8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 8-K

Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

April 28, 2009

Date of Report (Date of earliest event reported)

Arch Capital Group Ltd.

(Exact name of registrant as specified in its charter)

Bermuda	0-26456	N/A
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

Wessex House, 45 Reid Street, Hamilton HM 12, Bermuda

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:
(441) 278-9250

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02     Results of Operations and Financial Condition.

On April 28, 2009, Arch Capital Group Ltd. issued a press release reporting its earnings and the availability of its first quarter financial supplement for the three month period ended March 31, 2009.  The press release and financial supplement are attached to this Current Report on Form 8-K as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated herein by reference.

The information in this Current Report on Form 8-K, including the information set forth in Exhibit 99.1 and Exhibit 99.2, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing

ITEM 9.01     Exhibits.

EXHIBIT NO.	DESCRIPTION
99.1	Press Release dated April 28, 2009 announcing the earnings of Arch Capital Group Ltd. for the three month period ended March 31, 2009
99.2	First Quarter 2009 Financial Supplement

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	ARCH CAPITAL GROUP LTD.
Date: April 28, 2009	By:	/s/ W. Preston Hutchings
	Name:	W. Preston Hutchings
	Title:	Senior Vice President

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EXHIBIT INDEX

EXHIBIT NO.	DESCRIPTION
99.1	Press Release dated April 28, 2009 announcing the earnings of Arch Capital Group Ltd. for the three month period ended March 31, 2009
99.2	First Quarter 2009 Financial Supplement

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EX-99.1

Exhibit 99.1

Arch Capital Group Ltd.

Earnings Release Supplement

As of March 31, 2009

INDEX TO SUPPLEMENT

	PAGE
Earnings Release	1
Supplemental Financial Information	8
Consolidated Statements of Income	13
Consolidated Balance Sheets	14

	Wessex House, 4th Floor
	45 Reid Street
	Hamilton HM 12 Bermuda
	441-278-9250
	441-278-9255 fax
PRESS RELEASE
NASDAQ Symbol ACGL	CONTACT:
For Immediate Release	John C.R. Hele
	Executive Vice President and
	Chief Financial Officer

ARCH CAPITAL GROUP LTD. REPORTS 2009 FIRST QUARTER RESULTS

HAMILTON, BERMUDA, April 28, 2009 — Arch Capital Group Ltd. (NASDAQ: ACGL) reports that net income available to common shareholders for the 2009 first quarter was $139.9 million, or $2.24 per share, compared to $189.4 million, or $2.78 per share, for the 2008 first quarter. The Company also reported after-tax operating income available to common shareholders of $169.0 million, or $2.70 per share, for the 2009 first quarter, compared to $202.0 million, or $2.97 per share, for the 2008 first quarter. All earnings per share amounts discussed in this release are on a diluted basis.

The Company’s book value per common share increased by 6.3% to $54.61 at March 31, 2009, from $51.36 per share at December 31, 2008. The Company’s after-tax operating income available to common shareholders represented a 21.1% annualized return on average common equity for the 2009 first quarter, compared to 21.9% for the 2008 first quarter. After-tax operating income available to common shareholders, a non-GAAP measure, is defined as net income available to common shareholders, excluding net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses, net of income taxes. See page 7 for a further discussion of after-tax operating income available to common shareholders and Regulation G.

The following table summarizes the Company’s underwriting results:

	Three Months Ended
	March 31,
(U.S. dollars in thousands)	2009			2008
Gross premiums written	$	1,024,971		$	1,053,152
Net premiums written	822,863			811,342
Net premiums earned	700,564			708,234
Underwriting income	93,389			98,371
Combined ratio	86.7		%	86.2		%

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The following table summarizes, on an after-tax basis, the Company’s consolidated financial data, including a reconciliation of after-tax operating income available to common shareholders to net income available to common shareholders and related diluted per share results:

	Three Months Ended
	March 31,
(U.S. dollars in thousands, except per share data)	2009			2008
After-tax operating income available to common shareholders	$	169,001		$	201,983
Net realized gains (losses), net of tax	(9,111		)	45,782
Net impairment losses recognized in earnings, net of tax	(36,134		)	(12,646		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	(9,581		)	(22,313		)
Net foreign exchange gains (losses), net of tax	25,694			(23,384		)
Net income available to common shareholders	$	139,869		$	189,422
Diluted per common share results:
After-tax operating income available to common shareholders	$	2.70		$	2.97
Net realized gains (losses), net of tax	(0.14		)	0.67
Net impairment losses recognized in earnings, net of tax	(0.58		)	(0.19		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	(0.15		)	(0.33		)
Net foreign exchange gains (losses), net of tax	0.41			(0.34		)
Net income available to common shareholders	$	2.24		$	2.78
Weighted average common shares and common share equivalents outstanding — diluted	62,559,969			68,019,413

The combined ratio represents a measure of underwriting profitability, excluding investment income, and is the sum of the loss ratio and expense ratio. A combined ratio under 100% represents an underwriting profit and a combined ratio over 100% represents an underwriting loss. For the 2009 first quarter, the combined ratio of the Company’s insurance and reinsurance subsidiaries consisted of a loss ratio of 57.2% and an underwriting expense ratio of 29.5%, compared to a loss ratio of 57.1% and an underwriting expense ratio of 29.1% for the 2008 first quarter. The loss ratio of 57.2% for the 2009 first quarter was comprised of 45.5 points of paid losses (including 5.0 points related to 2005 and 2008 named catastrophic events), 4.4 points related to reserves for reported losses and 7.3 points related to incurred but not reported reserves.

In establishing the reserves for losses and loss adjustment expenses, the Company has made various assumptions relating to the pricing of its reinsurance contracts and insurance policies and also has considered available historical industry experience and current industry conditions. The Company’s reserving method to date has been, to a large extent, the expected loss method, which is commonly applied when limited loss experience exists. Any estimates and assumptions made as part of the reserving process could prove to be inaccurate due to several factors, including the fact that relatively limited historical information has been reported to the Company through March 31, 2009. For a discussion of underwriting activities and a review of the Company’s results by operating segment, see “Segment Information” in the Supplemental Financial Information section of this release.

The Company’s investment portfolio continues to be comprised primarily of high quality fixed income securities, with no direct holdings of collateralized debt obligations (CDOs), collateralized loan obligations (CLOs) or credit default swaps (CDSs). The Company’s portfolio does not include ownership of common stock or preferred stock of any publicly-traded issuers and essentially includes no investments in hedge funds or private equity funds. The average credit quality rating of the portfolio remained at “AA+” at March 31, 2009 and the average effective duration was 3.02 years at March 31, 2009, compared to 3.62 years at December 31, 2008. Including the effects of foreign exchange, total return on the Company’s investment portfolio was

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approximately 1.09% for the 2009 first quarter, compared to 0.95% for the 2008 first quarter. Excluding foreign exchange, total return was 1.23% for the 2009 first quarter, compared to 0.71% for the 2008 first quarter.

Net investment income for the 2009 first quarter was $95.9 million, or $1.53 per share, compared to $111.7 million, or $1.79 per share, in the 2008 fourth quarter and $122.2 million, or $1.80 per share, in the 2008 first quarter. Contributing to the decrease in investment income compared to the 2008 fourth quarter were a decline in the portfolio’s book yield from 4.55% at year-end to 4.17%, due in part to lower available yields and a reduction in the portfolio’s effective duration. In addition, $3.0 million of the decrease from the 2008 fourth quarter related to reductions to the cost basis of treasury inflation protected securities (TIPS) in the 2009 first quarter which resulted from a decline in the consumer price index (CPI) during the period. Although TIPS investments negatively impacted net investment income, they generated a positive total return for the quarter. The Company has now reduced its exposure to TIPS as of March 31, 2009. Income from the Company’s securities lending program also declined by $2.4 million from the 2008 fourth quarter due to the increased supply of U.S. Treasuries and lower federal funds rates in effect during the 2009 first quarter. The comparability of net investment income during the 2009 and 2008 first quarters was also influenced by the Company’s share repurchase program described below. In addition, as previously disclosed, the 2008 amount included $3.4 million of interest income related to a favorable arbitration decision. The pre-tax investment income yield was 3.82% for the 2009 first quarter, compared to 4.50% for the 2008 fourth quarter and 4.88% (excluding the arbitration interest) for the 2008 first quarter.

During the 2009 first quarter, the Company adopted FASB Staff Position No. FAS 115-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP 115-2”). The new accounting guidance revises the recognition and reporting requirements for other-than-temporary impairments (OTTI) on the Company’s debt securities. The Company reviewed OTTI provisions it had recorded through realized losses on securities held at December 31, 2008 ($171.1 million) and estimated the portion related to credit events (i.e., where the present value of cash flows expected to be collected are lower than the amortized cost basis of the security) and the portion related to all other factors (e.g., interest rates, market conditions, etc.). The Company determined that $109.1 million of the OTTI previously recorded related to specific credit events and $62.0 million related to all other factors. Under FSP 115-2, the Company increased the amortized cost basis of these debt securities by $62.0 million and recorded a cumulative effect adjustment, net of tax, in its shareholders’ equity section. The cumulative effect adjustment had no effect on total shareholders’ equity as it increased retained earnings and reduced accumulated other comprehensive income.

Under the new accounting guidance, the amount of the credit loss portion of OTTI is recorded through earnings while the portion attributable to all other factors is recorded as a component of other comprehensive income in the equity section. In the 2009 first quarter, the Company recorded $36.1 million of net impairment losses through earnings, while the portion of loss recognized as a component of other comprehensive income on these securities was approximately $56.9 million. The net impairment losses primarily resulted from changes to expected recovery values during the period on structured securities (mortgage and asset backed) along with the winding down and liquidation of a Euro-denominated bank loan fund for which limited recovery value is expected.

The Company recorded $9.6 million of net losses related to investment funds accounted for using the equity method for the 2009 first quarter, compared to net losses of $22.3 million for the 2008 first quarter. Due to the ownership structure of these investment funds, which invest in fixed maturity securities, the Company uses the equity method. In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). This method of accounting is different from the way the Company accounts for its other fixed maturity securities. Investment funds accounted for using the equity method totaled $293.5 million at March 31, 2009, compared to $301.0 million at December 31, 2008. The Company’s portfolio includes $331.3 million of investments in U.S. and Euro-denominated bank loan funds, which are primarily reflected in the investment funds accounted for using

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the equity method shown above. Please refer to the Company’s Financial Supplement dated March 31, 2009, which is posted on the Company’s website at http://www.archcapgroup.bm/EarningsReleases.aspx for further information on the Company’s investment portfolio.

The Company’s effective tax rates on income before income taxes and pre-tax operating income for the 2009 first quarter were 6.1% and 3.3%, respectively, compared to 3.9% and 2.5% for the 2008 first quarter. The Company’s effective tax rates may fluctuate from period to period based on the relative mix of income reported by jurisdiction primarily due to the varying tax rates in each jurisdiction. The Company’s quarterly tax provision is adjusted to reflect changes in its expected annual effective tax rates, if any. The Company currently expects that its annual effective tax rate on pre-tax operating income available to common shareholders for the year ended December 31, 2009 will be in the range of 2.5% to 4.5%. In addition, the Company’s Bermuda-based reinsurer incurs federal excise taxes for premiums assumed on U.S. risks. The Company incurred $3.3 million of federal excise taxes in the 2009 and 2008 first quarters. Such amounts are reflected as acquisition expenses in the Company’s consolidated statements of income.

Net foreign exchange gains for the 2009 first quarter of $25.2 million consisted of net unrealized gains of $25.9 million and net realized losses of $0.7 million, compared to net foreign exchange losses for the 2008 first quarter of $23.6 million which consisted of net unrealized losses of $22.3 million and net realized losses of $1.3 million. Net unrealized foreign exchange gains or losses result from the effects of revaluing the Company’s net insurance liabilities required to be settled in foreign currencies at each balance sheet date. The Company holds investments in foreign currencies which are intended to mitigate its exposure to foreign currency fluctuations in its net insurance liabilities. However, changes in the value of such investments due to foreign currency rate movements are reflected as a direct increase or decrease to shareholders’ equity and are not included in the statements of income.

Diluted weighted average common shares and common share equivalents outstanding, used in the calculation of after-tax operating income and net income per common share, were 62.6 million for the 2009 first quarter, compared to 68.0 million for the 2008 first quarter. The lower level of weighted average shares outstanding in the 2009 first quarter was primarily due to the impact of share repurchases as discussed below.

The board of directors of ACGL has authorized the investment of up to $1.5 billion in ACGL’s common shares through a share repurchase program. Repurchases under the program may be effected from time to time in open market or privately negotiated transactions through February 2010. In March 2009, ACGL purchased $1.6 million of common shares through the share repurchase program. Since the inception of the share repurchase program through March 31, 2009, ACGL has repurchased approximately 15.3 million common shares for an aggregate purchase price of $1.05 billion. At March 31, 2009, approximately $448.3 million of repurchases were available under the share repurchase program. As a result of the share repurchase transactions to date, book value per common share was reduced by $2.86 per share at March 31, 2009, compared to $3.52 at December 31, 2008, while weighted average shares outstanding were reduced by 15.3 million for the 2009 first quarter, compared to 9.4 million shares for the 2008 first quarter.

