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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.03pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.01pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.06pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
negatively+4
fines+2
scrutiny+2
failure+1
severity+1
Positive rising
effective+2
able+2
benefit+2
successfully+1
opportunities+1
Risk Factors (Item 1A)
15,828 words
ITEM 1A. RISK FACTORS
Set forth below are risk factors relating to our business. These risks and uncertainties are not the only ones we face. There may be additional risks that we currently consider not to be material or of which we are not currently aware, and any of these risks could cause our actual results to differ materially from historical or anticipated results. You should carefully consider these risks along with the other information provided in this report, including our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our accompanying consolidated financial statements, as well as the information under the heading “Cautionary Note Regarding Forward-Looking Statements” before investing in any of our securities. We may amend, supplement or add to the risk factors described below from time to time in future reports filed with the SEC.
RISK FACTORS SUMMARY
The following is a summary description of the material risks and uncertainties to which we may be exposed. Each of these risks could adversely affect our business, financial condition and results of operations, and any such effects may be material. These and other risks are more fully described after this summary description.
Risks Relating to Our Industry, Business and Operations
• We operate in a highly competitive environment, and we may not be to compete in our industry.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
losses+4
impairment+2
critical+1
disruptions+1
instability+1
Positive rising
gains+3
enhance+2
strength+1
effective+1
excellent+1
MD&A (Item 7)
21,458 words
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.
• The insurance and reinsurance industry is highly cyclical, and we may at times experience periods characterized by excess underwriting capacity and unfavorable premium rates.
• The effects of inflation, trade and tariff disputes and other economic conditions impact the insurance and reinsurance industry in ways which may negatively impact our business, financial condition and results of operations.
• Claims for natural catastrophic events could cause large losses and substantial volatility in our results of operations and could have a material adverse effect on our financial position and results of operations.
• The impact of climate change will affect our losslimitation methods, such as the purchase of third party reinsurance and catastrophe risk modeling and risk selection in ways which may adversely impact our business, financial condition and results of operations.
• Our insurance, reinsurance and mortgage subsidiaries are subject to supervision and regulation. Changes to existing regulation and supervisory standards, or failure to comply
with applicable requirements, could adversely affect our business and results of operations.
• We are subject to ongoing legal and policy actions around climate change which may result in additional requirements that could prompt us to shift our risk selection and business strategy in ways which may adversely impact our results of operations.
• Sanctions imposed by the U.S., U.K. and EU on Russia and Russia-related businesses have impacted certain sectors in which we write business.
• Certain U.S. policies and actions have created geopolitical risks which are not possible to manage or predict, some of which may result in uncertainty in the global markets.
• Our customers and policyholders may also be impacted by regulatory, technological, market or other risks relating to climate change in ways which we cannot predict with certainty and adversely impact our results of operations.
• We are subject to changes in governmental, investor and societal responses to climate change and sustainability-related issues, which may result in scrutiny of our business, litigation or adverse impacts to our share price and our results of operations.
• We could face unanticipatedlosses from increased geopolitical tensions, hostilities, war, terrorism, cyber attacks and general political instability, and these or other unanticipatedlosses could have a material adverse effect on our financial condition and results of operations.
• Underwriting risks and reserving for losses are based on probabilities and related modeling, which are subject to inherent uncertainties.
• The failure of any of the losslimitation methods we employ could have a material adverse effect on our financial condition or results of operations.
• The availability of reinsurance, retrocessional coverage and capital market transactions to limit our exposure to risks may be limited, and counterparty credit and other risks associated with our reinsurance arrangements may result in losses which could adversely affect our financial condition and results of operations.
• We could be materially adversely affected to the extent that important third parties with whom we do business do not adequately or appropriately manage their risks, commit fraud or otherwise breach obligations owed to us.
• Emerging claim and coverage issues may adversely affect our business.
• Acquisitions, the addition of new lines of insurance or reinsurance business, expansion into new geographic regions and/or entering into joint ventures or partnerships expose us to risks.
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• Our information technology systems and our pace of adoption of new technologies, including AI, may not be adequate to meet the demands of our customers or impact negatively our ability to compete with our peers.
• Technology failures caused by intentional and unintentional human and non-human actions may cause material disruption in the availability of the information technology systems we use in our business.
• We could be materially impacted by a cyber attack, data breach, ransomware, phishing, social engineering or other cybersecurity incident resulting in loss of business data, personal data and other confidential or secret information, a disruption in our business operations, regulatory or other legal action, and fines.
• Changes in criteria used by rating agencies which may result in a downgrade in our ratings, our inability to obtain a rating or a change in capital allocation or requirements for our operating insurance and reinsurance subsidiaries may adversely affect our relationships with clients and brokers and negatively impact sales of our products.
• Our ability to execute our business strategy successfully, continue to grow and innovate and offer our employees a dynamic and supportive workplace depends on the recruitment, retention and promotion of talented, agile, and resilient employees at all levels of our organization.
• Our success will depend on our ability to maintain and enhanceeffective operating procedures and internal controls and our ERM program.
• We are exposed to credit risk in certain of our business operations.
• Our business is subject to laws and regulations relating to economic trade sanctions and foreign bribery laws, the violation of which could adversely affect our operations.
Risks Relating to Financial Markets and Investment s
• Adverse developments in the financial markets could have a material adverse effect on our results of operations, financial position and our businesses, and may also limit our access to capital; our policyholders, reinsurers and retrocessionaires may also be affected by such developments, which could adversely affect their ability to meet their obligations to us.
• Disruption to the financial markets and weak economic conditions resulting from situations such as supply/demand imbalances, inflation and political unrest may adversely and materially impact our investments, financial condition and results of operation.
• The determination of the amount of current expected credit losses (“CECL”) allowances taken on our investments is highly subjective and could materially
impact our results of operations or financial position.
• Our reinsurance subsidiaries may be required to provide collateral to ceding companies, by applicable regulators, their contracts or other commercial considerations. Their ability to conduct business could be significantly and negatively affected if they are unable to do so.
Risks Relating to Our Mortgage Operations
• The ultimate performance of our mortgage insurance portfolios remains uncertain.
• If the volume of low down payment mortgage originations declines, or if other government housing policies, practices or regulations change, the amount of mortgage insurance we write in the U.S. or Australia could decline, which would reduce our mortgage insurance revenues.
• Changes to the role of the GSEs in the U.S. housing market or to GSE eligibility requirements for mortgage insurers or to the GSEs’ use of CRT could negatively impact our results of operations and financial condition or reduce our operating flexibility.
• The implementation of the Basel III Capital Accord and FHFA’s Enterprise Regulatory Capital Framework may adversely affect the use of mortgage insurance and SRT and CRT opportunities.
Risks Relating to Our Company
• Some of the provisions of our bye-laws and our shareholders agreement may have the effect of hindering, delaying or preventing third party takeovers or changes in management initiated by shareholders. These provisions may also prevent our shareholders from receiving premium prices for their shares in an unsolicited takeover.
• There are regulatory limitations on the ownership and transfer of our common shares.
• Arch Capital is a holding company and is dependent on dividends and other distributions from its operating subsidiaries.
• General market conditions and unpredictable factors could adversely affect market prices for our outstanding preferred shares.
• Dividends on our preferred shares are non-cumulative.
• Our preferred shares are equity and are subordinate to our existing and future indebtedness.
• The voting rights of holders of our preferred shares are limited.
Risks Relating to Taxation
• We are subject to increased taxation in Bermuda as a result of the Bermuda CIT Act, effective January 1, 2025 and may become subject to increased taxation in other countries as a result of the implementation of the OECD's plan on “Base Erosion and Profit Shifting.”
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Risks Relating to Our Industry, Business and Operations
We operate in a highly competitive environment, and we may not be able to compete successfully in our industry.
The insurance and reinsurance industry is highly competitive. We compete on an international and regional basis with major U.S. and non-U.S. insurers and reinsurers, many of which have greater financial, marketing and management resources than we do. See “Competition” in Item 1 for details on our competitors in each of the major segments we operate in. We compete on the basis of product offerings, pricing, terms and conditions, claims servicing and customer relationships. Other factors, such as our proven cycle management skills, our expertise in specialty lines of business and our use of technologies and data analytics are other factors, may differentiate us from our competitors. Any failure by us to effectively compete could adversely affect our financial condition and results of operations.
The insurance and reinsurance industry is highly cyclical, and we may at times experience periods characterized by excess underwriting capacity and unfavorable premium rates.
Historically, insurers and reinsurers have experienced significant fluctuations in operating results due to competition, frequency of occurrence or severity of catastrophic events, levels of capacity, general economic conditions, inflation, changes in equity, debt and other investment markets, changes in legislation, case law and prevailing concepts of liability and other factors. Demand for reinsurance is influenced significantly by the underwriting results of primary insurers and prevailing general economic conditions. The supply of insurance and reinsurance is related to prevailing prices and levels of surplus capacity that, in turn, may fluctuate in response to changes in rates of return being realized in the insurance and reinsurance industry on both underwriting and investment sides. As a result, the insurance and reinsurance business historically has been a cyclical industry characterized by periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity permitted favorable premium levels and changes in terms and conditions. The supply of insurance and reinsurance is increasing, either as a result of capital provided by new entrants or by the commitment of additional capital by existing insurers or reinsurers. Continued increases in the supply of insurance and reinsurance may have consequences for us, including fewer contracts written, lower New Insurance Written (“NIW”), lower premium rates, increased expenses for customer acquisition and retention, and less favorable policy terms and conditions.
