ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the financial condition and results of operations for the year ended December 31, 2025 and 2024. Comparisons between 2024 and 2023 have been omitted from this Form 10-K, but may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K year ended December 31, 2024 filed with the SEC. This discussion and analysis contains forward-looking statements which involve inherent risks and uncertainties. All statements other than statements of historical fact are forward-looking statements. These statements are based on our current assessment of risks and uncertainties. Actual results may differ materially from those expressed or implied in these statements and, therefore, undue reliance should not be placed on them. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed in this report, including the sections entitled “ Cautionary Note Regarding Forward-Looking Statements ,” and “ Risk Factors .”
This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto presented under Item 8 . All amounts are in millions, except per share amounts, unless otherwise noted.
Page No.
Overview
Current Outlook
Financial Measures
Comments on Non-GAAP Measures
Results of Operations
Insurance Segment
Reinsurance Segment
Mortgage Segment
Corporate
Summary of Critical Accounting Estimates
Financial Condition
Liquidity
Capital Resources
Contractual Obligations and Commitments
Ratings
Catastrophic Events and Severe Economic Events
Market Sensitive Instruments and Risk Management
ARCH CAPITAL
2025 FORM 10-K
OVERVIEW
Arch Capital Group Ltd. (“Arch Capital” and, together with its subsidiaries, “we” or “us”) is a publicly listed Bermuda exempted company with approximately $26.9 billion in capital at December 31, 2025 and is part of the S&P 500 index. Through operations in Bermuda, the United States, United Kingdom, Europe, Canada and Australia, we write specialty lines of property and casualty insurance and reinsurance, as well as mortgage insurance and reinsurance, on a worldwide basis. It is our belief that our underwriting platform, experienced management team and strong capital base enable us to establish a strong presence in the markets where we operate.
The worldwide property casualty insurance and reinsurance industry is highly competitive and has traditionally been subject to an underwriting cycle. In that cycle, a “hard” market is evidenced by high premium rates, restrictive underwriting standards, narrow terms and conditions, and strong underwriting profits for insurers. A “hard” market typically attracts new capital and new entrants to the market and is eventually followed by a “soft” market, which has characteristics of low premium rates, relaxed underwriting standards, broader terms and conditions, and lower underwriting profits for insurers. Market conditions in the property and casualty arena may affect, among other things, the demand for our products, our ability to increase premium rates, the terms and conditions of the insurance policies we write, changes in the products offered by us or changes in our business strategy.
The financial results of the property casualty insurance and reinsurance industry are influenced by factors such as the frequency and/or severity of claims and losses, including natural disasters or other catastrophic events, variations in interest rates and financial markets, changes in the legal, regulatory and judicial environments, inflationary pressures and general economic conditions. These factors influence, among other things, the demand for insurance or reinsurance, the supply of which is generally related to the total capital of competitors in the market.
Mortgage insurance and reinsurance are subject to similar cycles to property casualty except that they have historically been more dependent on macroeconomic conditions.
CURRENT OUTLOOK
We reported very good results for 2025, with an annualized net income return on average common equity and operating return on average common equity of 20.1% and 17.1%, respectively. See “ Comment on Non-GAAP Financial Measures .” Meaningful contributions from all three segments along with solid investment returns resulted in book value growth for 2025 of 22.6%. Our strong balance sheet and capital-generating capabilities permit us to both invest in our business and return capital to investors. During 2025, we repurchased $1.9 billion of Arch common shares.
As we head into 2026 with measured optimism and increased competition across our property and casualty businesses, our commitment to deliver long-term value for our shareholders remains unchanged. Critical to our cycle management is emphasizing risk selection, as we continue to leverage our diversified specialty platform and the expertise of our underwriting teams. We invest and use data and analytics to sharpen insights, enhance risk selection and deliver a differentiated customer experience while fostering a culture that attracts the best-in-class talent. We closed 2025 with a balance sheet in excellent health, giving us optionality as we remain prudent stewards of the capital entrusted to us by our shareholders.
Our insurance segment reported $375 million of underwriting income in 2025, with net premium written nearly $7.8 billion, an increase of 13.4% from 2024. Growth in net premiums written primarily resulted from the U.S MidCorp and Entertainment insurance businesses acquired from Allianz on August 1, 2024 (“MCE Acquisition”). The acquired business further expands our insurance platform, providing more opportunities to capitalize on attractive margins. Across the insurance platform, our underwriters continue to pursue growth in areas where risk-adjusted returns exceed or meet our long-term objectives. In North America, the casualty rate environment is largely keeping pace with loss cost trends, while pricing in our international business units is tracking slightly below loss trends. In North America, we continue to grow in specialty casualty lines, including alternative markets, construction and E&S casualty. Within each geography, consistent with our cycle management approach, we adjust our business mix in response to changing market conditions and pricing dynamics.
ARCH CAPITAL
2025 FORM 10-K
Our reinsurance segment contributed $1.6 billion of underwriting income in 2025. At the January 1, 2026 renewals, property catastrophe and more generally short-tail excess of loss renewals were highly competitive with rates down 10% to 20%. Despite these headwinds, our underwriting teams leveraged the strength of our platform and trading relationships to source new opportunities that mitigate the impact of the rate pressure in the market. We are growing selectively and focusing on areas where margins are attractive. We continue to like our prospects in most lines of business and, with improving conditions in casualty lines, our agility and ability to create opportunities is an advantage for us in this market. Our diversified reinsurance platform, supported by strong partnerships with brokers and cedants across multiple lines and geographies, further enhance our ability to navigate a competitive environment.
Our mortgage segment continued to deliver a steady level of earnings, generating $1.0 billion of underwriting income in 2025, resulting in the fourth consecutive year exceeding the $1 billion threshold. While lower mortgage rates are beginning to support increased origination activity, the current market is still constrained due to affordability challenges. Underlying fundamentals remained strong and our U.S. market share was stable as industry pricing discipline held. Our team remains focused on underwriting discipline, expense management and enhancing our data and analytical platforms to further optimize the business. The persistency of our in-force U.S. primary mortgage insurance portfolio remained a healthy 81.8% and our delinquency rate remained low. We continue to expect the mortgage segment to serve as a steady diversifying contributor to our overall earnings and generate attractive underwriting income given the high credit quality of our in-force portfolio.
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 and common share equivalents 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 $65.11 at December 31, 2025, a 22.6% increase from $53.11 at December 31, 2024. The growth in book value per share in 2025 primarily reflected strong underwriting and investment returns.
Operating Return on Average Common Equity
Operating return on average common equity (“Operating ROAE”) represents annualized after-tax operating income available to Arch common shareholders divided by average common shareholders’ equity available to Arch during the period. After-tax operating income available to Arch common shareholders, a “non-GAAP measure” as defined in the SEC rules, represents net income available to Arch common shareholders, excluding net realized gains or losses (which includes, but is not limited to, realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains or losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains or losses realized from the acquisition or disposition of subsidiaries), equity in net income or loss of investments accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other, loss on redemption of preferred shares and income taxes. Management uses Operating ROAE as a key measure of the return generated to Arch common shareholders. See “Comment on Non-GAAP Financial Measures.”
Our annualized net income return on average common equity was 20.1% for 2025, compared to 22.8% for 2024. Our Operating ROAE was 17.1% for 2025, compared to 18.9% for 2024. Returns for the 2025 period reflected strong underwriting and investment returns.
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2025 FORM 10-K
Total Return on Investments
Total return on investments includes investment income, equity in net income or loss of investments accounted for using the equity method, net realized gains or losses and the change in unrealized gains or losses generated by Arch’s investment portfolio. Total return is calculated on a pre-tax basis before investment expenses and reflects the effect of financial market conditions along with foreign currency fluctuations. Management uses total return on investments as a key measure of the return generated for Arch common shareholders on the capital held in the business, and compares the return generated by our investment portfolio against benchmark returns. See “Comment on Non-GAAP Financial Measures.”
The following table summarizes the pre-tax total return (before investment expenses) of investments held by Arch compared to the benchmark return (both based in U.S. Dollars) against which we measured our portfolio during the periods:
Arch
Portfolio
Benchmark
Return
Year Ended December 31, 2025
Year Ended December 31, 2024
Total return for 2025 primarily reflected the effects of lower bond yields, a weaker U.S. dollar and equity market returns. The portfolio slightly underperformed their benchmark returns, primarily due to the impairment and sale of certain alternative investments accounted for using the equity method. The allocation of our portfolio remained neutral relative to our targeted benchmark. We continue to maintain a relatively short duration on our fixed income portfolio of 3.34 years at December 31, 2025.
The benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality with a fixed income component matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities. It is recalibrated annually. Although the estimated fixed income duration and average credit quality of this index will move as the duration and rating of its constituent securities change, generally we do not adjust the composition of the benchmark return index during the year except to incorporate changes to the mix of liability currencies and durations noted above. The benchmark return index should not be interpreted as expressing a preference for or aversion to any particular sector or sector weight. At December 31, 2025, the fixed income portion of the benchmark had an average credit quality of “A1” by Moody’s and an estimated fixed income duration of 3.18 years.
The benchmark return index included weightings to the following indices:
ICE BofA 1-10 Year U.S. Corporate Index
Yield on 3-5 Year U.S. Treasury Index plus 6%
ICE BofA 1-10 Year U.S. Treasury Index
ICE BofA 0-3 Month U.S. Treasury Index
JPM CLOIE Investment Grade
ICE BofA 1-5 Year U.K. Gilt Index
ICE BofA U.S. High Yield Constrained Index
ICE BofA U.S. ABS & CMBS Index
S&P 500 Total Return Index
ICE BofA 3-5 Year US Agency CMO Excluding IO & PO Index
ICE BofA German Government 1-5 Year Index
ICE BofA German Government 5-7 Year Index
ICE BofA 1-5 Year Canada Government Index
ICE BofA 15+ Year Canada Government Index
ICE BofA 1-5 Year Australia Government Index
ICE BofA 5-10 Year Australia Government Index
ICE BofA 1-5 Year Japan Government Index
Total
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, but is not limited to, realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains or losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains or losses realized from the acquisition or disposition of subsidiaries), equity in net income or loss of investments accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other, net of income taxes, and the use of annualized operating return on average common equity. The presentation of after-tax operating income available to Arch common shareholders and annualized operating return on average common equity are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to net income available to Arch common shareholders and annualized net income return on average common equity (the most directly comparable GAAP financial measures) in accordance with Regulation G is included under “Results of Operations” below.
ARCH CAPITAL
2025 FORM 10-K
We believe that net realized gains or losses, equity in net income or loss of investments accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other in any particular period are not indicative of the performance of, or trends in, our business. Although net realized gains or losses, equity in net income or loss of investments 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. Furthermore, we exclude net realized gains or losses from the acquisition or disposition of subsidiaries, due to their non-recurring nature, such items are not indicative of the performance of, or trends in, our business performance.
