Arch Capital Group Ltd. is a Bermuda public limited liability company, through
operations in Bermuda, the United States, Europe, Canada, Australia and Dubai,
writes insurance and reinsurance on a worldwide basis. While we are positioned
to provide a full range of property, casualty and mortgage insurance and reinsurance
lines, we focus on writing specialty lines of insurance and reinsurance.
Our current operations were built on an existing underwriting platform through
an underwriting initiative in October 2001 to meet current and future demand
in the global insurance and reinsurance markets. Since that time, we have attracted
a proven management team with extensive industry experience and enhanced our
existing global underwriting platform for our insurance and reinsurance businesses.
It is our belief that our underwriting platform, our experienced management
team and our strong capital base that is unencumbered by significant pre-2002
risks have enabled us to establish a strong presence in the global insurance
and reinsurance markets.
Prior to the 2001 underwriting initiative, our insurance underwriting platform
consisted of Arch Insurance (Bermuda), a division of Arch Reinsurance Ltd. (“Arch
Re Bermuda”), our Bermuda-based reinsurer and insurer, and our U.S.-licensed
insurers, Arch Insurance Company (“Arch Insurance”), Arch Excess
& Surplus Insurance Company (“Arch E&S”), Arch Specialty
Insurance Company (“Arch Specialty”) and Arch Indemnity Insurance
Company (“Arch Indemnity”). We established Arch Insurance Company
(Europe) Limited (“Arch Insurance Company Europe”), our United Kingdom-based
subsidiary, in 2004, and we expanded our North American presence when Arch Insurance
opened a branch office in Canada in 2005. In January 2013, Arch Insurance Canada
Ltd. (“Arch Insurance Canada”), a Canada domestic company, commenced
operations and replaced the branch office. In 2009, we established a managing
agent and syndicate 2012 (“Arch Syndicate 2012”) at Lloyd’s
of London (“Lloyd’s”).
Prior to the 2001 underwriting initiative, our reinsurance underwriting platform
consisted of Arch Re Bermuda and Arch Reinsurance Company (“Arch Re U.S.”),
our U.S.-licensed reinsurer. Our reinsurance operations in Europe began in November
2006 with the formation of a Swiss branch of Arch Re Bermuda, and the formation
of a Danish underwriting agency in 2007. In addition to the U.S. reinsurance
activities of Arch Re U.S., we launched our property facultative reinsurance
underwriting operations in 2007, which underwrite in the U.S., Canada and Europe.
We formed Arch Reinsurance Europe Designated Activity Company (formerly Arch
Reinsurance Underwriting Europe Limited and referred to as “Arch Re Europe”),
our Ireland-based reinsurance company, in 2008. In 2011, we launched treaty
operations in
Canada and in April 2012 we acquired the credit and surety reinsurance operations
of Ariel Reinsurance Company Ltd. (“Ariel Re”). In May 2015, we
obtained complete ownership and effective control of Gulf Reinsurance Limited,
previously a joint venture.
Our mortgage group includes the results of Arch Mortgage Insurance Company
(“Arch MI U.S.”) and Arch Mortgage Insurance Designated Activity
Company (formerly Arch Mortgage Insurance Limited and referred to as “Arch
MI Europe”), leading providers of mortgage insurance products and services
to the U.S. and European markets, respectively. Arch MI U.S. is approved as
an eligible mortgage insurer by Federal National Mortgage Association (“Fannie
Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”),
each a government sponsored enterprise, or “GSE.” The mortgage segment
also includes GSE credit risk-sharing transactions and mortgage reinsurance
for the U.S. and Australian markets. See “Operations—Mortgage Operations”
for further details on our mortgage operations.
On March 20, 2014, we acquired approximately 11% of Watford Holdings Ltd.’s
common equity and a warrant to purchase additional common equity for $100 million.
Watford Holdings Ltd. is the parent of Watford Re Ltd., a then newly-formed
multi-line Bermuda reinsurance company (together with Watford Holdings Ltd.,
“Watford Re”). Watford Re raised approximately $1.1 billion of capital.
We serve as Watford Re’s reinsurance underwriting manager and Highbridge
Principal Strategies, LLC (“Highbridge”), a subsidiary of JPMorgan
Chase & Co., manages Watford Re’s investment assets, each under separate
long term services agreements. The results of Watford Re are included in our
consolidated financial statements. See “Operations—Other Operations”
for further details on Watford Re.
The growth of our underwriting platforms was supported through the net proceeds
of: (1) an equity capital infusion of $763 million led by funds affiliated with
Warburg Pincus LLC and Hellman & Friedman LLC in late 2001; (2) a public
offering of 7.5 million of our common shares with net proceeds of $179 million
in April 2002; (3) the exercise of class A warrants by our principal shareholders
and other investors in September 2002, which provided net proceeds of $74 million;
(4) a March 2004 public offering of 4.7 million of our common shares with net
proceeds of $179 million; (5) a May 2004 public offering of $300 million principal
amount of our 7.35% senior notes due May 2034; (6) a February 2006 public offering
of $200 million of our 8.00% series A non-cumulative preferred shares; (7) a
May 2006 public offering of $125 million of our 7.875% series B non-cumulative
preferred shares; (8) an April 2012 public offering of $325 million of our 6.75%
series C non-cumulative preferred shares which was used to redeem all series
A and series B preferred shares; and (9) a December 2013 public offering of
$500 million principal amount of 5.144% senior notes due November 1, 2043 by
Arch Capital Group (U.S.) Inc. (“Arch-U.S.”), a wholly owned subsidiary
of ACGL, and fully and unconditionally guaranteed by ACGL.