At March 31, 2009, the Company’s capital of $4.03 billion consisted of $300.0 million of senior notes, representing 7.4% of the total, $100.0 million of revolving credit agreement borrowings due in August 2011, representing 2.5% of the total, $325.0 million of preferred shares, representing 8.1% of the total, and common shareholders’ equity of $3.31 billion, representing the balance. At December 31, 2008, the Company’s capital of $3.83 billion consisted of $300.0 million of senior notes, representing 7.8% of the total, $100.0 million of revolving credit agreement borrowings due in August 2011, representing 2.6% of the total, $325.0 million of preferred shares, representing 8.5% of the total, and common shareholders’ equity of $3.11 billion, representing the balance. The increase in total capital during the 2009 first quarter was primarily attributable to net income during the period.

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The Company will hold a conference call for investors and analysts at 11:00 a.m. Eastern Time on Wednesday, April 29, 2009. A live webcast of this call will be available via the Investor Relations — Events and Presentations section of the Company’s website at http://www.archcapgroup.bm. A telephone replay of the conference call also will be available beginning on April 29 at 1:00 p.m. Eastern Time until May 6, 2009 at midnight Eastern Time. To access the replay, domestic callers should dial 888-286-8010 (passcode 14362334), and international callers should dial 617-801-6888 (passcode 14362334).

Please refer to the Company’s Financial Supplement dated March 31, 2009, which is posted on the Company’s website at http://www.archcapgroup.bm/EarningsReleases.aspx. The Financial Supplement provides additional detail regarding the financial performance of the Company.

Arch Capital Group Ltd., a Bermuda-based company with over $4.0 billion in capital at March 31, 2009, provides insurance and reinsurance on a worldwide basis through its wholly owned subsidiaries.

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (“PLSRA”) provides a “safe harbor” for forward-looking statements. This release or any other written or oral statements made by or on behalf of the Company may include forward-looking statements, which reflect the Company’s current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this release are forward-looking statements. Forward-looking statements, for purposes of the PLSRA or otherwise, can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” and similar statements of a future or forward-looking nature or their negative or variations or similar terminology.

Forward-looking statements involve the Company’s current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed below and elsewhere in this release and in the Company’s periodic reports filed with the Securities and Exchange Commission (the “SEC”), and include:

·the Company’s ability to successfully implement its business strategy during “soft” as well as “hard” markets;

·acceptance of the Company’s business strategy, security and financial condition by rating agencies and regulators, as well as by brokers and its insureds and reinsureds;

·the Company’s ability to maintain or improve its ratings, which may be affected by its ability to raise additional equity or debt financings, by ratings agencies’ existing or new policies and practices, as well as other factors described herein;

·general economic and market conditions (including inflation, interest rates, foreign currency exchange rates and prevailing credit terms) and conditions specific to the reinsurance and insurance markets in which the Company operates;

·competition, including increased competition, on the basis of pricing, capacity, coverage terms or other factors;

·the Company’s ability to successfully integrate, establish and maintain operating procedures (including the implementation of improved computerized systems and programs to replace and support manual systems) to effectively support its underwriting initiatives and to develop accurate actuarial data;

·the loss of key personnel;

·the integration of businesses the Company has acquired or may acquire into its existing operations;

·accuracy of those estimates and judgments utilized in the preparation of the Company’s financial statements, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment

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valuations, intangible assets, bad debts, income taxes, contingencies and litigation, and any determination to use the deposit method of accounting, which for a relatively new insurance and reinsurance company, like the Company, are even more difficult to make than those made in a mature company since relatively limited historical information has been reported to the Company through March 31, 2009;

·greater than expected loss ratios on business written by the Company and adverse development on claim and/or claim expense liabilities related to business written by its insurance and reinsurance subsidiaries;

·severity and/or frequency of losses;

·claims for natural or man-made catastrophic events in the Company’s insurance or reinsurance business could cause large losses and substantial volatility in its results of operations;

·acts of terrorism, political unrest and other hostilities or other unforecasted and unpredictable events;

·losses relating to aviation business and business produced by a certain managing underwriting agency for which the Company may be liable to the purchaser of its prior reinsurance business or to others in connection with the May 5, 2000 asset sale described in the Company’s periodic reports filed with the SEC;

·availability to the Company of reinsurance to manage its gross and net exposures and the cost of such reinsurance;

·the failure of reinsurers, managing general agents, third party administrators or others to meet their obligations to the Company;

·the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by the Company;

·the Company’s investment performance;

·material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;

·changes in accounting principles or policies or in the Company’s application of such accounting principles or policies;

·changes in the political environment of certain countries in which the Company operates or underwrites business;

·statutory or regulatory developments, including as to tax policy matters and insurance and other regulatory matters such as the adoption of proposed legislation that would affect Bermuda-headquartered companies and/or Bermuda-based insurers or reinsurers and/or changes in regulations or tax laws applicable to the Company, its subsidiaries, brokers or customers; and

·the other matters set forth under Item 1A “Risk Factors”, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of the Company’s Annual Report on
Form 10-K, as well as the other factors set forth in the Company’s other documents on file with the SEC, and management’s response to any of the aforementioned factors.

In addition, other general factors could affect the Company’s results, including developments in the world’s financial and capital markets and its access to such markets.

All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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Comment on Regulation G

Throughout this release, the Company presents its operations in the way it believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use the Company’s financial information in evaluating the performance of the Company. This presentation includes the use of after-tax operating income available to common shareholders, which is defined as net income available to common shareholders, excluding net realized gains or losses, net impairment losses included in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses, net of income taxes. The presentation of after-tax operating income available to common shareholders is a “non-GAAP financial measure” as defined in Regulation G. The reconciliation of such measure to net income available to common shareholders (the most directly comparable GAAP financial measure) in accordance with Regulation G is included on page 2 of this release.

The Company believes that net realized gains or losses, net impairment losses included in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses in any particular period are not indicative of the performance of, or trends in, the Company’s business performance. Although net realized gains or losses, net impairment losses included in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of the Company’s operations, the decision to realize investment gains or losses, the recognition of net impairment losses, the recognition of equity in net income or loss of investment funds accounted for using the equity method and the recognition of foreign exchange gains or losses are independent of the insurance underwriting process and result, in large part, from general economic and financial market conditions. Furthermore, certain users of the Company’s financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. In addition, net impairment losses included in earnings on the Company’s investments represent other-than-temporary declines in expected recovery values on securities without actual realization. The use of the equity method on certain of the Company’s investments in certain funds that invest in fixed maturity securities is driven by the ownership structure of such funds (either limited partnerships or limited liability companies). In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). This method of accounting is different from the way the Company accounts for its other fixed maturity securities and the timing of the recognition of equity in net income or loss of investment funds accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments. Due to these reasons, the Company excludes net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses from the calculation of after-tax operating income available to common shareholders.

The Company believes that showing net income available to common shareholders exclusive of the items referred to above reflects the underlying fundamentals of the Company’s business since the Company evaluates the performance of and manages its business to produce an underwriting profit. In addition to presenting net income available to common shareholders, the Company believes that this presentation enables investors and other users of the Company’s financial information to analyze the Company’s performance in a manner similar to how the Company’s management analyzes performance. The Company also believes that this measure follows industry practice and, therefore, allows the users of the Company’s financial information to compare the Company’s performance with its industry peer group. The Company believes that the equity analysts and certain rating agencies which follow the Company and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL INFORMATION

Book Value Per Common Share and Share Repurchases

	March 31,			December 31,
(U.S. dollars in thousands, except share data)	2009			2008
Calculation of book value per common share:
Total shareholders’ equity	$	3,630,396		$	3,432,965
Less preferred shareholders’ equity	(325,000		)	(325,000		)
Common shareholders’ equity	$	3,305,396		$	3,107,965
Common shares outstanding (1)	60,532,222			60,511,974
Book value per common share	$	54.61		$	51.36

	Three Months Ended					Cumulative
	March 31,					March 31,
(U.S. dollars in thousands, except share data)	2009		2008			2009
Effect of share repurchases:
Aggregate purchase price of shares repurchased	$	1,552	$	189,843		$	1,051,748
Shares repurchased	33,305		2,749,909			15,289,594
Average price per share repurchased	$	46.60	$	69.04		$	68.79
Estimated net accretive (dilutive) impact on ending book value per common share (2)	$	0.01	$	(0.49	)	$	(2.86	)
Estimated net accretive impact on diluted earnings per share (3)	$	0.40	$	0.26

(1)	Excludes the effects of 5,111,344 and 5,131,135 stock options and 347,019 and 412,622 restricted stock units outstanding at March 31, 2009 and December 31, 2008, respectively.
(2)	As the average price per share repurchased during the 2009 first quarter was lower than the book value per common share, the repurchase of shares during the period increased book value per common share during the 2009 first quarter. For the 2008 first quarter and cumulative through March 31, 2009, the average price per share repurchased was higher than the book value per common share and, accordingly, decreased book value per common share.
(3)	The estimated impact on diluted earnings per share was calculated comparing reported results versus (i) net income (loss) per share plus an estimate of lost net investment income on the cumulative share repurchases divided by (ii) weighted average diluted shares outstanding excluding the weighted average impact of cumulative share repurchases. The impact of cumulative share repurchases was accretive to diluted earnings per share in the periods presented.

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Investment Information

	Three Months Ended
	March 31,
(U.S. dollars in thousands, except share data)	2009			2008
Net investment income:
Total	$	95,882		$	122,193
Per share	$	1.53		$	1.80
Pre-tax investment income yield (at amortized cost)	3.82		%	4.88		%
After-tax investment income yield (at amortized cost)	3.70		%	4.75		%
Cash flow from operations	$	294,803		$	334,545

On a consolidated basis, the Company’s aggregate investable assets totaled $10.3 billion at March 31, 2009, compared to $10.0 billion at December 31, 2008, as detailed in the table below:

	March 31,			December 31,
(U.S. dollars in thousands)	2009			2008
Investable assets:
Fixed maturities available for sale, at market value	$	8,540,653		$	8,122,221
Fixed maturities pledged under securities lending agreements, at market value (1)	503,449			626,501
Total fixed maturities	9,044,102			8,748,722
Short-term investments available for sale, at market value	749,708			479,586
Short-term investments pledged under securities lending agreements, at market value (1)	56,242			101,564
Cash	244,037			251,739
Other investments (2)
Fixed income mutual funds	32,912			39,858
Privately held securities and other	72,076			69,743
Investment funds accounted for using the equity method (3)	293,452			301,027
Securities transactions entered into but not settled at the balance sheet date	(241,836		)	(18,236		)
Total investable assets (1)	$	10,250,693		$	9,974,003
Fixed income portfolio (1):
Average effective duration (in years)	3.02			3.62
Average credit quality	AA+			AA+
Imbedded book yield (before investment expenses)	4.17		%	4.55		%

(1)	In securities lending transactions, the Company receives collateral in excess of the market value of the fixed maturities and short-term investments pledged under securities lending agreements. For purposes of this table, the Company has excluded the collateral received and reinvested at March 31, 2009 and December 31, 2008 of $550.8 million and $730.2 million, respectively, which is reflected as “investment of funds received under securities lending agreements, at market value” and included the $559.7 million and $728.1 million, respectively, of “fixed maturities and short-term investments pledged under securities lending agreements, at market value.”
(2)	Other investments include (i) mutual funds which invest in fixed maturity securities and international equity index funds; and (ii) privately held securities and other which include the Company’s investment in Aeolus LP and other privately held securities.
(3)	The Company’s investment portfolio includes certain funds that invest in fixed maturity securities which, due to the ownership structure of the funds, are accounted for by the Company using the equity method. In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). Changes in the carrying value of such investments are recorded as ‘Equity in net income (loss) of investment funds accounted for using the equity method’ rather than as an unrealized gain or loss component of accumulated other comprehensive income in shareholders’ equity as are changes in the carrying value of the Company’s other fixed income investments.

For further information on the Company’s investment portfolio, please refer to the Company’s Financial Supplement dated March 31, 2009, which is posted on the Company’s website at http://www.archcapgroup.bm/EarningsReleases.aspx.

9

Selected Information on Losses and Loss Adjustment Expenses

	Three Months Ended
	March 31,
(U.S. dollars in thousands)	2009			2008
Components of losses and loss adjustment expenses
Paid losses and loss adjustment expenses	$	318,541		$	249,499
Increase in unpaid losses and loss adjustment expenses	82,001			154,918
Total losses and loss adjustment expenses	$	400,542		$	404,417
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments
Net impact on underwriting results:
Insurance	$	(8,178	)	$	(5,610	)
Reinsurance	(39,693		)	(51,050		)
Total	$	(47,871	)	$	(56,660	)
Impact on losses and loss adjustment expenses:
Insurance	$	(9,126	)	$	(5,776	)
Reinsurance	(42,016		)	(51,086		)
Total	$	(51,142	)	$	(56,862	)
Impact on acquisition expenses :
Insurance	$	948		$	166
Reinsurance	2,323			36
Total	$	3,271		$	202
Impact on combined ratio:
Insurance	(2.0		)%	(1.3		)%
Reinsurance	(13.3		)%	(17.7		)%
Total	(6.8		)%	(8.0		)%
Impact on loss ratio:
Insurance	(2.3		)%	(1.4		)%
Reinsurance	(14.0		)%	(17.7		)%
Total	(7.3		)%	(8.0		)%
Impact on acquisition expense ratio:
Insurance	0.3		%	0.1		%
Reinsurance	0.7		%	0.0		%
Total	0.5		%	0.0		%
Estimated net losses incurred from current accident year catastrophic events (1)
Insurance	$	—		$	20,300
Reinsurance	8,012			5,774
Total	$	8,012		$	26,074
Impact on loss ratio:
Insurance	—			4.8		%
Reinsurance	2.7		%	2.0		%
Total	1.1		%	3.7		%

(1) Equals estimated losses from catastrophic events occurring in the current accident year, net of reinsurance and reinstatement premiums. Amounts shown for the insurance segment are for named catastrophic events only. Amounts shown for the reinsurance segment include (i) named events with over $5 million of losses incurred by its Bermuda and Europe operations and (ii) all catastrophe losses incurred by its U.S. operations.

