ARCH CAPITAL GROUP LTD. - FORM 8-K - EX-99.2 - EXHIBIT 99.2 SUPPLEMENT

Attached files

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8-K - 8-K 4.27.16 - ARCH CAPITAL GROUP LTD.	a8-k42716.htm
EX-99.1 - EXHIBIT 99.1 RELEASE - ARCH CAPITAL GROUP LTD.	ex-991release33116.htm

Exhibit 99.2





	Waterloo House, Ground Floor
	100 Pitts Bay Road
	Pembroke HM 08 Bermuda

	441-278-9250
	441-278-9255 fax

	Contact:
	Mark D. Lyons
	Executive Vice President and Chief Financial Officer

Financial Supplement

Financial Information

as of March 31, 2016

The following financial supplement is provided to assist in your understanding of Arch Capital Group Ltd.

This report is for informational purposes only. It should be read in conjunction with documents filed by Arch Capital Group Ltd. with the U.S. Securities and Exchange Commission, including the most recent Annual Report on Form 10-K and the Quarterly Reports on Form 10-Q. Please refer to the Company’s website at www.archcapgroup.com for further information describing Arch Capital Group Ltd.

Arch Capital Group Ltd. and Subsidiaries

Table of Contents



			Page

I.	Financial Highlights		3

II.	Consolidated Financial Statements
	a.	Consolidated Statements of Income	4
	b.	Consolidated Balance Sheets	5
	c.	Consolidated Statements of Changes in Shareholders’ Equity	6
	d.	Consolidated Statements of Cash Flows	7

III.	Segment Information
	a.	Overview	8
	b.	Consolidated Results	10
	c.	Insurance Segment Results	12
	d.	Reinsurance Segment Results	14
	e.	Mortgage Segment Results	16

IV.	Investment Information
	a.	Investable Asset Summary and Investment Portfolio Metrics	19
	b.	Composition of Fixed Maturities	20
	c.	Credit Quality Distribution and Maturity Profile	21
	d.	Analysis of Corporate Exposures	22
	e.	Structured Securities	23
	f.	Bank Loan Investments	24
	g.	Eurozone Investments	25

V.	Other
	a.	Comments on Regulation G	26
	b.	Operating Income Reconciliation and Annualized Operating Return on Average Common Equity	27
	c.	Operating Income and Effective Tax Rate Calculations	28
	d.	Capital Structure and Share Repurchase Activity	29



	1

Arch Capital Group Ltd. and Subsidiaries

Basis of Presentation

All financial information contained herein is unaudited, however, certain information relating to the consolidated balance sheet at December 31, 2015 is derived from or agrees to audited financial information. Unless otherwise noted, all data is in thousands, except for share and per share amounts and ratio information.

In March 2014, the Company invested $100.0 million to acquire approximately 11% of Watford Holdings Ltd.’s common equity and a warrant to purchase additional common equity. Watford Holdings Ltd. is the parent of Watford Re Ltd., a multi-line Bermuda reinsurance company (together with Watford Holdings Ltd., “Watford Re”). In accordance with GAAP, Watford is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford Re. As such, 100% of the results of Watford Re are included in the Company’s consolidated financial statements. The portion of Watford Re’s earnings owned by third parties is recorded in the consolidated statements of income as ‘amounts attributable to noncontrolling interests.’ In addition, the Company reflects Watford Re’s redeemable preference shares in the mezzanine section of the Company’s consolidated balance sheets as ‘redeemable noncontrolling interests’ because they have redemption features that are not solely within the control of Watford Re.

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This release or any other written or oral statements made by or on behalf of Arch Capital Group Ltd. and its subsidiaries may include forward-looking statements, which reflect the Company’s current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this release are forward-looking statements.

Forward-looking statements can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or their negative or variations or similar terminology. Forward-looking statements involve the Company’s current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: adverse general economic and market conditions; increased competition; pricing and policy term trends; fluctuations in the actions of rating agencies and the Company’s ability to maintain and improve the Company’s ratings; investment performance; the loss of key personnel; the adequacy of the Company’s loss reserves, severity and/or frequency of losses, greater than expected loss ratios and adverse development on claim and/or claim expense liabilities; greater frequency or severity of unpredictable natural and man-made catastrophic events; the impact of acts of terrorism and acts of war; changes in regulations and/or tax laws in the United States or elsewhere; the Company’s ability to successfully integrate, establish and maintain operating procedures as well as integrate the businesses we have acquired or may acquire into the existing operations; changes in accounting principles or policies; material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; availability and cost to the Company of reinsurance to manage gross and net exposures; the failure of others to meet their obligations to the Company; and other factors identified in the Company’s filings with the U.S. Securities and Exchange Commission.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on the Company’s behalf are expressly qualified in their entirety by these cautionary statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.



	2

Arch Capital Group Ltd. and Subsidiaries

Financial Highlights

The following table presents financial highlights (1):



(U.S. Dollars in thousands, except share data)	Three Months Ended
	March 31,
	2016			2015			Change
Underwriting results:
Gross premiums written	$	1,391,061		$	1,311,678		6.1	%
Net premiums written	977,101			942,417			3.7	%
Net premiums earned	836,062			837,998			(0.2	)%
Underwriting income	111,887			114,703			(2.5	)%

Loss ratio	53.1		%	53.0		%	0.1
Acquisition expense ratio	16.4		%	17.0		%	(0.6	)
Other operating expense ratio	17.6		%	17.5		%	0.1
Combined ratio	87.1		%	87.5		%	(0.4	)

Net investment income	$	70,409		$	70,288		0.2	%
Per diluted share	$	0.57		$	0.55		3.6	%

Net income available to Arch common shareholders	$	149,314		$	277,852		(46.3	)%
Per diluted share	$	1.20		$	2.16		(44.4	)%

After-tax operating income available to Arch common shareholders (2)	$	145,742		$	149,846		(2.7	)%
Per diluted share	$	1.17		$	1.17		—	%

Comprehensive income available to Arch	$	272,929		$	312,503		(12.7	)%

Cash flow from operations	$	257,279		$	15,599		1,549.3	%

Diluted weighted average common shares and common share equivalents outstanding	124,496,496			128,451,054			(3.1	)%

Financial measures:
Change in book value per common share during period	4.0		%	4.9		%	(0.9	)

Annualized operating return on average common equity	9.7		%	10.2		%	(0.5	)

Total return on investments (3)
Including effects of foreign exchange	1.82		%	1.11		%	71 bps
Excluding effects of foreign exchange	1.48		%	2.05		%	-57 bps


(1)	Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

(2)

After-tax operating income or loss available to Arch common shareholders is defined as net income available to Arch common shareholders, excluding net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses, net of income taxes. See ‘Comments on Regulation G’ for a further discussion of after-tax operating income or loss available to Arch common shareholders.


(3)	Total return on investments includes net investment income, equity in net income (loss) of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains and losses generated by the Company’s investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses.



	3

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Income



(U.S. Dollars in thousands, except share data)	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Revenues
Net premiums written	$	1,121,235		$	834,984		$	971,972		$	943,580		$	1,066,995
Change in unearned premiums	(169,656		)	108,536			(35,289		)	(142		)	(156,731		)
Net premiums earned	951,579			943,520			936,683			943,438			910,264
Net investment income	93,735			95,900			86,233			86,963			78,994
Net realized gains (losses)	37,324			(143,767		)	(89,698		)	(35,725		)	83,348
Net impairment losses recognized in earnings	(7,639		)	(7,336		)	(5,868		)	(1,113		)	(5,799		)
Other underwriting income	5,047			8,621			7,623			7,717			11,536
Equity in net income of investment funds accounted for using the equity method	6,655			5,517			(2,118		)	16,167			5,889
Other income (loss)	(25		)	(451		)	(265		)	2,205			(1,888		)
Total revenues	1,086,676			902,004			932,590			1,019,652			1,082,344

Expenses
Losses and loss adjustment expenses	(522,949		)	(506,020		)	(531,741		)	(519,426		)	(493,716		)
Acquisition expenses	(170,465		)	(171,409		)	(171,566		)	(175,425		)	(163,076		)
Other operating expenses	(161,652		)	(173,812		)	(156,959		)	(168,608		)	(157,882		)
Interest expense	(16,107		)	(15,827		)	(13,300		)	(4,011		)	(12,736		)
Net foreign exchange gains (losses)	(23,566		)	4,520			14,680			(19,583		)	66,501
Total expenses	(894,739		)	(862,548		)	(858,886		)	(887,053		)	(760,909		)

Income before income taxes	191,937			39,456			73,704			132,599			321,435
Income tax expense	(16,310		)	(11,450		)	(9,704		)	(6,780		)	(12,678		)
Net income	175,627			28,006			64,000			125,819			308,757
Amounts attributable to noncontrolling interests	(20,829		)	30,573			16,033			(10,029		)	(25,421		)
Net income attributable to Arch	154,798			58,579			80,033			115,790			283,336
Preferred dividends	(5,484		)	(5,485		)	(5,484		)	(5,485		)	(5,484		)
Net income available to Arch common shareholders	$	149,314		$	53,094		$	74,549		$	110,305		$	277,852

Comprehensive income available to Arch	$	272,929		$	32,268		$	23,401		$	24,208		$	312,503

Net income per common share
Basic	$	1.24		$	0.44		$	0.62		$	0.91		$	2.24
Diluted	$	1.20		$	0.42		$	0.60		$	0.88		$	2.16

Weighted average common shares and common share equivalents outstanding
Basic	120,428,179			120,700,524			120,567,410			121,719,214			124,209,276
Diluted	124,496,496			125,311,942			125,011,773			125,885,420			128,451,054



	4

Arch Capital Group Ltd. and Subsidiaries

Consolidated Balance Sheets



(U.S. Dollars in thousands, except share data)	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Assets
Investments:
Fixed maturities available for sale, at fair value	$	10,645,257		$	10,459,353		$	10,560,635		$	9,927,603		$	10,427,810
Short-term investments available for sale, at fair value	623,844			587,904			708,428			875,727			855,032
Investment of funds received under securities lending, at fair value	594,929			389,336			286,659			377,897			257,059
Equity securities available for sale, at fair value	506,915			618,405			606,259			701,623			687,713
Other investments available for sale, at fair value	195,079			300,476			281,014			377,677			329,677
Investments accounted for using the fair value option	3,139,332			2,894,494			2,783,165			2,613,487			2,421,522
Investments accounted for using the equity method	628,832			592,973			589,277			472,926			412,367
Total investments	16,334,188			15,842,941			15,815,437			15,346,940			15,391,180
Cash	557,961			553,326			649,779			525,074			471,012
Accrued investment income	81,628			87,206			76,142			80,129			73,282
Fixed maturities and short-term investments pledged under securities lending, at fair value	580,766			384,081			285,632			373,969			253,115
Premiums receivable	1,209,548			983,443			1,074,884			1,181,636			1,116,389
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	1,962,863			1,867,373			1,832,386			1,831,227			1,788,619
Contractholder receivables	1,529,105			1,486,296			1,436,154			1,393,138			1,339,433
Prepaid reinsurance premiums	500,412			427,609			442,346			442,141			421,908
Deferred acquisition costs, net	464,288			433,477			448,893			448,647			442,775
Receivable for securities sold	329,262			45,505			705,821			454,057			400,113
Goodwill and intangible assets	92,670			97,531			103,620			102,518			106,745
Other assets	898,678			968,482			899,498			905,449			1,050,520
Total assets	$	24,541,369		$	23,177,270		$	23,770,592		$	23,084,925		$	22,855,091

