ARCH CAPITAL GROUP LTD.

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ARCH CAPITAL GROUP LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/04/2022 | 05:12pm EDT
The following is a discussion and analysis of our financial condition and
results of operations. This should be read in conjunction with our consolidated
financial statements included in Item 1 of this report and also our Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in our Annual Report on Form 10-K for the year ended December 31, 2021
("2021 Form 10-K"). In addition, readers should review "Risk Factors" set forth
in Item 1A of Part I of our 2021 Form 10-K and   "ITEM 1A-Risk Factors"   of
this Form 10-Q. Tabular amounts are in U.S. Dollars in thousands, except share
amounts, unless otherwise noted.

Arch Capital Group Ltd. ("Arch Capital" and, together with its subsidiaries,
"Arch", "we", "our" or "us") is a publicly listed Bermuda exempted company with
approximately $15.6 billion in capital at March 31, 2022 and, through operations
in Bermuda, the United States, Europe, Canada, Australia and Hong Kong, writes
insurance, reinsurance and mortgage insurance on a worldwide basis.

                                                                                                      Page No.

Current Outlook                                                                                          36
Financial Measures                                                                                       36
Comments on Non-GAAP Measures                                                                            38
Results of Operations                                                                                    40
              Insurance Segment                                                                          40
              Reinsurance Segment                                                                        42
              Mortgage Segment                                                                           44
              Corporate Segment                                                                          45
Critical Accounting Policies, Estimates and Recent Accounting Pronouncements                             46
Financial Condition                                                                                      46
Liquidity                                                                                                52
Capital Resources and Other                                                                              52


ARCH CAPITAL     35      2022 FIRST QUARTER FORM 10-Q


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CURRENT OUTLOOK



The 2022 first quarter provided yet another reminder that we live in a world of
uncertainty. The war in Ukraine has affected countless lives and initiated a
humanitarian crisis that is still unfolding, along with the COVID-19 pandemic
that continues into year three. In addition to the war in Ukraine, catastrophes,
global inflation and supply chain issues impacted the quarter. In spite of these
headwinds for our industry, our objective for 2022 remains the same, to deliver
long term value for our shareholders. The underlying fundamentals of our
businesses continue to improve as we benefit from better market conditions. In
our property and casualty segments of insurance and reinsurance, we continue to
execute our cycle management strategy by actively allocating capital to the
sectors where rates allow for returns that are substantially higher than our
cost of capital. Growth in our mortgage insurance segment has stabilized with
insurance in force modestly growing again this quarter.

Inflation continues to be a focus for our industry. We proactively analyze the
data and incorporate new trends into our pricing and reserving. We believe that
this discipline, coupled with increases in future investment returns and
reserving prudently, mitigate inflation's impact. For our mortgage operations,
inflation mainly has a positive effect as it increases homeowner equity, which
can potentially mitigate future losses.

The 2022 first quarter reflected growth across most property and casualty lines
as we remain in a growth phase of the underwriting cycle. As a result, we
continue to show improved underwriting margins, partially due to the compounding
of rate-on-rate increases and the rebalancing of our mix of business. We believe
that this time-tested strategy of protecting capital through soft markets and
increasing our writings in hard markets gives us the best chance to generate
superior risk adjusted returns over time. As long as rate increases support
returns above our required thresholds, we expect to continue to grow our
writings.

Rate improvements have enabled us to continue to expand writings in our property
casualty segments. Rate increases remain well above the long-term loss cost
trends and have spread to more lines than last year. In specialty insurance,
underwriting conditions remain opportunistic as pricing discipline, terms and
conditions, and limits management are stable across most lines. This stability,
combined with the uncertainties in the insurance market should keep the market
disciplined and sustain rate increases. Our early focus on Lloyd's and business
in the UK has delivered strong growth, as our European insurance operation now
represents 30% of our insurance group's total net premiums written. Our U.S
operations benefited from growth in professional liability,

including cyber, as well as travel where we believe relative returns are attractive.


In reinsurance, the emphasis remains on quota share treaties over excess of loss
reinsurance. This strategy allows us to participate in the rate increases on
primary insurance while improving the balance between risk and return. We
remained disciplined in property catastrophe exposure and we will deploy more
capital to the line if expected returns improve meaningfully.

For our U.S. primary mortgage operations, delinquencies continue to trend to
historically low levels, and cures on delinquent mortgages in our portfolio
resulted in favorable prior development in the quarter. The increase in mortgage
interest rates is a steeper rise than we have seen in decades. These higher
rates, have dramatically curtailed refinancing. However, our mortgage business
is more geared to the purchase market, which continues to benefit from strong
demand and limited housing supply. The decline in refinancing activity improves
persistency, which benefits our insurance in force and should result in a stable
base of premium income to help drive underwriting income for the rest of the
year and beyond. Outside of the U.S., we increased our writings in Australia as
a result of the housing market remaining strong and due to our acquisition of
Westpac's LMI business.

We remain committed to providing solutions across many offerings as the
marketplace evolves, including the mortgage credit risk transfer programs
initiated by government sponsored enterprises, or "GSEs." In addition, we enter
into aggregate excess of loss mortgage reinsurance agreements with various
special purpose reinsurance companies domiciled in Bermuda and issue mortgage
insurance linked notes, increasing our protection for mortgage tail risk. The
Bellemeade structures provide approximately $4.6 billion of aggregate
reinsurance coverage at March 31, 2022.

FINANCIAL MEASURES

Management uses the following three key financial indicators in evaluating our performance and measuring the overall growth in value generated for Arch Capital's common shareholders:

Book Value per Share


Book value per share represents total common shareholders' equity available to
Arch divided by the number of common shares outstanding. Management uses growth
in book value per share as a key measure of the value generated for our common
shareholders each period and believes that book value per share is the key
driver of Arch Capital's share price over time. Book value per share is impacted
by, among other factors, our underwriting results, investment returns and

ARCH CAPITAL 36 2022 FIRST QUARTER FORM 10-Q

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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 $32.18
at March 31, 2022, compared to $33.56 at December 31, 2021 and $30.54 at
March 31, 2021. The 4.1% decrease in book value per share for the 2022 first
quarter reflected negative total return on investments driven by the increase in
interest rates and negative returns in the equity markets. The 5.4% increase in
book value per share over the trailing twelve months primarily reflected strong
underwriting results.

Operating Return on Average Common Equity


Operating return on average common equity ("Operating ROAE") represents
annualized after-tax operating income available to Arch common shareholders
divided by the average of beginning and ending common shareholders' equity
available to Arch during the period. After-tax operating income available to
Arch common shareholders, a non-GAAP financial measure as defined in Regulation
G, represents net income available to Arch common shareholders, excluding net
realized gains or losses (which includes changes in the allowance for credit
losses on financial assets and net impairment losses recognized in earnings)
equity in net income or loss of investment funds accounted for using the equity
method, net foreign exchange gains or losses, transaction costs and other, loss
on redemption of preferred shares and income taxes. Management uses Operating
ROAE as a key measure of the return generated to common shareholders. See
"Comment on Non-GAAP Financial Measures."

Our Operating ROAE was 13.6% for the 2022 first quarter, compared to 7.8% for
the 2021 first quarter. Return for the 2022 period reflected strong underwriting
returns and a lower level of catastrophic activity, while the 2021 period
reflected lower underwriting returns due to an increased level of catastrophic
activity and higher income from operating affiliates.

Total Return on Investments


Total return on investments includes investment income, equity in net income or
loss of investment funds accounted for using the equity method, net realized
gains and losses (excluding changes in the allowance for credit losses on
non-investment related financial assets) and the change in unrealized gains and
losses generated by Arch's investment portfolio. Total return is calculated on a
pre-tax basis and before investment expenses and reflects the effect of
financial market conditions along with foreign currency fluctuations. In
addition, total return incorporates the timing of investment returns during the
periods. The following table summarizes our total return compared to the
benchmark return against which we measured our portfolio during the periods. See
"Comment on Non-GAAP Financial Measures."

                                      Arch         Benchmark
                                    Portfolio       Return

Pre-tax total return (before investment expenses): 2022 First Quarter

                    (3.07) %       (3.97) %
2021 First Quarter                    (0.18) %       (0.51) %


Total return for the 2022 first quarter reflected mark to market impact on our
fixed maturities portfolio due to rising interest rates and the negative returns
in the equity markets. We continue to maintain a relative short duration on our
portfolio of 2.93 years at March 31, 2022.

The benchmark return index is a customized combination of indices intended to
approximate a target portfolio by asset mix and average credit quality while
also matching the approximate estimated duration and currency mix of our
insurance and reinsurance liabilities. Although the estimated duration and
average credit quality of this index will move as the duration and rating of its
constituent securities change, generally we do not adjust the composition of the
benchmark return index except to incorporate changes to the mix of liability
currencies and durations noted above. The benchmark return index should not be
interpreted as expressing a preference for or aversion to any particular sector
or sector weight. The index is intended solely to provide, unlike many master
indices that change based on the size of their constituent indices, a relatively
stable basket of investable indices. At March 31, 2022, the benchmark return
index had an average credit quality of "Aa3" by Moody's Investors Service
("Moody's"), and an estimated duration of 3.15 years.

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The benchmark return index included weightings to the following indices:

                                                                   %
ICE BoAML 1-5 Year A - AAA U.S. Corporate Index                  13.00  %
ICE BoAML 5-10 Year A - AAA U.S. Corporate Index                 11.00
ICE BoAML 1-5 Year U.S. Treasury Index                           11.00
MSCI ACWI Net Total Return USD Index                              9.30
ICE BoAML 1-10 Year BBB U.S. Corporate Index                      5.00
JPM CLOIE Investment Grade                                        5.00
S&P/LSTA Leveraged Loan Total Return Index                       4.965
ICE BoAML U.S. Mortgage Backed Securities Index                   4.00
ICE BoAML AAA US Fixed Rate CMBS                                  4.00
ICE BoAML 1-5 Year U.K. Gilt Index                                4.00
ICE BoAML German Government 1-10 Year Index                       3.50
ICE BoAML 0-3 Year U.S. Treasury Index                            3.25
ICE BoAML 5-10 Year U.S. Treasury Index                           3.00
ICE BoAML 1-10 Year U.S. Municipal Securities Index               3.00
Bloomberg Barclays ABS Aaa Index                                  3.00
ICE BoAML 1-5 Year Australia Government Index                     2.75
ICE BoAML U.S. High Yield Constrained Index                       2.50
ICE BoAML 1-5 Year Canada Government Index                        2.00
ICE BofA CCC and Lower US High Yield Constrained Index            1.38
Bloomberg Barclays Global High Yield Index                        1.38

S&P DJ Global ex-US Select Real Estate Securities Net Index 0.825 FTSE Nareit All Mortgage Capped Index Total Return USD

           0.825
Bloomberg Barclays CMBS: Erisa Eligible Unhedged USD             0.825
ICE BoAML 15+ Year Canada Government Index                        0.50
Total                                                           100.00  %


COMMENT ON NON-GAAP FINANCIAL MEASURES




Throughout this filing, we present our operations in the way we believe will be
the most meaningful and useful to investors, analysts, rating agencies and
others who use our financial information in evaluating the performance of our
company. This presentation includes the use of after-tax operating income
available to Arch common shareholders, which is defined as net income available
to Arch common shareholders, excluding net realized gains or losses (which
includes changes in the allowance for credit losses on financial assets and net
impairment losses recognized in earnings), equity in net income or loss of
investment funds accounted for using the equity method, net foreign exchange
gains or losses, transaction costs and other, loss on redemption of preferred
shares and income taxes, and the use of annualized operating return on average
common equity. The presentation of after-tax operating income available to Arch
common shareholders and annualized operating return on average common equity are
non-GAAP financial measures as defined in Regulation G. The reconciliation of
such measures to net income available to Arch common shareholders and annualized
net income return on average

common equity (the most directly comparable GAAP financial measures) in accordance with Regulation G is included under "Results of Operations" below.