The effects of inflation, trade and tariff disputes and other economic conditions impact the insurance and reinsurance industry in ways which may negatively impact our business, financial condition and results of operations.
While general economic inflation has eased in recent quarters, higher inflationary conditions may continue to remain in place. The potential also exists, after a catastropheloss or geopolitical hostilities for the development of inflationary pressures in a local or regional economy. This may have a material effect on the adequacy of our reserves for losses and loss adjustment expenses, especially in longer-tailed lines of business. In addition, governmental actions in response to inflationary pressures, such as increasing interest rates, may have a material impact, such as on the market value of our investment portfolio, or on the size of the mortgage origination market available to be insured by our mortgage business. While we consider the anticipated effects of inflation 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 settled. In addition, there are different types of inflation relevant to certain lines of business, the impact of which is difficult to accurately assess at this time. For example, in our mortgage business, the failure of general wages to keep pace with economic inflation, or increases in unemployment due to prolongedrecessionary conditions, could prevent borrowers from being able to afford their mortgage payments and thereby increase the frequency of claims beyond our modeled results. Global recessionary conditions, including inflation, the slow recovery of certain sectors from the pandemic, predicted slow growth rates across key markets and other factors, will impact the insurance and reinsurance industry.
While our business has not been directly impacted by the existing and proposed Trump administration tariffs on imported goods, there may be a ripple effect on how these impact certain industries where we provide insurance or reinsurance. It is too early to determine the long-term effect, if any, of the Trump administration tariff policy, but sustained escalation of tariffs and trade disputes may result in a global economic slowdown which impacts us and our clients.
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Claims for natural catastrophic events could cause large losses and substantial volatility in our results of operations and could have a material adverse effect on our financial position and results of operations.
We have large aggregate exposures to natural catastrophic events. Natural catastrophes can be caused by various events, including hurricanes, floods, wildfires, tsunamis, windstorms, earthquakes, hailstorms, tornadoes, severe winter weather, fires, droughts and other natural disasters. The frequency and severity of natural catastrophe activity has also been greater in recent years due to climate change caused in part by human actions and other related factors. Catastrophes can cause losses in non-property business such as workers’ compensation or general liability. In addition to the nature of the 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. Actual losses from future catastrophic events have varied materially from estimates due to the inherent uncertainties in making such determinations resulting from several factors, including the potential inaccuracies and inadequacies in the data provided by clients, brokers and ceding companies, the modeling techniques and the application of such techniques, the contingent nature of business interruption exposures, the effects of any resultant demand surge on claims activity and attendant coverage issues. In estimating our losses from catastrophic events our considerations can include factors such as overall market losses, additional claims information from our clients, multiple model views and proprietary scenario testing. All of the catastrophe modeling tools that we use or rely on to evaluate our catastrophe exposures are therefore based on significant assumptions and judgments and are subject to error and misestimation. As a result, our estimated exposures could be materially different than our actual results.
The impact of climate change will affect our losslimitation methods, such as the purchase of third party reinsurance and catastrophe risk modeling and risk selection in ways which may adversely impact our business, financial condition and results of operations.
Changing weather patterns and climatic conditions, such as global warming, have added to the unpredictability, severity and frequency of natural disasters. Uncertainty about complexities of climate change affects our ability to assess with certainty the full impact of climate change and creates uncertainty about future trends and exposures. Although the loss experience of catastrophe insurers and reinsurers has historically been characterized as low frequency, climate change has impacted the frequency and severity of extreme weather events and natural catastrophes such as hurricanes, tornado activity, other windstorms, floods, wildfires and
droughts in recent years and may continue to increase in the future.
Claims for catastrophic events, or an unusual frequency of smaller losses in a particular period, could expose us to large losses, cause substantial volatility in our results of operations and could have a material adverse effect on our ability to write new business if we are not able to adequately assess and reserve for the increased frequency and severity of catastrophes resulting from these environmental factors. Climate change and increasing catastrophic events could increase property damage to residential real estate secured by mortgages owned by the GSEs, and by extension could increase losses to CRT investors. Increasing catastrophic events could increase the cost of homeowners insurance and could negatively impact mortgagees’ ability to meet their monthly housing payment obligations, and by extension could increase the frequency of claims. Additionally, climate change may make modeled outcomes less certain or produce new, non-modeled risks. Catastrophic events could result in increased credit exposure to reinsurers and other counterparties we transact business with, declines in the value of investments we hold and significant disruptions to our physical infrastructure, systems and operations. Climate change-related risks may also specifically adversely impact the value of the securities that we hold.
Changes in security asset prices may impact the value of our fixed income, real estate and commercial mortgage investments, resulting in realized or unrealized losses on our invested assets. These risks are not limited to, but can include: (i) changes in supply/demand characteristics for fossil fuels ( e.g. , coal, oil, natural gas); (ii) advances in low-carbon technology and renewable energy development; and (iii) effects of extreme weather events on the physical and operational exposure of industries and issuers, and the transition that these companies make towards addressing climate risk in their own businesses.
We attempt to manage our exposure to these risks relating to climate change through the use of underwriting controls, proprietary and third party risk models, and the purchase of third party reinsurance. Underwriting controls can include more restrictive underwriting criteria such as higher premiums and deductibles, reduction in limits offered or losses retained, and more specifically excluded policy risks. Our exposure in connection with a catastrophic event is determined by market capacity, pricing conditions, regulatory capital requirements, our perceptions of underlying risk and surplus preservation. There can be no assurance that our reinsurance coverage and other measures taken will be sufficient to mitigate losses resulting from one or more catastrophic events. As a result, the occurrence of one or more catastrophic events and the
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continuation and worsening of recent trends could have an adverse effect on our results of operations and financial condition.
Our insurance, reinsurance and mortgage subsidiaries are subject to supervision and regulation. Changes to existing regulation and supervisory standards, or failure to comply with applicable requirements, could adversely affect our business and results of operation.
Our insurance and reinsurance subsidiaries conduct business globally and are subject to varying degrees of regulation in the various jurisdictions in which they conduct business, including by state, federal and national insurance regulators. In August 2024, we were added to the list of IAIGs, subjecting our global operations to additional regulation and scrutiny. The purpose of insurance laws and regulations generally is to protect policyholders and ceding insurance companies, not our shareholders. See “Regulation” in Item 1.
We may not be able to comply fully with, or obtain appropriate exemptions from, these statutes and regulations, which could result in restrictions on our ability to do business or undertake activities that are regulated in one or more of the jurisdictions in which we conduct business and could subject us to fines and other sanctions. Local and regulatory authorities also may seek to exercise their supervisory or enforcement authority in new or more extensive ways, such as imposing increased capital requirements or limiting or impeding the oversight that we are able to exercise over our subsidiaries. Additionally, it is possible that requirements or guidance under one jurisdiction may be contradictory or divergent from requirements or guidance in other jurisdictions where we operate. Examples include disclosure requirements relating to climate change and sustainability. Regulatory fragmentation could affect the competitive market, how we are regulated and the way we conduct our business and manage our capital and could result in lower revenues and higher costs. As a result, such actions could have a material effect on our results of operations and financial condition.
We are subject to ongoing legal and policy actions around climate change which may result in additional requirements which could prompt us to shift our risk selection and business strategy in ways which may adversely impact our results of operations.
Governments, regulators, legislators and influential non-governmental organizations (“NGOs”) continue to develop laws, regulations and other requirements related to climate change. Regulatory and shareholder scrutiny of potential “greenwashing” also continues. We are subject to these evolving and often unpredictable requirements and policy debates, which are difficult to forecast or quantify and may adversely affect our business. Legislative or regulatory actions, as well as court decisions following major catastrophes, could require broader insurance coverage or otherwise negatively impact our operations. In addition, climate‑related regulatory changes or our own strategic responses to climate risks could increase our operating costs or reduce premiums in certain business lines.
We are subject to CSRD and other EU and U.K. climate‑related disclosure regulations, which require more extensive reporting than current U.S. rules. Proposed changes by the European Commission may further affect our obligations. We cannot predict how these or other evolving sustainability requirements across our jurisdictions will impact our operations, customers or shareholders.
Our efforts to address these risks rely on loss‑mitigation measures, risk modeling, operating results and engagement with customers and shareholders. We continue to monitor industry and geographic developments, and our Board regularly considers these exposures. Although we may take strategic actions in response to legal and policy changes, there is no assurance these actions will fully address the risks or avoid material adverse effects on our results, financial condition or share price.
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Sanctions imposed by the U.S., U.K. and EU on Russia and Russia-related businesses have impacted certain sectors in which we write business.
The ongoing Russia-Ukraine hostilities have created disruptions in certain sectors of the global economy. It is impossible to predict whether Russia will expand hostilities to other countries in Europe or elsewhere. The prolonged war has impacted the global energy sector and resulted in general increase in risks worldwide. Additionally, certain lines of business we write have been impacted by sanctions, such as the marine and energy lines of business, although the extent of the impact will depend on the outcome of the war in Ukraine and the nature of future sanctions packages. It is possible that the U.S. approach to Russian sanctions may diverge from that of the U.K. and EU in the future, which may cause uncertainty in certain lines of business such as marine and energy.
Certain U.S. policies and actions have created geopolitical risks which are not possible to manage or predict, some of which may result in uncertainty in the global markets.
