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

July 23, 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 July 23, 2009, Arch Capital Group Ltd. issued a press release reporting its earnings and the availability of its second quarter financial supplement for the six month period ended June 30, 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 July 23, 2009 announcing the earnings of Arch Capital Group Ltd. for the six month period ended June 30, 2009
99.2	Second 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: July 23, 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 July 23, 2009 announcing the earnings of Arch Capital Group Ltd. for the six month period ended June 30, 2009
99.2	Second Quarter 2009 Financial Supplement

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EX-99.1

Exhibit 99.1

ARCH CAPITAL GROUP LTD.

Earnings Release Supplement

As of June 30, 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 SECOND QUARTER RESULTS

HAMILTON, BERMUDA, July 23, 2009 — Arch Capital Group Ltd. (NASDAQ: ACGL) reports that net income available to common shareholders for the 2009 second quarter was $152.1 million, or $2.43 per share, compared to $192.3 million, or $2.92 per share, for the 2008 second quarter, and $292.0 million, or $4.67 per share, for the six months ended June 30, 2009, compared to $381.7 million, or $5.71 per share, for the 2008 period. The Company also reported after-tax operating income available to common shareholders of $163.0 million, or $2.60 per share, for the 2009 second quarter, compared to $185.4 million, or $2.82 per share, for the 2008 second quarter, and $332.0 million, or $5.31 per share, for the six months ended June 30, 2009, compared to $387.4 million, or $5.79 per share, for the 2008 period. All earnings per share amounts discussed in this release are on a diluted basis.

The Company’s book value per common share increased to $60.76 at June 30, 2009, an 11.3% increase from $54.61 per share at March 31, 2009 and 18.3% from $51.36 at December 31, 2008, due to growth in retained earnings and an after-tax increase in the market value of the Company’s investment portfolio. The Company’s after-tax operating income available to common shareholders represented an 18.6% annualized return on average common equity for the 2009 second quarter, compared to 20.5% for the 2008 second quarter, and 19.5% for the six months ended June 30, 2009, compared to 21.3% for the 2008 period. 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						Six Months Ended
	June 30,						June 30,
(U.S. dollars in thousands)	2009			2008			2009			2008
Gross premiums written	$	911,920		$	886,926		$	1,936,891		$	1,940,078
Net premiums written	693,854			686,118			1,516,717			1,497,460
Net premiums earned	699,258			705,675			1,399,822			1,413,909
Underwriting income	89,624			91,405			183,013			189,776
Combined ratio	87.2		%	87.1		%	87.0		%	86.6		%

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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						Six Months Ended
	June 30,						June 30,
(U.S. dollars in thousands, except per share data)	2009			2008			2009			2008
After-tax operating income available to common shareholders	$	163,041		$	185,375		$	332,042		$	387,358
Net realized gains (losses), net of tax	(11,243		)	(2,174		)	(20,354		)	43,608
Net impairment losses recognized in earnings, net of tax	(20,786		)	(10,694		)	(56,920		)	(23,340		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	75,890			19,583			66,309			(2,730		)
Net foreign exchange gains (losses), net of tax	(54,773		)	192			(29,079		)	(23,192		)
Net income available to common shareholders	$	152,129		$	192,282		$	291,998		$	381,704
Diluted per common share results:
After-tax operating income available to common shareholders	$	2.60		$	2.82		$	5.31		$	5.79
Net realized gains (losses), net of tax	(0.18		)	(0.03		)	(0.33		)	0.65
Net impairment losses recognized in earnings, net of tax	(0.33		)	(0.17		)	(0.91		)	(0.35		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	1.21			0.30			1.06			(0.04		)
Net foreign exchange gains (losses), net of tax	(0.87		)	0.00			(0.46		)	(0.34		)
Net income available to common shareholders	$	2.43		$	2.92		$	4.67		$	5.71
Weighted average common shares and common share equivalents outstanding – diluted	62,626,317			65,748,119			62,589,856			66,886,972

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 second quarter, the combined ratio of the Company’s insurance and reinsurance subsidiaries consisted of a loss ratio of 57.0% and an underwriting expense ratio of 30.2%, compared to a loss ratio of 57.3% and an underwriting expense ratio of 29.8% for the 2008 second quarter. For the six months ended June 30, 2009, the combined ratio of the Company’s insurance and reinsurance subsidiaries consisted of a loss ratio of 57.1% and an underwriting expense ratio of 29.9%, compared to a loss ratio of 57.2% and an underwriting expense ratio of 29.4% for the 2008 period. The loss ratio of 57.0% for the 2009 second quarter was comprised of 56.5 points of paid losses (including 3.5 points related to 2005 and 2008 named catastrophic events), 16.0 points related to reserves for reported losses and a reduction of 15.5 points related to incurred but not reported reserves. The 2009 second quarter loss ratio also reflected the commutation of a non-standard automobile treaty, which increased the paid loss ratio by 6.0 points and reduced the reported loss ratio and incurred but not reported loss ratio by 1.4 points and 5.9 points, respectively. This transaction will reduce cash flows from operations in the 2009 third quarter.

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 June 30, 2009. As actual loss information is reported to the Company and it develops its own loss experience, the Company will give more emphasis to other actuarial techniques. For a

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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 an average credit quality of “AA+”, 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 portfolio’s book yield was 4.06% at June 30, 2009, compared to 4.17% at March 31, 2009 and 4.55% at December 31, 2008. The lower book yields in the 2009 periods were due in part to lower available yields and a reduction in the portfolio’s effective duration, which was 3.02 years at June 30, 2009 and 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 approximately 3.89% for the 2009 second quarter, compared to (0.09%) for the 2008 second quarter, and 5.03% for the six months ended June 30, 2009, compared to 0.86% for the 2008 period. Excluding foreign exchange, total return was 3.20% for the 2009 second quarter, compared to (0.07%) for the 2008 second quarter, and 4.46% for the six months ended June 30, 2009, compared to 0.63% for the 2008 period. As discussed below, the Company holds investments in foreign currencies which are intended to mitigate its exposure to foreign currency fluctuations in its net insurance liabilities.

Net investment income for the 2009 second quarter was $100.5 million, or $1.60 per share, compared to $95.9 million, or $1.53 per share, for the 2009 first quarter and $117.1 million, or $1.78 per share, for the 2008 second quarter, and $196.4 million, or $3.14 per share, for the six months ended June 30, 2009, compared to $239.3 million, or $3.58 per share, for the 2008 period. The pre-tax investment income yield was 3.91% for the 2009 second quarter, compared to 3.82% for the 2009 first quarter and 4.80% for the 2008 second quarter, and 3.87% for the six months ended June 30, 2009, compared to 4.84% for the 2008 period. As noted last quarter, net investment income for the 2009 first quarter included reductions in the cost basis of treasury inflation protected securities (TIPS) which were substantially reduced by March 31, 2009. The increase in net investment income in the 2009 second quarter from the 2009 first quarter was primarily due to the TIPS reductions in the 2009 first quarter. The comparability of net investment income between the 2009 and 2008 periods was influenced by the Company’s share repurchase program described below.

The Company recorded $20.9 million of net impairment losses through earnings in the 2009 second quarter. The net impairment losses primarily resulted from reductions in the expected recovery values on mortgage backed and asset backed securities during the period. In addition, the Company recorded $75.9 million of net income related to investment funds accounted for using the equity method for the 2009 second quarter, compared to $19.6 million for the 2008 second quarter, and $66.3 million for the six months ended June 30, 2009, compared to net losses of $2.7 million for the 2008 period. Investment funds accounted for using the equity method totaled $370.2 million at June 30, 2009, compared to $293.5 million at March 31, 2009 and $301.0 million at December 31, 2008. At June 30, 2009, the Company’s portfolio included $431.4 million of investments in U.S. and Euro-denominated bank loan funds, which are primarily reflected in the investment funds accounted for using the equity method shown above.

Please refer to the Company’s Financial Supplement dated June 30, 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.

For the 2009 second quarter, the Company’s effective tax rates on income before income taxes and pre-tax operating income were 5.3% and 4.7%, respectively, compared to 2.6% and 2.5% for the 2008 second quarter. For the six months ended June 30, 2009, the Company’s effective tax rates on income before income taxes and pre-tax operating income were 5.7% and 4.0%, respectively, compared to 3.2% and 2.5% for the 2008 period. The Company’s effective tax rates may fluctuate from period to period based on the relative mix of income

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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 3.0% to 5.0%. In addition, the Company’s Bermuda-based reinsurer incurs federal excise taxes for premiums assumed on U.S. risks. The Company incurred $6.3 million of federal excise taxes for the six months ended June 30, 2009, compared to $6.4 million for the 2008 period. Such amounts are reflected as acquisition expenses in the Company’s consolidated statements of income.

Net foreign exchange losses for the 2009 second quarter of $53.7 million consisted of net unrealized losses of $52.2 million and net realized losses of $1.5 million, compared to net foreign exchange gains for the 2008 second quarter of $0.3 million which consisted of net unrealized gains of $1.1 million and net realized losses of $0.8 million. The 2009 second quarter net foreign exchange losses resulted from the significant weakening of the U.S. Dollar against the British Pound, Euro and other major currencies during the period. Net foreign exchange losses for the six months ended June 30, 2009 of $28.5 million consisted of net unrealized losses of $26.2 million and net realized losses of $2.3 million, compared to net foreign exchange losses for the 2008 period of $23.3 million which consisted of net unrealized losses of $21.2 million and net realized losses of $2.1 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 consolidated 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 second quarter, compared to 65.7 million for the 2008 second quarter, and 62.6 million for the six months ended June 30, 2009, compared to 66.9 million for the 2008 period. The lower level of weighted average shares outstanding in the 2009 periods was primarily due to the full weighting of share repurchases made during 2008.

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. Since the inception of the share repurchase program through June 30, 2009, ACGL has repurchased approximately 15.3 million common shares for an aggregate purchase price of $1.05 billion. At June 30, 2009, approximately $448.3 million of repurchases were available under the share repurchase program.

At June 30, 2009, the Company’s capital of $4.43 billion consisted of $300.0 million of senior notes, representing 6.8% of the total, $100.0 million of revolving credit agreement borrowings due in August 2011, representing 2.3% of the total, $325.0 million of preferred shares, representing 7.3% of the total, and common shareholders’ equity of $3.7 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 2009 was primarily attributable to net income and an after-tax increase in the market value of the Company’s investment portfolio during the period.

The Company will hold a conference call for investors and analysts at 11:00 a.m. Eastern Time on Friday, July 24, 2009. A live webcast of this call will be available via the Investor Relations — Events & 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 July 24 at 1:00 p.m. Eastern Time until July 31, 2009 at midnight Eastern

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Time. To access the replay, domestic callers should dial 888-286-8010 (passcode 89322220), and international callers should dial 617-801-6888 (passcode 89322220).