Liabilities
Reserve for losses and loss adjustment expenses	$	9,378,987		$	9,125,250		$	9,084,855		$	9,082,281		$	8,928,950
Unearned premiums	2,579,148			2,333,932			2,467,691			2,442,923			2,400,834
Reinsurance balances payable	276,426			224,120			235,562			252,462			200,444
Contractholder payables	1,529,105			1,486,296			1,436,154			1,393,138			1,339,433
Collateral held for insured obligations	249,440			248,982			242,928			219,798			197,965
Deposit accounting liabilities	266,140			260,364			270,876			277,523			284,828
Senior notes	791,349			791,306			791,264			791,222			791,181
Revolving credit agreement borrowings	457,431			530,434			339,077			100,000			100,000
Securities lending payable	594,922			393,844			292,838			383,965			263,216
Payable for securities purchased	494,813			64,996			817,371			468,015			554,625
Other liabilities	549,832			568,852			649,910			536,207			495,715
Total liabilities	17,167,593			16,028,376			16,628,526			15,947,534			15,557,191

Redeemable noncontrolling interests	205,274			205,182			205,089			204,996			219,604

Shareholders’ equity
Non-cumulative preferred shares	325,000			325,000			325,000			325,000			325,000
Common shares	579			577			576			576			573
Additional paid-in capital	485,943			467,339			450,948			437,533			399,757
Retained earnings	7,519,685			7,370,371			7,317,277			7,242,728			7,132,423
Accumulated other comprehensive income, net of deferred income tax	101,629			(16,502		)	9,809			66,441			158,023
Common shares held in treasury, at cost	(2,019,249		)	(1,941,904		)	(1,940,795		)	(1,934,763		)	(1,727,074		)
Total shareholders’ equity available to Arch	6,413,587			6,204,881			6,162,815			6,137,515			6,288,702
Non-redeemable noncontrolling interests	754,915			738,831			774,162			794,880			789,594
Total shareholders’ equity	7,168,502			6,943,712			6,936,977			6,932,395			7,078,296
Total liabilities, noncontrolling interests and shareholders’ equity	$	24,541,369		$	23,177,270		$	23,770,592		$	23,084,925		$	22,855,091

Common shares outstanding, net of treasury shares	122,093,596			122,627,783			122,438,554			122,403,909			124,760,841
Book value per common share (1)	$	49.87		$	47.95		$	47.68		$	47.49		$	47.80

(1) Excludes the effects of stock options and restricted stock units outstanding.



	5

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity



(U.S. Dollars in thousands)	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Non-Cumulative Preferred Shares
Balance at beginning and end of period	$	325,000		$	325,000		$	325,000		$	325,000		$	325,000

Common Shares
Balance at beginning of period	577			576			576			573			572
Common shares issued, net	2			1			—			3			1
Balance at end of period	579			577			576			576			573

Additional Paid-in Capital
Balance at beginning of period	467,339			450,948			437,533			399,757			383,073
Common shares issued, net	—			3,136			62			7,378			—
Exercise of stock options	4,222			3,563			2,739			6,256			3,368
Amortization of share-based compensation	14,265			9,521			10,531			22,806			13,238
Other	117			171			83			1,336			78
Balance at end of period	485,943			467,339			450,948			437,533			399,757

Retained Earnings
Balance at beginning of period	7,370,371			7,317,277			7,242,728			7,132,423			6,854,571
Net income	175,627			28,006			64,000			125,819			308,757
Amounts attributable to noncontrolling interests	(20,829		)	30,573			16,033			(10,029		)	(25,421		)
Preferred share dividends	(5,484		)	(5,485		)	(5,484		)	(5,485		)	(5,484		)
Balance at end of period	7,519,685			7,370,371			7,317,277			7,242,728			7,132,423

Accumulated Other Comprehensive Income
Balance at beginning of period	(16,502		)	9,809			66,441			158,023			128,856
Unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax:
Balance at beginning of period	50,085			65,714			110,360			213,522			161,598
Unrealized holding gains (losses) arising during period, net of reclassification adjustment	100,758			(14,087		)	(41,613		)	(103,149		)	53,372
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	(98		)	(1,542		)	(3,033		)	(13		)	(1,448		)
Balance at end of period	150,745			50,085			65,714			110,360			213,522
Foreign currency translation adjustments:
Balance at beginning of period	(66,587		)	(55,905		)	(43,919		)	(55,499		)	(32,742		)
Foreign currency translation adjustments	17,313			(10,947		)	(11,986		)	11,580			(22,757		)
Foreign currency translation adjustments attributable to noncontrolling interests	158			265			—			—			—
Balance at end of period	(49,116		)	(66,587		)	(55,905		)	(43,919		)	(55,499		)
Balance at end of period	101,629			(16,502		)	9,809			66,441			158,023

Common Shares Held in Treasury, at Cost
Balance at beginning of period	(1,941,904		)	(1,940,795		)	(1,934,763		)	(1,727,074		)	(1,562,019		)
Shares repurchased for treasury	(77,345		)	(1,109		)	(6,032		)	(207,689		)	(165,055		)
Balance at end of period	(2,019,249		)	(1,941,904		)	(1,940,795		)	(1,934,763		)	(1,727,074		)

Total shareholders’ equity available to Arch	6,413,587			6,204,881			6,162,815			6,137,515			6,288,702
Non-redeemable noncontrolling interests	754,915			738,831			774,162			794,880			789,594
Total shareholders’ equity	$	7,168,502		$	6,943,712		$	6,936,977		$	6,932,395		$	7,078,296



	6

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Cash Flows



(U.S. Dollars in thousands)	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Operating Activities
Net income	$	175,627		$	28,006		$	64,000		$	125,819		$	308,757
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses	(43,034		)	127,981			82,798			27,089			(87,907		)
Net impairment losses included in earnings	7,639			7,336			5,868			1,113			5,799
Equity in net income or loss of investment funds accounted for using the equity method and other income or loss	3,243			(126		)	14,332			(8,379		)	(1,970		)
Share-based compensation	14,265			9,521			10,531			22,806			13,238
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	111,255			42,081			47,961			37,289			54,327
Unearned premiums, net of prepaid reinsurance premiums	169,656			(108,536		)	35,289			142			156,731
Premiums receivable	(217,348		)	81,958			97,901			(14,395		)	(192,247		)
Deferred acquisition costs, net	(30,050		)	12,714			(2,713		)	(2,705		)	(36,304		)
Reinsurance balances payable	51,929			(10,127		)	(15,415		)	35,679			(16,022		)
Other liabilities	32,697			38,585			101,479			(45,985		)	(48,856		)
Other items, net	46,664			(39,066		)	(19,651		)	121,265			(70,085		)
Net Cash Provided By Operating Activities	322,543			190,327			422,380			299,738			85,461
Investing Activities
Purchases of fixed maturity investments	(8,133,537		)	(7,069,769		)	(7,740,713		)	(7,610,660		)	(7,030,731		)
Purchases of equity securities	(128,263		)	(29,887		)	(196,991		)	(162,672		)	(125,863		)
Purchases of other investments	(305,198		)	(429,275		)	(540,572		)	(404,276		)	(375,402		)
Proceeds from sales of fixed maturity investments	7,827,536			6,682,493			7,078,118			7,476,321			6,857,115
Proceeds from sales of equity securities	216,012			55,003			236,665			146,437			125,906
Proceeds from sales, redemptions and maturities of other investments	211,125			392,515			270,718			318,201			269,449
Proceeds from redemptions and maturities of fixed maturities	163,894			118,132			155,413			202,327			272,657
Net settlements of derivative instruments	21,091			(86,170		)	62,108			(7,057		)	26,063
Proceeds from investment in joint venture	—			—			—			40,000			—
Net (purchases) sales of short-term investments	(65,594		)	(12,646		)	178,034			(62,576		)	66,283
Change in cash collateral related to securities lending	(43,118		)	(35,347		)	47,014			(12,800		)	(5,529		)
Purchase of business, net of cash acquired	—			—			—			3,250			(2,432		)
Purchases of fixed assets	(3,952		)	(4,835		)	(4,505		)	(3,124		)	(3,272		)
Change in other assets	6,737			6,661			(6,885		)	(7,144		)	(29,625		)
Net Cash Provided By (Used For) Investing Activities	(233,267		)	(413,125		)	(461,596		)	(83,773		)	44,619
Financing Activities
Purchases of common shares under share repurchase program	(75,256		)	—			(3,506		)	(198,979		)	(162,898		)
Proceeds from common shares issued, net	202			4,164			(1,481		)	2,590			(412		)
Proceeds from borrowings	—			192,285			239,077			—			—
Repayments of borrowings	(74,171		)	—			—			—			—
Change in cash collateral related to securities lending	43,118			35,347			(47,014		)	12,800			5,529
Dividends paid to redeemable noncontrolling interests	(4,497		)	(4,497		)	(4,497		)	(4,497		)	(4,816		)
Other	29,115			(92,376		)	(4,555		)	25,239			29,779
Preferred dividends paid	(5,484		)	(5,485		)	(5,484		)	(5,485		)	(5,484		)
Net Cash Provided By (Used For) Financing Activities	(86,973		)	129,438			172,540			(168,332		)	(138,302		)
Effects of exchange rate changes on foreign currency cash	2,332			(3,093		)	(8,619		)	6,429			(6,468		)
Increase (decrease) in cash	4,635			(96,453		)	124,705			54,062			(14,690		)
Cash beginning of period	553,326			649,779			525,074			471,012			485,702
Cash end of period	$	557,961		$	553,326		$	649,779		$	525,074		$	471,012
Income taxes paid, net	$	2,504		$	4,813		$	9,468		$	22,423		$	3,569
Interest paid	$	3,813		$	27,533		$	119		$	24,565		$	511



	7

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Overview

The Company classifies its businesses into three underwriting segments — insurance, reinsurance and mortgage — and two other operating segments — ‘other’ and corporate (non-underwriting). The Company’s Insurance, Reinsurance and Mortgage segments each have managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company’s chief operating decision makers, the Chairman and Chief Executive Officer of ACGL, the President and Chief Operating Officer of ACGL and the Chief Financial Officer of ACGL. 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 its three core underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment and, accordingly, investment income is not allocated to each underwriting segment.

