Arch Capital Group ACGL · USD

The Company classifies its businesses into three segments: insurance, reinsurance and mortgage. The Company determined its segments using the management approach described in accounting guidance regarding disclosures about segments of an enterprise and related information. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.The Company’s insurance, reinsurance and mortgage segments each have managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company’s chief operating decision-makers (“CODMs”): the Chief Executive Officer of Arch Capital and the Chief Financial Officer and Treasurer of Arch Capital. The CODMs do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. Management measures segment performance for its three segments based on underwriting income or loss. The Company does not manage its assets by segment, with the exception of goodwill and intangible assets and accordingly investment income is not allocated to each underwriting segment. The Company’s insurance segment primarily consists of commercial insurance lines of business, with a focus on specialty insurance products. These products are mainly offered in North America, Bermuda, the United Kingdom, continental Europe and Australia. Products offered in North America include: commercial automobile; commercial multiperil; other liability—claims made, which includes financial and professional lines; other liability—occurrence, which includes admitted and excess and surplus casualty lines; property and short-tail specialty; workers compensation; and other. Products offered across the Company’s International units include: property and short-tail specialty; and casualty and other.The Company’s reinsurance segment offers reinsurance products on a worldwide basis. Product lines of business include: casualty; marine and aviation; specialty; property catastrophe; property excluding property catastrophe; and other.The Company’s mortgage segment consists of U.S.

Concentrations of Credit RiskThe creditworthiness of a counterparty is evaluated by the Company, taking into account credit ratings assigned by independent agencies. The credit approval process involves an assessment of factors, including, among others, the counterparty, country and industry credit exposure limits. Collateral may be required, at the discretion of the Company, on certain transactions based on the creditworthiness of the counterparty.The areas where significant concentrations of credit risk may exist include unpaid losses and loss adjustment expenses recoverable, contractholder receivables, ceded unearned premiums, paid losses and loss adjustment expenses recoverable net of reinsurance balances payable, investments and cash and cash equivalent balances. A credit exposure exists with respect to reinsurance recoverables as they may become uncollectible. The Company manages its credit risk in its reinsurance relationships by transacting with reinsurers that it considers financially sound and, if necessary, the Company may hold collateral in the form of funds, trust accounts and/or irrevocable letters of credit. This collateral can be drawn on for amounts that remain unpaid beyond specified time periods on an individual reinsurer basis. In addition, certain insurance policies written by the Company’s insurance operations feature large deductibles, primarily in its construction and national accounts lines of business. Under such contracts, the Company is obligated to pay the claimant for the full amount of the claim. The Company is subsequently reimbursed by the policyholder for the deductible amount. These amounts are included on a gross basis in the consolidated balance sheet in contractholder payables and contractholder receivables, respectively. In the event that the Company is unable to collect from the policyholder, the Company would be liable for such defaulted amounts. Collateral, primarily in the form of letters of credit, cash and trusts, is obtained from the policyholder to mitigate the Company’s credit risk. In the instances where the company receives collateral in the form of cash, the Company records a related liability in “Collateral held for insured obligations.

The Company’s senior notes payable at December 31, 2025 and 2024 were as follows:Carrying Amount atInterestPrincipalDecember 31,(Fixed)Amount202520242034 notes (1)7.350 %$300 $298 $298 2043 notes (2)5.144 %500 496 496 2026 notes (3)4.011 %500 499 499 2046 notes (4)5.031 %450 446 446 2050 notes (5)3.635 %1,000 990 989 $2,750 $2,729 $2,728 (1) Senior notes of Arch Capital issued on May 4, 2004 and due May 1, 2034 (“2034 notes”).(2) Senior notes of Arch-U.S., a wholly-owned subsidiary of Arch Capital, issued on December 13, 2013 and due November 1, 2043 (“2043 notes”), fully and unconditionally guaranteed by Arch Capital. (3) Senior notes of Arch Capital Finance LLC (“Arch Finance”), a wholly-owned finance subsidiary of Arch Capital, issued on December 8, 2016 and due December 15, 2026 (“2026 notes”), fully and unconditionally guaranteed by Arch Capital.(4) Senior notes of Arch Finance issued on December 8, 2016 and due December 15, 2046 (“2046 notes”), fully and unconditionally guaranteed by Arch Capital(5) Senior notes of Arch Capital issued on June 30, 2020 and due June 30, 2050 (“2050 notes”).The 2034 notes are Arch Capital’s senior unsecured obligations and rank equally with all of its existing and future senior unsecured indebtedness. Interest payments on the 2034 notes are due on May 1st and November 1st of each year. Arch Capital may redeem the 2034 notes at any time and from time to time, in whole or in part, at a “make-whole” redemption price. The 2043 notes are unsecured and unsubordinated obligations of Arch-U.S. and Arch Capital, respectively, and rank equally and ratably with the other unsecured and unsubordinated indebtedness of Arch-U.S. and Arch Capital, respectively. Interest payments on the 2043 notes are due on May 1st and November 1st of each year. Arch-U.S. may redeem the 2043 notes at any time and from time to time, in whole or in part, at a “make-whole” redemption price. The 2026 notes are unsecured and unsubordinated obligations of Arch Finance and Arch Capital, respectively, and rank equally and ratably with the other unsecured and unsubordinated indebtedness of Arch Finance and Arch Capital, respectively. Interest payments on the 2026 notes are due on June 15th and December 15th of each year. Arch Finance may redeem the 2026 notes at any time and from time to time, in whole or in part, at a “make-whole” redemption price.

