ARCH CAPITAL GROUP LTD. (ACGL)

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our financial condition and results of operations. This should be read in conjunction with our consolidated financial statements included in Item 1 of this report and also our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2025 (“2025 Form 10-K”). In addition, readers should review “Risk Factors” set forth in Item 1A of Part I of our 2025 Form 10-K and “ITEM 1A—Risk Factors” of this Form 10-Q. All amounts are in millions, except per share amounts, unless otherwise noted.

Arch Capital Group Ltd. (“Arch Capital” and, together with its subsidiaries, “Arch”, “the Company”, “we”, “our” or “us”) is a publicly listed Bermuda exempted company with approximately $28.3 billion in capital at June 30, 2026 and, through operations in Bermuda, the United States, Europe, Canada and Australia, writes insurance, reinsurance and mortgage insurance on a worldwide basis.

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CURRENT OUTLOOK

We delivered a strong 2026 second quarter, with attractive underwriting margins reflecting the disciplined execution of our underwriting and capital management strategies. For the quarter, we generated an annualized net income return on average common equity and an annualized operating return on average common equity of 18.0% and 15.3%, respectively. See “Comment on Non-GAAP Financial Measures.” Critical to our cycle management is emphasizing risk selection, as we continue to leverage our diversified specialty platform and the expertise of our underwriting teams. We invest and use data and analytics to sharpen insights, enhance risk selection and deliver a differentiated customer experience while fostering a culture that attracts the best-in-class talent. We believe our balance sheet is in excellent health, giving us optionality as we remain prudent stewards of the capital entrusted to us by our shareholders. Our strong balance sheet permits us to both invest in our business and return capital to investors. During the 2026 second quarter, we repurchased 12.4 million common shares for an aggregate $1.2 billion. Through the first half of the year, we have repurchased approximately 94% of our net income in our own shares.

Although competitive conditions have increased across portions of the insurance and reinsurance markets, we believe the market remains constructive. While there is softening in certain lines, others continue to benefit from favorable pricing and underwriting conditions. We believe in this environment, our diversified specialty platform, underwriting expertise and disciplined approach to cycle management, position us to continue to generate attractive risk-adjusted returns while delivering long-term solutions for our clients. We remain focused on allocating capital to the opportunities that best meet our return objectives while maintaining the flexibility to adapt as market conditions evolve and remaining a reliable business partner throughout the insurance cycle.

Our insurance segment reported $27 million of underwriting income for the 2026 second quarter. Growth opportunities remained across most casualty-focused lines of business, including E&S casualty, construction and national accounts in the U.S., as well as select lines of our London market business, including war and terrorism. As a market leader in specialty insurance, we look to support our clients with underwriting expertise, claims capabilities and risk solutions while maintaining disciplined underwriting standards. Our diversified platform provides us with the flexibility to grow in areas where pricing supports our return objectives. These opportunities were partially offset by our decision not to renew certain middle market commercial program business which we acquired from Allianz in 2024 (the “MCE

Acquisition”) along with a reduction in E&S property business due to competitive rate pressure.

Our reinsurance segment contributed $410 million of underwriting income in the 2026 second quarter, benefiting from relatively light catastrophe losses. Net premiums written were $1.8 billion, down roughly 10% when compared to the 2025 second quarter, reflecting pricing pressures and higher retentions by cedants in certain property and short‑tail lines along with targeted increased retrocessions. As increased capacity has contributed to competitive conditions across portions of the reinsurance market, our underwriting teams are actively managing the cycle by selectively writing new business where returns are attractive and adjusting participation where pricing does not meet our minimum return thresholds. At the same time, our scale, market position and access to traditional reinsurance and third party capital allow us to continue providing meaningful solutions to brokers and cedants while managing our net risk profile.

Our mortgage segment continued to deliver a steady level of earnings, generating $220 million of underwriting income in the 2026 second quarter. New originations remained modest due to affordability challenges tied to mortgage rates and home prices, which continued to constrain demand. We believe the underlying fundamentals of our mortgage portfolio remain strong, and our U.S. market share was stable. The persistency of our in-force U.S. primary mortgage insurance portfolio remained a healthy 79.9%, and our delinquency rate remained low. We continue to expect the mortgage segment to serve as a steady diversifying contributor to our overall earnings and generate attractive underwriting income given the high credit quality and embedded equity of our in-force portfolio.

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FINANCIAL MEASURES

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

Book Value per Share

Book value per share represents total common shareholders’ equity available to Arch divided by the number of common shares outstanding. Management uses growth in book value per share as a key measure of the value generated for our common shareholders each period and believes that book value per share is the key driver of Arch Capital’s share price over time. Book value per share is impacted by, among other factors, our underwriting results, investment returns and share repurchase activity, which has an accretive or dilutive impact on book value per share depending on the purchase price. Book value per share was $68.04 at June 30, 2026, compared to $66.19 at March 31, 2026, and $59.17 at June 30, 2025. The 2.8% increase in book value per share for the 2026 second quarter primarily reflected strong underwriting and investment returns, partially offset by $1.2 billion of shares purchased at an average price higher than the book value per share.