The use of the equity method on certain of our investments funds that invest in fixed maturity securities is driven by the ownership structure of such funds (either limited partnerships or limited liability companies). In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on 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 in which we account for our other investments; and the timing of the recognition of equity in net income or loss of investments accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments.
Transaction costs and other include integration, advisory, financing, legal, severance, incentive compensation and all other transaction costs directly related to acquisitions. We believe that transaction costs and other, due to their nonrecurring nature, are not indicative of the performance of, or trends in, our business performance.
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 that follow us and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.
Our segment information includes the presentation of consolidated underwriting income or loss. 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 certain income and expense items which are included in corporate. While these measures are presented in note 4, “Segment Information,” to our consolidated financial statements in Item 8, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis. The reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis, in accordance with Regulation G, is shown in note 4, “Segment Information,” to our consolidated financial statements in Item 8.
We measure segment performance for our three underwriting segments based on underwriting income or loss. We do not manage our assets by underwriting segment, with the exception of goodwill and intangible assets, and, accordingly, investment income, income from operating affiliates and other non-underwriting related items are not allocated to each underwriting segment.
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. Effective in the 2025 period, the ‘Other operating expense ratio’ includes ‘Other underwriting income.’
Total return on investments includes investment income, equity in net income or loss of investments accounted for using the equity method, net realized gains or losses (excluding changes in the allowance for credit losses on non-investment related financial assets) and the change in unrealized gains or losses generated by Arch’s investment portfolio. Total return is calculated on a pre-tax basis and
ARCH CAPITAL
2025 FORM 10-K
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 on the capital held in the business, and compares the return generated by our investment portfolio against benchmark returns which we measured our portfolio against during the periods.
RESULTS OF OPERATIONS
The following table summarizes our consolidated financial data, including a reconciliation of net income available to Arch common shareholders to after-tax operating income available to Arch common shareholders. See “Comment on Non-GAAP Financial Measures.”
Year Ended December 31,
Net income available to Arch common shareholders
Net realized (gains) losses (1)
Equity in net (income) loss of investments accounted for using the equity method
Net foreign exchange (gains) losses
Transaction costs and other
Income tax expense (benefit) (2)
After-tax operating income available to Arch common shareholders
Beginning common shareholders’ equity
Ending common shareholders’ equity
Average common shareholders’ equity
Annualized net income return on average common equity %
Annualized operating return on average common equity %
(1) Net realized gains or losses include, but is not limited to, realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains and losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains or losses realized from the acquisition or disposition of subsidiaries.
(2) Income tax on net realized gains or losses, equity in net income or loss of investments accounted for using the equity method, net foreign exchange gains or losses and transaction costs and other reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.
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 of Arch Capital and the Chief Financial Officer and Treasurer of Arch Capital. The chief operating decision- makers do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. 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. Inter-segment business is allocated to the segment accountable for the underwriting results.
Insurance Segment
The following tables set forth our insurance segment’s underwriting results:
Year Ended December 31,
% Change
Gross premiums written
Premiums ceded
Net premiums written
Change in unearned premiums
Net premiums earned
Other underwriting income (1)
Losses and loss adjustment expenses
Acquisition expenses
Other operating expenses
Underwriting income
Underwriting Ratios
% Point Change
Loss ratio
Acquisition expense ratio
Other operating expense ratio (2)
Combined ratio
(1) ‘Other underwriting income’ includes revenue earned from underwriting related activities covered under existing service contracts.
(2) The ‘Other operating expense ratio’ for the 2025 period includes ‘Other underwriting income.’ See ‘Comments on Non-GAAP Financial Measures’ for further details.
ARCH CAPITAL
2025 FORM 10-K
The insurance segment consists of our insurance underwriting units which offer specialty product lines on a worldwide basis, as described in note 4, “Segment Information,” to our consolidated financial statements in Item 8.
Net Premiums Written .
The following tables set forth our insurance segment’s net premiums written by major line of business:
Year Ended December 31,
Amount
Amount
North America
Property and short-tail specialty
Other liability - occurrence
Other liability - claims made
Commercial multi-peril
Commercial automobile
Workers compensation
Other
Total North America
International
Property and short-tail specialty
Casualty and other
Total International
Total
Net premiums written by the insurance segment were 13.4% higher in 2025 than in 2024. Growth in net premiums written primarily reflected the impact of the MCE Acquisition.
Net Premiums Earned .
The following tables set forth our insurance segment’s net premiums earned by major line of business:
Year Ended December 31,
Amount
Amount
North America
Property and short-tail specialty
Other liability - occurrence
Other liability - claims made
Commercial multi-peril
Commercial automobile
Workers compensation
Other
Total North America
International
Property and short-tail specialty
Casualty and other
Total International
Total
Net premiums written are primarily earned on a pro rata basis over the terms of the policies for all products, usually 12 months. Net premiums earned by the insurance segment were 17.3% higher in 2025 than in 2024, reflecting changes in net premiums written over the previous five quarters.
Other Underwriting Income (Loss).
Other underwriting income, which includes revenue earned from underwriting-related activities covered under existing service contracts, was $36 million in 2025, compared to nil in 2024.
Losses and Loss Adjustment Expenses .
The table below shows the components of the insurance segment’s loss ratio:
Year Ended December 31,
Current year
Prior period reserve development
Loss ratio
Current Year Loss Ratio .
The insurance segment’s current year loss ratio in 2025 was consistent with 2024. The 2025 loss ratio included 4.4 points of current year catastrophic event activity, compared to 4.6 points in 2024. The current year loss ratio for the 2025 period also reflected the impact of the MCE Acquisition and changes in mix of business.
ARCH CAPITAL
2025 FORM 10-K
Prior Period Reserve Development .
The insurance segment’s net favorable development was $43 million, or 0.6 points, for 2025, compared to $37 million, or 0.5 points, for 2024. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements in Item 8 for information about the insurance segment’s prior year reserve development.
Underwriting Expenses .
The insurance segment’s underwriting expense ratio was 33.9% in 2025, compared to 33.4% in 2024.
Reinsurance Segment
The following tables set forth our reinsurance segment’s underwriting results:
Year Ended December 31,
% Change
Gross premiums written
Premiums ceded
Net premiums written
Change in unearned premiums
Net premiums earned
Other underwriting income (1)
Losses and loss adjustment expenses
Acquisition expenses
Other operating expenses
Underwriting income
Underwriting Ratios
% Point Change
Loss ratio
Acquisition expense ratio
Other operating expense ratio (2)
Combined ratio
(1) ‘Other underwriting income’ includes revenue earned from underwriting related activities covered under existing service contracts.
(2) The ‘Other operating expense ratio’ for the 2025 period includes ‘Other underwriting income.’ See ‘Comments on Non-GAAP Financial Measures’ for further details.
The reinsurance segment consists of our reinsurance underwriting units which offer specialty product lines on a worldwide basis, as described in note 4, “Segment Information,” to our consolidated financial statements in Item 8.
Net Premiums Written .
The following tables set forth our reinsurance segment’s net premiums written by major line of business:
Year Ended December 31,
Amount
Amount
Specialty
Property excluding property catastrophe
Casualty
Property catastrophe
Marine and aviation
Other
Total
Net premiums written by the reinsurance segment were 1.7% lower in 2025 than in 2024. The lower level of net premiums written primarily reflected non-renewals and share decreases in the specialty line of business offset, in part, by increases in casualty.
Net Premiums Earned .
The following tables set forth our reinsurance segment’s net premiums earned by major line of business:
Year Ended December 31,
Amount
Amount
Specialty
Property excluding property catastrophe
Casualty
Property catastrophe
Marine and aviation
Other
Total
Net premiums earned in 2025 were 12.2% higher than in 2024, reflecting changes in net premiums written over the previous five quarters, including the mix and type of business written.
ARCH CAPITAL
2025 FORM 10-K
Other Underwriting Income (Loss).
Other underwriting income, which includes revenue earned from underwriting-related activities covered under existing service contracts was $159 million in 2025, compared to $9 million in 2024.
Losses and Loss Adjustment Expenses .
The table below shows the components of the reinsurance segment’s loss ratio:
Year Ended December 31,
Current year
Prior period reserve development
Loss ratio
Current Year Loss Ratio .
The reinsurance segment’s current year loss ratio was 1.5 points lower in 2025 than in 2024. The 2025 loss ratio included 8.5 points for current year catastrophic event activity, primarily related to the California wildfires, compared to 11.8 points in 2024, primarily related to Hurricanes Milton, Helene and a series of other global events. The current year loss ratio for 2025 also reflected changes in mix of business.
Prior Period Reserve Development .
The reinsurance segment’s net favorable development was $322 million, or 4.0 points, for 2025, compared to $188 million, or 2.6 points, for 2024, See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements in Item 8 for information about the reinsurance segment’s prior year reserve development.
Underwriting Expenses .
The underwriting expense ratio for the reinsurance segment was 24.0% in 2025, compared to 23.5% in 2024. The increase in the 2025 period primarily reflected lower profit and sliding scale commissions on ceded business.
Mortgage Segment
The following tables set forth our mortgage segment’s underwriting results.
Year Ended December 31,
% Change
Gross premiums written
Premiums ceded
Net premiums written
Change in unearned premiums
Net premiums earned
Other underwriting income (1)
Losses and loss adjustment expenses
Acquisition expenses
Other operating expenses
Underwriting income
Underwriting Ratios
% Point Change
Loss ratio
Acquisition expense ratio
Other operating expense ratio (2)
Combined ratio
(1) ‘Other underwriting income’ includes revenue earned from underwriting related activities covered under existing service contracts.
(2) The ‘Other operating expense ratio’ for the 2025 period includes ‘Other underwriting income.’ See ‘Comments on Non-GAAP Financial Measures’ for further details.
Net Premiums Written .
The following table sets forth our mortgage segment’s net premiums written by underwriting unit:
Year Ended December 31,
U.S. primary mortgage insurance
U.S. credit risk transfer (CRT) and other
International mortgage insurance/reinsurance
Total
Net premiums written for 2025 were 4.7% lower than in 2024. The reduction in net premiums written in the 2025 period primarily reflected lower gross premiums written and expenses related to tender offers of certain Bellemeade Re mortgage insurance linked notes.
The persistency rate of the U.S. primary portfolio of mortgage loans was 81.8% at December 31, 2025 compared to 82.1% at December 31, 2024. The persistency rate represents the percentage of mortgage insurance in force at the beginning of a 12 month period that remains in force at the end of such period.
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2025 FORM 10-K
The following tables provide details on the new insurance written (“NIW”) generated by U.S. primary mortgage insurance operations. NIW represents the original principal balance of all loans that received coverage during the period.
