10-Q

|  |  | Page No.
| PART I |  |
| Financial Information |  | 2
Item 1. | Consolidated Financial Statements |  | 4
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 34
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |  | 55
Item 4. | Controls and Procedures |  | 55
| PART II |  |
| Other Information |  | 56
Item 1. | Legal Proceedings |  | 56
Item 1A. | Risk Factors |  | 56
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |  | 56
Item 3. | Defaults Upon Senior Securities |  | 57
Item 4. | Mine Safety Disclosures |  | 57
Item 5. | Other Information |  | 57
Item 6. | Exhibits |  | 58
| Signatures |  | 59

ARCH CAPITAL | 1 | 2023 FIRST QUARTER FORM 10-Q

Table of Contents
PART I. FINANCIAL INFORMATION
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides a “safe harbor” for forward-looking statements. This report or any other written or oral statements made by or on behalf of us may include forward-looking statements, which reflect our current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this report are forward-looking statements. Forward-looking statements, for purposes of the PSLRA or otherwise, can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” and similar statements of a future or forward-looking nature or their negative or variations or similar terminology.
Forward-looking statements involve our current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed below and elsewhere in this report and in our periodic reports filed with the Securities and Exchange Commission (“SEC”), and include:
•our ability to successfully implement our business strategy during “soft” as well as “hard” markets;
•acceptance of our business strategy, security and financial condition by rating agencies and regulators, as well as by brokers and our insureds and reinsureds;
•our ability to consummate acquisitions and integrate the business we have acquired or may acquire into our existing operations;
•our ability to maintain or improve our ratings, which may be affected by our ability to raise additional equity or debt financings, by ratings agencies’ existing or new policies and practices, as well as other factors described herein;
•general economic and market conditions (including inflation, interest rates, unemployment, housing prices, foreign currency exchange rates, prevailing credit terms and the depth and duration of a recession, including those resulting from COVID-19) and conditions specific to the reinsurance and insurance markets in which we operate;
•competition, including increased competition, on the basis of pricing, capacity (including alternative sources of capital), coverage terms, or other factors;
•developments in the world’s financial and capital markets and our access to such markets;
•our ability to successfully enhance, integrate and maintain operating procedures (including information technology) to effectively support our current and new business;
•the loss and addition of key personnel;
•material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;
•accuracy of those estimates and judgments utilized in the preparation of our financial statements, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment valuations, intangible assets, bad debts, income taxes, contingencies and litigation, and any determination to use the deposit method of accounting;
•greater than expected loss ratios on business written by us and adverse development on claim and/or claim expense liabilities related to business written by our insurance and reinsurance subsidiaries;
•the adequacy of the Company’s loss reserves;
•severity and/or frequency of losses;
•greater frequency or severity of unpredictable natural and man-made catastrophic events;
•claims for natural or man-made catastrophic events or severe economic events in our insurance, reinsurance and mortgage businesses could cause large losses and substantial volatility in our results of operations;
•the effect of climate change on our business;
•the effect of contagious diseases (including COVID-19) on our business;
•acts of terrorism, political unrest and other hostilities or other unforecasted and unpredictable events;

ARCH CAPITAL | 2 | 2023 FIRST QUARTER FORM 10-Q

Table of Contents
•availability to us of reinsurance to manage our gross and net exposures and the cost of such reinsurance;
•the failure of reinsurers, managing general agents, third party administrators or others to meet their obligations to us;
•the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by us;
•our investment performance, including legislative or regulatory developments that may adversely affect the fair value of our investments;
•changes in general economic conditions, including sovereign debt concerns or downgrades of U.S. securities by credit rating agencies, which could affect our business, financial condition and results of operations;
•the volatility of our shareholders’ equity from foreign currency fluctuations, which could increase due to us not matching portions of our projected liabilities in foreign currencies with investments in the same currencies;
•changes in accounting principles or policies or in our application of such accounting principles or policies;
•changes in the political environment of certain countries in which we operate or underwrite business;
•a disruption caused by cyber attacks or other technology breaches or failures on us or our business partners and service providers, which could negatively impact our business and/or expose us to litigation;
•statutory or regulatory developments, including as to tax matters and insurance and other regulatory matters such as the adoption of proposed legislation that would affect Bermuda-headquartered companies and/or Bermuda-based insurers or reinsurers and/or changes in regulations or tax laws applicable to us, our subsidiaries, brokers or customers, including the possible implementation of the Organization for Economic Cooperation and Development (“OECD”) Pillar I and Pillar II initiatives; and
•the other matters set forth under Item 1A “Risk Factors,” Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of our Annual Report on Form 10-K for the year ended December 31, 2022, as well as the other factors set forth in our other documents on file with the SEC, and management’s response to any of the aforementioned factors.
All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

ARCH CAPITAL | 3 | 2023 FIRST QUARTER FORM 10-Q

Table of Contents

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

|  | Page No.
Report of Independent Registered Public Accounting Firm |  | 5
Consolidated Balance Sheets |  |
March 31, 2023 and December 31, 2022 (unaudited) |  | 6
Consolidated Statements of Income |  |
For the three month periods ended March 31, 2023 and 2022 (unaudited) |  | 7
Consolidated Statements of Comprehensive Income |  |
For the three month periods ended March 31, 2023 and 2022 (unaudited) |  | 8
Consolidated Statements of Changes in Shareholders’ Equity |  |
For the three month periods ended March 31, 2023 and 2022 (unaudited) |  | 9
Consolidated Statements of Cash Flows |  |
For the three month periods ended March 31, 2023 and 2022 (unaudited) |  | 10
Notes to Consolidated Financial Statements (unaudited) |  |
Note 1 - Basis of Presentation and Recent Accounting Pronouncements |  | 11
Note 2 - Share Transactions |  | 11
Note 3 - Earnings Per Common Share |  | 12
Note 4 - Segment Information |  | 13
Note 5 - Reserve for Losses and Loss Adjustment Expenses |  | 16
Note 6 - Allowance for Expected Credit Losses |  | 18
Note 7 - Investment Information |  | 19
Note 8 - Fair Value |  | 24
Note 9 - Derivative Instruments |  | 29
Note 10 - Commitments and Contingencies |  | 30
Note 11 - Variable Interest Entities |  | 31
Note 12 - Other Comprehensive Income (Loss) |  | 32
Note 13 - Income Taxes |  | 33
Note 14 - Legal Proceedings |  | 33
Note 15 - Transactions with Related Parties |  | 33

ARCH CAPITAL | 4 | 2023 FIRST QUARTER FORM 10-Q

Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Arch Capital Group Ltd.
Results of Review of Interim Financial Statements
We have reviewed the accompanying consolidated balance sheet of Arch Capital Group Ltd. and its subsidiaries (the “Company”) as of March 31, 2023, and the related consolidated statements of income, comprehensive income, and changes in shareholders’ equity and the consolidated statements of cash flows for the three-month periods ended March 31, 2023 and 2022, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein), and in our report dated February 24, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
May 4, 2023

ARCH CAPITAL | 5 | 2023 FIRST QUARTER FORM 10-Q

Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(U.S. dollars and shares in millions)

| (Unaudited)
| March 31, 2023 |  | December 31, 2022
Assets |  |  |
Investments: |  |  |
Fixed maturities available for sale, at fair value (amortized cost: $21,922 and $21,282; net of allowance for credit losses: $56 and $41) | $ | 20,692 |  |  | $ | 19,683 |
Short-term investments available for sale, at fair value (amortized cost: $1,553 and $1,333; net of allowance for credit losses: $0 and $0) | 1,553 |  |  | 1,332 |
Equity securities, at fair value | 859 |  |  | 860 |
Other investments, at fair value | 1,776 |  |  | 1,644 |
Investments accounted for using the equity method | 3,896 |  |  | 3,774 |
Total investments | 28,776 |  |  | 27,293 |
Cash | 803 |  |  | 855 |
Accrued investment income | 163 |  |  | 159 |
Investment in operating affiliates | 1,015 |  |  | 965 |
Premiums receivable (net of allowance for credit losses: $36 and $35) | 4,513 |  |  | 3,625 |
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses (net of allowance for credit losses: $21 and $22) | 6,612 |  |  | 6,564 |
Contractholder receivables (net of allowance for credit losses: $2 and $3) | 1,750 |  |  | 1,731 |
Ceded unearned premiums | 2,116 |  |  | 1,799 |
Deferred acquisition costs | 1,355 |  |  | 1,264 |
Receivable for securities sold | 84 |  |  | 12 |
Goodwill and intangible assets | 785 |  |  | 804 |
Other assets | 3,131 |  |  | 2,919 |
Total assets | $ | 51,103 |  |  | $ | 47,990 |
Liabilities |  |  |
Reserve for losses and loss adjustment expenses | $ | 20,758 |  |  | $ | 20,032 |
Unearned premiums | 8,218 |  |  | 7,337 |
Reinsurance balances payable | 1,819 |  |  | 1,530 |
Contractholder payables | 1,752 |  |  | 1,734 |
Collateral held for insured obligations | 252 |  |  | 249 |
Senior notes | 2,726 |  |  | 2,725 |
Payable for securities purchased | 262 |  |  | 95 |
Other liabilities | 1,317 |  |  | 1,367 |
Total liabilities | 37,104 |  |  | 35,069 |
Commitments and contingencies (refer to Note 10) |  |  |
Redeemable noncontrolling interests | 11 |  |  | 11 |
Shareholders' Equity |  |  |
Non-cumulative preferred shares | 830 |  |  | 830 |
Common shares ($0.0011 par, shares issued: 590.5 and 588.3) | 1 |  |  | 1 |
Additional paid-in capital | 2,260 |  |  | 2,211 |
Retained earnings | 16,597 |  |  | 15,892 |
Accumulated other comprehensive income (loss), net of deferred income tax | (1,297) |  |  | (1,646) |
Common shares held in treasury, at cost (shares: 218.3 and 217.9) | (4,403) |  |  | (4,378) |
Total shareholders' equity available to Arch | 13,988 |  |  | 12,910 |
Total liabilities, noncontrolling interests and shareholders' equity | $ | 51,103 |  |  | $ | 47,990 |

See Notes to Consolidated Financial Statements

ARCH CAPITAL | 6 | 2023 FIRST QUARTER FORM 10-Q

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(U.S. dollars and shares in millions, except per share data)

| (Unaudited) |  |
| Three Months Ended |  |
| March 31, |  |
| 2023 |  | 2022 |  |  |  |
Revenues |  |  |  |  |  |  |
Net premiums earned | $ | 2,883 |  |  | $ | 2,121 |  |  |  |  |
Net investment income | 199 |  |  | 80 |  |  |  |  |
Net realized gains (losses) | 17 |  |  | (292) |  |  |  |  |
Other underwriting income | 10 |  |  | 6 |  |  |  |  |
Equity in net income (loss) of investment funds accounted for using the equity method | 48 |  |  | 36 |  |  |  |  |
Other income (loss) | 11 |  |  | (9) |  |  |  |  |
Total revenues | 3,168 |  |  | 1,942 |  |  |  |  |
Expenses |  |  |  |  |  |  |
Losses and loss adjustment expenses | 1,471 |  |  | 1,001 |  |  |  |  |
Acquisition expenses | 533 |  |  | 378 |  |  |  |  |
Other operating expenses | 319 |  |  | 290 |  |  |  |  |
Corporate expenses | 30 |  |  | 32 |  |  |  |  |
Amortization of intangible assets | 23 |  |  | 27 |  |  |  |  |
Interest expense | 32 |  |  | 33 |  |  |  |  |
Net foreign exchange (gains) losses | 18 |  |  | (4) |  |  |  |  |
Total expenses | 2,426 |  |  | 1,757 |  |  |  |  |
Income (loss) before income taxes and income (loss) from operating affiliates | 742 |  |  | 185 |  |  |  |  |
Income tax (expense) benefit | (64) |  |  | (12) |  |  |  |  |
Income (loss) from operating affiliates | 39 |  |  | 25 |  |  |  |  |
Net income (loss) | $ | 717 |  |  | $ | 198 |  |  |  |  |
Net (income) loss attributable to noncontrolling interests | (2) |  |  | (2) |  |  |  |  |
Net income (loss) available to Arch | 715 |  |  | 196 |  |  |  |  |
Preferred dividends | (10) |  |  | (10) |  |  |  |  |
Net income (loss) available to Arch common shareholders | $ | 705 |  |  | $ | 186 |  |  |  |  |
Net income per common share and common share equivalent |  |  |  |  |  |  |
Basic | $ | 1.92 |  |  | $ | 0.50 |  |  |  |  |
Diluted | $ | 1.87 |  |  | $ | 0.48 |  |  |  |  |
Weighted average common shares and common share equivalents outstanding |  |  |  |  |  |  |
Basic | 367.3 |  |  | 374.2 |  |  |  |  |
Diluted | 377.6 |  |  | 384.2 |  |  |  |  |

See Notes to Consolidated Financial Statements

ARCH CAPITAL | 7 | 2023 FIRST QUARTER FORM 10-Q

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(U.S. dollars in millions)

| (Unaudited) |  |
| Three Months Ended |  |
| March 31, |  |
| 2023 |  | 2022 |  |  |  |
Comprehensive Income |  |  |  |  |  |  |
Net income (loss) | $ | 717 |  |  | $ | 198 |  |  |  |  |
Other comprehensive income (loss), net of deferred income tax |  |  |  |  |  |  |
Unrealized appreciation (decline) in value of available-for-sale investments: |  |  |  |  |  |  |
Unrealized holding gains (losses) arising during period | 245 |  |  | (684) |  |  |  |  |
Reclassification of net realized (gains) losses, included in net income (loss) | 99 |  |  | 102 |  |  |  |  |
Foreign currency translation adjustments | 5 |  |  | (3) |  |  |  |  |
Comprehensive income (loss) | 1,066 |  |  | (387) |  |  |  |  |
Net (income) loss attributable to noncontrolling interests | (2) |  |  | (2) |  |  |  |  |
Comprehensive income (loss) available to Arch | $ | 1,064 |  |  | $ | (389) |  |  |  |  |

See Notes to Consolidated Financial Statements

ARCH CAPITAL | 8 | 2023 FIRST QUARTER FORM 10-Q

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(U.S. dollars in millions)

| (Unaudited) |  |
| Three Months Ended |  |
| March 31, |  |
| 2023 |  | 2022 |  |  |  |
Non-cumulative preferred shares |  |  |  |  |  |  |
Balance at beginning and end of period | $ | 830 |  |  | $ | 830 |  |  |  |  |
Common shares |  |  |  |  |  |  |
Balance at beginning and end of period | 1 |  |  | 1 |  |  |  |  |
Additional paid-in capital |  |  |  |  |  |  |
Balance at beginning of period | 2,211 |  |  | 2,085 |  |  |  |  |
Amortization of share-based compensation | 41 |  |  | 45 |  |  |  |  |
Other changes | 8 |  |  | 4 |  |  |  |  |
Balance at end of period | 2,260 |  |  | 2,134 |  |  |  |  |
Retained earnings |  |  |  |  |  |  |
Balance at beginning of period | 15,892 |  |  | 14,456 |  |  |  |  |
Net income (loss) | 717 |  |  | 198 |  |  |  |  |
Net (income) loss attributable to noncontrolling interests | (2) |  |  | (2) |  |  |  |  |
Preferred share dividends | (10) |  |  | (10) |  |  |  |  |
Balance at end of period | 16,597 |  |  | 14,642 |  |  |  |  |
Accumulated other comprehensive income (loss), net of deferred income tax |  |  |  |  |  |  |
Balance at beginning of period | (1,646) |  |  | (65) |  |  |  |  |
Unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax: |  |  |  |  |  |  |
Balance at beginning of period | (1,512) |  |  | 13 |  |  |  |  |
Unrealized holding gains (losses) during period, net of reclassification adjustment | 344 |  |  | (582) |  |  |  |  |
Balance at end of period | (1,168) |  |  | (569) |  |  |  |  |
Foreign currency translation adjustments, net of deferred income tax: |  |  |  |  |  |  |
Balance at beginning of period | (134) |  |  | (78) |  |  |  |  |
Foreign currency translation adjustments | 5 |  |  | (3) |  |  |  |  |
Balance at end of period | (129) |  |  | (81) |  |  |  |  |
Balance at end of period | (1,297) |  |  | (650) |  |  |  |  |
Common shares held in treasury, at cost |  |  |  |  |  |  |
Balance at beginning of period | (4,378) |  |  | (3,761) |  |  |  |  |
Shares repurchased for treasury | (25) |  |  | (276) |  |  |  |  |
Balance at end of period | (4,403) |  |  | (4,037) |  |  |  |  |
Total shareholders’ equity | $ | 13,988 |  |  | $ | 12,920 |  |  |  |  |

See Notes to Consolidated Financial Statements

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in millions)

| (Unaudited)
| Three Months Ended
| March 31,
| 2023 |  | 2022
Operating Activities |  |  |
Net income (loss) | $ | 717 |  |  | $ | 198 |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |  |
Net realized (gains) losses | (17) |  |  | 289 |
Equity in net (income) or loss of investment funds accounted for using the equity method and other income or loss | (66) |  |  | (11) |
Amortization of intangible assets | 23 |  |  | 27 |
Share-based compensation | 41 |  |  | 45 |
Changes in: |  |  |
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable | 603 |  |  | 276 |
Unearned premiums, net of ceded unearned premiums | 541 |  |  | 513 |
Premiums receivable | (871) |  |  | (601) |
Deferred acquisition costs | (75) |  |  | (97) |
Reinsurance balances payable | 279 |  |  | (74) |
Other items, net | (212) |  |  | (13) |
Net cash provided by operating activities | 963 |  |  | 552 |
Investing Activities |  |  |
Purchases of fixed maturity investments | (3,901) |  |  | (6,728) |
Purchases of equity securities | (8) |  |  | (409) |
Purchases of other investments | (266) |  |  | (616) |
Proceeds from sales of fixed maturity investments | 3,034 |  |  | 6,053 |
Proceeds from sales of equity securities | 75 |  |  | 1,100 |
Proceeds from sales, redemptions and maturities of other investments | 96 |  |  | 570 |
Proceeds from redemptions and maturities of fixed maturity investments | 180 |  |  | 241 |
Net settlements of derivative instruments | 14 |  |  | (2) |
Net (purchases) sales of short-term investments | (208) |  |  | (511) |
Purchases of fixed assets | (11) |  |  | (11) |
Other | (1) |  |  | — |
Net cash used for investing activities | (996) |  |  | (313) |
Financing Activities |  |  |
Purchases of common shares under share repurchase program | — |  |  | (255) |
Proceeds from common shares issued, net | (18) |  |  | (17) |
Other | (2) |  |  | 49 |
Preferred dividends paid | (10) |  |  | (10) |
Net cash used for financing activities | (30) |  |  | (233) |
Effects of exchange rate changes on foreign currency cash and restricted cash | 5 |  |  | (4) |
Increase (decrease) in cash and restricted cash | (58) |  |  | 2 |
Cash and restricted cash, beginning of year | 1,273 |  |  | 1,314 |
Cash and restricted cash, end of period | $ | 1,215 |  |  | $ | 1,316 |

See Notes to Consolidated Financial Statements

ARCH CAPITAL | 10 | 2023 FIRST QUARTER FORM 10-Q

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation and Recent Accounting Pronouncements

General
Arch Capital Group Ltd. (“Arch Capital”) is a publicly listed Bermuda exempted company which provides insurance, reinsurance and mortgage insurance on a worldwide basis through its wholly-owned subsidiaries. As used herein, the “Company” means Arch Capital and its subsidiaries.
Basis of Presentation
The interim consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany transactions and balances have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of results on an interim basis. The results of any interim period are not necessarily indicative of the results for a full year or any future periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted; however, management believes that the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”), including the Company’s audited consolidated financial statements and related notes.
The Company has reclassified the presentation of certain prior year information to conform to the current presentation. Such reclassifications had no effect on the Company’s net income, comprehensive income, shareholders’ equity or cash flows. All amounts are in millions, except per share amounts, unless otherwise noted.
Recent Accounting Pronouncements
Recently Issued Accounting Standards Adopted
For information regarding additional accounting standards that the Company has not yet adopted, see note 3(t), “Significant Accounting Policies—Recent Accounting Pronouncements,” of the notes to consolidated financial statements in the Company’s 2022 Form 10-K.
2. Share Transactions

Share-Based Compensation
During the 2023 first quarter, the Company granted 0.5 million stock options, 0.6 million performance share awards and performance share units (“PSAs/PSUs”) and 0.8 million restricted shares and units to certain employees. The stock options were valued at the grant date using the Black-Scholes option pricing model. The weighted average grant-date fair value of the stock options, PSAs/PSUs and restricted shares and units granted during the 2023 first quarter were approximately $23.49, $74.06 and $69.25 per share, respectively. Such values are being amortized over the respective substantive vesting period.
During the 2022 first quarter, the Company granted 0.7 million stock options, 0.7 million PSAs/PSUs and 1.0 million restricted shares and units to certain employees. The stock options were valued at the grant date using the Black-Scholes option pricing model. The weighted average grant-date fair value of the stock options, PSAs/PSUs and restricted shares and units granted during the 2022 first quarter were approximately $13.13, $49.91 and $47.54 per share, respectively. Such values are being amortized over the respective substantive vesting period.

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share:

| Three Months Ended |  |
| March 31, |  |
| 2023 |  | 2022 |  |  |  |
Numerator: |  |  |  |  |  |  |
Net income (loss) | $ | 717 |  |  | $ | 198 |  |  |  |  |
Amounts attributable to noncontrolling interests | (2) |  |  | (2) |  |  |  |  |
Net income (loss) available to Arch | 715 |  |  | 196 |  |  |  |  |
Preferred dividends | (10) |  |  | (10) |  |  |  |  |
Net income (loss) available to Arch common shareholders | $ | 705 |  |  | $ | 186 |  |  |  |  |
Denominator: |  |  |  |  |  |  |
Weighted average common shares and common share equivalents outstanding — basic | 367.3 |  |  | 374.2 |  |  |  |  |
Effect of dilutive common share equivalents: |  |  |  |  |  |  |
Nonvested restricted shares | 2.8 |  |  | 2.7 |  |  |  |  |
Stock options (1) | 7.5 |  |  | 7.3 |  |  |  |  |
Weighted average common shares and common share equivalents outstanding — diluted | 377.6 |  |  | 384.2 |  |  |  |  |
Earnings per common share: |  |  |  |  |  |  |
Basic | $ | 1.92 |  |  | $ | 0.50 |  |  |  |  |
Diluted | $ | 1.87 |  |  | $ | 0.48 |  |  |  |  |

(1) Certain stock options were not included in the computation of diluted earnings per share where the exercise price of the stock options exceeded the average market price and would have been anti-dilutive or where, when applying the treasury stock method to in-the-money options, the sum of the proceeds, including unrecognized compensation, exceeded the average market price and would have been anti-dilutive. For the 2023 first quarter and 2022 first quarter, the number of stock options excluded were 0.5 million and 0.8 million, respectively.