Please refer to the Company’s Financial Supplement dated June 30, 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 $4.4 billion in capital at June 30, 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 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 June 30, 2009;

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· 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

	June 30,			March 31,			December 31,
(U.S. dollars in thousands, except share data)	2009			2009			2008
Calculation of book value per common share:
Total shareholders’ equity	$	4,029,968		$	3,630,396		$	3,432,965
Less preferred shareholders’ equity	(325,000		)	(325,000		)	(325,000		)
Common shareholders’ equity	$	3,704,968		$	3,305,396		$	3,107,965
Common shares outstanding (1)	60,980,806			60,532,222			60,511,974
Book value per common share	$	60.76		$	54.61		$	51.36

	Three Months Ended					Six Months Ended					Cumulative
	June 30,					June 30,					June 30,
(U.S. dollars in thousands, except share data)	2009		2008			2009		2008			2009
Effect of share repurchases:
Aggregate purchase price of shares repurchased	$	—	$	199,910		$	1,552	$	389,753		$	1,051,748
Shares repurchased	—		2,871,859			33,305		5,621,768			15,289,594
Average price per share repurchased	$	—	$	69.61		$	46.60	$	69.33		$	68.79
Estimated net accretive (dilutive) impact on ending book value per common share (2)	$	—	$	(0.54	)	$	0.01	$	(0.99	)	$	(1.61	)
Estimated net accretive impact on diluted earnings per share (3)	$	0.37	$	0.30		$	0.78	$	0.56

(1)Excludes the effects of 5,457,991 and 5,131,135 stock options and 265,689 and 412,622 restricted stock units outstanding at June 30, 2009 and December 31, 2008, respectively.

(2)As the average price per share repurchased during the six months ended June 30, 2009 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 period. For the 2008 periods and cumulative through June 30, 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						Six Months Ended
	June 30,						June 30,
(U.S. dollars in thousands, except share data)	2009			2008			2009			2008
Net investment income:
Total	$	100,485		$	117,120		196,367			$	239,313
Per share	$	1.60		$	1.78		$	3.14		$	3.58
Pre-tax investment income yield (at amortized cost)	3.91		%	4.80		%	3.87		%	4.84		%
After-tax investment income yield (at amortized cost)	3.80		%	4.68		%	3.75		%	4.72		%
Cash flow from operations	$	223,742		$	256,263		$	518,545		$	590,808

On a consolidated basis, the Company’s aggregate investable assets totaled $10.75 billion at June 30, 2009, compared to $10.0 billion at December 31, 2008, as detailed in the table below:

	June 30,			December 31,
(U.S. dollars in thousands)	2009			2008
Investable assets:
Fixed maturities available for sale, at market value	$	8,944,110		$	8,122,221
Fixed maturities pledged under securities lending agreements, at market value (1)	559,385			626,501
Total fixed maturities	9,503,495			8,748,722
Short-term investments available for sale, at market value	660,859			479,586
Short-term investments pledged under securities lending agreements, at market value (1)	—			101,564
Cash	336,693			251,739
Other investments (2)
Fixed income mutual funds	49,505			39,858
Privately held securities and other	65,755			69,743
Investment funds accounted for using the equity method (3)	370,165			301,027
Securities transactions entered into but not settled at the balance sheet date	(239,736		)	(18,236		)
Total investable assets (1)	$	10,746,736		$	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)	4.06		%	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 June 30, 2009 and December 31, 2008 of $556.5 million and $730.2 million, respectively, which is reflected as “investment of funds received under securities lending agreements, at market value” and included the $559.4 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 June 30, 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						Six Months Ended
	June 30,						June 30,
(U.S. dollars in thousands)	2009			2008			2009			2008
Components of losses and loss adjustment expenses
Paid losses and loss adjustment expenses	$	395,378		$	306,604		$	713,919		$	556,104
Increase in unpaid losses and loss adjustment expenses	3,480			98,021			85,481			252,938
Total losses and loss adjustment expenses	$	398,858		$	404,625		$	799,400		$	809,042
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments
Net impact on underwriting results:
Insurance	$	(18,997	)	$	(19,498	)	$	(27,175	)	$	(25,108	)
Reinsurance	(42,795		)	(35,575		)	(82,488		)	(86,625		)
Total	$	(61,792	)	$	(55,073	)	$	(109,663	)	$	(111,733	)
Impact on losses and loss adjustment expenses:
Insurance	$	(18,689	)	$	(23,263	)	$	(27,815	)	$	(29,039	)
Reinsurance	(43,426		)	(39,034		)	(85,442		)	(90,120		)
Total	$	(62,115	)	$	(62,297	)	$	(113,257	)	$	(119,159	)
Impact on acquisition expenses:
Insurance	$	(308	)	$	3,765		$	640		$	3,931
Reinsurance	631			3,459			2,954			3,495
Total	$	323		$	7,224		$	3,594		$	7,426
Impact on combined ratio:
Insurance	(4.6		)%	(4.7		)%	(3.3		)%	(3.0		)%
Reinsurance	(15.2		)%	(12.3		)%	(14.2		)%	(15.0		)%
Total	(8.8		)%	(7.8		)%	(7.8		)%	(7.9		)%
Impact on loss ratio:
Insurance	(4.5		)%	(5.6		)%	(3.4		)%	(3.5		)%
Reinsurance	(15.4		)%	(13.5		)%	(14.7		)%	(15.6		)%
Total	(8.9		)%	(8.8		)%	(8.1		)%	(8.4		)%
Impact on acquisition expense ratio:
Insurance	(0.1		)%	0.9		%	0.1		%	0.5		%
Reinsurance	0.2		%	1.2		%	0.5		%	0.6		%
Total	0.1		%	1.0		%	0.3		%	0.5		%
Estimated net losses incurred from current accident year catastrophic events (1)
Insurance	$	—		$	6,950		$	—		$	27,250
Reinsurance	27			16,780			8,039			22,554
Total	$	27		$	23,730		$	8,039		$	49,804
Impact on loss ratio:
Insurance	—			1.7		%	—			3.3		%
Reinsurance	0.0		%	5.8		%	1.4		%	3.9		%
Total	0.0		%	3.4		%	0.6		%	3.5		%

(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 June 30, 2009 on the Company’s website at http://www.archcapgroup.bm/EarningsReleases.aspx.

Discussion of 2009 Second Quarter Performance

Insurance Segment

	Three Months Ended
	June 30,
(U.S. dollars in thousands)	2009			2008
Gross premiums written	$	636,645		$	621,663
Net premiums written	419,318			421,501
Net premiums earned	417,454			416,585
Underwriting income	1,315			27,866
Loss ratio	68.8		%	63.0		%
Acquisition expense ratio	13.9		%	13.1		%
Other operating expense ratio	17.0		%	17.2		%
Combined ratio	99.7		%	93.3		%

Gross premiums written by the insurance segment in the 2009 second quarter were 2.4% higher than in the 2008 second quarter, with growth in executive assurance, construction and property business. The increase in executive assurance business primarily resulted from renewal rate increases while the increases in construction and property business primarily resulted from new business. Such amounts were partially offset by reductions in casualty and professional liability business as the insurance segment continued to maintain underwriting discipline in response to the current market environment. Net premiums written declined by 0.5%, reflecting changes in the mix of business, reinstatement premiums and the impact of changes in reinsurance structure. Net premiums earned by the insurance segment in the 2009 second quarter were 0.2% higher than in the 2008 second quarter, and reflect changes in net premiums written over the previous five quarters.

The loss ratio for the insurance segment was 68.8% in the 2009 second quarter, compared to 63.0% in the 2008 second quarter. The insurance segment’s loss ratio in the 2009 second quarter included increases 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. In addition, the 2009 second quarter loss ratio also reflected a higher level of large loss activity than the 2008 second quarter. The 2009 second quarter loss ratio reflected a 4.5 point reduction related to estimated net favorable development in prior year loss reserves, compared to a 5.6 point reduction in the 2008 second quarter. The estimated net favorable development in the 2009 second quarter was primarily in medium-tail lines and mainly resulted from better than expected claims emergence. The loss ratio for the 2009 second quarter did not include significant current period catastrophic event activity, compared to 1.7 points in the 2008 second quarter.

The insurance segment’s underwriting expense ratio was 30.9% in the 2009 second quarter, compared to 30.3% in the 2008 second quarter. The acquisition expense ratio was 13.9% for the 2009 second quarter, compared to 13.1% for the 2008 second 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 second quarter acquisition expense ratio reflected a reduction of 0.1 points related to estimated net favorable development in prior year loss reserves, compared to an increase of 0.9 points in the 2008 second quarter. The comparison of the 2009 second quarter and 2008 second 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 17.0% for the 2009 second quarter, compared to 17.2% in the 2008 second quarter. The operating expense ratio for the 2009 second quarter included 0.9 points related to an expansion of the insurance segment’s presence in the executive assurance and professional liability lines of business. The Company expects that this initiative will negatively impact the insurance segment’s operating expense ratio over the balance of 2009.

11

Reinsurance Segment

	Three Months Ended
	June 30,
(U.S. dollars in thousands)	2009			2008
Gross premiums written	$	278,389		$	273,318
Net premiums written	274,536			264,617
Net premiums earned	281,804			289,090
Underwriting income	88,309			63,539
Loss ratio	39.6		%	49.1		%
Acquisition expense ratio	23.1		%	22.1		%
Other operating expense ratio	6.0		%	6.9		%
Combined ratio	68.7		%	78.1		%

Gross premiums written by the reinsurance segment in the 2009 second quarter were 1.9% higher than in the 2009 second quarter, primarily due to an increase in property catastrophe business due to the renewal of a two-year treaty. In addition, growth in property facultative business was partially offset by decreases in other specialty and casualty business. The decrease in other specialty business was primarily due to the non-renewal of a non-standard auto treaty, while the lower level of casualty business resulted from the non-renewal of a number of contracts.

Ceded premiums written by the reinsurance segment were 1.4% of gross premiums written for the 2009 second quarter, compared to 3.2% for the 2008 second quarter. In the 2009 second quarter, Arch Reinsurance Ltd., the Company’s Bermuda-based reinsurer, ceded $0.5 million of premiums written, or 0.2%, under a quota share reinsurance treaty to Flatiron Re Ltd., compared to $7.0 million, or 2.6%, in the 2008 second quarter. Commission income from the treaty (in excess of the reimbursement of direct acquisition expenses) reduced the reinsurance segment’s acquisition expense ratio by 0.7 points in the 2009 second quarter, compared to 2.3 points in the 2008 second quarter.

Net premiums written by the reinsurance segment in the 2009 second quarter were 3.7% higher than in the 2008 second quarter, primarily due to the items noted above. Net premiums earned in the 2009 second quarter were 2.5% lower than in the 2008 second 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 39.6% in the 2009 second quarter, compared to 49.1% for the 2008 second quarter. The loss ratio for the 2009 second quarter benefited from a higher level of property and short tail business and a minimal level of catastrophic activity in the period. Net premiums earned in property and other short-tail lines were approximately 69.9% of the total for the 2009 second quarter, compared to 62.9% in the 2008 second quarter. The loss ratio for the 2009 second quarter reflected a 15.4 point reduction related to estimated net favorable development in prior year loss reserves, compared to a 13.5 point reduction in the 2008 second quarter. The estimated net favorable development in the 2009 second quarter primarily resulted from better than anticipated claims emergence in older underwriting years in longer tail lines and also reflected the commutation of a non-standard auto treaty in the period. The 2008 second quarter loss ratio included 5.8 points of current period catastrophic event activity.

The underwriting expense ratio for the reinsurance segment was 29.1% in the 2009 second quarter, compared to 29.0% in the 2008 second quarter. The acquisition expense ratio for the 2009 second quarter was 23.1%, compared to 22.1% for the 2008 second quarter, with the increase in the 2009 second quarter primarily due to the lower level of commission income from the Treaty with Flatiron noted above. In addition, the 2009 second quarter acquisition expense ratio reflected 0.2 points related to estimated net favorable development in prior year loss reserves, compared to 1.2 points in the 2008 second quarter. The comparison of the 2009 second quarter and 2008 second 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 6.0% for the 2009 second quarter, compared to 6.9% for the 2008 second quarter. Roughly half of the decrease in the operating expense ratio was related to a non-recurring expense recovery in the 2009 second quarter with the balance primarily due to the impact of growth in the reinsurance segment’s property facultative business.