The Company determined its reportable operating 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 Corporate (non-underwriting) segment results include net investment income, other income (loss), other expenses incurred by the Company, interest expense, net realized gains or losses, net impairment losses included in earnings, equity in net income (loss) of investment funds accounted for using the equity method, net foreign exchange gains or losses, income taxes and items related to the Company’s non-cumulative preferred shares. Such amounts exclude the results of the ‘other’ segment.

Insurance Segment

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


•	Construction and national accounts: 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, 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 stand alone 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.



	8

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Overview

Reinsurance Segment

The reinsurance segment consists of the Company’s 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 of 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 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.

Mortgage Segment

The mortgage segment includes the Company’s U.S. and international mortgage insurance and reinsurance operations as well as government sponsored enterprise (“GSE”) credit-risk sharing transactions. Arch Mortgage Insurance Company (“Arch MI U.S.”) is approved as an eligible mortgage insurer by Fannie Mae and Freddie Mac.

Other Segment

The ‘other’ segment includes the results of Watford Holdings Ltd. and its subsidiary Watford Re Ltd., a multi-line Bermuda reinsurance company, which was launched in March 2014. The Company acts as Watford Re’s reinsurance manager, and Highbridge Principal Strategies, LLC, a subsidiary of JPMorgan Chase & Co., manages Watford Re’s investment assets, each under a long term services agreement. Pursuant to generally accepted accounting principles, Watford Re is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford Re. As such, the Company consolidates the results of Watford Re in its consolidated financial statements, although it only owns approximately 11% of Watford Re’s common equity. Watford Re has its own management and board of directors that is responsible for its overall profitability. The portion of Watford’s earnings attributable to third party investors is recorded in the consolidated statements of income as ‘amounts attributable to noncontrolling interests.’ Management measures segment performance for the ‘other’ segment based on net income or loss.



	9

Arch Capital Group Ltd. and Subsidiaries

Segment Information



(U.S. Dollars in thousands)	Three Months Ended
	March 31, 2016
	Insurance			Reinsurance			Mortgage			Sub-total (Core)			Other			Total
Gross premiums written (1)	$	798,553		$	481,390		$	111,280		$	1,391,061		$	148,606		$	1,437,966
Premiums ceded	(248,789		)	(160,566		)	(4,767		)	(413,960		)	(4,472		)	(316,731		)
Net premiums written	549,764			320,824			106,513			977,101			144,134			1,121,235
Change in unearned premiums	(36,675		)	(59,616		)	(44,748		)	(141,039		)	(28,617		)	(169,656		)
Net premiums earned	513,089			261,208			61,765			836,062			115,517			951,579
Other underwriting income	—			325			3,793			4,118			929			5,047
Losses and loss adjustment expenses	(323,609		)	(111,598		)	(8,629		)	(443,836		)	(79,113		)	(522,949		)
Acquisition expenses, net	(74,354		)	(54,787		)	(8,385		)	(137,526		)	(32,939		)	(170,465		)
Other operating expenses	(85,861		)	(36,455		)	(24,615		)	(146,931		)	(5,338		)	(152,269		)
Underwriting income (loss)	$	29,265		$	58,693		$	23,929		111,887			(944		)	110,943

Net investment income										70,409			23,326			93,735
Net realized gains (losses)										31,862			5,462			37,324
Net impairment losses recognized in earnings										(7,639		)	—			(7,639		)
Equity in net income (loss) of investment funds accounted for using the equity method										6,655			—			6,655
Other income (loss)										(25		)	—			(25		)
Other expenses										(9,383		)	—			(9,383		)
Interest expense										(12,627		)	(3,480		)	(16,107		)
Net foreign exchange gains (losses)										(22,041		)	(1,525		)	(23,566		)
Income before income taxes										169,098			22,839			191,937
Income tax expense										(16,310		)	—			(16,310		)
Net income										152,788			22,839			175,627
Dividends attributable to redeemable noncontrolling interests										—			(4,587		)	(4,587		)
Amounts attributable to nonredeemable noncontrolling interests										—			(16,242		)	(16,242		)
Net income available to Arch										152,788			2,010			154,798
Preferred dividends										(5,484		)	—			(5,484		)
Net income available to Arch common shareholders										$	147,304		$	2,010		$	149,314

Underwriting Ratios
Loss ratio	63.1		%	42.7		%	14.0		%	53.1		%	68.5		%	55.0		%
Acquisition expense ratio	14.5		%	21.0		%	13.6		%	16.4		%	28.5		%	17.9		%
Other operating expense ratio	16.7		%	14.0		%	39.9		%	17.6		%	4.6		%	16.0		%
Combined ratio	94.3		%	77.7		%	67.5		%	87.1		%	101.6		%	88.9		%

Net premiums written to gross premiums written	68.8		%	66.6		%	95.7		%	70.2		%	97.0		%	78.0		%

Total investable assets										$	14,954,294		$	1,709,862		$	16,664,156
Total assets										22,217,987			2,323,382			24,541,369
Total liabilities										15,912,609			1,254,984			17,167,593


(1)	Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.



	10

Arch Capital Group Ltd. and Subsidiaries

Segment Information



(U.S. Dollars in thousands)	Three Months Ended
	March 31, 2015
	Insurance			Reinsurance			Mortgage			Sub-total (Core)			Other			Total
Gross premiums written (1)	$	766,153		$	485,112		$	60,541		$	1,311,678		$	128,633		$	1,342,022
Premiums ceded	(224,150		)	(136,569		)	(8,670		)	(369,261		)	(4,055		)	(275,027		)
Net premiums written	542,003			348,543			51,871			942,417			124,578			1,066,995
Change in unearned premiums	(34,089		)	(68,826		)	(1,504		)	(104,419		)	(52,312		)	(156,731		)
Net premiums earned	507,914			279,717			50,367			837,998			72,266			910,264
Other underwriting income	427			1,429			7,718			9,574			1,962			11,536
Losses and loss adjustment expenses	(317,896		)	(112,532		)	(13,809		)	(444,237		)	(49,479		)	(493,716		)
Acquisition expenses, net	(75,078		)	(56,604		)	(10,418		)	(142,100		)	(20,976		)	(163,076		)
Other operating expenses	(88,119		)	(38,044		)	(20,369		)	(146,532		)	(2,005		)	(148,537		)
Underwriting income (loss)	$	27,248		$	73,966		$	13,489		114,703			1,768			116,471

Net investment income										70,288			8,706			78,994
Net realized gains (losses)										65,509			17,839			83,348
Net impairment losses recognized in earnings										(5,799		)	—			(5,799		)
Equity in net income (loss) of investment funds accounted for using the equity method										5,889			—			5,889
Other income (loss)										(1,888		)	—			(1,888		)
Other expenses										(9,345		)	—			(9,345		)
Interest expense										(12,736		)	—			(12,736		)
Net foreign exchange gains (losses)										66,853			(352		)	66,501
Income before income taxes										293,474			27,961			321,435
Income tax expense										(12,678		)	—			(12,678		)
Net income										280,796			27,961			308,757
Dividends attributable to redeemable noncontrolling interests										—			(4,908		)	(4,908		)
Amounts attributable to nonredeemable noncontrolling interests										—			(20,513		)	(20,513		)
Net income available to Arch										280,796			2,540			283,336
Preferred dividends										(5,484		)	—			(5,484		)
Net income available to Arch common shareholders										$	275,312		$	2,540		$	277,852

Underwriting Ratios
Loss ratio	62.6		%	40.2		%	27.4		%	53.0		%	68.5		%	54.2		%
Acquisition expense ratio	14.8		%	20.2		%	20.7		%	17.0		%	29.0		%	17.9		%
Other operating expense ratio	17.3		%	13.6		%	40.4		%	17.5		%	2.8		%	16.3		%
Combined ratio	94.7		%	74.0		%	88.5		%	87.5		%	100.3		%	88.4		%

Net premiums written to gross premiums written	70.7		%	71.8		%	85.7		%	71.8		%	96.8		%	79.5		%

Total investable assets										$	14,436,148		$	1,267,588		$	15,703,736
Total assets										21,232,554			1,622,537			22,855,091
Total liabilities										15,041,656			515,535			15,557,191


(1)	Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.



	11

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment



(U.S. Dollars in thousands)	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Gross premiums written	$	798,553		$	680,617		$	752,438		$	744,810		$	766,153
Premiums ceded	(248,789		)	(229,011		)	(209,443		)	(235,743		)	(224,150		)
Net premiums written	549,764			451,606			542,995			509,067			542,003
Change in unearned premiums	(36,675		)	52,919			(20,451		)	758			(34,089		)
Net premiums earned	513,089			504,525			522,544			509,825			507,914
Other underwriting income	—			526			519			521			427
Losses and loss adjustment expenses	(323,609		)	(313,966		)	(339,859		)	(320,926		)	(317,896		)
Acquisition expenses, net	(74,354		)	(70,440		)	(77,076		)	(76,723		)	(75,078		)
Other operating expenses	(85,861		)	(92,623		)	(84,620		)	(89,054		)	(88,119		)
Underwriting income	$	29,265		$	28,022		$	21,508		$	23,643		$	27,248

Underwriting Ratios
Loss ratio	63.1		%	62.2		%	65.0		%	62.9		%	62.6		%
Acquisition expense ratio	14.5		%	14.0		%	14.8		%	15.0		%	14.8		%
Other operating expense ratio	16.7		%	18.4		%	16.2		%	17.5		%	17.3		%
Combined ratio	94.3		%	94.6		%	96.0		%	95.4		%	94.7		%

Catastrophic activity and prior year development:
Current accident year catastrophic events, net of
reinsurance and reinstatement premiums	0.1		%	0.4		%	1.6		%	1.2		%	0.6		%
Net (favorable) adverse development in prior year loss
reserves, net of related adjustments	(0.8		)%	(2.1		)%	(1.4		)%	(3.4		)%	(1.0		)%
Combined ratio excluding catastrophic activity and prior year development (1)	95.0		%	96.3		%	95.8		%	97.6		%	95.1		%

Net premiums written to gross premiums written	68.8		%	66.4		%	72.2		%	68.3		%	70.7		%


(1)	See ‘Comments on Regulation G’ for further discussion.