Recent U.S. policies and actions, such as actions relating to Venezuela and Greenland, may jeopardize certain global alliances and create geopolitical uncertainty. While the long-term impact of these policies is currently unknown, these policies and other geopolitical tensions have resulted in, or could result in, volatile global capital markets, sanctions, trade restrictions and harm countries’ relationships.
Our customers and policyholders may also be impacted by regulatory, technological, market or other risks relating to climate change in ways which we cannot predict with certainty and adversely impact our results of operations.
Our policyholders and customers are located primarily in countries and regions, such as the U.S., U.K., EU and Australia where there are regulatory, policy, legal and technological changes resulting from actions relating to climate change. In some cases, those policyholders and customers may not be able to shift their business strategies or adjust adequately to these changes, and their businesses may be negatively impacted or, in some cases, cease to exist. Climate change on a global and regional level may impact businesses on a temporary or permanent basis, resulting in shifting needs for our products and services in ways we cannot predict. More stringent regulations and other requirements imposed on our policyholders may negatively impact their ability to conduct business. As a result of these factors, our results of operations may be impacted by the loss of those customers or a shift in their patterns or levels of insurance coverage in ways we cannot predict.
We are subject to changes in governmental, investor and societal responses to climate change and sustainability-related issues, which may result in scrutiny of our business, litigation or adverse impacts to our share price and our results of operations.
Shareholders, investors and regulators have historically focused on climate and sustainability matters, leading to evolving and sometimes conflicting expectations and standards. Our leadership and Board assess these issues and evaluate where incorporating sustainability practices is appropriate for our business. Changes to governmental, investor and societal priorities could adversely impact our reputation, share price and results of operation or result in litigation.
We could face unanticipatedlosses from increased geopolitical tensions, hostilities, war, terrorism, cyber attacks, and general political instability, and these or other unanticipatedlosses could have a material adverse effect on our financial condition and results of operations.
We have substantial exposure to unexpected, large losses resulting from man-made catastrophic events, such as acts of war, regional hostilities, acts of terrorism, political instability, social unrest, cyber attacks and pandemics similar to the COVID-19 pandemic. 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. In certain instances, we specifically insure and reinsure risks resulting from acts of terrorism. We may also insure against risk related to cybersecurity and cyber attacks. In addition, our exposure to cyber attacks includes exposure to ‘silent cyber’ risks, meaning risks and potential losses associated with policies where cyber risk is not specifically included nor excluded in the policies. Even in cases where we attempt to exclude losses from terrorism, cybersecurity 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 not limit enforceability of policy language or otherwise issue a ruling adverse to us. Accordingly, while we believe our reinsurance programs, together with the coverage provided under the Terrorism Risk Insurance Act of 2002, as amended (“TRIA”) are sufficient to reasonably limit our net losses relating to potential future terrorist attacks, we can offer no assurance that our available capital will be adequate to cover losses when they materialize. To the extent that an act of terrorism is certified by the Secretary of the Treasury and aggregate industry insured losses resulting from the act of terrorism exceeds the prescribed program trigger, our U.S. insurance operations may be covered under TRIA for up to 80% subject to (i) a mandatory deductible of 20% of our prior year’s direct earned premium for covered property and liability
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coverages, and (ii) an industry aggregate retention of $53.4 billion. The program trigger for calendar year 2025 and any program year thereafter through 2027 is $200 million. If an act (or acts) of terrorism result in covered losses exceeding the $100 billion annual limit, insurers with losses exceeding their deductibles will not be responsible for additional losses. It is not possible to completely eliminate our exposure to unforecasted or unpredictable events, and to the extent that losses from such risks occur, our financial condition and results of operations could be materially adversely affected.
Underwriting risks and reserving for losses are based on probabilities and related modeling, which are subject to inherent uncertainties.
Our success is dependent upon our ability to assess accurately the risks associated with the businesses that we insure and reinsure. We establish reserves for losses and loss adjustment expenses which represent estimates based on actuarial and statistical projections, at a given point in time, of our expectations of the ultimate future settlement and administration costs of losses incurred. 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. Most or all of these factors are not directly quantifiable, particularly on a prospective basis, and the effects of these and unforeseen factors could negatively impact our ability to accurately assess the risks of the policies that we write. Changes in the assumptions used by these models or by management could lead to an increase in our estimate of ultimate losses in the future. In addition, there may be significant reporting lags between the occurrence of the insured event and the time it is reported to the insurer and additional lags between the time of reporting and final settlement of claims. In addition, the estimation of loss reserves is more difficult during times of adverse economic and market conditions due to unexpected changes in behavior of claimants and policyholders, including an increase in fraudulent reporting of exposures and/or losses, reduced maintenance of insured properties or increased frequency of small claims. Changes in the level of inflation also result in an increased level of uncertainty in our estimation of loss reserves. As a result, actual losses and loss adjustment expenses paid can deviate, perhaps substantially, from the reserve estimates reflected in our financial statements.
If our loss reserves are determined to be inadequate, we will be required to increase loss reserves at the time of such determination with a corresponding reduction in our net income in the period when the deficiency becomes known. It is possible that claims in respect of events that have occurred could exceed our claim reserves and have a material adverse effect on our results of operations, in a particular period, or our financial condition in general. As a
compounding factor, although most insurance contracts have policy limits, the nature of property and casualty insurance and reinsurance is such that losses and the associated expenses can exceed policy limits for a variety of reasons and could significantly exceed the premiums received on the underlying policies, thereby further adversely affecting our financial condition.
As of December 31, 2025, our consolidated reserves for unpaidlosses and loss adjustment expenses, net of unpaidlosses and loss adjustment expenses recoverable, were approximately $24.5 billion. Such reserves were established in accordance with applicable insurance laws and GAAP. Loss reserves are inherently subject to uncertainty. In establishing the reserves for losses and loss adjustment expenses, we have made various assumptions relating to the pricing of our reinsurance contracts and insurance policies and have also considered available historical industry experience and current industry conditions. 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.
The failure of any of the losslimitation methods we employ could have a material adverse effect on our financial condition or results of operations.
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. For our U.S. mortgage insurance business, in addition to utilizing reinsurance, we have developed a proprietary risk model that simulates the maximum probable loss resulting from a severe economic event impacting the housing market. We also seek to limit our loss exposure by geographic diversification, including by pricing adjustments in our U.S. mortgage insurance business. Geographic pricing decisions and 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. Various provisions of our policies, negotiated to limit our risk, such as limitations or exclusions from coverage or choice of forum, may not be enforceable in the manner we intend, as it is possible that a court or regulatory authority could nullify or void an exclusion or limitation, or legislation could be enacted modifying or barring the use of these exclusions and limitations. Disputes relating to coverage and choice of legal
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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 events or severe economic events could result in claims that substantially exceed our expectations, or the protections set forth in our policies could be voided, which, in either case, could have a material adverse effect on our financial condition or our results of operations, possibly to the extent of eliminating our shareholders’ equity. In addition, factors such as global climate change limit the value of historical experience and therefore further limit the effectiveness of our losslimitation methods. See “Catastrophic Events and Severe Economic Events” in Item 7 for further details. Depending on business opportunities and the mix of business that may comprise our insurance, reinsurance and mortgage insurance portfolio, we may seek to adjust our self-imposed limitations on probable maximum pre-tax loss for catastropheexposed business and mortgage defaultexposed business.
The availability of reinsurance, retrocessional coverage and capital market transactions to limit our exposure to risks may be limited, and counterparty credit and other risks associated with our reinsurance arrangements may result in losses which could adversely affect our financial condition and results of operations.
We manage risk using reinsurance, retrocessional coverage and capital markets transactions. Our insurance subsidiaries typically cede a portion of their premiums through pro rata, excess of loss and facultative reinsurance agreements. Our reinsurance subsidiaries purchase a limited amount of retrocessional coverage as part of their aggregate risk management program. In addition, our reinsurance subsidiaries participate in “common account” retrocessional arrangements for certain pro rata treaties. Such arrangements reduce the effect of individual or aggregate losses to all companies participating on such treaties, including the reinsurers, such as our reinsurance subsidiaries, and the ceding company. Economic conditions, including but not limited to unemployment, inflation, declining home prices or the impact of climate change could also have a material impact on our ability to manage our risk aggregations through reinsurance or capital markets transactions. The availability and cost of excess of loss reinsurance sold into the capital markets is subject to investor appetite and market conditions when compared to the terms and yield opportunities of other similar investment opportunities. As a result of these factors, we may not be able to successfully mitigate risk through reinsurance and retrocessional arrangements.
Further, we are subject to credit risk with respect to our reinsurance and retrocessions because the ceding of risk to reinsurers and retrocessionaires does not relieve us of our liability to the clients or companies we insure or reinsure. We monitor the financial condition of our reinsurers and attempt to place coverages only with carriers we view as substantial and financially sound. An inability of our reinsurers or retrocessionaires to meet their obligations to us could have a material adverse effect on our financial condition and results of operations. Our losses for a given event or occurrence may increase if our reinsurers or retrocessionaires dispute or fail to meet their obligations to us or the reinsurance or retrocessional protections purchased by us are exhausted or are otherwise unavailable for any reason. In certain instances, we also require collateral to mitigate our credit risk to our reinsurers or retrocessionaires. We are at risk that losses could exceed the collateral we have obtained. Our failure to establish adequate reinsurance or retrocessional arrangements or the failure of our existing reinsurance or retrocessional arrangements to protect us from overly concentrated risk exposure could adversely affect our financial condition and results of operations.