We believe that net realized gains or losses, equity in net income or loss of
investment funds accounted for using the equity method, net foreign exchange
gains or losses, transaction costs and other and loss on redemption of preferred
shares 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 investment funds accounted for using the equity method and net
foreign exchange gains or losses are an integral part of our operations, the
decision to realize investment gains or losses, the recognition of the change in
the carrying value of investments accounted for using the fair value option in
net realized gains or losses, the recognition of net impairment losses, the
recognition of equity in net income or loss of investment funds accounted for
using the equity method and the recognition of foreign exchange gains or losses
are independent of the insurance underwriting process and result, in large part,
from general economic and financial market conditions. Furthermore, certain
users of our financial information believe that, for many companies, the timing
of the realization of investment gains or losses is largely opportunistic. In
addition, changes in the allowance for credit losses and net impairment losses
recognized in earnings on our investments represent other-than-temporary
declines in expected recovery values on securities without actual realization.
The use of the equity method on certain of our investments in certain funds that
invest in fixed maturity securities is driven by the ownership structure of such
funds (either limited partnerships or limited liability companies). In applying
the equity method, these investments are initially recorded at cost and are
subsequently adjusted based on our proportionate share of the net income or loss
of the funds (which include changes in the market value of the underlying
securities in the funds). This method of accounting is different from the way we
account for our other fixed maturity securities and the timing of the
recognition of equity in net income or loss of investment funds accounted for
using the equity method may differ from gains or losses in the future upon sale
or maturity of such investments. Transaction costs and other include advisory,
financing, legal, severance, incentive compensation and other transaction costs
related to acquisitions. We believe that transaction costs and other, due to
their non-recurring nature, are not indicative of the performance of, or trends
in, our business performance. The loss on redemption of preferred shares related
to the redemption of Arch''s Series E preferred shares in September 2021 and had
no impact on shareholders' equity or cash flows. Due to these reasons, we
exclude net realized gains or losses, equity in net income or loss of investment
funds accounted for using the equity method, net foreign exchange gains or
losses, transaction costs and other and loss on redemption of preferred shares
from the calculation of after-

ARCH CAPITAL 38 2022 FIRST QUARTER FORM 10-Q

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tax operating income available to Arch common shareholders.

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

Our segment information includes the presentation of consolidated underwriting
income or loss and a subtotal of underwriting income or loss before the
contribution from the 'other' segment, through June 30, 2021. Such measures
represent the pre-tax profitability of our underwriting operations and include
net premiums earned plus other underwriting income, less losses and loss
adjustment expenses, acquisition expenses and other operating expenses. Other
operating expenses include those operating expenses that are incremental and/or
directly attributable to our individual underwriting operations. Underwriting
income or loss does not incorporate items included in our corporate segment.
While these measures are presented in   note 4, "Segment Information,"   of the
notes accompanying our consolidated financial statements, they are considered
non-GAAP financial measures when presented elsewhere on a consolidated basis.
The reconciliations of underwriting income or loss to income before income taxes
(the most directly comparable GAAP financial measure) on a consolidated basis
and a subtotal before the contribution from the 'other' segment through June 30,
2021, in accordance with Regulation G, is shown in   note 4, "Segment
Information"   to our consolidated financial statements.

We measure segment performance for our three underwriting segments based on
underwriting income or loss. We do not manage our assets by underwriting
segment, with the exception of goodwill and intangibles and, accordingly,
investment income and other non-underwriting related items are not allocated to
each underwriting segment. The 'other' segment includes the results of Somers
through June 30, 2021.

Along with consolidated underwriting income, we provide a subtotal of underwriting income or loss before the contribution from the 'other' segment. Through June 30, 2021, the 'other' segment included the results of Somers


Group Holdings Ltd. Somers Group Holdings Ltd. is the parent of Somers Re Ltd.,
a multi-line Bermuda reinsurance company (together with Somers Group Holdings
Ltd., "Somers"). Pursuant to GAAP, Somers was considered a variable interest
entity and we concluded that we were the primary beneficiary of Somers. As such,
we consolidated the results of Somers in our consolidated financial statements
through June 30, 2021. In the 2020 fourth quarter, Arch Capital, Somers, and
Greysbridge Ltd., a wholly-owned subsidiary of Arch Capital, entered into an
Agreement and Plan of Merger (as amended, the "Merger Agreement"). Arch Capital
assigned its rights under the Merger Agreement to Greysbridge Holdings Ltd.
("Greysbridge"). The merger and the related Greysbridge equity financing closed
on July 1, 2021. Effective July 1, 2021, Somers is wholly owned by Greysbridge,
and Greysbridge is owned 40% by Arch and 30% by certain funds managed by Kelso
and 30% by certain funds managed by Warburg. Based on the governing documents of
Greysbridge, we concluded that, while we retain significant influence over
Greysbridge, Greysbridge does not constitute a variable interest entity.
Accordingly, effective July 1, 2021, we no longer consolidate the results of
Somers in our consolidated financial statements and footnotes. See   note 11,
"Variable Interest Entities and Noncontrolling Interests"   and   note 4,
"Segment Information,"   to our consolidated financial statements for additional
information on Somers.

Our presentation of segment information includes the use of a current year loss
ratio which excludes favorable or adverse development in prior year loss
reserves. This ratio is a non-GAAP financial measure as defined in Regulation G.
The reconciliation of such measure to the loss ratio (the most directly
comparable GAAP financial measure) in accordance with Regulation G is shown on
the individual segment pages. Management utilizes the current year loss ratio in
its analysis of the underwriting performance of each of our underwriting
segments.

Total return on investments includes investment income, equity in net income or
loss of investment funds accounted for using the equity method, net realized
gains and losses (excluding changes in the allowance for credit losses on
non-investment related financial assets) and the change in unrealized gains and
losses generated by Arch's investment portfolio. Total return is calculated on a
pre-tax basis and before investment expenses, excludes amounts reflected in the
'other' segment, and reflects the effect of financial market conditions along
with foreign currency fluctuations. In addition, total return incorporates the
timing of investment returns during the periods. There is no directly comparable
GAAP financial measure for total return. Management uses total return on
investments as a key measure of the return generated to Arch common
shareholders, and compares the return generated by our investment portfolio
against benchmark returns during the periods.

ARCH CAPITAL 39 2022 FIRST QUARTER FORM 10-Q

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RESULTS OF OPERATIONS


The following table summarizes our consolidated financial data, including a reconciliation of net income or loss available to Arch common shareholders to after-tax operating income or loss available to Arch common shareholders.

                                                                      Three Months Ended
                                                                           March 31,
                                                                  2022                  2021
Net income available to Arch common shareholders             $    185,616          $    427,753
Net realized (gains) losses                                       292,414              (105,551)

Equity in net (income) loss of investment funds accounted for using the equity method

                                       (36,305)              (71,686)
Net foreign exchange (gains) losses                                (3,855)              (21,332)
Transaction costs and other                                           397                 1,274

Income tax expense (1)                                            (16,268)                9,311

After-tax operating income available to Arch common shareholders

                                                 $    421,999   

$ 239,769


Beginning common shareholders' equity                        $ 12,715,896          $ 12,325,886
Ending common shareholders' equity                           $ 12,089,589          $ 12,316,472
Average common shareholders' equity                          $ 12,402,743   

$ 12,321,179


Annualized net income return on average common equity %               6.0                  13.9
Annualized operating return on average
common equity %                                                      13.6                   7.8


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

Segment Information


We classify our businesses into three underwriting segments - insurance,
reinsurance and mortgage - and two other operating segments - corporate and
'other.' Our insurance, reinsurance and mortgage segments each have managers who
are responsible for the overall profitability of their respective segments and
who are directly accountable to our chief operating decision makers, the Chief
Executive Officer of Arch Capital, the Chief Financial Officer and Treasurer of
Arch Capital and the President and Chief Underwriting Officer of Arch Capital.
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. Intersegment business is allocated to the segment accountable for
the underwriting results.

Insurance Segment

The following tables set forth our insurance segment's underwriting results:

                                                 Three Months Ended March 31,
                                                                                  %
                                             2022                2021           Change
Gross premiums written                $    1,719,605        $ 1,415,886         21.5
Premiums ceded                              (512,709)          (421,047)
Net premiums written                       1,206,896            994,839         21.3
Change in unearned premiums                 (180,200)          (175,365)
Net premiums earned                        1,026,696            819,474         25.3

Losses and loss adjustment expenses         (600,739)          (535,747)
Acquisition expenses                        (195,650)          (128,222)
Other operating expenses                    (166,825)          (137,113)
Underwriting income (loss)            $       63,482        $    18,392        245.2

                                                                               % Point
Underwriting Ratios                                                             Change
Loss ratio                                      58.5   %           65.4  %      (6.9)
Acquisition expense ratio                       19.1   %           15.6  %       3.5
Other operating expense ratio                   16.2   %           16.7  %      (0.5)
Combined ratio                                  93.8   %           97.7  %      (3.9)

The insurance segment consists of our insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:


•Construction and national accounts: primary and excess casualty coverages to
middle and large accounts in the construction industry and a wide range of
products for middle and large national accounts, specializing in loss sensitive
primary casualty insurance programs (including large deductible, self-insured
retention and retrospectively rated programs).

•Excess and surplus casualty: primary and excess casualty insurance coverages,
including middle market energy business, and contract binding, which primarily
provides casualty coverage through a network of appointed agents to small and
medium risks.

•Lenders products: collateral protection, debt cancellation and service contract
reimbursement products to banks, credit unions, automotive dealerships and
original equipment manufacturers and other specialty programs that pertain to
automotive lending and leasing.