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. Segment Information

The Company’s insurance, reinsurance and mortgage segments each have managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company’s chief operating decision makers. The Chief Executive Officer, the Chief Financial Officer and Treasurer and the President and Chief Underwriting Officer are the Company’s chief operating decision makers. They do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures segment performance for its three underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment, with the exception of goodwill and intangible assets, and accordingly, investment income is not allocated to each underwriting segment.
The Company determined its reportable segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.
The insurance segment consists of the Company’s insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include: construction and national accounts; excess and surplus casualty; professional lines; programs; property, energy, marine and aviation; travel, accident and health; warranty and lenders solutions; and other (consisting of alternative markets, excess workers' compensation and surety business).
The reinsurance segment consists of the Company’s reinsurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include: casualty; marine and aviation; other specialty; property catastrophe; property excluding property catastrophe (losses on a single risk, both excess of loss and pro rata); and other (consisting of life reinsurance, casualty clash and other).
The mortgage segment includes the Company’s U.S. primary mortgage insurance business, investment and services related to U.S. credit-risk transfer (“CRT”) which are predominately with government sponsored enterprises (“GSEs”) and international mortgage insurance and reinsurance operations. Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (combined “Arch MI U.S.”) are approved as eligible mortgage insurers by Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), each a GSE. Arch MI U.S. also includes Arch Mortgage Guaranty Company, which is not a GSE-approved entity.
The corporate segment results include net investment income, 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, other income (loss), corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, net foreign exchange gains or losses, income taxes, income or loss from operating affiliates and items related to the Company’s non-cumulative preferred shares.

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following tables summarize the Company’s underwriting income or loss by segment, together with a reconciliation of underwriting income or loss to net income available to Arch common shareholders:

| Three Months Ended
| March 31, 2023
| Insurance |  | Reinsurance |  | Mortgage |  |  |  |  |  | Total
Gross premiums written (1) | $ | 1,979 |  |  | $ | 2,460 |  |  | $ | 343 |  |  |  |  |  |  | $ | 4,780 |
Premiums ceded | (542) |  |  | (734) |  |  | (82) |  |  |  |  |  |  | (1,356) |
Net premiums written | 1,437 |  |  | 1,726 |  |  | 261 |  |  |  |  |  |  | 3,424 |
Change in unearned premiums | (180) |  |  | (396) |  |  | 35 |  |  |  |  |  |  | (541) |
Net premiums earned | 1,257 |  |  | 1,330 |  |  | 296 |  |  |  |  |  |  | 2,883 |
Other underwriting income (loss) | — |  |  | 4 |  |  | 6 |  |  |  |  |  |  | 10 |
Losses and loss adjustment expenses | (703) |  |  | (766) |  |  | (2) |  |  |  |  |  |  | (1,471) |
Acquisition expenses | (245) |  |  | (281) |  |  | (7) |  |  |  |  |  |  | (533) |
Other operating expenses | (195) |  |  | (74) |  |  | (50) |  |  |  |  |  |  | (319) |
Underwriting income (loss) | $ | 114 |  |  | $ | 213 |  |  | $ | 243 |  |  |  |  |  |  | 570 |
Net investment income |  |  |  |  |  |  |  |  |  |  | 199 |
Net realized gains (losses) |  |  |  |  |  |  |  |  |  |  | 17 |
Equity in net income (loss) of investment funds accounted for using the equity method |  |  |  |  |  |  |  |  |  |  | 48 |
Other income (loss) |  |  |  |  |  |  |  |  |  |  | 11 |
Corporate expenses (2) |  |  |  |  |  |  |  |  |  |  | (29) |
Transaction costs and other (2) |  |  |  |  |  |  |  |  |  |  | (1) |
Amortization of intangible assets |  |  |  |  |  |  |  |  |  |  | (23) |
Interest expense |  |  |  |  |  |  |  |  |  |  | (32) |
Net foreign exchange gains (losses) |  |  |  |  |  |  |  |  |  |  | (18) |
Income (loss) before income taxes and income (loss) from operating affiliates |  |  |  |  |  |  |  |  |  |  | 742 |
Income tax (expense) benefit |  |  |  |  |  |  |  |  |  |  | (64) |
Income (loss) from operating affiliates |  |  |  |  |  |  |  |  |  |  | 39 |
Net income (loss) |  |  |  |  |  |  |  |  |  |  | 717 |
Amounts attributable to redeemable noncontrolling interests |  |  |  |  |  |  |  |  |  |  | (2) |
Net income (loss) available to Arch |  |  |  |  |  |  |  |  |  |  | 715 |
Preferred dividends |  |  |  |  |  |  |  |  |  |  | (10) |
Net income (loss) available to Arch common shareholders |  |  |  |  |  |  |  |  |  |  | $ | 705 |
Underwriting Ratios |  |  |  |  |  |  |  |  |  |  |
Loss ratio | 55.9 | % |  | 57.6 | % |  | 0.6 | % |  |  |  |  |  | 51.0 | %
Acquisition expense ratio | 19.5 | % |  | 21.1 | % |  | 2.5 | % |  |  |  |  |  | 18.5 | %
Other operating expense ratio | 15.5 | % |  | 5.6 | % |  | 16.9 | % |  |  |  |  |  | 11.1 | %
Combined ratio | 90.9 | % |  | 84.3 | % |  | 20.0 | % |  |  |  |  |  | 80.6 | %
Goodwill and intangible assets | $ | 228 |  |  | $ | 142 |  |  | $ | 415 |  |  |  |  |  |  | $ | 785 |

(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.
(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

| Three Months Ended
| March 31, 2022
| Insurance |  | Reinsurance |  | Mortgage |  |  |  |  |  | Total
Gross premiums written (1) | $ | 1,720 |  |  | $ | 1,719 |  |  | $ | 365 |  |  |  |  |  |  | $ | 3,801 |
Premiums ceded | (513) |  |  | (580) |  |  | (77) |  |  |  |  |  |  | (1,167) |
Net premiums written | 1,207 |  |  | 1,139 |  |  | 288 |  |  |  |  |  |  | 2,634 |
Change in unearned premiums | (180) |  |  | (335) |  |  | 2 |  |  |  |  |  |  | (513) |
Net premiums earned | 1,027 |  |  | 804 |  |  | 290 |  |  |  |  |  |  | 2,121 |
Other underwriting income (loss) | — |  |  | 1 |  |  | 5 |  |  |  |  |  |  | 6 |
Losses and loss adjustment expenses | (601) |  |  | (454) |  |  | 54 |  |  |  |  |  |  | (1,001) |
Acquisition expenses | (196) |  |  | (172) |  |  | (10) |  |  |  |  |  |  | (378) |
Other operating expenses | (167) |  |  | (70) |  |  | (53) |  |  |  |  |  |  | (290) |
Underwriting income (loss) | $ | 63 |  |  | $ | 109 |  |  | $ | 286 |  |  |  |  |  |  | 458 |
Net investment income |  |  |  |  |  |  |  |  |  |  | 80 |
Net realized gains (losses) |  |  |  |  |  |  |  |  |  |  | (292) |
Equity in net income (loss) of investment funds accounted for using the equity method |  |  |  |  |  |  |  |  |  |  | 36 |
Other income (loss) |  |  |  |  |  |  |  |  |  |  | (9) |
Corporate expenses (2) |  |  |  |  |  |  |  |  |  |  | (32) |
Transaction costs and other (2) |  |  |  |  |  |  |  |  |  |  | — |
Amortization of intangible assets |  |  |  |  |  |  |  |  |  |  | (27) |
Interest expense |  |  |  |  |  |  |  |  |  |  | (33) |
Net foreign exchange gains (losses) |  |  |  |  |  |  |  |  |  |  | 4 |
Income (loss) before income taxes and income (loss) from operating affiliates |  |  |  |  |  |  |  |  |  |  | 185 |
Income tax (expense) benefit |  |  |  |  |  |  |  |  |  |  | (12) |
Income (loss) from operating affiliates |  |  |  |  |  |  |  |  |  |  | 25 |
Net income (loss) |  |  |  |  |  |  |  |  |  |  | 198 |
Amounts attributable to redeemable noncontrolling interests |  |  |  |  |  |  |  |  |  |  | (2) |
Net income (loss) available to Arch |  |  |  |  |  |  |  |  |  |  | 196 |
Preferred dividends |  |  |  |  |  |  |  |  |  |  | (10) |
Net income (loss) available to Arch common shareholders |  |  |  |  |  |  |  |  |  |  | $ | 186 |
Underwriting Ratios |  |  |  |  |  |  |  |  |  |  |
Loss ratio | 58.5 | % |  | 56.5 | % |  | (18.9) | % |  |  |  |  |  | 47.2 | %
Acquisition expense ratio | 19.1 | % |  | 21.4 | % |  | 3.6 | % |  |  |  |  |  | 17.8 | %
Other operating expense ratio | 16.2 | % |  | 8.7 | % |  | 18.4 | % |  |  |  |  |  | 13.7 | %
Combined ratio | 93.8 | % |  | 86.6 | % |  | 3.1 | % |  |  |  |  |  | 78.7 | %
Goodwill and intangible assets | $ | 249 |  |  | $ | 184 |  |  | $ | 493 |  |  |  |  |  |  | $ | 926 |

(1) Certain amounts included in the gross premiums written of each segment are related to intersegment transactions. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.
(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘transaction costs and other.’

ARCH CAPITAL | 15 | 2023 FIRST QUARTER FORM 10-Q

Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. Reserve for Losses and Loss Adjustment Expenses

The following table represents an analysis of losses and loss adjustment expenses and a reconciliation of the beginning and ending reserve for losses and loss adjustment expenses:

| Three Months Ended |  |
| March 31, |  |
| 2023 |  | 2022 |  |  |  |
Reserve for losses and loss adjustment expenses at beginning of period | $ | 20,032 |  |  | $ | 17,757 |  |  |  |  |
Unpaid losses and loss adjustment expenses recoverable | 6,280 |  |  | 5,599 |  |  |  |  |
Net reserve for losses and loss adjustment expenses at beginning of period | 13,752 |  |  | 12,158 |  |  |  |  |
Net incurred losses and loss adjustment expenses relating to losses occurring in: |  |  |  |  |  |  |
Current year | 1,607 |  |  | 1,142 |  |  |  |  |
Prior years | (136) |  |  | (141) |  |  |  |  |
Total net incurred losses and loss adjustment expenses | 1,471 |  |  | 1,001 |  |  |  |  |
Net foreign exchange (gains) losses and other | 55 |  |  | (33) |  |  |  |  |
Net paid losses and loss adjustment expenses relating to losses occurring in: |  |  |  |  |  |  |
Current year | (140) |  |  | (71) |  |  |  |  |
Prior years | (727) |  |  | (656) |  |  |  |  |
Total net paid losses and loss adjustment expenses | (867) |  |  | (727) |  |  |  |  |
Net reserve for losses and loss adjustment expenses at end of period | 14,411 |  |  | 12,399 |  |  |  |  |
Unpaid losses and loss adjustment expenses recoverable | 6,347 |  |  | 5,710 |  |  |  |  |
Reserve for losses and loss adjustment expenses at end of period | $ | 20,758 |  |  | $ | 18,109 |  |  |  |  |

Development on Prior Year Loss Reserves
2023 First Quarter
During the 2023 first quarter, the Company recorded net favorable development on prior year loss reserves of $136 million, which consisted of $12 million from the insurance segment, $53 million from the reinsurance segment and $71 million from the mortgage segment.
The insurance segment’s net favorable development of $12 million, or 0.9 loss ratio points, for the 2023 first quarter consisted of $25 million of net favorable development in short-tailed and long-tailed lines and $13 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines reflected $9 million of favorable development in property (excluding marine), primarily from 2020 and 2022 accident years (i.e., the year in which a loss occurred), $8 million of favorable development related to travel and accident business, primarily from the 2020 to 2022 accident years, and $7 million of favorable development in warranty and lenders solutions, primarily from the 2022 accident year. Net favorable development in long-tailed lines of $1 million included favorable development in executive assurance business, partially offset by adverse development in casualty and healthcare. Net adverse development in medium-tailed lines included $18 million of adverse development in professional liability
business, primarily from the 2017 to 2019 accident years, partially offset by favorable development in marine business of $7 million, primarily from the 2021 and 2022 accident years.
The reinsurance segment’s net favorable development of $53 million, or 4.0 loss ratio points, for the 2023 first quarter consisted of $49 million of net favorable development in short-tailed lines and $3 million of net favorable development in medium-tailed and long-tailed lines. Net favorable development in short-tailed lines reflected $23 million of favorable development related to property other than property catastrophe business, across most underwriting years (i.e., all premiums and losses attributable to contracts having an inception or renewal date within the given twelve-month period), $18 million of favorable development related to other specialty and other short-tailed lines, primarily from the 2020 and 2021 underwriting years, and $8 million of favorable development related to property catastrophe business, primarily from the 2018, 2019 and 2022 underwriting years. Net favorable development in medium-tailed lines included $2 million in marine and aviation lines, while net favorable development in long-tailed lines included $3 million in casualty business.

ARCH CAPITAL | 16 | 2023 FIRST QUARTER FORM 10-Q

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The mortgage segment’s net favorable development was $71 million, or 23.9 loss ratio points, for the 2023 first quarter. Such amounts were primarily related to reductions on reserves for loans becoming delinquent after the onset of the COVID-19 pandemic.The Company’s credit risk transfer and international businesses also contributed to the favorable development.
2022 First Quarter
During the 2022 first quarter, the Company recorded net favorable development on prior year loss reserves of $141 million, which consisted of $7 million from the insurance segment, $32 million from the reinsurance segment and $102 million from the mortgage segment.
The insurance segment’s net favorable development of $7 million, or 0.7 loss ratio points, for the 2022 first quarter consisted of $19 million of net favorable development in short-tailed lines and $12 million of net adverse development in medium-tailed and long-tailed lines. Net favorable development in short-tailed lines reflected $19 million of favorable development in warranty and lenders solutions, primarily from the 2021 accident year. Net adverse development in medium-tailed lines included $7 million of adverse development in professional liability business, primarily from the 2010 to 2013, 2015 and 2019 accident years, and $6 million of adverse development in contract binding business, across most accident years, partially offset by favorable development in program business of $5 million, primarily from the 2020 accident year. Net adverse development in long-tailed lines primarily reflected $6 million of unfavorable development related to casualty lines, primarily from 2019 to 2021 accident years.
The reinsurance segment’s net favorable development of $32 million, or 4.0 loss ratio points, for the 2022 first quarter consisted $35 million of net favorable development in short-tailed and medium-tailed lines and $3 million of net adverse development in long-tailed lines. Net favorable development in short-tailed lines reflected $19 million of favorable development related to property catastrophe and property other than property catastrophe business, primarily from the 2018, 2019 and 2021 underwriting years. Net favorable development in medium-tailed lines included $11 million of favorable development in marine and aviation lines, across most underwriting years. Adverse development in long-tailed lines reflected an increase in casualty reserves, primarily from the 2021 underwriting year, which was partially offset by favorable development in earlier underwriting years.
The mortgage segment’s net favorable development was $102 million, or 35.3 loss ratio points, for the 2022 first quarter, primarily reflecting the impact of lower new delinquencies and favorable cure activity related to the U.S. first lien portfolio primarily from the 2020 accident year. The Company’s credit risk transfer, international, second lien and student loan business also contributed to the favorable development.

ARCH CAPITAL | 17 | 2023 FIRST QUARTER FORM 10-Q

Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. Allowance for Expected Credit Losses

Premiums Receivable
The following table provides a roll forward of the allowance for expected credit losses of the Company’s premium receivables:

| Premium Receivables, Net of Allowance | Allowance for Expected Credit Losses |
Three Months Ended March 31, 2023 |  |
Balance at beginning of period | $ | 3,625 |  | $ | 35 |  |
Change for provision of expected credit losses (1) | $ | 1 |  |
Balance at end of period | $ | 4,513 |  | $ | 36 |  |
Three Months Ended March 31, 2022 |  |
Balance at beginning of period | $ | 2,633 |  | $ | 40 |  |
Change for provision of expected credit losses (1) | $ | (1) |  |
Balance at end of period | $ | 3,224 |  | $ | 39 |  |

(1)Amounts deemed uncollectible are written-off in operating expenses. For the 2023 first quarter and 2022 first quarter, amounts written off were $1 million and $2 million, respectively.
Reinsurance Recoverables
The following table provides a roll forward of the allowance for expected credit losses of the Company’s reinsurance recoverables:

| Reinsurance Recoverables, Net of Allowance |  | Allowance for Expected Credit Losses |
Three Months Ended March 31, 2023 |  |
Balance at beginning of period | $ | 6,564 |  |  | $ | 22 |  |
Change for provision of expected credit losses |  | (1) |  |
Balance at end of period | $ | 6,612 |  |  | $ | 21 |  |
Three Months Ended March 31, 2022 |  |
Balance at beginning of period | $ | 5,881 |  |  | $ | 13 |  |
Change for provision of expected credit losses |  | 5 |  |
Balance at end of period | $ | 5,941 |  |  | $ | 18 |  |

The following table summarizes the Company’s reinsurance recoverables on paid and unpaid losses (not including ceded unearned premiums):

| March 31, |  | December 31
| 2023 |  | 2022
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses | $ | 6,612 |  | $ | 6,564
% due from carriers with A.M. Best rating of “A-” or better | 68.3 | % |  | 68.8 | %
% due from all other rated carriers | 0.2 | % |  | 0.1 | %
% due from all other carriers with no A.M. Best rating (1) | 31.5 | % |  | 31.1 | %
Largest balance due from any one carrier as % of total shareholders’ equity | 8.7 | % |  | 9.0 | %

(1) At March 31, 2023 and December 31, 2022 over 94% and 95% of such amount were collateralized through reinsurance trusts, funds withheld arrangements, letters of credit or other, respectively.
Contractholder Receivables
The following table provides a roll forward of the allowance for expected credit losses of the Company’s contractholder receivables:

| Contract-holder Receivables, Net of Allowance |  | Allowance for Expected Credit Losses |
Three Months Ended March 31, 2023 |  |
Balance at beginning of period | $ | 1,731 |  |  | $ | 3 |  |
Change for provision of expected credit losses |  | (1) |  |
Balance at end of period | $ | 1,750 |  |  | $ | 2 |  |
Three Months Ended March 31, 2022 |  |
Balance at beginning of period | $ | 1,829 |  |  | $ | 3 |  |
Change for provision of expected credit losses |  | 1 |  |
Balance at end of period | 1,810 |  |  | $ | 4 |  |

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Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. Investment Information

Available For Sale Investments
The following table summarizes the fair value and cost or amortized cost of the Company’s securities classified as available for sale:

| Estimated Fair Value |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Allowance for Expected Credit Losses |  | Cost or Amortized Cost |  |
March 31, 2023 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
Corporate bonds | $ | 9,409 |  |  | $ | 84 |  |  | $ | (636) |  |  | $ | (45) |  |  | $ | 10,006 |  |  |
Residential mortgage backed securities | 823 |  |  | 6 |  |  | (74) |  |  | — |  |  | 891 |  |  |
Municipal bonds | 314 |  |  | 2 |  |  | (24) |  |  | — |  |  | 336 |  |  |
Commercial mortgage backed securities | 1,035 |  |  | 1 |  |  | (54) |  |  | (2) |  |  | 1,090 |  |  |
U.S. government and government agencies | 4,563 |  |  | 14 |  |  | (234) |  |  | — |  |  | 4,783 |  |  |
Non-U.S. government securities | 2,187 |  |  | 13 |  |  | (178) |  |  | (3) |  |  | 2,355 |  |  |
Asset backed securities | 2,361 |  |  | 3 |  |  | (97) |  |  | (6) |  |  | 2,461 |  |  |
Total | 20,692 |  |  | 123 |  |  | (1,297) |  |  | (56) |  |  | 21,922 |  |  |
Short-term investments | 1,553 |  |  | 1 |  |  | (1) |  |  | — |  |  | 1,553 |  |  |
Total | $ | 22,245 |  |  | $ | 124 |  |  | $ | (1,298) |  |  | $ | (56) |  |  | $ | 23,475 |  |  |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
Corporate bonds | $ | 8,020 |  |  | $ | 55 |  |  | $ | (781) |  |  | $ | (30) |  |  | $ | 8,776 |  |  |
Residential mortgage backed securities | 795 |  |  | 5 |  |  | (87) |  |  | — |  |  | 877 |  |  |
Municipal bonds | 419 |  |  | 3 |  |  | (33) |  |  | — |  |  | 449 |  |  |
Commercial mortgage backed securities | 1,047 |  |  | 1 |  |  | (58) |  |  | (3) |  |  | 1,107 |  |  |
U.S. government and government agencies | 5,162 |  |  | 15 |  |  | (343) |  |  | — |  |  | 5,490 |  |  |
Non-U.S. government securities | 2,313 |  |  | 9 |  |  | (238) |  |  | (2) |  |  | 2,544 |  |  |
Asset backed securities | 1,927 |  |  | 1 |  |  | (107) |  |  | (6) |  |  | 2,039 |  |  |
Total | 19,683 |  |  | 89 |  |  | (1,647) |  |  | (41) |  |  | 21,282 |  |  |
Short-term investments | 1,332 |  |  | 1 |  |  | (2) |  |  | — |  |  | 1,333 |  |  |
Total | $ | 21,015 |  |  | $ | 90 |  |  | $ | (1,649) |  |  | $ | (41) |  |  | $ | 22,615 |  |  |