Year Ended December 31,
Amount
Amount
Total new insurance written (NIW) (1)
Credit quality:
Total
Loan-to-value (LTV):
95.01% and above
85.01% and below
Total
Monthly vs. single:
Monthly
Single
Total
Purchase vs. refinance:
Purchase
Refinance
Total
(1) Represents the original principal balance of all loans that received coverage during the period.
Net Premiums Earned .
The following table sets forth our mortgage segment’s net premiums earned by underwriting unit:
Year Ended December 31,
U.S. primary mortgage insurance
U.S. credit risk transfer (CRT) and other
International mortgage insurance/reinsurance
Total
Net premiums earned for 2025 were 4.8% lower than in 2024, reflecting changes in net premiums written over the previous five quarters.
Other Underwriting Income .
Other underwriting income, which is primarily related to GSE risk-sharing transactions services, was $22 million for 2025, compared to $17 million for 2024.
Losses and Loss Adjustment Expenses .
The table below shows the components of the mortgage segment’s loss ratio:
Year Ended December 31,
Current year
Prior period reserve development
Loss ratio
Unlike property and casualty business for which we estimate ultimate losses on premiums earned, losses on U.S. primary mortgage insurance business are only recorded at the time a borrower is delinquent on their mortgage, in accordance with primary mortgage insurance industry practice. Because our primary mortgage insurance reserving process does not take into account the impact of future losses from loans that are not delinquent, mortgage insurance loss reserves are not an estimate of ultimate losses. In addition to establishing loss reserves for delinquent loans, under GAAP, we are required to establish a premium deficiency reserve for our mortgage insurance products if the amount of expected future losses and maintenance costs exceeds expected future premiums, existing reserves and the anticipated investment income for such product. We assess the need for a premium deficiency reserve on a quarterly basis and perform a full analysis annually. No such reserve was established during 2025 or 2024.
Current Year Loss Ratio .
The mortgage segment’s current year loss ratio was 1.2 points higher in 2025 compared to 2024. The higher current year loss ratio in 2025 period reflected slightly higher new delinquencies and the impact of the Bellemeade Re tender offers noted above. The percentage of loans in default on U.S. primary mortgage insurance increased from 2.09% at December 31, 2024 to 2.17% at December 31, 2025.
We insure mortgages for homes in areas that have been impacted by catastrophic events. Generally, mortgage insurance losses occur only when a credit event occurs and, following a physical damage event, when the home is restored to pre-storm condition. Our ultimate claims exposure will depend on the number of delinquency notices received and the ultimate claim rate related to such notices. In the event of natural disasters, cure rates are influenced by the adequacy of homeowners and flood insurance carried on a related property, and a borrower's access to aid from government entities and private organizations, in addition to other factors which generally impact cure rates in unaffected areas.
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2025 FORM 10-K
Prior Period Reserve Development .
The mortgage segment’s net favorable development was $235 million, or 20.2 points, for 2025, compared to $282 million, or 23.0 points, for 2024. See note 5, “Reserve for Losses and Loss Adjustment Expenses,” to our consolidated financial statements in Item 8 for information about the mortgage segment’s prior year reserve development.
Underwriting Expenses .
The underwriting expense ratio for the mortgage segment was 15.0% for 2025, compared to 17.0% for 2024. The decrease in the 2025 period primarily reflects a lower headcount as a result of the 2024 voluntary separation program.
Corporate
The Company’s corporate results include net investment income, net realized gains or losses (which includes, but is not limited to, realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains or losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains or losses realized from the acquisition or disposition of subsidiaries), equity in net income or loss of investments accounted for using the equity method, 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:
Year Ended December 31,
Fixed maturities
Short-term investments
Equity securities (dividends)
Other (1)
Gross investment income
Investment expenses (2)
Net investment income
(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 0.23% of average invested assets for 2025, compared to 0.26% for 2024.
The pre-tax investment income yield was 4.11% for 2025, compared to 4.25% for 2024. The pre-tax investment income yields were calculated based on amortized cost. Net cash flow from operating activities contributed $6.2 billion in 2025, which increased our invested asset base and contributed to the growth in net investment income. Yields on future investment income may vary based on financial market conditions, investment allocation decisions and other factors.
Net Realized Gains or Losses.
We recorded net realized gains of $464 million for 2025, compared to net realized gains of $197 million for 2024. Amounts in both periods reflected sales of investments as well as the impact of financial market movements on the Company’s equity securities and investments accounted for under the fair value option method. Amounts in the 2025 period also include losses related to the impairment and sale of certain alternative investments accounted for under the equity method. Currently, our portfolio is actively managed to maximize total return within certain guidelines. The effect of financial market movements on the investment portfolio will directly impact net realized gains or losses as the portfolio is rebalanced. 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, net impairment losses recognized in earnings and gains or losses realized from the acquisition or disposition of subsidiaries. See note 9, “Investment Information—Net Realized Gains (Losses),” and note 9, “Investment Information—Allowance for Expected Credit Losses,” to our consolidated financial statements for additional information.
Equity in Net Income (Loss) of Investments Accounted for Using the Equity Method.
We recorded $504 million of equity in net income related to investments accounted for using the equity method for 2025, compared to $580 million for 2024. Investments accounted for using the equity method totaled $6.5 billion at December 31, 2025, compared to $6.0 billion at December 31, 2024. See note 9, “Investment Information—Equity in Net Income (Loss) of Investments Accounted For Using the Equity Method,” to our consolidated financial statements in Item 8 for additional information.
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Other Income or Losses
Other income for 2025 was $54 million, compared to $42 million for 2024. Amounts in both periods primarily reflect changes in the cash surrender value of our investment in corporate-owned life insurance.
Corporate Expenses.
Corporate expenses were $57 million for 2025, compared to $119 million for 2024. Such expenses primarily represent certain holding company costs necessary to support our worldwide operations and costs associated with operating as a publicly traded company. The 2025 period reflected Bermuda substance-based tax credits enacted in December 2025 with retroactive effect to January 1, 2025.
Transaction Costs and Other.
Transaction costs and other were $75 million for 2025, compared to $81 million for 2024. The amounts for both the 2025 and 2024 periods primarily reflect direct costs related to the MCE Acquisition and ongoing integration efforts.
Amortization of Intangible Assets.
Amortization of intangible assets for 2025 was $193 million, compared to $235 million for 2024. Amounts in both 2025 and 2024 primarily related to amortization of finite-lived intangible assets acquired as part of the MCE Acquisition.
Interest Expense .
Interest expense was $148 million for 2025, compared to $141 million for 2024. Interest expense primarily reflects amounts related to our outstanding senior notes.
Net Foreign Exchange Gains or Losses.
Net foreign exchange losses for 2025 were $128 million, compared to net foreign exchange gains for 2024 of $75 million. Amounts in such periods were primarily unrealized and resulted from the effects of revaluing our net insurance liabilities required to be settled in foreign currencies at each balance sheet date.
Income Tax Expense.
Our income tax provision on income before income taxes resulted in an expense of 14.7% for 2025, compared to an expense of 7.7% for 2024. Our effective tax rate fluctuates from year to year consistent with the relative mix of income or loss reported by jurisdiction and the varying tax rates in each jurisdiction. The increase in the 2025 period is primarily attributed to the enactment of the Corporate Income Tax Act 2023 by the Government of Bermuda, which established a 15% corporate income tax effective January 1, 2025. See
note 15, “Income Taxes,” to our consolidated financial statements in Item 8.
Income (Loss) from Operating Affiliates.
We recorded $180 million of net income from our operating affiliates in 2025, compared to $200 million in 2024. Amounts in both periods primarily reflected amounts related to our investments in Somers Group Holdings Ltd. and Coface SA. See note 9, “Investment Information—Investments in Operating Affiliates,” to our consolidated financial statements for additional information.
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial statements in accordance with GAAP requires us to make many estimates and judgments that affect the reported amounts of assets, liabilities (including reserves), revenues and expenses, and related disclosures of contingent liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, allowance for current expected credit losses, investment valuations, goodwill and intangible assets, bad debts, income taxes, contingencies and litigation. We base our estimates on historical experience, where possible, and on various other assumptions that we believe to be reasonable under the circumstances, which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results will differ from these estimates and such differences may be material. We believe that the following critical accounting policies affect significant estimates used in the preparation of our consolidated financial statements.
Loss Reserves
We are required by applicable insurance laws and regulations and GAAP to establish reserves for losses and loss adjustment expenses, or “Loss Reserves”, that arise from the business we underwrite. Loss Reserves for our insurance, reinsurance and mortgage operations are balance sheet liabilities representing estimates of future amounts required to pay losses and loss adjustment expenses for insured or reinsured events which have occurred at or before the balance sheet date. Loss Reserves do not reflect contingency reserve allowances to account for future loss occurrences. Losses arising from future events will be estimated and recognized at the time the losses are incurred and could be substantial. See note 6, “Short Duration Contracts,” to our consolidated financial statements in Item 8 for additional information on our reserving process.
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At December 31, 2025 and 2024, our Loss Reserves, net of unpaid losses and loss adjustment expenses recoverable, by type and by operating segment were as follows:
December 31,
Insurance segment:
Case reserves
IBNR reserves
Total net reserves
Reinsurance segment:
Case reserves
Additional case reserves
IBNR reserves
Total net reserves
Mortgage segment:
Case reserves
IBNR reserves
Total net reserves
Total:
Case reserves
Additional case reserves
IBNR reserves
Total net reserves
At December 31, 2025 and 2024, the insurance segment’s Loss Reserves by major line of business, net of unpaid losses and loss adjustment expenses recoverable, were as follows:
December 31,
Third party occurrence business
Multi-line and other specialty
Third party claims-made business
Property, energy, marine and aviation
Total net reserves
At December 31, 2025 and 2024, the reinsurance segment’s Loss Reserves by major line of business, net of unpaid losses and loss adjustment expenses recoverable, were as follows:
December 31,
Casualty
Specialty
Property excluding property catastrophe
Property catastrophe
Marine and aviation
Other
Total net reserves
At December 31, 2025 and 2024, the mortgage segment’s Loss Reserves by major line of business, net of unpaid losses and loss adjustment expenses recoverable, were as follows:
December 31,
U.S. primary mortgage insurance
U.S. credit risk transfer (CRT) and other
International mortgage insurance/reinsurance
Total net reserves
Potential Variability in Loss Reserves
The following tables summarize the effect of reasonably likely scenarios on the key actuarial assumptions used to estimate our Loss Reserves, net of unpaid losses and loss adjustment expenses recoverable, at December 31, 2025 by underwriting segment and reserving lines. See note 6, “Short Duration Contracts,” to our consolidated financial statements in Item 8 for a description of the lines of business included in each reserving line.