12

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

	(Unaudited)						(Unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Revenues
Net premiums written	$	693,854		$	686,118		$	1,516,717		$	1,497,460
Decrease (increase) in unearned premiums	5,404			19,557			(116,895		)	(83,551		)
Net premiums earned	699,258			705,675			1,399,822			1,413,909
Net investment income	100,485			117,120			196,367			239,313
Net realized gains (losses)	(11,793		)	(1,920		)	(16,957		)	46,766
Total other-than-temporary impairment losses	(20,657		)	(10,749		)	(113,646		)	(23,460		)
Portion of loss recognized in other comprehensive income (loss), before taxes	(206		)	—			56,649			—
Net impairment losses recognized in earnings	(20,863		)	(10,749		)	(56,997		)	(23,460		)
Fee income	817			1,238			1,742			2,306
Equity in net income (loss) of investment funds accounted for using the equity method	75,890			19,583			66,309			(2,730		)
Other income	4,950			4,968			8,901			9,004
Total revenues	848,744			835,915			1,599,187			1,685,108
Expenses
Losses and loss adjustment expenses	398,858			404,625			799,400			809,042
Acquisition expenses	123,814			119,226			250,272			233,865
Other operating expenses	99,294			102,578			186,410			199,765
Interest expense	5,712			5,788			11,424			11,312
Net foreign exchange (gains) losses	53,658			(298		)	28,453			23,289
Total expenses	681,336			631,919			1,275,959			1,277,273
Income before income taxes	167,408			203,996			323,228			407,835
Income tax expense	8,818			5,253			18,308			13,209
Net income	158,590			198,743			304,920			394,626
Preferred dividends	6,461			6,461			12,922			12,922
Net income available to common shareholders	$	152,129		$	192,282		$	291,998		$	381,704
Net income per common share
Basic	$	2.52		$	3.05		$	4.84		$	5.95
Diluted	$	2.43		$	2.92		$	4.67		$	5.71
Weighted average common shares and common share equivalents outstanding
Basic	60,417,391			62,995,550			60,365,758			64,145,533
Diluted	62,626,317			65,748,119			62,589,856			66,886,972

13

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

	(Unaudited)
	June 30,			December 31,
	2009			2008
Assets
Investments:
Fixed maturities available for sale, at market value (amortized cost: 2009, $8,931,670; 2008, $8,314,615)	$	8,944,110		$	8,122,221
Short-term investments available for sale, at market value (amortized cost: 2009, $653,396; 2008, $478,088)	660,859			479,586
Investment of funds received under securities lending agreements, at market value (amortized cost: 2009, $570,816; 2008, $750,330)	556,473			730,194
Other investments (cost: 2009, $115,534; 2008, $125,858)	115,260			109,601
Investment funds accounted for using the equity method	370,165			301,027
Total investments	10,646,867			9,742,629
Cash	336,693			251,739
Accrued investment income	70,854			78,052
Investment in joint venture (cost: $100,000)	100,656			98,341
Fixed maturities and short-term investments pledged under securities lending agreements, at market value	559,385			728,065
Premiums receivable	735,969			628,951
Unpaid losses and loss adjustment expenses recoverable	1,740,248			1,729,135
Paid losses and loss adjustment expenses recoverable	53,432			63,294
Prepaid reinsurance premiums	283,488			303,707
Deferred income tax assets, net	63,838			60,192
Deferred acquisition costs, net	307,896			295,192
Receivable for securities sold	1,192,659			105,073
Other assets	549,950			532,175
Total Assets	$	16,641,935		$	14,616,545
Liabilities
Reserve for losses and loss adjustment expenses	$	7,809,034		$	7,666,957
Unearned premiums	1,632,989			1,526,682
Reinsurance balances payable	158,974			138,509
Senior notes	300,000			300,000
Revolving credit agreement borrowings	100,000			100,000
Securities lending payable	574,014			753,528
Payable for securities purchased	1,432,395			123,309
Other liabilities	604,561			574,595
Total Liabilities	12,611,967			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, 60,980,806; 2008, 60,511,974)	610			605
Additional paid-in capital	1,006,315			994,585
Retained earnings	3,046,706			2,693,239
Accumulated other comprehensive income (loss), net of deferred income tax	(23,793		)	(255,594		)
Total Shareholders’ Equity	4,029,968			3,432,965
Total Liabilities and Shareholders’ Equity	$	16,641,935		$	14,616,545

14

EX-99.2

Exhibit 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 June 30, 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	8-9
	c.	Insurance Segment Underwriting Results	10-11
	d.	Reinsurance Segment Underwriting Results	12-13
IV.	Investment Information
	a.	Investable Asset Summary, Fixed Income Metrics and Credit Quality Distribution	14
	b.	Composition of Fixed Maturities and Analysis of Corporate Exposures	15
	c.	Mortgage Backed, Commercial Mortgage Backed and Asset Backed Securities	16
	d.	Bank Loans	17
V.	Other
	a.	Comments on Regulation G	18
	b.	Operating Income Reconciliation	19
	c.	Annualized Operating Return on Average Common Equity	20
	d.	Capital Structure	21

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								Six Months Ended
	June 30,								June 30,
	2009			2008			Change		2009			2008			Change
Gross premiums written	$	911,920		$	886,926		2.8	%	$	1,936,891		$	1,940,078		(0.2	)%
Net premiums written	$	693,854		$	686,118		1.1	%	$	1,516,717		$	1,497,460		1.3	%
Net premiums earned	$	699,258		$	705,675		(0.9	)%	$	1,399,822		$	1,413,909		(1.0	)%
Underwriting income (loss)	$	89,624		$	91,405		(1.9	)%	$	183,013		$	189,776		(3.6	)%
Net investment income	$	100,485		$	117,120		(14.2	)%	$	196,367		$	239,313		(17.9	)%
Per diluted share	$	1.60		$	1.78		(10.1	)%	$	3.14		$	3.58		(12.3	)%
Net income (loss) available to common shareholders	$	152,129		$	192,282		(20.9	)%	$	291,998		$	381,704		(23.5	)%
Per diluted share	$	2.43		$	2.92		(16.8	)%	$	4.67		$	5.71		(18.2	)%
After-tax operating income available to common shareholders (1)	$	163,041		$	185,375		(12.0	)%	$	332,042		$	387,358		(14.3	)%
Per diluted share	$	2.60		$	2.82		(7.8	)%	$	5.31		$	5.79		(8.3	)%
Comprehensive income (loss)	$	396,130		$	68,362		479.5	%	$	598,190		$	225,429		165.4	%
Cash flow from operations	$	223,742		$	256,263		(12.7	)%	$	518,545		$	590,808		(12.2	)%
Diluted weighted average common shares and common share equivalents outstanding	62,626,317			65,748,119			(4.7	)%	62,589,856			66,886,972			(6.4	)%
Underwriting ratios:
Loss ratio	57.0		%	57.3		%	(0.3	)%	57.1		%	57.2		%	(0.1	)%
Acquisition expense ratio	17.6		%	16.8		%	0.8	%	17.8		%	16.4		%	1.4	%
Other operating expense ratio	12.6		%	13.0		%	(0.4	)%	12.1		%	13.0		%	(0.9	)%
Combined ratio	87.2		%	87.1		%	0.1	%	87.0		%	86.6		%	0.4	%
Annualized operating return on average common equity	18.6		%	20.5		%	(1.9	)%	19.5		%	21.3		%	(1.8	)%

(1) See page 18, 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																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2009			2009			2008			2008			2008			2008			2007			2007			2007			2009			2008
Revenues
Gross premiums written	$	911,920		$	1,024,971		$	825,465		$	903,533		$	886,926		$	1,053,152		$	828,160		$	999,159		$	1,102,210		$	1,936,891		$	1,940,078
Net premiums written	$	693,854		$	822,863		$	615,574		$	692,692		$	686,118		$	811,342		$	577,666		$	694,630		$	757,895		$	1,516,717		$	1,497,460
Decrease (increase) in unearned premiums	5,404			(122,299		)	82,940			40,339			19,557			(103,108		)	134,550			40,899			(6,483		)	(116,895		)	(83,551		)
Net premiums earned	699,258			700,564			698,514			733,031			705,675			708,234			712,216			735,529			751,412			1,399,822			1,413,909
Net investment income	100,485			95,882			111,745			117,022			117,120			122,193			120,807			118,464			113,923			196,367			239,313
Net realized gains (losses)	(11,793		)	(5,164		)	(27,704		)	(23,001		)	(1,920		)	48,686			38,463			16,868			(3,272		)	(16,957		)	46,766
Total other-than-temporary impairment losses	(20,657		)	(92,989		)	(75,169		)	(82,533		)	(10,749		)	(12,711		)	(19,731		)	(2,721		)	(485		)	(113,646		)	(23,460		)
Portion of loss recognized in other comprehensive income (loss), before taxes	(206		)	56,855			—			—			—			—			—			—			—			56,649			—
Net impairment losses recognized in earnings	(20,863		)	(36,134		)	(75,169		)	(82,533		)	(10,749		)	(12,711		)	(19,731		)	(2,721		)	(485		)	(56,997		)	(23,460		)
Fee income	817			925			1,456			944			1,238			1,068			1,866			1,610			2,091			1,742			2,306
Equity in net income (loss) of investment funds accounted for using the equity method	75,890			(9,581		)	(174,147		)	(1,731		)	19,583			(22,313		)	(906		)	(5,283		)	3,376			66,309			(2,730		)
Other income	4,950			3,951			211			3,067			4,968			4,036			5,483			2,696			265			8,901			9,004
Total revenues	848,744			750,443			534,906			746,799			835,915			849,193			858,198			867,163			867,310			1,599,187			1,685,108
Expenses
Losses and loss adjustment expenses	398,858			400,542			490,816			548,886			404,625			404,417			395,751			402,695			425,663			799,400			809,042
Acquisition expenses	123,814			126,458			123,231			133,413			119,226			114,639			111,702			131,424			117,277			250,272			233,865
Other operating expenses	99,294			87,116			100,385			95,652			102,578			97,187			101,275			95,545			100,505			186,410			199,765
Interest expense	5,712			5,712			6,285			6,241			5,788			5,524			5,523			5,524			5,523			11,424			11,312
Net foreign exchange (gains) losses	53,658			(25,205		)	(51,479		)	(68,395		)	(298		)	23,587			4,121			23,656			6,450			28,453			23,289
Total expenses	681,336			594,623			669,238			715,797			631,919			645,354			618,372			658,844			655,418			1,275,959			1,277,273
Income before income taxes	167,408			155,820			(134,332		)	31,002			203,996			203,839			239,826			208,319			211,892			323,228			407,835
Income tax expense (benefit)	8,818			9,490			2,179			(1,849		)	5,253			7,956			(1,044		)	2,113			6,037			18,308			13,209
Net Income (Loss)	158,590			146,330			(136,511		)	32,851			198,743			195,883			240,870			206,206			205,855			304,920			394,626
Preferred dividends	6,461			6,461			6,461			6,461			6,461			6,461			6,461			6,461			6,461			12,922			12,922
Net income (loss) available to common shareholders	$	152,129		$	139,869		$	(142,972	)	$	26,390		$	192,282		$	189,422		$	234,409		$	199,745		$	199,394		$	291,998		$	381,704
Net income (loss) per common share
Basic	$	2.52		$	2.32		$	(2.38	)	$	0.44		$	3.05		$	2.90		$	3.44		$	2.87		$	2.75		$	4.84		$	5.95
Diluted (1)	$	2.43		$	2.24		$	(2.38	)	$	0.42		$	2.92		$	2.78		$	3.31		$	2.76		$	2.65		$	4.67		$	5.71
Weighted average common shares and common share equivalents outstanding
Basic	60,417,391			60,313,550			60,048,258			60,109,932			62,995,550			65,295,516			68,074,208			69,561,789			72,494,823			60,365,758			64,145,533
Diluted (1)	62,626,317			62,559,969			60,048,258			62,830,910			65,748,119			68,019,413			70,901,361			72,378,940			75,254,846			62,589,856			66,886,972