•Professional lines: directors' and officers' liability, errors and omissions liability, employment practices liability, fiduciary liability, crime, professional indemnity and other financial related coverages for corporate, private equity,


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venture capital, real estate investment trust, limited partnership, financial
institution and not-for-profit clients of all sizes and medical professional and
general liability insurance coverages for the healthcare industry. The business
is predominately written on a claims-made basis.

•Programs: primarily package policies, underwriting workers' compensation and
umbrella liability business in support of desirable package programs, targeting
program managers with unique expertise and niche products offering general
liability, commercial automobile, inland marine and property business with
minimal catastrophe exposure.

•Property, energy, marine and aviation: primary and excess general property insurance coverages, including catastrophe-exposed property coverage, for commercial clients. Coverages for marine include hull, war, specie and liability. Aviation and standalone terrorism are also offered.


•Travel, accident and health: specialty travel and accident and related
insurance products for individual, group travelers, travel agents and suppliers,
as well as accident and health, which provides accident, disability and medical
plan insurance coverages for employer groups, medical plan members, students and
other participant groups.

•Other: includes alternative market risks (including captive insurance
programs), excess workers' compensation and employer's liability insurance
coverages for qualified self-insured groups, associations and trusts, and
contract and commercial surety coverages, including contract bonds (payment and
performance bonds) primarily for medium and large contractors and commercial
surety bonds for Fortune 1,000 companies and smaller transaction business
programs.

Premiums Written.


The following tables set forth our insurance segment's net premiums written by
major line of business:

                                                                     Three Months Ended March 31,
                                                          2022                                            2021
                                             Amount                     %                    Amount                    %
Professional Lines                     $        347,841                   28.8          $      238,246                   23.9
Property, energy, marine and aviation           210,221                   17.4                 170,498                   17.1
Travel, accident and health                     165,332                   13.7                  92,306                    9.3
Programs                                        129,401                   10.7                 158,401                   15.9
Construction and national accounts              126,123                   10.5                 134,792                   13.5
Excess and surplus casualty                     100,289                    8.3                  85,593                    8.6
Lenders products                                 25,232                    2.1                  34,860                    3.5
Other                                           102,457                    8.5                  80,143                    8.1
Total                                  $      1,206,896                  100.0          $      994,839                  100.0

2022 First Quarter versus 2021 Period. Gross premiums written by the insurance segment in the 2022 first quarter


were 21.5% higher than in the 2021 first quarter, while net premiums written
were 21.3% higher. The higher level of net premiums written reflected increases
in most lines of business, due in part to rate increases, new business
opportunities and growth in existing accounts.

Net Premiums Earned.


The following tables set forth our insurance segment's net premiums earned by
major line of business:

                                                                     Three Months Ended March 31,
                                                          2022                                            2021
                                             Amount                     %                    Amount                    %
Professional Lines                     $        289,813                   28.2          $      199,671                   24.4
Property, energy, marine and aviation           185,655                   18.1                 157,259                   19.2
Travel, accident and health                     104,630                   10.2                  49,666                    6.1
Programs                                        139,809                   13.6                 112,840                   13.8
Construction and national accounts               86,148                    8.4                 102,671                   12.5
Excess and surplus casualty                      90,761                    8.8                  75,367                    9.2
Lenders products                                 30,588                    3.0                  40,081                    4.9
Other                                            99,292                    9.7                  81,919                   10.0
Total                                  $      1,026,696                  100.0          $      819,474                  100.0


Net premiums written are primarily earned on a pro rata basis over the terms of
the policies for all products, usually 12 months. Net premiums earned reflect
changes in net premiums written over the previous five quarters. Net premiums
earned in the 2022 first quarter were 25.3% higher than in the 2021 first
quarter.

Losses and Loss Adjustment Expenses.

The table below shows the components of the insurance segment's loss ratio:


                                         Three Months Ended
                                              March 31,
                                          2022              2021
Current year                                   59.2  %     65.9  %
Prior period reserve development               (0.7) %     (0.5) %
Loss ratio                                     58.5  %     65.4  %


Current Year Loss Ratio.

2022 First Quarter versus 2021 Period. The insurance segment's current year loss
ratio in the 2022 first quarter was 6.7 points lower than in the 2021 first
quarter. The 2022 first quarter loss ratio reflected 3.1 points of current year
catastrophic activity, primarily related to Russia's invasion of Ukraine and
other natural catastrophes occurring in the quarter, compared to 5.1 points of
catastrophic activity for the 2021 first quarter, primarily related to winter
storms Uri and Viola.

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Prior Period Reserve Development.

The insurance segment's net favorable development was $7.3 million, or 0.7
points, for the 2022 first quarter, compared to $4.1 million, or 0.5 points, for
the 2021 first quarter. See   note 5, "Reserve for Losses and Loss Adjustment
Expenses,"   to our consolidated financial statements for information about the
insurance segment's prior year reserve development.

Underwriting Expenses.


2022 First Quarter versus 2021 Period. The insurance segment's underwriting
expense ratio was 35.3% in the 2022 first quarter, compared to 32.3% in the 2021
first quarter. The increase in the 2022 first quarter was primarily due to a
changing mix of business, primarily to growth in lines with higher acquisition
costs, higher contingent commission accruals and lower levels of ceding
commissions as a result of changes in our ceded reinsurance program. The
underwriting expense ratio in the 2022 first quarter also reflected increased
incentive compensation costs, which were more than offset by a higher level of
net premiums earned.

Reinsurance Segment

The following tables set forth our reinsurance segment's underwriting results:

                                                 Three Months Ended March 31,
                                                                                  %
                                             2022                2021           Change
Gross premiums written                $    1,718,942        $ 1,471,060         16.9
Premiums ceded                              (579,818)          (471,948)
Net premiums written                       1,139,124            999,112         14.0
Change in unearned premiums                 (334,724)          (354,212)
Net premiums earned                          804,400            644,900         24.7
Other underwriting income (loss)                 836             (1,198)
Losses and loss adjustment expenses         (454,700)          (484,870)
Acquisition expenses                        (171,996)          (118,025)
Other operating expenses                     (69,776)           (60,514)
Underwriting income (loss)            $      108,764        $   (19,707)       651.9

                                                                               % Point
Underwriting Ratios                                                             Change
Loss ratio                                      56.5   %           75.2  %     (18.7)
Acquisition expense ratio                       21.4   %           18.3  %       3.1
Other operating expense ratio                    8.7   %            9.4  %      (0.7)
Combined ratio                                  86.6   %          102.9  %     (16.3)

The reinsurance segment consists of our reinsurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:


•Casualty: provides coverage to ceding company clients on third party liability
and workers' compensation exposures from ceding company clients, primarily on a
treaty basis. Exposures include, among others, executive assurance, professional
liability, workers' compensation, excess and umbrella liability, excess motor
and healthcare business.

•Marine and aviation: provides coverage for energy, hull, cargo, specie, liability and transit, and aviation business, including airline and general aviation risks. Business written may also include space business, which includes coverages for satellite assembly, launch and operation for commercial space programs.

•Other specialty: provides coverage to ceding company clients for proportional motor and other lines, including surety, accident and health, workers' compensation catastrophe, agriculture, trade credit and political risk.


•Property catastrophe: provides protection for most catastrophic losses that are
covered in the underlying policies written by reinsureds, including hurricane,
earthquake, flood, tornado, hail and fire, and coverage for other perils on a
case-by-case basis. Property catastrophe reinsurance provides coverage on an
excess of loss basis when aggregate losses and loss adjustment expense from a
single occurrence or aggregation of losses from a covered peril exceed the
retention specified in the contract.

•Property excluding property catastrophe: provides coverage for both personal
lines and commercial property exposures and principally covers buildings,
structures, equipment and contents. The primary perils in this business include
fire, explosion, collapse, riot, vandalism, wind, tornado, flood and earthquake.
Business is assumed on both a proportional and excess of loss treaty basis and
on a facultative basis. In addition, facultative business is written which
focuses on commercial property risks on an excess of loss basis.

•Other: includes life reinsurance business on both a proportional and non-proportional basis, casualty clash business and, in limited instances, non-traditional business which is intended to provide insurers with risk management solutions that complement traditional reinsurance.

Premiums Written.


The following tables set forth our reinsurance segment's net premiums written by
major line of business:

                                                                    Three Months Ended March 31,
                                                         2022                                            2021
                                            Amount                     %                    Amount                    %
Other Specialty                       $        363,834                   31.9          $      284,331                   28.5
Property excluding property
catastrophe                                    295,419                   25.9                 292,833                   29.3
Casualty                                       266,455                   23.4                 218,256                   21.8
Property catastrophe                           128,971                   11.3                 117,207                   11.7
Marine and aviation                             51,817                    4.5                  61,638                    6.2
Other                                           32,628                    2.9                  24,847                    2.5
Total                                 $      1,139,124                  100.0          $      999,112                  100.0

2022 First Quarter versus 2021 Period. Gross premiums written by the reinsurance segment in the 2022 first quarter

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were 16.9% higher than in the 2021 first quarter, while net premiums written
were 14.0% higher. The higher level of net premiums written reflected increases
in most lines of business, due in part to rate increases, new business
opportunities and growth in existing accounts.

Net Premiums Earned.


The following tables set forth our reinsurance segment's net premiums earned by
major line of business:

                                                                    Three Months Ended March 31,
                                                        2022                                            2021
                                            Amount                    %                    Amount                    %
Other Specialty                       $       231,618                   28.8          $      163,898                   25.4
Property excluding property
catastrophe                                   232,529                   28.9                 187,782                   29.1
Casualty                                      197,858                   24.6                 149,031                   23.1
Property catastrophe                           77,076                    9.6                  88,011                   13.6
Marine and aviation                            42,192                    5.2                  40,108                    6.2
Other                                          23,127                    2.9                  16,070                    2.5
Total                                 $       804,400                  100.0          $      644,900                  100.0


Net premiums written, irrespective of the class of business, are generally
earned on a pro rata basis over the terms of the underlying policies or
reinsurance contracts. Net premiums earned by the reinsurance segment in the
2022 first quarter were 24.7% higher than in the 2021 first quarter, and reflect
changes in net premiums written over the previous five quarters.

Other Underwriting Income (Loss).

Other underwriting income for the 2022 first quarter was $0.8 million, compared to a loss of $1.2 million for the 2021 first quarter.

Losses and Loss Adjustment Expenses.


The table below shows the components of the reinsurance segment's loss ratio:

                                         Three Months Ended
                                              March 31,
                                          2022              2021
Current year                                   60.5  %     79.4  %
Prior period reserve development               (4.0) %     (4.2) %
Loss ratio                                     56.5  %     75.2  %


Current Year Loss Ratio.

2022 First Quarter versus 2021 Period. The reinsurance segment's current year
loss ratio in the 2022 first quarter was 18.9 points lower than in the 2021
first quarter. The 2022 first quarter loss ratio reflected 6.5 points of current
year catastrophic activity, primarily related to Russia's invasion of Ukraine.
The 2021 first quarter included 24.7 points of catastrophic activity, primarily
related to winter storms Uri and Viola as well as other minor global events.