10

Segment Information

For additional detail regarding the Company’s operating segments, please refer to the Company’s Financial Supplement dated March 31, 2009 on the Company’s website at http://www.archcapgroup.bm/EarningsReleases.aspx.

Discussion of 2009 First Quarter Performance

Insurance Segment

	Three Months Ended
	March 31,
(U.S. dollars in thousands)	2009			2008
Gross premiums written	$	638,409		$	626,348
Net premiums written	441,586			402,764
Net premiums earned	401,097			419,100
Underwriting income	11,421			7,153
Loss ratio	67.3		%	68.6		%
Acquisition expense ratio	14.1		%	12.2		%
Other operating expense ratio	15.7		%	17.6		%
Combined ratio	97.1		%	98.4		%

Gross premiums written by the insurance segment in the 2009 first quarter were 1.9% higher than in the 2008 first quarter, with growth in programs, national accounts casualty and executive assurance business. The increase in programs and national accounts casualty business primarily resulted from new business while the increase in executive assurance business primarily resulted from renewal rate increases. Such amounts were partially offset by reductions in casualty, construction and professional liability business as the insurance segment continued to maintain underwriting discipline in response to the current market environment. The higher net premiums written growth rate of 9.6% primarily resulted from changes in reinsurance usage and the impact of changes in the mix of business. Net premiums earned by the insurance segment in the 2009 first quarter were 4.3% lower than in the 2008 first quarter, and reflect changes in net premiums written over the previous five quarters.

The loss ratio for the insurance segment was 67.3% in the 2009 first quarter, compared to 68.6% in the 2008 first quarter. The 2009 first quarter loss ratio reflected a 2.3 point reduction related to estimated net favorable development in prior year loss reserves, compared to 1.4 points in the 2008 first quarter. The estimated net favorable development in the 2009 first quarter was primarily in medium-tail lines and mainly resulted from better than expected claims emergence. The 2009 first quarter loss ratio did not include any significant catastrophic activity while the 2008 first quarter loss ratio included 4.8 points related to the Australian floods. The insurance segment’s loss ratio in the 2009 first quarter reflected an increase in expected loss ratios across a number of lines of business primarily due to the anticipated impact of rate changes and changes in the mix of business.

The insurance segment’s underwriting expense ratio was 29.8% in the 2009 and 2008 first quarters. The acquisition expense ratio was 14.1% for the 2009 first quarter, compared to 12.2% for the 2008 first quarter. The acquisition expense ratio is influenced by, among other things, (1) the amount of ceding commissions received from unaffiliated reinsurers, (2) the amount of business written on a surplus lines (non-admitted) basis and (3) mix of business. In addition, the 2009 first quarter loss ratio reflected 0.3 points related to estimated net favorable development in prior year loss reserves, compared to 0.1 points in the 2008 first quarter. The comparison of the 2009 first quarter and 2008 first quarter acquisition expense ratios reflects changes in the form of reinsurance ceded and the mix of business. The insurance segment’s other operating expense ratio was 15.7% for the 2009 first quarter, compared to 17.6% in the 2008 first quarter, with the decrease primarily attributable to non-recurring adjustments in compensation costs in the 2009 first quarter. In addition, the 2009 first quarter operating expense ratio reflects the benefits of the insurance segment’s expense management plan implemented in 2008, which included office relocation and personnel and other expense saving initiatives.

11

Reinsurance Segment

	Three Months Ended
	March 31,
(U.S. dollars in thousands)	2009			2008
Gross premiums written	$	390,129		$	433,827
Net premiums written	381,277			408,578
Net premiums earned	299,467			289,134
Underwriting income	81,968			91,218
Loss ratio	43.6		%	40.5		%
Acquisition expense ratio	23.0		%	21.7		%
Other operating expense ratio	6.1		%	6.3		%
Combined ratio	72.7		%	68.5		%

Gross premiums written by the reinsurance segment in the 2009 first quarter were 10.1% lower than in the 2009 first quarter, primarily due to reductions in other specialty and property catastrophe business written in the 2009 first quarter. The decrease in other specialty was primarily due to the non-renewal of a non-standard auto treaty, while the lower level of property catastrophe business resulted from the impact of non-renewals of a small number of contracts. The decreases were partially offset by an increase in writings by the reinsurance segment’s property facultative operation, which contributed $12.4 million of additional gross premiums written in the 2009 first quarter compared to the 2008 first quarter.

Ceded premiums written by the reinsurance segment were 2.3% of gross premiums written for the 2009 first quarter, compared to 5.8% for the 2008 first quarter. In the 2009 first quarter, Arch Reinsurance Ltd., the Company’s Bermuda-based reinsurer, ceded $3.5 million of premiums written, or 0.9%, under a quota share reinsurance treaty to Flatiron Re Ltd., compared to $18.4 million, or 4.2%, in the 2008 first quarter. Commission income from the treaty (in excess of the reimbursement of direct acquisition expenses) reduced the reinsurance segment’s acquisition expense ratio by 0.8 points in the 2009 first quarter, compared to 3.3 points in the 2008 first quarter.

Net premiums written by the reinsurance segment in the 2009 first quarter were 6.7% lower than in the 2008 first quarter, primarily due to the items noted above. Net premiums earned in the 2009 first quarter were 3.6% higher than in the 2008 first quarter, and reflect changes in net premiums written over the previous five quarters, including the mix and type of business written.

The reinsurance segment’s loss ratio was 43.6% in the 2009 first quarter, compared to 40.5% for the 2008 first quarter. The loss ratio for the 2009 first quarter reflected a 14.0 point reduction related to estimated net favorable development in prior year loss reserves, compared to a 17.7 point reduction in the 2008 first quarter. The estimated net favorable development in the 2009 first quarter primarily resulted from better than anticipated claims emergence in older underwriting years. The 2009 first quarter loss ratio also reflected approximately 2.7 points of catastrophic activity, while the 2008 first quarter loss ratio reflected approximately 2.0 points of catastrophic activity. The reinsurance segment’s 2009 first quarter loss ratio also reflected an increase in expected loss ratios in a number of lines of business primarily due to the anticipated impact of rate changes as well as changes in the mix of business.

The underwriting expense ratio for the reinsurance segment was 29.1% in the 2009 first quarter, compared to 28.0% in the 2008 first quarter. The acquisition expense ratio for the 2009 first quarter was 23.0%, compared to 21.7% for the 2008 first quarter, with the increase primarily due to a lower level of commission income from the Treaty with Flatiron noted above. In addition, the 2009 first quarter loss ratio reflected 0.7 points related to estimated net favorable development in prior year loss reserves. The comparison of the 2009 first quarter and 2008 first quarter acquisition expense ratios is influenced by, among other things, the mix and type of business written and earned and the level of ceding commission income. The reinsurance segment’s other operating expense ratio was 6.1% for the 2009 first quarter, compared to 6.3% for the 2008 first quarter. The decrease in the operating expense ratio primarily related to a higher level of net premiums earned in the 2009 first quarter.

12

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(U.S. dollars in thousands, except share data)

	(Unaudited)
	Three Months Ended
	March 31,
	2009			2008
Revenues
Net premiums written	$	822,863		$	811,342
Increase in unearned premiums	(122,299		)	(103,108		)
Net premiums earned	700,564			708,234
Net investment income	95,882			122,193
Net realized gains (losses)	(5,164		)	48,686
Total other-than-temporary impairment losses	(92,989		)	(12,711		)
Portion of loss recognized in other comprehensive income (loss), before taxes	56,855			—
Net impairment losses recognized in earnings	(36,134		)	(12,711		)
Fee income	925			1,068
Equity in net income (loss) of investment funds accounted for using the equity method	(9,581		)	(22,313		)
Other income	3,951			4,036
Total revenues	750,443			849,193
Expenses
Losses and loss adjustment expenses	400,542			404,417
Acquisition expenses	126,458			114,639
Other operating expenses	87,116			97,187
Interest expense	5,712			5,524
Net foreign exchange (gains) losses	(25,205		)	23,587
Total expenses	594,623			645,354
Income before income taxes	155,820			203,839
Income tax expense	9,490			7,956
Net income	146,330			195,883
Preferred dividends	6,461			6,461
Net income available to common shareholders	$	139,869		$	189,422
Net income per common share
Basic	$	2.32		$	2.90
Diluted	$	2.24		$	2.78
Weighted average common shares and common share equivalents outstanding
Basic	60,313,550			65,295,516
Diluted	62,559,969			68,019,413

13

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands, except share data)

	(Unaudited)
	March 31,			December 31,
	2009			2008
Assets
Investments:
Fixed maturities available for sale, at market value (amortized cost: 2009, $8,735,769; 2008, $8,314,615)	$	8,540,653		$	8,122,221
Short-term investments available for sale, at market value (amortized cost: 2009, $749,178; 2008, $478,088)	749,708			479,586
Investment of funds received under securities lending agreements, at market value (amortized cost: 2009, $571,102; 2008, $750,330)	550,821			730,194
Other investments (cost: 2009, $114,779; 2008, $125,858)	104,988			109,601
Investment funds accounted for using the equity method	293,452			301,027
Total investments	10,239,622			9,742,629
Cash	244,037			251,739
Accrued investment income	65,365			78,052
Investment in joint venture (cost: $100,000)	101,143			98,341
Fixed maturities and short-term investments pledged under securities lending agreements, at market value	559,691			728,065
Premiums receivable	720,724			628,951
Unpaid losses and loss adjustment expenses recoverable	1,710,781			1,729,135
Paid losses and loss adjustment expenses recoverable	76,312			63,294
Prepaid reinsurance premiums	274,578			303,707
Deferred income tax assets, net	62,210			60,192
Deferred acquisition costs, net	313,973			295,192
Receivable for securities sold	1,191,896			105,073
Other assets	531,955			532,175
Total Assets	$	16,092,287		$	14,616,545
Liabilities
Reserve for losses and loss adjustment expenses	$	7,709,317		$	7,666,957
Unearned premiums	1,617,431			1,526,682
Reinsurance balances payable	146,981			138,509
Senior notes	300,000			300,000
Revolving credit agreement borrowings	100,000			100,000
Securities lending payable	574,337			753,528
Payable for securities purchased	1,433,732			123,309
Other liabilities	580,093			574,595
Total Liabilities	12,461,891			11,183,580
Commitments and Contingencies
Shareholders’ Equity
Non-cumulative preferred shares ($0.01 par value, 50,000,000 shares authorized, issued: 13,000,000)	130			130
Common shares ($0.01 par value, 200,000,000 shares authorized, issued: 2009, 60,532,222; 2008, 60,511,974)	605			605
Additional paid-in capital	996,417			994,585
Retained earnings	2,894,577			2,693,239
Accumulated other comprehensive income (loss), net of deferred income tax	(261,333		)	(255,594		)
Total Shareholders’ Equity	3,630,396			3,432,965
Total Liabilities and Shareholders’ Equity	$	16,092,287		$	14,616,545

14

EX-99.2

Wessex House, 4th Floor 45 Reid Street Hamilton HM 12  Bermuda 441-278-9250 441-278-9255 fax Contact: John C.R. Hele Executive Vice President and Chief Financial Officer

Financial Supplement

Financial Information

as of March 31, 2009 (unaudited)

The following financial supplement is provided to assist in your understanding of Arch Capital Group Ltd.

This report is for informational purposes only.  It should be read in conjunction with documents filed by Arch Capital Group Ltd. with the U.S. Securities and Exchange Commission, including the most recent Annual Report on Form 10-K and the Quarterly Reports on Form 10-Q.  Please refer to the Company’s website at www.archcapgroup.bm for further information describing Arch Capital Group Ltd.

Arch Capital Group Ltd. and Subsidiaries

Table of Contents

			Page(s)
I.	Financial Highlights		1
II.	Consolidated Financial Statements
	a.	Consolidated Statements of Income	2
	b.	Consolidated Balance Sheets	3
	c.	Consolidated Statements of Changes in Shareholders’ Equity	4
	d.	Consolidated Statements of Comprehensive Income	5
	e.	Consolidated Statements of Cash Flows	6
III.	Segment Information
	a.	Overview	7
	b.	Consolidated Segment Underwriting Results	8
	c.	Insurance Segment Underwriting Results	9-10
	d.	Reinsurance Segment Underwriting Results	11-12
IV.	Investment Information
	a.	Investable Asset Summary, Fixed Income Metrics and Credit Quality Distribution	13
	b.	Composition of Fixed Maturities and Analysis of Corporate Exposures	14
	c.	Mortgage Backed, Commercial Mortgage Backed and Asset Backed Securities	15
	d.	Bank Loans	16
V.	Other
	a.	Comments on Regulation G	17
	b.	Operating Income Reconciliation	18
	c.	Annualized Operating Return on Average Common Equity	19
	d.	Capital Structure	20

All financial information contained herein is unaudited, except for the consolidated balance sheet as of December 31, 2008 and 2007.