(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)

	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,		December 31,		September 30,		June 30,
	2009			2009			2008			2008			2008			2008		2007		2007		2007
Assets
Investments:
Fixed maturities available for sale, at market value	$	8,944,110		$	8,540,653		$	8,122,221		$	7,544,831		$	7,746,296		$	7,591,695	$	7,137,998	$	7,342,238	$	6,923,478
Short-term investments available for sale, at market value	660,859			749,708			479,586			863,783			645,587			631,285		699,036		1,315,903		1,114,485
Investment of funds received under securities lending agreements, at market value	556,473			550,821			730,194			933,797			918,207			1,228,868		1,503,723		920,306		1,114,959
Other investments	115,260			104,988			109,601			142,146			295,638			316,252		353,694		280,241		273,830
Investment funds accounted for using the equity method	370,165			293,452			301,027			384,139			351,879			294,379		235,975		216,917		188,005
Total investments	10,646,867			10,239,622			9,742,629			9,868,696			9,957,607			10,062,479		9,930,426		10,075,605		9,614,757
Cash	336,693			244,037			251,739			239,097			246,544			258,680		239,915		250,804		245,143
Accrued investment income	70,854			65,365			78,052			82,218			76,313			73,686		73,862		70,697		71,064
Investment in joint venture	100,656			101,143			98,341			98,951			100,000			—		—		—		—
Fixed maturities and short-term investments pledged under securities lending agreements, at market value	559,385			559,691			728,065			905,546			890,822			1,190,086		1,463,045		884,375		1,085,757
Premiums receivable	735,969			720,724			628,951			738,694			859,261			880,946		729,628		902,987		1,041,921
Unpaid losses and loss adjustment expenses recoverable	1,740,248			1,710,781			1,729,135			1,656,848			1,586,201			1,652,117		1,609,619		1,581,909		1,545,820
Paid losses and loss adjustment expenses recoverable	53,432			76,312			63,294			105,491			113,439			110,962		132,289		132,039		131,441
Prepaid reinsurance premiums	283,488			274,578			303,707			335,210			364,226			419,046		480,462		541,529		544,137
Deferred income tax assets, net	63,838			62,210			60,192			72,118			66,944			55,645		57,051		64,474		70,688
Deferred acquisition costs, net	307,896			313,973			295,192			310,916			319,732			311,364		290,059		301,974		309,651
Receivable for securities sold	1,192,659			1,191,896			105,073			1,099,000			1,053,379			671,354		17,359		82,383		54,954
Other assets	549,950			531,955			532,175			618,017			647,034			668,110		600,552		575,226		578,435
Total Assets	$	16,641,935		$	16,092,287		$	14,616,545		$	16,130,802		$	16,281,502		$	16,354,475	$	15,624,267	$	15,464,002	$	15,293,768
Liabilities
Reserve for losses and loss adjustment expenses	$	7,809,034		$	7,709,317		$	7,666,957		$	7,569,543		$	7,349,083		$	7,319,141	$	7,092,452	$	6,949,449	$	6,782,433
Unearned premiums	1,632,989			1,617,431			1,526,682			1,653,855			1,735,371			1,810,324		1,765,881		1,960,228		2,001,736
Reinsurance balances payable	158,974			146,981			138,509			214,550			254,830			322,280		301,309		336,134		382,488
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			100,000			—		—		—		—
Securities lending payable	574,014			574,337			753,528			950,327			918,207			1,228,868		1,503,723		920,306		1,114,959
Payable for securities purchased	1,432,395			1,433,732			123,309			1,138,117			1,064,224			710,994		23,155		515,218		434,624
Other liabilities	604,561			580,093			574,595			687,700			673,554			658,324		601,936		607,872		573,461
Total Liabilities	12,611,967			12,461,891			11,183,580			12,614,092			12,395,269			12,349,931		11,588,456		11,589,207		11,589,701
Commitments and Contingencies
Shareholders’ Equity
Non-cumulative preferred shares	130			130			130			130			130			130		130		130		130
Common shares	610			605			605			602			619			646		673		691		713
Additional paid-in capital	1,006,315			996,417			994,585			977,059			1,089,636			1,269,821		1,451,667		1,577,284		1,716,295
Retained earnings	3,046,706			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), net of deferred income tax	(23,793		)	(261,333		)	(255,594		)	(297,292		)	(13,973		)	116,408		155,224		102,982		(7,034		)
Total Shareholders’ Equity	4,029,968			3,630,396			3,432,965			3,516,710			3,886,233			4,004,544		4,035,811		3,874,795		3,704,067
Total Liabilities and Shareholders’ Equity	$	16,641,935		$	16,092,287		$	14,616,545		$	16,130,802		$	16,281,502		$	16,354,475	$	15,624,267	$	15,464,002	$	15,293,768
Common shares outstanding (1)	60,980,806			60,532,222			60,511,974			60,173,489			61,943,100			64,649,618		67,318,466		69,141,795		71,273,285
Book value per common share	$	60.76		$	54.61		$	51.36		$	53.04		$	57.49		$	56.92	$	55.12	$	51.34	$	47.41

(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																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2009			2009			2008			2008			2008			2008			2007			2007			2007			2009			2008
Non-Cumulative Preferred Shares
Balance at beginning and end of period	$	130		$	130		$	130		$	130		$	130		$	130		$	130		$	130		$	130		$	130		$	130
Common Shares
Balance at beginning of period	605			605			602			619			646			673			691			713			737			605			673
Common shares issued, net	5			0			3			1			2			0			2			0			5			5			2
Purchases of common shares under share repurchase program	(0		)	(0		)	—			(18		)	(29		)	(27		)	(20		)	(22		)	(29		)	(0		)	(56		)
Balance at end of period	610			605			605			602			619			646			673			691			713			610			619
Additional Paid-in Capital
Balance at beginning of period	996,417			994,585			977,059			1,089,636			1,269,821			1,451,667			1,577,284			1,716,295			1,910,125			994,585			1,451,667
Common shares issued	2,557			0			996			0			3,511			0			2,172			0			296			2,557			3,511
Exercise of stock options	705			528			10,593			4,146			5,324			3,749			3,505			1,721			6,376			1,233			9,073
Common shares retired	(2,483		)	(3,760		)	(39		)	(123,510		)	(201,498		)	(190,278		)	(136,357		)	(145,865		)	(210,871		)	(6,243		)	(391,776		)
Amortization of share-based compensation	9,949			4,318			5,974			6,792			12,911			4,600			5,053			5,095			10,151			14,267			17,511
Other	(830		)	746			2			(5		)	(433		)	83			10			38			218			(84		)	(350		)
Balance at end of period	1,006,315			996,417			994,585			977,059			1,089,636			1,269,821			1,451,667			1,577,284			1,716,295			1,006,315			1,089,636
Retained Earnings
Balance at beginning 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			1,794,569			2,693,239			2,428,117
Cumulative effect of change in accounting principle, adoption of FSP FAS 115-2 (1)	—			61,469			—			—			—			—			—			—			—			61,469			—
Balance at beginning of period, as adjusted	2,894,577			2,754,708			2,836,211			2,809,821			2,617,539			2,428,117			2,193,708			1,993,963			1,794,569			2,754,708			2,428,117
Dividends declared on preferred shares	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(12,922		)	(12,922		)
Net income (loss)	158,590			146,330			(136,511		)	32,851			198,743			195,883			240,870			206,206			205,855			304,920			394,626
Balance at end of period	3,046,706			2,894,577			2,693,239			2,836,211			2,809,821			2,617,539			2,428,117			2,193,708			1,993,963			3,046,706			2,809,821
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	(261,333		)	(255,594		)	(297,292		)	(13,973		)	116,408			155,224			102,982			(7,034		)	77,787			(255,594		)	155,224
Cumulative effect of change in accounting principle, adoption of FSP FAS 115-2 (1)	—			(61,469		)	—			—			—			—			—			—			—			(61,469		)	—
Balance at beginning of period, as adjusted	(261,333		)	(317,063		)	(297,292		)	(13,973		)	116,408			155,224			102,982			(7,034		)	77,787			(317,063		)	155,224
Change in unrealized appreciation (decline) in value of investments, net of deferred income tax	224,864			114,844			64,976			(271,231		)	(131,446		)	(37,577		)	54,354			105,816			(88,100		)	339,708			(169,023		)
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	206			(56,855		)	—			—			—			—			—			—			—			(56,649		)	—
Foreign currency translation adjustments, net of deferred income tax	12,470			(2,259		)	(23,278		)	(12,088		)	1,065			(1,239		)	(2,112		)	4,200			3,279			10,211			(174		)
Balance at end of period	(23,793		)	(261,333		)	(255,594		)	(297,292		)	(13,973		)	116,408			155,224			102,982			(7,034		)	(23,793		)	(13,973		)
Total Shareholders’ Equity	$	4,029,968		$	3,630,396		$	3,432,965		$	3,516,710		$	3,886,233		$	4,004,544		$	4,035,811		$	3,874,795		$	3,704,067		$	4,029,968		$	3,886,233

(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																										Six Months Ended
	June 30,		March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2009		2009			2008			2008			2008			2008			2007			2007			2007			2009			2008
Comprehensive Income (Loss)
Net income (loss)	$	158,590	$	146,330		$	(136,511	)	$	32,851		$	198,743		$	195,883		$	240,870		$	206,206		$	205,855		$	304,920		$	394,626
Other comprehensive income (loss), net of deferred income tax
Unrealized holding gains (losses) arising during period	202,924		58,324			(69,067		)	(386,052		)	(139,831		)	12,707			80,187			127,082			(94,500		)	261,248			(127,124		)
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	206		(56,855		)	—			—			—			—			—			—			—			(56,649		)	—
Reclassification of net realized (gains) losses, net of income taxes, included in net income	21,940		56,520			134,043			114,821			8,385			(50,284		)	(25,833		)	(21,266		)	6,400			78,460			(41,899		)
Foreign currency translation adjustments	12,470		(2,259		)	(23,278		)	(12,088		)	1,065			(1,239		)	(2,112		)	4,200			3,279			10,211			(174		)
Other comprehensive income (loss)	237,540		55,730			41,698			(283,319		)	(130,381		)	(38,816		)	52,242			110,016			(84,821		)	293,270			(169,197		)
Comprehensive Income (Loss)	$	396,130	$	202,060		$	(94,813	)	$	(250,468	)	$	68,362		$	157,067		$	293,112		$	316,222		$	121,034		$	598,190		$	225,429

5

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Cash Flows

(U.S. dollars in thousands)