We classify our businesses into three underwriting segments — insurance,
reinsurance and mortgage — and two other operating segments — ‘other’
and corporate (non-underwriting)
Our insurance operations are conducted in Bermuda, the United States, Europe,
Canada, Australia and South Africa. Our insurance operations in Bermuda are
conducted through Arch Insurance (Bermuda), a division of Arch Re Bermuda, and
Alternative Re Limited.
In the U.S., our insurance group’s principal insurance subsidiaries are
Arch Insurance, Arch Specialty, Arch Indemnity and Arch E&S. Arch Insurance
is an admitted insurer in 50 states, the District of Columbia, Puerto Rico,
the U.S. Virgin Islands and Guam. Arch Specialty is an approved excess and surplus
lines insurer in 49 states, the District of Columbia, Puerto Rico and the U.S.
Virgin Islands and an authorized insurer in one state. Arch Indemnity is an
admitted insurer in 49 states and the District of Columbia. Arch E&S, which
is not currently writing business, is an approved excess and surplus lines insurer
in 47 states and the District of Columbia and an authorized insurer in one state.
The headquarters for our insurance group’s U.S. support operations (excluding
underwriting units) is in Jersey City, New Jersey. The insurance group has offices
throughout the U.S., including four regional offices located in Alpharetta,
Georgia, Chicago, Illinois, New York, New York and San Francisco, California
and additional branch offices.
In the normal course of business, our insurance group may cede a portion of
its premium on a quota share or excess of loss basis through treaty or facultative
reinsurance agreements. Reinsurance arrangements do not relieve our insurance
group from its primary obligations to insureds. Reinsurance recoverables are
recorded as assets, predicated on the reinsurers’ ability to meet their
obligations under the reinsurance agreements. If the reinsurers are unable to
satisfy their obligations under the agreements, our insurance subsidiaries would
be liable for such defaulted amounts. Our principal insurance subsidiaries,
with oversight by a group-wide reinsurance steering committee (“RSC”),
are selective with regard to reinsurers, seeking to place reinsurance with only
those reinsurers which meet and maintain specific standards of established criteria
for financial strength. The RSC evaluates the financial viability of its reinsurers
through financial analysis, research and review of rating agencies’ reports
and also monitors reinsurance recoverables and collateral with unauthorized
reinsurers. The financial analysis includes ongoing qualitative and quantitative
assessments of reinsurers, including a review of the financial stability, appropriate
licensing, reputation, claims paying ability and underwriting philosophy of
each reinsurer. Our insurance group will continue to evaluate its reinsurance
requirements.
Our reinsurance operations are conducted on a worldwide basis through our reinsurance
subsidiaries, Arch Re Bermuda, Arch Re U.S., Arch Re Europe and Gulf Reinsurance
Limited. Arch Re Bermuda is a registered Class 4 insurer and long-term insurer
and is headquartered in Hamilton, Bermuda. Arch Re U.S. is licensed or is an
accredited or otherwise approved reinsurer in 50 states and the District of
Columbia and the provinces of Ontario and Quebec in Canada with its principal
U.S. offices in Morristown, New Jersey. Our property facultative reinsurance
operations are conducted primarily through Arch Re U.S. with certain executive
functions conducted through Arch Re Facultative Underwriters Inc. located in
Farmington, Connecticut. The property facultative reinsurance operations have
offices throughout the U.S., Canada and in Europe. Arch Re Europe, licensed
and authorized as a non-life reinsurer and a life reinsurer, is headquartered
in Dublin, Ireland with branch offices in Zurich and London.
Our reinsurance group focuses on the following areas:
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 non-excess
motor, including U.K. business primarily emanating from two clients, and other
lines including surety, accident and health, workers’ compensation catastrophe,
agriculture, trade credit and political risk.
Property catastrophe: provides protection for most catastrophic losses that
are covered in the underlying policies written by reinsureds, including hurricane,
earthquake, flood, tornado, hail and fire, and coverage for other perils on
a case-by-case basis. Property catastrophe reinsurance provides coverage on
an excess of loss basis when aggregate losses and loss adjustment expense from
a single occurrence or an aggregation of losses from a covered peril exceed
the retention specified in the contract.
Property excluding property catastrophe: provides coverage for both personal
lines and commercial property exposures and principally covers buildings, structures,
equipment and contents. The primary perils in this business include fire, explosion,
collapse, riot, vandalism, wind, tornado, flood and earthquake. Business is
assumed on both a proportional and excess of loss 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.
Underwriting Philosophy. Our reinsurance group employs a disciplined, analytical
approach to underwriting reinsurance risks that is designed to specify an adequate
premium for a given exposure commensurate with the amount of capital it anticipates
placing at risk. A number of our reinsurance group’s underwriters are
also actuaries. It is our reinsurance group’s belief that employing actuaries
on the front-end of the underwriting process gives it an advantage in evaluating
risks and constructing a high quality book of business.