Arch Capital Group Ltd. and Subsidiaries

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This release or any other written or oral statements made by or on behalf of Arch Capital Group Ltd. and its subsidiaries may include forward-looking statements, which reflect our current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this release are forward-looking statements.

Forward-looking statements can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or their negative or variations or similar terminology. Forward-looking statements involve our current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: adverse general economic and market conditions; increased competition; pricing and policy term trends; fluctuations in the actions of rating agencies and our ability to maintain and improve our ratings; investment performance; the loss of key personnel; the adequacy of our loss reserves, severity and/or frequency of losses, greater than expected loss ratios and adverse development on claim and/or claim expense liabilities; greater frequency or severity of unpredictable natural and man-made catastrophic events; the impact of acts of terrorism and acts of war; changes in regulations and/or tax laws in the United States or elsewhere; our ability to successfully integrate, establish and maintain operating procedures as well as integrate the businesses we have acquired or may acquire into the existing operations; changes in accounting principles or policies; material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; availability and cost to us of reinsurance to manage our gross and net exposures; the failure of others to meet their obligations to us; and other factors identified in our filings with the U.S. Securities and Exchange Commission.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Arch Capital Group Ltd. and Subsidiaries

Financial Highlights

(U.S. dollars in thousands, except share data)

	Three Months Ended
	March 31,
	2009			2008			Change
Gross premiums written	$	1,024,971		$	1,053,152		(2.7	)%
Net premiums written	$	822,863		$	811,342		1.4	%
Net premiums earned	$	700,564		$	708,234		(1.1	)%
Underwriting income (loss)	$	93,389		$	98,371		(5.1	)%
Net investment income	$	95,882		$	122,193		(21.5	)%
Per diluted share	$	1.53		$	1.80		(15.0	)%
Net income (loss) available to common shareholders	$	139,869		$	189,422		(26.2	)%
Per diluted share	$	2.24		$	2.78		(19.4	)%
After-tax operating income available to common shareholders (1)	$	169,001		$	201,983		(16.3	)%
Per diluted share	$	2.70		$	2.97		(9.1	)%
Comprehensive income (loss)	$	202,060		$	157,067		28.6	%
Cash flow from operations	$	294,803		$	334,545		(11.9	)%
Diluted weighted average common shares and common
share equivalents outstanding	62,559,969			68,019,413			(8.0	)%
Underwriting ratios:
Loss ratio	57.2		%	57.1		%	0.1	%
Acquisition expense ratio	17.9		%	16.1		%	1.8	%
Other operating expense ratio	11.6		%	13.0		%	(1.4	)%
Combined ratio	86.7		%	86.2		%	0.5	%
Annualized operating return on average common equity	21.1		%	21.9		%	(0.8	)%

(1) See page 17, Comments on Regulation G.

1

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Income

(U.S. dollars in thousands, except share data)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2009			2008			2008			2008			2008			2007			2007			2007			2007
Revenues
Gross premiums written	$	1,024,971		$	825,465		$	903,533		$	886,926		$	1,053,152		$	828,160		$	999,159		$	1,102,210		$	1,210,614
Net premiums written	$	822,863		$	615,574		$	692,692		$	686,118		$	811,342		$	577,666		$	694,630		$	757,895		$	871,745
Decrease (increase) in unearned premiums	(122,299		)	82,940			40,339			19,557			(103,108		)	134,550			40,899			(6,483		)	(126,252		)
Net premiums earned	700,564			698,514			733,031			705,675			708,234			712,216			735,529			751,412			745,493
Net investment income	95,882			111,745			117,022			117,120			122,193			120,807			118,464			113,923			110,047
Net realized gains (losses)	(5,164		)	(27,704		)	(23,001		)	(1,920		)	48,686			38,463			16,868			(3,272		)	6,280
Total other-than-temporary impairment losses	(92,989		)	(75,169		)	(82,533		)	(10,749		)	(12,711		)	(19,731		)	(2,721		)	(485		)	(7,261		)
Portion of loss recognized in other comprehensive income (loss), before taxes	56,855			—			—			—			—			—			—			—			—
Net impairment losses recognized in earnings	(36,134		)	(75,169		)	(82,533		)	(10,749		)	(12,711		)	(19,731		)	(2,721		)	(485		)	(7,261		)
Fee income	925			1,456			944			1,238			1,068			1,866			1,610			2,091			1,969
Equity in net income (loss) of investment funds accounted for using the equity method	(9,581		)	(174,147		)	(1,731		)	19,583			(22,313		)	(906		)	(5,283		)	3,376			2,642
Other income	3,951			211			3,067			4,968			4,036			5,483			2,696			265			604
Total revenues	750,443			534,906			746,799			835,915			849,193			858,198			867,163			867,310			859,774
Expenses
Losses and loss adjustment expenses	400,542			490,816			548,886			404,625			404,417			395,751			402,695			425,663			420,061
Acquisition expenses	126,458			123,231			133,413			119,226			114,639			111,702			131,424			117,277			120,128
Other operating expenses	87,116			100,385			95,652			102,578			97,187			101,275			95,545			100,505			90,813
Interest expense	5,712			6,285			6,241			5,788			5,524			5,523			5,524			5,523			5,523
Net foreign exchange (gains) losses	(25,205		)	(51,479		)	(68,395		)	(298		)	23,587			4,121			23,656			6,450			9,742
Total expenses	594,623			669,238			715,797			631,919			645,354			618,372			658,844			655,418			646,267
Income before income taxes	155,820			(134,332		)	31,002			203,996			203,839			239,826			208,319			211,892			213,507
Income tax expense (benefit)	9,490			2,179			(1,849		)	5,253			7,956			(1,044		)	2,113			6,037			8,495
Net Income (Loss)	146,330			(136,511		)	32,851			198,743			195,883			240,870			206,206			205,855			205,012
Preferred dividends	6,461			6,461			6,461			6,461			6,461			6,461			6,461			6,461			6,461
Net income (loss) available to common shareholders	$	139,869		$	(142,972	)	$	26,390		$	192,282		$	189,422		$	234,409		$	199,745		$	199,394		$	198,551
Net income (loss) per common share
Basic	$	2.32		$	(2.38	)	$	0.44		$	3.05		$	2.90		$	3.44		$	2.87		$	2.75		$	2.69
Diluted (1)	$	2.24		$	(2.38	)	$	0.42		$	2.92		$	2.78		$	3.31		$	2.76		$	2.65		$	2.59
Weighted average common shares and common share equivalents outstanding
Basic	60,313,550			60,048,258			60,109,932			62,995,550			65,295,516			68,074,208			69,561,789			72,494,823			73,931,996
Diluted (1)	62,559,969			60,048,258			62,830,910			65,748,119			68,019,413			70,901,361			72,378,940			75,254,846			76,640,686

(1) Due to the net loss recorded in the 2008 fourth quarter, diluted weighted average common shares and common share equivalents for such period do not include 2.5 million dilutive common share equivalents since the inclusion of such common share equivalents would have had an anti-dilutive effect on the loss per share under GAAP.

2

Arch Capital Group Ltd. and Subsidiaries

Consolidated Balance Sheets

(U.S. dollars in thousands, except share data)

	March 31,			December 31,			September 30,			June 30,			March 31,		December 31,		September 30,		June 30,			March 31,
	2009			2008			2008			2008			2008		2007		2007		2007			2007
Assets
Investments:
Fixed maturities available for sale, at market value	$	8,540,653		$	8,122,221		$	7,544,831		$	7,746,296		$	7,591,695	$	7,137,998	$	7,342,238	$	6,923,478		$	6,963,359
Short-term investments available for sale, at market value	749,708			479,586			863,783			645,587			631,285		699,036		1,315,903		1,114,485			796,682
Investment of funds received under securities lending agreements, at market value	550,821			730,194			933,797			918,207			1,228,868		1,503,723		920,306		1,114,959			1,160,098
Other investments	104,988			109,601			142,146			295,638			316,252		353,694		280,241		273,830			268,724
Investment funds accounted for using the equity method	293,452			301,027			384,139			351,879			294,379		235,975		216,917		188,005			153,663
Total investments	10,239,622			9,742,629			9,868,696			9,957,607			10,062,479		9,930,426		10,075,605		9,614,757			9,342,526
Cash	244,037			251,739			239,097			246,544			258,680		239,915		250,804		245,143			225,249
Accrued investment income	65,365			78,052			82,218			76,313			73,686		73,862		70,697		71,064			68,012
Investment in joint venture	101,143			98,341			98,951			100,000			—		—		—		—			—
Fixed maturities and short-term investments pledged under securities lending
agreements, at market value	559,691			728,065			905,546			890,822			1,190,086		1,463,045		884,375		1,085,757			1,120,957
Premiums receivable	720,724			628,951			738,694			859,261			880,946		729,628		902,987		1,041,921			954,168
Unpaid losses and loss adjustment expenses recoverable	1,710,781			1,729,135			1,656,848			1,586,201			1,652,117		1,609,619		1,581,909		1,545,820			1,537,176
Paid losses and loss adjustment expenses recoverable	76,312			63,294			105,491			113,439			110,962		132,289		132,039		131,441			120,883
Prepaid reinsurance premiums	274,578			303,707			335,210			364,226			419,046		480,462		541,529		544,137			501,287
Deferred income tax assets, net	62,210			60,192			72,118			66,944			55,645		57,051		64,474		70,688			64,271
Deferred acquisition costs, net	313,973			295,192			310,916			319,732			311,364		290,059		301,974		309,651			314,686
Receivable for securities sold	1,191,896			105,073			1,099,000			1,053,379			671,354		17,359		82,383		54,954			164,124
Other assets	531,955			532,175			618,017			647,034			668,110		600,552		575,226		578,435			548,532
Total Assets	$	16,092,287		$	14,616,545		$	16,130,802		$	16,281,502		$	16,354,475	$	15,624,267	$	15,464,002	$	15,293,768		$	14,961,871
Liabilities
Reserve for losses and loss adjustment expenses	$	7,709,317		$	7,666,957		$	7,569,543		$	7,349,083		$	7,319,141	$	7,092,452	$	6,949,449	$	6,782,433		$	6,595,820
Unearned premiums	1,617,431			1,526,682			1,653,855			1,735,371			1,810,324		1,765,881		1,960,228		2,001,736			1,950,264
Reinsurance balances payable	146,981			138,509			214,550			254,830			322,280		301,309		336,134		382,488			393,658
Senior notes	300,000			300,000			300,000			300,000			300,000		300,000		300,000		300,000			300,000
Revolving credit agreement borrowings	100,000			100,000			100,000			100,000			—		—		—		—			—
Securities lending payable	574,337			753,528			950,327			918,207			1,228,868		1,503,723		920,306		1,114,959			1,160,098
Payable for securities purchased	1,433,732			123,309			1,138,117			1,064,224			710,994		23,155		515,218		434,624			216,381
Other liabilities	580,093			574,595			687,700			673,554			658,324		601,936		607,872		573,461			562,302
Total Liabilities	12,461,891			11,183,580			12,614,092			12,395,269			12,349,931		11,588,456		11,589,207		11,589,701			11,178,523
Commitments and Contingencies
Shareholders’ Equity
Non-cumulative preferred shares	130			130			130			130			130		130		130		130			130
Common shares	605			605			602			619			646		673		691		713			737
Additional paid-in capital	996,417			994,585			977,059			1,089,636			1,269,821		1,451,667		1,577,284		1,716,295			1,910,125
Retained earnings	2,894,577			2,693,239			2,836,211			2,809,821			2,617,539		2,428,117		2,193,708		1,993,963			1,794,569
Accumulated other comprehensive income (loss), net of deferred income tax	(261,333		)	(255,594		)	(297,292		)	(13,973		)	116,408		155,224		102,982		(7,034		)	77,787
Total Shareholders’ Equity	3,630,396			3,432,965			3,516,710			3,886,233			4,004,544		4,035,811		3,874,795		3,704,067			3,783,348
Total Liabilities and Shareholders’ Equity	$	16,092,287		$	14,616,545		$	16,130,802		$	16,281,502		$	16,354,475	$	15,624,267	$	15,464,002	$	15,293,768		$	14,961,871
Common shares outstanding (1)	60,532,222			60,511,974			60,173,489			61,943,100			64,649,618		67,318,466		69,141,795		71,273,285			73,746,726
Book value per common share	$	54.61		$	51.36		$	53.04		$	57.49		$	56.92	$	55.12	$	51.34	$	47.41		$	46.89

(1) Excludes the effects of stock options and restricted stock units outstanding.

