Table Of ContentARCH REINSURANCE EUROPE UNDERWRITING DAC 
2016 SOLVENCY AND FINANCIAL CONDITION REPORT 
 
 
 
 
 
 
 
 
 
 
19 May 2017
SOLVENCY AND FINANCIAL CONDITION REPORT 
Table of Contents 
 
Summary…………………… ......................................................................................................... 1 
SECTION A – Business and Performance ..................................................................................... 2 
A.1  Business ............................................................................................................................2 
A.2  Underwriting Performance................................................................................................3 
A.3  Investment Performance ...................................................................................................6 
A.4  Performance of other activities .........................................................................................7 
A.5  Any other information.......................................................................................................7 
SECTION B – System of Governance............................................................................................ 8 
B.1  General information on the system of governance ...........................................................8 
B.2  Fit and proper requirements ............................................................................................14 
B.3  Risk management system including the own risk and solvency assessment ..................15 
B.4  Internal control system ....................................................................................................20 
B.5  Internal audit function .....................................................................................................21 
B.6  Actuarial function ...........................................................................................................23 
B.7  Outsourcing .....................................................................................................................24 
B.8  Any other information.....................................................................................................24 
SECTION C – Risk Profile ........................................................................................................... 25 
C.1  Underwriting risk ............................................................................................................25 
C.2  Market risk ......................................................................................................................27 
C.3  Credit risk........................................................................................................................29 
C.4  Liquidity risk ...................................................................................................................30 
C.5  Operational risk ...............................................................................................................31 
C.6  Other material risks .........................................................................................................32 
C.7  Any other information.....................................................................................................32 
SECTION D – Valuation for Solvency Purposes ......................................................................... 33 
D.1  Assets ..............................................................................................................................33 
D.2  Technical provisions .......................................................................................................35 
D.3  Other liabilities................................................................................................................41 
D.4  Alternative methods for valuation ..................................................................................41 
D.5  Any other information.....................................................................................................42
SECTION E – Capital Management ............................................................................................. 43 
E.1  Own Funds ......................................................................................................................43 
E.2  Solvency Capital Requirement and Minimum Capital Requirement .............................45 
E.3  Use of the duration-based equity risk sub-module in the calculation of the SCR ..........47 
E.4  Differences between the standard formula and any internal model used .......................47 
E.5  Non-compliance with the MCR and non-compliance with the SCR ..............................47 
E.6  Any other information.....................................................................................................47 
Appendix 1 – ACGL Organizational Structure…………. ........................................................... 48 
Appendix 2 – Quantitative Reporting Templates ......................................................................... 49
SUMMARY…………………… 
 
Arch Reinsurance Europe Underwriting DAC (“ARE” or the “Company”) is an Irish regulated composite 
reinsurance entity authorized by the Central Bank of Ireland (‘CBI”).  The Company’s ultimate parent is 
Arch Capital Group Ltd (“ACGL” or together with its subsidiaries, the “Group” or the “Arch Group”), 
whose common shares are listed and traded on the NASDAQ stock market LLC in the U.S.  The Company 
is a property and casualty reinsurance underwriting company writing a diversified portfolio, both in 
terms of product mix and geography, in non-commoditised niche areas primarily.   
 
During 2016 the Company wrote gross premium of €280m and reported a pre-tax profit of €27m.  The 
premium written represents growth of 7% compared to the prior year written premium of €262m.  Prior 
year pre-tax profits were €20m.  This modest growth in premium written was achieved in what 
continued to be challenging market conditions with price erosion experience in most of the segments 
operated in by the Company.  The Company has seen increased competition in most of its major lines of 
business as additional capital entered the market again 2016 putting renewed pressure on pricing and 
contract terms and conditions.  Despite this some opportunities were identified during the year which 
provided the growth seen.  Outside of these opportunities the strategy of the Company was to defend 
and retain, to the extent possible, the existing portfolio of business, to leverage our underwriters’ 
technical abilities and to remain focused on discipline in terms of underwriting decisions.   
 