	Three Months Ended																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2009			2009			2008			2008			2008			2008			2007			2007			2007			2009			2008
Operating Activities
Net income (loss)	$	158,590		$	146,330		$	(136,511	)	$	32,851		$	198,743		$	195,883		$	240,870		$	206,206		$	205,855		$	304,920		$	394,626
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses	11,831			5,620			28,383			23,916			2,955			(46,502		)	(38,463		)	(16,755		)	3,272			17,451			(43,547		)
Net impairment losses included in earnings	20,863			36,134			75,169			82,533			10,749			12,711			19,731			2,721			485			56,997			23,460
Equity in net (income) loss of investment funds accounted for using the equity method and other income	(80,662		)	10,428			173,955			(1,336		)	(24,286		)	18,277			(4,577		)	2,587			(3,641		)	(70,234		)	(6,009		)
Share-based compensation	9,949			4,318			5,974			6,792			12,911			4,600			5,053			5,095			10,151			14,267			17,511
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	5,151			83,763			226,284			153,860			95,859			182,498			114,883			129,814			177,331			88,914			278,357
Unearned premiums, net of prepaid reinsurance premiums	(4,775		)	120,867			(75,899		)	(51,494		)	(20,133		)	105,497			(133,360		)	(38,940		)	8,418			116,092			85,364
Premiums receivable	(916		)	(94,777		)	18,896			115,653			21,679			(148,197		)	174,098			140,753			(86,730		)	(95,693		)	(126,518		)
Deferred acquisition costs, net	8,513			(18,933		)	10,955			9,229			(8,491		)	(21,319		)	11,940			7,759			4,998			(10,420		)	(29,810		)
Reinsurance balances payable	6,187			11,278			(31,791		)	(74,317		)	(67,451		)	19,677			(35,429		)	(47,758		)	(12,244		)	17,465			(47,774		)
Other liabilities	5,189			2,802			(131,774		)	2,140			7,791			40,490			(4,721		)	28,945			441			7,991			48,281
Other items, net	83,822			(13,027		)	2,460			82,362			25,937			(29,070		)	(17,155		)	6,156			(34,464		)	70,795			(3,133		)
Net Cash Provided By Operating Activities	223,742			294,803			166,101			382,189			256,263			334,545			332,870			426,583			273,872			518,545			590,808
Investing Activities
Purchases of fixed maturity investments	(6,565,606		)	(3,632,350		)	(6,012,984		)	(4,184,587		)	(3,737,610		)	(3,772,652		)	(6,103,826		)	(5,417,802		)	(3,885,436		)	(10,197,956		)	(7,510,262		)
Proceeds from sales of fixed maturity investments	6,104,789			3,377,680			5,456,446			3,970,441			3,521,141			3,523,338			5,280,324			5,231,766			4,080,733			9,482,469			7,044,479
Proceeds from redemptions and maturities of fixed maturity investments	208,276			168,758			137,665			127,312			180,437			136,932			149,535			188,665			121,863			377,034			317,369
Purchases of other investments	(9,681		)	(22,670		)	(254,729		)	(38,036		)	(40,837		)	(146,815		)	(313,388		)	(43,870		)	(33,379		)	(32,351		)	(187,652		)
Proceeds from sales of other investments	(4,233		)	24,027			224,466			146,388			24,098			65,226			141,697			20			7,555			19,794			89,324
Investment in joint venture	—			—			—			—			(100,000		)	—			—			—			—			—			(100,000		)
Net (purchases) sales of short-term investments	143,819			(204,924		)	312,038			(280,724		)	(13,462		)	74,201			653,433			(226,906		)	(329,880		)	(61,105		)	60,739
Change in investment of securities lending collateral	323			179,191			196,799			(32,120		)	310,661			274,855			(583,417		)	194,653			45,139			179,514			585,516
Purchases of furniture, equipment and other	(3,872		)	(7,647		)	(2,745		)	(1,772		)	(1,939		)	(3,045		)	(15,391		)	(3,607		)	(4,860		)	(11,519		)	(4,984		)
Net Cash Provided By (Used For) Investing Activities	(126,185		)	(117,935		)	56,956			(293,098		)	142,489			152,040			(791,033		)	(77,081		)	1,735			(244,120		)	294,529
Financing Activities
Purchases of common shares under share repurchase program	—			(1,552		)	—			(123,377		)	(199,910		)	(189,843		)	(136,361		)	(145,732		)	(210,498		)	(1,552		)	(389,753		)
Proceeds from common shares issued, net	308			(1,688		)	10,497			3,334			5,510			2,540			4,859			1,212			4,282			(1,380		)	8,050
Revolving credit agreement borrowings	—			—			—			—			100,000			—			—			—			—			—			100,000
Change in securities lending collateral	(323		)	(179,191		)	(196,799		)	32,120			(310,661		)	(274,855		)	583,417			(194,653		)	(45,139		)	(179,514		)	(585,516		)
Other	(1,291		)	742			698			502			616			660			634			324			1,610			(549		)	1,276
Preferred dividends paid	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(12,922		)	(12,922		)
Net Cash Provided By (Used For) Financing Activities	(7,767		)	(188,150		)	(192,065		)	(93,882		)	(410,906		)	(467,959		)	446,088			(345,310		)	(256,206		)	(195,917		)	(878,865		)
Effects of exchange rate changes on foreign currency cash	2,866			3,580			(18,350		)	(2,656		)	18			139			1,186			1,469			493			6,446			157
Increase (decrease) in cash	92,656			(7,702		)	12,642			(7,447		)	(12,136		)	18,765			(10,889		)	5,661			19,894			84,954			6,629
Cash beginning of period	244,037			251,739			239,097			246,544			258,680			239,915			250,804			245,143			225,249			251,739			239,915
Cash end of period	$	336,693		$	244,037		$	251,739		$	239,097		$	246,544		$	258,680		$	239,915		$	250,804		$	245,143		$	336,693		$	246,544
Income taxes paid (received), net	$	19,887		$	2,231		$	(994	)	$	7,124		$	2,723		$	2,510		$	746		$	1,236		$	1,285		$	22,118		$	5,233
Interest paid	$	11,312		$	184		$	11,802		$	724		$	11,259		$	0		$	11,025		$	0		$	11,025		$	11,496		$	11,259

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. Intersegment 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 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 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, income taxes and dividends on the Company’s non-cumulative preferred shares.

7

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Three Months Ended June 30, 2009 and 2008

(U.S. dollars in thousands)

	Three Months Ended									Three Months Ended
	June 30, 2009									June 30, 2008
	Insurance			Reinsurance			Total			Insurance			Reinsurance			Total
Gross premiums written (1)	$	636,645		$	278,389		$	911,920		$	621,663		$	273,318		$	886,926
Net premiums written	419,318			274,536			693,854			421,501			264,617			686,118
Net premiums earned	$	417,454		$	281,804		$	699,258		$	416,585		$	289,090		$	705,675
Fee income	795			22			817			880			358			1,238
Losses and loss adjustment expenses	(287,350		)	(111,508		)	(398,858		)	(262,633		)	(141,992		)	(404,625		)
Acquisition expenses, net	(58,748		)	(65,066		)	(123,814		)	(55,400		)	(63,826		)	(119,226		)
Other operating expenses	(70,836		)	(16,943		)	(87,779		)	(71,566		)	(20,091		)	(91,657		)
Underwriting income	$	1,315		$	88,309		89,624			$	27,866		$	63,539		91,405
Net investment income							100,485									117,120
Net realized gains (losses)							(11,793		)							(1,920		)
Net impairment losses recognized in earnings							(20,863		)							(10,749		)
Equity in net income (loss) of investment funds accounted for using the equity method							75,890									19,583
Other income							4,950									4,968
Other expenses							(11,515		)							(10,921		)
Interest expense							(5,712		)							(5,788		)
Net foreign exchange gains (losses)							(53,658		)							298
Income before income taxes							167,408									203,996
Income tax expense							(8,818		)							(5,253		)
Net income							158,590									198,743
Preferred dividends							(6,461		)							(6,461		)
Net income available to common shareholders							$	152,129								$	192,282
Underwriting Ratios
Loss ratio	68.8		%	39.6		%	57.0		%	63.0		%	49.1		%	57.3		%
Acquisition expense ratio (2)	13.9		%	23.1		%	17.6		%	13.1		%	22.1		%	16.8		%
Other operating expense ratio	17.0		%	6.0		%	12.6		%	17.2		%	6.9		%	13.0		%
Combined ratio	99.7		%	68.7		%	87.2		%	93.3		%	78.1		%	87.1		%
Net premiums written to gross premiums written	65.9		%	98.6		%	76.1		%	67.8		%	96.8		%	77.4		%

(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 — Six Months Ended June 30, 2009 and 2008

(U.S. dollars in thousands)

	Six Months Ended									Six Months Ended
	June 30, 2009									June 30, 2008
	Insurance			Reinsurance			Total			Insurance			Reinsurance			Total
Gross premiums written (1)	$	1,275,054		$	668,518		$	1,936,891		$	1,248,011		$	707,145		$	1,940,078
Net premiums written	860,904			655,813			1,516,717			824,265			673,195			1,497,460
Net premiums earned	$	818,551		$	581,271		$	1,399,822		$	835,685		$	578,224		$	1,413,909
Fee income	1,665			77			1,742			1,762			544			2,306
Losses and loss adjustment expenses	(557,365		)	(242,035		)	(799,400		)	(549,936		)	(259,106		)	(809,042		)
Acquisition expenses, net	(116,371		)	(133,901		)	(250,272		)	(107,289		)	(126,576		)	(233,865		)
Other operating expenses	(133,744		)	(35,135		)	(168,879		)	(145,203		)	(38,329		)	(183,532		)
Underwriting income	$	12,736		$	170,277		183,013			$	35,019		$	154,757		189,776
Net investment income							196,367									239,313
Net realized gains (losses)							(16,957		)							46,766
Net impairment losses recognized in earnings							(56,997		)							(23,460		)
Equity in net income (loss) of investment funds accounted for using the equity method							66,309									(2,730		)
Other income							8,901									9,004
Other expenses							(17,531		)							(16,233		)
Interest expense							(11,424		)							(11,312		)
Net foreign exchange gains (losses)							(28,453		)							(23,289		)
Income before income taxes							323,228									407,835
Income tax expense							(18,308		)							(13,209		)
Net income							304,920									394,626
Preferred dividends							(12,922		)							(12,922		)
Net income available to common shareholders							$	291,998								$	381,704
Underwriting Ratios
Loss ratio	68.1		%	41.6		%	57.1		%	65.8		%	44.8		%	57.2		%
Acquisition expense ratio (2)	14.0		%	23.0		%	17.8		%	12.6		%	21.9		%	16.4		%
Other operating expense ratio	16.3		%	6.0		%	12.1		%	17.4		%	6.6		%	13.0		%
Combined ratio	98.4		%	70.6		%	87.0		%	95.8		%	73.3		%	86.6		%
Net premiums written to gross premiums written	67.5		%	98.1		%	78.3		%	66.0		%	95.2		%	77.2		%

(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.