Prior Period Reserve Development.


The reinsurance segment's net favorable development was $32.5 million, or 4.0
points, for the 2022 first quarter, compared to $26.8 million, or 4.2 points,
for the 2021 first quarter. See   note 5, "Reserve for Losses and Loss
Adjustment Expenses,"   to our consolidated financial statements for information
about the reinsurance segment's prior year reserve development.

Underwriting Expenses.


2022 First Quarter versus 2021 Period. The underwriting expense ratio for the
reinsurance segment was 30.1% in the 2022 first quarter, which included 1.2
points of expenses related to favorable development of prior year loss reserves,
compared to 27.7% in the 2021 first quarter, with the balance of the increase
primarily resulting from the change in mix of business to lines with higher
acquisition costs. The underwriting expense ratio in the 2022 first quarter also
reflected increased incentive compensation costs, which were more than offset by
a higher level of net premiums earned.

ARCH CAPITAL 43 2022 FIRST QUARTER FORM 10-Q

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Mortgage Segment

Our mortgage operations include U.S. and international mortgage insurance and reinsurance operations as well as participation in GSE credit risk-sharing transactions.

The following tables set forth our mortgage segment's underwriting results.

                                                    Three Months Ended March 31,
                                             2022                       2021         % Change
Gross premiums written                $      364,839                $ 391,246         (6.7)
Premiums ceded                               (76,719)                 (56,051)
Net premiums written                         288,120                  335,195        (14.0)
Change in unearned premiums                    1,417                    1,122
Net premiums earned                          289,537                  336,317        (13.9)
Other underwriting income                      5,061                    6,897
Losses and loss adjustment expenses           54,604                  (63,689)
Acquisition expenses                         (10,513)                 (30,082)
Other operating expenses                     (53,342)                 (49,131)
Underwriting income                   $      285,347                $ 200,312         42.5

                                                                                      % Point
Underwriting Ratios                                                                   Change
Loss ratio                                     (18.9)  %                 18.9  %     (37.8)
Acquisition expense ratio                        3.6   %                  8.9  %      (5.3)
Other operating expense ratio                   18.4   %                 14.6  %       3.8
Combined ratio                                   3.1   %                 42.4  %     (39.3)


Premiums Written.

The following tables set forth our mortgage segment's net premiums written by underwriting location (i.e., where the business is underwritten):

                                            Three Months Ended March 31,
                                          2022                               2021
                                   Amount                  %          Amount          %
Underwriting location:
United States            $       201,150                  69.8      $ 247,529        73.8
Other                             86,970                  30.2         87,666        26.2
Total                    $       288,120                 100.0      $ 335,195       100.0


2022 First Quarter versus 2021 Period. Gross premiums written by the mortgage
segment in the 2022 first quarter were 6.7% lower than in the 2021 first
quarter, while net premiums written were 14.0% lower. Net premiums written for
the 2022 first quarter reflected a higher level of premiums ceded than in the
2021 first quarter.

The persistency rate, which represents the percentage of mortgage insurance in
force at the beginning of a 12-month period that remains in force at the end of
such period, was 66.9% for the Arch MI U.S. portfolio of mortgage insurance
policies at March 31, 2022, reflecting a lower level of mortgage refinancing
activity, compared to 62.4% at December 31, 2021.

The following tables provide details on the new insurance written ("NIW") generated by Arch MI U.S. NIW represents the original principal balance of all loans that received coverage during the period.


(U.S. Dollars in millions)                                        Three Months Ended March 31,
                                                       2022                                           2021
                                           Amount                    %                   Amount                   %
Total new insurance written (NIW)
(1)                                  $        20,015                                 $     27,019

Credit quality (FICO):
>=740                                $        13,152                   65.7          $     17,818                   65.9
680-739                                        6,254                   31.2                 8,418                   31.2
620-679                                          606                    3.0                   783                    2.9
<620                                               3                      -                     -                      -
Total                                $        20,015                  100.0          $     27,019                  100.0

Loan-to-value (LTV):
95.01% and above                     $         1,096                    5.5          $      1,608                    6.0
90.01% to 95.00%                              10,778                   53.8                12,288                   45.5
85.01% to 90.00%                               5,733                   28.6                 8,312                   30.8
85.00% and below                               2,408                   12.0                 4,811                   17.8
Total                                $        20,015                  100.0          $     27,019                  100.0

Monthly vs. single:
Monthly                              $        19,201                   95.9          $     24,989                   92.5
Single                                           814                    4.1                 2,030                    7.5
Total                                $        20,015                  100.0          $     27,019                  100.0

Purchase vs. refinance:
Purchase                             $        19,157                   95.7          $     20,505                   75.9
Refinance                                        858                    4.3                 6,514                   24.1
Total                                $        20,015                  100.0          $     27,019                  100.0

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


Net Premiums Earned.

The following tables set forth our mortgage segment's net premiums earned by
underwriting location:

                                            Three Months Ended March 31,
                                          2022                               2021
                                   Amount                  %          Amount          %
Underwriting location:
United States            $       209,525                  72.4      $ 262,550        78.1
Other                             80,012                  27.6         73,767        21.9
Total                    $       289,537                 100.0      $ 336,317       100.0


2022 First Quarter versus 2021 Period. Net premiums earned for the 2022 first
quarter were 13.9% lower than in the 2021 first quarter, and reflected a lower
level of earnings from single premium policy terminations in U.S. business.

Other Underwriting Income.

Other underwriting income, which is primarily related to GSE credit risk-sharing transactions was $5.1 million for the 2022 first quarter, compared to $6.9 million for the 2021 first quarter.

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Losses and Loss Adjustment Expenses.

The table below shows the components of the mortgage segment's loss ratio:


                                         Three Months Ended
                                              March 31,
                                          2022              2021
Current year                                   16.4  %     22.1  %
Prior period reserve development              (35.3) %     (3.2) %
Loss ratio                                    (18.9) %     18.9  %


Current Year Loss Ratio.

2022 First Quarter versus 2021 Period. The mortgage segment's current year loss
ratio was 5.7 points lower in the 2022 first quarter than in the 2021 first
quarter. The lower current year loss ratio for the 2022 period reflect lower
delinquencies.

Prior Period Reserve Development.


The mortgage segment's net favorable development was $102.1 million, or 35.3
points, for the 2022 first quarter, compared to $10.9 million, or 3.2 points,
for the 2021 first quarter. See   note 5, "Reserve for Losses and Loss
Adjustment Expenses,"   to our consolidated financial statements for information
about the mortgage segment's prior year reserve development.

Underwriting Expenses.


2022 First Quarter versus 2021 Period. The underwriting expense ratio for the
mortgage segment was 22.0% in the 2022 first quarter, compared to 23.5% in the
2021 first quarter, with the decrease primarily due to lower acquisition
expenses on Australian mortgage insurance following the acquisition of Westpac
LMI in the 2021 third quarter and profit commissions adjustments related to
favorable development of prior year loss reserves. Such amounts were partially
offset by a lower level of net premiums earned in the U.S. primary mortgage
insurance business.

Corporate Segment


The corporate segment results include net investment income, net realized gains
or losses (which includes changes in the allowance for credit losses on
financial assets and net impairment losses recognized in earnings), equity in
net income or loss of investments accounted for using the equity method, other
income (loss), corporate expenses, transaction costs and other, amortization of
intangible assets, interest expense, net foreign exchange gains or losses,
income taxes, income from operating affiliates and items related to our
non-cumulative preferred shares. Such amounts exclude the results of the 'other'
segment. See   note 1, "Basis of Presentation and Recent Accounting
Pronouncements,"   to our consolidated financial statements for information
about the change in presentation of income or loss from operating affiliates.

Net Investment Income.


The components of net investment income were derived from the following sources:

                              Three Months Ended
                                  March 31,
                              2022           2021
Fixed maturities          $   82,053      $ 79,017

Equity securities              6,238         5,650
Short-term investments         2,575           644

Other (1)                     12,076        15,559
Gross investment income      102,942       100,870
Investment expenses (2)      (22,506)      (22,141)
Net investment income     $   80,436      $ 78,729

(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 0.35% of average invested assets for the 2022 first quarter, compared to 0.35% for the 2021 first quarter.


The higher level of net investment income for the 2022 first quarter primarily
related to a higher yields available in the financial market. The pre-tax
investment income yield, calculated based on amortized cost and on an annualized
basis, was 1.34% for the 2022 first quarter, compared to 1.31% for the 2021
first quarter.

Corporate Expenses.


Corporate expenses were $31.9 million for the 2022 first quarter, compared to
$23.5 million for the 2021 first quarter. The increase in corporate expenses was
primarily due to higher incentive compensation costs.

Other Income or Losses

The loss of $9.0 million for the 2022 first quarter, compared to a loss of $1.7 million for the 2021 first quarter, primarily reflects changes in the cash surrender value of our investment in corporate-owned life insurance.

Transaction Costs and Other.


Transaction costs and other were $0.4 million for the 2022 first quarter,
compared to $1.2 million for the 2021 first quarter. Amounts in the 2022 and
2021 periods are primarily related to acquisitions activity for the respective
periods.

Amortization of Intangible Assets.


Amortization of intangible assets for the 2022 first quarter was $27.2 million,
compared to $14.4 million for the 2021 first quarter. Amounts in 2022 and 2021
period primarily attributed to amortization of finite-lived intangible assets.
The increase in amortization of intangible assets expense was a result of
acquisitions closed during the 2021 period.

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Interest Expense.

Interest expense was $32.7 million for the 2022 first quarter, compared to the
$34.2 million for the 2021 first quarter. Interest expense primarily reflects
amounts related to our outstanding senior notes.

Net Realized Gains or Losses.


We recorded net realized losses of $292.4 million for the 2022 first quarter,
compared to net realized gains of $101.3 million for the 2021 first quarter.
Currently, our portfolio is actively managed to maximize total return within
certain guidelines. The effect of financial market movements on the investment
portfolio will directly impact net realized gains and losses as the portfolio is
adjusted and rebalanced. Net realized gains or losses from the sale of fixed
maturities primarily results from our decisions to reduce credit exposure, to
change duration targets, to rebalance our portfolios or due to relative value
determinations.

Net realized gains or losses also include realized and unrealized contract gains
and losses on our derivative instruments, changes in the fair value of assets
accounted for using the fair value option and in the fair value of equities,
along with changes in the allowance for credit losses on financial assets and
net impairment losses recognized in earnings. See   note 7, "Investment
Information-Net Realized Gains (Losses)"   and   note 7, "Investment
Information-Allowance for Expected Credit Losses,"   to our consolidated
financial statements for additional information.