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Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes, for all available for sale securities in an unrealized loss position, the fair value and gross unrealized loss by length of time the security has been in a continual unrealized loss position:

| Less than 12 Months |  | 12 Months or More |  | Total
| Estimated Fair Value |  | Gross Unrealized Losses |  | Estimated Fair Value |  | Gross Unrealized Losses |  | Estimated Fair Value |  | Gross Unrealized Losses
March 31, 2023 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
Corporate bonds | $ | 2,723 |  |  | $ | (101) |  |  | $ | 4,702 |  |  | $ | (535) |  |  | $ | 7,425 |  |  | $ | (636) |
Residential mortgage backed securities | 412 |  |  | (18) |  |  | 279 |  |  | (56) |  |  | 691 |  |  | (74) |
Municipal bonds | 131 |  |  | (6) |  |  | 164 |  |  | (18) |  |  | 295 |  |  | (24) |
Commercial mortgage backed securities | 167 |  |  | (8) |  |  | 855 |  |  | (46) |  |  | 1,022 |  |  | (54) |
U.S. government and government agencies | 1,209 |  |  | (40) |  |  | 2,137 |  |  | (194) |  |  | 3,346 |  |  | (234) |
Non-U.S. government securities | 1,109 |  |  | (61) |  |  | 863 |  |  | (117) |  |  | 1,972 |  |  | (178) |
Asset backed securities | 909 |  |  | (31) |  |  | 1,006 |  |  | (66) |  |  | 1,915 |  |  | (97) |
Total | 6,660 |  |  | (265) |  |  | 10,006 |  |  | (1,032) |  |  | 16,666 |  |  | (1,297) |
Short-term investments | 274 |  |  | (1) |  |  | — |  |  | — |  |  | 274 |  |  | (1) |
Total | $ | 6,934 |  |  | $ | (266) |  |  | $ | 10,006 |  |  | $ | (1,032) |  |  | $ | 16,940 |  |  | $ | (1,298) |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
Corporate bonds | $ | 4,823 |  |  | $ | (393) |  |  | $ | 2,559 |  |  | $ | (388) |  |  | $ | 7,382 |  |  | $ | (781) |
Residential mortgage backed securities | 546 |  |  | (52) |  |  | 154 |  |  | (35) |  |  | 700 |  |  | (87) |
Municipal bonds | 364 |  |  | (30) |  |  | 16 |  |  | (3) |  |  | 380 |  |  | (33) |
Commercial mortgage backed securities | 598 |  |  | (35) |  |  | 445 |  |  | (23) |  |  | 1,043 |  |  | (58) |
U.S. government and government agencies | 3,557 |  |  | (197) |  |  | 1,443 |  |  | (146) |  |  | 5,000 |  |  | (343) |
Non-U.S. government securities | 1,703 |  |  | (154) |  |  | 542 |  |  | (84) |  |  | 2,245 |  |  | (238) |
Asset backed securities | 1,148 |  |  | (66) |  |  | 512 |  |  | (41) |  |  | 1,660 |  |  | (107) |
Total | 12,739 |  |  | (927) |  |  | 5,671 |  |  | (720) |  |  | 18,410 |  |  | (1,647) |
Short-term investments | 237 |  |  | (2) |  |  | — |  |  | — |  |  | 237 |  |  | (2) |
Total | $ | 12,976 |  |  | $ | (929) |  |  | $ | 5,671 |  |  | $ | (720) |  |  | $ | 18,647 |  |  | $ | (1,649) |

At March 31, 2023, on a lot level basis, approximately 9,380 security lots out of a total of approximately 12,970 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $7 million. At December 31, 2022, on a lot level basis, approximately 9,810 security lots out of a total of approximately 12,590 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $7 million.
The contractual maturities of the Company’s fixed maturities are shown in the following table. Expected maturities, which are management’s best estimates, will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

|  | March 31, 2023 |  | December 31, 2022
Maturity |  | Estimated Fair Value |  | Amortized Cost |  | Estimated Fair Value |  | Amortized Cost
Due in one year or less |  | $ | 483 |  |  | $ | 507 |  |  | $ | 511 |  |  | $ | 537 |
Due after one year through five years |  | 11,405 |  |  | 11,938 |  |  | 11,016 |  |  | 11,715 |
Due after five years through 10 years |  | 4,430 |  |  | 4,840 |  |  | 3,984 |  |  | 4,527 |
Due after 10 years |  | 155 |  |  | 195 |  |  | 403 |  |  | 480 |
|  | 16,473 |  |  | 17,480 |  |  | 15,914 |  |  | 17,259 |
Residential mortgage backed securities |  | 823 |  |  | 891 |  |  | 795 |  |  | 877 |
Commercial mortgage backed securities |  | 1,035 |  |  | 1,090 |  |  | 1,047 |  |  | 1,107 |
Asset backed securities |  | 2,361 |  |  | 2,461 |  |  | 1,927 |  |  | 2,039 |
Total |  | $ | 20,692 |  |  | $ | 21,922 |  |  | $ | 19,683 |  |  | $ | 21,282 |

ARCH CAPITAL | 20 | 2023 FIRST QUARTER FORM 10-Q

Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Equity Securities, at Fair Value
At March 31, 2023, the Company held $859 million of equity securities, at fair value, compared to $860 million at December 31, 2022. Such holdings include publicly traded common stocks primarily in the consumer cyclical and non-cyclical, technology, communication and financial sectors and exchange-traded funds in fixed income, equity and other sectors.
Other Investments, at Fair Value
The following table summarizes the Company’s other investments and other investable assets:

| March 31, 2023 |  | December 31, 2022
Fixed maturities | $ | 631 |  |  | $ | 554 |
Other investments | 1,121 |  |  | 1,043 |
Short-term investments | 17 |  |  | 33 |
Equity securities | 7 |  |  | 14 |
Total | $ | 1,776 |  |  | $ | 1,644 |

The following table summarizes the Company’s other investments, as detailed in the previous table, by strategy:

| March 31, 2023 |  | December 31, 2022
Lending | $ | 420 |  |  | $ | 406 |
Investment grade fixed income | 280 |  |  | 271 |
Term loan investments | 209 |  |  | 164 |
Private equity | 131 |  |  | 123 |
Credit related funds | 62 |  |  | 56 |
Energy | 19 |  |  | 23 |
Total | $ | 1,121 |  |  | $ | 1,043 |

Investments Accounted For Using the Equity Method
The following table summarizes the Company’s investments accounted for using the equity method, by strategy:

| March 31, 2023 |  | December 31, 2022
Credit related funds | $ | 1,156 |  |  | $ | 1,136 |
Private equity | 944 |  |  | 917 |
Real estate | 574 |  |  | 535 |
Lending | 533 |  |  | 531 |
Infrastructure | 271 |  |  | 245 |
Equities | 173 |  |  | 169 |
Fixed income | 135 |  |  | 130 |
Energy | 110 |  |  | 111 |
Total | $ | 3,896 |  |  | $ | 3,774 |

Certain of the Company’s other investments are in investment funds for which the Company has the option to redeem at agreed upon values as described in each investment fund’s subscription agreement. Depending on the terms of the various subscription agreements, investments in investment funds may be redeemed daily, monthly, quarterly or on other terms. Two common redemption restrictions which may impact the Company’s ability to redeem these investment funds are gates and lockups. A gate is a suspension of redemptions which may be implemented by the general partner or investment manager of the fund in order to defer, in whole or in part, the redemption request in the event the aggregate amount of redemption requests exceeds a predetermined percentage of the investment fund’s net assets which may otherwise hinder the general partner or investment manager’s ability to liquidate holdings in an orderly fashion in order to generate the cash necessary to fund extraordinarily large redemption payouts. A lockup period is the initial amount of time an investor is contractually required to hold the security before having the ability to redeem. If the investment funds are eligible to be redeemed, the time to redeem such fund can take weeks or months following the notification.
Limited Partnership Interests
In the normal course of its activities, the Company invests in limited partnerships as part of its overall investment strategy. Such amounts are included in ‘investments accounted for using the equity method’ and ‘investments accounted for using the fair value option.’ The Company has determined that it is not required to consolidate these investments because it is not the primary beneficiary of the funds. The Company’s maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported in the Company’s consolidated balance sheet and any unfunded commitment.
The following table summarizes investments in limited partnership interests where the Company has a variable interest by balance sheet line item:

| March 31, 2023 |  | December 31, 2022
Investments accounted for using the equity method (1) | $ | 3,896 |  |  | $ | 3,774 |
Investments accounted for using the fair value option (2) | 130 |  |  | 131 |
Total | $ | 4,026 |  |  | $ | 3,905 |

(1) Aggregate unfunded commitments were $2.6 billion at March 31, 2023, compared with $2.6 billion at December 31, 2022.
(2) Aggregate unfunded commitments were $61 million at March 31, 2023, compared to $17 million at December 31, 2022.

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Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Net Investment Income
The components of net investment income were derived from the following sources:

| March 31,
| 2023 |  | 2022
Three Months Ended |  |  |
Fixed maturities | $ | 188 |  |  | $ | 82 |
Term loans | 0 |  |  | 2 |
Equity securities | 4 |  |  | 6 |
Short-term investments | 14 |  |  | 3 |
Other (1) | 13 |  |  | 10 |
Gross investment income | 219 |  |  | 103 |
Investment expenses | (20) |  |  | (23) |
Net investment income | $ | 199 |  |  | $ | 80 |

(1) Includes income distributions from investment funds and other items.
Net Realized Gains (Losses)
Net realized gains (losses), which include changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings were as follows:

| March 31,
| 2023 |  | 2022
Three Months Ended |  |  |
Available for sale securities: |  |  |
Gross gains on investment sales | $ | 17 |  |  | $ | 20 |
Gross losses on investment sales | (111) |  |  | (108) |
Change in fair value of assets and liabilities accounted for using the fair value option: |  |  |
Fixed maturities | 6 |  |  | (31) |
Other investments | 9 |  |  | 4 |
Equity securities | 1 |  |  | (3) |
Equity securities, at fair value: |  |  |
Net realized gains (losses) on sales during the period | 19 |  |  | 65 |
Net unrealized gains (losses) on equity securities still held at reporting date | 38 |  |  | (176) |
Allowance for credit losses: |  |  |
Investments related | (16) |  |  | (32) |
Underwriting related | 0 |  |  | (4) |
Derivative instruments (1) | 56 |  |  | (24) |
Other | (2) |  |  | (3) |
Net realized gains (losses) | $ | 17 |  |  | $ | (292) |

(1) See note 9 for information on the Company’s derivative instruments.
Equity in Net Income (Loss) of Investment Funds Accounted for Using the Equity Method
The Company recorded an income of $48 million related to investment funds accounted for using the equity method in the 2023 first quarter, compared to $36 million for the 2022 first quarter. In applying the equity method, investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). Such investments are generally recorded on a one to three month lag based on the availability of reports from the investment funds.
Investments in Operating Affiliates
Investments in which the Company has significant influence over the operating and financial policies are classified as ‘investments in operating affiliates’ on the Company’s balance sheets and are accounted for under the equity method. Such investments primarily include the Company’s investment in Coface SA (“Coface”), Greysbridge Holdings Ltd., (“Greysbridge”) and Premia Holdings Ltd. Investments in Coface and Premia Holdings Ltd. are generally recorded on a three month lag, while the Company’s investment in Greysbridge is not recorded on a lag.
As of March 31, 2023, the Company owned approximately 29.86% of the issued shares of Coface, or 30.09% excluding treasury shares, with a carrying value of $576 million, compared to $563 million at December 31, 2022.
As of March 31, 2023, the Company owned 40% of Greysbridge with a carrying value of $330 million, compared to $306 million at December 31, 2022.
Income from operating affiliates for the 2023 first quarter was $39 million, compared to $25 million, for the 2022 first quarter.
See note 15 for information on Company’s transactions with related parties.

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Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Allowance for Expected Credit Losses
The following table provides a roll forward of the allowance for expected credit losses of the Company’s securities classified as available for sale:

|  | Structured Securities (1) |  |  |  | Corporate Bonds |  |  |  | Non-U.S. Government Securities |  | Total
Three Months Ended March 31, 2023 |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 9 |  |  |  |  | $ | 30 |  |  |  |  | $ | 2 |  |  | $ | 41 |
Additions for current-period provision for expected credit losses |  | — |  |  |  |  | 1 |  |  |  |  | — |  |  | 1 |
Additions (reductions) for previously recognized expected credit losses |  | (1) |  |  |  |  | 15 |  |  |  |  | 1 |  |  | 15 |
Reductions due to disposals |  | — |  |  |  |  | (1) |  |  |  |  | — |  |  | (1) |
Balance at end of period |  | $ | 8 |  |  |  |  | $ | 45 |  |  |  |  | $ | 3 |  |  | $ | 56 |
Three Months Ended March 31, 2022 |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 1 |  |  |  |  | $ | 2 |  |  |  |  | $ | — |  |  | $ | 3 |
Additions for current-period provision for expected credit losses |  | 6 |  |  |  |  | 25 |  |  |  |  | — |  |  | 31 |
Additions (reductions) for previously recognized expected credit losses |  | — |  |  |  |  | — |  |  |  |  | — |  |  | — |
Reductions due to disposals |  | — |  |  |  |  | — |  |  |  |  | — |  |  | — |
Balance at end of period |  | $ | 7 |  |  |  |  | $ | 27 |  |  |  |  | $ | — |  |  | $ | 34 |

(1) Includes asset backed securities, residential mortgage backed securities and commercial mortgage backed securities.
Restricted Assets
The Company is required to maintain assets on deposit, which primarily consist of fixed maturities, with various regulatory authorities to support its underwriting operations. The Company’s subsidiaries maintain assets in trust accounts as collateral for transactions with affiliated companies and also have investments in segregated portfolios primarily to provide collateral or guarantees for letters of credit to third parties. See note 18, “Commitments and Contingencies,” of the notes to consolidated financial statements in the Company’s 2022 Form 10-K.
The following table details the value of the Company’s restricted assets:

| March 31, 2023 |  | December 31, 2022
Assets used for collateral or guarantees: |  |  |
Affiliated transactions | $ | 4,353 |  |  | $ | 4,254 |
Third party agreements | 2,764 |  |  | 2,633 |
Deposits with U.S. regulatory authorities | 805 |  |  | 776 |
Other (1) | 1,089 |  |  | 1,038 |
Total restricted assets | $ | 9,011 |  |  | $ | 8,701 |

(1) Primarily includes Funds at Lloyds, deposits with non-U.S. regulatory authorities and other restricted assets.
Reconciliation of Cash and Restricted Cash
The following table details reconciliation of cash and restricted cash within the Consolidated Balance Sheets:

| March 31, 2023 |  | December 31, 2022
Cash | $ | 803 |  |  | $ | 855 |
Restricted cash (included in ‘other assets’) | 412 |  |  | 418 |
Cash and restricted cash | $ | 1,215 |  |  | $ | 1,273 |

ARCH CAPITAL | 23 | 2023 FIRST QUARTER FORM 10-Q

Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8. Fair Value

Accounting guidance regarding fair value measurements addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement (Level 1 being the highest priority and Level 3 being the lowest priority).
The levels in the hierarchy are defined as follows:

Level 1: |  | Inputs to the valuation methodology are observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2: |  | Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument
Level 3: |  | Inputs to the valuation methodology are unobservable and significant to the fair value measurement

Following is a description of the valuation methodologies used for securities measured at fair value, as well as the general classification of such securities pursuant to the valuation hierarchy. The Company reviews its securities measured at fair value and discusses the proper classification of such investments with investment advisers and others.
The Company determines the existence of an active market based on its judgment as to whether transactions for the financial instrument occur in such market with sufficient frequency and volume to provide reliable pricing information. The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. The Company uses quoted values and other data provided by nationally recognized independent pricing sources as inputs into its process for determining fair values of its fixed maturity investments. To validate the techniques or models used by pricing sources, the Company's review process includes, but
is not limited to: (i) quantitative analysis (e.g., comparing the quarterly return for each managed portfolio to its target benchmark, with significant differences identified and investigated); (ii) a review of the average number of prices obtained in the pricing process and the range of resulting fair values; (iii) initial and ongoing evaluation of methodologies used by outside parties to calculate fair value; (iv) a comparison of the fair value estimates to the Company’s knowledge of the current market; (v) a comparison of the pricing services' fair values to other pricing services' fair values for the same investments; and (vi) periodic back-testing, which includes randomly selecting purchased or sold securities and comparing the executed prices to the fair value estimates from the pricing service. A price source hierarchy was maintained in order to determine which price source would be used (i.e., a price obtained from a pricing service with more seniority in the hierarchy will be used over a less senior one in all cases). The hierarchy prioritizes pricing services based on availability and reliability and assigns the highest priority to index providers. Based on the above review, the Company will challenge any prices for a security or portfolio which are considered not to be representative of fair value. The Company did not adjust any of the prices obtained from the independent pricing sources at March 31, 2023.
In certain circumstances, when fair values are unavailable from these independent pricing sources, quotes are obtained directly from broker-dealers who are active in the corresponding markets. Such quotes are subject to the validation procedures noted above. Where quotes are unavailable, fair value is determined by the Investment Manager using quantitative and qualitative assessments such as internally modeled values. Of the $25.2 billion of financial assets and liabilities measured at fair value at March 31, 2023, approximately $13 million, or 0.1%, were priced using non-binding broker-dealer quotes or modeled valuations. Of the $23.8 billion of financial assets and liabilities measured at fair value at December 31, 2022, approximately $13 million, or 0.1%, were priced using non-binding broker-dealer quotes or modeled valuations.
Fixed maturities
The Company uses the market approach valuation technique to estimate the fair value of its fixed maturity securities, when possible. The market approach includes obtaining prices from independent pricing services, such as index providers and pricing vendors, as well as to a lesser extent quotes from broker-dealers. The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. Each source has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of “matrix pricing” in which the independent pricing source uses observable market inputs

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Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair value.
The following describes the significant inputs generally used to determine the fair value of the Company’s fixed maturity securities by asset class:
U.S. government and government agencies – valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The Company determined that all U.S. Treasuries would be classified as Level 1 securities due to observed levels of trading activity, the high number of strongly correlated pricing quotes received on U.S. Treasuries and other factors. The fair values of U.S. government agency securities are generally determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency securities are classified within Level 2.
Corporate bonds – valuations provided by independent pricing services, substantially all through index providers and pricing vendors with a small amount through broker-dealers. The fair values of these securities are generally determined using the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. As the significant inputs used in the pricing process for corporate bonds are observable market inputs, the fair value of these securities are classified within Level 2. A small number of securities are included in Level 3 due to a low level of transparency on the inputs used in the pricing process.
Municipal bonds – valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The fair values of these securities are generally determined using spreads obtained from broker-dealers who trade in the relevant security market, trade prices and the new issue market. As the significant inputs used in the pricing process for municipal bonds are observable market inputs, the fair value of these securities are classified within Level 2.
Residential mortgage-backed securities – valuations provided by independent pricing services, substantially all through pricing vendors and index providers with a small amount through broker-dealers. The fair values of these securities are generally determined through the use of pricing models (including Option Adjusted Spread) which use spreads to determine the expected average life of the securities. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. The pricing services also review
prepayment speeds and other indicators, when applicable. As the significant inputs used in the pricing process for mortgage-backed securities are observable market inputs, the fair value of these securities are classified within Level 2. A small number of securities are included in Level 3 due to a low level of transparency on the inputs used in the pricing process.
Commercial mortgage-backed securities – valuations provided by independent pricing services, substantially all through index providers and pricing vendors with a small amount through broker-dealers. The fair values of these securities are generally determined through the use of pricing models which use spreads to determine the appropriate average life of the securities. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. The pricing services also review prepayment speeds and other indicators, when applicable. As the significant inputs used in the pricing process for commercial mortgage-backed securities are observable market inputs, the fair value of these securities are classified within Level 2.
Non-U.S. government securities – valuations provided by independent pricing services, with all prices provided through index providers and pricing vendors. The fair values of these securities are generally based on international indices or valuation models which include daily observed yield curves, cross-currency basis index spreads and country credit spreads. As the significant inputs used in the pricing process for non-U.S. government securities are observable market inputs, the fair value of these securities are classified within Level 2.
Asset-backed securities – valuations provided by independent pricing services, substantially all through index providers and pricing vendors with a small amount through broker-dealers. The fair values of these securities are generally determined through the use of pricing models (including Option Adjusted Spread) which use spreads to determine the appropriate average life of the securities. These spreads are generally obtained from the new issue market, secondary trading and from broker-dealers who trade in the relevant security market. The pricing services also review prepayment speeds and other indicators, when applicable. As the significant inputs used in the pricing process for asset-backed securities are observable market inputs, the fair value of these securities are classified within Level 2. A small number of securities are included in Level 3 due to a low level of transparency on the inputs used in the pricing process.

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Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Equity securities
The Company determined that exchange-traded equity securities would be included in Level 1 as their fair values are based on quoted market prices in active markets. Certain equity securities are included in Level 2 of the valuation hierarchy as the significant inputs used in the pricing process for such securities are observable market inputs. Other equity securities are included in Level 3 due to the lack of an available independent price source for such securities. As the significant inputs used to price these securities are unobservable, the fair value of such securities are classified as Level 3.
Other investments
The Company’s other investments include term loan investments for which fair values are estimated by using quoted prices of term loan investments with similar characteristics, pricing models or matrix pricing. Such investments are generally classified within Level 2. The fair values for certain of the Company’s other investments are determined using net asset values as advised by external fund managers. The net asset value is based on the fund manager’s valuation of the underlying holdings in accordance with the fund’s governing documents. In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. A small number of securities are included in Level 3 due to the lack of an available independent price source for such securities.
Derivative instruments
The Company’s futures contracts, foreign currency forward contracts, interest rate swaps and other derivatives trade in the over-the-counter derivative market. The Company uses the market approach valuation technique to estimate the fair value for these derivatives based on significant observable market inputs from third party pricing vendors, non-binding broker-dealer quotes and/or recent trading activity. As the significant inputs used in the pricing process for these
derivative instruments are observable market inputs, the fair value of these securities are classified within Level 2.
Short-term investments
The Company determined that certain of its short-term investments held in highly liquid money market-type funds, Treasury bills and commercial paper would be included in Level 1 as their fair values are based on quoted market prices in active markets. The fair values of other short-term investments are generally determined using the spread above the risk-free yield curve and are classified within Level 2.
Residential mortgage loans
The Company’s residential mortgage loans (included in ‘other assets’ in the consolidated balance sheets) include amounts related to the Company’s whole mortgage loan purchase and sell program. Fair values of residential mortgage loans are generally determined based on market prices. As significant inputs used in pricing process for these residential mortgage loans are observable market inputs, the fair value of these securities are classified within Level 2.
Other liabilities
The Company’s other liabilities include contingent and deferred consideration liabilities related to the Company’s acquisitions. Contingent consideration liabilities are remeasured at fair value at each balance sheet date with changes in fair value recognized in ‘net realized gains (losses).’ To determine the fair value of contingent consideration liabilities, the Company estimates the future payments using an income approach based on modeled inputs which include a weighted average cost of capital. Deferred consideration liabilities are measured at fair value on the transaction date. The Company determined that contingent and deferred consideration liabilities would be included within Level 3.