The scenarios shown in the tables summarize the effect of (i) changes to the expected loss ratio selections used at December 31, 2025, which represent loss ratio point increases or decreases to the expected loss ratios used, and (ii) changes to the loss development patterns used in our reserving process at December 31, 2025, which represent claims reporting that is either slower or faster than the reporting patterns used. We believe that the illustrated sensitivities are indicative of the potential variability inherent in the estimation process of those parameters. The results show the impact of varying each key actuarial assumption using the chosen sensitivity on our Loss Reserves, on a net basis and across all accident years.
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INSURANCE SEGMENT
Higher Expected Loss Ratios
Slower Loss Development Patterns
Reserving lines selected assumptions:
Multi-line and other specialty
10 points
6 months
Third party occurrence business
Third party claims-made business
Property, energy, marine and aviation
Increase (decrease) in Loss Reserves:
Multi-line and other specialty
Third party occurrence business
Third party claims-made business
Property, energy, marine and aviation
INSURANCE SEGMENT
Lower Expected Loss Ratios
Faster Loss Development Patterns
Reserving lines selected assumptions:
Multi-line and other specialty
(10) points
(6) months
Third party occurrence business
Third party claims-made business
Property, energy, marine and aviation
Increase (decrease) in Loss Reserves:
Multi-line and other specialty
Third party occurrence business
Third party claims-made business
Property, energy, marine and aviation
REINSURANCE SEGMENT
Higher Expected Loss Ratios
Slower Loss Development Patterns
Reserving lines selected assumptions:
Casualty
10 points
6 months
Specialty
Property excluding property catastrophe
Property catastrophe
Marine and aviation
Other
Increase (decrease) in Loss Reserves:
Casualty
Specialty
Property excluding property catastrophe
Property catastrophe
Marine and aviation
Other
REINSURANCE SEGMENT
Lower Expected Loss Ratios
Faster Loss Development Patterns
Reserving lines selected assumptions:
Casualty
(10) points
(6) months
Specialty
Property excluding property catastrophe
Property catastrophe
Marine and aviation
Other
Increase (decrease) in Loss Reserves:
Casualty
Specialty
Property excluding property catastrophe
Property catastrophe
Marine and aviation
Other
It is not necessarily appropriate to sum the total impact for a specific factor or the total impact for a specific business category as the business categories are not perfectly correlated. In addition, the potential variability shown in the tables above are reasonably likely scenarios of changes in our key assumptions at December 31, 2025 and are not meant to be a “best case” or “worst case” series of outcomes and therefore, it is possible that future variations may be more or less than the amounts set forth above.
For our mortgage segment, we considered the sensitivity of loss reserve estimates at December 31, 2025 by assessing the potential changes resulting from a parallel shift in severity and default to claim rate. For example, assuming all other factors remain constant, for every one percentage point change in primary claim severity (which we estimate to be approximately 30% of the unpaid principal balance at December 31, 2025), we estimated that our loss reserves would change by approximately $15 million at December 31, 2025. For every one percentage point change in our primary net default to claim rate (which we estimate to be approximately 22% at December 31, 2025), we estimated a $20 million change in our loss reserves at December 31, 2025.
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Simulation Results
In order to illustrate the potential volatility in our Loss Reserves, we used a Monte Carlo simulation approach to simulate a range of results based on various probabilities. Both the probabilities and related modeling are subject to inherent uncertainties. The simulation relies on a significant number of assumptions, such as the potential for multiple entities to react similarly to external events, and includes other statistical assumptions. The simulation results shown for each segment do not add to the total simulation results, as the individual segment simulation results do not reflect the diversification effects across our segments.
At December 31, 2025, our recorded Loss Reserves by underwriting segment, net of unpaid losses and loss adjustment expenses recoverable, and the results of the simulation were as follows:
Insurance Segment
Reinsurance Segment
Mortgage Segment
Total
Loss
Reserves (1)
Simulation results:
90th percentile (2)
10th percentile (3)
(1) Net of reinsurance recoverables.
(2) Simulation results indicate that a 90% probability exists that the net reserves for losses and loss adjustment expenses will not exceed the indicated amount.
(3) Simulation results indicate that a 10% probability exists that the net reserves for losses and loss adjustment expenses will be at or below the indicated amount.
For informational purposes, based on the total simulation results, a change in our Loss Reserves to the amount indicated at the 90th percentile would result in a decrease in income before income taxes of approximately $4.5 billion, or $11.98 per diluted share, while a change in our Loss Reserves to the amount indicated at the 10th percentile would result in an increase in income before income taxes of approximately $4.3 billion, or $11.32 per diluted share. The simulation results noted above are informational only, and no assurance can be given that our ultimate losses will not be significantly different than the simulation results shown above, and such differences could directly and significantly impact earnings favorably or unfavorably in the period they are determined. We do not have significant exposure to pre-2002 liabilities, such as asbestos-related illnesses and other long-tail liabilities. It is difficult to provide meaningful trend information for certain liability/casualty coverages for which the claim-tail may be especially long, as claims are often reported and ultimately paid or settled years, or even decades, after the related loss events occur. Any estimates
and assumptions made as part of the reserving process could prove to be inaccurate due to several factors, including the fact that for certain lines of business relatively limited historical information has been reported to us through December 31, 2025. Accordingly, the reserving for incurred losses in these lines of business could be subject to greater variability. See Item 1A, “ Risk Factors – Risks Relating to Our Industry, Business & Operations – Underwriting risks and reserving for losses are based on probabilities and related modeling, which are subject to inherent uncertainties.”
Mortgage Operations Supplemental Information
The mortgage segment’s insurance in force (“IIF”) and risk in force (“RIF”) were as follows at December 31, 2025 and 2024:
December 31,
Amount
Amount
Insurance In Force (IIF) (1):
U.S. primary mortgage insurance
U.S. credit risk transfer
(CRT) and other
International mortgage
insurance/reinsurance
Total
Risk In Force (RIF) (2):
U.S. primary mortgage insurance
U.S. credit risk transfer
(CRT) and other
International mortgage
insurance/reinsurance
Total
(1) Represents the aggregate dollar amount of each insured mortgage loan’s current principal balance. Such amounts are shown before external reinsurance.
(2) The aggregate dollar amount of each insured mortgage loan’s current principal balance multiplied by the insurance coverage percentage specified in the policy for insurance policies issued and after contract limits and/or loss ratio caps for risk-sharing or reinsurance transactions. Such amounts are shown before external reinsurance.
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The insurance in force and risk in force for our U.S. primary mortgage insurance business by policy year were as follows at December 31, 2025:
IIF
RIF
Delinquency
Amount
Amount
Rate (1)
Policy year:
2015 and prior
Total
(1) Represents the ending percentage of loans in default.
The insurance in force and risk in force for our U.S. primary mortgage insurance business by policy year were as follows at December 31, 2024:
IIF
RIF
Delinquency
Amount
Amount
Rate (1)
Policy year:
2015 and prior
Total
(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 December 31, 2025 and 2024:
December 31,
Amount
Amount
Credit quality:
Total
Weighted average credit score
Loan-to-Value (LTV):
95.01% and above
85.00% and below
Total
Weighted average LTV
Total RIF, net of external reinsurance
December 31,
Amount
Amount
Total RIF by State:
California
Texas
North Carolina
Minnesota
Illinois
Georgia
Michigan
Massachusetts
Florida
Ohio
Others
Total
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The following table provides supplemental disclosures for our U.S. primary mortgage insurance business related to insured loans and loss metrics for the years ended December 31, 2025 and 2024:
(U.S. Dollars in thousands, except loan and claim count)
Year Ended December 31,
Rollforward of insured loans in default:
Beginning delinquent number of loans
New notices
Cures
Paid claims
Acquired delinquent loans (1)
Ending delinquent number of loans (2)
Ending number of policies in force (2)
Delinquency rate (2)
Losses:
Number of claims paid
Total paid claims
Average per claim
Severity (3)
Average reserve per default (in thousands) (2)
(1) Represents delinquent loans related to the acquisition of RMIC Companies, Inc.
(2) Includes first lien primary and pool policies.
(3) Represents total direct first lien paid claims divided by RIF of loans for which claims were paid, excluding paid claim settlements.
The risk-to-capital ratio, which represents total current (non-delinquent) risk in force, net of reinsurance, divided by total statutory capital, for Arch MI U.S. was approximately 8.2 to 1 at December 31, 2025, compared to 7.8 to 1 at December 31, 2024.
Ceded Reinsurance
In the normal course of business, our insurance and mortgage insurance operations cede a portion of their premium on a quota share or excess of loss basis through treaty or facultative reinsurance agreements. Our reinsurance operations also obtain reinsurance whereby another reinsurer contractually agrees to indemnify it for all or a portion of the reinsurance risks underwritten by our reinsurance operations. Such arrangements, where one reinsurer provides reinsurance to another reinsurer, are usually referred to as “retrocessional reinsurance” arrangements. In addition, our reinsurance subsidiaries participate in “common account” retrocessional arrangements for certain pro rata treaties. Such arrangements reduce the effect of individual or aggregate losses to all companies participating on such treaties, including the reinsurers, such as our reinsurance operations, and the ceding company. Estimating reinsurance recoverables can be more subjective than estimating the
underlying reserves for losses and loss adjustment expenses as discussed above in “—Loss Reserves.” In particular, reinsurance recoverables may be affected by deemed inuring reinsurance, industry losses reported by various statistical reporting services, and other factors. Reinsurance recoverables are recorded as assets, predicated on the reinsurers’ ability to meet their obligations under the reinsurance agreements. If the reinsurers are unable to satisfy their obligations under the agreements, our insurance or reinsurance operations would be liable for such defaulted amounts.
The availability and cost of reinsurance and retrocessional protection is subject to market conditions, which are beyond our control. Although we believe that our insurance and reinsurance operations have been successful in obtaining adequate reinsurance and retrocessional protection, it is not certain that they will be able to continue to obtain adequate protection at cost effective levels. As a result of such market conditions and other factors, our insurance, reinsurance and mortgage operations may not be able to successfully mitigate risk through reinsurance and retrocessional arrangements and may lead to increased volatility in our results of operations in future periods. See Item 1A, “Risk Factors—Risks Relating to Our Industry, Business and Operations—The failure of any of the loss limitation methods we employ could have a material adverse effect on our financial condition or results of operations.”