We could be materially adversely affected to the extent that important third parties with whom we do business do not adequately or appropriately manage their risks, commit fraud or otherwise breach obligations owed to us.
For certain lines of our insurance business, we authorize managing general agents, general agents and other producers to write business on our behalf within underwriting authorities prescribed by us. In addition, our mortgage group delegates the underwriting of a significant percentage of its primary new insurance written to certain mortgage lenders. Under this delegated underwriting program, the approved customer may determine whether mortgage loans meet our mortgage insurance program guidelines and commit us to issue mortgage insurance. We rely on the underwriting controls of these agents to write business within the underwriting authorities provided by us. Although we have contractual protections in some instances and we monitor such business on an ongoing basis, our monitoring efforts may not be adequate or our agents may exceed their underwriting authorities or otherwise breach obligations owed to us. In addition, our agents, our insureds or other third parties may commit fraud or otherwise breach their obligations to us. Our financial condition and results of operations could be materially adversely affected by any one of these issues.
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While we conduct underwriting, financial, claims and information technology due diligence reviews and apply rigorous standards in the selection of these counterparties, there is no assurance they have provided us accurate or complete information to assess their risk or that they can manage effectively their own risks. The counterparties are also subject to the same global increase in cyber incidents, including ransomware, and we cannot offer assurances that these counterparties have sufficient technical and organizational controls to mitigate these risks. Consequently, we assume a degree of credit and operational risk of those parties, and a material failure to manage their risks may result in material losses or damage to us.
Emerging claim and coverage issues may adversely affect our business.
As industry practices and legal, social and new coverage issues change, unexpected and unintended issues related to claims and coverage may emerge, including new or expanded theories of liability. These or other changes could impose new financial obligations on us by extending coverage beyond our underwriting intent or otherwise require us to make unplanned modifications to the products and services that we provide, or cause the delay or cancellation of products and services that we provide. In some instances, these changes may not become apparent until sometime after we have issued insurance or reinsurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance or reinsurance contracts may not be known for many years after a contract is issued. The effects of unforeseen developments or substantial government intervention could adversely impact us.
Acquisitions, the addition of new lines of insurance or reinsurance business, expansion into new geographic regions and/or entering into joint ventures or partnerships expose us to risks.
We have acquired other companies and selected blocks of business and also expanded our business lines and geographies and/or entered into joint ventures or partnerships as part of our strategy. The MCE Acquisition is an example of such expansion. We may seek, from time to time, to acquire other companies, acquire selected blocks of business, expand our business lines, expand into new geographic regions and/or enter into joint ventures or partnerships. Such activities expose us to challenges and risks, including: integrating financial and operational reporting systems; establishing satisfactory budgetary and other financial controls; funding increased capital needs, overhead expenses or cash flow shortages that may occur if anticipated sales and revenues are not realized or are delayed, whether by general economic or market conditions or unforeseen internal difficulties; obtaining management
personnel required for expanded operations; obtaining necessary regulatory permissions; and establishing adequate reserves for any acquired book of business. In addition, the value of assets acquired may be lower than expected or may diminish due to credit defaults or changes in interest rates; the liabilities assumed may be greater than expected; and assets and liabilities acquired may be subject to foreign currency exchange rate fluctuation. We may also be subject to financial exposures in the event that the sellers of the entities or business we acquire are unable or unwilling to meet their indemnification, reinsurance and other contractual obligations to us. Our failure to manage successfully any of the foregoing challenges and risks may adversely impact our results of operations.
Our information technology systems and our pace of adoption of new technologies, including AI, may not be adequate to meet the demands of our customers or impact negatively our ability to compete with our peers.
We are dependent on our information technology systems to conduct our business and drive strategic decisions based on data analytics. Our information technology systems also support areas of our business, such as mortgage servicing or underwriting pricing portals where we connect with third party information technology systems. Accordingly, we are highly dependent on the effective operation, availability and integrity of these systems. While we believe that the systems are adequate to service our business, there can be no assurance that they will operate in all manners in which we intend, possess all of the functionality required by customers currently or in the future or continuously operate without significant disruption.
Our customers and regulators require that our information technology systems perform as intended, whether they are hosted by us, managed by a third party on our behalf or rely on seamless electronic integrations with customer systems. Regulators and customers regularly request information about our cybersecurity program and disaster recovery plans. We must continually invest significant resources in maintaining, monitoring and enhancing our information technology systems’ capabilities to meet customer needs and business strategy. Our business, financial condition and operating results may be adversely affected if we do not adequately maintain our information technology systems, both internal and third party, and continuously test and upgrade them. We continuously evaluate the adequacy of our information technology systems in order to ensure that we are utilizing the most appropriate technologies and innovating or adopting new technologies to support our underwriting business.
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With new technologies and AI tools emerging at a rapid pace, there is no assurance that we will be able to evaluate and integrate new technologies or update our existing systems to keep pace with our competitors and customer needs. While we believe AI presents significant opportunities to support our strategic goals, we may not be successful in implementing AI technologies. It is possible that any AI we use does not perform as anticipated, suffers from “hallucinations” or that its outputs may not be as expected or may result in unlawful discrimination, which may put us at a competitive disadvantage, result in reputational damage and regulatory fines and actions.
Additionally, the regulatory landscape surrounding traditional AI and generative AI is evolving, and the expanded use of these technologies may become subject to regulatory scrutiny under new or existing laws. Moreover, the intellectual property and ownership rights associated with both forms of artificial intelligence have not been fully addressed by courts in the U.S. or in other jurisdictions that we operate in. We established the Artificial Intelligence Governance and Oversight Committee (“AIGOC”) to evaluate and approve new AI use cases and issue and oversee our Company’s Artificial Intelligence Policy. While we believe the AIGOC and our larger AI governance framework is responsive to new risks and regulations, failure to comply with the applicable AI-related regulations could result in fines, penalties, litigation, or restrictions on our business operations. These outcomes may have a materially adverse effect on our business or financial condition.
Technology failures caused by intentional and unintentional human and non-human actions may cause material disruption in the availability of the information technology systems we use in our business.
We rely on information technology systems to securely process, transmit, store and protect the confidential and electronic information, financial data and proprietary models that are critical to our business. Furthermore, a significant portion of the communications between our employees and our business partners and service providers depends on information technology and electronic information exchange. Like all companies, our information technology systems and the systems of third parties that we do business with are vulnerable to data breaches, interruptions or failures due to events that may be beyond our control, including, but not limited to, natural disasters, power outages, theft, terrorist attacks, computer viruses, hackers, employee or vendor error or misconduct, malicious actors, errors in usage or deepfake or social engineering or schemes, phishing attacks, other external hazards and general technology failures.
We rely on certain third party technology service providers and other service providers, notably major cloud providers, Software-as-a-Service (or “SaaS”) solutions, and on-premise software, including proprietary and open source solutions. We also outsource certain business processes to third parties and may continue do so in the future. This practice exposes us to increased risks if those third party systems, including AI technologies that may be in use, are not maintained and monitored in accordance with contractual terms, regulations or due to human error. There is no assurance that we will not be materially adversely affected by such incidents impacting our critical and important functions. See Item 1C, “ Cybersecurity ” for additional information.
We could be materially impacted by a cyber attack, data breach, ransomware, phishing, social engineering or other cybersecurity incident resulting in loss of business data, personal data and other confidential or secret information, a disruption in our business operations, regulatory or other legal action, and fines .
Cybersecurity incidents and attacks resulting in unauthorized access to our systems and those of third parties we use in our business could have a material impact on our business operations as a result of loss or misuse of our information, including personal data and sensitive data, and disruption to normal business operations. Specifically, these incidents, and the disruptions resulting therefrom, may impact the availability, reliability, speed, accuracy or other proper functioning of these systems.
The sophistication of cybersecurity threats, AI-powered cyber attacks such as deep fakes and brute force attacks, continues to increase. We and/or our SaaS or other third party providers are exposed to these risks and other cybersecurity risks which may arise in the future.
While we believe we have effective technical and organizational measures in place to prevent, detect, manage and mitigate the impact of data breaches and cybersecurity incidents caused by malicious actors, systemic failures or human error, we cannot offer complete assurances that significant data breaches on our systems and those of third parties we use will not occur.
We are subject to many laws and regulations relating to the adequacy of cybersecurity programs and business resiliency, including the SEC Cybersecurity Rules, and comprehensive privacy, security and business resiliency laws in the EU such as GDPR and DORA. Some U.S. industry regulators like the NYDFS in New York also impose comprehensive cybersecurity requirements on our U.S. operations. A cybersecurity incident could result in a violation of these and other applicable laws, resulting in damage to our reputation, loss of customers, decline in our stock price, litigation,
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remediation costs, increased insurance premiums, employee dissatisfaction and/or monetary fines, penalties or litigation, any of which could adversely affect our business.
Based on our investigations and incident management, the Company does not believe these and other cybersecurity incidents we have experienced to date have materially affected the Company’s business operations, but we cannot provide assurances that our controls will defendagainst all cyber attacks. See Item 1C, “ Cybersecurity ” for additional information.
Changes in criteria used by rating agencies which may result in a downgrade in our ratings, our inability to obtain a rating or a change in capital application or requirements for our operating insurance and reinsurance subsidiaries may adversely affect our relationships with clients and brokers and negatively impact sales of our products.