Arch Capital is incorporated under the laws of Bermuda and, under Bermuda law in effect prior to 2025, was not obligated to pay taxes on income or capital gains in Bermuda. Upon its formation in 2000, the Company received a written undertaking from the Minister of Finance in Bermuda under the Exempted Undertakings Tax Protection Act 1966 assuring that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits, income, gain or appreciation on any capital asset, or any tax in the nature of estate duty or inheritance tax, such tax will not be applicable to Arch Capital or any of its operations until March 31, 2035. However, on December 27, 2023, the Government of Bermuda enacted the Bermuda Corporate Income Tax Act (“Bermuda CIT Act”), imposing a 15% tax on certain Bermuda constituent entities of multi-national groups for tax years beginning on or after January 1, 2025. The Bermuda CIT Act was drafted to supersede the Company’s previously granted tax assurance, resulting in the Company becoming subject to Bermuda corporate income tax starting in 2025.The Bermuda CIT Act and amendments, together with the widespread adoption of the OECD Pillar II minimum tax proposal, has resulted in an increase to the minimum effective tax rate to approximately 15% in most jurisdictions in which Arch operates.Arch Capital has subsidiaries and branches that operate in various jurisdictions around the world. The significant jurisdictions in which Arch Capital’s subsidiaries and branches are subject to tax are the United States, Bermuda, United Kingdom, Ireland, Switzerland, Australia, Canada, and Gibraltar.

Long Term Incentive and Share Award PlansThe Company utilizes share-based compensation plans for officers, other employees and directors of Arch Capital and its subsidiaries to provide competitive compensation opportunities, to encourage long-term service, to recognize individual contributions and reward achievement of performance goals and to promote the creation of long-term value for shareholders by aligning the interests of such persons with those of shareholders.The 2022 Long-Term Incentive and Share Award Plan (“the 2022 Plan”) became effective as of May 4, 2022 following approval by shareholders of the Company. The 2022 Plan provides for the issuance of stock options, stock appreciation rights, restricted shares, restricted share units payable in common shares or cash, dividend equivalents, performance shares and performance units and other share-based awards to Arch Capital’s eligible employees and directors. The number of common shares reserved for grants under the 2022 Plan, subject to anti-dilution adjustments in the event of certain changes in Arch Capital’s capital structure, is 9.0 million; provided that no more than 6.0 million common shares may be issued as incentive stock options under Section 422 of the Code. The 2022 Plan will terminate as to future awards on February 25, 2032. At December 31, 2025, 5.6 million shares are available for future issuance.The 2018 Long-Term Incentive and Share Award Plan (the “2018 Plan”) became effective as of May 9, 2018 following approval by shareholders of the Company. The 2018 Plan provides for the issuance of restricted stock units, performance units, restricted shares, performance shares, stock options and stock appreciation rights and other equity-based awards to our eligible employees and directors. The 2018 Plan authorizes the issuance of 34.5 million common shares; provided that no more than 6.0 million common shares may be issued as incentive stock options under Section 422 of the Code. The 2018 Plan will terminate as to future awards on February 28, 2028. At December 31, 2025, 2.3 million shares are available for future issuance.Upon shareholder approval on May 4, 2023, the Amended and Restated Arch Capital Group Ltd. 2007 Employee Share Purchase Plan (the “ESPP”) became effective. The total common shares that may be purchased under the ESPP was increased by 3.0 million shares for a total of 12.75 million shares authorized.

