Business Context and Reporting Period
Company: Arch Capital Group Ltd.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2026
Business Overview: Arch Capital is a Bermuda-based global provider of insurance, reinsurance, and mortgage insurance. The company operates through three primary segments: Insurance, Reinsurance, and Mortgage. As of July 30, 2026, there were 341.2 million common shares outstanding.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | YTD 2026 (6 Months) | Q2 2025 (3 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Net Premiums Earned | $3,985 million | $7,971 million | $4,337 million | $8,525 million |
| Net Investment Income | $417 million | $825 million | $405 million | $783 million |
| Net Realized Gains (Losses) | ($17) million | ($104) million | $229 million | $232 million |
| Net Income Available to Arch Common Shareholders | $1,047 million | $2,084 million | $1,227 million | $1,791 million |
| Diluted EPS | $3.00 | $5.88 | $3.23 | $4.70 |
| Combined Ratio | 83.5% | 82.7% | 81.2% | 85.5% |
| Total Assets | $85,179 million | As of June 30, 2026 | ||
| Total Shareholders' Equity | $24,030 million | As of June 30, 2026 | ||
| Senior Notes Outstanding | $4,286 million | As of June 30, 2026 |
Material Changes vs. Prior Period
- Revenue Decline: Net premiums earned decreased 8.1% year-over-year for the quarter and 6.5% year-over-year for the six-month period, driven by non-renewals and competitive pricing pressures in the reinsurance segment.
- Investment Volatility: Net realized gains turned to losses in 2026. Q2 2026 recorded a $17 million loss compared to a $229 million gain in Q2 2025. This shift was influenced by market movements on equity securities and a litigation-related loss contingency.
- Underwriting Performance:
- Insurance: Underwriting income dropped 79.1% to $27 million due to higher catastrophic activity (Iran conflict, U.S. storms) and transitional expenses from the 2024 MCE Acquisition.
- Reinsurance: Underwriting income decreased 9.1% to $410 million, though the combined ratio improved to 77.5% due to favorable prior year reserve development ($97 million) and light catastrophe losses.
- Mortgage: Underwriting income declined 7.6% to $220 million, with a combined ratio of 22.8%.
- Capital Management: The company repurchased $1.2 billion of common shares in Q2 2026 and $1.9 billion for the six-month period. Additionally, Arch Capital issued $2.0 billion in new senior notes (5.25% due 2036 and 5.95% due 2056) and repurchased approximately $418 million of older senior notes via tender offers.
Guidance, Outlook, and Risks
- Outlook: Management describes the market as "constructive" despite competitive softening in certain lines. The company emphasizes disciplined underwriting and risk selection. The balance sheet is described as being in "excellent health."
- Non-GAAP Metrics: Annualized Operating Return on Average Common Equity (ROAE) was 15.3% for Q2 2026, compared to 18.2% in Q2 2025. Book value per share increased to $68.04.
- Catastrophe Exposure: Modeled peak zone catastrophe exposure (Florida windstorm) represents a net probable maximum pre-tax loss of $1.8 billion (8.0% of tangible equity). Modeled Realistic Disaster Scenario (RDS) loss for severe economic events is $955 million (4.2% of tangible equity).
- Risks: Key risks include the frequency and severity of natural/man-made catastrophes, inflationary pressures on loss reserves, credit risk in the mortgage portfolio, and potential failure of reinsurers to meet obligations.
Investor Verification Checklist
- Investment Realized Losses: Verify the specific impact of the litigation-related loss contingency and the composition of unrealized losses on equity securities that contributed to the $104 million YTD realized loss.
- Reinsurance Segment Volume: Confirm the extent of non-renewals and share reductions in the reinsurance segment, which drove a 10.4% decline in net premiums written for the quarter.
- Debt Structure: Review the terms of the new $2.0 billion senior notes issued in June 2026 and the impact of the tender offers on the overall debt maturity profile.
- Mortgage Portfolio Quality: Monitor the delinquency rate (2.07% as of June 30, 2026) and the PMIERs sufficiency ratio (165%) to ensure continued compliance with GSE requirements.
- Share Repurchase Impact: Assess the accretive or dilutive impact of recent share repurchases, noting that Q2 purchases were made at an average price higher than the book value per share.