Similar to our competitors, a ratings downgrade or the potential for such a downgrade, or failure to obtain a necessary rating, could adversely affect our relationships with agents, brokers, wholesalers, intermediaries, clients and other distributors of our existing and new products and services. Some of our assumed reinsurance agreements include provisions that 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, provide our ceding company clients certain rights, including, the right to terminate the subject reinsurance agreement and/or to require us to post additional collateral. Any ratings downgrade or failure to obtain a necessary rating could adversely affect our ability to compete in our markets, could cause our premiums and earnings to decrease and could have a material adverse impact on our financial condition and results of operations. In some cases, a downgrade in ratings of certain of our operating subsidiaries may constitute an event of default under our credit facilities.
We can offer no assurances that our ratings will remain at their current levels. Changes in the criteria used by rating agencies may impact our capital position, our capital requirements and the treatment of certain items on our balance sheet. It is possible that rating agencies may modify their evaluation criteria, heighten the level of scrutiny they apply when analyzing companies in our industry, adjust upward the capital and other requirements employed in their models and/or discontinue recognition of credit and debt instruments or other structures deployed for maintenance of certain rating levels. We may need to raise additional funds through equity or debt financings or other investments. Any equity or debt financing, if available at all, may be on terms that are unfavorable to us. Equity financings could be dilutive to our existing shareholders and could result in the issuance of securities that have rights,
preferences and privileges that are senior to those of our outstanding securities. If we are not able to obtain adequate capital through such financings or through our investment strategy, our business, results of operations and financial condition could be adversely affected. See “Capital Resources” in Item 7 for further details.
For further information on our financial strength and/or issuer ratings, see “Ratings” in Item 1. For further information on our letter of credit facilities, see the Letter of Credit and Revolving Credit Facilities section of “Contractual Obligations and Commercial Commitments” in Item 7.
Our ability to execute our business strategy successfully, continue to grow and innovate and offer our employees a dynamic and supportive workplace depends on the recruitment, retention and promotion of talented, agile, and resilient employees at all levels of our organization.
The success of our business depends on attracting and retaining a capable and talented workforce. We provide a work environment and culture which reflects our goal to “Enable Possibility”. We offer flexible and hybrid work arrangements, when possible, for our employees globally, as well as competitive compensation packages which include participation in our Employee Stock Purchase Plan and the possibility of equity awards at certain job levels. Over the past few years, we have also implemented and expanded our learning programs, career leveling and employee networks, all of which we believe will help us retain talent.
While our efforts to attract, develop and retain talented employees continues to be a top priority, we may not be able to compete successfully for talented executives and employees, which may adversely impact our ability to fully realize our business strategy.
Our success will depend on our ability to maintain and enhanceeffective operating procedures and internal controls and our ERM program.
We operate within an ERM framework designed to identify, assess and monitor our risks. We consider underwriting, reserving, investment, credit, group and operational risk in our ERM framework. Losses, reputational damage, regulatory fines, supervisory criticism, contractual disputes and litigation are among the adverse impacts which can arise if we fail to operate an effective ERM framework. Our operational risks include the ongoing obligation to comply with applicable laws, regulations, regulatory expectations, and legal standards across all jurisdictions where Arch conducts business. Additionally, operational risk and losses can result from, among other things, fraud, errors, failure to document transactions properly or to obtain proper internal authorization, failure to comply with regulatory requirements across all jurisdictions where Arch conducts
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business, information technology or information security failures and failure to train employees appropriately or adequately. We continuously enhance our operating procedures and internal controls to effectively support our business and our regulatory and reporting requirements. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake or circumvention of controls. There can be no assurance that our control system will succeed in achieving its stated goals under all potential future conditions. Any ineffectiveness in our controls or procedures could have a material adverse effect on our business. For further information on our ERM framework, see “Enterprise Risk Management” in Item 1.
We are exposed to credit risk in certain of our business operations .
In addition to exposure to credit risk related to our investment portfolio, reinsurance recoverables and reliance on brokers and other agents, we are exposed to credit risk in other areas of our business related to policyholders. We are exposed to credit risk in our insurance group’s surety unit where we guarantee to a third party that our policyholder will satisfy certain performance or financial obligations. If our policyholder defaults, we may sufferlosses and be unable to be reimbursed by our policyholder. We are also exposed to credit risk from policyholders on smaller deductibles in other insurance group lines, such as healthcare and excess and surplus casualty. Although we have not experienced any material credit losses to date, an increased inability of our policyholders to meet their obligations to us could have a material adverse effect on our financial condition and results of operations. See note 3, “Significant Accounting Policies.”
Our business is subject to laws and regulations relating to economic trade sanctions and foreign bribery laws, the violation of which could adversely affect our operations.
We must comply with all applicable economic sanctions and anti-bribery laws and regulations of the U.S. and other foreign jurisdictions where we operate. U.S. laws and regulations applicable to us and others who provide insurance and reinsurance include the economic trade sanctions laws and regulations administered by the Treasury’s Office of Foreign Assets Control as well as certain laws administered by the U.S. Department of State. New sanctions regimes may be initiated, or existing sanctions expanded or lifted, at any time, which can immediately impact our business activities. Since the Russian invasion of Ukraine in 2022, there have been several sanctions packages
imposed by the U.S., U.K. and EU which impact our business. The sanctions are complex, numerous and nuanced, requiring close review and assessment as they pertain to our business. We are also subject to the U.S. Foreign Corrupt Practices Act and other anti-bribery laws such as the U.K. Bribery Act that generally bar corrupt payments or unreasonable gifts to foreign governments or officials. Although we have policies and controls in place designed to ensure compliance with these laws and regulations, it is possible that an employee or intermediary could fail to comply with applicable laws and regulations. In addition, we may interpret a complex sanction in a way which may differ from a regulator. In these cases, we could be exposed to fines, criminalpenalties and other sanctions. Such violations could limit our ability to conduct business and/or damage our reputation, resulting in a material adverse effect on our financial condition and results of operations.
Risks Relating to Financial Markets and Investments
Adverse developments in the financial markets could have a material adverse effect on our results of operations, financial position and our businesses, and may also limit our access to capital; our policyholders, reinsurers and retrocessionaires may also be affected by such developments, which could adversely affect their ability to meet their obligations to us.
Adverse developments in the financial markets, resulting from inflation, global recessionary pressures, geopolitical conflict, liquidity conditions among other factors, can increase uncertainty and heighten volatility in the credit and equity markets. These developments may result in realized and unrealized losses on our investment portfolio 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, our policyholders, reinsurers and retrocessionaires may be affected by developments in the financial markets, which could adversely affect their ability to meet their obligations to us. Volatility in the financial markets could significantly affect our investment returns, reported results and shareholders’ equity.
The capital requirements of our businesses depend on many factors, including regulatory and rating agency requirements, the performance of our investment portfolio, our ability to write new business successfully, the frequency and severity of catastrophe events and our ability to establish premium rates and reserves at levels sufficient to cover losses.
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Disruption to the financial markets and weak economic conditions resulting from situations such as supply/demand imbalances, inflation and political unrest may adversely and materially impact our investments, financial condition and results of operation.
Disruption in the financial markets and the downturn in global economic activity resulting from geopolitical conflict or economic decisions/trade wars, elevated financing rates, property market declines or other macro-and micro-economic conditions could adversely affect the valuation of securities in our investment portfolio. Credit deterioration spread widening and/or equity market volatility could result in temporary or permanent impairment. Elevated levels of inflation could drive higher U.S. and global interest rates, negatively impacting asset prices, particularly in fixed income and undermine financial flexibility of operating businesses. In addition, a lack of pricing transparency, decreased market liquidity, the strengthening or weakening of foreign currencies against the U.S. Dollar, individually or in tandem, could have a material adverse effect on our results through realized losses, impairments and changes in unrealized positions in our investment portfolio. Furthermore, issuers of the investments we hold under the equity method of accounting report their financial information to us one month to three months following the end of the reporting period. Accordingly, the adverse impact of any disruptions in global financial markets on equity method income from these investments would likely not be reflected in our current quarter results and would instead be reported in the subsequent quarter.
Our operating results depend in part on the performance of our investment portfolio. A significant portion of cash and invested assets held by Arch consists of fixed maturities ( 70.8% as of December 31, 2025). Although our current investment guidelines and approach emphasize preservation of capital, market liquidity and diversification of risk, our investments are subject to market-wide risks and valuation fluctuations. In addition, we are subject to risks inherent in particular securities or types of securities, as well as sector concentrations. We may not be able to realize our investment objectives, which could have a material adverse effect on our financial results. In the event that we are unsuccessful in calibrating the liquidity of our investment portfolio with our expected insurance and reinsurance liabilities, we may be forced to liquidate our investments at times and prices that are not optimal, which could have a material adverse effect on our financial results and ability to conduct our business.
We write business on a worldwide basis, and our results of operations may be affected by fluctuations in the value of currencies other than the U.S. Dollar. The primary foreign currencies in which we operate are the Euro, the British Pound Sterling, the Australian Dollar and the Canadian Dollar. In order to minimize the possibility of losses we may suffer as a result of our exposure to foreign currency fluctuations in our net insurance liabilities, we invest in securities denominated in currencies other than the U.S. Dollar. In addition, we may replicate investment positions in foreign currencies using derivative financial instruments. Changes in the value of available-for-sale investments due to foreign currency rate movements are reflected as a direct increase or decrease to shareholders' equity and are not included in the statement of income.