	12

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment



(U.S. Dollars in thousands)	Three Months Ended
	March 31,				December 31,				September 30,				June 30,				March 31,
	2016				2015				2015				2015				2015
Net premiums written
Professional lines (1)	$	109,467	19.9	%	$	104,183	23.1	%	$	118,563	21.8	%	$	100,100	19.7	%	$	111,178	20.5	%
Construction and national accounts	104,474		19.0	%	65,544		14.5	%	60,320		11.1	%	77,096		15.1	%	96,503		17.8	%
Programs	89,784		16.3	%	78,753		17.4	%	120,028		22.1	%	106,179		20.9	%	118,197		21.8	%
Travel, accident and health	57,263		10.4	%	36,418		8.1	%	49,386		9.1	%	35,416		7.0	%	38,912		7.2	%
Excess and surplus casualty (2)	53,657		9.8	%	50,345		11.1	%	51,170		9.4	%	53,971		10.6	%	49,370		9.1	%
Property, energy, marine and aviation	49,975		9.1	%	30,668		6.8	%	51,802		9.5	%	62,049		12.2	%	58,667		10.8	%
Lenders products	24,784		4.5	%	30,877		6.8	%	29,212		5.4	%	24,011		4.7	%	22,816		4.2	%
Other (3)	60,360		11.0	%	54,818		12.1	%	62,514		11.5	%	50,245		9.9	%	46,360		8.6	%
Total	$	549,764	100.0	%	$	451,606	100.0	%	$	542,995	100.0	%	$	509,067	100.0	%	$	542,003	100.0	%

Client location
United States	$	450,028	81.9	%	$	381,498	84.5	%	$	447,456	82.4	%	$	436,106	85.7	%	$	445,858	82.3	%
Europe	65,085		11.8	%	41,337		9.2	%	47,640		8.8	%	30,761		6.0	%	67,282		12.4	%
Asia and Pacific	16,337		3.0	%	14,391		3.2	%	24,264		4.5	%	14,000		2.8	%	11,983		2.2	%
Other	18,314		3.3	%	14,380		3.2	%	23,635		4.4	%	28,200		5.5	%	16,880		3.1	%
Total	$	549,764	100.0	%	$	451,606	100.0	%	$	542,995	100.0	%	$	509,067	100.0	%	$	542,003	100.0	%

Underwriting location
United States	$	446,200	81.2	%	$	369,805	81.9	%	$	443,367	81.7	%	$	421,830	82.9	%	$	438,865	81.0	%
Europe	94,095		17.1	%	67,636		15.0	%	87,043		16.0	%	70,901		13.9	%	92,418		17.1	%
Other	9,469		1.7	%	14,165		3.1	%	12,585		2.3	%	16,336		3.2	%	10,720		2.0	%
Total	$	549,764	100.0	%	$	451,606	100.0	%	$	542,995	100.0	%	$	509,067	100.0	%	$	542,003	100.0	%

Net premiums earned
Professional lines (1)	$	104,944	20.5	%	$	103,393	20.5	%	$	106,283	20.3	%	$	107,420	21.1	%	$	107,872	21.2	%
Construction and national accounts	77,043		15.0	%	77,762		15.4	%	75,256		14.4	%	71,580		14.0	%	72,230		14.2	%
Programs	98,501		19.2	%	102,104		20.2	%	115,502		22.1	%	112,942		22.2	%	115,964		22.8	%
Travel, accident and health	47,545		9.3	%	39,949		7.9	%	39,918		7.6	%	39,979		7.8	%	33,732		6.6	%
Excess and surplus casualty (2)	54,965		10.7	%	50,669		10.0	%	53,366		10.2	%	51,709		10.1	%	52,347		10.3	%
Property, energy, marine and aviation	49,037		9.6	%	52,115		10.3	%	55,106		10.5	%	53,825		10.6	%	55,081		10.8	%
Lenders products	24,402		4.8	%	22,832		4.5	%	23,956		4.6	%	21,259		4.2	%	22,859		4.5	%
Other (3)	56,652		11.0	%	55,701		11.0	%	53,157		10.2	%	51,111		10.0	%	47,829		9.4	%
Total	$	513,089	100.0	%	$	504,525	100.0	%	$	522,544	100.0	%	$	509,825	100.0	%	$	507,914	100.0	%

(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.



	13

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment



(U.S. Dollars in thousands)	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Gross premiums written	$	481,390		$	262,482		$	329,327		$	342,101		$	485,112
Premiums ceded	(160,566		)	(62,417		)	(92,182		)	(89,446		)	(136,569		)
Net premiums written	320,824			200,065			237,145			252,655			348,543
Change in unearned premiums	(59,616		)	62,957			23,286			21,310			(68,826		)
Net premiums earned	261,208			263,022			260,431			273,965			279,717
Other underwriting income	325			3,736			2,783			2,658			1,429
Losses and loss adjustment expenses	(111,598		)	(100,855		)	(115,780		)	(111,183		)	(112,532		)
Acquisition expenses, net	(54,787		)	(53,252		)	(55,416		)	(58,360		)	(56,604		)
Other operating expenses	(36,455		)	(41,629		)	(37,131		)	(39,007		)	(38,044		)
Underwriting income	$	58,693		$	71,022		$	54,887		$	68,073		$	73,966

Underwriting Ratios
Loss ratio	42.7		%	38.3		%	44.5		%	40.6		%	40.2		%
Acquisition expense ratio	21.0		%	20.2		%	21.3		%	21.3		%	20.2		%
Other operating expense ratio	14.0		%	15.8		%	14.3		%	14.2		%	13.6		%
Combined ratio	77.7		%	74.3		%	80.1		%	76.1		%	74.0		%

Catastrophic activity and prior year development:
Current accident year catastrophic events, net of
reinsurance and reinstatement premiums	1.4		%	5.3		%	4.0		%	3.6		%	0.5		%
Net (favorable) adverse development in prior year loss
reserves, net of related adjustments	(18.0		)%	(21.1		)%	(18.5		)%	(21.5		)%	(20.5		)%
Combined ratio excluding catastrophic activity and prior year development (1)	94.3		%	90.1		%	94.6		%	94.0		%	94.0		%

Net premiums written to gross premiums written	66.6		%	76.2		%	72.0		%	73.9		%	71.8		%


(1)	See ‘Comments on Regulation G’ for further discussion.



	14

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment



(U.S. Dollars in thousands)	Three Months Ended
	March 31,					December 31,				September 30,				June 30,					March 31,
	2016					2015				2015				2015					2015
Net premiums written
Casualty (1)	$	126,483		39.4	%	$	57,062	28.5	%	$	63,395	26.7	%	$	64,778		25.6	%	$	117,858	33.8	%
Other specialty (2)	100,820			31.4	%	62,219		31.1	%	63,293		26.7	%	72,134			28.6	%	101,148		29.0	%
Property excluding property catastrophe (3)	73,723			23.0	%	61,126		30.6	%	72,456		30.6	%	57,005			22.6	%	89,924		25.8	%
Marine and aviation	17,540			5.5	%	8,308		4.2	%	12,221		5.2	%	9,461			3.7	%	20,844		6.0	%
Property catastrophe	(2,295		)	(0.7	)%	8,765		4.4	%	21,366		9.0	%	46,046			18.2	%	15,443		4.4	%
Other (4)	4,553			1.4	%	2,585		1.3	%	4,414		1.9	%	3,231			1.3	%	3,326		1.0	%
Total	$	320,824		100.0	%	$	200,065	100.0	%	$	237,145	100.0	%	$	252,655		100.0	%	$	348,543	100.0	%

Pro rata	$	112,209		35.0	%	$	139,978	70.0	%	$	138,367	58.3	%	$	128,976		51.0	%	$	130,235	37.4	%
Excess of loss	208,615			65.0	%	60,087		30.0	%	98,778		41.7	%	123,679			49.0	%	218,308		62.6	%
Total	$	320,824		100.0	%	$	200,065	100.0	%	$	237,145	100.0	%	$	252,655		100.0	%	$	348,543	100.0	%

Client location
United States	$	134,506		41.9	%	$	70,187	35.1	%	$	128,830	54.3	%	$	130,780		51.8	%	$	140,687	40.4	%
Europe	131,828			41.1	%	60,301		30.1	%	48,359		20.4	%	55,566			22.0	%	142,939		41.0	%
Bermuda	20,765			6.5	%	18,592		9.3	%	15,544		6.6	%	22,503			8.9	%	24,249		7.0	%
Asia and Pacific	16,710			5.2	%	24,254		12.1	%	31,492		13.3	%	24,729			9.8	%	14,134		4.1	%
Other	17,015			5.3	%	26,731		13.4	%	12,920		5.4	%	19,077			7.6	%	26,534		7.6	%
Total	$	320,824		100.0	%	$	200,065	100.0	%	$	237,145	100.0	%	$	252,655		100.0	%	$	348,543	100.0	%

Underwriting location
Bermuda	$	48,415		15.1	%	$	50,684	25.3	%	$	56,718	23.9	%	$	89,363		35.4	%	$	85,220	24.5	%
United States	140,250			43.7	%	81,450		40.7	%	117,216		49.4	%	102,057			40.4	%	138,467		39.7	%
Europe	122,738			38.3	%	59,503		29.7	%	53,717		22.7	%	63,587			25.2	%	121,983		35.0	%
Other	9,421			2.9	%	8,428		4.2	%	9,494		4.0	%	(2,352		)	(0.9	)%	2,873		0.8	%
Total	$	320,824		100.0	%	$	200,065	100.0	%	$	237,145	100.0	%	$	252,655		100.0	%	$	348,543	100.0	%

Net premiums earned
Casualty (1)	$	76,053		29.1	%	$	78,621	29.9	%	$	75,061	28.8	%	$	83,186		30.4	%	$	73,381	26.2	%
Other specialty (2)	74,249			28.4	%	74,916		28.5	%	72,337		27.8	%	80,256			29.3	%	83,798		30.0	%
Property excluding property catastrophe (3)	71,953			27.5	%	73,856		28.1	%	72,267		27.7	%	69,600			25.4	%	79,764		28.5	%
Marine and aviation	17,878			6.8	%	11,064		4.2	%	13,708		5.3	%	13,423			4.9	%	12,613		4.5	%
Property catastrophe	17,953			6.9	%	21,945		8.3	%	23,325		9.0	%	24,325			8.9	%	27,270		9.7	%
Other (4)	3,122			1.2	%	2,620		1.0	%	3,733		1.4	%	3,175			1.2	%	2,891		1.0	%
Total	$	261,208		100.0	%	$	263,022	100.0	%	$	260,431	100.0	%	$	273,965		100.0	%	$	279,717	100.0	%

Pro rata	$	139,693		53.5	%	$	134,145	51.0	%	$	132,090	50.7	%	$	143,835		52.5	%	$	153,515	54.9	%
Excess of loss	121,515			46.5	%	128,877		49.0	%	128,341		49.3	%	130,130			47.5	%	126,202		45.1	%
Total	$	261,208		100.0	%	$	263,022	100.0	%	$	260,431	100.0	%	$	273,965		100.0	%	$	279,717	100.0	%

(1) Includes executive assurance, professional liability, workers’ compensation, excess motor, healthcare and other. (3) Includes facultative business.

(2) Includes proportional motor, surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and other. (4) Includes life, casualty clash and other.