3

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,
	2009			2008			2008			2008			2008			2007			2007			2007
Non-Cumulative Preferred Shares
Balance at beginning and end of period	$	130		$	130		$	130		$	130		$	130		$	130		$	130		$	130
Common Shares
Balance at beginning of period	605			602			619			646			673			691			713			737
Common shares issued, net	0			3			1			2			0			2			0			5
Purchases of common shares under share repurchase program	(0		)	—			(18		)	(29		)	(27		)	(20		)	(22		)	(29		)
Balance at end of period	605			605			602			619			646			673			691			713
Additional Paid-in Capital
Balance at beginning of period	994,585			977,059			1,089,636			1,269,821			1,451,667			1,577,284			1,716,295			1,910,125
Common shares issued	0			996			0			3,511			0			2,172			0			296
Exercise of stock options	528			10,593			4,146			5,324			3,749			3,505			1,721			6,376
Common shares retired	(3,760		)	(39		)	(123,510		)	(201,498		)	(190,278		)	(136,357		)	(145,865		)	(210,871		)
Amortization of share-based compensation	4,318			5,974			6,792			12,911			4,600			5,053			5,095			10,151
Other	746			2			(5		)	(433		)	83			10			38			218
Balance at end of period	996,417			994,585			977,059			1,089,636			1,269,821			1,451,667			1,577,284			1,716,295
Retained Earnings
Balance at beginning of period	2,693,239			2,836,211			2,809,821			2,617,539			2,428,117			2,193,708			1,993,963			1,794,569
Cumulative effect of change in accounting principle, adoption of FSP FAS 115-2 (1)	61,469			—			—			—			—			—			—			—
Balance at beginning of period, as adjusted	2,754,708			2,836,211			2,809,821			2,617,539			2,428,117			2,193,708			1,993,963			1,794,569
Dividends declared on preferred shares	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)
Net income (loss)	146,330			(136,511		)	32,851			198,743			195,883			240,870			206,206			205,855
Balance at end of period	2,894,577			2,693,239			2,836,211			2,809,821			2,617,539			2,428,117			2,193,708			1,993,963
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	(255,594		)	(297,292		)	(13,973		)	116,408			155,224			102,982			(7,034		)	77,787
Cumulative effect of change in accounting principle, adoption of FSP FAS 115-2 (1)	(61,469		)	—			—			—			—			—			—			—
Balance at beginning of period, as adjusted	(317,063		)	(297,292		)	(13,973		)	116,408			155,224			102,982			(7,034		)	77,787
Change in unrealized appreciation (decline) in value of investments, net of deferred income tax	114,844			64,976			(271,231		)	(131,446		)	(37,577		)	54,354			105,816			(88,100		)
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	(56,855		)	—			—			—			—			—			—			—
Foreign currency translation adjustments, net of deferred income tax	(2,259		)	(23,278		)	(12,088		)	1,065			(1,239		)	(2,112		)	4,200			3,279
Balance at end of period	(261,333		)	(255,594		)	(297,292		)	(13,973		)	116,408			155,224			102,982			(7,034		)
Total Shareholders’ Equity	$	3,630,396		$	3,432,965		$	3,516,710		$	3,886,233		$	4,004,544		$	4,035,811		$	3,874,795		$	3,704,067

(1) FSP FAS 115-2, “Recognition and Presentation of Other-Than-Temporary Impairments.”

4

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Comprehensive Income

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2009			2008			2008			2008			2008			2007			2007			2007			2007
Comprehensive Income (Loss)
Net income (loss)	$	146,330		$	(136,511	)	$	32,851		$	198,743		$	195,883		$	240,870		$	206,206		$	205,855		$	205,012
Other comprehensive income (loss), net of deferred income tax
Unrealized holding gains (losses) arising during period	58,324			(69,067		)	(386,052		)	(139,831		)	12,707			80,187			127,082			(94,500		)	22,014
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	(56,855		)	—			—			—			—			—			—			—			—
Reclassification of net realized (gains) losses, net of income taxes, included in net income	56,520			134,043			114,821			8,385			(50,284		)	(25,833		)	(21,266		)	6,400			(1,427		)
Foreign currency translation adjustments	(2,259		)	(23,278		)	(12,088		)	1,065			(1,239		)	(2,112		)	4,200			3,279			7,776
Other comprehensive income (loss)	55,730			41,698			(283,319		)	(130,381		)	(38,816		)	52,242			110,016			(84,821		)	28,363
Comprehensive Income (Loss)	$	202,060		$	(94,813	)	$	(250,468	)	$	68,362		$	157,067		$	293,112		$	316,222		$	121,034		$	233,375

5

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Cash Flows

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2009			2008			2008			2008			2008			2007			2007			2007			2007
Operating Activities
Net income (loss)	$	146,330		$	(136,511	)	$	32,851		$	198,743		$	195,883		$	240,870		$	206,206		$	205,855		$	205,012
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses	5,620			28,383			23,916			2,955			(46,502		)	(38,463		)	(16,755		)	3,272			(6,164		)
Net impairment losses included in earnings	36,134			75,169			82,533			10,749			12,711			19,731			2,721			485			7,261
Equity in net (income) loss of investment funds accounted for using the equity method and other income	10,428			173,955			(1,336		)	(24,286		)	18,277			(4,577		)	2,587			(3,641		)	(3,246		)
Share-based compensation	4,318			5,974			6,792			12,911			4,600			5,053			5,095			10,151			4,306
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	83,763			226,284			153,860			95,859			182,498			114,883			129,814			177,331			147,462
Unearned premiums, net of prepaid reinsurance premiums	120,867			(75,899		)	(51,494		)	(20,133		)	105,497			(133,360		)	(38,940		)	8,418			127,107
Premiums receivable	(94,777		)	18,896			115,653			21,679			(148,197		)	174,098			140,753			(86,730		)	(203,707		)
Deferred acquisition costs, net	(18,933		)	10,955			9,229			(8,491		)	(21,319		)	11,940			7,759			4,998			(23,700		)
Reinsurance balances payable	11,278			(31,791		)	(74,317		)	(67,451		)	19,677			(35,429		)	(47,758		)	(12,244		)	91,498
Other liabilities	2,802			(131,774		)	2,140			7,791			40,490			(4,721		)	28,945			441			1,296
Other items, net	(13,027		)	2,460			82,362			25,937			(29,070		)	(17,155		)	6,156			(34,464		)	56,006
Net Cash Provided By Operating Activities	294,803			166,101			382,189			256,263			334,545			332,870			426,583			273,872			403,131
Investing Activities
Purchases of fixed maturity investments	(3,632,350		)	(6,012,984		)	(4,184,587		)	(3,737,610		)	(3,772,652		)	(6,103,826		)	(5,417,802		)	(3,885,436		)	(5,047,868		)
Proceeds from sales of fixed maturity investments	3,377,680			5,456,446			3,970,441			3,521,141			3,523,338			5,280,324			5,231,766			4,080,733			4,326,607
Proceeds from redemptions and maturities of fixed maturity investments	168,758			137,665			127,312			180,437			136,932			149,535			188,665			121,863			183,984
Purchases of other investments	(22,670		)	(254,729		)	(38,036		)	(40,837		)	(146,815		)	(313,388		)	(43,870		)	(33,379		)	(151,978		)
Proceeds from sales of other investments	24,027			224,466			146,388			24,098			65,226			141,697			20			7,555			54,754
Investment in joint venture	—			—			—			(100,000		)	—			—			—			—			—
Net (purchases) sales of short-term investments	(204,924		)	312,038			(280,724		)	(13,462		)	74,201			653,433			(226,906		)	(329,880		)	188,663
Change in investment of securities lending collateral	179,191			196,799			(32,120		)	310,661			274,855			(583,417		)	194,653			45,139			(268,722		)
Purchases of furniture, equipment and other	(7,647		)	(2,745		)	(1,772		)	(1,939		)	(3,045		)	(15,391		)	(3,607		)	(4,860		)	(4,138		)
Net Cash Provided By (Used For) Investing Activities	(117,935		)	56,956			(293,098		)	142,489			152,040			(791,033		)	(77,081		)	1,735			(718,698		)
Financing Activities
Purchases of common shares under share repurchase program	(1,552		)	—			(123,377		)	(199,910		)	(189,843		)	(136,361		)	(145,732		)	(210,498		)	(44,475		)
Proceeds from common shares issued, net	(1,688		)	10,497			3,334			5,510			2,540			4,859			1,212			4,282			3,145
Revolving credit agreement borrowings	—			—			—			100,000			—			—			—			—			—
Change in securities lending collateral	(179,191		)	(196,799		)	32,120			(310,661		)	(274,855		)	583,417			(194,653		)	(45,139		)	268,722
Excess tax benefits from share-based compensation	742			698			502			616			660			634			324			1,610			2,355
Preferred dividends paid	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)
Net Cash Provided By (Used For) Financing Activities	(188,150		)	(192,065		)	(93,882		)	(410,906		)	(467,959		)	446,088			(345,310		)	(256,206		)	223,286
Effects of exchange rate changes on foreign currency cash	3,580			(18,350		)	(2,656		)	18			139			1,186			1,469			493			513
Increase (decrease) in cash	(7,702		)	12,642			(7,447		)	(12,136		)	18,765			(10,889		)	5,661			19,894			(91,768		)
Cash beginning of period	251,739			239,097			246,544			258,680			239,915			250,804			245,143			225,249			317,017
Cash end of period	$	244,037		$	251,739		$	239,097		$	246,544		$	258,680		$	239,915		$	250,804		$	245,143		$	225,249
Income taxes paid (received), net	$	2,231		$	(994	)	$	7,124		$	2,723		$	2,510		$	746		$	1,236		$	1,285		$	596
Interest paid	$	184		$	11,802		$	724		$	11,259		$	0		$	11,025		$	0		$	11,025		$	0

6

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Overview

The Company classifies its businesses into two underwriting segments — insurance and reinsurance — and corporate and other (non-underwriting). The Company’s insurance and reinsurance operating segments each have segment managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company’s chief operating decision makers, the President and Chief Executive Officer of ACGL and the Chief Financial Officer of ACGL. The chief operating decision makers do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. The Company determined its reportable operating segments using the management approach described in SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information.”

Management measures segment performance based on underwriting income or loss. The Company does not manage its assets by segment and, accordingly, investment income is not allocated to each underwriting segment. In addition, other revenue and expense items are not evaluated by segment. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Inter-segment insurance business is allocated to the segment accountable for the underwriting results.

The insurance segment consists of the Company’s insurance underwriting subsidiaries which primarily write on both an admitted and non-admitted basis. The insurance segment consists of eleven specialty product lines: casualty; construction; executive assurance; healthcare; national accounts casualty; professional liability; programs; property, energy, marine and aviation; surety; travel and accident; and other (consisting of excess workers’ compensation, employers’ liability business and collateral protection business).

The reinsurance segment consists of the Company’s reinsurance underwriting subsidiaries. The reinsurance segment generally seeks to write significant lines on specialty property and casualty reinsurance treaties. Classes of business include: casualty; marine and aviation; other specialty; property catastrophe; property excluding property catastrophe (losses on a single risk, both excess of loss and pro rata); and other (consisting of non-traditional and casualty clash business).

Corporate and other (non-underwriting) includes net investment income, other fee income, net of related expenses, other income (loss), other expenses incurred by the Company, interest expense, net realized gains or losses, net impairment losses included in earnings, equity in net income (loss) of investment funds accounted for using the equity method, net foreign exchange gains or losses and income taxes. In addition, results for corporate and other include dividends on the Company’s non-cumulative preferred shares.

7

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Three Months Ended March 31, 2009 and 2008

(U.S. dollars in thousands)

	Three Months Ended									Three Months Ended
	March 31, 2009									March 31, 2008
	Insurance			Reinsurance			Total			Insurance			Reinsurance			Total
Gross premiums written(1)	$	638,409		$	390,129		$	1,024,971		$	626,348		$	433,827		$	1,053,152
Net premiums written	441,586			381,277			822,863			402,764			408,578			811,342
Net premiums earned	$	401,097		$	299,467		$	700,564		$	419,100		$	289,134		$	708,234
Fee income	870			55			925			882			186			1,068
Losses and loss adjustment expenses	(270,015		)	(130,527		)	(400,542		)	(287,303		)	(117,114		)	(404,417		)
Acquisition expenses, net	(57,623		)	(68,835		)	(126,458		)	(51,889		)	(62,750		)	(114,639		)
Other operating expenses	(62,908		)	(18,192		)	(81,100		)	(73,637		)	(18,238		)	(91,875		)
Underwriting income	$	11,421		$	81,968		93,389			$	7,153		$	91,218		98,371
Net investment income							95,882									122,193
Net realized gains (losses)							(5,164		)							48,686
Net impairment losses recognized in earnings							(36,134		)							(12,711		)
Equity in net income (loss) of investment funds accounted for using the equity method							(9,581		)							(22,313		)
Other income							3,951									4,036
Other expenses							(6,016		)							(5,312		)
Interest expense							(5,712		)							(5,524		)
Net foreign exchange gains (losses)							25,205									(23,587		)
Income before income taxes							155,820									203,839
Income tax expense							(9,490		)							(7,956		)
Net income							146,330									195,883
Preferred dividends							(6,461		)							(6,461		)
Net income available to common shareholders							$	139,869								$	189,422
Underwriting Ratios
Loss ratio	67.3		%	43.6		%	57.2		%	68.6		%	40.5		%	57.1		%
Acquisition expense ratio(2)	14.1		%	23.0		%	17.9		%	12.2		%	21.7		%	16.1		%
Other operating expense ratio	15.7		%	6.1		%	11.6		%	17.6		%	6.3		%	13.0		%
Combined ratio	97.1		%	72.7		%	86.7		%	98.4		%	68.5		%	86.2		%
Net premiums written to gross premiums written	69.2		%	97.7		%	80.3		%	64.3		%	94.2		%	77.0		%

(1)	Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.
(2)	The acquisition expense ratio is adjusted to include certain fee income.