The determination of the amount of current expected CECL allowances taken on our investments is highly subjective and could materially impact our results of operations or financial position.
On a quarterly basis, we review our investments by applying an approach based on the CECL and whether declines in fair value below the cost basis requires an estimate of the expected credit loss. There can be no assurance that our management has accurately assessed the level of the credit loss allowance taken, as reflected in our financial statements. Furthermore, additional allowance may need to be taken or allowances provided for in the future. Further, rapidly changing and unpredictable credit and equity market conditions could materially affect the valuation of securities carried at fair value as reported within our consolidated financial statements and the period-to-period changes in value could vary significantly.
Our reinsurance subsidiaries may be required to provide collateral to ceding companies, by applicable regulators, their contracts or other commercial considerations. Their ability to conduct business could be significantly and negatively affected if they are unable to do so.
Arch Re Bermuda is a registered Bermuda insurance company and is not licensed or admitted as an insurer in any jurisdiction in the U.S., although Arch Re Bermuda has been approved as a “certified reinsurer” and a “reciprocal reinsurer” in certain U.S. states that allow for the reduction or elimination of statutory collateral for reinsurance ceded to such reinsurers. Arch Re Bermuda's contracts generally require it to post a letter of credit or provide other security, even in U.S. states where it has been approved for reduced collateral, upon the happening of certain events. State credit for reinsurance rules also generally provide that reinsurers such as Arch Re Bermuda must provide statutory collateral in the event their certified or reciprocal status is
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“terminated” or 100% collateral upon the entry of an order of rehabilitation, liquidation or conservation against a ceding insurer.
Although, to date, Arch Re Bermuda has not experienced any difficulties in providing collateral when required, if we are unable to post security in the form of letters of credit or trust funds when required, the operations of Arch Re Bermuda could be significantly and negatively affected.
Risks Relating to Our Mortgage Operations
The ultimate performance of our mortgage insurance portfolios remains uncertain.
The mix of business in our insured loan portfolio may affect losses. The presence of multiple higher-risk characteristics in a loan materially increases the likelihood of a claim unless there are other characteristics to mitigate the risk. Changes in underwriting standards, loan terms or credit evaluation methodologies (including those driven by the GSEs, regulators or market competition) could result in a higher ‑ risk mortgage insurance portfolio and increase the frequency and severity of claims, which could have a material adverse effect on our business, results of operation and financial condition. The geographic mix of our insured loan portfolio could also increase losses and harm our financial performance.
Mortgage insurance premiums are set at the time coverage is procured, based in part on the expected duration of the coverage. We cannot cancel mortgage insurance coverage or adjust renewal premiums during the life of the policy. Thus, higher than anticipated claims generally cannot be offset by premium increases on policies in force or mitigated by our non-renewal or cancellation of insurance coverage. Further, in the U.S., to the extent that the insured cancels coverage as a result of prior home price appreciation, the duration of coverage will be shorter, and we will receive less premium. The premiums charged, and the associated investment income, may not be adequate to compensate us for the risks and costs associated with the insurance coverage provided to customers. Intense competition within the private mortgage insurance industry and the potential for new entrants could result in lower premiums and/or negatively impact our level of NIW . A decrease in the amount of premium received or an increase in the number or size of claims, compared to what we anticipate, could adversely affect our results of operations and financial condition.
The frequency and severity of claims we incur is uncertain and will depend largely on general economic factors outside of our control, including, among others, changes in unemployment and home prices affordability. Inflated home prices followed by a decline in home values could significantly decrease a borrower’s equity in their home,
which would limit their ability to sell the property without incurring a loss and could increase the frequency and severity of claims. Changes to credit scoring models, data inputs or evaluation frameworks could result in borrowers being assessed as lower risk than their actual performance ultimately reflect, increasing uncertainty in default and claim performance due to model changes.
Monthly interest rate changes in Australia or the increasing cost of homeowners insurance in the U.S. could make a borrower’s monthly housing-related payment obligations increase and could increase the frequency of claims. Deteriorating economic conditions, potentially due to prolongedrecessionary conditions increasing levels of unemployment and inflation, could adversely affect the performance of our mortgage insurance portfolio and could adversely affect our results of operations and financial condition.
If the volume of low down payment mortgage originations declines, or if other government housing policies, practices or regulations change, the amount of mortgage insurance we write in the U.S. or Australia could decline, which would reduce our mortgage insurance revenues.
The size of the U.S. and Australian mortgage insurance market depends in large part upon the volume of low down payment home mortgage originations. Increases to mortgage interest rates have materially increased financing costs, and as a result have decreased the number of qualified borrowers and the volume of low down payment mortgage originations. Other factors affecting the volume of low down payment mortgage originations include, among others: restrictions on mortgage credit due to stringent underwriting standards and liquidity issues affecting lenders; changes in affordability due to increased mortgage interest rates and home prices, and other economic conditions in the U.S., Australian and regional economies; population trends, including the rate of household formation and immigration; supply constraints and increased building costs; and U.S. and Australian government housing policy, including policies encouraging loans to first time home buyers.
The private mortgage insurers’ principal government competitor in the U.S. is the Federal Housing Administration (“FHA”). In 2023, the FHA reduced its annual mortgage insurance premium rates by 30bps from .85% to .55% for most single family mortgages. This change, and any future changes to the FHA program may, cause a decline in the volume of low down payment home mortgages purchased by the GSEs and negatively impact the amount of mortgage insurance we write in the U.S.
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The FHFA as conservator of the GSEs continues to evaluate loan level price adjustments (“LLPAs”) and guarantees fees assessed by the GSEs when purchasing loans. Future pricing changes, which may include increasing LLPAs and guarantee fees, limiting the purchase of certain categories of loans, or restricting loan limits could cause a decline in the volume of low down payment home mortgage purchases by the GSEs and could negatively impact U.S. new insurance written and mortgage insurance revenues.
To reduce pressure on housing affordability in Australia, the Australian Government introduced the First Home Guarantee Scheme (“HGS”) in 2020, designed to support eligible first home buyers by allowing them to purchase a home with a deposit of as little as 5%. Under HGS, Housing Australia, the Australian Government’s independent national housing agency, provides a free guarantee to the lender of up to 15% of the value of the property for first home buyers, negating the requirement to pay for mortgage insurance. Since inception through 2025, the HGS was substantially expanded, negatively impacting the amount of mortgage insurance we write in Australia, and we cannot predict whether this will continue in the future.
Changes to the role of the GSEs in the U.S. housing market or to GSE eligibility requirements for mortgage insurers or to the GSEs’ use of CRT could negatively impact our results of operations and financial condition or reduce our operating flexibility.
Substantially all of Arch MI U.S.’s insurance written has been for loans sold to the GSEs. The charters of the GSEs require credit enhancement for low down payment mortgages to be eligible for purchase or guarantee by the GSEs. Any changes to the charters or statutory authorities of the GSEs would require congressional action to implement. If the charters of the GSEs were amended to change or eliminate the acceptability of private mortgage insurance, our mortgage insurance business could decline significantly.
On January 2, 2025, the U.S. Department of Treasury (the “Treasury Department”) and FHFA announced an agreement to amend the preferred stock purchase agreements between the Treasury Department and the GSEs, originally entered into in 2008, in order to, among other things, codify the requirement that Treasury consent before the conservatorships can be terminated, memorialize that ending the conservatorship should be based on consideration of the financial condition of the GSEs and the potential impact on the housing market, and outline an agreed upon process for eventual public input. If any GSE reform, including privatization, is pursued, whether through legislation or administrative action, it could impact the current role of private mortgage insurance as credit enhancement, including its reduction or elimination. Passage and timing of any comprehensive GSE reform or incremental
change (legislative or administrative) is uncertain, making the actual impact on the mortgage insurance industry difficult to predict. Furthermore, the FHFA and/or the GSEs could choose to reduce the amount of CRT protection purchased on their loan portfolios, which could reduce the CRT investment opportunities available for reinsurers. Future legislative or administrative action or changes to business practices related to the use or requirement for credit enhancement could have a material adverse impact on the Company.
The PMIERs apply to AMIC and UGRIC, which are eligible mortgage insurers. The PMIERs impose limitations on the type of risk insured, the forms and insurance policies issued, standards for geographic and customer diversification of risk, acceptable underwriting practices, quality assurance, loss mitigation, claims handling, reinsurance cessions and financial requirements, among other things. The financial requirements require a mortgage insurer’s available assets to meet or exceed “minimum required assets” as of each quarter end. In August 2024, the GSEs updated PMIERs to incorporate new deductions to the definition of available assets for investment risk. This update became effective March 31, 2025, but the impact will be phased in through September 30, 2026. Arch MI U.S.’s minimum required assets under the PMIERs will be determined, in part, by the particular risk profiles of the loans it insures. If, absent other changes, Arch MI U.S.’s mix of business changes to include more loans with higher loan-to-value ratios or lower credit scores, it will have a higher minimum required asset amount under the PMIERs and, accordingly, be required to hold more capital in order to maintain GSE eligibility. Our eligible mortgage insurers each satisfied the PMIERs’ financial requirements as of December 31, 2025. While we intend to continue to comply with these requirements, there can be no assurance that the GSEs will not change the PMIERs or that AMIC or UGRIC will continue as eligible mortgage insurers. If either or both of the GSEs were to cease to consider AMIC or UGRIC as eligible mortgage insurers and, therefore, cease accepting our mortgage insurance products, our results of operations and financial condition would be adversely affected.