Operating Return on Average Common Equity

Operating return on average common equity (“Operating ROAE”) represents annualized after-tax operating income available to Arch common shareholders divided by the average of beginning and ending common shareholders’ equity available to Arch during the period. After-tax operating income available to Arch common shareholders, a non-GAAP financial measure as defined in Regulation G, represents net income available to Arch common shareholders, excluding net realized gains or losses (which include, but are not limited to, realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains or losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains or losses realized from the acquisition or disposition of subsidiaries), equity in net income or loss of investments accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other and income taxes. Management uses Operating ROAE as a key measure of the return generated to common shareholders. See “Comment on Non-GAAP Financial Measures.”

Our annualized net income return on average common equity was 18.0% for the 2026 second quarter, compared to 22.9% for the 2025 second quarter, and 17.9% for the six months ended June 30, 2026, compared to 17.0% for the 2025 period. Our Operating ROAE was 15.3% for the 2026 second quarter, compared to 18.2% for the 2025 second quarter and 15.4% for the six months ended June 30, 2026, compared to 14.8% for the 2025 period. Returns for the 2026 periods reflected strong underwriting and investment returns.

Total Return on Investments

Total return on investments, a non-GAAP financial measure as defined in Regulation G, includes investment income, equity in net income or loss of investments accounted for using the equity method, net realized gains or losses attributable to the investment portfolio and the change in unrealized gains or losses generated by Arch’s investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses and reflects the effect of financial market conditions along with foreign currency fluctuations. In addition, total return incorporates the timing of investment returns during the periods. The following table summarizes our total return compared to the benchmark return against which we measured our portfolio during the periods. See “Comment on Non-GAAP Financial Measures.”

Total return for the 2026 periods reflected interest income and gains on risk assets outweighing the impact of rising US Treasury yields. The portfolio slightly underperformed their benchmark returns, primarily due to a small underweight to alternatives. We continue to maintain a relatively short duration on our fixed income portfolio of 3.50 years at June 30, 2026, in line with our asset allocation targets.

The benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality with a fixed income component matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities. It is recalibrated annually. Although the estimated fixed income duration and average credit quality of this index will move as the duration and rating of its constituent securities change, generally we do not adjust the composition of the benchmark return index during the year except to incorporate changes to the mix of liability currencies and

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durations noted above. The benchmark return index should not be interpreted as expressing a preferen

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of the financial condition and results of operations for the year ended December 31, 2025 and 2024. Comparisons between 2024 and 2023 have been omitted from this Form 10-K, but may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K year ended December 31, 2024 filed with the SEC. This discussion and analysis contains forward-looking statements which involve inherent risks and uncertainties. All statements other than statements of historical fact are forward-looking statements. These statements are based on our current assessment of risks and uncertainties. Actual results may differ materially from those expressed or implied in these statements and, therefore, undue reliance should not be placed on them. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed in this report, including the sections entitled “Cautionary Note Regarding Forward-Looking Statements,” and “Risk Factors.”

This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto presented under Item 8. All amounts are in millions, except per share amounts, unless otherwise noted.

OVERVIEW

Arch Capital Group Ltd. (“Arch Capital” and, together with its subsidiaries, “we” or “us”) is a publicly listed Bermuda exempted company with approximately $26.9 billion in capital at December 31, 2025 and is part of the S&P 500 index. Through operations in Bermuda, the United States, United Kingdom, Europe, Canada and Australia, we write specialty lines of property and casualty insurance and reinsurance, as well as mortgage insurance and reinsurance, on a worldwide basis. It is our belief that our underwriting platform, experienced management team and strong capital base enable us to establish a strong presence in the markets where we operate.

The worldwide property casualty insurance and reinsurance industry is highly competitive and has traditionally been subject to an underwriting cycle. In that cycle, a “hard” market is evidenced by high premium rates, restrictive underwriting standards, narrow terms and conditions, and strong underwriting profits for insurers. A “hard” market typically attracts new capital and new entrants to the market and is eventually followed by a “soft” market, which has characteristics of low premium rates, relaxed underwriting standards, broader terms and conditions, and lower underwriting profits for insurers. Market conditions in the property and casualty arena may affect, among other things, the demand for our products, our ability to increase premium rates, the terms and conditions of the insurance policies we write, changes in the products offered by us or changes in our business strategy.

The financial results of the property casualty insurance and reinsurance industry are influenced by factors such as the frequency and/or severity of claims and losses, including natural disasters or other catastrophic events, variations in interest rates and financial markets, changes in the legal, regulatory and judicial environments, inflationary pressures and general economic conditions. These factors influence, among other things, the demand for insurance or reinsurance, the supply of which is generally related to the total capital of competitors in the market.

Mortgage insurance and reinsurance are subject to similar cycles to property casualty except that they have historically been more dependent on macroeconomic conditions.

CURRENT OUTLOOK

We reported very good results for 2025, with an annualized net income return on average common equity and operating return on average common equity of 20.1% and 17.1%, respectively. See “Comment on Non-GAAP Financial Measures.” Meaningful contributions from all three segments along with solid investment returns resulted in book value growth for 2025 of 22.6%. Our strong balance sheet and capital-generating capabilities permit us to both invest in our business and return capital to investors. During 2025, we repurchased $1.9 billion of Arch common shares.