For purposes of managing risk, we reinsure a portion of our exposures, paying to reinsurers a part of the premiums received on the policies we write, and we may also use retrocessional protection. On a consolidated basis, ceded premiums written represented 28.0% of gross premiums written for 2025, compared to 26.9% for 2024. We monitor the financial condition of our reinsurers and attempt to place coverages only with substantial, financially sound carriers. If the financial condition of our reinsurers or retrocessionaires deteriorates, resulting in an impairment of their ability to make payments, we will be responsible for probable losses resulting from our inability to collect amounts due from such parties, as appropriate. We evaluate the credit worthiness of all the reinsurers to which we cede business. We report reinsurance recoverables net of an allowance for expected credit loss. The allowance is based upon our ongoing review of amounts outstanding, the financial condition of our reinsurers, amounts and form of collateral obtained and other relevant factors. A ratings based probability-of-default and loss-given-default methodology is used to estimate the allowance for expected credit loss. See Item 1A, “Risk Factors—Risks Relating to Our Industry, Business and Operations—We are exposed to credit risk in certain of our business operations” and “Financial Condition, Liquidity and Capital Resources” for further details.
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We have entered into various aggregate excess of loss reinsurance agreements with various special purpose reinsurance companies domiciled in Bermuda. These are special purpose variable interest entities that are not consolidated in our financial results because we do not have the unilateral power to direct those activities that are significant to its economic performance. See note 12, “Variable Interest Entities” to our consolidated financial statements in Item 8 for additional information.
Premium Revenues and Related Expenses
Insurance premiums written are generally recorded at the policy inception and are primarily earned on a pro rata basis over the terms of the policies for all products, usually 12 months. Premiums written include estimates in our insurance operations’ programs, specialty lines, collateral protection business and for participation in involuntary pools. Such premium estimates are derived from multiple sources which include the historical experience of the underlying business, similar business and available industry information. Unearned premium reserves represent the portion of premiums written that relates to the unexpired terms of in-force insurance policies.
Reinsurance premiums written include amounts reported by brokers and ceding companies, supplemented by our own estimates of premiums where reports have not been received. The determination of premium estimates requires a review of our experience with the ceding companies, familiarity with each market, the timing of the reported information, an analysis and understanding of the characteristics of each line of business, and management’s judgment of the impact of various factors, including premium or loss trends, on the volume of business written and ceded to us. On an ongoing basis, our underwriters review the amounts reported by these third parties for reasonableness based on their experience and knowledge of the subject class of business, taking into account our historical experience with the brokers or ceding companies. In addition, reinsurance contracts under which we assume business generally contain specific provisions which allow us to perform audits of the ceding company to ensure compliance with the terms and conditions of the contract, including accurate and timely reporting of information. Based on a review of all available information, management establishes premium estimates where reports have not been received. Premium estimates are updated when new information is received and differences between such estimates and actual amounts are recorded in the period in which estimates are changed or the actual amounts are determined. Premiums written are recorded based on the type of contracts we write. Premiums on our excess of loss and pro rata reinsurance contracts are estimated when the business is underwritten. For excess of loss contracts, premiums are recorded as written based on the terms of the
contract. Estimates of premiums written under pro rata contracts are recorded in the period in which the underlying risks incept and are based on information provided by the brokers and the ceding companies. For multi-year reinsurance treaties which are payable in annual installments, generally, only the initial annual installment is included as premiums written at policy inception due to the ability of the reinsured to commute or cancel coverage during the term of the policy. The remaining annual installments are included as premiums written at each successive anniversary date within the multi-year term.
Reinstatement premiums for our insurance and reinsurance operations are recognized at the time a loss event occurs, where coverage limits for the remaining life of the contract are reinstated under pre-defined contract terms. Reinstatement premiums, if obligatory, are fully earned when recognized. The accrual of reinstatement premiums is based on an estimate of losses and loss adjustment expenses, which reflects management’s judgment, as described above in “—Loss Reserves.”
The amount of reinsurance premium estimates included in premiums receivable and the amount of related acquisition expenses by type of business were as follows at December 31, 2025:
December 31, 2025
Gross Amount
Acquisition Expenses
Net
Amount
Specialty
Casualty
Property excluding property catastrophe
Marine and aviation
Property catastrophe
Other
Total
Premium estimates are reviewed by management at least quarterly. Such review includes a comparison of actual reported premiums to expected ultimate premiums along with a review of the aging and collection of premium estimates. Based on management’s review, the appropriateness of the premium estimates is evaluated, and any adjustment to these estimates is recorded in the period in which it becomes known. Adjustments to premium estimates could be material and such adjustments could directly and significantly impact earnings favorably or unfavorably in the period they are determined because the estimated premium may be fully or substantially earned.
A significant portion of amounts included as premiums receivable, which represent estimated premiums written, net of commissions, are not currently due based on the terms of the underlying contracts. Based on currently
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available information, we report premiums receivable net of an allowance for expected credit loss. We monitor credit risk associated with premiums receivable through our ongoing review of amounts outstanding, aging of the receivable, historical data and counterparty financial strength measures.
Reinsurance premiums assumed, irrespective of the class of business, are generally earned on a pro rata basis over the terms of the underlying policies or reinsurance contracts. Contracts and policies written on a “losses occurring” basis cover claims that may occur during the term of the contract or policy, which is typically 12 months. Accordingly, the premium is earned evenly over the term. Contracts which are written on a “risks attaching” basis cover claims which attach to the underlying insurance policies written during the terms of such contracts. Premiums earned on such contracts usually extend beyond the original term of the reinsurance contract, typically resulting in recognition of premiums earned in proportion to the period of risk coverage.
Certain of our reinsurance contracts include provisions that adjust premiums or acquisition expenses based upon the experience under the contracts. Premiums written and earned, as well as related acquisition expenses, are recorded based upon the projected experience under such contracts.
Retroactive reinsurance reimburses a ceding company for liabilities incurred as a result of past insurable events covered by the underlying policies reinsured. In certain instances, reinsurance contracts cover losses both on a prospective basis and on a retroactive basis and, accordingly, we bifurcate the prospective and retrospective elements of these reinsurance contracts and accounts for each element separately where practical. Underwriting income generated in connection with retroactive reinsurance contracts is deferred and amortized into income over the settlement period while losses are charged to income immediately. Subsequent changes in estimated amount or timing of cash flows under such retroactive reinsurance contracts are accounted for by adjusting the previously deferred amount to the balance that would have existed had the revised estimate been available at the inception of the reinsurance transaction, with a corresponding charge or credit to income.
Mortgage guaranty insurance policies are contracts that are generally non-cancelable by the insurer, are renewable at a fixed price, and provide for payment of premiums on a monthly, annual or single basis. Upon renewal, we are not able to re-underwrite or re-price our policies. Consistent with industry accounting practices, premiums written on a monthly basis are earned as coverage is provided. Premiums written on an annual basis are amortized on a monthly pro rata basis over the year of coverage. Primary mortgage
insurance premiums written on policies covering more than one year are referred to as single premiums. A portion of the revenue from single premiums is recognized in premiums earned in the current period, and the remaining portion is deferred as unearned premiums and earned over the estimated expiration of risk of the policy. If single premium policies related to insured loans are canceled for any reason and the policy is a non-refundable product, the remaining unearned premium related to each canceled policy is recognized as earned premium upon notification of the cancellation.
Unearned premiums represent the portion of premiums written that is applicable to the estimated unexpired risk of insured loans. A portion of premium payments may be refundable if the insured cancels coverage, which generally occurs when the loan is repaid, the loan amortizes to a sufficiently low amount to trigger a lender permitted or legally required cancellation, or the value of the property has increased sufficiently in accordance with the terms of the contract. Premium refunds reduce premiums earned in the consolidated statements of income. Generally, only unearned premiums are refundable.
Acquisition costs that are directly related and incremental to the successful acquisition or renewal of business are deferred and amortized based on the type of contract. For property and casualty insurance and reinsurance contracts, deferred acquisition costs are amortized over the period in which the related premiums are earned. Consistent with mortgage insurance industry accounting practice, amortization of acquisition costs related to the mortgage insurance contracts for each underwriting year’s book of business is recorded in proportion to estimated gross profits. Estimated gross profits are comprised of earned premiums and losses and loss adjustment expenses. For each underwriting year, we estimate the rate of amortization to reflect actual experience and any changes to persistency or loss development.
Acquisition expenses and other expenses related to our underwriting operations that vary with, and are directly related to, the successful acquisition or renewal of business are deferred and amortized based on the type of contract. Our insurance and reinsurance operations capitalize incremental direct external costs that result from acquiring a contract but do not capitalize salaries, benefits and other internal underwriting costs. For our mortgage insurance operations, which include a substantial direct sales force, both external and certain internal direct costs are deferred and amortized. Deferred acquisition costs are carried at their estimated realizable value and take into account anticipated losses and loss adjustment expenses, based on historical and current experience, and anticipated investment income.
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A premium deficiency occurs if the sum of anticipated losses and loss adjustment expenses, unamortized acquisition costs and maintenance costs and anticipated investment income exceed unearned premiums. A premium deficiency reserve (“PDR”) is recorded by charging any unamortized acquisition costs to expense to the extent required in order to eliminate the deficiency. If the premium deficiency exceeds unamortized acquisition costs then a liability is accrued for the excess deficiency.
To assess the need for a PDR on our mortgage exposures, we develop loss projections based on modeled loan defaults related to our current policies in force. This projection is based on recent trends in default experience, severity and rates of defaulted loans moving to claim, as well as recent trends in the rate at which loans are prepaid, and incorporates anticipated interest income. Evaluating the expected profitability of our existing mortgage insurance business and the need for a PDR for our mortgage business involves significant reliance upon assumptions and estimates with regard to the likelihood, magnitude and timing of potential losses and premium revenues. The models, assumptions and estimates we use to evaluate the need for a PDR may prove to be inaccurate, especially during an extended economic downturn or a period of extreme market volatility and uncertainty.
No premium deficiency charges were recorded by us during 2025 or 2024.
Net Deferred Income Tax Assets Measurement
Deferred income tax assets and liabilities reflect temporary differences based on enacted tax rates between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. We determine deferred tax assets and liabilities separately for each tax-paying component (an individual entity or group of entities that is consolidated for tax purposes) in each tax jurisdiction. There may be changes in tax laws where we transact business that impact our deferred tax assets and liabilities. The most significant deferred income tax assets recognized relate to goodwill and intangible assets. With respect to our Bermuda entities, we estimated the fair value of its intangible assets using discounted cash flow (“DCF”) models. The significant assumptions utilized in the DCF models included the future revenue and profits expected to be generated by the identifiable intangible assets and the discount rates. See note 15, “Income Taxes” to our consolidated financial statements in Item 8 for disclosures concerning our Company’s deferred income tax asset.
Fair Value Measurements
We review our securities measured at fair value and discuss the proper classification of such investments with investment advisors and others. See note 10, “Fair Value,” to our consolidated financial statements in Item 8 for a summary of our financial assets and liabilities measured at fair value at December 31, 2025 by valuation hierarchy.
Reclassifications
We have reclassified the presentation of certain prior year information to conform to the current presentation. Such reclassifications had no effect on our net income, shareholders’ equity or cash flows.