	15

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Mortgage Segment



(U.S. Dollars in thousands)	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Gross premiums written	$	111,280		$	91,787		$	74,657		$	68,572		$	60,541
Premiums ceded	(4,767		)	(4,660		)	(7,832		)	(6,902		)	(8,670		)
Net premiums written	106,513			87,127			66,825			61,670			51,871
Change in unearned premiums	(44,748		)	(30,391		)	(12,277		)	(9,211		)	(1,504		)
Net premiums earned	61,765			56,736			54,548			52,459			50,367
Other underwriting income (1)	3,793			3,461			3,565			3,686			7,718
Losses and loss adjustment expenses	(8,629		)	(7,237		)	(9,562		)	(9,639		)	(13,809		)
Acquisition expenses, net	(8,385		)	(14,030		)	(10,428		)	(10,200		)	(10,418		)
Other operating expenses	(24,615		)	(21,274		)	(21,048		)	(19,679		)	(20,369		)
Underwriting income	$	23,929		$	17,656		$	17,075		$	16,627		$	13,489

Underwriting Ratios
Loss ratio	14.0		%	12.8		%	17.5		%	18.4		%	27.4		%
Acquisition expense ratio	13.6		%	24.7		%	19.1		%	19.4		%	20.7		%
Other operating expense ratio	39.9		%	37.5		%	38.6		%	37.5		%	40.4		%
Combined ratio	67.5		%	75.0		%	75.2		%	75.3		%	88.5		%

Net (favorable) adverse development in prior year loss
reserves, net of related adjustments	(4.4		)%	(8.1		)%	(7.3		)%	(2.1		)%	(5.6		)%
Combined ratio excluding prior year development (2)	71.9		%	83.1		%	82.5		%	77.4		%	94.1		%

Net premiums written to gross premiums written	95.7		%	94.9		%	89.5		%	89.9		%	85.7		%

Net premiums written by client location
United States	$	55,803		$	51,724		$	48,611		$	47,460		$	45,822
Other	50,710			35,403			18,214			14,210			6,049
Total	$	106,513		$	87,127		$	66,825		$	61,670		$	51,871
United States %	52.4		%	59.4		%	72.7		%	77.0		%	88.3		%
Other %	47.6		%	40.6		%	27.3		%	23.0		%	11.7		%

Net premiums written by underwriting location
United States	$	35,330		$	33,474		$	33,298		$	30,589		$	27,956
Other	71,183			53,653			33,527			31,081			23,915
Total	$	106,513		$	87,127		$	66,825		$	61,670		$	51,871
United States %	33.2		%	38.4		%	49.8		%	49.6		%	53.9		%
Other %	66.8		%	61.6		%	50.2		%	50.4		%	46.1		%

(1) Represents income earned on various risk-sharing products offered to government sponsored enterprises and mortgage lenders.

(2) See ‘Comments on Regulation G’ for further discussion.



	16

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Mortgage Segment



(U.S. Dollars in millions)	March 31, 2016					December 31, 2015					September 30, 2015					June 30, 2015
Insurance In Force (IIF) (1)
U.S. mortgage insurance	$	28,433		30.9	%	$	27,101		35.5	%	$	25,697		39.8	%	$	24,175		41.6	%
Mortgage reinsurance	22,393			24.3	%	20,876			27.3	%	19,550			30.3	%	19,245			33.1	%
Other (2)	41,172			44.8	%	28,415			37.2	%	19,357			30.0	%	14,734			25.3	%
Total	$	91,998		100.0	%	$	76,392		100.0	%	$	64,604		100.0	%	$	58,154		100.0	%
Risk In Force (RIF) (3)
U.S. mortgage insurance	$	7,165		56.1	%	$	6,826		59.4	%	$	6,467		63.0	%	$	6,053		63.7	%
Mortgage reinsurance	3,964			31.1	%	3,464			30.1	%	3,008			29.3	%	2,776			29.2	%
Other (2)	1,636			12.8	%	1,206			10.5	%	796			7.7	%	679			7.1	%
Total	$	12,765		100.0	%	$	11,496		100.0	%	$	10,271		100.0	%	$	9,508		100.0	%

Supplemental disclosures for U.S. mortgage insurance:
Total RIF by credit quality (FICO score):
>=740	$	3,995		55.8	%	$	3,763		55.1	%	$	3,532		54.6	%	$	3,238		53.5	%
680-739	2,354			32.9	%	2,237			32.8	%	2,114			32.7	%	1,994			32.9	%
620-679	712			9.9	%	717			10.5	%	705			10.9	%	696			11.5	%
<620	104			1.5	%	109			1.6	%	116			1.8	%	125			2.1	%
Total	$	7,165		100.0	%	$	6,826		100.0	%	$	6,467		100.0	%	$	6,053		100.0	%
Weighted average FICO score	739					738					737					735

Total RIF by Loan-To-Value (LTV):
95.01% and above	$	1,052		14.7	%	$	1,050		15.4	%	$	1,045		16.2	%	$	1,093		18.1	%
90.01% to 95.00%	3,677			51.3	%	3,472			50.9	%	3,252			50.3	%	2,959			48.9	%
85.01% to 90.00%	2,056			28.7	%	1,942			28.5	%	1,831			28.3	%	1,685			27.8	%
85.00% and below	380			5.3	%	362			5.3	%	339			5.2	%	316			5.2	%
Total	$	7,165		100.0	%	$	6,826		100.0	%	$	6,467		100.0	%	$	6,053		100.0	%
Weighted average LTV	93.0		%			93.0		%			93.2		%			93.2		%

Total RIF by State:
California	$	622		8.7	%	$	599		8.8	%	$	570		8.8	%	$	527		8.7	%
Wisconsin	585			8.2	%	581			8.5	%	574			8.9	%	554			9.2	%
Texas	401			5.6	%	380			5.6	%	355			5.5	%	325			5.4	%
Florida	345			4.8	%	327			4.8	%	310			4.8	%	297			4.9	%
Minnesota	319			4.5	%	315			4.6	%	306			4.7	%	291			4.8	%
Massachusetts	262			3.7	%	249			3.6	%	235			3.6	%	217			3.6	%
Washington	261			3.6	%	259			3.8	%	247			3.8	%	243			4.0	%
Virginia	237			3.3	%	218			3.2	%	213			3.3	%	215			3.6	%
Michigan	233			3.3	%	230			3.4	%	220			3.4	%	200			3.3	%
New York	223			3.1	%	223			3.3	%	212			3.3	%	197			3.3	%
Others	3,677			51.3	%	3,445			50.5	%	3,225			49.9	%	2,987			49.3	%
Total	$	7,165		100.0	%	$	6,826		100.0	%	$	6,467		100.0	%	$	6,053		100.0	%

Weighted average coverage (end of period RIF divided by IIF)	25.2		%			25.2		%			25.2		%			25.0		%
Analysts’ persistency (4)	74.2		%			75.6		%			76.0		%			78.3		%
Risk-to-capital ratio (5)	11.0:1					10.5:1					10.1:1					9.7:1

(1) The aggregate dollar amount of each insured mortgage loan’s original principal balance. (2) Includes GSE credit risk-sharing transactions and international insurance business.


(3)	The aggregate dollar amount of each insured mortgage loan’s current principal balance (4) Represents the % of IIF at the beginning of a 12-month period that remained in force at the end of the period.


multiplied by the insurance coverage percentage specified in the policy for insurance policies	(5) Represents total current (non-delinquent) RIF, net of reinsurance, divided by total statutory capital. Ratio


issued and after contract limits and/or loss ratio caps for risk-sharing or reinsurance transactions.	calculated for Arch MI U.S. only (estimate for March 31, 2016).



	17

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Mortgage Segment



(U.S. Dollars in millions, except policy/loan/claim count)	Three Months Ended
	March 31, 2016					December 31, 2015					September 30, 2015					June 30, 2015
Supplemental disclosures for U.S. mortgage insurance:
Total new insurance written (NIW) (1)	$	2,906				$	2,575				$	3,179				$	2,709

Total NIW by credit quality (FICO score):
>=740	$	1,808		62.2	%	$	1,543		59.9	%	$	1,973		62.1	%	$	1,723		63.6	%
680-739	959			33.0	%	842			32.7	%	976			30.7	%	842			31.1	%
620-679	139			4.8	%	190			7.4	%	230			7.2	%	143			5.3	%
<620	—			—	%	—			—	%	—			—	%	1			—	%
Total	$	2,906		100.0	%	$	2,575		100.0	%	$	3,179		100.0	%	$	2,709		100.0	%

Total NIW by LTV:
95.01% and above	$	175		6.0	%	$	164		6.4	%	$	219		6.9	%	$	165		6.1	%
90.01% to 95.00%	1,233			42.4	%	1,164			45.2	%	1,458			45.9	%	1,227			45.3	%
85.01% to 90.00%	1,021			35.1	%	856			33.2	%	1,054			33.2	%	908			33.5	%
85.01% and below	477			16.4	%	391			15.2	%	448			14.1	%	409			15.1	%
Total	$	2,906		100.0	%	$	2,575		100.0	%	$	3,179		100.0	%	$	2,709		100.0	%

Total NIW purchase vs. refinance:
Purchase	$	2,055		70.7	%	$	1,923		74.7	%	$	2,483		78.1	%	$	1,830		67.6	%
Refinance	851			29.3	%	652			25.3	%	696			21.9	%	879			32.4	%
Total	$	2,906		100.0	%	$	2,575		100.0	%	$	3,179		100.0	%	$	2,709		100.0	%

Ending number of policies in force (PIF)	153,984					148,943					143,335					137,724

Rollforward of insured loans in default:
Beginning delinquent number of loans	2,702					2,757					2,850					3,006
Plus: new notices	1,048					1,134					1,196					1,145
Less: cures	(1,206		)			(987		)			(1,057		)			(1,011		)
Less: paid claims	(222		)			(205		)			(233		)			(292		)
Less: delinquent rescissions and denials	3					3					1					2
Ending delinquent number of loans	2,325					2,702					2,757					2,850

Ending percentage of loans in default	1.5		%			1.8		%			1.9		%			2.1		%

Losses:
Number of claims paid	222					205					233					292
Total paid claims (in thousands)	$	9,168				$	8,093				$	9,036				$	12,672
Average per claim (in thousands)	$	41.3				$	39.5				$	38.8				$	43.4
Severity (2)	93.9		%			96.2		%			91.7		%			97.0		%

Average reserve per default (in thousands)	$	32.1				$	29.1				$	30.6				$	32.9

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

(2) Represents total paid claims divided by RIF of loans for which claims were paid.