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Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents the Company’s financial assets and liabilities measured at fair value by level at March 31, 2023:

|  |  | Estimated Fair Value Measurements Using:
| Estimated Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets measured at fair value: |  |  |  |  |  |  |
Available for sale securities: |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |
Corporate bonds | $ | 9,409 |  |  | $ | — |  |  | $ | 9,340 |  |  | $ | 69 |
Residential mortgage backed securities | 823 |  |  | — |  |  | 823 |  |  | — |
Municipal bonds | 314 |  |  | — |  |  | 314 |  |  | — |
Commercial mortgage backed securities | 1,035 |  |  | — |  |  | 1,035 |  |  | — |
U.S. government and government agencies | 4,563 |  |  | 4,546 |  |  | 17 |  |  | — |
Non-U.S. government securities | 2,187 |  |  | — |  |  | 2,187 |  |  | — |
Asset backed securities | 2,361 |  |  | — |  |  | 2,361 |  |  | — |
Total | 20,692 |  |  | 4,546 |  |  | 16,077 |  |  | 69 |
Short-term investments | 1,553 |  |  | 1,406 |  |  | 147 |  |  | — |
Equity securities, at fair value | 859 |  |  | 825 |  |  | 29 |  |  | 5 |
Derivative instruments (2) | 211 |  |  | — |  |  | 211 |  |  | — |
Residential mortgage loans | 2 |  |  | — |  |  | 2 |  |  | — |
Fair value option: |  |  |  |  |  |  |
Corporate bonds | 613 |  |  | — |  |  | 613 |  |  | — |
Non-U.S. government bonds | 7 |  |  | — |  |  | 7 |  |  | — |
Asset backed securities | 2 |  |  | — |  |  | 2 |  |  | — |
U.S. government and government agencies | 9 |  |  | 9 |  |  | — |  |  | — |
Short-term investments | 17 |  |  | 1 |  |  | 16 |  |  | — |
Equity securities | 7 |  |  | 3 |  |  | — |  |  | 4 |
Other investments | 249 |  |  | — |  |  | 203 |  |  | 46 |
Other investments measured at net asset value (1) | 872 |  |  |  |  |  |  |
Total | 1,776 |  |  | 13 |  |  | 841 |  |  | 50 |
Total assets measured at fair value | $ | 25,093 |  |  | $ | 6,790 |  |  | $ | 17,307 |  |  | $ | 124 |
Liabilities measured at fair value: |  |  |  |  |  |  |
Other liabilities | $ | (14) |  |  | $ | — |  |  | $ | — |  |  | $ | (14) |
Derivative instruments (2) | (101) |  |  | — |  |  | (101) |  |  | — |
Total liabilities measured at fair value | $ | (115) |  |  | $ | — |  |  | $ | (101) |  |  | $ | (14) |

(1) In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.
(2) See note 9.

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Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents the Company’s financial assets and liabilities measured at fair value by level at December 31, 2022:

|  |  | Estimated Fair Value Measurements Using:
| Estimated Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets measured at fair value: |  |  |  |  |  |  |
Available for sale securities: |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |
Corporate bonds | $ | 8,020 |  |  | $ | — |  |  | $ | 7,899 |  |  | $ | 121 |
Residential mortgage backed securities | 795 |  |  | — |  |  | 795 |  |  | — |
Municipal bonds | 419 |  |  | — |  |  | 419 |  |  | — |
Commercial mortgage backed securities | 1,047 |  |  | — |  |  | 1,047 |  |  | — |
U.S. government and government agencies | 5,162 |  |  | 5,145 |  |  | 17 |  |  | — |
Non-U.S. government securities | 2,313 |  |  | — |  |  | 2,313 |  |  | — |
Asset backed securities | 1,927 |  |  | — |  |  | 1,927 |  |  | — |
Total | 19,683 |  |  | 5,145 |  |  | 14,417 |  |  | 121 |
Short-term investments | 1,332 |  |  | 1,198 |  |  | 134 |  |  | — |
Equity securities, at fair value | 860 |  |  | 829 |  |  | 28 |  |  | 3 |
Derivative instruments (2) | 149 |  |  | — |  |  | 149 |  |  | — |
Residential mortgage loans | 2 |  |  | — |  |  | 2 |  |  | — |
Fair value option: |  |  |  |  |  |  |
Corporate bonds | 543 |  |  | — |  |  | 543 |  |  | — |
Non-U.S. government bonds | 4 |  |  | — |  |  | 4 |  |  | — |
Asset backed securities | 2 |  |  | — |  |  | 2 |  |  | — |
U.S. government and government agencies | 5 |  |  | 5 |  |  | — |  |  | — |
Short-term investments | 33 |  |  | 1 |  |  | 32 |  |  | — |
Equity securities | 14 |  |  | 10 |  |  | — |  |  | 4 |
Other investments | 196 |  |  | — |  |  | 163 |  |  | 33 |
Other investments measured at net asset value (1) | 847 |  |  |  |  |  |  |
Total | 1,644 |  |  | 16 |  |  | 744 |  |  | 37 |
Total assets measured at fair value | $ | 23,670 |  |  | $ | 7,188 |  |  | $ | 15,474 |  |  | $ | 161 |
Liabilities measured at fair value: |  |  |  |  |  |  |
Other liabilities | $ | (14) |  |  | $ | — |  |  | $ | — |  |  | $ | (14) |
Derivative instruments (2) | (76) |  |  | — |  |  | (76) |  |  | — |
Total liabilities measured at fair value | $ | (90) |  |  | $ | — |  |  | $ | (76) |  |  | $ | (14) |

(1) In accordance with applicable accounting guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.
(2) See note 9.

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Table of Contents
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents a reconciliation of the beginning and ending balances for all financial assets and liabilities measured at fair value on a recurring basis using Level 3 inputs:

| Assets | Liabilities
s | Available For Sale |  |  |  | Fair Value Option |  | Fair Value |  |
| Structured Securities (1) |  | Corporate Bonds |  |  |  | Other Investments |  | Equity Securities |  | Equity Securities |  | Other Liabilities
Three Months Ended March 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period | $ | — |  |  | $ | 121 |  |  |  |  | $ | 33 |  |  | $ | 4 |  |  | $ | 4 |  |  | $ | (14) |
Total gains or (losses) (realized/unrealized) |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings (2) | — |  |  | 1 |  |  |  |  | (1) |  |  | — |  |  | — |  |  | — |
Included in other comprehensive income | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |  |  | — |
Purchases, issuances, sales and settlements |  |  |  |  |  |  |  |  |  |  |  |  |
Purchases | — |  |  | — |  |  |  |  | 18 |  |  | — |  |  | 1 |  |  | — |
Issuances | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |  |  | — |
Sales | — |  |  | — |  |  |  |  | (4) |  |  | — |  |  | — |  |  | — |
Settlements | — |  |  | (53) |  |  |  |  | — |  |  | — |  |  | — |  |  | — |
Transfers in and/or out of Level 3 | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |  |  | — |
Balance at end of period | $ | — |  |  | $ | 69 |  |  |  |  | $ | 46 |  |  | $ | 4 |  |  | $ | 5 |  |  | $ | (14) |
Three Months Ended March 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period | $ | 3 |  |  | $ | — |  |  |  |  | $ | 28 |  |  | $ | 5 |  |  | $ | 3 |  |  | $ | (17) |
Total gains or (losses) (realized/unrealized) |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings (2) | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |  |  | — |
Included in other comprehensive income | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |  |  | (1) |
Purchases, issuances, sales and settlements |  |  |  |  |  |  |  |  |  |  |  |  |
Purchases | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |  |  | — |
Issuances | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |  |  | — |
Sales | — |  |  | — |  |  |  |  | (2) |  |  | — |  |  | — |  |  | — |
Settlements | — |  |  | — |  |  |  |  | (3) |  |  | — |  |  | — |  |  | — |
Transfers in and/or out of Level 3 | — |  |  | 4 |  |  |  |  | — |  |  | — |  |  | — |  |  | — |
Balance at end of period | $ | 3 |  |  | $ | 4 |  |  |  |  | $ | 23 |  |  | $ | 5 |  |  | $ | 3 |  |  | $ | (18) |

(1) Includes asset backed securities, residential mortgage backed securities and commercial mortgage backed securities.
(2) Gains or losses were included in net realized gains (losses).
Financial Instruments Disclosed, But Not Carried, At Fair Value
The Company uses various financial instruments in the normal course of its business. The carrying values of cash, accrued investment income, receivable for securities sold, certain other assets, payable for securities purchased and certain other liabilities approximated their fair values at March 31, 2023, due to their respective short maturities. As these financial instruments are not actively traded, their respective fair values are classified within Level 2.
At March 31, 2023, the Company’s senior notes were carried at their cost, net of debt issuance costs, of $2.7 billion and had a fair value of $2.5 billion. At December 31, 2022, the Company’s senior notes were carried at their cost, net of debt issuance costs, of $2.7 billion and had a fair value of $2.4 billion. The fair values of the senior notes were obtained from a third party pricing service and are based on observable market inputs. As such, the fair values of the senior notes are classified within Level 2.
9. Derivative Instruments

The Company’s investment strategy allows for the use of derivative instruments. The Company’s derivative instruments are recorded on its consolidated balance sheets at fair value. The Company utilizes exchange traded U.S. Treasury note, Eurodollar and other futures contracts and commodity futures to manage portfolio duration or replicate investment positions in its portfolios and the Company routinely utilizes foreign currency forward contracts, currency options, index futures contracts and other derivatives as part of its total return objective. In addition, certain of the Company’s investments are managed in portfolios which incorporate the use of foreign currency forward contracts which are intended to provide an economic hedge against foreign currency movements.
From time to time, the Company purchases to-be-announced mortgage backed securities (“TBAs”) as part of its investment strategy. TBAs represent commitments to purchase a future issuance of agency mortgage backed securities. For the period between purchase of a TBA and

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
issuance of the underlying security, the Company’s position is accounted for as a derivative. The Company purchases TBAs in both long and short positions to enhance investment performance and as part of its overall investment strategy.
The following table summarizes information on the fair values and notional values of the Company’s derivative instruments:

| Estimated Fair Value |  |
| Asset Derivatives (1) |  | Liability Derivatives (1) |  | Notional Value (2)
March 31, 2023 |  |  |  |  |
Futures contracts | $ | 105 |  |  | $ | (47) |  |  | $ | 2,516 |
Foreign currency forward contracts | 21 |  |  | (26) |  |  | 1,062 |
Other | 85 |  |  | (28) |  |  | 1,006 |
Total | $ | 211 |  |  | $ | (101) |  |  |
December 31, 2022 |  |  |  |  |
Futures contracts | $ | 51 |  |  | $ | (17) |  |  | $ | 3,138 |
Foreign currency forward contracts | 39 |  |  | (35) |  |  | 1,136 |
Other | 59 |  |  | (24) |  |  | 3,592 |
Total | $ | 149 |  |  | $ | (76) |  |  |

(1) The fair value of asset derivatives are included in ‘other assets’ and the fair value of liability derivatives are included in ‘other liabilities.’
(2) Represents the absolute notional value of all outstanding contracts, consisting of long and short positions.
The Company did not hold any derivatives which were designated as hedging instruments at March 31, 2023 or December 31, 2022.
The Company’s derivative instruments can be traded under master netting agreements, which establish terms that apply to all derivative transactions with a counterparty. In the event of a bankruptcy or other stipulated event of default, such agreements provide that the non-defaulting party may elect to terminate all outstanding derivative transactions, in which case all individual derivative positions (loss or gain) with a counterparty are closed out and netted and replaced with a single amount, usually referred to as the termination amount, which is expressed in a single currency. The resulting single net amount, where positive, is payable to the party “in-the-money” regardless of whether or not it is the defaulting party,
unless the parties have agreed that only the non-defaulting party is entitled to receive a termination payment where the net amount is positive and is in its favor. Contractual close-out netting reduces derivatives credit exposure from gross to net exposure.
At March 31, 2023, asset derivatives and liability derivatives of $210 million and $95 million, respectively, were subject to a master netting agreement, compared to $147 million and $73 million, respectively, at December 31, 2022. The remaining derivatives included in the preceding table were not subject to a master netting agreement.
Realized and unrealized contract gains and losses on the Company’s derivative instruments are reflected in ‘net realized gains (losses)’ in the consolidated statements of income, as summarized in the following table:

Derivatives not designated as |  | March 31,
hedging instruments: |  | 2023 |  | 2022
Three Months Ended |  |  |  |
Net realized gains (losses): |  |  |  |
Futures contracts |  | $ | 39 |  |  | $ | (47) |
Foreign currency forward contracts |  | 9 |  |  | (2) |
Other (1) |  | 8 |  |  | 25 |
Total |  | $ | 56 |  |  | $ | (24) |

(1) Includes realized gains and losses on swaps, options and other derivatives contracts.
10. Commitments and Contingencies

Investment Commitments
The Company’s investment commitments, which are primarily related to agreements entered into by the Company to invest in funds and separately managed accounts when called upon, were approximately $2.9 billion at March 31, 2023, consistent with $2.9 billion at December 31, 2022.
Interest Paid
Interest paid on the Company’s senior notes and other borrowings was nominal for the three months ended March 31, 2023, compared to $1 million for the 2022 period.

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
11. Variable Interest Entities

Bellemeade Re
The Company has entered into aggregate excess of loss mortgage reinsurance agreements with various special purpose reinsurance companies domiciled in Bermuda (the “Bellemeade Agreements”). At the time the Bellemeade Agreements were entered into, the applicability of the accounting guidance that addresses VIEs was evaluated. As a result of the evaluation of the Bellemeade Agreements, the Company concluded that these entities are VIEs. However, given that the ceding insurers do not have the unilateral power to direct those activities that are significant to their economic performance, the Company does not consolidate such entities in its consolidated financial statements. The Company’s on-balance sheet liability was $5 million at March 31, 2023, compared to $2 million at December 31, 2022, while the maximum off-balance sheet exposure to loss was $24 million at March 31, 2023, compared to $27 million at December 31, 2022. The Company’s maximum exposure to loss associated with these VIEs is calculated as the maximum historical observable spread between the benchmark index for each respective transaction and short term invested trust asset yields. The benchmark index for agreements effective prior to 2021 is based on one-month LIBOR, while the benchmark index for 2021 and later agreements is based on the Secured Overnight Financing Rate (“SOFR”). SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. The following table summarizes the total assets of the Bellemeade entities:

|  | March 31, 2023 |  | December 31, 2022 |  |
Bellemeade Entities (Issue Date) |  | Total VIE Assets |  |  |  |  |  |  |  | Coverage Remaining from Reinsurers (1) |  | Total VIE Assets |  |  |  |  |  |
2017-1 Ltd. (Oct-17) |  | $ | — |  |  |  |  |  |  |  |  | $ | — |  |  | $ | 37 |  |  |  |  |  |  |
2018-1 Ltd. (Apr-18) |  | 78 |  |  |  |  |  |  |  |  | — |  |  | 90 |  |  |  |  |  |  |
2018-3 Ltd. (Oct-18) |  | 183 |  |  |  |  |  |  |  |  | — |  |  | 199 |  |  |  |  |  |  |
2019-1 Ltd. (Mar-19) |  | 99 |  |  |  |  |  |  |  |  | — |  |  | 108 |  |  |  |  |  |  |
2019-2 Ltd. (Apr-19) |  | 307 |  |  |  |  |  |  |  |  | — |  |  | 325 |  |  |  |  |  |  |
2019-3 Ltd. (Jul-19) |  | 182 |  |  |  |  |  |  |  |  | — |  |  | 223 |  |  |  |  |  |  |
2019-4 Ltd. (Oct-19) |  | 252 |  |  |  |  |  |  |  |  | — |  |  | 266 |  |  |  |  |  |  |
2020-2 Ltd. (Sep-20) |  | 89 |  |  |  |  |  |  |  |  | — |  |  | 105 |  |  |  |  |  |  |
2020-3 Ltd. (Nov-20) |  | 224 |  |  |  |  |  |  |  |  | 6 |  |  | 244 |  |  |  |  |  |  |
2020-4 Ltd. (Dec-20) |  | 87 |  |  |  |  |  |  |  |  | 3 |  |  | 98 |  |  |  |  |  |  |
2021-1 Ltd. (Mar-21) |  | 438 |  |  |  |  |  |  |  |  | 29 |  |  | 467 |  |  |  |  |  |  |
2021-2 Ltd. (Jun-21) |  | 434 |  |  |  |  |  |  |  |  | 71 |  |  | 458 |  |  |  |  |  |  |
2021-3 Ltd. (Sep-21) |  | 481 |  |  |  |  |  |  |  |  | 125 |  |  | 490 |  |  |  |  |  |  |
2022-1 Ltd. (Jan-22) |  | 284 |  |  |  |  |  |  |  |  | 33 |  |  | 284 |  |  |  |  |  |  |
2022-2 Ltd. (Sep-22) |  | 201 |  |  |  |  |  |  |  |  | 126 |  |  | 201 |  |  |  |  |  |  |
Total |  | $ | 3,339 |  |  |  |  |  |  |  |  | $ | 393 |  |  | $ | 3,595 |  |  |  |  |  |  |

(1) Coverage from a separate panel of reinsurers remaining at March 31, 2023.

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12. Other Comprehensive Income (Loss)

The following tables present details about amounts reclassified from accumulated other comprehensive income and the tax effects allocated to each component of other comprehensive income (loss):

|  |  |  | Amounts Reclassified from AOCI
|  | Consolidated Statement of Income |  | Three Months Ended |  |
Details About |  | Line Item That Includes |  | March 31, |  |
AOCI Components |  | Reclassification |  | 2023 |  | 2022 |  |  |  |
Unrealized appreciation (decline) on available-for-sale investments |  |  |  |  |  |  |  |
|  | Net realized gains (losses) |  | $ | (94) |  |  | $ | (88) |  |  |  |  |
|  | Provision for credit losses |  | (16) |  |  | (32) |  |  |  |  |
|  | Total before tax |  | (110) |  |  | (120) |  |  |  |  |
|  | Income tax (expense) benefit |  | 11 |  |  | 18 |  |  |  |  |
|  | Net of tax |  | $ | (99) |  |  | $ | (102) |  |  |  |  |

| Before Tax Amount |  | Tax Expense (Benefit) |  | Net of Tax Amount
Three Months Ended March 31, 2023 |  |  |  |  |
Unrealized appreciation (decline) in value of investments: |  |  |  |  |
Unrealized holding gains (losses) arising during period | $ | 281 |  |  | $ | 36 |  |  | $ | 245 |
Less reclassification of net realized gains (losses) included in net income | (110) |  |  | (11) |  |  | (99) |
Foreign currency translation adjustments | 5 |  |  | — |  |  | 5 |
Other comprehensive income (loss) | $ | 396 |  |  | $ | 47 |  |  | $ | 349 |
Three Months Ended March 31, 2022 |  |  |  |  |
Unrealized appreciation (decline) in value of investments: |  |  |  |  |
Unrealized holding gains (losses) arising during period | $ | (784) |  |  | $ | (100) |  |  | $ | (684) |
Less reclassification of net realized gains (losses) included in net income | (120) |  |  | (18) |  |  | (102) |
Foreign currency translation adjustments | (3) |  |  | — |  |  | (3) |
Other comprehensive income (loss) | $ | (667) |  |  | $ | (82) |  |  | $ | (585) |

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
13. Income Taxes

The Company’s income tax provision on income before income taxes, including income (loss) from operating affiliates, resulted in an effective tax rate of 8.2% for the three months ended March 31, 2023, compared to 5.6% for the three months ended March 31, 2022. The Company’s effective tax rate, which is based upon the expected annual effective tax rate, may fluctuate from period to period based on the relative mix of income or loss reported by jurisdiction and the varying tax rates in each jurisdiction.
The Company had a net deferred tax asset of $450 million at March 31, 2023, compared to a net deferred tax asset of $531 million at December 31, 2022. The change is primarily a result of market value fluctuations in the investment portfolio. In addition, the Company paid $4 million and $9 million of income taxes for the three months ended March 31, 2023 and 2022, respectively.
14. Legal Proceedings

The Company, in common with the insurance industry in general, is subject to litigation and arbitration in the normal course of its business. As of March 31, 2023, the Company was not a party to any litigation or arbitration which is expected by management to have a material adverse effect on the Company’s results of operations and financial condition and liquidity.
15. Transactions with Related Parties

Premia Reinsurance Ltd. is a multi-line Bermuda reinsurance company (and its affiliates together with Premia Holdings Ltd., “Premia”). The Company has entered into certain reinsurance transactions with Premia. For the three months ended March 31, 2023, the Company recorded net premiums written and earned of $75 million, compared to $1 million for the three months ended March 31, 2022. At March 31, 2023, the Company recorded a funds held asset from Premia of $199 million, compared to $119 million at December 31, 2022.
Somers Group Holdings Ltd. and its wholly owned subsidiaries (collectively, “Somers”) are wholly owned by Greysbridge. The Company has entered into certain reinsurance transactions with Somers. For the three months ended March 31, 2023, the Company recorded ceded premiums written related to such transactions of $219 million, compared to $221 million for the three months ended March 31, 2022. In addition, Somers paid certain acquisition costs and administrative fees to the Company. At March 31, 2023, the Company recorded a reinsurance recoverable on unpaid and paid losses from Somers of $1.2 billion and a reinsurance balance payable to Somers of $435 million, compared to $1.2 billion and $414 million, respectively, at December 31, 2022.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our financial condition and results of operations. This should be read in conjunction with our consolidated financial statements included in Item 1 of this report and also our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”). In addition, readers should review “Risk Factors” set forth in Item 1A of Part I of our 2022 Form 10-K and “ITEM 1A—Risk Factors” of this Form 10-Q. All amounts are in millions, except per share amounts, unless otherwise noted.
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 $16.7 billion in capital at March 31, 2023 and, through operations in Bermuda, the United States, Europe, Canada and Australia, writes insurance, reinsurance and mortgage insurance on a worldwide basis.

|  |  | Page No.
Current Outlook |  | 35
Financial Measures |  | 35
Comments on Non-GAAP Measures |  | 36
Results of Operations |  | 38
| Insurance Segment |  | 38
| Reinsurance Segment |  | 40
| Mortgage Segment |  | 41
| Corporate Segment |  | 43
Critical Accounting Policies, Estimates and Recent Accounting Pronouncements |  | 44
Financial Condition |  | 44
Liquidity |  | 50
Capital Resources and Other |  | 50

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CURRENT OUTLOOK

Our objective in 2023 remains the same, to deliver long term value for our shareholders. The 2023 first quarter financial highlights included book value per share growth of 8.4% and an annualized net income and operating return on average common equity of 22.3% and 20.7%, respectively. See “Comment on Non-GAAP Financial Measures.”
Our property casualty underwriting teams continue to lean into attractive market conditions where excellent risk-adjusted returns remain available. The property and casualty environment continues to offer opportunities, as evidenced by the growth in our premiums numbers. A key element of cycle management is to respond aggressively when conditions change. We continue to execute our cycle management strategy by actively allocating capital to the sectors where rates allow for returns that are higher than our cost of capital.
Being an effective underwriting cycle manager means that our underwriters know that they have degrees of freedom in choosing to deploy capital across our diversified, specialty-focused platform. Our belief is that, because we have a wide range of choices to allocate underwriting capital at any time, we can generate more consistent and stable underwriting income over the long run.
In our insurance segment, we continue to take advantage of favorable market conditions. For the past few quarters, property has seen significant rate escalation. The property market is still broadly dislocated, and we believe it will take further rate improvement before it finds equilibrium. General liability rates have picked up again and large account D&O is one of the very few lines that has seen decelerating rates. Overall, the market remains disciplined in its behavior and we continue to obtain rate above trend.
In the reinsurance property market, pricing for January 1 renewals was strong. This was fueled in part by improved pricing and terms and conditions on the primary side. As a result, property catastrophe net premiums written for the 2023 first quarter were nearly double from the 2022 first quarter. From our perspective, the improved conditions at January 1 renewals are a leading indicator as we prepare for the mid-year renewals.
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, helps us somewhat mitigate inflation’s impact.
Our mortgage segment operates on a different cycle than the property and casualty segments, but it remains a significant contributor to earnings, generating $243 million of
underwriting income in the 2023 first quarter. Our mortgage portfolio was shaped with a focus on credit quality and data-driven risk selection as demonstrated by our 1.65% delinquency rate at March 31, 2023, the lowest since March 31, 2020. Our disciplined underwriting approach has produced a portfolio with a favorable risk profile, including higher FICO scores and favorable loan-to-value and debt-to-income ratios.
FINANCIAL MEASURES

Management uses the following three key financial indicators in evaluating our performance and measuring the overall growth in value generated for Arch Capital’s common shareholders:
Book Value per Share
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 $35.35 at March 31, 2023, compared to $32.62 at December 31, 2022, and $32.18 at March 31, 2022. The 8.4% increase in book value per share for the 2023 first quarter reflected strong underwriting and investment results.
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 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 changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings), 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, loss on redemption of preferred shares 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.”