Significant Accounting Pronouncements
For all other significant accounting policies see note 3, “Significant Accounting Policies” and note 3(u), “Recent Accounting Pronouncements” to our consolidated financial statements in Item 8 for disclosures concerning our companies significant accounting policies and recent accounting pronouncements.
FINANCIAL CONDITION
Investable Assets
At December 31, 2025, total investable assets held by Arch were $47.4 billion.
Investable Assets Held by Arch
The Finance, Investment and Risk Committee (“FIR Committee”) of our Board of Directors (the “Board”) establishes our investment policies and sets the parameters for creating guidelines for our investment managers. The FIR Committee reviews the implementation of the investment strategy on a regular basis. Our current approach stresses preservation of capital, market liquidity and diversification of risk. While maintaining our emphasis on preservation of capital and liquidity, we expect our portfolio to become more diversified and, as a result, we may expand into areas which are not currently part of our investment strategy. Our Chief Investment Officer administers the investment portfolio, oversees our investment managers and formulates investment strategy in conjunction with the FIR Committee. At December 31, 2025, approximately $29.5 billion, or 62%, of total investable assets held by Arch were internally managed, compared to $25.6 billion, or 62%, at December 31, 2024.
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The following table summarizes the duration and average credit quality of fixed income assets held by Arch:
December 31,
Average effective fixed maturities duration (in years)
Average S&P/Moody’s credit ratings (1)
(1) Average credit ratings on our investment portfolio on securities with ratings by S&P and Moody’s.
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
Total
December 31, 2025
U.S. government and gov’t agencies (1)
AAA
BBB
Lower than B
Not rated
Total
December 31, 2024
U.S. government and gov’t agencies (1)
AAA
BBB
Lower than B
Not rated
Total
(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
Total Gross
Unrealized
Losses
December 31, 2025
Greater than 30%
Total
December 31, 2024
Greater than 30%
Total
The following table summarizes our top ten exposures to fixed income corporate issuers by fair value at December 31, 2025, excluding guaranteed amounts and covered bonds:
Estimated Fair Value
Credit
Rating (1)
Morgan Stanley
JPMorgan Chase & Co.
Bank of America Corporation
The Goldman Sachs Group, Inc.
BBB+/A2
Wells Fargo & Company
BBB+/A1
Citigroup Inc.
The Toronto-Dominion Bank
UBS Group AG
Philip Morris International Inc.
Ford Motor Company
BBB-/Ba1
Total
(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 include residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset backed securities (“ABS”):
Agencies
Investment Grade
Below Investment Grade
Total
Dec. 31, 2025
RMBS
CMBS
ABS
Total
Dec. 31, 2024
RMBS
CMBS
ABS
Total
The following table summarizes our equity securities, which include investments in exchange traded funds:
December 31,
Equities (1)
Exchange traded funds
Fixed income (2)
Equity and other (3)
Total
(1) Primarily in technology, communications, consumer non-cyclical, financial and industrials at December 31, 2025.
(2) Primarily in structured and corporates at December 31, 2025.
(3) Primarily in technology, financials, communications, consumer cyclical and healthcare sectors at December 31, 2025.
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 fixed income duration risk that would be allowed under our investment guidelines if implemented in other ways. See note 11, “Derivative Instruments,” to our consolidated financial statements in Item 8 for additional disclosures concerning derivatives.
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 10, “Fair Value,” to our consolidated financial statements in Item 8 for a summary of our financial assets and liabilities measured at fair value at December 31, 2025 and 2024 segregated by level in the fair value hierarchy.
Reinsurance Recoverables
The following table details our reinsurance recoverables at December 31, 2025:
% of Total
A.M. Best
Rating (1)
Somers Re Ltd. (2)
Lloyd’s syndicates (3)
Hannover Rück SE
Munich Re Group
RenaissanceRe Holdings Ltd.
Swiss Reinsurance Company Ltd.
Everest Group Ltd.
Allianz
AXIS Capital Holdings Limited
Transatlantic Reinsurance Company
All other -- “A-” or better
All other -- not rated (4)
Total
(1) The financial strength ratings are as of January 5, 2026 and were assigned by A.M. Best based on its opinion of the insurer’s financial strength as of such date. An explanation of the ratings listed in the table follows: the rating of “A++” and “A+” are designated “Superior”; and the “A” and “A-” ratings are designated “Excellent.”
(2) See note 16, “Transactions with Related Parties.”
(3) The A.M. Best group rating of “A+” (Superior) has been applied to all Lloyd’s syndicates.
(4) Over 96% of such amount is collateralized through reinsurance trusts, funds withheld arrangements, letters of credit or other.
See note 8, “Reinsurance,” to our consolidated financial statements in Item 8 for further details.
Reserves for Losses and Loss Adjustment Expenses
We establish 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. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Summary of Critical Accounting Estimates—Loss Reserves” and see Item 1, “ Business—Reserves ” for further details.
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Shareholders’ Equity and Book Value per Share
The following table presents the calculation of book value per share:
(U.S. dollars in millions, except per share data)
December 31,
Total shareholders’ equity available to Arch
Less preferred shareholders’ equity
Common shareholders’ equity available to Arch
Common shares and common share equivalents outstanding, net of treasury shares (1)
Book value per share
(1) Excludes the effects of 10.2 million and 12.4 million stock options and 0.3 million and 0.3 million restricted and performance share units outstanding at December 31, 2025 and 2024, 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.
In 2025, Arch Capital received dividends of $2.0 billion from Arch Reinsurance Ltd. (“Arch Re Bermuda”), our Bermuda-based reinsurer and insurer. Arch Re Bermuda can pay approximately $6.4 billion to Arch Capital in 2026 without providing an affidavit to the Bermuda Monetary Authority (“BMA”).
Our insurance and reinsurance operations provide liquidity in that premiums are received in advance, sometimes substantially in advance, of the time losses are paid. The period of time from the occurrence of a claim through the settlement of the liability may extend many years into the future. Sources of liquidity include cash flows from operations, financing arrangements or routine sales of investments.
As part of our investment strategy, we seek to establish a level of cash and highly liquid short-term and intermediate-term securities which, combined with expected cash flow, is believed by us to be adequate to meet our foreseeable payment obligations. However, due to the nature of our operations, cash flows are affected by claim payments that
may comprise large payments on a limited number of claims and which can fluctuate from year to year. We believe that our liquid investments and cash flow will provide us with sufficient liquidity in order to meet our claim payment obligations. However, the timing and amounts of actual claim payments related to recorded Loss Reserves vary based on many factors, including large individual losses, changes in the legal environment, as well as general market conditions. The ultimate amount of the claim payments could differ materially from our estimated amounts. Certain lines of business written by us, such as excess casualty, have loss experience characterized as low frequency and high severity. The foregoing may result in significant variability in loss payment patterns. The impact of this variability can be exacerbated by the fact that the timing of the receipt of reinsurance recoverables owed to us may be slower than anticipated by us. Therefore, the irregular timing of claim payments can create significant variations in cash flows from operations between periods and may require us to utilize other sources of liquidity to make these payments, which may include the sale of investments or utilization of existing or new credit facilities or capital market transactions. If the source of liquidity is the sale of investments, we may be forced to sell such investments at a loss, which may be material.
We expect that our liquidity needs, including our anticipated insurance obligations and operating and capital expenditure needs, 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, for the next twelve months, at a minimum.
Dividend Restrictions
Arch Capital has no material restrictions on its ability to make distributions to shareholders. However, the ability of our regulated insurance and reinsurance subsidiaries to pay dividends or make distributions or other payments to us is limited by the applicable local laws and relevant regulations of the various countries and states in which we operate. See note 25, “Statutory Information,” to our consolidated financial statements in Item 8 for additional information on dividend restrictions.
The payment of dividends from Arch Re Bermuda is, under certain circumstances, limited under Bermuda law, which requires our Bermuda operating subsidiary to maintain certain measures of solvency and liquidity.
Our U.S. insurance and reinsurance subsidiaries are subject to insurance laws and regulations in the jurisdictions in which they operate. The ability of our regulated insurance subsidiaries to pay dividends or make distributions is dependent on their ability to meet applicable regulatory
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standards. These regulations include restrictions that limit the amount of dividends or other distributions, such as loans or cash advances, available to shareholders without prior approval of the insurance regulatory authorities. Each state requires prior regulatory approval of any payment of extraordinary dividends.
We also have insurance subsidiaries that are the parent company for other insurance subsidiaries, which means that dividends and other distributions will be subject to multiple layers of regulations in order for our insurance subsidiaries to be able to dividend funds to Arch Capital. The inability of the subsidiaries of Arch Capital to pay dividends and other permitted distributions could have a material adverse effect on Arch Capital’s cash requirements and our ability to make principal, interest and dividend payments on the senior notes, preferred shares and common shares.
In addition to meeting applicable regulatory standards, the ability of our insurance and reinsurance subsidiaries to pay dividends is also constrained by our dependence on the financial strength ratings of our insurance and reinsurance subsidiaries from independent rating agencies. The ratings from these agencies depend to a large extent on the capitalization levels of our insurance and reinsurance subsidiaries. We believe that Arch Capital has sufficient cash resources and available dividend capacity to service its indebtedness and other current outstanding obligations.
Restricted Assets
Our insurance, reinsurance and mortgage insurance subsidiaries are required to maintain assets on deposit, which primarily consist of fixed maturities, with various regulatory authorities to support their operations. The assets on deposit are available to settle insurance and reinsurance liabilities to third parties. Our insurance and reinsurance subsidiaries maintain assets in trust accounts as collateral for insurance and reinsurance transactions with affiliated companies and also have investments in segregated portfolios primarily to provide collateral or guarantees for letters of credit to third parties. At December 31, 2025 and 2024, such amounts approximated $15.0 billion and $13.0 billion, respectively.
Our investments in certain securities, including certain fixed income and structured securities, investments in funds accounted for using the equity method, other alternative investments and investments in operating affiliates may be illiquid due to contractual provisions or investment market conditions. If we require significant amounts of cash on short notice in excess of anticipated cash requirements, then we may have difficulty selling these investments in a timely manner or may be forced to sell or terminate them at unfavorable values. Our unfunded investment commitments totaled approximately $3.7 billion at December 31, 2025 and
are callable by our investment managers. The timing of the funding of investment commitments is uncertain and may require us to access cash on short notice.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities:
Year Ended December 31,
Total cash provided by (used for):
Operating activities
Investing activities
Financing activities
Effects of exchange rate changes on foreign currency cash
Increase (decrease) in cash
Cash provided by operating activities in 2025 was lower than in 2024. Activity in the 2025 period primarily reflected a higher level of losses paid than in the 2024 period.
Cash used for investing activities in 2025 reflected lower net purchases than in 2024, due in part to a higher level of losses paid than in the 2024 period. Activity in 2024 also reflected $852 million of net cash received related to the MCE Acquisition.