9

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. dollars in thousands)

	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2009				2008				2009				2008
	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Net premiums written
Property, energy, marine and aviation	$	86,385	20.6	%	$	89,674	21.3	%	$	192,414	22.4	%	$	186,911	22.7	%
Programs	72,279		17.2	%	73,202		17.4	%	147,086		17.1	%	127,785		15.5	%
Professional liability	57,773		13.8	%	63,583		15.1	%	109,781		12.8	%	117,664		14.3	%
Executive assurance	52,919		12.6	%	43,740		10.4	%	102,998		12.0	%	85,909		10.4	%
Construction	56,190		13.4	%	50,105		11.9	%	92,761		10.8	%	89,585		10.9	%
Casualty	27,217		6.5	%	31,161		7.4	%	53,756		6.2	%	59,704		7.2	%
National accounts casualty	7,582		1.8	%	9,416		2.2	%	31,809		3.7	%	22,471		2.7	%
Travel and accident	19,557		4.7	%	15,948		3.8	%	37,091		4.3	%	32,601		4.0	%
Surety	9,254		2.2	%	10,206		2.4	%	20,612		2.4	%	21,073		2.6	%
Healthcare	9,667		2.3	%	11,027		2.6	%	20,886		2.4	%	22,024		2.7	%
Other (1)	20,495		4.9	%	23,439		5.5	%	51,710		5.9	%	58,538		7.0	%
Total	$	419,318	100.0	%	$	421,501	100.0	%	$	860,904	100.0	%	$	824,265	100.0	%
Net premiums earned
Property, energy, marine and aviation	$	78,570	18.8	%	$	83,830	20.1	%	$	152,410	18.6	%	$	168,288	20.1	%
Programs	71,809		17.2	%	62,085		14.9	%	138,478		16.9	%	119,072		14.2	%
Professional liability	56,549		13.5	%	66,200		15.9	%	114,783		14.0	%	135,010		16.2	%
Executive assurance	52,288		12.5	%	44,496		10.7	%	100,104		12.2	%	88,904		10.6	%
Construction	43,364		10.4	%	39,225		9.4	%	83,784		10.2	%	81,942		9.8	%
Casualty	31,246		7.5	%	38,292		9.2	%	63,944		7.8	%	80,598		9.6	%
National accounts casualty	13,079		3.1	%	9,752		2.3	%	27,518		3.4	%	17,675		2.1	%
Travel and accident	18,198		4.4	%	15,994		3.8	%	31,354		3.8	%	31,479		3.8	%
Surety	12,141		2.9	%	12,057		2.9	%	25,532		3.1	%	25,556		3.1	%
Healthcare	10,830		2.6	%	13,137		3.2	%	21,758		2.7	%	26,582		3.2	%
Other (1)	29,380		7.1	%	31,517		7.6	%	58,886		7.3	%	60,579		7.3	%
Total	$	417,454	100.0	%	$	416,585	100.0	%	$	818,551	100.0	%	$	835,685	100.0	%
Net premiums written by client location
United States	$	339,375	80.9	%	$	330,154	78.3	%	$	656,419	76.2	%	$	609,409	73.9	%
Europe	48,126		11.5	%	56,657		13.4	%	140,522		16.3	%	142,957		17.3	%
Other	31,817		7.6	%	34,690		8.3	%	63,963		7.5	%	71,899		8.8	%
Total	$	419,318	100.0	%	$	421,501	100.0	%	$	860,904	100.0	%	$	824,265	100.0	%
Net premiums written by underwriting location
United States	$	315,466	75.2	%	$	318,227	75.5	%	$	636,295	73.9	%	$	605,436	73.5	%
Europe	78,305		18.7	%	79,854		18.9	%	183,618		21.3	%	181,865		22.1	%
Other	25,547		6.1	%	23,420		5.6	%	40,991		4.8	%	36,964		4.4	%
Total	$	419,318	100.0	%	$	421,501	100.0	%	$	860,904	100.0	%	$	824,265	100.0	%

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

10

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. dollars in thousands)

	Three Months Ended																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2009			2009			2008			2008			2008			2008			2007			2007			2007			2009			2008
Gross premiums written	$	636,645		$	638,409		$	564,570		$	678,338		$	621,663		$	626,348		$	591,679		$	722,688		$	684,725		$	1,275,054		$	1,248,011
Net premiums written	$	419,318		441,586			367,223			466,115			421,501			402,764			377,357			460,019			451,828			860,904			824,265
Net premiums earned	$	417,454		$	401,097		$	398,355		$	441,049		$	416,585		$	419,100		$	426,352		$	429,584		$	432,560		$	818,551		$	835,685
Fee income	795			870			811			872			880			882			1,326			1,036			1,276			1,665			1,762
Losses and loss adjustment expenses	$	(287,350	)	(270,015		)	(307,136		)	(337,456		)	(262,633		)	(287,303		)	(271,893		)	(273,896		)	(272,658		)	(557,365		)	(549,936		)
Acquisition expenses, net	$	(58,748	)	(57,623		)	(54,498		)	(62,752		)	(55,400		)	(51,889		)	(54,596		)	(52,880		)	(47,532		)	(116,371		)	(107,289		)
Other operating expenses	$	(70,836	)	(62,908		)	(71,819		)	(71,861		)	(71,566		)	(73,637		)	(68,677		)	(68,548		)	(70,269		)	(133,744		)	(145,203		)
Underwriting income (loss)	$	1,315		$	11,421		$	(34,287	)	$	(30,148	)	$	27,866		$	7,153		$	32,512		$	35,296		$	43,377		$	12,736		$	35,019
Underwriting Ratios
Loss ratio	68.8		%	67.3		%	77.1		%	76.5		%	63.0		%	68.6		%	63.8		%	63.8		%	63.0		%	68.1		%	65.8		%
Acquisition expense ratio (1)	13.9		%	14.1		%	13.5		%	14.0		%	13.1		%	12.2		%	12.6		%	12.1		%	10.8		%	14.0		%	12.6		%
Other operating expense ratio	17.0		%	15.7		%	18.0		%	16.3		%	17.2		%	17.6		%	16.1		%	16.0		%	16.2		%	16.3		%	17.4		%
Combined ratio	99.7		%	97.1		%	108.6		%	106.8		%	93.3		%	98.4		%	92.5		%	91.9		%	90.0		%	98.4		%	95.8		%
Net premiums written
Property, energy, marine and aviation	$	86,385		$	106,029		$	56,263		$	91,461		$	89,674		$	97,237		$	54,789		$	85,178		$	104,226		$	192,414		$	186,911
Programs	72,279			74,807			64,619			78,045			73,202			54,583			50,524			67,792			59,154			147,086			127,785
Professional liability	57,773			52,008			58,449			70,778			63,583			54,081			65,832			80,708			64,584			109,781			117,664
Executive assurance	52,919			50,079			54,028			53,665			43,740			42,169			46,511			46,845			47,904			102,998			85,909
Construction	56,190			36,571			31,989			43,916			50,105			39,480			41,133			40,615			47,672			92,761			89,585
Casualty	27,217			26,539			27,936			28,456			31,161			28,543			35,975			46,392			57,719			53,756			59,704
National accounts casualty	7,582			24,227			8,856			16,609			9,416			13,055			7,967			8,976			5,167			31,809			22,471
Travel and accident	19,557			17,534			12,436			16,949			15,948			16,653			15,715			14,109			17,019			37,091			32,601
Surety	9,254			11,358			12,704			16,599			10,206			10,867			11,114			13,233			12,968			20,612			21,073
Healthcare	9,667			11,219			11,161			11,411			11,027			10,997			13,892			15,952			12,383			20,886			22,024
Other (2)	20,495			31,215			28,782			38,226			23,439			35,099			33,905			40,219			23,032			51,710			58,538
Total	$	419,318		$	441,586		$	367,223		$	466,115		$	421,501		$	402,764		$	377,357		$	460,019		$	451,828		$	860,904		$	824,265
Net premiums earned
Property, energy, marine and aviation	$	78,570		$	73,840		$	76,586		$	88,903		$	83,830		$	84,458		$	79,574		$	81,233		$	92,284		$	152,410		$	168,288
Programs	71,809			66,669			66,462			71,576			62,085			56,987			58,249			59,518			57,036			138,478			119,072
Professional liability	56,549			58,234			58,195			62,987			66,200			68,810			67,281			67,256			65,804			114,783			135,010
Executive assurance	52,288			47,816			45,192			47,237			44,496			44,408			44,887			46,481			47,408			100,104			88,904
Construction	43,364			40,420			38,603			45,601			39,225			42,717			44,975			43,174			40,334			83,784			81,942
Casualty	31,246			32,698			35,251			37,351			38,292			42,306			47,458			50,248			52,673			63,944			80,598
National accounts casualty	13,079			14,439			10,924			13,503			9,752			7,923			7,995			7,258			5,838			27,518			17,675
Travel and accident	18,198			13,156			13,414			17,671			15,994			15,485			16,561			14,469			16,337			31,354			31,479
Surety	12,141			13,391			12,109			13,891			12,057			13,499			14,874			16,597			16,597			25,532			25,556
Healthcare	10,830			10,928			10,880			12,292			13,137			13,445			15,256			16,249			17,107			21,758			26,582
Other (2)	29,380			29,506			30,739			30,037			31,517			29,062			29,242			27,101			21,142			58,886			60,579
Total	$	417,454		$	401,097		$	398,355		$	441,049		$	416,585		$	419,100		$	426,352		$	429,584		$	432,560		$	818,551		$	835,685

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

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

11

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. dollars in thousands)

	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2009				2008				2009				2008
	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Net premiums written
Casualty (1)	$	72,490	26.4	%	$	86,974	32.9	%	$	171,922	26.2	%	$	192,961	28.7	%
Property excluding property catastrophe (2)	90,569		33.0	%	85,748		32.4	%	209,657		32.0	%	181,670		27.0	%
Property catastrophe	91,981		33.5	%	52,797		20.0	%	183,884		28.0	%	159,021		23.6	%
Other specialty	3,304		1.2	%	20,693		7.8	%	44,016		6.7	%	96,373		14.3	%
Marine and aviation	15,391		5.6	%	17,975		6.8	%	43,914		6.7	%	40,139		6.0	%
Other	801		0.3	%	430		0.1	%	2,420		0.4	%	3,031		0.4	%
Total	$	274,536	100.0	%	$	264,617	100.0	%	$	655,813	100.0	%	$	673,195	100.0	%
Net premiums earned
Casualty (1)	$	84,078	29.8	%	$	106,199	36.7	%	$	170,024	29.3	%	$	213,847	37.0	%
Property excluding property catastrophe (2)	87,304		31.0	%	67,445		23.3	%	183,535		31.6	%	130,786		22.6	%
Property catastrophe	58,763		20.9	%	51,496		17.8	%	117,364		20.2	%	101,777		17.6	%
Other specialty	25,912		9.2	%	36,058		12.5	%	59,362		10.2	%	74,542		12.9	%
Marine and aviation	25,063		8.9	%	26,946		9.3	%	49,893		8.6	%	54,377		9.4	%
Other	684		0.2	%	946		0.4	%	1,093		0.1	%	2,895		0.5	%
Total	$	281,804	100.0	%	$	289,090	100.0	%	$	581,271	100.0	%	$	578,224	100.0	%
Net premiums written
Pro rata	$	140,939	51.3	%	$	168,025	63.5	%	$	322,161	49.1	%	$	383,444	57.0	%
Excess of loss	133,597		48.7	%	96,592		36.5	%	333,652		50.9	%	289,751		43.0	%
Total	$	274,536	100.0	%	$	264,617	100.0	%	$	655,813	100.0	%	$	673,195	100.0	%
Net premiums earned
Pro rata	$	175,665	62.3	%	$	195,070	67.5	%	$	370,183	63.7	%	$	387,146	67.0	%
Excess of loss	106,139		37.7	%	94,020		32.5	%	211,088		36.3	%	191,078		33.0	%
Total	$	281,804	100.0	%	$	289,090	100.0	%	$	581,271	100.0	%	$	578,224	100.0	%
Net premiums written by client location
United States	$	193,190	70.4	%	$	153,106	57.9	%	$	423,158	64.5	%	$	370,285	55.0	%
Europe	39,782		14.5	%	58,372		22.1	%	141,283		21.5	%	202,292		30.0	%
Bermuda	32,665		11.9	%	40,784		15.4	%	70,232		10.7	%	74,844		11.1	%
Other	8,899		3.2	%	12,355		4.6	%	21,140		3.3	%	25,774		3.9	%
Total	$	274,536	100.0	%	$	264,617	100.0	%	$	655,813	100.0	%	$	673,195	100.0	%
Net premiums written by underwriting location
Bermuda	$	184,892	67.3	%	$	160,228	60.6	%	$	380,492	58.0	%	$	380,897	56.6	%
United States	79,152		28.8	%	92,629		35.0	%	225,345		34.4	%	247,109		36.7	%
Other	10,492		3.9	%	11,760		4.4	%	49,976		7.6	%	45,189		6.7	%
Total	$	274,536	100.0	%	$	264,617	100.0	%	$	655,813	100.0	%	$	673,195	100.0	%

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

(2) Includes facultative business.