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Our annualized net income return on average common equity was 22.3% for the 2023 first quarter, compared to 6.0% for the 2022 first quarter. Our Operating ROAE was 20.7% for the 2023 first quarter, compared to 13.6% for the 2022 first quarter. The 2023 first quarter annualized net income return reflected strong underwriting and investment results, while the 2022 period reflected strong underwriting results, partially offset by a higher level of net realized losses which included mark-to-market losses on equities.
Total Return on Investments
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 and losses (excluding changes in the allowance for credit losses on non-investment related financial assets) and the change in unrealized gains and 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. The following table summarizes our total return compared to the benchmark return against which we measured our portfolio during the periods. See “Comment on Non-GAAP Financial Measures.”

| Arch Portfolio |  | Benchmark Return
Pre-tax total return (before investment expenses):
2023 First Quarter | 2.54 | % |  | 2.64 | %
2022 First Quarter | (3.07) | % |  | (3.97) | %

Total return for the 2023 first quarter primarily reflected strong returns in our fixed income portfolio which benefited from a slight downward pressure on interest rates during the quarter. We continue to maintain a relatively short duration on our portfolio of 2.89 years at March 31, 2023.
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 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 March 31, 2023, the benchmark return index had an average credit quality of “A1” by Moody’s
Investors Service (“Moody’s”), and an estimated duration of 2.81 years.
The benchmark return index included weightings to the following indices:

| %
ICE BofA 1-10 Year U.S. Corporate Index | 28.50 |
Alternatives - Yield on 3-5 Year U.S. Treasury Index plus 6% | 16.50 |
ICE BofA 1-10 Year U.S. Treasury Index | 15.75 |
ICE BofA U.S. High Yield Constrained Index | 8.00 |
ICE BofA 1-5 Year U.K. Gilt Index | 5.50 |
JPM CLOIE Investment Grade | 4.50 |
ICE BofA German Government 1-10 Year Index | 4.00 |
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 | 2.50 |
ICE BofA 1-5 Year Australia Government Index | 2.50 |
ICE BofA U.S. Mortgage Backed Securities Index | 1.50 |
ICE BofA 15+ Year Canada Government Index | 0.50 |
ICE BofA 1-5 Year Japan Government Index | 0.25 |
Total | 100.00 | %

COMMENT ON NON-GAAP FINANCIAL MEASURES

Throughout this filing, we present our operations in the way we believe will be the most meaningful and useful to investors, analysts, rating agencies and others who use our financial information in evaluating the performance of our company. 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 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 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.
We believe that net realized gains or losses, 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 in any particular period are not indicative of the performance, of or trends, in our business.

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Although net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of our operations, the decision to realize these items, are independent of the insurance underwriting process and result, in large part, from general economic and financial market conditions. Furthermore, certain users of our financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. In addition, changes in the allowance for credit losses and net impairment losses recognized in earnings on our investments represent other-than-temporary declines in expected recovery values on securities without actual realization.
The use of the equity method on certain of our investments is driven by the ownership structure of such funds (either limited partnerships or limited liability companies). In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on our proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). This method of accounting is different from the way we account for our other investments and the timing of the recognition of equity in net income or loss of investment funds accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments.
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.
Due to these reasons, we exclude net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other from the calculation of after-tax operating income available to Arch common shareholders.
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 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.
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. While these measures are presented in note 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 in note 4, “Segment Information” to our consolidated financial statements.
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 intangibles and, accordingly, investment income and other non-underwriting related items are not allocated to each underwriting segment.
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. This ratio is a non-GAAP financial measure as defined in Regulation G. The reconciliation of such measure to the loss ratio (the most directly comparable GAAP financial measure) in accordance with Regulation G is shown on the individual segment pages. Management utilizes the current year loss ratio in its analysis of the underwriting performance of each of our underwriting segments.
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 and losses (excluding changes in the allowance for credit losses on non-investment related financial assets) and the change in unrealized gains and 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

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investment portfolio against benchmark returns during the periods.
RESULTS OF OPERATIONS

The following table summarizes our consolidated financial data, including a reconciliation of net income or loss available to Arch common shareholders to after-tax operating income or loss available to Arch common shareholders. See “Comment on Non-GAAP Financial Measures.”

| Three Months Ended |  |
| March 31, |  |
| 2023 |  | 2022 |  |  |  |
Net income available to Arch common shareholders | $ | 705 |  |  | $ | 186 |  |  |  |  |
Net realized (gains) losses | (17) |  |  | 292 |  |  |  |  |
Equity in net (income) loss of investment funds accounted for using the equity method | (48) |  |  | (36) |  |  |  |  |
Net foreign exchange (gains) losses | 18 |  |  | (4) |  |  |  |  |
Transaction costs and other | (1) |  |  | — |  |  |  |  |
Income tax expense (benefit) (1) | (3) |  |  | (16) |  |  |  |  |
After-tax operating income available to Arch common shareholders | $ | 654 |  |  | $ | 422 |  |  |  |  |
Beginning common shareholders’ equity | $ | 12,080 |  |  | $ | 12,716 |  |  |  |  |
Ending common shareholders’ equity | 13,158 |  |  | 12,090 |  |  |  |  |
Average common shareholders’ equity | $ | 12,619 |  |  | $ | 12,403 |  |  |  |  |
Annualized net income return on average common equity % | 22.3 |  |  | 6.0 |  |  |  |  |
Annualized operating return on average common equity % | 20.7 |  |  | 13.6 |  |  |  |  |

(1) Income tax expense on net realized gains or losses, equity in net income or loss of investment funds 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.
Segment Information
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, the Chief Financial Officer and Treasurer and the President and Chief Underwriting Officer are the Company’s chief operating decision makers. They do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures 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 is not allocated to each underwriting segment.
We determined our reportable segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and
related information. The accounting policies of the segments are the same as those used for the preparation of our consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.
Insurance Segment
The following tables set forth our insurance segment’s underwriting results:

| Three Months Ended March 31,
| 2023 |  | 2022 |  | % Change
Gross premiums written | $ | 1,979 |  |  | $ | 1,720 |  |  | 15.1 |
Premiums ceded | (542) |  |  | (513) |  |  |
Net premiums written | 1,437 |  |  | 1,207 |  |  | 19.1 |
Change in unearned premiums | (180) |  |  | (180) |  |  |
Net premiums earned | 1,257 |  |  | 1,027 |  |  | 22.4 |
Losses and loss adjustment expenses | (703) |  |  | (601) |  |  |
Acquisition expenses | (245) |  |  | (196) |  |  |
Other operating expenses | (195) |  |  | (167) |  |  |
Underwriting income (loss) | $ | 114 |  |  | $ | 63 |  |  | 81.0 |
Underwriting Ratios |  |  |  |  | % Point Change
Loss ratio | 55.9 | % |  | 58.5 | % |  | (2.6) |
Acquisition expense ratio | 19.5 | % |  | 19.1 | % |  | 0.4 |
Other operating expense ratio | 15.5 | % |  | 16.2 | % |  | (0.7) |
Combined ratio | 90.9 | % |  | 93.8 | % |  | (2.9) |

The insurance segment consists of our insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:
Construction and national accounts: primary and excess casualty coverages for middle market and large construction accounts, a comprehensive range of products for middle market accounts in specialty industries and casualty solutions for large national accounts, including loss sensitive primary insurance programs (large deductible, self-insured retention and retrospectively rated programs).
Excess and surplus casualty: primary and excess casualty insurance coverages written on a non-admitted basis.
Professional lines: directors’ and officers’ liability, errors and omissions liability, employment practices liability, fiduciary liability, crime, professional indemnity and other financial related coverages for corporate, private equity, venture capital, real estate investment trust, limited partnership, financial institution and not-for-profit clients of all sizes, cyber insurance, and medical professional and general liability insurance coverages for the healthcare industry. The business is predominately written on a claims-made basis.

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Programs: primarily targeting program managers with unique expertise and niche products offering some combination of general liability, commercial automobile, property, inland marine, umbrella and workers’ compensation.
Property, energy, marine and aviation: primary and excess general property insurance coverages, including catastrophe-exposed property coverage, for commercial clients. Coverages for marine include hull, cargo, war, specie and liability. Aviation, stand-alone terrorism and political risks are also offered. Coverage may be provided for operational and construction risk.
Travel, accident and health: specialty travel and accident and related insurance products for individual, group travelers, travel agents and suppliers, as well as accident and health, which provides accident, disability and medical plan insurance coverages for employer groups, medical plan members, students and other participant groups.
Warranty and lenders solutions: collateral protection, debt cancellation and service contract reimbursement products to banks, credit unions, automotive dealerships and original equipment manufacturers and other specialty programs that pertain to automotive lending and leasing.
Other: includes alternative market risks (including captive insurance programs), excess workers’ compensation and employer’s liability insurance coverages for qualified self-insured groups, associations and trusts, and contract, commercial and transactional surety coverages.
Premiums Written.
The following tables set forth our insurance segment’s net premiums written by major line of business:

| Three Months Ended March 31, |  |
| 2023 |  | 2022 |  |  |  |
| Amount |  | % |  | Amount |  | % |  |  |  |  |  |  |  |
Professional lines | $ | 328 |  |  | 22.8 |  |  | $ | 348 |  |  | 28.8 |  |  |  |  |  |  |  |  |
Property, energy, marine and aviation | 275 |  |  | 19.1 |  |  | 201 |  |  | 16.7 |  |  |  |  |  |  |  |  |
Travel, accident and health | 180 |  |  | 12.5 |  |  | 165 |  |  | 13.7 |  |  |  |  |  |  |  |  |
Construction and national accounts | 173 |  |  | 12.0 |  |  | 136 |  |  | 11.3 |  |  |  |  |  |  |  |  |
Programs | 141 |  |  | 9.8 |  |  | 129 |  |  | 10.7 |  |  |  |  |  |  |  |  |
Excess and surplus casualty | 131 |  |  | 9.1 |  |  | 100 |  |  | 8.3 |  |  |  |  |  |  |  |  |
Warranty and lenders solutions | 89 |  |  | 6.2 |  |  | 25 |  |  | 2.1 |  |  |  |  |  |  |  |  |
Other | 120 |  |  | 8.4 |  |  | 103 |  |  | 8.5 |  |  |  |  |  |  |  |  |
Total | $ | 1,437 |  |  | 100.0 |  |  | $ | 1,207 |  |  | 100.0 |  |  |  |  |  |  |  |  |

2023 First Quarter versus 2022 Period. Gross premiums written by the insurance segment in the 2023 first quarter were 15.1% higher than in the 2022 first quarter, while net premiums written were 19.1% higher. The higher level of net premiums written reflected increases in most lines of
business, due in part to new business opportunities, growth in existing accounts and rate increases. In addition, the insurance segment retained more business in the 2023 first quarter due to ongoing changes to its reinsurance programs and was impacted by changes in the mix of business.
Net Premiums Earned.
The following tables set forth our insurance segment’s net premiums earned by major line of business:

| Three Months Ended March 31, |  |
| 2023 |  | 2022 |  |  |  |
| Amount |  | % |  | Amount |  | % |  |  |  |  |  |  |  |
Professional lines | $ | 349 |  |  | 27.8 |  |  | $ | 290 |  |  | 28.2 |  |  |  |  |  |  |  |  |
Property, energy, marine and aviation | 227 |  |  | 18.1 |  |  | 174 |  |  | 16.9 |  |  |  |  |  |  |  |  |
Travel, accident and health | 128 |  |  | 10.2 |  |  | 105 |  |  | 10.2 |  |  |  |  |  |  |  |  |
Construction and national accounts | 126 |  |  | 10.0 |  |  | 97 |  |  | 9.4 |  |  |  |  |  |  |  |  |
Programs | 144 |  |  | 11.5 |  |  | 140 |  |  | 13.6 |  |  |  |  |  |  |  |  |
Excess and surplus casualty | 111 |  |  | 8.8 |  |  | 91 |  |  | 8.9 |  |  |  |  |  |  |  |  |
Warranty and lenders solutions | 50 |  |  | 4.0 |  |  | 31 |  |  | 3.0 |  |  |  |  |  |  |  |  |
Other | 122 |  |  | 9.7 |  |  | 99 |  |  | 9.6 |  |  |  |  |  |  |  |  |
Total | $ | 1,257 |  |  | 100.0 |  |  | $ | 1,027 |  |  | 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 reflect changes in net premiums written over the previous five quarters. For the 2023 first quarter, net premiums earned were 22.4% higher than in the 2022 first quarter.
Losses and Loss Adjustment Expenses.
The table below shows the components of the insurance segment’s loss ratio:

| Three Months Ended |  |
| March 31, |  |
| 2023 |  | 2022 |  |  |  |
Current year | 56.8 | % |  | 59.2 | % |  |  |  |
Prior period reserve development | (0.9) | % |  | (0.7) | % |  |  |  |
Loss ratio | 55.9 | % |  | 58.5 | % |  |  |  |

Current Year Loss Ratio.
2023 First Quarter versus 2022 Period. The insurance segment’s current year loss ratio in the 2023 first quarter was 2.4 points lower than in the 2022 first quarter. The 2023 first quarter loss ratio reflected 1.4 points of current year catastrophic activity, spread across a series of global events, compared to 3.1 points of catastrophic activity for the 2022 first quarter, primarily related to Russia’s invasion of Ukraine and other natural catastrophes occurring in the 2022 first quarter.

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Prior Period Reserve Development.
The insurance segment’s net favorable development was $12 million, or 0.9 points, for the 2023 first quarter, compared to $7 million, or 0.7 points, for the 2022 first quarter. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements for information about the insurance segment’s prior year reserve development.
Underwriting Expenses.
2023 First Quarter versus 2022 Period. The insurance segment’s underwriting expense ratio was 35.0% in the 2023 first quarter, compared to 35.3% in the 2022 first quarter, with the decrease primarily due to growth in net premiums earned.
Reinsurance Segment
The following tables set forth our reinsurance segment’s underwriting results:

| Three Months Ended March 31,
| 2023 |  | 2022 |  | % Change
Gross premiums written | $ | 2,460 |  |  | $ | 1,719 |  |  | 43.1 |
Premiums ceded | (734) |  |  | (580) |  |  |
Net premiums written | 1,726 |  |  | 1,139 |  |  | 51.5 |
Change in unearned premiums | (396) |  |  | (335) |  |  |
Net premiums earned | 1,330 |  |  | 804 |  |  | 65.4 |
Other underwriting income (loss) | 4 |  |  | 1 |  |  |
Losses and loss adjustment expenses | (766) |  |  | (454) |  |  |
Acquisition expenses | (281) |  |  | (172) |  |  |
Other operating expenses | (74) |  |  | (70) |  |  |
Underwriting income (loss) | $ | 213 |  |  | $ | 109 |  |  | 95.4 |
Underwriting Ratios |  |  |  |  | % Point Change
Loss ratio | 57.6 | % |  | 56.5 | % |  | 1.1 |
Acquisition expense ratio | 21.1 | % |  | 21.4 | % |  | (0.3) |
Other operating expense ratio | 5.6 | % |  | 8.7 | % |  | (3.1) |
Combined ratio | 84.3 | % |  | 86.6 | % |  | (2.3) |

The reinsurance segment consists of our reinsurance underwriting units which offer specialty product lines on a worldwide basis. Reinsurance agreements are typically offered on a proportional and/or excess of loss basis and provide coverage to ceding company clients for specific underlying written policies. Product lines include:
Casualty: provides coverage on third party liability exposures including, among others, executive assurance, professional liability, excess and umbrella liability, excess motor and healthcare business, and workers’ compensation. Business is assumed primarily on a treaty basis, with some facultative coverages also offered.
Marine and aviation: provides coverage for energy, hull, cargo, specie, liability and transit, and aviation business, including airline and general aviation risks. Business written may also include space business, which includes coverages for satellite assembly, launch and operation for commercial space programs.
Other specialty: provides coverage for proportional motor reinsurance, whole account multi-line treaties, cyber, trade credit and surety, accident and health, workers’ compensation catastrophe, agriculture and political risk, among others.
Property catastrophe: provides protection for most types of catastrophic losses, including hurricane, earthquake, flood, tornado, hail and fire, and for other perils on a case-by-case basis. Excess of loss coverages are triggered when aggregate losses and loss adjustment expense from a single occurrence or aggregation of losses from a covered peril exceed the retention specified in the contract.
Property excluding property catastrophe: provides coverage for personal lines and/or commercial property exposures and principally covers buildings, structures, equipment and contents. The primary perils in this business include fire, explosion, collapse, riot, vandalism, wind, tornado, flood and earthquake. Business is assumed on either a treaty basis or facultative basis.
Other: includes life reinsurance business, casualty clash business and, in limited instances, non-traditional business which is intended to provide insurers with risk management solutions that complement traditional reinsurance.
Premiums Written.
The following tables set forth our reinsurance segment’s net premiums written by major line of business:

| Three Months Ended March 31, |  |
| 2023 |  | 2022 |  |  |  |
| Amount |  | % |  | Amount |  | % |  |  |  |  |  |  |  |
Other specialty | $ | 619 |  |  | 35.9 |  |  | $ | 364 |  |  | 32.0 |  |  |  |  |  |  |  |  |
Property excluding property catastrophe | 446 |  |  | 25.8 |  |  | 295 |  |  | 25.9 |  |  |  |  |  |  |  |  |
Casualty | 283 |  |  | 16.4 |  |  | 266 |  |  | 23.4 |  |  |  |  |  |  |  |  |
Property catastrophe | 257 |  |  | 14.9 |  |  | 129 |  |  | 11.3 |  |  |  |  |  |  |  |  |
Marine and aviation | 99 |  |  | 5.7 |  |  | 52 |  |  | 4.6 |  |  |  |  |  |  |  |  |
Other | 22 |  |  | 1.3 |  |  | 33 |  |  | 2.9 |  |  |  |  |  |  |  |  |
Total | $ | 1,726 |  |  | 100.0 |  |  | $ | 1,139 |  |  | 100.0 |  |  |  |  |  |  |  |  |

2023 First Quarter versus 2022 Period. Gross premiums written by the reinsurance segment in the 2023 first quarter were 43.1% higher than in the 2022 first quarter, while net premiums written were 51.5% higher. Growth in net premiums written reflected increases in most lines of business, due in part to rate increases, new business opportunities and growth in existing accounts. In addition, the reinsurance segment retained more business in the 2023

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first quarter due to a lower level of retrocession activity than in the 2022 first quarter and was impacted by changes in the mix of business.
Net Premiums Earned.
The following tables set forth our reinsurance segment’s net premiums earned by major line of business:

| Three Months Ended March 31, |  |
| 2023 |  | 2022 |  |  |  |
| Amount |  | % |  | Amount |  | % |  |  |  |  |  |  |  |
Other specialty | $ | 511 |  |  | 38.4 |  |  | $ | 232 |  |  | 28.9 |  |  |  |  |  |  |  |  |
Property excluding property catastrophe | 354 |  |  | 26.6 |  |  | 232 |  |  | 28.9 |  |  |  |  |  |  |  |  |
Casualty | 253 |  |  | 19.0 |  |  | 198 |  |  | 24.6 |  |  |  |  |  |  |  |  |
Property catastrophe | 139 |  |  | 10.5 |  |  | 77 |  |  | 9.6 |  |  |  |  |  |  |  |  |
Marine and aviation | 51 |  |  | 3.8 |  |  | 42 |  |  | 5.2 |  |  |  |  |  |  |  |  |
Other | 22 |  |  | 1.7 |  |  | 23 |  |  | 2.9 |  |  |  |  |  |  |  |  |
Total | $ | 1,330 |  |  | 100.0 |  |  | $ | 804 |  |  | 100.0 |  |  |  |  |  |  |  |  |

Net premiums written, irrespective of the class of business, are generally earned on a pro rata basis over the terms of the underlying policies or reinsurance contracts. Net premiums earned by the reinsurance segment in the 2023 first quarter were 65.4% higher than in the 2022 first quarter, and reflect changes in net premiums written over the previous five quarters.
Other Underwriting Income (Loss).
Other underwriting income for the 2023 first quarter was $4 million, compared to $1 million for the 2022 first quarter.
Losses and Loss Adjustment Expenses.
The table below shows the components of the reinsurance segment’s loss ratio:

| Three Months Ended |  |
| March 31, |  |
| 2023 |  | 2022 |  |  |  |
Current year | 61.6 | % |  | 60.5 | % |  |  |  |
Prior period reserve development | (4.0) | % |  | (4.0) | % |  |  |  |
Loss ratio | 57.6 | % |  | 56.5 | % |  |  |  |