Equity in Net Income or Losses of Investment Funds Accounted for Using the Equity Method.


We recorded $36.3 million of equity in net income related to investment funds
accounted for using the equity method in the 2022 first quarter, compared to
income of $71.7 million for the 2021 first quarter. Such investments are
generally recorded on a one to three month lag based on the availability of
reports from the investment funds. Investment funds accounted for using the
equity method totaled $3.3 billion at March 31, 2022, compared to $3.1 billion
at December 31, 2021. See   note 7, "Investment Information-Investments
Accounted For Using the Equity Method,"   to our consolidated financial
statements for additional information.

Net Foreign Exchange Gains or Losses.


Net foreign exchange gains for the 2022 first quarter were $3.8 million,
compared to net foreign exchange gains for the 2021 first quarter of $21.5
million. Amounts in both periods were primarily unrealized and resulted from the
effects of revaluing our net insurance liabilities required to be settled in
foreign currencies at each balance sheet date.

Income Tax Expense.


Our income tax provision on income (loss) before income taxes, including income
(loss) from operating affiliates, resulted in an expense of 5.6% for the 2022
first quarter, compared to 8.2% for the 2021 first quarter. Our effective tax
rate, which is based upon the expected annual effective tax rate, may fluctuate
from period to period based on the relative mix of income or loss reported by
jurisdiction and the varying tax rates in each jurisdiction.

Income or Losses from Operating Affiliates.


We recorded $24.5 million of net income from our operating affiliates in the
2022 first quarter, compared to income of $75.5 million for the 2021 first
quarter. Results for the 2021 period reflected a one-time gain of $74.5 million
realized from our investment in Coface SA. See   note 7, "Investment
Information-Investments in Operating Affiliates,"   to our consolidated
financial statements for additional information.

CRITICAL ACCOUNTING POLICIES,
ESTIMATES AND RECENT ACCOUNTING PRONOUNCEMENTS



Critical accounting policies, estimates and recent accounting pronouncements are
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in our 2021 Form 10-K, updated where applicable
in the notes accompanying our consolidated financial statements, including

note 1, "Basis of Presentation and Recent Accounting Pronouncements."

FINANCIAL CONDITION

Investable Assets Held by Arch


At March 31, 2022, approximately $18.4 billion, or 68.9%, of total investable
assets held by Arch were internally managed, compared to $18.5 billion, or
67.3%, at December 31, 2021. See   note 7, "Investment Information"   to our
consolidated financial statements for information about the insurance segment's
prior year reserve development.

                                           March 31, 2022,      December 

31, 2021


Average effective duration (in years)           2.93                   2.70
Average S&P/Moody's credit ratings (1)              AA-/Aa3                 

AA-/Aa3

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



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

                                                                        % of
                                           Estimated Fair Value        Total
March 31, 2022
U.S. government and gov't agencies (1)    $           4,981,102        27.6
AAA                                                   3,171,975        17.5
AA                                                    2,222,236        12.3
A                                                     3,227,560        17.9
BBB                                                   3,181,195        17.6
BB                                                      564,762         3.1
B                                                       364,181         2.0
Lower than B                                              7,057           -
Not rated                                               354,972         2.0
Total                                     $          18,075,040       100.0

December 31, 2021
U.S. government and gov't agencies (1)    $           5,063,191        27.5
AAA                                                   3,783,386        20.5
AA                                                    2,459,413        13.4
A                                                     2,943,594        16.0
BBB                                                   2,936,398        15.9
BB                                                      501,588         2.7
B                                                       371,747         2.0
Lower than B                                             43,756         0.2
Not rated                                               311,734         1.7
Total                                     $          18,414,807       100.0

(1)Includes U.S. government-sponsored agency residential mortgage-backed securities and agency commercial mortgage-backed securities.


The following table provides information on the severity of the unrealized loss
position as a percentage of amortized cost for all Fixed Maturities which were
in an unrealized loss position:

                                                                                       % of
                                                                     Gross         Total Gross
                                                                   Unrealized       Unrealized
Severity of gross unrealized losses:    Estimated Fair Value         Losses           Losses
March 31, 2022
0-10%                                  $          15,378,359      $ (659,818)         90.9
10-20%                                               466,584         (61,761)          8.5
20-30%                                                11,255          (3,574)          0.5
Greater than 30%                                         998            (852)          0.1
Total                                  $          15,857,196      $ (726,005)        100.0

December 31, 2021
0-10%                                  $          12,231,146      $ (166,867)         97.6
10-20%                                                16,884          (2,412)          1.4
20-30%                                                 2,593            (759)          0.4
Greater than 30%                                         684            (916)          0.5
Total                                  $          12,251,307      $ (170,954)        100.0


The following table summarizes our top ten exposures to fixed income corporate
issuers by fair value at March 31, 2022, excluding guaranteed amounts and
covered bonds:

                                                               Credit
                                 Estimated Fair Value        Rating (1)
Bank of America Corporation     $             468,427               A-/A2
JPMorgan Chase & Co.                          334,034               A-/A2
Citigroup Inc.                                281,326             BBB+/A3
Morgan Stanley                                261,164             BBB+/A1
Wells Fargo & Company                         259,394             BBB+/A1
The Goldman Sachs Group, Inc.                 253,527             BBB+/A2
Blackstone Inc.                               179,207            BBB/Baa3
UBS Group AG                                  126,761               A/Aa3
Owl Rock Capital Partners LP                  121,074           BBB-/Baa3
Dai-ichi Life Holdings, Inc.                  114,194              AA-/A1
Total                           $           2,399,108


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

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


                     Agencies       Investment Grade       Below Investment Grade          Total
March 31, 2022
RMBS                $ 243,845      $         168,557      $                 3,736      $   416,138
CMBS                   20,466                957,126                       88,773        1,066,365
ABS                         -              1,498,471                      181,748        1,680,219
Total               $ 264,311      $       2,624,154      $               

274,257 $ 3,162,722


December 31, 2021
RMBS                $ 268,229      $         129,296      $                10,952      $   408,477
CMBS                   22,198                926,302                       97,984        1,046,484
ABS                         -              2,543,907                      152,551        2,696,458
Total               $ 290,427      $       3,599,505      $               261,487      $ 4,151,419

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

                          March 31,       December 31,
                            2022              2021
Equities (1)            $   449,434      $    883,722
Exchange traded funds
Fixed income (2)            538,415           455,467
Equity and other (3)         36,023           491,474
Total                   $ 1,023,872      $  1,830,663


(1)Primarily in consumer non-cyclical, technology, financial, consumer cyclical
and industrial at March 31, 2022.
(2)Primarily in corporate at March 31, 2022.
(3)Primarily in large cap stocks, foreign equities, technology, financial and
utilities at March 31, 2022.

For details on our other investments and other investable assets, see note 7, "Investment Information-Other Investments" to our consolidated financial statements.


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For details on our investments accounted for using the equity method, see   note
7, "Investment Information-Investments Accounted For Using the Equity Method,"
to our consolidated financial statements.

Our investment strategy allows for the use of derivative instruments. We utilize
various derivative instruments such as futures contracts to enhance investment
performance, replicate investment positions or manage market exposures and
duration risk that would be allowed under our investment guidelines if
implemented in other ways. See   note 9, "Derivative Instruments,"   to our
consolidated financial statements for additional disclosures related to
derivatives.

Accounting guidance regarding fair value measurements addresses how companies
should measure fair value when they are required to use a fair value measure for
recognition or disclosure purposes under GAAP and provides a common definition
of fair value to be used throughout GAAP. See   note 8, "Fair Value,"   to our
consolidated financial statements for a summary of our financial assets and
liabilities measured at fair value, segregated by level in the fair value
hierarchy.

Reinsurance

The effects of reinsurance on written and earned premiums and losses and loss adjustment expenses ("LAE") with unaffiliated reinsurers were as follows:

                           Three Months Ended
                               March 31,
                         2022             2021
Premiums written:
Direct               $ 2,131,309      $ 1,892,245
Assumed                1,669,466        1,504,961
Ceded                 (1,166,635)        (888,749)
Net                  $ 2,634,140      $ 2,508,457

Premiums earned:
Direct               $ 1,885,115      $ 1,712,925
Assumed                1,172,804          947,614
Ceded                   (937,286)        (712,117)
Net                  $ 2,120,633      $ 1,948,422

Losses and LAE:
Direct               $   889,802      $   985,933
Assumed                  654,261          667,311
Ceded                   (543,228)        (450,144)
Net                  $ 1,000,835      $ 1,203,100

See note 6, "Allowance for Expected Credit Losses," to our consolidated financial statements for information about our reinsurance recoverables and related allowance for credit losses.

Bellemeade Re


We have entered into aggregate excess of loss mortgage reinsurance agreements
with various special purpose reinsurance companies domiciled in Bermuda (the
"Bellemeade Agreements"). For the respective coverage periods, we will retain
the first layer of the respective aggregate losses and the special purpose
reinsurance companies will provide second layer coverage up to the outstanding
coverage amount. We will then retain losses in excess of the outstanding
coverage limit. The aggregate excess of loss reinsurance coverage generally
decreases over a ten-year period as the underlying covered mortgages amortize,
unless provisional call options embedded within certain of the Bellemeade
Agreements are executed or if pre-defined delinquency triggering events occur.

The following table summarizes the respective coverages and retentions at March 31, 2022:


          Bellemeade Entities            Initial Coverage at                                   Remaining Retention,
              (Issue Date)                     Issuance               Current Coverage                 Net
2017-1 Ltd. (1)                          $         368,114          $          81,415          $         127,902
2018-1 Ltd. (2)                                    374,460                    147,647                    126,952
2018-3 Ltd. (3)                                    506,110                    283,088                    131,858
2019-1 Ltd. (4)                                    341,790                    157,397                     95,943
2019-2 Ltd. (5)                                    621,022                    398,316                    161,990
2019-3 Ltd. (6)                                    700,920                    347,583                    187,666
2019-4 Ltd. (7)                                    577,267                    352,232                    120,702
2020-2 Ltd. (8)                                    449,167                    186,164                    226,692
2020-3 Ltd. (9)                                    451,816                    337,044                    159,588
2020-4 Ltd. (10)                                   337,013                    152,996                    134,889
2021-1 Ltd. (11)                                   643,577                    598,252                    156,828
2021-2 Ltd. (12)                                   616,017                    606,173                    144,713
2021-3 Ltd. (13)                                   639,391                    639,391                    142,162
2022-1 Ltd. (14)                                   316,760                    316,760                    155,082
Total                                    $       6,943,424          $       4,604,458          $       2,072,967

(1) Issued in October 2017, covering in-force policies issued between January 1, 2017 and June 30, 2017.

(2) Issued in April 2018, covering in-force policies issued between July 1, 2017 and December 31, 2017.

(3) Issued in October 2018, covering in-force policies issued between January 1, 2018 and June 30, 2018.