12

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. dollars in thousands)

	Three Months Ended																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2009			2009			2008			2008			2008			2008			2007			2007			2007			2009			2008
Gross premiums written	$	278,389		$	390,129		$	266,165		$	228,593		$	273,318		$	433,827		$	245,371		$	286,272		$	427,348		$	668,518		$	707,145
Net premiums written	274,536			381,277			248,351			226,577			264,617			408,578			200,309			234,611			306,067			655,813			673,195
Net premiums earned	$	281,804		$	299,467		$	300,159		$	291,982		$	289,090		$	289,134		$	285,864		$	305,945		$	318,852		$	581,271		$	578,224
Fee income	22			55			645			72			358			186			540			574			815			77			544
Losses and loss adjustment expenses	(111,508		)	(130,527		)	(183,680		)	(211,430		)	(141,992		)	(117,114		)	(123,858		)	(128,799		)	(153,005		)	(242,035		)	(259,106		)
Acquisition expenses, net	(65,066		)	(68,835		)	(68,733		)	(70,661		)	(63,826		)	(62,750		)	(57,106		)	(78,544		)	(69,745		)	(133,901		)	(126,576		)
Other operating expenses	(16,943		)	(18,192		)	(21,761		)	(18,331		)	(20,091		)	(18,238		)	(25,126		)	(22,153		)	(19,999		)	(35,135		)	(38,329		)
Underwriting income (loss)	$	88,309		$	81,968		$	26,630		$	(8,368	)	$	63,539		$	91,218		$	80,314		$	77,023		$	76,918		$	170,277		$	154,757
Underwriting Ratios
Loss ratio	39.6		%	43.6		%	61.2		%	72.4		%	49.1		%	40.5		%	43.3		%	42.1		%	48.0		%	41.6		%	44.8		%
Acquisition expense ratio	23.1		%	23.0		%	22.9		%	24.2		%	22.1		%	21.7		%	20.0		%	25.7		%	21.9		%	23.0		%	21.9		%
Other operating expense ratio	6.0		%	6.1		%	7.2		%	6.3		%	6.9		%	6.3		%	8.8		%	7.2		%	6.3		%	6.0		%	6.6		%
Combined ratio	68.7		%	72.7		%	91.3		%	102.9		%	78.1		%	68.5		%	72.1		%	75.0		%	76.2		%	70.6		%	73.3		%
Net premiums written
Casualty (1)	$	72,490		$	99,432		$	71,740		$	82,497		$	86,974		$	105,987		$	107,909		$	103,718		$	110,108		$	171,922		$	192,961
Property excluding property catastrophe (2)	90,569			119,088			90,909			56,105			85,748			95,922			40,729			43,341			69,351			209,657			181,670
Property catastrophe	91,981			91,903			27,534			44,591			52,797			106,224			8,762			35,268			77,514			183,884			159,021
Other specialty	3,304			40,712			26,066			24,013			20,693			75,680			13,664			33,145			27,971			44,016			96,373
Marine and aviation	15,391			28,523			31,867			18,727			17,975			22,164			29,156			17,903			19,812			43,914			40,139
Other	801			1,619			235			644			430			2,601			89			1,236			1,311			2,420			3,031
Total	$	274,536		$	381,277		$	248,351		$	226,577		$	264,617		$	408,578		$	200,309		$	234,611		$	306,067		$	655,813		$	673,195
Net premiums earned
Casualty (1)	$	84,078		$	85,946		$	95,990		$	106,146		$	106,199		$	107,648		$	118,160		$	115,862		$	131,114		$	170,024		$	213,847
Property excluding property catastrophe (2)	87,304			96,231			78,778			68,670			67,445			63,341			63,676			62,699			64,734			183,535			130,786
Property catastrophe	58,763			58,601			60,975			57,015			51,496			50,281			44,951			53,703			38,152			117,364			101,777
Other specialty	25,912			33,450			36,255			36,388			36,058			38,484			30,741			49,232			52,582			59,362			74,542
Marine and aviation	25,063			24,830			26,877			22,395			26,946			27,431			25,950			21,889			30,021			49,893			54,377
Other	684			409			1,284			1,368			946			1,949			2,386			2,560			2,249			1,093			2,895
Total	$	281,804		$	299,467		$	300,159		$	291,982		$	289,090		$	289,134		$	285,864		$	305,945		$	318,852		$	581,271		$	578,224

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

(2) Includes facultative business.

13

Arch Capital Group Ltd. and Subsidiaries

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

(U.S. dollars in thousands)

	June 30,					March 31,					December 31,					September 30,					June 30,
	2009					2009					2008					2008					2008
Investable assets:
Fixed maturities available for sale, at market value	$	8,944,110		83	%	$	8,540,653		83	%	$	8,122,221		81	%	$	7,544,831		75	%	$	7,746,296		77	%
Fixed maturities pledged under securities lending agreements, at market value (1)	559,385			5	%	503,449			5	%	626,501			6	%	901,559			9	%	890,822			9	%
Total fixed maturities	9,503,495			88	%	9,044,102			88	%	8,748,722			87	%	8,446,390			84	%	8,637,118			86	%
Short-term investments available for sale, at market value	660,859			6	%	749,708			7	%	479,586			5	%	863,783			9	%	645,587			6	%
Short-term investments pledged under securities lending agreements, at market value (1)	—			0	%	56,242			1	%	101,564			1	%	3,987			0	%	—			0	%
Cash	336,693			3	%	244,037			2	%	251,739			3	%	239,097			2	%	246,544			2	%
Other investments
Fixed income mutual funds	49,505			0	%	32,912			0	%	39,858			0	%	60,051			1	%	122,236			1	%
International equity index funds	—			0	%	—			0	%	—			0	%	—			0	%	106,230			1	%
Privately held securities and other (Aeolus LP, etc.)	65,755			1	%	72,076			1	%	69,743			1	%	82,095			1	%	67,172			1	%
Investment funds accounted for using the equity method (2)	370,165			4	%	293,452			3	%	301,027			3	%	384,139			4	%	351,879			3	%
Securities transactions entered into but not settled at the balance sheet date	(239,736		)	(2	)%	(241,836		)	(2	)%	(18,236		)	0	%	(39,117		)	(1	)%	(10,845		)	0	%
Total investable assets (1)	$	10,746,736		100	%	$	10,250,693		100	%	$	9,974,003		100	%	$	10,040,425		100	%	$	10,165,921		100	%
Fixed income metrics (1):
Average effective duration (in years)	3.02					3.02					3.62					3.44					3.36
Average credit quality	AA+					AA+					AA+					AA+					AA+
Imbedded book yield (before investment expenses)	4.06		%			4.17		%			4.55		%			4.74		%			4.96		%
Credit quality distribution of total fixed maturities (1) (3):
AAA	$	7,163,333		75	%	$	7,146,184		79	%	$	6,756,503		77	%	$	6,202,446		73	%	$	6,110,053		71	%
AA	1,013,732			10	%	833,192			9	%	815,512			9	%	1,177,943			14	%	1,287,086			15	%
A	734,015			8	%	645,995			7	%	750,947			9	%	651,915			8	%	772,697			9	%
BBB	267,107			3	%	178,854			2	%	195,319			2	%	205,362			2	%	227,699			2	%
BB	65,242			1	%	54,094			1	%	52,349			1	%	46,283			1	%	48,083			1	%
B	178,196			2	%	126,670			1	%	126,688			1	%	109,544			1	%	123,650			1	%
Lower than B	29,446			0	%	11,825			0	%	9,549			0	%	8,868			0	%	9,738			0	%
Not rated	52,424			1	%	47,288			1	%	41,855			1	%	44,029			1	%	58,112			1	%
Total fixed maturities, at market value	$	9,503,495		100	%	$	9,044,102		100	%	$	8,748,722		100	%	$	8,446,390		100	%	$	8,637,118		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.

14

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 /
June 30, 2009	Market Value		Gains			Losses			Gains (Losses)			Cost		Amortized Cost
Corporate bonds	$	2,885,694	$	65,137		$	(42,771	)	$	22,366		$	2,863,328	100.8	%
Mortgage backed securities	1,622,276		21,324			(104,187		)	(82,863		)	1,705,139		95.1	%
U.S. government and government agencies	1,289,603		20,917			(12,888		)	8,029			1,281,574		100.6	%
Commercial mortgage backed securities	1,302,208		26,455			(25,932		)	523			1,301,685		100.0	%
Asset backed securities	805,921		17,483			(21,747		)	(4,264		)	810,185		99.5	%
Municipal bonds	858,065		29,595			(2,796		)	26,799			831,266		103.2	%
Non-U.S. government securities	739,728		46,625			(8,222		)	38,403			701,325		105.5	%
Total	$	9,503,495	$	227,536		$	(218,543	)	$	8,993		$	9,494,502	100.1	%
Corporate Exposures:
The following table summarizes the Company’s corporate bonds by major sector at June 30, 2009:
	Estimated Market Value
			% of Asset			% of Investable
	Total		Class			Assets
Sector:
Financials	$	924,592	32.0		%	8.6		%
Industrials	764,061		26.5		%	7.1		%
Foreign agencies	562,675		19.5		%	5.2		%
Utilities	77,289		2.7		%	0.7		%
All other (1)	557,077		19.3		%	5.2		%
Total	$	2,885,694	100.0		%	26.8		%

(1) Includes sovereign securities, supernational securities and other.
The following table summarizes the Company’s corporate bonds by credit quality distribution at June 30, 2009:
	Estimated Market Value
			% of Asset			% of Investable
	Total		Class			Assets
Rating:
AAA	$	1,289,387	44.7		%	12.0		%
AA	464,724		16.1		%	4.3		%
A	633,503		22.0		%	5.9		%
BBB	234,622		8.1		%	2.2		%
BB	42,782		1.5		%	0.4		%
B	153,142		5.3		%	1.4		%
Lower than B	15,110		0.5		%	0.1		%
Not rated	52,424		1.8		%	0.5		%
Total	$	2,885,694	100.0		%	26.9		%
The following table summarizes the Company’s top ten exposures to fixed income corporate issuers at June 30, 2009:
	Estimated Market Value
	Government		Not
	Guaranteed (1)		Guaranteed			Total
JPMorgan Chase & Co.	$	84,879	$	76,587		$	161,466
Bank of America Corp.	58,955		44,544			103,499
Citigroup Inc.	53,096		37,641			90,737
GMAC LLC	79,840		—			79,840
Societe Financement de l’Econ.	65,310		—			65,310
General Electric Capital Corp.	15,164		46,892			62,056
Anz National (Int’l) Limited	57,217		—			57,217
Morgan Stanley	38,230		15,176			53,406
Verizon Communications Inc.	—		52,361			52,361
Japan Bank for Int’l Cooperation	52,214		—			52,214
Total	$	504,905	$	273,201		$	778,106

(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. Societe Financement de l’Economie, Anz National (Int’l) Limited and Japan Bank for Int’l Cooperation are guaranteed by foreign governments.