Current Year Loss Ratio.
2023 First Quarter versus 2022 Period. The reinsurance segment’s current year loss ratio in the 2023 first quarter was 1.1 points higher than in the 2022 first quarter. The 2023 first quarter loss ratio reflected 5.4 points of current year catastrophic activity spread across a series of global events. The 2022 first quarter included 6.5 points of catastrophic activity, primarily related to Russia’s invasion of Ukraine. In addition, the 2023 first quarter loss ratio reflected the impact of rate increases and changes in mix of business compared to the 2022 first quarter.
Prior Period Reserve Development.
The reinsurance segment’s net favorable development was $53 million, or 4.0 points, for the 2023 first quarter, compared to $32 million, or 4.0 points, for the 2022 first quarter. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements for information about the reinsurance segment’s prior year reserve development.
Underwriting Expenses.
2023 First Quarter versus 2022 Period. The underwriting expense ratio for the reinsurance segment was 26.7% in the 2023 first quarter, compared to 30.1% in the 2022 first quarter, with the decrease primarily due to growth in net premiums earned.
Mortgage Segment
Our mortgage operations include U.S. and international mortgage insurance and reinsurance operations as well as participation in GSE credit risk-sharing transactions.
The following tables set forth our mortgage segment’s underwriting results:

| Three Months Ended March 31,
| 2023 |  | 2022 |  | % Change
Gross premiums written | $ | 343 |  |  | $ | 365 |  |  | (6.0) |
Premiums ceded | (82) |  |  | (77) |  |  |
Net premiums written | 261 |  |  | 288 |  |  | (9.4) |
Change in unearned premiums | 35 |  |  | 2 |  |  |
Net premiums earned | 296 |  |  | 290 |  |  | 2.1 |
Other underwriting income | 6 |  |  | 5 |  |  |
Losses and loss adjustment expenses | (2) |  |  | 54 |  |  |
Acquisition expenses | (7) |  |  | (10) |  |  |
Other operating expenses | (50) |  |  | (53) |  |  |
Underwriting income | $ | 243 |  |  | $ | 286 |  |  | (15.0) |
Underwriting Ratios |  |  |  |  | % Point Change
Loss ratio | 0.6 | % |  | (18.9) | % |  | 19.5 |
Acquisition expense ratio | 2.5 | % |  | 3.6 | % |  | (1.1) |
Other operating expense ratio | 16.9 | % |  | 18.4 | % |  | (1.5) |
Combined ratio | 20.0 | % |  | 3.1 | % |  | 16.9 |

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Premiums Written.
The following tables set forth our mortgage segment’s net premiums written by underwriting location:

| Three Months Ended March 31, |  |
| 2023 |  | 2022 |  |  |  |
| Amount |  | % |  | Amount |  | % |  |  |  |  |  |  |  |
Underwriting location: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
United States | $ | 188 |  |  | 72.0 |  |  | $ | 201 |  |  | 69.8 |  |  |  |  |  |  |  |  |
Other | 73 |  |  | 28.0 |  |  | 87 |  |  | 30.2 |  |  |  |  |  |  |  |  |
Total | $ | 261 |  |  | 100.0 |  |  | $ | 288 |  |  | 100.0 |  |  |  |  |  |  |  |  |

2023 First Quarter versus 2022 Period. Gross premiums written by the mortgage segment in the 2023 first quarter were 6.0% lower than in the 2022 first quarter, while net premiums written were 9.4% lower. The decrease in gross premiums written primarily reflected lower originations in the Australian market and a reduction in U.S. primary mortgage insurance single premium business, which was partially offset by a higher volume of credit risk transfer transactions. Net premiums written for the 2023 first quarter reflected a higher level of ceded premiums through quota share reinsurance agreements than in the 2022 first quarter.
The persistency rate, which 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, was 81.7% for the Arch MI U.S. portfolio of mortgage insurance policies at March 31, 2023, reflecting a lower level of mortgage refinancing activity, compared to 66.9% at March 31, 2022.
The following tables provide details on the new insurance written (“NIW”) generated by Arch MI U.S. NIW represents the original principal balance of all loans that received coverage during the period.

| Three Months Ended March 31, |  |
2023 |  | 2022 |  |
| Amount |  | % |  | Amount |  | % |  |  |  |
Total new insurance written (NIW) (1) | $ | 10,394 |  |  |  |  | $ | 20,015 |  |  |  |  |  |  |
Credit quality (FICO): |  |  |  |  |  |  |  |  |  |  |
>=740 | $ | 6,672 |  |  | 64.2 |  |  | $ | 13,152 |  |  | 65.7 |  |  |  |  |
680-739 | 3,490 |  |  | 33.6 |  |  | 6,254 |  |  | 31.2 |  |  |  |  |
620-679 | 229 |  |  | 2.2 |  |  | 606 |  |  | 3.0 |  |  |  |  |
<620 | 3 |  |  | 0.0 |  |  | 3 |  |  | 0.0 |  |  |  |  |
Total | $ | 10,394 |  |  | 100.0 |  |  | $ | 20,015 |  |  | 100.0 |  |  |  |  |
Loan-to-value (LTV): |  |  |  |  |  |  |  |  |  |  |
95.01% and above | $ | 519 |  |  | 5.0 |  |  | $ | 1,096 |  |  | 5.5 |  |  |  |  |
90.01% to 95.00% | 6,043 |  |  | 58.1 |  |  | 10,778 |  |  | 53.8 |  |  |  |  |
85.01% to 90.00% | 2,772 |  |  | 26.7 |  |  | 5,733 |  |  | 28.6 |  |  |  |  |
85.00% and below | 1,060 |  |  | 10.2 |  |  | 2,408 |  |  | 12.0 |  |  |  |  |
Total | $ | 10,394 |  |  | 100.0 |  |  | $ | 20,015 |  |  | 100.0 |  |  |  |  |
Monthly vs. single: |  |  |  |  |  |  |  |  |  |  |
Monthly | $ | 10,106 |  |  | 97.2 |  |  | $ | 19,201 |  |  | 95.9 |  |  |  |  |
Single | 288 |  |  | 2.8 |  |  | 814 |  |  | 4.1 |  |  |  |  |
Total | $ | 10,394 |  |  | 100.0 |  |  | $ | 20,015 |  |  | 100.0 |  |  |  |  |
Purchase vs. refinance: |  |  |  |  |  |  |  |  |  |  |
Purchase | $ | 10,201 |  |  | 98.1 |  |  | $ | 19,157 |  |  | 95.7 |  |  |  |  |
Refinance | 193 |  |  | 1.9 |  |  | 858 |  |  | 4.3 |  |  |  |  |
Total | $ | 10,394 |  |  | 100.0 |  |  | $ | 20,015 |  |  | 100.0 |  |  |  |  |

(1)Represents the original principal balance of all loans that received coverage during the period.
Net Premiums Earned.
The following tables set forth our mortgage segment’s net premiums earned by underwriting location:

| Three Months Ended March 31, |  |
| 2023 |  | 2022 |  |  |  |
| Amount |  | % |  | Amount |  | % |  |  |  |  |  |  |  |
Underwriting location: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
United States | $ | 197 |  |  | 66.6 |  |  | $ | 210 |  |  | 72.4 |  |  |  |  |  |  |  |  |
Other | 99 |  |  | 33.4 |  |  | 80 |  |  | 27.6 |  |  |  |  |  |  |  |  |
Total | $ | 296 |  |  | 100.0 |  |  | $ | 290 |  |  | 100.0 |  |  |  |  |  |  |  |  |

2023 First Quarter versus 2022 Period. Net premiums earned for the 2023 first quarter were 2.1% higher than in the 2022 first quarter, primarily due to growth in credit risk transfer and international business, which was partially offset by higher ceded premiums and lower single premium policy terminations on U.S. primary mortgage insurance.
Other Underwriting Income (Loss).
Other underwriting income, which is primarily related to GSE credit risk-sharing transactions and our whole mortgage loan purchase and sell program was $6 million for the 2023 first quarter, compared to $5 million for the 2022 first quarter.

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Losses and Loss Adjustment Expenses.
The table below shows the components of the mortgage segment’s loss ratio:

| Three Months Ended |  |
| March 31, |  |
| 2023 |  | 2022 |  |  |  |
Current year | 24.5 | % |  | 16.4 | % |  |  |  |
Prior period reserve development | (23.9) | % |  | (35.3) | % |  |  |  |
Loss ratio | 0.6 | % |  | (18.9) | % |  |  |  |

Current Year Loss Ratio.
2023 First Quarter versus 2022 Period. The mortgage segment’s current year loss ratio was 8.1 points higher in the 2023 first quarter than in the 2022 first quarter. The higher current year loss ratio for the 2023 first quarter reflected higher delinquencies and an increase in reserves due to higher estimated claim rates.
Prior Period Reserve Development.
The mortgage segment’s net favorable development was $71 million, or 23.9 points, for the 2023 first quarter, compared to $102 million, or 35.3 points, for the 2022 first quarter. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements for information about the mortgage segment’s prior year reserve development.
Underwriting Expenses.
2023 First Quarter versus 2022 Period. The underwriting expense ratio for the mortgage segment was 19.4% in the 2023 first quarter, compared to 22.0% in the 2022 first quarter, with the decrease reflecting lower operating expenses due to lower headcount, and higher profit commissions on business ceded related to favorable development of prior year loss reserves.
Corporate Segment
The corporate segment results include net investment income, 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 and losses on derivative instruments and changes in the allowance for credit losses on financial assets), equity in net income or loss of investments accounted for using the equity method, other income or loss, corporate expenses, transaction costs and other, amortization of intangible assets, interest expense, net foreign exchange gains or losses, income taxes, income from operating affiliates and items related to our non-cumulative preferred shares.
Net Investment Income.
The components of net investment income were derived from the following sources:

| Three Months Ended |  |
| March 31, |  |
| 2023 |  | 2022 |  |  |  |
Fixed maturities | $ | 188 |  |  | $ | 82 |  |  |  |  |
Equity securities | 4 |  |  | 6 |  |  |  |  |
Short-term investments | 14 |  |  | 3 |  |  |  |  |
Other (1) | 13 |  |  | 12 |  |  |  |  |
Gross investment income | 219 |  |  | 103 |  |  |  |  |
Investment expenses (2) | (20) |  |  | (23) |  |  |  |  |
Net investment income | $ | 199 |  |  | $ | 80 |  |  |  |  |

(1) Amounts include dividends and other distributions on investment funds, term loan investments, funds held balances, cash balances and other items.
(2) Investment expenses were approximately 0.26% of average invested assets for the 2023 first quarter, compared to 0.35% for the 2022 first quarter.
The higher level of net investment income for the 2023 first quarter was primarily related to higher yields available in the financial market. The pre-tax investment income yield, calculated based on amortized cost and on an annualized basis, was 3.03% for the 2023 first quarter, compared to 1.34% for the 2022 first quarter.
Corporate Expenses.
Corporate expenses were $29 million for the 2023 first quarter, compared to $32 million for the 2022 first quarter. The decrease in corporate expenses was primarily due to lower incentive compensation costs.
Other Income (Losses).
Other income for the 2023 first quarter was $11 million, compared to a loss of $9 million for the 2022 first quarter. Amounts in both periods primarily reflect changes in the cash surrender value of our investment in corporate-owned life insurance.
Amortization of Intangible Assets.
Amortization of intangible assets for the 2023 first quarter was $23 million, compared to $27 million for the 2022 first quarter. Amounts in 2023 and 2022 period primarily attributed to amortization of finite-lived intangible assets.
Interest Expense.
Interest expense was $32 million for the 2023 first quarter, compared to the $33 million for the 2022 first quarter. Interest expense primarily reflects amounts related to our outstanding senior notes.

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Net Realized Gains or Losses.
We recorded net realized gains of $17 million for the 2023 first quarter, compared to net realized losses of $292 million for the 2022 first quarter. Amounts in the 2022 period included mark-to-market losses on equity securities. Currently, our portfolio is actively managed to maximize total return within certain guidelines. The effect of financial market movements on the investment portfolio will directly impact net realized gains and losses as the portfolio is adjusted and rebalanced. 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.
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 7, “Investment Information—Net Realized Gains (Losses)” and note 7, “Investment Information—Allowance for Expected Credit Losses,” to our consolidated financial statements for additional information.
Equity in Net Income or Losses of Investment Funds Accounted for Using the Equity Method.
Equity in net income of investment funds accounted for using the equity method was $48 million in the 2023 first quarter, compared to $36 million for the 2022 first quarter. Such investments are generally recorded on a one to three month lag based on the availability of reports from the investment funds. Investment funds accounted for using the equity method totaled $3.9 billion at March 31, 2023, compared to $3.8 billion at December 31, 2022. See note 7, “Investment Information—Investments Accounted For Using the Equity Method,” to our consolidated financial statements for additional information.
Net Foreign Exchange Gains or Losses.
Net foreign exchange losses for the 2023 first quarter were $18 million, compared to net foreign exchange gains for the 2022 first quarter of $4 million. Amounts in both 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 or loss before income taxes, including income or loss from operating affiliates, resulted in an expense of 8.2% for the three months ended March 31, 2023, compared to 5.6% for the 2022 period. See note 13, “Income Taxes” to our consolidated financial statements for additional information.
Income or Losses from Operating Affiliates.
Income from operating affiliates for 2023 first quarter was $39 million, compared to $25 million for the 2022 first quarter. See note 7, “Investment Information—Investments in Operating Affiliates,” to our consolidated financial statements for additional information.
CRITICAL ACCOUNTING POLICIES,
ESTIMATES AND RECENT ACCOUNTING PRONOUNCEMENTS

Critical accounting policies, estimates and recent accounting pronouncements are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2022 Form 10-K, updated where applicable in the notes accompanying our consolidated financial statements, including note 1, “Basis of Presentation and Recent Accounting Pronouncements.”
FINANCIAL CONDITION

Investable Assets Held by Arch
At March 31, 2023, approximately $19.9 billion, or 68%, of total investable assets held by Arch were internally managed, compared to $18.8 billion, or 67%, at December 31, 2022. See note 7, “Investment Information” to our consolidated financial statements for additional information.

| March 31, 2023, |  | December 31, 2022 |  |
Average effective duration (in years) | 2.89 |  |  | 2.89 |  |  |
Average S&P/Moody’s credit ratings (1) | AA-/Aa3 |  | AA-/Aa3 |  |

(1)Average credit ratings on our investment portfolio on securities with ratings assigned by Standard & Poor’s Rating Services (“S&P”) and Moody’s Investors Service (“Moody’s”).

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The following table provides the credit quality distribution of our fixed maturities. For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.

| Estimated Fair Value |  | % of Total
March 31, 2023 |  |  |
U.S. government and gov’t agencies (1) | $ | 5,274 |  |  | 24.7 |
AAA | 3,826 |  |  | 17.9 |
AA | 2,136 |  |  | 10.0 |
A | 4,540 |  |  | 21.3 |
BBB | 3,875 |  |  | 18.2 |
BB | 711 |  |  | 3.3 |
B | 384 |  |  | 1.8 |
Lower than B | 18 |  |  | 0.1 |
Not rated | 559 |  |  | 2.6 |
Total | $ | 21,323 |  |  | 100.0 |
December 31, 2022 |  |  |
U.S. government and gov’t agencies (1) | $ | 5,831 |  |  | 28.8 |
AAA | 3,617 |  |  | 17.9 |
AA | 2,214 |  |  | 10.9 |
A | 3,993 |  |  | 19.7 |
BBB | 3,324 |  |  | 16.4 |
BB | 560 |  |  | 2.8 |
B | 377 |  |  | 1.9 |
Lower than B | 12 |  |  | 0.1 |
Not rated | 309 |  |  | 1.5 |
Total | $ | 20,237 |  |  | 100.0 |

(1)Includes U.S. government-sponsored agency residential mortgage-backed securities and agency commercial mortgage-backed securities.
The following table provides information on the severity of the unrealized loss position as a percentage of amortized cost for all fixed maturities which were in an unrealized loss position:

Severity of gross unrealized losses: | Estimated Fair Value |  | Gross Unrealized Losses |  | % of Total Gross Unrealized Losses
March 31, 2023 |  |  |  |  |
0-10% | $ | 12,393 |  |  | $ | (587) |  |  | 45.3 |
10-20% | 4,094 |  |  | (646) |  |  | 49.8 |
20-30% | 140 |  |  | (43) |  |  | 3.3 |
Greater than 30% | 39 |  |  | (21) |  |  | 1.6 |
Total | $ | 16,666 |  |  | $ | (1,297) |  |  | 100.0 |
December 31, 2022 |  |  |  |  |
0-10% | $ | 12,343 |  |  | $ | (580) |  |  | 35.2 |
10-20% | 5,331 |  |  | (844) |  |  | 51.2 |
20-30% | 692 |  |  | (199) |  |  | 12.1 |
Greater than 30% | 44 |  |  | (24) |  |  | 1.5 |
Total | $ | 18,410 |  |  | $ | (1,647) |  |  | 100.0 |

The following table summarizes our top ten exposures to fixed income corporate issuers by fair value at March 31, 2023, excluding guaranteed amounts and covered bonds:

| Estimated Fair Value |  | Credit Rating (1)
Bank of America Corporation | $ | 427 |  |  | A-/A2
JPMorgan Chase & Co. | 313 |  |  | A-/A1
Morgan Stanley | 290 |  |  | A-/A1
Citigroup Inc. | 269 |  |  | BBB+/A3
The Goldman Sachs Group, Inc. | 248 |  |  | BBB+/A2
Wells Fargo & Company | 182 |  |  | BBB+/A1
Blue Owl Capital Inc. | 166 |  |  | BBB-/Baa3
HSBC Holdings plc | 163 |  |  | A-/A2
Blackstone Inc. | 146 |  |  | BBB-/Baa3
Deere & Company | 132 |  |  | A/A2
Total | $ | 2,336 |  |  |

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

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The following table provides information on our structured securities, which includes residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”):

| Agencies |  | Investment Grade |  | Below Investment Grade |  | Total
March 31, 2023 |  |  |  |  |  |
RMBS | $ | 686 |  |  | $ | 136 |  |  | $ | 1 |  |  | $ | 823 |
CMBS | 17 |  |  | 942 |  |  | 76 |  |  | 1,035 |
ABS | — |  |  | 2,127 |  |  | 236 |  |  | 2,363 |
Total | $ | 703 |  |  | $ | 3,205 |  |  | $ | 313 |  |  | $ | 4,221 |
December 31, 2022 |  |  |  |  |  |  |
RMBS | $ | 645 |  |  | $ | 134 |  |  | $ | 16 |  |  | $ | 795 |
CMBS | 18 |  |  | 947 |  |  | 82 |  |  | 1,047 |
ABS | — |  |  | 1,788 |  |  | 141 |  |  | 1,929 |
Total | $ | 663 |  |  | $ | 2,869 |  |  | $ | 239 |  |  | $ | 3,771 |

The following table summarizes our equity securities, which include investments in exchange traded funds:

| March 31, 2023 |  | December 31, 2022
Equities (1) | $ | 554 |  |  | $ | 570 |
Exchange traded funds |  |  |
Fixed income (2) | 276 |  |  | 272 |
Equity and other (3) | 36 |  |  | 32 |
Total | $ | 866 |  |  | $ | 874 |

(1)Primarily in consumer non-cyclical, technology, communications and financial at March 31, 2023.
(2)Primarily in corporate at March 31, 2023.
(3)Primarily in large cap stocks, foreign equities, healthcare, technology and consumer discretionary at March 31, 2023.
For details on our other investments and other investable assets, see note 7, “Investment Information—Other Investments” to our consolidated financial statements.
For details on our investments accounted for using the equity method, see note 7, “Investment Information—Investments Accounted For Using the Equity Method,” to our consolidated financial statements.
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. See note 9, “Derivative Instruments,” to our consolidated financial statements for additional disclosures related to derivatives.
Accounting guidance regarding fair value measurements addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP. See note 8, “Fair Value,” to our consolidated financial statements
for a summary of our financial assets and liabilities measured at fair value, segregated by level in the fair value hierarchy.
Reinsurance
The effects of reinsurance on written and earned premiums and losses and loss adjustment expenses (“LAE”) with unaffiliated reinsurers were as follows:

| Three Months Ended |  |
| March 31, |  |
| 2023 |  | 2022 |  |  |  |
Premiums written: |  |  |  |  |  |  |
Direct | $ | 2,358 |  |  | $ | 2,132 |  |  |  |  |
Assumed | 2,422 |  |  | 1,669 |  |  |  |  |
Ceded | (1,356) |  |  | (1,167) |  |  |  |  |
Net | $ | 3,424 |  |  | $ | 2,634 |  |  |  |  |
Premiums earned: |  |  |  |  |  |  |
Direct | $ | 2,154 |  |  | $ | 1,885 |  |  |  |  |
Assumed | 1,774 |  |  | 1,173 |  |  |  |  |
Ceded | (1,045) |  |  | (937) |  |  |  |  |
Net | $ | 2,883 |  |  | $ | 2,121 |  |  |  |  |
Losses and LAE: |  |  |  |  |  |  |
Direct | $ | 1,071 |  |  | $ | 890 |  |  |  |  |
Assumed | 997 |  |  | 654 |  |  |  |  |
Ceded | (597) |  |  | (543) |  |  |  |  |
Net | $ | 1,471 |  |  | $ | 1,001 |  |  |  |  |

See note 6, “Allowance for Expected Credit Losses,” to our consolidated financial statements for information about our reinsurance recoverables and related allowance for credit losses.
Bellemeade Re
We have entered into aggregate excess of loss mortgage reinsurance agreements with various special purpose reinsurance companies domiciled in Bermuda (the “Bellemeade Agreements”). For the respective coverage periods, we will retain the first layer of the respective aggregate losses and the special purpose reinsurance companies will provide second layer coverage up to the outstanding coverage amount. We will then retain losses in excess of the outstanding coverage limit. The aggregate excess of loss reinsurance coverage generally decreases over a ten-year period as the underlying covered mortgages amortize, unless provisional call options embedded within certain of the Bellemeade Agreements are executed or if pre-defined delinquency triggering events occur.