(4)  Issued in March 2019, covering in-force policies primarily issued between
2005-2008 under United Guaranty Residential Insurance Company ("UGRIC"); as well
as policies issued through 2015 under both UGRIC and Arch Mortgage Insurance
Company.

(5) Issued in April 2019, covering in-force policies issued between July 1, 2018 and December 31, 2018.

(6) Issued in July 2019, covering in-force policies issued in 2016.

(7) Issued in October 2019, covering in-force policies issued between January 1, 2019 and June 30, 2019.


(8)  Issued in September 2020, covering in-force policies issued between January
1, 2020 and May 31, 2020. $423 million was directly funded by Bellemeade 2020-2
Ltd. with an additional $26 million of capacity provided directly to Arch MI
U.S. by a separate panel of reinsurers.

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(9)  Issued in November 2020, covering in-force policies issued between June 1,
2020 and August 31, 2020. $418 million was directly funded by Bellemeade 2020-3
Ltd. with an additional $34 million of capacity provided directly to Arch MI
U.S. by a separate panel of reinsurers.

(10) Issued in December 2020, covering in-force policies issued between July 1,
2019 and December 31, 2019. $321 million was directly funded by Bellemeade
2020-4 Ltd. with an additional $16 million of capacity provided directly to Arch
MI U.S. by a separate panel of reinsurers.

(11) Issued in March 2021, covering in-force policies issued between September
1, 2020 and November 30, 2020. $580 million was directly funded by Bellemeade Re
2021-1 Ltd. with an additional $64 million capacity provided directly to Arch MI
U.S. by a separate panel of reinsurers.

(12) Issued in June 2021, covering in-force policies issued between December 1,
2020 and March 31, 2021. $523 million was directly funded by Bellemeade Re
2021-2 Ltd. via insurance-linked notes, with an additional $93 million capacity
provided directly to Arch MI U.S. by a separate panel of reinsurers.

(13) Issued in September 2021, covering in-force policies issued between April
1, 2021 and June 30, 2021. $508 million was directly funded by Bellemeade Re
2021-3 Ltd. via insurance-linked notes, with an additional $131 million capacity
provided directly to Arch MI U.S. by a separate panel of reinsurers.

(14) Issued in January 2022, covering in-force policies issued between July 1,
2021 and November 30, 2021. $284 million was directly funded by Bellemeade Re
2022-1 Ltd. via insurance-linked notes, with an additional $33 million capacity
provided directly to Arch MI U.S. by a separate panel of reinsurers.

Reserve for Losses and Loss Adjustment Expenses


We establish reserve for losses and loss adjustment expenses ("Loss Reserves")
which represent estimates involving actuarial and statistical projections, at a
given point in time, of our expectations of the ultimate settlement and
administration costs of losses incurred. Estimating Loss Reserves is inherently
difficult. We utilize actuarial models as well as available historical insurance
industry loss ratio experience and loss development patterns to assist in the
establishment of Loss Reserves. Actual losses and loss adjustment expenses paid
will deviate, perhaps substantially, from the reserve estimates reflected in our
financial statements.

At March 31, 2022 and December 31, 2021, our Loss Reserves, net of unpaid losses
and loss adjustment expenses recoverable, by type and by operating segment were
as follows:

                             March 31,        December 31,
                                2022              2021
Insurance segment:
Case reserves              $  2,162,933      $  2,102,891
IBNR reserves                 4,381,321         4,269,904
Total net reserves            6,544,254         6,372,795
Reinsurance segment:
Case reserves                 1,775,847         1,733,571
Additional case reserves        408,019           426,531
IBNR reserves                 2,752,894         2,656,527
Total net reserves            4,936,760         4,816,629
Mortgage segment:
Case reserves                   677,872           741,897
IBNR reserves                   240,223           226,604
Total net reserves              918,095           968,501

Total:
Case reserves                 4,616,652         4,578,359
Additional case reserves        408,019           426,531
IBNR reserves                 7,374,438         7,153,035
Total net reserves         $ 12,399,109      $ 12,157,925


At March 31, 2022 and December 31, 2021, the insurance segment's Loss Reserves
by major line of business, net of unpaid losses and loss adjustment expenses
recoverable, were as follows:

                                          March 31,       December 31,
                                            2022              2021
Insurance segment:
Professional lines (1)                  $ 1,754,859      $  1,673,615

Construction and national accounts 1,500,319 1,490,206 Programs

                                    804,682           793,187
Excess and surplus casualty (2)             694,002           657,307
Property, energy, marine and aviation       603,783           599,093
Travel, accident and health                 103,506            96,051
Lenders products                             48,170            58,351
Other (3)                                 1,034,933         1,004,985
Total net reserves                      $ 6,544,254      $  6,372,795

(1)Includes professional liability, executive assurance and healthcare business. (2)Includes casualty and contract binding business. (3)Includes alternative markets, excess workers' compensation and surety business.


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At March 31, 2022 and December 31, 2021, the reinsurance segment's Loss Reserves
by major line of business, net of unpaid losses and loss adjustment expenses
recoverable, were as follows:

                                            March 31,       December 31,
                                              2022              2021
Reinsurance segment:
Casualty (1)                              $ 2,178,795      $  2,123,360
Other specialty (2)                         1,153,553         1,113,766
Property excluding property catastrophe       710,214           711,859
Property catastrophe                          487,399           486,911
Marine and aviation                           269,717           246,861
Other (3)                                     137,082           133,872
Total net reserves                        $ 4,936,760      $  4,816,629


(1)Includes executive assurance, professional liability, workers' compensation,
excess motor, healthcare and other.
(2)Includes non-excess motor, surety, accident and health, workers' compensation
catastrophe, agriculture, trade credit and other.
(3)Includes life, casualty clash and other.

At March 31, 2022 and December 31, 2021, the mortgage segment's Loss Reserves by major line of business, net of unpaid losses and loss adjustment expenses recoverable, were as follows:


                                              March 31,      December 31,
                                                2022             2021

U.S. primary mortgage insurance (1) $ 666,264 $ 710,708 U.S. credit risk transfer (CRT) and other 108,239

            112,549
International mortgage insurance/
reinsurance                                    143,592            145,244
Total net reserves                           $ 918,095      $     968,501


(1) At March 31, 2022, 30.7% represents policy years 2012 and prior and the remainder from later policy years. At December 31, 2021, 27.9% of total net reserves represent policy years 2012 and prior and the remainder from later policy years.

Mortgage Operations Supplemental Information

The mortgage segment's insurance in force ("IIF") and risk in force ("RIF") were as follows at March 31, 2022 and December 31, 2021:


(U.S. Dollars in millions)                             March 31, 2022                                  December 31, 2021
                                                Amount                    %                      Amount                      %
Insurance In Force (IIF) (1):
U.S. primary mortgage insurance           $       283,484                   59.7          $          280,945                   61.0
U.S. credit risk transfer (CRT) and other
(2)                                               122,189                   25.8                     110,018                   23.9
International mortgage
insurance/reinsurance (3)                          68,800                   14.5                      69,655                   15.1
Total                                     $       474,473                  100.0          $          460,618                  100.0

Risk In Force (RIF) (4):
U.S. primary mortgage insurance           $        71,699                   84.3          $           70,619                   84.3
U.S. credit risk transfer (CRT) and other
(2)                                                 5,670                    6.7                       5,120                    6.1
International mortgage
insurance/reinsurance (3)                           7,709                    9.1                       7,983                    9.5
Total                                     $        85,078                  100.0          $           83,722                  100.0


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

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

(U.S. Dollars in millions)              IIF                       RIF               Delinquency
                                Amount          %          Amount         %          Rate (1)
Policy year:
2012 and prior                $  11,651         4.1      $  2,778         3.9            8.77  %
2013                              3,810         1.3         1,033         1.4            2.40  %
2014                              4,433         1.6         1,221         1.7            3.00  %
2015                              7,857         2.8         2,115         2.9            2.31  %
2016                             12,967         4.6         3,473         4.8            2.91  %
2017                             11,773         4.2         3,099         4.3            3.71  %
2018                             12,548         4.4         3,187         4.4            4.67  %
2019                             23,195         8.2         5,819         8.1            2.76  %
2020                             77,873        27.5        19,302        26.9            0.94  %
2021                             97,485        34.4        24,527        34.2            0.45  %
2022                             19,892         7.0         5,145         7.2            0.02  %
Total                         $ 283,484       100.0      $ 71,699       100.0            2.09  %

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

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The IIF and RIF for our U.S. primary mortgage insurance business by policy year
were as follows at December 31, 2021:

(U.S. Dollars in millions)              IIF                       RIF               Delinquency
                                Amount          %          Amount         %          Rate (1)
Policy year:
2012 and prior                $  13,030         4.6      $  2,960         4.2            8.48  %
2013                              4,206         1.5         1,148         1.6            2.63  %
2014                              4,822         1.7         1,328         1.9            3.14  %
2015                              8,703         3.1         2,340         3.3            2.67  %
2016                             14,344         5.1         3,841         5.4            3.29  %
2017                             13,128         4.7         3,436         4.9            4.09  %
2018                             14,046         5.0         3,562         5.0            5.28  %
2019                             25,841         9.2         6,467         9.2            3.13  %
2020                             82,502        29.4        20,341        28.8            0.97  %
2021                            100,323        35.7        25,196        35.7            0.29  %

Total                         $ 280,945       100.0      $ 70,619       100.0            2.36  %

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

The following tables provide supplemental disclosures on risk in force for our U.S. primary mortgage insurance business at March 31, 2022 and December 31, 2021:


(U.S. Dollars in millions)                        March 31, 2022                                December 31, 2021
                                           Amount                   %                     Amount                     %
Credit quality (FICO):
>=740                                 $      43,509                   60.7          $         42,451                   60.1
680-739                                      23,827                   33.2                    23,646                   33.5
620-679                                       4,052                    5.7                     4,196                    5.9
<620                                            311                    0.4                       326                    0.5
Total                                 $      71,699                  100.0          $         70,619                  100.0
Weighted average FICO score                     747                                              746

Loan-to-value (LTV):
95.01% and above                      $       7,421                   10.4          $          7,538                   10.7
90.01% to 95.00%                             39,882                   55.6                    38,829                   55.0
85.01% to 90.00%                             20,183                   28.1                    20,006                   28.3
85.00% and below                              4,213                    5.9                     4,246                    6.0
Total                                 $      71,699                  100.0          $         70,619                  100.0
Weighted average LTV                           92.8  %                                          92.8  %

Total RIF, net of external
reinsurance                           $      54,792                         

$ 54,574



(U.S. Dollars in millions)           March 31, 2022                   December 31, 2021
                                   Amount             %               Amount              %
Total RIF by State:
California                    $         5,781         8.1      $            5,559         7.9
Texas                                   5,733         8.0                   5,594         7.9
Florida                                 3,272         4.6                   3,303         4.7
Georgia                                 2,978         4.2                   2,902         4.1
North Carolina                          2,964         4.1                   2,921         4.1
Illinois                                2,955         4.1                   2,933         4.2
Minnesota                               2,913         4.1                   2,916         4.1
Massachusetts                           2,566         3.6                   2,537         3.6
Michigan                                2,509         3.5                   2,492         3.5
Virginia                                2,504         3.5                   2,446         3.5
Other                                  37,524        52.3                  37,016        52.4
Total                         $        71,699       100.0      $           70,619       100.0

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


(U.S. Dollars in thousands, except policy, loan and                 Three Months Ended
claim count)
                                                           March 31,                 December 31,
                                                              2022                       2021
Roll-forward of insured loans in default:
Beginning delinquent number of loans                             27,645                     31,770
New notices                                                       8,835                      9,071
Cures                                                           (12,030)                   (13,038)
Paid claims                                                        (180)                      (158)

Ending delinquent number of loans (1)                            24,270                     27,645

Ending number of policies in force (1)                        1,159,020                  1,171,835

Delinquency rate (1)                                               2.09  %                    2.36  %

Losses:
Number of claims paid                                               180                        158
Total paid claims                                     $           6,016          $           8,131
Average per claim                                     $            33.4          $            51.5
Severity (2)                                                       78.1  %                    83.0  %
Average case reserve per default (in thousands) (1)   $            28.4          $            26.7


(1)Includes first lien primary and pool policies.
(2)Represents total paid claims divided by RIF of loans for which claims were
paid.