The implementation of the Basel III Capital Accord and FHFA’s Enterprise Regulatory Capital Framework may adversely affect the use of mortgage insurance and SRT and CRT opportunities.
In 2017, the Basel Committee on Banking Supervision published final revisions to the Basel Capital Accord which is informally denominated in the U.S., as “Basel III Endgame.” The Basel Committee expects the new rules to be fully implemented by January 2027.
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In 2023, the Federal banking agencies released a proposed rule to implement the Basel III Endgame in the United States, which would apply to banks with assets greater than $100 billion. The proposal would increase the capital charges for mortgages held in portfolio and eliminate the capital relief currently afforded mortgage loans protected by private mortgage insurance, which could adversely affect the volume of mortgages originated by banks subject to the rule and the demand for mortgage insurance. With the change in the Presidential administration in 2025, and based on feedback received in response to the proposed rule, the Federal banking agencies have indicated an intent to repropose the Basel III Rules. In September 2025, Federal Reserve Vice Chair for Supervision, Michelle Bowman, stated that the U.S. bank regulators are working toward unveiling a revised Basel III Endgame by early 2026. She indicated that the revised proposal would be more “industry friendly” than prior versions, though the timing, requirements, and implementation of the reproposed rule remain uncertain.
While some countries outside of the EU have begun implementing the Basel III Endgame, both the U.K. and the EU have announced that the start of implementation will be delayed until January 1, 2027. In addition, the U.K. is considering applying different rules for smaller banks, and the EU is consulting on proposals to amend the EU Securitization Regulation (“SECR”) and Capital Requirements Regulation (“CRR”), which implement the Basel III Endgame. The proposed SECR and CRR amendments improve the capital relief EU banks receive from insurance-based SRT transactions in which the Company participates. The timing, requirements, and implementation of the final rules remain uncertain and subject to continued debate, which could negatively impact the capital relief afforded by the protection we provide and the volume of insurance-based SRT transactions in the EU.
In 2020, the FHFA published a new Enterprise Regulatory Capital Framework (“ERCF”) for Fannie Mae and Freddie Mac that significantly increased minimum capital requirements for the GSEs. The rule requires each GSE to maintain both higher minimum capital ratios and capital “buffers” to avoid restrictions on capital distributions and discretionary bonus payments. Changes were made to the ERCF in 2022 to incentivize CRT transactions, and in 2023 to address capital requirements for derivatives; market risk; multifamily loans; and exposures of an Enterprise to the other Enterprise.
The ERCF includes higher risk-capital charges for residential mortgages and continues to take into account the benefits of private mortgage insurance, provided the mortgage insurer is compliant with the PMIERs. The higher risk-capital charges for residential mortgages under the ERCF could be incorporated into future PMIERs amendments, thereby requiring mortgage insurers to hold higher capital levels in order to be recognized as an eligible insurer for the GSEs. This could have a negative impact on our return on equity.
Future changes to the ERCF, or the guarantee fees charged to acquire loans, could adversely impact credit for credit risk transfer, the capital relief afforded private mortgage insurance or the volume of loans purchased by the Enterprises and the demand for mortgage insurance.
Risks Relating to Our Company and Our Shares
Some of the provisions of our bye-laws and our shareholders agreement may have the effect of hindering, delaying or preventing third party takeovers or changes in management initiated by shareholders. These provisions may also prevent our shareholders from receiving premium prices for their shares in an unsolicited takeover.
Some provisions of our bye-laws could have the effect of discouraging unsolicited takeover bids from third parties or changes in management initiated by shareholders. These provisions may encourage companies interested in acquiring us to negotiate in advance with our Board, since the Board has the authority to overrule the operation of several of the limitations.
Among other things, our bye-laws provide: for a classified Board, in which the directors of the class elected at each annual general meeting holds office for a term of three years, with the term of each class expiring at successive annual general meetings of shareholders; that the number of directors is determined by the Board from time to time by a vote of the majority of the Board; that directors may only be removed for cause, and cause removal shall be deemed to exist only if the director whose removal is proposed has been convicted of a felony or been found by a court to be liable for gross negligence or misconduct in the performance of his or her duties; that the Board has the right to fill vacancies, including vacancies created by an expansion of the Board; and for limitations on a shareholder’s right to raise proposals or nominate directors at general meetings. Our bye-laws provide that certain provisions that may have anti-takeover effects may be repealed or altered only with prior Board approval and upon the affirmative vote of holders of shares representing at least 65% of the total voting power of our shares entitled generally to vote at an election of directors.
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2025 FORM 10-K
The bye-laws also contain a provision limiting the rights of any U.S. person (as defined in section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the “Code”)) that owns shares of Arch Capital, directly, indirectly or constructively (within the meaning of section 958 of the Code), representing more than 9.9% of the voting power of all shares entitled to vote generally at an election of directors. The votes conferred by such shares of such U.S. person will be reduced by whatever amount is necessary so that after any such reduction the votes conferred by the shares of such person will constitute 9.9% of the total voting power of all shares entitled to vote generally at an election of directors. Notwithstanding this provision, the Board may make such final adjustments to the aggregate number of votes conferred by the shares of any U.S. person that the Board considers fair and reasonable in all circumstances to ensure that such votes represent 9.9% of the aggregate voting power of the votes conferred by all shares of Arch Capital entitled to vote generally at an election of directors. Arch Capital will assume that all shareholders (other than specified persons) are U.S. persons unless we receive assurance satisfactory to us that they are not U.S. persons.
The bye-laws also provide that the affirmative vote of at least 66 2/3% of the outstanding voting power of our shares (excluding shares owned by any person (and such person’s affiliates and associates) that is the owner of 15% or more (a “15% Holder”) of our outstanding voting shares) shall be required for various corporate actions, including: merger or consolidation of the company into a 15% Holder; sale of any or all of our assets to a 15% Holder; the issuance of voting securities to a 15% Holder; or amendment of these provisions; provided, however, the super majority vote will not apply to any transaction approved by the Board.
The provisions described above may have the effect of making more difficult or discouraging unsolicited takeover bids from third parties. To the extent that these effects occur, shareholders could be deprived of opportunities to realize takeover premiums for their shares and the market price of their shares could be depressed. In addition, these provisions could also result in the entrenchment of incumbent management.
There are regulatory limitations on the ownership and transfer of our common shares.
The jurisdictions where we operate have laws and regulations that require regulatory approval of a change in control of an insurer or an insurer's holding company. Where such laws apply to us, there can be no effective change in our control unless the person seeking to acquire control has filed a statement with the regulators and obtained prior approval for the proposed change. Certain regulators may at any time, by written notice, object to a person holding shares in an insurer or an insurer's holding
company if it appears to the regulator that the person is not or is no longer fit and proper to be such a holder. The regulator may require the shareholder to reduce its holding in the insurer or an insurer's holding company and direct, among other things, that such shareholder’s voting rights attaching to the shares in an insurer or an insurer's holding company shall not be exercisable.
Arch Capital is a holding company and is dependent on dividends and other distributions from its operating subsidiaries.
Arch Capital is a holding company whose assets primarily consist of the shares in our subsidiaries. Generally, Arch Capital depends on its available cash resources, liquid investments and dividends or other distributions from subsidiaries to make payments, including the payment of debt service obligations and operating expenses it may incur and any payments of dividends, redemption amounts or liquidation amounts with respect to our preferred shares and common shares, and to fund the share repurchase program. The ability of our regulated insurance and reinsurance subsidiaries to pay dividends or make distributions is subject to legislative constraints and dependent on their ability to meet applicable regulatory standards. In addition, the ability of our insurance and reinsurance subsidiaries to pay dividends to Arch Capital and to intermediate parent companies owned by Arch Capital could be constrained by our dependence on financial strength ratings from independent rating agencies. Our ratings from these agencies depend to a large extent on the capitalization levels of our insurance and reinsurance subsidiaries.
General market conditions and unpredictable factors could adversely affect market prices for our outstanding preferred shares.
There can be no assurance about the market prices for our series of preferred shares that are traded publicly. Several factors, many of which are beyond our control, will influence the fair value of our preferred shares, including, but not limited to:
• whether dividends have been declared and are likely to be declared on any series of our preferred shares from time to time;
• our creditworthiness, financial condition, performance and prospects;
• whether the ratings on any series of our preferred shares provided by any ratings agency have changed;
• the market for similar securities; and
• economic, financial, geopolitical, social, regulatory or judicial events that affect us and/or the insurance or financial markets generally.
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2025 FORM 10-K
Dividends on our preferred shares are non-cumulative.
Dividends on our preferred shares are non-cumulative and payable only out of lawfully available funds of Arch Capital under Bermuda law. Consequently, if the Board (or a duly authorized committee of the Board) does not authorize and declare a dividend for any dividend period with respect to any series of our preferred shares, holders of such preferred shares would not be entitled to receive any such dividend, and such unpaid dividend will not accrue and will never be payable. Arch Capital will have no obligation to pay dividends for a dividend period on or after the dividend payment date for such period if the Board (or a duly authorized committee of the Board) has not declared such dividend before the related dividend payment date; if dividends on our series F or series G preferred shares are authorized and declared with respect to any subsequent dividend period, Arch Capital will be free to pay dividends on any other series of preferred shares and/or our common shares. We paid a special cash dividend on our common shares during fiscal year 2024, but there is no assurance that any dividend will be declared and paid in the future.