	18

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Investable Asset Summary and Investment Portfolio Metrics

The following table summarizes the Company’s investable assets and portfolio metrics (1):



(U.S. Dollars in thousands)	March 31,					December 31,					September 30,					June 30,					March 31,
	2016					2015					2015					2015					2015
Investable assets (1) (2):
Fixed maturities available for sale, at fair value	$	10,645,257		71.2	%	$	10,459,353		71.4	%	$	10,560,635		71.7	%	$	9,927,603		68.4	%	$	10,427,810		72.2	%
Fixed maturities, at fair value (3)	371,298			2.5	%	367,780			2.5	%	341,131			2.3	%	387,941			2.7	%	348,689			2.4	%
Fixed maturities pledged under securities lending agreements, at fair value	558,603			3.7	%	373,304			2.5	%	285,632			1.9	%	373,969			2.6	%	253,115			1.8	%
Total fixed maturities	11,575,158			77.4	%	11,200,437			76.5	%	11,187,398			75.9	%	10,689,513			73.7	%	11,029,614			76.4	%
Short-term investments available for sale, at fair value	623,844			4.2	%	587,904			4.0	%	708,428			4.8	%	875,727			6.0	%	855,032			5.9	%
Short-term investments pledged under securities lending agreements, at fair value	6,000			—	%	—			—	%	—			—	%	—			—	%	—			—	%
Cash	479,545			3.2	%	444,776			3.0	%	521,137			3.5	%	470,011			3.2	%	402,314			2.8	%
Equity securities available for sale, at fair value	506,915			3.4	%	618,405			4.2	%	606,259			4.1	%	701,623			4.8	%	687,713			4.8	%
Equity securities, at fair value (3)	437			—	%	798			—	%	78			—	%	248			—	%	907			—	%
Equity securities pledged under securities lending agreements, at fair value	16,163			0.1	%	10,777			0.1	%	—			—	%	—			—	%	—			—	%
Other investments available for sale, at fair value	195,079			1.3	%	300,476			2.1	%	281,014			1.9	%	377,677			2.6	%	329,677			2.3	%
Other investments, at fair value (3)	1,010,450			6.8	%	908,809			6.2	%	891,484			6.1	%	899,763			6.2	%	880,660			6.1	%
Investments accounted for using the equity method (4)	628,832			4.2	%	592,973			4.0	%	589,277			4.0	%	472,926			3.3	%	412,367			2.9	%
Securities transactions entered into but not settled at the balance sheet date	(88,129		)	(0.6	)%	(20,524		)	(0.1	)%	(51,343		)	(0.3	)%	26,066			0.2	%	(162,136		)	(1.1	)%
Total investable assets managed by the Company	$	14,954,294		100.0	%	$	14,644,831		100.0	%	$	14,733,732		100.0	%	$	14,513,554		100.0	%	$	14,436,148		100.0	%

Average effective duration (in years)	3.56					3.43					3.42					3.05					3.35
Average S&P/Moody’s credit ratings (5)	AA/Aa2					AA/Aa2					AA/Aa2					AA/Aa2					AA/Aa2
Embedded book yield (before investment expenses)	2.07		%			2.16		%			2.10		%			2.07		%			2.21		%


(1)	Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. Such amounts are summarized as follows:



(U.S. Dollars in thousands)	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Investable assets in ‘other’ segment:
Cash	$	78,416		$	108,550		$	128,642		$	55,063		$	68,698
Investments accounted for using the fair value option	1,757,147			1,617,107			1,550,472			1,325,535			1,191,266
Securities sold but not yet purchased	(48,279		)	(30,583		)	(25,384		)	—			—
Securities transactions entered into but not settled at the balance sheet date	(77,422		)	1,033			(60,207		)	(40,024		)	7,624
Total investable assets included in ‘other’ segment	$	1,709,862		$	1,696,107		$	1,593,523		$	1,340,574		$	1,267,588

(2) This table excludes the collateral received and reinvested and includes the securities pledged under securities lending agreements, at fair value.

(3) Represents investments which are carried at fair value under the fair value option and reflected as “investments accounted for using the fair value option” on the balance sheet.


(4)	Changes in the carrying value of investment funds accounted for using the equity method are recorded as “equity in net income (loss) of investment funds accounted for using the equity method” rather than as an unrealized gain or loss component of accumulated other comprehensive income.

(5) Average credit ratings on the Company’s investment portfolio on securities with ratings assigned by Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”).



	19

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Composition of Fixed Maturities

The following table summarizes the Company’s fixed maturities and fixed maturities pledged under securities lending agreements (1):



(U.S. Dollars in thousands)	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gains (Losses)			Amortized Cost		Fair Value / Amortized Cost		% of Total
At March 31, 2016
Corporates	$	3,043,392	$	48,256	$	(25,229	)	$	23,027		$	3,020,365	100.8	%	26.3	%
Non-U.S. government-backed corporates	82,131		1,362		(1,051		)	311			81,820		100.4	%	0.7	%
U.S. government and government agencies	2,975,376		27,583		(3,865		)	23,718			2,951,658		100.8	%	25.7	%
Agency mortgage-backed securities	558,071		4,138		(337		)	3,801			554,270		100.7	%	4.8	%
Non-agency mortgage-backed securities	155,930		6,477		(1,784		)	4,693			151,237		103.1	%	1.3	%
Agency commercial mortgage-backed securities	78,346		624		(1,181		)	(557		)	78,903		99.3	%	0.7	%
Non-agency commercial mortgage-backed securities	499,507		7,534		(1,424		)	6,110			493,397		101.2	%	4.3	%
Municipal bonds	1,605,234		33,497		(1,116		)	32,381			1,572,853		102.1	%	13.9	%
Non-U.S. government securities	1,184,587		34,833		(25,743		)	9,090			1,175,497		100.8	%	10.2	%
Asset-backed securities	1,392,584		7,051		(12,298		)	(5,247		)	1,397,831		99.6	%	12.0	%
Total	$	11,575,158	$	171,355	$	(74,028	)	$	97,327		$	11,477,831	100.8	%	100.0	%

At December 31, 2015
Corporates	$	2,881,952	$	15,033	$	(57,050	)	$	(42,017	)	$	2,923,969	98.6	%	25.7	%
Non-U.S. government-backed corporates	78,742		945		(3,458		)	(2,513		)	81,255		96.9	%	0.7	%
U.S. government and government agencies	2,423,455		6,228		(9,978		)	(3,750		)	2,427,205		99.8	%	21.6	%
Agency mortgage-backed securities	562,162		1,925		(3,612		)	(1,687		)	563,849		99.7	%	5.0	%
Non-agency mortgage-backed securities	250,395		7,947		(1,722		)	6,225			244,170		102.5	%	2.2	%
Agency commercial mortgage-backed securities	75,252		239		(278		)	(39		)	75,291		99.9	%	0.7	%
Non-agency commercial mortgage-backed securities	688,900		3,030		(6,700		)	(3,670		)	692,570		99.5	%	6.2	%
Municipal bonds	1,626,281		27,014		(1,534		)	25,480			1,600,801		101.6	%	14.5	%
Non-U.S. government securities	992,792		10,414		(39,122		)	(28,708		)	1,021,500		97.2	%	8.9	%
Asset-backed securities	1,620,506		3,307		(12,951		)	(9,644		)	1,630,150		99.4	%	14.5	%
Total	$	11,200,437	$	76,082	$	(136,405	)	$	(60,323	)	$	11,260,760	99.5	%	100.0	%


(1)	Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.



	20

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Credit Quality Distribution and Maturity Profile

The following table summarizes the credit quality distribution and maturity profile of the Company’s fixed maturities and fixed maturities pledged under securities lending agreements (1):



(U.S. Dollars in thousands)	March 31,				December 31,				September 30,				June 30,				March 31,
	2016				2015				2015				2015				2015
Credit quality distribution of total fixed maturities (2) (3):
U.S. government and government agencies (4)	$	3,611,793	31.2	%	$	3,060,869	27.3	%	$	2,997,450	26.8	%	$	2,593,318	24.3	%	$	2,199,182	19.9	%
AAA	3,797,393		32.8	%	4,000,750		35.7	%	3,815,981		34.1	%	3,639,910		34.1	%	4,166,106		37.8	%
AA	1,524,692		13.2	%	1,651,760		14.7	%	1,978,961		17.7	%	1,967,666		18.4	%	2,000,435		18.1	%
A	1,512,085		13.1	%	1,431,138		12.8	%	1,474,976		13.2	%	1,474,583		13.8	%	1,603,861		14.5	%
BBB	484,968		4.2	%	457,251		4.1	%	335,514		3.0	%	337,517		3.2	%	410,147		3.7	%
BB	233,348		2.0	%	203,426		1.8	%	195,888		1.8	%	212,561		2.0	%	195,163		1.8	%
B	164,744		1.4	%	138,770		1.2	%	137,324		1.2	%	170,859		1.6	%	176,590		1.6	%
Lower than B	100,441		0.9	%	130,545		1.2	%	132,107		1.2	%	136,784		1.3	%	150,000		1.4	%
Not rated	145,694		1.3	%	125,928		1.1	%	119,197		1.1	%	156,315		1.5	%	128,130		1.2	%
Total fixed maturities, at fair value	$	11,575,158	100.0	%	$	11,200,437	100.0	%	$	11,187,398	100.0	%	$	10,689,513	100.0	%	$	11,029,614	100.0	%

Maturity profile of total fixed maturities (2):
Due in one year or less	$	295,627	2.6	%	$	357,343	3.2	%	$	349,574	3.1	%	$	387,896	3.6	%	$	288,299	2.6	%
Due after one year through five years	5,391,177		46.6	%	4,790,737		42.8	%	4,639,733		41.5	%	4,288,771		40.1	%	3,983,422		36.1	%
Due after five years through ten years	2,561,411		22.1	%	2,318,165		20.7	%	2,677,172		23.9	%	2,556,513		23.9	%	2,771,736		25.1	%
Due after 10 years	642,505		5.6	%	536,977		4.8	%	468,086		4.2	%	376,573		3.5	%	382,273		3.5	%
	8,890,720		76.8	%	8,003,222		71.5	%	8,134,565		72.7	%	7,609,753		71.2	%	7,425,730		67.3	%
Mortgage-backed securities	714,001		6.2	%	812,557		7.3	%	869,311		7.8	%	896,245		8.4	%	839,621		7.6	%
Commercial mortgage-backed securities	577,853		5.0	%	764,152		6.8	%	810,973		7.2	%	832,159		7.8	%	1,106,332		10.0	%
Asset-backed securities	1,392,584		12.0	%	1,620,506		14.5	%	1,372,549		12.3	%	1,351,356		12.6	%	1,657,931		15.0	%
Total fixed maturities, at fair value	$	11,575,158	100.0	%	$	11,200,437	100.0	%	$	11,187,398	100.0	%	$	10,689,513	100.0	%	$	11,029,614	100.0	%


(1)	Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.


(2)	This table excludes the collateral received and reinvested and includes the fixed maturities pledged under securities lending agreements, at fair value.

(3) 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.