The risk to capital ratio, which represents total current (non-delinquent) risk
in force, net of reinsurance, divided by total statutory capital, for Arch MI
U.S. was approximately 7.8 to 1 at March 31, 2022, compared to 8 to 1 at
December 31, 2021.

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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 thousands, except                                       March 31,               December 31,
share data)                                                                 2022                     2021
Total shareholders' equity available to Arch                         $    12,919,589          $    13,545,896
Less preferred shareholders' equity                                          830,000                  830,000
Common shareholders' equity available to Arch                        $    12,089,589          $    12,715,896
Common shares and common share equivalents outstanding, net of
treasury shares (1)                                                      375,730,891              378,923,894
Book value per share                                                 $         32.18          $         33.56

(1)Excludes the effects of 16,398,853 and 17,083,160 stock options and 569,646 and 729,636 restricted stock units outstanding at March 31, 2022 and December 31, 2021, respectively.

LIQUIDITY

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations.


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

For the three months ended March 31, 2022, Arch Capital received dividends of
$0.3 billion from Arch Reinsurance Ltd. ("Arch Re Bermuda"), our Bermuda based
reinsurer and insurer which can pay approximately $3.5 billion to Arch Capital
during the remainder of 2022 without providing an affidavit to the Bermuda
Monetary Authority.

We expect that our liquidity needs, including our anticipated (re)insurance
obligations and operating and capital expenditure needs, for the next twelve
months, will be met by funds generated from underwriting activities and
investment income, as well as by our balance of cash, short-term investments,
proceeds on the sale or maturity of our investments, and our credit facilities.

Cash Flows


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

                                                                Three Months Ended
                                                                    March 31,
                                                               2022           2021
Total cash provided by (used for):
Operating activities                                        $ 551,563      $ 755,928
Investing activities                                         (312,719)      (498,658)
Financing activities                                         (233,573)      (201,625)

Effects of exchange rate changes on foreign currency cash (3,924)

(3,387)

Increase (decrease) in cash and restricted cash             $   1,347      

$ 52,258

•Cash provided by operating activities for the three months ended March 31, 2022, primarily reflected a higher level of expenses paid than in the 2021 period.


•Cash used for investing activities for the three months ended March 31, 2022
was lower than in the 2021 period. Activity for the 2021 period reflected our
$546.3 million purchase of 29.5% interest in Coface.

•Cash used for financing activities for the three months ended March 31, 2022
reflected $255.0 million of repurchases under our share repurchase program.
Activity for the 2021 period, primarily reflected $179.3 million of repurchases
under our share repurchase program.

CAPITAL RESOURCES

The following table provides an analysis of our capital structure:


(U.S. dollars in thousands, except            Mar 31,           Dec 31,
share data)                                     2022              2021

Senior notes                               $  2,724,642      $  2,724,394

Shareholders' equity available to Arch:


Series F non-cumulative preferred shares        330,000           330,000
Series G non-cumulative preferred shares        500,000           500,000
Common shareholders' equity                  12,089,589        12,715,896
Total                                      $ 12,919,589      $ 13,545,896

Total capital available to Arch            $ 15,644,231      $ 16,270,290

Debt to total capital (%)                          17.4              16.7
Preferred to total capital (%)                      5.3               5.1
Debt and preferred to total capital (%)            22.7              21.8


Arch MI U.S. is required to maintain compliance with the GSEs requirements,
known as the Private Mortgage Insurer Eligibility Requirements or "PMIERs." The
financial requirements require an eligible mortgage insurer's available assets,
which generally include only the most liquid assets of

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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. Arch MI U.S. satisfied the PMIERs'
financial requirements as of March 31, 2022 with an estimated PMIER sufficiency
ratio of 205%, compared to 197% at December 31, 2021.

Arch Capital, through its subsidiaries, provides financial support to certain of
its insurance subsidiaries and affiliates, through certain reinsurance
arrangements beneficial to the ratings of such subsidiaries. Historically, our
insurance, reinsurance and mortgage insurance subsidiaries have entered into
separate reinsurance arrangements with Arch Re Bermuda covering individual lines
of business.

GUARANTOR INFORMATION



The below table provides a description of our senior notes payable at March 31,
2022:

                        Interest       Principal        Carrying
    Issuer/Due          (Fixed)         Amount           Amount
Arch Capital:
May 1, 2034              7.350  %    $   300,000      $   297,519
June 30, 2050            3.635  %        1,000,000          988,776
Arch-U.S.:
Nov. 1, 2043 (1)         5.144  %          500,000          495,094
Arch Finance:
Dec. 15, 2026 (1)        4.011  %          500,000          497,741
Dec. 15, 2046 (1)        5.031  %          450,000          445,512
Total                                $ 2,750,000      $ 2,724,642

(1)Fully and unconditionally guaranteed by Arch Capital.


Our senior notes were issued by Arch Capital, Arch Capital Group (U.S.) Inc.
("Arch-U.S.") and Arch Capital Finance LLC ("Arch Finance"). Arch-U.S. is a
wholly-owned subsidiary of Arch Capital and Arch Finance is a wholly-owned
finance subsidiary of Arch-U.S. Our 2034 senior notes and 2050 senior notes
issued by Arch Capital are unsecured and unsubordinated obligations of Arch
Capital and ranked equally with all of its existing and future unsecured and
unsubordinated indebtedness. The 2043 senior notes issued by Arch-U.S. are
unsecured and unsubordinated obligations of Arch-U.S. and Arch Capital and rank
equally and ratably with the other unsecured and unsubordinated indebtedness of
Arch-U.S. and Arch Capital. The 2026 senior notes and 2046 senior notes issued
by Arch Finance are unsecured and unsubordinated obligations of Arch Finance and
Arch Capital and rank equally and ratably with the other unsecured and
unsubordinated indebtedness of Arch Finance and Arch Capital.

Arch-U.S. and Arch Finance depend on their available cash

resources, liquid investments and dividends or other distributions from their subsidiaries or affiliates to make payments, including the payment of debt service obligations and operating expenses they may incur.

The following tables present condensed financial information for Arch Capital (parent guarantor) and Arch-U.S. (subsidiary issuer):

                                               March 31, 2022
                                        Arch Capital       Arch-U.S.
Assets
Total investments                      $         50      $   209,588
Cash                                         20,065           15,255

Investment in operating affiliates            6,304                -
Due from subsidiaries and affiliates              -           59,000

Other assets                                  8,830           35,723
Total assets                           $     35,249      $   319,566

Liabilities

Senior notes                              1,286,295          495,094

Due to subsidiaries and affiliates                -          577,110
Other liabilities                            32,678           80,917
Total liabilities                      $  1,318,973      $ 1,153,121

Non-cumulative preferred shares        $    830,000                -


                                                 December 31, 2021
                                                          Arch Capital       Arch-U.S.
Assets
Total investments                                        $      2,038      $   137,124
Cash                                                           16,317           18,392

Investment in operating affiliates                              6,877       

-

Due from subsidiaries and affiliates                                -           26,000

Other assets                                                    9,615           37,040
Total assets                                             $     34,847      $   218,556

Liabilities

Senior notes                                                1,286,208          495,063

Due to subsidiaries and affiliates                                  -          521,839
Other liabilities                                              24,767           47,410
Total liabilities                                        $  1,310,975      $ 1,064,312

Non-cumulative preferred shares                          $    830,000                -


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                                                                March 31, 2022
                                                          Arch
Three Months Ended                                       Capital          Arch-U.S.

Revenues

Net investment income                                                 $          364          $           33
Net realized gains (losses)                                                        -                    (362)

Equity in net income (loss) of investments
accounted for using the equity method                                              -                   3,848

Total revenues                                                                   364                   3,519

Expenses

Corporate expenses                                                            28,431                   4,445

Interest expense                                                              14,687                  11,762

Total expenses                                                                43,118                  16,207

Income (loss) before income taxes and income
(loss) from operating affiliates                                             (42,754)                (12,688)
Income tax (expense) benefit                                                       -                   4,883

Income (loss) from operating affiliates                                         (280)                      -

Net income available to Arch                                                 (43,034)                 (7,805)
Preferred dividends                                                          (10,184)                      -

Net income (loss) available to Arch common
shareholders                                                          $      (53,218)         $       (7,805)


                                                                  December 31, 2021
Year Ended                                                                    Arch Capital        Arch-U.S.

Revenues

Net investment income                                                                                  1,524                 11,596
Net realized gains (losses)                                                                                -                 72,437

Equity in net income (loss) of investments
accounted for using the equity method                                                                      -                 18,149

Total revenues                                                                                         1,524                102,182

Expenses

Corporate expenses                                                                                    71,818                  5,875

Interest expense                                                                                      58,741                 47,292
Net foreign exchange (gains) losses                                                                        7                      -
Total expenses                                                                                       130,566                 53,167

Income (loss) before income taxes and income
(loss) from operating affiliates                                                                    (129,042)                49,015
Income tax (expense) benefit                                                                               -                (12,513)

Income (loss) from operating affiliates                                                                 (590)                     -

Net income available to Arch                                                                        (129,632)                36,502
Preferred dividends                                                                                  (48,343)                     -
Loss on redemption of preferred shares                                                               (15,101)                     -
Net income (loss) available to Arch common
shareholders                                                                                   $    (193,076)         $      36,502



SHARE REPURCHASE PROGRAM


The board of directors of Arch Capital has authorized the investment in Arch
Capital's common shares through a share repurchase program. For the three months
ended March 31, 2022, Arch Capital repurchased 5.6 million shares under the
share repurchase program with an aggregate purchase price of $255.0 million.
Since the inception of the share repurchase program through March 31, 2022, Arch
Capital has repurchased 426.2 million common shares for an aggregate purchase
price of $5.54 billion. At March 31, 2022, approximately $927.2 million of share
repurchases were available under the program. The timing and amount of the
repurchase transactions under this program will depend on a variety of factors,
including market conditions and 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.