Cash used for financing activities in 2025 was lower than in 2024. Activity in 2025 consisted of $1.9 billion of share repurchases under our share repurchase program, while activity in 2024 included a $1.9 billion special dividend paid to common shareholders.
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Investments
At December 31, 2025, our investable assets were $47.4 billion. The primary goals of our asset liability management process are to meet our insurance liabilities, manage the interest rate risk embedded in those insurance liabilities and maintain sufficient liquidity to cover fluctuations in projected liability cash flows, including debt service obligations. Generally, the expected principal and interest payments produced by our fixed income portfolio adequately fund the estimated runoff of our insurance reserves. Although this is not an exact cash flow match in each period, the substantial degree by which the fair value of the fixed income portfolio exceeds the expected present value of the net insurance liabilities, as well as the positive cash flow from newly sold policies and the large amount of high quality liquid bonds, provide assurance of our ability to fund the payment of claims and to service our outstanding debt without having to sell securities at distressed prices or access credit facilities. See Item 1A “ Risk Factors ” for a discussion of other risks relating to our business and investment portfolio.
CAPITAL RESOURCES
The following table provides an analysis of our capital structure:
December 31,
Senior notes
Shareholders’ equity available to Arch:
Series F non-cumulative preferred shares
Series G non-cumulative preferred shares
Common shareholders’ equity
Total
Total capital available to Arch
Senior notes to total capital (%)
Revolving credit agreement borrowings to total capital (%)
Debt to total capital (%)
Preferred to total capital (%)
Debt and preferred to total capital (%)
See note 19, “Debt and Financing Arrangements" and note 21, “Shareholders' Equity” , to our consolidated financial statements in Item 8 for additional information on capital structure.
Capital Adequacy
We monitor our capital adequacy on a regular basis and will seek to adjust our capital base (up or down) according to the needs of our business. The future capital requirements of our business will depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. Our ability to underwrite is largely dependent upon the quality of our claims paying and financial strength ratings as evaluated by independent rating agencies. In particular, we require (1) sufficient capital to maintain our financial strength ratings, as issued by several ratings agencies, at a level considered necessary by management to enable our key operating subsidiaries to compete; (2) sufficient capital to enable our underwriting subsidiaries to meet the capital adequacy tests performed by statutory agencies in the U.S. and other key markets; and (3) our non-U.S. operating companies are required to post letters of credit and other forms of collateral that are necessary for them to operate as they are “non-admitted” under U.S. state insurance regulations.
In addition, Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (together, “eligible mortgage insurer”) are required to maintain compliance with the GSE requirements, known as PMIERs. The financial requirements require an eligible mortgage insurer’s available assets, which generally include only the most liquid assets of an insurer, to meet or exceed “minimum required assets” as of each quarter end. Minimum required assets are calculated from PMIERs tables with several risk dimensions (including origination year, original loan-to-value and original credit score of performing loans, and the delinquency status of non-performing loans) and are subject to a minimum amount. Together, our eligible mortgage insurers satisfied the PMIERs’ financial requirements as of December 31, 2025 with a PMIER sufficiency ratio of 179%, compared to 186% at December 31, 2024. On August 21, 2024, Fannie Mae and Freddie Mac (collectively the GSEs) each updated their PMIERs to incorporate new deductions to available assets for investment risk. This update became effective on March 31, 2025, but the impact will be phased in through September 30, 2026. If the GSEs had fully implemented this update to PMIERs as of December 31, 2025, the changes would have reduced the available assets by 6% and resulted in a pro-forma PMIERs sufficiency ratio of 173%.
As part of our capital management program, we may seek to raise additional capital or may seek to return capital to our shareholders through share repurchases, cash dividends or other methods (or a combination of such methods). We may also seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or
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otherwise. Any such determination will be at the discretion of the Board and will be dependent upon our profits, financial requirements and other factors, including legal restrictions, rating agency requirements, prevailing market conditions and such other factors as our Board deems relevant. The amounts involved may be material.
To the extent that our existing capital is insufficient to fund our future operating requirements or maintain such ratings, we may need to raise additional funds through financings or limit our growth. We can provide no assurance that, if needed, we would be able to obtain additional funds through financing on satisfactory terms or at all. Any adverse developments in the financial markets, such as disruptions, uncertainty or volatility in the capital and credit markets, may result in realized and unrealized capital losses that could have a material adverse effect on our results of operations, financial position and our businesses, and may also limit our access to capital required to operate our business. In addition to common share capital, we depend on external sources of finance to support our underwriting activities, which can be in the form (or any combination) of debt securities, preference shares, common equity and bank credit facilities providing loans and/or letters of credit.
Arch Capital, through its subsidiaries, provides financial support to certain of its insurance subsidiaries and affiliates, through certain reinsurance arrangements beneficial to the ratings of such subsidiaries. Historically, our insurance, reinsurance and mortgage insurance subsidiaries have entered into separate reinsurance arrangements with Arch Re Bermuda covering individual lines of business.
Except as described in the above paragraph, or where express reinsurance, guarantee or other financial support contractual arrangements are in place, each of Arch Capital’s subsidiaries or affiliates is solely responsible for its own liabilities and commitments (and no other Arch Capital subsidiary or affiliate is so responsible). Any reinsurance arrangements, guarantees or other financial support contractual arrangements that are in place are solely for the benefit of the Arch Capital subsidiary or affiliate involved and third parties (creditors or insureds of such entity) are not express beneficiaries of such arrangements.
Share Repurchase Program
Our Board has authorized the investment in Arch Capital’s common shares through a share repurchase program. Since the inception of the share repurchase program through December 31, 2025, Arch Capital has repurchased approximately 455.0 million common shares for an aggregate purchase price of $7.8 billion. At December 31, 2025, $1.1 billion of share repurchases were available under the program. Repurchases under the program may be effected from time to time in open market. The timing and
amount of the repurchase transactions under this program will depend on a variety of factors, including market conditions, the development of the economy, corporate and regulatory considerations. We will continue to monitor our share price and, depending upon results of operations, market conditions and the development of the economy, as well as other factors, we will consider share repurchases on an opportunistic basis.
GUARANTOR INFORMATION
The below table provides a description of our senior notes payable at December 31, 2025:
Interest
Principal
Carrying
Issuer/Due
(Fixed)
Amount
Amount
Arch Capital:
May 1, 2034
June 30, 2050
Arch-U.S.:
Nov. 1, 2043 (1)
Arch Finance:
Dec. 15, 2026 (1)
Dec. 15, 2046 (1)
Total
( 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 Capital and Arch-U.S. are each holding companies and, accordingly, they conduct substantially all of their operations through their operating subsidiaries. Arch Finance is a wholly owned subsidiary of Arch U.S. MI Holdings Inc., a U.S. holding company. As a result, Arch Capital, Arch-U.S. and Arch Finance's cash flows and their ability to service their debt depends upon the earnings of their operating subsidiaries and on their ability to distribute the earnings, loans or other payments from such subsidiaries to Arch Capital, Arch-U.S. and Arch Finance, respectively.
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During 2025 and 2024, we made interest payments of $127 million and $127 million, respectively, primarily related to our senior notes and other financing arrangements. See note 19, “Debt and Financing Arrangements,” to our consolidated financial statements in Item 8 for additional disclosures concerning our senior notes and revolving credit agreement borrowings. For additional information on our preferred shares, see note 21, “Shareholders’ Equity,” to our consolidated financial statements in Item 8.
The following tables present condensed financial information for Arch Capital (parent guarantor) and Arch-U.S. (subsidiary issuer):
December 31,
December 31, 2025
December 31, 2024
Arch Capital
Arch-
Arch Capital
Arch-
Assets
Total investments
Cash
Investment in operating affiliates
Due from subsidiaries
and affiliates
Other assets
Total assets
Liabilities
Senior notes
Due to subsidiaries
and affiliates
Other liabilities
Total liabilities
Non-cumulative preferred shares
Year Ended
December 31, 2025
December 31, 2024
Arch Capital
Arch-
Arch Capital
Arch-U.S.
Revenues
Net investment income
Net realized gains (losses)
Equity in net income (loss) of investments accounted for using the equity method
Total revenues
Expenses
Corporate expenses
Interest expense
Interest expense (intercompany)
Total expenses
Income (loss) before income taxes
Income tax (expense) benefit
Income (loss) from
operating affiliates
Net income available to Arch
Preferred dividends
Net income available to
Arch common shareholders
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CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Contractual Obligations
The following table provides an analysis of our contractual commitments at December 31, 2025:
Payment due by period
Total
2027 and 2028
2029 and 2030
Thereafter
Operating activities
Estimated gross payments for losses and loss adjustment expenses (1)
Contractholder payables (2)
Operating lease obligations
Purchase obligations
Contingent and deferred consideration liabilities
Investing activities
Unfunded investment commitments (3)
Financing activities
Senior notes (including interest payments)
Total contractual obligations and commitments
(1) The estimated expected contractual commitments related to the reserves for losses and loss adjustment expenses are presented on a gross basis ( i.e. , not reflecting any corresponding reinsurance recoverable amounts that would be due to us). It should be noted that until a claim has been presented to us, determined to be valid, quantified and settled, there is no known obligation on an individual transaction basis, and while estimable in the aggregate, the timing and amount contain significant uncertainty.
(2) Certain insurance policies written by our insurance operations feature large deductibles, primarily in construction and national accounts lines. Under such contracts, we are obligated to pay the claimant for the full amount of the claim and are subsequently reimbursed by the policyholder for the deductible amount. In the event we are unable to collect from the policyholder, we would be liable for such defaulted amounts.
(3) Unfunded investment commitments are callable by our investment managers. We have assumed that such investments will be funded in the next year but the funding may occur over a longer period of time, due to market conditions and other factors.
Letter of Credit and Revolving Credit Facilities
Arch Capital and certain of its subsidiaries have access to a credit facility with a syndicate of financial institutions (the “Group Credit Facility”) that expires on August 23, 2028. The Group Credit Facility consists of a $425 million secured facility for letters of credit (the “Secured Facility”) and a $500 million unsecured facility for revolving loans and letters of credit (the “Unsecured Facility”). At December 31, 2025, the Secured Facility had $224 million of letters of credit outstanding and remaining capacity of $201 million, and the Unsecured Facility had no outstanding revolving loans or letters of credit, with remaining capacity of $500 million.
The Group Credit Facility contains certain restrictive and maintenance covenants customary for facilities of this type, including restrictions on indebtedness, minimum consolidated tangible net worth, maximum leverage levels and minimum financial strength ratings. Arch Capital and its subsidiaries which are party to the agreement were in compliance with all covenants contained therein at December 31, 2025.
See note 19, “Debt and Financing Arrangements,” to our consolidated financial statements in Item 8 for additional disclosures concerning our senior notes and revolving credit agreement borrowings.