8

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. dollars in thousands)

	Three Months Ended
	March 31,
	2009				2008
	Amount		% of Total		Amount		% of Total
Net premiums written
Property, energy, marine and aviation	$	106,029	24.0	%	$	97,237	24.1	%
Programs	74,807		16.9	%	54,583		13.6	%
Professional liability	52,008		11.8	%	54,081		13.4	%
Executive assurance	50,079		11.3	%	42,169		10.5	%
Construction	36,571		8.3	%	39,480		9.8	%
Casualty	26,539		6.0	%	28,543		7.1	%
National accounts casualty	24,227		5.5	%	13,055		3.2	%
Travel and accident	17,534		4.0	%	16,653		4.1	%
Surety	11,358		2.6	%	10,867		2.7	%
Healthcare	11,219		2.5	%	10,997		2.7	%
Other(1)	31,215		7.1	%	35,099		8.8	%
Total	$	441,586	100.0	%	$	402,764	100.0	%
Net premiums earned
Property, energy, marine and aviation	$	73,840	18.4	%	$	84,458	20.2	%
Programs	66,669		16.6	%	56,987		13.6	%
Professional liability	58,234		14.5	%	68,810		16.4	%
Executive assurance	47,816		11.9	%	44,408		10.6	%
Construction	40,420		10.1	%	42,717		10.2	%
Casualty	32,698		8.2	%	42,306		10.1	%
National accounts casualty	14,439		3.6	%	7,923		1.9	%
Travel and accident	13,156		3.3	%	15,485		3.7	%
Surety	13,391		3.3	%	13,499		3.2	%
Healthcare	10,928		2.7	%	13,445		3.2	%
Other (1)	29,506		7.4	%	29,062		6.9	%
Total	$	401,097	100.0	%	$	419,100	100.0	%
Net premiums written by client location
United States	$	317,044	71.8	%	$	279,255	69.3	%
Europe	$	92,396	20.9	%	86,300		21.4	%
Other	32,146		7.3	%	37,209		9.3	%
Total	$	441,586	100.0	%	$	402,764	100.0	%
Net premiums written by underwriting location
United States	320,829		72.7	%	$	287,208	71.3	%
Europe	105,313		23.8	%	102,012		25.3	%
Other	15,444		3.5	%	13,544		3.4	%
Total	$	441,586	100.0	%	$	402,764	100.0	%

(1) Includes excess workers’ compensation, employers liability business and collateral protection business.

9

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2009			2008			2008			2008			2008			2007			2007			2007			2007
Gross premiums written	$	638,409		$	564,570		$	678,338		$	621,663		$	626,348		$	591,679		$	722,688		$	684,725		$	661,210
Net premiums written	441,586			367,223			466,115			421,501			402,764			377,357			460,019			451,828			428,344
Net premiums earned	$	401,097		$	398,355		$	441,049		$	416,585		$	419,100		$	426,352		$	429,584		$	432,560		$	413,847
Fee income	870			811			872			880			882			1,326			1,036			1,276			1,425
Losses and loss adjustment expenses	(270,015		)	(307,136		)	(337,456		)	(262,633		)	(287,303		)	(271,893		)	(273,896		)	(272,658		)	(259,322		)
Acquisition expenses, net	(57,623		)	(54,498		)	(62,752		)	(55,400		)	(51,889		)	(54,596		)	(52,880		)	(47,532		)	(46,695		)
Other operating expenses	(62,908		)	(71,819		)	(71,861		)	(71,566		)	(73,637		)	(68,677		)	(68,548		)	(70,269		)	(68,894		)
Underwriting income (loss)	$	11,421		$	(34,287	)	$	(30,148	)	$	27,866		$	7,153		$	32,512		$	35,296		$	43,377		$	40,361
Underwriting Ratios
Loss ratio	67.3		%	77.1		%	76.5		%	63.0		%	68.6		%	63.8		%	63.8		%	63.0		%	62.7		%
Acquisition expense ratio (1)	14.1		%	13.5		%	14.0		%	13.1		%	12.2		%	12.6		%	12.1		%	10.8		%	11.1		%
Other operating expense ratio	15.7		%	18.0		%	16.3		%	17.2		%	17.6		%	16.1		%	16.0		%	16.2		%	16.6		%
Combined ratio	97.1		%	108.6		%	106.8		%	93.3		%	98.4		%	92.5		%	91.9		%	90.0		%	90.4		%
Net premiums written
Property, energy, marine and aviation	$	106,029		$	56,263		$	91,461		$	89,674		$	97,237		$	54,789		$	85,178		$	104,226		$	84,773
Programs	74,807			64,619			78,045			73,202			54,583			50,524			67,792			59,154			58,323
Professional liability	52,008			58,449			70,778			63,583			54,081			65,832			80,708			64,584			58,355
Executive assurance	50,079			54,028			53,665			43,740			42,169			46,511			46,845			47,904			44,091
Construction	36,571			31,989			43,916			50,105			39,480			41,133			40,615			47,672			42,641
Casualty	26,539			27,936			28,456			31,161			28,543			35,975			46,392			57,719			43,181
National accounts casualty	24,227			8,856			16,609			9,416			13,055			7,967			8,976			5,167			10,104
Travel and accident	17,534			12,436			16,949			15,948			16,653			15,715			14,109			17,019			12,048
Surety	11,358			12,704			16,599			10,206			10,867			11,114			13,233			12,968			18,747
Healthcare	11,219			11,161			11,411			11,027			10,997			13,892			15,952			12,383			21,530
Other (2)	31,215			28,782			38,226			23,439			35,099			33,905			40,219			23,032			34,551
Total	$	441,586		$	367,223		$	466,115		$	421,501		$	402,764		$	377,357		$	460,019		$	451,828		$	428,344
Net premiums earned
Property, energy, marine and aviation	$	73,840		$	76,586		$	88,903		$	83,830		$	84,458		$	79,574		$	81,233		$	92,284		$	81,786
Programs	66,669			66,462			71,576			62,085			56,987			58,249			59,518			57,036			56,209
Professional liability	58,234			58,195			62,987			66,200			68,810			67,281			67,256			65,804			67,884
Executive assurance	47,816			45,192			47,237			44,496			44,408			44,887			46,481			47,408			45,378
Construction	40,420			38,603			45,601			39,225			42,717			44,975			43,174			40,334			37,967
Casualty	32,698			35,251			37,351			38,292			42,306			47,458			50,248			52,673			51,560
National accounts casualty	14,439			10,924			13,503			9,752			7,923			7,995			7,258			5,838			5,397
Travel and accident	13,156			13,414			17,671			15,994			15,485			16,561			14,469			16,337			9,246
Surety	13,391			12,109			13,891			12,057			13,499			14,874			16,597			16,597			19,129
Healthcare	10,928			10,880			12,292			13,137			13,445			15,256			16,249			17,107			19,844
Other(2)	29,506			30,739			30,037			31,517			29,062			29,242			27,101			21,142			19,447
Total	$	401,097		$	398,355		$	441,049		$	416,585		$	419,100		$	426,352		$	429,584		$	432,560		$	413,847

(1) The acquisition expense ratio is adjusted to include certain fee income.

(2) Includes excess workers’ compensation, employers liability business and collateral protection business.

10

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. dollars in thousands)

	Three Months Ended
	March 31,
	2009				2008
	Amount		% of Total		Amount		% of Total
Net premiums written
Casualty (1)	$	99,432	26.1	%	$	105,987	25.9	%
Property excluding property catastrophe(2)	119,088		31.2	%	95,922		23.5	%
Property catastrophe	91,903		24.1	%	106,224		26.0	%
Other specialty	40,712		10.7	%	75,680		18.5	%
Marine and aviation	28,523		7.5	%	22,164		5.4	%
Other	1,619		0.4	%	2,601		0.7	%
Total	$	381,277	100.0	%	$	408,578	100.0	%
Net premiums earned
Casualty (1)	$	85,946	28.7	%	$	107,648	37.2	%
Property excluding property catastrophe(2)	96,231		32.1	%	63,341		21.9	%
Property catastrophe	58,601		19.6	%	50,281		17.4	%
Other specialty	33,450		11.2	%	38,484		13.3	%
Marine and aviation	24,830		8.3	%	27,431		9.5	%
Other	409		0.1	%	1,949		0.7	%
Total	$	299,467	100.0	%	$	289,134	100.0	%
Net premiums written
Pro rata	$	181,222	47.5	%	$	215,419	52.7	%
Excess of loss	200,055		52.5	%	193,159		47.3	%
Total	$	381,277	100.0	%	$	408,578	100.0	%
Net premiums earned
Pro rata	$	194,518	65.0	%	$	192,076	66.4	%
Excess of loss	104,949		35.0	%	97,058		33.6	%
Total	$	299,467	100.0	%	$	289,134	100.0	%
Net premiums written by client location
United States	$	229,968	60.3	%	$	217,179	53.2	%
Europe	101,501		26.6	%	143,920		35.2	%
Bermuda	37,567		9.9	%	34,060		8.3	%
Other	12,241		3.2	%	13,419		3.3	%
Total	$	381,277	100.0	%	$	408,578	100.0	%
Net premiums written by underwriting location
Bermuda	$	195,600	51.3	%	$	220,669	54.0	%
United States	146,193		38.3	%	154,480		37.8	%
Other	39,484		10.4	%	33,429		8.2	%
Total	$	381,277	100.0	%	$	408,578	100.0	%

(1) Includes professional liability, executive assurance and healthcare business.

(2) Includes facultative business.

11

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2009			2008			2008			2008			2008			2007			2007			2007			2007
Gross premiums written	$	390,129		$	266,165		$	228,593		$	273,318		$	433,827		$	245,371		$	286,272		$	427,348		$	558,654
Net premiums written	381,277			248,351			226,577			264,617			408,578			200,309			234,611			306,067			443,401
Net premiums earned	$	299,467		$	300,159		$	291,982		$	289,090		$	289,134		$	285,864		$	305,945		$	318,852		$	331,646
Fee income	55			645			72			358			186			540			574			815			544
Losses and loss adjustment expenses	(130,527		)	(183,680		)	(211,430		)	(141,992		)	(117,114		)	(123,858		)	(128,799		)	(153,005		)	(160,739		)
Acquisition expenses, net	(68,835		)	(68,733		)	(70,661		)	(63,826		)	(62,750		)	(57,106		)	(78,544		)	(69,745		)	(73,433		)
Other operating expenses	(18,192		)	(21,761		)	(18,331		)	(20,091		)	(18,238		)	(25,126		)	(22,153		)	(19,999		)	(13,781		)
Underwriting income (loss)	$	81,968		$	26,630		$	(8,368	)	$	63,539		$	91,218		$	80,314		$	77,023		$	76,918		$	84,237
Underwriting Ratios
Loss ratio	43.6		%	61.2		%	72.4		%	49.1		%	40.5		%	43.3		%	42.1		%	48.0		%	48.5		%
Acquisition expense ratio	23.0		%	22.9		%	24.2		%	22.1		%	21.7		%	20.0		%	25.7		%	21.9		%	22.1		%
Other operating expense ratio	6.1		%	7.2		%	6.3		%	6.9		%	6.3		%	8.8		%	7.2		%	6.3		%	4.2		%
Combined ratio	72.7		%	91.3		%	102.9		%	78.1		%	68.5		%	72.1		%	75.0		%	76.2		%	74.8		%
Net premiums written
Casualty (1)	$	99,432		$	71,740		$	82,497		$	86,974		$	105,987		$	107,909		$	103,718		$	110,108		$	144,474
Property excluding property catastrophe (2)	119,088			90,909			56,105			85,748			95,922			40,729			43,341			69,351			94,946
Property catastrophe	91,903			27,534			44,591			52,797			106,224			8,762			35,268			77,514			80,659
Other specialty	40,712			26,066			24,013			20,693			75,680			13,664			33,145			27,971			73,996
Marine and aviation	28,523			31,867			18,727			17,975			22,164			29,156			17,903			19,812			43,715
Other	1,619			235			644			430			2,601			89			1,236			1,311			5,611
Total	$	381,277		$	248,351		$	226,577		$	264,617		$	408,578		$	200,309		$	234,611		$	306,067		$	443,401
Net premiums earned
Casualty (1)	$	85,946		$	95,990		$	106,146		$	106,199		$	107,648		$	118,160		$	115,862		$	131,114		$	140,442
Property excluding property catastrophe (2)	96,231			78,778			68,670			67,445			63,341			63,676			62,699			64,734			73,042
Property catastrophe	58,601			60,975			57,015			51,496			50,281			44,951			53,703			38,152			34,690
Other specialty	33,450			36,255			36,388			36,058			38,484			30,741			49,232			52,582			52,042
Marine and aviation	24,830			26,877			22,395			26,946			27,431			25,950			21,889			30,021			26,622
Other	409			1,284			1,368			946			1,949			2,386			2,560			2,249			4,808
Total	$	299,467		$	300,159		$	291,982		$	289,090		$	289,134		$	285,864		$	305,945		$	318,852		$	331,646

(1) Includes professional liability, executive assurance and healthcare business.