As we head into 2026 with measured optimism and increased competition across our property and casualty businesses, our commitment to deliver long-term value for our shareholders remains unchanged. Critical to our cycle management is emphasizing risk selection, as we continue to leverage our diversified specialty platform and the expertise of our underwriting teams. We invest and use data and analytics to sharpen insights, enhance risk selection and deliver a differentiated customer experience while fostering a culture that attracts the best-in-class talent. We closed 2025 with a balance sheet in excellent health, giving us optionality as we remain prudent stewards of the capital entrusted to us by our shareholders.

Our insurance segment reported $375 million of underwriting income in 2025, with net premium written nearly $7.8 billion, an increase of 13.4% from 2024. Growth in net premiums written primarily resulted from the U.S MidCorp and Entertainment insurance businesses acquired from Allianz on August 1, 2024 (“MCE Acquisition”). The acquired business further expands our insurance platform, providing more opportunities to capitalize on attractive margins. Across the insurance platform, our underwriters continue to pursue growth in areas where risk-adjusted returns exceed or meet our long-term objectives. In North America, the casualty rate environment is largely keeping pace with loss cost trends, while pricing in our international business units is tracking slightly below loss trends. In North America, we continue to grow in specialty casualty lines, including alternative markets, construction and E&S casualty. Within each geography, consistent with our cycle management approach, we adjust our business mix in response to changing market conditions and pricing dynamics.

Our reinsurance segment contributed $1.6 billion of underwriting income in 2025. At the January 1, 2026 renewals, property catastrophe and more generally short-tail excess of loss renewals were highly competitive with rates down 10% to 20%. Despite these headwinds, our underwriting teams leveraged the strength of our platform and trading relationships to source new opportunities that mitigate the impact of the rate pressure in the market. We are growing selectively and focusing on areas where margins are attractive. We continue to like our prospects in most lines of business and, with improving conditions in casualty lines, our agility and ability to create opportunities is an advantage for us in this market. Our diversified reinsurance platform, supported by strong partnerships with brokers and cedants across multiple lines and geographies, further enhance our ability to navigate a competitive environment.

Our mortgage segment continued to deliver a steady level of earnings, generating $1.0 billion of underwriting income in 2025, resulting in the fourth consecutive year exceeding the $1 billion threshold. While lower mortgage rates are beginning to support increased origination activity, the current market is still constrained due to affordability challenges. Underlying fundamentals remained strong and our U.S. market share was stable as industry pricing discipline held. Our team remains focused on underwriting discipline, expense management and enhancing our data and analytical platforms to further optimize the business. The persistency of our in-force U.S. primary mortgage insurance portfolio remained a healthy 81.8% and our delinquency rate remained low. We continue to expect the mortgage segment to serve as a steady diversifying contributor to our overall earnings and generate attractive underwriting income given the high credit quality of our in-force portfolio.

FINANCIAL MEASURES

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

Book Value per Share

Book value per share represents total common shareholders’ equity available to Arch divided by the number of common shares and common share equivalents outstanding. Management uses growth in book value per share as a key measure of the value generated for our common shareholders each period and believes that book value per share is the key driver of Arch Capital’s share price over time. Book value per share is impacted by, among other factors, our underwriting results, investment returns and share repurchase activity, which has an accretive or dilutive impact on book value per share depending on the purchase price. Book value per share was $65.11 at December 31, 2025, a 22.6% increase from $53.11 at December 31, 2024. The growth in book value per share in 2025 primarily reflected strong underwriting and investment returns.

Operating Return on Average Common Equity

Operating return on average common equity (“Operating ROAE”) represents annualized after-tax operating income available to Arch common shareholders divided by average common shareholders’ equity available to Arch during the period. After-tax operating income available to Arch common shareholders, a “non-GAAP measure” as defined in the SEC rules, represents net income available to Arch common shareholders, excluding net realized gains or losses (which includes, but is not limited to, realized and unrealized changes in the fair value of equity securities and assets accounted for using the fair value option, realized and unrealized gains or losses on derivative instruments, changes in the allowance for credit losses on financial assets and gains or losses realized from the acquisition or disposition of subsidiaries), equity in net income or loss of investments accounted for using the equity method, net foreign exchange gains or losses, transaction costs and other, loss on redemption of preferred shares and income taxes. Management uses Operating ROAE as a key measure of the return generated to Arch common shareholders. See “Comment on Non-GAAP Financial Measures.”

Our annualized net income return on average common equity was 20.1% for 2025, compared to 22.8% for 2024. Our Operating ROAE was 17.1% for 2025, compared to 18.9% for 2024. Returns for the 2025 period reflected strong underwriting and investment returns.

Total Return on Investments

Total return on investments includes investment income, equity in net income or loss of investments accounted for using the equity method, net realized gains or losses and the change in unrealized gains or losses generated by Arch’s investment portfolio. Total return is calculated on a pre-tax basis before investment expenses and reflects the effect of financial market conditions along with foreign currency fluctuations. Management uses total return on inve

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