RATINGS
Our ability to underwrite business is affected by the quality of our claims paying ability and financial strength ratings as evaluated by independent agencies. Such ratings from third party internationally recognized statistical rating organizations or agencies are instrumental in establishing the financial security of companies in our industry. We believe that the primary users of such ratings include commercial and investment banks, policyholders, brokers, ceding companies and investors. Insurance ratings are also used by insurance and reinsurance intermediaries as an important means of assessing the financial strength and quality of insurers and reinsurers, and are often an important factor in the decision by an insured or intermediary of whether to place business with a particular insurance or reinsurance provider. Periodically, rating agencies evaluate us to confirm that we continue to meet their criteria for the ratings assigned to us by them. S&P, Moody’s, A.M. Best Company and Fitch Ratings are ratings agencies which have assigned financial strength ratings to one or more of Arch Capital’s subsidiaries.
If we are not able to obtain adequate capital, our business, results of operations and financial condition could be adversely affected, which could include, among other things, the following possible outcomes: (1) potential downgrades in the financial strength ratings assigned by ratings agencies
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to our operating subsidiaries, which could place those operating subsidiaries at a competitive disadvantage compared to higher-rated competitors; (2) reductions in the amount of business that our operating subsidiaries are able to write in order to meet capital adequacy-based tests enforced by statutory agencies; and (3) any resultant ratings downgrades could, among other things, affect our ability to write business and increase the cost of bank credit and letters of credit. In addition, under certain of the reinsurance agreements assumed by our reinsurance operations, upon the occurrence of a ratings downgrade or other specified triggering event with respect to our reinsurance operations, such as a reduction in surplus by specified amounts during specified periods, our ceding company clients may be provided with certain rights, including, among other things, the right to terminate the subject reinsurance agreement and/or to require that our reinsurance operations post additional collateral.
The ratings issued on our companies by these agencies are announced publicly and are available directly from the agencies. Our website www.archgroup.com (Investor Relations-Credit Ratings) contains information about our ratings, but such information on our website is not incorporated by reference into this report.
CATASTROPHIC AND SEVERE ECONOMIC EVENTS
We have large aggregate exposures to natural and man-made catastrophic events, pandemic events 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.
We have substantial exposure to unexpected, large losses resulting from future man-made catastrophic events, such as acts of war, acts of terrorism and political instability. These risks are inherently unpredictable. It is difficult to predict the timing of such events with statistical certainty or estimate the amount of loss any given occurrence will generate. It is not possible to completely eliminate our exposure to unpredictable events and, to the extent that losses from such risks occur, our financial condition and results of operations could be materially adversely affected. Therefore, claims for natural and man-made catastrophic events could expose us to large losses and cause substantial volatility in our results of operations, which could cause the value of our common shares to fluctuate widely. In certain instances, we specifically insure and reinsure risks resulting from terrorism. Even in cases where we attempt to exclude losses from terrorism and certain other similar risks from some coverages written by us, we may not be successful in doing so. Moreover, irrespective of the clarity and inclusiveness of policy language, there can be no assurance that a court or arbitration panel will limit enforceability of policy language or otherwise issue a ruling adverse to us.
We seek to limit our loss exposure by writing a number of our reinsurance contracts on an excess of loss basis, adhering to maximum limitations on reinsurance written in defined geographical zones, limiting program size for each client and prudent underwriting of each program written. In the case of proportional treaties, we may seek per occurrence limitations or loss ratio caps to limit the impact of losses from any one or series of events. In our insurance operations, we seek to limit our exposure through the purchase of reinsurance. We cannot be certain that any of these loss limitation methods will be effective. We also seek to limit our loss exposure by geographic diversification. Geographic zone limitations involve significant underwriting judgments, including the determination of the area of the zones and the inclusion of a particular policy within a particular zone's limits. There can be no assurance that various provisions of our policies, such as limitations or exclusions from coverage or choice of forum, will be enforceable in the manner we intend. Disputes relating to coverage and choice of legal forum may also arise. Underwriting is inherently a matter of judgment, involving important assumptions about matters that are inherently unpredictable and beyond our control, and for which historical experience and probability analysis may not provide sufficient guidance. One or more catastrophic or other events could result in claims that substantially exceed our expectations, which could have a material adverse effect on our financial condition or our results of operations, possibly to the extent of eliminating our shareholders' equity.
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2025 FORM 10-K
For our natural catastrophe exposed business, we seek to limit the amount of exposure we will assume from any one insured or reinsured and the amount of the exposure to catastrophe losses from a single event in any geographic zone. We monitor our exposure to catastrophic events, including earthquake and wind and periodically reevaluate the estimated probable maximum pre-tax loss for such exposures. Our estimated probable maximum pre-tax loss is determined through the use of modeling techniques, but such estimate does not represent our total potential loss for such exposures.
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 January 1, 2026, our modeled peak zone catastrophe exposure was a windstorm affecting the Florida Tri-County, with a net probable maximum pre-tax loss of $1.9 billion, followed by windstorms affecting the Northeast U.S., and the Gulf of Mexico with net probable maximum pre-tax losses of $1.7 billion and $1.5 billion, respectively. As of January 1, 2026, our modeled peak zone earthquake exposure (San Francisco area earthquake) represented approximately 51% of our peak zone catastrophe exposure, and our modeled peak zone international exposure (German windstorm) was substantially less than both our peak zone windstorm and earthquake exposures.
We also have significant exposure to losses due to mortgage defaults resulting from severe economic events in the future. For our U.S. and Australian 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 January 1, 2026, our modeled RDS loss was $931 million, or 4.1% 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 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 Item 1A, “ Risk Factors—Risks Relating to Our Industry, Business and Operations” Depending on business opportunities and the mix of business that may comprise our insurance, reinsurance and mortgage portfolios, we may seek to adjust our self-imposed limitations on probable maximum pre-tax loss for catastrophe exposed business and mortgage default exposed business. See “—Summary of Critical Accounting Estimates—Ceded Reinsurance” for a discussion of our catastrophe reinsurance programs.
ARCH CAPITAL
2025 FORM 10-K
MARKET SENSITIVE INSTRUMENTS AND RISK MANAGEMENT
Our investment results are subject to a variety of risks, including risks related to changes in the business, financial condition or results of operations of the entities in which we invest, as well as changes in general economic conditions and overall market conditions. We are also exposed to potential loss from various market risks, including changes in equity prices, interest rates and foreign currency exchange rates.
In accordance with the SEC’s Financial Reporting Release No. 48, we performed a sensitivity analysis to determine the effects that market risk exposures could have on the future earnings, fair values or cash flows of our financial instruments as of December 31, 2025. Market risk represents the risk of changes in the fair value of a financial instrument and consists of several components, including liquidity, basis and price risks.
The sensitivity analysis performed as of December 31, 2025 presents hypothetical losses in cash flows, earnings and fair values of market sensitive instruments which were held by us on December 31, 2025 and are sensitive to changes in interest rates and equity security prices. This risk management discussion and the estimated amounts generated from the following sensitivity analysis represent forward-looking statements of market risk assuming certain adverse market conditions occur. Actual results in the future may differ materially from these projected results due to actual developments in the global financial markets. The analysis methods used by us to assess and mitigate risk should not be considered projections of future events of losses.
The focus of the SEC’s market risk rules is on price risk. For purposes of specific risk analysis, we employ 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. The financial instruments included in the following sensitivity analysis consist of all of our investments and cash.
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 investment portfolio at December 31, 2025 and 2024:
(U.S. dollars in billions)
Interest Rate Shift in Basis Points
Dec. 31, 2025
Total fair value
Change from base
Change in unrealized value
Dec. 31, 2024
Total fair value
Change from base
Change in unrealized value
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 the portfolio at December 31, 2025 and 2024:
(U.S. dollars in billions)
Credit Spread Shift in Percentage
Dec. 31, 2025
Total fair value
Change from base
Change in unrealized value
Dec. 31, 2024
Total fair value
Change from base
Change in unrealized value
ARCH CAPITAL
2025 FORM 10-K
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 recent data points are generally given more weight. As of December 31, 2025, our portfolio’s 95th percentile VaR was estimated to be 6.5%, compared to an estimated 5.6% at December 31, 2024. 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 December 31, 2025 and 2024, the fair value of our investments in equity securities and certain investments accounted for using the equity method with underlying equity strategies totaled $1.8 billion and $1.5 billion, 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 $178 million and $149 million at December 31, 2025 and 2024, respectively, and would have decreased book value per share by approximately $0.50 and $0.40, respectively. An immediate hypothetical 10% increase in the value of each position would increase the fair value of such investments by approximately $178 million and $149 million at December 31, 2025 and 2024, respectively, and would have increased book value per share by approximately $0.50 and $0.40, respectively.
Investment-Related Derivatives. At December 31, 2025, the notional value of all derivative instruments (excluding foreign currency forward contracts which are included in the foreign currency exchange risk analysis below) was $8.0 billion, compared to $5.0 billion at December 31, 2024. If the underlying exposure of each investment-related derivative held at December 31, 2025 depreciated by 100 basis points, it would have resulted in a reduction in net income of approximately $80 million, and a decrease in book value per share of $0.22, compared to $50 million and $0.13, respectively, on investment-related derivatives held at December 31, 2024. If the underlying exposure of each investment-related derivative held at December 31, 2025 appreciated by 100 basis points, it would have resulted in an increase in net income of approximately $80 million, and an increase in book value per share of $0.22, compared to $50 million and $0.13, respectively, on investment-related
derivatives held at December 31, 2024. See note 11, “Derivative Instruments,” to our consolidated financial statements in Item 8 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 11, “Derivative Instruments,” to our consolidated financial statements in Item 8 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:
(U.S. dollars in millions, except
per share data)
December 31,
December 31,
Net assets (liabilities), denominated in foreign currencies, excluding shareholders’ equity and derivatives
Shareholders’ equity denominated in foreign currencies (1)
Net foreign currency forward contracts outstanding (2)
Net exposures denominated in foreign currencies
Pre-tax impact of a hypothetical 10% appreciation of the U.S. Dollar against foreign currencies:
Shareholders’ equity
Book value per share
Pre-tax impact of a hypothetical 10% decline of the U.S. Dollar against foreign currencies:
Shareholders’ equity
Book value per share
(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.
ARCH CAPITAL
2025 FORM 10-K
Although the Company generally attempts to match the currency of its projected liabilities with investments in the same currencies, from time to time the Company may elect to over or underweight one or more currencies, which could increase the Company’s exposure to foreign currency fluctuations and increase the volatility of the Company’s 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.”
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, for the development of inflationary pressures in a local economy. This risk may be heightened from time to time by geopolitical tensions, global supply chain disruptions, tariffs, and other contributing factors. 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.