The Company purchases reinsurance on the business it writes to protect it against adverse performance 
and to efficiently manage capital.  The Company’s external reinsurance purchases are in the form of 
both excess of loss and quota share agreements.  In addition, the Company cedes 85% of its net retained 
premium under a quota share agreement with a related group entity, Arch Reinsurance Ltd, a Bermuda 
domiciled company with $10.5 billion (2015: $7.1 billion) of capital, comprised of shareholders’ equity 
and debt as at 31 December 2016.   
 
There were no material changes in the Company’s systems of governance or risk profile during the year.  
However there was a material reduction in claims outstanding, compared to 2015, following the 
successful commutation of a large loss portfolio transaction during the year.  There was a corresponding 
impact on reinsurers shares outstanding claims following this commutation. 
The Company’s SCR coverage ratio as at 31 December 2016 was 214% with own funds of €426m and a 
Solvency Capital Requirement (SCR) of €199m.  There were no material changes in SCR during the year. 
The Company has a strong capital base enabling it to meet its solvency requirements and to facility the 
level of activity anticipated throughout the planning period and within the Company’s Own Risk and 
Solvency Assessment (“ORSA”). 
   
ARE Solvency and Financial Condition Report – 2016                1
SECTION A –  BUSINESS AND PERFORMANCE 
A.1  Business 
A.1.1  Name and Legal Form of the Undertaking 
ARE is incorporated in Ireland as a designated activity company (“dac”). A dac is a corporate form for a 
private company limited by shares, which activities are limited by its objects clause, and its constitution 
comprises a memorandum and articles of association. The address of the registered office of the 
Company is: 
Level 2, Block 3, The Oval 
160 Shelbourne Road, Ballsbridge 
Dublin 4, Ireland   
 
This Solvency and Financial Condition Report (“SFCR”) covers ARE on a solo basis. 
A.1.2  Insurance Supervisor and Group Supervisor  
Insurance Supervisor 
Central Bank of Ireland (“CBI”) 
PO Box 559 
Dublin 1, Ireland 
Group Supervisor 
Bermuda Monetary Authority (“BMA”) 
BMA House 
43 Victoria Street 
Hamilton HM 12 Bermuda 
 
A.1.3  External Auditor 
PricewaterhouseCoopers 
One Spencer Dock 
North Wall Quay 
Dublin 1, Ireland 
 
A.1.4  Description of the ownership details including proportion of ownership interest 
Arch Financial Holdings Europe II Limited, a private company limited by shares and incorporated in 
Ireland, owns 100% of the equity share capital of the Company. 
A.1.5  Group Structure 
The Company’s ultimate parent and ultimate controlling party is ACGL, a Bermuda public limited liability 
company.  ACGL prepares group financial statements and is the largest group for which group financial 
statements are drawn up and of which the Company is a member.  Copies of the ACGL group financial 
statements are available on ACGL’s website located at www.archcapgroup.com or on the website of the 
U.S. Securities and Exchange Commission located at www.sec.gov.  
An organization chart illustrating ARE’s position in the Group is included as Appendix 1. 
ARE Solvency and Financial Condition Report – 2016                2
A.1.6  Material Lines of Business and Geographical areas where business is conducted  
The following tables set forth summary information regarding net premiums written, by major business 
line and geographical region for the year to December 31 2016;  
 
 Gross Written Premium 
Major line of business  (000 EUR) 
Casualty                        73,681  
Other Property                        18,494  
Other Specialty                      185,132  
Property Cat                              1,331  
Marine and Other                            1,121  
Grand Total                      279,759  
 
Gross Written Premium 
Geographic Region  (000 EUR) 
Asia and Pacific                        40,088  
Europe                      197,930  
North America                            3,995  
Other                        37,746  
Grand Total                      279,759  
 
A.1.7  Significant Business or Other Events    
No significant business or other events occurred during 2016 that had a material impact on the 
Company.   
 