15

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 June 30, 2009, excluding amounts guaranteed by the U.S. government:

				Average	Estimated Market Value
	Issuance	Amortized		Credit			% of Amortized		% of Investable
	Year	Cost		Quality	Total		Cost		Assets
Non-agency MBS:	2002	$	4,842	AAA	$	4,520	93.3	%	0.0	%
	2003	4,111		AAA	3,665		89.2	%	0.0	%
	2004	36,070		AA+	28,661		79.5	%	0.3	%
	2005	96,839		AA	64,227		66.3	%	0.6	%
	2006	72,390		A+	50,672		70.0	%	0.5	%
	2007	102,402		BBB	73,956		72.2	%	0.7	%
	2008	27,883		AAA	23,924		85.8	%	0.2	%
	2009	45,489		AAA	45,413		99.8	%	0.4	%
Total non-agency MBS		$	390,026	AA-	$	295,038	75.6	%	2.7	%
Non-agency CMBS:	1998	$	3,761	AAA	$	3,402	90.5	%	0.0	%
	1999	$	65,440	AAA	$	64,910	99.2	%	0.6	%
	2000	$	128,617	AAA	$	130,574	101.5	%	1.2	%
	2001	$	113,398	AAA	$	116,484	102.7	%	1.1	%
	2002	$	66,656	AAA	$	66,916	100.4	%	0.6	%
	2003	$	93,209	AAA	$	93,008	99.8	%	0.9	%
	2004	$	75,045	AAA	$	71,211	94.9	%	0.7	%
	2005	$	85,890	AAA	$	78,248	91.1	%	0.7	%
	2006	$	78,456	AAA	$	75,906	96.7	%	0.7	%
	2007	$	39,214	AAA	$	36,782	93.8	%	0.3	%
Total non-agency CMBS		$	749,686	AAA	$	737,441	98.4	%	6.9	%
							Non-Agency		Non-Agency
Additional Statistics							MBS		CMBS (1)
Wtd. average loan age (months)							41		82
Wtd. average life (months) (2)							55		23
Wtd. average loan-to-value % (3)							70.0	%	63.0	%
Total delinquencies (4)							13.9	%	2.1	%
Current credit support % (5)							19.2	%	29.7	%

(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 June 30, 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 June 30, 2009:

			Average	Estimated Market Value
	Amortized		Credit			% of Amortized		% of Investable
	Cost		Quality	Total		Cost		Assets
Sector:
Credit cards (1)	$	339,427	AAA	$	346,888	102.2	%	3.2	%
Autos (2)	218,880		AAA	219,516		100.3	%	2.0	%
Rate reduction bonds (3)	139,666		AAA	143,667		102.9	%	1.3	%
Student loans (4)	40,617		AAA	40,246		99.1	%	0.4	%
Equipment (5)	29,536		AAA	29,828		101.0	%	0.3	%
Other	8,625		AAA	7,260		84.2	%	0.1	%
	776,751		AAA	787,405		101.4	%	7.3	%
Home equity (6)	$	23,409	AAA	$	14,792	63.2	%	0.1	%
	6,126		AA	2,091		34.1	%	0.0	%
	405		A	120		29.6	%	0.0	%
	921		B	619		67.2	%	0.0	%
	2,367		CCC	836		35.3	%	0.0	%
	206		D	58		28.2	%	0.0	%
	33,434		AA+	18,516		55.4	%	0.2	%
Total ABS	$	810,185	AAA	$	805,921	99.5	%	7.5	%

The effective duration of the total ABS was 1.0 years at June 30, 2009.

(1)	The weighted average credit support % on credit cards is 13.6%.
(2)	The weighted average credit support % on autos is 17.6%.
(3)	The weighted average credit support % on rate reduction bonds is 1.5%.
(4)	The weighted average credit support % on student loans is 5.3%.
(5)	The weighted average credit support % on equipment is 6.2%.
(6)	The weighted average credit support % on home equity is 32.1%.
	The Company’s investment portfolio included $58.4 million par in sub-prime securities at June 30, 2009, with an estimated market value of $19.8 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 $24.2 million estimated market value of sub-prime securities with an average credit quality of “AA+” from Standard & Poors and “Ba3” from Moody’s.

16

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 June 30, 2009:

	Carrying			% of Asset		% of Investable
	Value			Class		Assets
Investment funds accounted for using the equity method	$	253,556		58.8	%	2.4	%
Corporate bonds, at market value	114,845			26.6	%	1.1	%
Other investments, at market value	62,990			14.6	%	0.6	%
Total	$	431,391		100.0	%	4.0	%
The following table summarizes the Company’s bank loan funds by currency (translated into U.S. Dollars) at June 30, 2009:
	Carrying			% of Asset		% of Investable
	Value			Class		Assets
U.S.-denominated	$	303,160		70.3	%	2.8	%
Euro-denominated	128,231			29.7	%	1.2	%
Total	$	431,391		100.0	%	4.0	%
The following table summarizes the Company’s bank loan funds by major sector at June 30, 2009:
	Carrying			% of Asset		% of Investable
	Value			Class		Assets
Sector:
Healthcare, education and childcare	$	58,387		13.5	%	0.5	%
Printing and publishing	43,712			10.1	%	0.4	%
Broadcasting and entertainment	42,268			9.8	%	0.4	%
Diversified / conglomerate service	42,216			9.8	%	0.4	%
Chemicals, plastics and rubber	27,138			6.3	%	0.3	%
Utilities	26,113			6.1	%	0.2	%
All other	191,557			44.4	%	1.8	%
Total	$	431,391		100.0	%	4.0	%
Additional Statistics:
Weighted average rating factor (Moody’s)	B1
Weighted average carrying value as % of par value	73.8		%
Estimated % of “CCC” and lower rated holdings	6.7		%

17

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 19 of this supplement.

18

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																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2009			2009			2008 (1)			2008			2008			2008			2007			2007			2007			2009			2008
After-tax operating income available to common shareholders	$	163,041		$	169,001		$	85,934		$	64,094		$	185,375		$	201,983		$	221,520		$	214,582		$	205,626		$	332,042		$	387,358
Net realized gains (losses), net of tax	(11,243		)	(9,111		)	(30,836		)	(21,904		)	(2,174		)	45,782			37,413			16,577			(2,347		)	(20,354		)	43,608
Net impairment losses recognized in earnings, net of tax	(20,786		)	(36,134		)	(75,169		)	(82,514		)	(10,694		)	(12,646		)	(19,202		)	(2,698		)	(444		)	(56,920		)	(23,340		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	75,890			(9,581		)	(174,147		)	(1,731		)	19,583			(22,313		)	(906		)	(5,283		)	3,376			66,309			(2,730		)
Net foreign exchange gains (losses), net of tax	(54,773		)	25,694			51,246			68,445			192			(23,384		)	(4,416		)	(23,433		)	(6,817		)	(29,079		)	(23,192		)
Net income (loss) available to common shareholders	$	152,129		$	139,869		$	(142,972	)	$	26,390		$	192,282		$	189,422		$	234,409		$	199,745		$	199,394		$	291,998		$	381,704
Diluted per common share results:
After-tax operating income available to common shareholders	$	2.60		$	2.70		$	1.43		$	1.02		$	2.82		$	2.97		$	3.12		$	2.96		$	2.73		$	5.31		$	5.79
Net realized gains (losses), net of tax	(0.18		)	(0.14		)	(0.51		)	(0.35		)	(0.03		)	0.67			0.53			0.23			(0.03		)	(0.33		)	0.65
Net impairment losses recognized in earnings, net of tax	(0.33		)	(0.58		)	(1.25		)	(1.31		)	(0.17		)	(0.19		)	(0.27		)	(0.04		)	(0.01		)	(0.91		)	(0.35		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	1.21			(0.15		)	(2.90		)	(0.03		)	0.30			(0.33		)	(0.01		)	(0.07		)	0.05			1.06			(0.04		)
Net foreign exchange gains (losses), net of tax	(0.87		)	0.41			0.85			1.09			0.00			(0.34		)	(0.06		)	(0.32		)	(0.09		)	(0.46		)	(0.34		)
Net income (loss) available to common shareholders	$	2.43		$	2.24		$	(2.38	)	$	0.42		$	2.92		$	2.78		$	3.31		$	2.76		$	2.65		$	4.67		$	5.71
Weighted average common shares and common share equivalents outstanding — diluted	62,626,317			62,559,969			60,048,258			62,830,910			65,748,119			68,019,413			70,901,361			72,378,940			75,254,846			62,589,856			66,886,972

	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.

19

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																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2009			2009			2008			2008			2008			2008			2007			2007			2007			2009			2008
After-tax operating income available to common shareholders	$	163,041		$	169,001		$	85,934		$	64,094		$	185,375		$	201,983		$	221,520		$	214,582		$	205,626		$	332,042		$	387,358
Annualized after-tax operating income available to common shareholders (a)	$	652,164		$	676,004		$	343,736		$	256,376		$	741,500		$	807,932		$	886,080		$	858,328		$	822,504		$	664,084		$	774,716
Beginning 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		$	3,107,965		$	3,710,811
Ending common shareholders’ equity	$	3,704,968		$	3,305,396		$	3,107,965		$	3,191,710		$	3,561,233		$	3,679,544		$	3,710,811		$	3,549,795		$	3,379,067		3,704,968			3,561,233
Average common shareholders’ equity (b)	$	3,505,182		$	3,206,681		$	3,149,838		$	3,376,472		$	3,620,389		$	3,695,178		$	3,630,303		$	3,464,431		$	3,418,708		$	3,406,467		$	3,636,022
Annualized operating return on average common equity (a)/(b)	18.6		%	21.1		%	10.9		%	7.6		%	20.5		%	21.9		%	24.4		%	24.8		%	24.1		%	19.5		%	21.3		%

20

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:

	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,
	2009			2009			2008			2008			2008			2008			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			100,000			—			—			—			—
Total debt	$	400,000		$	400,000		$	400,000		$	400,000		$	400,000		$	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)	3,704,968			3,305,396			3,107,965			3,191,710			3,561,233			3,679,544			3,710,811			3,549,795			3,379,067
Total shareholders’ equity	$	4,029,968		$	3,630,396		$	3,432,965		$	3,516,710		$	3,886,233		$	4,004,544		$	4,035,811		$	3,874,795		$	3,704,067
Total capital	$	4,429,968		$	4,030,396		$	3,832,965		$	3,916,710		$	4,286,233		$	4,304,544		$	4,335,811		$	4,174,795		$	4,004,067
Common shares outstanding (3) (b)	60,980,806			60,532,222			60,511,974			60,173,489			61,943,100			64,649,618			67,318,466			69,141,795			71,273,285
Book value per common share (a)/(b)	$	60.76		$	54.61		$	51.36		$	53.04		$	57.49		$	56.92		$	55.12		$	51.34		$	47.41
Leverage ratios:
Senior notes/total capital	6.8		%	7.4		%	7.8		%	7.7		%	7.0		%	7.0		%	6.9		%	7.2		%	7.5		%
Revolving credit agreement borrowings/total capital	2.3		%	2.5		%	2.6		%	2.6		%	2.3		%	0.0		%	0.0		%	0.0		%	0.0		%
Debt/total capital	9.0		%	9.9		%	10.4		%	10.2		%	9.3		%	7.0		%	6.9		%	7.2		%	7.5		%
Preferred/total capital	7.3		%	8.1		%	8.5		%	8.3		%	7.6		%	7.6		%	7.5		%	7.8		%	8.1		%
Debt and preferred/total capital	16.4		%	18.0		%	18.9		%	18.5		%	16.9		%	14.5		%	14.4		%	15.0		%	15.6		%

(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.

21