(2) Includes facultative business.

12

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Investable Asset Summary, Fixed Income Metrics and Credit Quality Distribution

(U.S. dollars in thousands)

	March 31,					December 31,					September 30,					June 30,					March 31,
	2009					2008					2008					2008					2008
Investable assets:
Fixed maturities available for sale, at market value	$	8,540,653		83	%	$	8,122,221		81	%	$	7,544,831		75	%	$	7,746,296		77	%	$	7,591,695		74	%
Fixed maturities pledged under securities lending agreements, at market value (1)	503,449			5	%	626,501			6	%	901,559			9	%	890,822			9	%	1,189,050			12	%
Total fixed maturities	9,044,102			88	%	8,748,722			87	%	8,446,390			84	%	8,637,118			86	%	8,780,745			86	%
Short-term investments available for sale, at market value	749,708			7	%	479,586			5	%	863,783			9	%	645,587			6	%	631,285			6	%
Short-term investments pledged under securities lending agreements, at market value (1)	56,242			1	%	101,564			1	%	3,987			0	%	—			0	%	1,036			0	%
Cash	244,037			2	%	251,739			3	%	239,097			2	%	246,544			2	%	258,680			3	%
Other investments
Fixed income mutual funds	32,912			0	%	39,858			0	%	60,051			1	%	122,236			1	%	145,454			1	%
International equity index funds	—			0	%	—			0	%	—			0	%	106,230			1	%	108,493			1	%
Privately held securities and other (Aeolus LP, etc.)	72,076			1	%	69,743			1	%	82,095			1	%	67,172			1	%	62,305			1	%
Investment funds accounted for using the equity method (2)	293,452			3	%	301,027			3	%	384,139			4	%	351,879			3	%	294,379			3	%
Securities transactions entered into but not settled at the balance sheet date	(241,836		)	(2	)%	(18,236		)	0	%	(39,117		)	(1	)%	(10,845		)	0	%	(39,640		)	(1	)%
Total investable assets (1)	$	10,250,693		100	%	$	9,974,003		100	%	$	10,040,425		100	%	$	10,165,921		100	%	$	10,242,737		100	%
Fixed income metrics (1):
Average effective duration (in years)	3.02					3.62					3.44					3.36					3.50
Average credit quality	AA+					AA+					AA+					AA+					AA+
Imbedded book yield (before investment expenses)	4.17		%			4.55		%			4.74		%			4.96		%			4.82		%
Credit quality distribution of total fixed maturities (1) (3):
AAA	$	7,146,184		79	%	$	6,756,503		77	%	$	6,202,446		73	%	$	6,110,053		71	%	$	6,676,227		76	%
AA	833,192			9	%	815,512			9	%	1,177,943			14	%	1,287,086			15	%	950,671			11	%
A	645,995			7	%	750,947			9	%	651,915			8	%	772,697			9	%	730,523			8	%
BBB	178,854			2	%	195,319			2	%	205,362			2	%	227,699			2	%	209,874			3	%
BB	54,094			1	%	52,349			1	%	46,283			1	%	48,083			1	%	34,072			0	%
B	126,670			1	%	126,688			1	%	109,544			1	%	123,650			1	%	113,912			1	%
Lower than B	11,825			0	%	9,549			0	%	8,868			0	%	9,738			0	%	9,785			0	%
Not rated	47,288			1	%	41,855			1	%	44,029			1	%	58,112			1	%	55,681			1	%
Total fixed maturities, at market value	$	9,044,102		100	%	$	8,748,722		100	%	$	8,446,390		100	%	$	8,637,118		100	%	$	8,780,745		100	%

(1)	In securities lending transactions, the Company receives collateral in excess of the market value of the fixed maturities and short-term investments pledged under securities lending agreements.For purposes of these tables, the Company has excluded the collateral received and reinvested at each date, which is reflected as “investment of funds received under securities lending agreements, at market value” and included amounts reflected as “fixed maturities and short-term investments pledged under securities lending agreements, at market value.”
(2)	The Company’s investment portfolio includes certain funds that invest in fixed maturity securities which, due to the ownership structure of the funds, are accounted for by the Company using the equity method. In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). Changes in the carrying value of such investments are recorded as ‘Equity in net income (loss) of investment funds accounted for using the equity method’ rather than as an unrealized gain or loss component of accumulated other comprehensive income in shareholders’ equity as are changes in the carrying value of the Company’s other fixed income investments.
(3)	Ratings as assigned by the major rating agencies.

13

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Composition of Fixed Maturities and Analysis of Corporate Exposures

(U.S. dollars in thousands)

The following table summarizes the Company’s fixed maturities and fixed maturities pledged under securities lending agreements:

			Gross		Gross			Net					Estimated
	Estimated		Unrealized		Unrealized			Unrealized			Amortized		Market Value /
March 31, 2009	Market Value		Gains		Losses (1)			Gains (Losses)			Cost (1)		Amortized Cost
Corporate bonds	$	2,181,763	$	32,016	$	(123,549	)	$	(91,533	)	$	2,273,296	96.0	%
Mortgage backed securities	1,692,863		31,111		(138,230		)	(107,119		)	1,799,982		94.0	%
U.S. government and government agencies	1,547,416		51,239		(7,554		)	43,685			1,503,731		102.9	%
Commercial mortgage backed securities	1,209,605		20,153		(48,276		)	(28,123		)	1,237,728		97.7	%
Asset backed securities	922,560		8,388		(45,788		)	(37,400		)	959,960		96.1	%
Municipal bonds	861,954		32,621		(2,157		)	30,464			831,490		103.7	%
Non-U.S. government securities	627,941		22,550		(24,124		)	(1,574		)	629,515		99.7	%
Total	$	9,044,102	$	198,078	$	(389,678	)	$	(191,600	)	$	9,235,702	97.9	%

(1) The adoption of FSP 115-2 on January 1, 2009 resulted in an increase in the amortized cost basis of the Company’s fixed maturities and a related increase in gross unrealized losses. The increase upon adoption of $62.0 million, which consisted of $23.6 million in corporate bonds, $16.5 million in asset backed securities, $12.2 million in mortgage-backed securities and smaller adjustments to the other categories.

Corporate Exposures:

The following table summarizes the Company’s corporate bonds by major sector at March 31, 2009:

	Estimated Market Value
			% of Asset		% of Investable
	Total		Class		Assets
Sector:
Financials	$	1,016,829	46.6	%	9.9	%
Industrials	636,103		29.2	%	6.2	%
Utilities	85,512		3.9	%	0.8	%
All other(1)	443,319		20.3	%	4.3	%
Total	$	2,181,763	100.0	%	21.2	%

(1) Includes foreign agencies, sovereign and supernational securities and other.

The following table summarizes the Company’s corporate bonds by credit quality distribution at March 31, 2009:

	Estimated Market Value
			% of Asset		% of Investable
	Total		Class		Assets
Rating:
AAA	$	868,829	39.8	%	8.5	%
AA	346,558		15.9	%	3.4	%
A	579,223		26.5	%	5.7	%
BBB	165,095		7.6	%	1.6	%
BB	40,252		1.8	%	0.4	%
B	124,324		5.7	%	1.2	%
Lower than B	10,206		0.5	%	0.1	%
Not rated	47,276		2.2	%	0.5	%
Total	$	2,181,763	100.0	%	21.3	%

The following table summarizes the Company’s top ten exposures to fixed income corporate issuers at March 31, 2009:

	Estimated Market Value
	Government		Not
	Guaranteed (1)		Guaranteed		Total
JPMorgan Chase & Co.	$	75,837	$	37,671	$	113,508
Bank of America Corp.	65,924		44,059		109,983
General Electric Capital Corp.	20,022		61,791		81,813
Citigroup Inc.	10,367		43,830		54,197
Wells Fargo & Company	—		52,213		52,213
Goldman Sachs Group Inc.	37,720		10,667		48,387
Verizon Communications Inc.	—		47,632		47,632
Japan Finance Corp.	46,787		—		46,787
Macquarie Group Ltd.	43,540		—		43,540
HSBC Holdings PLC	26,107		13,986		40,093
Total	$	326,304	$	311,849	$	638,153

(1) Securities of US-domiciled issuers are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”), a U.S. government agency, under the Temporary Liquidity Guarantee Program. Japan Finance Corp., Macquarie Group Ltd. and HSBC Holdings PLC securities are guaranteed by the governments of Japan, Australia, and the United Kingdom, respectively.

14

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Mortgage Backed, Commercial Mortgage Backed and Asset Backed Securities

(U.S. dollars in thousands)

The following table provides information on the Company’s mortgage backed securities (“MBS”) and commercial mortgage backed securities (“CMBS”) at March 31, 2009, excluding amounts guaranteed by the U.S. government:

				Average	Estimated Market Value
	Issuance	Par		Credit			% of Asset		% of Investable
	Year	Value		Quality	Total		Class		Assets
Non-agency MBS:	2002	$	5,363	AAA	$	4,880	0.3	%	0.0	%
	2003	4,367		AAA	3,777		0.2	%	0.0	%
	2004	42,508		AAA	31,190		1.8	%	0.3	%
	2005	111,702		AA+	60,574		3.6	%	0.6	%
	2006	86,381		AA+	46,989		2.8	%	0.5	%
	2007	124,097		A	73,793		4.4	%	0.7	%
	2008	30,211		AAA	23,751		1.4	%	0.2	%
Total non-agency MBS		$	404,629	AA	$	244,954	14.5	%	2.3	%
Non-agency CMBS:	1998	$	3,400	AAA	$	3,289	0.3	%	0.0	%
	1999	86,929		AAA	88,419		7.3	%	0.9	%
	2000	129,351		AAA	131,302		10.9	%	1.3	%
	2001	131,981		AAA	128,942		10.7	%	1.3	%
	2002	70,822		AAA	67,959		5.6	%	0.7	%
	2003	97,332		AAA	91,854		7.6	%	0.9	%
	2004	77,045		AAA	69,348		5.7	%	0.7	%
	2005	77,943		AAA	64,212		5.3	%	0.6	%
	2006	36,807		AAA	28,027		2.3	%	0.3	%
	2007	37,900		AAA	31,750		2.6	%	0.3	%
Total non-agency CMBS		$	749,510	AAA	$	705,102	58.3	%	7.0	%

	Non-Agency		Non-Agency
Additional Statistics	MBS		CMBS (1)
Wtd. average loan age (months)	39		81
Wtd. average life (months) (2)	47		34
Wtd. average loan-to-value % (3)	69.4	%	57.0	%
Total delinquencies (4)	9.9	%	1.3	%
Current credit support % (5)	15.5	%	30.0	%

(1)	Loans defeased with government/agency obligations represented approximately 22% of the collateral underlying the Company’s CMBS holdings.
(2)	The weighted average life for MBS is based on the interest rates in effect at March 31, 2009. The weighted average life for CMBS reflects the average life of the collateral underlying the Company’s CMBS holdings.
(3)	The range of loan-to-values on MBS is 37% to 91%, while the range of loan-to-values on CMBS is 43% to 76%.
(4)	Total delinquencies includes 60 days and over.
(5)	Current credit support % represents the % for a collateralized mortgage obligation (“CMO”) or CMBS class/tranche from other subordinate classes in the same CMO or CMBS deal.

The following table provides information on the Company’s asset backed securities (“ABS”) at March 31, 2009:

			Average			Estimated Market Value
	Par		Credit	Effective				% of Asset		% of Investable
	Value		Quality	Duration		Total		Class		Assets
Sector:
Autos (1)	$	259,576	AAA	1.32		$	253,993	27.5	%	2.5	%
Credit cards (2)	441,359		AAA	1.26		421,599		45.7	%	4.1	%
Rate reduction bonds (3)	140,997		AAA	1.84		146,393		15.9	%	1.4	%
Student loans (4)	40,625		AAA	(0.02	)	39,020		4.2	%	0.4	%
Equipment (5)	32,899		AAA	1.53		32,863		3.6	%	0.3	%
Other	9,346		AAA	0.20		8,086		0.9	%	0.1	%
	924,802		AAA	1.31		901,954		97.8	%	8.8	%
Home equity (6)	$	33,019	AAA	0.01		$	17,866	1.9	%	0.2	%
	17,705		AA	0.01		2,447		0.3	%	0.0	%
	760		A	0.01		158		0.0	%	0.0	%
	13		B	0.01		—		0.0	%	0.0	%
	5,400		CCC	0.01		76		0.0	%	0.0	%
	697		D	0.07		59		0.0	%	0.0	%
	57,594		AA	0.01		20,606		2.2	%	0.2	%
Total ABS	$	982,396	AAA	1.23		$	922,560	100.0	%	9.0	%

(1)	The weighted average credit support % on autos is 18.2%.
(2)	The average excess spread % on credit cards is 6.9%.
(3)	The weighted average credit support % on rate reduction bonds is 1.5%.
(4)	The weighted average credit support % on student loans is 4.5%.
(5)	The weighted average credit support % on equipment is 5.5%.
(6)	The weighted average credit support % on home equity is 33.7%.