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



	21

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Analysis of Corporate Exposures

The following table summarizes the Company’s corporate bonds by sector, excluding government-backed securities (1):



(U.S. Dollars in thousands)	March 31,				December 31,				September 30,				June 30,				March 31,
	2016				2015				2015				2015				2015
Sector:
Industrials	$	1,594,202	52.4	%	$	1,508,734	52.4	%	$	1,601,879	55.3	%	$	1,705,524	57.3	%	$	1,840,470	55.8	%
Financials	966,692		31.8	%	997,189		34.6	%	933,181		32.2	%	896,655		30.1	%	1,014,923		30.8	%
Covered bonds	171,101		5.6	%	163,739		5.7	%	162,139		5.6	%	171,368		5.8	%	184,197		5.6	%
Utilities	207,371		6.8	%	180,405		6.3	%	147,777		5.1	%	147,563		5.0	%	191,341		5.8	%
All other (2)	104,026		3.4	%	31,885		1.1	%	52,113		1.8	%	54,936		1.8	%	65,090		2.0	%
Total fixed maturities, at fair value	$	3,043,392	100.0	%	$	2,881,952	100.0	%	$	2,897,089	100.0	%	$	2,976,046	100.0	%	$	3,296,021	100.0	%

Credit quality distribution (3):
AAA	$	393,737	12.9	%	$	358,305	12.4	%	$	416,453	14.4	%	$	429,889	14.4	%	$	476,205	14.4	%
AA	702,772		23.1	%	735,432		25.5	%	778,614		26.9	%	778,677		26.2	%	840,763		25.5	%
A	1,138,261		37.4	%	1,064,965		37.0	%	1,109,506		38.3	%	1,101,592		37.0	%	1,236,797		37.5	%
BBB	377,529		12.4	%	359,903		12.5	%	243,870		8.4	%	243,514		8.2	%	320,014		9.7	%
BB	174,657		5.7	%	154,050		5.3	%	150,066		5.2	%	161,134		5.4	%	150,996		4.6	%
B	147,395		4.8	%	123,534		4.3	%	120,056		4.1	%	152,712		5.1	%	163,263		5.0	%
Lower than B	17,657		0.6	%	11,844		0.4	%	9,234		0.3	%	10,332		0.3	%	13,606		0.4	%
Not rated	91,384		3.0	%	73,919		2.6	%	69,290		2.4	%	98,196		3.3	%	94,377		2.9	%
Total fixed maturities, at fair value	$	3,043,392	100.0	%	$	2,881,952	100.0	%	$	2,897,089	100.0	%	$	2,976,046	100.0	%	$	3,296,021	100.0	%


(1)	Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

(2) Includes sovereign securities, supranational securities and other.

(3) 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.

The following table summarizes the Company’s top ten exposures to fixed income corporate issuers by fair value at March 31, 2016, excluding government-backed securities and covered bonds (1):



(U.S. Dollars in thousands)	Fair Value		% of Asset Class		% of Investable Assets		Credit Quality (2)
Issuer:
Apple Inc.	$	70,626	2.3	%	0.5	%	AA+/Aa1
Microsoft Corporation	61,139		2.0	%	0.4	%	AAA/Aaa
Royal Dutch Shell PLC	56,292		1.8	%	0.4	%	A+/Aa2
Wells Fargo & Company	55,465		1.8	%	0.4	%	A/A2
MassMutual Global Funding II	53,772		1.8	%	0.4	%	AA+/Aa2
General Electric Co.	52,884		1.7	%	0.4	%	AA+/A1
Oracle Corporation	52,420		1.7	%	0.4	%	AA-/A1
Anheuser Busch Inbev SA	49,053		1.6	%	0.3	%	A-/A3
Bank of New York Mellon Corp	47,219		1.6	%	0.3	%	A/A1
Toyota Motor Corporation	46,826		1.5	%	0.3	%	AA-/Aa3
Total	$	545,696	17.9	%	3.6	%


(1)	Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

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



	22

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Structured Securities

The following table provides information on the Company’s mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS) at March 31, 2016, excluding amounts guaranteed by U.S. government agencies (1):



(U.S. Dollars in thousands)				Average	Estimated Fair Value
	Issuance	Amortized		Credit			% of Amortized		% of Investable			Non-Agency		Non-Agency
	Year	Cost		Quality	Total		Cost		Assets		Additional Statistics:	MBS		CMBS (2)
Non-agency MBS:	2003-2008	$	72,762	CC-	$	78,064	107.3	%	0.5	%	Wtd. average loan age (months)	82		34
	2010	1,074		NR	1,177		109.6	%	—	%	Wtd. average life (months) (3)	55		76
	2014	38,956		AA	38,334		98.4	%	0.3	%	Wtd. average loan-to-value % (4)	61.9	%	55.8	%
	2015	37,922		AA-	37,834		99.8	%	0.3	%	Total delinquencies (5)	9.8	%	0.6	%
	2016	522		NR	521		99.8	%	—	%	Current credit support % (6)	11.8	%	38.9	%
Total non-agency MBS		$	151,236	BB-	$	155,930	103.1	%	1.0	%

Non-agency CMBS:	2002-2008	$	26,164	BBB+	$	26,333	100.6	%	0.2	%
	2009	537		BBB	538		100.2	%	—	%
	2010	9,113		AAA	9,275		101.8	%	0.1	%
	2011	2,143		AAA	2,141		99.9	%	—	%
	2012	41,733		AAA	42,182		101.1	%	0.3	%
	2013	94,929		AA+	97,109		102.3	%	0.6	%
	2014	160,001		AAA	160,891		100.6	%	1.1	%
	2015	142,149		AAA	144,338		101.5	%	1.0	%
	2016	16,629		AA+	16,701		100.4	%	0.1	%
Total non-agency CMBS		$	493,398	AA+	$	499,508	101.2	%	3.3	%


(1)	Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.


(2)	Loans defeased with government/agency obligations represented were not material to the collateral underlying the Company’s CMBS holdings.


(3)	The weighted average life for MBS is based on the interest rates in effect at March 31, 2016. The weighted average life for CMBS reflects the average life of the collateral underlying the Company’s CMBS holdings.


(4)	The range of loan-to-values on MBS is 14% to 106%, while the range of loan-to-values on CMBS is 4% to 210%.


(5)	Total delinquencies includes 60 days and over.


(6)	Current credit support % represents the % for a collateralized mortgage obligation (CMO) or CMBS class/tranche from other subordinate classes in the same CMO or CMBS deal.

The following table provides information on the Company’s asset-backed securities (ABS) at March 31, 2016 (1):



(U.S. Dollars in thousands)			Average	Weighted		Estimated Fair Value
	Amortized		Credit	Average Credit				% of Amortized		% of Investable
Sector:	Cost		Quality	Support		Total		Cost		Assets
Credit cards	$	601,352	AAA	17	%	$	605,275	100.7	%	4.0	%
Autos	289,333		AAA	26	%	288,166		99.6	%	1.9	%
Loans	254,364		AA-	17	%	248,550		97.7	%	1.7	%
Equipment	158,484		AA	11	%	156,119		98.5	%	1.0	%
Other (2)	94,297		A+	19	%	94,473		100.2	%	0.6	%
Total ABS (3)	$	1,397,830	AA+			$	1,392,583	99.6	%	9.3	%


(1)	Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.


(2)	Including rate reduction bonds, commodities, home equity, U.K. securitized and other.

(3)

The effective duration of the total ABS was 1.7 years at March 31, 2016. The Company’s investment portfolio included sub-prime securities with a par value of $35.3 million and estimated fair value of $25.9 million and an average credit quality of “CCC/Caa2” from S&P/Moody’s at March 31, 2016. Such amounts were primarily in the home equity sector of ABS with the balance in other ABS, MBS and CMBS sectors.



	23

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Bank Loan Investments

The Company’s investments in bank loans are included in the following categories at March 31, 2016 (1):



(U.S. Dollars in thousands)	Fair Value		% of Asset Class		% of Investable Assets
Composition:
Investment funds accounted for using the equity method	$	3,023	0.8	%	—	%
Term loan investments (2)	369,981		99.2	%	2.5	%
Total	$	373,004	100.0	%	2.5	%

Currency:
U.S.-denominated	$	240,234	64.4	%	1.6	%
Euro-denominated	132,770		35.6	%	0.9	%
Total	$	373,004	100.0	%	2.5	%

Sector:
Consumer non-cyclical	$	100,462	26.9	%	0.7	%
Consumer cyclical	91,790		24.6	%	0.6	%
Industrials	67,920		18.2	%	0.5	%
Basic materials	47,755		12.8	%	0.3	%
Media	34,245		9.2	%	0.2	%
Utilities	9,700		2.6	%	0.1	%
All other	21,132		5.7	%	0.1	%
Total	$	373,004	100.0	%	2.5	%

Weighted average rating factor (Moody's)	B2


(1)	Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

(2) Included in “investments accounted for using the fair value option” on the Company’s balance sheet.



	24

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Eurozone Investments

The fair value of the Company’s Eurozone investments are as follows at March 31, 2016 (1):



(U.S. Dollars in thousands)			Financial		Other		Bank		Equities
	Sovereign (3)		Corporates		Corporates		Loans (4)		and Other		Total
Country (2):
Netherlands	$	164,823	$	20,207	$	51,957	$	10,596	$	5,894	$	253,477
Germany	85,389		—		19,482		28,651		—		133,522
France	1,329		346		28,356		6,544		10,822		47,397
Supranational (5)	38,644		—		—		—		—		38,644
Luxembourg	—		—		19,270		8,563		—		27,833
Ireland	—		—		190		5,594		—		5,784
Belgium	5,294		—		—		—		—		5,294
Spain	—		—		—		2,477		—		2,477
Slovenia	1,779		—		—		—		—		1,779
Greece	665		—		728		—		—		1,393
Austria	901		—		—		—		—		901
Italy	—		—		—		315		—		315
Total	$	298,824	$	20,553	$	119,983	$	62,740	$	16,716	$	518,816


(1)	Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.


(2)	The country allocations set forth in the table are based on various assumptions made by the Company in assessing the country in which the underlying credit risk resides, including a review of the jurisdiction of organization, business operations and other factors. Based on such analysis, the Company does not believe that it has any other Eurozone investments at March 31, 2016.


(3)	Sovereign includes securities issued and/or guaranteed by Eurozone governments.


(4)	Included in “term loan investments” in the Bank Loan Investments table.


(5)	Includes World Bank, European Investment Bank, International Finance Corp. and European Bank for Reconstruction and Development.



	25

Arch Capital Group Ltd. and Subsidiaries

Comments on Regulation G

Throughout this financial supplement, the Company presents its operations in the way it believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use the Company’s financial information in evaluating the performance of the 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, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses, net of income taxes. The presentation of after-tax operating income available to Arch common shareholders is a “non-GAAP financial measure” as defined in Regulation G. The reconciliation of such measure to net income available to Arch common shareholders (the most directly comparable GAAP financial measure) in accordance with Regulation G is included on the following page.

The Company believes that net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses in any particular period are not indicative of the performance of, or trends in, the Company’s business performance. Although net realized gains or losses, net impairment losses recognized in earnings, 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 the Company’s 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 recognized in earnings, 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 the Company’s financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. In addition, net impairment losses recognized in earnings represent other-than-temporary declines in expected recovery values on securities without actual realization. The use of the equity method on certain of the Company’s 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 the Company’s proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). This method of accounting is different from the way the Company accounts for its 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. Due to these reasons, the Company excludes net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses from the calculation of after-tax operating income available to Arch common shareholders.