A.2  Underwriting Performance 
Since the Company prepares its financial statements in accordance with Generally Accepted Accounting 
Practice (“GAAP”) in Ireland (accounting standards issued by the Financial Reporting Council of the UK, 
including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and 
Republic of Ireland and promulgated by the Institute of Chartered Accountants in Ireland and Irish law), 
the underwriting performance information given in this section is on an GAAP (Ireland) basis. The 
following table summarizes the performance, by major line of business in Euro ‘000, for the technical 
account for year ended 31 December 2016.  
ARE Solvency and Financial Condition Report – 2016                3
Casualty Other Property Other Specialty Property Cat Marine &  Total YTD
Other
€'000 €'000 €'000 €'000 €'000 €'000
Gross premiums written                      73,681                      18,494                    185,132                         1,331                         1,121                    279,759 
Net premiums written                        9,220                         2,675                      23,203                              70                            157                      35,324 
Net premiums earned                         9,225                         2,531                      22,266                            111                            107                      34,241 
Other underwriting-related fee income                               -                                  -                        (2,223)                               -                         (2,223)
Net Losses and LAE                        7,957                            954                      13,669                          (267)                              27                      22,340 
Net Acquisition expenses – GAAP                    (13,406)                      (2,772)                      (3,227)                         (339)                            (14)                    (19,759)
Other operating expenses - GAAP                        6,688                         4,145                      16,789                            111                            104                      27,836 
GAAP underwriting profit (loss)                        7,987                            204                      (7,188)                           606                              (9)                        1,601 
GAAP net ratios:
Losses and LAE 70.94% 37.7% 61.39% -241.43% 25.35% 61.12%
Acquisition expenses -145.33% -109.51% -14.49% -305.82% -13.38% -57.71%
Other operating expenses (Incl DKK fee) 72.49% 163.74% 85.39% 99.9% 96.51% 87.79%
Combined ratio -1.89% 91.92% 132.28% -447.35% 108.47% 91.2% 
The above table does not include items such as income investment income and realized and unrealized 
gains and losses including those relating to foreign exchange.  
Qualitative discussion – major lines of business: 
2016 to 2015 comparison: 
Gross written premium for 2016 was €279.8m, prior to cessions to the Company’s retrocessionaires.  
This compares to €262.1m in 2015.  Overall the business volumes were flat with some growth seen with 
the Other Specialty lines and Other Property although this was offset by lower activity in other lines 
including Casualty and Property Cat.  The loss ratio for 2016 was 61.1% compared to 51.7% for same 
period in 2015.  This differential is reflective of certain items including favorable loss development 
occurring in 2015 which were not repeated in 2016.  The net underwriting profit for 2016 was €1.6m, 
excluding investment income and realized gains and losses and other non-underwriting items.  The 
equivalent result for 2015 was a profit of €8.5m. 
Casualty 
In the Casualty area the Company’s focus is on providing coverage to ceding company clients on third 
party liability products like motor, employers’, general and/or professional liability, primarily on a treaty 
basis.  Our main markets are in Continental Europe, United Kingdom and Ireland.  We are active in 
exploring other European territories as well.   
The Casualty reinsurance market remains competitive with the exception of some niche areas on which 
we concentrated our efforts.     
The performance across the Company’s Casualty book is well within expectations overall. 
Other Property  
The Company provides coverage for both personal lines and commercial property exposures and 
principally covers buildings, structures, equipment and contents.  On the treaty side we have seen little 
growth with most of our business being from multiline bouquet covers we participate on in Europe and 
Israel.  Rate pressure in this line continued in 2016 and in 2017. 
The Company’s Property Facultative business is written by two teams based in London and Zurich.  Both 
teams have found the market challenging in 2016 largely due larger ceding companies retaining more 
ARE Solvency and Financial Condition Report – 2016                4
risks on their own balance sheet.  Notwithstanding this the team has managed to generate new 
opportunities to supplement this lost income by more intense marketing efforts.   
Whilst the European market has seen some increase in risk losses there was little claims activity in our 
portfolio. 
Other Specialty 
Within the Other Specialty unit the Company provides coverage to ceding company clients for surety, 
accident and health, workers’ compensation catastrophe, agriculture, trade credit and political risk and 
proportional motor liability.  Geographically we run most of those lines on highly diversified a world-
wide basis excluding the United States. 
In trade credit & surety the reinsurance market has continued to be competitive due to ample capacity 
as other reinsurers have sought diversification into specialty lines.  The Company has maintained to stay 
relevant with its clients base and develops new opportunities that may emerge in these tough 
conditions.  The performance of this line meets our expectations. 
The agriculture team was able to increase its participations in a few markets which experienced tight 
capacity on favourable terms and conditions.  As for performance our agriculture book meets our 
expectations. 
The accident and health part of Other Specialty experiences flat premium writings in 2016 as price 
competition and disciplined underwriting result in few new opportunities.  In the Cat and per risk excess 
of loss part of the book competition is strong.  The supplemental health activity during 2016 continued 
to focus mainly on a small number of core relationships on the Continent.  Premium in 2016 reduced 
slightly in this product following a drop in demand.  The book performed as expected. 
Marine and other 
The Company has Marine activity in some legacy accounts and some ancillary premium relating to 
terrorism.  
   