The Company’s investment portfolio included $62.7 million par in sub-prime securities at March 31, 2009, with an estimated market value of $24.1 million and an average credit quality of “AA.” Such amounts were primarily in the home equity sector with the balance in other ABS, MBS and CMBS sectors. In addition, the portfolio of collateral backing the Company’s securities lending program contains approximately $33.8 million estimated market value of sub-prime securities with an average credit quality of “AAA” from Standard & Poors and “Ba2” from Moody’s.

15

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Bank Loan Investments

(U.S. dollars in thousands)

The Company’s investments in bank loan funds are included in the following categories at March 31, 2009:

	Carrying			% of Asset		% of Investable
	Value			Class		Assets
Investment funds accounted for using the equity method	$	210,644		63.6	%	2.1	%
Corporate bonds, at market value	95,960			29.0	%	0.9	%
Other investments, at market value	24,686			7.4	%	0.2	%
Total	$	331,290		100.0	%	3.2	%
The following table summarizes the Company’s bank loan funds by currency (translated into U.S. Dollars) at March 31, 2009:
	Carrying			% of Asset		% of Investable
	Value			Class		Assets
U.S.-denominated	$	202,469		61.1	%	2.0	%
Euro-denominated	128,821			38.9	%	1.2	%
Total	$	331,290		100.0	%	3.2	%
The following table summarizes the Company’s bank loan funds by major sector at March 31, 2009:
	Carrying			% of Asset		% of Investable
	Value			Class		Assets
Sector:
Healthcare, education and childcare	$	48,201		14.5	%	0.5	%
Printing and publishing	$	32,547		9.8	%	0.3	%
Diversified / conglomerate service	$	32,182		9.7	%	0.3	%
Broadcasting and entertainment	31,571			9.5	%	0.3	%
Utilities	19,878			6.0	%	0.2	%
All other	166,911			50.5	%	1.6	%
Total	$	331,290		100.0	%	3.2	%
Additional Statistics:
Weighted average rating factor (Moody’s)	B1
Weighted average carrying value as % of par value	64.0		%
Estimated % of “CCC” and lower rated holdings	5.4		%

16

Arch Capital Group Ltd. and Subsidiaries

Comments on Regulation G

Throughout this financial supplement, the Company presents its operations in the way it believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use the Company’s financial information in evaluating the performance of the Company. This presentation includes the use of after-tax operating income available to common shareholders, which is defined as net income available to common shareholders, excluding net realized gains or losses, net impairment losses included in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses, net of income taxes. The presentation of after-tax operating income available to common shareholders is a “non-GAAP financial measure” as defined in Regulation G. The reconciliation of such measure to net income available to common shareholders (the most directly comparable GAAP financial measure) in accordance with Regulation G is included on the following page.

The Company believes that net realized gains or losses, net impairment losses included in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses in any particular period are not indicative of the performance of, or trends in, the Company’s business performance. Although net realized gains or losses, net impairment losses included in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of the Company’s operations, the decision to realize investment gains or losses, the recognition of net impairment losses included in earnings, the recognition of equity in net income or loss of investment funds accounted for using the equity method and the recognition of foreign exchange gains or losses are independent of the insurance underwriting process and result, in large part, from general economic and financial market conditions. Furthermore, certain users of the Company’s financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. In addition, net impairment losses included in earnings represent other-than-temporary declines in expected recovery values on securities without actual realization. The use of the equity method on certain of the Company’s investments in certain funds that invest in fixed maturity securities is driven by the ownership structure of such funds (either limited partnerships or limited liability companies). In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). This method of accounting is different from the way the Company accounts for its other fixed maturity securities and the timing of the recognition of equity in net income or loss of investment funds accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments. Due to these reasons, the Company excludes net realized gains or losses, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses from the calculation of after-tax operating income available to common shareholders.

The Company believes that showing net income available to common shareholders exclusive of the items referred to above reflects the underlying fundamentals of the Company’s business since the Company evaluates the performance of and manages its business to produce an underwriting profit. In addition to presenting net income available to common shareholders, the Company believes that this presentation enables investors and other users of the Company’s financial information to analyze the Company’s performance in a manner similar to how the Company’s management analyzes performance. The Company also believes that this measure follows industry practice and, therefore, allows the users of the Company’s financial information to compare the Company’s performance with its industry peer group. The Company believes that the equity analysts and certain rating agencies which follow the Company and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.

In the 2008 fourth quarter, the Company sustained a net loss. Accordingly, based on GAAP, diluted net loss per share and diluted weighted average shares outstanding for the 2008 fourth quarter do not include the effect of dilutive common share equivalents since the inclusion of such common share equivalents is anti-dilutive to per share results.  The 2008 fourth quarter pro forma diluted net loss per share included in this supplement reflects the effect of such dilutive common share equivalents in order to make comparisons to other periods more meaningful. This presentation is a “non-GAAP financial measure” as defined in Regulation G. The reconciliation of such measure to actual diluted net loss per share (the most directly comparable GAAP financial measure) in accordance with Regulation G is included on page 18 of this supplement.

17

Arch Capital Group Ltd. and Subsidiaries

Operating Income Reconciliation

(U.S. dollars in thousands, except share data)

The following table provides a reconciliation of after-tax operating income available to common shareholders to net income (loss) available to common shareholders along with related per common share results:

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2009			2008 (1)			2008			2008			2008			2007			2007			2007			2007
After-tax operating income available to common shareholders	$	169,001		$	85,934		$	64,094		$	185,375		$	201,983		$	221,520		$	214,582		$	205,626		$	204,730
Net realized gains (losses), net of tax	(9,111		)	(30,836		)	(21,904		)	(2,174		)	45,782			37,413			16,577			(2,347		)	6,477
Net impairment losses recognized in earnings, net of tax	(36,134		)	(75,169		)	(82,514		)	(10,694		)	(12,646		)	(19,202		)	(2,698		)	(444		)	(5,691		)
Equity in net income (loss) of investment funds accountedfor using the equity method, net of tax	(9,581		)	(174,147		)	(1,731		)	19,583			(22,313		)	(906		)	(5,283		)	3,376			2,642
Net foreign exchange gains (losses), net of tax	25,694			51,246			68,445			192			(23,384		)	(4,416		)	(23,433		)	(6,817		)	(9,607		)
Net income (loss) available tocommon shareholders	$	139,869		$	(142,972	)	$	26,390		$	192,282		$	189,422		$	234,409		$	199,745		$	199,394		$	198,551
Diluted per common share results:
After-tax operating income available tocommon shareholders	$	2.70		$	1.43		$	1.02		$	2.82		$	2.97		$	3.12		$	2.96		$	2.73		$	2.67
Net realized gains (losses), net of tax	(0.14		)	(0.51		)	(0.35		)	(0.03		)	0.67			0.53			0.23			(0.03		)	0.08
Net impairment losses recognized in earnings, net of tax	(0.58		)	(1.25		)	(1.31		)	(0.17		)	(0.19		)	(0.27		)	(0.04		)	(0.01		)	(0.07		)
Equity in net income (loss) of investment funds accountedfor using the equity method, net of tax	(0.15		)	(2.90		)	(0.03		)	0.30			(0.33		)	(0.01		)	(0.07		)	0.05			0.04
Net foreign exchange gains (losses), net of tax	0.41			0.85			1.09			0.00			(0.34		)	(0.06		)	(0.32		)	(0.09		)	(0.13		)
Net income (loss) available tocommon shareholders	$	2.24		$	(2.38	)	$	0.42		$	2.92		$	2.78		$	3.31		$	2.76		$	2.65		$	2.59
Weighted average common shares and commonshare equivalents outstanding – diluted	62,559,969			60,048,258			62,830,910			65,748,119			68,019,413			70,901,361			72,378,940			75,254,846			76,640,686

	Pro Forma (1)
Diluted per common share results:
After-tax operating income available to common shareholders	$	1.37
Net realized gains (losses), net of tax	(0.49		)
Net impairment losses recognized in earnings, net of tax	(1.20		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	(2.78		)
Net foreign exchange gains (losses), net of tax	0.82
Net income (loss) available to common shareholders	$	(2.28	)
Weighted average common shares and common share equivalents outstanding – diluted	62,587,256

(1) Due to the net loss recorded in the 2008 fourth quarter, diluted weighted average common shares and common share equivalents as reported do not include 2.5 million dilutive common share equivalents since the inclusion of such common share equivalents would have had an anti-dilutive effect on the loss per share under GAAP. The 2008 fourth quarter pro forma per diluted share amounts include such dilutive common share equivalents in order to make comparisons to the 2007 fourth quarter more meaningful.

18

Arch Capital Group Ltd. and Subsidiaries

Annualized Operating Return on Average Common Equity

(U.S. dollars in thousands)

The following table provides the calculation of annualized operating return on average common equity:

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2009			2008			2008			2008			2008			2007			2007			2007			2007
After-tax operating income available to common shareholders	$	169,001		$	85,934		$	64,094		$	185,375		$	201,983		$	221,520		$	214,582		$	205,626		$	204,730
Annualized after-tax operating incomeavailable to common shareholders (a)	$	676,004		$	343,736		$	256,376		$	741,500		$	807,932		$	886,080		$	858,328		$	822,504		$	818,920
Beginning common shareholders’ equity	$	3,107,965		$	3,191,710		$	3,561,233		$	3,679,544		$	3,710,811		$	3,549,795		$	3,379,067		$	3,458,348		$	3,265,619
Ending common shareholders’ equity	$	3,305,396		$	3,107,965		$	3,191,710		$	3,561,233		$	3,679,544		$	3,710,811		$	3,549,795		$	3,379,067		$	3,458,348
Average common shareholders’ equity (b)	$	3,206,681		$	3,149,838		$	3,376,472		$	3,620,389		$	3,695,178		$	3,630,303		$	3,464,431		$	3,418,708		$	3,361,984
Annualized operating return on average common equity (a)/(b)	21.1		%	10.9		%	7.6		%	20.5		%	21.9		%	24.4		%	24.8		%	24.1		%	24.4		%

19

Arch Capital Group Ltd. and Subsidiaries

Capital Structure

(U.S. dollars in thousands, except share data)

The following table provides an analysis of the Company’s capital structure:

	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2009			2008			2008			2008			2008			2007			2007			2007			2007
Debt:
Senior notes, due May 1, 2034 (7.35%)	$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000
Revolving credit agreement borrowings, due August 30, 2011 (variable)	100,000			100,000			100,000			100,000			—			—			—			—			—
Total debt	$	400,000		$	400,000		$	400,000		$	400,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000
Shareholders’ Equity
Series A non-cumulative preferred shares (8.0%) (1)	$	200,000		$	200,000		$	200,000		$	200,000		$	200,000		$	200,000		$	200,000		$	200,000		$	200,000
Series B non-cumulative preferred shares (7.875%) (2)	125,000			125,000			125,000			125,000			125,000			125,000			125,000			125,000			125,000
Preferred shareholders’ equity	325,000			325,000			325,000			325,000			325,000			325,000			325,000			325,000			325,000
Common shareholders’ equity (a)	3,305,396			3,107,965			3,191,710			3,561,233			3,679,544			3,710,811			3,549,795			3,379,067			3,458,348
Total shareholders’ equity	$	3,630,396		$	3,432,965		$	3,516,710		$	3,886,233		$	4,004,544		$	4,035,811		$	3,874,795		$	3,704,067		$	3,783,348
Total capital	$	4,030,396		$	3,832,965		$	3,916,710		$	4,286,233		$	4,304,544		$	4,335,811		$	4,174,795		$	4,004,067		$	4,083,348
Common shares outstanding (3) (b)	60,532,222			60,511,974			60,173,489			61,943,100			64,649,618			67,318,466			69,141,795			71,273,285			73,746,726
Book value per common share (a)/(b)	$	54.61		$	51.36		$	53.04		$	57.49		$	56.92		$	55.12		$	51.34		$	47.41		$	46.89
Leverage ratios:
Senior notes/total capital	7.4		%	7.8		%	7.7		%	7.0		%	7.0		%	6.9		%	7.2		%	7.5		%	7.3		%
Revolving credit agreement borrowings/total capital	2.5		%	2.6		%	2.6		%	2.3		%	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%
Debt/total capital	9.9		%	10.4		%	10.2		%	9.3		%	7.0		%	6.9		%	7.2		%	7.5		%	7.3		%
Preferred/total capital	8.1		%	8.5		%	8.3		%	7.6		%	7.6		%	7.5		%	7.8		%	8.1		%	8.0		%
Debt and preferred/total capital	18.0		%	18.9		%	18.5		%	16.9		%	14.5		%	14.4		%	15.0		%	15.6		%	15.3		%

(1) 8,000,000 shares, $25 liquidation preference, redeemable by Company on or after February 1, 2011.

(2) 5,000,000 shares, $25 liquidation preference, redeemable by Company on or after May 15, 2011.

(3) Excludes the effects of stock options and restricted stock units outstanding.

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