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The following table summarizes the respective coverages and retentions at March 31, 2023:

Bellemeade Entities (Issue Date) | Initial Coverage at Issuance |  | Current Coverage |  | Remaining Retention, Net
2018-1 Ltd. (1) | 374 |  |  | 78 |  |  | 145 |
2018-3 Ltd. (2) | 506 |  |  | 183 |  |  | 155 |
2019-1 Ltd. (3) | 342 |  |  | 99 |  |  | 123 |
2019-2 Ltd. (4) | 621 |  |  | 307 |  |  | 193 |
2019-3 Ltd. (5) | 701 |  |  | 182 |  |  | 211 |
2019-4 Ltd. (6) | 577 |  |  | 252 |  |  | 143 |
2020-2 Ltd. (7) | 449 |  |  | 89 |  |  | 239 |
2020-3 Ltd. (8) | 452 |  |  | 230 |  |  | 162 |
2020-4 Ltd. (9) | 337 |  |  | 91 |  |  | 139 |
2021-1 Ltd. (10) | 644 |  |  | 467 |  |  | 155 |
2021-2 Ltd. (11) | 616 |  |  | 505 |  |  | 138 |
2021-3 Ltd. (12) | 639 |  |  | 606 |  |  | 133 |
2022-1 Ltd. (13) | 317 |  |  | 317 |  |  | 141 |
2022-2 Ltd. (14) | 327 |  |  | 327 |  |  | 213 |
Total | $ | 6,902 |  |  | $ | 3,733 |  |  | $ | 2,290 |

(1) Issued in April 2018, covering in-force policies issued between July 1, 2017 and December 31, 2017.
(2) Issued in October 2018, covering in-force policies issued between January 1, 2018 and June 30, 2018.
(3) Issued in March 2019, covering in-force policies primarily issued between 2005-2008 under United Guaranty Residential Insurance Company (“UGRIC”); as well as policies issued through 2015 under both UGRIC and Arch Mortgage Insurance Company.
(4) Issued in April 2019, covering in-force policies issued between July 1, 2018 and December 31, 2018.
(5) Issued in July 2019, covering in-force policies issued in 2016.
(6) Issued in October 2019, covering in-force policies issued between January 1, 2019 and June 30, 2019.
(7) Issued in September 2020, covering in-force policies issued between January 1, 2020 and May 31, 2020. $423 million was directly funded by Bellemeade 2020-2 Ltd. with an additional $26 million of capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.
(8) Issued in November 2020, covering in-force policies issued between June 1, 2020 and August 31, 2020. $418 million was directly funded by Bellemeade 2020-3 Ltd. with an additional $34 million of capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.
(9) Issued in December 2020, covering in-force policies issued between July 1, 2019 and December 31, 2019. $321 million was directly funded by Bellemeade 2020-4 Ltd. with an additional $16 million of capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.
(10) Issued in March 2021, covering in-force policies issued between September 1, 2020 and November 30, 2020. $580 million was directly funded by Bellemeade Re 2021-1 Ltd. with an additional $64 million capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.
(11) Issued in June 2021, covering in-force policies issued between December 1, 2020 and March 31, 2021. $523 million was directly funded by Bellemeade Re 2021-2 Ltd. via insurance-linked notes, with an additional $93 million capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.
(12) Issued in September 2021, covering in-force policies issued between April 1, 2021 and June 30, 2021. $508 million was directly funded by Bellemeade Re 2021-3 Ltd. via insurance-linked notes, with an additional $131 million capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.
(13) Issued in January 2022, covering in-force policies issued between July 1, 2021 and November 30, 2021. $284 million was directly funded by Bellemeade Re 2022-1 Ltd. via insurance-linked notes, with an additional $33 million capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.
(14) Issued in September 2022, covering in-force policies issued between November 1, 2021 and June 30, 2022. $201 million was directly funded by Bellemeade Re 2022-2 Ltd. via insurance-linked notes, with an additional $126 million capacity provided directly to Arch MI U.S. by a separate panel of reinsurers.
Reserve for Losses and Loss Adjustment Expenses
We establish reserve for losses and loss adjustment expenses (“Loss Reserves”) which represent estimates involving actuarial and statistical projections, at a given point in time, of our expectations of the ultimate settlement and administration costs of losses incurred. Estimating Loss Reserves is inherently difficult. We utilize actuarial models as well as available historical insurance industry loss ratio experience and loss development patterns to assist in the establishment of Loss Reserves. Actual losses and loss adjustment expenses paid will deviate, perhaps substantially, from the reserve estimates reflected in our financial statements.
At March 31, 2023 and December 31, 2022, our Loss Reserves, net of unpaid losses and loss adjustment expenses recoverable, by type and by operating segment were as follows:

| March 31, 2023 |  | December 31, 2022
Insurance segment: |  |  |
Case reserves | $ | 2,441 |  |  | $ | 2,398 |
IBNR reserves | 5,127 |  |  | 4,934 |
Total net reserves | 7,568 |  |  | 7,332 |
Reinsurance segment: |  |  |
Case reserves | 2,181 |  |  | 1,903 |
Additional case reserves | 517 |  |  | 481 |
IBNR reserves | 3,516 |  |  | 3,403 |
Total net reserves | 6,214 |  |  | 5,787 |
Mortgage segment: |  |  |
Case reserves | 422 |  |  | 447 |
IBNR reserves | 207 |  |  | 186 |
Total net reserves | 629 |  |  | 633 |
Total: |  |  |
Case reserves | 5,044 |  |  | 4,748 |
Additional case reserves | 517 |  |  | 481 |
IBNR reserves | 8,850 |  |  | 8,523 |
Total net reserves | $ | 14,411 |  |  | $ | 13,752 |

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At March 31, 2023 and December 31, 2022, the insurance segment’s Loss Reserves by major line of business, net of unpaid losses and loss adjustment expenses recoverable, were as follows:

| March 31, 2023 |  | December 31, 2022
Insurance segment: |  |  |
Professional lines | $ | 2,180 |  |  | $ | 2,070 |
Construction and national accounts | 1,584 |  |  | 1,558 |
Programs | 856 |  |  | 843 |
Excess and surplus casualty | 825 |  |  | 786 |
Property, energy, marine and aviation | 764 |  |  | 764 |
Travel, accident and health | 135 |  |  | 139 |
Warranty and lenders solutions | 56 |  |  | 47 |
Other | 1,168 |  |  | 1,125 |
Total net reserves | $ | 7,568 |  |  | $ | 7,332 |

At March 31, 2023 and December 31, 2022, the reinsurance segment’s Loss Reserves by major line of business, net of unpaid losses and loss adjustment expenses recoverable, were as follows:

| March 31, 2023 |  | December 31, 2022
Reinsurance segment: |  |  |
Casualty | $ | 2,429 |  |  | $ | 2,342 |
Other specialty | 1,736 |  |  | 1,476 |
Property excluding property catastrophe | 1,022 |  |  | 993 |
Property catastrophe | 581 |  |  | 536 |
Marine and aviation | 302 |  |  | 292 |
Other | 144 |  |  | 148 |
Total net reserves | $ | 6,214 |  |  | $ | 5,787 |

At March 31, 2023 and December 31, 2022, the mortgage segment’s Loss Reserves by major line of business, net of unpaid losses and loss adjustment expenses recoverable, were as follows:

| March 31, 2023 |  | December 31, 2022
U.S. primary mortgage insurance (1) | $ | 418 |  |  | $ | 415 |
U.S. credit risk transfer (CRT) and other | 105 |  |  | 109 |
International mortgage insurance/ reinsurance | 106 |  |  | 109 |
Total net reserves | $ | 629 |  |  | $ | 633 |

(1) At March 31, 2023, 33.4% of total net reserves represents policy years 2013 and prior and the remainder from later policy years. At December 31, 2022, 36.1% of total net reserves represent policy years 2013 and prior and the remainder from later policy years.
Mortgage Operations Supplemental Information
The mortgage segment’s insurance in force (“IIF”) and risk in force (“RIF”) were as follows at March 31, 2023 and December 31, 2022:

| March 31, 2023 |  | December 31, 2022
Amount |  | % |  | Amount |  | %
Insurance In Force (IIF) (1): |  |  |  |  |  |
U.S. primary mortgage insurance | $ | 294,244 |  |  | 57.3 |  |  | $ | 295,651 |  |  | 57.6 |
U.S. credit risk transfer (CRT) and other (2) | 147,731 |  |  | 28.8 |  |  | 145,087 |  |  | 28.3 |
International mortgage insurance/reinsurance (3) | 71,327 |  |  | 13.9 |  |  | 72,315 |  |  | 14.1 |
Total | $ | 513,302 |  |  | 100.0 |  |  | $ | 513,053 |  |  | 100.0 |
Risk In Force (RIF) (4): |  |  |  |  |  |  |
U.S. primary mortgage insurance | $ | 75,770 |  |  | 84.8 |  |  | $ | 75,806 |  |  | 84.8 |
U.S. credit risk transfer (CRT) and other (2) | 6,286 |  |  | 7.0 |  |  | 6,245 |  |  | 7.0 |
International mortgage insurance/reinsurance (3) | 7,333 |  |  | 8.2 |  |  | 7,369 |  |  | 8.2 |
Total | $ | 89,389 |  |  | 100.0 |  |  | $ | 89,420 |  |  | 100.0 |

(1)Represents the aggregate dollar amount of each insured mortgage loan’s current principal balance.
(2)Includes all CRT transactions, which are predominantly with GSEs, and other U.S. reinsurance transactions.
(3)International mortgage insurance and reinsurance with risk primarily located in Australia and to lesser extent Europe and Asia.
(4)The aggregate dollar amount of each insured mortgage loan’s current principal balance multiplied by the insurance coverage percentage specified in the policy for insurance policies issued and after contract limits and/or loss ratio caps for risk-sharing or reinsurance.
The IIF and RIF for our U.S. primary mortgage insurance business by policy year were as follows at March 31, 2023:

| IIF |  | RIF |  | Delinquency
Amount |  | % |  | Amount |  | % |  | Rate (1)
Policy year: |  |  |  |  |  |  |  |  |
2013 and prior | $ | 12,179 |  |  | 4.1 |  |  | $ | 3,070 |  |  | 4.1 |  |  | 6.66 | %
2014 | 3,418 |  |  | 1.2 |  |  | 934 |  |  | 1.2 |  |  | 2.36 | %
2015 | 5,752 |  |  | 2.0 |  |  | 1,546 |  |  | 2.0 |  |  | 1.88 | %
2016 | 9,272 |  |  | 3.2 |  |  | 2,496 |  |  | 3.3 |  |  | 2.44 | %
2017 | 9,045 |  |  | 3.1 |  |  | 2,401 |  |  | 3.2 |  |  | 3.02 | %
2018 | 9,841 |  |  | 3.3 |  |  | 2,525 |  |  | 3.3 |  |  | 3.70 | %
2019 | 18,254 |  |  | 6.2 |  |  | 4,647 |  |  | 6.1 |  |  | 2.21 | %
2020 | 61,353 |  |  | 20.9 |  |  | 15,575 |  |  | 20.6 |  |  | 0.94 | %
2021 | 87,086 |  |  | 29.6 |  |  | 22,183 |  |  | 29.3 |  |  | 0.84 | %
2022 | 67,714 |  |  | 23.0 |  |  | 17,697 |  |  | 23.4 |  |  | 0.43 | %
2023 | 10,330 |  |  | 3.5 |  |  | 2,696 |  |  | 3.6 |  |  | 0.02 | %
Total | $ | 294,244 |  |  | 100.0 |  |  | $ | 75,770 |  |  | 100.0 |  |  | 1.65 | %

(1)Represents the ending percentage of loans in default.

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The IIF and RIF for our U.S. primary mortgage insurance business by policy year were as follows at December 31, 2022:

| IIF |  | RIF |  | Delinquency
Amount |  | % |  | Amount |  | % |  | Rate (1)
Policy year: |  |  |  |  |  |  |  |  |
2013 and prior | $ | 12,931 |  |  | 4.4 |  |  | $ | 3,222 |  |  | 4.3 |  |  | 7.07 | %
2014 | 3,696 |  |  | 1.3 |  |  | 1,012 |  |  | 1.3 |  |  | 2.61 | %
2015 | 6,236 |  |  | 2.1 |  |  | 1,680 |  |  | 2.2 |  |  | 2.08 | %
2016 | 10,225 |  |  | 3.5 |  |  | 2,744 |  |  | 3.6 |  |  | 2.66 | %
2017 | 9,508 |  |  | 3.2 |  |  | 2,521 |  |  | 3.3 |  |  | 3.06 | %
2018 | 10,260 |  |  | 3.5 |  |  | 2,625 |  |  | 3.5 |  |  | 4.11 | %
2019 | 19,096 |  |  | 6.5 |  |  | 4,840 |  |  | 6.4 |  |  | 2.36 | %
2020 | 65,141 |  |  | 22.0 |  |  | 16,414 |  |  | 21.7 |  |  | 1.20 | %
2021 | 89,621 |  |  | 30.3 |  |  | 22,740 |  |  | 30.0 |  |  | 0.95 | %
2022 | 68,937 |  |  | 23.3 |  |  | 18,008 |  |  | 23.8 |  |  | 0.20 | %
Total | $ | 295,651 |  |  | 100.0 |  |  | $ | 75,806 |  |  | 100.0 |  |  | 1.77 | %

(1)Represents the ending percentage of loans in default.
The following tables provide supplemental disclosures on risk in force for our U.S. primary mortgage insurance business at March 31, 2023 and December 31, 2022:

| March 31, 2023 |  | December 31, 2022
Amount |  | % |  | Amount |  | %
Credit quality (FICO): |  |  |  |  |  |  |
>=740 | $ | 46,788 |  |  | 61.8 |  |  | $ | 46,812 |  |  | 61.8 |
680-739 | 25,016 |  |  | 33.0 |  |  | 24,945 |  |  | 32.9 |
620-679 | 3,699 |  |  | 4.9 |  |  | 3,772 |  |  | 5.0 |
<620 | 267 |  |  | 0.4 |  |  | 277 |  |  | 0.4 |
Total | $ | 75,770 |  |  | 100.0 |  |  | $ | 75,806 |  |  | 100.0 |
Weighted average FICO score | 748 |  |  |  |  | 750 |  |  |
Loan-to-value (LTV): |  |  |  |  |  |  |
95.01% and above | $ | 7,215 |  |  | 9.5 |  |  | $ | 7,289 |  |  | 9.6 |
90.01% to 95.00% | 44,066 |  |  | 58.2 |  |  | 43,681 |  |  | 57.6 |
85.01% to 90.00% | 20,665 |  |  | 27.3 |  |  | 20,851 |  |  | 27.5 |
85.00% and below | 3,824 |  |  | 5.0 |  |  | 3,985 |  |  | 5.3 |
Total | $ | 75,770 |  |  | 100.0 |  |  | $ | 75,806 |  |  | 100.0 |
Weighted average LTV | 92.9 | % |  |  |  | 92.8 | % |  |
Total RIF, net of external reinsurance | $ | 57,001 |  |  |  |  | $ | 57,151 |  |  |

| March 31, 2023 |  | December 31, 2022
Amount |  | % |  | Amount |  | %
Total RIF by State: |  |  |  |  |  |  |
California | $ | 6,369 |  |  | 8.4 |  |  | $ | 6,341 |  |  | 8.4 |
Texas | 6,179 |  |  | 8.2 |  |  | 6,151 |  |  | 8.1 |
Florida | 3,225 |  |  | 4.3 |  |  | 3,268 |  |  | 4.3 |
North Carolina | 3,191 |  |  | 4.2 |  |  | 3,160 |  |  | 4.2 |
Georgia | 3,167 |  |  | 4.2 |  |  | 3,169 |  |  | 4.2 |
Illinois | 3,054 |  |  | 4.0 |  |  | 3,081 |  |  | 4.1 |
Minnesota | 2,994 |  |  | 4.0 |  |  | 3,003 |  |  | 4.0 |
Massachusetts | 2,822 |  |  | 3.7 |  |  | 2,809 |  |  | 3.7 |
Virginia | 2,634 |  |  | 3.5 |  |  | 2,656 |  |  | 3.5 |
Michigan | 2,626 |  |  | 3.5 |  |  | 2,618 |  |  | 3.5 |
Other | 39,509 |  |  | 52.1 |  |  | 39,550 |  |  | 52.2 |
Total | $ | 75,770 |  |  | 100.0 |  |  | $ | 75,806 |  |  | 100.0 |

The following table provides supplemental disclosures for our U.S. primary mortgage insurance business related to insured loans and loss metrics:

(U.S. Dollars in thousands, except policy, loan and claim count) | Three Months Ended
March 31,
2023 |  | 2022
Roll-forward of insured loans in default: |  |  |
Beginning delinquent number of loans | 20,567 |  |  | 27,645 |
New notices | 9,476 |  |  | 8,835 |
Cures | (10,853) |  |  | (12,030) |
Paid claims | (215) |  |  | (180) |
Ending delinquent number of loans (1) | 18,975 |  |  | 24,270 |
Ending number of policies in force (1) | 1,147,081 |  |  | 1,159,020 |
Delinquency rate (1) | 1.65 | % |  | 2.09 | %
Losses: |  |  |
Number of claims paid | 215 |  |  | 180 |
Total paid claims | $ | 7,185 |  |  | $ | 6,016 |
Average per claim | $ | 33.4 |  |  | $ | 33.4 |
Severity (2) | 81.8 | % |  | 78.1 | %
Average case reserve per default (1) | $ | 23.0 |  |  | $ | 28.4 |

(1)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 6.9 to 1 at March 31, 2023, compared to 7.2 to 1 at December 31, 2022.

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Shareholders’ Equity and Book Value per Share
The following table presents the calculation of book value per share:

| March 31, 2023 |  | December 31, 2022
Total shareholders’ equity available to Arch | $ | 13,988 |  |  | $ | 12,910 |
Less preferred shareholders’ equity | 830 |  |  | 830 |
Common shareholders’ equity available to Arch | $ | 13,158 |  |  | $ | 12,080 |
Common shares and common share equivalents outstanding, net of treasury shares (1) | 372.2 |  |  | 370.3 |
Book value per share | $ | 35.35 |  |  | $ | 32.62 |

(1)Excludes the effects of 13.3 million and 14.4 million stock options and 0.6 million and 0.6 million restricted stock units outstanding at March 31, 2023 and December 31, 2022, respectively.
LIQUIDITY

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations.
Arch Capital is a holding company whose assets primarily consist of the shares in its subsidiaries. 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.
For the three months ended March 31, 2023, Arch Capital received dividends of $55 million from Arch Reinsurance Ltd. (“Arch Re Bermuda”), our Bermuda based reinsurer and insurer which can pay approximately $3.7 billion to Arch Capital during the remainder of 2023 without providing an affidavit to the Bermuda Monetary Authority.
We expect that our liquidity needs, including our anticipated (re)insurance obligations and operating and capital expenditure needs, for at least the next twelve months and thereafter for the foreseeable future, will be met by funds generated from underwriting activities and investment income, as well as by our balance of cash, short-term investments, proceeds on the sale or maturity of our investments, and our credit facilities.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities:

| Three Months Ended
| March 31,
| 2023 |  | 2022
Total cash provided by (used for): |  |  |
Operating activities | $ | 963 |  |  | $ | 552 |
Investing activities | (996) |  |  | (313) |
Financing activities | (30) |  |  | (233) |
Effects of exchange rate changes on foreign currency cash and restricted cash | 5 |  |  | (4) |
Increase (decrease) in cash and restricted cash | $ | (58) |  |  | $ | 2 |

•Cash provided by operating activities for the three months ended March 31, 2023 primarily reflected a higher level of premiums collected than in the 2022 period.
•Cash used for investing activities for the three months ended March 31, 2023 was higher than in the 2022 period. Activity for the three months ended March 31, 2023 reflected higher net purchases of fixed maturity investments than in the 2022 period.
•Cash used for financing activities for the three months ended March 31, 2023 reflected no repurchases under our share repurchase program while the 2022 period included $255 million of share repurchases.
CAPITAL RESOURCES

The following table provides an analysis of our capital structure:

| March 31, 2023 |  | December 31, 2022
Senior notes | $ | 2,726 |  |  | $ | 2,725 |
Shareholders’ equity available to Arch: |  |  |
Series F non-cumulative preferred shares | $ | 330 |  |  | $ | 330 |
Series G non-cumulative preferred shares | 500 |  |  | 500 |
Common shareholders’ equity | 13,158 |  |  | 12,080 |
Total | $ | 13,988 |  |  | $ | 12,910 |
Total capital available to Arch | $ | 16,714 |  |  | $ | 15,635 |
Debt to total capital (%) | 16.3 |  |  | 17.4 |
Preferred to total capital (%) | 5.0 |  |  | 5.3 |
Debt and preferred to total capital (%) | 21.3 |  |  | 22.7 |

Arch MI U.S. is required to maintain compliance with the GSEs requirements, known as the Private Mortgage Insurer Eligibility Requirements or “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

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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. Arch MI U.S. satisfied the PMIERs’ financial requirements with an estimated PMIER sufficiency ratio of 248% at March 31, 2023, compared to 236% at December 31, 2022.
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.
GUARANTOR INFORMATION

The below table provides a description of our senior notes payable at March 31, 2023:

|  | Interest |  | Principal |  | Carrying
Issuer/Due |  | (Fixed) |  | Amount |  | Amount
Arch Capital: |  |  |  |  |  |
May 1, 2034 |  | 7.350 | % |  | $ | 300 |  |  | $ | 298 |
June 30, 2050 |  | 3.635 | % |  | 1,000 |  | 989
Arch-U.S.: |  |  |  |  |  |
Nov. 1, 2043 (1) |  | 5.144 | % |  | 500 |  | 495
Arch Finance: |  |  |  |  |  |
Dec. 15, 2026 (1) |  | 4.011 | % |  | 500 |  | 498
Dec. 15, 2046 (1) |  | 5.031 | % |  | 450 |  | 446
Total |  |  |  | $ | 2,750 |  |  | $ | 2,726 |