ARE Solvency and Financial Condition Report – 2016                5
A.3  Investment Performance 
ARE invests in a diversified portfolio of highly rated securities.  Fixed income securities comprise the 
majority of the Company’s investment assets.  In addition to fixed income the company also holds some 
short term cash or cash equivalent securities and an investment in a limited partnership which is value 
using the equity method.  The following table summarizes our invested assets by asset class (sub-class in 
the case of fixed income securities). 
Position Description  Moody’s Rating  S&P Rating  Market Value 
(€’000) 
Fixed & Short Term Investments 
Asset Backed Securities  Aaa  AAA  6,873 
Commercial Mortgage Backed 
Securities  Aaa                           NA  3,602 
Corporates  Aa1  AA+  62,683 
Non US Government  Aa1  AAA  143,027 
Short Term  Aa1                              AAA  25,587 
US Govt & Agency  Aaa  AA+  74,501 
Equity method investments 
Limited partnership investment        13,891 
TOTAL_ASSETS  Aa1  AA+  330,164 
       
       
The components of net investment income included in the statement of income and expenses are as per 
the table below. 
Asset classes  2016 (€’000)  2015 (€’000) 
Fixed income securities:     
Investment income            2,628         2,822 
Realised gains and losses            4,202       15,524 
Unrealised gains/losses including foreign currency  gains/losses              438       (4,083) 
Cash & cash equivalents:     
  Investment income                  7        - 
  Unrealised gains/losses including foreign currency gains/losses                 (1)        - 
Investments valued under equity method:     
Income /losses             5,346        3,398 
Investment expenses              (593)                       (628) 
Total investment income            12,027      17,033 
 
   
ARE Solvency and Financial Condition Report – 2016                6
A.4  Performance of other activities 
The following table summarizes the profit and loss account in Euro for the non-technical account for 
year ended 31 December 2016 and year ended 31 December 2015.  
Year Ended  Year Ended 
31/12/2016  31/12/2015 
 
€’000  €’000 
Balance on the technical account  29,087  21,575  
     
Net investment return included in the non-technical account  (455)  (628) 
     
Profit on ordinary activities before taxation  28,632    20,947  
Tax on profit on ordinary activities  (1,511)  (1,079)  
Profit on ordinary activities after taxation  27,121  19,868 
 
There were no material other income or expenses during the year. 
A.5  Any other information 
No other material information to report as of 31 December 2016.  
   
ARE Solvency and Financial Condition Report – 2016                7
Description:2014 and all other rules, regulation, guidelines and laws applicable;. ▫ The effective, prudent and ethical  Alwyn Insurance. Company Limited.