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

In addition, the Company’s presentation includes the use of information prepared on a ‘core’ basis, which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). Information provided on a ‘core’ basis are non-GAAP financial measures as defined in Regulation G. Pursuant to generally accepted accounting principles, Watford Re is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford Re. As such, the Company consolidates the results of Watford Re in its consolidated financial statements, although it only owns approximately 11% of Watford Re’s common equity. Watford Re has its own management and board of directors that is responsible for its overall profitability. In addition, the Company does not guarantee or provide credit support for Watford Re. Because Watford Re is an independent company, the assets of Watford Re can be used only to settled obligations of Watford Re and Watford Re is solely responsible for its own liabilities and commitments. The Company’s financial exposure to Watford Re is limited to its investment in Watford Re’s common and preferred shares and counterparty credit risk (mitigated by collateral) arising from the reinsurance transactions. The Company believes that presenting information on a ‘core’ basis enables investors and other users of the Company’s financial information to analyze the Company’s performance in a manner similar to how the Company’s management analyzes performance. See ‘Segment Information’ for a further discussion of segment results and a reconciliation of core and consolidated results.

The Company’s segment information includes the use of a combined ratio excluding catastrophic activity and prior year development for the insurance segment and reinsurance segment and a combined ratio excluding prior year development for the mortgage segment. These ratios are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to the combined ratio (the most directly comparable GAAP financial measure) in accordance with Regulation G are shown on the individual segment pages. The Company’s management utilizes the adjusted combined ratio excluding current accident year catastrophic events and favorable or adverse development in prior year loss reserves in its analysis of the core underwriting performance of each of its underwriting segments.



	26

Arch Capital Group Ltd. and Subsidiaries

Operating Income Reconciliation and Annualized Operating Return on Average Common Equity

The following table provides a reconciliation of after-tax operating income (loss) available to Arch common shareholders to net income available to Arch common shareholders along with related per common share results:



(U.S. Dollars in thousands, except share data)	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
After-tax operating income available to Arch common shareholders	$	145,742		$	143,599		$	125,798		$	145,956		$	149,846
Net realized gains (losses), net of tax	26,901			(93,419		)	(58,048		)	(28,074		)	61,934
Net impairment losses recognized in earnings, net of tax	(7,639		)	(7,336		)	(5,868		)	(1,113		)	(5,799		)
Equity in net income of investment funds accounted for using the equity method, net of tax	6,475			5,247			(2,373		)	16,113			5,532
Net foreign exchange gains (losses), net of tax	(22,165		)	5,003			15,040			(22,577		)	66,339
Net income available to Arch common shareholders	$	149,314		$	53,094		$	74,549		$	110,305		$	277,852

Diluted per common share results:
After-tax operating income available to Arch common shareholders	$	1.17		$	1.15		$	1.01		$	1.16		$	1.17
Net realized gains (losses), net of tax	0.22			(0.75		)	(0.46		)	(0.22		)	0.48
Net impairment losses recognized in earnings, net of tax	(0.06		)	(0.06		)	(0.05		)	(0.01		)	(0.05		)
Equity in net income of investment funds accounted for using the equity method, net of tax	0.05			0.04			(0.02		)	0.13			0.04
Net foreign exchange gains (losses), net of tax	(0.18		)	0.04			0.12			(0.18		)	0.52
Net income available to Arch common shareholders	$	1.20		$	0.42		$	0.60		$	0.88		$	2.16

Weighted average common shares and common share equivalents outstanding — diluted	124,496,496			125,311,942			125,011,773			125,885,420			128,451,054

The following table provides the calculation of annualized operating return on average common equity:



(U.S. Dollars in thousands)	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
After-tax operating income available to Arch common shareholders	$	145,742		$	143,599		$	125,798		$	145,956		$	149,846
Annualized after-tax operating income available to Arch common shareholders (a)	$	582,968		$	574,396		$	503,192		$	583,824		$	599,384

Beginning common shareholders’ equity	$	5,879,881		$	5,837,815		$	5,812,515		$	5,963,702		$	5,805,053
Ending common shareholders’ equity	6,088,587			5,879,881			5,837,815			5,812,515			5,963,702
Average common shareholders’ equity (b)	$	5,984,234		$	5,858,848		$	5,825,165		$	5,888,109		$	5,884,378

Annualized operating return on average common equity (a)/(b)	9.7		%	9.8		%	8.6		%	9.9		%	10.2		%



	27

Arch Capital Group Ltd. and Subsidiaries

Operating Income and Effective Tax Rate Calculations

The following table provides a reconciliation of the components of after-tax operating income available to Arch common shareholders and the effective tax rate on pre-tax operating income available to Arch common shareholders:



(U.S. Dollars in thousands)	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Arch Operating Income Components (1):
Income before income taxes	$	169,098		$	74,384		$	92,293		$	121,913		$	293,474
Less:
Net realized gains (losses)	31,862			(84,302		)	(53,480		)	(26,860		)	65,509
Net impairment losses recognized in earnings	(7,639		)	(7,336		)	(5,868		)	(1,113		)	(5,799		)
Equity in net income (loss) of investment funds accounted for using the equity method	6,655			5,517			(2,118		)	16,167			5,889
Net foreign exchange gains (losses)	(22,041		)	2,286			16,056			(22,571		)	66,853
Pre-tax operating income	160,261			158,219			137,703			156,290			161,022
Arch share of ‘other’ segment operating income (2)	1,576			1,953			1,588			1,305			612
Pre-tax operating income available to Arch (b)	161,837			160,172			139,291			157,595			161,634
Income tax expense (a)	(10,611		)	(11,088		)	(8,009		)	(6,154		)	(6,304		)
After-tax operating income available to Arch	151,226			149,084			131,282			151,441			155,330
Preferred dividends	(5,484		)	(5,485		)	(5,484		)	(5,485		)	(5,484		)
After-tax operating income available to Arch common shareholders	$	145,742		$	143,599		$	125,798		$	145,956		$	149,846
Effective tax rate on pre-tax operating income available to Arch (a)/(b)	6.6		%	6.9		%	5.7		%	3.9		%	3.9		%


(1)	Line items are presented on a ‘core’ basis, excluding amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.


(2)	Balances in the ‘other’ segment and a calculation of Arch’s share of the ‘other’ segment operating income is as follows:



(U.S. Dollars in thousands)	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Balances in ‘other’ segment:
Underwriting income (loss)	$	(944	)	$	(3,557	)	$	1,309		$	(3,229	)	$	1,768
Net investment income	23,326			28,930			18,982			19,792			8,706
Other expenses	—			—			—			—			—
Interest expense	(3,480		)	(3,070		)	(1,286		)	—			—
Preferred dividends	(4,587		)	(4,589		)	(4,588		)	(4,743		)	(4,908		)
Pre-tax operating income (loss) available to common shareholders	14,315			17,714			14,417			11,820			5,566
Arch ownership	11		%	11		%	11		%	11		%	11		%
Arch share of ‘Other’ segment operating income (loss) (3)	$	1,576		$	1,953		$	1,588		$	1,305		$	612

(3) Excludes amounts attributable to net realized gains or losses and net foreign exchange gains or losses in the ‘other’ segment (see ‘Segment Information’).



	28

Arch Capital Group Ltd. and Subsidiaries

Capital Structure and Share Repurchase Activity

The following table provides an analysis of the Company’s capital structure (1):



(U.S. Dollars in thousands, except share data)	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Debt:
ACGL Senior notes, due May 1, 2034 ($300,000 principal, 7.35%)	$	296,895		$	296,874		$	296,854		$	296,834		$	296,815
Arch-U.S. Senior notes, due Nov. 1, 2043 ($500,000 principal, 5.144%) (2)	494,454			494,432			494,410			494,388			494,366
Revolving credit agreement borrowings, due June 30, 2019 (variable)	100,000			100,000			100,000			100,000			100,000
Total debt	$	891,349		$	891,306		$	891,264		$	891,222		$	891,181

Shareholders’ equity available to Arch:
Non-cumulative preferred shares (6.75%)	$	325,000		$	325,000		$	325,000		$	325,000		$	325,000
Common shareholders’ equity (a)	6,088,587			5,879,881			5,837,815			5,812,515			5,963,702
Total shareholders’ equity available to Arch	$	6,413,587		$	6,204,881		$	6,162,815		$	6,137,515		$	6,288,702

Total capital available to Arch	$	7,304,936		$	7,096,187		$	7,054,079		$	7,028,737		$	7,179,883

Common shares outstanding, net of treasury shares (b)	122,093,596			122,627,783			122,438,554			122,403,909			124,760,841

Book value per common share (3) (a)/(b)	$	49.87		$	47.95		$	47.68		$	47.49		$	47.80

Leverage ratios:
Senior notes/total capital available to Arch	10.8		%	11.2		%	11.2		%	11.3		%	11.0		%
Revolving credit agreement borrowings/total capital available to Arch	1.4		%	1.4		%	1.4		%	1.4		%	1.4		%
Debt/total capital available to Arch	12.2		%	12.6		%	12.6		%	12.7		%	12.4		%
Preferred/total capital available to Arch	4.4		%	4.6		%	4.6		%	4.6		%	4.5		%
Debt and preferred/total capital available to Arch	16.7		%	17.1		%	17.2		%	17.3		%	16.9		%


(1)	Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.


(2)	Issued by Arch Capital Group (U.S.) Inc. (“Arch-U.S.), a wholly owned subsidiary of Arch Capital Group Ltd. (“ACGL”), and fully and unconditionally guaranteed by ACGL.


(3)	Excludes the effects of stock options and restricted stock units outstanding.

The following table provides an analysis of the Company’s share repurchase program:



(U.S. Dollars in thousands except share data)	Three Months Ended														Cumulative
	March 31,			December 31,		September 30,			June 30,			March 31,			March 31,
	2016			2015		2015			2015			2015			2016
Effect of share repurchases:
Aggregate cost of shares repurchased	$	75,256		$	—	$	3,506		$	198,979		$	162,898		$	3,682,661
Shares repurchased	1,140,137			—		52,402			3,165,975			2,731,248			125,223,844
Average price per share repurchased	$	66.01		$	—	$	66.91		$	62.85		$	59.64		$	29.41

Average book value per common share (1)	$	48.91		$	47.82	$	47.59		$	47.65		$	46.69
Average repurchase price-to-book multiple	1.35		x	—		1.41		x	1.32		x	1.28		x

Remaining share repurchase authorization (2)	$	446,501

(1) Equals average of beginning and ending book value per common share for each period presented.


(2)	Repurchases under the share repurchase authorization may be effected from time to time in open market or privately negotiated transactions through December 2016.



	29

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