(1)Fully and unconditionally guaranteed by Arch Capital.
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. is a wholly-owned subsidiary of Arch Capital and Arch Finance is a wholly-owned finance subsidiary of Arch-U.S. Our 2034 senior notes and 2050 senior notes issued by Arch Capital are unsecured and unsubordinated obligations of Arch Capital and ranked equally with all of its existing and future unsecured and unsubordinated indebtedness. The 2043 senior notes issued by Arch-U.S. are unsecured and unsubordinated obligations of Arch-U.S. and Arch Capital and rank equally and ratably with the other unsecured and unsubordinated indebtedness of Arch-U.S. and Arch Capital. The 2026 senior notes and 2046 senior notes issued by Arch Finance are unsecured and unsubordinated obligations of Arch Finance and Arch Capital and rank equally and ratably with the other unsecured and unsubordinated indebtedness of Arch Finance and Arch Capital.
Arch-U.S. and Arch Finance depend on their available cash resources, liquid investments and dividends or other distributions from their subsidiaries or affiliates to make payments, including the payment of debt service obligations and operating expenses they may incur.
The following tables present condensed financial information for Arch Capital (parent guarantor) and Arch-U.S. (subsidiary issuer):

| March 31, 2023 |  |  |  |  |  |  |  |
| Arch Capital |  | Arch-U.S. |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |
Total investments | $ | 9 |  |  | $ | 79 |  |  |  |  |  |  |  |  |  |  |
Cash | 10 |  |  | 8 |  |  |  |  |  |  |  |  |  |  |
Investment in operating affiliates | 5 |  |  | — |  |  |  |  |  |  |  |  |  |  |
Due from subsidiaries and affiliates | 2 |  |  | — |  |  |  |  |  |  |  |  |  |  |
Other assets | 18 |  |  | 35 |  |  |  |  |  |  |  |  |  |  |
Total assets | $ | 44 |  |  | $ | 122 |  |  |  |  |  |  |  |  |  |  |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
Senior notes | 1,287 |  |  | 495 |  |  |  |  |  |  |  |  |  |  |
Due to subsidiaries and affiliates | — |  |  | 1,004 |  |  |  |  |  |  |  |  |  |  |
Other liabilities | 42 |  |  | 42 |  |  |  |  |  |  |  |  |  |  |
Total liabilities | $ | 1,329 |  |  | $ | 1,541 |  |  |  |  |  |  |  |  |  |  |
Non-cumulative preferred shares | $ | 830 |  |  | — |  |  |  |  |  |  |  |  |  |  |

|  |  | December 31, 2022 |  |  |  |  |  |
|  |  |  |  | Arch Capital |  | Arch-U.S. |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |
Total investments |  |  |  |  | $ | 7 |  |  | $ | 79 |  |  |  |  |  |  |
Cash |  |  |  |  | 11 |  |  | 10 |  |  |  |  |  |  |
Investment in operating affiliates |  |  |  |  | 5 |  |  | — |  |  |  |  |  |  |
Due from subsidiaries and affiliates |  |  |  |  | 2 |  |  | — |  |  |  |  |  |  |
Other assets |  |  |  |  | 18 |  |  | 30 |  |  |  |  |  |  |
Total assets |  |  |  |  | $ | 43 |  |  | $ | 119 |  |  |  |  |  |  |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
Senior notes |  |  |  |  | 1,287 |  |  | 495 |  |  |  |  |  |  |
Due to subsidiaries and affiliates |  |  |  |  | — |  |  | 991 |  |  |  |  |  |  |
Other liabilities |  |  |  |  | 37 |  |  | 37 |  |  |  |  |  |  |
Total liabilities |  |  |  |  | $ | 1,324 |  |  | $ | 1,523 |  |  |  |  |  |  |
Non-cumulative preferred shares |  |  |  |  | $ | 830 |  |  | — |  |  |  |  |  |  |

|  |  |  |  | Three Months Ended |  |  |  |  |  |  |  |  |  |
|  |  | March 31, 2023 |  |  |  |  |  |  |  |
|  |  | Arch Capital |  | Arch-U.S. |  |  |  |  |  |  |  |  |  |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment income |  |  |  |  | $ | 1 |  |  | $ | 1 |  |  |  |  |  |  |  |  |  |  |
Total revenues |  |  |  |  | 1 |  |  | 1 |  |  |  |  |  |  |  |  |  |  |
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate expenses |  |  |  |  | 28 |  |  | 4 |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  |  |  | 15 |  |  | 19 |  |  |  |  |  |  |  |  |  |  |
Total expenses |  |  |  |  | 43 |  |  | 23 |  |  |  |  |  |  |  |  |  |  |
Income (loss) before income taxes and income (loss) from operating affiliates |  |  |  |  | (42) |  |  | (22) |  |  |  |  |  |  |  |  |  |  |
Income tax (expense) benefit |  |  |  |  | — |  |  | 6 |  |  |  |  |  |  |  |  |  |  |
Net income available to Arch |  |  |  |  | (42) |  |  | (16) |  |  |  |  |  |  |  |  |  |  |
Preferred dividends |  |  |  |  | (10) |  |  | — |  |  |  |  |  |  |  |  |  |  |
Net income (loss) available to Arch common shareholders |  |  |  |  | $ | (52) |  |  | $ | (16) |  |  |  |  |  |  |  |  |  |  |

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|  |  |  |  |  |  |  |  | Year Ended |  |  |  |  |  |
|  |  |  |  | December 31, 2022 |  |  |  |  |  |
|  |  |  |  |  |  | Arch Capital |  | Arch-U.S. |  |  |  |  |  |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment income |  |  |  |  |  |  |  |  | 2 |  |  | 1 |  |  |  |  |  |  |
Equity in net income (loss) of investments accounted for using the equity method |  |  |  |  |  |  |  |  | — |  |  | 10 |  |  |  |  |  |  |
Total revenues |  |  |  |  |  |  |  |  | 2 |  |  | 11 |  |  |  |  |  |  |
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate expenses |  |  |  |  |  |  |  |  | 86 |  |  | 13 |  |  |  |  |  |  |
Interest expense |  |  |  |  |  |  |  |  | 59 |  |  | 48 |  |  |  |  |  |  |
Total expenses |  |  |  |  |  |  |  |  | 145 |  |  | 61 |  |  |  |  |  |  |
Income (loss) before income taxes and income (loss) from operating affiliates |  |  |  |  |  |  |  |  | (143) |  |  | (50) |  |  |  |  |  |  |
Income tax (expense) benefit |  |  |  |  |  |  |  |  | — |  |  | 10 |  |  |  |  |  |  |
Income (loss) from operating affiliates |  |  |  |  |  |  |  |  | (1) |  |  | — |  |  |  |  |  |  |
Net income available to Arch |  |  |  |  |  |  |  |  | (144) |  |  | (40) |  |  |  |  |  |  |
Preferred dividends |  |  |  |  |  |  |  |  | (41) |  |  | — |  |  |  |  |  |  |
Net income (loss) available to Arch common shareholders |  |  |  |  |  |  |  |  | $ | (185) |  |  | $ | (40) |  |  |  |  |  |  |

CATASTROPHIC EVENTS AND SEVERE ECONOMIC EVENTS

We have large aggregate exposures to natural and man-made catastrophic events, pandemic events like COVID-19 and severe economic events. Natural catastrophes can be caused by various events, including hurricanes, floods, windstorms, earthquakes, hailstorms, tornadoes, explosions, severe winter weather, fires, droughts and other natural disasters. Man-made catastrophic events may include acts of war, acts of terrorism and political instability. Catastrophes can also cause losses in non-property business such as mortgage insurance, workers’ compensation or general liability. In addition to the nature of property business, we believe that economic and geographic trends affecting insured property, including inflation, property value appreciation and geographic concentration, tend to generally increase the size of losses from catastrophic events over time.
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. We seek to limit the probable maximum pre-tax loss to a specific level for severe catastrophic events. Currently, we seek to limit our 1-in-250 year return period net probable maximum loss from a severe catastrophic event in any geographic zone to approximately 25% of tangible shareholders’ equity available to Arch (total shareholders’ equity available to Arch less goodwill and intangible assets). We reserve the right to change this threshold at any time.
Based on in-force exposure estimated as of April 1, 2023, our modeled peak zone catastrophe exposure was a windstorm affecting the Northeastern U.S. regions, with a net probable maximum pre-tax loss of $1.07 billion, followed by
windstorms affecting the Gulf of Mexico and the Florida Tri-County regions with net probable maximum pre-tax losses of $1.07 billion and $1.05 billion, respectively. Our exposures to other perils, such as U.S. earthquake and international events, were less than the exposures arising from U.S. windstorms and hurricanes. As of April 1, 2023, our modeled peak zone earthquake exposure (San Francisco earthquake) represented approximately 64% of our peak zone catastrophe exposure, and our modeled peak zone international exposure (UK windstorm) was substantially less than both our peak zone windstorm and earthquake exposures.
We also have significant exposure to losses due to mortgage defaults resulting from severe economic events in the future. For our U.S. 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. The RDS model projects paths of future home prices, unemployment rates, income levels and interest rates and assumes correlation across states and geographic regions. The resulting future performance of our in-force portfolio is then estimated under the economic stress scenario, reflecting loan and borrower information.
Currently, we seek to limit our modeled RDS loss from a severe economic event to approximately 25% of tangible shareholders’ equity available to Arch. We reserve the right to change this threshold at any time. Based on in-force exposure estimated as of April 1, 2023, our modeled RDS loss was approximately 13% of tangible shareholders’ equity available to Arch.
Net probable maximum loss estimates are net of expected reinsurance recoveries, before income tax and before excess reinsurance reinstatement premiums. RDS loss estimates are net of expected reinsurance recoveries and before income tax. 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. 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. There can be no assurances that we will not suffer pre-tax losses greater than 25% of our tangible shareholders’ equity from one or more catastrophic events or severe economic events due to several factors. These factors include the inherent uncertainties in estimating the frequency and severity of such events and the margin of error in making such determinations resulting from potential inaccuracies and inadequacies in the data provided by clients and brokers, the modeling techniques and the

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application of such techniques or as a result of a decision to change the percentage of shareholders' equity exposed to a single catastrophic event or severe economic event. In addition, actual losses may increase if our reinsurers fail to meet their obligations to us or the reinsurance protections purchased by us are exhausted or are otherwise unavailable. See “Risk Factors—Risks Relating to Our Industry” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Catastrophic Events and Severe Economic Events” in our 2022 Form 10-K.
MARKET SENSITIVE INSTRUMENTS AND RISK MANAGEMENT

In accordance with the SEC’s Financial Reporting Release No. 48, we performed a sensitivity analysis to determine the effects that market risk exposures could have on the future earnings, fair values or cash flows of our financial instruments as of March 31, 2023. Market risk represents the risk of changes in the fair value of a financial instrument and is comprised of several components, including liquidity, basis and price risks.
An analysis of material changes in market risk exposures at March 31, 2023 that affect the quantitative and qualitative disclosures presented in our 2022 Form 10-K (see section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Sensitive Instruments and Risk Management”) were as follows:
Investment Market Risk
Fixed Income Securities. We invest in interest rate sensitive securities, primarily debt securities. We consider the effect of interest rate movements on the fair value of our fixed maturities, short-term investments and certain of our other investments, equity securities and investment funds accounted for using the equity method which invest in fixed income securities (collectively, “Fixed Income Securities”) and the corresponding change in unrealized appreciation. 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. Furthermore, at times interest rate movements in certain credit sectors exhibit a much lower correlation to changes in U.S. Treasury yields. Accordingly, the actual effect of interest rate movements may differ materially from the amounts set forth in the following tables.
The following table summarizes the effect that an immediate, parallel shift in the interest rate yield curve would have had on our Fixed Income Securities:

(U.S. dollars in billions) | Interest Rate Shift in Basis Points
-100 |  | -50 |  | — |  | +50 |  | +100
March 31, 2023 |  |  |  |  |  |  |  |
Total fair value | $ | 28.6 |  |  | $ | 28.2 |  |  | $ | 27.8 |  |  | $ | 27.4 |  |  | $ | 27.0 |
Change from base | 2.9 | % |  | 1.4 | % |  |  |  | (1.4) | % |  | (2.8) | %
Change in unrealized value | $ | 0.8 |  |  | $ | 0.4 |  |  |  |  | $ | (0.4) |  |  | $ | (0.8) |
December 31, 2022 |  |  |  |  |  |  |  |
Total fair value | $ | 27.2 |  |  | $ | 26.8 |  |  | $ | 26.4 |  |  | $ | 26.0 |  |  | $ | 25.7 |
Change from base | 2.9 | % |  | 1.4 | % |  |  |  | (1.4) | % |  | (2.7) | %
Change in unrealized value | $ | 0.8 |  |  | $ | 0.4 |  |  |  |  | $ | (0.4) |  |  | $ | (0.7) |

In addition, we consider the effect of credit spread movements on the market value of our Fixed Income Securities and the corresponding change in unrealized value. As credit spreads widen, the fair value of our Fixed Income Securities falls, and the converse is also true. In periods where the spreads on our Fixed Income Securities are much higher than their historical average due to short-term market dislocations, a parallel shift in credit spread levels would result in a much more pronounced change in unrealized value.
The following table summarizes the effect that an immediate, parallel shift in credit spreads in a static interest rate environment would have had on our Fixed Income Securities:

(U.S. dollars in billions) | Credit Spread Shift in Percentage Points
-100 |  | -50 |  | — |  | +50 |  | +100
March 31, 2023 |  |  |  |  |  |  |  |
Total fair value | $ | 29.3 |  |  | $ | 28.5 |  |  | $ | 27.8 |  |  | $ | 27.1 |  |  | $ | 26.4 |
Change from base | 5.2 | % |  | 2.6 | % |  |  |  | (2.6) | % |  | (5.2) | %
Change in unrealized value | $ | 1.4 |  |  | $ | 0.7 |  |  |  |  | $ | (0.7) |  |  | $ | (1.4) |
December 31, 2022 |  |  |  |  |  |  |  |
Total fair value | $ | 27.5 |  |  | $ | 26.9 |  |  | $ | 26.4 |  |  | $ | 25.9 |  |  | $ | 25.3 |
Change from base | 4.1 | % |  | 2.0 | % |  |  |  | (2.0) | % |  | (4.1) | %
Change in unrealized value | $ | 1.1 |  |  | $ | 0.5 |  |  |  |  | $ | (0.5) |  |  | $ | (1.1) |

Another method that attempts to measure portfolio risk is Value-at-Risk (“VaR”). VaR measures the worst expected loss under normal market conditions over a specific time interval at a given confidence level. The 1-year 95th percentile parametric VaR reported herein estimates that 95% of the time, the portfolio loss in a one-year horizon would be less than or equal to the calculated number, stated as a percentage of the measured portfolio’s initial value. The VaR is a variance-covariance based estimate, based on linear sensitivities of a portfolio to a broad set of systematic market risk factors and idiosyncratic risk factors mapped to the portfolio exposures. The relationships between the risk factors are estimated using historical data, and the most

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recent data points are generally given more weight. As of March 31, 2023, our portfolio’s 95th percentile VaR was estimated to be 8.8%, compared to an estimated 8.8% at December 31, 2022. In periods where the volatility of the risk factors mapped to our portfolio’s exposures is higher due to market conditions, the resulting VaR is higher than in other periods.
Equity Securities. At March 31, 2023 and December 31, 2022, the fair value of our investments in equity securities and certain investments accounted for using the equity method with underlying equity strategies totaled $783 million and $791 million, respectively. 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 $78 million and $79 million at March 31, 2023 and December 31, 2022, respectively, and would have decreased book value per share by approximately $0.21 and $0.21, respectively. An immediate hypothetical 10% increase in the value of each position would increase the fair value of such investments by approximately $78 million and $79 million at March 31, 2023 and December 31, 2022, respectively, and would have increased book value per share by approximately $0.21 and $0.21, respectively.
Investment-Related Derivatives. At March 31, 2023, the notional value of all derivative instruments (excluding foreign currency forward contracts which are included in the foreign currency exchange risk analysis below) was $3.4 billion, compared to $6.6 billion at December 31, 2022. If the underlying exposure of each investment-related derivative held at March 31, 2023 depreciated by 100 basis points, it would have resulted in a reduction in net income of approximately $34 million, and a decrease in book value per share of approximately $0.09 per share, compared to $66 million and $0.18 per share, respectively, on investment-related derivatives held at December 31, 2022. If the underlying exposure of each investment-related derivative held at March 31, 2023 appreciated by 100 basis points, it would have resulted in an increase in net income of approximately $34 million, and an increase in book value per share of approximately $0.09 per share, compared to $66 million and $0.18 per share, respectively, on investment-related derivatives held at December 31, 2022. See note 9, “Derivative Instruments,” to our consolidated financial statements for additional disclosures concerning derivatives.
For further discussion on investment activity, please refer to “Financial Condition—Investable Assets.”
Foreign Currency Exchange Risk
Foreign currency rate risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Through our subsidiaries and branches located in various foreign countries, we conduct our insurance and reinsurance operations in a variety of local currencies other than the U.S. Dollar. We generally hold investments in foreign currencies which are intended to mitigate our exposure to foreign currency fluctuations in our net insurance liabilities. We may also utilize foreign currency forward contracts and currency options as part of our investment strategy. See note 9, “Derivative Instruments,” to our consolidated financial statements for additional information.
The following table provides a summary of our net foreign currency exchange exposures, as well as foreign currency derivatives in place to manage these exposures:

| March 31, 2023 |  | December 31, 2022
Net assets (liabilities), denominated in foreign currencies, excluding shareholders’ equity and derivatives | $ | (384) |  |  | $ | (396) |
Shareholders’ equity denominated in foreign currencies (1) | 1,079 |  |  | 1,056 |
Net foreign currency forward contracts outstanding (2) | 237 |  |  | 312 |
Net exposures denominated in foreign currencies | $ | 932 |  |  | $ | 972 |
Pre-tax impact of a hypothetical 10% appreciation of the U.S. Dollar against foreign currencies: |  |  |
Shareholders’ equity | $ | (93) |  |  | $ | (97) |
Book value per share | $ | (0.25) |  |  | $ | (0.26) |
Pre-tax impact of a hypothetical 10% decline of the U.S. Dollar against foreign currencies: |  |  |
Shareholders’ equity | $ | 93 |  |  | $ | 97 |
Book value per share | $ | 0.25 |  |  | $ | 0.26 |

(1) Represents capital contributions held in the foreign currencies of our operating units.
(2) Represents the net notional value of outstanding foreign currency forward contracts.
Although we generally attempt to match the currency of our projected liabilities with investments in the same currencies, from time to time we may elect to over or underweight one or more currencies, which could increase our exposure to foreign currency fluctuations and increase the volatility of our shareholders’ equity. Historical observations indicate a low probability that all foreign currency exchange rates would shift against the U.S. Dollar in the same direction and at the same time and, accordingly, the actual effect of foreign currency rate movements may differ materially from the amounts set forth above. For further discussion on foreign exchange activity, please refer to “Results of Operations.”

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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. The potential also exists, after a catastrophe loss or pandemic events like COVID-19, for the development of inflationary pressures in a local economy. This may have a material effect on the adequacy of our reserves for losses and loss adjustment expenses, especially in longer-tailed lines of business, and on the market value of our investment portfolio through rising interest rates. The anticipated effects of inflation are considered in our pricing models, reserving processes and exposure management, across all lines of business and types of loss including natural catastrophe events. The actual effects of inflation on our results cannot be accurately known until claims are ultimately settled and will vary by the specific type of inflation affecting each line of business.
OTHER FINANCIAL INFORMATION

The consolidated financial statements as of March 31, 2023 have been reviewed by PricewaterhouseCoopers LLP, the registrant's independent public accountants, whose report is included as an exhibit to this filing. The report of PricewaterhouseCoopers LLP states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act of 1933.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to the information appearing above under the subheading “Market Sensitive Instruments and Risk Management” under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which information is hereby incorporated by reference.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
In connection with the filing of this Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation, as of the end of the period covered by this report, for the purposes set forth in the applicable rules under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of and during the period covered by this report with respect to information being recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms and with respect to timely communication to them and other members of management responsible for preparing periodic reports of all material information required to be disclosed in this report as it relates to Arch Capital and its consolidated subsidiaries.
We continue to enhance our operating procedures and internal controls to effectively support our business and our regulatory and reporting requirements. Our management does not expect that our disclosure controls or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. As a result of the inherent limitations in a cost-effective control system, misstatement due to error or fraud may occur and not be detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the disclosure controls and procedures are met.

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Changes in Internal Controls Over Financial Reporting
There have been no changes in internal control over financial reporting that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting.
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We, in common with the insurance industry in general, are subject to litigation and arbitration in the normal course of our business. As of March 31, 2023, we were not a party to any litigation or arbitration which is expected by management to have a material adverse effect on our results of operations and financial condition and liquidity.

ITEM 1A. RISK FACTORS

There were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer’s Repurchases of Equity Securities
The following table summarizes our purchases of common shares for the 2023 first quarter:

Period |  | Total Number of Shares Purchased (1) |  | Average Price Paid per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |  | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan or Programs ($000’s) (2)
1/1/2023-1/31/2023 |  | 14,081 |  |  | $ | 63.10 |  |  | — |  |  | $ | 1,000,000 |
2/1/2023-2/28/2023 |  | 298,391 |  |  | 69.00 |  |  | — |  |  | $ | 1,000,000 |
3/1/2023-3/31/2023 |  | 51,982 |  |  | 66.70 |  |  | — |  |  | $ | 1,000,000 |
Total |  | 364,454 |  |  | $ | 68.44 |  |  | — |  |  |

(1)This column represents (in whole shares) open market share repurchases, including an aggregate of 14,081, 298,391 and 51,982 shares repurchased by Arch Capital during January, February and March, respectively, other than through publicly announced plans or programs. We repurchased these shares from employees in order to facilitate the payment of withholding taxes on restricted shares granted and the exercise of stock appreciation rights, in each case at their fair value as determined by reference to the closing price of our common shares on the day the restricted shares vested or the stock appreciation rights were exercised.
(2)This column represents the remaining approximate dollar amount available at the end of each applicable period under Arch Capital’s $1.0 billion share repurchase authorization, authorized by the Board of Directors of ACGL on December 19, 2022. Repurchases may be effected from time to time in open market or privately negotiated transactions through December 31, 2024.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

In accordance with Section 10a(i)(2) of the Securities and Exchange Act of 1934, as amended, we are responsible for disclosing non-audit services to be provided by our independent auditor, PricewaterhouseCoopers LLP, which are approved by the Audit Committee of our board of directors. During the 2023 first quarter, the Audit Committee approved engagements of PricewaterhouseCoopers LLP for permitted non-audit services, which consisted of tax consulting services, tax compliance services and other accounting consulting services.

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ITEM 6. EXHIBITS

|  |  |  | Incorporated by Reference |  |
Exhibit Number |  | Exhibit Description |  | Form |  | Original Number |  | Date Filed |  | Filed Herewith
15 |  | Accountants’ Awareness Letter (regarding unaudited interim financial information) |  |  |  |  |  |  |  | X
31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  | X
31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  | X
32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  | X
32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  | X
10.1 |  | Third Amendment to Third Amended and Restated ACGL Incentive Compensation Plan |  |  |  |  |  |  |  | X
101.INS |  | XBRL Instance Document |  |  |  |  |  |  |  |
101.SCH |  | XBRL Taxonomy Extension Schema Document |  |  |  |  |  |  |  |
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document |  |  |  |  |  |  |  |
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document |  |  |  |  |  |  |  |
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document |  |  |  |  |  |  |  |
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document |  |  |  |  |  |  |  |
104 |  | Cover Page Interactive Data File (embedded within the Inline XBRL document) |  |  |  |  |  |  |  |

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | ARCH CAPITAL GROUP LTD.
|  | (REGISTRANT)
|  | /s/ Marc Grandisson
Date: May 4, 2023 |  | Marc Grandisson
|  | Chief Executive Officer (Principal Executive Officer)
|  | /s/ François Morin
Date: May 4, 2023 |  | François Morin
|  | Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) and Treasurer

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