8-KRegulation FD

ARCH CAPITAL GROUP LTD. 8-K Report, Regulation FD Disclosure (Nov 20, 2023)

Filed November 20, 2023For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) announced on November 20, 2023, that two of its subsidiaries, Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (collectively referred to as the "Bellemeade Cedants"), have terminated aggregate excess of loss mortgage reinsurance agreements with certain Bermuda-domiciled special purpose reinsurance companies. This action, effective November 17, 2023, with a redemption date of December 27, 2023, is a direct response to recent changes in Standard & Poor's ("S&P") Insurer Risk-Based Capital Adequacy Criteria, which became effective on November 15, 2023. Previously, these agreements provided significant S&P capital relief to the Bellemeade Cedants. However, the updated S&P criteria substantially reduce this capital benefit. The terminated agreements represent $1.7 billion of the $3.2 billion total coverage limit from all mortgage insurance-linked note vehicles as of September 30, 2023. While these specific agreements are being terminated, other existing reinsurance agreements with the Bellemeade Cedants will continue in force as per their existing terms.

Key Highlights

  • 1Termination of specific aggregate excess of loss mortgage reinsurance agreements by Arch subsidiaries.
  • 2Termination is driven by revised Standard & Poor's capital adequacy criteria effective November 15, 2023.
  • 3The changed S&P criteria significantly reduce the capital relief previously provided by these agreements.
  • 4The redemption date for the terminated agreements is December 27, 2023.
  • 5The terminated agreements represented $1.7 billion of coverage limit out of a total of $3.2 billion from all mortgage insurance-linked note vehicles as of September 30, 2023.
  • 6Other existing reinsurance agreements with the Bellemeade Cedants remain unaffected and will continue as agreed.

Frequently Asked Questions

Arch Capital's subsidiaries are terminating these agreements because recent changes to Standard & Poor's (S&P) Insurer Risk-Based Capital Adequacy Criteria have significantly reduced the capital relief these agreements provide. The new criteria, effective November 15, 2023, make the agreements less beneficial from a capital perspective.

The filing states that the terminated agreements provided 'significant S&P capital relief' previously, and now provide 'substantially decreased S&P capital relief.' While the specific financial impact beyond capital relief is not detailed, the termination indicates a strategic adjustment by the company to align its reinsurance arrangements with current regulatory capital expectations and the associated benefits.

As of September 30, 2023, the terminated agreements accounted for $1.7 billion of the $3.2 billion total coverage limit from all mortgage insurance-linked note vehicles. This represents approximately 53% of the total coverage limit from these specific vehicles.

No, only the specific aggregate excess of loss mortgage reinsurance agreements with certain Bermuda-domiciled special purpose reinsurance companies are being terminated. Other existing reinsurance agreements with the Bellemeade Cedants will remain in place and continue to be subject to their original terms.