In the ordinary course of business, the Company renews and enters into new leases for office property and equipment. At the lease inception date, the Company determines whether a contract contains a lease and its classification as a finance or operating lease. Primarily all of the Company’s leases are classified as operating leases. The Company’s operating leases have remaining lease terms of up to 12 years, some of which include options to extend the lease term. The Company considers these options when determining the lease term and measuring its lease liability and right-of-use asset. In addition, the Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.Short-term operating leases with an initial term of twelve months or less were excluded on the Company's consolidated balance sheet and represent an inconsequential amount of operating lease expense. As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Additional information regarding the Company’s operating leases is as follows:December 31,20252024Operating lease costs$32 $34 Sublease income (1)$(2)$(2)Cash payments included in the measurement of lease liabilities reported in operating cash flows$31 $30 Right-of-use assets obtained in exchange for new lease liabilities$13 $30 Right-of-use assets (2)$120 $129 Operating lease liability (2)$156 $163 Weighted average discount rate5.0 %4.9 %Weighted average remaining lease term7.1 years7.2 years(1) The sublease income primarily relates to office property in Raleigh, North Carolina.(2) The right-of-use assets are included in ‘other assets’ while the operating lease liability is included in ‘other liabilities.’The following table presents the contractual maturities of the Company's operating lease liabilities at December 31, 2025:Years Ending December 31,2026$33 202731 202827 202921 203019 2032 and thereafter56 Total undiscounted lease liability$187 Less: present value adjustment(31)Operating lease liability$156 Rental expense was approximately $36 million, $35 million and $38 million for 2025, 2024 and 2023, respectively.

On August 1, 2024, the Company completed the acquisition of Allianz’s U.S Middle Market Property and Casualty insurance business and U.S. Entertainment business (“MCE Acquisition”).This business is written by Fireman’s Fund Insurance Company, an affiliate of Allianz, and its subsidiaries (collectively, the “Business Entities”), in each case, relating to relevant policies with accident years 2016 and onwards (collectively, the “Business”), as well as certain assets of Allianz and its affiliates related to the Business. In connection with the acquisition of the Business, the Company also entered into certain reinsurance agreements relating to the Business and the Business Entities and other agreements providing for administration and other services for the Business Entities by the Company for the applicable policies being reinsured following the closing. The acquisition of the Business is an important part of the Company’s growth strategy, and provides a ballast to our existing insurance business. It further enhances the Company’s capabilities in the U.S. middle markets and represents an attractive way to enter the entertainment insurance market, a new niche for us. Aggregate cash consideration for the transaction was $450 million. Direct costs related to the acquisition are immaterial, and were expensed as incurred. These include one-time costs that are directly attributable to third party consulting fees and other professional and legal fees related to the acquisition. Such costs are included within ‘corporate expenses’ in the consolidated statement of income. The Business acquired is included within the Company’s insurance segment beginning from the acquisition date.The MCE Acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations (“Topic 805”). Pursuant to Topic 805, the Company allocated the MCE Acquisition purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values was recorded to goodwill. During the measurement period, the Company adjusted the provisional amounts to reflect new information obtained about facts and circumstances that existed as of the acquisition date, which, if known, would have affected the measurement of the amounts recognized as of that date.

As part of our overall risk management approach, we recognize the importance of identifying and managing cybersecurity risk at several levels, including Board oversight, executive commitment and employee training. Our Audit Committee, comprised of independent directors from our Board, oversees the Board’s responsibilities relating to the operational (including IT risks, business continuity and data security) risk affairs of the Company. Our Audit Committee is informed of such risks through quarterly reports from our Chief Information Officer (“CIO”) and Chief Operations Officer (“COO”), with input from our Chief Information Security Officer (“CISO”). Our cybersecurity and IT executives include our CIO, who has 35 years of experience in Information Technology, including 22 years in the financial services space. His responsibilities as the CIO include all areas of Information Technology and information security oversight. Our CISO, has 20 years of experience in information security. The CISO holds certifications from leading security associations. The information security personnel reporting to the CISO hold various leading security certifications. The CISO, reporting to the CIO, oversees the implementation and compliance of our information security standards and mitigation of related risks. We also have three management level committees and a team that supports our processes to assess and manage cybersecurity risk.•The Privacy and Security Committee (“P&S Committee”), co-chaired by the CISO and our Deputy General Counsel, brings together Information Security, legal, compliance, human resources and other function leads. The P&S Committee provides a forum for these cross-functional members of management to: consider new laws and regulations relating to privacy and security; consider emerging risks relating to cybersecurity and data protection; approve, review and update policies and standards as appropriate; and promote cross-functional collaboration to manage cybersecurity and privacy risks across the enterprise.•The Operational Risk Committee (“ORC”), comprised of senior IT, operations, risk, legal and compliance leaders across business segments, manages risks from matters related to business continuity including risks posed by cybersecurity threats, and implements controls to mitigate such operational risks.