Our preferred shares are equity and are subordinate to our existing and future indebtedness.
Our preferred shares are equity interests and do not constitute indebtedness. As such, these preferred shares will rank junior to all of our indebtedness and other non-equity claims with respect to assets available to satisfy our claims, including in our liquidation. Our existing and future indebtedness may restrict payments of dividends on our preferred shares. Additionally, unlike indebtedness, where principal and interest would customarily be payable on specified due dates, in the case of preferred shares, (1) dividends are payable only if declared by the Board (or a duly authorized committee of the Board) and (2) as described under “Risks Relating to Our Company—Arch Capital is a holding company and is dependent on dividends and other distributions from its operating subsidiaries,” we are subject to certain regulatory and other constraints affecting our ability to pay dividends and make other payments.
We may issue additional securities that rank equally with or senior to our series F and series G preferred shares without limitation. The issuance of securities ranking equally with or senior to our preferred shares may reduce the amount available for dividends and the amount recoverable by holders of such series in the event of a liquidation, dissolution or winding-up of Arch Capital.
The voting rights of holders of our preferred shares are limited.
Holders of our preferred shares have no voting rights with
respect to matters that generally require the approval of voting shareholders. The limited voting rights of holders of our preferred shares include the right to vote as a class on certain fundamental matters that affect the preference or special rights of our preferred shares as set forth in the certificate of designations relating to each series of preferred shares. In addition, if dividends on our series F or series G preferred shares have not been declared or paid for the equivalent of six dividend payments, whether or not for consecutive dividend periods, holders of the outstanding series F or series G preferred shares will be entitled to vote for the election of two additional directors to the Board subject to the terms and to the limited extent as set forth in the certificate of designations relating to such series of preferred shares.
Risks Relating to Taxation
We are subject to increased taxation in Bermuda as a result of the Bermuda CIT Act, effective January 1, 2025 and may become subject to increased taxation in other countries as a result of th e implementation of the OECD's plan on “Base Erosion and Profit Shifting.”
The OECD, with the support of the G20, initiated the “Base Erosion and Profit Shifting” (“BEPS”) project in 2013 in response to concerns that changes are needed to international tax laws to address situations where multinationals may pay little or no tax in certain jurisdictions by shifting profits away from jurisdictions where the activities creating those profits may take place. In 2015, “final reports” were approved for adoption by the G20 finance ministers. The final reports provide the basis for international standards for corporate taxation that are designed to prevent, among other things, the artificial shifting of income to tax havens and low-tax jurisdictions, the erosion of the tax base through interest deductions on intercompany debt and the artificial avoidance of permanent establishments (i.e., tax nexus with a jurisdiction).
Legislation to adopt and implement these standards, including country by country reporting, has been enacted or is currently under consideration in a number of jurisdictions. As a result, our income may be taxed in jurisdictions where it is not currently taxed and at higher rates of tax than currently taxed, which may substantially increase our effective tax rate. Also, the continued adoption of these standards may increase the complexity and costs associated with tax compliance and adversely affect our financial position and results of operations.
In 2019, the OECD published a “Programme of Work,” divided into two pillars, which is designed to address the tax challenges created by an increasing digitalized economy. Pillar I addresses the broader challenge of a digitalized
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2025 FORM 10-K
economy and focuses on the allocation of group profits among taxing jurisdictions based on a market-based concept rather than historical “permanent establishment” concepts. In 2020, the OECD released a statement excluding most financial services activities, including insurance activities, from the scope of the profit reallocation mechanism in Pillar I (referred to under Pillar I as “Amount A”). The OECD statement cited the presence of commercial (rather than consumer) customers as grounds for the carve-out, but also acknowledged that a “compelling case” could be made that the consumer-facing business lines of insurance companies should be excluded from the scope of Pillar I given the impact of regulations and licensing requirements that typically ensure that residual profits are largely realized in local customer markets. However, profits from “unregulated elements of the financial services sector” remain in scope but only where revenue exceeds €20 billion. The revenue threshold is expected to be reduced to €10 billion following future review of the operation of Amount A. The review of when to reduce the revenue threshold begins beginning seven years after the effective date of Amount A.
Pillar II addresses the remaining BEPS risk of profit shifting to certain in-scope entities in low tax jurisdictions by introducing a global minimum tax (15%). In calculating whether the effective tax rate of an in-scope entity meets the minimum tax rate, certain deferred income tax assets and liabilities (“Deferred Tax Items”) reflected or disclosed in the financial accounts of an in-scope entity are taken into account. In 2021, 136 jurisdictions agreed on a two-pillar solution to address the tax challenges arising from the digitalization of the economy. In 2021, the OECD released Model Rules for implementation of Pillar II followed by the release of detailed commentary in 2022, with the latest update to the commentary in May 2025. The OECD has released additional administrative guidance on the global minimum tax in February, July and December of 2023, June of 2024, January of 2025 and January of 2026 (the Side-by-Side package). The 2025 guidance introduced a new interpretation (with retroactive effect) for determining the treatment of Deferred Tax Items, which may affect the effective tax rate calculations of an in-scope entity following a grace period including a potential write-off of a portion of the net deferred tax asset related to the economic transition adjustment established upon the enactment of the Bermuda CIT Act in 2023.
The members of the EU have either already adopted domestic legislation implementing the minimum tax rules, pursuant to the EU’s minimum tax directive, unanimously agreed by the member states in 2022 or have exercised their option to postpone implementation on the basis of certain exceptions available to countries that have a small number of multi-national groups to which the rules would apply. For many members of the EU that have adopted such rules, such rules are effective for periods beginning on or after
December 31, 2023, with the “under-taxed profit rule” taking effect for periods beginning on or after January 1, 2025. Legislatures in multiple countries outside of the EU have also drafted and/or enacted legislation to implement the OECD’s minimum tax proposal. Given the OECD’s continued release of guidance regarding Pillar II, that only certain jurisdictions have currently enacted laws to give effect to Pillar II, that some jurisdictions have just recently enacted such laws, that jurisdictions may interpret such laws in different manners, and that certain elements of such laws are currently subject to challenge pursuant to legal proceedings, the overall implementation of Pillar II remains uncertain and subject to change, possibly on a retroactive basis.
The Bermuda CIT Act was enacted in December 2023 and is effective for tax years beginning on or after January 1, 2025. The Bermuda Government announced in its Second Public Consultation that any new Bermuda corporate income tax regime would supersede existing Tax Assurance Certificates held by entities within the scope of the new Bermuda corporate income tax (such as those issued to us, referred to above under “—Taxation of Arch Capital. Bermuda.”). Thus, with effect from January 1, 2025, Arch Capital is subject to tax on income or profits under the Bermuda CIT Act.
It is expected that the Bermuda CIT Act generally will prevent or mitigate the risk of other adopting countries from collecting “top-up” taxes from Bermuda companies to reach the 15% minimum rate, although the continued evolution of the implementation of Pillar II may in some cases mean that the Bermuda CIT Act does not avoid a “top-up” tax in all scenarios. In addition, the Tax Credits Act 2025 (the “Credits Act”) was enacted in Bermuda on December 11, 2025, and is effective for tax years beginning on or after January 1, 2025. The tax credits under the Credits Act are intended to qualify as qualified refundable tax credits for purposes of the Pillar II rules. Arch Capital currently expects to receive a material tax benefit as a result of such tax credits, but the extent of such tax benefit may be impacted by any further revisions to the implementation of Pillar II.
The adoption of the tax laws described above (in particular, the adoption of an “under-taxed profit rule” by certain countries in which we and our affiliates do business and the enactment of a corporate income tax regime in Bermuda) are expected to result in an increase to our effective tax rate and aggregate tax liability, which may adversely affect our financial position and results of operations, and is expected to increase the complexity and cost of our worldwide tax compliance. Such tax laws may not be enacted or the form of such tax laws could change on a prospective or retroactive basis. The impact of any such changes is unknown, but such changes could have an adverse effect on our effective tax rate and aggregate tax liability and could increase the complexity and costs associated with our tax compliance worldwide.
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2025 FORM 10-K
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.
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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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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.
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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 impairmentlosses 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
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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.
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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.
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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.
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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 impairmentlosses 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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2025 FORM 10-K
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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2025 FORM 10-K
At December 31, 2025 and 2024, our Loss Reserves, net of unpaidlosses 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 unpaidlosses 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 unpaidlosses 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 unpaidlosses 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 unpaidlosses 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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2025 FORM 10-K
INSURANCE SEGMENT
Higher Expected Loss Ratios
SlowerLoss 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
SlowerLoss 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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2025 FORM 10-K
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 unpaidlosses 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 losslimitation 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 losslimitation 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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For our natural catastropheexposed 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 catastrophelosses 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 severecatastrophic events. Currently, we seek to limit our 1-in-250 year return period net probable maximum loss from a severecatastrophic 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. Catastropheloss 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 catastropheloss estimates include clash estimates from other zones. Our catastropheloss 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 lossesgreater 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 catastropheexposed business and mortgage defaultexposed business. See “—Summary of Critical Accounting Estimates—Ceded Reinsurance” for a discussion of our catastrophe reinsurance programs.
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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
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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.
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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 catastropheloss 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.