CATASTROPHIC EVENTS AND SEVERE ECONOMIC EVENTS




We have large aggregate exposures to natural and man-made catastrophic events,
pandemic events like COVID-19 and severe economic events. Natural catastrophes
can be caused by various events, including hurricanes, floods, windstorms,
earthquakes, hailstorms, tornadoes, explosions, severe winter weather, fires,
droughts and other natural disasters. Man-made catastrophic events may include
acts of war, acts of terrorism and political instability. Catastrophes can also
cause losses in non-property business such as mortgage insurance, workers'
compensation or general liability. In addition to the nature of property
business, we believe that economic and geographic trends affecting insured
property, including inflation, property value appreciation and geographic
concentration, tend to generally increase the size of losses from catastrophic
events over time.

Our models employ both proprietary and vendor-based systems and include
cross-line correlations for property, marine, offshore energy, aviation, workers
compensation and personal accident. We seek to limit the probable maximum
pre-tax loss to a specific level for severe catastrophic events. Currently, we
seek to limit our 1-in-250 year return period net probable maximum loss from a
severe catastrophic event in any geographic zone to approximately 25% of
tangible shareholders' equity available to Arch (total shareholders' equity
available to Arch less goodwill and intangible assets). We reserve the right to
change this threshold at any time.

Based on in-force exposure estimated as of April 1, 2022, our modeled peak zone
catastrophe exposure was a windstorm affecting the Florida Tri-County, with a
net probable maximum pre-tax loss of $768 million, followed by

ARCH CAPITAL 54 2022 FIRST QUARTER FORM 10-Q

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windstorms affecting the Northeastern U.S. and the Gulf of Mexico regions with
net probable maximum pre-tax losses of $744 and $681 million, respectively. Our
exposures to other perils, such as U.S. earthquake and international events,
were less than the exposures arising from U.S. windstorms and hurricanes. As of
April 1, 2022, our modeled peak zone earthquake exposure (San Francisco
earthquake) represented approximately 75% of our peak zone catastrophe exposure,
and our modeled peak zone international exposure (UK windstorm) was
substantially less than both our peak zone windstorm and earthquake exposures.

We also have significant exposure to losses due to mortgage defaults resulting
from severe economic events in the future. For our U.S. mortgage insurance
business, we have developed a proprietary risk model ("Realistic Disaster
Scenario" or "RDS") that simulates the maximum loss resulting from a severe
economic downturn impacting the housing market. The RDS models the collective
impact of adverse conditions for key economic indicators, the most significant
of which is a decline in home prices. The RDS model projects paths of future
home prices, unemployment rates, income levels and interest rates and assumes
correlation across states and geographic regions. The resulting future
performance of our in-force portfolio is then estimated under the economic
stress scenario, reflecting loan and borrower information.

Currently, we seek to limit our modeled RDS loss from a severe economic event to
approximately 25% of tangible shareholders' equity available to Arch. We reserve
the right to change this threshold at any time. Based on in-force exposure
estimated as of April 1, 2022, our modeled RDS loss was approximately 7% of
tangible shareholders' equity available to Arch.

Net probable maximum loss estimates are net of expected reinsurance recoveries,
before income tax and before excess reinsurance reinstatement premiums. RDS loss
estimates are net of expected reinsurance recoveries and before income tax.
Catastrophe loss estimates are reflective of the zone indicated and not the
entire portfolio. Since hurricanes and windstorms can affect more than one zone
and make multiple landfalls, our catastrophe loss estimates include clash
estimates from other zones. Our catastrophe loss estimates and RDS loss
estimates do not represent our maximum exposures and it is highly likely that
our actual incurred losses would vary materially from the modeled estimates.
There can be no assurances that we will not suffer pre-tax losses greater than
25% of our tangible shareholders' equity from one or more catastrophic events or
severe economic events due to several factors. These factors include the
inherent uncertainties in estimating the frequency and severity of such events
and the margin of error in making such determinations resulting from potential
inaccuracies and inadequacies in the data provided by clients and brokers, the
modeling techniques and the

application of such techniques or as a result of a decision to change the
percentage of shareholders' equity exposed to a single catastrophic event or
severe economic event. In addition, actual losses may increase if our reinsurers
fail to meet their obligations to us or the reinsurance protections purchased by
us are exhausted or are otherwise unavailable. See "Risk Factors-Risks Relating
to Our Industry" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Catastrophic Events and Severe Economic
Events" in our 2021 Form 10-K.

MARKET SENSITIVE INSTRUMENTS AND RISK MANAGEMENT




In accordance with the SEC's Financial Reporting Release No. 48, we performed a
sensitivity analysis to determine the effects that market risk exposures could
have on the future earnings, fair values or cash flows of our financial
instruments as of March 31, 2022. Market risk represents the risk of changes in
the fair value of a financial instrument and is comprised of several components,
including liquidity, basis and price risks.

An analysis of material changes in market risk exposures at March 31, 2022 that
affect the quantitative and qualitative disclosures presented in our 2021
Form 10-K (see section captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Market Sensitive Instruments and
Risk Management") were as follows:

Investment Market Risk


Fixed Income Securities. We invest in interest rate sensitive securities,
primarily debt securities. We consider the effect of interest rate movements on
the fair value of our fixed maturities, short-term investments and certain of
our other investments, equity securities and investment funds accounted for
using the equity method which invest in fixed income securities (collectively,
"Fixed Income Securities") and the corresponding change in unrealized
appreciation. As interest rates rise, the fair value of our Fixed Income
Securities falls, and the converse is also true. Based on historical
observations, there is a low probability that all interest rate yield curves
would shift in the same direction at the same time. Furthermore, at times
interest rate movements in certain credit sectors exhibit a much lower
correlation to changes in U.S. Treasury yields. Accordingly, the actual effect
of interest rate movements may differ materially from the amounts set forth in
the following tables.

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The following table summarizes the effect that an immediate, parallel shift in
the interest rate yield curve would have had on our Fixed Income Securities:

(U.S. dollars in                             Interest Rate Shift in Basis Points
billions)                        -100          -50            -           +50           +100
Mar. 31, 2022
Total fair value              $ 26.19       $ 25.81       $ 25.45      $ 25.09       $ 24.74
Change from base                  2.9  %        1.4  %                    (1.4) %       (2.8) %
Change in unrealized value    $  0.74       $  0.36                    $ (0.36)      $ (0.71)

Dec. 31, 2021
Total fair value              $ 25.79       $ 25.44       $ 25.21      $ 24.75       $ 24.43
Change from base                  2.3  %        0.9  %                    (1.8) %       (3.1) %
Change in unrealized value    $  0.58       $  0.23                    $ (0.45)      $ (0.78)


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

The following table summarizes the effect that an immediate, parallel shift in
credit spreads in a static interest rate environment would have had on our Fixed
Income Securities:

(U.S. dollars in                           Credit Spread Shift in Percentage Points
billions)                        -100           -50            -           +50           +100
Mar. 31, 2022
Total fair value              $  26.30       $ 25.87       $ 25.45      $ 25.03       $ 24.61
Change from base                   3.3  %        1.7  %                    (1.7) %       (3.3) %
Change in unrealized value    $   0.85       $  0.42                    $ (0.42)      $ (0.85)

Dec. 31, 2021
Total fair value              $  26.17       $ 25.69       $ 25.21      $ 24.72       $ 24.24
Change from base                   3.8  %        1.9  %                    (1.9) %       (3.8) %
Change in unrealized value    $   0.97       $  0.48                    $ 

(0.48) $ (0.97)



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 March 31, 2022, our
portfolio's VaR was estimated to be 4.4% compared to an estimated 4.8% at
December 31, 2021. In periods where the volatility of the risk factors mapped to
our portfolio's exposures is higher due to market conditions, the resulting VaR
is higher than in other periods.

Equity Securities. At March 31, 2022 and December 31, 2021, the fair value of
our investments in equity securities (excluding securities included in Fixed
Income Securities above) totaled $0.5 billion and $1.4 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 $48.5 million and $137.5 million at March 31, 2022 and
December 31, 2021, respectively, and would have decreased book value per share
by approximately $0.13 and $0.36, respectively. An immediate hypothetical 10%
increase in the value of each position would increase the fair value of such
investments by approximately $48.5 million and $137.5 million at March 31, 2022
and December 31, 2021, respectively, and would have increased book value per
share by approximately $0.13 and $0.36, respectively.

Investment-Related Derivatives. At March 31, 2022, the notional value of all
derivative instruments (excluding foreign currency forward contracts which are
included in the foreign currency exchange risk analysis below) was $5.2 billion,
compared to $6.4 billion at December 31, 2021. If the underlying exposure of
each investment-related derivative held at March 31, 2022 depreciated by 100
basis points, it would have resulted in a reduction in net income of
approximately $52.4 million, and a decrease in book value per share of
approximately $0.14 per share, compared to $63.8 million and $0.17 per share,
respectively, on investment-related derivatives held at December 31, 2021. If
the underlying exposure of each investment-related derivative held at March 31,
2022 appreciated by 100 basis points, it would have resulted in an increase in
net income of approximately $52.4 million, and an increase in book value per
share of approximately $0.14 per share, compared to $63.8 million and $0.17 per
share, respectively, on investment-related derivatives held at December 31,
2021. See   note 9, "Derivative Instruments,"   to our consolidated financial
statements for additional disclosures concerning derivatives.

For further discussion on investment activity, please refer to "Financial Condition-Investable Assets."

ARCH CAPITAL 56 2022 FIRST QUARTER FORM 10-Q

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Foreign Currency Exchange Risk

Foreign currency rate risk is the potential change in value, income and cash
flow arising from adverse changes in foreign currency exchange rates. Through
our subsidiaries and branches located in various foreign countries, we conduct
our insurance and reinsurance operations in a variety of local currencies other
than the U.S. Dollar. We generally hold investments in foreign currencies which
are intended to mitigate our exposure to foreign currency fluctuations in our
net insurance liabilities. We may also utilize foreign currency forward
contracts and currency options as part of our investment strategy. See   note 9,
"Derivative Instruments,"   to our consolidated financial statements for
additional information.

The following table provides a summary of our net foreign currency exchange exposures, as well as foreign currency derivatives in place to manage these exposures:

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